Arvind Kumar Chaudhary, V. DCIT,

ITA 172/LKW/2010

• Counselvise Citation: 17223714 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Assessee Lawyers: H RAHMAN
• Keywords: Unexplained investment
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B : LUCKNOW BEFORE SHRI H. L. KARWA, HONBLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.172/LKW/10 ASSESSMENT YEAR:2005-2006 SHRI ARVIND KUMAR CHAUDHARY, VS. DY. C. I . T., CHAUDHARY HOSTEL, GONDA CIRCLE, GANDHI NAGAR, GONDA. BASTI. PAN:ABUPC0866F (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI H. RAHMAN, ADVOCATE RESPONDENT BY: SHRI P. K. BAJAJ, D. R. ORDER PER N. K. SAINI: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 15/01/2010 OF CIT(A)-II, LUCKNOW RELEVANT TO ASSESS MENT YEAR 2005-2006. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS: 1. THAT THE ORDER OF THE LEARNED CIT (A) IS CONTRA RY TO FACTS, LAW AND EVIDENCE ON RECORD. 2. THAT THE LEARNED CIT (A) IS NOT JUSTIFIED IN CON FIRMING A NET PROFIT RATE OF 7% ON GROSS RECEIPTS OF CONTRACT BY RELYING ON THE ORDERS OF THE HON'BLE ITAT BENCH, LUCKNOW IN TH E CASE OF GUPTA CONTRACTOR WHICH IS NOT COMPARABLE WITH TH E CASE OF THE APPELLANT. 3. THAT THE LEARNED CIT (A) ERRED IN CONFIRMING 50% OF ` 14,16,513/- AS UNEXPLAINED INVESTMENT IN CONTRACT B USINESS IN ABSENCE OF ANY MATERIAL OR EVIDENCE. 2 4. THAT THE LEARNED ASSESSING OFFICER FAILED TO PRO VIDE ANY OPPORTUNITY TO THE APPELLANT TO EXPLAIN BEFORE HE A PPLIED THE RATE OF 7% RELYING ON THE CASE OF GUPTA CONTRACTOR. 5. THAT COPY OF REMAND REPORT ALLEGED TO HAVE BEEN FURNISHED VIDE CIT (A) LETTER DATED 14/12/2008 WAS NOT RECEIV ED BY THE APPELLANT, THEREBY DENYING THE OPPORTUNITY OF FURTH ER SUBMISSIONS. 6. THAT THE LEARNED CIT (A) HAS LEGALLY ERRED IN CO NFIRMING THE LEVY OF INTEREST OF ` 1,37,719/- U/S 234B. 2. GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE SO DO NOT REQUIRE ANY COMMENT ON OUR PART. 3. THE GRIEVANCE OF THE ASSESSEE, VIDE GROUND NO. 2 , RELATES TO THE CONFIRMATION OF ADDITION BY APPLYING THE NET PROFIT RATE OF 7% ON THE GROSS RECEIPTS. THE FACTS RELATED TO THIS ISSUE, IN BRIE F, ARE THAT THE ASSESSEE IS A CONTRACTOR AND HAD SHOWN CONTRACT RECEIPTS OF ` 1,8203,701/- AND DECLARED NET PROFIT OF ` 1,96,537/-. THE CASE WAS SELECTED FOR SCRUTINY. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT THE ASSESSEE COULD NOT PRODUCE COMPLETE BOOKS OF ACCOUNT AND VOU CHERS SO THE BUSINESS RESULT COULD NOT BE VERIFIED. HE ALSO COLLECTED IN FORMATION FROM ASSISTANT COMMISSIONER, TRADE TAX, BASTI AND M/S KHALILABAD S UGAR MILLS (P) LTD. IN RESPECT OF CONTRACT RECEIPTS OBTAINED BY THE ASSESS EE FROM WHICH IT WAS FOUND THAT THE ASSESSEE HAD NOT DISCLOSED THE RECEIPTS AM OUNTING TO ` 14,16,513/-. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE ASS ESSING OFFICER, THE ASSESSEE TRIED TO CONTEST THE INFORMATION COLLECTED BY THE ASSESSING OFFICER FROM THE AFORESAID PERSONS BUT AT THE SAME TIME AGREED T HAT ONLY NOTIONAL PROFIT MAY 3 BE ADDED TO HIS INCOME. THE ASSESSING OFFICER, AFT ER CONSIDERING THE REPLY OF THE ASSESSEE, ADOPTED THE TOTAL RECEIPTS OF THE ASSESSE E AT ` 1,96,20,214/- ( ` 1,82,03,370/- + ` 14,16,513/-) AND COMPUTED 7% NET PROFIT ON THE SAME ON THE BASIS OF DECISION OF THE ITAT, ALLAHABAD BENCH IN T HE CASE OF GANGA PRASAD TRIPATHI VS. ITO AND THE DECISION OF ITAT LUCKNOW IN THE CASE OF GUPTA BROTHERS VS. ITO. ACCORDINGLY, THE NET PROFIT OF T HE ASSESSEE FOR THE YEAR WAS COMPUTER AT ` 13,73,415/-. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT (A) AND SUBMITTED THAT THE CASES RELIED BY THE ASSESSIN G OFFICER WERE NOT COMPARABLE WITH THE ASSESSEES CASE SINCE IN THOSE CASES, REMUNERATION TO WORKING PARTNERS AND INTEREST ON CAPITAL WAS DEDUCT ED FROM THE NET PROFIT OF 7% WHILE THE ASSESSEES STATUS WAS INDIVIDUAL. IT WAS ALSO STATED THAT FOR THE ASSESSMENT YEAR 2001-2002, THE ITAT, LUCKNOW BENCH HAS UPHELD THE ESTIMATION OF PROFIT @6% IN THE ASSESSEES OWN CASE . THE LEARNED CIT (A) ALSO ASKED THE REMAND REPORT FROM THE ASSESSING OFFICER WHEREIN IT WAS STATED THAT THE ASSESSEE AGREED FOR ADDITION OF NOTIONAL PROFIT FROM THE EXCESS RECEIPTS AND THE NET PROFIT RATE @7% WAS APPLIED ON THE BASIS OF AFORESAID DECISION OF THE TRIBUNAL. 4.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE, OBSERVED THAT THE ACTION OF THE ASSESSING OFFICER I N ADOPTING THE TURNOVER AT ` 1,96,20,214/- WAS CORRECT IN VIEW OF THE FACT THAT THE ASSESSEE HAD ALSO 4 IMPLIEDLY AGREED FOR INCLUSION OF RECEIPTS OF ` 14,16,513/- IN THE TURNOVER DURING THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFF ICER. AS REGARDS TO THE NET PROFIT RATE OF 6% ADOPTED BY ITAT IN ASSESSEE' S OWN CASE FOR EARLIER YEAR, THE LEARNED CIT (A) WAS OF THE VIEW THAT THE SAID R ATE WAS APPLIED ON PECULIAR FACTS PERTAINING TO THAT YEAR, SO IT CANNOT BE CONS IDERED WHILE APPLYING THE NET PROFIT RATE FOR THE YEAR UNDER CONSIDERATION. ACCO RDING TO THE LEARNED CIT (A), THE ASSESSING OFFICER HAD RELIED ON THE DECISIONS OF ITAT WHEREIN THE NET PROFIT RATE OF 7% WAS APPLIED IN THE CASE OF CIVIL CONTRAC TOR. HE, THEREFORE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE NET PROFIT RATE OF 7%. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE NET PROFIT RATE @1.5% HAD BEEN ACCEPTED FOR THE PRECEDING YEAR ON T HE TURNOVER OF ` 1,53,76,166/- AND IN THE SUBSEQUENT YEAR THE NET PR OFIT RATE ACCEPTED BY THE DEPARTMENT WAS @2.45% ON THE TURNOVER OF ` 3,19,78,202/-. HE FURTHER SUBMITTED THAT THE AVERAGE NET PROFIT RATE FOR THE ASSESSMENT YEARS 2004-2005 TO 2006-2007 COMES AT 3.65%, THEREFORE, THE NET PRO FIT RATE APPLIED @7% WAS VERY EXCESSIVE. IN SUPPORT OF THE ABOVE CONTENTION , THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS A CHART SHOWING THE TURNOVER AND NET PROFIT RATES FOR THE ASSESSMENT YEARS 2004-2005 TO 2006-2007 WHICH IS PLACED AT PAGE NO. 4 OF THE SUBMISSIONS FURNISHED ON 13/04 /2011. HE FURTHER SUBMITTED THAT THE FACTS OF THE CASE RELIED BY THE ASSESSING OFFICER WHILE 5 APPLYING THE NET PROFIT RATE OF 7% ARE DISTINGUISHA BLE FROM THE FACTS OF THE ASSESSEES CASE. 6. IN HIS RIVAL SUBMISSIONS, THE LEARNED D. R. STRO NGLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESE NT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER APPLIED THE NET PROFIT RATE OF 7% ON THE BASIS OF DECISION OF THE ITAT LUCKNOW BENCH IN THE CASE OF GUPTA CONTRAC TOR, BASTI VS. ITO WHEREIN THE EARLIER ORDER OF THE ITAT, ALLAHABAD BE NCH IN THE CASE OF GANGA PRASAD TRIPATHI VS. ITO WAS FOLLOWED. HOWEVER, TH E ASSESSING OFFICER, WHILE APPLYING THE AFORESAID DECISION, HAS NOT CONSIDERED THIS VITAL FACT THAT THE ASSESSEE IS A PROPRIETOR AND DOING THE BUSINESS IN HIS INDIVIDUAL CAPACITY WHILE THE COMPARABLE CASES WERE OF THE FIRM WHEREIN THE I NTEREST TO THE PARTNERS CAPITAL AND THE SALARY OF THE PARTNERS HAVE BEEN AL LOWED OUT OF THE NET PROFIT. IT IS ALSO NOTICED THAT THE TURNOVER IN THE CASE OF M/ S GUPTA CONTRACTOR, BASTI WAS AT ` 62,40,823/- WHILE THE TURNOVER IN THE ASSESSEES CA SE IS AT ` 1,96,20,240/-. THEREFORE, THE CASE RELIED BY THE ASSESSING OFFICER IS NOT COMPARABLE ON FACTS. IN THE INSTANT CASE, IT SEEMS THAT THE BOOK RESULTS DISCLOSED BY THE ASSESSEE WERE NOT COMPLETELY VERIFIABLE, THEREFORE, THE BOOK S WERE REJECTED AND THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BO OKS OF ACCOUNT HAS NOT BEEN CHALLENGED BY THE ASSESSEE. IF THE BOOKS ARE REJEC TED, THE ONLY WAY TO 6 DETERMINE THE INCOME IS TO ESTIMATE THE SAME BY APP LYING THE NET PROFIT RATE. IN THE PRESENT CASE, THE NET PROFIT RATE DECLARED BY T HE ASSESSEE FOR THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2004-2005 WAS AT 1.5% WHI LE IN THE SUCCEEDING YEAR I.E. FOR THE ASSESSMENT YEAR 2006-2007 WAS AT 2.45% BUT IN THE SUCCEEDING YEAR, THE TURNOVER OF THE ASSESSEE WAS AT ` 3,19,78,208/- WHILE IN THE YEAR UNDER CONSIDERATION THE TURNOVER IS AT ` 1,96,20,240/-, THEREFORE, THE NET PROFIT RATE FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE B EEN MORE IN COMPARISON TO THE SUCCEEDING YEAR BECAUSE THE INCREASE IN THE TUR NOVER MAY BE ONE OF THE REASONS FOR THE DECLINE IN THE NET PROFIT RATE. IN OUR OPINION, THE NET PROFIT RATE APPLIED BY THE ASSESSING OFFICER AND CONFIRMED BY T HE LEARNED CIT (A) @7% IS EXCESSIVE BECAUSE THE ASSESSEE NEITHER IN THE EARLI ER YEAR NOR IN THE SUBSEQUENT YEAR HAS EARNED SUCH A NET PROFIT, SO CO NSIDERING THE HISTORY OF THE ASSESSEES CASE AND TO MEET THE ENDS OF NATURAL JUS TICE, WE CONSIDER IT FAIR AND REASONABLE TO APPLY THE NET PROFIT RATE OF 5% ON TH E TURNOVER OF ` 1,96,20,240/-. WE ACCORDINGLY SET ASIDE THE ORDER OF LEARNED CIT ( A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO WORK OUT THE INCOME OF TH E ASSESSEE BY APPLYING NET PROFIT RATE OF 5%. 8. THE NEXT ISSUE, VIDE GROUND NO. 3, RELATES TO TH E CONFIRMATION OF ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CONTRACT BU SINESS. 9. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE T HAT THE ASSESSING OFFICER, DURING THE ASSESSMENT PROCEEDINGS, OBSERVED THAT TH E ASSESSEE WAS HAVING 7 UNDISCLOSED RECEIPTS OF ` 14,16,513/- AND MUST HAVE INVESTED SOME MONEY AGAINST SUCH RECEIPTS. THE ASSESSING OFFICER WORKE D OUT THE INVESTMENT PART BY ADOPTING THE NET PROFIT RATE OF 7% ON THE RECEIP TS OF ` 14,16,530/-. ACCORDINGLY, THE INVESTMENT PART WAS WORKED OUT AT ` 13,17,357/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. 10. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND SUBMITTED THAT ONLY PROFIT ELEMENT COULD HAVE BEEN ADDED OUT OF TO TAL DIFFERENCE IN CONTRACT RECEIPTS AMOUNTING TO ` 14,16,513/-. 10.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER HAS BEEN UNREAS ONABLE IN TREATING ALMOST ENTIRE UNDISCLOSED RECEIPTS AS UNEXPLAINED INVESTME NT IN BUSINESS AND TAXING THE SAME SEPARATELY IN ADDITION TO THE PROFIT ESTIM ATED FROM THE UNDISCLOSED CONTRACT RECEIPTS. HE FURTHER OBSERVED THAT THE UN DISCLOSED RECEIPTS TO THE EXTENT OF ` 14,16,513/-, WHICH WERE NOT ACCOUNTED FOR BY THE AS SESSEE AND WERE INDIRECTLY ACCEPTED TO BE ASSESSED AS NOTIONAL PROF IT AND THAT SOME INVESTMENT OUTSIDE BOOKS, MUST HAVE BEEN MADE BY THE ASSESSEE FOR EARNING SUCH RECEIPTS. THE ASSESSING OFFICER CONSIDERED IT FAIR AND REASONABLE TO ESTIMATE THE INVESTMENT @50% OF TOTAL UNDISCLOSED RECEIPTS. ACCORDINGLY, THE ADDITION OF ` 7,08,256/- WAS SUSTAINED. NOW THE ASSESSEE IS IN A PPEAL. 8 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND THE LEARNED D. R. SUPPORTED THE ORDER OF LEARNED CIT (A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN OUR OPINION, THE ESTIMATE OF INVESTMENT @50% OF THE UNDISCLOSED RECEIPTS IS HIGHLY EXCESSIV E BECAUSE THE INVESTMENT REMAINED IN CIRCULATION THROUGHOUT THE YEAR AND IT IS NOT THE CASE OF THE DEPARTMENT THAT THE RECEIPTS OF ` 14,16,513/- WERE EARNED BY THE ASSESSEE ON A SINGLE DAY. WE, THEREFORE, CONSIDERING THE TOTALIT Y OF THE FACTS, DEEM IT FAIR AND REASONABLE TO ESTIMATE THE INVESTMENT PART @10% OF THE RECEIPT OF `14 ,16,513/- ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO R ECOMPUTE THE INCOME KEEPING IN VIEW THE ABOVE DIRECTION. 13. GROUND NO. 4 & 5 OF THE APPEAL ARE CORRELATED W ITH GROUND NO. 2 & 3, SO DO NOT REQUIRE ANY SPECIFIC COMMENT ON OUR PART WHI LE THE LAST ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO. 6, RELATES TO THE CHAR GING OF INTEREST U/S 234BOF THE ACT. 14. SHRI H. RAHMAN, LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT NO INTEREST U/S 234B OF THE ACT IS LEVIABLE IN THE FAC TS AND CIRCUMSTANCES OF THE CASE. ON THE OTHER HAND LEARNED D. R. SUBMITTED TH AT LEVY OF INTEREST U/S 234B IS CONSEQUENTIAL. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSE SSING OFFICER. THE ASSESSING 9 OFFICER WILL EXAMINE THE ISSUE AND DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. 15. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY AND PARTLY FOR STATISTICAL PURPOSES. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27/0 4/2011 ) SD/. SD/. ( H. L. KARWA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 27/04/2011 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR