Ambassador Tours And Travels, Bangalore V. ACIT, Bangalore

ITA 797/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5501 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 14-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Keywords: Principle of natural justice; Bad and doubtful debts; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 797/BANG/2010 ASSESSMENT YEAR : 2004-05 AMBASSADOR TOURS & TRAVELS, KRS GARDEN, MVJ ENGG. COLLEGE ROAD, BANGALORE 560 066. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7(1), BANGALORE. : RESPONDENT APPELLANT BY : MS. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI, ADDL.CIT(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL INSTITUTED BY THE ASSESSEE FIRM IS DIRE CTED AGAINST THE ORDER OF THE LD. CIT (A)-III, BANGALORE IN ITA NO.6 6/C 7(1)/CIT(A)III/BNG/06-07 DATED 8.12.2009 FOR THE AS SESSMENT YEAR 2004- 05. 2. THE ASSESSEE FIRM [THE ASSESSEE HENCEFORTH] H AS RAISED EIGHT GROUNDS UNDER VARIOUS CAPTIONS IN AN ILLUSTRA TIVE AND NARRATIVE MANNER WHICH IS CONTRARY TO RULE 8 OF INCOME-TAX (APPELLAT E TRIBUNAL) RULES 1963 ITA NO.797/BANG/10 PAGE 2 OF 8 WHICH PRESCRIBES THAT EVERY MEMORANDUM OF APPEAL SHALL BE WRITTEN IN ENGLISH AND SHALL SET-FORTH, CONCISELY AND UNDER DI STINCT HEADS, THE GROUNDS OF APPEAL WITHOUT ANY ARGUMENT OR NARRATIVE AND SUCH GROUNDS SHALL BE NUMBERED CONSECUTIVELY. 2.1. REVERTING BACK TO THE ISSUE, THE GROUNDS RAIS ED, FOR THE SAKE OF CLARITY AND CONVENIENCE, THEY ARE REFORMULATED, IN A CONCISE MANNER, AS UNDER: 1. THE ITO ERRED IN CONTENDING THAT THE NET PROFIT WAS MORE DURING THE PREVIOUS YEAR COMPARED TO THE YEAR UNDER CHALLENGE WHILE RETURN OF BUSINESS REMAINS SAME. THIS WAS CONTRARY TO THE F ACT THAT THE RETURN OF BUSINESS HAD INCREASED UPWARD; 2. THE AO ERRED IN REFERRING TO THE PROVISIONS OF S.44 AE WHICH HAVE NO APPLICATION TO THE ASSESSEES CASE; 3. THE AO ERRED IN MENTIONING A PARTICULAR VEHICLE AS A HIRED CAR WHEREAS THE VEHICLE WAS OWNED BY THE ASSESSEE INC ORRECT CLASSIFICATION OF EXPENDITURE UNDER OWN VEHICLE MA INTENANCE; 4. CLAIMING OF EXPENDITURE OF RS.2 LAKHS UNDER STAFF WELFARE; 5. EXPENSES UNDER TELEPHONE, POSTAGE AND OUTSTANDING TELEPHONE EXPENSE; 6. EXPENSES ON CONVEYANCE, DISCOUNT AND BAD DEBTS A GGREGATING TO RS.7 LAKHS & 7. EXPENSES INCURRED IN CASH WHICH WERE NOT SUPPORTED BY VOUCHERS. 3. BEFORE VENTURE TO ADJUDICATE THE ISSUES RAISED BY THE ASSESSEE, IT WAS NOTICED THAT THERE WAS A DELAY OF 35 DAYS IN PREFERRING THIS APPEAL BY THE ASSESSEE. DURING THE COURSE OF HEARING, AN AFFIDAVIT WAS FURNISHED ON BEHALF OF THE ASSESSEE, ACCORDING TO WHICH, THE MAN AGER (ACCOUNTS) OF THE ITA NO.797/BANG/10 PAGE 3 OF 8 ASSESSEE WHO WAS LOOKING AFTER THE TAX MATTERS DOWN WITH JAUNDICE AND ADVISED BY THE DOCTOR TO TAKE COMPLETE BED REST ETC ., WHICH CULMINATED THE DELAY OF 35 DAYS IN CHALLENGING THE IMPUGNED ORDER OF THE CIT (A) BEFORE THIS BENCH. IT WAS, THEREFORE, PLEADED THAT THE DE LAY IN PREFERRING THE APPEAL NOT WILLFUL OR INTENTIONAL, BUT, DUE TO BONA FIDE REASON WHICH WAS BEYOND THE CONTROL OF THE ASSESSEE AND, THEREFORE, THE SAME MAY BE CONDONED. 3.1. AFTER DUE CONSIDERATION OF THE PLEA MADE ON B EHALF OF THE ASSESSEE, THE DELAY OF 35 DAYS IN PREFERRING THIS A PPEAL WAS CONDONED AND THE REGISTRY WAS DIRECTED TO PLACE THE ASSESSEES A PPEAL ON RECORD. 4. BRIEFLY STATED, THE ASSESSEE, A TOUR OPERATOR, FURNISHED ITS RETURN OF INCOME FOR THE AY UNDER CHALLENGE, ADMITT ING A TOTAL INCOME OF RS.57.42 LAKHS WHICH WAS INITIALLY PROCESSED U/S 14 3(1) OF THE ACT AND, SUBSEQUENTLY, TAKEN UP FOR SCRUTINY. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO HAD NOTICED THAT (I) THE NET PROFIT RATE HAD GONE DOWN FROM 9.61% IN THE IMMEDIATELY PRECEDING YEAR TO 6.28% IN THE CURRENT YEAR AND IN THE ABSENCE OF ANY REASONS FOR SUCH A FALL IN NET PROFIT, BUT, THE RETURN OF BUSINESS REMAINS SAME, THE DROP IN NET PROFIT RATE WAS QUESTIONABLE; (II) THE ASSESSEE OWNED 10 VEHICLES AND RECEIVED RS.29.2 8 LAKHS AS RENTALS AGAINST WHICH EXPENDITURE AGGREGATING TO RS .37.85 LAKHS HAS BEEN CLAIMED AND, THUS, IT HAD INCURRED A LOSS OF RS.8 LAKHS ON ITS OWN CARS, BUT, FAILED TO JUSTIFY SUCH A LOSS ; (III) IN RESPECT OF CARS HIRED, IT HAD ON ONE HAND CLAIME D SALARIES OF DRIVERS, RUNNING AND MAINTENANCE ETC. WAS BORNE BY THE OWNERS OF SUCH VEHICLES, HOWEVER, FROM THE LEDGER ACCOUNTS OF THESE PARTIES IN THE ASSESSEES BOOKS, IT WAS CLEAR THAT SALARY PAID TO THESE DRIVERS, TELEPHONE BILLS, PETTY CASH WAS BEIN G DEBITED IN THE BOOKS OF THE ASSESSEE; ITA NO.797/BANG/10 PAGE 4 OF 8 - PAYMENTS OF PETTY CASH RUNNING INTO RS.50 THOUSAND TO LAKHS PER MONTH; E.G., FOR THE CAR NO.3438 - HIRED FROM AMBASSADOR CAR RENTAL SALARY OF RS.3820/-, RS.681 5/- AND RS.7355/- AND PETTY CASH EXPENSES OF RS.43682/-, R S.50462/- AND RS.49310/- WAS DEBITED FOR JUNE, JULY AND AUGU ST, 2003 RESPECTIVELY. THESE EXPENSES WERE OVER AND ABOVE FU EL EXPENSES AND PAYMENTS MADE TO VENKATESHWARA SERVICE STATION. MOST GLARINGLY, THESE EXPENSES HAVE BEEN CLAIMED IN ITS ACCOUNT UNDER THE HEAD OWN VEHICLE MAINTENANCE WHICH SHOWS THAT THE BOOKS OF ACCOUNT ARE TOTALLY UNRELIA BLE; (IV) THE ASSESSEE HAD DEBITED THE ADVANCE PAID TO ITS EM PLOYEES AS REVENUE EXPENDITURE WHICH WAS IN FACT A CAPITAL EXP ENDITURE AND SHOULD APPEAR IN STAFF SALARY OF THE ASSESSEE; (V) DEBITED RS.2 LAKHS BEING STAFF WELFARE EXPENSES IN CASH WITH SUPPORTING BILLS AND VOUCHERS AVAILABLE WITH THE AS SESSEE AND BEING EXAMINED THE SAME, IT WAS NOTICED THAT IT HAD BEEN INCURRED ON LUNCH ETC., TO DRIVERS AND STAFF; THAT IN ADDITION TO DRIVERS, SALARIES PAID TO 29 OTHER PERSONS AND THAT IN THIS LINE OF BUSINESS, SUCH LARGE NUMBER OF SUPPORTING STAFF WAS HIGHLY EXAGGERATED; (VI) UNDER THE HEAD TELEPHONE AND POSTAGE, CLAIMED EXP ENDITURE OF RS.1 LAKH AND RS.2 LAKHS ON 9/9/03 & 29/3/2004 AND FURTHER RS.5.7 LAKHS BEING 1/3 RD OF TOTAL EXPENDITURE WAS SHOWN AS OUT- STANDING EXPENDITURE AND THUS, THE BONA FIDE OF SUC H A CLAIM AT STAKE; (VII) IN THE ABSENCE OF ANY DETAILS, THE CLAIMS OF RS.2.5 2 LAKHS, RS.2.7 LAKHS AND RS.3.89 LAKHS UNDER THE HEADS CONVEYANCE , DISCOUNT AND BAD DEBTS RESPECTIVELY REMAIN UNP ROVED AND UNVERIFIED; & (VIII) HUGE EXPENSES IN CASH UNDER THE HEADS INCENTIVES, SALES PROMOTION, OFFICE EXPENSES, REPAIRS, STAFF WELFARE ETC., HAVE BEEN CLAIMED WITH NO SUPPORTING VOUCHERS AND, THUS, THES E EXPENSES WERE NOT OPEN TO VERIFICATION ETC., 4.1. ACCORDINGLY, BY APPLYING THE PROVISIONS OF S. 145(3) OF THE ACT, THE AO HAD VIRTUALLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND WENT AHEAD IN ESTIMATING THE INCOME OF THE ASSESSEE BY RESORTING TO APPLY THE NET PROFIT RATE OF 9.61%. ITA NO.797/BANG/10 PAGE 5 OF 8 5. AGITATED, THE ASSESSEE TOOK UP THE ISSUES WITH LD. CIT (A) FOR RELIEF. AFTER DUE CONSIDERATION OF THE ASSESSEES SUBMISSION, THOUGH THE LD. CIT (A) AGREED WITH THE VIEW OF THE ASSESSEE TH AT THE FALL IN NET PROFIT RATE WAS NOT A VALID REASON FOR REJECTION OF BOOKS OF ACCOUNT AS HELD BY THE HONBLE KERALA HIGH COURT IN THE CASE OF M. DURAI R AJ V. CIT (1972) 83 ITR 484 (KER) AND THAT THE BOOKS CANNOT BE REJECTED WI THOUT FINDING ANY DEFECT IN THE BOOKS OF ACCOUNT MAINTAINED AND THE RESULT S HOULD BE ACCEPTED AS RULED IN THE CASE OF CIT V. OM OVERSEAS (2008) 173 TAXMAN 185, HOWEVER, TOOK A VIEW THAT IN THE CASE ON HAND SINCE THE AO H AD GIVEN GROUNDS OTHER THAN THE FALL IN NET PROFIT RATE AS REASONS FOR REJ ECTION OF BOOKS OF ACCOUNT, HE SUSTAINED THE AOS STAND IN REJECTING THE ASSESS EES BOOKS OF ACCOUNT. 5.1. WITH REGARD TO THE OTHER CONTENTIONS THAT SOM E EXPENSES BY CASH AGAINST SELF-MADE VOUCHERS WERE UNAVOIDABLE UN DER THE CONDITIONS PREVAILED AT THAT RELEVANT TIME AS PAYMENTS BY CHEQ UES WERE NOT WIDELY ACCEPTED, THE BANKS WERE NOT WILLING TO OPEN ACCOUN TS OF ALL INDIVIDUALS, AD- HOC PAYMENTS TO THE TELEPHONE SERVICE PROVIDER WERE MADE THROUGH CHEQUES ETC., THE CIT (A) TOOK A VIEW THAT THE RATE OF NET PROFIT ADOPTED BY THE AO WAS ON THE HIGHER SIDE AND FOR THE REASONS RECORDED IN HIS IMPUGNED ORDER, HE CONSIDERED THAT A NET PROFIT RAT E OF 8% ON THE TURNOVER OF RS.9.96 CRORES WOULD BE APPROPRIATE. 6. DURING THE COURSE OF HEARING BEFORE THIS BENCH, IT WAS SUBMITTED THAT ONE OF THE REASONS FOR FALL IN NET PROFIT FROM 9.59% FOR THE AY 2003-04 TO 6.28% FOR THE AY UNDER CONSIDERATION WAS DUE TO THE FACT THAT THE TURNOVER HAD INCREASED BY THREE-FOLDS AND, SECONDLY, THE ITA NO.797/BANG/10 PAGE 6 OF 8 COMPETITION IN THE BUSINESS HAD INCREASED DURING TH E YEAR AND THAT THE MARGIN HAD BEEN REDUCED CONSIDERABLY. APART FROM T HIS, IT WAS CONTENDED, THE FUEL PRICES HAVE INCREASED BY 8.1%, THE HIKE IN MAINTENANCE COST OF VEHICLES, WAGES TO WORK FORCE ALSO CONTRIBUTED IN D ECLINING IN NET PROFIT. TO JUSTIFY ITS CLAIM, THE ASSESSEE FURNISHED A CHART W ITH REGARD TO COMPARISON OF NET PROFITS FOR THE PRECEDING TWO YEARS. FOR TH E APPRECIATION OF FACTS, THE SAME IS REPRODUCED AS UNDER: FINANCIAL YEAR TURNOVER NET PROFIT NET PROFIT % INC REASE IN TO (%) 2001-02 1,19,87,289 10,34,955 8.63 2002-03 3,71,71,401 35,66,900 9.59 210 2003-04 9,96,43,802 62,58,551 6.28 168 6.1. TO DRIVE HOME HER POINT, THE LD. A R HAD FURN ISHED A PAPER BOOK CONTAINING 1 -62 PAGES WHICH CONSIST OF, INTER ALIA, COPIES OF (I) VARIOUS CORRESPONDENCE WITH THE AUTHORITIES BELOW ( II) LEDGER ACCOUNT; (III) BANK STATEMENT OF TELEPHONE AND POSTAGE EXPENSES ET C., 6.2. ON HER PART, THE LD. D R SUBMITTED THAT THE L D. CIT (A) WAS FAIR IN HIS FINDING WHICH REQUIRES NO FURTHER INTER VENTION BY THIS BENCH AND, THEREFORE, PLEADED THAT THE IMPUGNED ORDER OF THE L D. CIT(A) BE SUSTAINED IN TOTO. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE RELEVANT CASE RECORDS AND ALSO THE DOCUMENTARY EVIDENCES ADVANCED BY THE LD. A.R AT THE TIME OF HEARING. 7.1. AT THE OUTSET, WE WOULD LIKE TO POINT OUT THA T WE ARE IN TOTAL AGREEMENT WITH THE RULING OF THE HONBLE HIGH COURT OF KERALA CITED SUPRA ITA NO.797/BANG/10 PAGE 7 OF 8 THAT FALL IN NET PROFIT RATE IS NOT A VALID REASON FOR R EJECTION OF BOOKS OF ACCOUNT AND ALSO THE RULING IN THE CASE OF CIT V. OM OVERS EAS REFERRED ABOVE THAT THE BOOKS CANNOT BE REJECTED WITHOUT FINDING ANY DE FECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT AND T HE RESULT SHOULD BE ACCEPTED. HOWEVER, THE AO CAME UP WITH A NUMBER OF DEFECTS FO UND IN THE ASSESSEES BOOKS OF ACCOUNT AS LISTED OUT IN THE FO RE-GOING PARAGRAPH. THIS HAS BEEN HOTLY DISPUTED BY THE ASSESSEE DURING THE COURSE OF HEARING. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE CAME UP WIT H A VOLUMINOUS PAPER BOOK WHICH CONTAINED LEDGER ACCOUNTS OF CARS, VOUC HERS FOR WELFARE EXPENSES CLAIMED, TELEPHONE AND POSTAGE A/C, STATEM ENT OF BANK ACCOUNT SYNDICATE BANK [SOURCE: PAGES 22 TO 28 OF PR AR] JUSTIFYING THAT THE PAYMENTS WERE MADE TO BHARATI MOBILE (AIRTEL) THROU GH CHEQUES ETC., AS A MATTER OF FACT, THE ENTIRE ISSUE REQUIRES TO BE REF ERRED BACK TO THE AO FOR VERIFICATION. HOWEVER, LOOKING INTO THE ISSUES, T HE PERIOD (AY 2004-05) INVOLVED AND ALSO CONSIDERING THE FACT THAT (I) THE NET PROFITS FOR THE IMMEDIATELY PRECEDING YEARS IN THE RANGES OF 8.63% - 9.59% WERE SOLELY DEPENDING UPON THE TO TAL TURNOVERS AS WELL AS THE EXPENSES INVOLVED AT THAT RELEVANT YEARS; (II) AS THERE WAS SOME DISPUTE BETWEEN BHARATI MOBILES (AIRTEL) AND THE ASSESSEE WITH REGARD TO TARIFF, THE ASSESSEE HA D MADE ADHOC PAYMENTS THROUGH BANKING CHANNELS; (III) CONSIDERING THE ASSESSEES CONTENTION THAT THE FALL IN NET PROFIT WAS DUE TO THE INCREASE IN TURNOVER BY THREE-FOLDS AND ALSO STEEP HIKES IN THE PETROLEUM PRODUCTS, ESCALATION IN MAIN TENANCE OF VEHICLES COST ETC., AND ALSO IN THE INTERESTS OF NATURAL JUSTICE AND FA IRNESS, WE ARE OF THE FIRM VIEW THAT A NET PROFIT RATE OF 7.50% ON THE TURNOVER OF RS.9.96 CRORES WOULD MEET THE END OF JUSTICE. IT IS ORDERED ACCORD INGLY. ITA NO.797/BANG/10 PAGE 8 OF 8 7.2. BEFORE PARTING WITH, WE WOULD LIKE TO MAKE I T CLEAR THAT THE DEDUCTION OF RS.5.18 LAKHS TOWARDS INTEREST ON PART NERS CAPITAL U/S 40(B)(IV) OF THE ACT WHICH HAS BEEN GRANTED BY THE CIT (A) IN HIS IMPUGNED ORDER IS SUSTAINED. 8. IN THE RESULT , THE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JULY, 2011. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 29 TH JULY, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.