Shri Pradeepshamkar B.Jha, Baroda V. The ACIT.,Circle-2(2), Baroda

ITA 990/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72964 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Assessee Lawyers: S N SOPARKAR

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ I.T.A. NO.990/AHD/2012 ( & '& & '& & '& & '& / / / / ASSESSMENT YEAR : 2008-09) PRADEEPSHANKAR B.JHA 215, GOLDEN TRADE CENTRE NEAR S T BUS DEPOT BARODA 390 001 / VS. THE ACIT CIRCLE-2 (2) BARODA ( !./)* !./ PAN/GIR NO. : ABTPJ 2556 N ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : SHRI S.N. SOPARKAR, SR.ADV. ,-(+ / . / RESPONDENT BY : SHRI O.P. VAISHNAV, CIT-DR ' 0 / $1 / / / / DATE OF HEARING : 23/01/2014 23' / $1 / DATE OF PRONOUNCEMENT : 25/02/2014 4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-II, BARODA (CIT(A) FOR SHORT) DATED 02/03/2012 PERTAINING TO ASSESSMENT Y EAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- 1. LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING A DDITION OF RS.8.25 CRORES MADE BY AO TREATING SUPPLEMENTARY CL AIM AS INCOME ACCRUED DURING THE YEAR UNDER CONSIDERATION ON A COMPLETELY DIFFERENT FOOTING BY ESTIMATING THE SAME AMOUNT AS EXPENDITURE INCURRED FOR RAISING THE ABOVE SUPPLEME NTARY CLAIM. LD.CIT(A) ACCEPTED THE FACT THAT DUE TO UNCERTAINTY OF INCOME TO BE RECEIVED FOR THE SUPPLEMENTARY CLAIM RAISED, NO AD DITION OF SUCH ITA NO.990/AHD/ 2012 PRADEEPSHANKAR B.JHA VS. ACIT ASST.YEAR 2008-09 - 2 - UNCERTAIN INCOME MADE BY AO COULD BE SUSTAINED BUT THEN PROCEEDED TO CONFIRM DISALLOWANCE OF ESTIMATED EXPE NDITURE AT THE SAME AMOUNT OF RS.8.25 CRORES RESULTING IN ADDITION TO THE RETURNED INCOME. THE ORDER OF LD.CIT(A) BEING BAD IN LAW, P ERVERSE AD AGAINST ACCOUNTANCY PRINCIPLES DESERVES TO BE QUASH ED. 2. LD.CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN DENY ING DEDUCTION CLAIMED OF RS.5,63,64,860/- OF THE LEGITIMATE BUSIN ESS EXPENSES ON THE BASIS OF DEBIT NOTES/SHOW CAUSE NOTICES RAISED BY FCI DURING THE YEAR. LD.CIT(A) FAILED TO APPRECIATE THE FACT THAT THE LIABILITY BEING ACKNOWLEDGED THROUGH CORRECT ACCOUNTING ENTRI ES STILL PROCEEDED TO ENHANCE THE RETURNED INCOME BY DISALLO WING THE CLAIM OF EXPENSES TREATING THE SAME AS CONTINGENT L IABILITY. THIS ACTION OF LD.CIT(A) NOT TAKING INTO CONSIDERATION T OTALITY OF THE FACTS AND ENHANCING THE INCOME OUGHT TO BE QUASHED AND EXPENSES CLAIMED BE ALLOWED. 3. LD.CIT(A) ERRED IN LAW AND ON FACTS CONFIRMING PART DISALLOWANCE OF VARIOUS EXPENSES MADE BY AO HOLDING THEM TO BE P ERSONAL IN NATURE. LD.CIT(A) OUGHT NOT TO HAVE CONFIRMED 10% OF SUCH ADHOC DISALLOWANCE IN ABSENCE OF ANY EVIDENCE OF PERSONAL NATURE BROUGHT ON RECORD BY AO. 4. LEVY OF INTEREST U/S.234A/234B/234C & 234D OF THE A CT IS TO JUSTIFIED. 5. INITIATION OF PENALTY U/S.271(1)(C) OF THE ACT IS N OT JUSTIFIED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE THE HEARING OF THE APPEAL. 2. AT THE TIME OF HEARING, LD.COUNSEL FOR THE ASSES SEE SUBMITTED THAT HE DOES NOT WISH TO PRESS GROUND NOS.3, 4 & 5 OF AS SESSEES APPEAL. THE LD.CIT-DR HAS NO OBJECTION. THEREFORE, GROUND NOS. 3, 4 & 5 ARE DISMISSED AS NOT PRESSED. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 27/12/2010, THEREBY THE ASSESSING OFFICER(AO) MADE VARIOUS ITA NO.990/AHD/ 2012 PRADEEPSHANKAR B.JHA VS. ACIT ASST.YEAR 2008-09 - 3 - DISALLOWANCES/ADDITIONS; NAMELY, DEMURRAGE CHARGES AMOUNTING TO RS.5,44,598/-, LOSS OF GUNNY BAGS AMOUNTING TO RS.1 9,70,625/-, CLAIM OF FCI OF RS.8,25,00,000/-, OUT OF TELE. & MOBILE OF R S.47,480/-, OUT OF PERSONAL USE OF CAR OF RS.2,85,480/- AND OUT OF VEH ICLE RUNNING EXPENSE OF RS.73,460/- TOTALLING TO RS.8,54,21,643/- AND CO MPUTED THE INCOME ASSESSED AT RS.6,12,96,748/- AFTER DEDUCTING THE T OTAL INCOME LOSS OF RS.2,41,24,895/-. 4. FIRST GROUND IS AGAINST THE CONFIRMATION OF ADDI TION OF RS.8.25 CRORES MADE BY THE AO TREATING THE SUPPLEMENTARY CL AIM AS INCOME ACCRUED DURING THE YEAR UNDER CONSIDERATION. 4.1. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED FOR MAKING THE ADDITION. HE S UBMITTED THAT BOTH THE AUTHORITIES HAVE FAILED TO APPRECIATE THE FACT THAT OWING TO UNCERTAINTY OF INCOME, THE ASSESSEE HAS NOT RECOGNIZED AS REVENUE IN PROFIT AND LOSS AND ON THE BASIS OF REAL INCOME PRINCIPLE IN THE YEA R UNDER APPEAL. HE RELIED ON THE DECISION OF HONBLE HIGH COURT OF DEL HI IN THE CASE OF DEVSONS (P.) LTD. VS. CIT, REPORTED IN 196 TAXMAN 2 1. HE SUBMITTED THAT THE HONBLE HIGH COURT OF DELHI IN THE SAID CA SE HAS HELD THAT EVEN IF THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING, CONCEPT OF REAL INCOME HAS TO BE CONSIDERED AND TO SUPPORT THI S OBSERVATIONS, REFERENCES TO THE VARIOUS DECISIONS OF HONBLE HIGH COURTS AND HONBLE SUPREME COURT IS MADE AT PARA 18 TO 24. HE SUBMITT ED THAT THE LD.CIT(A) HAS NOT CONSIDERED THE RATIO LAID DOWN BY THE HONB LE HIGH COURT OF DELHI. HE SUBMITTED THAT THE ASSESSEE WAS NOT CERT AIN THAT THE BILL RAISED TO THE FCI WOULD BE PAID. THEREFORE, THE REVENUE I S NOT RECOGNIZED. HE ITA NO.990/AHD/ 2012 PRADEEPSHANKAR B.JHA VS. ACIT ASST.YEAR 2008-09 - 4 - SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT CERTAIN WORKS WHICH WERE NOT FORMING PART OF THE MAIN CONTRACT. HE SUBMITTED TH AT LD.CIT(A) ON ONE HAND, HAS HELD THAT THE INCOME DID NOT ACCRUE DURIN G THE YEAR AND CANNOT BE TAXED DURING THE CURRENT YEAR AND ON THE OTHER H AND, LD.CIT(A) DISALLOWED THE PROPORTIONATE EXPENDITURE AMOUNTING TO RS.8.25 CRORES. HE SUBMITTED THAT LD.CIT(A), MISCONSTRUED THE DECIS ION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. NAVSARI COTTON AND SILK MILLS REPORTED AT 135 ITR 546 (GUJ.). HE SUBM ITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT SINCE T HE ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE MATCHIN G PRINCIPLE IS AN IMPORTANT INGREDIENT. HE SUBMITTED THAT THE LD.CI T(A) DISALLOWED THE EXPENDITURE ON PRESUMPTION BASIS WITHOUT GIVING ANY FINDING THAT HOW MUCH EXPENDITURE WAS INCURRED FOR EARNING OF THE RE CEIPT OF RS.8.25 CRORES. 4.2. ON THE CONTRARY, LD.CIT-DR SHRI OP VAISHNAV ST RONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT THE ASSESSEE HIMSELF HAS CLAIMED THE EXPENDITURE AND HAS NOT TAK EN INTO ACCOUNT THE CORRESPONDING INCOME. HE SUBMITTED THAT THIS KID O F TREATMENT IS NOT PERMISSIBLE UNDER THE LAW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD.CIT(A) HAS GIVEN FINDING ON FACT THAT SINCE THE SUPPLEMENTARY CLAIM WAS NOT ACCEPTED BY THE FCI THAT THE INCOME DID NOT ACCRUE DURING THE YEAR, HENCE THE SAME CANNOT BE TAXED DURING THE CURRENT YEAR. THE REVENUE HAS NOT CHALLENGED THIS FINDING BY FILING A CROSS-APPEAL, ITA NO.990/AHD/ 2012 PRADEEPSHANKAR B.JHA VS. ACIT ASST.YEAR 2008-09 - 5 - THEREFORE THIS FINDING OF THE LD.CIT(A) REMAINS UNC ONTROVERTED. NOW, WE HAVE TO EXAMINE WHETHER THE LD.CIT(A) WAS JUSTIFIED IN DISALLOWING THE PROPORTIONATE EXPENDITURE OF RS.8.25 CRORES. WE FI ND THAT THE LD.CIT(A) HAS OBSERVED THAT IN THE ABSENCE OF THE ASSESSEE PR OVIDING ANY FAIR ESTIMATE OF EXPENDITURE, THE NET PROFIT SHOWN IN TH E P&L ACCOUNT CAN BE A GOOD INDICATOR TO WORK OUT THE EXPENSES. SINCE THE ASSESSEE HAS EARNED LOSS OF RS.83.87 LACS ON TURNOVER OF RS.19.73 CRORE S, IT CAN BE SAFELY SAID THAT EXPENDITURE EQUALS THE RECEIPT. THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN MAKING SUCH ESTI MATION. 5.1. AFTER CONSIDERING THE TOTALITY OF THE FACTS, W E ARE OF THE CONSIDERED VIEW THAT SO FAR AS DISALLOWANCE OF THE EXPENDITURE IS CONCERNED, THE LD.CIT(A) IS JUSTIFIED IN MAKING THE DISALLOWANCE O F THE EXPENDITURE SINCE THE ASSESSEE HIMSELF HAS NOT OFFERED THE CORRESPOND ING INCOME FOR TAXATION. HOWEVER, LD.CIT(A) OUGHT TO HAVE GIVEN A FINDING ABOUT THE QUANTUM OF EXPENDITURE INCURRED BY THE ASSESSEE ON SUCH EXPECTED RECEIPT. THEREFORE, THIS ISSUE IS RESTORED BACK TO THE FILE OF LD.CIT(A) FOR DECISION AFRESH IN RESPECT OF THE DISALLOWANCE OF E XPENDITURE. THUS, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTI CAL PURPOSES ONLY. 6. SECOND GROUND IS AGAINST IN DISALLOWING THE CLAI M OF THE ASSESSEE AMOUNTING TO RS.5,63,64,860/- BEING THE BUSINESS EX PENDITURE. 6.1. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT VARIOUS SHOW-CAUSE NOTICES WERE ISSUED BY THE FCI AND THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.5,63,64,860/- FORMING PART OF THE SHOW-CAUSE NOTICES. HE ITA NO.990/AHD/ 2012 PRADEEPSHANKAR B.JHA VS. ACIT ASST.YEAR 2008-09 - 6 - SUBMITTED THAT LD.CIT(A) DISALLOWED THE CLAIM ON TH E BASIS THAT THE ASSESSEES LIABILITY UNDER THE SHOW-CAUSE NOTICES/D EBIT NOTES WAS DISPUTED AND NON-CRYSTALLIZED AND HAS TO BE TREATED AS A CONTINGENT LIABILITY. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.C IT(A) HAS MISCONSTRUED THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF ALEMBIC CHEMICAL WORKS VS. DCIT REPORTED AT 133 T AXMAN.COM 833 (GUJ.). HE SUBMITTED THAT LD.CIT(A) WAS NOT JUS TIFIED IN HOLDING THAT THE NATURE OF LIABILITY WAS CONTINGENT. 6.2. ON THE CONTRARY, LD.CIT-DR SUBMITTED THAT T HE LD.CIT(A) WAS JUSTIFIED AS IT HAS BEEN CATEGORICALLY OBSERVED THA T THE ASSESSEE HIMSELF HAS NOT ACCEPTED THE LIABILITY. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT REMAINS THAT THE FCI ISSUED CER TAIN SHOW-CAUSE NOTICES AND A SUBSTANTIAL AMOUNT OF RS.2,66,79,179 /- HAS ALREADY BEEN RECOVERED BY THE FCI. THEREFORE, LD.CIT(A) WAS NOT JUSTIFIED IN DISALLOWING THE ENTIRE EXPENDITURE OF RS.5,63,64,86 0/-, AND THE ORDER OF THE LD.CIT(A) ON THIS ISSUE IS SET ASIDE TO VERIFY IN RESPECT OF THOSE EXPENSES WHICH HAVE BEEN ACCEPTED BY THE ASSESSEE A S HIS LIABILITY DURING THE YEAR UNDER CONSIDERATION AND PAYMENT THEREOF RE COVERED BY THE FCI. IN RESPECT OF THOSE EXPENSES, WHERE FCI HAS REJECTE D THE REPRESENTATION OF THE ASSESSEE, SUCH EXPENDITURE BE ALLOWED IN THE YE AR IN WHICH REPRESENTATION OF ASSESSEE IS REJECTED BY FCI. TH US, THIS GROUND OF ITA NO.990/AHD/ 2012 PRADEEPSHANKAR B.JHA VS. ACIT ASST.YEAR 2008-09 - 7 - THE ASSESSEE IS ALLOWED IN THE LIGHT OF THE DISCUSS ION MADE HEREINABOVE FOR STATISTICAL PURPOSES ONLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/ 02 /2014 71.., .../ T.C. NAIR, SR. PS 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. !! $ ': / CONCERNED CIT 4. ':() / THE CIT(A)-II, BARODA 5. 8 #; ,$ , , / DR, ITAT, AHMEDABAD 6. ;<& =0 / GUARD FILE. 4' 4' 4' 4' / BY ORDER, -8$ ,$ //TRUE COPY// > >> >/ // / !) !) !) !) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 6.2.14/19.2.14 (DICTATION-PA D 15-PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.2.14 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.25.2.14 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.2.14 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER