ADDL CIT 21(1), MUMBAI V. PUKHRAJ H. MEHTA, MUMBAI

ITA 8061/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83478 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A PANT
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Business income; Depreciation; Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO.8061/M/2011 ( AY: 2008 - 2009 ) ADDL. CIT 21(1), 6 TH FLOOR, R.NO.601, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. / VS. MR. PUKHRAJ H. MEHTA, PROP. MEHTA ENTERPRISES, 106 - A, SHYAMKAMAL BUILDING, AGARWAL MARKET, VILE PARLE (E), MUMBAI - 57. ./ PAN : AAOPM0512M ( / APPELLANT) .. ( / RESPONDENT ) C.O.NO.240/M/2012 (ARISING OUT OF ITA NO.8061/M/2011) (AY 2008 - 2009) MR. PUKHRAJ H. MEHTA, PROP. MEHTA ENTERPRISES, 106 - A, SHYAMKAMAL BUILDING, AGARWAL MARKET, VILE PARLE (E), MUMBAI - 57. / VS. ADDL. CIT 21(1), 6 TH FLOOR, R.NO.601, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. ./ PAN : AAOPM0512M ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI R.A. PANT, DR / RESPONDENT BY : SHRI RAHUL K. HAKANI / DATE OF HEARING :4.8.2014 / DATE OF PRONOUNCEMENT :4.8.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. ITA NO.8061/M/2011 IS FILED BY THE REVENUE AND CROSS OBJECTION NO.240/M/2012 IS FILED BY THE ASSESSEE. BOTH THESE APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) - 32, DAT ED 21.9.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE 2 CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. 2. FIRSTLY, WE SHALL TAKE UP THE APPEAL ITA NO.8061/M/2011 FILED BY THE REVENUE ON 1.12.2011 AGAINST THE ORDER OF THE CIT (A) DATED 21.9.2011. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS ERRED IN DIRECTING THE AO TO RESTRICT THE ADDITION OF RS. 2,80,337/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS UNABLE TO PRODUCE TWO PARTIES NAMELY M/S. BHAKTI TRADING CO. AND M/S. SUNRISE ENTERPRISES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS ERRED IN DIRECTING THE AO TO ALLOW DEPRECIATION ON MACHINERY AMOUNTING TO RS. 1,35,421/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE DID NOT HAVE OWNERSHIP TITLE OVER THE MAC HINERY. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF CIVIL CONTRACTOR. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 2.19 CRS. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. IN THE ASSESSMENT, AO MADE AN ADDITION OF RS. 76.85 LAKHS ON ACCOUNT OF PURCHASES (PARA 6 OF THE ASSESSMENT ORDER IS RELEVANT IN THIS REGARD). D URING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT THE A SSESSEE M ADE PURCHASES FROM 13 PARTIES. A O UNDERTOOK THE EXERCISE OF VERIFICATION INVOKING THE PROVISIONS OF SECTION 133 (6) OF THE ACT. 11 OF THE PARTIES WERE RESPONDED TO THE AO AND CONFIRMED THE SALES. TWO PARTIES OUT OF 13 NAMELY M/S. BHAKTI TRADING CO AND M/S. SUNRISE ENTERPRISES NOT ATTEND ED AND CONFIRMED THE PURCHASES. THE TOTAL SALES BY THESE TWO PARTIES AMOUNT TO RS. 76.85 LAKHS AND THE SAME WAS TREATED AS UNEXPLAINED SALES. IT IS THE FINDING OF THE AO THAT NO EVIDENCE WAS FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. T HERE WERE OTHER EXPENSES INCURRED IN CASH. CONSIDERING THE PECULIAR CIRCUMSTANCES OF THE CASE, AO MADE A DISALLOWANCE OF RS. 80 LAKHS OF EXPENSES IN TOTO. MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPEL LATE AUTHORITY, REGARDING THE SAID TWO PARTIES I.E., M/S. BHAKTI TRADING CO AND M/S. SUNRISE ENTERPRISES, ASSESSEE MADE VARIOUS SUBMISSIONS FURNISHING THE BANKING TRANSACTIONS INVOLVING THESE TWO SUPPLIERS AND SUBMITTED THAT THE PAYMENTS WERE MADE BY THESE PARTIES THROUGH ACCOUNT PAYEE CHEQUES, THE COPIES OF THE INVOICES WERE ALSO FURNISHED. REGARDING THE FAILURE OF THE PARTIES TO ATTEND BEFORE THE AO, IT WAS SUBMITTED THAT THESE PARTIES 3 WERE HAVING TRANSACTIONS WITH THE ASSESEE THEREFORE IT IS DIFFICULT F OR HIM TO PRODUCE THEM PERSONALLY AS THERE WAS A GAP OF THREE YEARS. THE FACT THAT THE GENUINENESS OF THE TRANSACTIONS NOT DOUBTED WAS ALSO EXPLAINED. CIT (A) APPRECIATED THE SUBMISSIONS MADE BY THE AO VIDE THE DISCUSSION GIVEN IN PARA 3.3 OF THE IMPUGNE D ORDER AND DELETED THE ADDITION MADE BY THE AO. HOWEVER, AFTER MAKING SOME DISCUSSION WITH REGARD TO THE NET PROFIT (NP) OF THE ASSESSEE , CIT (A) HELD THAT THE ASSESSEE HAS DECLARED THE PROFITS BEFORE DEPRECIATION @ 5.94%, ASSESSING THE ASSESSEES PROFIT APPLYING FLAT RATE @ 6% BEFORE DEPRECIATION WILL MEET THE ENDS OF JUSTICE. HE ACCORDINGLY CONFIRMED THE ADDITION OF RS. 2,80,337/ - AGAINST THE SAID ADDITION OF RS. 80 LALKHS. R ELEVANT DISCUSSION IS GIVEN IN PAGE 7 AND 8 OF PARA 3.3 OF THE CIT (A)S ORDE R . 5. DURING THE PROCEEDINGS BEFORE US, REVENUE IS IN APPEAL AGAINST THE RELIEF GRANTED BY THE CIT (A) AND LD DR RELIED ON THE ORDER OF THE AO. HE HAS NOT DISPUTED THE CONCLUSIONS OF THE CIT (A) THAT THE ASSESSEE MADE THE PAYMENTS TO THE SAID TWO PARTIES BY ACCOUNT PAYEE CHEQUES. INVOICES RAISED BY THE ASSESSEE WERE ALSO NOT DOUBTED. NO EVIDENCE IS BROUGHT ON TO THE RECORD TO DEMONSTRATE THAT THE TRANSACTIONS IN QUESTION WERE NOT GENUINE. MERELY FOR NOT MAKING APPEARANCE BEFORE H I M , AO MADE ADDITION OF RS. 80 LAKHS AND THE SAME IS UNSUSTAINABLE. 6. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL AND PARA 3.3 IN PARTICULAR, WE FIND THE SAME IS RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, REL EVANT PORTIONS FROM THE PARA 3.3 OF THE CIT (A)S ORDER ARE REPRODUCED HERE WHICH READ AS UNDER: 3.3IN FACT, OPERATIONAL PROFITS OF PAST 4 YEARS BEFORE DEPRECIATION ARE AS UNDER: AY TURNOVER PROFIT BEFORE DEPRECIATION 2004 - 05 10,28,11,690 4.98% 2005 - 06 11,17,18,002 5.14% 2006 - 07 14,38,46,800 6.5% 2007 - 08 22,85,07,658 6.5% 2008 - 09 49,80,65,227 5.94% AVERAGE 5.81% 4 THUS, FROM THE ABOVE PAST RESULTS ALSO IT IS NOTED THAT THE AVERAGE OPERATIONAL PROFITS (BEFORE DEPRECIATION HAS BEEN AROUND 5.81% AND HENCE IT IS CLEAR THAT THE APPELLANT AGREED FOR NET INCOME @ 6% BEFORE DEPRECIATION ONLY. EVEN OTHERWISE THERE IS NO ELEMENT OF PROFIT IN DEPRECIATION AND HENCE EVEN IF FOR ANY REASONS THE PROFITS HAVE TO BE ESTIMATED, THE SAME HAS TO BE ESTIMATED ONL Y PRIOR TO DEPRECIATION AND NOT AFTER DEPRECIATION ONCE THE ASSESSMENT IS NOT BEING MADE UNDER PROVISIONS OF SECTION 44AD. FURTHER, IN EARLIER 2 YEARS, THE NET PROFIT OF 4.77% AFTER DEPRECIATION HAS ALREADY BEEN ACCEPTED BY THE AO U/S 143(3) IN THE IMMEDI ATELY PRECEDING YEAR, HENCE THERE IS NO JUSTIFICATION FOR ASSESSING THE NET PROFIT AFTER DEPRECIATION @ 6% IGNORING THE PAST RESULTS AND THAT TOO IN ABSENCE OF ANY SPECIFIC MATERIAL DISCREPANCY NOTED BY THE AO. THUS, THE DISALLOWANCE OF TO THE EXTENT OF R S. 76,86,406/ - ON ACCOUNT OF PURCHASES MADE FROM THE TWO PARTIES OUT OF TOTAL DISALLOWANCE OF EXPENDITURE OF RS. 80 LAKHS, MADE BY THE AO CANNOT BE SUSTAINED. HOWEVER, IT IS NOTED THAT SUBSTANTIAL PORTION OF THE LABOUR EXPENSES ARE INCURRED IN CASH WHICH ARE NOT OPEN TO VERIFICATION. SINCE, THE ASSESSEE HIMSELF HAD AGREED DURING THE ASSESSMENT PROCEEDINGS TO BE TAXED AT THE NET INCOME @ 6% BEFORE DEPRECIATION AS AGAINST THE DECLARED PROFIT BEFORE DEPRECIATION @ 5.94%. THEREFORE, IF THE ASSESSEE IS ASSESS ED AT INCOME @ 6% BEFORE DEPRECIATION, IT WILL COVER UP THE LEAKAGE OF REVENUE ON ACCOUNT OF NON - VERIFIABILITY OF CASH EXPENSES ON LABOUR CLAIMED BY THE APPELLANT. ON THE TURNOVER OF RS. 49,80,65,227/ - THE PROFIT BEFORE THE DEPRECIATION @ 6% COMES TO RS. 2,98,83,913/ - . SINCE, THE APPELLANT HAS DISCLOSED THE PROFIT BEFORE DEPRECIATION AT RS. 2,96,03,576/ - ONLY, THEREFORE, THE DIFFERENCE IN ESTIMATED PROFIT BEFORE DEPRECIATION AND THE PROFIT BEFORE DEPRECIATION AS DECLARED BY THE ASSESSEE COMES TO RS. 2,80, 337/ - (29883913 29603576). HENCE, THE ADDITION OF RS. 80 LAKHS MADE BY THE AO IS REDUCED TO RS. 2,80,337/ - ONLY AND BALANCE IS DIRECTED TO BE DELETED. 8. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSEE HAS REGISTERED THE AVERAGE NP @ 5.81% BEFORE DEPRECIATION. ASSESSEE ALSO AGREED FOR TAXING OF NET INCOME @ 6% BEFORE DEPRECIATION. THE FACT OF PROFIT ELEMENT O N D E P R E C I A T I O N WAS ALSO DISCUSSED BY THE CIT IN THE ABOVE EXTRAC TED PORTION OF THE CIT (A)S ORDER. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE DISCUSSION GIVEN BY THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 IS DISMISSED. 9. GROUND NO.2 RELATES TO TH E ISSUE OF GRANTING DEPRECIATION ON THE DEPRECIABLE ASSET (JCB). THE FACTS ARE THAT THE ASSESSEE PURCHASED THE SAID JCB FROM THE ITS SISTER CONCERN FOR A SUM OF RS. 20,31,318/ - . THE SISTER CONCERN PURCHASED THE SAME FROM M/S. NAVNIT JCB P LTD. DURING TH E ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSESSEES NAME IS NOT APPEARING ON THE PURCHASE BILL OF THE JCB AND THERE WAS A QUESTION OF OWNERSHIP QUA ELIGIBILITY OF THE DEPRECIATION CLAIM. AO DID NOT ACCEPT THE BENEFICIAL OWNERSHIP OF THE DEPRECIABLE ASS ET. IT IS THE CLAIM OF THE AO THAT THE ASSET IS NOT REGISTERED IN ITS NAME. HOWEVER, DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE DEMONSTRATED THE USE OF THE ASSET AND CONSTRUCTIVE / BENEFICIAL OWNERSHIP OF THE ASSET AND HE RELIED ON VARIOUS DECISION S I.E., MYSORE MINERALS LTD 239 ITR 775 5 (SC), DILIP SINGH SARDARSINGH BAGGA 201 ITR 995 (BOM), MIRZA ATTAULLAH BAIG & ANR 202 ITR 291 (BOM), 240 ITR 191 (DEL) (FB), 257 ITR 88 (DEL), ATMA RAM TRUST 45 ITD 556 (DEL), USHA RECTIFIER CORPN 35 TTJ (DEL) 602, 1 7 ITD (BANG) 799, 57 ITD 507 (DEL) WHICH ARE RELEVANT FOR THE PROPOSITION THAT THE TRANSFER OF THE ASSESSET IN THE NAME OF THE SISTER CONCERN IS NOT A PREREQUISITE FOR CLAIM OF DEPRECIATION U/S 32(1) OF THE ACT. 10. WE HAVE HEARD BOTH THE PARTIES AND PER USED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL AND PARA 4.3 IN PARTICULAR, WE FIND THE SAME IS RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PORTIONS FROM THE SAID PARA 4.3 OF CIT (A)S ORDER REPRODUCED AS UNDER: 4.3.. THE DISALLOWANCE MADE BY THE AO IS BASED ONLY ON THE GROUND THAT OWNERSHIP OF THE JCB IS NOT WITH THE APPELLANT WHEN THE SAME STANDS REGISTERED IN THE NAME OF THE SISTER CONCERN UNDER THE MOTOR VEHICLE ACT. THE OWNERSHIP OF JCB BEING A VEHICLE IS DETERMINED BY THE POSSESSION OF THE VEHICLE (JCB). MOREOVER, IT IS THE CONSTRUCTIVE OR BENEFICIAL OWNERSHIP WHICH HAS TO BE SEEN IN THE CASE OF A VEHICLE AND NOT THE R EGISTRATION ALONE. TRANSFER OF REGISTRATION UNDER MOTOR VEHICLE ACT IS NOT RELEVANT ALONE TO DETERMINE THE LEGAL OWNERSHIP. WHEN THE JCB WAS WITH THE APPELLANT TO THE EXCLUSION OF OTHERS AND THE SAME HAS BEEN DULY ACCOUNTED IN THE BOOKS OF THE APPELLANT WHO WAS ALSO PAYING THE LOAN INSTALLMENTS WITH INTEREST PERTAINING TO THE LOAN TAKEN FROM THE JBC, THEN IT CANNOT BE SAID THAT THE APPELLANT WAS NOT HAVING THE CONSTRUCTIVE / BENEFICIAL OWNERSHIP. THE COURTS IN CASE OF MYSORE MINERALS LTD 239 ITR 775 (SC) , DILIP SINGH SARDARSINGH BAGGA 201 ITR 995 (BOM), MIRZA ATTAULLAH BAIG & ANR 202 ITR 291 (BOM), 240 ITR 191 (DEL) (FB), 257 ITR 88 (DEL), ATMA RAM TRUST 45 ITD 556 (DEL), USHA RECTIFIER CORPN 35 TTJ (DEL) 602, 17 ITD (BANG) 799, 57 ITD 507 (DEL) HAVE HELD THAT TRANSFER OF REGISTRATION UNDER MOTOR VEHICLE ACT IN NAME OF ASSESSEE IS NOT A PRE - REQUISITE TO CLAIM DEPRECIATION U/S 32(1). UNDER THESE CIRCUMSTANCES, THE DISALLOWANCE OF DEPRECIATION ON THE JCB BY THE AO ON GROUNDS OF NON - REGISTRATION IN ASSESSE E S NAME, IS NOT JUSTIFIED AND THE AO IS DIRECTED TO ALLOW THE DEPRECIATION OF THE JCB. 11. CONSIDERING THE ABOVE, THE SAME IS SELF - EXPLANATORY AND THE TRANSFER OF ASSET TO THE ASSESSEES NAME IS NOT A PREREQUISITE SO LONG AS THE ASSET IN QUESTION IS FINAL LY USED AND ASSESSEE IS CONSTRUCTIVE AND BENEFICIAL OWNER OF THE SAME. THEREFORE, THE CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE UNDER CONSIDERATION AND THE DECISION TAKEN BY HIM IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGL Y, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 12 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 6 C.O.NO.240/M/2012 (ARISING OUT OF ITA NO.8061/M/2011) (AY 2008 - 2009) 13. THIS CROSS OBJECTION IS FILED BY THE ASSESSEE ON 5.10.2012 IS AGAINST THE ORDER OF THE CIT (A) - 32, DATED 21.9.2011. IN THIS CROSS OBJECTION , ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD ASST. COMMISSIONER OF INCOME TAX HAVE ERRED IN FILING THE APPEAL BEFORE YOUR HONOR AS THE LD CIT (A) HAVE THOROUGHLY DISCUSSED IN HIS ORDER REGARDING DELETION OF INCOME, THEREFORE, THE SAME IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 2. THE LD CIT (A) HAD RIGHTLY DELETED THE ADDITION OF RS. 77,19,6 60./ - ON ACCOUNT OF AD - HOC ADDITION OF NET PROFIT MADE IN ASSESSMENT ORDER. THEREFORE, THE SAME MAY PLEASE BE ALLOWED. 3. THE LD CIT (A) HAVE RIGHTLY ALLOWED DEPRECIATION OF RS. 1,35,421/ - AS THE MACHINERY WAS POSSESSION OF YOUR RESPONDENT AND THE SAME WA S PUT TO USE BEFORE 31 ST MARCH, 2008. THEREFORE, YOUR RESPONDENT PRAYS YOUR HONOR TO ALLOW THE SAME. ADDITIONAL GROUND 1. THE LD CIT (A) RIGHTLY INTERPRETED OFFER OF ASSESSEE MADE DURING THE ASSESSMENT PROCEEDINGS AS 6% BEFORE DEPRECIATION AS AGAINST THE DECLARED PROFIT BEFORE DEPRECIATION @ 5.94%. 14. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT ASSESSEES CROSS OBJECTIONS AS WELL AS THE ADDITIONAL GROUND RAISED IN THIS APPEAL BECOME INFRUCTUOUS IF THE GROUNDS RAISED IN THE REVENUES APPEA L. WHILE ADJUDICATION THE REVENUES APPEAL IN THE ABOVE PARAGRAPHS OF THIS ORDER, WE HAVE D ECIDED THE APPEAL AGAINST THE REVENUE AND DISMISSED. EX CONSEQUENTI , THE INSTANT CROSS OBJECTION RAISED BY THE ASSESSEE BECOMES INFRUCTUOUS. ACCORDINGLY, THE GROU NDS AS WELL AS THE ADDITIONAL GROUND IN THE PRESENT CROSS OBJECTION ARE DISMISSED AS INFRUCTUOUS. 15. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH AUGUST, 2014. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 4/08/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 7 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI