Income Tax Appellate Tribunal - Hyderabad
Sreenivasa Mechanical Works, ... vs Ito, Ward-1, Suryapet, Suryapet on 10 March, 2017
1
ITA.No.252/Hyd/2016 M/s. Sreenivasa Mechanical
Works, Kodad, Nalgonda District.
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA.No.252/Hyd/2016
Assessment Year 2011-2012
M/s. Srinivasa Mechanical The Income Tax Officer
Works, Kodad, Nalgonda vs. Ward-1, Suryapet.
Dist., PAN AANFS8975R
(Appellant) (Respondent)
For Assessee : -None-
For Revenue : Shri K.J. Rao
Date of Hearing : 01.03.2017
Date of Pronouncement : 10.03.2017
ORDER
PER D. MANMOHAN, V.P. This appeal by the assessee-firm is directed against the order passed by the CIT(A)-3, Hyderabad and it pertains to the A.Y. 2011-2012. Though the assessee raised several grounds, in the grounds of appeal filed before us, the limited issue is with regard to allowability of deduction under section 40(b) and section 32 of the Income Tax Act, 1961, after estimating the income/profit; even after estimating income statutory deductions are permissible in the light of clarification issued by CBDT vide Circular No.29-D dated 31.08.1963.
2. The assessee is a dealer in Mahindra & Mahindra Tractors. For the year under consideration, it declared total income of Rs.7,24,170. The case was selected for scrutiny in CASS. The assessee 2 ITA.No.252/Hyd/2016 M/s. Sreenivasa Mechanical Works, Kodad, Nalgonda District.
was called-upon to furnish books of account and also information as called for. Since the assessee could not produce all the vouchers for the expenses claimed, the A.O. rejected the books of account under section 145(3) of the I.T. Act, 1961 and estimated net profit at 1% of the total turnover which worked-out to Rs.26,63,430. According to the A.O. the estimation is clear of all expenses including partners remuneration, interest and depreciation. In this regard A.O. noticed that identical issue was decided by the CIT(A)-VI, Hyderabad, vide order dated 27.08.2012, in the case of V.V.C. Tractors, Nalgonda which is also in the same line of business.
2.1. According to the assessee partners remuneration is allowable even after estimating the income and therefore, it preferred an appeal before the CIT(A). It was contended that the return filed by the assessee is based on books of account duly audited under section 44AB of the Act. It was also contended that the assessee carried on its business in villages with the farmers and therefore, maintaining vouchers for all the expenses is a difficult job in which event the A.O. ought to have taken into consideration the net profit admitted in the earlier years on a comparative basis instead of rejecting the books. The assessee firm also relied upon the decision of ITAT in the case of Vishal Infrastructure Ltd., 104 ITD 537 wherein it was held that merely because certain vouchers are self-made books of account should not be rejected. It was also contended that as per CBDT Circular No.29-D, depreciation should be separately deducted from the estimated profit. Similarly even interest paid to the partners should also be deducted from the estimated income.
3. The Ld. CIT(A) rejected the contention of the assessee by observing that the A.O. having estimated the net profit there is no need 3 ITA.No.252/Hyd/2016 M/s. Sreenivasa Mechanical Works, Kodad, Nalgonda District.
to grant further deductions towards depreciation, interest and remuneration to partners, particularly in view of the fact that if such claim is allowed the assessed income would fall below the returned income. The operative portion of the order is extracted for immediate reference :
"4.4. The information on record is carefully considered. The appellant is an Authorised Dealer of Mahindra Tractors in Kodad Mandal, Nalgonda District. The appellant expressed difficulty in maintaining proper vouchers in support of the expenses incurred as it is located in mofussil area and has to deal with the farmers. The A.O. for the reasons mentioned in the preceding paras clearly held that in the absence of verifiable vouchers in support of expenses claimed, the profits returned by the assessee are not reliable. The appellant debited various unverifiable expenses under the heads, 'Vehicle Maintenance', 'Showroom Expenses', 'Welfare', 'Advertisement', 'Demo Expenses' etc. Further, the decision of Hon'ble ITAT in case of Vishal Infrastructure Limited (cited supra) is not applicable to the instant case. In the case of Vishal Infrastructure Limited, the A.O. rejected the books of accounts on the ground of non-availability of vouchers for expenses incurred by sub-contractors. Moreover, the estimation of income at 1% of the turnover cannot be considered as unreasonable. Further, in identical circumstances, the CIT(Appeals)-VI, Hyderabad in case of M/s. VVC Tractors, Nalgonda District, directed the A.O. to estimate the net profit at 1% of gross turnover. Further, the appellant's plea that depreciation, interest and remuneration to partners is to be allowed from such estimated income cannot be accepted for the simple reason that, if such expenses are allowed, the assessed income would fall below the returned income. Further, the A.O. categorically observed that estimation of income at 1% on gross turnover is clear of all expenses, including partners' remuneration, interest and depreciation. Therefore, I consider it is not necessary to interfere with the reasonable estimate of income made by the A.O. Therefore, all these grounds of appeal are dismissed."
4. Further aggrieved assessee is in appeal before us. None appeared for the assessee. Though the notices were sent from time to time (in fact fresh notice was sent by RPAD fixing the case for hearing on 1st March, 2017) none appeared for the assessee. We, therefore, proceed to dispose of the appeal ex-parte, qua the assessee. We have also heard the Ld. D.R. and carefully perused the record.
4ITA.No.252/Hyd/2016 M/s. Sreenivasa Mechanical Works, Kodad, Nalgonda District.
5. Here is the case where the profit is estimated by the A.O, in the absence of maintenance of proper books, @ 1% of the total turnover. It clearly indicates that the estimation of 1% is clear of all expenditure including depreciation, partners remuneration. Ordinarily in this line of business the gross profit would be higher than what is estimated by the A.O, if he was to separately allow depreciation and remuneration; But he preferred to estimate net profit only in which event separate claim of depreciation etc., is not maintainable. If deductions have to be allowed separately then the A.O. would have to estimated the income at a higher percentage. As rightly pointed out by the Ld. CIT(A), if separate deductions would have to be allowed, the net income would be less than what is declared by the assessee which is also one of the factors to indicate that the A.O. had taken into consideration only net profit and not the gross profit. At any rate, none appeared for the assessee and no material whatsoever, including case law, was placed before us to show that the net profit estimated by the assessee, clear of all other expenditure, is unreasonable. Under these circumstances, we do not find any infirmity in the order passed by Ld. CIT(A).
6. In the result, appeal filed by the assessee is dismissed.
Order pronounced in the open Court on 10.03.2017.
Sd/- Sd/-
(B. RAMAKOTAIAH) (D.MANMOHAN)
ACCOUNTANT MEMBER VICE PRESIDENT
Hyderabad, Dated 10th March, 2016
VBP/-
5
ITA.No.252/Hyd/2016 M/s. Sreenivasa Mechanical Works, Kodad, Nalgonda District.
Copy to
1. M/s. Sreenivasa Mechanical Works, Kodad, Nalgonda District.
C/o. Shri Y.V. Bhanu Narayan Rao, Chartered Accountant, D.No.10-2-274/C/2, First Floor, Near Maharaj Bakery, Misra Compound, West Maredpally, Secunderabad - 500 026.
2. The Income Tax Officer, Ward-1, Suryapet.
3. CIT(A)-3, Hyderabad.
4. Pr. CIT-3, Hyderabad
5. D.R. ITAT "B" Bench, Hyderabad
6. Guard File.