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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per:Anikesh Banerjee, JM: The instant appeal of the assesseewas filed against the order of the ld. Commissioner of Income Tax (Appeals), NFAC, Delhi,[in brevity the ‘CIT (A)’],order passed u/s 250of the Income Tax Act 1961, [in brevity ‘the Act’] for 2 Assessment Year: 2017-18 A.Y. 2017-18. The impugned order was emanated from the order of the ld. Assistant Commissioner of Income Tax, Circle, Ferozepur, [in brevity ‘the AO’] order passed u/s 143(3) of the Act. 2. The appeal was filed with delay of minimum 02 days. With the consent of ld. DR the delay for 02 days is condoned.
The assessee has taken the following grounds: “1. That, the orders passed by the Ld. Commissioner of Income Tax (Appeal) vide orders dated 21.07.2022 is illegal, uncalled for and against the law & facts.
2. That, the Ld. Commissioner of Income Tax (Appeal) has sustained the additions merely on conjectures and surmires without any legal basis.
3. That, the Ld. Commissioner of Income Tax (appeals) has failed to appreciate the fact that the additions of Rs. 15,00,000.00 made on estimation basis as no specific finding has been made by the Assessing Officer; that Assesse has furnished anything wrong.
3 Assessment Year: 2017-18 It is also judicially settled law that additions made on estimated basis without legal basis cannot take the place of evidence against the assessee for making a sustainable addition.
4. That, the Ld. Assessing Officer in his order has not rejected books of accounts; thus, he is satisfied with the books of accounts and audit report.
In para no. 2 of assessment order, additions made of Rs. 15.00 Lacs is merely on estimated basis to increase the Net profit ratio of Assessee from 3.54% to 5.01%.
The Only reason of raising the Net Profit from 3.54% to 5.01% has been mention by Assessing Officer is that Assessee has shown in Assessment Year 2016-17 the Net profit of 5.01% whereas the Assessee has strongly sumitted before the Ld. Commissioner of Income Tax (Appeals) Net Profit relating to contractor business is as follows : - Particulars Assessment Year 2016- Assessment Year 2017-18 17 Gross Receipts (A) 1,99,06,497.00 15,88,11,257.00 Net Profit (B) 9,97,646.00 56,22,004.00
4 Assessment Year: 2017-18 3,89,202.00 7,42,999.00 Less: FDR Interest Income duly Shown under Other income of Part A-P&L at point no. 2 of Income Tax Return Form-6 for Assessment Years (C)
6,08,444.00 48,79,005.00 Net Profit relating to Civil Contractor Business (D) = (B)-C) 3.06% 3.07% Net Profit Ratio (E) = (D)/(A)*100 it is clear that the Assessee has taken Net Profit (After taking Interest Income) of Rs. 9,97,646.00 for Assessment Year 2016- 17 instead of Net Profit relating to Civil Contractor Business of Rs. 6,08,444.00 for the purpose of calculating Net Profit ratio which resulted Net Profit ratio of 3.06% in Assessment Year 2016-2017 and in Assessment Year 2017-2018 is 3.07%. So, there is no sharp decline in Net Profit Ratio relating to Civil Contractor Business as it is comparative in nature from 3.06% in Assessment Year 2016-17 to 3.07% in Assessment Year 2017-18. Copy of FDR Interest Income duly shown under other income of Part A-P&L at point no. 2 of Income Tax Return Form-6 and audit report containing Profit & Loss and Balance Sheet for Assessment Year 2016-17 and 2017-18 is herewith enclosed 5 Assessment Year: 2017-18 So, there is no decline in Net Profit ratio; therefore no addition can be made due to decline in Net profit.
That, the Ld. Commissioner of Income Tax (Appeals) has miserably failed to appreciate the Income Tax Rules which states that the depreciation has to be allowed as per Income Tax Appendix I. This is really a mockery of E-Proceedings as Ld. Commissioner of Income Tax (Appeals) had not allowed depreciation of Rs. 15,94,447.00 as per Income tax Act rules. So Depreciation may please be allowed 6. The Assessee craves leave to argue on any other question of law or facts at the time of hearing of this appeal.”
Brief fact of the case is that the assessee’s case was selected for complete scrutiny through Computer Assisted Scrutiny Selection (in short CASS). In the return, assessee was declared income at Rs.56,22,000/-. The statutory notice u/s 143(2) was issued to the assessee on dated 28.08.2018. The ld. AO had framed the assessment with a grievance that net profit was declared by the assessee against the turnover Rs.15,88,11,257/- @ 3.54% which is worked out to Rs.56,22,004/-. But in assessment year 2016-17 the assessee declared the net profit 5.01%. So, the addition was due to the heavy difference in the net profit ratio. The ad hoc
6 Assessment Year: 2017-18 business expenses was disallowed amount to Rs 15 lakh and added back with total Income. In claim of depreciation the assessee claimed that the depreciation was not allowed on block asset amount to Rs.15,94,447/-. But assessee was denied the claim.Aggrieved assessee filed an appeal before the ld. CIT(A). After considering the submission of the assessee, the ld. CIT(A) upheld the addition elated ad hoc disallowance of expenses Rs 15lakh. The ld. CIT(A) had only allowed the claim of depreciation amount to Rs. 84,506/- which was subject to claim of assessee. Being aggrieved,the assessee filed an appeal before us.
Ground No. 1 and 2 5. Ground No. 1 and 2 is general in nature. Ground No. 3 and 4 6. The addition was made amount to Rs.15 lacs on the basis of ad hoc disallowance of expenses of the assessee. The ld. AO had framed the assessment with a grievance that net profit was declared by the assessee against the turnover Rs.15,88,11,257/- @ 3.54% which is worked out to Rs.56,22,004/-. But in assessment year 2016-17 the assessee declared the net profit 5.01%. So, the addition was due to the heavy difference in the net profit ratio.
7 Assessment Year: 2017-18 6.1 The assessee had already explained the issue before the ld. CIT(A). The calculation was duly addressed in the ground mentioned above.
6.2 The ld. AR placed that the differences for the interest of fixed deposit was taken in the assessment year 2016-17 in the net profit. But in current year, the FDR interest was not taken in the net profit. Due to the FDR interest which is embedded in the net profit ratio 5.01%. The ld. AR further prayed that the ld. AO in ad hoc basis disallowed the expenses without point out any lacuna and without rejecting the books of account.
The ld. DR fully relied on the order of the revenue authorities. Ground No. 5 8. The ld. AR claimed that the assessee is entitled depreciation in the impugned assessment year amount of Rs.15,94,447/-. But the ld. CIT(A) had a grievance that the assessee claimed depreciation in the tax audit report amount to Rs.84,506/-. So, the said amount was duly allowed by the ld. AO during assessment.
The ld. AR claimed that the depreciation was calculated in Income Tax Act.So, the ld. AO wrongly made mistake for allowing the depreciation in the 8 Assessment Year: 2017-18 assessment order. The ld. AR prayed that the matter should be remit back to the ld. AO for re-calculation of depreciation on basis of the block asset of the assessee. 9.1. The ld AR respectfully relied on the case Mehsana District Co-Operative Milk Producers' Union Ltd. v. Commissioner of Income-tax, [1993] 203 ITR 601 (GUJ.) “Learned counsel for the Revenue had strongly contended that the assessee not having made any claim under section 37 of the Act, this court should not hold that it was an allowable deduction under section 37 of the Act. Though the assessee was not specific in its claim for deduction, it appears from the order of the Tribunal that the assessee had contended before the Income-tax Officer that the said expenditure was incurred wholly and exclusively for the purpose of business. It was contended before the Income-tax Officer that deduction was permissible under section 37 of the Act. Even before the Appellate Assistant Commissioner, it was contended that the said contribution should be considered as revenue expenditure incurred by the assessee for the purpose of carrying on its business. The said deduction was claimed as revenue expenditure. Even before the Tribunal, it was contended that the said contribution should be treated as legitimate business
9 Assessment Year: 2017-18 outgoing. Thus, the assessee's claim for deduction was under section 37 of the Act and when its claim is decided on the merits, it would not be proper to reject that claim only on the ground that the assessee had not made a specific claim in that behalf by reference to section 37 of the Act.”
The ld. DR fully relied on the order of the revenue authorities.
We heard the rival submission and relied on the documents available in the record. The charge of net profit for the assessment year 2016-17 and in impugned assessment year has a reasonable explanation by the assessee. The assessee placed the detail calculation before the bench and before the revenue authorities which is reflected in Ground No-4 of assessee’s appeal. The changes of net profit rate only on the FDR interest. Otherwise, the rate of net profit for both the years more or less similar. The rejection of expenses without finding any lacuna in books of account is arbitrary. The ld. AO in the assessment order had not made any specific lacuna for rejection of expenses of the assessee during the impugned assessment year except the variation of net profit in two assessment years. We find that the ld. AO disallowed on adhoc basis Rs. 15 lakh out of the expenses claimed by the assessee during impugned assessment year. There is no allegation that the expenses have 10 Assessment Year: 2017-18 not been incurred wholly and exclusively for the purpose of business even it is not a case of the revenue that the expenses are personal expenses or capital expenditure. Both the assessment and appeal orders related to this issue are perverse. We reject the observation of the ld. AO. The addition amount to Rs.15,00,000/- is quashed.
11.1 Related to depreciation the assessee claimed that the depreciation should be allowed as per the Income Tax Act as per the appendix -1, which was not duly followed by the ld. AO. Accordingly, we remit back the matter to the ld. AO for calculation of depreciation as per Income Tax Act as claimed by the assessee amount of Rs.15,94,447/-. We respectfully relied on the order of the Mehsana District Co-Operative Milk Producers' Union Ltd(supra). The legitimate claim of assessee should be entertained subject to verification. Accordingly, the ground no. 5 is remitted back to the ld. AO. Needless to say, the assessee should get a reasonable opportunity of hearing in the setting aside proceeding.
Ground No.6 is general in nature.
In the result, Ground Nos. 1, 2 and 6 are general in nature. 14. Ground Nos. 3 and 4 are allowed.
11 Assessment Year: 2017-18 15. Ground No. 5 is allowed for statistical purposes. 16. In the result, the appeal of the assessee bearing is