Sri. K. Venkatesh, Bangalore V. ITO, Bangalore

ITA 90/BANG/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0284 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 28-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWAL JT
• Assessee Lawyers: V SRINIVASAN
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC C BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.90/BANG/2016 ASSESSMENT YEAR : 2005-06 SHRI K. VENKATESH, PROP. ADVANCE GROUP, # 6, D MAIN ROAD, EAST END, 9 TH BLOCK, JAYANAGAR, BENGALURU. PAN: AAPPV 2993L VS. THE INCOME TAX OFFICER, WARD 4(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, CA RESPONDENT BY : SHRI SUNIL KUMAR AGARWAL, JT. CIT(DR) DATE OF HEARING : 13.06.2016 DATE OF PRONOUNCEMENT : 15.07.2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28.12.2015 OF THE CIT(APPEALS)-7, BENGALURU FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE, AN INDIVIDUAL, IS CARRYING ON A BU SINESS OF PROVIDING SECURITY GUARDS AND RUNNING A DETECTIVE AGENCY. TH E ASSESSEE FILED HIS RETURN OF INCOME FOR THE YEAR UNDER APPEAL REPORTIN G AN INCOME OF ITA NO.90/BANG/2016 PAGE 2 OF 9 RS.3,08,770/-. IT IS SUBMITTED THAT THE RETURN OF INCOME FILED BY THE ASSESSEE WAS ACCOMPANIED BY THE REPORT OF AN ACCOUN TANT U/S.44AB OF THE ACT. THE TOTAL REVENUE OR TURNOVER SHOWN FOR THE Y EAR UNDER APPEAL WAS RS.53,27,417/- AND ULTIMATELY, THE ASSESSEE HAD SHO WN A NET INCOME OF RS.3,08,770/- WHICH WORKS OUT TO 5.80% OF THE GROSS RECEIPTS. 3. IT WAS SUBMITTED THAT THERE WERE PAYMENTS MADE B Y THE ASSESSEES CLIENTS DIRECTLY TO THE SECURITY GUARDS PROVIDED BY THE ASSESSEE. HOWEVER, THESE PAYMENTS MADE WERE DEBITED BY THE ASSESSEES CLIENTS TO THE ASSESSEES ACCOUNT AS IF THE PAYMENTS WERE MADE TO THE ASSESSEE HIMSELF; WHEREAS, THESE PAYMENTS WERE MADE TO THE SECURITY GUARDS DIRECTLY, SO IN SUCH CASES AND IN SUCH CIRCUMSTANCE S, THE ASSESSEE NEITHER RECORDS THESE RECEIPTS NOR THE EXPENDITURE IN HIS B OOKS OF ACCOUNTS. 4. THE ASSESSING OFFICER NOTICED THAT THE EXTENT OF SUCH RECEIPTS, WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNTS BY THE A SSESSEE FOR THE YEAR UNDER APPEAL WAS RS.40,79,790/-. IT WAS SUBMITTED BEFORE A.O. THAT THE OMISSION TO SHOW THE AFORESAID RECEIPTS OF RS.40,79 ,790/- DOES NOT DISTORT THE CORRECT INCOME OF THE ASSESSEE IN AS MUCH AS, T O THE EXTENT OF SUCH RECEIPTS, THE RELATED EXPENDITURE ON THE PAYMENT MA DE TO SECURITY GUARDS IS ALSO NOT CLAIMED AS DEDUCTION. HOWEVER, THE LEARNE D AO DID NOT APPRECIATE THE FORESAID CONTENTIONS AND EXPLANATION AND WHILE COMPLETING THE ORIGINAL ASSESSMENT MADE A ADDITION OF RS.40,79 ,790/- WHILE ASSESSING THE ASSESSEE ON A TOTAL INCOME OF RS.43,88,560/-. ITA NO.90/BANG/2016 PAGE 3 OF 9 5. BEING AGGRIEVED BY THE AFORESAID ORDER OF ASSESS MENT PASSED BY THE AO DATED 28.11.2007, THE APPELLANT FILED AN APP EAL INSTITUTED AN APPEAL BEFORE THE CIT(APPEALS). THE LD. CIT(A) PARTLY ALL OWED THE ASSESSEES APPEAL BY HIS ORDER DATED 16.02.2010. HOWEVER, THE CIT(A) HELD THAT THE EXPLANATION OF THE ASSESSEE THAT THE ENTIRE RECEIPT S ARE EXTENDED AWAY CANNOT BE ACCEPTED AND THEREFORE, HE PROCEEDED TO H OLD THAT THE GROSS PROFIT (GP) RECKONED AT 38,98% OF THE RECEIPTS (AS SHOWN BY THE ASSESSEE IN HIS ACCOUNT) REQUIRES TO BE ASSESSED IN PLACE OF ADDITION OF RS.40,79,790/-. ACCORDINGLY, THE CIT(A) MODIFIED TH E ADDITION TO RS.15,80,302/- AND DETERMINED THE INCOME OF THE ASS ESSEE AT RS.18,89,072/-. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE PREFERRED AN APPEAL BEFORE THE ITAT IN ITA NO.712/BANG/2010. IT IS SUBMITTED THAT THE DEPARTMENT ACCEPTED THE ORDER OF THE CIT(A) AS MENT IONED ABOVE AND THERE WAS NO APPEAL FILED BY THE DEPARTMENT BEFORE THE ITAT. THE ITAT DISPOSED OF THE APPEAL FILED BY THE ASSESSEE BY THE ORDER DATED 30.08.2011. IN THE AFORESAID ORDER, THE ITAT RESTO RED THE ISSUE TO THE AO WITH A DIRECTION TO TAKE INTO CONSIDERATION THE TO TALITY OF FACTS AND COMPUTE THE NET INCOME OF THE ASSESSEE BY OBSERVING IN PARA (8) AS UNDER:- 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS AND THE MATERIALS ON RECORD, WE F IND THAT THE CONTENTION OF THE ASSESSEE WITH REGARD TO LACK OF S UFFICIENT OPPORTUNITY HAS BEEN RIGHTLY REJECTED BY THE CIT(A) AFTER THOROUGHLY EXAMINING THE RECORDS OF THE ASSESSMENT PROCEEDINGS. AS REGARDS THE OTHER GROUNDS, WE FIND THAT THE CONT ENTION OF THE ITA NO.90/BANG/2016 PAGE 4 OF 9 ASSESSEE THAT SOME TIMES, THE AGENCY/CONTRACTORS HA VE PAID THE WAGES DIRECTLY TO THE GUARDS IS NOT DISPUTED AND HA S BEEN FOUND TO BE IN FAVOUR OF THE ASSESSEE. IN SUCH A CASE, THE E NTIRE RECEIPTS CANNOT BE SAID TO BE THE INCOME OF THE ASSESSEE BEC AUSE THE ASSESSEE WOULD HAVE TO PAY THE WAGES AND ALSO INCUR OTHER EXPENSES FOR THE PURPOSE OF CARRYING ON THE BUSINES S OF THE ASSESSEE. IN SUCH A CASE, IT IS NOT SUFFICIENT IF ONLY THE WAGES AND THE DIRECT EXPENSES ARE CONSIDERED FOR MAKING THE A DDITIONS TO THE INCOME OF THE ASSESSEE. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE OTHER EXPENSES OF THE BUSINESS ARE ALSO TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE NET INCOME OF THE ASSESSEE. IN VIEW OF THE SAME, WE DI RECT THE AO TO TAKE INTO CONSIDERATION THE TOTALITY OF FACTS INTO CONSIDERATION THE TOTALITY OF FACTS INCOME CONSIDERATION AND COMPUTE THE NET INCOME OF THE ASSESSEE. 7. IN THE SET ASIDE PROCEEDINGS, THE AO CALLED FOR CERTAIN DETAILS FROM THE ASSESSEE. AFTER CONSIDERATION OF THE DETAILS F ILED BY THE ASSESSEE, THE AO DETERMINED THE INCOME OF THE ASSESSEE BY THE IMP UGNED ORDER DATED 30.3.2013, AT RS.18,89,072/- BASED ON THE EXTENT OF INCOME SUSTAINED BY THE CIT(A) IN THE FIRST ROUND. 8. ON FURTHER APPEAL BEFORE THE CIT(A), THE ASSESSE E SUBMITTED THAT THE AO HAS CLEARLY OVERLOOKED THE OBSERVATIONS OF T HE ITAT THAT, IT WAS NOT SUFFICIENT IF ONLY WAGES AND DIRECT EXPENSES ARE CO NSIDERED FOR MAKING THE ADDITION. IN FACT, THIS WAS WHAT THE CIT(A) HAD DO NE WHILE PASSING THE APPELLATE ORDER DATED 16.02.2010, ESTIMATING THE IN COME BY APPLYING THE INCOME BY APPLYING HE GP OF 38.98% ON THE ALLEGED C ONCEALED TURNOVER. THE SAID ORDER OF THE HONBLE CIT(A) WAS CHALLENGED BEFORE THE ITAT AND THE ITAT HAD OBSERVED THAT THE MERE ALLOWANCE OF WA GES AND DIRECT ITA NO.90/BANG/2016 PAGE 5 OF 9 EXPENSES WAS NOT ENOUGH. THUS THE BASIS ON WHICH T HE LEARNED CIT(A) HAS PROCEEDED TO ESTIMATE THE INCOME OF THE ASSESSE E HAS NOT BEEN APPROVED BY THE ITAT AND THEREFORE, THE AO OUGHT N OT TO HAVE DETERMINED THE INCOME ON THAT BASIS, ESPECIALLY AS THE ASSESSE E HAD NOT CLAIMED ANY EXPENSES IN RESPECT OF THESE RECEIPTS, WHICH, IF RE CKONED, WOULD MEAN THAT THE INCOME SHOWN BY THE ASSESSEE WAS CAPABLE TO BEI NG ACCEPTED. THE ASSESSEE SUBMITTED BEFORE THE CIT(APPEALS) THAT THE AO, AT BEST, OUGHT TO HAVE MADE ONLY THE ADDITION OF THE NET PROFIT ON TH E ALLEGED CONCEALED TURNOVER AND SHE OUGHT NOT TO HAVE MADE THE ADDITIO N BY TAKING RECOURSE TO THE EXTENT OF GP AS WAS DONE BY THE CIT(A) EARLIER. THE ASSESSEE SUBMITTED THAT THE ADDITION MADE BY THE AO BEING EX CESSIVE IS LIABLE TO BE REDUCED TO THE EXTENT OF RS.2,36,627/- BEING THE NE T PROFIT AT 5.80% OF THE ALLEGED CONCEALED TURNOVER OF RS.40,79,790/-. 9. THE CIT(APPEALS) OBSERVED THAT THERE IS NO DISPU TE IN THE FACT THAT THE TOTAL RECEIPT OF RS.40,79,790/- HAS NOT BEEN AC COUNTED FOR IN THE TURNOVER BY THE ASSESSEE. THE CIT(A) IN HIS ORDER DATED 16.02.2010 HAS GIVEN A RELIEF OF RS.24,99,488/- AFTER CONSIDERING THE FACT THAT THE ASSESSEE MUST HAVE INCURRED ESI, PF ETC. AT THE SAME TIME, THE CONTENTION OF THE ASSESSEE THAT THERE ARE CIRCUMSTANCES THAT AGENCY / CONTRACTOR HAS TO INCUR OTHER EXPENSES FOR THE PURPOSE OF CARRYING ON THE B USINESS, IT IS LIKELY THAT THERE ARE OTHER EXPENSES APART FROM WAGES AND DIREC T EXPENSES WHICH HAS NOT BEEN CONSIDERED BEFORE MAKING THE ADDITION IN T HE TOTAL INCOME OF ASSESSEE. THESE EXPENSES MAY BE OF BUSINESS PROMOT ION EXPENSES, ITA NO.90/BANG/2016 PAGE 6 OF 9 MEDICAL EXPENSES (STAFF), MISCELLANEOUS EXPENSES AN D TELEPHONE CHARGES. THE CIT(A) HELD THAT THE TOTAL EXPENSES DEBITED UND ER THESE HEADS IS RS.2,22,736/- FOR THE TOTAL TURNOVER OF RS.53,27,41 7/- SHOWN IN THE PROFIT AND LOSS ACCOUNT WHICH COMES TO 4.18% OF UNDISCLOS ED TURNOVER OF RS.40,79,790/- CAN BE ALLOWED AS ADDITIONAL EXPENSE S. ACCORDINGLY, THE ASSESSEE WAS GRANTED A RELIEF OF RS.1,70,535/-. 10. AGGRIEVED BY THE ABOVE ORDER OF CIT(APPEALS), T HE ASSESSEE IS IN APPEAL BEFORE ME ON THE FOLLOWING GROUNDS:- 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT[A] IS NOT JUSTIFIED IN MODIFYIN G THE ORIGINAL ADDITION OF RS. 15,80,302/- MADE BY WAY OF ESTIMATION OF THE GROSS PROFIT ON THE ALLEGED CONCEALED TURNOVER OF RS. 40,79,790/- BY ALLOWING A RELIEF OF RS. 1,70,535/- AND THEREBY SUSTAINING THE ADDITION TO THE EXTENT OF RS . 14,09,767/- UNDER THE FACTS AND CIRCUMSTANCES OF THE APPELLANT' S CASE. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT [A] OUGHT TO HAVE DETERMINED THE INCOME OF THE APPELLANT ON T HE BASIS OF THE NET PROFIT EARNED IN ACCORDANCE WITH THE OBSERVATIO NS OF THE HON'BLE ITAT AND THEREFORE, THE ADDITION SUSTAINED BY THE LEARNED CIT[A] IS HIGHLY EXCESSIVE AND UNREASONABLE UNDER T HE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE. 4. WITHOUT PREJUDICE TO THE RIGHT TO SEEK WAIVER W ITH THE HON'BLE CCIT/DG, THE APPELLANT DENIES HIMSELF LIABL E TO BE CHARGED TO INTEREST U/S. 234-B AND 234-D OF THE ACT , WHICH UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT 'S CASE DESERVES TO BE CANCELLED. 5. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBL Y PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED, AND THE APPELLANT ITA NO.90/BANG/2016 PAGE 7 OF 9 MAY BE AWARDED COSTS IN PROSECUTING THE APPEAL AND ALSO ORDER FOR THE REFUND OF THE INSTITUTION FEES AS PART OF THE C OSTS. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS) OUGHT TO HAVE DETERMINED THE INCOME OF THE ASSESSEE ON THE BASIS OF NET PROFIT EARNED IN ACCORDANCE WITH THE DIRECTIONS OF THE ITAT. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE MADHYA PRADES H HIGH COURT IN CIT V. BALCHAND AJIT KUMAR, 263 ITR 610 (MP) , WHEREIN IT WAS HELD THAT THE TOTAL SALE COULD NOT BE REGARDED AS PROFIT OF THE ASSESSE E. THE NET PROFIT RATE HAD TO BE ADOPTED AND ONCE IT WAS ADOPTED, IT COULD NOT BE SAID THAT THERE WAS PERVERSITY OF APPROACH. 12. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. HARIRAM BHAMBHANI, ITA NO.313 OF 2013 DATED 4.2.2015 , WHEREIN THE HONBLE HIGH COURT CONSIDERED THE FOLLOWING QUESTION OF LAW FORMULATED BY THE REV ENUE :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE OR DER OF THE CIT(A) IN WHICH HE HAD DIRECTED THE ASSESSING OFFIC ER TO TAX 4% NET PROFIT ON ACCOUNTED SALES OF RS.35 LAKHS EVEN T HOUGH NO EVIDENCE OF UNACCOUNTED PURCHASES/EXPENSES AGAINST SUCH UNACCOUNTED SALES WAS DETECTED AT THE TIME OF SURVE Y? 13. THE HONBLE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL HOLDING THAT IT IS NOT THE ENTIRE SALES CONSIDERATION WHICH IS T O BE BROUGHT TO TAX BUT ONLY ITA NO.90/BANG/2016 PAGE 8 OF 9 THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SAL ES CONSIDERATION WHICH ALONE CAN BE SUBJECT TO INCOME TAX. 14. I HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THE RELEVANT MATERIAL ON RECORD. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS ACCOMPANIED BY A REPORT OF THE ACCOUNTANT U/S. 44AB . THE TOTAL REVENUE/TURNOVER SHOWN BY THE ASSESSEE IN THE YEAR UNDER APPEAL WAS RS.53,27,417 AND THE ASSESSEE HAS SHOWN A NET INCOM E OF RS.3,08,770, WHICH WORKS OUT TO 5.80% OF THE GROSS RECEIPTS. T HE ASSESSEE HAS SUBMITTED THAT THE OMISSION TO SHOW THE AFORESAID R ECEIPT OF RS.40,79,790 DOES NOT DISTORT THE CORRECT INCOME OF THE ASSESSEE , IN AS MUCH AS TO THE EXTENT OF SUCH RECEIPTS, THE RELATED EXPENDITURE ON THE PAYMENT MADE TO SECURITY GUARDS IS ALSO NOT CLAIMED AS A DEDUCTION. THE AO DID NOT APPRECIATE THE CONTENTION OF THE ASSESSEE AND THE C IT(APPEALS) TOOK A DIFFERENT VIEW WITH RESPECT TO DETERMINATION OF INC OME. THE TRIBUNAL HAD HELD THAT THE ENTIRE RECEIPTS CANNOT BE STATED TO B E THE INCOME OF THE ASSESSEE BECAUSE THE ASSESSEE WOULD HAVE TO PAY THE WAGES AND ALSO INCUR OTHER EXPENSES FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. HENCE THE TRIBUNAL DIRECTED THE AO TO CO NSIDER THE TOTALITY OF FACTS AND COMPUTE THE NET INCOME OF THE ASSESSEE. FOLLOWING THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN CIT V. BALCHAND AJIT KUMAR (SUPRA) AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. HARIRAM BHAMBHANI (SUPRA) , I AM OF THE VIEW THAT THE LOWER AUTHORITIES OUGH T TO HAVE DETERMINED THE NET INCOME OF THE ASSESSEE ON T HE BASIS OF NET PROFIT ITA NO.90/BANG/2016 PAGE 9 OF 9 EARNED BY THE ASSESSEE AND OUGHT TO HAVE ADOPTED TH E NET PROFIT @ 5.80%. I DIRECT ACCORDINGLY. 15. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JULY, 2016. SD/- (ASHA VIJAYARAGHAVAN ) JUDICIAL MEMBER BANGALORE, DATED, THE 15 TH JULY, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.