M/s Luxmi Rice Mills, Patiala V. ITO, Nabha

ITA 68/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8505 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 05-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Depreciation; Proportionate interest; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH (SMC) BEFORE SHRI N.BARATHVAJA SANKAR, VICE PRESIDENT ITA NO.68 /CHANDI/2010 ( A.Y. 2006-07 ) M/S LUXMI RICE MILLS, VS. INCOME-TAX OFFICER, VILLAGE BHADSON,TEHSIL NABHA, WARD NABHA. DISTT. PATIALA. PAN: AAAFL2751P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI N.K.SAINI O R D E R THIS IS AN APPEAL PREFERRED BY THE ASSESSEE M/S LUX MI RICE MILLS, PATIALA FOR THE ASSESSMENT YEAR 2006-07 AGAINST THE APPELLATE ORDER DATED 14.12.2009 OF THE COMMISS IONER OF INCOME-TAX (A), PATIALA. 2. THE ASSESSEE HAS BROUGHT TWO ISSUES, NAMELY (I) WHETHER THE COMMISSIONER OF INCOME-TAX (A) HAS RESTRICTED T HE ADDITION MADE ON ACCOUNT OF SALE OF HUSK ON ESTIMAT ED BASIS WITHOUT REASONING AND, (II) WHETHER THE COMMISSIONE R OF INCOME-TAX (A) HAS WRONGLY CONFIRMED THE ADDITION O F RS.1,19,179/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF DIFFERENCE OF INTEREST PAYABLE TO THE PARTNERS DUE TO 2 DEPRECIATION BEING CLAIMED NOT-ACCOUNTED IN THE BOO KS OF ACCOUNT. 3. LET ME TAKE UP THE ISSUE RELATING TO ADDITION MA DE TOWARDS SALE OF HUSK. THE RELEVANT GROUNDS OF APPE AL READ AS UNDER :- 2. THAT LD.A.O. HAS WRONGLY MADE AN ADDITION OF RS.2,57,055 IN THE HUSK ACCOUNT ALLEGING UNDERVALUATION OF HUSK SOLD ON THE PLEA THAT THE ASSESSEE HAS MADE SALES IN CASH WITHOUT MENTIONING THE NAME OR THE PURCHASER. 3. THE LD.CIT APPEAL HAS RESTRICTED THE SAME AT RS.99,298 (RS.1,28,527) ON ESTIMATED BASIS WITHOUT ANY REASONING. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE FIGURE OF R S.99,298/- MENTIONED IN GROUND NO.3 IS WRONG AND IT SHOULD BE READ AS RS.1,28,527/- AS PER THE CORRIGENDUM DATED 19.10.20 10 ISSUED BY THE COMMISSIONER OF INCOME-TAX (A) (A COP Y OF WHICH IS ALSO FOUND ON OUR RECORDS). 5. THE BRIEF FACTS PERTAINING TO THIS ISSUE ARE THA T AT THE TIME OF ASSESSMENT, THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAS SOLD RICE HUSK WEIGHING 6635.25 QTLS. AT AN AVERAGE RATE OF RS.78.87 PER QTL. WHILE EXAMINING THE SALE BILLS, THE ASSESSING OFFICER NOTICED THAT MOST OF T HE BILLS DO NOT HAVE ANY NAME AND ADDRESS OF THE PURCHASER AND ALL THE SALE PROCEEDS WERE RECEIVED IN CASH. THEREFORE, HE COULD NOT 3 VERIFY THE SALE RATE IN THE ABSENCE OF PURCHASERS NAME AND ADDRESS. TO VERIFY THE SALE RATE, HE CALLED FOR IN FORMATION FROM VARIOUS AGENCIES WHO PURCHASED HUSK FOR THEIR OWN CONSUMPTION LIKE M/S INDIAN ACRYLICS LTD., M/S MILK FED AND M/S UNITED BREWERIES LTD AND MADE A DETAILED CHART OF AVERAGE RATE AS MENTIONED AT PAGES 3 TO 6 OF THE AS SESSMENT ORDER WHICH WAS CONFRONTED TO THE ASSESSEE. ALSO T HE ASSESSING OFFICER HAS MENTIONED THAT ASSESSEE HAS S OLD THE HUSK IN CASH AT A LESSER MARGIN AS COMPARED TO CRED IT SALES WHERE THE ELEMENT OF RISK OF RECEIVING PAYMENT IS THERE. THE ASSESSING OFFICER DID NOT FIND THE REPLY OF THE ASS ESSEE AS SATISFACTORY AND MADE AN ADDITION OF RS.2,57,055/-. 6. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFICER , THE ASSESSEE MOVED THE MATTER IN APPEAL BEFORE THE FIRS T APPELLATE AUTHORITY. BEFORE THE COMMISSIONER OF INCOME-TAX (A), LEARNED COUNSEL FOR THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS :- THE FIRM IS HAVING AN OPENING STOCK OF 6200 QTLS. OF HUSK PERTAINING TO F.Y.2004-05 I.E. A.Y. 2005-06 AND THE SAME HAS BEEN SOLD UPTO THE FIRST WEEK OF SEPTEMBER. THE A.O. IS RELYING UPON RATES OF THREE AGENCIES WHOSE PURCHASE RATES ITSELF VARIATES FROM 20 TO 30 RUPEES AND HAS NOT MENTIONED THE NAME PLACE AND RATE OF THE PARTIES FROM WHOM THESE AGENCIES HAS PURCHASED. IN THE ABSENCE OF INFORMATION OF THE PARTIES WHO HAVE SOLD RICE HUSK TO THESE AGENCIES THEIR PURCHASES ARE SUSPICIOUS OR THEY MAY HAVE DECLARED THE 4 PURCHASE PRICE AT HIGHER RATE. WE HAVE NOT BEEN ALLOWED TO CONFRONT WITH THESE AGENCIES. IN THE ABSENCE OF ANY SUBSTANTIAL EVIDENCE THE RATES QUOTED BY A.O. HAVE NO VALUE. WE ARE CITING RATES OF RICE SHELLERS OF NABHA WHO HAS SOLD RICE HUSK AT RS.80 TO THE LOCAL PARTIES AND THE SAME RATE HAS BEEN ACCEPTED BY THE A.O. COPY OF ACCOUNT OF M/S SHRI ANNUPURNA RICE MILLS, NABHA & M/S DHILLON RICE MILLS, NABHA WHO HAS SOLD RICE HUSK TO M/S SARDAR SOLVEX PVT. LTD., NABHA, ASHISH BIO PULSES, NABHA AND A.P. ORGANICS PVT. LTD. DHURI WHO ARE THE END USERS OF THE HUSK. SECONDLY, IT IS NOT MANDATORY THAT THE SALES MUST BE MADE THROUGH BANKING CHANNELS AND NAME OF THE BUYER MUST REFLECT IN THE CASH MEMO. SO ADDITION ON THIS GROUND IS UNWARRANTED. 7. THE COMMISSIONER OF INCOME-TAX (A) AFTER GOING T HROUGH THE SUBMISSIONS AND THE FACTS ON RECORD WAS OF THE VIEW THAT HE HAD NO ALTERNATIVE BUT TO RESORT TO ESTIMATION O F INCOME CONSIDERING THE VARIOUS FACTORS. HE ALSO REFERRED TO ANOTHER CASE DECIDED BY HIM IN A.NO.157/IT/CIT(A)/PTA/08-09 DATED 17.11.2009. FOLLOWING THE ORDER CITIED (SUPRA), H E RESTRICTED THE ADDITION TO 50% MADE BY THE ASSESSING OFFICER. LATER ON HE ISSUED THE CORRIGENDUM CORRECTING THE FIGURES WH ICH WERE WRONGLY MENTIONED IN THE ORIGINAL APPELLATE ORDER. ACCORDING TO THE CORRIGENDUM, THE ADDITION SUSTAINED AMOUNTED TO RS.1,28,527/-. 8. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E ME WITH THE GROUNDS OF APPEAL EXTRACTED ELSEWHERE IN THIS O RDER. 5 9. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI TEJ MOHAN SINGH PLACED ON RECORD A PA PER BOOK CONSISTING OF 24 PAGES, COMPRISING THEREIN THE FOLL OWING MATERIALS WHICH ARE CERTIFIED AS PLACED BEFORE THE AUTHORITIES BELOW :- 1. COPY OF THE REPLY FILED BY THE ASSESSEE ALONGWIT H ANNEXURE. 2. COPY OF THE REPLY FILED BY THE ASSESSEE. 3. COPY OF THE WRITTEN SUBMISSIONS FILED BEFORE TH E CIT(A), PATIALA ALONGWITH ANNEXURES. 4. COPY OF THE ASSESSMENT ORDER DATED 07.12.2007 FO R THE ASSESSMENT YEAR 2005-06. HE ALSO PLACED ON RECORD COPY OF THE ORDER OF THE D IVISION BENCH IN I.T.A.NO. 87/CHANDI/2010 IN THE CASE OF M/ S SHRI DURGA RICE MILLS, NABHA VS. ITO AND SUBMITTED THAT THE PRESENT ISSUE ON HAND IS SQUARELY COVERED BY THE SA ID DECISION CITED (SUPRA) AS THE FACTS AND CIRCUMSTANCES ARE ID ENTICAL IN THIS CASE ALSO. 10. I HAVE ALSO HEARD THE LEARNED D.R., WHO REITE RATED THE SAME SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITI ES. 11. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND T HE FACTS AND MATERIAL ON RECORD INCLUDING THE DECISION OF TH E DIVISION BENCH CITED (SUPRA). I FIND THAT THE FACTS AND CIR CUMSTANCES INVOLVED IN THE PRESENT CASE ARE IDENTICAL TO THAT DEALT WITH BY THE DIVISION BENCH IN ITS ORDER DATED 29.4.2010. IN THE SAID 6 DECISION, ON SIMILAR FACTS AND CIRCUMSTANCES THE BE NCH HAS ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER :- 6. WE FIND THAT SIMILAR ISSUE AROSE IN THE CASE OF SHRI MANPREET SINGH DHILLON VS ITO, WARD, NABHA (ITA NO. 69/CHD/2010 ASSESSMENT YEAR 2006-07). THE ASSESSING OFFICER HAD MADE ESTIMATION OF THE VALUE OF HUSK SOLD BY ADOPTING THE RATES AT WHICH PURCHASES OF RICE HUSK HAD BEEN MADE BY M/S INDIAN ACRYLICS LTD, M/S MILKFED AND M/S UNITED BREWERIES AND AFTER MAKING ANALYSIS OF TREND OF MARKET RATES, AN AVERAGE RATE HAD BEEN WORKED OUT TO CALCULATE THE SALE VALUE OF THE RICE HUSK SOLD BY THE ASSESSEE. THE TRIBUNAL VIDE ORDER OF EVEN DATE IN THE CASE OF SHRI MANPREET SINGH DHILLON VS ITO, WARD, NABHA (SUPRA) HELD AS UNDER:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS SHOWN SALE OF HUSK. TOTAL QUANTITY OF HUSK SOLD DURING THE YEAR WAS 13,280 QUINTALS, OUT OF WHICH 3969 QUINTALS WERE SOLD TO M/S A.P. ORGANICS. THE AVERAGE RATE OF SALE TO M/S A.P. ORGANICS WAS RS. 99/-. THE SALE OF HUSK TO M/S A.P. ORGANICS HAD BEEN ACCEPTED BY THE ASSESSING OFFICER. FURTHER, THE ASSESSEE HAD SOLD HUSK WEIGHING 9310.40 QUINTALS IN CASH, ON DIFFERENT DATES AT DIFFERENT RATES AVERAGING BETWEEN RS. 89/- TO RS. 100/- PER QUINTALS. THE TOTAL SALE PRICE OF THE HUSK WAS SHOWN BY THE ASSESSEE WAS AT RS. 8,73,497/-. THE AVERAGE SALE PRICE WORKS TO RS. 93.81 PER QUINTAL. THE SAID SALES WERE 7 MADE IN CASH AND ARE REFLECTED IN THE BOOKS OF ACCOUNT WHICH IN TURN ARE AUDITED BY THE AUDITORS. THE ASSESSING OFFICER COMPARED THE RATE OF SALES AT WHICH THE ASSESSEE HAD SOLD THE RICE HUSK WITH THE RATE OF PURCHASE BY THREE DIFFERENT CONCERNS I.E. INDIAN ACRYLICS LTD, M/S MILKFED AND M/S UNITED BREWERIES LTD. FROM THE PERUSAL OF THE DATA INCORPORATED IN PARA 2.4 OF THE ASSESSMENT ORDER WITH REGARD TO THE PURCHASE OF RICE HUSK REFLECTED BY THE SAID PARTIES, WE FIND THAT THE SAME IS AT VARIANCE, AND AVERAGE RATE WAS APPLIED BY ASSESSING OFFICER. THE PLEA OF THE ASSESSEE WITH REGARD TO OVERHEAD EXPENDITURE OF TRANSPORTATION, LOADING / UNLOADING AND MIDDLEMAN COMMISSION WAS ACCEDED TO BY THE ASSESSING OFFICER AND DEDUCTION OF RS. 50/- PER QUINTAL WAS ALLOWED FROM THE NET RATE APPLIED MONTH- WISE. 7. THE ENTRIES IN BOOKS OF ACCOUNT DEPICT A TRUE STATE OF AFFAIRS UNLESS SOME EVIDENCE IS FOUND TO BE CONTRARY. IN THE ABSENCE OF ANY SUCH EVIDENCE, BEING FOUND AND BROUGHT ON RECORD, AGAINST THE ASSESSEE, THERE IS NO MERIT IN REJECTING THE BOOK RESULTS AND MAKINGS ADDITIONS ON ESTIMATE BASIS. THE BOOK RESULTS SHOWN BY AN ASSESSEE CAN BE COMPARED WITH ANOTHER CONCERN IN CASE THERE ARE IDENTICAL CIRCUMSTANCES. MERELY BECAUSE TWO CONCERN /S ARE ENGAGED IN SAME BUSINESS CANNOT BE THE BASIS FOR ADOPTING THE RATES OF PURCHASE / SALE SHOWN BY ONE CONCERN AS THE RATES OF SALE / PURCHASE OF THE OTHER CONCERN. THE RESULTS SHOWN BACKED BY BOOKS OF 8 ACCOUNTS CANNOT BE REJECTED ON THE SURMISES THAT THE RATES OF PURCHASES / SALES SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS AT VARIANCE WITH THOSE BY OTHER CONCERN, UNLESS IT IS PROVED WITH EVIDENCE THAT THE TRANSACTIONS UNDERTAKEN BY TWO WERE UNDER IDENTICAL CIRCUMSTANCES AND TWO CONCERNS WERE DEALING WITH IDENTICAL COMMODITIES. THE ASSESSEE BEFORE US IS DEALING IN THE SALE OF RICE HUSK, WHICH IS AN AGRICULTURAL COMMODITY AND MERELY BECAUSE THE SALE RATE REFLECTED IN THE BOOKS OF ACCOUNT OF ASSESSEE IS AT VARIANCE WITH THE PURCHASE RATE SHOWN BY THREE CONCERNS, CANNOT BE THE BASIS FOR MAKING ADDITION IN THE HANDS OF THE ASSESSEE, IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO PROVE THE QUALITY OF PRODUCT DEALT IN BY THE TWO CONCERNS AND THE QUANTITY PURCHASED / SOLD. FURTHER, IF WE COMPARE THE PURCHASE RATES OF THE THREE CONCERNS INTER SE, THERE IS VARIANCE OF RS. 150/- TO RS. 196/- PER QUINTAL FOR THE RICE HUSK PURCHASED BY THESE CONCERNS. IN THE FACTS AND CIRCUMSTANCES, WHERE NO DEFECT HAS BEEN FOUND IN THE BOOK ENTRIES OF THE ASSESSEE, MERELY BECAUSE THE RATES OF SALE OF RICE HUSK SHOWN BY THE ASSESSEE DO NOT TALLY WITH PURCHASE RATES SHOWN BY ANOTHER CONCERN, CANNOT BE THE BASIS FOR REJECTION OF BOOK RESULTS AND ADOPTION OF AVERAGE RATE FOR COMPUTING THE VALUE OF HUSK SOLD BY THE ASSESSEE, DURING THE YEAR, IN THE ABSENCE OF ANY EVIDENCE FOUND TO THE CONTRARY, IS NOT JUSTIFIED. HENCE THE SAME IS REJECTED. 9 8 WE FIND NO MERIT IN THE WORKING OF THE VALUE OF SALE CONSIDERATION BY ASSESSING OFFICER OF 9310.40 QUINTAL OF RICE HUSK SOLD BY THE ASSESSEE. THE ASSESSEE HAD PRODUCED THE LEDGER ACCOUNT TO JUSTIFY THE SALE OF RICE HUSK. THE COMPARISON MADE BY THE ASSESSING OFFICER WITH PURCHASES MADE BY THREE DIFFERENT PARTIES DOES NOT STAND THE TEST AS THE RELEVANT DETAILS IN RESPECT OF THE PURCHASES MADE BY THEM ARE NEITHER AVAILABLE ON RECORD NOR WERE THEY MADE AVAILABLE TO THE ASSESSEE. THIS BEING AN AGRICULTURE PRODUCT, NO SET STANDARD CAN BE LAID TO DETERMINE THE VALUE OF A PARTICULAR PRODUCT SOLD OR PURCHASED BY A PERSON VIS-- VIS THE SAME PRODUCT DEALT IN BY THE OTHER PERSON. THE ASSESSING OFFICER HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO JUSTIFY THE APPLICABILITY OF HIGHER VALUE AS COMPARED TO THE RATES REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES WHERE THE SALE OF RICE HUSK SHOWN AT THE RATE OF 96.60 PAISA PER QUINTAL, SHOWN BY THE ASSESSEE IN THE PRECEDING YEAR, HAS BEEN ACCEPTED BY THE ASSESSING OFFICER VIDE ORDER PASSED U/S 143(3) OF THE ACT, THE RESULTS SHOWN FOR THE YEAR MERITS TO BE ACCEPTED. ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION OF RS. 1,04,819/- MADE ON ACCOUNT OF UNDER VALUATION OF HUSK SOLD BY THE ASSESSEE. THE GROUND NOS. 2 & 3 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 10 7. THE FACTS OF THE PRESENT CASE BEING IDENTICAL TO THE FACTS BEFORE THE TRIBUNAL, IN SHRI MANPREET SINGH DHILLON VS ITO, WARD, NABHA (SUPRA) AND FOLLOWING THE RATIO LAID DOWN WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION OF RS. 3,81,121/- MADE ON ACCOUNT OF UNDERVALUATION OF HUSK SOLD BY THE ASSESSEE. THE GROUND NO.2 & 3 RAISED BY THE ASSESSEE ARE ALLOWED. 12. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE DIVISION BENCH I AM INCLINED TO ALLOW THE GROUND OF APPEAL O F THE ASSESSEE. 13. LET ME TURN TO THE NEXT ISSUE THE GROUND RELA TING TO WHICH READ AS UNDER :- THE A.O. HAS MADE AN ADDITION OF RS.1,19,179 ON ACCOUNT OF DIFFERENCE OF INTEREST PAYABLE TO THE PARTNERS DUE TO DEPRECIATION CLAIMED NOT ACCOUNTED IN THE BOOKS OF ACCOUNTS AND THE LD.CIT APPEALS HAS CONFIRM THE SAME. CLAIMING OF DEPRECIATION OUT OF BOOKS DOES NOT EFFECT THE CAPITAL OF THE PARTNERS AS IT IS A STATUTORY DEDUCTION AND IT IS A NOTIONAL LOSS AND IS NOT AN ACTUAL OUTGOING/BUSINESS ACTUAL LOSS. WHEREAS BUSINESS LOSS IS ACTUAL OUTGOING OF THE BUSINESS EXPENSE, NO ADDITION ON THIS GROUND IS WARRANTED. 14. THE BRIEF FACTS OF THIS ISSUE ARE THAT AT THE TIME OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS NOT PROVIDING DEPRECIATION IN ITS BOOKS, HOWEVER, T HE SAME IS BEING CLAIMED IN THE COMPUTATION OF INCOME. HOWEVE R, AS PER 11 ANOTHER ANNEXURE ATTACHED WITH THE RETURN, THE WDV OF FIXED ASSETS AS ON 31.3.2006 HAS BEEN SHOWN AT RS.9,49,59 9/- WHICH HAS NOT BEEN DEBITED TO THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER CALLED FOR EXPLANATION OF THE ASS ESSEE IN REGARD TO THIS DISCREPANCY FOR ACCOUNTING PROCEDURE AND CONSEQUENT PAYMENT OF EXCESS INTEREST BY THE FIRM T O THE PARTNERS. IN REPLY, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT IN THE COMPUTATION OF INCOME DEPRECIATION IS CALCULATED AT TRUE TAXABLE PROFIT B Y WHICH THE CAPITAL OF THE PARTNERS HAS NOT BEEN AFFECTED IN AN Y MANNER AND INTEREST CLAIMED BY THE PARTNERS ON THEIR CAPIT ALS IN THE BOOKS OF THE FIRM HAS RIGHTLY BEEN CLAIMED AS PER P ARTNERSHIP DEED. THE ASSESSING OFFICER, NOT BEING SATISFIED WITH THE REPLY OF THE ASSESSEE WAS OF THE VIEW THAT IF THE D EPRECIATION CLAIMED BY THE ASSESSEE IN EARLIER YEARS IS REDUCED FROM THE VALUE OF FIXED ASSETS SHOWN IN THE BALANCE SHEET, T HE TOTAL VALUE OF FIXED ASSETS WOULD BE REDUCED BY RS.16,65, 179/- AND PROPORTIONATE CAPITAL OF THE PARTNERS WOULD ALSO GO DOWN. THEREFORE, HE CALCULATED THE ACTUAL INTEREST PAYABL E TO PARTNERS AFTER CALCULATING THE CAPITAL BY PROPORTIO NATE DEPRECIATION NOT ACCOUNTED FOR IN THE BOOKS AND ADD ED THE DIFFERENCE OF RS.1,19,179/- TO THE INCOME OF THE AP PELLANT FIRM. 15. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFI CER, THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER AS THE 12 ACTIVITY OF THE ASSESSEE WAS FACTUALLY WRONG AS WEL L AS AGAINST THE PROVISIONS OF LAW. ACCORDING TO HIM, AS LAW D OES NOT ALLOW ANY ASSESSEE TO ADOPT SEPARATE STANDARDS IN C OMPUTING BOOK PROFITS AND PROFITS FOR THE PURPOSES OF PAYMEN T OF TAXES, HE HELD THAT THE ASSESSING OFFICER WAS FULLY JUSTIF IED IN DISALLOWING THE PROPORTIONATE INTEREST. 16. THE ASSESSEE IS STILL AGGRIEVED AND IS IN SEC OND APPEAL WITH THE GROUND OF APPEAL EXTRACTED ELSEWHERE IN TH IS ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE VERY SAME SUBMISSIONS MADE BEFORE THE COMMISSIONER OF INCOME- TAX (A) (VIDE PAGE NO.16 TO 20 OF THE PAPER BOOK FILED). 17. PER CONTRA, THE LEARNED D.R. PLACED ON RECORD A COPY OF THE DECISION OF THE VISAKHAPATNAM BENCH OF I.T.A.T. IN THE CASE OF ARTHI NURSING HOME VS. ITO, REPORTED IN 119 TTJ (VISHAKHA) 415. BY PLACING THE ABOVE DECISION OF T HE VISAKHAPATNAM BENCH OF I.T.A.T. HE VEHEMENTLY SUBMI TTED THAT THE VERY SAME POINT OF ISSUE HAS BEEN CONSIDER ED BY THE BENCH AND IT WAS HELD AS UNDER :- AS PER THE ACCOUNTING STANDARDS, DEPRECIATION HAS TO BE CHARGED TO THE P&L A/C, AS OTHERWISE, TRUE AND CORRECT PROFITS OF AN ENTITY CANNOT BE DEDUCED THEREFROM. EVEN UNDER THE IT ACT, BY VIRTUE OF EXPLN. 5 TO S. 32, DEPRECIATION HAS TO BE CHARGED TO ARRIVE AT THE CORRECT PROFITS. IN FACT, THE ASSESSEE HAS CLAIMED DEPRECIATION FOR THE PURPOSE OF ARRIVING AT THE TAXABLE INCOME. SUCH BEING THE CASE, THE NOTIONAL ENTRY OF 13 DEPRECIATION HAS TO BE TREATED AS REAL AND THE SAME HAS TO BE INCORPORATED FOR THE PURPOSE OF ARRIVING AT THE CORRECT PROFIT AND ONLY THE BALANCE AMOUNT HAS TO BE TAKEN TO THE CAPITAL ACCOUNTS OF THE PARTNERS. ANY DEVIATION FROM THE SAID METHOD CAN BE CORRECTED BY THE A.O. IF IT IS TREATED AS A NOTIONAL ENTRY, THE SAME HAS TO BE TREATED AS REAL FOR ALL PRACTICAL PURPOSES AND IT WOULD BE BINDING ON THE PARTNERS AS WELL AS ON THE PARTNERSHIP FIRM. SUCH BEING THE CASE, THE ACTION OF THE ASSESSEE IN NOT CHARGING TO THE P&L A/C THE DEPRECIATION ELEMENT WOULD AMOUNT TO ARTIFICIALLY INFLATING THE CAPITAL BALANCE OF THE PARTNERS. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN CORRECTING THE SAID ERROR. THE SYSTEM ADOPTED BY THE ASSESSEE DOES NOT DISCLOSE TRUE AND PROPER INCOME AND THE AO WAS ENTITLED TO ADOPT PROPER COMPUTATION TO DETERMINE TRUE INCOME WHICH IN TURN WOULD AFFECT THE AMOUNT TO BE APPORTIONED TO THE CAPITAL ACCOUNTS OF THE PARTNERS. IN THIS LIGH T OF THE PROVISIONS OF EXPLN. 5 TO S.32 AS WELL AS ACCOUNTING STANDARDS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS AND ALSO IN VIEW OF THE FACT THAT THE METHOD OF NOT CHARGING DEPRECIATION TO THE P&L A/C WOULD NOT DEPICT THE TRUE AND CORRECT STATE OF AFFAIRS OF THE PARTNERSHIP FIRM. THE AO WAS JUSTIFIED IN CORRECTING THE ERROR THEREBY DISALLOWING THE INTEREST CLAIMED BY THE ASSESSEE UNDER S.40(B) AND HE IS ALSO JUSTIFIED IN MAKING ADDITION TOWARDS THE INTEREST RECEIVABLE FROM THE PARTNERS. 18. I HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE FACTS AND MATERIAL ON RECORD. I FIND FORCE IN THE CONTENTION OF THE LEARNED D.R. THAT VISAKHAPATNAM BENCH OF I.T.A. T. HAD AN 14 OCCASION TO CONSIDER AN IDENTICAL POINT OF ISSUE AN D HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. FOLLOWING THE ABOVE DECISION OF THE VISAKHAPATNAM BENCH OF I.T.A.T. CIT ED (SUPRA) I AM INCLINED TO DISMISS THIS GROUND OF APPEAL OF T HE ASSESSEE. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2010. SD/- (N.BARATHVAJA SANKAR) VICE PRESIDENT DATED 31ST AUG.,2010 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R.