The Deputy Commissioner of Income-tax, Pathankot V. M/s. S.Chanan Singh, Pathankot

ITA 345/ASR/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73335 (ITAT-AMRITSAR)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Assessee Lawyers: J S BHASIN
• Keywords: Rejection of books of accounts; Depreciation
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.345(ASR)/2013 ASSESSMENT YEAR:2007-08 PAN :AABFS0775J DY. COMMR. OF INCOME TAX, VS. M/S. S.CHANAN SINGH, GOVT. CONTRACTOR, CIRCLE-VI, PATHANKOT. VPO JANDWAL, PATHANKOT. (APPELLANT) (RESPONDENT) I.T.A. NO.360(ASR)/2013 ASSESSMENT YEAR:2007-08 PAN :AABFS0775J M/S. S.CHANAN SINGH, GOVT. CONTRACTOR, VS. DY. COMM R. OF INCOME TAX, VPO JANDWAL, PATHANKOT. CIRCLE-VI, PATHANKOT. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. AMRIK CHAND, DR RESPONDENT BY: SH. J.S. BHASIN, ADVOCATE DATE OF HEARING: 06/03/2014 DATE OF PRONOUNCEMENT: 18/03/2014 ORDER PER BENCH ; THESE CROSS APPEALS OF THE REVENUE AND THE ASSE SSEE ARISE FROM THE ORDER OF THE CIT(A), AMRITSAR DATED 12.03.2013 FOR THE ASSESSMENT YEAR 2007-08.THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 2 2 1) THE LD. CIT(A) HAS ERRED IN ALLOWING SALARY/REM UNERATION TO THE ASSESSEE IGNORING THE FACT THAT WHERE THE A.O. HAS ASSESSED NET PROFIT, THERE CAN BE NO FURTHER ALLOWANCE OF AN Y EXPENDITURE. IT IS PRAYED THEREFORE, THAT THE DIRECTION OF THE L D. CIT(A) TO ALLOW SALARY/REMUNERATION BE REVERSED IN FAVOUR OF REVENUE. 2) APPELLANT CRAVES LEAVE TO AMEND OR ADD ANY OR MO RE GROUNDS OF APPEAL. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO.360(ASR)/2013: 1. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIR MING THE REJECTION OF BOOKS OF ACCOUNTS BY THE A.O. U/S 145( 3) AND FURTHER HOLDING THAT SECTION 144 WAS IMPLIED INVOKE D, WHEN EVEN THE BASIS TO APPLY 8% NET PROFIT RATE WAS NOT CONFRONTED TO ASSESSEE IN ASSESSMENT. 2. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS TO RESTRICT THE ESTIMATION OF INCOME @ 8% ON GROSS REC EIPT WHICH WAS ALREADY APPLIED BY AO. 3. THAT THE NET PROFIT RATE OF 8% SUBSTITUTED BY TH E LD. CIT(A) IS NOT ONLY ARBITRARY, HIGHLY EXCESSIVE AND WITHOUT MA TERIAL, BUT ALSO NOT CONSISTENT WITH THE ACCEPTED PAST HISTORY OF THE CASE. 4. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT ALL OWING DEPRECIATION AFTER UPHOLDING ESTIMATION OF INCOME B Y APPLICATION OF 8% NET PROFIT. 5. THAT THE ORDER UNDER APPEAL, TO THE EXTENT DISPU TED HEREINABOVE IS WHOLLY AGAINST LAW AND FACTS OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THIS IS A C ASE OF FIRM CARRYING OUT CIVIL CONTRACT WORK. DURING THE YEAR, IT HAS DECLAR ED INCOME OF RS.16,16,560/- OUT OF THE TOTAL CONTRACT RECEIPTS O F RS.5,85,95,915/- IN ITS RETURN FILED ON 31.10.2005. IN THE COURSE OF SCRUTI NY ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE PARTIES FROM WHOM THE ASSE SSEE HAD PURCHASED EARTH, RORI PURCHASE ARE NOT ASSESSED TO TAX AND PA YMENTS FOR THESE PURCHASES ARE MADE IN CASH. MOREOVER, ON 25.3.2009 THE ASSESS EE FAILED TO PRODUCE ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 3 3 VOUCHERS IN SUPPORT OF THESE PURCHASES. THE AO THER EFORE, HELD THESE PURCHASES AS BOGUS. THE AO ALSO FOUND WIDE FLUCTUAT ION IN EXPENSES ON WAGES IN DIFFERENT MONTHS AND THE ASSESSEE FAILED TO GIVE LOGICAL REASONS FOR SUCH FLUCTUATIONS. COMPARED TO THE WAGES PAID, THE EPF PAID WAS OF RS.4,300/- WHICH WAS EXCEPTIONALLY LOW. THE WAGES A RE ALL PAID IN CASH AND THEREFORE COULD NOT BE VERIFIED BY THE A.O. THE AO REJECTED THE BOOKS U/S 145(3) OF THE ACT BECAUSE OF THE MAJOR DEFICIENCIES POINTED OUT ABOVE AND ESTIMATED THE CONTRACT INCOME @ 8% WHICH IS RS.46,8 7,632/-. THE ORDER WAS REVISED TAKING THE GROSS RECEIPTS AT RS.5,63,29,015 /- AS AGAINST RS.5,85,95,915/- WHICH INCLUDES MATERIAL TRANSFERR ED TO HEAD OFFICE OF RS.32,66,900/-. THE PROFIT RATE REMAINED THE SAME I .E. @ 8% AND THE NET INCOME IS COMPUTED AT RS.44,26,321/-. 4. BEFORE THE LD. CIT(A), THE ASSESSEES COUNSEL FI LED THE WRITTEN SUBMISSIONS AND WHICH WERE SENT TO THE AO FOR REMAN D REPORT. THE LD.CIT(A) OBTAINED THE REMAND REPORT AND COUNTER CO MMENTS FROM TIME TO TIME WHICH ARE REPRODUCED AT PAGES 5 TO 10 OF CIT(A ) ORDER IN PARA -5. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND COUNTER COMMENTS FROM TIME TO TIME UPHELD THE APPLICATION O F PROVISIONS OF SECTION 145(3) OF THE ACT AND REJECTED THE CLAIM OF THE ASS ESSEE FOR ALLOWING FURTHER DEPRECIATION BUT ALLOWED SALARY AND REMUNERATION TO THE PARTNERS. THE ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 4 4 RELEVANT FINDINGS OF THE LD. CIT(A) ARE CONTAINED I N PARA 6 TO 6.2 , WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 5 5 ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 6 6 ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 7 7 5. THE LD. COUNSEL FOR THE ASSESSEE, MR. J.S. BHASI N, ADVOCATE, ARGUED THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT AND ALL VOUCHERS AND THE LD. CIT(A) IS THEREFORE, NO JUSTIFIED IN CONFIRMING THE ACTION OF THE A.O. IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T. AS REGARDS THE ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 8 8 APPLICATION OF NET PROFIT RATE , HE RELIED UPON THE DECISION OF THE ITAT, AMRITSAR BENCH, IN THE CASE OF ITO, NAWANSHAHAR VS. M/S. SURINDER PAL NAYYAR CONTRACTORS, VPO BEHARAM, DISTT. NAWANSHAHAR , IN ITA NO.366(ASR)/2010 FOR THE A.Y. 2006-07 DATED 30.04.2 012 AND PRAYED TO APPLY NET PROFIT RATE OF 5% AFTER ALLOWING DEPRECIA TION AND INTEREST AND SALARY TO THE PARTNERS OF ASSESSEES TURNOVER. HE INVITED OUR ATTENTION TO THE COMPARATIVE CHART OF TURNOVER AND NET PROFIT RATE F OR THE LAST THREE YEAS WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER: COMPARATIVE CHART OF TURNOVER AND NP FOR LAST 3 Y EARS AY DECLARED INCOME TURNOVER PROFIT BEFORE SALARY TO PARTNERS ASSESSED 2007-08 RS.1616560 RS.42433619 6.55% BOOKS REJECTED. 8% NP APPLIED 2008-09 RS.679540 RS.29566501 5.66% RS.2 LACS ADDED WITHOUT PENALTY 2009-10 RS.193458 RS.6820089 6.01% ADDED RS.35000/- 6. THE LD. DR, ON THE OTHER HAND RELIED UPON THE OR DER OF THE ASSESSING OFFICER. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE IS A CIVIL CONTRACTOR. AS PER ORDER OF THE A.O., THE ASSESSEE DID ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 9 9 NOT PRODUCE ANY VOUCHERS WITH REGARD TO THE PURCHAS ES MADE WHICH WERE HELD TO BE BOGUS. AS REGARDS THE WAGES PAYMENTS, TH EY REMAINED UNVERIFIABLE. BEFORE THE LD. CIT(A), THE ASSESSEE M ADE SUBMISSIONS TIME AND AGAIN BUT ULTIMATELY WAGES AND LABOUR PAYMENTS WHI CH WERE PAID IN CASH REMAINED UNVERIFIABLE. THE MUSTER ROLL PRODUCED DOE S NOT MENTION THE NAME OF THE SITE, WHICH IN FACT, REMAINED UNVERIFIED IN THE ABSENCE OF ANY VOUCHERS OR IDENTIFICATION OF THE LABOUR. AS REGARDS THE MA TERIAL SUPPLIER, AS MENTIONED BY THE LD. CIT(A), THE NOTICES TO MOST OF THE MATERIAL SUPPLIERS REMAINED UNSERVED. THE PERSONS EXAMINED DID NOT PRO DUCE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THEIR STATEMENTS AND FEW PER SONS GAVE CONTRADICTORY STATEMENTS THAT THEY NEVER DID ANY BUSINESS IN ASSE SSEES FIRM. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY CONFIRMED THE INVOCATION O F PROVISIONS OF SECTION 145(3) OF THE ACT. 11.1. AS REGARDS THE APPLICATION OF NET PROFIT RATE , THE LD. COUNSEL FOR THE ASSESSEE PLACED ON RECORD NET PROFIT RATE AND THE T URNOVER CHART OF THE IMPUGNED YEAR ALONGWITH PRECEDING TWO YEARS, WHICH IS REPRODUCED HEREINABOVE. THE LD. CIT(A), IN FACT, HAS MENTIONED IN PARA 4 AT PAGE 2 OF HIS ORDER THAT THE GROSS RECEIPTS WERE REVISED AT R S.5,63,29,015/- WHICH INCLUDES MATERIAL TRANSFERRED TO HEAD OFFICE AT RS .32,66,900/-. THE LD. ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 10 10 COUNSEL FOR THE ASSESSEE IN THE CHART IS REFERRING TO THE TURNOVER AT RS.4,24,33,619, WHICH IN FACT, IS NOT CORRECT STATU S ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AS PER ORDER OF THE LD. CIT (A). THEREFORE, GROSS RECEIPTS AS PER ORDER OF THE LD. CIT(A) ARE TAKEN A T RS.5,63,29,015/- AS PER CHART PLACED ON RECORD BY THE LD. COUNSEL FOR THE A SSESSEE. THE AO HAS COMPUTED THE NET PROFIT RATE OF 8% AT RS.46,87,632/ -, WHICH HAS BEEN REVISED BY THE LD. CIT(A) AS UNDER: NET PROFIT RATE OF 8% ON GROSS TURNOVER OF RS.5,63, 29,015/- WHICH COMES TO RS.45,06,321/- OUT OF WHICH THE LD. CIT(A) HAS ALLOWED SALARY/REMUNERATION PAID TO PARTNERS AT RS.11,65,20 6/- AND THE NET PROFIT COMES AT RS.33,41,115/- WHICH IS 5.93% ON TH E GROSS CONTRACT RECEIPTS OF RS.5,63,29,015/-. THE PAST HISTORY OF THE ASSESSEE IS THAT NET PROFI T RATE FOR THE ASSESSMENT YEAR 2006-07 IS 5.66% AND 6.01% DURING THE ASSESSMENT YE AR 2005-06 AND IF THE AVERAGE OF THE SAME IS TAKEN, IT COMES TO 5.83% ON GROSS TURNOVER DECLARED BY THE ASSESSEE DURING THE YEAR AND AFTER THE EFFE CT OF THE LD. CIT(A)S ORDER, IT IS 5.93% ON THE GROSS TURNOVER ESTIMATED BY THE LD. CIT(A), WHICH IS NEGLIGIBLE DIFFERENCE. ACCORDINGLY, IN THE FACTS AN D CIRCUMSTANCES, THE CASES RELIED UPON BY THE ASSESSEE CANNOT BE MADE APPLICAB LE LOOKING TO THE PAST HISTORY OF THE ASSESSEE AND WE FIND NO INFIRMITY IN THE ORDER OF THE LD. ITA NO.345(ASR)/2013 ITA NO.360(ASR)/2013 11 11 CIT(A), WHO HAS RIGHTLY DENIED THE DEDUCTION OF D EPRECIATION AND HAS RIGHTLY ALLOWED THE SALARY AND REMUNERATION PAID TO THE PARTNERS. ACCORDINGLY, BOTH THE APPEALS OF THE REVENUE AND TH E ASSESSEE ARE ALLOWED. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH MARCH, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18 TH MARCH, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE::M/S. S. CHANAN SINGH GOVT. CONTRACTOR , VPO JANDWAL, PATHANKOT. 2. THE DCIT, CIRCLE VI, PATHANKOT. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR