Shri Anand Swaroop Kala, Aligarh v. ACIT, Aligarh

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH AGRA BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI P.K. BANSAL ACCOUNTANT MEMBER ITA NO.665/AGR/2008 ASST. YEAR: 2004-05 SHRI ANAND SWARUP KELA VS. ASSTT. C.I.T. CIRC LE-I C/O. ANAND METAL WORKS ALIGARH. SAMAD ROAD ALIGARH. (PAN : AGPPK 8900 N) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH ADVOCATE RESPONDENT : SHRI R.C. SHARMA JR. D.R. ORDER PER P.K. BANSAL A.M.: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 27.08.2008. 2. GROUND NO.1 SINCE NOT PRESSED DUE TO THE SMALLN ESS OF THE CLAIM THEREFORE THE SAME STANDS DISMISSED AS NOT PRESSED. 3. THE GROUND NO.2 RELATES TO THE ADDITION OF RS.49 500/-. THE ASSESSEE IS THE PROPRIETOR OF THE FIRM ANAND DHAM WHICH IS ENGAGED IN THE BUSINES S OF DEVELOPER AND BUILDER. THE ASSESSEE DURING THE YEAR OUT OF THE COTTAGES CONSTRUCTED BY HIM SOLD 3 COTTAGES WHICH WERE HELD BY HIM AS STOCK IN TRADE. THE PROFIT AND GAIN FROM THE SA LE WAS SHOWN AS THE BUSINESS INCOME. THE A.O. 2 VALUED THE SALE CONSIDERATION OF THE COTTAGE AT MAR KET VALUE IN VIEW OF THE PROVISIONS OF SECTION 50C OF THE INCOME-TAX ACT 1961 (THE ACT HEREINAF TER) AND THUS MADE ADDITION OF RS.49 500/-. 4. WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDERS OF THE TAX AUTHORITIES BELOW. IN OUR OPINIO N THE PROVISIONS OF SECTION 50C CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE. SECTION 50C I S APPLICABLE WHEN THE INCOME IS COMPUTED UNDER THE HEAD CAPITAL GAIN. THIS SECTION PROVIDES AS UNDER :- 50C(1) WHERE THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET BEING L AND OR BUILDING OR BOTH IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY ANY AUTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE STAM P VALUATION AUTHORITY) FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER THE VALUE SO ADOPTED OR ASSESSED SHALL FOR THE PURPOSES OF SECTION 48 BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. 5. FROM THE READING OF THE SAID SECTION IT IS APPA RENT THAT THIS SECTION IS APPLICABLE IF THE ASSESSEE RECEIVES ANY CONSIDERATION AS A RESULT OF SALES OF CAPITAL ASSETS BEING LAND OR BUILDING. IN THE CASE BEFORE US THE COTTAGES ARE HELD BY THE AS SESSEE AS STOCK-IN-TRADE AND ACCORDINGLY THE ASSESSEE HAS SOLD THE BUSINESS ASSETS AND NOT THE C APITAL ASSETS. THE CONSIDERATION WAS RECEIVED BY THE ASSESSEE AS A RESULT OF SALE OF CURRENT ASSE TS. THE INCOME OF WHICH WAS ASSESSED BY THE A.O. UNDER THE HEAD INCOME FROM BUSINESS. THE IN COME ARISING FROM THE SALE OF COTTAGE HAS NOT BEEN ASSESSED UNDER THE HEAD INCOME FROM CAPIT AL GAIN. THEREFORE IN OUR VIEW THE A.O. WAS NOT CORRECT IN LAW IN SUBSTITUTING THE MARKET V ALUE IN PLACE OF THE CONSIDERATION RECEIVED BY THE ASSESSEE ON THE SALE OF THE COTTAGES. WE ACCO RDINGLY DELETE THE ADDITION MADE AMOUNTING TO RS.49 500/-. THUS GROUND NO.2 STANDS ALLOWED. 3 6. THE GROUND NO.3 RELATES TO THE ADDITION IN G.P. AS WELL AS INCREASE IN THE ESTIMATED TURNOVER. THE A.O. BY REJECTING THE BOOKS OF ACCOU NTS OF THE ASSESSEE ESTIMATED THE TURNOVER OF THE ASSESSEE AT RS 7 00 000/- AGAINST DECLARED SAL ES OF RS.6 52 773/-. THE G.P. WAS ESTIMATED ON THE ESTIMATED SALE AT THE RATE OF 28%. 7. LD. A.R. BEFORE US CONTENDED THAT THIS ISSUE IS DULY COVERED BY THE DECISIONS OF THE I.T.A.T. IN THE CASE OF THE ASSESSEE FOR THE A.Y. 1 998-99 IN WHICH THE TRIBUNAL HAS DIRECTED THE A.O. TO COMPARE THE G.P. OF THE HOTEL BUSINESS ONLY AFTER DEDUCTING 40% OF THE PURCHASES AS BEING CONSUMED BY THE STAFF. HE HAS POINTED OUT TH AT THE G.P. RATE FOR THE EARLIER A.Y. WITHOUT DEDUCTING 40% OF THE PURCHASES WAS AS UNDER :- SALES G.P. RATE 2001-02 6.04 17.8 2002-03 5.94 25.84 2003-04 5.85 16.58 2004-05 6.53 18.44 8. IF 40% IS DEDUCTED TOWARDS THE PURCHASES THE G. P. RATE WILL BE AS UNDER :- 2001-02 46.73% 2002-03 50.86% 2003-04 45.92% 2004-05 45.63% 9. THUS IT WAS CONTENDED THAT DURING THE YEAR AFTE R DEDUCTING 40% OF THE PURCHASE THE G.P. SHOWN BY THE ASSESSEE COMES TO 45.63% AS COMPARED T O 40.92% IN THE IMMEDIATELY PRECEDING YEAR. IN THE A.Y. 1998-99 THE TRIBUNAL HAD UPHELD THE G.P. RATE OF 35.71% AFTER ALLOWING 40% OF PURCHASE FOR KITCHEN STAFF. OUR ATTENTION WAS D RAWN TO PAGE NOS. 2 TO 4 OF THE TRIBUNALS ORDER DATED 17.01.2006 IN THE CASE OF THE ASSESSEE IN ITA NO.104/AGR/2002. 4 10. LD. D.R. ON THE OTHER HAND RELIED ON THE ORDE R OF THE A.O. AND ALSO POINTED OUT THAT DURING THE A.Y. 1998-99 ALSO THE TRIBUNAL HAS CONFI RMED THE REJECTION OF THE BOOKS OF ACCOUNTS BY THE A.O. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ALONGWITH ORDERS OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE O RDER OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO.104/AGR/2002 FOR THE A.Y. 1998-9 9 DATED 17.01.2006. WE FIND UNDER PARAGRAPH NOS.7 & 8 THIS TRIBUNAL HAS HELD AS UNDE R :- WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ALSO PERU SED THE RECORD. WE FIND THAT IT WAS SPECIFICALLY POINTED OUT BY THE AS SESSING OFFICER AND THE LEARNED CIT(A) THAT NO SEPARATE AND PROPER ACCOUNT OF PURCH ASES AND SALES RELATING TO KITCHEN HAD BEEN MAINTAINED BY THE APPELLANT. BESI DES 40% OF THE PURCHASES ARE BEING CLAIMED AS HAVING BEEN CONSUMED BY THE STAFF WITHOUT TAKING INTO ACCOUNT THE ACTUAL CONSUMPTION OF PURCHASES. THEREFORE WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 145 HAD RIGHTLY BEEN INVOKED BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A). AS REGARDS THE APPLICATION OF G.P. RATE WE FIND TH AT THE APPELLANT HAD DECLARED G.P. RATE OF 35.71% FOR THE YEAR UNDER APP EAL. THE G.P. RATE OF 31.33% WAS DECLARED IN THE ASSESSMENT YEAR A1997-98 AND G. P. RATE OF 35.71% WAS DECLARED IN THE ASSESSMENT YEAR 1998-99. DURING TH ESE YEARS THE ASSESSEE HAD CLAIMED DEDUCTION OF 40% OF PURCHASES FOR FOOD TO S TAFF. HAVING REGARD TO THE CONSTANT PRACTICE OF THE APPELLANT WE FIND THAT TH E G.P. RATE DECLARED BY THE ASSESSEE DURING THE YEAR UNDER APPEAL IS REASONABLE . THE ASSESSING OFFICER ERRED IN COMPARING THE TRADING RESULT OF THE ASSESSEE WIT H A THREE STAR HOTEL LOCATED AT AGRA. LIKE CAN BE COMPARED WITH LIKE AND THAT TOO AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD. THEREFORE WE ARE OF THE OPINION TH AT THE LOWER AUTHORITIES HAVE ERRED IN MAKING TRADING ADDITION OF RS.68 817/-. I T WAS HELD IN THE CASE OF CIT VS. GOTAN LIME KHANIJ UDHYOG 256 ITR-243 (RAJ.) THAT M ERE REJECTION OF BOOKS OF ACCOUNTS U/S. 145 NEED NOT NECESSARILY LEAD TO THE ADDITION TO THE TRADING ACCOUNT. THEREFORE THE TRADING ADDITION OF RS.68 817/- MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) IS HEREBY DELETED. 12. LD. A.R. ALTHOUGH RELIED ON THE ORDER OF THE TR IBUNAL BUT DID NOT DISPUTE THE REJECTION OF THE BOOKS OF ACCOUNTS BY THE A.O. WE ACCORDINGLY CONFIRM THE ACTION OF THE A.O. REJECTING THE 5 BOOKS OF ACCOUNTS. SO FAR THE ESTIMATION OF THE SA LES BY THE A.O. IS ALSO CONCERNED DUE TO SMALLNESS OF THE DIFFERENCE THE SAME WAS ALSO SINC E NOT PRESSED WE CONFIRM THE SAME. 13. NOW COMING TO THE APPLICABILITY OF THE G.P. RAT E WE NOTE THAT THE TRIBUNAL HAS UPHELD THE G.P. RATE DURING THE A.Y. 1998-99 @ 35.71% AFTER AL LOWING DEDUCTION TO THE ASSESSEE @ 40% FOR PURCHASES FOR THE STAFF. IN THE CASE OF THE ASSESS EE THE LD. A.R. SUBMITTED A CHART BEFORE US AND WE NOTED AFTER DEDUCTING 40% OF THE OTHER PURCHASES THE G.P. RATE IN THE CASE OF THE ASSESSEE COMES TO 45.63% DURING THE YEAR UNDER CONSIDERATION WHICH IS MUCH MORE THAN THE G.P. RATE AS HAS BEEN SHOWN DURING THE A.Y. 1998-99. WE THEREF ORE RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIBUNAL FOR THE A.Y. 1998-99 ALLOW DEDUCTION TO THE ASSESSEE @ 40% OF THE OTHER PURCHASES FOR THE KITCHEN AND ACCORDINGLY DIRECT TH E A.O. TO COMPUTE THE INCOME OF THE ASSESSEE FROM HOTEL ANAND PALACE BY DEDUCTING 40% OF THE OTH ER PURCHASES WHILE ESTIMATING THE G.P. @ 45.63% ON A SALE OF RS.7 00 000/-. THUS THIS GROU ND TO THAT EXTENT IS ALLOWED. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 25.05.2010) . SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 25 TH MAY 2010. PBN/* 6 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR ITAT AGRA BENCH AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL AGRA TRUE COPY