A.C.I.T., Circle-3(1), Gwalior V. M/s Raj Builders, Shivpuri

ITA 112/AGR/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76619 (ITAT-AGRA)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S D SHARMA
• Assessee Lawyers: RAJENDRA SHARMA
• Keywords: Rejection of books of accounts; Depreciation; Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO.99/AGRA/ 2014 ASSESSMENT YEAR: 2009-10 M/S RAJ BUILDERS, VS. ASSTT. COMMISSIONER OF INC OME TAX, LAL KOTHI, PHYSICAL COLLEGE ROAD, CIRCLE-3, GWALIO R. SHIVPURI (M.P.) (PAN AAIFR 3987 K). ITA NO.112/AGRA/ 2014 ASSESSMENT YEAR: 2009-10 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S RAJ BUIL DERS, CIRCLE-3(1), GWALIOR. LAL KOTHI, PHYSICAL COLLEG E ROAD, SHIVPURI (M.P.) (PAN AAIFR 3987 K). (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI RAJEND RA SHARMA, ADVOCATE REVENUE BY : SHRI S.D. SHARMA, JR. D.R. DATE OF HEARING : 24.06.2014 DATE OF PRONOUNCEMENT : 27.06.2014 ORDER PER PRAMOD KUMAR, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDE R DATED 12 TH FEBRUARY, 2014 PASSED BY THE LD. CIT(A) IN THE MATTER OF ASSESSMEN T UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009- 10. 2. GRIEVANCES RAISED BY THE PARTIES ARE AS FOLLOWS: ITA NOS.99 & 112/AGRA/2014 A.Y. 2009-10 2 GRIEVANCES BY THE ASSESSEE :- 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW HE LD. CIT (APPEALS) GWALIOR HAS ERRED IN DISALLOWI NG OF DEPRECIATION AMOUNTING TO RS.24068/- IN ESTIMATING THE INCOME BY APPLICATION OF PROFIT RATE TO ARRIVE THE INCOME OF THE APPELLANT WHICH IS AGAINST PRINCIPLE OF LAW AND NATURAL JUSTICE IS BEING LIABLE TO BE DEDUCTIBLE. 2. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (APPEALS), GWALIOR HAS ERRED IN DISALLO WING OF INTEREST PAID TO PARTNERS AMOUNTING TO RS.654974/- AND SALAR Y PAID TO PARTNER AMOUNTING TO RS.50000/- IN ESTIMATING THE INCOME BY APPLYING OF PROFIT RATE TO ARRIVE THE INCOME OF THE APPELLANT, WHICH IS AGAINST PRINCIPLE OF LAW AND NATURAL JUSTICE WHICH IS AN AL LOWABLE DEDUCTION IN CASE OF THE FIRM U/S 40(B) OF THE ACT 1961 IS BE ING LIABLE TO BE DEDUCTIBLE. 3. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS), GWALIOR HAS ERRED IN APPLYIN G A NET PROFIT @ 6% IS HIGHLY EXCESSIVE IN COMPARISON OF SIMILAR TYP E OF CASE IN CASE OF NARESH KATARE APPEAL NO.567/AGRA/2012 IN WHICH RATE OF PROFIT ACCEPTED AS 3% SUBJECT TO ALLOWING DEDUCTION U/S 40 (B) AND DEPRECIATION TO THAT EXTENT THE ADDITION IS BEING L IABLE TO BE DEDUCTIBLE. 4. THAT OTHER OBJECTION WILL BE RAISED AT THE TIME OF HEARING AND THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER, A DD AND WITHDRAW ANY GROUND AT TIME OF HEARING. GRIEVANCES BY THE A.O. : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ESTIMATING THE NET PROFIT RATE OF 6% WITHO UT GIVING ANY COGENT BASIS AS AGAINST 12.5% APPLIED BY THE A.O. ITA NOS.99 & 112/AGRA/2014 A.Y. 2009-10 3 THE APPELLANT RESERVES HIS RIGHT TO ADD, AMEND OR A LTER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE; THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 3. AS ALL THESE GRIEVANCES ARE INTERCONNECTED, WE W ILL TAKE THEM UP TOGETHER. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS AS CIVIL CONTRACTOR. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD CONTRACTUA L RECEIPTS OF RS.5,02,14,826/- AND THE ASSESSEE CLAIMED DEDUCTION OF RS.3,75,76,44 7/- TOWARDS PURCHASES AND WAGES, RS.31,02,451/- TOWARDS MISCELLANEOUS WAGES A ND RS.24,068/- TOWARDS DEPRECIATION. THE NET PROFIT WAS THUS SHOWN AT RS. 18,33,980/-. HOWEVER, WHEN ASSESSEE WAS CALLED UPON TO SUBSTANTIATE THESE EXPE NSES, THE ASSESSEE COULD NOT PRODUCE ANY BILLS AND VOUCHERS AND OTHER NECESSARY DOCUMENTARY EVIDENCES. ALL THAT THE ASSESSEE COULD PRODUCE WAS FINANCIAL STAT EMENTS AND LEDGERS OF EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT, EXCEPT THE LEDGER OF MISCELLANEOUS WAGS. THE ASSESSING OFFICER FURTHER OBSERVED, FROM THE DE TAILS SO FILED, THAT MAJORITY OF EXPENDITURE HAVE BEEN PAID IN CASH. IT WAS ALSO N OTED THAT IT IS A TAX AUDIT CASE AND THE PRIMARY DOCUMENTS BASED ON WHICH ACCOUNTS A RE PREPAID, ARE VOUCHERS AND BILLS WHICH ARE ADMITTEDLY NOT AVAILABLE. THE BO OKS OF ACCOUNTS WERE THUS OF NO USE. ACCORDINGLY THE ASSESSING OFFICER PROCEEDED T O REJECT THE SAME AND ADOPTED INCOME OF THE ASSESSEE @ 12.5% OF CONTRACT RECEIPTS . WHILE DOING SO, HE OBSERVED AS FOLLOWS :- ITA NOS.99 & 112/AGRA/2014 A.Y. 2009-10 4 13.0 AS OBSERVED ABOVE, NOW THE QUESTION ARISES AB OUT THE REASONABLENESS, GENUINENESS AND QUANTUM OF SUCH EXP ENSES TO BE CONSIDERED FOR THE PURPOSE OF ASSESSING THE INCOME OF THE ASSESSEE. AS DISCUSSED ABOVE, THE ASSESSEE FIRM CARRIED OUT C IVIL WORK AND ADMITTED CONTRACT RECEIPTS WHICH ARE NOT DOUBTED. HOWEVER, IT IS TO BE NOTED THAT WITHOUT CORRESPONDING EXPENSES, IT IS NO T POSSIBLE TO THE ASSESSEE TO CARRY ON THE WORKS. IN SIMILAR SITUATI ON AND CONDITION, IN CONTRACT CASES, THE HONBLE ITAT, HYDERABAD DECIDED THAT IT IS FAIR AND REASONABLE TO ESTIMATE THE INCOME OF THE ASSESS EE @ 12.5% ON CONTRACT RECEIPTS AS REFERRED BELOW: 14.0 THE ITAT, HYDERABAD IN ITS ORDERS IN ITA NO.18 43/HYD/89 DT. 29/08/1994; ITA NO.804 & 805/HYD/93 DT. 24/04/1994; ITA NO.380 & 381/HYD/94, DT. 10/03/1999 AND ITA NO.294 TO 297/HY D/19, DT. 18/01/2001 IN THE CASES OF M/S. K C REDDY ASSOCIATE S, NELLORE, M/S. SRINIVASA CONSTRUCTIONS, NANYDAL; M/S. KRISHNA MOHA N CONSTRUCTIONS, HYDERABAD AND M/S. NADAMUNI REDDY & SONS, TIRUPATHI RESPECTIVELY HAD HELD THAT ESTIMATING INC OME FROM CONTRACT WORKS AT 12.5% AS THE NET PROFIT IS CORRECT AND PRO PER AND DIRECTED THE ASSESSING OFFICER TO ADOPT THE RATE OF 12.5% FO R DETERMINING THE INCOME FROM CONTRACT WORKS. 15.0 HOWEVER, FOLLOWING THE RATIO OF THE DECISION O F THE DECISIONS OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASES OF CI T VS. BHANVARILAL BANSIDHAR (1998) 148 CTR ALL 533; AND HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. AGRAWAL ENG G. CO. (206 CTR 648), ONCE NET PROFIT RATE WAS APPLIED NO FURTH ER ADDITION WAS CALLED FOR IN RESPECT OF INFLATION OF EXPENSES AND PURCHASES. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, SINCE THE INCO ME IS ESTIMATED @ 12.5% NO FURTHER ADDITION NEEDS TO BE MADE. 16.0 HOWEVER, IN VIEW OF THE PECULIAR FEATURES AS N OTED ABOVE, IT IS FELT JUST AND REASONABLE TO COMPLETE THE CASE BY RE JECTING BOOKS OF ACCOUNT AND ESTIMATING THE INCOME OF THE ASSESSEE @ 12.5% ON GROSS RECEIPTS SUBJECT TO ALLOWING DEDUCTION U/S. 40(B) A ND DEPRECIATION. 17.0 AS DISCUSSED IN DETAIL EARLIER IN THE ORDER, T HE BOOK RESULTS SHOWN BY THE ASSESSEE CANNOT BE ACCEPTED AS THE BOO KS ARE NOT CORRECT AND COMPLETE AND PROFIT FROM CONTRACT WORKS IS TO B E ESTIMATED, REJECTING THE BOOKS OF ACCOUNTS BY INVOKING PROVISI ONS OF SEC. 145(3) OF THE I.T. ACT. KEEPING IN VIEW OF THE VARIOUS AD VERSE FEATURES NOTICE ITA NOS.99 & 112/AGRA/2014 A.Y. 2009-10 5 IN ASSESSMENT PROCEEDINGS, THE FACTS AND CIRCUMSTAN CES OF THE ASSESSEES CASE THE RATE OF PROFIT DISCLOSED AND TH E DECISION OF THE LEARNED TRIBUNAL AS ABOVE, THE UNDERSIGNED IS OF TH E OPINION THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE ASSESSEES PROFIT FROM CONTRACT WORKS @ 12.5% SUBJECT TO ALLOWING DEDUCTIO NS U/S. 40(B) OF THE I.T. ACT. WITHOUT DEPRECIATION. 5. AGGRIEVED, ASSESSEE CARRIED THE MATER IN APPEAL BEFORE THE CIT(A) WHO UPHELD THE REJECTION OF BOOKS OF ACCOUNTS BUT RESTR ICTED THE ESTIMATED INCOME TO 6% OF CONTRACT RECEIPTS. IN COMING TO THIS CONCLUSION , HE REASONED AS FOLLOWS:- 3. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND WR ITTEN SUBMISSIONS FILED BY THE APPELLANT CAREFULLY. THE ASSESSING OFFICER REJECTED THE BOOK RESULTS PRIMARILY BECAUSE THE APP ELLANT FAILED TO PRODUCE PRIMARILY DOCUMENTS TO PROVE GENUINENESS OF THE EXPENDITURES CLAIMED BY IT. THE VARIOUS DEFECTS FO UND OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS HAVE BEE N DISCUSSED BY THE A.O. IN DETAIL IN THE ASSESSMENT ORDER. IN VIEW OF THE FACTS DISCUSSED BY THE AO IN THE ASSESSMENT ORDER I AM OF THE CONSI DERED VIEW THAT THE ACTION OF THE AO REJECTING BOOK RESULTS U/S 145(3) IS JUSTIFIED. HOWEVER, TAKING INTO ACCOUNT ALL THE FACTS OF THE C ASE, I AM OF THE CONSIDERED VIEW THAT THE ESTIMATION OF INCOME MADE BY THE A.O. IS ON HIGHER SIDE. THE APPELLANT HAS RELIED UPON THE ORD ERS OF CIT(A) IN THE CASE OF JAGDISH PRASAD BANSAL AND SHRI NARESH KATAR E WHEREIN THE CIT(A) HAS APPLIED NET PROFIT RATE @ 6%. AS THE FA CTS OF THE CASE OF THE APPELLANT AND THAT OF SHRI JAGDISH PRASAD BANSA L & SHRI KATARE ARE ALMOST SIMILAR, THEREFORE, I AM OF THE CONSIDER ED VIEW THAT IT WOULD BE FAIR AND REASONABLE IF THE INCOME OF THE A PPELLANT IS ESTIMATED @ 6% OF THE GROSS RECEIPTS. THE GROSS RE CEIPTS OF THE APPELLANT FOR THE YEAR UNDER APPEAL WAS RS.5,02,14, 826/-. THEREFORE, THE TAXABLE INCOME OF THE APPELLANT WOULD BE RS.30, 12,890/-. NO FURTHER DEDUCTION IN RESPECT OF DEPRECIATION, INTER EST TO PARTNERS OR SALARY TO PARTNERS WOULD BE ALLOWED AGAINST THIS IN COME. ITA NOS.99 & 112/AGRA/2014 A.Y. 2009-10 6 6. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), B OTH THE PARTIES ARE IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORDED AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE IN THE L IGHT OF THE APPLICABLE LEGAL POSITION. 8. WE FIND THAT IT IS AN ADMITTED POSITION THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONTACTS FOR GOVERNMENT AGENCIES. WE HAVE ALSO NOTED THAT WHILE ASSESSEE DID NOT, AT ASSESSMENT STAGE, PRODUCE ANY EVIDENCES IN SUPPORT, SUCH AS BILLS AND VOUCHERS, OF THE LEDGER ENTRIES. THE ASS ESSEES CLAIM BEFORE THE CIT(A) HAS BEEN THAT, THE VERSION OF THE ASSESSING OFFICE R IS NOT CORRECT, (THE ASSESSEE) HAS MAINTAINED COMPLETE BOOKS, WHICH ARE AUDITED AN D COMPLETE DETAILS INCLUDING BANK ACCOUNT AND BILLS AND VOUCHERS WERE FURNISHED . IF THAT IS THE CASE, AND THE ASSESSEE IS INDEED IN A POSITION TO SUBSTANTIATE TH E CLAIM FOR EXPENDITURE, THE EXPENSES INCURRED BY THE ASSESSEE SHOULD BE ALLOWED . IN THIS VIEW OF THE MATTER, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER FOR F RESH ADJUDICATION BY THE ASSESSING OFFICER IN THE LIGHT OF SUCH EVIDENCES, I N SUPPORT OF EXPENDITURE, AS HE MAY BE IN A POSITION TO PRODUCE. IN CASE, OF COURS E, HE CANNOT PRODUCE THE BILLS AND VOUCHERS PARTLY, THE DISALLOWANCE TO THAT EXTENT WI LL HAVE TO BE SUSTAINED BY THE ASSESSING OFFICER. LET ALL THESE ASPECTS BE EXAMIN ED AFRESH, AFTER PROVIDING DUE ITA NOS.99 & 112/AGRA/2014 A.Y. 2009-10 7 AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE DIRECT SO. 9. AS FAR THE OTHER ISSUES RAISED IN THE APPEAL BEF ORE THIS TRIBUNAL, THESE ISSUES ARE ACADEMIC IN THE PRESENT CONTEXT AND REQUIRE NO ADJUDICATION AS ON NOW. 10. FOR THE REASONS SET OUT ABOVE, THE MATTER STAND S RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS AS ABOVE. 11. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 27.06.2014) SD/- SD/- (BHAVNESH SAINI) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER DATE: 27 TH JUNE, 2014 PBN/* COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, AGRA TRUE COPY