Shri Chhotubhai Shivubhai Sarvaiya, Bhavnagar V. The ACIT.,Circle-1, Bhavnagar

CO 54/AHD/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1101 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Unexplained cash credit; Rejection of books of accounts
• Section: 143(3); 68

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO. 2901/AHD/2012 & CO NO.54/AHD/2013 / ASSESSMENT YEAR: 2009-10 ACIT, CIRCLE-1, BHAVNAGAR VS. CHHOTUBHA SHIVUBHA SARVAIYA, BASEMENT, MADHAV COMPLEX, SHASTRINAGAR, BHAVNAGAR PAN : AGBPS 6488 F / (APPELLANT) / (RESPONDENT & CROSS-OBJECTOR) REVENUE BY : SHRI NARENDRA SINGH, SR DR ASSESSEE(S) BY : SHRI TUSHAR P. HEMANI, AR !' / DATE OF HEARING : 08/09/2015 #$ !' / DATE OF PRONOUNCEMENT: 29/09/2015 / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS IS AN APPEAL FILED BY THE REVENUE AND THE CROS S-OBJECTION FILED BY THE ASSESSEE, BOTH AGAINST THE ORDER OF TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHMEDABAD DATED 03.10.2012 FOR ASSESSMENT YEAR 2009-10. 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL READS AS UNDER:- THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND FACTS OF THE CASE IN RESTRICTING THE ADDITION OF NET INCOME OF RS.4 L AKHS ONLY AS AGAINST 8% ESTIMATED BY THE AO AFTER REJECTING THE BOOKS OF THE ASSESSEE AND ITA NO. 2901/AHD/2012 AND CO 54/AHD/2013 ASSESSEE - CHHOTUBHA SHIVUBHA SARVAIYA AY 2009-10 2 HOLDING THAT THE EXPENSES, INCLUDING THE WAGES ARE NOT GENUINE AS THE ASSESSEE HAD SHOWN OUTSTANDING OPENING WAGES OF RS. 2,14,98,000/- AND THE CLOSING WAGES OF RS.4,86,71,677/- AS ON 31.03.2 009. 3. IN THE CROSS-OBJECTION, THE ASSESSEE HAS CHALLEN GED THE ADDITION OF RS. 4 LAKHS SUSTAINED BY THE CIT(A). 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE FACTS OF THE CASE ARE THAT THE ASSE SSEE DERIVES INCOME FROM CONSTRUCTION WORK. FOR THE YEAR UNDER CONSIDE RATION, THE ASSESSEE DISCLOSED THE CONTRACT RECEIPT OF RS.17.31 CRORES ON WHICH NET PROFIT DECLARED WAS RS.92.66 LAKHS. THE NET PROFIT RATE WORKS OUT TO 5.35% WHICH IS ADMITTEDLY HIGHER THAN THE NET PROFI T RATE OF 5% OF PRECEDING YEAR. THE ASSESSING OFFICER FOUND THAT T HE LABOUR EXPENSES OF RS.5.58 CRORES WERE NOT VERIFIABLE. HE, THEREFOR E, REJECTED THE BOOKS OF ACCOUNTS U/S 145(1) AND APPLIED THE NET PROFIT R ATE OF 8% WHICH RESULTED IN THE ADDITION OF RS.54,48,596/-. ON APP EAL, THE CIT(A) NOTICED THAT FOR THE YEAR UNDER CONSIDERATION, THE GP RATE AS WELL AS THE NP RATE - BOTH IS BETTER THAN THE IMMEDIATELY PRECE DING YEAR. HE WAS, THEREFORE, OF THE OPINION THAT THERE WAS NO JUSTIFI CATION FOR APPLICATION OF NET PROFIT RATE OF 8%; HOWEVER, FOR UNVERIFIABLE NATURE OF LABOUR EXPENSES, HE SUSTAINED THE LUMP-SUM DISALLOWANCE OF RS.4 LAKHS OUT OF LABOUR CHARGES. THE REVENUE IS IN APPEAL AGAINST TH E DELETION OF NET PROFIT ADDITION WHILE THE ASSESSEE IS IN CROSS-OBJE CTION AGAINST THE DISALLOWANCE OF RS.4 LAKHS OUT OF WAGES. 5. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE FURNISHED THE COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2007-08 WHICH WAS PASSED U/S 143(3) OF THE ACT , WHEREIN THE NP ITA NO. 2901/AHD/2012 AND CO 54/AHD/2013 ASSESSEE - CHHOTUBHA SHIVUBHA SARVAIYA AY 2009-10 3 RATE OF LESS THAN 3% WAS ACCEPTED BY THE ASSESSING OFFICER. THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS UNABLE TO E XPLAIN WHEN IN THE EARLIER YEARS THE LESSER NET PROFIT RATE THAN T HE NET PROFIT DECLARED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAV E BEEN ACCEPTED, THEN WHAT WAS THE JUSTIFICATION FOR APPLICATION OF NET PROFIT RATE OF 8%. ADMITTEDLY, THE NATURE OF THE BUSINESS REMAINED THE SAME IN THE PRECEDING YEARS AND IN THE YEAR UNDER CONSIDERATION . WHEN IN THE IMMEDIATELY PRECEDING TWO YEARS LESSER NET PROFIT R ATE HAVE BEEN ACCEPTED BY THE REVENUE, THEN IN OUR OPINION, THERE WAS NO JUSTIFICATION FOR APPLICATION OF NET PROFIT RATE OF 8% IN THE YEAR UNDER CONSIDERATION, MERELY BECAUSE THE LABOUR EXPENSES W ERE NOT VERIFIABLE. THE CIT(A) HAS ALREADY SUSTAINED SOME DISALLOWANCE ON AD-HOC BASIS FOR UNVERIFIABLE NATURE OF LABOUR EXPENSES. CONSID ERING THE FACTS OF THE CASE AND THE HISTORY OF THE ASSESSEES CASE WHI CH WAS BEEN ACCEPTED BY THE REVENUE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN THIS REGARD. THEREFORE, THE ONLY GROUND IN THE REVENUES APPEAL AND GROUND NO.1 OF THE ASSESSEES CROSS-OBJE CTIONS ARE REJECTED. 6. THE ONLY OTHER GROUND IN THE ASSESSEES CROSS-OB JECTIONS IS AGAINST THE ADDITION OF RS.5,00,000/- MADE BY THE A SSESSING OFFICER FOR UNEXPLAINED CASH CREDIT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. FROM THE PERUSAL OF ASSESSMENT ORDER, I T IS EVIDENT THAT THE LOANS WERE TAKEN BY THE ASSESSEE IN THE FINANCIAL Y EAR 1999-2000 AND NOT IN THE YEAR UNDER CONSIDERATION. REVENUE CAN E XAMINE THE GENUINENESS OF THE LOANS U/S 68 IN THE YEAR OF BORR OWING OF THE MONEY ITA NO. 2901/AHD/2012 AND CO 54/AHD/2013 ASSESSEE - CHHOTUBHA SHIVUBHA SARVAIYA AY 2009-10 4 AND IF THE REVENUE FAILS TO EXAMINE THE SAME, IT CA NNOT MAKE THE ADDITION FOR THE SAME IN THE SUBSEQUENT YEAR. WE HA VE ALSO NOTICED THAT THE CIT(A) SUSTAINED THE ADDITION BY APPLYING THE PROVISION OF SECTION 41(1). SECTION 41(1) READS AS UNDER:- 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MA DE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIO US YEAR, (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF S UCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACC RUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INC OME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS I N EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF W HICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PERSON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY RE FERRED TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF , THE AMOUNT OBTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEM ED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AN D ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR. EXPLANATION 1.FOR THE PURPOSES OF THIS SUB-SECTION , THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILAT ERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR I N BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OF F SUCH LIABILITY IN HIS ACCOUNTS. EXPLANATION 2.FOR THE PURPOSES OF THIS SUB-SECTION , 'SUCCESSOR IN BUSINESS' MEANS, ITA NO. 2901/AHD/2012 AND CO 54/AHD/2013 ASSESSEE - CHHOTUBHA SHIVUBHA SARVAIYA AY 2009-10 5 (I) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMPA NY WITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; (II) WHERE THE FIRST-MENTIONED PERSON IS SUCCEEDED B Y ANY OTHER PERSON IN THAT BUSINESS OR PROFESSION, THE OTHER PE RSON; (III) WHERE A FIRM CARRYING ON A BUSINESS OR PROFESS ION IS SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM; (IV) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING COMPANY. 8. FROM THE ABOVE, IT IS EVIDENT THAT SECTION 41(1) WOULD BE APPLICABLE WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE FOR ANY ASSESSMENT YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY THERE IS REMISSION OR CESSATION OF SUCH LIABILITY. ADMITTEDLY, IN THE CA SE UNDER APPEAL BEFORE US, THE QUESTION FOR OUR CONSIDERATION WAS WITH REG ARD TO LOANS RECEIVED FROM THE CREDITORS. IT WAS NOT RELATING TO ANY LOSS, EXPENDITURE OR TRADING LIABILITY WHICH HAS BEEN ALLOWED AS DEDU CTION IN THE EARLIER YEARS. THEREFORE, IN OUR OPINION, SECTION 41(1) WOU LD NOT BE APPLICABLE FOR REMISSION OR CESSATION, IF ANY, OF THE LOANS AN D ADVANCES. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE ADDITION SUST AINED BY THE CIT(A) FOR UNEXPLAINED CASH CREDIT IN EARLIER YEARS BY INV OKING PROVISIONS OF SECTION 41(1) WAS NOT CORRECT AND THE SAME IS DELET ED. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED WHI LE THE ASSESSEES CROSS-OBJECTION IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 29 TH SEPTEMBER, 2015 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL M EMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 29/09/2015 BIJU T., PS ITA NO. 2901/AHD/2012 AND CO 54/AHD/2013 ASSESSEE - CHHOTUBHA SHIVUBHA SARVAIYA AY 2009-10 6 / COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. '(%& / THE RESPONDE NT. 3. )) ! *! / CONCERNED CIT 4. *! ( ) / THE CIT(A) 5. -./ '! , , / DR, ITAT, AHMEDABAD 6. /01 / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) ! '#$, / ITAT, AHMEDABAD