The ITO, Ward 1(1), RAJKOT-GUJARAT V. M/s Divyesh Builders, RAJKOT-GUJARAT

ITA 1304/RJT/2010

• Counselvise Citation: 130424914 RSA 2010
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV RANADE DR IEI
• Assessee Lawyers: J C RANPURA CA I Y
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 143(3)

Judgement Text

Y A , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . . R . . BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 1304/RJT/2010 -I I / ASSESSMENT YEAR 200 6 - 07 THE INCOME - TAX OFFICER, WARD 1(1), RAJKOT. ( / APPELLANT) M/S. DIVYESH BUILDERS, RAJ RAMESHWAR PARK, STREET NO.1, BLOCK NO.7, MAVDI MAIN ROAD, RAJKOT. PAN : A ADFD5401F ( / RESPONDENT I / REVENUE BY SHRI RAJIV RANADE , DR -IEI / ASSESSEE BY SHRI J. C. RANPURA , CA I Y / DATE OF HEARING 2 1 - 06 - 2013 I Y / DATE OF PRONOUNCEMENT 31 - 0 7 - 2013 / ORDER . . , R / T. K. SHARMA, J. M. : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 1 6 - 09 - 201 0 OF CIT (A) - I, RAJKOT FOR THE ASSESSMENT YEAR 200 6 - 0 7. 2. T HE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS AS A CONTRACTOR. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ALONG WITH THE COPY OF AUDIT REPORT AS REQUIRED U/S.44AB ON 1 6 - 1 1 - 200 6 DECLARING THE INCOME OF RS. 51,222 / - . AO FRAMED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT, 196 1 ON 2 9 - 12 - 200 8 AT TOTAL INCOME OF RS.6 7,02,940 / - . IN THIS ASSESSMENT ORDER, AO MADE FOLLOWING THREE ADDITIONS: - (I) AO INVOKED THE PROVISION CONTAINED IN SECTION 145(3), ESTIMATED GP RATE FOR THE YEAR UNDER CONSIDERATION AT 14.4% OF GROSS TURNOVER . ON TH ESE BASIS, HE WORKED OUT THE PROFIT AT RS.21,88,220/ - AS AGAINST THE PROFIT OF RS.10,52,380/ - SHOWN BY THE ASSESSEE. AO ACCORDINGLY ADDED DIFFERENCE OF GROSS PROFIT OF RS.11,35,840/ - . (II) AO DISALLOWED RS.52,14,326/ - AS PER THE PROVISIONS OF SEC.40(A)(I A) AS THE ASSESSEE HAS NOT DEDUCTED THE TAX ON ACCOUNT OF CONTRACT WORK EXPENSES AND ON ACCOUNT OF VEHICLE RENT EXPENSES. (III) FINALLY, IN THE ASSESSMENT ORDER, AO DISALLOWED RS.2,99,555/ - BEING 15% OF DIESEL AND OIL EXPENSES, MACHINERY EXPENSES, SITE EX PENSES AND SALARY EXPENSES TOTALING RS.19,97,032/ - ON THE ITA 1304 - 201 0 2 GROUND THAT CORRECTNESS AND GENUINENESS OF EXPENSES DEDUCTED UNDER THESE HEADS IS NOT PROVED. 3. ON APPEAL, THE LD. CIT (A) DIRECTED THE AO TO APPLY GROSS PROFIT RATE OF 10% OF GROSS RECEIPTS OF RS .1,51,95,990/ - , AND THE BALANCE ADDITION IS DELETED. THE DETAILED REASONING GIVEN BY LD. CIT (A) IS CONTAINED IN PARA - 9 , WHICH READS AS UNDER: - 9. I HAVE CONSIDERED THE ISSUE AND GONE THROUGH THE RECORDS. IT IS SEEN THAT THE ASSESSING OFFICER HAS ESTIM ATED GROSS PROFIT AT THE RATE OF 14.40% CONSIDERING THE PAST HISTORY OF THE APPELLANT SINCE THE APPELLANT HAS NOT ATTENDED THE ASSESSMENT PROCEEDINGS. IN THE REMAND PROCEEDINGS, APPELLANT HAS SUBMITTED BOOKS OF ACCOUNTS, HOWEVER THE SAME WERE FOUND DEFECT IVE, HENCE THE AR HAS AGREED FOR REJECTION OF BOOKS OF ACCOUNTS BUT ESTIMATE OF G.P. AT 14.40 IS DISPUTED. THE AO HAS APPLIED G.P. OF 14.40% OF F.Y. 2004 - 05 WHERE CONTRACT RECEIPTS WERE RS.17,39,748/ - . THE APPELLANTS BOOKS SHOW THAT WITH INCREASE IN REC EIPTS, G.P. GOES DOWN. IN F.Y. 2003 - 04 WHEN RECEIPTS WERE RS.27,72,716/ - G.P. WAS 12.73%. AS AGAINST THIS, DURING THE YEAR UNDER CONSIDERATION, RECEIPTS WERE OF RS.1,51,95,990/ - AND G.P. 6.93%. IN SUBSEQUENT FINANCIAL YEARS 2006 - 07 & 2007 - 08 CONTRACT REC EIPTS WERE RS.1,61,86,880/ - AND RS.1,38,95,282/ - RESPECTIVELY AND G.P. WAS 7.78% AND 9.25%. HENCE CONSIDERING FACTS OF THE CASE, IT IS FAIR TO ESTIMATE OF G.P AT 10% OF GROSS RECEIPTS. THE AO IS DIRECTED TO APPLY GROSS PROFIT RATE OF 10% OF GROSS RECEIPT S OF RS.1,51,95,990/ - AND THE BALANCE ADDITION IS DELETED. 4. THE SECOND ADDITION IN RESPECT OF DISALLOWANCE OF SEC.40(A)(IA) IS DELETED BY THE LD. CIT (A). THE DETAILED REASONING GIVEN BY LD. CIT (A) IS CONTAINED IN PARA S - 12 AND 13 WHICH READS AS UNDE R: - 12. COPY OF SUBMISSION WAS SENT TO AO FOR VERIFICATION AND COMMENTS, IN HIS REMAND, AO HAS STATED THAT COPIES OF LEDGE ACCOUNT FILED BEFORE ME AND THOSE FILED BEFORE ASSESSING OFFICER ARE DIFFERENT, AND BEFORE ME APPELLANT HAS SUBMITTED FABRICATED LE DGER ACCOUNT BY SPLITTING THE WHOLESOME PAYMENT IN TO PIECEMEAL TO AVOID TDS LIABILITY. SOME INSTANCES WERE ALS O POINTED OUT. TAKING THIS INTO CONSIDERATION IT IS STATED THAT PAYMENT AGGREGATING TO RS.22,36,658 ATTRACT TDS LIABILITY AND CONSEQUENT DISALLO WANCE U/S.40(A)(IA). 13 . I HAVE CAREFULLY CONSIDERED THE ISSUE AND GONE THROUGH THE RECORDS, IT IS SEEN THAT IN ASSESSMENT ENTIRE EXPENDITURE OF RS.5214326 WAS DISALLOWED U/S.40(A)(IA), AFTER VERIFICATION OF APPELLANT SUBMISSION, IN REMAND REPORT AO HAS R EDUCED DISALLOWANCE TO RS.22,36,658 BEING RS.770000 FOR CENTERING WORK EXP, RS.903846 FOR CONCERT WORK EXPENSES AND RS.562812 FOR CENTERING RENT EXPENSES. IT IS ALSO OBSERVED THAT ALL THESE EXPENDITURE ARE DIRECT EXPENDITURE. THE AO HAS REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE GROSS PROFIT, WHILE ESTIMATING THE GROSS PROFIT, AND ALL DIRECT EXPENDITURE IS TAKE CARE OFF. THUS, THERE WAS NO NEED TO CONSIDER INDIVIDUAL EXPENSES IN CONTRACT ACCOUNT FOR THE PURPOSE OF MAKING SPECIFIC DISALLOWANCE U/S.40 (A)(IA). DECISION RELIED UPON BY AR COVER THIS ISSUE DIRECTLY. CONSIDERING THESE FACTS, DISALLOWANCE OF RS.52,14,326/ - MADE U/S.40(A)(IA) IS DELETED. ITA 1304 - 201 0 3 5. FINALLY, THE LD. CIT (A) ALSO DELETED THE DISALLOWANCE OF RS.2,59,555/ - BEING 15% OF DIESEL AND OI L EXPENSES, MACHINERY EXPENSES, SITE EXPENSES AND SALARY EXPENSES FOR THE DETAILED REASONING GIVEN IN PARAS - 18 AND 19 WHICH READS AS UNDER: - 18. THE AR OF THE APPELLANT HAS FILED COMMENTS ON AOS REMAND REPORT AND STATED REGARDING PROPOSED ENHANCEMENT OF RS.3,97,024/ - U/S. 40A(3), THAT THE BOOKS OF ACCOUNTS ARE REJECTED AND GP WAS ESTIMATED, HENCE THERE CANNOT BE SPECIFIC DISALLOWANCE U/S.40A(3) FROM EXPENDITURE DEBUTED TO CONTRACT ACCOUNT AND WITH REGARD TO PROPOSED ENHANCEMENT OF RS.9,00,000/ - , THE AR H AS STATED THAT WHEN AMOUNT OF RS.9,00,000/ - IS NOT CLAIMED OR ALLOWED, THERE IS NO CASE OF ANY ADDITION OR DISALLOWANCE. 19. I HAVE CAREFULLY CONSIDERED THE ISSUE, THE AO HAS PROPOSED ENHANCEMENT OF RS.3,97,024/ - RELYING ON PROVISIONS OF SEC.40A(3), AS PU RCHASE CONSIDERATION ARE STATED TO HAVE BEEN MADE IN CASH IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3). THE EXPENSES RELATE TO CONTRACT ACCOUNT, RESULT OF WHICH IS REJECTED AND G.P. ESTIMATED. IN VIEW OF VARIOUS DECISIONS RELIED UPON BY THE APPELLANT AND STATED IN SUBMISSION AGAINST DISALLOWANCE OF RS.52,14,326/ - , NO SEPARATE DISALLOWANCE AS PROPOSED BY THE AO OF RS.3,97,024/ - IS CALLED FOR. THE AOS PROPOSAL IN THIS REGARD IS REJECTED. THE AO HAS ALSO PROPOSED ENHANCEMENT OF RS.9,00,000/ - ON ACCOUN T OF FICTITIOUS LIABILITY. THE AO ADMITS IN PARA 6(C) OF REMAND REPORT THAT THE AMOUNT OF RS.9,00,000/ - OUGHT TO HAVE BEEN DEBITED IN P & L ACCOUNT. HOWEVER, THE SAME IS NOT REFLECTED AS EXPENSES IN THE PROFIT & LOSS ACCOUNT. THE AOS PROPOSAL IS NOT UN DERSTOOD. IT IS CLEAR AS ADMITTED BY THE AO, THAT THE APPELLANT HAS NOT CLAIMED SUCH EXPENSES OF RS.9,00,000/ - . THEREFORE, THERE IS NO QUESTION OF ADDITION AS PROPOSED. IT IS CLEAR FROM THE REMAND REPORT THAT EX PENSES OF RS.9,00,000/ - ARE NOT CLAIMED. B ESIDES, REJECTION OF CONTRACT ACCOUNT & ESTIMATE OF G.P. HAS TAKEN CARE OF ALL DISCREPANCIES IN ACCOUNTS AND NO SEPARATE ADDITION IS CALLED. THE AOS PROPOSAL IN THIS REGARD IS, THEREFORE, REJECTED. AGGRIEVED WITH THE ORDER OF LD. CIT (A), THE REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL, ON THE FOLLOWING GROUNDS: - 1 . THE LEARNED CIT (A) - I, HAS ERRED IN LAW AND ON FACTS OF THE CASE IN RESTRICTING THE ADDITION TO THE EXTENT OF RS.4,67,219/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW GP. 2 . THE LEARNED CI T (A) - I, HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.52,14,326/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S.40A(IA). 3 . THE LEARNED CIT (A) - I, HAS ERRED IN LAW AND ON FACTS OF THE CASE IN RESTRICTING THE ADDITIO N TO THE EXTENT OF RS.50,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF 15% DISALLOWANCE FROM CERTAIN EXPENSES DEBITED IN THE CONTRACT AND P&L ACCOUNTS. 6. AT THE TIME OF HEARING BEFORE US, SHRI RAJIV RANADE, DR APPEARED FOR THE REVENUE POINTED OUT TH AT LOOKING TO THE REASONING GIVEN BY THE AO IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS RIGHTLY APPLIED GP RATE OF 14.04% ITA 1304 - 201 0 4 AND MADE NET GP ADDITION OF RS. 21,88,220/ - AND LD. CIT (A) IS NOT JUSTIFIED IN RESTRICTING THE SAME TO RS.4,67,219/ - . THE LD. DR POINTED OUT THAT IN THE IMPUGNED ORDER, THE LD. CIT (A) UPHELD THE ACTION OF AO FOR INVOKING THE PROVISIONS CONTAINED IN SEC. 145(3) OF THE I.T. ACT, 1961. THEREFORE, GP RATE APPLIED BY AO AT 14.40% WAS FAIR AND REASONABLE LOOKING TO THE FACT THAT IN TH E ASSESSMENT YEAR 2003 - 04 WHEN RECEIPT WAS RS.27,72,716/ - , THE GP RATE WAS 12.73%. AS AGAINST THIS, COUNSEL OF THE ASSESSEE POINTED OUT THAT LOOKING TO THE PAST HISTORY OF THE CASE, THE GP RATE OF 1 0 % APPLIED BY AO IS FAIR AND REASONABLE. 7. AFTER HEARIN G BOTH THE SIDES IN RESPECT OF GP ADDITION, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT AO APPLIED GP RATE OF 14.04% AND MADE ADDITION OF RS.11,35,840/ - . THE LD. CIT (A) APPLIED GP RATE OF 10% AND REST RICTED THE ADDITION OF RS.4,67,219/ - . IT IS WELL SETTLED LAW THAT GP NEVER REMAINS STATIC. AS RIGHTLY OBSERVED BY LD. CIT (A) THAT ASSESSEES BOOKS SHOW THAT WITH INCREASED IN RECEIPTS, GP COMES DOWN. KEEPING IN VIEW OF THIS PRINCIPLE, WE ARE OF THE OPI NION THAT LD. CIT (A) IS FAIR AND REASONABLE IN APPLYING GP RATE OF 10% AND THEREBY RESTRICTING THE GP AT RS.4,67,219/ - AS AGAINST RS.11,35,840/ - MADE BY AO IN THE ASSESSMENT ORDER. IN OUR OPINION, NO INTERFERENCE IN THIS REGARD IS CALLED FOR, THEREFORE G ROUND NO.1 IS REJECTED. 8. WITH REGARD TO GROUND NO.2, WE HAVE HEARD BOTH SIDES. THE LD. DR RELIED ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. SAI METAL WORKS REPORTED IN [2011] 241 CTR 377 (PUNJ & HAR)/[2011] 11 TAXMANN. COM 61 (PUNJ & HAR.) FOR THE PROPOSITION THAT IN CASE OF ESTIMATION OF GP, THE ADDITION ON ACCOUNT OF IMPERMISSIBLE EXPENDITURE CAN BE MADE. AS AGAINST THIS, THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE VARIOUS DECISIONS RELIED BY LD. CIT (A) IN THE IMPU GNED ORDER. HE POINTED OUT THAT THE LD. COUNSEL OF THE AS SESSEE CALLED THE REMAND REPORT AND THEREAFTER CONSIDERING THE RIVAL SUBMISSION S, DELETED DISALLOWANCE U/S.40(A)(IA) , THEREFORE, VIEW TAKEN BY LD. CIT (A) BE UPHELD. ITA 1304 - 201 0 5 9. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW IN RESPECT OF GROUND NO.2. LOOKING TO THE FACTS NARRATED BY LD. CIT (A) IN PARA - 10 OF THE IMPUGNED ORDER WHICH ARE NOT DISPUTED BY LD. DR, WE ARE OF THE VIEW THAT LD. CIT (A) HAS GIVEN COGENT REA SON FOR DELETING THE DISALLOWANCE MADE BY AO U/S.40(A)(IA). THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. SAI METAL WORKS (SUPRA) RELIED ON BY LD. DR, IN OUR CONSIDERED OPINION, IS NOT RELEVANT AS LD. CIT (A) DELETED THE DISALL OWANCE HOLDING THAT WHEN BOOKS OF ACCOUNTS ARE REJECTED AND AO ESTIMATED GROSS PROFIT, THEN ALL DIRECT EXPENDITURE IS TAKE CARE OFF. ADMITTEDLY, THE NATURE OF EXPENSES IS FOR CENTERING WORK EXPENSES, CONCERT WORK EXPENSES AND CENTERING RENT EXPENSES AND A SSESSEE IS A BUILDER. LOOKING TO THESE CONSPICUOUS FACTS, WE INCLINED TO UPHELD THE VIEW TAKEN BY LD. CIT (A). GROUND NO.2 IS REJECTED. 10. IN RESPECT OF GROUND NO.3, WE HAVE HEARD BOTH SIDES. THE AO MADE ADHOC DISALLOWANCE. THE LD. CIT (A) CONFIRMED T HE GP ADDITION OF RS.4,67,219/ - . LOOKING TO THE NATURE OF EXPENSES, WE ARE OF THE VIEW THAT GP ADDITION MADE WILL TAKE CARE OFF DISALLOWANCE OF 15% OF DIESEL & OIL EXPENSES, MACHINERY EXPENSES, SITE EXPENSES AND SALARY EXPENSES ON ADHOC BASIS. TO SUM UP, WE ARE OF THE VIEW THAT LD. CIT (A) HAS RIGHTLY HELD THAT ONCE GP ADDITION MADE, NO SEPARATE ADHOC ADDITION IS CALLED FOR. THEREFORE, VIEW TAKEN BY LD. CIT (A) IN THIS REGARD IS ALSO UPHELD. GROUND NO.3 IS REJECTED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 12 . THIS O RDER IS PRONOUNCED IN OP EN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - ( . . D. K. SRIVASTAVA ) ( Y . . I / T. K. SHARMA) / ACCOUNTANT MEMBER - / JUDICIAL MEMBER / ORDER DATE 31 - 0 7 - 2013. /RAJKOT NVA/ - 1 RJO O / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - THE INCOME - TAX OFFICER, WARD - 1(1), RAJKOT. 2 . ( / RESPONDENT - M/S. DIVYESH BUILDERS, RAJ RAMESHWAR PARK, STREET NO.1, BLOCK NO.7, MAVDI MAIN ROAD, RAJKOT. ITA 1304 - 201 0 6 3 . A / CONCERNE D CIT , RAJKOT. 4 . - / CIT (A) - I, RAJKOT. . 5 . -A , Y A , / DR, ITAT, RAJKOT 6 . I / GUARD FILE. / BY ORDER TRUE COPY. PRIVATE SECRETARY, ITAT, RAJKOT