Shri Rakesh Arvindbhai Patel, Baroda V. The Income tax Officer,Ward-2(2), Baroda

ITA 608/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5582 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B D BAROT
• Assessee Lawyers: S N DIVATIA
• Keywords: Depreciation; Income from undisclosed sources
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH SMC SMC SMC SMC BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE OF HEARING : 16-7-10 DRAFTED ON :16-7-10 ITA NO. 608 /AHD/ 2010 ASSESSMENT YEAR :2006-07 SHRI RAKESH ARVINDBHAI PATEL, 11/A,SHANTIKUNJ SOCIETY, OPP. VAKAL VIDYALAY, BAJWA, DISTRICT VADODARA. VS. INCOME TAX OFFICER, WARD 2(2), 2 ND FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA. PAN/GIR NO. : AHKPP 2742 H (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S.N.DIVATIA. RESPONDENT BY: SHRI B. D. BAROT, D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II , BARODA DATED 3-12-2009. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPE AL. 1. GENERAL. (A) THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. THE ORDER OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS)-II, BARODA [HEREINAFTER REF ERRED AS (CIT)] IS AGAINST LAW AND FACTS. (B) IN THESE GROUNDS OF APPEAL, THE INCOME TAX OFF ICER, WARD 2(2),BARODA IS REFERRED TO AS THE ASSESSING OFFICER OR THE LEARNED ASSESSING OFFICER AND THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, BARODA IS REFERRED TO AS L EARNED COMMISSIONER OF INCOME TAX(APPEALS) OR C.I.T.(A). (C) YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR WITHDRAW ALL OR ANY OF THE FOLLOWING GROUNDS OF APP EAL. - 2 - 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN INTERPRETATION AND APPLICATION OF VARIOUS PROVISIONS OF THE INCOME TAX ACT AND ACCOUNTING PRINCIPLES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS MADE UNDER SECTION 44AE (3) THAT ANY DEDUCTION ALLOWABL E UNDER THE PROVISIONS OF SECTION 30 TO 38 SHALL, FOR THE PURPOSE OF SUB-SECTION (1), BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTI ON UNDER THOSE SECTIONS SHALL BE ALLOWED HAS BEEN MISINTERPRETED AND MISUNDERSTOOD AS EXPENDITURE INCURRED AND PAID. HE OUGHT TO HAVE APPRECIATED THA T THE DEPRECIATION UNDER SECTION 32 IS NOT REQUIRED T O BE PAID AT ALL BUT IS ALLOWED AS EXPENDITURE BEFORE AR RIVING AT PROFIT FOR THE YEAR. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ACTION OF THE LEARNED ASSESSING OFFICER IN ASKING THE APPELLANT T O PRODUCE COPIES OF LAST 3 YEARS CAPITAL ACCOUNT WAS NOT IN CONFIRMATION WITH THE SPIRIT OF LAW. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT DEPRECIATION IS NON CASH EXPENDITURE AND ALLOWABLE AS DEDUCTION UNDER SECTIO N 32 OF THE INCOME TAX ACT, 1961 BEFORE ARRIVING AT T HE PROFIT OF THE BUSINESS. WHEN ASSESSEE INCURS CAPITA L EXPENDITURE OR MAKES INVESTMENTS OR USE FUND FOR PERSONAL EXPENDITURE DURING ANY FINANCIAL YEAR, HE IS DOING SO FROM THE PROFIT MADE BY HIM FROM HIS BUSIN ESS. WHILE MAKING SUCH EXPENDITURE OR INVESTMENTS, HE US ES SURPLUS FUND GENERATED DURING BUSINESS ACTIVITIES. AND DEPRECIATION IS CONSIDERED AS ONE OF THE SOURCES OF CASH FLOW FOR UTILIZATION OF FUND TOWARDS CAPITAL OR REV ENUE EXPENDITURE, REPAYMENT OF LOANS, INVESTMENTS ETC. A S PER ACCOUNTING PRINCIPLES FOR PREPARATION OF CASH F LOW STATEMENT. THIS FUNDAMENTAL PRINCIPAL OF CASH FLOW IS IGNORED, UNDERSTOOD AND IMPLEMENTED PREJUDICIALLY AGAINST THE APPELLANT. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRANSPORTATION AND PLYING GOODS CARRIES VEHICLES AND OWNED FOUR LIGHT COMMERCIAL VEHICLES DURING THE YEA R. THE RETURN OF INCOME WAS FILED UNDER SECTION 44AE OF THE INCOME T AX ACT ON20-3- - 3 - 2007 DECLARING TOTAL INCOME OF `.1,45,250/-. ON VER IFICATION OF THE BANK ACCOUNT THE LEARNED ASSESSING OFFICER NOTED TH AT THE ASSESSEE HAD FOLLOWING EXPENSES/INVESTMENTS:- PARTICULARS . AMOUNT `. HOUSEHOLD EXPENSES 72,000/ - INVESTMENT IN SHARES 1,88,757/ - INVESTMENT IN MUTUAL FUNDS 57,000/ - UNDER SECTION 80D 1,679/ - LIC PREMIUM 65,768/ - CAR(DOWN PAYMENT) 24,000/ - CAR INSTALLMENT(PRINCIPAL) 15,455/ - TOTAL 4,24,659/ - 4. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED T HAT THE ASSESSEE HAS OFFERED `.2,12,696 ONLY FOR TAXATION WHEREAS THE EXPENSES/INVESTMENTS STOOD AT `.4,24,659/-. SINCE T HE EXPENSES EXCEEDED THE INCOME DECLARED BY `.2,11,963/- THE LE ARNED ASSESSING OFFICER SOUGHT AN EXPLANATION FROM THE AS SESSEE. THE ASSESSEE EXPLAINED THAT DEPRECIATION OF `.2,09,654/ - BEING NON CASH EXPENDITURE WAS THE SOURCE OF EXPENSES AND INV ESTMENTS. THE LEARNED ASSESSING OFFICER WAS NOT CONVINCED WITH TH E SUBMISSIONS OF THE ASSESSEE AND HELD THAT UNDER THE DEEMING PRO VISIONS OF SECTION 44AE ALL EXPENSES, INCLUDING DEPRECIATION H AVE BEEN TREATED AS GIVEN EFFECT TO, THEREFORE, WHATEVER INC OME IS DECLARED BY THE ASSESSEE IS ONLY AVAILABLE WITH HIM FOR EXPENSES/INVESTMENTS. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT CAPITAL ACCOUNT HAD NOT BEEN FILED BY THE ASSESSEE FOR THE LAST YEARS DESPITE SPECIFICALLY BEING CALLE D FOR. HENCE HE ADDED `.2,11,963 AS INCOME FROM UNDISCLOSED SOURCES . 5. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER - 4 - 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES AND THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIALS ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN PLYING OF LIGHT COMMERCIAL VEHICLES A ND THE ASSESSEE HAS DECLARED ITS INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SECTION 44AE OF THE ACT AT `.2,12,696/-. THE LEARNE D ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE PERSONA L INVESTMENTS AND PERSONAL EXPENDITURE OF `.4,24,659/- DURING THE YEAR UNDER CONSIDERATION. THUS ACCORDING TO THE LEARNED ASSESS ING OFFICER THE ASSESSEE COULD NOT EXPLAIN THE SOURCE OF REMAINING AMOUNT OF INVESTMENT AND PERSONAL EXPENSES OF `.2,11,963/- ( `.4,24,659 - `.2,12,696/- ). THE EXPLANATION OF THE ASSESSEE THA T DEPRECIATION OF `.2,09,654/- WAS AVAILABLE WITH THE ASSESSEE FOR MA KING INVESTMENTS AND PERSONAL EXPENSES WAS NOT ACCEPTED BY THE LEARNED ASSESSING OFFICER. ON APPEAL LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) ALSO DID NOT ACCEPT THE ABOVE E XPLANATION OF THE ASSESSEE AND CONFIRMED THE ACTION OF THE LEARNE D ASSESSING OFFICER OF MAKING ADDITION OF `.2,11,963/- TO THE I NCOME OF THE ASSESSEE ON ACCOUNT OF INVESTMENTS AND PERSONAL EXP ENSES FROM UNDISCLOSED SOURCES. IT IS OBSERVED THAT IT IS NOT IN DISPUTE THAT THE DEPRECIATION ALLOWABLE UNDER SECTION 32 OF THE ACT COMES TO `.2,09,654/- DURING THE YEAR UNDER CONSIDERATION IN THE INSTANT CASE WHICH WAS DEEMED TO HAVE BEEN ALLOWED TO THE ASSESS EE IN ESTIMATING HIS INCOME UNDER SECTION 44AE OF THE ACT . I FIND THAT THE LOWER AUTHORITIES HAS FAILED TO APPRECIATE THE FACT THAT DEPRECIATION WAS A NON CASH EXPENDITURE OR ALLOWANCE TO THE ASSE SSEE IN DETERMINING NET INCOME OF `.2,12,696/-. THUS THE IN COME OF THE ASSESSEE BEFORE DEPRECIATION WAS `.4,22,350/- ( `.2 ,12,696 + `.2,09,654 ) AND AFTER DEPRECIATION ALLOWANCE OF `. 2,09,654/- THE - 5 - NET INCOME OF THE ASSESSEE WAS `.2,12,696/-. IN OTH ER WORDS THE ASSESSEE BY HAVING INCOME OF `.2,12,696/- HAD CASH EARNING OF `.4,22,350/-. THUS IN MY CONSIDERED OPINION THE MAX IMUM AMOUNT WHICH COULD BE ADDED IN THE INSTANT CASE COMES TO ` .2,309/- ( `.4,24,659 - `.4,22,350 ) ONLY. I THEREFORE MODIFY THE ORDERS OF THE LOWER AUTHORITIES AND SUTAIN ADDITION OF `.2,309/- AND DELETE THE ADDITION TO THE EXTENT OF `.2,09,654/-. 8. THUS, THE APPEAL OF THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 23RD DAY JULY, 2010. SD/- ( N. S. SAINI ) ACCOUNTANT MEMBER AHMEDABAD: ON THIS 23RD DAY OF JULY, 2010 PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II,BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 22-7-10 ------------ ---- 2. DRAFT PLACED BEFORE AUTHORITY 22-7-10 -- -------------- 3. DRAFT PROPOSED & PLACED ----- -------JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER - ------------------ 5. APPROVED DRAFT COMES TO P.S --------------- - -------------------- 6. KEPT FOR PRONOUNCEMENT ON --------------- - -------------------- 7. FILE SENT TO THE BENCH CLERK ------------ ---- --------------------- 8. DATE ON WHICH FILE GOES TO THE -------------- -- -------------------- 9. DATE OF DISPATCH OF ORDER --------------- - ---------------------