Shri Naresh B. Masram, Nagpur V. Income tax Officer,Ward- 8(1), Nagpur

ITA 293/NAG/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3100 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 12-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Presumptive income; Business income; Corroborative evidences
• Section: 44AD; 234B

Judgement Text

1 ITA NO. 293/NAG/2012 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. ITA NO. 293/NAG/2012 ASSESSMENT YEAR : 2008 - 09. SHRI NARESH B. MASRAM, THE INCOME - TAX OFFICER, NAGPUR. VS. WARD - 8(1), NAGPUR. PAN AOGPM4303Q APPELLANT. RESPONDENT. APPELLANT BY : SHRI K.P. DEWANI. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 14 - 01 - 2016 DATE OF PRONOUNCEMENT : 26 TH FEBRUARY, 2016. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - II, NAGPUR DATED 02 - 03 - 2012 AND PERTAINS TO ASSESSMENT YEAR 2008 - 09. THE GROUNDS OF APPEAL READ AS UNDER : 1. THE LEARNED A.O. ERRED IN MAKING ADDITION OF RS.1,28,245/ - TO THE INCOME AS SHOWN IN BOOKS OF ACCOUNT. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF A.O. MAKING ADDITION OF RS.1,28,245/ - ON ESTIMATED BASIS IN RESPECT OF BUSINESS INCOME SHOWN IN THE RETURN OF INCOME. 3. THE ADDITION MADE BY A.O. AT RS.1,28,245/ - IS UN JUSTIFIED, UNWARRANTED AND EXCESSIVE. 4. THE ASSESSEE DENIES LIABILITY TO BE ASSESSED TO INTEREST U/S 234B AND 234C OF I.T. ACT, 1961. WITHOUT PREJUDICE THE LEVY OF INTEREST IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 2 ITA NO. 293/NAG/2012 2. THE ASSESSEE IS A SUB CONTRACTOR OF BH ANGADIYA GROUP OF CASES WHO UNDERTAKE CONTRACT WORK RELATING TO IRRIGATION DEPARTMENT. IN THIS CASE THE AO NOTED THAT THE ASSESSEES COUNSEL WAS REPEATEDLY ASKED TO PRODUCE BOOKS OF ACCOUNTS ALONG WITH BILLS, VOUCHERS AND SUPPORTING EVIDENCES TO SUBSTANTI ATE THE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THEREAFTER THE AO NOTED THAT HE HAS VERIFIED THE COMPUTERIZED BOOKS OF ACCOUNT AND DOCUMENTS/MATERIAL PRODUCED BEFORE HIM. THE AO OBSERVED FOLLOWING PROMINENT DEFECTS AND INFIRMITIES IN THE BOOKS OF ACCOUNTS: (I) SEVERAL BILLS AND VOUCHERS IN RESPECT OF LABOUR CHARGES, MACHINE HIRE CHARGES, SITE EXPENSES, OIL & LUBRICANTS, REPAIR & MAINTENANCE, WATER CHARGES, MESS CHARGES WERE NOT AVAILABLE. (II) CERTAIN HEADS OF EXPENDITURE WERE SUPPORTED BY SELF MA DE VOUCHERS WITHOUT ANY SUPPORTING DOCUMENTS TO SUBSTANTIATE THE SAME. (III) THE LABOUR CHARGES & SALARY ACCOUNT HAS NOT BEEN EXPLAINED WITH PROPER BILLS AND VOUCHES. FURTHER, THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE RELEVANT ATTENDANCE REGISTER IN SU PPORT OF THE LABOUR PAYMENT EXPENSES DEBITED TO THE P&L ACCOUNT. (IV) FURTHER, DURING THE COURSE OF SURVEY IN THE CASE OF BHANGADIYA GROUP, THE ASSESSEE IN HIS STATEMENT ADMITTED TO DISCREPANCIES AND INFIRMITIES IN ITS BOOKS OF ACCOUNT. THE AO OBSERVED TH AT THE ABOVE FINDING IS A GOOD BASIS AND REASON FOR REJECTING BOOKS OF ACCOUNTS U/S 143(3). THE ASSESSEE EXPLAINED AS UNDER: THE COMPUTERIZED BOOKS OF ACCOUNT ARE PRODUCED DURING THE COURSE OF HEARING. THE ASSESSEE HAD OBTAINED BILLS & VOUCHERS IN RESPEC T OF EXPENSES INCURRED AT THE TIME, WHEN PAYMENTS WERE MADE. HOWEVER, SOME OF THE RECORDS, VOUCHERS AND FILES GOT MISPLACED AND AS THERE WAS NO EFFECTIVE SYSTEM OF FILING PAPERS MAJORITY OF VOUCHERS ARE NOT TRACEABLE. THE ASSESSEE IS TRYING TO CONTACT PERS ONS TO WHOM PAYMENTS HAVE BEEN MADE FOR OBTAINING THEIR CONFIRMATIONS. THE ASSESSEE UNDERSTANDS THAT MANY PEOPLE LEFT THE PLACE AND THEIR PRESENT ADDRESSES ARE NOT FORTH COMING. IT IS POSSIBLE THAT THE ASSESSEE COULD TRACE OUT THESE PERSONS AND OBTAIN CONF IRMATION OF THE PAYMENT, BUT THAT IS LIKELY TO TAKE SUBSTANTIAL TIME. THE CONTRACT EXECUTED IS LABOUR CONTRACT. THE MARGIN OF PROFIT IN 3 ITA NO. 293/NAG/2012 THESE CONTRACTS IS VERY MINIMUM UNLIKE A MATERIAL CONTRACT WHERE PROFIT MARGIN IS HIGH. HOWEVER, THE AO WAS NOT CONVINC ED. HE PROCEEDED TO REJECT THE BOOKS OF ACCOUNT. HE NOTICED THAT ASSESSEES NET PROFIT RATIO IN THE LAST TWO ASSESSMENT YEARS WAS AS FOLLOWS : ASSTT. YEAR GROSS RECEIPTS NET PROFIT NET PROFIT RATIO. 2007 - 08 5000223 225549 4. 51 % 2008 - 09 41, 36,537 2 03964 4. 93 % THEREAFTER THE AO HELD AS UNDER : THE AFORESAID NET PROFIT RATIO SHOWN BY THE ASSESSEE IS DEFINITELY LOW AND CAN NOT BE ACCEPTED TO BE TRUE AND CORRECT, CONSIDERING THE DISCREPANCIES AND ANOMALIES NOTICED DURING THE EXAMINATION OF THE BOOKS OF ACCOUNT AND BILLS/VOUCHERS IN THIS CASE. IN VIEW OF THE ABOVE FINDINGS, IT WOULD BE REASONABLE TO ADOPT THE NET PROFIT OF 8% OF THE GROSS RECEIPT FOR THE CU RRENT YEAR AS TRUE AND CORRECT PROFIT. THIS ESTIMATION OF NET PROFIT OF 8% IS SUFFICIENT AND REASONABLE TO COVER UP ALL THE DISCREPANCIES AND INFIRMITIES FOUND IN THE BOOKS OF ACCOUNT IN THIS CASE. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) IN HIS O RDER REFERRED TO THE FACT THAT THERE ARE LARGE NUMBER OF PERSONS ACTING AS SUB CONTRACTORS IN THE BHANGADIYA GROUP. HE MENTIONED THAT SOME OF THESE SUB CONTRACTORS HAD EARLIER GIVEN A STATEMENT THAT THEY HAD NOT DONE ANY WORK BUT WERE MERELY NAME LENDERS. THEREAFTER THEY HAD RETRACTED THESE STATEMENTS. LEARNED CIT(APPEALS) UPHELD THE ORDER OF THE AO BY CONCLUDING AS UNDER : ONLY SUBMISSION BEFORE ME IN APPEAL AS GIVEN ABOVE IS ONE PAGE SUBMISSIONS, WHICH IS DEVOID OF ANY FACTUAL DETAILS AS TO PROVE THE G ENUINENESS OF EXPENSES SO BLATANTLY DOUBTED BY A.O. I, THEREFORE, HOLD THAT ESTIMATION OF INCOME DONE BY A.O. IN CASE OF SUB CONTRACTORS FOR 4 ITA NO. 293/NAG/2012 BOTH THE YEARS IS UPHELD. HOWEVER, A.O. HAS ESTIMATED 10% IN A.YR. 2007 - 08 AND 8% IN A.YR. 2008 - 09 TAKING INTO ACCO UNT THE FACT THAT WORK ALLEGEDLY UNDERTAKEN BY THESE SUB CONTRACTORS AND OWNED UP BY THEM IN RETURN OF INCOME IS OF CIVIL CONTRACT, HENCE I RESTRICT THE ESTIMATION OF A.O. TO ONLY 8% IN THE YEAR 2007 - 08 AND FOR A.YR. 2008 - 09 ESTIMATED BY A.O. IS UPHELD. AS NO EVIDENCE OF EXPENSES CLAIMED FOR THESE SUB CONTRACTORS WAS PRODUCED BEFORE A.O. OR BEFORE ME AND HENCE REASONABLE ESTIMATION KEEPING IN MIND THE PROVISIONS FOR NO ACCOUNT CASES I.E. WHEN NO BOOKS OF ACCOUNT ETC. ARE MAINTAINED, 8% IS A REASONABLE EST IMATE FOR CONTRACTUAL WORK FOR SMALL CONTRACTOR AND IF ANYBODY WANTS LOWER ASSESSMENT, HE HAS TO PRODUCE DOCUMENTARY EVIDENCE FOR SUCH CLAIM AND SO CALLED AUDIT REPORT IS OF NO HELP IN ABSENCE OF SUPPORTING BILLS, VOUCHERS AND PROOF OF PAYMENT, WHICH IS MISSING IN ALL THESE CASES. AS NOT EVEN IOTA OF EVIDENCE IS BROUGHT BEFORE ME TO SUPPORT THE CLAIM. HENCE, THE APPEAL IS DISMISSED ON THIS ISSUE. 4. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED T HE RECORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A SUB CONTRACTOR OF BHANGADIYA GROUP. HE SUBMITTED THAT IN THE CASE OF BHANGADIYA GROUP THEY HAVE DISCLOSED SUBSTANTIAL AMOUNT OF INCOME WHICH WAS AS HIGH AS 12% GROSS PROFIT. HE SU BMITTED THAT THE HUGE AMOUNT OFFERED / ACCEPTED FOR TAXATION BY BHANGADIYA GROUP WAS ALSO ON THE PREMISE THAT TAXES WERE BEING PAID EVEN IN CASE OF SUB CONTRACTOR PAYMENTS. HENCE LEARNED COUNSEL SUBMITTED THAT THIS ASSESSEE BEING A SUB CONTRACTOR SHOULD NO T BE FURTHER PENALISED MERELY BECAUSE SOME VOUCHERS WERE NOT AVAILABLE. LEARNED COUNSEL SUBMITTED THAT AS EVIDENT FROM THE AOS ORDER IT IS CLEAR THAT BOOKS OF ACCOUNTS AND VOUCHERS HAVE BEEN PRODUCED. HE SUBMITTED THAT THE AO HAS FOUND ONLY SOME SHORT COM INGS. HE SUBMITTED THAT THE AO HAS NOT EVEN BOTHERED TO QUANTIFY THE DISCREPANCIES FOUND. HE FURTHER SUBMITTED THAT THE AO HAS NOT MADE ANY COMPARISON OF THE PROFIT DECLARED WITH PREVALENT IN THE INDUSTRY OR THAT ACCEPTED BY THE DEPARTMENT IN THE PRECEDIN G YEARS. HENCE LEARNED COUNSEL PLEADED THAT SOME DISALLOWANCES CAN BE MADE FOR SOME MISSING VOUCHERS BUT BY NO MEANS AN EXCESSIVE ESTIMATE OF 8% OF GROSS PROFIT SHOULD BE DONE. 5 ITA NO. 293/NAG/2012 6. PER CONTRA LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT BOOKS OF ACCOUNTS AND VOUCHERS HAVE BEEN PRODUCED BEFORE THE AO. THE AO HAS NOTICED THAT SEVERAL VOUCHERS WERE NOT AVAILABLE AND IN SOME CASES SELF MADE VOUCHERS WERE PROV IDED. NO QUANTIFICATION OF THE AMOUNT INVOLVED IN THESE VOUCHERS HAS BEEN DONE. THE AO HAS FURTHER NOTED THAT THE ASSESSEE IN THE CASE OF SURVEY IN THE CASE OF BHANGADIYA GROUP HAS ADMITTED THE DISCREPANCIES AND INFIRMITIES IN ITS BOOKS OF ACCOUNTS. THE AO HAS FOUND THE ABOVE AS GOOD REASON FOR REJECTING THE BOOKS OF ACCOUNTS. IN THIS REGARD WE NOTE THAT WHEN BOOKS OF ACCOUNTS AND VOUCHERS WERE PRODUCED BEFORE THE AO, IT IS STRANGE THAT THE AO IS FINDING THE ADMISSION BY THE ASSESSEE IN THE CASE OF BHANGAD IYA GROUP THAT THERE ARE DISCREPANCIES AND INFIRMITIES IN THE BOOKS AS SUFFICIENT REASON FOR DISMISSAL OF ACCOUNTS. WE FURTHER NOTE THAT THE LEARNED CIT(APPEALS) ALSO HAS NOT SPECIFICALLY DEALT WITH THE CASE OF THE ASSESSEE. RATHER HE HAS PASSED AN ORDE R AS IF HE IS DEALING WITH SCORES OF SUB CONTRACTORS OF BHANGADIYA GROUP WITHOUT NOTING THE SPECIFIC ORDER OF I.T.O. IN THIS CASE. 8. BE THAT AS IT MAY, WE FIND THAT THE PROFIT DISCLOSED BY THE ASSESSEE IS EXTREMELY LOW. WHEN THIS IS COUPLED WITH THE FACT THAT PROPER SUPPORTING VOUCHERS ARE NOT AVAILABLE, WE ARE CONSTRAINED TO OBSERVE THAT AN ESTIMATE OF INCOME IS CALLED FOR. HOWEVER, WE NOTE THAT THE AO HAS NOT GIVEN ANY BASIS FOR MAKING AN ESTIMATE OF PROFIT OF 10 %. LEARNED CIT(APPEALS) HAS MADE AN ESTIM ATE OF 8% WHICH TO SOME EXTENT DRAWS SUPPORT FROM PROVISIONS OF SECTION 44AD WHICH PROVIDES THAT PRESUMPTIVE TAXATION AT THE RATE OF 8% OF BUSINESS IS GENERAL. HOWEVER, SINCE IN THE PRESENT CASE THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNTS AND SOME VOUC HERS, IN OUR CONSIDERED OPINION, ESTIMATE OF 5% OF THE TOTAL TURNOVER AS PROFIT OF THE YEAR WILL SERVE THE ENDS OF JUSTICE. ACCORDINGLY 6 ITA NO. 293/NAG/2012 WE MODIFY THE ORDERS OF AUTHORITIES BELOW AND HOLD THAT 5% ESTIMATE OF PROFIT SHOULD BE MADE IN THIS CASE. 9. IN THE RES ULT, THIS APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF FEBRUARY, 2016. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 26 TH FEBRUARY, 2016. COPY FORWARDED TO : 1. SHRI NARESH B. MASRAM, 12, SADGURU SOCIETY, DATTAWADI, NAGPUR. 2. I.T.O., WARD - 8(1), NAGPUR 3. C.I.T., NAGPUR. 4. CIT(APPEALS) - II, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WA KODE.