Sri Aalimilli Vishnu., Eluru V. The ITO, Ward-2., Eluru

ITA 520/VIZ/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1699 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 19-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Unexplained expenditure; Depreciation; Income from undisclosed sources; Source of fund
• Section: 41(2); 32

Judgement Text

PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.520/VIZAG/2006 ASSESSMENT YEAR: 2003 - 04 AALIMILLI VISHNU, ELURU VS. ITO, WARD NO.2, ELURU (APPELLANT) (RESPONDENT) PAN NO. AFAPV 8179 A APPELLANT BY: SHRI G.V.N HARI, CA RESPONDENT BY: SHRI D.S.SUNDER SINGH, DR ORDER PER SHRI B R BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 9.10.2006 PASSED BY THE LD CIT (A) RAJAHMUNDRY AND IT RELATES TO THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE IS IN APPEAL ON THE FOLLOWING ISSUE S: A) ENHANCEMENT OF INCOME FROM EXCAVATOR BY RS.58,000/- B) AGRICULTURAL INCOME OF RS.49,000/- TREATED AS INCOM E FROM OTHER SOURCES C) ADDITION U/S 41 (2) - RS.595178/- D) ADDITIONS DUE TO THE DIFFERENCE IN THE WRITTEN DOWN VALUE OF ASSET - RS.352284/- 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE FILED HIS RETURN FOR THE ASSESSMENT YEAR 2003-04 DECLARING A TAXABLE INCOME OF RS.42,000/- AND AGRICULTURAL INCOME OF RS.2,10,000/ -. THE INCOME OF RS.42,000/- DECLARED BY THE ASSESSEE RELATES TO THE INCOME OBTAINED FROM HIRING OUT OF AN EXCAVATOR/BULLDOZER. THE ASSESSEE DID NOT MAINTAIN ANY PAGE 2 OF 6 BOOKS OF ACCOUNT FOR BOTH THE SOURCES OF INCOME AND HENCE THEY WERE ESTIMATED BY THE ASSESSEE FOR THE PURPOSE OF FILING THE RETURN OF INCOME. 4. THE FIRST ADDITION RELATES TO THE INCOME FRO M HIRING OUT OF THE EXCAVATOR. THE ASSESSEE HAD DECLARED THE INCOME AT RS.3500/-P. M. BY FOLLOWING THE PROVISIONS OF SECTION 44AE OF THE ACT. ACCORDING T O THE AO, SECTION 44AE OF THE ACT APPLIES ONLY TO GOODS CARRIAGES AND THE EXC AVATOR DOES NOT FALL UNDER THE CATEGORY OF GOODS CARRIAGES. HENCE THE AO CALL ED FOR DETAILS OF INCOMES AND EXPENDITURE RELATING THE ACTIVITY OF HIRING OUT OF THE EXCAVATOR/BULLDOZER. SINCE THE ASSESSEE DID NOT MAINTAIN ANY RECORD, THE AO ESTIMATED THE SAID INCOME AT RS.1.00 LAKH RESULTING IN AN ADDITION OF RS.58,000/-. THE LD CIT (A) ALSO CONFIRMED THE SAID ADDITION. 4.1 WE HAVE HEARD THE PARTIES ON THIS ISSUE AND CAR EFULLY PERUSED THE RECORD. WE NOTICE THAT THE LD CIT (A) HAS SUSTAINED THE ADDITION FOR THE REASON THAT THE EXCAVATOR IS THE MACHINERY MEANT FO R TOUGHER JOB WORKS RELATING TO THE LANDSCAPING, MINING, REMOVAL OF OBS TRUCTIONS ETC., WHOSE HIRE CHARGES ARE NORMALLY MUCH HIGHER THAN THOSE OF TRAN SPORT CARRIAGES. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE DID NOT MAINTAIN ANY RECORD WITH REGARD TO THE INCOME AND EXPENDITURE RELATING TO THE OPERATIO N OF THE EXCAVATOR. IN THESE CIRCUMSTANCES, IN THE ABSENCE OF ANY EVIDENCE S CONTRARY TO THE FINDING OF THE AO, WE DO NOT FIND ANY REASON TO INTERFERE W ITH THE DECISION OF THE LD CIT (A) ON THIS ISSUE. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF PA RT OF AGRICULTURAL INCOME. THE ASSESSEE DISCLOSED AN AGRICULTURAL INCO ME OF RS.210000/- IN HIS RETURN OF INCOME FROM OUT OF 14 ACRES, WHICH WORKED OUT TO AN AVERAGE INCOME OF RS.15,000/- PER ACRE. DURING THE COURSE O F ASSESSMENT PROCEEDING, THE ASSESSEE COULD NOT FURNISH DETAILS SUCH AS SALE BILLS, VOUCHERS FOR EXPENSES RELATING TO THE AGRICULTURAL INCOME. HENC E, THE AO ARRIVED AT THE AGRICULTURAL INCOME OF RS.161000/- ON THE FOLLOWING BASIS. THE SAID BASIS HAS BEEN NARRATED BY LD CIT(A) AS UNDER: 4.1.A. AFTER CONSIDERING THE PLEA ON BEHALF OF THE ASSESSEE, THE ASSESSING OFFICER HELD THAT IN THE ABSENCE OF A NY PAGE 3 OF 6 CONVINCING AND COGENT PROOF, THE EARNING OF AGRICUL TURAL INCOME AT THE AVERAGE RATE OF RS.15,000/- PER ACRE WAS NOT TENABLE, AND, THEREAFTER PROCEEDED TO ESTIMATE THE AGRICULTURAL INCOME ON THE BASIS OF THE PREVAILING PATTERN IN WE ST GODAVARI DISTRICT. THE ASSESSING OFFICER GATHERED INFORMATIO N TO THE EFFECT THAT THE YIELD OF PADDY IN RESPECT OF FIRST CROP IN A YEAR IS 25 BAGS AND THE SECOND CROP IS ABOUT 35 BAGS. THE EXPENDITURE INVOLVED IN AGRICULTURAL OPERATIONS GEN ERALLY RANGE UPTO 40% OF THE TOTAL YIELD, OR IN THE ALTERNATIVE, THE FIRST CROP YIELD COULD BE TAKEN AS EXPENSES, LEAVING A NET INC OME EQUIVALENT TO THE VALUE OF THE SECOND CROP. THAT IS TO SAY, IN A YEAR, THE YIELD WOULD BE AROUND 35 BAGS PER ACRE WI TH A PACKAGING OF 65 TO 75 KG OF PADDY PER BAG. HENCE, T HE MAXIMUM YIELD FROM AGRICULTURAL OPERATIONS FOR PADD Y CROP WOULD BE 35 BAGS PER ACRE PER YEAR. THE YIELD OF PA DDY IN RESPECT OF 14.05 ACRES @ 35 BAGS PER ACRE COMPRISIN G 65 KGS, PER BAG WORKS OUT ABOUT 320 QUINTALS. TAKING THE AV ERAGE SALE PRICE OF PADDY OF RS.530 PER QUINTAL AT THE RELEVAN T POINT OF TIME THE TOTAL INCOME WOULD WORK OUT TO RS.1,69,000 . ALLOWING FURTHER EXPENDITURE TO MIDDLEMEN BY WAY OF COMMISSI ON @5% THE NET INCOME WOULD WORK OUT TO RS.1,61,120. ON SU CH CALCULATION, THE ASSESSING OFFICER GAVE CREDIT TO T HE EXTENT OF RS.1,61,000/- AS AGRICULTURAL INCOME DURING THE YEA R, AND PROCEEDED TO ADD THE DIFFERENTIAL BALANCE OF RS.49, 000 AS INCOME FROM UNDISCLOSED SOURCES. THOUGH THE ASSESSEE CLAIMED THE OWNERSHIP OF 18 ACR ES OF AGRICULTURAL LAND, HE COULD PRODUCE PATTADAR PASSBOOK ONLY FOR 14.05 A CRES ONLY. ACCORDINGLY, THE AO CALCULATED THE AGRICULTURAL INCOME FROM OUT OF 14 ACRES, WHICH WORKED OUT TO RS. 11,468/- PER ACRE. THE LD CIT (A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ENHANCED THE AGRICULTU RAL INCOME TO RS.12,000/- PER ACRE AND THUS GAVE A PARTIAL RELIEF OF RS.7600/ -. ACCORDINGLY THE ADDITION ON THIS ACCOUNT WAS REDUCED TO RS.41,400/-. 5.1 WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSE E COULD NOT FURNISH ANY DETAILS WITH REGARD TO THE INCOME AND EXPENDITURE R ELATING TO THE AGRICULTURAL INCOME. WE NOTICE THAT THE AO HAS MADE METICULOUS E XERCISES TO ARRIVE AT THE AGRICULTURAL INCOME AND THE ASSESSEE HAS NOT POINTE D OUT ANY MISTAKE OR ERROR IN THE COMPUTATION MADE BY THE AO. THOUGH THE LD C IT(A) HAS SLIGHTLY INCREASED THE AGRICULTURAL INCOME, BROADLY HE HAS A PPROVED THE METHODOLOGY FOLLOWED BY THE AO. HENCE WE DO NOT FIND ANY NECE SSITY TO INTERFERE WITH THE PAGE 4 OF 6 QUANTUM OF AGRICULTURAL INCOME DETERMINED BY THE LD CIT (A). THE REDUCTION OF RS.41,400/- IN THE AGRICULTURAL INCOME DECLARED BY THE ASSESSEE IS TREATED AS INCOME. AT THE SAME TIME, THE INCOME FROM EX CAVATOR HAS BEEN INCREASED BY RS.58,000/-. IN VIEW OF THE ABOVE, IN OUR OPINION, TELESCOPING OF THE REDUCTION IN AGRICULTURAL INCOME AGAINST THE IN CREASE IN THE INCOME FROM EXCAVATOR WOULD MEET THE ENDS OF JUSTICE AND WE ORD ER ACCORDINGLY. HENCE NO SEPARATE ADDITION SHALL BE MADE FOR THE REDUCTIO N IN THE AGRICULTURAL INCOME. 6. THE BRIEF FACTS RELATING TO THE REMAINING TWO AD DITIONS ARE STATED IN BRIEF. DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE SOLD AN EXCAVATOR FOR RS.6,75,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED FOR BALANCE SHEET AND CAPITAL A/C OF THE ASS ESSEE. SINCE THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT, HE FILED A R OUGH BALANCE SHEET AND ROUGH CAPITAL ACCOUNT. THE AO NOTICED THAT THE ASSE SSEE DID NOT CREDIT THE SALE VALUE OF BULLDOZER IN THE CAPITAL ACCOUNT. ACC ORDINGLY THE AO TOOK THE VIEW THAT IT IS AN OMISSION ON THE PART OF THE ASSE SSEE AND ADDED THE SAME AS UNEXPLAINED EXPENDITURE TOWARDS HOUSEHOLD EXPENSES. THE AO ALSO CALCULATED THE WRITTEN DOWN VALUE OF THE BULLDOZER/ EXCAVATOR FROM THE INITIAL DATE OF ITS PURCHASE AND THE COMPUTATION IS ALSO EX TRACTED IN THE ASSESSMENT ORDER. THE AO ALSO ADDED THE DIFFERENCE IN WDV AS O N 31.3.2003 BETWEEN HIS COMPUTATION AND THE VALUE SHOWN IN THE ROUGH BALANC E SHEET. IN THE APPELLATE PROCEEDINGS, THE LD CIT (A) TOOK THE VIEW THAT DIFFERENCE BETWEEN THE SALE VALUE OF RS.6,75,000/- AND WRITTEN DOWN VA LUE OF THE ASSET, AS ON 1.4.2002 AMOUNTING TO RS.79,822/- IS TAXABLE U/S 41 (2) OF THE ACT. ACCORDINGLY THE LD CIT (A) SUSTAINED THE ADDITION T O THE EXTENT OF RS.5,95,178/- FROM OUT OF RS.6,75,000/-. LD CIT(A) ALSO CONFIRMED THE ADDITION RELATING TO THE DIFFERENCE IN WDV BETWEEN AOS WORKINGS AND ASSESSSEES WORKINGS. 6.1. WE HAVE HEARD THE PARTIES ON THIS ISSUE. AS S UBMITTED BY LD AR, BOTH THE AO AS WELL AS THE LD CIT (A) HAS MADE THE ADDIT IONS WITHOUT PROPERLY APPRECIATING THE PROVISIONS OF THE IT ACT. ACCORDI NG TO SECTION 32 OF THE ACT, PAGE 5 OF 6 BLOCK CONCEPT OF DEPRECIATION HAS BEEN INTRODUCED L ONG BACK. ACCORDING TO THE BLOCK CONCEPT, THE WDV OF THE BLOCK AS ON THE F IRST DAY OF THE ASSESSMENT YEAR IS INCREASED BY THE ADDITIONS, IF ANY, MADE DU RING THE YEAR AND REDUCED BY THE SALE VALUE OF THE ASSET, IF ANY SOLD DURING THE YEAR. THE DEPRECIATION IS CALCULATED ON THE WDV SO ARRIVED OUT. HENCE THERE IS NO QUESTION OF APPLICATION OF SECTION 41(2) IN THE BLOCK CONCEPT W HERE DEPRECIATION IS ADMISSIBLE UNDER WRITTEN DOWN VALUE BASIS. FROM THE DEPRECIATION COMPUTATION REPRODUCED IN THE ASSESSMENT ORDER, WE NOTICE THAT THE AO HAS COMPUTED THE WDV AS ON 31.3.2003 AS PER THE METHODO LOGY STATED ABOVE. HENCE THERE IS NO QUESTION OF MAKING ADDITION OF SA LE VALUE OF RS.6,75,000/- OR CHARGING ANY INCOME U/S 41(2) OF THE ACT. ACCOR DINGLY WE REVERSE THE ORDER OF THE LD CIT(A) RELATING TO THE ADDITION MAD E U/S 41(2) AND ALSO DELETE THE ADDITION OF RS.6,75,000/- MADE BY THE ASSESSING OFFICER. 6.2 THE BALANCE SHEET FURNISHED BY THE ASSESSEE IS A ROUGH BALANCE SHEET, WHICH IS NOT SUPPORTED BY THE ENTRIES PASSED IN THE BOOKS OF ORIGINAL ENTRY. IN THAT CASE, IN OUR OPINION, ONE CANNOT PLACE ANY R ELIANCE ON SUCH BALANCE SHEET. AT THE MOST, SUCH ROUGH BALANCE SHEET CAN B E SEEN TO HAVE A BIRDS EYE VIEW OF THE STATEMENT OF AFFAIRS OF THE ASSESSE E. THE AO, BY PLACING RELIANCE ON THE ROUGH BALANCE SHEET, HAS ADDED THE DIFFERENCE IN WDV OF THE ASSET. WHEN THE ROUGH BALANCE SHEET IS NOT RELIABL E, THERE IS NO SCOPE FOR MAKING ANY ADDITION ON THE BASIS OF SUCH BALANCE SH EET UNLESS ANY OTHER MATERIAL IS AVAILABLE. EVEN IF THE BOOKS OF ACCOUN TS ARE PROPERLY MAINTAINED BASED ON WHICH THE BALANCE SHEET IS PREPARED, THE D IFFERENCE IN WDV OF THE ASSET, AS IN THE PRESENT CASE, DOES NOT GIVE RISE T O ANY ADDITION. THERE ARE DIFFERENT METHODS OF APPLYING DEPRECIATION ON AN AS SET AND THERE IS NO STATUTORY COMPULSION THAT THE METHODOLOGY AND RATE PRESCRIBED BY THE INCOME TAX ACT SHOULD ALSO BE FOLLOWED FOR BOOK PURP OSES. IT MAY BE NOTED THAT THE RATES AND METHODOLOGY OF DEPRECIATION PRES CRIBED UNDER THE INCOME TAX ACT AND THE COMPANIES ACT, BOTH BEING THE CENTR AL ACTS, ARE DIFFERENT, WHICH WILL GIVE RISE TO THE DIFFERENCE IN WDV. IN V IEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THIS ADDITION OF RS.352284/- AND ACCORDINGLY DIRECT THE AO TO DELETE THE SAME. PAGE 6 OF 6 7. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF SMC BENCH PASSED IN HIS HANDS IN ITA NO.519/V/06 RELATING TO THE ASSESS MENT YEAR 2002-03 WHEREIN THE CONTENTION OF THE ASSESSEE THAT IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAS EARNED ADDITIONAL INC OME IN THE CASE OF AGRICULTURAL INCOME, THE ADDITION ARE NOT TO BE MAD E MERELY BECAUSE THE CLAIM OF AGRICULTURAL INCOME WAS REJECTED BY THE AO . UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE UNABLE TO AGREE WI TH THE DECISION OF THE SMC BENCH FOR THE REASON THAT THE ASSESSEE DOES NOT MAINTAIN BOOKS OF ACCOUNTS AND FURTHER THE ASSESSEE WAS NOT ABLE TO F ILE STATEMENT OF AFFAIRS BY PROPERLY DISCLOSING THE ASSETS AND LIABILITIES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21.10.2009 SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, 21 ST OCTOBER, 2009. COPY TO 1 SHRI AALIMILLI VISHNU, D.NO. 2-51/1, KATTA SUBBA RAO THOTA, ELURU, WEST GODAVARI DISTT. AP 2 THE ITO WARD-2, ELURU 3 THE CIT (A) RAJAHMUNDRY 5 THE CIT, RAJAHMUNDRY 7 THE DR, ITAT, VISAKHAPATNAM. 8 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM