DCIT, GONDA V. M/s A.P. Associates, Basti

ITA 622/LKW/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8162 (ITAT-LUCKNOW)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-08-2012
• Assessment Year: misc
• Appeal Filed On: 13-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: RAJESH CHAND JAIN F
• Keywords: Depreciation
• Section: 143(3); 142(1); 32; 145; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A : LUCKNOW BEFORE SHRI S. K. YADAV, JUDICIAL MEMBER AND SHRI B. R. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 622 /LKW/ 11 ASSESSMENT YEAR: 200 8 - 200 9 DY. C.I.T., VS. M/S A. P. ASSOCIATES, GONDA. SHIV COLONY, GANDHI NAGAR, BASTI. PAN:AAMFA2610C (APPELLANT) (RESPONDENT) APPE LLANT BY : SHRI ALOK MITRA, SR. D.R. RESPONDENT BY : SHRI RAJESH CHAND JAIN, F.C.A. DATE OF HEARING : 09 /0 8 /2012 DATE OF PRONOUNCEMENT :03/08/2012 ORDER PER B. R. JAIN: THIS APPEAL BY REVENUE AGAINST THE ORDER DATED 29 / 07 /20 11 OF LEARNED CIT(A) - II , LUCKNOW RAISES THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) - II, LUCKNOW HAS ERRED ON FACTS AND IN LAW BY RESTRICTING THE APPLICATION OF NET PROFIT TO 4%. 2. THAT THE LD. CIT(A) - II, LUCKNOW HAS ERRED IN LAW AND ON FACT IN OBSERVING THAT THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS BUT ONLY FAILED TO PRODUCE THEM BEFORE THE AO ONLY ON THE ASSUMPTION THAT THE AUDIT REPORT WAS FILED. 3. THAT THE LD. CIT(A) - II, LUCKNOW HAS ERRED ON FACTS AND IN LOW BY ALLOWING DEPRECIATION TO THE ASSESSEE, WHEREAS IN NO 2 ACCOUNT CASE, DEPRECIATION IS DEEMED TO HAVE BEEN ALLOWED WHEN N.P. RATE IS APPLIED. 4. T HAT THE APPELLANT CRAVES TO MODIFY, AMEND, CHANG E AND REVISE THE ABOVE GROUNDS OF APPEAL AND ADD FURTHER GROUNDS OF APPEAL, IF NECESSARY. 2. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR AND HAS DECLARED INCOME OF ` 10,65,124/ - AFTER CLAIMING DEDUCTION FOR SALARY AND INTEREST TO PARTNERS AGGREGATING TO ` 11,38,064/ - . THE RETURN OF INCOME WAS ACCOMPANIED BY THE AUDITED ACCOUNTS. IN RESPONSE TO NOTICE U/S 142(1) OF THE ACT, THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUN T OR VOUCHERS TO SUBSTANTIATE THE EXPENSES CLAIMED AS DEDUCTIBLE. IN THIS BACKDROP AND CONSIDERING THE FACT OF DISCLOSURE OF NET PROFIT RATE OF 2.82 % O N THE TURNOVER OF ` 7,81,39,170/ - WHICH WERE CONSIDERED TOO LOW, THE ACCOUNTS WERE NOT TAKEN AS RELIABLE . HE, THEREFORE, HAVING REGARD TO THE TRIBUNAL JUDGMENT DATED 13/03/2006 IN SMC CASE OF LUCKNOW BENCH IN I.T.A. NO.574/LKW/2005 WHERE NET PROFIT RATE OF 7% WAS APPLIED FOR NON VERIFICATION OF EXPENSES, PROCEEDED TO APPLY THE SAME NET PROFIT RATE AND COMPL ETED THE ASSESSMENT ACCORDINGLY BY ALLOWING DEDUCTION ON ACCOUNT OF INTEREST AND SALARY PAID TO PARTNERS. THE ASSESSMENT THUS STOOD COMPLETED AT AN INCOME OF ` 43,31,680/ - . 3. THE LEARNED CIT(A) WAS SATISFIED THAT IN THE ABSENCE OF PRODUCTION OF BOOKS OF ACCOUNT, THE CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNT CANNOT BE ACCEPTED AND AS SUCH THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE BOOK RESULTS AND TAKING RECOURSE OF ESTIMATION OF INCOME BY APPLYING NET 3 PROFIT RATE. HE ALSO FOUND THAT THE ASSESSMENT IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2006 - 200 7 WAS COMPLETED U/S 143(3) OF THE ACT WHEREIN THE PROFIT RATE DECLARED WAS 1.55% AND STAND S ADMITTED BY THE ASSESSING AUTHORITY. HOWEVER, THE ASSESSEES OWN HISTORY FOR IMMEDIATELY PAST THR EE ASSESSMENT YEARS SHOWS THAT THE NET PROFIT RATE DECLARED IN THESE YEARS RANGES FROM 1.03% TO 3.18% AND KEEPING IN VIEW THE ASSESSEES OWN HISTORY, HE RESORTED TO THE ESTIMATION OF INCOME BY APPLYING NET PROFIT RATE OF 4% SUBJECT TO ALLOWABILITY OF DEDUC TION FOR INTEREST AND SALARY PAID TO PARTNERS. THAT APART, HE ALSO DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION BY FOLLOWING THE JUDGMENT IN THE CASE OF CIT VS. JAIN CONSTRUCTION CO. [1999] 156 CTR 290 (RAJ) AND THUS THE INCOME STOOD REDUCED TO ` 16,01,949/ - THEREBY ALLOWING NET RELIEF OF ` 27,29,731/ - TO THE ASSESSEE. 4. THE LEARNED D.R. WHILE ASSAILING THE IMPUGNED ORDER , CONTENDS THAT THERE IS NO JUSTIFICATION IN THE ACTION OF THE LEARNED CIT(A) IN APPLYING THE NET PROFIT RATE OF 4% AS AGAINST 7 % APPLIED BY THE ASSESSING AUTHORITY. HE PLACED RELIANCE ON THE JUDGMENT BY HON'BLE SUPREME COURT IN THE CASE OF C OMMISSIONER OF SALES TAX VS . ESUFALI (H.M.) ABDULALI (H.M.) [1973] 90 ITR 271 (SC) WHERE IT HAS BEEN HELD THAT IF THE ESTIMATE MADE BY ASSESS ING OFFICER IS BONAFIDE ESTIMATE AND IS BASED ON A RATIONAL BASIS, THE FACT THAT THERE IS NO GOOD PROOF IN SUPPORT OF THAT ESTIMATE IS IMMATERIAL. PRIMA FACIE, THE A SSESSING A UTHORITY IS THE BEST JUDGE OF THE SITUATION. IT IS HIS BEST JUDGMENT AND NOT OF ANYONE ELSE. EVEN T HE HIGH COURT COULD NOT SUBSTITUTE ITS BEST JUDGMENT FOR THAT OF THE ASSESSING AUTHORITY. 4 IN THIS VIEW OF THE MATTER, THE ESTIMATE MADE BY THE ASSESSING AUTHORITY COULD NOT HAVE BEEN DISTURBED BY THE LEARNED CIT(A). FURTHERMORE, T HERE IS NO JUSTIFICATION IN THE ACTION OF LEARNED CIT(A) TO HAVE ALLOWED DEPRECIATION, WHICH WAS NOT A SUBJECT MATTER OF APPEAL BEFORE HIM MORE PARTICULARLY WHEN THE INCOME IS TO BE ESTIMATED BY APPLICATION OF NET PROFIT RATE. 5. ON THE OTHER HAND, THE LE ARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE DECISION TAKEN BY LEARNED CIT(A) AS IT HAS CONSIDERED THE ASSESSEES OWN HISTORY FOR ESTIMATING THE NET INCOME OF THE ASSESSEE. 6. WE HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD AND CASE LAWS BROUGHT TO OUR NOTICE. THE ASSESSING OFFICER RESORTED TO THE REJECTION OF ACCOUNTS MERELY BECAUSE THE BOOKS OF ACCOUNT AND VOUCHERS WERE NOT PRODUCED BEFORE HIM FOR VERIFICATION. IN THE PAST ALSO THE RESPONDENT ASSESSEE CARRIED THE SIMILAR BUSINESS . THE ASSESSMENT FOR ASSESSMENT YEAR 2006 - 2007 HAS BEEN COMPLETED U/S 143(3) OF THE ACT WHEREIN THE ASSESSEE IS SHOWN TO HAVE DISCLOSED A NET PROFIT RATE OF 1.55% AND THE PROFIT RATE SO DI SCLOSED IS NOT FOUND TO HAVE BEEN DISTURBED BY THE ASSESSING AUTHORITY. SINCE IN THE ABSENCE OF BOOKS OF ACCOUNT, CORRECT INCOME OF THE ASSESSEE COULD NOT BE DEDUCED, THE ASSESSING AUTHORITY JUSTIFIABLY RESORTED TO THE ESTIMATION OF INCOME BY APPLICATION OF NET PROFIT RATE BY ALLOWING INTEREST TO PARTNERS AS WELL AS SALARY TO THE WORKING PARTNERS. THE LEARNED CIT(A) JUSTIFIABLE DID NOT FIND ANY INFIRMITY IN THE SAID ACTION. NO INTERFERENCE IS THUS CONSIDERED NECESSARY. 5 7. THE LEARNED CIT(A), HOWEVER, FOUND THAT THE NET PROFIT RATE APPLIED BY THE ASSESSING AUTHORITY IS EXCESSIVE AND DOES NOT TAKE INTO ACCOUNT ASSESSEES OWN HISTORY. HE, THEREFORE, AFTER CONSIDERING THE ASSESSEES OWN HISTORY, CONSIDERED IT FIT TO ESTIMATE THE INCOME BY APPLICATION OF NET PROFIT RATE @4% ON THE TURNOVER OF ` 7,81,39,170/ - AND ALLOWED SALARY AND INTEREST TO PARTNERS AS HAS ALSO BEEN DONE BY THE ASSESSING AUTHORITY. SINCE THE DECISION OF THE LEARNED CIT(A) IN THAT REGARD WAS RESTED ON THE MATERIAL IN POSSESSION OF THE AS SESSING AUTHORITY, THE ESTIMATE SO MADE, THEREFORE, CANNOT BE UNJUST AND UNREASONABLE AND THE DECISION BY HON'BLE APEX COURT IN THE CASE OF C OMMISSIONER OF SALES TAX VS . ESUFALI (H.M.) ABDULALI (H.M.) [1973] 90 ITR 271 (SC) AS RELIED BY REVENUE ON THE PECULIAR FACTS SHALL NOT BE APPLICABLE. GROUND IN APPEAL BY REVENUE, THEREFORE, STAND S REJECTED. 8. AS REGARDS DEDUCTION OF DEPRECIATION FOR ` 3,85,554/ - , THIS CLAIM WAS NEITHER ALLOWED BY THE ASSESSING AUTHORITY NOR RAISED IN APPEAL BY THE ASSESSEE BEFOR E THE LEARNED CIT(A) IN THE GROUNDS APPENDED WITH THE APPEAL MEMO. ADMITTEDLY, THE COMPUTATION U/S 29 OF THE ACT IS TO BE MADE U/S 145 ON THE BASIS OF BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF SUCH BOOKS ARE NOT CORRECT AND COMPLETE AS IS THE CASE O F THE APPELLANT, THE ASSESSING OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE, IT IS IN SUBSTITUTION OF INCOME THAT IS TO BE COMPUTED U/S 29 OF THE ACT, WHICH IN OTHER WORDS MEANS THAT ALL DEDUCTIONS CONTAINED IN SECTION 30 TO 43D OF THE ACT ARE DEEMED TO HAVE BEEN ALLOWED. THIS WOULD MEAN, THE 6 DEPRECIATION ALLOWANCE U/S 32 OF THE ACT ALSO STANDS ALLOWED. THE HON'BLE A.P. HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS COMMISSIONER OF INCOME - TAX [1998] 232 ITR 776 (AP) AT PAGE 778 AND 779 HAS STATED THE LAW AS UNDER: THE PATTERN OF ASSESSMENT UNDER THE INCOME - TAX ACT IS GIVEN BY SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTION 40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENERALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER SECTION 29 IS TO BE MADE UNDER SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE INCOME - TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29. IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. 9. THE JUDGMENT RELIED BY LEARNED CI T(A) IN THE CASE OF CIT VS. JAIN CONSTRUCTION CO. [1999] 156 CTR 290 (RAJ), HOWEVER, DOES NOT APPLY TO THE PECULIAR FACTS OF THIS CASE IN A S MUCH AS THE CASE BEFORE HON'BLE RAJASTHAN HIGH COURT WAS WITH RESPECT TO THE PROVISIONS OF SECTION 263 OF THE ACT H AVING BEEN RESORTED BY THE LEARNED CIT AND THE TRIBUNAL, ON APPRECIATION OF FACTS, MATERIAL ON RECORD AND EVIDENCE PRODUCED BY THE ASSESSEE, DIRECTED TO ALLOW DEPRECIATION IN TERMS OF CIRCULAR ISSUED BY CBDT. IN THE PRESENT CASE IN APPEAL, THE ASSESSEE I S NOT SHOWN TO HAVE PRODUCED BOOKS OF ACCOUNT N OR ANY RELEVANT MATERIAL AND PARTICULARS OF ASSETS ON WHICH DEPRECIATION COULD BE ALLOWED TO HIM , HAS BEEN LAID ON RECORD . IT, THEREFORE, WAS A CASE PURELY OF ESTIMATION OF INCOME 7 BY APPLICATION OF NET PROFIT RATE AND ISS UE BEING COVERED BY THE JUDGMENT BY HON'BLE A.P. HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS COMMISSIONER OF INCOME - TAX [1998] 232 ITR 776 (AP) , THE LEARNED CIT(A), CAN BE SAID TO HAVE ERRED IN ALLOWING DEPRECIATION IN A CASE LIKE THIS. WE, THEREFORE, SET ASIDE HIS ORDER AND ALLOW THE GROUND RAISED IN APPEAL BY REVENUE. 10. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 23/08/2 012 ) SD/. SD/. ( S. K. YADAV ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23/08/2012 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR