Dy. Commissioner of Income Tax, Lucknow V. M/s. Northern Construction , Lucknow

ITA 383/LKW/2013

• Counselvise Citation: 38323714 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PINKI MAHAWAR
• Assessee Lawyers: YOGESH AGRAWAL
• Keywords: Depreciation; Income from undisclosed sources; Additional evidence
• Section: 40A(3); 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.383/LKW/2013 ASSESSMENT YEAR:2009-10 DCIT RANGE 2 LUCKNOW V. M/S NORTHERN CONSTRUCTION B-746, MAHANAGAR LUCKNOW TAN/PAN:AADFN3417D (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. PINKI MAHAWAR, D.R. RESPONDENT BY: SHRI. YOGESH AGRAWAL, ADVOCATE DATE OF HEARING: 02 07 2015 DATE OF PRONOUNCEMENT: 14 08 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN ACCEPTING ADDITIONAL EVIDENCE WITHOUT PASSING AN ORDER IN CONTRAVENTION TO THE PROVISIONS OF RULE 46A(2) OF THE I.T RULES, 1962. IN DOING SO, THE CIT(A) HAS FAILED TO APPRECIATE THAT NO REASON WAS ADDUCED BY THE ASSESSEE FOR NOT PRODUCING THE ADDITIONAL EVIDENCE BEFORE THE A.O., ESPECIALLY WHEN THE EVIDENCE WAS AVAILABLE TO THE ASSESSEE AT THE ASSESSMENT STAGE. 2. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN PLACING RELIANCE ON A.O'S ACTION TAKEN REPORT DT. 15.02.2013 WHILE DECIDING THE APPEAL, FAILING TO APPRECIATE THE FACT THAT THE A.O'S SAID REPORT WAS NOT A REMAND REPORT, AND ON THE CONTRARY HE SUBMITTED ONLY THAT THE INVESTIGATION WAS PENDING FOR WANT OF BANK'S REPORT, :- 2 -: AND THE DESIRED REPORT I.E. REMAND REPORT WOULD BE SENT AS SOON AS THE REPORT WAS RECEIVED FROM THE BANK. 3. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN ESTIMATING THE NET PROFIT AT 5% AS AGAINST 10% ESTIMATED BY THE A.O. WITHOUT APPRECIATING THE FACT THAT THE CASE WAS SELECTED THROUGH CASS BEING A SUSPECTED REFUND CASE, AND THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM BY PRODUCING COGENT EVIDENCE IN SUPPORT OF PAYMENTS MADE FOR PURCHASE OF MATERIALS AND WAGES, WHICH HAS A DIRECT NEXUS WITH HUGE REFUND CLAIMED BY THE ASSESSEE. 4. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN ALLOWING THE DEDUCTION OF SALARY AND INTEREST TO PARTNERS FROM THE ESTIMATED INCOME WITHOUT GOING THROUGH THE PROVISIONS OF SECTION 184(5) OF THE ACT WHICH CATEGORICALLY SAYS THAT NO DEDUCTION BY WAY OF ANY PAYMENT OF INTEREST AND SALARY MADE TO PARTNERS SHALL BE ALLOWED, IF THE FIRM FAILS TO COMPLY WITH THE TERMS OF NOTICE ISSUED U/S 142(1) OF THE IT ACT, 1961. 5. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN ALLOWING THE DEDUCTION OF DEPRECIATION FROM ESTIMATED INCOME WITHOUT CONSIDERING THE FACT THAT ALL DEDUCTION DEEMED TO HAVE BEEN TAKEN INTO CONSIDERATION WHILE ESTIMATING THE INCOME. IN DOING SO, THE CIT(A) HAS FAILED IN NOT CONSIDERING THE FOLLOWING CASE LAWS: SURINDER PAL NAYYAR VS CIT(P&H) 177 TAXMAN 207 INDWELL CONSTRUCTIONS VS CIT (AP) 232ITR 776 CIT VS POOJA CONSTRUCTION CO.(ITAT, AMRITSAR) 69 ITD 147 6. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 35,91,500/-OUT OF TOTAL PAYMENT OF RS. 61,80,304/- BY HOLDING THAT THESE CASH PAYMENTS WERE MADE THROUGH AN AGENT WHICH IS COVERED UNDER EXCEPTIONS VIDE CLAUSE (K) OF RULE 6DD READ WITH SECTION 40A(3) OF THE ACT WITHOUT APPRECIATING THE FACT THAT NEITHER ANY COMMISSION WAS DEBITED IN P&L ACCOUNT WITH REGARD TO PAYMENT TO AGENT FOR SERVICES RENDERED BY HIM NOR ANY EVIDENCE REGARDING PAYMENT OF COMMISSION WAS PRODUCED BY THE ASSESSEE, :- 3 -: WHICH IS A PRE-CONDITION BECAUSE AN AGENT IS ENGAGED TO EXECUTE SOME SPECIFIC WORK ON COMMISSION BASIS. IN DOING SO, THE LD. CIT(A) HAS ERRONEOUSLY PLACED RELIANCE ON BELATED AFFIDAVIT FILED BY THE AGENT WHICH IS AN AFTERTHOUGHT TO COVER UP CASH PAYMENTS MADE IN A DAY IN EXCESS OF RS. 20,000/-. 7. THE LD. CIT(A) HAS ERRED IN LAW & ON FACTS OF THE CASE IN HOLDING THAT NO DISALLOWANCE CAN BE MADE IN CASE THE INCOME ESTIMATED BY APPLYING NET PROFIT RATE WITHOUT APPRECIATING THE LEGAL POSITION THAT THE HON'BLE SUPREME COURT IN THE CASE OF KALE KHAN MOHAMMED HANIF VS. CIT(SC) 50 ITR 1 HAS HELD THAT IT CANNOT BE SAID THAT THE TAXING AUTHORITIES WERE PRECLUDED FROM TREATING THE AMOUNTS OF CERTAIN ENTRIES AS INCOME FROM UNDISCLOSED SOURCES SIMPLY BECAUSE THE ENTRIES APPEAR IN THE BOOKS OF A BUSINESS WHOSE INCOME THEY HAVE PREVIOUSLY COMPUTED ON A PERCENTAGE BASIS. 2. WITH RESPECT TO GROUNDS NO.1 & 2, IT IS NOTICED THAT THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE BEFORE THE LD. CIT(A) ALONG WITH THE REASONS FOR ITS NOT FILING BEFORE THE ASSESSING OFFICER. THE LD. CIT(A) CALLED REMAND REPORT FROM THE ASSESSING OFFICER WITH RESPECT TO THE ADDITIONAL EVIDENCE AND THEREAFTER OBTAINED COMMENTS ON THE REMAND REPORT FROM THE ASSESSEE BEFORE ADJUDICATING THE ISSUES ON MERIT. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT THERE IS NO VIOLATION OF THE PROVISIONS OF RULE 46A OF THE RULES. ACCORDINGLY GROUNDS NO.1 & 2 ARE DISMISSED. 3. WITH REGARD TO GROUNDS NO.3 TO 5 & 7, IT IS NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER RELEVANT DOCUMENTS. DESPITE VARIOUS OPPORTUNITIES GRANTED TO THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER RELEVANT DOCUMENTS, THE ASSESSEE COULD FILE ONLY FEW DOCUMENTS BUT CASH BOOK, JOURNALS, ETC. WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS CONSTRAINED TO PROCEED UNDER SECTION 144 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE :- 4 -: ACT') ON THE BASIS OF MATERIAL AVAILABLE BEFORE HIM. THE ASSESSING OFFICER ACCORDINGLY ESTIMATED THE NET PROFIT RATE AT 10% ON THE GROSS RECEIPTS OF THE CONTRACT WORK, RESULTING INTO AN ADDITION OF RS.62,96,246/-. THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO PARTNERS RELAYING UPON THE PROVISIONS OF SECTION 184(5) OF THE ACT. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ESTIMATION OF NET PROFIT RATE BY THE ASSESSING OFFICER IS QUITE EXCESSIVE AND THE SAME MAY BE REDUCED. THE ASSESSEE HAS FURNISHED DETAILS OF NET PROFIT DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEARS. THE LD. CIT(A) HAS TAKEN NOTE OF ALL THESE FACTS AND ESTIMATED THE NET PROFIT RATE AT 5% OF THE GROSS RECEIPTS. THE LD. CIT(A) HAS ALSO ALLOWED DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO PARTNERS AGAINST THE ESTIMATED NET PROFIT RATE OF 5%. 5. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT THE ASSESSEE HAS NOT FURNISHED THE BOOKS OF ACCOUNT AND OTHER RELEVANT EVIDENCE BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE VARIOUS OPPORTUNITIES AFFORDED TO THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY ESTIMATED THE NET PROFIT RATE AT 10% OF THE GROSS RECEIPTS. THE LD. D.R. HAS FURTHER CONTENDED THAT THE LD. CIT(A) WHILE ALLOWING DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO PARTNERS AGAINST HIS ESTIMATED NET PROFIT RATE OF 5% WITHOUT LOOKING TO THE PROVISIONS OF SECTION 184(5) OF THE ACT, ACCORDING TO WHICH WHEREVER THE ASSESSEE IS FAILED TO FURNISH THE REQUISITE INFORMATION PURSUANT TO THE NOTICE ISSUED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER WAS FORCED TO FRAME ASSESSMENT UNDER SECTION 144 OF THE ACT, NO FURTHER DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO PARTNERS CAN BE ALLOWED AGAINST THE NET PROFIT RATE ESTIMATED BY THE ASSESSING OFFICER. 6. IN THE LIGHT OF THESE FACTS DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO PARTNERS CANNOT BE ALLOWED TO THE ASSESSEE. HE HAS, HOWEVER, :- 5 -: CONTENDED THAT THE ASSESSING OFFICER HAS CORRECTLY ESTIMATED THE NET PROFIT RATE KEEPING IN VIEW THE ENTIRE CIRCUMSTANCES. 7. THE LD. COUNSEL FOR THE ASSESSEE, BESIDES PLACING RELIANCE UPON THE ORDER OF THE LD. CIT(A), HAS CONTENDED THAT BEFORE THE LD. CIT(A) ASSESSEE HAS FURNISHED ALL THE RELEVANT EVIDENCE AND THE LD. CIT(A) HAVING LOOKED INTO THEREIN HAS ESTIMATED THE NET PROFIT RATE AT 5%. MOREOVER, THE LD. CIT(A) HAS ALSO TAKEN COGNIZANCE OF THE NET PROFIT RATE ASSESSED DURING THE ASSESSMENT YEARS 2008-09 AND 2009-10. THEREFORE, THERE IS NO INFIRMITY IN THE ESTIMATION OF THE NET PROFIT RATE BY THE LD. CIT(A). 8. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THE ASSESSING OFFICER HAS AFFORDED VARIOUS OPPORTUNITIES TO THE ASSESSEE TO PRODUCE THE CASH BOOKS, BANK PASSBOOKS, JOURNALS, ETC. IN SUPPORT OF PURCHASE OF MATERIAL AND OTHER EXPENDITURES. THE ASSESSING OFFICER HAS ALSO RECORDED IN THE ORDER SHEET ENTRIES TO JUSTIFY THAT DESPITE VARIOUS OPPORTUNITIES, THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT. HE ACCORDINGLY INVOKED THE PROVISIONS OF SECTION 144 OF THE ACT AND AFTER REJECTING THE BOOKS OF ACCOUNT, HAS ESTIMATED THE NET PROFIT RATE AT 10% ON THE GROSS RECEIPTS. THE ASSESSING OFFICER HAS ALSO PLACED RELIANCE UPON SECTION 184(5) OF THE ACT FOR DISALLOWING FURTHER DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO THE PARTNERS. IT IS ALSO AN UNDISPUTED FACT THAT BEFORE THE LD. CIT(A) THE ASSESSEE HAS FURNISHED DETAILS AND THE PAST RECORD OF THE ASSESSEE. IN THE IMMEDIATELY PRECEDING YEAR THE INCOME WAS ASSESSED BY APPLYING THE NET PROFIT RATE AT 4.49% IN ASSESSMENT YEAR 2007-08 AND 3.92% IN ASSESSMENT YEAR 2008-09. THESE FACTS WERE TAKEN INTO ACCOUNT BY THE LD. CIT(A) WHILE ESTIMATING THE NET PROFIT RATE FOR THE IMPUGNED ASSESSMENT YEAR. THERE WAS NO DISPUTE WITH REGARD TO THE GROSS RECEIPTS OF RS.6,29,62,433/-. THE LD. CIT(A) HAS ALSO UPHELD THE REJECTION OF THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT AGAINST WHICH ASSESSEE IS NOT IN APPEAL. :- 6 -: THEREFORE, ONCE THE BOOKS OF ACCOUNT ARE REJECTED, THE REMEDY AVAILABLE WITH THE ASSESSING AUTHORITIES IS TO ESTIMATE THE NET PROFIT RATE OF THE ASSESSEE KEEPING IN VIEW THE PAST RECORD OF THE ASSESSEE. IN THE INSTANT CASE, UNDISPUTEDLY THE NET PROFIT RATE WAS ESTIMATED AT 4.49% IN ASSESSMENT YEAR 2007-08 AND 3.92% IN ASSESSMENT YEAR 2008-09. KEEPING THE PAST NET PROFIT RATE ADOPTED, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN WHICH HE HAS ESTIMATED THE NET PROFIT RATE AT 5% OF THE GROSS RECEIPTS. ACCORDINGLY WE UPHOLD THE ESTIMATION OF THE NET PROFIT RATE. 9. NOW THE ONLY DISPUTE IS WITH REGARD TO FURTHER DEDUCTION OF DEPRECIATION, INTEREST AND SALARY TO PARTNERS. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE PROVISIONS OF SECTION 184(5) OF THE ACT CANNOT BE INVOKED, BUT ON PERUSAL OF THE PROVISIONS OF SECTION 184(5) OF THE ACT WE FIND THAT WHEREVER THE ASSESSMENT IS FRAMED UNDER SECTION 144 OF THE ACT ON ACCOUNT OF NON-PRODUCTION OF THE REQUISITE DOCUMENTS OR THE BOOKS OF ACCOUNT BY THE ASSESSEE, NO FURTHER DEDUCTION OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, MADE BY SUCH FIRM TO ANY PARTNER SHALL BE ALLOWED. BUT UNDER SUB-SECTION (5) OF SECTION 184 OF THE ACT, NOTHING HAS BEEN STATED WITH REGARD TO THE ALLOWANCE OF DEPRECIATION AGAINST NET PROFIT RATE. IN THE INSTANT CASE, WE ARE OF THE VIEW THAT IN THE LIGHT OF THE PROVISIONS OF SECTION 184(5) OF THE ACT, FURTHER DEDUCTION OF INTEREST AND SALARY TO PARTNERS CANNOT BE ALLOWED. 10. SO FAR AS ALLOWANCE OF DEPRECIATION IS CONCERNED, NOTHING HAS BEEN STATED IN SUB-SECTION (5) OF SECTION 184 OF THE ACT. THEREFORE, DEPRECIATION CAN FURTHER BE ALLOWED FROM THE NET PROFIT RATE ESTIMATED BY THE LD. CIT(A). ACCORDINGLY WE MODIFY THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ESTIMATE THE NET PROFIT RATE AT 5% AND THEREAFTER ALLOW FURTHER DEDUCTION OF DEPRECIATION OF RS.87,294/-. ACCORDINGLY THIS ISSUE IS DISPOSED OF. :- 7 -: 11. APROPOS GROUND NO.6, IT IS NOTICED THAT THE ASSESSING OFFICER HAS ALSO FURTHER INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT WITH RESPECT TO CERTAIN PAYMENT EXCEEDING RS.20,000/- FOR A SUM OF RS.61,80,304/-. WHEN THE MATTER REACHED TO THE LD. CIT(A), THE LD. CIT(A) WAS OF THE VIEW THAT ONCE THE INCOME IS ESTIMATED AT AN AVERAGE NET PROFIT RATE, NO FURTHER DISALLOWANCE IS POSSIBLE ON THE BASIS OF THE BOOKS OF ACCOUNT WHICH WERE REJECTED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 12. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. D.R. HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. 13. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BANWARILAL BANSHIDHAR, 148 CTR 533, IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT WHEN INCOME OF THE ASSESSEE WAS COMPUTED APPLYING THE GROSS PROFIT RATE AND NO DEDUCTION WAS ALLOWED IN REGARD TO THE PURCHASES OF THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND RULE 6DD(J) OF THE RULES. NO DISALLOWANCE COULD HAVE BEEN MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT READ WITH RULE 6DD(J) OF THE RULES, AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE IN RESPECT OF THE PURCHASES. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED THAT IN THE LIGHT OF THE AFORESAID JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT, NO FURTHER DISALLOWANCE CAN BE MADE UNDER SECTION 40A(3) OF THE ACT HAVING RELIED UPON THE BOOKS OF ACCOUNT WHICH WERE ALREADY REJECTED BY THE ASSESSING OFFICER UNDER SECTION 145(3) OF THE ACT. 14. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED, THE SAME CANNOT BE LOOKED INTO FOR MAKING FURTHER :- 8 -: ADDITIONS UNDER DIFFERENT HEADS. WHILE ESTIMATING THE NET PROFIT, THE ASSESSING OFFICER IS REQUIRED TO TAKE INTO COGNIZANCE ALL THE RELEVANT FACTS AVAILABLE BEFORE HIM. WE HAVE ALSO CAREFULLY PERUSED THE AFORESAID JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BANWARILAL BANSHIDHAR, IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED, SEPARATE ADDITION BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT CANNOT BE MADE. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AFTER INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS CONFIRMED. 15. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH AUGUST, 2015 JJ:2307 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR