ACIT, CHITTORGARH V. Shri Anmol Agarwal, CHITTORGARH

ITA 391/JODH/2013

• Counselvise Citation: 39123314 RSA 2013
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Rejection of books of accounts; Revision of order; Corroborative evidences
• Section: 263

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 391/JODH/2013 (A.Y. 2009-10) THE A.C.I.T VS SHRI AMOL AGARWAL CIRCLE B 65, BAPU NAGAR CHITORGARH CHITTORGARH PAN NO. ABGPA 6736 J C.O. NO. 25/JODH/2013 (ARISING OUT OF ITA NO. 391/JODH/2013) (A.Y. 2009-10) SHRI AMOL AGARWAL VS. THE A.C.I.T B 65, BAPU NAGAR CIRCLE CHITORGARH CHITTORGARH PAN NO. ABGPA 6736 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANDEEP JHANWAR DEPARTMENT BY : SHRI N.A. JOSHI, DR. DATE OF HEARING : 24/09/2013. DATE OF PRONOUNCEMENT : 25/09/2013. O R D E R PER HARI OM MARATHA, JM:- THIS APPEAL BY THE REVENUE AND CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A), UDAIP UR DATED 28/03/2013. 2 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL AND THE FIRST GROUND IN THE ASSESSEES CROSS OBJECTION ARE REGARD ING TRADING ADDITION OF RS. 77,42,186/- MADE BY THE A.O. AND RELIEF OF R S. 49,60,233/- ALLOWED BY THE LD. CIT(A). 3. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONTRACTORSHIP AND TAKIN G UP THE PROJECTS OF ROAD CONSTRUCTION. DURING THE YEAR UNDER CONSIDERA TION TOTAL RECEIPTS OF THE CONTRACT BUSINESS WERE RS. 27,81,95,367/- AN D A NET PROFIT OF RS. 85,32,242/- HAS BEEN DECLARED. THIS GIVES A NET PRO FIT RATE OF 3.06% AS AGAINST THE NET PROFIT RATE OF 2.90% AS PER BOOKS O F THE ASSESSEE FOR THE PRECEDING ASSESSMENT YEAR 2008-09. IN THE ASSESSMEN T PROCEEDINGS FOR ASSESSMENT YEAR 2008-09, THE ASSESSEE AGREED FOR AP PLICATION OF NET PROFIT RATE OF 4.00% TO BUY PEACE OF MIND. THE SAID ORDER WAS ALSO SUBJECTED TO REVISION U/S 263 OF THE INCOME-TAX ACT , 1961 [HEREINAFTER REFERRED TO AS 'THE ACT', FOR SHORT]. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE A.O. HAS FOUND THAT THE ASSESSEE WA S CARRYING ON CONTRACTS AT VARIOUS SITES BUT NO SITE-WISE RECORD WAS PRODUCED BY HIM FOR VERIFICATION. HE ALSO POINTED OUT THAT ASSESSEE HAS NOT PRODUCED ANY RECORDS RELATING TO CLOSING STOCK OR WORK IN PR OGRESS AND THE ASSESSEE HAS KEPT CONSOLIDATED ACCOUNTS ONLY WHEREF ROM TRADING 3 RESULTS ARE NOT VERIFIABLE. MOREOVER, THE ASSESSEE HAS PRODUCED LABOUR SHEETS CONTAINING THUMB IMPRESSIONS FROM WHICH NO V ERIFICATION WAS POSSIBLE. ACCORDINGLY, THE AO APPLIED THE PROVISION S OF SECTION 145(3) OF THE ACT. THE AO OBSERVED THAT IN THE ASSESSMENT YEAR 2008-09 NET PROFIT RATE OF 4.00% WAS APPLIED AS COMPARED TO 5.8 1% SHOWN BY THE ASSESSEE IN THE A.Y. 2007-08, THE SAID ASSESSMENT O RDER FOR A.Y. 2008- 09 WAS UNDER CONSIDERATION BEFORE THE LD. CIT, UDAI PUR U/S 263 OF THE ACT FOR REVISION. CONSIDERING THIS, HE THOUGHT IT A PPROPRIATE TO APPLY NET PROFIT RATE OF 5.85% AND THUS ESTIMATED THE NET PROFIT AT RS. 1,62,74,428/- AS AGAINST NET PROFIT OF RS. 85,32,24 2/- OFFERED BY THE ASSESSEE, ACCORDINGLY A TRADE ADDITION OF RS. 77,42 ,186/- WAS MADE. 4. IN THE FIRST APPEAL THE LD. CIT(A) HAS UPHELD TH E REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT BY OBSERVING THAT THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNTS AND VOUCHERS/ BILLS FOR THE EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT EXCEP T COPY OF AUDIT REPORT AND COMPARATIVE CHART OF INCOME AND EXPENDIT URE, WHICH IS NOT SUFFICIENT TO VERIFY THE CORRECTNESS AND GENUINENES S OF THE CLAIM MADE IN THE RETURN FILED BY THE ASSESSEE. HE, HOWEVER, E STIMATED THE NET PROFIT BY INCREASING THE NET PROFIT RATE BY 1% ONLY I.E. TO 4.06% AS COMPARED TO 3.06% DECLARED BY THE ASSESSEE. 4 5. BEFORE US, THE LD. DR SUBMITTED THAT APPLICATION OF NET PROFIT RATE OF 4.06% BY THE CIT(A) IS WITHOUT ANY BASIS AND ALS O WITHOUT CONSIDERING THE FACT THAT THE ASSESSMENT ORDER FOR THE AY 2008- 09 WAS SET ASIDE U/S 263 OF THE ACT AND FURTHER NET PROFIT RATE OF 9% HA S BEEN APPLIED IN AY 2008-09 VIDE ORDER U/S 143(3)/263 OF THE ACT. HE AL SO SUBMITTED THAT THE LD. CIT(A) HAS ALSO NOT CONSIDERED THE FACT THA T ASSESSEE HIMSELF HAS DECLARED A NET PROFIT RATE OF 5.81% IN THE AY 2 007-08. HE THEREFORE SUBMITTED THAT THE RELIEF HAS BEEN WRONGLY ALLOWED AND THE ORDER OF THE A.O. SHOULD BE UPHELD BY REVERSING THE RELIEF A LLOWED BY CIT(A). 6. PER CONTRA, THE LD. A.R. CHALLENGED THE VERY BAS IS OF REJECTING THE BOOKS OF ACCOUNT BY THE ASSESSING OFFICER AS WELL A S ITS UPHOLDING BY THE LD. CIT(A). HE DISCARDED THE FINDINGS GIVEN BY LD. CIT(A) FOR UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS WHICH WERE AGAIN ST THE FACTS OF THE CASE. ACCORDING TO HIM, LD. CIT(A) MENTIONED THAT T HE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNTS AND VOUCHERS/BILLS FO R EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT, WHICH IS NOT CORRECT, AS IT CAN BE FOUND FROM THE SECOND PARA OF THE ASSESSMENT ORDER, WHERE IN THE ASSESSING OFFICER HAS TAKEN A NOTE OF EXAMINATION OF BOOKS OF ACCOUNTS CONSISTING OF CASH BOOK, LEDGER, WAGE SHEETS AND VOUCHERS. THE OBJECTION OF A.O. WAS ONLY IN RESPECT OF CONSOLIDATED ACCOUNTS PREPAR ED FOR ALL THE 5 CONTRACTS AND PAYMENT OF WAGES THROUGH SHEETS CONTA INING THUMB IMPRESSIONS OF THE LABOUR. HE, ACCORDINGLY, SUBMITT ED THAT THE BASIS GIVEN BY LD. CIT(A) FOR UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS BY APPLYING PROVISIONS OF SECTION 145(3) OF THE ACT AR E NOT WELL FOUNDED. HE FURTHER SUBMITTED THAT THE BASIS GIVEN BY THE LD . AO FOR REJECTION OF BOOKS OF ACCOUNT IS ALSO NOT JUSTIFIED IN AS MUCH A S THERE IS NO REQUIREMENT OF MAINTAINING SEPARATE ACCOUNTS FOR AL L THE CONTRACTS BY THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAS MA INTAINED ALL THE BOOKS OF ACCOUNTS, WHICH ARE SUFFICIENT TO CORRECTL Y COMPLETE HIS PROFIT/LOSS FOR THE YEAR. ACCORDING TO HIM, THE AO HAS NOT POINTED OUT ANY REASON AS TO WHY THE PROFIT CANNOT BE DETERMINE D FROM THE MANNER OF MAINTAINING BOOKS OF ACCOUNTS BY THE ASSESSEE. H E MENTIONED THAT THE PAYMENT OF WAGES ARE THROUGH THE WAGES SHEET MA INTAINED ON DAY- TO-DAY BASIS IN THE REGULAR COURSE OF BUSINESS AND NO SPECIFIC DEFECT IS FOUND BY THE AO IN THE SAME. HE STATED THAT AO HAS NOT POINTED OUT ANY INSTANCE OF MAKING PAYMENT OF ANY AMOUNT AS WAG ES, WHICH IS NOT RELATING TO ASSESSEES BUSINESS. HE ALSO SUBMITTED THAT NO DEFECT WHATSOEVER HAS BEEN FOUND IN ANY OF THE VOUCHERS RE LATING TO ANY OF THE EXPENDITURES MAINTAINED BY THE ASSESSEE ON DAY- TO-DAY BASIS. HE ALSO SUBMITTED THAT THAT THE ASSESSEE DEALS IN NUMB ER OF SMALL VALUE ROAD CONTRACTS AND THE REVENUE IS RECEIVED ON PROGR ESSIVE BASIS AS THE 6 WORK PROCEEDS AT VERY SHORT INTERVALS AND THEREFORE THERE IS NO NEED TO ESTIMATE ANY WORK IN PROGRESS. HE FURTHER STATED TH AT THE ASSESSEE PROCURES THE MATERIAL ONLY WHEN IT IS REQUIRED TO B E CONSUMED ON THE CONTRACT SIDE AND THEREFORE THERE ARE NO STOCKS. TH E LD. AO HAS NOT GIVEN ANY FINDING IN CONTRADICTION OF THESE FACTS. HE, THEREFORE SUBMITTED THAT IN THESE FACTS AND CIRCUMSTANCES OF THE CASE IT CANNOT BE SAID THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE DOES NOT GIVE A TRUE AND FAIR VIEW OF ITS PROFIT OR LOSS ONLY FOR THE RE ASON THAT THE CONTRACT WISE ACCOUNTS ARE NOT MAINTAINED OR CLOSING STOCK/W ORK IN PROGRESS ARE NOT SHOWN. IN THE ASSESSEES NATURE OF BUSINESS OF SMALL CONTRACTS, THE PROFIT AND LOSS FOR THE YEAR IS NOT EFFECTED BY NOT SHOWING THE WORK-IN- PROGRESS OR STOCK. HE MENTIONED THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC INSTANCE OF NON-CONSIDERATION OF ANY AMOUN T OF CLOSING STOCK OR WORK IN PROGRESS IN ANY OF THE CONTRACTS CARRIED ON BY THE ASSESSEE. HE FURTHER POINTED OUT THAT THE ACCOUNTS OF THE ASSESS EE ARE SUBJECT TO AUDIT U/S 44AB OF THE ACT AND AFTER VERIFICATION OF ENTIRE RECORDS INCLUDING ALL THE BOOKS OF ACCOUNTS VIZ. CASH BOOK, LEDGER, JOURNAL AND THE SUPPORTING EVIDENCES IN FORM OF VOUCHERS FOR AL L THE EXPENSES, THE WAGES SHEET AND OTHER DOCUMENTARY EVIDENCES ON THE RECORD, THE AUDITOR HAS GIVEN A STATEMENT THAT ASSESSEES BOOKS OF ACCOUNTS GIVE A TRUE AND FAIR VIEW OF THE PROFITS OF THE ASSESSEE F OR THE YEAR ENDED ON 7 31.03.2008. THE LD. AR HAS ALSO SUBMITTED THAT THE AUDITOR IS AN EXPERT IN HIS FIELD AND EXAMINED ALL THE RELATED DOCUMENTS AT THE PLACE OF THE AUDITEE AS AGAINST THE SUMMARY EXAMINATION BY THE A .O. OF THE INFORMATION SUBMITTED DURING THE COURSE OF ASSESSME NT PROCEEDINGS. THEREFORE, IN VIEW OF THE LD. AR THE OPINION GIVEN BY THE AUDITOR SHOULD PREVAIL IN ABSENCE OF ANY SPECIFIC DEFECT/DISCREPAN CY FOUND IN BOOKS OF ACCOUNTS/PROCEDURE ADOPTED BY THE AUDITOR FOR EXAMI NING THE BOOKS OF ACCOUNTS AND DOCUMENTS AND RESULTANT PROFIT/LOSS AN D ALSO THE AFFAIRS OF THE BUSINESS. THE LD. AR ALSO POINTED OUT THAT T HE BASIS OF APPLICATION OF GROSS PROFIT RATE OF 5.85% DOES NOT FIND ANY COLOR FROM THE SO CALLED DEFECTS POINTED OUT BY A.O. IN THE BO OKS OF ACCOUNTS OF THE ASSESSEE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO DID NOT POINT OUT THAT HOW THE APPLICATION OF A RATE WO ULD COVER UP SO- CALLED DEFECT OF NOT SHOWING THE CLOSING STOCK OR W ORK IN PROGRESS. NOR THE AO HAS BEEN ABLE TO ESTIMATE ANY AMOUNT OF PAYM ENTS TOWARDS LABOUR CHARGES, WHICH IS NOT VERIFIABLE. THEREFORE, JUST GIVING A REMARK REGARDING CERTAIN STEREO TYPE DEFECTS IS NOT A SUFF ICIENT BASIS FOR SUCH A SERIOUS ACT OF DISCARDING THE ENTIRE BOOKS OF ACCOU NT MAINTAINED ON DAY TO DAY BASIS AND AUDITED BY THE AUDITORS UNLESS IT IS SHOWN THAT HOW THE DEFECTS HAVE A BEARING ON THE COMPUTATION OF PROFIT OF THE ASSESSEE UNDER FACTS AND CIRCUMSTANCES OF THE CASE. HE FURTH ER SUBMITTED THAT 8 THE APPLICATION OF NP RATE ON THE BASIS OF PRECEDIN G YEARS RESULTS OF THE ASSESSEE IS NOT JUSTIFIED IN THIS CASE AS THE ASSES SEE HAS EXPLAINED SPECIFIC REASONS FOR REDUCTION IN THE NET PROFIT RA TIO FOR THE YEAR. HE EXPLAINED THAT A MAJOR PORTION OF THE ASSESSEES CO ST IS PURCHASE OF BITUMEN FOR CONSTRUCTION OF ROADS AND THE PRICES OF BITUMEN HAS SUBSTANTIALLY INCREASED DURING THE YEAR. HE REFERRE D THE DETAILS OF PURCHASE OF BITUMEN WHEREIN THE AVERAGE COST PER TO N OF BITUMEN HAS INCREASED TO RS. 36491.18 PER M.T. FROM RS. 24,098. 14 IN THE A.Y. 2008-09 AND RS. 21,284.64 IN THE A.Y. 2007-08. SUCH A SHARP INCREASE IN MAJOR RAW MATERIAL PRICE OUGHT TO HAVE REDUCED THE MARGINS IN THE CONTRACT BUSINESS SPECIFICALLY WHERE MANY OF THE CO NTRACTS ARE BEING CONTINUED FROM THE LAST YEAR. AS REGARDS THE ORDER U/S 263 FOR THE ASSESSMENT YEAR 2008-09 THE LD. AR SUBMITTED THAT T HE CIT(UDAIPUR) IN THAT CASE HAS POINTED OUT SPECIFIC ITEMS LIKE WAGES PAYABLE AND REPAIRS &MAINTENANCE FOR RE-VERIFICATION BY THE ASSESSING O FFICER AS THERE WAS A SUBSTANTIAL INCREASE IN THOSE EXPENDITURES AS COM PARED TO THE PRECEDING YEARS. THE LD. CIT DID NOT GIVE ANY DIREC TION AS TO RATE OF PROFIT TO BE APPLIED IN THAT CASE. EARLIER, THE ASS ESSEE HAS AGREED FOR APPLICABILITY OF NET PROFIT RATE OF 4% AS AGAINST 2 .91% DECLARED BY HIM TO BUY PEACE OF MIND ONLY. NOW THE AO IN THAT CASE AFTER THE ORDER U/S 263 HAS APPLIED 9.00% WHICH HAS BEEN CHALLENGED BY THE ASSESSEE 9 BEFORE CIT(A). THEREFORE, THE APPLICATION OF RATE B Y COMPARING THE SAME WITH PRECEDING YEARS RATE IS NOT JUSTIFIED AT ALL. HE ACCORDINGLY PRAYED FOR DELETION OF THE ENTIRE ADDITION. 7. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE REASON GIVEN BY THE LD. CI T(A) FOR UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF TH E ACT IS NOT JUSTIFIED AS THE ASSESSMENT ORDER ITSELF MENTIONS THAT THE AS SESSEE PRODUCED ALL THE BOOKS OF ACCOUNT ALONG WITH SUPPORTING VOUCHERS . WE ALSO FIND THAT THE LD. AO HAD NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS OR VOUCHERS MAINTAINED BY THE ASSESSEE ON DAY TO DAY BASIS IN REGULAR COURSE OF BUSINESS. THE REMARKS GIVEN BY TH E A.O. ARE NEITHER SUFFICIENT FOR REJECTING THE DULY AUDITED BOOKS OF ACCOUNT NOR THE AO HAS SHOWN THAT HOW THESE REMARKS WOULD HAVE A BEARI NG IN GIVING A FINDING THAT TRUE INCOME CANNOT BE COMPUTED ON THE BASIS OF BOOKS OF ACCOUNTS MAINTAINED BY ASSESSEE ON DAY TO DAY BASIS IN REGULAR COURSE OF BUSINESS. HOWEVER, THE AO HAS ALSO NOT CONSIDERE D THESE DEFECTS AT TIME OF TAKING THE BASIS OF ESTIMATION OF INCOME OF THE ASSESSEE. THE AUDITOR OF THE ASSESSEE HAS SPECIFICALLY STATED IN HIS STATUTORY AUDIT REPORT IN FORM 3CB U/S 44AB OF THE ACT THAT THE PRO FIT AND LOSS ACCOUNT GIVES A TRUE AND FAIR VIEW OF THE PROFITS OF THE AS SESSEE FOR THE YEAR. ON 10 THE OTHER HAND, THE LD. AO HAS NOT POINTED OUT ANY INSTANCE OF ANY MISSTATEMENT OF ANY EXPENDITURE DEBITED IN THE P&L ACCOUNT. HE HAS NOT POINTED OUT THAT HOW THE NON-MAINTENANCE OF PRO JECT WISE ACCOUNTS WOULD RESULT IN DISCLOSING LOWER PROFITS T HAN ACTUALLY EARNED. HE HAS ALSO NOT POINTED OUT THAT WHY THE ASSESSEE N EEDS TO SHOW CLOSING STOCK OR WORK IN PROGRESS WHEN THE ASSESSEE CONSUMES WHATEVER MATERIAL IS PURCHASED WITHIN A VERY SHORT SPAN OF T IME AND SUBMITS THE BILLS ON PROGRESSIVE BASIS ON SHORT INTERVALS. HE H AS NOT UTTERED ANY WORD AS TO HOW OR HOW MUCH SUCH FINDINGS COULD AFFE CT THE ASSESSEES RESULTS. WE FURTHER FIND THAT THE AO HAS APPLIED T HE NET PROFIT RATE OF 5.85% ON THE BASIS OF A.Y. 2007-08 EVEN WHEN THE SA ME IS WITHOUT GIVING ANY REASON TO REJECT THE ASSESSEES VIEW POI NT OF REDUCTION IN NET PROFIT BECAUSE OF INCREASE IN COST OF BITUMEN. THE RATE HAS BEEN APPLIED DEVOID OF ANY BEARING THEREON OF THE REASON S GIVEN FOR REJECTION OF BOOKS OF ACCOUNT. WE ALSO FIND THAT TH E ORDER PASSED BY THE CIT UDAIPUR U/S 263 OF THE ACT FOR THE A.Y. 200 8-09 DOES NOT GIVE ANY CONCLUSIVE FINDING REGARDING ANY SPECIFIC DEFEC T IN THE BOOKS OF ACCOUNTS AND CONSEQUENT SPECIFIC DISALLOWANCE. HE H AS ONLY GIVEN A DIRECTION TO VERIFY CERTAIN EXPENDITURE, WHICH ARE CLAIMED AT AN AMOUNT HIGHER THAN THE PRECEDING YEARS. SUCH DIRECT IONS IN ABSENCE OF ANY CONCLUSIVE FINDING WOULD NOT HAVE A BEARING ON THE CASE FOR A.Y. 11 2009-10. IN THESE FACTS AND CIRCUMSTANCES OF THE CA SE, WE ARE OF THE CONSIDERED VIEW THAT REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT IS NOT JUSTIFIED. WE, ACCORDINGLY, DELETE THE E NTIRE ADDITION AND ALLOW THE ASSESSEES GROUND NO. 1 IN CROSS OBJECTIO N AND DISMISS THE APPEAL OF THE REVENUE. 8. THE LD. AR OF THE ASSESSEE HAS NOT PRESSED GROUN D NOS. 2 AND 3 OF THE CROSS OBJECTION AND ACCORDINGLY THE SAME ARE DI SMISSED AS NOT PRESSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CROSS OBJETION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25 TH SEPTEMBER, 2013. VL/ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR