AI Drafter 
TaxTMI 
TaxTMI 
2024 (9) TMI 1563
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....ssee are, the Assessee is an individual and is regularly assessed to tax in Delhi, during the relevant precious year, the assessee is engaged through his proprietorship concern M/s S.K. Enterprises, in the business of manufacturing and trading in carpets and durries. He filed Return of Income ('ITR/Return") for AY 2009-10 declaring income of Rs. 31,69,270/-. The same was processed u/s 143(1) of the Act and thereafter, the Ld. Assessing Officer ("AO") selected the case for scrutiny by issue of Notice u/s 143(2) of the Act dated 1.09.2010. He called for various details vide notices u/s 142(1) of the Act and after examining the details furnished by the Assessee from time to time, including the books of account, purchase and sales ledger, bills and vouchers etc. He passed the Assessment Order u/s 143(3) of the Act on 29.12.2011 making the following additions / disallowances to the total income thus determining the total income at Rs. 3,65,23,680/- (in place of Rs. 34,34,267/- declared in the Return): a. Disallowance of deduction claimed u/s 24(b) of the Act Rs. 1,50,000/- b. Enhancement of Gross Profit by rejecting books of accounts Rs. 3,06,70,410/- c. Disal....
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....ve been given; and iii. The Ld. AO has applied the GP rate for addition, but has also not allowed the expenses incurred against GP. 5. The Assessee made oral as well as written submission together with the supporting documents and prayed for deletion of the additions made arbitrarily based only on conjectures and surmises. The Ld CIT-A has duly reproduced the assessee's submissions in her order. The Ld CIT(A) called for and obtained the remand report from the AO and after considering the same as well as the rejoinder of the Assessee, passed a detailed order u/s 250(6) of the Act partly allowing the assessee's appeal. 6. The Ld. CIT(A) deleted the following additions/disallowances made by the AO:- a. Disallowance of deduction claimed u/s 24(b) of the Act Rs. 1,50,000/- b. Enhancement of Gross Profit and by rejecting books of accounts Rs. 3,06,70,410/- c. Disallowance of rent expenses u/s 40(a)(ia) - Rs. 4,49,000/-. 6. The Ld CIT(A) confirmed the following additions/disallowances made by the AO: a. Disallowance of freight expenses u/s 40(a)(ia) - Rs. 20,00,000/- b. Disallowance of expenses incurred in cash in exce....
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....ferent occasions, so it is liable to be deleted. 4. The appellant craves leave for addition, modification, alteration, amendment, deletion of any of the grounds of appeal. 9. On Department appeal, the Ld DR brought to our notice page 1 and 2 of assessment order and submitted that assessee has claimed payment of interest as allowable claim on the basis of self occupied property. He submitted that the Inspector was deputed to verify the claim of the assessee, as per the ITR reports, it was found that there was no premises existed and also noticed there were no construction activities going on. Since, assessee could not furnish proper record to claim the above expenditure, he submitted that findings of the AO are proper. Further, he brought to our notice page 49 of the appellate order and brought to our notice findings of the Ld. CIT(A) that the report of the ITA was submitted during the assessment proceedings i.e. in the year 2011 whereas the assessee has claimed the expenditure in the financial year 2008- 09. He submitted that the Ld. CIT(A) has merely relied on the telephone bills to grant the benefit as well as approved the claim of the assessee that assessee was resid....
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.... made by the assessee during the current FY ie., 2008-09. We cannot rely on the report collected on the existence and occupation of the assessee, when the same was vacated by the assessee due to relocation. It is fact on record that the assessee was incurring interest expenditure for the purpose of taking loan on redevelopment of the house. The issue is whether the assessee has occupied the house during the current AY. The possible evidence which a normal person submits to prove are, electricity bill, land line telephone bills. In this case, Ld CIT(A) has accepted the telephone bill as possible claim of the assessee. We do not see any reason to disturb the findings of the Ld CIT(A), accordingly, the ground raised by the revenue is dismissed. 12. With regard to ground No.2, he brought to our notice page 2 and 3 of the assessment order and submitted that the financial results submitted by the assessee for the current assessment year are not reliable. Considering the fact that Assessing Officer has brought on record and discussed elaborately the reasons for rejecting the submissions of the assessee on Gross Profit declared by the assessee, they are not matching with the turnover de....
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....Further, he submitted that apart from relying upon and reiterating before this Hon'ble Bench, the submissions made before the Ld. CIT(A) as summarized by her, the Respondent herein makes the following further submissions for kind consideration of the Hon'ble Bench: a. It is humbly submitted that the AO has passed the Assessment order without considering the detailed submissions made and explanations given for the fall in GP rate from 10.66% in AY 2007- 09 and 9.39% for AY 2008-09 to 4.14% for the relevant A Y 2009- 10. b. He completely ignored the important fact that the turnover for the year had gone up by almost 5 times from Rs. 7.8 crore to Rs. 34.6 crore and while achieving such a huge rise in a short period, the gross profit margin was bound to be affected. The turnover had increased from Rs. 7,80,12,125/- for the A.Y. 2008-09 to Rs. 34,60,30,917/- for the current A.Y. c. The AO also completely ignored the submissions that the trade margin had come down due to focus given to increasing the sales volume and also due to tough competition in the industry. Even though the Assessee time and again submitted that he had not allowed any discount in t....
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....port. Further, in spite of intimating him that there was a mistake in the details and in spite of submitting the correct details, the AO kept on adopting the old figures in order to make out a case for rejection of books of account. g. It is submitted that the AO wrongly compared the appellant's GP rate with that of other business entities whose business profiles were not comparable. The AO has completely ignored the submission that the assessee's business involved both manufacturing and trading of carpets and durries, whereas, Shri Satish Kumar Gupta, who's GP rate had been compared with that of the Appellant, was in the business of trading of carpets. Further he also ignored the fact that Shri Satish Kumar Gupta was an exporter of carpets and his profit margins are generally higher than that of the appellant, who's buyers were based in India. The AO also wrongly compared the appellant's GP rate with that of his wife's concern ignoring the submission that her business profile was completely different. The raw materials used in the business of the appellant and that of his wife, as well as the sources of those raw materials were different and hence ....
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....e been outside books of accounts. In these facts and circumstances of the case, I am of the considered opinion that rejection of books of account is not correct, based on wrong figures adopted by AO and consequently addition made on estimate basis alleging suppression of sale and Gross Profit is not correct, accordingly additions made by AO of Rs. 3,06,70,410/- is hereby deleted. Accordingly, the Ground No. 2 and 4 are allowed. In view of the above it is submitted that there is no merit in present ground raised in the Departmental appeal which deserves to be dismissed. 14. Considered the rival submissions and material placed on record. We observed from the record that the AO analyzed the financials of the assessee submitted before him and noticed that the assessee has achieved the turnover many fold compared the previous year and there is decline in the GP declared by the assessee. It is relevant to note that he has analyzed the combined financial data of two types of business carried on by the assessee viz., Trading and manufacturing. We observed that the business has grown from Rs. 7.80 crores in FY 2008-09 to Rs. 34.60 crores in FY 2009-10. On careful analysis, we observed....
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....2 36,66,81,363.24 From the above, it can be noticed that the assessee has achieved GP of 0.50% of sales in the Trading Activities and achieved GP of 7.17% of sales in Manufacturing Activities. In combine, it has achieved GP of 4.14% of Sales. The AO has proceeded with the analysis of the business of the assessee on the basis of combined results. It is not the proper way of assessing the results of any business. The nature and activities as well as risk also differs in each of the business. We observed that the AO has proceeded to reject the books with the wrong perception and wrong appreciation of facts on record. No doubt Ld CIT(A) has given relief to the assessee, however, we observed that the assessee has given cash discount to its customers with the motive to increase its sales but achieved meager GP of 0.50%. The margin achieved in the manufacturing activities are reasonable. With regard to valuation of closing stock also, the purchase and stocks holding period are different for both type of activities and cannot be combined and valued. To meet the ends of justice, we are of the view that assessee could have achieved better profit in the trading activities, considering t....
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.... the relief granted by the Ld CIT(A) w.r.t. the disallowances of rent expenditure of Rs. 4,49,000/- made u/s 40(a)(ia) of the Act and the Ld. CIT(A) has rightly appreciated that the payments made under this head have been made to weavers for using their premises and towards office and godown rent where the rent amount did not exceed Rs. 1,20,000/- prescribed u/s 194J of the Act for making TDS. [Ref: last para on page 60 of order Ne din of CIT(A).]. Hence, there is no merit in the grievance of the department. 18. Considered the rival submissions and material placed on record. We observe that the assessee utilizes lot of weavers in its business and they are the back bone of the business. It made certain arrangement with the workers and allowed certain allowance by offering them rent and also taken up godowns for its business purpose. It is brought to our notice the submissions made before CIT(A) and the break up of the payments are small and within the limits prescribed under the provisions of section 194J. Therefore, we do not see any reason to disturb the findings of First Appellate Authority. Accordingly, the ground raised by the revenue is dismissed. 19. In the result, the ....
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.....s 201(1) of the Act are clearly applicable which was not looked into by the Authorities below. The said proviso is applicable retrospectively from 2005. Similar disallowance made under similar facts in the hands of the Appellant's wife has been deleted by Hon'ble ITAT in ITA no.6829/Del/2019. c. The Ld CIT(A) has rejected the submission w.r.t. applicability of 2nd proviso to section 40(a)(ia) r.w.s 201(1) of the Act by holding that the same was not applicable to AY 2009-10 as the same was effective w.e.f. 01.04.2013. In this regard the following is submitted. i. The 2nd Proviso to Section 40(a)(ia) of the Act r.w. Proviso to Section 201(1) of the Act provides that disallowance of expenses under Section 40(a)(ia) of the Act cannot be made unless the assessee has been treated as assessee in default under Section 201(1) of the Act for its failure to deduct tax at source. ii. In the event if the amount paid by payer have been included by the payee in its return of income for the relevant assessment year, filed under Section 139 of the Act and has paid the tax due on the income declared in such return, to the extent recipient from such assessee is inc....
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....er the Act, hence it is disallowed u/s 40A(3) of the Act. We observed that the assessee made a plea before Ld CIT(A) that the payments were made during the year in different occasions but not substantiated with evidence. After considering the submissions of the both parties, we are of the view that in case the payments are made in difference occasions and the amount is not more than Rs. 20000/- in each case, then AO may allow the expenses. The assessee is directed to file the ledger copy and relevant documents before AO. Accordingly this ground of appeal is allowed for statistical purpose. 25. In the result, appeal filed by the assessee is partly allowed as indicated above. ITA No.6020/Del/2019 for AY 2009-10 (Penalty u/s 24(b)) 26. At the time of hearing, Ld AR submitted that Ld CIT(A) deleted the quantum addition on MERIT, the penalty amount corresponding to the said income was also deleted. No fault can be found with action of CIT(A). When the underlying quantum addition stood deleted the penalty would not survive. Further submitted that the irrelevant limb in the penalty notice has not been struck off. It is an omnibus notice. The penalty order is void ab initio. [Hon&....
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.... and material placed on record. We observed that most of the additions proposed by the AO are deleted by the Ld CIT(A) and certain additions were deleted by us in this appeal proceedings. The claim of the assessee relating to the allowability of the expenses. As held in the various cases brought to our notice and the same were reproduced in the above paragraphs, the penalty cannot be levied in the issues raised by the AO in the assessment order and penalty order. Therefore, we are inclined to decided the issues raised by the revenue as well as by the assessee in favour of the assessee. Accordingly, we direct the AO to delete the penalty levied. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. 30. In the result, appeal filed by the revenue is dismissed and appeal filed by the assessee is allowed. ITA No..6811/Del/2019 for Assessment Year 2009-10 31. The present appeal has been filed against order of Ld. Commissioner of Income Tax (Appeals), New Delhi dated 08.04.2019 in Appeal No. 226/18-19 issued in the Assessee's case for AY 2009-10 whereby the Ld. CIT(A) has confirmed the penalty of Rs. 10,44,255/-levied by the ....
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....-13. However, due to mistake of the consultant in not informing and keeping the assessee in dark on the tax payable at the time of filing the return, the subject Self Assessment tax(SA) has remained payable. As soon as he came to know of the default, he cleared the SA tax arrears by 02.06.2016. He submitted before the Ld. CIT(A) that it was a bonafide mistake committed due to the carelessness of the consultant and that there was reasonable cause within the meaning of proviso to section 221(1) of the Act. 36. The Ld. CIT(A) condoned the delay in filing the first appeal. However, Ld. CIT(A) did not agree with the assessee's plea and confirmed the order of the Ld. AO. The appeal thus came to be dismissed on 08.04.2019. 37. Aggrieved by the order of the Ld. CIT(A), the assessee has filed the present appeal on 16.08.2019 raising the following grounds: "That Ld. CIT (A) has erred in confirming penalty of Rs. 10,44,255/- u/s 140A(3) read with section 221(1) of the Income Tax Act, 1961 because: (a) the assessee was having the reasonable cause of not depositing the tax on time and the good and sufficient reasons for not depositing the tax were totally ignored by the ....
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....ground emanating from the orders of the authorities below and the relevant facts are already on record and it goes to the very root of the matter and also relevant in deciding the present appeal. It is therefore prayed that the same may kindly be admitted. The appellant respectfully relies upon the ratio in the case of National Thermal Power Co. Ltd. vs Commissioner of Income Tax (1998) 229ITR 383 (SC) and Jute Corporation of India Ltd. vs CIT (1991) 187ITR 688 (SC) for the proposition that an additional ground of appeal which is a legal ground based on the facts on record may be admitted in appeal though not raised earlier. 11. Arguments of the appellant: It is humbly submitted that the Ld. AO has imposed the subject penalty without hearing the appellant who was completely in dark about the ongoing proceedings before the AO as he was stuck with handling various litigations including prosecution proceedings relating to the investigation conducted by DRI. The appellant had not received any intimation from his consultant about the default that had occurred due to nonpayment of SA tax. As soon as he came to know of it he deposited the same. Kind attention is invited to the fa....
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....d penalty order is invalid and non-est in the eyes of the law as there is no provision under the Act empowering the AO to levy penalty for mere default in payment of SA tax. Section 140A(3) of the Act merely states that if there is a failure in payment of SA tax the assessee would be deemed to be in default in respect of the said tax, interest or fee remaining unpaid and that all provisions of the Act would apply accordingly. Thus section 140A(3) of the Act is not a charging section as far as levying penalty is concerned. It only enables AO to hold the assessee as assessee in default. 14. It is submitted that the penalty order u/s 140A(3) r.w.s 221(1) therefore is misconceived. It has been judicially held by the coordinate bench of this Hon'ble Tribunal in Heddle Knowledge Private Limited v. CIT, 2018 SCC OnLine ITAT 4055 that the objective of section 140A(3) of the Act is to treat the Assessee as 'Assessee in default' for the limited purpose of enabling the AO to make recovery of tax and interest due and not for levy of penalty as understood by the Revenue. The relevant para 3-6 of the said decision Heddle Knowledge Private Limited (supra) are reproduced below....
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.... section. The relevant paragraphs of the Circular dated 31.10.1989 (supra) are reproduced as under:- "Para 4.17: The old provisions of subsection (3) of the section provided for levy of penalty for non-payment of self-assessment tax, since the rate of mandatory interest for failure to pay the tax has now been increased, it is not necessary to retain this provision any more. The amending Act has accordingly omitted the said sub section (3). 4.18 In order to vest the power of recovery of tax and interest due under this section on the basis of the return, amending Act 1987, has inserted a new sub section (3) in the section to provide that if any assessee has not paid self assessment tax and interest in full before filing the return, he shall be deemed to be an assessee in default in respect of such tax and interest." Quite clearly, if one is to read the earlier Sec. 140A(3) of the Act and the amended section w.e.f. 1.4.1989 alongwith the explanatory notes to the amendment conjointly, it is clear that the earlier provision prescribing for levy of penalty for default outlined in Sub-section (1) of Sec. 140A(3) has yielded place to mandatory charging of interes....
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....int out that the non-payment of self-assessment tax renders the assessee "in default" in the amended provision which further prescribes that "all the provisions of this Act shall apply accordingly" and, therefore, the default is hitherto (from 01.04.1989) covered by Sec. 221(1) of the Act. In our view, the consequence of the aforesaid two expressions contained in Sec. 140A(3) are also not of the type sought to be understood by the Revenue, and rather the assessee is to be treated as an "assessee in default" for the limited purpose of enabling the Assessing Officer to make recovery of the amount of tax and interest due and not for levy of penalty, an aspect which has been specifically done away in the new provision. 1. Therefore, considered in the aforesaid light, in our view, the fact that the amended Sec. 140A(3) w.e.f. 01.04.1989 does not envisage any penalty for non-payment of self- assessment tax, the Assessing Officer was not justified in levying the impugned penalty by making recourse to Sec. 221(1) of the Act. Before parting, we may again emphasise that Sec. 221 of the Act remains unchanged, both during the pre and post amended Sec. 140A(3) of the Act and even in th....