DCIT, Cir-1(1), Kolkata, Kolkata V. M/s. Coast Liners Pvt Limited, Kolkata

ITA 571/KOL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4776 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 23-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE; V N PUROHIT FCA H V BHARDWAJ
• Keywords: Rejection of books of accounts; Depreciation; Assessment record; Tax effect
• Section: 44AD; 143(3); 131; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH KOLKATA BEFORE SHRI A. T. VARKEY, JM & DR. A.L. SAINI, AM ITA NO.571/KOL/2017 (ASSESSMENT YEAR: 2012-13) DCIT, CIR-1(1), KOLKATA P-7, CHOWRINGHEE SQUARE, R.NO.20, 7 TH FLOOR, KOLKATA 700 069. VS. M/S. COAST LINERS PVT. LTD. 21A, LOCK GATE ROAD, KOLKATA 700 002. ./ ./PAN/GIR NO. : AABCC 5898 E ( /APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY :SHRI A. BHATTACHARJEE, ADDL. CIT REVENUE BY :SHRI V.N. PUROHIT, FCA, H.V. BHARDWAJ, FCA / DATE OF HEARING : 17/07/2018 /DATE OF PRONOUNCEMENT: 10/10/2018 / O R D E R PER DR. A. L. SAINI, AM: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAINING TO ASSESSMENT YEAR 2012-13, IS DIRECTED AGAINST THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-12, KOLKATA IN APPEAL NO.10194/CIT(A)-12/KOL/CIRCLE-1(1)/2015-16 DATED 09.01.2017, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 145(3)/144 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED 31.03.2015. 2. THE GRIEVANCES RAISED BY THE REVENUE ARE AS FOLLOWS: 1.WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ARBITRARILY DETERMINING A RATE OF 4% TO DISCLOSED TURNOVER, WITHOUT TAKING INTO ACCOUNT THE DETAILS, ABOUT THE PRACTICES OF THE ASSESSEE IN THE EARLIER YEARS, MENTIONED IN THE ASSESSMENT ORDER BY THE A.O? 2.WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING HUGE RELIEF WITH TAX EFFECT OF RS.1,35,73,413/- WITHOUT CITING COGENT REASONS? 3.THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR MODIFY, SUBSTITUTE ALL OR ANY OF THE GROUNDS OF APPEAL, DURING THE COURSE OF HEARING. M/S. COAST LINERS PVT. LTD. ITA NO.571/KOL/2017 ASSESSMENT YEAR: 2012-13 2 3. THE BRIEF FACTS QUA THE ISSUE ARE THAT ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 SHOWING TOTAL INCOME OF RS.41,59,705/-. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ROAD TRANSPORTATION. THE ASSESSEES RETURN WAS SELECTED FOR SCRUTINY U/S 143(2) OF THE ACT AND ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER U/S 145(3) AND 144 OF THE ACT. DURING THE ASSESSMENT YEAR 2012-13, THE ASSESSEE HAS SHOWN A TURNOVER OF RS.59,83,70,923/- IN ITS PROFIT AND LOSS ACCOUNT AND NET PROFIT HAS BEEN SHOWN AT RS.99,36,932/-. IN THE RETURN FOR THE YEAR, THE ASSESSEE HAS SHOWN INCOME OF RS.41,59,705/-. THE DIRECTOR OF THE ASSESSEE COMPANY, MR. LALAN KUMAR TODI WAS INTERCEPTED AT MUMBAI AIRPORT ON 03.02.2012 WITH CASH OF RS.76,00,000/- WHICH WAS SEIZED BY THE DDIT, INV. MUMBAI. SUBSEQUENTLY ON SUCH INFORMATION, A SURVEY WAS CONDUCTED BY DDIT, INV., BANGALORE AT THE BANGALORE OFFICE AND DURING THE COURSE OF SUCH SURVEY, CERTAIN BOOKS/DOCUMENTS WERE IMPOUNDED ON 4.2.2012 ITSELF. A STATEMENT U/S 131 OF THE DIRECTORS, MR. PIYUS TODI WAS RECORDED DURING THE COURSE OF SUCH SURVEY AND THE SAID DIRECTOR IN HIS STATEMENT ON OATH SUBMITTED THAT THE SAID AMOUNT OF RS.76,00,000/- WAS WITHDRAWN FROM CORPORATION BANK, BANGALORE AND FURTHER ALSO STATED THAT AN AMOUNT OF RS.76,00,000/- WAS DRAWN ON 02.02.2012, AND RS.61,00,000/- WAS WITHDRAWN ON 03.02.2012. MR. PIYUS TODI IN HIS STATEMENT SUBMITTED THAT THE SAID CASH WAS CARRIED BY MR. L. K. TODI FOR PAYMENT TO VENDORS AT MUMBAI AND HE ALSO SUBMITTED A LIST OF VENDORS FOR WHOM THE PAYMENT WAS TO BE MADE WHICH WAS GIVEN BY MR. P. TODI, AS ANNEXURED ENCLOSURE D AND E OF SUCH STATEMENT AND WHICH WAS THE PART OF AO ORDER AS WELL AT ANNEXURED ENCLOSURE I & II. 4. AFTER CONSIDERING OF SUCH STATEMENT AND THE DOCUMENTS AS FURNISHED BY THE SAID DIRECTOR, IT WAS OBSERVED THAT IN THE CASE OF M/S. GAURAV LOGISTICS WHICH IS PART OF LIST SUBMITTED IN STATEMENT U/S 131 OF THE ACT, THE PAYMENTS WHICH WERE MADE TO SUCH CONCERN ON EARLIER OCCASIONS WAS ONLY RS.50,000/- IN CASH AND THE BALANCE PAYMENT WAS MADE ON RTGS/NEFT. THE DIRECTOR MR. P. TODI IN HIS STATEMENT HAD CONTENDED THAT THE CASH AMOUNT PURPORTED TO BE PAID TO SUCH CONCERN WAS RS.28,00,000/- WHICH WAS PART OF THE CASH CARRIED BY MR. L. K. TODI AND WHICH M/S. COAST LINERS PVT. LTD. ITA NO.571/KOL/2017 ASSESSMENT YEAR: 2012-13 3 WAS SEIZED AT MUMBAI AIRPORT. THE ASSESSING OFFICER, ON PERUSAL OF BOOKS OF ACCOUNTS, NOTED THAT THE ASSESSEE HAS NOT MADE ANY SUCH PAYMENT TO THE SAID CONCERN, AND INDEED IN ITS BOOKS OF ACCOUNTS THE SAID AMOUNT WAS REFLECTED AS ADVANCE TO OTHERS AT RS.67,51,816/-. THE ASSESSEE ALSO SHOWN PARTY BY NAME, SHERE PUNJABI, TO WHOM THE PAYMENT WAS PURPORTED TO BE MADE AS PER THE STATEMENT U/S 131 OF THE ACT. THE LD AO NOTED THAT SUCH PARTY WAS AT BANGALORE ONLY THEREFORE, ASSESSEE`S EXPLANATION THAT AMOUNT WAS CARRIED TO MUMBAI, CANNOT BE ACCEPTED. SIMILAR OTHER DISCREPANCY HAD BEEN OBSERVED IN RESPECT OF OTHER PARTY AS WELL, THEREFORE, THE LD AO HAD NOT ACCEPTED THE ASSESSEE`S EXPLANATION THAT THE SAID CASH SEIZED AT MUMBAI AIRPORT WAS FOR SOME PURPORTED PAYMENT. 5. THE ASSESSING OFFICER, ON PERUSAL OF THE BOOKS OF ACCOUNT NOTED THAT THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS IN HIS COMPUTER TILL 31.12.2011 AND FROM 01.02.2012 TILL 04.02.2012, THE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED ON PHYSICAL HAND WRITTEN BOOKS. THE ASSESSING OFFICER ON PERUSAL OF BOOKS OF ACCOUNTS FOUND THAT THESE BOOKS OF ACCOUNTS WERE FULL OF DISCREPANCY AND ASSESSEE`S BOOKS OF ACCOUNTS CANNOT BE RELIED. THE LD AO NOTICED THAT MANUAL CASH BOOK PREPARED BY THE ASSESSEE FOR THE PERIOD 01.01.2012 TO 04.02.2012 CONTAINS A LOT OF MISTAKES. THE ASSESSEE HAS SHOWN THE RECEIPTS OF SHARE APPLICATION MONEY FROM MR.L.K.TODI IN CASH OR THROUGH SELF-CHEQUE. THE AGGREGATE AMOUNT OF CASH TOWARDS THE SHARE APPLICATION MONEY ALLEGED TO HAVE BEEN RECEIVED BY THE ASSESSEE IS RS.137.35 LAKHS WHEREAS MR. L.K. TODI IN HIS BALANCE SHEET AS ON 31.03.2012 HAD SHOWN THE SHARE APPLICATION MONEY GIVEN TO THE ASSESSEE COMPANY AT RS.2,01,00,000/-. THE LD AO NOTICED THAT THERE WAS NO EXPLANATION ABOUT THE LORRY HIRE CHARGES OF RS.1,28,37,093/- AND HE ALSO NOTICED DIFFERENCE IN THE CASH BALANCE SHOWN BY THE ASSESSEE. FOR THESE REASONS, THE LD AO OBSERVED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE RELIED UPON AS THE ASSESSEES ACCOUNTS CONTAINED MAL-PRACTICES, AS EXPLAINED ABOVE, THEREFORE, HE APPLIED NET PROFIT @8% ON THE DISCLOSED TURNOVER OF THE ASSESSEE. THE NET PROFIT WAS DERIVED AT RS.4,78,69,674/- BY APPLYING 8% NET PROFIT RATE ON DISCLOSED M/S. COAST LINERS PVT. LTD. ITA NO.571/KOL/2017 ASSESSMENT YEAR: 2012-13 4 TURNOVER. THIS WAY, THE ASSESSING OFFICER MADE THE ADDITION TO THE TUNE OF RS.4,78,69,674/-. 6. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS REDUCED THE ESTIMATED NET PROFIT RATE ON TURNOVER FROM 8% TO 4%. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7. THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US, A COMPARATIVE CHART DETERMINING NET PROFIT FROM ASSESSMENT YEAR 2008-09 TO ASSESSMENT YEAR 2012-13, BASED ON THE PROFIT EARNED BY THE ASSESSEE COMPANY IN THE PAST YEARS TO JUSTIFY THAT ORDER PASSED BY LD CIT(A) WAS A REASONED ORDER BASED ON TRUE ESTIMATE. THE LD. COUNSEL FOR THE ASSESSEE PRAYED THAT THE ADDITION @4% OF THE TURNOVER IS PROPER AS IT IS BASED ON THE PAST HISTORY OF THE ASSESSEE`S PROFIT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN CASE OF ADDITION MADE ON THE ESTIMATE, THE ASSESSING OFFICER OUGHT HAVE CONSIDERED THE PAST HISTORY OF THE ASSESSEES BUSINESS I.E. PAST HISTORY OF THE NET PROFIT EARNED BY THE ASSESSEE. HOWEVER, THE LD. CIT(A) HAS CONSIDERED THE PAST HISTORY OF THE ASSESSEES BUSINESS AND, THEREFORE, REASONABLY ESTIMATED THE PROFIT @4%, THEREFORE, ORDER PASSED BY THE LD CIT(A) SHOULD BE SUSTAINED. 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD, WE NOTE THAT THE MATERIALS BROUGHT ON RECORD BY LD ASSESSING OFFICER, AND POINTING OUT SPECIFIC DEFECTS IN BOOKS OF ACCOUNTS SHOULD BE CONSIDERED. THE LD AO POINTED OUT THE SPECIFIC DEFECTS IN THE HANDWRITTEN CASH BOOK, HE ALSO NOTICED MALPRACTICES IN SHARE APPLICATION MONEY, LORRY HIRE EXPENSES AND OTHER MANY DEFECTS IN BOOKS OF ACCOUNTS OF THE ASSESSEE AND THEREFORE HE REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ESTIMATED PROFIT AT M/S. COAST LINERS PVT. LTD. ITA NO.571/KOL/2017 ASSESSMENT YEAR: 2012-13 5 THE RATE OF 8% OF DISCLOSED TURNOVER. WE ALSO NOTE THAT SIMPLY BECAUSE BOOKS OF ACCOUNTS ARE AUDITED BY A CHARTERED ACCOUNTANT IS NOT A PROOF IN ITSELF OF CORRECTNESS OF THOSE BOOKS TO ARRIVE AT TRUE ASSESSABLE INCOME AS HAS BEEN HELD BY THE HONLBLE RAJASTHAN HIGH COURT IN THE CASE OF RAJASTHAN CABLES & CONDUCTOR P. LTD. (2013) (91 DTR 047-RAJASTHAN). WE, THEREFORE, OF THE OPINION THAT THE LD A.O. HAS RIGHTLY AND CORRECTLY REJECTED THE BOOKS OF ACCOUNTS AND MADE ASSESSMENT U/S 144 R.W.S. 145(3) OF THE ACT. 10. COMING TO THE A.O.'S ACTION OF ESTIMATING PROFIT AT THE RATE OF 8% AND REFERRING TO SECTION 44AD OF THE ACT, WE NOTE THAT WHEN ASSESSEE'S PAST ASSESSMENT RECORDS WERE WITH THE A.O. AND IMMEDIATELY PRECEDING ASSESSMENT YEAR'S ASSESSMENT HAVING BEEN MADE U/S.143(3) OF THE ACT, THE LD AO OUGHT TO HAVE ALSO CONSIDERED THOSE AND GAVE AN OPPORTUNITY TO ASSESSEE TO CITE SOME CASES WHERE INCOME WAS ASSESSED ON BASIS OF ESTIMATE U/S. 144 OF A TRANSPORT OPERATOR. THE LD A.O. DID NOT CONSIDER THE PAST HISTORY OF THE ASSESSEE AND COMPARABLE CASES BUT STRAIGHTWAY APPLIED THE RATE PRESCRIBED UNDER SECTION 44AD WHICH APPLIES WHERE NO BOOKS ARE MAINTAINED AND NO TAX AUDIT REPORT IS OBLIGATORY. WE NOTE THAT PAST PROFIT HISTORY FURNISHED BY THE ASSESSEE ARE AS FOLLOWS: ASST. YEAR TURNOVER NET PROFIT BEFORE DEPT. N.P. AS % ON TURNOVER DEPRECIATION ASSESSED U/S. 2008-09 223517253 2031 801 0.91 1893811 143(1) 2009-10 254343044 7624770 3.00 2927727 2010-11 264670950 8324986 3.15 5225601 2011-12 471457559 18385359 3.90 1401 9533 143(3) 2012-13 604221691 21758292 3.60 11821600 143(3) AVERAGE % OF LAST 4 YEARS - 2.74% M/S. COAST LINERS PVT. LTD. ITA NO.571/KOL/2017 ASSESSMENT YEAR: 2012-13 6 FROM THE ABOVE PAST PROFIT HISTORY CHART OF THE ASSESSEE, IT IS ABUNDANTLY CLEAR THAT THE AVERAGE RATE OF PROFIT OF LAST FOUR YEARS WAS @ 2.74% OF TURNOVER BEFORE DEPRECIATION. EVEN IF IMMEDIATELY PRECEDING YEAR'S PERCENTAGE IS CONSIDERED, IT IS 3.90%. ON THAT BASIS ESTIMATED NET PROFIT @ 4% OF TURNOVER OF RS.59,83,70,923/- WILL BE RS.2,39,34,837/-. THIS NET PROFIT WOULD BE BEFORE DEPRECIATION, AND DEPRECIATION ALLOWANCE SHOULD BE PROVIDED SEPARATELY. 11. WHETHER DEPRECIATION ALLOWANCE SHOULD BE PROVIDED SEPARATELY OR NOT. IN THIS REGARD WE NOTE THAT IN A RECENT DECISION OF THE COORDINATE BENCH OF ITAT AMRITSAR IN THE CASE OF ACIT VS. J. S. GROVER CONSTRUCTION (181 TTJ 23), IT HAS BEEN HELD THAT DEPRECIATION SHALL HAVE TO BE ALLOWED SEPARATELY, EVEN IF IN CASE OF ESTIMATION OF NET PROFIT. HENCE, IN ASSESSEE`S CASE UNDER CONSIDERATION THE ASSESSABLE INCOME IS TO THE TUNE OF RS. 2,39,34,837/- WHICH WOULD BE FURTHER REDUCED BY DEPRECIATION. IT HAS BEEN HELD BY HON'BLE PUNJAB & HARYANA HIGH GOURT IN THE CASE OF LALI CONSTRUCTION CO. VS. ASSTT. CIT (2015) 229 TAXMAN 286 (P&H) THAT DEPRECIATION IS ALLOWABLE FROM NET PROFITS, EVEN IF TOTAL INCOME IS COMPUTED BY APPLYING NET PROFIT RATE. IN ADDITION TO THIS, WE RELY ON THE CIRCULAR NO.029D(XIX-14), DATED 31.08.1965 ISSUED BY CBDT WHEREIN IT WAS HELD THAT: 3. EVEN WHERE BEST JUDGMENT ASSESSMENT IS MADE, THE ABOVE PROCEDURE SHOULD BE ADOPTED PROVIDED THE REQUIRED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE. IN CASES WHERE REQUIRED PARTICULARS HAVE NOT BEEN FURNISHED BY THE ASSESSEE AND NO CLAIM FOR DEPRECIATION HAS BEEN MADE IN THE RETURN, THE ITO SHOULD ESTIMATE THE INCOME WITHOUT ALLOWING DEPRECIATION ALLOWANCE. IN SUCH CASES THE ESTIMATE OF NET PROFIT WOULD BE NATURALLY HIGHER THAN OTHERWISE AND THE FACT THAT THE ESTIMATE HAS BEEN MADE WITHOUT CONSIDERING DEPRECIATION ALLOWANCE MAY BE CLEARLY BROUGHT OUT IN THE ASSESSMENT ORDER. IN SUCH CASES, THE WRITTEN DOWN VALUE OF DEPRECIABLE ASSETS WOULD CONTINUE TO BE THE SAME AS AT THE END OF THE PRECEDING YEAR AS NO DEPRECIATION WOULD ACTUALLY BE ALLOWED IN THE ASSESSMENT YEAR. THEREFORE, CONSIDERING TOTALITY OF CIRCUMSTANCES, AND COMPARATIVE CHART OF LAST FOUR YEARS, WE CONSIDER IT FAIR AND DIRECT THE A.O. TO APPLY THE RATE OF 4% TO DISCLOSED TURNOVER AND DEPRECIATION SHOULD BE ALLOWED SEPARATELY FROM THE PROFIT SO ARRIVED BY APPLYING RATE OF 4% TO DISCLOSED TURNOVER. THAT BEING SO, WE DECLINE M/S. COAST LINERS PVT. LTD. ITA NO.571/KOL/2017 ASSESSMENT YEAR: 2012-13 7 TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A) AND HIS ORDER ON THIS ISSUE IS HEREBY UPHELD AND THE GROUNDS RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10/10/2018. SD/- (A. T. VARKEY) SD/- (A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED: 10/10/2018 RS, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT- DCIT, CIR-1(1), KOLKATA 2. / THE RESPONDENT.- M/S. COAST LINERS PVT. LTD. 3. ( ) / THE CIT(A)- , KOLKATA 4. / CIT 5. , , / DR, ITAT, KOLKATA 6. [ / GUARD FILE. //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O, I.T.A.T, KOLKATA BENCHES, KOLKATA .