ACIT, Jaipur V. SATYA NARAION SHARMA, Jaipur

ITA 191/JPR/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2052 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MANISH AGARWAL CA DHK
• Keywords: Rejection of books of accounts; Depreciation; Tax effect

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. 191/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR CUKE VS. SH. SATYA NARAIN SHARMA JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO.: AGMPS4714P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18/09/2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 18/09/2017. VKNS'K@ ORDER PER:SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)- 2, JAIPUR DATED 15.12.2014 WHEREIN THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING TO APPLY NP RATE OF 7% AS AGAINST 11.5% TO BE APPLIED BY THE AO. 2. IT IS NOTED THAT THIS APPEAL WAS DISMISSED BY THE C O-ORDINATE BENCH VIDE IT CONSOLIDATED ORDER DATED 17.12.2015 ON ACCO UNT OF LOW TAX EFFECT AND THEREAFTER, IT WAS RECALLED, ON APPLICATION FILED B Y THE REVENUE, BY THE DECISION OF THIS BENCH VIDE ORDER DATED 11.8.2017 AS THE TAX EFFECT EXCEEDS THE PRESCRIBED THRESHOLD. NOW THE APPEAL HAS COME FOR HEARING BEFORE US. ITA NO. 191/JP/2015 ACIT, JAIPUR VS SH. SATYA NARAIN SHARMA, JAIPUR 2 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT IN ASSESSE ES CROSS APPEAL IN ITA NO. 38/JP/2015, THIS BENCH VIDE IT ORDER DATED 27.02.2017 HAS REMANDED THE MATTER, RELATING TO ESTIMATION OF NET PROFIT, T O THE FILE OF THE AO AND SINCE THE COMMON ISSUE RELATING TO NET PROFIT IS INVOLVED IN THE PRESENT APPEAL, THE SAME MAY ALSO BE SET ASIDE TO THE FILE OF THE AO. 4. ON THE OTHER HAND, LD. D/R SUPPORTED THE ORDER OF T HE ASSESSING OFFICER AND AT THE SAME TIME, SUBMITTED THAT SHE HAS NO OBJ ECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO. 5. THE RELEVANT FINDING IN ITA NO. 38/JP/2015 DATED 27 .02.2017 IS REPRODUCED AS UNDER: 4.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR, THE APPELLANT HAS SHOWN REVENUE FROM SALES, CONTRACT RECEIPTS AND VEHICLE HIRING CH ARGES AND THERE ARE CORRESPONDING EXPENSES IN TERMS OF PURCHASES, GOODS INWARD EXPENSES, JOB WORK EXPENSES AND LABOUR CHARGES. FURTHER, THE ASSESSEE HAS INCURRED OTHER EXPENSES IN NATURE OF RENT, SALARY, OTHER OFFICE AND ADMINISTRATIVE OVERHEAD EXPENSES BESIDES INTEREST A ND DEPRECIATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ENQUIRED ABOUT THE JOB WORK EXPENSES AND LABOUR CHARGES AS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEREAFTER, A SHOW CAUSE WAS ISSUE D TO THE ASSESSEE. AFTER CONSIDERING THE ASSESSEES SUBMISSION, THE AO HAS HELD THAT THE ASSESSEE HAS FAILED TO JUSTIFY ANY OF THE DISCREPAN CIES POINTED IN THE SHOW CAUSE NOTICE. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED AND THE BOOKS OF ACCOUNTS WERE HELD NOT RELIABLE AS THEY DO NOT PRESENT THE REAL PICTURE OF THE BUSINESS OF THE ASSESSEE AN D THE PROVISIONS OF SECTION 145(3) WERE INVOKED AND THE BOOKS OF ACCOUN TS WERE FINALLY REJECTED. IT IS THEREFORE, SEEN THAT THE BASIS OF R EJECTION OF BOOKS OF ACCOUNTS RELATES TO THE JOB WORK EXPENSES AND THE L ABOUR CHARGES CLAIMED BY THE ASSESSEE IN RELATION TO THE CONTRACT BUSINESS CARRIED OUT BY THE ASSESSEE. THEREFORE, ANY ESTIMATION OF PROFI T SHOULD HAVE A REASONABLE AND RATIONALE NEXUS WITH THE DEFECTS NOT ICED BY THE AO WHILE REJECTING THE BOOKS OF ACCOUNTS. IN THE INSTA NT CASE, THE BASIS OF REJECTION RELATES TO THE CONTRACT ACTIVITY CARRIED OUT BY THE APPELLANT, THEREFORE, THE ESTIMATION OF PROFIT SHOULD RELATE T O THE CONTRACT ACTIVITY AND NOT IN RESPECT OF OTHER ACTIVITIES WHICH HAVE N OT BEEN DOUBTED. TO THIS EXTENT, WE AGREE WITH THE CONTENTIONS OF THE L D. AR. ITA NO. 191/JP/2015 ACIT, JAIPUR VS SH. SATYA NARAIN SHARMA, JAIPUR 3 NOW IF WE LOOK AT THE PROFIT WHICH HAS BEEN ESTIMAT ED BY THE AO AND CONFIRMED BY THE LD. CIT(A), IT IS NOTED THAT THE A O HAS ESTIMATED THE NET PROFIT RATE OF 11.5% AS AGAINST NET PROFIT OF 3 .94% OFFERED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THE LD. CI T(A) THEREAFTER HAS REDUCED THE NET PROFIT TO 7% FOLLOWING THE PAST HIS TORY OF THE ASSESSEE. IT IS HERE THAT THE GENESIS OF THE DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE LIES. GIVEN THAT BOTH THE PARTIES ARE NOT D ISPUTING THE NET PROFIT RATE OF 7% AND THE ONLY DISPUTE RELATES TO THE NATU RE AND QUANTUM OF RECEIPTS ON WHICH SUCH NET PROFIT RATE WOULD BE APP LIED. THE ASSESSEES CONTENTION IS THAT THE NET PROFIT RATE OF 7% SHOULD BE RESTRICTED TO CONTRACT ACTIVITY AND APPLIED TO CONTRACT RECEIPTS ONLY AND NET PROFIT IN RESPECT OF TRADING/SALES ACTIVITY SHOULD NOT BE DIS TURBED. AS WE HAVE NOTED ABOVE, THE REJECTION OF BOOKS OF ACCOUNTS REL ATES TO THE CONTRACT ACTIVITY UNDER TAKEN BY THE ASSESSEE ONLY. IN THE P ROFIT AND LOSS ACCOUNT, THE RECEIPTS FROM BUSINESS HAVE BEEN SHOWN UNDER CONTRACT RECEIPTS AND SALES RECEIPTS BESIDES VEHICLE HIRING EXPENSES WHICH IS ALSO ACKNOWLEDGE BY THE ASSESSING OFFICER, AS EVIDENT FR OM PARA 3.4 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS CARRIED OUT SALE S ACTIVITY WHICH HAS BEEN SHOWN AND REFLECTED SEPARATELY IN THE PROFIT/L OSS ACCOUNT AS AN INDEPENDENT STREAM OF PURCHASE AND SALE ACTIVITY AN D CORRESPONDING REVENUES HAVE BEEN OFFERED AS SALES RECEIPTS. REGAR DING THE OBSERVATIONS OF THE LD. CIT(A) THAT THE EXPENSES RE LATING TO THE BUSINESS OF SUPPLY OF MATERIAL (RELATING TO SALES) AND CONTR ACT RECEIPTS CANNOT BE BIFURCATED AND THE EXPENSES RELATING TO JOB WORK EX PENSES AND LABOUR CHARGES WOULD PERTAIN TO BOTH THE REVENUE STREAMS, THE LD AR HAS SUBMITTED THAT THE SAID OBSERVATION OF THE LD CIT(A ) IS NOT CORRECT AS THE SAME IS NOT ARISING OUT OF FACTS ON RECORD. IN OUR VIEW, TAKING INTO CONSIDERATION THE ENTIRETY OF FACTS AND CIRCUMSTANC ES OF THE CASE, THE ESTIMATION OF NET PROFIT OF 7% SHOULD BE RESTRICTED TO THE CONTRACT ACTIVITY ONLY. AT THE SAME TIME, GIVEN THAT THERE A RE NO SEGMENTAL PROFIT/LOSS ACCOUNT IN RESPECT OF CONTRACT ACTIVITY AND TRADING ACTIVITY AVAILABLE ON RECORD, THE MATTER IS SET-ASIDE TO THE FILE OF THE AO TO APPLY NET PROFIT RATE OF 7% IN RESPECT OF CONTRACT ACTIVI TY ONLY AFTER EXAMINING THE SEGMENTAL PROFIT/LOSS ACCOUNT. IN THE RESULT, T HE GROUND NO. 2 IN BOTH THE YEARS IS ALLOWED WITH ABOVE DIRECTIONS FOR STATISTICAL PURPOSES. 6. IN LIGHT OF ABOVE, THE MATTER IS SET ASIDE TO THE F ILE OF THE AO IN LIGHT OF ABOVE DIRECTIONS GIVEN BY US IN ITA NO. 38/JP/2015 DATED 27/02/2017. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ITA NO. 191/JP/2015 ACIT, JAIPUR VS SH. SATYA NARAIN SHARMA, JAIPUR 4 ORDER PRONOUNCED IN THE OPEN COURT ON 18/09/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 18/09/2017 *GANESH KR. VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - ACIT, CIRCLE-04, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT - SH. SATYA NARAIN SHARMA, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 191/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.