M/s. Abhay Mishra, SATNA V. ITO,

ITA 166/JAB/2007

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0974 (ITAT-JABALPUR)
• Duration Of Justice: 11 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 12-06-2007
• Court: TRIBUNAL
• Department Lawyers: ABHISHEK SHUKLA
• Assessee Lawyers: CO SATNA; B K NEMA; SUNIL NEMA S S R NEMA
• Keywords: Business income; Depreciation; Principle of natural justice; TDS
• Section: 40A(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE SHRI JOGINDER SINGH,(JM) AND SHRI R.C. SHAR MA (AM) I.T.A. NOS.166/JAB/2007 ASSESSMENT YEAR:2004-05 M/S. ABHAY MISHRA, CONTRACTOR, ARJUN NAGAR, REWA, M.P. VS. THE INCOME TAX OFFICER, WARD-1, REWA, M.P. PAN/GIR NO. : AAHFA 8856 F (APPELLANT ) .. RESPONDENT ) I.T.A. NOS.187/JAB/2007 ASSESSMENT YEAR:2 004-05 THE INCOME TAX OFFICER, WARD-1, REWA, M.P VS. M/S. ABHAY MISHRA, CONTRACTOR, ARJUN NAGAR, REWA, M.P. PAN/GIR NO. : AAHFA 8856 F APPELLANT ) .. RESPONDENT ) ASSESSEE BY : SHRI B.K.NEMA & SHRI SUNIL NEMA, ADVOCATES, S.R.NEMA & CO., SATNA REVENUE BY : SHRI ABHISHEK SHUKLA DATE OF HEARING : 12/ 9/2013 DATE OF PRONOUNCEMENT : 31/10/20 13 O R D E R PER R.C.SHARMA, AM: THE CROSS APPEALS FILED BY THE ASSESSEE AND THE DEP ARTMENT ARE DIRECTED AGAINST THE ORDER DATED 19.4.2007 OF L D CIT(A)-II, JABALPUR FOR THE ASSESSMENT YEAR 2004-05. ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 2 PAGE 2 OF 22 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT ANNUL LING THE ASSESSMENT, PARTICULARLY WHEN HE FOUND THAT THE ASSESSMENT ITSELF WAS HARSH AND HIGH PITCHED. B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE ASSESSMENT BEING AB-INITIO, ILLEGAL AND BAD-IN-LAW AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE OUGHT TO HAVE BEEN QUASHED. 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN ESTIMATING THE NET PROFIT AND APPLYING NET PROFIT R ATE OF 7% THEREBY CONFIRMING ADDITION OF RS. 22,60,4417-. 3. THAT THE LD. CIT(A) FAILED TO APPRECIATE THE F ACT THAT CONTRACT WORK WAS TAKEN UNDER STIFF COMPETITION BEL OW SOR AND THEREFORE, THE APPLICATION OF NET PROFIT RATE O F 7% IS EXCESSIVE, UNREASONABLE AND UNJUSTIFIED, PARTICULAR LY WHEN THE APPELLANT MAINTAINED REGULAR BOOKS OF ACCOUNT D ULY AUDITED UNDER SECTION 44AB OF THE ACT. ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 3 PAGE 3 OF 22 A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMIN G ADDITION ON ACCOUNT OF WORK-IN-PROGRESS AT RS.20,89,485/-; B) THAT, IN THE ALTERNATIVE, SET OFF OUGHT TO HAVE BEE N ALLOWED FOR CLOSING WORK IN PROGRESS SHOWN AT RS.8,45,7207- AND DISCLOSED IN THE REGULAR BOOKS OF ACCOUNTS. 5. THAT WITHOUT PREJUDICE TO THE FOREGOING GROUND S, THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING SEPA RATE ADDITIONS ON ACCOUNT OF WORK IN PROGRESS PARTICULAR LY WHEN INCOME HAS BEEN ESTIMATED AT 7%. 3. GROUNDS RAISED BY THE DEPARTMENT READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE ID, C1T[A] ERRED IN-ESTIMATING THE NET PROFIT @ 7% BY COMPARING THE CASE OF M/S M.K.S ENGRNEERS PVT. LTD. THE TWO CASES ARE NOT EXACTLY COMPARABLE. IF SOR IS TO BE TAKEN THE BASIS, THEN THE NET PROFIT OUGHT TO HAVE BEEN T AKEN AT 10.81. ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 4 PAGE 4 OF 22 2. ADJUSTING THE DIFFERENCE OF CLOSING WORK IN PROG RESS AND OPENING WORK IN PROGRESS AGAINST THE NET PROFIT, WH EREAS THE SAME OUGHT TO HAVE ADJUSTED AGAINST THE GROSS RECEI PTS AND THEN NET PROFIT OUGHT TO HAVE BEEN ESTIMATED. 3. ALLOWING DEPRECIATION OUT OF NET PROFIT WHEN INC OME IS ESTIMATED, IT IS NET OF EVERY EXPENDITURE INCLUD ING DEPRECIATION SECTION 44 AD, THOUGH APPLIES TO ESTIMATION OF INCOME IN THE CASE OF ASSESSEE WHOSE RECEIPT IS MORE THAN RS. 40 LAKHS BUT ARE NOT MAINTAINING BOOKS. THESE DEEMING PROVISIONS CAN BE APPLIED TO SUCH ASSESSEES, WHO ARE NOT MAINTAINING BOOKS OF ACCOUNTS OR THE BOOKS, IF ANY MAINTAINED N OT PRODUCED FOR EXAMINATION DURING THE ASSESSMENT PROCEEDINGS OR ARE FOUND NOT REFLECTING TRUE PROFIT S SECTION 44 AD DEEMS SUCH PROFITS NET OF EVERY EXPENDITURE INCLUDING BUT BEFORE ALLOWING REMUNERATION AND INTEREST TO PARTNERS. TO EFFECT IS THE JUDGEMENT OF A,P .HIGH COURT IN THE CASE OF INDWELL CONT, VS, C1T.232ITR, ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 5 PAGE 5 OF 22 4. COMPUTING THE LOSS IN THE APPELLATE ORDER DESPIT E THE FACT THAT THE ASSESSEE RETURNED INCOME OF RS. 4,77,700/-. 5. DELETING THE ADDITION OF RS, 10,49,000/-WITHOU T ASSIGNING ANY REASONS. THIS ADDITION IS INDEPENDENT OF PROFITS ESTIMATED FROM CONTRACT BUSINESS. HENCE THE RE OUGHT TO HAVE BEEN A CLEAR FINDING ON THIS ISSUE. 4. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECO RDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A GOVERNMENT CONTRACTOR ENGAGED IN CIVIL CONSTRUCTION WORK. DURI NG THE YEAR UNDER CONSIDERATION, ASSESSMENT WAS FRAMED U/S 143( 3)/144A, WHEREIN VARIOUS ADDITIONS WERE MADE BY THE ASSESSIN G OFFICER BY REJECTING BOOKS OF ACCOUNT. AT VARIOUS PLACES, T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT, THEREFORE, HE DID NOT ACCEPT THE ASSESSEE S CLAIM OF EXPENDITURE UNDER VARIOUS HEADS AS WELL AS MADE ADD ITION BY ESTIMATING WORK IN PROGRESS. ADDITIONS ON ACCOUNT O F WORK IN PROGRESS WERE MADE ON PROTECTIVE BASIS. EVEN, REMUN ERATION AND INTEREST PAID TO THE PARTNERS WERE ALSO DISALLO WED. RETURN FILED AT INCOME OF RS. 4,77,700/- WAS ASSESSED BY T HE ASSESSING ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 6 PAGE 6 OF 22 OFFICER AT RS. 2,99,27,462/- ON GROSS CONTRACT REC EIPT OF RS. 9,96,38,511/-. IN AN APPEAL FILED BY THE ASSESSEE B EFORE THE CIT(A), THE LD. CIT(A) PASSED STRICTURE AGAINST THE ORDER OF ASSESSING OFFICER BY HAVING THE FOLLOWING OBSERVATI ONS :- 6. FIRST OF ALL I WOULD LIKE TO PASS STRICTURES AGA INST LOWER AUTHORITIES (I) FOR PASSING SUCH A HARSH ASSESSMENT ORDER INVOLVING MULTIPLE DISALLOWANCE OF THE SAME EXPENDITURE IN VARIOUS FORMS E.G. EXPENDITURE ON ACCOUNT OF PURCHASE OF GITTI HAS BEEN DISALLOWED IN ITEM NO.2,11 AND ALSO PARTLY DISALLOWED IN ITEM NO.9. IN TABLE SUPRA; (II) FOR RESORTING TO INTELLECTUAL DISHONEST Y IN MENTIONING THAT BOOKS OF ACCOUNTS WERE NOT PRODUCED IN SEVEN PLACES OF THE ASSESSMENT ORDER, WHILE, IN FAC T, MOST OF THE ADDITIONS MADE IN THE ASSESSMENT ORDER COULD NOT HAVE BEEN MADE IN ABSENCE OF BOOKS ; AND (III) FOR MAKING DISALLOWANCES AND ADDITIONS PURELY ON SURMISES AND CONJECTURES WITHOUT BOTHERING TO COLLE CT AN IOTA OF PROOF THAT SOME OF THE EXPENDITURE CLAIMED ARE BOGUS. IN SUPPORT OF THE THIRD REASON FOR WHICH I A M PASSING STRICTURES AGAINST THE LOWER AUTHORITIES (J T. CIT RG. SATNA, WHO ISSUED DIRECTIONS 144-A INCLUDED), I ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 7 PAGE 7 OF 22 WOULD LIKE TO POINT OUT THAT RS. 11,25,000/- HAS BE EN DISALLOWED OUT OF DUMPER, JCB AND ROLLER HIRE CHARG ES OF RS. 39,11,381/- CLAIMED BY THE APPELLANT BY MENTION ING THAT ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNTS AN D VOUCHERS. THEREFORE, THE EXPENSES COULD NOT BE VERI FIED (A) FROM THE ASSESSMENT ORDER, IT IS MORE THAN EVID ENT THAT BOOKS OF ACCOUNTS WERE PRODUCED. (B) IF VOUCHE RS WERE NOT PRODUCED, (APPELLANT CLAIMS THAT VOUCHERS WERE ALSO PRODUCED ) DID THE LOWER AUTHORITIES EVER CALL UPON THE APPELLANT TO PRODUCE THE VOUCHERS PERTAINING TO DUMPER, JCB AND ROLLER HIRE BY A SPECIFIC NOTICE ? (C) IT IS A CARDINAL PRINCIPLE OF ADMINISTRATION OF JUSTICE T HAT BEFORE ANY ADDITION IS MADE, ASSESSEE HAS TO BE GIV EN AN OPPORTUNITY BY PROPOSING TO HIM THAT BECAUSE VOUCHERS HAVE NOT BEEN PRODUCED, IT IS PROPOSED TO ADD/DISALLOW A CERTAIN AMOUNT UNDER A PARTICULAR HE AD OF EXPENSE. THERE IS NO IOTA OF EVIDENCE THAT SUCH A NOTICE WAS EVER ISSUED TO THE APPELLANT. APART FROM THIS SCRUTINY AND INVESTIGATION ARE SERIOUS MATTERS, THE Y CANNOT BE SUBSTITUTED BY OPINIONS SITTING IN THE AI R CONDITIONED CHAMBER OF AN OFFICE. I HAVE NEVER SEEN ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 8 PAGE 8 OF 22 ADDITIONS BEING SUGGESTED IN SUCH A CASUAL MANNER, E.G. RS. 54,63,678/- HAVE BEEN ADDED U/S 40A(3) BY MENTIONING THAT BANK ACCOUNTS IN LEDGER OF THE ASSESSEE (CLEAR PROOF THAT LOWER AUTHORITIES HAVE SEEN THE LEDGER ) SHOW THAT ASSESSEE HAS MADE CASH PAYMENT FOR VARIOUS EXPENSES.. IT APPEARS THAT ASSESSEE IS DEBITING BOGUS EXPENDITURE UNDER VARIOU S HEADS AND WITHDRAWS CASH FROM BANK. SINCE BOOKS OF ACCOUNTS AND VOUCHERS HAVE NOT BEEN PRODUCED (HO W COULD THE LOWER AUTHORITIES SAY THIS WHEN IN THE SA ME PARAGRAPH THEY MENTIONED ABOVE THE LEDGER). THE DISALLOWANCE OF BOGUS EXPENDITURE HAS TO BE ON ESTI MATE AND DISALLOW SUCH BOGUS EXPENDITURE. TOTAL AMOUNT O F RS. 2,73,18,390/- ( CASH WITHDRAWAL FROM BANK EXCEEDING RS. 20000, I DISALLOW 20% OF RS. 2,73,18,390/- THE EXPENDITURE WHICH HAS BEEN INCURR ED IN CASH EXCEEDING RS. 20,000/- WHICH COMES TO RS. 54,63,678/-. BASICALLY, 20 % OF ALL WITHDRAWALS FR OM BANK HAVE BEEN DISALLOWED UNDER SECTION 40A(3) WITHOUT EVEN TRYING TO ASCERTAIN WHICH ARE THE PAYM ENTS MADE IN EXCESS OF RS. 20,000/-. BEFORE MAKING AN ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 9 PAGE 9 OF 22 ADDITION OF ALMOST RS. 3 CRORES, THE LOWER AUTHORIT IES NEVER EVEN BOTHERED TO MAKE FIELD VERIFICATION OF T HEIR SUSPICIONS. IF ASSESSEE DID NOT CO-OPERATE TO FURNI SH INFORMATION, THEY COULD HAVE GONE TO THE ASSESSEES OFFICE ON AN UNWELCOME VISIT U/S 133A LOOK FOR VOUC HERS, ASK THE ASSESSEE TO NAME THE PARTIES FORM WHOM HE HAD TAKEN MACHINERY ON HIRE ETC. AND EXAMINE THE PARTIES, FIND OUT WHETHER THEY ARE ASSESSED TO TAX, WHAT RECEIPTS AND EXPENSES THEY HAVE SHOWN ETC. AND THEN COME TO A PROPER CONCLUSION. IT IS SAD THAT I HAVE TO MAKE SUCH REMARKS AGAINST MY OWN JUNIOR COLLEAGUES INCLUDING THE JT. CIT WHO HAPPENS TO BE A SENIOR OF FICER OF THE DEPARTMENT AND WHO SHOULD HAVE SHOWN MORE MATURITY OF APPROACH. THE LOWER AUTHORITIES IN THIS CASE HAVE FORGOTTEN THAT THE OBJECT OF THE DEPARTMENT IS TO COLLECT LEGITIMATE TAXES IN ACCORDANCE WITH PROVISI ONS OF LAW. ONE CANNOT KILL ENTERPRISE BY PASSING HARSH ASSESSMENT ORDERS MAKING UNCALLED FOR AND BASELESS ADDITIONS AND THEN PROCEED TO ENFORCE RECOVERY WITH FULL GUSTO. I COULD NOT BUT HELP MAKE THESE OBSERVATIONS IN THE APPELLATE ORDERS SO THAT LOWER AUTHORITIES ACT ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 10 PAGE 10 OF 22 RESPONSIBLY IN FUTURE. LAW DOES NOT DEBAR THE DEPARTMENT FROM COLLECTING THE LEGITIMATE TAXES BUT WHERE INJUSTICE HAS BEEN DONE AND IS LIKE TO BE DON E, IT IS THE DUTY OF THE HIGHER AUTHORITIES TO STEP IN TO PREVENT WRONG ACTIONS. 5. IT IS CLEAR FROM THE ABOVE THAT THE ASSESSING OF FICER HAS MADE WRONG OBSERVATIONS WITH REGARD TO PRODUCTION O F BOOKS OF ACCOUNTS, VARIOUS DISALLOWANCES MADE BY THE ASSESSI NG OFFICER ITSELF INDICATE THAT THE BOOKS OF ACCOUNTS WERE PRO DUCED AND PART OF THE EXPENDITURE WAS DISALLOWED. THERE APPEARS TO BE CONTRADICTION IN THE ASSESSING OFFICERS ORDER ITSE LF WITH REGARD TO PRODUCTION OF BOOKS OF ACCOUNTS AND VOUCHERS, WHICH WERE DULY PRODUCED BEFORE THE ASSESSING OFFICER AS PER THE FI NDINGS RECORDED BY THE LD.CIT(A). KEEPING IN ACCOUNT THE M ULTIPLE DISALLOWANCES MADE AND ASSESSING THE BUSINESS PROFI T OF THE ASSESSEE AT 30% OF GROSS CONTRACT RECEIPT, THE LD. CIT(A) FOUND THAT IT WAS A HARSH ASSESSMENT ORDER PASSED BY MAKI NG HIGH PITCHED ASSESSMENT. ACCORDINGLY, THE LD. CIT(A) HAS MADE THE ABOVE OBSERVATION. DURING THE COURSE OF HEARING, LD . AUTHORIZED REPRESENTATIVE INVITED OUR ATTENTION TO THE STRICT URE PASSED BY THE LD.CIT(A) WITH REGARD TO THE HARSH ASSESSMENT O RDER INVOLVING ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 11 PAGE 11 OF 22 MULTIPLE DISALLOWANCE OF SAME EXPENDITURE UNDER VAR IOUS FORMS, GIVING WRONG OBSERVATIONS WITH REGARD TO PRODUCTION OF BOOKS OF ACCOUNTS AND MAKING DISALLOWANCES AND ADDITIONS PUR ELY ON SURMISES AND CONJECTURES. NOW WE DEAL WITH THE MERI T OF ADDITIONS MADE BY THE ASSESSING OFFICER WHICH WAS D ELETED BY THE LD.CIT(A). 6. WITH REGARD TO DELETION OF ADDITION OF RS. 2 LA KHS, WE FOUND THAT THE ASSESSEE HAS NEVER PAID COMMERCIAL TAX AT HIS OWN. IT WAS DEDUCTED AT SOURCE BY CONTRACTEE DEPARTMENT JUS T LIKE TDS. WE FOUND THAT TOTAL DEDUCTION MADE BY CONTRACTEE DE PARTMENT OUT OF WORK RECEIPT WAS RS. 22,61,195/- OUT OF WHIC H ONLY RS. 13,56,717/-, WHICH PERTAINS TO THE RELEVANT PREVIOU S YEAR HAVE BEEN DEBITED IN THE ACCOUNT. 7. WE HAD ALSO VERIFIED FORM NO. 42 IN RESPECT OF C OMMERCIAL TAX DEDUCTED BY THE CONTRACTEE DEPARTMENT AND STATE MENT OF LEDGER ACCOUNT ON COMMERCIAL TAX EXPENSES FOR FINAN CIAL YEAR 2003-04 RELEVANT TO ASSESSMENT YEAR `2004-05 UNDER CONSIDERATION. ACCORDINGLY, THE LD. CIT(A) WAS JUST IFIED IN DELETING THE DISALLOWANCE OF COMMERCIAL TAX OF RS. 2 LAKHS M ADE BY ASSESSING OFFICER ON THE PLEA OF WANT OF CHALLAN. S INCE IT WAS NOT PAYMENT BY ASSESSEE BUT WAS DEDUCTION OF TAX AT SOU RCE BY ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 12 PAGE 12 OF 22 CONTRACTEE DEPARTMENT, THERE WAS NO JUSTIFICATION F OR DISALLOWING THE SAME FOR WANT OF CHALLAN. CHALLAN IS REQUIRED T O BE PRODUCED, WHEN SUCH TAX IS DEPOSITED BY THE ASSESSEE AND WHIC H IS CLAIMED AS EXPENSES IN ITS PROFIT AND LOSS ACCOUNT. HOWEVER , IN THE INSTANT CASE BEFORE US, NO TAX WAS PAID BY THE ASSE SSEE BUT IT WAS IN THE NATURE OF TDS BY THE CONTRACTEE DEPARTMENT F OR WHICH RELEVANT CERTIFICATE WAS FILED BY THE ASSESSEE BEFO RE THE ASSESSING OFFICER. ACCORDINGLY, WE CONFIRM THE ACTION OF CIT( A) FOR DELETING ADDITION OF COMMERCIAL TAX OF RS. 2 LAKHS, WHICH WA S DISALLOWED BY THE ASSESSING OFFICER ON THE PLEA OF WANT OF CHA LLAN. 8. THE ASSESSING OFFICER HAS ALSO MADE ADDITION OF RS. 10,49,000/- IN RESPECT OF PAYMENT MADE TO SMT. NIDH I MISHRA. THE ASSESSING OFFICER OBSERVED THAT NIDHI MISHRA WA S PAID ABOVE AMOUNT ON 19.3.2003 BY CHEQUE NO. 81188 FROM SBI A/ C NO. 50233. AS PER ASSESSING OFFICER, THIS PAYMENT WAS N OT DEBITED TO ACCOUNT OF PARTNERS. ACCORDINGLY, THE ASSESSING OFF ICER ADDED RS. 10,49,000/- IN ASSESSEES INCOME. BY THE IMPUGNED O RDER, THE LD. CIT(A) DELETED THE SAME. FROM THE RECORD, WE FOUND THAT ASSESSEE SHRI ABHAY MISHRA PREPARED A DD OF RS. 10,49,000/- IN THE NAME OF SMT. NIDHI MISHRA ON 19.4.2004 FROM HIS PER SONAL ACCOUNT STANDING IN UNION BANK OF INDIA, JABALPUR. SINCE THE ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 13 PAGE 13 OF 22 PAYMENT WAS MADE BY ONE PARTNER TO ANOTHER PARTNER, THERE IS NO JUSTIFICATION FOR MAKING ADDITION OF THIS AMOUNT IN THE HANDS OF ASSESSEE FIRM. 9. THE ASSESSING OFFICER HAS ALSO MADE ADDITION OF RS. 6,11,143/- ON ACCOUNT OF WORK IN PROGRESS TAKEN ON PROTECTIVE BASIS. THE ASSESSING OFFICER HAS MADE THIS ADDITION ON THE PLEA THAT MEASUREMENT OF WORK WAS TAKEN ON 6.7.2003. ACC ORDINGLY, THE AMOUNT WAS TAKEN AS RECEIPT OF THIS YEAR ON PRO TECTIVE BASIS AND ADDITION WAS MADE. BY THE IMPUGNED ORDER, THE L D. CIT(A) DELETED THE SAME. FROM THE RECORD, WE FOUND THAT TH IS RECEIPT HAS ALREADY BEEN INCLUDED BY THE ASSESSEE FOR THE PURPO SE OF DETERMINATION OF TOTAL INCOME FOR THE NEXT YEAR AND THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER. SINCE THE ASSESS ING OFFICER HIMSELF HAS ACCEPTED THAT THIS RECEIPT HAS ALREADY BEEN INCLUDED IN SUCCEEDING YEAR, THE SAME CANNOT BE AGAIN CONSID ERED FOR THE INCLUSION IN TOTAL INCOME IN CURRENT YEAR. ACCORDIN GLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELET ING THE PROTECTIVE ADDITION MADE BY THE ASSESSING OFFICER. 10. WITH REGARD TO DISALLOWANCE OF REMUNERATION AN D INTEREST OF RS. 2,02,406/-, THE ASSESSING OFFICER HAS NOT MENTI ONED ANY REASON IN HIS ORDER. SINCE NO BASIS OF ADDITION DIS CUSSED IN THE ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 14 PAGE 14 OF 22 BODY OF THE ORDER, IT DOES NOT HAVE ANY BASIS, ACCO RDINGLY, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE SAME. 11. THE ASSESSING OFFICER HAS ALSO MADE ADDITION O F RS. 5,75,000/- ON THE PLEA THAT ABHAY MISHRA (PARTNER) HAD SOLD SOME AGRICULTURAL LAND FOR RS. 13,75,000/-. ACTUAL AMOUNT RECEIVED BY HIM TILL 31.3.2004 WAS RS. 8 LAKHS, BAL ANCE WAS NOT RECEIVED. THE ASSESSING OFFICER OBSERVED THAT ABHAY MISHRA HAS CREDITED HIS CAPITAL ACCOUNT WITH RS. 13.75 LAKHS, THEREFORE, ADDITION OF RS. 5.75 LAKHS ( RS. 13.75 (-) RS. 8.00 LAKHS) WAS MADE ON ACCOUNT OF FALSE CAPITAL BOOKING. BY THE IM PUGNED ORDER, THE LD. CIT(A) DELETED THE SAME. FROM THE RECORD, W E FOUND THAT GROSS VALUE OF SALE OF AGRICULTURAL LAND WAS CREDI TED TO PARTNERS CAPITAL ACCOUNT, BALANCE RECEIVABLE WAS SHOWN BY OP ENING A DEBTORS ACCOUNT. THUS, THERE WAS NO EXCESS CASH DE POSIT IN PARTNERS CAPITAL ACCOUNT. IT WAS ONLY TRANSFER ENT RY. THUS, THERE IS NO VALID REASON FOR THE ASSESSING OFFICER FOR MA KING THIS ADDITION AND THE CIT(A) WAS JUSTIFIED IN DELETING T HE SAME. 12. THE ASSESSING OFFICER HAS ALSO MADE ADDITION OF RS. 6,89,928/- ON ACCOUNT OF AGRICULTURAL INCOME. THE L D. CIT(A) HAS DELETED THE ADDITION BY OBSERVING THAT CORRECTNESS OF AGRICULTURAL INCOME CAN BE EXAMINED ONLY AT THE TIME OF ASSESSME NT IN THE ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 15 PAGE 15 OF 22 CASE OF AN INDIVIDUAL PARTNER IN WHOSE NAME THE OWN ERSHIP OF THE LAND STAND AND NOT IN THE HANDS OF ASSESSEE FIRM, W HERE ACCRETION TO CAPITAL IN ACCOUNT OF PARTNER ON ACCOU NT OF AGRICULTURAL INCOME IS SHOWN. SINCE AGRICULTURAL IN COME WAS NOT INCOME OF THE ASSESSEE FIRM, THE LD. CIT(A) WAS JUS TIFIED IN OBSERVING THAT THE ASSESSING OFFICER IS TO EXAMINE THE SAME IN THE CASE OF INDIVIDUAL PARTNER WHILE ASSESSING HIS INCO ME. THERE IS NO INFIRMITY IN THIS PART OF ORDER OF CIT(A). 13. WITH REGARD TO DISALLOWANCE OF CLAIM OF DEPRECI ATION ON LOADER, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWA NCE TO 50% BY OBSERVING THAT THE LOADER COULD HAVE BEEN PUT TO US E IMMEDIATELY AFTER INSURANCE ON 3.10.2003. SINCE THE LOADER WAS PUT TO USE AFTER 3.10.03, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DIRECTING TO ALLOW 50 % OF THE CLAIM OF DEPRECI ATION ON THE LOADER AS IT WAS USED FOR LESS THAN 180 DAYS DURING THE YEAR UNDER CONSIDERATION. 14. WITH REGARD TO ADDITION MADE BY THE ASSESSING O FFICER BY REJECTING BOOKS OF ACCOUNTS AND DISALLOWING VARIOUS EXPENSES, THE LD. CIT(A) DIRECTED TO TAKE PROFIT AT 7 % OF RECEIP T AFTER HAVING FOLLOWING OBSERVATIONS :- ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 16 PAGE 16 OF 22 HOWEVER, ALL SAID AND DONE, IN A BUSINESS OF THIS KIND ONE CANNOT EXPECT PERFECT ACCOUNTS BECAUSE WOR K IS CARRIED OUT IN DIFFERENT SITES, SUPPLIES OF SAND , METAL ETC. WHO BY NATURE OF THEIR BUSINESS ARE PETTY CONTRACTORS AND WILL BE SHIFTING FROM PLACE TO PLAC E WHERE NEW ROADS ARE BEING LAID OR OTHER CIVIL WORKS ARE BEING CARRIED OUT MAY NOT BE AVAILABLE FOR VERIFICA TION. IN SUCH CIRCUMSTANCES, WHAT ASSESSING AUTHORITIES HAVE TO LOOK INTO IS REASONABLENESS OF PROFITS SHOWN BY THE APPELLANT IN BOOKS. NET PROFIT SHOWN BY THE APPELLA NT ( WHICH IS THE RETURNED INCOME) AFTER INTEREST AND REMUNERATION TO PARTNERS AND DEPRECIATION IS 0.47%. HOWEVER, BEFORE DEDUCTION ON ACCOUNT OF DEPRECIATIO N AND INTEREST AND REMUNERATION TO PARTNERS, THE PROF IT COMES TO 5.08 %. IN THE PRECEDING ASSESSMENT YEAR I T WAS 5.62 %. AFTER ADJUSTING FOR OPENING AND CLOSING WORK IN PROGRESS, PROFIT CAME TO 8.89 %. WHILE DECI DING CASES OF THIS KIND, IT WILL ALSO BE MATERIAL TO FIN D OUT COMPARATIVE PROFITS SHOWN BY OTHER CONTRACTORS IN T HIS LINE OF BUSINESS AS ALSO AT WHAT PERCENTAGE BELOW O R ABOVE SOR ( SCHEDULE OF RATES ) VARIOUS WORK ORDERS ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 17 PAGE 17 OF 22 HAVE BEEN ALLOTTED. THE UNDERSIGNED HAD THE PRIVILE GE OF DECIDING APPEAL IN THE CASE OF M/S. MKS ENGG. CO. PVT.LTD., FOR ASSESSMENT YEARS 2003-04 AND 2004-05 ( APPEAL NOS. JBP 262/05-06 AND JBP/264/05-06) WHERE THE BUSINESS OF THE LATTER ASSESSEE IS IDENTI CAL TO THAT OF THE PRESENT APPELLANT. BOTH THE ASSESSEES HAPPEN TO BE A-CLASS GOVERNMENT CONTRACTORS ENGAGED IN ROAD MAKING FOR STATE PWD. BOTH HAVE MORE OR LES S SAME TURNOVER. IN THE CASE OF MKS ENGG. AND CO. PVT.LTD., I HAD SUSTAINED NET PROFIT PERCENTAGE OF 5% OF GROSS BUSINESS RECEIPTS ( INTEREST ON FIXED DEPOSIT S GIVEN AS SECURITY TO CONTRACTEE DEPARTMENTS WERE ALSO CONSIDERED TO BE PART OF BUSINESS RECEIPTS) BEFORE INTEREST AND REMUNERATION TO PARTNERS AND DEPRECIAT ION FOR BOTH ASSESSMENT YEARS, BUT THERE THE APPELLANT HAD RECEIVED WORK ORDERS AT 19.99 % BELOW SOR FOR A CONTRACT OF RS. 1.89 CRORES, 22.5 % BELOW SOR FOR ANOTHER CONTRACT OF 1.47 CRORES, 21.48 % BELOW SOR FOR A CONTRACT OF 1.34 CRORES AND 19.99% BELOW SOR FOR ONE CONTRACT OF 2.67 CRORES. IN THE CASE OF THE PRESENT APPELLANT, I HAD CALLED FOR COPIES OF ALL WORK ORDE RS ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 18 PAGE 18 OF 22 RECEIVED FOR CONTRACT EXECUTED DURING THE RELEVANT PREVIOUS YEAR. THIS INFORMATION WAS CALLED FOR BY POWERS CONFERRED TO ME UNDER SUB-RULE 4 OF RULE 46A . THE WORK ORDERS BEING GOVERNMENT DOCUMENTS, EVEN IF IT WAS PLACED FOR ADMISSION BY THE APPELLANT UNDER SUB RULE 1 OF RULE 46-A WERE NOT REQUIRED TO BE CONFRON TED TO THE LOWER AUTHORITIES FOR COMMENTS BEFORE ADMISSION . ANY EVIDENCE CALLED FOR SUO MOTU BY THE APPELLATE AUTHORITY U/R 46A IS NOT REQUIRED TO BE CONFRONTED TO THE ASSESSING AUTHORITIES. PHOTOCOPIES OF THE WORK ORDE RS ARE ENCLOSED RUNNING PAGE NOS. 10 TO 17 OF THE APPE LLATE ORDER. THE SUMMARY OF VARIOUS WORK ORDERS ARE TABULATED BELOW :- NAME OF DEPARTMENT AGREEMENT NO. SOR RATE AMOUNT RECEIVED EE,PWD (B&R) DIV.NARSINGHPUR 9DL/03-04 14.98% BELOW 66,79,405 EE,PWD (B&R) DIV.NO.1, JABALPUR 18DL/01-02 3.5% ABOVE 35,12,577 EE,PWD (B&R) DIV., JABALPUR EXTRA PIECE WORK 5% BELOW 9,81,773 EE,PWD (B&R) DIV.,JABALPUR 23/DL/02-03 5.04 % BELOW 3,05,83,657 EE,PWD, NH DIV. KARELI 002/A/01-02 11.43 % BELOW 10,81,759 EE,PWD, NH DIV. KARELI 8A/03-04 9.49% BELOW 1,74,27,558 10A/02-03 18 % BELOW 1,84,69,036 11A/02-03 14% BELOW 1,11,66,910 TOTAL 9,96,38,511 ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 19 PAGE 19 OF 22 CONSIDERING THE FACT THAT THE APPELLANT IN THIS CAS E RECEIVED WORK ORDERS FROM 3.51 % ABOVE TO 17.00% BELOW SOR AND THAT THE WEIGHTED AVERAGE WILL BE ABO UT 8% BELOW SOR. I HOLD THAT PROFIT OF 7 % OF RECEIPTS SHOULD BE REASONABLE ESTIMATION OF INCOME BEFORE REMUNERATION AND INTEREST TO PARTNERS AND DEPRECIAT ION. TO THIS OF COURSE, I WILL BE ADJUSTING BOTH FOR OPE NING WORK IN PROGRESS WHICH IS NOT SHOWN BUT WHICH REQUI RES TO BE GIVEN EFFECT TO ON BASIS OF APPELLATE ORDERS FOR PRECEDING ASSESSMENT YEAR AND THE ADDITION ON ACCOU NT OF SUPPRESSED WORK IN PROGRESS WHICH I AM CONFIRMIN G IN THIS ORDER. THE NET RESULT IS AS FOLLOWS : PROFIT ESTIMATED AT 7% OF RS. 99638511 RS. 69,74,696/- ADD : ON ACCOUNT OF CLOSING WORK IN PROGRESS RS. 20,89,485/- RS.90,64,181/- LESS: ON ACCOUNT OF OPENING WORK IN PROGRESS RS. 60,10,272/- RS. 30,53,908/- LESS: DEPRECIATION AS CLAIMED RS. 35,25,708/- LESS (-) RS. 4,71,799/- LESS: INTEREST PAYABLE TO PARTNERS RS. 6,60,847/- (-) RS. 11,32,646/- LESS: REMUNERATION ALLOWABLE AS PER PROVISIONS OF SECTION 40-B IN CASE OF LOSS RS. 50,000/- NET LOSS (-) RS. 11,82,646/- ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 20 PAGE 20 OF 22 15. BOTH THE ASSESSEE AND REVENUE ARE AGGRIEVED FO R CIT(A)S ACTION FOR DIRECTING THE ASSESSING OFFICER TO TAKE NET PROFIT RATE OF 7% AND TO ALLOW ASSESSEES CLAIM OF REMUNERATION AND INTEREST TO PARTNERS AND DEPRECIATION. WE FOUND THAT LOOKING TO THE NATURE OF WORK AND THE FACT THAT THE ASSESSE E HAD RECEIVED WORK ORDER AT 14.98 % BELOW SOR FOR CONTRACT OF RS. 66.79 LACS, WORK ORDER AT 5 % BELOW SOR FOR CONTRACT OF RS. 9.8 1 LACS, WORK ORDER AT 5.04 % BELOW SOR FOR CONTRACT OF RS. 305.8 3 LACS, WORK ORDER AT 11.43 % BELOW SOR FOR CONTRACT OF RS. 10.8 1 LACS, WORK ORDER AT 9.49 % BELOW SOR FOR CONTRACT OF RS. 1.74 CRORE, WORK ORDER AT 18 % BELOW SOR FOR CONTRACT OF RS. 1.84 CR ORE, WORK ORDER AT 14 % BELOW SOR FOR CONTRACT OF RS. 1.11 CR ORE. WE HAD ALSO VERIFIED THE COPIES OF ALL THE WORK ORDERS REC EIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TO VER IFY CONTENTION OF ASSESSEE REGARDING ACCEPTING THE WORK ORDERS BELOW S.O.R. 16. CONSIDERING THE FACTS THAT THE ASSESSEE HAS RE CEIVED THE WORK ORDERS FROM GOVERNMENT BELOW SOR RATE VIS- -VIS NATURE AND QUANTUM OF WORK ORDERS AS ALSO PROFIT RA TE SHOWN BY ASSESSEE IN PAST, WE FIND IT SUITABLE AND DIRECT TH E ASSESSING ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 21 PAGE 21 OF 22 OFFICER TO APPLY NET PROFIT RATE OF 5% ON THE CONTR ACT RECEIPT AND TO ALLOW ASSESSEES CLAIM OF REMUNERATION AND INTER EST TO PARTNERS AND DEPRECIATION AS CLAIMED BY THE ASSESSE E. WE FOUND THAT IN SIMILAR CASE OF M/S. MKS ENGINEERING COMPAN Y LIMITED FOR ASSESSMENT YEARS 2003-04 AND 2004-05, WHERE BUS INESS WAS SIMILAR TO THE BUSINESS OF ASSESSEE, THE LD. CIT(A) HAS SUSTAINED NET PROFIT PERCENTAGE OF 5 % ON GROSS BUSINESS RECE IPTS BEFORE INTEREST AND REMUNERATION TO PARTNERS AND DEPRECIAT ION. 17. WITH REGARD TO ADDITION OF RS. 15,99,485/- ON ACCOUNT OF SUPPRESSED WORK IN PROGRESS, WE FOUND THAT THE A SSESSEE ITSELF HAD SHOWN CLOSING WORK IN PROGRESS AT RS. 8, 45,720/- IN ITS REGULAR BOOKS OF ACCOUNTS. ACCORDINGLY, WE DIRE CT THE ASSESSING OFFICER TO RESTRICT ADDITION ON ACCOUNT O F WORK IN PROGRESS AT RS. (15,99,485 (-) RS. 8,45,720/- ) RS. 7,53,765/-. WE FURTHER DIRECT THE ASSESSING OFFICER TO GIVE CRE DIT FOR CLOSING WORK IN PROGRESS OF RS. 15,99,485/- BY TREATING THE SAME AS OPENING WORK IN PROGRESS IN THE SUBSEQUENT YEAR. ME ANING THEREBY IN THE SUBSEQUENT YEAR, THE ASSESSEE IS ELI GIBLE TO HAVE OPENING WORK IN PROGRESS OF RS. 15,99,485/- IN PLAC E OF RS. 8,45,720/-. WE DIRECT ACCORDINGLY. ABHAY MISHRA, CONTRACTOR, I.T.A.NOS. 166 AND 187/JA B/2007 ASSESSMENT YEARS 2004-05 22 PAGE 22 OF 22 18. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSING OFFICER IS DIRECTED TO RE-WORK OUT BUSINESS INCOME BY TAKIN G NET PROFIT RATE OF 5 % ON GROSS CONTRACT RECEIPT OF RS. 9,96,3 8,511/-. CONSIDERING THE NATURE OF WORK WHERE USE OF MACHINE RY IS INEVITABLE, CLAIM OF DEPRECIATION IS TO BE ALLOWED SEPARATELY. ACCORDINGLY, ON THE NET PROFIT SO WORKED OUT, THE A SSESSING OFFICER IS DIRECTED TO ALLOW ASSESSEES CLAIM FOR D EPRECIATION AND INTEREST AND SALARY TO PARTNER AS PER PROVISIONS OF SECTION 40(B)(V) OF THE ACT. WE DIRECT ACCORDINGLY. 19. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOW ED IN PART IN TERMS INDICATED HEREINABOVE, WHEREAS APPEAL OF R EVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2013. SD/- SD/- ( JOGINDER SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 31/10/2013 CPU* 22243110