Dusmanta Kumar Biswal, Bhubaneswar V. ITO, Bhubaneswar

ITA 360/CTK/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52395 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 25-07-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTYDR
• Assessee Lawyers: NIHAR RANJAN BISWAL
• Section: 145; 44AD

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 360/CTK/2011 (ASSESSMENT YEAR 2008 - 09) DUSMANTA KUMAR BISWAL, 2 ND FLOOR, 15, GOVIND VIHAR, PLOT NO.1149, BHUBANESWAR 751 01 0 PAN: AHFPB 0027 J VERSUS INCOME - TAX OFFICER, WARD 1(1), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI NIHAR RANJAN BISWAL, AR FOR THE RESPONDENT SHRI S.C.MOHANTY,DR DATE OF HEARING : 13.09.2011 DATE OF PRONOUNCEMENT : 16.09.2011 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE NET PROFIT ESTIMATED BY THE ASSESSING OFFICER AT 8% OF GROSS CONTRACT RECEIPTS, THE ASSESSEE BEING A LABOUR CONTRACTOR AS AGAINST R ETURNED BY THE ASSESSEE ON THE BASIS OF FINANCIAL STATEMENTS DULY AUDITED U/S.44AB. THE ASSESSEE IS ALSO IN APPEAL AGAINST THE ORDER OF THE LEARNED CIT(A) IN GRANTING PART RELIEF AS EXPENDITURE TO BE INCURRED FOR THE PURPOSE OF INSURANCE COMMISSION EARNED BY THE ASSESSEE, WHICH THE ASSESSING OFFICER ALLOWED ONLY 15% WAS RESTRICTED AT 25%. 2. THE BRIEF FACTS AS BROUGHT OUT ON RECORD ARE THAT THE ASSESSEE IS AN INDIVIDUAL WHO SOUGHT TO UNDERTAKE LABOUR SUPPLY CONTRACT WORK PRIMARILY BEING AN INSURANCE AGENT W AS ABLE TO RENDER LABOUR CONTRACT WORTH 48 LAKHS. HE CLAIMED EXPENSES RESULTING IN NP OF 1,53,856 WHICH INCLUDE INSURANCE AGENCY COMMISSION OF 1,18,863. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS BIFURCATED THE CONTRACT RECEIPTS FOR COMPUTING AND ESTIMATING 8% NET PROF IT ON THE GROSS RECEIPTS BY REJECTING THE BOOK RESULT AND ALSO ALLOWING ONLY 15% EXPENDITURE ON THE INSURANCE AGENCY INCOME OF ITA NO.360/CTK/2011 2 1,18,863. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER IN HIS SCRUTINY ASSESSMENT HAD VERIFIED THAT THE PAYMENTS TO THE LABOURERS AND THE RECORDING OF REIMBURSEMENT FROM THE CONTRACTEES WAS NOT PROPER AND THEREFORE, THE BOOKS OF ACCOUNT WERE RIGHTLY REJECTED UNDER THE PROVISIONS OF SECTION 1 45 BY THE ASSESSING OFFICER FOR ESTIMATING THE INCOME ON THE LABOUR CONTRACT RECEIPTS THEREOF. HOWEVER, ON THE ISSUE OF EXPENDITURE TO BE INCURRED IN EARNING THE INSURANCE COMMISSION HE ALLOWED 25% THEREOF BY INDICATING THAT THE EXPENDITURES ALONG WITH THE EXPENDITURE FOR THE CONTRACT BUSINESS HAD NOT BEEN BIFURCATED AND SATISFACTORILY EXPLAINED WHEN THEY HAVE NOT BEEN SEPARATELY INDICATED IN THE BOOKS OF ACCOUNT. 3. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THERE IS NO BA SIS FOR THE ASSESSING OFFICER TO REJECT THE BOOKS OF ACCOUNT AS THEY HAVE BEEN DULY AUDITED AS REQUIRED U/S.44AB.THE DISCREPANCIES IN NOTING OF THE EXPENDITURES INCURRED AS INSCRIBED IN THE BOOKS OF ACCOUNT WAS ROUTED THROUGH THE BANK WAS EXPLAINED WHEN TH E PAYMENT RECEIVED FROM THE CONTRACT EE FOR REIMBURSEMENT WAS EXPLAINED . ALL THE NECESSARY REQUIREMENTS FOR THE PURPOSE OF ESTABLISHING THAT THE LABOUR CONTRACT ENDED SUCCESSFULLY IN FAVOUR OF THE ASSESSEE WAS DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AS T HE RECEIPTS WERE OVER AND ABOVE WHAT THE CONTRACTEES HAD DIRECTLY PAID TO THE LABOURERS. THE DISCREPANCY THEREFORE WAS EXPLAINED AND THERE WAS NO OCCASION TO INVOKE THE PROVISIONS OF SECTION 145. ESTIMATING THE NET PROFIT AT 8% WAS THEREFORE TO BE REASONED OUT BY THE ASSESSING OFFICER WHEN HE SOUGHT TO ADOPT THE DEEMING PROVISIONS OF SECTION 44AD ON THE ASSESSEE. ADDITIONS MADE STRAIGHT WAY ON THE GROUND OF LOW PROFITS OR DEEMING LOW RATE OF RETURN CANNOT BE APPLIED SUMMARILY AT WHIMS AND FANCY OF THE ASSES SING AUTHORITIES WHEN ALL THE EXPLANATIONS AS CALLED FOR ITA NO.360/CTK/2011 3 HAVE BEEN SUBMITTED. NO SINGLE DEFECT HAS BEEN POINTED OUT IN THE BOOK RESULT WHEN THE BOOKS OF ACCOUNT WERE PRODUCED. IT IS AT THE END OF THE YEAR THAT THE NET INCOME OR PROFIT IS KNOWN THEREFORE CO ULD NOT BE THE SUBJECT MATTER FOR INVOKING THE PROVISIONS OF SECTION 145 WHEN THE PECULIAR CIRCUMSTANCES DULY RECORDED ARE JUSTIFIABLY EXPLAINED TO THE ASSESS ING AUTHORITIES. HE RELIED ON PLETHORA OF JUDGMENTS INDICATING THAT SPECIFIC DEFECT SHOULD BE POIN TED OUT BY THE ASSESSING AUTHORITIES TO INVOKE THE PROVISIONS OF SECTION 145. HE SUBMIT TED THAT THERE IS NO HARD AND FA RST RULE OF EARNING 8% RETURN ON CIVIL CONTRACT WHEN THE ASSESSING AUTHORITIES ARE APPRISED OF THE FACT THAT IT IS A LABOUR CONTRACT AND 95% EXPENSES ARE ON ACCOUNT OF LABOUR PAYMENTS ONLY. THE AUTHORITIES THEREFORE FAILED TO APPRECIATE THE NATURE OF ASSESSEES BUSINESS WHEN THEY SOUGHT TO SEGREGATE THE EARNING OF INSURANCE COMMISSION AS NOT PART AND PARCEL OF THE ASSESSEE CARRYING ON BUSIN ESS OF CIVIL CONTRACT. THE EXPENSES FOR EARNING THE INSURANCE COMMISSION COULD NOT BE SPECIFIED BY THE ASSESSEE MAY KINDLY BE CONSIDERED IN ACCORDANCE WITH THE PRACTICE WHEN THE AGENTS HAVE TO UNDERGO VARIOUS EXERCISES FOR OBTAINING BUSINESS FROM PROSPECT IVE INSURED. 4. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT THERE IS NO BASIS FOR INVOKING THE PROVISIONS OF S ECTION 145. O N OUR PERUSAL OF THE ORDER OF THE ASSESSING OFFICER, THE ACCOUNTING TREATMENT GIVEN TO A PARTICULAR SOURCE OF INCOME HAS TO BE UNDERSTOOD WHEN NO CONTROVERTING MATERIAL HAS BEEN FOUND BY THE ASSESSING OFFICER TO DI SALLOW THE EXPENDITURE CLAIMED FOR EARNING THAT INCOME. ALL INCOMES SHAVE BEEN ROUTED THROUGH BANK AND THEREFORE, IT WAS NOT THE CASE FOR THE ASSESSING OFFICER TO DENY THE CLAIM OF EXPENDITURES THERE AGAINST AS BOGUS. HE HAS ITA NO.360/CTK/2011 4 MERELY CONSIDERED THE ENTRIES R ELATING TO THE BANK WHICH WERE UTILISED BY THE ASSESSEE FOR THE PURPOSE OF INSCRIBING THE TOTAL GROSS RECEIPTS AS PER IN BANK S TATEMENT WHICH THE ASSESSING OFFICER READILY AGREED TO COMPUTE AT 8% AS INCOME TO BE TAXED IN THE HANDS OF THE ASSESSEE. THE LEAR NED CIT(A) ALSO TRIED TO MAKE A FEEBLE EXERCISE OF UNDERSTANDING THE BASIS OF THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 145 BUT COULD NOT ESTABLISH THAT IT WAS A FIT CASE FOR REJECTING THE BOOKS RESULT. IN OTHER WORDS, THE ESTIMATION OF 8% P ROFIT BY THE ASSESSING AUTHORITIES HAS NO LEGS TO STAND ON. INTERPRETING THE FINANCIAL RESULT S AS PER THEIR UNDERSTANDING WITHOUT POINTING OUT ANY DEFECT TO THE ASSESSEE FOR EXPLANATION IS ON UNJUSTIFIED BASIS. WE DO NOT FIND ANY MATERIAL FOR THE ASSESSEE TO BE SUBJECTED TO A HIGHER NET PROFIT WHEN THE BOOKS OF ACCOUNT ARE DULY MAINTAINED AND AUDITED AND ARE IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME - TAX ACT. THE ESTIMATION OF 8% IS THEREFORE, IS DIRECTED TO SET ASIDE AND THE BOOK RESULT ON ACCOUNT OF CONTRACT RECEIPTS AS RETURNED BY THE ASSESSEE IS DIRECTED TO BE ACCEPTED. HOWEVER, AS THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNT FOR CLAIMING EXPENSES FOR EARNING THE INSURANCE AGENCY COMM ISSION, WE FURTHER GRANT RELIEF AS HAVING INCURRED UP TO 50% T HERE OF AS EXPENSES TO EARN THE INCOME OF 1,18,863. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. S D / - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 16 TH SEPTEMBER, 2011 H.K.PADHEE, SENIO R PRIVATE SECRETARY. ITA NO.360/CTK/2011 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: DUSMANTA KUMAR BISWAL, 2 ND FLOOR, 15, GOVIND VIHAR, PLOT NO.1149, BHUBANESWAR 751 010 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 1(1), BHUBANESWAR. 3. THE CIT , 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.