The ITO, Ward-2(3), Vijayawada v. Sri Annavarapu Hariharanath, Vijayawada

ITA 319/VIZ/2009 | 2006-2007
Pronouncement Date: 28-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 31925314 RSA 2009
Assessee PAN ABEPA8669C
Bench Visakhapatnam
Appeal Number ITA 319/VIZ/2009
Duration Of Justice 1 year(s) 6 month(s) 23 day(s)
Appellant The ITO, Ward-2(3), Vijayawada
Respondent Sri Annavarapu Hariharanath, Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 28-12-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 28-12-2010
Date Of Final Hearing 25-11-2010
Next Hearing Date 25-11-2010
Assessment Year 2006-2007
Appeal Filed On 05-06-2009
Judgment Text
ITA 319/VIZAG/09 ANNAVARAPU HARIHARNATH VIJAYAWADA PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 319 /VIZAG/20 09 ASSESSMENT YEAR: 2006 - 07 ITO WARD - 2(3) VIJAYAWADA ANNAVARAPU HARIHARNATH VIJAYAWADA (APPELLANT) PAN NO: ABEPA 8669 C VS. (RESPONDENT) APPELLANT BY: SHRI D.S. SUNDER SINGH DR RESPONDENT BY: SHRI G.V.N. HARI CA ORDER PER SHRI B . R . BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE R EVENUE IS DIRECTED AGAINST THE ORDER DATED 31 - 3 - 2009 PASSED BY LD. CIT(A) VIJAYAWADA AND IT RELATES TO THE ASSESSMENT YEAR 2006 - 07. 2. THE REVENUE IS ASSAILING THE DECISION OF THE LEARNED CIT (A) IN DELETING THE ADDITION OF RS.35.30 LAKHS MADE BY THE A SSESSING OFFICER. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. THE ASSESSEE IS CARRYING ON BUSINESS AS C&F AGENTS FOR MANY CONSUMER PRODUCT COMPANIES. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS GETTING REIMBURSEMENT OF VARIOUS EXPENSES INCURRED BY HIM ON BEHALF OF THE PRINCIP A L COMPANIES. TH OUGH TH E ASSESSEE HAD ACCOUNTED THESE TRANSACTIONS IN HIS BOOKS OF ACCOUNT HE DID NOT BRING THESE TRANSACTIONS IN HIS P&L A/C. THE ASSESSEE EXPLAINED THAT H E DID NOT ROUT E HIS TRANSACTIONS THROUGH P&L A/C SINCE THERE WAS NO PROFIT ELEMENT AT ALL IN THE M. THE ASSESSING OFFICER NOTICED THAT THE PRINCIPAL COMPANIES HAVE DEDUCTED TDS ON THE REIMBURSEMENTS SO MADE. HENCE THE ASSESSING OFFICER TOOK THE VIEW THAT A SSESSEE SHOULD HAVE ROUTED THE SE TRANSACTIONS OF INCURRING OF EXPENDITURE AND GETTING THE REIMBURSEMENT S T HROUGH THE P&L A/C. ACCORDINGLY T HE ASSESSING OFFICER F ORMED THE VIEW THAT TRUE AND CORRECT INCOME OF THE ASSESSEE COULD NOT BE ASCERTAINED WITHOUT BRINGING THESE ITA 319/VIZAG/09 ANNAVARAPU HARIHARNATH VIJAYAWADA PAGE 2 OF 4 TRANSACTIONS TO THE P&L A/C. ACCORDINGLY THE ASSESSING OFFICER ESTIMATED INCOME ELEMENT OUT OF THE REIMBURSEMENT S RECEIVED BY THE ASSESSEE A T 30% AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE . THE SAID ADDITION WAS DELETED BY THE LEARNED CIT (A). HENCE THE REVENUE IS IN APPEAL BEFORE US. 4. THE MAIN CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THE VERY FACT THAT THE PRINCIPAL COMPANIES HA VE DEDUCTED THE TDS ON SUCH REIMBURSEMENTS ONLY SUGGESTS THE FACT THAT T HEY ARE REVENUE RECEIPTS AND THEY SHOULD HAVE BEEN ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. SINCE THE ASSESSEE COULD NOT FILE THE EVIDENCE S RELATING TO THESE EXPENSES THE ASSESSING OFFICER HA D TO RESORT TO ESTIMATE THE PROFIT COMPONENT OUT OF THE SAID AMOUNTS REIMBURSED BY THE PRINCIPAL COMPANIES. 5. ON THE CONTRARY THE LEARNED AUTHORISED REPRESENTATIVE ARGUED THAT THERE NEED NOT BE ANY PROFIT ELEMENT ON ALL TRANSACTIONS WHEREVER THE TDS IS DEDUCTED. THE PRINCIPAL HAS DEDUCTED THE TDS SINCE HE I S LIABLE TO DEDUCT THE TDS ON THE GROSS PAYMENT AS PER THE CBDT CIRCULAR NO.295 DATED 27.4.1981. HE SUBMITTED THAT THE ASSESSING OFFICER HAS AFFIRMED IN HIS REMAND REPORT SUBMITTED TO LEARNED CIT(A) THAT THE RELEVANT AGREEMENTS PROVIDED FOR REIMBURSEMENT OF EXPENSES THAT HAVE BEEN INCURRED BY THE ASSESSEE ON BEHALF OF THE PRINCIPALS. HE FURTHER SUBMITTED THAT THE ASSESSEE COULD NOT PRODUCE THE EVIDENCES FOR THE IMPUGNED EXPENSES SINCE THEY WERE ALREADY DISPATCHED TO THE PRINCIPALS. IN THE REMAND REPORT THE ASSESSING OFFICER HAS ACCEPTED THAT THE ASSESSEE HAS OFFERED CERTAIN REIMBURSEMENTS AS HIS INCOME. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE TOTAL AMOUNT RECEIVED AS REIMBURSEMENTS FOR THE YEAR UNDER CONSIDERATION WAS RS.1.1 7 CRORES. THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT ON SUCH REIMBURSEMENTS AT 30%. THE UNDISPUTED FACT IS THAT THE ASSESSEE COULD NOT PRODUCE THE EVIDENCES FOR SUCH EXPENSES NOR DID THE ASSESSEE REQUEST THE ASSESSING OFFICER TO OBTAIN THE COPIES OF THE SAID EVIDENCES FROM THE PRINCIPAL COMPANIES. SINCE THE TDS HAS BEEN DEDUCTED ON THOSE REIMBURSEMENTS ALSO WE ARE OF THE VIEW THAT THE ASSESSEE HAS GOT AN OBLIGATION TO FURNISH THE DETAILS CALLED FOR BY THE ASSESSING OFFICER IN THAT REGARD. SINCE THE ASSESSEE HAS FAILED IN THAT ASPECT THE ASSESSING OFFICER HAS PROCEEDED TO ESTIMATE THE INCOME ELEMENT OUT OF THE TOTAL ITA 319/VIZAG/09 ANNAVARAPU HARIHARNATH VIJAYAWADA PAGE 3 OF 4 REIMBURSEMENTS AT 30%. HOWEVER THE ASSESSING OFFICER HAS NOT GIVEN ANY BASIS FOR ARRIVING AT THE PROFIT ELEMENT AT SUCH A RATE. 7. THE CONTENTION OF THE AUTHORISED REPRESENTATIVE WAS THAT THOUGH THERE IS NO PROFIT ELEMENT IN SUCH REIMBURSEMENTS YET MOST OF THE REIMBURSEMENTS PERTAIN TO THE TRANSPORT LOADING AND UNLOADING EXPENSES WHOSE RATES ARE NORMALLY KNOWN TO EVERY BODY. HE NCE IF AT ALL ANY INCOME IS TO BE ESTIMATED THE AGGREGATE AMOUNTS OF REIMBURSEMENTS SHOULD BE TAKEN AS THE TURNOVER OF THE ASSESSEE AND A CUE MAY BE TAKEN FROM THE PROVISIONS OF SEC. 44AD FOR ESTIMAT ING THE INCOME AT 8%. 8. WE HAVE ALREADY NOTICED THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO PRODUCE THE EVIDENCES WHICH HAS NECESSITATED THE ASSESSING OFFICER TO MAKE AN ESTIMATE OF THE INCOME COMPONENT. HOWEVER THE INCOME ESTIMATED AT 30% IN OUR VIEW APPEARS TO BE ON THE HIGHER SIDE SINCE THE MOST OF THE REIMBURSEMENTS PERTAIN TO TRANSPORT LOADING AND UNLOADING. IN ADDITION TO THE ABOVE W E ALSO NOTICE FROM THE ORDER OF THE LEARNED CIT (A) THAT THE ASSESSING OFFICER IN TH E REMAND REPORT HAS CLARIFIED THAT THE ASSESSEE HAD OFFERED AS INCOME THE REIMBURSEMENTS MADE TOWARDS ACCOUNTING CHARGES COMPUTER SUBSIDY CABIN SUBSIDY AIR CONDITIONER SUBSIDY AND UPS SUBSIDY. SINCE THE ASSESSEE HAS ALREADY OFFERED THE REIMBURSEMENTS RELATING TO THE ITEMS STATED ABOVE IN HIS PROFIT AND LOSS AC COUNT THERE IS NO REQUIREMENT TO MAKE SEPARATE ESTIMATE OF THE INCOME ELEMENT ON THOSE ITEMS WHICH HAVE ALREADY BEEN ACCOUNTED FOR IN THE PROFIT AND LOSS ACCOUNT . HENCE THE INCOME H AS TO BE ESTIMATED ON THOSE AMOUNTS WHICH HAVE NOT BEEN ROUTED THROUGH TH E PROFIT AND LOSS ACCOUNT . 9. NOW THE NEXT QUESTION SHALL BE ABOUT THE RATE AT WHICH THE INCOME HAS TO BE SO ESTIMATED. WE NOTICE THAT THE MAJORITY AMOUNT OF SUCH REIMBURSEMENTS CONSISTED OF REIMBURSEMENTS MADE TOWARDS TRANSPORT LOADING AND UNLOADI NG WHOSE RATES ARE NORMALLY KNOWN TO EVERY BODY AND HENCE THE PROFIT ELEMENT ON SUCH ITEMS SHALL BE LESS. HENCE ON A CONSPECTUS OF THE MATTER WE ARE OF THE VIEW THAT THE INCOME MAY BE E STIMATED AT 8.5% ON THE REIMBURSEMENT AMOUNTS WHICH HAVE NOT BEEN RO UTED THROUGH THE PROFIT AND LOSS ACCOUNT AND IN OUR VIEW; THE SAME WOULD MEET THE ENDS OF JUSTICE. W E ORDER ACCORDINGLY. ACCORDINGLY WE SET ASIDE T HE ORDER OF LEARNED CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ESTIMATE THE INCOME ELEMENT ON THE IMPUGNED ITA 319/VIZAG/09 ANNAVARAPU HARIHARNATH VIJAYAWADA PAGE 4 OF 4 REIMBURSEMENT AMOUNTS IN ACCORDANCE WITH THE PROCEDURES STATED ABOVE AFTER SEEKING CLARIFICATIONS IF ANY FROM THE ASSESSEE. 10 . IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED . PRONOUNCED IN TH E OPEN COURT ON 28.12.2010. SD/ - SD/ - ( SUNIL KUMAR YADAV ) ( B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV /SPS VISAKHAPATNAM DATE: 28 TH DECEMBER 2010 COPY TO 1 THE ITO WARD - 2(3) CENTRA L REVENUE BUILDINGS BANDAR ROAD VIJAYAWADA 2 SRI ANNAVARAPU HARIHARANATH PROP: M/S ANNARAPU AGENCIES D.NO.31 - 3 - 4B MOSQUE STREET MARUTHI NAGAR VIJAYAWADA 3 4. THE CIT VIJAYAWADA THE CIT(A) VIJAYAWADA 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE . BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM