Snehshilp Constructions, Nagpur V. Income Tax Officer Ward-8 (2),., Nagpur

ITA 113/NAG/2009

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1711 (ITAT-NAGPUR)
• Duration Of Justice: 6 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: C J THAKAR
• Keywords: Rejection of books of accounts
• Section: 44AD; 145; 263

Judgement Text

1 ITA NO. 113/NAG/2009 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 113/NAG/2009 ASSESSMENT YEAR : 2005 - 06. SNEHSHILP CONSTRUCTIONS , THE INCOME - TAX OFFICER, C.A. S.K. ARORA, V/S. WARD - 8(2), NAGPUR. PLOT NO.89, SHQANKARNAGAR, NAGPUR - 440010. APPELLANT. RESPONDENT. APPELLANT BY : SHRI C.J. THAKAR. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 02 - 07 - 2015 DATE OF PRONOUNCEMENT : 28 TH AUGUST, 2015 O R D E R PER SHAMIM YAHYA, A.M. . THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED U/S 263 OF LEARNED COMMISSIONER OF INCOME TAX - IV, NAGPUR DATED 26 TH MARCH, 2009 AND PERTAINS TO ASSESSMENT YEAR 2005 - 06. THE GROUNDS OF APPEAL IN THIS REGARD READ AS UNDER : 1. THAT THE ASSESSING OFFICER WARD 8(2) HAD HIMSELF IN HIS ORDER DTD. 31.12.2007 HAD MENTIONED SHRI VIKAL CHACHRA ADVOCATE ATTENDED FROM TIME TO TIME AND EXPLAINED THE RETURN. VARIOUS DETAILS WERE OBTAINED AND PLACED ON RECORD. ASSESSEE DERIVES INCOME FROM CIVIL CONTRACT. IN HIS 2 ITA NO. 113/NAG/2009 SECOND PARA OF THE SAME ASSESSMENT ORDER THE LEARNED ASSESSING OFFICER MENTIONED THAT ON 26.11.2007 COUNSEL FOR ASSESSEE FURNISHED BANK STATEMENT, RECONCILIATION, COPY OF TDS RETURN ETC. 2. DURING THE SCRUTINY ASSESSMENT PROCEEDING THE LEARNED ASSESSING OFFICER HAD GIVEN A QUESTIONNAIRE TO THE ASSESSEE WHICH IS BEING PROPERLY AND FULLY REPLIED WITH AND WHIC H IS ON RECORD. 3. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSEE REPLIED THE SHOW CAUSE ON DTD. 24.12.2007. 4. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FILED COPIES OF ALL THE EXPENDITURE ACCOUNT REFLECTED IN PROFIT AND L OSS ACCOUNT. 5. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FILED ALL THE COPIES OF SUNDRY CREDITORS ACCOUNTS ASKED FOR. 6. THAT DURING THE SCRUTINY ASSESSMENT PROCEEDINGS VARIOUS AUTHORITIES HAD CHECKED THE BILLS AND VOUCHERS AND BOOK OF ACCOUNTS WERE LYING FOR MORE THAN ONE MONTH WITH THE LEARNED ASSESSING OFFICER WHO COULD NOT DEVOTE TIME FOR ASSESSMENT AND HAD OPTED A SIMPLE WAY OF MAKING THE ASSESSMENT UNDER SECTION 44AD OF THE INCOME TAX ACT, 1961. 7. THAT THE ASSESSEE COULD NO T UNDERSTAND THE MEANING OF BOOKS OF ACCOUNTS AS SUCH THE ASSESSEE HAD GIVEN COPY OF ACCOUNT OF ALL EXPENDITURE REFLECTED IN PROFIT AND LOSS ACCOUNT, BANK ACCOUNT STATEMENTS, RECONCILIATION, COPY OF SUNDRY CREDITORS ACCOUNT AS ASKED FOR. 8. THAT THERE IS NO SPECIFIC REJECTION OF BOOKS OF ACCOUNTS AND IT IS ON ADHOC BASIS TO SAY THAT THE BOOKS OF ACCOUNT, VOUCHERS, BILLS ETC. NOT PRODUCED, HENCE THE ASSESSMENT ORDER UNDER SECTION 44AD ON ESTIMATED BASIS. 9. THEREFORE IT IS PRAYED THAT THE CASE MAY PLE ASE BE REMANDED BACK TO THE ASSESSING OFFICER OR ELSE ANY SUITABLE ORDER AS THE AUTHORITY MAY DEEM FIT. 2. IN THIS CASE LEARNED CIT OBSERVED THAT EXAMINATION OF RECORD SHOWS THAT THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143 (3) HAD ESTIMATED THE INCOME AT 8% OF THE GROSS CONTRACT RECEIPTS, SINCE THE BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS WERE NOT PRODUCED DESPITE SEVERAL OPPORTUNITIES GIVEN TO THE ASSESSEE. THE ASSESSING OFFICER THEREFORE, ESTIMATED THE INCOME OF 3 ITA NO. 113/NAG/2009 ` .11,98,06 5/ - ON THE BASIS OF 8% OF THE GROSS CONTRACT RECEIPTS OF ` .1,49,75,822/ - SHOWN IN THE PROFIT LOSS ACCOUNT. HOWEVER, LD. CIT FOUND THAT THE PERUSAL OF THE DETAILS OF THE TDS CREDIT CLAIMED IN THE RETURN OF INCOME, SHOWS THAT THE ASSESSEE HAD RECEIVED GROSS CONTRACT RECEIPTS OF ` .3,01,24,661/ - . THAT I T WAS, THEREFORE, EVIDENT THAT THE ASSESSING OFFICER OUGHT TO HAVE ESTIMATED THE INCOME OF ` .24,09,972/ - AT 8% OF THE ACTUAL GROSS CONTRACT RECEIPTS OF ` .3,01,24,661/ - AS AGAINST ESTIMATED INCOME OF ` .11,98,065/ - ON THE GROSS CONTRACT RECEIPTS OF ` .1,49,75,822/ - ADOPTED IN THE ASSESSMENT ORDER. HENCE LD. CIT HELD THAT THE SAID ORDER WAS, THEREFORE, ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AND HENCE CLEARLY HIT BY THE PROVISIONS OF SECTION 263 OF THE ACT. 3. BEFORE THE LEARNED CIT, ASSESSEES COUNSEL SUBMITTED AS UNDER: THE AR SUBMITTED THAT THE ASSESSEE HAD SHOWN GROSS RECEIPTS OF ` .1,33,29,890/ - AND OTHER INCOME OF ` .16,45,932/ - WHICH INCLUDES COMMISSION OF ` .8,25,645/ - ON CO NTRACT RECEIPTS OF ` .1,68,21,217/ - SUBCONTRACTED TO M/S D.V. MOHITE & CO. AND SONAL CONSTRUCTIONS PVT. LTD. THE ASSESSEE NEVER BROUGHT THE RECEIPTS AND PAYMENTS TO M/S D.V. MOHITE & CO. AND SONAL CONSTRUCTIONS PVT. LTD. TO THE BOOKS OF ACCOUNT AND THUS BOOKED ONLY THE COMMISSION AS ITS INCOME. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AUDITED ONE. THE ASSESSEE HAD CO - OPERATED WITH THE SCRUTINY ASSESSMENT PROCEEDINGS AND PRODUCED THE REQUIRED & RELEVANT DOCUMENTS ETC. DURING THE ASSESSMENT PROCEEDI NGS. ESTIMATION OF 8% ON OTHER INCOME OF ` .16,45,932/ - ITSELF IS WRONG ASSESSMENT. WHEREAS THE ASSESSEE HAD OFFERED COMMISSION INCOME ON CONTRACT RECEIPTS OF ` .1,68,21,217/ - . THEREFORE AGAIN ESTIMATING 8% INCOME ON THESE RECEIPTS WOULD BE UNFAIR AND I LLOGICAL. THE AR THEREFORE PLEADED THAT PROCEEDINGS U/S 263 MAY BE DROPPED. 4. CONSIDERING THE ABOVE SUBMISSIONS LEARNED CIT OBSERVED THAT PERUSAL OF THE RECORDS SHOWS THAT THE ASSESSEE HAD DECLARED WORK RECEIPTS OF ` .1,33,29,890/ - AND OTHER INCOME OF ` . 16,45,932/ - IN ITS P&L ACCOUNT. HOWEVER, THE DETAILS OF THE TDS CREDIT CLAIMED BY THE ASSESSEE ON THE PAYMENT RECEIVED TOWARDS WORK CONTRACT SHOWS THE GROSS RECEIPTS OF ` .3,01,24,661/ - . THE ASSESSEE INSTEAD OF OFFERING THE 4 ITA NO. 113/NAG/2009 TOTAL RECEIPTS OF ` .3,01,24,66 1/ - IN ITS P&L ACCOUNT, HAD OFFERED ` .1,33,29,890/ - AS WORK RECEIPTS AND COMMISSION INCOME OF ` .8,38,121/ - FROM SUBCONTRACTING OF THE MAIN CONTRACT OF ` .1,68,21,217/ - AWARDED TO THE ASSESSEE FIRM. THAT T HE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED AND THE D EDUCTION OF TDS ON THE GROSS AMOUNT CLAIMED BY THE ASSESSEE, CLEARLY WARRANTS THAT IT S HOULD HAVE OFFERED THE FULL AMOUNT OF GROSS RECEIPTS IN ITS P&L ACCOUNT AND THE PAYMENTS RELEASED TO THE SUBCONTRACTOR SHOULD HAVE BEEN CLAIMED AS EXPENSES IN ITS P&L ACCOUNT. THE ASSESSEE, THEREFORE, CLEARLY VIOLATED THE PRINCIPLE OF ACCOUNTING AND HENCE DID NOT DISCLOSE A TRUE AND CORRECT INCOME IN ITS P&L ACCOUNT. THAT T HUS THE CLAIM OF CREDIT OF TDS IN RESPECT OF WORK CONTRACT OF ` .1,68,21,217/ - WHICH WAS NOT CREDI TED TO P&L ACCOUNT WAS INCORRECT. THAT T HE ACTION OF THE ASSESSING OFFICER IN ALLOWING CREDIT OF SUCH CLAIM AND NOT ESTIMATING INCOME ON SUCH WORKS CONTRACT RECEIPTS WAS CLEARLY ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THAT F URTHER DURING THE COURSE OF REVISION PROCEEDINGS, THE ASSESSEE COULD NOT SUBMIT ANY SATISFACTORY EXPLANATION TO ISSUE AND ALSO FAILED TO FURNISH THE DETAILS OF THE WORK CONTRACT EXPENSES CLAIMED IN THE P&L ACCOUNT WITH BILLS/VOUCHERS AND OTHER CORROBORATIV E EVIDENCE ON RECORD DESPITE SUFFICIENT OPPORTUNITIES GIVEN TO THE ASSESSEE. THAT T HE AFORESAID STATE OF BOOKS OF ACCOUNTS AND ABSENCE OF BILLS AND VOUCHERS THEREFORE CLEARLY WARRANTS REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145 AND REVISION OF ASSESSM ENT ORDER BY ESTIMATION OF INCOME AT THE REASONABLE RATE OF 8% ON THE ACTUAL GROSS WORKS CONTRACT RECEIPT OF ` .3,01,24,661/ - DURING ASSESSMENT YEAR IN QUESTION UNDER SECTION 263 OF THE ACT. THE LEARNED CIT FURTHER OBSERVED THAT THE ASSESSEE HAS DECLARED CO MMISSION INCOME FROM SUBCONTRACTING OF THE MAIN CONTRACT. HE OBSERVED THAT PERUSAL OF THE RECORDS SHOW THAT DETAILS AND BASIS OF THE AFORESAID COMMISSION INCOME HAS NOT BEEN SUBSTANTIATED WITH ANY DOCUMENTARY EVIDENCE ON RECORD. THE LEARNED CIT OBSERVED TH AT THE ASSESSING OFFICER OUGHT TO HAVE EXAMINED AND VERIFIED THE DETAILS OF WORK CONTRACT RECEIPTS AND COMMISSION 5 ITA NO. 113/NAG/2009 INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS UNDER SECTION 143(3). HE OBSERVED THAT FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAK E ANY ENQUIRY AND INVESTIGATION BY ITSELF IS A SUFFICIENT GROUND FOR THE ASSESSMENT TO BE SET ASIDE UNDER SECTION 263 OF THE I.T. ACT. CONSIDERING THE ABOVE, LEARNED CIT EXERCISED HIS POWERS UNDER SECTION 263 AND ORDERED THAT THE SAID ASSESSMENT ORDER BE REVISED BY ESTIMATING THE INCOME AT ` .24,09,973/ - AT THE RATE OF 8% OF THE ACTUAL GROSS WORK RECEIPTS OF ` .3,01,24,661/ - IN PLACE OF ` .11,98,065/ - ADOPTED BY THE ASSESSING OFFICER. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HA VE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER COULD NOT DEVOTE MUCH TIME TO THE ASSESSMENT AND HAS OBTAINED A SIMPLE WAY OF MAKIN G ASSESSMENT UNDER SECTION 44AD OF THE I.T. A CT. HE SUBMITTED THAT THERE IS NO SPECIFIC REJECTION OF BOOKS OF ACCOUNTS AND IT IS ON ADHOC BASIS. HE PRAYED THAT THE CASE MAY BE REMANDED BACK TO THE ASSESSING OFFICER. 7. PER CONTRA LEARNED D.R. RELIED UPON THE ORDER OF THE LEARNED CIT. 8. UPON CAREFUL CONSIDERATION WE NOTE THAT WE ARE NOT HEARING APPEAL AGAINST THE ORDER OF LEARNED CIT(APPEALS) IN THIS CASE. RATHER WE ARE ADJUDICATING THE ORDER PASSED UNDER SECTION 263 BY THE LEARNED CIT. IT IS CLEAR THAT THE ASSESSEE HAD SUBCONTRACTED A M AJOR PORTION OF HIS CONTRACT AND HAS OFFERED ONLY COMMISSION INCOME AT THE RATE OF 3% AND 5% THEREON. ON THE OTHER HAND, IT HAS CLAIMED TDS ON THE GROSS AMOUNT OF CONTRACT. ON THE FACTS AND CIRCUMSTANCES AS STATED ABOVE, 6 ITA NO. 113/NAG/2009 THERE IS CONSIDERABLE COGENCY IN TH E LEARNED CITS FINDING THAT THE ASSESSING OFFICER HAS ERRED IN APPLYING 8% OF THE CONTRACT RECEIPTS AS SHOWN BY THE ASSESSEE IN P&L ACCOUNT, AS THIS WAS REDUCED BY THE AMOUNTS OF SUBCONTRACT. THUS IT IS CLEAR THAT THE ORDER OF THE ASSESSING OFFICER IS ERR ONEOUS. HOWEVER, WE NOTE THAT LEARNED CIT HAS HIMSELF OBSERVED THAT THE ASSESSEE HAS OFFERED COMMISSION INCOME ON THE WORKS SUBCONTRACTED TO THE TWO PARTIES AT THE RATE OF 3% AND 5% RESPECTIVELY. LEARNED CIT HAS HIMSELF OBSERVED THAT THE ASSESSING OFFICER OUGHT TO HAVE EXAMINED AND VERIFIED THE DETAILS OF THE WORK CONTRACT RECEIPTS AND COMMISSION INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS. LEARNED CIT HAS GIVEN A CLEAR FINDING THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE NEC ESSARY ENQUIRY AND INVESTIGATION. HOWEVER, DESPITE NOTING THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE VERACITY OF INCOME OFFERED ON SUBCONTRACT, LEARNED CIT HAS HELD THAT 8% INCOME BE APPLIED ON THE ENTIRE GROSS RECEIPTS INCLUDING THE SUBCONTRACTED AMOUNT. HERE IT IS APPARENT THAT THE LEARNED CIT HIMSELF HAS NOT GIVEN A PROPER FINDING AS TO WHY 8% INCOME SHOULD BE APPLIED T O THE SUBCONTRACTED PORTION. IN THESE CIRCUMSTANCES IN OUR CONSIDERED OPINION, THOUGH WE AGREE WITH THE LEARNED CIT THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, WE ARE NOT IN AGREEMENT WITH THE FINDIN G THAT FLAT RATE OF 8% SHOULD ALSO BE APPLIED ON THE SUBCONTRACT PORTION OF ASSESSEES WORK WITHOUT FURTHER EXAMINATION . HENCE WE MODIFY THE ORDER OF LEARNED CIT. WE REMIT THE ISSUE FOR ESTIMATION OF EXAMINATION AND RATE OF INCOME ON THE SUBCONTRACTED PORTION OF THE ASSESSEES WORK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL MAKE NECESSARY EXAMINATION AND PASS AN ORDER O N THE VERACITY OF INCOME PERTAINING TO THE SUBCONTRACTED PORTION. 7 ITA NO. 113/NAG/2009 9. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STAN DS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 28 TH AUGUS T, 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKO DE ASSISTANT REGISTRAR, ITAT, NAGPUR .