Jagdish Vishwananth Kankrej, Nashik V. Assistant Commissioner of Income tax,

ITA 2942/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2468 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-12-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 26-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Rejection of books of accounts
• Section: 143(3); 133(6)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.2942/PUN/2016 / ASSESSMENT YEAR : 2011-12 SHRI JAGDISH VISHWANANTH KANKREJ, SHUBHAM RESIDENCY, NEAR ARIHANT NURSING HOME, GANGAPUR ROAD, NASHIK 422 013. PAN : AHBPK6760D. . / APPELLANT V/S THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK. . / RESPONDENT ASSESSEE BY : SHRI SANKET JOSHI. REVENUE BY : SHRI PANKAJ GARG. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY ASSESSEE IS EMANATING OUT OF THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS) 1, NASHIK DATED 04.10 .2016 FOR THE ASSESSMENT YEAR 2011-12. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RE CORD ARE AS UNDER :- ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED IN THE BUS INESS OF CONSTRUCTION OF RESIDENTIAL TENEMENTS IN THE NAME AND STY LE OF M/S. SIDDHI BUILDERS AND DEVELOPERS. ASSESSEE FILED HIS ORIGINA L RETURN / DATE OF HEARING : 12.02.2019 / DATE OF PRONOUNCEMENT: 07.03.2019 2 ITA NO.2942/PUN/2016 OF INCOME FOR A.Y. 2011-12 ON 09.09.2011 DECLARING TOTAL INC OME OF RS.26,99,360/-. THE CASE WAS SELECTED FOR SCRUTINY AND TH EREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D T.27.02.2014 AND THE TOTAL INCOME WAS DETERMINED AT RS.99,90,500/-. AG GRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.C IT(A), WHO VIDE ORDER DT.04.10.2016 (IN APPEAL NO.NSK/CIT(A)-1/03/2014-1 5) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FO LLOWING GROUNDS : 1. THE LEARNED CIT(A) ERRED IN DETERMINING THE TOTAL I NCOME OF THE ASSESSEE AT RS.77,33,500/- AS AGAINST THE RETURNED INCOME OF RS.26,99,360/-. 2. THE LEARNED CIT(A) ERRED IN REJECTING THE BOOK R ESULTS ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE EL EVEN CREDITORS FROM WHOM THE ASSESSEE HAD PURCHASED CONSTRUCTION M ATERIAL IN FORM OF SAND, BRICKS AND METAL AND HENCE, THE BOOKS RESULTS OUGHT TO HAVE BEEN REJECTED. 2.1. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE PURCHASES OF BRICKS, METAL AND SAND MADE FROM THE CREDITORS WERE SUPPORTED BY VOUCHERS, NO PAYMENT WAS OUTSTANDING AS ON DATE AND IT WAS DULY DEMONSTRATED THAT THE CONSTRUCTION OF VARIOUS PROJE CTS WOULD NOT HAVE BEEN POSSIBLE IN THE ABSENCE OF THE IMPUGNED P URCHASES MADE FROM THESE CREDITORS AND HENCE, MERELY BECAUSE THE ASSESSEE WAS NOT ABLE TO PRODUCE THESE CREDITORS AFTER A SUBSTAN TIAL TIME GAP, THERE WAS NO REASON TO REJECT THE BOOKS OF ACCOUNTS . WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSESSE E SUBMITS THAT 3. THE LEARNED CIT(A) ERRED IN ESTIMATING THE NET P ROFIT OF ASSESSEE @ 10% OF TOTAL TURNOVER BY REJECTING THE BOOK RESULT S WITHOUT APPRECIATING THAT THE SAID N.P. RATIO WAS VERY HIGH CONSIDERING THE NATURE OF BUSINESS AND THE PAST HISTORY OF THE ASSE SSEE. 3.1. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT I N THE ASSTS. COMPLETED FOR A.Y. 2008 - 09, 2009 - 10 AND 2012 - 13, THE N. P. OF THE ASSESSEE WAS ASSESSED BY THE A.O. @ 2.50%, 4.88% AN D 6.81 % AND IN FACT, IN A.Y.2008 - 09, THE A.O. HAD ESTIMATED T HE N.P. @ 2.50% BY REJECTING THE BOOK RESULTS AND HENCE, THER E WAS NO REASON TO ESTIMATE THE N.P. AT A SUBSTANTIALLY HIGHER RATE OF 10% IN THIS YEAR I.E., A.Y. 2011-12. 3.2. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE LE GAL PRINCIPLE CONSISTENTLY LAID DOWN BY HON'BLE COURTS THAT WHILE ESTIMATING THE N.P. OF THE CURRENT YEAR, PAST RESULTS/ HISTORY OF THE ASSESSEE'S NET PROFIT ASSESSED IS THE MOST DETERMINING FACTOR AND HENCE, THE NET PROFIT SHOULD HAVE BEEN DETERMINED AT A SUBSTANTIAL LY LOWER RATE 3 ITA NO.2942/PUN/2016 THAN 10% CONSIDERING THE AVERAGE RATE OF PROFITS AS SESSED FOR OTHER YEARS. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUG H ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE SOLE CONTROVERSY IS WITH RESPECT TO THE ADDITION MADE ON ACCOUNT OF ESTIMATION OF NET PROFIT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PER USING THE BALANCE-SHEET, AO NOTICED THAT ASSESSEE HAD CREDITORS O F RS.1,23,82,668/-. ASSESSEE WAS ASKED TO PRODUCE THE LIST OF THE CREDITORS, THEIR NAMES, THEIR PAN, ADDRESSES AND CONFIRMATIO NS. ON THE BASIS OF LIST FURNISHED, AO ISSUED NOTICES U/S 133(6) OF THE ACT TO VARIOUS CREDITORS. AO NOTED THAT NO REPLY WAS RECEIVED FROM SOME OF THE CREDITORS. THE ASSESSEE WAS THEREFORE ASKED TO SH OW CAUSE AS TO WHY THE REMAINING CREDITORS NOT BE CONSIDERED TO BE NO N-GENUINE ? THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND AC CEPTABLE TO THE AO. AO THEREAFTER ON THE BASIS OF RESPONSES RECEIV ED U/S 133(6) OF THE ACT HELD 11 CREDITORS AGGREGATING TO RS.62,77,400/- WHICH ARE LISTED AT PARA 04.4. OF THE ASSESSMENT ORDER TO BE NON- GENUINE AND MADE ITS ADDITION. 5. AO NOTICED THAT ASSESSEE HAS DEBITED LABOUR PAYMENT S OF RS.2,25,45,185/-. AO NOTED THAT MAJORITY OF THE LABOUR PAY MENTS WERE FOUND TO HAVE BEEN MADE IN CASH AND SOME OF THEM WERE BY SELF-MADE VOUCHERS AND SOME VOUCHERS WERE MISSING. HE ACCORDING LY DISALLOWED 2% OF LABOUR CHARGES AMOUNTING TO RS.4,50,903/-. AO ALSO NOTICED THAT THERE WAS NO CLOSING STOCK OF MATERIAL AND THE CLOS ING STOCK WAS NOT CORRECTLY REFLECTED IN WORK-IN-PROGRESS (WIP) AND W IP WAS CALCULATED ON AN ESTIMATED BASIS. AO ALSO NOTICED THE MAJ ORITY OF THE EXPENSES ON ACCOUNT OF MATERIAL PURCHASES AND LABOUR CH ARGES WERE 4 ITA NO.2942/PUN/2016 INCURRED AT THE YEAR END. HE THEREFORE INCLUDED 1% OF MATERIAL PURCHASED AMOUNTING TO RS.2,98,931/- AND 1% OF LABOUR E XPENSES OF RS.2,25,451/- IN WIP AND THUS MADE AGGREGATE ADDITION OF RS.5,24,382/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE ASSESSE ES SUBMISSIONS, REMAND REPORT OF AO AND REPLY OF ASSESSEE TO REMAND REPORT GRANTED PARTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER : 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ASSESSMENT ORDER, THE REMAND REPORT OF THE ASSESSING OFFICER A ND THE REJOINDER TO THE REMAND REPORT . FROM THE ASSESSMENT ORDER AND THE REMAND REPORT, IT IS OBSERVED THAT THE ADDITION OF SUNDRY CREDITORS HAVE BEEN MADE ON THE GROUND THAT THE CREDITORS COULD NOT BE PRODUCED AMI DST ASSESSING OFFICER EITHER AT THE TIME OF ASSESSMENT PROCEEDINGS NOR AT THE TIME OF REMAND PROCEEDINGS. THE APPELLANT AT THE TIME OF REMAND PR OCEEDINGS HAD FURNISHED THE COST ANALYSIS AND THE QUANTITATIVE AN ALYSIS WHICH THE ASSESSING OFFICER HAD NOT EXAMINED. THE APPELLANT B EFORE ME HAS SUBMITTED THAT JUST BECAUSE THE PARTIES ARE NOT PRO DUCED, IT CANNOT BE SAID THAT THE GOODS HAVE NOT BEEN PURCHASED AS THEY WERE INTEGRAL FOR EXECUTION OF THE PROJECT. I HAVE GONE THROUGH' THE QUANTITATIVE ANALYSIS AND THE COST ANALYSIS. THE QUANTITATIVE ANALYSIS AS STATED THAT THE GOODS USED BY THE APPELLANT IS ON THE HIGH ER SIDE. FURTHER, THE APPELLANT'S A.R. HAS ALSO FURNISHED THAT AS ON DATE , NO PAYMENT IS OUTSTANDING. FROM THE PAYMENT DETAIL IT IS OBSERVED THAT THE ENTIRE PAYMENT HAS BEEN MADE IN CASH AND THEREFORE MONEY T RAIL OF THE TRANSACTION CANNOT BE ESTABLISHED. THE PARTIES ARE NOT AVAILABLE AND THEREFORE THE TRANSACTION CANNOT BE VERIFIED. HOWEV ER, ' THE ARGUMENT PUT FORTH BY THE APPELLANT THAT IN ABSENCE OF THE GOODS I . E. SAND, METAL AND BRICKS, THE PROJECT UNDERTAKEN COULD NOT HAVE BEEN EXECUTED MERITS CONSIDERATION. IN THE PREVAILING CIRCUMSTANCES, IT I S POSSIBLE THAT THE PURCHASES MAY HAVE BEEN INFLATED AND THE P ARTIES MAY HAVE BEEN BOGUS. IT IS PLAUSIBLE THAT GOODS MAY HAVE ' BEEN PURCHASED FROM GREY MARKET FOR WHICH NO DETAILS ARE AVAILABLE. HO WEVER, IN VIEW OF EXECUTION OF PROJECT AND QUANTITATIVE AND COST ANAL YSIS FILED BY THE APPELLANT, THE ENTIRE SUNDRY CREDITORS FOR PURCHASE S CANNOT BE TREATED AS BOGUS. 10. IN SUCH CIRCUMSTANCES, CONSIDERING THE TOTALITY OF THE FACTS, IN MY OPINION, THE BOOKS OF ACCOUNT DESERVES TO BE REJECT ED AND PROFIT NEEDS TO BE ESTIMATED. THEREFORE TO MEET THE ENDS OF JUSTICE AND TO PREVENT LEAKAGE OF REVENUE THE PROFIT IS ESTIMATED AT 10% O F THE TURNOVER. THE COMPUTATION OF INCOME IS, AFTER CONSIDERING THE PRO FIT AND LOSS ACCOUNT AND COMPUTATION OF INCOME FILED BY THE APPELLANT, I S DONE AS UNDER : 10% OF TOTAL TURNOVER = RS.73,60,700/- ADD: INCOME FROM HOUSE PROPERTY =+ 4,88,000/- LESS : DEDUCTION UNDER CHAPTER VIA = - 1,14,743 /- REVISED ASSESSED INCOME =RS.77,33,957/- 5 ITA NO.2942/PUN/2016 ASSESSED INCOME AS PER ASSESSMENT ORDER DATED 27.02.2014 -RS.99,90,500/- (-) REVISED INCOME AS ABOVE -RS.77,33,500/- RELIEF TO THE ASSESSEE =RS.22,57,000/- THE ASSESSING OFFICER IS DIRECTED TO ISSUE REVISED DEMAND NOTICE AND CHALLAN. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN AP PEAL BEFORE US. 6. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE ESTIMATION O F THE PROFIT AT 10% TURNOVER AS MADE BY LD.CIT(A) IS ON HIGHER SIDE. HE SUBMITTED THAT IN A.Y. 2008-09, THE PROFIT WAS ESTIMATED AT 2.5% IN T HE ASSESSMENT ORDER FRAMED U/S 143(3) OF THE ACT (HE ALSO PLA CED ON RECORD THE COPY OF THE AFORESAID ORDER). HE THEREFORE SUBMITTED THE ADDITION AT 10% OF TURNOVER IS EXCESSIVE AND THAT ADDITION , IF AT ALL IS TO BE MADE, BE MADE AT REASONABLE AMOUNT. LD.D.R. ON THE O THER HAND, SUPPORTED THE ORDER OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ESTIMATION OF NET PROFITS. WE FIND THAT LD.CIT(A) AFTER NOTING VARIOUS SHOR T COMINGS HAD REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE PROFITS AT 10% OF TURNOVER. WE FIND THAT IN A.Y. 2008-09 IN THE ASSESSMENT ORDER FRAMED U/S 143(3) OF THE ACT, THE PROFIT OF THE ASSESSEE WAS EST IMATED AT 2.5% ON TURNOVER OF RS.4.45 CRORES. IT IS NOT IN DISPUTE THAT THE NATURE OF THE BUSINESS OF THE ASSESSEE IN A.Y. 2008-09 AND A.Y. 2011-12 ARE SIMILAR. ASSESSEE HAS ALSO PLACED A TABLE OF NET PROFIT WHICH IS RE PRODUCED BY LD.CIT(A) AT PAGE 11 OF HIS ORDER WHEREIN THE AVERAGE RAT E OF PROFIT 6 ITA NO.2942/PUN/2016 DETERMINED IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT FOR A.Y. 2008-09 WAS 2.50%, FOR A.Y. 2009-10 WAS 4.88% AND FOR A. Y. 2012-13 WAS 6.81%, RESULTING INTO AN AVERAGE PROFITS OF 4.73%. CONS IDERING THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE ESTIMATION OF P ROFITS AT 10% OF THE TURNOVER TO BE ON A HIGHER SIDE. WE THEREFORE D IRECT THE ADDITION ON ACCOUNT OF PROFITS BE RESTRICTED TO 5% OF THE TURNOV ER. WE THUS DIRECT ACCORDINGLY. THUS, THE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 07 TH DAY OF MARCH, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 7 TH MARCH, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-1, NASHIK. PR. CIT I, NASHIK. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.