Mr. B.K. Mohan Nair, Surat V. The Income tax Officer,Ward-6(1), Surat

ITA 1644/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2345 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIT KAUR SRDR
• Assessee Lawyers: J P SHAH SRAR SHRI R N VEPARI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.1644/AHD/2010 ASSESSMENT YEAR :2006-07 DATE OF HEARING:7.1.11 DRAFTED:10..1.11 SHRI B.K. MOHAN NAIR, PROP. OF UDYOG ENGINEERING WORKS, 16- 17 OF AMBICA NAGAR SOCIETY, ICHHAPORE, SURAT, PAN NO.AALPN3420A V/S . INCOME TAX OFFICER, WARD-6(1), SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI J.P.SHAH, SR-AR ON BEHALF OF SHRI R.N.VEPARI, AR RESPONDENT BY:- SMT. SUNIT KAUR, SR-DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-IV, SURAT IN APPEAL NO.CAS- IV/75/2008-09 DATED 28- 01-2010. THE ASSESSMENT WAS FRAMED BY ITO WARD-6(1) , SURAT U/S143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 22-12-2008 FOR ASSESSMENT YEAR 2006-07. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE BOOK RESULTS. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- (I) REJECTION OF BOOK RESULT:- ITA NO.1644/AHD/2010 A .Y.2006-07 SH. B.K. MOHAN NAIR V. ITO WD-6(1) SRT PAGE 2 (1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING REJECTION OF BOOK RESULT DISREGARDING TH E FACT THAT THE BOOKS AND RECORDS WERE DESTROYED IN FLOODS. (2) THE APPELLANT SUBMITS THAT MERE FALL IN GROSS P ROFIT WITHOUT POINTING OUT ANY SPECIFIC DEFECT CANNOT BE CONSIDERED SUFFIC IENT FOR REJECTION OF BOOK RESULT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW, THE BOOK RESULT OUGHT TO HAVE BEEN ACCEPTED. 3. AT THE OUTSET, IT IS NOTICED FROM THE ORDERS OF LOWER AUTHORITIES THAT ASSESSEES MAIN PLEA WAS THAT THE BOOKS OF ACCOUNT HAVE BEEN DESTROYED AND EVEN IN THE STATEMENT OF FACTS BEFORE CIT(A) ASSESS EE HAS ACCEPTED THIS POSITION, WHEREIN THE FACTS REPRODUCED BY ASSESSING IN STATEMENT OF FACTS AS UNDER:- THE APPELLANT HAS FIELD HIS RETURN OF INCOME ALONG WITH AUDIT REPORT DATED 24/07/2006 DECLARING INCOME OF RS.462122/- ON TURNOVER OF RS.29496133/-. ALMOST ALL THE BOOKS OF ACCOUNT ALON G WITH SUPPORTING WERE SUBMERGED/DESTROYED DURING THE FLOOD; AFFIDAVI T TO SUBSTANTIATE THE SAME WAS SUBMITTED. AS PER AUDIT REPORT THERE WAS D ECLINE IN GROSS PROFIT RATIO. DURING HEARING EVIDENCES TO SUBSTANTI ATE THE GROSS PROFIT WAS GIVEN OVER AND ABOVE RE-GROUPED/RE-ARRANGED GRO SS PROFIT CALCULATION WAS ALSO SUBMITTED. THE AO FOUND ABOVE TO BE WRONG AND REJECTED BOOKS O F ACCOUNTS ON VARIOUS GROUNDS. HE ADDED DIFFERENCE OF GROSS PROFI T DISCLOSED IN THE AUDIT REPORT WITH THAT OF AVERAGE GROSS PROFIT AS D ISCLOSED IN THE YEAR OF SCRUTINY AND PREVIOUS TWO YEARS, WHICH WAS AMOUNTED TO RS.1461504/-. IT IS A FACT THAT THE BOOKS OF ACCOUNT ARE NOT AVAI LABLE WITH THE ASSESSEE AND ASSESSING OFFICER CANNOT RELY ON THE STATEMENT OF A CCOUNTS I.E. PROFIT AND LOSS ACCOUNT, TRADING ACCOUNT AND BALANCE-SHEET AND HE H AS NOT OTHER ALTERNATIVE EXCEPT TO ESTIMATE THE PROFIT. ACCORDINGLY, WE UPHO LD THE REJECTION OF BOOKS OF ACCOUNT AND THIS ISSUE OF ASSESSEES APPEAL IS DISM ISSED. 4. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN CONFIRMING THE ESTIMATION OF GROSS PROFIT ESTIMA TED AT RS.14,61,504/-. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- ITA NO.1644/AHD/2010 A .Y.2006-07 SH. B.K. MOHAN NAIR V. ITO WD-6(1) SRT PAGE 3 (II) ESTIMATE OF GROSS PROFIT:- (1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING ESTIMATION OF GROSS PROFIT AT 33.97% WHE N THE GROSS PROFIT WAS BETTER THAN THAT SHOWN IN A.Y. 2004-05 A ND IN RESPECT OF FALL FROM EARLIER YEAR, REASONS WERE FURNISHED AND WHICH HAVE NOT BEEN REJECTED. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE ADDITION MADE BY ESTIMATING GROSS PROFIT AT RS. 14,61,504/- MAY BE DELETED. 5. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL AND MECHANICAL CON TRACTOR. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO FILE COMPLETE GROSS PROFIT AND NET PROFIT RATIO OF LAST THREE YEARS INCLUDING THE RELEVANT ASSESSMENT YEAR AND THE RELEVANT FINDINGS OF ASSESSING OFFICER IS AS UNDER:- A.Y. TURNOVER (RS) GROSS PROFIT (IN %AGE) NET PROFIT (IN %AGE) 2006-07 2,94,96,133 29.02 1.35 2005-06 5,07,11,412 45.02 2.28 2004-05 3,20,01,635 27.88 5.16 AS THERE WAS FALL IN GROSS PROFIT, THE ASSESSING OF FICER ESTIMATED THE GROSS PROFIT BY TAKING AVERAGE OF THREE YEARS AS UNDER:- 3.14 THE LOGICAL STEP AFTER THE REJECTION OF THE B OOKS IS THE ESTIMATION OF THE INCOME AND THE G.P. OF THE BUSINESS OF THE ASSE SSEE. IN THIS REGARD, TAKING THE AVERAGE OF BACK YEARS PROFIT IS THE MOS T COMMON AND EASILY ACCEPTED TOOL. HOWEVER, BEFORE APPLYING ANY STATIST ICAL FORMULA IT WOULD BE JUDICIOUS TO LOOK INTO EVERY POSSIBLE OPTION SO THAT ARBITRARINESS OF THE ESTIMATION CAN BE MINIMIZED. THE OPTIONS ARE:- THE ASSESSEE HAS SHOWN 45.02% GROSS PROFIT IN THE L AST YEAR AND 29.02% THIS YEAR. HENCE, GROSS PROFIT OF 45.02% CAN BE EXTENDED TO THIS YEAR ALSO. SECOND OPTION CAN BE THE EXTENSION OF AVERAGE PROFI T OF LAST THREE YEARS TO THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS SHOWN G.PS FOR LAST THREE YEARS AT 29.02%, 45.02% AND 27. 88%, FOR AY.2006-07, 2005-06 & A.Y.2004-05 RESPECTIVELY. THE AVERAGE PROFIT OF LAST THREE YEARS COMES TO 33.95% ITA NO.1644/AHD/2010 A .Y.2006-07 SH. B.K. MOHAN NAIR V. ITO WD-6(1) SRT PAGE 4 3.15 IN LIGHT OF THE ABOVE, THE UNDERSIGNED OF THE CONSIDERATE OPINION THAT THE PROFIT IN SECOND OPTION SHOULD BE TAKEN AS THE PROFIT OF THIS YEAR ALSO, THAT IS AT 33.97%. THIS LEADS TO ESTIMATION O F GROSS PROFIT AT FLAT 33.97% IN FOLLOWING MANNER: IN RS. PARTICULARS A.Y. 2006-07 TURNOVER 29496133 G.P. MARGIN RS.85,58,332 I.E.@ 29.02 ESTIMATED G.P. @ 33.97 RS.1,00,19,836 DIFFERENCE RS.14,61,504 AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE THE CIT(A), THE ASSESSEE PRODUCED THE COMPARISON SHEET OF GROSS PRO FIT AND NARRATED THE ENTIRE THE PERCENTAGE OF TURNOVER, CONSUMABLES, LAB OUR WAGES, SUBS-CONTRACT EXPENSES, CONTRACT EXPENSES, HIRE CHARGES AND OTHER DEDUCTIONS/DIRECT EXPENSES AS UNDER:- PARTICULARS A.Y. 2006-07 A.Y. 2005-06 A.Y. 2004 -05 AMOUNT % AMOUNT % AMOUNT % TURNOVER 29496133 50751038 32001635 CONSUMABLES 6634764 22.49 8274610 16.30 51 85021 16.20 LABOUR WAGES 4487811 15.21 12806572 25.23 8 625165 26.95 SUB CONTRACT EXP. 4593540 15.57 2632723 5.19 6852071 2 1.41 TRANSPORT EXP. 4529668 15.36 3832555 7.55 2814778 8.80 HIRE CHARGES 692019 2.35 1745630 3.44 210111 0.66 OTHER DEDUCTIONS 2010522 0 TOTAL DIRECT EXPENSES 20937802 31302612 23687145 GROSS PROFIT 855833 19448426 8314490 GROSS PROFIT % 29.02 38.32 25.98 * SCRUTINY WAS DONE AO ADDED RS. 813603 CIT APPEAL DELETED 613603 ITAT ORDER CONFIRM IN FAVOUR OF ASSESSEE THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OF FICER AND DISMISSED ASSESSEE APPEAL. AGGRIEVED, NOW ASSESSEE CAME IN S ECOND APPEAL BEFORE US. ITA NO.1644/AHD/2010 A .Y.2006-07 SH. B.K. MOHAN NAIR V. ITO WD-6(1) SRT PAGE 5 6. WE HAVE HEARD THE SR-DR AS WELL AS LD. SR-COUNSE L OF THE ASSESSEE, SHRI J.P.SHAH ON BEHALF OF SHRI R.N. VEPARI. WE FIN D THAT THAT, ON COMPARISON CHART WAS PRODUCED BEFORE CIT(A), IN RESPECT OF CON SUMABLE LABOUR WAGES, SUB-CONTRACT EXPENSES, TRANSPORT EXPENSES, HIRE CHA RGES AND THE RELEVANT CHART AS REPRODUCED IN THE APPELLATE ORDER OF CIT(A ), WHICH IS ALREADY REPRODUCED IN ABOVE PARAS. ONE MORE INTERESTING FAC T IS THAT THE ASSESSEE HAS ALSO GIVEN DETAILS OF GROSS PROFIT OF ASSESSMENT YE AR 2003-04 WHICH IS 15.87%, WHICH IS NOT CONSIDERED BY LOWER AUTHORITIES. IN CA SE THE LOWER AUTHORITIES WANT TO ESTIMATE OF AVERAGE OF LASTS THREE YEARS, THEY S HOULD ADOPT THE AVERAGE OF LAST THREE YEARS STRICTLY AND INCLUDING THIS ASSESS MENT YEAR ALSO I.E. 4 TH ASSESSMENT YEAR. ACCORDINGLY, WE DIRECT THE ASSESSI NG OFFICER TO ADOPT THE GP AS UNDER:- A.Y. GROSS PROFIT 2003-04 15.87 2004-05 27.88 2005-06 45.02 2006-07 29.02 THE AVERAGE OF THE ABOVE SHOULD BE TAKEN AS GP AND ACCORDINGLY RE-COMPUTE THE INCOME. THIS ISSUE OF ASSESSEES APPEAL IS ALLO WED BUT FOR STATISTICAL PURPOSES FOR RE-COMPUTATION OF INCOME WITH THE ABOV E DIRECTION. 7. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF 5% EXPENSES. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.III.:- (III) DISALLOWANCE OF EXPENSES:- (I) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING DISALLOWANCE OF 5% OF EXPENSES ACROSS TH E BOARD WHEN THE BOOKS OF ACCOUNTS ARE AUDITED AND THAT THE RECORDS WERE DESTROYED ON ACCOUNT OF FLOODS. ITA NO.1644/AHD/2010 A .Y.2006-07 SH. B.K. MOHAN NAIR V. ITO WD-6(1) SRT PAGE 6 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE ARE OF THE VIEW THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED AND GP RATE IS APPLIED, NO FURTHER ADD ITION CAN BE MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES. ACCORDINGLY, T HIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13/01/2011 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 13/01/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-IV, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD