ACIT, BHARATPUR V. RAMESHWAR PRASAD SHARMA, BHARATPUR

ITA 274/JPR/2011

• Counselvise Citation: 27423114 RSA 2011
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 30-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: S C GUPTA
• Keywords: Depreciation
• Section: 40A(3); 37(1)

Judgement Text

1 ITA 274(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 274/JP/2011 ASSTT. YEAR : 2000-01. THE ACIT, CIRCLE, VS. M/S. RAMESHWAR PRASAD SHAR MA, BHARATPUR. CONTRACTOR, 316, KRISHNA NAGAR, BHARATPUR. (APPELLANT) (RESPONDENT) C.O. NO. 56/JP/2011 ( ARISING OUT OF ITA NO. 274/JP/2011 ) ASSTT. YEAR : 2000-01. M/S. RAMESHWAR PRASAD SHARMA, VS. THE ACIT, CIRCLE , BHARATPUR. BHARATPUR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI D.K. MEENA RESPONDENT BY : SHRI S.C. GUPTA DATE OF HEARING : 12.9.2011 DATE OF PRONOUNCEMENT : 23.9.2011 ORDER DATE OF ORDER : 23/09/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AND CROSS OBJECTIO N BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2000-01. 2. THE DEPARTMENT IS OBJECTING IN DELETING THE ADDI TION OF RS. 7,76,829/- MADE BY AO UNDER SECTION 40A(3) AND DELETING THE ADDITION O F RS. 5,58,120/- MADE BY AO UNDER SECTION 37(1) OF THE I.T. ACT. 2 3. THE ASSESSEE DERIVES INCOME FROM BUSINESS OF EXE CUTING CIVIL WORKS UNDER CONTRACT FOR VARIOUS GOVERNMENT DEPARTMENTS. NET P ROFIT HAS BEEN DECLARED AT RS. 8,78,634/- WHICH WORKS OUT NET PROFIT RATE AT 7.25% ON THE GROSS RECEIPTS. THE AO OBSERVED THAT CERTAIN PAYMENTS HAVE BEEN MADE IN VI OLATION OF PROVISIONS OF SECTION 40A(3) AND UNDER SECTION 37(1) OF THE IT ACT. THE ASSESSEE FIRMS EXPLANATION REGARDING PAYMENTS MADE IN VIOLATION TO SECTION 40A(3) WAS NO T FOUND SATISFACTORY THOUGH AFFIDAVITS OF THE PARTIES WERE FILED THAT THEY RECE IVED THE PAYMENT ON URGENT REQUIREMENT. HOWEVER, THE AO WAS NOT SATISFIED AS THESE PERSONS WERE NOT PRODUCED FOR EXAMINATION. 4. REGARDING PAYMENT OF RS. 5,58,120/-, AGAIN THIS ADDITION WAS MADE BY AO BY OBSERVING THAT ASSESSEE HAS NOT FILED SATISFACTORY EXPLANATION. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT AO WAS NOT JUSTIFIED IN MAKING ADDITIO N. IT WAS SUBMITTED THAT PAYMENT WERE NOT MADE TO ANY ONE PERSON/PARTY IN A DAY AS A LL THE PAYMENTS WERE MADE EITHER THROUGH EMPLOYEES OF THE FIRM OR THROUGH THE BUSINE SS ASSOCIATES FOR ONWARD PAYMENTS TO LABOURERS/COTTAGE/VILLAGE RAW MATERIAL PRODUCERS AT SITES WHICH ARE NOT SERVED BY THE BANK ALSO. SOMETIMES PAYMENTS WERE MADE ON HOLIDAYS. A FFIDAVITS OF THE EMPLOYEES WERE FILED BUT NOT CONSIDERED BY THE AO. RELIANCE WAS P LACED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF G.K. CONTRACTORS, 4 1 TAX WORLD 111. IT WAS ALSO SUBMITTED THAT THE PAYMENTS ARE COVERED BY THE PROV ISIONS OF RULE 6DD (F), (G) AND (J) OF IT RULES. IN RESPONSE TO ADDITION MADE UNDER SECTI ON 37(1), IT WAS SUBMITTED THAT ALMOST ALL THE PAYMENTS ARE SITE EXPENSES SHOWN AS EITHER ADVANCE OR PAYMENT IN THE NAME OF EMPLOYEES OF THE FIRM OR BUSINESS ASSOCIATES FOR ON WARD PAYMENTS AND SOMETIMES WRITTEN IN THE NAME OF CONCERNED AUTHORITY/SITES NAME FOR JUST TO IDENTITY THE SITE BY THE ACCOUNTANT. THE ENTRIES APPEARED IN THE LEDGER ARE CONSOLIDATED AT NUMBER OF TIMES IN 3 JOINT NAMES. SINCE SOME OF THE ENTRIES ARE SELF EX PLANATORY HENCE NOT REPLIED IN WRITING. HOWEVER, A DETAILED EXPLANATION WAS FILED DURING TH E ASSESSMENT PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT N.P. RATE SHOWN BY ASSESSEE AT 7.25% IS BETTER THAN DECLARED IN EARLIER YEAR. IT WAS SUBMITTED THAT FOR ASSESSMENT YEAR 1998-99 THE LD. CIT (A) HAD APPLIED N.P. RATE OF 8%. IT WAS FURTHER SUBMITTED THAT IN CASE OF M/S. VIJAY BUILDERS, THE TRIBUNAL HAS REDUCED THE NET PROFIT TO 5%. FURTHER RELIANCE WAS PLACED IN CASE OF CIT VS. BANWARI LAL BANSIDHAR, 229 ITR 229 (ALL.) WHEREIN I T IS HELD THAT WHERE NET PROFIT RATE IS APPLIED NO OTHER ADDITION IS MADE. AFTER CONSIDERI NG THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) WAS OF THE VIEW THAT INSTEAD OF DISALLOWING THE EXPENDITURE UNDER SECTION 37(1) AND MAKING ADDITION UNDER SECTION 40A(3), IT WOULD BE JUSTIFIED TO APPLY 9.5% RATE OF N.P. SUBJECT TO DEP RECIATION, INTEREST AND REMUNERATION TO THE PARTNERS ON THE TOTAL CONTRACT RECEIPTS SHOWN B Y THE ASSESSEE, WHICH WILL TAKE CARE OF ALL DEFECTS AND ADDITIONS MADE BY AO. IN THIS WAY ADDITION OF RS. 2,72,330/- WAS MADE AND THE REMAINING ADDITION OF RS. 10,62,619/- WAS D ELETED BY LD. CIT (A) MADE BY AO UNDER SECTION 40A(3) AND IN VIEW OF SECTION 37(1) O F THE IT ACT. 5. NOW THE DEPARTMENT IS OBJECTING IN DELETING THE SEPARATE ADDITION MADE BY AO AND ASSESSEE IS OBJECTING IN APPLYING THE NET PROFI T OF 9.5% AS AGAINST 7.25% DECLARED BY THE ASSESSEE. 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, WE FIND THAT THERE IS NO SUBSTANCE IN THE APPEAL OF THE DEP ARTMENT WHEREAS ASSESSEE DESERVES TO SUCCEED IN PART. THE LD. CIT (A) IN OUR CONSIDERED VIEW WAS REASONABLE IN APPLYING N.P. RATE INSTEAD OF MAKING ADDITION UNDER SECTION 40A(3 ) AND UNDER SECTION 37(1) OF THE IT ACT. HOWEVER, WE ARE OF THE VIEW THAT NP RATE SHOW N BY ASSESSEE IS BETTER AS COMPARED 4 TO EARLIER. THEREFORE, IN OUR VIEW IF A N.P. RATE O F 8.5% IS APPLIED AGAINST 7.25% DECLARED BY ASSESSEE THAT WILL MEET THE ENDS OF JUSTICE. TH E HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. BANWARI LAL BANSIDHAR (SUPRA) HAS HELD T HAT WHERE NP RATE IS APPLIED, THEN NO OTHER DISALLOWANCE CAN BE MADE EITHER UNDER SECTION 40A(3) OR EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT. THE LD. CIT (A) HAS APP LIED NP RATE AT 9.5% WHICH WE HAVE REDUCED TO 8.5%. THEREFORE, IN VIEW OF THE DECISION OF HONBLE ALLAHABAD HIGH COURT, NO SEPARATE ADDITION CAN BE MADE. IN VIEW OF THESE FA CTS AND CIRCUMSTANCES, WE DIRECT THE AO TO RECOMPUTED THE INCOME @ 8.5% INSTEAD OF 9.5% APPLIED BY LD. CIT (A) SUBJECT TO ALLOWING DEPRECIATION, INTEREST AND REMUNERATION TO THE PARTNERS AS DIRECTED BY LD. CIT (A). WE ORDER ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED IN PART. 8. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23. 9.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE, BHARATPUR. M/S. RAMESHWAR PRASAD SHARMA, BHARATPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 274(2)/JP/2011) BY ORDER, AR ITAT JAIPUR. 5