M/s B.S. Ranbir & Co., Ambala Cantt. V. DCIT, Ambala

ITA 1011/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8452 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 13-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1011/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S B.S.RANBIR & COMPANY. VS. THE DCIT, AMBALA CANTT. AMBALA PAN NO. AABFB6208J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL / SHRI ASHOK GOYA L RESPONDENT BY: SMT.JAISHREE SHARMA ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), PANCHKULA DATED 16.4.2010 RELATING TO ASSESSMENT YE AR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE REJECTION OF BAS U/S 145(3) OF THE INCOME TAX ACT. 2. THAT HE LD. CIT(A) HAS ERRED IN APPLYING PROFIT RAT IO OF 6.50% OF PROFIT BEFORE INTEREST AND REMUNERATION AND THUS ENHANCING THE ADDITION OF RS. 350000.00 MA DE BY THE LD. ASSESSING OFFICER TO 13,61,101.00. THIS HAS RESULTED IN ENHANCEMENT OF THE ASSESSED INCOME BY R S. 10,11,101/-. 3. WITHOUT PREJUDICE TO OUR GRIEVANCE IN GROUND NO.2, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ADDITION OF RS. 3,50,000/- MADE BY THE LD. ASSESSING OFFICER ON ESTIMATED BASIS OUT OF TOTAL CONTRACT EXPENSES. 2 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RES PECT OF THE TRADING ADDITION MADE AFTER REJECTION OF BOOKS OF ACCOUNT U /S 145(3) OF THE INCOME TAX ACT. THE BRIEF FACTS RELATING TO THE CASE ARE THAT ASSESSEE WAS A M.E.S. APPROVED CONTRACTOR. THE ADDITIONAL CIT(A) AMBALA RANGE HAD ISSUED AN AUTHORIZATION U/S 133A(1) OF THE INCOME T AX ACT ON 21.4.2005 TO THE INSPECTOR OF INCOME TAX TO IDENTIFY THE BOOKS O F ACCOUNT OF THE ASSESSEE. THE SAID BOOKS COULD NOT BE IDENTIFIED AS THE SAME WERE NOT FOUND AVAILABLE IN THE BUSINESS PREMISES OF THE ASS ESSEE. THE ASSESSEE VIDE LETTER DATED 21.4.2005 EXPLAINED THAT THE PROJ ECT OF THE FIRM WAS AT PALAMPUR AND THE PARTNERS WERE ALSO RESIDING AT PAL AMPUR AND AS SUCH THE BOOKS OF ACCOUNT WOULD BE PRODUCED ON 25.4.2005. ANOTHER REQUEST FOR ADJOURNMENT WAS MADE BECAUSE OF A MARRIAGE IN THE F AMILY. THE BOOKS OF ACCOUNT WERE PRODUCED ON 16.5.2005 AND THE SAME WER E IDENTIFIED BY THE INSPECTOR OF INCOME TAX. THE ASSESSING OFFICER WA S OF THE VIEW THAT THE NON AVAILABILITY OF THE BOOKS OF ACCOUNT FOR A PERI OD OF 25 DAYS REVEALS THAT THE SAME WERE NOT BEING MAINTAINED REGULARLY. THE ASSESSING OFFICER WAS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPLET ENESS OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE, BECAUSE OF THE FOLLOWIN G DEFECTS IN THE BOOKS OF ACCOUNT:- I) NON MAINTENANCE OF STOCK REGISTER. II) PAYMENT TO LABOUR NOT BEING FULLY VOUCHED. III) BOOKS OF ACCOUNT BEING NOT AVAILABLE AT THE TIME OF SURVEY AND EVEN UPTO 16.5.2005. 4. HENCE, THE BOOKS OF ACCOUNT PRODUCED BY THE ASS ESSEE WERE REJECTED BY ASSESSING OFFICER U/S 145(3) OF THE ACT. THE ASS ESSING OFFICER IN PARA 3 OF THE ASSESSMENT ORDER NOTES THAT AS PER THE DET AILS FILED BY THE ASSESSEE FOR THE IMMEDIATE TWO PRECEDING YEARS, THE GROSS RE CEIPTS AS WELL AS THE 3 NET PROFIT RATE ON CONTRACT RECEIPT HAD SHOWN AN UP WARD TREND. HOWEVER, ASSESSING OFFICER DISALLOWED RS. 3,50,000/- OUT OF THE CONTRACT EXPENSES AS SOME OF THE EXPENSES WERE NOT SUPPORTED WITH EXT ERNAL VOUCHERS. FURTHER, IN THE ABSENCE OF LOG BOOKS AND NON SUPPOR T WITH PROPER VOUCHERS, RS. 50,000/- WAS DISALLOWED OUT OF TRUCK RUNNING AN D MAINTENANCE EXPENSES AND RS. 10,000/- OUT OF JCB RUNNING AND MA INTENANCE EXPENSES. THE ASSESSING OFFICER DISALLOWED RS. 10,000/- OUT O F TELEPHONE EXPENSES FOR THE PERSONAL USE OF THE PARTNERS. THE CIT(A) VIDE ORDER SHEET ENTRY DATED 2.3.2010 ASKED THE ASSESSEE TO EXPLAIN WHY PR OFIT RATE OF 8% SHOULD NOT BE APPLIED INSTEAD OF DISALLOWANCE OF RS. 3,50, 000/- MADE BY THE ASSESSING OFFICER. THE EXPLANATION OF THE ASSESSE E WAS THAT THE NP BEFORE INTEREST AND REMUNERATION DECLARED BY THE AS SESSEE FOR ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 WAS 5.67%, 5.93% AND 4.60% RESPECTIVELY. THE ASSESSED PROFIT RATE FOR THE THR EE YEARS WAS 6.49%, 6.46% AND 4.95% RESPECTIVELY. IN NONE OF THE YEARS THE INCOME WAS AT THE RATE OF 8%. THE CIT(A) REJECTING THE EXPLANATION O F THE ASSESSEE FOUND THAT THE ASSESSING OFFICER HAD POINTED OUT VARIOUS REASONS FOR REJECTION OF BOOKS OF ACCOUNT AS THERE WAS NON MAINTENANCE OF ST OCK REGISTER AND ALSO PAYMENT OF WAGES WERE NOT VERIFIABLE AND ALSO FOR T HE REASONS THAT BOOKS OF ACCOUNT WERE NOT AVAILABLE AT THE BUSINESS PREMI SES DURING THE COURSE OF SURVEY AND WERE PRODUCED AFTER 25 DAYS. THE CIT(A ) HELD AFTER REJECTION OF BOOKS OF ACCOUNT A NET PROFIT RATE IS TO BE APPL IED AND CONSEQUENTLY APPLIED PROFIT RATIO OF 6.5% BEFORE INTEREST AND RE MUNERATION AND REASONABLE. THE CIT(A) WORKED OUT THE ADDITION AT RS. 13,61,101/- AS AGAINST ADDITION OF RS. 3,50,000/- MADE BY THE ASSE SSING OFFICER. IN VIEW OF THE AFORESAID ADDITION, THE CIT(A) HELD THAT THE OTHER ADDITIONS MADE BY THE ASSESSING OFFICER SHALL BE PART OF THIS ADDITIO N. ASSESSEE IS IN APPEAL AGAINST THE SAID ORDER OF CIT(A). THE LD. AR FOR T HE ASSESSEE TAKING US TO 4 THE FACTUAL MATRIX AND ARGUING THE ISSUE AT LENGTH POINTED OUT THAT THE PRESENT APPEAL IS FILED CHALLENGING THE ENHANCEMENT MADE BY THE ASSESSING OFFICER AND THE SEPARATE ADDITIONS MADE BY THE ASS ESSING OFFICER UNDER VARIOUS HEADS ARE NOT CHALLENGED. THE LD. DR PLACE D RELIANCE ON THE ORDER OF THE CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ADDL. CIT HAD ISSUED A REQUISITION U/S 133A(1) OF THE INCOME TAX ACT FOR THE INSPECTOR TO IDENTITY THE BOOKS OF ACCOUNT. TH E INSPECTOR VISITED THE OFFICE OF ASSESSEE ON 21.4.2005 AND ASSESSEES VIDE LETTER DATED 21.4.2005 INFORMED THAT WORKS WERE CARRIED ON AT PALAMPUR AND THE PARTNERS WERE RESIDING AT PALAMPUR. THE BOOKS OF ACCOUNT WERE CLA IMED TO BE AT PALAMPUR AND REQUEST WAS MADE TO ALLOW TIME TO PROD UCE IT. THE ASSESSING OFFICER ALLOWED TIME TO PRODUCE THE BOOKS OF ACCOUN T AND THE ASSESSEE PRODUCED THE SAME AFTER A PERIOD OF 25 DAYS FROM TH E DATE OF REQUISITION ISSUED BY ASSESSING OFFICER. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AS ACCORDING TO HIM THE PRODUCTION OF BOOKS OF ACCOUNT AFTER A PERIOD OF 25 DAYS SHOWS THAT BOOKS OF ACCOUNT WERE NOT BEING MAINTAINED ON DAILY BASIS. FURTHER THE SAID BOOKS WERE NOT AV AILABLE AT THE BUSINESS ADDRESS OF THE ASSESSEE. IN ADDITION, THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE NOT TO HAVE MAINTAINED ANY STOCK REGISTER AND THE PAYMENTS WERE NOT FULLY VOUCHED, AS PARTICULARS OF LABOURERS WERE NOT AVAILABLE ON THE SELF MADE VOUCHERS. THE ASSESSING OFFICER REJECTIN G THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT MADE ADDITION ON ACCOUNT OF D ISALLOWANCE OUT OF DIFFERENT HEADS OF EXPENDITURE LABOUR EXPENSES RS . 3,50,000/-, TRUCK RUNNING RS. 50,000/-, POSTAGE RS. 10,000/- AND JCB RUNNING AND MAINTENANCE RS., 10,000/-. 5 6. THE CIT(A) IN THE APPELLATE PROCEEDING VIDE ORDE R SHEET ENTRY DATED 2.3.2010, ASKED THE ASSESSEE TO EXPLAIN WHY PROFIT RATE OF 8% BE NOT APPLIED INSTEAD OF DISALLOWANCE OF RS. 3,50,000/-. THE EXPLANATION OF THE ASSESSEE WAS THAT IN NONE OF THE PRECEDING YEARS, I T HAD SHOWN SUCH HIGH RATE OF PROFIT AND EQUITY DEMANDS THAT BEST JUDGMEN TS, ASSESSMENT IF ANY, SHOULD BE ON FAIR ESTIMATE. THE PLEA OF THE ASSESS EE BEFORE CIT(A) WAS THAT IN THE ABSENCE OF POINTING OUT ANY SPECIFIC DE FECT IN THE BOOKS OF ACCOUNT, THERE WAS NO MERIT IN THE REJECTION OF BOO KS OF ACCOUNT OF ASSESSEE. THE CIT(A) WAS OF THE VIEW THAT THE BOOK S OF ACCOUNT HAD BEEN REJECTED BECAUSE OF DEFECTS POINTED OUT BY THE ASSE SSING OFFICER. FURTHER, THE CIT(A) NOTED OF THAT THE GROSS PROFIT RATE HAD GONE DOWN CONSIDERABLY FROM 5.93% LAST YEAR TO 4.60% THIS YEAR AND THERE W AS DEFECT IN WAGES REGISTER. THE REJECTION OF BOOKS OF ACCOUNT WAS NOT ONLY BECAUSE OF NON MAINTENANCE OF STOCK REGISTER BUT OF OTHER FACTORS ALSO. THE CIT(A) UPHELD THE REJECTION OF ACCOUNTS. THE CIT(A) FURTHE R HELD AS UNDER:- IT IS WELL SETTLED PRINCIPLE OF LAW THAT AFTER REJ ECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE INCOME TAX ACT, THE ASSESSING OFFICER IS DUTY BOUND TO MAKE A FAIR AND REASONABLE ESTIMATE OF THE INCOME OF THE ASSESSEE. IN THE PRESENT CASE THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE SAME HAVE ALREADY B EEN UPHELD BY ME IN THE PRECEDING PARAGRAPH. HOWEVER, AFTER REJECTION OF THE BOOKS OF ACCOUNT, THE ASSESSING OF FICER HAS MAD A LUMPSUM DISALLOWANCE OF RS. 3,50,000/- OUT OF CONTRACT EXPENSES OF RS.. 6,46,02,221/- WHICH IS NO T THE PROPER METHOD OF ESTIMATING THE INCOME OF THE APPEL LANT. 7. THE CIT(A) IN THE PAST HISTORY OF THE CASE APPLI ED PROFIT RATIO OF 6.50% BEFORE INTEREST AND REMUNERATION AS REASONABL E AND WORKED OUT THE ADDITION OF RS. 13,61,101/- AS AGAINST ADDITION OF RS. 3,50,000/-. 8. WE FIND NO MERIT IN THE STAND OF THE AUTHORITIES BELOW. THE ASSESSEE HAD SOUGHT PERMISSION TO PRODUCE BOOKS OF ACCOUNT A ND THE ASSESSING 6 OFFICER HAD ON THE APPLICATION OF ASSESSEE ALLOWED EXTENSION OF TIME IN PRODUCING THE SAME. THE ASSESSEE PRODUCED THE BOOK S OF ACCOUNT AFTER A GAP OF 25 DAYS, WHICH CANNOT BE HELD TO BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNT, WHEN NOTHING ADVERSE HAD BEEN BROUGHT O N RECORD. MERE ASSUMPTION OF THE ASSESSING OFFICER THAT THE DELAY IN PRODUCING THE BOOKS OF ACCOUNT WAS ON ACCOUNT OF THE SAME NOT BEING COM PLETE IS BASELESS AND CANNOT BE THE REASON FOR REJECTION OF THE BOOKS OF ACCOUNT. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD THAT IT WAS CARRYING ON THE BUSINESS AT PALAMPUR AND THE PARTNERS WERE ALSO RES IDING THEREIN AND HENCE BOOKS OF ACCOUNT WERE MAINTAINED THERE IS A PLAUSIB LE EXPLANATION OF THE BOOKS OF ACCOUNT NOT BEING AVAILABLE AT THE BUSINES S ADDRESS. THE ASSESSEE WAS A CONTRACTOR AND HAS TO CARRY ON ITS B USINESS WHEREVER THE CONTRACTS ARE AWARDED. FURTHER, TIME WAS SOUGHT TO PRODUCE BOOKS OF ACCOUNT BECAUSE OF MARRIAGE OF THE DAUGHTER OF FAMI LY IN DELHI AND WE FIND NO ADVERSITY IN THE SAID PLEA OF THE ASSESSEE. THE SECOND REASON FOR REJECTION OF BOOKS OF ACCOUNT WAS THE NON MAINTENA NCE OF STOCK REGISTER, WHICH CANNOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNT, AS MANY COURTS HAVE HELD AND ALSO MAINTENANCE OF STOCK REGI STER IS NOT MANDATORY AS PER THE PRINCIPLES OF ACCOUNTING. THE THIRD ASP ECT WAS THE LABOUR PAYMENTS AND EVIDENCE THEREOF. THE BUSINESS OF THE ASSESSEE IS LABOUR ORIENTED AND THE ASSESSEE CLAIMS TO HAVE MAINTAINED MUSTER ROLLS AND ALSO PREPARED VOUCHERS. IN THE LINE OF BUSINESS OF ASSE SSEE, WHERE MAJORITY OF THE WORK IS UNDERTAKEN THROUGH LABOURERS, THE EXPEN DITURE RELATABLE TO CARRYING ON OF THE BUSINESS IS DULY ALLOWABLE ON TH E BASIS OF SUCH RECORDS, WHICH ARE BEING MAINTAINED IN THE DAILY CARRYING ON THE BUSINESS. THE SAID EXPENDITURE IS BACKED BY VOUCHERS AND MUSTER ROLLS PREPARED AND IN CASE OF ANY DISCREPANCY, DISALLOWANCE OF SUCH PART OF EXPEN DITURE MAY BE WARRANTED, BUT THERE IS NO MERIT IN REJECTION OF BO OKS OF ACCOUNT. 7 9. ANOTHER ASPECT OF REJECTION OF BOOKS OF ACCOUNT IS THE OBSERVATION OF CIT(A), THAT AFTER REJECTION OF BOOKS OF ACCOUNT, T HE ASSESSING OFFICER IS TO MAKE A FAIR AND REASONABLE ESTIMATE OF INCOME AN D NOT LUMPSUM DISALLOWANCE OF EXPENSES, WHICH AS PER CIT(A) IS NO T PROPER METHOD OF ESTIMATING THE INCOME OF ASSESSEE. WE ARE NOT IN C ONFORMITY WITH THE ORDER OF CIT(A) THAT IN EACH CASE OF REJECTION OF B OOKS OF ACCOUNT, AN ESTIMATE OF INCOME IS WARRANTED. THE ADDITION, IF ANY, IS DEPENDENT ON THE DISCREPANCIES FOUND IN THE BOOKS OF ACCOUNT AND SAM E YARDSTICK CANNOT BE APPLIED TO EACH CASE OF REJECTION OF BOOKS OF ACCOU NT. FURTHER, WE FIND NO BASIS IN THE ORDER OF CIT(A) IN ADOPTING THE GP RAT E OF EARLIER YEAR TO DETERMINE THE INCOME FOR THE YEAR UNDER CONSIDERATI ON. EACH YEAR IS AN INDEPENDENT YEAR OF ASSESSMENT AND THE BUSINESS RES ULTS VARY FROM YEAR TO YEAR AND HENCE THE GP RESULTS VARY. IN THE ABOVE S AID FACTS AND OBSERVATIONS, WE SET ASIDE THE ORDER OF CIT(A) IN T HIS REGARD. HOWEVER, IN VIEW OF SUBMISSIONS OF LD. AR, WE UPHOLD THE ADDITI ONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF V ARIOUS EXPENSES. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF OCTOBER 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 22 ND OCTOBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 8