Shri Kishor Mansukhlal Shah, Sangli V. Jt. CIT, Circle-2, Sangli

ITA 500/PUN/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9994 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: S V DESHPANDE
• Section: 143(3)

Judgement Text

I.T.A. NO. IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 500/PN/2010: A.Y. 2006-07 KISHOR M. SHAH 74 PRANSUKH, VAKHAR BHAG SANGLI 416 416. PAN ACGPS 2784 P APPELLANT VS. JT. CIT CIR. 2, SANGLI RESPONDENT APPELLANT BY: SHRI S.V. DESHPANDE RESPONDENT BY : MS. ANN KAPTHUAMA ORDER PER G.S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) KOLHAPUR, WHIC H, IN TURN HAS ARISEN FROM AN ORDER PASSED BY THE JT. CIT RANGE 2, SANGLI U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) DATED 19- 11-2008 PERTAINING TO THE ASSESSMENT YEAR 2006-07. 2. THE FIRST GROUND IN THIS APPEAL RELATES TO DISAL LOWANCE OF A LOSS OF RS. 50,164/- AND ADDITION OF RS. 1,10,864/- MADE BY THE ASSESSING OFFICER IN RESPECT OF GEMINI ENTERPRISES WEEKLY LOTTERY ACC OUNT. IN BRIEF, FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN T HE BUSINESS OF TRADING IN LOTTERY TICKETS AND STOCKIST OF ELECTRONIC LOTTE RY TERMINALS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, HE FILED A RET URN OF INCOME DECLARING TOTAL INCOME OF RS. 1,67,80,000/- AND AGR ICULTURAL INCOME OF RS. 10,000/-. THE RETURN OF INCOME WAS ACCOMPANIED BY AUDITED ACCOUNTS AND AUDIT REPORTS, ETC. IN THE COURSE OF ASSESSMEN T PROCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INC URRED A GROSS LOSS IN RESPECT OF TRADING IN GEMINI ENTERPRISES WEEKLY LOT TERY OF RS. 50,163.75 WHEREAS WITH RESPECT TO OTHER LOTTERIES GROSS PROFI T RANGED FROM 0.09% TO PAGE 2 OF 7 ITA NO. 500/PN/2010 KISHOR M SHAH A.Y. 2006-07 3.60%. THE AFORESAID OBSERVATIONS OF THE ASSESSING OFFICER ARE IN LINE WITH THE WORKING OF GROSS PROFIT MADE BY THE ASSESS EE, A COPY OF WHICH HAS ALSO BEEN PLACED IN THE PAPER BOOK FILED BEFORE US AT PAGE 25. THE ASSESSING OFFICER IN PARA 3.1 OF THE ASSESSMENT ORD ER HAS OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SUBS TANTIATE THE AFORESAID LOSS OF RS. 50,164/- AND ACCORDINGLY HE DISALLOWED THE SAME. SIMULTANEOUSLY HE ESTIMATED GROSS PROFIT ON SALE OF SUCH LOTTERY AT RS. 1,10,864/-, CONSIDERING A PROFIT PERCENTAGE OF 3%. THE DISALLOWANCE OF LOSS AND THE ESTIMATED ADDITION ON ACCOUNT OF PROFI T WITH RESPECT TO GEMINI ENTERPRISES WEEKLY LOTTERY WAS CARRIED IN APPEAL BE FORE THE CIT(A) UNSUCCESSFULLY. AGAINST THE ORDER OF THE CIT(A) SU STAINING THE ACTION OF THE ASSESSING OFFICER, THE ASSESSEE IS IN FURTHER A PPEAL BEFORE US. 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS TAKEN US THROUGH THE WRITTEN SUBMISSIONS MADE BEFORE THE CIT (A), A COPY OF WHICH HAS BEEN PLACED ON RECORD. THE LEARNED COUNSEL POI NTED OUT THAT WHILE EXAMINING THE LOSS IN RESPECT OF GEMINI ENTERPRISES WEEKLY LOTTERY THE ASSESSING OFFICER HAS IGNORED THE FACT THAT THE ASS ESSEE HAD ALSO EARNED BONUS OF RS. 1,83,453/- AND TICKET COLLECTION CHARG ES OF RS. 48,501/- AND IF SUCH INCOMES ARE CONSIDERED THERE WOULD BE NO LO SS EVEN IN RESPECT OF GEMINI ENTERPRISES WEEKLY LOTTERY. IT WAS THEREFOR E, CONTENDED THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN MAKING THE IMPUGNED ADDITIONS AND THAT THE SALES AND PURCHASES WERE FULLY SUPPORTED B Y AUDITED ACCOUNTS AND THAT THERE WAS NO EVIDENCE WITH THE ASSESSING O FFICER OF ASSESSEE HAVING EARNED HIGHER GROSS PROFIT IN RESPECT OF GEM INI ENTERPRISES WEEKLY LOTTERY. THE LEARNED COUNSEL ALSO POINTED OUT THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE IMPUGNED DISALLOWAN CE IN THE ABSENCE OF HAVING REJECTED THE RELIABILITY OF ACCOUNT BOOKS BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. PAGE 3 OF 7 ITA NO. 500/PN/2010 KISHOR M SHAH A.Y. 2006-07 4. ON THE OTHER HAND, THE LEARNED DR APPEARING FOR THE REVENUE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND HAS POINTED OUT THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GROSS LOSS INCURRED WITH REGARD TO GEMINI ENTERPRISES WEEKLY LOTTERY AND THAT EVEN BEF ORE THE CIT(A) THE SAID LOSS WAS NOT SUBSTANTIATED ON THE BASIS OF ANY EVIDENCE. IT WAS THEREFORE, CONTENDED THAT THE DISALLOWANCE MADE BE UPHELD. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THIS CASE, THE SUMMARY OF SALES, PURCHASES, RETURNS, OPENING S TOCK AND CLOSING STOCK OF LOTTERIES HAS BEEN PLACED AT PAGE 25 OF TH E PAPER BOOK. AS PER THE SAID DETAILS, THE ASSESSEE HAS TRADED IN EIGHT DIFFERENT LOTTERIES. ONLY IN THE CASE OF GEMINI ENTERPRISES WEEKLY LOTTERY TH E ASSESSEE HAS SHOWN GROSS LOSS OF RS. 50,164/- WHEREAS IN THE OTHER CAS ES IT HAS SHOWN GROSS PROFIT RANGING FROM 0.09% TO 3.60% AND OVERALL GROS S PROFIT AT 1.28%. AS PER THE REVENUE, THE ASSESSEE HAD THE OPTION OF RET URNING THE SOLD TICKETS TO THE PARTIES FROM WHOM SUCH TICKETS WERE PURCHASE D BY THE ASSESSEE AND THEREFORE, IT WAS NOT UNDERSTOOD AS TO WHY THE TICKETS WOULD BE SOLD AT A LOSS AND THAT TOO, ONLY IN THE CASE OF GEMINI ENTERPRISES WEEKLY LOTTERY. THE ASSESSING OFFICER HAS ALSO ASSERTED CA TEGORICALLY IN PARA 3.1 AND 3.3 OF THE ASSESSMENT ORDER THAT WHAT COMPELLED THE ASSESSEE TO SELL THE TICKETS AT A LOSS WAS NEITHER EXPLAINED AND NOR SUBSTANTIATED WITH NECESSARY DETAILED EVIDENCE. IT IS ALSO ASSERTED B Y THE ASSESSING OFFICER IN PARA 3.1 OF THE ASSESSMENT ORDER THAT THE ASSESS EE HAS NOT FURNISHED ANY EVIDENCE TOWARDS THE PURCHASE AND SALE IN SUPPO RT OF LOTTERY TICKETS OF GEMINI ENTERPRISES WEEKLY LOTTERY ALTHOUGH THE S AME WAS FILED IN THE CASE OF ANOTHER LOTTERY VIZ. BOMBAY LAXMI LOTTERY. THE PLEA OF THE ASSESSEE WAS THAT THE GROSS LOSS OF RS. 50,164/- IN GEMINI ENTERPRISES WEEKLY LOTTERY BE NOT CONSIDERED IN ISOLATION OF OT HER INCOME RECEIVED ON THIS ACCOUNT VIZ. ON ACCOUNT OF BONUS AND COLLECTI ON CHARGES ETC. IF SUCH OTHER INCOMES WERE CONSIDERED THERE WOULD NOT BE AN Y LOSS WITH RESPECT TO GEMINI ENTERPRISES WEEKLY LOTTERY. HOWEVER, WE FIND THAT THE GROSS PAGE 4 OF 7 ITA NO. 500/PN/2010 KISHOR M SHAH A.Y. 2006-07 PROFIT ENUMERATED AT PAGE 25 OF THE COMPILATION IN RESPECT OF OTHER LOTTERIES IS ALSO WITHOUT CONSIDERING THE INCOMES B Y WAY OF BONUS AND COLLECTION CHARGES ETC. AS WAS AFFIRMED BY THE LEAR NED COUNSEL DURING THE COURSE OF HEARING. THEREFORE, THE CASE MADE OUT BY THE REVENUE IS THAT ONCE THE OTHER LOTTERIES HAVE YIELDED GROSS PROFIT WITHOUT CONSIDERING THE INCOME OF BONUS AND COLLECTION CHARGES ETC., IT WAS NOT SO IN THE CASE OF GEMINI ENTERPRISES WEEKLY LOTTERY. UNDER THESE CIR CUMSTANCES, IN OUR VIEW, IT WAS FOR THE ASSESSEE TO JUSTIFY AND SUBSTA NTIATE THE REASONS FOR LOSS OF RS. 50,164/- INCURRED DURING THE TRADING OF GEMINI ENTERPRISES WEEKLY LOTTERY. IN THE COURSE OF HEARING BEFORE US , THE LEARNED COUNSEL POINTED OUT THAT IN CASE OF GEMINI ENTERPRISES WEEK LY LOTTERY THE ASSESSEE SOLD TICKETS BELOW THE COST PRICE IN THE H OPE OF EARNING OTHER INCOMES VIZ. COLLECTION CHARGES AND BONUS. IN OUR CONSIDERED OPINION, THE AFORESAID EXPLANATION IS TOO GENERAL AND IN THE FAC E OF CATEGORICAL FINDING OF NON-FURNISHING OF EVIDENCE MADE BY THE ASSESSING OFFICER, THE SAME IS NOT PLAUSIBLE. WE THEREFORE, ARE OF THE OPINION TH AT HAVING REGARD TO THE MATERIAL ON RECORD AND THE EXPLANATION FURNISHED BY THE ASSESSEE, THE INCURRENCE OF GROSS LOSS OF RS. 50,164/- IN THE CAS E OF GEMINI ENTERPRISES WEEKLY LOTTERY IS UNSUBSTANTIATED AND HAS BEEN RIGH TLY DISALLOWED BY THE ASSESSING OFFICER. THE PLEA OF THE ASSESSEE THAT T HE ASSESSING OFFICER HAS NOT INVOKED SECTION 145(3) SO AS TO REJECT THE BOOKS OF ACCOUNT IS NOT RELEVANT TO EXAMINE THE DISPUTE IN QUESTION WHICH M ERELY PERTAINED TO SUBSTANTIATION OF LOSS INCURRED. 6. IN SO FAR AS ESTIMATION OF GROSS PROFIT FROM GEM INI ENTERPRISES WEEKLY LOTTERY AT 3% MADE BY THE ASSESSING OFFICER IS CONCERNED, THE SAME, IN OUR VIEW IS ON HIGHER SIDE HAVING REGARD T O THE GROSS PROFIT DECLARED ON OTHER LOTTERIES. CONSIDERING THE GROSS PROFIT IN OTHER LOTTERIES, WE DEEM IT FIT AND PROPER THAT ESTIMATION AT 2% WIL L MEET THE ENDS OF JUSTICE. THEREFORE, ON THIS GROUND, THE ASSESSING OFFICER IS DIRECTED TO RE- COMPUTE THE ADDITION AND ACCORDINGLY, THE ASSESSEE PARTLY SUCCEEDS. PAGE 5 OF 7 ITA NO. 500/PN/2010 KISHOR M SHAH A.Y. 2006-07 7. THE NEXT GROUND IS WITH REGARD TO THE DISALLOWAN CE OF RS. 2,58,090/- OUT OF TRAVELLING EXPENSES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED TRAVELLING EXPENSES OF RS. 2,58,09 0/- WITH RESPECT TO HIS ACTIVITY OF ELECTRONIC LOTTERY TERMINALS. IT WAS N OTICED THAT THE AMOUNT WAS INCURRED ON PAYMENT TO ONE SHRI RITESH PALRECHA AS DETAILED IN PARA 4 OF THE ASSESSMENT ORDER. ON BEING ASKED TO JUSTIFY AS SESSEE EXPLAINED THAT THE ELECTRONIC LOTTERY TERMINALS WERE LOCATED AT DI FFERENT PLACES AND THE ASSESSEE IS TO PROVIDE TECHNICAL SUPPORT AND FOR TH AT PURPOSE THE EXPENDITURE WAS INCURRED ON THE TRAVEL OF SHRI RITE SH PALRECHA TO SUCH PLACES. THE ASSESSEE SUBMITTED THAT THE EXPENDITUR E WAS NECESSARY FOR THE EMPLOYEE OF THE ASSESSEE SHRI RITESH PALRECHA T O VISIT SUCH PLACES FOR MAINTENANCE OF TERMINALS. THE ASSESSING OFFICER DI SALLOWED THE EXPENDITURE PRIMARILY FOR THE REASON THAT IT WAS BA SED ON SELF MADE VOUCHERS. THE ASSESSING OFFICER HAS ALSO NOTICED T HAT PAYMENTS WERE IN THE NATURE OF CONTRACT FOR MAINTENANCE OF COMPUTERS TERMINALS WHICH REQUIRED DEDUCTION OF TAX AT SOURCE U/S 194-C OF TH E ACT AND IN THE ABSENCE OF ANY TAX HAVING BEEN SO DEDUCTED, IT WAS ALSO DISALLOWABLE U/S 40(A)(IA) OF THE ACT. THE CIT(A) HAS SINCE SUSTAIN ED THE DISALLOWANCE AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 8. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS EARNING COMMISSION ON ACCOUNT OF SUCH ACTIVITY WHICH WAS TO THE TUNE OF RS. 64,37,397/- WHEREAS THE TRAVEL E XPENDITURE IN QUESTION WAS MERELY RS. 2,58,090/- WHICH WAS MORE THAN JUSTI FIABLE AND THEREFORE, THE DISALLOWANCE WAS UNREASONABLE. APART THEREFROM , IT WAS POINTED OUT THAT NEITHER IN THE PAST AND NOR IN THE FUTURE, SUC H A DISALLOWANCE HAS BEEN MADE AND THAT THE ENTIRE EXPENDITURE WAS INCUR RED FOR THE PURPOSES OF BUSINESS. IT WAS POINTED OUT THAT THE EXPENDITU RE WAS INCURRED BY THE EMPLOYEE OF THE ASSESSEE SHRI RITESH PALRECHA WHILE ATTENDING THE TECHNICAL PROBLEMS AT VARIOUS COMPUTER TERMINALS IN FAR FLUNG AREAS AND IN PAGE 6 OF 7 ITA NO. 500/PN/2010 KISHOR M SHAH A.Y. 2006-07 THIS VIEW OF THE MATTER, IT IS POSSIBLE THAT FORMAL VOUCHERS MAY NOT BE FORTHCOMING. IN ANY CASE, IT WAS POINTED OUT THAT THE EXPENDITURE WAS INCURRED IN REGULAR COURSE OF BUSINESS. 9. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR VIEW, THE DISALLOWANCE OUT OF EXPENDITURE INCURRED ON EMP LOYEES TRAVELLING IS UNCALLED FOR INASMUCH AS THE SAID EXPENDITURE HAVE BEEN EXPENDED BY THE ASSESSEE IN THE COURSE OF CARRYING ON BUSINESS. IT IS QUITE EVIDENT THAT THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON MERE SURMISES AND CONJECTURES WITHOUT HAVING ANY CREDIBLE EVIDENC E ON RECORD TO NEGATE THE CLAIM. EVEN WITH RESPECT TO INVOKING OF SECTIO N 40(A)(IA) OF THE ACT, SAME IS UNJUSTIFIABLE, INASMUCH THE PAYMENTS HAVE BEEN MADE AND REIMBURSED TO AN EMPLOYEE AND IN ANY WAY CANNOT BE SAID TO BE SUBJECTED TO TDS U/S 194-C OF THE ACT. THEREFORE, HAVING REG ARD TO ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO REA SON TO SUSTAIN THE DISALLOWANCE OF RS. 2,58,090/-. ASSESSEE SUCCEEDS ON THIS GROUND. 11. THE NEXT GROUND IS WITH REGARD TO CONFIRMATION OF ADDITION OF RS. 1,08,500/- MADE ON ACCOUNT OF LOW HOUSEHOLD WITHDRA WALS. THE ASSESSING OFFICER FOUND THAT AN AMOUNT OF RS. 1,20,000/- WAS SHOWN AS DRAWINGS IN THE CAPITAL ACCOUNT. ON BEING ASKED TO FURNISH THE FAMILY DETAILS AND DRAWINGS CHART, THE ASSESSEE SUBMITTED THAT THERE W ERE 7 ADULTS MEMBERS AND FOUR MINORS AND THE TOTAL DRAWINGS FOR ALL MEMB ERS CAME TO RS. 2,87,500/- AND IT WAS CONTENDED THAT THIS AMOUNT WA S EXCLUSIVELY USED FOR HOUSEHOLD EXPENSES AND INVESTMENTS WERE SHOWN SEPAR ATELY. IT WAS FURTHER EXPLAINED THAT THERE WERE WAS NO EXPENDITUR E ON ACCOUNT OF RENT AND GRAINS, ETC. HOWEVER, CONSIDERING THE STANDARD OF LIVING OF THE ASSESSEE, THE ASSESSING OFFICER ESTIMATED THE WITHD RAWALS AT RS. PAGE 7 OF 7 ITA NO. 500/PN/2010 KISHOR M SHAH A.Y. 2006-07 3,96,000/- AND ADDED THE DIFFERENCE OF RS. 1,08,500 /-. ON APPEAL, THE CIT(A) HAS CONFIRMED THE SAME. 12. HAVING CONSIDERED THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC ITEM OF EX TRAVAGANT EXPENDITURE NOT COVERED IN THE WITHDRAWALS MADE. FURTHER, THERE WAS NO BASIS TO ESTIMATE THE WITHDRAWALS AT RS. 3,000/- PER MEMBER FOR 11 MEMBERS. THE ADDITION MADE IS MERELY ON SURMISES AND CONJECTURES AND ON ADHOC BASIS WHICH IS UNCALLED FOR. WE THEREFORE, DIRECT THE AS SESSING OFFICER TO DELETE THE SAME. 13. THE NEXT GROUND RELATES TO CONFIRMATION OF DISA LLOWANCE OF RS. 23,768/- MADE FROM OUT OF POSTAGE AND TELEPHONE, TR AVELLING AND MISCELLANEOUS EXPENSES. ON PERUSAL OF THE RECORD, WE FIND THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON ADHO C BASIS AND HAS NOT BROUGHT OUT ANYTHING ON RECORD TO SUBSTANTIATE THE DISALLOWANCE. THE CIT(A) HAS ALSO UNJUSTIFIABLY CONFIRMED THE SAME WI THOUT ASSIGNING ANY COGENT REASON. THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER AND CONFIRMED BY THE CIT(A) IS UNWARRANTED AND IS ACCOR DINGLY DIRECTED TO BE DELETED. ASSESSEE SUCCEEDS ON THIS ISSUE. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER 2012. SD/- SD/- (R.S. PADVEKAR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE DATED THE 24 TH SEPTEMBER 2012. ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT- KOLHAPUR 4. THE CIT- KOLHAPUR 5. THE D.R, A BENCH, PUNE BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE