M/s Amal Sales Pvt. Ltd, Bhubaneswar V. ACIT, Bhubaneswar

ITSSA 79/CTK/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8763 (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. 79/CTK/2012 / ASSESSMENT YEAR 2009 - 10 M/S.AMAL SALES PVT. LTD., 171A, M.G.ROAD, KOLKATA 700 007 PAN: AAGCA 1399 D - - - VERSUS - ASST.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 HEARI NG: 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 OFFICER HAS CORRECTLY MENTIONED T HAT THE CAPITAL RESERVE OF RS . 48,000 REPRESENTS SHARE PREMIUM AMOUNT BUT HE HAS WRONGLY LINKED IT 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 FIXED AS SET SCHEDULES WERE PRODUCED WITH DETAILED CALCULATION OF DEPRECIATION. SO THE FACT THAT NO DETAILS PRODUCED IS NOT CORRECT AND DEPRECIATION OF RS.1,28,000 CANNOT BE DISALLOWED. 3) THAT THE ASSESSEE IS NOT LIABLE FOR ANY PENALTY IMPOSITION AS THE BASIC ADDITI ON BASING ON WHICH PENALTY PROCEEDING HAS BEEN INITIATED DO NOT STAND THE SCRUTINY AND THERE IS NO CONCEALMENT OF THE PARTICULARS OF INCOME OR INACCURATE FURNISHING OF PARTICULARS OF INCOME. 4) IN VIEW OF THE ABOVE FACTS DEMAND OF ADDITIONAL TAX AND PENALTY OF 100% OF RS. 58,898 IS NOT JUSTIFIED, HENCE NOT PAYABLE BY THE ASSESSEE . I.T(SS)A.NO. 79/CTK/2012 2 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 HAS RESULTED IN SEIZURE OF CASH FROM BANK. AN AMOUNT OF RS 2,09,40,129 HAS BEEN SEIZED FROM AXIS BANK BIDANASI BRANCH ON 27TH MAR 2009. IN THE DUE COURSE OF HEARING FOR ASSESSMENT UNDER SECTION 143(3)/153B(B), THE ASSESSEE PRESENTED ITS BOOKS OF ACCOUNTS AND OTHER TESTIMONIALS ASKED FOR BY THE LEARNED ASSESSING OFFICER FROM TIME TO TIME. THE ASSESSEE HAD FILED RETURN OF INCOME FOR RS 3,30,92,720/ - ON 30.08.2010 AFTER RECEIVING THE NOTICE UNDER SECTION 153A OF THE IT ACT. THE ASSESSME NT HAD BEEN COMPLETED UNDER SECTION 143(3)/153B (B) OF THE INCOME TAX ACT 1961 AND THE ORDER WAS SERVED ON 31ST DEC 2010 ASSESSING THE TOTAL INCOME AMOUNTING TO RS 3,41,08,940 AND TAX PAYABLE AMOUNTING TO RS.1,65,79,240.WHICH IS INCLUSIVE OF INTEREST UNDER SECTION 234A, 234B AND 234C AMOUNTING TO RS 49,85,615 THE DETAILS OF WHICH WAS GIVEN HEREUNDER: INTEREST LEVIED UNDER SECTION 234A - RS 19,70,912 INTEREST LEVIED UNDER SECTION 234B - RS 24,34,656 INTEREST LEVIED UNDER SECTION 234C - RS 5,80,047. TOTAL RS 49,85,615 MOREOVER THE ASSESSING OFFICER ALSO LEVIED PENALTY UNDER SECTION 271(1) (C) OF THE I.T ACT BEING 100% OF TAX ALLEGED TO BE EVADED AMOUNTING TO RS 59,898.THE ABOVE ADDITIONS WERE AS FOLLOWS: A) THAT T HE 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 % AND ADDED AN AMOUNT OF RS 1,40,000 TO THE TOTAL INCOME OF THE ASSESSEE. B) THAT THE ASSESSING OFFICER IN H IS ORDER 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 48,488.50 LYING IN THE LIABILITY SIDE OF THE BALANCE