M/s Srivalli Shipping & Transport, Visakhapatnam V. THE ACIT, CENTRAL CIRLE - 2, Visakhapatnam

ITA 90/VIZ/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0298 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 18-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B NARASIMHA SHARMA SR; G GU
• Keywords: Unexplained investment; Depreciation; Income from undisclosed sources; Search and seizure; Document seized; Block assessment; Documents seized; Capital expenditure
• Section: 40A(3); 143(3); 133A; 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BENCH, VISHAKHAPATNAM BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER I.T.A. NOS.79 TO 85/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 DCIT, CENTRAL CIRCLE - 2, PRATHYAKSHAKAR BHAVAN, MVP DOUBLE ROAD, OPP: RYTU BAZAR, VISAKHAPATNAM VS. SRIVALLI SHIPPING TRANSPORT, 2 ND FLOOR, SRI SATYASAI BUILDINGS, OPP: HARBOUR GATE, VISAKHAPATNAM. PAN/GIR NO. : AAIFS 2071 B APPELLANT ) .. RESPONDENT ) I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT, 2 ND FLOOR, SRI SATYASAI BUILDINGS, OPP: HARBOUR GATE, VISAKHAPATNAM VS. DCIT, CENTRAL CIRCLE - 2, SRIVALLI SHIPPING TRANSPORT, 2 ND FLOOR, SRI SATYASAI BUILDINGS, OPP: HARBOUR GATE, VISAKHAPATNAM. PAN/GIR NO. : AAIFS 2071 B APPELLANT ) .. RESPONDENT ) ASSESSEE BY : SHRI G.V.N. HARI REVENUE BY : SHRI B.NARASIMHA SHARMA, SR. STANDING COUNSEL & SHRI G.GURUSAMY, CIT DR DATE OF HEARING : 24/7/ 2015 DATE OF PRONOUNCEMENT : 15/9/2015 O R D E R PER BENCH: THE APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST A COMMON ORDER 30.11.2012 PASSED BY THE LD CIT(A)- 1, HYDERA BAD AND THEY RELATE TO THE ASSESSMENT YEARS 2004-05 TO 2010-2011, RESPECTIVELY. 2 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT 2. SINCE IDENTICAL ISSUES ARE INVOLVED IN ALL THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. 3. THE ASSESSEE IS IN APPEAL IN RESPECT OF FOLLOWIN G ISSUES: A) REJECTION OF BOOKS OF ACCOUNT; B) ESTIMATION OF PROFIT & ASSESSMENT OF INCOME SUR RENDERED BY THE ASSESSEE SEPARATELY. C) REJECTION OF CLAIM FOR DEDUCTION OF DEPRECIATIO N. D) CLAIM FOR HIGHER RATE OF DEPRECIATION ON VEHICLES. 4. THE DEPARTMENT IS IN APPEAL IN RESPECT OF FOLLOW ING ISSUES: A) ESTIMATION OF PROFIT; B) ALLOWING DEDUCTION OF REMUNERATION AND INTEREST PAYABLE TO PARTNERS. 5. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS A PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS, NAMELY, SHRI P. BABU RA O AND HIS WIFE SMT. PSVS ESWARI, HOLDING EQUAL SHARE IN THE PROFIT. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF C&F AGENCY, STEVEDORING, TRANSPORTATION, ETC. THE REVENUE CARRIED OUT SEARC H & SEIZURE OPERATION UNDER SECTION 132 OF THE ACT IN THE HANDS OF THE ASSESSEE ON 25.11.2009. SIMULTANEOUSLY, THE BRANCH OFFICES OF THE ASSESSEE FIRM LOCATED AT KAKINADA AND BANGALORE WER E SURVEYED UNDER SECTION 133A OF THE ACT. CONSEQUENT TO THE SEARCH OPERATION, THE ASSESSING O FFICER COMPLETED THE ASSESSMENTS U/S.153A OF THE ACT FOR THE ASSESSMENT YEARS 2004-05 TO 2009 -2010. THE ASSESSMENT FOR ASSESSMENT YEAR 2010-2011, BEING THE YEAR OF SEARCH, WAS COMPL ETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED 3 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT VARIOUS DISCREPANCIES IN THE BOOKS AS WELL AS THE B USINESS CARRIED ON BY THE ASSESSEE IN THE FORM OF DEFECTIVE VOUCHERS, UNACCOUNTED RECEIPTS, U NACCOUNTED INVESTMENTS BY PARTNERS, UNVERIFIABLE PAYMENTS LIKE SPEED MONEY, FORMALITY P AYMENT, ETC. IN THE STATEMENT TAKEN FROM SHRI P. BABU RAO, PARTNER OF THE ASSESSEE FIRM, HE ADMITTED ALL THESE FACTS AND ALSO SURRENDERED ADDITIONAL INCOME FOR ASSESSMENT YEARS 2008-09 TO 2 010-2011. BESIDES THE ABOVE, HE ALSO ADMITTED INCOME RELATING TO UNACCOUNTED RECEIPTS AN D UNACCOUNTED INVESTMENTS MADE IN THE NAME OF PARTNERS. ACCORDINGLY, THE ASSESSING OFFIC ER TOOK THE VIEW THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE AND ACC ORDINGLY HE REJECTED THE BOOK RESULTS FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. 6. ACCORDINGLY, THE ASSESSING OFFICER ESTIMATED THE NET PROFIT FROM THE BUSINESS OPERATION AS UNDER: ASSESSMENT YEARS % OF NET PROFIT ON GROSS RECEIPTS 2004-05 TO 2006-07 8% 2007-08 8.5% 2008-09 9% 2009-2010 TO 2010-2011 9.5% WHILE COMPUTING THE INCOME, THE ASSESSING OFFICER G AVE CREDIT FOR:- A) THE INCOME RETURNED BY THE ASSESSEE I.E. THE DIF FERENCE INCOME ONLY WAS ADDED. B) ALLOWED SET OFF OF FOLLOWING ADDITIONAL INCOME S URRENDERED BY THE ASSESSEE IN THE STATEMENT TAKEN FROM HIM FOR THE FOLLOWING YEARS:- ASSESSMENT YEAR INCOME SURRENDERED 2008-09 RS.1.08 CRORES 2009-2010 RS.1.27 CRORES 2010-2011 RS.1.00 CRORE 4 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT HOWEVER, THE ASSESSING OFFICER (A) DID NOT ALLOW DEPRECIATION ON VEHICLES/MACHINE RIES, ETC. (B) DID NOT ALLOW DEDUCTION TOWARDS REMUNERATION AN D INTEREST PAYABLE TO PARTNERS. FURTHER THE ASSESSING OFFICER ASSESSED OTHER INCOME LIKE COMMISSION, INTEREST ON DEPOSITS, CHIT DIVIDEND, INTEREST ON INCOME TAX REF UND, ETC. SEPARATELY. 7. AGGRIEVED BY THE ORDERS PASSED BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTERS BY FILING APPEAL FOR ALL THE ASSESSMENT YEA RS BEFORE THE FIRST APPELLATE AUTHORITY. THE LD CIT(A) UPHELD THE REJECTION OF BOOKS OF ACCOUNT. H OWEVER, THE LD CIT(A) SCALED DOWN THE PERCENTAGE OF NET PROFIT ESTIMATED ON GROSS RECEIPT S AS UNDER: ASSESSMENT YEAR % OF NET PROFIT ON GROSS RECEIPTS 2004-05 TO 2006-07 5% 2007-08 TO 2010-2011 7% THE LD CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER WITH REGARD TO REJECTION OF CLAIM FOR DEDUCTION OF DEPRECIATION AND ALSO HELD THAT OTHER INCOME DECLARED BY THE ASSESSEE SHOULD BE ASSESSED SEPARATELY. HOWEVER THE LD CIT(A) MODIFIE D THE ORDER OF THE ASSESSING OFFICER ON THE FOLLOWING ISSUES: A) THE LD CIT(A) DID NOT ALLOW TELESCOPING OF ADDITION AL INCOME SURRENDERED BY THE ASSESSEE AGAINST THE INCOME ESTIMATED BY HIM. ACCO RDINGLY, HE DIRECTED THE AO TO ASSESS INCOME SURRENDERED BY THE ASSESSEE FOR ASSES SMENT YEARS 2008-09 AND 2010- 2011 SEPARATELY IN ADDITION TO THE INCOME ESTIMATED BY HIM. B) THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF REMUNERATION AND INTEREST PAYABLE TO THE PARTNERS. 8. AGGRIEVED BY THE ORDER OF THE LD CIT(A), BOTH TH E PARTIES ARE IN APPEALS BEFORE US. 5 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT 9. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SHRI G.V.N. HARI RAISED A LEGAL CONTENTION, VIZ., FOR THE ASSESSMENT YEARS 2004-05 TO 2008-09, NO PROCEEDING WAS PENDING ON THE DATE OF INITIATION OF SEARCH AND HENCE THOSE AS SESSMENTS CAN BE DISTURBED OR ANY ADDITION COULD BE MADE ONLY ON THE BASIS OF INCRIMINATING MA TERIALS FOUND DURING THE COURSE OF SEARCH. HE SUBMITTED THAT THE SEARCH PROCEEDINGS DID NOT RE VEAL ANY INCRIMINATING MATERIALS PERTAINING TO THESE YEARS, SO FAR AS THE BUSINESS OPERATIONS O F THE ASSESSEE IS CONCERNED, AND HENCE THE TAX AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND ESTIMATING THE PROFIT. HE SUBMITTED THAT THE ADMISSION MADE BY THE PARTNER OF THE ASSESSEE WITH REGARD TO DEFECTIVE VOUCHERS, PAYMENT OF SPEED MONEY/FORMALITY PAYMENTS ETC. WAS RELATED TO THE SPECIFIC VOUCHERS FOUND DURING THE COURSE OF SEARCH AND THE ASSESSEE HAS ALREADY SURRENDERED INCOME RELATING TO THE SAME. SIMILARLY THE INCOME RELATIN G TO UNACCOUNTED RECEIPTS AND UNDISCLOSED INVESTMENTS ARE RELATED TO SPECIFIC CASES AND SUCH TYPE OF INCOME HAS ALSO BEEN SURRENDERED BY THE ASSESSEE. IN THIS REGARD, HE PLACED RELIANCE O N THE DECISION RENDERED BY BANGALORE BENCH OF TRIBUNAL IN THE CASE OF SUNRISE SALES CORPORATIO N VS. DCIT (2004)(82 TTJ 0302). HE SUBMITTED THAT, EXCEPT THE SPECIFIC INSTANCES DISCU SSED ABOVE, THE SEARCH OFFICIALS DID NOT UNEARTH ANY INCRIMINATING MATERIALS RELATING TO THE ABOVE SAID ASSESSMENT YEARS AND HENCE THE TAX AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND RESORTING TO ESTIMATE OF THE NET PROFIT AS A PERCENTAGE OF GROSS RECEIPTS DECLARED B Y THE ASSESSEE. HE FURTHER SUBMITTED THAT THE REVENUE MAY TAKE THE SUPPORT OF THE DECISION RE NDERED BY THE HONBLE JURISDICTIONAL A.P HIGH COURT IN THE CASE OF RAJNIK & CO. (251 ITR 561 ) TO SUPPORT THE ACTION OF THE AO IN ESTIMATING THE INCOME IN ALL THE YEARS. HE SUBMITT ED THAT THE HONBLE HYDERABAD BENCH OF TRIBUNAL HAD AN OCCASION TO CONSIDER THE DECISION O F RAJNIK & CO. IN THE CASE OF DADA PRINTS VS. ACIT (2014)(42 CCH 0026)(HYD) AND THE TRIBUNAL HAS EXPRESSED THE VIEW THAT THE THEORY OF EXTRAPOLATION OF THE SUPPRESSION OF SALES FOUND IN THE SEARCH AND SEIZURE PROCEEDINGS WAS APPLIED IN THAT CASE, SINCE THERE WAS ADMISSION BY THE PARTNER OF THAT FIRM THAT THEY WERE RESORTING TO SAME METHOD IN THE EARLIER YEARS ALSO. THE LD A.R SUBMITTED THAT THE PARTNER OF THE ASSESSEE FIRM HEREIN, HAS GIVEN STATEMENT WITH REGARD TO THE DOCUMENTS RELATING TO AY 2008-09 TO 2010-11 AND HE DID NOT STATE ANYTHING AB OUT THE PRIOR YEARS. THE STATEMENT GIVEN WITH REGARD TO TRADE PRACTICE ALSO PERTAINED TO AY 2008-09 TO 2010-11 ONLY. ACCORDINGLY, THE 6 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT LD A.R CONTENDED THAT THE TAX AUTHORITIES ARE NOT J USTIFIED IN REJECTING THE BOOK RESULTS OF AY 2004-05 TO 2007-08 WITHOUT THERE BEING ANY INCRIMIN ATING MATERIAL WARRANTING THE SAME. 10. THE LEARNED STANDING COUNSEL SHRI NARASIMHA SHA RMA AND LD D.R, ON THE CONTRARY, SUBMITTED THAT THE PARTNER OF THE ASSESSEE FIRM SHR I BABU RAO HAS CONFIRMED MORE THAN ONCE THAT THE VOUCHERS MAINTAINED BY THE ASSESSEE ARE DE FECTIVE ON MANY ASPECTS AND HAS ALSO STATED THAT THEY CANNOT BE AVOIDED IN HIS BUSINESS, SINCE THEY ARE DEALING WITH UNORGANIZED LABOURERS. FURTHER HE HAS ALSO CONFIRMED ABOUT THE PAYMENT OF SPEED MONEY AND ALSO THE PAYMENTS MADE AS FORMALITY PAYMENTS TO VARIOUS GOVE RNMENT OFFICIALS. HE HAS FURTHER ADMITTED THAT THIS WAS THE PRACTICE FOLLOWED IN THI S TRADE, WHICH FACT MAKES AMPLY CLEAR THAT SUCH KIND OF DEFICIENCIES EXISTED AND ALSO IDENTICA L PAYMENTS HAVE MADE IN ALL THE YEARS UNDER CONSIDERATION. FURTHER, THE UNACCOUNTED RECEIPTS A LSO PROVE THAT THE BOOKS OF ACCOUNTS ARE NOT RELIABLE. SIMILARLY, THE UNDISCLOSED INVESTMENTS A DMITTED BY THE PARTNER ALSO SHOW THAT THE PARTNERS HAVE GENERATED MONEY OUTSIDE THE BOOKS OF THE ASSESSEE FIRM. ACCORDINGLY THE LEARNED D.R SUBMITTED THAT THE VARIOUS DOCUMENTS SE IZED DURING THE COURSE OF SEARCH AND ALSO ADMISSION MADE BY THE PARTNER SHOW THAT THE DEFICIE NCIES AND DISCREPANCIES NOTICED IN THE YEAR OF SEARCH ALSO EXISTED IN THE EARLIER YEARS ALSO AN D THEY FORM SUFFICIENT INCRIMINATING MATERIALS TO DISTURB THE INCOME RETURNED BY THE ASSESSEE. ACCOR DINGLY HE SUBMITTED THAT THE LEARNED CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULTS OF ALL THE ASSESSMENT YEARS, EVEN THOUGH NO PROCEED ING WAS PENDING IN RESPECT OF ASSESSMENT YEARS 2004-05 TO 2008-09. HE SUBMITTED THAT THE DECISION RENDERED BY THE BANGALORE BENCH IN THE CASE OF SUNRISE SALES CORPORATION (SUPRA) AN D THE SAME HAS BEEN RENDERED IN THE CONTEXT OF BLOCK ASSESSMENT PROCEEDINGS UNDER CHAPTER XIV-B OF THE ACT. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE CANNOT TAKE SUPPORT OF THE SAME. WITH REGARD TO THE DECISION RENDERED BY THE HYDERABAD BENCH IN THE CASE OF DADA PRINTS (SUP RA), THE LD D.R SUBMITTED THAT THE SAME WAS A CASE WHERE THERE WAS NO ADMISSION BY THE ASSE SSEE THEREIN. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS ACCEPTED THE FACTUM OF PAYME NT OF DEFICIENCY IN VOUCHERS, UNATHORISED PAYMENTS ETC. AND FURTHER STATED THAT THE SAME WAS PRACTICE PREVAILING IN THE TRADE. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE SAID STA TEMENT ALONG WITH THE MATERIALS SEIZED DURING THE COURSE OF SEARCH FORM THE INCRIMINATING MATERIAL FOR OTHER YEARS ALSO. 7 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT 11. HAVING HEARD RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS MADE BY THE REVENUE. IT IS A FACT THAT THE VOUCHER S MAINTAINED FOR THE YEARS 2008-09 TO 2010- 11 WERE DEFICIENT AND THE SAME WAS ALSO ACCEPTED BY THE PARTNER IN HIS STATEMENT. FURTHER, HE HAS ALSO STATED THAT THE PAYMENT OF SPEED MONEY AND FORMALITY PAYMENTS ARE PREVALENT TRADE PRACTICE AND HENCE THERE IS A POSSIBILITY TO INFER THAT THE SAID TRADE PRACTICE SHOULD HAVE EXISTED IN THE EARLIER YEARS ALSO. AS SUBMITTED THAT THE D ECISION RENDERED IN THE CASE OF SUNRISE SALES CORPORATION (SUPRA) CANNOT BE TAKEN SUPPORT OF, SIN CE THE SAME HAS BEEN RENDERED IN THE CONTEXT OF CHAPTER XIV-B OF THE ACT, THE SCOPE OF T HE SAME IS DIFFERENT. HENCE, IN THE INSTANT CASE, WE ARE OF THE VIEW THAT THE TRADE PRACTICE PR EVAILING IN THIS TRADE AND ALSO THE MANNER OF MAINTENANCE OF VOUCHERS REGARDING PAYMENTS MADE TOW ARDS VARIOUS EXPENSES WOULD CONSTITUTE SUFFICIENT MATERIAL TO DISTURB THE EARLIER YEARS A SSESSMENTS ALSO, WHICH WERE NOT PENDING ON THE DATE OF INITIATION OF SEARCH. ACCORDINGLY, WE DO N OT FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY, REJECT THE SAME. 12. THE NEXT ISSUE CONTESTED BY THE ASSESSEE REL ATES TO THE VALIDITY OF REJECTION OF BOOKS OF ACCOUNT. WE HEARD THE PARTIES ON THIS ISSUE. WE N OTICE THAT THE LD CIT(A) HAS MADE DETAILED ANALYSIS OF THE FACTS RELATING TO THE REJECTION OF BOOKS OF ACCOUNT. FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE SAME BELOW:- 8. I HAVE GONE THROUGH THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE APPELLANT. AS REGARDS THE ISSUE OF REJECTION OF BOOKS OF ACCOU NT, IT IS SEEN THAT THE AO REJECTED THE BOOK RESULTS OF THE APPELLANT BY INVOKING THE PROVI SIONS OF SE.145(3) OF THE I.T. ACT, 1961 AFTER POINTING OUT THE FOLLOWING DEFECTS IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT: I) THAT MAJORITY OF THE VOUCHERS MAINTAINED TO SUPP ORT HUGE C&F CHARGES, LABOUR PAYMENTS, TRANSPORT CHARGES, HANDLING CHARGE S ETC, WERE SELF MADE, AND AS SUCH, NOT ENTIRELY AMENABLE TO VERIFICATION'. H E FOUND THAT SOME OF THEM WERE EVEN 'UNSIGNED' AND EVEN 'UNDATED' AND DID NOT CONTAIN THE NECESSARY PARTICULARS REGARDING NATURE OF EXPENSES. II) THAT THE APPELLANT HAD INCURRED CERTAIN EXPENS ES AS 'SPEED MONEY', MOSTLY BOOKED UNDER THE HEAD 'C&F CHARGES' ON A REG ULAR BASIS, WHICH INCLUDED 'EXTRA INCENTIVES PAID TO LABOURERS' AND CERTAIN PA YMENTS TO GOVERNMENT DEPARTMENTS AS 'FORMALITIES', WHICH WERE IN THE NAT URE OF UNAUTHORIZED 8 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT PAYMENTS, PROHIBITED BY LAW. THE MANAGING PARTNER H AD HIMSELF STATED THAT SUCH PAYMENTS ARE 'ROUTINE AFFAIR', IRRESPECTIVE OF ANY PERIOD OR YEAR. (III) THAT THE APPELLANT HAD INCURRED CERTAIN E XPENDITURE IN CASH, (RS.37,31,325/- IN ASSESSMENT YEAR 2008-09 AND RS.3 5,17,872/- IN ASSESSMENT YEAR 2009-10), IN CONTRAVENTION OF THE PROVISIONS O F SECTION 40A(3) OF THE ACT. (IV) THAT THE APPELLANT HAD CERTAIN RECEIPTS IN CASH ALSO, (FINANCIAL YEAR 2007- 08) WHICH WERE NOT ACCOUNTED FOR AND THE APPELLANT HAD EVEN DECLARED RS.10 LAKHS OUT OF THE RECEIVABLES OF RS.17.41,522/- AS U NEXPLAINED INCOME FOR THE ASSESSMENT YEAR 2008-09, EXPLAINING THAT BY OMISSIO N THE SAME WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT, (V) THAT THE MANAGING PARTNER OF THE APPELLANT FIRM , SHRI P.BABU RAO IN HIS VARIOUS STATEMENTS HAD REPEATEDLY ADMITTED THAT THE VOUCHERS WERE 'SELF MADE' AND 'DEFECTIVE' AND HAD THEREFORE, DECLARED SUBSTAN TIAL INCOME AS ADDITIONAL INCOME FOR THE ASSESSMENT YEARS 2008-09, 2009-10 AN D 2010-11. (VI) THAT THE APPELLANT HAD REVISED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 AFTER THE SEARCH AND SEIZURE OPERATION , DISCLOSING AN ADDITIONAL AMOUNT OF RS.1,27,00,000/- TOWARDS UNVERIFIABLE EXP ENDITURE, WHERE-AFTER THE NET PROFIT WORKED OUT TO 9.4% OF THE GROSS RECEIPTS . (VII) THAT THOUGH THE ASSESSMENT FOR THE ASSESSM ENT YEAR 2004-05 HAD BEEN COMPLETED U/S.143(3) OF THE ACT EARLIER, ASSESSING THE INCOME AT RS.15,46,445/-, AS AGAINST THAT RETURNED AT RS. 12,88,820/-, THE AP PELLANT HAD NOT PREFERRED ANY APPEAL AGAINST THE SAME. HE NOTED THAT EVEN IN THE SAID ORDER, THERE WAS A CLEAR CUT FINDING THAT VOUCHERS FOR CERTAIN EXPENDITURE W ERE NOT AMENABLE TO VERIFICATION. (VIII) THAT THE APPELLANT HAD CLAIMED THE DEPRECIA TION ON TRAILERS @ 40%/30%, DESPITE TRANSPORTATION NOT BEING ITS PRINCIPAL BUSI NESS. (IX) THAT THE APPELLANT HAD SHOWN CASH LOANS OF RS.45,90,000/- FROM 6 PERSONS IN THE ASSESSMENT YEAR 2010-11, WHICH WERE ADMITTED AS BOGUS AND THE APPELLANT EVEN DECLARED RS.35 LAKHS ON THIS ACCOUNT FOR THE ASSESSMENT YEAR 2010-11. (X) THAT THE PARTNERS OF THE FIRM HAD MADE UNEX PLAINED INVESTMENTS IN A HOUSING PLOT AND SHRI P.BABU RAO EVEN ADMITTED HAVI NG PAID RS.25 LAKHS BY WAY OF CASH AS CONSIDERATION, FURTHER ADMITTING THAT TH E SAME WAS NOT REFLECTED IN THE REGULAR BOOKS. HE ALSO ADMITTED HAVING PAID RS.15 L AKHS TO SMT. P.KARUNA OUT OF HIS OWN SOURCES ON 23-4-2008, ADMITTING THAT EVEN T HIS WAS NOT REFLECTED IN THE REGULAR BOOKS. THE ASSESSING OFFICER NOTED THAT THE PARTNERS HAVE NO OTHER 9 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT SOURCES EXCEPT THE BUSINESS OF THE FIRM, IMPLYING T HAT THOSE WERE MADE OUT OF THE UNEXPLAINED INCOME OF THE FIRM ITSELF. (XI) THAT THE PARTNERS HAD INVESTED IN CASH FOR PURCHASING AGRICULTURAL LANDS IN THE FINANCIAL YEAR 2004-05 ALSO AND OFFERED THE DIF FERENCE OF RS.8.65 LAKHS BETWEEN THE AGREEMENTS FOUND IN THE COURSE OF SEARC H, AS ADDITIONAL INCOME. HE CONCLUDED THAT THE FIRM WAS GENERATING UNEXPLAINED INCOME WHICH WAS ENABLING THE PARTNERS TO MAKE UNEXPLAINED INVESTMENTS IN PRO PERTIES. 8.1 KEEPING IN VIEW THE ABOVE REFERRED DEFICIENC IES AND DISCREPANCIES, I AM OF THE CONSIDERED OPINION THAT THE FACTS AND EVIDENCE GATH ERED IN THE COURSE OF SEARCH AND SEIZURE OPERATION WERE INDEED SUFFICIENT AND SUBSTA NTIAL TO LEAD TO THE CONCLUSION THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLA NT FIRM WERE NOT RELIABLE ENOUGH TO GIVE A TRUE AND CORRECT PICTURE OF THE PROSPECTS OF THE BUSINESS. IT IS CLEAR THAT THE 'DEFECTIVE' AND UNVERIFIABLE NATURE OF THE VOUC HERS MAINTAINED BY THE APPELLANT WAS REPEATEDLY ADMITTED BY THE MANAGING PARTNER AND IN VIEW OF SUCH DEFECTS, HE EVEN CAME FORWARD WITH DISCLOSURE OF SUBSTANTIAL AD DITIONAL INCOME IN THE ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11. THE INCURRENCE OF SUBSTANTIAL EXPENDITURE IN CASH, IN CONTRAVENTION OF THE PROVIS IONS OF SEC.40A(3) OF THE ACT, IS ALSO AN ADMITTED FACT. AS REGARDS THE PAYMENT OF 'S PEED MONEY', THOUGH THE APPELLANT IN SUBSEQUENT PROCEEDINGS TRIED TO EXPLAI N THAT THE SAME WAS PAID TO THE DOCK WORKERS, IN THE EARLIER STATEMENTS, THERE WAS A CATEGORICAL ADMISSION THAT SUCH PAYMENTS INCLUDED PAYMENT OF 'FORMALITIES' TO GOVER NMENT DEPARTMENTS ALSO. THEREFORE, THE EVIDENCE FOUND IN THE COURSE OF SEAR CH INDEED ESTABLISHED THAT PART OF THE EXPENDITURE RECORDED UNDER THE HEAD C&.F CHARGE S COMPRISED OF PAYMENTS PROHIBITED BY LAW, WHICH ARE NOT ALLOWABLE IN TERMS OF SEC.37(1) OF THE ACT. THE SEIZED DOCUMENTS EVEN ESTABLISHED AND LED TO THE AD MISSION OF FACT OF 'CASH RECEIPTS' WITHOUT BEING RECORDED IN THE BOOKS. IN A DDITION TO THIS, IT CAN BE SEEN THAT THE APPELLANT WAS FOUND HAVING MADE UNEXPLAINED INV ESTMENTS WAY BACK IN THE FINANCIAL YEAR 2004-05 ALSO, BESIDES THE FINDINGS O F UNEXPLAINED INVESTMENTS IN THE ASSESSMENT YEARS 2008-09 AND 2010-11. OBVIOUSLY, TH E PARTNERS OF THE APPELLANT FIRM COULD NOT RECKON ANY OTHER SOURCE FOR SUCH INV ESTMENTS, IMPLYING THAT THE 10 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT SOURCE OF SUCH INVESTMENTS WAS INDEED THE UNRECORDE D AND UNDISCLOSED INCOME FROM THE FIRM ITSELF. ON A CONSPECTUS OF THE ABOVE FACTS , THEREFORE, IT CLEARLY EMERGED THAT THE APPELLANT FIRM HAD BEEN GENERATING SUBSTANTIAL UNACCOUNTED INCOME FOR PAST SEVERAL YEARS, AND SINCE SUCH INCOME WAS NOT RECORD ED IN THE BOOKS OF ACCOUNT, IT COULD BE SAID WITH REASONABLE PRECISION THAT THE BO OKS OF ACCOUNT MAINTAINED BY THE APPELLANT FIRM WERE NOT GIVING TRUE AND CORRECT PIC TURE OF THE PROFITS EARNED BY IT. FINDING NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT SO MAINTAINED BY INVOKING THE PROVISIONS OF SEC.145(3) OF THE ACT, THEREFORE,, THE GROUNDS RAISED IN THIS REGARD ARE D ECIDED AGAINST THE APPELLANT. 13. EVEN THOUGH THE LD A.R CONTENDED THAT THE SE ARCH TEAM DID NOT UNEARTH ANY MATERIAL RELATING TO AY 2004-05 TO 2007-08 AND HENCE THE REJ ECTION OF BOOKS WAS NOT CORRECT, YET IN VIEW OF THE ADMISSION OF THE PARTNER OF THE FIRM THAT HE HAS BEEN FOLLOWING SAME PRACTICE IN THE EARLIER YEARS ALSO, ONE HAS TO PRESUME THAT THE DEF ECTS NOTICED IN THE MAINTENANCE OF BOOKS IN AY 2008-09 TO 2010-11 WERE ALSO PREVAILING IN THE E ARLIER YEARS ALSO. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE ORDER OF LD CIT(A) IN CONFIRMING REJECTION OF BOOKS OF ACCOUNT FOR ALL THE YEARS UNDER CONSIDERATION. 14. NEXT ISSUE CONTESTED BY BOTH THE PARTIES RE LATE TO ESTIMATION OF NET PROFIT FOR ALL THE YEARS UNDER CONSIDERATION. WE HAVE EARLIER NOTICED THAT THE RATE OF NET PROFIT ESTIMATED BY THE AO FOR ALL THE YEARS WAS SCALED DOWN BY THE LD CIT(A). TH E ASSESSEE IS IN APPEAL SEEKING FURTHER REDUCTION AND THE REVENUE IS IN APPEAL OBJECTING TH E REDUCTION. 15. WE HAVE HEARD THE PARTIES ON THIS ISSUE. T HE LD. A.R REITERATED THE CONTENTIONS URGED BEFORE THE LD CIT(A) AND HENCE WE FEEL IS CONVENIEN T TO EXTRACT THE OBSERVATIONS MADE BY THE LD CIT(A) BELOW:- 7.4 THE AUTHORISED REPRESENTATIVE SUBMITTED THAT E VEN IT IS ASSUMED FOR A WHILE THAT THE ASSESSING OFFICER WAS RIGHT IN RESORTING TO ES TIMATION, THE ESTIMATION SO MADE IS NOT TENABLE. HE SUBMITTED THAT APPELLANT'S GROSS RECEI PTS PREDOMINANTLY ACCOUNT FOR RECEIPTS 11 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT IN THE NATURE OF REIMBURSEMENT OF VARIOUS CHARGES I NCURRED ON BEHALF OF CUSTOMERS AND THAT THE MAIN BUSINESS IS AKIN TO A SERVICE PROVIDE R . IT WAS SUBMITTED THAT THE INCOME OF THE APPELLANT IS FEE BASED RATHER THAN COMPOSITE CH ARGE FOR RENDERING, ON ITS OWN, VARIOUS OPERATIONAL SERVICES. HE EXPLAINED THAT I N MOST OF THE CASES THE APPELLANT FINDS A THIRD PARTY SERVICE PROVIDER WHO RAISES AN INVOIC E ON THE APPELLANT, WHICH IN TURN, PASSED ON TO THE END CUSTOMER, EITHER ON BACK TO BA CK BASIS OR AT THE BEST WITH A TINY MARGIN TO COVER ITS OVERHEAD EXPENSES. THIS PASSI NG ON IS DONE BY MEANS OF AN INVOICE RAISED ON THE END CUSTOMER DETAILING VARIOUS HEADS OF SERVICES AND EACH SUCH CHARGE IS SEPARATELY RECORDED IN THE BOOKS OF ACCOUNT. IN T HE YEAREND FINANCIAL STATEMENTS, ALL THE SAID HEADS ARE BROADLY GROUPED INTO TWO MA JOR GROUPS VIZ., C&F CHARGES AND TRANSPORT CHARGES. THE FACT, HOWEVER, REMAINS THA T MAJOR PART OF THE GROSS RECEIPTS SHOWN IN THE PROFIT AND LOSS A/C IS REIMBURSABLE IN NATURE, AS THE CORRESPONDING EXPENDITURE AT THE FIRST INSTANCE IS INCURRED BY TH E APPELLANT AND THEN PASSED ON TO THE END CUSTOMER . THE AUTHORISED REPRESENTATIVE SUBMITTED THAT UNDER THESE FACTS THE ASSESSING OFFICER SHOULD HAVE EITHER ASSESSED THE TAXABLE PROFIT BASED ON THE GROSS RECEIPTS LESS EXPENDITURE INCUR RED TO EARN THE SAME OR EVEN IN THE CASE OF A FINDING OF UNRELIABILITY OF ACCOUNTS, ESTIMATED INCOME AT A PRESUMPTIVE RATE REASONABLE TO THE APPELLANT'S BUSINESS ON THE NET R ECEIPTS I.E. GROSS RECEIPTS LESS THOSE WHICH ARE IN THE NATURE OF REIMBURSABLE ONES. IT WAS SUBMITTED THAT FOR THE ASSESSMENT YEARS 2004-05, 2005-06, 2006-07, 2007-08 , 2008-09, 2009-10 AND 2010- 11, ABOUT 72.23%, 69.73%, 62.98%, 58.81%, 72.59%, 66.60% AND 63.04% RESPECTIVELY, OF THE GROSS RECEIPTS WERE IN THE NAT URE OF OR MEANT FOR REIMBURSEMENT AND THEREFORE INCLUDING THE SAME IN THE GROSS RECEIPTS FOR ESTIMATION IS NOT CORRECT. HE THEREFORE PLEADED THAT THE GROSS RECEIP TS SHOULD BE RECOMPUTED BY DEDUCTING THE MATCHING EXPENDITURE FOR 'ADOPTING PR ESUMPTIVE RATE OF PROFIT ON A REASONABLE BASIS. 7.5 THE AUTHORISED REPRESENTATIVE ALSO ARGUED THAT THE RATE OF 8%, 8.5%, 9% AND 9.5% SO ADOPTED, IS BY NO STANDARD IS REFLECTIVE OF THE AVERAGE RATE OF PROFIT SPECIFIC TO THE APPELLANT'S INDUSTRY/BUSINESS. HE ALSO SUBMITTE D A FACT SHEET FROM THE WEB SITE 12 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT 'WWW.CAPITALINE.COM', SHOWING THAT THE NET PROFIT I N THE SHIPPING INDUSTRY AVERAGES TO 5.94%, WHILE IN RESPECT OF TRANSPORT INDUSTRY, IT I S 5.83%. ACCORDINGLY, IT WAS CLAIMED THAT THE RATE OF 8% ADOPTED BY THE ASSESSING OFFICE R IS EXORBITANT. 7.6 THE AUTHORISED REPRESENTATIVE OF THE APPELLANT ALSO SUBMITTED A COPY OF THE DECISION OF THE HON'BLE INCOME-TAX APPELLATE TRIBUN AL, VISAKHAPATNAM BENCH DATED 15- 5-2009 IN THE CASE OF PRIYA EXPORT AGENCIES VS. ACI T (ITA NO.200/VIZAG/2006) TO CONTEND THAT IN THE SAID DECISION, WHICH IS SQUAREL Y COMPARABLE TO THE APPELLANT, THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL HAVE PRESCRIB ED THE RATE OF 2.5% FOR C&F BUSINESS. 7.7 BY WAY OF WRITTEN SUBMISSIONS THE AUTHORISED R EPRESENTATIVE OF THE APPELLANT ADDED THAT THE APPELLANT'S BUSINESS HAS INCREASED B Y SIZE AND CAPITAL OVER THE YEARS, RESULTING IN INCREASING OF MARGINS DUE TO ACQUISITI ON OF ASSETS AND INCREASE IN CAPITAL FUNDING. HE HOWEVER CLAIMED THAT HIGHER MARGINS IN THE SUBSEQUENT YEARS CANNOT BE THE BASIS FOR ADOPTION OF HIGHER PROFIT RATE IN THE PRECEDING YEARS ALSO . IT WAS ARGUED THAT THE BUSINESS IS ALSO INFLUENCED BY VARIOUS EXT ERNAL FACTORS LIKE IMPORT AND EXPORT TRADE, CURRENCY FLUCTUATIONS, PRICE OF HSD IN THE T RANSPORT BUSINESS, INDUSTRIAL OUTPUT ETC, WHICH MAY AFFECT THE BUSINESS AND RESULT IN LOWER P ROFITS EVEN IN THE SUBSEQUENT YEARS. THE AUTHORISED REPRESENTATIVE FURNISHED DETAILS SHO WING INCREASE IN INVESTMENT IN FIXED ASSETS OVER THE YEARS, RESULTING IN INCREASE IN TUR NOVER AND THE CAPITAL EMPLOYED. IT WAS AVERRED THAT THE INCREASE IN ASSET BASE AND INVESTM ENT IN WORKING CAPITAL YEAR BY YEAR RESULTED IN INCREASE IN TURNOVER AND CHANGE IN PROF ITABILITY. HE CITED THE DECISION OF THE HON'BFE HIGH COURT OF MADRAS IN THE CASE OF RVS & S ONS DAIRY FARM VS. COMMISSIONER OF INCOME-TAX (257 ITR 764) TO MAKE OUT THAT EACH Y EAR IS AN INDEPENDENT UNIT FOR WHICH THE LIABILITY FOR TAX HAS TO BE DETERMINED, E VEN WHEN THE ASSESSEES A/C BOOKS ARE NOT ACCEPTED. HE ARGUED THAT THE AO ADOPTED THE HI GHER RATE WITHOUT CONSIDERING THE FACTS IN THE APPELLANTS CASE WHERE AS THE ADMISSIO N IN THE COURSE OF SEARCH HAD BEEN MADE BY THE APPELLANT TO COME TO THE FINALITY OF IS SUES AND TO AVOID PROTRACTED LITIGATION ONLY. 13 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT 16. WE NOTICE FROM THE ASSESSMENT ORDER THAT TH E ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY COMPARABLE CASE TO SUPPORT THE ESTIMATE MADE HIM. IN FACT, THE AO PLACED HIS RELIANCE ON THE STATEMENT GIVEN BY THE PARTNER, WHE REIN HE HAD STATED THAT THE PROFIT MARGIN WOULD BE IN THE RANGE OF 6-7% AND FURTHER THE RATE OF PROFIT DECLARED IN AY 2009-10 WORKED OUT TO 9.4% AFTER INCLUDING THE ADDITIONAL INCOME OFFER ED BY THE ASSESSEE. THE MAIN CONTENTION OF THE ASSESSEE WAS THAT HE IS, IN FACT, A SERVICE PRO VIDER AND ACTING AS AGENTS OF HIS CLIENTS, I.E., MAJOR PART OF THE EXPENSES INCURRED BY THE ASSESSEE ARE REIMBURSED BY THE CLIENTS AND HENCE THERE WILL NOT BE ANY MARGIN ON SUCH REIMBURSEMENTS , SINCE THEY ARE RECEIVED MOSTLY ON ACTUAL BASIS. IT IS NOTICED THAT THE ASSESSEE HAS FOLLOWE D THE ACCOUNTING PRACTICE OF ROUTING SUCH EXPENSES ALSO THROUGH THE PROFIT AND LOSS ACCOUNT. THE DETAILS FURNISHED BY THE ASSESSEE BEFORE LD CIT(A) WOULD SHOW THAT ABOUT 60% OF THE G ROSS RECEIPTS CONSISTS OF REIMBURSED ITEMS. EVEN THOUGH THE ASSESSEE CONTENDS THAT THER E IS NO PROFIT ELEMENT ON SUCH REIMBURSEMENTS, YET IT WAS NOT SUBSTANTIATED THROUG H EVIDENCES. HOWEVER, THERE IS SOME MERIT IN SUCH CONTENTIONS. THE PROFIT ELEMENT ON SUCH KI ND OF REIMBURSABLE EXPENSES IS USUALLY LESS AND HENCE WE AGREE WITH THE CONTENTIONS OF THE ASSE SSEE THAT THE PROFIT RATE ADOPTED FOR OTHER RECEIPTS SHOULD NOT BE APPLIED FOR REIMBURSEMENT PO RTION OF RECEIPTS. HENCE ON WEIGHTED AVERAGE PRINCIPLES, THE AVERAGE NET PROFIT RATE ON ENTIRE GROSS RECEIPTS WILL GO DOWN FURTHER. WE ALSO NOTICE THAT THE REVENUE HAS RELIED UPON THE CA SES RELATING TO ESTIMATION IN THE CASE OF CIVIL CONSTRUCTION CONTRACTS, BUT AS CONTENDED BY LD A.R, THEY CANNOT BE APPLIED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. 17. WE NOTICE THAT THE LD CIT(A) HAS ALSO OBSER VED THAT THE AO HAS NOT CITED ANY COMPARABLE INSTANCES. THE LD CIT(A) HAS ALSO NOTED DOWN THAT THE MAJORITY OF GROSS RECEIPTS CONSTITUTES C & F CHARGES, I.E., REIMBURSEMENTS. H E HAS ALSO NOTED THAT THE VISAKHAPATNAM BENCH OF ITAT HAS DETERMINED THE NET PROFIT AT 2.5% IN A CASE NAMED M/S PRIYA EXPORT AGENCIES. FURTHER, THE LD CIT(A) HAS REFERRED TWO OTHER DECISIONS RENDERED BY THE TRIBUNAL (MAA MANGALA TRANSPORT BY CUTTACK BENCH AND SHRI SU BODH PRAKASH BY CHANDIGARH BENCH) IN THE CONTEXT OF ASSESSEES CARRYING ON TRANSPORT BUSI NESS, WHERE IN THE NET PROFIT WAS DETERMINED 14 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT AROUND 4%. BASED ON THE ABOVE JUDICIAL PRECEDENTS, THE ADMISSION MADE BY THE PARTNER, FINANCIAL PERFORMANCE, THE LD CIT(A) SCALED DOWN TH E NET PROFIT RATE AS STATED EARLIER. 18. HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS FAILED TO CONSIDER THE IMPORTANT POINT THAT THE RATE OF NET PROFIT ON REIMBURSEMENTS RECEIVED B Y THE ASSESSEE SHALL BE LOWER. HE HAS ALSO FAILED TO CONSIDER ANOTHER IMPORTANT FACTOR THAT TH E GROSS RECEIPT WAS ABOUT 47 CRORES IN AY 2009-10, WHERE AS IT WAS ONLY ABOUT 6.64 CRORES IN AY 2004-05. FURTHER, IT IS KNOWN FACT THAT THE BUSINESS MEN USUALLY CHARGE LESS IN A COMPETITI VE MARKET IN THE INITIAL YEARS IN ORDER TO ATTRACT CUSTOMERS, WHILE THE SCOPE TO REDUCE EXPENS ES WILL BE MINIMAL. HENCE BOTH THE FACTORS SHALL CUMULATIVELY LEAD TO LESSER RATE OF PROFITS I N THE INITIAL YEARS. IN THE INSTANT CASE, THE ASSESSEE HAS SPECIFICALLY SUBMITTED THAT HE HAS INF USED CAPITAL AND ALSO INCREASED THE ASSET BASE IN THE SUBSEQUENT YEARS, WHICH HAS RESULTED IN FAST INCREASE OF ITS TURNOVER. THE SAID SUBMISSION IS CORROBORATED BY THE FACT THAT THE TUR NOVER OF THE ASSESSEE HAS INCREASED FROM 6.64 CRORES IN AY 2004-05 TO RS.44.56 CRORES IN AY 2010-11. UNDER THE COSTING PRINCIPLES, THE VARIABLE EXPENSES SHALL INCREASE IN PROPORTION TO T HE TURNOVER AND THERE WILL BE ONLY MARGINAL INCREASE IN THE FIXED EXPENSES. HENCE THE PACE OF INCREASE IN THE RATE OF PROFIT WOULD BE HIGHER THAN THE RATE OF INCREASE IN THE TURNOVER. 19. THOUGH WE HAVE UPHELD THE REJECTION OF BOOK S FOR ALL THE YEARS, YET THE FACT REMAINS THAT THE SEARCH OFFICIALS HAVE STUMBLED WITH INCRIMINATI NG MATERIALS RELATING TO THE AY 2008-09 TO 2010-11 ONLY AND NO SPECIFIC MATERIAL RELATING TO T HE EARLIER YEARS WERE FOUND DURING THE COURSE OF SEARCH OR BROUGHT ON RECORD SUBSEQUENTLY. THE R EJECTION OF THE BOOKS OF EARLIER YEARS IS ENTIRELY BASED UPON THE STATEMENT GIVEN BY THE PART NER TO THE EFFECT THAT SUCH PRACTICE IS GENERALLY FOLLOWED IN THE TRADE. WE HAVE ALSO NOTI CED THAT THE ASSESSEE IS, IN EFFECT, ACTING AS AGENT OF ITS CLIENTS AND HENCE, EVEN IF SUCH KIND O F PAYMENTS IS MADE, THE SAME WAS ACTUALLY PAID ON BEHALF OF ITS CLIENTS ONLY. DESPITE THIS F ACT, THE ASSESSEE HAS COME FORWARD TO OFFER ADDITIONAL INCOME IN AY 2008-09 TO 2010-11 FOR THE REASONS BEST KNOWN TO IT. ONE OF THE REASONS, WE COULD VISUALIZE IS THAT THE ASSESSEE, H AVING ROUTED ALL HIS RECEIPTS AND PAYMENTS THROUGH THE PROFIT AND LOSS ACCOUNT, SHOULD HAVE OW NED UP THE RESPONSIBILITY, APPARENTLY TO PROTECT THE INTERESTS OF ITS CLIENT AND MOST IMPORT ANTLY TO PROTECT ITS OWN BUSINESS INTERESTS. 15 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT FURTHER, WE HAVE NOTICED THAT THE ASSESSMENT FOR AY 2004-05 WAS EARLIER COMPLETED U/S 143(3) OF THE ACT BY MAKING ADDITION OF LESS THAN RS.3.00 LAKHS. CONSIDERING ALL THESE FACTORS, IN OUR VIEW, THE ADMISSION OF ADDITIONAL INCOME MADE IN AY 2008-09 TO 2010-11 SHOULD NOT LEAD TO AN INFERENCE THAT THE ASSESSEE HAS BEEN MAKING HIGHER PROFITS ALL THROUGH. 20. IN VIEW OF THE ABOVE, IN OUR VIEW, THE NET PROFIT RATE OF 5% AND 7% ESTIMATED BY THE LD CIT(A) FOR THE YEARS UNDER CONSIDERATION ALSO APPEA RS TO BE HIGH, WHEN WE CONSIDER THE RATE OF NET PROFIT DECLARED BY THE ASSESSEE. AT THE TIME O F HEARING, THE LD COUNSEL SUBMITTED THAT THE DEFICIENCIES, IF ANY, IS AUTOMATICALLY MADE GOOD BY THE ASSESSEE BY OFFERING ADDITIONAL INCOME IN AY 2008-09 TO 2010-11. ACCORDINGLY HE SUBMITTED TH AT THE NET PROFIT RATE DECLARED BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED FOR THE EARLIER YEARS. HOWEVER, THE SAID CONTENTIONS CANNOT BE ACCEPTED, SINCE WE HAVE UPHELD THE REJECT ION OF BOOK RESULTS AND HENCE THE NET PROFIT IS REQUIRED TO BE ESTIMATED. HOWEVER, IN VIEW OF T HE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE RATE OF NET PROFIT SHOULD BE DETERMINED BY CONSIDERING THE NET PROFIT RATE DECLARED BY THE ASSESSEE FOR THE EARLIER YEARS, WHICH SHALL BE MODIFIED TO TAKE CARE OF OR TO COVER UP THE DEFICIENCIES. FROM THE CHART FURNISHED BY THE ASSE SSEE, WE NOTICE THAT THE RATE OF NET PROFIT DECLARED BY THE ASSESSEE BEFORE PARTNERS REMUNERAT ION AND INTEREST WORK OUT TO 1.46%, 3%, 3.46% AND 6.83% RESPECTIVELY FOR AY 2004-05, 2005-0 6, 2006-07 AND 2007-08. ACCORDINGLY, IN OUR VIEW, THE RATE OF NET PROFIT MAY BE ADOPTED @ 2 .5%, 3.5%, 4% AND 7% RESPECTIVELY FOR AY 2004-05, 2005-06, 2006-07 AND 2007-08. WE ORDER AC CORDINGLY. 21. FOR ASSESSMENT YEARS 2008-09 TO 2010-11, THE ASSESSEE HAS OFFERED ADDITIONAL INCOME TO COVER UP THE DEFICIENCIES NOTICED DURING THE COU RSE OF SEARCH. SINCE THE BOOK RESULTS HAVE BEEN REJECTED, THE AO ESTIMATED THE NET PROFIT FOR THESE THREE YEARS @ 9%, 9.5% AND 9.5% RESPECTIVELY AND MADE THE ADDITION OF EXCESS AMOUNT , I.E., THE INCOME SO ESTIMATED LESS THE INCOME RETURNED BY THE ASSESSEE IN 153A RETURN. TH E ASSESSEE HAD INCLUDED THE INCOME ADMITTED BY IT IN THE RETURN FILED BY IT U/S 153A O F THE ACT. HOWEVER, THE LD CIT(A), WHILE SCALING DOWN THE NET PROFIT RATE FOR THESE YEARS TO 7%, HELD THAT THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE SHOULD BE ASSESSED SEPARATELY. THE ASSESSEE IS OBJECTING TO THE SAME. THE CONTENTION OF THE ASSESSEE IS THAT THE ADDITIONAL I NCOME WAS OFFERED BY IT TO COVER UP THE 16 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT DEFICIENCIES ONLY AND THE BOOK RESULTS ARE ALSO REJ ECTED WITH THE OBJECTIVE OF ARRIVING AT CORRECT AMOUNT OF PROFIT. THUS, ACCORDING TO THE ASSESSEE, BOTH THE METHODS DISCUSSED ABOVE ARE ONLY TWO DIFFERENT METHODS OF ARRIVING AT CORRECT AMOUNT OF PROFITS. ACCORDINGLY, IT WAS SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN DIRECTING T HE AO TO ASSESS THE ADDITIONAL INCOME SEPARATELY OVER AND ABOVE THE NET PROFIT ESTIMATED BY HIM AND THE SAME DEFEATS THE VERY PURPOSE OF ESTIMATION. THOUGH THE LD D.R STRONGLY SUPPORTED THE ORDER OF LD CIT(A), YET HE COULD NOT CONTRADICT THE REASONING GIVEN BY THE LD A.R. 22. WE FIND MERIT IN THE CONTENTIONS OF LD A.R. SINCE THE OBJECTIVE OF OFFERING ADDITIONAL INCOME AND ESTIMATION OF PROFIT BY REJECTING THE BO OK RESULTS IS THE SAME, THEY CONSTITUTE TWO DIFFERENT METHODS OF ARRIVING AT THE TOTAL INCOME. HENCE, ADOPTION OF BOTH THE METHODOLOGIES MIGHT RESULT IN DOUBLE ASSESSMENT OF SAME INCOME. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO ASS ESS THE ADDITIONAL INCOME SURRENDERED BY THE ASSESSEE OVER AND ABOVE THE INCOME ESTIMATED BY HIM . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND HOLD THAT THE ADDITIONA L INCOME SURRENDERED BY THE ASSESSEE AND ALSO THE INCOME RETURNED BY THE ASSESSEE SHOULD BE TELESCOPED AGAINST THE NET PROFIT ESTIMATED BY THE ASSESSEE, MEANING THEREBY THE ADDITION SHOUL D BE RESTRICTED OVER AND ABOVE THE AMOUNT OF INCOME RETURNED AND SURRENDERED BY THE ASSESSEE. 23. THE NEXT ISSUE URGED BY THE ASSESSEE RELATE S TO THE CLAIM FOR DEDUCTION OF DEPRECIATION. BOTH THE TAX AUTHORITIES HAVE REJECTED THE SAME. T HE CONTENTION OF THE ASSESSEE IS THAT THE DEPRECIATION ALLOWANCE IS A STATUTORY DEDUCTION PRO VIDED UNDER THE ACT AND AS PER THE CBDT CIRCULAR ALSO, IT SHOULD BE ALLOWED SEPARATELY. TH E LD D.R, HOWEVER, CONTENDED THAT THE ESTIMATE OF NET PROFIT MADE SHOULD BE CONSIDERED AS HAVING BEEN MADE NET OF ALL DEDUCTIONS INCLUDING DEPRECIATION AND HENCE THERE IS NO REQUIR EMENT OF ALLOWING DEPRECIATION SEPARATELY. 24. ON CONSIDERATION OF RIVAL CONTENTIONS, WE FI ND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. THE CAPITAL EXPENDITURE INCURRED IS NOT ALLOWED AS DEDUCTION, BUT THE DETERIORATION IN THEIR VALUE IS ALLOWED AS DEDUCTION WITH THE NAME DEPRECIATION. HENCE, IT IS CALLED NON-CASH EXPENDITURE AND ALSO CALLED STATUTORY DEDUCTION. W HILE ESTIMATING THE INCOME, THE TRADING 17 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT RESULTS ONLY ARE ESTIMATED ON THE BASIS OF SALES/GR OSS RECEIPTS, MEANING THEREBY, WHAT IS ESTIMATED IS ONLY THE NET PROFIT BEFORE ALLOWING AN Y NON-CASH EXPENDITURE/STATUTORY DEDUCTIONS. FURTHER, THE QUANTUM OF DEPRECIATION WOULD ALSO DEP END UPON THE VALUE OF ASSETS. FOR EXAMPLE, A BUSINESS MAN HAVING LOWER VERSION OF CAR OR AIR CONDITIONER WOULD BE ENTITLED TO CLAIM LOWER AMOUNT OF DEPRECIATION, SINCE THE COST OF THE LOWER VERSION OF CAR AND AIR CONDITIONER WILL BE LESS. WHEREAS ANOTHER BUSINESS MAN HAVING HIGHER VERSION OF CAR AND AIR CONDITIONER WOULD GET HIGHER AMOUNT OF DEPRECIATION , SINCE THE COST OF THOSE ASSETS SHALL BE HIGHER. HENCE, EVEN IF THE LEVEL OF OPERATIONS AND OTHER THINGS ARE EQUAL BETWEEN THE TWO, THE DEPRECIATION AMOUNT WILL BE DIFFERENT DUE TO THE DI FFERENCE IN THE VALUE OF ASSETS. HENCE THE TOTAL INCOME SHALL ALSO RESULT IN DIFFERENT FIGURES BETWEEN THE TWO BUSINESS MEN. THE ABOVE SAID ILLUSTRATION WOULD SUPPORT THE CONTENTIONS OF THE ASSESSEE THAT THE DEPRECIATION SHOULD BE ALLOWED SEPARATELY. ACCORDINGLY, WE DIRECT THE AO TO ALLOW THE DEPRECIATION ADMISSIBLE TO THE ASSESSEE AGAINST THE INCOME ESTIMATED BY US IN THE PRECEDING PARAGRAPHS. 25. THE NEXT CONTENTION OF THE ASSESSEE IS THAT IT WAS USING ITS VEHICLES FOR TRANSPORT PURPOSES AND HENCE THE VEHICLES ARE ENTITLED FOR HI GHER RATE OF DEPRECIATION. SINCE THE CONTENTIONS URGED BY THE ASSESSEE REQUIRE FACTUAL V ERIFICATION, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO, WHO SHALL EXAMINE THE CLAIM OF THE ASSES SEE AFRESH AND SHALL TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 26. THE REVENUE HAS OBJECTED TO THE DECISION O F LD CIT(A) IN ALLOWING THE DEDUCTION FOR REMUNERATION AND INTEREST PAYABLE TO THE PARTNERS B Y DRAWING SUPPORT FROM THE DECISION RENDERED BY HONBLE A.P. HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT (232 ITR 776). WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE DECIS ION RENDERED BY THE TRIBUNAL IN THE FOLLOWING CASES, WHEREIN THE TRIBUNAL, BY DULY CONS IDERING THE DECISION RENDERED IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA), HAS COME TO THE CONC LUSION THAT THE REMUNERATION AND INTEREST PAYABLE TO THE PARTNERS SHALL BE ALLOWED AGAINST TH E INCOME ESTIMATED:- (A) ACIT VS. M/S K.SATYANARAYANA (ITA NOS. 1150 & 1151/HYD/2012 DATED 7.11.2012 (B) M/S C. EASWAR REDDY (ITA NO.668/HYD/2009). 18 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT FURTHER, FROM THE STATEMENT OF FACTS FILED BY THE A SSESSEE BEFORE THE LD CIT(A), WE NOTICE THAT THE ASSESSING OFFICER HAS ASSESSED THE REMUNERATION AND INTEREST IN THE HANDS OF THE PARTNERS, EVEN THOUGH IT WAS NOT ALLOWED AS DEDUCTION IN THE HANDS OF THE ASSESSEE FIRM. UNDER THESE SET OF FACTS, WE DO NOT FIND ANY INFIRMITY IN THE D ECISION OF LD CIT(A) IN DIRECTING THE AO TO ALLOW THE DEDUCTION FOR REMUNERATION AND INTEREST PAYABLE TO THE PARTNERS. 27. THE ASSESSING OFFICER IS DIRECTED TO COMP UTE THE TOTAL INCOME OF ALL THE YEARS UNDER CONSIDERATION IN ACCORDANCE WITH THE DECISION RENDE RED BY US ON VARIOUS ISSUES IN THE PRECEDING PARAGRAPHS. HOWEVER, IF THE INCOME SO ARRIVED AT FO R ANY OF THE YEARS WORKS OUT TO LESS THAN THE INCOME RETURNED OR ALREADY ASSESSED IN THAT YEAR, T HEN THE TOTAL INCOME SHALL BE DETERMINED AT THE LEVEL OF RETURNED/ALREADY ASSESSED INCOME, SINC E THE ASSESSED INCOME SHOULD NOT RESULT LOWER THAN THE RETURNED INCOME/OR INCOME ALREADY AS SESSED. 28. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 15/09/2015. SD/- SD/- (D.MANMOHAN) (B.R.BASKARAN) VICE PRESIDENT ACCOUNTANT MEMBER DATED 15/09/2015 B.K.PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE REVENUE: DCIT, CENTRAL CIRCLE-2, PRATHYAKSHAKAR BHAVAN, MVP DOUBLE ROAD, OPP: RYTU BAZAR, VISAKHAPATNAM 2. THE ASSESSEE: SRIVALLI SHIPPING TRANSPORT, 2 ND FLOOR, SRI SATYASAI BUILDINGS, OPP: HARBOUR GATE, VISAKHAPATNA M 3. THE CIT(A)-1, HYDERABAD 4. CIT (CENTRAL) HYDERABAD 5. DR, ITAT, VISHAKHAPATNAM 6. /GUARD FILE. BY ORDER //TRUE COPY//