DCIT, V. Vadivelu Arun Kumar,

ITA 1307/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80684 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SHANKAR PRASAD K JT
• Assessee Lawyers: C R NULVI
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.1307/BANG/2013 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, SHIMOGA. VS. SHRI VADIVELU ARUN KUMAR, M.M. COMPOUND, T.K. ROAD, BHADRAVATHI. PAN : AKHPK 7918A APPELLANT RESPONDENT APPELLANT BY : DR. SHANKAR PRASAD K., JT. CIT(DR) RESPONDENT BY : SHRI C.R. NULVI, C.A. DATE OF HEARING : 10.09.2014 DATE OF PRONOUNCEMENT : 19.09.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORD ER DATED 25.6.2013 OF THE CIT(APPEALS), HUBLI RELATING TO ASSESSMENT Y EAR 2009-10. 2. THE ASSESSEE IS AN INDIVIDUAL. HE IS ENGAGED I N THE BUSINESS OF EXECUTING CIVIL CONTRACTS. THE ASSESSEE FILED RETUR N OF INCOME FOR A.Y. 2009- 10 DECLARING A TOTAL INCOME OF RS.42,32,620. THE A SSESSEE DURING THE ITA NO.1307/BANG/2013 PAGE 2 OF 7 PREVIOUS YEAR CARRIED OUT SUB-CONTRACT WORK FOR THE HYDERABAD BASED COMPANY, M/S. GVPR ENGINEERING LTD. (GVPREL) FOR UN DERGROUND DRAINAGE WORK IN SHIKARIPURA TALUK. THE GROSS CONT RACT VALUE WAS RS.8.16 CRORES. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD RECEIVED A SUM OF RS.7.49 CRORES FROM GVPREL. THE ASSESSEE DECLARED NET PROFIT OF RS.43,43,907 FROM THE AFORESAID CONTRACT. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED UPON THE ASSESSEE TO FILE THE NAME AND ADDRESSES AND THE AMO UNT PAID/PAYABLE TO THE PERSONS FROM WHOM THE ASSESSEE HAD PURCHASED MA TERIALS AND INCURRED EXPENDITURE IN THE FORM OF VEHICLE MAINTEN ANCE, REPAIR AND TRANSPORTATION CHARGES. THE ASSESSEE WAS BASICALLY PURCHASING MATERIALS FROM UNREGISTERED DEALERS (URD). THE ASSESSEE FILE D A LIST OF URD ALONG WITH TOTAL AMOUNT OF MATERIALS PURCHASED LIKE BRICK S, JELLY, ETC., THE DETAILS OF WHICH WERE AS FOLLOWS:- SL. NO. NAME (S/SRI) MATERIAL SUPPLIED AMOUNT (RS.) 1. BYREGOWDA BRICKS & JELLY 26,71,450 2. DINESH KUMAR B.J. BRICKS 7,62,500 3. GANGADHARA BRICKS & JELLY 11,89,650 4. GIRI - DO - 10,37,400 5. HALESHAPPA - DO - 22,52,650 6. K. HANUMANTHAPPA - DO - 6,32,700 7. KUBERAPPA - DO - 3,42,000 8. LOKESH - DO - 5,86,500 9. PRAKASH - DO - 8,28,450 10. RAJU PATIL - DO - 3,78,000 11. RAMANNA N. - DO - 33,022 12. RANGANATH - DO - 12,10,950 ITA NO.1307/BANG/2013 PAGE 3 OF 7 13. RAVI - DO - 10,12,050 14. SATHISH - DO - 6,57,055 15. SHERIF - DO - 5,97,800 16. SATHYANARAYAN - DO - 4,38,000 17. SHIVAPRASAD - DO - 23,31,800 18. TEJU - DO - 14,94,000 19. THIMMAPPA - DO - 2,14,500 20. YERIASWAMY - DO - 6,64,000 21. YOGENDRA - DO - 28,66,933 TOTAL 2,22,01,410 4. THE ASSESSEE DID NOT FURNISH THE ADDRESSES OF UR D AND ALSO DID NOT PRODUCE VOUCHERS RELATING TO SUPPLY OF MATERIALS. THE ASSESSEE CLAIMED THAT THERE WERE NO VOUCHERS AND ALL THAT EXISTS WAS ONLY SELF-MADE VOUCHERS, WHICH ALSO WAS NOT PRODUCED. IN THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED LIST OF 9 URD. OUT OF THIS 9, 3 PARTIES EXISTED FOR VERIFICATION. THE ASSESSEE FILED ANOTH ER LIST OF ADDRESSES OF 6 URD. SINCE THE URDS WERE NOT AVAILABLE AT THE ADDR ESSES FURNISHED BY THE ASSESSEE, THE AO CALLED UPON THE ASSESSEE TO PR ODUCE PARTIES FOR EXAMINATION. THE ASSESSEE PRODUCED FOUR PARTIES AN D IN THEIR STATEMENT, THEY ACCEPTED HAVING SUPPLIED MATERIAL TO THE ASSES SEE TO THE FOLLOWING EXTENT:- 1. RAVI RS.19,12,050 2. RAJU PATIL RS. 3,78,000 3. SHIVAPRASAD RS.23,31,800 4. K. SANTHOSH RS. 6,57,055 TOTAL RS.43,78,905 ITA NO.1307/BANG/2013 PAGE 4 OF 7 5. THE AO THEREAFTER CAME TO THE CONCLUSION THAT TH E ASSESSEE WAS UNABLE TO ESTABLISH INCURRING OF EXPENSES ON ACCOUN T OF MATERIALS TO THE TUNE OF RS.1,78,22,505 (2,22,01,410 MINUS 43,78,905 ). THE AO, HOWEVER, OF THE VIEW THAT THE FACTUM OF ASSESSEE HAVING INCU RRED EXPENDITURE CANNOT BE DISBELIEVED, AS HE HAS EXECUTED THE SUB-CONTRACT WORK. HE WAS OF THE VIEW THAT THE ASSESSEE HAD INFLATED EXPENSES. THE AO ALSO NOTICED THAT THE ASSESSEE COULD NOT PROVE THE MODE OF PAYMENT TH ROUGH REGULAR BANKING CHANNELS TO THESE PARTIES. IN THE CIRCUMST ANCES, THE AO WAS OF THE VIEW THAT 25% OF A SUM OF RS.1,78,22,505 HAS TO BE TREATED AS EXPENSES NOT INCURRED, AS IT HAD NOT BEEN SUBSTANTIATED OR P ROVED AS GENUINE BY THE ASSESSEE. THIS RESULTED IN AN ADDITION OF RS.44,55 ,626 TO THE TOTAL INCOME OF THE ASSESSEE. 6. BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT UNDER THE KARNATAKA VAT RULES, 2005, RULE 3(2)(M), 60% OF THE EXPENSES TOWARDS PURCHASE OF MATERIAL IN THE BUSINESS OF CONTRACT, W HERE BOOKS OF ACCOUNTS ARE NOT MAINTAINED, CAN BE CONSIDERED AS MATERIAL P URCHASE. THE ASSESSEE POINTED OUT THAT IN THE ASSESSEES CASE, T HE TOTAL CONTRACT RECEIPTS WAS RS.8,16,79,190 AND 60% OF THE SAME WHI CH IS RS.4,90,07,514 COULD BE CONSIDERED AS TOWARDS PURCHASE OF MATERIAL S. THE ASSESSEE POINTED OUT THAT HE HAD CLAIMED ONLY MATERIAL PURCH ASE TO THE EXTENT OF RS.3,88,54,748, WHICH WAS LESS THAN THE REASONABLE LIMIT SPECIFIED IN THE KARNATAKA VAT RULES. THE ASSESSEE THUS SUBMITTED T HAT THE ADDITION MADE BY THE AO WAS NOT PROPER AND HAD TO BE DELETED . ITA NO.1307/BANG/2013 PAGE 5 OF 7 7. THE CIT(APPEALS) ACCEPTED THE CLAIM OF THE ASSES SEE, BUT NEVERTHELESS, WAS OF THE VIEW THAT THERE WAS A POSS IBILITY OF INFLATION OF EXPENSES AS THE EVIDENCE REGARDING INCURRING OF EXP ENDITURE WAS NOT PRODUCED BY THE ASSESSEE. THE CIT(A) ACCORDINGLY R ESTRICTED THE ADDITION MADE BY THE AO TO RS.10 LAKHS. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. DR PLACED STRONG RELIANCE ON THE ORDER OF THE AO. THE LEARNED COUNS EL FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE CIT(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S SEEN THAT THE PROFIT DECLARED BY THE ASSESSEE FROM EXECUTION OF CONTRACT S IS RS.43,43,907, WHICH WORKS OUT TO 5% (APPROX..) PROFIT ON THE CONT RACT VALUE. IF THE ADDITION MADE BY THE AO IS ADDED TO THE PROFIT DECLARED BY T HE ASSESSEE, THEN THE PROFIT MARGIN WILL GO UP TO APPROXIMATELY 10%. IF THE ADDITION SUSTAINED BY THE CIT(APPEALS) IS CONSIDERED, THEN THE NET PROFIT RATE WILL BE AROUND 6%. WE DO NOT HAVE PERCENTAGE OF THE PROFITS OF THE ASS ESSEE IN THE PAST. FROM A PERUSAL OF THE ORDER OF THE AO, IT BECOMES CLEAR THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ALL ITS PURCHASES OF MATERIALS. IN THE CIRCUMSTANCES, THE DISALLOWANCE WAS CALLED FOR. TH E QUESTION IS AS TO WHAT WOULD BE THE REASONABLE QUANTUM OF DISALLOWANCE. IN OUR VIEW, THE BASIS ON WHICH THE CIT(A) ALLOWED RELIEF TO THE ASSESSEE, VIZ., PLACING RELIANCE ON ITA NO.1307/BANG/2013 PAGE 6 OF 7 KARNATAKA VAT RULES, IS NOT ON A SOUND BASIS. THE QUANTUM OF EXPENDITURE COULD VARY ACCORDING TO THE TERMS OF TH E CONTRACT AND IN A CASE WHERE VALUE OF MATERIAL IS MORE THAN 60% THE AO CAN NOT TAKE A STAND THAT THE VALUE OF MATERIAL CANNOT EXCEED 60% OF THE VALU E OF THE CONTRACT. THE KARNATAKA VAT RULES ARE FOR THE PURPOSE OF COLLECTI ON OF VAT. THOSE RULES CANNOT BE APPLIED OR INFERENCE DRAWN FROM THOSE RUL ES IN INCOME TAX PROCEEDINGS. THE PRESUMPTIVE RATE OF 8% OF NET PRO FIT AS LAID DOWN IN SECTION 44AD OF THE ACT IN THE CASE OF CIVIL CONTRA CTORS CANNOT BE APPLIED IN THE PRESENT CASE, AS THE TURNOVER OF THE ASSESSEE I S MORE THAN THE PRESCRIBED LIMIT U/S. 44AD. IN THE GIVEN CIRCUMSTA NCES, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DISALLOW A SUM OF RS.17,82,500, WHICH IS 10% OF THE UNSUBSTANTIATED VALUE OF MATERI ALS PURCHASED OF RS.1,78,22,505. WE HOLD AND DIRECT ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF SEPTEMBER , 2014 . SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE, DATED, THE 19 TH SEPTEMBER , 2014 . /D S/ ITA NO.1307/BANG/2013 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.