M.K.ENTERPRISES, Jaipur V. ITO, Jaipur

ITA 512/JPR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99464 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA JCIT DR DHK
• Assessee Lawyers: G G MUNDRA
• Keywords: Depreciation; Cost of acquisition; Revenue expenditure
• Section: 32; 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 512/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 M/S. M.K. ENTERPRISES CHITWARI MODE, VILLAGE CHITWARI CHOMU, DISTT. JAIPUR CUKE VS. THE ITO WARD- 7 (3) JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAIFM 7083 M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.G. MUNDRA, CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI RAJ MEHRA, JCIT -DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 13/10/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 06 /11/2015 VKNS'K@ ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 12-06-2014 FOR THE ASSESSM ENT YEAR 2009-10 WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) IS WRONG, UNJUST AND HAS ERRED IN LAW IN CO NFIRMING ACTION OF THE ASSESSING OFFICER IN REJECTING BOOKS OF ACCO UNTS OF THE APPELLANT U/S 145 (3) OF THE I. T. ACT, 1961 AND IN APPLYING G.P. RATE OF 10.50% AS AGAINST DECLARED G.P. RATE OF 9.7 2% RESULTING IN UPHOLDING TRADING ADDITION OF RS. 2,06,174/- TO TH E INCOME OF THE APPELLANT. ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT (A) IS WRONG AND HAS ERRED IN LAW IN UPHOLDING DISALLOWANCE OF INTEREST OF RS. 1,09,570/- BY THE ASSESSING OFF ICER WHICH WAS PAID BY THE APPELLANT FIRM TO ITS PARTNERS ALLEGEDL Y ON THE GROUND THAT DEPRECIATION ON FIXED ASSETS IS NOT PROVIDED I N THE BOOKS OF ACCOUNTS RESULTING IN EXCESS PAYMENT OF INTEREST TO THE PARTNERS. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE D ERIVES INCOME FROM MANUFACTURING AND SALE OF MAWA. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE BOOKS OF ACCOUNT OF THE ASSESSEE W ERE EXAMINED AND AFTER HEARING THE ASSESSEE THE SAME WERE REJECTED BY THE AO U/S 145(3) OF THE ACT BY FOLLOWING OBSERVATIONS. (I) THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUN TS FOR TRADING OF MILK AND MILK USED IN MANUFACTURING OF M AWA. THEREFORE, ASSESSEE'S PROFIT COULD NOT BE PROPERLY ASCERTAINED FROM DIFFERENT ACTIVITIES. (II) THE DIFFERENCE IN YIELD OF MAWA WAS EXPLAINED BY A GENERAL REPLY THAT THE SAME IS DEPENDED ON QUALITY OF MILK. (III) MAWA WAS SOLD ON DIFFERENT PRICES ON THE SAME DATE FOR WHICH SATISFACTORY REPLY WAS NOT GIVEN (IV) MOST OF THE MILK PURCHASES WERE MADE FROM SURROUNDING VILLAGES AND CASH PAYMENT RANGING BETWE EN RS. 17,000/- TO RS. 19,000/- WAS SHOWN WITHOUT SUPPORTI NG VOUCHERS. THE ASSESSEE COULD NOT RULE OUT THE INFLA TION IN THE PURCHASE COST AS ALL THE BILLS WERE PREPARED BY IT. (V) FURTHER, THE ASSESSEE FIRM HAS CLAIMED TOTAL DI RECT EXPENSES OF RS. 27,51,717/- AGAINST COAL & GAS EXPE NSES, WOOD EXPENSES, DIESEL EXPENSES AND WAGES & LABOUR CHARGES. ON MAKING VERIFICATION OF THE SAME FROM BO OKS OF ACCOUNT, IT WAS NOTICED THAT MOST OF THESE EXPENSES HAD BEEN SHOWN ON BASIS OF SELF MADE VOUCHERS SPECIFICALLY W OOD ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 3 EXPENSES AND WAGES AND LABOUR EXPENSES. EVEN PAYMEN T OF THESE EXPENSES HAD BEEN SHOWN IN CASH SPECIFICALLY WOOD AND LABOUR CHARGES. IN THIS CIRCUMSTANCES, CORRECTN ESS OF THE SAME COULD NOT BE ESTABLISHED. (VI) ON THE BASIS OF THE ABOVE FACTS, IT IS CLEAR T HAT THE AMOUNT SHOWN BY THE ASSESSEE FIRM IN HIS REGULAR BO OKS OF ACCOUNT REGARDING PURCHASE OF RAW MATERIAL I.E. MIL K AND DIRECT/ MANUFACTURING EXPENSES, ARE NOT FULLY SUPPO RTED BY THE VOUCHERS. FURTHER THE ASSESSEE FIRM HAS NOT MAI NTAINED QUALITYWISE STOCK REGISTER OF MILK AND MAWA. THEREF ORE, IT IS CLEAR THAT THE COST OF PRODUCTION AND NET YIELD OF MAWA WERE SHOWN AS PER SWEET WILL OF THE ASSESSEE FIRM. IN TH IS CIRCUMSTANCES, THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE WAS NOT TREATED AS CORRECT AND COMPLETE. S IMILARLY THE TRADING RESULT OF THE BOOKS, IS ALSO NOT ACCEPT ABLE IN ANY WAY. IT IS RELEVANT TO MENTION HERE THAT THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF BASTI RAM NARAYAN DAS MAHESHWARI VS. CIT 210 ITR 438 HAS HELD THAT NON- MAINTENANCE OF DAY TODAY CONSUMPTION REGISTER BY TH E MANUFACTURER CAN LEAD TO REJECTION OF BOOKS OF ACCO UNT ACCORDING TO THE PROVISIONS OF SECTION 145 OF THE I .T. ACT. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. B RITISH PAINTS INDIA LTD. (1990), 188 ITR 44 HAS ALSO HELD THAT THE OBJECT OF STOCK VALUATION IS THE CORRECT DETERMINAT ION OF PROFITS AND LOSS RESULTING FROM THE YEARS TRADING. IF ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING ARE NOT APPLIED , THE ASSESSING OFFICER IS JUSTIFIED U/S 145 TO REJECT TH E BOOKS OF ACCOUNT AND DETERMINE THE CORRECT PROFITS AND GAINS . THEREAFTER THE AO ESTIMATED THE GROSS PROFIT DEPEND ING ON PAST PRACTICE OF THE ASSESSEE BY FOLLOWING OBSERVATIONS. 10. AS PER COMPARATIVE CHART OF G.P. FURNISHED BY THE ASSESSEE /A.R., G.P. SHOWN FOR A.Y. 2007-08 AND 2008- 09 WERE AT THE RATE OF 10.00% AND 10.87% RESPECTIVE LY. CONSIDERING THE FACTS OF THE CASE AND PAST HISTORY, AVERAGE GROSS PROFIT RATE DECLARED BY THE ASSESSEE HIMSELF FOR LAST ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 4 TWO YEARS I.E. 10.50% IS APPLIED ON TOTAL TURNOVER OF RS. 2,66,86,676/- AND GROSS PROFIT IS WORKED OUT OF RS. 28,02,100/-. AS THE ASSESSEE HAS ALREADY DECLARED G .P. OF RS. 25,95,926/- THEREFORE, A TRADING ADDITION OF RS. 2, 06,174/- IS MADE AND IS ADDED TO THE TAXABLE INCOME OF THE ASSE SSEE. 2.2 AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL WHEREIN THE ACTION OF THE AO WAS CONFIRMED. 2.3 APROPOS SECOND GROUND, BRIEF FACTS ARE THAT AS PER SCHEDULE B OF FINAL ACCOUNT, TOTAL VALUE OF ASSETS AS ON 31-03-20 09 WAS SHOWN FOR RS. 19,50,203/-. THE ASSESSEE HAD NOT REDUCED THE DEPRE CIATION CLAIMED ON SUCH ASSETS. IN THE COMPUTATION OF INCOME, THE ASSE SSEE HAD CLAIMED DEPRECIATION OF RS. 1,43,621/- AND AS ON 01-04-2008 THE WDV OF THE ASSETS WAS SHOWN FOR RS. 10,37,117/- AND AFTER CLAI MING THE DEPRECIATION OF RS. 1,43,621/- THE NET WDV AS ON 31-03-2009 WAS SHOWN FOR RS. 8,93,496/-. AS PER THE AO, THE ASSESSEE HAD NOT SHO WN REDUCED COST OF ASSETS FROM TOTAL QUANTUM OF DEPRECIATION AND THAT IF THE DEPRECIATION CLAIMED WOULD HAVE BEEN SHOWN THEN THE CAPITAL OF T HE PARTNERS WOULD HAVE BEEN LESS BY RS. 9,13,086/- CONSEQUENTLY THE I NTEREST ALLOWABLE TO THE PARTNERS ON THEIR CAPITAL IN TERMS OF PROVISION S OF SECTION 40(B)(V) WOULD BE LESS BY RS. 1,09,750/-. ACCORDINGLY, THE A O HELD THAT THE ASSESSEE HAD GIVEN EXCESS INTEREST TO THE PARTNERS ON THEIR CAPITAL ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 5 AMOUNTING TO RS. 1,09,750/- AND THE SAME WAS DISALL OWED AND ADDED TO THE TOTAL INCOME. 2.4 THE ASSESSEE CONTENDED THAT IT IS NOT A REQUIRE MENT OF LAW TO PROVIDE DEPRECIATION IN BOOKS OF ACCOUNTS. THE INTE REST U/S 40(B)(V) IS PAYABLE ON CAPITAL BALANCE OF PARTNERS STANDING IN BOOKS OF ACCOUNTS. THE DEPRECIATION UNDER INCOME TAX ACT IS ALLOWED AS PER STATUTORY PROVISIONS OF SECTION 32 OF I.T. ACT, 1961 AND IS NOT DEPENDEN T ON WHETHER DEPRECIATION HAS BEEN PROVIDED IN BOOKS OF ACCOUNTS OR NOT. EVEN IF REVALUATION OF ASSETS OF FIRM IS MADE AND PARTNERS CAPITAL A/C ARE CREDITED INTEREST IS PAYABLE AND ALLOWABLE U/S 40(B)(V) ON S UCH ENHANCED CAPITAL BALANCES. THE SECTION 40(B)(V) DOES NOT PROHIBIT AL LOWING OF INTEREST ON CAPITAL EVEN IF BALANCE IN CAPITAL A/C IS WITHOUT G IVING EFFECT OF DEPRECIATION IN BOOKS OF ACCOUNT. THE ACTION OF LD. A.O. IN DISALLOWING INTEREST PAID ON CAPITAL ON THE NOVEL METHOD ADOPTE D BY A.O. IS WRONG AND CANNOT BE SUSTAINED IN LAW. IT IS PRAYED THAT D ISALLOWANCE MAY KINDLY BE DELETED. 2.5 THE AO HOWEVER, DID NOT AGREE AND REDUCED THE I NTEREST PAYABLE TO PARTNERS BY FOLLOWING OBSERVATIONS. 12. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT T HE ASSESSEE HAS NOT SHOWN REDUCED COST OF THE ASSETS F ROM TOTAL QUANTUM OF DEPRECIATION CLAIMED AND SINCE ACQUISITI ON TO TILL END OF THE MARCH, IN HIS BOOKS OF ACCOUNT, THEN CAP ITAL OF ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 6 PARTNERS WOULD BEEN LESS BY THE SUM OF RS. 9,13,086 /-. ON ACCOUNT OF DEPRECIATION BEING CLAIMED SEPARATELY T ILL DATE. THEREBY THE INTEREST ALLOWABLE TO THE PARTNER ON TH EIR CAPITAL IN TERMS OF THE PROVISIONS OF SECTION 40()(V), WOUL D BE LES BY THE SUM OF RS. 