ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3, AMRITSAR V. M/S SURJIT SINGH AND CO, AMRITSAR

ITA 16/ASR/2018

AI Insights

The case involves the Asstt. Commissioner of Income Tax, Circle-3, Amritsar (Appellant) against M/s Surjit Singh and Co. (Respondent) concerning the assessment year 2014-15. The primary issue was the addition of Rs.1,73,43,085 to the assessee's income, which was initially made by the A.O. due to alleged non-production of documentary evidence supporting the genuineness of claims for site charges/labour charges and violations of section 40A(3) of the Income Tax Act. The CIT(A) reversed this addition, leading to the Revenue's appeal. The tribunal upheld the CIT(A)'s decision, noting the consistency in the assessee's accounting practices and the lack of new facts to deviate from past assessments.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114554 (ITAT-AMRITSAR)
• Duration Of Justice: 5 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 14-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 11-01-2018
• Other Referred Cases: CIT v Neo Poly Pack Pvt Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Rule of consistency; TDS; Set aside
• Section: 69C; 40A(3); 143(3); 201; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 16/Asr/2018 Assessment Year: 2014-15 Asstt. Commissioner of Income Tax, Circle-3, Amritsar (Appellant) V. M/s Surjit Singh and Co., Sanjay Gandhi Market, Goal Bagh, Amritsar [PAN: ABKFS 0497C] (Respendent) Appellant by Sh. Ashwani Kalia, CA Respondent by Sh. Radhey Shyam Jaiswal, Sr. DR Date of Hearing : 15.12.2022 Date of Pronouncement : 31.01.2023 ORDER Per Dr. M. L. Meena, AM: This appeal has been filed by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar dated 31.10.2017 in respect of Assessment Year 2014-15. 2. The department has raised the following grounds of appeal: ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 2 “1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in not upholding the addition of Rs.1,73,43,085/- made by the A.O. and directed him to assess the net profit rate of the assessee after allowing salary and interest to partners and depreciation @ 9% of turnover declared by the assessee in the return of income; without appreciating the facts that the assessee did not produce documentary evidences in support of genuineness of claim of site charges/labour charges. 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in not appreciating the facts that the assessee had violated provisions of section 40A(3) of the Income Tax Act to the extent of Rs.1,02,52,935/- on account of claim of payment of site charges/labour charges and therefore, not allowable as deduction. 3. The appellant craves leave to add, amend any ground(s) of appeal.” 3 Amended grounds of appeal: “1. Whether on the facts and the circumstances of the case and in law, the Ld CIT(A) was justified in not upholding the addition of Rs. 1,73,43,085/- made by the AO and directing to him assess the net profit rate of the assessee before allowing salary and interest to partners and depreciation @ 9% of turnover declared by the assessee in the return of income; without appreciating the facts that the assessee did not produce documentary evidences in support of genuineness of claim of site charges/labour charges. 2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the fact that the assessee had violated provisions of section 40A(3) of the Income Tax to the extent of Rs. 1,02,52,935/- on account of claim of payment of site charges/labour charges and, therefore, not allowable as deduction. 3. Appellant craves leave to add, amend or alter any ground of appeal.” 4. Briefly the facts are that the assessee is a civil contractor engaged in constructing roads and bridges. In the course of assessment proceedings, the AO asked the assessee to produce all evidences, accounts, ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 3 documents, records, copy of cash account, with name and complete addresses of the payees, mode of payment, in respect of site expenses claimed at Rs 311,15,967/-. The AO alleged that despite several opportunities, the assessee failed to produce its books of accounts, names and complete addresses of the persons to whom payments were made, copy of cash account, except 61 bills amounting to Rs 89,83,300/- each below of Rs 20,000/-. The A/R of the Assessee replied to the AO that these site expenses are paid to workers whose names and PAN cannot be provided because they are petty workers and their record is not maintained by the Assessee. Moreover, these workers work at different sites. It is submitted that the Assessee has provided the account of the site expenses which includes the payments made to the Labour contractors amounting to Rs 125,73,400/- and TDS was deducted on these payments being made to subcontractors whose PAN were available on record. The AO however concluded that the payment of Rs 102,52,935/- was shown to be made in cash on the last day of the year which was also covered u/s 40A(3) ,which was without any evidences, identity, address, and records of the payees, supporting documents, record not maintained by the assessee, and that the outstanding expenses of Rs 82,89,970/- were without any identity, names and addresses of persons, and record not maintained by the assessee. The credit balance as outstanding and claimed to be paid in cash in next ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 4 year after long periods was found to be not genuine as the assessee failed to produce any evidences/proper accounts despite more than sufficient opportunities given to the assessee. Accordingly, the AO made disallowance of Rs 173,43,085/- out of site expenses. 5. The aggrieved with the assessment order, the assesse has filed appeal before the Ld. CIT(A) who has granted relief to the assessee by observing as under: “The AO has not appreciated that in order to execute contracts worth Rs 15.50 crores in the year under consideration, the assessee had to incur labour charges at various sites where contracts were executed. On a turnover of Rs.15,50,14,670/- the assessee had incurred site charges of Rs.311,15,967/- which is 20.07% of the turnover. It is also a fact that the petty labour invariably does not have PAN and the record of PAN cannot be kept by the assessee. However the appellant has not kept a record of name and address of the petty labour to whom cash payments on account of site charges were made by the assessee. The assessee was asked by the AO to produce all evidences, accounts, documents, records, copy of cash account, with name and complete addresses of the payees, mode of payment, in respect of site expenses claimed at Rs 311,15,967/-. Despite several opportunities given by the AO, the assessee failed to produce its books of accounts, names and complete addresses of the persons to whom payments were made, copy of cash account, and could only produce 61 bills amounting to Rs 89,83,300/- each below Rs 20,000/-. Since the site charges claimed at Rs. 311,15,967/- constitute 20.07% of the turnover of the appellant in the year under consideration, therefore failure to maintain proper books of accounts vouchers, etc in respect of the site expenses will render non verification of the claim of site expenses, and render the books of accounts unreliable and are therefore rejected by the undersigned u/s 145(3) of the Act. The AO has however not rejected the books of account of the assessee and disallowed the site expenses claimed by the appellant at Rs 173,43,085/-, which has rendered the net profit rate of the assessee firm to 16.85% after salary and interest to partners and the depreciation. The earning of net profit of 16.85% after allowing interest and salary to partners and depreciation is very high and ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 5 not consistent with the net profit rate declared and assessed by the AO u/s 143(3) in the earlier assessment years. The past history of the case i.e. the net profit rate declared in assessee and the assessed net profit rate as given by the appellant was as under- AY Sales Net Profit N.P. % Net Profit before depreciation, salary & interest to partners N.P. % Remarks 03-04 2.27 cr 15.53 lakh 6.83% 20.68 lakh 9.10 Assessed u/s 143(3) 06-07 8.65 cr 44.66 lakh 5.16% 69.27 lakh 8% 07-08 12.4 cr 76.94 lakh 6.20% 1.14 cr 9.25% 08-09 10.72 cr 67.13 lakh 6.30% 1.10 cr 10.31% 09-10 13.9 cr 75.01 lakh 5.37% 1.15 cr i i 8.29% 10-11 15. lcr 78.81 5.21% 1.25 cr 8.27% Set aside lakh to AO by ITAT 13-14 12.1 cr 30.62 lakh 2.53°/ 84.54] lakh 6.98% Accepted By department u/s 143(3) The nature of business of the appellant consistently in the past was of a contractor constructing roads and bridges, and the method of accounting and maintenance of books of accounts was is also the same. The AO has not pointed ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 6 out any new fact about the nature of business of the appellant in the year under consideration coming to light or any |departure in nature of its business from earlier years. Therefore consisteny needs to be maintained. It was held in the case of CIT v Neo Poly Pack Pvt Ltd “that it is true that each assessment year being independent of the other, the doctrine of res judicata does not strictly apply to income tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner , for the sake of consistency ,the same view should continue to prevail in subsequent years ,unless there is some material change in the facts. In the present case the counsel for the revenue has not been able to point out even a single distinguishing feature in respect of assessment year in question which could have prompted the assessing officer to take a view different from earlier assessment years. Considering the above case law and the history of the appellant as given in the chart above, it is clear that the net profit rate declared by the appellant after allowing salary and interest to partners and depreciation, had largely been between 5% of turnover to 6.8% of turnover and the net profit rate department in scrutiny assessment u/s 143(3) had largely been under 10% of turnover. Therefore the assessment of the appellant in the year under consideration by making an addition of Rs.173,43,085/- resulted in net profit rate of 16.85% after allowing salary and interest to partners and depreciation, which is disproportionately high and not sustainable. Accordingly, after rejecting the books of account of the appellant u/s 145(3), the disallowances u/s 40A(3) becomes redundant. As regards the disallowance u/s 69C, the said section is not applicable in the case of the assessee as the source of site expenses were never in dispute as the same were incurred by the assessee and duly reflected in the profit and loss account and have been routed through the books of accounts of the appellant. The very fact that these expenses have been disallowed u/s 69C shows that these expenses were have been duly recorded in the books of the assessee and the source of expenses was never in doubt. Therefore no disallowance/addition of Rs. 173,43,085/- was called for. In any case the books of accounts itself have been rejected u/s 145(3) of the act and net profit is being determined by application of net profit rate. Further for the determination of net profit by application of net profit rate, the impugned assessment order, various decisions of Hon’ble ITAT Amritsar are referred to and past history of the appellant is considered. As pointed out by the appellant, the net profit rate of 8 % before allowing salary and interest to partners and depreciation has been upheld by ITAT Amritsar Bench in the case of sister ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 7 concern of the assessee namely M/s Daljit Singh and Bros (Pkt) 69 Green Plaza, Amritsar itself which fact was verified from the copy of the appellate order of Hon’ble ITAT in I.T.A No. 201 (Asr) 2002 for AY 98-99. Moreover, in a number of cases of contractors, the Hon’ble ITAT Amritsar has upheld the net profit rate of 8%. Accordingly, in my opinion it would be fair and reasonable to assess the net profit rate of the appellant after allowing salary and interest to partners and depreciation @ 9% of the turnover declared by the appellant in the return of income. The AO is directed accordingly.” 6. The Ld. Sr. DR for the department submitted that on the facts and circumstances of the case and in law, the ld. CIT(A) was not justified in deleting the addition of Rs.1,73,43,085/- made by the A.O. and directing him to assess the net profit rate of the assessee after allowing salary and interest to partners and depreciation @ 9% of turnover declared by the assessee in the return of income; without appreciating the facts that the assessee did not produce documentary evidences in support of genuineness of claim of site charges/labour charges and that he has not appreciated the facts that the assessee had violated provisions of section 40A(3) of the Income Tax Act to the extent of Rs.1,02,52,935/- on account of claim of payment of site charges/labour charges and therefore, not allowable as deduction. 7. Per contra, the defendant Ld. AR supported the impugned order. He submitted that the appellant has been working as a contractor, constructing roads and bridges, and the nature of business, the method of accounting and maintenance of books of accounts has consistently remained the ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 8 same. The AO has not pointed out any new fact about the nature of business of the appellant or any departure in nature of its business in comparison to earlier years. Therefore, principle of consistency needs to be followed. It was held in the case of CIT v Neo Poly Pack Pvt. Ltd that it is true that each assessment year being independent of the other, the doctrine of res judicata does not strictly apply to income tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years, unless there is some material change in the facts. In the present case the Ld. DR for the revenue has not been able to point out even a single distinguishing feature in respect of assessment year in question which could have prompted the assessing officer to take a view different from earlier assessment years. The Ld. AR argued that after rejecting the books of account of the appellant u/s 145(3), the disallowances u/s 40A(3) becomes redundant. As regards the disallowance u/s 69C, the said section is not applicable in the case of the assessee as the source of site expenses were never in dispute as the same were incurred by the assessee and duly reflected in the profit and loss account and have been routed through the books of accounts of the appellant. The very fact that these expenses have been disallowed u/s 69C shows that these expenses have been duly ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 9 recorded in the books of the assessee and the source of expenses was never in doubt. Therefore, the Ld. CIT(A) has been right in holding that no disallowance/addition of Rs. 173,43,085/- was called for. However, he has no objection, to the Ld. CIT(A), decision in determining the net profit rate at 9% as against 8% as declared by assessee as the books of accounts have been rejected u/s 145(3) of the act. 8. Heard the rival contention and perused the material on record. Admittedly, the appellant has been working as a contractor, constructing roads and bridges, consistently over the years. The AO has not brought on record any new fact about the nature of business of the appellant in the year under consideration or any departure in nature of its business from earlier years. 9. From the record, it is evident that the AO’s has rejected the books of account of the appellant u/s 145(3), and therefore, the disallowances u/s 40A(3) becomes redundant. Further, the disallowances u/s 40A(3) and section 69C for the same amount of expenditure is contradictory to itself as per the mandate. In the present case, the source of site expenses was never in dispute by the AO, as the same were incurred by the assessee as duly reflected in the profit and loss account and have been routed through the books of accounts of the appellant and TDS was deducted on these ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 10 payments being made to sub-contractor. Therefore, the disallowance u/s 69C are unwarranted and accordingly, no disallowance/addition of Rs. 173,43,085/- was called for. 10. Considering the factual matrix of the case and that the books of accounts have been rejected u/s 145(3) of the Act, we hold that income is being rightly determined by the Ld. CIT(A) by application of appropriate net profit rate of 9%, relying on the coordinate Amritsar Bench. In our view, the Ld. CIT (A) was just fair and reasonable in directing the AO to assess the net profit @ 9% of the total turnover declared by the appellant in the return of income after allowing salary, interest to partners and depreciation. 11. Accordingly, we find no merit and substance in the grounds of the department. As such, we find no infirmity or perversity in the order of the Ld. CIT(A) to the facts on record and, therefore, decision of the CIT(A) is upheld. 12. In the result, the appeal filed by the Revenue is rejected. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 31.01.2023 Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr./P.S.* Copy of the order forwarded to: ITA No.16/Asr/2018 Asstt. CIT v. Surjit Singh and Co. 11 (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order