M/s R.C.Construction Ltd, V. The Ad..C I T --1,

ITA 382/IND/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47750 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 20-08-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P K MITRA
• Keywords: Rejection of books of accounts
• Section: 234B; 144; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.382/IND/2008 A.Y. 2005-06 R.C. CONSTRUCTION BHOPAL PAN AAHFR-6923J APPELLANT VS ADDL. COMMISSIONER OF INCOME TAX RANGE 1, BHOPAL RESPONDENT ITA NO.409/IND/2008 A.Y. 2005-06 ASSTT. COMMISSIONER OF INCOME TAX 1(1), BHOPAL RESPONDENT VS. R.C. CONSTRUCTION BHOPAL RESPONDENT ASSESSEE BY : SHRI P.K. MITRA, SR. DR DEPARTMENT BY : SHRI H.P. VERMA ALONGWITH SHRI ASHISH GOYAL O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER 2 THESE CROSS APPEALS ARE BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A ) DATED 27.6.2008. THE ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN CONFIRMING THE ACTION OF THE A.O. FOR INVO KING THE PROVISIONS OF SECTION 145(3) BY REJECTING BOOKS OF ACCOUNTS AND ASSESSING THE INCOME AS IN THE MANNER PROVIDED UNDER SECTION 144 OF THE ACT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN SUSTAINING THE ADDITION OF RS. 1,41,456/- BY ESTIMATING THE NET PROFIT RATIO @ 5.5% INSTEAD OF 5 .02% AS SHOWN BY APPELLANT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN CONFIRMING THE ADDITION OF RS. 16,780/- BE ING DISALLOWANCE OUT OF TELEPHONE, CONVEYANCE AND VEHIC LE MAINTENANCE. 3 4. THAT UNDER THE CIRCUMSTANCES CHARGING OF INTERES T U/S 234B AND 234D IS NOT JUSTIFIED. 5. THAT UNDER THE CIRCUMSTANCES, INITIATION OF PENA LTY PROCEEDINGS U/S 271(1) IS NOT JUSTIFIED. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN 1. DELETING THE ADDITION OF RS.7,49,182/- OUT OF TO TAL ADDITION OF RS.8,90,638/- MADE BY THE ASSESSING OFFICER BY TAKING NET PROFIT RATE OF 8% ON GROSS RECEIPTS AFTER INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 2. DELETING THE ADDITION OF RS.1,85,216/- MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF EXPENSES UNDER SECTION 40(IA) OF THE IT ACT FOR NON DEDUCTION OF TDS ON SITE EXPENSES AND HIRE CHARGES. 3. DELETING THE ADDITION OF RS. 39,155/- OUT OF TOT AL ADDITION OF RS. 55,935/- MADE BY THE ASSESSING 4 OFFICER ON ACCOUNT OF DISALLOWANCE OF TELEPHONE, CONVEYANCE AND VEHICLE MAINTENANCE EXPENSES. 2. DURING HEARING, WE HAVE HEARD LEARNED REPRESENTA TIVES OF BOTH THE PARTIES. IN THE APPEAL OF THE ASSESSEE TH E FIRST GROUND PERTAINS TO INVOKING THE PROVISIONS OF SECTION 145( 3) IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ASSESSING THE INCOME IN THE MANNER PROVIDED U/S 144 OF THE ACT. BRIEF FACTS ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR AND ITS ACCOUNTS ARE CLAIMED TO BE AUDITED U/S 44AB OF THE ACT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE SHOWED TOTAL CONTR ACT RECEIPTS OF RS.4,13,70,980/- OUT OF WHICH THE STEEL SUPPLIED BY THE DEPARTMENT AMOUNTING TO RS. 1,14,03,710/- WAS R EDUCED RESULTING INTO NET CONTRACT RECEIPT OF RS. 2,99,67, 270/-. THE ASSESSEE SHOWED THE NET PROFIT BEFORE REMUNERATION TO PARTNERS AMOUNTING TO RS.18,06,744/- WHICH IS NEARLY 6.03% A ND AFTER REMUNERATION PAID TO PARTNERS, IT CAME TO RS.15,06, 744/- (WHICH IS 5.02%). THE LEARNED ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145( 3) AND ESTIMATED THE PROFIT AT THE RATE OF 8% AND FURTHER DISALLOWED 5 CERTAIN EXPENDITURE. THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(1) OF THE ACT AND THE INCOME RETURNED B Y THE ASSESSEE. THE CLAIM OF THE ASSESSEE IS THAT THE LEA RNED ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS WI THOUT POINTING OUT ANY MAJOR DEFICIENCY IN THE BOOKS OF A CCOUNTS. WE HAVE FOUND THAT THERE IS A FINDING IN THE ASSESSMEN T ORDER THAT THE ASSESSEE COULD NOT PRODUCE EVIDENCES IN SUPPORT OF LABOUR EXPENSES. THE ASSESSEE HAS FURTHER CLAIMED THAT DU E TO HEAVY RAINS, THE RELEVANT RECORD WAS DESTROYED, THEREFORE , THE RELEVANT RECORD COULD NOT BE PRODUCED WITH SUPPORTING EVIDEN CE. A PLEA WAS RAISED THAT SINCE THE ASSESSEE MAINTAINS REGULA R BOOKS OF ACCOUNTS WHICH ARE AUDITED ONE, THEREFORE, THERE IS NO VALID REASON FOR INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. HOWEVER, WE ARE OF THE VIEW THAT SINCE THE RELEVANT RECORD WAS NOT PRODUCED BY THE ASSESSEE ESPECIALLY OF CLAIMED LABOUR EXPENSES, THEREFORE, IN THE ABSENCE OF PROPER VOUCH ERS IN SUPPORT OF THE CLAIM OF EXPENSES AND FURTHER CLAIM OF LOW PROFIT LEGITIMATELY GIVE RISE TO AN INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS THEREFORE THE SAME CANNOT BE RELIED ON TO ASS ESS THE 6 CORRECT INCOME, PROFIT AND GAINS, CONSEQUENTLY, THE LEARNED ASSESSING OFFICER IS JUSTIFIED IN REJECTING THE BOO KS OF ACCOUNTS U/S 145(2) AND MAKING THE ASSESSMENT IN THE MANNER CONTEMPLATED IN THE PROVISIONS OF THE ACT. THE RA TIO LAID DOWN IN AVADHESH PRATAP SINGH ABDUL RAHMAN & BROTHERS V. CIT; 76 TAXMAN 106 (ALL), S.N.N. CHETTIAR V. CIT; 38 ITR 5 79 (SC) SUPPORT THE CASE OF THE REVENUE. CONSEQUENTLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 3. THE NEXT GROUND PERTAINS TO SUSTAINING THE ADDIT ION OF RS.1,41,456/- ESTIMATING THE NET PROFIT AT THE RATE OF 5.5% INSTEAD OF 5.02% SHOWN BY THE ASSESSEE. THE CRUX O F ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASS ESSEE APPLIED THE RATE AT 5.02% AGAINST WHICH THE LEARNED ASSESSING OFFICER APPLIED AT THE RATE OF 8% WHICH WAS REDUCED TO 5.50% BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) . IT WAS FURTHER SUBMITTED THAT IF THE PROFIT AFTER PAYMENT OF REMUNERATION TO PARTNERS IS ANALYSED, THERE IS INCR EASE IN THE PROFIT RATE FROM 3.48% TO 5.03%. A PLEA WAS ALSO R AISED THAT THERE IS 6.6 TIMES INCREASE IN TURNOVER (FROM RS. 3 5 LACS TO RS. 7 3 CRORES) AND SINCE THE REGULAR BOOKS OF ACCOUNTS A RE MAINTAINED BY THE ASSESSEE, THEREFORE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS RIGHT IN IT S CONCLUSION. RELIANCE WAS PLACED ON ITO VS. B.R. CON STRUCTION ; 3 ITJ 302 (INDORE). ON THE OTHER HAND, THE LEARNE D SENIOR DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE LD. FIRST APPELLATE AUTHORITY REDUCED THE PROFIT RATE WITHOUT ASSIGNING ANY REASON WHICH REQUIRES FRESH LOOK. 4. ON PERUSAL OF RECORD AND AFTER HEARING THE RI VAL SUBMISSIONS, IT IS SEEN THAT THE ASSESSING OFFICER MADE ADDITION OF RS.8,90,638/- ON ACCOUNT OF SUPPRESSED NET PROFIT BY ESTIMATING THE SAME AT THE RATE OF 8% ON THE GROSS WORK DONE BY THE ASSESSEE. THE STAND OF THE REVENUE IS THAT THE NET PROFIT RATE OF THE YEAR UNDER CONSIDERATION IS LOWER THAN THE NET PROFIT OF LAST YEAR. THE ASSESSING OFFICER HAS TAKEN NET PROFIT BEFORE REMUNERATION PAID TO PARTNERS. THE STAND OF THE AS SESSEE IS THAT THE ASSESSEE IS NEW IN THE CONSTRUCTION BUSINE SS DOES NOT KNOW THE TECHNICAL KNOWLEDGE OF THE FIELD WHICH RES ULTED INTO INCURRING OF EXTRA COST FOR THE WORK DONE BY THE AS SESSEE IN 8 COMPARISON TO OTHERS. THE TOTAL CONTRACT RECEIPTS FOR THE ASSESSMENT YEAR 2004-05 (RS. 39,42,042/-) ARE COMPA RED WITH THE ASSESSMENT YEAR 2005-06 (RS. 2,99,67,270/-), TH E NET PROFIT BEFORE REMUNERATION TO THE PARTNERS IS RS.3,16,260/ - AND RS.18,06,744/- RESPECTIVELY AND THE NET PROFIT RATI O BEFORE REMUNERATION COMES TO 8.02% (ASSESSMENT YEAR 2004-0 5) AND 6.03% (ASSESSMENT YEAR 2005-06). THE NET PROFIT RA TIO AFTER REMUNERATION COMES TO 3.48% (ASSESSMENT YEAR 04-05) AND 5.03% (ASSESSMENT YEAR 05-06). THE LEARNED ASSESSI NG OFFICER APPLIED THE NET PROFIT RATE AT 8% ON THE BA SIS OF PROFIT MARGIN OF OTHER FIRMS/PERSONS IN THE RELATED FIELD. KEEPING IN VIEW THE TOTALITY OF FACTS AND ALSO THAT NO PREJUDI CE IS CAUSED TO EITHER SIDE, WE ARE OF THE VIEW THAT IT WILL BE FAI R IF THE NET PROFIT RATE IS APPLIED AT 6.50% IN PLACE OF 8% ADOPTED BY THE LEARNED ASSESSING OFFICER AND 5.50% SUSTAINED BY THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) AGAINST THE CL AIM OF 5.02% MADE BY THE ASSESSEE, THEREFORE, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 9 5. THE NEXT GROUND RELATES TO CONFIRMING THE ADDIT ION OF RS.16,780/- BEING DISALLOWANCE OUT OF TELEPHONE, CO NVEYANCE AND VEHICLE MAINTENANCE. AFTER HEARING THE RIVAL S UBMISSIONS AND THE FACTS AVAILABLE ON RECORD, IT IS SEEN THAT THE ASSESSEE DEBITED RS. 52,340/- ON ACCOUNT OF TELEPHONE EXPENS ES, RS.89,324/- FOR CONVEYANCE EXPENSES AND RS.26,140/- FOR VEHICLE MAINTENANCE EXPENSES. IN THE ABSENCE OF DE TAILS FOR PERSONAL USE, THE LEARNED ASSESSING OFFICER DISALLO WED 1/3 RD OF CLAIMED EXPENSES. THUS, THE TOTAL AMOUNT OF RS.55, 935/- WAS DISALLOWED ON ACCOUNT OF PERSONAL USE BY THE PARTNE RS. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) RESTRICTED THE SAME AT 1/10 TH OF THE TOTAL EXPENSES. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THEREFORE, THIS GROUND IS DISMISSED. 6. THE NEXT GROUND PERTAINS TO CHARGING OF INTERES T U/S 234B AND 234D OF THE ACT. IN VIEW OF THE ARGUMENTS FRO M BOTH THE SIDES, IT IS CONSEQUENTIAL IN NATURE. AS FAR AS INI TIATION OF PENALTY 10 U/S 271(1) IS CONCERNED, IT IS PRE-MATURE AND REQU IRES NO ADJUDICATION. 7. IN THE APPEAL OF THE REVENUE, THE FIRST GROUND P ERTAINS TO ADDITION OF RS.8,90,638/- BY TAKING THE NET PROFIT RATE AT 8% BY THE ASSESSING OFFICER ON THE GROSS RECEIPTS AFTER I NVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE INVOC ATION OF NET PROFIT RATE HAS BEEN REDUCED BY THIS BENCH WHILE DI SPOSING OF THE APPEAL OF THE REVENUE (ITA NO. 382/IND/2008), T HEREFORE, THE SAME RATIO WILL BE APPLICABLE TO THE PRESENT AP PEAL, WHEREIN WE HAVE ADOPTED THE NET PROFIT RATE AT 6.50%, THERE FORE, THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. AS FAR AS INVOKING PROVISIONS OF SECTION 145(3) IS CONCERNED, IT HAS B EEN DECIDED AGAINST THE ASSESSEE (SUPRA). THIS GROUND OF THE R EVENUE IS PARTLY ALLOWED. 8. GROUND NOS. 2 AND 3 PERTAIN TO DELETING THE ADDI TION OF RS.1,85,216/- ON ACCOUNT OF DISALLOWANCE OF EXPENSE S U/S 40(IA) OF THE ACT FOR NON-DEDUCTION OF TDS ON SITE EXPENSES AND HIGHER CHARGES AND THE ADDITION OF RS.39,155/- OUT OF THE ADDITION OF RS.55,935/- ON ACCOUNT OF DISALLOWANCE OF 11 TELEPHONE, CONVEYANCE AND VEHICLE MAINTENANCE EXPEN SES, ETC. 9. ON CONSIDERATION OF RIVAL SUBMISSIONS AND ALSO O N PERUSAL OF RECORD, WE HAVE FOUND THAT THE LEARNED ASSESSING OFFICER NOTED THAT THE ASSESSEE MADE CERTAIN PAYMENTS ON AC COUNT OF SITE EXPENSES AND HIRE CHARGES FOR WHICH NO TDS WAS DEDUCTED. SECTION 40(A)(IA) PROVIDES FOR DISALLOWA NCE OF EXPENDITURE IF TDS IS NOT DEDUCTED IN RESPECT OF R ENT AND THE PROVISION BECAME OPERATIONAL FROM 1.4.2006. SECTIO N 194-1 PRESCRIBES THAT TDS SHALL BE DEDUCTED IN CASE OF P; AYMENT OF RENT. THE DEFINITION HAS BEEN AMENDED W.E.F. 13.7. 2006 AND PRIOR TO THIS DATED ONLY RENT OF LAND, BUILDING, FU RNITURE WAS COVERED. RENT OF PLANT, MACHINERY AND EQUIPMENT WA S NOT COVERED PRIOR TO THIS DATE, THEREFORE, NO DISALLOWA NCE CAN BE MADE. EVEN WHEN PROFIT RATE IS APPLIED, ADDITION U /S 40(A)(IA) CANNOT BE MADE AS WAS HELD IN TEJA CONSTRUCTIONS; 1 29 TTJ (HYD) 57, CONSEQUENTLY IN VIEW OF THE UNCONTROVERTE D FINDING IN THE IMPUGNED ORDER, THESE GROUNDS OF THE REVENUE AR E HAVING 12 NO MERIT, THEREFORE, THE STAND OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) IS AFFIRMED. FINALLY, THE APPEAL OF THE ASSESSEE AS WELL AS OF THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT 6 TH APRIL, 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 6 TH APRIL, 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE DN/-