1,09,570/- (12% OF RS. 9,13,086/-). THE FIRM HAS GIVEN INTEREST OF RS. 1,47,072/- TO SHRI RAGHAW KHANDELWAL ON THEIR CREDIT BALANCE OF CAPITAL AND C HARGED INTERST OF RS. 1,78,025/- AND RS. 1,10,445/- ON DEB IT BALANCES OF CAPITAL OF SHRI MAHESH KUMAR CHOUDHARY & SHRI RA JESH KUMAR CHOUDHARY RESPECTIVELY. IF THE EFFECT OF DEPR ECIATION CLAIMED ON THE ASSETS IS GIVEN, THE ALLOWABLE INTER EST ON CREDIT BALANCE OF CAPITAL OF RAGHAW KHANDELWAL WILL BE LESS THAN THE INTEREST GIVEN AND SIMULTANEOUSLY, INTERES T CHARGED ON DEBIT BALANCES OF CAPITAL OF SHRI MAHESH CHOUDHA RY AND SHRI RAJESH CHOUDHARY, WILL BE HIGHER THAN THE INTE REST CHARGED. THUS, NET EFFECT OF INTEREST IS OF RS. S1, 09,570/- WHICH IS EXCESS GIVEN ON ACCOUNT OF PARTNERS CAPI TAL. VIDE ORDER SHEET DATED 5-12-2011, NECESSARY DISCUSSION W AS MADE WITH THE A.R. OF THE ASSESSEE FIRM ON THIS ISSUE BU T NO SATISFACTORY EXPLANATION WAS GIVEN. CONSIDERING THE FACTS DISCUSSED ABOVE, IT IS CLEAR THAT THE FIRM HAS GIVE N EXCESS INTEREST ON PARTNERS CAPITAL OF RS. 1,09,570/- THER EFORE, THE SAME IS DISALLOWED AND IS ADDED BACK TO THE TOTAL T AXABLE INCOME OF THE ASSESSEE FIRM. 2.6 THE LD. COUNSEL FOR THE ASSESSEE IN RESPECT OF GROUND NO. 1 CONTENDS THAT:- THE ASSESSEE MAINTAINS COMPLETE DAY TO DAY PRODUCTION RECORD AND DAY TO DAY STOCK DETAILS IN B AHIS AND THEREFORE NO SEPARATE MANUFACTURING REGISTER OR STO CK-REGISTER REQUIRED TO BE MAINTAINED. THE ASSESSMENT FOR A.Y.( S) 2005- 06 & 2007-08 WAS COMPLETED U/S 143 (3) AND THE BOOK S OF ACCOUNTS MAINTAINED BY ASSESSEE FIRM WERE FOUND COR RECT AND COMPLETE AND DECLARED TRADING RESULTS WERE ACCEPTED . IN A.Y. 2007-08, THE A.O. DISALLOWED 20% OF PURCHASES OF MILK & MAWA, COAL EXPENSES, WAGES AND WOOD ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 7 EXPENSES. CIT (A) DELETED THE ENTIRE ADDITIONS AND ACCEPTED THE RETURNED INCOME. HONBLE ITAT, JAIPUR BENCH UPH ELD THE DECISIONS OF LD. CIT (A). THUS THE AO IS WRONG IN I NVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT IN THE CASE OF THE ASSESSEE FIRM. THE A.O. MADE RELIANCE IN THE CASE OF BASTI RAM NARAIN DASS MAHESHWARI VS. CIT (210 ITR 438) BUT THE SAME IS NOT APPLICABLE AS ASSESSEE MAINTAINED MANUF ACTURING RECORD. THE JUDGEMENT OF CIT VS. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 CITED BY A.O. IS NOT AT ALL APPLICABLE AND DISTINGUISHABLE ON FACTS. THE QUOTES FROM JUDGEMENT S REPRODUCED ARE WITHOUT BRINGING THE CONTEXT AND FAC TS OF CASE ON WHICH JUDGEMENT WAS DELIVERED. THE QUOTES ARE IN - BETWEEN LINES OF JUDGEMENTS WHICH LD. A.O. SOUGHT T O APPLY ON ALTOGETHER DIFFERENT FACTS OF THE CASE. THE SAID JUDGEMENT IS ON THE METHOD OF ACCOUNTING. THE ASSESSEE VALUED STOCK AT ACTUAL COST IGNORING THE OVERHEAD CHARGES INCURRED TO WHICH COURT HELD THAT THE SAME IS NOT A CORRECT MODE OF V ALUATION AND NOT APPROPRIATE FOR COMPUTATION OF INCOME CHARG EABLE UNDER THE INCOME TAX ACT EVEN THOUGH AS A CONSISTEN T PRACTICE ASSESSEE WAS DOING SO FROM EARLIER YEARS. IT IS IN THIS CONTEXT THE OBSERVATION QUOTED BY A.O. WERE MADE IN JUDGEMENT BY THE COURT. IN THE CASE UNDER CONSIDERA TION NO SUCH FACTS ARE THERE AND, THEREFORE, OBSERVATIONS M ADE IN JUDGEMENT WERE IN DIFFERENT CONTEXT AND ON DIFFEREN T FACTS WHICH CANNOT BE APPLIED IN EACH CASE. IT IS VERIFIABLE FROM THE ABOVE CHART THAT IN THE A .Y. 2005-06 THE DECLARED G.P. RATE OF 6.41% WAS ACCEPTE D BY THE DEPARTMENT. THE A.Y. 2007-08 WAS ALSO COMPLETED U/S 143 (3) OF THE I.T.ACT, 1961 AND AFTER ORDER OF LD. CIT (A) AND HONBLE ITAT, JAIPUR BENCH, JAIPUR THE DECLARED TRA DING RESULT WAS ACCEPTED. THE ASSESSEE FIRM SUBMITS THAT THE PURCHASES, SALES AND EXPENSES ARE FULLY VERIFIABLE FROM THE RECORD MAINTAINED. ALL THE PAYMENTS OF EXPENSES WER E MADE ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 8 BY ACCOUNT PAYEE CHEQUES. THE GROSS PROFIT RATE IS SLIGHTLY DECLINE BY 1.14% IN COMPARISON TO IMMEDIATELY PRECE DING ASSESSMENT YEAR. THE GROSS PROFIT RATE IN THE MAWA BUSINESS FLUCTUATES DUE TO MARKET FORCES. THE RATES OF MAWA ARE DAILY FIXED BY MAWA TRADERS ACCORDING TO DEMAND AND SUPPL Y AND THUS PROFIT VARIES AND CANNOT BE SIMILAR IN EVERY Y EAR. IN LAST YEAR PROFITS RANGED FROM 6.41% TO 10.87% AND THEREF ORE THE DECLARED G.P. @ 9.72% FOR THE YEAR IS FAIR AND REAS ONABLE. FURTHER IT IS SUBMITTED THAT IN THE PRECEDING ASSES SMENT YEAR THE PROVISIONS OF SECTION 145 (3) WERE NOT APPLIED. THE LD. CIT (A) WRONGLY HELD THAT ASSESSEE HAS NOT REFUTED OBJECTION OF LD. A.O. WHICH IS WRONG FROM ABOVE FACTS AND SUBMISSIONS MADE. THE MILK IS PURCHASED FROM VILLAG ERS WHO NEITHER HAVE ANY BILL NOR ISSUES ANY BILL. HOWEVER ASSESSEE RECORDED RECEIPT OF MILK FROM VILLAGERS & PAYMENT T HEREFORE MADE TO THEM IN DUDH BAHI UNDER THEIR SIGNATORY THU MB IMPRESSION. NO BETTER RECORD COULD BE MAINTAINED IN SUCH TYPE OF VILLAGE ORIENTED BUSINESS. THE LD. CIT (A) IS WRONG IN REJECTING THE GROUNDS OF APPEAL WITHOUT PROPER APPRECIATING THE FACTS AND PAST HISTORY OF THE CASE . IN VIEW OF THE ABOVE SUBMISSIONS, FACTS AND CIRCUMSTANCES OF T HE CASE THE DECLARED TRADING RESULTS OF THE ASSESSEE FIRM A RE COMPLETELY VERIFIABLE FROM THE RECORD MAINTAINED AN D, THEREFORE, SAME DESERVES TO BE ACCEPTED AND TRADING ADDITION OF RS. 2,06,174/- DESERVES TO BE DELETED. IN THIS CONNECTION IT IS SUBMITTED THAT IT IS NOT A REQUIREMENT OF LAW TO PROVIDE DEPRECIATION IN BOOKS OF ACCOUNTS. THE INTEREST U/S 40(B)(V) IS PAYABLE ON C APITAL BALANCE OF PARTNERS STANDING IN BOOKS OF ACCOUNTS. THE DEPRECIATION UNDER INCOME TAX ACT IS ALLOWED AS PER STATUTORY PROVISIONS OF SECTION 32 OF I.T. ACT, 61 AND IS NOT DEPENDENT ON WHETHER DEPRECIATION HAS BEEN PROVIDED IN BOOKS OF ACCOUNTS OR NOT. EVEN IF REVALUATION OF AS SETS OF FIRM IS MADE AND PARTNERS CAPITAL A/C ARE CREDITED INTEREST IS PAYABLE AND ALLOWABLE U/S 40(B)(V) ON SUCH ENHANCED CAPITAL ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 9 BALANCES. THE SECTION 40(B)(V) DOES NOT PROHIBIT AL LOWING OF INTEREST ON CAPITAL EVEN IF BALANCE IN CAPITAL A/C IS WITHOUT GIVING EFFECT OF DEPRECIATION IN BOOKS OF ACCOUNT. THE ACTION OF LD. A.O. IN DISALLOWING INTEREST PAID ON CAPITAL ON THE NOVEL METHOD ADOPTED BY A.O. IS WRONG AND CANNOT BE SUSTAINED IN LAW. THE LD. CIT (A) IS WRONG IN ENDOR SING THE VIEW OF LD. A.O. WHICH IS NOT IN ACCORDANCE WITH SC HEME OF THE I. T. ACT, 1961. IT IS PRAYED THAT DISALLOWANCE MAY KINDLY BE DELETED 2.7 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 2.8 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. APROPOS REJECTION OF BOOKS OF ACCOUNT, IT IS FOUND THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOU NTS VIS A VIS TRADING OF MILK AND MANUFACTURING OF MAWA WHICH CONSTITUTE TWO DISTINCT ACTIVITIES. ALL THE PURCHASES ARE ADMITTEDLY FROM VILLAGERS WHO ARE CLAIMED TO HAVE NOT ISSUED BILLS. THE EXPLANATION OF THE ASSESSEE I S NOT CONVINCING INASMUCH AS THE ASSESSEE HAS AN ORGANIZED BUSINESS AND REGULAR MILK VENDORS. THE VERIFICATION OF THE PURCHASE COST CANN OT BE AVOIDED BY GENERAL AND SWEEPING REPLY THAT THE VILLAGERS DO NO T PROVIDE THE BILLS INASMUCH THE REGULAR SUPPLIERS ARE THE MILK VENDORS AND THE ASSESSEE HAS A RIGHT TO DEMAND THE PURCHASE BILLS. THE ARGUMENT IS BEING AVAILED BY THE ASSESSEE WITH A PREMIUM OF AVOIDING PROPER VERIFICA TION OF THE PURCHASE COST. IN VIEW OF THE ENTIRETY OF THE FACTS AND CIRC UMSTANCES AS MENTIONED ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 10 BY THE LAW, THE BOOKS OF ACCOUNT HAVE BEEN RIGHTLY REJECTED. THE ITAT ORDER FOR THE ASSESSMENT YEAR 2007-08 CANNOT BE SUM MARILY APPLIED TO THIS YEAR AS EVERY YEAR IS DISTINCT UNIT OF ASSESSM ENT AND PRINCIPLE OF RES JUDICATA DO NOT APPLY TO INCOME-TAX PROCEEDINGS. BE SIDES IN ASSESSMENT YEAR 2007-08, ASSESSEE GROSS PROFIT RATE WAS NOT ES TIMATED AND 20% DISALLOWANCE OUT OF PURCHASES WAS MADE. THEREFORE, THE YEAR IN QUESTION BEING DIFFERENT YEAR AND WITH PECULIAR FACTS, THE B OOKS OF ACCOUNT HAVE BEEN RIGHTLY REJECTED. 2.9 APROPOS ESTIMATION OF PROFIT, THE ASSESSEE HIMS ELF HAS DECLARED A GROSS PROFIT RATE OF 10.87% IN PRECEDING YEAR. HOWE VER, THE AO HAS ESTIMATED THE SAME AS 10.50% WHICH IS LESS THAN THE PAST HISTORY. THE ESTIMATE HAS BEEN UPHELD BY THE LD. CIT(A) ALSO. WH EN THE ESTIMATE OF INCOME IS APPROVED BY THE LOWER AUTHORITIES THEN TH E SAME CAN BE DISTURBED ONLY WHEN IT IS DEMONSTRATED THAT THE SAM E IS ARBITRARY OR UNJUSTIFIED. LOOKING AT THE GROSS PROFIT RATE OF TH E PRECEDING YEAR DECLARED BY THE ASSESSEE, THE ESTIMATE IS LOWER THAN THAT AN D CANNOT BE HELD AS ARBITRARY OF UNJUSTIFIED. IN VIEW THEREOF, ESTIMATI ON OF INCOME IS UPHELD. THUS GROUND NO. 1 OF THE ASSESSEE IS DISMISSED. 2.10 APROPOS GROUND NO. 2, THE ASSESSEE HAS DELIBER ATELY DID NOT CLAIM DEPRECIATION IN THE BOOKS OF ACCOUNT THAT IT IS A P ROFIT MAKING UNIT. AS PER ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 11 SCHEME OF BLOCK OF ASSETS, THE DEPRECIATION IS TO B E REDUCED FROM THE PROFITS OF THE ASSESSEE AUTOMATICALLY. THEREFORE, T HE ACTION OF THE ASSESSEE FOR NOT CLAIMING THE DEPRECIATION IN THE BOOKS OF A CCOUNT IS COLORABLE DEVICE CREATING A SITUATION WHEREBY THE CAPITAL OF THE PARTNERS DID NOT GET REDUCED IN THE BOOKS, THEY ARE PAID MORE INTEREST A LLOWABLE AS REVENUE EXPENDITURE AND INCOME TAX BENEFIT OF THE DEPRECIAT ION IS AVAILED. THE PARTNERS CAPITAL IN THE BOOKS OF ACCOUNT IS THE LI ABILITY FOR THE FIRM AND SUCH CAPITAL IS DEPLOYED / UTILIZED BY WAY OF ACQUI SITION OF ASSETS ETC. INCLUDING DEPRECIABLE ASSETS. THE DEPRECIATION CLAI M IS ALLOWED ON ACCOUNT OF WEAR AND TEAR OF THE ASSETS AND WHEN THE DEPRECIATION IS CLAIMED, AUTOMATICALLY THE VALUE OF THE DEPRECIABLE ASSETS DECREASES. AS THE CAPITAL IS THE DEPLOYMENT OF FUND FOR ACQUISITI ON OF ASSETS INCLUDING DEPRECIABLE ASSETS, WITH THE DECREASE IN THE VALUE OF THE DEPRECIABLE ASSETS, CAPITAL ALSO ESSENTIALLY STAND DECREASED. W HEN THE ASSESSEE IS NOT REDUCING THE DEPRECIATION CLAIM IN THE BOOKS OF ACC OUNTS, THE CAPITAL SHOWN IN THE BOOKS OF ACCOUNT IS NOT THE GENUINE CA PITAL AND IN FACT IS THE DISTORTED AND EXAGGERATED AMOUNT. IT MAY BE NOTED T HAT THE INTEREST OF PARTNERS CAPITAL IS ALLOWED AS PER PROVISIONS OF SE CTION 40(B) OF I.T. ACT ON THE CAPITAL SHOWN IN THE BOOKS OF ACCOUNT AND TH OUGH IT IS NOT SPECIFICALLY MENTIONED BUT INHERENTLY SUCH CLAIM IS TO BE ON THE GENUINE ITA NO. 512/JP/2014 M/S. M.K. ENTERPRISES VS. ITO, WARD- 7 (3), JAIPUR . 12 AND REAL CAPITAL AVAILABLE IN THE FIRM AND NOT THE EXAGGERATED AMOUNT OF CAPITAL WHICH IS SHOWN WITHOUT REDUCING THE DEPRECI ATION CLAIM. IN VIEW OF THE ABOVE FACTS, THE APPELLANT HAS CLAIMED EXCES S INTEREST ON PARTNERS CAPITAL AND THE AO HAS RIGHTLY DISALLOWED SUCH CLAI M OF RS. 1,09,570/-. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO IS CON FIRMED. THUS IN VIEW OF THE FOREGOING OF THE CASE, THIS GROUND OF A SSESSEE IS ALSO DISMISSED. 3.0 IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/11/2015 . SD/- VKJ-IH-RKSYKUH (R.P.TOLANI) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 06 /11/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. M.K. ENTERPRISES, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 7 (3), JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 512/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR