M/s. Sojar Constructions, Solapur V. Assistant Commissioner of Income-tax,

ITA 1489/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1051 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 07-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUHAS S KULKARNI
• Keywords: Rectification of order; Opportunity of being heard; Retrospective amendment; Corroborative evidences
• Section: 44AD; 142(1); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.1489/PN/2016 / ASSESSMENT YEAR : 2006-07 M/S. SOJAR CONSTRUCTIONS, 4, M.G. SHOPPING CENTRE, BARSHI, SOLAPUR PAN NO. AAMFS5783N . / APPELLANT V/S A CIT, CIRCLE - 2, SOLAPUR . / RESPONDENT / APPELLANT BY : SHRI M.K. KULKARNI / RESPONDENT BY : SHRI SUHAS S. KULKARNI, JCIT / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 01-04-2016 OF THE CIT(A)-7, PUNE RELATING TO THE A SSESSMENT YEAR 2006-07. 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : (WITHOUT PREJUDICE TO EACH OTHER) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE A. O. IN REJECTING THE BOOKS OF ACCOUNT U/S. 145(3) OF THE ACT. THE REASO N THAT THE SAID BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE A. O. THE BOOKS OF ACCOUNT WERE DESTROYED BY HEAVY FLOODS THAT TOOK PLACE ON 27 -09-2007. THE A. O.'S DIRECTION UNDER STATUTORY NOTICE TO PRODUCE THE BOOKS OF ACCOUNT AFTER 29-09-2007 WAS ASKING THE ASSESSEE TO DO SOMETHING IMPOSSIBLE THING. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) WAS NOT JUSTIFIED IN MAKING THE ADDITION MADE BY THE A.O. @ 8% ON 3,88,50,811/- OF RS. 5,74,146/- INVOKING THE PROV ISIONS OF S. 44AD OF THE ACT. IN VIEW OF GROUND NO. 1 ABOVE THE ADDITION IS NOT JUSTIFIED. THE SAME BE DELETED. / DATE OF HEARING :25.08.2016 / DATE OF PRONOUNCEMENT:26.08.2016 2 ITA NO.1489/PN/2016 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 5,25,048/- MADE BY THE A. O. INVOKING THE PROVISIONS OF S. 40(A) (I-A) OF THE ACT. THE PROVISIONS OF S. 40(A)(I-A) CANNOT BE INVOKED AND BEF ORE INVOKING THE SAID PROVISION ONE ASPECT TO BE EXAMINED IS WHETHER SUCH INCOME IS TAXABLE IN TERMS OF I. T. ACT. THIS ASPECT WAS EXPLAINE D BEFORE LD. CIT(A) CITING IN SUPPORT THE 2 ND PROVISO INSERTED IN S. 40(A)(I-A) WITH HAVING RETROSPECTIVE EFFECT. THE HON'BLE BOMBAY HIGH COURT IN SESA RESOURCES LTD. V. CIT (2016) 136 DTR (BOM) 169 AND ALSO BOMBAY HIGH COURT IN CIT V. GUJRAT RECLAIM AND RUBBER PRODUCTS LTD. (2016 ) 136 DTR (BOM) 138. CONSIDERING THE JURISDICTIONAL HIGH COURT JUDGME NT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION AND IT B E DELETED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) WAS NOT JUSTIFIED IN DISMISSING THE GROUND OF APP EAL RAISED BEFORE HIM THAT THE ASSESSMENT IS BARRED BY LIMITATION AS THE DEMAND NOTICE WAS SERVED AFTER 31-12-2008 AND THERE WAS NO EV IDENCE AVAILABLE THAT IT WAS DISPATCHED ON THAT DATE. IN VIE W OF THIS THE ASSESSMENT IS NOT SUSTAINABLE. IT BE QUASHED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LEVY OF INTEREST U/S 234A, 234B AND 234C IS NOT JUSTIFIED. 6. THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTIO N WORK. IT FILED ITS RETURN OF INCOME ON 03-10-2006 DECLARING TOTA L INCOME OF RS.25,33,919/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ASSESSEE FIRM IS ENGAGED IN THE CIVIL CONSTRUCTION WORK AND HAS SHOW N CONTRACT RECEIPTS AT RS.4,13,75,859/- OUT OF WHICH THE FIRM HAS SUB- LET CONTRACT WORK OF RS.25,25,048/- TO M/S. PRATHAMESH CONSTRUCTIONS OF MIRAJ AND M/S. AMAR EARTH MOVERS OF BAR SHI. ON VERIFICATION OF THE TDS MADE BY THE ASSESSEE HE OBSERVED THAT ASSESSEE FIRM HAS MADE TDS OF RS.20,400/- FROM THE PAYMEN T OF RS.20 LAKHS MADE TO M/S. PRATHAMESH CONSTRUCTIONS AND R EMITTED THE SAME TO THE GOVERNMENT ACCOUNT. HOWEVER, NO TDS WAS MADE ON THE PAYMENT OF RS.5,25,048/- TO M/S. AMAR EARTH MOVER S. SINCE THE ASSESSEE FIRM HAS FAILED TO DEDUCT TAX FROM THE SAID C ONTRACT 3 ITA NO.1489/PN/2016 AMOUNT OF RS.5,25,048/- THE AO DISALLOWED THE SAME U/S.40(A)(IA ) OF THE I.T. ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE AO ASKED THE ASSESSEE TO PRODUCE VARIOUS DETA ILS CALLED FOR DURING THE COURSE OF ASSESSMENT PROCEEDINGS INCLUDING BOOKS OF ACCOUNT. IT WAS SUBMITTED BEFORE THE AO DURING THE ASS ESSMENT PROCEEDINGS THAT ASSESSEE IS NOT IN A POSITION TO PRODUC E THE BOOKS OF ACCOUNT SINCE THEY WERE DESTROYED IN THE FLOOD. THE A SSESSEE FILED A COPY OF PANCHANAMA DATED 22-09-2007 BEFORE THE TAHS ILDAR AND A PHOTOSTAT COPY OF THE STATEMENT OF SHRI PRABHAKAR A. BA RBOLE GIVEN BEFORE THE TAHSILAR. 5. THE AO OBSERVED THAT WHEN THE AUDIT REPORT IS DATE D 19-09- 2006 AND THE INCIDENT OF FLOOD TOOK ON 20-09-2006, THEREFO RE, IT IS QUITE POSSIBLE THAT BOOKS OF ACCOUNT WERE LYING WITH THE AUDITOR. THEREFORE, INTENTION OF NON-PRODUCTION OF THE BOOKS OF ACC OUNT BEFORE HIM IS MALAFIDE. HE, THEREFORE, REJECTED THE BOOK RES ULTS AND ESTIMATED THE PROFIT FOR CONTRACT WORK AT 8% OF THE GROS S RECEIPTS OF RS.3,88,50,811/- WHICH CAME TO RS.31,08,064/-. AFTER DEDUCTIN G THE NET PROFIT DISCLOSED AT RS.25,33,918/- THE AO MADE ADD ITION OF RS.5,74,146/- ON ACCOUNT OF SUPPRESSED PROFIT. THUS, IN EFFEC T THE AO MADE ADDITION OF RS.10,99,194/- TO THE RETURNED INCOME OF RS. 25,33,920/-. 6. IN APPEAL THE LD.CIT(A) UPHELD BOTH THE ADDITIONS. AGGR IEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE SUB SEQUENT RECTIFICATION ORDER OF THE AO WHEREIN THE AO IN THE ORDER PASSED U/S.154 DATED 22-01-2000 MENTIONED THE DATE OF FLOOD AS 20-09- 2007 AND NOT 20-09-2006 AS MENTIONED IN THE ASSESSMEN T ORDER. 4 ITA NO.1489/PN/2016 HE SUBMITTED THAT THE ESTIMATION OF PROFIT AT 8% OF THE T URNOVER IS ON THE HIGHER SIDE. HOWEVER, THE ASSESSEE IS NOT IN A PO SITION TO PRODUCE THE BOOKS OF ACCOUNT SINCE THEY WERE DESTROYE D IN THE FLOOD. HE SUBMITTED THAT SINCE THE ACCOUNTS WERE AUDITED AND THE AUDITOR AFTER VERIFICATION HAS CERTIFIED THE BOOK RESULTS, THEREFORE, T HE SAME SHOULD BE ACCEPTED. IN HIS ALTERNATE CONTENTION, HE SUBM ITTED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE BOOK RESULTS OF THE PRECEDING AND SUCCEEDIN G YEARS AND APPLY APPROPRIATE GP RATE ON CONTRACT RECEIPTS. 8. SO FAR AS ADDITION MADE U/S.40(A)(IA) IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO GROUND OF APPEAL NO .3 AND SUBMITTED THAT THE VARIOUS DECISIONS RELIED ON BY THE ASS ESSEE WERE NOT CONSIDERED BY THE CIT(A). 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND DREW THE ATTENTION OF THE BENCH TO PARA 5.3 OF THE ORDER OF T HE CIT(A) WHICH READS AS UNDER : 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE & LAW APPARENT FROM THE RECORDS. NOTICE U/S 143(2) / 142(1) WERE ISSUE D ON 25/06/2007. DURING THE APPELLATE PROCEEDINGS, THE AP PELLANT HAS STATED THAT, BOOKS OF ACCOUNTS HAS BEEN DESTROYED IN FLOOD ON 29/09/2007. THE APPELLANT WAS WELL AWARE OF ITS LEGAL OBLIGATION TO PRODUCE BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER AS NOTICE U/S. 143( 2) WAS SERVED UPON THE ASSESSEE WELL BEFORE THE DATE OF FLOOD I.E 29/ 09/2007. THE STATEMENT OF THE APPELLANT IS SELF CONTRADICTORY THAT, FLOOD OCCURRED ON 29/09/2007 AND TAHASILDAR ISSUED PANCHANAMA DATED 27/0 9/2007 WHICH WAS PRODUCED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT HAS NOT CONTORVERTED THE D ATE OF PANCHANAMA MENTIONED BY THE AO IN ASSESSMENT ORDER. THE APPELLANT HAS NOT SUBMITTED COPY OF PANCHANAMA ALONG WITH SUBMISSI ON DATED 24/02/2016. UNDER THIS CIRCUMSTANCES THE PANCHANAMA DA TED 27/09/2007 OF THE TAHASILDAR APPEAR TO BE BOGUS APPAR ENTLY DRAWN BEFORE TWO DAYS IN ADVANCE OF EVENT OF FLOOD. MORE E VER, THE APPELLANT IS SILENT ABOUT MONETARY LOSSES INCURRED DUE TO HEAVY FLOO D. APPARENTLY, THE PANCHANAMA OF THE TAHASILDAR IS ALSO SILENT ON THE AMOUNT OF THE LOSS DUE TO HEAVY FLOOD. ALONG WITH PANCHANAMA INVENT ORY OF THE ITEMS DESTROYED IN THE FLOOD IS NOT MENTIONED. WHETHER, THE FLOOD DESTROYED ONLY BOOKS OF ACCOUNTS AND LEFT OFFICE FURNITURE AND OTHER VALUABLE OFFICE MATERIAL 1 STOCK ETC. UNTOUCHED IS NOT SPECIFICALLY ME NTIONED BY THE 5 ITA NO.1489/PN/2016 TAHASILDAR AND BY THE APPELLANT. THE APPELLANT COULD HAVE COMPLIED THE SHOW CAUSE NOTICE DATED 26/12/2008 AS APPELLANT WAS HAV ING SUFFICIENT TIME TO RECONSTRUCT SOME PORTION OF THE BOOKS OF ACCOU NT AFTER FLOODS AS THE FLOOD OCCURRED ON 29/09/2007. THIS SHOWS THAT, APP ELLANT WAS HAVING NO INTENTION TO COMPLY THE ASSESSMENT PROCEEDING S. THE APPELLANT HAS RELIED IN THE CASE OF JAY ENGINEERI NG WORKS LTD. (SUPRA). THE FACTS OF THE CASE IS DIFFERENCE FROM THE CASE OF APPELLANT EXCEPT LOSS OF THE BOOKS OF ACCOUNT. HERE THE APPELLA NT AVOIDED THE SHOW CAUSE NOTICE OF THE AO DATED 26/12/2008. LOSS OF THE BOOKS IN THAT CASE WERE NOT IN DOUBT BUT IN CASE OF THE APPELL ANT LOSS OF THE BOOKS IS DOUBTFUL AS THE DATE MENTIONED IN CERTIFICATE IS DO UBTFUL AND WITHOUT ANY SUPPORTING EVIDENCE. UNDER THESE CIRCUMSTANCES AO HAS RIGHTLY REJECTED THE B OOKS OF ACCOUNT AND INVOKED SECTION 145(3). THEREFORE, THE GROUND N O.1 OF THE APPEAL IS DISMISSED. HE ACCORDINGLY SUBMITTED THAT THE REJECTION OF BOOK RES ULTS BY THE AO AND UPHELD BY THE CIT(A) IS JUSTIFIED. HOWEVER, SINCE THE AO HAS ADOPTED THE PROFIT RATE OF 8% BY RELYING ON THE PROVISION S OF SECTION 44AD, THEREFORE, THE ORDER OF THE CIT(A) ON THIS ISSUE SHOU LD BE UPHELD. 10. SO FAR AS THE ADDITION MADE U/S.40(A)(IA) DUE TO NON-DE DUCTION OF TAX AT SOURCE IS CONCERNED, HE SUBMITTED THAT THE AS SESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40(A)(IA) BY NOT DEDUCTING T HE TAX FROM PAYMENTS MADE TO THE SUB-CONTRACTORS. THEREFORE, THE ADDITION MADE BY THE AO AND UPHELD BY THE CIT(A) ON THIS ISSUE IS ALSO JUSTIFIED. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AND THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 11. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I FIND THE AO IN THE ORDER PASSED U/S.154 HAS ALREADY RECTIFIED THE DATE OF FLOOD AS 2 0-09-2007 AND THE ASSESSEE HAS FILED THE PANCHANAMA OF THE TAHSILDA R DATED 27-09-2007 WHICH HAS BEEN ISSUED BY THE TAHSILDAR AFTER THE DATE OF 6 ITA NO.1489/PN/2016 THE FLOOD. THEREFORE, CERTAIN OBSERVATIONS MADE BY THE CI T(A) AT PARA 5.3 OF THE ORDER IS UNCALLED FOR. IN ANY CASE, WHILE A DOPTING THE PROFIT RATE OF 8% ON THE CONTRACT RECEIPTS, THE AO HAS N OT CONSIDERED THE BOOK RESULTS DECLARED BY THE ASSESSEE IN THE PRECE DING AND SUCCEEDING YEARS. IT IS ALSO A FACT THAT THE BOOKS HAVE ALREADY BEEN DESTROYED AND IT IS NOT POSSIBLE ON THE PART OF THE ASSE SSEE AS ADMITTED BY THE LD. COUNSEL FOR THE ASSESSEE TO PRODUCE THE BOOKS BEFORE THE AO. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, I AM OF THE CONSIDERED OPINION THAT THE MATTER REQUIRES RE-VIS IT TO THE FILE OF THE AO. THE AO WHILE ADOPTING THE ESTIMATED PROFIT RATE ON THE CONTRACT RECEIPT WILL KEEP IN MIND THE BOOK RESULTS OF THE PRECEDING AND SUCCEEDING YEARS AND THEN COME TO A CONCLUSION AS TO WHAT RATE SHOULD BE APPLIED. SO FAR AS GROUND RELATING TO ADDITION O N ACCOUNT OF SECTION 40(A)(IA) IS CONCERNED, THE SAME ALSO DESERVES TO BE RESTORED TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDE R THE SAME IN THE LIGHT OF THE LATEST LEGAL POSITION AND DECIDE THE ISSUE A FRESH. WITH THESE OBSERVATIONS, I RESTORE BOTH THE ISSUES TO T HE FILE OF THE AO WITH A DIRECTION TO DECIDE THE MATTER AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. I HOLD AND DIRECT ACCORDINGLY. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 12. GROUNDS OF APPEAL NO.4 WAS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE FOR WHICH THE SAME IS DISMISSED. 13. GROUNDS OF APPEAL NO.5 RELATES TO CHARGING OF INTERES T U/S.234A, 234B AND 234C. CHARGING OF INTEREST UNDER THE ABOVE PROVISIONS ARE MANDATORY AND CONSEQUENTIAL IN NATURE. THE REFORE, GROUND OF APPEAL NO.5 IS DISMISSED. 7 ITA NO.1489/PN/2016 14. GROUND OF APPEAL NO.6 BEING GENERAL IN NATURE IS DISMISSED. 15. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 26-08-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED :26 TH AUGUST, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // // $ % //TRUE COPY // // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 7 , PUNE 4. THE CIT-7, PUNE 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.