The ITO,Vapi Ward-2, Vapi V. Shri Maheshchandra Ganpatram Varma, Vapi

ITA 2821/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8986 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 07-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Business income
• Section: 69C; 69

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 2821/AHD./2008 ASSESSMENT YEAR : 2005-2006 INCOME TAX OFFICER, WARD-2, VAPI -VS.- SHRI MAHE SHCHANDRA GANPATRAM VARNAM, VAPI (P.A. NO. ABCVP 7045 H) (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI C.K. MISHRA, D. R. RESPONDENT BY : SHRI KAMLESH BHATT O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THE REVENUE HAS FILED THIS APPEAL FOR THE ASSESSME NT YEAR 2005-06 AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), VALSAD DATED 1 5.04.2008. 2. THE ONLY GROUND RAISED IN THIS APPEAL READS AS U NDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), VALSAD HAS ERR ED IN REDUCING THE ADDITION MADE U/S. 69C OF RS.21,49,482/- ADOPTING T HE G.P. RATIO AT 11.34% ON TOTAL SALES MADE IGNORING THE MAIN ISSUE AND CON CLUDING SOMETHING WHICH WAS NOT BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) TO ADJUDICATE 3. THE ASSESSEE IS A CIVIL CONTRACTOR. IT ALSO ENGA GED IN TRADING OF BUILDING MATERIALS. ON VERIFICATION OF THE CONSTRUCTION RECEIPT AMOUNT OF RS.64,43,946/-, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RAISED BILLS OF RS.24,69,110/ - FOR COMPLETION OF CONSTRUCTION WORK AS AGAINST THE O0PENING STOCK OF RS.2,05,500/- BETWEEN 1.4.200 4 TO 12.4.2004. THE A.O. WAS OF THE VIEW THAT THERE WAS NO POSSIBILITY OF UTILIZATION OF THE SE MATERIALS IN THE BILLS RAISED FOR CONSTRUCTION ACTIVITIES. THE A.O. OBSERVED THAT THE ASSESSEE COU LD NOT EXPLAIN SATISFACTORILY THE EXPENDITURE INCURRED TOWARDS THE BILL RAISED OF RS.24,69,110/-, WHICH WAS INCLUSIVE OF THE PROFIT OF THE ASSESSEE. ACCORDINGLY, HE ESTIMATED THE EXPENDITURE AT RS.21,49,482/- (I.E. RS.24,69,110/- X 100/114.87) BY ADOPTING 14.87% OF GROSS PROFIT RATI O DECLARED IN THE PROFIT & LOSS A/C. AND ADDED THE SAME TO THE TOTAL INCOME UNDER SECTION 69 C OF THE I.T. ACT, 1961. IN APPEAL, THE 2 LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS OF THE VIEW THAT ONCE THE INCOME IS ACCEPTED, ONE HAS TO CONSIDER THE GROSS PROFIT RATI O FOR MAKING AN ADDITION AND NOT THE PERCENTAGE OF EXPENDITURE FOR DISALLOWING THE SAME. THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO COMPUTE THE INCOME CONSIDERING THE PROFIT @ 11.34% ON RS.64 ,43,946/- BEING THE GROSS TURNOVER OF CONSTRUCTION RECEI0PTS AMOUNTING TO RS.7,30,743/- I N ADDITION TO THE INCOME OFFERED BY THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING, SHRI C.K. MISHRA, LD. DE PARTMENTAL REPRESENTATIVE CONTENDED THAT THE A.O. ADDED RS.21,49,482/- UNDER SECTION 69C BEC AUSE THE ASSESSEE COULD NOT EXPLAIN THE COST OF SALES, UNDERTAKEN BY THE ASSESSEE AMOUNTING TO R S.24,69,110/-. THE A.O. ACCORDINGLY DETERMINED COST OF SALES TO RS.21,49,482/- AND ADDE D THE SAME UNDER SECTION 69C OF THE INCOME TAX ACT. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE PLEADED TO ADOPT GROSS PROFIT RATIO AND LEARNED COMMISSIONER O F INCOME TAX(APPEALS) ACCEPTED THE SAME AND DIRECTED THE A.O. TO ADOPT GROSS PROFIT RATIO O F 11.34% ON TOTAL SALES MADE. IN VIEW OF THIS, THE LD. D.R. POINTED OUT THAT THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) COMMITTED A TOTAL ERROR BY IGNORING THE MAIN ISSUE AND CONCLUDI NG SOMETHING WHICH WAS NOT BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO ADJU DICATE. ELABORATING HIS ARGUMENT, THE LD. D.R. POINTED OUT THAT ONLY ISSUE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS TO ADJUDICATE THE ADDITION MADE UNDER SECTION 69C A MOUNTING TO RS.24,69,110/- AND NOT THE ISSUE OF GROSS PROFIT. IN THIS MANNER, THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) HAS SUSTAINED THE ADDITION OF RS.7,30,743/-. HE SUBMITTED THAT IN LIEU OF ADDITION TO THE EXTENT OF RS.7.30.743/- SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), ENTIRE ADDITION MADE UNDER SECTION 69C AMOUNTING TO RS.21,49,482/- BE RESTORED . 6. ON THE OTHER HAND, SHRI KAMLESH BHATT, LD. AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF TRADING OF BUILDING MATERIALS AND CIVIL CONSTRUCTION. THIS FACT IS ACCEPTED BY THE A.O. A DETAILED ANALYSIS OF GROSS PROFIT AND NET PROFIT 3 OF BOTH THE ACTIVITIES IN THE TABULAR FORM WAS FURN ISHED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WHICH IS IN PAGE 4 OF HIS IMPU GNED ORDER. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ALS O ACCEPTED THE CONTENTION OF THE ASSESSEE THAT IN THE CASE OF CONSTRUCTION ACTIVITY, IT ALWAY S HAPPENS THAT THERE IS A TIME GAP BETWEEN SUPPLY OF MATERIALS AND RAISING AN INVOICE. THIS SOMETIMES RESULTS INTO A MISMATCH OF INCOME/ EXPENDITURE. CONSIDERING THIS FACT, THE RESULTANT P ROFIT AND THE REASONABLE INCOME OFFERED FOR TAXATION BECOMES A SIGNIFICANT ISSUE. A SCHEME OF P RESUMPTIVE TAXATION IS BROUGHT ON THE STATUTE BOOK AND ACCORDING TO WHICH IN THE CASE OF CONSTRUC TION ACTIVITY, EVEN IF BOOKS OF ACCOUNTS ARE REJECTED, THE GROSS PROFIT PRESCRIBED TO RESTRICT A T 8% OF GROSS TURNOVER OF RS.64,43,946/- EQUIVALENT TO RS.5,15,515/- AS AGAINST DECLARED LOS S OF RS.86,765/- IN THE CASE OF CONSTRUCTION ACTIVITY. DESPITE THIS, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VIDE PARA 6.4 RESTRICTED THE ADDITION TO RS.7,30,743/- CONSIDERING THE GROSS PROFIT RATE OF 11.34%. THE GROSS PROFIT RATE ADOPTED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS MORE THAN 8%. THE LD. COUNSEL FOR THE ASSESSEE FURT HER POINTED OUT THAT THE ASSESSEE HAS NOT FILED ANY APPEAL, THEREFORE, THE VIEW TAKEN BY THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER BE UPHELD. 7. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE FI ND CONSIDERABLE FORCE IN THE SUBMISSION MADE BY THE ASSESSEE THAT THREE IS ALWAYS TIME GAP BETWE EN SUPPLY OF MATERIALS AND RAISING AN INVOICE. THIS PRACTICE MAY RESULT INTO A MISMATCH OF INCOME/ EXPENDITURE. CONSIDERING THIS FACT, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN HIS IMPUGNED ORDER RESTRICTED THE ADDITION BY APPLYING THE GROSS PROFIT RATE OF 11.34%, WHICH CAM E TO RS.64,43,946/-. THE DETAILED REASONS GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) IS IN PARA 6.4, WHICH READS AS UNDER :- I HAVE CONSIDERED RIVAL CONTENTIONS. I FOUND ASSES SING OFFICER TO BE NOT JUSTIFIED IN WORKING OUT THE ADDITION ADOPTING THE GROSS PROFIT RATE AND THEREBY DISALLOWING THE ENTIRE EXPENDITURE U/S. 69C OF THE ACT. ONCE THE INCOME IS ACCEPTED, ONE HAS TO CONSIDER THE GROSS P ROFIT RATIO FOR MAKING AN ADDITION AND NOT THE PERCENTAGE OF EXPENDITURE FOR DISALLOWING THE SAME. THE ARGUMENTS ADVANCED BY THE AR OF THE APPELLANT I S ALSO PARTLY ACCEPTABLE AS THE APPELLANT HAS OFFERED A NET PROFI T ON THE AGGREGATE TURNOVER OF RS.85.42 LACS RELATED TO TRADING AND CO NSTRUCTION ACTIVITIES. IT IS ALSO ACCEPTABLE THAT NET PROFIT OFFERED AT THE RATE OF 17% ON THE TRADING 4 ACTIVITY IS NOT UNDER DISPUTE. HOWEVER, THE NEGATIV E INCOME/LOSS OF RS.86,765/- DECLARED FOR CONSTRUCTION ACTIVITY IS N OT AT ALL ACCEPTABLE. CONSIDERING THE GROSS PROFIT OF CONSTRUCTION ACTIVI TY AND APPORTIONMENT OF ADMINISTRATIVE EXPENDITURE, THE CONTENTION RAISED B Y THE AR OF THE APPELLANT IS ALSO NOT ACCEPTABLE. THEREFORE, THE ASSESSING OF FICER IS DIRECTED TO COMPUTE THE INCOME CONSIDERING THE RATE OF 11.34% O F RS.64,43,946/- BEING THE GROSS TURNOVER OF CONSTRUCTION RECEIPTS AMOUNTI NG TO RS.7,30,743/- IN ADDITION TO THE INCOME OFFERED BY THE APPELLANT. IN OUR OPINION, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASONS FOR RESTRICTING THE ADDITION T O RS.7,30,743/-. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND REJECT THE GROUND OF APPEAL TAKEN BY THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 18 . 09.2009 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18 / 09 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) SHRI MAHESHCHANDRA GANPATRAM VARMA, 1 ST FLOOR, ALKA PARK NR. HIGH SCHOOL SARIGAM, VIA BHILAD, TA, UMBERGAON, VAPI. (2) ITO, VAPI, WARD-2, ROOM NO. 205, SHIVAM COMMER CIAL COMPLEX, N.H. NO. 8, VAPI. 3) CIT(A)- ,VALSAD, (4) CIT- ,VALSAD .(5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER LAHA/SR.P.S. DEPUTY REGISTRAR, ITAT, AHMEDA BAD