Income Tax Appellate Tribunal - Ahmedabad
Gayatri Corporation, , Surat vs Income Tax Officer, Ward-5(1), , Surat on 5 April, 2017
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
CAMP AT SURAT
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.894/Ahd/2014
नधा रण वष /Asstt. Year: 2007-2008
Gayatri Corporation Vs. ITO, Ward-5(1)
303, Golden Point Surat.
Nr. Gajjar Chambers
Falsawadi, Ring Road
Surat 395 002.
PAN : AAFFG 6965 R
आयकर अपील सं./ ITA No.1099/Ahd/2014
नधा रण वष /Asstt. Year: 2007-2008
ITO, Ward-5(1) Vs. Gayatri Corporation
Surat. 303, Golden Point
Nr. Gajjar Chambers
Falsawadi, Ring Road
Surat 395 002.
PAN : AAFFG 6965 R
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Assessee by : Shri Mehul Shah, AR
Revenue by : Shri Albinus Tirkey, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 09/03/2017
घोषणा क तार ख /Date of Pronouncement: 05/04/2017
आदे श/O R D E R
ITA No.894 and 1099/Ahd/2014
2
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee and Revenue are in cross-appeals against order of the ld.CIT(A)-I, Surat dated 28.1.2014 passed for the assessment year 2007-08.
2. The issues taken in the grounds of appeal are inter-connected in both appeals therefore, we deem it appropriate to take note of the grounds raised by the respective appellants as under:
ITA No.894/Ahd/20141. On the facts and circumstances of the case as well as law on the subject, the Id. CIT(A) has erred in confirming the action of Assessing officer in reopening of assessment by issuing notice u/s sec 148 of Act and thereby framing assessment u/s 143(3) r.w.s 147 of the Act.
2. On the facts and circumstances of the case as well as law on the subject, the Id CIT (A) has erred in confirming the action of Assessing Officer in rejecting assessee's contention of its case being covered u/s 44AE of the Act.
3. Without prejudice to Ground No. 2,on the facts and circumstances of the case as well as law on the subject, the Id CIT (A) has erred in partly confirming the action of Assessing Officer and in making disallowance of Rs.1,32,343/- being 10% of truck expenses out of Rs. 3,30,858/-.
4. Without prejudice to Ground No. 2, on the facts and circumstances of the case as well as law on the subject, the Id CIT (A) has erred in partly confirming the action of Assessing Officer in making disallowance of Rs.27,36,660/- being 10% of cartage and labour expenses out of Rs.68,41,650/-.
5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal."ITA No.1099/Ahd/2014
ITA No.894 and 1099/Ahd/2014 3 "1. On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) has erred in restricting the disallowance of Truck expenses from 25% to 10% i.e. from Rs.3,30,858/- to Rs.1,32,343/- without any basis and without considering that the assessee failed to prove the genuineness of the entire Truck expenses during the assessment proceedings as well as during the appellate proceedings.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the disallowance of Cartage and Labour expenses from 25% to 10% i.e. from Rs.68,41,650/- to Rs.27,36,660/- without any basis and without considering that the assessee failed to prove the genuineness of entire Cartage and Labour expenses during the assessment proceedings as well as during the appellate proceedings.
3. On the facts and in the circumstances of the case and in law, the lid.CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld.CIT(A)-1, Surat may be set-aside and the Assessing Officer's order may be restored."
3. Ground no.3 in the appeal of the Revenue and ground no.5 in the appeal of the assessee are general grounds of appeal. They do not call for recording of any specific finding, hence rejected.
4. Ground no.1 and 2 in the Revenue's appeal and ground no.3 and 4 of assessee's are inter-connected with each other. The ld.AO has made a disallowance of Rs.3,30,858/- out of truck expenses at the rate of 25%. The ld.CIT(A) has restricted this disallowance to 10%. Therefore, the assessee is aggrieved with the confirmation of disallowance at 10%, on the other hand, the Revenue is aggrieved with part deletion of addition.
Similar are the facts with regard to ground no.4 in the assessee's appeal and ground no.2 in the Revenue's appeal.
5. We take these grounds later on. First, we deal with ground nos.1 and 2 raised by the assessee.
ITA No.894 and 1099/Ahd/2014 4
6. In ground no.1, the assessee has challenged reopening of the assessment by issuance of notice under section 148 of the Income tax Act.
7. Brief facts of the case are that the assessee is a partnership firm. It has filed its return of income on 31.10.2017 declaring an income of Rs.1,17,511/-. This return was processed under section 143(1) of the Income Tax Act. Subsequently, the AO has recorded reasons for habouring a belief that income has escaped assessment. Such reasons were recorded on 5.6.2009. Copy of the reason is available at page no.14 of the paper book. The AO thereafter issued notice under section 148 of the Income Tax.
8. The assessee filed objection on the reopening of the assessment. Such objections have been rejected by the AO, and he proceeded to pass assessment order. The ld.coussel for the assessee contended that the AO sought to reopen the assessment by analysing the information given by the assessee along with return. He has not possessed any tangible material collected afresh i.e. after expiry of limitation to issue notice under section 143(2) of the Income Tax Act for scrutinizing the return. Therefore, the AO is precluded to reopen the assessment in the present case. In support of his contention, he relied upon the judgment of the Hon'ble Delhi High Court in the case of Madhukar Khosla Vs. ACIT, Writ Petition No.(C) 1320/2014. He placed on record copy of this decision. On the other hand, the ld.DR relied upon the order of the AO.
9. We have duly considered rival contentions and gone through the record carefully. In the present case, there was no scrutiny assessment. The return was processed only under section 143(1) of the Act. There is nothing with the assessee to say that the AO was not possessed any fresh information. The observation of the AO in the reasons to the effect is that on verification of record he found certain ITA No.894 and 1099/Ahd/2014 5 discrepancies. Now this record would contain all the information possessed by him. In other words, he has not made reference to a specific source of information, but he has pointed out various defects discerned to him on verification of record, and therefore, he has issued notice. If there is no nexus between the information available with the AO vis-à-vis formation of belief exhibiting escapement of income, then proposition mooted by the assessee would be justifiable. The Hon'ble Delhi High Court has also observed that expression "reason to believe"
employed in section 147 of the Income Tax Act would indicate that there should have a relation or link with an objective fact in the formation of information or facts external to the material on record showing that income has escaped assessment. In the present case, a perusal of the reason would indicate that the AO had the information and therefore he was justified in issuing notice under section 148 of the Act. We do not find any merit in ground no.1 of the assessee's appeal. It is rejected.
10. Now we take ground nos.2, 3 and 4 of the assessee's appeal along with ground no.1 and 2 of the Revenue's appeal.
11. Brief facts of the case are that the assessee has debited a sum of Rs.13,23,432/- under the head truck expenses. According to the AO, the assessee could not produce complete details and supporting evidence to support claim of expenses. Accordingly, he disallowed 25% of such expenses and made addition of Rs.3,30,858/-. On appeal, the ld.CIT(A) re-appreciated this issue and confirmed the disallowance at 10%. He confirmed the addition of Rs.1,32,343/- which is impugned by the assessee in its ground no.3. Deletion made by the ld.CIT(A) has been impugned by the Revenue in ground no.1.
12. Before we embark upon an inquiry on the facts of this issue, we deem it appropriate to take note of the facts relating to ground no.4 of ITA No.894 and 1099/Ahd/2014 6 the assessee's appeal, and ground no.2 of the Revenue's appeal. The facts with regard to this issue are that the assessee has gross receipts of Rs.3,02,66,798/-. It has debited a sum of Rs.2,73,66,599/- towards cartage and labour expenses. According to the AO the assessee failed to supply requisite information, and therefore, he disallowed 25% of the total cartage and labour expenses. He made an addition of Rs.68,41,650/-. On appeal, the ld.CIT(A) has restricted the disallowance to 10% of the total expenditure claimed by the assessee.
13. Apart from these two issues, the ld.AO further observed that the assessee has shown unpaid cartage and labour expenditure of Rs.42,84,977/-. He did not make any addition of this amount on account that disallowance of Rs.68,41,650/- would take care of this item also. On appeal, the ld.CIT(A) has confirmed the disallowance out of unpaid cartage and labour expenses at 10% i.e. Rs.4,28,898/-. The ld.CIT(A) has not directed for making specific addition because disallowance out of total labour expenses would take care of this item also.
14. In ground no.2, the assessee has pleaded that since it was plying trucks and if its books are not reliable i.e. he failed to submit supporting documents for claiming various expenses, then, income should be computed by taking guidance under section 44AE of the Act. The ld.counsel for the assessee contended that in the case of transporter, it has been provided in section 44AE that income is to be computed at the rate of Rs.3,500/- per month per truck. In support of his contention, he relied upon the order of the ITAT, Ahmedabad Bench in the case of Kesharbhai Ghamarbhai Chaudhary Vs. ITO, 23 taxmann.com 273. In this way, he contended that the assessee was having 11 trucks during the year, and its income ought to be assessed as per section 44AE of the Income Tax Act.
ITA No.894 and 1099/Ahd/2014 7
15. On the other hand, the ld.DR contended that the CIT(A) has rejected this contention of the assessee, because the assessee has maintained the books of accounts and AO has made an ad hoc disallowance out of the expenditure, which are debited in the books.
16. We have duly considered rival contentions and gone through the record carefully. No doubt, the assessee has been maintaining books of accounts. It has filed audit report also. On page no.23 of the paper book, the assessee has placed on record details of fixed assets and how it calculated depreciation. In these details, the assessee has given registration number of 11 trucks. Out of which, one truck was not available in the first half of the year i.e. on 1.4.2006. Thus, the assessee was having 10 trucks in the beginning, but on closing of the account, it was having 11 trucks. The assessee has debited a sum of Rs.2,73,66,599/- under the head "cartage and labour expenses". The AO disallowed 25% of this expenditure which has been reduced by the CIT(A) at 10%. The question before us is that the expenditure was disallowed on estimate basis. A perusal of the computation of income made by the AO would indicate that he mainly made two additions in the declared income and determined taxable income at Rs.72,90,020/- as against Rs.1,17,511/- declared by the assessee. Thus, income has been multiplied 70 times. The reason for this multiplication was that the assessee failed to submit supporting evidences. In such situation, we are of the view that the AO ought to have looked into the provision of section 44AE which provides tax on presumptive basis. Even if the assessee was maintaining books of accounts, and it has little higher number of trucks (i.e. one more ) than the prescribed limit, then atleast the AO should look into the scheme of Act for guidance purpose. The Tribunal has considered this aspect in the case of Kesharbhai Ghamarbhai Chaudhary (supra) and made following observations:
ITA No.894 and 1099/Ahd/2014 8 "We have carefully considered the arguments of both the sides and perused the material placed before us. It is not in dispute that the assessee was plying the goods carriages which were four. Therefore, the number of goods carriages plied by the assessee were well within the ambit of the s. 44AE. The AO has rejected the book result and has estimated the income by making various disallowance out of the expenses claimed by the assessee. He also enhanced the receipt shown by the assessee. The estimated disallowance made by the AO was partly reduced by the CIT(A). Therefore, undisputedly, in the assessee's case, the actual dispute is only with regard to estimation of the income from trucks plying business. In our opinion, when the legislature has provided some formula for estimation of income in the case of a transporter, who owns less than ten goods carnages, there would not be any justification for not estimating the income of the assessee as per the formula prescribed in s. 44AE. It is irrelevant whether the revised return furnished by the assessee is valid or not. When the question of estimation of the income of a transporter comes, s. 44AE is a good guideline in the case of transporter who owns less than ten goods carriages. In view of the above, we direct the AO to determine the income of the assessee as per the s. 44AE of the IT Act."
17. On due consideration of all these aspects, we are of the view that the income of the assessee ought to be estimated by taking a guidance under section 44AE of the Act. The AO ought to have not enhanced the income at such a level under garb of making disallowance on estimate basis. The ld.CIT(A) has erred in rejecting ground no.2 of the assessee's appeal, whereby it has prayed that its income ought to be computed with the help of section 44AE. We direct the AO to compute the income of the assessee by taking 11 trucks at the rate prescribed in section 44AE relevant to the assessment year. The AO, thereafter grant all consequential benefits i.e. salary and interest to the partners as per section 40b of the Income Tax Act.
18. Since we have changed very basis for determination of income, therefore all other grounds vide which partial disallowance has been upheld by the ld.CIT(A) out of various expenditure are concerned, that would become redundant, and therefore, we are not required to record ITA No.894 and 1099/Ahd/2014 9 specific finding on these issues. In this way, both the appeals are disposed of.
19. In the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed.
Order pronounced in the Court on 5th April, 2017 at Ahmedabad.
Sd- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER