Shri Chintaman Nakode, Nagpur V. Income tax Officer, Ward 8(1), Nagpur

ITA 305/NAG/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3695 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-04-2016
• 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. 305/NAG/2012 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.305/NAG/2012. ASSESSMENT YEAR : 2008 - 09. SHRI CHINTAMAN NAKADE, THE INCOME - TAX OFFICER, NAGPUR. VS. WARD - 8(1), NAGPUR. PAN AEMPN7038R APPELLANT. RESPONDENT. APP ELLANT BY : SHRI K.P. DEWANI. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 05 - 04 - 2016 DATE OF PRONOUNCEMENT : 15 TH APRIL, 2016 O R D E R PER SHRI SHAMIM 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 2007 - 08. THE GROUNDS OF APPEAL READ AS UNDER : 1. THE LEARNED A.O. ERRED IN MAKING ADDITION OF RS. 10,77,940 / - TO THE INCOME AS SHOWN IN BOOKS OF ACCOUNT. 2. T HE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF A.O. MAKING ADDITION OF RS. 10,77,940 / - ON ESTIMATED BASIS IN RESPECT OF BUSINESS INCOME SHOWN IN THE RETURN OF INCOME. 3. THE ADDITION MADE BY A.O. AT RS. 10,77,940 / - 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. WITHOUT PREJUDICE THE LEVY OF INTEREST IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 2 ITA NO. 305/NAG/2012 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 COUNSEL WAS REPEATEDLY ASKED TO PRODUCE BOOKS OF ACCOUNTS ALONG WITH BILLS, VOUCHERS AND SUPPORTING EVIDENCES TO SUBSTANTIATE THE EXPENSES CLAIMED IN THE PROFI T 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 VOUC HERS 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 MADE VOUCHERS WITHOUT ANY SUPPORTING DO CUMENTS 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 SUPPORT 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 THAT THE ABOVE FINDING IS A GOOD BASIS A ND 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, WH EN 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 FO R 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 CONFIRMATION OF THE PAYMENT, BUT THAT IS L IKELY TO TAKE SUBSTANTIAL TIME. THE CONTRACT EXECUTED IS LABOUR CONTRACT. THE MARGIN OF PROFIT IN 3 ITA NO. 305/NAG/2012 THESE CONTRACTS IS VERY MINIMUM UNLIKE A MATERIAL CONTRACT WHERE PROFIT MARGIN IS HIGH. HOWEVER, THE AO WAS NOT CONVINCED. HE PROCEEDED TO REJECT THE BOOKS O F 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. 200 7 - 08 1,19,10,085 2,20,025 1.84% 2008 - 09 2,18,12,692 9,95,570 4.5 6 % 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 CURRENT 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 APPE AL, 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 WO RK 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 GENUINENESS 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. 305/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 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 - 0 9 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 M AINTAINED, 8% IS A REASONABLE ESTIMATE 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, VOUCHE RS 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 HE ARD 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 GROUP WAS ALSO ON THE PREMISE THAT TAXES WERE BEING PAID EVEN IN CASE OF SUB CONTRACTOR PAYMENTS. HENCE LEARNED COUNSEL SUBMITTED THAT THIS ASSESSE E BEING A SUB CONTRACTOR SHOULD NOT 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 TH E AO HAS FOUND ONLY SOME SHORT COMINGS. 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 PRECEDING YEARS. HENCE LEARNED COUNSEL PLEADED THAT SOME DISALLOWANCES CAN BE MADE FOR 5 ITA NO. 305/NAG/2012 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 O RDERS 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 C ASES SELF MADE VOUCHERS WERE PROVIDED. 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 SPECIF IC 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 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 COGENT BASIS FOR MAKING AN ESTIMATE OF PROFIT OF 8 % %. LEARNED CIT(APPEAL S) HAS ALSO AFFIRMED THE ESTIMATE 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 VOUCHERS, 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 M ADE IN THIS CASE. 6 ITA NO. 305/NAG/2012 9. IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15TH DAY OF APRIL,2016. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 15 TH APRIL, 2016. COPY FORWARDED TO : 1. SHRI CHINTAMAN NAKADE SUYOG NAGAR 2, PRITAM ENCLOS, RING ROAD, NAGPUR. 2. I.T.O., WARD - 8 (1), NAGPUR. 3. C.I.T. , NAGPUR. 4. CIT(APPEALS), - II, NAGPUR. 5. D.R., ITAT, RAIPUR. 6. GUARD FILE TRUE COPY BY ORDE R ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.