Devendra Vishnoi, JODHPUR V. Addl. CIT, JODHPUR

ITA 98/JODH/2013

• Counselvise Citation: 9823314 RSA 2013
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Business income; 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. 98/JODH/2013 (A.Y. 2009-10) DEVENDRA VISHNOI, VS. ACIT, RANGE 3 RD , M/S. DAVENDRA CONSTRUCTION CO., JODHPUR. JODHPUR. PAN NO. ABUPV2765L ASSESSEE BY : SHRI RAJENDRA JAIN DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 22/08/2013. DATE OF PRONOUNCEMENT : 26/08/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R OF LD. CIT (A), JODHPUR DATED 24/01/2013. THE FOLLOWING GROUNDS HA VE BEEN RAISED IN THIS APPEAL: 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE NP RATE OF 7.00% SUBJECT TO DEPRECIATION AND INTEREST TO THIRD PARTIES ON TOTAL WORK RECEIPT AS AGAINST THE NP RATE OF 12.50% APPLIED BY AO. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN SUSTAINING THE ADDITION MADE BY THE LD. AO BY TREATING THE FDR INTEREST AS INCOME FROM OTHER SOURCES. 2 3. THAT THE PETITIONER MAY KINDLY BE PERMITTED TO R AISE ANY ADDITIONAL OR ALTERNATIVE GROUND AT OR BEFORE THE TIME OF HEAR ING. 4. THE PETITIONER PRAYS FOR JUSTICE & RELIEF. 2 THE GROUNDS NO.3 & 4 ARE GENERAL IN NATURE, SO DO NOT REQUIRE ANY COMMENT ON OUR PART. WHILE GROUND NO.1 RELATES TO NP RATE SUSTAINED AT 7% SUBJECT TO THE DEPRECIATION AND INTEREST TO T HE THIRD PARTIES. 3. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT ASSE SSEE FILED RETURN OF INCOME ON 30/09/2009 DECLARING TOTAL INCOME OF R S. 79,36,130/-, WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE IT ACT 1961 (HEREINAFTER REFERRED TO AS ACT, FOR SHORT) ON 05 /08/2010. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THERE WAS A DECLIN E IN THE GP RATE SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION IN COMPARISON TO THE EARLIER YEARS. HE POINTED OUT TH AT GP RATE FOR THE YEAR UNDER CONSIDERATION WAS AT 5.62% WHILE IN THE EARLIER YEARS I.E. FINANCIAL YEAR 2007-08 AND 2006-07, IT WAS AT 6.2% AND 9.29% RESPECTIVELY. THE AO POINTED OUT THAT THE EXPENDIT URE CLAIMED BY THE ASSESSEE UNDER VARIOUS HEADS COULD NOT BE GOT VERIF IED WITH THE SUPPORT OF PROPER VOUCHERS, NOR MONTH-WISE DETAILS OF EXPEN DITURE WERE FURNISHED. HE ALSO POINTED OUT THAT NO STOCK REGIS TER AND MATERIALS REGISTER WERE FURNISHED FOR VERIFICATION. HE, THER EFORE, REJECTED THE 3 BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SEC TION 145(3) OF THE ACT AND ESTIMATED THE GP RATE AT 12.50% SUBJECT TO SALARY AND INTEREST TO PARTNERS. THE ASSESSEE CARRIED THE MATTER TO LD . CIT(A) AND SUBMITTED THAT HE WAS MAINTAINING REGULAR BOOKS OF ACCOUNTS, WHICH WERE DULY AUDITED, BUT CONCEDED THAT ALTHOUGH NON-P RODUCTION OF SUPPORTIVE MATERIAL, THE INVOCATION OF SECTION 145 COULD BE JUSTIFIED BUT DETERMINATION OF GP RATE WAS NOT FAIR AND REASO NABLE. IT WAS FURTHER ARGUED THAT WHILE ESTIMATING THE NP, THE AO DID NOT CONSIDER THE PAST HISTORY OF THE CASE. THE RELIANCE WAS PLA CED ON THE FOLLOWING ORDERS OF THE HONBLE JURISDICTION OF HIGH COURT:- 1) CIT VS. INANI MARBLES PVT. LTD. (175 TAXMAN 56) . 2) CIT VS. SURESH MARBLES PVT. LTD. (18 DRT 118). 3) CIT VS. SHRI SINDHUJA FOODS PVT. LTD. (16 DTR 2 78). THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT SPECIFIC DETAILS CALLED FOR BY THE AO TO SUPPORT THE FINANCIAL RESULTS SHOWN BY THE ASSESSEE WERE NOT FU RNISHED AND THE ASSESSEE CONCEDED NON-PRODUCTION OF SUPPORTIVE DETA ILS. HE, THEREFORE, HELD THAT THE BOOKS OF ACCOUNTS WERE RIG HTLY REJECTED BY THE AO. LD. CIT(A) WAS OF THE VIEW THAT THE BEST GUIDE FOR ESTIMATION OF THE TRADING RESULTS AFTER REJECTING THE BOOKS IS EI THER THE PAST HISTORY OF THE ASSESSEE OR ANY OTHER COMPARABLE CASE AND TH E PAST HISTORY OF 4 THE ASSESSEE TAKES PREFERENCE OVER A COMPARABLE CAS E. HE FURTHER STATED THAT THE ASSESSEE HAD SHOWN NP RATE OF 3.92% IN THE CURRENT YEAR AS AGAINST 3.50% IN THE IMMEDIATELY PRECEDING YEAR. HE, THEREFORE, HELD THAT CONSIDERING PAST HISTORY OF TH E ASSESSEE, NP ESTIMATED BY THE AO WAS ON THE HIGHER SIDE, ESPECIA LLY KEEPING IN VIEW THE DECREASE IN TURNOVER OF THE ASSESSEE. THE LD. C IT(A) CONSIDERED IT FAIR AND REASONABLE, IF THE NP WAS ESTIMATED AT 7% SUBJECT TO SALARY AND INTEREST TO PARTNERS, DEPRECIATION AND INTEREST PAID TO THIRD PARTIES. NOW ASSESSEE IS IN APPEAL. 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NP DEC LARED BY THE ASSESSEE UNDER THE YEAR CONSIDERATION WAS BETTER IN COMPARISON TO THE EARLIER YEAR. IT WAS FURTHER STATED THAT NEITHER A O NOR LD. CIT(A) HAD GIVEN ANY BASIS FOR THEIR RESPECTIVE ESTIMATES. IT WAS POINTED OUT THAT NP RATE FOR THE YEAR UNDER CONSIDERATION WAS AT 3.2 6% IN COMPARISON TO THE EARLIER YEAR WHEREIN NP WAS 3.08%. THEREFORE, EVEN IF THE BOOKS WERE REJECTED BY THE AO, NO ADDITION WAS CALLED FOR BY CONSIDERING THE PAST HISTORY AND KEEPING IN VIEW THE FACT THAT NP R ATE SHOWN BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS BETTE R IN COMPARISON TO THE EARLIER YEAR. THE RELIANCE WAS PLACED ON THE F OLLOWING DECISIONS OF THIS BENCH OF THE TRIBUNAL:- 5 1) SHRI LAL CHAND CHOUDHARY VS. ACIT (ITA NO. 191/ JU/2012) ORDER DATED 07/03/2013. 2) M/S. JAIN CONSTRUCTION CO. VS. THE DCIT (ITA NO.537/JU/2009) ORDER DATED 09/12/2011. 5. IN HIS RIVAL SUBMISSIONS, LD. D.R. STRONGLY SUPPOR TED THE IMPUGNED ORDER PASSED BY THE LD . CIT(A). 6. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT CERTAIN D ISCREPANCIES WERE POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS MAIN TAINED BY THE ASSESSEE IN HIS REGULAR COURSE OF BUSINESS. THEREF ORE, THE PROVISIONS OF SECTION 145(3) OF THE ACT WERE APPLICABLE AND THE B OOKS WERE LIABLE TO BE REJECTED. WHEN THE BOOKS WERE REJECTED, THE ONL Y WAY LEFT TO DETERMINE THE INCOME IS ESTIMATION BY APPLYING THE GP RATE OR NP RATE. IN THE PRESENT CASE, THE AO APPLIED NP RATE OF 12.5 %, WHICH WAS REDUCED TO 7% BY THE LD. CIT(A). THE SAID ESTIMATE S WERE WITHOUT ANY BASIS OR COMPARABLE CASE. IT IS ALSO AN ADMITTED F ACT THAT IN SUCH TYPE OF CASES, PAST HISTORY OR COMPARABLE CASE IS TO BE CONSIDERED TO ESTIMATE THE INCOME, BUT PREFERENCE IS TO BE GIVEN TO THE PAST HISTORY OF THE ASSESSEES OWN CASE. IN THE INSTANT CASE, I T IS NOTICED THAT THE NP RATE SHOWN BY THE ASSESSEE FOR THE YEAR UNDER CO NSIDERATION WAS AT 6 3.26% IN COMPARISON TO 3.08% IN THE IMMEDIATELY PRE CEDING YEAR. THEREFORE, KEEPING IN VIEW THE PAST HISTORY OF THE ASSESSEE OWN CASE, IT CAN BE SAID THAT THE NP RATE SHOWN BY THE ASSESS EE WAS PROGRESSIVE, SO, NO ADDITION WAS CALLED FOR EVEN AFTER REJECTING THE BOOKS OF ACCOUNTS. FOR THE AFORESAID VIEW, WE ARE FORTIFIED BY THE EARLIER ORDERS DECIDED BY THIS BENCH OF THE TRIBUNAL DATED 07/03/2013 IN ITA NO.191/JU/2012 FOR THE ASSESSMENT YEAR 2008=-09 IN THE CASE OF LAL CHAND CHOUDHARY VS. ACIT CIRCLE-1, BARMER. ACCORDINGLY, THE ADDITION SUSTAINED BY THE LD. CIT(A) IS DELETED. 7 . THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO SUSTEN ANCE OF THE ADDITION MADE BY THE AO BY TREATING THE FDR INTERES T AS INCOME FROM OTHER SOURCES. 8 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT AO HAD NOT DISCUSSED ANYTHING ON THIS ISSUE IN THE ASSESSMENT ORDER, BUT IN THE OPERATIVE PART OF THE ORDER, HE ADDED FDR INTEREST SEPARATELY AND CONSIDERED IT WAS INCOME FROM OTHER SOURCES. BEIN G AGGRIEVED, ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A), WHO AFFIRMED THE ACTION OF THE AO BY OBSERVING THAT THE INTEREST RECEIVED F ROM BANKS ON ACCOUNT OF FDR WAS NOT A BUSINESS INCOME OF THE ASS ESSEE. THE RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF T HE HON'BLE SUPREME COURT:- 7 1) CIT VS. STERLING FOODS (237 ITR 579). 2) PADIAN CHEMICALS VS. CIT (262 ITR 278) 3) TUTI COURIN ALKALIES AND FERTILIZER LTD. VS. CI T (227 ITR 172). LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FDRS W ERE PURCHASED FOR THE PURPOSE OF BUSINESS I.E FOR OBTAINING CONTR ACT WORK FROM PHED AUTHORITIES. THEREFORE, THE INTEREST INCOME EARNED ON SUCH FDRS WAS PART AND PARCEL OF THE BUSINESS INCOME. THE RELIAN CE WAS PLACED ON THE DECISION OF THIS BENCH OF THE TRIBUNAL DATED 07 /03/2013 IN ITA NO. 191/JU/2012 FOR THE ASSESSMENT YEAR 2008-09 IN THE CASE OF LAL CHAND CHOUDHARY VS. ACIT, CIRCLE-1, BARMER AND DATED 09/12/2011 IN ITA NO.537/JU/2009 FOR THE A.Y. 2006-07 IN THE CASE OF M/S. JAIN CONSTRUCTION CO. VS. DCIT, BARMER . A RELIANCE WAS ALSO PLACED IN THE CASE OF CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD. [2000] 243 ITR 2(SC). IN HIS RIVAL SUBMISSIONS, LD D.R. STRONGLY SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW. 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT ASSESSEE PURCHASED TH E FDRS TO GET BANK GUARANTEE, WHICH WAS ESSENTIAL TO GET CONTRACT WORK . FDRS PURCHASED 8 BY THE ASSESSEE TO GET CONTRACT AND WITHOUT FDRS, B ANK GUARANTEE COULD NOT HAVE BEEN ISSUED TO HIM. IT WAS CONTENDE D THAT THESE FDRS WERE NOT MADE OUT OF THE SURPLUS MONEY LYING IDLE W ITH THE ASSESSEE IN ORDER TO EARN INTEREST. ON THE CONTRARY, THE AMOUN T OF INTEREST WAS EARNED FROM THE FIXED DEPOSIT, WHICH WAS KEPT IN TH E BANK FOR FURNISHING THE BANK GUARANTEE. IT HAD AN INEXTRICA BLE NEXUS WITH SECURING THE WORKS CONTRACT AND BUSINESS. IN OTHER WORDS, THE INTEREST ON MARGIN MONEY AGAINST THE SAID BANK GUARANTEE WAS INEXTRICABLY LINKED AND INTRINSICALLY CONNECTED WITH THE EXECUTI ON OF THE CONTRACT AWARDED TO THE ASSESSEE. ON THE SAME ISSUE, THE HO N'BLE SUPREME COURT IN THE CASE OF CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD . (SUPRA) HELD AS UNDER:- IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE O F THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERM S OF THE ASSESSEES AGREEMENT WITH THE SUPPLIER. IT WAS ON T HE MONEY SO DEPOSITED THAT SOME INTEREST HAS BEEN EARN ED. THIS IS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SH ARE CAPITAL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSITE D IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE D EPOSIT OF MONEY IN THE PRESENT CASE IS DIRECTLY LINKED WIT H THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOM E EARNED ON SUCH DEPOSIT IS INCIDENTAL TO THE ACQUISI TION OF ASSETS FOR THE SETTING UP OF THE PLANT AND MACHINER Y. 10 . IN THE PRESENT CASE ALSO, IT IS NOT THE CASE OF T HE DEPARTMENT THAT THE FDRS WERE PURCHASED BY THE ASSESSEE FROM SURPLU S MONEY, WHICH WAS LYING IDLE AND HAD BEEN DEPOSITED IN THE BANK F OR THE PURPOSE OF 9 EARNING INTEREST. ON THE CONTRARY, THE FDRS WERE P URCHASED FROM OUT OF MONEY, WHICH WERE NECESSARY TO GET BANK GUARANTE E WHICH WAS ASSESSED TO GET THE CONTRACT AND THERE WAS A DIRECT LINK WITH THE PURCHASE OF FDRS AND THE CONTRACT AWARDED TO THE AS SESSEE. THEREFORE, LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE AO RIGHTLY TAXED THE INTEREST INCOME AS INCOME FROM OTHER SOUR CES. WE, THEREFORE SET ASIDE THE IMPUGNED ORDER OF THE LD. C IT(A) ON THIS ISSUE AND DIRECT THE AO TO TREAT THE AMOUNT IN QUESTION A S BUSINESS INCOME. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (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.