ITO, New Delhi V. Smt Neeru Kumar, New Delhi

ITA 4719/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7501 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 06-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Capital asset; Revenue expenditure; Capital expenditure
• Section: 133(6)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI I.C. SUDHIR , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.: - 4719/DEL /2012 ASSESSMENT YEAR : 2009 - 10 ITO, WARD 32(3), NEW DELHI VS. SMT. NEERU KUMAR PROP. TULSI, 19, SANTUSHTI COMPLEX, OPP. SAMRAT HOTEL, CHANAKYA PURI, NEW DELHI 110 003 PAN AIJPK0030H (APPELLANT) (RESPONDENT) O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) X X VI, DELHI VIDE ORDER DATED 4 .7.2012 ON THE FOLLOWING GROUNDS : - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.L,50,4 19/ - I.E. 50% OF RS.3,00,838/ - WITHOUT CONSIDERING THE FACT THAT TH E HUSB AN D IS NEITHER AN EMPLOYEE NOR A PARTNER IN THE BUSINESS OF THE ASSESSEE. MERELY BEING AN AUTHORIZED SIGNATORY, DOES NOT MAKE HIM ENTITLED FOR CLAIMING EXPENSES IN THE BUSINESS'. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS RS.32,24,345/ - TREATED THE REPAIR EXPENSES AS THE REVENUE EXPENSES OF T HR EE LEASE SHOP S. THE ASSESSEE INCURRED EXPENSES ON REPAIR AND MAINTENANCE OPENE D THREE NEW MORE SHOPS ON TENANTED PREMISES. THE ASSESSEE DEPARTMENT BY : SHRI P. DAMVANUNJNA SR. DR ASSESSEE BY: SHRI SATYEN SETHY, ADV. SHRI A PANDA, ADV. DATE OF HEARING 06/06 /2016 DATE OF PRONOUNCEMENT 16 /06/2016 ITA NO. 4719 /DEL/201 2 2 INTENTIONALLY INCLUDED THE CAPITAL EXPENDITURE AS REVENUE EXPENDITURE IN THE P&L A/ C TO SUPPRESS THE NET PROFIT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, ID.CIT ( A) HAS ERRED IN DELETING ADDITION OF RS.47,60,195/ - INCREASE IN GP @ 9.5%. WITH REASON THAT THE ASSESSEE HAS PROVIDED ALL THE DETAIL OF THE JOB WORK. DECISION OF THE CIT(A) IS NOT ACCEPTED DELETING THE ADDITION OF RS.47,60,195/ - IN RESPECT INCREASE IN GP RATE I.E. 9.5%. THE ASSESSEE HAS NOT GIVEN ANY CONCRETE REASON FOR FALL IN THE GP RATE. THE AO HAS INCREASED THE GP ON AN AVERAGE BASIS FOR THE LAST TWO YEARS AND ONE NEXT YEAR. 4. ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, ID.CIT(A) HAS ERRED IN DELETING THE ADDITION OF R S.L, 14,700/ - UN - SECURED LOAN WITH THE REASON THAT THIS LOAN DOES NOT RELATE THE A.Y. UNDER CONSIDERATION, THE ADDITION OF THIS AMOUNT CANNOT BE MADE IN THIS YEAR. THE DECISION OF THE CIT(A ) DELETING THE ADDITION OF RS.1,14,700/ - OF UNSECURED LOANS FROM MS. ANITA IS NOT ACCEPTED. THE ASSESSEE HAS STATED THAT THIS UNSECURED LOAN IS OUTSTANDING FOR MANY YEARS. INSPITE OF, ASSESSEE WAS GIVEN THE OPPORTUNITY TO FILE CONFIRMATION BUT THE ASSESSEE COULD NOT PRODUCE CONFIRMATION AND EVIDENCE IN SUPPORT OF HER CLAIM. 5. 'THE APPELLANT CRAVES LEAVES TO ADD, ALTER OR AMEND ANY/ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL.' 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSES SEE IS RUNNING A PROPRIETARY CONCERN DEALING IN TRADING AND MANUFACTURING OF GARMENTS. SHE FILED HER R ETURN OF INCOME OF RS. 12,77,110/ - ON 2 ND NOVEMBER, 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SOME DISALLOWANCES / ADDITIONS IN DISPUTE WERE MAD E BY LD. AO, WHICH ARE DELETED BY THE LD. CIT(A), AND HENCE REVENUE HAS PREFERRED THIS APPEAL. THE GROUND WISE DISPOSAL OF APPEAL IS AS UNDER : - ITA NO. 4719 /DEL/201 2 3 3. GROUND NO. 1 THE FIRST GROUND OF APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS. 1,50,419/ - BEING 50% OF TRA VELLING EXPENDITURE INCURRED BY THE ASSESS EE . THE ASSESSEE HAS INCURRED TOTAL TRAVELLING EXPENDITURE OF RS. 3,00,838/ - AND OUT OF WHICH 50% OF THOSE EXPENDITURE WERE DISALLOWE D BY THE AO ON THE GROUND THAT IT I NCLUDES TRAVEL BY ASSESSEE AND HER HUSBAND. L D. CIT(A) DELETED THIS DISALLOWANCE FOR THE REASON THAT THE HUSBAND OF THE ASSESSEE IS ALSO ACTIVELY INVOLVED IN RUNNING THE BUSINESS OF THE APPELLANT AND IS AUTHORISED SIGNA TORY OF THE PROPRIETARY CONCERN . LD. AR SUBMITTED THAT DURING THE YEAR, THERE WERE ALSO OPENING OF VARIOUS SHOW ROOMS AND THEREFORE THE TRAVELLING EXPENDITURE INCURRED FOR THAT PURPOSE. IT WAS FURTHER SUBMITTED BY HIM THAT SUCH TRAVELLING EXPENSES WERE ONLY RS. 1,13,941/ - AND NOT RS. 300838/ - AS COMPUTED BY THE AO. HE REFERRED TO PARA NO. 2 OF THE ASSESSMENT ORDER AND STATED THAT THERE IS AN ERROR IN TOTALLING . LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND STATED THAT MERELY AS THE ASSESSEES HUSBAND IS AUTHORISED SIGNATORY EXPENDITURE ON THAT COUNT CANNOT BE ALLOWED. 4. WE HAVE CAR EFULLY CONSIDERED THE RIVAL CONTENTIONS. LD. CIT(A) HAS NOTED THE FACTS THAT THE HUSBAND OF THE ASSESSEE IS ACTIVELY INVOLVED IN CARRYING ON THE BUSINESS OF THE ASSESEE AND FURTHER AUTHORISED SIGNATORY OF THE PROPRIETARY CONCERN. FURTHER FACTS BROUGHT TO O UR NOTICE THAT DURING THE YEAR OPENING OF THREE SHOWROOMS BY THE ASSESSEE AND THEREFORE THE TRAVELLING EXPENSES HAVE BEEN INCURRED. FURTHERMORE ITA NO. 4719 /DEL/201 2 4 MERELY BECAUSE THE EXPENSES OF THE HUSBAND OF THE ASSESSEE HAVE BEEN SHOWN SAME CANNOT BE DISALLOWED UNLESS THE RE IS A SPECIFIC FINDING THAT THESE EXPENSES ARE NOT INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IN THE PRESENT CASE IT IS NOT CONTROVERTED THAT HUSBAND OF THE APPELLANT IS ACTIVELY E NGAGED IN THE BUSINESS OF THE AS SES S EE. IN VIEW OF THIS WE CONFIRM THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 150419/ - . FURTHER THE EXPENDITURE STATED BY THE LD. AO IN PARA NO. 2 OF THE ORDER IS ALSO ARITHMETICALLY INACCURATE AS THE TOTAL OF SUCH EXPENDITURE COMES TO RS. 113914/ - . IN VIEW OF THIS, WE DISMISS GROUND NO. 1 OF APPEAL OF THE REVENUE. 5. GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS AGAINST DELETION OF DISALLOWANCE OF RS. 32 , 24 , 435/ - BEING REPAIRS AND MAINTENANCE OF THREE NEW SHOPS. DURING THE YEAR, ASSESSE E HAS SET UP THREE NEW SHOPS AT KHAR, MUMBAI, EMPORIO, DELHI AND AT JODHPUR. FOR SETTING UP OF THESE SHOPS IT IS INCURRED CERTAIN EXPENDITURE AND CLAIMED THE SAME AS REPAIR EXPENDITURE. AO HAS HELD THAT ALL THESE EXPENDITURE TOWARDS REPAIR S AND MAINTENANCE ARE TO BE TREATED AS CAPITAL EXPENDITURE BECAUSE NEW ASSETS FOR NEW SHOWROOMS ARE CREATED. HE ALSO HELD THAT THE NEW SHOPS ARE OPENED AND EXPENSES ARE INCURRED BEFORE COMMENCEMENT OF BUSINESS AND AS TH ESE EXPENSES ARE DISALLOWABLE AS CAPITAL EXPENDITURE. ON APPEAL BEFORE LD. CIT(A), THE ABOVE ADDITION WAS DELETED. LD. CIT(A) HAS HELD THAT ALL THESE SHOPS ARE TAKEN ON LEASE AND ITA NO. 4719 /DEL/201 2 5 ARE FOR THE PURPOSE OF BUSINESS AND THE EXPENSES INCURRED TO MAKE THE PREMISES USABLE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HE FURTHER HELD THAT THE EXPENSES ARE ALLOWABLE U/S 30(A)(I) OF THE INCOME TAX ACT. THE REVENUE IS IN APPEAL BEFORE US. LD. DR SUBMITTED THAT THE EXPENDITURE IS IN NATURE OF CAPITAL EXPENDITURE AS NEW SHOW ROOMS HAVE BEEN SET UP. LD. DR STATED THAT THERE I S A SUBSTANTIAL EXPENDITURE INCURRED BY THE ASSESSEE AND THEREFORE IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE. AGAINST THIS, LD. AR SUBMITTED THAT ALL THESE EXPENDITURE ARE OF REVENUE IN NATURE AND NO CAPITAL ASSET IS CREATED. IT WAS FURTHER SUBMITTED TH AT ASSESEE IS IN THE BUSINESS OF TRADING OF GARMENTS SINCE LONG THEREFORE, THERE ARE NO NEW BUSINESS SET UP DURING THE YEAR BUT IT IS AN OLD BUSINESS, WHICH IS EXPANDED BY OPENING THREE NEW SHOPS. HE THEREFORE SUBMITTED THAT ACCORDING TO THE PROVISIONS OF SECTION 30(A)(II) THE EXPENDITURE ON REPAIR IN RENTED PREMISES IS ALLOWABLE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDER OF THE LOWER AUTHORITIES . DURING THE YEAR, THREE NEW SHOPS WERE OPENED AND TO MAKE THEM FIT FOR PROPER US E THE ASSESSEE HAS INCURRED EXPENDITURE ON SUCH SHOPS. IT WAS SUBMITTED BY THE LD. AR THAT NO NEW ASSETS HAS BEEN ACQUIRED BY THE ASSESEE. THIS FACT HAS NOT BEEN CONTROVERTED BY THE REVENUE. ACCORDING TO THE PROVISIONS OF SECTION 30 (A)(II) ANY EXPENDITUR E ON REPAIRS AND MAINTENANCE OF THE PREMISES NOT OWNED BY THE ASSESSEE ARE ALLOWABLE AS DEDUCTION . LD. CIT(A) HAS ITA NO. 4719 /DEL/201 2 6 CATEGORICALLY HELD THAT EXPENDITURE TOWARDS ELECTRICAL WORK, WOODE N FLOORING, AC FITTINGS AND OTHER PROFESSIONAL CHARGES, WHICH ARE OF REVEN UE NATURE AND NO ADVANTAGE OF ENDURING NATURE, HAS BEEN OBTAINED BY THE ASSESSEE AS THESE ARE ROUTINE EXPENDITURE. ON VERIFICATION OF EXPENDITURE BY CIT ( A), HE HAS DELETED THE DISALLOWANCE. REVENUE DID NOT CONTROVERT OR COULD NOT POINT OUT SPECIFICALLY ANY EXPENDITURE RESULTING IN TO CAPITAL ASSETS. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE CONFIRM THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 3234345/ - . IN THE RESULT GROUND, NO. 2 OF THE APPEAL IS DISMISSED. 7. GROUND NO. 3 OF APPEAL IS AGAINST DELETION OF ADDITION OF RS. 47 , 60 , 195/ - ON ACCOUNT OF LOWER GP. DURING THE YEAR, ASSESEE HAS SHOWN GROSS PROFIT RATE AT 31.33% WHEREAS IN PREVIOUS TWO YEARS IT IS 46.9% AND 39.75% RESPECTIVELY. BEFORE A O, AS SESEE EXPLAINED THE DECREASE IN GP THAT BUYERS ARE DEMANDING DISCOUNT DUE TO RECESSION AS WELL AS COST CUTTING BY HOTELS WHERE ASSESSEE MAKES MAJOR SALES. HOWEVER, AO REJECTED THE REASON AND STATED THAT THE TURN OVER OF THE ASSESSEE HA S INCREASED DUE T O OP ENING OF THREE NEW S HOPS A N D FURTHER HE ALSO DOUBTED THE JOB WORK EXPENDITURE. HE ISSUED NOTICE U/S 133(6) OF THE INCOME TAX ACT TO JOB WORKERS FOR THEIR VERIFICATION. HOWEVER OUT OF FOUR PARTIES , IN CASE OF TWO PARTIES CONFIRMATION COULD NOT BE RECEIVED . IN VIEW OF THIS HE ADOPTED THE AVERAGE GP OF LAST THREE YEARS OF 40.77% AND COMPARED IT ITA NO. 4719 /DEL/201 2 7 WITH CURRENT YEAR GP OF 31.33% AND MADE ADDITION @ 9.5% ON SALES OF RS. 5.03 CRORES AMOUNTING TO RS. 47 , 60 , 195/ - . 8. AGAINST THIS ADDITION ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) , HOW DELETED THE ADDITION BECAUSE THE ASSESSEE HAS BEEN MAINTAINING REGULAR BOOKS OF ACCOUNTS AND THERE ARE NO DEFECTS POINTED OUT IN THE BOOKS OF ACCOUNTS BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WE FOUND THAT ALL THE NE CESSAR Y DETAILS OF THE PARTIES SHOWING T HEIR NAMES , ADDRESS AND PERMANENT ACCOUNT NUMBER HAVE BEEN PROVIDED. THE ASSESEE HAS ALSO MADE PAYMENT TO THE JOB WORKERS BY CHEQUES. LD. CIT(A) FURTHER FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. JAS JACK ELEGANCE EXPORTS (2010) 191 TAXMAN 386 DELETED THE ADDITION. THEREFORE, REVENUE IS IN APPEAL BEFORE US. LD. DR RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THERE IS A S IGNIFICANT DOWNFALL IN THE GROSS PROFIT COMPARED T O THE PREVIOUS YEAR AND THEREFORE THE AO HAS RIGHTLY MADE THE ADDITION. LD. AR ON THE OTHER HAND RELIED ON THE SAME ARGUMENTS, WHICH WERE MADE BEFORE THE LOWER AUTHORITIES. REGARDING THE JOB WORK CHARGES IT WAS SUBMITTED THAT OUT OF THE FOUR PARTIES 2 PA RTIES RESPONDED TO THE NOTICE U/S 133(6) OF THE ACT AND ONLY TWO PARTIES DID NOT RESPOND AND THEREFORE HE SUBMITTED THAT IN ABSENCE OF ANY DEFECTS IN THE BOOKS OF ACCOUNTS ADDITION HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A). 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. ON PERUSAL OF THE ORDER OF THE LD. CIT(A), WE FIND HAT ADDITION HAS BEEN DELETED BECAUSE ITA NO. 4719 /DEL/201 2 8 OF THE REASON THAT ASSESEE IS MAINTAINING REGULAR BOOKS OF ACCOUNTS AND NO DEFECTS COULD BE POINTED OUT BY THE AO. FURTHERMORE IN CASE OF THE P AYMENT OF JOB WORK CHARGES ASSESSEE HAS SUBMITTED THE DETAILS SHOWING THE NAME, ADDRESS, PERMANENT ACCOUNT NUMBER OF THE JOB WORKERS AND THE PAYMENT MADE TO THEM IS THROUGH BANKING CHANNELS. FURTHERMORE, OUT OF THE FOUR JOB WORKERS TWO JOB WORKERS RESPON DED AND CONFIRMED THE TRANSACTIONS. IN VIEW OF THE ABOVE FACTS AND IN ABSENCE OF ANY DEFECT IN THE BOOKS OF ACCOUNTS AND MERELY BECAUSE TWO JOB WORKERS DID NOT RESPOND TO NOTICES 133(6) , NO ADDITION ON ACCOUNT OF BOOKS RESULTS CAN BE MADE. WE ARE OF T HE VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 47,60,195/ - ON ACCOUNT OF LOWER GROSS PROFIT AS COMPARED TO PREVIOUS YEAR. IN THE RESULT GROUND NO. 3 OF THE APPEAL IS DISMISSED. 10. GROUND NO. 4 OF THE APPEAL IS AGAINST DELETION OF ADDITION OF RS. 1,14,700/ - ON UNSECURED LOAN WHICH IS OUTSTANDING FOR MANY YEARS. ASSESSEE HAS OBTAINED A LOAN OF RS. 1,14,700/ - FROM ONE MRS. ANITA IN PAST YEARS AND SAME IS OUTSTANDING . AS THE ASSESSEE DID NOT FILE CONFIRMATION OF THIS ACCOUNT AO MADE AN ADDITION . ON APPEAL BEFORE THE LD. CIT(A), H E DELETED THE ADDITION SINCE THE LOAN DOES NOT RELATE TO THE CURRENT ASSESSMENT YEAR. THEREFORE REVENUE IS IN APPEAL BEFORE US. LD. DR SUBMITTED THAT IT IS IN FACT THE ISSUE OF ADDITION U/S 41(1) OF THE ACT AND THEREFORE A S THE ABOVE BEING OUTSTANDING FOR A LONG TIME THE ADDITION HAS RIGHTLY BEEN MADE BY THE AO. LD. AR SUBMITTED THAT THIS ITA NO. 4719 /DEL/201 2 9 AMOUNT IS OLD OUTSTANDING AS UNSECURED LOAN AND AS IT DID NOT RELATE TO THE ASSESSMENT YEAR SAME HAS RIGHTLY BEEN DELETED BY THE LD. CI T(A). 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. WE AGREE WITH THE VIEWS OF THE LD. CIT(A) THAT MERELY BECAUSE THE OUTSTANDING UNSECURED LOAN IS CARRYING IN THE BOOKS OF ACCOUNTS FOR MANY YEARS SAME CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE DU RING THIS YEAR. FURTHER THE ARGUMENTS OF THE LD. DR THAT PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT ARE APPLICABLE CAN ALSO NOT BE ACCEPTED BY US AND IT IS NOT REASON FOR WHICH ADDITION HAS BEEN MADE BY THE AO AND FURTHER IT IS ALSO NOT THE CESSATIO N OF ANY TRADE LIABILITY FOR WHICH DEDUCTION IN EARLIER YEARS HAVE BEEN GRANTED TO THE ASSESSEE. IN VIEW OF THIS WE CONFIRM THE FINDING OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 1,14,700/ - . IN THE RESULT GROUND NO. 4 IS DISMISSED. 12. GROUND NO. 5 IS GENERAL IN NATURE. HENCE DISMISSED. 13. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 16 /06/2016 . - SD/ - - SD/ - ( I.C. SUDHIR ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 /06/2016 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) ITA NO. 4719 /DEL/201 2 10 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI