M/s. Rajendra & Co., Baroda V. The Income tax Officer,Ward-2(2), Baroda

ITA 955/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0093 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-08-2010
• Assessment Year: 1993-1994
• Appeal Filed On: 13-03-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M K PATEL
• Keywords: Rejection of books of accounts; Depreciation
• Section: 44AD; 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABA D (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE S HRI N.S. SAINI, A.M.) I.T.A. NO. 955/AHD./2008 ASSESSMENT YEAR : 1993-1994 M/S. RAJENDRA PATEL & CO., BARODA -VS.- INCOME TAX OFFICER, WARD-2(2), BARODA (PAN : AACFP 0297 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.K. PATEL RESPONDENT BY : SHRI K.M. MAHESH, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 03.12.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, BARODA FOR THE ASSESSMENT YEAR 1993-94. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM. IN THIS CASE, THE ASSESSEE WAS FRAMED UNDER SECTION 143(3) ON 25.03.1996, WHEREIN THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE INCOME BY APPLYING THE N ET PROFIT @ 8% AS PROVIDED IN SECTION 44AD OF THE INCOME TAX ACT, 1961. ON APPEAL, ITAT, A B ENCH, AHMEDABAD IN ITA NO. 3240/AHD/1996 WITH C.O. NO. 400/AHD/1999 VIDE ORDER DATED 20.01.2006 DIRECTED THE ASSESSING OFFICER TO ADOPT NET PROFIT RATE OF 7%. I N THIS ORDER, THE TRIBUNAL HAS ALSO HELD THAT SINCE N.P. IS ESTIMATED, NO DISALLOWANCE CAN BE MAD E BY INVOKING THE PROVISIONS CONTAINED IN SECTION 40A(3) OF THE INCOME TAX ACT, 1961. THE ASS ESSING OFFICER ALLOWED THE APPEAL EFFECT TO THE SAID ORDER VIDE ORDER DATED 10.07.2006. 3. AGGRIEVED WITH THE ORDER OF ASSESSING OFFICER UN DER SECTION 254, THE ASSESSEE FILED AN APPEAL, WHEREIN IT WAS CONTENDED THAT ASSESSING OFF ICER BE DIRECTED TO ALLOW DEPRECIATION. THIS PLEA OF THE ASSESSEE IS REJECTED FOR THE DETAILED R EASONS GIVEN IN PARA 3.3 OF THE IMPUGNED ORDER, WHICH READS AS UNDER :- 3.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE COUN SEL AND FACTS OF THE CASE. APPELLANT HAS CLAIMED DEPRECIATION IN THE COM PUTATION OF INCOME RS.61,666/- SINCE THE NET PROFIT WAS ARRIVED AT AS PER BOOKS OF ACCOUNTS. 2 ITA NO. 955/AHD/2008 HOWEVER, HON'BLE TRIBUNAL REJECTED THE BOOKS OF ACC OUNTS AND ESTIMATED THE NET PROFIT AT 7% OF GROSS RECEIPTS. S INCE THE NET PROFIT WAS ESTIMATED @ 7% WHICH MEANS ALL THE EXPENSES AND DED UCTIONS ARE DEEMED TO HAVE BEEN ALLOWED WHICH ALSO INCLUDES DED UCTION U/S. 32. SINCE WHAT IS TAXED BY THE ASSESSING OFFICER IS 7% OF THE GROSS PROFIT I.E. RS.2,48,255/-. FURTHER, DEDUCTION OF RS.61,666 /- ON ACCOUNT OF DEPRECIATION IS NOT CALLED FOR. THE APPELLANT CLAIM ED DEPRECIATION ON THE GROUND OF CBDT CIRCULAR WHICH HAS BEEN FOLLOWED IN THE DECISION REFERRED BY HIM. HOWEVER, THE SAID CBDT CIRCULAR RE LATES TO ESTIMATION OF GROSS PROFIT. OUT OF ESTIMATION OF GR OSS PROFIT, DEPRECIATION WILL DEFINITELY BE ALLOWED. HOWEVER, W HEN THE NET PROFIT IS ESTIMATED, FURTHER DEDUCTION ON ACCOUNT OF DEPRECIA TION IS NOT AS PER THE PROVISIONS OF THE ACT. THE DECISION RELIED UPON BY THE APPELLANT ARE BASED ON THE CBDT CIRCULAR ISSUED IN THIS CONTEXT. DEDUCTION ON ACCOUNT OF DEPRECIATION IS NOT ALLOWABLE FROM THE N ET PROFIT ESTIMATED. IF THE ESTIMATION OF INCOME WOULD HAVE BEEN OF GROS S PROFIT, THE APPELLANTS CLAIM WOULD HAVE BEEN JUSTIFIED. HOWEVE R, SINCE THE NET INCOME FROM THE CONTRACT BUSINESS WAS ESTIMATED, CL AIM OF DEPRECIATION AGAIN OUT OF SUCH INCOME IS NOT ALLOWABLE. ACCORDIN GLY, THE APPELLANTS CLAIM OF RS.61,666/- IS REJECTED. 4. THE OTHER GROUND TAKEN BEFORE THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) WAS THAT OPENING STOCK SHOULD BE TAKEN AT RS.12,14,693/ - INSTEAD OF RS.10,02,267/-. THIS PLEA OF THE ASSESSEE WAS ALSO REJECTED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER FOR THE DETAILED REASONS GIVEN IN PARA 4.1, W HICH READS AS UNDER :- 4.1. THE GROUND OF STOCK VARIATION WAS NEVER TAKEN UP AT ANY STAGE AND ASSESSING OFFICER MENTIONED THAT ON VERIFICATIO N OF CASE RECORDS THE APPELLANTS CLAIM WAS NOT FOUND TO BE CORRECT. THE OPENING STOCK WAS TAKEN AS PER THE ORIGINAL ASSESSMENT ORDER. IN PARA 5.4 OF PAGE 5 OF ORIGINAL ASSESSMENT ORDER, IT IS MENTIONED THAT OPE NING STOCK INCLUDES RS.10,02,267/- AS BILLS RECEIVABLE OLD CONTRACT REL ATING TO CONSTRUCTION OF 672 RESIDENTIAL QUARTERS. THE SAID AMOUNT WAS D EDUCTED WHILE GIVING EFFECT TO THE ITATS ORDER AND THEREFORE THE RE WAS NO MISTAKE IN ORDER GIVING APPEAL EFFECT. FURTHER IT WAS CLARIFIE D TO APPELLANTS COUNSEL THAT THIS GROUND WAS NEVER TAKEN UP AT ANY STAGE SINCE THE ASSESSMENT ORDER WAS MADE. IN THE ORDER OF HON'BLE ITAT ALSO, THERE IS NO DISCUSSIONS OF THIS ISSUE AND THEREFORE, THE REL IEF CLAIMED AT THIS STAGE IS NOT ENTERTAINABLE. IN VIEW OF THE SAME, TH IS GROUND DOES NOT SURVIVE. 5. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E THE TRIBUNAL ON THE FOLLOWING GROUNDS :- 3 ITA NO. 955/AHD/2008 (1) THE CIT(A.) HAS ERRED IN NOT ALLOWING DEPRECIAT ION OF RS.61,666/- AS CLAIMED BY THE APPELLANT AGAINST THE NET INCOME DET ERMINED BY THE INCOME TAX OFFICER. IT IS SUBMITTED THAT IN ARRIVING AT TOTAL INCOME AN D NET PROFIT U/S. 44AD WHICH IS OTHERWISE NOT APPLICABLE TO THE FACTS OF T HE CASE DEPRECIATION HAS TO BE ALLOWED IT BEING A CHARGE BEFORE ARRIVING AT TAXABLE INCOME. (2) THE CIT(A.) HAS ERRED IN TAKING OPENING STOCK A T RS.10,02,267/- INSTEAD OF THE CORRECT FIGURE OF RS.12,14,693/- WHICH IS SU PPORTED BY BOOKS OF ACCOUNTS AND OTHER EVIDENCE. IT IS SUBMITTED BY YOUR APPELLANT THAT AS PER AUDIT ED BOOKS OF ACCOUNTS THE OPENING STOCK OF RS.12,14,693/- OUGHT TO HAVE BEEN ACCEPTED AS CLAIMED BY THE APPELLANT. 6. AT THE TIME OF HEARING, ON BEHALF OF ASSESSEE SH RI M.K. PATEL, LD. COUNSEL APPEARED AND RELYING ON THE JUDGMENT OF THE HON'BLE RAJASTHAN HI GH COURT IN THE CASE OF CIT VS.- JAIN CONSTRUCTION CO. REPORTED IN 245 ITR 527 CONTENDED THAT ASSESSING OFFICER BE DIRECTED TO ALLOW THE DEPRECIATION AS ADMISSIBLE UNDER THE RULES ON A SSET USED IN THE BUSINESS. 7. ON THE OTHER HAND, SHRI K.M. MAHESH, LD. SR. D.R . APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. D.R. SUBMITTED THAT THE ASSESSING OFFICER MERELY ALLOWED THE APPEAL EFFECT TO THE ORDER OF TRIBUNAL DATED 20.01.2006 IN ITA NO. 3240/AHD/1996 WITH C.O. NO. 400/AHD/1999. IN THAT TRIBUNALS ORDER, THERE WAS NO SUCH DIRECTION TO ALLOW THE DEP RECIATION. THEREFORE, THE VIEW TAKEN BY BOTH THE DEPARTMENTAL AUTHORITIES BELOW BE UPHELD. 8. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE PR EFERRED AN APPEAL AGAINST THE ORDER GIVING APPEAL EFFECT TO THE ORDER OF TRIBUNAL DATED 20.01.2006. I N THE SAID ORDER, THERE WAS NO DIRECTION TO ALLOW DEPRECIATION. THEREFORE, WE INCLINE TO UPHOLD THE O RDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 9. COMING TO THE GROUND NO. 2 OF THIS APPEAL, AFTER HEARING BOTH THE SIDES, WE ARE CONVINCED THAT FINAL INCOME IS ESTIMATED BY APPLYING NET PROF IT RATE OF 7%. THE GROUND NOW TAKEN IS NOT 4 ITA NO. 955/AHD/2008 ARISING FROM THE ORDER GIVING APPEAL EFFECT TO THE ORDER OF TRIBUNAL. THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS FAIR AND REASONABLE. RESULTANTLY, GROUND NO. 2 OF THIS APPEAL IS REJECTED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 27.08.201 0 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27/ 08 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.