DCIT, CIR-Gangtok, Sikkim, Sikkim V. M/s J. K. Engineering (P) Ltd., Sikkim

ITA 1400/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1133 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 20-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 1400/KOL/20 15 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-GANGTOK, SIKKIM -VS- M/S J.K. ENGINEERING (P) LTD. [PAN: AABCJ 9413 G] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI DAVID Z. CHOW NGTHU, ADDL. CIT (DR) FOR THE RESPONDENT : SHRI SUBASH AGARWAL, ADV OCATE DATE OF HEARING : 27.09.2017 DATE OF PRONOUNCEMENT : 01.11.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SILIGURI [IN SHORT THE LD CIT A] IN APPEAL NO. 66/CIT(A)/SLG/2014-15 DATED 03.09.2015 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- GANGTOK, SIKKIM [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 28.02.2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN REDUCING THE DISALLOWANCE OF EXPENSES TO RS 10,0 0,000/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE FILED ITS RETURN OF INCOME FOR THE ASST YEAR 2011-12 ON 8.2.2013 DISCLOSING TOTAL INCOME OF RS 29,03,686/-. THE ASSESSEE IS A CIVIL CONTRACTOR IN SIKKIM AND HAD EXECUTED CONTRAC T WORKS WORTH RS 19,41,60,768/- AND 2 ITA NO.1400/KOL/2015 J.K. ENGINEERING PVT. LTD. A.YR.2011-12 2 ALSO EFFECTED SALE OF MATERIALS TO THE TUNE OF RS 4 4,80,475/-. THE NET PROFIT DECLARED BY THE ASSESSEE WORKS OUT TO 1.46% OF THE TOTAL TURNOV ER OF THE ASSESSEE. THE LD AO OBSERVED THAT THE NET PROFIT DECLARED BY THE ASSESS EE IS ABYSMALLY LOW AND SOUGH TO EXAMINE THE VARIOUS EXPENDITURES DEBITED IN THE PRO FIT AND LOSS ACCOUNT. THE ASSESSEE VIDE ITS WRITTEN SUBMISSION DATED 12.12.2013 STATED THE REASON FOR LOW NET PROFIT MARGIN WAS DUE TO LOGISTIC DIFFICULTIES LIKE COST OF TRANS PORTATION AND LABOUR IN SIKKIM. THE LD AO OBSERVED THAT THE ASSESSEE HAD DEBITED THE FOLLO WING EXPENSES WHICH IN THE OPINION OF THE LD AO WAS DISPROPORTIONATE :- THE LD AO OBSERVED THAT NO BILLS AND VOUCHERS COULD BE PRODUCED BY THE ASSESSEE FOR VERIFICATION OF THE AFORESAID EXPENDITURE. IN VIEW OF VERY LOW NET PROFIT MARGIN DECLARED BY THE ASSESSEE, BASED ON COMPARABLE CASES (THOUGH NOT MENTIONED IN THE ASSESSMENT ORDER) THE LD AO RESORTED TO DISALLOW 30% OF AFORES AID EXPENDITURE OF RS 1,99,12,928/- AND ARRIVED AT THE DISALLOWANCE FIGURE OF RS 59,73, 880/- IN THE ASSESSMENT. THIS WORKED OUT TO NET PROFIT OF 4.47% OF TURNOVER. 3 ITA NO.1400/KOL/2015 J.K. ENGINEERING PVT. LTD. A.YR.2011-12 3 4. BEFORE THE LD CITA, THE ASSESSEE ARGUED THAT THE BOOKS OF ACCOUNTS WERE NOT REJECTED BY THE LD AO AND HENCE HE OUGHT NOT TO HAVE RESORTE D TO MAKE ANY DISALLOWANCE OF EXPENDITURE ON AN ADHOC BASIS. THE ASSESSEE ARGUE D THAT THE LD AO BASED ON COMPARABLE CASES HAD RESORTED TO MAKE ADHOC DISALLO WANCE IN THE ASSESSMENT, BUT NO SUCH COMPARABLE CASES WERE FURNISHED IN THE ASSESSM ENT ORDER. THE LD CITA HELD THAT THE EXPENDITURE SHOWN BY THE ASSESSEE UNDER THE AFO RESAID HEADS ARE INDEED HIGH COMPARED TO THE TURNOVER AND NATURE OF ITS BUSINESS . IN THE BUSINESS OF CIVIL CONTRACT, SITE EXPENSES ARE GENERALLY BOOKED THROUGH SELF MADE DEB IT VOUCHERS AND THE ASSESSEE HAS NOT DENIED THE SAME. HE FURTHER HELD THAT IT IS NO T POSSIBLE FOR THE LD AO TO EXAMINE ALL SUCH EXPENSES AS THE ADDRESSES OF THE RECIPIENTS AR E NOT MENTIONED ON THOSE VOUCHERS. THEREFORE, THE POSSIBILITY OF INFLATION OF SUCH EXP ENSES CANNOT BE RULED OUT. ACCORDINGLY ON OVERALL CONSIDERATION OF THE FACTS A ND CIRCUMSTANCES OF THE CASE, HE RESTRICTED THE DISALLOWANCE FIGURE TO RS 10,00,000/ - AND GRANTED RELIEF IN THE SUM OF RS 49,73,880/-. AGGRIEVED, THE REVENUE IS IN APPEAL B EFORE US ON THE FOLLOWING GROUNDS:- 1. THAT THE LEARNED CIT(APPEALS), SILIGURI HAS FAIL ED TO APPRECIATE THAT THE PRIMARY ONUS OF PROOF OF ESTABLISHING THE ACTUAL RA TE OF PROFIT FOR THE WORKS CONTRACTS EXECUTED IN SIKKIM WHICH LIES ON THE ASSE SSEE, WAS NOT DISCHARGED. 2.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS), SILIGURI HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS UNABLE TO PRODUCE BILLS/VOUCHERS IN SUPPORT OF THE EXPENSES IT HAS CL AIMED DISPROPORTIONATELY TO ARRIVE AT A VERY LOW NET PROFIT. 3. THAT THEREFORE, THE LEARNED CIT(APPEALS), SILIGU RI ERRED IN LAW AS WELL AS FACTS OF THE CASE IN DIRECTING THE REDUCE THE ADDITION AT RS. 10,00,000/- MADE BY THE ASSESSING OFFICER (A) RELIANCE IS PLACED ON THE RATIO OF FOLLOWING JU DGMENTS: (I) CIT VS. S.P. NAYAK AND RAMESH M (235 ITR 94), AND (II) CIT VS. H.M. ESUFALI & H.M. ABU ALI [90 ITR 271 (SC)] 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL, IF ANY. 4 ITA NO.1400/KOL/2015 J.K. ENGINEERING PVT. LTD. A.YR.2011-12 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT NO SUPPORTING EVIDENCES WERE SUBMITTED BY THE ASSESSEE WITH REGARD TO THE AFORES AID 15 ITEMS OF EXPENDITURE EITHER BEFORE THE LD AO / LD CITA OR EVEN BEFORE US. TH IS FACT IS NOT IN DISPUTE BEFORE US. HENCE THERE IS NO QUESTION OF FINDING ANY DEFECT IN THE EVIDENCES SUBMITTED THEREON AND THEREAFTER RESORTING TO REJECTION OF BOOKS OF ACCOU NTS U/S 145(3) OF THE ACT. HENCE THE ARGUMENT ADVANCED IN THIS REGARD BY THE LD AR IS SU MMARILY REJECTED. WE FIND THAT THE ASSESSEE HAD DECLARED NET PROFIT AT 1.47% OF TURNOV ER. THE LD AO INCREASED THE SAME TO 4.47% WHICH IS ON THE HIGHER SIDE. AFTER THE RESTR ICTION OF DISALLOWANCE OF EXPENSES TO RS 10,00,000/- BY THE LD CITA, THE NET PROFIT WORKS OUT TO 1.97%. HENCE WE FIND THAT THE NET PROFIT OF 1.97% WOULD MEET THE ENDS OF JUST ICE IN THE INSTANT CASE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 01.11.2017 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 01.11.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-GANGTOK, SIKKIM, AAYAKAR BHAWAN, IN COME TAX OFFICE, BHANUPATH, NEAR WHITE MEMORIAL HALL, P.O.RAJ BHAWAN, GANGTOK-737103 . 2. M/S J.K. ENGINEERING (P) LTD., 32 ND MILE, MIDDLE CAMP, SINGTAM, EAST SIKKIM-737134. 3..C.I.T.(A)-SILIGURI 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 5 ITA NO.1400/KOL/2015 J.K. ENGINEERING PVT. LTD. A.YR.2011-12 5