The ACIT, Circle-2(1)., Vijayawada V. Sri G Mohana Rao, Vijayawada

ITA 480/VIZ/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0755 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 04-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K NEERAJA
• Assessee Lawyers: SUBRATA SARKAR
• Keywords: Depreciation; Principle of natural justice

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.479/VIZAG/2007 ASSESSMENT YEAR : 2004-05 G. MOHANA RAO VIJAYAWADA VS. ACIT, CIRCLE-2(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.ADXPG 4203F I.T.A. NO.480/VIZAG/2007 ASSESSMENT YEAR : 2004-05 ACIT, CIRCLE-2(1) VIJAYAWADA VS. G. MOHANA RAO VIJAYAWADA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. NEERAJA, ADVOCATE RESPONDENT BY : SHRI SUBRATA SARKAR, DR O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER D ATED 25.9.2007 PASSED BY LD. CIT(A), VIJAYAWADA AND THEY RELATE TO THE AS SESSMENT YEAR 2004-05. 2. THE ASSESSEE IS ASSAILING THE DECISION OF LD. CI T(A) IN ESTIMATING THE INCOME FROM OWN LORRIES DIVISION AT RS.28,38,500/- CLEAR OF DEPRECIATION AND ALSO IN NOT IGNORING THE DEFICIT COST OF CONSTRUCTION OF RS.3,03,316/-. THE REVENUE IS IN APPEAL ASSAILING THE DECISION OF LD. CIT(A) IN N OT MAKING ANY ADDITION ON ACCOUNT OF DIFFERENCE IN COST OF CONSTRUCTION. 2 3. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS A TRANSPORT OPERATOR AND IS CARRYING ON THE BUSINESS OF TRANSPO RT BY WAY OF TWO DIVISIONS. THE ASSESSEE IS UNDERTAKING TRANSPORT CONTRACT BY T AKING LORRIES ON HIRE AND THE SAID ACTIVITY WAS CARRIED WITH A TRADE NAME OF M/S. MATHRUSRI TRANSPORT. HE IS ALSO PLYING HIS OWN LORRIES WITHOUT ANY TRADE NAME. THOUGH THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT FOR M/S. MATHRUSRI TRAN SPORT, YET WHILE FILING THE RETURN OF INCOME, HE ESTIMATED NET INCOME FROM M/S. MATHRU SRI TRANSPORT @ 2.5% OF THE GROSS RECEIPTS. THE INCOME SO ESTIMATE D WAS LITTLE HIGHER THAN THE INCOME DISCLOSED IN THE BOOKS OF ACCOUNT. WITH REG ARD TO BUSINESS OF PLYING OWN LORRIES, THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNTS. HENCE THE ASSESSEE ESTIMATED THE INCOME BEFORE DEPRECIATION A T 10% OF THE GROSS HIRE RECEIPTS OF 8.13 CRORES AND THERE AFTER HE DEDUCTED DEPRECIATION AMOUNT OF RS.84.12 LAKHS AND THUS ARRIVED AT NET LOSS OF 62.8 0 LAKHS. THE ASSESSING OFFICER REJECTED BOTH THE METHODOLOGIES FOLLOWED BY THE ASS ESSEE. THE AO ESTIMATED THE NET INCOME FROM TRANSPORT CONTRACT AT 5% OF THE GROSS RECEIPTS CLEAR OF DEPRECIATION. WHILE ARRIVING THE GROSS RECEIPTS, T HE AO ELIMINATED THE CROSS RECEIPTS BETWEEN THE TWO DIVISIONS. THUS THE INCOME FROM TWO DIVISIONS OF TRANSPORT BUSINESS WAS ESTIMATED BY THE AO AT RS.51 ,80,601/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CONSTRUCTED A BUILDING DURING THE YEAR UNDER CONSIDERATION AND ITS COST OF CONSTRUCTION WA S DECLARED AT RS.36.02 LAKHS. THE ASSESSING OFFICER REFERRED THE MATTER OF VALUAT ION TO THE DVO WHO ESTIMATED THE COST OF BUILDING AT RS.52.91 LAKHS. THE AO DID NOT ACCEPT THE PLEA OF THE ASSESSEE TO ALLOW DEDUCTION OF 15% TOWARDS THE DIFF ERENCE IN COST OF CONSTRUCTION AS HELD BY THE HYDERABAD BENCH OF ITAT IN THE CASE OF SMT. SALMA A. MEHDI. THE DVO HAD ALLOWED A DEDUCTION OF 6% TO WARDS SELF SUPERVISION WHICH WAS INCREASED TO 10% BY THE AO. THUS THE AO ARRIVED AT THE COST OF CONSTRUCTION OF BUILDING AT RS.50.62 LAKHS AND ACCO RDINGLY THE DIFFERENCE IN COST OF CONSTRUCTION WAS WORKED OUT TO RS.14.60 LAKHS. THE AO ADDED THE SAID DIFFERENCE TO THE TOTAL INCOME OF THE ASSESSEE. 3 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A). WITH REGARD TO THE INCOME FROM M/S. MATHRU SRI TRANSPORT DIVISI ON, THE LD. CIT(A) FOUND FAULT WITH ASSESSING OFFICER IN NOT CONSIDERING AUDITED B OOKS OF ACCOUNTS. ACCORDINGLY THE LD. CIT(A) DIRECTED THE A.O. TO ACCEPT THE INCO ME OF RS.15,16,800/- DECLARED BY THE ASSESSEE FROM M/S. MATHRU SRI TRANSPORT. WI TH REGARD TO THE INCOME FROM OWN VEHICLES DIVISION, THE LD. CIT(A) ESTIMATED THE INCOME FROM THE SAID DIVISION CLEAR OF DEPRECIATION AT RS.28,38,500/- BY TAKING C UE FROM THE PROVISIONS OF SECTION 44AE OF THE ACT. WITH REGARD TO THE COST O F CONSTRUCTION, THE LD. CIT(A) FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE O F SALMA A. MEHEDI AND ACCORDINGLY ALLOWED DEDUCTION OF 15% TOWARDS THE DI FFERENCE IN COST OF MATERIALS. THE LD. CIT(A) ALSO NOTICED THAT THE ASSESSEE HAD D ECLARED THE COST OF CONSTRUCTION OF BUILDING AT RS.40 LAKHS AND NOT RS. 36.02 LAKHS AS ASSUMED BY THE ASSESSING OFFICER. THUS THE LD CIT(A) COMPUTED THE COST OF CONSTRUCTION BY MAKING ADJUSTMENTS STATED ABOVE, WHICH RESULTED IN A DIFFERENCE OF RS.3.03 LAKHS ONLY. THE LD. CIT(A) DIRECTED THE A.O. TO TELESCOP E THIS DIFFERENCE AGAINST THE INCREASE IN THE INCOME FROM OWN LORRIES DIVISION. AGGRIEVED BY THE ORDER PASSED BY LD. CIT(A) BOTH THE PARTIES ARE IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. WITH REGARD TO THE INCOME FROM HIRED VEHICLES DIVISION VIZ., M/ S. MATHRUSRI TRANSPORT, THE INCOME DECLARED BY THE ASSESSEE HAS BEEN ACCEPTED B Y LD. CIT(A) AND SINCE THERE IS NO APPEAL AGAINST THIS DECISION, THE ISSUE HAS REACHED FINALITY. 6. WITH REGARD TO THE COMPUTATION OF INCOME REL ATING TO OWN VEHICLES DIVISION, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNTS. THE LD. CIT(A) HAS OBSERVED THAT EVEN THE GROSS REC EIPT OF RS.8.13 CRORES DECLARED BY THE ASSESSEE FROM OWN VEHICLES DIVISION ARE NOT SUPPORTED BY PROPER EVIDENCES. DURING THE COURSE OF APPEAL PROCEEDINGS , THE LD CIT(A) ASKED FOR THE 4 DETAILS OF EXPENSES AND NOTICED THAT THE ASSESSEE H AS PREPARED THE LIST OF EXPENSES ON ESTIMATED BASIS AND MOST OF THE EXPENDI TURE ARE NOT SUPPORTED BY EVIDENCES. THE AO HAD TAKEN THE ESTIMATE OF 5% ON THE BASIS OF INCOME DECLARED BY TWO OTHER ASSESSEES IN THE SAME LINE OF BUSINESS. THE ASSESSEE HAS CONTENDED THAT THOSE TWO CASES ARE NOT COMPARABLE W ITH HIM SINCE BOTH THE PERSONS ARE SMALL TIME OPERATORS HAVING VERY MUCH L OWER TURNOVER. HOWEVER, WE NOTICE THAT THE ASSESSEE DID NOT FURNISH THE DETAIL S OF ANY OTHER COMPARABLE CASES TO DEFEND HIS CASE. IN THESE CIRCUMSTANCES, PARTI CULARLY IN THE ABSENCE OF ANY VERIFIABLE EVIDENCES TO COMPUTE THE INCOME, THE LD. CIT(A) THOUGHT IT CORRECT TO TAKE THE CUE FROM SECTION 44AE TO ESTIMATE THE INCO ME, THOUGH THE PROVISIONS OF SECTION 44AE ARE NOT APPLICABLE TO THE ASSESSEE. A CCORDINGLY, THE LD CIT(A) HAS ESTIMATE THE INCOME FROM OWN VEHICLES DIVISION AT R S.28.38 LAKHS CLEAR OF DEPRECIATION. WITH REGARD TO THE CLAIM OF DEPRECIA TION THE LD. CIT(A) HAS SPECIFICALLY OBSERVED THAT THE ASSESSEE HAS FAILED TO FILE ANY EVIDENCE IN SUPPORT HIS CLAIM FOR DEPRECIATION. THE LD. A.R. CONTENDED BEFORE US THAT THE DEPRECIATION, BEING A STATUTORY ALLOWANCE SHOULD HA VE BEEN ALLOWED SEPARATELY. HOWEVER, IT SHOULD BE NOTED THAT THERE IS NO PARTIC ULAR WAY OF ESTIMATING INCOME AND THERE ARE MORE THAN ONE WAY OF ESTIMATING THE I NCOME FROM ANY ACTIVITY I.E. THE INCOME MAY BE ESTIMATED BEFORE DEPRECIATION OR NET OF DEPRECIATION. WHAT IS REQUIRED TO BE SEEN IS WHETHER THE INCOME IS ESTIMA TED ON A REASONABLE BASIS. IN THE INSTANT CASE, THE LD CIT(A) HAS THOUGHT IT FIT TO ESTIMATE THE INCOME NET OF DEPRECIATION. THE ASSESSEE DID NOT FILE ANY MATERI AL BEFORE US TO SUGGEST THAT THE ESTIMATE SO MADE WAS NOT REASONABLE. HENCE, WE DO NOT FIND ANY INFIRMITY IN HIS DECISION ON THIS ISSUE. 7. WITH REGARD TO THE COST OF CONSTRUCTION, WE NOTICE THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF HYDERABAD BENCH IN THE CAS E OF SMT. SALMA A. MEHEDI IN ITA NOS.806 & 807/HYD/93. THE REVENUE DID NOT SHOW HOW THE SAID DECISION WAS NOT APPLICABLE TO THE INSTANT CASE. HENCE, WE D O NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD. CIT(A) IN GRANTI NG DEDUCTION OF 15% TOWARDS THE DIFFERENCE IN COST OF MATERIAL. SINCE THE INCO ME FROM OWN VEHICLES DIVISION 5 HAS BEEN ENHANCED, THE LD. CIT(A) HAS TELESCOPED TH E DIFFERENCE IN COST OF CONSTRUCTION AGAINST THE INCOME FROM OWN VEHICLES D IVISION, WHICH WE FIND TO BE REASONABLE IN THE INTEREST OF NATURAL JUSTICE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WEL L AS THAT OF THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 13.05.2010 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 13 TH MAY, 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 C.N. RANGA SWAMY, FCA, D.NO.26-11-3, HINDI STREE T, GANDHINAGAR, VIJAYAWADA-520 003 02 THE ACIT, CIRCLE-2(1), VIJAYAWADA 03 THE CIT (A), VIJAYAWADA 04 THE CIT, VIJAYAWADA 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH