K. Construction, Baroda V. The Income tax Officer,Ward-2(2), Baroda

ITA 1103/AHD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51017 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 13-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Cost of acquisition; Wrong claim; Reason to believe
• Section: 143(3); 145; 2

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1103/AHD/2011 ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2000-01) K.CONSTRUCTION 202, STERLING CENTRE ALKAPURI BARODA ( ( ( ( / VS. THE I.T.O. WARD-2(2) BARODA * % ./+, ./ PAN/GIR NO. :AACFK 5697 H ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI MEHUL K.PATEL ./*- 1 0 / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. (2 1 3% / / / / DATE OF HEARING : 16/12/2011 4') 1 3% / DATE OF PRONOUNCEMENT : 21/12/2011 5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-II, BARODA DATED 28/01/2011 PASSED FOR A.Y. 2000-01IN RESPECT OF LEVY OF PENALTY U/S 2 71(1(C) I.T.ACT. GROUNDS RAISED ARE REPRODUCED HEREINBELOW:- 1. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING PENALTY IN RESPECT OF DISALLOWANCE OF 10% ON LABOUR EXPENSES AMOUNTING TO RS.250856/- CONFIRMED BY THE LEARNED CIT(APPEALS) IN THE APPELLATE ORDER. ITA NO.1103/AHD /2011 K.CONSTRUCTION VS. ITO ASST.YEAR 2000-01 - 2 - 2. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT AN AMOUNT OF RS.267593/- WHICH WAS CONTRACT RECEIPTS SHOWN BY THE FIRM IN THE SUCCEEDING YEAR WAS CONCEALED INCOME OF YEAR UNDER REFERENCE AND FURTHER ERRED IN CONFIRMING PENALTY ON ADDITION OF RS.267593/- SUSTAINED BY THE LEARNED CI T (APPEALS). 2. AS PER THE GROUND OF APPEAL, IT TRANSPIRES THAT THE PENALTY U /S.271(1)(C) WAS LEVIED IN RESPECT OF THE TWO ADDIT IONS. THE FIRST ADDITION IS IN RESPECT OF LABOUR EXPENSES WHICH WAS DISALLOWED BY LEARNED CIT(APPEALS). FACTS RELATED TO THE SAID AD DITION SHALL BE CONSIDERED FIRST AS UNDER. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) R.W.S. 147 OF THE I.T. ACT, 1961 DATED 17/03/2006 AND THE PENALTY ORDER PASSED U/S.271(1)(C) OF THE I.T.A CT DATED 27/03/2009 WERE THAT THE ASSESSEE-FIRM IS DOING WORK OF CIVIL CONSTRUCTION. IT IS WORTH TO MENTION AT THE OUTSET THAT TOTAL CONTRACT RECEIPTS WERE SHOWN AT RS.1,79,60,442/-. THE ASSESSEE HAS DISCLOSED GROSS PROFIT OF RS.27,80,375/-. THE ASSESSING OFFICER HAS MENTIONE D THAT THE GROSS PROFIT RATIO WAS AT 15.48% AND NET PROFIT RATIO WAS AT 2.33%. IT HAS ALSO BEEN NOTED BY THE ASSESSING OFFICER THAT THE ACCOUN TS WERE AUDITED U/S.44-AB OF THE I.T.ACT. IT IS ALSO WORTH TO MENT ION THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD EXPRESSED HIS INABILITY TO PRODUCE BOOKS OF ACCOUNT. THE ASSESSE E HAS INFORMED THAT THE BOOKS OF ACCOUNT WERE MISPLACED. ONLY A PURCHASE REGISTER AND PURCHASE BILLS WERE SUBMITTED. ON VERIFICATION OF PURCHASE BILLS, IT WAS NOTED BY THE ASSESSING OFFICER THAT SOME OF THE PUR CHASE BILLS WERE NOT ITA NO.1103/AHD /2011 K.CONSTRUCTION VS. ITO ASST.YEAR 2000-01 - 3 - RECORDED IN THE PURCHASE REGISTER. THAT DISCREPANC Y WAS MARKED AS ANNEXURE-A IN THE ASSESSMENT ORDER. FURTHER, IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT SOME OF THE PURCHASE BILLS W ERE ENTERED TWICE IN THE SAID PURCHASE REGISTER. THOSE DISCREPANCIES WE RE ALSO MARKED AS ANNEXURE-B IN THE ASSESSMENT ORDER. SINCE THE BO OKS OF ACCOUNT WERE NOT PRODUCED, THEREFORE, THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 145 OF THE I.T.ACT AND CALCULATED THE NE T PROFIT BY APPLYING THE RATE AT 8% ON THE TOTAL CONTRACT RECEIPTS. THEREFO RE, THE INCOME WAS WORKED OUT AT RS.14,36,836/-. 2.2. THAT ADDITION WAS CHALLENGED BEFORE THE LEARNE D CIT(APPEALS). THE FIRST APPELLATE AUTHORITY HAS ALTERED THE CONTE XT, RATHER CHANGED THE COLOUR, OF THE SAID ADDITION WHICH WAS MADE BY ADO PTING 8% PROFIT BY THE ASSESSING OFFICER. LEARNED CIT(APPEALS) HAS CA LLED FOR A REMAND REPORT AND FROM THAT REPORT IT IS EVIDENT THAT DUR ING REMAND PROCEEDINGS THE ASSESSEE HAS PRODUCED BILLS IN RESPECT OF THE P URCHASE EXPENSES, WHEREAS IN RESPECT OF LABOUR EXPENSES, THE ASSESSEE HAS PRODUCED CASH VOUCHERS OF LABOUR EXPENSES, IT WAS ALSO RECORDED BY THE LEARNED CIT(APPEALS) THAT DURING THE REMAND PROCEEDINGS, TH E ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT AND ALL VOUCHERS. THE PU RCHASES WERE FOUND TO BE IN ORDER. HOWEVER, THERE WAS DISCREPANCY IN RESPECT OF LABOUR EXPENSES. TOTAL LABOUR EXPENSES WERE TO THE EXTENT OF RS.40,68,218/- AS AGAINST THAT THE CASH VOUCHERS FOR LABOUR EXPENSES WERE AMOUNTING TO RS.12,59,577/-. THE LABOUR BILLS WHICH WERE CREDIT ED WERE FOUND TO BE AVAILABLE TO THE EXTENT OF RS.15,59,654/-. AS REGA RDS, BALANCE AMOUNT OF RS.12,48,987/- THE ASSESSEE HAS NOT PRODUCED ANY BI LLS. THOSE ITA NO.1103/AHD /2011 K.CONSTRUCTION VS. ITO ASST.YEAR 2000-01 - 4 - EXPENDITURE WERE STATED TO BE WITHOUT ANY VOUCHERS. CONSIDERING THE SAID DEFECT AS NOTED BY THE ASSESSING OFFICER IN TH E REMAND REPORT, THE LEARNED CIT(APPEALS) HAS HELD THAT TO THAT EXTENT L ABOUR PAYMENT WAS NOT VERIFIABLE. HE HAS ALSO HELD THAT THE LABOUR P AYMENT WAS NOT THEREFORE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE HAS CONCLUDED THAT SINCE THE PURCHASE COST WAS VERIFIED AND FOUND TO BE FULLY VOUCHED DURING REMAND PROCEEDINGS, THEREFORE THE AS SESSING OFFICERS ACTION FOR ESTIMATION AT GROSS PROFIT AT 8% WAS NOT JUSTIFIABLE. THE DISCREPANCY WAS ONLY IN RESPECT OF LABOUR PAYMENT S. OUT OF TOTAL LABOUR PAYMENT OF RS.40,68,218/- TO THE EXTENT OF RS.25,08 ,564/- WERE NOT VERIFIABLE. THE LEARNED CIT(APPEALS) HAS THEREFORE HELD THAT 10% ON SUCH LABOUR EXPENSES AMOUNTING TO RS.2,50,856/- WAS NOT INCURRED FOR THE PURPOSE OF THE BUSINESS. IN THE RESULT, TO THAT E XTENT, THE ADDITION WAS MODIFIED. 3. WHILE LEVYING THE PENALTY U/S.271(1)(C) OF THE I .T.ACT, THE ASSESSING OFFICER HAS HELD THAT DURING THE COURSE O F ASSESSMENT PROCEEDINGS PURCHASES WERE NOT FULLY SUBSTANTIATED AND DURING THE COURSE OF APPELLATE PROCEEDINGS LABOUR EXPENSES WERE REMAI NED UNSUBSTANTIATED. THE EXPLANATION WHICH WAS OFFERED IN RESPECT OF LAB OUR EXPENSES WAS NOT FULLY VERIFIABLE AND, IN HIS OPINION, FALSE CLAIM O F LABOUR EXPENSES WERE MADE. THAT VIEW OF THE ASSESSING OFFICER WAS CHALL ENGED BEFORE THE LEARNED CIT(APPEALS) AND IT WAS HELD THAT THE 10% D ISALLOWANCE OF LABOUR EXPENSES WAS IN RESPECT OF UNVERIFIABLE CLAI M. ACCORDING TO LEARNED CIT(APPEALS), PENALTY WAS RIGHTLY LEVIED T O THAT EXTENT BECAUSE THOSE LABOUR EXPENSES WERE NOTHING BUT A BOGUS CLAI M. THE LEARNED ITA NO.1103/AHD /2011 K.CONSTRUCTION VS. ITO ASST.YEAR 2000-01 - 5 - CIT(APPEALS) HAS FURTHER EXPRESSED HIS VIEW THAT TH E ASSESSEE COULD NOT ESCAPE THE LEVY OF PENALTY ONLY BECAUSE THE QUANTIF ICATION OF THE SAID BOGUS CLAIM WAS BASED UPON AN ESTIMATION. IN HIS O PINION, A PENALTY CAN BE LEVIED EVEN IN A SITUATION WHEN AN INCOME IS ES TIMATED. 4. FROM THE SIDE OF THE ASSESSEE LD.AR MR.MEHUL K.P ATEL HAS ARGUED THAT THE DISALLOWANCE OF LABOUR EXPENSE WAS MADE ON ESTIMATION. HE HAS SAID THAT IN THE CASE OF GUJARAT CREDIT CORPN.LTD. VS. ASST.CIT [2008] 113 ITD 133 (AHD)[SB] A QUESTION OF SPECULATIVE L OSS THE REASON TO BELIEVE FOR ESCAPEMENT OF ASSESSMENT AND IT WAS HEL D THAT THE PENALTY WAS NOT LEVIABLE. WE ARE NOT INCLINED TO ACCEPT THE ARGUMENT OF THE LD.AR BECAUSE IN THE PRESENT CASE PRIMA-FACIE EITHER THER E WAS NON-DISCLOSURE OR WRONG DISCLOSURE OF MATERIAL FACTS. ADMITTEDLY, TH E LABOUR EXPENSES WERE NOT CORRECTLY ACCOUNTED FOR. HENCE, UPTO THIS EXT ENT, WE HEREBY CONFIRM THE VIEW TAKEN BY THE AUTHORITIES BELOW WHILE LEVYI NG THE PENALTY U/S.271(1)(C) OF THE I.T. ACT. 5. AS FAR AS THE NEXT ADDITION IS CONCERNED, THE FI RST APPELLATE AUTHORITY IN QUANTUM APPEAL VIDE ORDER DATED 4/2/20 08 HAS DISCUSSED THE FACTS AS UNDER:- 4.1. THE ASSESSING OFFICER FROM THE DETAILS AVAILA BLE FOUND THAT THE ASSESSEE HAS RAISED BILL DATED 16.12.1999 ON SP ANDAN ENTERPRISES PVT.LTD., FOR RS.2,67,593/- WHICH WAS N OT INCLUDED IN THE TOTAL RECEIPTS FOR F.Y. 1999-2000. IT WAS SUBM ITTED BY THE ASSESSEE THAT RS.1,00,000/- WAS RECEIVED DURING F.Y . 2000-01 RELEVANT TO A.Y. 2001-02 AND RS.1,50,000/- WAS RECE IVED DURING F.Y. 2001-02 RELEVANT TO A.Y.2002-03 OUT OF TOTAL B ILL RAISED AT ITA NO.1103/AHD /2011 K.CONSTRUCTION VS. ITO ASST.YEAR 2000-01 - 6 - RS.2,67,593/- IN THE FINANCIAL YEAR 1999-2000 RELEV ANT TO A.Y. 2000-01 AND THESE AMOUNTS HAVE ALREADY BEEN TAXED I N THE RESPECTIVE ASSESSMENT YEAR. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG WHEREIN INCOME OR EXPENDITURE IS BOOKED ON ACCRUAL BASIS AN D NOT ON THE BASIS OF ACTUAL RECEIPT OR PAYMENT AND THEREFORE TH E BILLS RAISED ON SPANDAN ENTERPRISES PVT.LTD. FOR RS.2,67,593/- ON 1 6.12.1999 RELEVANT TO A.Y. 2000-01 IS CONSIDERED IN THE YEAR AND NOT IN THE YEAR OF RECEIPT. 5.1. ON THOSE FACTS, IT IS EVIDENT THAT THE ASSESSE E HAS MADE A DISCLOSURE IN THE SUBSEQUENT YEARS AND THE QUESTION OF DISPUTE WAS THAT AS PER THE MERCANTILE SYSTEM OF ACCOUNTING THE ASSESSEE WAS RE QUIRED TO DISCLOSE THE ENTIRE AMOUNT FOR THE YEAR UNDER CONSIDERATION. W E ARE OF THE VIEW THAT THE RELEVANT MATERIAL AND THE CONNECTED FACTS WERE DULY DISCLOSED BY THE ASSESSEE. RATHER IT IS A CASE OF DIFFERENCE OF OPI NION OR A WRONG ADVICE GIVEN TO THIS ASSESSEE. WE THEREFORE HOLD THAT WHE N THE RELEVANT MATERIAL WAS ALREADY ON RECORD, AND THAT WAS NOT FALSE OR BO GUS THEREFORE INVOKING THE PROVISIONS OF EXCEPTION AS PRESCRIBED IN EXPLAN ATION 1 TO SECTION 271(1)(C), WE HOLD THAT NO PENALTY U/S.271(1)(C) IS LEVIABLE ON THIS AMOUNT. THIS PART OF THE CONCEALMENT PENALTY THER EFORE DESERVES TO BE DELETED. 6. IN THE RESULT, ASSESSEES APPEAL IS PARTLY A LLOWED. SD/- SD/- ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 21/ 12 /2011 63..(, .(../ T.C. NAIR, SR. PS ITA NO.1103/AHD /2011 K.CONSTRUCTION VS. ITO ASST.YEAR 2000-01 - 7 - 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-II, BARODA 5. 7 >> >/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..19.12.2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.12.2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S21.12.2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.12.2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER