SHANKAR LAL CHAUDHARY & PARTY, Jaipur V. ACIT, Jaipur

ITA 67/JPR/2011

• Counselvise Citation: 6723114 RSA 2011
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 28-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: G M MEHTA
• Keywords: Rectification of order; Revenue expenditure
• Section: 143(3); 154

Judgement Text

1 ITA 67-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 67/JP/2011 ASSTT. YEAR : 2004-05. M/S. SHANKAR LAL CHAUDHARY & PARTY, VS. THE ACIT, C IRCLE-3, C/O G. MEHTA & CO. PARAS: JAIPUR. 127, HARI MARG, CIVIL LINES, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.M. MEHTA RESPONDENT BY : SHRI D.K.MEENA DATE OF HEARING : 26.7.2011. DATE OF PRONOUNCEMENT : 19.8.2011. ORDER DATE OF ORDER : 19/08/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE IS OBJECTING IN UPHOLDING THE ORDER OF AO PASSED UNDER SECTION 154 OF THE ACT, WHO HAD TREATED THE PAYMENT OF SHORT LI CENSE FEE OF RS. 3,43,48,701/- PAID IS LIABILITY OF THE ASSESSEE AOP WHO PURCHASED LIQUOR AS PART OF TRADING RECEIPT AND THEREAFTER APPLYING GROSS PROFIT RATE OF 3.40% ON T HE DECLARED SALES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT IN THIS CASE WAS ORIGINALLY COMPLETED UNDER SECTION 143(3). BOOKS OF ACCOUNT WE RE REJECTED BY THE AO BY INVOKING PROVISIONS OF SECTION 145(3). THE TRADING RESULTS WERE DISTURBED AND A GROSS PROFIT RATE OF 4.5% WAS APPLIED AGAINST GROSS PROFIT RATE OF 3.07% SHOWN BY ASSESSEE. A FURTHER 2 ADDITION OF RS. 7,50,000/- MADE BY LD. CIT (A) WAS ALSO DELETED. AGAINST THE SUSTENANCE OF ADDITION OF RS. 10,00,000/-, THE ASSESSEE FILED APPEAL AND AGAINST VARIOUS ADDITIONS DELETED BY LD. CIT (A), DEPARTMENT FILED APPEAL. T HE TRIBUNAL WHILE DECIDING THE APPEALS IN ITA NO. 472/JP/06 BY ASSESSEE AND ITA NO. 600/JP /2006 BY DEPARTMENT VIDE ITS ORDER DATED 27.7.2007 DIRECTED THE AO TO APPLY GROSS PROF IT RATE OF 3.4% ON THE DECLARED TURNOVER OF RS. 1,28,02,76,273/- AND COMPUTE THE TO TAL INCOME OF THE ASSESSEE ACCORDINGLY. IT WAS FURTHER OBSERVED BY THE TRIBUN AL THAT THE SAID APPLICATION OF GROSS PROFIT RATE WILL TAKE OF DISALLOWANCES MADE ON ACCO UNT OF ABSENCE OF VOUCHERS OF EXPENSES. THEREAFTER THE AO GAVE EFFECT OF THE ORD ER OF THE TRIBUNAL. HOWEVER, WHILE GIVING EFFECT TO THE ORDER OF TRIBUNAL, THE AO APPL IED NET PROFIT RATE OF 3.4% AGAINST GROSS PROFIT RATE OF 3.4% AS DIRECTED BY THE TRIBUNAL. T HEREAFTER THE ASSESSEE MOVED APPLICATION UNDER SECTION 154 TO THE AO STATING THE MISTAKE CRE PT IN HIS ORDER GIVING APPEAL EFFECT TO THE ORDER OF THE TRIBUNAL. THE AO ADMITTED THE MIST AKE. HOWEVER, WHILE PASSING ORDER UNDER SECTION 154, THE AO GAVE THE BENEFIT OF EXPEN DITURE OF RS. 3,43,48,701/- ON ACCOUNT OF EXPENDITURE. THE AO ADDED DONATION OF R S. 6,852/- AND PENALTY AMOUNT OF RS. 50,000/- AS PER ORDER UNDER SECTION 143(3) ORIG INALLY PASSED. THE ASSESSEE PREFERRED APPEAL AGAINST THE RECTIFICATION ORDER OF THE AO BE FORE LD. CIT (A) ON TWO ACCOUNTS AS THE AO WHILE PASSING ORDER UNDER SECTION 154 HAS COMPUT ED THE TOTAL INCOME AT RS. 92,37,544/-. HOWEVER, WHILE COMPUTING THIS INCOME, THE AO HAS TREATED THE SHORT LICENSE FEE OF RS. 10,27,99,493/- AS PART OF TRADING ACCOUN T THOUGH THE PAYMENT OF SHORT LICENSE FEE WAS CLAIMED IN PROFIT & LOSS ACCOUNT. IN THIS WAY THE INCOME OF RS. 38,00,000/- OR ODD WAS INCREASED AS AGAINST THE RETURNED INCOME SH OWN ORIGINALLY BY THE ASSESSEE. IT WAS CONTENDED BEFORE LD. CIT (A) THAT THE AO WHILE APPLYING GROSS PROFIT RATE OF 3.4% 3 HAS EXCLUDED THE AMOUNT OF SHORT LICENSE FEE OF RS. 10.27 CRORES OR ODD FROM THE PROFIT & LOSS ACCOUNT. THEREFORE, IT WAS PLEADED THAT THE S HORT LICENSE FEE IS A REVENUE EXPENDITURE AND IS ALLOWABLE AS REVENUE EXPENDITURE . HOWEVER, THE LD. CIT (A) WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE AND A CCORDINGLY HE CONFIRMED THE ORDER PASSED UNDER SECTION 154 OF THE ACT. 4. NOW THE ASSESSEE IS IN APPEAL HERE BEFORE THE TR IBUNAL AGAINST THE ORDER OF LD. CIT (A). 5. THE LD. COUNSEL OF THE ASSESSEE REITERATED THE C ONTENTIONS RAISED BEFORE THE LOWER AUTHORITY. A BRIEF WRITTEN NOTE IN SUPPORT OF THE GROUND OF APPEAL HAS BEEN FILED BY THE ASSESSEE WHICH IS PLACED IN THE PAPER BOOK AT PAGES 1 & 2. IT WAS FURTHER EXPLAINED THAT THE SHORT LICENSE FEE HAS ALREADY BEEN DISCUSSED BY LD. CIT (A) AGAINST THE ASSESSMENT ORDER PASSED ORIGINALLY. ATTENTION OF THE BENCH WA S DRAWN ON COPY OF ORDER OF LD. CIT (A) PASSED ON 1.3.2006, COPY OF WHICH IS PLACED AT PAGES 14 TO 25. RELEVANT PORTION AT PAGE 9 OF THE ORDER OF LD. CIT (A) WAS ALSO READ WH ERE THE ALLOWABILITY OF SHORT LICENSE FEE IS DISCUSSED AND WHERE HE HAS HELD THAT SHORT L ICENSE FEE IS ALLOWABLE DEDUCTION. WHILE HOLDING SO, THE DECISION OF TRIBUNAL IN THE C ASE OF RAJARAM RAJENDRA BHANDARI & PARTY WAS TAKEN INTO CONSIDERATION. ACCORDINGLY IT WAS STATED THAT ENTIRE EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT INCLUDING THE SHORT LICENSE FEE OF RS. 10.27 CRORES OR ODD IS TO BE ALLOWABLE. THEREFORE, THE AO WHILE GI VING APPEAL EFFECT CANNOT EXCLUDE THIS AMOUNT FROM THE PROFIT & LOSS ACCOUNT. ATTENTION O F THE BENCH WAS ALSO DRAWN ON COPY OF ORDER OF TRIBUNAL BY WHICH IT WAS DIRECTED THE A O TO APPLY 3.4% G.P. AGAINST 3.07% SHOWN BY THE ASSESSEE. RELEVANT PORTION AT PAGE 10 OF THE ORDER OF THE TRIBUNAL WAS READ ALSO. 4 6. ON THE OTHER HAND, THE LD. D/R PLACED RELIANCE O N THE ORDER OF LD. CIT (A). 7. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, WE FIND THAT ASSESSEE DESERVES TO SUCCEED IN ITS APPEAL. BE FORE GOING FURTHER, WE WOULD LIKE TO INCORPORATE THE FINAL FINDING OF THE TRIBUNAL BY WH ICH THE AO WAS DIRECTED TO APPLY 3.4% G.P. ON TOTAL TURNOVER DECLARED BY THE ASSESSEE. T HE DIRECTION OF THE TRIBUNAL ARE GIVEN AT PAGE 10 OF ITS ORDER DECIDED IN ITA NO. 472/JP/2006 AND IN ITA NO. 600/JP/2006 VIDE ORDER DATED 27.7.2007 ARE AS UNDER :- THE ASSESSEE HAS MAINTAINED A G.P. RATE OF 3.07% ON CONSOLIDATED SALES WHEREAS THE AO HAS APPLIED A G.P . RATE OF 4.5%. WE DIRECT THE AO TO APPLY A GROSS PROFIT RATE OF 3. 4% ON THE TOTAL TURNOVER DECLARED BY THE ASSESSEE AT RS. 128,02,76, 273/- AND COMPUTE THE TOTAL INCOME OF THE ASSESSEE ACCORDINGL Y WHICH WILL MEET BOTH THE ENDS OF JUSTICE. THE SAID APPLICATION OF GROSS PROFIT RATE WILL TAKE CARE THE DISALLOWANCES MADE ON ACCOU NT OF ABSENCE OF VOUCHERS OF EXPENSES. THE AO IS DIRECTED TO ACT AS MENTIONED HEREINABOVE AND COMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. THE ABOVE FINDINGS OF THE TRIBUNAL AGAINST FIRST OR DER OF LD. CIT (A) ARE VERY SPECIFIC AND CLEAR. THE AO HAS TO GIVE EFFECT OF THE ORDER OF TH E TRIBUNAL AS PER DIRECTION OF THE TRIBUNAL. THE AO IS NOT SUPPOSED TO EXCLUDE ANY EX PENDITURE OR INCLUDE ANY EXPENDITURE WHILE GIVING APPEAL EFFECT. THE DIRECTION OF THE T RIBUNAL ARE VERY CLEAR THAT AO WILL APPLY A GROSS PROFIT RATE OF 3.4% AGAINST GROSS PRO FIT RATE OF 3.07% SHOWN BY ASSESSEE AND AGAINST GROSS PROFIT RATE OF 4.5% APPLIED BY THE AO WHILE COMPLETING ASSESSMENT UNDER SECTION 143(3). THE TRIBUNAL HAS ALSO MENTIONED TH AT THIS GROSS PROFIT RATE OF 3.4% WILL TAKE CARE OF THE DISALLOWANCE MADE ON ACCOUNT OF AB SENCE OF VOUCHERS OF EXPENSES. THEREFORE, THE AO CANNOT TOUCH ANY EXPENDITURE WHET HER IT IS ON ACCOUNT OF SHORT LICENSE 5 FEE OR ON ANY OTHER ACCOUNT. EVEN AND OTHERWISE TH E ISSUE IN RESPECT OF SHORT LICENSE FEE HAS BEEN DISCUSSED BY THE TRIBUNAL IN CASE OF M/S. LALIT NARAIN TAK HARI RAM & PARTY IN ITA NO. 243/JP/2008 FOR ASSESSMENT YEAR 2003-04 VID E ORDER DATED 31.10.2008. IN THIS ORDER IT HAS BEEN CLEARLY HELD THAT THE EXCISE DUTY IS PAID FOR PURCHASE OF GOODS WHEREAS SHORT LICENSE FEE IS DEPOSITED WITH THE EXCISE DEPA RTMENT FOR NOT PURCHASING OF GOODS. HENCE SHORT LICENSE FEE DOES NOT RELATE TO SALES AC COUNT. THE AO THUS NOT JUSTIFIED IN INCLUDING LICENSE FEE IN THE TRADING ACCOUNT. THIS FINDING HAS BEEN GIVEN BY THE TRIBUNAL IN PARA 7 OF ITS ORDER MENTIONED ABOVE. THEREFORE, EVEN ON MERIT THE SHORT LICENSE FEE CANNOT BE TREATED AS THE PART OF TRADING ACCOUNT AS THE SAME HAS TO BE TREATED AS REVENUE EXPENDITURE. IN VIEW OF THESE FACTS AND CIRCUMSTAN CES, WE ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO RECTIFY HIS ORDER ACC ORDINGLY WITHOUT EXCLUDING SHORT LICENSE FEE FROM THE PROFIT & LOSS ACCOUNT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 9. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 19. 8.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- M/S. SHANKAR LAL CHAUDHARY & PARTY, JAIPUR. THE ACIT, CIRCLE-3 JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 67/JP/2011) BY ORDER, AR ITAT JAIPUR. 6