Addl. CIT, Sonepat V. Sh. Anand Kumar, Sonepat

ITA 3471/DEL/2011

• Counselvise Citation: 347120114 RSA 2011
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business expenditure; Corroborative evidences; Onus to prove
• Section: 194C; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 3450/DEL/2011 ASSTT. YR: 2008-09 M/S ANAND KUMAR ELECTRICAL CONTRACTOR, VS. ADDL. C IT, VILL. & P.O. KABIR PUR, SONEPAT. SONEPAT CIR. SO NEPAT. PAN/GIR NO. AIUPK7508F AND ITA NO. 3471/DEL/2011 ASSTT. YR: 2008-09 ADDL. CIT, VS. M/S ANAND KUMAR ELECTRICAL CONTRAC TOR, SONEPAT CIR. SONEPAT. VILL. & P.O. KABIR PUR, SONE PAT. (APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI K.P. GARG FCA & SHRI VINEET GARG ADV. REVENUE : SHRI A.K. SINGH SR. DR O R D E R PER R.P. TOLANI, J.M : THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND TH E OTHER BY THE REVENUE AGAINST CIT(A)S ORDER DATED 9-5-2011 R ELATING TO A.Y. 2008-09. RESPECTIVE GROUNDS RAISED ARE AS UNDER: ASSESSEES APPEAL (ITA 3450/DEL/11) : 1. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN S USTAINING THE ADDITION OF RS. 1,05,67,890/- TO THE DECLARED I NCOME OF THE APPELLANT. THE ENTIRE ADDITION IS UNJUSTIFIED AND T HE SAME IS LIABLE TO BE DELETED. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN PRESUMING THAT THE ONUS TO PROVE THE NEGATIVE FACT THAT HE DID NOT VIOLATE THE LAW LAY ON THE APPELLANT. THEY PROVISIONS OF SECTIO N 40(A)(IA) ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 2 COME INTO PLAY ONLY FOR VIOLATION OF THE PROVISIONS OF SECTION 194-C. THE APPELLANT DID PROVIDE A LIST OF 339 DIFF ERENT PERSONS THROUGH WHOM THE SO MANY WORK ORDERS REGARDING WORK AT MORE THAN 3000 DIFFERENT SITES WERE NOT EXECUTED. THE AP PELLANT HAD DISCHARGED THE PRIMARY ONUS TO PROVE THAT NO SINGLE PAYMENTS EXCEEDED RS. 20000/- AND NO COMBINATION OF PAYMENT TO ANY SINGLE PERSON AMOUNTED TO RS. 50,000/- IN THE WHOLE YEAR. THE LEARNED AO HAD AN ARMY OF INSPECTORS AT HIS COMMAND . HE STILL FAILED TO PROVE A SINGLE INSTANCE OF VIOLATING THES E PROVISIONS BY THE APPELLANT. IN THE ABSENCE OF SUCH PROOF NO ADDI TION COULD BE MADE IN THIS CASE. 3. THE LEARNED CIT(APPEALS) HAS NOT APPRECIATED THE FACT THAT ANY DISALLOWANCE UNDER SECTION 40(A)(IA) READ WITH SECTION 194-C, PRESUPPOSES THAT A PAYMENT (EXPENDITURE) HAS BEEN INCURRED BUT ITS DEDUCTION FROM INCOME CANNOT BE AL LOWED BECAUSE TDS HAS NOT BEEN PAID. IN THIS CASE THE DIS ALLOWANCE OF RS. 1,05,67,890/- HAS BEEN UP HELD ON ACCOUNT OF TH E NON-PROOF OF GENUINENESS OF THE PAYMENTS. THIS POSITION RUNS COUNTER TO IT THE PROVISIONS OF SECTION 194C AND CANNOT PREVAIL. 4. THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIAT E THE FACT THAT WORK ORDERS FOR EXECUTION OF JOB WORK OF OVER 3000 SITES SPREAD OVER AS MANY LOCATIONS IN MORE THAN 4 DISTRICTS CAN NOT BE COMPLETED BY ASSIGNING THE WORK TO ONLY A LI MITED NUMBER OF SUB-CONTRACTORS. THIS COULD RESULT IN DEL AYS AND COULD INVITE PENAL ACTION AGAINST THE APPELLANT. 5. THE LEARNED CIT(APPEALS) SHOULD HAVE APPRECIATED THAT ASSIGNING OF WORK TO ONLY 339 PERSONS (ACTUALLY ELE CTRICAL LINE LABOURERS CALLED SUB-CONTRACTORS) WAS ALSO FINANCIA LLY DESIRABLE. THE APPELLANT HAD SECURED CONTRACT JOB WORKS FOR RS . 3,66,65,997/-. OUT OF THIS, JOB WORKS WORTH RS. 91, 67,544/- WERE GOT EXECUTED THROUGH TWO SUB-CONTRACTORS WHO W ERE PAID RS. 61,99,999/-, THERE BY GIVING A LABOUR CHARGE OF 67,62% ON THE CONTRACT AMOUNT. THIS FACT IS NOT DISPUTED AND IS ACCEPTED IN THE ASSESSMENT ORDER. AT THIS RATE, FOR EXECUTION O F THE BALANCE JOB WORKS AMOUNTING TO RS. 2,74,98,453/- THE APPELL ANT WOULD HAVE TO PAY RS. 1,85,93,000/- TO THE SELECTED FEW S UB- CONTRACTORS. ON THE OTHER HAND HE GOT THE JOBS EXEC UTED THROUGH ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 3 MULTIFARIOUS PERSONS (I.E. ELECTRICAL LINE LABOURER S) AND PAID ONLY RS. 1,05,67,890/-. AS SUCH THERE IS NOTHING WRONG I N GETTING THE JOBS DONE AS ARRANGED IN THIS CASE. REVENUES APPEAL (ITA NO. 3471/DEL/11): THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DEL ETING THE ADDITION OF RS. 44,77,774/- WHICH WAS MADE BY THE A O BY APPLYING THE PROFIT RATE OF 12% TO THE GROSS RECEIP T OF THE ASSESSEE AS HELD BY HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF CIT VS. PARBHAT KUMAR CONTRACTOR (SIRSA ) IN ITA APPEAL NO. 293 OF 2008. AS THE ASSESSEE HAD FAILED TO PRODUCE THE BOOKS OF ACCOUNTS DURING THE COURSE OF ASSESSME NT PROCEEDINGS. 2. BRIEF FACTS ARE: THE ASSESSEE IS AN ELECTRICAL C ONTRACTOR, WORKING WITH UHBVN, A GOVT. OF HARYANA UNDERTAKING. THE ASSESSEE CONTENDS TO BE ENGAGED IN EXECUTING WORK OF ELECTRICAL FITTINGS OV ER 3000 SITES SPREAD OVER VARIOUS LOCATIONS IN MORE THAN 4 DISTRICTS OF HARYA NA STATE. ACCORDING TO ASSESSEE, BECAUSE OF DIVERSITY OF WORK SITE HE HAD TO EMPLOY PETTY LABOUR CONTRACTORS. IN THE YEAR IN QUESTION HE EMPLOYED 3 39 ELECTRICAL LINEMEN WHICH ARE REFERRED AS SUB-CONTRACTORS IN THE BOOKS OF ACCOUNTS, WHICH ARE REGULARLY MAINTAINED. THE ASSESSEE BESIDES GAVE JOB WORK TO TWO BIG SUB CONTRACTORS SH. VAZIR SINGH AND ANANT RAM CONTRACTO RS WHO WERE PAID RS. 61,99,999/- ON WHICH TDS WAS DULY DEDUCTED. TO OTHE R PETTY CONTRACTORS PAYMENTS MADE BY ASSESSEE ARE LESS THAN RS. 20,000/ - AND NO SINGLE CONTRACTOR WAS PAID THE LABOUR CHARGES AGGREGATING MORE THAN 50,000/- IN THE YEAR. THEREFORE, NO TDS WAS DEDUCTED ON THESE AMOUN TS OF RS. 1,05,67,890/-, AS EACH PAYMENT WAS LESS THAN RS. 20 ,000/- AND AGGREGATING AMOUNT TO ONE SINGLE PERSON WAS LESS THAN RS. 50,00 0/-. THUS, NO TDS WAS DEDUCTED AS THERE WAS NO LIABILITY U/S 194C AND TH EREFORE, PROVISIONS OF SEC. 40(A)(IA) WERE NOT APPLICABLE TO SUCH CONTRAC T PAYMENTS. ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 4 2.1. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE FUR NISHED DETAILS AND LIST OF SUCH PETTY CONTRACTORS. HOWEVER, THE SAME WAS DI SBELIEVED BY THE AO ON THE GROUND THAT SUPPORTING EVIDENCE WAS NOT PRODUCE D IGNORING THAT ALL OF THEM WERE PAID LABOURRS AND AFTER THE WORK WAS OVER , IT WILL BE VERY DIFFICULT TO CALL THEM FROM DIVERSE LOCATIONS. THE EXPENDITUR E WAS OTHERWISE ALLOWED, HOWEVER, THE SAME WAS DISALLOWED U/S 40(A)(IA). THU S, AO ON ONE HAND HOLDS IT TO BE GENUINE BUSINESS EXPENDITURE BUT DIS BELIEVED THE DETAILS OF SUCH LABOURERS AND ASSUMED THAT EACH SINGLE PERSON WAS PAID MORE THAN RS. 50,000/- AND EACH PAYMENT ABOVE RS. 20,000/-. SIMIL ARLY, AO HELD THAT ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT AND THE REFORE A NET PROFIT RATE OF 12% WAS ADOPTED RELYING ON HONBLE PUNJAB & HARYANA HIGH COURT JUDGMENT IN THE CASE OF M/S CIT VS. M/S PRABHAT KUM AR CONTRACTOR, SIRSA IN ITA NO. 293 OF 2008, WHICH IS A CASE OF BUILDING CO NTRACTOR AND NOT AN ELECTRICAL CONTRACTOR RENDERED ON DIFFERENT FACTS. . 2.2. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE LD. CIT(APPEALS) RETAINED THE ADDITION U/S 40(A)(IA) AMOUNTING TO R S. 1,05,67,890/- AND DELETED THE ADDITION OF RS. 44,77,774/-, MADE BY A O ON ACCOUNT OF REJECTION OF THE BOOKS OF ACCOUNTS, BY FOLLOWING OB SERVATIONS: 3.1. THE SUB-CONTRACTORS TO WHOM PAYMENTS OF RS. 1,05,67,890/- HAVE BEEN MADE ARE INDIVIDUALS WHO WE RE HIRED ON A DAILY BASIS TO CARRY OUT THE LABOUR WORK. THE APPELLANT HAS NOT VIOLATED ANY PROVISIONS OF SECTION 194C OF THE ACT AS NO PAYMENT EXCEEDING RS. 20,000/- IN ONE TIME AND EXCE EDING RS. 50,000/- THROUGHOUT THE YEAR HAS BEEN MADE TO ANY O F THESE SUB- CONTRACTORS. THE DETAILS OF THESE PETTY SUB-CONTRAC TORS, NUMBERING AROUND 339 AND PAYMENTS MADE TO THEM HAVE BEEN FURNISHED BEFORE THE AO. 3.2. REGARDING THE REJECTION OF BOOKS OF ACCOUNTS A ND ESTIMATION OF PROFITS, THE AR SUBMITTED THAT THE BO OKS OF ACCOUNTS, REGULARLY MAINTAINED BY THE ASSESSEE AND SUBJECT TO ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 5 TAX AUDIT, WERE PRODUCED BEFORE THE AO. THE AO REJE CTED THE BOOKS MAINLY ON THE GROUND THAT THE ASSESSEE FAILED TO EXPLAIN THE GENUINENESS OF THE CREDITORS SINCE MOST OF THE VERIFICATIONS CARRIED OUT BY THE AO HAVE COME BACK UNSERVED. THIS CANNOT BE THE BASIS FOR REJECTING THE BOOKS OF ACCOUNTS AS TH E NOTICES WOULD HAVE COME BACK UNSERVED DUE TO INCOMPLETE ADD RESS, CHANGE OF ADDRESS, MISTAKE BY POSTAL DEPARTMENT ETC . RELYING UPON THE CASE OF HONBLE ITAT AGRA BENCH IN THE CAS E OF ITO VS. LAXMI NARAIN RAM SAROOP 123 TTJ 416, THE AR CON TENDED THAT THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO W ITHOUT POINTING OUT ANY SPECIFIC DEFECT IS ILLEGAL. THE AR FURTHER CONTENDED THAT THE FACTS OF CFIT VS PRABHAT KUMAR ( SUPRA) RELIED UPON BY THE AO ARE ENTIRELY DIFFERENT AND TH E HONBLE ITAT IN MANY CASES, WHERE THE AOS ADOPTED 12% PROFI T BASED ON THE ABOVE JUDGMENT, HAS REDUCED THE PROFIT RATE CONSIDERABLY AND IN FACT TO EVEN 4% IN SOME CASES. 4. I HAVE CONSIDERED THE ISSUES AND THE SUBMISSIONS MADE BY THE AR. APART FROM GIVING THE NAMES OF SUB-CONTRACT ORS AND THE AMOUNTS PAID TO THEM, THE APPELLANT COULD NOT ESTAB LISH THE GENUINENESS OF THE PAYMENTS TO THE SUB-CONTRACTORS OF RS. 1,05,67,890/-. A FINDING OF FAT HAS BEEN GIVEN BY T HE AO THAT THE ASSESSEE HAS BEEN UNABLE TO SUBSTANTIATE THE PA YMENTS WITH SUPPORTING EVIDENCES ABOUT THE GENUINENESS OF THESE CONTRACTORS AND THE PAYMENTS MADE TO THEM. EVEN DURING THE APP EAL PROCEEDINGS, THE APPELLANT, PRODUCED ONLY THE NAMES OF SUB- CONTRACTORS ALONG WITH THE AMOUNTS PAID TO THEM. IT IS NOT POSSIBLE TO VERIFY THE CLAIM OF THE APPELLANT THAT THE PROVISIONS OF SECTION 194C ARE NOT ATTRACTED SINCE PAYMENT AT ONE TIME IS BELOW R. 20,000/- AND BELOW RS. 50,000/- FOR THE PA YMENT MADE THROUGHOUT THE YEAR. THE APPELLANT COULD NOT E XPLAIN AS TO WHY SUB-CONTRACTORS NUMBERING ABOUT 339 HAD TO BE E NGAGED BY HIM CONSIDERING THE NATURE OF CONTRACT BEING EXECUT ED BY HIM. IN VIEW OF THE ABOVE, THE ACTION OF THE AO IN DISAL LOWING RS. 1,05,67,890/- ON ACCOUNT OF GENUINENESS OF THE PAYM ENT U/S 40(A)(IA) IS SUSTAINED. 4.1. REGARDING THE REJECTION OF BOOKS OF ACCOUNTS A ND ESTIMATION OF PROFIT, IT IS SEEN THAT THE AO HAS RE LIED UPON THE VERY SAME BOOKS FOR MAKING THE ABOVE DISALLOWANCE, BUT ON THE ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 6 OTHER HAND HE HAS REJECTED THE BOOKS AND ESTIMATED THE PROFITS, WHICH IS AGAINST LAW. AO CAN EITHER MAKE DISALLOWAN CES OR ESTIMATE THE PROFIT BY REJECTING THE BOOKS BUT CANN OT BE RESORT TO BOTH THE MEASURES AT THE SAME TIME. REJECTING THE B OOKS ON THE BASIS OF RETURN BACK OF NOTICES ISSUED TO SUNDRY CR EDITORS COULD BE A VALID GROUND BUT ONLY AFTER CONFRONTING THE AP PELLANT AND TAKING RELEVANT FOLLOW UP ACTIONS. THEREFORE, THE A DDITION MADE BY THE AO OF RS. 44,77,774/- BY REJECTING THE BOOKS OF ESTIMATING THE PROFIT IS DELETED. 2.3. THUS, THE REJECTION OF BOOKS WAS REVERSED. THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US AGAINST THE ORDER O F LD. CIT(APPEALS) ON THEIR RESPECTIVE GRIEVANCES. 3. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT THE LD. CIT(APPEALS) HAS ACCEPTED THE FACT THAT ALL THE BOOKS OF ACCOUNT WHICH ARE REGULARLY MAINTAINED BY THE ASSESSEE AND ARE SUBJECT TO AUDIT , WERE DULY PRODUCED BEFORE AO. THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJE CTED BECAUSE OF ANY DEFECT THEREIN BUT HAS NOT BEEN EXPLAINED BY ASSESS EE. IF THERE WAS ANY ISSUE ABOUT THE GENUINENESS OF THE CREDITORS, A SEPARATE ADDITION COULD HAVE BEEN MADE U/S 68 INSTEAD ENTIRE BOOKS HAVE BEEN REJECTED , WHICH IS NOT JUSTIFIED. 3.1. IT HAS NOT BEEN DISPUTED BY THE LD. CIT(APPEAL S) THAT ASSESSEE HAD TO WORK WITH SMALL LABOURERS AT VARIOUS LOCATIONS IN 4 DISTRICTS OF HARYANA. THE MAJOR OF THE WORK OF THE ASSESSEE NECESSITATES THE EMPLOYMENT OF HUGE NUMBER OF SMALL LABOURERS, WHICH ARE CONVENIENTLY T ERMED AS THEKEDAR OR SUBCONTRACTOR FOR CONVENIENCE. THE MATERIAL WILL BE PROVIDED BY THE ASSESSEE AND THE LABOURS WILL CARRY OUT THE LINE FITTING THE TWO SUB-CONTRACTORS VIZ. SHRI VAZIR SINGH AND SHRI ANANT RAM FROM WHOM TDS W AS DEDUCTED HAD EXECUTED THE JOB WORK OF RS. 91,67,544/- FOR WHICH THEY WERE PAID THE LABOUR CHARGES OF RS. 61,99,999/-, WHICH AMOUNTS TO 67.62% OF THE CONTRACT ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 7 WORK. THE BALANCE WORK EXECUTED BY THE ASSESSEE COM ES TO RS. 2,74,98,453/- AND IF THE RATE OF 67.62% IS APPLIED TO SMALL CONT RACTORS, THEN IT WILL COME TO RS. 1,85,93,000/- AS AGAINST THAT THE ASSESSEE HAS ACTUALLY PAID AN AMOUNT OF RS. 1,05,67,890/-. THIS CLEARLY ESTABLISHES THE ASS ESSEES VERSION AS TO WHY SUB-CONTRACTORS WERE ENGAGED BY THE ASSESSEE. 3.2. DETAILED EXPLANATION WITH REGISTER AND LIST OF 339 PETTY WORKERS WAS PRODUCED WITH THE NAMES AND DATE-WISE PAYMENTS. AO WANTED ALL THE LABOURS TO COME AND CONFIRM THE PAYMENT, OVERLOOKIN G THE REALTY THAT AFTER A LAPSE OF TIME NO CONTRACTOR WILL COME FORWARD. DETA ILS MAINTAINED BY THE ASSESSEE HAVE BEEN IGNORED ASSUMING THAT THE ASSE SSEE HAS PAID MORE THAN RS. 20,000/- AS EACH PAYMENT AND MORE THAN RS. 50,0 00/- TO SINGLE PERSON, WITHOUT GIVING ANY COGENT REASON. AOS ASSUMPTION I S TOTALLY UNSUBSTANTIATED AND BASED ON PURE SURMISES AND CONJ ECTURES. IT IS TRITE LAW THAT WHAT IS APPARENT IS HELD TO BE TRUE UNLESS THE CONTRARY IS PROVED. THE ASSESSEES RECORD HAS BEEN DISCARDED ONLY ON IMAGIN ATION AND NOT BY PRODUCING EVEN A SINGLE CONTRACTOR WHO COULD ACCEPT BEING PAID MORE THAN RS. 50,000/- IN AGGREGATE OR A SINGLE PAYMENT OF MO RE THAN RS. 20,000/-. THEREFORE, THE DISALLOWANCE RETAINED BY LD. CIT(APP EALS) U/S 40(A)(IA) IS PURELY BASED ON IMAGINATION WITHOUT ANY SUBSTANCE. LEARNED COUNSEL FAIRLY CONCEDED THAT IF THE ADDITION AS MADE IS DELETED, T HE PROFITS OF THE ASSESSEE WILL BE ASSESSED AT RETURNED INCOME. TO AVOID LITIG ATION ALTERNATELY A REASONABLE ESTIMATE OF THE INCOME OF THE ASSESSEE M AY BE ADOPTED. 3.3. COMING TO THE JUDGMENT OF HONBLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF M/S PRABHAT KUMAR CONTRACTOR, SIRSA (SU PRA), THIS CASE WAS OF A BUILDING CONTRACTOR AND NOT OF ELECTRICAL CONTRACTO RS. IN M/S PRABHAT KUMAR CONTRACTORS CASE, ASSESSEE ITSELF EXECUTED THE WO RK; IN THE PRESENT CASE THE ASSESSEE HAS ENGAGED THE SERVICES OF HUGE NO. OF SU B-CONTRACTORS. THEREFORE, ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 8 THE FACTS ABOUT NET PROFITS EARNED BY M/S PRABHAT K UMAR CONTRACTOR AND THE ASSESSEE WHO GOT EXECUTED THE WORK THROUGH SUB-CONT RACTORS CAN NOT BE SAME ON AN ESTIMATE. RELIANCE IS PLACED ON ITAT DELHI BE NCH F ORDER DATED 20- 1-2011 IN THE CASE OF SHRI PARVEEN KUMAR MITTAL V S. ADDL. CIT RENDERED IN ITA NO. 2290/DEL/2010, WHEREIN THE JUDGMENT OF M/S PRABHAT KUMAR CONTRACTOR (SUPRA) HAS BEEN CONSIDERED AND IN THE CASE OF A CONTRACTOR, THE RATE OF NET PROFIT @ 4% HAS BEEN APPLIED, BY FOLLOW ING OBSERVATIONS: 11. FURTHER, THE CIT(A) HAS APPLIED THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF M/S P ARBHAT KUMAR (SUPRA) WHILE APPLYING THE RATE OF PROFIT AT 12%. WE HAVE GONE THROUGH THE AFORESAID DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA AND FIND THAT IN THAT CAS E, THE ASSESSEE WAS A CONTRACTOR ENGAGED IN THE WORK OF CI VIL CONSTRUCTION. THE TRIBUNAL WHILE DECIDING THE ASSES SEES APPEAL FOUND IT APPROPRIATE TO APPLY REASONABLE RATE OF PR OFIT OF 12% ON CONTRACT RECEIPTS EXCLUDING THE MATERIAL SUPPLIED B Y THE DEPARTMENT. IT IS THUS CLEAR THAT THE RATE OF 12% W AS APPLIED TO CONTRACT RECEIPTS AFTER EXCLUDING THE COST OF MATER IAL SUPPLIED BY THE DEPARTMENT AND IT WAS NOT APPLIED TO THE GROSS CONTRACT RECEIPTS INCLUDING COST OF MATERIAL. IN THE PRESENT CASE, THE ASSESSEE HAS PRODUCED BEFORE US THE PROFIT AND LOSS ACCOUNT. ON PERUSAL THEREOF, WE FIND THAT THE TOTAL GROSS RECEI PTS SHOWN BY THE ASSESSEE INCLUDE COST OF VARIOUS MATERIALS USED BY THE ASSESSEE IN THE EXCLUSION OF CONTRACT WORK WHICH AR E LISTED BELOW:- (I) ALUMINIUM PRODUCTS. (II) BUILDING MATERIAL AND BRICKS. (III) CEMENT PURCHASES. (IV) CONSTRUCTION CHEMICAL. (V) ELECTRICAL MATERIAL. (VI) FASTENERS. (VII) GLASS MATERIAL AND LABOUR. (VIII) IRON AND STEEL GOODS. (IX) TILES/ADHESIVE PURCHASED. ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 9 FROM THESE DETAILS, IT APPEARS THAT THE ASSESSEE HA S INCURRED THE COST OF VARIOUS BUILDING MATERIALS, WHICH HAVE NOT BEEN SUPPLIED BY THE CONTRACTEE. THE MARGIN OF PROFIT IN RESPECT OF THE BUILDING MATERIALS AND STORES IS ALWAYS ON A LO WER SIDE. 12. KEEPING IN VIEW THE FACT THAT THE RATE OF PROFI T APPLIED BY THE AO IN THE PRECEDING ASSESSMENT YEAR WAS BEING 2 .15% OF TOTAL CONTRACT RECEIPTS AND KEEPING IN VIEW THE FAC T THAT THE ASSESSEE HAS BEEN IN DEFAULT IN NOT PRODUCING ALL B OOKS OF ACCOUNT ALONG WITH BILLS AND VOUCHERS RAISING AN AD VERSE INFERENCE AGAINST THE ASSESSEE THAT HAD THE BOOKS O F ACCOUNT PRODUCED BEFORE THE AO, THAT WOULD HAVE GONE AGAINS T THE ASSESSEE, WE REASONABLY ESTIMATE THE NET PROFIT OF THE ASSESSEE FROM CONTRACT WORKS BY APPLYING THE RATE OF NET PRO FIT AT 4%, WHICH SEEMS TO BE VERY REASONABLE AND JUSTIFIED IN THE LIGHT OF THE RATE ADOPTED IN THE IMMEDIATELY PRECEDING ASSES SMENT YEAR AND IN THE LIGHT OF FACTS THAT THE ASSESSEE FAILED TO PRODUCE COMPLETE BOOKS OF ACCOUNT. WE, THEREFORE, DIRECT TH E AO TO APPLY THE RATE OF NET PROFIT AT 4% OF CONTRACT RECE IPTS, AND MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 4. REVENUE, ON THE OTHER HAND, RELIED ON THE ORDER OF AO AND CONTENDS THAT BOTH M/S PRABHAT KUMAR CONTRACTOR (SUPRA) CASE IS APPLICABLE TO ASSESSEES CASE, THEREFORE, IN CASE PROFITS ARE EST IMATED THE SAME MAY BE ESTIMATED AT 12% AS MADE BY AO. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIE W THE ASSESSEE HAS MAINTAINED ALL THE BOOKS OF ACCOUNTS; THE BOOKS WER E AUDITED; ON THE BASIS OF THESE BOOKS, ASSESSEE FILED ITS RETURN OF INCOME DE CLARING INCOME OF RS. 4,95,880/-. THE BOOKS WERE REJECTED NOT BECAUSE OF ANY ACCOUNTING DEFECTS, BUT BECAUSE THE ASSESSEE COULD NOT PRODUCE THE CRED ITORS AND AO INSTEAD OF MAKING ANY ADDITIONS IN ACCORDANCE WITH LAW U/S 68, PREFERRED TO REJECT THE ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 10 BOOKS OF THE ASSESSEE. WE MAY MENTION HERE THAT AO HAS NOT DOUBTED THE EXPENDITURE INCURRED BY THE ASSESSEE FOR 339 PETT Y CONTRACTORS AT MORE THAN 300 SITES. THE EXPENDITURE IS NOT DOUBTED; ONLY ON ASSUMPTION PROVISION OF SEC. 194C IS DEEMED TO BE APPLIED WITHOUT UNDERTAK ING ANY ACTION U/S 201. FOR HOLDING THAT THE ASSESSEE MADE SINGLE PAYMENT O F MORE THAN RS. 20,000/- AND AGGREGATE TO A SINGLE PERSON ABOVE RS. 50,000/- , THE ASSUMPTION HAS BEEN MADE WITHOUT BRINGING ANY MATERIAL ON RECORD, TO CORROBORATE THE ASSUMPTION. UNDER THESE CIRCUMSTANCES WE ARE UNABLE TO UPHOLD THE ORDER OF LD. CIT(APPEALS) ON THIS ISSUE THAT HE ASSESSEE WAS LIABLE FOR TDS U/S 194C AND THE EXPENDITURE IN QUESTION CAN BE DISALLOWED R ELYING ON SEC. 4)(A)(IA). THIS ADDITION IS THEREFORE DELETED. 5.1. COMING TO REVENUES APPEAL NOW, AO HAS REJECTE D THE BOOKS ON THE GROUND THAT ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNTS AND CREDITS THEREIN. HOWEVER, LD. CIT(APPEALS) HAS ACCEPTED TH AT THE BOOKS WERE PROPERLY MAINTAINED. THE ADDITION MADE BY AO REJECT ING THE BOOKS AND ESTIMATING THE PROFIT HAS BEEN DELETED ON THE GROUN D THAT NON-PRODUCTION OF SUNDRY CREDITORS CANNOT BE A VALID GROUND FOR REJEC TING THE BOOKS. 5.2. ASSESSEE IN ORDER TO AVOID THE LITIGATION, HAS REQUESTED TO ADOPTED A REASONABLE ESTIMATE, ALTHOUGH BOOKS ARE MAINTAINED, PRODUCED AND UPHELD . THE HONBLE PUNJAB & HARYANA HIGH COURT JUDGMENT IN THE CASE OF PARBHAT KUMAR CONTRACTOR (SUPRA) IS PLEADED TO BE NOT APPLI CABLE. IN THE CASE OF PARVEEN KUMAR MITTAL (SUPRA), DELHI ITAT AFTER CONS IDERING ALL THE FACTS ESTIMATED THE NET PROFIT RATE OF 4%. IT IS PLEADED THAT IN THE ASSESSEES CASE SUB-CONTRACTORS HAVE BEEN HIRED WHICH WILL REDUCE T HE PROFITS OF THE ASSESSEE WHEREAS IN THE CASE OF PARVEEN KUMAR MITTAL NO SU B-CONTRACTOR WERE EMPLOYED AND NET PROFIT RATE OF 4% HAS BEEN ADOPTE D. IN THE ASSESSEES CASE ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 11 THE EXISTENCE OF SUB-CONTRACTOR IS ACCEPTED BY THE LOWER AUTHORITIES. IN OUR CONSIDERED VIEW, DELHI ITAT JUDGMENT IN THE CASE O F PARVEEN KUMAR MITTAL (SUPRA), CAN BE APPLIED AS ANALOGY. IT HAS CONSIDER ED THE P&H HIGH COURT JUDGMENT IN THE CASE OF PRABHAT KUMAR. BESIDES, IN BOTH THESE CASES, THERE WERE NO SUB CONTRACTORS, WHICH WILL HAVE THE EFFECT OF REDUCING THE PROFITS. INTEREST OF JUSTICE WILL BE MET IF THE ASSESSEES NET PROFIT IS ESTIMATED AT 4% OF THE CONTRACT RECEIPTS. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 27-04-2012. SD/- SD/- ( K.G. BANSAL ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27-04-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 3450/DEL/11 M/S ANAND KUMAR ELECTRICAL CONTRACTOR 12