ITO, SRIGANGANAGAR V. M/s. National Enterprises, SRIGANGANAGAR

ITA 93/JODH/2013

• Counselvise Citation: 9323314 RSA 2013
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 28-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Depreciation
• Section: 145

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 93/JODH/2013 (A.Y. 2008-09) ITO, WARD NO.2, VS. M/S. NATIONAL ENTERPRISES SRIGANGANAGAR. SRIGANGANAGAR, 30/4-5-6, EKTA COLONY, SRIGANGANAGAR. PAN NO. AAEFN9352L ASSESSEE BY : NONE DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 23/08/2013. DATE OF PRONOUNCEMENT : 26/08/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER OF LD. CIT (A), BIKANER DATED 21/12/2012. DURING THE COURSE O F HEARING NEITHER ANYBODY WAS PRESENT ON BEHALF OF THE ASSESSEE NOR A DJOURNMENT WAS SOUGHT. THEREFORE, WE DECIDED THE APPEAL OF THE DE PARTMENT EXPARTE QUA THE ASSESSEE ON MERITS AFTER HEARING THE LD. D.R. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN 1. DELETING ADDITION OF RS. 11,50,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FRESH DEPOSITS BY THE PARTNERS. 2. DIRECTING TO APPLY NP RATE OF 8% SUBJECT TO CLAI M OF DEPRECIATION, INTEREST AND REMUNERATION TO PARTNERS AGAINST NP RA TE APPLIED BY THE ASSESSING OFFICER OF 12.5%. 2 FIRST ISSUE IN THIS APPEAL RELATES TO THE DELETION OF ADDITION OF RS. 11,50,000/- MADE BY THE AO ON ACCOUNT OF FRESH DEPO SITS BY THE PARTNERS. 3. FACTS OF THE CASE RELATING TO THIS ISSUE IN BRIEF ARE THAT AO MADE AN ADDITION OF RS. 11,50,000/- ON ACCOUNT OF FRESH DEPOSITS BROUGHT IN BY THE PARTNERS, BY TREATING THE SAME AS UNEXPLAINE D DEPOSITS. THE AO OBSERVED THAT ASSESSEE HAD NOT BEEN ABLE TO GET VER IFICATION OF THE FRESH DEPOSITS MADE BY THE PARTNERS DURING THE YEAR . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O LD. CIT(A) AND SUBMITTED THAT ASSESSEE IS A NEWLY CONSTITUTED FIRM AND HAD NO PREVIOUS HISTORY. IT WAS FURTHER STATED THAT HOW A N ASSESSEE CAN EARN SUCH A HUGE PROFIT WITHOUT THERE BEING BIRTH OF THE ASSESSEE, WHICH IS IMPOSSIBLE AND CANNOT HAPPEN. IT WAS EXPLAINED TH AT THE INITIAL CAPITAL BROUGHT INTO BY THE PARTNERS WITH A FIRM WA S NOT THE INCOME OF THE ASSESSEE-FIRM AND IT WAS NOT A CASE THAT FIRM H AD EARNED PROFIT OUTSIDE THE BOOKS OF ACCOUNTS AND INTRODUCED THE SA ME IN THE FIRM AS 3 CAPITAL INTRODUCED BY THE PARTNERS. THE RELIANCE W AS PLACED ON THE FOLLOWING CASES:- 1) CIT VS. JAISWAL MOTORS FINANCE (1983) 37 CTR (ALL) 217. 2) CIT VS. ANUPAM UDHYOG (1983) 35 (PATNA) 12. 3) CIT VS. G.K. CONTRACTORS (XLI TW 111). 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE OBSERVED THAT 03 PARTNERS OUT OF THE 05 NAMELY SHRI SANJEEV CHAHAL, SHRI SUBHASH CHAHAL AND SHRI RAJKUMAR WERE ASSESSE D TO TAX PREVIOUSLY AND REST OF THE 02 PARTNERS SHRI AMIT KUMAR AND SHR I OM VEER SINGH WERE AGRICULTURISTS AND THE ASSESSEE FURNISHED ALL THE EVIDENCES TO SUPPORT HIS ARGUMENT. HE FURTHER OBSERVED THAT AO HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT CAPITAL INTRODU CED, IN FACT WAS THE PROFIT OF THE ASSESSEE AND THAT THE ASSESSEE-FIRM H AD COME INTO EXISTENCE IN THIS YEAR AND WAS NOT HAVING ANY PREVI OUS HISTORY. THEREFORE, THE CAPITAL INTRODUCED COULD NOT BE HELD TO BE THE INCOME OF THE ASSESSEE. RELIANCE WAS PLACED ON THE JUDGME NT OF HON'BLE JURISDICTION OF HIGH COURT IN THE CASE OF CIT VS. G.K. CONTRACTORS (XLI TW 111) . THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO. NOW, THE DEPARTMENT IS IN APPEAL. 5. LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE AO. AFTER CONSIDERING THE SUBMISSIONS OF LD. D.R. AND THE MAT ERIAL AVAILABLE ON 4 RECORD, IT IS NOTICED THAT IT WAS THE FIRST YEAR OF BUSINESS OF THE ASSESSEE AND EACH OF THE 05 PARTNERS INTRODUCED THE IR CAPITAL AMOUNTING TO RS. 2,30,000/- EACH TOTALING TO RS. 11 ,50,000/-, THE AO CONSIDERED THE SAME AS UNDISCLOSED INCOME OF THE AS SESSEE, WHICH WAS DELETED BY THE CIT(A). IN OUR OPINION, THE INITIAL CAPITAL INTRODUCED BY THE PARTNERS CANNOT BE CONSIDERED AS UNDISCLOSED IN COME OF THE ASSESSEE AND IF AO WAS NOT SATISFIED AT THE MOST, T HE ADDITION COULD HAVE BEEN MADE IN THE HANDS OF THE INDIVIDUAL PARTN ERS, BUT IT COULD NOT BE HELD AS UNDISCLOSED INCOME OF THE ASSESSEE B ECAUSE IT IS NOT ONLY DIFFICULT BUT IMPOSSIBLE TO EARN SOMETHING BEF ORE STARTING THE BUSINESS AND THE ASSESSEE-FIRM STARTED THE BUSINESS IN THIS YEAR ONLY WITH THE IMPUGNED AMOUNT OF CAPITAL INTRODUCED BY T HE PARTNERS. WE, THEREFORE ARE OF THE CONFIRMED VIEW THAT THE LD. CI T(A) RIGHTLY DELETED THE ARBITRARY ADDITION MADE BY THE AO. 6. THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO THE A PPLICATION OF NET PROFIT (NP) AT 8% SUBJECT TO CLAIM OF DEPRECIATION, INTEREST AND REMUNERATION TO THE PARTNERS AGAINST NP RATE APPLIE D BY THE AO AT 12.5%. 7. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T AO MADE AN ADDITION OF RS. 10,16,507/- BY ESTIMATING THE NP RA TE OF 12.5% SUBJECT 5 TO INTEREST AND REMUNERATION TO THE PARTNERS ON GRO SS CONTRACT RECEIPTS AS AGAINST DECLARED NP RATE OF 3.98%. THE AO IN WA NT OF BOOKS OF ACCOUNTS ETC. INVOKED THE PROVISIONS OF SECTION 145 (3) OF I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS ACT, FOR SHORT) AND R EJECTED THE BOOKS OF ACCOUNTS. CONSEQUENTLY, ESTIMATED INCOME OF ASSESS EE WHILE DOING SO THE AO RELIED UPON THE JUDGMENT M/S. JAIN CONSTRUCTION CO. VS. THE DCIT (210 ITR 438) RENDERED BY THE HON'BLE RAJASTHAN HIGH COURT. 8. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO LD. CIT(A) AND FAIRLY CONCEDED THE INVOCATION OF PROVISIONS CO NTAINED IN SECTION 145(3) OF THE ACT, BUT CHALLENGED THE APPLICATION O F NP RATE OF 12.50% BY ARGUING THAT THE PROPER INCOME COULD BE DEDUCED FROM THE AUDITED FINANCIAL STATEMENTS AND THAT THE ASSESSEE WAS A NE WLY CONSTITUTED, WHICH CAME INTO EXISTENCE IN THIS YEAR ONLY AND THI S WAS A MAIDEN EXPERIENCE OF THE PARTNERS. HENCE, FIRST TIME, THE PARTNERS OF THE FIRM HAD HANDLED SUCH VOLUME OF CONTRACT BUSINESS. THER EFORE, IN THESE CIRCUMSTANCES MUCH LESS EXPERIENCE HAD PUT UNTOLD B URDEN ON CONTROLLING THE EXPERIENCE. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE UPHELD THE ACTION OF AO FOR REJECTING THE BOOKS OF ACCOUNTS BY APPLYING THE PROVISIONS OF SECTION 145(3) OF THE ACT. HE FU RTHER OBSERVED THAT THE RATIO DECIDENDI OF THE CASE M/S. JAIN CONSTRUCTION CO. (SUPRA) WAS 6 ON THE DIFFERENT FOOTING BECAUSE IN THAT CASE ONLY LAW POINT OF ALLOWING DEPRECIATION ALLOWANCE SEPARATELY AFTER APPLYING NP RATE WAS BEFORE THE HON'BLE HIGH COURT, BUT NO WAY THE ISSUE OF NP RATE WAS DECIDED. LD. CIT(A) WAS OF THE VIEW THAT THE BASE TAKEN BY T HE AO FOR APPLYING THE NP RATE OF 12.5% ON THE BASIS OF JUDGMENT IN M/ S. JAIN CONSTRUCTION CO. (SUPRA) WAS NOT CORRECT. THE LD. CIT(A) CONSID ERED IT FAIR AND REASONABLE TO APPLY NP RATE OF 8% SUBJECT TO INTERE ST AND REMUNERATION TO THE PARTNERS ON GROSS CONTRACT RECEIPT. NOW, DE PARTMENT IS IN APPEAL. 9. LD. D.R. REITERATED THE OBSERVATIONS MADE BY T HE AO AND FURTHER SUBMITTED THAT BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT SUBJECT TO VERIFICATION, THEREFORE, THOSE WERE RIGHTLY REJECTED AND THE AO WAS JUSTIFIED IN APPLYING NP RATE OF 12. 5%. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. D.R. AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE AO WHILE APPLYING THE NP RATE OF 12.5% SIMPLY STATE D THAT THE SAID PERCENTAGE IS SO APPLIED IN THE CASE OF M/S. JAIN C ONSTRUCTION CO. (SUPRA), HOWEVER, LD. CIT(A) CATEGORICALLY STATED T HAT THE CASE RELIED BY THE AO WAS ON THE DIFFERENT FOOTING BECAUSE IN T HAT CASE THE ISSUE BEFORE THE HON'BLE JURISDICTION OF HIGH COURT WAS R ELATED TO THE POINT OF ALLOWING DEPRECIATION ALLOWANCE SEPARATELY AFTER APPLYING THE NP 7 RATE. THEREFORE, THE BASIS ADOPTED BY THE AO FOR A PPLYING THE NP RATE OF 12.5% WAS NOT CORRECT. IN THE INSTANT CASE, THE AO HAS NOT DISCUSSED ANY COMPARABLE CASE WHEREIN IN SIMILAR BUSINESS HAV ING IDENTICAL FACTS THE NP RATE WAS EARNED AT 12.5%. IN OUR OPINION, T HE LD. CIT(A) CONSIDERING THIS FACT THAT THERE WERE DISCREPANCIES IN THE BOOKS OF ACCOUNTS WHICH WERE REJECTED U/S 145(3) OF THE ACT AND IT WAS FIRST YEAR OF THE ASSESSEES BUSINESS WAS FAIR AND REASON ABLE TO DIRECT THE AO FOR APPLYING THE NP RATE OF 8% INSTEAD OF 3.95% SHOWN BY THE ASSESSEE SUBJECT TO INTEREST AND REMUNERATION TO TH E PARTNERS AND DEPRECIATION ON THE GROSS CONTRACT RECEIPTS. WE, T HEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL . 11. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. (ORDER PRONOUNCED IN THE COURT ON 26 TH AUGUST, 2013). (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH AUGUST, 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.