ITO, Jaipur V. DREAMAX INFRASTRUCTURE DEVELOPERS, Jaipur

ITA 364/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3569 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 09-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SEEMA MEENA
• Assessee Lawyers: VIJAY GOYALCA
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation; Corroborative evidences; TDS; Set aside

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 364/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 THE ITO, WARD-6(2), JAIPUR. CUKE VS. M/S DREAMAX INFRASTRUCTURE DEVELOPERS, 22, SATYA VIHAR, LAL KOTHI, NEAR VIDHANSABHA, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAHFD 5391 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 374/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 M/S DREAMAX INFRASTRUCTURE DEVELOPERS, 22, SATYA VIHAR, LAL KOTHI, NEAR VIDHANSABHA, JAIPUR. CUKE VS. THE ITO, WARD-5(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAHFD 5391 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI VIJAY GOYAL(C.A.) & SHRI GULSHAN AGARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. SEEMA MEENA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 03/04/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 25/05/2018 VKNS'K@ ORDER ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 2 PER: VIJAY PAL RAO, J.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 15.02.2017 OF LD. CIT(A), JAIPUR FOR THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE IS A PARTNERSHIP FIRM FORMED ON 03. 11.2010. THE ASSESSEE COMMENCED ITS BUSINESS ACTIVITIES IN THE F INANCIAL YEAR 2011-12 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. TH E ASSESSEE WAS ENGAGED IN INFRASTRUCTURE AND INDUSTRIAL PROJECT OF CONSTRUCTION OF ROAD, INDUSTRIAL TOWNSHIP, SECURITY BARRACKS ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS AWARDED ROAD WORK AN D INDUSTRIAL TOWNSHIP WORK OF M/S LAFARGE INDIA PRIVATE LIMITED FOR THEIR GREEN FIELD CEMENT PROJECT AT NIMBAHERA TEHSHIL, DISTRICT OF CH ITTORGARH. THE ASSESSEE WAS ALSO AWARDED HIGHWAY ROAD PROJECT AT P UNE BY M/S ILFS ENGINEERING AND CONSTRUCTION COMPANY LIMITED. SINCE NO WORK WAS CARRIED OUT IN RESPECT OF THE HIGHWAY ROAD PROJECT AWARDED BY M/S ILFS ENGINEERING AND CONSTRUCTION COMPANY LIMITED AND NO REVENUE WAS RECEIVED THEREFORE, THE ENTIRE EXPENSES INCURRED ON THE SAME PROJECT WAS SHOWN AS WORK-IN-PROGRESS AT THE END OF THE YEA R. THE ASSESSEE HAS DECLARED THE SALES/CONTRACTUAL REVENUE REFLECTS IN THE BOOKS OF ACCOUNT FROM THE ROAD AND INDUSTRIAL TOWNSHIP WORK GIVEN BY LAFARGE PROJECT ONLY. THE ASSESSEE FILED ITS RETURN OF INCO ME ON 29.09.2012 ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 3 DECLARING TOTAL INCOME OF RS. 10,24,990/-. DURING T HE COURSE OF SCRUTINY ASSESSMENT THE AO ASKED THE ASSESSEE TO PRODUCE SEP ARATE TRADING ACCOUNT OF EACH CONTRACT WORK THOUGH THE ASSESSEE P RODUCED THE BOOKS OF ACCOUNTS AND OTHER DETAILS HOWEVER, THE ASSESSEE DID NOT MAINTAIN SEPARATE TRADING ACCOUNTS OF EACH CONTRACT WORK. TH E AO FURTHER NOTED THAT THE ASSESSEE SHOWN A VERY LOW GROSS PROFIT FRO M THE WORK EXECUTED DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE E XPENDITURE ON ACCOUNT OF WAGES WAS MOSTLY INCURRED DURING THE PER IOD FROM DECEMBER TO MARCH WHEREAS THE ASSESSEE HAS RECEIVED CONTRACT RECEIPTS THROUGHOUT THE YEAR. THE AO ALSO NOTED THAT THE ASS ESSEE HAS NOT PRODUCED ANY SUPPORTING EVIDENCE FOR THE EXPENDITUR E INCURRED IN CASH ON ACCOUNT OF WAGES. THE ASSESSEE GIVEN THE MAJOR W ORK OF SUB CONTRACTOR BUT HAS NOT PRODUCED ANY AGREEMENT FOR G IVING THE WORK TO THE SUB CONTRACTOR. WITHOUT HAVING A WRITTEN CONTRA CT BETWEEN THE ASSESSEE AND SUB CONTRACTOR THE WORK GOT EXECUTED F ROM SUB CONTRACTOR OR THROUGH MACHINERY TAKEN ON HIGHER FROM THE OTHER PERSONS. ACCORDINGLY, THE AO DOUBTED THE CORRECTNESS OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND REJECTED THE SAME BY INVOKING T HE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT. THE AO ADOPTE D THE NET PROFIT RATE AT 8% ON THE CONTRACT RECEIPT OF RS. 8,53,64,1 48/- WHICH COMES TO ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 4 RS. 68,29,132/-. THE AO HAS ALSO DETERMINED THE INC OME OF THE ASSESSEE FROM LIASIONING AND CONSULTANCY OF RS. 37, 50,222/-. ACCORDINGLY, THE AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AFTER ALLOWING THE EXPENDITURE ON ACCOUNT OF INTEREST, DE PRECIATION AND REMUNERATION TO PARTNERS. THE ASSESSEE CHALLENGED T HE ACTION OF THE AO BEFORE THE LD. CIT(A), THE LD. CIT(A) THOUGH UPHELD THE REJECTION OF BOOKS OF ACCOUNTS U/S 143 HOWEVER, PART RELIEF WAS GRANTED TO THE ASSESSEE BY HOLDING THAT THE LIASIONING AND CONSULT ANCY WORK WAS INSEPARABLE PART OF THE WORK ORDER AND THEREFORE, I T WAS PART OF THE CONTRACT RECEIPT AND CANNOT BE TREATED AS A SEPARAT E INCOME ON ACCOUNT OF LIASIONING AND CONSULTANCY WORD. ACCORDINGLY, TH E LD. CIT(A) HAS APPLIED THE NET PROFIT @ 8% ON THE ENTIRE RECEIPTS AS CLAIMED BY THE ASSESSEE. THUS, BOTH THE ASSESSEE AS WELL AS REVENU E ARE AGGRIEVED BY THE IMPUGNED ORDER OF THE LD. CIT(A) AND RAISED FOL LOWINGS GROUNDS AS UNDER:- REVENUES GROUND (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN TREATING THE LIAISONING CONSULTANCY RECEIPTS OF RS. 49,50,000/- AS CONTRACT UAL RECEIPTS AND APPLYING NP @ 8%. ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 5 (IV) THE APPELLANT CRAVES ITS RIGHTS TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. ASSESSEES GROUND 1. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEAL), AJMER ERRED TO CONFIRMING THE ORDE R OF LD AO FOR INVOKING SECTION 145(3) THE INCOME TAX ACT, 1961 FO R REJECTING THE RESULT SHOWN IN BOOKS OF ACCOUNTS. 2. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(APPEAL), AJMER ERRED TO ASSESSING INCOME BY APPLYING NET PROFIT RATE @ 8% BEFORE ALLOWING INTEREST, DEPRECIA TION AND REMUNERATION TO PARTNERS ON TOTAL TURNOVER OF RS. 9 ,03,14,148/-. 3. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEAL), AJMER ERRED TO CONFIRMING THE ORDER OF LD AO TO DISALLOW TDS CREDIT ARISES ON AMOUNT RECEIVED TO AS SESSEE ACCORDING TO WORK ORDER AWARDED BY AWARDER. MAY KIN DLY RESTORE THE SAID TDS CREDIT. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R VARY AND/OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF THE APPEAL . 3. GROUND NOS. 1 AND 2 ARE REGARDING REJECTION OF B OOKS OF ACCOUNTS U/S 145(3) OF THE INCOME TAX ACT. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE AO HAS REJECTED THE BOOKS OF ACC OUNTS ON GUESS WORK, SURMISES AND CONJECTURES AND HAS EXERCISED HI S DISCRETION ARBITRARILY AND HIS FINDING HAS NO NEXUS WITH THE M ATERIAL ON RECORD. THE LD. AR HAS FURTHER CONTENDED THAT THE LD. CIT(A) HA S UPHELD THE ACTION OF THE AO IN SUMMARY MANNER WITHOUT DISCUSSING AND GIVING FINDINGS ON ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 6 THE ISSUES RAISED BY THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNTS ON ME RCANTILE SYSTEM OF ACCOUNTING. THE BOOKS OF ACCOUNT AUDITED, THEY ARE CERTIFIED THAT THE ACCOUNTS OF THE ASSESSEE REPORTS TRUE AND FAIR PROF IT. THE LD. AR HAS POINTED OUT THAT THE ENTIRE RECEIPTS OF THE ASSESSE E IS VERIFIABLE FROM CERTIFICATES ISSUED FROM THE AWARDER AND THERE IS N O ALLEGATION OF THE AO THAT THE ASSESSEE HAS SUPPRESSED THE RECEIPTS. THE EXPENSES RECORDED IN THE BOOKS OF ACCOUNTS ARE FULLY VOUCHED AND IN M OST OF THE CASES THE PAYMENT IS THROUGH ACCOUNT PAYEE CHEQUES. NO DEFECT IN PURCHASE BILLS WAS FOUND BY THE AO, THE WAGES IS FULLY SUPPORTED B Y WAGES REGISTER AND ALL THE REQUIRED DETAILS IN THIS REGARD HAS BEE N SUBMITTED BEFORE THE AO. THE LD. AR HAS SUBMITTED THAT THE AO HAS UNNECE SSARILY ASKED THE ASSESSEE TO PREPARE SEPARATE TRADING ACCOUNT ON EAC H WORK WHEREAS THE ENTIRE WORK WAS EXECUTED UNDER COMPOSITE WORK O RDER. FURTHER, THE PAYMENTS TO SUB CONTRACTORS ARE VERIFIABLE FROM THE BILLS RAISED BY THE SUB CONTRACTORS AND THE ENTIRE PAYMENT WAS MADE THR OUGH ACCOUNT PAYEE CHEQUES AND AFTER TDS DEDUCTION. THERE IS NO ALLEGATION OF THE AO THAT THE ASSESSEEE HAS EITHER DEBITED BOGUS EXPE NSES OR INFLATED THE EXPENSES THE ALLEGED DEFECTS POINTED OUT BY THE AO ARE NOT DEFECTS AT ALL. WHEN ALL THE COMPONENT OF THE TRADING ACCOU NT IS VERIFIABLE THEN, ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 7 THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESU LT AND ESTIMATING THE PROFITS OF THE ASSESSEE. THE LD. AR VEHEMENTLY CONT ENDED THAT IT IS THE FIRST YEAR OF THE ASSESSEES BUSINESS ACTIVITY AND THEREFORE, THE LOW PROFIT RATE CANNOT BE A REASON FOR REJECTION OF BOO KS OF ACCOUNTS. HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF MALANI RAMJIVAN JAGANNATH VS. ACIT 316 ITR 120 AND SUBMITTED THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHEN THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNT AS THE Y WERE ORDINARILY MAINTAINED YEARS AFTER YEARS THEN MERE DEVIATION IN GP RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCOUNT. HENCE, THE L D. AR HAS SUBMITTED THAT THE ACTION OF THE AO CLEARLY DEMONSTRATES THAT HE COULD NOT GATHER ANY DETAILS OR FOUND ANY IRREGULARITY IN MAINTAININ G OF THE BOOKS SO AS TO JUSTIFY REJECTION OF BOOKS IN TOTO. EVEN OTHERWISE THE ASSESSEE HAS DECLARED GROSS PROFIT @ 7.44% WHICH IS IN THE TUNE OF THE EARNING RATES IN THE PARTICULAR BUSINESS ACTIVITY LOOKING TO THE FACT THAT THIS IS FIRST YEAR OF OPERATION OF BUSINESS. THE ASSESSING OFFICER HAS BIFURCATED THE RECEIVED HIS OWN AND THEN WORKED OUT THE GROSS PROF IT ON THE BIFURCATED RECEIPT WHICH IS NOT JUSTIFIED WHEN THE ENTIRE RECE IPTS ARE ON ACCOUNT OF EXECUTION OF COMPOSITE WORK AWARDED TO THE ASSESSEE . ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 8 4. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER AS POINTED OUT SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THEREFORE, THE BOOKS OF ACCOUNT OF THE ASSESSEE DO NOT REFLECT THE TRUE PICTURE. THE LD. DR HAS SUBMITTED THAT THE AO HAS G IVEN A SPECIFIC FINDING THAT THE ASSESSEE HAS NOT SUPPORTED THE EXP ENSES INCURRED ON ACCOUNT OF WAGES WITH PROPER VOUCHERS AND FURTHER T HE SUB CONTRACTOR EXPENSES ARE ALSO NOT SUPPORTED BY THE EVIDENCE AND PARTICULARLY WHEN THE ASSESSEE WAS ASKED TO PRODUCE SUB CONTRACT THE ASSESSEE FAILED TO DO SO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE WAS AWARDED THE WORK CONTRACT BY M/S LAFARGE INDIA PVT. LTD. FOR CONSTRUCTION OF ROAD AND INDUSTRIAL TOWNSHIP FOR TH EIR GREEN FIELD CEMENT PROJECT AT NIMBAHERA TEHSHIL, DISTRICT CHITTORGARH. THE OTHER CONTRACT WAS AWARDED BY M/S ILFS ENGINEERING AND CONSTRUCTIO N COMPANY LIMITED FOR CONSTRUCTION OF HIGHWAY PROJECT HOWEVER , SINCE NO REVENUE WAS RECEIVED UNDER THE SAID CONTRACT THEREFORE, THE ASSESSEE SHOWN EXPENDITURE INCURRED UNDER THE HIGHWAY PROJECT IN T HE WORK IN PROGRESS. THE ONLY REVENUE RECEIVED BY THE ASSESSEE DURING TH E YEAR UNDER ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 9 CONSIDERATION IS FROM CONTRACT AWARDED BY M/S LAFAR GE INDIA PVT. LTD. THE AO HAS NOT DISPUTED THE FACT THAT THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNTS WHICH ARE ALSO AUDITED HOWEVER, T HE AO WANTED TO EXAMINE THE FINANCIALS OF THE ASSESSEE ON EACH ACTI VITY I.E. ROAD, TOWNSHIP AND OTHER SUPPORTING ACTIVITY FOR EXECUTIO N OF THE WORK. THUS, THE AO HAS SEGREGATED THE BUSINESS ACTIVITY IN THE THREE CATEGORIES AND THEN, FOUND THAT THE ASSESSEE HAS REPORTED VERY LOW PROFIT IN SOME OF THE ACTIVITIES CARRIED OUT BY THE ASSESSEE WHEREAS OVER ALL THE ASSESSEE HAS DECLARED CONTRACT RECEIPT OF RS. 9,03,14,148/- AGAINST AN EXPENDITURE OF RS. 8,35,96,278/-. ACCORDINGLY, THE ASSESSEE HAS REPORTED THE GROSS PROFIT OF RS. 67,17,870/- WHICH IS @ 7.44%. THE AO WHILE COMPUTING THE PROFIT HAS ALSO CONSIDERED THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF THE CONTRACT AWARDED BY M/S ILFS ENGINEERING AND CONSTRUCTION COMPANY LIMITED THOUGH THE SAID EXPENDITURE WAS SHOWN BY THE ASSESSEE AS WORK IN PR OGRESS. THEREFORE, THE AOS APPROACH IN BIFURCATING THE RECEIPT AND WO RK OUT THE PROFIT OF THE ASSESSEE FROM VARIOUS ACTIVITIES UNDER THE SAME WORK ORDER IS NOT JUSTIFIED. THE ASSESSEE WAS AWARDED A SINGLE WORK O RDER AND CONTRACT UNDER WHICH THE ASSESSEE HAS TO EXECUTE THE WORK OF ROAD AS WELL AS INDUSTRIAL TOWNSHIP AND ALSO TO DO THE ANCILLARY WO RK OF CLEARING THE LAND ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 10 UNDER THE PROJECT. THE ASSESSING OFFICER HAS SEPARA TELY TREATED THE INCOME FROM LIASIONING AND CONSULTANCY THOUGH THE W ORK OF GETTING NOC FROM NHA FOR CONSTRUCTION OF ROAD AND DEALING WITH LOCAL VILLAGERS IN RESPECT OF THE LANDS ARE PART AND PARTIAL OF THE WO RK ORDER AND SCOPE OF THE WORK ORDER UNDER THE SAME CONTRACT. THEREFORE, FOR THE PURPOSE OF COMPUTING THE PROFIT RATIO OF THE ASSESSEE THE ENTI RE RECEIPT UNDER THE CONTRACT IN QUESTION HAS TO BE CONSIDERED. THOUGH T HE AO HAS POINTED OUT THAT THE ASSESSEE HAS NOT SUPPORTED THE EXPENDI TURE WITH PROPER VOUCHERS AND SOME OF THE VOUCHERS ARE SELF MADE HOW EVER, THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS O F THE EXPENDITURE KEEPING IN VIEW THE TURNOVER OF THE ASSESSEE AND TH E NATURE OF WORK CARRIED OUT BY THE ASSESSEE. FURTHER, WORK GOT EXEC UTED THROUGH THE SUB CONTRACTOR IS NOT DOUBTED BY THE ASSESSING OFFI CER BUT THE AO INSISTED THE PERSONAL EXAMINATION OF THE SUB CONTRA CTOR. THE ASSESSEE HAS PRODUCED ALL THE RECORDS IN RESPECT OF THE WORK CARRIED OUT BY THE SUB CONTRACTOR WHICH INCLUDES THE BILLS RAISED BY T HE SUB CONTRACTOR, PAYMENT THROUGH BANKING CHANNEL AFTER DEDUCTION OF TDS. THEREFORE, ONCE THE ASSESSEE DISCHARGED HIS OWN OF PRODUCING A LL THE RELEVANT DOCUMENTS AND FURTHER, WHEN THE NATURE OF WORK REQU IRES SPECIFIC MACHINERY WHICH IS NOT OWNED BY THE ASSESSEE THEN T HE SAID WORK ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 11 EXECUTED BY THE ASSESSEE THROUGH THE SUB CONTRACTOR EVEN OTHERWISE CANNOT BE DOUBTED. THUS, KEEPING IN THE VIEW THE N ATURE OF WORK GOT DONE THROUGH THE SUB CONTRACTOR AND THE DOCUMENTS P RODUCED BY THE ASSESSEE THERE IS NO SCOPE OF ANY DOUBT ABOUT THE G ENUINENESS OF THE WORK DONE AND PAYMENT MADE BY THE ASSESSEE TO THE S UB CONTRACTOR. EVEN IF THE AO HAS WANTED TO VERIFY THE GENUINENESS OF THE CLAIM THEN IT WAS OPEN TO THE AO TO SUMMONS THE CONCERNED PERSONS AND EXAMINE. ACCORDINGLY, IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE WHEN THE ASSESSEE PRODUCE ALL THE RELEVANT DETAILS AND EVIDENCE THEN INSIGNIFICANT DEFECTS IN SUPPORTING EVIDENCE CANNOT A REASON FOR REJECTION OF BOOKS OF ACCOUNT. IN CASE THE ASSESSIN G OFFICER PROPOSED TO EXAMINE THE CLAIM OF EXPENDITURE THEN EACH AND E VERY ITEM OF EXPENDITURE HAS TO BE VERIFIED INDEPENDENTLY AND DI SALLOW THE SAME IF IT IS NOT SUPPORTED BY A PROPER VERIFIABLE EVIDENCE. O NCE THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT FOUND TO BE BOGUS OR EXCESSIVE THEN THE LOW PROFIT DECLARED BY THE ASSESSEE CANNOT BE A REA SONED FOR REJECTION OF BOOKS OF ACCOUNT. THE ASSESSEE PRODUCED THE BOOK S OF ACCOUNT AND OTHER RECORD HOWEVER, THE AO INSISTED THE PRODUCTIO N OF SEPARATE TRADING ACCOUNT OF EACH ACTIVITY. UNDISPUTEDLY THE ENTIRE WORK IS CARRIED UNDER A COMPOSITE CONTRACT/ WORK ORDER AND ASSESSEE IS WORKING AS ONE ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 12 ENTERPRISE THEN IN OUR VIEW THE PRODUCTION OF SEPAR ATE TRADING ACCOUNT FOR EACH ACTIVITY IS NOT CALLED FOR. THE HONBLE JU RISDICTIONAL HIGH COURT IN CASE OF MALANI RAMJIVAN JAGANNATH VS. ACIT (SUPR A) WHILE DEALING WITH AN IDENTICAL ISSUE HAS HELD IN PARAS 10 AND 11 AS UNDER:- 10. IN THE FACE OF THESE UNDISPUTED FACTS AND CIR CUMSTANCES, THE TRIBUNAL IN OUR OPINION COULD NOT HAVE INTERFERED W ITH THE ORDER OF CIT(A). IN DOING SO, IT HAD IGNORED ALL ADMITTED FA CTS NOTICED BY US ABOVE, IN THE FACE OF WHICH THERE WAS NO OCCASIO N FOR THE AO TO HAVE RESORTED TO ESTIMATE METHOD. THE GP IS PRIM ARILY RESULT OF EXCESS OF SALES OVER PURCHASES, OPENING STOCK, CLOS ING STOCK, THE UNSOLD STOCK AT TWO TERMINALS IS ONLY BALANCING FAC TOR. ADMITTEDLY OUT OF THIS FOUR COMPONENTS OF TRADING RESULT, THER E COULD NOT HAVE BEEN ANY GROUND FOR THE REVENUE TO ARRIVE AT D IFFERENT RESULT. SO FAR AS CLOSING STOCK IS CONCERNED, INVEN TORIES OF EXISTING STOCK WERE NOT FOUND TO BE INCORRECT BY THE AO I.E. THAT POSITION OF STOCK AS SHOWN IN THE ACCOUNT BOOKS WAS NOT INCO RRECT. THERE BEING NO DISPUTE ABOUT THE SALES AND PURCHASES, NON - MAINTENANCE OF STOCK REGISTER LOST ITS SIGNIFICANCE SO FAR AS ARRIVING AT GP IS CONCERNED. THEREFORE, THE CIT(A) WAS RIGHT IN HIS REASONING ABOUT ADMITTED STATE OF AFFAIRS. RESORTIN G TO ESTIMATE OF GP RATE WAS FOUNDED ON NO MATERIAL. IT WAS MEREL Y A CASE OF MAKING CERTAIN ADDITIONS ON THE BASIS OF CERTAIN DE FECTS POINTED OUT BY THE AO AND WHICH HE HAS SHOWN IN DIFFERENT A CCOUNT BY GIVING MARGIN OF UNVOUCHED EXPENSES. HE HAS DISALLO WED CERTAIN EXPENSES. 11. THE TRIBUNAL COMMITTED BASIC ERROR IN NOT APPRE CIATING THE REASONING GIVEN BY THE CIT(A). IT IS TRITE TO SAY T HAT IN THE FACTS AND CIRCUMSTANCES OF PRESENT CASE, ACCOUNT BOOKS AR E MAINTAINED AS THEY WERE ORDINARILY MAINTAINED YEARS AFTER YEAR S AND WHICH WERE FOUND TO YIELD A FAIR RESULT. MERE DEVIATION I N GP RATE CANNOT ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 13 BE A GROUND FOR REJECTING BOOKS OF ACCOUNT AND ENTE RING REALM OF ESTIMATE AND GUESSWORK. LOWER GP RATE SHOWN IN THE BOOKS OF ACCOUNT DURING CURRENT YEAR AND FALL IN GP RATE WAS JUSTIFIED AND ALSO ADMITTED BY THE AO AS WELL AS CIT(A) AS WELL A S THE TRIBUNAL. THEREFORE, FALL IN GP RATE LOST ITS SIGNIFICANCE. H AVING ACCEPTED THE REASON FOR FALL IN GP RATE, NAMELY, STIFF COMPETITI ON IN MARKET AND ALSO THAT HUGE LOSS CAUSED IN PARTICULAR TRANSACTIO N, NEITHER THE REJECTION OF BOOKS OF ACCOUNT WAS JUSTIFIED NOR RES ORT TO SUBSTITUTION OF ESTIMATED GP BY RULE OF THUMB MEREL Y FOR MAKING CERTAIN ADDITIONS. WE ARE, THEREFORE, OF THE OPINIO N THAT THE FINDINGS ARRIVED AT BY THE TRIBUNAL SUFFERS FROM BA SIC DEFECT OF NOT APPLYING ITS MIND TO THE EXISTING MATERIAL WHICH WE RE RELEVANT AND WENT TO THE ROOT OF THE MATTER. WHEN ALL THE DATA A ND ENTRIES MADE IN THE TRADING ACCOUNT WERE NOT FOUND TO BE IN CORRECT IN ANY MANNER, THERE COULD NOT HAVE BEEN ANY OTHER RES ULT EXCEPT WHAT HAS BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE ARE, THEREFORE, UNABLE TO SUSTAIN THE ORDER OF T HE TRIBUNAL. ACCORDINGLY IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE AS WELL AS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT (SUPRA) WE HOLD THAT THE ASSESSEES CASE DOES NOT WARRANT REJECTION OF BOOKS OF ACCOUNT U/S 145(3) AND THEREFORE, ACTION OF THE AO IS NOT J USTIFIED AS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145(3) OF THE ACT. 6. AS REGARDS ESTIMATION OF INCOME OF THE ASSESSEE AT 8% WE FIND THAT THIS ISSUE IS COMMON IN BOTH APPEALS THE AO HA S ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING AT 8% NET PROFIT ON ONE PART OF THE CONTRACT RECEIPT AND A PART OF THE RECEIPT WAS SEGR EGATED AND ASSESSED AS INCOME FROM CONSULTANCY AND LIASIONING. HOWEVER, THE CIT(A) HAS ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 14 HELD THAT THE SAID EXERCISE IS NOT JUSTIFIED BECAU SE THE ENTIRE RECEIPT WAS UNDER THE SAME CONTRACT AND WORK ORDER AND THE ALLEGED ACTIVITY OF TAKING THE NOC FROM NHA AS WELL AS DEALING WITH LOC AL VILLAGERS ARE PART AND PARTIAL OF THE CONTRACT. THEREFORE, THE ENTIRE RECEIPT UNDER THE CONTRACT WILL BE TREATED AS THE CONTRACT RECEIPT. T HE RELEVANT FINDING OF THE LD. CIT(A) IN PARA 4.3 IS AS UNDER:- 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, STAT EMENT OF FACTS, GROUNDS OF APPEAL AND WRITTEN SUBMISSION CAR EFULLY. IN VIEW OF THE DEFECTS AND DEFICIENCIES POINTED BY THE AO IN THE BOOKS OF APPELLANT DISCUSSED BY THE AO AT PARA 4 FR OM PAGE NO. 3 TO PAGE NO. 6 OF THE ASSESSMENT ORDER, I AM O F THE CONSIDERED OPINION THAT THE AO HAS RIGHTLY REJECTED THE BOOK RESULTS BY INVOKING THE PROVISIONS OF SECTION 145(3 ). HOWEVER, THE ACTION OF THE AO TAXING LIAISONING AND CONSULTANCY INCOME OF RS. 49,50,000/- AS NON CONTRA CTUAL INCOME, IS NOT FOUND TO BE ACCEPTABLE, IN VIEW OF T HE COPY OF THE WORK ORDER DATED 17.05.2011 ISSUED BY THE LAFAR GE INDIA IN FAVOUR OF THE APPELLANT. THE TERMS AND CON DITION OF THE ORDER ARE REPRODUCED HEREUNDER FOR YOUR READY R EFERENCE: COMMENTS CURRENCY CODE INR ITEM NO. DESCRIPTION LINE NO. REV QUANTITY ORDERED DOM DESCRIPTION UNITE PRICE EXTENDED PRICE DELIVERY DATE 700203424 CIVIL-PLANT 1.00 1 UNITS .00 10,59,13,97 4 30/11/11 J08RAJCOCG01.23314.33 ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 15 WITH REFERENCE TO YOUR QUOTATION DTD 14.04.2011, SU BSEQUENT DISCUSSION ON 21.04.2011 AT OUR GURGAON OFFICE AND YOUR FINAL OFFER DTD 12.05.2011, WE ARE PLEASED TO AWARD YOU P URCHASE ORDER (SERVICES) FOR CONSTRUCTION OF ROAD AND DRAIN AGE SYSTEM AT CHITTORGARH CEMENT PLANT AS PER THE FOLLOWING TERMS & CONDITIONS: ORDER CEILING VALUE INR 10,59,13,974/- (RUPEE TEN CRORE FIFTY NINE LACS THIRTEEN THOUSAND NINE HUNDRED AND SEVENT Y FOUR ONLY) FOR CHITTORGARH, EXCLUDING APPLICABLE TAX. THE ABOVE CONTRACT PRICE IS ON GIVEN BILL OF QUANTI TIES (BOQ) HOWEVER PAYMENT WILL BE MADE BY US AS PER ACTUAL WO RK DONE BASIS. SCOPE OF WORK: CONSTRUCTION OF ROAD AND DRAINAGE SYSTEM AS PER INS TRUCTION OF SITE INCHARGE AT OUR CHITTORGARH CEMENT PLANT AS PE R ANNEXURE A. YOU HAVE TO MOBILIZE THE RESOURCE AS PER ATTACHED A NNEXURE 'B TO H'. GETTING NOC FROM NHA (NATIONAL HIGHWAY AUTHORITY OF INDIA). DEALING WITH LOCAL VILLAGERS IS UNDER CONTRACTOR'S SCOPE. GETTING NOC/ APPROVAL FROM RAILWAY TO WIDEN THE GAT E NO. 98C. LIPL PAY THE ACTUAL FEE TO CONSULTANCY FOR THE ABOV E SERVICES SHALL BE ON ACTUAL AFTER CERTIFICATION BY COMMERCIA L TERN AND DULY APPROVED BY PL & CPO. A. SERVICES: CIVIL CONSTRUCTION IN ACCORDANCE TO LATEST CONSTRUC TION DRAWINGS AND SPECIFICATIONS. CO-ORDINATION OF CIVIL WORK INTERFACING WITH OTHER CONTRACTORS. ATTEND SITE CO-ORDINATION AND PROJECT REVIEW MEETIN G. YOUR REPRESENTATIVE SHALL BE A SENIOR LEVEL EXECUTIVE ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 16 HAVING AUTHORITY OF IMPLEMENTING ALL DECISION TAKEN DURING MEETING. ANY OTHER WORK REQUIRED FOR EXECUTION OF THE CONSTR UCTION WORK. B- OUR APPROVAL: OUR REPRESENTATIVE SHALL HAVE AUTHORITY TO APPROVE AND ACCEPT ALL MATERIAL AND WORKS. SCOPE / EXECUTION OF JOB: - JOB TO BE CARRIED OUT AS PER INSTRUCTION AND SATI SFACTION LEVEL OF OUR SITE MANAGER, CHITTORGARH CEMENT PLANT, OR HIS AUTHORIZED REPRESENTATIVE AND BILLS TO BE CERTIFIED BY HIM ACC ORDINGLY. - YOU WILL CARRY OUT THE JOB STRICTLY AS PER SCOPE OF WORK/ ACTIVITIES GIVEN ABOVE. ANY ACTIVITIES OTHER THAN SPECIFIED ON ES WILL NOT BE ENTERTAINED ANY AMENDMENT IN THE ORDER. NO PAYMENT FOR SUCH ADDITIONAL ACTIVITIES WILL BE MADE TO YOU.' FROM THE WORK ORDER ISSUED BY LAFARGE INDIA, IT IS CLEAR THAT GETTING NOC FROM NHA AND DEALING WITH LOCAL VILLAGE RS WAS UNDER CONTRACTORS SCOPE. THUS, IT IS CLEAR THAT LIAISONIN G WORK WAS INSEPARABLE PART OF THE WORK ORDER GIVEN BY LAFARGE INDIA TO THE APPELLANT. THEREFORE, FOR THE PURPOSE OF ESTIMATING THE INCOME BY APPLYING ANY REASONABLE RATE OF PROFIT, THE INCOME CREDITED UNDER THE HEAD LIAISONING AND CONSULTENACY CANNOT BE EX CLUDED. THE PROFIT HAS TO BE COMPUTED BY APPLYING A REASONABLE RATE OF PROFIT ON THE ENTIRE CONTRACTUAL RECEIPTS, INCLUDING THE R ECEIPTS UNDER THE HEAD LIAISONING AND CONSULTENACY WORK. I AM O F THE CONSIDERING VIEW THAT IT WOULD BE FAIR AND REASONAB LE TO ESTIMATE THE INCOME OF THE APPELLANT ON TOTAL CONTRACTUAL RE CEIPTS OF RS. 9,03,14,148/- BY APPLYING THE NET PROFIT RATE O F 8% BEFORE ALLOWING THE INTEREST, DEPRECIATION AND REMU NERATION TO PARTNERS. THUS, THE NET PROFIT OF THE APPELLANT IS WORKED ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 17 OUT TO RS. 72,25,132/- (8% OF RS. 9,03,14,148). AS ALLOWED IN THE ASSESSMENT ORDER BY THE AO HIMSELF, A FURTHE R DEDUCTION FOR DEPRECIATION, INTEREST AND REMUNERATI ON TO PARTNERS SHALL BE ALLOWED FROM THE INCOME OF RS. 72 ,25,132/- FROM CONTRACTUAL RECEIPTS. THUS, THE LD. CIT(A) HAS CONSIDERED THE TERMS AND C ONDITIONS OF THE CONTRACT/WORK ORDER AND FOUND THAT THE LIASIONING W ORK IS INSEPARABLE PART OF THE WORK ORDER GIVEN BY LAFARGE INDIA TO TH E ASSESSEE. THE REVENUE HAS NOT DISPUTED THE TERMS AND CONDITIONS O F WORK ORDER AS REPRODUCED BY THE LD. CIT(A). ACCORDINGLY, TO THE E XTENT TO FACT THE ENTIRE RECEIPT AS CONTRACT RECEIPT WE DO NOT FIND A NY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A). 7. AS REGARDS THE NET PROFIT APPLY AT 8% WE FIND T HAT THE AO HAS NOT APPLIED ANY COMPARABLE CASE OR THE PREVAILING R ATE IN THE PARTICULAR INDUSTRY THEREFORE, THE ESTIMATION OF THE NET PROFI T @ 8% BY THE AO IS WITHOUT ANY BASIS. SINCE, WE HAVE ALREADY DECIDED T HE ISSUE OF REJECTION OF ACCOUNTS THEREFORE, THIS ISSUE BECOMES ACADEMIC IN NATURE. HOWEVER, WE FIND THAT HAVING REGARD TO THE FACT THAT THIS IS THE FIRST YEAR OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFORE, TH E INCOME DECLARED BY THE ASSESSEE AT GP RATE 7.44% IN OUR VIEW CANNOT BE DEFAULTED WITH. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE AUTHORIT IES BELOW ON ACCOUNT ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 18 OF ADOPTING THE NET PROFIT AT 8%. IT IS WELL SETTLE D LAW THAT THE REJECTION OF BOOKS OF ACCOUNT MAY NOT NECESSARY LEAD TO AN AD DITION TO THE DECLARED INCOME OF THE ASSESEE IF THE INCOME DECLAR ED BY THE ASSESSEE IS REASONABLE AND IN LINE WITH THE COMPARABLE BENCH MARK. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE W E ARE OF CONSIDERED OPINION THAT NO ADDITION IS CALLED FOR EVEN IF THE BOOKS OF ACCOUNT ARE REJECTED U/S 145(3) OF THE INCOME TAX ACT. 8. GROUND NO. 3 IS REGARDING NON GRANT OF TDS CREDI T ARISING ON THE AMOUNT RECEIVED BY THE ASSESSEE UNDER THE WORK ORDE R. THE ASSESSEE RECEIVED MOBILIZATION ADVANCE OF RS. 1,82,04,082/- FROM M/S ILFS ENGINEERING & CONSTRUCTION CO. LTD. SINCE, THE ASSE SSEE HAS NOT CARRIED OUT ANY WORK ON THE SAID PROJECT THEREFORE, THE TDS DEDUCTED ON THE SAID ADVANCE RECEIVED BY THE ASSESSEE WAS DENIED BY THE AO FOR THE CREDIT IN THE TAX LIABILITY. THE ASSESSEE HAS ALSO FURNISHED A BANK GUARANTEE OF RS. 3,80,00,000/- FOR RECEIVING THIS M OBILIZATION OF ADVANCE FROM M/S ILFS ENGINEERING & CONSTRUCTION CO . LTD. THE DENIAL OF TDS CREDIT BY THE AO WAS CHALLENGED BY THE ASSES SEE BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 9. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THIS CREDIT OF TDS WAS IN THE ACCOUNT OF THE ASSESSEE PA RTNERSHIP FIRM ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 19 HOWEVER, IN THE NEXT YEAR THE ASSESSEES FIRM WAS T AKEN OVER BY THE COMPANY AND THEREFORE, THE CREDIT OF THE SAID TDS I S NOT AVAILABLE IN THE HAND OF THE COMPANY. HENCE, HE HAS SUBMITTED THAT THE CREDIT OF THE TDS MAY BE ALLOWED TO THE ASSESSEE KEEPING IN VIEW THE PECULIAR CIRCUMSTANCES THAT THE PARTNERSHIP FIRM HAS BEEN TA KEN OVER BY THE COMPANY IN THE NEXT YEAR. 10. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT WH EN THE ASSESSEE HAS NOT OFFERED ANY INCOME IN RESPECT OF THE ADVANC E RECEIPTS THEN THE TDS DEDUCTED ON THE SAID PAYMENT IS NOT AVAILABLE F OR CREDIT DURING THE YEAR UNDER CONSIDERATION. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT AS PER THE PROVISI ONS OF 219 OF THE ACT TAX CREDIT ON ACCOUNT OF TDS IS AVAILABLE IN RESPEC T OF THE CORRESPONDING INCOME OFFERED TO TAX BY THE ASSESSEE. SINCE, IN TH E CASE IN HAND THE TDS WAS DEDUCTED ON THE AMOUNT WHICH WAS RECEIVED B Y THE ASSESSEE AS MOBILIZATION ADVANCE AND THE SAID AMOUNT HAS TO BE RECOGNIZED AS INCOME OF THE ASSESSEE IN THE SUBSEQUENT YEAR HOWEV ER, DUE TO THE SUCCESSION OF BUSINESS OF THE ASSESSEES PARTNERSHI P FIRM BY THE COMPANY THE SAID TDS IN THE NAME OF THE ASSESSEE FI RM WILL NOT AUTOMATICALLY AVAILABLE FOR CREDIT TO THE SAID COMP ANY. ACCORDINGLY, WE ITA NO. 364 & 374 /JP/2017 ITO V. M/S DREAMAX INFRASTRUCTURE DEVELOPERS 20 DIRECT THE AO TO ALLOW THE CREDIT OF THE TDS AVAILA BLE IN THE ACCOUNT OF THE ASSESSEE FIRM WHICH HAS CEASED TO EXIST DUE TO THE SUCCESSION OF THE BUSINESS ACTIVITY BY THE COMPANY IN THE SUBSEQU ENT YEAR WHENEVER THE SAID RECEIPT OR PART OF THE RECEIPT IS RECOGNIZ ED AS INCOME BY THE COMPANY. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED AND CROSS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/05/2018. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/05/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ITO, WARD-6(2)/ WARD-5(4), JAIPU R 2. IZR;FKHZ@ THE RESPONDENT- M/S DREAMAX INFRASTRUCTURE DEVELOPE RS, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 364 &374/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR