The ACIT, Gandhidham Circle, GANDHIDHAM V. M/s Ishwar Construction Co., GANDHIDHAM

ITA 1140/RJT/2009

• Counselvise Citation: 114024914 RSA 2009
• Duration Of Justice: 1 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N R SONI
• Keywords: Depreciation; Income from undisclosed sources

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT. BEFORE SHRI A. L. GEHLOT (AM )AND SHRI N.R.S. GANE SAN(JM) ITA NO.1140/RJT/2009 (ASSESSMENT YEAR 2005-06) THE A.C.I.T., GANDHIDHAM CIRCLE VS M/ S. ISHWAR CONSTRUCTION CO., GANDHIDHAM. GANDHIDHAM. PAN: AAAFI5708 H (APPELLANT) (RESPO NDENT) CO NO.02/RJT/2010 (ASSESSMENT YEAR 2005-06) M/S. ISHWAR CONSTRUCTION CO., VS. T HE A.C.I.T., GANDHIDHAM GANDHIDHAM. CIRCLE, GANDHIDHAM (APPELLANT) (RESPONDENT) REVENUE BY : SHRI N.R. SONI, C.I.T.-D.R. , ASSESSEE BY : SHRI KALPESH DOSHI, C.A. O R D E R. PER A.L.GEHLOT (A.M.): THIS APPEAL BY REVENUE AND CROSS-OBJECTION BY ASSESSEE FILED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) DATED 16 TH SEPTEMBER, 2009 FOR ASSESSMENT YEAR 2005-06. 2. GROUND RAISED IN THE APPEAL OF THE REVENUE READS AS UNDER:- 1) THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACTS IN DELETING RS.75,53,591/- OUT OF TOTAL DISALLOWANCE OF RS.79,9 3,638/- MADE ON ACCOUNT OF DISALLOWANCE OF UNEXPLAINED PURCHASE D/SUB- CONTRACT EXPS. 2) THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ENTIRE ADDITION OF RS.25,86,256/- MADE ON ACCOUNT O F UNDER VALUATION OF WORK-IN PROGRESS. ITA 1140-09 & CO 02-10 A.Y.2005-06. 2 3) THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ENTIRE ADDITION OF RS.12,95,251- MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 3. GROUNDS RAISED IN CROSS OBJECTION OF ASSESSEE AR E AS UNDER :- 1) THAT, THE LEARNED C.I.T.(A) HAS WRONGLY CONFIRME D THE ADDITION OF UNEXPLAINED PURCHASE/SUB CONTRACT EXPENSES OF RS .4,40,047/- 4. GROUNDS RAISED IN APPEAL AND CROSS-OBJECTION ARE BASED ON IDENTICAL SET OF FACTS. BOTH THE LD. REPRESENTATIVE OF PARTI ES MADE THEIR SUBMISSIONS ON ALL GROUNDS OF APPEAL TOGETHER, THEREFORE, FOR THE SAKE OF CONVENIENCE WE NOTED BRIEF FACTS OF ALL ADDITIONS MADE BY THE A.O. , THEREAFTER NOTED CONTENTION OF LD. REPRESENTATIVE OF PARTIES AND ISS UES OF GROUNDS ARE DECIDED ACCORDINGLY. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR CONSTRUCTING BUILDING AND INDUSTRIAL STRUCTURES AND WARE-HOUSES. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.45,19,703/- DURING THE ASSESSMENT YEAR, THE A.O. NOTICED THAT T HE ASSESSEE HAS SHOWN CONTRACT OF RS.12,34,68,750/-. THE A.O. FURTHER NO TICED THAT THE ASSESSEE HAS SHOWN OUTSTANDING BALANCE OF RS.2,72,00,142/- AS SU NDRY CREDITORS. THE A.O. CALLED INFORMATION BY ISSUING NOTICE U/S.133(6 ) OF THE ACT. IN COMPLIANCE OF THE NOTICE U/S.133(6) OF THE ACT, SOM E OF THE NOTICES RECEIVED BACK FROM THE POSTAL AUTHORITY WITH THE REMARK THAT THE PARTIES WERE NOT FOUND. THE A.O. POINTING OUT THE FACT TO THE ASSESS EE THAT NOTICE U/S.133(6) ISSUED TO THE PARTIES, SOME OF THE NOTICES WERE RET URNED BACK AND SOME OF THEM HAVE NOT COMPLIED WITH THE NOTICES. THE PARTI ES NOTICED BY A.O. ARE SHREE A. K. SHAIKH, SHREE ASHAPURA PRESSOR BOOK, MOMAI MATERIAL SUPPLIERS, SHREE CHAMUNDA MATERIALS,MAHAVEERSING NA RSANGI V. AND MANJI MEGHJI VAGHAMSHI. ITA 1140-09 & CO 02-10 A.Y.2005-06. 3 5. THE A.O. NOTICED THAT THE ASSESSEE HAS PROVIDED THE COPIES OF LEDGER ACCOUNTS BUT THE ACCOUNT SIGNED BY THE PERSONS WHOS E IDENTITY WERE NOT ESTABLISHED BY THE ASSESSEE, ADDRESS AND THE PAN NO . OF THE ASSESSEE HAS NOT BEEN MENTIONED. THERE WERE ,THUS, OUTSTANDING BALA NCE AS AT THE YEAR END IN CASE OF A.K. SHAIKAH RS.16,01,940/-, SHRI ASHAPURA PRESSOR BOOK RS.14,69,455/- AND THE MOMAI MATERIAL SUPPLIERS RS .14,14,525/-. ON THE BASIS OF THE ABOVE FACTS, THE A.O. WAS OF THE VIEW THAT THE FIVE SUPPLIERS WERE MERE BOOK ENTRY WITHOUT ANY PHYSICAL DELIVERY OF GOODS. THE ASSESSEE FAILED TO PRODUCE THE PARTIES. THE A.O NOTICED THA T ALMOST 80% OF THE SUB- CONTRACTOR EXPENSES WERE OUTSTANDING AS AT THE YEAR END. THE A.O. MADE THE ADDITION OF RS.79,93,638/- DETAILED AS UNDER :- SR.NO. NAME EXPENDITURE AMOUNT. 01. M/S.SHREECHAMUNDA MATERIALS, RAW MATERIAL PURCHASE. 11,51,440 02. MAHAVEERSING NARSANGJI V. RAW MATERIAL PURCHASE. 14,88,303 03. MANJI MEGHJI VAGHAMSHI PRW SUB CONTRACT 8,67,9 75 04. SHRI A. K. SHAIKH. RAW MATERIAL PURCHASE. 16,01,940 05. SHREE ASHAPURA PRESSOR BLOCK RAW MATERIAL PURCHASE. 14,69,455 06. MOMAI MATERIAL SUPPLIER RAW MATERIAL PURCHASE. 14,14,525 TOTAL 79,93,638 6. IT HAS ALSO BEEN NOTICED BY THE A.O. THAT THE AS SESSEE HAD SHOWN MEAGER WORK IN PROGRESS AS COMPARED TO TURN OVER. THE A.O. DID NOT ACCEPT THE ASSESSEES CONTENTION AND MADE ADDITION OF RS.2 5,86,256/-. THE RELEVANT FINDING OF THE A.O. IS REPRODUCED BELOW:- ITA 1140-09 & CO 02-10 A.Y.2005-06. 4 THE ASSESSEE HAS CLAIMED THAT THE EXECUTION OF SUCH HUGE QUANTUM OF CIVIL CONSTRUCTION WAS POSSIBLE AS HAD D EPLOYED THE MACHINERIES. THE SUBMISSION OF THE ASSESSEE IS FOU ND CONTRARY TO THE FACTS OF THE CASE. THE ASSESSEE IS CLAIMING HUGE EXPENDITURE ON ACCOUNT OF LABOURERS DEPLOYED THROUG H LABOUR CONTRACTORS. FURTHER, IT IS ALSO NOTICE HAT THE CA SES OF MAJOR WORK EXECUTED, THE LAST BILL WAS NOT RAISED IN MARC H 2005. IN VIEW OF THE ABOVE FACTS, IT WAS CLEAR THAT THE ASSE SSEE HAD NOT CONSIDERED THE WORK EXECUTED TILL 31.03.2005 FOR VA LUATION OF THE WORK IN PROGRESS. THE ASSESSEE HAS ALSO NOT PR OVIDED ANY DOCUMENTARY EVIDENCE TO ESTABLISH THAT THE RELEVANT WORK WAS EXECUTED IN THE FIRST TWO MONTHS OF SUBSEQUENT FINA NCIAL YEAR. THE ASSESSEE COULD HAVE DISCHARGED THE ONUS THAT LA Y ON IT BY PROVIDING COPIES OF BILLS RAISED I.E. WHETHER RA-1 OR RA-5. IF THE RUNNING BILL IS FIRST (RA-1), THEN WORK IN PROG RESS WOULD BE THERE IN PRECEDING 1 OR 2 MONTHS. THE NECESSARY CER TIFICATE FROM ENGINEER CERTIFYING THE QUANTUM OF WORK COMPLE TED, HAS ALSO NOT BEEN FURNISHED. UNDER THE CIRCUMSTANCES, THE 15% OF THE BILLED AMOUNT IS CONSIDERED AS WORK IN PROGRESS AS ON 31.03.2005. THE ADDITION OF RS.25,86,256/- (15% OF RS.1,72,41,713/-) IS MADE FOR UNDERVALUATION OF WOR K IN PROGRESS. 7. THE A.O. FURTHER NOTICED THAT THE ASSESSEE HAS S HOWN PURCHASES OF DIESEL AND OTHER CONSTRUCTION MATERIAL FOR RS.24,16 ,936/-. HOWEVER, THE ASSESSEE HAS SHOWN CLOSING STOCK ONLY RS.1,56,192/- . IT IS ALSO NOTICED BY THE A.O. THAT THE ASSESSEE HAS INCURRED TRANSPORTATION CHARGES RS.3,78,752/- ON 31 ST MARCH,2005 WHICH SHOWS THAT RELEVANT GOODS WERE N OT TO THE SITE OF THE ASSESSEE ON THE SAME DAY WHICH CHOULD NOT HAVE BEEN CONSUMED IN A SINGLE DAY FROM THE DATE OF PURCHASE AND TRANSPORTATION. THE A.O. OBSERVED THAT FROM THE FACT, IT IS CLEAR THAT THE ASSESSEE HAS NO T TAKEN THE PHYSICAL STOCK OF GOODS PROPERLY AND MADE INCORRECT VALUATION. THE A .O. ACCORDINGLY MADE ADDITION OF RS.12,95,251/- WITH THE OBSERVATION TH AT PURCHASE FROM SHRI ASHAPURA BLOCK, A.K. SHAIKH, MOMAI MATERIAL SUPPLIE RS, MAHAVIRSINH ITA 1140-09 & CO 02-10 A.Y.2005-06. 5 NARSINGH VAGHELA AND SHRI CHAMUNDA MATERIAL HAVE AL READY BEEN HELD TO BE BOGUS. 8. THE C.I.T.(A) EXAMINED THE ISSUES IN DETAIL AND CONSIDERED THE VARIOUS ASPECTS OF THE CASE INCLUDING GROSS PROFIT AND NET PROFIT WHICH IS NOTED BY C.I.T.(A) AT PAGE-4 OF HIS ORDER. THE C.I.T.(A) NO TED THE FOLLOWING PARTY- WISE FACTS ON THE BASIS OF THE DETAILS AND EVIDENCE S FILED BY THE ASSESSEE AS UNDER :- SR. NO. NAME OF THE PARTY AMOUNT (RS.) DETAILS FURNISHED 1. SHREE A.K.SHAIKH. 16,01,940/- ADDRESS: HOUSE NO.10 VILLAGE KANDIYABE,BHUJ. COPY OF ACCOUNT COPY OF BILLS COPY OF CONFIRMATION. THE APPELLANT HAS PURCHASED RATI FROM THE SAID PARTY FOR CONSTRUCTION OF CIVIL WORK. DURING THE YEAR, THE APPELLANT CARRIED OUT WORK OF RS.12.84 CRORE AND THEREFORE THE MATERIALS WERE REQUIRED. PURCHASE BILL ENCLOSED TO PROVE THE GENUINENESS OF TRANSACTIONS. 2. SHREE ASHAPURA PRESSOR BLOCK 14,69,455/- NAME:NAGAJIBHAI G.KOLI ADDRESS:VILLAGE VIJAPASAR BHACHAU, KUTCH. COPY OF ACCOUNT COPY OF BILLS COPY OF CONFIRMATION. THE APPELLANT HAS PURCHASED RATI FROM THE SAID PARTY FOR CONSTRUCTION OF CIVIL WORK. ITA 1140-09 & CO 02-10 A.Y.2005-06. 6 DURING THE YEAR, THE APPELLANT CARRIED OUT WORK OF RS.12.84 CRORES AND THEREFORE THE MATERIALS WERE REQUIRED. 3. MOMAI MATERIAL SUPPLIERS. 14,14,525/- NAME:KUMBHABHAI B.LAKHAMASHI ADDRESS:VILLAGE LAKDIYA, BHACHAU. COPY OF ACCOUNT COPY OF BILLS COPY OF CONFIRMATION LETTER. THE SUPPLIER FILED CONFIRMATION AND CONTRA ACCOUNTS WITH THE A.O. AGAINST THE NOTICE U/S.133(6) ON 18/07/2007. THE APPELLANT HAS PURCHASED RATI AND STONES FROM THE SAID PARTY. THE DETAILS ABOUT THE SUPPLY AND ALSO VEHICLE NO.THROUGHWHICH SUCH SUPPLY WAS MADE WAS ALSO FURNISHED. 4. SHRI CHAMUNDA MATERIALS 11,51,440/- ADDRESS:VILLAGE VIJAPASAR BHACHAU, KUTCH. COPY OF ACCOUNT COPY OF BILLS COPY OF CONFIRMATION. 5. MAHAVEERSING NARSANGI V. 14,88,303/- ADDRESS::VILLAGE RAMDEVPIR,DIST.BHACHAU-KUTCH 370140 COPY OF ACCOUNT COPY OF BILLS COPY OF CONFIRMATION. THE APPELLANT HAS PURCHASED RATI AND STONES FROM THE SAID PARTY. THE DETAILS ABOUT THE SUPPLY AND ALSO VEHICLE NO.THROUGH WHICH SUCH SUPPLY WAS MADE ALSO FURNISHED. THE DETAILS OF DATES, ON WHICH THE GOODS WERE RECEIVED, WERE ITA 1140-09 & CO 02-10 A.Y.2005-06. 7 ALSO GIVEN. 6. MANJI MEGHJI VAGHAMSHI. 8,67,975/- THE ADDRESS VILLAGE SHINAI, DIST. GANDHIDHAM, KUTCH 370205. COPY OF ACCOUNT COPY OF BILLS COPY OF CONFIRMATION. THE SUPPLIER CARRIED OUT BLOCK MASONRY WORK AND OTHER SIMILAR JOB WORK.. 9. THE C.I.T.(A) NOTICES THAT THE ASSESSEE HAS PURC HASED RAW-MATERIALS IN THE NATURE OF RATI, BRICKS ETC. WHICH WERE NORMAL LY MANUFACTURED AND SUPPLIED BY UNORGANIZED SECTOR. IT IS NOT THE CASE OF THE A.O. THAT NO CORRESPONDING INCOME WAS RECEIVED BY THE ASSESSEE. THE C.I.T.(A) ACCEPTED THE ASSESSEES CONTENTION THAT THE CONTRACT WAS CAR RIED OUT FOR LONGER PERIOD AND ALL THESE SUPPLIERS WERE REGULAR ONES AND THERE FORE, THERE WAS CONTINUOUS BUSINESS TRANSACTIONS WITH THESE PARTIES AND SOME OF THE AMOUNTS WERE OUTSTANDING WITH THESE ACCOUNTS. IT IS ALSO NOTED BY THE C.I.T.(A) THAT THE ASSESS HAS PROVE THE GENUINENESS OF ACCEPTANCE BY P RODUCING NAMES AND DETAILED ADDRESSES OF SUPPLIERS, CONFIRMATION LETTE RS, COPIES OF ACCOUNTS, CONTRACT ACCOUNTS AND INVOICES ISSUED BY THE SUPPLI ERS. IN THE INVOICES, DETAILS OF GOODS IN TERMS OF THE QUANTITY AND VALUE S WERE MENTIONED AND ALSO THE VEHICLE DETAILS OF TRANSPORTATION GOODS ARE ALS O MENTIONED. THE C.I.T.(A) WAS OF THE VIEW THAT THE ASSESSEE HAS FURNISHED ALL THE RELEVANT EVIDENCES TO PROVE THE GENUINENESS OF EXPENSES. 10. THE C.I.T.(A) ALSO EXAMINED FROM THE ANGLE OF S EC.44AD AND A JUDGMENT OF RAJASTHAN HIGH COURT IN THE CASE OF JAI N CONSTRUCTION CO. & ORS. 156 CTR-290 AND FOUND THE GROSS PROFIT RATE FO R THE YEAR UNDER ITA 1140-09 & CO 02-10 A.Y.2005-06. 8 CONSIDERATION WAS 10.57% AS AGAINST 10.52% FOR A.Y. 2005-06 AND 9.5% FOR A.Y.2003-04. THE NET PROFIT RATIO FOR THE YEAR UNDE R CONSIDERATION WAS 3.70% IN COMPARISON TO 3.88% FOR THE A.Y.2004-05 AN D 2.041% FOR A.Y.2003-04. THAT THE ASSESSEE HAS DECLARED GROSS PROFIT BEFORE DEPRECIATION AND INTEREST OF WHICH CALCULATION COME TO 10.57% WH ICH COULD BE CONSIDERED TO BE FAIR AND REASONABLE. HOWEVER, WHILE COMPARIN G THE NET PROFIT RATE, THE C.I.T.(A) FOUND THAT IN IMMEDIATE PRECEDENT YEAR 20 04-05 THE PROFIT MARGIN OF 3.88% WAS ACCEPTED BY THE REVENUE UNDER THE SCRU TINY U/S/143(3) OF THE ACT. THE C.I.T.(A) WAS OF THE VIEW THAT THE NET PR OFIT MARGIN AT THE RATE OF 4% ON GROSS RECEIPT WOULD MEET END OF JUSTICE. THE C.I.T.(A) ACCORDINGLY APPLIED NET PROFIT RATE AT THE RATE OF 4% ON CONTRA CT RECEIPT OF RS.12,34,68,750/- OF WHICH CALCULATION COMES TO RS. 49,38,750/-. THE ASSESSEE HAS ALREADY SHOWED NET PROFIT OF RS.44,98, 703/-. THEREFORE, THE ADDITION TO THE EXTENT OF RS.4,40,047/- WAS AS AGAI NST THE ADDITION OF RS.79,93,638/- MADE BY THE A.O. 11. THE REVENUE FILED APPEAL RAISING GROUND NO.1 AG AINST DELETION OF THE ADDITION AND ASSESSEE RAISED GROUND AGAINST ADDITI ON SUSTAINED. 12. THE C.I.T.(A) DELETED THE ADDITION OF RS.25,86 ,256/- MADE BY A.O. ON ACCOUNT OF UNDERVALUATION OF WORK IN PROGRESS AF TER CONSIDERING ASSESSEES SUBMISSION AND VARIOUS DETAILS AND CHART FILED BY THE ASSESSEE, OBSERVING THAT CIVIL WORK WAS CARRIED OUT FOR VARIO US PRIVATE PARTIES AND IT WAS TIME BOUND AND IT WOULD NOT TAKE LONG TIME TO F INISH SUCH WORK. THE DETAILS OF THE WORK WAS ALSO STATED IN THE INVOICES . THE TAX WAS ALSO DEDUCTED AT SOURCE. THE C.I.T.(A) FURTHER OBSERVED THAT THE ASSESSEE HAS FULLY EXPLAINED AND JUSTIFIED THE CLOSING WORK IN P ROGRESS WITH COGENT EVIDENCES AND VALID REASONS. THE A.O. HAS SIMPLY E STIMATED 25% OF THE ITA 1140-09 & CO 02-10 A.Y.2005-06. 9 GROSS RECEIPTS FOR THE MONTH OF APRIL, 2005 AND MAY , 2005 AS CLOSING WORK IN PROGRESS WITHOUT ANY BASIS OR SUPPORTING EVIDENC ES. IT HAS ALSO BEEN OBSERVED BY C.I.T.(A) THAT HE HAS CONSIDERED THE CA SE OF THE ASSESSEE FROM THE THEORY OF NET PROFIT RATE FOR ESTIMATION AND ES TIMATED THE NET PROFIT BY APPLYING 4% WHICH COVERS THE LAPSES IN MAINTENANCE OF BOOKS OF ACCOUNT. THEREFORE, NO SEPARATE DISALLOWANCE ON ACCOUNT OF W ORK IN PROGRESS IS CALLED FOR. 13. THE C.I.T.(A) ALSO DELETED ADDITION OF RS.12,95 ,251/- MADE BY THE A.O. ON ACCOUNT OF UNDERVALUATION OF THE CLOSING ST OCK. ACCEPTING THE ASSESSEES CONTENTION THAT DIESEL, BRICKS AND OTHER MATERIALS WERE RECEIVED IN EARLIER PERIODS AND THEY WERE REPLACED. THAT ALL T RANSPORTATION CHARGES WERE INCURRED REGULARLY, ONLY BILLS WERE CLAIMED ON MONT HLY BASIS. THE MATERIAL WERE ACCOUNTED FOR IN THE MONTH OF MARCH AS THE SAM E WERE INCURRED TO EARN INCOME AND INCOME WAS ALSO ACCOUNTED FOR. THEREFOR E, EVEN ON THE BASIS OF MATCHING PRINCIPLE, THE INCOME AND EXPENSES SHOULD BE ACCOUNTED FOR FOR THE SAME PERIOD. THE C.I.T.(A) NOTED THAT THIS FACT WA S NOT APPRECIATED BY THE A.O. WHILE DELETING THE ADDITION. THE C.I.T.(A) HAS ALSO NOTED THAT SINCE HE CONSIDERED THE THEORY OF NET PROFIT RATE FOR ESTIMA TION OF INCOME FOR THE WHOLE YEAR, THEREFORE, NO SEPARATE DISALLOWANCE ON THIS ACCOUNT IS CALLED FOR. 14. THE LD. D.R. WHILE SUPPORTING THE ORDER OF A.O. SUBMITTED, REFERRING PAGE-46 AND 49 OF PAPER BOOK, THE COPIES OF BILLS O F PURCHASE OF RATI KANKARI SUPPLIERS HAVE BEEN PLACED. THE LD. D.R. SUBMITTED THAT IN THOSE BILLS THE DETAIL GIVEN IS ONLY NUMBER OF TRIPS AND RATE AND WITHOUT MENTIONING VEHICLE NO. AND OTHER DETAILS. THE LD. D.R. SUBMIT TED THAT THE ASSESSEE DID NOT MAINTAIN ANY CONSUMPTION RECORD OF SUCH RAW-MAT ERIALS, FOR THIS PURPOSE. THE LD. D.R. REFERRED TAX AUDIT REPORT FO RM NO.3CD WHICH HAS ITA 1140-09 & CO 02-10 A.Y.2005-06. 10 BEEN PLACED AT PAGE-22 AND ONWARDS OF THE ASSESSEE S PAPER BOOK. THE LD. D.R. FURTHER SUBMITTED THAT THERE WAS HUGE OUTSTAND ING BALANCES AS AT THE YEAR END FROM THOSE SUB-CONTRACTORS WHICH IS PRACTI CALLY NOT POSSIBLE. THE LD. D.R. SUBMITTED THAT THE A.O. HAS DISCUSSED ALL THE RELEVANT FACTS PARTY- WISE FROM PAGES NO. 4 TO 7 OF HIS ORDER. THE LD. D .R SUBMITTED THAT C.I.T.(A) HAS WRONGLY DELETED THE ADDITION MERELY ACCEPTING THE ASSESSEES SUBMISSION WHERE AS SUCH, THE ASSESSEE FAILED TO PR ODUCE EVIDENCE TO PROVE THE GENUINENESS OF THE PARTIES. THE LD. D.R POINTE D OUT THAT WHATEVER DOCUMENTS AND MATERIALS POINTED OUT BY C.I.T.(A) IN HIS ORDER HAVE ALREADY BEEN CONSIDERED BY THE A.O. BEFORE MAKING THE ADDIT ION. THE DAY-TO-DAY CONSUMPTION RECORD WAS NOT AVAILABLE WITH THE ASSES SEE. THE WORKING PROGRESS AND VALUATION OF THE CLOSING STOCK ADOPTED BY THE ASSESSEE IS INCORRECT AND WITHOUT BASIS. THE C.I.T.(A) ALLOWED THE ASSESSEES APPEAL WITHOUT CONSIDERING ANY FRESH FACTS THAN POINTED OU T BY THE A.O. THE ASSESSEE DID NOT PRODUCE ANY COGENT MATERIAL BEFORE THE C.I.T.(A). 15. THE LD. A.R ON THE OTHER HAND RELIED UPON THE O RDER OF C.I.T.(A) AND SUBMITTED THAT THE C.I.T.(A) HAS EXAMINED ALL THE I SSUES IN DETAILS ANDS FOUND THAT 4% NET PROFIT RATE IS REASONABLE. THE LD. A.R SUBMITTED THAT THE ADDITION SHOULD BE BASED ON SOME BASIS AND ESTIMATION HAS TO BE BASED ON SOME SOUND PRINCIPLES. THE LD. A.R SUBMITTED THAT ONCE N ET PROFIT RATE IS APPLIED, NO SEPARATE ADDITION IS WARRANTED. THE LD. A.R IN S UPPORT OF HIS CONTENTION RELIED UPON THE FOLLOWING JUDGMENTS:- 1.C.I.T. VS. JAIN CONSTRUCTION CO. 156 CTR 290 (RA J.), 2.ASSTT C.I.T. VS.TULSIDHARAN BHASKARAN TAX APPEAL NO. 989 OF 2008 DATED 20/1/2009 (GUJ.), 3.ANIS AHMED & SONS VS. C.I.T. 297 ITR 441 (SC), ITA 1140-09 & CO 02-10 A.Y.2005-06. 11 4.OMKAR ENGINEERING CO.,ITA 569/RJT/2007 DATED 29/8 /2008, AMBIKA ENGINEERING CO.,ITA NO.106/RJT/2008 DATED 15 /12/2008 AND 5.SRIRAM JHANWRLAL VS.CTO 98 TTJ (JD) 639. . 16. THE LD. A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS COMPLIED WITH ALL NOTICES RECEIVED U/S.133(6) EXCEPT SOME OF THE NOTI CES. THE ASSESSEE PRODUCED ALL THE RELEVANT DOCUMENTS, BILLS ETC. WHI CH HAVE BEEN CONSIDERED BY THE C.I.T.(A) IN HIS ORDER AND NOTED IN HIS ORDE R PARTY-WISE. 17. IN REJOINDER, THE LD. D.R. SUBMITTED THAT THE A .O. DID NOT REJECT THE BOOKS OF ACCOUNT WHEREAS, THE C.I.T.(A) APPLIED TH E NET PROFIT RATE REJECTING BOOKS OF ACCOUNT. THEREFORE, C.I.T.(A) IS NOT CORR ECT IN APPLYING THE NET PROFIT RATE. 18. WE HEARD THE LEARNED REPRESENTATIVES OF THE PAR TIES, RECORD PERUSED. SOME ADMITTED FACTS OF THE CASE ARE THAT THE ASSESS EE IS A CIVIL CONTRACTOR. THE A.O. MADE ADDITION OF RS.79,93,638/- ON ACCOUNT OF UNEXPLAINED PURCHASES AND SUB-CONTRACT EXPENSES, RS.25,86,256/- ON ACCOUNT OF UNDERVALUATION OF WORK IN PROGRESS AND RS.12,95,251 /- ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. THE C.I.T.(A) ESTI MATED THE TOTAL INCOME BY APPLYING NET PROFIT RATE OF 4% AND ACCORDINGLY, AN ADDITION TO THE EXTENT OF RS.4,40,047/- WAS SUSTAINED AND RS.75,53,591/- WAS DELETED, THEREFORE, ON THIS ACCOUNT, BOTH THE ASSESSEE AND REVENUE HAS CHA LLENGED TO THE EXTENT OF ORDER AGAINST THEM. THE C.I.T.(A) DELETED THE ENTIR E ADDITION OF RS.25,86,256/- ON ACCOUNT OF UNDERVALUATION OF THE WORK IN PROGRESS AND RS.12,95,251/- ON ACCOUNT OF UNDERVALUATION OF CLOS ING STOCK. THE C.I.T.(A) WHILE DEALING WITH THE ADDITION OF RS.79,93,638/- MADE BY A.O. ON ACCOUNT ITA 1140-09 & CO 02-10 A.Y.2005-06. 12 OF UNEXPLAINED PURCHASES AND SUB-CONTRACT EXPENSES EXAMINED PARTY-WISE DETAILS FURNISHED BY THE ASSESSEE WHICH HAS BEEN RE PRODUCED IN ABOVE PARA-8 OF THIS ORDER. THE C.I.T.(A) HAS HELD THAT THE ASSE SSEE HAS FURNISHED SUFFICIENT MATERIAL TO PROVE THE GENUINENESS OF THE EXPENSES BY PRODUCING THE NAMES AND DETAILED ADDRESS OF SUPPLIERS CONFIRM ATION LETTERS, COPIES OF ACCOUNT, CONTRACT ACCOUNT AND INVOICES ISSUED BY TH E SUPPLIERS. IN INVOICES, DETAILS OF GOODS IN TERMS OF QUANTITY AND VALUES WE RE MENTIONED. HOWEVER, IT IS ALSO OBSERVED BY THE C.I.T.(A) THAT NORMALLY, CO NTRACTOR PURCHASING RATI AND BRICKS SUPPLIED BY UNORGANIZED SECTORS. HE THE REFORE, APPLIED THE THEORY OF NET PROFIT RATE. WE FIND THAT THE WAY IN WHICH T HE A.O. EXAMINED THE CASE OF THE ASSESSEE AND NOTICED THE DEFECTS IN BOOKS OF ACCOUNT WHICH IS EVIDENT FROM THE VARIOUS ADDITION MADE BY THE A.O., UNDER T HE CIRCUMSTANCES, BOOKS OF ACCOUNT OF THE ASSESSEE IS REQUIRED TO BE REJECT ED BY APPLYING SEC.145 (3) OF THE ACT WHICH HAS BEEN DONE BY THE A.O. INDIRECT LY. THE VARIOUS ISSUES RAISED BY THE A.O. IN SUPPORT OF ADDITION MADE. HOW EVER, WE FIND THAT THE FAIR AND REASONABLE METHOD UNDER THE CIRCUMSTANCES OF THE CASE IS ESTIMATION INCOME FOR THE YEAR. WE FIND THAT THE C.I.T.(A) HA S RIGHTLY ADOPTED THE NET PROFIT THEORY FOR ESTIMATION OF THE PROFIT FOR THE YEAR, WHICH IS ONE OF THE GOOD BASIS OF ESTIMATION OF THE INCOME UNDER SUCH C IRCUMSTANCES. WE, THEREFORE, INCLINED UPON THE ORDER OF THE C.I.T.(A) . THE ORDER OF C.I.T.(A) IS ACCORDINGLY CONFIRMED AND GROUND NO.1 RAISED BY THE REVENUE IN APPEAL AND GROUND RAISED IN C.O. BOTH ARE DISMISSED. 19. AS REGARDS THE DELETION OF ADDITION ON ACCOUNT OF WORK IN PROGRESS AND CLOSING STOCK APART FROM THE DETAILED EXAMINATION B Y THE C.I.T.(A), WE FIND THAT ONCE INCOME IS ESTIMATED BY APPLYING NET PROFI T THEORY IS SEPARATE ADDITION NEITHER ON ACCOUNT OF WORK IN PROGRESS NOR ON ACCOUNT OF CLOSING STOCK CAN BE SEPARATELY MADE UNLESS THERE IS A COGE NT EVIDENCE THAT THE ITA 1140-09 & CO 02-10 A.Y.2005-06. 13 ASSESSEE HAS MADE INVESTMENT IN THESE ITEMS WHICH A RE THE UNACCOUNTED INCOME OF THE ASSESSEE. SINCE THERE IS NO SUCH MATE RIAL RECORD, NOR IT WAS POINTED OUT AT THE TIME OF HEARING BY THE LD.D.R. W E, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE C.I.T.(A) IN HOL DING BOTH ADDITION ON ACCOUNT OF WORK IN PROGRESS AND CLOSING STOCK. THE ORDER OF THE C.I.T.(A) ON BOTH THE ISSUES IS CONFIRMED. IN THE RESULT, THE APPEAL OF REVENUE AS WELL AS C.O . BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2011. SD/- SD/- ( N.R.S.GANESAN ) (A. L. GEHLOT) JUDICIAL MEMBER. ACCOUNTANT M EMBER. RAJKOT, DATED: 13-05-2011. NVA/ COPY TO: 1. THE A.C.I.T., GANDHIDHAM CIRCLE, GANDHIDHAM. 2. M/S.ISHWAR CONSTRUCTION CO.,GANDHIDHAM. 3.THE C.I.T.(A)-II, RAJKOT. 4.THE C.I.T.-, RAJKOT. 5.THE D.R.,I.T.A.T, RAJKOT. TRUE COPY. BY ORDER ASSTT.REGISTRAR. ITAT, RAJKOT. ITA 1140-09 & CO 02-10 A.Y.2005-06. 14