M/S ADMANE CONSTRUCTION CO., Nagpur V. ITO- WARD 8(1), Nagpur

ITA 109/NAG/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 66791 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 16-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY MARATHE ACIT
• Assessee Lawyers: A C BAWANE
• Keywords: Reason to believe
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.109/NAG/2010 (AY: 2003-04) AND C.O. NO.4/NAG/2012 (ARISING FROM ITA NO.93/NAG/2012 ) (AY: 2004-05) M/S. ADMANE CONSTRUCTIN CO., 320, BORGAON, GOREWADA, NAGPUR-10. PAN: AAEFS 9043 H VS INCOME TAX OFFICER, WARD 8(1), NAGPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 93/NAG/2012 (AY: 2004-05) ACIT, CIRCLE-8, 5 TH FLOOR, AMBEDKAR BHAVAN, MECL BUILDING, SEMINERY HILLS, NAGPUR-440 006. VS M/S. ADMANE CONSTRUCTIN CO., 320, BORGAON, GOREWADA, NAGPUR-10. PAN: AAEFS 9043 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.C. BAWANE REVENUE BY : SHRI ABHAY MARATHE, ACIT DATE OF HEARING:6.3.2013 DATE OF ORDER: 1.5.2013 O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE THREE APPEALS UNDER CONSIDERATION AND OUT OF THEM, ONE APPEAL ITA NO.93/NAG/2012 IS FILED BY THE REVENUE AND REMA INING APPEALS ITA NO.109/NAG/2010 AND CO NO.4/NAG/2012 ARE FILED BY T HE ASSESSEE. FOR THE SAKE OF CONVENIENCE, THEY ARE BEING CLUBBED AND ADJUDICATED IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN I N THE FOLLOWING PARAGRAPHS. ITA NO. NO.109/NAG/2010 2. FIRSTLY, WE SHALL TAKE UP ITA NO. NO.109/NAG/201 0, WHICH IS FILED BY THE ASSESSEE ON 16.8.2010 AGAINST THE ORDER OF CIT (A)- II, NAGPUR DATED 30.03.2010 FOR THE AY 2003-04. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 2 1. THAT THE REOPENING OF THE ASSESSMENT ORDER U/S 1 47 OF THE INCOME TAX ACT, 1961 IS AB INITIO VOID, INVALID AND ILLEGA L IN LAW AND THE LD CIT (A) ERRED IN CONFIRMING THE SAME. 2. THAT THE LD CIT (A) HAS ERRED IN UPHOLDING THE R EOPENING OF THE ASSESSMENT ON THE GROUND OF L IMITATION FOR ISSUE OF NOTICE U/S 148 OF THE ACT AS THE ISSUE OF LIMITATION FOR ISSUING NOTICE U /S 148 WAS NOT AGITATED BY THE APPELLANT. 3. THAT THE LD CIT (A) ERRED IN NOT APPRECIATING TH E CONTENTION OF THE APPELLANT THAT THE SATISFACTION OF ESCAPEMENT OF INCOME RECORDED BY THE AO FOR THE ASSESSMENT YEAR 2004-05 CANNOT BE HELD VALI D FOR THE ASSESSMENT YEAR 2003-04 SINCE EACH ASSESSMENT YEAR IS A SEPARATE AS SESSMENT YEAR AND THE AO HAS TO RECORD HIS SATISFACTION SEPARATELY ABOUT THE ITEM OF ESCAPEMENT OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL. 4. THAT THE SATISFACTION OF ESCAPEMENT OF INCOME RE CORDED BY THE AO ON THE ITEMS OF INCOME FOR THE ASSESSMENT YEAR 2004-05 DOES NOT EXIST IN THE ASSESSMENT YEAR UNDER APPEAL AND HENCE THE REASONS RECORDED BY THE AO IS INVALID AS THE BELIEF OF THE AO ABOUT ESCAPEMENT OF INCOME IS BASED ON PRESUMPTION AND GUESSWORK AND ALSO ARBITRARY, IRRAT IONAL AND UNREASONABLE. 3. AT THE OUTSET, SHRI A.C. BAWANE, LD COUNSEL FOR THE ASSESSEE BROUG HT TO OUR NOTICE THAT THE PRESENT APPEAL HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE FOR THE REASON THAT THE ASSESSING OFFICER ISSUED NOTICE U/S 148 FOR BRINGIN G TO TAX THE CONCEALED INCOME OF RS. 36,02,826/- UNDER THE FOLLOWING HEADS. 1. BOGUS LABOUR PAYMENTS RS. 9,76,065/- 2. SUNDRY CREDITORS WHOSE CREDITWORTHINESS WERE DOUBTED RS. 21,27,261/- 3. CREDIT APPEARING IN THE NAME OF SHRI SIDDHARTH AGARWAL WHO WAS NOT PRODUCED FOR RECORDING HIS STATEMENT RS. 4,99,500/ - RS. 36,02,826/- 4. FURTHER, HE BROUGHT OUR ATTENTION TO THE ACTUAL ADDITIONS MADE BY THE AO AMOUNTING TO RS. 6,84,496/- ON ACCOUNT OF GENERAL A D-HOC DISALLOWANCE AND CERTAINLY NOT ON ACCOUNT OF ANY ONE OF THE THREE ITEMS OF DIS ALLOWANCES ORIGINALLY PROPOSED IN THE REASONS RECORDED BEFORE FOR REOPENING THE ASSES SMENT U/S 147 OF THE ACT. IN THE BACKGROUND OF THESE FACTS, LD COUNSEL FILED A C OPY OF THE BINDING JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. JET AIRWAYS (I) LTD. [2011] 331 ITR 236 FOR THE PROPOSITION THAT THIS KIND OF R EASSESSMENTS ARE ARBITRARY, SINCE, NO ADDITION WAS MADE ON THE STRENGTH OF THE REASONS RECORDED AT THE TIME OF ASSUMING JURISDICTION U/S 147 OF THE ACT. THE CONC LUSION GIVEN IN THE ABOVE SAID JUDGMENT READS AS UNDER: 3 AO MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PRO CEEDINGS THOUGH THE REASONS FOR SUCH ISSUE WERE NOT INCLUDED IN THE NOT ICE; HOWEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 148, THE AO ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INI TIALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO HI INDEPENDENTLY TO A SSESS SOME OTHER INCOME. 5. REVENUE COULD NOT DEMONSTRATE THAT THE BINDING J UDGMENT OF THE HIGH COURT DOES NOT APPLY TO THE FACTS OF THE CASE. APPLYING T HE LEGAL PROPOSITION TO THE FACTS OF THE PRESENT CASE, IT IS EVIDENT THAT AO HAS NOT MAD E ANY ADDITION ON ACCOUNT OF ANY ONE OF THE THREE ISSUES RECORDED AT THE TIME OF ISS UES OF NOTICE U/S 147 OF THE ACT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT TH E NOTICE ISSUED BY THE AO IS BAD IN LAW AND ACCORDINGLY GROUNDS RAISED BY THE ASSESS EE ARE ALLOWED. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED . ITA NO.93/NAG/2012 (AY: 2004-05) BY REVENUE AND CO NO.4/NAG/2012 (AY: 2004-05) BY ASSESSEE 7. APPEAL ITA NO.93/NAG/2012 IS FILED BY THE REVENU E ON 19.3.2012 AGAINST THE ORDER OF CIT (A)-II, NAGPUR DATED 8.12.2011. IN THIS A PPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, CIT (A) HAS ERRED IN ESTIMATING NET PROFIT @ 8% OF THE RECEIPTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E CIT (A) HAS ERRED IN DELETING ADDITION OF RS. 19,84,100/- IN ABSENCE OF BILLS AND VOUCHERS IN SUPPORT OF EXPENSES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 11,26,065/- BEING LABO UR EXPENSES DEBITED TO CONTACTING EXPENSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 26,26,767/- MADE ON AC COUNT OF BOGUS CREDITORS. 8. BRIEFLY STATED, RELEVANT FACTS OF THE CASE ARE T HAT THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION BUSINESS. THIS IS A CASE OF REASS ESSMENT AND THE AO PASSED THE REASSESSMENT ORDER ON 29.12.2008. AO ISSUES NOTICE U/S 148 FOR BRINGING THE FOLLOWING CONCEALED INCOME TO TAX. NAMELY 1. BOGUS LABOUR PAYMENTS RS. 9,76,065/- 2. SUNDRY CREDITORS WHOSE CREDITWORTHINESS WERE DOUBTED RS. 21,27,261/- 4 3. CREDIT APPEARING IN THE NAME OF SHRI SIDDHARTH AGARWAL WHO WAS NOT PRODUCED FOR RECORDING HIS STATEMENT RS. 4,99,500/ - RS. 36,02,826/- 9. ACCORDINGLY, THE REASSESSED INCOME WAS DETERMINE D AS PER DETAILS GIVEN BELOW. COMPUTATION OF TOTAL INCOME RETURNED INCOME AS SHOWN RS. 2,52,200/- ADD. DISALLOWED OUT OF EXPENSES AS DISCUSSED ABOVE RS. 19,84,100/- DISALLOWED OF LABOUR EXPENSES AS DISCUSSED ABOVE RS . 11,26,065/- CREDITORS DISALLOWED AS DISCUSSED ABOVE RS. 26,26 ,767/- ASSESSED INCOME RS. 59,89,132/- ROUNDED OFF TO RS. 59,89,130/- 10. DURING THE FIRST APPELLATE PROCEEDINGS IT WAS S UBMITTED THAT WITH THE ABOVE ADDITIONS MADE BY THE AO IN THE ASSESSMENT, THE PRO FIT PERCENTAGE HAS GONE TO 48.40%. IT IS UNUSUAL AND SUCH PERCENTAGE IS NEVER R EGISTERED IN THE PAST. CIT (A) CONSIDERED THE SAID PERCENTAGE IS CERTAINLY ON HIGH ER SIDE, FURTHER, HE EXAMINED THAT THE PROFIT PERCENTAGE OF PRECEDING ASSESSMENT YEARS OF THE ASSESSEE AND SUMMARY OF THE SAME IS AS UNDER: AY 2002-03 2003-04 2004-05 2005-06 PERCENTAGE 0.46% 7.12% 5.36% 5.02% 10.1. CIT (A) ALSO DISCUSSED THE FACT THAT THE ASSE SSMENT FOR THE AY 2005-06 WAS UNDER ADJUDICATION OF THE ITAT AND THE ITAT HAS HE LD THAT THE ESTIMATION PROFIT @ 7% IS APPROPRIATE VIDE ITA NO.134/NAG/2009 (AY: 200 5-06) DATED 7.8.2009. THUS, FOR THE AY 2005-06, THE NET PROFIT RATE WAS TAKEN A S 7% AGAINST THE 5.02% DECLARED BY THE ASSESSEE. ACCORDINGLY, CONSIDERING THE ORDE R OF THE ITAT, NAGPUR FOR THE AY 2005-06 AS WELL AS THE NET PROFIT RATES OF THE OTHE R ASSESSMENT YEARS OF THE ASSESSEE, THE CIT (A) ARRIVED THE NET PROFIT @ 8% , WHICH WOULD MEET THE ENDS OF JUSTICE FOR THE AY 2004-05. THE RELEVANT DISCUS SION IS GIVEN IN PARA 10.5 OF THE IMPUGNED ORDER. AGGRIEVED WITH THE ABOVE MANNER OF ADJUDICATION, REVENUE RAISED THE ABOVE MENTIONED GROUNDS. 5 11. ON THE OTHER HAND, ASSESSEE RAISED THE CROSS OB JECTION, SUPPORTING THE ORDER OF THE AO BOTH ON THE ISSUE OF DELETION OF THE ISSU E BASED ADDITIONS WHICH GIVES RAISE TO 48.40% AS WELL AS THE CIT (A) DECISION IN FAVOUR OF 8% NET PROFIT RATE. 12. DURING THE COURSE OF E-COURT PROCEEDINGS BEFORE US, LD DR RELIED ON THE ORDER OF THE AO. HOWEVER, HE HAS NO JUSTIFICATION FOR THE PROFIT RATE OF 48.40% WITH THE ADDITIONS MADE BY THE AO IN THIS LINE OF CONSTRUCTI ON ACTIVITIES. 13. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A) AND ALSO THE GROUNDS RAISED IN THE CROSS OBJECT ION. LD COUNSEL ARGUED THAT THE NET PROFIT RATES OF THE ASSESSEE OVER THE YEARS VAR Y FROM 0.46% TO 7.1% AND DETERMINING THE ASSESSED INCOME AT RS. 59,89,130/-, THE PROFIT PERCENTAGE HAS COME TO 48.40%, WHICH WAS NEVER THERE IN THIS LINE OF CO NSTRUCTION BUSINESS. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDER OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACE BEFORE US . IT IS A FACT THAT THE AO MADE ADDITION OF RS. 57.37 LACS ON THREE ACCOUNTS AND TH E REASONS GIVEN BY THE AO ARE TOTALLY UNSUSTAINABLE IN LAW. IN THAT SENSE OF THE MATTER, THE CIT (A) HAS RIGHTLY ESTIMATED THE PROFITS AFTER NOT ONLY CONSIDERING TH E FACTS OF THE PRESENT ASSESSMENT YEAR BUT ALSO TAKING INTO ACCOUNT THE DECISION OF T HE TRIBUNAL IN THE IMMEDIATE SUCCEEDING ASSESSMENT YEAR 2005-06. IN THIS REGARD , WE HAVE PERUSED THE PARA 10.5 AND 10.6 OF THE IMPUGNED ORDER WHICH PROVIDES THE SUBSTANTIAL REASONING BEFORE NET PROFIT RATE OF 8/5 IS FINALLY ADOPTED. T HE SAID PARAS ARE READ AS UNDER: 10.5. ASSESSEE IS IN THE BUSINESS OF CIVIL CONSTRUC TION WHICH DEFINITELY HAS INTIMATION AS TO HOW MUCH PROFIT CAN BE EARNED IN THIS LINE OF BUSINESS. IF WE AGREE TO ALL DISALLOWANCES AS POINTED OUT BY ASSESSEE, PROFIT OF THE ASSESSEE WILL GO TO 48.40%, WHICH IS ABNORMALLY HIGH. HENCE, THE DISALLOWANCE MADE BY THE AO IN RESPECT OF MATERIAL PURCHASED AND LABOUR PAYMENT CANNOT BE SUS TAINED TO THE LEVEL DONE BY AO. IF WE ANALYSE THE RESULT OF ASSESSEE FOR LAST THREE YE ARS WE SEE THAT. AY 2002-03 2003-04 2004-05 2005-06 PERCENTAGE 0.46% 7.12% 5.36% 5.02% 10.6. IN CASE OF ASSESSEE, ITAT HAS HELD THAT THE P ROFIT OF THE ASSESSEE FOR AY 2005-06 AT THE RATE OF 7% AND MY LEARNED PREDECE SSOR HAS ALSO CONFIRMED RATE OF 7% IN AY 2003-04 VIDE ORDER NO. CIT (A)-II/288/08-0 9 DATED 30.03.2010. BUT IN THE YEAR UNDER CONSIDERATION, ASSESSEE HAS NOT BROUGHT 60% VOUCHERS BEFORE AO OR BEFORE ME TO SUBSTANTIATE THE CLAIM OF MATERIAL PURCHASE O R LABOUR PAYMENT. ASSESSEE COULD HAVE ATLEAST BROUGHT PF PAYMENT, DETAILS OF ESI, DE TAILS TO PROVE THE CLAIM OF EXPENSES. 6 IN CASE OF ASSESSEE, WHO HAS MISERABLY FAILED TO PR OVE HIS CLAIM AND KEEPING IN MIND THAT ASSESSEE IS IN BUSINESS OF CIVIL CONSTRUCTION, I HOLD THAT NET PROFIT OF 8% WILL MEET THE END OF JUSTICE IN CASE OF THE ASSESSEE AND SEPA RATE ADDITIONS MADE ON ACCOUNT OF LABOUR, OR MATERIAL PURCHASED AND BOOK CREDITORS AR E DELETED. THESE GROUNDS ARE PARTLY ALLOWED. 15. CONSIDERING THE ABOVE, WE ARE OF THE OPINI ON THAT THE ORDER OF THE CIT (A) IS A SPEAKING ORDER AND IT DOES NOT CALL FOR ANY INTER FERENCE. ACCORDINGLY, GROUNDS RAISED IN THE REVENUES APPEAL ARE DISMISSED . 16. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED . 17. THE CROSS OBJECTION FILED BY THE ASSESSEE BASICALLY SUPPORTS THE ORDER OF THE CIT (A) THEREFORE, IN VIEW OF OUR ADJUDICATION WHILE DISPOSING THE REVENUES APPEAL, THE CROSS OBJECTION RAISED BY THE ASSESSEE IS DISMISSED AS ACADEMIC. 18. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSE SSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF MAY, 2013. SD/- SD/- (R.K. GUPTA) (D. KARUNAKARA RAO ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 1.5.2013 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR NAGPUR, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI