M/s. Shah Construction, Satara V. Dy. CIT, Satara Range, Satara

ITA 1078/PUN/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0231 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Depreciation; Non-deduction of tax; Corroborative evidences; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 40A(3); 271(1)(b); 139; 92; 234B; 40(a)(ia); 69A; 194A; 13; 22

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.708/PUN/2013 #& & / ASSESSMENT YEAR : 2007-08 M/S. SHAH CONSTRUCTION, BUDHWAR PETH, KARAD, DIST. SATARA PAN : AAFFS0461E . /APPELLANT V/S ADDL.CIT, SATARA RANGE, SATARA . /RESPONDENT . / ITA NO.1146/PUN/2013 #& & / ASSESSMENT YEAR : 2008-09 DY.CIT, SATARA CIRCLE, SATARA . /APPELLANT V/S M/S. SHAH CONSTRUCTIONS, PARAG BUDHWAR PETH, KARAD, DIST. SATARA PAN : AAFFS0461E . /RESPONDENT . / ITA NO.1078/PUN/2013 #& & / ASSESSMENT YEAR : 2008-09 M/S. SHAH CONSTRUCTION, BUDHWAR PETH, KARAD, DIST. SATARA PAN : AAFFS0461E . /APPELLANT V/S DY.CIT, SATARA RANGE, SATARA . /RESPONDENT . / ITA NO.1079/PUN/2013 #& & / ASSESSMENT YEAR : 2009-10 M/S. SHAH CONSTRUCTION, BUDHWAR PETH, KARAD, DIST. SATARA PAN : AAFFS0461E . /APPELLANT V/S 2 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ADDL.CIT, SATARA RANGE, SATARA . /RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI P.L. KUREEL / ORDER PER R.K.PANDA, AM : ITA NO.708/PUN/2013 FILED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER DATED 30-09-2011 OF THE CIT(A)-III, PUNE RELA TING TO ASSESSMENT YEAR 2007-08. ITA NO.1078/PUN/2013 FILED BY THE ASSESSE E AND ITA NO.1146/PUN/2013 FILED BY THE REVENUE ARE CROSS APP EALS AND ARE DIRECTED AGAINST THE ORDER DATED 31-01-2012 OF THE CIT(A)-II I, PUNE RELATING TO ASSESSMENT YEAR 2008-09. ITA NO.1079/PUN/2013 FILE D BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11-02-2013 OF THE CIT(A)-III, PUNE RELATING TO ASSESSMENT YEAR 2009-10. FOR THE SAKE OF CONVENI ENCE, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.708/PUN/2013 (BY ASSESSEE) (A.Y. 2007-08) : 2. GROUNDS OF APPEAL NO. 1 TO 4 BY THE ASSESSEE REL ATES TO THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF RS.75,24,9 22/- MADE BY THE ASSESSING OFFICER U/S.69A OF THE I.T. ACT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. IT FILED ITS RETURN OF INCOME ON 31-10-2007 DECLARING TOTAL INCOME OF RS.25,14,800/- . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT THE OUTSTANDING BALANCE OF SUNDRY CREDITORS AS ON 31-03 -2007 WAS RS.2,72,51,527/- AS AGAINST RS.1,52,53,989/- AS ON 31-03-2006. THE / DATE OF HEARING :03.11.2016 / DATE OF PRONOUNCEMENT:30.12.2016 3 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ASSESSING OFFICER ON THE BASIS OF INVESTIGATION CAR RIED OUT BY HIM OBSERVED THAT OUT OF THE TOTAL CREDITORS OF RS.2,72,51,527/- THE CREDITORS FOR LABOUR CHARGES AMOUNTED TO RS.63,70,021/- AND SUNDRY CREDI TORS FOR MATERIALS TO THE TUNE OF RS.11,54,901/- ARE NOT GENUINE AS THE L IABILITY SHOWN IN THE NAMES OF THESE CREDITORS WAS EITHER FICTITIOUS OR A LREADY DISCHARGED BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. THE ABOVE CO NCLUSION BY THE ASSESSING OFFICER WAS ARRIVED AT AFTER INDEPTH INVE STIGATIONS BY ISSUING NOTICE U/S.133(6) AND/ISSUE OF SUMMONS U/S.131. IT WAS OBSERVED THAT OUT OF 26 SUNDRY CREDITORS TO WHOM NOTICE U/S.131 AND 1 33(6) WERE ISSUED, 24 OF THEM DID NOT RESPOND AT ALL. ONLY 2 CREDITORS RESP ONDED TO NOTICE U/S.131 WHOSE STATEMENTS WERE RECORDED AND THEY HAVE DENIED TO HAVE ANY OUTSTANDING RECEIVABLE FROM THE ASSESSEE. REJECTIN G THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND OBSERVING TH AT THE ASSESSEE FAILED TO DISCHARGE THE ONUS CAST ON HIM BY PROVING THE GE NUINENESS OF THE CREDITORS THE ASSESSING OFFICER MADE ADDITION OF RS .75,74,922/- WHICH COMPRISED OF RS.63,70,021/- ON ACCOUNT OF SUNDRY CR EDITORS FOR LABOUR CHARGES AND AN AMOUNT OF RS.11,54,901/- ON ACCOUNT OF SUNDRY CREDITORS FOR MATERIALS. THE REQUEST OF THE ASSESSEE TO ESTIMATE THE PROFIT WAS ALSO TURNED DOWN BY THE ASSESSING OFFICER ON THE GROUND THAT THE ADDITION HAS BEEN MADE ON ACCOUNT OF BOGUS SUNDRY CREDITORS AND NOT BY ESTIMATING THE PROFIT. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KALE KHAN MOHAMMAD HANIF VS. CIT REPORTED IN 50 ITR 1 WH ERE IT HAS BEEN HELD THAT SUNDRY CREDITORS CAN BE ADDED DESPITE GROSS PR OFIT ESTIMATION THE ASSESSING OFFICER MADE ADDITION OF RS.75,24,922/- T O THE TOTAL INCOME OF THE ASSESSEE. WHILE DOING SO, THE ASSESSING OFFICER FU RTHER OBSERVED THAT THE ASSESSEES TAXABLE INCOME OF RS.24,14,800/- INCLUDE S OTHER INCOME OF RS.25,71,023/-. BUT FOR THE OTHER INCOME THE RETUR N WOULD HAVE BEEN A LOSS. IF THE OTHER INCOME IS DEDUCTED THE NET PROFIT OBVI OUSLY WOULD COME DOWN DRASTICALLY. THEREFORE, THE ASSESSEES CLAIM OF NET PROFIT PERCENTAGE OF AROUND 20% IS ALSO INCORRECT. ACCORDINGLY, THE ASS ESSING OFFICER MADE THE 4 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ADDITION OF RS.75,24,922/- TO THE TOTAL INCOME OF T HE ASSESSEE ON ACCOUNT OF BOGUS SUNDRY CREDITORS. 4. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN EXECUTION OF CONTRACT WORK AND FOR CARRYING OUT SUC H WORKS LABOUR WAS REQUIRED TO BE ENGAGED WHICH WAS MOSTLY DONE THROUG H LABOUR SARDARS. THE PAYMENTS TO LABOURERS WERE MADE GENERALLY ON TH E ADVICE OF LABOUR SARDARS WHO TAKE CARE OF THE NEEDS AND REQUIREMENTS OF THE LABOURERS WORKING UNDER THEM AND THEREFORE THE LABOURER COULD WAIT FOR THEIR LABOUR CHARGES WHEN THE ASSESSEE FIRM IS HAVING LIQUIDITY PROBLEM. IT WAS ARGUED THAT THE ASSESSING OFFICER IS FRAMING THE ASSESSMEN T ORDER PURELY ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS AND WITHOUT C ONSIDERING THE GROUND REALITIES AND WITHOUT APPRECIATING THE REASONS FOR OUTSTANDING LIABILITY IN THE NAME OF LABOUR CREDITORS. 5. SO FAR AS THE CREDITORS FOR MATERIALS ARE CONCER NED IT WAS ARGUED THAT THE EXPENDITURE WAS INCURRED FOR PURCHASE OF MATERI AL AND THE LIABILITY IS GENUINE. IT WAS ARGUED THAT THE ACCOUNTS OF THE AS SESSEE ARE DULY AUDITED AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSES SING OFFICER TO INDICATE THAT THE ACCOUNTING STANDARDS HAVE BEEN VIOLATED BY THE ASSESSEE WHILE MAINTAINING THE BOOKS. 6. IT WAS ARGUED THAT EVEN THOUGH THE PAYMENTS WERE MADE BY CHEQUE IN SUBSEQUENT YEAR THE SAME WERE CONSIDERED AS FICT ITIOUS LIABILITY WHICH SHOWS THE BIASED ATTITUDE OF THE ASSESSING OFFICER ON THE WHOLE ISSUE. THE ASSESSEE ALSO ARGUED THAT THE ENTIRE LIABILITY TOWA RDS LABOUR CHARGES AMOUNTING TO RS.63,70,021/- WHICH WAS DISALLOWED BY THE ASSESSING OFFICER AS BOGUS WAS SUBJECTED TO TDS BY THE ASSESSEE AND T AX OF RS.1,28,963/- ON TOTAL PAYMENT/CREDIT OF RS.65,03,691/- WAS DEDUC TED AND PAID TO THE GOVERNMENT ACCOUNT AND RESPECTIVE TDS RETURNS WERE ALSO FILED. IT WAS ARGUED THAT EVEN THOUGH THE PRINCIPAL AMOUNT MIGHT NOT HAVE BEEN PAID AS 5 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ON 31-03-2007 FOR A NUMBER OF REASONS, THE INCOME C OMPRISED IN THE TDS AMOUNT BELONGED TO THE RESPECTIVE PARTIES ONLY AS P ER THE PROVISIONS OF SECTION 199 OF THE I.T. ACT AND SUCH INCOME CANNOT BE ADDED U/S.69A OF THE I.T. ACT IN THE HANDS OF THE ASSESSEE AS HAS BEEN D ONE BY THE ASSESSING OFFICER. THE ASSESSEE FURTHER ARGUED THAT THE NET PROFIT DISCLOSED BY THE ASSESSEE IN THE CURRENT YEAR IS AROUND 20% OF THE R ECEIPTS WHICH WAS QUITE REASONABLE IN THIS LINE OF BUSINESS AND THEREFORE T HE ADDITION MADE BY THE ASSESSING OFFICER IS TOTALLY UNJUSTIFIED. IT WAS A RGUED THAT THE BOOKS OF ACCOUNTS WERE SUBJECTED TO TAX AUDIT AND NO DISCREP ANCIES WERE POINTED OUT BY THE AUDITORS AND THEREFORE REJECTION OF BOOKS OF ACCOUNT U/S.145(3) R.W.S. 69A IS NOT WARRANTED. THE ASSESSEE ALSO ARGUED THA T THE AO FAILED TO PROVE THAT CASH REPAYMENTS SHOWN IN THE CREDITORS ACCOUNT S HAD COME BACK TO THE ASSESSEE AND THE MONEY SO RETURNED HAS BEEN TRANSL ATED INTO SOME UNDISCLOSED POSITIVE WEALTH. RELYING ON VARIOUS DE CISIONS IT WAS ARGUED THAT WHEN THE INCOME DID NOT MATERIALISE AT ALL TH ERE WAS NO REAL INCOME WHICH CAN BE TAXED. IT WAS ARGUED THAT THE REAL IN COME APPLIED TO INCOME TAX PROCEEDINGS AND COMPUTATION OF INCOME THEREIN A ND WHAT IS TO BE TAXED IS THE REAL INCOME. 7. HOWEVER, THE CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER BY SUMMARIZING HIS OBSERVATIONS WHICH READ AS UNDER : 3.3.9 TO SUM UP, THE LIABILITY OF RS. 75,24,922/- SHOWN AS OUTSTANDING AS ON 31.03.2007 IN THE BOOKS OF ACCOUNT OF THE APPELLANT IS EITHER FICTITIOUS OR IT WAS DISCHARGED OUTSIDE THE BOOKS OF A/C BUT SHOWN AS OUTSTANDING IN THE BOOKS OF A/C. THE CR EDIT BALANCES SHOWN AS OUTSTANDING WERE SQUARED UP IN TH E SUBSEQUENT YEAR MOSTLY WITH CASH REPAYMENTS WHEN THE CASH BALA NCE HAD IMPROVED IN THE BOOKS OF A/C. SINCE THE AMOUNTS WERE MOSTLY SQUARED UP BY SHOWING CASH REPAYMENTS, THE CLAIM OF THE APPELLANT THAT LIABILITY WAS GENUINE IS NOT AMENABL E TO INDEPENDENT VERIFICATION. THE ASSESSING OFFICER DID MAKE AN EFFORT TO EXAMINE THE PARTIES CONCERNED BUT THERE WAS NO R ESPONSE TO THE SUMMONS ISSUED IN CASE OF 24 PARTIES AND IN TWO CAS ES WHERE THERE WAS COMPLIANCE, PARTIES HAVE CATEGORICALLY STA TED THAT NO AMOUNT WAS DUE FROM THE APPELLANT AS ON 31.03.2007. THE APPELLANT, EXCEPT FILING SELF-SERVING AFFIDAVITS, HAS NOT MADE ANY 6 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ATTEMPT TO PRODUCE THE PARTIES FOR EXAMINATION NOR DID THE APPELLANT PRODUCE ANY COGENT MATERIAL AND CREDIBLE EVIDENCE TO PROVE THE GENUINENESS OF THE CREDITORS AND THE LIAB ILITY. IT IS NORMAL PRACTICE IN THE CONTRACT BUSINESS THAT THE L ABORERS OR THEIR SARDARS ARE PAID LUMP SUM AMOUNT IN ADVANCE AND THE ACCOUNT IS SETTLED ONCE THE WORK ASSIGNED TO THEM IS COMPLETED AND THE BILLS RAISED, WHICH IS DONE EITHER ON DALLY BASIS OR ON WE EKLY BASIS. IT IS INCONCEIVABLE THAT THE LABOR, WHO LEADS HAND TO MOU TH EXISTENCE, WOULD HAVE WAITED FOR SUCH A LONG TIME TO RECEIVE W AGES FROM THE APPELLANT DIRECTLY OR THROUGH LABOR SARDARS. THE LI ABILITY SHOWN IN BALANCE SHEET IN CASE OF 'LABOR CHARGES' IS NOT A S MALL AMOUNT BUT CONSTITUTES SIZABLE PERCENTAGE OF THE TOTAL EXPENDI TURE DEBITED TO THE PROFIT & LOSS ACCOUNT UNDER THIS HEAD. IN THESE CIRCUMSTANCES , THE ASSESSING OFFICER IS JUSTIFIED IN COMING TO THE CONCLUSION THAT THE IMPUGNED LIABILITY SHOWN AS OUTSTANDING AS ON 3 1.03.2007 IN THE BOOKS OF ACCOUNT OF THE APPELLANT IS EITHER FIC TITIOUS OR IT WAS ALREADY DISCHARGED OUTSIDE THE BOOKS OF A/C. THE CONCLUSIONS/OBSERVATIONS DRAWN BY THE ASSESSING OFF ICER REGARDING GENUINENESS OF THE SAID LIABILITY ARE NOT BASED ON ASSUMPTIONS AND PRESUMPTIONS. THE WELL REASONED CONC LUSIONS ARE BASED ON THE DETAILED EXAMINATION OF EACH AND E VERY CREDITOR IN QUESTION AND THE FAILURE OF THE APPELLANT TO PRO VE THE GENUINENESS OF THE LIABILITY SATISFACTORILY. 3.3.10 FOR THE FOREGOING REASONS, I AM OF THE CONSID ERED OPINION THAT THE ASSESSING OFFICER IS JUSTIFIED IN TREATING THE LIABILITY TO THE EXTENT OF RS.75,24,922/- SHOWN AS OUTSTANDING IN THE BOOKS OF A/C OF THE APPELLANT AS NOT GENUINE AND ADDING THE AMOU NT TO THE INCOME RETURNED. ACCORDINGLY, THE ADDITION OF RS.75,2 4,922/- MADE ON THIS GROUND IS UPHELD. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER AFTER INVOKING THE PROVISIONS OF SECTION 14 5(3) MADE ADDITION ON ACCOUNT OF BOGUS LIABILITY SHOWN UNDER THE HEAD CRE DITORS. HE SUBMITTED THAT ONCE THE BOOKS ARE REJECTED NO SEPARATE ADDITI ON ON ACCOUNT OF SUNDRY CREDITORS COULD HAVE BEEN MADE. THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT AS AGAINST TOTAL CONTRACT RECEIPT OF RS.11,56,59,762/- THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS.2,93,10,248/- AND NET PROFIT OF RS.1,88,94,211/-. HE SUBMITTED THAT IF THE ADDITIO N MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) IS SUSTAINED, THEN THE NET PROFIT COMES TO 22.84% WHICH IS NOT POSSIBLE IN THIS LINE OF BUSINE SS ESPECIALLY IN 7 ITA NOS.708,1146, 1078 & 1079/PUN/2013 GOVERNMENT CONTRACT. HE ACCORDINGLY SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) SHOU LD BE DELETED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUBMITTED THAT ASSESSEE HAS SHOWN BOGUS CREDITORS IN ITS BOOK S OF ACCOUNT WHICH HE COULD NOT EXPLAIN PROPERLY. DESPITE NUMBER OF OPPOR TUNITIES GIVEN BY THE ASSESSING OFFICER TO PRODUCE THESE CREDITORS WHEN T HEY DID NOT RESPOND TO THE SUMMONS ISSUED U/S.131 THE ASSESSEE ALSO FAILED . THE PERSONS SHOWN AS SUNDRY CREDITORS DID NOT HAVE THE CAPACITY TO EX TEND SUCH HUGE CREDIT TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES THE CIT(A) WAS FULLY JUSTIFIED IN SUSTAINING THE ADDITION MADE BY THE ASSESSING OFFIC ER. HE ACCORDINGLY SUBMITTED THAT THE ORDER PASSED BY THE CIT(A) SHOUL D BE UPHELD. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. AN ANALYSIS OF THE PROFIT AND LOSS ACCO UNT A COPY OF WHICH IS PLACED AT PAGE 40 OF THE PAPER BOOK, SHOWS THE FOLL OWING RESULTS : NET PROFIT TRANSFERRED TO PARTNERS AS PER PROFIT AND LOSS ACCOUNT : 18,83,498 ADD : LOSS FROM WINDMILL DEBITED : 1,70,10,713/- SALARY TO PARTNERS : 4,08,000/- INTEREST TO PARTNERS : 32,56,201/- DEPRECIATION : 8,94,266/- ----------------------- TOTAL : RS.2,34,52,678/- LESS : OTHER INCOME CREDITED TO THE PROFIT AND LOSS ACCOUNT INTEREST ON FD : 18,86,502/- DIVIDEND : 61/- FLAT RENT : 3,78,000/- IT REFUND : 2,96,351/- INTEREST ON IT REFUND : 10,110/- ----------------------- RS.25,71,024/- ----------------------- PROFIT FROM CONTRACT WORK : RS.2,08,81,654/- ----------------------- 8 ITA NOS.708,1146, 1078 & 1079/PUN/2013 12. THUS AS AGAINST THE CONTRACT RECEIPT OF RS.11,5 6,59,762/- THE NET PROFIT BEFORE DEPRECIATION AND SALARY AND INTEREST TO PARTNERS COMES TO 18.05%. IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER HAS REJECTED BOOK RESULTS U/S.145(3) AND WENT FOR ADDITION ON ACCOUNT OF SUNDRY CREDITORS. WE FIND THE CIT(A) WHILE UPHOLDING THE ADDITION MADE B Y THE ASSESSING OFFICER ON THIS ACCOUNT HAS REJECTED THE SUBMISSION OF THE ASSESSEE THAT IN SUBSEQUENT YEARS SOME OF THE PAYMENTS HAVE BEEN MAD E BY CHEQUE TO THESE CREDITORS. THERE IS NO EVIDENCE ON RECORD TH AT THE PAYMENTS MADE SUBSEQUENTLY TO THE SUNDRY CREDITORS HAS COME BACK TO THE ASSESSEE BY SOMEWAY OR THE OTHER. IT IS ALSO AN ADMITTED FAC T THAT THE ASSESSEE HAS DEDUCTED TDS ON THE LABOUR CHARGES AND THE TDS RETU RNS HAVE BEEN DULY FILED, A FACT STATED BEFORE CIT(A) AND NOT CONTROVE RTED BY THE REVENUE. AT THE SAME TIME, THE ASSESSEE ALSO FAILED TO PRODUCE THE CREDITORS ON ACCOUNT OF OUTSTANDING LABOUR CHARGES OR SUNDRY CREDITORS F OR SUPPLY OF MATERIALS BEFORE THE ASSESSING OFFICER WHEN THE SUMMONS ISSUE D TO THEM WERE RETURNED BACK AND THE ASSESSEE WAS GIVEN OPPORTUNIT Y BY THE ASSESSING OFFICER TO PRODUCE THOSE CREDITORS. UNDER THESE CI RCUMSTANCES AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT ADOPTION OF PROFIT RATE OF 20% ON THE TURNOVER OF RS.11,56,59,762/- BEFORE DEPRECIATION, SALARY AND I NTEREST TO PARTNERS WILL MEET THE ENDS OF JUSTICE. THIS AMOUNTS TO AN ADDIT ION OF RS.22,55,365/-, I.E. ADDITION OF ADDITIONAL INCOME @ 1.95% (I.E. 20% - 1 8.05%) ON TURNOVER OF RS.11,56,59,762/- WE HOLD AND DIRECT ACCORDINGLY. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOWED. 13. IN GROUND OF APPEAL NO.5 THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.1,9 8,769/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 40(A)(IA) OF THE I.T. ACT. 9 ITA NOS.708,1146, 1078 & 1079/PUN/2013 14. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.4,96,922/- AS INTEREST TO SAMBHAVNA TH NAGARI SAHAKARI PATSANSTHA ON WHICH TAX AT SOURCE WAS NOT DEDUCTED AS PER THE PROVISIONS OF SECTION 194A OF THE I.T. ACT. THEREFORE, THE AS SESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID EXPENDITURE SHOULD NOT BE DISALLOWED. IT WAS EXPLAINED BY THE ASSESSEE THAT SINCE NO AMOUNT IS PAYABLE AT THE END OF THE YEAR, THEREFORE, THE PROV ISIONS OF SECTION 40(A)(IA) IS NOT APPLICABLE. HOWEVER, THE ASSESSING OFFICER REJECTED THE ABOVE EXPLANATION OF THE ASSESSEE. HE FURTHER OBSERVED TH AT THE COOPERATIVE SOCIETIES TO WHICH INTEREST HAS BEEN PAID BY THE AS SESSEE, ARE CREDIT COOPERATIVE SOCIETIES AND ALSO THE SOCIETIES ARE PR OVIDING FACILITIES TO MEMBERS AS CONSUMER COOPERATIVE SOCIETIES. THE COO PERATIVE SOCIETIES ARE NOT EMPOWERED UNDER THE RBI TO ISSUE ANY CHEQUE TO ITS MEMBERS. IN OTHER WORDS, THESE ARE NOT PROVIDED WITH THE VARIOU S BANKING FACILITIES AS THEY ARE NOT GUIDED BY THE BANKING REGULATION ACT A ND THE NORMS AND GUIDELINES PROVIDED BY THE RBI FOR RUNNING OF BANKI NG BUSINESS. THEREFORE, THESE COOPERATIVE SOCIETIES CANNOT BE EQUATED WITH A BANK SO THAT ANY TRANSACTIONS PERTAINING TO SECTION 194A AS DONE WIT H THE COOPERATIVE SOCIETIES COULD BE PROVIDED THE SAFEGUARD AS GIVEN IN THE CASE OF A BANK CARRYING ON BANKING BUSINESS. HE, THEREFORE, INVOK ING THE PROVISIONS OF SECTION 40(A)(IA) HELD THAT THE ENTIRE AMOUNT OF RS .4,96,922/- IS REQUIRED TO BE DISALLOWED. HE HOWEVER OBSERVED THAT THE LOAN T AKEN BY THE ASSESSEE WAS UTILIZED FOR ACQUIRING THE WINDMILL AND THE ASS ESSEE HAD CAPITALIZED THE SAID INTEREST AND ADDED THE SAME TO THE COST OF WIN DMILL. THE ASSESSEE HAS CLAIMED 40% DEPRECIATION ON THE SAME. HE, THEREFOR E, RESTRICTED THE DISALLOWANCE U/S.40(A)(IA) TO RS.1,98,762/- BEING 4 0% OF RS.4,96,922/-. 10 ITA NOS.708,1146, 1078 & 1079/PUN/2013 15. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 16. THE LD. COUNSEL FOR THE ASSESSEE MADE TWO FOLD ARGUMENTS. THE FIRST PLANK OF HIS ARGUMENT IS THAT ONCE THE BOOKS ARE REJECTED NO SEPARATE ADDITION ON ACCOUNT OF SECTION 40(A)(IA) CAN BE MAD E. IN HIS SECOND PLANK OF ARGUMENT HE SUBMITTED THAT THE INTEREST HAS BEEN PAID TO A COOPERATIVE SOCIETY WHOSE INCOME IS EXEMPT. THEREFORE, THERE CA NNOT BE ANY DISALLOWANCE U/S.40(A)(IA) OF THE I.T. ACT. HE ALS O RELIED ON THE FOLLOWING DECISIONS : 1. INDWELL CONSTRUCTIONS VS. CIT REPORTED IN 232 ITR 7 76 (AP) 2. TEJA CONSTRUCTIONS VS. ACIT REPORTED IN (2010) DTR (HYD) (TRIB.) 3. ITO VS. NARDEV KUMAR GUPTA REPORTED IN (2013) 32 TAXMANN.COM 388 (JAIPUR-TRIB.) 4. MADDI SUDARSANAM OIL MILLS CO. VS. CIT REPORTED IN 37 ITR 0369 (AP) 17. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 18. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND DUE TO NON-DEDUCTION OF TAX AT SOURCE ON THE PAYMENT OF INTEREST OF RS.4,96,922/- THE ASSESSING OFFICER HEL D THAT ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT. HE HOWEVER RESTRICTED THE DISALLOWANCE TO RS.1,98,769/- SINCE SUCH INTEREST ON LOAN WAS CAPITALISED FOR WINDMILL AND THE ASSESSEE HAS CLAIM ED DEPRECIATION @40% ON SUCH WINDMILL. WE FIND IN APPEAL THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11 ITA NOS.708,1146, 1078 & 1079/PUN/2013 19. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED U/S.145(3) THEN IN T HAT CASE NO SEPARATE DISALLOWANCE IS CALLED FOR. IT IS HIS ALTERNATE SU BMISSION THAT SINCE THE COOPERATIVE SOCIETY TO WHOM THE INTEREST HAS BEEN P AID IS EXEMPT FROM TAX, THEREFORE, THE ASSESSEE IS NOT REQUIRED TO DEDUCT T AX AT SOURCE. WE FIND THE FIRST ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IS MORE ACCEPTABLE. IN THE PRECEDING PARAGRAPHS WE HAVE DECIDED THE APPEAL OF THE ASSESSEE BY ESTIMATING THE PROFIT ON INCOME FROM CONTRACT RECEI PT. IN OUR OPINION, ONCE THE PROFIT OF AN ASSESSEE IS ESTIMATED BY REJECTING THE BOOK RESULTS THEN ALL OTHER DISALLOWANCE ARE TAKEN CARE OF AND NO SEPARAT E ADDITION ON ACCOUNT OF 40(A)(IA) OR 40A(3) CAN BE MADE. 20. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CA SE OF INDWELL CONSTRUCTIONS (SUPRA) HAS HELD THAT SEPARATE ADDITI ON IN RESPECT OF ITEMS FALLING U/S.40(B) CANNOT BE MADE TO THE INCOME ESTI MATED U/S.145 AFTER REJECTING BOOKS OF ACCOUNT AS ALL THE DEDUCTIONS IN CLUDING DISALLOWANCE U/S.40(B) WHICH ARE REFERRED TO IN SECTION 29 ARE D EEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING ESTIMATE. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA) HAS HELD THAT ONCE ESTIMATION OF INCOME IS MADE FURTHER DISALLOWANCE U/S.40(A)(IA) F OR NON DEDUCTION OF TDS IS NOT WARRANTED. 21. SINCE IN THE INSTANT CASE WE HAVE ALREADY DIREC TED THE ASSESSING OFFICER GO FOR ESTIMATION OF PROFIT FROM CONTRACT W ORK, THEREFORE, FURTHER DISALLOWANCE U/S.40(A)(IA) IN THE INSTANT CASE IS N OT CALLED FOR. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.1,98,769/- MADE BY HIM BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT. T HE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 12 ITA NOS.708,1146, 1078 & 1079/PUN/2013 22. IN GROUND OF APPEAL NO.6 THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE AT 27,860 /- MADE BY THE ASSESSING OFFICER U/S.40A(3) OF THE I.T. ACT. 23. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSE SSING OFFICER MADE DISALLOWANCE OF RS.27,860/- U/S.40A(3) BEING 20% OF RS.1,39,290/- PAID BY THE ASSESSEE TO ONE TUSHAR TRANSPORT ON 3 OCCASIONS WHERE THE PAYMENT ON EACH OCCASION HAS EXCEEDED RS.20,000/-. WE FIND IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICE R ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE PAYMENTS BY C ASH WERE MADE UNDER EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES OR OUT OF BUSINESS COMPULSIONS OR THAT THE PAYMENTS ARE COVERED BY ANY OF THE EXCEPTI ONS PROVIDED IN RULE 6DD. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR T HE ASSESSEE THAT ONCE THE BOOKS ARE REJECTED U/S.145(3) THEN NO DISALLOWANCE U/S.40A(3) IS CALLED FOR. 24. WE FIND MERIT IN THE ABOVE SUBMISSION. AS MENTI ONED IN THE PRECEDING PARAGRAPHS, WE HAVE ALREADY HELD THAT NO SEPARATE DISALLOWANCE ON ACCOUNT OF SECTION 40(A)(IA) OR 40A(3) IS CALLE D FOR ONCE THE PROFIT IS ESTIMATED. SINCE WE HAVE ALREADY HELD THAT THE PRO FIT OF THE ASSESSEE IN THE INSTANT CASE HAS TO BE ESTIMATED, THEREFORE, THERE IS NO JUSTIFICATION FOR ANY ADDITION ON ACCOUNT OF VIOLATION OF SECTION 40A(3). ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE GROUND RAISED BY TH E ASSESSEE HAS BEEN ALLOWED. 25. GROUND OF APPEAL NO.7 RELATES TO LEVY OF INTERE ST U/S.234A, 234B AND 234C. 26. AFTER HEARING BOTH THE SIDES, WE ARE OF THE CON SIDERED OPINION THAT LEVY OF INTEREST UNDER THE ABOVE PROVISIONS ARE MAN DATORY AND CONSEQUENTIAL IN NATURE, THEREFORE, THIS GROUND BY THE ASSESSEE IS DISMISSED. 13 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ITA NO.1078/PUN/2013 (BY ASSESSEE) (A.Y. 2008-09) : ITA NO.1146/PN/2013 (BY REVENUE) (A.Y. 2008-09) : 27. GROUNDS OF APPEAL NO.1 AND 2 BY THE ASSESSEE AN D ALL THE GROUNDS RAISED BY THE REVENUE RELATE TO THE PART RELIEF GIV EN BY THE CIT(A) BY SUSTAINING THE ADDITION OF RS.29,26,768/- AS AGAINS T RS.90 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DECLINE IN GP IN CONSTRUCTION WORK. 28. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE FILED RETURN OF INCOME ON 30-09-2008 DECLARING TOTAL INCOME OF RS.1 ,73,780/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER OBSERVED THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE IS 18.87% AS AGAINST 25.34% IN THE PRECEDING YEAR EVEN THOUGH THE TURNOVER IN THE PREC EDING YEAR WAS LESS THAN THAT OF THE TURNOVER DURING THIS YEAR. HE, TH EREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHAT ARE THE FACTORS LED TO SUCH REDUCTION IN GROSS PROFIT YIELD. THE ASSESSEE SUBSTANTIATED THE REASO NS FOR FALL IN GP FOR THE FOLLOWING REASONS WHICH HAS BEEN SUMMARISED BY THE ASSESSING OFFICER AT PARA 7.2 OF HIS ORDER AND WHICH READ AS UNDER : 1. THERE IS NO FALL IN THE GP IF COMPARED TO EARLIE R FOUR YEARS, EXCEPT A.Y.2007-08, WHICH WAS EXCEPTIONAL YEAR WITH 25.34% GP DUE TO VARIOUS REASONS. 2. THE WORK IN THE CURRENT YEAR IS MATERIAL INTENSIVE (INSTEAD OF BEING LABOUR INTENSIVE). 3. MAJOR WORK DONE DURING THE YEAR WAS MAINLY IN HIL LY AREA AND AT REMOTE PLACED AND TWO SITES WERE AT PLACES WHERE LABOU R WAS UNWILLING TO WORK. 4. THERE WAS HEAVY INTERFERENCE BY THE LOCAL POLITIC AL LEADERS WHICH RESULTED IN DELAY IN WORK COMPLETION. 5. THE RATE IN POWER PROJECTS IN PRIVATE SECTOR ARE V ERY COMPETITIVE. 6. THE WORK IN RESPECT OF ONE SITE IN DIST. NAGPUR WAS 900 KMS AWAY FROM HEAD OFFICE AND THERE WERE MANY RESTRICTI ONS WHILE DOING THE WORK. 29. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE FOR THE FOLLOWING REASONS : 14 ITA NOS.708,1146, 1078 & 1079/PUN/2013 1. THE EXPLANATIONS GIVEN ABOVE ARE VERY GENERAL AN D VAGUE IN NATURE. 2. NONE OF THE REASONS GIVEN ARE SUPPORTED BY ANY SPE CIFIC DOCUMENTARY EVIDENCE. 3. THE ASSESSEE HAS NOT MAINTAINED SITE-WISE ACCOUNTS AND R ECORDS AS ADMITTED BY THE ASSESSEE. THEREFORE, CLAIMING THE DE CLINE IN PROFIT ON THE BASIS OF PARTICULAR SITE WORK IS NOTHING BUT AN AFT ER-THOUGHT. 4. THE ASSESSEE IS IN THE SAME BUSINESS FOR THE LAST SEVERAL YEARS. THEREFORE, THE PLEA TAKEN ABOUT COMPETITIVE RATES, D IFFICULT SITES, ETC. ARE THE FACTORS WHICH WILL BE DEFINITELY TAKEN INTO CONSI DERATION BY THE ASSESSEE BEFORE SUBMITTING THE TENDERS AND QUOTING THE R ATES. 5. THE REASONS GIVEN FOR INCREASE IN EXPENDITURE LIKE DELAY IN WORK BLAMED ON DIFFICULT WORKING CONDITIONS AND POLITICAL INTERFERENCE, MAINLY INDICATES THAT THE ASSESSEE HAS NO VALID REASONS TO JUSTIFY THE LOW GROSS PROFIT AND NET PROFIT SHOWN IN THE RETURN OF INC OME, 6. THE ASSESSEE WAS REPEATEDLY GIVEN OPPORTUNITIES TO EXP LAIN THE FACTORS LEADING TO THE ABNORMAL REDUCTION IN ITS GROSS PROFIT YIELD IN THE QUESTIONNAIRE ISSUED TO THE ASSESSEE DATED 31-10-2010 ITSEL F THE ASSESSEE WAS REQUESTED TO FURNISH SUPPORTING EVIDENCES IN REGARD TO THE CONTENTIONS WHICH THE ASSESSEE WAS GOING TO PUTFORTH . THUS, IT WAS MADE CLEAR TO THE ASSESSEE WELL IN ADVANCE THAT THE REA SONS GIVEN BY IT SHOULD BE SUPPORTED BY PROPER DOCUMENTARY EVIDENCE. 7. THE REASONS GIVEN FOR FALL IN NET PROFIT ARE ALSO SI MILARLY VAGUE AND WITHOUT ANY SUPPORTING EVIDENCES. IT IS SPECIFICA LLY TO BE NOTED THAT ASSESSEE HAS NOT PURCHASED ANY NEW WINDMILL DURING F.Y.2 007-08, THEREFORE, THE FALL IN NP CANNOT BE BLAMED ON THE I NCREASED DEPRECIATION OF WINDMILL. UNDER THESE CIRCUMSTANCES, IT HAS TO BE PRESUMED THAT TH E ASSESSEE HAS NO JUSTIFIABLE EXPLANATION TO OFFER IN THIS R EGARD AND IT IS REQUIRED TO EXAMINE THE ISSUE IN THE LIGHT OF THE INF ORMATION AVAILABLE IN RECORD. 30. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY TH E ASSESSEE THE ASSESSING OFFICER ENHANCED THE GP RATIO OF THE ASSE SSEE BY AN ADDITIONAL 5% PROFIT AND ACCORDINGLY MADE ADDITION OF RS.90 LA KHS TO THE TOTAL INCOME OF THE ASSESSEE. 31. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE ACTIO N OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULTS AND ENHANCING THE GROSS PROFIT BY 5%. IT WAS ARGUED THAT THE ESTIMATION OF GP OF ADDITIONAL 5% BY THE ASSESSING OFFICER WAS UNCALLED FOR UNDER THE FACTS AND CIRCUM STANCES OF THE CASE. 15 ITA NOS.708,1146, 1078 & 1079/PUN/2013 32. IN APPEAL THE LD.CIT(A) WHILE UPHOLDING THE REJ ECTION OF BOOK RESULTS AND ESTIMATION OF GROSS PROFIT ON THE CONTRACT RECE IPT, HOWEVER OBSERVED THAT THE ASSESSEE HAS BEEN SUPPLIED MATERIALS TO THE TUN E OF RS.2,01,75,901/- ON WHICH THERE CANNOT BE ANY PROFIT ELEMENT. REFER RING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRIJ B HUSHAN LAL RAMESH KUMAR REPORTED IN 115 ITR 524 WHERE IT HAS BEEN HEL D THAT NO ELEMENT OF PROFIT WAS INVOLVED IN THE TURNOVER REPRESENTED BY THE COST OF STORES/MATERIAL SUPPLIED BY THE MES TO THE ASSESSEE FIRM, THE INCOM E OR PROFITS DERIVED BY THE ASSESSEE FIRM FROM SUCH CONTRACTS WOULD HAVE TO BE DETERMINED ON THE BASIS OF THE VALUE OF THE CONTRACTS EXCLUSIVE OF TH E COST OF THE MATERIALS/STORES RECEIVED FOR BEING USED, FIXED OR INCORPORATED IN THE WORKS UNDERTAKEN BY THEM. HE ACCORDINGLY DIRECTED THE AS SESSING OFFICER TO RESTRICT THE GP RATE TO 20.5% AS AGAINST GP OF 18. 83% DISCLOSED BY THE ASSESSEE FOR THIS YEAR. HE ACCORDINGLY RESTRICTED THE ADDITION TO RS.29,26,768/- AS AGAINST RS.90 LAKHS MADE BY THE A SSESSING OFFICER. 33. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) BOTH TH E ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 34. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND AS AGAINST THE TOTAL CONTRACT R ECEIPT OF RS.18,02,57,518/- THE GOVERNMENT HAS SUPPLIED MATER IALS TO THE TUNE OF RS.2,01,75,901/- TO THE ASSESSEE. IT IS THE SETTLE D PROPOSITION OF LAW THAT WHEN THE MATERIAL IS SUPPLIED BY THE GOVERNMENT DEP ARTMENT FOR UTILISATION IN THE CONSTRUCTION WORK, THEN THE PROFIT HAS TO BE ESTIMATED ON THE GROSS CONTRACT RECEIPT AS REDUCED BY THE COST OF MATERIAL S SO SUPPLIED BY THE GOVERNMENT DEPARTMENT AS THE ASSESSEE IS NOT EXPECT ED TO MAKE ANY PROFIT OUT OF IT. UNDER THESE CIRCUMSTANCES THE GR OSS PROFIT HAS TO BE COMPUTED AFTER REDUCING THE COST OF MATERIALS SUPPL IED FROM THE GROSS 16 ITA NOS.708,1146, 1078 & 1079/PUN/2013 CONTRACT RECEIPTS WHICH THE CIT(A) IN THE INSTANT C ASE HAS DONE. WE FIND THE LD.CIT(A) WHILE RESTRICTING THE ADDITION TO RS. 29,26,768/- HAS OBSERVED AS UNDER : 2.3.5 NOW THE ISSUE THAT REMAINS FOR CONSIDERATION IS A BOUT THE QUANTUM OF ESTIMATION AND THE RESULTANT ADDITION MADE IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS MADE THE ADDITI ON OF RS.90,00,000/- BY ADOPTING GP RATE AT 5% OVER THE GR OSS PROFIT DISCLOSED BY THE APPELLANT FOR THIS YEAR. IN OTHER WO RDS, ASSESSING OFFICER ESTIMATED THE GROSS PROFIT AT 23.87% (18.87+5) OF THE TURNOVER AS AGAINST 18.87% SHOWN BY THE APPELLANT. THE ESTIMATI ON OF GROSS PROFIT WAS DONE BY THE ASSESSING OFFICER BY TAKING INTO CONSIDERATION THE EXCEPTIONAL GROSS PROFIT OF 25.34% SHOWN FOR THE A .Y. 2007-08 AND STATING THAT THERE ARE GENERAL GREY AREAS. BUT WHA T IS THE EXTENT OF THESE GREY YEARS AND THEIR IMPACT ON THE PROFITABILIT Y ARE NOT SPELT OUT IN THE ASSESSMENT ORDER NOR DID THE ASSESSING OFFICER BRING ANY MATERIAL ON RECORD LIKE COMPARABLE CASES ETC. TO SUPP ORT HIS OBSERVATION AND ESTIMATION OF GROSS PROFIT AT 23.87%. WHILE DOING SO, THE ASSESSING OFFICER HAS ALSO GLOSSED OVER THE FACT THAT T HE VALUE OF THE MATERIAL SUPPLIED BY THE CONTRACTEE DEPARTMENT WAS RS. 2,01,75,901/- AS AGAINST THE RS.2,23,071/- IN THE IMMEDIATELY PRECED ING YEAR WHICH ALSO AFFECTS THE PROFITABILITY IN THIS LINE OF BUSINESS, THOUGH NOT TO THE EXTENT CLAIMED BY THE APPELLANT. IN FACT, THE APEX COURT IN THE CASE OF CIT VS. BRIJ BHUSHAN LAL RAMESH (115 ITR 524) OBSERVED THAT SINCE NO ELEMENT OF PROFIT WAS INVOLVED IN THE TURNOVER REPRE SENTED BY THE COST OF STORES/MATERIAL SUPPLIED BY THE M.E.S. TO THE ASSESSEE- FIRM, THE INCOME OR PROFITS DERIVED BY THE ASSESSEE FIRM FROM SUCH CONTRACTS WOULD HAVE TO BE DETERMINED ON THE BASIS OF THE VALUE OF THE CONTRACTS EXCLUSIVE OF THE COST OF THE MATERIAL/STORES RECEIVED F OR BEING USED, FIXED OR INCORPORATED IN THE WORKS UNDERTAKEN BY THE M. AFTER TAKING INTO CONSIDERATION THE EXPLANATION FURNISHED BY THE A PPELLANT FOR THE DECLINE IN THE GROSS PROFIT IN THIS YEAR, THE PROFIT R ATIOS DECLARED IN THE EARLIER YEARS, THE NATURE OF BUSINESS BEING CARRIED ON BY THE APPELLANT, I.E. EXECUTION OF CONTRACT WORKS WHICH INCLUDE WORKS AT REMOTE PLACES AND ALSO SUBSTANTIAL INCREASE IN THE MATERIAL SUPPLIED B Y THE CONTRACTEE DEPARTMENT IN THIS YEAR, IT IS CONSIDERED FAIR AND REA SONABLE TO ADOPT THE G.P. RATE AT 20.5% PER CENT FOR THE YEAR UNDER APPEAL (WHICH IS WORKED OUT BY TAKING AVERAGE OF G.P. DECLARED FOR T HE LAST THREE YEARS, I.E. FROM A.Y. 2005-06 TO A.Y. 2007-08) AS AGAINST G. P. OF 18.83% DISCLOSED BY THE APPELLANT FOR THIS YEAR. ACCORDINGLY , THE GROSS PROFIT FOR THIS YEAR WORKS OUT TO RS.3,69,52,790/- AS AGAINST G ROSS PROFIT DISCLOSED BY THE APPELLANT AT RS.3,40,26,023/-. THUS, THE ADDITION ON THIS GROUND WILL BE RESTRICTED TO RS.29,26,768/- (3,69 ,52,790- 3,40,26,023). THE APPELLANT GETS CONSEQUENTIAL RELIE F OF RS.60,73,232/- (RS.90,00,000 29,26,768). 35. THE DECISION OF THE CIT(A) IN THE INSTANT CASE IN OUR OPINION IS A REASONED ONE. NEITHER THE LD. DEPARTMENTAL REPRESE NTATIVE NOR THE LD. COUNSEL FOR THE ASSESSEE COULD POINT OUT ANY MISTAK E IN THE ORDER OF THE 17 ITA NOS.708,1146, 1078 & 1079/PUN/2013 CIT(A). ACCORDINGLY, THE GROUNDS RAISED BY THE REVE NUE AND GROUNDS OF APPEAL NO.1 AND 2 BY THE ASSESSEE ARE DISMISSED. 36. IN GROUND OF APPEAL NO.3 THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.2,2 9,490/- MADE BY THE ASSESSING OFFICER INVOKING SECTION 40(A)(IA) OF THE I.T. ACT. 37. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUND BY THE ASSESSEE IS IDENTICAL TO GROUND OF APPEAL NO.5 IN I TA NO.708/PUN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISE D BY THE ASSESSEE HAS BEEN ALLOWED. FOLLOWING THE SAME REASONINGS, THIS GROUND BY THE ASSESSEE IS ALLOWED. 38. GROUND OF APPEAL NO.4 BY THE ASSESSEE READS AS UNDER : 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE PERCENT AGE OF DEPRECIATION @10% ON WDV OF CIVIL WORK WORKED OUT BY AO ON WINDM ILL. IN VIEW OF HONBLE PUNE ITAT JUDGMENT IN THE CASE OF DY.CIT VS. AMINITY DEVELOPERS & BUILDERS IN ITA.1505/PN/2011 FOR A.Y. 20 08-09 DECIDED ON 12 TH DECEMBER 2012, WHEREIN IT HAS BEEN HELD THAT THE CO ST OF THE FOUNDATION OF WINDMILL IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 80% OR THE RATE WHICH IS APPLICABLE TO THE WINDMILL AS IT IS INTEGRAL PART OF COST OF WINDMILL ERECTION. THE DEPRECIATION BE ALLOWED ACCORDINGLY. 39. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON WINDMILL @80%. ACCORDING TO THE AS SESSING OFFICER SIMILAR CLAIM MADE BY THE ASSESSEE FOR VARIOUS COMPONENTS O F WINDMILL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WAS RESTRICTE D BY THE ASSESSING OFFICER AFTER ELABORATELY DISCUSSING THE VARIOUS AS PECTS OF THE ISSUE IN ASSESSMENT ORDER FOR THAT YEAR. FOLLOWING THE SAME REASONINGS FOR THIS YEAR THE ASSESSING OFFICER RESTRICTED THE CLAIM OF DEPRE CIATION ON WINDMILL IN THE CURRENT YEAR ALSO AND ACCORDINGLY REDUCED THE COST OF CLAIM OF DEPRECIATION TO THE EXTENT OF RS.17,19,000/-, THE DETAILS OF WHI CH ARE AS UNDER : 18 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ASSET OPENING WDV ADDITIONS DURING THE YEAR DEPRECIATION ADMISSIBLE DEPRN. CLOSING WDV WINDMILL 2,27,49,505 - 80% 1,81,99,604 45,49,901 FOUNDATION COST 23,40,000 - 10% 2,34,000 21,06,000 ERECTION & COMMISSIONING 17,00,000 - 15% 2,55,000 14,45,000 TOTA L 2,67,89,505 - 1,86,88,604 81,00,901 40. IN APPEAL THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION @80% IN RESPECT OF ERECTION AND COMMIS SIONING CHARGES OF RS.12 LAKHS. THUS, HE DIRECTED THE ASSESSING OFFIC ER TO WORK OUT THE DEPRECIATION OF RS.9,60,000/- AS AGAINST RS.2,55,00 0/- ALLOWED BY THE ASSESSING OFFICER IN RESPECT OF ERECTION AND COMMIS SIONING CHARGES. HOWEVER, AS REGARDS THE FOUNDATION COST IS INVOLVED , HE UPHELD THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE RATE OF DEPRE CIATION OF 10%. 41. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED A COPY OF THE ORDER OF TRIBUNAL IN THE CASE OF ACIT VS. SONAI ENG INEERING PVT. LTD. AND VICE VERSA VIDE ITA NOS. 1078/PN/2012 AND 2157/PN/2 012 ORDER DATED 27- 08-2014 AND SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. AM INITY DEVELOPERS AND BUILDERS (SUPRA) UPHELD THE ORDER OF THE CIT(A) AND HELD THAT FOUNDATION OF WINDMILL IS A PART OF WINDMILL ELIGIBLE FOR DEPRECI ATION @80%. 42. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUPPORTED THE ORDER OF THE CIT(A). 43. AFTER HEARING BOTH THE SIDES, WE FIND THE CIT(A ) UPHELD THE ACTION OF THE ASSESSING OFFICER IN CONFIRMING DEPRECIATION @1 0% ON THE CIVIL CONSTRUCTION OF THE WINDMILL. IN THE CASE OF SONAI ENGINEERING PVT. LTD. (SUPRA) WE HAVE UPHELD THE ORDER OF THE CIT(A) IN H OLDING THAT COST OF WORK INCLUDING FOUNDATION WORK IS A PART OF THE NEW WIND MILL AND ELIGIBLE FOR DEPRECIATION AT HIGHER RATE. WE THEREFORE SET ASID E THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO COMPUTE THE DEP RECIATION @80% OR THE 19 ITA NOS.708,1146, 1078 & 1079/PUN/2013 RATE WHICH IS APPLICABLE TO THE WINDMILL SINCE SUCH CIVIL CONSTRUCTION IS AN INTEGRAL PART OF THE COST OF WINDMILL ERECTION . G ROUNDS RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 44. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND OF APPEAL NO.5 FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, THE SAME IS DISMISSED. 45. GROUND OF APPEAL NO.6 RELATES TO LEVY OF INTERE ST U/S.234A, 234B AND 234C WHICH ARE MANDATORY AND CONSEQUENTIAL IN NATUR E AND THEREFORE THE SAME IS DISMISSED. 46. GROUND OF APPEAL NO.7 BEING GENERAL IN NATURE IS DISMISSED. ITA NO.1079/PUN/2013 (BY ASSESSEE) (A.Y. 2009-10) : 47. GROUNDS OF APPEAL NO.1 TO 3 BY THE ASSESSEE REL ATES TO THE ORDER OF CIT(A) IN CONFIRMING GP ESTIMATION MADE BY THE ASSE SSING OFFICER AT 17.60% AND THEREBY SUSTAINING THE ADDITION OF RS.68 ,83,535/-MADE BY THE ASSESSING OFFICER. 48. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE FILED ITS RETURN OF INCOME ON 27-09-2009 DECLARING TOTAL INCOME OF RS.1 ,95,63,680/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE GP FOR THE YEAR UNDER CONSIDERATION STOOD AT RS .3,50,77,255/- BEING 14.72% ON A TOTAL CONTRACT RECEIPT OF RS.23.83 CROR ES. FROM THE DETAILS FURNISHED BEFORE HIM HE COMPARED THE PERCENTAGE OF GP FOR THE CURRENT YEAR AS WELL AS THE PRECEDING YEARS WHICH ARE AS UNDER : PARTICULARS ASSESSMENT YEAR 2005 - 06 2006 - 07 2007 - 08 2008 - 09 20 09 - 10 CONTRACT RECEIPTS 7,64,17,231 10,01,15,735 11,56,59,762 18,02,57,518 23,83,32,619 GROSS PROFIT 1,45,57,725 1,73,51,024 2,93,10,248 3,40,26,023 3,50,77,225 GP% 19.05 17.33 25.34 18.88 14.72 20 ITA NOS.708,1146, 1078 & 1079/PUN/2013 OBSERVING THAT THERE WAS DECLINE IN THE GP RATIO IN THIS YEAR AS COMPARED TO THE PRECEDING ASSESSMENT YEARS THE ASSESSING OFFICE R ASKED THE ASSESSEE TO JUSTIFY THE REASONS FOR SUCH FALL IN THE GP RATE . THE ASSESSEE WHILE JUSTIFYING THE FALL IN PROFIT RATIO GAVE THE FOLLOW ING REASONS : 1. THE WORK IN THE CURRENT YEAR IS MORE MATERIAL IN TENSIVE (INSTEAD OF BEING LABOUR INTENSIVE) AND THERE WAS SUBSTANTIAL R ISE IN THE COST OF THE MAIN RAW MATERIAL. IN MATERIAL INTENSIVE WORK, PROFITS MARGIN ARE EMPIRICALLY LOWER LABOUR INTENSIVE WORK. 2. MAJOR WORK DONE DURING THE YEAR WAS MAINLY AT REM OTE PLACES AT WARDHA, KHAPARKHEDA, NAGPUR AND BHUSAVAL AND INCREASE IN DISTANCE FROM HO LEADS TO LESSER CONTROL OF COSTS. 3. THERE WAS HEAVY INTERFERENCE BY THE LOCAL POLITI CAL LEADERS, WHO INSISTED TO APPOINT LOCAL PEOPLE FOR THE WORK ALLOTTE D, WHICH RESULTED IN DELAY IN WORK COMPLETION. 4. PROGRESS OF WORKS AT GHATEWADI, IN PATAN WAS AFFECT ED BY HEAVY RAINS AND DUE TO THE UNFORESEEN NATURES ACT; WORK CAM E TO STANDSTILL FOR OVER FOUR MONTHS. 5. SIMILARLY, WORK AT PANHALA HAD TO BE STOPPED DUE TO OBJECTIONS RAISED BY ARCHAELOGICAL SURVEY OF INDIA. 49. HOWEVER, THE ASSESSING OFFICER WAS NOT FULLY SA TISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND OBSERVED THAT THE REASONS GIVEN BY THE ASSESSEE ARE VERY VAGUE AND WITHOUT ANY SUPPORT ING EVIDENCE. HE HAS NOT MAINTAINED ANY SITE-WISE ACCOUNTS AND RECORDS. THEREFORE, CLAIMING THE DECLINE IN THE PROFIT ON THE BASIS OF A PARTICULAR SITE WORKING IS NOTHING BUT AN AFTERTHOUGHT. SINCE THE ASSESSEE IS IN THE SAME BU SINESS FOR THE OTHER SEVERAL YEARS, THEREFORE, THE PLEA ABOUT THE COMPET ITIVE RATES, DIFFICULT SITES ETC. MUST HAVE BEEN TAKEN INTO CONSIDERATION WHILE SUBMITTING TENDERS AND QUOTING THE RATES THE ASSESSING OFFICER FURTHER OB SERVED THAT THE VARIOUS OTHER REASONS GIVEN BY THE ASSESSEE WERE ALSO NOT S UBSTANTIATED. DESPITE REPEATED OPPORTUNITIES GIVEN TO EXPLAIN THE FACTORS THAT LED TO THE ABNORMAL REDUCTION IN ITS GP YIELD THE ASSESSEE ONLY REPEATE D THE SAME ARGUMENTS WITHOUT JUSTIFYING THE SAME. THE ASSESSING OFFICER THEREFORE REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE ADOPTED THE GP RATE OF 17.68% AND MADE ADDITION OF RS.68,69,285/- TO THE TOTAL IN COME OF THE ASSESSEE. 21 ITA NOS.708,1146, 1078 & 1079/PUN/2013 WHILE ADOPTING RATE OF 17.60% HE OBSERVED THAT THE AVERAGE OF THE GP RATE FROM A.Y. 2005-06 ONWARDS COMES TO 19.06% WHEREAS T HE GP RATE FOR THE YEAR IS 14.72%. THUS, THERE IS A DIFFERENCE OF 4.3 4%. TAKING INTO ACCOUNT THE EXCEPTIONAL AND EXTRAORDINARY CIRCUMSTANCES THE ASSESSING OFFICER ACCORDINGLY ALLOWED A MARGIN OF 1.50% AND MADE ADDI TION OF RS.60,69,785/- TO THE TOTAL GP BY ADOPTING THE GP R ATE OF 17.60%. 50. IN APPEAL THE LD.CIT(A) WHILE UPHOLDING THE REJ ECTION OF BOOK RESULTS MADE BY THE ASSESSING OFFICER UPHELD THE GP RATE OF 17.60% ADOPTED BY THE ASSESSING OFFICER AND THEREBY SUSTAINED THE ADD ITION OF RS.68,69,285/-. 51. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 52. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE CIT(A). ADMITTEDLY, THE GP RATE ADOPTED BY THE ASSESSEE AT 14.71% FOR THE IMPUGNED ASSESSMENT YEAR IS VERY LESS AS CO MPARED TO THE PRECEDING ASSESSMENT YEARS. THE ASSESSING OFFICER H AS ALREADY CONSIDERED AVERAGE OF THE GP RATE FOR THE LAST 5 YEARS WHICH C OMES TO 19.06%. THUS, THE DIFFERENCE BETWEEN THE AVERAGE RATE OF PAST YEA RS AND THE RATE OF GP FOR THE CURRENT YEAR WAS 4.34% OUT OF WHICH THE ASSESSI NG OFFICER HAS ALREADY GAVE MARGIN OF 1.50% ON ACCOUNT OF EXCEPTIONAL CIRC UMSTANCES AND THEREBY MADE GP ADDITION OF ONLY 2.84%. WE FURTHER FIND DU RING THE YEAR THERE IS ALSO NO SUPPLY OF MATERIAL BY THE GOVERNMENT DEPART MENT WHEREAS SUCH SUPPLY OF MATERIAL WAS THERE IN THE PRECEDING YEAR TO THE TUNE OF RS.2.20 CRORES. THE ASSESSEE HAS NOT SUBSTANTIALLY PROVED HOW THE WORK IS MORE MATERIAL INTENSIVE AND HEAVY INTERFERENCE BY THE LO CAL POLITICAL LEADERS. UNDER THESE CIRCUMSTANCES, WE FAIL TO UNDERSTAND AS TO HOW THE ORDER OF THE CIT(A) IS ERRONEOUS WHILE CONFIRMING THE ORDER OF T HE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT BRING AN Y COGENT EVIDENCE SO AS TO TAKE A CONTRARY VIEW THAN THE VIEW TAKEN BY T HE CIT(A). ACCORDINGLY, 22 ITA NOS.708,1146, 1078 & 1079/PUN/2013 WE UPHOLD THE ORDER OF THE ORDER OF CIT(A) ON THIS ISSUE. GROUNDS OF APPEAL NO.1 TO 3 BY THE ASSESSEE ARE DISMISSED. 53. IN GROUND OF APPEAL NO.4 THE ASSESSEE HAS CHALL ENGED THE ORDER OF CIT(A) IN CONFIRMING THE PERCENTAGE OF DEPRECIATION @10% ON WDV ON CIVIL WORK ON WINDMILL. 54. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUND IS IDENTICAL TO GROUND OF APPEAL NO.4 IN ITA NO.1078/PUN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSE SSEE HAS BEEN ALLOWED. FOLLOWING THE SAME REASONING THIS GROUND BY THE ASSESSEE IS ALLOWED. 55. GROUND OF APPEAL NO.5 RELATES LEVY OF INTEREST U/S.234A, 234B AND 234C. SINCE CHARGING OF INTEREST UNDER THE ABOVE P ROVISIONS ARE MANDATORY AND CONSEQUENTIAL IN NATURE, THEREFORE, THE ABOVE G ROUND BY THE ASSESSEE IS DISMISSED. 56. GROUND OF APPEAL NO.6 BY THE ASSESSEE BEING GEN ERAL IN NATURE IS DISMISSED. 57. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE ARE PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30-12-2016. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACC OUNTANT MEMBER PUNE; DATED : 30 TH DECEMBER, 2016. 23 ITA NOS.708,1146, 1078 & 1079/PUN/2013 ) *#,! -! / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // ' $ / TRUE COPY// // TRUE COPY // %& $ ) / SR. PRIVATE SECRETARY ), / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - I II , PUNE 4. CIT-III, PUNE 5. ' $$) , ) , B BENCH / DR, ITAT, B BENCH PUNE; 6. 1 / GUARD FILE.