ACIT, Jaipur V. SHRI ARJUN PRAJAPATI, Jaipur

ITA 703/JPR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59551 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 29-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Keywords: Depreciation; Fair market value; Corroborative evidences

Judgement Text

1 ITA 703-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI SANJAY ARORA ITA NO. 703/JP/2011 ASSTT. YEAR : 2008-09. THE ACIT, CIRCLE-1, VS. SHRI ARJUN PRAJAPATI, JAIPUR. PROP. M/S. MOORTI UDHYOG PRASHIKSHAN KENDRA, 1877, KHAZANEWALON KA RASTA, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI MUKESH KHANDELWAL DATE OF HEARING : 13.02.2012. DATE OF PRONOUNCEMENT : 15.02.2012. ORDER DATE OF ORDER : 15/02/2012. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2008-09. 2. FIRST GROUND IS AGAINST DELETING THE DISALLOWANC E OF RS. 60,00,000/- MADE BY AO UNDER SECTION 40A(2)(B) OF THE IT ACT. 3. THE ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME FROM MANUFACTURING AND TRADING OF SCULPTURE, HOUSE PROPERTY AND OTHER SOURCES. ASS ESSEES TURNOVER FOR AY 2007-08 AND AY 2008-09 IS AS FOLLOWS :- 2 AY 2007-08 AY 2008-09 RS. 30,48,351/- RS. 1,91,65,237/- ON PERUSAL OF THE TRADING AND P & L A/C BY THE AO, IT WAS FOUND THAT THE ASSESSEE HAD DEBITED RS. 1,01,07,000/- UNDER THE HEAD JOB WORK CHARGES. OUT OF THE TOTAL EXPENSES CLAIMED UNDER THIS HEAD, THE ASSESSEE HAD MADE PAYM ENT OF RS. 30,00,000/- TO SHRI SUNIL PRAJAPATI, OF RS. 25,00,000/- TO SHRI MUKESH PRAJAP ATI AND RS. 5,00,000/- TO SHRI RAJENDRA PRAJAPATI. THE AO TOOK THE STATEMENTS OF SHRI MUKE SH PRAJAPATI AND SHRI SUNIL PRAJAPATI. ON THE BASIS OF THESE STATEMENTS SHE PROPOSED TO TR EAT THE ENTIRE TRANSACTION A SHAM TRANSACTION UNDERTAKEN WITH THE SOLE INTENTION OF B RINGING DOWN THE TAX LIABILITY OF THE ASSESSEE BY SHOWING PAYMENTS TO PERSONS SPECIFIED U NDER SECTION 40A(2))(B). THE PREMISE WAS BASED ON THE OBSERVATIONS THAT :- A) BOTH THE PERSONS COULD NOT GIVE SPECIFIC INFORMA TION FROM WHERE THEY ARRANGED THE LABOURERS. B) THEY DID NOT DO JOB WORK FOR ANY OTHER PARTY. C) PAYMENTS WERE MADE IN CASH IN INSTALLMENTS BELOW RS. 20,000/- ON THE BASIS OF ABOVE OBSERVATIONS SHE HAS CONCLUDE D THAT THE PREPONDERANCE OF PROBABILITY GOES AGAINST THE ASSESSEE AND HAS DISAL LOWED THE PAYMENT OF RS. 60 LAKHS BY THE ASSESSEE TO HIS SONS UNDER SECTION 40A(2)(B). 4. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT ( A) WHICH ARE SUMMARIZED IN HIS ORDER IN THE FOLLOWING MANNER :- (1) DURING THE YEAR UNDER CONSIDERATION THE ASSES SEE WAS AWARDED A BIG CONTRACT WORK BY GOVT. OF UP FOR MAKING CERTAIN STA TUS. FOR EXECUTING SUCH WORK THE APPELLANT HAD TO SUB LET THE WORK OF MANUFACTUR ING OF MOORTIES TO FOLLOWING PERSONS : 3 SVS. KARTIK KARMAKAR VIDHAN RAI SUNIL PRAJAPATI MUKESH PRAJAPATI RAJENDRA PRAJAPATI OUT OF ABOVE FIVE PERSONS THREE PERSONS MENTIONED A T S.NO. 3, 4 & 5 ARE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE IT ACT, 1961 . THE LD. AO DOUBTED THE PAYMENTS MADE TO SUCH PERSONS ONLY EVEN THOUGH PAYM ENT AT THE SAME RATE WAS MADE TO THE UNRELATED PARTIES. SUPPORTING EVIDENCE WAS ENCLOSED BY WAY OF LEDGER ACCOUNTS AND WORK ORDER CONTRACT LETTERS ISS UED BY ASSESSEE TO ALL THE 5 PEOPLE. 2. ALL THE 5 PEOPLE TO WHOM WORK WAS GIVEN HAVE FIL ED THEIR RETURNS. COPIES HAVE BEEN ENCLOSED. IT WAS SUBMITTED THAT ALL 5 OF THEM HAVE SHOWN APPROXIMATELY THE SAME NET PROFIT. 3. THE HISTORY OF GP DECLARED BY THE ASSESSEE DURIN G LAST THREE YEARS IS AS UNDER :- ASSESSMENT YEAR PARTICULARS. 2008-09 2007-08 2006-07 TURNOVER 19,165,237.00 3,048,351.00 1,585,500.00 GP 4,605,114.13 757,076.00 407,156.00 GP RATE 24.03% 24.84% 25.68% THE CHART SHOWS THAT THE TURNOVER OF THE APPELLANT HAS SHOT UP FROM RS. 30.48 LACS TO RS. 191.65 LACS I.E. IT HAS RECORDED A GROWTH OF 5.29 TIMES DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO IMMEDIATELY PRECEDING YEAR. EVEN ON SUCH HEFTY GROWTH DECLINE IN THE GP RATE IS VERY MEAGER. HENC E THE HISTORY OF GP ALSO SUPPORTS THE CASE OF THE APPELLANT AND PROVES THE G ENUINENESS OF CLAIM MADE FOR JOB CHARGES. 4. THE SONS OF THE ASSESSEE TO WHOM JOB CHARGES WER E PAID ARE DEFINITELY PERSONS REFERRED TO IN CLAUSE B TO SUB SECTION 2 OF SECTION 40A. BUT THE PAYMENT 4 SO MADE BY THE APPELLANT DOES NOT SATISFY THE CONDI TIONS LAID DOWN BY ABOVE REFERRED SECTION I.E. 40A(2)(A). 5. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT THE ADDITION MADE BY AO WAS NOT JUST IFIED, ACCORDINGLY HE DELETED THE ADDITION. 6. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 7. THE LD. D/R PLACED RELIANCE ON THE ORDER OF AO. SOME PORTION OF THE ORDER OF AO WAS READ ALSO. 8. ON THE OTHER HAND LD. COUNSEL OF ASSESSEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). IT WAS FURTHER ARGUED THAT THOUGH PAYMENT HAS BEEN MADE TO THE SONS OF THE ASSESSEE BUT THE CONDITION FOR MAKING ADDITION UNDER SECTION 40A(2)(B) ARE NOT SATISFIED IN THE PRESENT CASE AS THE CONTRACT GIVEN TO THE SONS BY T HE ASSESSEE ARE GIVEN FOR MANUFACTURING THE MOORTIES ON SPECIFIC TERMS AND CONDITIONS. ON S IMILAR TERMS AND CONDITIONS, THE CONTRACT WAS GIVEN TO OUTSIDE PARTIES ALSO. THEY HA VE ALSO SUPPLIED THE MANUFACTURED ITEMS AS PER TERMS AND CONDITIONS. NO ADVERSE COMM ENTS HAS BEEN GIVEN BY THE AO IN RESPECT OF THE PERSONS WHO ARE NOT COVERED UNDER SE CTION 40A(2)(B). ATTENTION OF THE BENCH WAS DRAWN ON PAGES 44 TO 52 WHERE COPIES OF C ONTRACT GIVEN TO THE SONS OF THE ASSESSEE AND OUTSIDERS ARE PLACED ON RECORD. IT WA S SUBMITTED THAT THE LD. CIT (A) HAS EXAMINED THIS ASPECT AND FOUND THAT THERE WAS NO CA SE OF MAKING ANY ADDITION UNDER SECTION 40A(2)(B). TURNOVER OF THE ASSESSEE HAS BE EN INCREASED AND THERE IS SLIGHTLY DECLINE IN MARGIN OF PROFIT I.E. FROM 24.84% TO 24. 03% IN THE YEAR UNDER CONSIDERATION. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD, WE FIND NO INFIRMITY IN 5 THE FINDING OF LD. CIT (A). FINDING OF LD. CIT (A) HAS BEEN RECORDED AT PAGES 3 TO 5 OF HIS ORDER ARE AS UNDER :- I HAVE GONE THROUGH THE ORDER OF THE AO AND HAVE CONSIDERED THE SUBMISSIONS OF THE AR. THE AO HAS DISALLOWED THE P AYMENT OF RS. 60 LAKHS MADE TO THE 3 SONS OF THE ASSESSEE AS THEY WE RE COVERED U/S 40A(2)(B)(I). WHILE MAKING SUCH DISALLOWANCE THE AO IS REQUIRED T O GIVE A FINDING ON THE 2 CONDITIONS LAID DOWN IN SECTION 40 A(2)(A) WHICH ARE THAT THE AO CAN DISALLOW EXPENSES MADE BY THE ASSESSEE U /S 40A(2)(B)(I) WHEN HE/SHE IS OF THE OPINION THAT SUCH EXPENDITURE IS E XCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEE DS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED B Y OR ACCRUING TO HIM THERE FROM, SO MUCH OF THE EXPENDITURE AS IS SO CON SIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE. IN THE PRESENT CASE THE AO HAS NOT GIVEN HER FINDIN G ON EITHER OF THE TWO PRE-CONDITIONS MENTIONED ABOVE. SHE HAS TRE ATED THE ENTIRE PAYMENT AS A SHAM TRANSACTION AND INVOKED PROVISION S U/S 40A(2)(A) R.W. 40A(2)(B). ON PERUSAL OF THE SUBMISSIONS OF THE AR IT IS SEEN THAT BOTH THE CONDITIONS ARE NOT PRESENT IN THE CASE OF THE ASSES SEE. TO BEGIN WITH IT IS DIFFICULT TO DETERMINE THE FAIR MARKET VALUE OF ART WORK BUT IN THE CASE OF THE ASSESSEE IT IS SEEN FROM THE LETTERS ALLOTTING WORK CONTRACT THAT THE SAME RATE HAS BEEN PAID FOR THE SAME KIND OF WORK TO HIS SONS AND 2 OTHER ARTISTS NAMELY SHRI KARTIK KARMAKAR AND SHRI VIDHAN RAI. THE AR HAS ADDUCED EVIDENCE BY WAY OF L ETTER OF CONTRACT, COPY OF LEDGER ETC. SHOWING PAYMENTS TO THEM. THUS THE FIRST CONDITION IS NOT FULFILLED, SINCE PAYMENT MADE TO THE SONS WAS A S PER FAIR MARKET VALUE. REGARDING SECOND CONDITION OF DETERMINING THE LEGIT IMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE, IT IS SEEN THAT DURING THE YEAR THE 6 ASSESSEE OBTAINED A HUGE ORDER FROM THE U.P. GOVT. FOR MAKING SCULPTURE. THEREFORE, TURNOVER SHORT UP FROM RS. 3.08 LAKHS TO RS. 1.91 CRORE. TO MEET THIS DEMAND HE HAD TO ENGAGE THE SERVICES OF O THER PEOPLE INCLUDING HIS SONS. THERE WAS A LEGITIMATE NEED OF THE BUSINE SS TO DO SO DURING THE YEAR AS HE WOULD NOT HAVE BEEN ABLE TO COMPLETE THE WORK CONTRACT ON HIS OWN. THUS BOTH THE PRE-CONDITIONS FOR INVOKING PROVISION S OF SECTION 40A(2)(A) R.W. 40A(2)(B)(I) ARE NOT FULFILLED IN TH E CASE OF THE ASSESSEE. MOREOVER, INSPITE OF A QUANTUM JUMP IN TURNOVER OF RS. 1,61,16,886/- FROM AY 2007-08 TO AY 2008-09, THERE WAS AN INCREASE OF 5.29 TIMES IN TURNOVER. WHEREAS THE G.P. HAS DECLIN ED MARGINALLY FROM 24.84% (AY 2007-08) TO 24.03% (AY 2008-09), JUST 0. 81% DURING THE PERIOD. ALL THE PEOPLE TO WHOM PAYMENTS HAVE BEEN MADE HAVE FILED THEIR RETURNS AND ARE SHOWING SIMILAR NET PROFIT APPROXIM ATELY 8%. NOR CAN THE TRANSACTION BE HELD TO BE SHAM TRANSACT ION. GIVEN THE ABOVE FACTS OF THE CASE THE DISALLOWANCE OF RS. 60 LAKHS MADE BY THE AO U/S 40A(2) IS DISMISSED. THE ABOVE FINDINGS ARE FINDING OF FACT WHICH NEITHE R COULD BE CONTROVERTED NOR ANY OTHER MATERIAL WERE BROUGHT ON RECORD TO ESTABLISH OTHERW ISE. WE FURTHER NOTED THAT THE AO HAS DISALLOWED ENTIRE AMOUNT PAID TO THE SONS OF THE AS SESSEE FOR SUPPLYING THE MATERIAL. THERE IS NO DOUBT IN SUPPLYING THE MATERIAL AS PER CONTRACT GIVEN TO THEM. THEREFORE, IT CANNOT BE SAID THAT THE SONS OF THE ASSESSEE WHO AR E COVERED UNDER SECTION 40A(2)(B) HAVE SUPPLIED THE MATERIAL WITHOUT INCURRING ANY EX PENDITURE ON THE MATERIAL SUPPLIED BY THEM. WE FURTHER NOTED THAT THE ASSESSEE HAS AWARD ED A CONTRACT FOR MANUFACTURING STATUES OF VARIOUS SANTS, LEADER OR GODS OF 7 FT. 1 INCH HEIGHT. SIMILAR WORK WAS GIVEN TO ONE SHRI VIDHAN RAI AND THE AMOUNT WAS FIXED AT RS. 5,00,000/- PER STATUE. IN THIS CASE 7 ALSO THE STATUE WAS OF 7 FT. 1 INCH HEIGHT. AGAIN FOR ANOTHER STATUE WHICH WAS 7 FT. 2 INCH HEIGHT, THE WORK WAS AWARDED FOR RS. 5,00,000/- PER STATUE. SIMILAR WORK WAS GIVEN TO ONE SHRI KARTIK KARMAKAR FOR MANUFACTURING OF STATU E OF MAYAWATI, CHIEF MINISTER WHICH WAS OF 7 FT. 2 INCH HEIGHT AND THE WORK WAS A WARDED FOR RS. 5,00,000/- PER STATUE. AGAIN FOR ANOTHER STATUE WHICH WAS OF 7FT. 1 INCH H EIGHT, THE WORK WAS AWARDED FOR RS. 5,00,000/- PER STATUE. COPIES OF THESE ORDERS ARE PLACED ON RECORD AT PAGES 49 TO 52. TO THE SONS OF THE ASSESSEE, THE WORK WAS GIVEN FOR RS . 5,00,000/- PER STATUE OF THE SAME SIZE. THEREFORE, IT IS NOT THE CASE OF THE DEPARTM ENT THAT ASSESSEE HAS PAID MORE AMOUNT TO THE PERSONS WHO ARE COVERED UNDER SECTION 40A(2)(B) AS COMPARED TO OTHER PERSONS WHO ARE NOT COVERED UNDER SECTION 40A(2)(B). FOR THIS REASON ALONE THE ADDITION CANNOT BE MADE UNDER SECTION 40A(2)(B). HOWEVER, THE LD. CIT (A) HAS ALSO CONSIDERED VARIOUS OTHER FACTORS ALSO I.E. TURNOVER OF THE ASSESSEE AN D PROFIT RATE SHOWN BY ASSESSEE WHICH IS ALMOST SAME AS COMPARED TO EARLIER YEAR WHEREAS TUR NOVER HAS BEEN INCREASED BY 5.29 TIMES AS COMPARED TO EARLIER YEAR. IT IS FURTHER S EEN THAT OUT OF THREE SONS OF THE ASSESSEE TO WHOM THE WORK WAS ASSIGNED BY THE ASSESSEE, TWO WERE CALLED BY THE AO AND STATEMENTS WERE RECORDED AND THEY HAVE CATEGORICALL Y ADMITTED IN HAVING DONE THE WORK FOR THE ASSESSEE. THEY HAVE NOT DENIED AT ANY POIN T OF TIME THAT THEY HAVE NOT DONE THE WORK AT THE AGREED AMOUNT. THIRD SON WAS NOT CALLE D BY THE AO FOR THE REASON KNOWN TO HIM. ON TECHNICAL REASONS, THE AO HELD THAT THE PA YMENT MADE TO THE SONS OF THE ASSESSEE IS A SHAM PAYMENT WHEREAS HE HAS IGNORED T HE FACT THAT WHATEVER THE CONTRACT WAS GIVEN, THEY ALSO FULFILLED AND AS PER THE ORDER S, THE STATUES WERE MANUFACTURED AND DELIVERED TO THE ASSESSEE. IN VIEW OF THE ABOVE F ACTS AND CIRCUMSTANCES, WE HOLD THAT LD. 8 CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY AO. WE CONFIRM HIS ORDER ON THIS REGARD. 10. SECOND GROUND IS AGAINST DELETING THE ADDITION MADE ON ACCOUNT OF TELEPHONE, VEHICLE, CONVEYANCE AND DEPRECIATION ON VEHICLES @ 20%. 11. THE ASSESSEE HAS SHOWN TELEPHONE EXPENSES AT RS . 13,983/-, CONVEYANCE EXPENSES AT RS. 4,824/-, VEHICLE INSURANCE AT RS. 1,434/- AN D DEPRECIATION ON VEHICLE AT RS.34,077/-. LOOKING TO THE QUANTUM OF EXPENDITURE AND TAKING IN TO CONSIDERATION THE TURNOVER OF THE ASSESSEE WHICH WAS OF RS. 1,91,65,237/- AGAINST RS. 30,48,351/- SHOWN IN EARLIER YEAR, WE ARE OF THE VIEW THAT NO DISALLOWANCE SHOULD BE MADE ON ACCOUNT OF PERSONAL EXPENSES AS EXPENSES SHOWN BY ASSESSEE ARE VERY REASONABLE. TH E AO MADE ADDITION @ 20% OF THE EXPENSES FOR PERSONAL USE WHEREAS LD. CIT (A) HAS D ELETED THE SAME TAKING INTO CONSIDERATION THE QUANTUM OF TURNOVER AND THE QUANT UM OF EXPENSES. WE FEEL THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCES MAD E BY AO ON THIS ACCOUNT ALSO AS THE TURNOVER OF THE ASSESSEE HAS BEEN INCREASED SUBSTAN TIALLY AND EXPENDITURE HAS NOT BEEN INCREASED AS COMPARED TO EARLIER YEAR AND NO DISALL OWANCE WAS MADE IN EARLIER YEAR. THEREFORE, WE CONFIRM THE ORDER OF LD. CIT (A) IN T HIS RESPECT ALSO. 12. LAST GROUND IS AGAINST DELETING ADDITION OF RS. 1,11,753/- MADE BY AO @ 20% ON ACCOUNT OF VARIOUS EXPENSES INCURRED ON ART WORK CL AY, GHADAI CHARGES, SHOP EXPENSES AND GHISAI CHARGES TOTALING TO RS. 5,58,763/-. 13. AGAIN THE LD. CIT (A) DELETED THE ADDITION CONS IDERING THAT TURNOVER OF THE ASSESSEE HAS BEEN INCREASED AND THERE IS NO DEFECT IN THE ACCOUNTING SYSTEM. THE ONLY REASON GIVEN BY AO THAT EXPENSES WERE INCURRED AGAI NST SELF MADE VOUCHERS AND PAYMENT 9 HAS BEEN MADE IN CASH. THE LD. CIT (A) WAS SATISFIE D THAT THIS IS NOT A CASE OF ADHOC DISALLOWANCE OF 20%. ACCORDINGLY, HE DELETED THIS ADDITION. 14. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) ON WHICH RELIANCE HAS BEEN PLACED BY RESPECTIVE PARTIES, AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). WE NOTED THAT IN EARLIER YEAR THE EXPENSES ON THESE SIMILAR ITEMS WAS INCURRED AT RS. 9,39,948/- WHEREAS IN THE YEAR UNDER CONSIDERATION THE EXPENSES HAS BEEN SHOWN AT RS. 5,58,763/- WHEREAS TURNOVER OF THE ASSESSEE HAS BEE N INCREASED BY 5.29 TIMES. THEREFORE, THERE IS NO JUSTIFICATION IN DISALLOWING ANY ADHOC DISALLOWANCE. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT (A) WHO DELETED THE ADDITION. 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 16. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 .02.2012. SD/- SD/- ( SANJAY ARORA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-1, JAIPUR. SHRI ARJUN PRAJAPATI, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 703/JP/2011) BY ORDER, AR ITAT JAIPUR. 10