The ITO, Ward-1(2), JUNAGADH V. M/s. New Bilnath Construction Co., JUNAGADH

ITA 277/RJT/2012

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0144 (ITAT-RAJKOT)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBUNAL: RAJKOT BENCH: RAJKOT . .. . . . . . . .. . . . . . # # # # BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTA VA AM ITA NO. 277/RJT/2012 / ASSESSMENT YEAR 2007-08 ITO, WARD-1(2) V. M/S. NEW BILNATH CONSTRUCTION CO . JUNAGADH VISHNU COLONY, ZANZARDA ROAD JUNAGADH 362001. PAN: AACFN6763B DATE OF HEARING: 18.10.2012 DATE OF PRONOUNCEMENT: 30.10.2012 FOR THE REVENUE: AVINASH KUMAR, DR FOR THE ASSESSEE: KALPESH DOSHI, FCA / // / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) ON 22-02-2012, ON THE FOLLOWING GROUNDS: 1 THE LD. CIT (A), RAJKOT HAS ERRED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS.15,85,324/- MADE BY THE AO ON ACCOUN T OF SEPARATION OF PROFIT, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 2. THE LD. CIT (A), RAJKOT HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT ASSESSEE HAD DECLARED BETTER G.P. AND N.P. DURING T HE YEAR, THOUGH DECLARED NET PROFIT FROM CONTRACT BUSINESS IS NIL A FTER DEDUCTING INTEREST AND REMUNERATION TO PARTNERS AND ON THAT BASIS DELETING THE ADDITION OF RS.15,85,324/- MADE BY THE AO. 3. ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4. ANY OTHER GROUND THAT THE REVENUE MAY RAISE BEFO RE OR DURING HEARING PROCEEDINGS BEFORE THE HONBLE ITAT. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT (A)-IV, RAJKOT MAY KINDLY BE SET-ASIDE AND THAT OF THE ASSESSING OFFIC ER BE RESTORED. 2. THE ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BU SINESS AS CIVIL CONTRACTORS. IT FILED ITS RETURN OF INCOME ON 26-10-2007 RETURNING NIL INCOME. AFTER PROCESSING, THE RETURN WAS SELECTED FOR SCRUTINY AS A RESULT OF WHI CH A SUM OF RS.15,85,324/- WAS ASSESSED AS INCOME OF THE ASSESSEE, WITH THE FOLLOW ING OBSERVATIONS:- 2 ITA 277/RJT/2012 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE ASSESSEE AND I AM NOT FULLY SATISFIED WITH THE SAME BECAUSE, DURING T HE LAST QUARTER THE ASSESSEE HAS INCURRED LABOUR EXPENDITURE OF RS.21,7 1,049/- AND PURCHASE OF MATERIAL OF RS.8,71,678/- AGAINST THE TOTAL CONTRAC T RECEIPT OF RS.15,60,429/-. THE INPUT FOR CARRYING OUT THIS WORK INCLUDING MATE RIAL AND LABOUR IS REQUIRED TO THE TUNE OF RS.14,54,503/- CONSIDERING G.P. AT 7 .29% DISCLOSED BY THE ASSESSEE. THE ASSESSEE, AT ANY STAGE NOT PRODUCED ANY EVIDENCE TO THE EFFECT THAT THE LABOUR PAYMENT OF RS.21,71,049/- AL SO REPRESENT PAYMENT MADE FOR CONTRACT WORK CARRIED OUT IN EARLIER PERIO D. HENCE, THERE SHOULD BE EITHER WORK IN PROGRESS FOR AN AMOUNT OF RS.15,85,3 24/- OR CLOSING STOCK OF RAW MATERIAL FOR THE SAME AMOUNT. BUT, IN THE INST ANT CASE, THE ASSESSEE REITERATES THAT THERE IS NO WORK IN PROGRESS OR CLO SING STOCK OF MATERIAL, WHICH IS FAR FROM REALITY. IN VIEW OF ABOVE FACTS I COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT ACCOUNTED FOR THE WORK IN PROGRESS / CLOSING STOCK AT RS.15,85,324/- AND THE SAME IS ACCORDINGLY ADDED TO THE TOTAL INCOME. I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF INCOME PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE INITIATED SEPARATELY. 3. ON APPEAL, THE LD. CIT (A) HAS DELETED THE IMPUG NED ADDITION, WITH THE FOLLOWING OBSERVATIONS:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. I FIND THAT IN MATCHING PRINCIPLE OF AC COUNTING, THE REVENUE REALIZED IS MATCHED WITH THE EXPENDITURE INCURRED. FURTHER, THE EXPENDITURE FOR WHICH REVENUE IS TO BE REALIZED LATER, IS CAPIT ALIZED AS WORK IN PROGRESS AS CLOSING STOCK SO THAT ARTIFICIAL LOSS IS NOT CLAIME D. SUCH WORK IN PROGRESS BECOMES OPENING WORK IN PROGRESS IN NEXT YEAR WHICH IS CLAIMED AS DEDUCTION AGAINST THE REVENUE REALIZED IN THE NEXT YEAR. THE RECOGNITION OF REVENUE MAY BE DELAYED DUE TO VERIFICATION OF WORK BY THE GOVERNMENT. HOWEVER, THE EXPENDITURE IS SUPPOSED TO BE BOOKED A S AND WHEN IT IS INCURRED AND REFLECTED AS WORK-IN-PROGRESS TILL THE CORRESPONDING REVENUE IS REALIZED FROM THE GOVERNMENT. APPELLANT HAS SUBMITT ED THAT BOOKING OF EXPENDITURE IS SOMETIMES DELAYED IF THE LABOUR OR L ABOUR CONTRACTOR EMPLOYED BY THE APPELLANT MAKES A CLAIM AT A DATE LATER THAN ACTUAL EXECUTION OF WORK AND CORRESPONDING RECEIPT FROM THE GOVERNMENT. MOR EOVER, THE APPROXIMATE CALCULATION CARRIED OUT BY ASSESSING OFFICER IN RES PECT OF POSSIBLE WORK-IN- PROGRESS FROM EXPENDITURE BOOKED AND RECEIPTS REALI ZED CANNOT BE APPLIED TO FOURTH QUARTER ALONE. IT SHOULD BE APPLIED TO ALL THE QUARTERS. IF THE CALCULATION CARRIED OUT BY ASSESSING OFFICER IS APPLIED TO ALL THE FOUR QUARTERS, THE RESULT MAY LOOK SOMETHING LIKE THIS. 3 ITA 277/RJT/2012 SR. NO. QUARTER TOTAL EXPS. CONTRACT RECEIPT WORK CALCULATED ON THE BASIS OF CONTRACT RECEIPT WORK-IN- PROGRESS AT THE END OF QUARTER / OR A B C D E=D-(.729 XD) F=C-E 1 FIRST QUARTER 01.04 TO 30.06 2158491 6247283 5792481 -3633990 2 SECOND QUARTER 01.07 TO 30.09 1971781 1465335 1358659 613122 3 THIRD QUARTER 01.10 TO 31.12 1840250 744225 690045 1150205 4 FOURTH QUARTER 01.01 TO 31.03 3042727 1560429 1446830 1595897 TOTAL YEARLY 01.04 TO 31.03 9013249 9288015 -274766 THE NET RESULT OF THE ANALYSIS CARRIED OUT BY THE A SSESSING OFFICER, IF APPLIED TO ALL THE FOUR QUARTERS, SHOWS A DEFICIT OF WORK-I N-PROGRESS OF RS.2,74,766/- AT THE END OF THE YEAR ON 31-3-2007 INSTEAD OF ANY POS ITIVE WORK-IN-PROGRESS. IT MAY BE DUE TO THE FACT THAT APPELLANT DID NOT SHOW THE OPENING WORK IN PROGRESS ON 01-04-2006 OR MAY BE THAT APPELLANT BOO KED THE EXPENDITURE OF FIRST QUARTER IN LATER QUARTERS THOUGH IT RECEIVED THE CONTRACT RECEIPT IN FIRST QUARTER. IN EITHER CASE, THE ACCOUNTING OF APPELLANT CANNOT BE SAID TO BE APPROPRIATE. THERE ARE STRONG INDICATIONS OF THERE BEING HIGHE R OPENING WORK IN PROGRESS AS ON 01-04-2006 THAN THE CLOSING WORK IN PROGRESS ON 31- 03-2007. EVEN IF THE METHOD OF ACCOUNTING OF APPELL ANT IS NOT CONSIDERED TO BE APPROPRIATE, APPELLANT DOES NOT APPEAR TO HAVE R ETURNED LESSER INCOME FOR THE ASSESSMENT YEAR 2007-08 BECAUSE THE OPENING WOR K IN PROGRESS APPEARS TO BE HIGHER THAN THE CLOSING WORK IN PROGR ESS. A COMPARISON OF GP AND NP OF ASSESSMENT YEAR 2006-07, 2007-08 AND 2008 -09 IS AS UNDER:- ASSESSMENT YEAR GP NP 2006-07 4.16 2.39 2007-08 7.27 4.74 2008-09 6.51 3.74 THE MAIN REASON FOR THE HIGHER GP IN ASSESSMENT YEA R 2007-08 IN COMPARISON TO ASSESSMENT YEAR 2006-07 APPEARS TO BE NOT ACCOUNTING THE WORK IN PROGRESS AT THE END OF ASSESSMENT YEAR 2006 -07 AND ACCOUNTING FOR THE CORRESPONDING CONTRACT RECEIPTS IN ASSESSMENT Y EAR 2007-08 WHICH IS QUITE EVIDENT FROM THE ANALYSIS OF CONTRACT RECEIPT AND EXPENDITURE OF THE FIRST QUARTER OF ASSESSMENT YEAR 2007-08. HOWEVER, THE D EFECTIVE ACCOUNTING METHOD OF APPELLANT ACTUALLY YIELDED MORE INCOME OF ASSESSMENT YEAR 2007- 08 AND EVEN IF THE BOOKS MAY BE LIABLE FOR REJECTIO N, NO BETTER PROFIT MAY BE ESTIMATED THAN WHAT THE APPELLANT HAS RETURNED. I THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.15,8 5,324/- AND REDUCE THE TOTAL INCOME ACCORDINGLY. 4. AGGRIEVED BY THE ORDER PASSED BY THE CIT (A), TH E DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. AT THE TIME OF HEARING , THE LD. DEPARTMENTAL REPRESENTATIVE INVITED OUT ATTENTION TO PAGE-4 OF T HE ORDER PASSED BY THE CIT (A) IN WHICH TOTAL AMOUNT OF CONTRACT RECEIPTS HAS BEEN SH OWN AT RS.1,00,17,272/-. HE 4 ITA 277/RJT/2012 SUBMITTED THAT THE ACTION OF THE AO IN MAKING THE I MPUGNED ADDITION WAS HIGHLY IMPROPER AS IT WOULD TAKE THE RATE OF NET PROFIT TO MORE THAN 15% WHICH WAS NOT USUAL IN THIS LINE OF BUSINESS. HE SUBMITTED THAT T HE CIT (A) HAS RIGHTLY DELETED THE ADDITION. 6. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE SUPPORTED THE ORDER PASSED BY THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES. IT IS A UNIQUE S ITUATION WHERE THE DEPARTMENTAL REPRESENTATIVE HIMSELF ARGUED THAT THE ORDER PASSED BY THE CIT(A) DELETING THE IMPUGNED ADDITION IS JUSTIFIED AND THA T THE ACTION OF THE AO IN MAKING THE IMPUGNED ADDITION WAS IMPROPER AS SUCH ADDITION WOULD TAKE THE RATE OF NET PROFIT TO MORE THAN 15%, WHICH IS IMPROBABLE IN THI S LINE OF BUSINESS. SINCE THE DEPARTMENT ITSELF SAYS THAT IT HAS NO CASE, WE SEE NO REASON TO INTERFERE IN THE MATTER. APPEAL FILED BY THE DEPARTMENT IS DISMISSED . ( * 30.10.2012 ( ORDER PRONOUNCED ON 30.10-2012 SD/- SD/- ( . . / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /RAJKOT: 30-10-2012 NVA/- ( (( ( -. -. -. -. /. /. /. /. / COPY OF ORDER FORWARDED TO:- 1.2 / APPELLANT-THE INCOME-TAX OFFICER, WARD-1(2), JUN AGADH 2 -42 / RESPONDENT-M/S. NEW BILNATH CONSTRUCTION CO., JU NAGADH 3. 8 / CONCERNED CIT-III, RAJKOT 4. 8- / CIT (A)-IV, RAJKOT 5. . -, , / DR, ITAT, RAJKOT 6. / GUARD FILE / BY ORDER TRUE COPY. SENIOR PRIVATE SECRETARY, ITAT , RAJKOT