Income Tax Appellate Tribunal - Lucknow
Rohit Rai Sethi, Lucknow vs Assessee on 3 February, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH "A", LUCKNOW
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA No.29/LKW/2015
Assessment year:2008-09
Shri Rohit Rai Sethi, Vs Addl.C.I.T.,
Flat No. 402 & 403, Range-III,
13th Floor, Bloomberg Tower, Lucknow.
Omaxe Heights,
Vibhuti Khand, Gomti Nagar,
Lucknow.
PAN:AOAPS5242Q
(Appellant) (Respondent)
Appellant by None
Respondent by Smt. Pinki Mahawar, D.R.
Date of hearing 21/01/2016
Date of pronouncement 03/02/2016
ORDER
PER A. K. GARODIA, A.M.
This is an assessee's appeal directed against the order passed by learned CIT(A)-I, Lucknow dated 27/10/2014 for the assessment year 2008-09.
2. The grounds raised by the assessee are as under:
"1. That the Learned CIT(A) erred in law as well as on facts in confirming the following additions made by the A.O.:
i. Extra Profit Addition Rs.9,30,587.00
ii. Out of telephone expenses Rs. 57,988.00
iii. Out of traveling expenses Rs.3,92,660.00
iv. Disallowance of Depreciation Rs.1,67,608.00
v. Legal & Professional Expenses ..(1,85,000 (out of 2,17,000 claimed)
vi. Disallowance u/s 40 a(ia) Rs.2,56,000.00
vii. Difference in Capital A/c Rs.1,25,030.00
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2. That the authorities below failed to appreciate the material evidences brought on record and chose to rely on issues which were irrelevant and immaterial.
3. That the authorities below gave a verdict which was one sided, imaginary and altogether irrelevant without appreciating the actual and existing facts and circumstances of the case read with the situation that there was great financial crisis on account of fire in the godown and the debtors having turned dishonest and entire flow of funds were stucked up compelling the appellant to dissolve the firm and discontinue business activity subsequently.
4. That the authorities below failed to appreciate the compelling circumstances viz. running of business from residence which was objected by the residents of the locality, being out of market and specifically the nature and style of business being on wholesale basis yielding lower margin of profits.
5. That the appellant has been denied a reasonable and sufficient opportunity as directed by the Hon'ble ITAT in its Appellate order in 1TA No.377/Lkw/2013 dated 10-07- 2014 and even failed to issue a fresh notice of hearing and partly heard the case on 24-09-2014 and 13-10-2014 and thereafter refused to accept even an application for short adjournment though informed that the assessee is on bed due to slip disc and the prevailing 'Deepawali festival read with the situation that time be given only till the end of October i.e. after the festival in spite of six months given by the Hon'ble ITAT.
6. That a perusal of the records transpire that more or less the entire proceedings viz. assessment order dated 28- 12-2010 followed by appellate order dated 30-01-2012 and the appellate order under appeal dated 27-10-2014 are ex-pane orders without going into the intricacies and surrounding circumstances of the case and lacks proper opportunity and fair play."
3. None appeared on behalf of the assessee on the appointed date of hearing. Before this, the appeal was fixed for hearing on 16/12/2015. On 3 this date, A.R. Shri Abhinav Mehrotra, Advocate made a request for adjournment on the plea that he is out of station. On his request, the hearing was adjourned to 21/01/2016 and the date of hearing was pronounced in the open court. In spite of this, on 21/01/2016, none appeared on behalf of the assessee and there is no request for adjournment also. Prior to this also, the appeal was fixed for hearing on several occasions and on each of these occasions, request was made by A.R. for adjournment and adjournment was granted by the Bench to the assessee. Considering all these facts, the appeal was heard ex-parte qua the assessee on 21/01/2016.
4. Learned D. R. of the Revenue supported the orders of the authorities below.
5. We have considered the submissions of Learned D.R. of the Revenue, perused the material available on record and gone through the orders of the authorities below. The main issue regarding addition of Rs.9,30,587/- has been decided by CIT(A) as per Para 3.2 of his order, which is reproduced below for the sake of ready reference:
"3.2 I have considered the matter. I find that in the profit and loss account the appellant has shown opening stock at Rs.2,79,22,747/- which has been sold for Rs.2,84,12,800/-. At the end of the year there is no closing stock. The sundry debtors shown at Rs.1,97,03,842/- in the balance sheet as on 31.03.2007 has increased to Rs.4,02,12,000/- as on 31.03.2008. It means that payments for 70% of sales have not been received during the year. The appellant has also not provided the details of such debtors and sales made to them. It is also noted that in the immediately two preceding AYs 2006- 07 & 2007-08 the appellant has declared gross profit rates of
6.88% and 7.44% respectively. The only explanation given by the appellant for drastic decrease in gross profit rate to 1.72% was that during the year he closed down its business. However this explanation could not be substantiated by furnishing the 4 details of sales and sundry debtors. The appellant has also not maintained any stock register from which sales made by the appellant could be verified. The audit report in Form No. 3CD is also a bland report and in most of the columns the auditor has simply mentioned nil or not applicable. In item no. 11 the auditor has mentioned method of accounting as mercantile except for commission, incentives and credit card notes but no such items were found debited or credited in the profit and loss account. It is, therefore, held that the AO was justified in rejecting the books of account. Further, in view of the gross profit rates of 6.88% and 7.44% declared by the appellant in preceding two years the gross profit rate of 5% applied by the AO in respect of business turnover of the appellant is more than reasonable. Under the circumstances, addition of Rs.9,30,587/- made by the AO is confirmed. Ground is decided against the appellant."
5.1 From the above Para from the order of CIT(A), we find that it is noted by CIT(A) that the assessee has not furnished the details of sales and sundry debtors and the assessee has also not maintained any stock register from which the sales made by the assessee could be verified. He has also noted that in earlier two years, the gross profit rate declared by the assessee was 6.88% and 7.44% and against this factual background, adoption of 5%, gross profit rate in the present year is quite reasonable in the facts of the present case and hence, on this issue, we do not find any reason to interfere in the order of CIT(A).
5.2 Regarding the second issue of disallowance of Rs.57,988/- out of telephone expenses, we find that this disallowance is to the extent of only 5% of the total telephone expenses. It is not the case of the assessee that the assessee is maintaining separate telephone for use for personal purposes and therefore, in the facts of the present case, we do not find any infirmity in the order of CIT(A) on this issue also.
5.3 Regarding the third issue i.e. disallowance of Rs.3,92,660/- out of travelling expenses, we find that it is noted by CIT(A) in Para 5 of his order 5 that the assessee neither furnished any bill/ticket nor explained the purpose of the travels undertaken nor submitted the copies of his passport and those of his family members. This is settled position of law that when the assessee makes claim of deduction of an expenditure, he has to establish that the expenditure was in fact incurred and the same was for business purposes. When the assessee has not furnished the copy of passport of self and family members and has not explained the purpose of travel, it cannot be accepted that the expenses incurred are for business purpose. Hence, on this issue also, we find no infirmity in the order of learned CIT(A) and decline to interfere with the same.
5.4 The next issue is regarding confirming of disallowance of Rs.1,67,608/- on account of depreciation. It is noted by the Assessing Officer in the assessment order that as per copy of ledger account of furniture filed by the assessee, all the payments to the tune of Rs.64,46,016/- towards addition in furniture account has been shown to be made in cash. The Assessing Officer further noted that the purpose of investing such an amount when the business was being closed down, remained unexplained. Therefore, the Assessing Officer made the disallowance of depreciation on furniture of Rs.1,57,633/-. In addition to this, he also made disallowance of depreciation on computer and generators of Rs.8,100/- and 1,875/- respectively. In our considered opinion, disallowance of depreciation on old assets i.e. computer and generator is not justified when the business was not closed in the present year and it was carried out by way of sale of pending stock. Hence, this disallowance is deleted but disallowance of depreciation on furniture is confirmed because this is the claim of the assessee that the addition of Rs.64,46,016/- was made to furniture in the present year and the entire payment was made in cash. The objection of the Assessing Officer is quite strong that when the assessee is closing down the business then what is 6 the purpose of making such huge investment. Hence, we confirm the disallowance of Rs.1,57,633/- being depreciation on furniture in view of facts discussed above.
5.5 The next issue is regarding disallowance of Rs.1.85 lac out of claim of Rs.2.17 lac on account of legal and professional expenses. As per the assessment order, the Assessing Officer made total disallowance of Rs.2.17 lac on the basis that the assessee did not produce a single bill/voucher. The CIT(A) has allowed part relief of Rs.32,000/- being the amount paid to Arsan and Company, Chartered Accountants and the auditor of the assessee. Regarding the balance amount of Rs.1.85 lac, it is noted by CIT(A) in Para 7.1 of his order that it is not known as to whether the expenses have been incurred for business purpose and are of revenue nature. Considering the facts of the present case, we find no infirmity in the order of CIT(A) on this issue also.
5.6 The next issue is regarding disallowance of Rs.2.56 lac u/s 40a(ia) of the Act. We find that it is noted by CIT(A) in Para 8.1 of his order that the assessee is a specified person as per explanation to section 194C as the assessee was liable to get his accounts audited u/s 44AB for the financial year 2006-07. He has also noted that this was the only explanation of the assessee that since the assessee is individual, the assessee is not required to deduct TDS u/s 194C of the Act. As per explanation below sub section 7 of section 194C, an individual assessee who is liable to get his accounts audited u/s 44AB during the financial year immediately preceding the financial year in which such sum credited or paid to a contractor is liable to deduct TDS u/s 194C. Hence, the provision of section 194C was applicable to the assessee because a clear finding has been given by CIT(A) that in financial year 2006-07, the assessee was liable to get his accounts audited u/s 44AB. On this issue, we do not find any infirmity in the order of CIT(A).
75.7 The next issue relates to the addition of Rs.1,25,030/- on account of difference in capital account. In this regard, we find that the Assessing Officer has noted in Para 8 of his order that as per capital account of the assessee, submitted by assessee's counsel Shri Swadhin Mishra, Chartered Accountant on 10/12/2010, the amount of net profit transferred to capital account is Rs.10,39,279/- while as per profit & loss account, the net profit has been shown at Rs.9,14,248/- resulting in difference of Rs.1,25,030/-. Neither before the Assessing Officer nor before CIT(A), this difference could be reconciled by the assessee and the same was not explained by the assessee. Under these facts, we do not find any reason to interfere in the order of CIT(A) on this issue also.
6. In the result, the appeal of the assessee stands partly allowed.
(Order was pronounced in the open court on the date mentioned on the caption page) Sd/. Sd/.
(SUNIL KUMAR YADAV) ( A. K. GARODIA )
Judicial Member Accountant Member
Dated:03/02/2016
*Singh
Copy of the order forwarded to :
1.The Appellant
2.The Respondent.
3.Concerned CIT
4.The CIT(A)
5.D.R., I.T.A.T., Lucknow Asstt. Registrar