DWARKA CONSTRUCTIONS PVT. LTD., Jaipur V. ACIT, Jaipur

ITA 237/JPR/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74840 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: PREM LATA
• Keywords: Rejection of books of accounts; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JAIPUR BENCH : JAIPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 237/JP/2013 (A.Y. 2009-10) M/S. DWARKA CONSTRUCTION PVT. LTD., VS. ACIT, CIR CLE-3, 222, CITY CENTER, S.C. ROAD, JAIPUR. JAIPUR. PAN NO. AAACD 4392 F (APPELLANT) (RESPONDENT) ITA NO. 205/JP/2013 (A.Y. 2009-10) DCIT, CIRCLE-3, VS. M/S. DWARKA CONSTRUCTION ROOM NO. 218, STATUE CIRCLE, PVT. LTD., 222, CITY CENTER, JAIPUR. S.C. ROAD, JAIPUR. PAN NO. AAACD 4392 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.L. JAIN & MS. PREM LATA. DEPARTMENT BY : SHRI D.C. SHARMA - D.R. DATE OF HEARING : 28/01/2014. DATE OF PRONOUNCEMENT : 26/02/2014. O R D E R PER N.K. SAINI, A.M 2 THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPART MENT ARE DIRECTED AGAINST THE ORDER DATED 14/12/2012 OF LD. CIT(A)-I, JAIPUR. THE MAIN ISSUE INVOLVED IN THESE CROSS APPEALS IS COMMO N AND THE APPEALS WERE HEARD TOGETHER, SO, THESE ARE BEING DISPOSED O FF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. IN ASSESSEES APPEAL IN I.T.A.NO. 237/JP/2013 THE F OLLOWING GROUNDS HAVE BEEN RAISED:- GROUND NO.1 THE CIT APPEAL HAS ERRED IN LAW AS WELL AS ON FACT S IN NOT AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT AND PASSING THE ORDER EXPARTE AS MATERIAL AVAILABLE ON RECORD THUS ORDER OF LD. CIT(A) IS NULL & VOID. GROUND NO.2 2(A) THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WEL L AS ON FACTS IN HOLDING THAT THE NOTICE U/S 143(2) HAS BEEN SERVED ON THE ASSESSEE BEFORE 30/09/2010 WHICH IN FACT WAS NOT SERVED TO T HE ASSESSEE COMPANY WITHIN THE TIME AS STIPULATED IN IT ACT. 2(B) THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WEL L AS ON FACTS IN TREATING THE SUBSTITUTE SERVICE OF NOTICE BY AFFIXT URE AS A VALID SERVICE OF NOTICE THUS VIOLATING ORDER 5 RULE 17 OF CPC AND THUS THE ASSESSMENT IS NULL AND VOID. 2(C) THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WEL L AS ON FACTS IN HOLDING THE ASSESSMENT ORDER AS VALID ORDER WHICH I S BAD IN LAW AND WITHOUT JURISDICTION IN ABSENCE OF VALID SERVICE OF NOTICE U/S 143(2) OF THE I.T. ACT. 1961. 2(D) THAT THE ASSESSEE HAS RAISED SUCH OBJECTION BE FORE THE COMPLETION OF SUCH ASSESSMENT VIDE LETTER DATED 23/12/2011 & S END BY SPEED POST TO THE A.O. AND THUS SECTION 292 BB IS NOT APP LICABLE. 3 GROUND NO.3. THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WELL AS ON FACTS IN APPLYING THE PROVISION OF SECTION 145(3) OF THE I.T . ACT ON THE GROUNDS WHICH ARE NOT PROPER DUE TO NATURE OF BUSIN ESS OF THE ASSESSEE BEING SUCH THAT THE GROUNDS TAKEN BY THE A O OF CASH PAYMENT TO LABOUR AND MAINTENANCE OF DAY TO DAY STO CK REGISTER AND CASH PAYMENT OF MATERIAL ETC. ARE NOT TO BE APP LIED FULLY IN THE CASE OF THE ASSESSEE COMPANY. GROUND NO.4 THE AUTHORITIES BELOW HAVING NOT FORMED ANY FAULT WITH THE BOOKS OF ACCOUNTS EMPLOYED BY THE ASSESSEE OR DISCOVERED SUPPRESSION OF ANY MATERIAL FACT. NO ADDITION COULD BE MADE TO THE INCOME OF THE ASSESSEE BY ESTIMATING THE PROFIT AS A PERCENTAGE O F TURNOVER, WHOSE BOOKS OF ACCOUNTS ARE PROPERTY MAINTAINED AND AUDITED BY A C.A. AS PER PROVISIONS OF 44AB OF I.T. ACT. THE AU THORITIES BELOW HAVE ERRED IN LAW AS WELL AS ON FACTS IN REJECTING THE BOOKS U/S 145(3) OF THE I.T. ACT WITHOUT ANY BASIS OR GROUND AND APPLYING THE NET PROFIT RATE @ 5% OF TOTAL RECEIPTS. GROUND NO.5 THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WELL AS ON FACTS IN IGNORING THE PAST RESULTS WHILE APPLYING THE NET PR OFIT RATE WHILE ESTIMATING THE PROFIT OF THE ASSESSEE. GROUND NO.6 THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THE DEMAND OF LIQUIDATED DAMAGES AMOUNT ING TO RS. 478.92 LACS BY THE AWARDER DEPARTMENTS IMPOSED BY T HEM FOR NON PERFORMANCE OF THE WORK RELATING TO THE YEAR 2008-0 9 UNDER TAKEN BY THE ASSESSEE COMPANY BUT NOT PERFORMED DUE TO HI GH ESCALATION IN COST OF CONSTRUCTION AND LOWER RATE OF CONTRACTS DUE TO HIGH COMPETITION. 4 GROUND NO.7 THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WELL AS ON FACTS IN INITIATING PENALTY PROCEEDINGS U/S 271 (1)(C) OF TH E I.T. ACT 1961 WHICH IS NOT LEGAL AND NOT JUSTIFIED. GROUND NO.8 THE AUTHORITIES BELOW HAVE ERRED IN LAW AS WELL AS ON FACTS IN TREATING THE INTEREST ON FDR AMOUNTING TO RS. 96920 9/- AS INCOME FROM OTHER SOURCES IGNORING THE FACT THAT SUCH FDR WERE MADE ONLY FOR OBTAINING THE PERFORMANCE GUARANTEES AS DEMANDE D BY THE AWARDER DEPARTMENTS AS PER THE TERMS OF THE CONTRAC T AND ALSO NOT CONSIDERING THE FACT THAT THE ABOVE FDR HAS NOT BEE N MADE OUT OF SURPLUS FUNDS BUT FROM THE BUSINESS FUNDS AND THE A SSESSEE COMPANY HAD NO SURPLUS FUNDS. GROUND NO.9 THE APPELLANT CRAVES TO LEAVE ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE HEARIN G OF THE APPEAL. 3. THE ONLY GROUND RAISED IN THE DEPARTMENTAL APPEA L IN I.T.A. NO. 205/JP/2013 READS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ESTIMATING THE N.P. RAT E AT 5% AS AGAINST 8% APPLIED BY THE A.O. ON TOTAL TURNOVER OF RS. 8,24,7 9,091/- 4. GROUNDS NO. 1 & 9 OF THE ASSESSEES APPEAL ARE G ENERAL IN NATURE WHILE GROUND NO.7 RELATING TO INITIATION OF PENALTY PROCEEDING, WHICH IS RAISED PREMATURELY, SO, THESE GROUNDS DO NOT REQUIR E ANY COMMENTS ON OUR PART. GROUNDS NO. 2(A) TO 2(D) ARE RELATING TO VALIDITY OF SERVICE OF 5 NOTICE UNDER SECTION 143(2) OF THE I.T. ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT IN SHORT), THESE GROUNDS WERE NOT ARGU ED WHILE GROUND NO.6 RELATING TO LIQUIDATED DAMAGES WAS NOT PRESSED. TH EREFORE, NO FINDING IS REQUIRED TO BE GIVEN ON OUR PART ON THOSE GROUNDS. 5. GROUNDS NO. 3 TO 5 OF THE ASSESSEES APPEAL AND THE ONLY GROUND IN THE DEPARTMENTAL APPEAL RELATE TO THE SUSTENANCE/DE LETION OF ADDITION MADE BY THE ASSESSING OFFICER BY APPLYING THE NET P ROFIT RATE. 6. FACTS RELATING TO THESE ISSUES IN BRIEF ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER POINT ED OUT THE FOLLOWING DEFECTS DURING THE TEST CHECK OF BOOKS OF ACCOUNTS: - A) LABOUR PAYMENT HAVE BEEN MADE THROUGH CASH OR S ELF-MADE VOUCHERS. B) MATERIAL LIKE SAND, STONE, GRIT HAVE BEEN PURCHA SE THROUGH CASH. C) DAY TO DAY QUANTITATIVE DETAILS HAVE NOT MAINTAI NED BY ASSESSEE. D) WORK IN PROGRESS HAVE BEEN CALCULATED ON ESTIMAT ED BASIS. E) CASH BOOK NOT MAINTAINED BY ASSESSEE. 7. THE ASSESSEE SUBMITTED TO THE ASSESSING OFFICER TH AT HE MAINTAINED COMPLETE BOOKS OF ACCOUNTS WHICH WERE GOT AUDITED A ND THAT THE PROJECT OF ROAD CONSTRUCTION WAS CARRIED OUT IN A PLACE WHE RE NO BANK FACILITY WAS AVAILABLE. HOWEVER, NO PAYMENT EXCEEDING TO RS. 20 ,000/- IN CASH PER DAY PER PERSON HAD BEEN MADE. IT WAS FURTHER STATE D THAT IN FEW CASES, 6 THE BILLS FOR EXPENSES WERE AVAILABLE AND EVEN IF T HE BOOKS WERE REJECTED, THE NET PROFIT RATE OF 8% AS PROPOSED WAS NOT JUSTI FIED SINCE THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 5.8% OF TURNOVER IN TH E TOUGH COMPETITION. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT THERE WAS NO DAY TO DAY STOCK ACCOUNT AND THAT THE DETAILS OF RAW-MATERIAL CONSUMED COULD NOT BE VERIFIED IN THE ABSENCE OF STOCK REGISTER AND WORK IN PROGRESS REGI STER. HE ALSO OBSERVED THAT THE VOUCHERS IN RESPECT OF LABOUR CHARGES WERE SELF-MADE. HE, THEREFORE, REJECTED THE BOOKS OF ACCOUNTS BY INVOKI NG THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSING OFFICER P OINTED OUT THAT THE ASSESSEE HAD DISCLOSED NET PROFIT RATE OF 2.46%. T HE ASSESSING OFFICER ESTIMATED THE NET PROFIT RATE AT 8% BY OBSERVING TH AT DUE TO DEFECTS IN THE ACCOUNTS, TRUE AND CORRECT PROFIT FROM THE CONT RACT WORK DONE BY THE ASSESSEE COULD NOT BE WORKED OUT. 8. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A), WHO DECIDED THE APPEAL OF THE ASSESSEE EXPARTE SINCE THERE WAS NO COMPLIANCE TO THE NOTICE ISSUED DURING THE COURSE O F ASSESSMENT PROCEEDINGS. 7 9. LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 2.46% ON THE TOTAL TURNOVER OF RS. 8,24,79,091/- FO R THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE NET PROFIT RATE OF 5.03% ON THE TOTAL TURNOVER OF RS. 6,03,85,271/- IN THE IMMEDIATELY PR ECEDING YEAR. LD. CIT(A) ESTIMATED THE NET PROFIT RATE AT 5% ON THE T OTAL TURNOVER BY KEEPING IN VIEW THAT THERE WAS SLIGHT INCREASE IN T HE TURNOVER OF THE ASSESSEE. NOW THE ASSESSEE IS IN APPEAL. AGAINST T HE SUSTENANCE OF ADDITION WHILE THE DEPARTMENT HAS FILED CROSS APPEA L FOR THE RELIEF ALLOWED TO THE ASSESSEE. 10 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F URTHER SUBMITTED THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED BY THE A SSESSEE IN REGULAR COURSE OF ITS BUSINESS WHICH WERE SUBJECT TO AUDIT UNDER SECTION 44AB OF THE ACT AND THE AUDITOR DID NOT POINT OUT ANY DEFEC TS IN THE BOOKS OF ACCOUNTS. IT WAS FURTHER STATED THAT THE DECREASE IN THE NET PROFIT RATE IN COMPARISON TO THE PRECEDING YEAR WAS ON ACCOUNT OF INCREASE IN THE TURNOVER. IT WAS FURTHER STATED THAT THE LD. CIT(A ) WITHOUT APPRECIATING THE FACTS OF THE PRESENT CASE, ARBITRARILY ESTIMATE D THE NET PROFIT RATE AT 5%, WHICH WAS HIGHLY EXCESSIVE. 8 11 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. STRONGLY S UPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT TH E SPECIFIC DEFECTS WERE POINTED OUT IN THE BOOKS OF ACCOUNTS AND DUE TO THE DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, IT WAS NOT POSSIBLE TO DEDUCE THE TRUE PROFIT. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN ESTIMATING THE NET PROFIT @ 8% ON THE TOTAL RECEIPTS. 12 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT THE SPECIFIC DEFECTS POINTED OUT BY THE ASSESSING OFFICER WERE NOT PROPERLY EXPLAINED BY THE ASSESSEE , THEREFORE, THE BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED BY INVOKING THE P ROVISIONS OF SECTION 145(3) OF THE ACT. IN SUCH TYPE OF CASES, WHEN THE BOOKS OF ACCOUNTS ARE REJECTED, THE NET PROFIT RATE SHOULD HAVE BEEN WORK ED OUT BY CONSIDERING THE PAST HISTORY OF THE ASSESSEE OR ANY COMPARABLE CASE HAVING IDENTICAL FACTS. HOWEVER, IN THE PRESENT CASE, NEITHER ASSES SING OFFICER NOR THE LD. CIT(A) CONSIDERED THE PAST HISTORY OF THE ASSESSEE IN TRUE SENSE AND ALSO DID NOT CITED ANY COMPARABLE CASE. LD. CIT(A) ESTI MATED THE INCOME BY APPLYING NET PROFIT RATE OF 5% ON THIS BASIS THAT I N THE EARLIER YEAR, THE 9 NET PROFIT DECLARED BY THE ASSESSEE WAS AT 5.03%. HOWEVER, HE HAD NOT CONSIDERED THIS VITAL THAT THE TURNOVER OF THE ASSE SSEE INCREASED FROM RS. 6.03 CRORES TO RS. 8.24 CRORES DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE EARLIER YEAR. IN OUR OPINION, TH E NET PROFIT RATE ESTIMATED BY THE LD. CIT(A) IS ON HIGHER SIDE, PART ICULARLY WHEN, THERE WAS A TREMENDOUS INCREASE IN THE TURNOVER OF THE AS SESSEE IN COMPARISON TO THE EARLIER YEAR WHEREIN NET PROFIT RATE OF 5.03 % WAS ACCEPTED BY THE DEPARTMENT. IN OUR OPINION, IT WOULD BE FAIR AND R EASONABLE IF THE NET PROFIT RATE OF 4.5% IS APPLIED SUBJECT TO THE DEPRE CIATION, REMUNERATION AND INTEREST TO THE PARTNERS AS HAS ALREADY BEEN AL LOWED BY THE ASSESSING OFFICER. WE ORDER ACCORDINGLY. 13 . THE NEXT ISSUE VIDE GROUND NO.8 AGITATED BY THE A SSESSEE RELATES TO THE INTEREST ON FDRS TREATED BY THE ASSESSING OFFIC ER AS INCOME FROM OTHER SOURCES. 14 . THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) O F THE ACT CONSIDERED THE INTEREST ON FDR AMOUNTING TO RS. 9,69,209/- AS INCOME FROM OTHER SOURCES. WHEN THE MATTER WAS TAKEN TO THE LD. CIT (A), A DIRECTION WAS GIVEN TO VERIFY AS TO WHETHER THE FDRS ON WHICH INT EREST WAS EARNED 10 DURING THIS YEAR WERE NECESSARILY REQUIRED TO BE MA DE AS PART OF THE CONTRACT AGREEMENT. THE RELEVANT OBSERVATIONS OF T HE LD. CIT(A) IN PARA 7.1 OF THE IMPUGNED ORDER, READ AS UNDER:- 7.1 THE AO HAS NOT GIVEN ANY FINDING REGARDING TH IS GROUND OF APPEAL NOR HAS THE APPELLANT FURNISHED ANY EVIDENCE OR DETAILS REGARDING THE MATTER. I HAVE CONSISTENTLY HELD IN THE CASES OF CONTRACTOR S WHERE IT WAS VERIFIABLE FROM THE EVIDENCE FURNISHES, THAT INTEREST OF FDRS IS TO BE TAKEN AS INCOME FROM BUSINESS AND PROFESSION WHERE THE FDRS ARE REQ UIRED TO BE MADE BY THE CONTRACTOR MANDATORILY BY THE GOVT. DEPARTMENTS AS SECURITY FOR GRANTING THE CONTRACT. THEREFORE, THE AO IS DIRECT ED TO VERIFY WHETHER THE FDRS ON WHICH INTEREST WAS EARNED DURING THIS YEAR WERE NECESSARILY REQUIRED TO BE MADE AS PART OF THE CONTRACT AGREEME NT. AFTER THIS VERIFICATION THE INTEREST EARNED OF RS. 9,69,209/- MAY BE CHARGED UNDER THE CORRECT HEAD OF INCOME. 15. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PART IES AND GOING THROUGH THE ORDERS OF THE AUTHORITIES BELOW, IT IS NOTICED THAT THE ASSESSING OFFICER HAD NOT DISCUSSED THIS ISSUE IN T HE ASSESSMENT ORDER. HE SIMPLY STATED WHILE COMPUTING THE INCOME OF THE ASS ESSEE THAT THE INTEREST ON FDRS IS CONSIDERED AS INCOME FROM OTHE R SOURCES. THE LD. CIT(A) OBSERVED IN THE IMPUGNED ORDER THAT A CONSIS TENT STAND HAD BEEN TAKEN IN THE CASES OF CONTRACTORS THAT THE INTEREST ON FDRS WAS TO BE TAKEN AS INCOME FROM BUSINESS AND THE PROFESSION WH ERE THE FDRS WERE REQUIRED TO BE MADE BY THE CONTRACTORS MANDATORILY BY THE GOVT. DEPARTMENT AS SECURITY FOR GRANTING THE CONTRACT. SINCE, THE FACTS RELATING TO THIS ISSUE ARE NOT AVAILABLE ON THE REC ORD, IN OUR OPINION, THE 11 LD. CIT(A) RIGHTLY DIRECTED THE ASSESSING OFFICER T O VERIFY WHETHER THE FDRS ON WHICH INTEREST WAS EARNED DURING THIS YEAR WAS NECESSARILY REQUIRED AS PART OF THE CONTRACT AGREEMENT AND AFT ER THIS VERIFICATION, THE INTEREST EARNED AMOUNTING TO RS. 9,69,209/- MAY BE CHARGED UNDER THE CORRECT HEAD OF INCOME. WE DO NOT SEE ANY INFI RMITY IN THE SAID DIRECTION OF THE LD. CIT(A). 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AND THAT OF DEPARTMENT IS DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 26 TH FEBRUARY, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH FEBRUARY, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JAIPUR.