M/s Arremo Vanijya (P) Ltd, Kolkata V. ACIT, Bhubaneswar

ITSSA 78/CTK/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8759 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 30-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: M K SAHUA RAO ARS
• Keywords: Depreciation
• Section: 153A; 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T (SS) A.NO. 78/CTK/2012 / ASSESSMENT YEAR 2009 - 10 M/S.ARREMO VANIJYA (P) LTD., 71, BENTICK STREET, 4 TH FLOOR, ROOM NO.407, KOLKATA 700001 PAN:AAFCA 8007 M - - - VERSUS - ASS T.COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI M.K.SAHU/A.RAO, ARS / FOR THE RESPONDENT: / SHRI PARAMITA TRIPATHY, CIT - DR / DATE OF HEARING: 31.01.2013 / DATE OF PRONOUNCEMENT: 14.02.2013 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THIS APPEAL BY THE ASSESSEE RAISES THE FOLLOWING GROUNDS. 1) THAT THE LEARNED ASSESSING OFFI CER HAS CORRECTLY MENTIONED THAT THE CA PI TAL RESERVE OF RS . 2,25,20,00 REPRESENTS SHARE PREMIUM AMOUNT BUT HE HAS WRONGLY LINKED WITH INVESTMENTS. THIS SHARE PREMIUM ACCOUNT WHICH RESULTED IN CAPITAL RESERVE IS RELATED TO SHARE CAPITAL AND SO SHOULD NOT BE ADDED BACK. 2) THAT THE SUM O F RS. 29,712 HAS BEEN GIVEN TO ADITYA CAR A UTOMOTIVE FOR WHICH THE CONFIRMATION CAN BE DIRECTLY OBTAINED BY THE LAO AS THE SAME PAYMENT WAS EFFECTED BY CHEQUE. SO ADDING THE SAME IS NOT JUSTIFIED. 3) THAT THE FIXED ASSET SCHEDULES WERE PRODUCED WITH DETAILED CALCULATION OF DEPRECIATION. SO THE FACT THAT NO DETAILS PRODUCED IS NOT CORRECT AND DEPRECIATION OF RS.6,62,000 CANNOT BE DISALLOWED. I.T(SS)A.NO.78/CTK/2012 2 4) THAT THE ASSESSEE IS NOT LIABLE FOR ANY PENALTY IMPOSITION AS THE BASIC ADDITION BASING ON W HICH PENALTY PROCEEDING HAS BEEN INITIATED DO NOT STAND THE SCRUTINY AND THERE IS NO CONCEALMENT OF PARTICULARS OF INCOME OR INACC U RATE FURNISHING OF PARTICULARS OF INCOME. 5) IN VIEW OF ABOVE FACTS DEMAND OF ADDITIONAL TAX AND P ENALTY OF 100% OF RS.78,89,793 IS NOT JUSTIFIED, HENCE NOT PAYABLE B Y ASSESSEE. 2. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THE BRIEF FACTS THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF INVESTMENTS. A SEARCH HAD TAKEN PLACE ON 26TH MARCH 2009 WHICH R ESULTED IN SEIZURE OF CASH FROM BANK ON 27TH MARCH 2009. AN AMOUNT OF RS 3,52,24,594 HAS BEEN SEIZED FROM AXIS BANK KALPANA SQUARE BRANCH. . IN THE DUE COURSE OF HEARING FOR ASSESSMENT UNDER SECTION 143(3)/153B(B), THE ASSESSEE PRESENTED ITS BOOKS OF ACCOU NTS AND OTHER TESTIMONIALS ASKED FOR BY THE LEARNED ASSESSING OFFICER FROM TIME TO TIME. THE ASSESSEE HAD FILED RETURN OF INCOME FOR RS 2,64,51,100/ - ON 15.12.2010 AFTER RECEIVING THE NOTICE UNDER SECTION 153A OF THE IT ACT. THE ASSESSMENT HAD BEEN COMPLET ED UNDER SECTION 143(3)/153B (B) OF THE INCOME TAX ACT 1961 AND THE ORDER WAS SERVED ON 31ST DECEMBER 2010 ASSESSING THE TOTAL INCOME AMOUNTING TO RS 5,04,79,200 AND TAX PAYABLE AMOUNTING TO RS.2,41,31,870 WHICH IS INCLUSIVE OF INTEREST UNDER SECTION 234A, 234B AND 234C AMOUNTING TO RS 69,73,993 THE DETAILS OF WHICH WAS DEMANDED AS HEREUNDER: 1. INTEREST LEVIED UNDER SECTION 234A - RS . 29,16,826 2. INTEREST LEVIED UNDER SECTION 234B - RS . 36,03,138 3. INTEREST LEVIED UNDER SECTION 234C - RS . 4,54,029. T OTA L RS . 69,73,993 THE ASSESSING OFFICER IN HIS ORDER STATED THAT THE MARKET RATE OF COMMISSION VARIES FROM 2.5% TO 3% HENCE COMMISSION RECEIVABLE IS ENHANCED BY 0.5 % I.T(SS)A.NO.78/CTK/2012 3 AND ADDED AN AMOUNT OF RS . 8,16,000 TO THE TOTAL INCOME OF THE ASSESSEE. IN HIS ORDER, HE HAS STATED THAT AS THERE IS NO INVESTMENT AS EVERYTHING IS CLAIMED TO BE SOLD, SO THERE IS NO REASON TO MAINTAIN THE CAPITAL RESERVE AND ADDED AN AMOUNT OF RS . 2,25,20,000 LYING IN THE LIABILITY SIDE OF THE BALANCE SHEET. HE ADDED DEPRECIATION DEBITED IN THE P&L A/C AMOUNTING TO RS.6,62,392.42. HE ALSO ADDED AN AMOUNT OF RS.29,712 CONTENDING THE SAME AMOUNT HAS BEEN PAID IN TWO DIFFERENT DATES. 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY, WHO CO NFIRMED THE ACTION OF THE ASSESSING OFFICER BY HOLDING A VIEW THAT THE ENHANCEMENT OF COMMISSION PAYABLE AND RECEIVABLE BY 0.5% WAS REASONABLE AND UPHELD THE AOS ADDITION. WITH RESPECT TO THE CAPITAL RESERVE OF RS.2,25,30,000, THE LEARNED CIT(A) HELD THAT THERE WAS NO EVIDENCE PRODUCED BEFORE THE ASSESSING OFFICER BY THE ASSESSEE INSOFAR AS THE INCOME HAD NOT BEEN RENDERED BY THE ASSESSEE. THE SAME WAS CONFIRMED. WITH RESPECT TO THE DENIAL OF CLAIM OF DEPRECIATION, THE LEARNED CIT(A) HELD THAT THE ASSETS WERE ACQUIRED FROM ADITYA CAR AUTOMOTIVE PVT. LTD., BUT NO FURTHER DETAILS WERE OFFERED. THE DEPRECATION OF RS.6,62,392 WAS CONFIRMED DISALLOWED. 4. THE LEARNED COUNSEL OF THE ASSESSEE INITIAT ED HIS ARGUMENTS BY SUBMITTING THAT THE ASSESSING OFFICER A DDED 0.5% COMMISSION TO THE TOTAL INCOME AMOUNTING TO RS 8,16,000 ARBITRARILY. HE HAS STATED IN HIS ORDER THAT MARKET RATE OF SUCH COMMISSION VARIES FROM 2.5% TO 3%. THIS DOES NOT GIVE ANY MATERIAL EVIDENCE WHICH LEAD TO THE ASSESSING OFFICER TO TAKE THE COMMIS SION AT 3%. ASSESSEE HAS ACCOUNTED COMMISSION AT 2.5% WHICH IS ADMITTED BY AO IN HIS ORDER. MOREOVER ASSESSEE HAS PROVIDED IN THE AUDITED FINANCIAL STATEMENTS AND RELATED DOCUMENTS TO THE LEARNED AO AT THE TIME OF ASSESSMENT TO SUBSTANTIATE THE COMMISSION RECEIVABLE. THEREFORE CONTENTION I.T(SS)A.NO.78/CTK/2012 4 OF THE LEARNED CIT (A) THAT THE ASSESSEE HAS NOT PROVIDED ANY MATERIAL IS NOT CORRECT. THE LEARNED COUNSEL OF THE ASSESSEE CONTENDED THAT WHEN THE ASSESSMENT IS MADE U/S 143(3)/153A, ASSESSING OFFICER MUST BE HAVING ANY MA TERIAL FROM THE SEIZED DOCUMENT TO SUBSTANTIATE HIS CLAIM FOR ADDING 0.5% COMMISSION. ASSESSING OFFICER HAS NOT REFERRED TO ANY SEIZED DOCUMENT AVAILABLE ON RECORD IN HIS ORDER TO JUSTIFY ADDITION AS NO RECORDS OF THIS COMPANY WERE SEIZED. FURTHER ADDITION HAS BEEN DONE ARBITRARILY WHICH FORMS NO BASIS. ASSESSEE HAS ALREADY ACCOUNTED AN EQUAL AMOUNT OF COMMISSION INCOME IN THE PROFIT AND LOSS ACCOUNT AND BROUGHT IT TO TAX. IN SUPPORT, HE FURNISHED A COPY OF AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT IS ENCLOSED IN THE PAPER BOOK. IN VIEW OF THE ABOVE, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE COMMISSION ENHANCEMENT ON SURMISES IS ILLEGAL AND NOT TENABLE HENCE LIABLE TO BE DELETED. 4.1. IN RESPECT OF CAPITAL RESERVE ADDITION, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER WAS EXPLAINED THAT THE ASSESSEE HAS CONVERTED THE INVESTMENTS INTO STOCK IN TRADE AT A NOMINAL VALUE AND THE CAPITAL LOSS GENERATED DUE TO THIS CONVERSION HAS BEEN DEBITED TO THE CAPITAL RESERVE RELATED TO SHARE PREMIUM ACCOUNT WHICH HAS BEEN CARRIED FORWARD FROM THE PREVIOUS YEARS. THIS STOCK IN TRADE SO CONVERTED THEN SOLD AND CREDITED IN THE PROFIT AND LOSS ACCOUNT POSTING A HUGE PROFIT OFFERED TO TAX. BALANCE IN THE CAPITAL RESERVE SHOWN IN THE BALANCE SHEET AFTER ADJUSTING CAPITAL LOSS ON CONVERSION OF INVESTMENTS INTO STOCK IN TRADE, AND THE REMAINING BALANCE OF CAPITAL RESERVE AMOUNTING TO RS 2,25,20,000 WAS CARRIED FORWARD TO THE SUBSEQUENT YEARS AS PER NORMAL ACCOUNTING PRACTICE OF DOUBL E ENTRY SYSTEM. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO GET THE ACCOUNTING TREATMENT RIGHT, THE EFFECT OF WHICH IS ALREADY SHOWN ON THE FACE OF THE I.T(SS)A.NO.78/CTK/2012 5 BALANCE SHEET AND HAD ERRED IN TREATING THE CAPITAL RESERVE I TEM AS REVENUE INCOME. IF THIS IS THE CONTENTION OF ASSESSING OFFICER THEN WHAT WOULD BE HIS TREATMENT IF THE CAPITAL LOSS ON CONVERSION OF INVESTMENTS INTO STOCK IN TRADE WOULD HAVE MORE THAN THE CAPITAL RESERVE AMOUNT? WILL THAT BE TREATED AS REVENUE LO SS? FURTHER IF AN ASSET IS PURCHASED BY TAKING A LOAN WHICH AFTER SOMETIME HAS DESTROYED DOESNT MEAN THAT LIABILITY SIDE I.E. LOAN IS ALSO REQUIRED TO BE WIPED OFF. THE ASSESSING OFFICER HAS GIVEN THE SAME TREATMENT AS ABOVE WHICH REFLECTS THAT HE HAS NO T APPLIED HIS MIND TO THE SIMPLE ACCOUNTING ENTRY. FURTHER THERE IS NO DOUBT THAT THE TRANSACTION HAS TO BE ACCOUNTED AS PER DOUBLE ENTRY SYSTEM OF ACCOUNTING WHICH WAS AUDITED BY THE INDEPENDENT AUDITOR. HAD THE INVESTMENTS BEEN CONVERTED INTO STOCK - IN - TR ADE AT HIGHER RATE AND THEN SOLD AT THE SAME HIGHER RATE THAN THE CAPITAL RESERVE WOULD NOT HAVE BEEN REDUCED SO WHETHER THIS SITUATION WOULD LEAD TO ADD THE ENTIRE CAPITAL RESERVE? THIS TREATMENT WOULD DEFINITELY GIVE ABSURD RESULTS. FURTHER CAPITAL RESER VE COMPRISES OF SECURITY PREMIUM WHICH WAS GENERATED AT THE TIME OF ISSUE OF SHARES AND ITS GENERATION HAD NOTHING TO DO WITH THE INVESTMENTS. THE CONTENTION OF THE ASSESSING OFFICER THAT AS THE INVESTMENTS WERE SOLD, THERE IS NO REQUIREMENT TO MAINTAIN TH E CAPITAL RESERVE AND REQUIRED TO TAKE AS REVENUE INCOME IS ABSURD. HENCE ADDING THE SAME TO THE TOTAL INCOME IS NOT JUSTIFIED AND HIGHLY UNCALLED FOR. THIS FACT HAS CLEARLY BEEN DISCLOSED IN THE BOOKS OF ACCOUNTS AND MENTIONED IN THE NOTES TO THE ACCOUNTS , A COPY OF WHICH IS IN THE PAPER BOOK. MOREOVER THIS ACCOUNTING TREATMENT IS VERY MUCH EFFECTED IN THE BOOKS AND EXPLAINED TO THE ASSESSING OFFICER DURING ASSESSMENT WHICH WAS NOT APPRECIATED OR UNDERSTOOD BY HIM. IN VIEW OF THE ABOVE, THE LEARNED COUNSEL OF THE ASSESSEE PRAYED FOR DELETION OF THE ADDITION MADE ON THIS COUNT. I.T(SS)A.NO.78/CTK/2012 6 4.2. IN RESPECT TO DISALLOWANCE OF DEPRECIATION, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ENTRIES IN THE BANK STATEMENTS WERE PRODUCED BEFORE ASSESSING OFFICER, WHICH COPY H AS ALSO BEEN FURNISHED IN PAPER BOOK. THE ASSESSING OFFICER WAS EXPLAINED THAT THE DEPRECIATION WAS ON VEHICLES WHICH WERE CLEARLY HELD IN THE BOOKS OF ACCOUNTS , AND FIXED ASSET SCHEDULE WITH DETAILED CALCULATION OF DEPRECIATION AMOUNTING TO RS 6,62,392, HENCE ADDING THE SAME IS ERRONEOUS, ARBITRARY AND WITHOUT APPLICATION OF MIND. THE LEARNED COUNSEL OF THE ASSESSEE THEREFORE PRAYED FOR DELETION OF THE ADDITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION. 5. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE L EARNED COUNSEL OF THE ASSESSEE. HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HER PART OF SUBMISSIONS. 6. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF CA SE AS BROUGHT ON RECORD BY THE AUTHORITIES BELOW, WE ARE INCLINED TO FIND THAT THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE APPELLANT BEFORE THE AUTHORITIES SHOULD HAVE BEEN ACCEDED TO INSOFAR AS THE DECLARED INCOME WAS MORE THAN THE PURPORTED C APITAL RESERVE AND THE ASSET LYING AS INVESTMENT WAS BALANCED INSOFAR AS THE ASSESSING OFFICER ON THE BASIS OF THESE TRANSACTIONS HAS ALSO TRIED TO RECOMPUTE THE COMMISSION PAID OR PAYABLE WAS PARTLY ACCEPTING THE CONTENTION OF THE ASSESSEE BUT HAVING AN OPINION THAT SUCH TRANSACTIONS COULD EARN A BETTER COMMISSION. IT WAS NOBODYS CASE THAT ON THE LIQUIDATION OF THE INVESTMENTS , TO IDENTITY LEADING TO HIGHER INCOME THAN THE CAPITAL RESERVE HELD COULD NOT AGAIN BE TAXED INSOFAR AS THE ASSESSEE HAS ALREADY RENDERED TAX INCORPORATED IN THE BOOKS OF ACCOUNT AS SALE OF INVESTMENT WAS THEREFORE NOT TO BE DOUBTED FOR RETAINING THE RESIDUAL AMOUNT IN ITS BOOKS OF ACCOUNT. A RESERVE IS CREATED AFTER TAXATION AND PAID I.T(SS)A.NO.78/CTK/2012 7 AND CANNOT BE TAXED AGAIN WHEN THE LAW PROVIDES THAT ON CREATION OF RESERVE IN THE IMPUGNED ASSESSMENT YEAR ALONE CAN NOT BE AD D ED FOR THE PURPOSE OF TAXATION UNDER THE PROVISIONS OF SECTION 115JB. THE ASSESSEE CANNOT SUFFER TAXATION OF THE SAME WHEN THE REGULAR TAX PAID IS MORE THAN THE BOOK PROFITS. IN THIS VIEW OF THE MATER, THE PURPORTED CAPITAL RESERVE SOUGHT TO BE TAXED IN THE IMPUGNED ASSESSMENT YEAR IS DIRECTED TO BE DELETED. 6.1. WITH REGARD TO THE ISSUE OF COMMISSION, WHICH RATE HAS BEEN ENHANCED BY THE ASSESSING OFFICER WOULD LEAD TO A NULLITY INSOFAR AS THE ASSESSING OFFICER CANNOT COMMAND EARNING OF MORE COMMISSION TO BE RECEIVED TO BE PASSED ON TO THE RECIPIENTS THROUGH THE ASSESSEE WOULD BE AGAINST THE BUSINESS NORMS. WE, THEREFORE, ARE INCLINED TO FIND THE SUBMISSIONS OF THE LEARNED COUNS EL OF THE ASSESSEE JUSTIFIED AND AS SUCH WE DIRECT DELETION OF THE ADDITION MADE ON THIS SCORE. 6.2. WITH REGARD TO THE ISSUE OF DEPRECIATION, WE ARE OF THE CONSIDERED VIEW THAT AMOUNTS WERE PAID TO M/S.ADIDYA CAR AUTOMOTIVE PVT. LTD., IS AN UNDISPUTED FAC T WHEN THE DEPRECIATION FOR WHOLE OF THE BLOCK OF ASSETS HAS BEEN DISALLOWED. WE ARE UNABLE TO SATISFY OURSELVES TO THIS LOGIC CONCLUDED BY THE ASSESSING AUTHORITIES INSOFAR AS NO CONTROVERSY HAS BEEN POINTED OUT BY THE AUTHORITIES BELOW THAT THE CLAIM OF DEPRECIATION ON THE ASSETS HELD BY THE ASSESSEE AMOUNTED TO MORE THAN RS.80 LAKHS WHETHER COULD BE SUBJECTED TO DISALLOWANCE FOR TAXATION ON A FINDING THAT A PARTICULAR CAR DEALER HAD BEEN PAID ON TWO DIFFERENT DATES FOR THE ACQUISITION ON WHICH DEPRECIA TION WHETHER COULD BE SPLIT FOR DISALLOWANCE WAS HELD BY THE ASSESSEE FOR MORE THAN SIX MONTHS IN ANY CASE. THEREFORE, THE SAME CANNOT BE RELATED TO DISALLOWANCE OF WHOLE OF THE DEPRECIATION CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS IS DIRECTED TO B E ALLOWED. I.T(SS)A.NO.78/CTK/2012 8 6.3. FOR THE REASONS DISCUSSED ABOVE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT DELETION OF THE RESPECTIVE ADDITIONS AS DISCUSSED IN THE FOREGOING PARAGRAPHS BY ALLOWING THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE AP PEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.02.2013 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE OR DER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 12.02.2013 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.02.2013 OTHER MEMBER . 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 DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO TH E SR. P.S./P.S 14.02.2013 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.02.2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE) , SENIOR.PRIVATE SECRETARY.