UPADHYA CONSTRUCTION COMPANY, V. PR. CIT, Kota

ITA 359/JPR/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99490 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEENA CIT DR DHK
• Keywords: Rejection of books of accounts; Revision of order; Depreciation; Assessment record; Bogus loan
• Section: 143(3); 145; 263

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO. 359/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S. UPADHYA CONSTRUCTION COMPANY GANESH GATE KAROULI CUKE VS. THE PRINCIPAL CIT KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABFU 6539 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL ,CA JKTLO DH VKSJ LS@ REVENUE BY: SHRI M.S. MEENA, CIT - DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 6/11/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 20 /11/2015 VKNS'K@ ORDER PER VIKRAM SINGH YADAV, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT, KOTA DATED 18-03-2015 FOR THE ASSESSMENT YEAR 2010-11 WHEREIN THE EFFECTIVE GROUND RAISED BY THE ASSESSEE IS AS UND ER:- THE LD. CIT HAS ERRED ON FACTS AND IN LAW IN HOL DING THE ORDER OF THE AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE GROUND THAT THE AO H AS (I) NOT MADE POST ASSESSMENT VERIFICATION OF THE REPLIES O F THE CREDITORS AND NOT REISSUED NOTICES TO THOSE CREDITO RS WHOSE ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 2 REPLIES WERE NOT RECEIVED (II) FAILED TO VERIFY WHE N JCB MACHINE WAS PUT TO BUSINESS USE AND (III) FAILED TO VERIFY WORK IN PROGRESS IGNORING THAT ALL SUCH VERIFICATIO N WAS MADE BY THE AO IN COURSE OF ASSESSMENT PROCEEDINGS AND H AVING FOUND THAT BOOKS OF ACCOUNT OF THE A ARE NOT CORREC T AND COMPLETE, HE REJECTED THE SAME AND ASSESSED THE INC OME BY APPLYING NET PROFIT RATE OF 10.50% AS AGAINST 9.89% DECLARED BY THE ASSESSEE. 2.1 BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) ON 21-03-2013 AT RS. 42,92,940 /- AS AGAINST RETURNED INCOME OF RS. 27,94,060/- DECLARED BY THE ASSESSEE. 2.2 DURING THE COURSE OF VERIFICATION OF ASSESSMENT RECORD BY LD. CIT, IT WAS FOUND THAT THE ASSESSMENT ORDER DATED 21-03- 2013 FOR THE ASSESSMENT YEAR 2010-1 IS ERRONEOUS IN SO FAR AS I T IS PREJUDICIAL TO THE INTEREST OF REVENUE ON THE FOLLOWING ISSUES. (I) SINCE THE ASSESSEE IS A CIVIL CONTRACTOR AND AS PER DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CA SE OF M/S. JAIN CONSTRUCTION CO. VS. CIT, 257 ITR 753, THE NET PROFIT @ 12.5% WAS HELD AS REASONABLE SUBJE CT TO VERIFICATION AND INTEREST/ REMUNERATION TO THE PARTNERS. IN THIS CASE, AO HAS APPLIED SECTION 145 AND ESTIMATED PROFIT @ 10.5% INSTEAD OF 9.89% DECLARED. NET PROFIT COULD HAVE BEEN 12.5%. ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 3 (2) INTEREST PAID ON BOGUS LOAN SHOULD HAVE BEEN DISALLOWED AND ADDITION FOR THE SAME SHOULD BE MADE AND THE INCOME SHOULD BE ENHANCED ACCORDINGLY. (3) POST ASSESSMENT VERIFICATION OF REPLIES OF CREDITORS HAS NOT BEEN MADE SO IT IS REQUIRED TO RE - ISSUE NOTICES TO THOSE CREDITORS WHOSE REPLIES WERE NOT RECEIVED. (4) THE AO HAS FAILED TO VERIFY WHEN EXCAVATOR AND JCB MACHINES WAS PUT TO BUSINESS USE. 5. HUGE UNPAID LIABILITY OF LABOUR CHARGES OF RS. 32,37,640/- IS SHOWN. AO HAS FAILED TO VERIFY REASO NS FOR NON-PAYMENT 6. THE AO HAS FAILED TO VERIFY VALUATION OF WORK IN PROGRESS OF RS. 1,52,400/- THEREFORE, A SHOW CAUSE NOTICE U/S 263 VIDE LETTER NO. CIT/KTA/ITO(TECH)/2014-15/1827 DATED 5-11-2014 WAS ISSUED FIXING THE CASE FOR HEARING ON 24-11-2014. 2.3 THE LD. CIT HELD THAT EVEN IN THE CASES WHERE T HE FACTS HAVE BEEN DISCLOSED BY THE ASSESSEE TO THE ASSESSING AUTHORIT Y, IF THE CORRECT PROVISIONS OF LAW HAVE NOT BEEN EXAMINED/ APPLIED B ECAUSE THE FACTS WERE NOT PROPERLY ANALYZED / VERIFIED BY THE AO, THE ORD ER BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE [CIT VS. EMERY STONE MFG. & ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 4 CO. 213 ITR 843 (RAJ.) AND INDIA TEXTILES VS. CIT 1 57 ITR 112 (MAD.). THIS IS PRECISELY SO IN THIS CASE, ESSENTIAL FACTS RELATED TO VARIOUS CLAIMS MADE IN THE RETURN AS MENTIONED BELOW HAVE NOT BEEN VERIFIED/ ANALYZED BY THE ASSESSING OFFICER WHILE PASSING ASSESSMENT O RDER DATED 21-03- 2013. (1) POST ASSESSMENT VERIFICATION OF REPLIES OF CRED ITORS HAS NOT BEEN MADE SO IT IS REQUIRED TO RE-ISSUE NOTICES TO THOSE CREDITORS WHOSE REPLIES WERE NOT RECEIVED. (2) THE AO HAS FAILED TO VERIFY WHEN JCB MACHINE WA S PUT TO BUSINESS USE. (3) THE AO HAS FAILED TO VERIFY VALUATION OF WORK I N PROGRESS OF RS. 1,52,400/- (4) SINCE THE RECORDS WERE INCOMPLETE AND INCORRECT AND NOT VERIFIABLE IN NATURE, THE ASSESSMENT ORDER HAS NOT BEEN COMPLETED PROPERLY BY THE AO. 2.4 THE LD. CIT FURTHER HELD THAT IT IS CLEAR FROM THE FACTS APPARENT FROM RECORDS THAT THE ASSESSING OFFICER HAS PASSED AN OR DER U 143(3) DATED 21- 03-2013 WITHOUT DUE AND PROPER ENQUIRIES WHICH HE I S EXPECTED TO MAKE AS AN INVESTIGATOR AS HE CANNOT REMAIN PASSIVE IN T HE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. THE LD. CIT, THEREFORE, IN THE FACTS AND CIRCUMSTANCES AS DISCUS SED ABOVE AND ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 5 RESPECTFULLY FOLLOWING THE ABOVE REFERRED JUDGEMENT S, CONSIDERED IT FIT TO SET ASIDE THE ASSESSMENT WITH A DIRECTION TO THE AS SESSING OFFICER TO FRAME IT DENOVO AFTER MAKING PROPER ENQUIRY AND VERIFICAT ION OF BOOKS OF ACCOUNT AND OTHER RECORDS/ DOCUMENTS AND AFTER FOLL OWING THE DIRECTIONS GIVEN ABOVE. 2.5 THE LD. AR OF THE ASSESSEE HAS GIVEN FOLLOWING SUBMISSIONS DURING THE COURSE OF HEARING. IT MAY BE NOTED THAT OUT OF THE SIX ISSUES RAISED , CIT AFTER CONSIDERING THE REPLY OF THE ASSESSEE HAS DROPPED T HE ISSUE RELATING TO THE APPLICABILITY OF THE N.P. RATE OF 12.5% AND DISALLOWANCES OF INTEREST PAID ON THE LOANS DISALLOWED BY HIM. IN RE SPECT OF THE REMAINING ISSUES, THE AO HAS MADE DETAILED ENQUIRY. THIS IS EVIDENT FROM THE FOLLOWING:- (A) CIT OBSERVED THAT AO HAS NOT MADE POST ASSESSME NT VERIFICATION OF THE REPLIES OF THE CREDITORS. IT IS NOT UNDERSTOOD AS TO THE NATURE OF POST ASSESSMENT VERIFICATION OF THE C REDITORS WHICH THE CIT PERCEIVED THAT AO SHOULD HAVE MADE. IN FACT AO HAS MADE VERIFICATION OF ALL THE UNSECURED LOANS IN COURSE O F ASSESSMENT PROCEEDINGS VIDE QUERY NO. 16 OF SHOW CAUSE NOTICE DT. 29.10.2012. CONFIRMATION OF ALL THE UNSECURED LOAN S WAS FILED AND THEREAFTER AO MADE ADDITION OF RS.4,47,000/- U/S 68 . THE NOTICE ISSUED U/S 263 BY CIT ON THIS ISSUE IS CRYPTIC AND DOES NOT SPECIFY THAT IN RESPECT OF WHICH CREDITOR, AO OUGHT TO HAVE MADE POST ASSESSMENT VERIFICATION. THEREFORE, ONLY ON ASSUMED REASONS, THE ORDER PASSED BY THE AO CANNOT BE HELD TO BE ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. (B) IN RESPECT OF ACQUISITION AND USER OF EXCAVATOR AND JCB MACHINE, AO IN POINT NO. 24 OF HIS NOTICE DT. 2 9.10.2012 ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 6 REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF ALL NEW ASSETS ACQUIRED AND PUT TO USE IN THE YEAR UNDER CONSIDERA TION. THIS WAS REPLIED BY THE ASSESSEE VIDE LETTER DT. 05.12.2012 WHERE THE PURCHASE BILL OF L&T EXCAVATOR MACHINE DT. 30.09.20 09 WAS FILED WHICH WAS PUT TO USE ON 02.09.2009. SIMILARLY THE P URCHASE BILL OF JCB MACHINE DT. 29.03.2010 WHICH WAS PUT TO USE ON 30.03.2010 WAS FILED. THEREAFTER THE AO VIDE LETTER DT. 29.01. 2013 FURTHER REQUIRED THE ASSESSEE TO PROVIDE EVIDENCE OF THE RO AD TAX, INSURANCE AND EVIDENCE OF FIRST TIME USER OF THESE MACHINES. IN RESPONSE THERETO, ASSESSEE VIDE LETTER DT. 06.02.2013 FILED THE EVIDENCE OF PAYMENT OF ROAD TAX CHALLAN AND INSURANCE OF JCB MA CHINE. IT WAS ALSO EXPLAINED THAT DIESEL OF RS.5,000/- WAS PURCHA SED ON 31.03.2011 IN RESPECT OF THIS JCB MACHINE WHICH PRO VES THE USER OF THE JCB MACHINE DURING THE YEAR. IN RESPECT OF L&T EXCAVATOR MACHINE, CERTIFICATE OF AEN, PWD KAROLI OF HAVING U SED THIS MACHINE ON MANDRAIL/ KARANPUR ROAD WAS FILED. THE A O AFTER CONSIDERING ALL THESE EVIDENCES HAS ALLOWED THE CLA IM OF THE DEPRECIATION. THEREFORE, IT IS INCORRECT TO ALLEGE THAT AO HAS FAILED TO VERIFY WHEN JCB MACHINE WAS PUT TO BUSINESS USE AND THEREFORE ON THIS ISSUE THE ORDER PASSED BY HIM CANNOT BE HEL D TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. IN RESPECT OF LABOUR CHARGES, AO IN POINT NO. 26 OF NOTICE DT. 29.10.2012 REQUIRED THE ASSESSEE TO FILE THE DETAILS OF THE LABOUR, EXPENSES AND ALSO THE UNPAID WAGES. THE SAM E WAS FILED VIDE LETTER DT. 05.12.2012 ALONG WITH THE COPY OF THE MUSTER ROLL. THEREAFTER, THE AO AGAIN REQUIRED CERTAIN DETAILS I N RESPECT OF THE WAGES VIDE POINT NO.7 TO NOTICE DT. 29.01.2013 WHI CH WAS REPLIED ON 06.02.2013. AFTER CONSIDERING ALL THE EVIDENCES, AO REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) AND ASSESSED THE INCOM E BY APPLICATION OF N.P. RATE OF 10.5%. ONCE THE INCOME IS ASSESSED BY APPLICATION OF N.P. RATE, NO SEPARATE DISALLOWANCE IN RESPECT OF THE EXPENSES CLAIMED IN THE P&L A/C CAN BE MADE EVEN IF PART OF SUCH EXPENSES REMAIN UNPAID. IT MAY BE NOTED THAT EVERY YEAR SOME WAGES REMAIN UNPAID, WHICH IS PAID IN THE SUBSEQUEN T MONTH. AS ON 31.03.2009 THE UNPAID WAGES WAS RS.41,04,552/- W HICH WAS PAID DURING THE YEAR AND AS ON 31.03.2010 IT WAS RS .32,37,640/- ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 7 WHICH WAS PAID IN THE SUBSEQUENT MONTHS. THEREFORE, ON THIS ISSUE THE ORDER OF THE AO, WHEN HE HAS ASSESSED THE INCOM E BY APPLYING N.P. RATE, CANNOT BE HELD TO BE ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE. (D) IN RESPECT OF WORK IN PROGRESS OF RS.1,52,400/- THE DETAILS WERE REQUIRED BY THE AO AT POINT NO.13 OF N OTICE DT. 29.10.2012 WHICH WAS SUBMITTED VIDE REPLY DT. 05.12 .2012 WHERE IT WAS STATED THAT WORK IN PROGRESS IS VALUED AT CO ST INCURRED ON THE WORK. THUS, AO HAS VERIFIED THE VALUATION OF WORK I N PROGRESS. IN ANY CASE ONCE INCOME IS ASSESSED BY THE AO BY APPLI CATION OF N.P. RATE, THIS ISSUE HAS NO RELEVANCE AND THEREFORE ON THIS ACCOUNT THE ORDER PASSED BY HIM CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. FROM THE ABOVE, IT CAN BE NOTED THAT AO HAS MADE DE TAILED ENQUIRY AND VERIFIED EACH AND EVERY ISSUE WHICH HAS BEEN RAISED IN THE ORDER U/S 263. THEREFORE, HIS ORDER CANNOT BE H ELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 2.6 THE LD. DR RELIED ON THE ORDER OF THE LD. CIT 2.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE LD. CI T ORDER DATED 18-03- 2015, IT IS NOTED THAT INITIALLY HE HAD RAISED SIX POINTS IN THE SHOW CAUSE WHERE HE FELT THAT AOS ORDER IS ERRONEOUS. LATER O N , LD. CIT RESTRICTED HIS FINAL OBSERVATION IN FOUR MATTERS WHERE HE FELT THAT DUE AND PROPER ENQUIRIES WERE NOT MADE BY AO AND THEREBY DIRECTED THE AO TO FRAME THE ASSESSMENT ORDER DENOVO. FROM THE PERUSAL OF ASSESS EE'S SUBMISSION AND ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 8 PAPER BOOK WHICH IS ON RECORD, IT IS NOTICED THAT I N EACH OF THE FOUR MATTERS RAISED BY LD. CIT, THE AO HAS TAKEN STEPS T O EXAMINE THOSE MATTERS, ISSUED NOTICES/ SHOW CAUSE TO THE ASSESSEE AND PURSUANT TO REPLY FILED BY THE ASSESSEE, AO ACCEPTED THE POSITION ADO PTED BY THE ASSESSEE. IT IS, THEREFORE, NOT A CASE WHERE THERE IS LACK OF E NQUIRY BY THE AO. THE ASSESSMENT ORDER PASSED U/S 143(3) THOUGH SILENT AN D NON-SPEAKING BUT THE SAME CANNOT BE HELD ERRONEOUS WHEN THE SAME IS READ ALONGWITH ASSESSMENT RECORDS WHICH ARE OTHERWISE SE LF-SPEAKING. WE ALSO AGREE WITH THE CONTENTIONS OF THE LD. AR THAT WHEN INCOME IS ASSESSED BY APPLICATION OF NET PROFIT RATE AS DETERMINED BY AO, THERE CANNOT BE A SEPARATE DISALLOWANCE/ ADJUSTMENT IN TERMS OF ANY O F THE MATTER RAISED BY LD. CIT. FURTHER, WHEN AFTER CONSIDERING THE SUBMIS SION OF ASSESSEE AND PERUSAL OF RECORDS, AO ADOPTS A PARTICULAR NET PROF IT RATE AND WHERE THE LD. CIT IS OF THE VIEW THAT DIFFERENT NET PROFIT RATE SHOULD HAVE BEEN ADOPTED, THE VIEW ADOPTED BY AO CANNOT BE HELD TO BE ERRONEO US AS THE QUESTION WAS ADOPTION OF ONE OR OTHER METHOD OF COMPUTING NE T TAXABLE INCOME ON ESTIMATE BASIS. IN LIGHT OF ABOVE, WE ARE OF THE CO NSIDERED VIEW THAT LD. CIT HAS ERRED IN EXERCISING HIS POWER U/S 263 AND ORIGINAL ORDER PASSED BY AO U/S 143(3) IS SUSTAINED. ITA NO. 359/JP/2015 M/S. UPADHYAY CONSTRUCTION COMPANY VS. PRINCIPAL CI T, KOTA 9 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED ORDER PRONOUNCED IN THE OPEN COURT ON 20 /11/2 015. SD/- SD/- VKJ-IH-RKSYKUH FOE FLAG ;KNO (R.P.TOLANI) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 20 /11/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. UPADHYAY CONSTRUCTION COMPANY, KAROULI 2. IZR;FKHZ@ THE RESPONDENT- THE PRINCIPAL CIT, KOTA ISHANGAR H 3. VK;DJ VK;QDR@ CIT 4. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 5. XKMZ QKBZY@ GUARD FILE (ITA NO.359/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR