Income Tax Appellate Tribunal - Rajkot
Lokhit Developers, Rajkot-Gujarat vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before Shri A.L. Gehlot (AM) and Shri N.R.S. Ganesan (JM)
I.T.A. No.1193/Rjt/2009
(Assessment year 2006-07)
ITO, Wd.1 vs M/s Lokhit Developers
Gandhidham New Vegetable Market-17
Anjar-Kutch
PAN : AACFK6147M
(Appellant) (Respondent)
C.O. No.23/Rjt/2010
(Arising out of I.T.A. No.1193/Rjt/2009)
(Assessment year 2006-07)
M/s Lokhit Developers vs ITO, Wd.1
Anjar Kutch Gandhidham
(Cross Objector) (Respondent)
Assessee by : Shri Kalpesh Doshi
Revenue by : Shri Avinash Kumar
ORDER
Per N.R.S. Ganesan, JM
The revenue has filed the appeal against the order of CIT(A)-II, Rajkot dated 27-10-2009 pertaining to assessment year 2006-07. The assessee has filed the cross objection on the very same order. Therefore, we have heard both the appeal and the cross objection together and dispose off the same by this common order.
2. Let us first take the revenue's appeal.
3. The first issue arises for consideration is with regard to addition of Rs.2,80,000 on account of truck plying income. Shri Avinash Kumar, the ld.DR submitted that the assessee has also filed cross objection with regard to very same issue to the extent of addition of Rs. 95,257 confirmed by the CIT(A).
2 ITA No.1193/Rjt/2009CO 23/Rjt/2010 According to the ld.DR the assessee is not entitled for any claim of expenses for running the vehicle. Moreover, the assessee has not substantiated the expenditure incurred. Therefore, the assessing officer has treated the income under "Income from other sources'. According to the ld.DR once the income was shown u/s 44AE there was no question of any further expenditure to be allowed. On the contrary, Shri Kalpesh Doshi, the ld.representative for the assessee submitted that the assessee has shown the gross receipt of Rs.2.80 lakhs. The assessee has claimed expenditure towards finance charges, salary to driver, diesel, depreciation and others. According to the ld.representative, the assessing officer has accepted the income on one hand, however, failed to allow the expenditure. The assesse has shown the income under section 44AE for two months. Therefore, books were not required to be maintained. Even if the books are rejected, the estimation has to be made only u/s 44AE of the Act.
4. We have considered the rival submissions. Admittedly, the assessee has shown the income u/s 44AE and claimed the expenditure. The question arises for consideration is when the assessee has shown the income under section 44AE whether it can claim any further expenditure or not. We have carefully gone through the provisions of section 44AE of the Act. Sub section (3) of section 44AE clearly states that any deduction allowable u/ss 30 to 38 shall for the purpose of sub section (1) of section 44AE deem to have already been given full effect and no further deduction under this section shall be allowed. However, by way of Proviso in case of firm the salary and interest to its partners can be reduced from the income computed u/s 44AE. Therefore, once the assessee has shown the income u/s 44AE there is no question of any further deduction either as expenditure or as depreciation. Therefore, in our opinion, the CIT(A) is not correct in allowing depreciation and other expenses. Once the profit was estimated, all expenditure and allowances u/ss 30 to 38 of the Income-tax Act are deemed to have been allowed, therefore, there is no question of any further allowance. In view of the above, the assessing officer is directed to compute the income u/s 44AE of the Act. However, we make it clear that the assessee is not 3 ITA No.1193/Rjt/2009 CO 23/Rjt/2010 entitled for any deduction towards expenses and depreciation except partners' salary and interest.
5. The next issue arises for consideration both in revenue's appeal and assessee's cross objection is with regard to disallowance of rs.6,02,811 towards expenses against sale of plots.
6. Shri Avinash Kumar, the ld. DR submitted that the assessing officer found that the assessee has debited certain expenses for which no proof was filed. Since the assessee was not maintaining any books of account, the expenses claimed by the assessee was disallowed. According to the ld. DR the assessee has not established the genuineness of the expenses claimed for sale of the plots.
7. On the contrary, Shri Kalpesh Doshi, the ld. representative for the assessee submitted that the assessee carried out land development activity and incurred expenditure. The assessee has sold some of the lands and the balance was retained as stock in trade. According to the ld.representative, the assessee has incurred expenditure in land leveling, plotting, sweeper and administrative expenses. The learned counsel further submitted that the assessing officer made disallowance on presumption and surmises. The voucher produced by the assessee were signed and stamped. According to the ld.representative, the expenditure was claimed as part of the closing stock. The assessee has made total plotting of 1057 plots out of which 112 were sold and the balance 945 plots were shown as closing stock. The assessing officer has not doubted the sale proceeds. Therefore, the expenses are allowable and the CIT(A) is not justified in disallowing 20% of the expenditure. The ld.representative placed his reliance on the decision of the Hyderabad Bench of this Tribunal in Vishal Infrastructure vs ACIT 107 TTJ 484 (Hyd).
4 ITA No.1193/Rjt/2009CO 23/Rjt/2010
8. We have considered the rival submissions on either side and have also considered the material available on record. Admittedly the assessee claimed expenditure of land leveling, plotting, sweeper expenses and administrative expenses. The assessee claims that the vouchers were signed, stamped and duly authenticated. However, the assessing officer found that the vouchers produced before him could not establish the genuineness of the payment. Therefore, the assessing officer requested the assessee to produce all the books of account, documents, etc for verification. However, the assessee could not produce the same. The question arises for consideration is when the assessee could not establish the payment, can he claim the same as expenditure. We have carefully gone through the decision of the Hyderabad Bench of this Tribunal in Vishal Infrastructure (supra). In the case before the Hyderabad Bench of the Tribunal, the assessee company was engaged in the business of engineering and constructing activity. The assessee carried on the work by itself and in few cases the work was done through sub contractors. After referring to the voucher, the Hyderabad Bench of this Tribunal has observed as follows:
"The Assessing Officer had not been able to quantify any particular item of deduction or expenditure as disallowable item for tax purposes and only general observations were made. No specific defect had been pointed out or a specific addition made other than making general statements as to the authenticity of the vouchers. Simply stating that the expenditure was not verifiable without pinpointing any vouchers specifically when the assessee was disputing such a finding and was producing evidence to counter the findings of the Assessing Officer, could not be a valid reason for rejection of books. However, depending on the nature of work, certain percentage of vouchers is bound to be self-made or local purchase vouchers. In such cases, the expenditure claimed on such vouchers can be evaluated on the basis of reasonableness and the Assessing Officer has all the powers to disallow a certain percentage of such expenditure if he finds that the claims are unreasonable. But to reject the entire books of account on the basis that they are some self-made vouchers for labour, material, transport, etc., cannot be countenanced. Reasonableness of the claim of expenditu4re und3er each head may be a matter of adjudication but not rejection of books."5 ITA No.1193/Rjt/2009
CO 23/Rjt/2010
9. However, we find that the Andhra Pradesh High Court in the case of Transport Corporation of India vs CIT 256 ITR 701 (AP) has with respect to similar payment of expenditure has observed as follows:
" the Tribunal, dealing with the question whether the necessary conditions to allow deduction under section 37(1) of the Act, did exist, placing reliance on the judgment of the Supreme Court in Sassoon J. David's case [1979] 118 ITR 261, held that the necessary conditions did exist and that the expression "wholly and exclusively" occurring in sub-section (1) of section 37 of the act, does not mean "necessarily". In other words, according to the Tribunal, ordinarily it is for the assessee to discharge whether any expenditure should be incurred in the course of his business or trade and such expenditure may be incurred voluntarily and without any necessity and if such expenditure is incurred, even voluntarily for promoting the business interest and to earn profits, the assessee is entitled to claim deduction under sub-section (1) of section 37 of the Act, though there is no compelling necessity to incur such expenditure. There cannot be any quarrel with the above proposition. But the question is whether such payment is made either to the petty brokers or to the employees of the customers of the assessee-company. The assessing authority, after appreciation of the entire materials collected by him and placed before him, has recorded the finding that the payment of secret commi9ssion is not established. Such a finding recorded by the assessing authority and affirmed by the appellate authority, could be upset by the Tribunal, being the final fact-finding authority under the Act, only if the findings recorded by the original authority and affirmed by the appellate authority cannot be sustained on the basis of the relevant materials and the evidence on record. As already pointed out supra, as a matter of fact, the factual finding recorded by the Tribunal, is based on "no evidence", but is based on irrelevant considerations whereas the finding recorded by the assessing authority is based on relevant materials and evidence."
10. In view of the above observation, the decision of the Hyderabad Bench of this Tribunal may not be any help to the assessee. Therefore, it is for the assessee to establish that the expenditure was incurred for the purpose of sale of the plots. The assessee has not produced the books of account and other documents even though the assessing officer has requested for the same. The CIT(A) found that both the assessee and the assessing officer are correct, 6 ITA No.1193/Rjt/2009 CO 23/Rjt/2010 however, he estimated the disallowance at 20%. The fact remains is that it is for the assessee to establish the expenditure and the assessee has not produced the books of account and all vouchers even though it was directed to do so by the assessing officer. When the assessing officer directed the assessee to produce the same it is the duty of the assessee to produce the same before the assessing officer. Therefore, in our opinion, the matter needs to be examined after considering the vouchers and books of account said to be maintained by the assessee. Accordingly we set aside the order of the lower authorities and remand back the matter to the file of the assessing officer. The assessee is directed to produce all the vouchers and books of account before the assessing officer. The assessing officer shall re-examine the issue in the light of the vouchers and books of account produced by the assessee and thereafter decide the issue afresh in accordance with law after giving a reasonable opportunity to the assessee.
11. The next ground of appeal is with regard to addition of Rs.20,12,351 towards bogus sundry creditors.
12. The ld.DR submitted that the assessee claimed sundry credits to the extent of Rs.20,68,799. The assessee has not produced the complete and exhaustive list of sundry creditors. The assessee has only filed the names and amount. Therefore, it could not be verified by the assessing officer. In respect of one Shri Prahladbhai Patel the assessing officer deputed the Ward Inspector to verify the whereabouts of the party. However, the Ward Inspector reported that Shri Prahladbhai Patel was not available at the given address. In the absence of any details, the assessing officer made addition of Rs.20,12,351. However, the CIT(A) found that the assessee has filed the list of creditors with confirmation letters and that it is for the assessing officer to issue summons, if the genuineness was suspected. According to the ld.DR the CIT(A) is not correct in saying that the assessee has filed the list of creditors and the confirmation letters. What was filed before the assessing officer is only the names and 7 ITA No.1193/Rjt/2009 CO 23/Rjt/2010 amount and not the other details. Therefore, the assessing officer could not verify the same. Therefore, the CIT(A) is not justified in deleting the addition.
13. On the contrary, Shri Kalpesh Doshi, the learned representative for the assessee submitted that the assessee has furnished the copy of the account confirmation letter and identity card to prove the identity of the creditor. According to the lde.representative, the deposit is not received for the year under consideration. Therefore, it cannot be added. The ld.representative placed his reliance on the decision of Delhi Bench of this Tribunal in the case of Shrui Vardhman Overseas Ltd vs ACIT 24 SOT 393 (Del) and the judgment of the Gujarat High Court in ITO vs PIC (Gujarat) Ltd 1219 TTJ 410 (Ahd); decision of the Mumbai Bench of the Tribunal in Kashuka Trading 26 SOT 388 (Mum) and the decision of this bench of the Tribunal in Harendra Karia 1138/RJT/2009 and the judgment of the Madhya Pradesh High Court in the case of Navendram Ahuja 290 ITR 453 (MP).
14. We have considered the rival submissions on either side and have also considered the material available on record. The assessing officer categorically states that the assessee has failed to file the complete and exhaustive details of sundry creditors. What was filed is the names and the amount. In respect of one of the names, the existence of the individual was not found at the given address. However, the CIT(A) finds that the assessee has filed the confirmation letter and all the addresses of the sundry creditors. The assessee also claims before this Tribunal that the identity and address list were filed before the assessing officer. Therefore, there cannot be any confusion whether the assessee has actually filed all the details before the assessing officer or not. Since the assessee claims that the details of sundry creditors, address confirmation letters are filed before the assessing officer, in our opinion, examination of the matter once again cannot prejudice the interest of any of the party. Since the assessing officer has not examined the confirmation letters and other details filed by the assessee before the assessing officer, in our opinion, the matter needs to be examined.
8 ITA No.1193/Rjt/2009CO 23/Rjt/2010 Accordingly we set aside the order of the lower authority on this issue and remand back the matter to the file of the assessing officer. The assessing officer shall re-examine the issue on the basis of material what was filed by the assessee and decide the issue in accordance with law after giving reasonable opportunity of hearing to the assessee.
15. In the result, both the appeal of the revenue and the cross objection filed by the assessee are partly allowed.
Order pronounced in the open court on 27-05-2011.
Sd/- sd/-
(A.L. Gehlot) (N.R.S. Ganesan)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Rajkot, Dt : 27th May, 2011
pk/-
copy to:
1. Assessee
2. Revenue
3. the CIT(A)-II, Rajkot
4. the CIT-I, Rajkot
5. the DR, I.T.A.T., Rajkot
(True copy) By order
Asstt.Registrar, ITAT, Rajkot