M/S POORANCHAND AGRAWAL, BILASPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BILASPUR

ITA 182/RPR/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9248 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2014-2015
• Appeal Filed On: 20-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Assessment record; Set aside
• Section: 143(3); 201; 13; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI PAWAN SINGH , JUDICIAL MEMBER I.T.A. NO. 182 /RPR/2017 FOR ( A Y : 201 4 - 15 ) M/S. POORANCHAND AGARWAL , BAGADIA ENTERPRISES, NEAR SHIV TALKIES C HOWK, BILASPUR (CG) V S. DCIT(1), BIL A SPUR . PAN NO. AAIFB 8483 G (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. RICHA KHATRI , CA. DEPARTMENT BY : SHRI SANJAY KUMAR , DR DATE OF HEARING : 09 /08/2021. DATE OF PRONOUNCEMENT : 09 /08/2021. ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH , J UDICIAL M EMBER : 1. TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX ( APPEALS ) , HEREINAFTER CALLED AS LD . CIT(A) BILASPUR , DATED 10 .0 1.2017 FOR THE A.Y. 20 1 4 - 1 5 . THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT THE ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW AS WELL AS ON FACTS OF THE CASE. 2. THAT THE LD. CIT(A) ERRED IN C ONFIRMING THE REJECTION OF AUDI TED B OOKS OF ACCOUNTS U/S 145(3). IN ABSENCE OF ANY INGREDIENTS OF THIS SECTION, THE ACTION IS WARRANTED. M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 2 3. THAT THE LD. CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN SUSTAINING NET PROFIT @ 11.5% (BEFORE INTEREST & DEPRECIATION) WITHOUT GIVING ANY BASIS AND WIT HOUT CONSIDERING THE PAST HISTORY OF THE ASSESSEE. THIS IS ARBITRARY AND UNCALLED FOR. 4. THAT THE LD. CIT(A) ERRED IN SUSTAI N ING THE ADDITION IN TOTAL INCOME BY RS. 1,87,45,159/ - W ITHOUT ANY COGENT REASONS BUT ONLY ON THE BASIS OF ESTIMATIONS. THE BOOK RESULTS BE ACCEPTED. 5. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER AND OMIT ALL OR ANY OF THE GROUNDS OF APPEAL WITH THE PERMISSION OF THE HON'BLE APPELLATE AUTHORITY. 2. BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE IS A PARTNERSHIP FIRM , ENGAGED IN CI VIL CONTRACT WORK , FILED IT S RETURN OF INCOME FOR ASSESSMENT YEAR (AY) 2014 - 15 ON 16/09/2014 DECLARING INCOME OF RS. 27,66,790/ - . THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) ON 23/12/2016 . THE ASSESSING OFFICER ( AO ) DURING THE ASSESSMENT NOTED THAT ASSESSEE HAS SHOWN TURNOVER OF RS. 26.41 CRORES AND SHOWN GROSS PROFIT (GP) OF RS. 2.22 CRORES ONLY (APPROX.) AND NET PROFIT (NP) OF RS. 88.44 LAKHS WHICH IS 3.35% . ON PERUSAL OF THE BOOKS OF ACCOUNT , THE AO NOTED TH AT THE CONTRACT AND AGREEMENT AMOUNT AWARDED TO THE ASSESSEE WAS BELOW THE BID AMOUNT. ON SHOW CAUSE NOTICE T HE ASSESSEE PRODUCED THE MUSTER ROLLS OF LABOUR . THE AO FURTHER FIND THAT THE ASSESSEE HAS DEBITED A HUGE LABOUR CHARGE WHICH IS AT 57.73% OF GROS S RECEIPTS . ON PRODUCTION OF MUSTER ROLLS AND OTHER BILLS/VOUCHERS , THE AO EXAMINED THE SAME ON RANDOM BASIS . FURTHER, THE AO NOTED THAT THERE WAS VIOLATION OF SECTION 36(1)(VA) OF INCOME TAX ACT, WHICH WAS ALSO CONFRONTED WITH THE ASSESSEE. ON THE BASIS OF AFORESAID M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 3 OBSERVATION, THE AO ISSUED SHOW - CAUSE NOTICE AS TO WHY BOOKS OF ACCOUNT SHOULD NOT BE REJECTED AS THE LABOUR CHARGES ARE INFLATED. THE ASSESSEE FURNISHED ITS REPLY. IN REPLY , THE ASSESSEE STATED THAT PROFIT SHOWN IN THE BOOKS IS CORRECT , AS ALMO S T ALL THE CONTRACTS WERE BELOW SCHEDULE OF RATE ( SOR ) . THE ASSESSEE IS MAINLY IN IRRIGATION CONTRACT WHICH IS HIGHLY LABOUR INTENSIVE AND MAINTENANCE OF MUSTER ROLLS IS VERY DIFFICULT . THE ASSESSEE TRIED TO MAINTAIN ALL THE BILLS/VOUCHERS WHICH HAV E BEEN PRODUCED FOR EXAMINATION. THE ASSESSEE FURTHER EXPLAINE D THAT NATURE OF WORK OF IRRIGATION CONTRACTS WHERE USE OF MACHINERY IS LIMITED AND LABOUR INTENSIVE WO RK . THE ASSESSEE FURTHER EXPLAINED TH A T MAJORITY OF LABOUR EXPENSES WERE PAID TH R OUGH BANK ING CHANNEL AND PRAYED NOT TO REJECT THE BOOKS OF ACCOUNT . THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO. THE AO REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT . THE AO BY REFERRING CERTAIN CASE - LAWS MA DE THE ADDITION OF NET P ROFIT @ 12.5% OF TURNOVER. 3. ON APPEAL , LD. CIT(A) UPHELD THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS , HOWEVER, ON ADDITIONS MADE @ 12.5% GRANTED PARTIAL RELIEF TO THE ASSESSEE BY REDUCING IT TO 1% . THE LD. CIT(A) WHILE AFFIRMING THE REJECTION O F BOOKS OF ACCOUNT , HELD THAT IN ABSENCE OF COMPLETE MUSTER ROLLS , BOOKS OF ACCOUNT CANNOT BE TREATED AS COMPLETE . F URTHER, THE PAYMENT MADE BY THE ASSESSEE IS MORE THAN THE PROPORTION OF PF & ESI CONTRIBUTED BY THE LABORERS . ON ESTIMATION OF NET PROFIT , THE LD. CIT(A) M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 4 GRANTED PARTIAL RELIEF AND UPHELD THE ADDITION TO THE EXTENT OF 11.5% OF NET PROFIT BY TAKING VIEW THAT PUNJAB & HARYANA HIGH COURT IN A CASE OF ROAD CONTRACTOR ESTIMATE 10% OF NET PROFIT. THE LD CIT(A) HAS NOT MENTIONED THE NAME AND CITATI ON OF THE DECISION O F PUNJAB & HARYANA HIGH COURT. THE LD CIT(A) ALSO NOTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION RS.19.34 LAKHS. FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THIS TRIBUNAL. 4. WE HAVE HEARD THE LEARNED AUTHORIS ED REPRESENTATIVE (AR) FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE LD.AR OF THE ASSESSEE SUBMITS THAT THE AO REJECTED THE BOOKS OF ACCOUNT WITHOUT SPECIFY ING ANY COGENT REASON . THE BOOKS OF ACCOUNT ARE REJECTED IN MECHANICAL WAY. THE EXPLANATION FURNISHED IN RESPONSE TO THE SHOW - CAUSE NOTICE WAS NOT CONSIDERED BY THE AO. THE BOOKS OF ACCOUNT ARE DULY AUDITED. THE BOOKS ARE SUPPORTED BY THE BILLS AND VOU CHERS. THE AO HAS NOT SPECIFIED A SINGLE INSTANCE OR IRREGULARITY BEFORE REJECTING THE BOOKS OF ACCOUNT , IF ANY EXPENSE IS FOUND TO BE UNVERIFIABLE , THEN IT MAY BE A GROUND FOR DISALLOWANCE OF EXPENSES, BUT CANNOT BE A BASIS FOR REJECTION OF AUDITED ACCOU NTS . 5. ON ESTIMATION OF NET PROFIT, THE LD.AR OF THE ASSESSEE SUBMITS THAT THE AO AFTER REJECTING THE BOOKS OF ACCOUNT ESTIMATED THE NET PROFIT @ 12.5% OF GROSS RECEIPTS , HOWEVER, ON APPEAL BEFORE THE LD. CIT(A) THE SAME WAS M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 5 REDUCED TO 11.5% THEREBY ADDITIO N WAS SUSTAINED TO THE EXTENT OF 1.87 CRORES . THE AO FAILED TO CONSIDER THAT IN PREVIOUS YEARS , THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) AND THE ASSESSING OFFICER ACCEPTED SIMILAR GROSS PROFIT AND NET PROFIT IN A.Y S . 2012 - 13 AND 2013 - 14 . THE LD. AR SUBMITS THAT IN A.Y. 2012 - 13, THE ASSESSEE DECLARED GROSS PROFIT @ 6.03% AND NET PROFIT @ 2.94%. IN A.Y. 2013 - 14, THE ASSESSEE DECLARED GROSS PROFIT @ 8% AND NET PROFIT @ 3.13% . THE ASSESSMENT IN A.Y. 2012 - 13 WAS COMPLETED U NDER SECTION 143 (3) AND ONL Y A PARTIAL DISALLOWANCE ON ACCOUNT OF LABOUR EXPENSES WAS MADE . THIS YEAR THE GP DECLARED BY THE ASSESSEE IS 8. 44% AND NP IS 3.3 5%, WHICH ARE BETTER THAN THE EARLIER YEARS. THE LD.AR FURTHER SUBMITS THAT CONTRACT WORK AWARDED TO THE ASSESSEE WAS RELATES TO IRRIGATION CONTRACT WHICH IS LABOUR IN TENSIVE. THE LD.AR SUBMITS THAT GP/NP DECLARED BY THE ASSESSEE IS IN ACCORDANCE WITH THE BUSINESS NORM. THE LD.AR RELIED UPON THE FOLLOWING CASE - LAWS: - MOHAN SUKUMARAN VS. DCIT [(2020) 34 NYPTTJ 942 (RAIPUR)] SANT KUMAR SHARMA VS. ACIT [ITA NO. 40/BLPR/2013, DATED 21/09/2016] 6. ON THE OTHER HAND, LD. DR FOR THE REVENUE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. LD. DR FOR THE REVENUE SUB M ITS THAT DURING THE RELEVANT FINANCIAL YEAR UNDER CONSIDERATION, THE ASSESS EE HAS DEBITED EXCESSIVE LABOUR CHARGES. THE LABOUR CHARGES SHOWN BY THE ASSESSEE WERE MORE THAN 57% OF GROSS PROFIT . THE ASSESSEE WAS ASKED TO M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 6 SUBSTANTIATE THE EXPENSES. THE ASSESSEE COULD NOT PRODUCE COMPLETE RECORD OF MUSTER ROLLS OF LABOUR. THE AO IN ABSENCE OF COMPLETE RECORD OF LABOUR EXPENSES REJECTED THE BOOKS OF ACCOUNT . AFTER REJECTION OF BOOKS OF ACCOUNT , THE AO PROCEEDED FOR MAKING ADDITION ON ESTIMATE BASIS. THE AO ESTIMATED A REASONABLE NET PROFIT @ 12.5%, HOWEVER, ON APPEAL, LD. CIT(A) GRANTED PARTIAL RELIEF REDUCING THE NET PROFIT TO 1%, TH E REBY AFFIRMING 11.5% OF THE GROSS PROFIT. THE LD. DR FOR THE REVENUE SUBMITS THAT THE LD. CIT(A) AFTER CONSIDERING THE COMPLETE FACTS AND CIRCUMSTANCES OF THE CASE, GRANTED A REASONABLE RELIEF AND THE ASSESSEE IS NOT ENTITLED FOR FURTHER RELIEF . 7. WE HAVE CONSID ERED THE RIVAL SUBMISSIONS OF B O T H THE PARTIES AND HAVE GONE THROUGH THE ORDER S OF THE LOWER AUTHORITIES CAREFULLY . WE HAVE ALSO DELIBERATED ON VARIOUS DOCUMENTS FURNISHED BY THE LD.AR OF THE ASSESSEE. WE HAVE ALSO C ONSIDER ED THE AUDITED REPORT FOR THE RELEVANT FINANCIAL YEAR 2013 - 14 , COPY OF NOTE SHEET ( ORDER SHEET OF AO ) AND COPY OF WRITTEN SUBMISSIONS FURNISHED BEFORE THE FIRST APPELLATE AUTHORITY. W E HAVE ALSO DELIBERATED ON VARIOUS CASE - L AWS RELIED ON BY THE LD.AR OF THE ASSESSEE. DURING THE ASSESSMENT, THE AO REJECTED THE BOOKS OF ACCOUNT . WE HAVE P E RUSED THE ORDER SHEET ENTRY DATED 19/12/2016 AS RECORDED BY THE AO. THE AO DURING THE ASSESSMENT RECORDED THAT THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT WHICH WERE EXAMINED. IT WAS SEEN FROM THE VARIOUS DOCUMENTS THAT THE CONTRACT AND AGREEMENT AMOUNT ARE BELOW THE SOR. M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 7 MUSTER ROLLS WERE PRODUCED BUT WERE NOT UP TO THE MARK AND WERE NOT COMPLETELY PRODUCED . BILLS/VOUCHERS WERE EXAMINED O N RANDOM BASIS. IT WAS FOUND THAT LABOUR CHARGES ARE DEBITED @ 57.78% OF GROSS RECEIPTS WHICH IS VERY HIGH 8. WE FIND THAT THE ASSESSEE IN RESPONSE TO THE SHOW - CAUSE NOTICE AS RECORDED IN PARA 3 , FILED ITS REPLY, THE AO HAS NOT RECORDED ALL THE CONTENT S OF REPLY FILED BY THE ASSESSEE. IN REPLY, T HE ASSESSEE TRIED TO JUSTIFY THAT HIS WORK LABOUR INTENSIVE AND MAJORITY OF PAYMENTS WERE MADE THR O UGH BANKING CHANNEL . WE FIND THAT AO REJECTED THE BOOKS OF ACCOUNT WITHOUT SPECIFYING ANY IRREGULARITY IN THE BOOKS OF ACCOUNT . THE AO MERELY RECORDED THAT CONSIDERING THE FACT AS PER PARA 3 (GROUNDS OF SHOW - CAU S E NOTICE) REJECTED THE BOOKS OF ACCOUNT. WE FIND THAT THE AO HAS NOT SPECIFIED OR IDENTIFIED A SINGLE VOUCHER WHICH IS NOT I N ORDER. NO INDEPENDENT INVE STIGATION WAS CARRIED OUT BY THE AO, O N THE BILLS AND VOUCHERS FURNISHED BY ASSESSEE, WHICH WERE EXAMINED ON RANDOM BASIS. F URTHER, THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE DULY AUDITED. THE AUDITOR HAS NOT MADE ANY ADVERSE COMMENT OR POINTED OUT ANY DEF ICIENCY . IN OUR VIEW, THE BOOKS OF ACCOUNT WERE REJECTED WITHOUT ANY BASIS. IF THERE WAS VIOLATION OF SECTION 36(1)(VA) OF INCOME TAX ACT, THE AO COULD DISALLOW THE SAME AS PER LAW. THEREFORE, WE SET ASIDE THE ORDER OF THE AO IN REJECTING THE BOOKS OF AC COUNTS . M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 8 9. ON MERITS , WE FIND THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY IN A.Y. 2012 - 13 & 2013 - 14 . COPY OF ASSESSMENT ORDER S FOR BOTH THESE YEARS, PASSED U NDER SECTION 143(3) ARE PLACED ON RECORD. A SIMILAR GROSS PROFIT WAS SHOWN FOR A.Y. 2012 - 13 @ 8% AND NET PROFIT @ 3.3%, FURTHER IN A.Y. 2013 - 14 GROSS PROFITS @ 6.3% AND NET PROFIT @ 2.9% WAS ACCEPTED , HOWEVER ONLY SOME PERCENTAGE OF LABOUR CHARGES WERE DISALLOWED TO AVOID THE POSSIBILITY OF REVENUE LEAKAGE . 10. CONSIDERING THE PECULIAR FACTS AND T HE CIRCUMSTANCES OF THE CASE , WHEN SIMILAR GROSS PROFIT AND NET PROFIT FROM THE SAME BUSINESS I S ACCEPTED BY THE REVENUE IN EARLIER YEARS, THE REVENUE CANNOT INCREASE THE NET PROFIT OF THE ASSESSEE WITHOUT SPECIFYING ANY COGENT REASON OR BRINGING EVIDENCE OF COMPARABLE IN STANCES OF ASSESSEES ENGAGED IN SIMILAR TRADE OR BUSINESS . T HE AO ESTIMATED THE NET PROFIT @ 12.5% WHICH WAS THOUGH REDUCED TO 11.5% BY THE LD. CIT(A), IN OUR VIEW, THE ESTIMATION IS WITHOUT MAKING ANY INVESTIGATION OR BRINGING COMPARABLE CASE ON RECORD, ESTIMATION MADE BY THE AO IS NOT JUSTIFIED. OUR VIEW FURTHER STRENGTHENED BY THE FACT THAT ASSESSEE HAS SHOWN BETTER GROSS PROFIT AND NET PROFIT COMPARATIVE TO A.Y S . 2012 - 13 & 2013 - 14 WHICH WE HAVE REFERRED ABOVE . 11. IN VIEW OF THE AFORESAI D DISCUSSION, THE ADDITION MADE BY THE AO WHICH WAS UPHELD TO THE EXTENT OF 11.5% BY THE LD. CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ENTIRE ADDITION. IN THE RESULT, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. M/S. POORANCHAND AGRAWAL ITA NO.182/RPR/2017 9 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 09 - 08 - 2021 BY PLACING RESULT ON NOTICE BOARD. S D/ - SD/ - (PRADIP KUMAR KEDIA) ( PAWAN SINGH ) ACCOUNTANT MEMBER J UDICIAL MEMBER VR S PS DATED: 9 TH AUGUST, 2021 COPY TO: 1. THE ASSESSEE - M/S. POORANCHAND AGRAWAL SS BAGADIA ENTERPRISES, NEAR SHIV TALKIES CHOWK, BILASPUR (CG) 2. THE REVENUE DCIT(1), BILASPUR. 3. LD. CIT( A) , BILASPUR . 4. PR. CIT, BILASPUR. 5. THE D.R., RAIPUR. 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY, ITAT, RAIPUR (ON TOUR).