M/s. Ravindra Kumar, Patna V. Assessing Office, Patna

ITA 228/PAT/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9639 (ITAT-PATNA)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 23-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MISHRA SH
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Business income; Depreciation; Assessment record
• Section: 44AD; 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PA T N A BENCH , PATNA BEFORE SHRI ABY. T. VARKEY , JUDICIAL MEMBER AND SHRI WASEEM AHMED , ACCOUNTANT MEMBER ITA NO. 228 / PAT / 2013 ASSESSMENT YEAR: 2010 - 11 M/S RAVINDRA KUMAR NASIRGANJ, NR. B.S. COLLEGE, DIGHA, PATNA - 800 012 [ PAN NO.AAKFR 8008 F ] / V/S . ACIT, CIRCLE - 5, PATNA /APPELLANT .. /RESPONDENT / BY APPELLANT SHRI K.M. MISHRA, ADVOCATE / BY RESPONDENT SHRI SUPRIYA BISWAS, DR / DATE OF HEARING 04 - 04 - 2017 / DATE OF PRONOUNCEMENT 0 7 - 04 - 2017 /O R D E R PER BENCH : - THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - , DHANBAD DATED 09 .0 7 .2013. ASSESSMENT WAS FRAMED BY JC IT, RANGE - 5 PATN A U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER D ATED 26 .12.20 12 FOR ASSESSMENT YEAR 20 1 0 - 11 . SHRI K.M. MISHRA, LD. ADVOCATE APPEARED ON BEHALF OF ASSESSEE AND SHRI SUPRIYA BISWAS, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. ONLY EFFECTIVE ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY DETERMINING THE PROFIT OF THE ASSESSEE @ 8% OF THE GROSS RECEIPTS WHICH IS HIGHLY EXCESSIVE AND UNREASONABLE. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF CIVIL CONTRACT. IN THE YEAR UNDER CONSIDERATION, ASSESSEE HAS SHOWN CONTRACT OF GROSS RECEIPTS FOR 11,28,70,918/ - FROM THE CIVIL CONTRACT ACTIVITY. AT THE TIME OF ASSESSMENT, ASS ESSEE FAILED TO FURNISH NECESSARY DETAILS IN SUPPORT OF ITS EXPENSES ITA NO. 228/PAT/2013 A.Y. 2010 - 11 M/S RAVINDRA KUMAR VS. ACIT, CIR - 5, PAT PAGE 2 CLAIMED IN ITS INCOME TAX RETURN. ACCORDINGLY, THE AO INVOKED THE PROVISION OF SE CTION 145(3) OF THE ACT AND REJECTED THE BOOKS OF ACCOUNT . THUS THE AO ESTIMATED THE NET PROFIT @ 8% OF GR OSS RECEIPT AFTER DEDUCTING THE ROYALTY AS PER TDS CERTIFICATE. FROM THE AMOUNT OF NET PROFIT AS WORKED OUT @ OF 8% OF THE GROSS RECEIPTS, THE AO ALLOWED THE DEDUCTION FOR THE INTEREST , REMUNERATION TO THE PARTNERS AND DEPRECIATION THERE FROM AND ACCORDING LY WORKED OUT TAXABLE BUSINESS INCOME AT RS. 76,85,064.00 WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE NET PROFIT WORKED OUT @ 8% IS HI GHLY EXCESSIVE AND UNREASONABLE. HOWEVER, LD. CIT(A) DISREGARDED THE PLEA OF ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER: - 4. I HAVE CONSIDERED THE FACTS OF THE CASE. PROVISIONS OF SECTION 44AD OF THE INCOME - TAX ACT, 1961 CAN FORM A SOUND BASIS FOR DETERMINATION OF NET PROFIT EVEN IN CASES WHERE GROSS RECEIPTS EXCEED THE LIMITS SPECIFIED UNDER THIS SECTION IN RESPECT OF THIS LINE OF BUSINESS AS HAS BEEN HELD IN A NUMBER OF CASES SUCH AS BY HON'BLE MADRAS HIGH COURT IN THE CASE OF CGT VS. A. VAJJIRAM AND BROS. 326 ITR 511, PREM KUMAR VS. JOINT CIT IN ITA NO. 400/JU/2005 BY JODHPUR BENCH OF THE ITAT AND BY THE PATNA BENCH OF THE ITAT IN AJAY KUMAR SINGH VS. JCIT, RANGE 4, PATNA IN ITA NO.546/PAT/2007 DATED 16.05.2008. THE ASSESSING OFFICER HAS ALREADY ALLOWED REDUCTION FROM THE GROSS RECEIPTS OF MATERIAL SUPPLIED BY THE CONTRACTEE DEPARTMENT AND ROYALTY. NO FURTHER REDUCTION IS REQUIRED TO BE MADE FROM THE GROSS RECEIPTS BEFORE THE APPLICATION OF NET PROFIT RATE. THE ONLY MISTAKE WHICH IS THERE IN THE ACTION OF THE AO IS REGARDING ADDITION OF RS.60,653/ - ON ACCOUNT OF INTEREST ON FDRS WHICH WAS NOT REQUIRED TO BE MADE SEPARATELY IN VIEW OF DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S SHYAM BIHARI VS. CIT (SUPRA). THEREFORE, THE ACTION OF THE AO IS UPHELD EXCEPT THAT ON SEPARATE ADDITION OF FDR INTEREST OF RS.60,653/ - IS REQUIRED TO BE MADE. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSEE IS IN SECOND APPEAL BEFORE US ON THE FOLLOWING GROUNDS: - 1. FOR THAT, REJECTION OF BOOKS OF ACCOUNT AND ESTIMATE OF PROFIT WAS UNJUSTIFIED AND ERRONEOUS IN VIEW OF THE FAT THAT THE APPELLANT HAS SUBMITTED BOOKS OF ACCOUNT AS WELL AS VOUCHERS. 2. FOR THAT, THE COMMISSIONER OF INCOME TAX FAIL ED TO APPRECIATE THE FACT THAT THE INTERNAL VOUCHER IS ALSO EVIDENCE AS SUCH BOOKS OF ACCOUNT CANNOT BE REJECTED ON THIS GROUND . ITA NO. 228/PAT/2013 A.Y. 2010 - 11 M/S RAVINDRA KUMAR VS. ACIT, CIR - 5, PAT PAGE 3 3. FOR THAT, THE ESTIMATE OF PROFIT AT THE RATE OF 8% IS HIGHLY EXCESSIVE AND UNREASONABLE BECAUSE AS PER EVIDENCE SUBMITTED BE FORE THE CIT(A) THE APPELLANT HAD NOT EARNED PROFIT AT THE RATE OF 8%. 4. FOR THAT, THE ESTIMATE OF 8% PROFIT IS ALSO EXCESSIVE AND UNREASONABLE BECAUSE IN SEVERAL CASES THE HON'BLE TRIBUNAL HAS ESTIMATED 6% PROFIT AND THEREAFTER ALLOWED DEPRECIATION, SAL E TAX AND SALARY AND INTEREST PAID TO PARTNERS. 5. FOR THAT, THE CIT(A) OUGHT TO HAVE ALLOWED DEDUCTION ON ACCOUNT OF SALES TAX AND OTHER DEDUCTION MADE BY THE EMPLOYER OUT OF TOTAL CONTRACT PRICE. 6. FOR THAT, THE FINDING OF CIT(A) THAT THE PROVISION O F 44AD IS APPLICABLE IN THE PRESENT CASE IS CONTRARY TO THE VIEW TAKEN BY HON'BLE PATNA HIGH COURT. 7. FOR THAT, ANY OTHER GROUND MAY BE TAKEN AT THE TIME OF HEARING. 5. BEFORE US LD.AR FOR THE ASSESSEE REITERATED THE ARGUMENTS THAT WERE SUBMITTED BEFOR E LD. CIT(A) AND HE REQUESTED THE BENCH TO DECIDE THE ISSUE ON MERIT. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. F ROM THE AFORESAID DISCUSSION, WE FIND THE AO HAS ESTIMATED THE PROFIT @ 8% AFTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER SECTION 145(3) OF THE ACT WHICH WAS SUBSEQUENTLY CONFIRMED BY THE LD.CIT(A) . NOW THE QUESTION BEFORE US ARISES FOR ADJUDICATION IS AS TO WHETHER THE ACTION OF THE LD. CIT(A) IS CORRECT FOR WORKING OUT THE INCOME @ 8 % OF THE GROSS RECEIPT. FROM THE FACTS OF THE CASE, WE FIND THAT THE NATURE OF THE WORK OF THE ASSESSEE HAS NOT BEEN D OUBTED AND IN THE SIMILAR FACTS AND CIRCUMSTANCES VARIOUS HONBLE COURTS HAVE HELD THAT A REASONABLE PERCENTAGE OF PROFIT CAN BE WORKED OUT WHICH ARE CITED BELOW. 1. IN THE CASE OF M/S TRIVENI ENTERPRISE, HYDERABAD VS THE INCOME - TAX OFFICER WD 6(1) ITA N O. 352/HYD/2011 & 353.HYD/2011 IT HAS BEEN HELD THAT IN THE AY 2006 - 07 AND 2008 - 09, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. ASSESSEE FAILS TO PROVE THE EXPENSES WITH DETAILS AO ESTIMATED THE INCOME OF THE ASSESSEE AT 12% OF THE GROS S RECEIPT. ON APPEAL, LEARNED CIT(A) DIRECTED THE AO TO ESTIMATE THE INCOME AT 8% IN THE CASE OF MAIN CONTRACT RECEIPTS AND AT 6% ON THE SUB CONTRACT RECEIPT. TRIBUNAL DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME OF THE ASSESSEE AT 8% ON MAIN CONTRA CT RECEIPTS AND AT 5% OF THE SUB CONTRACT RECEIPTS AS ABOVE SAID. ITA NO. 228/PAT/2013 A.Y. 2010 - 11 M/S RAVINDRA KUMAR VS. ACIT, CIR - 5, PAT PAGE 4 2. IN THE CASE OF SHRI OM PRAKASH TRIPATHI VS ACIT (CONTRACTOR) CIRCLE 2(1), FARRUKHABAD. ITA NO. 330/AGR/2005 IT HAS BEEN HELD THAT IN THE AY 2001 - 02, THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF CIVIL CONSTRUCTION. NET PROFIT RATE SHOWN BY THE ASSESSEE 5.32%. THE SAME BEING ACCEPTED BY THE AO CIT(A), AGRA. REJECTED THE BOOKS OF ACCOUNT BY APPLYING PROVISIONS OF SECTION 145 AND ESTIMATED THE NET PROFIT AT 7% OF THE GROSS RECEIPTS. TRIBUNAL C ONFIRMED THE ORDER OF THE CIT(A) ON THE ISSUE WITH CONCLUSION THAT THE RATE APPLIED HAS BEEN RIGHTLY BASED ON THE NET PROFIT RATE ON DIFFERENT YEARS. 3. IN THE CASE OF METROPOLITAN ENGG. CO. OPT. SOCIETY LTD. VS. ACIT ITA NO.S 2172 & 2172/KOL/2010 IT HAS BEEN HELD THAT IN THE AY 2001 - 02, THE ASSESSEE IS ENGAGED IN CIVIL CONTRACT BUSINESS WITH OTHERS BUSINESS SEGMENTS. AO ESTIMATED NET INCOME FROM THE WORK CONTRACT @ 10% ON THE GROSS CONTRACT RECEIPTS. ASSESSEE FAILED TO FURNISH NECESSARY EVIDENCE F OR PURCHASE AND OTHER EXPENSES. PURCHASE & EXPENSES NOT CONFIRMED ON AN ENQUIRY CONDUCTED BY THE AO U/S. 133(6). LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. TRIBUNAL RELIED ON THE DECISION OF HONBLE ORISSA HIGH COURT DECISION IN THE CASE OF C IT VS NANDARAM HUNDA RAM (1976) 103 ITR 433, WHEREIN IT IS HELD THAT IF THE ASSESSEE FAILED TO PRODUCE ACCEPTABLE ACCOUNTS REVENUE WOULD BE ON THE DECISION OF ROYAL MEDIAL HALL VS. CIT (1962) 46 ITR 748 (AP) WHEREIN IT IS HELD THAT ESTIMATE OF INCOME ON THE BASIS OF MATERIALS AVAILABLE AND THE PAST ASSESSMENT RECORD WAS HELD PROPER AND TRIBUNAL DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE INCOME BY APPLYING 6% OF NET PROFIT ON GROSS CONTRACT RECEIPTS. 4. IN THE CASE OF PRAVIN PANDURANG PATIL, ISLAMPU R IN ITA NO. 850/PN/08 IT HAS BEEN HELD THAT IN THE AY 2005 - 06, THE ASSESSEE IS ENGAGED IN CIVIL CONTRACT BUSINESS WITH OTHERS BUSINESS SEGMENTS. AO REJECTED THE BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3) AND ESTIMATED NET INCOME FROM THE C ONTRACT BUSINESS @ 8%. ASSESSEE FAILED TO PRODUCE THE LABOUR PAYMENT VOUCHERS AND PURCHASE BILLS TO VERIFY THE EXPENSES PURCHASE AND CLOSING STOCK. LD. CIT(A) HAS ESTIMATED THE INCOME FROM REGULAR CONTRACT BUSINESS AT 8% OF THE CONTRACT RECEIPTS AND 4% IN SO FAR SUB - CONTRACTING IS CONCERNED. HONBLE LORDSHIP OF TRIBUNAL, DIRECTED TO ESTIMATE THE INCOME @ 6% FROM THE CONTRACT BUSINESS SAND SO FAR AS PROFIT ON SUB - CONTRACT BUSINESS AND ROAD ROLLER HIRING IS CONCERNED UPHOLD THE ESTIMATION AS ADOPTED BY THE COM MISSIONER OF INCOME TAX (APPEALS) TO MEET THE END OF JUSTICE. 5. IN THE CASE OF THE ACIT GANDHIDHAM CIRCLE VS. M/S ISHWAR CONSTRUCTION CO. GANDHIDHAM, ITA NO. 1140/RJT/2009 IT HAS BEEN HELD THAT IN THE AY 2005 - 06, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. ASSESSEE FAILS TO PROVIDE PROPER EVIDENCE IN THE SHAPE OF BILLS, VOUCHERS, UNABLE TO VERIFY PURCHASES BEFORE THE AO AND AO MADE ADDITION FOR UNEXPLAINED PURCHASE, SUB - CONTRACT EXPENSES AND UNDER VALUATION OF WORK - IN - PROGRESS. THE LD. CIT(A) ESTIMATED THE TOTAL INCOME BY APPLYING NET PROFIT RATE OF 4%. BOTH THE ASSESSEE AND REVENUE HAS CHALLENGED TO THE EXTENT OF ORDER AGAINST THEM. THE TRIBUNAL INCLINED UPON THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY CONFIRMED. ITA NO. 228/PAT/2013 A.Y. 2010 - 11 M/S RAVINDRA KUMAR VS. ACIT, CIR - 5, PAT PAGE 5 RESPECTFULLY FOLLOWIN G THE ABOVE PRINCIPLES LAID DOWNS BY THE HONBLE COURTS AND TRIBUNALS, WE ARE INCLINED TO DIRECT THE LOWER AUTHORITIES TO WORK OUT THE TAXABLE NET PROFIT FROM THE BUSINESS @ 6 . 0 % APPROX OF THE GROSS RECEIPTS . THEREFORE WE ARE INCLINED TO REVERSE THE ORDER OF AUTHORITIES BELOW. HENCE THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 07 / 04 /201 7 SD/ - SD/ - ( ABY. T. VARKEY ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP , SR.P.S - 07 / 04 /201 7 PATNA COPY OF ORDER FORWARDED TO: - 1 . APPELLANT - M/S RAVINDRA KUMAR, NASIRGANJ, NR. B.S. COLLEGE, DIGHA, PATNA - 012 2 . RESPONDENT - ACIT, CIRCLE - 5, PATNA 3 . CONCERNED CIT 4 . CIT (A) 5 . DR, ITAT, PATNA 6 . GUARD FILE. BY ORDER/ , /TRUE COPY/ SR.PS/PS, ITAT, PATNA