Sri H.C. Nagarajaiah, Bangalore V. AddlC.I.T., Bangalore

ITA 68/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8592 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 22-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAMALADHAR HEARD ON P
• Assessee Lawyers: ADARSH
• Keywords: Rejection of books of accounts; Depreciation; Principle of natural justice
• Section: 40A(3); 142(1); 145; 144

Judgement Text

ITA.68/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.68/BANG/2016 (ASSESSMENT YEAR : 2011-12) SHRI. H. C. NAGARAJAIAH, NO.638A, D BLOCK, NEAR CORPORATION BUILDING, DR. RAJKUMAR ROAD, RAJAJINAGAR, BENGALURU 560 016 .. APPELLANT PAN : ADHPN1779M V. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-9, BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. ADARSH, CA REVENUE BY : SHRI. KAMALADHAR, STANDING COUNSEL HEARD ON : 21.11.2016 PRONOUNCED ON : 10.02.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT (A), BENGALURU -2, DT.07.10.2015, FOR THE ASSESSMEN T YEAR 2011-12. 02. SHRI H. C. NAGARAJAIAH , THE ASESSEE, OWNS A L ARGE NUMBER OF TOURIST BUSES AND PLIES THEM BETWEEN BANGALORE, GOA AND OTHER NORTH KARNATAKA CENTRES IN THE NAME OF M/S SEA BIRD TOURI ST CENTRE. WHILE MAKING THE ASSESSMENT FOR AY 2011-12, THE AO NOTED THAT THE ASSESSEE ITA.68/BANG/2016 PAGE - 2 HAD MADE PAYMENTS IN CASH FOR THE PURCHASE OF DIESE L AMOUNTING TO RS.4,22,74,886/- IN RESPECT OF WHICH T HE AO LISTED 31 PAYMENTS MADE IN CASH IN THE MONTHS OF FEBRUARY AND MARCH 2011 EACH OF WHICH EXCEEDED RS.20,800/-; THAT EACH OF THE PAYMENTS MADE IN CASH, TO M/S DIAMOND SERVICE STATION IN THE MONTH OF OCTOBER 2010 AT RS.12,43,234/-, WAS RESTRICTED TO BELOW RS. 20,000/- IN ORDER TO ESCAPE THE RIGOURS OF THE DISALLOWANCE U/S 40A(3); THAT THE BATA PAYMENTS MADE TO DRIVERS, ETC. IN CASH AT RS.55,10,440/-; THAT THE AMOUNTS PAID TO M/S GENERAL NEW TREADS (PR OBABLY FOR RETREADING OF TYRES) AT RS 4,26,827/- OUT OF THE T OTAL EXPENDITURE OF RS.8,86,794/- WERE MADE IN CASH, EACH OF WHICH EXCE EDED RS.20,000/-; THAT THE HALTING BATA' PAID IN CASH A T RS.1,38,100/-; THAT THE PAYMENTS TO M/S JAMATHI TYRES AT RS.3,47,0 80/- OUT OF THE TOTAL EXPENDITURE OF RS.18,99,133/- WERE MADE I N CASH, EACH OF WHICH EXCEEDED RS.20,000/-; THAT PAYMENTS TO M/S LA THANGI AUTO AT RS.1,99,983/- OUT OF THE TOTAL PAYMENT OF RS.32,50, 698/- WERE MADE IN CASH, EACH OF WHICH EXCEEDED RS.20,000/-; THAT T HE EXPENSES INCURRED FOR WELFARE, WAGES, POOJA AND ALSO FOR PUR CHASE OF VEHICLES WERE ALSO MADE IN CASH. ACCORDING TO THE AO, THE AS SESSEE CANNOT BLINDLY INCUR 40% OF THE EXPENDITURE IN CASH AS IT CONSTITUTES DISTORTION OF THE ACCOUNTING SYSTEM AND IT IS TRYING TO EVADE CORRECT COMPUTATION OF ITS INCOME APART FR OM MAKING SIMULTANEOUSLY CASH SYSTEM OF PURCHASES AND SALES. ACCORDINGLY, THE AO REJECTED THE BOOKS OF ACCOUNTS INVOKING THE ITA.68/BANG/2016 PAGE - 3 PROVISIONS OF SECTION 145 AND ESTIMATED THE PROFIT FROM BUSINESS AT RS.1,32,74,872/- FROM WHICH HE GAVE CREDIT FOR INTE REST PAYMENT OF RS.52,89,832/- AND COMPUTED THE INCOME FROM BUSI NESS AT RS.79,85,040/-. TO THIS, THE AO ADDED INCOME OF RS. 46,700/- EARNED FROM CHITS. THE AGGREGATE OF THE AMOUNTS EST IMATED AND BROUGHT TO TAX UNDER BUSINESS IS SHOWN AT RS. 80,25 ,640/-. FURTHER, THE AO FOUND THAT PAYMENTS TO M/S NIKHIL AND COMPANY AT RS.12,59,832/- WERE MADE IN CASH, EACH OF WHICH EXC EEDED RS.20,000/- AND HENCE DISALLOWED IT U/S 40A(3) . AG GRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) AND THE CIT (A) DISMISSED THE APPEAL. AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL WITH FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER IS ERRON EOUS ON THE FACTS AND IN THE LAW. ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE HE OUGHT TO HAVE ACCEPTED THE RETURNED INCOME. THE LEA RNED CIT (APPEALS) ERRED IN DISMISSING THE APPEAL BY UPHOLDI NG THE ORDER OF THE LEARNED ASSESSING OFFICER PASSED U/S 144 AS THERE I S NO REASON TO REJECT THE BOOKS OF ACCOUNTS MAINTAINED AND DULY AUDITED U /S 44AB. 2. THE LEARNED ASSESSING OFFICER HAS FAILED TO UNDERST AND THE NATURE OF BUSINESS. THE APPELLANT IS INTO BUSINESS OF BUS OPE RATION WHICH IS AN UNORGANIZED SECTOR AND INVOLVES CASH EXPENDITURES. FAILING TO CONSIDER THE NATURE OF BUSINESS AND REJECTING THE BOOKS OF A CCOUNTS WITHOUT REASON AND ADOPTING THE ESTIMATED NET PROFIT AT 8% OF THE TURNOVER IGNORING THE AUDITED NET PROFIT IS AGAINST THE PRIN CIPLES OF NATURAL JUSTICE. BUSINESS SITUATION AND CONDITIONS WILL VAR Y YEAR TO YEAR AND ADOPTION OF NET PROFIT @ 8% OR ADOPTING AVERAGE NET PROFIT IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. HENCE, THE APPELLANT PLEADS TO DELETE THE ADDITIONA L INCOME OF RS.80,25,640 BY ADOPTING NET PROFIT @ 8 % OF THE TU RNOVER. 3. THE APPELLANT HAS FOLLOWED ACCOUNTING METHOD MATCHI NG TO THE REQUIREMENTS OF THE BUSINESS. IT WAS OPERATING NEAR LY 50 BUSES ITA.68/BANG/2016 PAGE - 4 WHICH PLYS IN DIFFERENT ROUTES AND IT IS INEVITABLE IN THE BUS OPERATION SECTOR THAT EACH BUS HAS TO REFILL DIESEL AT VARIOU S LOCATIONS WHEN DIESEL TANK GETS EMPTY. SUCH EXPENDITURES ARE REPOR TED TO ACCOUNTS SECTION SITTING IN ONE LOCATION WHICH MAKES DAY WIS E CONSOLIDATED PAYMENT ENTRIES FOR ALL THE BUSES TOGETHER AS A MAT TER OF CONVENIENCE AND CONTROL. DISALLOWING EXPENDITURES U/S 40A(3) AS SUMING THAT PAYMENTS ARE MADE ABOVE RS.20,000 PER DAY TO SINGLE PERSON IS ONLY WRONG ASSUMPTION ON THE PART OF THE LEARNED ASSESSI NG OFFICER AND IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. HENCE, THE APPELLANT PLEADS TO DELETE THE ADDITION OF RS. 12,59,832 WHICH WAS ADDED U/S 40 A(3) OF THE INCOME TAX ACT, 1961. 4. THE APPELLANT PLEADS TO CANCEL THE CORRESPONDING PE NALTY PROCEEDINGS U/S 274 READ WITH SECTION 271(1)(C) INI TIATED BY THE LEARNED ASSESSING OFFICER. 5. THE APPELLANT CRAVES TO ADD. ALTER OR DELETE SUCH O THER GROUNDS AS MAY BE DEEMED NECESSARY DURING THE COURSE OF APPELLATE PROCEEDINGS. 03. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE TH ROUGH THE RELEVANT MATERIAL. THE RELEVANT PORTION OF THE CIT (A) ORDER IS EXTRACTED AS UNDER : 5.0 DURING THE COURSE OF APPEAL I HAVE MADE AN ATT EMPT TO VERIFY THE ACCOUNTS OF THE APPELLANT, AND ATTEMPTED TO TES T CHECK WHETHER THE APPELLANT COULD EXPLAIN WITH AT LEAST A SAMPLE OF EXPENSES WHETHER THESE COULD BE CORRELATED TO THE TRIPS OR T HE VEHICLES EVEN IF THESE WERE INCURRED IN CASH. THE APPELLANT STATED B EFORE ME THAT 'SEA BIRD USES SOFTWARE NAMING 'BITLA' FOR TAKING THE BO OKING FROM PASSENGERS DIRECTLY OR THROUGH BRANCHES/AGENCIES/BR OKERS. TRIP SHEET IS GENERATED USING THIS SOFTWARE WILL HAVE DE TAILS LIKE COACH NO(BUS NO), DATE, ORIGIN, DESTINATION, JOURNE Y TIME, DROPPING OFF, SEAT NOS, PASSENGER NAME, DRIVER'S NAME, CONDU CTOR'S NAME. EXPENSES DURING JOURNEY LIKE TOLL, PARKING FE E, RTO ETC ARE SPENT BY THE CONDUCTOR USING TICKET COLLECT ION AMOUNT/ADVANCE AMOUNT. SAMPLE OF TRIP SHEETS WITH S UPPORTING BILLS ARE HEREBY ATTACHED. GARRAGE BILLS - WE HAVE ATTACHED SAMPLE OF LATHANGI AUTO GARRAGE BILLS -FORFY 10-11 AND GAR RAGE EXPENSES SHEET AT OWN GARRAGE FOR THE CURRENT FY (I.E.14-15) JUST FOR REFERENCE'. HOWEVER, NO BILLS FOR THE RELEVANT PERIOD WERE ACTU ALLY PRODUCED DESPITE REPEATED OPPORTUNITY. IN FACT, IT WAS STATE D THAT THESE WERE NOT AVAILABLE. THUS, THE APPELLANT COULD NOT PRODUCE ANY 'DETAILS OR VOUCHERS OR EVIDENCE' OTHER THAN THAT ENTERED IN THE BOOKS. IF THE APPELLANT'S CLAIM THAT THE CASH IS PAID TO THE BUS DRIVERS OR C ONDUCTORS WHO ITA.68/BANG/2016 PAGE - 5 IN TURN HAD MADE THE ACTUAL EXPENDITURE WERE TO BE ACCEPTED, THEN COMPLETE DETAILS WOULD BE AVAILABLE IN RESPECT OF TRIP SHEETS OF EXPENDITURE. THE APPELLANT HAS FAILE D TO SHOW ANY SUCH DETAIL OR EVIDENCE EVEN DURING THE COURSE OF APPEAL. WHILE THE TRAVEL/TRIP BOOKINGS ARE SHOWN TO BE COMPUTERISED, NO FURTHER DETAILS IN RESPECT OF THE EXPENDITURE IS SHOWN. AS RIGHTLY POINTED OUT BY THE ASSESSING OFFICER, LA RGE AMOUNTS OF EXPENSES ARE IN CASH, WHERE SECTION 40A (3) IS ATTR ACTED. ALSO, EVEN WHERE CASH PAYMENTS ARE SHOWN TO BE RS.19,500/ - (I.E. LESS THAN RS.20,000/-), NO DETAILS OR BILLS OR VOUCHERS ARE AVAILABLE. SUBSTANTIAL PAYMENTS ARE FOR DIESEL PURCHASE, AND T O SERVICE STATIONS AND THE APPELLANT IS UNABLE TO SUBSTANTIAT E THE SAME. MERE AUDITED BOOKS HAS NO MEANING WHEN THE CORRESPO NDING BILLS/VOUCHERS ARE NEITHER AVAILABLE TO BE PRODUCED NOR THE EXPENSES CAN BE CORRELATED TO THE TRIPS MADE OR SHO WN TO BE PAYMENTS TO DRIVERS/CONDUCTORS TRIP WISE, NOR ANY FURTHER DETAI LS AVAILABLE. 5.1 DURING THE COURSE OF APPEAL, THE APPELLANT HAS ALSO FURNISHED A WORKING OF DECLARED PROFITS FOR THE EAR LIER YEARS AS UNDER: ITA.68/BANG/2016 PAGE - 6 THIS ALSO SHOWS THAT PROFITS FOR THE YEAR IN QUESTI ON AT 15.58% IS SUBSTANTIALLY LOWER THAN EARLIER YEARS. THIS IS ALS O NOT EXPLAINABLE. UNDER SUCH FACTS, I AM IN AGREEMENT WITH THE ASSESS ING OFFICER THAT THE BOOKS OF ACCOUNTS ARE NOT RELIABLE AND HAVE RIGHTLY BEEN REJECTED U/S 145. AS REGARDS, NON ISSUE OF NOTICE U/S 144(1) PRI OR TO BEST JUDGEMENT ASSESSMENT, THIS GROUND DOES NOT SURVIVE AS THE ASSESSING OFFICER HAS ISSUED NOTICE U/S 142(1) PRIO R TO THE SAID ASSESSMENT. THE REQUIREMENT IN 2ND PROVISIO TO SECTION 144(1) IS CLEARLY MET AND THERE IS NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD. HAVING REJECTED T HE BOOKS OF ACCOUNTS, WHETHER WORKING OF PROFITS AT 8% OF TURNO VER IS IN ORDER? A CLOSE LOOK AT THE PROFITS IN EARLIER YEARS SHOWS THAT PROFITS (BEFORE DEPRECIATION) WAS DECLARED AT 18.74% FOR A. Y.2008-89, 22.40% FOR A.Y.2009-10 AND 18.33% FOR AY.2010-11. AT AN AV ERAGE OF 19.8%, THE PROFIT WOULD COME TO RS. 3,28,55,308/-. AFTER ALLOWING DEPRECIATION OF RS.2,37,31,793/-(AS CLAIMED) SEPARA TELY, THE SAME WOULD BE ASSESSABLE AT RS.91,23,515/-, WHICH IS VER Y CLOSE TO THE ASSESSMENT MADE BY THE ASSESSING OFFICER AT RS.92,8 5,475/- IN ADOPTING FLAT 8% OF TURNOVER AS PROFIT TAKING CUE FROM PROVISIONS OF SECTION 44AD. 6.0 UNDER SUCH FACTS, NO INTERFERENCE IS CALLED FOR ON ASSESSMENT MADE BY THE AO WHICH IS UPHELD. 06. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE C OULD NOT LAY ANY MATERIAL BEFORE THE CIT (A) AND IN THE FACTS CIRCU MSTANCES MENTIONED, SUPRA , CIT (A) HAS ANALYSED THE ASSES SEES BUSINESS RESULTS OF THE EARLIER YEARS AND ARRIVED THE AVERAG E GP RATE AT 19.8% BEFORE DEPRECIATION AND ON SUCH RATE , ON THE ADMIT TED TURNOVER (ON ITA.68/BANG/2016 PAGE - 7 WHICH THERE IS NO DISPUTE), SHE ARRIVED THE GROSS P ROFIT AT RS. 3,28,55,308/-. AFTER ALLOWING DEPRECIATION OF RS. 2,37,31,793/- CLAIMED BY THE ASSESSEE , THE CIT (A) HAS ARRIVED THE NET PROFIT AT RS.91,23,515/-. SINCE THE METHOD ADOPTED BY THE CIT (A) IS ONE OF ESTABLISHED METHODS AND THE ASSESSEE COULD NOT PROD UCE ANY MATERIAL TO ASSAIL SUCH FINDINGS, WE CONFIRM THE ADDITION AT RS.91,23,515/-ONLY. ONCE THE BOOK RESULTS ARE REJEC TED AND THE INCOME IS ESTIMATED, THEN NO DISALLOWANCE CAN BE MA DE ON THE BASIS OF SUCH REJECTED BOOK RESULTS. IN VIEW OF THA T THE ADDITION MADE U/S 40A (3) AT RS.12,59,832/- AND ALSO SUSTAIN ED BY THE CIT (A) IS HELD AS UNWARRANTED AND HENCE IT IS DELETED. 07. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DAY OF FEBRUARY, 2017. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR