The ITO, WARD-2(3), VIJAYAWADA, Vijayawada V. Sri Madireddy Lakshmana Swamy, Vijayawada

ITA 394/VIZ/2012

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9938 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 19-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; TDS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 40(a)(ia); 194C; 143(1); 40a(ia)

Judgement Text

ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.394/VIZAG/2012 ( / ASSESSMENT YEAR: 2008-09) ITO, WARD - 2(3), VIJAYAWADA VS. MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA [PAN: ACSPL0418P ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M.N. MURTHY NAIK,DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM,AR / DATE OF HEARING : 25.07.2016 / DATE OF PRONOUNCEMENT : 12.08.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A) , VIJAYAWADA DATED 17.5.2012 FOR THE ASSESSM ENT YEAR 2008-09. 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS IN THE T RANSPORT BUSINESS FILED RETURN OF INCOME DECLARING TOTAL INCOME OF ` 3,78,540/-. THE RETURN ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 2 FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'), THEREAFTER ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. IN THE ASSESSMENT ORDER, THE A.O. HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED TRANSPORT CH ARGES OF ` 1,33,62,067/- AND CALLED THE ASSESSEE TO FURNISH TH E DETAILS OF LORRYWISE FREIGHT CHARGES PAID. ACCORDINGLY, ASSESSEE HAS FI LED THE DETAILS OF THE VEHICLES, WHICH HE USED FOR THE PURPOSE OF BUSINESS . THE A.O. AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE AND VER IFYING THE SAME, HE CAME TO A CONCLUSION THAT SOME OF THE VEHICLE NUMBE RS ARE NOT IN EXISTENCE AS PER THE ROAD TRANSPORT AUTHORITIES. A CCORDINGLY, HE DISALLOWED ENTIRE EXPENDITURE OF ` 1,33,62,067/-. ON APPEAL, THE LD. CIT(A) HAS CONSIDERED THE JUDGEMENT OF SPECIAL BENC H IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT IN ITA NO.47 7/VIZAG/2008 DATED 29.3.2012 AND HAS HELD THAT SECTION 40(A)(IA) OF TH E ACT HAS NO APPLICATION. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: I HAVE CAREFULLY CONSIDERED THE ABOVE WRITTEN SUBM ISSIONS. IN SO FAR AS THE ISSUE RELATING TO DISALLOWANCE U/S.40(A)(IA) OF INCOME TAX ACT, 1961, FOR NON-DEDUCTION OF TOS U/S.194C OF THE ACT IS CON CERNED, THE JURISDICTIONAL SPECIAL BENCH OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM, HAD PASSED A MAJORITY JUDGEMENT IN T HE CASE OF MERILYN SHIPPING AND TRANSPORTS, VISAKHAPATNAM VS. ADDI. CO MMISSIONER OF INCOME TAX, RANGE-1, VISAKHAPATNAM IN ITA NO477NIZ./ 2008, DATED 29TH MARCH, 2012, WHEREIN IT WAS DECIDED BY THE HON'BLE ITAT THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, ARE NOT APPLICABLE IN RESPECT OF AMOUNTS 'PAID' AND ARE APPLICABLE ONLY IN RESPECT O F AMOUNTS 'PAYABLE' AS AT THE END OF THE FINANCIAL YEAR. RESPECTFULLY FOLL OWING THE DECISION OF THE ITAT, VISAKHAPATNAM BENCH, I HOLD THAT THE PROVISION S OF SECTION 40(A)(IA) ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 3 OF THE ACT ARE NOT APPLICABLE, IN SO FAR AS THE FRE IGHT CHARGES 'PAID' BY THE APPELLANT ARE CONCERNED. 3. SO FAR AS EXPENDITURE CLAIMED BY THE ASSESSEE IS CONCERNED, THE LD. CIT(A) WAS OF THE OPINION THAT THOUGH SOME OF T HE VEHICLE NUMBERS GIVEN BY THE ASSESSEE ARE NOT MATCHING WITH THE TRANSPORT AUTHORITIES, THEREFORE, IT IS NOT POSSIBLE TO ASSES S THE INCOME OF THE ASSESSEE. ACCORDINGLY, HE HAS ESTIMATED INCOME AT 10% OF THE GROSS RECEIPTS FROM THE TRANSPORT BUSINESS AFTER ALLOWING THE DEPRECIATION CLAIMED, IF ANY, AFTER DUE VERIFICATION. THE RELEV ANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 8. HOWEVER, THE FACT REMAINS THAT THE APPELLANT HA D CLAIMED EXPENDITURE UNDER THE HEAD FREIGHT CHARGES, IN RESP ECT OF NON-EXISTENT VEHICLES OR NON-GOODS TRANSPORT VEHICLES SUCH AS AU TORICKSHAWS, MOTOR CARS, TRACTORS ETC., AS FOUND BY THE ASSESSING OFFI CER ON VERIFICATION OF THE VEHICLE NUMBERS PROVIDED BY THE APPELLANT AND ON CO MPARISON OF THE SAME WITH THE DATA AVAILABLE WITH THE A.P. STATE TR ANSPORT AUTHORITIES. THEREFORE, THE ASSESSING OFFICER IS JUSTIFIED IN TR EATING THE EXPENDITURE AS UNPROVED AND DISALLOWABLE. IN THIS CONTEXT, IT IS TO REITERATE THAT BUSINESS EXPENDITURE CAN BE ALLOWED ONLY WHEN IT IS SPECIFIC ALLY PROVIDED UNDER VARIOUS PROVISIONS OF THE ACT OR IS ALLOWABLE U/337 OF THE ACT, BEING IN THE NATURE OF EXPENDITURE LAID OUT OR EXPENDED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS FOUND ON DETAILED ENQUIRIES THAT THE FR EIGHT CHARGES ARE NOT GENUINE, AS STATED ABOVE. HOWEVER, IT IS ALSO TO BE CONSIDERED THAT NO INCOME CAN BE EARNED NORMALLY, UNLESS THERE IS COMM ENSURATE EXPENDITURE. IN THE CASE OF TRANSPORT BUSINESS, THE HON'BLE ITAT, HYDERABAD 'A' BENCH IN THE CASE OF MUNUMURI KRISHNA MURTHY VS. ACIT, CIRCLE-I, VIJAYAWADA IN ITA NO.898/L-FYD/1 995 DATE D 4/12/1996 HAD DIRECTED THAT INCOME FROM LORRY PLYING BE ESTIMATED AT 10% OF THE RECEIPTS SUBJECT TO ALLOWANCE OF DEPRECIATION. FOLLOWING THE PERCENTAGE ADOPTED IN THE ABOVE CASE BY THE HONBLE ITAT, HYDERABAD, THE JURISDICTIONAL ITAT, VISAKHAPATNAM BENCH IN THE CASE OF ITO, WARD-1(3), VIJAYAWADA VS. M/S- SRI PADMAVATHI TRANSPORTS, JAGGAIAHPET IN ITA NO.42 N/2005, DATED 04.06.2009 DIRECTED THE ASSESSING OFFICER TO ESTIMA TE THE INCOME FROM TRUCK PLYING AT 10% OF THE RECEIPTS SUBJECT TO ALLO WANCE OF DEPRECIATION. ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 4 RESPECTFULLY FOLLOWING THE DECISION OF BOTH THE TRI BUNALS AS STATED ABOVE, I AM OF THE VIEW THAT THE PROFIT FROM TRANSPORT BUSIN ESS OF THE APPELLANT SHOULD BE ESTIMATED AT 10% OF THE GROSS REVENUE, SU BJECT TO ALLOWANCE OF DEPRECIATION, WHICH WOULD MEET THE ENDS OF JUSTICE. HENCE, THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INCOME OF THE APPELLANT AT 10% OF THE GROSS RECEIPTS FROM TRANSPORT BUSINESS AND ALLOW DE PRECIATION CLAIM, IF ANY, AFTER DUE VERIFICATION. SINCE THE INCOME IS ES TIMATED ON GROSS RECEIPTS, THERE IS NO NEED TO FURTHER DISALLOW EXPE NDITURE WITH REGARD TO SELF-MADE VOUCHERS PERTAINING TO LOADING AND UNLOAD ING, TRAVELLING & CONVEYANCE AND TELEPHONE CHARGES. 4. ON BEING AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. D.R. HAS SUBMITTED THAT THE ESTIMATION O F INCOME MADE BY THE A.O. AT 10% OF GROSS PROFIT IS NOT CORRECT. HE FURTHER SUBMITTED THAT THE LD. CIT(A) HAS DIRECTED THE A.O. TO ALLOW THE DEPRECIATION, IF ANY. THE ASSESSEE HAS NOT RAISED THE CLAIM OF DEPRECIATION BEFORE THE A.O., THEREFORE, THE LD. CI T(A) OUGHT NOT TO HAVE BEEN CONSIDERED THE SAME. 6. ON THE OTHER HAND, THE LD. A.R. HAS SUPPORTED TH E ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. SO FAR AS NON-DEDUCTION OF TDS U/S 194C OF T HE ACT IS CONCERNED, THE LD. CIT(A) BY FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF M/S. MERILYN SHIPPING & TRANSP ORTS (SUPRA) HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE AC T HAS NO APPLICATION. ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 5 RECENTLY THE COORDINATE BENCH OF THE TRIBUNAL HAS C ONSIDERED THE SIMILAR ISSUE IN ITA NO.411 & 482/VIZAG/2012 IN THE CASE OF KANTIPUDI STEELS PVT. LTD., RAJAHMUNDRY DATED 18.12.2015 AS F OLLOWS: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, THE AR OF TH E ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVER ED BY THE DECISION OF SPECIAL BENCH, IN THE CASE OF M/S. MERILYN SHIPPING & TRANS PORTS (SUPRA). WE HAVE GONE THROUGH THE SPECIAL BENCH DECISION IN THE LIGH T OF THE FACTS OF THE PRESENT CASE AND COME TO THE CONCLUSION THAT THE SP ECIAL BENCH OF ITAT, VISAKHAPATNAM IN THE ABOVE CASE HELD THE ISSUE IN F AVOUR OF THE ASSESSEE. THE RELEVANT PORTION IS REPRODUCED AS UNDER: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 200 5-06. A REFERENCE U/S 255(3) OF THE INCOME-TAX ACT HAS BEEN MADE TO THE HONBLE PRESIDENT TO CONSTITUTE A SPECIAL BENCH TO ADJUDICATE AN ISSUE WHETHER SECTION 40A(IA) OF THE INCOME TAX ACT CAN BE INVOKED ONLY TO DISALLOW EXPENDITURE OF THE NATURE REFERRED TO THEREIN WHICH IS SHOWN AS PAYABLE AS ON THE DATE OF BALANCE SHEET OR IT CAN BE INVOKED ALSO TO DISALLOW SUCH EXPENDITURE WHICH BEC OMES PAYABLE AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR AND W AS ACTUALLY PAID WITHIN THE PREVIOUS YEAR? CONSEQUENTLY, SPECIAL BEN CH WAS CONSTITUTED AND THE AFORESAID QUESTION WAS ANSWERED IN FAVOUR OF THE ASSESSEE. ACCORDING TO THE MAJORITY VIEW, IT WA S HELD THAT SECTION 40A(IA) OF THE ACT IS APPLICABLE ONLY TO EX PENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH HAVE ALREADY BEEN PAID D URING THE YEAR WITHOUT DEDUCTING TAX AT SOURCE. 2. ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO T HE DISALLOWANCE OF PAYMENTS OF RS. 38,75,000/- TOWARDS BROKERAGE AND RS.2,43,253/- TOWARDS COMMISSION ON NON-DEDUCTION OF TDS BY INVOK ING THE PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE ASSES SEES CASE WAS THAT THE ENTIRE BROKERAGE IN COMMISSION PAYMENTS WE RE ACTUALLY PAID DURING THE FINANCIAL YEAR EXCEPTING AN AMOUNT OF RS. 1,78,025/- WHICH REMAINED PAYABLE AS ON 31.3.2005. THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE REVENUE RESULTI NG IN AN APPEAL BEFORE US BY THE ASSESSEE. FOLLOWING THE MAJORITY V IEW OF THE SPECIAL BENCH, THE PROVISIONS OF SECTION 40A(IA) CA NNOT BE INVOKED WITH RESPECT TO THE AFORESAID PAYMENTS WHICH WERE A CTUALLY PAID DURING THE FINANCIAL YEAR BUT IT CAN BE INVOKED WIT H RESPECT TO RS.1,78,025/- WHICH REMAINED PAYABLE AS ON 31.3.200 5. THEREFORE, ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 6 THE DISALLOWANCE IS REDUCED TO RS.1,78,025/- ONLY. ACCORDINGLY, THE ORDER OF THE CIT(A) IS MODIFIED. 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 5. THE ITAT, VISAKHAPATNAM BENCH IN THE CASE OF DCI T VS. VEERA ASSOCIATES (2015) 55 TAXMAN.COM UNDER SIMILAR CIRCU MSTANCES HELD THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER: IN VIEW OF THE AFORESAID, CONTENTION OF THE DEPARTM ENT THAT THE RATIO LAID DOWN BY THE ITAT VISAKHAPATNAM SPECIAL B ENCH IN CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) IS NOT APP LICABLE, CANNOT BE ACCEPTED. SINCE THE DEPARTMENT HAS NOT CONTROVE RTED THE FACT THAT THE ENTIRE AMOUNT OF RS.5,98,13,357 WAS PAID B Y THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR AND NOTHING REMAI NED PAYABLE ON THE LAST DAY OF THE PREVIOUS YEAR, IN OUR VIEW, AS PER THE RATIO LAID DOWN IN CASE OF MERILYN SHIPPING & TRANSPORTS (SUPR A), NO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE. ACCORDINGLY, THE CIT(A)S ORDER ON THIS ISSUE DESERVES TO BE UPH ELD. 8. SO FAR AS THE CLAIM OF EXPENDITURE IS CONCERNED, THE ASSESSEE HAS FILED DETAILS OF THE VEHICLES WHICH HE USED FOR HIS BUSINESS. ACCORDING TO THE A.O., SOME OF THE VEHICLE NUMBERS ARE NOT IN EXISTENCE AS PER THE TRANSPORT AUTHORITIES AND SOME OF THE VEHICLES ARE NOT AT ALL AVAILABLE IN THE INTERNET AS PER THE INVESTIGATION MADE BY THE A.O. THEREFORE, HE HAS DISALLOWED THE ENTIR E CLAIM OF THE ASSESSEE. FROM THE PROFIT & LOSS ACCOUNT, THE CONT RACT RECEIPTS RECEIVED BY THE ASSESSEE ARE OF ` 1,45,19,776/- AND ASSESSEE HAS INCURRED ABOUT ` 3,78,600/- TOWARDS STAFF SALARIES AND HE HAS INCURRED OTHER EXPENDITURE ALSO. THE A.O. HAS NOT DOUBTED THE GENUINENESS OF THE BUSINESS OF THE ASSESSEE. IT IS SUBMITTED BEFORE US THAT THE ASSESSEE IS AN AGENT OF HINDUSTAN COCAC OLA COMPANY AND ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 7 SUPPLYING THE COCACOLA BOTTLES TO RETAIL SHOP OWNER S. THIS FACT IS NOT DISPUTED BY THE A.O. ONCE THE ASSESSEE IS HAVING R ECEIPTS OF ` 1,45,19,776/- WITHOUT INCURRING EXPENDITURE, HE SHO ULD NOT HAVE DID THE BUSINESS TO RECEIVE SUCH AN AMOUNT. THOUGH THE ASSESSEE IS NOT ABLE TO PROVIDE CORRECT VEHICLE NUMBERS AND THE A.O . IS NOT JUSTIFIED IN DISALLOWING THE ENTIRE EXPENDITURE, WE ARE NOT A BLE TO UNDERSTAND THE STAND OF THE A.O. THAT SOME OF THE VEHICLE NUMB ERS ARE MISMATCHING DUE TO WHICH HE DISALLOWED ENTIRE EXPEN DITURE HAVING ACCEPTED THE CONTRACT RECEIPTS. WE FIND THAT THE A .O. IS NOT CORRECT IN DISALLOWING THE EXPENDITURE INCURRED BY THE ASSESSE E. LD. CIT(A) AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCE S OF THE CASE, HE IS OF THE OPINION THAT 10% OF THE GROSS REVENUE IS THE INCOME OF THE ASSESSEE SUBJECT TO ALLOWANCE OF DEPRECIATION AND A CCORDINGLY DIRECTED THE A.O. TO ALLOW THE DEPRECIATION, IF ANY CLAIMED. SO FAR AS ESTIMATION OF INCOME AT 10% IS CONCERNED, THE LD. C IT(A) BY CONSIDERING SOME OF THE JUDGEMENTS OF THE TRIBUNAL PARTICULARLY IN THE CASE OF ITO WARD(1) VS. SRI PADMAVATHI TRANSPOR TS, JAGGAIAHPET IN ITA NO.42/VIZAG/2005 DATED 4.6.2009, ESTIMATED T HE DISALLOWANCE AT 10%. WE FIND THAT IN THIS LINE OF BUSINESS, EST IMATION OF 10% PROFIT ON GROSS REVENUE IS REASONABLE AND THEREFORE , NO INTERFERENCE IS CALLED FOR. SO FAR AS DEPRECIATION IS CONCERNED , THE ASSESSEE HAS ITA NO.394/VIZAG/2012 MADIREDDY LAKSHMANA SWAMY, VIJAYAWADA 8 NOT CLAIMED THE SAME IN HIS ORIGINAL RETURN OF INCO ME. THEREFORE, LD. CIT(A) DIRECTING THE A.O. TO CONSIDER DEPRECIATION AGAIN IS NOT CORRECT. THUS, WE MODIFIED THE ORDER PASSED BY THE LD. CIT(A) AND DIRECT THE A.O. TO CALCULATE THE PROFIT OF THE ASSE SSEE AT 10% ON GROSS REVENUE. ORDERED ACCORDINGLY. THIS GROUND O F APPEAL RAISED BY THE REVENUE IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12 TH AUG16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 12.08.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2(3), VIJAYAWADA 2. / THE RESPONDENT SRI MADIREDDY LAKSHMANA SWAMY, PROP ANUSHA TRANSPORTERS, 48-11-2/14A, FF-1, SRI SAI VENKATA VI JAYA APTS., MAHITA PUBLIC SCHOOL ROAD, CURRENCY NAGAR, VIJAYAWADAS 3. ) / THE CIT, VIJAYAWADA 4. ) ( ) / THE CIT(A),VIJAYAWADA 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM