Income Tax Appellate Tribunal - Ahmedabad
Rakesh Arvindbhai Patel, Baroda vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " SMC "
BEFORE SHRI N.S. SAINI,
SAINI, ACCOUNTANT MEMBER
Date of hearing : 16-7-10 Drafted on:16-7-10
ITA No.608 /AHD/2010
Assessment Year :2006-07
Shri Rakesh Vs. Income Tax Officer,
Arvindbhai Patel, Ward 2(2),
11/A,Shantikunj 2 n d Floor, Aayakar Bhavan,
Society, Opp. Vakal Race Course Circle,
Vidyalay, Bajwa, Baroda.
District Vadodara.
PAN/GIR No. : AHKPP 2742 H
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri S.N.Divatia.
Respondent by: Shri B. D. Barot, D.R.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-II, Baroda dated 3-12-2009.
2. The assessee has taken following grounds of appeal.
"1. GENERAL.
(a) The following grounds of appeal are without prejudice to one another. The order of the Learned Commissioner of Income Tax (Appeals)-II, Baroda [hereinafter referred as (CIT)] is against law and facts.
(b) In these grounds of appeal, the Income Tax Officer, Ward 2(2),Baroda is referred to as the Assessing Officer or the Learned Assessing Officer and the Commissioner of Income-tax (Appeals)-II, Baroda is referred to as Learned Commissioner of Income Tax(Appeals) or C.I.T.(A).
(c) Your appellant craves leave to add, alter, amend or withdraw all or any of the following grounds of appeal.-2-
2. The Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer in interpretation and application of various provisions of the Income Tax Act and accounting principles.
3. The Learned Commissioner of Income Tax (Appeals) ought to have appreciated that the provisions made under section 44AE (3) that "Any deduction allowable under the provisions of section 30 to 38 shall, for the purpose of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed" has been misinterpreted and misunderstood as expenditure incurred and paid. He ought to have appreciated that the depreciation under section 32 is not required to be paid at all but is allowed as expenditure before arriving at profit for the year.
4. The Learned Commissioner of Income Tax (Appeals) ought to have appreciated that the action of the Learned Assessing Officer in asking the appellant to produce copies of last 3 years capital account was not in confirmation with the spirit of law.
5. The Learned Commissioner of Income Tax (Appeals) ought to have appreciated that depreciation is non cash expenditure and allowable as deduction under section 32 of the Income Tax Act, 1961 before arriving at the profit of the business. When assessee incurs capital expenditure or makes investments or use fund for personal expenditure during any financial year, he is doing so from the profit made by him from his business. While making such expenditure or investments, he uses surplus fund generated during business activities. And depreciation is considered as one of the sources of cash flow for utilization of fund towards capital or revenue expenditure, repayment of loans, investments etc. as per accounting principles for preparation of Cash Flow Statement. This fundamental principal of cash flow is ignored, understood and implemented prejudicially against the appellant."
3. The brief facts are that the assessee is engaged in the business of transportation and plying goods carries vehicles and owned four light commercial vehicles during the year. The return of income was filed under section 44AE of the Income Tax Act on20-3- -3- 2007 declaring total income of `.1,45,250/-. On verification of the Bank account the Learned Assessing Officer noted that the assessee had following expenses/investments:-
Particulars. Amount `.
Household expenses 72,000/-
Investment in shares 1,88,757/-
Investment in Mutual Funds 57,000/-
Under section 80D 1,679/-
LIC Premium 65,768/-
Car(down payment) 24,000/-
Car installment(principal) 15,455/-
Total 4,24,659/-
4. The Learned Assessing Officer further observed that the assessee has offered `.2,12,696 only for taxation whereas the expenses/investments stood at `.4,24,659/-. Since the expenses exceeded the income declared by `.2,11,963/- the Learned Assessing Officer sought an explanation from the assessee. The assessee explained that depreciation of `.2,09,654/- being non cash expenditure was the source of expenses and investments. The Learned Assessing Officer was not convinced with the submissions of the assessee and held that under the deeming provisions of section 44AE all expenses, including depreciation have been treated as given effect to, therefore, whatever income is declared by the assessee is only available with him for expenses/investments. The Learned Assessing Officer further observed that capital account had not been filed by the assessee for the last years despite specifically being called for. Hence he added `.2,11,963 as income from undisclosed sources.
5. In appeal, the Learned Commissioner of Income Tax (Appeals) confirmed the order of the Learned Assessing Officer -4-
6. The Learned Authorised Representative of the assessee reiterated the submissions made before the lower authorities and the Learned Departmental Representative supported the order of the Learned Commissioner of Income Tax (Appeals).
7. I have heard the rival submissions and perused the materials on record. The undisputed facts of the case are that the assessee is engaged in plying of light commercial vehicles and the assessee has declared its income in accordance with the provisions of section 44AE of the Act at `.2,12,696/-. The Learned Assessing Officer observed that the assessee has made personal investments and personal expenditure of `.4,24,659/- during the year under consideration. Thus according to the Learned Assessing Officer the assessee could not explain the source of remaining amount of investment and personal expenses of `.2,11,963/- ( `.4,24,659 - `.2,12,696/- ). The explanation of the assessee that depreciation of `.2,09,654/- was available with the assessee for making investments and personal expenses was not accepted by the Learned Assessing Officer. On appeal Learned Commissioner of Income Tax(Appeals) also did not accept the above explanation of the assessee and confirmed the action of the Learned Assessing Officer of making addition of `.2,11,963/- to the income of the assessee on account of investments and personal expenses from undisclosed sources. It is observed that it is not in dispute that the depreciation allowable under section 32 of the Act comes to `.2,09,654/- during the year under consideration in the instant case which was deemed to have been allowed to the assessee in estimating his income under section 44AE of the Act. I find that the lower authorities has failed to appreciate the fact that depreciation was a non cash expenditure or allowance to the assessee in determining net income of `.2,12,696/-. Thus the income of the assessee before depreciation was `.4,22,350/- ( `.2,12,696 + `.2,09,654 ) and after depreciation allowance of `.2,09,654/- the -5- net income of the assessee was `.2,12,696/-. In other words the assessee by having income of `.2,12,696/- had cash earning of `.4,22,350/-. Thus in my considered opinion the maximum amount which could be added in the instant case comes to `.2,309/- ( `.4,24,659 - `.4,22,350 ) only. I therefore modify the orders of the lower authorities and sutain addition of `.2,309/- and delete the addition to the extent of `.2,09,654/-.
8. Thus, the appeal of the appeal of the assessee is partly allowed.
Order signed, dated and pronounced in the Court on 23rd day July, 2010.
Sd/-
( N. S. SAINI ) ACCOUNTANT MEMBER Ahmedabad: On this 23rd day of July, 2010 Patki Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-II,Baroda.
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER, स᭜यािपत ᮧित //True Copy// (Dy./Asstt.Registrar), ITAT, Ahmedabad Date Initials
1. Draft dictated on 22-7-10 ----------------
2. Draft Placed before authority 22-7-10 ----------------
3. Draft proposed & placed ------------JM Before the Second Member
4. Draft discussed/approved By Second Member -------------------
5. Approved Draft comes to P.S ---------------- --------------------
6. Kept for pronouncement on ---------------- --------------------
7. File sent to the Bench Clerk ---------------- ---------------------
8. Date on which file goes to the ---------------- --------------------
9. Date of dispatch of Order ---------------- ---------------------