M/s. Qureshi Construction Co., JODHPUR V. ITO, CHURU

ITA 142/JODH/2014

• Counselvise Citation: 14223314 RSA 2014
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Rejection of books of accounts; Business income; Depreciation; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 142 /JODH/2014 (A.Y. 200 9 - 1 0 ) M/S. QURESHI CONSTRUCTION CO. , VS. ITO, WARD - 2, BISAYATIYAN MOHALLA, WARD NO.11, CHURU. TARANAGAR, DISTRICT CHURU. PAN NO. AAAFQ 1652 Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI U.C. JAIN & SHRI RAJENDRA JAIN. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 23 / 0 7 /201 4 . DATE OF PRONOUNCEMENT : 25 /0 7 /201 4 . O R D E R PER N.K. SAINI, A.M TH IS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 04 / 12 /2013 OF L D . CIT(A) - III , JAIPUR . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN SUSTAINING AN OVER ALL ADDITION OF RS. 556282/ - IN THE INCOME DECLARED FROM CONTRACT BUSINESS. 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 1,88,665/ - IN RESPECT OF INCOME DERIVED FROM INTEREST ON FDRS PLEDGED WITH THE GOVERNMENT DEPARTMENTS AS BUSINESS INCOME SEPARATELY PARTICULARLY WHEN SUCH INCOME IS PART OF THE TOTAL INCOME FROM CONTRACT BUSINESS AND AS SUCH THE ADDITIO N SO CONFIRMED REQUIRES TO BE DELETED. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE AO TO ALLOW REMUNERATION TO THE PART NER ON THE BASIS OF INCOME COMPUTED BY HIM. 4. THAT THE PETITIONER MAY KINDLY BE PERMITTED TO RAISE ANY ADDITIONAL OR ALTERNATIVE GROUN D S AT OR BEFORE THE TIME OF HEARING. 5. THE PETI TIONER PRAYS FOR JUSTICE & RELIEF. 2 FIRST ISSUE VIDE GROUND NO. 1 OF THIS APPEAL RELATES TO THE SUSTENANCE OF ADDITION OF RS. 5,56,282/ - IN THE INCOME DECLARED FROM CONTRACT BUSINESS. 3. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR AND FILED THE RETURN OF INCOME ON 30/09/2009 DECLARING A LOSS OF RS. 1,35,470/ - . LATER ON CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED ANY STOCK REGISTER, NO DAY TO DAY DETAILS OF MATERIAL CONSUMED WERE KEPT, NO VOUCHERS OF EXPENSES SUCH AS GENERAL EXPENSES, STA FF & WELFARE EXPENSES, PRINTING & STATIONERY EXPENSES , SALARY AND TRAVELLING EXPENSES WERE MAINTAINED . HE ALSO NOTED THAT THE ASSESSEE RECEIVED A SUM OF RS. 16,083/ - FROM COMMERCIAL TAX DEPARTMENT WHICH HAD NOT BEEN INCLUDED IN THE TOTAL 3 RECEIPTS AND SOME OF VOUCHERS WERE FOUND TO BE SELF PREPARED. HE, THEREFORE, REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) AND APPLIED NET PROFIT RATE OF 8 .5% AS AGAINST 2.62% SHOWN BY THE ASSESSEE ON THE TOTAL RECEIPTS OF RS. 1,46,66,473/ - . ACCORDINGLY, THE ADDITION WAS MADE BY ENHANCING THE NET PROFIT RATE . 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNTS WHICH WERE AUDITED AND THE GROSS PROFIT RATE DECLARED IN THE IMMEDIATE PRECEDING YEAR I.E. A.Y. 2008 - 09 WAS 8.11% WHILE IN THE YEAR UNDER CONSIDERATION THE SAME WAS AT 8.30% WHICH WAS BETTER. THEREFORE, THE BOOKS OF ACCOUNTS SHOULD NOT HAVE BEEN REJECTED. IT WAS FURTHER STATED THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY REASON FOR APPLYING THE NET PROFIT OF 8.50% WHILE THE NET PROFIT RATE OF 6% WAS DETERMINED BY THE L D. CIT(A) IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2008 - 09 . 5. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, UPHELD THE APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE ACT BY OBSERVING THAT THE BOOKS OF ACCOUNTS OF T HE ASSESSEE WERE DEFINITELY OF 4 DEFECTIVE NATURE INASMUCH AS THE EXPENSES CLAIMED WERE NOT FULLY BACKED BY THE VOUCHERS, NO STOCK REGISTER WAS MAINTAINED, NO DAY TO DAY QUANTITATIVE DETAILS OF CONSUMPTION OF MATERIAL WAS MAINTAINED AND THE ASSESSEE HAD NOT DISPUTED SUCH DEFECTS DURING THE APPELLATE PROCEEDINGS. 6 . AS REGARDS TO THE ESTIMATE OF PROFIT, AFTER INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT , THE LD. CIT(A) OBSERVED THAT THE ASSESSING OFFICER WAS NOT EMPOWERED TO ASSESS THE INCOME AT WHATEVER FIGURES HE WANTED AND THAT THE ASSESSING OFFICER WAS SUPPOSED TO MAKE AN HONEST ESTIMATION EITHER BASED ON THE PAST HISTORY OF THE ASSESSEE S OWN CASE OR COMPARABLE CASE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: - I) M/S. BRIJBHUSHAN LAL PRADHUMAN KUMAR VS. CIT 115 ITR 524 II) SHREE SHANKAR KHANDSARI SUGAR MILLS VS. CIT 193 ITR 669 III) CIT VS. DR. A.P. BAHEL 2 DTR 387 (RAJ.) IV) CIT VS. SURESH MARBLERS PVT. LTD. 18 DTR 118 (RAJ.) V) SHRI RAM JHANWAR VS. ITO 98 TTJ, ITAT JODHPUR . VI) AJAY GOYAL VS. ITO 99 TTJ, ITAT JODHPUR. 7 . THE LEARNED CIT(A) ALSO OBSERVED THAT IN THE PRECEDING YEAR I.E. A.Y. 2008 - 09 , THE ASSESSEE HAD SHOWN NET PROFIT RATE 2.10% WHEREAS THE ASSESSING OFFICER APPLIED NET PROFIT RATE 8.5% AND THE THEN LD. CIT(A) RESTRICTED SUCH NET PROFIT RATE TO 6% SUBJECT TO INTEREST AND REMUNERATION 5 TO PARTNERS AND DEPRECIATION . THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ADOPT THE NET PROFIT RATE OF 6% SUBJECT TO CLAIM OF DEPRECIATION, INTEREST AND REMUNERATION TO THE PARTNERS. NOW THE ASSESSEE IS IN APPEAL. 8 . LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE WAS HAVING RECEIPTS FROM THE OLD CONTRACT BUT THE EXPENSES INCREASED DURING THE YEAR. THEREFORE, THERE WAS DECLINE IN THE NET PROFIT RATE. ALTERNATIVELY, IT WAS SUBMITTED THAT THE NET PROFIT RATE APPLIED BY THE LD. CIT(A) WAS HIGHLY EXCE SSIVE . 9 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. SUPPORTED THE ORDER OF THE LD. CIT(A) AND FURTHER SUBMI T TED THAT THE NET PROFIT RATE OF 6% WAS APPLIED BY THE LD. CIT(A) ONLY ON THE BASIS THAT A SIMILAR RATE ON A HIGHE ST TURNOVER WAS APPLIED IN THE PRECEDING ASSESSMENT YEAR BY THE THEN LD. CIT(A) WHICH WAS ACCEPTED BY THE ASSESSEE . 10 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT CERTAIN SPECIFIC DEFECTS WERE POINTED OUT BY THE 6 ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS, THEREFORE, THE REJECTION OF BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 1 45(3) OF THE ACT WAS JUSTIFIED AND WHE N THE BOOKS ARE REJECTED, THE ONLY WAY LEFT TO DETERMINE THE INCOME IS AN HONEST ESTIMATION WHICH EITHER CAN BE BASED ON THE PAST HISTORY OF THE ASSESSEES OWN CASE OR ANY COMPARABLE CASE. IN THE PRESENT CASE , LD. CIT(A) ADOPTED THE NET PROFIT RATE OF 6% WHICH WAS APPLIED IN THE EARLIER YEAR ON THE CONTRACT RECEIPTS, HOWEVER, THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE WAS SUBSTANTIAL INCREASE IN THE EXPENSES DURING THE YEAR UNDER CONSIDERATION WHILE THE CONTRACT RECEIPTS WERE ON T HE BASIS OF OLD CONTRACT WAS NOT REBUTTED . THEREFORE, NET PROFIT RATE ESTIMATED BY THE LD. CIT(A) ON THE BASIS OF EARLIER YEAR APPEARS TO BE EXCESSIVE PARTICULARLY WHEN THERE WAS AN INCREASE IN THE EXPENSES INCURRED BY THE ASSESSEE . WE THEREFORE, TO MEET THE ENDS OF JUSTICE ARE OF THE VIEW THAT IT WOULD BE FAIR AND REASONABLE IF NET PROFIT RATE OF 5% IS APPLIED AND THE INCOME IS DETERMINED SUBJECT TO INTEREST , REMUNERATION TO THE PARTN E RS AND THE DEPRECIATION . WE ORDER ACCORDINGLY . 11 . THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE CONFIRMATION OF ADDITION IN RESPECT OF INCOME DERIVED FROM INTEREST ON FDR PLEDGED WITH THE GOVERNMENT DEPARTMENT . 7 12. AS REGARDS TO THIS ISSUE, LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVERED VIDE ORD E R DATED 27/03/2014 OF THIS BENCH OF THE TRIBUNAL IN I.T.A. N O . 527/JODH/2013 FOR THE A.Y. 2009 - 10 IN THE CASE OF ACIT , CIRCLE BARMER VS. SHRI LAL CHAND CHOUDHARY , COPY OF THE SAID ORDER WAS FURNISHED. 13 LEARNED D.R. IN HIS RIVAL SUBMISSIONS, ALTHOUGH SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW , BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE . 14 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE AFORESAID REFERRED TO ORDER DATED 27/03/2014 WHEREIN R ELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 8 TO 10 WHICH READ AS UNDER: - 8 . VIDE GROUND NO. 2, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DIRECTION GIVEN TO THE ASSESSING OFFICER TO TREAT THE INTEREST ON FDR AND NSC AS BUSINESS INCOME. 9 . AS REGARDS TO THIS ISSUE, LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT IT IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS BENCH OF THE TRIBUNAL VIDE ORDER DATED 07/03/2013 IN I.T.A.NO. 191/JU/2012 FOR THE A.Y. 2008 - 09 IN ASS ESSEES OWN CASE, WHEREIN RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 12 & 13. THE AFORESAID 8 CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS NOT CONTROVERTED BY THE LEARNED D.R. 10 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOT ICED THAT A SIMILAR ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARAS 12 & 13 OF THE AFORESAID REFERRED TO ORDER DATED 07/03/2013. THE FINDINGS GIVEN THEREIN ARE REPRODUCED AS UNDER: - 12. AFTER HEARING BOTH SIDES WE ARE OF THE CONSIDERE D OPINION THAT THE RULE OF CONSISTENCY DEMANDS US TO FOLLOW THE DECISION OF THIS VERY BENCH. THE JODHPUR BENCH HAS HELD SO IN THE CASE OF JAIN CONSTRUCTION CO. WE EXTRACT PARAS 13 AND 14 OF THE JAIN CONSTRUCTION COMPANY IN ITA NO. 532/JU/2010 A.Y. 2007 - 08 (COPY ENCLOSED AT PAGE 29 ONWARDS), IN WHICH HAS BEEN HELD THUS : - WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE ASSESSEE HAS DECLARED INTEREST PAID TO THIRD PARTIES AMOUNTING TO RS.35,83.211/ - . INTEREST RECEIVED TO THE EXTENT OF RS.3,00,681/ - WAS REDUCED FROM THE INTEREST FOR CLAIMING DEDUCTION IN RESPECT OF THE INTEREST PAID TO THIRD PARTIES. IN CASE INTEREST IS TO BE TREATED AS INCOME FROM OTHER SOURCES THEN DEDUCTION OUT OF NET PROFIT RATE ON ACCOUNT OF INTEREST TO THIRD PARTIES WILL HAVE TO BE ALLOWED TO THE EXTENT OF RS.35,38,211/ - . THUS IT IS ONLY A REVENUE NEUTRAL ISSUE. THE IT AT, JODHPUR BENCH IN THE CASE OF RADHA KRISHAN BENIWAL VS. ACJT (ITA NO. 115/JU/09 DATED 09.07.2009) HELD THAT INTEREST IS TO BE TREATED AS BUSINESS INCOME BECAUSE FD RS AND NSCS WERE PURCHASED IN SUPPORT OF LENDERS TO BE CONSIDERED FOR ACCEPTANCE. THE A.O. IN HIS ORDER HAS NOWHERE MENTIONED THAT SUCH FDRS AND NSCS WERE NOT PURCHASED FOR SUBMITTING THE TENDERS. HENCE, WE HOLD THAT INTEREST SHOULD BE TREATED AS INCOME FR OM BUSINESS IN VIEW OF THE ORDER OF THE JODHPUR TRIBUNAL. 13. SINCE ON IDENTICAL SET OF FACTS, THE I.T.A.T. HAS HELD THAT INTEREST RECEIVED FROM F.D.RS. AND N.S.CS. PLACED WITH GOVERNMENT WHILE OBTAINING CONTRACT FROM GOVERNMENT IS REQUIRED TO BE ASSESS ED AS INCOME FROM BUSINESS. SINCE THIS INTEREST INCOME IS BUSINESS INCOME WHICH HAS BEEN CONSIDERED IN ESTIMATION OF INCOME BY APPLYING N.P. RATE, WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT NO SEPARATE ADDITION IS WARRANTED. ACCORDINGLY, BY FOLLOWING T HE 9 ABOVE JODHPUR BENCH DECISION, WE HAVE TO ALLOW THESE GROUNDS OF APPEAL BECAUSE THE LD. D.R. HAS NOT PRODUCED ANY CONTRARY DECISION OF ANY HIGH COURT OR OF HONBLE SUPREME COURT. 15. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF ACIT, CIRCLE BARMER VS. SHRI LAL CHAND CHOUDHARY (SUPRA) , SO RESPECTFULLY FOLLOWING THE SAID ORDER, THE ADDITION SUSTAINED BY THE LD. CIT(A) IS DELET ED . 1 6 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ( ORDER PRONOUNCED IN THE COURT ON 25 TH JULY , 201 4) . SD/ - SD/ - ( HARI OM MARATHA ) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25 TH JULY , 201 4 . VR/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR .