Shri A.Joseph Louis, Trichy V. ACIT, Trichy

ITA 736/CHNY/2009

• Counselvise Citation: 73621714 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: V D GOPAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.736/MDS/2009 (ASSESSMENT YEAR : 2004-05 ) SHRI A.JOSEPH LOUIS RAILWAY ENGINEERING CONTRACTOR NEAR RPF OFFICE TRICHY JUNCTION TRICHIRAPALLI 620 001 VS THE ASST. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I TRICHIRAPALLI [PAN AAAPL9328G ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.D.GOPAL, ADVOCATE RESPONDENT BY : DR.I.VIJAYAKUMAR, CIT/DR DATE OF HEARING : 13-10-2011 DATE OF PRONOUNCEMENT : 24-10-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YEA R 2004-05, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), CHENN AI, DATED 26.3.2009. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CIVIL AND ENGINEERING CONTRACTOR. HE EXECUTED WO RK FOR SOUTHERN ITA 736/2009 :- 2 -: RAILWAYS AND ALSO DID TRANSPORT CONTRACT FOR PEPSIC O UNDER THE NAME SIDDANTH TRANSPORTS. THE ASSESSEE HAD MAINTAINED BOOKS OF ACCOUNT IN RESPECT OF TRANSPORT CONTRACT AND ALSO RECORDED RECEIPTS AND EXPENSES IN RESPECT OF CONTRACT WITH SOUTHERN RAIL WAYS. THE ASSESSEE GOT HIS ACCOUNTS AUDITED ALSO. THE ASSESSEE HAD 5 0 LORRIES AND DURING THE PREVIOUS YEAR ALL LORRIES WERE USED IN THE BUSI NESS OF SIDDANTH TRANSPORTS. THE ASSESSEE RECEIVED HIRE CHARGES(NET AFTER MEETING ALL RUNNING EXPENSES) AND PAID HIRE PURCHASE INSTALLMEN TS AND INTEREST THEREON OUT OF SUCH RECEIPTS. THE BANK PASSBOOK IN WHICH ALL THESE INCOMING AND OUTGOING ENTRIES WERE MADE WERE CLAIME D TO BE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE ALSO DERIVED AGRICULTURAL INCOME DURING THIS PERIOD. IN HIS RETURN FILED ON 1.11.2004 FOR ASSESSMENT YEAR 2004-05, HE HAS ADMITTED TOTAL INCO ME FROM THIS BUSINESS AT ` 39,61,640/- AND HAS SHOWN AGRICULTURAL INCOME OF ` 3 LAKHS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFI CER HAS MADE THE FOLLOWING ADDITIONS: (I) CONTRACT RECEIPTS ` 3,92,279/- (II) INTEREST PAID ON HOUSE ` 15,02,997/- PROPERTY LOAN (III) POOJA EXPENSES ` 4,80,011/- (IV) GUEST HOUSE EXPENSES ` 10,315/- (V) TRAVELLING AND CONVEYANCE ` 1,97,768/- ITA 736/2009 :- 3 -: 3. THE LD. CIT(A) HAS CONFIRMED ALL THESE ADDITIONS. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), TR ICHY, IN ITA NO.442/TRYI 200607, DT.26.03.2009 IS AGAINST LAW, F ACTS OF THE CASE AND MATERIAL EVIDENCES ON RECORD. 2. THE CIT (A) OUGHT TO HAVE APPRECIATED THAT APPELLAN T EXECUTED CONTRACTS FOR RAILWAYS AND ALL RECEIPTS WERE BY ACC OUNT PAYEE CHEQUES AND THE SALES TAX AUTHORITIES ACCEPTED THE TURNOVER AND THAT THE ASSESSING OFFICER, WITHOUT VERIFYING THE M ATERIALS ON RECORD, JUMPED TO THE CONCLUSION THAT RECEIPTS WERE UNDERSTATED BY ` 3,92,279 BASED ON TAX DEDUCTION CERTIFICATES, WHIC H INCLUDED CERTAIN CERTIFICATES ISSUED BELATEDLY BY RAILWAYS. 3. THE CIT (A) FAILED TO NOTICE THE HP AGREEMENTS ON R ECORD AND FURTHER FAILED TO APPRECIATE THE SUBMISSIONS OF THE APPELLANT THAT 16 OF THE HP LOANS WERE RAISED FOR PURCHASE OF NEW LORRIES AND PAYMENTS FOR PURCHASE OF LORRIES WERE MADE DIRECTLY BY THE FINANCIER, AND THUS ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER DISALLOWING INTEREST PAYMENTS ON SUCH LOANS IN A SUM OF ` 4,85,978 ON THE ALLEGED GROUND THAT THERE WAS DIVER SION OF BORROWED FUNDS. 4. THE CIT (A) FAILED TO APPRECIATE THE SUBMISSION THA T THE REMAINING INTEREST WAS PAID ON OLD I REFINANCE HP LOANS AND THE ASSESSING OFFICER ALLOWED SUCH INTEREST IN THE ASSESSMENT COM PLETED FOR THE PREVIOUS YEARS AND THAT THERE WAS NO MATERIAL ON RE CORD TO SHOW THAT THE HP LOANS WERE DIVERTED TO NON-BUSINESS PUR POSES. ON THE OTHER HAND, APPELLANT EXPLAINED FULLY AND PROPERLY ALL INVESTMENTS IN OTHER BUSINESS ACTIVITIES BY PLACING THE ENTIRE BANK ACCOUNT AND OTHER RELEVANT INFORMATION/RECORDS BEFORE T ASSESSI NG OFFICER. 5. THE CIT (A) FAILED TO APPRECIATE THAT THE ENTIRE EX PENSES ON TRAVELING WAS LAID OUT EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ALL SUCH EXPENSES WERE FULLY AND PROPERLY VOUCHED A ND DISALLOWANCE OF SUCH EXPENSES IN A SUM OF ` 1,97,768 WAS ARBITRARY AND EXCESSIVE IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. FOR THE ABOVE AND OTHER REASONS, THAT MAY BE ADDUCE D EITHER BEFORE OR AT THE TIME OF HEARING APPELLANT PRAYS THAT THE HON'BLE TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL AND RENDER JUSTI CE. ITA 736/2009 :- 4 -: 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. AFTER HE ARING BOTH SIDES WITH REGARD TO ADDITION OF ` 3,92,279/- TOWARDS CONTRACT RECEIPTS, THE FACTS ARE THAT THE ASSESSING OFFICER FOUND THAT CONTRACT RECEIPTS WERE OMITTED TO BE SHOWN IN THIS RECEIPT. BECAUSE ALL T HE EXPENSES HAVE BEEN FULLY DISCLOSED BUT THIS RECEIPT WAS NOT DISCL OSED, THE ASSESSING OFFICER HAS ADDED THE ENTIRE AMOUNT. AFTER GOING THROUGH THE RELEVANT FACTS AND EVIDENCE REGARDING THIS RECEIPT, WE ARE NOT CONVINCED THAT THE ACTION OF THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A). THIS AMOUNT REPRESENTS GROSS RECEIPTS AND ONLY NET INCOME HAS TO BE BROUGHT TO TAX. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENSES OR TO CALCULATE THE PROFIT ON TH IS RECEIPT AS PER THE GROSS PROFIT RATE/NET PROFIT RATE SHOWN BY THE ASSE SSEE IN THIS REGARD. THUS, GROUNDS NO.2 STANDS ALLOWED. 5. THE NEXT ISSUE RAISED VIDE GROUND NO.3 AND 4 IS REG ARDING ADDITION OF ` 4,85,978/- TOWARDS INTEREST PAID ON HOUSE PROPERTY LOAN. IT WAS ARGUED THAT 16 OF THE HP LOANS WERE TAKEN FO R THE PURCHASE OF NEW LORRIES AND PAYMENTS FOR PURCHASE OF THE LORRIE S WERE MADE DIRECTLY BY THE FINANCIER. THE ASSESSEE HAS CLAIME D INTEREST AMOUNT OF ` 4,85,978/- ON THE LOANS WHICH HAS BEEN TREATED AS DIVERSION OF ITA 736/2009 :- 5 -: BORROWED FUNDS. IT WAS ARGUED THAT REMAINING INTER EST AMOUNT WAS PAID ON OLD/REFINANCE HP LOANS AND THE ASSESSING OF FICER HAS HIMSELF ALLOWED SUCH INTEREST ON THE ASSESSMENTS COMPLETED IN EARLIER ASSESSMENT YEARS VIZ 2001-02, 2002-03 AND 2003-04. RELEVANT RECORDS WERE PLACED IN THE PAPER BOOK FILED BEFORE US. WE HAVE EXAMINED THE RECORDS AND FOUND THAT THIS ADDITION I S UNCALLED FOR AND UNWARRANTED BEING AGAINST THE FACTS AND CIRCUMSTANC ES OF THE CASE. THE ASSESSING OFFICER HAS NOT DENIED THAT THE ASSES SEE HAS TAKEN HP LOANS. AGREEMENTS RELEVANT TO THESE LOANS WERE PRO DUCED BEFORE THE ASSESSING OFFICER BUT HE HAS NOT FOUND THEM TO BE F ALSE. THE CUMULATIVE EFFECT OF ALL THESE FACTS IS THAT THE IN TEREST AMOUNT HAS TO BE ALLOWED. ACCORDINGLY, GROUND NOS.3 AND 4 OF THE APPEAL STAND ALLOWED. 6. GROUND NO.5 IS IN RELATION TO DISALLOWANCE OF EXPEN SES OF ` 1,97,768/-. THE ASSESSEE CLAIMED TRAVELING EXPENSE S OF ` 1,97,768/-. THE LD. CIT(A) HAS FOUND THAT THESE EXPENSES WERE N OT FULLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AN D THEREFORE, ANY EXPENSES CLAIMED BY THE ASSESSEE WHICH ARE PERSONAL IN NATURE, ARE TO BE DISALLOWED AS PER LAW. ITA 736/2009 :- 6 -: 7. AFTER HEARING BOTH SIDES IN THE LIGHT OF THE OBTAIN ING FACTS, WE ARE NOT CONVINCED BY THE FINDING OF THE LD. CIT( A). WE, THEREFORE, REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE EXPENSES CLAIMED AND IF IT IS FOUND T HAT THE EXPENSES ARE FOUND TO BE INCURRED EXCLUSIVELY FOR BUSINESS PURPO SES, HE SHALL GIVE RELIEF TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24.10.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 24 TH OCTOBER, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR