M/S J.S.CONSTRUCTION, V. ITO, Ahmednagar

ITA 1800/PUN/2012

• Counselvise Citation: 180024514 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Depreciation
• Section: 44AD; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1800/PN/2012 (ASSTT.YEAR : 2008-09) M/S. J.S. CONSTRUCTION, A/P. GHARGAON, TAL : SHRIGONDA, AHMEDNAGAR .. APPELLANT PAN NO.AAFFJ6620E VS. ITO, WARD-4, AHMEDNAGAR .. RESPONDENT ASSESSEE BY : SMT. DEEPA KHARE REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 30-12-2013 DATE OF PRONOUNCEMENT : 31 -12-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-03-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. IT FILED ITS RETURN OF INCOME ON 30-09-2008 DECLARING TOTAL LOSS OF RS.14, 01,964/-. THE RETURN WAS DULY ACKNOWLEDGED BY AUDIT REPORT U/S.44 AB. THE CASE WAS SELECTED FOR SCRUTINY FOR WHICH NOTICE U/S.143(2) W AS DULY SERVED ON THE ASSESSEE. HOWEVER, THE ASSESSEE DID NOT ATTEND THE OFFICE OF THE ASSESSING OFFICER DESPITE REPEATED OPPORTUNITIES GI VEN TO HIM. TOWARDS THE END OF THE TIME BARRING ASSESSMENT PROC EEDING, THE ASSESSEE FILED SCANTY DETAILS BUT DID NOT PRODUCE T HE BOOKS OF ACCOUNT. 2 UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER IN VOKED THE PROVISIONS OF SECTION 144 AND ESTIMATED THE INCOME OF THE ASSESSEE ON THE CONTRACT RECEIPT @8% BY DERIVING SUPPORT FROM T HE PROVISIONS OF SECTION U/S.44AD. THUS, HE DETERMINED THE INCOME F ROM CONTRACT WORK AT RS.5,95,090/-. HE ALSO MADE ADDITION OF RS.6,25 ,700/- OUT OF REPAIRS OF MACHINERY FOR WANT OF DETAILS AND AN AMOUNT OF R S.1,10,895/- ON ACCOUNT OF DIFFERENCE IN INTEREST. THE ASSESSING O FFICER FURTHER MADE ADDITION OF RS.13,09,242/- U/S.40A(3). 3. IN APPEAL THE LD.CIT(A) UPHELD THE EXPARTE ORDER PASSED BY THE ASSESSING OFFICER U/S.144 OF THE I.T. ACT. HE ALSO UPHELD THE ESTIMATION OF PROFIT AT 8% OF THE CONTRACT RECEIPT AND SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F REPAIRS AND MAINTENANCE AND ADDITION ON ACCOUNT OF DIFFERENCE I N INTEREST. HE, HOWEVER, RESTRICTED ADDITION MADE U/S.40A(3) TO RS. 2,85,452/- AS AGAINST RS.13,09,242/- MADE BY THE ASSESSING OFFICE R. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN ESTIMATING INCOM E OF THE APPELLANT AT 8% AS AGAINST LOSS CLAIMED BY THE APPE LLANT. LD.CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT H AD INCURRED EXPENDITURE ON ACCOUNT OF INTEREST AND DEPRECIATION ON MACHINERY WHICH RESULT INTO LOSS. 2. WITHOUT PREJUDICE TO THE ABOVE, IT IS PRAYED THA T THE DEDUCTION ON ACCOUNT OF INTEREST AND DEPRECIATION M AY KINDLY BE ALLOWED SEPARATELY FROM THE ESTIMATED PROFIT. 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFI RMING THE ADDITION OF RS.6,25,700/- ON ACCOUNT OF REPAIRS AND MAINTENANCE WITHOUT AND BASIS AND WITHOUT APPRECIATING THAT THE EXPENDITURE IS FULLY VERIFIABLE. THE LD.CIT(A) FAILED TO APPRE CIATE THAT ONCE 3 THE INCOME IS ESTIMATED, NO DISALLOWANCE OF ANY EXP ENDITURE COULD BE MADE SEPARATELY. 4. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFI RMING ADDITION OF RS.1,10,895/- ON ACCOUNT OF DIFFERENCE IN INTEREST EXPENDITURE. 5. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFI RMING DISALLOWANCE OF RS.2,85,452/- U/S.40A(3) WITHOUT AP PRECIATING THAT ONCE THE INCOME IS ESTIMATED, NO DISALLOWANCE U/S.40A(3) CAN BE MADE. 5. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A). SHE SUBMITTED THAT SINCE THE TURNOVER OF THE ASSESSEE IS MORE THAN RS. 40 LAKHS, THEREFORE, THE PROVISIONS O F SECTION 44AD ARE NOT AT ALL APPLICABLE. REFERRING TO THE AUDITED PRO FIT AND LOSS ACCOUNT FILED AT PAGE 7 OF THE PAPER BOOK, SHE SUBMITTED TH AT ON A CONTRACT RECEIPT OF RS.74,38,630/-, THE ASSESSEE HAS SHOWN N ET LOSS OF RS.14,01,864/- AFTER DEBITING DEPRECIATION OF RS.21 ,37,701/- SHE SUBMITTED THAT BEFORE INTEREST AND DEPRECIATION PRO FIT ON CONTRACT WORK COMES TO MORE THAN 19% WHICH IS REASONABLE FROM ANY STANDARD. MERELY BECAUSE THE ASSESSEE HAS NOT PRODUCED THE BO OKS OF ACCOUNT OR CERTAIN OTHER DETAILS, THE AUTHORITIES BELOW CANNOT ADOPT SUCH HIGH PERCENTAGE OF PROFIT WHICH IN THE INSTANT CASE AMOU NTS TO 45.89% BEFORE DEPRECIATION AND INTEREST WHICH IS IMPOSSIBLE IN TH IS TYPE OF BUSINESS. SHE ACCORDINGLY SUBMITTED THAT SHE HAS NO OBJECTION IF A REASONABLE PERCENTAGE OF PROFIT IS ESTIMATED BEFORE DEPRECIATI ON AND INTEREST AND FROM SUCH CONTRACT RECEIPT AND DEPRECIATION AND INT EREST SHOULD BE SEPARATELY DEDUCTED FROM SUCH PROFIT. 4 6. SO FAR AS THE ADDITION ON ACCOUNT OF REPAIRS AND MAINTENANCE OF MACHINERY, DIFFERENCE IN INTEREST EXPENDITURE AND A DDITION U/S.40A(3) ARE CONCERNED, SHE SUBMITTED THAT ONCE THE PROFIT I S ESTIMATED BY REJECTING THE BOOK RESULTS, NO SEPARATE ADDITION IS CALLED FOR AND SUCH ESTIMATION WILL TAKE CARE OF ALL SUCH DEFECTS. REF ERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BA LAJI CONSTRUCTION VS. ACIT REPORTED IN 72 ITD 559 SHE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT ONCE PROFIT IS ESTIMATE D THE PROFITS COMPUTED UNDER THIS SECTION WOULD TAKE CARE OF EXPENDITURE A ND ALLOWANCES PROVIDED IN SECTION 28 TO 43C AND NO SEPARATE DISAL LOWANCE ON ANY ACCOUNT IS REQUIRED TO BE MADE. SHE ALSO RELIED ON THE DECISIONS REPORTED IN 56 TTJ 492 AND 54 ITD 276. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT WHEN THE ASSESSEE FAILED TO PRODUCE THE REQUISITE DETAILS BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER HAD NO OTHER ALTERNATIVE BUT TO E STIMATE THE PROFIT. ALTHOUGH THE PROVISIONS OF SECTION 44AD ARE NOT APP LICABLE TO THE ASSESSEE COMPANY, THE ASSESSING OFFICER HAD DERIVED STRENGTH FROM THE SAID PROVISIONS AND ESTIMATED THE INCOME. HE SUBMI TTED THAT SINCE THE ASSESSEE COULD NOT SUBSTANTIATE WITH DETAILS REGARD ING THE REPAIRS AND MAINTENANCE TOWARDS MACHINERY AND COULD NOT RECONCI LE THE INTEREST PAID TO BANK, THEREFORE, THE ASSESSING OFFICER MADE THE DISALLOWANCE WHICH HAS BEEN UPHELD BY THE CIT(A) IN THE ELABORAT E ORDER PASSED BY HIM. 5 7.1 SO FAR AS THE DISALLOWANCE U/S.40A(3) IS CONCER NED, HE SUBMITTED THAT EVEN IN CASE OF REJECTION OF ACCOUNTS DISALLOW ANCE U/S.40A(3) CAN BE MADE SEPARATELY. HE SUBMITTED THAT THE LD.CIT(A ) AFTER THOROUGHLY CONSIDERING THE ARGUMENTS ADVANCED BY THE ASSESSEE PASSED THE ORDER WHICH IS A VERY REASONED ONE. HE SUBMITTED THAT TH E ORDER OF THE CIT(A) SHOULD BE UPHELD AND THE GROUNDS RAISED BY T HE ASSESSEE SHOULD BE DISMISSED. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IS ENGAGED IN CONTRACT W ORK AND THE TURNOVER IN THE INSTANT CASE IS 74.39 LAKHS. IT IS ALSO UND ISPUTED FACT THAT THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT AND O THER REQUISITE DETAILS BEFORE THE ASSESSING OFFICER FOR WHICH THE PROFIT HAS BEEN ESTIMATED BY THE ASSESSING OFFICER @8% ON THE TOTAL CONTRACT RECEIPT WHICH HAS BEEN UPHELD BY THE LD.CIT(A). 8.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALTHOUGH PROFIT MAY BE ESTIMATED, HOWEVER, A REASON ABLE PERCENTAGE OF PROFIT SHOULD BE ESTIMATED. ACCORDING TO HER, THE PROFIT ESTIMATED BY THE ASSESSING OFFICER APPLYING 8% PROFIT ON CONTRAC T RECEIPT BEFORE DEPRECIATION AND INTEREST COMES TO 45.89% WHICH IS JUST NOT POSSIBLE IN THIS TYPE OF WORK. ACCORDING TO HER, THE ASSESSEE HAS SHOWN PROFIT BEFORE INTEREST AND DEPRECIATION AT 19% WHICH APPEA RS TO BE REASONABLE AND THE SAME SHOULD HAVE BEEN ACCEPTED. 6 8.2 WE FIND SOME FORCE IN THE ABOVE ARGUMENTS OF TH E LD. COUNSEL FOR THE ASSESSEE. THE PROFIT SO ESTIMATED AT 8% ON THE CONTRACT WORK COMES TO PROFIT BEFORE DEPRECIATION AT 36.73% WHICH IN OUR OPINION APPEARS TO BE ON THE HIGHER SIDE. ALTHOUGH THE BAN K INTEREST AND CHARGES CANNOT BE ALLOWED AS SEPARATE DEDUCTION FRO M THE PROFIT SO ESTIMATED, HOWEVER, IN OUR OPINION, DEPRECIATION BE ING AN ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE PROFIT SO ES TIMATED. SINCE THE ASSESSEE IN THE INSTANT CASE HAS SHOWN PROFIT BEFOR E DEPRECIATION AT 9.89% WHICH IN OUR OPINION APPEARS TO BE SLIGHTLY O N THE LOWER SIDE AND SINCE THE PROFIT ESTIMATED BY THE ASSESSING OFFICER AT 8% WITHOUT DEPRECIATION ALSO APPEARS TO BE ON THE HIGHER SIDE, THEREFORE, IN OUR OPINION, A REASONABLE PROFIT SHOULD BE ESTIMATED. THE VARIOUS BENCHES OF THE TRIBUNAL IN SUCH TYPE OF CASES USUALLY ADOPT 10% TO 12% PROFIT BEFORE DEPRECIATION. CONSIDERING THE TOTALITY OF TH E FACTS OF THE CASE, ADOPTION OF 11% PROFIT ON CONTRACT WORK BEFORE DEPR ECIATION IN THE INSTANT CASE, IN OUR OPINION, WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. 8.3 SO FAR AS THE OTHER ADDITIONS/DISALLOWANCES SUC H AS DISALLOWANCE OUT OF REPAIR AND MAINTENANCE, INTEREST AND DISALLO WANCE U/S.40A(3) ARE CONCERNED, WE FIND MERIT IN THE SUBMISSION OF THE L D. COUNSEL FOR THE ASSESSEE THAT ONCE PROFIT IS ESTIMATED, NO SEPARATE ADDITION/DISALLOWANCE IS CALLED FOR. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORTS HER CASE. THE ESTIMATION OF INCOME IN OUR OPINION TAKES CARE OF THE VARIOUS ADDITIONS/DISALLO WANCES. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THE VARIOUS O THER 7 ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFIC ER AND UPHELD BY THE CIT(A) ARE UNCALLED FOR AND ACCORDINGLY THE SAM E ARE DIRECTED TO BE DELETED. THE ASSESSING OFFICER IS DIRECTED TO RE-C OMPUTE THE PROFIT @11% OF THE CONTRACT RECEIPT AND DEDUCT DEPRECIATIO N THERE FROM TO ARRIVE AT THE PROFIT. WE HOLD AND DIRECT ACCORDING LY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOW ED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31-12-2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. P ANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 31 ST DECEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE