M/s. Satish Aggarwal & Co., Amritsar. V. Asstt. Commissioner of Income-tax, Amritsar.

ITA 176/ASR/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4367 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-02-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Cost of acquisition; Set aside
• Section: 143(3); 40(b); 201; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. N. S . SAINI, ACCOUNTANT MEMBER A ND SH. N. K. CHOUDH RY , JUDICIAL MEMBER ITA NO. 176/ASR./2015 : ASSTT. YEAR : 201 0 - 11 M/S SATISH AGGARWAL & CO., CIVIL CONTRACTO RS, 12B, NIKKA SINGH COLONY, RAM TIRATH ROAD, AMRITSAR VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - V, AMRITSAR (APPELLANT) (RESPONDENT) PAN NO. A A QFS0788M ASSESSEE BY : SH . ASHWANI KALIA, CA REVENUE BY : SH . YASHENDER GARG, DR DATE OF HEARING : 22 .02 .201 9 DATE OF PRONOUNCE MENT : 22 .03 .201 9 ORDER PER N. S . SAINI, A CCOUNTANT M EMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - II , AMRITSAR DATED 30 .01.2015 . 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ESTIMATING THE NET PROFIT @ 10% OF THE TURNOVER WHICH IS EXCESSIVE AND NOT ALLOWED DEPRECIATION OF RS.33,77,901/ - FROM THE PROFIT SO ESTIMATED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS A CIVIL CONTRACTOR. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EXECUTED DIFFERENT CONTRACT WORKS OF GOVERNMENT AS WELL AS PRIVATE PARTIES. THE TOTAL CONTRACT RECEIPTS OF THE ITA NO. 176/ASR./2015 SATISH AGGARWAL & CO. 2 ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION WAS RS.31,72,59,661/ - . 4. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PURCHASES SOIL FOR WHICH IT PRODUCE D COMPUTERIZED LEDGER FOR EXAMINATION. THE SAID LEDGER ACCOUNT SHOWS THAT THE ASSESSEE HAS SHOWN PURCHASES OF S OIL FROM TROLLYWALAS @ RS.600 PER TROLLY. THE PAYMENTS HAVE BEEN MADE IN CASH OF RS.20,000/ - EACH ON DIFFERENT DATES. HE OBSERVED THAT VOUCHERS OF PURCHASE OF SOIL IS NOT PRODUCED ON THE GROUND THAT THEY ARE NOT GIVEN BY TROLLYWALAS. THE ASSESSEE PRODUCED BEFORE THE AO A CHART OF TOTAL QUANTITY OF SOIL PURCHASED WHICH WAS 300024 CUM. THE ASSESSEE HAS ALSO FURNISHED DETAILS OF CONSUMPTION OF SOIL (CONTRACT WISE) WHICH AMOUNTS TO 300024 CUM. THE AO OBSERVED THAT IF TOTAL QUANTITY OF 300024 CUM OF SOIL PURCHAS ED FROM TROLLY ONLY, THE NUMBER OF TROLLY COMES TO 60004 AND THE COST OF PER TROLLY WAS RS.600/ - . AT THIS RATE, THE PURCHASE COST COMES TO RS.3,60,02,400/ - WHEREAS THE ASSESSEE HAS SHOWN COST OF PURCHASE OF SOIL AT RS.4,69,40,800/ - . THE ASSESSEE COULD NOT FURNISH ANY PLAUSIBLE EXPLANATION FOR DIFFERENCE IN COST OF PURCHASE OF SOIL. 5. FURTHER, THE ASSESSEE HAS DEBITED RS.6,61,51,050/ - FOR PAYMENT OF WAGES. OUT OF THIS AMOUNT, RS.56,24,100/ - WAS SHOWN AS PAYABLE. THE ASSESSEE PRODUCED MUSTER ROLLS FOR TH E PERIOD APRIL, 2009 TO MARCH, 2010. THE ASSESSEE HAS ENGAGED TWENTY OR MORE THAN TWENTY LABOURS FOR EXECUTION OF DIFFERENT CONTRACT. KEEPING IN VIEW, THE PROVISIONS OF PUNJAB CONTRACT LABOUR (REGULATION & ABOLITION) RULES, 1973, THE ASSESSEE WAS ASKED TO CLARIFY AS TO WHETHER HE COMPLIED WITH THE PROVISIONS ITA NO. 176/ASR./2015 SATISH AGGARWAL & CO. 3 OF PUNJAB CONTRACT LABOUR (REGULATION & ABOLITION) RULES, 1973. THE ASSESSEE SUBMITTED THAT THOUGH THE PROVISIONS OF PUNJAB CONTRACT LABOUR (REGULATION & ABOLITION) RULES, 1973 APPLIED TO THEM BUT PAYME NT OF LABOUR WAS NOT MADE IN ACCORDANCE WITH THE ABOVE ACT IN PRESENCE OF REPRESENTATIVE OF THEIR PRINCIPAL EMPLOYER. THEREFORE, THE AO OBSERVED THAT THE MUSTER ROLLS IN SUPPORT OF THE PAYMENT OF WAGES CANNOT BE RELIED UPON. IN VIEW OF THE ABOVE DISCREPANC IES , THE AO OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE IN WAGES ACCOUNT , PURCHASE OF SOIL ACCOUNTS AND OTHER MAJOR DISCREPANCIES, AUDITED BOOKS OF ACCOUNT SUFFER FROM SERIOUS DEFECTS. THEREFORE, THEY CANNOT BE RELIED UPON AND REJECT ED THE SAME U/S 145(3) OF THE ACT. THEREAFTER, HE MADE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT U/S 144 OF THE ACT. HE RELIED ON THE DECISION OF THE TRIBUNAL IN ITA NO. 383/CHANDI/2004, ORDER DATED 30.08.2006 IN THE CASE OF M/S SHIVAM CONSTRUCTION COMPANY WHERE ON SIMIL AR FACTS, IT WAS HELD THAT NET PROFIT OF 10% SUBJECT TO NO FURTHER DEDUCTION EXCEPT DEDUCTION ON ACCOUNT OF SALARY AND INTEREST PAID TO PARTNERS SUBJECT TO LIMIT U/S 40(B) OF THE ACT WAS JUSTIFIED. ACCORDINGLY, HE ASSESSED THE INCOME OF THE ASSESSEE AT 10% OF THE GROSS RECEIPTS AS REDUCED BY AMOUNT RECOVERED AS SUPPLY OF MATERIAL FROM PUNJAB MANDI BOARD AND VAT FROM THE GROSS CONTRACT RECEIPTS. FURTHER, IT WAS MADE SUBJECT TO DEDUCTION ON ACCOUNT OF SALARY AND INTEREST PAID TO PARTNERS WITHIN SECTION 40(B) OF THE ACT. 6. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE CIT(A) UPHELD THE ITA NO. 176/ASR./2015 SATISH AGGARWAL & CO. 4 ACTION OF THE ASSESSING OFFICER FOR THE REASONS AS STATED BY THE ASSESSING OFFICER IN HIS ORDER. 7. BEFORE US, THE LD. AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT ESTIMATION OF PROFIT BY APPLYING THE RATE OF 10% ON GROSS CONTRACT RECEIPT WAS EXCESSIVE. FURTHER, IT WAS SUBMITTED THAT DEPRECIATION SHOULD HAVE BEEN ALLOWED OUT OF SUCH ESTIMATION OF PROFIT. 8. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE FULLY JUSTIFIED THE ORDERS OF THE LOWER AUTHORITIES. 9. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT BEFORE US THE AR OF THE ASSESSEE HAS FILED CHART SHOWI NG GROSS PROFIT RATE RATIO 4.16% TO 5.14% IN THE ASSESSMENTS YEARS 2002 - 03 TO 2009 - 10. IT IS ALSO FAILED THE CHART SHOWING GROSS PROFIT RATE IS 4.57% TO 4.48% IN THE ASSESSMENT YEARS 2011 - 12 TO 2013 - 14. IT IS OBSERVED THAT RATE OF PROFIT OF 4.16% WAS ACCEP TED IN ASSESSMENT FRAMED U/S 143(3) OF THE ACT IN ASSESSMENT YEAR 2002 - 03. FURTHER, RATE OF PROFIT OF 4.57% WAS ACCEPTED IN THE ASSESSMENT YEAR 2011 - 12 IN ASSESSMENT MADE U/S 143(3) OF THE ACT. FURTHER, RATE OF PROFIT OF 4.59% AND 4.48% WAS ACCEPTED IN THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 IN ASSESSMENT FRAMED U/S 143(3) OF THE ACT. THUS, WE FIND THAT THE HIGHEST RATE OF PROFIT SHOWN BY THE ASSESSEE WAS IN THE ASSESSMENT YEAR 2005 - 06 WHICH WAS @ 5.14%. IT IS AN ACCEPTED POSITION OF LAW THAT AFTER REJECTI NG BOOK RESULTS OF THE ASSESSEE, THE ASSESSING OFFICER IS NOT TO MAKE A WILD GUESS OF THE RATE OF PROFIT OF THE ASSESSEE, HE SHOULD ESTIMATE THE PROFIT, KEEPING IN VIEW THE PAST ACCEPTED RESULTS OF THE ASSESSEE. WE FIND THAT THE HIGHEST RATE OF PROFIT ACCE PTED WAS IN THE ASSESSMENT YEAR 2005 - 06, WHICH WAS 5.14% ITA NO. 176/ASR./2015 SATISH AGGARWAL & CO. 5 AND THEREFORE, IN OUR CONSIDERED VIEW, THE ESTIMATION OF PROFIT @ 5.14% OF THE CONTRACT RECEIPTS WILL MEET THE ENDS OF JUSTICE. HENCE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE AO TO COMPUTE THE INCOME OF THE ASSESSEE BY APPLYING THE RATE OF 5.17% TO THE CONTRACT RECEIPTS OF THE ASSESSEE AND PARTLY ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 10. FURTHER, THE ASSESSEE HAS CLAIMED THAT HE SHOULD BE ALLOWED DEDUCTION FOR DEPRECI ATION OUT OF THE ESTIMATED RATE OF PROFIT. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE TO SHOW THAT THE RATE OF PROFIT ACCEPTED IN THE PAST ASSESSMENT YEARS AS SHOWN BY THE ASSESSEE WAS ARRIVED A T AFTER DEDUCTING DEPRECIATION FROM THE PROFIT EARNED BY THE ASSESSEE OR THE RATE WAS BEFORE THE DEDUCTION OF DEPRECIATION OUT OF THE ESTIMATED RATE OF PROFIT. IN ABSENCE OF THE SAME, THE ARGUMENT AND THE GROUNDS OF THE APPEAL OF THE ASSESSEE CANNOT BE ACC EPTED. THEREFORE, THIS PAR T OF THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . (ORDER PRON OUNCED IN THE OPEN COURT ON 22 / 0 3 /2019 ) SD/ - SD/ - ( N. K. CHOUDHRY ) (N. S . SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 /03 /2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT RE GISTRAR