ACIT, Jaipur V. JANTA CONSTRUCTION CO., Jaipur

ITA 231/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5128 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: MUKESH KHANDELWAL C A DHK
• Keywords: Unexplained expenditure; Tax effect
• Section: 69C; 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 231/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE-4, JAIPUR. CUKE VS. M/S. JANTA CONSTRUCTION CO., E-47, ROAD NO. 2B, VKI AREA, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AABFJ 0003 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ C.O . NO. 10/JP/2014 ARISING OUT OF ITA NO. 231/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. M/S. JANTA CONSTRUCTION CO., E-47, ROAD NO. 2B, VKI AREA, JAIPUR. CUKE VS. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AABFJ 0003 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI R. A. VERMA (ADDL. CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MUKESH KHANDELWAL (C.A) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 29.08.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 16/09/2016. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT (A)-II, JAIPUR DATED 08.01.2014 PERTAINING TO A.Y. 2009-10. THE ASSESSEE HAS FILED CROSS OBJECTION. BOTH THE APPEAL AND CROSS OBJECTION ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER, FOR THE SAKE OF CONVENIENCE. 2 ITA NO. 231/JP/2014 & CO NO. 10/JP/2014 ACIT VS. M/S. JANTA CONSTRUCTION COMPANY 2. FIRST, WE TAKE UP APPEAL OF THE REVENUE. THE ON LY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADD ITION OF RS. 44,04,884/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINE D EXPENSES INCURRED BY THE ASSESSEE. 3. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY AND THE ASSESSMENT WAS FRAMED UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER DATED 29.12.2011. WHILE FRAMING THE ASSESSMENT, THE AO MADE ADDITION OF RS. 58,29,943/-. THIS ADDITION HAD TWO COMPONENTS ADDITION OF RS. 44,04,884/- ON ACCOUNT OF ALLEGED EXPENSES OUT OF UNDISCLOSED SOURCES AND RS. 14,25,059/- AS S UPPRESSION OF WORK-IN-PROGRESS. THE ASSESSEE AGGRIEVED BY THIS ORDER, CARRIED THE M ATTER BEFORE LD. CIT (A), WHO PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING T HE APPEAL, THE LD. CIT (A) DELETED THE ADDITION OF RS. 44,04,884/- AND CONFIRMED THE A DDITION OF RS. 14,25,059/-. 4. NOW THE REVENUE IS IN APPEAL AGAINST THE DELETIO N OF ADDITION OF RS. 44,04,884/- AND THE ASSESSEE IS IN CROSS OBJECTION AGAINST CONFIRMING THE ADDITION OF RS. 14,25,059/-. 4.1. THE LD. D/R VEHEMENTLY ARGUED THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. HE SUBMITTED THAT THE AO OBS ERVED THAT IN THE MONTH OF MARCH, 2009 ONLY ONE ENTRY WAS MADE ON 8 TH MARCH, 2009 IN RESPECT OF WORK DONE FOR RS. 24,09,695/-. FURTHER, THE AO OBSERVED THAT THE ASSESSEE HAS NOT ACCOUNTED FOR EXPENSES OF RS. 65,43,393/-. HENCE THE AO MADE ADDITION OF RS. 44,04,884/- ON ACCOUNT OF EXPENDITURE INCURRED OUT OF UNDISCLOSED SOURCES. HE SUBMITTED THAT THE LD. CIT (A) DELETED THE SAME WITHOUT GIVING ANY COG ENT REASON. 3 ITA NO. 231/JP/2014 & CO NO. 10/JP/2014 ACIT VS. M/S. JANTA CONSTRUCTION COMPANY 4.2. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSION AS MADE IN THE WRITTEN BRIEF AND SUBMITTED THAT THE AS SESSEE FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING BUT FOR EXPENSES INCURRED DURI NG THE YEAR IT RECORDS ON THE BASIS OF PAYMENT THEREOF AND AT THE YEAR END MAKES PROVISION FOR THE OUTSTANDING EXPENSES. THEREFORE, MONTH TO MONTH MATCHING OF REC EIPT AND EXPENSES IS NOT POSSIBLE. HE SUBMITTED THAT THE AO ONLY TOOK THE AN ALYSIS OF TWO MONTHS I.E. APRIL AND MAY, 2008 BUT DID NOT MAKE ANY COMMENT ON THE R EMAINING 10 MONTHS. THE ASSESSMENT WAS MADE FOR THE FULL YEAR HENCE ACTION OF THE AO WAS NOT JUSTIFIED. 4.3. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT THE LD. CIT (A) HAS DECIDED THE ISSUE VIDE PARA 2.3 OF HIS ORDER AS UNDER :- 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER F OUND THE METHOD OF ACCOUNTING INCOME AND EXPENSES INCORRECT AND MADE A DDITION ON ACCOUNT OF UNEXPLAINED EXPENDITURE FOR THE MONTH OF APRIL AND MAY ON THE GROUND THAT EXPENDITURE INCURRED IN THESE TWO M ONTHS ARE VERY LOW AND HAVE BEEN MET FROM UNDISCLOSED SOURCES. IT IS N OT IN DISPUTE THAT ASSESSING OFFICER DID NOT HAVE ANY EVIDENCE IN RESP ECT OF UNACCOUNTED EXPENDITURE FROM UNDISCLOSED SOURCES AND THEREFORE BASIS FOR ESTIMATION OF SUCH EXPENSE IS JUST EXPENSE CLAIMED IN TWO MONTHS. IT IS COMMON KNOWLEDGE THAT THERE CANNOT BE ANY MATCHING RECEIPT AND EXPENDITURE ON MONTH TO MONTH BASIS. EXPENDITURE IN CURRED IN EARLIER MONTHS MAY RESULT IN INCOME IN SUBSEQUENT MONTHS WI THOUT INCURRING MUCH EXPENDITURE. THEREFORE, IF ANYONE WANTS TO MAT CH MONTHLY INCOME AND EXPENDITURE, IN A CONTRACT BUSINESS, SUC H ATTEMPT IS MISLEADING BECAUSE EXPENDITURE INCURRED IN EXECUTED CONTRACT MAY RESULT IN CONTRACT BILLING IN SUBSEQUENT MONTHS AND THEREFORE THERE CANNOT BE ANY MATCHING INCOME AND EXPENSE IF THIS E XERCISE IS DONE N MONTH TO MONTH BASIS. HOWEVER, ON THE ANNUAL BASIS, CONTRACT INCOME AND CLOSING WIP WILL MATCH WITH THE EXPENSES INCURR ED. APPELLANT HAD NET PROFIT OF 8.97% ON ANNUAL BASIS ON WHICH IS IN LINE WITH EARLIER YEARS PROFIT AND AS PER THAT THERE IS NO QUESTION O F PRESUMING ANY UNEXPLAINED EXPENDITURE. THEREFORE, IT IS CLEAR THA T THE WHILE EXERCISE OF COMPUTING UNEXPLAINED EXPENDITURE BY THE AO IS W ITHOUT ANY BASIS AND MISLEADING. EVEN OTHERWISE, UNEXPLAINED EXPENDI TURE CAN BE ADDED UNDER SECTION 69C WHEREIN DEPARTMENT HAS TO P ROVE THE 4 ITA NO. 231/JP/2014 & CO NO. 10/JP/2014 ACIT VS. M/S. JANTA CONSTRUCTION COMPANY SPENDING OF EXPENDITURE NOT RECORDED IN THE BOOK. ASSESSING OFFICER DID NOT HAVE ANY EVIDENCE OR MATERIAL TO SUGGEST TH AT EXPENDITURE WERE INCURRED OUT OF BOOKS. THEREFORE, THE ADDITION ON ACCOUNT OF UNEXPLAINED EXPENDITURE, WITHOUT ANY EVIDENCE, IS N OT SUSTAINABLE. APPELLANT SUBMITTED THAT IN ALL EARLIER YEARS, ASSE SSING OFFICER REJECTED ITS BOOK RESULTS AND MADE SOME ADDITION WHICH WAS D ELETED BY ITAT IN ALL EARLIER YEARS. APPELLANTS PROFIT THIS YEAR IS BETTER THAN EARLIER YEARS AND THEREFORE EVEN ON THIS ACCOUNT, NO ADDITION CAN BE MADE WITHOUT ANY EVIDENCE OF UNEXPLAINED EXPENDITURE. ACCORDINGL Y, ADDITION MADE BY THE ASSESSING OFFICER IS FOUND TO BE WITHOUT ANY BASIS AND HENCE THE SAME IS DELETED. THE LD. CIT (A) HAS GIVEN FINDING OF FACT THAT THE AO DID NOT HAVE ANY EVIDENCE IN RESPECT OF UNACCOUNTED EXPENSES FROM UNDISCLOSED SO URCES AND THEREFORE, BASIS FOR ESTIMATION OF SUCH EXPENSE IS JUST EXPENSE CLAIMED IN TWO MONTHS. THIS FINDING OF FACT IS NOT CONTROVERTED BY THE REVENUE. WE ALSO F IND MERIT IN THE FINDING OF THE LD. CIT (A) THAT THE UNEXPLAINED EXPENDITURE CAN BE ADD ED UNDER SECTION 69C WHEREIN DEPARTMENT HAS TO PROVE THE SPENDING OF EXPENDITURE NOT RECORDED IN THE BOOK. IN THE GIVEN CASE, THE EXPENDITURE HAS BEEN DULY RECOR DED IN THE BOOKS. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT (A), THE SAME IS UPHELD. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5. NOW WE TAKE UP CROSS OBJECTION OF THE ASSESSEE. 6. THE ONLY EFFECTIVE GROUND IS AGAINST SUSTAINING ADDITION OF RS. 14,25,059/- ON ACCOUNT OF ALLEGED SUPPRESSION IN WORK-IN-PROGRESS DECLARED IN THE PROFIT & LOSS ACCOUNT. 6.1. THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS AS ARE MADE IN THE WRITTEN BRIEF. HE SUBMITTED THAT ALL THE EXPENS ES ARE DEBITED IN THE BOOKS FOR MATERIAL PURCHASED FOR RS. 24.03 LACS PERTAINED TO PREVIOUS MONTHS, BUT WITHOUT PROPERLY ANALYZING THE SAME HE ALLEGED THAT THE CLO SING WORK-IN-PROGRESS WAS 5 ITA NO. 231/JP/2014 & CO NO. 10/JP/2014 ACIT VS. M/S. JANTA CONSTRUCTION COMPANY REQUIRED TO BE OF RS. 24.03 LACS AS AGAINST WORK-IN -PROGRESS DECLARED BY THE ASSESSEE AT RS. 9.78 LACS. IT WAS FURTHER SUBMITTE D THAT EVEN IF THE ADDITION IN CLOSING WIP IS UPHELD, THE SAME IS REQUIRED TO BE T REATED AS OPENING WIP FOR NEXT YEAR YIELDING NIL TAX EFFECT. THE LD. CIT (A) HAS NOT CONSIDERED THIS SUBMISSION. THEREFORE, ALTERNATIVELY IT IS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT EVEN IF IT IS FOUND CORRECT, APPROPRIATE DIRECTIONS BE G IVEN TO THE AO TO ALLOW THE ADDITION AS MADE IN THE YEAR UNDER CONSIDERATION IN RESPECT OF WORK-IN-PROGRESS BE TREATED AS OPENING STOCK IN THE NEXT YEAR. 6.2. ON THE CONTRARY, THE LD. D/R OPPOSED THE SUBMI SSIONS. HE SUBMITTED THAT THE LD. CIT (A) HAS GIVEN A FINDING OF FACT. THE ASSESS EE HAS NOT PLACED ANY MATERIAL CONTROVERTING THIS FINDING. 6.3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE LD. CIT (A) HAS CONFIRMED THE ADDITION BY OBSERVING AS UNDER :- 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER F OUND THAT APPELLANT DID NOT VALUE ITS CLOSING WORK IN PROGRESS CORRECTL Y SINCE THERE WAS NO BILLING AFTER 8.3.2009 BUT ONLY SMALL PART OF EXPEN SE INCURRED AFTER WARD IS TAKEN TO CLOSING WORK IN PROGRESS. AFTER GI VING CREDIT OF BILLING DONE DURING THE MONTH AND CLOSING STOCK INVENTORY S HOWN, ASSESSING OFFICER FOUND THAT CLOSING WIP IS DISCLOSED LESS BY RS. 1425059/- AND THE ADDITION OF THIS AMOUNT WAS MADE ADJUSTING THE SAME WITH UNACCOUNTED EXPENDITURE. THE ADDITION IN RESPECT OF UNACCOUNTED EXPENDITURE IS DELETED IN PARA 2.3 THEREFORE; NET A DDITION OF RS. 1425059/- ON ACCOUNT OF SUPPRESSION OF CLOSING WIP REMAINED. ASSESSING OFFICER COMPUTED THE SUPPRESSION OF CLOSI NG WIP ON THE BASIS OF EXPENDITURE INCURRED AND BILLING DONE IN THE MON TH OF MARCH 2009. IT IS NOT IN DISPUTE THAT ANY EXPENDITURE INCURRED AFT ER THE CONTRACT BILLING IS DONE HAS TO BE PART OF CLOSING STOCK SINCE THE C LAIM OF EXPENSE TO THAT EXTENT DID NOT RESULT IN REVENUE. ACCORDINGLY , ASSESSING OFFICER IS JUSTIFIED IN INCREASING CLOSING WORK IN PROGRESS BY CONSIDERING THE EXPENSES INCURRED AFTER LAST BILLING OF THE FINANCI AL YEAR. APPELLANTS ARGUMENTS ARE NOT SUPPORTED BY ANY EVIDENCE THAT EX PENDITURE INCURRED AFTER 8.3.2009 WERE RELATING TO CONTRACTS EXECUTED EARLIER AND 6 ITA NO. 231/JP/2014 & CO NO. 10/JP/2014 ACIT VS. M/S. JANTA CONSTRUCTION COMPANY THEREFORE NOT TO BE INCLUDED IN CLOSING WORK IN PRO GRESS. FURTHER, APPELLANTS ARGUMENT THAT ADDITION TO CLOSING WORK IN PROGRESS WILL NOT MAKE ANY DIFFERENCE SINCE IT WILL BE OPENING STOCK NEXT YEAR, IS NOT RELEVANT. THE VALUATION OF CLOSING STOCK HAS TO BE DONE CORRECTLY BY INCLUDING ALL COSTS INCURRED FOR WHICH NO REVENUE I S GENERATED. CONSIDERING ALL THESE FACTS IT IS SEEN THAT APPELLA NT WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM THAT CLOSING WORK IN PROGRES S WAS CORRECTLY VALUED. ACCORDINGLY ADDITION MADE BY THE ASSESSING OFFICER TO CLOSING WORK IN PROGRESS IS CONFIRMED. THE ABOVE FINDING OF FACT IS NOT CONTROVERTED BY TH E ASSESSEE. THEREFORE, SO FAR AS ADDITION MADE IN WORK-IN-PROGRESS IS CONFIRMED. HO WEVER, THE ASSESSEE WOULD BE AT LIBERTY TO CLAIM THIS BEFORE THE AO AS OPENING STOC K OF THE NEXT YEAR. THIS GROUND OF THE ASSESSEE IS REJECTED. 7. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 16/09 /2016. SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 16/09/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE-4, JAIPUR. 2. THE RESPONDENT M/S. JANTA CONSTRUCTION CO., JA IPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 231 & CO 10/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NO. 231/JP/2014 & CO NO. 10/JP/2014 ACIT VS. M/S. JANTA CONSTRUCTION COMPANY