M/s. Herman Construction, New Delhi V. JCIT, New Delhi

ITA 2059/DEL/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7995 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: A BANDOPADHYAY EX IRS
• Keywords: Rejection of books of accounts
• Section: 145; 144

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI H. S. SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER I TA NO . 2059/DEL/2015 (ASSESSMENT YEAR: 2010 - 11 ) HERMAN CONSTRUCTION, FLAT NO.48, DIPINI APARTMENT, ROAD NO.44, PITAMPURA, NEW DELHI PAN:AACFH3839A VS. JCIT, RANGE - 38, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. A. BANDOPADHYAY, EX. IRS RE VENUE BY: SH. T. VASANTHAN, SR. DR DATE OF HEARING 10/03/ 2016 DATE OF PRONOUNCEMENT 06 /05/2016 O R D E R PER PRASHANT MAHARISHI , A . M . 1. THIS IS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT ( A) - XX, NEW DELHI DATED 20.02.2015 FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD. CIT ( A) - XX, NEW DELHI IS PERVERSE .ILLEGAL AND HENCE IT IS LIABLE TO BE QUASHED. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) - XX HAS ERR CONFIRMING THE ADDITI O NS TO THE TUNE OF RS.39,98,276/ - ON ACCOUNT OF NET PROFIT OF THE GROSS TURNOVER, IGNORING THE FACT THE ADDITIONS WERE MADE BY INVOKING THE PROVISIONS OF SECTION 145(3) AND HENCE THE SAME IS LIABLE TO BE DELETED. 2.1 THE LD. CIT(A) HAS ALSO ERRED IN CONFIR MING THE ADDITIONS MADE BY THE AO BY ASSUMING THAT THE ASSESSEE HAS NOT MADE PROPER VALUATION OF THE CLOSING STOCK, METHOD OF WORK IN PROGRESS AND CONFIRMATIONS OF THE CREDITORS WHEREAS METHOD OF VALUATION OF THE CLOSING STOCK WAS NOT APPLICABLE, THE METHO D OF WORK IN PROGRESS WAS FULLY JUSTIFIABLE AND MAJOR CREDITORS WERE CONFIRMED. THE UPHOLDING OF APPLICATION OF THE PROVISIONS OF SECTION 145(3) WAS ERRONEOUS AND ILLEGAL BY THE LD. CIT(A) 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) - XX HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST TO THE TUNE OF RS. 3,52,2837 - BY INVOKING THE PROVISIONS OF SECTION 184(5) WITHOUT APPRECIATING THE FACT THAT THE INTEREST PAID TO THE PARTNERS OF THE FIRM HAS NEVER BEEN ALLOWED AS EXPENSE IN THE AS SESSMENT ORDER. THEREFORE PAGE 2 OF 4 THE CONFIRMATION OF THIS EXPENDITURE IS ILLEGAL, MALICIOUS AND HENCE IS LIABLE TO BE DELETED. 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 64,94,244 / - ON ACCOUNT OF THE TRANSFER OF GOODWILL BY INVOKING THE PROVISIONS OF SECTION 45(4), IGNORING THE FACT THAT THE NO AMOUNT WAS PAID TO THE PARTNERS AS A CONSIDERATION FOR THE SETTLEMENTS OF THE ACCOUNTS AS SUCH NEITHER ANY GOODWILL WAS PAID TO THE PARTNERS OF THE FIRM NOR AS PER THE PROVISIONS IT WAS LIABLE TO BE TAXED. THEREFORE HOLDING IT AS TAXABLE BY THE LD. CIT(A) IS NOT ONLY ERRONEOUS BUT ALSO ILLEGAL. AND HENCE THE SAME IS LIABL E TO BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS CIVIL CONSTRUCTION AND CONTRACTOR FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT FILED ITS RETURN OF INCOME ON 13.10.2010 DECLARING INCOME OF RS. 3898130/ - . BEFORE THE ASSESSING OFFICER ASSESSEE S UBMITTED AUDITED BALANCE SHEET , CONFIRMATION OF UNSECURED LOANS AND FEW BILLS ETC. SUBSEQUENTLY NONE ATTENDED BEFORE THE ASSESSING OFFICER AND THEREFORE HE REJECTED THE BOOKS OF ACCOUNTS AND DETERMINED THE NET PROFIT AT 5% OF THE NET RECEIPT AT RS. 157928 154/ - AMOUNTING TO RS. 7895407/ - BY PASSING ORDER U/S 144 RWS 145 (3) OF THE ACT. THE INCOME DECLARED BY THE ASSESSEE IN RETURN WAS REDUCED FROM THE ABOVE ADDITION AND NET ADDITION OF RS. 3998276/ - WAS MADE. FURTHER, THE INTEREST PAID OF RS. 352283/ - TO T HE PARTNERS WAS DISALLOWED INVOKING THE PROVISIONS OF SECTION 184(5) OF THE INCOME TAX ACT. FURTHER, THE GOODWILL OF THE FIRM WAS CALCULATED AND ADDITION ON ACCOUNT OF TRANSFER OF INTANGIBLE ASSET WAS MADE OF RS. 6 494244/ - AS THERE WAS A DISSOLUTION CUM RE TIREMENT DEED DATED 16.11.2009 OF THE FIRM. ACCORDING TO THAT DEED THE BUSINESS OF THE FIRM WITH EFFECT FROM 16.11.2009 THERE IS CHANGE IN THE CONSTITUTION OF THE FIRM. 4. AGGRIEVED BY THE ORDER OF THE AO ON APPEAL BEFORE THE LD CIT(A) APPEAL OF THE ASSESSEE IS DISMISSED. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. 5. GROUND NO. 1 OF THE APPEAL IS THAT THE ORDER PASSED BY THE LD CIT(A), NEW DELHI IS PERVERSE, ILLEGAL AND HENCE IT IS LIABLE TO BE QUASHED. THE LD AR OF THE APPELLANT SUBMITTED THAT NO ADEQUATE OPPORTUNITY WAS GRANTED TO THE ASSESSEE TO PRESENT ITS CASE EITHER BEFORE LD. AO OR ALSO BEFORE LD. CIT (A) . HE FURTHER SUBMITTED THAT AS PER THE ASSESSMENT ORDER THE BOOKS OF THE ACCOUNTS OF THE ASSESSEE WERE REJECTED. THE LD CIT(A) ALSO CONFIRMED THE REJECTION OF THE BOOKS OF ACCOUNTS. HE FURTHER SUBMITTED THAT THE ORDER PASSED BY THE LD ASSESSING OFFICER IS U/S 144 READ WITH SECTION 145(3) OF THE PAGE 3 OF 4 INCOME TAX ACT SAME WAY LD CIT(A) HAS ALSO CONFIRMED THE FINDING OF THE ASSESSING OFFICER DESPITE ASSESSEE PRODUCING ATTENDANCE REGISTER FOR THE PAYMENT OF THE LABOUR AND CONFIRMATION OF THE CREDITORS. HE FURTHER SUBMITTED THAT THE DETAILS OF THE PROVISION MADE OF RS. 3.15 CRORES WAS PERTAINING TO LABOUR CH ARGES AND WAGES AND MACHINERY HIRE CHARGES ETC. IN VIEW OF THIS IT WAS THE SUBMISSION OF THE ASSESSEE THAT LD AO AND LD CIT(A) BOTH HAVE CONFIRMED THE ADDITION WITHOUT GRANTING THE ASSESSEE PROPER OPPORTUNITY OF HEARING AND WITHOUT APPRECIATING THE MATERIAL ON RECORD AS THERE WAS CHANGE OF COUNSEL ALSO AN D THEREFORE IT WAS SUBMITTED THAT A PROPER OPPORTUNITY OF HEARING MAY BE GRANTED TO THE ASSESSEE AND THE UNDERTAKING WAS GIVEN IN THE OPEN COURT BY THE LD AR THAT THE ASSESSEE WOULD BE COOPERATING BY PRODUCING THE BOOKS OF ACCOUNTS AS WELL AS RELEVANT RECO RDS CALLED FOR. 6. LD DR VEHEMENTLY OBJECTED THAT NO FURTHER OPPORTUNITY SHOULD BE GRANTED AS ASSESSEE HAS BEEN GRANTED SUFFICIENT OPPORTUNITY OF HEARING. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. IT IS APPARENT THAT ASSESSEE HAS BEEN GRANTED SEVE RAL OPPORTUNITIES HOWEVER; ASSESSEE COULD NOT REPRESENT ITS CASE BEFORE THE ASSESSING OFFICER BY PRODUCING THE BOOKS OF ACCOUNTS. ON QUERY BY THE BENCH, IT WAS SUBMITTED THAT THERE IS CHANGE IN THE COUNSEL AND NOW THE ARGUING COUNSEL STATED BEFORE THE BENC H THAT ASSESSEE WOULD BE APPEARING BEFORE THE ASSESSING OFFICER AND SUBMITTING THE PROPER DETAILS. FURTHER, IT WAS ALSO NOTED THAT ASSESSEE HAS TURNOVER OF MORE THAN RS 15 CRORES AND ESTIMATION 5% OF THE PROFIT IS NOT PROPER WITHOUT LOOKING AT THE PAST HIS TORY OF THE RESULTS OF THE ASSESSEE . IT IS VERY IMPORTANT TO NOTE THAT IN AY 2009 - 10 THE NET PROFIT SHOWN BY THE ASSESSEE WAS RS. 19.84 LACS WHEREAS IN THE CURRENT ASSESSMENT YEAR THE NET PROFIT OF THE ASSESSEE IS ESTIMATED AT RS. 79 LACS WHICH IS ALMOST F OUR TIMES OF THE PAST PROFIT. FURTHER, THE LABOUR REGISTERED IS PRODUCED BY THE ASSESSEE BEFORE THE LD CIT(A) AS WELL AS BEFORE THE LD ASSESSING OFFICER WHICH SHOWS THE AMOUNT OF PAYMENT MADE TO VARIOUS LABOURS AS WELL AS PROVISION MADE. THE LABOUR EXPENDI TURE IS ONE OF THE MAJOR INGREDIENTS OF THE PROFIT AND LOSS OF THE ASSESSEE WHICH ALSO NEEDS TO BE VERIFIED TO DETERMINE THE CORRECT PROFIT OF THE ASSESSEE. AS THIS EXERCISE HAS NOT BEEN DONE IN THE INTEREST OF JUSTICE THE WHOLE ASSESSMENT NEEDS TO BE CAR RIED OUT DE NOVO. THEREFORE, WE SET ASIDE THE WHOLE ASSESSMENT BACK TO THE FILE OF ASSESSING OFFICER FOR MAKING PAGE 4 OF 4 ASSESSMENT DE NOVO AFTER GRANTING ASSESSEE PROPER OPPORTUNITY OF HEARING. ASSESSEE HAS FURTHER ASSURED TO COOPERATE AND SUBMIT THE REQUIRED DETA ILS BEFORE THE ASSESSING OFFICER. IN ABSENCE OF SUCH COOPERATION AO MAY ACT IN ACCORDANCE WITH THE LAW. IN THE RESULT ALL THE GROUNDS OF THE APPEAL ARE SET ASIDE TO THE FILE OF AO WITH ABOVE DIRECTION. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON 0 6 /05/2016 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 6 /05 / 2016 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI