Sh. Parveen Kumar Mittal, Sonepat V. ACIT, Sonepat

ITA 2290/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0658 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 17-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH F BENCH F BENCH F BENCH F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 2290/DEL/2010 2290/DEL/2010 2290/DEL/2010 2290/DEL/2010 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 200 200 200 200 6 66 6 - -- - 07 0707 07 SHRI PARVEEN KUMAR MITTAL, SHRI PARVEEN KUMAR MITTAL, SHRI PARVEEN KUMAR MITTAL, SHRI PARVEEN KUMAR MITTAL, PROP. M/S KRISHNA BUILDERS, PROP. M/S KRISHNA BUILDERS, PROP. M/S KRISHNA BUILDERS, PROP. M/S KRISHNA BUILDERS, SUNARA WALI GALI, SUNARA WALI GALI, SUNARA WALI GALI, SUNARA WALI GALI, GANOUR (SONEPAT). GANOUR (SONEPAT). GANOUR (SONEPAT). GANOUR (SONEPAT). PAN NO. PAN NO. PAN NO. PAN NO.AFCPP1603F. AFCPP1603F. AFCPP1603F. AFCPP1603F. VS. VS. VS. VS. ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, SONEPAT RANGE, SONEPAT RANGE, SONEPAT RANGE, SONEPAT RANGE, SONEPAT. SONEPAT. SONEPAT. SONEPAT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.N.GUPTA, ADVOCATE. RESPONDENT BY : SHRI H.K.LAL, SR.DR. ORDER ORDER ORDER ORDER PER C.L.SE PER C.L.SE PER C.L.SE PER C.L.SETHI THI THI THI, J , J, J , JM : M : M : M : THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 13.4.2010 PASSED BY LEARNED CIT(A) IN THE MATTER OF AN ASSESS MENT MADE U/S 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) BY THE ASSESSING OFFICER FOR THE AY 2006-07. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THAT ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ROHTAK HAD ERRED IN ENHANCING THE NET PROFIT RATIO TO 12% OF THE GROSS RECEIPTS AGAIN ST 5% OF GROSS RECEIPTS CONSIDERED BY AO THEREBY MAKING A FU RTHER ADDITION OF RS.3382487 TO THE ASSESSED INCOME OF RS.21,94,133. 2. THAT ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS), ROHTAK HAD ERRED IN MAKING A FURTHER ADDITION OF RS.3382,487 INSTEAD OF DELETING THE ADD ITION OF RS.1012,509 MADE BY A.O. TO THE RETURNED INCOME OF RS.1280,189. ITA-2290/DEL/2010 2 3. THAT ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ROHTAK HAD NOT APPRECIATING TH E FACTS THAT PART BOOKS OF ACCOUNTS WERE PRODUCED BEFORE AO . 3. ON PERUSAL OF THE GROUNDS OF APPEAL, WE FIND THA T THE FOLLOWING ISSUES ARE INVOLVED IN THIS CASE:- (I) WHETHER AO WAS JUSTIFIED IN MAKING ADDITION OF ` 12,12,509/- BY APPLYING THE NET PROFIT RATE OF 5%. (II) WHETHER LEARNED CIT(A) WAS JUSTIFIED IN MAKING A FU RTHER ADDITION OF ` 33,82,487/- BY ENHANCING THE RATE OF NET PROFIT FROM 5% APPLIED BY THE AO TO 12%. 4. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS A PROPRIETOR OF M/S KRISHNA BUILDERS. IN THIS CASE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2006 DECLARING TAXABLE INCOME OF ` 11,97,6 94/-. THE NATURE OF THE BUSINESS OF THE ASSESSEE IS THAT OF A CONTRA CTOR. THE RETURN OF INCOME WAS ACCOMPANIED WITH THE AUDITED REPORT IN F ORM 3CD REQUIRED U/S 44AB OF THE ACT. THE TOTAL GROSS RECEIPTS FROM CONTRACT WORKS SHOWN BY THE ASSESSEE IS ` 4,58,53,970/- AND THE NE T PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT IS ` 12,80,189/-, WHICH C OMES TO 2.79% OF GROSS RECEIPTS. THE CASE WAS SELECTED FOR SCRUTINY BY THE AO AND, ACCORDINGLY, NOTICES U/S 143(2) WERE ISSUED WITHIN THE PRESCRIBED TIME AND THE CASE WAS HEARD AND DISCUSSED BY THE AO WITH THE ASSESSEE. THE ASSESSMENT WAS ULTIMATELY COMPLETED U/S 143(3) OF THE ACT BY DETERMINING THE TOTAL INCOME AT 5% OF GROSS RECEIPT S SHOWN BY THE ASSESSEE. THE TOTAL INCOME DETERMINED BY THE AO IS ` 22,92,698/- BEING 5% OF TOTAL RECEIPTS AS AGAINST ` 12,80,189/- DECLARED BY THE ASSESSEE. ITA-2290/DEL/2010 3 5. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE NET PROFIT SHOWN BY THE ASSESSEE COMES TO 2.79% AS COMPARED TO 1.81% IN THE IMMEDIATELY PRECEDING YEAR . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE COMPLETE BOOKS OF ACCOUNT WITH BILLS AND VOUCHERS. HOWEVER, THE ASSESSEE HAD ONLY PRODUCED PART OF THE BOOKS WITH S OME BILLS OF IRON AND STEEL, CEMENT AND BUILDING MATERIAL AND BRICKS. NO BILLS AND VOUCHERS WERE PRODUCED FOR THE FOLLOWING MAJOR EXPE NSES :- (I) LABOUR CHARGES. (II) FABRICATION CHARGES. (III) CONSTRUCTION WORK EXPENSES. (IV) MISCELLANEOUS EXPENSES. (V) JOB WORK CHARGES. 6. THE ASSESSEE WAS PROVIDED A FINAL OPPORTUNITY VI DE ORDER SHEET ENTRY DATED 26.12.2008 TO PRODUCE COMPLETE BOOKS OF ACCOUNT WITH BILLS AND VOUCHERS BUT INSPITE OF VARIOUS OPPORTUNI TIES PROVIDED BY THE AO, THE ASSESSEE FAILED TO PRODUCE COMPLETE BOOKS O F ACCOUNT ALONGWITH BILLS AND VOUCHERS. THE ASSESSEE WAS ALS O ASKED TO EXPLAIN VARIOUS OTHER ASPECTS OF THE MATTER WHICH WERE NOT SUITABLY REPLIED BY THE ASSESSEE AS SO OBSERVED AND DISCUSSED BY THE AO IN HIS ORDER. AO, THEREFORE, REJECTED THE BOOKS OF ACCOUNT OF THE ASS ESSEE AND DETERMINED THE NET PROFIT OF THE ASSESSEE BY APPLYI NG NET PROFIT RATE OF 5% TO THE TOTAL RECEIPTS SHOWN BY THE ASSESSEE. AO THEN DETERMINED THE PROFIT AT ` 22,92,698/- AS AGAINST ` 12,80,189/ - SHOWN BY THE ASSESSEE. 7. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL B EFORE THE LEARNED CIT(A). THE CIT(A) OBSERVED THAT AO HAS RI GHTLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE REASON THA T THE ASSESSEE HAS ITA-2290/DEL/2010 4 NOT PRODUCED COMPLETE BOOKS OF ACCOUNT NOR PRODUCED BILLS OR VOUCHERS IN SUPPORT OF VARIOUS EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT. THE LEARNED CIT(A) ALSO OBSERVED THAT ASS ESSEE HAS NOT GIVEN ANY REASON AS TO WHY BOOKS OF ACCOUNT WERE NOT PROD UCED BEFORE AO ALONGWITH BILLS AND VOUCHERS INSPITE OF VARIOUS OPP ORTUNITIES GIVEN BY THE AO. THE CIT(A) THEN STATED THAT ASSESSEE IS A CIVIL CONTRACTOR AND APPLIED THE DECISION OF HONBLE HIGH COURT OF PUNJA B & HARYANA IN THE CASE OF M/S PARBHAT KUMAR, CONTRACTOR OF SIRSA, AS IN ITA NO.293 OF 2008 DATED 14.11.2008 WHERE HONBLE HIGH COURT HAS UPHELD THE APPLICATION OF NET PROFIT AT 12% ON CONTRACT RECEIP TS EXCLUDING THE COST OF MATERIAL SUPPLIED BY THE DEPARTMENT. THE LEARNE D CIT(A) ALSO HELD THAT HONBLE ITAT CHANDIGARH IN ITA NO.323/CHANDI/2 005 DATED 25.5.2007 IN AY 2001-02 HAD APPLIED 12% OF NET PROF IT RATE OF CONTRACT RECEIPTS IN THE CASE OF M/S PARBHAT KUMAR. THE CIT (A), THEREFORE, ENHANCED THE NET PROFIT RATE TO 12% ON TOTAL CONTRA CT RECEIPTS AND PASSED THE ORDER. 8. IN THE COURSE OF HEARING OF THIS APPEAL, THE LEA RNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN AS TO WHY ALL BOOKS OF ACCOUNT WITH COMPLETE BILLS AND VOUCHERS WERE NOT P RODUCED BEFORE THE AO. HOWEVER, HE CONTENDED THAT THE SAME WERE S OUGHT TO BE PRODUCED BEFORE THE CIT(A) AS WOULD BE CLEAR FROM T HE ORDER SHEET ENTRY MADE BY THE CIT(A). NO SUCH DETAILS OF BILLS AND VOUCHERS HAVE BEEN PRODUCED BEFORE US TO JUSTIFY THE ASSESSEES S TAND THAT ALL THE BOOKS OF ACCOUNT ALONGWITH COMPLETE BILLS AND VOUCH ERS WERE PRODUCED BEFORE THE AO OR CIT(A). THEREFORE, IN THE ABSENCE OF COMPLETE BOOKS OF ACCOUNT AND BILLS AND VOUCHERS, WE FIND THAT THE CIT(A) HAS RIGHTLY CONFIRMED AOS ACTION IN REJECTING THE BOOK RESULTS AND THEN PROCEEDED TO DETERMINE THE PROFIT BY APPLYING AD-HOC RATE. ITA-2290/DEL/2010 5 9. IN THE COURSE OF HEARING, LEARNED COUNSEL FOR TH E ASSESSEE HAS INVITED OUR ATTENTION TO THE COMPARATIVE CHART OF T URNOVER AND NET PROFIT DECLARED BY THE ASSESSEE IN THE IMMEDIATELY TWO YEARS AS COMPARED TO CURRENT FINANCIAL YEAR 2005-06, WHICH A RE AS UNDER:- FI NANCIAL YEAR TURNOVER NET PROFIT % OF NET PROFIT ASSESSED INCOME COMPLETED UNDER SECTION % OF NET PROFIT ASSESSED AFTER CIT(A) 2003 - 04 8843638 563127 6.37 563127 143(1) 6.37 -- 2004 - 05 26429168 480624 1.82 568380 143(3) 2.15 NO APPEAL FILED 2005 - 06 4585 3970 1280189 2.79 2292698 143(3) 5.00 12.00 10. ON PERUSAL, WE FIND THAT THE NET PROFIT ASSESSE D IN FY 2003-04 RELEVANT TO THE AY 2004-05 IS 6.37%. IN THE FY 200 4-05 RELEVANT TO THE AY 2005-06, THE NET PROFIT ASSESSED IS OF 2.15%. I N THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED NET PROFIT AT 2.79% WHICH HAS BEEN INCREASED TO 5% BY THE AO AND FURTHER INCREASED TO 12% BY THE LEARNED CIT(A). THE TOTAL TURNOVER IN FY 2003- 04 WAS ` 88,43,638/- WHICH HAS BEEN INCREASED TO ` 2,64,29,168/- IN THE NEXT FY 2004-05 AND TO ` 4,58,53,970/- IN THE C URRENT FY 2005-06. IT IS THUS SEEN THAT THE TURNOVER IN THE CURRENT YE AR HAS BEEN INCREASED FROM ` 88,43,638/- IN FY 2003-04 TO ` 4,58,53,970/- WHICH IS ABOUT FIVE TIMES. IT IS ALSO SEEN BY US THAT IN THE FY 2004-0 5 RELEVANT TO THE AY 2005-06, THE AO HAS HIMSELF APPLIED THE RATE OF PRO FIT AT 2.15% AGAINST TOTAL TURNOVER OF ` 2,64,29,168/-. 11. FURTHER, THE CIT(A) HAS APPLIED THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF M/S PARBHAT KUMA R (SUPRA) WHILE APPLYING THE RATE OF PROFIT AT 12%. WE HAVE GONE T HROUGH THE AFORESAID DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA AND FIND THAT IN THAT CASE, THE ASSESSEE WAS A CONTRACTOR EN GAGED IN THE WORK OF ITA-2290/DEL/2010 6 CIVIL CONSTRUCTION. THE TRIBUNAL WHILE DECIDING TH E ASSESSEES APPEAL FOUND IT APPROPRIATE TO APPLY REASONABLE RATE OF PR OFIT OF 12% ON CONTRACT RECEIPTS EXCLUDING THE MATERIAL SUPPLIED B Y THE DEPARTMENT. IT IS THUS CLEAR THAT THE RATE OF 12% WAS APPLIED T O CONTRACT RECEIPTS AFTER EXCLUDING THE COST OF MATERIAL SUPPLIED BY TH E DEPARTMENT AND IT WAS NOT APPLIED TO THE GROSS CONTRACT RECEIPTS INCL UDING COST OF MATERIAL. IN THE PRESENT CASE, THE ASSESSEE HAS PR ODUCED BEFORE US THE PROFIT AND LOSS ACCOUNT. ON PERUSAL THEREOF, W E FIND THAT THE TOTAL GROSS RECEIPTS SHOWN BY THE ASSESSEE INCLUDE COST O F VARIOUS MATERIALS USED BY THE ASSESSEE IN THE EXCLUSION OF CONTRACT W ORK WHICH ARE LISTED BELOW:- (I) ALUMINIUM PRODUCTS. (II) BUILDING MATERIAL AND BRICKS. (III) CEMENT PURCHASES. (IV) CONSTRUCTION CHEMICAL. (V) ELECTRICAL MATERIAL. (VI) FASTENERS. (VII) GLASS MATERIAL AND LABOUR. (VIII) IRON AND STEEL GOODS. (IX) TILES/ADHESIVE PURCHASED. FROM THESE DETAILS, IT APPEARS THAT THE ASSESSEE HA S INCURRED THE COST OF VARIOUS BUILDING MATERIALS, WHICH HAVE NOT BEEN SUPPLIED BY THE CONTRACTEE. THE MARGIN OF PROFIT IN RESPECT OF THE BUILDING MATERIALS AND STORES IS ALWAYS ON A LOWER SIDE. 12. KEEPING IN VIEW THE FACT THAT THE RATE OF PROFI T APPLIED BY THE AO IN THE PRECEDING ASSESSMENT YEAR WAS BEING 2.15% OF TOTAL CONTRACT RECEIPTS AND KEEPING IN VIEW THE FACT THAT THE ASSE SSEE HAS BEEN IN DEFAULT IN NOT PRODUCING ALL BOOKS OF ACCOUNT ALONG WITH BILLS AND ITA-2290/DEL/2010 7 VOUCHERS RAISING AN ADVERSE INFERENCE AGAINST THE A SSESSEE THAT HAD THE BOOKS OF ACCOUNT PRODUCED BEFORE THE AO, THAT W OULD HAVE GONE AGAINST THE ASSESSEE, WE REASONABLY ESTIMATE THE NE T PROFIT OF THE ASSESSEE FROM CONTRACT WORKS BY APPLYING THE RATE O F NET PROFIT AT 4%, WHICH SEEMS TO BE VERY REASONABLE AND JUSTIFIED IN THE LIGHT OF THE RATE ADOPTED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEA R AND IN THE LIGHT OF FACTS THAT THE ASSESSEE FAILED TO PRODUCE COMPLE TE BOOKS OF ACCOUNT. WE, THEREFORE, DIRECT THE AO TO APPLY THE RATE OF N ET PROFIT AT 4% OF CONTRACT RECEIPTS, AND MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2011. SD/- SD/- (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA ) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI ) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 20.01.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR ITA-2290/DEL/2010 8