ACIT, New Delhi V. M/s. Lall Construction Co., Delhi

ITA 1024/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7295 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: MANU GIRI ADVS
• Keywords: Depreciation
• Section: 44AD; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. R. S. SYAL, AM AND SH. A. T. VARKEY, JM ITA NO. 1024/DEL/2010 : ASSTT. YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-19(1), NEW DELHI VS M/S LALL CONSTRUCTION CO., AA-105, SHALIMAR BAGH, DELHI-110052 (APPELLANT) (RESPONDENT) PAN NO. ASSESSEE BY : SH. RAJESH MAHNA & MANU GIRI, ADVS. REVENUE BY : DR. B. R. R. KUMAR, SR. DR DATE OF HEARING : 03.09.2014 DATE OF PRONOUNCEMENT : 4.9.2014 ORDER PER R. S. SYAL, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A) ON 16.12.2009 IN RELATION TO THE ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE RAISED BY THE REVENUE IN ITS APPE AL IS AGAINST THE DELETION OF ADDITION OF RS. 1,74,68,474/-, WHICH WA S MADE BY THE ASSESSING OFFICER INVOKING THE PROVISION OF SEC. 1 45(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). 3. BRIEFLY STATED THE FACTS OF CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION ON BEHALF OF INDIAN RA ILWAYS AND IRCON INTERNATIONAL LTD. A RETURN WAS FILED DECLARING TOT AL INCOME OF RS. ITA NO. 1024/DEL/2010 LALL C ONSTRUCTION CO. 2 24,11,010/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER OBSERVED CERTAIN DISCREPANCIES IN THE BOOKS OF ACCOUNTS, WHICH HAVE BEEN ENUMERATED ON PAGES 2 TO 6 OF THE ASSESSM ENT ORDER. THE SUM AND SUBSTANCE OF SUCH DISCREPANCIES IS THAT NO QUAN TITATIVE DETAILS WERE MAINTAINED AT SITE; PAYMENT OF LABOUR AT WORK SITE S WAS NOT PROPERLY SUBSTANTIATED INASMUCH AS NAME AND ADDRESS OF THE C ERTAIN PERSONS WERE NOT AVAILABLE TO WHOM THE PAYMENTS WERE CLAIMED TO HAVE BEEN MADE; NO PROOF WAS AVAILABLE IN RESPECT OF HUTMENT EXPENS ES; SEVERAL EXPENSES CLAIMED BY THE ASSESSEE WERE NOT SUPPORTED ETC. IN VIEW OF THESE FACTS, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT U/S 145 OF THE ACT. TAKING ASSISTANCE FROM THE PROVISIONS OF SEC. 44AD OF THE ACT, IT WAS HELD THAT INCOME FROM RAILWAY CONTRACTS WAS TO BE E STIMATED AT 8% AND THE AO ALSO ESTIMATED INCOME FROM CONTRACTS WITH IR CON AT 10%. IN THIS WAY, HE ESTIMATED TOTAL GROSS INCOME OF RS. 1, 74,68,474/-. AFTER ALLOWING DEDUCTIONS ON ACCOUNT OF SALARY AND BONUS TO PARTNERS AND DEPRECIATION, THE TOTAL INCOME WAS COMPUTED AT RS. 1,62,68,640/-. THE LD. CIT(A) GOT CONVINCED WITH THE ASSESSEES SUBMIS SION AND HELD THAT THE BOOKS OF ACCOUNT WERE PROPERLY MAINTAINED AND A LSO ORDERED FOR THE DELETION OF ADDITION OF RS. 1,74,68,474/- (RS. 1,08 ,83,409/- FROM RAILWAY CONTRACTS AND RS. 65,85,065.- FROM IRCON CO NTRACT). THE REVENUE IS AGGRIEVED AGAINST THE DELETION OF ADDITI ON. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED AS A MATTER OF F ACT THAT CERTAIN ITA NO. 1024/DEL/2010 LALL C ONSTRUCTION CO. 3 DEFICIENCIES POINTED OUT BY THE ASSESSING OFFICER I N THE BOOKS OF ACCOUNT, DO EXIST. FOR EXAMPLE, THE ASSESSING OFFIC ER OBSERVED THAT PAYMENT OF LABOUR AT WORK SITES AMOUNTING OF RS. 12 .26 CRORE WAS NOT PROPERLY SUBSTANTIATED. IN THIS REGARD, THE ASSESSE E REPLIED THAT MOST OF THE PAYMENTS WERE TO CASUAL LABOUR ON A FORTNIGHTLY BASIS AND THAT WAS A COMMON PRACTICE OF NOT HAVING NAME AND ADDRESS OF T HE PERSONS TO WHOM SUCH WAGES WERE PAID. IT, THUS, MANIFESTS THAT THE AO WAS CORRECT IN REPORTING THAT DETAILS OF LABOUR PAID WERE NOT P ROPERLY MAINTAINED. SIMILARLY, IT CAN BE SEEN THAT THE OBSERVATIONS OF THE AO ABOUT VARIOUS EXPENSES NOT PROPERLY SUPPORTED WITH EVIDENCE, HAVE REMAINED UNCONTROVERTED BEFORE US. IN VIEW OF THE FOREGOING REASONS, WE ARE SATISFIED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN OVERTURNING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACC OUNT. WE, THEREFORE, HOLD THAT THE A.O WAS FULLY JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT IN THE GIVEN CIRCUMSTANCES. 5. IT IS NOTICED THAT THE LD. CIT(A), AFTER UP HOLDING THE MAINTENANCE OF PROPER BOOKS OF ACCOUNT, HAS ORDERED FOR DELETION O F ADDITION OF RS. 1.74 CRORE, WHICH IS SUBJECT MATTER OF THE REVENUES GRO UND OF APPEAL. IN DOING SO, THE LD. CIT(A) FAILED TO REALIZE THAT THE ASSESSING OFFICER HAD ESTIMATED TOTAL INCOME ONLY AT RS. 1.62 CRORE. IN FACT, RS.1.74 CRORE REPRESENTS THE GROSS ESTIMATE OF THE ASSESSEES INC OME BY THE A.O, WHICH WAS SUBJECTED TO FURTHER DEDUCTIONS. IN OTHER WORDS , THE LD. CIT(A) HAS ORDERED FOR THE DELETION OF ADDITION FOR A SUM MORE THAN THE TOTAL INCOME ITA NO. 1024/DEL/2010 LALL C ONSTRUCTION CO. 4 COMPUTED BY THE ASSESSING OFFICER. IT IS FURTHER SI GNIFICANT TO NOTE THAT THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITI ON OF RS. 1.74 HAS LED TO EVEN THE WAIVER OF INCOME OF RS. 24,11,010/- WHICH WAS DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. THUS IT IS APPARE NT THAT THE VIEW TAKEN BY THE LD. CIT(A) CANNOT BE SUSTAINED. 6. HAVING HELD THAT THE BOOKS OF ACCOUNT WERE RIG HTLY REJECTED BY THE AO, NOW COMES THE QUESTION OF ESTIMATION OF INCOME. IT CAN BE SEEN THAT THE ASSESSING OFFICER APPLIED 8% PROFIT RATE O N RECEIPTS FROM RAILWAY CONTRACT AND 10% ON RECEIPTS FROM IRCON. IN APPLYING THESE RATES, THE ASSESSING OFFICER GUIDED HIMSELF BY THE OVERALL PRINCIPLES OF SEC. 44AD WHICH PERMIT ESTIMATION OF INCOME @ 8% FO R SMALL CONTRACTORS WITH ANNUAL TURNOVER NOT EXCEEDING R S. 40,00,000/-. HERE IS A CASE IN WHICH THE TURNOVER OF THE ASSESSEE IS MORE THAN RS. 20 CRORE. IN SUCH CIRCUMSTANCES, THERE CAN BE NO QUESTION OF TAKING ASSISTANCE FROM THE PROVISIONS OF SEC. 44AD FOR MAKING ANY ADD ITION. 7. IT IS A SETTLED LEGAL POSITION THAT THE ASSE SSING OFFICER, AFTER REJECTING BOOKS OF ACCOUNT, DOES NOT GET UNFETTERED POWERS TO ESTIMATE INCOME AS PER HIS WHIMS AND FANCIES. THE ESTIMATION OF INCOME SHOULD BE MADE ON A RATIONAL AND LEGALLY SUSTAINABLE MANNE R. UNLESS THE FACTS AND CIRCUMSTANCES ARE SHOWN TO BE DIFFERENT, IT IS ADVISABLE TO GO BY THE PROFIT RATE OF THE PRECEDING YEAR FOR APPLICATION I N THE INSTANT YEAR. THE FACTS FOR THE CURRENT YEAR HAVE NOT BEEN SHOWN TO B E ANY DIFFERENT FROM ITA NO. 1024/DEL/2010 LALL C ONSTRUCTION CO. 5 THE PRECEDING YEAR. THE ASSESSEE HAS PLACED A CHART OF PROFIT RATE ON PAGE 41 OF THE PAPER BOOK, WHICH WAS ALSO MADE AVAILABL E TO THE ASSESSING OFFICER VIDE ITS LETTER DATED 5.12.2007. FROM THIS CHART OF PROFIT RATE, IT CAN BE SEEN THAT THE ASSESSEE HAS SHOWN PROFIT RATE OF 2.38% FOR THE INSTANT YEAR AS AGAINST 2.49% FOR THE ASSESSMENT YE AR 2005-06 AND 5.27% FOR THE ASSESSMENT YEAR 2004-05. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES PREVAILING IN THE INSTANT CASE, W E ARE OF THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE COULD M EET ADEQUATELY IF THE NP RATE OF 2.50% IS DIRECTED TO BE APPLIED FOR THE PURPOSES OF ESTIMATION OF INCOME FOR THE CURRENT YEAR. WE ORDER ACCORDINGL Y. THE IMPUGNED ORDER IS, THEREFORE, OVERTURNED AND IT IS DIRECTED TO APPLY THE NET PROFIT RATE OF 2.50% WITHOUT ALLOWING ANY FURTHER DEDUCTIO NS. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4/9/2014. SD/- SD/- (A. T. VARKEY) ( R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 4/9/2014 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR