Baishnab Charan Patra, Bhubaneswar V. ACIT, Bhubaneswar

ITA 223/CTK/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0758 (ITAT-CUTTACK)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-06-2010
• Court: TRIBUNAL
• Department Lawyers: A K MAHAPATRA
• Assessee Lawyers: N PANDA
• Keywords: Depreciation
• Section: 44AD

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 223/CTK/2010 / ASSESSMENT YEAR 2007 - 08 MR. BAISHNAB CHARANPATRA, PLOT NO.45/7, LAXMI SAGAR,BEHIND FALCON H O USE, BHUBANESWAR 751 006 PAN: AAPPP 6671 D - - - VERSUS - ASST.CO MMISSIONER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI N.PANDA, AR / FOR THE RESPONDENT: / SHRI A.K.MAHAPATRA, DR / ORDER . . . , , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER DT.29.4.2009 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2007 - 08 IN THE CASE OF THE A SSESSEE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE GROUNDS OF APPEAL. 1. FOR THAT THE LEARNED CIT(A) IS NOT CORRECT IN ESTIMATING THE NET PROFIT 8% (AGAINST @ 10% ESTIMATED BY LEARNED A.O) IGNORING THE ACCOUNTS DULY AUDITED U/S 44AB & BOOKS OF ACCOUNT ETC MAINTAINED BY THE APPELLANT. 2 . FOR THAT THE LEARNED CIT (A) IS NOT JUSTIFIED IN ESTIMATING THE NET PROFIT @ 8% OF THE GROSS RECEIPT IGNORING THE CONTENTIONS RAISED BY THE APPELLANT IN THE COURSE OF APPEAL PROCEEDINGS AND HAS FAILED TO APP RECIATE THE FACT THAT THE APPELLANT IS CONSISTENTLY SHOWING OPERATING PROFIT (I.E. PROFIT BEFORE INTEREST & DEPRECIATION) WITHIN A RANGE OF 9% TO 10% AND NET PROFIT (I.E. PROFIT AFTER INTEREST & DEPRECIATION) WITHIN A I.T.A.NO. 223/CTK/2010 2 RANGE OF 5% TO 6.5 % FROM YEAR TO YEAR WHICH HAS BEEN DULY ACCEPTED BY THE DEPARTMENT IN EARLIER ASSESSMENT YEARS. 3 . FOR THAT THE LEARNED CIT (A) IS WRONG IN ESTIMATING THE NET PROFIT @ 8% (PROBABLY ADOPTING THE RATE OF 8% PROVIDED U/S 44AD ) OF THE GROSS CONTRACT RECEIPT OF RS. 4,78,78,263 .53 IGNORING THE FACT THAT THE SAID GROSS CONTRACT RECEIPT INCLUDES RECEIPT FROM SUB CONTRACT WORK OF RS.L,09,02,635/ - , NORMALLY THE PERCENTAGE OF PROFIT OF WHICH IS MUCH LESS AS COMPARED TO THE MAIN CONTRACT, AS THE PROFIT IS DISTRIBUTED AMONGST PLURAL NU MBER OF CONTRACTORS ENGAGED IN EXECUTING THE SAME WORK. 4 . FOR THAT WITHOUT PREJUDICE TO THE GROUNDS MENTIONED ABOVE THE LEARNED CIT (A) HAS NOT ACTED IN ACCORDANCE WITH LAW IN NOT ALLOWING STATUTORY DEDUCTION NAMELY DEPRECIATION FROM THE ESTIMATED PROFI T ERRONEOUSLY DETERMINED IN THE APPEAL ORDER DATED 18.11.2009, AS DEPRECIATION IS A FISCAL BENEFIT PROVIDED TO THE APPELLANT UNDER THE STATUTE TO PARTIALLY NEUTRALIZE THE BURDEN OF HUGE INVESTMENT REQUIRED FOR ACQUIRING ASSETS REQUIRED FOR BUSINESS. 3. B OTH THE PARTIES WERE HEARD REGARDING THE ISSUES AND THEIR IMPLICATIONS. 4. THE ASSESSEE IS A CIVIL CONTRACTOR AND FILED RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THAT RETURN WAS TAKEN UP FOR SCRUTINY AFTER COMPLYING ALL THE STATUTORY REQUIREME NT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT PRODUCED THE CASH BOOK, STOCK REGISTER, WORK - IN - PROGRESS REGISTER AND GENERAL REGISTER. IT IS FOUND BY THE ASSESSING OFFICER THAT IN THE AUDIT REPORT FILED IN FORM NO.3CD IT WAS SPECIFICALLY MENTI ONED THAT NO CASH BOOK IS MAINTAINED, THE BASIS OF VALUATION OF THE WORK - IN - PROGRESS WERE NOT FURNISHED AND ASSESSEE HAS NOT PRODUCED COMPLETE PURCHASE BILLS WHICH WAS ALSO NOTED IN THE AUDIT REPORT AND THERE ARE NO NAMES REGARDING PAYMENTS MADE ON ACCOUNT OF TRANSPORTATION I.T.A.NO. 223/CTK/2010 3 CHARGES IN THE LEDGER. BEING NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER INVOKED THE PROVISIONS CONTAINED IN SECTION 145(3) OF THE INCOME - TAX ACT,1961 AND REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED TH E PROFIT EARNED BY THE ASSESSEE. THE ASSESSEE HAS DONE CIVIL CONTRACT WORKS DURING THE PERIOD UNDER CONSIDERATION TO THE TUNE OF 4,78,78,163 OUT OF WHICH SUB - CONTRACT WORKS AMOUNTS TO 1,09,02,630. THE ASSESSING OFFICER ESTIMATED THE INCOME AT 10% OF THE GROSS RECEIPTS. THIS ESTIMATED MADE BY THE ASSESSING OFFICER WAS REDUCED BY THE LEARNED CIT(A) TO 8%. STILL AGGRIEVED, THE ASSESSEE FILED THE PRESENT APPEAL. 5. BOTH PARTIES WERE HEARD REGARDING THE ISSUES RAISED BEFORE THE TRIBUNAL AND THEIR LEGAL IMPLIC ATIONS. 6. DURING THE COURSE OF HEARING, THE LEARNED AR OF THE ASSESSEE HAS CONTENDED VEHEMENTLY THAT THE DEPARTMENTAL AUTHORITIES HAVE NOT TAKEN INTO CONSIDERATION THE GLARING ASPECT OF SUB - CONTRACT WORKS WHEREIN THE ASSESSEE WILL BE GETTING THE PROFIT TH AN THE DIRECT CONTRACT WORKS UNDISPUTEDLY. APART FROM THAT THE LOWER AUTHORITIES HAVE NOT TAKEN INTO CONSIDERATION THE PROFITS RETURNED BY THE ASSESSEE IN THE PREVIOUS YEARS WHICH ARE RANGING FROM 6% TO 7%. SIMPLY BECAUSE THERE ARE RIDERS IN THE AUDIT REPO RT FURNISHED IN FORM 3CD, IT CANNOT BE SAID THAT THE FIGURES FURNISHED BY THE ASSESSEE REGARDING THE EXPENSES INCURRED BY HIM DURING THE COURSE OF ITS BUSINESS ARE UNBELIEVABLE AND THERE IS NO MATERIAL MADE OUT BY THE DEPARTMENTAL AUTHORITIES TO THIS EFFEC T EXCEPT QUOTING THE RIDERS MENTIONED IN THE AUDIT REPORT STATED SUPRA. THE FIRST APPELLATE AUTHORITY HAS NOT AT ALL CONSIDERED HIS OWN ORDER PASSED IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07 WHICH THE IMMEDIATELY PRECEDING ASSESSMENT YEAR . EVEN ASSUMING BUT NOT ADMITTING THE RATE OF PROFIT AS APPLIED BY THE LEARNED CIT(A) FOR THAT YEAR OUGHT TO HAVE BEEN FIXED FOR THE PRESENT YEAR UNDER CONSIDERATION ALSO I.T.A.NO. 223/CTK/2010 4 BASING ON THE PRINCIPLES OF RULE OF PRECEDENCE AND THE PAST HISTORY OF THE ASSESSEE. IT WAS FURTHER CONTENDED THAT THE LOWER AUTHORITIES HAVE COMPLETELY IGNORED THE FACT OF ASSESSEE SHOWING OPERATING PROFIT I.E., PROFIT BEFORE INTEREST AND DEPRECIATION WITHIN A RANGE OF 9 % TO 10% AND NET PROFIT I.E., PROFIT AFTER INTEREST AND DEPRECIATION WITHIN A RANGE OF 5% TO 6.5% FROM YEAR TO YEAR WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. BOTH THE LOWER AUTHORITIES HAVE NOT AT ALL CONSIDERED THE ASPECT OF DEPRECIATION WHICH IS A PHYSICAL BENEFIT PROVIDED TO THE ASSESSEE UNDER THE STATUTE. THEREFORE, ON THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE DECISION OF THE LOWER AUTHORITIES IS NOT AT ALL SUSTAINABLE FOR LEGAL SCRUTINY AND REQUESTED TO BE SET ASIDE BY DIRECTING THE DEPARTMENT TO ACCEPT THE RETURNED INCOME OFFERED BY THE ASSESSEE. 7. CONTRARY TO T HIS, THE LEARNED DR HAS SUPPORTED THE IMPUGNED ORDERS OF THE DEPARTMENTAL AUTHORITIES. 8. ON CAREFUL CONSIDERATION OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL AND ANALYZING THE SAME IN THE LIGHT OF RIVAL SUBMISSIONS OF BOTH PARTIES, IT IS FOUND THAT FIX ING SAME RATE OF PROFIT FOR OWN CONTRACT WORKS AND SUB - CONTRACT WORKS IS NOT JUSTIFIED AS ADMITTEDLY THE SUB - CONTRACT WORKS WILL GIVE LESS PROFIT TO THE ASSESSEE AS THE PRINCIPAL CONTRACTOR HAS SHARED THE PROFIT WITH HIM. THEREFORE, SEPARATE RATE OF PROFIT SHOULD BE GIVEN TO THE SUB - CONTRACT WORKS WORTH 1,09,02,630. OWN CONTRACT WORKS OF THE ASSESSEE ARE TO BE DETERMINED BY DEDUCTING THIS AMOUNT FROM THE TOTAL CONTRACT RECEIPTS OF 4,78,78,163. SO IN THAT WAY THE IMPLICATION OF THE LOWER AUTHORITIES ARE NO T SUSTAINABLE FOR LEGAL SCRUTINY. 9. NOW CONSIDERING THE ESTIMATION OF PROFIT IN THE CASE OF THE ASSESSEE, IT IS UNDISPUTED THAT THE ASSESSEE IS A REGULAR INCOME - TAX PAYEE AND IS OFFERING PROFIT WITHIN A RANGE OF 9% TO 10% BEFORE INTEREST AND DEPRECIATION AND NET I.T.A.NO. 223/CTK/2010 5 PROFIT OF 5% TO 6.5% AFTER INTEREST AND DEPRECIATION. IN THE LIGHT OF THIS UNDISPUTED FACTS, THE ESTIMATION OF PROFIT MAD E BY THE LEARNED CIT(A) AT 8% ON THE GROSS RECEIPTS OF THE CONTRACTS IS INCORRECT AND UNSUSTAINABLE FOR LEGAL SCRUTINY. THE ANO THER ASPECT OF THE CASE IS THAT BOTH THE LOWER AUTHORITIES HAVE NOT CONSIDERED THE FACT WHILE ESTIMATING THE PROFIT RATE TO BE TAXED IN THE HANDS OF THE ASSESSEE, ALL STATUTORY BENEFIT AVAILABLE TO THE ASSESSEE BEING DEPRECIATION ALLOWANCE. THE CBDT CIRCLE NO. 29D(XIX - 14) IS VERY CLEAR ON THIS POINT. THE RELEVANT PORTION OF THE SAID CIRCULAR IS REPRODUCED AS UNDER : CBDT CIRCULAR NO.29D(XIX - 14) THE BOARD CONSIDER THAT WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS FOR DEPRECIAT ION HAVE BEEN FURNISHED BY THE ASSESSEE, THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY WORKED OUT. IN ALL SUCH CASES, THE GROSS PROFIT SHOULD BE ESTIMATED AND THE DEDUCTIONS AND ALLOWANCES INCLUDING THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTE D FROM THE GROSS PROFIT. IF IT IS CONSIDERED THAT THE NET PROFIT SHOULD BE ESTIMATED IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THERE FROM. EVEN WHERE BEST JUDGMENT ASSESSMENT IS MADE, THE ABOVE PROCEDURE SHOULD BE ADOPTED PROVIDED THE REQUIRED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE. THEREFORE, IN THE LIGHT OF THE ABOVE CIRCULAR, WHICH IS BINDING ON THE DEPARTMENTAL AUTHORITIES, THE ASSESSING OFFICER IS REQUIRED TO ALLOW DEPR ECIATION IF THE DETAILS FOR THE SAME IS AVAILABLE, EVEN WHERE THE INCOME IS ESTIMATED. THE LEARNED CIT(A) HAS NOT FOLLOWED THIS CIRCULAR WHILE PASSING THE ORDER FOR THE ASSESSMENT YEAR 2001 - 02 IN THE CASE OF THE ASSESSEE ITSELF. THE APPLICATION OF THIS CI RCULAR IS UPHELD BY THE HONBLE P & H HIGH COURT IN THE CASE OF CIT V. CHOPRA BROS. INDIA PVT. LTD [(2001) 252 ITR 412 (P & H)] AND HONBLE RAJSTHAN HIGH COURT IN THE CASE OF CIT V. JAIN CONSTRUCTION I.T.A.NO. 223/CTK/2010 6 CO.,[(1999) 156 CTR 290 (RAJ)], WHEREIN IT WAS OBSERVE D THAT IN THE ABSENCE OF ANY INDICATION THAT THE ASSESSING OFFICER HAD FIXED THE NET PROFIT RATE FOR ESTIMATING THE INCOME FROM CONTRACT RECEIPTS AFTER ALLOWING THE CLAIM FOR DEPRECIATION IT CANNOT BE DEEMED THAT THE CLAIM FOR DEPRECIATION HAS BEEN ALREADY CONSIDERED AND, THEREFORE, DEPRECIATION HAS TO BE ALLOWED SEPARATELY. THEREFORE, RESPECTFULLY FOLLOWING THE CBDT CIRCULAR (SUPRA) AS WELL AS THE DICTUMS OF TH E HONBLE HIGH COURTS OF PUNJAB & HARYANA AND RAJASTHAN, WE ARE OF THE CONSIDERED VIEW THAT THE DEPRECIATION AS CLAIMED BY THE ASSESSEE WHILE FILING THE RETURN HAS TO BE ALLOWED EVEN AFTER ESTIMATING THE NET PROFIT BY THE DEPARTMENTAL AUTHORITIES. IN THE P RESENT CASE ON HAND, BOTH THE LOWER AUTHORITIES HAVE NOT AT ALL CONSIDERED THIS ASPECT WHILE ESTIMATING THE PROFIT T AXABLE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THE PROFIT RATE OF IMMEDIATELY PRECEDING PERIOD WHICH H AS BECOME FINAL IN THE CASE OF THE ASSESSEE HAS TO BE ADOPTED FOR THIS YEAR ALSO ON DIRECT CONTRACT WORKS. IN THE CASE OF SUB - CONTRACT WORKS THE ESTIMATION OF PROFIT MUST BE REDUCED TO 50% THEREOF AS THE PRINCIPAL CONTRACTOR TAKE A MAJOR SHARE OF PROFITS. AFTER ESTIMATING SO, THE PRO FIT RATE TO BE TAXED IN THE HANDS OF THE ASSESSEE, THE DEPRECIATION AS CLAIMED BY THE ASSESSEE ALONG WITH THE RETURN, IF FOUND CORRECT, HAS TO BE ALLOWED FURTHER. WITH THESE DIRECTIONS, THE ASSESSEES APPEAL IS HEREBY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 14 TH MARCH, 2011 S D/ - S D/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER. ( ) DATE: 14 TH MARCH, 2011 ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 223/CTK/2010 7 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APP ELLANT : MR. BAISHNAB CHARANPATRA, PLOT NO.45/7, LAXMI SAGAR,BEHIND FALCON HOUSE, BHUBANESWAR 751 006 2 / THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY