Sai Construction , Kanpur V. Asstt. Commissioner of Income Tax-III, Kanpur

ITA 4/LKW/2013

• Counselvise Citation: 423714 RSA 2013
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 02-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: P K KAPOOR
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 40A(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.04 /LKW/201 3 A.Y.: 2006 - 07 M/S SAI CONSTRUCTION, 710 - 711, EWS, BARRA KANPUR. PAN:ABBFS0617F VS. A.C.I.T. - III, KANPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P. K. KAPOOR, C. A. RESPONDENT BY SHRI ALOK MITRA, D.R. DATE OF HEARING 23/10/2013 DATE OF PRONOUNCEMENT 1 3 /1 1 /2013 O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) - II, KANPUR DATED 23/10/2010 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE LEARNED CIT (A) WAS WRONG IN LAW AND ON FACTS IN DECIDING THE APPEAL EX - PARTE WITHOUT AFFORDING PROPER & REASONABLE OPPORTUNITY OF BEING HEARD. 2. THE LEARNED C1T(A) WAS UNJUSTIFIED IN CONFIRMING THE ASSESSMENT MADE BY ASSESSING OFFICER WITHOUT PROPERLY CONSIDERING THE FACTS OF THE CASE & MATERIAL AVAILABLE ON RECORD. [ 2 ] 3. THE LEARNED CIT (A) WAS ALSO UNJUSTIFIED IN CONFIRMING THE NET PROFIT RATE OF 7% & IN NOT ALLOWING THE FOLLOWING ALLOWABLE DEDUCTIONS WHILE APPLYING THE NET PROFIT RATE: - A) INTEREST TO PARTNERS 117223/ - B) REMUNERATION TO PARTNERS 571579/ - C) DEPRECIATION 168275/ - 4. THE LEARNED CIT (A) HAS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE, LEGAL POSITION & CASE LAWS & BOARD'S CIRCULAR RELATING TO THE ALLOWABILITY OF DEDUCTION OF INTEREST, REMUNERATION TO PARTNERS & DEPRECIAT ION. 5. THE NET PROFIT OF 7% APPLIED BY ASSESSING OFFICER & CONFIRMED BY CIT(A) IS MUCH TOO HIGH & EXCESSIVE. 6. IN ANY CASE & WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE INCOME ASSESSED & CONFIRMED IS MUCH TOO HIGH & EXCESSIVE. 7. THE ORDER OF THE LEARN ED ASSESSING OFFICER IS AGAINST LAW, FACTS & PRINCIPLES OF NATURAL JUSTICE. 3. AS PER LETTER DATED 16/10/2013, THE ASSESSEE HAS REVISED THE GROUND NO. 2 RAISED BY IT IN THE GROUNDS OF APPEAL FILED WITH APPEAL MEMO AS REPRODUCED ABOVE AND HENCE THE REVISE D GROUND NO. 2 IS ALSO REPRODUCED BELOW: '2(I) BECAUSE THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.1,62,000/ - ON ACCOUNT OF ALLEGED UN - EXPLAINED CASH CREDITS AS PER PARTICULARS GIVEN BELOW: - (A)UN - SECURED LOAN RECEIVED FROM SAUBHAGYAJI RS.82,000/ - (B)INTRODUCTION OF CASH BY SHRI PRADEEP DIWEDI, PARTNER RS. 80,000/ - 2(II) BECAUSE AS PER MATERIAL AND INFORMATION ON RECORD THE AMOUNT OF RS.82,000/ - FORMED PART OF OPENING CREDIT BALANCE IN THE ACCOUNT OF SAUBHAGYAJI AND THE RE BEING NO RECEIPT OF [ 3 ] LOAN FROM HIM IN THE YEAR UNDER APPEAL, THE ADDITION OF RS.82,000/ - IN THE ASSESSMENT YEAR UNDER APPEAL IS BAD IN LAW AND THE SAME IS NOT JUSTIFIED. 2(III) BECAUSE AS PER THE INFORMATION AVAILABLE ON RECORD, CASH AMOUNT OF RS.1,00,0 00/ - WAS DEPOSITED BY SHRI PRADEEP DIWEDI, THE PARTNER OF THE FIRM IN HIS OWN SAVINGS BANK ACCOUNT AFTER THE EQUIVALENT AMOUNT WAS DRAWN BY HIM IN CASH FROM THE ASSESSEE FIRM ITSELF, IT COULD NOT BE SAID THAT NO EXPLANATION REGARDING THE INTRODUCTION OF TH E CASH OF RS.80,000/ - WAS SUBMITTED BY THE ASSESSEE AND CONSEQUENTLY THE ADDITION OF RS.80,000/ - IN THE HANDS OF THE ASSESSEE IS NOT JUSTIFIED'. 4. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THE MAIN GRIEVANCE OF THE ASSESSEE ARE TWO IN ADDITIO N TO REVISED GROUND NO. 2 FILED BY THE ASSESSEE. HE SUBMITTED THAT THE ASSESSING OFFICER HAS ESTIMATED THE INCOME OF THE ASSESSEE ON VERY HIGHER SIDE AT 7% OF THE GROSS RECEIPTS. HE FURTHER SUBMITTED THAT THE SECOND GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER HAS NOT ALLOWED DEDUCTION IN RESPECT OF INTEREST TO PARTNERS, REMUNERATION TO PARTNERS AND DEPRECIATION AS MENTIONED BY THE ASSESSEE IN ITS GROUND NO. 3. HE FURTHER SUBMITTED THAT REGARDING ADOPTION OF NET PROFIT RATE OF 7%, RELIANCE IS PLACED ON THE TRIBUNALS DECISION RENDERED IN THE CASE OF ARVIND KUMAR CHAUDHARY VS. DY. CIT IN I.T.A.NO.172/LKW/10 DATED 27/04/2011, COPY OF WHICH WAS SUBMITTED BY THE ASSESSEE. 5. REGARDING ALLOWABILITY OF INTEREST AND REMUNERATION TO PARTNERS AND DEPRECIATION, HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: 1. CIT VS. JAIN CONSTRUCTION COMPANY & ORS. 245 ITR 527 (RAJ) 2. HON'BLE ALLAHABAD HIGH COURT ORDER DATED 24/09/2013 IN THE CASE OF CIT VS. J.P. YADAV IN INCOME TAX APPEAL NO. 252 OF 201 3. [ 4 ] 3. CIT VS. HEERA LAL BHAT [2003] 131 TAXMAN 257 (RAJ) 4. CIT VS. BISHAMBHAR DAYAL & CO. [1994] 210 ITR 118 (ALL) 5. I.T.A.T. LUCKNOW BENCH ORDER DATED 31/05/2007 IN THE CASE OF GANGA BRICK FIELD VS. DY. CIT IN I.T.A.NO.236/LKW/2006 6. AS AGAINST THIS THE D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND HAVE ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENTS CITED BY LEARNED A.R. OF T HE ASSESSEE . REGARDING THE FIRST ASPECT I.E. REGARDING ESTIMATION OF NET PROFIT @7% ON GROSS RECEIPTS, WE FIND THAT THE RELIANCE HAS BEEN PLACED BY THE LEARNED A.R. OF THE ASSESSEE ON THE TRIBUNALS DECISION RENDERED IN THE CASE OF ARVIND KUMAR CHAUDHARY (SUPRA). IN THAT CASE, THE RELEVANT PARA IS PARA NO. 7, WHICH IS REPRODUCED BELOW: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICE R APPLIED THE NET PROFIT RATE OF 7% ON THE BASIS OF DECISION OF THE ITAT LUCKNOW BENCH IN THE CASE OF GUPTA CONTRACTOR, BASTI VS. ITO WHEREIN THE EARLIER ORDER OF THE ITAT, ALLAHABAD BENCH IN THE CASE OF GANGA PRASAD TRIPATHI VS. ITO WAS FOLLOWED. HOWEVE R, THE ASSESSING OFFICER, WHILE APPLYING THE AFORESAID DECISION, HAS NOT CONSIDERED THIS VITAL FACT THAT THE ASSESSEE IS A PROPRIETOR AND DOING THE BUSINESS IN HIS INDIVIDUAL CAPACITY WHILE THE COMPARABLE CASES WERE OF THE FIRM WHEREIN THE INTEREST TO THE PARTNERS CAPITAL AND THE SALARY OF THE PARTNERS HAVE BEEN ALLOWED OUT OF THE NET PROFIT. IT IS ALSO NOTICED THAT THE TURNOVER IN THE CASE OF M/S GUPTA CONTRACTOR, BASTI WAS AT RS.62,40,823/ - WHILE THE TURNOVER IN THE ASSESSEES CASE IS AT RS.1,96,20,240/ - . THEREFORE, THE CASE RELIED BY THE ASSESSING OFFICER IS NOT COMPARABLE ON FACTS. IN THE INSTANT CASE, IT SEEMS THAT THE BOOK RESULTS DISCLOSED BY THE ASSESSEE WERE NOT COMPLETELY VERIFIABLE, THEREFORE, THE BOOKS WERE REJECTED AND THE ACTION OF THE ASSES SING OFFICER IN REJECTING THE BOOKS OF ACCOUNT HAS NOT BEEN CHALLENGED BY THE ASSESSEE. IF THE BOOKS ARE REJECTED, THE ONLY WAY TO DETERMINE THE INCOME IS TO ESTIMATE THE [ 5 ] SAME BY APPLYING THE NET PROFIT RATE. IN THE PRESENT CASE, THE NET PROFIT RATE DECL ARED BY THE ASSESSEE FOR THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2004 - 2005 WAS AT 1.5% WHILE IN THE SUCCEEDING YEAR I.E. FOR THE ASSESSMENT YEAR 2006 - 2007 WAS AT 2.45% BUT IN THE SUCCEEDING YEAR, THE TURNOVER OF THE ASSESSEE WAS AT RS.3,19,78,208/ - WHILE I N THE YEAR UNDER CONSIDERATION THE TURNOVER IS AT RS.1,96,20,240/ - , THEREFORE, THE NET PROFIT RATE FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN MORE IN COMPARISON TO THE SUCCEEDING YEAR BECAUSE THE INCREASE IN THE TURNOVER MAY BE ONE OF THE REASONS FO R THE DECLINE IN THE NET PROFIT RATE. IN OUR OPINION, THE NET PROFIT RATE APPLIED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT (A) @7% IS EXCESSIVE BECAUSE THE ASSESSEE NEITHER IN THE EARLIER YEAR NOR IN THE SUBSEQUENT YEAR HAS EARNED SUCH A NET PROFIT, SO CONSIDERING THE HISTORY OF THE ASSESSEES CASE AND TO MEET THE ENDS OF NATURAL JUSTICE, WE CONSIDER IT FAIR AND REASONABLE TO APPLY THE NET PROFIT RATE OF 5% ON THE TURNOVER OF RS.1,96,20,240/ - . WE ACCORDINGLY SET ASIDE THE ORDER OF LEARNED CIT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO WORK OUT THE INCOME OF THE ASSESSEE BY APPLYING NET PROFIT RATE OF 5%. 7.1 FROM THE ABOVE PARA OF THE DECISION OF THE TRIBUNAL, WE FIND THAT THERE ARE TWO DIFFERENCES IN THE FACTS OF THE PRESENT CASE. THE FIRST DIFFERENCE IS THAT IN THAT CASE , IT WAS NOTED BY THE TRIBUNAL THAT THE ASSESSEE WAS DOING THE BUSINESS IN INDIVIDUAL CAPACITY WHILE IN THE COMPARABLE CASE, RELIED UPON BY THE ASSESSING OFFICER IN THAT CASE , THE ASSESSEE WAS A PARTN ERSHIP FIRM AND INTEREST AND SALARY TO PARTNERS HAVE BEEN ALLOWED OUT OF THE NET PROFIT. BECAUSE OF THIS REASON, THE TRIBUNAL HELD IN THAT CASE THAT ADOPTION OF NET PROFIT RATE OF 7% ON THE BASIS OF THE DECISION OF LUCKNOW BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF GUPTA CONTRACTOR VS. INCOME TAX OFFICER AND GANGA PRASAD TRIPATHI VS. INCOME TAX OFFICER WAS NOT REQUIRED TO BE FOLLOWED. THE SECOND DIFFERENCE IN THE FACTS IS THAT THIS FINDING IS ALSO GIVEN BY THE TRIBUNAL THAT THE NET PROFIT RA TE DECLARED BY THE ASSESSEE FOR THE PRECEDING AND SUCCEEDING YEARS WAS 1.5% TO 2.45% AND, THEREFORE, ADOPTION OF HIGH RATE WAS NOT CONSIDERED TO BE JUSTIFIED. STILL IN THAT CASE , THE TRIBUNAL ADOPTED NET PROFIT RATE OF [ 6 ] 5%. IN THE PRESENT CASE, THE ASSESS EE IS A PARTNERSHIP F I RM AND THE ASSESSEE HAS CLAIMED INTEREST, REMUNERATION TO PARTNERS AND, THEREFORE, THE TRIBUNALS DECISION CITED BY THE ASSESSEE IN THE CASE OF ARVIND KUMAR CHAUDHARY (SUPRA) IS NOT APPLICABLE. INSTEAD OF THAT, THE OTHER TWO TRIBUNAL DECISIONS NOTED BY THE TRIBUNAL IN THAT CASE I.E. GUPTA CONTRACTOR VS. INCOME TAX OFFICER (SUPRA) AND GANGA PRASAD TRIPATHI VS. INCOME TAX OFFICER (SUPRA) ARE APPLICABLE BECAUSE IN THE PRESENT CASE AS WELL AS IN THOSE TWO CASES, THE ASSESSEE WAS A PARTNE RSHIP FORM. WE, THEREFORE, UPHOLD THE ORDER OF THE ASSESSING OFFICER AND CIT(A) REGARDING THIS ASPECT I.E. REGARDING ADOPTING THE NET PROFIT RATE OF 7%. 7.2 BEFORE PROCEEDING TO SECOND ASPECT, WE WOULD LIKE TO OBSERVE THAT ONE MORE CONTENTION WAS RAISED BY THE ASSESSEE THAT THE ASSESSING OFFICER HAS ALSO OBSERVED ON PAGE 1 OF THE ASSESSMENT ORDER THAT NET PROFIT RATE OF AT LEAST 5% IS EXPECTED IN THE TRADE OF THE ASSESSEE. ON THE BASIS OF THIS OBSERVATION OF THE ASSESSING OFFICER, IT WAS ARGUED BY LEARNE D A.R. OF THE ASSESSEE THAT AFTER MAKING SUCH OBSERVATION ON PAGE 1 OF THE ASSESSMENT ORDER , HOW THE ASSESSING OFFICER CAN ESTIMATE THE NET PROFIT AT 7%. IN THIS REGARD, WE WOULD LIKE TO OBSERVE THAT ON THE SAME PAGE OF THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS ALSO NOTED THAT THERE ARE VARIOUS INSTANCES OF VIOLATION OF THE PROVISIONS OF SECTION 40A(3) BEING CASH PAYMENT IN EXCESS OF RS.20,000/ - . SINCE THE BOOKS ARE REJECTED AND THE PROFIT ESTIMATED, NO SEPARATE ADDITION OR DISALLOWANCE U/S 40A(3) O F THE ACT CAN BE MADE BUT THIS ASPECT CAN BE VERY MUCH CONSIDERED WHILE ESTIMATING THE NET PROFIT RATE . MOREOVER, THIS IS ALSO NOT OBSERVED BY THE ASSESSING OFFICER WHILE SUGGESTING 5% NET PROFIT RATE AS TO WHETHER SUCH RATE IS BEFORE ALLOWING DEDUCTION IN RESPECT OF INTEREST AND REMUNERATION TO PARTNERS OR AFTER THAT. IN VIEW OF THIS JUDGMENT OF THE TRIBUNAL, CITED BY [ 7 ] LEARNED A.R. OF THE ASSESSEE, WHERE THE TRIBUNAL HAS ADOPTED 5% NET PROFIT RATE WHERE NO SEPARATE DEDUCTION WAS ALLOWABLE IN RESPECT OF INTEREST AND SALARY TO PROPRIETOR AND THERE ARE TWO TRIBUNAL DECISIONS OF LUCKNOW BENCH OF THE TRIBUNAL WHERE 7% NET PROFIT RATE WAS ADOPTED IN VIEW OF THE ALLOWABILITY OF DEDUCTION IN RESPECT OF INTEREST AND REMUNERATION TO PARTNERS. THEREFORE, THIS ARGU MENT OF THE ASSESSEE IS ALSO OF NO HELP TO THE ASSESSEE. 8. NOW WE DECIDE THE SECOND ASPECT OF THE MATTER I.E. WHETHER DEDUCTION IS ALLOWABLE TO THE ASSESSEE IN RESPECT OF INTEREST AND REMUNERATION TO PARTNERS AND DEPRECIATION. IN THIS REGARD, WE FIND TH AT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS JUDGMENTS INCLUDING THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS BISHAMBHAR DAYAL AND CO. 210 ITR 118 (ALL) . RESPECTFULLY FOL LOWING TH IS JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION TO THE ASSESSEE IN RESPECT OF INTEREST AND REMUNERATION TO THE PARTNERS AND DEPRECIATION AFTER VERIFYING THE ALLOWABILITY OF THE SAME IN VIEW OF THE PA RTNERSHIP DEED, PROFIT & LOSS ACCOUNT AND OTHER RELEVANT PARTICULARS. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SE DEDUCTIONS TO THE ASSESSEE I.E. INTEREST, REMUNERATION TO PARTNERS AND DEPRECIATION AFTER EXAMINING THE CLAIM OF THE ASSESSEE AS PER LAW. ACCORDINGLY, GROUND NO. 3 OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO. 5 IS REJECTED. 9. NOW WE TAKE UP THE REVISED GROUND NO. 2 REGARDING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.1,62,000/ - . REGARDING THIS IS SUE, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THIS ISSUE WAS NOT [ 8 ] DECIDED BY LEARNED CIT(A), HENCE WE RESTORE THIS MATTER BACK TO THE FILE OF CIT(A) FOR TAKING DECISION AFRESH ON THIS ASPECT BECAUSE THIS ISSUE WAS VERY MUCH RAISED BY THE ASSESS EE BEFORE THE CIT(A) AS PER GROUND NO. 3 RAISED BEFORE THE CIT(A) BUT THERE IS NO DECISION BY LEARNED CIT(A) IN HIS ORDER REGARDING THIS GROUND. THE LEARNED CIT(A) IS DIRECTED TO DECIDE THIS ISSUE AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. 10. OTHER GROUNDS RAISED BY THE ASSESSEE ARE GENERAL IN NATURE AND NEED NO SPECIFIC ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPO SES. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 3 / 1 1 / 2 0 1 3 *C.L.SINGH COPY OF THE O RDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A ) 5. DR, ITAT, LUCKNOW ASSTT. REGISTRAR [ 9 ]