Sh. Simranpal Singh, Patiala V. ITO, Patiala

ITA 702/CHANDI/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4879 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 25-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Proportionate interest
• Section: 44AD; 142(1); 28; 144; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.702/CHD/2017 (ASSESSMENT YEAR : 2011-12) SH.SIMRANPAL SINGH, VS. THE I.T.O., PROP. M/S K.K. ENTERPRISES, WARD 1 # 986/3, DHOBI GHAT, PATIALA. PATIALA. PAN: BAPPS6785N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV SALDI, ADV. RESPONDENT BY : SMT.CHANDERKANTA, ADDL.CIT DATE OF HEARING : 21.03.2018 DATE OF PRONOUNCEMENT : 09.04.2018 ORDER PER ANNAPURNA GUPTA, A.M. : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S), PATIALA (HEREINAFTER REFERRED TO AS (LD.CIT(APPEAL S) DATED 23.02.2017 RELATING TO ASSESSMENT YEAR 2011-12. 2. THE FACTS RELATING TO THE CASE ARE THAT ASSESS MENT WAS COMPLETED U/S 144 OF THE INCOME TAX ACT, 1961(I N SHORT THE ACT) MAKING ADDITION ON ACCOUNT OF THE FOLLOW ING TO THE RETURNED INCOME OF THE ASSESSEE: 1) VAT PAYABLE = RS.3,21,817/- 2) INTEREST = RS.27,88,028/- LATER ON THE SAME WAS RECTIFIED VIDE ORDER PASSED U /S 154 OF THE ACT, REDUCING THE ABOVE ADDITIONS TO AS UNDER: 2 1) VAT PAYABLE = RS.19,425/- 2) INTEREST = RS.7,92,993/- 3. BEFORE THE LD.CIT(APPEALS), THE ASSESSEE CHALLEN GED THE FRAMING OF ASSESSMENT U/S 144 OF THE ACT AND AL SO THE ADDITIONS MADE TO THE INCOME OF THE ASSESSEE. THE LD.CIT(APPEALS) DISMISSED ALL THE GROUNDS RAISED BY THE ASSESSEE AND UPHELD THE ORDER OF THE ASSESSING OFFI CER. 4. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US, RAISING FOLLOWING EFFECTIVE GROUN DS: 1. THAT THE LD. CIT (A) HAS WRONGLY CONFIRMED THE ADDITIONS ALTHOUGH RETURN WAS FILED U/S 44AD AS SUCH NO FURTHER ADDITIONS WERE CALLED FOR. 2. THAT THE LD. A.O. FRAMED THE ASSESSMENT U/S 144 AND REJECTED THE BOOKS AND MADE OTHER ADDITIONS ON THE BASIS OF SAME BOOKS OF ACCOUNT. 3. THAT WITHOUT PREJUDICE TO ABOVE THE LD. CIT (A) WRONGLY CONFIRMED THE ADDITION OF INTEREST ON THE ALLEGED ADVANCE TO SISTER CONCERN. THE ADDITION WAS MADE BY THE LD. A.O. AT RS.27,88,028/-BUT LATER ON (REDUCED U/S 154 TO 7,92,993/-). EVEN THIS ADDITION WAS ALSO NOT CALLED FOR AS THERE WAS NO NEXUS FOR ADVANCEMENT OF LOAN AGAINST THE LOAN RAISED FROM BANK. MOREOVER THERE WERE SUFFICIENT FUNDS WITH THE APPELLANT AND ALSO SUFFICIENT INTEREST FREE LOAN TO WHOM NO INTEREST WAS PAID OUT OF WHICH IT WAS ADVANCED. THIS FACT WAS CLEAR FROM THE BALANCE SHEET AND OTHER RELATED DOCUMENTS ON RECORD. 4. THAT THE LD. CIT (A) HAD WRONGLY CONFIRMED THE ADD ITION ON ACCOUNT OF VAT. THE ADDITION WAS MADE RS.3,21,817/- WHICH WAS LATER ON REDUCED U/S 154 BY LD. A.O. TO RS.19425/- EVEN THIS ADDITION OF RS.L9425/- WAS NOT CALLED FOR BECAUSE NO VAT IS CHARGED AND NO DEDUCTION OF VAT WAS CLAIMED IN P&L ACCOUNT, AS SUCH THE ADDITION IS LIABLE TO BE DELETED. 5. EVEN U S 144 ALSO THE A.O. CANNOT GO BEYOND THE LEGAL PROVISIONS. IF ASSESSEE IS COVERED U/S 44 AD THEN EVEN U/S 144 ALSO THE A.O. IS BOUND TO APPLY THE PROVISIONS. 6. THAT THE LD. CIT (A) HAD NOT GIVEN ANY FINDINGS ON THE GROUND NO.5 AS THE LD. A.O. HAS TAKEN THE RETURNED INCOME AT RS.395970/- WHICH WAS COMPUTED U/S 3 44AD AND NOT TAKEN AT RS.251306/- AS SHOWN NET PROFIT IN P&L ACCOUNT. 5. GROUND NOS.1 & 2 CHALLENGING THE FRAMING OF ASSESSMENT U/S 144 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT PRESSED BEFORE US AND ARE, THEREF ORE, TREATED AS DISMISSED. 6. GROUND NOS.3, 4, 5 & 6 RAISED BY THE ASSESSEE AR E AGAINST THE ADDITION MADE TO THE INCOME OF THE ASSE SSEE ON ACCOUNT OF INTEREST AND VAT PAYABLE. 7. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT INITI ALLY NOTICE U/S 142(1) OF THE ACT WAS ISSUED TO THE ASSE SSEE ALONGWITH QUESTIONNAIRE ASKING HIM TO FILE ITR, COP Y OF AUDITED REPORT AND COPY OF COMPUTATION OF INCOME. T HE ASSESSEE FILED COPY OF RETURN, COMPUTATION OF INCOM E, COPY OF AUDIT REPORT AND FORM NO.26AS AND CLAIMED THAT H E HAD FILED THE RETURN ON PRESUMPTIVE BASIS U/S 44AD OF T HE ACT, BUT DESPITE REPEATED OPPORTUNITIES GIVEN TO HIM WAS UNABLE TO BRING ANYTHING ON RECORD TO PROVE THAT HE HAD FI LED THE RETURN. FURTHER THE ASSESSEE DID NOT COOPERATE IN T HE ASSESSMENT PROCEEDINGS. THE AO THEREFORE FRAMED THE ASSESSMENT U/S 144 OF THE ACT ON THE BASIS OF MATER IAL AVAILABLE WITH HIM .DURING ASSESSMENT PROCEEDINGS T HE AO NOTED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOA NS OF RS.2,32,33,567/- TO DIFFERENT PARTIES AND AT THE SA ME TIME HAD TAKEN UNSECURED LOANS AMOUNTING TO RS.49,35,688 /-, PAYING INTEREST THEREON OF RS.7,92,993/-. THE AO TH EREFORE DISALLOWED PROPORTIONATE INTEREST RELATING TO THE I NTEREST 4 FREE ADVANCES CALCULATING THE SAME AT RS.27,88,028/ -, WHICH WAS LATER ON RECTIFIED U/S 154 TO RS.7,61,429 /- 8. THE AO ALSO MADE ADDITION OF THE VAT OUTSTANDING FOR PAYMENT AS AT THE END OF THE YEAR AMOUNTING TO RS.3,21,817/-FOR THE REASON THAT IT HAD REMAINED UN PAID. THE SAME WAS ALSO RECTIFIED U/S 154 TO RS.19,425/- 9. THE LD.CIT(APPEALS) UPHELD BOTH THE ADDITIONS. 10. BEFORE US, VIS--VIS THE AFORESAID ADDITIONS MA DE, THE ONLY CONTENTION RAISED BY THE LD. COUNSEL FOR ASSES SEE WAS THAT THE ASSESSING OFFICER HAD MADE THE AFORESAID A DDITIONS TO THE INCOME RETURNED BY THE ASSESSEE U/S 44AD OF THE ACT ON PRESUMPTIVE BASIS AND THAT ONCE THE INCOME IS CO MPUTED ON PRESUMPTIVE BASIS AS PRESCRIBED U/S 44AD, NO FUR THER ADDITIONS ARE CALLED FOR TO THE SAID INCOME IN VIEW OF THE NON OBSTANTE CLAUSE OF THE SAID SECTION, WHICH DEBA RS THE OPERATION OF SECTIONS 28 TO 43C OF THE ACT WHILE CO MPUTING THE SAID INCOME. THE LD. COUNSEL FOR ASSESSEE RELIE D UPON THE DECISION OF THE COORDINATE BENCHES OF THE TRIBU NAL IN THE CASE OF BALAJI CONSTRUCTION VS. ACIT, REPORTED IN 66 TTJ 718 (ITAT PUNE BENCH) AND GOPAL SINGH R. RAJPUROHIT VS. ACIT, REPORTED IN 94 TTJ 865 (ITAT AHMEDABAD BENCH) . 11. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 12. WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND ME RIT IN THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. THE FACT THAT THE ASSESSING OFFICER HAD MADE THE IMPUGNED ADDITIO NS TO 5 THE INCOME RETURNED BY THE ASSESSEE U/S 44AD OF THE ACT, HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US. IN FACT, A PERUSAL OF THE ASSESSMENT ORDER REVEALS THA T THE ASSESSEE HAD SUBMITTED COPY OF ITS RETURN FILED ALO NGWITH COMPUTATION OF INCOME, TO THE ASSESSING OFFICER IN RESPONSE TO NOTICE ISSUED U/S 142(1) OF THE ACT CLAIMING THA T IT HAD FILED ITS RETURN ON PRESUMPTIVE BASIS U/S 44AD OF T HE ACT. WE FIND THAT IN RESPONSE TO THE QUESTIONNAIRE ISSUE D TO THE ASSESSEE, THE ASSESSEE CONTENDED THAT SINCE IT HAD FILED RETURN ON PRESUMPTIVE BASIS U/S 44AD, THE QUESTIONN AIRE WAS NOT APPLICABLE TO IT. EVEN THEREAFTER THE ASSES SEE CONTENDED VIDE ITS LETTER DATED 18.9.2013 THAT IT H AD AVAILED THE OPTION OF DECLARING INCOME ON PRESUMPTIVE BASIS U/S 44AD OF THE ACT. A PERUSAL OF THE COMPUTATION OF IN COME, PLACED IN THE PAPER BOOK AT PAGE NOS.11&12 CORROBOR ATES THIS FACT SHOWING INCOME RETURNED U/S 44AD AT RS.3,95,969/-. THEREAFTER, WE FIND THAT THE ASSESSI NG OFFICER DISCUSSED THE ADDITIONS/DISALLOWANCES TO BE MADE TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF INTEREST A ND VAT PAYABLE AND ADDED THE SAME TO THE INCOME DECLARED B Y THE ASSESSEE U/S 44AD AT RS.3,95,969/-. THUS THE CONTE NTION OF THE ASSESSEE THAT THE ADDITIONS HAVE BEEN MADE T O THE INCOME DECLARED ON PRESUMPTIVE BASIS U/S 44AD OF TH E ACT, ARE FOUND TO BE CORRECT. THE LD. DR HAS NOT BROUGH T ANYTHING BEFORE US EITHER BY WAY OF ANY DOCUMENT OR BY WAY OF ANY ORAL ARGUMENT TO SHOW THAT THE SAID CONTENTI ON OF THE ASSESSEE WAS INCORRECT. HAVING SAID SO, WE FIND ME RIT IN THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE THAT NO 6 ADDITION ON ACCOUNT OF DISALLOWANCES PRESCRIBED U/S 28 TO 43C OF THE ACT CAN BE MADE TO THE INCOME OF THE ASS ESSEE. THE PRESUMPTIVE MANNER OF TAXATION OF INCOME AS PRE SCRIBED U/S 44AD OF THE ACT PRECLUDES THE APPLICABILITY OF PROVISIONS OF SECTIONS 28 TO 43C OF THE ACT WHICH I S EVIDENT FROM THE SECTION ITSELF WHICH BEGINS WITH NOTWITHS TANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 T O 43C. RELIANCE PLACED BY THE LD. COUNSEL FOR ASSESSEE ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GOPAL SINGH R. RAJPUROHIT (SUPRA) AND BALAJI CONSTRUCTION (SUPRA) ARE APT WHEREIN THE SAID PROPO SITION HAS BEEN LAID DOWN. THE HON'BLE I.T.A.T. IN THE CA SE OF BALAJI CONSTRUCTION (SUPRA) HAS LAID DOWN THE SAID PREPOSITION AT PARA 7 OF ITS ORDER AS UNDER: 7. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT ADDITION OF RS.1,45,930 CANNOT BE SUSTAINED. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION ACTIVITIES AND THE TOTAL CONTRACT RECEIPTS ARE BELOW RS.40,00,000. IN SUCH SITUATION, S. 44AD PROVIDES THAT PROFITS CHARGEABLE TO TAX WOULD BE 8 PER CENT OF THE GROSS RECEIPTS PAID OR PAYABLE TO THE ASSESSE E OR THE HIGHER SUM DECLARED BY THE ASSESSEE IN THE RETURN. THIS SECTION IS A DEEMING SECTION AND IT OVERRIDES THE PRO VISIONS OF SS. 28 TO 43C PROVIDED THE TOTAL RECEIPTS PAID OR PAYABLE DOES NOT EXCEED RS.40,00,000. IN VIEW OF SUCH MANDA TORY PROVISIONS, THE BUSINESS INCOME OF THE ASSESSEE CARR YING ON CONSTRUCTION ACTIVITY HAS TO BE DETERMINED UNDER S. 44AD AND NOT IN ACCORDANCE WITH THE PROVISIONS OF SS. 28 TO 43C. THAT MEANS PROFITS COMPUTED UNDER S. 44AD WOULD TAKE CARE OF EXPENDITURES AND ALLOWANCES PROVIDED IN SS. 28 TO 43C. FROM THE ABOVE DISCUSSION, IT IS IMPLIED THAT LEGISLAT URE HAS RECOGNIZED 92 PER CENT OF THE CONTRACT RECEIPTS ON ACCOUNT OF EXPENDITURES AND ALLOWANCES SPECIFIED IN SS. 28 TO 4 3C IRRESPECTIVE OF ANY MATERIAL OR EVIDENCE. THEREFORE, A SSESSEE CANNOT BE ASKED TO EXPLAIN THE ENTRIES OF EXPENDITURE TO THE EXTENT OF 92 PER CENT OF THE CONTRACT RECEIPTS MINU S (-) THE AMOUNT OF STATUTORY ALLOWANCES SUCH AS DEPRECIATION . SIMILARLY, ASSESSEE CANNOT CLAIM ANY SUCH STATUTORY ALLOWANCES OR OTHER EXPENDITURE AGAINST THE DEEMED PROFITS CHARGEABLE TO TAX UNDER S. 44AD. THE THREE AMOUNTS OF RS.5,000, RS.1,10,000 AND RS.30,930 ARE MUCH LES S OF 92 PER CENT OF THE CONTRACT RECEIPTS. THEREFORE, IN OUR OPINION, NO ADDITION CAN BE MADE IN RESPECT OF SUCH EXPENSES. ACCORDINGLY, THE ADDITION OF RS.1,45,930 IS HEREBY DE LETED. THIS WOULD DISPOSE OF GROUND NUMBERS 5,7,8,9 AND 10. 7 13. THE SAME HAS BEEN REITERATED IN THE CASE OF GOP AL SINGH R. RAJPUROHIT (SUPRA) AT PARA 5 OF THE ORDER AS UNDER: 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. I FIND MERIT IN THE A RGUMENTS OF BOTH THE PARTIES, THE LEGISLATURE HAS INTENDED T O TAX THE RETAIL TRADERS IN A PRESUMPTIVE MANNER AT THE RATE OF 5 PER CENT NET PROFIT ON TOTAL TURNOVER THEREBY THE PROVISIONS OF SS. 28 TO 43C [INCLUDING S. 4 0A(3)] WILL NOT BE APPLICABLE. SINCE BOTH THE PARTIES HAVE A GREED TO MAKE THE ASSESSMENT UNDER S. 44AF(1), THE AO IS DIRECT ED TO APPLY 5 PER CENT OF NET PROFIT ON TOTAL TURNOVER AN D THEREBY DELETE THE ADDITION MADE UNDER S. 40A(3). THE AO IS DIRECTED ACCORDINGLY, ASSESSEE'S APPEAL IS PARTLY ALLOWED. 14. IN VIEW OF THE ABOVE, WE DIRECT THE DELETION OF ADDITIONS MADE TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF IN TEREST AND VAT TO THE EXTENT OF RS.7,92,993/- AND RS.19425 /- RESPECTIVELY. THE GROUND NO.3,4,5 & 6 RAISED BY TH E ASSESSEE ARE, THEREFORE, ALLOWED. 15. IN THE RESULT, THE APPEAL FILED IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 9 TH APRIL, 2018 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH