DCIT, Varanasi V. M/s Hussain Ahmad Khan, Ballia

ITA 124/ALLD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63320 (ITAT-ALLAHABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 16-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: ARVIND SHUKLA
• Keywords: Unexplained cash credit; Business income; Depreciation; Income from undisclosed sources; Opportunity of being heard; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ALLAHABAD BENCH, ALLAHABAD BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 124/ALLD./2011 ASSTT. YEAR : 2008-09 D.C.I.T., CIRCLE-2, VS. M/S. HUSSAIN AHMAD KHAN, VARANASI. MIG-72, CHANDRA SHEKHAR NAGAR, BALIA (PAN : AAEFH 8643 L) C.O. NO. 18/ALLD./2011 (IN ITA NO. 124/ALLD/2011) ASSTT. YEAR : 2008-09 M/S. HUSSAIN AHMAD KHAN, VS. D.C.I.T., CIRCLE-2, MIG-72, CHANDRA SHEKHAR NAGAR, VARANASI. BALIA. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI Y.P. SRIVASTAVA, DR ASSESSEE BY : SHRI ARVIND SHUKLA, ADVOCATE DATE OF HEARING : 30.10.2012 DATE OF PRONOUNCEMENT OF ORDER : 31.10.2012 ORDER PER BHAVNESH SAINI, J.M.: THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJE CTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A), VARANASI DATED 31.03.2011 FOR THE ASSESSMENT YEAR 2008-09. ITA NO. 2 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL ON RECORD. BOTH THE MATTERS ARE DECIDED ISSUE-WISE AS UNDER : ISSUE NO. 1 : 3. THE ASSESSEE ON GROUND NO.1 OF THE CROSS OBJECTI ON STATED THAT THE DEPARTMENTAL APPEAL IS FILED AGAINST THE INSTRUCTIO N NO. 03 OF 2011 DATED 09.02.2011 AS THE TAX EFFECT IS BELOW THE MONETARY LIMIT. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE COULD NOT DEMONSTRATE AS TO HOW TH E TAX EFFECT IN THE DEPARTMENTAL APPEAL IS BELOW THE MONETARY LIMIT PRESCRIBED IN TH E SAID CBDT INSTRUCTION. ACCORDINGLY, GROUND NO.1 OF THE CROSS-OBJECTION IS DISMISSED. ISSUE NO.2 : 4. GROUND NO.1 IN THE DEPARTMENTAL APPEAL IS GENERA L AND IS REJECTED. ON GROUND NO.2, THE REVENUE CHALLENGED THE ORDER OF TH E LD. CIT(A) IN RESTRICTING THE NET PROFIT FROM 10% TO 8.5% ON THE TOTAL CONTRACT R ECEIPTS OF THE ASSESSEE. ON GROUND NO.2 OF THE CROSS OBJECTION, THE ASSESSEE CH ALLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE NET PROFIT RATE OF 8.5%. T HE ASSESSING OFFICER AFTER CONSIDERING AND EXAMINING THE BOOKS OF ACCOUNT FOUN D CERTAIN DISCREPANCIES AS NOTED IN THE ASSESSMENT ORDER AND ACCORDINGLY, WAS OF THE VIEW THAT THE CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNT CANNOT BE ASCERTAINED. THEREFORE, SHOW ITA NO. 3 CAUSE NOTICE WAS ISSUED AS TO WHY THE BOOKS OF ACCO UNT BE NOT REJECTED U/S. 145(3) OF THE IT ACT AND NET PROFIT RATE OF 10% MAY NOT BE APPLIED AS AGAINST NET PROFIT RATE OF 8% DISCLOSED BY THE ASSESSEE. THE OBJECTION S OF THE ASSESSING OFFICER WERE NOT CONTROVERTED. THEREFORE, BOOK RESULTS OF THE AS SESSEE WERE REJECTED AND NET PROFIT WAS APPLIED AT THE RATE OF 10% AND EXTRA PRO FIT ADDITION WAS MADE IN A SUM OF RS.3,84,880/-. THE LD. CIT(A), CONSIDERING THE F ACTS OF THE CASE FOUND THAT THE NET PROFIT RATE OF 8.5% WOULD BE REASONABLE AND WIL L ALSO MEET THE ENDS OF JUSTICE AND, ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTE D TO APPLY THE NET PROFIT RATE OF 8.5% AND THE APPEAL OF THE ASSESSEE WAS, ACCORDINGL Y, PARTLY ALLOWED. 5. THE LD. DR SUBMITTED THAT THE ASSESSEE IS A CIVI L CONTRACTOR AND IN OTHER CASES, THE NET PROFIT MORE THAN 8% HAS BEEN APPLIED . COPIES OF THE FOLLOWING ORDERS ARE FILED AS UNDER : (I). IN THE CASE OF SINGHAL BUILDERS CONTRACTOR V A DDL. CIT [2011] 12 TAXMANN.COM 199 (JP), A RATE OF 12% HAS BEEN FOUND REASONABLE. (II). IN THE CASE OF GOYAL CONSTRUCTION COMPANY V A CIT [2003] 127 TAXMAN 46 (AGRA), IT HAS BEEN HELD THAT A NET PROFI T RATE OF 11% IS REASONABLE. (III). IN THE CASE OF ASSESSING OFFICER V POOJA CON STRUCTION CO. [1999] 69 ITD 147 (ASR) A RATE OF 10% HAS BEEN FOUND REASONAB LE. ITA NO. 4 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE RELIED UPON THE ORDER OF ITAT, AGRA BENCH IN THE CASE OF M.P. SINGH CONTRACT OR, ETAWAH VS. ITO, IN WHICH THE LD. CIT(A) APPLIED THE PROFIT RATE OF 5% AND TH E TRIBUNAL CONFIRMED THE SAME AND SAID ORDER HAS BEEN CONFIRMED BY THE HIGH COURT IN INCOME-TAX APPEAL NO.310 OF 2009 BY DISMISSING THE DEPARTMENTAL APPEAL. HE H AS, THEREFORE, SUBMITTED THAT HE PROFIT RATE MAY BE FURTHER REDUCED FROM 8.5%. 7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN REDUCING THE PROFIT RATE FROM 10% TO 8.5%. THE REJECTION OF BOOKS OF ACCOUNT IS NOT IN DISPUTE BEC AUSE THE ASSESSEE DID NOT RAISE ANY GROUND IN THE CROSS OBJECTION AND EVEN DURING T HE COURSE OF ARGUMENTS, THE LD. COUNSEL FOR THE ASSESSEE DID NOT DISPUTE THE REJECT ION OF BOOKS OF ACCOUNT IN THE MATTER. CONSIDERING THE NATURE OF DISCREPANCIES FOU ND BY THE ASSESSING OFFICER IN MAINTENANCE OF BOOKS OF ACCOUNT, SLIGHT HIGHER NET PROFIT RATE APPLIED BY THE LD. CIT(A) WOULD BE JUSTIFIED IN THE MATTER AND COULD N OT BE TERMED AS UNREASONABLE OR EXORBITANT. SINCE IN THIS CASE, THE ASSESSEE HAS DE CLARED NET PROFIT RATE OF 8% BEFORE REMUNERATION AND DEPRECIATION, THEREFORE, THE DECIS ION CITED BY THE LD. COUNSEL FOR THE ASSESSEE FOR APPLYING PROFIT RATE OF 5% IN THE CASE OF M.P. SINGH CONTRACTOR (SUPRA) CANNOT BE APPLIED. THE PROFIT RATE DISCLOSE D BY THE ASSESSEE CANNOT BE REDUCED BY APPLYING THE COMPARABLE CASE. SIMILARLY, APPLICATION OF NET PROFIT RATE IN EACH AND EVERY CASE CANNOT BE SAID TO BE STATIC AND DEPENDS ON FACTS AND ITA NO. 5 CIRCUMSTANCES OF EACH CASE. THEREFORE, THE DECISION S CITED BY THE LD. DR ARE NOT APPLICABLE TO THE PRESENT CASE FOR ENHANCING THE RA TE OF PROFIT, PARTICULARLY CONSIDERING THE RETURN OF INCOME FILED BY THE ASSES SEE AT RS.6,95,430/-. CONSIDERING THE ABOVE DISCUSSION, WE DO NOT FIND AN Y JUSTIFICATION EITHER TO ENHANCE OR REDUCE THE NET PROFIT RATE APPLIED BY TH E LD. CIT(A). IN THE RESULT, GROUND NO. 2 OF THE DEPARTMENTAL APPEAL AND GROUND NO.2 OF THE CROSS OBJECTION ARE DISMISSED. ISSUE NO. 3: 8. THE REVENUE ON GROUND NO. 3 CHALLENGED THE DELET ION OF ADDITION U/S. 68 OF THE IT ACT IN A SUM OF RS.7,95,249/- AND ON GROUND NO. 4, CHALLENGED THE RESULTANT DISALLOWANCE OF INTEREST ON THE ABOVE ADDITION IN A SUM OF RS.95,423/-. THE ASSESSING OFFICER FOUND THAT PARTNERS HAVE INTRODUC ED FRESH CAPITAL IN ASSESSEES FIRM IN A SUM OF RS.7,95,249/- AND INTEREST THEREON HAS BEEN PAID IN A SUM OF RS.95,423/-. THE ASSESSEE COULD NOT FILE SATISFACTO RY EVIDENCE BEFORE THE ASSESSING OFFICER TO PROVE THE GENUINENESS OF THE CAPITAL INT RODUCED. THE ASSESSING OFFICER, CONSIDERING THE ISSUE ELABORATELY FOUND THAT THE SO URCE OF THE CAPITAL INTRODUCED IS NOT PROVED. THEREFORE, CREDITWORTHINESS IS NOT PROV ED BY THE ASSESSEE. THEREFORE, ABOVE ADDITION WAS MADE U/S. 68 OF THE IT ACT AND R ESULTANTLY, INTEREST PAID THEREON HAS ALSO BEEN DISALLOWED. THE LD. CIT(A), CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE AND APPLYING THE DECISION OF HON'BLE ALLAH ABAD HIGH COURT IN THE CASE OF ITA NO. 6 CIT VS. RAGHVENDRA PRATAP SINGH, 14 MTC 415, DELETE D THE ADDITION BECAUSE IN THAT CASE, IT WAS HELD THAT WHEN BOOKS OF ACCOUNT A RE REJECTED OR EXPARTE ASSESSMENT IS MADE, THE ASSESSING OFFICER CANNOT MAKE ADDITION U/S. 68 OF THE IT ACT. SUCH ADDITION HAS NECESSARILY TO BE BASED ON THE BOOKS O F ACCOUNT, WHICH ARE NOT REJECTED. BOTH THE ADDITIONS WERE ACCORDINGLY DELET ED. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT TH E LEVEL OF THE LD. CIT(A). HON'BLE SUPREME COURT IN THE CASE OF DEVI PRASAD VISHWANATH PRASAD, 72 ITR 194 HELD THERE IS NOTHING IN LAW WHICH PREVENTS THE INCOME- TAX OFFICER IN AN APPROPRIATE CASE IN TAXING BOTH THE CASH CRED IT, THE NATURE AND SOURCE OF WHICH IS NOT SATISFACTORILY EXPLAINED, AN D THE BUSINESS INCOME ESTIMATED BY HIM UNDER SECTION 13 OF THE IND IAN INCOME-TAX ACT, 1922, AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AS UNRELIABLE. 10. HONBLE M.P. HIGH COURT IN THE CASE OF CIT VS. DALURAM PANNALAL MODI, 129 ITR 398 FOLLOWING THE SAME DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DEVI PRASAD VISHWANATH PRASAD (SUPRA) ALSO DECIDED THE ISSUE AGAINST THE ASSESSEE AS UNDER :- HELD, THAT IN THE INSTANT CASE THE ASSESSEE HAD TO SHOW B Y ADDUCING SATISFACTORY EVIDENCE, THAT THE CASH CREDI TS WERE REFERABLE TO THE UNDISCLOSED INCOME OF THE KNOWN OR DISCLOSED SO URCE, NAMELY, THE BUSINESS, INCOME FROM WHICH HAD ALREADY BEEN ESTIMA TED. THE ITO HELD THAT THE CASH CREDITS REPRESENTED INCOME FROM UNDISCLOSED SOURCES. THIS FINDING WAS NOT SET ASIDE EITHER BY T HE AAC OR BY THE TRIBUNAL. THE TRIBUNAL SEEMED TO ASSUME THAT ONCE T HE BUSINESS ITA NO. 7 INCOME WAS ESTIMATED, THE UNEXPLAINED CASH CREDITS WOULD BE COVERED BY THE INCOME SO ESTIMATED. THIS ASSUMPTION WAS NOT WARRANTED BY LAW. WITHOUT SETTING ASIDE THE FINDING OF THE ITO T HAT THE CASH CREDITS REPRESENTED INCOME FROM UNDISCLOSED SOURCES, THE TR IBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS.15,300/- WHICH WAS ADDED AS INCOME FROM UNDISCLOSED SOURCES WAS COVERED BY THE INTANGIBLE ADDITIONS MADE IN THE INCOME OF THE ASSESSEE. 10.1 SINCE HON'BLE SUPREME COURT HAS HELD THAT THE ASSESSING OFFICER IS EMPOWERED TO MAKE BOTH THE ADDITIONS SEPARATELY ON ACCOUNT OF PROFIT AND DEEMED ADDITION U/S. 68 OF THE IT ACT, THEREFORE, IN OUR H UMBLE VIEW, THE DECISION OF HON'BLE ALLAHABAD HIGH COURT CANNOT BE GIVEN PREFER ENCE. IN THE PRESENT CASE, THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF EXTRA PROFIT BY REJECTING THE BOOK RESULTS AND THE ASSESSEE FAILED TO PROVE THAT THE A DDITION MADE U/S. 68 HAS ANY CO- RELATION WITH THE REJECTION OF BOOKS OF ACCOUNT AND MAKING ADDITION ON ACCOUNT OF EXTRA PROFIT. FURTHER EXTRA PROFIT ADDITION IS MADE IN TRADING AND PROFIT & LOSS ACCOUNT AND ADDITION U/S. 68 OF THE IT ACT IS MADE ON ACCOUNT OF THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE CREDIT SHOWN IN THE BALANCE SHEET. SINCE THE ASSESSEE FAILED TO PROVE ANY CO-RELATION BETWEEN TH E EXTRA PROFIT ADDITION AND ADDITION MADE U/S. 68 OF THE IT ACT, THEREFORE, THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DEVI PRASAD VISHWANATH PRASAD (SUPRA) SHALL HAVE TO BE APPLIED AGAINST THE ASSESSEE. THE ORDER OF THE LD. CIT(A) IS, THEREFORE, SET ASIDE. SINCE THE LD. CIT(A) DID NOT DECIDE THIS ISSUE ON M ERITS, THEREFORE, BOTH THESE ISSUES ARE RESTORED TO THE FILE OF LD. CIT(A) WITH THE DIR ECTION TO RE-DECIDE BOTH THE ISSUES ITA NO. 8 AFRESH IN ACCORDANCE WITH LAW BY GIVING REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, GROUND NO. 3 AND 4 OF THE APPEAL OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. NO OTHER ISSUE HAS BEEN ARGUED OR PRESSED EITHER I N THE DEPARTMENTAL APPEAL OR IN THE CROSS-OBJECTION OF THE ASSESSEE. 11. IN THE RESULT, DEPARTMENTAL APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, ALLAHABAD 6. GUARD FILE ASSTT. REGISTRAR TRUE COPY