ITAT JODHPUR BENCH
Assistant Commissioner of Income-tax
versus
G.R. Contractor
IT Appeal Nos. 402 & 403 (Jodh.) of 2011
C.O. NOS. 32 & 33 (JODH.) OF 2012
[ASSESSMENT YEARS 2004-05 & 2005-06]
OCTOBER 29, 2012
ORDER
N.K. Saini, Accountant Member
The appeals by the Department and the cross-objection by the assessee are directed against common order dt. 8th Sept., 2011 of the learned CIT(A), Bikaner for the asst. yrs. 2004-05 and 2005-06.
2.1 In the Departmental appeals, i.e. ITA Nos. 402 and 403/Jd/2011, learned counsel for the assessee at the very outset submitted that the tax effect in these appeals is less than the amount prescribed by the CBDT where Department ought not to have filed the appeals.
2.2 The learned Departmental Representative although supported the order of the AO but could not controvert the aforesaid fact that tax effect in these appeals is less than Rs. 3,00,000.
2.3 After considering the submissions of learned Departmental Representative and the material on record, it is noticed that s. 268A has been inserted by the Finance Act, 2008 with retrospective effect from 1st April, 1999. The provisions contained in s. 268A read as under :
“268A. (1) The Board may, from time to time, issue orders, instructions or directions to other IT authorities, fixing such monetary limits as it may deem fit, for the purpose of regulating filing of appeal or application for reference by any IT authority under the provisions of this chapter.
(2) Where, in pursuance of the orders, instructions or directions issued under sub-s. (1), an IT authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment year, it shall not preclude such authority from filing an appeal or application for reference on the same issue in the case of—
(a) the same assessee for any other assessment year; or
(b) any other assessee for the same or any other assessment year.
(3) Notwithstanding that no appeal or application for reference has been filed by an IT authority pursuant to the orders or instructions or directions issued under sub-s. (1), it shall not be lawful for an assessee, being a party in any appeal or reference, to contend that the IT authority has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case.
(4) The Tribunal or Court, hearing such appeal or reference, shall have regard to the orders, instructions or directions issued under sub-s. (1) and the circumstances under which such appeal or application for reference was filed or not filed in respect of any case.
(5) Every order, instruction or direction which has been issued by the Board fixing monetary limits for filing an appeal or application for reference shall be deemed to have been issued under sub-s. (1) and the provisions of sub-ss. (2), (3) and (4) shall apply accordingly.”
2.4 It is not in dispute that the Board’s instruction or directions issued to the other IT authorities are binding on those authorities, therefore, the Department ought not to have filed the appeal in view of the above mentioned s. 268A since the tax effect in the instant case is less than the amount prescribed for not filing the appeal.
2.5 It is noticed that the CBDT has issued Instruction No. 3 of 2011, dt. 9th Feb., 2011 [[2011] 238 CTR (St) 154 : [2011] 51 DTR (St) 135], by which the CBDT has revised the monetary limit to Rs. 3,00,000 for filing the appeal before the Tribunal.
2.6 Keeping in view the CBDT Instruction No. 3 of 2011, dt. 9th Feb., 2011 and also the provisions of s. 268A of IT Act, 1961, we are of the view that the Revenue should not have filed the instant appeals before the Tribunal. While taking such a view, we are fortified by the following decisions of Hon’ble Punjab & Haryana High Court :
1. CIT v. Oscar Laboratories (P.) Ltd . [2010] 324 ITR 115 (Punj. & Har.);
2. CIT v. Abhinash Gupta [2010] 327 ITR 619 (Punj. & Har.);
3. CIT v. Varindera Construction Co .[2011] 331 ITR 449 (Punj. & Har.).
2.7 Similarly the Hon’ble Delhi High Court in the case of CIT v. Delhi Race Club Ltd. in IT Appeal No. 128 of 2008, order dt. 3rd March, 2011 by following the earlier order dt. 2nd Aug., 2010 in IT Appeal No. 179 of 1991 in the case of CIT v. P.S. Jain & Co. held that such circular would also be applicable to pending cases.
2.8 From the ratio laid down by the Hon’ble jurisdictional High Court, it is clear that the instructions issued in the circulars by CBDT are applicable for pending cases also. Therefore, by keeping in view the ratio laid down in the aforesaid referred to cases, we are of the considered view that Instruction No. 3 of 2011, dt. 9th Feb., 2011 issued by the CBDT is applicable for the pending cases also and in the said instructions, monetary tax limit for not filing the appeal before the Tribunal is Rs. 3 lacs.
3.1 In C.O. Nos. 32 and 33/Jd/2012, the assessee raised the common ground which reads as under :
“1. That the CIT(A) should have accepted the declared income.
2. That the learned CIT(A) should have allowed the deduction of interest paid to third party being covered by the order of the Tribunal in case of the assessee himself.
3. That the learned CIT(A) should have allowed the depreciation as per revised return of income which is according to law.
4. That cost may be awarded.
5. The order passed by the learned CIT(A) may kindly be declared against the judicial decorum and discipline.”
4.1 The ground Nos. 1, 4 and 5 of the assessee are general in nature, so they do not require any comments on our part.
5.1 Vide ground No. 2, the grievance of the assessee relates to the deduction of interest paid to third party.
5.2 The facts of the case in brief are that the assessee filed its return of income on 4th Oct., 2004 declaring an income of Rs. 11,881. Thereafter, revised return was filed on 31st March, 2006 declaring nil income. The AO considered the revised return as invalid by observing that the same was not filed within the stipulated period prescribed under s. 139(5) of the IT Act, 1961 (hereinafter referred to as ‘the Act’). The AO pointed out certain discrepancies in the vouchers relating to various expenses and also pointed out that the assessee was not maintaining the log book of trucks or any record which could show the expenses per truck. He therefore, rejected the books of account and estimated the gross transportation receipts at Rs. 3.35 crores as against Rs. 3,13,61,123 declared by the assessee. The AO applied the net profit rate of 5 per cent on total freight receipts. The AO also estimated the commission income at Rs. 3 crores as against Rs. 21,05,290 shown by the assessee.
5.3 The assessee carried the matter to the learned CIT(A) who accepted the filing of revised return, however, confirmed the rejection of books of account and applied the net profit rate of 8 per cent subject to depreciation and interest to third party. The learned CIT(A) also directed an allowance of 40 per cent of expenses against commission income and addition made under s. 68 of the Act amounting to Rs. 2,43,680 was deleted. Subsequently, the order of the learned CIT(A) was set aside by Tribunal vide order dt. 22nd Feb., 2008 and on the direction of Tribunal the learned CIT(A) passed the fresh order dt. 21st Oct., 2008. In this order, the learned CIT(A) reiterated the observations regarding revised return and regarding allowance of 40 per cent of the expenses. However, net profit rate 13.07 per cent was adopted subject to salary and interest to partners, interest paid to third parties and depreciation. The order of the learned CIT(A) was again set aside by the Tribunal by observing that the learned CIT(A) had recorded not only the perverse findings of fact but had also transgressed his jurisdiction, commenting adversely on the order of the superior authority amounting to judicial indiscipline and supported his order that stood obliterated by the order dt. 2nd Feb., 2008 of the Tribunal and that the directions were not considered in right perspective. Accordingly, the order of the learned CIT(A) was set aside. On the direction of Tribunal, the learned CIT(A) passed impugned order. The learned CIT(A) upheld the rejection of the books of account which was done by the AO by invoking the provision of s. 145(3) of the Act. The learned CIT(A) observed that Tribunal Jodhpur Bench in assessee’s own case for the asst. yr. 2003-04 vide order dt. 19th Dec., 2007 had allowed application of net profit rate of 17.46 per cent before depreciation, interest and salary to partners and interest to third parties. The learned CIT(A) by following the aforesaid order of the Tribunal held that same net profit rate can be applied for the year under consideration except for the issue of interest paid to third parties and depreciation. The learned CIT(A) also held that interest paid to third parties cannot be allowed in view of Tribunal Jodhpur decision in the case of Asstt. CIT v. Mohta Construction Co. in ITA No. 127/Jd/2008 for the asst. yr. 2004-05 order dt. 27th May, 2009 and regarding depreciation the learned CIT(A) held that it could have to be allowed as claimed in the original return and not in the revised return. The learned CIT(A) also held that allowance of expenses out of transportation commission income @40 per cent need not to be allowed because the expenses on that score were already accounted for in the expenses debited to the P&L a/c for transportation receipts. The learned CIT(A) also directed the AO to adopt net profit rate of 17.46 per cent on the gross receipts of transport and commission.
5.4 Now the assessee is in appeal.
5.5 The learned counsel for the assessee submitted that interest paid to third parties has to be allowed even when net profit rate of is applied. Reliance was placed on the following case laws :
1. CIT v. Jain Construction Co. [2000] 245 ITR 527 (Raj.)
2. Vijay Builders v. ITO (ITA No. 1449/Jp/2008, dt. 22nd Jan., 2010), Tribunal Jaipur Bench.
It was further submitted that in the preceding year i.e. asst. yr. 2003-04, interest paid to third party was allowed by Tribunal, Jodhpur Bench vide its order dt. 19th Dec, 2007 in Misc. Appln. No. 107/Jd/2007, the copy of the same was furnished which is placed at pp. 46 to 47 of the assessee’s compilation. It was submitted that the Department had accepted the said order and no further appeal was filed in Hon’ble High Court. Therefore, the facts being the same, the said order ought to have been followed by the learned CIT(A) and interest paid to third parties ought to have been allowed even when the GP rate was applied.
5.6 The learned Departmental Representative in his rival submissions supported the order of the learned CIT(A).
5.7 After considering the submissions of both the parties and perusing the material available on record, it is noticed that in earlier year the Tribunal vide aforesaid referred to order dt. 19th Dec., 2007 held that application of net profit rate was before depreciation, interest and salary to the partners and interest to third parties as was in preceding year also. Since the said order has not been reversed by the higher forum, so it has the binding effect and the learned CIT(A) ought to have followed the said order. In that view of the matter, we modify the order of the learned CIT(A) and direct the AO to allow deduction of interest paid to third parties from the income determined after applying net profit rate.
6.1 As regards the next issue relating to depreciation, the learned counsel for the assessee in this regard submitted that the learned CIT(A) himself allowed the depreciation claimed in the revised return in his earlier order but now when the impugned order was passed after the direction by Tribunal, the learned CIT(A) allowed the depreciation on the basis of the original return and not on the revised return. It was stated that direction be given to the Department to allow the depreciation claimed in the revised return.
6.2 In his rival submissions, the learned Departmental Representative supported the order of the learned CIT(A).
6.3 After considering the submissions of both the parties and perusing the materials available on record, it is noticed that the learned CIT(A) at p. 7 of his impugned order has observed as under :
“……..The Authorised Representative’s claim regarding the allowance of deductions on account of salary and interest to partners, depreciation and interest paid to third parties on the basis of Tribunal Jodhpur decision in the appellant’s own case for asst. yr. 2003-04 merits consideration except for the fact that the interest paid to third parties cannot be allowed in view of the Tribunal, Jodhpur’s decision in the case of Asstt. Mohta Construction Co. 27th May, 2009 and regarding depreciation only the claim of the appellant in the original return of income would have to be allowed because the claim made in the revised return could not be substantiated. The Tribunal, Jodhpur in the appellant’s own case for asst. yr. 2003-04 vide order dt. 19th Dec, 2007 had allowed application of net profit rate of 17.46 per cent before depreciation, interest and salary to partners and interest to third parties. Respectfully following the decision of the Tribunal, Jodhpur the same net profit rate can be applied for the year under consideration except for the issue of interest paid to third parties and depreciation as stated above.”
6.4 From the above observation of the learned CIT(A), it appears that the learned CIT(A) followed the earlier order of the Tribunal in assessee’s own case in part and not in toto. He was of the view that interest and salary to the partners be allowed but not interest to third parties and the depreciation was to be allowed as claimed in the original return because the claim made in the revised return could not be substantiated. However, he has brought nothing on record as to how and in what manner the claim in the revised return was not substantiated particularly when the then learned CIT(A) vide order dt. 30th March, 2007 accepted the filing of revised return and the said order on the issue of acceptance of revised return had not been overruled by the higher Courts even when the matter was set aside by Tribunal, Jodhpur Bench vide order dt. 22nd Feb., 2008 and again vide order dt. 7th July, 2009, the said view of the learned CIT(A) was not disturbed. So, it is not clear as to how the learned CIT(A) came to the conclusion in the impugned order that claim of the depreciation made in the revised return could not be substantiated. We therefore, modify the said order of the learned CIT(A) and direct the AO to allow depreciation as claimed in the revised return which had been accepted vide order dt. 30th March, 2007 passed by the then learned CIT(A), since the said view of the learned CIT(A) remains undisturbed till the order of Tribunal dt. 7th July, 2009.
7.1 In the C.O. No. 33/Jd/2012, since the facts are similar as were in C.O. No. 32/Jd/2012 (supra), therefore, our findings given in C.O. No. 32/Jd/2012 for the asst. yr. 2004-05 shall apply mutatis mutandis for the CO. No. 33/Jd/2012 relating to asst yr. 2005-06.
8. In the result, appeals of the Revenue are dismissed and the cross-objections of the assessee are allowed.
