Income Tax Appellate Tribunal - Ahmedabad
Murlidhar Stationery Mart, Mehsana vs Income Tax Officer,Ward-2,, Mehsana on 8 November, 2016
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"SMC" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
आयकर अपील सं./ ITA.No.2718/Ahd/2011
नधा रण वष /Asstt. Year: 2008-2009
Murlidhar Stationery Mart ITO, Ward-2
G-7, Mulki Bhavan Vs Mehsana.
Nr.S.T. Stand
Mehsana 384 001.
PAN : AAJFM 3255 A
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : None
Revenue by : Ms.Sonia Kumar, Sr.DR
ु वाई क तार ख/ Date
सन of Hearing : 27/10/2016
घोषणा क तार ख / Date of Pronouncement: 08/11/2016 आदे श/O RDER Assessee is in appeal against order of ld.CIT(A), Gandhinagar dated 23.8.2011 passed for the Astt.Year 2008-2009.
2. In ground no.1, the assessee has pleaded that the ld.CIT(A) has erred in upholding computation of net profit at the rate of 20% of the alleged receipt in instead of 5% as contemplated in section 44AF of the Income Tax Act, 1961.
3. Brief facts of the case are that the assessee was engaged in trading in stationery articles. It has filed its return of income on 3.2.2009 declaring total income at (-)Rs.15,330/-. The ld.AO has selected the case of assessee for scrutiny assessment and issued various notices. The assessee did not comply with the notices. The ld.AO has found a total receipt of Rs.9,42,039/-. In the ITA No.2718/Ahd/2011 2 opinion of the AO, the assessee failed to submit any details as to how its income could be a loss at Rs.15,330/-. Accordingly, the ld.AO has made addition of Rs.9,42,039/- i.e. alleged total receipt.
4. On appeal, the ld.CIT(A) has restricted this addition to Rs.1,88,508/- which is equivalent to 20% of the total receipt. In the opinion of the ld.CIT(A) element of net profit involved in the total receipt cannot be more than 20%. The ld.CIT(A) has rejected the contentions of the assessee for application of Section 44AF i.e. estimation of profit at 5% on the ground that the assessee could not produce details exhibiting the nature of business and how its case fall within the ambit of section 44AF of the Act.
5. In response to the notice of hearing, no one has come present on behalf of the assessee. The assessee has filed written submissions wherein it has only highlighted facts as to how order of the ld.CIT(A) should be reversed. No explanation is being given. The finding of the ld.CIT(A) reads as under:
"I have considered the submissions and facts of the case. As discussed in para.6 above there was total non-compliance without any reasonable cause on the part of the appellant. Once, a notice u/s. 143(2) was given, the appellant was obliged to submit evidences in support of its returned income. Not only the appellant failed to do so but failed to response to specific questionnaire issued u/s. 142(1). The assessee should have submitted proof and allowed the AO to verify whether or not its claim that its case was u/s. 44AF. It has to be proved that the assessee was a retail trader only. In these circumstances, it is held that the provisions of sec.44AF would not be applicable in the case of assessee as far as the income to be estimated u/s. 144 is concerned.
However, I agree that entire revenue cannot be income and a fair estimate has to be made. In the totality of facts and circumstances, where, the appellant deliberately avoided the scrutiny of its business, the income is estimated on the basis of 20% net profit subject to interest payable to the partners. The net profit @ 20% comes to Rs.1,88,508/-. The interest paid to partners is claimed at Rs.89,221/-. Therefore, it is ITA No.2718/Ahd/2011 3 directed that the total income be taken at Rs.99,287/-instead of Rs.9,42,039/-, assessed by the AO. The ground is decided as above."
6. After going through the finding of the ld.CIT(A), in the light of the statement of facts, I find no reason to interfere in this order on this issue. Accordingly, ground no.1 is rejected.
7. In the alternative grounds, the assessee has contended that for the purpose of computing the profit under section 40(b), this amount ought to be considered and salary to the partners be considered after taking into consideration addition confirmed by the ld.CIT(A). For buttressing his contentions the assessee made a reference to the order of the Tribunal in the case of Super construction Co. V. ITO rendered in ITA No.3393/Ahd/2008. Copy of this order has been placed on record. The Tribunal while discussion this issue has recorded the following finding:
"5. Now before us, the Learned Authorised Representative has furnished few decisions, namely Royal Sunrise (99 TTJ 1305 )[Bang.], Chandra Enterprises (97 TTJ 501)[Mum.], S.K. Srigiri and Brothers (298 ITR 13)[Kar.] and the CBDT Circular in support of the argument that the impugned addition in the Gross Profit had emerged out of the business activity of the assessee, therefore, the consequential change in the working of the book profit ought to have been done by the Assessing Officer for the purposes of granting of remuneration to the partners in terms of section 40(b) of the I.T.Act. On careful perusal of the decisions cited a legal proposition was laid down that the finally assessed income was out of the business activity of the assessee, therefore, the additional income being in the nature of enhancement in the profit of the assessee should qualify for the purposes of the calculation of the book profit in terms of the provisions of section 40(b) of the I.T.Act. In view of this, we hereby direct the Assessing Officer to allow remuneration to partners u/s.40(b) of the I.TAct. only on the eligible profit as prescribed u/s.40(b) of the I.TAct. on the terms and the figures as decided hereinabove. This ground may be treated as allowed for statistical purposes."ITA No.2718/Ahd/2011 4
7. Respectfully following the above order of the Tribunal, I allow alternate contention of the assessee. The addition of Rs.1,88,508/- made to the total income of the assessee shall be considered for the purpose of computing salary payable to the partners.
6. In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 8th November, 2016 at Ahmedabad.
Sd/-
(RAJPAL YADAV)
JUDICIAL MEMBER
Ahmedabad; Dated 08/11/2016