M/s Brundaban Sahu, Ganjam V. ACIT, Berhampur

ITA 211/CTK/2012

• Counselvise Citation: 21122114 RSA 2012
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 05-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 03-04-2012
• Court: TRIBUNAL
• Department Lawyers: PRAMITA TRIPATHY
• Assessee Lawyers: N UDAYA KUMAR
• Keywords: Rejection of books of accounts
• Section: 44AD; 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 211/CTK/2012 / ASSESSMENT YEAR 2008 - 09 M/S.BRUNDABAN SAHU, PROP. K.S.CONSTRUCTION, TURUBUDI, KHARIAGUDA,GANJAM,ODISHA. PAN: AOPS 3957 A - - - VERSUS - ACIT, BERHAMP UR , ODISHA ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI N.UDAYA KUMAR, AR / FOR THE RESPONDENT: / SMT. PRAMITA TRIPATHY, CIT - DR / DATE OF HEARING: 05.11.2012 / DATE OF PRONOUNCEMENT: 09.11.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE RAISES THE FOLLOWING GROUNDS. 1. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS W HOLLY UNJUSTIFIED TO UPHOLD THE ASSESSMENT ORDER OF REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF PROFIT @ 8% IS UNWARRANTED, ARBITRARY AND ILLEGAL AND ADDITIONAL SO MADE SHOULD BE DELETED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE ASSESSING OF FICER HAS MENTIONED IN HIS. ASSESSMENT ORDER THAT ALL BOOKS OF. ACCOUNTS ARE PRODUCED FOR VERIFICATION AND WITHOUT FINDING ANY DISCREPANCIES IN OUR BOOKS OF ACCOUNTS, THE LEARNED ASSESSING OFFICER REJECTED OUR BOOKS AND ASSUMPTION OF PRESUMPTIVE RATE IS AD OPTED .THE LEARNED CIT(APPEALS) IS WHOLLY WRONG AND CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER IN A MECHANICAL MANNER AND NEVER ASKED THE ASSESSEE TO PRODUCE BILLS & VOUCHERS HENCE THE IMPUGNED ORDER BEING UNSUSTAINABLE IN LAW SHOULD BE INTERFERE D WITH THE FACTS & CIRCUMSTANCES. I.T.A.NO. 211/CTK/2012 2 3. THE ASSESSEE UNDERTAKES CONTRACT WORKS OF PRIME MINSITER GRAMEEN SADAK YOJANA WORKS MOSTLY IN GAJAPATI &GANJAM DISTRICT IN MOSTLY HILLY ROADS WHERE EVEN DRINKING WATER IS A BARRIER. HE HAS TO TRANSPORT ALL CONSTRUCTION MATERIALS FROM DISTANT LOCATIONS AND PAY MORE PRICES FOR THE MATERIALS AND FACE THE RISK OF DANGEROUS MALARIA FOR HIS STAFF. DURING THE YEAR HE USED TO PROVIDE MEDICAL AID AND MESS FACILITIES FOR THE STAFF AS THE LOCATION OF THE SITE IS NOT HAVING ANY NEA RBY VILLAGES. GIVEN THE SITUATION HIGHER INPUTS COSTS AND INFLATION OF CONSTRUCTION MATERIALS COSTS IT IS HIGHLY IMPRACTICABLE TO ACHIEVE 8 %. PROFIT MARGIN. AS THE GOVERNMENT CONTRACT RATES ARE FIXED AS PER PRICES PREVAILING AT THE TIME OF TENDER AND BY T HE TIME EACH TENDER IS FINALIZED IT TAKES ABOUT 3 - 4 MONTHS FROM THE DATE OF TENDER CALL AND WORK IS EXECUTED FURTHER DOWN THE LINE OVER A PERIOD OF 18 MONTHS., SO THE CONTRACTOR HAS TO PAY THE CURRENT PRICES FOR THE CONSTRUCTION MATERIALS WHICH IS CERTAIN LY MUCH HIGHER THAN THE RATES FIXED AT THE TIME OF TENDER. GIVEN THE FACTS & CIRCUMSTANCES OF THE CASE THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER PURELY ON ASSUMPTIONS IS TOTALLY ARBITRARY &UNSUSTAINABLE IN THE EYES OF LAW. 4. WE ARE ENCLOSING HER EWITH A FEW CASES LAWS WHERE THE APPELLATE AUTHORITIES HAVE TAKEN A CONSIDERATE VIEW OF THE FACTS & CIRCUMSTANCES OF THE CASE AND GRANTED RELIEF TO THE ASSESSES BY ACCEPTING A STANDARD RATE OF 5% WHICH IS VERY REASONABLE AND HIGHLY JUSTIFIED. 2. THE LEARN ED COUNSEL OF THE ASSESSEE SUBMITTED THE B RIEF FACTS ALONG WITH HIS ARGUMENTS THAT THE ASSESSEE IS A CIVIL CONTRACTOR EXECUTING ROADS, BRIDGES, AND CANAL WORKS OF THE STATE GOVERNMENT SCHEMES OF RURAL WORKS DIVISION UNDER THE GANJAM & GAJAPATI DISTRICTS IN REMOTE AREAS DURING THE YEAR. THE ASSESSING OFFICER HAS MADE ADDITIONS REJECTING THE BOOKS OF ACCOUNTS EVEN THOUGH ALL BOOKS OF ACCOUNTS AND VOUCHERS WERE PRODUCED FOR VERIFICATION AND ADOPTED PRESUMPTIVE RATE OF 8 % WITHOUT FINDING ANY DISCREPANCIES IN T HE BOOKS OF ACCOUNTS WHICH IS HIGHLY UNJUSTIFIED. THE I.T.A.NO. 211/CTK/2012 3 ASSESSEE UNDERTAKES CONTRACT WORKS IN MOSTLY HILLY ROADS WHERE EVEN DRINKING WATER IS A BARRIER. HE HAS TO TRANSPORT ALL CONSTRUCTION MATERIALS FROM DISTANT LOCATIONS AND PAY MORE PRICE FOR THE MATERIAL S AND FACE THE RISK OF DANGEROUS MALARIA FOR HIS STAFF. DURING THE YEAR HE USED TO PROVIDE MEDICAL AID AND MESS FACILITIES FOR THE STAFF AS THE LOCATION OF THE SITE IS NOT HAVING ANY NEARBY VILLAGES. GIVEN THE SITUATION HIGHER INPUTS COSTS AND INFLATION OF CONSTRUCTION MATERIALS COSTS IT IS HIGH LY IMPRACTICABLE TO ACHIEVE 8 % MARGIN. AS THE GOVERNMENT CONTRACT RATES ARE FIXED AS PER PRICES PREVAILING AT THE TIME OF TENDER AND BY THE TIME EACH TENDER IS FINALIZED IT TAKES ABOUT 3 - 4 MONTHS FROM THE DATE OF TE NDER CALL AND WORK IS EXECUTED FURTHER DOWN THE LINE OVER A PERIOD OF 18 MONTHS. SO THE CONTRACTOR HAS TO PAY THE CURRENT PRICES FOR THE CONSTRUCTION MATERIALS WHICH ARE CERTAINLY MUCH HIGHER THAN THE RATES FIXED AT THE TIME OF TENDER. THE ASSESSING OFFICE R HAS ADMITTED IN HIS ASSESSMENT ORDER THAT REGULAR BOOKS OF ACCOUNTS LIKE CASH AND LEDGER ARE PRODUCED FOR VERIFICATION AND NO BILLS AND VOUCHERS ARE PRODUCED. THE LEARNED ASSESSING OFFICER NEVER EXAMINED THE DOCUMENTARY EVIDENCE PRODUCED DURING THE ASSES SMENT PROCEEDING AND FINALIZED THE ORDER UNDER 143(3) ON SELF ASSUMPTIONS AND IMAGINARY CONCLUSIONS . THE LEARNED COUNSEL OF THE ASSESSEE RELIED ON A FEW CASES LAWS WHERE THE APPELLATE AUTHORITIES HAVE T AKEN A CONSIDERATE VIEW OF THE FACTS & CIRCUMSTANCES O F THE CASE AND GRANTED RELIEF TO THE ASSESSES BY ACCEPTING A STANDARD RATE OF 5% WHICH IS VERY REASONABLE AND HIGHLY JUSTIFIED. 3. THE LEARNED CIT(A), VIDE PARAGRAPH 4.3.1, ON THE SUSTENANCE OF 8% AS ESTIMATED BY THE ASSESSING OFFICER HELD AS UNDER: 4.3 .1 HOWEVER, SO FAR AS THE RATE IS CONCERNED, AS ARGUED BY THE APPELLANT AGAINST A NET PROFIT RATE OF 5.1% FOR THE PRESENT ASSESSMENT YEAR, THE AO HAS ESTIMATED PROFIT @ 8%. FOR THE IMMEDIATELY SUBSEQUENT YEAR, AGAINST A DISCLOSED PROFIT OF 5.17%, THE AO H AS I.T.A.NO. 211/CTK/2012 4 ESTIMATED PROFIT @ 6%. THE APPELLANT HAS ARGUED THAT THE PROFIT FOR THIS YEAR ALSO SHOULD BE ESTIMATED @ 6%. ADMITTEDLY THE AO HAS NOT GIVEN ANY REASON AS TO WHY FOR THE SUBSEQUENT YEAR HE HAS ESTIMATED PROFIT AT A LOWER RATE. HOWEVER, PERUSAL OF THE RE CORDS INDICATES THAT FOR THE SUCCEEDING YEAR, THE GROSS RECEIPT IS ALMOST DOUBLE AS COMPARED TO THE RECEIPT OF THE CURRENT YEAR. SINCE THERE IS A TENDENCY OF PROFIT RATE DECLINING SLIGHTLY WHEN TURNOVER GOES UP, THE INCREASE IN TURNOVER DURING ASST.YR.2009 10 MIGHT HAVE PERSUADED AO TO ADOPT A LOW PROFIT. HOWEVER, FOR THE YEAR I SEE NO REASON TO INTERFERE WITH THE ACTION OF THE AO BECAUSE A RATE OF PROFIT OF 8% IN THE CIVIL CONSTRUCTION BUSINESS CANNOT BE CONSIDERED AS UNREASONABLE. FURTHER, THE HONBLE ITA T HAVE ALSO ESTIMATED PROFIT AT 8% OR EVEN MORE THAN 8% IN MANY CASES. TO GIVE ONE EXAMPLE, IN CASE OF M/S JUDHISTIR SAMANTRAY, THE ACTION OF MY PREDECESSOR IN OFFICE IN CONFIRMING NET PROFIT RATE OF 8% WAS AFFIRMED BY HONBLE ITAT VIDE THEIR ORDER DTD.11 - 09 - 2008 IN ITA NO.332/CTK/2008. FURTHER IN CASE OF SHRI DURGA PRASAD TRIPATHY IN THEIR ORDER IN ITA NO.42 & 43/CTK DTD.13 - 05 - 2011, THE HONBLE TRIBUNAL HAVE ACCEPTED A PROFIT RATE OF 9%. IN VIEW OF TH E ABOVE DISCUSSION, I SEE NO REASON TO INTERFERE WITH T HE PROFIT RATE ADOPTED BY THE A O . 4. THE LEARNED DR SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. 5. AFTER HEARING THE RIVAL PARTIES AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD, WE ARE INCLINED TO HOLD THAT THE PROVISIONS OF SECTION 44AD ARE FOR THE PURPOSE OF GUIDANCE INSOFAR AS AUDITED ACCOUNT COULD NOT BE SAID TO HAVE BEEN NOT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT WHEN THE LEARNED COUNSEL OF THE ASSESSEE HAS SUBMITTED THE FINANCIAL STATEMENTS DULY AUDITED WHICH WERE VERIFIED BY THE ASSESSING OFFICER ON VARIOUS DATES. THEREFORE, THE REJECTION OF THE BOOKS OF ACCOUNT HAS NO BEARING TO ESTIMATE UNLESS SPECIFIC FINDINGS ARE MADE UN DER THE PROVISIONS OF SECTION 1 45(3). THE LEARNED COUNSEL OF THE ASSESSEE HAS BEEN SUBMITTI NG THAT NO COMPARABLE CASES HAVE BEEN BROUGHT ON RECORD VIS - - VIS UNIQUE CIRCUMSTANCES PREVAILING FOR THE ASSESSEE EXECUTING GOVT. CONTRACTS AND THE LEARNED CIT(A) WAS MADE AWARE THAT THE ASSESSING OFFICER IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR HAD ESTIMATED THE INCOME AT 6% THEREFORE CANNOT BE ENHANCED IN THE MIDDLE OF THE EXECUTION OF CONTRACTS I.T.A.NO. 211/CTK/2012 5 WHEN THE ASSESSEE BEING A CIVIL CONTRACTOR WAS FACING SPECIAL CIRCUMSTANCES FOR BUILDING ROADS CANNOT BE SAID TO BE SWINDLING THE GOVERNMENT DEPARTMENTS WH O HAD AWARDED THE CONTRACT. WE DO FIND THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE JUSTIFIED INSOFAR AS THE APPLICATION OF ESTIMATION OF NET INCOME ON A CONTRACTOR CANNOT BE ARBITRARY AND HAS TO BE ON SOUND BASIS. THE ASSESSEE HAS BEEN RENDERING INCOME FOR THE PRECEDING AYS AS UNDER: ON THE PERUSAL OF THE ABOVE AND ON THE BASIS THE LEARNED CIT(A) CONFIRM ING THE ACTION OF THE ASSESSING OFFICER WITHOUT FURTHER JUSTIFICATION AS POINTED OUT ABOVE , WE ARE INCLINED TO HOLD THAT IT WOULD BE JUSTIFIED T O ESTIMATE THE INCOME OF THE IMPUGNED ASSESSMENT YEAR AT 6% TO WHICH BOTH PARTIES AGREED. WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/ - SD/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 09.11.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SE CRETARY. I.T.A.NO. 211/CTK/2012 6 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTA CK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 05.11.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06.11.2012 OTHER MEMBER . 3. DATE ON WH ICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.11.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..