M/s Pritam International, Baddi V. ITO, Baddi

ITA 579/CHANDI/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68582 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Business income; Depreciation; Reasonable cause; Assessment record
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.579/CHD/2013 ASSESSMENT YEAR: 2007-08 M/S PRITAM INTERNATIONAL, VS THE ITO, BADDI BADDI, PAN NO. AAHFP5951E (APPELLANT) (RESPONDENT) DATE OF HEARING : 25.11.2013 DATE OF PRONOUNCEMENT : 28.11.2013 APPELLANT BY : SHRI JASPAL SHARMA RESPONDENT BY : SHRI J.S. NAGAR ORDER PER T.R.SOOD, A.M. THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 5.2.2013 OF LD. CIT(A), SHIMLA. 2. THIS APPEAL IS LATE BY 22 DAYS AND THE ASSESSEE HAS FILED A PETITION FOR CONDONATION OF DELAY. THE LD. COUNSEL REFERRED T O THE PETITION AND POINTED OUT THAT THE IMPUGNED ORDER OF FIRST APPELLATE AUTHORIT Y WAS RECEIVED AT THE ENTRY GATE BY A SECURITY GUARD. THE SECURITY GUARD WAS E MPLOYED BY M/S DAKSH DETECTIVE AGENCY, BADDI WHO HAD CONTRACT WITH TH E ASSESSEE TO SUPPLY SECURITY GUARDS. THE CONCERNED SECURITY GUARD DID NOT HAND OVER THE PAPERS TO ANY RESPONSIBLE PERSON, MAY BE HE FORGOT THE SAME. HOWEVER, WHEN ANOTHER SECURITY GUARD MR. RAMA SHANKAR CAME ON DUTY IN MAY 2013, HE FOUND THE PAPERS IN THE DRAWER OF THE TABLE AND HANDED OVER T HE SAME TO SHRI YASHPAL 2 SINGH, PARTNER OF THE ASSESSEE. THIS LED TO DELAY IN FILING OF THE APPEAL. HE MADE A PRAYER FOR CONDITION OF DELAY. 3. ON THE OTHER HAND, LD. DR OPPOSED THE SUBMISSIO NS OF LD. COUNSEL OF THE ASSESSEE. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE SATISFIED THAT ASSESSEE HAS REASONABLE CAUSE FOR NOT FILING THE APPEAL IN TIME. FURTHER, THE DELAY IS ONLY OF 22 DAYS, THEREFORE, DELAY IS CONDONED. 5. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THE IMPUGNED ORDER IS BOTH AGAINST FACTS AND ERRONEOUS IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN HAVING CONFIRMED THE ADDIT ION OF RS. 6,13,016/- MADE BY LD. ASSESSING OFFICER BY ESTIMAT ING THE ADMINISTRATIVE AND SELLING EXPENSES @ 2% OF SALES T URNOVER WHICH IS ARBITRARY, BASELESS AND IN ANY CASE IS HIG HLY EXCESSIVE. 6. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHO WN THE FOLLOWING EXPENSES IN THE PROFIT AND LOSS ACCOUNT. STAFF WELFARE RS. 28,359/- TELEPHONE EXPENSES RS. 73,504/- TRAVELING EXPENSES RS, 1,09,150/- VEHICLE REPAIR & RUNNING RS. 2,298/- COMMISSION ON SALE RS. 10,510/- ADVERTISEMENT RS. 23,490/- POSTAL EXPENSES RS. 36,696/- RUNNING EXPENSES RS. 11,561/- TOTAL RS. 2,95,568/- 3 7. HE FURTHER NOTICED THAT ASSESSEES PARTNERS HAD SEPARATE BUSIN ESS AT DELHI AND BANK ACCOUNT WERE ALSO BEING MAINTAINED AT DELH I. THE SALE AND PURCHASES WERE ALSO CONTROLLED FROM DELHI. FURTHER CONSIDERI NG THAT VERY LITTLE EXPENSES WERE SHOWN, HE ESTIMATED 2% OF THE TOTAL SALES AS E XPENSES AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE U/S 69C OF THE ACT. 8. ON APPEAL, IT WAS MAINLY SUBMITTED THAT ASSESSEE HAS SHOWN NET PROFIT RATE OF 24.03% IN THIS YEAR ON AN TURN OVER OF RS. 4.54 CRORES. IN THE EARLIER YEAR ALSO THE NET PROFIT WAS 24.73%, THEREFORE, EXPENSES WAS REASONABLE. THE LD. CIT(A) DID NOT FIND FORCE IN THE SAME AND DECIDED THE ISSU E AGAINST THE ASSESSEE VIDE PARA 5.3, WHICH READS AS UNDER:- 5.3 THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONS IDERED WITH REFERENCE TO THE FACTS OF THE CASE AND THE REL EVANT ASSESSMENT RECORDS. A PERUSAL OF THE ACCOUNT STATEM ENTS OF THE APPELLANT REVEALS THAT NO EXPENDITURE WAS BOOKED BY IT ON ACCOUNT OF SALARY PAYMENTS TO THE STAFF. SIMILARLY, THE APPELLANT FIRM DID NOT SHOW THE OWNERSHIP OF ANY CA R. OBVIOUSLY, THEREFORE, NO EXPENSES WERE BOOKED BY TH E APPELLANT ON ACCOUNT OF CAR RUNNING AND MAINTENANCE . AGAINST A HUGE TURNOVER OF MORE THAN RS. 4.50 CRORES THE AP PELLANT FIRM HAD DEBITED THE TOTAL EXPENSES OF ONLY RS. 2,9 5,568/-. THUS, AS PER THE APPELLANTS STATEMENT OF ACCOUNTS, SUCH A HUGE TURNOVER WAS ACHIEVED LITERALLY WITHOUT INCURR ING ANY WORTHWHILE EXPENDITURE. IT IS FURTHER PERTINENT TO NOTE THAT THE APPELLANT HAD ALSO GOT A CLOSING STOCK OF ABOUT RS. 70 LACS. THUS AGAINST THE SALE AND CLOSING STOCK AMOUNTING T O MORE THAN RS. 5 CRORES, THE APPELLANT HAD BOOKED EVEN TH E WAGES EXPENSES AT A MEAGER RS. 4 LACS APPROXIMATELY. THUS PRIMA- FACIE THE FACTS OF THE APPELLANTS CASE INDICATE A GROSS UNDERSTATEMENT OF EXPENSES ORDINARILY REQUIRED TO B E INCURRED TO ACHIEVE THE GIVEN QUANTUM OF BUSINESS. THEREFORE , THE A.O. WAS FULLY JUSTIFIED IN RAISING A DOUBT ABOUT THE CO RRECT RECORDING OF EXPENSES BY THE APPELLANT. THE APPELLA NT HAS NOT BEEN ABLE TO JUSTIFY THE ABSENCE OF SALARY EXPENSES AND CAR 4 RUNNING EXPENSES EVEN DURING THE COURSE OF THE APPE LLATE PROCEEDINGS. IT IS AN ADMITTED FACT THAT THE PARTNE RS OF THE APPELLANT FIRM WERE HAVING THEIR OTHER BUSINESS INT ERESTS IN DELHI. THEREFORE, THE APPELLANTS CLAIM THAT THE EN TIRE ADMINISTRATIVE AND OFFICE WORK WAS BEING LOOKED AFT ER BY THE PARTNERS THEMSELVES DOES NOT APPEAL TO LOGIC. THE A PPELLANTS CLAIM THAT NOT EVEN A SINGLE STAFF MEMBER WAS REQUI RED FOR THE OFFICE AND ADMINISTRATIVE WORK IS TOO FARFETCHED TO BE BELIEVED. IT IS INTO UNDERSTOOD AS TO HOW THE ADMINISTRATIVE WORK, THE OFFICE WORK AND THE WORK RELATED TO THE ACCOUNTING OF SUCH A HUGE TURNOVER WAS BEING MANAGED BY THE APPELLANT FI RM WITHOUT HIRING ANY MANPOWER. SIMILARLY, THE APPELLA NTS CLAIM THAT HE PARTNERS WERE MANAGING WITHOUT ANY CAR AND THAT THE TRAVELING EXPENSES WERE RECORDED IN THE TRAVELING A CCOUNT IS ALSO FOUND TO BE MISLEADING. A PERUSAL OF THE ACCOU NT DEALING WITH THE TRAVELING EXPENSES REVEALS THAT MOST OF TH E ENTRIES THEREIN ARE IN THE NATURE OF SMALL CASH ENTRIES. TH E ONLY MAJOR ENTRIES ARE IN RESPECT OF SIX PAYMENTS MADE TO ONE TRAVEL SOLUTION INDIA. THE HIGHEST ENTRY OF RS. 35,295/- I S IN RESPECT OF THE PAYMENT MADE TO ONE M/S TCI PVT. LTD. OUT OF THE TOTAL EXPENDITURE OF 1,09,149/- BOOKED UNDER TRAVELING EX PENSES. THERE IS CERTAINLY NO DOUBT THAT THE EXPENSES INCUR RED BY THE PARTNERS FOR TRAVELING AND THE EXPENSES INCURRED ON THE RUNNING AND MAINTENANCE OF THE VEHICLE(S) NECESSARI LY REQUIRED FOR THE PURPOSES OF THE BUSINESS OF SUCH A SCALE HAVE NOT BEEN RECORDED BY THE APPELLANT IN ITS BOOKS OF ACCOUNT. THE GROSS UNDERSTATEMENT OF EXPENSES APPEARS TO HAVE BE EN RESORTED TO BY THE APPELLANT WITH THE SOLE OBJECTIV E OF CLAIMING HIGH PROFITS AS THE APPELLANT WAS SEEKING DEDUCTION U/S 80IC OF THE ACT IN RESPECT OF ITS PROFITS. ON THE GIVEN FAC TUAL MATRIX OF THE CASE, THE A.O. HAS BEEN RATHER REASONABLE IN ES TIMATING THE EXPENSES @ ONLY 2% OF THE SALES AT RS. 9,08,584/-. THERE THUS EXIST NO GROUND TO INTERFERE WITH THE ACTION OF THE AO IN THIS REGARD. THERE IS FOUND NO STRENGTH IN THE APPELLANT S ARGUMENT THAT IT WAS FOR THE REVENUE TO ESTABLISH THAT ANY E XPENDITURE WAS ACTUALLY INCURRED BY THE APPELLANT. ON THE CONT RARY, THE ONUS LAY ON THE APPELLANT TO JUSTIFY AS TO HOW IT C OULD MANAGE TO MANUFACTURE AND SELL GOODS WORTH MORE THAN RS. 5 CRORES 5 WITHOUT INCURRING EVEN THE BASIS ESSENTIAL EXPENSES ON SALARY, WAGES, VEHICLES ETC. THE CIRCUMSTANTIAL EVIDENCE IN THE GIVEN CASE IS SUFFICIENTLY OVERWHELMING TO JUSTIFY THE AD DITION MADE BY THE A.O. AS THE ACCOUNTS PRESENTED BY THE APPELL ANT DO NOT PASS THE TEST OF NORMAL PROBABILITY. THE NET ADDITI ON OF RS. 6,13,016/- IS ACCORDINGLY UPHELD. 9. BEFORE THE LD. CIT(A), LD. COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND C IT(A). HOWEVER, WHEN THE BENCH RAISED SPECIFIC QUERIES, IT HAD NOT GIVEN ANY SATISFACTORY ANSWER I.E. IT WAS NOTICED THAT ASSESSEE HAS SHOWN TOTAL WAGES AND SALARY AMOUNTING TO RS. 3,98,092/-. IT HAS BEEN CLAIMED BY THE ASSESSEE THA T ASSESSEE HAD EMPLOYED 15 FULL TIME EMPLOYEES AND LIST OF THE SAME HAS BEEN G IVEN AT PAGE 8 OF THE PAPER BOOK. WHEN THE LD. COUNSEL WAS CONFRONTED THAT HOW HE JUSTIFY THE SALARY OF RS. 3,98,092/- FOR 15 EMPLOYEES, HE HAD NOT REPLY. 10. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDER OF CIT(A). 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT ASSESSEE HAS SHOWN VERY MEAGER EXPENSES TO THE TOTAL TURN OVER OF RS. 4.54 CRORES (APPROX). THE ASSESSEE HAS SHOWN TOTAL EXPENSES OF RS. 2,95,568/- AS TOTAL ADMINISTRATIVE AND SELLING EXPENSES, IF FUTURE DEPRECIATION HAS BEEN C LAIMED AT RS. 14,15,289/-. IT IS NECESSARY TO NOTE THAT TOTAL NUMBER OF EMPLOYEES HAD BEEN SHOWN AT 15 WHEREAS TOTAL WAGES HAVE BEEN SHOWN AT RS. 3,98,092 /- EVEN IF THE AVERAGE SALARY OF A WORKER IS TAKEN AT RS. 5,000/-, THE TOT AL EXPENSES ON WORKERS SALARY ITSELF WOULD HAVE BE ABOUT RS. 9 LAKHS WHEREAS THE TOTAL WAGES HAVE BEEN ADOPTED AT RS. 3,98,092/-. NO FURTHER AMOUNT HAS B EEN SHOWN TOWARDS STAFF SALARY. WE FAIL TO UNDERSTAND HOW THE FUNDS OF ACCO UNTING, ADMINISTRATION, DISPATCH, PURCHASES AND STORE KEEPING WERE HANDLED IN THE ABSENCE OF ANY STAFF. THEREFORE, IT IS VERY CLEAR THAT ASSESSEE HAS SHOWN ONLY MEAGER EXPENSES 6 BECAUSE OF DEDUCTION U/S 80IC AND ASSESSING OFFICER HAS RIGHTLY ESTIMATED SOME EXPENSES @ 2%. THEREFORE, WE FIND NOTHING WRONG WI TH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAME. 12. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 28 TH NOVEMBER, 2013 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH