M/s Saurabh Builders, Panchmahal V. The Income tax Officer,Ward-2, Godhra

CO 6/AHD/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8198 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Keywords: Gross profit estimation; Rejection of books of accounts; Principle of natural justice
• Section: 44AD; 143(3); 133(6); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMADABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 15/AHD/2010 ASSESSMENT YEAR :2006-2007 & C.O. NO.6/AHD/2012 ASSESSMENT YEAR :2006-2007 THE INCOME-TAX OFFICER, WARD-2, CIVIL LINE ROAD, PANCHMAHAL GODHRA M/S SAURABH BUILDERS, 76, NARMADA NAGAR SOCIETY HALOL, PANCHMAHAL V/S . V/S. M/S SAURABH BUILDERS, 76, NARMADA NAGAR SOCIETY HALOL, PANCHMAHAL THE INCOME-TAX OFFICER, WARD-2, CIVIL LINE ROAD, PANCHMAHAL GODHRA PAN NO. A AJFS3478F (APPELLANT) .. (RESPONDENT) BY REVENUE SHRI D. K. SINGH, SR.D.R. /BY ASSESSEE SHRI TUSHAR HEMANI, A.R. /DATE OF HEARING 21.11.2012 /DATE OF PRONOUNCEMENT 04.01.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE AND C.O. OF THE ASSESSEE WHICH HAS EMANATED FROM THE ORDER OF CIT(A )-VI, BARODA, ORDER DATED 14.09.2009 FOR ASSESSMENT YEAR 2006-2007. TH E REVENUES APPEAL AND ASSESSEES C.O. WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY WAY ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 2 & C.O. NO. 6/AHD/2012 OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE EFFECTIVE GROUNDS OF REVENUES APPEAL AND ASSESSEES C.O. ARE AS UNDER: THE EFFECTIVE GROUND OF REVENUES C.O. 1(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF R S.49,21,765/-, BY ESTIMATING THE INCOME @ 2.25% OF GROSS RECEIPTS, AS AGAINST 8% OF THE GROSS RECEIPTS ESTIMATED BY THE A.O. BY R EJECTING THE BOOKS OF ACCOUNT. 1(II). THE LD. CIT(A) FAILED TO APPRECIATE THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SUNDRY CREDITORS AMO UNTING TO RS. 2,49,94,652/- WERE FOUND TO BE NON-GENUINE AND THEREFORE, BY REJECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFIC ER ESTIMATED THE INCOME @ 8% OF GROSS RECEIPT OF RS.8,55,89,555/ -. THE EFFECTIVE GROUND OF ASSESSEES C.O. 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FAC TS IN ESTIMATING THE INCOME OF THE APPELLANT WITHOUT UPHO LDING THE REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE. IN FACT LD. CIT(A) HAS HELD THAT THE ASSESSEE HAS MAINTAINED PROPER BO OKS OF ACCOUNTS AND FURTHER HELD THAT LOW GROSS PROFIT CAN NOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. IN ABSE NCE OF GROUNDS FOR REJECTION OF BOOKS OF ACCOUNTS, THE ACTION OF L OWER AUTHORITIES IN ESTIMATING INCOME OF THE ASSESSEE IS WITHOUT JUR ISDICTION AND ILLEGAL. 2. THE LD. CIT(A), EVEN AFTER ACCEPTING THE BOOKS O F ACCOUNTS MAINTAINED BY THE ASSESSEE HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN ESTIMATING THE INCOME OF THE ASSESSEE @ 2.25% OF THE GROSS RECEIPT AND THUS ADDING AN AMOUNT OF RS.1 9,25,765/- TO THE INCOME OF THE ASSESSEE. IN THE FACTS OF THE PR ESENT CASE THE ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 3 & C.O. NO. 6/AHD/2012 LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT NO ESTIMA TION OF GROSS RECEIPTS WAS REQUIRED TO BE MADE AS THE ASSESSEE DU LY MAINTAINED THE BOOKS OF ACCOUNTS. 3. BOTH THE LOWER AUTHORITIES HAVE ERRED IN ALW AND ON FACTS IN NOT PROPERLY APPRECIATING AND CONSIDERING VARIOUS S UBMISSIONS, EVIDENCES AND SUPPORTING PLACED ON RECORD DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS AND NOT PROPERLY APPRECI ATING VARIOUS FACTS AND LAW IN ITS PROPER PERSPECTIVE AND FURTHER ERRED IN PASSING ORDERS IN GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 4. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF AO IN CHARGING INTEREST U/ S 234A/B/C/D OF THE ACT. 5. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ADJUDICATING UPON THE GROUND CHALLENGING THE ACTION OF AO IN INITIATING PENALTY UNDER SECTION 271(1)(B) AND 271( 1)(C) OF THE ACT. 2. THE ASSESSEE IS ENGAGED IN CARRYING OUT ROAD & B UILDING CONTRACTS FOR SARDAR SAROVAR NIGAM, NATIONALIZED BANKS, ROAD & BU ILDING DIVISION OF GODHRA & BARODA AND SOME PRIVATE PARTIES. DURING T HE YEAR, THE FIRM HAS RECEIVED CONTRACTUAL AMOUNT OF RS.8.56 CRORE AND HA D SHOWN PROFIT AT RS. 9,34,958/-, BEFORE ALLOWING INTEREST AND REMUNERATI ON TO PARTNERS. THE G.P. ALSO WORKED OUT @ 1.09%. THE LD. A.O. GATHERED THE INFORMATION U/S.133(6) AND IT IS FOUND ON VERIFICATION THAT SADHAVNA QUARR Y, AHMADABAD AND OM TRADERS, NANDESHARI HAD NO TRANSACTION WITH THE APP ELLANT, WHEREAS THE APPELLANT HAD SHOWN THESE PARTIES AS SUNDRY CREDITO RS. THE LD. A.O. ALSO ASKED TO FURNISH FROM THE ASSESSEE, THE NAME, ADDRE SS AND PAN NOS. IN CASE ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 4 & C.O. NO. 6/AHD/2012 OF EIGHT CREDITORS, MENTIONED IN PAGE NO.2 OF THE A SSESSMENT ORDER. OUT OF EIGHT, THE LD. A.O. HAD CHOSEN TO VERIFY THE GENUIN ENESS OF THE FOUR CREDITORS. THE LD. A.O. DEPUTED THE WARD INSPECTOR TO SERVE TH E NOTICE U/S. 133(6) IN CASE OF BHAUMIK TRANSPORT AND ASHIRWAD CONSTRUCTION . THE WARD INSPECTOR WAS NOT ABLE TO SERVE THE NOTICE ON GIVEN ADDRESS, AS SUCH, NO PARTY IN THE NAME OF BHAUMIK TRANSPORT AND ASHIRWAD CONSTRUCTION WERE EXISTING. SIMILARLY, INQUIRY WAS ALSO CONDUCTED BY THE WARD I NSPECTOR IN CASE OF MAHALAXMI TRANSPORT. THE PARTNER OF MAHALAXMI TRAN SPORT HAS DENIED HAVING BEEN ANY TRANSACTION WITH THE APPELLANT. INQUIRY, IN CASE OF SHIVA QUARRY WORKS, GOPIPURA, REVEALED THAT THE FIRM WAS NOT IN EXISTENCE. THE TOTAL TRANSACTIONS WITH THESE PARTIES WERE WORKED OUT BY THE A.O. AT RS.2,49,94,652/- AS UNDER: SER. SUNDRY CRDITOR CLOSING BAL TOTAL TRANSACTION 1 ASHIRWAD CONSTRUCTION 1100000 2346250 2 BHAUMIK TRANSPORT 3000000 4545232 3 MAHALAXMI TRANSPORT 5643600 5643600 4 SHIVA QUARRY WORKS 11356985 11356985 5 OM TRADERS 12085 12085 6 SADBHAVNA QUARRY 1090500 1090500 TOTAL 16703170 24994652 THE TOTAL TRANSACTION WITH THESE PARTIES WERE AS ME NTIONED AT RS.2.49 CRORE. THE G.P. RATE SHOWN BY THE ASSESSEE IS LOW. THEREF ORE, THE LD. A.O. REJECTED THE BOOK RESULT U/S.145(3) OF THE IT ACT AND CONSID ERED THE SPECIAL PROVISION U/S. 44AD SUB-SECTION 1 AND ESTIMATED INCOME OF ASS ESSEE @ 8% ON GROSS CONTRACT RECEIPTS OF RS.8,55,89,555/- I.E. RS.68,47 ,165/-. ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 5 & C.O. NO. 6/AHD/2012 3. BEING AGGRIEVE BY THE ORDER OF THE A.O., THE ASS ESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAS PARTLY ALLOWED THE APPEAL BY APPLYING OF NET RATE OF PROFIT @ 2.25% E.G. RS.19,25,765/-, BY OBSERVING AS UNDER: 3.3 I HAVE CONSIDERED THE SUBMISSION OF A.R. AND C ITATIONS RELIED UPON BY APPELLANT AS WELL AS THE OBSERVATION OF A.O. THE PROVISIONS OF SECTION 44AD OF I.T. ACT, 1961 ARE AP PLICABLE WHEN RECEIPTS DO NOT EXCEED RS.40 LACS, IN CASE OF A SMA LL CONTRACTOR NOT MAINTAINING THE PROPER BOOKS. BUT, THE APPELLA NT IN QUESTION IS NOT A SMALL CONTRACTOR, MAINTAINING PROPER BOOKS , AND GETTING THEM AUDITED UNDER SECTION 44AB OF THE I.T. ACT, 19 61. MOREOVER, LOW BOOK PROFIT IN RELATION TO TURNOVER C ANNOT BE THE REASON FOR REJECTION OF BOOKS OF ACCOUNT, PROVIDED NO OTHER DEFECTS WERE FOUND. FURTHER IT IS ALSO NOTED THAT WITHOUT WAITING FOR DUE DATE OF COMPLIANCE BY 02.12.2009 AS SPECIFI ED IN NOTICE U/S.142(1) DATED 21.11.2008, A.O. ISSUED SHOW-CAUSE NOTICE U/S.271(1)(B) ON 24.11.2008 I.E. IMMEDIATELY 3 DAYS THEREAFTER, INDICATING THE HASTE IN WHICH ASSESSMENT HAS BEEN M ADE. BUT, HOWEVER, IT IS ALSO A FACT THAT DURING THE YEAR UND ER CONSIDERATION, TURNOVER COMPARED TO EARLIER YEARS HAS INCREASED AN D AS SUCH THE INCOME SHOULD BE COMMENSURATE IN TUNE WITH THE SAME TO A REASONABLE EXTENT. THE REPORT OF THE INSPECTORS CA NNOT BE MADE BASIS FOR ANY ACTION ON THE PART OF THE AO, WHEN TH E SAME WAS NOT PUT TO THE APPELLANT FOR COMMENTS. IN ADDITION , WHEN THE DEPARTMENT, IN SCRUTINY ASSESSMENTS, HAS ACCEPTED T HE RESULTS IN AY 2003-04 AND AY 2005-06 AT 1.01% AND 0.97% RESPEC TIVELY, THERE IS NO BASIS TO ESTIMATE FOR THIS YEAR AT 8%, WHICH APPEAR TO BE ON A VERY HIGH SIDE. THEREFORE, ON THE BASIS OF INCOME ASSESSED IN PAST BY A.O., AND RELYING OJN ABOVE CIT ATIONS, I CONSIDER IT REASONABLE AND JUSTIFIED TO ESTIMATE TH E TOTAL INCOME ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 6 & C.O. NO. 6/AHD/2012 BASED ON PAST EXPERIENCE @ 2.25% OF GROSS RECEIPTS DURING THE YEAR AT RS.19,25,765/- (I.E. 2.25% OF GROSS RECEIPT S OF RS.8,55,89,555 = RS.19,25,765/-) AND AFTER REDUCING SALARY AND INTEREST TO PARTNERS AT RS.5,83,592/-, THE TOTAL IN COME IS COMPUTED AT RS.13,42,173/-. THUS, THIS GROUND IS DISPOSED O F ACCORDINGLY. 4. NOW THE REVENUE AS WELL AS ASSESSEE ARE BEFORE U S. LD. SR. D.R. VEHEMENTLY ARGUED THAT LD. CIT(A) WAS NOT RIGHT IN ALLOWING THE APPEAL PARTLY. THE LD. A.O. HAD APPLIED U/S. 44AD AND PROFIT WAS C ALCULATED @8% AFTER REJECTING THE BOOKS OF ACCOUNT U/S.145(3) OF THE IT ACT. THE LD. A.O. WAS QUITE REASONABLE BY NOT ADDING BOGUS CREDITORS AT RS.2,49 ,94,652/- IN FULL. AT THE OUTSET, LD. COUNSEL FOR THE APPELLANT SUBMITTED THA T THE SECTION 44AD IS APPLICABLE WHERE TURNOVER IS LESS THAN RS.40 LACS. THE APPELLANT HAS MAINTAINED BOOKS OF ACCOUNT REGULARLY. THERE WAS N O GROUND OF REJECTION OF BOOKS OF ACCOUNT U/S. 145(3) OF THE IT ACT. IN PAS T ALSO, THE APPELLANT HAD DISCLOSED AND ACCEPTED N.P. @ 1.01% IN A.Y. 03-04, 0.97% IN A.Y. 05-06, WHEREIN ORDER U/S. 143(3) WAS PASSED BY THE A.O. I N BOTH THE YEARS. IN A.Y. 06-07, THE NET PROFIT WAS 1.09%. THE APPELLANT REL IED UPON THE HONBLE ITAT, DELHI BENCH DECISION, IN CASE OF DAKSHIN HARYANA BIJLI VITRAN NIGAM LTD., 144 TTJ 307 AND ACIT VS BHARTI D SHAH IN ITA NO. 2723/AHD/2009, AHMEDBABAD C BENCH AND ARGUED THAT WHEN THE APPELLANT HAS SHOWN GROSS PROFIT HIGHER COMPARED TO PRECEDING YEAR, NO ADDITION CAN BE MADE . THE LD. CIT(A) HAD RESTRICTED THE ADDITION BY APPLYING N.P. @ 2.25% WH ICH IS 2.25 TIMES OF THE AVERAGE OF NET PROFIT IN THE PAST. THEREFORE, HE R EQUESTED TO DELETE THE ADDITION WHEREAS LD. SR. D.R. HAS REQUESTED TO CONF IRM THE ORDER OF THE A.O. ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 7 & C.O. NO. 6/AHD/2012 5. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONS IDERED THE RIVAL SUBMISSIONS. IT REVEALS FROM THE ASSESSMENT ORDER 03-04 THAT THE APPELLANT HAD SHOWN GROSS PROFIT RATE AT 9.015 WHICH WAS 9.99 % IN A.Y. 02-03. THE LD. A.O. IN A.Y. 03-04 HAS NOT VERIFIED THE CASH CREDIT ORS. IN A.Y. 05-06, THE ASSESSEE HAD SHOWN G.P. RATE @ 10.21%, WHICH WAS 9. 01% IN A.Y. 04-05. NO VERIFICATION OF THE TRADE CREDITORS WERE DONE BY THE A.O. IN A.Y. 05-06. THE LD. A.O. HAD VERIFIED THE TRADE CREDITORS DURIN G THE YEAR UNDER CONSIDERATION, WHICH WAS DISCUSSED BY THE A.O. IN A SSESSMENT ORDER, WHICH WERE FOUND NOT GENUINE AT RS. 2.49 CRORE. THE LD. A.O. WAS RIGHT IN REJECTING THE BOOK RESULT. HOWEVER, SECTION 44AD HAS BEEN AP PLIED BY HIM, WHICH IS FOR THE TRADERS WHO DOES NOT EXCEED THE TURNOVER RS. 40 LACS. THE LD. A.O. HAD GIVEN VARIOUS OPPORTUNITIES TO THE APPELLANT FROM T HE FIRST NOTICE DATED 10.08.2007 TO FINAL NOTICE U/S. 131 WAS SERVED ON 2 4.11.2008 ON THE PARTNERS OF THE FIRM. THERE WAS SUFFICIENT TIME BEFORE THE PARTNER TO MAKE COMPLIANCE OF THE LAW BEFORE THE A.O., WHEN THERE IS NO PROPER COMPLIANCE BY ASSESSEE BEFORE HIM THEN HE HAD TO PASS ORDER U/S. 144 OF TH E IT ACT. THE APPELLANT CLAIMED BEFORE THE CIT(A) THAT THE COPY OF INSPECTO R REPORT AS WELL AS INQUIRY MADE BY THE A.O., HAD NOT PROVIDED TO THE APPELLANT . THE LD. CIT(A) HAD NOT GIVEN ANY FINDING ON ALLEGED BOGUS CASH CREDITORS I N HIS ORDER. HE DECIDED THE INCOME ON THE BASIS OF PAST RECORD WHEREIN NO INQUI RY REGARDING CASH CREDITORS WAS CARRIED OUT BY THE A.O. THEREFORE, IN THE INTE REST OF JUSTICE, THE A.O. IS DIRECTED TO GIVE THE COPY OF ALL THE INQUIRY REPORT MADE BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDING TO THE ASSESSEE AND DECIDE THE CASE AFTER ITA NO. 15/AHD/2010 A.Y. 06-07 PAGE 8 & C.O. NO. 6/AHD/2012 GIVING THE REASONABLE OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE A.O. IS SET ASIDE FOR DENOVO. 6. IN THE COMBINED RESULT, THE REVENUES APPEAL & A SSESSESS C.O. BOTH ARE ALLOWED FOR STATISTICAL PURPOSE. THESE ORDERS PRONOUNCED IN OPEN COURT ON 04.01.2013 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. '#$ / APPELLANT 2. &'#$ / RESPONDENT 3. )*)+ ' ', / CONCERNED CIT 4. ' ',- ' / CIT (A) 5. 01'' +, ' ''' +, 34 * / DR, ITAT, AHMEDABAD 6. 167 89 / GUARD FILE. BY ORDER/ , :/3' )' ' ''' +, 34 * <