M/s. Hari Prasad Dayama, RATANGARH V. ITO, CHURU

ITA 409/JODH/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8033 (ITAT-JODHPUR)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Keywords: Rejection of books of accounts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 409/JU/2011 [ASSESSMENT YEAR 2003-04] M/S HARI PRASAD DAYAMA VS. THE I.T.O VILLAGE AND POST SANGASAR WARD - 1 TEHSIL - RATANGARH CHURU PAN NO: H-300/1 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SURESH OJHA DEPARTMENT BY : SHRI G.R. KOKANI DATE OF HEARING : 03.10.2012 DATE OF PRONOUNCEMENT : 30.11.2012 ORDER PER HARI OM MARATHA, J.M. THIS APPEAL FOR ASSESSMENT YEAR 2003-04 HAS BEEN FILED BY THE ASSESSEE-FIRM AGAINST THE ORDER OF THE LD. CIT(A) DATED 18.7.2011. THE ASSESSEE HAD FILED RET URN 2 OF INCOME [ROI] FOR ASSESSMENT YEAR 2003-04 ON 2.12.2003 DECLARING NIL INCOME. ORIGINAL ASSESSMENT ORDER WAS MADE ON 27.2.2006. THE A.O. HAD MADE VARIOUS ADDITIONS, WHICH TRAVELLED UPTO THE TRIBUNA L. THE TRIBUNAL, VIDE THEIR ORDER DATED 10.8.2009 HAD RESTORED THE ENTIRE APPEAL TO THE FILE OF THE LD. C IT(A), FOR DE NOVO CONSIDERATION AND DECISION. IN THE SEC OND ROUND, THE LD. CIT(A) HAS PASSED THE IMPUGNED ORDER ON 18.7.2011 AND THE ASSESSEE HAS COME AGAIN BEFORE TH E TRIBUNAL. 2. THE ASSESSEE HAS TAKEN IN AS MUCH AS 11 GROUNDS OF APPEAL, BUT, IN EFFECT, THREE ISSUES HAVE BEEN RAISED. THE FIRST ISSUE IS REGARDING APPLICATION OF THE PROVISIONS OF SECTION 145(2) OF THE ACT. THE GROUNDS COVERED IN THIS REGARD ARE 1 TO 3 . FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE-FIRM IS A CIVIL CONTRACTOR, CONSISTING OF SIX PARTNERS. IN ASSESSMENT YEARS 20 00-01 TO 2002- 03 NET PROFIT RATE OF 8% WERE DECLARED FROM EXECUTI ON O FITS OWN CIVIL CONTRACT WORK. IN THIS YEAR, THE ASSESSEE FI RM HAS EXECUTED SUB-CONTRACT WORK OF A KOLKATA BASED COMPANY M/S TA NTIA 3 CONSTRUCTION CO. LTD.25/27 NETAJI SUBASH ROAD, KOLK ATA. FROM THIS SUB-CONTRACT, THE ASSESSEE HAS SHOWN TOTAL REC EIPTS OF RS. 1,16,21,582/-. IN THE ACCOUNTS OF THE COMPANY AS APPEARING IN THE BOOKS OF ACCOUNTS OF THE FIRM, IT WAS SEEN THAT FOR EXECUTING SUB-CONTRACT WORKS OF RS. 1.16 CRORES, THE COMPANY HAS ADVANCED, AS A PEAK AMOUNT RS. 58,21,758/-. MOST O F THE FINANCES WERE MANAGED BY THE COMPANY, AS THE FIRM W AS NOT CAPABLE TO HANDLE SUCH A BIG CONTRACT [AS PER PAGES 2 & 3 OF THE A.OS ORDER]. THE MAIN EXPENSES SHOWN BY THE FIRM ARE IN MITTI ACCOUNT, TRUCK TRACTOR ACCOUNT, DUMBER RENT ACCOUNT , JCB ACCOUNT, LABOUR ACCOUNT, DIESEL AND OIL ACCOUNT AND OTHER EXPENSES, ETC. THESE EXPENSES ARE FOUND SUPPORTED BY SELF- MADE VOUCHERS. STILL THE A.O. WAS NOT CONVINCED AB OUT THE EXISTENCE OF A SUB-CONTRACT BETWEEN THE FIRM AND TH E COMPANY. THEREFORE, HE DEMANDED FROM THE FIRM THAT IT SHOULD FILE A COPY OF THE SUB-CONTRACT ENTERED INTO BETWEEN THEM. THE ASSESSEE SHOWED ITS INABILITY TO PROCESS ANY SUCH AGREEMENT. WHEN THE A.O. DIRECTLY TIED TO ASCERTAIN AND GET A COPY OF S UCH AGREEMENT, THE COMPANY DID NOT CO-OPERATE. LIKEWISE, THE COMP ANY BEING A BIG BROTHER, DID NOT COOPERATE WITH THE ASSESSEE EI THER. THAT IS 4 WHY THE A.O. FINALLY TREATED THE ASSESSEE ONLY AS A NAME-LENDER TO THE COMPANY AND PROCEEDED TO ASSESS THE INCOME A RISING FROM THIS SUB-CONTRACT, ON PROTECTIVE BASIS, IN THE HAND S OF THE FIRM. THE A.O. HAS REJECTED THE BOOKS OF ACCOUNTS BECAUSE SOME OF THE EXPENSES RELATING TO MITTI A/C, ETC. WERE NOT PROPE RLY VOUCHED AND THE MAJOR EXPENSES RELATING TO PETROL/DIESEL WE RE DIRECTLY PAID BY THE COMPANY. AFTER REJECTING THE BOOKS, THE A.O. HAS DETERMINED NET INCOME BY ADOPTING A NET PROFIT RATE OF 8% FURTHER SUBJECT TO PAYMENT OF INTEREST AND REMUNERA TION TO THE PARTNERS. THUS HE HAS COMPUTED INCOME OF THE FIRM AT RS. 7,05,343/- [RS. 1,16,21,582 X 8/100 = 9,29,727 2, 24,384/-] AND HAS ASSESSED THE SAME IN THE HANDS OF THE FIRM ON PROTECTIVE BASIS. 3. THE ASSESSEE HAS SHOWN OTHER CONTRACT-WORK RECEI PTS FROM PHED, DHANASAR OF RS. 1,58,869/- AND FROM LALIT KUM AR GANERIA, RATANGARH OF RS. 1,50,000/-. ON THESE RECEIPTS, IN STEAD, HE HAS APPLIED NET PROFIT RATE OF 12% AND HAS FURTHER ADDE D RS. 37,064/- IN FIRMS HANDS. BOTH THESE ADDITIONS HAVE BEEN CO NFIRMED BY 5 THE LD. CIT(A). THE ASSESSEE IS FURTHER AGGRIEVED AND HAS FILED THE SECOND APPEAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. IN OUR CONS IDERED OPINION, THE CONCLUSION TO ASSESS THE SUB-CONTRACT INCOME IN ASSESSEE-FIRMS HANDS ON PROTECTIVE BASIS IS OF A F AR-FETCHED EXERCISE DONE BY THE A.O. WHICH IS DEVOID OF ANY ME RITS. THE A.O. HAS NOT DISPUTED THE FACT THAT THE SUB-CONTRAC T HAS BEEN EXECUTED BY THE ASSESSEE-FIRM, AND THERE IS NO EVID ENCE, EVEN TO A WHIT, WHICH CAN SUGGEST THAT THE FIRM IS NOT A SU B-CONTRACTOR OF THIS WORK. THUS, NO ADDITION ON PROTECTIVE BASIS C AN BE MADE IN THE HANDS OF THE FIRM. RATHER, SUBSTANTIALLY, THIS AMOUNT HAS TO BE CONSIDERED IN THE HANDS OF THE FIRM. EVEN, IF M AJOR EXPENSES ARE DIRECTLY PAID BY THE COMPANY, IT DOES NOT MEAN THAT THE SUB- CONTRACT WAS NOT EXECUTED BY THE FIRM. THE FIRM HA S DONE ALL WORKS AND HAS PAID, EITHER ITSELF OR THROUGH THE CO MPANY, TO THE PAYEES. THEREFORE, WE REJECT THIS THEORY OF THE A. O. AND HOLD THAT THE FIRM HAS TO BE ASSESSED ON SUBSTANTIAL BAS IS. 6 5. NOW, COMING TO THE QUESTION OF REJECTION OF BOOK S OF ACCOUNTS, THE A.O. HAS NOT PIN-POINTED ANY DEFECT, MUCH LESS, ANY MATERIAL DEFECT IN THE BOOKS OF ACCOUNTS OF THE FIRM. IN FACT, HIS MIND WAS WORKING ON THE PREMISE THAT THIS IS TH E WORK DONE BY THE COMPANY AND THE ASSESSEE-FIRM IS ONLY A NAME -LENDER. THIS CONCLUSION WAS FURTHER STRENGTHENED FROM THE F ACT THE ASSESSEE HA SHOWN NIL INCOME FROM THIS WORK ALTHOUG H REMUNERATION AND INTEREST TO PARTNERS OF RS. 2,24,3 84/- [INTEREST RS. 1,80,000/- AND REMUNERATION RS. 44,384/-] WAS P AID OUT OF SUB-CONTRACT RECEIPTS. IN A CASE WHEN THERE IS NO PROFIT OR LESS PROFIT, IN EXECUTION OF A SUB-CONTRACT, IT CANNOT B E A GOOD GROUND FOR REJECTION FOR BOOKS OF ACCOUNTS. ONLY BECAUSE SOME EXPENSES ARE SELF-VOUCHED, IT CANNOT BE TAKEN A MATERIAL DEF ECT IN THE BOOKS OF ACCOUNTS. THE JAIPUR BENCH OF THE TRIBUNA L HAS HELD, IN THE CASE OF KAILASH CHAND GUPTA VS. DCIT REPORTED I N 35 TAX WORLD PAGE 36 [JP] COPY AVAILABLE IN APB, THAT SECT ION 145 CANNOT BE INVOKED IN A CASE WHEREIN NAMES AND ADDRE SSES UPON CASH SALE VOUCHERS HAVE NOT BEEN KEPT, UNLESS SOME MATERIAL IS BROUGHT ON RECORD BY THE A.O. TO DISPROVE THE CORRE CTNESS OF THE BOOKS OF ACCOUNTS AND THE PROFITS DECLARED. THERE A RE NUMEROUS 7 DECISIONS TO THAT EFFECT. THE LD. COUNSEL FOR THE ASSESSEE HAS GIVEN IN HIS PAPER-BOOK MANY RELEVANT DECISIONS. A CCORDINGLY, WE REVERSE THE FINDING OF THE AUTHORITIES REGARDING REJECTION OF BOOKS OF ACCOUNTS AS NO MATERIAL DEFECT HAS BEEN FO UND IN THEM. 6. OUR THIS FINDING IS FURTHER SUPPORTED BY THE CON DUCT OF THE A.O. HIMSELF. REGARDING PHED WORK AND LALIT KUMAR S WORK, PROFIT OF RS. 37,064/- HAS BEEN COMPUTED BY APPLYIN G A NET PROFIT RATE OF 12%, WHEREAS, FOR SUB-CONTRACT RECEIPT HAS APPLIED NET PROFIT RATE OF 8%. IF HE WERE TO APPLY 8% RATE TO THIS RECEIPT FURTHER SUBJECT TO REMUNERATION AND INTEREST PAID T O PARTNERS, THERE WOULD HAVE BEEN LOSS ON THESE RECEIPTS AS WEL L. AND EVEN AFTER ADOPTING NET PROFIT RATE OF 12%, REMUNERATION AND INTEREST PARTNERS IS CONSIDERED, THERE WILL BE NIL INCOME OR EVEN LOSS. THEREFORE, IN OUR CONSIDERED OPINION, APPLICATION O F NET PROFIT RATE OF 12% INSTEAD OF 8% IS NOT CORRECT. T BE CON SIST AND NOT PARADOXICAL THE A.O. HAS TO ADOPT NET PROFIT RATE O F 8% ONLY. WHEN, WE HAVE ACCEPTED THE BOOKS OF ACCOUNTS AS COR RECT, THE DECLARED RESULTS IN THESE ACCOUNTS HAVE TO BE ACCEP TED AND 8 ALLOWED. THEREFORE, WE ALLOW GROUND NOS. 1 TO 5 AN D ORDER TO DELETE THE IMPUGNED ADDITIONS. 7. GROUND NO. 6 RELATES TO ADDITION OF RS. 13,482/- MADE U/S 68 OF THE ACT. THIS ADDITION HAS ALSO BEEN SUSTAIN ED BY THE LD. CIT(A). THE FACTS APROPOS THIS GROUND ARE THAT DUR ING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, TO TAL SUM OF RS. 7,50,000/- WAS INTRODUCED AS CAPITAL IN THE NAM ES OF SIX PARTNERS AS UNDER: NAME OF PARTNER 0. BALANCE ADDITION HARI PRASAD DAYAMA RS. 1,50,000/- RS. 1,50,000/- BHAGAWANARAM RS. 1,50,000/- RS. 1,50,000/- GHANSHYAM DAYAMA RS. 1,50,000/- RS. 2,00,000/- RAJESH KUMAR RS. 1,50,000/- RS. 1,00,000/- BHERAV PRASAD RS. 1,00,000/- RS. 1,00,000/- OM PRAKASH RS. 50,000/- RS. 50,000/- WHEN ASKED TO DO SO, THE ASSESSEE FIRM EXPLAINED TH ESE DEPOSITS AND EVEN EXPLAINED THE SOURCE(S) OF THE PARTNERS. THE SOURCE OF DEPOSITS ARE FROM CASH WITHDRAWALS MADE BY PARTNERS, WHICH IS AS UNDER: 9 NAME OF PARTNER WITHDRAWALS SHOWN IN THE PRECEDING YEAR, AS ON 31.3.2002 HARI PRASAD DAYAMA RS. 1,97,417/- BHAGAWANARAM RS. 1,78,021/- GHANSHYAM DAYAMA RS. 2,66,870/- RAJESH KUMAR RS. 1,86,571/- BHERAV PRASAD RS. 1,12,442/- OM PRAKASH RS. 36,518/- BY REJECTING THE EXPLANATION OF THE ASSESSEE, THE A .O. HAS MADE ADDITION OF THE ENTIRE AMOUNT OF RS. 7,50,000/-, ON SUBSTANTIVE BASIS, IN THE HANDS OF T HE ASSESSEE-FIRM. AS AGAINST WHICH, THE LD. CIT(A) HA S SUSTAINED ADDITION ONLY TO THE EXTENT OF RS. 13,482 /-. THE ASSESSEE-FIRM HAS DISPUTED EVEN THIS ADDITION O N THE REASONING THAT THIS AMOUNT CANNOT BE LEGALLY ADDED IN ITS HANDS. 9. AFTER HEARING BOTH THE SIDES, WE ARE OF THE CONSIDERED OPINION THAT ANY SUM INTRODUCED IN THE CAPITAL ACCOUNT BY A PARTNER CANNOT BE TREATED AS F IRMS INCOME AND CANNOT BE ADDED IN THE HANDS OF THE FIRM AS ITS UNEXPLAINED INCOME UNLESS SOME CONTRARY EVIDENC E IS 10 BROUGHT ON RECORD BY THE A.O. THE A.O. HAS NOT BRO UGHT ANY SUCH PROOF ON RECORD. ACCORDINGLY, ADDITION OF RS. 13,482/- HAS TO BE DELETED FROM THE HANDS OF THE ASSESSEE FIRM. THESE AMOUNTS CAN BE CONSIDERED ONL Y THE HANDS OF THE PARTNERS. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 30 TH NOVEMBER, 2012. SD/- SD/- (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH NOVEMBER, 2012 VL/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) BY ORDER 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR