2015 (10) TMI 380 - AT - Income Tax

Additions made on account of brick production expenses, clay excavation and carriage expenses and expenditure on water courses - CIT(A) deleted the addition - whether assessee failed to produce the relevant support evidence to substantiate its claim of expenses which were entirely made in cash? - Held that - Assessing Officer was not justified in making the disallowances of expenses. CIT(A) had rejected the books of account maintained by the assessee and proceeded to determine the income by applying a particular profit rate, which we would advert to at a later stage. The contentiedon of the ld. D.R. that the ld. CIT(A) had not rejected the books of account and hence the provisions of see. 145 cannot be applied does not merit acceptance for the clear reason that the observations of the Ld. CIT(A) as discussed above are crying hoarse that the books of account maintained by the assessee were not appropriate and provisions of sec. 145 are applicable. His further decision in deleting the specific disallowances of expenses and applying a particular G.P. rate clearly proves that in his opinion the books were not properly maintained and he rejected such books of account for making a trading addition. Admittedly the Revenue has not filed any second appeal against the finding given by the ld. CIT(A). This shows that the impugned order has been accepted by the department and the assessment order to that extent stood merged with that of the ld. CIT(A) s order. In the absence of any appeal filed by the Revenue we cannot put the assessee in a worst position in which it would have been if no appeal had been filed by it. CIT(A) has tabulated the figure of sales, gross profit and gross profit rate of this A.Y. as well as the immediately preceding two A. Ys. at page 31 of the impugned order. On a perusal of this table, it transpires that the assessee had declared G.P. rate of 7.55% in this year as against 6.47% of the preceding year. The Jodhpur Bench of the Tribunal has held in several cases that where the books of account are rejected, then recourse should be taken to the profit rate of the immediately preceding year unless facts justify departure therefrom. On a close examination of the G.P. rate declared by the assessee in this as well as the preceding year, it becomes patent that such rate of 7.55% in this year is better than of 6.47% in the immediately preceding years. In such a situation, there cannot be only question of applying a still higher GP rate for sustaining any trading addition, we therefore, order for the deletion of addition - Decided against revenue.

Summary

Issues:
- Disallowance of expenses related to brick production, clay excavation, carriage expenses, and water courses without proper evidence.
- Transfer of jurisdiction from ACIT, Circle, Barmer to ITO, Ward -27(2), New Delhi.
- Appeal by the Revenue against the order of CIT(A) Jodhpur.
- Cross objection by the Assessee against the same order.

Analysis:

Issue 1: Disallowance of expenses
The Revenue appealed the deletion of additions made on account of various expenses by the CIT(A). The ACIT had disallowed expenses totaling &8377; 37.83 lakhs, including brick production, clay excavation, and carriage expenses. The CIT(A) held that the Assessing Officer should have applied section 145 before making such disallowances. The CIT(A) rejected the books of account and computed a 1% increase in the Gross Profit rate, resulting in an addition of &8377; 2.95 lakhs. The ITAT, Jodhpur, found that the Revenue did not file any second appeal against the CIT(A)'s findings, indicating acceptance of the order. As a result, the ITAT dismissed the Revenue's appeal.

Issue 2: Transfer of jurisdiction
The jurisdiction over the Assessee was transferred from ACIT, Circle, Barmer to ITO, Ward -27(2), New Delhi, under the administrative control of CIT-IX, New Delhi. This transfer was made pursuant to an order under section 127 of the Income Tax Act. The case records were transferred accordingly, and the appeal was eventually transferred to ITAT, Delhi from ITAT, Jodhpur. Despite requests for a Misc. application against the ITAT's order, the Department did not file one, leading to the finality of the Tribunal's decision.

Issue 3: Appeal and Cross Objection
The Revenue's appeal was dismissed by the ITAT, Delhi, as the Tribunal's order had become final due to the absence of a second appeal by the Revenue. The Assessee withdrew the Cross Objection during the hearing, resulting in its dismissal. The final decision was pronounced on 29-8-2014, with both the Revenue's appeal and the Assessee's Cross Objection being dismissed.

This detailed analysis covers the various issues involved in the legal judgment, including the disallowance of expenses, the transfer of jurisdiction, and the outcomes of the appeal and cross objection before the ITAT, Delhi.