Sh. Jhirmal Singh, Hoshiarpur V. The Commissioner Of Income Tax, Jalandhar

ITA 205/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0810 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SHARDA
• Assessee Lawyers: J K PASSI
• Keywords: Assessment record
• Section: 44AD; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (SMC). BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NOS.205 & 481(ASR)/2015 & 2014 ASSESSMENT YEARS:2007-08 & 2008-09 PAN: AFRPS-2893H SH. JHIRMAL SINGH S/O SH. AMAR SINGH VS. DY. COMMR. OF INCOME TAX, GOVT. CONTRACTOR, VILL. TOE, HOSHIARPUR CIRCLE, P.O. GHORA, HOSHIARPUR. THE & DISTT. HOSHIARPUR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. J.K. PASSI, ADVOCATE RESPONDENT BY: SH.R.K. SHARDA, DR DATE OF HEARING: 23/02/2016 DATE OF PRONOUNCEMENT: 27/04/2016 ORDER THESE ARE THE ASSESSEES APPEALS FOR THE ASSESSMEN T YEARS 2007-08 & 2008-09. AGAINST THE SEPARATE ORDERS, DATED 01.04 .2015 & 26.06.2014 PASSED BY THE LD. CIT(A), JALANDHAR. 2. FIRST, I WILL TAKE UP ITA NO. 205(ASR)/2015 FOR THE A.Y. 2007-08. THIS APPEAL IS AGAINST THE LD. CIT(A)S ACTION OF C ONFIRMING THE APPLICATION OF 12% NET PROFIT RATE ON THE GROSS RECEIPTS OF THE ASSESSEE, WHO IS A GOVERNMENT CONTRACTOR. 3. THE COMPLETED ASSESSMENT OF THE ASSESSEE WAS RE OPENED ON THE BASIS OF THE FOLLOWING REASONS: ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 2 REASONS FOR REOPENING THE ASSESSMENT THE ASSESSEE IS A GOVT. CONTRACTOR. TOTAL RECEIPTS FOR THE A.Y. 2007-08 ARE TO THE TUNE OF RS.1,16,79,810/-. THE AS SESSEE DECLARED NET PROFIT OF RS.5,82,990/- @ 5% OF GROSS RECEIPT. RETURN WAS FILED AT AN INCOME OF RS.5,82,990/- ON 17.08.2007. THE RETUR N WAS PROCESSED VIDE ORDER U/S 143(1) DATED 30.11.2007. A SSESSEE RECEIPTS ARE MORE THAN 40 LACS AND IS UNDER OBLIGAT ION OF MAINTAINING BOOKS OF ACCOUNTS U/S 44AA AS ALSO TO G ET ACCOUNT AUDITED U/S 44AB. THE ASSESSEE FAILED TO COMPLY WI TH BOTH THE PROVISIONS. AS ASSESSEE HAS NEITHER MAINTAINED BOOK S OF ACCOUNT NOR GOT HIS ACCOUNTS AUDITED. THE ASSESSEE HAS SHOW N NET PROFIT AT 5% WHEREAS AS PER SECTION 44AD PROFIT @ 8% IS PRESC RIBED WHERE GROSS RECEIPT IS BELOW 40 LAC IN THE CASE OF CIVIL CONTRACTOR. IN THIS CASE NEITHER THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS NOR HE HAS SHOWN THE NET PROFIT @ 8% AS PER SECTION 44A D. NET INCOME BY APPLYING RATE OF 8% COMES TO RS.9,32,785/-. SO T HE ASSESSEE SUPPRESSED HIS PROFITS TO THE TUNE OF RS.3,49,795/- (9,32,785- 5,82,990). THEREFORE, I HAVE REASONS TO BELIEVE THAT BY REASON S OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE HIS TRUE AND CORRECT INCOME CHARGEABLE TO TAX FOR THE ASSESS MENT YEAR 2007- 08 HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC TION 147 OF THE I.T. ACT, 1961 TO THE TUNE OF RS.3,49,795/-. ISSUE NOTICE UNDER SECTION 148 OF THE I.T. ACT, 196 1. SD/- 11.06.2010 (S.P. LHUTAN) DEPUTY COMMISSIONER OF INCOME TAX, HOSHIARPUR CIRCLE, HOSHIARPUR. 4. THE A.O. COMPLETED THE ASSESSMENT BY APPLYING 12 % NET PROFIT RATE, OBSERVING AS FOLLOWS: THIS IS A CASE WHERE THE ASSESSEE HAS NOT MAINTAIN ED BOOKS OF ACCOUNT, NOR HE HAS KEPT ANY VOUCHERS FOR EXPENS ES CLAIMED TO THE EXTENT OF 95% OF THE GROSS RECEIPT. THEREFORE, IT IS NOT POSSIBLE TO VERIFY THE NET PROFIT SHOWN BY THE ASSESSEE. IN THE ABSENCE OF PROPER BOOKS OF ACCOUNT COUPLED WITH NON MAINTENANCE OF VO UCHERS FOR EXPENSES TRADING RESULT IS NOT OPEN TO VERIFICATION . HENCE, THE NET PROFIT RATE DECLARED AT 5% IS VERY LOW IN VIEW OF H ONBLE PUNJAB & HARYANA HIGH COURT JUDGMENT IN THE CASE OF M/S. PR ABHAT KUMAR CONTRACTOR, SIRSA IN ITA NO.236 OF 2008 DATED 14.1 1.2008 WHERE IT ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 3 HAS BEEN HELD THAT NET PROFIT RATE OF 12% IS REASON ABLE. HENCE, RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE HONBLE JURISDICTION HIGH COURT IN THE CASE OF M/S. PRABHAT KUMAR & SONS (SUPRA), NET PROFIT OF THE ASSESSEE IS WORKED OUT B Y APPLYING NET PROFIT RATE @ 12% AT RS.13,99,180/- INSTEAD OF RS.5 ,82,990/-. THIS WOULD RESULT IN ADDITION OF RS.8,16,190/-. ACCORDIN GLY AN ADDITION OF RS.8,16,190/- IS MADE TO THE RETURNED INCOME. 5. THE LD. CIT(A)S CONFIRMED THE AOS ACTION, OBS ERVING AS FOLLOWS: 6.2. I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AS MADE BY HIM IN THE ASSESSMENT ORDER AS WELL AS THE WRITT EN SUBMISSIONS FILED BY THE ASSESSEE VIDE LETTER DATED 01.04.2015. I HAVE ALSO CONSIDERED THE REASONS RECORDED FOR REOPENING OF T HE ASSESSMENT. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM ALSO OF THE OPINION THAT THE PROFITS DECLARED BY THE ASSESSEE ARE NOT VERIFIABLE IN THE ABSENCE OF REGULAR BOOKS OF ACCOUNT. MOREOVE R, THE PROVISIONS OF SECTION 44AD OF THE ACT ARE NOT APPLICABLE IN T HE CASE OF THE ASSESSEE AS THE GROSS RECEIPTS IN HIS CASE EXCEEDS RS.40,00,000/-. THE APPLICATION OF 12% RATE HAS ALSO BEEN FOUND REA SONABLE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SH RI PRABHAT KUMAR (SUPRA). MOREOVER, UNDER SIMILAR FACTS AND IN THE C IRCUMSTANCES OF THE CASE, THE APPLICATION OF NET PROFIT RATE OF 12% HAS BEEN UPHELD BY ME IN THE CASE OF ASSESSEE HIMSELF WHILE DISPOSI NG OF THE APPEAL OF THE ASSESSEE FOR THE AY 2008-09 VIDE ORDER IN AP PEAL NO.248/10- 11/CIT(A)/JAL DATED 26.06.2014. IN MY OPINION, THE SUPPRESSED INCOME MENTIONED IN THE REASONS RECORDED HAS NO REL EVANCE WITH THAT OF ASSESSING THE INCOME OF THE ASSESSEE @ 12%. IN MY FURTHER OPINION, THE CASE OF THE ASSESSEE IS EVEN WORSE THA N THE CASE OF SH. PRABHAT KUMAR CONTRACTOR AS IN THE CASE OF SH. PRAB HAT KUMAT AT LEAST THE BOOKS OF ACCOUNT WERE MAINTAINED. 6.3. IN THE ABOVE STATED FACTS AND IN THE CIRCUMSTA NCES OF THE CASE, I AM OF THE CONSIDERED OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER DOES NOT REQUIRE ANY INTERFERENCE IN VIEW OF PAST AND SUBSEQUENT HISTORY OF THE CASE. THE ADDITION OF RS.8,16,190/- MADE BY THE ASSESSING OFFICER IS, THEREFORE, CONFIR MED. 6. ITA NO.481(ASR)/2014 FOR THE A.T. 2008-09 IS THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008-09 AGAINST THE LD. CIT (A)S ACTION OF CONFIRMING THE APPLICATION OF 12% NET PROFIT RATE O N THE GROSS RECEIPTS OF THE ASSESSEE. ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 4 7. THE COMPLETED ASSESSMENT OF THE ASSESSEE WAS R EOPENED ON THE BASIS OF THE FOLLOWING REASONS: REASONS FOR THE PROPOSAL THE ASSESSEE IS A CIVIL CONTRACTOR AND IS ENGAGED I N THE BUSINESS OF CIVIL CONSTRUCTION. RETURN OF INCOME IN THIS CASE W AS FILED DECLARING TOTAL INCOME OF RS.3.55,200/- ON 11.08.2008. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN TOTAL GROSS RE CEIPTS AMOUNTING TO RS.71,04,058/- AND WORKED OUT NET PROF IT OF RS.3,55,200/- ON GROSS RECEIPTS AFTER APPLYING GROS S PROFIT @ 4.99% AFTER TAKING THE BENEFIT OF SECTION 44AD OF THE INC OME TAX ACT, 1961. UNDER SECTION 44AD, IF AN ASSESSEE IS ENGAGED IN TH E BUSINESS OF CIVIL CONSTRUCTIONS OR SUPPLY OF LABOUR FOR CIVIL C ONSTRUCTION, A SUM EQUAL TO 8% FOR THE GROSS RECEIPTS PAID OR PAYABLE TO THE ASSESSEE IN THE PREVIOUS YEAR ON ACCOUNT OF SUCH BUSINESS OR A SUM HIGHER THAN THE AFORESAID SUM AS DECLARED BY THE ASSESSEE IN HI S RETURN OF INCOME SHALL BE DEEMED TO BE THE PROFIT & GAINS OF BUSINESS OR PROFESSION' AND NO DEDUCTION U/S 30 TO 38 SHALL BE ALLOWED ASSUMING THAT IT HAD ALREADY BEEN GIVEN FULL EFFECT . HOWEVER, THESE PROVISIONS NOT APPLY IF THE GROSS RECEIPTS PAID OR PAYABLE TO THE ASSESSEE EXCEED RS.40,00,000/-. THE FINANCE ACT 199 9, HAD PROVIDED THAT AN ASSESSEE, COVERED UNDER THIS SECTI ON MAY CLAIM HIS INCOME TO BE LOWER THAN THE PROFIT AND GAINS PRESUM ED UNDER THE PROVISIONS OF THIS SECTION. HOWEVER, HE SHALL HAVE TO MAINTAIN BOOKS OF ACCOUNTS AS MENTIONED U/S 44AA AND SHALL ALSO BE LIABLE TO GET THE ACCOUNTS AUDITED AND FURNISH THE AUDIT REPORT A S REQUIRED U/S 44AB. IN THE PRESENT CASE AS STATED ABOVE, THE ASSESSEE H AS DECLARED TOTAL GROSS RECEIPTS OF RS.71.04.058/- AND DECLARED NET P ROFIT ON THE ENTIRE GROSS RECEIPTS ONLY AT RS.3,55,200/- AFTER APPLYING THE GP 4.99% ON THE ESTIMATED ONLY AND SHOWN AS PROFIT AND GAIN FRO M BUSINESS IN THE RETURN OF INCOME AS SUCH. THE NET PROFIT WORKED OUT BY THE ASSESSEE IS QUITE WRONG IN VIEW OF THE FACT THAT FI RSTLY ASSESSEE'S GROSS RECEIPTS FROM CONSTRUCTION WORK EXCEEDED RS.4 0,00,000/- AND SECONDLY ASSESSEE'S FAILURE TO FULFILL THE TWO LEGA L REQUIREMENTS I.E. MAINTAIN BOCKS OF ACCOUNTS AS MENTIONED U/S 44AA AN D ALSO TO GET THE ACCOUNT AUDITED AS REQUIRED U/S 44AB. THE HON'B LE PUNJAB & HARYANA HIGH COURT IN ITS DECISION DELIVERED IN THE CASE NO. LTA NO.293 OF 2008 IN COMMISSIONER OF INCOME-TAX VS PAR BHAT KUMAR, CONTRACTOR, SIRSA HAS UPHELD THE APPLICATION OF NET PROFIT RATE OF 12% ON THE CONTRACT RECEIPTS AFTER EXCLUDING THE COST O F MATERIAL SUPPLIED BY THE DEPARTMENT. THEREFORE, THE CASE IS REQUIRED TO BE TAKEN UP IN SCRUTINY. THE ASSESSMENT RECORD IN ONE VOL. IS ENCL OSED. ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 5 SD/- (DAULAT RAM) I.T.O. DASUYA 8. THE AO APPLIED 12% NET PROFIT RATE. IT WAS OBSE RVED AS FOLLOWS: 13. THE REPLY OF THE ASSESSEE HAS BEEN CAREFULLY CO NSIDERED. DURING THE YEAR, THE ASSESSEE HAS SHOWN NET PROFIT AT RS.6,30,960/- ON TOTAL RECEIPTS OF RS.78,86,955/- WHICH GIVES THE NET PROFIT RATE AT 8%. THE NET PROFIT RATE DECLARED AT 8% IS VERY LOW IN VIEW OF HONBLE PUNJAB & HARYANA HIGH COURT JUDGMENT IN THE CASE OF M/S. PRABHAT KUMAR CONTRACTOR, SIRSA, IN ITA NO. 293 OF 2008 DAT ED 14.11.2008 WHO HAS HELD NET PROFIT RATE OF 12% AS REASONABLE. 14. RESPECTFULLY PLACING RELIANCE ON THE ABOVE JUDG MENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. PRABH AT KUMAR & SONS (SUPRA), THE NET PROFIT OF THE ASSESSEE IS WORKED O UT AS UNDER: TOTAL CONTRACT RECEIPTS RS.78,86,955/- NET PROFIT RATE APPLIED @ 8% BY THE ASSESSEE RS. 6 ,30,956/- NET PROFIT RATE BY APPLYING @ 12% ON CONTRACT RECEIPTS OF RS.78,86,955/- RS.9,46,435/- ADDITION: RS.3,15,479/- 9. THE LD. CIT(A) CONFIRMED THE ASSESSMENT ORDER, O BSERVING AS FOLLOWS: ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM ALSO OF THE OPINION THAT THE PROFITS DECLARED BY THE ASSESSEE A RE NOT VERIFIABLE IN THE ABSENCE OF REGULAR BOOKS OF ACCOUNT. MOREOVER, THE PROVISIONS OF SECTION 44AD OF THE ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE GROSS RECEIPTS IN HIS CASE EXCEEDS RS.40,00,000/-. THE APPLICATION OF 12% RATE HAS ALSO BEEN FOUND REA SONABLE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SH RI PRABHAT KUMAR (SUPRA). IN THE ABOVE STATED FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED OPINION THAT THE ORDER OF THE ASSESSING OFFICER DOES NOT REQUIRE ANY INTERFERENCE. THE LEVY OF PENALTY U/S 2 71A OF THE ACT WILL ALSO NOT ALTER THE POSITION AS THE PROFITS DECLARED BY THE ASSESSEE WILL REMAIN UNVERIFIED. THE ADDITION MADE BY THE AO IS, THEREFORE, ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 6 CONFIRMED. IN THE RESULT, THE GROUNDS NO. 1 TO 8 OF APPEAL TAKEN BY THE ASSESSEE ARE DISMISSED. 9. FOR THE ASSESSMENT YEAR 2007-08, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT AS PER THE REASONS RECORDED, 8% NET PROFIT RATE OUGHT TO HAVE BEEN APPLIED, WHEREAS 12% NET PROFIT RATE HAS BEEN APPLIED AND THAT TOO, WITHOUT GIVING REASONS, WHICH IS ILLEGAL. 10. FOR THE ASSESSMENT YEAR 2008-09, THE LD. COUNSE L FOR THE ASSESSEE HAS CONTENDED THAT THE APPLICATION OF 12% NET PROFI T RATE WITHOUT GIVING REASONS IS INVALID. RELIANCE HAS BEEN PLACED ON T ELELINKS VS. CIT, BATHINDA, IN ITA NO. 269 OF 2014, DATED 20.11.2014 ( P & H) (COPY PLACED AT APB 16 TO 20). 11. THE LD. DR HAS, ON THE OTHER HAND, PLACED STRON G RELIANCE ON THE IMPUGNED ORDERS. 12. FOR THE ASSESSMENT YEAR 2007-08, AS PER THE REA SONS RECORDED, 8% NET PROFIT RATE OUGHT TO HAVE BEEN APPLIED IN THE ORIGINAL ASSESSMENT, AS CORRECTLY POINTED OUT BY THE LD. COUNSEL FOR THE AS SESSEE. HOWEVER, 12% NET PROFIT RATE HAS BEEN APPLIED, WHICH ACTION HAS BEEN CONFIRMED BY THE LD. CIT(A). IT IS TRITE THAT THE REASSESSMENT CANNO T BE MADE BEYOND THE REASONS RECORDED. SO, THE REASSESSMENT FOR THE ASS ESSMENT YEAR 2007- 08 NEEDS TO BE RESTRICTED TO A MAXIMUM OF 8% NET PR OFIT RATE, IF AT ALL. 13. FOR BOTH THE ASSESSMENT YEARS 2007-08 & 2008-09 , THE TAXING AUTHORITIES HAVE RELIED ON CIT VS. PRABHAT KUMAR, 323 ITR 675 (P&H), TO APPLY A NET PROFIT RATE OF 12%. ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 7 14. IN TELELINKS VS. CIT, BATHINDA (SUPRA), A SIM ILAR APPLICATION OF NET PROFIT RATE OF 12% , RELYING ON CIT VS. PRABHAT KU MAR (SUPRA), WAS UNDER CHALLENGE BEFORE THE HONBLE HIGH COURT. THE CASE O F M/S. THE MATTEWAL CO-OP. L/C SOCIETY, AMRITSAR, IN ITA NO.225 OF 201 4 WAS ALSO DECIDED BY THE HONBLE HIGH COURT ALONGWITH THE CASE OF TELE LINKS VS. CIT, BATHINDA ( ITA NO.269 OF 2014). THE HONBLE HIGH COURT HAS LAID DOWN THE FOLLOWING CRITERIA IN THE CASE OF CIVIL GOVT. C ONTRACTORS, TO BE CONSIDERED WHILE ESTIMATING THE INCOME: (I) PAST TAX HISTORY OF THE ASSESSEE. (II) ASSESSMENT ORDERS PASSED BY AND ACCEPTED BY TH E DEPARTMENT. (III) THE NATURE OF ASSESSEES BUSINESS. (IV) AN APPRAISAL OF THE VALUE OF THE CONTRACT. (V) PREVAILING ECONOMIC CONDITIONS VIS-A VIS THE AS SESSEES BUSINESS. (VI) THE PRICE OF RAW MATERIAL AND LABOURS ETC. (VII) THE RISE IN PRICE INDEX AS NOTIFIED BY THE CE NTRAL GOVERNMENT FROM TIME TO TIME. (VIII) ASSESSMENTS OF OTHER ASESSEES ENGAGED IN SIM ILAR BUSINESS. 15. IN THE PRESENT CASE, THE MATERIAL PRESENT BEFOR E ME IS TOO SCANTY TO MAKE IT POSSIBLE TO APPLY IT FOR MEETING THE ABOVE CRITERIA LAID DOWN BY THE HONBLE HIGH COURT. ACCORDINGLY, THE MATTER IS REMITTED TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, PARTICULARLY IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF TELELINKS VS. CIT, BATHIDNA (SUPRA). THE ASSESSEE SHALL BE AFFORDED ITA NOS. 205 & 481(ASR)/ 2015/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 8 ADEQUATE OPPORTUNITY TO SUPPORT ITS CASE AND THE AS SESSEE SHALL, NO DOUBT, CO-OPERATE IN THE FRESH PROCEEDINGS BEFORE T HE AO. 16. IN THE RESULT, BOTH THE APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27/04/ 20 16. SD/- (A.D. JAIN) JUDICIAL MEMBER /SKR/ DATED: 27/04/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. JHIRMAL SINGH, GOVT. CONTRACTOR, TEHSIL DASUYA, DISTT. HOSHIARPUR. 2. THE DCIT, HOSHIARPUR CIRCLE, HOSHIARPUR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.