2005 (10) TMI 227 - AT - Income Tax

Additions made under the head of truck hire charges, machinery hire charges and roller hire charges - Books of account not maintained separately - failed to file any evidence - HELD THAT - No discrepancy was found therein. AO never asked the assessee for furnishing any agreement for running and hire charges. No expenses were allowed against the receipt of hire charges, despite there not being any discrepancy. Moreover, vide order, the learned CIT(A) had directed the AO to decide the issue afresh by applying the reasonable net profit rate. AO had not pointed out as to which expenses were not verifiable. The above facts had not been disputed. Since the AO did not carry out the directions of the learned CIT(A), as delineated above, the learned CIT(A) cannot be said to have erred in directing the AO to adopt the same basis as that taken for asst. yr. 1996-97. Therefore, ground No. 3 is also found to be devoid of force. It is rejected. Interest on FDRs - Again, the Department has not been able to overturn the factual findings recorded by the learned CIT(A). Since the FDRs have been found to be utilized for business purposes, interest thereon has to be considered as a business receipt of the assessee. Hence the grievance of the Department is unjustified. Accordingly, ground No. 4 is also rejected. As a result, the appeal of the Department is found to be without merit. Penalty levied u/s 271(1)(c) - CIT(A), in the impugned order, has correctly observed that in the quantum appeal, almost all the additions on the basis of which the impugned penalty was imposed, had been deleted and that whatever additions had been sustained, were on estimate basis not calling for imposition of any penalty. In the facts discussed hereinabove, no error is found in the order of learned CIT(A), which is hereby confirmed. The cancellation of penalty in question is, therefore, upheld. In the result, both the appeals of the Department are dismissed.

Summary

Issues:
1. Deletion of insurance expenses and depreciation on vehicles.
2. Deletion of addition on account of labor expenses.
3. Direction to adopt the same basis for truck, machinery, and roller hire charges.
4. Partly allowing relief against addition of interest on FDRs.
5. Cancellation of penalty under section 271(1)(c) of the IT Act, 1961.

Analysis:

1. The first issue revolves around the deletion of insurance expenses and depreciation on vehicles. The AO contended that personal use of the vehicles could not be ruled out. However, the CIT(A) found that the vehicles were used only at the site of the assessee, justifying the allowance of insurance and depreciation. The Department failed to challenge this factual finding, leading to the rejection of Ground No. 1.

2. The second issue concerns the deletion of labor expenses. The AO disallowed 10% of the expenses due to self-made vouchers. The CIT(A) overturned this decision, highlighting that the disallowance was ad hoc and lacked verification. Since the AO did not specify which expenses were unverifiable, the deletion of disallowance was deemed correct, resulting in the rejection of Ground No. 2.

3. The third issue addresses additions made under truck, machinery, and roller hire charges. The AO questioned the lack of separate accounts and verifiable expenses. The CIT(A) directed the AO to use the same basis as the previous year, emphasizing the need for a reasonable net profit rate. As the AO did not follow this direction, the CIT(A) was justified in upholding the decision, leading to the rejection of Ground No. 3.

4. The fourth issue involves the relief granted against the addition of interest on FDRs. The CIT(A) considered the interest as business income based on the purpose of FDR purchase. The Department failed to challenge the factual findings, resulting in the rejection of Ground No. 4.

5. The final issue pertains to the cancellation of a penalty under section 271(1)(c) of the IT Act, 1961. The CIT(A) canceled the penalty, citing that additions were on an estimate basis and not warranting a penalty. The Tribunal confirmed this decision, noting that the additions were either deleted or based on estimates, leading to the dismissal of the Department's appeals.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on various grounds, emphasizing factual findings and lack of substantiated challenges by the Department. The appeals by the Department were dismissed, affirming the decisions made in favor of the assessee.