The ACIT, Circle-5, Ahmedabad V. Rao Constrction Pvt.Ltd., Ahmedabad

ITA 2485/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9757 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-08-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 01-07-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI
• Assessee Lawyers: M J SHAH
• Keywords: Revised return

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM DY. C.I.T., CIRCLE-5, AHMEDABAD. VS. RAO CONSTRUCTION (P) LTD., 104, MANAS COMPLEX NEAR JODHPUR CROSS ROAD, SATELLITE, AHMEDABAD 380015. (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI S. C. TIWARI, SR.D.R. ASSESSEE BY:- SHRI M. J. SHAH, A.R. O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS:- (1) THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND DELETING THE ADDITION MADE OF RS.14,18, 785/- ON ACCOUNT OF ESTIMATION OF PROFIT FROM CONSTRUCTION W ORK. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF TH E AO. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A CIV IL CONTRACTOR ENGAGED IN THE CONSTRUCTION OF ROADS AND DAMS ETC. DURING T HE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS SHOWN TOTA L TURNOVER OF RS.10,10,57,762/- DECLARING G.P. OF RS.1,44,53,856/ - WHICH WORKS OUT AT 14.30% AS AGAINST 15.16% SHOWN IN THE PRECEDING YEA R ON A TOTAL TURNOVER OF RS.8,88,75,425/-. THE NET PROFIT IN TER MS OF PERCENTAGE IS ITA NO.2485/AHD/2008 ASST. YEAR :2005-06 2 WORKED OUT THIS YEAR AT 4.45%. THE ASSESSEE IS ALSO EARNING INCOME FROM SUBLETTING A PART OF CONTRACT WORK. THIS YEAR IT HA S GIVEN RS.78.48 LAKHS OF SUB-CONTRACT WORK AND EARNED COMMISSION OF 1% THERE -FROM. THE AO EXAMINED THE BOOKS OF ACCOUNT AND NOTICED FOLLOWING DEFECTS:- (1) EARLIER THE ASSESSEE WAS SHOWING INCOME FROM PROJEC T COMPLETION METHOD WHEREAS THIS YEAR THE PERCENTAGE COMPLETION METHOD WAS ADOPTED AND ACCORDINGLY RECEIPTS WERE CR EDITED IN THE TRADING ACCOUNT. THE AO FOUND THAT MATCHING AND ADJUSTMENT OF ACCOUNTS DUE TO CHANGE IN ACCOUNTING METHOD COULD NOT BE EXPLAINED. (2) THE ASSESSEE COMPANY DID NOT MAINTAIN DAY TO DAY ST OCK REGISTER OR REGISTER OF CONSUMPTION OF RAW MATERIAL AT ANY SITE OF WORK. IT IS CONSUMING MAJOR RAW MATERIAL SUCH AS AS PHALT, CEMENT, KAPCHI, GREET ETC. (3) THE ASSESSEE COMPANY SHOWED CLOSING STOCK STOCK/WOR K-IN- PROGRESS IN THE ORIGINAL RETURN AT RS.6,82,400/- WH EREAS IN THE REVISED RETURN IT WAS SHOWN AT RS.25,83,700/-. THER E WAS APPARENTLY NO REASON TO EXPLAIN THIS DISCREPANCY. (4) VALUATION OF WORK IN PROGRESS IS NOT SUPPORTED BY A NY EVIDENCE OR MEASUREMENT AND RATES OF MATERIALS CONSUMED IN S UCH ONGOING WORK. (5) EVEN THOUGH ON FURTHER ASKING QUANTITY AND RATE OF DIFFERENT WORK CONTAINED IN WORK IN PROGRESS WAS PROVIDED BUT THE RATES OF DIFFERENT MATERIAL SUCH AS ASPHALT, KAPCHI, GREE TS ETC. ARE NOT MATCHED WITH ACTUAL PRICE AT WHICH THEY ARE PURCHAS ED. (6) PURCHASES IN THE MONTH OF MARCH AMOUNTING TO RS.30, 46,358/- ARE NOT SHOWN TO HAVE BEEN FULLY UTILIZED OR PENDIN G IN THE CLOSING STOCK. IT PURCHASED DIESEL FOR RS.2.5 LAKHS IN THE MONTH OF MARCH, 2005 BUT NO STOCK IS SHOWN. NO EXPLANATIO N IS GIVEN. (7) THERE IS NO CHECK OVER CONSUMPTION OF RAW MATERIAL PURCHASES OR REMAINING IN THE STOCK. (8) THE ASSESSEE HAS DURING THE YEAR SOLD CERTAIN MACHI NERIES TO ITS ASSOCIATE CONCERNS AS UNDER :- 3 PAVER FINISHER RS.4,85,000 EXCAVATOR-CUM-LOADER RS.7,42,000 VIBRATOR COMPACTER RS.11,53,000 DRUM MIXED PLANT RS.6,50,000 RS.30,30,000 THE ASSESSEE HAD SOLD THESE MACHINERY ON 5.7.2 004 TO ITS ASSOCIATE CONCERN AND THE SAME WAS TAKEN ON RENT FR OM 24.07.2007. OVER AND ABOVE THIS MACHINERY, FURTHER 8 TIPPERS WERE ALSO HIRED. THE MACHINERY OF WDV OF RS.42,42,0 20/- WERE SOLD FOR RS.30,30,000/- AND THEREBY INCURRED L OSS OF RS.1,2,12,020/-. THUS THE ASSESSEE HAD TRANSFERRED THE MACHINERY AT LIBERAL PRICE. EFFECT OF THIS TRANSACT ION WAS THAT MACHINERY WERE SOLD ONLY WITH THE INTENTION TO TAKE BACK ON HIRE AND TO PAY RENT TO THE GROUP CONCERN, SO AS TO REDUCE PROFIT. (9) WHEN ASKED ABOUT THE REASONABLENESS OF MACHINERY RENT PAYMENT BY THE ASSESSEE COMPANY TO ITS GROUP CONCERN, THE A SSESSEE HAS EXPLAINED THAT IT HAD CALLED FOR THE QUOTATION FROM M/S BULTY ROLLER CENTRE, AHMEDABAD, WHO HAD OFFERED TO PROVE ITS MACHINERY ON HIRE AT THE RATE OF RS.7,95,000/- PER MONTH VIDE QUOTATION DATED 20.7.2004 WHEREAS, BHAVANI CONSTRUC TION, VIDE LETTER DATED 20.07.2004 OFFERED TO PROVIDE SUCH MAC HINERY AT RS.7,50,000/- P.M. AFTER NEGOTIATION WITH PARTNERS ON 24.07.2004 THE RENT WAS FIXED AT RS.7 LAKHS. THE SO CALLED QUOTATION IS NOTHING BUT SELF PREPARED PAPER AND NO T AUTHENTIC. THUS THE EVIDENCES PRODUCED ARE, PRIMA FACIE, NOT F OUND ACCEPTABLE. IN ANY CASE, OBVIOUSLY, THE RENT WAS PA ID TO ASSOCIATE CONCERN AT VERY LENIENT RATE. THIS CAN BE SEEN FROM THE FACTS DISCUSSED IN THIS PARAGRAPH. THE MACHINERY WA S USED FOR ROAD CONSTRUCTION IN THE STATE OF CHHATTISGARH FOR CONSTRUCTION OF FOLLOWING ROADS:- A) ANJORA KHAPARI SILODA ROAD B) GOBARA SIVARI CHIVARI ROAD C) GARIYA BANDH DEVBHOG MARG THE ASSESSEE COMPANY HAD PAID RENT OF RS.42,00,000/ - BESIDES, THE ASSESSEE HAD TO INCUR EXPENDITURE OF ASPHALT, K APCHI, GREET, LABOUR ETC. ALSO FOR RUNNING THE MACHINERY, THE ASS ESSEE HAD TO INCUR HUGE EXPENSES FOR DIESEL, MACHINERY REPAIRS, REPLACEMENT OF SPARE PARTS ETC. EVEN IF ADMINISTRATIVE EXPENSES ARE NOT CONSIDERED AND ONLY COST OF CONSTRUCTION ARE CONSID ERED, THE 4 LIBERAL PAYMENT OF RENT ON MACHINERY CAN VERY WELL BE APPRECIATED. THE ASSESSEE WAS SPECIFICALLY ASKED TO EXPLAIN THE NECESSITY AND UTILITY OF THE HIGHER MACHINERIES. TH E ASSESSEE HOWEVER HAS NOT BROUGHT ON RECORD ANY SUCH EVIDENCE S AS MAY JUSTIFY THE HIGHER RATE OF RENT OF THE MACHINERIES. IT IS ADMITTED FACT THAT THE RENT PAYMENT WAS MADE TO THE CONCERN OF A PERSON SPECIFIED U/S 40A(2)(B) OF THE ACT. THUS, OBVIOUSLY , THE PAYMENT WAS MADE AT THE VERY HIGHER PRICE, WHICH UL TIMATELY REDUCED THE ASSESSEES MARGIN OF PROFIT. THE EXCESS PAYMENT OF THE RENT, THEREFORE CALLED FOR DISALLOWANCES. (10) THE LABOUR PAYMENT OF RS.61,98,823/- WERE PAID IN CASH ONLY. THE LABOUR PAYMENTS FOR ITEM-WISE CONTRACT WORK OR FOR DIFFERENT SITE IS NOT MAINTAINED SEPARATELY. THE QU ANTIFICATION OF THE LABOUR EXPENSES COMPARED TO ITEM OF WORK IS ALS O NOT ASCERTAINABLE. THERE IS NO COMPLETE CHECK OVER THE EXPENSES VIS--VIS MEASUREMENT OF WORK FOR LABOUR PUT IN ON RESPECTIVE SITES. 3. ON THE ABOVE BASIS, AO REJECTED THE BOOKS OF ACC OUNT HOLDING THAT CORRECT PROFIT OF THE ASSESSEE COMPANY COULD NOT BE DEDUCED FROM THE BOOKS. HE ALSO REFERRED TO THE DECISION IN THE CASE OF RAMCHANDRASINGH RAMANIKLAL VS. CIT 42 ITR 780 (PAT) AND BASTIRAM NA RAYANDAS MAHESHRI VS. CIT 210 ITR 438 (BOM) IN SUPPORT OF HIS DECISIO N TO REJECT THE BOOKS OF ACCOUNT. THEREAFTER THE AO NOTED CONTRACT RECEIP TS OF RS.9,66,04,387/- OUT OF WHICH HE REDUCED CONTRACT WORK GIVEN ON SUB- CONTRACT AT RS.78,48,514/- ON WHICH COMMISSION @ 1% WAS CHARGED . ON THE REST BEING RS.8,87,55,873/- AO APPLIED NET PROFIT OF 8%. IT RESULTED IN NET PROFIT OF RS.71,00,470/-. THEREAFTER HE ALLOWED 3% INSURANCE AMOUNT OF RS.6,09,890/- AND FURTHER REDUCTION OF RS.4 LAKHS B Y ESTIMATE ON ACCOUNT OF VARIOUS CLAIM MADE BY THE ASSESSEE AND WORKED OU T NET PROFIT OF RS.60,90,580/-. FROM THIS HE REDUCED DECLARED PROFI T LESS COMMISSION INCOME WHICH WAS WORKED OUT AT RS.46,71,795/- AND T HUS ARRIVED AT THE ADDITION AT RS.14,18,785/-. HIS CALCULATION IN THIS REGARD IS AS UNDER :- 5 PROFIT AT 8% ON CONTRACT RECEIPTS OF RS.8,87,55,873 /- RS.71,00,470/- LESS: KEY PERSONS INSURANCE AMOUNT RS.6,09,890 LESS: REDUCTION AS DISCUSSED IN PARA 5.2 ABOVE RS. 4,00,000 RS.10,09,490/- RS.60,90,580/- LESS: INCOME SHOWN BY THE ASSESSEE COMPANY AS REDUCED BY COMMISSION INCOME FROM SUB-CONTRACT WORK (RS.4750280-RS.78485) RS.46,71,795/- BALANCE RS.14,18,785/- 4. THE LD. CIT(A) IN A SHORT AND CRYPTIC ORDER DELE TED THE ADDITION AS UNDER :- 2.3.5 I HAVE PERUSED THE FACTS AND CIRCUMSTANCES O F THE CASE. I FIND THAT THE REASONS BROUGHT OUT BY THE ASSESSING OFFICER TO MAKE AN ESTIMATION OF PROFIT AT 8% APPEARS TO BE NOT JUSTIF IED ESPECIALLY WHEN THE APPELLANT HAS MAINTAINED BOOKS OF ACCOUNTS IN A BEST POSSIBLE WAY IN VIEW OF THE FACT THAT THE APPELLANT CARRIES ON WORKS AT REMOTE PLACES AND INPUTS ARE BEING LIKE ROAD CON STRUCTION AND DAM CONSTRUCTION MATERIALS, THE MAINTENANCE OF THE EXACT STOCK BOOK OF MATERIALS CONSUMED AND BALANCE AVAILABLE W OULD BE A DIFFICULT TASK IN THIS LINE OF BUSINESS. 2.3.6 THEREFORE, TAKING ALL THE ABOVE FACTS AND NATURE OF APPELLANTS BUSINESS, I CONSIDER THAT THE MAKING AN ADDITION OF RS.14,18,785/- IS AT HIGHER SIDE. THEREFORE, IT COULD BE APPROPRIA TE TO RETAIN THE ADDITION OF RS.75,000/- AND DELETE THE BALANCE ADDI TION. HENCE, THE AO IS DIRECTED TO RECOMPUTED THE TOTAL INCOME ACCOR DINGLY. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW LD. CIT(A) HAS NOT D ONE JUSTICE WITH THE CASE MADE BY THE AO. AO HAS GIVEN ABOUT 10 REASONS FOR REJECTING THE BOOKS AND LD. CIT(A) HAS NOT DISCUSSED EVEN A SINGL E POINT RAISED BY THE AO FOR REJECTING THE BOOKS. SUCH APPROACH IS NOT AP PRECIATED. THE LD. CIT(A) WAS EXPECTED TO COMMENT ON THE DEFECTS POINT ED OUT BY THE AO FOR REJECTING THE BOOKS AND WAS EXPECTED TO GIVE HI S FINDING WHETHER THEY ARE JUSTIFIED AND BOOKS CAN BE REJECTED ON THE BASI S OF THOSE DEFECTS. HE WAS ALSO EXPECTED TO CONSIDER THE RELEVANT AUTHORIT IES IN SUPPORT OF 6 CONTENTION WHETHER BOOKS CAN BE REJECTED ON THE BAS IS OF THE DEFECTS POINTED OUT BY THE AO OR NOT. THOUGH LD. CIT(A) HAS QUOTED THE SUBMISSIONS OF ASSESSEE VERBATIM BUT THIS CANNOT BE TREATED AS HIS COMMENTS OR HIS DECISION. IF THE LD. CIT(A) IS ARRI VING AT THE FINDING THAT BOOKS CAN BE REJECTED THEN HE HAS TO CONSIDER WHETH ER THE ESTIMATION OF PROFITS MADE BY THE AO WAS JUSTIFIED. SINCE THERE I S LACK OF REASONABLENESS AND JUDICIAL PROCESS IN THE ORDER OF LD. CIT(A), IT CANNOT BE UPHELD. WE ACCORDINGLY RESTORE THE MATTER BACK T O HIS FILE. LD. CIT(A) WILL CONSIDER EACH AND EVERY ASPECTS RAISED BY THE PARTIES BEFORE HIM AND GIVE HIS COMMENTS ON EACH ISSUE RAISED BY THE AO OR BY THE ASSESSEE. ACCORDINGLY THE APPEAL FILED BY THE REVENUE IS ALLO WED BUT FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 17/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD