COLLECTOR RAM SHARMA, Jaipur V. ACIT, Jaipur

ITA 19/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4844 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 06-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH JCIT DHK
• Keywords: Rejection of books of accounts; Depreciation
• Section: 143(3); 68; 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.19/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 SHRI COLLECTOR RAM SHARMA, C-47, MAHESH NAGAR, JAIPUR CUKE VS. THE ACIT, CIRCLE-6, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AGWPS 1561 Q. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH (J CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05.12.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 16/12/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-II, JAIPUR DATED 11.11.2013 FOR AY 2009-10 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUND OF APPEAL: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN IMPOSI NG PENALTY U/S 271(1)(C) OF INCOME TAX ACT, 1961 AMOUNTING TO RS. 41,75,722/-. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, A RBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE PENALTY OF RS. 41,75,722/- IMPOSED U/S 271(1)(C). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CIVIL CONTRACTOR CARRYING ON CONTRACT WORK MAINLY FOR PWD RAJASTHAN IN THE NAME OF TIWARI CONSTRUCTION CO. THE ASSESSEE FILED HIS RETURN OF INCOME ON 30.09.2009 ITA NO. 19/JP/14 SHRI COLLECTOR RAM SHARMA, JAIPUR VS. ACIT, CIRCLE -6, JAIPUR 2 DECLARING TOTAL INCOME OF RS. 62,82,080/-. THE ASS ESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 25.07.2011 AT A TOTAL INCOM E OF RS. 1,85,67,230/- RESULTING INTO ADDITION OF RS. 1,22,85,150/-. AGGR IEVED BY THE SAID ORDER, ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A)-II, JAI PUR WHO DISPOSED OFF THE APPEAL VIDE APPEAL NO. 153/11-12 ORDER DATED 16.08. 2012. AGGRIEVED BY THE ORDER OF LD. CIT(A)-II, THE ASSESSEE FILED APPEAL B EFORE HONBLE ITAT, JAIPUR BENCH WHO DISPOSED OFF THE APPEAL VIDE ITS ORDER DA TED 10.11.2016 PARTLY ALLOWING THE RELIEF IN RESPECT OF TRADING ADDITIONS AND FULLY DELETING THE ADDITIONS IN RESPECT OF ADDITIONS MADE UNDER SECTIO N 68 OF THE ACT. IN THE INTERIM, THE AO PROCEEDED TO LEVY THE PENALTY ON TH E WHOLE OF THE ADDITIONS MADE IN THE ASSESSMENT ORDER AND LEVIED PENALTY OF RS 41,75,722. 2.1 IN RESPECT OF LEVY OF PENALTY ON TRADING ADDITI ONS, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE AO, IN THE QUANTUM PROC EEDINGS, REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER SECTION 145 (3) AND ADDED A SUM OF RS.74,50,155/- ON ESTIMATE BASIS, BY APPLYING NP RA TE OF 12.88% TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) UPHELD THE A DDITIONS MADE BY THE LD. AO. THE HONBLE ITAT JAIPUR BENCH, JAIPUR RESTRICTE D THE ADDITION, MADE ON ESTIMATE BASIS BY THE LOWER AUTHORITIES, TO 10% OF NET PROFIT SUBJECT TO INTEREST AND DEPRECIATION. IT WAS SUBMITTED BEFORE THE LD. AO DURING PENALTY PROCEEDING, THAT ENTIRE ADDITION WAS MADE ON ESTIMA TE BASIS. THUS NO PENALTY SHOULD BE LEVIED U/S 271(1)(C) AS THE FACTUM OF CON CEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME IS NOT PROVED. FURTHER, IT WAS CONTENDED, BEFORE THE LD. AO THAT MERE ADDITION IN QUANTUM PROCEEDINGS CANNOT IPSO FACTO LEAD TO LEVY OF PENALTY. FOR THE ABOVE CONTENTION S, RELIANCE WAS PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: - HARI OM KUMAR UMESH CHAND V. ITO (2002)2124 TAXMA N 213 ITA NO. 19/JP/14 SHRI COLLECTOR RAM SHARMA, JAIPUR VS. ACIT, CIRCLE -6, JAIPUR 3 - VIP INDUSTRIES LTD. VS. ACIT 21 DTR MUM TRI 153, AIT 2009-122-ITAT THE AO DID NOT ACCEPT THE PLEA OF ASSESSEE AND LEVI ED PENALTY Y/S 271(1)(C) ON THE TRADING ADDITIONS MADE. 2.2 THE LD AR FURTHER SUBMITTED THAT NO PENALTY CAN BE IMPOSED WHERE THE WHOLE ADDITION IS BASED ON ESTIMATES. THE ESTIMA TE HAS ALSO UNDERGONE CHANGE. THE ESTIMATE OF LD. AO FOR ADDITION OF RS. 74,50,155/- IS REDUCED AND REPLACED BY A SUM OF RS. 20,57,558/- BY THE HONBLE ITAT. (II) THE LD. CIT() HAS UPHELD THE PENALTY AND REJE CTED THE PLEA THAT NO PENALTY CAN BE IMPOSED WHERE ADDITION IS BASED ON ESTIMATE. LD.CIT(A) HAS OBSERVED THAT LD. AO HAS NEVER ESTIMATED NET PROFI T OF THE APPELLANT. THIS OBSERVATION OF THE LD CIT(A) IS CONTRARY TO THE FA CTS. HONBLE ITAT IN THE QUANTUM APPEAL HAS HELD AT PAGE 4 AT PARA 4.3 THAT ONCE BOOKS ARE REJECTED ASSESSING OFFICER IS REQUIRED TO MAKE ESTIMATION OF PROFIT. HENCE ITAT THEREAFTER HAS HELD THAT IN THE INSTANT CASE IT WO ULD BE REASONABLE TO ESTIMATE THE PROFIT AT 10% SUBJECT TO INTEREST AND DEPRECIA TION. HONBLE ITAT HAS ALSO OBSERVED, WHILE NARRATING BRIEF FACTS, AT PAGE 2 PA RA 2 THAT NET PROFIT WAS ESTIMATED BY AO BY APPLYING NET PROFIT RATE OF 12. 88%. (III) THE ASSESSEES CASE OF PENALTY IS COVERED BY ITS OWN CASE IN ITA 908/JP/2009 FOR A.Y. 2003-04 (ERRONEOUSLY MENTIONED IN THE ORDER AS A.Y. 2005-06 WHICH SUBSTANTIALLY RECTIFIED THROUGH MA) O RDER DATED 11.05.2010 ENCLOSED COPY WHERE IN THE PENALTY WAS DELETED BY T HE HONBLE ITAT BY OBSERVING, INTER ALIA THAT AO HAS SIMPLY ASSESSED THE INCOME BY APPLYING NET PROFIT RATE OF 8% AND THEREFORE, IN THESE FACTS, IN CASE IS MADE OUT AGAINST THE ASSESSEE FOR THE LEVY OF PENALTY U/S 271(1)(C). (I TAT ORDER PAGE 5 LAST 4 LINES.) FURTHER RELIANCE IS PLACED ON SHIV LAL TAK (2001) 2 51 ITR 373 (RAJASTHAN) AND ITA NO. 19/JP/14 SHRI COLLECTOR RAM SHARMA, JAIPUR VS. ACIT, CIRCLE -6, JAIPUR 4 MAHENDRA SINGH KHEDIA (2012) 252 CTR 453(RAJ.) (IV) HONBLE ITAT JAIPUR BENCH HAS CONSISTENTLY TAK EN A VIEW THAT NO PENALTY SHOULD BE LEVIED ON ESTIMATED ADDITIONS. BELOW ME NTIONED ARE SOME OF THE CASE IN WHICH SUCH VIEW HAS BEEN FOLLOWING BY THE H ONBLE JAIPUR BENCH. * INDUS JEWELLERY PRIVATE LIMITED , ITA NO.8933/JP /13 (COMPILATION PAGE 52) * VIJAY SOLVED LTD. ITA NO. 641/JP/14 (COMPILATION PAGE 58-63) * DEEPSHREE BUILDCON LTD. ITA NO. 310/JP/12 (COMPIL ATION PAGE 64-69) 2.3 IN RESPECT OF LEVY OF PENALTY IN RESPECT OF ADD ITIONS UNDER SECTION 68 OF THE ACT, THE LD AR SUBMITTED THAT THE ADDITIONS OF RS. 48,34,995/- MADE BY THE LD. AO U/S 68, IN QUANTUM PROCEEDINGS AND UPHELD B Y THE LD. CIT(A) WERE DELETED BY THE HONBLE ITAT, JAIPUR BENCH, JAIPUR. AS THE ENTIRE ADDITIONS MADE UNDER SECTION 68 HAVE BEEN DELETED BY THE HON BLE ITAT, CORRESPONDING PENALTY LEVIES U/S 271(1)(C) CANNOT BE SUSTAINED AN D DESERVES TO BE DELETED IN ENTIRETY. 2.4 IN THE QUANTUM PROCEEDINGS, THE TRIBUNAL IN ITA NO. 771/JP/2012 VIDE ITS ORDER DATED 10.11.2016 HAS GIVEN ITS FINDINGS AS UN DER: 4.3 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE AO HAS REJECTED THE BOOK S OF ACCOUNT WHICH IS NOT CHALLENGED BY THE ASSESSEE. IT IS A SETTLED POSIT ION OF LAW THAT WHEN THE BOOKS ARE REJECTED, THE AO IS REQUIRED TO MAKE ESTIMATE O F PROFIT. IN THE PRESENT CASE THE AO HAS ACCEPTED THE GROSS RECEIPTS OF THE ASSE SSEE. CONSEQUENTLY THE WORK CARRIED OUT BY THE ASSESSEE WAS ACCEPTED. NOW THE ISSUE FOR ESTIMATION OF PROFIT BEFORE THE AO WOULD BE HOW MUCH EXPENDITURE THE ASSESSEE MIGHT HAVE INCURRED FOR THE WORK CARRIED OUT. THE ESTIMATION OF PROFIT ALTHOUGH INVOLVED SOME GUESS WORK, BUT IT SHOULD NOT PURELY BASED ON GUESS WORK. ASSUMING THAT THE ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE FOR W ANT OF VERIFICATION OF ITA NO. 19/JP/14 SHRI COLLECTOR RAM SHARMA, JAIPUR VS. ACIT, CIRCLE -6, JAIPUR 5 EXPENSES BOOKED BY IT, THE AO IS NOT EMPOWERED TO A RRIVE AT UNREALISTIC FIGURE OF EXPENDITURE. IF IT IS SO DONE, THAT WOULD TANTA MOUNT THE TAX RECEIPT WHICH OTHERWISE IS NOT TAXABLE. THUS THE ABOVE, IT IS CLEAR THAT ONLY THE PROFIT E LEMENT IS TO BE DETERMINED FROM THE GROSS PROFIT. IT IS NOT DISPUTED BY THE R EVENUE THAT IN EARLIER YEAR THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1077/PP/ 2011 PERTAINING TO A.Y. 2008-09 HAD RESTRICTED THE DISALLOWANCE TO THE EXTE NT OF NET PROFIT AT 8% SUBJECT TO ALLOWANCE OF DEPRECIATION AND INTEREST. IN THE YEAR UNDER CONSIDERATION WE FIND THAT THE AO HAS POINTED OUT R EDUCTION OF HIRE CHARGES EXPENDITURE. THIS FACT IS NOT REBUTTED BY THE ASSE SSEE, HENCE THIS REDUCTION OF EXPENDITURE WOULD CERTAINLY INCREASE THE PROFIT MAR GIN OF THE ASSESSEE. AS PER THE AO, IN THE ASSESSMENT YEAR 2008-09 THE ASSESSEE HAS INCURRED HIRE CHARGES EXPENDITURE OF RS. 45,62,140/- WHEREAS HIRE CHARGES INCURRED IN THE PRESENT YEAR I.E. RS. 80,000/- . THE ASSESSEE HAS NOT BROU GHT ON RECORD ANY MATERIAL SUGGESTING THAT THE HIRE CHARGES WERE PAID ON ACCOU NT OF NON FUNCTIONING OF THE ASSESSEES OWN MACHINERY. THEREFORE, WE DEEM I T PROPER TO RESTRICT THE DISALLOWANCE @ 10% OF THE NET PROFIT SUBJECT TO INT EREST AND DEPRECIATION KEEPING IN VIEW THE FACT IN EARLIER YEARS NET PROF IT AS ESTIMATED BY THE COORDINATE BENCH @ 8% SUBJECT TO ALLOWANCE OF DEPRE CIATION AND INTEREST. THESE GROUNDS ARE DISPOSED OFF ACCORDINGLY. 6.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF LD. COUNSEL IS THAT O NCE THE BOOK RESULTS ARE REJECTED BY INVOKING PROVISIONS OF SECTION 145(3) O F THE ACT, NO SEPARATE ADDITIONS COULD BE MADE UNDER SECTION 68. TO STREN GTHEN HIS CONTENTION, THE LD. COUNSEL PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH CURT RENDERED IN THE CASE OF CIT VS. G.K. CONTRACTO R (2009) 19 DTR 305 (RAJ.). WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDI NATE BENCH, SUPRA, AND ALSO THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH CO URT, WE SET ASIDE THE ORDER OF THE LD. CIT(A) THEREBY ALLOWING THE GROUND OF TH E ASSESSEE. 2.5 THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER AND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 2.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, IN RESPECT OF LEVY OF PENALTY ON TRADING ADDITIONS, IT IS NOTED THAT THE TRIBUNAL IN QUANTUM PROCEEDINGS HAS CONFIR MED THE TRADING ADDITIONS BY ESTIMATING THE NET PROFIT @ 10% SUBJECT TO INTER EST AND DEPRECIATION ITA NO. 19/JP/14 SHRI COLLECTOR RAM SHARMA, JAIPUR VS. ACIT, CIRCLE -6, JAIPUR 6 HOLDING THAT ONCE THE BOOKS OF ACCOUNTS OF THE ASSE SSEE ARE REJECTED, THE AO IS REQUIRED TO MAKE AN ESTIMATION OF PROFITS AND SUCH ESTIMATION THOUGH INVOLVES SOME GUESS WORK, THE AO IS NOT EMPOWERED TO ARRIVE AT UNREALISTIC FIGURE OF ESTIMATION. THEREFORE, LOOKING AT THE PAST HISTORY OF THE ASSESSEE WHERE THE ADDITIONS WERE AGAIN SUSTAINED ON ESTIMATION BASIS @ 8% OF N.P RATE, N.P RATE OF 10% WAS DETERMINED. IN THE CONTEXT OF LEVY OF P ENALTY ON SUCH ESTIMATED ADDITIONS, THE LD AR HAS DRAWN OUR REFERENCE TO EAR LIER DECISION OF THE COORDINATE BENCH FOR AY 2005-06 (SUPRA) WHERE PENAL TY WAS DELETED ON ESTIMATED ADDITIONS. FURTHER, DECISION OF THE HON BLE RAJASTHAN HIGH COURT IN CASE OF MAHENDRA SINGH KHEDIA (SUPRA) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN LIGHT OF ABOVE, THERE IS NO BASIS FOR LEVY OF PE NALTY IN RESPECT OF TRADING ADDITIONS WHICH HAVE BEEN SUSTAINED ON AN ESTIMATIO N BASIS. IN RESPECT OF ADDITIONS UNDER SECTION 68, SINCE THE ENTIRE ADDITI ONS HAVE BEEN DELETED IN THE QUANTUM PROCEEDINGS BY THE COORDINATE BENCH, CORRES PONDING LEVY OF PENALTY CANNOT BE SUSTAINED. WE ACCORDINGLY DIRECT THE DE LETION OF PENALTY AND GROUND OF APPEAL IS THUS ALLOWED. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/12 /2016. SD/- SD/- (KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 16/12/2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI COLLECTOR RAM SHARMA, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-6, JAIPUR 3. VK;DJ VK;QDR@ CIT II, JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-II, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.19/JP/2012) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR. ITA NO. 19/JP/14 SHRI COLLECTOR RAM SHARMA, JAIPUR VS. ACIT, CIRCLE -6, JAIPUR 7