The DCIT, Circle-2, JUNAGADH V. Shri Jagabhai Bhayabhai Wagh, Rajula

ITA 252/RJT/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0124 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 23-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND N SONTAKKE
• Section: 44AD; 40A(3); 145; 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA.NO.252/RJT/2013 WITH CO NO.11/RJT/2013 / ASSTT. YEAR: 2009-10 THE DCIT, CIR.2 JUNGADH. VS SHRI JAGABHAI BHAYABHAI WAGH PRP. SHREE KANKESHWARI ENTERPRISE VAIBHAV COMPLEX JAFRABAD ROAD RAJULA, AMRELI. ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI ARVIND N. SONTAKKE, SR.DR ASSESSEE BY : SHRI KALPESH DOSHI, AR / DATE OF HEARING : 19/10/2016 / DATE OF PRONOUNCEMENT: 21/10/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF THE LD.CIT(A)-IV, RAJKOT DATED 21.3.2013 PASSED FOR THE ASSTT.YEAR 20 09-10. 2. ON RECEIPT OF NOTICE IN REVENUES APPEAL, THE AS SESSEE HAS FILED CO BEARING NO.11/RJT/2013. 3. THOUGH THE REVENUE HAS TAKEN FIVE GROUNDS OF APP EAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE I.E. THE LD.CIT(A) H AS ERRED IN DELETING THE ADDITION OF RS.35,19,440/- WHICH WAS ADDED BY THE A O BY ESTIMATION OF NET PROFIT. IT IS ALSO PLEADED THAT THE LD.CIT(A) HAS ERRED IN ACCEPTING BOOKS OF ITA NO.252/RJT/2013 2 ACCOUNTS OF THE ASSESSEE. IT IS PERTINENT TO OBSER VE THAT THE AO AFTER REJECTING BOOK RESULTS OF THE ASSESSEE HAS MADE AN ADDITION O F RS.40,19,441/-. THE LD.CIT(A) HAS DELETED ADDITION OF RS.35,19,440/- AN D CONFIRMED THE ADDITION OF RS.5 LAKHS. THIS CONFIRMATION OF ADDITION OF RS .5.00 LAKHS IS BEING CHALLENGED BY THE ASSESSEE IN THE CO. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WA S RUNNING A PROPRIETORSHIP CONCERN IN THE NAME AND STYLE OF SHREE KANKESHWARI ENTERPRISE. IT WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF BUILDING , ROAD AS WELL AS SUPPLY OF MATERIALS AND EQUIPMENT FOR CONSTRUCTION ACTIVITIES . THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 29.9.2009 DECLARING TOTAL INCOM E AT RS.20,51,000/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICES UNDER SECTION 143(2)/142(1) WERE ISSUED AND SERVED UPON T HE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HAS SHOWN NET PROFIT AT 2.69% OF THE TURNOVER. THE AO WAS OF THE OPINION THAT BEING A CONTRACTOR, THE ASSESSEE SHOULD HAVE DISCLOSED PROF IT IN CONSTRUCTION ACTIVITY AT THE RATE OF 8%. ACCORDINGLY, HE ISSUED A SHOW CAUS E NOTICE VIDE LETTER DATED 28.10.2011 REQUIRING EXPLANATION OF THE ASSESSEE AS TO WHY PROFIT SHOULD NOT BE COMPUTED AT THE RATE OF 8% BY APPLYING SECTION 1 45(3) OF THE INCOME TAX ACT, AFTER REJECTING BOOK RESULT OF THE ASSESSEE. THE ASSESSEE HAS SUBMITTED DETAILS AND CONTESTED THE ABOVE PROPOSED OPINION OF THE AO. IT APPEARS THAT THE LD.AO WITHOUT EXAMINING THE FACTS IN DETAIL, HA S ARRIVED A CONCLUSION THAT THE ASSESSEE IS NOT MAINTAINING STOCK REGISTER, AND THEREFORE, HIS BOOK RESULTS DESERVES TO BE REJECTED. SINCE THE ASSESSEE HAS TO TAL RECEIPT OF RS.7,56,88,213/-, THE LD.AO APPLIED NET PROFIT RATE OF 8% AND ESTIMATED THE PROFIT AT RS.60,55,057/- AND AFTER DEBITING PROFIT SHOWN BY THE ASSESSEE, HE MADE ADDITION OF RS.40,19,441/-. ITA NO.252/RJT/2013 3 5. ON APPEAL, THE LD.CIT(A) HELD THAT THE AO FAILED TO POINT OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINE D BY THE ASSESSEE. THUS, BOOKS HAVE WRONGLY BEEN REJECTED, BUT THE LD.CIT(A) FOUND THAT THE ASSESSEE HAD CERTAIN PAYMENTS IN CASH. ACCORDINGLY, HE DISA LLOWED A SUM OF RS.5.00 LAKHS OUT OF THE EXPENDITURE. IN OTHER WORDS, AN ADHOC ADDITION OF RS.5.00 LAKHS WAS MADE. 6. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. BEFORE ADVERTING TO THE FACTS BR OUGHT ON RECORD, WE WOULD LIKE TO NOTE SECTION 145 OF THE INCOME TAX ACT, 196 1. IT READS AS UNDER: 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFIT S AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE], THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.] 7. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB- SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PRO FIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSES SEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SECTION 145 OF THE ACT. SUB-SEC TION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE FROM TIME TO TIME, THE ITA NO.252/RJT/2013 4 ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE I.E. CASH OR MERCANTILE, SUCH METHOD HAS T O BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS , IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF M ETHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATION OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATI ON OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN TH E DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, INCOME CANNOT BE DETERMINED AND AS SESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEP ING IN VIEW THE GUIDING FACTOR FOR ESTIMATING SUCH INCOME. 8. THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS BEFOR E THE LD.CIT(A) AND BROUGHT THE FOLLOWING CIRCUMSTANCES ON THE RECORD: THE LEARNED AO HOWEVER AT THE TIME OF HOLDING SO I GNORED THE FOLLOWING FACTS: 1. ASSESSEE IS ENGAGED IN THE BUSINESS OF HIRING & LETTING OUT OF MACHINERY, PROVIDING TRANSPORTATION SERVICES AND TR ADING OF CONSTRUCTION MATERIAL ALONG WITH CONSTRUCTION BUSIN ESS. OUT OF TOTAL TURNOVER OF RS. 7.57 CRORES, APPROX 30% OF THE TOTA L TURNOVER BELONGS TO BUSINESS OTHER THAN CONSTRUCTION BUSINESS. THUS, LEARNED AO, HAS IGNORED THIS FACT AND HAVE CONSIDERED THE ENTIRE TU RNOVER AS BELONGING TO CONSTRUCTION WORK INCOME AND CALCULATED PROFIT @ 8% OF THE TOTAL TURNOVER. ITA NO.252/RJT/2013 5 2. THERE ARE VARIOUS CONSTRUCTION SITES ON WHICH CO NSTRUCTION WORK IS CARRIED ON AT A SIMULTANEOUS TIME. ANY PRUDENT BUSI NESSMAN WOULD TAKE CARE THAT ON ANY SITE ONLY THAT MUCH MATERIAL IS SUPPLIED WHICH IS SUFFICIENT FOR FEW DAYS' CONSUMPTION TO AVOID PILFE RAGE, THEFTS & MIUSE OF RAW MATERIAL. THUS, THE QUESTION OF ACCUMULATIO N OF STOCK DOES NOT ARISE ONLY, AND RELIEVES THE BUSINESSMAN FROM MAINT AINING QUANTITATIVE STOCK DETAILS FOR RAW MATERIALS. 3. THE LEARNED AO HAS ALSO FAILED TO APPRECIATE THE BASIC FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND OPERATING AT VARIOUS SITES, AND HENCE IT IS NOT POSSIBLE TO HAVE DAY TO DAY INVENTORY POSITION. 4. THE LEARNED AO FAILED TO APPRECIATE THE FACT THA T ALL THE SALES, PURCHASES AND EXPENDITURE ARE DULY SUPPORTED BY THE EVIDENCES. THE SUBMISSION MADE BEFORE THE LEARNED AO WAS SUFFICIEN T ENOUGH TO DEDUCE THE CORRECT FIGURE OF INCOME. HOWEVER THE LE ARNED AO FAILED IN TOTO TO APPRECIATE THE SAID FACT AND REJECTED THE B OOK RESULT. 5. SO FAR AS THE SUBMISSION OF THE LABOUR BILLS IS CONCERNED, THEY WERE DULY SUBMITTED BEFORE THE LEARNED AO. HOWEVER, LEAR NED AO HAS REJECTED THE SAME IN TOTO, WITHOUT SPECIFYING ANY R EMARKS OVER THEM. 6. THE LEARNED AO HAS ERRED IN HIS ASSESSMENT ORDER BY SPECIFYING THAT 'THE ASSESSEE HAS NOT FURNISHED ANY BILLS IN SUPPOR T OF HIS CLAIM THAT THE LABOURS HIRED ON SUB-CONTRACT BASIS', WHICH IS NOT THE FACT. SAMPLE COPIES OF DETAILED BILLS ALONG WITH THE PAYMENT VOU CHERS OF VARIOUS LABOUR CONTRACTORS WERE DULY SUBMITTED, HOWEVER THE SAME ARE NOT TAKEN ON RECORD BY THE LEARNED AO. 7. SO FAR AS THE QUESTION OF CLOSING STOCK AND WORK IN PROGRESS IS THERE, ALL THE WORK WAS COMPLETED AND FINAL BILLS WERE ISS UED ALONG WITH THERUNNING ACCOUNT BILLS. THE WORK COMPLETED TILL 3 1ST MARCH 2009, WAS ALSO BILLED TO THE RESPECTIVE PARTIES & WAS AVA ILABLE FOR VERIFICATION. HOWEVER, THE RUNNING ACCOUNT BILLS & FINAL BILLS WERE NOT DEMANDED BY THE LEARNED AO AT THE TIME OF ASSESSMEN T PROCEEDINGS, SAME MIGHT HAVE BEEN FURNISHED, IF DEMANDED. BUT TH E LEARNED AO ERRED BY SATISFYING HIMSELF ABOUT THE TOTAL WORK DO NE BY THE AVAILABILITY OF IDS CERTIFICATES ONLY. ITA NO.252/RJT/2013 6 8. SO FAR AS THE QUESTION OF PAYMENT OF EXPENSES BY CASH IS THERE, THERE ARE MANY FACTS WHICH ARE TO BE CONSIDERED. RAJULA - PIPAVAV, BEING A RURAL AREA BANKING FACILITY WAS NOT EASILY AVAILABL E, MAKING IT ALMOST IMPOSSIBLE TO MAKE PAYMENT VIDE CHEQUES. LACK OF ED UCATION & BANKING KNOWLEDGE AMONGST THE RECEIVERS COMPELLED T HE ASSESSEE TO MAKE PAYMENT IN CASH. ALSO, LABOURERS TO EARN THEIR BREAD & BUTTER MIGRATE FROM- ONE PLACE TO ANOTHER IN SEARCH OF WOR K, MAKING THEM HANDICAPPED TOWARDS BANKING FACILITY. AS REGARDS PA YMENT OF MATERIAL PURCHASES, RENT EXPENSES & SUBCONTRACT EXPENSES IS CONSIDERED, SAME ARE SUPPORTED BY AUTHENTIC BILLS/VOUCHERS. HOWEVER, IT SHOULD ALSO BE CONSIDERED THAT THE CASH PAYMENTS MADE WERE AS PER THE PRESCRIBED LIMITS UNDER SECTION 40A(3) AS CERTIFIED IN THE AUD IT REPORT, CONDUCTED BY A QUALIFIED CHARTERED ACCOUNTANT UNDER THE PROVI SIONS OF SECTION 44AB OF THE INCOME TAX ACT 1961. 9. THE LEARNED AO WHILE RESORTING TO PRESUMPTIVE PR OFIT OF 8% UNDER SECTION 44AD OF THE INCOME TAX ACT 1961, HAS IGNORE D THE NON APPLICABILITY CLAUSE OF THE SECTION. SECTION 44AD(1 ) READS THAT '... PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY IN CASE THE AFORESAID GROSS RECEIPTS PAID OR PAYABLE EXCEED AN AMOUNT OF FORTY LAKH RUPEES.' IT IS CLEARLY STATED THAT WHEN GROSS RECEIPTS EXCEED FORTY LAKH RUPEES, PROVISIONS OF SECTION 44AD ARE NOT TO BE APPLIED & PROVISIONS UNDER SECTION 44AB WOULD APPLY HITHERTO. THUS, THE LEARNED AO HAS ERRED IN APPLYING THE PROVISIONS OF SECTION 44AD, TO A CASE COVERED UNDER SECTION 44AB. 10. THE LEARNED AO ERRED IN ESTIMATING THE PROFIT @ 8% RESORTING TO SECTION 44AD OF THE INCOME TAX ACT 1961 OF TOTAL TU RNOVER OF THE APPELLANT. HOWEVER AT THE TIME OF DOING SO THE LEAR NED AO FAILED TO APPRECIATE THE FACT THAT THE ESTIMATION OF PROFIT C OMES INTO PLAY ONLY WHEN THERE IS ANY SCOPE FOR REJECTION OF BOOKS OF A CCOUNT. HERE THE APPELLANT HAS MAINTAINED ALL THE BOOKS OF ACCOUNT A ND WERE BEING FURNISHED. THE LEARNED AO REJECTED THE BOOKS OF ACC OUNTS ON THE BASIS OF IRRELEVANT GROUNDS AND WITHOUT APPRECIATING THE SUBMISSION MADE AT THE TIME OF ASSESSMENT PROCEEDINGS. THUS IN ALL SUC H CIRCUMSTANCES THE ASSESSMENT THAT HAS BEEN CONCLUDED BY THE LEARNED A O IS PURELY ON SURMISES AND CONJECTURE BASIS AND WITHOUT BRINGING ANY EVIDENCE ON RECORD WHICH CAN JUSTIFY THE REJECTION AND ADDITION MADE. THE ABOVE FACTS CLEARLY REVEAL THAT THE BASE THAT H AS BEEN TAKEN BY THE LEARNED AO IS TOTALLY VAGUE AND FAR AWAY FROM THE F ACTS AS MENTIONED ITA NO.252/RJT/2013 7 SUPRA. THE LEARNED AO ALSO FAILED TO APPRECIATE THE FACT THAT SECTION 145(3) IS ATTRACTED ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. HERE IN THE CASE OF APPELLANT THERE IS NOTHING LIKE INCOMPL ETENESS OR INCORRECTNESS OF BOOKS OF ACCOUNT AND HENCE IN SUCH CIRCUMSTANCES THE ATTRACTION OF SECTION 145(3) IS ILLEGAL. 9. WE FIND THAT THE APPROACH OF THE AO IS QUITE CAS UAL. INSTEAD OF SPECIFYING ANY DEFECT, HE SIMPLY OBSERVED THAT SINC E VARIOUS DEFECTS FOUND IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND POINTED O UT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BUT HE HAS NOT PIN POINTED WHICH WERE THOSE MISTAKES. AS OBSERVED EARLIER, RECOURSE TO ESTIMAT ION OF PROFIT CAN BE TAKEN, IF THE AO WAS UNABLE TO DEDUCT TRUE INCOME FROM THE AC COUNTS OF THE ASSESSEE. ONLY DEFECT POINTED OUT BY THE AO WAS THAT THE ASSE SSEE WAS NOT MAINTAINING STOCK REGISTER. WITH REGARD TO THAT EFFECT, THE AS SESSEE HAS EXPLAINED HIS POSITION THAT IN CONSTRUCTION BUSINESS WHICH WAS UN DERTAKING AT VARIOUS SITES, HE WOULD NOT ACCUMULATE LARGE CONSTRUCTION MATERIAL , IN ORDER TO AVOID PILFERAGE OF THAT MATERIAL. THEREFORE, IT WAS NOT NECESSARY TO MAINTAIN A DAY- TO-DAY STOCK REGISTER IN THIS LINE OF BUSINESS. TH E LD.CIT(A) HAS FOUND THIS EXPLANATION OF THE ASSESSEE AS PLAUSIBLE ONE. NOTH ING HAS BEEN BROUGHT TO OUR NOTICE WHICH CAN DEMONSTRATE AS TO HOW THE LD.CIT(A ) HAS COMMITTED ANY ERROR IN APPRECIATING THE FACTS AND CIRCUMSTANCES. IT WAS BROUGHT TO OUR NOTICE THAT A COMPARATIVE TABLE EXHIBITING THE PROFIT DISC LOSED BY THE ASSESSEE FROM THE ASSTT.YEAR 2006-07 UPTO 2009-10 WAS FURNISHED B EFORE THE LD.CIT(A). IT IS AVAILABLE AT PAGE NO.40 OF THE PAPER BOOK. THE ASSESSEE HAS STARTED CONSTRUCTION BUSINESS FROM THE ASSTT.YEAR 2008-09 A ND PROFIT RATIO WAS AT 3.75 (NET PROFIT) WHICH HAS COME DOWN TO 2.69%. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD.C IT(A) HAS RESTRICTED THE ADDITION TO RS.5.00 LAKHS. IF THIS RS.5.00 LAKHS H AS BEEN TAKEN INTO CONSIDERATION, THEN, THE ALLEGED PROFIT RATE RESULT OF THE ASSESSEE WOULD BE ITA NO.252/RJT/2013 8 SLIGHTLY BETTER. THE LD.COUNSEL FOR THE ASSESSEE W AS ALSO UNABLE TO POINT OUT AS TO HOW THE ASSESSEE HAS MADE ALL THE PAYMENTS IN CA SH BY WAY OF SELF-MADE VOUCHERS. CONSIDERING THESE ASPECTS, WE DO NOT FIN D ANY MERIT EITHER IN THE APPEAL OF THE REVENUE OR IN THE CO OF THE ASSESSEE. IN OUR OPINION, THE LD.CIT(A) HAS APPRECIATED THE FACTS AND CIRCUMSTANC ES IN RIGHT PERSPECTIVE, AND NO INTERFERENCE IS CALLED FOR IN THE IMPUGNED O RDER. ACCORDINGLY, APPEAL AS WELL AS CO ARE DISMISSED. 10. IN THE RESULT, APPEALS OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 21 ST OCTOBER, 2016 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 21/10/2016