J.M. Metals, JODHPUR v. ACIT, JODHPUR

ITA 103/JODH/2013 | 2003-2004
Pronouncement Date: 03-10-2013 | Result: Allowed

Appeal Details

RSA Number 10323314 RSA 2013
Assessee PAN AACFJ6162G
Bench Jodhpur
Appeal Number ITA 103/JODH/2013
Duration Of Justice 6 month(s) 30 day(s)
Appellant J.M. Metals, JODHPUR
Respondent ACIT, JODHPUR
Appeal Type Income Tax Appeal
Pronouncement Date 03-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 03-10-2013
Date Of Final Hearing 03-10-2013
Next Hearing Date 03-10-2013
Assessment Year 2003-2004
Appeal Filed On 04-03-2013
Judgment Text
IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI N.K. SAINI ACCOUNTANT MEMBER. ITA NO. 102/JODH/2013 (A.Y. 2002-03) ITA NO. 103/JODH/2013 (A.Y. 2003-04) J.M. METALS VS ACIT CIRCLE-1 C/O. SHRI U.C. JAIN ADVOCATE JODHPUR. SHATRUNJAY HARI SINGH NAGAR PALI ROAD JODHPUR. PAN NO. AACFJ6162G (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. U.C. JAIN AND SH. RAJENDRA JAIN. DEPARTMENT BY : SH. N.A. JOSHI- DR. DATE OF HEARING : 03/10/2013. DATE OF PRONOUNCEMENT : 03/10/2013. O R D E R PER HARI OM MARATHA J.M. : THESE ARE APPEALS BY THE ASSESSEE FOR A.YS. 2002-0 3 AND 2003-04. MOST OF THE GROUNDS RAISED THEREIN ARE IDENTICAL T HEREFORE WE PROCEED TO DECIDE THEM BY A COMMON ORDER. 2 ITA NO. 102/JODH/2013 (A.Y. 2002-03) 2. THIS APPEAL IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) DATED 22/01/2013. BRIEFLY STATED THE FACTS OF THE CASE A RE THAT THE ASSESSEE M/S. J.M. METALS JODHPUR IS A PARTNERSHIP FIRM DO ING THE BUSINESS OF MANUFACTURING AND SALE OF S.S. PATTA / PATTI FROM S .S. FLATS. FOR A.Y. 2002-03 THE ASSESSEE-FIRM FILED ITS RETURN OF INCOM E (RETURN OF INCOME [ROI]) ON 24/10/2002 DECLARING TOTAL LOSS OF RS. 79 13 945/-. SUBSEQUENTLY THE ASSESSEE REVISED ITS RETURN OF INC OME [ROI] ON 20/08/2004 BY DECLARING TOTAL LOSS AT RS. 40 27 080 /-. IT FURTHER REVISED ITS RETURN ON 10/01/2005 DISCLOSING TOTAL L OSS AT RS. 78 82 505/- . DURING ASSESSMENT PROCEEDINGS THE ASSESSEE-FIRM PRODUCED ITS BOOKS OF ACCOUNTS MAINTAINED REGULARLY IN THE COURSE OF I TS BUSINESS. THE A.O. HAS ACCEPTED PURCHASES AND SALES AS DISCLOSED BY TH E ASSESSEE. HE HAS MADE VARIOUS GENERAL OBSERVATIONS REGARDING THE LIN E OF BUSINESS WHICH THE ASSESSEE IS PURSUING AND WITHOUT PINPOINTING AN Y DEFECT IN THE BOOKS OF ACCOUNTS HE HAS REJECTED THEM U/S 145(3) OF THE ACT AND BY APPLYING A G.P. RATE OF 4.5% MADE AN ADDITION OF RS . 33 20 341/- AND ' TREATED THE ALLEGED UNEXPLAINED INVESTMENT AND THE LOW G.P. RATE. THIS ADDITION HAS ALSO BEEN CONFIRMED BY LD . CIT(A). THE 3 ASSESSEE HAS CHALLENGED EVEN THE REJECTION OF THE B OOKS OF ACCOUNTS REMITTING INTO IMPUGNED ADDITION. 3 WE HAVE HEARD RIVAL SUBMISSIONS. WE HAVE FOUND FR OM THE RECORDS THAT THE A.O. HAS NOT PINPOINTED ANY SPECIFIC DEFEC T MUCH LESS A MATERIAL DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASS ESSEE. RATHER HE HAS NOT DOUBTED THE PURCHASES AND THE SALES DISCLOSED B Y IT. IT SEEMS THAT THE LOW G.P. RATE SHOWN BY THE ASSESSEE HAS BEEN MA DE A REASON FOR REJECTION OF BOOKS OF ACCOUNTS. THE ABOVE FACTS ARE NOT AND COULD NOT BE CONTROVERTED BY LD. D.R. IT IS TRITE THAT ONLY O N ACCOUNT OF LOW G.P. RATE DECLARED THE BOOKS OF THE ASSESSEE CANNOT BE REJECTED. THERE MAY BE HUNDRED AND ONE REASONS FOR THE LOWER G.P. R ATE IN A PARTICULAR CASE FOR A SPECIFIC ASSESSMENT YEAR. THE A.O. HAS C ANDIDLY AVOIDED THIS FACTUM OF LOW G.P. RATE AND BY MAKING ROUND AND ROU ND OBSERVATIONS HAS FINALLY REJECTED THE BOOKS. SUCH A COURSE OF AC TION WHICH SUBVERTS A SETTLED POSITION OF LAW CANNOT BE PERMITTED. ACCORD INGLY WE SET ASIDE AND OVERRULE THE FINDING REGARDING THE REJECTION OF THE BOOKS OF ACCOUNTS. ON THIS FINDING RESULTS IN THE DELETION O F IMPUGNED ADDITION. HENCE WE ALLOW GROUND NO. 1 AND 2 OF ASSESSEES AP PEAL. 4 4. THE FACTS APROPOS GROUND NO. (3) ARE THAT IN ITS BOOKS THE ASSESSEE-FIRM HAS SHOWN RECEIPT OF ADVANCES FROM TH E FOLLOWING PARTIES:- 1. KANUNGO TUBE RS. 450 000 2. M.P. TRADERS RS. 201486 3. MARUTI METAL RS. 100 000 4. AMERICAN STEEL RS. 137599 5. MEHTA STEEL HOUSE RS. 300 000 6. MUKTA SALES CORP. RS. 100 000 7. NAFEES ENTERPRISES RS. 100 000 8. NEW ALLOY STEEL RS. 3617 9. NOVA IMPEX RS. 250 000 10. NOVA IMPEX RS. 250 000 11. NUTAN STEELS RS. 100 000 12. RAVI STEEL RS. 50 000 13. R.L. TRADING RS. 400 000 14. SAGAR ENTERPRISES RS. 225.055 15. R.M. ENTERPRISES RS. 260 000 16. VICKY SALES CORP. RS. 153 232 17. RAINBOW STEEL INDS. RS. 300 000 18. YASH INTERNATIONAL RS. 35171 19. MAC STEEL CORP. RS. 201 000 TOTAL RS. 36 17 160 THE ABOVE PARTIES HAVE BEEN TREATED AS NON GENUINE AND THE TOTAL AMOUNT OF RS. 36 17 160/- ALLEGED TO HAVE BEEN RECE IVED AS ADVANCE HAS BEEN ADDED. THE LD. CIT(A) HAS ALSO CONFIRMED T HIS ADDITION. 5. AFTER HEARING BOTH SIDES WE HAVE FOUND THAT ALL THESE PARTIES ARE TRADE CREDITORS. THE SALES AGAINST THESE ADVANCES H AVE BEEN ACCEPTED BY THE A.O. IN THE NEXT YEAR. THEREFORE NO QUESTIO N OF ADDITION OF RS. 5 36 17 000/- WOULD ARISE AS UNEXPLAINED TRADE CREDIT ORS. WE THEREFORE DELETE THIS ENTIRE ADDITION AND ALLOW GROUND NO. (3 ) OF THIS APPEAL. 6. THE FOURTH GROUND RELATES TO ADDITION OF RS. 1 3 6 392/- MADE BY THE A.O. U/S 43B OF THE ACT IN RESPECT OF PAYMENT OF ESI DEDUCTED BY THE ASSESSEE. DURING HEARING IT WAS FOUND FOR A FAC T THAT THE ASSESSEE HAS PAID THIS AMOUNT DURING THE GRACE-PERIOD AND TH EREFORE IS ABSOLVED OF ANY ADVERSE VIEW. THEREFORE WE DELETE THIS ADDITION AND ALLOW GROUND NO. (4) OF THIS APPEAL. 7. GROUND NO. 5 AND 6 ARE GENERAL IN NATURE AND DON T REQUIRE ANY SPECIFIC ADJUDICATION. 8. IN THE RESULT THIS APPEAL IS ALLOWED. ITA NO. 103/JODH/2013 (A.Y. 2003-04) 9. THIS APPEAL OF THE ASSESSEE-FIRM FOR A.Y. 2003-0 4 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) DATED 22/01/2013. 10. IN THIS YEAR ALSO THE A.O. HAS REJECTED THE BOO KS OF ACCOUNTS ON SIMILAR FLIMSY GROUNDS AS WAS DONE IN THE EARLIER Y EAR AS ABOVE. BY FOLLOWING SIMILAR LOGIC WE ALLOW GROUND NOS. 1 AND 2 AND AFTER 6 ACCEPTING THE BOOKS OF ACCOUNTS AS CORRECT WE ORDER TO DELETE THE TRADING ADDITION OF RS. 12 95 571/-. 11. GROUND NO. (3) OF THIS YEAR IS REGARD ADDITION OF RS. 8 69 536/- MADE BY THE A.O. AFTER DISALLOWING INTEREST PAID ON PARTNERS CAPITAL ACCOUNT ON NOTIONAL BASIS. IN FACT THIS IS AN INCOR RECT ACTION OF THE A.O. UNDER THE PROVISIONS OF SECTION 40(B) THE A.O. CAN NOT RECOMPUTE THE INCOME OF THE ASSESSEE. THIS ISSUE IS CLEARLY COVER ED BY THE DECISION OF SWARAJ ENTERPRISES VS. ITO 132 ITD 488 IN WHICH IT HAS BEEN HELD THUS :- THERE CANNOT BE ANY DISPUTE THAT THE DEPRECIATION UNDER THE INCOME-TAX ACT IS ALLOWABLE AS PER THE PROVISI ONS OF SECTION 32 IN ACCORDANCE WITH THE RATES PRESCRIBED UNDER T HE ACT I.E. THE AMOUNT OF DEPRECIATION PROVIDED FOR IN THE BOO KS OF ACCOUNT SHALL BE DISREGARDED WHILE COMPUTING THE TOTAL INC OME UNDER THE ACT MEANING THEREBY THE BOOK DEPRECIATION WILL NO T AFFECT THE COMPUTATION OF CORRECT TOTAL INCOME OF THE ASSESSE E. THUS THE COMPUTATION OF TOTAL INCOME IS NOT AFFECTED BY THE AMOUNT OF DEPRECIATION PROVIDED FOR IN THE BOOKS OF ACCOUNT AND THE POSITION REMAINS THE SAME EVEN IF NO DEPRECIATION IS PROVIDED FOR IN THE BOOKS. [PARA 7] THE REVENUE ARGUED THAT IT WAS MANDATORY FOR THE A SSESSEE TO CLAIM DEPRECIATION AS PER EXPLANATION 5 TO SECTION 32. EXPLANATION 5 TO SECTION 32 IS APPLICABLE ONLY FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX A CT AND NOWHERE IT IS PROVIDED THAT IT IS APPLICABLE EVEN FOR PREPARING THE BOOKS OF ACCOUNT. THE WORDS 'WHETHER OR NOT THE AS SESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION' USED IN EXPLANATION 5 TO SECTION 32 WOULD SHOW THAT THE AS SESSEE HAS AN OPTION NOT TO CLAIM DEPRECIATION WHILE COMPUTING H IS TOTAL INCOME BUT THE SAID OPTION SHALL BE IGNORED BY TH E ASSESSING OFFICER AND HE WILL DEDUCT DEPRECIATION FROM THE T OTAL INCOME OF THE ASSESSEE. HENCE IT IS NOT MANDATORY FOR THE A SSESSEE TO ALWAYS CLAIM DEPRECIATION BUT IT IS ONLY MANDATOR Y FOR THE 7 ASSESSING OFFICER TO ALLOW DEPRECIATION. [PARA 9] THUS THERE IS NO STATUTORY COMPULSION FOR THE PAR TNERSHIP CONCERNS TO PROVIDE FOR DEPRECIATION IN THE BOOKS OF ACCOUNT UNDER EXPLANATION 5 TO SECTION 32. THERE IS ALSO N O STATUTORY COMPULSION FOR THE PARTNERSHIP CONCERNS TO FOLLOW THE ACCOUNTING STANDARDS. [PARA 10] EVEN FOR A MOMENT IF IT IS ASSUMED THAT THE DEPRE CIATION SHALL NECESSARILY BE REQUIRED TO BE CHARGED FOR BOOK PUR POSES THEN THE QUESTION THAT ARISES IS WHETHER THE ASSESSING OFFICER IS ENTITLED TO DETERMINE THE METHOD AND RATE OF DEPRE CIATION. [PARA 11] AS PER THE PROVISIONS OF THE INCOME-TAX ACT THE A SSESSING OFFICER DETERMINES THE TOTAL INCOME OF THE ASSESSEE FOR AN Y YEAR ON THE BASIS OF BOOKS OF ACCOUNT OR OTHER RECORDS MAINTAI NED BY THE ASSESSEE. THUS IT IS THE RESPONSIBILITY OF THE AS SESSEE TO MAINTAIN PROPER RECORD AND BOOKS OF ACCOUNT WHICH WOULD EN ABLE THE ASSESSING OFFICER TO VERIFY THEM AND DETERMINE THE CORRECT TOTAL INCOME OF THE ASSESSEE. THERE CANNOT BE ANY DISPUT E THAT THE TOTAL INCOME IS DETERMINED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. UNDER SECTION 145(1) THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR ' INCOME FROM OTHER SOURCES' SHALL SUBJECT TO THE PROVISIONS OF SUB-S ECTION (2) BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANT ILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THU S IT IS THE PREROGATIVE OF THE ASSESSEE TO SELECT THE METHOD O F ACCOUNTING FOR THE INCOME CHARGEABLE UNDER THE TWO HEADS CITE D IN SECTION 145. IN THE SIMILAR MANNER IT IS THE PREROGATIVE OF THE ASSESSEE TO SELECT THE METHOD AND RATE FOR PROVIDING DEPREC IATION FOR BOOK PURPOSES. HENCE THE ASSESSING OFFICER IS NOT ENTI TLED TO DETERMINE THE METHOD AND RATE OF DEPRECIATION. [PA RA 12] NOW THE MAIN QUESTION THAT ARISES FOR CONSIDERATI ON IS WHETHER THE ASSESSING OFFICER IS ENTITLED TO RE-COMPUTE TH E CAPITAL ACCOUNT BALANCES OF THE PARTNERS. [PARA 13] BY A READING OF THE PROVISIONS OF SECTIONS 28(I) A ND 29 IT IS CLEAR THAT THE ASSESSING OFFICER HAS TO VERIFY WHETHER T HE ASSESSEE HAS FOLLOWED THE CONDITIONS PRESCRIBED UNDER SECTION 4 0(B) IN ORDER TO ALLOW DEDUCTION OF INTEREST PAID TO THE PARTNER S. FURTHER A CAREFUL READING OF THE PROVISIONS OF SECTION 40(B) WOULD SHOW THAT THE ASSESSING OFFICER IS AUTHORIZED ONLY TO VERIFY WHETHER THE PAYMENT OF INTEREST TO ANY PARTNER IS AUTHORIZED B Y AND IS IN ACCORDANCE WITH THE TERMS OF PARTNERSHIP DEED AND ALSO IT RELATES 8 TO THE PERIOD FALLING AFTER THE DATE OF PARTNERSHI P DEED. BESIDES THE ABOVE THE ASSESSING OFFICER SHOULD RESTRICT T HE RATE OF INTEREST IF THE RATE AUTHORIZED IN THE PARTNERSHI P DEED IS MORE THAN THE RATE SPECIFIED IN SECTION 40(B)(V). THUS NOWHERE IT IS PROVIDED THAT THE ASSESSING OFFICER IS ENTITLED TO DISALLOW THE PAYMENT OF INTEREST TO PARTNERS BY REWORKING THE C APITAL ACCOUNT BALANCES OF THE PARTNERS. [PARA 14] ACCORDINGLY THE ASSESSING OFFICER WAS TO BE DIREC TED TO ALLOW THE DEDUCTION OF INTEREST PAYMENT MADE TO THE PARTNERS IF IT WAS OTHERWISE IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 40(B). [PARA 15] THEREFORE WE ORDER TO DELETE THE IMPUGNED ADDITION AND ALLOW GROUND NO. (3) OF THIS APPEAL. 12. TO SUM UP BOTH THE APPEALS OF THE ASSESSEE STAN D ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD OCTOBER 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 RD OCTOBER 2013. VL/ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR