M/s SV Industries, Jagatsinghpur v. ACIT, Cuttack

ITA 233/CTK/2010 | 2006-2007
Pronouncement Date: 23-09-2011

Appeal Details

RSA Number 23322114 RSA 2010
Assessee PAN AAOFS1055M
Bench Cuttack
Appeal Number ITA 233/CTK/2010
Duration Of Justice 1 year(s) 3 month(s) 13 day(s)
Appellant M/s SV Industries, Jagatsinghpur
Respondent ACIT, Cuttack
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 23-09-2011
Assessment Year 2006-2007
Appeal Filed On 10-06-2010
Judgment Text
IN THE INC O ME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE : SHRI K.K.GUPTA AM AND SHRI K.S.S.PRASAD RAO JM ITA NO. 233/CTK/2010 (ASSESSMENT YEAR 2006 - 07) M/S. SV INDUSTIRES AT: JHIMANI P.O. KUJANGA JAGATSINGHPUR PAN AAOFS 1055 M VERS US INCOME - TAX OFFICER WARD 1(2) CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SASWAT ACHARYA AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE DR DATE OF HEARING : 16.09.2011 DATE OF PRONOUNCEMENT : 23.09.2011 ORDER SHRI K.K.GUPTA AM : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CONFIRMING THE ORDER OF THE ASSESSING OFFICER PASSED U/S.144 OF THE INCOME - TAX ACT 1961 FOR THE ASSESSMENT YEAR 2006 - 07. 2. THE BRIEF FACTS AS WERE REITERATED BEFORE THE AUTHORITIES BELOW ARE THAT T HE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM DERIVING INCOME FROM SUPPLY OF LABOUR REPAIR MAINTENANCE WORK TO PARADEEP PHOSPHATES LTD. THE RETURN OF INCOME FOR THE YEAR UNDER CONSID ERATION WAS FILED DISCLOSING PROFIT BEFORE DEPRECIATION AT 13 92 474 . AFTER DEPRECIATION INTEREST AND SALARY PAID TO PARTNERS NET TAXABLE INCOME OF 5 70 510 WAS DISCLOSED AND THE SAME WAS ACCEPTED U/S 143(1) OF THE I.T. ACT. ON 03.09.2008. THE CASE WAS SELECTED FOR SCRUTINY JUST PRIOR TO THE TIME BARRING MONTH ALTHOUGH THE ASSESSMENT RECORD WAS LYING WITH THE ASSESSING OFFICER FOR A PRETTY LONG TIME. IN BETWEEN THE CA SE WAS TRANSFERRED FROM ACIT C IRCLE - L(1) CUTTACK TO ITO WARD - L(2) CUTTACK F INALLY THE ASSESSING OFFICER ISSUED A NOTICE U/S 142 FIXING THE COMPLIANCE ON 26.11.2008 I.E JUST BEFORE THE TIME BARRING MONTH THUS THE APPELLANT WAS ALLOWED VERY LITTLE TIME TO COMPLY TO THE NOTICES. HE FURTHER SUBMITTED THAT SINCE THE CASE WAS SEL ECTED AND TAKEN UP FOR HEA RING IN THE ITA NO.233/CTK /2010 2 LAST MONTH OF THE YEAR AND THE MANAGING PARTNER OF THE APPELLANT FIRM WAS OUT OF HEAD QUARTE S R THEREFORE NOTICES OF ASSESSMENT COULD NOT BE COMPLIED WITHIN THE VERY SHORT PERIOD OF T IME AS ADEQUATE OPPORTUNITY HAD N OT BEEN AFFORDED TO THE APPELLANT. F URTHER THE LD. ASSESSING OFFICER PROCEEDED TO COMPLETE THE ASSESSMENT REJECTING THE BOOKS OF ACCOUNTS U/S 145 OF THE INCOME TAX ACT TO THE BEST OF HIS JUDGMENT U/S 144 WITHOUT ANY MATERIAL AT ALL WHEN THE LAW CLEARLY PROVIDES THE ESTIMATION MUST BE BASED ON MATERIAL EITHER GATHERED DURING THE COURSE OF ASSESSMENT OR THE APPELLANTS OWN PAST RECORD OR COMPARABLE CASES ETC. THE INCOME FROM CONTRACTUAL RECEIPT WAS ESTIMATED @ 8% OBSERVING THAT THE INCOME SO ESTIMATED IS AT PAR U/S 44AD OF THE INCOME TAX ACT FOR NON MAINTENANCE OF BOOKS OF ACCOUNT WHICH IS AGAIN A N ERRONEOUS BASIS OF ESTIMATION AS SECTION 44AD ONLY COMES INTO PICTURE WHEN THE GROSS CONTRACTUAL RECEIPT IS EITHER FROM CIVIL CONSTRUCTION WORK OR SUPPLY OF LABOUR FOR CIVIL CONSTRUCTION WORK BOTH THIS CONDITIONS IS COMPLETELY ABSENT IN APPELLANTS CASE AS THE APPELLANT HAS DERIVED INCOME FROM SUPPLY OF LABOUR NOT FOR THE PURPOSE OF CIVIL CONSTRUCTION RATHER TO THE PPL AUTHORITIES FOR DEPLOYMENT AT T HE FACTORY. FURTHER THE APPELLANTS GROSS RECEIPT IS ABOVE 40 LAKHS THEREFORE 44AD HAS NO APPLICATION. T HE ASSESSING OFFICER IN ONE HAND WHEN HE HAS REJECTED THE BOOKS OF ACCOUNT U/S 145 AGAIN ON THE OTHER HAND RELYING ON THE SAME REJECTED BOOKS OF ACCOUNT HAS ADDED A SUM OF 18 31 387 WHICH WAS RECEIVABLE AS TRADE DEBTORS. THAT FIRST OF ALL THE ASSESSING OFFICER APPLIED PROFIT RATE 8% ON THE AFORESAID AMOUNT AND AGAIN HE HAS ADDED THE ENTIRE AMOUNT TO THE TOT AL INCOME OF THE APPELLANT THUS MAKING DOUBLE ADDITION AND FURTHER GOING AGAINST THE SETTLED RUL E OF LAW PARTICULARLY IN CASE OF ESTIMATION OF INCOME AFTER REJECTION OF BOOKS OF ACCOUNT WHEN IT HAS BEEN HELD BY DIFFERENT COURT OF LAW THAT NO ADDITION CAN BE MADE RELYING ON THE SAME REJECTED BOOKS OF ACCOUNTS ITA NO.233/CTK /2010 3 TOWARDS TRADE DEBTORS AND TRADE CREDITO RS. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT BY INVOKING SECTION 184(5) HE DID NOT ALLOW INTEREST TO PARTNERS AMOUNTING TO 1 84 001 AND SALARY PAID TO PARTNERS AMOUNTING TO 3 O4 200. IN THIS PROCESS THE RETURNED INCOME OF 5 70 510/ - HAS BEEN ENHANCED TO 32 54 570 WHICH IS ALMOST SIX TIMES OF RETURNED INCOME AND DEMAND OF 10 41 481 WA S RAISED AGAINST THE APPELLANT OVER AND ABOVE PREPAID TAXES OF 3 99 204. 3. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO C ONSIDERED THE CASE OF THE ASSESSEE APPELLANT IN DETAIL BUT DISMISSED THE ASSESSEES CONTENTION BY UPHOLDING THE ASSESSMENT OF THE ASSESSING OFFICER. 4 . THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSING OFFICER WAS UNJUSTIFIED IN HOLDING THE NON - PRODUCTION OF BOOKS OF ACCOUNT IS SIMILAR TO NON - MAINTENANCE OF BOOKS OF ACCOUNT WHEN HE CHOSE TO ESTIMATE THE INCOME OF THE ASSESSEE UNDER THE DEEMING PROVISION OF SECTION 44AD BUT ALSO REJECTING BOOKS RESULT BY INVOKING TH E PROVISIONS OF SECTION 145 FOR THIS ESTIMATION. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE VERY BOOKS OF ACCOUNT WHICH ARE AUDITED BY THE CHARTERED ACCOUNTANT ARE AVAILABLE AS A CERTIFICATION WHICH THE AUDITORS HAVE INSCRIBED IN THE FINANCIAL ST ATEMENTS WHICH HAS BEEN CONSIDERED BY THE ASSESSING OFFICER FOR ACCEPTING THE GROSS RECEIPTS ON WHICH PERCENTAGE THE INCOME HAS BEEN COMPUTED UNDER THE PROVISIONS OF SECTION 44AD. THE LEARNED ASSESSING OFFICER IN THE SAME BREATH HAD ALSO CONSIDERED THE MI SMATCH BETWEEN THE TDS CERTIFICATES WHICH TAX CREDIT HAS BEEN AGREED BY THE ASSESSING OFFICER BUT ON MISINTERPRETATION O F THE FINDING THAT A SUM OF 1 8 73 427 WAS NOT RENDERED TO TAX BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER BELIEVED THAT THE GROSS RECEIPTS OF 1.77 CRORES DID NOT INCLUDE THE SUM OF 18 73 427 AS THE CHEQUE ITA NO.233/CTK /2010 4 HAD BEEN RECEIVED ON 31 ST MARCH AND WAS NOT DEPOSITED IN THE BANK THEREFORE WAS NOT RENDERED TO TAX BY THE ASSESSEE. HE ARGUED THAT HO W SIMULTANEOUSLY THE ASSESSING OFFICER IS RELYING ON THE BOOKS OF ACCOUNT AS CERTIFIED BY THE CHARTERED ACCOUNTANT TO INVOKE THE PROVISIONS OF SECTION 144 AGREED TO THE PROPOSITION OF TAXING THE INCOME OF THE ASSESSEE AT 8% WHEN THE ASSESSEE HAD RETURNED 7 .82% ON THE GROSS RECEIPTS AS INCOME. HE SUBMITTED THAT INVOKING THE PROVISIONS OF SECTION 145 COULD NOT PRECEDE THE INVOKING THE PROVISIONS OF SECTION 144 WHEN THE ASSESSING OFFICER HAS ACCEPTED THE BOOKS RESULT IN THE STATU S OF FIRM WHEN THE CLAIM OF SAL ARY AND INTEREST T THE PARTNERS HAS BEEN MADE AFTER THE NET PROFIT HAS BEEN DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME - TAX ACT. THE INTEREST AND SALARY HAS BEEN PAID TO THE PARTNERS UNDER THE PROVISIONS OF SECTION 40(B) WHEN THE LAW CONTEMP LATED THAT THE NON - MAINTENANCE OF BOOKS OF ACCOUNT DUE TO THE TURNOVER BEING LESS THAN THE TARGET FIXED FOR UNDERGOING AUDIT OF THE BOOKS OF ACCOUNT IS INSCRIBED IN SECTION 44AB WAS TO ACCEPT 8% AFTER DEPRECIATION AND REMUNERATION AND INTEREST TO THE PARTN ERS AS HAVING BEEN CONSIDERED ALLOWED. THE LEARNED ASSESSING OFFICER THEREFORE ERRED IN SPECIFICALLY DISALLOWING THE SAME ON THE BASIS THAT HE HAS PASSED THE ORDER U/S.144 BUT WITHOUT BRINGING ON RECORD ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT PRODUC ED WHEN HE CHOSE TO ESTIMATE THE INCOME ON HIS OWN. HE SUBMITTED THAT THE ASSESSING OFFICER HAD VERIFIED THE CLAIM OF EXPENSES WHEN HE NOTED THAT THEY DO NOT EXCEED 78.90% OF RECEIPTS WHICH CLEARLY INDICATES THAT THE SALARY AND INTEREST TO THE PARTNERS WAS ALLOWABLE UNDER THE DEEMING PROVISIONS OF SECTION 44AD. THE LEARNED CIT(A) ON THE OTHER HAND CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITHOUT ADDRESSING TO THE FACTUAL MISTAKES COMMITTED BY THE ASSESSING OFFICER WHICH MAY KINDLY BE PERUSED. ITA NO.233/CTK /2010 5 5. THE LEARNED DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW BY INDICATING THAT THE BOOKS OF ACCOUNT PRODUCED BEFORE THE ASSESSING OFFICER DID NOT SATISFY TO THE ASSESSING OFFICERS QUERIES RAISED UNDER THE PROVISIONS OF SECTION 142(1. THE BOOK RESULTS WERE T HEREFORE NOT ACCEPTED AND THE ASSESSING OFFICER PROCEEDED TO PASS THE BEST JUDGMENT ASSESSMENT BY ESTIMATING THE INCOME OF 8% OF THE GROSS RECEIPTS AND ALSO OBSERVING THAT THE TDS OF 42 040 WAS NOT CORRESPONDING TO THE GROSS RECEIPTS DECLARED BY THE ASSE SSEE. THE LEARNED CIT(A) THEREFORE RIGHTLY NOTED THAT THE ASSESSEE HAD NOT SHOWN THE RECEIPTS IN BANK AND HAD NOT FURNISHED THE LIABILITIES AGAINST THE SAME. HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF THE SUBMISSIONS. 6. WE H AVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS WE ARE INCLINED TO FIND FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. NO SPECIFIC DEFECT HAS BEEN POINTED BY THE LE ARNED ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 145. WE ARE FURTHER CONSIDERED ABOUT THE FACT THAT THE SAME BOOKS OF ACCOUNT WHICH THE ASSESSING OFFICER SOUGHT TO REJECT FOR ESTIMATING THE NET INCOME ON THE BASIS OF GROSS RECEIPTS AGAINST WHICH NO CONTROVERSY HAS BEEN POINTED OUT HAS BEEN ACCEPTED BY HIM FOR THE PURPOSE OF ACCEPTING THE TAX CREDIT GIVEN TO HIM ON THE VERY RECEIPTS WHICH HE HAS TAXED @8%. IN OTHER WORDS THE ASSESSING OFFICER HAS ACCEPTED THE STATUS OF THE ASSESSEE AS FIRM AS WELL AS ACCEPTED THE BOOKS RESULT WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNT FOR THE PURPOSE OF EITHER INVOKING THE DEEMING PROVISIONS OF SECTION 44AD OR COMPUTING THE INCOME UNDER THE PROVISIONS OF SECTION 144. GRANTING REGISTRATION U/S.184(5 ) WAS CONSEQUENT TO PASSING THE ORDER U/S/.144 WHEN THE FIRM COULD NOT BE DENIED THE BENEFIT OF CLAIMING THE REMUNERATION AND INTEREST TO THE PARTNERS AS EXPENSE . THE ITA NO.233/CTK /2010 6 DEEMING PROVISIONS OF SECTION 44AD PROVIDES FOR HOLDING DEPRECIATION INTEREST AND REMUNE RATION TO THE PARTNERS AS HAVING BEEN ALLOWED TO THE ASSESSEE WHEN 8% PROFIT IS TO BE RENDERED TO TAX ON THE GROSS RECEIPTS. THE ASSESSING OFFICER THEREFORE HAD PARTLY AGREED TO THE PROPOSITION THAT THERE WAS NOTHING INCRIMINATING IN THE BOOKS OF ACCOUNT SO PRODUCED THEREFORE COULD NOT CHO O SE TO PASS THE ORDER U/S.144 FOR INVOKING THE REFUSAL OF REGISTRATION U/S.184(5). ON OUR PERUSAL OF THE FINANCIAL STATEMENT AS WERE PERUSED AND WERE BEFORE THE ASSESSING OFFICER WE ARE OF THE CONSIDERED VIEW THAT THE A MOUNT OF 18 73 427 STANDS INCLUDED IN THE SUM OF GROSS RECEIPTS OF 1 77 89 807. THEREFORE THE ASSESSING OFFICER WAS TO VERIFY THE EXPENSES CLAIMED THERE AGAINST WHICH RESULTED IN COMPUTING 78.90% OF THE GROSS RECEIPTS THEREBY LEAVING THE RESIDUAL PORTIO N OF EXPENSES UPTO 92% WAS CHARGED TO THE P & L ACCOUNT BEING THE SALARY AND INTEREST TO THE PARTNERS . THE ASSESSEE HAS ALREADY RETURNED 6% ON THE BASIS OF ASSESSEE CLAIMING DEPRECIATION ON THE FIXED ASSETS THEREFORE WAS ENTITLED TO CLAIM INTEREST AND REMU NERATION TO THE PARTNERS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(B). ONCE THE ASSESSING OFFICER MISINTERPRETED THE FACT THAT 18 73 427 WAS THE GROSS RECEIPTS WHICH HAS NOT BEEN ACCOUNTED FOR BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BUT CHOSE TO GRANT CREDIT OF THE TAX DEDUCTED AT SOURCE THEREON THEREFORE ERRED IN HOLDING THAT NO CORRESPONDING LIABILITY HAD BEEN SHOWN. WE ARE OF THE CONSIDERED VIEW THAT PROPER BOOKS OF ACCOUNT AS CERTIFIED BY THE CHARTERED ACCOUNTANT W ERE MAINTAINED AND THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 145 AS PER THE FACTS CONSIDERED BY HIM AND ALSO CONFIRMED BY T HE LEARNED CIT(A). KEEPING THE ESTIMATION OF 8% ON GROSS RECEIPTS WE DIRECT THE ASSESSING OFFICER TO ALLOW INTEREST AND REMUNERATION TO THE PARTNERS THERE FROM WHICH WOULD MEET THE ENDS OF JUSTICE FOR COMPUTING INCOME UNDER THE PROVISIONS OF ITA NO.233/CTK /2010 7 SECTION 144. THIS DIRECTION IS FURTHER STRENGTHENED BY OUR OBSERVATION THAT THE ADDITION OF 18 31 387 CANNOT BE SUBJECTED TO FURTHER SCRUTINY AFTER HAVING ACCEPTED THE BOOKS RESULTS BUT NOT AS A DEFECT BUT ONLY ON A MISINTERPRETATION OF FACTS WHICH HAVE BEEN PARTLY AG REED TO BY THE ASSESSING OFFICER IN OBSERVING THAT THE TAX CREDIT OF 42 040 IS TO BE GIVEN TO THE ASSESSEE. THIS INDICATES THAT THE INCOME HAD BEEN RENDERED TO TAX BY THE ASSESSEE AND IT WAS NOBODYS CASE THAT THE CHEQUE HAD BEEN RECEIVED BUT NOT DEPOSITE D IN THE BANK. IN THIS VIEW OF THE MATTER THE APPEAL FILED BY THE ASSESSEE ON THESE TWO ISSUES STANDS PARTLY ALLOWED. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 23 RD SEPTEMBER 2011 H.K.PADHEE SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S. SV INDUSTIRES AT: JHIMANI P.O. KUJANGA JAGATSINGHPUR 2. THE RES PONDENT: INCOME - TAX OFFICER WARD 1(2) CUTTACK. 3. THE CIT 4. THE CIT(A) 5. THE DR CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY.