Shri Ramanbhai Dalpatbhai Patel, Surat V. The ACIT., Circle-3(1), Surat

ITA 366/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1960 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 22-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: R B SHAH
• Keywords: Unexplained cash credit; Business income
• Section: 142(1); 131; 68; 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.366/AHD/2007 A. Y.: 2003-04 RAMANBHAI DALPATBHAI PATEL, A-2, PREMJI NAGAR, SECTOR II, NR. SARDAR BRIDGE, ADAJAN ROAD, SURAT VS THE A. C. I. T., CIRCLE -3(1), AAYAKAR BHAVAN, MAJURA GATE, SURAT PA NO. ADWPP 3595 Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R. B. SHAH, AR RESPONDENT BY SHRI R. K. DHANISTA, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-II, SU RAT DATED 13 TH DECEMBER, 2006 FOR ASSESSMENT YEAR 2003-04. 2. EARLIER THIS APPEAL WAS DISMISSED FOR DEFAULT ON THE PART OF THE ASSESSEE; VIDE ORDER DATED 04-02-2010. THE SAME ORD ER WAS RECALLED WHILE ALLOWING MISC. APPLICATION OF THE ASSESSEE AN D THE APPEAL WAS ACCORDINGLY RE-FIXED FOR HEARING ON MERIT. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 2 4. ON GROUND NO.1, THE ASSESSEE CHALLENGED THE ORDE R OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION OF RS.5,4 7,500/- TREATING THE AGRICULTURAL INCOME AS BUSINESS INCOME. THE FACTS O F THE CASE ON THIS GROUND ARE THAT THE AO MADE THE ABOVE ADDITION TREA TING IT AS BUSINESS INCOME INSTEAD OF AGRICULTURAL INCOME CLAI MED BY THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS O F PROVIDING LABOURERS ON CONTRACT BASIS TO BSNL, SCL AND OTHER COMPANIES AND HAD DECLARED A TOTAL INCOME OF RS.4,34,963/- AS WEL L AS AGRICULTURAL INCOME OF RS.5,47,500/- IN THE RETURN OF INCOME FIL ED ON 28-11-2003. THE AO ISSUED A NOTICE U/S 143(2) OF THE IT ACT ON 12-10-2004 AND FURTHER NOTICE U/S 143(2) AND 142(1) OF THE IT ACT ON 25-7-2005. THERE WAS NO RESPONSE TO THESE NOTICES. SUBSEQUENTLY, THE AO ALSO ISSUED AT LEAST TEN OTHER NOTICES FIXING HEARING ON VARIOU S DATES. THIS INCLUDED A SUMMON U/S 131 OF THE IT ACT ISSUED ON 1 3-12-2005 AND SHOW CAUSE NOTICE ISSUED ON 8-2-2006, IN RESPONSE T O WHICH THE ASSESSEE APPEARED ON 19-12-2005 AND 17-2-2006, WHEN HIS STATEMENT WAS RECORDED ON OATH. HOWEVER, ON THE REM AINING DAYS, NEITHER THE ASSESSEE DID APPEAR BEFORE THE AO NOR D ID HE FILE ANY WRITTEN SUBMISSION IN RESPONSE EITHER TO THE STATUT ORY NOTICES OR TO THE SHOW CAUSE NOTICES. THE AO, THEREFORE, PROCEEDED TO REJECT THE ASSESSEES BOOKS OF ACCOUNT U/S 145 OF THE IT ACT A ND THEN TO COMPLETE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT U/S 144 OF THE IT ACT. THIS ACTION OF THE AO HAS NOT BEEN CHALLENGED IN APPEAL. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ISSUED A S UMMON ON 13-12-2005, SEEKING EXPLANATION FROM THE ASSESSEE W ITH REGARD TO AGRICULTURAL INCOME OF RS.5,47,500/- DISCLOSED IN T HE RETURN. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE APPEARED ON 19-12-2005 ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 3 AND STATED THAT HE OWNED, ALONG WITH HIS BROTHER LA ND MEASURING 4 HECTARES AND 39 GUNTHAS I.E. 10 VIGHAS OF AGRICULTU RAL LAND. HE ALSO SUBMITTED THAT HE CULTIVATED SUGARCANE AND RICE AND HE DID THE CULTIVATION ON HIS OWN AND NO CONTRACT HAD BEEN GIV EN TO ANYBODY. ON HIS REQUEST, THE PROCEEDINGS WERE ADJOURNED TO 27-1 2-2005 BUT HE FAILED TO ATTEND. THE AO ISSUED ANOTHER SHOW CAUSE NOTICE ON 27-12-2005 IN RESPONSE TO WHICH THE ASSESSEE APPEAR ED ON 17-2-2006 WHEN HIS STATEMENT WAS AGAIN RECORDED. TH IS TIME, HE SUBMITTED THAT HE WAS NOT IN A POSITION TO FURNISH ANY SALE BILLS PERTAINING TO THE AGRICULTURAL PRODUCE BECAUSE THE ENTIRE FARMING ACTIVITY HAD BEEN ENTRUSTED TO LABOURERS AND THAT H E WAS INVOLVED MOSTLY WITH HIS OWN BUSINESS. HE ALSO SUBMITTED THA T NO ACCOUNTS OF AGRICULTURAL ACTIVITY HAD BEEN MAINTAINED AND THAT THE AGRICULTURAL INCOME HAD BEEN COMPUTED AFTER DEDUCTING THE RELEVA NT EXPENSES. HE PROMISED TO PRODUCE A COPY OF HIS BANK ACCOUNT B EFORE THE AO. HOWEVER, HE SUBMITTED EXTRACTS FROM FORM NO.7/12 AN D 8A TO SUBSTANTIATE HIS CLAIM OF AGRICULTURAL ACTIVITY. SU CH EXTRACT MENTIONED THE CULTIVATION OF DANGER CROPS ONLY. THE ASSESSEE HOWEVER HAD FAILED TO APPEAR ON THE NEXT DATE OF HEARING ON 24- 2-2006 AS ALSO ON 2-3-2006. THIS WAS IN SPITE OF ANOTHER SUMMONS ISSU ED BY THE AO U/S 131 OF THE IT ACT. SINCE, THE ASSESSEE HAD FAILED T O FURNISH THE REQUISITE DETAILS, THE AO TOOK THE VIEW THAT THE GE NUINENESS OF THE CLAIM OF AGRICULTURAL INCOME HAD NOT BEEN ESTABLISH ED AND THAT THE ASSESSEE HAD DELIBERATELY WITHHELD THE REQUISITE EV IDENCE. THE AO, THEREFORE, TREATED THE SUM OF RS.5,47,500/- AS ASSE SSEES BUSINESS INCOME. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 4 5. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE HAD FURNISHED PROOF OF OWNERSHIP OF LAND BY FILING FORM NO.7/12 AND 8A. THE ASSESSEE STATED THAT SUGARCANE AND RICE HAD BEEN CULTIVATED ON THE SAID LAND AND NO CONTRACT HAD BEEN GIVEN TO ANYBODY. THE ASSESSEES FAILURE TO PRODUCE ANY EVIDENCE OF AGRIC ULTURAL INCOME IN THE FORM OF SALE BILLS ETC. WAS BECAUSE OF THE ACCO UNTANT WHO HAD LEFT THE JOB AND WAS NOT TRACEABLE. THE AO WAS NOT JUSTI FIED IN REJECTING THE CLAIM OF THE ASSESSEE BECAUSE THERE IS NO REQUI REMENT OF KEEPING THE ACCOUNTS RELATING TO AGRICULTURAL ACTIVITIES. M OREOVER, NO SEPARATE ADDITION ON ACCOUNT OF AGRICULTURAL INCOME COULD BE MADE BECAUSE THE GP ADDITION HAS BEEN MADE. 6. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE MATERIAL ON RECORD CONFIRMED THE ADDITION. HIS FINDINGS IN PARA 6 AND 6.1 OF THE APPELLATE ORDER ARE REPRODUCE D AS UNDER: 6. I DO NOT ACCEPT THE CONTENTIONS OF THE AR. THE ASSESSEE HAD CLEARLY STATED IN HIS STATEMENT RECORD ED ON OATH ON 17/2/2005 THAT, HE HAD NOT KEPT ANY ACCOUNT S PERTAINING TO THE AGRICULTURAL ACTIVITY, WHILE ON T HE OTHER HAND, THE AR HAS CLAIMED THAT THE EVIDENCE OF SALE OF AGRICULTURAL PRODUCE COULD NOT BE FURNISHED BECAUSE THE ACCOUNTANT HAD LEFT THE JOB. THERE IS THUS A CLEAR CONTRADICTION BETWEEN WHAT WAS STATED BEFORE THE AO AND WHAT HAS BEEN STATE BY THE AR BEFORE ME. IF NO ACCO UNTS WERE KEPT THEN, WHAT WAS THE NECESSITY OF APPOINTIN G AN ACCOUNTANT? AND, HOW DID HE WORK OUT THE NET INCOME ? HOW DID HE DETERMINE THE EXPENSES INCURRED ON FERTILIZERS, WATER AND LABOUR ETC., AS CLAIMED BY H IM? THE ARS CONTENTION THAT NO ACCOUNTS ARE REQUIRED TO BE MAINTAINED FOR AGRICULTURAL ACTIVITY IS NOT ACCEPTA BLE SINCE, NEITHER THE I. T. ACT NOR THE GUIDELINES OF THE INS TITUTE OF CHARTERED ACCOUNTANTS OF INDIA, DO NOT PROVIDE FOR SUCH ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 5 EXEMPTION. FURTHER, WHILE IN HIS STATEMENT RECORDED ON 19-12-2005, THE ASSESSEE HAD STATED ON OATH BEFORE THE AO THAT I HAVE TO STATE THAT I DO ALL ACTIVITY ON MY OWN YET, SUBSEQUENTLY IN HIS STATEMENT RECORDED ON 17/2 /2006, THE ASSESSEE STATED THAT THE ENTIRE AGRICULTURAL AC TIVITY HAD BEEN ENTRUSTED TO LABOURERS, AND THAT, HE WAS MOSTLY ENGAGED AND INVOLVED IN HIS BUSINESS OF CONT RACT WORK. THIS WAS ANOTHER CONTRADICTION. AGAIN, EVEN T HOUGH HE REPEATEDLY STATED THAT HE CULTIVATED ONLY SUGARC ANE AND RICE YET, REFERRING TO THE EXTRACTS OF FORMS NO .7/12 & 8A, THE ASSESSEE HIMSELF SAID THAT THE SAID DOCUMEN TS MENTIONED THE GROWING OF DANGER CROPS ONLY AND THAT , THERE WAS NO MENTION OF EITHER SUGARCANE OR RICE. T HIS CLEARLY SHOWED THAT IN REALITY, THE ASSESSEE DID NO T DO ANY CULTIVATION AT ALL, EVEN THOUGH HE MAY HAVE OWNED 1 0 VIGHAS OF LAND. HE WAS ALSO UNABLE TO PROVIDE ANY EVIDENCE AS TO WHETHER HE OWNED A TRACTOR WHICH IS A NECESSARY MACHINERY/EQUIPMENT FOR ANY AGRICULTURAL ACTIVITY. HIS EXPLANATION WAS THAT, SINCE THE TRACT OR WAS JOINTLY OWNED BY HIS BROTHER AND HIMSELF, THE OWNER SHIP OF SUCH TRACTOR WAS NOT SHOWN BY HIM. HE WAS ALSO UNAB LE TO SUBSTANTIATE HIS CLAIM THAT HE HAD TAKEN A LOAN FROM THE BANK OF BARODA, TO PURCHASE THE TRACTOR. ALL THESE FACTS CLEARLY GO TO SHOW THAT THE ASSESSEES CLAIM WAS ABSOLUTELY BOGUS. IN ANY CASE, AFTER APPEARING BEFO RE THE AO ON 17/2/2006, WHEN HIS STATEMENT WAS RECORDED AN D WHEN HE PROMISED TO FURNISH FURTHER DETAILS IN SUPP ORT OF HIS CLAIM, THE ASSESSEE FAILED TO APPEAR ON THE NEX T DATE I.E. ON 24/2/2006 AND ALSO TO RESPOND THE SUMMONS ISSUED U/S 131 OF THE I. T. ACT, REQUIRING HIS APPE ARANCE ON 2/3/2006. 6.1 THUS, TAKING INTO ACCOUNT THE TOTALITY OF THE F ACTS AND CIRCUMSTANCES OF THE CASE, INCLUDING THE CONTRADICT IONS IN THE STATEMENTS MADE BY THE ASSESSEE AS WELL AS THE WRITTEN SUBMISSIONS OF THE AR, AS ALSO THE ASSESSEE S INABILITY TO FURNISH FULL AND COMPLETE DETAILS AS R EQUIRED BY THE AO AND AS PROMISED BY HIM, IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN REJECTING THE ASSESSEES CLAIM A ND IN TREATING THE SUM OF RS.5,47,500 AS THE BUSINESS INC OME ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 6 OF THE ASSESSEE. THE ADDITION OF THE SAID SUM IS THEREFORE, CONFIRMED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE FILED PROOF OF OWNERSHIP OF AGRICULTURAL L AND OWNED BY THE ASSESSEE IN ABOUT 10 VIGHAS. HE HAS SUBMITTED THAT EVEN IF NO DETAILS COULD BE PRODUCED BUT THE ASSESSEE HAS NOW FILED DE TAILS OF AGRICULTURAL INCOME EARNED IN THE PRECEDING ASSESSM ENT YEARS. HE HAS SUBMITTED THAT IN ASSESSMENT YEAR 2000-01, 2001 -02 AND 2002- 03 AND ASSESSEE HAS EARNED AGRICULTURAL INCOME OF R S.4,51,500/-, RS.1,54,500/- AND RS.1,25,000/- AND THE SAME HAVE B EEN SHOWN IN THE RETURN OF INCOME BUT THE RETURNS HAVE BEEN PROC ESSED U/S 143(1) OF THE IT ACT. HE HAS, THEREFORE, SUBMITTED THAT ON ESTIMATE BASIS AGRICULTURAL INCOME MAY BE ESTIMATED IN THIS YEAR A LSO. 8. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE D ID NOT PRODUCE ANY SALE BILLS OF AGRICULTURAL PRODUCE AND NO OTHER DETAILS OF DOING AGRICULTURAL ACTIVITIES WAS FILED. THEREFORE, THE A DDITION HAS BEEN RIGHTLY MADE. THE LEARNED DR SUBMITTED THAT SINCE N O DETAILS HAVE BEEN FILED, THEREFORE, ADDITION MAY BE MAINTAINED. 9. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE ARE OF THE VIEW THAT THE AUTHORITIES BE LOW WERE JUSTIFIED IN MAKING THE ADDITION ON ACCOUNT OF AGRICULTURAL INCO ME TREATING AS BUSINESS INCOME. HOWEVER, EXCESSIVE ADDITION IS MAD E ON THIS ISSUE. IT IS ADMITTED FACT THAT ASSESSEE DID NOT COMPLY WI TH THE STATUTORY NOTICES AND NO SPECIFIC DETAILS HAVE BEEN FILED. NO DETAILS OF SALE BILLS OF ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 7 AGRICULTURAL PRODUCE AND DOING OTHER AGRICULTURAL A CTIVITIES HAVE BEEN FILED BUT IT IS UNDISPUTED FACT THAT THE ASSESSEE F ILED THE DOCUMENTS OF OWNERSHIP OF AGRICULTURAL LAND BEFORE THE AUTHORITI ES BELOW AND IT WAS CLAIMED THAT CULTIVATION WAS DONE BY THE ASSESSEE A ND THE ASSESSEE CULTIVATED SUGARCANE AND RICE. THEREFORE, THE AUTH ORITIES BELOW SHOULD HAVE CONSIDERED THE HISTORY OF THE ASSESSEE AND AVAILABILITY OF AGRICULTURAL INCOME EVEN IF NO FURTHER DETAILS OF A GRICULTURAL INCOME HAVE BEEN FILED. ASSESSEE CLAIMED THAT IN THE PRECE DING ASSESSMENT YEARS AGRICULTURAL INCOME WAS EARNED AS IS NOTED AB OVE. IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WOULD SHOW THAT THE ASSESSEE WAS MAKING CLAIM OF AGRICULTURAL INCOM E IN THE PAST ALSO THOUGH NO SCRUTINY ASSESSMENT HAS BEEN MADE. IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2002-03, THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME OF RS.1,25,000/- BUT IN THE PRE CEDING ASSESSMENT YEARS HIGHER AGRICULTURAL INCOME IS SHOWN. IT WOULD BE SUFFICIENT AND REASONABLE TO ACCEPT THE CLAIM OF THE ASSESSEE FOR AGRICULTURAL INCOME ON THE BASIS OF PRECEDING ASSESSMENT YEAR 20 02-03 IN A SUM OF RS.1,25,000/-. REST OF THE CLAIM OF THE ASSESSEE SHALL HAVE TO BE DISALLOWED BECAUSE OF NON-FURNISHING OF THE EVIDENC ES AND MATERIAL BEFORE THE AUTHORITIES BELOW. TO THAT EXTENT, WE DI RECT THE AUTHORITIES BELOW TO ACCEPT THE AGRICULTURAL INCOME IN A SUM OF RS.1,25,000/- ONLY AS AGAINST THE CLAIM OF RS.5,47,500/-. ORDERS OF TH E AUTHORITIES BELOW ARE ACCORDINGLY MODIFIED TO THAT EXTENT. IN THE RES ULT, ORDERS OF THE AUTHORITIES BELOW ARE MODIFIED TO THE EXTANT THAT T HE ASSESSEE WOULD BE ENTITLED FOR EARNING AGRICULTURAL INCOME IN A SU M OF RS.1,25,000/-. RESULTANTLY, THE ADDITION WOULD BE MAINTAINED IN A SUM OF RS.4,22,500/- TREATING AS BUSINESS INCOME AS IS ADO PTED BY THE AO. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 8 IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED. 10. ON GROUND NO.2, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.6,50,000/- FOR CAPITAL INTRODUCTION TREATING AS UNEXPLAINED CASH CREDIT. FROM THE SCRUTINY OF THE ASSESSEES CAPITA L ACCOUNT, THE AO FOUND THAT THE ASSESSEE HAS INTRODUCED CAPITAL OF R S.6,50,000/- IN CASH. SINCE, THE ASSESSEE HAD NOT FURNISHED ANY EXP LANATION OR DETAILS AND SINCE THE SOURCES OF SUCH CASH HAD NOT BEEN ESTABLISHED, THE AO TREATED THE SUM OF RS.6,50,000/- AS UNEXPLAI NED CASH CREDIT UNDER THE PROVISIONS OF SECTION 68 OF THE IT ACT. I T WAS CONTENDED BEFORE THE LEARNED CIT(A) THAT THE AO ISSUED SHOW C AUSE NOTICE AND PROPOSED TO DRAW ADVERSE INFERENCE ON AGRICULTURAL INCOME ONLY. THE CAPITAL OF RS.6,50,000/- WAS INTRODUCED OUT OF AGRI CULTURAL INCOME. THEREFORE, CAPITAL INTRODUCTION SHOULD HAVE BEEN TE LESCOPED TO THE EXTENT OF RS.5,47,500/- WHICH HAD BEEN CLAIMED AS A GRICULTURAL INCOME. THE LEARNED CIT(A) DID NOT ACCEPT THE CONTE NTION OF THE ASSESSEE BECAUSE NOTHING HAS PREVENTED THE AO FROM CONSIDERING UNEXPLAINED CASH CREDIT. THE AO PROVIDED SEVERAL OP PORTUNITIES TO THE ASSESSEE BUT NOTHING WAS REPRESENTED BEFORE THE AO. THE LEARNED CIT(A) ALSO DID NOT ACCEPT THE EARNING OF T HE AGRICULTURAL INCOME. THE LEARNED CIT(A) ALSO NOTED THAT TELESCO PING CAN ONLY BE DONE IN RESPECT OF INCOME AND EXPENDITURE. THE LEAR NED CIT(A) FURTHER NOTED THAT AGRICULTURAL INCOME WAS TREATED AS BUSINESS INCOME. THEREFORE, INCOME UNDER BOTH THE HEADS CANN OT BE TELESCOPED. THIS GROUND WAS ACCORDINGLY DISMISSED. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 9 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB-21 WHICH IS BALANCE SHEET IN WHICH RS.6,50,000/- WAS I NTRODUCED AS CASH IN THE CAPITAL ACCOUNT OF THE ASSESSEE AND FUR THER REFERRED TO PB-24 WHICH IS PROFIT & LOSS ACCOUNT TO SHOW THAT A GRICULTURAL INCOME IS NOT ADDED IN THE COMPUTATION OF INCOME. 12. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE SOURCE OF THE CASH INTRODUCED IS NOT EXPLAINED. NO EXPLANATION OR DETA ILS ARE FILED. THE ASSESSEE DID NOT COMPLY WITH ANY OF THE STATUTORY N OTICES. BUSINESS INCOME AND UNEXPLAINED CASH CREDIT ARE INCOME WHICH CANNOT BE TELESCOPED. 13. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT ADDITION IN PRINCIPLE IS CORRECTLY MADE BUT TH E ASSESSEE WOULD BE ENTITLED FOR TELESCOPING OF THE ADDITION MADE ON AC COUNT OF BUSINESS INCOME AS AGAINST THE CLAIM OF THE ASSESSEE FOR AGR ICULTURAL INCOME. THE ASSESSEE INTRODUCED CAPITAL IN THE FORM OF CASH IN A SUM OF RS.6,50,000/- BUT NO EVIDENCE AND DETAILS HAVE BEEN FURNISHED. THEREFORE, THE AO WAS JUSTIFIED IN TREATING IT TO B E UNEXPLAINED CASH CREDIT. HOWEVER, THE ASSESSEE MADE CLAIM BEFORE THE LEARNED CIT(A) THAT SUCH CAPITAL WAS INTRODUCED OUT OF THE AGRICUL TURAL INCOME AND THE CAPITAL INTRODUCTION SHOULD HAVE BEEN TELESCOPE D TO THE EXTENT OF AGRICULTURAL INCOME. THE LEARNED CIT(A) HOWEVER, DI D NOT ACCEPT THE CLAIM OF THE ASSESSEE BECAUSE BOTH ARE INCOME UNDER DIFFERENT HEADS AND TELESCOPING CAN BE DONE IN RESPECT OF INCOME AN D EXPENDITURE. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 10 WE DO NOT AGREE WITH THE FINDING OF THE LEARNED CIT (A). THE ASSESSEES CLAIM IS MADE FOR EXCLUDING THE INTRODUC TION OF CASH BECAUSE THE ASSESSEE MADE CLAIM OF EARNING OF AGRIC ULTURAL INCOME WHICH IS ALSO NOT ADDED IN THE PROFIT & LOSS ACCOUN T AND THE CAPITAL ACCOUNT. THE AO TREATED THE ENTIRE AGRICULTURAL IN COME AS BUSINESS INCOME AND MADE ADDITION OF RS.5,47,500/-. WE HAVE CONSIDERED THE ISSUE OF AGRICULTURAL INCOME ON GROUND NO.1 AND ALL OWED THE BENEFIT OF EARNING OF AGRICULTURAL INCOME TO THE ASSESSEE I N A SUM OF RS.1,25,000/- BY CONSIDERING THE PREVIOUS HISTORY O F THE ASSESSEE. THUS, ADDITION WAS MAINTAINED ON ACCOUNT OF AGRICUL TURAL INCOME TREATING AS BUSINESS INCOME IN A SUM OF RS.4,22,5 00/- IT IS SUBSTANTIVE ADDITION MADE BY THE AUTHORITIES BELOW AND CONFIRMED BY THE TRIBUNAL. THEREFORE, SUCH ADDITION OF RS.4,22,5 00/- WOULD BE AVAILABLE TO THE ASSESSEE TO EXPLAIN THE INTRODUCTI ON OF THE AMOUNT OF CASH IN THE CAPITAL ACCOUNT. SUCH INCOME WAS TREATE D AS BUSINESS INCOME BY THE AUTHORITIES BELOW. THEREFORE, BUSINES S INCOME WOULD BE AVAILABLE TO THE ASSESSEE FOR THE PURPOSE OF INT RODUCING THE SAME IN THE BUSINESS AS CAPITAL OF THE ASSESSEE. THE ASS ESSEE WOULD BE ENTITLED FOR BENEFIT OF THE SAME ON TELESCOPING. SI NCE, WE HAVE MAINTAINED ADDITION OF RS.4,22,500/- ON ACCOUNT OF AGRICULTURAL INCOME TREATING IT TO BE BUSINESS INCOME, THEREFORE , SUCH INCOME IS AVAILABLE TO THE ASSESSEE WHICH SHALL HAVE TO BE AC CEPTED AS CAPITAL IN HAND IN THE HANDS OF THE ASSESSEE. HOWEVER, NOTH ING IS BROUGHT TO OUR NOTICE IF THE AGRICULTURAL INCOME CONSIDERED IN THE EARLIER YEAR WAS AVAILABLE TO THE ASSESSEE AS CASH IN HAND OR WAS SP ENT SOMEWHERE ELSE. THEREFORE, AT THE MOST, THE ASSESSEE WOULD BE ENTITLED FOR BENEFIT OF RS.4,22,500/- ON THIS ISSUE. WE ACCORDIN GLY MODIFY THE ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 11 ADDITION OF RS.6,50,000/- BY ALLOWING BENEFIT OF RS .4,22,500/- AND REDUCE/MODIFY THE ADDITION ON ACCOUNT OF UNEXPLAINE D CASH CREDIT TO RS.2,28,500/-. IN THE RESULT, ADDITION IS MAINTAINE D IN A SUM OF RS.2,28,500/- AS AGAINST ADDITION OF RS.6,50,000/-. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED PARTLY. 14, ON GROUND NO.3, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.18,81,661/- ON ACCOUNT OF GROSS PROFIT ON ESTIMA TE BASIS. THE AO OBSERVED THAT THE ASSESSEE HAD DISCLOSED GROSS RECE IPTS FROM CONTRACT WORK AT RS.1,88,16,615/-. SINCE, THE ASSES SEE HAD NOT FURNISHED ANY DETAILS WITH REGARD TO SUCH RECEIPTS, NOR HAD HE PROVIDED ANY WORKING OF EITHER GROSS PROFIT OR NET PROFIT, THE AO ESTIMATED THE GROSS PROFIT OF SUCH RECEIPTS AT 10% AND MADE ADDITION OF RS.18,81,661/-. 15. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO OUGHT TO HAVE ESTIMATED THE GROSS PROFIT IN REASONABLE AND R ATIONAL MANNER. RELIANCE HAS BEEN MADE TO THE DECISION OF THE HONB LE CALCUTTA HIGH COURT IN THE CASE OF RANI CHARRA TEA CO. 207 ITR 79 7. THE AO HAD NOT CITED ANY COMPARABLE CASE AND HAD NOT ALLOWED S ET OFF OF THE GROSS PROFIT DISCLOSED IN THE BOOKS OF ACCOUNT. THE ASSESSEE FURNISHED AUDITED ACCOUNTS, THEREFORE, ADDITION IS UNJUSTIFIED. IT WAS FURTHER SUBMITTED THAT CBDT HAD FIXED CRITERIA FOR TAKING THE CASE UNDER SCRUTINY ASSESSMENT WHERE CONTRACTOR IS HAVIN G CONTRACT RECEIPT OF LESS THAN RS.2 CRORES HAS SHOWN NET PROF IT BELOW 4%, THEREFORE, THE AO OUGHT TO HAVE ADOPTED 4% AS REASO NABLE RATE OF PROFIT. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 12 16. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ADDITION. HIS FINDINGS IN PA RA 14 AND 14.1 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 14. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . THE ASSESSEE HAS NOT CHALLENGED THE REJECTION OF THE BOOKS OF ACCOUNT BY THE AO. IT IS ALSO ESTABLISHED THAT THE ASSESSEE HAS NOT CO-OPERATED WITH THE AO IN COURSE OF THE ASSESSMENT PROCEEDINGS. NO DETAILS WERE FILED, NOR WEE THE BOOKS OF ACCOUNT PRODUCED. IN SUCH A SITUATION, THE AUDITED ACCOUNTS COULD NOT BE VERIFIED. THEREFORE, NO RELIANCE CAN BE PLACED ON THE AUDITED ACCOUNTS FURNISHED ALONG WITH THE RETURN OF INCOME. THE AR HAS ALSO NOT CHALLENGED THE ESTIMATION OF INCOME FROM THE CONTRACT RECEIPTS TOTALING TO RS.1,88,16,615. HIS ONLY GRIEVANCE IS THE RATE ADOPTED BY THE AO. HE HAS STATED THAT 4% WOULD HAVE BEEN A REASONABLE RATE. BUT, THE POINT TO NOTE HERE IS THAT, THE RATE INDICATED BY THE CBDT, AND THERE IS NO PRESCRIPTION ABOUT SUCH A RATE, AS 4% A S NET PROFIT RATE AND NOT GROSS PROFIT RATE. WHAT THE AO APPLIED WAS THE GROSS PROFIT RATE AND NOT THE NET PROFIT RATE. IF 4% BE ADOPTED AS THE N. P. RATE THE N, THE ADOPTION OF THE G. P. RATE AT 10% CANNOT BE TERMED AS UNREASONABLE OR WITHOUT ANY BASIS. ON HIS PART, THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE REGARDING THE GP OF EARLIER YEARS, SO AS T O SUBSTANTIATE THE GP DISCLOSED BY HIM DURING THE YEAR UNDER CONSIDERATION. REGARDING SET-OFF, THE AO MADE AN ADDITION OF RS.1,19,930, APPLYING A GP OF 20% ON SALES OF RS.17,50,977 AS AGAINST THE GP DISCLOSED BY THE ASSESSEE. THIS HAS NOT BEEN CHALLENGED BY THE ASSESSEE IN APPEAL. THE GP OF 10% WAS APPLIED BY THE AO ONLY ON THE CONTRACT RECEIPTS WHICH DID NOT INCLUDE THE SALES. THEREFORE , THERE CANNOT BE ANY QUESTION OF SETTING-OFF EITHER THE SUM OF RS.1,19,930 OR THE DISCLOSED GP AGAINST THE ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 13 SUM OF RS.18,81,661 WHICH THE AO SEPARATELY ADDED. 14.1 TAKING THE ABOVE INTO CONSIDERATION, IT IS HEL D THAT THE AO WAS FULLY JUSTIFIED IN MAKING THE ADDIT ION OF RS.18,81,661, WHICH WILL THEREFORE, STAND CONFIRMED. 17. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A CHART OF GP AND NP RATE AND SUBMITTED THAT IN THE ASSESSMENT YE AR UNDER APPEAL I.E. 2003-04 THE ASSESSEE HAS SHOWN GP RATE OF 7.81 % AND NP RATE OF 3.04% AS AGAINST SHOWN IN THE PRECEDING ASSESSME NT YEAR 2002- 03 AT GP RATE OF 8.87% AND NP RATE OF 3.88%. THE LE ARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT THE AUT HORITIES BELOW SHOULD HAVE ACCEPTED THE NP RATE OF THE ASSESSEE AS DISCLOSED IN THE PRECEDING ASSESSMENT YEAR. HE HAS FURTHER SUBMITTED THAT THE AO HAS MADE DOUBLE ADDITION BY TAKING INTO BUSINESS IN COME AS PER THE COMPUTATION OF INCOME EVEN IF GP RATE OF 10% IS APP LIED. HE HAS SUBMITTED THAT ONCE GP/NP RATE IS APPLIED, THE FIGU RE SHOWN IN THE COMPUTATION OF INCOME SHOULD NOT BE ADDED TWICE. 18. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE D ID NOT COMPLY WITH ANY OF THE STATUTORY NOTICES. THEREFORE, THE A O WAS RESORTED TO PROCEED EX-PARTE ASSESSMENT U/S 144 OF THE IT ACT. NO DETAILS WERE PRODUCED BEFORE THE AUTHORITIES BELOW AND EVEN THE REJECTION OF BOOKS OF ACCOUNT WAS NOT DISPUTED BEFORE THE LEARNE D CIT(A). THE LEARNED DR, THEREFORE, SUBMITTED THAT THE ADDITION MAY BE MAINTAINED AND THIS GROUND MAY BE DISMISSED. ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 14 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE ASSESSEE DID NOT PRODUCE THE DETAILS BEFOR E THE AO AS WELL AS DID NOT FURNISH ANY DETAILS WITH REGARD TO CONTR ACT RECEIPTS. NONE OF THE STATUTORY NOTICES HAVE BEEN COMPLIED WITH. EVEN , THE REJECTION OF BOOKS OF ACCOUNT WAS NOT CHALLENGED BEFORE THE LEAR NED CIT(A) AS IS NOTED IN THE APPELLATE ORDER REPRODUCED ABOVE. THES E FACTS WOULD SHOW THAT AUTHORITIES BELOW WERE JUSTIFIED IN REJEC TING THE BOOK RESULT OF THE ASSESSEE BECAUSE FURTHER NO DETAILS WERE FIL ED BEFORE THE LEARNED CIT(A) AND EVEN NO BOOKS OF ACCOUNT HAVE BE EN PRODUCED. VERIFICATION OF THE BOOK RESULTS AND THE AUDIT REPO RT COULD NOT BE DONE. THEREFORE, REJECTION OF BOOK RESULTS IS JUSTIFIED I N THE MATTER. THE ASSESSEE PLEADED BEFORE THE LEARNED CIT(A) THAT IN CASE CONTRACT RECEIPTS ARE LESS THAN RS.2 CRORES AND NP RATE IS B ELOW 4%, REASONABLE NP RATE COULD HAVE BEEN APPLIED AT 4% A S PER CBDT INSTRUCTION. THE TOTAL CONTRACT RECEIPT IN A SUM OF RS.1,88,16,615/- IS NOT IN DISPUTE. THEREFORE, IN SUCH A SITUATION WHEN THE GP/NP RATE IS TO BE APPLIED, THE AUTHORITIES BELOW SHOULD HAVE CO NSIDERED THE HISTORY OF THE ASSESSEE AND COMPARABLE CASES. HOWEV ER, NO COMPARABLE CASE HAS BEEN BROUGHT ON RECORD BY THE A O. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS SHOWN GP RATE OF 8 .87% AND IN THE ASSESSMENT YEAR UNDER APPEAL GP RATE IS SHOWN A T 7.81%. HOWEVER, NET PROFIT RAT4E IN THE ASSESSMENT YEAR UN DER APPEAL IS DISCLOSED AT 3.04% AND IN THE PRECEDING ASSESSMENT YEAR NET PROFIT RAT WAS SHOWN AT 3.88%. THE ASSESSEE MADE A CLAIM O F APPLICATION OF 4% NP RATE BEFORE THE LEARNED CIT(A). THEREFORE, IN OUR OPINION, CONSIDERING THE HISTORY OF THE ASSESSEE AND FACTS O F THE CASE IT WOULD ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 15 BE APPROPRIATE AND REASONABLE TO DIRECT THE AUTHORI TIES BELOW TO ADOPT NET PROFIT RATE OF 4% AGAINST DECLARED GROSS RECEIP TS FROM CONTRACT WORK AT RS.1,88,16,615/- IN ORDER TO ESTIMATE REASO NABLE PROFIT OF THE ASSESSEE. WHEN 4% NP RATE IS APPLIED AGAINST GROSS RECEIPTS, BUSINESS INCOME WOULD BE ESTIMATED IN A SUM OF RS,7 ,52,664/-. WE ACCORDINGLY, MODIFY THE ORDERS OF THE AUTHORITIES B ELOW AND DIRECT THE AO TO ADOPT BUSINESS INCOME OF THE ASSESSEE FROM CO NTRACT WORK IN A SUM OF RS.7,52,664/- AS AGAINST ADDITION MADE IN A SUM OF RS.18,81,661/-. WE ALSO DIRECT THE AO THAT NO FURTH ER ADDITION BE MADE BY TAKING THE FIGURE FROM THE PROFIT DECLARED IN THE COMPUTATION OF INCOME BECAUSE THE ABOVE FIGURE WOULD FINALLY SE TTLED ESTIMATED BUSINESS INCOME. IN THE RESULT, THIS GROUND OF APPE AL OF THE ASSESSEE IS ALLOWED PARTLY. 20. NO OTHER POINT IS ARGUED OR PRESSED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10-03-2011 SD- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 10-03-2011 LAKSHMIKANT/- ITA NO.366/AHD/2007 RAMANBHAI DALPATBHAI PATEL VS ACIT, CIR-3(1), SURAT 16 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD