The ITO, Ward-1(1), Surat V. Constant Engineering Pvt.Ltd., Surat

ITA 2492/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50672 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWALDR
• Assessee Lawyers: SAMIR B SHAH
• Keywords: TDS; Set aside
• Section: 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI A N PAHUJA, ACCOUNTANT MEMBER ITA NO.2492/AHD/2009 (ASSESSMENT YEAR:-2006-07) INCOME-TAX OFFICER, WARD- 1(1), ROOM NO.111, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S CONSTANT ENGINEERING P. LTD., SHOP 5/7, CHAMUNDA ESTATE, OPP. HEAVY WATER TOWNSHIP, NEAR TCI TRANSPORT, KAWAS, DISTRICT: SURAT PAN: AACCC 6308 E [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SAMIR TEKRIWAL,DR ASSESSEE BY:- SHRI SAMIR B SHAH, AR DATE OF HEARING:- 07-09-2011 DATE OF PRONOUNCEMENT:- 09-09-2011 O R D E R A N PAHUJA: THIS APPEAL FILED BY THE REVENUE ON 28.8.2009 AGA INST AN ORDER DATED 30-06-2009 OF THE LD. CIT(APPEALS)-I , SURAT FOR THE ASSESSMENT YEAR 2006-07, RAISES THE FOLLOWING GROUN DS:- [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS.40,98,834/- ON ACCOUNT OF SUPPRESSED SALES. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION MADE BY T HE AO OF RS.10,00,000/- ON ACCOUNT OF CLOSING STOCK OF WIP, TO RS.5 ,70,000/-. [3] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [4] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CI T(A) MAY BE SET-ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT E-RETURN DECLARING INCOME OF RS.2,72,060/- FILED ON 31-12-2 006 BY THE 2 ITA NO.2492/AHD/2009 ASSESSEE, ENGAGED IN THE BUSINESS OF JOB WORK OF ME CHANICAL AND STRUCTURAL CONSTRUCTION FOR BIG INDUSTRIAL HOUSES, WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF A NOTICES U/S 143(2) OF THE OF THE INCOME- TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT ] ON 12.10.2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER [AO IN SHORT] NOTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY WERE PRODUCED BUT WITHOUT ANY SUPPORTING BI LLS OR VOUCHERS. THE ASSESSEE COMPANY DISCLOSED CONSTRUCTI ON AND MAINTENANCE INCOME OF RS.1,21,00,937/- DURING THE F IRST YEAR OF ITS OPERATION, YIELDING GP @ 12.87%. THE AO FURTHER NOTICED THAT THE SALES INVOICE NOS: CEPL/ECL-06/002 DATED 25-03-2006 (RS1,15,492/-) AND CEPL/ECL-06/003 DATED 25-03-2006 (RS.39,83,342/-) TOTALLING TO RS.40,98,834/- WERE N OT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION. TO A QUERY BY THE AO, THE ASSESSEE R EPLIED THAT THEY HAD ACCOUNTED FOR BILL NO. CEPL/ECL-06/002[ RS.85112 .20] AND BILL NO. CEPL/ECL-06/003[ RS.2108715.30], IN THE SUCCEEDING YEA R ,WHEN THESE WERE CERTIFIED BY THE ENGINEERS OF THE ESSAR CONSTRUCTION LI MITED. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE AN D ADDED THE AMOUNT OF RS.40,98834/- ON THE GROUND THAT THE INVO ICES WERE ISSUED BY THE ASSESSEE COMPANY DURING THE YEAR AND THAT THEREFORE, THE SAME CONSTITUTED THE INCOME OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSI DERATION, ESPECIALLY WHEN CORRESPONDING EXPENSES WERE ALSO DEBITED DURING T HE YEAR UNDER CONSIDERATION ,THE ASSESSEE HAVING FOLLOWED MERCANTILE SYST EM OF ACCOUNTING . 2.1 BESIDES, THE AO ADDED ESTIMATED AMOUNT OF RS. 10 LACS TOWARDS CLOSING WORK IN PROGRESS SINCE THE TDS CERT IFICATES ISSUED BY ESSAR CONSTRUCTION INDIA LTD. FOR THE SUCCEEDIN G YEAR REVEALED THAT THE ASSESSEE COMPANY DID HAVE WORK IN PROGRESS WHILE THE ASSESSEE DID NOT DISCLOSE ANY WORK-IN-PROGRESS (WIP ) IN THE ACCOUNTS NOR HAS IT GIVEN ANY ITEM-WISE DETAILS OF CLOSING STOCK. 3 ITA NO.2492/AHD/2009 3. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON OF RS.40,98,834/- IN THE FOLLOWING TERMS:- 2.2 DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS REPEATED THE SUBMISSION MADE EARLIER AND HAS FILED COPIES OF BILLS GIVE N BEFORE THE A.O. WHICH SHOWS THAT THE BILL OF RS.1,15,492/- WAS PASSED FO R AN AMOUNT OF RS.85,112.20 ON 14-04-2006 AND THE BILL OF RS.39,83,3 42/- WAS PASSED FOR RS.21,08,715.30 ON 05-07-2006. THE APPELLANT HAS EXPL AINED THAT BOTH THESE AMOUNTS HAVE BEEN INCLUDED IN THE INCOME OF NEXT FI NANCIAL YEAR, I.E. F.Y. 2006-07 AND HENCE NO DOUBLE ADDITION CAN B E MADE, THE APPELLANT WAS ASKED TO EXPLAIN AS TO HOW THE COST INCUR RED IN RESPECT OF THESE TWO BILLS WAS INCLUDED IN THE CLOSING STOCK. THE APPE LLANT EXPLAINED THAT THE PURCHASE VALUE OF THE MATERIAL WAS INCLUDED IN THE CLOSING STOCK ON COST BASIS. IT IS CLEAR FROM THE FACT THAT OUT OF TOTAL PURCHASE OF RS.2 CRORES THE CLOSING STOCK IS SHOWN AS RS.1.06 CRORE. THE APPELL ANT ADMITTED THAT THE LABOUR COMPONENT OF THESE TWO BIDS WAS NOT I NCLUDED IN THE CLOSING STOCK. 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. THE VALUE OF THESE TWO BILLS IN RESPECT OF WHICH ADDITION MADE HAS BEEN INCLUDED BY THE APPELLANT IN TH E NEXT FINANCIAL YEAR AND HENCE NO ADDITION CAN BE MADE. THE APPELLANT HAS CONSISTENTLY FOLLOWED THE METHOD THAT AS AND WHEN THE BILL IS PASSED BY THE ESSAR, IT ACCOUNTS FOR IT AS INCOME. HENCE THESE TWO BILLS ARE ACCOUN TED FOR IN THE NEXT YEAR. THERE IS NO DISPUTE ON THIS FACT. HENCE THE ADD ITION MADE IS DELETED. WITH RESPECT TO THE ISSUE OF TREATING THE COST PORTION OF THESE TWO BILLS IN WORK-IN-PROGRESS, IT IS CLEAR THAT COST OF MAT ERIAL IS ALREADY SHOWN IN THE CLOSING STOCK UNDER THE HEAD CLOSING STOCK OF FIN ISHED GOODS. THE APPELLANT HAS ADMITTED THAT LABOUR COMPONENT WAS N OT ADDED. THIS ISSUE WILL BE TAKEN CARE OF IN GROUND NO.2, SUBJECT TO THIS REMARK, THE ADDITION IS DELETED AND GROUND NO.1 IS ALLOWED. 3.1 AS REGARDS AMOUNT ADDED TOWARDS CLOSING WIP , THE LD. CIT(A) HELD AS UNDER: 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. IT IS CLEAR THAT THE APPELLANT HAS NOT BEEN MAINTAINING THE STOCK REGISTER. HOWEVER, AS STATED IN PAR A-2.3 ABOVE, FROM THE FIGURE OF CLOSING STOCK IT APPEARS THAT A SUBSTANTIAL AMOUNT OF PURCHASES HAVE BEEN INCLUDED IN THE CLOSING STOCK. HOWEVER, T HE APPELLANT HAS ADMITTED THAT LABOUR COST WAS NOT INCLUDED IN RESPECT OF TWO BILLS WHICH WERE SUBMITTED ON 25TH MARCH, 2005 AND 29TH MARCH 2005 AND ARE PASSED IN THE NEXT YEAR FOR LAST TWO DAYS. SIMILARLY, IN THE NEXT FIVE DAYS THAT WAS ALSO HAVE TO BE INCLUDED IN THE WORK-IN-PROGRESS. THE APPELLANT HAS INCLUDED THE PURCHASE AND COST OF MATERIAL IN THE BI LLS WHICH HAVE BEEN PASSED AND REFLECTED AS A SALES. HOWEVER, THE TWO BI LLS AS MENTIONED BY THE A.O. UNDER THE HEAD 'SUPPRESSED SALES O F RS.40,98,834/- AS WELL AS WORK FOR 5 TO 6 DAYS FROM 25-03 -2005 TO 31-03- 4 ITA NO.2492/AHD/2009 2005 HAS TO T BE ACCOUNTED FOR IN THE WORK-IN-PROGRESS. T HE PURCHASE AND COST OF MATERIAL WAS INCLUDED EITHER IN THE STOCK OR CLOSING STOCK OF FINISHED GOODS. THE ASSESSEE HAS BEEN CALLING THE WORK IN RESPECT O F BILLS HAVE BEEN SUBMITTED AS FINISHED GOODS. THEREFORE, NO ADDITI ON HAS TO BE MADE ON ACCOUNT OF MATERIAL. HOWEVER, LABOUR EXPENSES HAS TO B E INCLUDED IN THIS WORK-IN-PROGRESS. ON THIS ACCOUNT THE ADDITION OF RS.10 LACS SEEMS TO BE EXCESS SINCE THE TOTAL EXPENDITURE IS OF RS.11,3 9,785/-. ALMOST HALF OF THE PURCHASES HAVE BEEN SHOWN IN THE SALES AND BA LANCE HALF IS REFLECTED AS CLOSING STOCK. THEREFORE, IT WOULD BE PROPER TO INCLUDE 50% OF THE LABOUR EXPENSES AS CLOSING STOCK OF WORK-IN-PROGRESS AND REST 50% GOES TOWARDS SALES PORTION OF WORK. HENCE, THE ADDITION OF RS.10 LACS IS REDUCED TO RS.5,70,000/-. IN THIS REGARD, THE APPELLAN T GETS A RELIEF OF RS.4,30,000/-. THIS GROUND OF APPEAL IS, THEREFORE, PA RTLY ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E SUPPORTING THE FINDINGS OF THE AO CONTENDED THAT THIS WAS THE FIRS T YEAR OF OPERATION OF THE ASSESSEE COMPANY AND THE ASSESSEE FOLLOWED M ERCANTILE SYSTEM OF ACCOUNTING. IN TERMS OF THE MERCANTILE ME THOD OF ACCOUNTING, THE ASSESSEE WAS BOUND TO REFLECT ALL THE RECEIPTS IN TERMS OF THE BILLS RAISED BY IT. AS REGARDS ADDITI ON TOWARDS CLOSING STOCK, THE LD. DR POINTED OUT THAT THE LD. CIT(A) D ID NOT DISCLOSE ANY BASIS FOR REDUCING THE ADDITION.THE LEARNED AR ON B EHALF OF THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) AND SUBMITTED THAT M/S ESSAR CONSTRUCTION LT D. HAD ACCOUNTED FOR BILLS RAISED BY THEM IN THE YEAR UNDE R CONSIDERATION , IN THE SUCCEEDING YEAR WHILE DEDUCTING CERTAIN AMOU NT. AS REGARDS GROUND NO.2 IN THE APPEAL, THE LD. AR RELIED UPON T HE FINDINGS OF THE LD. CIT(A). TO A QUERY BY THE BENCH, THE LD. AR ADM ITTED THAT THE AFORESAID TWO BILLS WERE RAISED ONLY AFTER COMPLETE ERECTION OF THE MACHINERY AND ALL THE CONNECTED EXPENDITURE WAS DEB ITED IN THE YEAR UNDER CONSIDERATION. WHEN QUERIED FURTHER AS TO WHE THER THE WORK COMPLETED IN THE YEAR WAS REFLECTED IN THE CLOSING STOCK SI NCE IT WAS NOT SHOWN IN SALES, THE LD. AR POINTED OUT THAT THE RECORDS OF TH E ASSESSEE HAVING BEEN DESTROYED IN FLOODS, THEY WERE NOT IN A POSITION TO IN FORM AS TO WHETHER OR NOT THE AMOUNT WAS REFLECTED IN THE CLOSING STOCK . 5 ITA NO.2492/AHD/2009 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE, ENGAGED IN TH E BUSINESS OF JOB WORK OF MECHANICAL & STRUCTURAL CONSTRUCTION FOR BI G INDUSTRIAL HOUSES, FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING AN D THE MACHINERY WAS ERECTED BEFORE RAISING THE AFORESAID TWO SALES INVOICE NOS: CEPL/ECL-06/002 DATED 25-03-2006 (RS1,15,492/-) AND CEPL/ECL- 06/003 DATED 25-03-2006 (RS.39,83,342/-) TOTALLING TO RS.40,98,834/- IT IS ALSO AN ADMITTED FACT THAT ALL THE CONNECTED EXPENSES WERE ALSO DEBITED IN THE YEAR UNDER CONSIDERATION. IN TERMS O F PROVISIONS OF SEC.145 OF THE ACT, THE INCOME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' HAS TO BE COMP UTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING, REGULARLY EMPLOYED BY THE ASSESSEE. THE CHOICE IS WITH THE ASSESSEE TO FOLLOW EITHER CASH OR MERCANTILE. IN TH E INSTANT CASE, THE ASSESSEE FOLLOWED MERCANTILE METHOD OF ACCOUNTING. WHETHER OR NOT THIS METHOD IS REGULARLY FOLLOWED BY THE ASSESSEE, IS NOT EVIDENT FROM THE IMPUGNED ORDER. SIMPLY BECAUSE, THESE BILL S WERE ACCOUNTED FOR BY THE CUSTOMER M/S ESSAR CONSTRUCTIO N LTD. IN THE SUCCEEDING YEAR OR SETTLED SUBSEQUENTLY, DOES NOT I MPLY THAT THE ASSESSEE COULD IGNORE MERCANTILE METHOD OF ACCOUNTI NG CHOSEN BY IT. THOUGH THE ASSESSEE PLEADED BEFORE THE LD. CIT (A) THAT PURCHASE VALUE OF MATERIAL WAS ACCOUNTED FOR IN THE CLOSING STOCK, THE LD. AR, WHEN QUERIED, STATED THAT THEIR RECORDS HAVING BEEN DESTROYED IN FLOODS, HE WAS NOT IN A POSITION TO CONFIRM. IT IS NOTICED FROM THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A) TH AT THE ASSESSEE PLEADED THAT THEY FOLLOWED AS-9 WHILE RECOGNIZING THE REVENUE. HOWEVER, THE LD. CIT(A) DID NOT RECORD ANY FINDINGS ON THIS ASPECT WHILE OBSERVING THAT THE APPELLANT CONSISTENTLY A CCOUNTED FOR SALES AS AND WHEN BILLS WERE PASSED BY THE ESSAR CONSTRUC TION LTD. IN THE MATTER OF RECOGNITION OF REVENUE, AS-9 ,INTER ALIA, STIPULATES 6 ITA NO.2492/AHD/2009 ' (A) INSTALLATION AND INSPECTION I.E. GOODS ARE SO LD SUBJECT TO INSTALLATION, INSPECTION ETC. REVENUE SHOULD NORMALLY NOT BE RECOGNISED UNTIL THE CU STOMER ACCEPTS DELIVERY AND INSTALLATION AND INSPECTION ARE COMPLETE. IN SOME CASES, HOWEVER, THE INSTALLATION PROCESS MAY BE SO SIMPLE IN NAT URE THAT IT MAY BE APPROPRIATE TO RECOGNISE THE SALE NOTWITHSTANDING THAT INSTALLATION IS NOT YET COMPLETED (E.G. INSTALLATION OF A FACTORY-TESTED TELEVISIO N RECEIVER NORMALLY ONLY REQUIRES UNPACKING AND CONNECTING OF POWER AND ANTE NNAE). 5.1 INTER ALIA, IT IS MENTIONED IN AS-9 THAT IT I S NOT APPLICABLE TO CONSTRUCTION CONTRACTS. THE NATURE OF CONTRACT ENTERED IN TO BY THE ASSESSEE HAS NOT BEEN EXPLAINED BEFORE US BY THE LD. DR NOR IT IS EVIDENT FROM THE IMPUGNED ORDER. 5.2 AS REGARDS ADDITION TOWARDS VALUATION OF WI P, THE RELEVANT INVENTORY HAS NOT BEEN PLACED BEFORE US. THE AO MAD E ONLY AN ESTIMATED ADDITION OF RS. 10 LACS, THE WIP HAVING NOT BEEN REFLECTED IN THE STOCK WHILE THE LD. CIT(A) CONCLUDED THAT PU RCHASE COST WAS INCLUDED EITHER IN STOCK OR CLOSING STOCK OF FINISH ED GOODS. IN THE ABSENCE OF DETAILS OF WORK CONTRACTS WHICH WERE I N THE PROCESS OF EXECUTION AS ON 31.3.2006 AND THE RELEVANT INVENTOR Y OF CLOSING STOCK, , WE ARE NOT IN A POSITION TO CONCLUDE AS TO WHETHER OR NOT MATERIAL COST WAS CONSIDERED IN THE INVENTORY AND O NLY LABOUR COST COULD BE ADDED . 5.3 IN VIEW OF THE FOREGOING , ESPECIALLY WHEN T HE LD. CIT(A) DID NOT RECORD HIS SPECIFIC FINDINGS ON THE APPLICABILI TY OF AS-9 NOR ANY MATERIAL HAS BEEN PLACED BEFORE US EVIDENCING THAT THE ASSESSEE CONSISTENTLY FOLLOWED THE METHOD OF ACCOUNTING OF SALES AS AND WHEN BILLS WERE PASSED BY THE CONCERNED CUSTOMERS W HILE EVEN THE INVENTORY OF CLOSING STOCK AND DETAILS OF WORK CON TRACTS WHICH WERE IN THE PROCESS OF EXECUTION AS ON 31.3.2006, HAS NO T BEEN PLACED BEFORE US, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE TH E ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FIL E FOR DECIDING THE ISSUES RAISED IN GROUND NOS.1 & 2 OF THE APPEAL BEF ORE US , AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID O BSERVATIONS, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . NEEDLESS TO SAY 7 ITA NO.2492/AHD/2009 THAT WHILE REDECIDING THE ISSUES, THE LEARNED CIT(A ) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO WHETHER OR NOT AS-9 WAS APPLICABLE IN THIS CASE IN THE CONTEXT OF CONTRACTS ENTERED INTO BY THE ASSESSEE AND OF COURS E AFTER EXAMINING THE RELEVANT INVENTORY OF STOCK. WITH THE SE OBSERVATIONS, GROUND NOS.1 & 2 IN THE APPEAL ARE DISPOSED OF. 6. GROUND NOS.2 AND 3 BEING MERE PRAYER NOR ANY SUB MISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 7. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 8. IN THE RESULT, APPEAL IS ALLOWED BUT FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 9 -09-2011 SD/- SD/- ( MUKUL SHRAWAT ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 9 -09-2011 COPY OF THE ORDER FORWARDED TO: 1. CONSTANT ENGINEERING P. LTD., SHOP 5/7, CHAMUN DA ESTATE, OPP. HEAVY WATER TOWNSHIP, NEAR TCI TRANSPORT, KAWA S, DISTRICT: SURAT 2. THE INCOME-TAX OFFICER, WARD-1(1), ROOM NO.111, AAYAKAR BHAVAN, MAJURA GATE, SURAT 3. CIT CONCERNED 4. CIT(A)-I, SURAT 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD