Vimit Construction, Ankleshwar V. The ACIT, Bharuch Circle, Bharuch

ITA 2268/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2156 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 31-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR SINGH
• Keywords: Rejection of books of accounts; Business income; Rule of consistency

Judgement Text

VIMIT CONSTRUCTION V. ACIT-BHARUCH/ I.T.A.NO. 2268/AHD/2015/SRT/A.Y.11-12 PAGE 1 OF 6 , , IN THE INCOME TAX APPELLATE TRIBUNAL -SURAT BENCH-SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER & SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO2268/AHD/2015: / A Y:2011-12 APPELLANT VS. / RESPONDENT VIMIT CONSTRUCTION , 9 LALA COMPLEX, OPP. SARDAR COMPLEX, GIDC ESTATE, ANKLESHWAR 393002 PAN:AABFV9695B ACIT - BHARUCH CIRCLE, BHARUCH /ASSESSEE BY SHRI HIREN R. VEPARI, CA /REVENUE BY SHRI ARVIND KUMAR SINGH, SR. D.R. / DATE OF HEARING: 21.06.2018 /PRONOUNCEMENT ON: 11.07.2018 /O R D E R PER O. P. MEENA, ACCOUNTANT MEMBER. 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-3 VADODARA (IN SHORT THE CIT (A)) DATED 25.06.2015 PERTAINING TO ASSESSMENT YEAR 2011-12. 2. GROUND NO. I AND II RELATES CONFIRMATION OF REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) AND THEREBY CONFIRMING GROSS PROFIT ADDITION OF RS. 29,86,540 BY THE CIT(A). 3. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS. 3,31,32,884 IN CONSTRUCTION BUSINESS @11.09% ON TOTAL SALES OF RS. 29,86,54,041 AS AGAINST GROSS PROFIT OF RS.1,80,90,494 @ 12.35% ON TOTAL SALES OF RS. 14,65,38,462 IN IMMEDIATE PRECEDING YEAR. THE AO FURTHER FOUND THE ASSESSEE HAS NOT MAINTAINED DAY-TO-DAY QUANTITY STOCK RECORD. BECAUSE OF WHICH, CONSUMPTION AND VALUATION OF RAW MATERIAL IS NOT FULLY VERIFIABLE. FURTHER, VOUCHERS OF LABOUR PAYMENTS AT SITES ARE NOT FULLY VERIFIABLE VIMIT CONSTRUCTION V. ACIT-BHARUCH/ I.T.A.NO. 2268/AHD/2015/SRT/A.Y.11-12 PAGE 2 OF 6 FOR WANT OF PROPER BILLS & VOUCHERS. HENCE, THE AO AFTER REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) MADE GROSS PROFIT ADDITION OF RS. 29,86,540 BY APPLYING GROSS PROFIT RATE OF 1% ON RECORDED SALES OF RS. 29.86 CRORES BY CONSIDERING FALL IN GROSS PROFIT RATE AT 1.26% AS COMPARED TO PREVIOUS YEAR GROSS PROFIT RATE. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT (A). HOWEVER, THE CIT (A) HAS ECHOED THE ORDER OF THE AO BY OBSERVING THAT THE ASSESSEE WAS ENGAGED IN CIVIL CONSTRUCTION, THERE WAS HUGE PURCHASES, AND CONSUMPTION OF DIFFERENT RAW MATERIAL AND THEREFORE, ITS BOOKS OF ACCOUNTS FOR THE YEAR UNDER CONSIDERATION CANNOT BE RELIED UPON FULLY. THEREFORE, IT WAS HELD THAT REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) WAS CORRECT AND ACCORDINGLY THE ADDITION OF RS. 29,86,540 MADE BY THE AO WAS CONFIRMED. 5. BEING DISSATISFIED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE TRIBUNAL. THE LEARNED COUNSEL CONTENDED THE REJECTION OF BOOKS OF ACCOUNTS WAS NOT JUSTIFIED AS THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND AUDITORS HAVE NOT GIVEN ANY ADVERSE FINDINGS. THEREFORE, WHERE ACCOUNTS ARE COMPLETE THE QUESTION OF REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) IS NOT JUSTIFIED. THE AO NOWHERE STATED THAT HE IS NOT SATISFIED ABOUT CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. IT WAS SUBMITTED THAT WORK OF CONSTRUCTION TAKES PLACE AT VARIOUS SITES; THEREFORE, IT IS NOT POSSIBLE TO KEEP DAY-TO-DAY STOCK RECORD. AS REGARDS LABOUR PAYMENTS, COMPLETE BILLS AND VOUCHERS WERE PRODUCED THEREFORE, THAT CONDITION NO MORE SUBSISTS. IT WAS FURTHER ARGUED THAT WHEN BOOKS OF ACCOUNTS CANNOT BE REJECTED, THEN NO ADDITION OF GROSS PROFIT COULD BE MADE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE ARE SPECIFIC REASONS IN FALL OF GROSS PROFIT RATE VIMIT CONSTRUCTION V. ACIT-BHARUCH/ I.T.A.NO. 2268/AHD/2015/SRT/A.Y.11-12 PAGE 3 OF 6 OF 1.26% AS COMPARED TO PREVIOUS YEAR AS UNLIKE IN EARLIER YEAR THE ASSESSEE HAS PURE SERVICE CONTRACT OF ONE OF THE MULTINATIONAL COMPANIES LIKE MAKHTESHIM AGAN INDIA PVT. LTD. THAT RESULTED IN HIGHER CONSUMPTION OF MATERIAL SUPPRESSING THE MARGIN OF THE ASSESSEE, WHICH CONTRIBUTED 45% OF THE TOTAL REVENUES. THERE IS INCREASE IN COST OF RAW MATERIAL WHICH LED TO SHARP JUMP OF COST OF RAW MATERIALS FROM RS. 2.22 CRORES TO RS. 8.91 CRORES RESULTING IN 14.69%. FURTHER, THE TURNOVER DURING THE CURRENT YEAR HAS INCREASED TO ALMOST DOUBLE FROM RS. 14,65 CRORES TO RS. 29,86 CRORES. IT WAS ALSO EXPLAINED THAT GROSS PROFIT HAS ALSO INCREASED FROM 1.80 CRORES TO RS. 3.31 CRORES. IN VIEW OF THIS MATTER, IT WAS REITERATED THAT WHEN BOOKS OF ACCOUNTS ARE AUDITED AND REASONS IN FALL IN GROSS PROFIT RATE IS EXPLAINED, NO ADDITION ON ACCOUNT OF FALL IN GROSS PROFIT RATE IS REQUIRED TO BE MADE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER RELYING ON THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT V. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. [2014] 42 TAXMANN.COM 438 (GUJARAT) SUBMITTED NO SUCH ADDITION MADE IN PAST AND BOOKS OF ACCOUNTS WERE ACCEPTED, THEREFORE, FOLLOWING THE RULE OF CONSISTENCY, NO ADDITION SHOULD BE MADE. 6. AU CONTRAIRE, THE LD. DR SUPPORTED THE ORDERS AND FINDINGS OF LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BILLS AND VOUCHERS AS WELL AS DAY TO DAY QUANTITY RECORDS HENCE, THE AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNTS AND MADE GROSS PROFIT ADDITION AS THERE WAS FALL IN GROSS PROFIT RATE BY 1.26% AS AGAINST WHICH ONLY ESTIMATE OF 1% OF GROSS PROFIT RATE HAS BEEN MADE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THOUGH THE BOOKS OF ACCOUNTS ARE VIMIT CONSTRUCTION V. ACIT-BHARUCH/ I.T.A.NO. 2268/AHD/2015/SRT/A.Y.11-12 PAGE 4 OF 6 AUDITED BUT THE ASSESSEE HAS NOT BEEN MAINTAINING DAY TO DAY QUANTITY STOCK RECORDS. THEREFORE, THE CONSUMPTION OF RAW MATERIAL CANNOT BE SAID FULLY VERIFIABLE. THE HAS BEEN RUNNING VARIOUS SITES THEREFORE, THERE IS NO CHECK OF CONSUMPTION OF MATERIALS. FURTHER, IT WAS NOTICED THAT THE BILLS AND VOUCHERS OF ESPECIALLY LABOUR PAYMENTS ARE NOT FULLY SUPPORTED BY THE PROPER BILLS AND VOUCHERS. THEREFORE, IT CANNOT BE CONCLUDED THE BOOKS OF ACCOUNTS SO MAINTAINED ARE TRUE AND FULL IN ALL RESPECT. THE AO RELIED IN THE CASE OF CIT V. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 44 (SC) / 54 TAXMAN 499/ 91 CTR 108 (SC) WHEREIN IT WAS HELD THAT IT IS NOT ONLY RIGHT, BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT BOOKS DISCLOSE THE TRUE STATES OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS NOT CORRECT TO SAY THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. THEREFORE, FOLLOWING THE JUDGEMENT OF HON`BLE SUPREME COURT WE ARE OF THE CONSIDERED VIEW THE AO WAS JUSTIFIED IN REJECTING BOOKS OF ACCOUNTS. HENCE, INVOCATION OF SECTION 145(3) OF THE ACT IS UPHELD. ADVERTING TO THE CONTENTION OF THE LEARNED COUNSEL AND RELIANCE IN THE CASE OF DCIT V. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. [2014] 42 TAXMANN.COM 438 (GUJARAT) THAT NO SUCH ADDITION MADE IN PAST AND BOOKS OF ACCOUNTS WERE ACCEPTED, THEREFORE, FOLLOWING THE RULE OF CONSISTENCY, NO ADDITION SHOULD BE MADE. WE FIND THAT, THE AO HAS MADE ADDITION ON ACCOUNT OF GROSS PROFIT IN A.Y. 2008-09 AND MADE DISALLOWANCE OUT OF LABOUR EXPENSES IN A.Y. 2009-10 AND IN A.Y. 2010-11 SHOWS THAT BOOKS OF ACCOUNTS WERE VIMIT CONSTRUCTION V. ACIT-BHARUCH/ I.T.A.NO. 2268/AHD/2015/SRT/A.Y.11-12 PAGE 5 OF 6 NOT ACCEPTED IN PAST AND ADDITION WAS MADE. THEREFORE, RULE OF CONSISTENCY IS NOT APPLICABLE IN THE INSTANT CASE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, GROUND NO. I IS OF THE APPEAL IS DEVOID ANY MERIT HENCE, IT IS UPHELD. WITH REGARD TO, ESTIMATION OF GROSS PROFIT ADDITION IS CONCERNED; WE FIND THAT THERE IS FALL IN GROSS PROFIT RATE BY 1.26% AS COMPARE TO IMMEDIATE PRECEDING YEAR. HOWEVER, THE REASONS ADVANCED THAT THERE IS SPECIAL FEATURE IN THIS YEAR AS THE PURE SERVICE CONTRACT WAS GIVEN TO MAKETSIM AGAN COMPANY A MULTINATIONAL COMPANIES, WHICH CONTRIBUTED 45% OF TOTAL RECEIPTS. THIS LED TO HIGHER CONSUMPTION AND COST OF MATERIALS JUMPS TO RS. 8.91 CRORES FROM 2,22 CRORES. FURTHER PERCENTAGE OF EARTH WORK HAS GONE UP BY 11.825 FROM 8.61%. WE ALSO FIND THAT TURNOVER OF BUSINESS ALSO INCREASED TWICE FROM LAST YEAR AND RAW MATERIAL COST INCREASED BY 14.69%. FURTHER TAX AUDITORS HAVE NOT MADE ADVERSE COMMENTS. THE CONSTRUCTION WORK IS SPREAD OVER TO VARIOUS NUMBER OF SITES, HENCE, NOT PRACTICABLE TO KEEP DAY-TO-DAY RECORDS. CONSIDERING THE TOTALITY OF FACTS, CIRCUMSTANCES AND TAKING A HOLISTIC APPROACH IN THE MATTER, WE DEEM IT FIT TO CONSIDER REVISION IN APPLICATION OF GROSS PROFIT RATE OF 1% BY THE AO TO AVERAGE OF 1.26/2= 0.66% AS REASONABLE FOR MAKING GROSS PROFIT ADDITION. ACCORDINGLY, THE ADDITION MADE BY APPLYING GROSS PROFIT RATE AT 1% IS RESTRICTED TO GROSS PROFIT RATE OF 0.66%, WHICH WORKED OUT TO RS. 19,71,116 OF TOTAL TURNOVER OF RS. 29,86,54,041. HENCE, ADDITION OF RS. 19,71,116 IS SUSTAINED AND BALANCE ADDITION OF RS. 10,15,424 IS DELETED. ACCORDINGLY GROUND NO. II OF THE APPEAL IS PARTLY ALLOWED. 8. GROUND NO. III IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS. 1,85,934 OUT OF EMPLOYEES PROVIDENT FUND. VIMIT CONSTRUCTION V. ACIT-BHARUCH/ I.T.A.NO. 2268/AHD/2015/SRT/A.Y.11-12 PAGE 6 OF 6 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. GUJARAT STATE ROAD TRANSPORT CORPORATION [2014] 366 ITR 170 (GUJ) : 223 TAXMAN 398 : [2014] 41 TAXMANN.COM 100 (2014) (1) TML 502 -GUJ-HC, IS AGAINST THE ASSESSEE, IN SPIRIT OF THE MATTER AND FOLLOWING THE JUDGEMENT OF HON`BLE SUPREME COURT IN THE CASE OF CIT V ALOM EXTRUSIONS LTD [2009] 319 ITR 306 (SC) APPEAL OF THE ASSESSEE MAY BE ALLOWED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS COVERED AGAINST THE BY DECISION OF HON`BLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF CIT V. GUJARAT STATE ROAD TRANSPORT CORPORATION [2014] 366 ITR 170 (GUJ) : 223 TAXMAN 398 : [2014] 41 TAXMANN.COM 100 (2014) (1) TML 502 -GUJ-HC, WHICH IS BINDING PRECEDENT IN THE TRIBUNAL FUNCTIONING IN THE STATE AND THE SAID JUDGEMENT IS LATER DECISION AFTER DECISION OF HON`BLE SUPREME COURT IN THE CASE OF CIT V ALOM EXTRUSIONS LTD. (SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE SAID DECISION, THESE GROUNDS OF APPEAL OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON 11-07-2018. SD/- SD/- ( . . /C.M. GARG) ( . . /O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER DATED: 11.07.2018. / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) THE CIT(A)4. / PR. CIT 5. , / D.R. (ITAT) 6. / GUARD FILE ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT