Bhagwan Das Mandal, Visakhapatnam V. THE ITO, Visakhapatnam

ITA 355/VIZ/2015

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9707 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 11-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S. RAVISANKAR NARAYAN
• Keywords: Additional evidence
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 142(1); 143(2); 44AB

Judgement Text

ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.354&355/VIZAG/2015 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM VS. ITO, WARD - 5(1), VISAKHAPATNAM [PAN: AJEPM1154E ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM, AR / RESPONDENT BY : SHRI S. RAVISANKAR NARAYAN, DR / DATE OF HEARING : 28.09.2016 / DATE OF PRONOUNCEMENT : 25.11.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY ASSESSEE ARE DIRECTED AGAIN ST ORDER OF THE CIT(A)-2, VISAKHAPATNAM DATED 28.7.2015 FOR THE ASSESSMENT YEARS 2010-11 & 2011-12. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 2 COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOS ED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MAN POWER SUPPLY, FABRIC ATION AND OTHER CONTRACT WORKS, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010- 11 ON 27.11.2010 DECLARING TOTAL INCOME OF ` 12,28,640/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY UNDER CASS AND ACCORDING LY, NOTICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER CALLED AS 'THE ACT') WERE ISSUED. IN RESPONSE TO NOTICES, THE AUT HORIZED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF A CCOUNTS AND OTHER DETAILS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS DECLARED A NET PROFI T OF 0.83% ON A TOTAL TURNOVER OF ` 14,72,91,726/-. THEREFORE, TO ASCERTAIN THE CORREC TNESS OF NET PROFIT DECLARED BY THE ASSESSEE, ISSUED A SHOW CAUSE NOTICE AND ASKED TO FURNISH BILLS AND VOUCHERS AND OTHER SUPPO RTING EVIDENCES FOR THE EXPENDITURE CLAIMED. IN RESPONSE TO NOTICE, THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOU CHERS. THE A.O. AFTER VERIFICATION OF BOOKS OF ACCOUNTS AND OTHER B ILLS AND VOUCHERS, OBSERVED THAT BILLS AND VOUCHERS FURNISHED IN SUPPO RT OF PAYMENT OF WAGES ARE NOT IN PROPER AND ALSO UNVERIFIABLE CONDI TION. THE A.O. FURTHER OBSERVED THAT NET PROFIT DECLARED BY THE ASSESSEE O N A GROSS TURNOVER OF ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 3 SUCH A HUGE AMOUNT IS QUITE LESS WHEN COMPARED TO S IMILAR NATURE OF BUSINESS. IT WAS FURTHER OBSERVED THAT IN THE PREVI OUS ASSESSMENT YEARS, THE INCOME FROM CONTRACT WORKS WAS ESTIMATED AT 6% ON GROSS RECEIPTS. THEREFORE, CONSIDERING THE FACT THAT THE ASSESSEE C OULD NOT EXPLAIN THE EXPENDITURE WITH NECESSARY EVIDENCES AND ALSO BASED ON THE ASSESSMENTS OF ASSESSMENT YEARS 2008-09 & 2009-10, THE A.O. CONSIDERED IT REASONABLE TO ESTIMATE THE INCOME AT 6% ON GROSS CONTRACT RECEIPTS. ACCORDINGLY, REJECTED BOOKS OF ACCOUNTS AND ESTIMATED INCOME AT 6% OF GROSS CONTRACT RECEIPTS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ALONG WITH ADDITIONAL EVIDENCES IN THE FORM OF AGREEMENT WITH M/S. L&T LIMITED FOR PROVIDI NG MANPOWER SERVICES AND OTHER RELATED WORKS. DURING THE COURS E OF APPELLATE PROCEEDINGS, THE CIT(A), FORWARDED ADDITIONAL EVID ENCES FILED BY THE ASSESSEE TO THE A.O. FOR HER COMMENTS ON THE ADMISS IBILITY AND ALSO TO INQUIRE AND REPORT THE VERACITY OF THE CLAIM MADE T HROUGH ADDITIONAL EVIDENCES. THE A.O. VIDE REMAND REPORT DATED 16.6. 2015 SUBMITTED THAT THE ASSESSEE HAS FURNISHED COPIES OF AGREEMENT WITH M/S. L&T LIMITED AND AS PER THE SAID AGREEMENT, THE ASSESSEE HAD UND ERTAKEN CONTRACT WORKS FOR SUPPLY OF MANPOWER AND OTHER MISCELLANEOU S WORKS FOR REPAIRS ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 4 AND MAINTENANCE, FOR WHICH THE ASSESSEE HAS PAID 10 % OF THE TOTAL CONTRACT VALUE AS COMMISSION UP TO THE ASSESSMENT Y EAR 2006-07. THE A.O. FURTHER OBSERVED THAT FROM THE ASSESSMENT YEAR 2007-08 ONWARDS, THE ASSESSEE WAS PAID 5% ON TOTAL WAGE BILL AS HIS COMMISSION. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT THE REMAND REPORT OF THE A. O., HELD THAT THERE IS NO CATEGORICAL EVIDENCE TO INDICATE THAT THE ASSESS EE WAS PAID ONLY 5% COMMISSION ON WAGES. EVEN IF IT IS ASSUMED THAT TH E ASSESSEE WAS PAID 5% COMMISSION ON WAGES AS CONTENDED, THE ASSESSEE H AS NOT GIVEN JUSTIFICATION FOR ADMITTING SUCH LOW NET PROFIT. I T IS RELEVANT TO NOTE THAT THE ASSESSEE HAS NOT FURNISHED VOUCHERS FOR OTHER E XPENDITURE ALSO. TAKING INTO ACCOUNT THE OVERALL FACTS, THE PIECE RA TE WORKERS BILLS AND THE WORK ORDERS AND THE REFERENCE TO WORK EXECUTED AND PAYMENT DETAILS RECORDED THEREIN, IT WOULD BE REASONABLE AND FAIR T O ESTIMATE THE INCOME OF THE ASSESSEE FROM HIS CONTRACT BUSINESS AT 4% OF THE GROSS RECEIPTS FOR THE ASSESSMENT YEAR 2010-11 AND ASSESSMENT YEAR 2011-12, ACCORDINGLY DIRECTED THE A.O. TO RE-COMPUTE THE INC OME BY ADOPTING 4% NET PROFIT ON GROSS CONTRACT RECEIPTS. AGGRIEVED B Y THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 5 4. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT TH E LD. CIT(A) IS ERRED IN DIRECTING THE A.O. TO ESTIMATE NET PROFIT AT 4% ON GROSS RECEIPTS, WITHOUT ANY BASIS REJECTING SUBMISSIONS M ADE BY THE ASSESSEE. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE IS A L ABOUR CONTRACTOR WORKING UNDER VERY COMPETITIVE CONDITIONS AND ALSO DUE TO HIGHER MINIMUM WAGES UNDER THE MINIMUM WAGES ACT, NEEDS TO INCUR HUGE EXPENDITURE TOWARDS LABOUR COST, AND ACCORDINGLY, T HE NET PROFIT IN THIS LINE OF BUSINESS VARIES FROM 1 TO 2% ON GROSS RECEI PTS. THE A.R. FURTHER SUBMITTED THAT AS PER THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH WERE AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT, THE PERCENTAGE OF PROFIT DERIVED BY THE ASSESSEE WORKS OUT TO 0.83 % IN THE ASSESSMENT YEAR 2010-11 AND 1.64% FOR THE ASSESSMENT YEAR 2011 -12. THIS BEING THE POSITION, FIXING THE PERCENTAGE OF PROFIT AS HI GH AS 4% BY THE LD. CIT(A) IS VERY MUCH HIGHER SIDE, THEREFORE, REQUEST ED TO SCALE DOWN THE NET PROFIT TO A REASONABLE PERCENTAGE IN THE INTERE ST OF JUSTICE AND FAIR PLAY. 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED ORDER OF THE CIT(A). THE D.R. FURTHER SUBMITTED THAT IT IS A FAC T THAT THE ASSESSEE FAILED TO PRODUCE RELEVANT BOOKS OF ACCOUNTS ALONG WITH SUPPORTING BILLS AND VOUCHERS IN SUPPORT OF EXPENDITURE DEBITED IN T HE P&L ACCOUNT. IT IS ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 6 ALSO AN ADMITTED FACT THAT IN THE PREVIOUS FINANCIA L YEARS, THE INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT 6% ON GROSS CON TRACT RECEIPTS. BASED ON THESE FACTS, THE A.O. HAS REASONABLY ESTIM ATED NET PROFIT OF 6% ON GROSS CONTRACT RECEIPTS AND HIS ORDER SHOULD BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. ESTIMATED NET PROFIT OF 6% ON GROSS RECEIPTS F OR THE REASON THAT THE ASSESSEE HAS FAILED TO PRODUCE NECESSARY BILLS AND VOUCHERS IN SUPPORT OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT . THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS CLAIMED HUGE LABOUR P AYMENT, HOWEVER, FAILED TO SUBSTANTIATE THE EXPENDITURE WITH SUPPORT ING EVIDENCES. THE A.O. FURTHER WAS OF THE OPINION THAT THE ASSESSEES INCOME FOR THE ASSESSMENT YEAR 2008-09 AND 2009-10 WAS DETERMINED AT 6% OF GROSS CONTRACT RECEIPTS UNDER SIMILAR SET OF FACTS, THERE FORE, OPINED THAT IT IS REASONABLE TO ESTIMATE NET PROFIT OF 6% ON GROSS CO NTRACT RECEIPTS. IT IS THE CONTENTION OF THE ASSESSEE THAT HE IS WORKING U NDER A COMPETITIVE CONDITION, AS HE NEEDS TO PAY MINIMUM WAGES AS PER THE MINIMUM WAGES ACT, BECAUSE OF WHICH THE MARGIN IN THIS LINE OF BUSINESS VARIES FROM 1% TO 2%. THE ASSESSEE FURTHER SUBMITTED THAT AS PER THE WORK ORDERS ISSUED BY M/S. L&T LIMITED, HE WAS PAID A MA RGIN OF 5% ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 7 COMMISSION ON THE TOTAL WAGE BILL, OUT OF WHICH HE HAS TO INCUR ALL INDIRECT EXPENDITURE IN RELATION TO THE BUSINESS. IT WAS FURTHER SUBMITTED THAT AS PER THE BOOKS OF ACCOUNTS, THE NET PROFIT D ERIVED WORKS OUT TO 0.83% TO 1.64%, AS AGAINST THIS THE A.O. HAS ESTIMA TED 6% NET PROFIT, WHICH IS MUCH HIGHER SIDE. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS ON RECORD, WE FIND THAT THE CIT(A) AFTER CONSIDERING THE ADDIT IONAL EVIDENCES FILED BY THE ASSESSEE IN THE FORM OF AGREEMENT WITH M/S. L&T LIMITED AND ALSO TAKEN INTO ACCOUNT THE REMAND REPORT OF THE A. O., SCALED DOWN THE NET PROFIT ESTIMATED BY THE A.O. TO 4%. WE FURTHER O BSERVED THAT DURING REMAND PROCEEDINGS, THE ASSESSEE HAS FURNISHED COPI ES OF AGREEMENT ALONG WITH WORK ORDERS BEFORE THE ASSESSING OFFICER AND THE A.O. AFTER VERIFYING THE WORK ORDERS ISSUED BY M/S. L&T LIMITE D, CLEARLY OBSERVED THAT THE ASSESSEE WAS PAID A MARGIN OF 5% COMMISSIO N ON TOTAL WORK BILLS. WE FURTHER OBSERVED THAT THE ASSESSEE HAS INC URRED VARIOUS INDIRECT EXPENDITURE AMOUNTING TO RS.45,42,284/-, OUT OF THE GROSS COMMISSION RECEIVED FROM M/S. L&T LIMITED. THEREFORE, CONSIDE RING THE FACT THAT THE ASSESSEE IS HAVING A GROSS PROFIT OF 5% FROM HIS CO NTRACT BUSINESS AND ALSO CONSIDERING THE VOLUME OF INDIRECT EXPENDITURE , WE ARE OF THE VIEW THAT IT WOULD BE REASONABLE TO ESTIMATE A NET PROFI T OF 3% ON GROSS CONTRACT RECEIPTS. ACCORDINGLY, WE DIRECT THE A.O. TO ESTIMATE NET PROFIT ITA NO.354 & 355/VIZAG/2015 SRI BHAGAWAN DAS MANDAL, VISAKHAPATNAM 8 OF 3% ON GROSS CONTRACT RECEIPTS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 ARE PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 25 TH NOV16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 25.11.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI BHAGAWAN DAS MANDAL, DR.NO.1 3-17-3/2, B.C. ROAD, BJANJI GARDENS, GAJUWAKA, VISAKHAPATNAM 2. / THE RESPONDENT THE ITO, WARD-5(1), VISAKHAPATN AM 3. + / THE CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A)-2, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM