ACIT,Panchkula Circle, Panchkula V. M/s N.H. Construction Pvt.Ltd/, Panchkula

ITA 164/CHANDI/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7845 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 11-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Corroborative evidences; Set aside
• Section: 68; 144

Judgement Text

आयकर य कर , य य “B”, IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘B’, CHANDIGARH BEFORE: SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 164/Chd/2020 (Assessment Year: 2016-17) Assistant Commissioner of Income Tax, Panchkula Circle, Panchkula. बनाम M/s. N.H. Construction Pvt. Ltd., # 318, Sector-4, Panchkula. थायी लेखा सं./PAN NO: AACCN 4086 A नधा रती क ओर से/Assessee by : Shri B.M. Monga & Shri Rohit Kaura, Adv. राज व क ओर से/ Revenue by : Shri. Sarabjeet Singh, CIT, DR स ु नवाई क तार ख/Date of Hearing : 20.04.2022 उदघोषणा क तार ख/Date of Pronouncement: 13.07.2022 आदेश/ORDER Per Vikram Singh Yadav, Accountant Member: This is an appeal filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals), Panchkula [in short the ‘Ld. CIT(A)’] passed u/s 250(6) of the Income Tax Act, 1961 (in short ‘the Act’) dated 13.12.2019 pertaining to Assessment year 2016-17 wherein the grounds of appeal read as under :- 2 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. 1. “Whether on the facts and circumstances of the case the ld. CIT (A) has erred in partly allowing the appeal of the assessee by considering net profit to be taken @ 6% instead @ 10% taken by the AO, whereas, in similar cases of Civil Contractors, Hon’ble Punjab & Haryana High Court and ITAT, Chandigarh have held net profit rates of 10% to 12% to be reasonable & justified ? 2. Whether on the facts and circumstances of the case the ld. CIT (A) has erred in allowing the appeal of the assessee by deleting the addition of Rs. 6,50,35,836/- made u/s 68 of the Income Tax Act, 1961, since no supporting evidence had been submitted by the assessee to establish creditworthiness and genuineness of the trade advances.” 2. Regarding ground no. 1, briefly the facts of the case are that during the course of assessment proceedings, the AO observed that the assessee has declared net profit rate of 3% on gross receipts of Rs. 56,39,86,236/- and accordingly the assessee was asked to furnish documentary evidence from which the genuineness of receipts and claim of assessee of low net profit could be verified. However, in spite of repeated opportunities, the assessee did not file any response. Thereafter, a show cause notice under section 144 was issued as to why the Net Profit rate of 10% on gross receipts should not be computed and the assessment be not completed under section 144 of the Act. Again on the scheduled date of hearing, nobody attended nor any written submission filed. Thereafter, the AO proceeded and brought to tax 10% of the gross receipts as net profit in the hands of the assessee by following 3 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. various decisions of Hon’ble Punjab & Haryana High Court as well as the Coordinate Chandigarh Benches and an addition of Rs. 3,85,48,274/- was made in the hands of the assessee. 3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT (A) and relied on its past assessment history and certain judicial pronouncements. The ld. CIT (A) by following the Coordinate Benches decision in case of M/s. Harbhajan Singh & Co. vs. JCIT and Hon’ble Punjab & Haryana High Court decision in case of Telelinks vs. CIT, Bhatinda computed the net profit rate of 6%, as against 10% net profit applied by the AO, as fair and reasonable based on comparable cases engaged in similar line of business wherein the contract receipts were inclusive of material. The Net profit @ 6% was directed to be applied and the assessee was granted partial relief by the ld. CIT (A) against which the Revenue is in appeal before us. 4. During the course of hearing, the ld. D/R relied on the findings of the AO and submitted that in view of the various decisions of the Coordinate Chandigarh Benches and Hon’ble Punjab & Haryana High Court, the net profit rate should be computed @ 10% to 12% as against 6% applied by the ld. CIT (A). 4 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. 5. Per Contra, the ld. A/R relied on the findings of the ld. CIT (A) and it was submitted that the AO has applied exorbitant rate of 10% of net profit which is not possible in the line of business of civil contractor and it was further submitted that it is a settled legal position as held by the Hon’ble Jurisdictional High Court as well as Coordinate Chandigarh Benches that where net profit has to be estimated, the past history of the assessee provide a reasonable basis to estimate the net profit. It was submitted that in the instant case for assessment year 2014-15, the net profit rate after addition made by the AO comes to 5.2% and the ld. CIT (A) has applied 6% which is more than reasonable keeping in mind the past history of the assessee and, therefore, the order passed by the ld. CIT (A) be confirmed. 6. We have heard the rival contentions and perused the material available on record. The limited issue under consideration relates to estimation of net profits in absence of reliability of books of accounts. As against net profit rate of 3% disclosed by the assessee, the Assessing officer has estimated net profit rate of 10% which has been brought down to 6% by the ld CIT(A). For estimation of profits, either the past history of the assessee which has been accepted and has attained finality or comparable data in case of other assessee involved in the similar line of business would 5 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. provide a reasonable basis. In the instant case, AO has neither considered the past history or the comparable data of other assessees involved in similar line of business whereas the ld CIT(A) has considered the past history of the assessee. During the course of hearing, nothing has been brought on record disputing the past history of the assessee which is on record and has been considered by the ld CIT(A). We therefore donot find any affirmity in the order of the ld CIT(A) and the same is hereby confirmed. In the result, the ground of appeal taken by the Revenue is dismissed. 7. Regarding Ground No. 2, the brief facts of the case are that during the course of assessment proceedings, the AO observed that there is an increase in trade payables from Rs. 57,74,488/- in assessment year 2015-16 to Rs. 7,08,10,324/- in Assessment Year 2016-17 and in spite of repeated opportunities, the assessee did not furnish any documentary evidence. Thereafter after issuing a show cause notice under section 144 of the Act, the AO brought to tax the increase in the amount of trade payables amounting to Rs. 6,50,35,836/- under section 68 of the Act treating the same as unexplained cash credit in absence of any supporting evidence as to the identity, genuineness of the trade payables. 6 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. 8. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT (A) who has allowed necessary relief to the assessee and against the said findings, the Revenue is in appeal before us. 9. During the course of hearing, the ld. D/R relied on the findings of the AO. It was further submitted that the ld. CIT (A) has recorded a finding that these trade payables are not cash creditors falling in the purview of section 68, rather these are directly linked with the purchases made by the assessee. It was submitted that the said finding is not supported by any evidence on record and the assessee has filed the Balance Sheet of the assessee company during the course of hearing which require verification and, therefore, the matter may be set aside to the file of the ld. CIT (A) to examine the same afresh. 10. Per Contra, the ld. A/R submitted that it is not a case where the Balance Sheet of the assessee company has been filed for the first time before the Tribunal. The copy of the Balance Sheet was very much before the AO as well as before the ld. CIT (A). Reliance was placed on the findings of the ld. CIT (A) contained in para 5.3 of his order and it was submitted that it is a settled legal position that where a net profit is estimated, no further addition can be 7 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. made in respect of trade payables which are directly linked with the purchases of the assessee company, and our reference was drawn to the findings of the ld. CIT (A) which are contained in para 5.3 of his order which read as under:- “ 5.3. I have gone through the facts of the case and the written submissions. It is observed that the AO on perusal of Balance Sheet noted that there was huge increase in ‘Trade Payables’ from Rs. 57,74,488/- in the A.Y. 2015-16 to Rs.7,08,10,324/- in the A.Y. 2016-17. As the appellant failed to justify the genuineness of its claim the AO completed the assessment u/s 144 of the Act and made an addition on this ground at Rs. 6,50,35,836/- as per the material available on record. It is pertinent to mention that these payables are not cash creditors falling in the purview of section 68, rather these are directly linked with the purchases of the assessee and as per well settled law sundry trade creditors cannot be disallowed once the flat Net Profit rate is applied by the ld. A.O. For this proposition reliance is placed on the judgment of Hon’ble Kolkata ITAT in the case of M/s. Aditya Enterprise vs. ITO, ITA No. 2342/Kol/2016 dated 3.5.2018, wherein in it was held : “ 15. We have heard rival contentions of both the parties and perused the material available on record. In the instant case, the profit was determined on estimated basis due to the fact that assessee failed to produce books of account during the assessment proceedings. Once then profit has been determined on estimated basis then in our considered view no disallowance can be made on account of sundry creditors. It is undisputed fact that these 8 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. sundry creditors were arising from the purchases made by assessee and therefore the same cannot be added without disturbing the purchases. Moreover in the instant case the profit has been determined on estimated basis. Thus in our considered view there cannot be any disallowance of sundry trade creditors. Therefore we reverse the order of Authorities Below. This ground of appeal of assessee is allowed.” Reliance is also placed on the decision of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Aggarwal Engg. Co., (2006) 156 Taxman 40 wherein it was held that once net profit rate was applied, no further addition was called for in respect of purchases and introduction of cash in the facts and circumstances of the case. Further, in the case of CIT vs. Dulla Ram Labour contractor [2014] 42 Taxmann.com 349, the Hon’ble Punjab & Haryana High Court held that : “ Section 68 of the Income Tax Act, 1961 – cash credits (Rejection of books of account, effect of) – Whether where books of account are rejected in their entirety, Assessing Officer cannot rely upon any entry in those books of account for making an addition to assessee’s taxable income under section 68- Held, yes.” In view of the facts and circumstances of the case and judicial pronouncements discussed above, I find that the AO was not correct in making an addition of Rs. 6,50,35,836/- u/s 68 of the Act and therefore, the addition is ordered to be deleted. This ground of appeal is allowed.” 9 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. 11. Reliance was further placed on the judgement of Hon’ble Punjab & Haryana High Court in case of PCIT vs. Kulwinder Singh, 99 taxmann.com 449 (P&H). 12. We have heard rival contentions and perused the material available on record. During the course of hearing, our reference was drawn to increase in trade payable during the year amounting to Rs 7,08,10,324/- and corresponding increase in consumption of raw material during the year amounting to Rs 6,94,50,817/- and it was submitted that the increase in trade payable is directly linked to purchase and consumption of raw material and where net profit has been estimated, no further disallowance can be made towards the trade payables. We find merit in the contention so advanced by the ld AR which also find supports from various decisions referred supra and therefore, we do not find any justifiable basis to disturb the findings of the ld CIT(A) in absence of any contrary material brought on record. In the result, the ground of appeal taken by the Revenue is dismissed. 13. In the result, the appeal of the Revenue is dismissed. Order pronounced on 13.07.2022. Sd/- Sd/- ( DIVA SINGH ) (VIKRAM SINGH YADAV) याय क सद य/Judicial Member लेखा सद य/Accountant Member 10 ITA No.164/Chd/2020 M/s. N.H. Constructions Pvt. Ltd. Dated: 13.07.2022 *Das* आदेश क % त&ल'प अ*े'षत/ Copy of the order forwarded to : 1. अपीलाथ+/ The Appellant 2. %,यथ+/ The Respondent 3. आयकर आय ु -त/ CIT 4. आयकर आय ु -त (अपील)/ The CIT(A) 5. 'वभागीय % त न0ध, आयकर अपील य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File # $ स / By order सह (ंज / Assistant Registrar