Rakesh Construction Company, Jaipur V. ACIT, Jaipur

ITA 274/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5084 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: SHARWAN GUPTA
• Keywords: Business income; Depreciation; Rectification of order
• Section: 143(3); 54; 37; 154

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA VK;DJ VIHY LA VK;DJ VIHY LA VK;DJ VIHY LA- -- -@ @@ @ ITA NO.274/JP/14 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08 M/S RAKESH CONSTRUCTION CO. 61/35, PRATAP NAGAR HOUSING BOARD, SANGANER, JAIPUR CUKE VS. THE ACIT, CIRCLE-7, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AABFR 3344 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SHARWAN GUPTA (ADVOCATE) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20.09.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 23/09/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THE SUBJECT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-III, JAIPUR DATED 28.01.2014 IN RELATIO N TO THE ORDER PASSED BY THE AO U/S 154 OF THE ACT FOR ASSESSMENT YEAR 2007-08. THE LD. AR MOVED AN APPLICATION FOR ADJOURNMENT AT THE ABOVE SCHEDULED DATE OF THE HEARING. HOWEVER, GIVEN THE FACT THAT THE SUBJECT APPEAL HAS BEEN FILED WAY BACK IN THE MONTH OF APRIL, 2014 AND COUPLE OF OPPORTUNITIES HA VE BEEN GIVEN IN THE PAST TO THE LD. AR, THE ADJOURNMENT APPLICATION WAS REJE CTED AND IT WAS DECIDED TO HEAR THE MATTER BASED ON THE WRITTEN SUBMISSION FIL ED BY THE LD. AR DATED 26.8.2016 AND 31.08.2016 AND ON THE BASIS OF MATERI AL AVAILABLE ON RECORD. ITA NO. 274/JP/14 RAKESH CONSTRUCTION CO. JAIPUR VS. ACIT, CIRCLE-7, JAIPUR 2 THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: (1) THE LD. AO HAS ERRED IN INITIATION OF PROCEEDINGS B ASED ON AG OBJECTION RAISED AFTER PASSING OF ASSESSMENT ORDER U/S 143(3) OF THE IT ACT, 1961 BY PASSING RECTIFICATION ORDER U/S 154 OF THE ACT. TH US AFTER PASSING OF CONSCIOUS ASSESSMENT ORDER, THERE CANNOT BE ANY BA SIS FOR INITIATION OF PROCEEDINGS ON THE GROUND OF MISTAKE APPARENT FRO M RECORD, THUS PASSING OF ORDER U/S 154 MAY PLEASE BE DECLARED AS ILLEGAL AND UNJUSTIFIED IN THE FACTS & CIRCUMSTANCES OF THE CAS E. (2) THE ASSESSMENT ORDER FOR ABOVE YEAR WAS GOT COM PLETED O N AGREED BASIS AND APPELLANT HAS ACCEPTED NET PROFIT @ 5.05% INSTE AD OF DECLARED NET PROFIT OF 3.92% AND NO APPEAL AGAINST SAID ASSESSM ENT ORDER WAS PREFERRED TO HONOUR AGREED ASSESSMENT ORDER. THAT NET PROFIT RATE WAS ENHANCED BY REJECTING BOOKS OF ACCOUNTS U/S 145(3) / THUS DISALLOWANCE U/S 40(A)(IA) OF IT ACT ON ACCOUNT OF OUTSTANDING H IRE CHARGES OF MACHINERY IS ABSOLUTELY ILLEGAL AND UNJUSTIFIED AN D MAY PLEASE BE DECLARED AS ILLEGAL. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN CIVIL CONSTRUCTION WORK. THE ASSESSEE HA S DECLARED THE NET INCOME OF RS. 16,15,598/- BY DECLARING NET PROFIT RATE OF 2.39% WHEREAS THE LD. AO HAS FINALIZED THE ASSESSMENT REJECTING THE BOOKS OF AC COUNTS U/S 145(3) OF THE ACT AND ESTIMATING THE NET PROFIT RATE OF 5.05% ON AN A GREED BASIS AND NO FURTHER APPEAL HAS BEEN FILED. SUBSEQUENTLY, PROCEEDINGS U /S 154 WERE INITIATED AND THE AO PASSED AN ORDER BY DISALLOWING OUTSTANDING P AYMENT OF RS 24,01,000 TOWARDS HIRE CHARGES OF MACHINERY U/S 40(A)(IA). A GAINST THE SAID ORDER, THE ASSESSEE HAS UNSUCCESSFULLY CONTESTED THE MATTER BE FORE THE LD CIT(A) AND NOW IN APPEAL BEFORE US. 2.1 BEFORE WE REFER TO THE WRITTEN SUBMISSIONS FILE D BY THE LD AR, WE REFER TO THE FINDINGS OF THE LD. CIT(A) AS UNDER: I HAVE CAREFULLY CONSIDERED THE FIN DINGS OF THE AO AS ALSO THE SUBMISSION OF THE APPELLANT. IT MAY BE NOTED THAT THE APPEL LANT HAS DISPUTED INITIATION OF PROCEEDINGS U/S 154 OF THE IT ACT FOR MAKING DISALLOWANCE OF RS, 24,01,000/- U/S 40(A)(IA) OF IT ACT ON ACCOUNT OF NON-DEDUCTION OF ITA NO. 274/JP/14 RAKESH CONSTRUCTION CO. JAIPUR VS. ACIT, CIRCLE-7, JAIPUR 3 TDS ON HIRE CHARGES. IT MAY BE NOTED THAT THE ASSE SSEE HAS MADE PAYMENT OF RS. 24,01,000/- ON ACCOUNT OF HIRE CHARG ES OF MACHINERY AND THERE IS NO DISPUTE ON THE FACT THAT THE TDS WAS T O BE DEDUCTED ON SUCH AMOUNT. IT IS ALSO NOTED THAT THE FACTS THAT SUCH PAYMENT WAS MADE ON ACCOUNT OF HIRE CHARGES IS EVIDENCED FROM THE ASSES SMENT RECORD. THE APPELLANT CONTENTION IS THAT ASSESSMENT U/S 143(3) HAS BEEN MADE AND WHILE COMPLETING THE ASSESSMENT A PARTICULAR NP R ATE HAS BEEN APPLIED THEREFORE SUBSEQUENT TO SUCH ASSESSMENT SUCH AMOUNT OF RS. 24,01,000/- CANNOT BE ADDED BY WAY OF PROCEEDINGS U/S 154 OF I T ACT. IN THIS CONNECTION IT MAY BE NOTED THE PROVISIONS OF SECTIO N 40(A) ARE OF OVERRIDING NATURE PROVIDING THAT NOTWITHSTANDING A NYTHING TO THE CONTRARY IN SEC. 30 TO 38, THE AMOUNTS SPECIFIED IN SECTION 40(A) SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDE R THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION. IN OTHER WOR DS THE PROVISIONS U/S 40(A)(IA) ARE TO BE APPLICABLE IF THE CIRCUMSTANCES SPECIFIED UNDER THIS PROVISION ARE FOUND TO BE EXISTING. IN THIS BACKG ROUND IT MAY BE NOTED THAT IN THE APPELLANT CASE WHEN THERE IS NO DISPUTE ON THE FACT THAT TDS WAS TO BE DEDUCED ON THE HIRE CHARGES ON MACHINERY AND WHEN THE TDS HAS NOT BEEN DEDUCTED THEN SUCH AMOUNT OF RS. 24,01 ,000/- WAS TO BE DISALLOWED. IT MAY ALSO BE NOTED THAT THE AO WHILE COMPLETING THE ASSESSMENT DID NOT DISALLOW SUCH AMOUNT AND ACCORDI NGLY COMMITTED A MISTAKE OF LAW. SUCH MISTAKE IS APPARENT FROM THE RECORDS AND ACCORDINGLY THE AO HAS RIGHTLY INITIATED PROCEEDING S U/S 154 OF THE IT ACT AND DISALLOWED SUCH AMOUNT. AS REGARDS VARIOUS CAS E LAWS RELIED UPON BY THE APPELLANT NIT MAY BE STATED THAT THERE ARE I N DIFFERENT CONTEXT MAINLY ON THE ISSUE THAT WHEN THE ADDITION ARE MADE ON AGREED BASIS, THERE MAY BE NO CAUSE OF GRIEVANCE FOR THE APPELLAN T. ACCORDINGLY HE ADDITION MADE BY THE AO AMOUNTING TO RS. 24,01,000/ - IS CONFIRMED. 2.2 WE NOW REFER TO THE WRITTEN SUBMISSION FILED BY THE LD. AR WHICH ARE REPRODUCED AS UNDER: THE AR OF THE ASSESSEE SUBMITT ED THAT THE AO HAS ERRED IN PASSING OF RECTIFICATION ORDER U/S 154 OF THE I T ACT. THE ORIGINAL ASSTT. ORDER DATED 18.12.2009 WAS PASSED AS CONSCIOUS ASSESSME NT ORDER AFTER CONSIDERING ENTIRE BOOKS OF ACCOUNTS. SECTION 154 I S FOR THE RECTIFICATION OF MISTAKE APPARENT FROM RECORD. WHEN ENTIRE BOOKS OF RECORDS HAVE BEEN VERIFIED AND CONSCIOUS ORDER HAS BEEN PASSED, THEN THERE DOES NOT REMAIN ANY ROOM FOR RECTIFICATION OF THE SAME. SECTION 154 IS MEANT FOR SOME ARITHMETICAL ITA NO. 274/JP/14 RAKESH CONSTRUCTION CO. JAIPUR VS. ACIT, CIRCLE-7, JAIPUR 4 AND CLERICAL ERROR WHICH IS DISCERN OUT FROM ASSESS MENT ORDER AND NOT FOR REINITIATE OF ANY PROCEEDINGS WHICH IS ALREADY CONS CIOUSLY CONCLUDED. THE EXTENT OF RECTIFICATION IS HAVING VERY LIMITED SCOP E AND DOES NOT ENTITLE TO DISTURB ENTIRE BODY OF THE ORDER AND FOR CREATION O F SEPARATE ISSUE WHICH IS DISCUSSED AT LENGTH IN ORDER. RE-THOUGHTS AND REVI SION OF ANY ORDER IS NOT PERMISSIBLE U/S 154 OF THE IT ACT. THEREFORE ORDER OF BOTH THE LOWER AUTHORITIES TO THIS EXTENT BY INVOKING OF SECTION 1 54 MAY PLEASE BE DECLARED ILLEGAL. THAT LD. AO BASED ON PARA OF AG HAS MADE DISALLOWA NCE U/S 40(A)(IA) ON ACCOUNT OF NON-DEDUCTION OF TDS ON OUTSTANDING AMOU NT OF EXPENSES OF RS. 24,01,000/-. THE ASSESSMENT ORDER HAS BEEN PASSED O N AGREED BASIS WHEREBY NP AS DECLARED IN RETURN OF INCOME AS ENHANCED FRO M 2.39% TO 5.05%, THUS IT RESULTED INTO INCREASE OF NET PROFIT OF RS.17,72,63 7/- (I.E. 2.66%). APPELLANT HAS ACCEPTED THE SAME JUST TO AVOID LITIGATION AS THE S AME IS ALSO APPEARING FROM ASSESSMENT ORDER PAGE NO.32 DATED 18.212.2009 WHER EIN IT IS SPECIFICALLY WRITTEN THAT THE AR OF THE ASSSSEE FIRM HAS SUBMIT TED THAT THE FIRM HAS DECIDED CORRECT PARTICULARS OF ITS INCOME BUT KEEPI NG IN MIND ISSUE OF LITIGATION AND APPELLATE PROCEEDINGS OF THE FIRM IS AGREED TO PAY TAX @ 5.05 % ON CONTRACT RECEIPT AFTER DEDUCTION OF DEPRECIATION, I NTEREST AND REMUNERATION PAID TO PARTNERS AS INCOME FROM BUSINESS AND PROFES SION. BY CONSIDERING THE SUBMISSION OF THE AR OF THE ASSESSEE FIRM THE TRADI NG ADDITION RS. 17,72,637/- (GROSS RECEIPT RS. 6,70,93,760/- @ 5.05% = 33,88,23 5/- - 16,15,598/-). THAT IT HAS BEEN HELD BY VARIOUS JUDICIAL PRONOUNCE MENTS AND ALSO BY HONBLE ITAT, JAIPUR BENCH, JAIPUR VIDE THEIR ORDER DATED 9.10.2015 THAT NO DISALLOWANCE COULD BE MADE U/S 40(A)(IA) AND 40A(3 ) OF THE ACT WHEN ASSESSMENT IS MADE COMPUTING INCOME BY APPLICATION OF NP RATE. ITA NO. 274/JP/14 RAKESH CONSTRUCTION CO. JAIPUR VS. ACIT, CIRCLE-7, JAIPUR 5 FURTHER THE LD. AR HAS RELIED ON THE DECISION OF HO NBLE HIGH COURT OF KOLKATTA IN THE CASE OF CIT VS. ARJUN BHOWMICK ITA NO. 134 OF 2014 DATED 29.08.2014, DECISION OF CALCUTTA BENCH OF ITAT IN C ASE OF FUTURE DISTRIBUTORS VS. PR. CIT, KOLKATTA ITA NO. 277/KOL/2016 DATED 29 .07.2016 AND DECISION OF JAIPUR BENCH OF ITAT IN CASE OF BANAS SAND TOLL TAX COLLECTION VS. DEPARTMENT OF INCOME TAX ITA NO. 1028/JP/2013 DATED 09.10.2015 . 2.3 THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDE R OF LD CIT(A). 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE BOOKS OF ACCOU NTS WERE REJECTED U/S 145(3) OF THE ACT AND THEREAFTER THE AO HAS ESTIMATED NET PROFIT @ 5.05% ON CONTRACT RECEIPT AFTER DEDUCTION OF DEPRECIATION, INTEREST A ND REMUNERATION PAID TO PARTNERS AS AGAINST NET PROFIT OF 2.39% DECLARED BY THE ASSESSEE. FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS NOTED THAT T HERE HAVE BEEN DISCUSSIONS BETWEEN THE AO AND THE ASSESSEE IN TERMS OF ESTIMA TING THE NET PROFIT RATE ONCE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED. AS P ART OF THAT DISCUSSION, IT IS NOTED THAT IN RESPONSE TO AOS SHOW-CAUSE AS TO WH Y 8.5% NET PROFIT RATE SHOULD NOT BE ALLOWED, THE LD. AR HAS SUBMITTED THA T IF THE NET PROFIT AT THE RATE OF 8.5% IS APPLIED, THEN THE DEDUCTION ON ACCO UNT OF PAYMENT OF HIRING CHARGES FOR MACHINERY TAKEN ON RENT AMOUNTING TO RS . 22,41,600/- AND RS. 21,60,000/- ARE ALSO TO BE ALLOWED. THE LD. AO FIN ALLY DECIDED TO APPLY NET PROFIT OF 5.05% WHICH HAS BEEN AGREED UPON BY THE A SSESSEE. IT IS THEREFORE SEEN THAT ISSUE OF ALLOWANCE OF PAYMENTS OF MACHINE RY HIRE CHARGES HAS BEEN DULY TAKEN INTO CONSIDERATION BY THE AO WHILE ESTIM ATING THE N.P. RATE OF 5.05%. ITA NO. 274/JP/14 RAKESH CONSTRUCTION CO. JAIPUR VS. ACIT, CIRCLE-7, JAIPUR 6 FURTHER, IT IS NOTED THAT THE DECISION OF HONBLE K OLKATTA HIGH COURT IN THE CASE OF ARJUN BHOWMICK (SUPRA) DIRECTLY SUPPORT THE CAS E OF THE ASSESSEE. IN THAT CASE, THE VIEW TAKEN BY THE KOLKOTTA BENCH OF THE I TAT HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT WHEREIN IT HAS HELD THAT ONC E THE N.P. RATE IS ESTIMATED, THE AO CANNOT BASED THIS DISALLOWANCE ON THE SAME BOOKS OF ACCOUNTS FOR THE PURPOSE OF DISALLOWANCE BY INVOKIN G PROVISIONS OF SECTION 40(A)(IA) OF THE ACT OR GENERAL DISALLOWANCE U/S 3 7 OF THE ACT. THE ESTIMATION MADE BY THE AO OF NET PROFIT WILL TAKE CARE OF EVER Y ADDITION RELATED TO BUSINESS INCOME OR BUSINESS RECEIPTS AND NO FURTHER DISALLOWANCE CAN BE MADE. IT IS ALSO NOTED THAT JAIPUR BENCH OF ITAT IN THE CASE OF BANAS SAND TOLL TAX COLLECTION (SUPRA) HAS TAKEN A SIMILAR VIE W IN THE MATTER FOLLOWING THE DECISION IN CASE OF HONBLE ANDHRA PRADESH HIGH CO URT IN THE CASE OF INDWELL CONSTRUCTION (232 ITR 776). IN LIGHT OF ABOVE, WE SEE NO REASON FOR AO TO INVOK E PROVISIONS OF SECTION 154 OF THE ACT. HENCE, THE ORDER PASSED BY THE AO U/S 154 IS QUASHED AND THE ORIGINAL ORDER PASSED U/S 143(3) OF THE ACT IS SUST AINED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/0 9/2016. SD/- SD/- ( KUL BHARAT ) ( VIKRAM SINGH YADAV ) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 23 / 09/2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: ITA NO. 274/JP/14 RAKESH CONSTRUCTION CO. JAIPUR VS. ACIT, CIRCLE-7, JAIPUR 7 1. VIHYKFKHZ@ THE APPELLANT- M/S RAKESH CONSTRUCTION CO. JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-7, JAIPUR 3. VK;DJ VK;QDR@ CIT III, JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-III, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 274/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR