Income tax Officer, Nawanshahr V. M/s. Surinder Pal Nayyar Contractors, Nawanshahr

ITA 366/ASR/2010

• Counselvise Citation: 36620914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN SINGLA
• Keywords: Depreciation; Revised return
• Section: 44AD; 143(3)

Judgement Text

ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 366(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN: INCOME TAX OFFICER, VS. M/S SURINDER PAL NAYYAR, C ONTRACTORS, NAWANSHAHAR. VPO BEHARAM, DISTT. NAWANSHAHAR. (APPELLANT) (RESPONDENT) C.O. NO.30(ASR)/2010 (ARISING OUT OF ITA NO.366(ASR)/2010) ASSESSMENT YEAR : 2006-07 M/S. SURINDER PAL NAYYAR CONTRACTORS, VS. INCOME TA X OFFICER, BEHRAM, DISTT. NAWANSHAHAR. NAWANSHAHAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY:SH. TARSEM LAL, DR ASSESSEE BY: SH. ARUN SINGLA, ADV. DATE OF HEARING :30/04/2012 DATE OF PRONOUNCEMENT:30/04/2012 ORDER PER BENCH; THE APPEAL BY THE REVENUE AND C.O. BY THE ASSESSE E ARE DIRECTED AGAINST THE ORDER OF THE CIT(A), JALANDHAR, DATED 1 1.06.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 2 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DIRECTING THE AO TO APPL Y NET PROFIT RATE OF 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO PARTNERS ON ASSESSEES TURNOVER AS AGAINST 8% APPLIED BY THE AO. 1.1 WHILE DOING SO THE LD. CIT(A) FAILED TO APPRECI ATE THAT: I) THE RATE APPLIED BY THE AO IS THE RATE PRESCRIB ED IN THE IT ACT FOR ESTIMATION OF INCOME OF CONTRACTORS WHO DO NOT MAINTAIN BOOKS OF ACCOUNT. THUS, THE RATE APPLIED B Y AO CARRIED THE WEIGHT OF LOGIC OF STATUTE. THE ESTIMATE MADE B Y TE AO IN APPLYING RATE OF 8% WAS A FAIR ESTIMATE AS IT WAS I N CONSONANCE WITH THE SPIRIT OF SECTION 44AD WHEREIN THE LEGISLA TURE HAS TAKEN THE RATE OF 8% IN A NO BOOKS OF ACCOUNT CASE TO BE A FAIR ESTIMATE. II) IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2001-02 THE ASSESSEE HAD ITSELF AGREED TO ADDITION BY APPLY ING NET PROFIT RATE OF 10% OF GROSS RECEIPTS SUBJECT TO ALLOWANCE OF SALARY AND INTEREST TO PARTNERS AND DEPRECIATION. III) THERE ARE VARIOUS DECISIONS OF HONBLE HIGH C OURTS AND TRIBUNALS WHICH LAY DOWN THE PROPOSITION THAT ESTIM ATION OF INCOME WITH OR WITHOUT ALLOWING INTEREST AND DEPREC IATION WERE A MATTER OF FACT AND NO RIGID FORMULA TO BE MADE IN THIS SITUATION. THE AO HAS TO MAKE THE ESTIMATE BASED ON THE FACTS OF THE CASE. 3. IN THE C.O. THE ASSESSEE HAS TAKEN FOLLOWING GRO UNDS : 1) THAT THE ORDER OF AUTHORITIES BELOW IS BASED ON PUR E GUESS WORK, ARBITRARY, PREJUDICE AS WELL AS WITHOUT ANY ADVERSE MATERIAL PLACED ON RECORD. 2) THAT THE AUTHORITIES BELOW HAS COMPLETELY ERRED IN LAW AND ON FACTS IN DISALLOWING DECLARED LOSS AT RS.417515/- O N THE BASIS OF CONJECTURE, SURMISES AND WITHOUT ANY COGENT REASONS . 3) THAT THE LD. AO HAS GROSSLY ERRED ARBITRARILY IN AP PLY FLAT RATE ON THE TOTAL RECEIPTS BY INVOKING PROVISIONS OF SEC TION 145(3) ARBITRARILY, FORMING PRIVATE OPINION AND IN THE ABS ENCE OF ANY ADVERSE MATERIAL PLACED ON THE FILE. HENCE, BOOKS O F ACCOUNTS MAY KINDLY BE ACCEPTED. 4) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN LAW IN DIRECTING TO APPLY NET P ROFIT RATE OF 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO PART NERS ON ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 3 TURNOVER AS AGAINST 8% APPLIED BY THE AO. THE APPLI CATION OF 5% RATE MERIT DELETION, SINCE IT IS BASED ON OWN WH IMS AND CAPRICE. 4. THE BRIEF FACTS RELATING TO THE ISSUE IN DISPUTE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2006. DECLARING LOSS OF RS.4,40,514/- BUT IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS SHOW N NET PROFIT TRANSFERRED TO CAPITAL ACCOUNT. THE RETURN WAS DULY ACCOMPANIED BY COPIES OF BALANCE SHEET, PROFIT & LOSS ACCOUNT ETC. SUBSEQUENTLY, THE ASSESSEE HAS ALSO FILED REVISED RETURN ON 08.12.2008 BY DECLARING LOSS OF R S.4,17,515/-. THE ASSESSEE FIRM IS A BUILDER AND CONTRACTOR FOR ROAD CONSTRUCTION. THE AO ISSUED NOTICE TO THE ASSESSEE U/S 143(2) OF THE ACT AND IN RESPONSE TO THE SAME, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED THE BOOKS OF ACCOUNT AND OTHER DO CUMENTARY EVIDENCE. AFTER GOING THROUGH THE BOOKS OF ACCOUNT, RETURN OF INCOME AND OTHER DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE, THE AO NOTICED SOME DISCREPANCIES AND ISSUED SHOW CAUSE NOTICE DATED 28 .11.2008 ASKING THE ASSESSEE TO FILE DOCUMENTARY EVIDENCE. IN RESPONSE TO THE QUERY RAISED BY THE AO IN THE SHOW CAUSE NOTICE DATED 28.11.2008, THE A SSESSEE FILED ITS REPLY ON 28.11.2008. AFTER GOING THROUGH THE REPLY FILED BY THE ASSESSEE, THE AO WAS OF THE OPINION THAT THE BOOKS OF ACCOUNT OF THE ASS ESSEE ARE NOT RELIABLE AND THE SAME DESERVES TO BE REJECTED BY TAKING RECOURSE TO SECTION 145(3) OF THE ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 4 ACT. THE AO ACCORDINGLY REJECTED THE SAME AND CALCU LATED THE INCOME OF THE ASSESSEE AT 8% OF THE TOTAL RECEIPTS AND DID NOT A LLOW THE EXPENSES BEING FLAT RATE HAS BEEN APPLIED TO ESTIMATE THE INCOME OF THE ASSESSEE. THE AO FURTHER HELD THAT THE ASSESSEE HAS FILED ORIGINAL RETURN ON DUE DATE I.E. 30.10.2006. IN THE PROFIT & LOSS ACCOUNT NET PROFIT HAS BEEN SHOW N AT RS.4,67,515/- AND SUBSEQUENTLY THE ASSESSEE HAS ALSO FILED THE REVISE D RETURN AFTER THE DUE DATE ON 08.10.2008 CLAIMING THEREBY BUSINESS LOSS OF RS. 4,17,515.56 TO BE CARRIED FORWARD. THE AO WAS OF THE OPINION THAT THE RETURN OF LOSS MUST HAVE BEEN FURNISHED BEFORE DUE DATE PRESCRIBED U/S 139(1) OF THE ACT, OTHERWISE THE LOSS CANNOT BE ALLOWED TO BE CARRIED FORWARD. THE ASSES SEE HAS NOT FILED REVISED RETURN OF LOSS BEFORE DUE DATE. THEREFORE, THE BUSI NESS LOSS OF RS.4,17,515.56 PERTAINING TO THE ASSESSMENT YEAR 2006-07 CAN NOT B E ALLOWED TO BE CARRIED FORWARD AND HE ALLOWED THE BUSINESS LOSS OF RS.9,48 ,030/- PERTAINING TO THE ASSESSMENT YEAR 2005-06 TO BE CARRIED FORWARD AND H E COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 26.12.2008 BY M AKING THE ADDITION AT 8% OF GROSS RECEIPTS OF RS.2,38,01,582/- AMOUNTING TO RS.19,04,127/- LESS BROUGHT FORWARD BUSINESS LOSS FOR THE ASSESSMENT YE AR 2005-06 AMOUNTING TO RS.9,48,303/-, TOTALING RS.9,56,097/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 26.12.2008, THE ASSESSEE FILED THE APPEAL BEF ORE THE LD. FIRST APPELLATE AUTHORITY, WHO VIDE IMPUGNED ORDER DATED 11.06.2010 UPHELD THE ACTION OF ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 5 THE AO ON THE ISSUE OF REJECTION OF BOOKS OF ACCOUN T U/S 145(3) OF THE ACT AND ALSO MODIFIED THE ORDER OF THE AO BY HOLDING TH AT THE AO HAS NOT GIVEN ANY REASONABLE EXPLANATION WHILE APPLYING 8% RATE O N THE ASSESSEES GROSS RECEIPTS BECAUSE THE AO APPLIED 8% NET PROFIT RAT E WHEN THE ASSESSEES TURNOVER DOES NOT EXCEED RS.40 LACS. THE LD. FIRST APPELLATE AUTHORITY HAS ALSO HELD THAT USUALLY NET PROFIT RATE WOULD BE EXP ECTED TO FALL WITH THE INCREASE IN TURNOVER. THE INCOME ASSESSED IN THE AS SESSMENT YEAR 2001-02 IN ASSESSEES CASE WAS APPARENTLY 3.6% OF ITS NET RECE IPTS. IN THE ASSESSMENT YEAR, HOWEVER, VARIOUS DEFECTS POINTED OUT BY THE A O IN THE PRESENT ASSESSMENT ORDER HAD NOT BEEN HIGHLIGHTED AND THE LD. FIRST APPELLATE AUTHORITY CONSIDERING THE DEFECTS POINTED OUT BY T HE AO IN THE PRESENT ASSESSMENT ORDER HELD THAT IT WOULD BE REASONABLE T O ESTIMATE, NET PROFIT RATE OF 5%, AFTER ALLOWING DEPRECIATION AND INTEREST TO PARTNERS ON THE ASSESSES TURNOVER FOR THE RELEVANT ASSESSMENT YEAR IN DISPU TE. 5. THE LD. FIRST APPELLATE AUTHORITY DIRECTED THE A O IN THE IMPUGNED ORDER TO APPLY NET PROFIT RATE AT 5% AFTER ALLOWI NG DEPRECIATION AND INTEREST TO THE PARTNERS. THE LD. FIRST APPELLATE AUTHORITY HAS FURTHER HELD THAT SINCE RETURN OF LOSS WAS NOT FILED BY THE ASSESSEE WITHIN TIME PRESCRIBED FOR CARRIED FORWARD LOSS AS PER INCOME TAX ACT, THE LOSS CLAIME D IN THE REVISED RETURN CANNOT BE ALLOWED TO BE CARRIED FORWARD AND FINALLY HE PARTLY ALLOWED THE ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 6 APPEAL FILED BY THE ASSESSEE BY PASSING IMPUGNED OR DER DATED 11.06.2010. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE HAS FI LED THE PRESENT APPEAL AND THE ASSESSEE HAS FILED THE C.O. 6. AT THE TIME OF HEARING, THE LD. DR RELIED UPON T HE ORDER PASSED BY THE AO AND ON THE CONTRARY THE LD. COUNSEL FOR THE ASSE SSEE RELIED UPON THE ORDER PASSED BY THE LD. CIT(A) EXCEPT THE ISSUE RAI SED BY THE ASSESSEE IN THE C.O. 7. THE LD. DR FURTHER ARGUED THAT THE AO HAS RIGHT LY APPLIED THE PROVISIONS OF SECTION 145(3) OF THE ACT IN THE CASE OF THE ASSESSEE AND THE LD. FIRST APPELLATE AUTHORITY HAS ALSO RIGHTLY UPHELD T HE SAME. HE FURTHER STATED THAT THE LD. FIRST APPELLATE AUTHORITY HAS WRONGLY APPLIED NET PROFIT RATE OF 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO THE PAR TNERS ON THE ASSESSEES TURNOVER AS AGAINST 8% APPLIED BY THE AO WHICH IS W ITHOUT ANY BASIS AND CONTRARY TO THE FACTS OF THE PRESENT CASE. THE ASSE SSEE ITSELF AGREED FOR APPLYING NET PROFIT RATE AT 10% OF THE GROSS RECEIP TS SUBJECT TO THE ALLOWANCE OF SALARY AND INTEREST TO THE PARTNERS AND DEPRECIA TION FOR THE ASSESSMENT YEAR 2001-02. BUT WITHOUT ANY CHANGE OF FACTS AND CIRCU MSTANCES OF CASE, THE LD. FIRST APPELLATE AUTHORITY HAS WRONGLY APPLIED NET P ROFIT RATE OF 5% AND ALSO WRONGLY GIVEN THE BENEFIT OF ALLOWANCE OF DEPRECIAT ION AND INTEREST TO PARTNERS ON ASSESSEES TURNOVER. ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 7 8. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESSE E STATED THAT THE ASSESSEE HAS PRODUCED ALL NECESSARY EVIDENCE REQUIR ED BY THE AO, BEFORE THE AO AS WELL AS BEFORE THE LD. FIRST APPELLATE AUTHOR ITY. THEREFORE, THE AO HAS WRONGLY APPLIED SECTION 145(3) OF THE ACT AND LD. F IRST APPELLATE AUTHORITY HAS ALSO WRONGLY UPHELD THE SAME. AS REGARDS THE N ET PROFIT RATE OF 5%, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT IT IS ON H IGHER SIDE AND KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PRESENT CAS E, IT MAY BE REDUCED AS REQUESTED ORIGINALLY IN THE RETURN BY THE ASSESSEE. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATER IALS AVAILABLE WITH US. WE HAVE ALSO THOROUGHLY GONE THROUGH THE ORDER S PASSED BY THE REVENUE AUTHORITIES ON THE ISSUE RAISED BY THE DEPARTMENT AS WELL AS BY THE ASSESSEE. IT IS A MATTER OF RECORD THAT THE ASSESSEE HAS FILE D THE ORIGINAL RETURN ON 30.10.2008 BY DECLARING LOSS OF RS.4,40,514/- BUT S UBSEQUENTLY THE ASSESSEE HAS ALSO FILED REVISED RETURN ON 08.12.2008 BY DECL ARING LOSS OF RS.4,17,515/- AS MENTIONED BY THE AO AT PAGE 1. IT IS ALSO A MATT ER OF RECORD THAT AFTER CONSIDERING THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE AS WELL AS REPLY TO THE NOTICE DATED 28.11.2008, THE AO APPLIED PROV ISIONS OF SECTION 145(3) OF THE ACT IN THE CASE OF THE ASSESSEE BECAUSE THE ASSESSEE HAS NOT FILED SOME DOCUMENTARY EVIDENCE IN ORIGINAL BEFORE THE AO. THE REFORE, WE ARE OF THE OPINION THAT THE AO AS WELL AS THE LD. FIRST APPELL ATE AUTHORITY HAS RIGHTLY ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 8 APPLIED THE PROVISIONS OF SECTION 145(3) IN THE CAS E OF THE ASSESSEE. SECONDLY, AS REGARDS THE BENEFIT OF CARRIED FORWAR D LOSSES, KEEPING IN VIEW THE REVISED RETURN FILED BY THE ASSESSEE AFTER DUE DATE, WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR ANY CARRIED FORWA RD LOSSES AS DISCUSSED BY THE AO AND UPHELD BY THE LD. FIRST APPELLATE AUTHORITY. AS REGARDS TO THE APPLICATION OF NET PROFIT RATE AT 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO THE PARTNERS OF ASSESSEES TURNOVER AS AGAINST 8% APPLIED BY THE AO, IT IS A MATTER OF FACT THAT THE AO HAS NOT GIVEN ANY REASON ABLE EXPLANATION WHILE APPLYING 8% NET PROFIT RATE ON THE ASSESSEES GRO SS RECEIPTS FOR THE ASSESSMENT YEAR UNDER REFERENCE. THE INCOME ASSESSE D IN THE ASSESSMENT YEAR 2001-02 IN ASSESSEES CASE WAS APPARENTLY 3.6% OF ITS NET RECEIPTS. BUT IN THE PRESENT ASSESSMENT YEAR, THE AO HAS POINTED OUT VARIOUS DEFECTS IN THE ASSESSMENT ORDER. THE LD. CIT(A) CONSIDERING ALL T HE DEFECTS POINTED OUT BY THE AO AND FINALLY, VALIDLY AND REASONABLY DETERMIN ED THE NET PROFIT RATE AT 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO THE PARTNERS ON THE ASSESSEES TURNOVER. KEEPING IN VIEW THE FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY APPLIED NET PROFIT RATE OF 5% AFTER ALLOWIN G DEPRECIATION AND INTEREST TO THE PARTNERS ON ASSESSEES TURN OVER AS AGAINST 8% APPLIED BY THE A.O. WE ITA NO.366(ASR)/2010 & CO 30(ASR)/2010 9 UPHOLD THE IMPUGNED ORDER BY DISMISSING THE APPEAL FILED BY THE DEPARTMENT AS WELL AS C.O. FILED BY THE ASSESSEE. 10 IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS C.O. OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30TH APRIL, 2012. SD/- SD/- (B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30TH APRIL, 2012 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE: M/S. SURINDER PAL NAYYAR CONTRACTOR, DISTT. NAWANSHAHAR. 2. THE ITO, NAWANSHAHAR. 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, ITAT, ASR TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.