M/s Om Construction Company, Tikamgarh V. J. C.I.T., Range-1, Gwalior

ITA 368/AGR/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76564 (ITAT-AGRA)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-05-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 12-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RADHA RANI
• Assessee Lawyers: RAJENDRA SHARMA
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO. 368/AGRA/2013 ASSTT. YEAR : 2010-11 M/S. OM CONSTRUCTION COMPANY, VS. JT. COMMISSIONER OF BRAMHAN COLONY, KUNWARPURA ROAD, INCOME TAX RANGE -1, TIKAMGARH (MP). GWALIOR. (PAN : AAAFO 9110F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE RESPONDENT BY : SMT. RADHA RANI, JR. D.R. DATE OF HEARING : 02.05.2014 DATE OF PRONOUNCEMENT OF ORDER : 02.05.2014 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A), GWALIOR DATED 18.10.2013 FOR THE ASSESSMENT YEAR 20 10-11, CHALLENGING THE ESTIMATE OF INCOME BY APPLYING NP RATE OF 6.5%. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PARTNERSHIP FIRM AND IS DERIVING INCOME FROM CIVIL CONTRACT BUSINESS. DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS DECLARED TOTAL SALES OF RS .8.89 CRORES YIELDING NET PROFIT AT 2.49% AS AGAINST TOTAL SALES OF RS.4.50 CRORES D ECLARED IN LAST YEAR ON WHICH NET PROFIT RATE COMES TO 2.66%. THE ASSESSEE PRODUCED B OOKS OF ACCOUNT AND OTHER ITA NO. 368/AGRA/2013 2 DETAILS BEFORE THE AO. HOWEVER, THE AO NOTED CERTAI N DISCREPANCIES AND MAINLY IN THE CLAIM OF WAGES. THE AO FOUND THE NET PROFIT RAT E DECLARED BY THE ASSESSEE AT 2.49% VERY LOW. IT WAS FOUND THAT NEITHER THE WAGES HAVE BEEN PAID FORTNIGHTLY NOR WEEKLY. THERE IS NO SITE NAME OF WAGES PAID AS PER LABOUR SHEET. ONLY THUMB IMPRESSIONS AGAINST RECEIPTS HAVE BEEN OBTAINED OF FEW PERSONS. THE WAGES PAID ARE NEARLY 50% OF THE RECEIPT. THE ASSESSEE WAS, TH EREFORE, ASKED AS TO WHY BOOK RESULTS BE NOT REJECTED AND HIGHER PROFIT RATE OF 8 % MAY NOT BE APPLIED. THE ASSESSEE EXPLAINED BEFORE THE AO THAT PROPER RECORD S ARE MAINTAINED AND EACH ENTRY OF WAGES HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. IN THIS YEAR, THERE WAS NO WORK OF BITUMEN, BUT THE WORK WAS RELATED TO WBM AN D IN THIS KIND OF WORK, LABOUR CHARGES ARE ON VERY HIGHER SIDE. IT WAS ALSO EXPLAINED THAT THE ASSESSEE WAS NOT HAVING SUFFICIENT PLANT AND MACHINERY AND THE W ORK IS COMPLETED WITH THE HELP OF LABOUR. PROFIT RATE DECLARED AT 2.49% IS REASONA BLE AS COMPARED TO THE LAST YEAR. THE CONTRACT WORK WAS AWARDED TWO TO THREE YEARS BA CK AND THE COST OF MATERIAL AND WAGES WAS COMPARATIVELY LESS AND WHEN WORK WAS EXECUTED, THE COST OF RAW MATERIAL AND LABOUR HAS INCREASED. THE ASSESSEE IS ALSO NOT HAVING SUFFICIENT CAPITAL, THEREFORE, REMAINED DEPENDENT UPON HIGHER RATE OF CREDITS. THE WORK IS EXECUTED IN FAR AWAY PLACES AND THE ASSESSEE ADMITT ED THAT CERTAIN PAYMENTS OF WAGES ARE NOT SUPPORTED BY VOUCHERS. THE ASSESSEE, THEREFORE, AGREED FOR APPLICATION OF NET PROFIT RATE OF 4% ON THE GROSS R ECEIPTS BEFORE SALARY AND INTEREST PAID TO THE PARTNERS. THE AO CONSIDERING THE EXPLAN ATION OF THE ASSESSEE REJECTED ITA NO. 368/AGRA/2013 3 THE BOOK RESULTS AND APPLIED NET PROFIT RATE OF 6.5 % ON THE RECEIPTS BEFORE ALLOWING INTEREST AND SALARY TO THE PARTNERS AND MADE ADDITI ON OF RS.35,63,557/-. THE ASSESSEE PLEADED BEFORE THE LD. CIT(A) SAME FACTS A ND ALSO THAT THE HISTORY OF THE ASSESSEE MAY BE CONSIDERED FOR THE PURPOSE OF MAKIN G ADDITION. THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND DISMISSED THE APPEAL OF THE ASSESSEE. 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MA TERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT IN PRECEDING ASSESSMENT YE AR 2009-10, NP RATE DECLARED WAS 2.66% AND IN ASSESSMENT YEAR 2008-09, THE NET P ROFIT RATE DISCLOSED BY THE ASSESSEE WAS 3.05%. HE HAS SUBMITTED THAT IN CASE O F REJECTION OF BOOKS OF ACCOUNT, HISTORY OF THE ASSESSEE MAY BE CONSIDERED FOR THE P URPOSE OF ESTIMATING THE INCOME. HE HAS RELIED UPON THE FOLLOWING DECISIONS : (I). DECISION OF HONBLE M.P. HIGH COURT IN THE CA SE OF DINANATH DUBEY VS. CIT, 160 ITR 1 (MP), IN WHICH IT WAS HELD AS UN DER : REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE NOT B EING IN CONTROVERSY, APPLICATION OF THE RATE OF PROFIT IN A CCORDANCE WITH THAT APPLIED IN THE EARLIER YEARS IS REALLY A QUESTION OF FACT IN THE PRESENT CASE. AT ANY RATE, THERE IS NOTHING TO INDICATE THA T THE TRIBUNALS FINDING ON THIS POINT IS UNJUSTIFIED. ITA NO. 368/AGRA/2013 4 (II). DECISION OF PUNJAB & HARYANA HIGH COURT IN T HE CASE OF CIT VS. PAWAN KUMAR , 316 ITR 324, IN WHICH IT WAS HELD AS UNDER : TRIBUNAL HAVING APPLIED GP RATE OF 10 PER CENT TO ESTIMATED SALES OF BRICKS AFTER CONSIDERING ASSESSEES PAST H ISTORY AND THE GP RATE IN SUBSEQUENT YEARS AS AGAINST 14 PER CENT APP LIED BY THE AO, FINDING OF THE TRIBUNAL IS A PURE FINDING OF FACT A ND NO SUBSTANTIAL QUESTION OF LAW ARISES FOR DETERMINATION. (III). DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. INANI MARBLES (P) LTD., 316 ITR 125, IN WHICH IT WAS HELD AS UNDE R : ASSESSEES OWN RESULT OF IMMEDIATELY PRECEDING ASS ESSMENT YEAR AT 2.51 PER CENT HAVING BEEN ACCEPTED UPTO THE LEVEL OF TRIBUNAL, TRIBUNAL WAS JUSTIFIED IN APPLYING THE SAME GP RATE FOR THE ASSESSMENT YEAR IN QUESTION AS AGAINST 15 PER CENT APPLIED BY THE AO AND 2.30 PER CENT DECLARED BY THE ASSESSEE. (IV). DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF DELTA ENGINEERING CO. (P) LTD. VS. CIT, 186 ITR 383, WHER EIN IT WAS HELD AS UNDER : THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT WAS F OUND THAT IT DID NOT MAINTAIN ACCOUNTS IN A PROPER MANNER; THEY WERE MAINTAINED ON LOOSE SHEETS. ACCORDINGLY, THEY WERE REJECTED. H AVING REJECTED THE ACCOUNTS, THE AUTHORITIES MADE AN ESTIMATE OF THE I NCOME ON THE BASIS OF MATERIAL AVAILABLE AND THE PAST ASSESSMENT ORDER S. IN THE CIRCUMSTANCES, IT CANNOT BE SUGGESTED THAT THE ESTI MATE MADE IS A PURE GUESS OR THAT IT IS NOT BASED ON RELEVANT MATERIAL. NO QUESTION OF LAW CAN BE SAID TO ARISE FROM THE ORDER OF THE TRIBUNAL . ITA NO. 368/AGRA/2013 5 HE HAS SUBMITTED THAT THOUGH THE ASSESSEE HAS AGREE D FOR APPLYING NET PROFIT RATE OF 4%, WHICH IS ALSO EXCESSIVE AS AGAINST HISTORY OF T HE ASSESSEE, BUT HE MADE THE STATEMENT AT BAR THAT 4% NET PROFIT RATE MAY BE APP LIED AS AGAINST 6.5% APPLIED BY THE AUTHORITIES BELOW. THE LD. DR RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 4. ON CONSIDERATION OF THE FACTS OF THE CASE IN THE LIGHT OF THE CASE LAWS CITED ABOVE, WE ARE OF THE VIEW THAT REJECTION OF BOOKS O F ACCOUNT HAS NOT BEEN CHALLENGED BY THE ASSESSEE. THEREFORE, NO FURTHER I NTERFERENCE IS CALLED FOR IN THE MATTER. HOWEVER, WE ARE OF THE VIEW THAT AUTHORITIE S BELOW HAVE APPLIED EXCESSIVE NET PROFIT RATE OF 6.5% AGAINST TOTAL RECEIPTS BEFO RE ALLOWING INTEREST AND SALARY TO THE PARTNERS. HISTORY OF THE ASSESSEE CLEARLY SUGGE STS THAT THE ASSESSEE HAS REASONABLY DECLARED PROFIT RATE OF 2.49% AS AGAINST 2.66% OF THE PRECEDING ASSESSMENT YEAR. THE TOTAL RECEIPTS OF THE ASSESSEE HAVE ADMITTEDLY EXCEEDED VERY HIGH AS AGAINST THE RECEIPTS DECLARED IN THE LAST Y EAR. THEREFORE, WHEN THE RECEIPTS HAVE EXCEEDED, THERE IS BOUND TO BE FALL IN THE NET PROFIT. THE EXPLANATION OF THE ASSESSEE ALSO SUGGESTS THAT LABOUR/WAGES PAID WAS A NECESSARY COMPONENT FOR THE PURPOSE OF EXECUTING THE CONTRACT. THEREFORE, IN TH E LIGHT OF THE DECISIONS CITED ABOVE AND THE HISTORY OF THE ASSESSEE NOTED ABOVE, IT IS CLEAR THAT THE PROFIT RATE APPLIED BY THE AUTHORITIES BELOW AT 6.5% IS VERY EX CESSIVE AND UNREASONABLE. THE ASSESSEE HAS AGREED FOR APPLICATION OF NET PROFIT R ATE OF 4% OF THE GROSS RECEIPTS BEFORE SALARY AND INTEREST TO THE PARTNERS BEFORE T HE AO, WHICH IN OUR VIEW IS MOST ITA NO. 368/AGRA/2013 6 REASONABLE AND APPROPRIATE CONSIDERING THE PREVIOUS HISTORY OF THE ASSESSEE AND FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, TO MEET THE ENDS OF JUSTICE, WE MODIFY THE ORDERS OF THE AUTHORITIES BELOW AND DIRE CT THE AO TO APPLY NET PROFIT RATE OF 4% OF THE GROSS RECEIPTS BEFORE SALARY AND INTER EST TO THE PARTNERS FOR THE PURPOSE OF ESTIMATING BUSINESS INCOME OF THE ASSESSEE. THE AO IS DIRECTED TO PASS CONSEQUENTIAL ORDER ACCORDINGLY. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.05.2014 A FTER CONCLUSION OF HEARING. SD/- SD/- (PRAMOD KUMAR) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY