M.D.H. Bikes, Proddatur, Hyderabad V. ITO, Ward-2, Proddatur, Proddatur

ITA 848/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2456 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 06-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR K SRINIVAS REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Depreciation; Assessment record
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 847 & 848/HYD/2016 ASSESSMENT YEARS: 2011-12 & 2012-13 M.D.H. BIKES, PRODDATUR. PAN AANFM 1182 C VS. INCOME-TAX OFFICER, WARD 2, PRODDATUR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI DR. K. SRINIVAS REDDY DATE OF HEARING 15/02/2018 DATE OF PRONOUNCEMENT 28/02/2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDERS OF PR. CIT, KURNOOL CHARGE, KURNOOL PASS ED U/S 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) RELATING TO AYS 2011-12 AND 2012-13. SINCE IDENTICAL ISSUE IS INVOLVED IN BOTH THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND THEREFORE A COM MON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY THE FACTS OF THE CASE, AS TAKEN FROM AY 2011-12 ARE, THE ASSESSEE-FIRM DERIVING INCOME FROM PURCHASE AND SAL E OF BIKES, HAD FILED ITS RETURN OF INCOME ELECTRONICALLY FOR AY 20 11-12 ON 25/09/2011 DECLARING TOTAL INCOME AT RS. 2,90,600/-. THE CASE WAS SELECTED FOR SCRUTINY AND AN ORDER U/S, 143(3) OF THE ACT WAS PA SSED ON 28/02/2014 BY THE ITO, WARD - 2, PRODDATUR DETERMIN ING THE TOTAL INCOME AT RS, 9,35,095/- BY ESTIMATING THE INCOME @ 1.1% ON GROSS 2 ITA NOS. 847 & 848/HYD/2016 M.D.H. BIKES, PRODDATUR. SALES OF THE ASSESSEE AT RS.17,25,456/- [I.E. RS.15 ,68,59,650 X 1.1%) DULY ALLOWING INTEREST AND REMUNERATION TO PARTNERS AT RS.7,90,361/-. 3. THEREAFTER, THE PR. CIT HAD AN OCCASION TO EXAMI NE THE ASSESSMENT RECORDS FOR A.Y. 2011-12 U/S 263 OF THE ACT. ON PERUSAL OF THE-RECORDS, HE OBSERVED THAT WHILE COMPLETING T HE ASSESSMENT U/S 143(3), THE ASSESSING OFFICER HAD ESTIMATED THE TOT AL INCOME @ 1.1% ONLY TAKING INTO ACCOUNT THE GROSS RECEIPTS ON ACCO UNT OF SALE OF MOPEDS, MOTOR BIKES, SPARE PARTS AND MOBILE OILS. A CCORDING TO PR. CIT, THE ASSESSING OFFICER FAILED TO TAKE INTO ACCO UNT THE OTHER INCOME EARNED BY THE ASSESSEE THROUGH SERVICING COL LECTIONS, FREE SERVICE COUPONS, INTEREST ON DEALER DEPOSIT, INCEN TIVES. CAR RENTALS, COMMISSION FROM INDUS LND VEHICLE FINANCE, ETC. THE REFORE, THE PR. CIT CAME TO THE CONCLUSION THAT ASSESSING OFFICER'S FAILURE TO CONSIDER INCOME FROM THESE HEADS WHILE ESTIMATING T HE TOTAL INCOME OF THE ASSESSEE HAS RENDERED THE ASSESSMENT ERRONEO US AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 3.1 THEREFORE, A SHOW CAUSE NOTICE DATED 07/01/2016 WAS ISSUED CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY T HE ORDER PASSED U/S 143(3) SHOULD NOT BE REVISED OR CANCELLED U/S 2 63 OF THE ACT IN RESPONSE, THE ASSESSEE FILED ITS WRITTEN SUBMISSION S DATED 28/01/2016 WHEREIN THE FOLLOWING EXPENDITURE, EITHER PART OR F ULL, HAD BEEN INCURRED TOWARDS SERVICING COLLECTIONS: SALARIES AND WAGES RS. 18,51,991 BONUS TO STAFF RS. 1,06,700 RENT RS. 3,60,060 REPAIRS & MAINTENANCE RS. 1,55,750 PRINTING & STATIONERY RS. 1,62,916 GENERAL EXPENSES RS. 1,20,859 GENERATOR EXPENSES RS. 25,589 ELECTRICITY CHARGES RS. 78,329 STAFF WELFARE RS. 32,985 WORKSHOP EXPENSES RS. 95,897 TOTAL RS. 29,91,076 ============ APART FROM THE ABOVE, THE ASSESSEE STATED THAT DEPR ECIATION ON MACHINERY, TOOLS AND GENERATOR IS ALSO ALLOWABLE AG AINST THIS. 3 ITA NOS. 847 & 848/HYD/2016 M.D.H. BIKES, PRODDATUR. 3.2 THE PR. CIT OBSERVED THAT THE TOTAL EXPENDITURE SHOWN ABOVE, WITHOUT INCLUDING DEPRECIATION IS RS.29,91,076/-. T HIS EXPENDITURE HAS BEEN DEBITED TO THE P & L ACCOUNT AND THE NET PROFI T HAS BEEN ARRIVED AT AFTER REDUCING THESE AMOUNTS. THE SAME IS THE CA SE WITH EXPENDITURE ON ACCOUNT OF PAPER ADVERTISEMENT EXPEN SES, BUSINESS PROMOTION EXPENSES AND DISCOUNTS GIVEN ON FESTIVALS WHICH IS CLAIMED AS INCURRED AGAINST THE INCENTIVE OF RS.6,15,357/- RECEIVED BY THE ASSESSEE. FURTHER, HE OBSERVED THAT ALL THE EXPENDI TURE CLAIMED IN THE SUBMISSIONS AS INCURRED AGAINST THE DIFFERENT HEADS SHOWN IN THE SHOW CAUSE NOTICE WAS CONSIDERED WHILE ESTIMATING T HE INCOME BY THE ASSESSING OFFICER, WHICH WAS ALREADY DEBITED TO THE P& L ACCOUNT. THE ASSESSING OFFICER HAD ALREADY CONSIDERED AND ES TIMATED THE INCOME OF THE ASSESSEE @ 1.1% OF THE GROSS RECEIPTS FROM SALES. HE OPINED THAT IF THE P & L ACCOUNT IS RECAST AND THE EXPENDITURE CLAIMED AS INCURRED AGAINST THE HEADS OF INCOME, THE TOTAL INCOME ALLOWED TO BE COMPUTED IS MUCH HIGHER THAN THAT ARRIVED AT BY THE ASSESSING OFFICER. TAKING THIS INTO ACCOUNT, LD. PR. CIT HAS OBSERVED THAT IT IS NOT PERMISSIBLE TO ACCEPT THE ASSESSEE'S SUBMISSION THAT THESE HEADS CANNOT BE BROUGHT TO TAX SEPARATELY. FURTHER, THE E XPENSES HAD BEEN CONSIDERED WHILE ARRIVING AT AN ESTIMATE OF 1.1%, T HE INCOME FROM OTHER SOURCE ALSO BE ESTIMATED AT 1.1%. HOWEVER, TH E PR. CIT ACCEPTED THE ASSESSEES SUBMISSION THAT OTHER INCOM E ALSO FORM PART OF THE ASSESSEES BUSINESS INCOME AND DIRECTED THE AO TO RECOMPUTED THE ASSEESSEES INCOME AFTER ESTIMATING THE TOTAL INCOME FROM THESE HEADS @ 30% I.E. THE AO IS DIRECTED TO B RING TO TAX 30% OF RS. 24,22,730/- I.E. RS. 7,26,810/- IN ADDITION TO THE INCOME COMPUTED BY THE AO. 4 ITA NOS. 847 & 848/HYD/2016 M.D.H. BIKES, PRODDATUR. 4. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL, WHICH A RE COMMON IN BOTH THE APPEALS, EXCEPT THE QUANTUM OF ADDITION: 1) THE ORDER OF THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THERE IS ANY ERROR IN THE ORDER OF ASS ESSMENT MADE BY THE ASSESSING OFFICER U/S 143(3) OF THE I.T. ACT ON 28.02.2014 3) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THE RECEIPTS ON SERVICING COLLECTIONS, FREE SERVICE COUPONS INTEREST ON DEALER DEPOSIT, INCENTIVES AND OTHER ITEMS ARE TO BE CONSIDERED SEPARATELY FOR ASSESSMENT. THE LEARNED CIT OUGHT TO HAVE CONSIDERED THE FACT THAT NO INCOM E WAS DERIVED BY THE APPELLANT UNDER THOSE HEADS AND, THE REFORE, THE ASSESSING OFFICER DID NOT CONSIDER SUCH RECEIPTS WH ILE ESTIMATING THE INCOME. 4) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED PRIN CIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT TH E INCOME FROM RECEIPTS UNDER THE ABOVE HEADS WOULD BE ABOUT 30% AND FURTHER ERRED IN DIRECTING THE ASSESSING OFFICER TO ESTIMATE SUCH INCOME AT RS.7,26,819/- BEING 30% OF RS.24,22,730/- 5) ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 5. LD. AR SUBMITTED THAT PR. CIT HAS NOT BROUGHT ON RECORD THE BASIS OF ESTIMATING THE INCOME @ 30%. FURTHER, HE S UBMITTED THAT THE OTHER INCOME LIKE RECEIPTS ON SERVICING, FREE SERVI CE COUPONS, INCENTIVES AND OTHER INCOMES ARE FORMING PART OF MA IN BUSINESS I.E. RELATING TO DEALERSHIP. IT IS NOT SEPARABLE. HE SUB MITTED THAT THE ESTIMATION OF INCOME APPLIED ON SALES ACTIVITY SHOU LD ALSO BE EXTENDED TO THE OTHER INCOME ALSO. 6. LD. DR SUBMITTED THAT OBJECTED TO ABOVE SUBMISSI ONS AND RELIED ON THE ORDER OF PR. CIT. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS E ARNED THE OTHER INCOME, WHICH ARE PART OF RUNNING OF BUSINESS I.E. PURCHASE AND SALE 5 ITA NOS. 847 & 848/HYD/2016 M.D.H. BIKES, PRODDATUR. OF BIKES, FOR WHICH, ASSESSEE HAS TO INCUR THE EXPE NDITURE SIMILAR TO THE MAIN BUSINESS ACTIVITY. ACCORDING TO US, THESE EXPENSES CANNOT BE SEPARATED, AS THE ACTIVITIES ARE INSEPARABLE. BU T THESE OTHER INCOMES HAVE POTENTIAL TO GENERATE SOME INCOME, WHI CH MAY NOT BE AT THE RATE ESTIMATED BY LD. PR. CIT. THEREFORE, WE DIRECT THE AO TO ESTIMATE THE OTHER INCOME @ 10% OF THE GROSS RECEIP T APART FROM ESTIMATING THE BUSINESS INCOME AT 1.1% ON THE SALES IN ORDER TO MEET THE ENDS OF JUSTICE. THEREFORE, THE GROUND RAISED B Y THE ASSESSEE IS PARTLY ALLOWED. 8. AS THE FACTS AND GROUND RAISED BY THE ASSESSEE I N AY 2012-13 ARE IDENTICAL TO THE AY 2011-12, FOLLOWING THE CONC LUSIONS DRAWN THEREIN, THE GROUNDS RAISED IN AY 2012-12 ARE PARTL Y ALLOWED. 9. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERAT ION ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 28 TH FEBRUARY, 2018 KV COPY TO:- 1) M.D.H. BIKES, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMA YATNAGAR, HYDERABAD 500 029 2) ITO, WARD 2, RAMESWARAM ROAD, PRODDATUR 516 360 3) THE ADDL. CIT, KADAPA RANGE, KADAPA. 4) PR. CIT 3, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE