M/s Rana Engineering Company, Paschim Medinipur V. ACIT, CIR-1, MIDNAPORE, Paschim Medinipur

ITA 1492/KOL/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83167 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 07-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DILI P KR RAKSHIT
• Keywords: Business income; Assessment record
• Section: 44AD; 143(3); 142(1); 144

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 1492 /KOL/20 1 4 / ASSESSMENT YEAR : 20 1 0 - 1 1 M/S. RANA ENGINEERING COMPANY VS. ASSISTANT COMMISSIONER OF INCOME - TAX, (PAN:AADFR3171Q) CIRCLE - 1, MIDNAPORE ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 2 0 . 1 0 .201 4 DATE OF PRONOUNCEMENT: 13 . 1 1 .201 4 FOR THE APPELLANT : SHRI SOUMITRA CHOUDHURY, ADVOCATE FOR THE RESPONDENT : SHRI DILIP KR. RAKSHIT, JCIT, SR.DR / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - XXXVI, KOLKATA IN APPEAL NO. 251 / CIT(A) - XXXVI/KOL/CIR - 1, MID/12 - 13 DATED 27 . 0 3 .20 1 4 . ASSESSMENT W AS FRAMED BY A CIT, CIRCLE - 1 , MIDNAPORE U/S. 1 4 4 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) F OR ASSESSMENT YEAR 20 1 0 - 1 1 VIDE HIS ORDER DATED NIL. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN ESTIMATING THE NET PROFIT @ 8% OF GROSS RECEIPT AS THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT AFTER FRAMING ASSESSMENT U/S. 144 OF THE ACT AND ALSO DISALLOWING INTEREST AND REMUNERATION TO PARTNERS. FOR THIS, ASSESSEE HAS RAISED FOLLOWING EFFECTIVE GROUND NOS. 2 TO 5: 2. FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE INCOME ESTIMATED AT 8% U/S. 44AD(1) WHEN THE ASSESSEE S TURNOVER WAS MORE THAN RS.40 LAKHS, THE SAID PROVISIONS WERE NOT APPLICABLE AND FURTHER THE NET PROFIT DECLARED DURING THE YEAR WAS QUITE FAIR AND REASONABLE AS COMPARED TO ASSESSEE S PAST RECORDS, AND IN CASES EVEN THE ASSESSMENT WAS SCRUTINIZED AND COMPLETED U/S. 143(3). 3. FOR THAT THE LD. AO ERRED IN ESTIMATING THE PROFIT IGNORING THE FACT THAT THE BOOKS OF ACCOUNT WERE MAINTAINED AND DULY AUDITED. 4. FOR THAT THE LD. CIT(A) ERRED IN NOT TAKING INTO ACCOUNT THE IN SURANCE CLAIM WHILE CALCULATING THE NET PROFIT WHICH WAS PART OF BUSINESS RECEIPT. 2 ITA NO.1492/K/2014 M/S. RANA ENGINEERING COMPANY AY 2010 - 11 5. FOR THAT THE LD. AO SHOULD HAVE ALLOWED DEDUCTION OF INTEREST AND REMUNERATION TO PARTNERS WHEN THERE WAS NO CHANGE IN THE FACTS CONTINUING FROM EARLIER YEARS AND SUCH REMUNERATION AND INTEREST WAS DULY ALLOWED IN EARLIER YEARS. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. DURING THE PREVIOUS YEAR 2009 - 10 RELEVANT TO THIS AY 2010 - 11 IT RECEIVED GROSS CONTRACTUAL RECE IPT OF RS.20,76,24,568/ - . THE ASSESSEE IS A FIRM. THE AO FRAMED ASSESSMENT AS A NO BOOKS OF ACCOUNT CASE BY APPLYING THE PROVISIONS OF SECTION 144 OF THE ACT AS THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT. THE AO TAKING HELP OF THE PROVISIONS OF SEC TION 44AD OF THE ACT ESTIMATED THE NET PROFIT @ 8% AS AGAINST THE DECLARED NET PROFIT AT 4.93%, AS STATED BY THE AO IN THE ASSESSMENT ORDER AND ALSO MADE A DISALLOWANCE OF INTEREST AND REMUNERATION TO PARTNERS FOR THE REASON THAT THERE IS NO CONSEQUENCE TO NOTICE U/S. 142(1) OF THE ACT THE TWIN DEDUCTIONS CANNOT BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 184(5) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO IN ESTIMATING THE NET PROFIT AT 8% AND ALS O CONFIRMED THE DISALLOWANCE OF INTEREST AND SALARY PAID TO PARTNERS. FOR CONFIRMING THE APPLICATION OF NET PROFIT @ 8% APPLIED BY AO, THE CIT(A) OBSERVED AS UNDER: 4. 1 . APPELLANT S SUBMISSION AND FACTS AVAILABLE ON RECORD IS CAREFULLY CONSIDERED. ON ASSESSMENT RECORD WAS CALLED FOR AND VERIFIED. ON VERIFICATION OF RECORD IT IS SEEN THAT THE CASE WAS FIXED FOR HEARING ON SEVERAL OCCASIONS. IN THE 142(1) NOTICE ISSUED, BOOKS OF ACCOUNT AND SUPPORTING DOCUMENTS IN SUPPORT OF EXPENSE CLAIMED, WERE CALLED FOR. HOWEVER THERE WAS COMPLIANCE TO THE NOTICE AND THE SUBSEQUENT NOTICES FIXED. IN VIEW OF THE CONTINUOUS NON - COMPLIANCE THE ASSESSMENT WAS COMPLETED EX - PARTE. EVEN DURING THE APPELLATE PROCEEDING OTHER THAN MAKING A WRITTEN SUBMISSION, NO BOOKS OF ACCO UNTS OR OTHER DOCUMENTS WERE EVEN FILED IN SUPPORT OF THE INCOME SHOWN. FROM THE A UDIT REPORT FILED IT IS SEEN THAT ASSESSEE MAINTAINED, CASH BOOKS, LEDGER, JOURNAL ETC. FOR THE BUSINESS. HOWEVER INSPITE OF THE REPEATED HEARING NO SUCH DOCUMENT WAS EVEN PR ODUCED DURING THE COURSE OF ASSESSMENT O R APPELLATE PROCEEDING. THUS IT IS SEEN THAT INSPITE OF MAINTAINING BOOKS OF ACCOUNT AND OTHER DOCU MENTS , THE ASSESSEE HAD FAILED TO COMPLY TO THE TERMS OF NOTICE U / S. 142(1). IN VIEW OF THE ABOVE, A.O. HAD CORRECTLY RESORTED TO SECTION 144 FOR DETERMINATION OF INCOME. RELIANCE IS PLACED ON FOLLOWING DECISIONS. CIT VS. PEARL MECHANICAL ENGG. & FOUNDRY WORKS PVT. LTD. (1989) 179 ITR 144 (P&H). 4.2 . ASSESSEE S CHALLENGE AGAINST DETERMINATION OF NET PROFIT AT 8%, IS TAKEN INTO CONSIDERATION. FROM PROFIT AND LOSS APPROPRIATION ACCOUNT, I T IS SEEN THAT ASSESSEE HAD RECEIVED INTEREST ON F.D. AT RS. 11,16,645.00 . FURTHER INSURANCE CLAIM OF RS. 3 1,23,263/ - . ON OBTA INING THE DETAILS OF INSURANCE CLAIM, IT IS SEEN THAT THE ABOVE RECEIPT WAS AGAINST FLOOD DAMAGE ON CIVIL CONSTRUCTION WORK AND MATERIALS DESTROYED DURING F.Y. 2008 - 09. SINCE THE ENTIRE EXPENDITURE AGAINST THE MATERIAL DESTROYED AND CIVIL CONSTRUCTION HAS BEEN CLAIMED IN F.Y. 2008 - 09, THE RECEIPT DURING THE CURRENT YEAR WAS IN THE NATURE OF WINDFALL. THEREFORE, IF THE ABOVE TWO RECEIPTS ARE EXCLUDED FROM THE PROFIT MADE FROM CIVIL CONTRACT WORK, THE PROFIT SHOWN BY ASSESSEE WOULD AMOUNT TO 4.93%, WHICH IS Q UITE LOW ESPECIALLY IN ABSENCE OF PRODUCTION OF ANY BOOKS OF ACCOUNT OR IN SUPPORT OF CLAIM OF SUCH LOW PROFIT. 3 ITA NO.1492/K/2014 M/S. RANA ENGINEERING COMPANY AY 2010 - 11 4.3. FURTHER, ON EXAMINATION OF P&L ACCOUNT OF THE YEAR, IT IS SEEN THAT THE ASSESSEE HAD CLAIMED CARRYING EXPENSES OF RS.4,32,10,356/ - . THERE FORE THE TRANSPORTATION EXPENSE IS NEARLY 20% OF THE CONTRACT RECEIPT. CONSIDERING THE FACT THAT ASSESSEE IS A CIVIL CONTRACTOR, WHERE THE MAJOR MATERIAL CONSUMED WAS RS.7,27,06,254/ - CLAIM OF TRANSPORTATION EXPENSE BEING 50% OF THE MATERIAL PURCHASED AND 20% OF CONTRACT RECEIPT IS EXCESSIVE WHEN MAJOR RAW MATERIAL LIKE, CEMENT, SAND, BRICKS, STEEL ARE AFTER PROCURED FROM NEARLY PLACES. ON BEING ASKED TO PRODUCE THE TRIP SHEETS AND OTHER DOCUMENTS, ASSESSEE MERELY PRODUCED A SERIES OF TRUCK NOS. IN A CD AND STATED THAT NO OTHER DOCUMENTS CAN BE PRODUCED. ALL THESE TAKEN TOGETHER CLEARLY INDICATES TO THE FACT OF GROSS INFLATION OF VARIOUS EXPENSES CLAIMED. ASSESSEE HAS CLEARLY AVOIDED PRODUCTION OF ANY VERIFIABLE EVIDENCE EITHER DURING ASSESSMENT AND APPELLAT E PROCEEDING WITH THE HOPE THAT THE PROFIT ESTIMATED CAN BE REDUCED IN APPELLATE PROCEEDING BY CITING COMPARABLE CASES AND EARLIER YEAR S PROFIT. HOWEVER, IN VIEW OF THE ABOVE FACTS, ON NOTING THAT THE APPELLANT HAS NOT PRODUCED THE BOOKS OF ACCOUNTS AND O THER DOCUMENTS IN SUPPORT OF VARIOUS EXPENSES CLAIMED, INSPITE OF MAINTAINING THEM, THE A.O. HAS BEEN REASONABLE IN ESTIMATING PROFIT FROM CIVIL CONSTRUCTION WORK AT 8% WHICH DOES NOT CALL FOR ANY INTERVENTION, IN ABSENCE OF PRODUCTION OF ANY EVIDENCE BY A PPELLANT TO THE CONTRARY DURING THE APPELLATE PROCEEDING. THEREFORE, THE APPEAL ON THIS GROUND IS REJECTED. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE GO NE THROUGH MATERIAL PLACED BEFORE US AND FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION FOR LAST MANY YEARS. THE TURNOVER OF THE ASSESSEE DURING THE FY RELEVANT TO THIS AY IS AT 20.76 CR. AND THE PROVISIONS OF SECTION 44AD OF TH E ACT CANNOT BE APPLIED. THE AO HAS RESORTED TO THE PROVISIONS OF SECTION 144 OF THE ACT AND MADE BEST JUDGMENT ASSESSMENT IN THIS CASE. THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT BEFORE THE AO AND IN TERM OF THE SAME THE AO INVOKED THE PROVISION S OF SECTION144A OF THE ACT. IT IS ALSO A FACT THAT IN EARLIER YEARS ASSESSMENTS WERE FRAMED U/S. 143(3) OF THE ACT AFTER VERIFYING THE BOOKS OF ACCOUNT. THE ASSESSEE HAS DECLARED NET PROFIT AT RS.1.02 CR. FROM THE GROSS CONTRACTUAL RECEIPT DURING THE YE AR WHICH COMES TO NET PROFIT RATE AT 4.93%. ALONG WITH THE PROFIT THERE SHOULD HAVE BEEN INCLUDED THE INSURANCE CLAIM OF RS.31,23,265/ - , WHICH RELATES TO THE CONTRACTUAL BUSINESS AND ALSO INTEREST EARNED ON FIXED DEPOSIT AT RS.11,16,545/ - , WHICH WAS MARGI N MONEY FOR BANK LOAN AND BANK LOAN WAS SANCTIONED AGAINST THE FDRS. IF THESE TWO INCOMES ARE TO BE INCLUDED THEN CORRESPONDING DEDUCTION FOR INTEREST PAYMENT HAS TO BE ALLOWED BECAUSE THERE IS A DIRECT NEXUS WITH THESE INTEREST PAYMENT AND INTEREST EARNE D ON FDRS. HOWEVER, LEAVING THIS ASIDE, NOW WE HAVE TO EXAMINE WHETHER THE NET PROFIT APPLIED BY THE AO @ 8% IS REASONABLE OR NOT. FOR THIS, LD. COUNSEL FOR THE ASSESSEE HAS FILED THE DETAILS OF LAST SIX YEARS WHEREIN NET PROFIT RATE DECLARED READS AS UN DER: ASST. YR. GROSS CONTRACTUAL RECEIPT NET PROFIT (BEFORE THE CLAIM OF INTEREST AND REMUNERATION) NET PROFIT % ASSESSED UNDER SECTION 2004 - 05 2005 - 06 2006 - 07 2007 - 08 RS.2,27,25,988 RS.5,38,26,940 RS.3,93,04,374 RS.10,05,63,154 RS.11,20,951 RS.18,15,105 RS.40,16,680 RS.38,58,778 4.93% 4.37% 10.21% 3.33% 143(3) 143(3) 143(1) 143(1) 4 ITA NO.1492/K/2014 M/S. RANA ENGINEERING COMPANY AY 2010 - 11 2008 - 09 2009 - 10 RS.12,35,46,579 RS.9,30,26,979 RS.77,97,944 RS.72,46,108 6.31% 7.78% 143(1) 143(1) THE COMPARISON OF NET PROFIT AS ACCEPTED BY THE DEPARTMENT VIS - - VIS GROSS CONTRACTUAL RECEIPTS OF THE ASSESSEE FOR LAST SIX YEARS CLEARLY REVEALS THE AVERAGE NET PROFIT FOR THE LAST SIX YEARS IS AROUND 5.98%. WE ARE OF THE VIEW THAT THE AO SHOULD HAVE EX ERCISED HIS BEST JUDGMENT ASSESSMENT POWER IN A JUDICIOUS MANNER. IN TERM OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT A REASONABLE NET PROFIT OF 6% WILL MEET THE END OF JUSTICE AND NO FURTHER ADDITION WHATSOEVER WILL BE MADE. NEITHER THE ASSESSEE WILL CL AIM ANY DEDUCTION ON ACCOUNT OF SALARY OR INTEREST PAYMENT FROM PARTNERSHIP FIRM AS THE ASSESSMENT WAS COMPLETED U/S. 144 OF THE ACT NOR THE REVENUE WILL MAKE ANY FURTHER ADDITION. IN TERM OF THE ABOVE, WE DIRECT THE AO TO RECOMPUTE THE INCOME OF ASSESSEE BY APPLYING NET PROFIT ON THE GROSS RECEIPT OF THE ASSESSEE S BUSINESS @ 6%. IN TERM OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 5 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6 . ORDER PRONOUNCED IN OPEN COURT ON 1 3 / 1 1 / 2 0 1 4 . S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 3 T H NOVEMBER , 2014 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT M/S. RANA ENGINEERING COMPANY, ROULIA, AMLAGORA, DIST. PASCHIM MIDNAPORE - 721121, WEST BENGAL 2 / RESPONDENT ACIT, CIRCLE - 1, MIDNAPORE 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .