2019 (1) TMI 1067 - AT - Income Tax

Estimation of income at 1% of the gross turnover - survey u/s 133A - Held that - In the assessee s case, there is no dispute that the turnover exceeds 10 crore. Though the department has made survey u/s 133A no evidence was brought on record to establish that the net profit is more than 0.4% or the assessee s case is different from other cases and deriving more income than the other comparable cases. The department also did not find any concealed assets in assessee s case. The AO did not give the basis for estimation of income at 1% of the gross turnover. AO also did not make any exercise to work out the net profit with the sale price and relevant expenses. The orders were passed by the ITO, Ward-2 Bhimavaram in the assessee case as well as other cases relied upon by the CIT(A). For the A.Y. 2013-14 in the case of Mr.Abdul Kalam Azad, the AO estimated the income at 0.4% after rejecting the books of accounts. Similarly in the case of Adabala Narsimha, the same AO estimated the income @0.4% clear of expenses. During the appeal hearing the department could not place any evidence before us to controvert the finding given by the Ld.CIT(A) or to substantiate the contention of the department that income estimated by the Ld.CIT(A) is less and assessee gets more income than the comparable cases decided by the AO. Therefore, we do not find any reason to interfere with the order of the CIT(A) and the same is upheld. The appeals of the revenue on these grounds are dismissed. Depreciation on crates - Held that - Grounds of appeal before the CIT(A) in MHM Fish Packers, the assessee challenged the addition made by the AO for assessment of income separately on the fish crates without allowing the expenses relatable to earning the income on fish crates. The depreciation is an expenditure which required to be allowed while computing the income. Therefore, contention of the revenue that the CIT(A) has allowed the depreciation on crates without being agitated before him is incorrect. Therefore we dismiss the revenues appeal in ground with regard to depreciation. Estimation of income from the fish trading separately and the income from fish crates separately - Held that - In this case, though the AO has taxed the entire receipt from fish crates as income and did not allow the expenditure relatable to earning of income. AR submitted before us that the assessee would be satisfied if the interest expenditure is also allowed. We are of the considered opinion that the depreciation on crates and the interest attributable to acquiring the fish crates required to be allowed in the interest of justice. We uphold the order of the Ld.CIT(A) with regard to the allowance of depreciation on fish crates and remit the issue of interest on crates back to the file of the AO with a direction to verify the issue with regard to the borrowed capital for acquiring the crates and allow the interest relatable to acquiring fish crates also. The AO should give an opportunity to the assessee before completing the assessment. Accordingly appeal of the revenue on this ground is dismissed and the cross appeal of the assessee on this issue is allowed.

Issues Involved:
1. Estimation of income for the assessee engaged in fish trading and packing.
2. Allowance of depreciation on crates.
3. Interest on bank loans for the purchase of crates.
4. Tax effect and maintainability of the revenue's appeal.

Detailed Analysis:

1. Estimation of Income:
The revenue contested the reduction of the profit estimation rate from 1% to 0.4% by the CIT(A). The Assessing Officer (AO) had initially estimated the income at 1% of the gross sales after rejecting the assessee's books of accounts, which were not maintained regularly. The CIT(A) observed that in similar cases within the same region, the net profit was estimated between 0.25% to 0.4%. The CIT(A) referenced comparable cases, including that of Mr. Abdul Kalam Azad, where the AO had estimated the income at 0.4%. The Tribunal upheld the CIT(A)'s decision, stating that the department did not provide evidence to justify a higher estimation rate. Thus, the appeal by the revenue on this ground was dismissed.

2. Allowance of Depreciation on Crates:
The AO had separately computed the rental income from crates but did not allow any related expenditure. The CIT(A) directed the AO to allow depreciation on the crates. The revenue argued that this issue was not before the CIT(A). However, it was found that the assessee had indeed raised this issue in their appeal (ground No.10). The Tribunal upheld the CIT(A)'s decision to allow depreciation, dismissing the revenue's appeal on this ground.

3. Interest on Bank Loans for Purchase of Crates:
The assessee argued that the AO should allow interest on bank loans used to purchase crates, in addition to depreciation. The Tribunal noted that the AO had assessed income from fish trading and crates separately but did not allow related expenses. The Tribunal remitted the issue back to the AO to verify and allow the interest on borrowed capital for acquiring crates, thus partly allowing the cross appeal of the assessee.

4. Tax Effect and Maintainability of Revenue's Appeal:
For one of the appeals (I.T.A. No.364/Viz/2017), the tax effect was below ?20 lakhs. As per the latest CBDT circular, such appeals are not maintainable. The Tribunal dismissed this appeal as not maintainable. Consequently, the related cross objection by the assessee was also dismissed as infructuous.

Conclusion:
The Tribunal dismissed the revenue's appeals regarding the estimation of income and depreciation on crates. It partly allowed the assessee's cross appeals concerning interest on bank loans for crates and dismissed other grounds as not pressed. The appeals with tax effects below ?20 lakhs were dismissed as not maintainable, rendering related cross objections infructuous.

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