Aitha Kasi Visweswara Rao, Warangal V. Income Tax Officer, Ward-1, Kothagudem

ITA 992/HYD/2014

• Counselvise Citation: 99222514 RSA 2014
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: G MANIKYA PRASAD
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B'(SMC), HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER ITA NO.992/HYD/14 : ASSESSMENT YEAR 2009 - 10 SHRI AITHA K ASI VISWESWARA RAO, K OTHAGUDEM (PAN ABCPA 4993 M) V/S. INCOME TAX OFFICER WARD - 1, KOTHAGUDEM (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI G.MANIKYA PRASAD RESPONDENT BY : SMT. G.APARNA RAO DATE OF HEARING 27 .0 3 .201 5 DATE OF PRONOUNCEMENT 08.04. 2015 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX, VIJAYAWADA DATED 27.3.2104 PASSED UNDER S.263 OF THE INCOME TAX ACT,1961. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL WHO IS ENGAGE D IN THE BU S IN ES S OF DEALING IN FMCG GOODS AS A WHOLE SALE DISTRIBUTOR IN TH E NAME AND ST Y LE OF HIS PROPRIETARY CONCERN, M /S. SR I LAX MI AGENCIES. THE RETURN OF IN C OM E FOR THE YEAR UN D ER CON S I D ERATION WAS FIL E D BY HIM ON 29.9.2009 DECL A RING TOTAL INCOME OF R S .2,00,130. IN THE ASSESSME NT COMPLETED UN D ER S.143(3) VIDE O R DER DATED 18.5.2011, THE TOTAL INCOME OF THE ASSESSEE WAS DETERMINED BY THE ASSESSING OFFICER AT R S .3,16,285 AFTER MAKING A DISALLOWANCE OF R S .1,16,155 UNDER S.40A(3) ON ACCOUNT OF PAYMENT OF CERTAIN EXPENSES MADE IN CASH EXCEEDING THE THRESHOLD LIMIT OF R S .20,000. 3. THE RECORD OF THE ASSESSMENT SUBSEQUENTLY CAME TO BE EXAMINED BY THE LEARNED COMMISSIONER OF INCOME - TAX AND ON ITA NO.9 92 /HYD/2014 SHRI AITHA KASI VISWESWARA RAO KOTHAGUDEM 2 SUCH EXAMINATION, HE WAS OF THE OPINION THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UN DE R S.143(3) SUFFERED FROM THE FOLLOWING ERRORS, WHI C H RENDERED THE ASSESSMENT PREJU D I C IAL TO TH E INTEREST OF THE REVENUE - (I) IT IS OB S E R VED THAT THE GROSS TURNOVER WAS SHOWN AT RS.1,77,25,885/ - AND THE NET PROFIT W A S ARRIVED AT R S . 2,47,369 WHICH IS VERY LOW IN THIS LINE OF BU S IN E SS AND TH E ASSESSING OFFICER HAS NO T SUB S TANTIATED THE R E ASONS FOR ADMITTING SUCH LOW PROFIT WHIL E COMPL ET IN G THE ASSESSMENT PROCE E DINGS. ( II ) AS PER THE ANNEXURE TO 3CD REPO R T, I T IS OB S ER VE D THAT T HE SECURED LOANS HA V E BEEN IN C REASED F R OM R S .2,47,016/ - TO RS.8,22,810/ - WHEN COMPARED TO THE LAST Y E AR AND THE ASSESSING OFFICER HAS NOT VERIFIED THE DET A IL S O F LOANS OBTAINED DURING THE Y E AR WHICH ATTRACTS THE P R O VI SION S OF SE CT ION 14A OF THE IT ACT,1961. FUR T HER, THERE IS NO MATERIAL EVIDENCE SUBMITTED IN RESPE C T OF SUNDRY CREDITORS AND D ET A ILS O F CHIT LOSS OF R S .1,36,231/ - AS APPEARED IN THE BALANCE SHEET. THIS ASPECT W A S NO T VERIFIED BY THE AO. 4. THE LEARNED COMMISSIONER THEREFORE, ISSUED A NOTICE UN D ER S.2 63 POINTIN G OUT THE ABO VE ERRO R S AND REQUIRING THE ASSESSEE TO SHO W CAU S E AS TO WHY THE ASSESSMENT ORDER PASSED BY TH E ASSESSING OFFICER U N DER S.143(3) SHOULD NO T B E REVISED. IN REPLY, THE FOLLOWING POINT - WISE EXPLANATION WAS OFFERED BY THE ASSESSEE. ITA NO.9 92 /HYD/2014 SHRI AITHA KASI VISWESWARA RAO KOTHAGUDEM 3 (I) LOW NET PROFIT: ''THE ASSESSING OFFICER WAS VERIFIED OUT BOOKS OF ACCOUNTS AND ALSO RAISED QUESTION OF LOW PROFIT MARGIN ACROSS THE TABLE. THE AO WAS SATISFIED WITH OUT REPLY AND COMPLETED THE ASSESSMENT. OUR ASSESSEE IS DEALING WITH AGENCY GOODS, AND THESE COMPANIES WERE GIVING AVERAGELY 3% MARGIN, ON ALL FMCG GOODS. IN THE CASE OF 4% TAXABLE GOODS WE HAVE SHOWN 6.27% GP AND IN 12.5% GOODS SHOWN 3% GP. THE ASSESSEE WAS DOING BUSINE SS WITH HEAVY COMPETITION IN THE MARKET. W E HAVE SHOWN AVERAGELY 1.20% NET PROFIT AND TH E SAME WAS VERIFIED BY TH E AO AND SATI S FIED AFTER VERIFICATION OF SUPPO R TING BOOKS, VOUCHERS, SALE BILLS ETC. (II) SUNDRY CREDITORS ''ALL CREDITORS APPEAR IN THE BALANCE SHEET ARE TRADE CREDITORS. DUE TO LACK OF TIME AT THE TIME OF SCRUTINY PROCEEDINGS, WE HAVE NOT SUBMITTED THE MATERIAL EVIDENCE WITH REGARD TO THE SUNDRY CREDITORS APPEAR IN THE BALANCE SHEET. WE ARE HEREWITH SUBMITTING THE CONFIRMATION LETTERS FROM OUR TRADE CREDITORS. (III) CHIT LOSS T HE ASSESSEE JOINED IN SHRI RAM CHITS RS.5,00,000/ - GROUP (CHIT NO. K GVS - 21). THI S CHIT WAS BIDED IN INSTALMENT NO.11 (DT.19.07.2008) WITH A CHIT LOSS OF RS.1,61,000./0, THI S CHIT LOSS BELONGS TO REMAINING PERIOD OF THE CHIT (I.E . 50 MONTHS - 11 MONTHS = 39 MONTHS). THIS CHIT LOSS WAS DIVIDED FOR 39 MONTHS (RS.1,61,000/ 39 MONTHS = CHIT LOSS PER MONTH RS.4, 128/ - ). THE CHIT LOSS PERTAINS TO THE FINANCIAL YEAR 2008 - 09 WAS RS.24 ,7 68/ - (I.E. RS.4128 * 6 MONTHS) WAS SHOWN IN P&L ACCOUNT AND THE BALANCE RS . 1,36,231/ - WAS SHOWN IN ASSETS SIDE OF THE BALANCE SHEET WITH A NARRATION OF THE CHIT LOSS TO BE ADJUSTED FOR FUTURE MONTHS. THE SAME TRANSACTION WAS ALSO EXPLAINED TO THE AD AT THE TIME OF SCRUTINY PROCEEDINGS ACROSS THE TABLE AND THE AD WAS SATISFIED WITH OUT REPLY. THE COPY OF THE SHRI RAM CHITS IS HEREWITH ENCLOSING FOR YOUR READY REFERENCE. 5 . THE ABOVE EXPLANATION OFFER E D BY TH E ASSESSEE WAS NO T FOUND ACCEPTABL E BY THE LEARNED COMMISSIONER. AC C OR D ING TO HIM, THE ASSESSING OFFICER HAD NEI T H E R O BTAINED THE RELE V ANT MATE R IAL WHI C H COUL D ESTABLISH THE GENUINENESS OF THE LOW PROFIT RATE DECL A RED BY THE ASSESSEE NOR EVALUATED ANY OTHER MATERIAL AND CONDUCTED ANY ENQUIRY TO A SCER T AIN THE PREVAILING TR A DE RESULTS IN TH E SAME LIN E O F BU S IN ES S. HE HELD THAT LOW PROFIT RATE DECL A RED BY ITA NO.9 92 /HYD/2014 SHRI AITHA KASI VISWESWARA RAO KOTHAGUDEM 4 THE ASSESSEE WAS ACCEPT E D BY TH E ASSESSING OFFICER WITHOU T M AK IN G PROPER AND SUFFICIENT ENQUIRY AND WITHOUT APPLYING HIS MIND TO THE RELEVANT FACTS AND MATE R IA L . HE ALSO H E LD THAT SIMILAR LY SUNDRY CREDITORS S HOWN BY TH E ASSESSEE WERE AC C E P TED BY TH E ASSESSING OFFICER WITHOUT OBTAINING THEIR CONFIRMATION. AS REGARDS THE CHIT LOSS OF R S . 1 , 3 6, 231 RE FL ECTED IN THE B ALANCE SHEET OF THE ASSESSEE , THE LEARNED COMMISSIONER H E LD THAT ALTHOUGH THE D E TAILS IN RESP E CT OF THE SAID LOSS WERE CALLED FOR BY THE ASSESSING OFFICER, T HERE WAS NOTHING ON RECORD TO SHOW THAT SUCH DETAILS W E RE FURNISHED BY TH E ASSESSEE . HE HELD THAT THIS ISSUE THUS WAS ALSO NO T EXA M INED BY THE ASSESSING OFFICER BY MAKING PRO P ER AND SUFFICIENT ENQUIRY WHILE COMPL E TING THE ASSESSMENT UN D ER S.143(3 ) . ACCORD I NGLY, THE LEARNED COMMISSIONER SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER S.143(3), TREATING IT AS ERRONEOUS AS WELL AS PREJU D I C I A L TO THE INTERESTS OF TH E R EV ENUE BY EXERCISING THE POWERS CONFE R R E D UN D ER S.263 , WITH A DIRECTION TO THE ASSESSING OFFICER DO TH E SAME DE NOVO, AFTER EXAMINING PROPERLY THE ISSUE S POIN T ED OUT BY HIM BY FOL L OWIN G TH E ESTABLISH E D PROCEDURE. AGGRI E VED BY THE O R DER O F THE LEARNED COMMISSI ONER PASSED UN D ER S.263, ASSESSEE HAS P R EFERRED THIS APPEAL B E FORE THIS TRIBUNAL . 6 . I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSER V ED THAT THE G/P RATE OF 3 . 2 % ON TH E TO T AL TURNOVER WAS DE C LARED BY TH E ASSESSEE A ND THE LEARNED COMMISSIONER IN HIS IMPUGNED ORDER HAS NO T GIVEN ANY REASON OR BASIS TO CON S I D ER THE SAME AS A LOW G.P RATE. HE HAS NOT CITED ANY COMPARABLE CA S E WHERE AN Y ASSESSEE CARRYIN G ON SIMILAR TYPE OF BUSINESS HAS SHOWN G.P. RATE OF MORE THAN 3 . 2 % DECL A RED BY TH E ASSESSEE . IT IS NO DOUBT TRUE THAT THE CA S E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY BY TH E ASSESSING OFFICER ON TH E GROUND THAT THE NET PROFIT OF RS.2,47,379 WAS ITA NO.9 92 /HYD/2014 SHRI AITHA KASI VISWESWARA RAO KOTHAGUDEM 5 INCLUSIVE OF OTHER INCOME OF R S .1,53,363 AND I F THE SAME WAS EXCLUDED, TH E N ET PROFIT SHOWN BY THE ASSESSEE WAS ONLY RS.91,016 WHICH GAVE A NET PROFIT RATE OF 0.5% OF THE TOTAL TURNOVER. H OW E V ER, AS POIN TE D OUT BY THE LEARNED COUN S EL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE ME, OTHER INCOME MAINLY C OMPRISING OF DISCOUNTS RECEIVED WAS IN TH E N A TURE OF BU S IN E SS INCOME O F THE ASSESSEE, AND THE SAME THER E F O RE , COULD NO T BE E X CLUDED WHIL E COMPU T IN G THE NET PROFIT RATE OF HIS BUSINESS DECL A RED BY TH E ASSESSEE . 7 . AS REGARDS THE INCREASE IN SECURED LOAN S FROM RS.2,47,016 TO R S . 8,22, 810, THE LEARNED COUN S EL FOR TH E ASSESSEE HAS INVITE D MY A TTE N TION TO THE B ALANCE S HEET OF THE ASSESSEE TO SHO W THAT HE SAID I N CREASE WAS IN THE LOAN AMOUNTS TAKEN FROM BANK AND THE LEARNED COMMISSIONER IN HIS IMPU G N E D ORDER H AS NO T SP E LT OUT WHAT SORT OF ENQUIRY THE ASSESSING OFFICER SHOULD HAVE CONDUCTED ON THI S I S SUE. HE HAS A LSO NOT GIVEN ANY REASON OR BASIS TO SHOW AS TO HOW THE P R O V I SI ON S OF S.1 4A COULD BE ATTRACTED IN RESPE CT OF THIS ISSUE INVOLVING INCREASE IN BANK L OAN. SIMILARLY, TH E SUN D RY CRED I TORS DE C L AR ED IN THE B ALANCE S HEET OF THE ASSESSEE RE PRESENTED ALL TRADE CREDITORS . IN THIS REGARD , I REALLY FA I L TO UNDERSTAND AS TO HO W THE FAILURE OF THE ASSESSING OFFICER TO OBTAIN THE CONFIRMATIONS OF THE REGULAR TRADE CREDITORS WOULD MAKE HIS ASSESSMENT ORDER ERRONEOUS AS WELL AS PREJU D I CI AL TO THE IN T ERESTS OF THE R E VENUE, ESPECI A LLY WHEN THE BOOK S OF ACCOUNT OF THE ASSESSEE R E FL E CTIN G ALL THE REL E VANT TR A N S AC T ION S PERTAI N ING TO THE SAID CREDITORS WERE DULY VE RIFIED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEE D IN G S. 8 . EVEN IN RESPECT OF CHIT LOSS OF RS.1,36,231, WHICH WAS RE FLECTED IN THE BALANCE SHEET OF THE ASSESSEE , T HE LEARNED COMMISSIONER HAS NOT GIVEN SPECIFICALLY A NY ENQUIRY WHIC H ITA NO.9 92 /HYD/2014 SHRI AITHA KASI VISWESWARA RAO KOTHAGUDEM 6 ASSESSING OFFICER OUGHT TO H A VE MADE IN THE FACTS AND CIR C UM S TANCES OF TH E CA SE. AS A MATTER OF FACT, THE DETAILS O F CHIT LOSS OF R S .1,36,231 REFLECTED IN TH E B ALANCE S HEET WERE DULY FURNISHED BY THE ASSESSEE B E FORE THE LEARNED COMMISSIONER DURING THE COURSE OF PROC E EDIN G S U NDER S.263, BUT THE LEARNED COMMISSIONER WITHOUT APPRECIATING OR ASCERTAINING THE CORRECTNESS O F THE SAME , TRIED TO RAISE AN ALTOGETHER DIFFER E NT ISSUE IN HIS IMPUGN E D ORDER ON THE BA S IS OF THE AMOUNT OF CH I T LOSS DEBITED BY THE ASS ESSEE IN THE PROFIT & LOSS ACCOUNT, WHICH WAS NOT AT ALL THE ISSUE RAISED BY HIM IN THE NOTICE ISSUED UNDER S.263. 9 . HAVING REGARD TO ALL THE FACTS AND CIR C UM S TANCES OF THE CA S E AS DISCUSSED ABOVE , I AM OF THE OPINION THAT TH E RE WAS NO ERROR IN THE O RDER O F THE ASSESSING OFFICER PASSED UN D ER S.143(3 ) , AS ALLEGED BY THE LEARNED COMMISSIONER CALLING FOR ANY REVISION UNDER S .263. IN THAT VIEW OF THE MATTER, I SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER AND RESTORE THAT OF THE ASSESSI NG OFFICER PASSED UNDER S.143(3). 10 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 8 TH APRIL, 2015 SD/ - ( P.M.JAGTAP ) ACCOUNTANT MEMBER DT/ - 8 TH APRIL , 201 5 ITA NO.9 92 /HYD/2014 SHRI AITHA KASI VISWESWARA RAO KOTHAGUDEM 7 COPY FORWARDED TO: 1. SHRI AITHA KASI VISWESWARA RAO (K OTHAGUDEM) C/O. M/S. G.S.MADHAVA RAO & CO., CHARTERED ACCOUNTANTS, SUDHARMA BUILDINGS, M.G.ROAD, WARANGAL., 2 . INCOME TAX OFFICER WARD 1 KOTHAGUDEM L 3. COMMISSIONER OF INCOME - TAX, VIJAYAWADA 4. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S