Income Tax Appellate Tribunal - Amritsar
Income Tax Officer vs Bansi Lal Gupta on 8 September, 2006
Equivalent citations: (2008)113TTJ(ASR)898
ORDER
Joginder Pall, A.M.
1. By this order, we shall dispose of this appeal of the Revenue filed against the order of the CIT(A), Jalandhar, for the asst. yr. 2001-02.
2. The first ground of appeal relates to deletion of an addition of Rs. 2,84,425 made by the AO on account of cash credits. The facts of the case are that during the course of assessment proceedings', the AO found from balance sheet credits in the names of five persons standing in the books of account of the assessee. All these were old credits brought from the year 1995-96 onwards. The AO issued summons under Section 131 to confirm whether such credits were genuine. One Sh. Arjan Dass in whose name an amount of Rs. 50,000 was shown outstanding appeared before the AO and stated that he has not given any loan to anybody during and before the financial year 2000-01. Summons issued to Sh. Vipan Kumar and Smt. Kanchan Gupta were returned 'unserved'. The AO, therefore, held that such credits standing in the names of these persons for more than three years were not genuine and accordingly, made the addition. In case of one Sh. Ashok Mahajan, the summons issued by the AO had not been returned 'unserved', but none appeared before the AO on the date fixed for hearing. The AO, therefore, treated the amount of Rs. 56,948 standing in his name for more than three years as income of the assessee. As regards Sh. Dharamvir Gupta, the summons issued by the AO could not be served for want of complete address. Here also, the AO treated the amount as unexplained.
Aggrieved, the assessee filed an appeal before the CIT(A). It was submitted before the CIT(A) that the AO had made an addition without allowing proper opportunity to the assessee. It was submitted before the CIT(A) that these were old credits which appeared in the books of account of the assessee for the year 1995-96 and, therefore, no addition was called for under Section 68 of the IT Act. It was further submitted that these amounts were outstanding for more than 3 years did not mean that the liability had seized to exist and, therefore, no addition under Section 41(1) could also be made. Reliance was also placed on several judgments noted by the CIT(A) on p. 3 of the impugned order which also included the judgment of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. . The learned CIT(A) considered these submissions and observed that the liability does not cease to exist even if the debt is old for more than 3 years. It was submitted that in the accounting year under reference, the assessee had not received any benefit in the form of cessation of liability and, therefore, no addition under Section 41(1) of the Act could be made. It was also submitted that the judgment of the Supreme Court in the case of CIT v. T.V. Sundram Itengar & Sons Ltd. was not applicable because the assessee received deposits from customers which were unclaimed and assessee had transferred the same to P&L a/c. However, these were not included in the total income. But, in this case, the assessee had not transferred these amounts to the P&L a/c. Further, it was submitted that the provisions of Section 41(1) were not applicable to the facts of this case because no deduction in respect of such amounts by way of loss, expenses or trading liability was allowed in the earlier assessment years and in the subsequent years also. The assessee had not obtained any benefit by way of remission or cessation of liability. Accepting the contentions of the assessee, the learned CIT(A) deleted the addition. The Revenue has now come up in appeal before us.
3. The learned Departmental Representative relied on the order of the AC).
4. The learned Counsel for the assessee, on the other hand, relied on the order of the CIT(A).
5. We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record. It is an admitted position that these were old credit balances brought forward from the year 1995-96. No addition under Section 68 could be made because such credits did not appear in the books of account of the assessee for the assessment year under consideration. Similarly, addition under Section 41(1) could also not be made because no deduction or allowance in respect of expenses, loss or trading liability had been allowed in the earlier assessment years. Thus, we are of the considered opinion that the learned CIT(A) was justified in deleting the impugned addition. We confirm his order and reject this ground of appeal of the Revenue.
The next ground of appeal relates to deletion of disallowance of interest of Rs. 2,46,977 being excess interest paid to depositors covered under Section 40A(2)(b) of the Act. The facts of the case are that the AO observed that the assessee had paid interest @ 24 per cent to 16 persons covered under Section 40A(2)(b) of the Act. The AO, therefore, restricted the deduction of interest to 18 per cent and thereby made a disallowance of Rs. 2,46,977.
6. Aggrieved, the assessee impugned the disallowance in appeal before the CIT(A). It was submitted before the CIT(A) that the effective rate of interest in respect of loans borrowed from bank comes to 20 per cent per annum. The bank loan could be availed of only to the extent of limit sanctioned and that too after providing necessary security whereas the loans taken from relatives were unsecured for which the prevailing rates of interest varied from 24 per cent to 30 per cent. Accepting the contentions of the assessee and by relying on the decision of the Tribunal, Amritsar Bench, the learned CIT(A) deleted the addition. The Revenue is aggrieved with the order of the CIT(A). Hence, this appeal before us.
7. The learned Departmental Representative simply relied on the order of the AO.
8. The learned Counsel for the assessee, on the other hand, relied on the order of the Tribunal, (SMC) Amritsar Bench, in the case of H.S. Sales Corporation, Jalandhar v. ITO in ITA No. 395/Asr/2005 for the asst. yr. 2001-02 (a copy placed at pp. 106 and 107 of the paper book).
9. We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record. We have referred to the decision of Tribunal (SMC), Amritsar Bench, in the case of H.S. Sales Corpn. v. ITO (supra), where the Tribunal by referring to the earlier order of Tribunal, Amritsar Bench, in the case of AIM Forgings, Jalandhar v. Asstt. CIT, has held that interest paid @ 24 per cent was fair and reasonable and did not warrant any disallowance. While doing so, the Tribunal further relied on the decision of Tribunal (SMC), Amritsar Bench, in the case of Parmod Kumar Raj Kumar, Phagwara v. Asstt CIT in ITA No. 267/Asr/2005 for the asst. yr. 2001-02, where it was held as under:
5. I have heard both the parties and considered the rival contentions, examined the facts, evidence and material on record and gone through the orders of the authorities below. The undisputed facts of the case are that the assessee has paid interest @ 24 per cent to persons covered under Section 40A(2)(b) i.e. at the same rate at which interest was claimed and allowed in the past i.e. asst. yr. 2000-01. There is also no disputed about the fact that the borrowed amounts were utilized for the purpose of business. Similar issue came up before the Tribunal, (SMC) Amritsar Bench, in the case of Parmod Kumar Raj Kumar v. Asstt. CIT, in ITA No. 267/Asr/2005 for the asst. yr. 2001-02, dt. 2nd Sept., 2005 and the Tribunal decided the same in favour of the assessee and against the Revenue by recording following findings in para 6 of the order:
6. I have heard both the parties and carefully considered the rival contentions with reference to facts, evidence and material on record. The fact that the assessee had claimed interest @ 24 per cent and was allowed by the Revenue in the asst. yr. 2000-01 has not been disputed by the Revenue. Therefore, principle of consistency demanded that no addition in respect of the same should have been made for the assessment year under reference. Besides, this issue is squarely covered by the decision of the Tribunal (SMC), Amritsar Bench, in the case of M/s. Rimpy Processors (P) Ltd. v. Asstt. CIT, Cir.5, Amritsar (supra) where it was held in para 4 as under:
4. Having heard the rival submissions and perused the relevant material on record, it is noted that the assessee was paying the interest to these persons @ 24 per cent in the preceding assessment years as well. Page 173 of the paper book is a chart showing interest to these persons @ 24 per cent in the preceding and succeeding years which was accepted by the Revenue. Even the assessment for the immediately preceding year was made in scrutiny under Section 143(3) by accepting the payment of interest @ 24 per cent. Assessment order for the said year has been placed at p. 49 of the paper book. These facts indicate that the assessee had paid interest to these persons @ 24 per cent in the preceding as well as succeeding years and the same was accepted by the Revenue. That being the position, there was no reason to disturb the finality given to these transactions by the Department itself. Principle of consistency requires that in the absence of any change in the factual or legal position, a view taken should not be altered. This view has been recently reiterated by the Hon'ble Delhi High Court in the case of Director of IT (Exemption) us. Guru Nanak Vidya Bhandar Trust . In view of these facts, I am satisfied that the addition made and sustained by allowing interest to such specified persons at 18 per cent only was not justified. By reversing the impugned order on this score, I direct the deletion of this addition.
The facts of the present case are similar to the facts of the abovementioned case. Therefore, respectfully following the order of the Tribunal, I set aside the order of the CIT(A) and delete the impugned disallowance. Accordingly, the grounds of appeal of the assessee are allowed.
This order was followed by the Tribunal, Amritsar Bench, in the case of AIM Forgings v. Asstt. CAT (supra) for the asst. yr. 2001-02. The facts of the present case are similar to the facts of the cases already decided by the Tribunal. Respectfully following the same, the order of the C1T(A) is set aside and the AO is directed to allow the interest claimed by the assessee. This ground of appeal is accordingly allowed.
The facts of the present case are similar to the facts of the aforesaid case. Therefore, respectfully following the same, we confirm the order of the CIT(A) and reject this ground of appeal of the Revenue.
10. The next ground of appeal relates to deletion of trading addition of Rs. 20,000. The facts of the case are that the assessee had shown GP rate of 13.58 per cent on sales of Rs. 1,20,72,293 as against GP rate of last year shown at 13.33 per cent. However, the AO observed that the assessee had not maintained any stock register. Further, even auditors had mentioned in the audit report that details of closing stock have not been produced for verification. Thus, the AO observed that the value of closing stock could not be correctly worked out in the absence of day-today quantitative details. Accordingly, the AO made an ad hoc trading addition of Rs. 20,000 to cover the possible leakage.
11. Aggrieved, the assessee impugned the addition in appeal before the CIT(A). It was submitted that the gross profit shown by the assessee at 13.58 per cent was better than gross profit shown of last year at 13.33 per cent. All purchases and sales were vouched and expenses were also supported by bills and vouchers. Thus, it was submitted that no addition was called for. Accepting the submissions of the assessee, the learned CIT(A) deleted the impugned addition. The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
12. The learned Departmental Representative heavily relied on the order of the AO.
13. The learned Counsel for the assessee, on the other hand, relied on the 'order of CIT(A).
14. We have heard both the parties and considered the rival contentions, examined the facts, evidence and material placed on record. We find that trading addition made by the AO on ad hoc basis was without any justification. It is not denied that the gross profit shown by the assessee at 13.58 per cent was better than gross profit shown at 13.33 per cent of the last year. None other defects in the books of account which could show either suppression of sales or inflation of expenses have been pointed out by the AO. No doubt, the assessee had not produced or maintained the stock register. This itself could not be a ground for making an ad hoc addition of Rs. 20,000 without pointing out any specific defect or undervaluation of closing stock. No such enquiry was made by the AO. Thus, we do not find any justification to interfere with the order of the CIT(A). The same is upheld and this ground of appeal is rejected.
15. The next two grounds of appeal relate to reducing the disallowance out of telephone and travelling expenses. Briefly stated, the facts of the case are that the assessee had claimed postage, telephone and telegram expenses aggregating to Rs. 96,198. The AO disallowed the expenses of Rs. 15,000 i.e. about l/6th for personal use of the telephone. Similarly, the AO disallowed the expenses of Rs. 8,000 out of travelling and conveyance expenses of Rs. 60,934. On appeal, the learned CIT(A) reduced the disallowance to l/10th out of telephone and travelling and conveyance expenses. The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
16. The learned Departmental Representative stated that the learned CIT(A) has reduced the disallowance on ad hoc basis and without any justification. He, therefore, submitted that the order of the CIT(A) may be set aside and that of the AO restored.
The learned Counsel for the assessee, on the other hand, relied on the order of the CIT(A).
17. We have heard both the parties and considered the rival contentions. We find that the AO has disallowed expenses of Rs. 15,000 out of postage, telephone and telegram expenses of Rs. 96,198. While personal use of the telephone could not be denied, but there is no justification for making any disallowance out of postage and telegram expenses. At the same time, we do not find any justification for CIT(A) to reduce the disallowance to l/10th. Thus, we modify the order of the CIT(A) and direct the AO to disallow l/7th out of telephone expenses alone. Similarly, the disallowance out of travelling and conveyance expenses @ 1/7th not exceeding the disallowance made by the AO would meet the ends of justice. We modify the order of the CIT(A) and direct the AO to restrict the disallowance to 1/7th. These two grounds of appeal are treated as partly allowed.
18. The next ground relates to the direction given by the C1T(A) to drop the penalty proceedings under Section 271(l)(c) of the Act. The facts of the case are that in the course of assessment proceedings, the AO found an amount of Rs. 90,000 being fresh credit in the capital account of the partners. It was submitted before the CIT(A) that the amount of Rs. 50,000 was withdrawn from the Saving bank account and Rs. 40,000 was an amount surrendered as income in the IT returns as miscellaneous income. However, the AO observed that the assessee could not explain the source of miscellaneous income of Rs. 40,000. Accordingly, the AO treated the amount of Rs. 40,000 as income from undisclosed sources and initiated penalty proceedings under Section 271(l)(c) of the Act. The assessee filed an appeal against the assessment order and challenged the action of the AO for initiation of penalty proceedings in the assessment order. The learned CIT(A) directed the AO to drop the penalty proceedings for the reason that the amount of Rs. 40,000 was disclosed in the return of income filed by the assessee. The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
19. The learned Departmental Representative submitted that the direction given by the CIT(A) for dropping the penalty proceedings was invalid because initiation of penalty proceedings is not appealable order. He submitted that the order of the CIT(A) may be set aside and that of the AO restored.
20. The learned Counsel for the assessee, on the other hand, relied on the order of the CIT(A).
21. We have heard both the parties and considered the rival submissions with reference to facts, evidence and material placed on record. From the facts discussed above, it is obvious that assessee had himself disclosed income of Rs. 40,000 in the return without there being any enquiry or detection by the AO. It is, therefore, not understood as to how the AO was justified in initiating penalty proceedings under Section 271(l)(c) as the assessee had neither concealed the particulars of income nor furnished inaccurate particulars thereof when the income was included in the return voluntarily. Therefore, the action of the AO does not appear to be in conformity with the provisions of the Act. Be that as it may, the AO had only initiated penalty proceedings. The assessee is free to submit his reply and the AO after considering his reply may drop the penalty proceedings. It is settled law that both penalty proceedings and assessment proceedings are separate and independent proceedings. The very fact that penalty proceedings have been initiated does not mean that it would automatically lead to levy of penalty under Section 271(1)(c). Even if the penalty is levied, there is provision for filing an appeal against the said order. We are, therefore, of the opinion that the direction given by the CIT(A) to drop proceedings initiated under Section 271(l)(c) was not correct. Accordingly, we set aside the order of the CIT(A) and restore that of the AO. This ground of appeal is partly allowed.
22. In the result, the appeal of the Revenue is partly allowed.