M/s Bhupendra Prasad Singh, Darbhanga V. ACIT, Darbhanga

ITA 142/PAT/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1179 (ITAT-PATNA)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM BABU
• Assessee Lawyers: ASHISH AGRAWAL; A K RASTOGI RAKESH KUMAR
• Keywords: Rejection of books of accounts; Depreciation
• Section: 68

Judgement Text

1 ITA NO. 142/ PAT /2013. IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 1 42/PAT/201 3 . ASSESSMENT YEAR : 2009 - 10. M/S BHUPENDRA PRASAD SINGH, ASSTT. COMMISSIONER OF INCOME - TAX, KADIRABAD, DARBHANGA. VS. CIRCLE - 3, DARBHANGA. APPELLANT. RESPONDENT. APPELLANT BY : S/ SHRI A.K. RASTOGI, RAKESH KUMAR & ASHISH AGRAWAL. RESPONDENT BY : SHRI RAM BABU. DATE OF HEARING : 0 3 - 08 - 2016 DATE OF PRONOUNCEMENT : 21 ST SEPT., 2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 18 - 03 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2009 - 10. THE GROUNDS OF APPEAL READ AS UNDER : 1. FOR THAT GROUNDS OF APPEAL HERETO ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2. FOR THAT THE APPELLANT HAD SHOWN NET PROFIT OF RS.10,35,560/ - AFTER SETTING OFF DEPRECIATION , INTEREST AND REMUNERATION TO PARTNERS AND NOT RS.29,12,822/ - AS OBSERVED BY CIT(A) AT PAGE 7 OF THE APPELLATE ORDER. THUS ESTIMATE OF NET PROFIT BASED ON WRONG FIGURE OF INCOME ALLEGED TO BE SHOWN IS WRONG, ILLEGAL, UNJUSTIFIED AND EXCESSIVE. 3. FOR THAT ES TIMATE OF NET PROFIT @ 13.5% OF THE GROSS CONTRACT RECEIPT (RS.3,79,92,301) AND ALLOWING SET OFF OF DEPRECIATION, INTEREST AND REMUNERATION ALLOWABLE TO PARTNERS IS WRONG, ILLEGAL, UNJUSTIFIED, ARBITRARY AND IN ANY VIEW HIGH AND EXCESSIVE. 4. FOR THAT THE ORD ER PASSED BY THE LEARNED CIT(A) HAS RESULTED IN ENHANCEMENT OF INCOME TO RS.34,40,545/ - AS AGAINST ASSESSED INCOME OF RS.20,88,590/ - . THE ORDER OF ENHANCEMENT WITHOUT NOTICE TO THE 2 ITA NO. 142/ PAT /2013. APPELLANT IS CONTRARY TO MANDATORY PROVISION OF SECTION 251(2) OF THE INC OME TAX ACT, 1961 AND IS LIABLE TO BE SET ASIDE. 5. FOR THAT CONFIRMATION OF ADDITION OF RS.22,45,315/ - U/S 68 OF THE INCOME TAX ACT, 1961 IN RESPECT OF AMOUNT STANDING IN THE NAME OF ABHIMANUE SINGH (RS.4,53,541/ - ) AND RAM PUKAR SINGH (RS.17,91,774/ - ) IS WRO NG, ILLEGAL, UNJUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE . THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THERE WAS NO FRESH DEPOSIT AND BOTH THE AMOUNT WERE BOUGHT FORWARD FROM PRECEDING YEAR. 2. APROPOS ISSUE OF ADDITION ON ACCOUNT OF ESTIMATED PROFIT. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A CIVIL CONTRACTOR AND DERIVED INCOME FROM EXECUTION OF CONTRACT WORK SHOWING TOTAL INCOME OF RS.10,35,560/ - FOR THE ASSESSMENT YEAR 2009 - 10. DURING THE YEAR UNDER CONSIDERATION, GROSS RE CEIPT SHOWN BY THE ASSESSEE WAS RS.3,79,92,301/ - . ON THIS RECEIPT, THE ASSESSEE HAD SHOWN NET INCOME OF RS.29,19,822/ - WHICH WAS 5.13% OF THE RECEIPT. 3. ON EXAMINATION OF THE BOOKS THE AO DID NOT REJECT THE BOOKS OF ACCOUNTS BUT MADE CERTAIN DISALLOWANCE S ON ACCOUNT OF PURCHASES AND LABOUR CHARGES RESULTING IN ADDITION OF RS.4,97,830/ - AND RS.5,55,200/ - RESPECTIVELY. 4. BEFORE THE LEARNED CIT(APPEALS) , ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF RS.10,53,030/ - IF ADDED TO THE INCOME SHOWN FROM CONTRACT, THE NET PROFIT WILL WORK OUT TO 9% APPROXIMATELY WHICH IS HIGH AND EXCESSIVE. IT WAS SUBMITTED THAT EVEN WHERE BOOKS OF ACCOUNTS WERE REJECTED, THE NET PROFIT IS ESTIMATED NORMALLY AT 6% OF CONTRACT RECEIPT AS UPHELD BY ITAT, PATNA BENCH SUBJECT TO ALLOWAN CE OF DEPRECIATION AND INTEREST AND SALARY PAID TO PARTNERS. HENCE THE ASSESSEE PLEADED THAT THE ADDITION SHOULD BE DELETED. IN THIS REGARD THE ASSESSEE CITED THE FOLLOWING CASE LAWS : 3 ITA NO. 142/ PAT /2013. I) SHYAM BIHARI V. COMMISSIONER OF INCOME TAX (2012) 345 ITR 283 (PATNA). II) M/S PIONEER CONSTRUCTION COMPANY V. DCIT, CIRCLE - 5, PATNA, ITA NO. 35&36/PAT/2009 ASSESSMENT YEAR 2002 - 03 & 2004 - 05. III) RAM PRAKASH RAI ESTATE PVT. LTD. V. DCIT ITA NO. 05/PAT/2010 DT. 10 - 08 - 2011. IV) YOGENDRA RAI, GOPALGANJ V. DCIT, CIRCLE - 2, MUZAFFARPUR. V) CIT V. JAIN CONSTRUCTION CO. & ORS. (1999) 156 CTR 290 (RAJ.) VI) CIT V. CHINNA NACHIMUTHU CONSTRUCTIONS (2008) 297 ITR 70 (KAR.). 5. CONSIDERING THE ABOVE, LEARNED CIT(APPEALS) OBSERVED THAT IN THIS CASE THE CREDIT LIABILITIES ALSO COULD NOT BE SUBSTANTIATED. T HAT IN THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE OFTE N ESTIMATION OF PROFIT HAS TO BE RESORTED TO. HENCE LEARNED CIT(APPEALS) HELD THAT THE AO HAS CORRECTLY REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND MADE DISALLOWANCE OF 5% EACH OF MATERIAL AND LABOUR CHARGES. FURTHER MORE LEARNED CIT(APPEALS) H ELD THAT ESTIMATION OF PROFIT BE ENHANCED TO 8%. LEARNED CIT(APPEALS) FURTHER CONCLUDED AS UNDER : HOWEVER, IN THE INSTANT CASE IT IS SEEN THAT THE DEPRECIATION AS PER BOOKS IS CLAIMED AT RS.1,62,584/ - WHILE INTEREST TO PARTNES AND REMUNERATION TO PARTN ERS IS DEBITED TO P & L A/C AMOUNTING TO RS.7,77,958/ - AND RS.7,77,873 RESPECTIVELY. THE TOTAL ON THIS ACCOUNT COMES TO RS.17,18,415 WHICH REPRESENTS 4.5% OF THE CONTRACTUAL RECEIPTS. I F THE SAME IS ALLOWED TO BE DED UCTED FROM THE ESTIMATED PROFITS @ 8% O F CONTRACTUAL RECEIPTS AMOUNTING TO RS. 30,39,385/ - THE RESULTANT PROFIT WILL BE 13,20,970/ - @ 3.5% OF THE CONTRACTUAL RECEIPTS, MUST BELOW THE PROFITS DECLARED BY THE APPELLANT @ 7.68% AMOUNTING TO RS.29,12,822/ - . THIS WILL BE AN UNACCEPTABLE POSITION AND PRECISELY FOR THIS REASON THE HONBLE PATNA HIH COURT IN THE CASE OF SHYAM BIHARI VS. CIT HELD THAT IF THE NET PROFIT IT TO BE ESTIMATED IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE OF DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THE RE FROM. SINCE IN THE INSTANT CASE THE APPELLANT HAS OFFERED 7.68% ITSELF AMOUNTING TO RS.29,12,822/ - AFTER SETTING OFF DEPRECIATION AND INTEREST AND REMUNERATION TO PARTNERS AND SINCE THE APPELLANT HAS FAILED TO SUBSTANTIATE ITS EXPENSES AND P;ROFITS HAV E TO BE ESTIMATED SUBJECT TO THE ALLOWANCE OF DEPRECIATION AND INTEREST AND SALARY TO PARTNERS (4.5% IN THIS CASE), THE 4 ITA NO. 142/ PAT /2013. PROFITS ARE ESTIMATED @ 13.5% AMOUNTING TO RS.51,28,960/ - AND THE AO IS DIRECTED TO ALLOW DEPRECIATION AS PER RULES AND INTEREST AND REM UNERATION ALLOWABLE TO THE PARTNERS AGAINST THE SAID PROFITS. 6. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 7. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. I FIND THAT THE AO IN THIS CASE HAS NOT REJECTED THE BOOKS OF ACCOUNTS BUT HAS MADE ADHOC DISALLOWANCES OUT OF THE EXPENDITURE ON ACCOUNT OF LACK OF PROPER VOUCHERS. WITHOUT APPRECIATING THE AOS ORDER THE LEARNED CIT(APPEALS) HAS OBSERVED THAT THE AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATION OF PROFI T IS CORRECT . THIS IS NOT AT ALL THE CASE HERE. THE LEARNED CIT(APPEALS) HAS ALSO JUSTIFIED THE AOS ACTION FOR NON SUBSTANTIATION OF LIABILITIES. HOW THIS CAN JUSTIFY ESTIMATE OF PROFIT IS ALSO NOT COMPRE HEND I BLE. FURTHER MORE LEARNED CIT(APPEALS) HAS PROCEEDED TO MAKE ENHANCEMENT ON REASONING MENTIONED ABOVE WHICH IS ALSO BEYOND COGENT . I FIND THAT WHEN THE ASSESSEE IS CITING CASE LAWS FROM ITAT, PATNA ITSELF THAT IN THE LINE OF ASSESSEES BUSINESS 6% ESTIMATION OF PROFIT IS ADEQUATE, I DO NOT SEE ANY REASON WHY THIS SHOULD NOT BE FOLLOWED. HENCE I DIRECT THE AO TO EXAMINE THE ADDITION IN THE LIGHT OF ITAT, PATNA DECI SIONS IN THIS REGARD THAT ESTIMATION OF 6% PROFIT IS SUFFICIENT. HENCE THE AO IS DIRECTED TO LIMIT THE ADDITION TO THE EXTENT IT DOES NOT EXCEED 6% OF THE PROFIT AS EXPOUNDED BY ITAT PATNA IN OTHER CASES. 8. APROPOS CONFIRMATION OF ADDITION U/S 68. ON T HIS ACCOUNT ASSESSEES ACCOUNTS HAD DISCLOSED THAT TWO PARTNERS OF THE ASSESSEE FIRM HAD RETIRED AND IN THE BALANCE SHEET THEIR CAPITAL ACCOUNT WERE CONVERTED INTO UNSECURED LOAN. HOWEVER, THIS CONVERSION OF THE BALANCE AP PEARING INTO CAPITAL ACCOUNT IN TO LOAN ACCOUNT WAS NOT ACCEPTED BY THE REVENUE ON THE GROUND THAT THERE IS NO CONFIRMATION BY THE RETIRED PARTNERS. ONE OF THE RETIRED PARTNER HAD DIED AND CONFIRMATION FROM HIS SON WAS PRODUCED WHICH WAS NOT FOUND SUFFICIENT BY THE REVENUE. 5 ITA NO. 142/ PAT /2013. 9. IN MY CON SIDERED OPINION THE REVENUE IS NOT DISPUTING THE CASE THAT AMOUNTS LYING AS UNSECURED LOAN IN THE NAME OF EARSTWHILE PARTNERS WERE EARLIER BALANCES OUTSTANDING IN THEIR CAPITAL ACCOUNTS. REVENUES ALLEGATION THAT IN ABSENCE OF CONFIRMATION THESE EARLIER C APITAL ACCOUNT BALANCES CAN NOW BE ADDED U/S 68 IS NOT CORRECT. THE ONLY POSSIBLE LEGAL BASIS FOR THIS ADDITION CAN BE THAT THE CAPITAL ACCOUNT BALANCES HAVE BEEN REPAID OUT OF BOOKS. NO SUCH CASE HAS BEEN MADE OUT BY THE REVENUE. MERE ABSENCE OF CONFIRMAT ION FROM EARLIER PARTNERS CANNOT GIVE JURISDICTION TO THE AO FOR ADDITION OF THEIR EARLIER BALANCES WITHOUT MAKING PROPER ENQUIRY. SINCE THEY WERE EARLIER PARTNERS OF THE FIRM THERE IS NO CASE THAT THEIR PAN NOS. OR ADDRESSE S WERE NOT KNOWN TO THE AO. THE AO HAS NOT BROUGHT ON RECORD ANY ENQUIRY WHATSOEVER MADE BY HIM IN THIS REGARD. HENCE IN MY CONSIDERED OPINION, THIS ADDITION IS MADE UPON SURMISES AND CONJECTURE AND DESERVES TO BE QUASHED. ACCORDINGLY I SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELE TE THE ADDITION ON THIS ISSUE. 10. IN THE RESULT THIS APPEAL BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF SEPT., 2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. DATED: 21 ST SEPT., 2016. 6 ITA NO. 142/ PAT /2013. COPY FORWARDED TO : 1. M/S BHUPENDRA PRASAD SINGH, KADIRABAD, DARBHANGA - 846 004. 2. A.C.I.T., CIRCLE - 3, DARBHANGA. 3. C.I.T. - PATNA. 4. CIT(APPEALS) - I, PATNA. 5. D.R., ITAT, PATNA. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. WAKODE.