Laxmidhar Mohanty, Jagatsinghpur V. ACIT, Circle-1(1), Cuttack, Cuttack

ITA 437/CTK/2014

• Counselvise Citation: 43722114 RSA 2014
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P R MOHANTY
• Keywords: Business income; Depreciation; Corroborative evidences
• Section: 44AD; 142(1); 145; 28; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK BEFORE SHRI P. K. BABNSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 437 / CTK /201 4 (ASST. YEAR : 200 9 - 1 0 ) SHRI LAXMIDHAR MOHANTY, S/O SHRI ANAM CHARAN MOHANTY, HIG - 19, GOURAV VIHAR, MADHUBAN, PARADEEP, JAGATSINGHPUR. VS. ACIT , CIRCLE - 1(1) , CUTTACK . PAN NO. ABDPM 4123 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SRI P.R. MOHANTY - AR DEPARTMENT BY : SRI ANIL SHARMA - DR DATE OF HEARING : 05 / 0 2 /2015 . DATE OF PRONOUNCEMENT : 04 / 0 3 /201 5 . O R D E R PER D.T. GARASIA , J .M THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A), CUTTACK DATED 06 /0 6 /201 4 FOR THE A.Y. 200 9 - 1 0 . 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE : 1. FOR THAT, THE ORDER OF THE FORUM BELOW IS ARBITRARY, ILLEGAL, UNJUSTIFIED AND ERRONEOUS AND HAS BEEN PASSED ON IMPROPER APPLICATION OF MIND, BEING DEVOID OF MERIT AS SUCH DESERVES TO BE QUASHED IN LIMINE. 2 2. FOR THAT, THE ESTIMATION OF NET INCOME FROM CONTRACT WORK @ 8% OF THE GROSS TURNOVER WITHOUT ALLOWING DEPRECIATION, REJECTING THE BOOK OF ACCOUNT & INVOKING SECTION 145 WITHOUT REFERRING TO COMPARABLE CASES AND WITHOUT CONSIDERING PAST RECORDS OF THE APPEL LANT DESERVES TO BE SET - ASIDE BEING DEVOID OF MERIT AS ILLEGAL & ARBITRARY. 3. FOR THAT, THE ADDITION OF RS. 3, 48,749/ - TO THE TOTAL INCOME TOWARDS INTEREST EARNED FROM FIXED DEPOSIT ASSESSED AS INCOME FROM OTHER SOURCES DESERVES TO BE ASSESSED AS BUSINESS INCOME ON THE GROUND THAT, INTEREST EARNED BY THE APPELLANT ON THE FIXED DEPOSIT MADE FOR PERFORMANCE GUARANTEE OF CONTRACT WAS CAPITAL IN NATURE AND CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 4. FOR THAT, THE ADDITION OF RS. 3, 48,749/ - TO THE TOTAL INCOME TOWARDS INTEREST EARNED FROM FIXED DEPOSIT ASSESSED AS INCOME FROM OTHER SOURCES DESERVES TO BE ASSESSED AS BUSINESS INCOME ON THE GROUND THAT, INTEREST EARNED BY THE APPELLANT ON THE FIXED DEPO SIT MADE FOR PERFORMANCE GUARANTEE OF CONTRACT WAS FURNISHED AS A CONDITION PRECEDENT TO ENTERING THE CONTRACT BEING INTRINSIC AND INSEGGREGABLE NEXUS WITH THE WORK UNDERTAKEN CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES.. 5. FOR THAT, THE APPELLANT CRA VES LEAVE TO ADD/AMEND/ALTER FURTHER GROUNDS IF ANY AT THE TIME OF HEARING OF APPEAL. 3. SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE DERIVES INCOME FROM CONTRACT WORK AS A CONTRACTOR . THE ASSESSEE FILED HIS RETURN OF INCOME ON 30/09/2009 . THE RETURN WAS PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT', FOR SHORT) . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSEE WAS ASKED TO PRODUCE CASH BOOK, LEDGER, BANK STATEMENT AND DETAILS OF EXPENDITURE VID E NOTICE ISSUED U/S. 142(1) OF THE ACT. IN COMPLIANCE TO THE SAME, THE ASSESSEE HAS PRODUCED ONLY BANK ACCOUNT COPY AND LEDGER . H OWEVER , SUPPORTING EVIDENCE LIKE VOUCHERS WERE NOT PRODUCED , T HEREFORE , BOOKS OF ACCOUNTS WERE REJECTED U/S. 145(3) OF THE ACT AND 3 THE ASSESSMENT WAS COMPLETED U/S. 14 4 OF THE ACT. THE ASSESSING OFFICER ESTIMATED THE PROFIT @ 8% ON GROSS TURNOVER WITHOUT ALLOWING DEPRECIATION. 4 . THE MATTER WAS CARRIED TO THE LD. CIT(A) AND LD. CIT(A) HAS DISMISSED TH IS GROUND OF APPEAL. 5. LEARNED AR SUBMITTED BEFORE US THAT THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNTS , BUT WHATEVER BOOKS OF ACCOUNTS WITH HIM, WERE PRODUCED . THEREFORE WHEN THE PROFIT IS ESTIMATED, DEPRECIATION HAS TO BE ALLOWED . 6. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDERS OF REVENUE AUTHORITIES. 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND FROM THE ORDER OF LD. CIT(A) THAT DURING THE COURSE OF HEARING BEFORE THE ASSESSING OFFICER , THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS IN SUPPORT OF P & L ACCOUNT. THE ASSESSEE DID NOT PRODUCE THE BOOKS BEFORE THE LD. CIT(A), THEREFORE LD. CIT(A) FOUND NO INFIRMITY IN THE ACTION OF ASSESSING OFFICER IN REJECTING THE BOO K RESULTS AND ESTIMATING THE PROFIT WHEN THE NOTICE U/S. 142(1) OF THE ACT CALLING FOR THE BOOKS 4 W AS NOT COMPLIED WITH. WE FIND THAT AS PER SEC. 44AD OF THE ACT, THE PERSONS ENGAGED IN THE BUSINESS OF CIVIL CONTRACT WORK, WHO DO NOT MAINTAIN BOOKS NET PR OFIT SHALL BE ASSESSABLE @ 8% OF THEIR GROSS TURNOVER IF SUCH TUNE DOES NOT EXCEEDS RS. 1 CRORE. WE FIND THAT THE REASONABLENESS OF THE RATE HAS BEEN ACCEPTED BY VARIOUS TRIBUNALS. SEC. 44 AD OF THE ACT WHICH READS AS UNDER: - 44AD. (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 43C , IN THE CASE OF AN ELIGIBLE ASSESSEE ENGAGED IN AN ELIGIBLE BUSINESS, A SUM EQUAL TO EIGHT PER CENT OF THE TOTAL TURNOVER OR GROSS RECEIPTS OF THE ASSESSEE IN THE PREVIOUS YEAR ON ACCOUNT OF SUCH BUSINESS OR, AS THE CASE MAY BE, A SUM HIGHER THAN THE AFORESAID SUM CLAIMED TO HAVE BEEN EARNED BY THE ELIGIBLE ASSESSEE, SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' . (2) ANY DEDUCTION ALLOWABLE UNDER THE PROVISIONS OF SECTIONS 30 TO 38 SHALL, FOR THE PURPOSES OF SUB - SECTION (1), BE DEEMED TO HAVE BEEN ALREADY G IVEN FULL EFFECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED : PROVIDED THAT WHERE THE ELIGIBLE ASSESSEE IS A FIRM, THE SALARY AND INTEREST PAID TO ITS PARTNERS SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB - SECTION (1) SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) OF SECTION 40 . (3) THE WRITTEN DOWN VALUE OF ANY ASSET OF AN ELIGIBLE BUSINESS SHALL BE DEEMED TO HAVE BEEN CALCULATED AS IF THE ELIGIBLE ASSESSEE HAD CLAIMED AND HAD BEEN ACTUALLY ALLOWED THE DEDUCTION IN RESPECT OF THE DEPRECIATION FOR EACH OF THE RELEVANT ASSESSMENT YEARS. (4) THE PROVISIONS OF CHAPTER XVII - C SHALL NOT APPLY TO AN ELIGIBLE ASSESSEE IN SO FAR AS THEY RELATE TO THE ELIGIBLE BUSINESS. (5) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOING PROVISIONS OF THIS SECTION, AN ELIGIBLE ASSESSEE WHO CLAIMS THAT HIS PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS ARE LOWER THAN THE PROFITS AND GAINS SPECIFIED IN SUB - SECTION (1) AND WHOSE TOTAL INCO ME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME - TAX, SHALL BE REQUIRED TO KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS REQUIRED UNDER SUB - SECTION 5 (2) OF SECTION 44AA AND GET THEM AUDITED AND FURNISH A REPORT OF SUCH AUDIT AS REQUIRED UNDER SECTION 44AB . [(6) THE PROVISIONS OF THIS SECTION, NOTWIT HSTANDING ANYTHING CONTAINED IN THE FOREGOING PROVISIONS, SHALL NOT APPLY TO (I) A PERSON CARRYING ON PROFESSION AS REFERRED TO IN SUB - SECTION (1) OF SECTION 44AA ; ( II) A PERSON EARNING INCOME IN THE NATURE OF COMMISSION OR BROKERAGE; OR (III) A PERSON CARRYING ON ANY AGENCY BUSINESS.] 8. FROM THE ABOVE SECTION, IT CLARIFIES THAT IF THE ASSESSEES GROSS RECEIPTS ARE NOT MORE THAN RS. 1 CRORE AND IF THE ASSESSEE DID NOT MAINTAIN THE BOOKS OF ACCOUNTS, THEN HIS PROFIT HAS TO BE ESTIMATED @ 8% AND DEPRECIATION SHOULD NOT BE ALLOWED. IN THE INSTANT CASE, THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNTS , THEREFORE , ASSESSI NG OFFICER WAS NOT ABLE TO VERIFY THE CLAIM MADE IN P & L ACCOUNT. IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER HAS NO ALTERNATIVE EXCEPT TO REJECT THE BOOKS AND TO ESTIMATE THE PROFIT @ 8% ON THE TOTAL TURNOVER. AS PER SEC. 144 OF THE ACT, IF THE ASSESS EE FAILS TO COMPLY WITH THE TERMS OF A NOTICE ISSUED UNDER SUB - SEC. (1) OF SEC. 142 AND IF THE ASSESSEE FAILS TO PROVIDE THE NECESSARY INFORMATION, THE ASSESSING OFFICER HAD LIBERTY TO PASS THE ORDER ON THE BEST JUDGMENT ASSESSMENT. SECONDLY, IF THE ASSES SEE PRODUCED THE BOOKS OF ACCOUNTS WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDE STANDARDS AS NOTIFIED UNDER SUB - SEC. (2), HAVE NOT BEEN 6 REGULAR LY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE THE ASSESSMENT IN THE MANNER PROVIDE IN SEC. 145 OF THE ACT. WE FIND THAT THE BEST ASSESSMENT CAN BE MADE U/S. 142 & 144 OF THE ACT AFTER REJECTING THE BOOK RESULTS U/S. 145(3) OF THE ACT. IN TH E CASE OF CIT VS. JAIN CONSTRUCTION COMPANY REPORTED IN (2000) 245 ITR 527 (RAJ.) WHERE THE HONBLE RAJASTHAN HIGH COURT HAS CONFIRMED THE ORDER OF TRIBUNAL BY OBSERVING THAT WHILE ALLOWING THE APPEAL, THE TRIBUNAL HAS DIRECTED THE ASSESSING AUTHORITY TO R ECOMPUTE THE TOTAL INCOME AS ESTIMATE BY HIM AND ALLOW RELIEF ON ACCOUNT OF PAYMENT OF INTEREST AND CLAIM OF DEPRECIATION. THE FINDING RECORDED BY THE TRIBUNAL IS PURELY A FINDING OF FACT, BASED ON PROPER APPRECIATION OF MATERIAL ON RECORD AND THE EVIDEN CE PRODUCED BY THE ASSESSEE. IN OUR OPINION, IN THAT JUDGMENT, THE ASSESSEE HAS PRODUCED THE RELEVANT MATERIALS BEFORE THE ASSESSING OFFICER, THEREFORE TRIBUNAL HAS VERIFIED ALL THE DOCUMENTS ON RECORD AND COME TO A PARTICULAR CONCLUSION. WE FIND THAT TH E ASSESSEE HAS NOT PRODUCED ANY EVIDENCE BEFORE THE ASSESSING OFFICER, THEREFORE ASSESSING OFFICER IS JUSTIFIED IN ESTIMATING THE PROFIT AT 8% AND OUR INTERFERENCE IS NOT REQUIRED. THIS GROUND OF APPEAL IS DISMISSED. 8. GROUND S NO.3 & 4 ARE RELATE TO THE INTEREST ON FIXED DEPOSIT . THE ASSESSING OFFICER TREATED THE INTEREST INCOME OF RS. 3,48,749/ - ON FIXED DEPOSITS AS INCOME FROM OTHER SOURCES. 7 9. THE MATTER WAS CARRIED TO THE LD. CIT(A) AND THE LD. CIT(A) HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 10. DURING THE COURSE OF HEARING BEFORE US, LEAR NED AR SUBMITTED THAT ASSESSEE HAD EARNED INTEREST OF RS. 3,42,551/ - ON FIXED DEPOSITS . LEARNED AR FURTHER SUBMITTED THAT THE FIXED DEPOSITS MADE BY THE ASSESSEE IS NOT FOR THE PURPOSE OF INVESTMENT BUT AS SECURITY FOR AVAILING CASH CREDIT FACILITY AND BANK GUARANTEE WHICH IS ESSENTIAL REQUIREMENT OF THE BUSINESS. 11. LEARNED DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 12. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE , W E FIND THAT ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS EARNED INTEREST INCOME OF RS. 3,42,551/ - ON FIXED DEPOSITS. THE A SSESSEE HAS TAKEN THE CONTENTION BEFORE US THAT THE ASSESSEE HAS MADE FIXED DEPOSIT , NOT FOR THE PURPOSE OF INVESTMENT, BUT AS A SECURITY FOR AVAILING CASH CREDIT FACILIT Y AND BANK GUARANTEE WHICH IS ESSENTIAL REQUIREMENT OF THE BUSINESS. WE FIND THAT WHEN THE ASSESSEE HAS EARNED ANY INTEREST INCOME WHICH ASSESSEE WAS FORCE D TO PAY THE FIXED DEPOSIT IN THE BANK, IT MAY BE TREATED AS BUSINESS INCOME , BUT IF THE ASSESSEE HAS EARNED 8 INTEREST FOR INVESTMENT THEN THE INTEREST INCOME WILL BE TREATED AS INCOME FROM OTHER SOURCES. IN THIS CASE, THE ASSESSING OFFICER HAS NOT CLARIFIED WHETHER THE ASSESSEE HAS MADE FIXED DEPOSIT FOR THE PURPOSE OF GUARANTEE OF CONTRACT OR NOT. THE ASSESSEE SUBMITTED THAT INTEREST INCOME SHOULD BE TREATED AS BUSINESS INCOME, BUT NO DETAILS HA VE BEEN PRODUCED BEFORE U S. MOREOVER, IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT DISCUSSED WHETHER ASSESSEE WAS FORCED TO PAY THE FIXED DEPOSITS . THEREFORE, WE REVERSE THE FINDING OF LD. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO DECIDE WHETHER THIS FIXED DEPOSIT IS MADE FOR THE PURPOSE OF GUARANTEE OF CONTRACT OR NOT . IF IT IS MADE FOR THE PURPOSE OF GUARANTEE OF CONTRACT , THEN IT MAY BE CONSIDERED AS BUSINESS INCOME. IT IS NOT NECESSARY TO MENTION HERE THAT THE ASSESSING OFFICER SHOULD GIVE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THIS ISSUE . 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ( ORDER PRONOUNCED IN PURSUANCE OF RULE 34(4) OF ITAT RULES, 1963 BY PUTTING ON NOTICE BOARD OF THE BENCH AT CUTTACK ON 04 TH MARCH , 201 5 ). SD/ - SD/ - (P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04 TH MARCH , 201 5 . VR/ - 9 COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., CUTTACK.