Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2010 (10) TMI 1197

S. K. Meena, Sr.D.R. ORDER Per D.C. Agrawal, Accountant Member. These are four appeals involving common issues and hence they are taken up together for the sake of convenience :- ITA No.4544/Ahd/2007 Asst. Year 2004-05 (Assessee s appeal) 2. In this appeal the assessee has raised the following issues :- (1) This issue is about application of net profit rate of 5% resulting in addition of ₹ 17,91,873/- (2) This issue is about rejection of books of account (3) This issue is about allegation by AO regarding furnishing of inaccurate particulars, manipulation of expenses, under reporting of sales, concealment of income etc. (4) This issue is about sustaining addition of ₹ 39,30,000/- made by AO u/s 41(1) of the Act. (5) This issue is about addition of ₹ 80,000/- made under section 69C. 3. The facts of the case are that the assessee is running a proprietary concern of civil contractorship under the name of Quality Construction . It is carrying out construction activities with various public limited listed companies. During the course of assessment proceedings the AO noted that in the audit report auditors have mentioned that assessee is not maintaining any quantitative .....

X X X X X X X

Full Text of the Document

X X X X X X X

ntitative tally it does not enable the AO to verify the quantities remaining in the closing stock and value thereof. Further it cannot be proved that all the purchases made by the assessee are consumed. Thus there is no evidence to verify the closing stock. Further the assessee is purchasing several types of raw material used in civil construction. Output is also different such as building, roads or such other items. The assessee did not account for raw material purchased and supplied for consumption. There was no account of work in progress. Thus there is no direct co-relation in terms of quantities or otherwise with the final output. Accordingly it is not possible to fairly deduce the income of the assessee in absence of quantitative stock register and verification of closing stock. Our view is also supported by the decision in Ramchandra Ramniklal vs. CIT (1961) 42 ITR 780 (Pat). We accordingly uphold the finding of authorities below in rejecting the books. This ground of assessee is accordingly rejected. 6. Ground No.1, 2 & 3 are about rejection of books and estimation of net profit. The AO found that assessee has shown a net profit of 1.13% on a gross receipt of ₹ 4, .....

X X X X X X X

Full Text of the Document

X X X X X X X

allegation that these liabilities are not genuine. 10. After considering the rival submissions and going through the material on record, we are of the view that this addition is not called for. The reasons are that for taxing the amount under section 41(1) it has to be shown that concerned amounts have been taken into account in profit and loss account or trading account in an earlier year. Secondly the creditor remits the liability in favour of the assessee i.e. he foregoes his claim thereon, or the liability has ceased to exist on account of some contractual agreement between the parties or because of operation of law and accordingly assessee derives benefit from such remission or cessation. In the present case there is no overt act on behalf of the creditor or the assessee so as to infer that there is a remission by the creditor or cessation of liability by agreement or by operation of law. It is only a change of head from trading liability to unsecured loan. The genuineness of the trading liabilities have not been doubted either in the year when they were debited in the profit and loss account or in the current year. Therefore, it cannot become income of the assessee or the ass .....

X X X X X X X

Full Text of the Document

X X X X X X X

or the appellant. We find no relevance of this decision to the determination of the question involved in the present case. The factual matrix and the provision of law considered therein is entirely different. (ii) CIT v. Chetan Chemicals Pvt. Ltd. [2004] 267 ITR 0770-[Guj] On a reading of section 41(1) of the Income-tax Act, 1961, it is apparent that before the section can be invoked an allowance or a deduction must have been granted during the course of assessment for any year in respect of loss, expenditure or trading liability which is incurred by the assessee, and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit accruing to the assessee can be deemed to be the profits and gains of business or profession and can be brought to tax as income of the previous year in which such amount or benefit is obtained. Held,_ that it was an admitted position that there had been no allowance or deduction in any of the preceding years and, hence, there was no ques .....

X X X X X X X

Full Text of the Document

X X X X X X X

has been debited and claimed to the profit and loss account and allowed in earlier years, it cannot be treated to be an income under section 41(1). If that liability was not allowed or its deduction was not granted in earlier years, it would not assume the character of income chargeable to tax in a later year by virtue of section 41(1). (vi) Narayanan Chettiary Industries vs. ITO 277 ITR426 (Mad) All the income tax authorities treated the amount of ₹ 23,66,695 (the amount which was written off by the sister concern of the assessee) as income in the hands of the assessee and taxed it under section 41(1) of the Income-tax Act, 1961. On appeal the assessee contended that there was no finding that there was deduction of allowance made in the assessment of the assessee for any year and hence the provisions of section 41(1) had no application. Held -that section 41(1) creates a legal fiction and hence has to be strictly complied with if any addition to the income is sought to be made by the Revenue. Unless an allowance or deduction had been made in an earlier year in respect of loss, expenditure or trading liability there can be no addition under section 41(1). There was no finding .....

X X X X X X X

Full Text of the Document

X X X X X X X

s on the facts of the present case, we hold that there is no case for taxing this conversion of trading liability into unsecured loan as income of the assessee. This ground of assessee is, therefore, allowed. 11. The next addition is about estimation of household expenditure. The ld. AR has submitted that telescoping effect should be given in case some trading addition is confirmed. Since while disposing of ground No.1 we have directed to apply net profit rate of 3.5% it will result into some addition. The AO will give telescoping effect. If net profit addition is more then no addition on account of household expenditure should be made. Accordingly, this ground of assessee is disposed of. The appeal filed by the assessee is partly allowed. ITA No.3372/Ahd/2008 Asst. Year 2005-06 (Assessee s appeal) 12. In this year the assessee has raised following issues - one is about estimation of net profit rate of 5%, second is about rejection of books, third is about claim of expenses of ₹ 4,86,503/- which has been disallowed by the AO. 13. The issue regarding rejection of books has been considered by us while disposing of the appeal of assessee for Asst. Year 2004-05. Since the facts a .....

X X X X X X X

Full Text of the Document

X X X X X X X

CIT(A) had accepted the fact that the trading liabilities were not remitted but existed in the books and were classified as unsecured loans. 2. On facts and in the circumstances of the case and in law, the ld. CIT(A) has while sustaining the penalty erred in treating the act of the appellant of classifying trade liabilities as unsecured loans as remission of trade liabilities. 19. The ld. CIT(A) confirmed the penalty in respect of addition of ₹ 39,30,000/- whereas he has deleted the penalty in respect of net profit addition and addition in respect of household withdrawals. 20. We have considered the rival submissions and carefully perused the material on record. 21. The addition of ₹ 39,30,000/- made by the AO u/s 41(1) did not survive as we have held while disposing of quantum appeal for Asst. Year 2004-05. When addition does not survive, the question of levy of penalty does not arise. There are in fact several judgments according to which penalty is not leviable if addition is deleted. Hon. Punjab & Haryana High Court in CIT vs. Prakash Industries Ltd. (2010) 322 ITR 622 (P & H) held that basis for levy of penalty is returned income. If additions are deleted .....

X X X X X X X

Full Text of the Document

X X X X X X X

inda Devi vs. CIT (2008) 304 ITR 0340 (All). In that case assessee received lottery prize money in January, 1992 and disclosed the same in the return filed for Asst. Year 1992-93 and paid the taxes. The assessing authority passed an ex parte assessment order and ex parte penalty order in Asst. Year 1991-92. It was held by the Hon. Court that once prize money has been disclosed in the return of income for Asst. Year 1992-93 and also taxes were paid then assessing authority had apparently committed an error in levying the penalty. In K.C. Builders vs. ACIT (2004) 265 ITR 562 (SC) it was held by the Hon. Apex Court that where additions are made in the assessment order on the basis of which penalty for concealment is levied, are deleted, there remains no basis at all for levying penalty for concealment. No penalty would survive if addition did not survive. In CIT vs. Arthanariswamy Chettiar (S.S.K.G.) (1982) 136 ITR 145 (Mad) Hon. Madras High Court held that penalty can be imposed with reference to the concealment done in the original return filed under section 139. In the case of Sulemanji Ganibhai vs. CIT (1980) 121 ITR 0373 (M.P.) it was held that an assessee incurs penalty under se .....

X X X X X X X

Full Text of the Document

X X X X X X X

0A(2)(b) of the 1961 Act ; that the quantum of the amount paid had been restricted by the Assessing Officer on estimation and there was no concealment of any income or furnishing of inaccurate particulars to invite penalty under section 271(1)(c) : Held, allowing the appeal, that the Assessing Officer had doubted only the reasonableness of the payment made to the sister concern and had invoked the provisions of section 40A(2)(b) of the Act. There could not be a disclosure of income resulting from disallowance made under section 40A(2)(b) . The disclosure of the particulars of the transaction in its books of account as done by the assessee was sufficient in law. The assessee had furnished correct details. The genuineness as well as the incurring of the expenditure was not disputed by the Assessing Officer. The disallowance under section 40A(2)(b) could not be considered as concealment of income or furnishing of inaccurate particulars. The levy of penalty was not warranted. Harigopal Singh vs. CIT (2002) 258 ITR 85 (P & H) CIT vs. Sangrur Vanaspati Mills Ltd. (2008) 303 ITR 53 (P & H) SLP dismissed in 308 ITR 8(St) 26. We notice that ld. CIT(A) has not given any finding that .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||