SHRI MOHAN LAL BARGOTI, JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR

ITA 1462/JPR/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8802 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 18-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUNI PAL CIT DHK
• Assessee Lawyers: S L PODDAR
• Keywords: Rejection of books of accounts; Depreciation; Principle of natural justice; Set aside
• Section: 143(3); 64; 44AB; 13; 145(3); 69

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES B, JAIPUR JH LANHI XLKA ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA -@ ITA NO. 1462/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2013-14 SHRI MOHAN LAL BARGOTI, 1-A-1, 1-A-2, SUBHASH COLONY, SHASTRI NAGAR, JAIPUR. CUKE VS. A.C.I.T. CIRCLE-4, JAIPUR LFKK;H YS[KK LA -@THVKBZVKJ LA-@ PAN/GIR NO.: ABZPB 7893 C APPELLANT RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY: SHRI S.L. PODDAR (ADV) JKTLO DH VKSJ LS @ REVENUE BY: SMT. RUNI PAL (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18/06/2021 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 30/07/2021 VKNS'K@ ORDER PER: SANDEEP GOSAIN, J.M. THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), AJMER DATED 14/11/2018 FOR THE A.Y. 2013-14. THE GROUNDS TAKEN BY THE ASSESSEE ARE AS UNDER: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 15,34,087/- OUT OF ADDITION OF RS. 30,63,237/- MADE BY THE LD. AO BY APPLYING THE NP RATE OF 3.70% AS AGAINST 2.30% DECLARED BY THE ASSESSEE AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 8,92,473/- OUT OF RS. 43,17,473/- MADE BY THE LD. AO U/S 69 OF THE INCOME TAX ACT, 1961. ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 2 3. THE APPELLANT CRAVES YOUR INDULGENCE TO ADD, AMEND OR ALTER ALL OR ANY GROUNDS OF THE APPEAL BEFORE OR AT THE TIME OF HEARING. 2. THE HEARING OF THE APPEAL AND C.O. WERE CONCLUDED THROUGH VIDEO CONFERENCE IN VIEW OF THE PREVAILING SITUATION OF COVID-19 PANDEMIC. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ENJOYING INCOME FROM ENGINEERING JOB WORK. RETURN WAS FILED ON 12/09/2013 DECLARING TOTAL INCOME OF RS. 30,23,330/-. THE A.O. COMPLETED THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) ON 23/03/2016 DETERMINING TOTAL INCOME OF ASSESSEE AT RS. 1,04,53,410/- BY MAKING THE TRADING ADDITION OF RS. 30,63,237/- AND ADDITION OF RS. 43,17,473/- U/S 69 R.W.S. 115BBE OF THE ACT. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AS WELL AS MATERIAL PLACED ON RECORD GIVEN PART RELIEF TO THE ASSESSEE. AGAINST THE SAID ORDER OF LD. CIT(A), THE ASSESSEE IS IN PRESENT APPEAL BEFORE THE ITAT ON THE GROUNDS MENTIONED ABOVE. 5. GROUND NO. 1 OF THE APPEAL RELATES TO CHALLENGING THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE ADDITION OF RS. 15,34,087/- OUT OF ADDITION OF RS. 30,63,237/- MADE BY THE AO BY APPLYING THE NP RATE OF 3.70% AS AGAINST 2.30% DECLARED BY THE ASSESSEE AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. IN THIS REGARD, THE LD. AR APPEARING ON BEHALF ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 3 OF THE ASSESSEE HAS REITERATED THE SAME ARGUMENTS AS WERE RAISED BEFORE THE LD. CIT(A) AND ALSO RELIED ON THE WRITTEN SUBMISSIONS FILED BEFORE THE BENCH AND THE CONTENTS OF THE SAME IS AS UNDER: THE ASSESSEE IS AN INDIVIDUAL AND ENJOYING INCOME FROM ENGINEERING JOB WORK. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN GROSS RECEIPTS OF RS. 10,92,25,002/- BY DECLARING GROSS PROFIT OF RS. 1,24,40,656/- RESULTING IN GP RATE OF 11.39% AS AGAINST GP RATE OF 11.89% DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2012-13 ON RECEIPTS OF RS. 8,60,64,621/- GROSS PROFIT OF RS. 1,02,32,977/-. HOWEVER THE LD. A.O. ON FINDING THAT THE NET PROFIT RATE OF THE ASSESSEE DISCLOSED AT 2.30% WAS LOWER IN COMPARISON TO ASSESSMENT YEAR 2012-13 WHERE THE SAME WAS 5.11% APPLIED THE SAME NP RATE OF 5.11% AND MADE AN ADDITION OF 30,63,237/-. THE ACTION OF THE LD. A.O. IS UNLAWFUL, ILLEGAL AND UNJUST. THE ASSESSEE HAS MAINTAINED CASH BOOK, LEDGER, JOURNAL, PURCHASE AND SALES REGISTER, BANK BOOK, SALARY & WAGES REGISTER. THE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED DURING THE COURSE OF BUSINESS. ALL THE RECEIPTS ARE VOUCHED. BOOKS OF ACCOUNTS HAVE BEEN AUDITED AND A COPY OF AUDIT REPORT U/S 44AB HAS BEEN FURNISHED ALONG WITH RETURN OF INCOME. THE AUDITORS HAVE NOT GIVEN ANY ADVERSE REMARKS REGARDING THE MAINTENANCE OF THE BOOKS OF ACCOUNTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL THESE BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE LD. A.O. AND NO SERIOUS DEFECT WAS POINTED OUT. IN VIEW OF THIS THE LD. A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOKS ACCOUNTS ON FLIMSY GROUNDS AS UNDER: - (I) THE ASSESSEE WAS NOT MAINTAINING STOCK REGISTER THEREFORE, CONSUMPTION OF MATERIAL CANNOT BE ASCERTAINED. IT IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN JOB WORK AND THE CONSUMABLE ITEMS RUN IN A LARGE NUMBERS FOR WHICH STOCK REGISTER CANNOT BE MAINTAINED. THE ASSESSEE IS NOT A TRADER BUT IS A JOB WORKER AND CONTRACTOR WHERE MAINTENANCE OF STOCK REGISTER IS ALMOST IMPOSSIBLE. ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 4 (II) QUANTITATIVE TALLY OF CLOSING STOCK NOT AVAILABLE WITH THE ASSESSEE. THE NATURE OF JOB CARRIED ON BY THE ASSESSEE AND THE CONTRACT EXECUTED BY HIM MAKE IT IMPOSSIBLE TO MAINTAIN Q. TALLY. HOWEVER THE TOTAL RECEIPTS OF THE ASSESSEE ARE FULLY VOUCHED AND THEY ARE FROM SEMI-GOVT AGENCIES SUCH AS JDA-JODHPUR, JVVNL-JAIPUR, UIT, KOTA,JDA-JAIPUR(WORK PAYMENT), RIICO-JAIPUR, ETC. IN VIEW OF THIS WHEN THE RECEIPTS ARE FROM SEMI GOVT AGENCIES THE LD. A.O. SHOULD NOT HAVE DOUBTED THE RECEIPTS OF THE ASSESSEE AND SHOULD HAVE NOT REJECTED THE BOOKS OF ACCOUNTS THAT THE Q.TALLY WAS NOT MAINTAINED. (III) THE LD. A.O. HAS ALSO OBJECTED THAT IT WAS NOT THE ASSESSEE WHO RAISED THE BILLS OF JOB DONE AND WORKS EXECUTED. BILLS WERE RATHER PREPARED BY THE CONCERNED SEMI-GOVT DEPARTMENT. IN THE VIEW OF THE LD. A.O. THIS DELAYED THE BOOKING OF RECEIPTS IN THE BOOKS OF ACCOUNTS. THE OBJECTION OF THE LD. A.O. IS TOTALLY IRRELEVANT. WHETHER BILLS ARE RAISED BY THE CONCERNED DEPARTMENT OR BY THE ASSESSEE IS NOT A MATERIAL THING. WHAT IS MATERIAL IS PASSING OF THE BILLS AND PAYMENT THEREOF. THE ASSESSEE WOULD ACCOUNT FOR THE RECEIPTS ONLY WHEN PAYMENT IS RECEIVED AND BILLS ARE PASSED. IF THE BILLS WERE PREPARED BY THE ASSESSEE THERE WERE CHANCES OF OBJECTION BY THE CONCERNED DEPARTMENT. SO IN ORDER TO HAVE SMOOTH SAILING IN THE AFFAIRS OF BUSINESS IT WAS IN THE FITNESS OF THINGS THAT BILLS WERE PREPARED BY THE CONCERNED DEPARTMENT. IN VIEW OF THE AFORESAID FACTS THERE WAS NO CASE FOR REJECTING THE BOOKS OF ACCOUNTS U/S 145(3). THE LD. A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS ON VERY TRIVIAL MATTERS. HE HAS RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: I. PANDIT BROS. V. CIT, (1954) 26 ITR 159 (PUNJAB); II. S. VEERIAH REDDIAR V. CIT, (1960) 38 ITR 152 (KERALA); III. M. DURAI RAJ V. CIT, (1972) 83 ITR 484 (KERALA). IV. CIT VS. GOTAN LIME 256 ITR 243 (RAJASTHAN) V. VISHAL INFRASTRUCTURE LTD. ASSESSMENT CIT [2007] 11 SOT 386/104 ITD 537(HYD.). VI. NARSING DAS RAM KISAN VS. ACIT 272 ITR 467 THE LD AR HAS FURTHER SUBMITTED THAT EVEN IF BOOKS OF ACCOUNTS ARE REJECTED ON ONE OR THE OTHER GROUND, THIS IN ITSELF DOES NOT GIVE A LICENSE TO THE LD. ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 5 A.O. FOR MAKING TRADING ADDITION UNLESS SOMETHING SPECIFIC IS POINTED OUT. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: (I) S. SARABHAIAH SETTY & SONS V. CIT[1967] 64 ITR 175 (AP). (II) YAGGINA VEERARAGHAVULU & MAVULETI SANARAJU & CO. V. CIT[1966] 62 ITR 528 (AP). (III) SETH NATHURAM MUNNALAL V. CIT 25 ITR 216 (NAG.) THE LD AR HAS FURTHER SUBMITTED THAT THE LD. A.O. HAS APPLIED NP RATE OF 5.11% OF ASSESSMENT YEAR 2012-13 IN THE YEAR UNDER CONSIDERATION. THIS HAS RESULTED IN TRADING ADDITION OF RS. 30,63,237/-. THE LD. A.O. FAILED TO TAKE INTO CONSIDERATION THE FACTORS WHICH DECREASED THE NP RATE. THE PERUSAL OF THE P&L A/C REVEALS THAT THE EXPENDITURE NOTED BELOW WAS NOT IN ASSESSMENT YEAR 2012-13. IN OTHER WORDS THE EXPENDITURE NOTED BELOW WAS INCURRED FOR THE FIRST TIME IN ASSESSMENT YEAR 2013-14 WHICH IS OF THE NATURE OF GOVT TAXES WHICH HAS REDUCED THE NP RATE. THE DETAILS OF SUCH EXPENDITURE ARE AS UNDER: - (I) VAT EXP AGAINST WORK CONTRACT TAX 1793548.00 (II) WORK CONTRACT COMPOSITION EXP 1100200.00 (III) WORK CONTRACT TAX EXP AGAINST EC 497275.00 TOTAL 3391023.00 BESIDES THIS THE ASSESSEE THE CLAIM OF DEPRECIATION DURING THE YEAR UNDER CONSIDERATION IS OF RS. 6,25,059/- AS AGAINST RS. 3,68,739/- IN ASSESSMENT YEAR 2012-13. (PAGE BOOK PAGE NO. 21) THUS THERE WAS INCREASE IN DEPRECIATION OF RS. 256320/-. THUS THE EXPENDITURE IN THE P&L A/C IN ASSESSMENT YEAR 2013-14 WAS MORE BY RS. 3647343/- (3391023+256320). IT BECAUSE OF THIS EXPENDITURE THAT NP RATE HAS GONE DOWN. IT IS SUBMITTED THAT ASSESSEE DID NOT CHARGE ANY SUCH TAXES FROM THE GOVT AGENCIES ON JOB WORK EXECUTED.. THE LD. A.O. MADE ADDITION OF RS. 30,63,237/- WHERE THE ASSESSEE HAS INCURRED MORE EXPENDITURE OF RS. 36,47,343/-. THUS THE FALL IN NP RATE IS FULLY EXPLAINED. IF THE LD. A.O. HAD TAKEN INTO CONSIDERATION THIS FACTOR OF MORE EXPENDITURE THERE WOULD HAVE BEEN NO CASE FOR ADDITION. IF THE EXPENDITURE TO THE EXPENDITURE OF RS. 36,47,343/- IS TAKEN OUT FROM THE ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 6 P&L A/C IS NP WOULD INCREASE TO RS. 69,40,599/- AND THE NP RATE WOULD WORK OUT TO 6.35% WHICH IS FAR MORE THAN 5.11% AS APPLIED BY THE LD. A.O.. IN OTHER WORDS EVEN ON INCREASED RECEIPTS THE ASSESSEE HAS DISCLOSED BETTER NET PROFIT. THUS THERE IS NO CASE FOR APPLYING HIGHER NP RATE. THERE IS TOTALLY NO JUSTIFICATION FOR MAKING ANY TRADING ADDITION. THE LD. CIT(A) HAS GIVEN PART RELIEF OUT OF THE ADDITION MADE BY THE LD. AO. THE LD. CIT(A) HAS NOT GIVEN ANY COGENT REASON FOR NOT ACCEPTING THE ASSESSEES PLEA COMPLETELY. THE LD. CIT(A) HAS HELD THAT THE AO SHOULD CONSIDERED AND TAKEN INTO THE ACCOUNT THE EXPLANATION FURNISHED BY ASSESSEE IN RESPECT OF FALL IN NP RATE INSTEAD OF SIMPLY APPLYING THE NP RATE. BUT THE LD. CIT(A) FURTHER HAS NOT SUBSTANTIATE FOR APPLYING THE GP RATE OF 3.70% WITHOUT POINTING OUT ANY SPECIFIC DEFECT OR COMMENTING ON THE EXPENDITURE DEBITED IN P&L A/C SPECIFICALLY. AVERAGE RATE OF LAST TWO YEARS CAN BE APPLIED IN CASE OF GP APPLICATION ONLY. BUT WHERE APPLICATION OF NP RATE IS CONCERNED THEN YOU HAVE TO POINTED OUT SPECIFIC DEFECT FOR THE EXPENDITURE DEBITED IN P&L A/C WHICH HAS NOT BEEN DONE BY THE LD. AO AS WELL AS LD. CIT(A), THEREFORE THE ADDITION SUSTAINED BY THE LD. CIT(A) FOR RS. 15,29,150/- DESERVES TO BE DELETED. 6. ON THE OTHER HAND, THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE LD. COUNSELS OF BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL PLACED ON RECORD. WE HAVE ALSO DELIBERATED UPON THE DECISIONS CITED IN THE ORDERS PASSED BY THE AUTHORITIES BELOW AS WELL AS CITED BEFORE US AND WE HAVE ALSO GONE THROUGH THE ORDERS PASSED BY THE REVENUE AUTHORITIES. AS PER THE FACTS OF THE PRESENT CASE, WE NOTICED THAT THE ASSESSEE IS AN INDIVIDUAL AND ENJOYING INCOME FROM ENGINEERING ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 7 JOB WORK. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN GROSS RECEIPTS OF RS. 10,92,25,002/- BY DECLARING GROSS PROFIT OF RS. 1,24,40,656/- RESULTING IN GP RATE OF 11.39% AS AGAINST GP RATE OF 11.89% DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2012-13 ON RECEIPTS OF RS. 8,60,64,621/- GROSS PROFIT OF RS. 1,02,32,977/-. HOWEVER THE A.O. ON FINDING THAT THE NET PROFIT RATE OF THE ASSESSEE DISCLOSED AT 2.30% WAS LOWER IN COMPARISON TO A.Y. 2012-13 WHERE THE SAME WAS 5.11% APPLIED THE SAME NP RATE OF 5.11%. 8. WE OBSERVED THAT THE ASSESSEE HAS MAINTAINED CASH BOOK, LEDGER, JOURNAL, PURCHASE AND SALES REGISTER, BANK BOOK, SALARY & WAGES REGISTER. THE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED DURING THE COURSE OF BUSINESS. ALL THE RECEIPTS ARE VOUCHED. BOOKS OF ACCOUNTS HAVE BEEN AUDITED AND A COPY OF AUDIT REPORT U/S 44AB HAS BEEN FURNISHED ALONG WITH RETURN OF INCOME. THE AUDITORS HAVE NOT GIVEN ANY ADVERSE REMARKS REGARDING THE MAINTENANCE OF THE BOOKS OF ACCOUNTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE A.O. AND NO SERIOUS DEFECT WAS POINTED OUT. IN VIEW OF THIS THE A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOKS ACCOUNTS ON THE GROUNDS AS UNDER: - (I) THE ASSESSEE WAS NOT MAINTAINING STOCK REGISTER THEREFORE, CONSUMPTION OF MATERIAL CANNOT BE ASCERTAINED. IT IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN JOB WORK AND THE CONSUMABLE ITEMS RUN IN A LARGE NUMBERS FOR WHICH STOCK ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 8 REGISTER CANNOT BE MAINTAINED. THE ASSESSEE IS NOT A TRADER BUT IS A JOB WORKER AND CONTRACTOR WHERE MAINTENANCE OF STOCK REGISTER IS ALMOST IMPOSSIBLE. (II) QUANTITATIVE TALLY OF CLOSING STOCK NOT AVAILABLE WITH THE ASSESSEE. THE NATURE OF JOB CARRIED ON BY THE ASSESSEE AND THE CONTRACT EXECUTED BY HIM MAKE IT IMPOSSIBLE TO MAINTAIN QUANTITATIVE TALLY. HOWEVER THE TOTAL RECEIPTS OF THE ASSESSEE ARE FULLY VOUCHED AND THEY ARE FROM SEMI-GOVT AGENCIES SUCH AS JDA-JODHPUR, JVVNL-JAIPUR, UIT, KOTA, JDA-JAIPUR (WORK PAYMENT), RIICO-JAIPUR, ETC. IN VIEW OF THIS WHEN THE RECEIPTS ARE FROM SEMI GOVT. AGENCIES THE A.O. SHOULD NOT HAVE DOUBTED THE RECEIPTS OF THE ASSESSEE AND SHOULD HAVE NOT REJECTED THE BOOKS OF ACCOUNTS THAT THE QUANTITATIVE TALLY WAS NOT MAINTAINED. (III) THE A.O. HAS ALSO OBJECTED THAT IT WAS NOT THE ASSESSEE WHO RAISED THE BILLS OF JOB DONE AND WORKS EXECUTED. BILLS WERE RATHER PREPARED BY THE CONCERNED SEMI-GOVT DEPARTMENT. IN THE VIEW OF THE A.O. THIS DELAYED THE BOOKING OF RECEIPTS IN THE BOOKS OF ACCOUNTS. THE OBJECTION OF THE A.O. IS TOTALLY IRRELEVANT. WHETHER BILLS ARE RAISED BY THE CONCERNED DEPARTMENT OR BY THE ASSESSEE IS NOT A MATERIAL THING. WHAT IS MATERIAL IS PASSING OF THE BILLS AND PAYMENT THEREOF. THE ASSESSEE WOULD ACCOUNT FOR THE RECEIPTS ONLY WHEN PAYMENT IS RECEIVED AND BILLS ARE PASSED. IF THE BILLS WERE PREPARED BY THE ASSESSEE THERE WERE CHANCES OF OBJECTION BY THE CONCERNED DEPARTMENT. SO IN ORDER TO HAVE SMOOTH SAILING IN THE AFFAIRS OF BUSINESS IT WAS IN THE FITNESS OF THINGS THAT BILLS WERE PREPARED BY THE CONCERNED DEPARTMENT. IN VIEW OF THE AFORESAID FACTS THERE WAS NO CASE FOR REJECTING THE BOOKS OF ACCOUNTS U/S 145(3). THE A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS ON VERY TRIVIAL MATTERS. THE FOLLOWING CASE LAWS ARE QUOTED IN SUPPORT THE LD AR HAS RELIED ON THE DECISION OF THE COORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF VISHAL INFRASTRUCTURE LTD. ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 9 ASSESSMENT CIT [2007] 11 SOT 386/104 ITD 537(HYD.) WHEREIN IT HAS BEEN HELD AS UNDER: ACCOUNTS REGULARLY MAINTAINS IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE AND INCORRECT. THE DEPARTMENT HAS TO PROVE SATISFACTORILY THAT THE ACCOUNT BOOKS ARE UNRELIABLE OR INCORRECT OR INCOMPLETE BEFORE IT CAN REJECT IN THE ACCOUNT BOOKS AND THIS CAN BE DONE BY SHOWING THAT IMPORTANT TRANSACTIONS ARE OMITTED OR PROPER PARTICULARS AND VOUCHERS ARE NOT FORTHCOMING OR THE ACCOUNTS DO NOT INCLUDE ENTRIES RELATING TO A PARTICULAR CLASS OF BUSINESS.' WE ALSO DRAW STRENGTH FROM THE DECISION IN THE CASE OF NARSING DAS RAM KISAN VS. ACIT 272 ITR 467 ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. THE DEPARTMENT HAS TO PROVE SATISFACTORILY THAT THE ACCOUNT BOOKS ARE UNRELIABLE, INCORRECT OR INCOMPLETE BEFORE IT CAN REJECT THE ACCOUNTS . REJECTION OF ACCOUNTS SHOULD NOT BE DONE LIGHT HEARTEDLY. THOUGH IT MAY NOT BE POSSIBLE TO LAY DOWN THE EXACT CIRCUMSTANCES IN WHICH THE ACCOUNTS SHOULD BE REJECTED ON UNRELIABLE OR INCORRECT, THE ACCOUNTS MAY BE REJECTED AS UNREASONABLE, IF IMPORTANT TRANSACTIONS ARE OMITTED OR IF PROPER PARTICULARS AND VOUCHERS ARE NOT FORTHCOMING OR IF THEY DO NOT INCLUDE ENTRIES RELATING TO A PARTICULAR CLASS OF BUSINESS. 9. WE ALSO OBSERVED THAT THE REJECTION OF BOOKS OF ACCOUNT IS NO GROUND FOR APPLICATION OF HIGHER NET PROFIT EVEN IF BOOKS OF ACCOUNTS ARE REJECTED ON ONE OR THE OTHER GROUND, THIS IN ITSELF DOES NOT GIVE LIBERTY TO THE A.O. FOR MAKING TRADING ADDITION UNLESS SOMETHING SPECIFIC IS POINTED OUT. IN THIS REGARD, WE DRAW STRENGTH FROM THE DECISION IN THE CASE OF S. SARABHAIAH SETTY & SONS V. CIT[1967] 64 ITR 175 (AP) WHEREIN IT HAS BEEN HELD AS UNDER: ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 10 ASSESSEE MUST BE GIVEN OPPORTUNITY TO REBUT ESTIMATE. WHERE THE ITO DID NOT STATE THE BASIS OF THE ESTIMATE AND NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO REBUT THAT BASIS, HIS ORDER WAS LIABLE TO BE SET ASIDE. WE ALSO DRAW STRENGTH FROM THE DECISION IN THE CASE OF YAGGINA VEERARAGHAVULU & MAVULETI SANARAJU & CO. V. CIT[1966] 62 ITR 528 (AP) WHEREIN IT HAS BEEN HELD AS UNDER: WHERE AFTER REJECTING THE ACCOUNTS OF THE ASSESSEE, AN ESTIMATE OF THE TURNOVER AND GROSS PROFIT IS FIXED TO THE DETRIMENT OF THE ASSESSEE, THE ASSESSEE IS ENTITLED TO KNOW THE BASIS AND ALSO TO AN OPPORTUNITY TO REBUT THE SAME. IN THE CASE OF SETH NATHURAM MUNNALAL V. CIT 25 ITR 216 (NAG.) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT IF THE ASSESSEE FAILS TO SATISFY THE ITO AS TO THE CORRECTNESS OF THE PROFITS RETURNED BY HIM, IT IS OPEN TO THE ITO TO TAKE A HIGHER PERCENTAGE CONSISTENT WITH THE STATE OF TRADE IN THE LOCALITY OR WITH ANY SPECIAL CIRCUMSTANCES OF THE ASSESSEE WHICH WARRANT HIGHER RATE OF PROFITS. HOWEVER, THE ITO MUST DISCLOSE THE BASIS AND MANNER OF COMPUTATION AND MAKE HIS ORDER A SPEAKING ORDER. 10. WE ALSO OBSERVED THAT THE ASSESSEE IS AN INDIVIDUAL AND ENJOYING INCOME FROM ENGINEERING JOB WORK. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN GROSS RECEIPTS OF RS. 10,92,25,002/- BY DECLARING GROSS PROFIT OF RS. 1,24,40,656/- RESULTING IN GP RATE OF 11.39% AS AGAINST GP RATE OF 11.89% DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2012-13 ON RECEIPTS OF RS. 8,60,64,621/- GROSS PROFIT OF RS. 1,02,32,977/-. HOWEVER THE A.O. ON FINDING THAT THE NET PROFIT RATE OF ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 11 THE ASSESSEE DISCLOSED AT 2.30% WAS LOWER IN COMPARISON TO ASSESSMENT YEAR 2012-13 WHERE THE SAME WAS 5.11% APPLIED THE SAME NP RATE OF 5.11% AND MADE AN ADDITION OF 30,63,237/-. HOWEVER, IT WOULD BE SEEN THAT THE ASSESSEE HAS ALMOST MAINTAINED THE GROSS PROFIT RATE DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR 2012-13 DESPITE INCREASE IN RECEIPTS. THE ASSESSEE HAS DISCLOSED GP RATE OF 11.39% ON RECEIPTS OF RS. 10,92,25,002/- WHEREAS IN ASSESSMENT YEAR 2012-13 THE RECEIPTS WERE ONLY RS. 8,60,64,621/-. THE INCREASE IN RECEIPT IS 27%. DESPITE THIS THERE IS NO FALL IN GP RATE. THE A.O. DID NOT TAKE THIS FACT INTO CONSIDERATION, OTHERWISE THERE WOULD HAVE NOT BEEN ANY OCCASION IN MAKING TRADING ADDITION. THE A.O. HAS APPLIED NP RATE OF 5.11% OF ASSESSMENT YEAR 2012-13 IN THE YEAR UNDER CONSIDERATION. THIS HAS RESULTED IN TRADING ADDITION OF RS. 30,63,237/-. THE A.O. FAILED TO TAKE INTO CONSIDERATION THE FACTORS WHICH DECREASED THE NP RATE. THE PERUSAL OF THE P&L A/C REVEALS THAT THE EXPENDITURE NOTED BELOW WAS NOT IN ASSESSMENT YEAR 2012-13. IN OTHER WORDS, THE EXPENDITURE NOTED BELOW WAS INCURRED FOR THE FIRST TIME IN ASSESSMENT YEAR 2013-14 WHICH IS OF THE NATURE OF GOVT TAXES WHICH HAS REDUCED THE NP RATE. THE DETAILS OF SUCH EXPENDITURE ARE AS UNDER: - (I) VAT EXP AGAINST WORK CONTRACT TAX 1793548.00 (II) WORK CONTRACT COMPOSITION EXP 1100200.00 ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 12 (III) WORK CONTRACT TAX EXP AGAINST EC 497275.00 TOTAL 3391023.00 BESIDES THIS, THE CLAIM OF DEPRECIATION DURING THE YEAR UNDER CONSIDERATION IS OF RS. 6,25,059/- AS AGAINST RS. 3,68,739/- IN ASSESSMENT YEAR 2012-13. THUS THERE WAS INCREASE IN DEPRECIATION OF RS. 2,56,320/-. THUS, THE EXPENDITURE IN THE P&L A/C IN ASSESSMENT YEAR 2013-14 WAS MORE BY RS. 3647343/- (3391023+256320). IT BECAUSE OF THIS EXPENDITURE THAT NP RATE HAS GONE DOWN. THE LD AR HAS SUBMITTED THAT ASSESSEE DID NOT CHARGE ANY SUCH TAXES FROM THE GOVT AGENCIES ON JOB WORK EXECUTED. THE A.O. MADE ADDITION OF RS. 30,63,237/- WHERE THE ASSESSEE HAS INCURRED MORE EXPENDITURE OF RS. 36,47,343/-. THUS, THE FALL IN NP RATE IS FULLY EXPLAINED. IF THE A.O. HAD TAKEN INTO CONSIDERATION THIS FACTOR OF MORE EXPENDITURE THERE WOULD HAVE BEEN NO CASE FOR ADDITION. IF THE EXPENDITURE TO THE EXPENDITURE OF RS. 36,47,343/- IS TAKEN OUT FROM THE P&L A/C THEN NP WOULD INCREASE TO RS. 69,40,599/- AND THE NP RATE WOULD WORK OUT TO 6.35% WHICH IS FAR MORE THAN 5.11% AS APPLIED BY THE A.O.. IN OTHER WORDS, EVEN ON INCREASED RECEIPTS THE ASSESSEE HAS DISCLOSED BETTER NET PROFIT. THUS THERE IS NO CASE FOR APPLYING HIGHER NP RATE. THERE IS TOTALLY NO JUSTIFICATION FOR MAKING ANY TRADING ADDITION. THE LD. CIT(A) HAS GIVEN PART RELIEF OUT OF THE ADDITION MADE BY THE AO. THE LD. CIT(A) HAS NOT GIVEN ANY COGENT REASON FOR NOT ACCEPTING THE ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 13 ASSESSEES PLEA COMPLETELY. THE LD. CIT(A) HAS HELD THAT THE AO SHOULD BE CONSIDERED AND TAKEN INTO THE ACCOUNT THE EXPLANATION FURNISHED BY ASSESSEE IN RESPECT OF FALL IN NP RATE INSTEAD OF SIMPLY APPLYING THE NP RATE. BUT THE LD. CIT(A) FURTHER HAS NOT SUBSTANTIATE FOR APPLYING THE GP RATE OF 3.70% WITHOUT POINTING OUT ANY SPECIFIC DEFECT OR COMMENTING ON THE EXPENDITURE DEBITED IN P&L A/C SPECIFICALLY. AVERAGE RATE OF LAST TWO YEARS CAN BE APPLIED IN CASE OF GP APPLICATION ONLY. BUT WHERE APPLICATION OF NP RATE IS CONCERNED THEN YOU HAVE TO POINTED OUT SPECIFIC DEFECT FOR THE EXPENDITURE DEBITED IN P&L A/C WHICH HAS NOT BEEN DONE BY THE LD. AO AS WELL AS LD. CIT(A). THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE DIRECT TO DELETE THE ADDITION SUSTAINED BY THE LD. CIT(A) FOR RS. 15,29,150/-. 11. GROUND NO. 2 OF THE APPEAL RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE ADDITION OF RS. 8,92,473/- OUT OF RS. 43,17,473/- MADE BY THE AO U/S 69 OF THE ACT. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE MATERIAL PLACED ON RECORD. FROM PERUSAL OF THE RECORD, WE OBSERVED THAT THE ASSESSEE HAS CONSTRUCTED RESIDENTIAL HOUSE AT 8/99, VIDHYADHAR NAGAR, JAIPUR WHICH WAS COMPLETED DURING THE YEAR UNDER CONSIDERATION. THE A.O. ADOPTED THE COST OF INVESTMENT IN THE CONSTRUCTION OF HOUSE AT RS. 1,64,25,000/- ON THE BASIS OF A REPORT DATED 09.03.2011 BY GENESIS ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 14 PROP. SHRI RADHUVEEN SINGH. THIS WAS A REPORT SUBMITTED TO THE BANK IN CONNECTION WITH OBTAINING LOAN FOR THE CONSTRUCTION OF HOUSE. ON THE BASIS OF THIS REPORT THE ASSESSEE WAS GRANTED LOAN OF RS. 75,00,000/- BY THE BANK AS PER LETTER DATED 29.03.2011. HOWEVER TOTAL LOAN DISBURSED BY THE BANK OF RS. 69,13,200/-. THE LAST INSTALLMENT PAID BY THE BANK WAS ON 06.06.2012 OF RS. 20,00,000/-. THE A.O. HAS NOT TAKEN THIS AMOUNT OF BANK LOAN IN CONSIDERATION ON THE GROUND THAT THE SAME WAS NOT USED FOR CONSTRUCTION PURCHASES BUT WAS USED FOR PURPOSES OF BUSINESS. IN THE VIEW OF THIS, THE A.O. OUT OF THE TOTAL AMOUNT OF LOAN RECEIVED FROM THE BANK OF RS. 69,13,200/- ONLY RS. 49,13,200/- WAS UTILIZED FOR CONSTRUCTION PURPOSES. FURTHER THE A.O. HAS ALSO CONSIDERED OTHER INVESTMENT MADE BY THE FAMILY MEMBERS OF THE ASSESSEE. THE TOTAL INVESTMENT TREATED AS EXPLAINED BY THE A.O. IS OF RS. 1,21,07,527/- WHICH IS DETAILED AS UNDER: - 1. HIMANSHU BARGOTI (SON) 37000/- 2. SUBHAM BARGOTI (SON) 3 25700/- 3. RAKESH BARGOTI (BROTHER) 2020000/- 4. INDIAN COMMERCIAL SERVICES (SELF) 3946000/- 5. MOHAN LAL BARGOTI (SELF) 865627/- 5. BANK LOAN 4930200/- TOTAL 1,21,07,527/- IN VIEW OF THE AFORESAID INVESTMENT OF RS. 1,21,07,527/- TREATED AS EXPLAINED, THE A.O. TREATED THE BALANCE AMOUNT OF RS. 43,17,473/- (16425000-12107527) AS UNEXPLAINED AND MADE ADDITION UNDER SECTION 69 OF THE ACT. THE LD. CIT(A) REDUCED THIS ADDITION TO RS. 8,92,473/- ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 15 CONSIDERING THAT THE REPORT GIVEN TO THE BANKER WAS ESTIMATED AND NO ADDITION CAN BE MADE ON THE BASIS OF ESTIMATION. BUT HE HAS TAKEN THE VALUE OF HOUSE/INVESTMENT IN HOUSE AT RS. 1.3 CRORE. THE LD. CIT(A) DID NOT CONSIDER THE PAYMENT MADE AFTER COMPLETION OF THE HOUSE. 13. WE ALSO OBSERVED THAT THE A.O. DID NOT CONSIDER THE FACT THAT THE ASSESSEE WAS HIMSELF A CONTRACTOR AND WAS HAVING FULL KNOWLEDGE ABOUT OF WORK OF CONSTRUCTION. HE HIMSELF SUPERVISED THE ENTIRE WORK OF CONSTRUCTION. NO AMOUNT WAS PAID FOR SUPERVISION TO ANY ENGINEER OR AN ARCHITECT. THIS SAVED HIM AROUND 12.5% OF THE COST OF INVESTMENT. SUCH DEDUCTION WOULD HAVE BEEN ALLOWED BY THE A.O.. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN JOB WORK AND CONTRACTOR WORK. THIS FACT IS PROVED BY EXECUTING WORKS OF JDA JODHPUR AND UIT-KOTA ETC. THEREFORE ASSESSEE HAS THE EXPERTISE OF PURCHASING THE RAW MATERIAL FOR CONSTRUCTION PURPOSES AT THE CHEAPEST RATES. NORMALLY IF THE WORK OF CONSTRUCTION IS ASSIGNED TO A CONTRACTOR HE WOULD A MARGIN OF 12.5% AS CONTRACTOR'S MARTIN. THE ASSESSEE SAVED THIS AMOUNT. THUS, BY WAY OF PERSONAL SUPERVISION AND PURCHASING THE RAW MATERIAL HIMSELF THE ASSESSEE COULD SAY AT LEAST 25% OF THE COST OF CONSTRUCTION. THIS RESULTED IN SAVINGS TO THE EXTENT OF RS. 41,06,250/-. THE ADDITION MADE BY THE A.O. IS OF RS. 43,17,473/-. THUS, THE DIFFERENCE IS VERY MARGINAL. IT IS ALSO SETTLED POSITION OF LAW THAT IN CASES OF ESTIMATE VARIATION UP TO 10% ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 16 DESERVES TO BE IGNORED. IN THIS CASE THE ESTIMATE ADOPTED FOR THE COST OF CONSTRUCTION IS JUST A PURE AND ROUGH ESTIMATE. THEREFORE DEDUCTION UP TO THE LEVEL OF 10% IS WARRANTED IN SUCH CASES. IN THIS REGARD, WE DRAW STRENGTH FROM THE DECISION IN THE CASE OF CIT VS. HONEST GROUP OF HOTELS PVT LTD. 177 CTR 232 (J&K) WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: IN VIEW OF THIS IF THE LD. A.O. HAD CONSIDERED THE POSITION OF THE ASSESSEE AS A CONTRACTOR AND ALSO AS A SUPERVISOR FOR CARRYING OUT THE CONSTRUCTION WORK, THEREFORE WOULD HAVE NO OCCASION FOR MAKING THE ADDITION. THE ADDITION MADE MAY KINDLY BE DELETED. 14. FROM PERUSAL OF THE IMPUGNED ORDER QUA THIS ISSUE, WE OBSERVED THAT THE LD. CIT(A) HAS HIMSELF HELD THAT ADDITION U/S 69 CANNOT BE MADE ON THE BASIS ESTIMATE. THE AO DID NOT BRING ANY EVIDENCE ON RECORD TO SUBSTANTIATE HIS CLAIM THAT THE ASSESSEE HAS MADE MORE INVESTMENT IN HOUSE CONSTRUCTION THEN WHAT WAS EXPLAINED HIM. THE SUBMISSION OF THE ASSESSEE WAS ONLY ON ESTIMATED BASIS. THE LD. CIT(A) HAS CONFIRMED THE ADDITION OF RS. 8,92,473/- ON THE BASIS OF SOURCE OF INVESTMENT NOT EXPLAINED BY THE ASSESSEE FOR CONSTRUCTION. BEFORE THE AO THE ASSESSEE HAS ALSO SUBMITTED THAT THE CASH WITHDRAWAL OF FAMILY MEMBERS DURING THE FINANCIAL YEAR 2010-11 TO 2013-14 WHEN THE CONSTRUCTION WAS STARTED AND COMPLETED. DURING THE FINANCIAL YEAR 2013-14 THEN THE HOUSE WAS ON THE FINISHING STAGE AND PAYMENTS OF MANY VENDORS WERE MADE AFTER COMPLETION OF CONSTRUCTION WAS NOT CONSIDERED BY THE AO AND CIT(A) ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 17 WHICH ARE MORE THAN RS. 16,15,000/-. THE ASSESSEE CLAIMED BEFORE THE AO THAT THE FOLLOWING FAMILY MEMBERS HAVE CONTRIBUTED FOR HOUSE CONSTRUCTION DURING THE CONSTRUCTION PERIOD AS UNDER:- (I) HIMANSHU BARGOTI RS. 422165/- (II) SUBHAM BARGOTI RS. 325700/- (III) RAKESH BARGOTI RS. 3080000/- (IV) SELF RS. 3946000/- TOTAL RS. 7773865/- BUT THE AO HAS GIVEN CREDIT OF FOLLOWING AMOUNTS OUT OF ABOVE. (I) HIMANSHU BARGOTI RS. 37000/- (II) SUBHAM BARGOTI RS. 325700/- (III) RAKESH BARGOTI RS. 2020000/- (IV) SELF RS. 3946000/- TOTAL RS. 6328700/- THE AO HAS NOT GIVEN CREDIT FOR MORE THAN 14,45,165/- ONLY BECAUSE WITHDRAWALS WERE AFTER COMPLETION OF THE HOUSE. THE PAYMENTS WERE MADE AFTER THE COMPLETION. THEREFORE WITHOUT MAKING ANY FURTHER ENQUIRY THE CLAIM OF THE ASSESSEE COULD NOT BE REJECTED AND ADDITION SO SUSTAINED ON THIS ACCOUNT FOR RS. 892473/- DESERVES TO BE DELETED. THEREFORE, IN VIEW OF THE PRINCIPLES OF NATURAL JUSTICE AS WELL AS CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES, WE DIRECT TO DELETE THE ADDITION SUSTAINED QUA THIS ISSUE. ITA 1462/JP/2018 _ SHRI MOHAN LAL BARGOTI VS ACIT 18 15. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2021. SD/- SD/- FOE FLAG ;KNO LANHI XLKA (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 30/07/2021 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI MOHAN LAL BARGOTI, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE A.C.I.T., CIRCLE-4, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 1462/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR