SHRI SATYA NARAYAN SHARMA, Jaipur V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, Jaipur

ITA 450/JPR/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2194 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI JCIT DHK
• Keywords: Rejection of books of accounts; Depreciation; Set aside
• Section: 271(1)(c)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NOS. 450 & 451/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2010-11 & 11-12 SHRI SATYA NARAYAN SHARMA, C-52, PREM COLONY, NEHRU NAGAR, JAIPUR. CUKE VS. THE ACIT, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AGMPS 4714 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23.08.2019 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 23/08/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST TWO SEPARATE ORDERS OF LD. CIT (A), AJMER BOTH DATED 25.02.2019 ARISING FROM PENALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE IT ACT FOR THE A.YS. 2010- 11 & 2011-12 RESPECTIVELY. THE ASSESSEE HAS RAISED COMMON GROUNDS IN THESE APPEALS EXCEPT THE QUANTUM OF PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD. C IT (A). THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2010-11 ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LD. AO HAS GROSSLY ERRED IN CONFIRMING THE LEVY OF PENALTY ON THE INCOME ESTIMATED BY APPLYING PROFIT RATE BY IGNORING THE F ACT THAT SUCH ORDERS WERE SET ASIDE TO THE FILE OF LD. AO BY HON BLE ITAT, THUS 2 ITA NOS. 450 & 451/JP/2019 SHRI SATYA NARAYAN SHARMA, JAIPUR. CONSEQUENT LEVY OF PENALTY BASED ON SUCH ASSESSMENT ORDERS (ALREADY SET ASIDE) DESERVES TO BE DELETED. WITHOUT PREJUDICE TO ABOVE, AND IN THE ALTERNATIV E : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING PENALTY U/S 271(1)( C) OF THE INCOME TAX ACT, 1961 LEVIED BY LD. AO (IN RESPECT O F ADDITIONS SUSTAINED IN ASSESSMENT PASSED U/S 243(3) R.W.S. 25 4), BY GROSSLY IGNORING THE FACT THAT PENALTY WAS LEVIED B Y LD. AO WITHOUT RECORDING SATISFACTION AS TO HOW ASSESSEE H AS CONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. 2.1. THAT LD. CIT (A) HAS FURTHER ERRED IN CONFIRMI NG THE PENALTY BY GROSSLY IGNORING THE FACT THAT ADDITION IN RESPECT OF WHICH PENALTY WAS LEVIED, WERE MADE ON THE ESTIMATED BASI S, ON WHICH NO PENALTY U/S 271(1)(C) COULD BE LEVIED IN VIEW OF THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT V/S KRISHI TYRE RETREADING AND RUBBER INDUSTRIE S (360 ITR 580). THUS, THE PENALTY CONFIRMED BY LD. CIT (A) ON THE ADDITION MADE ON ESTIMATE BASIS DESERVES TO BE DELETED. 2.2. THAT THE LD. CIT (A) HAS FURTHER ERRED IN CONF IRMING THE ACTION OF LD. AO IN IMPOSING PENALTY BY SOLELY RELYING UPON C ONCLUSIONS DRAWN BY LD. AO IN ASSESSMENT PROCEEDINGS. IT IS PR AYED THAT PENALTY PROCEEDINGS ARE SEPARATE AND INDEPENDENT PR OCEEDINGS, THUS PENALTY LEVIED BY LD. AO SOLELY FOR THE REASON THAT ADDITIONS HAVE BEEN MADE IN ASSESSMENT ORDER, IS NOT ACCORDAN CE WITH LAW AND DESERVES TO BE DELETED. 3. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELE TE, AMEND OR ABANDON ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT IN THE QUANTUM APPEALS, THE TRIBUNAL VIDE ORDER DATED 27 TH FEBRUARY, 2017 IN ITA NOS. 38 & 39/JP/2015 HAS SET ASIDE THE MATTER TO THE RECORD OF THE AO IN PARA 4.7 AS UNDER :- 4.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR, THE APPELLANT HAS SHOWN RE VENUE FROM SALES, CONTRACT 3 ITA NOS. 450 & 451/JP/2019 SHRI SATYA NARAYAN SHARMA, JAIPUR. RECEIPTS AND VEHICLE HIRING CHARGES AND THERE ARE C ORRESPONDING EXPENSES IN TERMS OF PURCHASES, GOODS INWARD EXPENSES, JOB WORK EXPENSES AND LABOUR CHARGES. FURTHER, THE ASSESSEE HAS INCURRED OTHER EXPENSES IN NATURE OF RENT, SALARY, OTHER OFFICE AND ADMINISTRATIVE OVERHEAD EXPENSES BESIDES INTEREST A ND DEPRECIATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ENQUIRED A BOUT THE JOB WORK EXPENSES AND LABOUR CHARGES AS DEBITED IN THE PROFIT AND LOSS AC COUNT AND THEREAFTER, A SHOW CAUSE WAS ISSUED TO THE ASSESSEE. AFTER CONSIDERING THE A SSESSEES SUBMISSION, THE AO HAS HELD THAT THE ASSESSEE HAS FAILED TO JUSTIFY ANY OF THE DISCREPANCIES POINTED IN THE SHOW CAUSE NOTICE. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED AND THE BOOKS OF ACCOUNTS WERE HELD NOT RELIABLE AS THEY DO NOT P RESENT THE REAL PICTURE OF THE BUSINESS OF THE ASSESSEE AND THE PROVISIONS OF SECT ION 145(3) WERE INVOKED AND THE BOOKS OF ACCOUNTS WERE FINALLY REJECTED. IT IS THER EFORE, SEEN THAT THE BASIS OF REJECTION OF BOOKS OF ACCOUNTS RELATES TO THE JOB W ORK EXPENSES AND THE LABOUR CHARGES CLAIMED BY THE ASSESSEE IN RELATION TO THE CONTRACT BUSINESS CARRIED OUT BY THE ASSESSEE. THEREFORE, ANY ESTIMATION OF PROFIT S HOULD HAVE A REASONABLE AND RATIONALE NEXUS WITH THE DEFECTS NOTICED BY THE AO WHILE REJECTING THE BOOKS OF ACCOUNTS. IN THE INSTANT CASE, THE BASIS OF REJECTI ON RELATES TO THE CONTRACT ACTIVITY CARRIED OUT BY THE APPELLANT, THEREFORE, THE ESTIMA TION OF PROFIT SHOULD RELATE TO THE CONTRACT ACTIVITY AND NOT IN RESPECT OF OTHER ACTIV ITIES WHICH HAVE NOT BEEN DOUBTED. TO THIS EXTENT, WE AGREE WITH THE CONTENTIONS OF TH E LD. AR. NOW IF WE LOOK AT THE PROFIT WHICH HAS BEEN ESTIMAT ED BY THE AO AND CONFIRMED BY THE LD. CIT(A), IT IS NOTED THAT THE AO HAS ESTIMAT ED THE NET PROFIT RATE OF 11.5% AS AGAINST NET PROFIT OF 3.94% OFFERED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THE LD. CIT(A) THEREAFTER HAS REDUCED THE NET PROFIT TO 7% FOLLOWING THE PAST HISTORY OF THE ASSESSEE. IT IS HERE THAT THE GENESIS OF THE DISPUT E BETWEEN THE ASSESSEE AND THE REVENUE LIES. GIVEN THAT BOTH THE PARTIES ARE NOT D ISPUTING THE NET PROFIT RATE OF 7% AND THE ONLY DISPUTE RELATES TO THE NATURE AND QUAN TUM OF RECEIPTS ON WHICH SUCH NET PROFIT RATE WOULD BE APPLIED. THE ASSESSEES CONTEN TION IS THAT THE NET PROFIT RATE OF 7% SHOULD BE RESTRICTED TO CONTRACT ACTIVITY AND AP PLIED TO CONTRACT RECEIPTS ONLY AND NET PROFIT IN RESPECT OF TRADING/SALES ACTIVITY SHO ULD NOT BE DISTURBED. AS WE HAVE NOTED ABOVE, THE REJECTION OF BOOKS OF ACCOUNTS REL ATES TO THE CONTRACT ACTIVITY UNDER TAKEN BY THE ASSESSEE ONLY. IN THE PROFIT AND LOSS ACCOUNT, THE RECEIPTS FROM BUSINESS HAVE BEEN SHOWN UNDER CONTRACT RECEIPTS AND SALES R ECEIPTS BESIDES VEHICLE HIRING EXPENSES WHICH IS ALSO ACKNOWLEDGED BY THE ASSESSIN G OFFICER, AS EVIDENT FROM PARA 4 ITA NOS. 450 & 451/JP/2019 SHRI SATYA NARAYAN SHARMA, JAIPUR. 3.4 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS CARRI ED OUT SALES ACTIVITY WHICH HAS BEEN SHOWN AND REFLECTED SEPARATELY IN THE PROFIT/L OSS ACCOUNT AS AN INDEPENDENT STREAM OF PURCHASE AND SALE ACTIVITY AND CORRESPOND ING REVENUES HAVE BEEN OFFERED AS SALES RECEIPTS. REGARDING THE OBSERVATIONS OF TH E LD CIT(A) THAT THE EXPENSES RELATING TO THE BUSINESS OF SUPPLY OF MATERIAL (REL ATING TO SALES) AND CONTRACT RECEIPTS CANNOT BE BIFURCATED AND THE EXPENSES RELATING TO J OB WORK EXPENSES AND LABOUR CHARGES WOULD PERTAIN TO BOTH THE REVENUE STREAMS, THE LD AR HAS SUBMITTED THAT THE SAID OBSERVATION OF THE LD CIT(A) IS NOT CORRECT AS THE SAME IS NOT ARISING OUT OF FACTS ON RECORD. IN OUR VIEW, TAKING INTO CONSIDERATION T HE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, THE ESTIMATION OF NET PR OFIT OF 7% SHOULD BE RESTRICTED TO THE CONTRACT ACTIVITY ONLY. AT THE SAME TIME, GIVEN THAT THERE ARE NO SEGMENTAL PROFIT/LOSS ACCOUNT IN RESPECT OF CONTRACT ACTIVITY AND TRADING ACTIVITY AVAILABLE ON RECORD, THE MATTER IS SET-ASIDE TO THE FILE OF THE AO TO APPLY NET PROFIT RATE OF 7% IN RESPECT OF CONTRACT ACTIVITY ONLY AFTER EXAMINING T HE SEGMENTAL PROFIT/LOSS ACCOUNT. IN THE RESULT, THE GROUND NO. 2 IN BOTH THE YEARS IS A LLOWED WITH ABOVE DIRECTIONS FOR STATISTICAL PURPOSES. THUS THE ORDERS OF THE AO AS WELL AS LD. CIT (A) IN QUANTUM ON THE BASIS OF WHICH THE PENALTY WAS LEVIED BY THE AO WERE NO MORE IN E XISTENCE AS THE SAME WERE SET ASIDE BY THIS TRIBUNAL IN QUANTUM APPEALS. THE LD. A/R HAS POINTED OUT THAT IN THE SET ASIDE PROCEEDINGS THE AO HAS AGAIN MADE THE ADD ITIONS AND THE APPEALS AGAINST THE ORDER OF THE AO ARE PENDING BEFORE THE LD. CIT (A). ACCORDINGLY IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE ORIGIN AL ORDERS OF THE AO AND LD. CIT (A) ON THE BASIS OF WHICH THE PENALTIES WERE LEVIED BY THE AO WERE ALREADY SET ASIDE BY THE TRIBUNAL, THEN THE IMPUGNED ORDER PASSED UND ER SECTION 271(1)(C) WOULD NOT SURVIVE. HENCE, WE DELETE THE PENALTY LEVIED BY THE AO FOR BOTH THE ASSESSMENT YEARS. WE MAY CLARIFY THAT THE AO IS AT LIBERTY TO TAKE NECESSARY STEPS, IF NEED ARISE 5 ITA NOS. 450 & 451/JP/2019 SHRI SATYA NARAYAN SHARMA, JAIPUR. AS PER THE OUTCOME OF THE APPEALS PENDING BEFORE TH E LD. CIT (A) IN THE SET ASIDE PROCEEDINGS. 3. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23/08/2019 . SD/- SD/- FOE FLAG ;KNO FOT; IKY JKWO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23/08/2019. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-SHRI SATYA NARAYAN SHARMA, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT-THE ACIT, CIRCLE-4, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 450 & 451/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR