Shri Shiv Singh Chouhan, JODHPUR V. ITO, RAJSAMAND

ITA 40/JODH/2014

• Counselvise Citation: 4023314 RSA 2014
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 13-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SINGH
• Assessee Lawyers: VIKAS BALIA
• Keywords: Rejection of books of accounts; Depreciation; Principle of natural justice
• Section: 143(3); 194C

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. 40 /JODH/2014 (A.Y. 200 9 - 1 0 ) SHRI SHIV SINGH CHO UHAN, VILLAGE MODWEA, POST NATHDWARA, RAJASMAND. VS. ITO, WARD - 2, RAJASMAND. PAN NO. AAWPC 8301 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIKAS BALIA DEPARTMENT BY : SHRI JAI SINGH - D.R. DATE OF HEARING : 23 / 0 9 /201 4 . DATE OF PRONOUNCEMENT : 01 / 1 0/201 4 . O R D E R PER N.K. SAINI, A.M TH IS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 08 / 1 0/2013 OF L D . CIT(A), UDAIPUR . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. BECAUSE THE ASSESSMENT ORDER PASSED U/S. 143(3) DATED 29/12/2011 IS BAD IN LAW, ARBITRARY AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE . 2. BECAUSE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING/CONFIRMING THE 2 ACTION OF THE ASSESSING OFFICER TO REJECT THE AUDITED BOOKS OF ACCOUNT BY INVO K ING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 3. BECAUSE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING/CONFIRMING THE APPLICATION OF NET PROFIT RATE AT 6% SUBJECT TO FURTHER ALLOWANCE OF DEPRECIATION AND INTEREST FOR ESTIMATING THE TOTAL INCOME OF THE APPELLANT AS AGAINST THE DECLARED NET PROFIT RATE. 4. BECAUSE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CI T(A) HAS GROSSLY ERRED IN NOT CONSIDERING THE NET PROFIT RATE DECLARED IN THE IMMEDIATELY PRECEDING YEARS FOR ESTIMATING CURRENT YEARS INCOME. 5. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE NET PROFIT RATE TO BE APPLIED FOR ESTIMATING THE TOTAL INCOME SHOULD NOT BE MORE THAN THE RATE DECLARED IN THE IMMEDIATELY PRECEDING TWO YEARS IN AS MUCH AS APPELLANTS OWN PAST HISTORY IS THE BEST GUIDE IN THIS REGARD. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE DATE, THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 2 FROM THE ABOVE GROUNDS, IT IS CLEAR THAT THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE CONFIRMATION OF THE TRADING ADDITION MADE BY THE ASSESSING OFFICER BY APPLYING NET PROFIT RATE O F 6% SUBJECT TO FURTHER ALLOWANCES OF DEPRECIATION AND INTEREST. 3. FACTS RELATING TO THIS CASE, IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 30/09/2009 DECLARING TOTAL INCOME OF RS. 4,91,660/ - , WHICH WAS PROCESSED U/S. 143(1) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) ON 11/01/2010. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE 3 ASSESSING OFFICER COMPARED THE NET PROFIT RATE FOR THE YEAR UND ER CONSIDERATION WITH THE PRECEDING YEARS AND FOUND THE SAME AS UNDER: - PARTICULARS A.Y. 2009 - 10 A.Y. 2008 - 09 A.Y. 2007 - 08 CONTRACT RECEIPT 4,67,52,739/ - 3,67,52,468/ - 3,07,35,877/ - GROSS PROFIT 26,10,167/ - 29,83,966/ - 21,46,037/ - NET PROFIT 4,91,662/ - 12,54,303/ - 11,04,405/ - NET PROFIT RATE 1.05% 3.41% 3.59% THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR LOW NET PROFIT RATE. THE ASSESSEE SUBMITTED THAT THE VARIATION WAS ON ACCOUNT OF NON - AVAILABILITY OF LABOUR AND INCREASE IN THE EXPENSES RELATING TO LABOUR & THE INTEREST PAID TO THE BANK ON THE LOANS WHICH W ERE TAKEN TO DEPOSIT THE SECURITY IN VARIOUS DEPARTMENTS . IT WAS CONTENDED THAT THERE WAS SUBSTANTIAL INCRE ASE IN THE PRICES OF RAW MATERIA L S LIKE DIESEL, POWER, WATER, P ETROLEUM PRODUCTS WHICH WAS NEAR ABOUT 10%. IN SUPPORT OF ABOVE CONTENTION, THE ASSESSEE FURNISHED COMPARATIVE CHART FOR THE PRICE OF DIESEL FOR THE A.Y. 2008 - 09 & 2009 - 10. S IMILAR WAS THE POSITION IN RESPECT OF ALL OTHER MATERIALS AND IT WAS STATED THAT IF THE EXPENDITURE IN CURRED DUE TO INCREASE IN PRICE OF MATERIA LS WAS ADDED TO THE NET PROFIT, 4 THEN THE NET PROFIT RATE WOULD BE 7.80% WHICH WAS BETTER THAN THE NET PROFIT RATES OF THE PREVIOUS ASSESSMENT YEARS. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE BY STATING THAT ALL THE FACTORS NOW NARRATED BY THE ASSESSEE I.E. DISTANCE OF WORK PLACE, RATES OF LABOUR, RATE OF MATERIALS REQUIRED TO BE USED IN THE CONTRACT WORK , NATURE OF WORK OF CONTRACT, PAYMENT OF INTEREST, COMPLETION, AVAILABILITY OF RAW MATERIAL, NATURAL CALAMITY ETC. WERE KEPT I N MIND AND THEN ONLY THE TENDER HAD BEEN FILED. THEREFORE, THE CONTENTION OF THE ASSESSE E WAS GENERAL IN NATURE. AS REGARDS TO THE CONTENTION OF THE ASSESSEE THAT THERE WAS INCREASE IN THE DIESEL EXPENSES, THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WAS SUBSTANTIAL INCREASE IN THE CONTRACT RECEIPTS, SO THE DIESEL EXPENSES WERE BOUND TO BE HIGH AND EXCESS USE OF DIESEL WOULD NOT HAVE ANY EFFECT IN THE DECREASE IN THE NET PROFIT RATE . THE ASSESSING OFFICER ALSO POINTED OUT THAT THE BILL NUMBERS WERE WRITTEN BY THE ASSESSEE HIMSELF ON THE VARIOUS BILLS RELATING TO STONE AND SAND USED FO R ROAD WORK AND THOSE BILLS DID NOT BEAR THE WEIGHT, RATE AND QUALITY , T HEREFORE, THE RATE AT WHICH THE SA ND WAS PURCHASED WAS NOT SUBJECT TO VERIFICATION . THE ASSESSING OFFICER ALSO POINTED OUT THAT THE MAJOR PART OF THE EXPENSES CLAIMED BY THE ASSESSEE WAS ON ACCOUNT OF WAGES WHICH WAS CLAIMED AT 29.30% WHILE IN THE CASE OF ANOTHER 5 COMPARABLE CASE OF SHRI KRISH VALLAB SANADHYA IT WAS AT 21.5% . THE ASSESSING OFFICER ALSO POINTED OUT THAT THE ASSESSEE WAS HAVING SUBSTANTIAL AMOUNT AS PAYABLE ON ACCOUNT OF LABOUR AND WAGES, WHICH WAS NOT JUSTIFIABLE BECAUSE THE LABOURS ARE ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY AND THEY NEED THEIR WAGES REGULARLY TO MEET OUT THEIR HOUSEHOLD REQUIREMENTS. 4. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS FOR THE FOLLOWING REASONS: - 1. THE NET PROFIT RATE DECLARED BY THE ASSESSEE IS EXTREMELY LOW IN COMPARISON TO PRECEDING YEARS IN THE CASE OF THE ASSESSEE AS WELL AS OTHER CA S ES WHO IS DOING SIMILAR BUSINESS. 2. ALMOST MORE THAN 28% OF MATERIAL PURCHASED AMOUNTING TO RS. 70,13,018/ - HAVE BEEN FOUND DEBITED THROUGH INTERNALLY PREPARED PURCHASE BILLS WITH NO DETAILS OF REGISTERED DEALER, DATE OF PURCHASE , QUANTITY AND QUALITY OF MATERIAL PURCHASED , RATE OF MATERIAL AND PARTICULARS OF TR A NSPOR T ATION OF MATERIAL AT THE SITE OF BUSINESS ETC. 3. THERE ARE INSTANCE OF PAYMENTS IN VIOLAT ION OF PROVISIONS OF SECTION 40 A (3) OF THE ACT. 4. THERE ARE POSSIBILITIES OF WORK CARRIED OUT THROUGH SUB CONTRACT WITHOUT DEDUCTION OF TAX AT SOURCE AS PER SECTION 194C OF THE ACT LEADING TO DISALLOWANCE OF EXPENSES U/S. 40(A)(IA) OF THE ACT. AS THE ASSESSEE DID NOT FURNISH COPIES OF PURCHASE BILLS INVOLVED IN THESE PAYMENTS, THEREFORE, CONTRACT FOR PURCHASE OF MATERIAL IS NOT VERIFIABLE. AFTER REJECTING THE BOOKS OF ACCOUNTS, THE ASSESSING OFFICER APPLIED NET PROFIT RATE OF 6% ON THE DECLARED CONTRACT RECEIPTS AND MADE THE ADDITION. 6 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND THE SUBMISSIONS MADE BEFORE HIM ARE INCORPORATED IN PARA 3.2 OF THE IMPUGNED ORDER, FOR THE COST OF REPETITION, THE SAME ARE NOT REPRODUCED HEREIN. THE LD. CIT(A) DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE THAT LOW PROFIT COULD NOT BE MADE A GROUND FOR REJECTION OF THE BOOKS OF ACCOUNTS BY OBSERVING THAT THE ASSESSING OFFICER HAD REJECTED THE BOOKS OF ACCOUNTS NOT ONLY FOR LOW PROFIT DECL A RED BU T ALSO DUE TO SPECIFIC DEFECTS NOTED DURING THE EXAMINATION OF THE BOOKS OF ACCOUNTS PRODUCED BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. HE, T HEREFORE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS BY INVOKI NG THE PROVISIONS OF SECTION 145(3) OF THE ACT. 6 . AS REGARDS TO THE APPLICATION OF NET PROFIT RATE OF 6% , THE LD. CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD GIVEN SUFFICIENT REASONS AND GROUND FOR APPLYING THE HIGHER RATE OF PROFIT THAN THE DECLARED BY THE ASSESSEE . H OWEVER, HE MODIFIED THE ORDER OF THE ASSESSING OFFICER TO THIS EXTENT THAT FURTHER DEDUCTION ON ACCOUNT OF INTEREST AND DEPRECIATION WAS ALLOWABLE OUT OF THE INCOME SO DETE RMINED. NOW THE ASSESSEE IS IN APPEAL. 7 7 . LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT EVEN IF NET PROFIT RATE WAS TO BE APPLIED, PAST HISTORY OF THE ASSESSEE WAS THE BEST GUIDE FOR ESTIMATING THE INCOME . RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF THE ITAT, JODHPUR BENCH, JODHPUR & HON'BLE RAJASTHAN HIGH COURT : - 1) SHRI NARPAT SINGH RATHORE VS. ITO IN I.T.A.NO. 579/JU/2013 DATED 07/03/2014 . 2) CIT VS. M/S. JAIMAL RAM KASTURI & PARTNERS IN I.T.A.NO. 145/2006 (RAJ HC) ORDER DATED 15/01/2013 . 3) DCIT VS. M/S. MOTI RAM ARJUN RAM & CO. IN I.T.A.NO. 50/JODH/2013 DATED 02/08/2013 . 4) SHRI RAM KUMAR CHOUDHARY VS. ACIT IN I.T.A.NO. 238/JODH/2013 DATED 21/06/2013 . COPIES OF THE ABOVE SAID ORDERS WERE FURNISHED WHICH ARE PLACED ON THE RECORD. 8 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED BY THE ASSESSING OFFICER BY POINTING OUT SPECIFIC DISCREPA NCIES AND THE BOOK RESULTS WERE NOT SUBJECT TO VERIFICATION. IT WAS FURTHER STATED THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN 8 ESTIMATING THE INCOME BY APPLYING NET PROFIT RA TE OF 6% ON THE RECEIPT DECLARED BY THE ASSESSEE AND THE LD. CIT(A) RIGHTLY SUSTAINED THE SAME. 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER POINTED OUT CERTAIN SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND THE EXPLANATION GIVEN BY THE ASSESSEE WAS NOT SUFFICIENT FOR CONSIDERING THE BOOKS OF ACCOUNTS AS CORRECT , THEREF ORE, THE BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED BY THE ASSESSING OFFICER. IT IS WELL SETTLED THAT WHEN THE BOOKS OF ACCOUNTS ARE REJECTED, RIGHT COURSE TO WORK OUT THE INCOME IS APPLICATION OF NET PROFIT RATE OR GROSS PROFIT RATE . H OWEVER, THE PAST HIST ORY OF THE ASSESSEES CASE IS BEST GUIDE TO ESTIMATE THE INCOME PARTICUL ARLY WHEN THE FACTS ARE SIMILAR. IN THE PRESENT CASE, THE TURNOVER OF THE ASSESSEE IN THE PRECEDING YEAR WAS AT RS. 3.76 CRORE AND THE NET PROFIT DECLARED WAS AT 3.41% WHILE IN THE YEAR UNDER CONSIDERATION THE TURNOVER IS AT RS. 4.07 CRORE AND THE NET PROFIT DECLA RED AT 1.0 5%. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THERE IS TREMENDOUS INCREASE IN THE TURNOVER DURING THE YEAR UNDER CONSIDERATION VIS - - VIS IMMEDIATELY PRECEDING YEAR, WHICH CAN BE A FACTOR FOR LOWER NET PROFIT RATE , WHICH IS ALSO EVIDENT FROM THE PAST HISTORY OF THE ASSESSEE WHICH SHOWS THAT IN THE 9 A.Y. 2007 - 08, THE NET PROFIT RATE WAS 3.59% ON THE TURNOVER OF RS. 3.07 CRORE WHICH CAME DOWN TO 3.41% WHEN THE TURNOVER INCREASED TO RS. 3.67 CRORE . BY KEEPING IN VIEW ALL THE ABOVE SAID FACTORS INTO CONSIDERATION, WE ARE OF THE OPINION THAT IT WILL BE FAIR AND REASONABLE IF THE INCOME OF THE ASSESSEE IS ESTIMATED BY APPLYING NET PROFIT RATE 3.25% , PARTICULARLY WHEN THE DEPARTMENT HAD ACCEPTED NET PROFIT RATE OF 3.41% ON THE TURNOVER OF RS. 3.67 CRORE IN THE A.Y. 2008 - 09 WHILE THE TURNOVER INCREASED IN THIS YEAR TO RS. 4.67 CRORE, THE SAID INCREASE IN THE TURNOVER MAY BE DUE TO SOME DECREASE IN THE NET PROFIT RATE. ACCORDINGLY, WE MODIFY THE IMPUGNED ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO WORK OUT THE INCOME OF THE ASSESSEE BY APPLYING THE NET PROFIT RATE OF 3.25% ON THE DECLARED TURNOVER SUBJECT TO INTEREST AND DEPRECIATION AS HAS BEEN DIRECTED BY THE LD. CIT(A). 10 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ( ORDER PRONOUNCED IN THE COURT ON 01 ST OCTOBER , 201 4) . S D/ - SD/ - ( HARI OM MARATHA ) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 01 ST OCTOBER , 201 4 . 10 VR/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE CIT(A) 5. THE D.R SR. PRIVATE SECRETARY , ITAT, JODHPUR .