Shri Harishbhai Bhanjibhai Chheda, Valsad V. The Income tax Officer,Ward-2, Valsad

ITA 3525/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9425 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 23-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Keywords: Bogus purchase; Unexplained cash credit; Rejection of books of accounts; Business income; TDS
• Section: 44AD; 234B; 133(6); 69B; 131; 28; 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M SHRI HARISHBHAI BHANJIBHAI CHHEDA, M/S CHHEDA ENTERPRISE, 104, 1 ST FLOOR, DIVYA APAGEMENT, SONA PLOT, ABRAMA, VALSAD. VS. INCOME-TAX OFFICER, WARD- 2, VALSAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI RAJESH M. UPADHYAY, AR RESPONDENT BY:- SHRI S. K. MEENA, SR.D.R. O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (1) LD. AO HAS ERRED IN LAW AND ON FACTS TO ADD AN AMOU NT OF RS.16,67,227/-. LD. CIT(A) HAS ALSO SIMILARLY ERRED IN CONFIRMING THIS ADDITION. (2) LD. AO HAS ERRED IN LAW AND ON FACTS TO ADD AN AMOU NT OF RS.1,04,998/- U/S 68 OF IT ACT BEING WITHDRAWAL FRO M BANK OF BARODA. LD. CIT(A) HAS ALSO ERRED IN CONFIRMING SUC H ADDITION. (3) LD. AO HAS ERRED IN LAW AND ON FACTS TO ADD AN AMOU NT OF RS.47,687/- RECTIFICATORY ADJUSTING ENTRY PASSED TO ADJUST THE ACCOUNT OF AARTI INDUSTRIES. LD. CIT(A) ALSO ERRED TO CONFIRM AOS ACTION. (4) LD. AO TREATING COPY OF APPELLANTS A/C FURNISHED B Y ANMOL AGENCY AS RELIABLE ERRED IN LAW AND ON FACTS TO ADD AN AMOUNT OF ITA NO.3525/AHD/2008 ASST. YEAR :2005-06 ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 2 RS.62,363/- ALLEGING AS BOGUS PURCHASES. LD. CIT(A) HAS ALSO ERRED IN CONFIRMING ITOS ACTION. (5) LD. AO HAS ERRED IN LAW AND ON FACTS TO DENY BENEFI TS U/S 44AD OF IT ACT, 1961, BECAUSE CONDITIONS LAID DOWN SQUAR ELY APPLY TO APPELLANT. LD. AO HAS ALSO ERRED IN LAW AND ON FACT S TO IGNORE PAST RECORD OF THE APPELLANT THAT HE WAS ASSESSED U /S 44AD OF IT ACT, 1961. LD. CIT(A) HAS ALSO ERRED IN CONFIRMING ITOS ACTION WHICH IS CONTRARY TO THE PROVISIONS OF SEC.4 4AD AND TO DIRECT AO TO COMPUTE INCOME AS PER THE PROVISIONS O F SEC.44AD OF IT ACT, 1961. (6) LD. AO HAS ERRED IN LAW AND ON FACTS TO ADD AN AMOU NT OF RS.16,67,224/- AMOUNT OF LABOUR CHARGES PAYABLE TO TWO EMPLOYEES SHRI JAYESH M. PATEL AND SHRI AJAY S. TAY DE AS CASH CREDIT AND FINDING UNEXPLAINED ADDED AS INCOME. LD. CIT(A) HAS ALSO ERRED IN CONFIRMING ITOS ACTION. (7) LD. ITO HAS ERRED IN LAW AND ON FACTS TO ADD AN AMO UNT OF RS.1,04,998/- AS UNEXPLAINED. IN FACT AMOUNT OF RS. 1,04,998/- CREDITED TO VIKAS TAYDE AND DEBITED TO JAYESH M. PA TELS A/C ARE ADJUSTING ENTRIES OF LABOUR CHARGES PAYABLE. IN FAC T AN AMOUNT OF RS.1,04,998/- IS WITHDRAWAL FROM BANK OF BARODA. LD . CIT(A) HAS ALSO ERRED IN CONFIRMING ITOS ACTION. (8) BUSINESS INCOME OF THE APPELLANT BEING EXIGIBLE TDS , INTEREST U/S 234B AND 234C IS WRONGLY CHARGED BY ITO. 2. IN ADDITION TO THIS, ASSESSEE HAS RAISED FOLLOWI NG ADDITIONAL GROUND:- (1) LD. ITO AND LD. CIT(A), VALSAD HAVE ERRED IN MAKING ADDITION/CONFIRMING THE ADDITION OF RS.4,60,766/- B EING JOURNAL ENTRY I.E. ADJUSTMENT ENTRY PASSED AS ON 1/4/2004 I N CAPITAL ACCOUNT BY PASSING CORRESPONDING DEBIT ENTRY IN THE ACCOUNT OF M/S AARTI INDUSTRIES. 3. WHEN ISSUE OF ADMISSION OF ADDITIONAL GROUND WAS PUT UP BEFORE LD. DR NO SERIOUS OBJECTION WAS RAISED. SINCE FACTS RELATING TO THIS ADDITIONAL GROUND ARE ALREADY ON RECORD AND WERE DI SCUSSED BY THE AO ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 3 AND THE LD. CIT(A), WE HAVE NO HESITATION IN ADMITT ING THE SAME FOR ADJUDICATION. 4. THE FACTS OF THE CASE ARE THAT AS PER AO ASSESSE E IS DOING THE BUSINESS IN LABOUR JOB. TOTAL RECEIPTS THIS YEAR HA VE BEEN SHOWN AT RS.33,50,336/-. NET PROFIT ALONG WITH OTHER RECEIPT S OF INTEREST WERE SHOWN AT RS.1,89,711/-. IF INTEREST AND OTHER INCOM E IS EXCLUDED THE NET PROFIT IS REDUCED TO RS.1,73,427/- WHICH IS 5.17%. THERE IS APPARENTLY SOME CONFUSION AS TO THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE. BEFORE THE AO IT WAS CLAIMED BY THE ASSESSEE THAT A SSESSEE IS DOING LABOUR JOB. SUBSEQUENTLY IN WRITTEN SUBMISSIONS BEF ORE US, IT WAS CLAIMED THAT ASSESSEE IS DOING WORK OF CIVIL CONTRACTOR. BE FORE LD. CIT(A) ALSO THE CLAIM OF THE ASSESSEE THAT IT IS DOING WORK OF CIVI L CONTRACTOR WAS NOT RAISED. HOWEVER, DURING THE COURSE OF DISCUSSION BY LD. AR BEFORE US, IT WAS TRANSPIRED THAT ASSESSEE IS ENGAGING LABOUR FOR CARRYING OUT PAINTING WORK AND SUCH PAINTING WORK IS MAINLY DONE FOR TWO PARTIES NAMELY M/S AARTI INDUSTRIES AND M/S DILESH ROAD LINES. 5. ONE OF THE ISSUES COVERED IN THE GROUND IS WHETH ER PROVISIONS OF SECTION 44AD WOULD BE APPLICABLE TO THE CASE OF THE ASSESSEE OR NOT. IF ASSESSEE IS CIVIL CONTRACTOR THEN PROVISION OF SECT ION 44AD WILL BE APPLICABLE AS TURNOVER IS LESS THAN RS.40 LACS BUT IF IT IS NOT A CIVIL CONTRACTOR THEN SUCH PROVISIONS CANNOT BE INVOKED. WE NOTICE THAT THIS ISSUE WAS NEVER RAISED BY THE ASSESSEE BEFORE THE A O OR BEFORE THE LD. CIT(A). IT IS FOR THE FIRST TIME THAT THE ISSUE THA T ASSESSEE IS A CIVIL CONTRACTOR WAS RAISED BEFORE US. IT WAS SUBMITTED B Y THE LD. AR THAT PROVISIONS OF SECTION 44AD WILL BE APPLICABLE ON TH E FACTS OF THIS CASE. THE LD. AR REFERRED TO SECTION 44AD AND EXPLANATION THEREOF WHEREIN WORKING ON CONTRACT WOULD BE COVERED AS A CIVIL CON TRACTOR. IN OUR ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 4 CONSIDERED VIEW THE ASSESSEE IS NOT ABLE TO ESTABLI SH THAT IT IS A CASE OF WORK CONTRACT. NO COPIES OF AGREEMENT BETWEEN THE P ARTIES HAVE BEEN PROVIDED TO US SO AS TO EXACTLY SHOW THE NATURE OF WORK CARRIED OUT BY THE ASSESSEE. THERE IS ALSO A DIFFERENCE IN CLAIM ABOUT THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE. BEFORE THE AO IT WAS C LAIMED THAT IT IS A LABOUR JOB WHEREAS NOW BEFORE US, IT IS SUBMITTED T HAT ASSESSEE IS CARRYING OUT PAINTING WORK AT THE DIRECTION OF THE TWO PARTI ES NAMELY AARTI INDUSTRIES AND DILESH ROAD LINES. SINCE ASSESSEE HA S FAILED TO PROVIDE BASIC MATERIAL FOR ESTABLISHING HIS CASE AS WORK-CO NTRACT AND FURTHER THAT EARLIER CLAIM OF THE ASSESSEE WAS THAT IT IS ENGAGE D IN SUPPLYING LABOUR, WE ARE UNABLE TO HOLD THE CASE OF THE ASSESSEE THAT IT IS COVERED UNDER SECTION 44AD. THEREFORE, THIS ARGUMENT AND THE RELA TED GROUND FAIL. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO R AISED FOLLOWING ISSUES:- (1) REGARDING INVOKING OF THE PROVISIONS OF SECTION 145(3). THE AO FURTHER OBSERVED THAT ASSESSEE FAILED TO VERY CLAIM OF VARIOUS EXPENSES MADE BY IT IN THE PROFIT AND LOSS ACCOUNT FOR EXAMPLE CLAIM OF EXPENDITURE PAID TO SHRI AJAY S. TAYDE R S.6,24,274. (2) CLAIM OF EXPENDITURE PAID TO SHRI JAYESH M. PA TEL RS.10,42,950/-. HE ISSUED SEVERAL NOTICES TO THE ASSESSEE AS MENTIO NED IN PARA 4 OF HIS ORDER. A DETAILED SHOW CAUSE NOTICE WAS SENT BY HIM ON 9.7.2007 BUT IT SEEMS NO REPLY WAS SUBMITTED TO THE AO. (3) THE ASSESSEE ALSO FAILED TO VERIFY THE CLAIM OF EXPENDITURE OF LABOUR CHARGES OF RS.1,04,998/- MADE THROUGH JOURNAL ENTRY . (4) THE ASSESSEE MADE A CREDIT IN THE CAPITAL ACCOU NT OF RS.4,60,766/- BUT FAILED TO FURNISH ANY SATISFACTORY EXPLANATION. (5) THE AO REQUIRED THE PRESENCE OF SHRI AJAY TAYDE AND SHRI JAYESH M. PATEL WHO WERE NOT PRODUCED. SUMMONS UNDER SECTI ON 131 SENT ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 5 THROUGH INSPECTOR AT THE GIVEN ADDRESS COULD NOT BE SERVED AS THOSE PERSONS WERE NOT FOUND LIVING/WORKING AT THE GIVEN ADDRESSES. (6) THE PAYMENT TO SHRI AJAY TAYDE AND SHRI JAYESH M. PATEL WERE MADE IN CASH, AND EVERY TIME FOR LESS THAN RS.20,00 0/- SO AS TO APPARENTLY ESCAPE APPLICATION OF PROVISIONS OF SECT ION 40A(3). CONSIDERING ALL THESE ASPECTS, THE AO REJECTED THE BOOKS. HOWEVER, THE AO PROCEEDED TO MAKE SPECIFIC ADDITIONS BY DISALLOW ING EXPENSES CLAIMED UNDER PROFIT AND LOSS ACCOUNT. THESE DISALL OWANCES MADE BY HIM ARE DISCUSSED IN BRIEF AS UNDER :- (1) PAYMENT MADE TO SHRI AJAY S. TAYDE AND SHRI JAY ESH M. PATEL RS.6,24,274/- AND RS.10,40,950/- RESPECTIVELY TOTAL ING TO RS.16,67,224/-. SINCE WHEREABOUTS OF THESE PERSONS WERE NOT FOUND T HE AO TREATED THE PAYMENTS MADE TO THEM AS NON-GENUINE. FURTHER ACCOR DING TO HIM NO TAX HAS BEEN DEDUCTED FROM PAYMENT MADE TO THEM AND THE REFORE, THESE ITEMS ARE LIABLE TO BE ADDED UNDER SECTION 40A(IA). (2) UNEXPLAINED CASH CREDIT OF RS.1,04,998/- , THE AO FOUND THAT ASSESSEE HAS SHOWN A RECEIPT OF RS.1,04,998/- FROM SHRI VIKASH TAYDE. SHRI VIKASH TAYDE AND SHRI JAYESH M. PATEL ARE APPA RENTLY TWO PERSONS THROUGH WHOM ASSESSEE IS EXECUTING THE LABOUR WORK FOR WHICH HE IS RECEIVING RECEIPTS FROM AARTI INDUSTRIES AND DILESH ROAD LINES. THE ASSESSEE CREDITED THE ACCOUNT OF SHRI VIKASH TAYDE. SUBSEQUENTLY THIS A/C WAS DEBITED AND ACCOUNT OF SHRI JAYESH M. PATEL WAS CREDITED. IT WAS CLAIMED THAT THIS AMOUNT WAS RECEIVABLE FROM AARTI INDUSTRIES/DINESH ROAD LINES WHERE THESE TWO PERSONS ARE WORKING. THE PRINCIPAL CLIENTS HAVE MADE PAYMENTS TO THE ASSESSEE, WHICH WERE CRED ITED IN THE BANK ACCOUNT. THE ASSESSEE HAD SUBMITTED A LETTER BEFORE THE LD. CIT(A) ON THIS ISSUE EXPLAINING HIS POSITION AS UNDER :- ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 6 LD. ITO AS PER PARA (6) OF HIS ASSESSMENT ORDER HA S OBSERVED ON AMOUNT OF RS.1,04,998/- RECEIVED FROM VIKAS TAYDE AND CREDITE D THIS AMOUNT TO JAYESH M. PATEL WHO IS ASSESSEES SUB-CONTRACTOR FOR AARTI INDUSTRI ES. IT IS ALSO TRUE THAT VIKAS TAYDES A/C HAS BEEN SQUARED UP BY CREDITING THE TO TAL AMOUNT TO THE ACCOUNT OF JAYESH M. PATEL AS HERE UNDER :- I AM FILING COPY OF LEDGER A/C OF JAYESH M. PATEL A ND VIKAS K. TAYDE WHO IS ALSO WORKING UNDER JAYESH M. PATEL SUB-CONTRACTOR OF THE APPELLANT WITH AARTI INDUSTRIES. I AM ALSO FILING COPY OF BANK OF BARODAS STATEMENT OF ACCOUNT TO SHOW THAT AFORESAID AMOUNT WAS RECEIVED BY THE APPELLANT BY CHEQUES THR OUGH VIKAS TAYDE. I AM SHOWING DETAILS OF CHEQUES DEPOSITED BY AARTI INDUSTRIES. THIS FACT IS BY ITO IN THE FIRST PARA PAGE (8) OF THE ASSESSMENT ORDER WHI CH I AM REPRODUCING HEREUNDER :- AS PER ITOS ORDER AMOUNT AS PER BANK OF BARODAS STATEMENT AMOUNT 10.06.2004 BY TRANSFER AARTI INDUSTRIES 27,144/- 10.06.2004 BY TRANSFER AARTI INDUSTRIES 27,144/- 05.07.2004 BY CLEARING 1,809/- 05.07.2004 BY CLEARI NG 1,809/- 26.08.2004 816/- 26.08.2004 816/- 20/10/2004 BY CLEARING AARTI INDUSTRIES 1,173/- 20.10.2004 BY CLEARING AARTI INDUSTRIES 1,173/- 19.11.2004 BY TRANSFER AARTI INDUSTRIES 1,680/- 19.11.2004 BY TRANSFER DILESH ROADLINE 1,680/- 22.12.2004 BY TRANSFER AARTI INDUSTRIES 56,496/- 22.12.2004 BY TRANSFER AARTI INDUSTRIES 56,496/- 03.04.2004 BY TRANSFER 7,664/- 03.04.2004 BY TRANSF ER 7.664/- 30.04.2004 BY CLEARING 4,416/- 30.04.2004 BY CLEAR ING 4,416/- 93,7,2994 BY TRANSFER 3,800/- 03.07.2004 BY TRANSFE R 3,800/- 1,04,998/- 1,04,998/- I AM ALSO FILING COPY OF STATEMENT OF BANK OF BAROD AS ACCOUNT IN THE NAME OF CHHEDA ENTERPRISES (EX.) THUS AN AMOUNT OF RS.1,04,998/- IS NOT RECEIVED FRO M VIKASH TAYDE OR JAYESH M. PATEL BUT FROM AARTI INDUSTRIES/DILESH ROAD LINES W HICH ARE CONTRACTEES OF THE DATE AMOUNT CREDIT TO JAYESH M. PATEL A/C DATE DEBITED TO VIKAS TAYDE A/C 20.4.2004 17,000/- 20.04.2004 15,500/- 15.6.2004 17,500/- 15.06.2004 17,500/- 25.08.2004 17,500/- 25.08.2004 17,500/- 15.10.2004 17,500/- 15.10.2004 17,500/- 22.12.2004 17,498/- 22.12.2004 17,498/- 10.02.2005 17,500/- 10.02.2005 17,500/- 1,04,998/- 1,04,998/- ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 7 APPELLANT FROM WHOM PAYMENTS WAS TO BE RECEIVED BY THE APPELLANT FOR LABOUR-JOB- WORK DONE BY THE APPELLANT. THUS, AFORESAID ENTRIES ARE EVIDENT FROM THE COPY O F BANK OF BARODAS A/C WHO HAS CREDITED THIS AMOUNT OF RS.1,04,998/- TO THE ACCOUN T OF THE APPELLANT. ADDITION THUS MADE BY THE ITO OF RS.1,04,998/- U/S 68 OF THE IT A CT, 1961 IS NOT JUSTIFIED. THE SAME STAND WAS TAKEN BEFORE THE AO. HE DID NOT AGREE AND CONSIDERED THAT CREDIT IN THE ACCOUNT OF SHRI VIKAS TAYDE IS NOT EXPLAINED AND HE ACCORDINGLY MADE THE ADDITION. ADDITION OF RS.47,867/- (3) THE ASSESSEE PASSED A DEBIT ENTRY IN THE LEDGER ACCOUNT FOR A SUM OF RS.47,867/-. IT WAS ALSO A JOURNAL ENTRY BUT HOW DI SBURSEMENT HAS ACTUALLY BEEN MADE WAS NOT EXPLAINED. ACCORDINGLY THE AO MAD E THE ADDITION. ADDITION OF UNEXPLAINED CREDIT OF RS.4,66,767/- (4) THE ASSESSEE PASSED A JOURNAL ENTRY OF RS.4,66, 767/- BY CREDITING HIS CAPITAL ACCOUNT AND DEBITING THE ACCOUNT OF CLI ENT OF AARTI INDUSTRIES LTD. NO SUCH CONFIRMATION FROM OTHER PARTY WAS RECE IVED. THE AO TREATED THIS AS UNEXPLAINED CREDIT AND MADE THE ADDITION. LIABILITY OF RS.89,715/- (5) THE LIABILITY OF RS.89,715/- WAS SHOWN IN RESPE CT OF ONE ANMOL AGENCY. IN RESPONSE TO INQUIRY U/S 133(6) IT DENIED ANY RECOVERY FROM THE ASSESSEE. THE ADDITION WAS ACCORDINGLY MADE TREATIN G THE SAID LIABILITY AS UNEXPLAINED CASH CREDIT U/S 68. BOGUS PURCHASES OF RS.62,313/- (6) THE ASSESSEE CLAIMED PURCHASES OF RS.2,70,592/- FROM ANMOL AGENCY BUT ON ENQUIRY IT WAS FOUND THAT ANMOL AGENC Y HAS MADE SALES OF RS.2,08,279/- TO THE ASSESSEE. FURTHER THE ASSES SEE SHOWED PAYMENT OF ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 8 RS.2,48,540/- TO ANMOL AGENCIES WHEREAS THE BOOKS O F ANMOL AGENCY REFLECTED RECEIPTS OF RS.1,84,060/-. THE DISCREPANC IES WERE NOT EXPLAINED. THE AO ACCORDINGLY PROPOSED AN ADDITION OF RS.62,31 3/-. INTEREST FROM POST OFFICE MIS AND TIME DEPOSIT AMOU NTING TO RS.10,765/-. (7) THE ASSESSEE CREDITED THIS AMOUNT IN THE PROFIT AND LOSS ACCOUNT. THEY WERE CLAIMED AS EXEMPT. THE AO DID NOT FIND TH E CLAIM ACCEPTABLE AND ACCORDINGLY MADE THE ADDITION BY DENYING THE CL AIM OF EXEMPTION. ADDITION OF RS.43,111/- ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWAL (8) THE ASSESSEE SHOWED TOTAL WITHDRAWAL OF RS.75,9 71/-. THE AO WHILE EXAMINING THE EXPENDITURE FOR HOUSEHOLD PURPO SES FOUND THAT THERE WAS A SHORTFALL OF CASH OF RS.43,111/-. THE CASH OF RS.75,000/- WITHDRAWN FROM THE CASH BOOK ONLY ON 31.3.2005 WHEREAS EXPEND ITURE WERE INCURRED THROUGH OUT THE YEAR. THE AO ACCORDINGLY HAVING BEE N NOT SATISFIED PROPOSED AN ADDITION OF RS.43,111/-. 7. THE LD. CIT(A) CONFIRMED THE ADDITION IN RESPECT OF RS.16,67,224/- AS THE TWO PARTIES NAMELY SHRI JAYESH M. PATEL AND SHRI VIKAS TAYDE WERE NOT AVAILABLE FOR VERIFICATION; OF RS.1,04,998 /- ON THE GROUND THAT VIKAS TAYDE AND SHRI JAYESH M. PATEL WERE NOT AVAIL ABLE FOR VERIFICATION; OF RS.47,867/- ON THE GROUND THAT ASSESSEE HAS NOT PRESSED FOR THIS GROUND; OF RS.4,60,767/- ON THE GROUND THAT SUCH CR EDIT IN THE CAPITAL ACCOUNT IS NOT EXPLAINED; OF RS.62,313/- ON THE GRO UND THAT ASSESSEE FAILED TO FURNISH ANY COGENT EVIDENCE TO EXPLAIN THE DIFFE RENCE OF RS.62,313/- AND RS. 43,111/- ON THE GROUND THAT ASSESSEE MET HO USEHOLD EXPENDITURE OUT OF UNEXPLAINED SOURCES AS SUCH CASH WAS NOT WIT HDRAWN FROM THE BOOKS OF ACCOUNT. SHE, HOWEVER, ALLOWED THE RELIEF IN RESPECT OF RS.89,715/- AS UNDER :- ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 9 11.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPE LLANT AS WELL AS THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER. THE APPELLANT HAS EXPLAINED THE TRANSACTIONS WITH ANMOL AGENCY WITH R EFERENCE TO THE BANKING CHANNEL. ANMOL AGENCY SHOWN SALES TO APPELL ANT OF RS.2,08,279/- WHILE THE APPELLANT HAS SHOWN PURCHAS ES DURING THE YEAR OF RS.2,70,292/-. ANMOL AGENCY HAS NOT ISSUED THE RECE IPT TO THE APPELLANT BUT IN THE COPY OF THE STATEMENT OF ACCOUNT, ANMOL AGENCY HAS ACKNOWLEDGED PAYMENT BY CHEQUE OF RS.13060/- AND RS .80,000/- AGAINST THE FIRST BILLS OF RS.32,790/-. THERE IS SUBSTANCE IN THE ARGUMENT OF THE APPELLANT THAT IT IS NOT BELIEVABLE THAT AMOUNT OF RS.93,060/- CAN BE PAID AGAINST BILL OF RS.32,790/-. ON THESE COUNTS, IT CA N BE CONCLUDED THAT THE ADDITION MADE BY THE AO U/S 68 OF THE ACT IS INVALI D AS THERE IS NO CREDIT ENTRY IS APPEARING IN THE BOOKS IN THE YEAR UNDER A PPEAL. THE AO CANNOT INVOKE THE PROVISIONS OF SECTION 68 TO TAX THE DIFF ERENCE IN THE OPENING BALANCE AS ON 1.4.2004 AS THE OPENING BALANCE IS NO T A CASH CREDIT AS SUCH. THE ADDITION OF RS.89,715/- MADE BY THE AO IS , THEREFORE, DELETED. THE APPELLANTS GROUND NO.2(F) IS ALLOWED. 8. BEFORE US, THE LD. AR SUBMITTED THAT TOTAL RECEI PT OF THE ASSESSEE IS ONLY RS.33,50,336/- AND TOTAL INCOME ASSESSED BY TH E AO IS RS.26,60,190/- WHICH IS ABOUT 79.4% OF THE RECEIPT WHICH IS NOT AT ALL POSSIBLE EVEN IF IT IS TAKEN THAT THE ASSESSEE IS D OING THE BUSINESS OF SUPPLY OF LABOUR. SECONDLY, THE ASSESSEE HAS SHOWN PURCHASES OF PAINT S IN THE TRADING CUM PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE ASS ESSEES CASE IS THAT OF WORK-CONTRACT WHEREIN PAINTING WORK IS EXECUTED AT THE PREMISES OF PRINCIPALS NAMELY AARTI INDUSTRIES AND DINESH ROAD LINES. THE LD. AR ARGUED THAT PROVISIONS OF SECTION 44AD SHOULD BE AP PLIED AND WORK RECEIPT SHOULD BE ASSESSED @ 8%. ACCORDING TO THE L D. AR THE AO IS NOT JUSTIFIED TO ASSESS THE PROFIT ATMORE THAN 8% LIKE IN CASES OF CIVIL CONTRACT WORK AND FOR THIS PROPOSITION THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS :- ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 10 I) ABHI DEVELOPERS VS. ITO (2007) 12 SOT 444 (AHD.T RI.) II) SAMURAI TECHNO TRADING CO. (P) LTD. VS. CIT (20 10) 35 (I) ITCL 114 (KERALA HIGH COURT) III) CIT VS. SURINDER PAL NAYAR (2010) 327 ITR 236 (P & H) IV) CIT VS. A. VAJJIRAM & BROS.(2010) 326 ITR 551 ( MAD) V) RELIABLE SURFACE COATINGS VS. ASSTT. CIT (ITA NO .974, 4363 & 4403 TO 4407 OF 2007 FOR ASST. YEAR 2004-05, 22-03, 2003-04 AND 1999-2000 TO 2003-04 RESPECTIVELY DECIDED ON 12.02. 2010 BY ITAT AHMEDABAD. 9. THEREAFTER HE SUBMITTED THAT ONCE NET PROFIT RAT E IS APPLIED FURTHER ADDITION UNDER SECTION 69, 69B CANNOT BE MADE. FOR THIS HE RELIED ON THE FOLLOWING TWO JUDGMENTS :- CIT VS. AGRAWAL ENGG. CO. 302 ITR 246 (P & H) & CIT VS. BANVARILAL BANSIDHAR 229 ITR 229 (ALL). 10. THE LD. AR DREW OUR ATTENTION TO PAGE NOS.33,35 & 95 OF THE PAPER BOOK ONLY, THOUGH THE PAPER BOOK CONTAINS 168 PAGES . 11. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE HAS BEEN NON-COPE RATIVE AND HAS NOT GIVEN ANY EXPLANATION OF VARIOUS DISCREPANCIES DISC OVERED BY THE AO. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE HAVE ALREADY HELD ABOVE THAT ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT HIS CASE IS COVERED AS A WORK-CONTRA CTOR AND, THEREFORE, NET PROFIT RATE OF 8% SHOULD BE APPLIED AS PER PROVISIO NS OF SECTION 44AD. SO FAR AS THE REJECTION OF BOOKS OF ACCOUNTS ARE CONCE RNED, THE LD. AR HAS NOT RAISED THIS GROUND BEFORE US OR BEFORE THE LD. CIT( A) WHICH CLEARLY INDICATES THAT HE HAS NO SERIOUS ARGUMENT TO OFFER ON THIS ISSUE. EVEN ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 11 OTHERWISE WE NOTICE THAT THE AO AND THE LD. CIT(A) HAVE POINTED OUT NUMEROUS ANOMALIES IN MAINTENANCE OF ACCOUNTS WHICH DOES NOT WARRANT ACCEPTANCE OF BOOK RESULTS. FOR EXAMPLE - (1) PASSING OF JOURNAL ENTRIES EITHER TO CREDIT CAP ITAL ACCOUNT OR TO CREDIT VIKAS TAYDE/SHRI JAYESH M. PATEL AND THEREBY MAKING MONEY AVAILABLE IN THE BOOKS AND NOT BEING ABLE TO PRODUCE TWO PARTIES FOR VERIFICATION. (2) MEETING OUT HOUSEHOLD WITHDRAWAL EXPENDITURE FR OM UNDISCLOSED SOURCES BUT WITHDRAWING MONEY OF RS.75,000/- ONLY O N ONE DAY. (3) DISCREPANCIES IN THE ACCOUNT OF ANMOL AGENCY NO T SATISFACTORILY EXPLAINED. (4) NOT MAKING ANY RECONCILIATION OF THE ACCOUNTS O F AARTI INDUSTRIES FROM THE CERTIFIED COPY OF ASSESSEES ACCOUNT IN TH E BOOKS OF AARTI INDUSTRIES. WE ACCORDINGLY UPHOLD THE REJECTION OF BOOKS. 13. HOWEVER, ONCE BOOKS ARE REJECTED NO FURTHER ADD ITION IN RESPECT OF CLAIM OF EXPENDITURE NOT FOUND GENUINE CAN BE MADE. WE, THEREFORE, DO NOT UPHOLD THE SEPARATE ADDITION OF RS.16,67,224/- BEING PAYMENT MADE TO JAYESH M. PATEL AND VIKAS TAYDE; HOUSEHOLD WITHD RAWAL OF RS.43,111/-; RS.47.867/- CLAIM OF LABOUR CHARGES TH ROUGH JOURNAL ENTRIES, RS.62,313/- OF ALLEGED BOGUS PURCHASES. THUS GROUND NOS.1,3,4 & 6 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 14. HOWEVER, THE ISSUE REGARDING ADDITION OF RS.4,6 0,766/- AND OF RS.1,04,998/- ARE DIFFERENT. THEY ARE NOT EXPENDITU RE BUT ARE THE CREDITS AND THEIR NATURE HAS TO BE EXAMINED SEPARATELY. THE CLAIM OF THE ASSESSEE IS THAT ONCE BOOKS ARE REJECTED THEN THE ADDITION U NDER SECTION 68 CANNOT BE MADE. WE, HOWEVER, DO NOT UPHOLD THIS CONTENTION . THE REASONS ARE THAT PROVISIONS OF SECTION 145(3) ARE APPLICABLE ON LY FOR ESTIMATING BUSINESS INCOME AND THEY CANNOT BE INVOKED TO REJEC T THE APPLICABILITY OF ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 12 ANY OTHER PROVISIONS OF THE ACT. THE BUSINESS INCOM E IS COMPUTED UNDER THE PROVISIONS OF SECTION 28 TO 43D. EXCEPT NOT PER MITTING THE AO TO INVOKE ANY OF THE PROVISIONS OF SECTION 28 TO 43D, THE AO CANNOT BE PROHIBITED FROM INVOKING OTHER PROVISIONS OF THE AC T WHEREVER THEY ARE APPLICABLE. THUS BOOKS ARE REJECTED ONLY FOR THE PU RPOSE OF ESTIMATING BUSINESS INCOME AND NOT FOR ANY OTHER PURPOSE. EVEN THOUGH CREDIT ENTRIES ARE FOUND IN THE BOOKS, BUT THE ASSESSEE CANNOT BE EXEMPTED FROM EXPLAINING THE NATURE AND SOURCE OF SUCH CREDIT EVE N IF PROVISIONS OF SECTION 145(3) ARE INVOKED. ACCORDINGLY THIS CLAIM OF THE ASSESSEE IS REJECTED. 15. REGARDING SUM OF RS.4,60,766/- WE FIND THAT ASS ESSEE HAD CREDITED ITS CAPITAL ACCOUNT BY DEBITING THE ACCOUNT OF M/S AARTI INDUSTRIES. IT WAS EXPLAINED TO US THAT OPENING CREDIT BALANCE IN FAVO UR OF THE ASSESSEE IN THE BOOKS OF AARTI INDUSTRIES WAS RS.8,74,100/- WHEREAS OPENING DEBIT BALANCE AGAINST AARTI INDUSTRIES IN THE BOOKS OF CH HEDA ENTERPRISES I.E THE ASSESSEE WAS RS.2,87,714/-. THUS THERE WAS A DISCRE PANCY IN THE OPENING BALANCE IN THE BOOKS OF TWO PARTIES. THEREFORE, ASS ESSEE CREDITED A SUM OF RS.4,60,766/- IN THE CAPITAL ACCOUNT AND DEBITED TH E ACCOUNT OF AARTI INDUSTRIES. NO CORRESPONDING DEBIT WAS FOUND IN THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF AARTI INDUSTRIES. IT WAS F URTHER EXPLAINED THAT ASSESSEE IS DOING BUSINESS WITH AARTI INDUSTRIES FO R LAST 6 TO 7 YEARS. THERE ARE RUNNING ACCOUNTS. THERE COULD BE DISCREPA NCIES IN THE ACCOUNT IN THE EARLIER YEARS WHICH CULMINATED INTO DIFFEREN CE IN BALANCE AS ON 1.4.2004. THEREFORE, ASSESSEE THOUGHT IT TO TRANSFE R A SUM OF RS.4,60,766/- IN THE CAPITAL ACCOUNT BY DEBITING THE ACCOUNT OF A ARTI INDUSTRIES. SINCE BOOKS OF ACCOUNTS OF ASSESSEE ARE NOT ACCEPTABLE, T HEREFORE, ENTRIES MADE ON 1.4.2004 WILL NOT RESULT INTO A SEPARATE TAXABLE INCOME. HOWEVER, WE NOTICE THAT THERE IS NO CORRESPONDING CONFIRMATION FROM THE OTHER PARTY, ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 13 AND ASSESSEE HAS ONLY BUSINESS RELATIONSHIP WITH AA RTI INDUSTRIES AND, THEREFORE, WHATEVER EXCESS BALANCE IS SHOWN IN FAVO UR OF THE ASSESSEE WOULD RELATE ONLY TO BUSINESS DONE WITH THAT PARTY. THIS AMOUNT CARRIES THE CHARACTER OF INCOME AND, THEREFORE, WHOLE OR PA RT OF IT IS LIABLE TO BE TAXED THIS YEAR. WE ARE UNABLE TO ACCEPT THIS CONTE NTION OF THE LD. AR THAT SINCE IT IS THE CREDIT ON THE FIRST DAY OF ACCOUNTI NG YEAR NO ADDITION IN THE TOTAL INCOME UNDER SECTION 68 CAN BE MADE. IN OUR C ONSIDERED VIEW IT IS NOT A CASH CREDIT SIMPLICITOR BUT A BUSINESS RECEIP T NOT ACCOUNTED FOR BY THE ASSESSEE. THE ASSESSEE WAS UNABLE TO EXPLAIN SU CH DISCREPANCY PERTAINING TO EARLIER YEAR BY SUBMITTING THE COPY O F ACCOUNT OF THE ASSESSEE IN THE BOOKS OF AARTI INDUSTRIES AND COPY OF ACCOUNT OF AARTI INDUSTRIES IN ITS OWN BOOKS SO AS TO SHOW THAT SUCH DISCREPANCIES AMOUNTING TO THIS EXTENT PERTAINED TO EARLIER YEARS AND, THEREFORE, IF IT IS A BUSINESS RECEIPT IT WOULD NOT BE TAXABLE IN THE CUR RENT YEAR. IN ABSENCE OF ANY MATERIAL THAT SUCH RECEIPT COULD PERTAIN TO EAR LIER YEARS, WE REJECT THE ARGUMENT OF LD. AR FOR THE ASSESSEE THAT IT CANNOT BE TAXED THIS YEAR. 16. SINCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT FOUND RELIABLE AND INCOME CANNOT BE DEDUCED CORRECTLY, THE SUM OF RS.4,60,766/- IS TREATED AS BUSINESS RECEIPT IN ADDITION TO WHAT ASS ESSEE HAS SHOWN AT RS.33,50,336/-. 17. REGARDING SUM OF RS.1,04,998/-, WE NOTICE THAT IT IS SHOWN AS A CREDIT IN THE ACCOUNT OF VIKAS TAYDE. IT WAS SOUGHT TO EXPLAIN THAT CORRESPONDING RECEIPTS HAVE COME IN THE BANK ACCOUN T OF THE ASSESSEE. HOWEVER, WE DO NOT FIND NOR COULD IT BE POINTED OUT TO US AS TO WHETHER THERE IS ANY DEBIT ENTRY IN THE ACCOUNT OF THE ASSE SSEE IN THE BOOKS OF AARTI INDUSTRIES SHOWING THE ABOVE PAYMENT. WE ACCO RDINGLY TREAT THIS AS ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 14 PAYMENT FOR BUSINESS NOT CREDITED BY THE ASSESSEE I N ITS PROFIT AND LOSS ACCOUNT BUT CREDITED DIRECTLY IN THE ACCOUNT OF VIK AS TAYDE. 18. THUS TOTAL BUSINESS RECEIPTS OF THE ASSESSEE CO MES TO RS.33,50,336/- + RS.1,04,998/- + RS.4,60,766 = RS.3 9,16,100/-. SINCE WE HAVE UPHELD THE REJECTION OF BOOKS AND ACCORDINGLY APPLICATION OF NET PROFIT RATE AND ALSO WE HAVE HELD THAT PROVISIONS O F SECTION 44AD WILL NOT BE APPLICABLE, WE DIRECT THE AO TO CONSIDER THE TOT ALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE TO APPLY NET PROFIT RATE OF 12% ON TOTAL RECEIPTS OF RS.39,16,100/-. THAT WOULD BRING THE BUSINESS IN COME AT RS.4,69,532/-. 19. THE ADDITION IN RESPECT OF INTEREST AMOUNTING T O RS.10,765/- SEPARATELY ADDED BY THE AO WOULD FURTHER BE ADDED. NO FURTHER ADDITION THEREAFTER IS CALLED FOR. 20. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 12.11.10. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 12.11.10. MAHATA/- ITA NO.3525/AHD/2008 ASST. YEAR 2005-06 15 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 13/10/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 2/11/2010 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..