M/s Udayveer Singh Bhadoria Contractor, Bhind V. J.C.I.T., Range-2, Gwalior

ITA 344/AGR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9991 (ITAT-AGRA)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-08-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 13-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Onus to prove
• Section: 40A(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBE R AND MRS. ANNAPURNA MEHROTRA, ACCOUNT ANT MEMBER ITA NO. 344/AGRA/2013 ASSTT. YEAR : 2010-11 M/S. UDAYVEER SINGH BHADORIA, VS. J.C.I.T., RANGE- II, MAHENDRA NAGAR, ATER ROAD, BHIND. GWALIOR. [PAN:AACFU 1835D] ITA NO. 359/AGRA/2013 ASSTT. YEAR : 2010-11 A.C.I.T., CIRCLE 2, VS. M/S. UDAYVEER SINGH BHAD ORIA, GWALIOR. MAHENDRA NAGAR, ATER ROAD, BHIND. (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAJENDRA SHARMA, ADVOCATE REVENUE BY : SH. WASEEM ARSHAD, SR. DR DATE OF HEARING : 09.02.2016 DATE OF PRONOUNCEMENT : 10.02.2016 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER: BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), GWALIOR DATED 19.09.2013 FOR THE ASSESSMENT YEAR 20 10-11. ITA NO.344 & 359/AGRA/2013 2 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND PERUSED THE MATERIAL ON RECORD. BOTH THE CROSS APPEALS ARE DECIDED ISSUE-WISE AS UNDER: 3. ISSUE NO. 1: ON GROUND NO. 1, THE ASSESSEE CHALLENGED THE ORDER OF THE LD. CIT(A) IN APPLYING THE NET PROFIT RATE OF 6% ON THE CONTRACT RECEIPTS WITHOUT FURTHER ALLOWING DEPRECIATION, SALARY AND I NTEREST TO THE PARTNERS. THE REVENUE ON GROUND NO.1 CHALLENGED THE ORDER OF THE LD. CIT(A) IN APPLYING THE NET PROFIT RATE OF 6% INSTEAD OF 10% APPLIED BY THE AO. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION ON CONTRACT BASIS. THE AO WHILE COMPLETING THE ASSESSMENT REJEC TED THE BOOK RESULTS U/S. 145(3) AND ESTIMATED THE NET PROFIT OF THE ASSESSEE FROM CONTRACTUAL ACTIVITIES @ 10%. THE AO NOTED THAT THE ASSESSEE HAS PRODUCED ONLY LEDGER ACCOUNT, CASH BOOK, SALARY REGISTER AND ONLY FEW BILLS/VOUCH ERS OF FUEL EXPENSES. THE VOUCHERS OF THE EXPENSES INCURRED ON EARTH WORK WER E PRODUCED, BUT THESE VOUCHERS WERE MADE IN THE SAME HAND WRITING WITHOUT MENTIONING THE PARTICULARS OF THE PERSONS TO WHOM THE AMOUNT HAS B EEN PAID. THE ASSESSEE DID NOT PRODUCE BILLS AND VOUCHERS OR ANY DIRECT OR INDIRECT EVIDENCE TO SUPPORT THE EXPENSES. THE AO WAS OF THE VIEW THAT T HE BOOK RESULT WAS NOT SUBJECT TO VERIFICATION AND ACCORDINGLY REJECTED TH E SAME. THE AO APPLIED ITA NO.344 & 359/AGRA/2013 3 PROFIT RATE OF 10% WITHOUT ALLOWING ANY DEPRECIATIO N, INTEREST OR ANY OTHER EXPENSES. 5. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT THERE IS NO BASIS FOR APPLYING THE E XORBITANT AND UNREAL RATE OF PROFIT @ 10%. THE PAST HISTORY OF THE ASSESSEE AND COMPARABLE CASES PROVIDE THE BEST GUIDANCE TO APPLY APPROPRIATE PROFIT RATE. IN ASSESSMENT YEAR 2008- 09, THE AO IN THE SCRUTINY ASSESSMENT APPLIED THE N P RATE OF 2.69% AS AGAINST THE NP RATE OF 2.19% SHOWN BY THE ASSESSEE. IT WAS SUBMITTED THAT IN ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS DECL ARED NP RATE BEFORE INTEREST AND SALARY TO THE PARTNERS AT 5.12% AND NE T PROFIT RATE AFTER SALARY AND INTEREST TO THE PARTNERS IS DECLARED AT 3.25%. IN PRECEDING ASSESSMENT YEAR 2009-10, THE ASSESSEE DECLARED THE SAME RATES AT 5.4% AND 0.87%. THE GROSS RECEIPTS OF THE ASSESSEE HAVE INCREASED AS CO MPARED TO THE PRECEDING ASSESSMENT YEAR. THEREFORE, PAST HISTORY OF THE ASS ESSEE SHOULD BE CONSIDERED. IT WAS ALSO SUBMITTED THAT THE EXPENSES ON THE MATE RIAL AND LABOUR HAVE INCREASED. THEREFORE, THE ADDITION IS NOT JUSTIFIED . HE HAS ALSO RELIED UPON THE ORDER OF ITAT, AGRA BENCH IN THE CASE OF JAGDISH PR ASAD BANSAL IN ITA NO. 300/AGRA/2012, IN WHICH IT WAS HELD THAT NET PROFIT RATE OF 6% IS FAIR AND REASONABLE SUBJECT TO FURTHER ALLOWANCE OF INTEREST AND SALARY TO THE PARTNERS ITA NO.344 & 359/AGRA/2013 4 AND DEPRECIATION. THE LD. CIT(A) CONFIRMED THE REJE CTION OF BOOKS OF ACCOUNT U/S. 145(3) OF THE ACT. HOWEVER, THE NP RATE APPLIE D AT 10% WAS REDUCED TO 6% AND INCOME OF THE ASSESSEE FROM CONTRACTUAL RECE IPTS WAS ESTIMATED AT RS.34,00,136/-. NO FURTHER DEDUCTION IN RESPECT OF SALARY OR INTEREST TO THE PARTNERS OR DEPRECIATION WAS ALLOWED. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE ADDITION IS STILL ON EXCESSIVE SIDE. THE AO HAS GIV EN SPECIFIC REASONS FOR REJECTION OF BOOKS OF ACCOUNT BECAUSE THE ASSESSEE FAILED TO PRODUCE COMPLETE BILLS/VOUCHERS FOR EXPENSES AND NO EVIDENCES HAVE B EEN PRODUCED THROUGH WHICH THE BOOK RESULT COULD BE VERIFIED. IN THIS AP PEAL, THE ASSESSEE DID NOT CHALLENGE THE REJECTION OF BOOKS OF ACCOUNT U/S. 14 5(3) OF THE ACT. THEREFORE, REJECTION OF BOOKS OF ACCOUNT BY THE AUTHORITIES BE LOW IS CONFIRMED. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION O F MP HIGH COURT IN THE CASE OF DINANATH DUBEY VS. CIT, 160 ITR 1, THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. PAWAN KUMAR, 316 ITR 3 24 AND THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. INANI M ARBLES PVT. LTD., 316 ITR 125, IN WHICH IT WAS HELD THAT APPLICATION OF NET P ROFIT RATE BE APPLIED ON THE BASIS OF THE HISTORY OF THE ASSESSEE AND PROFIT DEC LARED IN EARLIER YEARS. THE GROSS RECEIPTS OF THE ASSESSEE HAVE INCREASED SUBST ANTIALLY AS IS MENTIONED AT ITA NO.344 & 359/AGRA/2013 5 PAGE 3 OF THE IMPUGNED ORDER. THE ASSESSEE HAS DECL ARED NP RATE AFTER SALARY AND INTEREST TO THE PARTNERS AT 3.25% IN THE ASSESS MENT YEAR UNDER APPEAL AND DECLARED NET PROFIT RATE OF 0.87% AND 2.19% IN PREC EDING ASSESSMENT YEARS 2009-10 AND 2008-09. THE HISTORY OF THE ASSESSEE CL EARLY SUGGESTS THAT EVEN THE NET PROFIT RATE APPLIED BY THE LD. CIT(A) AT 6% IS EXCESSIVE. FURTHER THE ASSESSEE CLAIMED THAT THE DEPRECIATION, INTEREST AN D SALARY PAID TO THE PARTNERS SHOULD BE ALLOWED SEPARATELY. WE ACCEPT TH E CONTENTION OF THE ASSESSEE BECAUSE THESE ARE ALLOWABLE DEDUCTIONS AND DEPRECIATION IS STATUTORY DEDUCTION AND SHALL HAVE TO BE ALLOWED TO THE ASSES SEE EVEN IF THE BOOKS ARE REJECTED BY THE AUTHORITIES BELOW. CONSIDERING THE HISTORY OF THE ASSESSEE AND THAT THE ASSESSEE HAS DECLARED HIGHER PROFIT RATE A S COMPARED TO EARLIER ASSESSMENT YEARS, WE SET ASIDE AND MODIFY THE ORDER S OF THE AUTHORITIES BELOW AND DIRECT THE AO TO APPLY THE PROFIT RATE OF 5.5% AS AGAINST 6% APPLIED BY THE LD. CIT(A) AND THE AO SHALL GRANT DEPRECIATION AND SALARY AND INTEREST PAID TO THE PARTNERS SEPARATELY. IN THE RESULT, GROUND NO. 1 OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND GROUND NO. 1 OF THE DEPARTMENTAL APPEAL IS DISMISSED. 7. ISSUE NO.2: THE ASSESSEE ON GROUND NO. 2, CHALLENGED THE ADD ITION OF RS.5,85,086/- MADE U/S. 40A(3) OF THE IT ACT. THE A O DISALLOWED THE ABOVE ITA NO.344 & 359/AGRA/2013 6 AMOUNT BECAUSE THE ASSESSEE PAID CASH ON FUEL EXPEN SES IN CONTRAVENTION OF SECTION 40A(3). THE LD. CIT(A) CONFIRMED THE ADDITI ON. 8. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR, 229 ITR 229 AND MP HIGH COU RT IN THE CASE OF CIT VS. PURSHOTTAM LAL TAMRAKAR UCHEHRA, 270 ITR 314 HAVE H ELD THAT WHEN APPLICATION OF NET PROFIT RATE IS APPLIED, SECTION 40A(3) IS NOT APPLICABLE WHEN THE INCOME IS DETERMINED BY THE AO BY APPLYING PROF IT RATE. SINCE IN THIS CASE, WE HAVE CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT AND NET PROFIT RATE IS APPLIED FOR COMPUTING THE BUSINESS INCOME OF THE AS SESSEE, THEREFORE, NO DISALLOWANCE U/S. 40A(3) COULD BE MADE. WE ACCORDIN GLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.5,85,086/-. GROUND NO. 2 OF APPEAL OF THE ASSESSEE IS ALLOWED. 9. ISSUE NO.3: ON GROUND NO. 3, THE ASSESSEE CHALLENGED THE AD DITION OF RS.5,19,849/- ON ACCOUNT OF ACCRUED INTEREST ON FDR . THE ADDITION IS MADE BY THE AO BECAUSE THE ASSESSEE HAS NOT OFFERED THE INT EREST ON FIXED DEPOSITS FOR TAXATION BECAUSE SUCH INTEREST ACCRUED ON SECURITY DEPOSITS AND FIXED DEPOSITS. THE ASSESSEE CLAIMED THAT SECURITY DEPOSI T AND FIXED DEPOSITS ARE ITA NO.344 & 359/AGRA/2013 7 NECESSARY AND MANDATORY REQUIREMENT FOR ALLOTMENT O F TENDER. THEREFORE, NO ADDITION COULD BE MADE. THE LD. CIT(A) FOUND THAT T HE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE, INTE REST ACCRUED ON FDR AND SECURITY DEPOSITS IS LIABLE TO BE TAXED. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. THE ASSESSEE IS M AINTAINING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE INTEREST ACCRU ED ON FDR AND SECURITY DEPOSITS, MAY BE WITH THE OTHER DEPARTMENT FOR GETT ING THE CONTRACT, IS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE. NO INFIRM ITY HAS BEEN POINTED OUT IN THE ORDER OF THE LD. CIT(A). WE, THEREFORE, CONFIRM THIS ADDITION AND DISMISS GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE. 11. ISSUE NO.4: THE REVENUE ON GROUND NO. 2 & 3 IN DEPARTMENTAL APPEAL CHALLENGED THE DELETION OF ADDITION OF RS.77,96,013 /- U/S. 68 OF THE IT ACT. THE AO MADE THE ABOVE ADDITION RESPECT OF FUNDS INTRODU CED BY THE PARTNERS IN THE ASSESSEE FIRM BECAUSE THE ASSESSEE FAILED TO PR OVE THE CREDITWORTHINESS OF THE PARTNERS AND GENUINENESS OF THE TRANSACTION. IT IS ADMITTED FACT THAT THESE CREDITS WERE APPEARING IN THE PARTNERS ACCOUNT IN THE ASSESSEE FIRM AND ALL THE PARTNERS HAVE CATEGORICALLY ADMITTED AND OWNED THESE CREDITS IN THEIR ITA NO.344 & 359/AGRA/2013 8 CURRENT CAPITAL ACCOUNT AS THEIR OWN. IT WAS SUBMIT TED THAT THE WORK WAS BEING CARRIED OUT AT DIFFERENT SITES AND THE PARTNE RS FIRST WITHDRAW THE AMOUNT FROM THE FIRM AND THEIR RESPECTIVE CURRENT CAPITAL ACCOUNT WERE DEBITED AND WHEN THE AMOUNT WAS USED FOR THE BUSINESS PURPOSE O N DIFFERENT SITES, THE SAID CAPITAL ACCOUNT WAS CREDITED. THE ASSESSEE REL IED UPON THE DECISION IN THE CASE OF CIT VS. METACHEM INDUSTRIES, 245 ITR 160, I N WHICH IT WAS HELD THAT ONCE THE FIRM HAS SATISFACTORILY EXPLAINED THAT THE CREDIT ENTRIES IN THE NAME OF ITS PARTNERS REPRESENT THE AMOUNT INVESTED BY THEM, THE BURDEN OF PROOF IS DISCHARGED AND THE AMOUNT CANNOT BE TREATED AS INCO ME OF THE FIRM UNDER SECTION 68 OF THE IT ACT. THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAISWAL MOTOR FINANCE, 141 ITR 706, IN WHICH IT WAS HELD THAT WHEN CASH WAS RECEIV ED BY THE FIRM FROM ITS PARTNERS, THEN IN THE ABSENCE OF ANY MATERIAL TO IN DICATE THAT THE SAME WAS PROFIT OF THE FIRM, IT COULD NOT BE ASSESSED IN THE HANDS OF THE ASSESSEE. THE LD. CIT(A) CONSIDERING THE MATERIAL ON RECORD FOUND THA T THERE WAS NO DISPUTE THAT THE ABOVE AMOUNT WAS INTRODUCED BY THE PARTNER S IN THE ASSESSEE FIRM. THE ASSESSEE FIRM HAS ALSO EXPLAINED THE SOURCE OF THESE FUNDS AS CONTRIBUTION MADE BY THE PARTNERS. THEREFORE, THE ISSUE IS COVER ED BY THE DECISION OF JURISDICTIONAL MP HIGH COURT IN THE CASE OF METACHE M INDUSTRIES (SUPRA). THE ADDITION WAS ACCORDINGLY DELETED. HOWEVER, IT WAS L EFT OPEN TO THE AO TO TAKE ITA NO.344 & 359/AGRA/2013 9 APPROPRIATE ACTION AGAINST THE PARTNERS WHO HAVE IN TRODUCED THE FUND IN THE FIRM. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE ASSESSEE EXPLA INED BEFORE THE AUTHORITIES BELOW THAT THE PARTNERS HAVE INTRODUCED THE AMOUNTS IN THEIR CAPITAL ACCOUNT AND THEY HAVE ADMITTED THESE AMOUNT S TO BE OF THEIR OWN. THEREFORE, THE ISSUE IS SQUARELY COVERED BY THE JUD GMENT OF JURISDICTIONAL MP HIGH COURT IN THE CASE OF METACHEM INDUSTRIES (SUPR A). THE LD. CIT(A) ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD CORRECTLY DELETED THE ADDITION. GROUND NO. 2 & 3 OF THE APPEAL OF REVENUE ARE ACCORDINGLY DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10.02.2016 *AKS/- COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR