ACIT Circle-I, V. RSV Builders (P) LTd,

ITA 1765/DEL/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53080 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 15-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 08-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Gross profit estimation; Business expenditure; Assessment record
• Section: 145; 40A(3); 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1765/DEL/2008 ASSESSMENT YEAR: 2003-04 ACIT, VS. M/S RSV BUILDERS (P) LTD., CIRCLE-1, FARIDABAD. SCF-71, PART-II, SECTOR-16A, FARIDABAD. AACCR6311E (APPELLANT) (RESPONDENT) & ITA NO.2896/DEL/2009 ASSESSMENT YEAR: 2004-05 DCIT, VS. M/S RSV BUILDERS (P) LTD., CIRCLE-1, BLOCK-1-B, SCF-71, PART-II, SECTOR 16A, CGO COMPLEX, NH-4, FARIDABAD. NEW DELHI. AACCR6311E (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PRATIMA KAUSHIK, SR. DR RESPONDENT BY : SH. ASHWANI TANEJA, ADV. ORDER PER C.L. SETHI, J.M. THESE TWO APPEALS, FILED BY THE REVENUE ARE DIRECT ED AGAINST TWO SEPARATE ORDERS DATED 19.02.08 & 30.04.09 PASSE D BY LD. CIT(A), IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSIN G OFFICER U/S ITA NOS. 1765/D/08 & 2896/D/09 2 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR TH E A.Y. 2003-04 & 2004-05 RESPECTIVELY. 2. ITA NO. 1765/D/08 : - WE SHALL FIRST TAKE UP THE APPEAL PERTAINING TO THE A.Y. 2003-04. 3. THE GROUND NO. 1 RAISED BY THE REVENUE IS DIRECT ED AGAINST THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 20,87,614/- MADE BY THE AO BY INCREASING THE GP RATE AFTER INVOKING THE PROVISIONS OF SEC. 145 OF THE ACT. 4. IN THIS CASE, THE ASSESSEE FILED ITS RETURN OF I NCOME ON 1.12.03 DECLARING TOTAL INCOME AT RS. 5,24,430/-. THE CASE WAS SELECTED FOR SCRUTINY, AND ACCORDINGLY, NOTICES U/S 143(2) AND 1 42(1) WERE ISSUED AND DULY SERVED UPON THE ASSESSEE. THE ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE AO AND FILED REQ UIRED DETAILS. THE BOOKS OF ACCOUNTS WERE ALSO PRODUCED, WHICH WER E TEST CHECKED BY THE AO. AFTER CONSIDERING ALL THE MATERIALS, TH E AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 1 4.03.06, WHERE AN ADDITION OF RS. 20,87,614/-, AMONGST OTHERS, WAS MA DE ON ACCOUNT OF LOW GROSS PROFIT. 5. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION ACTIVITIES ON CONTRACT BASIS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN GROSS CONTRAC T RECEIPTS AMOUNTING TO RS. 3,07,82,487/- AGAINST WHICH CONSTR UCTION EXPENSES ITA NOS. 1765/D/08 & 2896/D/09 3 WERE CLAIMED AT RS. 2,59,87,122/-. IN THE CASE OF ASSESSMENT PROCEEDINGS, A DETAILED QUESTIONNAIRE WAS ISSUED BY THE AO TO THE ASSESSEE ON 22.08.05 TO FURNISH DETAILS OF EXPENSES UNDER VARIOUS HEADS CLAIMED TO HAVE BEEN INCURRED ON THE CONSTRUC TION ACTIVITIES. THE ASSESSEE FILED THE REQUISITE DETAILS VIDE LETTE R DATED 06.09.05 AND 05.10.05. THE AO ISSUED ANOTHER QUESTIONNAIRE TO T HE ASSESSEE ON 10.01.06 CALLING A CLARIFICATION ON CERTAIN ISSUES AND TO GIVE DETAILS OF THE WORKS PROJECT-WISE. THE ASSESSEE THEN FILED DE TAILS OF VARIOUS PROJECTS IN HAND UNDERTAKEN DURING THE YEAR. FROM THE DETAILS OF PROJECTS, IT WAS OBSERVED BY THE AO THAT ASSESSEE H AD UNDER TAKEN TWO MAJOR PROJECTS I.E. (I) M/S MESOMETAL WARE (P) LTD. , GURGAON AND (2) M/S N.C. COLLEGE OF ENGGINEERING, PANIPAT. COPIES O F CONSTRUCTION AGREEMENT IN RESPECT OF THESE TWO PROJECTS WERE FUR NISHED AND EXAMINED BY THE AO, AND THE AO TOOK NOTE OF THE RAT ES OF CONTRACT FOR VARIOUS WORKS OF THESE PROJECTS, AND THE SAME WERE RE-PRODUCED IN HIS ORDER. ON VERIFICATION OF THE TERMS AND CONDITIONS OF BOTH THE AFORESAID CONTRACTS, IT WAS NOTED BY THE AO THAT IN THE CASE OF CONTRACT WITH M/S N.C. COLLEGE OF ENGG., PANIPAT THE CEMENT AND STEEL WAS TO BE PROVIDED BY THE CONCERNED PARTY TO THE ASSESSEE WHILE IN THE CASE OF M/S MESOMETAL WARE (P) LTD., GURGAON, THE CONTRACT RATES INCLUDED COST OF ALL MATERIALS INCLUDING CEMENT AND STEEL TO BE SUPPLIED BY THE ASSESSEE. THE AO THEN EXAMINED THE BILLS AND VOUCH ERS OF ALL ITA NOS. 1765/D/08 & 2896/D/09 4 EXPENSES AS WELL AS THE BOOKS OF ACCOUNTS, AND HE T HEN MADE AN OBSERVATION THAT BILLS OF VARIOUS CONCERNS OR SUPPL IERS WERE NOT PROPER BILLS, AND HAD VARIOUS DISCREPANCIES AS MENTIONED B ELOW: I) THE BILL ISSUED BY M/S CHAUDHARY BUILDING MATE RIAL SUPPLIER DID NOT HAVE NAY SERIAL NUMBER PRINTED ON THE BILL/CASH MEMO. II) THE BILL ISSUED BY M/S GARG BUILDING MATERIAL SUPPLIER DID NOT HAVE ANY SERIAL NUMBER PRINTED ON THE BILL/CASH MEMO. III) SIMILARLY THE BILL ISSUED BY M/S RASTOGI BUILD ING MATERIAL SUPPLIER DID NOT HAVE ANY SERIAL NUMBER PRINTED ON THE BILL/CASH MEMO. 6. SOME OF THE INSTANCES OF THE BILL WERE NOTED BY THE AO IN THE ASSESSMENT ORDER. THE AO FURTHER OBSERVED THAT TR UCK NUMBERS WERE NOT MENTIONED ON THE BILLS SO AS TO INDICATE THE MO DE OF TRANSPORTATION OF THE MATERIALS. THE AO ALSO STATED THAT THE ASSE SSEE HAS FAILED TO GIVE ANY REASON FOR MAKING CERTAIN PAYMENTS IN CASH , AND MOST OF THE EXPENSES FOR PURCHASES OF RORI, BRICKS, CEMENT, DUS T ETC., WERE BOOKED IN CASH. THE AO ALSO FOUND THAT THE AMOUNT MENTION ED ON CERTAIN BILLS OF M/S CHAUDHARY BUILDING MATERIALS WERE NOT TALLIED WITH THE AMOUNT MENTIONED IN THE LEDGER, AND SOME WERE NOT F OUND EVEN RECORDED IN THE LEDGER BOOK. THE AO FURTHER STATED THAT THE BILLS ISSUED BY M/S RASTOGI BUILDING MATERIAL SUPPLIER AN D M/S GARG ITA NOS. 1765/D/08 & 2896/D/09 5 BUILDING MATERIAL SUPPLIER WERE TOWARDS CASH SALE S WITHOUT MAINTAINING THE NAME OF PURCHASER AND DESTINATION. THE AO THEN DEPUTED ONE INSPECTOR OF HIS OFFICE TO MAKE AN ENQU IRY ON THE ADDRESSES SHOWN ON THE BILLS ISSUED BY THE SUPPLIER S, M/S CHAUDHARY BUILDING MATERIAL, M/S GARG BUILDING MATERIAL SUPPL IER AND M/S RASTOGI BUILDING MATERIAL SUPPLIER. IT WAS REPORTE D BY THE INSPECTOR THAT ADDRESSES SHOWN ON THE BILLS WERE INCOMPLETE A ND NONE OF THE PARTIES WERE FOUND TRACEABLE. THEREAFTER, THE ASSE SSEE WAS INFORMED ABOUT THE AFORESAID DISCREPANCIES VIE ORDER-SHEET E NTRY DATED 20.02.2006 AND WAS ALSO REQUIRED VIDE ORDER-SHEET E NTRY DATED 01.03.06 TO PRODUCE THE AFORESAID SUPPLIERS WITH NE CESSARY EVIDENCES OF SUPPLY OF GOODS AND PAYMENTS. THE ASSESSEE IN IT S REPLY DATED 09.03.06 STATED THAT SOME OF THE BILLS ISSUED BY TH E SUPPLIERS WERE BOOKED UNDER THE HEAD BUILDING UNDER CONSTRUCTION AND, THEREFORE, THOSE BILLS WERE NOT APPEARING IN THE RAW MATERIAL PURCHASE ACCOUNT. THE ASSESSEE ALSO STATED THAT THE AFORESAID SUPPLIE RS WERE NOT THE REGULAR SUPPLIERS OF THE ASSESSEE COMPANY AND THEY WERE NOT IN CONTACT WITH THE ASSESSEE AT THE RELEVANT POINT OF TIME, AND, THEREFORE, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO PRODUCE THE SUPPLIERS. 7. THE AO THEN NOTED THE FACT THAT IN RESPECT OF T HE BILL ISSUED BY ONE SH. NASRUDDIN, SUM OF RS. 3,20,000/- WERE SHOWN TO HAVE BEEN PAID TO HIM IN CASH IN INSTALLMENTS OF RS. 20,000/- EACH. THE AO ITA NOS. 1765/D/08 & 2896/D/09 6 FURTHER NOTED THAT ONE BILL FOR RS. 31,558/- DATED 31.03.02 WAS NOT PERTAINING TO THE YEAR UNDER CONSIDERATION. THE AO ALSO OBSERVED THAT THERE WAS NO CORRELATION BETWEEN THE TRANSPORTATION OF MATERIAL AND FREIGHT EXPENSES. THE AO FURTHER POINTED OUT CERTA IN OVERWRITING AND CUTTINGS IN THE BILLS ISSUED BY M/S PRAKASH GRIT SU PPLIERS AS WELL AS IN THE CASE OF M/S S.K. AGARWAL AND SONS. 8. IN THE LIGHT OF THE VARIOUS ALLEGED DISCREPANCIE S POINTED OUT BY THE AO, THE AO ASKED THE ASSESSEE AS TO WHY THE BOO KS OF ACCOUNTS SHOULD NOT BE REJECTED U/S 145 OF THE ACT. THE ASS ESSEE SUBMITTED ITS REPLY VIDE LETTER DATED 24.02.2006 CONTENDING THAT THE ASSESSEE HAD SUBMITTED THE LEDGER ACCOUNT WITH COPY OF INVOICES AND CHALLANS ISSUED BY THE SUPPLIERS AND HAS ALSO GIVEN THE COMP LETE LEDGER ACCOUNT OF BUILDING MATERIAL SHOWING COMPLETE DETAILS OF PU RCHASE OF BUILDING MATERIAL ITEM-WISE. THE ASSESSEE ALSO MADE A REFER ENCE TO ITS EARLIER REPLY DATED 21.02.06. THE ASSESSEE, FURTHER, SUBMI TTED BEFORE THE AO THAT ASSESSEES CASE IS NOT FIT TO REJECT BOOKS OF ACCOUNT U/S 145 OF THE ACT. 9. THEREAFTER, THE AO EXAMINED THE TOTAL EXPENSES W ITH REFERENCE TO EACH PROJECTS UNDERTAKEN BY THE ASSESSEE. THE AO FOUND THAT THE TOTAL EXPENSES INCURRED TOWARDS ALL PROJECTS WERE A MOUNTING TO RS.2,59,87,122/-. THE TOTAL CONTRACT RECEIPTS IN R ESPECT OF FARIDABAD/GURGAON PROJECT WAS FOUND TO BE OF RAS.2, 08,76,124/- AND ITA NOS. 1765/D/08 & 2896/D/09 7 IN RESPECT OF PANIPAT PROJECT, THE RECEIPTS WERE FO UND TO BE OF RS.99,06,353/-. AFTER EXAMINING THE BILLS OF MATER IAL PURCHASED AND CARTAGE ETC., THE AO ALLOCATED THE TOTAL EXPENSES O F RS.25987122/- BROADLY BETWEEN PANIPAT PROJECT AND FARIDABAD/GURGA ON PROJECT AS UNDER:- FARIDABAD/GURGAON PROJECT RS.2,06,44,706/- PANIPAT PROJECT RS. 53,42,416/- TOTAL RS.2,59,87,122/- AFTER CONSIDERING EXPENSES OF RS.2,06,44,706/- FROM TOTAL RECEIPTS OF RS.2,08,76,134/-, THE AO DETERMINED THE GROSS PROFI T OF RS.2,31,428/- IN RESPECT OF FARIDABAD/GURGAON PROJE CT. THE PROFIT IN RESPECT PANIPAT PROJECT WAS DETERMINED AT RS.45,63, 937/- AFTER DEDUCTING EXPENSES OF RS.53,42,416/- FROM RECEIPTS OF RS.99,06,353/-. AGAINST THIS WORKING MADE BY THE A O, THE ASSESSEE FILED A LETTER DATED 9.03.2006 STATING THAT EXPENSE S AMOUNTING TO APPROXIMATELY OF RS.27 LAKH INCURRED IN RESPECT OF PANIPAT PROJECT HAS BEEN WRONGLY INCLUDED IN THE FARIDABAD/GURGAON PROJECT. THE AO THEN, RE-VERIFIED THE BILLS PRODUCED BY THE ASSE SSEE ON 9.03.2006 AND HE FOUND THAT TOTAL OF SUCH EXPENSES INCURRED I N RESPECT OF PANIPAT PROJECT BUT WRONGLY INCLUDED IN FARIDABAD/G URGAON PROJECT WAS ONLY OF RS.8,43,629/-. HE, THEREFORE, RE-CASTE D THE TOTAL EXPENSES OF RS.2,59,87,122/- AND ALLOCATED THE SAME INTO ITA NOS. 1765/D/08 & 2896/D/09 8 FARIDABAD/GURGAON PROJECT AND PANIPAT PROJECT TO TH E EXTENT OF RS.1,98,01,077/- AND RS.61,86,045/- RESPECTIVELY. 10. THE CONTRACT RECEIPTS FOR DIFFERENT PROJECTS WE RE DETERMINED BY THE AO AS UNDER: - (I) FARIDABAD/ GURGAON PROJECT RS. 2,08,76,134/- (II) PANIPAT PROJECT RS. 99,06,353/- 11. AFTER ALLOCATING TOTAL EXPENSES TO FARIDABAD/GU RGAON PROJECTS AND PANIPAT PROJECTS SEPARATELY, AND ASCERTAINING T HE RECEIPT PROJECT- WISE, THE AO WORKED OUT THE GROSS PROFIT OF THE DIF FERENT PROJECTS AS UNDER: - (A) FARIDABAD/ GRUGAON PROJECT TOTAL RECEIPTS RS. 2,08,76,134/- LESS: EXPENSES RS. 1,98,01,017 /- GROSS PROFIT RS. 10,75,057/- PERCENTAGE OF GROSS PROFIT 5.14% (B) PANIPAT PROJECT TOTAL RECEIPTS RS. 99,06,353/- LESS: TOTAL EXPENSES RS. 61,86,045 /- GROSS PROFIT RS. 38,20,308 /- PERCENTAGE OF GROSS PROFIT 38.5% 12. FROM THE AFORESAID WORKING DONE BY THE AO, THE AO OBSERVED THAT THE ASSESSEE HAD BOOKED HUGE EXPENSES IN RESPE CT OF ITA NOS. 1765/D/08 & 2896/D/09 9 FARIDABAD/GURGAON PROJECTS BY INFLATING THE BILLS, WHICH WERE FOUND TO BE NON-GENUINE HAVING NO SERIAL NO. THEREUPON. THE AO, THEREFORE, HAD TAKEN A VIEW THAT ASSESSEE BOOKED TH E EXPENSES IN THE LEDGER ACCOUNT AS PER ITS CONVENIENCE AND INFLATED THE EXPENSES TO LOWER ITS TAX LIABILITY. THEREAFTER, THE AO ESTIMA TED THE GROSS PROFIT IN RESPECT OF FARIDABAD/GURGAON PROJECTS BY INCREAS ING THE SAME BY 10%. THE TOTAL RECEIPTS IN RESPECT OF FARIDABAD/GU RGAON PROJECT WAS OF RS. 2,08,76,134/-. CONSEQUENTLY, THE AO MADE TH E ADDITION OF RS. 20,87,614/- BEING 10% OF RECEIPTS IN RESPECT OF FARIDABAD/GURGAON PROJECTS, AND ADDED THE SAME TO T HE TOTAL PROFIT SHOWN BY THE ASSESSEE. 13. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPE AL BEFORE THE LD. CIT(A). 14. BEFORE THE LD. CIT(A), THE ASSESSEE FURNISHED T HE DETAILED WRITTEN SUBMISSION, AND EXPLAINED BEFORE HIM THAT M ERE BECAUSE M/S CHAUDHARY BUILDING MATERIAL SUPPLIER, M/S GARG BUIL DING MATERIAL SUPPLIER AND M/S RASTOGI BUILDING MATERIAL SUPPLIER HAD ISSUED UNNUMBERED BILLS ON CASH BASIS, IT CANNOT BE SAID T HAT THERE WAS A MATERIAL DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSE SSEE. IT WAS FURTHER EXPLAINED THAT THERE EXISTED NO DISCREPANCI ES IN THE AMOUNT OF BILLS AS COMPARED TO THE AMOUNT RECORDED IN BOOK S AS BECAUSE SOME BILLS WERE BOOKED UNDER THE HEAD BUILDING UND ER ITA NOS. 1765/D/08 & 2896/D/09 10 CONSTRUCTION AS AGAINST RAW MATERIAL PURCHASE ACCO UNT, AS WOULD BE EVIDENT FROM THE DETAILS OF EXPENSES BOOKED UNDER T HE HEAD BUILDING UNDER CONSTRUCTION. THE ASSESSEE ALSO E XPLAINED THAT MERE BECAUSE THE SUM OF RS. 3,20,000/- WERE PAID IN CASH TO M/S NASRUDDIN IN THE INSTALLMENT OF RS. 20,000/- WITHIN THE LIMIT PRESCRIBED U/S 40A(3) OF THE ACT, CANNOT BE A BASIS TO REJECT THE ASSESSEES BOOKS OF ACCOUNT. IT WAS FURTHER CLARIF IED THAT MERE BECAUSE CERTAIN BILLS WERE OF MARCH, 2002, THAT BY ITSELF CANNOT BE A GROUND TO REJECT THE ASSESSEES BOOKS OF ACCOUNT AS THE BILLS ISSUED IN MARCH, 2002 BY THE SUPPLIER WERE BOOKED WHEN THE MA TERIALS WERE RECEIVED BY THE ASSESSEE IN THE MONTH OF APRIL, 200 2. ALL THESE EXPLANATIONS OF THE ASSESSEE REGARDING THE VARIOUS POINTS OR DEFECTS POINTED OUT BY THE AO IN HIS ASSESSMENT ORDER, HAS BEEN REPRODUCED BY THE LD. CIT(A) IN PARA 5.6 OF HIS ORDER. 15. AFTER CONSIDERING THE ASSESSEES CONTENTION, TH E AOS ORDER AND THE FACTS OF THE CASE, THE LD. CIT(A) DELETED T HE ADDITIONS BY DISCUSSING THE ISSUE IN DETAIL AT PARA 5.7 TO 5.20 OF HIS ORDER, WHICH IS SUMMARIZED AS UNDER: - (1) THERE WAS NO MERIT IN APPLYING THE PROVISIONS OF SEC. 145 OF THE ACT AS THE VARIOUS ALLEGED DISCREPANCIES POINTED OUT BY THE AO WERE NOMINAL AND UNDERSTANDABLE IN THE LINES OF BUSINESS THE ASSESSEE WAS CARRIED ON. THE AO HAS NOT BEEN ABLE ITA NOS. 1765/D/08 & 2896/D/09 11 TO APPRECIATE THE METHOD OF ACCOUNTING AND THE PAST RECORD OF BUSINESS RESULTS OF THE ASSESSEE SINCE LA ST SO MANY YEARS. (2) THE AO WENT WRONG TO BIFURCATE THE TRADING RESU LTS BETWEEN TWO PROJECTS WHEN ASSESSEE WAS MAINTAINING ITS TRADING RESULT AS A WHOLE BUSINESS WITHOUT MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR SEPARATE UNITS/PROJECTS. (3) EVEN IF TRADING RESULTS OF TWO PROJECTS ARE TAK EN SEPARATELY, THE TRADING RESULT OF THE ASSESSEE COMPANY IS FOUND TO BE QUITE IN ORDER AND IS INCONSONANCE WITH THE RESULT SHOWN IN THE PREVIOUS YEARS. (4) MERE BECAUSE EXPENSES FOR THE PURCHASE OF RORI, BRICKS, CEMENT ETC. WERE BOOKED IN CASH, BELOW THE PERMISSIBLE LIMIT U/S 40A(3) OF THE ACT, THE BOOKS OF ACCOUNT CANNOT BE REJECTED. (5) ALL THE EXPENSES INCURRED IN CASH WERE SUPPORTE D BY VOUCHERS WHICH WERE MAINTAINED IN THE REGULAR COURSE OF BUSINESS AND WERE PRODUCED FOR EXAMINATION BY THE A.O. (6) AFTER EXAMINING THE BILL ISSUED BY M/S PRAKASH GRIT SUPPLIER, A DISCREPANCY OF RS.7,700/- WAS ONLY FOUND, WHICH NEEDED TO BE DISALLOWED OUT OF THE TOTAL PAYMENT OF RS. 46,750/-. (7) THE DISALLOWANCE OF RS. 31,558/- IN RESPECT OF THE PAYMENT MADE TO NASRUDDIN IS CALLED FOR, BUT THAT B Y ITSELF CANNOT BE THE BASIS OF REJECTING THE BOOKS O F ITA NOS. 1765/D/08 & 2896/D/09 12 ACCOUNT OF THE ASSESSEE COMPANY HAVING REGARD TO THE HUGE TURNOVER OF THE ASSESSEE. (8) THE BIFURCATION OF EXPENSES BETWEEN FARIDABAD/GURGAON PROJECT AND PANIPAT PROJECT WAS N OT PROPERTY MADE, AND IN THIS RESPECT A REMAND REPORT WAS CALLED FOR FROM THE AO, AND THE AO VIDE LETTER DATE D 21./22.01.08 SENT THROUGH ADDL. CIT STATED THAT THE BILLS AMOUNTING TO RS. 22,04,278/- PERTAIN TO PANIPAT SIT E OUT OF THE TOTAL AMOUNT OF RS. 27,27,212/- CLAIMED BY T HE ASSESSEE. (9) THE AOS REMARK REGARDING THE EXPENSES OF RS. 5 LAKH OUT OF RS. 27 LAKHS IS NOT MATERIAL IN AS MUCH AS IT IS NOT NECESSARY TO IN THE BILLS MENTION THE SIT E WHERE THE ITEMS PURCHASED WERE TO BE USED BY THE ASSESSEE. (10) AFTER ALLOCATING THE EXPENSES OF RS. 22 LAKH PERTAINING TO PANIPAT SITE AS ADMITTED BY THE AO IN THE REMAND REPORT, THERE WOULD BE NO MUCH DIFFERENCE IN THE GP RATE HAVING REGARD TO THE DIFFERENT NATURE OF THE CONTRACT WORKS EXECUTED BY THE ASSESSEE AT DIFFERENT SITES. 15.1 IN THIS REGARD, THE LD. CIT(A)S OBSERVATION ARE AS UNDER: - 5.17 I HAVE GIVEN A CAREFUL THOUGHT TO THE CONTENTIONS AND EXPLANATION OF THE LD. AR REGARDING THE TOTAL CLAIM OF EXPENDITURE OF RS. 27,27,212/-, WHIC H HAS BEEN EXPLAINED FULLY WELL BY THE DETAILS FURNISHED BY HER AMOUNTING TO RS. 3,46,338/-,WHICH ARE ALREADY ON TH E RECORDS AND IN THE PAPER BOOK AND CONFRONTED WITH T HE AO. MOREOVER, ALL THE BALANCE AMOUNTS PERTAINS TO NOT ITA NOS. 1765/D/08 & 2896/D/09 13 ONLY RS. 3,46,338/- BUT ALSO TO ALL THE BILLS WHERE ONLY PANIPAT, ISRANA ETC. IS MENTIONED. 5.18 AFTER THE EXPLANATION OF THE ABOVE EXPENDITURE AND ITS ALLOWANCE, IT IS QUITE DERIVATI VE THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 145 OF THE I.T. ACT, JUST ON MINOR DISCREPANCI ES AND FURTHER ESTIMATING THE GP RATE WITHOUT ANY BASIS OR PROPER YARD-STICKS OR FACTS OR FINDINGS. THIS ALSO SHOWS THAT THE AO WAS INCORRECT IN HIS ASSUMPTION THAT TH E APPELLANT COMPANY DEBITED EXPENSES AS PER ITS OWN CONVENIENCE. THE APPELLANT COMPANY IS MAINTAINING CONSOLIDATED ACCOUNTS OF ITS BUSINESS RESULTS, BUT ONLY ON THE AOS REQUEST SUPPLIED PROJECT-WISE CONTRACT RECEIPTS AND EXPENSES, WHICH WERE NOT BELIEVED BY T HE AO EVEN AFTER PROPER EXPLANATIONS. MOREOVER, THE AOS DOUBT HAVE BEEN CLEARED NOW IN THE APPELLATE PROCEEDINGS BY GIVING AN OPPORTUNITY TO THE AO REGARDING THE VERIFICATION OF THE EXPENSES OF RS. 27,27,212/- PERTAINING TO THE PANIPAT PROJECT. THEREFORE, THE AO WAS NOT RIGHT IN HIS CONCLUSION T HAT THE APPELLANT COMPANY CLAIMED HUGE BOGUS EXPENSES I N RESPECT OF FARIDABAD/GURGAON PROJECTS. THE AO HAS REJECTED THE BOOKS OF ACCOUNT ALSO ON A WRONG PREMI SES THAT IT HAD GOT ACCOMMODATION BILLS SIMPLY ON THE GROUND THAT THERE WERE NO SERIAL NUMBERS BUT WERE D ULY DEBITED IN THE LEDGER ACCOUNT AND THAT THEY WERE TA KEN TO LOWER THE TAX LIABILITY. AS FAR AS THIS ASPECT OF HIS ALLEGATION IS CONCERNED, THE ONUS WAS ON THE AO TO PROVE THE MALAFIDES IN GETTING SUCH ACCOMMODATION BILLS, WHICH HAS NOT BEEN DONE SO BY HIM. HIS DOUB TING THE RESULTS OF THE APPELLANT COMPANY IS ONLY BECAUS E OF THE FACT THAT HE FOUND LOW GP IN THE GURGAON PROJEC TS AND THAT TOO ON A BIFURCATED PREMISE. MOREOVER, TH E AO HAS ACCEPTED THE RESULTS OF THE PANIPAT PROJECTS AND MADE THEREFORE, ONLY A PARTIAL REJECTION OR ACCEPTA NCE OF BOOKS OF ACCOUNT AND NOT THEIR COMPLETE REJECTIN G U/S 145 OF THE I.T. ACT. MOREOVER, IN THE GURGAON PROJ ECT, THE AO HAS INCREASED THE GP RATE OF 10%, PURELY ON SURMISES AND CONJECTURES. 5.19 EVEN THOUGH THE APPELLANT COMPANY IS FOLLOWING ONE BUSINESS SHOWING INCOME FROM IT AS A ITA NOS. 1765/D/08 & 2896/D/09 14 WHOLE, EVEN SO THEREBY AFTER THE BIFURCATION OF THE TWO PROJECTS, THE GP RATE IS ALMOST COMMENSURATE WITH T HAT OF ITS PAST YEARS. THE GP RATE AS PER THE RECASTIN G OF THE TWO PROFIT AND LOSS ACCOUNTS, IN THE PANIPAT PR OJECT COMES TO 16.36% AND IN THE GURGAON/FARIDABAD PROJECT COMES TO 15.69%. THIS IS MORE OR LESS SIMI LAR TO THE TOTAL GP RATE AT 15.35% SHOWN BY THE APPELLA NT COMPANY IN THE A.Y. 2002-03. MOREOVER, THE SLIGHT VARIATION HAVING BEEN EXPLAINED BY THE LD. AR AS AB OVE. IT IS ALSO NATURALLY OCCASIONED DUE TO THE NATURE O F DIFFERENCE IN THE TWO PROJECTS, AS ADMITTED BY THE AO IN THE LAST PARAGRAPH OF PARA 1 OF THE ASSESSMENT ORDE R WHERE HE REFERS TO THE VERIFICATION OF TERMS AND CONDITIONS OF BOTH THE CONTRACTS. 5.20 KEEPING IN VIEW ALL THE DISCUSSIONS AND FACTS AND CIRCUMSTANCES OF THE CASE, IT IS FOUND TH AT THERE WAS NO JUSTIFICATION FOR THE AO TO RESORT TO THE PROVISIONS OF SEC. 145 ON FLIMSY GROUNDS IN REJECTI NG THE BOOK VERSION OF THE APPELLANT COMPANY AND THUS, WORKING OUT A GP ADDITION PURELY ON ESTIMATED BASIS AT RS. 20,87,614/-, WHICH BEING WITHOUT MERITS, STANDS DELETED. 16. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REI TERATED THE AOS BASIS IN REJECTING THE ASSESSEES BOOKS OF ACC OUNTS AND THEN IN ESTIMATING THE GROSS PROFIT BY THE A.O. IN RESPECT OF GURGAON/FARIDABAD PROJECTS. SHE SUPPORTED THE AOS ORDER AND CONTENDED THAT THE CIT(A) HAS FAILED TO DECIDE THE ISSUE IN ITS RIGHT AND CORRECT PERSPECTIVE BY IGNORING VARIOUS DISCREP ANCIES AND DEFECTS POINTED OUT BY THE A.O. IN RESPECT OF EXPEN SES CLAIMED BY THE ASSESSEE. ITA NOS. 1765/D/08 & 2896/D/09 15 18. THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITE D OUR ATTENTION TO THE VARIOUS DETAILS OF EXPENSES AND EXPLANATION OF THE ASSESSEE FURNISHED BEFORE THE A.O. AND WHICH ARE PLACED IN 3 NOS. OF PAPER BOOKS CONTAINING 583 PAGES FILED BEFORE US. THE EX PLANATION SUBMITTED BY THE ASSESSEE BEFORE THE AUTHORITIES BE LOW WERE REITERATED BEFORE US. THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE COMPARATIVE CHART OF GROSS PROFIT SHOWN AND ACCEPTE D IN THE PAST AND IN FUTURE YEARS. IT WAS FURTHER CONTENDED BY THE L EARNED COUNSEL FOR THE ASSESSEE THAT THE BOOKS OF ACCOUNTS MAINTAINED IN THE REGULAR COURSE WERE COMPLETE AND ACCURATE, AND NO MATERIAL DISCREPANCY OR IRREGULARITY IN THE BOOKS WERE POINTED OUT BY THE A .O. SO AS TO RENDER THE BOOKS LIABLE TO BE REJECTED U/S 145 OF THE ACT. HE FURTHER CONTENDED THAT THE A.O. HAS REJECTED THE BOOKS ON F LIMSY GROUND AND LIGHT HEARTEDLY. HE, THEEFORE, SUPPORTED THE LEARN ED CIT(A)S ORDER IN DELETING THE ADDITION. 19. THE RIVAL CONTENTIONS OF BOTH THE PARTIES HAVE BEEN CONSIDERED AND THE ORDERS OF THE AUTHORITIES BELOW HAVE BEEN P ERUSED. WE HAVE ALSO GONE THROUGH THE VARIOUS DOCUMENTS AND PAPERS PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. WE HAVE ALSO GON E THROUGH VARIOUS DECISIONS RELIED UPON BY THE LD. COUNSEL FO R THE ASSESSEE. ITA NOS. 1765/D/08 & 2896/D/09 16 20. IN THIS CASE, THE AO HAS MADE THE ADDITION OF R S. 20,87,641/- ON ACCOUNT OF GROSS PROFIT IN RESPECT OF CONTRACT W ORKS EXECUTED AT FARIDABAD/GURGAON PROJECT. IN THE PROCESS OF MAKIN G THE AFORESAID ADDITION OF RS. 20,87,614/-, THE AO BIFURCATED THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE AGAINST ALL CONTRACT WORKS INTO TWO PARTS I.E. (I) EXPENDITURE ALLOCATED TO FARIDABAD/GURGAON PROJ ECT AND (II) EXPENDITURE ALLOCATED TO PANIPAT PROJECT. IT IS NO T IN DISPUTE THAT THE TOTAL EXPENSES SHOWN BY THE ASSESSEE ARE OF RS. 2,5 9,87,122/-. THE AO HAS ALLOCATED THE AFORESAID EXPENSES OF RS. 2,59 ,87,122/- TO DIFFERENT PROJECTS AS UNDER: - (I) FARIDABAD/GURGAON PROJECT RS. 1,98,01,077/- (II)PANIPAT PROJECT RS. 61,86,045 /- TOTAL RS. 2,59,87,122 /- 21. THE AO THEN PROCEEDED TO WORK OUT THE GROSS PRO FIT PROJECT- WISE AFTER ALLOWING THE EXPENDITURE AS DEDUCTION FR OM THE RESPECTIVE GROSS RECEIPTS OF THE AFORESAID TWO PROJECTS. IN T HIS WAY, THE AO WORKED OUT THE GROSS PROFIT OF RS. 10,75,057/- IN R ESPECT OF FARIDABAD/GURGAON PROJECT, AND RS. 38,20,308/- IN R ESPECT OF PANIPAT PROJECT. THE AO THEN WORKED OUT PROJECT-WISE RATE OF GP, AND HE FOUND THAT THE RATE OF GP IN FARIDABAD/GURGAON PROJ ECT COMES TO 5.14% OF GROSS RECEIPTS, AND IN RESPECT OF PANIPAT PROJECT, THE RATE OF GROSS PROFIT COMES TO 38.5% OF GROSS RECEIPTS. THE AO THEN TOOK A ITA NOS. 1765/D/08 & 2896/D/09 17 VIEW THAT THE GROSS PROFIT IN RESPECT OF FARIDABAD/ GURGAON PROJECT WAS ON LOWER SITE. HE, THEREFORE, MAKE AN ADDITION OF RS. 20,87,614/- BY INCREASING THE GROSS PROFIT BY THE R ATE OF 10% OF GROSS RECEIPTS IN FARIDABAD/GURGAON PROJECT. IN OTHER WO RDS, THE AO HAS INCREASED THE GROSS PROFIT IN RESPECT OF FARIDABAD/ GURGAON TO 15.14% AS AGAINST 5.14% WORKED OUT BY HIM AFTER ALL OCATING TOTAL EXPENSES TO TWO PROJECTS SEPARATELY. 22. FROM THE AOS STAND POINT, IT SEEMS THAT THE AD DITION OF RS. 20,87,614/- HAS BEEN MADE BY HIM FOR THE REASON THA T THE GROSS PROFIT WORKED OUT BY HIM IN RESPECT OF FARIDABAD/GURGAON P ROJECT AFTER ALLOCATING TOTAL EXPENSES TO RESPECTIVE PROJECTS, I S LOW. NO SPECIFIC DISALLOWANCE OF EXPENSES CLAIMED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT HAS BEEN MADE. THE AO HAS ACCEPTED THE AMO UNT OF TOTAL EXPENDITURE AT RS. 2,59,87,122/-, WHICH WAS ALLOCAT ED TO THE FARIDABAD/GURGAON PROJECTS AND PANIPAT PROJECT AS U NDER: - FARIDABAD/GURGAON PROJECTS RS. 1,98,01,077/- PANIPAT PROJECT RS. 61,86,045 /- TOTAL RS. 2,59,87,122/- 23. IN THE COURSE OF APPELLATE PROCEEDINGS, BEFORE THE LD. CIT(A), THE ASSESSEE CLAIMED THAT EXPENSES OF RS. 27,27,212 /- PERTAINING TO PANIPAT PROJECT WERE WRONGLY ALLOCATED TO GURGAON/F ARIDABAD PROJECT. IN OTHER WORDS, IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE ITA NOS. 1765/D/08 & 2896/D/09 18 THAT EXPENSES OF RS. 27,27,212/- HAS BEEN EXCESSIVE LY TAKEN TOWARDS GURGAON/FARIDABAD PROJECT INSTEAD OF ALLOCATING THE SAME TOWARDS PANIPAT PROJECT. THE LD. CIT(A) ASKED THE AO TO VE RIFY THE BILLS AND OTHER DETAILS AND SUBMIT HIS REPORT. IN COMPLIANCE TO THE LD. CIT(A)S DIRECTION, THE AO EXAMINED THE DETAILS OF BILLS AND OTHER DOCUMENTS FILED BY THE ASSESSEE. THE EXAMINATION OF THE BILL S REVEALED TO THE AO THAT THE BILLS AMOUNTING TO RS. 22,04,278/- WERE PE RTAINING TO PANIPAT SITE, OUT OF THE TOTAL CLAIM OF RS. 27,27,212/- MAD E BY THE ASSESSEE. THE AO FURTHER STATED IN THE REMAND REPORT THAT OUT OF BILLS OF RS. 22,04,278/- PERTAINING TO PANIPAT SITE, THE BILLS A MOUNTING TO RS. 11,59,045/- WERE ISSUED FROM FARIDABAD AREA AND IT WAS NOT CLEAR AS TO WHETHER THE MATERIAL WERE ACTUALLY SENT TO THE SITE . THE LIST OF BILLS AGGREGATING TO RS. 22,04,278/- WAS PREPARED BY THE AO AND SUBMITTED ALONG WITH THE REMAND REPORT. IN THIS CASE, IT IS NOT IN DISPUTE THAT THE COPIES OF PURCHASE BILLS AGGREGATING TO APPROXIMATE VALUE OF RS.27 LAKHS WERE FILED BEFORE THE AO WITH THE CLAIM THAT THE EXPENSES OF RS.27 LAKHS PERTAINING TO PANIPAT PROJECT WERE WRON GLY TAKEN IN FARIDABAD/GURGAON PROJECT. THESE BILLS WERE EXAMIN ED AND VERIFIED BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS D URING WHICH HE AGREED THAT EXPENSES OF RS.8,43,629/- OUT OF RS.27 LAKHS WERE ACTUALLY BELONGING TO THE PANIPAT PROJECT AND HE ACCORDINGLY RE-CASTED THE ALLOCATION OF TOTAL EXPENSES INTO TWO DIFFERENT PRO JECTS AND DETERMINED ITA NOS. 1765/D/08 & 2896/D/09 19 THE PROFIT IN THE ASSESSMENT ORDER. HOWEVER, IN TH E COURSE OF REMAND PROCEEDINGS, THESE BILLS WERE FURTHER EXAMINED BY T HE AO AND IT WAS FOUND BY HIM THAT BILLS AMOUNTING TO RS.22,04,278/- WERE ACTUALLY PERTAINING TO THE PANIPAT PROJECT OUT OF THE TOTAL CLAIM OF RS.27,27,212/- MADE BY THE ASSESSEE. THEREFORE, IT IS NOT IN DISPUTE THAT AS PER REMAND REPORT OF THE A.O., THE BILLS TO THE EXTENT OF RS.22,04,278/- OUT OF RS.27,27,212/- CLAIMED BY THE ASSESSEE WERE PERTAINING TO PANIPAT SITE. HOWEVER, AT THE SAME T IME, THE AO HAS STATED THAT BILLS AMOUNTING TO RS.11,59,045/- OUT O F RS.22,04,278/- WERE ISSUED FROM FARIDABAD AREA AND IT WAS NOT CLEA R AS TO WHETHER THE MATERIALS WERE ACTUALLY SENT TO THE SITE. IN THIS CONNECTION, IT IS TO BE NOTED THAT MERE BECAUSE THE BILLS WERE PURCHASED FR OM THE SUPPLIER OF FARIDABAD AREA, THAT BY ITSELF CANNOT BE A BASIS TO SAY THAT THEY WERE NOT PERTAINING TO THE CONTRACT WORK EXECUTED AT PAN IPAT WHEN ON EXAMINATION OF THE BILLS, IT WAS FOUND BY THE AO TH AT THE BILLS AMOUNTING TO RS.22,04,278/- WERE PERTAINING TO THE PANIPAT SITE. WE, THEREFORE, HOLD, AT THIS STAGE, THAT AT LEAST BILL OF RS.22,04,278/- OUT OF THE ASSESSEES TOTAL CLAIM OF RS.27,27,212/- IS PER TAINING TO PANIPAT SITE AS OBSERVED BY THE AO HIMSELF, AND THE SAME AR E TO BE ALLOCATED TO PANIPAT SITE FOR THE PURPOSE OF DETERMINING GROS S PROFIT SEPARATELY. ITA NOS. 1765/D/08 & 2896/D/09 20 24. HOWEVER, IN THIS CONNECTION, IT IS TO BE NOTED THAT IT WAS THE CLAIM OF THE ASSESSEE THAT EXPENSES OF RS.27,27,212 /- PERTAINING TO PANIPAT SITE WERE WRONGLY INCLUDED IN THE FARIDABAD /GURGAON PROJECT. AS DISCUSSED ABOVE, THE ASSESSEES CLAIM TO THE EXTENT OF RS.22,04,278/- HAS BEEN ACCEPTED BY THE AO AFTER EX AMINING ALL THE BILLS PRODUCED BY THE ASSESSEE IN THE REMAND REPORT SUBMITTED BY THE AO. THE AO HAS NOT GIVEN ANY REASON AS TO WHY THE BALANCE EXPENSES OF APPROXIMATELY RS.5 LAKHS WERE NOT CONSI DERED AS RELATABLE TO PANIPAT SITE. IT IS NOT IN DISPUTE TH AT ALL THE BILLS WERE PRODUCED BY THE ASSESSEE BEFORE THE AO AND THE ASSE SSEE SUBMITTED ITS EXPLANATION ALSO BEFORE HIM VIDE LETTER DATED 1 0.03.2006 CLAIMING THAT SUM OF RS.27,27,212/- WAS ACTUALLY INCURRED TO WARDS BUILDING MATERIAL PURCHASED FOR PANIPAT PROJECT. THE A.O. H AS NOT GIVEN ANY REASON OR BASIS IN NOT CONSIDERING THE BALANCE EXPE NSES OF RS.5 LAKH APPROXIMATELY AS RELATABLE TO PANIPAT SITE. THEREF ORE, IN THE ABSENCE OF ANY REASON GIVEN BY THE AO, IT IS DIFFICULT TO A CCEPT AOS CONTENTION THAT ONLY SUM OF RS.22,04,278/- OUT OF R S.27,27,212/- WERE ONLY RELATED TO PANIPAT PROJECT SINCE ALL THE BILLS WERE DULY PRODUCED BEFORE HIM FOR HIS VERIFICATION. THEREFOR E, IF WE ALLOCATE THE SUM OF RS.27,27,212/- TO PANIPAT PROJECT AS AGA INST FARIDABAD/GURGAON PROJECT, WE FIND THAT THE GROSS P ROFIT RATE FROM ITA NOS. 1765/D/08 & 2896/D/09 21 FARIDABAD/GURGAON PROJECT WOULD BE FURTHER INCREASE D AND WOULD COME TO AROUND 14.17% AS WORKED OUT AS UNDER:- TOTAL CONTRACT RECEIPTS RS.2,08,76,134/- LESS EXPENSES ORIGINALLY ALLOCATED (RS.2,06,44,706 LESS RS.27,27,212) RS.1,79,17,494 /- GROSS PROFIT RS. 29,58,640/- GROSS PROFIT RATIO 14.17% CONSEQUENTLY, THE GROSS PROFIT FROM PANIPAT PROJECT WOULD STAND REVISED AS UNDER:- GROSS CONTRACT RECEIPTS RS.99,06,353/- LESWS: EXPENSES (RS.53,42,416+RS.27,27,212) RS.80,6 9,628/- GROSS PROFIT RS.18,36,725/- G.P. RATIO 18.54% THEREFORE, FROM THIS ANGLE, THE GROSS PROFIT WORKED OUT IN RESPECT OF FARIDABAD/GURGAON PROJECT AT 14.17% WILL UNDOUBTEDL Y BE REASONABLE CALLING NO ADDITION IN THAT REGARD. THE REFORE, ADDITION MADE BY THE AO ON ACCOUNT OF GROSS PROFIT, HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(A). 25. IN THE PRESENT CASE, THE ASSESSEE HAS BEEN MAIN TAINING CONSOLIDATED ACCOUNTS FOR ALL THE PROJECTS EXECUTED BY IT FROM TIME TO TIME. THE OVER ALL GROSS PROFIT SHOWN BY THE ASSES SEE IN THE RETURN OF INCOME IS 15.57%. IT IS NOT THE CASE OF THE AO THA T THE OVERALL GROSS PROFIT SHOWN BY THE ASSESSEE FROM DIFFERENT PROJECT S IS ON LOWER SIDE. ITA NOS. 1765/D/08 & 2896/D/09 22 THE AO HAS TRIED TO BIFURCATE THE TOTAL EXPENSES PR OJECT-WISE AND THEN HE DETERMINED THE GROSS PROFIT RATIO PROJECT-W ISE, AND ACCORDING TO HIM, THE PROFIT SHOWN BY THE ASSESSEE IN FARIDAB AD/GURGAON PROJECT IS ON LOWER SIDE, AND HE THEREFORE, MADE A LUMP SUM ADDITION OF GROSS PROFIT BY INCREASING THE GROSS PROFIT BY 1 0%. THE ORIGINAL WORKING OF THE AO GIVES GROSS PROFIT RATIO AT 5.14% BUT AFTER ALLOCATING THE EXPENSES OF RS.22,04,278/- TO PANIPA T SITE AS PER AOS REMAND REPORT, AS AGAINST RS.8,43,629/- INITIALLY A LLOCATED BY THE AO IN THE ASSESSMENT ORDER, WE FIND THAT THE GROSS PRO FIT RATIO EVEN AS PER A.O. WOULD COME TO 11.67% IN RESPECT OF FARIDABAD/G URGAON PROJECT, AS WORKED OUT BELOW:-. TOTAL CONTRACT RECEIPTS RS.2,08,76,134/- LESS:- EXPENSES (RS.20644708 RS.2204278) RS.1,84,40,430/- GROSS PROFIT RS. 24,35,704/- G.P. RATIO 11.67% THE GROSS PROFIT FROM PANIPAT SITE WOULD THUS BE AS UNDER:- GROSS RECEIPTS RS.99,06,353/- LESS: EXPENSES (EXPENSES ORIGINALLY ALLOCATED BY THE AO RS.53,42,416 +22,04,278). RS.75,46,694/- GROSS PROFIT RS.23,59,659/- THE RATIO OF THE GROSS PROFIT IN RESPECT OF PANIPAT PROJECT WOULD BE THUS AS UNDER:- ITA NOS. 1765/D/08 & 2896/D/09 23 23,59,659 99,06,353 = 23.82%. 26. IT IS NOT IN DISPUTE THAT IN THE CASE OF PANIPA T PROJECT, CEMENT AND STEEL MATERIAL WAS TO BE PROVIDED BY THE CONCER NED PARTY TO THE ASSESSEE WHILE IN THE CASE OF PROJECT AT GURGAON/FA RIDABAD, ALL THE MATERIALS INCLUDING CEMENT AND STEEL WERE TO BE PRO VIDED BY THE ASSESSEE. THEREFORE, THE PROFIT MARGIN IN THE CASE OF PANIPAT PROJECT WOULD CERTAINLY BE HIGHER THAN THE PROFIT MARGIN IN RESPECT OF FARIDABAD/GURGAON PROJECT INASMUCH AS THE MARGIN OF PROFIT IN RESPECT OF MATERIALS TO BE SUPPLIED BY THE CONTRACT OR WOULD ALWAYS BE LOW. THE AVERAGE RATE OF PROFIT DECLARED BY THE AS SESSEE AT 15.57% CANNOT BE SAID TO BE ON LOWER SIDE AS PER PAST RECO RDS OF THE ASSESSEE. THE AO HAS MADE THE ADDITION BY ESTIMATING THE GROS S PROFIT IN RESPECT OF FARIDABAD/GURGAON PROJECT AT 15.14% (5.1 4% AS WORKED OUT BY HIM + 10% ADDITION MADE BY HIM). THE AO HAS NOT GIVEN ANY BASIS OR YARD-STICK IN INCREASING THE GROSS PRO FIT TO 15.14% IN RESPECT OF FARIDABAD/GURGAON PROJECT. THE PROFIT N OW WORKED OUT BY US AFTER ALLOCATING EXPENSES OF RS.22,04,278/- T O PANIPAT PROJECT, WHICH WAS WRONGLY INCLUDED IN THE FARIDABAD/GURGAON PROJECT, IS ARRIVED AT 11.67%, WHICH ALSO IN OUR CONSIDERED OPI NION, CANNOT BE SAID TO BE ON LOWER SIDE, HAVING REGARD TO THE FACT THAT THE OVER ALL GROSS PROFIT SHOWN BY THE ASSESSEE AT 15.57% IS REA SONABLE, AND IN THE LIGHT OF THE FACT THAT THE PROFIT IN RESPECT OF GURGAON/FARIDABAD ITA NOS. 1765/D/08 & 2896/D/09 24 PROJECT WOULD BE LOWER THAN THE PROFIT, THAT IS EAR NED BY THE ASSESSEE FROM PANIPAT PROJECT. THEREFORE, EVEN FROM THE STA ND POINT OF THE AO WHEREBY HE HAS WORKED OUT THE GROSS PROFIT SEPAR ATELY OF DIFFERENT PROJECTS AFTER ALLOCATING TOTAL EXPENSES TO DIFFERENT PROJECTS, WE DO NOT FIND ANY BASIS TO MAKE ADDITION BY ENHANC ING THE PROFIT IN RESPECT OF GURGAON/FARIDABAD PROJECT. 27. EVEN OTHERWISE, WE FIND THAT THE ADDITION MAD E BY THE AO BY DETERMINING THE GROSS OF DIFFERENT PROJECTS SEPARAT ELY AND THEN BY MAKING ADDITION BY INCREASING THE GROSS PROFIT IS A LSO NOT FOUND TO BE JUSTIFIED INASMUCH AS THE AOS ACTION IN REJECTING THE ASSESSEES BOOKS OF ACCOUNT AND IN ESTIMATING THE GROSS PROFIT PROJECT-WISE, IS UNJUSTIFIED IN THE LIGHT OF THE FACTS AND CIRCUMSTA NCES OF THE CASE DISCUSSED HEREINAFTER. IN THE PRESENT CASE, THE AO HAS POINTED OUT CERTAIN TECHNICAL DEFICIENCIES IN THE BILLS SUBMITT ED BY THE SUPPLIER, WHICH, IN OUR CONSIDERED OPINION, CANNOT BE A GROUN D TO REJECT BOOKS OF ACCOUNT OF THE ASSESSEE IN TOTO. THE AO HAS N OT POINTED OUT ANY MATERIAL DISCREPANCY IN THE BOOKS OF ACCOUNT, WHICH COULD SHOW THAT THE ASSESSEE HAS EITHER SUPPRESSED THE RECEIPTS OR HAS NOT MAINTAINED BOOKS OF ACCOUNT CORRECTLY AND ACCURATELY SO THAT T HE PROFIT CANNOT BE DEDUCED THEREFROM. THE TOTAL EXPENSES SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AT RS.2,59,87,122/- HAS BEEN ACCEP TED BY THE AO AND THE SAME AMOUNT HAS BEEN ALLOCATED BY HIM TO DI FFERENT PROJECTS. ITA NOS. 1765/D/08 & 2896/D/09 25 IN OTHER WORDS, NO SPECIFIC DISALLOWANCE OF EXPENSE S AS SUCH, OUT OF THE TOTAL EXPENSES OF RS.2,59,87,122/- HAS BEEN MAD E BY THE AO IN THE LIGHT OF SO-CALLED DEFICIENCIES POINTED OUT IN THE BILLS ISSUED BY THE THIRD PARTIES. THE AO HAS ALSO NOT DISPUTED TH E RECEIPTS SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. SINCE THE BOOKS OF ACCOUNT OF THE ASSESSEE REGULARLY MAINTAINED BY IT WERE NOT FOUND TO BE DEFECTIVE, OR NO MATERIAL DISCREPANCIES COULD BE PO INTED OUT IN THE BOOKS OF ACCOUNT, AND MERELY BECAUSE THERE WERE SOM E IRREGULARITIES IN THE BILLS ISSUED BY THE THIRD PARTY/SUPPLIERS, T HE AO WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES BOOK RESULT A ND THEN IN ESTIMATING THE GP RATE IN RESPECT OF FARIDABAD/GURGAON PROJECT AFTER BIFURCATING THE TOTAL EXPENSES BETWEEN THE TWO PROJECTS THOUGH THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNT AND DECLARING PROFIT C ONSOLIDATE-WISE. 28. FURTHER, IN THE COURSE OF HEARING OF THIS APPEA L, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT NO ADDI TION BY INCREASING RATE OF GROSS PROFIT SHOWN BY THE ASSESSEE HAS BEEN MADE BY THE AO IN THE REGULAR ASSESSMENT MADE U/S 143(3) OF THE AC T FOR THE SUBSEQUENT ASSESSMENT YEARS 2005-06, 2006-07 AND 20 07-2008, COPIES OF RELEVANT ASSESSMENT ORDERS HAVE BEEN PLAC ED IN THE PAPER BOOK FILED BY THE ASSESSEE. WE HAVE GONE THROUGH T HE ASSESSMENT ORDERS FOR THE SAID THREE SUBSEQUENT ASSESSMENT YEA RS AND FIND THAT NO ADDITION ON ACCOUNT OF GROSS PROFIT HAS BEEN MAD E AFTER ITA NOS. 1765/D/08 & 2896/D/09 26 ALLOCATING TOTAL EXPENSES TO DIFFERENT PROJECTS. I T IS ALSO FOUND THAT NEITHER THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASS ESSEE HAVE BEEN REJECTED. HOWEVER, WE FIND THAT LUMP SUM DISALLOWA NCES OUT OF VARIOUS EXPENSES WERE MADE AS UNDER:- ASSESSMENT YEAR AMOUNT (RS.) 2005-06 2,50,000/- 2006-07 2,00,000/- 2007-08 2,02,000/- IN THE PRESENT ASSESSMENT YEAR, THE LEARNED CIT(A) HAS SUSTAINED DISALLOWANCES OF CERTAIN EXPENSES, AGAINST WHICH TH E ASSESSEE IS NOT IN APPEAL. IN THE LIGHT OF ASSESSMENT OF SUBSEQUEN T YEARS AND FINDING CERTAIN EXPENSES ARE UNDOUBTEDLY REMAINED UNVERIFIA BLE, WE SUSTAIN THE DISALLOWANCE OF EXPENSES TO THE EXTENT OF RS.2, 00,000/- AS AGAINST THE AMOUNT OF RS.7700+RS.31558 SUSTAINED BY THE LEARNED CIT(A). THUS, THE GROUND NO.1 STANDS DECIDED IN TH E MANNER INDICATED ABOVE. 29. GROUND NO.2 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE ADDITION OF RS.1,20,000/- MADE ON ACCOUNT OF SA LARY PAID TO MS. VIJETA SHARMA. 30. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS. 1765/D/08 & 2896/D/09 27 31. THE AO DISALLOWED REMUNERATION OF RS.1,20,000/- PAID TO MS. VIJETA SHARMA ON THE GROUND THAT EVIDENCES OF SERVI CES RENDERED BY HER WERE NOT FURNISHED NOR WAS SHE PRODUCED FOR VER IFICATION. THE LEARNED CIT(A) DELETED THE ADDITION BY OBSERVING TH AT THE ASSESSEE HAD SUFFICIENTLY EXPLAINED THE NATURE OF SERVICES R ENDERED BY MS. VIJETA SHARMA VIDE LETTER DATED 19.01.2006. THE LE ARNED CIT(A) FURTHER OBSERVED THAT MS. VIJETA SHARMA WAS HAVING A QUALIFICATION OF BBA AND CONTINUED WITH THIS COMPANY TILL OCTOBER , 2005. THE MATTER WAS FURTHER ENQUIRED INTO BY THE LEARNED CIT (A) AND THE ISSUE WAS CONFRONTED WITH THE AO ON 21.08.2007. THE LEAR NED CIT(A) ALSO EXAMINED THE BOARDS RESOLUTION AND THE AGREEM ENT OF SERVICE. AFTER CONSIDERING ALL THESE EVIDENCES, THE LEARNED CIT(A) DELETED THE ADDITION. 32. IN THE COURSE OF HEARING OF THIS APPEAL, THE LE ARNED DR HAS NOT BEEN ABLE TO REBUT ANY FINDINGS GIVEN BY THE LEARNE D CIT(A) IN HIS ORDER WHILE DELETING THE ADDITION. IN THE LIGHT OF THE DISCUSSIONS AND REASONS GIVEN BY THE LEARNED CIT(A) IN HIS ORDER, W E DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. THEREFORE, THIS GROUND RAISED BY THE REVENUE STANDS REJECTED. 33. GROUND NO.3 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF CAR/TELE PHONE EXPENSES/CONVEYANCE EXPENSES FOR PERSONAL USE. ITA NOS. 1765/D/08 & 2896/D/09 28 34. IN THE ASSESSMENT, THE AO MADE CERTAIN DISALLOW ANCES FOR THE INVOLVEMENT OF THE PERSONAL ELEMENTS IN THE HANDS O F THE DIRECTORS IN RESPECT OF TELEPHONE EXPENSES, TRAVELLING AND CONVE YANCE EXPENSES AND VEHICLE EXPENSES. THE AO DISALLOWED THE AFORES AID EXPENSES TO THE EXTENT OF 1/5 TH OF THE TOTAL AMOUNT OF EXPENSES CLAIMED BY THE ASSESSEE. 35. ON AN APPEAL, THE LEARNED CIT(A) DELETED THE AD DITION BY OBSERVING AS UNDER:- 7.2 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD. AR AND TEND TO CONCUR WITH HER. AS PER THE DECISION OF THE HONBLE ITAT IN THE CASE OF DCIT VS . HARYANA OXYGEN LTD. (DELHI) (76 ITD 32), THE DISALLOWANCE, IF ANY, IS TO BE MADE IN THE HANDS OF THE DIRECTORS FOR THE PERSONAL USE OF ANY EXPENDITURE T O BE CONSIDERED U/S 37(1) OF THE I.T. ACT AND NOT IN THE HANDS OF THE APPELLANT COMPANY. KEEPING IN VIEW SUCH RATIO OF DECISION, THE DISALLOWANCES MADE BY T HE AO UNDER THESE THREE HEADS OF EXPENSES I.E. TELEPHO NE EXP., TRAVELLING AND CONVEYANCE EXP. & VEHICLE EXP. , BEING UN-WARRANTED, ARE DELETED. 36. AFTER HEARING BOTH THE PARTIES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) INAS MUCH AS THE EXPENSES PAID TO THE DIRECTORS IN THE COURSE OF DIS CHARGING THEIR DUTIES ARE UNDOUBTEDLY THE BUSINESS EXPENSES IN THE HANDS OF THE ASSESSEE COMPANY. IT IS NOT THE CASE OF THE AO THA T THE COMPANY HAS NOT INCURRED THESE EXPENSES IN THE COURSE OF BUSINE SS CARRIED ON BY IT. THUS, THIS GROUND NO.3 RAISED BY THE REVENUE IS REJ ECTED. ITA NOS. 1765/D/08 & 2896/D/09 29 ITA NO.2896/DEL/2009 37. IN THIS ASSESSMENT YEAR 2004-05, THE REVENUE HA S ASSAILED THE CIT(A)S ORDER IN DELETING THE FOLLOWING ADDITIONS: - (I) ADDITION OF RS.48,37,518/- ON ACCOUNT OF GROSS PROF IT. (II) ADDITION OF RS.1,70,000/- IN RESPECT OF REMUNERATIO N PAID TO MS. VIJETA SHARMA. (III) ADDITION OF RS.25,070, RS.28,425/- AND RS.1,80,846/ - BY WAY OF DISALLOWANCE FROM TELEPHONE EXPENSES, TRAVEL LING AND CONVEYANCE EXPENSES AND VEHICLE EXPENSES. (IV) RS.58,794/- ON ACCOUNT OF LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TO PF. 38. IN THE ASSESSMENT, THE A.O. HAS MADE THE ADDITI ON OF RS.48,37,518/- ON ACCOUNT OF GROSS PROFIT. 39. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CON STRUCTION ACTIVITY ON CONTRACT BASIS. THE ASSESSEE COMPANY H AS SHOWN GROSS CONTRACT RECEIPTS AT RS.4,49,79,554/-, AGAINST WHIC H, CONSTRUCTION EXPENSES OF RS.3,85,72,394/- WERE CLAIMED AS DEDUCT ION. THE A.O. NOTED THAT THE QUANTITY AND VALUE OF DIFFERENT PRIN CIPAL ITEMS OF RAW MATERIAL WERE NEITHER FURNISHED IN THE AUDIT REPORT NOR IN THE RETURN OF INCOME. THE A.O. ASKED THE ASSESSEE TO FURNISH DET AILS OF PROJECTS UNDERTAKEN BY THE ASSESSEE, WHICH WERE FURNISHED. FROM THE DETAILS, IT WAS SEEN THAT THE ASSESSEE HAD UNDERTAKEN FOUR MAJO R PROJECTS DURING THE YEAR, COPIES OF AGREEMENTS IN RESPECT OF TWO PR OJECTS WERE FILED AND THE REST WERE CLAIMED TO HAVE BEEN EXECUTED ON VERBAL ITA NOS. 1765/D/08 & 2896/D/09 30 UNDERSTANDING. DURING THE ASSESSMENT PROCEEDINGS, BILLS AND VOUCHERS OF EXPENSES ALONG WITH BOOKS OF ACCOUNTS WERE PRODU CED, AND VERIFIED BY THE A.O., WHO POINTED OUT VARIOUS DEFECTS AND DI SCREPANCIES THEREIN. THE A.O. POINTED OUT THAT THE BILLS PRODU CED BY THE ASSESSEE WERE NOT PROPER AS NO EVIDENCE OF TRANSPORTATION OR DELIVERY OF MATERIALS WAS AVAILABLE. THE A.O. FURTHER POINTED OUT THAT THE PAYMENT OF VARIOUS EXPENSES WERE MADE IN CASH, AND NO STOCK REGISTER WAS MAINTAINED; CERTAIN EXPENSES WERE BOOKED ON THE SELF-MADE VOUCHERS ETC. THE ASSESSEE SUBMITTED ITS REPLY DAT ED 27-12-2006 TO EXPLAIN THE VARIOUS DISCREPANCIES OR DEFECTS POINTE D OUT BY THE A.O. AND CONTENDED THAT THE DEFICIENCIES POINTED OUT BY THE A.O. COULD NOT BE TREATED AS DEFICIENCIES OF SUCH A NATURE SO AS T O RENDER THE ASSESSEES BOOKS OF ACCOUNTS LIABLE TO BE REJECTED U/S 145 OF I.T. ACT, 1961. HOWEVER, AFTER CONSIDERING THE VARIOUS LACUN AS POINTED OUT IN ASSESSEES BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS , THE A.O. REJECTED THE ASSESSEES BOOKS OF ACCOUNTS U/S 145 OF THE ACT AND ESTIMATED THE OVERALL GROSS PROFIT FROM ALL PROJECTS AT 25% ON TH E BASIS OF GROSS PROFIT ESTIMATED BY HIM IN THE ASSESSMENT FOR THE A SSESSMENT YEAR 2003-04. THUS, AN ADDITION OF RS.48,37,518/- WAS M ADE BY THE A.O. AS PER WORKING GIVEN BY HIM AS UNDER:- GROSS CONTACT RECEIPTS RS.4,49,76,554/- G.P. RATIO ESTIMATED @ 25% RS.1,12,44,138/- ITA NOS. 1765/D/08 & 2896/D/09 31 LESS:- G.P. SHOWN BY THE ASSESSEE RS. 64,06,620/- DIFFERENCE RS. 48,37,518/- 40. BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BE FORE THE LD. CIT(A). 41. AFTER CONSIDERING ALL ASPECTS OF THE MATTER, TH E LD. CIT(A) DELETED THE ADDITION FOR THE REASONS GIVEN BY HIM A S UNDER:- 8. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LD. AR AND PERUSED THE ORDER OF ASSESSMENT. I HAVE ALSO GONE THROUGH THE ASSESSMENT RECORDS AND THE VARIOUS DOCUMENTS PLACED BY THE LD. AR IN THE PAPER BOOK. A S FAR AS THE APPLICATION OF THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 1961, IS CONCERNED, I DO NOT FI ND ANY MERIT IN ITS APPLICATION TO THE FACTS AND CIRCUMSTANCES OF THE INFANT CASE, SINCE THE DEFECTS POINTED OUT BY THE AO WERE IN FACT NO DEFECTS. IN T HE ABSENCE OF ANY COGENT AND SOUND BASIS, THE BOOKS OF ACCOUNTS WHICH HAVE BEEN DULY AUDITED, CANNOT BE REJECTED IN A LIGHT HEARTED MANNER BY HIGHLIGHTING DEFICIENCIES WHICH IN FACT WERE NO DISCREPANCIES. T HE SO-CALLED DISCREPANCIES POINTED OUT BY THE AO WERE AS A MATTER OF ACT BASED ON INCORRECT FACTS. IN ALL THE INSTANCES HIGHLIGHTED BY THE AO WHEREIN HE HELD THA T THE EVIDENCE OF TRANSPORTATION OF MATERIAL WAS NOT FILED, THE SAME WERE SHOWN TO HAVE BEEN FILED BY THE APPEL LANT AND THAT TOO, DURING THE ASSESSMENT PROCEEDINGS THEMSELVES VIDE LETTER DATED 27.12.06 WHICH SEEMS T O HAVE BEEN GLOSSED OVER BY THE AO. REGARDING MATERIA LS WHICH BILLS WERE RAISED IN THE MONTH OF MARCH BUT WHICH DID NOT APPEAR IN THE CLOSING STOCK, THE APPE LLANT DULY EXPLAINED THE SAME ALONGWITH THE EVIDENCES THA T SINCE THE PURCHASES BELONGED TO EARLIER MONTHS OR T HE PERIOD UPTO 10 TH MARCH, THE SAME WERE SHOWN AS CONSUMED AND THE REST WERE SHOWN IN THE CLOSING STO CK. COPIES OF BILLS OF M/S. BHAGWATI TRADERS, KISSAN BH ATTA COMPANY, S.K. TRADERS AND THE OTHER PARTIES MENTION ED IN THE ASSESSMENT ORDER FILED DURING THE ASSESSMENT ITA NOS. 1765/D/08 & 2896/D/09 32 PROCEEDINGS CLEARLY SHOWED TRANSPORT VEHICLE NO. AN D SIGNATURE OF THE RECEIVER AT THE SITE WHICH ARE ENO UGH EVIDENCES REGARDING TRANSPORTATION OF MATERIAL TO DIFFERENT SITES. 9. AS REGARDS THE ASSESSING OFFICERS OBJECTION TO PAYMENTS MADE IN CASH, IT WAS ABLY DEMONSTRATED BY THE LD. AR THROUGH THE SUBMISSIONS OF COPIES OF ACCOUNT S OF PARTIES SPECIFIED IN THE ASSESSMENT ORDER, THAT PAY MENTS WERE MADE TO THEM BY CHEQUE ALSO AND IN ANY CASE TH ERE IS NO BAR IN LAW IN MAKING PAYMENT IN CASH. THE DET AILS OF WIP FILED ALONGWITH THE LETTER DATED 26.12.2006 SHOW THAT THE ALLEGATION OF THE AO REGARDING WIP IS MISPLACED. REGARDING THE LABOUR CHARGES, THE AO FAI LED TO CONSIDER THE SHUTTERING EXPENSES WHICH ARE PART OF LABOUR CHARGES AND WHICH WHEN CLUBBED WITH WAGES, THE LABOUR CHARGES FOR THE CURRENT YEAR AND THE EAR LIER YEAR BECOME COMPARABLE AT 8.1% AND SHOW NO VARIATION AS SUCH. THEREFORE, ALL THE OBJECTIONS OF THE AO WERE IN FACT NO OBJECTIONS AT ALL AND HENCE AS F AR AS THE APPLICATION OF THE PROVISIONS OF SECTION 145 AR E CONCERNED, I DO NOT FIND ANY MERIT IN ITS APPLICATI ON TO THE FACTS AND CIRCUMSTANCE OF THE PRESENT CASE. THE LD. AR HAVING DEALT WITH EACH AND EVERY OBJECTION RAISE D BY THE AO SUPPORTED BY ADEQUATE EVIDENCES, THERE REMAINS NO DISCREPANCY AS SUCH AND HENCE NO BASIS WITH THE AO TO COME TO THE CONCLUSION THAT BOGUS EXPENSES OF PURCHASE OF MATERIAL HAVE BEEN BOOKED T O LOWER TAX LIABILITY. FURTHER, THE ACTION OF THE AO IN APPLYING THE OVERALL G.P. RATE OF 25 PER CENT FOLLO WING HIS ORDER FOR A.Y. 2003-04 IS GROSSLY INCORRECT AS HELD IN MY APPELLATE ORDER ACCEPTING THE G.P. RATE SHOWN THEREIN AT APPROXIMATELY 16.PER CENT WHICH WAS COMMENSURATE WITH THE G.P. RATE SHOWN IN A.Y. 2002- 03 OF 15.35%. THE ASSESSEE HAVING SHOWN THE G.P. RATE OF 14.2 PER CENT IN THE CURRENT YEAR, THE SAME IS MORE OR LESS SIMILAR TO THE G.P. RATES OF EARLIER Y EARS SHOWN BY THE ASSESSEE AND THE SLIGHT VARIATION IS OCCASIONED DUE TO THE NATURE OF DIFFERENCE IN THE PROJECTS UNDERTAKEN BY THE ASSESSEE AS ADMITTED BY THE AO IN THE SECOND PARAGRAPH OF MAIN PARA OF THE ASSESSMENT ORDER ALSO WHEREIN HE REFERS TO THE VERIFICATION OF TERMS AND CONDITIONS OF BOTH THE ITA NOS. 1765/D/08 & 2896/D/09 33 CONTRACTS. AS FAR AS THE G.P. FLUCTUATION IS CONCER NED, NO TWO YEARS CAN BE IDENTICAL & IT IS BOUND TO OCCU R ON THE STATUS OF THE AFFAIRS OF THE ASSESSEE IN A PART ICULAR YEAR. MOREOVER, THE AO HAS NOT CONDUCTED ANY INDEPENDENT ENQUIRY IN DISAPPROVING THE COMPUTATION OF THE CORRECT INCOME AND IN REJECTING THE BOOKS OF AC COUNT BY BRINGING OUT ANY MATERIAL OF RECORD TO JUSTIFY H IS ACTION, RATHER HE HAS NOT ABLE TO GATHER ANY SPECIF IC DEFECTS IN THE AUDITED BOOKS OF ACCOUNT. THE AO HAS NOT ESTABLISHED ANYWHERE IN HIS ORDER THAT THE ACCOMMODATION BILLS WERE TAKEN BY THE ASSESSEE, WH ICH NOTION IS ONLY A PRESUMPTION OF THE AO WITHOUT ANY BASIS OR MATERIAL ON RECORD. 10. KEEPING IN VIEW ALL THE DISCUSSIONS AND FACTS A N CIRCUMSTANCES OF THE CASE, IT IS FOUND THAT THERE W AS NO JUSTIFICATION FOR THE AO TO RESORT TO THE PROVISION S OF SECTION 145 ON FLIMSY GROUNDS IN REJECTING THE BOOK VERSION OF THE APPELLANT COMPANY AND THUS WORKING O UT A G.P ADDITION PURELY ON ESTIMATE BASIS AT RS. 48,37,518/- WHICH BEING WITHOUT MERITS, STANDS DELETED. 42. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW. 43. IN THE PRESENT CASE, THE AO HAS MADE THE ADDITI ON OF RS.48,37,518/- BY ESTIMATING THE OVERALL G.P. RATE AT 25% ON THE BASIS OF OVERALL G.P. RATE WORKED OUT BY HIM AT 26.82% IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2003-04. THE ISSUE REGAR DING THE ESTIMATION OF G.P. BY THE AO HAS BEEN DECIDED BY US IN THE ASSESSMENT YEAR 2003-04 VIDE THIS COMMON ORDER, WHE RE WE HAVE TAKEN A VIEW THAT THE ESTIMATION OF G.P. MADE BY TH E AO WAS NOT JUSTIFIED. THEREFORE, THE ADDITION OF RS.48,37,518 /- BY ADOPTING THE ITA NOS. 1765/D/08 & 2896/D/09 34 G.P. RATE 25% IS UNJUSTIFIED. THE OVERALL G.P. SHO WN BY THE ASSESSEE IS 14.24% IN THE PRESENT ASSESSMENT YEAR AS AGAINST 15.57% IN THE ASSESSMENT YEAR 2003-04 AND 13.93% IN ASSESSMENT YE AR 2005-06. SINCE THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSES SEE ARE NOT LIABLE TO BE REJECTED U/S 145 OF THE ACT FOR THE REASONS G IVEN BY US WHILE DECIDING THE SAME ISSUE IN THE ASSESSMENT YEAR 2003 -04, THE BOOK RESULT SHOWN BY THE ASSESSEE IS ACCEPTABLE. IN THE PRESENT ASSESSMENT YEAR THE TURNOVER HAS BEEN INCREASED TO 4,49,79,554 /- AS COMPARED TO THE TURNOVER OF RS.3,07,82,487/- SHOWN IN THE IMMED IATE PRECEDING ASSESSMENT YEAR 2003-04. THE INCREASE IN THE TURNO VER DURING THE YEAR CAN BE CONSIDERED TO BE A SUFFICIENT REASON FO R MARGINAL FALL OF G.P. RATE FROM 15.57% TO 14.24%. IN THE IMMEDIATE S UCCEEDING ASSESSMENT YEAR, THE GP HAS BEEN SHOWN AT 13.93%, W HICH HAS BEEN ACCEPTED BY THE AO IN THE ASSESSMENT COMPLETED UNDE R SEC. 143(3) OF THE ACT. HOWEVER, A DISALLOWANCE OF RS.2,50,000/- OUT OF BUILDING MATERIALS CONSUMED, HAS BEEN MADE BY THE AO TO COVE R UP POSSIBLE LEAKAGE OF REVENUE IN THE ASSESSMENT YEAR 2005-06. IN THE ASSESSMENT YEAR 2003-04, A DISALLOWANCE TO THE EXTE NT OF RS.2,00,000/- OUT OF VARIOUS BUILDING MATERIAL EXPE NSES HAS BEEN SUSTAINED BY US. THEREFORE, IN THE LIGHT OF OUR OR DER FOR THE ASSESSMENT YEAR 2003-04, WE SUSTAIN THE ADDITION TO THE EXTENT OF RS.2,00,000/- BY WAY OF DISALLOWANCE OF VARIOUS EXP ENSES CLAIMED ITA NOS. 1765/D/08 & 2896/D/09 35 AGAINST THE CONTRACT RECEIPTS. THUS, THE ADDITION OF RS.48,37,518/- MADE BY THE AO IS REDUCED TO RS.2,00,000/- ON ACCON T OF DISALLOWANCE OF EXPENSES. THUS, GROUND NO.1 IN ASSESSMENT YEAR 2004-05 IS DECIDED IN THE MANNER AS INDICATED ABOVE. 44. GROUND NOS.2 & 3 ARE DIRECTED AGAINST THE CIT(A )S ORDER IN DELETING THE ADDITION OF RS.1,70,000/- MADE BY THE AO ON ACCOUNT OF REMUNERATION TO MS. VIJETA SHARMA AND DISALLOWANCE OF RS.25,070/-, RS.28,425/- AND RS.1,80,846/- OUT OF TELEPHONE EXPE NSES, TRAVELLING AND CONVEYANCE EXPENSES AND VEHICLE EXPENSES RESPEC TIVELY. 45. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THESE IDENTICAL ISSUES HAVE BEEN DECIDED I N THE ASSESSMENT YEAR 2003-04 AND IN THE LIGHT OF OUR ORDER FOR THAT ASSESSMENT YEAR, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.1,70,000/- OU T OF RS.1,82,000/- MADE BY THE AO ON ACCOUNT OF REMUNERATION TO MS. VI JETA SHARMA AND IN DELETING THE ADDITION OF RS.25,070/-, RS.28, 425/- AND RS.1,80,846/- OUT OF TELEPHONE, TRAVELLING & CONVEY ANCE EXPENSES AND VEHICLE EXPENSES RESPECTIVELY. 46. GROUND NO.4 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE ADDITION OF RS.58,794/- MADE ON ACCOUNT OF LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TO EMPLOYEES PF. ITA NOS. 1765/D/08 & 2896/D/09 36 47. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. FROM THE AOS ORDER, IT IS CLEAR THAT ALL THESE PAYMENTS WERE MADE IN THE FINANCIAL YEAR ITSELF. THEREFORE, IN T HE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. P.M. ELECTRONICS, 15 DTR 258 (DEL), THE CONTRIBUTION TOW ARDS PROVIDENT FUND/ESI PAID WITHIN THE FINANCIAL YEAR ITSELF, ARE ALLOWABLE. THE ORDER OF THE CIT(A) ON THIS POINT IS THUS, UPHELD. 48. IN THE RESULT, THE APPEALS FILED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS 2003-04 AND 2004-05 ARE PARTLY ALL OWED. 49. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2011. SD/- SD/- (B.C. MEENA) (C .L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED THE 31 ST OCTOBER, 2011. COPY OF THE ORDER FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER, *KAVITA/*MG DEPUTY REGISTRAR, ITAT.