SHEET. I.T(SS)A.NO. 79/CTK/2012 3 C) THAT THE ASSESSING OFFICER HAD ERRONEOUSLY ADDED DEPRECIATION ON VEHICLES WHICH WAS DEBITED IN THE P&L A/C AMOUNTING TO RS 1,27,728.53 D) THAT THE ASSESSING OFFICER HAS ALSO LEVIED PENALTY ON TAX CALCULATED ON ABOVE ADDITIONS I.E. ON B AND C AMOUNTING TO RS 59,898, BEING 100% ON T AX ALLEGED TO HAVE BEEN EVADED. E) THAT INTEREST UNDER SECTION 234A, B, C AMOUNTING TO RS 49,85,615 HAS BEEN LEVIED ON ASSESSED TAX U/S 143 (3)/153B (B) OF THE I.T ACT 1961 WITHOUT CONSIDERING, THE AMOUNT OF CASH SEIZED WHICH SHOULD HAVE BEEN ADJUSTED A S ADVANCE TAX ON THE DATE OF SEIZURE FOR THE PURPOSE OF CALCULATION OF INTEREST U/S 234 A,B AND C. 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY, WHO CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE ISSUE NOW RAISED BEFORE T HE TRIBUNAL. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED AS UNDER : EXPLANATION TO (A) 2.0 THE LEARNED ASSESSING OFFICER HAD ADDED 0.5% COMMISSION TO THE TOTAL INCOME AMOUNTING TO RS 1,40,000 ARBITRARILY. 2.1 THE LEARNED AO HAS STATED IN HIS ORDER TH AT MARKET RATE OF SUCH COMMISSION VARIES FROM 2.5% TO 3%. THIS DOES NOT GIVE ANY MATERIAL EVIDENCE WHICH LEAD TO THE LEARNED AO TO TAKE THE COMMISSION AT 3%. ASSESSEE HAS ACCOUNTED COMMISSION AT 2.5% WHICH IS ADMITTED BY AO IN HIS ORDER. 2.3 MOREOVER ASSES SEE HAS PROVIDED AUDITED FINANCIAL STATEMENTS AND RELATED DOCUMENTS TO THE LEARNED AO AT THE TIME OF ASSESSMENT TO SUBSTANTIATE THE COMMISSION RECEIVABLE. THEREFORE CONTENTION OF THE LEARNED CIT (A) THAT THE ASSESSEE HAS NOT PROVIDED ANY MATERIAL IS NOT CO RRECT. 2.4 MOREOVER AS THE ASSESSMENT IS MADE U/S 143 (3)/153A, AO MUST BE HAVING ANY MATERIAL FROM THE SEIZED DOCUMENT TO SUBSTANTIATE HIS CLAIM OF ADDING 0.5% COMMISSION. AO HAS NOT REFERRED TO ANY SEIZED DOCUMENT AVAILABLE ON RECORD IN HID ORDER TO JUST IFY ADDITION AS NO RECORDS OF THIS COMPANY WERE SEIZED. I.T(SS)A.NO. 79/CTK/2012 4 2.4 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. A COPY OF AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT IS ENCLOSED IN ANNEXURE 1. 2.5 IN VIEW OF THE ABOVE THE COMMISSION ENHANCEMENT ON SURMISES IS ILLEGAL AND NOT TENABLE HENCE KINDLY BE DELETED. EXPLANATION TO (B) 3.0 THE LEARNED ASSESSING OFFICER WAS EXPL AINED THAT THE ASSESSEE HAS CONVERTED THE INVESTMENTS INTO STOCK IN TRADE AT A NOMINAL VALUE OF RS 27,42,000 AND THE CAPITAL LOSS GENERATED DUE TO THIS CONVERSION HAS BEEN DEBITED TO THE CAPITAL RESERVE RELATED TO SHARE PREMIUM ACCOUNT WHICH HAS BEEN CARRI ED FORWARD FROM THE PREVIOUS YEARS. 3.1 THIS STOCK IN TRADE SO CONVERTED FOR RS 27,42,000 THEN SOLD AT RS 3,57,38,700 AND CREDITED IN THE PROFIT AND LOSS ACCOUNT POSTING A HUGE PROFIT OFFERED TO TAX.. BALANCE IN THE CAPITAL RESERVE SHOWN IN THE BALANCE SH EET AFTER ADJUSTING CAPITAL LOSS ON CONVERSION OF INVESTMENTS INTO STOCK IN TRADE, AND THE REMAINING BALANCE OF CAPITAL RESERVE AMOUNTING TO RS 48,488 WAS CARRIED FORWARD TO THE SUBSEQUENT YEARS AS PER NORMAL ACCOUNTING PRACTICE OF DOUBLE ENTRY SYSTEM. 3.2 THE LEARNED ASSESSING OFFICER HAS FAILED TO GET THE ACCOUNTING ENTRY RIGHT, THE EFFECT OF WHICH IS ALREADY SHOWN ON THE FACE OF THE BALANCE SHEET AND HAD ERRED IN TREATING THE CAPITAL RESERVE ITEM AS REVENUE INCOME. IF THIS IS THE CONTENTION OF LEARNED AO 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 LOSS? 3.3 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 LEARNED ASSESSING OFFICER HAS GIVEN THE SAME TREATMENT AS ABOVE WHICH REFLECTS THAT HE HAS NOT APPLIED HIS MIND TO THE SIMPLE ACCOUNTING ENTRY. 3.4 FUR THER 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 - TRADE AT HIGHER RATE AND THEN SOLD AT THE SAME HIGHER RA TE THEN 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. 3.5 FURTHER CAPITAL RESERVE COMPRISES OF SECURITY PREMIUM WHICH WAS GENERAT ED AT THE TIME OF ISSUE OF SHARES AND ITS I.T(SS)A.NO. 79/CTK/2012 5 GENERATION HAD NOTHING TO DO WITH THE INVESTMENTS. THE CONTENTION OF THE AO THAT AS THE INVESTMENTS WERE SOLD, THERE IS NO REQUIREMENT TO MAINTAIN THE CAPITAL RESERVE AND REQUIRED TO TAKE AS REVENUE INCOME IS ABSUR D. 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 ENCLOSED IN ANNEXURE 2. MOREOVER THIS ACCOUN TING TREATMENT IS VERY MUCH EFFECTED IN THE BOOKS AND EXPLAINED TO THE LEARNED AO DURING ASSESSMENT WHICH WAS NOT APPRECIATED OR UNDERSTOOD BY HIM. EXPLANATION TO (C) 4.0 BILL FOR PURCHASE OF THE VEHICLE WAS SHOWN TO THE LEANED AO AND ENTRIES IN THE BANK STATEMENTS WERE ALSO PRODUCED BEFORE HIM A COPY OF WHICH IS ANNEXED IN ANNEXURE 3 AND ANNEXURE 4 RESPECTIVELY. 4.1 THE LEARNED ASSESSING OFFICER WAS EXPLAINED THAT THE DEPRECIATION WAS ON VEHICLES WHICH WERE CLEARLY EXHIBITED IN THE BOOKS OF ACCOUNTS AND FIXED ASSET SCHEDULE WITH DETAILED CALCULATION OF DEPRECIATION AMOUNTING TO RS 1, 27,728.53, HENCE ADDING THE SAME IS ERRONEOUS, ARBITRARY AND WITHOUT APPLICATION OF MIND. 5. THE LEARNED CIT - DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSES SEE. SHE SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A) 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 CASE AS BROUGHT ON RECO RD BY THE AUTHORITIES BELOW, WE ARE OF THE CONSIDERED VIEW THAT THE TAXATION OF THE AMOUNT OVER AND ABOVE THE AMOUNT RETURNED BY THE ASSESSEE AS INCOME IN PURSUANCE TO NOTICE U/S.158 AB WAS NOT TO BE ADJUDICATED IN THE MANNER THAT THE ASSESSING OFFICER IS T RYING TO WHICH PROCESS A REGULAR RETURN BY ANALYZING IT ON THE INCORPORATED UNDISCLOSED INCOME WHICH THE ASSESSEE HAS DISCLOSED WAS NOT PART OF THE SEARCH MATERIAL. IT HAS BEEN CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE BEING A LEG AL ENTITY, A PRIVATE LIMITED COMPANY WAS I.T(SS)A.NO. 79/CTK/2012 6 TO HOLD SHARES WHEN THE CAPITAL RESERVE AGAINST INVESTMENTS WAS ALREADY RENDERED TO TAX IN THE EARLIER YEARS. THEREFORE, THIS AMOUNT REMAINING WITH THE ASSESSEE ON ACCOUNT OF INVESTMENT DILUTED BY THE ASSESSEE RENDE RED AS INCOME WAS NOBODYS CASE FOR TAXATION AGAIN IN THE IMPUGNED ASSESSMENT YEAR. SIMILARLY, THE ENHANCEMENT BY 0.5% THE COMMISSION RECEIVABLE AND PAYABLE AS WAS ALSO CONSIDERED IN THE CASE OF OTHER COMPANIES AS DEALT WITH BY US AND HEARD ALONG WITH THIS APPEAL , WE ARE OF THE CONSISTENT VIEW THAT THE ENHANCEMENT ON ACCOUNT OF COMMISSION RATE AGAINST STIPULATED WOULD BE BUSINESS NORMS PART OF COMMISSION ON BEHALF OF SOMEBODY ELSE WILL NOT INCUR ANY LOSS TO THE REVENUE INSOFAR AS THE ASSESSEE BEING IN THE N ATURE OF HOLDING INVESTMENT ON BEHALF OF SOME OTHER PERSONS CANNOT CLAIM TO EARN MORE AND PAY MORE AS WAS THE OPINION EXPRESSED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A). THIS ADDITION THEREFORE HAS NO LEGS TO STAND ON INSOFAR AS THE ASSESSEE HAD R ENDERED INCOME ON THE BASIS OF RECEIPTS AND PAYMENTS MADE WHICH CANNOT BE ENHANCED UNILATERALLY. THE SAME IS DIRECTED TO BE DELETED. 6.1. WITH RESPECT TO THE DEPRECIATION DISALLOWED AS A PERCENTAGE OF THE TOTAL CLAIM INSOFAR AS THE ASSETS WERE BROUGHT FORW ARD FROM EARLIER YEARS FOR CHARGE TO THE P & L ACCOUNT BY THE ASSESSEE AND AS PER THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE , THE ASSESSING OFFICER HAD NOT CONTROVERTED THAT THE ASSETS HELD BY THE ASSESSEE WERE WHETHER UTILIZED OR NOT COULD NO T BE SUBJECTED TO DISALLOWANCE OF DEPRECIATION IN THE IMPUGNED ASSESSMENT YEAR. AS IN THE CASE OF OTHER COMPANIES HEARD ALONG WITH THIS APPEAL, WE HAVE HELD A VIEW THAT DEPRECIATION IS A CHARGE TO THE PROFIT & LOSS ACCOUNT TO BE ALLOWED WHEN THERE IS I.T(SS)A.NO. 79/CTK/2012 7 NO CO NTROVERSY IN RESPECT TO ITS OWNERSHIP AND HAVING BEEN PUT TO USE CANNOT BE DISALLOWED ARBITRARILY. THE LEARNED CIT(A) JUST CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITHOUT BRINGING ON RECORD THE PRIME FACTS AS NARRATED BY THE LEARNED COUNSEL FOR THE A SSESSEE BEFORE HIM TO CONTROVERT . IN THIS VIEW OF THE MATTER, WE HAVE NO HESITATION TO DELETE THE DISALLOWANCE OF DEPRECIATION AS WELL. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - ( . . . ) , (K.S.S.PRA SAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.02.2013 - COPY OF THE OR DER FORWARDED TO: 1 . / THE APPELLANT : M/S.AMAL SALES PVT. LTD., 171A, M.G.ROAD, KOLKATA 700 007 2 / THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR. 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 ORDER 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 M EMBER . 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 THE 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.