M/s. Deep Construction, GANDHIDHAM V. The Assistant Commissioner of Income Tax, Gandhidham Circle, GANDHIDHAM

ITA 178/RJT/2013

• Counselvise Citation: 17824914 RSA 2013
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 01-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT B JHAVERI DR
• Assessee Lawyers: KALPESH DOSHI
• Keywords: Rejection of books of accounts; Depreciation
• Section: 2; 44AD; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT BEFORE SHRI T. K. SHARMA, JM AND SHRI B. R. JAIN, A M ITA NO. 178/RJT/2013 / ASSESSMENT YEAR : 2005-06 M/S. DEEP CONSTRUCTION, GANDHIDHAM PAN : AADFD 5394 D ( / APPELLANT) ACIT GANDHIDHAM CIRCLE, GANDHIDHAM / RESPONDENT ! ' #$ / ASSESSEE BY SHRI KALPESH DOSHI, CA % ! ' #$ / REVENUE BY DR. JAYANT B. JHAVERI, DR # & ' ! ( / DATE OF HEARING 07.01.2014 ) ! ( / DATE OF PRONOUNCEMENT 10.01.2014 / ORDER .. , / T. K. SHARMA, J. M.: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 12.03.2013 OF LD. CIT(A) -II, RAJKOT CONFIRMING THE PENALTY OF RS.2,30,720/- LEVIED BY THE ASSESSING OFFICER U/S 2 71(1)(C) OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2005-06. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A FIRM, ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. FOR THE ASSESSMENT YEAR UNDER A PPEAL, IT FILED THE RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCOME AT RS.5,53,821 /-. THE ASSESSING OFFICER FRAMED ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT ON 24.0 9.2007 AT TOTAL INCOME OF RS.31,55,400/-. IN THIS ASSESSMENT ORDER, THE ASSE SSING OFFICER REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND MADE LUMP-SUM AD DITION OF RS.26,01,574/- BEING 25% OF THE WORK EXPENSES OF RS.1,04,06,294/- AND AL SO INITIATED THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT, 19 61. 3. ON APPEAL AGAINST THE ASSESSMENT ORDER U/S 143(3 ), THE LD. CIT(A)-II, RAJKOT VIDE ORDER DATED 04.02.2008 WORKED OUT THE PROFIT AT 15, 12,735/- BEING 7% OF RS.2,16,10,506/-. FROM THIS PROFIT, THE LD. CIT(A) ALSO ALLOWED THE REMUNERATION AND INTEREST PAID TO PARTNERS. TO SUM-UP, THE LD. CIT(A ) CONFIRMED THE ADDITION OF RS.4,14,387/- AS AGAINST THE TOTAL ADDITION OF RS.2 6,01,574/- MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. AGAINST THIS ORDE R OF LD. CIT(A), THE TRIBUNAL IN CROSS- 178-RJT-2013 - DEEP CONSTRUCTION 2 APPEALS, FOLLOWING THE JUDGMENT OF HONBLE RAJASTHA N HIGH COURT IN THE CASE OF CIT V. JAIN CONSTRUCTION CO., 245 ITR 527 (RAJ. HC), DIREC TED THE ASSESSING OFFICER TO APPLY THE PROFIT RATE OF 8% AND THEREAFTER ALSO ALLOW THE DEPRECIATION AND INTEREST & REMUNERATION PAID TO THE PARTNERS. AGAINST THIS OR DER, THE ASSESSEE FILED A MISCELLANEOUS APPLICATION BEFORE THE TRIBUNAL BEING MISC APPLICATION NO.606/RJT/2009, WHEREBY THE TRIBUNAL VIDE ORDER DATED 21.08.2009 MO DIFIED ITS ORDER DATED 13.02.2009 IN ITA NO.291/RJT/2008 AND DIRECTED THE ASSESSING O FFICER TO TAKE NET PROFIT AT THE RATE OF 8% BEFORE ALLOWING SALARY AND INTEREST TO THE PARTN ERS. THUS, IN THE MISCELLANEOUS APPLICATION, THE TRIBUNAL HELD THAT DEPRECIATION IS NOT ALLOWABLE. SUBSEQUENTLY, THE ASSESSING OFFICER LEVIED THE PENALTY OF RS.2,30,720 /- U/S 271(1)(C) OF THE INCOME-TAX ACT VIDE ORDER DATED 22.10.2009 BEING 100% OF THE TAX S OUGHT TO BE EVADED ON INCOME TO THE EXTENT OF RS.6,30,500/- CONFIRMED BY THE TRIBUN AL OUT OF TOTAL ADDITION OF RS.26,01,574/- MADE IN THE ASSESSMENT ORDER. 4. ON APPEAL AGAINST THE PENALTY ORDER, IN THE IMPU GNED ORDER DATED 12.03.2013, THE LD. CIT(A) CONFIRMED THE PENALTY OF RS.2,30,720 /-. THE REASONING GIVEN BY THE LD. CIT(A) FOR CONFIRMING THE PENALTY IS THAT THERE WAS DELIBERATE CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME ON THE PART OF THE ASSESSEE. LD. CIT(A) WAS OF THE VIEW THAT IN THE PRESENT CASE THE ASSESSING OFFICER REJECTED THE BOOK RESULTS U/S 145(3) IN VIEW OF CERTAIN DEFECTS IN VOUCHERS, VIZ. NO MEN TION OF VOUCHER NUMBER, NO STAMP AFFIXED, NO DESCRIPTION OF WORK DONE/SERVICE PROVID ED, NO CROSS-SIGNATURE OF AUTHORIZED SIGNATORY, RECIPIENTS OF PAYMENTS WERE NOT VERIFIAB LE ETC. IN RESPECT OF THESE DEFICIENCIES AND AFTER REJECTING THE BOOK RESULTS, THE ASSESSING OFFICER WAS LEFT WITH NO OTHER ALTERNATIVE BUT TO RESORT TO ESTIMATION OF INCOME O F THE ASSESSEE TO A REASONABLE EXTENT AND ULTIMATELY HE MADE THE ADDITION OF RS.26,01,574 /- WHICH, AFTER GIVING EFFECT TO THE ORDER OF TRIBUNAL IN MA NO.606/RJT/2009 DATED 21.08 .2009, REDUCED TO RS.6,30,500/-; THEREFORE ON THIS AMOUNT THE PENALTY U/S 271(1)(C) IS LEVIABLE AS THE ASSESSEE FAILED TO DISCHARGE ITS ONUS UNDER EXPLANATION 1 TO SECTION 2 71(1)(C) OF THE INCOME-TAX ACT, 1961. AGGRIEVED WITH THE ORDER OF LD. CIT(A) CONFI RMING THE PENALTY OF RS.2,30,720/-, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 178-RJT-2013 - DEEP CONSTRUCTION 3 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE, SHRI KALPESH DOSHI, CA APPEARED AND FILED A PAPER BOOK CONTAINING 25 PA GES, WHICH INTER-ALIA, INCLUDED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A), COPY OF ORD ERS IN QUANTUM APPEAL, ORDER IN MISCELLANEOUS APPLICATION ETC. APART FROM THIS IN THE PAPER BOOK, THE ASSESSEE HAS ALSO FILED A COPY OF HIGH COURTS ORDER IN QUANTUM APPEA L AT PP 20-22. FROM THIS ORDER OF HONBLE HIGH COURT, THE ASSESSEE POINTED OUT THAT I N PARAGRAPH 2 THE COURT HAS DISCUSSED THE CHRONOLOGICAL EVENTS I.E. INITIALLY T HE ASSESSING OFFICER DISALLOWED 25% OF THE EXPENDITURE AFTER REJECTING THE BOOKS OF ACCOUN TS U/S 145(3) OF THE ACT. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ULTIMATELY T HE INCOME HAS BEEN ESTIMATED BY REJECTING THE BOOKS OF ACCOUNTS AND ONLY QUANTUM OF ADDITION, WHICH WAS MADE BY THE ASSESSING OFFICER AT RS.26,01,574/-, IS REDUCED TO ONLY RS.6,30,500/-. ON THIS GROUND ALONE THE PENALTY U/S 271(1)(C) IS NOT LEVIABLE. AC CORDING TO THE LD. COUNSEL OF THE ASSESSEE, IT IS A WELL SETTLED LAW THAT WHEN INCOME OF THE ASSESSEE IS ESTIMATED, THE INITIATION OF PENALTY U/S 271(1)(C) IS BAD IN LAW. CONTINUING HIS ARGUMENTS, THE LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION TO PARAG RAPH 7 OF THE HIGH COURTS ORDER IN TAX APPEAL NO.1477 OF 2011, WHEREIN THE HONBLE HIG H COURT HAS OBSERVED THAT IN MISCELLANEOUS APPLICATION THE TRIBUNAL CANNOT REVIE W ITS ORDER SO AS TO WITHDRAW THE ALLOWANCE OF DEPRECIATION WHICH WAS ALLOWED EARLIER BY APPLYING NET PROFIT OF 8%. ON THIS BASIS INCOME IS COMPUTED AND THE ASSESSEES PROFIT WOULD BE 8.13% AS AGAINST 8% ULTIMATELY APPLIED BY THE TRIBUNAL. HE SUBMITTED TH AT ON THIS BASIS ALSO, THE PENALTY U/S 271(1)(C) IS NOT LEVIABLE. 6. AS AGAINST THE AFORESAID SUBMISSION MADE BY LD. AR, DR. JAYANT B. JHAVERI, DR, APPEARED ON BEHALF OF THE REVENUE VEHEMENTLY SUPPOR TED THE ORDER OF LD. CIT(A). THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER REJECTE D THE BOOKS OF ACCOUNTS AND MADE ADDITION OF RS.26,01,574/. ULTIMATELY, THE TRIBUNAL (AFTER ORDER IN MA NO.606/RJT/2009) REDUCED THE ADDITION TO RS.6,30,500/-. THE ASSESSIN G OFFICER LEVIED PENALTY OF RS.2,30,720/-, AND THE LD. CIT(A) IS GIVEN COGENT R EASON FOR CONFIRMING THE SAME. THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHE LD. 7. IN REJOINDER, THE LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT THE CONSPICUOUS FACTS OF THE CASE CLEARLY INDICATE THAT INITIALLY THE ASS ESSING OFFICER INITIATED PENALTY U/S 178-RJT-2013 - DEEP CONSTRUCTION 4 271(1)(C) ON DISALLOWANCE OF 25% OF TOTAL WORKS EXP ENSES BY REJECTING THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS CONTAINED IN SE CTION 145(3) OF THE INCOME-TAX ACT, 1961. WHEN BOOKS OF ACCOUNTS ARE REJECTED, THE PEN ALTY U/S 271(1)(C) IS NOT LEVIABLE. IN SUPPORT OF THIS, RELIANCE HAS BEEN PLACED ON FOLLOW ING DECISIONS:- I. CIT V. VALMIKBHAI H. PATEL, 280 ITR 487 (GUJ. HC ) II. CIT V. SANGRUR VANASPATI MILLS LTD., 303 ITR 53 (P&H HC) III. ACIT V. PRECISION DRILLING, 1604/AHD/2009 (AHD BENCH) IV. CIT V. VIJAY KUMAR JAIN V. 325 ITR 378 (CHATTIS GARH HC) V. CIT V. SUBHASH TRADING CO., 221 ITR 110 (GUJ. HC ) VI. CIT V. MODI INDUSTRIAL CORP., 195 TAXMAN 68 (P& H HC) 8. RIVAL SUBMISSIONS WERE CONSIDERED. IT IS PERTINE NT TO NOTE THAT ORIGINALLY IN THE ASSESSMENT FRAMED U/S 143(3) OF THE INCOME-TAX ACT ON 24.09.2007, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY INVOKING P ROVISIONS CONTAINED IN SECTION 145(3) OF THE INCOME-TAX ACT, 1961 AND MAKE A LUMP-SUM ADD ITION OF RS.26,01,574/- BEING 25% OF TOTAL WORK EXPENSES OF RS.1,04,06,294/- AND ON THIS BASIS THE ASSESSING OFFICER INITIATED PENALTY U/S 271(1)(C) OF THE INCOME-TAX A CT, 1961. IT IS WELL SETTLED LAW THAT WHEN BOOKS OF ACCOUNTS ARE REJECTED AND THE INCOME OF THE ASSESSEE IS ESTIMATED, PENALTY U/S 271(1)(C) IS NOT LEVIABLE. BE THAT IT MAY BE, THE ORIGINAL ADDITION WHICH WAS MADE BY THE ASSESSING OFFICER AT RS.26,01,574/- IS REDUCED TO RS.6,30,500/-. WE ALSO FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT IT WAS A DEBATABLE ISSUE THAT ONCE THE TRIBUNAL IN ORI GINAL ORDER TOOK THE VIEW FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CA SE OF CIT V. JAIN CONSTRUCTION CO., 245 ITR 527 (RAJ. HC) THAT THE INCOME BE ESTIMATED BY APPLYING PROFIT RATE OF 8% SUBJECT TO ALLOWANCE OF DEPRECIATION AND INTEREST & SALARY PAID TO PARTNERS AND THIS ORDER CANNOT BE RECTIFIED U/S 254(2) OF THE INCOME-TAX AC T, AS OBSERVED BY THE HONBLE GUJARAT HIGH COURT IN PARAGRAPH 7 IN TAX APPEAL NO.1477 OF 2011 IN ASSESSEES OWN CASE. THE SAID PARAGRAPH IS REPRODUCED HEREUNDER:- FROM THE ORDERS ON RECORD, WE GATHER THAT IN THE O RIGINAL ORDER, THE TRIBUNAL ESTIMATED THE PROFIT AT THE RATE OF 8% BEFORE DEPRE CIATION, SALARY AND INTEREST TO THE PARTNERS. THIS WAS ON THE BASIS OF DECISION OF RAJASTHAN HIGH COURT IN CASE OF CIT VS. JAIN CONSTRUCTION CO. AND ORS. (SUPRA). IN SUCH DECISION, THE PRECISE QUESTION WAS, WHETHER WHILE APPLYING THE PROFIT RAT E OF 8% UNDER SECTION 44AD OF THE ACT, CAN DEPRECIATION STILL BE CLAIMED THEREAFT ER? IT WAS, IN THIS BACKGROUND, THE HIGH COURT HAD ANSWERED THE QUESTION IN FAVOUR OF ASSESSEE. WHEN THE TRIBUNAL, THEREFORE, APPLIED SUCH A DECISION AND SP ECIFICALLY PROVIDED FOR WORKING- OUT DEPRECIATION AFTER COMPUTING PROFIT AT THE RATE OF 8%, IN OUR OPINION, THERE WAS NO AMBIGUITY OR UNCERTAINTY. SIMPLY BECAUSE THE ASS ESSEE HIMSELF HAD DECLARED PROFIT AT 8.13% ON SUCH PARAMETERS, WOULD NOT PERMI T THE TRIBUNAL TO CHANGE 178-RJT-2013 - DEEP CONSTRUCTION 5 SUCH A DIRECTIVE IN EXERCISE OF RECTIFICATION POWER S. POWER OF RECTIFICATION CAN BE EXERCISED FOR CORRECTING AN ERROR APPARENT ON THE F ACE OF THE RECORD AND NOT FOR REVIEWING AND ORDER. IN THE PRESENT CASE, DECISION OF THE TRIBUNAL TO ALLOW DEPRECIATION ON 8% PROFIT WAS A CONSCIOUS DECISION. WHETHER SUCH A VIEW WAS CORRECT OR NOT IS NOT OUR INQUIRY IN THIS CASE. WHA T WE DO HOLD IS, THAT SUCH A VIEW COULD NOT HAVE BEEN CHANGED IN EXERCISE OF POWER OF RECTIFICATION. ON THIS SHORT GROUND, WE ARE PREPARED TO REVERSE THE TRIBUNALS OR DER UNDER CHALLENGE. THE COUNSEL FOR THE APPELLANT CLARIFIED THAT THE ASSESS EE WOULD NOT ARGUE THAT THE ESTIMATE ADOPTED BY THE CIT(A) ALSO SHOULD BE REDUC ED FURTHER. IN OTHER WORDS, HE WOULD BE SATISFIED WITH THE REVENUES APPEAL BEFO RE THE TRIBUNAL BEING DISMISSED WITHOUT ANY FURTHER BENEFIT TO HIM. ON THE BASIS OF ABOVE OBSERVATION OF HONBLE GUJ ARAT HIGH COURT IN ASSESSEES OWN CASE ALSO, THE PENALTY U/S 271(1)(C) OF INCOME- TAX ACT IS NOT LEVIABLE. FOR THE AFORESAID REASON, WE HOLD THAT THIS IS NOT A FIT CASE TO LEVY PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT. THEREFORE, THE PEN ALTY OF RS.2,30,720/- CONFIRMED BY THE LD. CIT(A) IN THE IMPUGNED ORDER IS HEREBY CANC ELLED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MEN TIONED HEREINABOVE. SD/- SD/- (B. R. JAIN) (T. K. SHARM A) $( #*% / ACCOUNTANT MEMBER #*% /JUDICIAL MEMBER *$+ ,*-/ ORDER DATE 10.01.2014 /RAJKOT *BT / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT- M/S. DEEP CONSTRUCTION, GANDHIDHAM 2. /RESPONDENT- ACIT, GANDHIDHAM CIRCLE, GANDHIDHAM 3. #-2- & 3 / CIT-I, RAJKOT 4. & 3 - / CIT(A)-II, RAJKOT 5 . 678 , , / DR, ITAT, RAJKOT 6 . 89 :; / GUARD FILE. *$+ #$ / BY ORDER , TRUE COPY PRIVATE SECRETARY, , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.