Shri Shri Sanjay Wanmali, Nagpur V. Income tax Officer,Ward 8(1), Nagpur

ITA 298/NAG/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2188 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D RAVI KUMAR
• Keywords: Presumptive income; Business income; Corroborative evidences
• Section: 44AD

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH: NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 2 9 8 /NAG/20 1 2 ASSESSMENT YEAR: 200 7 - 200 8 SHRI SANJAY R. WANMALI SADACHAR SOCIETY, DATTAWADI, AM RAVATI ROAD, NAGPUR - 23 PAN:A AWPN2108R VS INCOME TAX OFFICER WARD 8 (1), MECL BUILDINGS, DR. AMBEDKAR BHAWAN, SEMINARY HILLS, NAGPUR - 44000 6 (APPELLANT) (RESPONDENT) APPELLANT BY SHRI K.P. DEWANI, A . R . RESPONDENT BY SHRI D. RAVIKUMAR, D . R . DATE OF H EARING: 04 - 0 5 - 201 6 DATE OF PRONOUNCEMENT: - 31 / 05 /2016 O R D E R PER SHAMIM YAHYA , A .M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRE CTED AGAINST THE ORDER OF LD. CIT (APPEALS) DATED 05.0 3 .201 2 AND PERTAINS TO ASSESSMENT YEAR 200 7 - 0 8 . THE GROUND S OF A PPEAL RAISED BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER : - 1. THE LEARNED A.O. ERRED IN MAKING ADDITION OF RS.3,73,490/ - 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.3,73,490/ - ON ES TIMATED BASIS IN RESPECT OF BUSINESS INCOME SHOWN IN THE RETURN OF INCOME. 3. THE ADDITION MADE BY A.O. AT RS.3,73,490/ - IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 4. THE ASSESSEE DENIES LIABILITY TO BE ASSESSED TO INTEREST U/S.234B AND 234C OF I.T. ACT 1961. WI THOUT PREJUDICE THE LEVY OF INTEREST IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 2 ITA NO. 29 8 /NAG/201 2 2. THE ASSESSEE IS A SUB - CONTRACTOR OF BHANGADIYA GROUP OF CASES WHO UNDERTAKE CONTRACT WORK RELATING TO IRRIGATION DEPARTMENT. IN THIS CASE THE AO NOTED THAT THE ASSESSEES C OUNSEL WAS REPEATEDLY ASKED TO PRODUCE BOOKS OF ACCOUNTS ALONG WITH BILLS, VOUCHERS AND SUPPORTING EVIDENCES TO SUBSTANTIATE 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) B ILLS AND VOUCHERS IN RESPECT OF LABOUR CHARGES, MACHINE HIRE CHARGES, SITE EXPENSES, OIL & LUBRICANTS, WATER CHARGES, WE RE NOT PRODUCED. (II) 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 SUPPORT OF THE LABOUR PAYMENT EXPENSES DEBITED TO THE P&L ACCOUNT. (I II ) DURING THE COURSE OF SURVEY IN THE BHANGADIYA GROUP, THE ASSESSEE HAD DENIED OF CARRYING OUT ANY CONTRACT WORK FOR BHANGADIYA GROUP AND HAD ALSO STATED THAT THE BOOKS OF ACCOUNT WERE NOT MAINTAINED BY HIM. THE VARIOUS DISCREPANCIES FOUND IN THE CASE OF THE ASSESSEE ARE HIGHLIGHTED IN THE STATEMENT DATED 17/02/2009 WHICH ARE BEEN GIVEN IN THE PRECEDING PARAS OF THE ORDER. THE AO OBSERVED THAT 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 RESPECT 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 PERSONS TO WHOM PAYMENTS HAVE BEEN MADE FOR OBTAINING THEIR CONFIRMATIONS. THE ASSESSEE UNDERSTANDS THAT MAN Y 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 CONFIRMATION OF THE PAYMENT, BUT THAT IS LIKELY TO TAKE SUBSTANTIAL TIME. THE CONTRACT EXECUTED IS LABOUR CO NTRACT. THE MARGIN OF PROFIT IN THESE CONTRACTS IS VERY MINIMUM UNLIKE A MATERIAL CONTRACT WHERE PROFIT MARGIN IS HIGH. 3 ITA NO. 29 8 /NAG/201 2 HOWEVER, THE AO WAS NOT CONVINCED. 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. 2006 - 07 NIL NIL NIL 2007 - 08 49,13,471 2,17,681 4.43% THEREAFTER THE AO HELD AS UN DER: - THE AFORESAID NET PROFIT RATIO SHOWN BY THE ASSESSEE IS DEFINITELY LOW AND CANNOT 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 CAS E. THE ATTEMPT WAS ALSO MADE TO FIND OUT COMPARABLE NET PROFIT RATIO IN SIMILAR NATURE OF BUSINESS. IT IS FOUND THAT OTHER CONTRACTORS ENGAGED IN CIVIL CONSTRUCTION HAVE DECLARED NET PROFIT RATIO OF 8.74% IN ASSTT. YEAR 2007 - 08 IN THE CASE OF M/S.SADIQ & C O., NAGPUR. IN VIEW OF THE ABOVE FINDINGS, IT WOULD BE REASONABLE TO ADOPT THE NET PROFIT OF 10% OF THE GROSS RECEIPT FOR THE CURRENT YEAR AS TRUE AND CORRECT PROFIT. THIS ESTIMATION OF NET PROFIT OF 10% IS SUFFICIENT AND REASONABLE TO COVER UP ALL THE DIS CREPANCIES AND INFIRMITIES FOUND IN THE BOOKS OF ACCOUNT IN THIS CASE. IN THIS CONNECTION RELIANCE IS PLACED ON THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF M/S. KANCHWALA GEMS (288ITR 10). ACCORDINGLY, THE NET PROFIT AT THE RATE OF 10% OF THE CO NTRACT RECEIPTS OF RS.49,13,431/ - IS COMPUTED AT RS.4,91,343/ - FOR THE ASSESSMENT YEAR IN QUESTION ON PROTECTIVE BASIS. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) IN HIS ORDER 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 T HE 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 GENUINENESS OF EXPENSES SO BLATANTLY DOUBTED BY A.O. I, THEREFORE, HOLD THAT ES TIMATION OF INCOME DONE BY A.O. IN CASE OF SUB CONTRACTORS FOR BOTH THE YEARS IS UPHELD. HOWEVER, A.O. HAS ESTIMATED 10% IN A.YR. 2007 - 08 4 ITA NO. 29 8 /NAG/201 2 AND 8% IN A.Y. 2008 - 09 TAKING INTO ACCOUNT 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 ESTIMATE FOR CONTRACTUAL WORK FOR SMALL CONTRACTOR AND IF ANYBODY WANTS LOWER ASSE SSMENT, 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 THE 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 SUBMITTED THAT THE HUGE AMOUNT OFFERED / ACCEPTED FOR TAXATION BY BHANGADIYA GR OUP 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 NOT BE FURTHER PENALISED MERELY BECAUSE SOME VOUCHERS WERE NOT AVAILABLE. LEARN ED 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 COMINGS. HE SUBMITTED THAT THE AO HAS NOT EVEN BOTHERED TO QUANTIFY THE DISCREPA NCIES FOUND. 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. 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 5 ITA NO. 29 8 /NAG/201 2 MADE VOUCHERS WERE P ROVIDED. 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. WE FURTHER NOTE THAT THE LEARNED CIT(APPEALS) ALSO HAS NOT SPECIFICALLY DEALT WITH THE CASE OF THE ASSESSEE. HIS ORDER IS TOTALLY DEVOID OF THE SPECIFIC FACTS AND THE AOS ORDER IN THIS CASE. RATHER HE HAS PASSED AN ORDER AS IF HE IS DEALING WITH SCORES OF SUB CONTRACTORS OF BHANGADIYA GROUP. 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 SUPPO RTING 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 COGENT BASIS FOR MAKING AN ESTIMATE OF PROFIT OF 10 %. LEARNED CIT(APPEALS) HAS ALSO AFFIRMED THE 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 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. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY , 2016 SD/ - SD/ - (MUKUL K. SHRAWAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER NAGPUR, DATED: - 31 / 05 /2016 M.B.BODKHE / SR. P.S. 6 ITA NO. 29 8 /NAG/201 2 COPY FORWARDED TO : 1. SHRI SANJAY R. WANMALI SADACHAR SOCIETY, DATTAWADI, AMRAVATI ROAD, NAGPUR - 440023 2. ITO, WARD 8(1),MECL BUILDINGS, DR. AMBEDKAR BHAWAN, SEMINARY HILLS, NAGPUR - 440006 3. C.I.T. - IV, NAGPUR. 4. CIT (APPEALS) - I I , NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR M.B.BODKHE /SR. P.S.