M/s. Khurshid Alam Contractor, Muzaffarnagar V. ITO, Muzaffarnagar

ITA 3159/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8068 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 18-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SSH PREM PRAKASH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SH. I.C. SUDHIR , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3159 /DEL/ 2014 ASSESSMENT YEAR: 2010 - 11 M/S. KHURSHID ALAM CONTRACTOR., C/O - PREM PRAKASH ADVOCATE, 183/2, NORTH CIVIL LINES, MUZAFFARNAGAR VS. INCOME TAX OFFICER, WARD - 2(1), MUZAFFARNAGAR. GIR/PAN : AAIFK9620Q (APPELLANT) (RESPONDENT) APPELLANT BY S/SH. PREM PRAKASH & ASHISH AGGARWAL, ADV. RESPONDENT BY SMT. RISHPAL BEDI, JCIT (DR) DATE OF HEARING 18.04.2016 DATE OF PRONOUNCEMENT 27.04.2016 ORDER PER O.P. KANT , A. M. : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 29/01/2014 OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), MUZAFFARNAGAR , FOR ASSESSMENT YEAR 2010 - 11 RAISING FOLLOWING GROUNDS: I. THAT THE ORDER IS AGAINST LAW & FACTS ON RECORD. II. THAT LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS WRONG IN CONFIRMING DISALLOWANCE OF EXPENSES OF RS. 4,88,138.00 WITHOUT ANY BASE. III. THAT THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS) WAS NOT ALLOWING REMUNERATION TO PARTNERS AS PER DEED. 2. T HE FACTS IN BRIEF ARE THAT THE ASSESSEE, A REGISTERED FIRM DERIVED ITS INCOME FROM CONTRACTS DURING THE RELEVANT PERIOD AND FILED RETURN OF IN COME DECLARING INCOME OF RS. 1,36, 940/ - FOR T HE YEAR UNDER CONSIDERATION. DURING THE SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT NO BILLS AND VOUCHERS WERE MAINTAINED IN RESPECT OF VARIOUS EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT, HE REJECTED BOOK RESULT OF THE ASSESSEE AND ESTIMATED BOOK PROFIT OF THE ASSESSEE AT THE RATE OF 9% OF THE TOTAL RECEIPTS OF RS. 1,39,83, 09/ - WHICH WORKS 2 ITA NO. 3159/DEL/2014 AY: 2010 - 11 OUT TO R S. 12,58, 472 / - AND AFTER SUBTRA CTING THE BOOK PROFIT OF RS. 7,70, 334/ - DECLARED BY T HE ASSESSEE, ADDITION OF RS. 4,88, 138 / - WAS MADE TO THE RETURNED INCOME OF THE ASSESSEE. THE LEAR NED COMMISSIONER OF INCOME - TAX( APPEALS) ALSO CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. FURTHER , THE REQUEST OF THE ASSESSEE TO ALLOW THE REMUNERATION TO PARTNERS IN VIEW OF THE BOOK PROFIT INCREASED BY THE ASSESS ING OFFICER WAS ALSO NOT ACCEPTED BY THE LEARNE D COMMISSIONER OF INCOME - TAX ( APPEALS). AGGRIEVED, THE ASSESSEE IS BEFORE THE TRIBUNAL. THE APPEAL OF THE ASSESSEE WAS HEARD BY THE TRIBUNAL ON 6/07/2015 AND ORDER WAS PRONOUNC ED ON 10/07/2015 DIRECTING THE AS SESSING O FFICER TO ADOPT THE BOOK PROFIT AT THE RATE OF 8% ON TOTAL RECEIPT AND RE - COMPUTE THE INCOME ACCORDINGLY. WITH REGARD TO THE GROUND RELATING TO ALLOWING OF REMUNERATION TO PARTNERS AS PER PARTNERSHIP DEED, THE TRIBUNAL ALLOWED REMUNERATION TO PART NERS, AS PER THE DEED. HOWEVER, THE ASSESSEE FILED IN MISCELLANEOUS P ETITION STATING THAT THE NET PROFIT ON THE SUPPLY O F BUILDING MATERIAL FOR RS. 89,44, 936/ - WAS NOT DECIDED AND FOR WHICH THE ASSESSEE RELIED UPON THE RULING OF ITAT IN SMT . R . IMBAVALLI VS. INCOME TAX OFFICER, (2004) 83 TTJ ( CHENNAI) 352. THE TRIBUNAL IN M . A . NO. 250/DEL/2015 VIDE ORDER DATED 15/01/2016, RECALLED THE ORDER DATED 10 /07/ 2015 AND ALLOWED THE MISCELLANEOUS A PPLICATION OF THE ASSESSEE AND , HENCE THIS APPEAL IS BEFORE US. 3. THE GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE AND NOT REQUIRED TO ADJUDICATE UPON BY US. 4. IN GROUND NO. 2 THE ASSESSEE CHALLENGED CONFIRMATION OF THE DIS ALLOWANCE OF EXPENSES OF RS. 4,88, 138 / - BY THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS). BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX( APPEALS), THE ASSESSEE SUBMITTED DETAILS OF RECEIPTS AND NET PROFIT RATE DECLARED AS UNDER: A S AGAINST THE NET PROFIT RATE OF 4.66% ON THE SUPPLY OF BUILDING MATERIAL OF RS. 89,44,96/ - AND NET PROFIT RATE OF 7 % ON LABOUR AN D WORKS CONTRACT OF RS. 50,38, 083/ - , THE ASSESSING OFFICER ESTIMATED NET PROFIT RATE OF 9% O N THE ENTIRE RECEIPTS OF RS. 1,39, 83, 019/ - . 3 ITA NO. 3159/DEL/2014 AY: 2010 - 11 5. BEFORE US , THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, AGREED FOR NET PROFIT RATE OF 8% ON LABOUR AND WORKS CONTRACT, HOWEVER , IN RESPECT OF SUPPLY BUILDING MATERIAL, HE SUBMITTED THAT NET PROFIT RATE OF 4.66% DECLARED BY THE ASSESSEE WAS SUFFICIENT AND THE NET PROFIT RATE OF 9% WAS NOT REASONABLE DUE TO THE FOLLOWING REASONS: (I) SUPPLY OF BU ILDING MATERIAL INVOLVES FINANCE FOR A SHORT PERIOD AS AGAINST THE TIME TAKEN IN WORKS OR LABOUR CONTRACT ; (II) SUPPLY OF BUILDING MATERIAL INVOLVES LESSER TIME AS AGAINST THE TIME CONSUMED IN WORKS OR LABOUR CONTRACT. (III) THE SECTION 44 AF OF THE ACT PRESCRIBES NET PROFIT RATE OF 5% FOR RETAILERS AND HENCE NP RATE OF WHOLESALERS SHOULD BE LESS THAN 5% 6. IN SUPPORT OF THE NET PROFIT RATE IN CASE OF SUPPLY BUILDING MATERIAL, THE LD AR REFERRED THE CASE OF M/S TAYAL CONCAST PRIVATE L IMITED FOR AY 2 005 - 06 ( PAGE 7 OF THE PAPER BOOK) , WHERE THE AO APPLIED GROSS PROFIT RATE OF 5% I N THE BUSINESS OF WHOLESALE OF D OLOMITE, COAL AND TRADED CEMENT. HE FURTHER SUBMITTED THAT IN THE CASE OF SMT. R IMBAVALLI VS. ITO (SUPRA) THE ASSESSEE WAS ENGAGED IN THE RETA IL BUSINESS OF ELECTRONIC APPLIANCES AND THE NET PROFIT RATE OF 4% WAS UPHELD BY THE ITAT IN THAT CASE. IN SUPPORT OF NET PROFIT RATE OF 8% ON THE LABOUR AND WORKS CONTRACT, THE AR SUBMITTED A LONG LIST OF CASES IN HIS WRITTEN SUBMISSION, WHICH IS AS UNDER : I. ITAT DELHI IN ITA NO. 6017/DEL/1998 , FOR ASSESSMENT YEAR 1995 - 96, I N THE CASE OF ACIT VS. M/S JAGDISH JAIN CONTRACTOR - ORDER DATED 9.9.2003 (COPY OF PAGES 7 & 8 OF THE ASSESSE S PAPER BOOK). II. ITAT , DELHI IN ITA N OS. 4923 & 4924/DEL/1998 FOR ASSESSMENT YE AR 1994 - 95 AND 1995 - 96 IN THE CASE OF M/S VEE KAY ASSOCIATED VS. ITO - ORDER DATED 18.5.2004 (COPY AT PAGES 8 TO 16 OF APB). III. ITAT DELH I IN ITA NO. 862/DEL/1190 FOR A.Y. 1986 - 87 - ORDER DATED 30.11.1993 (COPY AT PAGES 17 TO 21 OF THE APB). IV. ITO VS. CHOHTAN C ONSTRUCTION CO. (2004) 84 TTJ (JD) 693 (COPY AT PAGES 25 TO 28 OF THE APB) V. SRIRAM JHANWARLAL VS . ITO (2005) 98 TTJ (JD) 639 (COPY AT PAGES 29 TO 34 OF THE APB) VI. CHANDRA ENTERPRISE VS. ITO (2005) 97 TTJ (MUMBAI) 501 (COPY AT PAGES 35 TO 37 OF THE APB) VII. DEEPA AGRO AGENCIES VS. ITO (2005) 98 TTJ (BANG) 766 (COPY AT PAGES 38 TO 41 OF THE APB) VIII. ACIT VS. SHETH BROTHERS (2006) 99 TTJ (RAJKOT) 189 (COPY AT PAGES 42 TO 50 OF THE APB) 4 ITA NO. 3159/DEL/2014 AY: 2010 - 11 IX. ITO VS. JAMANADAS MULJIBHAI (2006) 99 TTJ (RAJKOT) 197 (COPY AT PAGES 50 TO 54 OF THE APB). 7. ON THE OTHER HAND, THE LD. S ENIOR DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ORDER OF THE LOWER AUTHORITIES SUBMITTED THAT IN ABSENCE OF BILLS AND VOUCHERS, AND THE NET PROFIT RATE OF 10% UPHELD BY THE HON BLE PUNJAB AND HAR YANA HIGH COURT IN THE CASE OF CIVIL C ONSTRUCTION COMPANY IN ITA 167/2004 , THE NET PROFIT RATE OF 9% APPLIED ON TOTAL RECEIPT IN THE CASE OF ASSESSEE WAS REASONABLE. SHE FURTHER SUBMITTED THAT THE CASES CITED BY THE ASSESSEE ARE NOT COMPARABLE AS SAME ARE IN RESPECT OF DIFFERENT PERIOD AND DIFFERENT CATEGORY OF PRODUCTS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE TRIBUNAL IN VARIOUS CASES OF THE WORKS CONTRACT HAS UPHELD THE NET PROFIT RATE OF 8% ON RECEIVED FROM CONTRACT WORKS. THOUGH FACTS OF THE EACH CASE ARE DIFFERENT BUT I N ABSENCE OF ANY BILLS VOUCHERS FOR VERIFICATION, NET PROFIT RATE IN RESPECT OF LABOUR AND WORKS CONTRACT AT THE RATE OF 8% IS MOST REASONABLE AND WE UPHOLD ACCORDINGLY. 9. IN RESPECT OF NET PROFIT RATE ON SUPPLY OF MATERIAL, WE ARE OF THE OPINION THAT THO UGH THE CASES CITED BY THE ASSESSEE ARE NOT EXACTLY COMPARABLE, THE LEGISLATURE ITSELF HAS ADOPTED NET PROFIT RATE OF 5% IN CAS E OF RETAILERS UNDER SECTION 44 AF OF THE ACT, WHEREAS THE ASSESSEE HAS CLAIMED TO BE WHOLE - SELLER AND THEREFORE NET PROFIT RATE O F 5% IS THE MOST REASONABLE AND WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO COMPUTE THE NET PROFIT ON SUPPLY OF MATERIAL AT THE RATE OF 5% OF THE RECEIPT FROM MATERIAL SUPPLIED. 10. WITH REGARD TO GROUND NO. 3 IN RESPECT OF ALLOWING REMUNERATION TO THE PARTNERS IN VIEW OF NET PROFIT ENHANCED BY THE AO, THE LD AR SUBMITTED THAT THE ISSUE WAS ALREADY DECIDED BY THE TRIBUNAL IN EARLIER ORDER WHICH HAS BEEN RECALLED. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 5 ITA NO. 3159/DEL/2014 AY: 2010 - 11 11. WE HAVE HEA RD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE HAS ALREADY DECIDED BY THE TRIBUNAL IN ORDER DATED 10/07/2015, THE RELEVANT FINDINGS OF WHICH ARE REPRODUCED AS UNDER: 10. WITH REGARD TO GROUND NO. 3 RELATING TO ALLOWING OF REMUNERATION TO PARTNERS AS PER DEED IS CONCERNED, I FIND THAT AO NOT ALLOWED THE REMUNERATION TO PARTNERS AND SIMILARLY, LD. CIT(A) HAS UPHELD THE ACTION OF THE AO. I FIND FORCE IN THE ASSESSEE S SUBMISSION THAT A.O. SHOULD ALLOW REMUNERATION TO PARTN ERS AT RS. 7,07,639.00 AGAINST RS. 4,04,319.00 CLAIMED BY THE ASSESSEE AS HAS BEEN HELD BY ITAT IN M/S RAJ BRICKS SUPPLY VS. ITO A.Y. 2001 - 02 AS UNDER : - 'IN CASE THE INCOME HAS BEEN ESTIMATED MORE THAN WHAT WAS DISCLOSED BY THE ASSESSEE AND THE PARTNERS HIP DEED PROVIDED FOR A HIGHER AMOUNT OF INTEREST AS AGAINST ACTUALLY ALLOWED TO THE ASSESSEE, THE ASSESSING AUTHORITY OUGHT TO HAVE ALLOWED THE SAME IN ACCORDANCE WITH THE DEED OF PARTNERSHIP SO THAT THE PROVISIONS OF SECTION 40(B) ARE DULY COMPLIED WITH. ' 10.1 IN FIND THAT IN THE ABOVE APPEAL, ITAT ALLOWED INTEREST IN U/S 40(B) AS PER PARTNERSHIP DEED AND THE SAME PRINCIPLE IS ALSO APPLICABLE TO THE REMUNERATION TO PARTNERS U/S 40(B) AS PER PARTNERSHIP DEED AS BOTH ARE ALLOWABLE UNDER S.40 (B) OF THE I. T. ACT. 10.2 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT AS AFORESAID, I AM OF THE VIEW THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN THE CASE OF RAJ BRICKS SUPPLY VS. ITO (SUPRA). RESPECTFULLY, FOLLOWING T HE SAME, THE ASSESSEE IS ALLOWED REMUNERATION TO PARTNERS, AS PER DEED. 12 . R ESPECTFULLY, FOLLOWING THE ABOVE FINDINGS , WE DIRECT THE ASSESSING OFFICER TO ALLOW THE REMUNERATION AS PER THE PARTNERSHIP DEED WITHIN THE CEILING PROVIDED UNDER SECTION 40( B) OF THE ACT SUBJECT TO VERIFICATION OF ACTUAL PAYMENT. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STANDS ALLOWED PARTLY FOR STATISTICAL PURPOSE. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 7 T H APRIL , 2016 . S D / - S D / - ( I.C. SUDHIR ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 T H APRIL , 2016 . LAPTOP / - 6 ITA NO. 3159/DEL/2014 AY: 2010 - 11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI