M/s. Atmaram Modi, Ahmedabad V. The Income tax Officer,Ward-11(4), Ahmedabad

ITA 66/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5960 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Keywords: Depreciation; Initiation of penalty proceedings; Reassessment proceedings
• Section: 234B; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI MUKUL KUAMR SHRAWAT, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.66 / AHD/2009 (ASSESSMENT YEAR 2004-05) M/S. ATMARAM MODI, 21, NEW CLOTH MARKET, O/S RAIPUR GATE, AHMEDABAD VS. ITO, WARD 11(4), AHMEDABAD PAN/GIR NO. : AAGFA2925C (APPELLANT) .. (RESPONDENT) APPELLANT BY: MS. URVASHI SHODHAN, AR RESPONDENT BY: SHRI S.K. MEENA, SR. DR O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A) XVI, AHMEDABAD DATED 30.10.2008 FOR THE ASSESSMENT YEAR 2004-05. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN REOPENING THE ASSESS MENT PROCEEDINGS U/S. 147 OF THE I.T. ACT. UNDER THE FAC TS AND CIRCUMSTANCES OF THE CASE THE ACTION OF REOPENING I S WITHOUT JURISDICTION AND NOT PERMISSIBLE EITHER IN LAW OR O N FACT. THE PRESENT PROCEEDINGS, THEREFORE, ARE REQUIRED TO BE QUASHED. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN ADDING COMMISSION IN COME OF I.T.A.NO. 66/AHD/2099 2 RS.26,96,531/- IN SPITE OF THE FACT THAT THE SAID C OMMISSION INCOME GOT ACCRUED, RECEIVED AND OFFERED FOR TAX IN A.Y. 0 5-06. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, IF COM MISSION INCOME IS TAXED FOR THE YEAR UNDER CONSIDERATION, THE SAME MA Y KINDLY BE EXCLUDED FROM THE INCOME FOR A.Y. 05-06. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.30,2L 6/- BEING 1/5 TH OUT OF THE TELEPHONE EXPENSES. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.29,04 1/- BEING OUT OF MISC. OFFICE EXPENSES. 6. THE LEARNED CJT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.45,19 1/- BEING 1/5 TH OUT OF SCOOTER AND MOTOR EXPENSES AND DEPRECIATION OF MOTOR CAR EXPENSES. 7. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LA W AND ON FACTS IN NOT PROPERLY APPRECIATING AND CONSIDERING VARIOUS SUBMISSIONS, EVIDENCES AND SUPPORTING PLACED ON REC ORD DURING THE COURSE OF THE PROCEEDINGS AND NOT PROPERLY APPRECIA TING VARIOUS FACTS AND LAW IN ITS PROPER PERSPECTIVE. 8. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF ID. AO IN LEVYING INTEREST U/A. 234B AND 234C OF THE ACT. 9. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF ID. AO IN INITIATING PENAL TY PROCEEDINGS U/S 27 IB OF THE ACT WITHOUT APPRECIATING THAT IT I S BECAUSE THE ADDITION OF THE COMMISSION INCOME THAT THE APPELLAN T'S GROSS RECEIPT EXCEEDS THRESHOLD LIMIT PRESCRIBED U/S 44AB OF THE ACT, 10. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ID. AO IN INITIATING PENALTY UNDER SE CTION 271(L)(C) OF THE ACT WITHOUT RECORDING MANDATORY SATISFACTION AS CONTEMPLATED UNDER THE ACT. I.T.A.NO. 66/AHD/2099 3 2. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT GROUND NO.1 IS NOT PRESSED AND ACCORDINGLY, GR OUND NO.1 IS REJECTED AS NOT PRESSED. IT WAS ALSO SUBMITTED THAT THE GRO UND NO.7 IS GENERAL AND THE ISSUE INVOLVED IN GROUND NO.8 IS CONSEQUENTIAL. REGARDING GROUNDS NO. 9 & 10, IT WAS SUBMITTED THAT THESE TWO GROUNDS ARE PREMATURE. ACCORDINGLY WE HOLD THAT NO ADJUDICATION IS CALLED FOR IN RELATION TO GROUND NO.8 BECAUSE THE ISSUE INVOLVED THEREIN REGA RDING INTEREST U/S 234B AND 234C IS CONSEQUENTIAL. NO ADJUDICATION IS CALLED FOR IN RESPECT OF GROUNDS NO. 9 & 10 ALSO BECAUSE THE ISSUE INVOLV ED REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271B AND U/S 271(1)(C) ARE PREMATURE. GROUND NO.7 IS SAID TO BE GENERAL & HEN CE NO SEPARATE ADJUDICATION IS CALLED FOR. 3. REGARDING GROUNDS NO. 2 & 3, IT WAS SUBMITTED TH AT GROUND NO.3 IS AN ALTERNATIVE GROUND. REGARDING GROUND NO.2, THE FACTS ARE NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT ON VERIFICATION O F RETURNED INCOME FOR THE ASSESSMENT YEAR 2005-06, IT WAS NOTED THAT THE ASSESSEE HAD CLAIMED TOTAL COMMISSION INCOME OF RS.31,29,532/- IN THAT Y EAR OUT OF WHICH, COMMISSION INCOME AMOUNTING TO RS.26,96,531/- WAS P ERTAINING TO THE PERIOD 1.4.2003 TO 31.03.2004. THE A.O. WAS OF THE OPINION THAT ASSESSEE SHOULD HAVE DECLARED SUCH INCOME IN ASSESSMENT YEAR 2004-05. THE A.O. INITIATED REASSESSMENT PROCEEDINGS FOR THE PRESENT YEAR AND ISSUED NOTICE TO THE ASSESSEE U/S 148. IN THE COURSE OF ASSESSME NT PROCEEDINGS, THE A.O. ASKED THE ASSESSEE TO FURNISH VARIOUS DETAILS BUT THERE WAS NO COMPLIANCE. THE A.O. ISSUED A NOTICE AGAIN TO THE ASSESSEE ON 17.08.2006 ASKING THE ASSESSEE TO SUBMIT CERTAIN DE TAILS SUCH AS NATURE OF BUSINESS, METHOD OF ACCOUNTING FOLLOWED BY IT, CLAU SES OF PARTNERSHIP DEED AND COPY OF ACCOUNTS AND COMMISSION RECEIVED A ND PAID FOR THE I.T.A.NO. 66/AHD/2099 4 PRESENT YEAR AND ALSO FOR THE PRECEDING THREE YEARS . IN REPLY, A LETTER DATED 07.04.2006 WAS SUBMITTED IN WHICH IT WAS SUBMITTED THAT THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE IS GENERALLY MERCANTILE BUT THE COMMISSION INCOME IS TAKEN INTO ACCOUNT ON CASH BASIS AS WELL AS MERCANTILE BASIS IN THE YEAR UNDER ASSESSMENT. IT WAS ALSO SUBMITTED THAT THE ONLY REASON FOR DOING SO IS THAT FOR MOST OF TH E PROCESS HOUSES (GIVER OF COMMISSION ON CLOTH SUPERVISION WORK) AND EXPORT ERS (GIVER OF COMMISSION ON GRAY CLOTH PURCHASE) ARE CREDITING TH E ACCOUNT OF THE ASSESSEE IN THEIR BOOKS WITH THE AMOUNT OF COMMISSI ON IN ONE FINANCIAL YEAR AND ACTUALLY RELEASING THE PAYMENT IN THE SUBS EQUENT FINANCIAL YEAR/FINANCIAL YEARS. HENCE, IT IS NOT POSSIBLE TO ASCERTAIN CORRECT INCOME OF THE COMMISSION WITHOUT TAKING THE INCOME IN THAT YEAR IN WHICH IT IS RECEIVED. THE A.O. WAS NOT SATISFIED AND HE HELD T HAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE A SSESSEE HAS TO ACCOUNT FOR THE COMMISSION INCOME IN THE YEAR WHEN SERVICES ARE RENDERED. ON THIS BASIS, HE MADE ADDITION OF RS.,26,96,531/- IN THE PRESENT YEAR IN RESPECT OF COMMISSION INCOME PERTAINING TO THE PRES ENT YEAR BUT SHOWN BY THE ASSESSEE IN ASSESSMENT YEAR 2005-06. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE U S. 4. THE MAIN CONTENTION OF THE ASSESSEE IS THIS THAT NO SUCH ADDITION SHOULD BE MADE IN THE PRESENT YEAR BECAUSE THE ASSE SSEE IS FOLLOWING THE SYSTEM OF ACCOUNTING CONSISTENTLY YEAR AFTER YEAR. AN ALTERNATIVE CONTENTION HAS BEEN RAISED BY THE ASSESSEE BY GROUN D NO.3 THAT IN CASE, THIS ADDITION IS CONFIRMED IN THE PRESENT YEAR, COR RESPONDING INCOME SHOULD BE EXCLUDED FROM THE TAXABLE INCOME OF THE A SSESSEE IN THE NEXT YEAR I.E. IN ASSESSMENT YEAR 2005-06. LD. A.R. DRA WN OUR ATTENTION TO I.T.A.NO. 66/AHD/2099 5 PARA 4.5 OF THE ORDER OF CIT(A) WHERE IT IS OBSERVE D BY THE CIT(A) THAT HE CANNOT DECIDE THIS ALTERNATIVE PLEA OF THE ASSESSEE BECAUSE THE ASSESSMENT YEAR 2005-06 IS NOT OPEN BEFORE HIM. IT IS OBSERVE D BY THE LD. CIT(A) IN THIS PARA OF HIS ORDER THAT THE ASSESSEE CAN MAKE S UCH CLAIM BEFORE THE A.O. AND IN CASE THE CLAIM IS NOT CONSIDERED BY THE A.O., THE ASSESSEE CAN FILE APPEAL AGAINST SUCH ORDER OF THE A.O. BUT IT W OULD NOT BE PROPER FOR HIM TO PASS JUDGEMENT IN RELATION TO ASSESSMENT YEA R 2005-06 WHICH IS NOT UNDER HIS CONSIDERATION. IT IS THE SUBMISSION OF THE LD. A.R. OF THE ASSESSEE THAT SINCE THE INCOME IN QUESTION CANNOT B E TAXED TWICE, SUCH DIRECTION IN RELATION TO THE SUBSEQUENT YEAR I.E. A SSESSMENT YEAR 2005-06 IS CONSEQUENTIAL AND IT IS VERY MUCH IN THE POWERS OF THE TRIBUNAL TO GIVE SUCH CONSEQUENTIAL DIRECTION FOR ANY SUBSEQUENT YEA R OR PRECEDING YEAR. 5. LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE DETAILS OF THE TDS CERTIFICATE SUBMITTED B Y THE ASSESSEE ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2 005-06 ARE NOTED BY THE LD. CIT(A) IN PARA 4.3.2 OF HIS ORDER AS PER WH ICH, DATE OF CREDIT IN THE BOOKS OF THE PAYERS IS 31.03.2004 I.E. LAST DA TE OF THE PRESENT ACCOUNTING YEAR. TDS WAS PAID BY THE PAYERS IN THE MONTH OF MAY 2004. HENCE, IT IS NOT ACCEPTABLE THAT THE AMOUNT OF COMM ISSION INCOME WAS NOT ASCERTAINABLE IN THE PRESENT YEAR BECAUSE WHEN THE PAYERS CAN DETERMINE THE AMOUNT OF COMMISSION PAYABLE TO THE A SSESSEE IN THE PRESENT YEAR AND ACCOUNT FOR THE SAME IN THEIR RESP ECTIVE BOOKS, AFTER DEDUCTING TDS THEREFROM, IT IS NOT ACCEPTABLE THAT THE ASSESSEE WAS NOT IN A POSITION TO ACCOUNT FOR THE INCOME IN THE PRESENT YEAR. MOREOVER, THE EXPENSES INCURRED BY THE ASSESSEE FOR EARNING THIS INCOME ARE ACCOUNTED I.T.A.NO. 66/AHD/2099 6 FOR BY THE ASSESSEE IN THE PRESENT YEAR. HENCE, AS PER THE MATCHING PRINCIPLES ALSO, THE CORRESPONDING INCOME IS TO BE ACCOUNTED FOR IN THE PRESENT YEAR. MOREOVER, THE ASSESSEE CAN FOLLOW EI THER CASH SYSTEM OF ACCOUNTING OR MERCANTILE SYSTEM OF ACCOUNT BUT THE ASSESSEE IS NOT PERMITTED TO FOLLOW HYBRID SYSTEM OF ACCOUNTING AS IN THE PRESENT CASE. HERE, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING FOR ALL OTHER INCOME AND EXPENDITURE AND HENCE, FOR ACCOUNT ING OF COMMISSION INCOME ALSO, THE ASSESSEE HAS TO FOLLOW THE MERCANT ILE SYSTEM OF ACCOUNTING. REGARDING THIS CONTENTION OF THE LD. A .R. OF THE ASSESSEE THAT THERE ARE VARIOUS JUDICIAL PRONOUNCEMENTS STATING T HAT IF THE TAX RATE IS THE SAME, THE REVENUE SHOULD NOT DISPUTE REGARDING TAXI NG OF INCOME IN YEAR ONE OR IN YEAR TWO, WE WOULD LIKE TO OBSERVE THAT T HIS IS BY NOW A SETTLED POSITION OF LAW THAT CORRECT INCOME HAS TO BE ASSES SED IN THE CORRECT HANDS IN THE CORRECT YEAR. HENCE, THE ASSESSEE CANNOT BE PERMITTED TO DEFER THE TAX LIABILITY OF INCOME OF THE PRESENT YEAR TO THE NEXT YEAR. HENCE, WE DO NOT FIND ANY MERIT IN THE GROUND NO.2 OF THE ASSESS EE AND THE SAME IS REJECTED. 7. REGARDING GROUND NO.3 I.E. REGARDING ALTERNATIVE CONTENTION OF THE ASSESSEE, WE FIND THAT THIS IS VERY MUCH NOTED BY T HE A.O. IN THE ASSESSMENT ORDER ITSELF THAT THE ASSESSEE HAS DECLA RED COMMISSION INCOME OF RS.31,29,532/- IN ASSESSMENT YEAR 2005-06 WHICH INCLUDES COMMISSION INCOME OF RS.26,96,531/- PERTAINING TO THE PRESENT YEAR. HENCE, IT IS SEEN THAT ONCE IT IS HELD THAT THIS INCOME IS TAXABLE IN THE PRESENT YEAR, AS A CONSEQUENCE, THE ASSESSEE BECOMES ELIGIBLE FOR REDU CTION OF SUCH INCOME IN ASSESSMENT YEAR 2005-06. INCOME CANNOT BE TAXED TWICE, ONCE IN THE PRESENT YEAR BY APPLYING THE MERCANTILE SYSTEM OF A CCOUNTING AND THEN AGAIN IN THE NEXT YEAR ON THE BASIS OF ASSESSEES B OOKS OF ACCOUNT AS PER I.T.A.NO. 66/AHD/2099 7 CASH SYSTEM OF ACCOUNTING IN RESPECT OF ITS COMMISS ION INCOME. HENCE, THE ASSESSEE DESERVES RELIEF IN THE NEXT YEAR AS A CONSEQUENCE TO UPHOLDING OF ADDITION MADE BY THE A.O. IN THE PRESE NT YEAR. ADMITTEDLY, THE NEXT YEAR I.E. ASSESSMENT YEAR 2005-06 IS NOT O PEN BEFORE US BUT SINCE THE RELIEF CLAIMED BY THE ASSESSEE AS PER THIS ALTE RNATIVE CONTENTION IS A CONSEQUENTIAL RELIEF, WE ARE OF THE CONSIDERED OPIN ION THAT GIVING DIRECTION FOR SUCH CONSEQUENTIAL RELIEF IN A PRECED ING OR SUCCEEDING YEAR IS WELL WITHIN THE POWERS OF THE TRIBUNAL AND HENCE , WE DIRECT THE A.O. TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE IN THE N EXT YEAR IF NOT ALREADY ALLOWED BECAUSE NO INCOME CAN BE TAXED TWICE AND TH IS IS ADMITTED POSITION IN THE PRESENT CASE THAT THE INCOME BEING TAXED BY THE A.O. IN THE PRESENT YEAR HAS BEEN DECLARED BY THE ASSESSEE AND INCLUDED IN THE INCOME IN THE SUCCEEDING YEAR. THE A.O. IS DIRECTED ACCOR DINGLY. GROUND NO.3 OF THE ASSESSEE STANDS ALLOWED. 8. REGARDING GROUNDS NO. 4, 5 & 6, IT WAS SUBMITTED BY THE LD. A.R. THAT DISALLOWANCE MADE BY THE A.O. TO THE EXTENT OF 1/5 TH OF THE EXPENSES IS EXCESSIVE. LD. D.R. OF THE REVENUE SUPPORTED TH E ORDERS OF AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. REGARDING GROUNDS NO. 4 & 6, WE FIND THAT DISALLOWANCE WAS MA DE BY THE A.O. FOR THIS REASON THAT SOME PERSONAL USE OF TELEPHONE AND VEHICLE ETC. CANNOT BE RULED OUT. HE MADE DISALLOWANCE TO THE EXTENT OF 1 /5 TH OF THE EXPENSES UNDER THE HEAD TELEPHONE EXPENSES AND SCOOTER/MOTO R EXPENSES. BEFORE US, NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE PARTNERS WERE HAVING THEIR PERSONAL TELEPHONE OR PERSONAL VEHICLE FOR THEIR PERSONAL USE. HENCE, THE DISALLOWANCE @ 20% OF THE EXPENSES UNDER THE HEAD I.T.A.NO. 66/AHD/2099 8 TELEPHONE AND SCOOTER/MOTOR EXPENSES IS REASONABL E AND WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. HENCE, GROUNDS NO. 4 & 6 ARE REJECTED. 7. REGARDING GROUND NO.5, I.E. REGARDING DISALLOWAN CE OF RS.29,041/- BEING 1/5 TH OF THE EXPENSES UNDER THE HEAD MISCELLANEOUS OFFIC E EXPENSES, WE FIND THAT THIS DISALLOWANCE WAS MADE BY THE A.O. ON THIS BASIS THAT THE ASSESSEE HAS NOT FILED BIFURCATION OF THESE EXPENS ES AND HAS NOT SUBMITTED BILLS/VOUCHERS TO SUPPORT THESE EXPENSES. REGARDIN G DISALLOWANCE OUT OF THESE EXPENSES, WE FEEL THAT THE SAME IS EXCESSIVE AND HENCE, WE RESTRICT THE DISALLOWANCE OUT OF MISCELLANEOUS OFFICE EXPENS E TO THE EXTENT OF 10% OF SUCH EXPENSES I.E. TO THE EXTENT OF RS.14,521/- AND THE ASSESSEE GETS RELIEF OF RS.14,520/-. THUS, GROUND NO.5 IS PARTLY ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2011. SD./- SD./- (MUKUL KUMAR SHRAWAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 29 TH JULY, 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE I.T.A.NO. 66/AHD/2099 9 1. DATE OF DICTATION 25/7 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/7 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 27/7 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 29/7 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 29/7 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29/7/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..