Pradeepta Kumar Rout, Koraput V. ACIT, Berhampur

ITA 462/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4459 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2010
• Court: TRIBUNAL
• Department Lawyers: S K DASH
• Assessee Lawyers: N ANAND RAO
• Keywords: Income from undisclosed sources
• Section: 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 462 /CTK/2010 STAY PETITIONNO.42/CTK/2010 / ASSESSMENT YEAR 2007 - 08 PRADEEPTA KUMAR ROUT,M/SSUHAG SURAVI CENTRE,AT/PO.SUNABEDA, DIST. KORAPUT PAN:ACJPR 3958 B - - - VERSUS - ASST.COMMISSINOEROF INCOME - TAX, BERHAMPUR CIRCLE, BERHAMPUR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI N.ANAND RAO, AR / FOR THE RESPONDENT: / SHRI S.K.DASH, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THE ASSESSEE IS IN APPEAL AGITATING THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE INDIVIDUAL ITEMS AS ASSESSED BY THE ASSESSING OFFICER WHICH INTER ALIA LEAD TO THE FINDING THAT THE NET INCOME FROM THE CONTRACT BUSINESS RENDERED BY THE ASSESSEE WOULD RESULT IN 9% OF THE INCOME THERE FROM. A DEMAND OF 4,24,079 HAS BEEN MADE BY THE DEPARTMENT FOR WHICH THE ASSESSEE HAS PETITIONED FOR STAY. 2. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENT SUBMITTED THAT THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF 6,22,530.THE ASSESSING OFFICER PROCEEDED UNDER THE PROVISIONS OF SECTION 143(39)/144 AFTER CONCLUD ING THAT HE HAS TO MAKE A BEST JUDGMENT ASSESSMENT INVOKING PROVISIONS OF SECTION 145(3). THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEES BOOKS OF ACCOUNT ARE AUDITED AND I.T.A.NO. 462/CTK/2010 STAY PETITIONNO.42/CTK/2010 2 AUDITOR REPORT WAS SUBMITTED ALONG WITH THE RETURN WHICH ONLY LEAD TO THE AOS FIND ING MAKING CERTAIN ADDITIONS AND DISALLOWANCE ON PRESUMPTION AND PRESUMPTION INSPITE OF HIS MAKING SEPARATE ADDITIONS BY MAKING DISALLOWANCE ON THE BASIS OF PERCENTAGE ON GROSS RECEIPTS. HE SUBMITTED THAT THE ASSESSEE WAS NOT REQUIRED TO PAY CERTAIN SUM TO M/S.TATA MOTORS LTD., ON HAVING PURCHASE EXCAVATOR WHICH LOAN HAD BEEN REPAID IN ACCORDANCE WITH THE LOAN AGREEMENT AND NOT ON THE BASIS OF THE ASSESSEE HAVING ISSUED CHEQUE AND STILL NOT E NCASHED BY M/S.TATA MOTORS LTD. AN ADDITION OF 3,13,377HAS BEEN M ADE BY THE ASSESSING OFFICER HOLDING THAT THIS AMOUNT WAS NOT SHOWN AS LIABILITY BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT WHEREAS M/S.TATA MOTORS LTD., REQUIRED THE ASSESSEE TO PAY THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT HOW A PERSON WHO OWES CERTAIN AMOUNT BUT NOT ACKNOWLEDGED CERTAIN PAYMENT BY THE RECEIVER CAN BE TAXED IN HIS HAND AS INCOME. THE LEARNED CIT(A), ON THE OTHER HAND, CONFIRMED THE SAME BY CONCLUDING THAT THE OVERALL NET INCOME ON PERCENTAGE BASIS HAS BEEN ACCEPTED BY THE AS SESSEE WOULD NOT DISTURB THE INDIVIDUAL FINDINGS OF THE ASSESSING OFFICER FOR DELETION. HE PRAYED THAT THIS AMOUNT CONFIRMING PART OF 9% AGITATED MAY KINDLY BE CONSIDERED FOR DELETION SEPARATELY. WITH RESPECT TO NEXT ITEM CONSIDERED FOR DISALLOWANCE IS THE BANK INTEREST OF 69,235 WHICH AMOUNT WAS CLAIMED IN THE ASSESSEES PROFIT & LOSS ACCOUNT BEING AN INDIVIDUAL BUT ON THE BASIS OF HIS FILING INCOME FROM ANOTHER SOURCES NAMELY, M/S.SUHAG SURAVI WHICH INCOME WAS RETURNED U/S.44AF. HE ARGUED THAT THE CLAIM OF INTEREST TO THE BANK IS ON THE BASIS OF RAW MATERIALS IN STOCK HELD WITH THE ASSESSEE, THEREFORE, COULD NOT BE CORRELATED WITH THE INCOME RENDERED INCOME U/S.44AF WHEN THE RETURN OF THE ASSESSEE WAS FILED INDIVIDUALLY COMBINING OF THE BUSINESS UNDER DI FFERENT HEADS. THE COMBINED FACT HAS TO BE GIVEN TO THE CLAIM OF INTEREST WHEN THE DEPARTMENT IS PREPARED TO ACCEPT THE FACT THAT THE I.T.A.NO. 462/CTK/2010 STAY PETITIONNO.42/CTK/2010 3 INCOME WHICH ACTUALLY COULD HAVE BEEN LOSS HAS BEEN RENDERED UNDER THE PROVISIONS OF SECTION 44AF. THE LEARNED CIT(A) THER EFORE ERRED IN HOLDING THAT THE BANK LOAN ON WHICH THE INTEREST WAS CHARGED WAS PART AND PARCEL OF THE VERY BUSINESS WHICH INCOME HAD BEEN RENDERED UNDER THE PROVISIONS OF SECTION 44AF THEREFORE COULD NOT BE ALLOWED WAS RIGHTLY CONSIDERED BY THE ASSESSING OFFICER WHO HAD DISALLOWED THE SAME BY HOLDING THAT A SEPARATE BANK ACCOUNT WAS MAINTAINED. HE PRAYED THAT THIS DISALLOWANCE OF INTEREST ON THE BASIS OF BANK FINANCING OVERDRAFTS FOR PURCHASE OF MATERIALS THEREFORE, CANNOT BE SEGREGATED FROM THE FACT THAT THE LOAN WAS GIVEN TO THE ASSESSEE AS AN INDIVIDUAL FOR ITS BUSINESS PURPOSES THEREFORE, CANNOT BE CLUBBED WITH THE INCOME RENDERED THERE FROM TO BE DECLARED U/S.44AF WITHOUT MAINTAINING SEPARATE BOOKS OF ACCOUNT. ON THE NEXT ISSUE WITH RESPECT TO THE UNDI SCLOSED BANK ACCOUNT WITH BANK OF INDIA TOTALLING 3,52,999 HE SUBMITTED THAT IT WAS SUBMITTED BEFORE THE AO AS WELL AS THE LEARNED CIT(A) THAT THIS AMOUNT WAS ERRONEOUSLY DEPOSITED IN THE ASSESSEES PERSONAL SAVINGS BANK ACCOUNT WHICH ACCOUNT BALANCE HAS BEEN SHOWN IN THE FINANCIAL STATEMENT OF THE ASSESSEE AND THEREFORE, CANNOT BE HELD AS UNDISCLOSED DEPOSITS IN A BANK WHICH INCOME HAS NOT BEEN DISCLOSED IN VIEW OF THE FACT THAT THE RECEIPTS WERE NOT DISCLOSED IN THE GROSS RECEIPTS AS CONSIDERED BY THE AS SESSING OFFICER AT 1,23,50,523. ON THE BASIS OF THE FACTS AS NARRATED IN THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A), THE BEST RECOURSE WOULD BE TO TAX 9% THEREOF AS IN VIEW OF THE ASSESSING OFFICER HAVING REJECTED THE BOOK RESULTS U/S.145( 3), THE ASSESSEE CANNOT BE SAID TO HAVE INCOME FROM UNDISCLOSED SOURCES. 3 THE LAST DISALLOWANCE OF 2 LAKHS IS BASICALLY THE OVERALL CONTENTION OF THE AO THAT THE ASSESSEE HAD DECLARED 4.9% NET PROFIT ON THE GROSS RECEIPTS I.T.A.NO. 462/CTK/2010 STAY PETITIONNO.42/CTK/2010 4 WHICH HE CONSIDERED WAS LOW. HE HAD ALREADY CONSIDERED THAT 5% TAXABILITY INCOME WAS REASONABLE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IN THIS YEAR, THEREFORE, HE PROPOSED TO HOLD THAT THE EXPENSES CLAIMED FROM THE GROSS RECEIPTS WERE HIGH AND THEREFORE AS THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT, EVIDENCE AND SUPPORTING DOCUMENTS ESTIMATED DISALLOWANCE EXPENDITURE AT 2 LAKHS. THE LEARNED CIT(A) , HERE AGAIN, TOOK THE OVERALL VIEW OF THE RATE OF RETURN ON GROSS PROFIT AND CONFIRMED THE ACTION OF THE AO RELYING ON THE D ECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. SURINDER PAL NAYAR (327 ITR 236). THE LEARNED COUNSEL ARGUED THAT DISALLOWANCE OF EXPENSES HAS TO BE SPECIFIC WHEN THE LAW PROVIDES THAT ANY EXPENDITURE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE HAS TO BE ALLOWED. NO OPPORTUNITY WAS GIVEN BY THE ASSESSING OFFICER TO PRODUCE THE BOOKS OF ACCOUNT ETC., ONCE HE HAD PROCEEDED TO MAKE A BEST JUDGMENT U/S.144 INVOKING THE PROVISIONS OF SECTION 145(3). HE PRAYED THAT A REASONABLE DISALLOWANCE ON ACCOUNT OF EXPENSES CLAIMED FROM THE GROSS RECEIPTS MAY KINDLY BE CONSIDERED NOT FOR THE PURPOSE OF BUSINESS BUT FOR PERSONAL USE. 4. THE LEARNED DR SUPPORTED THE ORDERS OF THE AO AND THE LEARNED CIT(A) FOR HIS PART SUBMISSION INDICATED THAT THE ASSESSEE HAD NOT INDICATED THAT THE DEPOSITS IN THE SAVINGS BANK ACCOUNT WERE FOR CONTRACT WORKS RENDERED. THEREFORE, THE LEARNED COUNSEL FOR THE ASSESEEES PRAYER FOR ONLY THE INCOME PORTION THEREOF MAY KINDLY BE CONSIDERED FOR TAXATION REQUIRES VERIFICATION. HE ALSO SUBMITTED THAT ONCE THE ASSESSEE HAS CHOSEN TO DECLARE INCOME FROM A PARTICULAR SOURCE UNDER THE PROVISIONS OF SECTION 44AF ALL EXPENSES PERTAINING TO OTHER INCOME WHICH CONSIDERED TO HAVE BEEN ALLOWED, THEREFORE, WAS RIGHTLY CONSIDERED FOR DISALLOWAN CE BY THE AO AS WELL AS THE LEARNED CIT(A). I.T.A.NO. 462/CTK/2010 STAY PETITIONNO.42/CTK/2010 5 WITH RESPECT TO THE LEARNED COUNSEL FOR THE ASSESEEES CONTENTION OF REASONABLE DISALLOWANCE ON ACCOUNT OF UNVERIFIABLE EXPENSES FROM THE GROSS RECEIPTS, HE LEFT TO THE DISCRETION OF THE BENCH FOR CONSIDERATION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . ON OUR CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE ASSESSEES AGITATION ON ACCOUNT OF HOLDING THE NET INCOME AT 9% IN VIEW OF THE QUANTUM INDIVIDUALLY AGITATED BY HIM FOR ADDITION AND DISALLOWANCE REQUIRES CONSIDERATION INSOFAR AS ONCE AN ESTIMATION HAS BEEN SPECIFICALLY MADE AFTER HAVING INDIVIDUALLY CONSIDERING THE ITEMS FOR TAXATION HAS TO BE CONSIDERED IN DETAIL. IT IS NOT TH E CASE OF THE AO THAT AFTER HAVING ESTABLISHED 9% NET PROFIT HE COULD NOT HAVE VERIFIED THE INDIVIDUAL ACCOUNT CLAIMED AFTER HAVING REJECTED THE BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3) TO THE BEST OF JUDGMENT PASSED THE ORDER U/S.144. ON OUR CAREFUL PERUSAL OF THE FACTS, WE ARE INCLINED TO HOLD THAT THE ADDIT IO N ON ACCOUNT OF SUPPRESSION OF LIABILITY AMOUNTING TO 3,13,377 IN THE HANDS OF THE ASSESSEE WAS PREMATURE. THE CREDITOR MAY INSCRIBE ANY AMOUNT TO BE RECEIVED FROM A DEBTOR BUT THE DEBTOR HAS TO SPECIFIC IN INDICATING THE AMOUNT OWED BY IT TO A CREDITOR. THE ASSESSING OFFICER, THEREFORE, COULD NOT HAVE PROC EEDED TO INDULGE HIMSELF IN A DISPUTE BETWEEN THE BORROWER AND THE CREDITOR INSOFAR AS THE ASSESSEE HAS INDICATED THE VALUE OF THE MACHINERY PURCHASED ON LOAN WHICH WAS TO BE CONSIDERED FOR THE PURPOSE OF SUPPRESSION OF LIABILITY. HAVING NOT DONE SO, THE A SSESSEE CANNOT BE SAID TO HAVE SUPPRESSED THE LIABILITY AFTER HAVING ISSUED CHEQUES FROM THE BANK WHICH REDUCED THE BALANCE IN THE BANK ACCOUNT. THIS ADDITION IS, THEREFORE, DIRECTED TO BE DELETED. ON THE ISSUE OF DISALLOWANCE OF INTEREST TO THE BANK WHICH SOURCE OF INCOME SUFFERED TAXATION U/S.44AF HAS TO BE I.T.A.NO. 462/CTK/2010 STAY PETITIONNO.42/CTK/2010 6 CONSIDERED ALLOWABLE IN THE HANDS OF THE ASSESSEE IN VIEW OF THE FACT THAT THE BANK HAD FINANCED THE ASSESSEE AS AN INDIVIDUAL AND NOT THE BUSINESS FOR WHICH THE ASSESSEE HAD RENDERED INCOME UNDER THE PROVISIONS OF SECTION 44AF. THE ASSESSEE IS ENTITLED TO CLAIM INTEREST IN ACCORDANCE WITH THE PROVISIONS OF SECTION 28 AND NOT BECAUSE HE HAD ACCEPTED INCOME THERE FROM U/S.44AF.THE AO HAVING ACCEPTED THE PROPOSITION OF GROSS RECEIPT TO BE TAXED AT CERTAIN PERCENTAGE THEREFORE, CANNOT BE SAID TO HAVE CONSIDERED THE LOAN ACCOUNT NOT ADJUSTED AGAINST THE STOCK WHICH THE ASSESSEE HELD FOR A PARTICULAR BUSINESS. THIS DISALLOWANCE IS DIRECTED TO BE DELETED. WITH RESPECT TO THE BANK ACCOUNT HAVING DEPOSITED ON AC COUNT OF CONTRACT RECEIPTS NOT CONSIDERED IN THE GROSS RECEIPTS TO BE TAXED @9%, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS BEEN RENDERING DIFFERENT BUSINESS IN DIFFERENT NAMES AND THE CONTRACT RECEIPTS ARE IN HIS INDIVIDUAL NAME, THEREFORE, CANNO T BE SAID TO HAVE BEEN UNDISCLOSED SOURCES. THE LEARNED COUNSEL SUBMITTED THAT THE AMOUNT HAS BEEN UTILISED FOR THE ASSESSEES BUSINESS INCURRING EXPENSES WHICH HAS ALSO BEEN CONSIDERED FOR DISALLOWANCE BY THE ASSESSING OFFICER WHICH GROUND HAS ALSO AGITAT ED TO BE CONSIDERED LATER. HE HAS PROPOSED THAT AT BEST THE ADDITION COULD BE THE 9% NET PROFIT ON THE GROSS RECEIPT WHICH MAY KINDLY BE CONSIDERED AS ACCEPTABLE TO THE EXTENT THAT THE ASSESSING OFFICER IS DIRECTED TO TAX 9% OF 3,52,999 AS INCOME OF THE A SSESSEE. THE REMAINING ADDITION IS DIRECTED TO BE DELETED. ON THE LAST GROUND, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO SUPPORT HIS CONTENTION TO THE EXTENT THAT THE ASSESSING OFFICER DID NOT MAKE ANY SPECIFIC REQUIREMENT OF FURNISHING DOC UMENTARY EVIDENCE AND SUPPORTING VOUCHERS FOR DISALLOWANCE. HE MADE AN ESTIMATED DISALLOWANCE OF 2 LAKHS WITHOUT ANY BASIS IS DIRECTED TO BE RESTRICTED TO 1 LAKH AS ALSO AGREED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US. I.T.A.NO. 462/CTK/2010 STAY PETITIONNO.42/CTK/2010 7 6. IN THE RESULT, THE APPE AL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 7. THE STAY PETITION STANDS DISMISSED IN VIEW OF OUR HAVING DISPOSED OF THE ASSESSEES APPEAL FOR THE IMPUGNED ASSESSMENT YEAR . THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 8 TH APRIL, 2011 SD/ - SD/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 8 TH APRIL, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : PRADEEPTA KUMAR ROUT,M/SSUHAG SURAVI CENTRE,AT/PO.SUNABEDA, DIST. KORAPUT 2 / T HE RESPONDENT: ASST.COMMISSINOEROF INCOME - TAX, BERHAMPUR CIRCLE, BERHAMPUR 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY.