DCIT, Gulbarga V. M/s. Naidu Construction Company, Gulbarga

ITA 506/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9493 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-09-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: DINESH P
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.K. GUPTA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.506/BANG/2009 ASSESSMENT YEAR : 2006-07 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE I, GULBARGA. : APPELLANT VS. M/S. NAIDU CONSTRUCTION COMPANY, STATION ROAD, GULBARGA. : RESPONDENT C.O.NO.27/BANG/2009 (ARISING OUT OF ITA NO.506/BANG/2009) ASSESSMENT YEAR : 2006-07 M/S. NAIDU CONSTRUCTION COMPANY, STATION ROAD, GULBARGA. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE I, GULBARGA. : RESPONDENT REVENUE BY : SMT. JACINTA ZIMIK VASHAI ASSESSEE BY : SHRI DINESH P. ITA NO.506 & CO NO.27 OF 09 PAGE 2 OF 7 O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE IS DIRECTED AGAINST THE CIT(APPEALS) ORDER DATED 26 .2.2009. THE ASSESSMENT YEAR CONCERNED IS 2006-07. 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS. 2. (A) ON THE ISSUE OF ESTIMATION OF PRIVATE RECE IPTS THE RELIEF ALLOWED BY THE CIT(A) CONTRADICTS WITH HIS OWN FIND ING THAT REASONABLE ESTIMATION MADE BY AO IS CONFIRMED AS GIVEN AT THE EARLY PART OF THE ORDER. (B) THE DECISION OF CIT(A) THAT THE ESTIMATION OF A O IS BASED ON PURE PRESUMPTION AND NOT BASED ON ANY SPECIFIC P OINTS OF EVIDENCES BROUGHT IN BY THE AO IS AGAINST THE AD MITTED FACTS OF THE CASE SINCE THE ASSESSEE HAD FAILED TO PRODUCE THE RELEVANT DETAILS WHICH WERE SPECIFICALLY CALLED FOR BY THE AO, WHICH FACT HAS BEEN TOTALLY IGNORED BY THE LEARNED CIT(A). 3. (A) ON THE ISSUE OF DISALLOWANCE OF EXPENSES ON ESTIMATE BASIS, THE DECISION OF THE CIT(A) IS AGAINST THE FA CTS OF THE CASE. THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE DID NOT FURNISH A SINGLE VOUCHER/BILL BEFORE THE AO FOR HIS VERIFICATION, WHICH WAS SPECIFICALLY CALLED FOR. (B) WHEN THE ASSESSEE FAILED TO FURNISH ANY PROOF BEFORE THE AO, THE DECISION OF THE CIT(A) THAT THE AO HAS NOT BROUGHT IN SPECIFIC POINTS OF EVIDENCES FOR MAKING ESTIMATED DISALLOWANCE APPEARS PERVERSE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THE CROSS OBJECTIONS: 2. THE COMMISSIONER(A) HAVING APPRECIATED THE FACT THAT THE DISALLOWANCE OF EXPENSES AS MADE BY THE ASSESSING A UTHORITY WERE MADE ON ESTIMATION, HE OUGHT TO HAVE DELETED T HE ENTIRE ITA NO.506 & CO NO.27 OF 09 PAGE 3 OF 7 DISALLOWANCE OF 2.5% AS MADE BY THE ASSESSING AUTHO RITY INSTEAD OF RESTRICTING THE SAME TO 1%. 3. THE COMMISSIONER (A) OUGHT TO HAVE DELETED THE A DDITION MADE TOWARDS RECEIPT OF RS.3,58,193/- BEING AN ESTI MATE MADE BY THE ASSESSING AUTHORITY IN TOTO INSTEAD OF RESTRICT ING THE ADDITION TO RS.50,000/-. 4. BRIEFLY STATED THE FACTS ARE AS FOLLOWS. THE AS SESSEE IS A PARTNERSHIP FIRM AND DOING PRIVATE CONTRACT BUSINESS UNDER THE NAME AND STYLE M/S. NAIDU CONSTRUCTION COMPANY. FOR THE CONCERNED ASS ESSMENT YEAR, RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 31.10.2006 D ECLARING A TOTAL INCOME OF RS.9,39,530. ASSESSMENT U/S. 143(3) WAS COMPLETED ON 30.12.08 FIXING A TOTAL INCOME AT RS.19,53,233. AD DITIONS/DISALLOWANCES CONTESTED IN THIS APPEAL AND THE CROSS OBJECTIONS A RE AS FOLLOWS: (I) ADDITION TOWARDS RECEIPT OF RS.3,58,193. (II) DISALLOWANCE OF ESTIMATED EXPENSES OF RS.5,18, 000. ADDITION TOWARDS RECEIPT OF RS.3,58,193 5. THE ASSESSEE IS A CONTRACTOR EXECUTING PRIVATE C ONTRACTS AND LABOUR CONTRACTS. THE AMOUNTS RECEIVED FROM VARIOUS PARTI ES WERE NOT SUPPORTED BY EVIDENCE. THEREFORE THE ASSESSING OFFICER DOUBTE D THE RECEIPTS DISCLOSED BY THE ASSESSEE. IT WAS SUBMITTED BY THE LD. AR FOR THE ASSESSEE THAT RECEIPTS ARE SUPPORTED BY BANK ENTRIES. HOWEV ER, SINCE THE SAME WAS NOT SUBSTANTIATED BY THE LD. AR, THE AO HELD THE RE CEIPTS HAVE TO BE ESTIMATED AT RS.1,20,00,000 AS AGAINST PRIVATE CONT RACT RECEIPTS DISCLOSED AT RS.1,16,41,807, LEAVING A DIFFERENCE OF RS.3,58, 193. THE DIFFERENCE OF RS.3,58,193 WAS ADDED TO THE TOTAL INCOME BY THE AO . BEFORE THE ITA NO.506 & CO NO.27 OF 09 PAGE 4 OF 7 CIT(APPEALS), IT WAS CONTENDED THAT THE AO HAS NOT GIVE ANY REASONS FOR MAKING ADDITION OF RS.3,58,193. IT WAS FURTHER STA TED IN CASE OF PRIVATE CONTRACTS, THE PARTIES ARE NOT ISSUING ANY RECEIPTS AS IT HAPPENS IN GOVERNMENT AGENCIES AND SEMI-GOVERNMENT AGENCIES. THE CIT(APPEALS) RESTRICTED THE ADDITION TO RS.50,000 INSTEAD OF RS. 3,58,193 ADOPTED BY THE AO. DISALLOWANCE OF ESTIMATED EXPENSES OF RS.5,18,000. 6. THE ASSESSEE HAD CLAIMED EXPENSES TOWARDS LABOUR CHARGES & MATERIAL AND LABOUR PAYMENT TOWARDS LABOUR CONTRACT S AT RS.2,07,20,005. IN RESPECT OF THE SUPPORTING VOUCHERS FOR THE EXPEN SES CLAIMED, THE ASSESSEE WAS ASKED TO PRODUCE PRIMARY EVIDENCE. TH E ASSESSEE EXPLAINED THAT IT IS DIFFICULT TO MAINTAIN PRIMARY EVIDENCE PARTICULARLY IN RESPECT OF LABOUR PAYMENTS AND PURCHASES FROM UNREG ISTERED DEALERS. CONSIDERING THE SELF-MADE VOUCHERS AND DOUBTING THE PURCHASES FROM UNREGISTERED DEALERS, IT WAS HELD BY THE AO THAT EX PENSES WERE INFLATED. THE AO ESTIMATED DISALLOWANCE AT 2.5% OF RS.2,07,20 ,005, WHICH WORKS OUT TO RS.5,18,000. ON FURTHER APPEAL, IT WAS CO NTENDED BEFORE THE CIT(APPEALS) THAT THERE IS NO YARDSTICK FOR DISALLO WING LABOUR CHARGES. IT WAS CONTENDED THAT THERE IS INCREASE IN COST OF LAB OUR AND IT WAS ESSENTIAL TO SPEND MORE AMOUNT ON LABOUR CHARGES AND COMPLETE THE WORK ON TIME. THEREFORE IT WAS REQUESTED TO DELETE THE ADDITION M ADE TOWARDS LABOUR CHARGES OF RS.5,18,000. THE LD. CIT(APPEALS) REST RICTED THE DISALLOWANCE TO 1% INSTEAD OF 2.5% ESTIMATED BY THE AO. ITA NO.506 & CO NO.27 OF 09 PAGE 5 OF 7 7. REVENUE, BEING AGGRIEVED, BY REDUCING THE ABOVE SAID ADDITIONS/DISALLOWANCES IS IN APPEAL BEFORE US AND THE ASSESSEE IS IN CROSS OBJECTIONS BEFORE US WITH REFERENCE TO SUSTAINING T HE ADDITION TO THE EXTENT OF RS.50,000 AND DISALLOWANCE OF 1% OF RS.2,07,20,0 05. 8. THE LD. DR SUBMITTED THAT ON THE ISSUE OF ESTIMA TION OF PRIVATE RECEIPTS, THE RELIEF ALLOWED BY THE CIT(APPEALS) CO NTRADICTS WITH HIS OWN FINDINGS THAT REASONABLE ESTIMATION MADE BY THE AO IS CONFIRMED AS MENTIONED IN THE EARLIER PART OF THE CIT(APPEALS) O RDER. IT WAS SUBMITTED THAT THE ASSESSEE HAD FAILED TO PRODUCE THE DETAILS , WHICH WERE SPECIFICALLY CALLED BY THE AO AND ON ACCOUNT OF THE SAME, THE ES TIMATION ON PRIVATE RECEIPTS IS RIGHTLY MADE BY THE AO. ON THE ISSUE O F DISALLOWANCE OF EXPENSES ON ESTIMATED BASIS, IT WAS SUBMITTED THERE WERE ONLY SELF-MADE VOUCHERS PRODUCED BEFORE THE AO FOR VERIFICATION AN D ON A TOTAL EXPENDITURE OF RS.2,07,20,005 THE DISALLOWANCE OF EXPENDITURE T O THE TUNE OF RS.5,18,000 IS REASONABLE AND JUSTIFIED. IT WAS FU RTHER SUBMITTED, THE NET PROFITS IS LESS THAN 8%, EVEN AFTER TAKING INTO ACC OUNT THE TWO ADDITIONS MADE BY THE AO. THEREFORE, SHE SUBMITTED THE ORDER OF THE AO IS TO BE UPHELD. 9. THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE O RDER OF THE LD. CIT(APPEALS). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LD. DR, WITH REFERENCE TO RECEIPTS ON ACCOUNT OF PRIVATE CONTRACTS, THE CIT(APPEALS) HAD HELD THAT THE ESTIMATION MADE BY THE AO IS REASONABLE AND SAME IS TO BE CONF IRMED. BUT IN THE ITA NO.506 & CO NO.27 OF 09 PAGE 6 OF 7 LATER PART OF HIS ORDER, HE DIRECTED THE AO TO REST RICT THE ESTIMATED ADDITION TO RS.50,000 INSTEAD OF RS.3,58,193. WITH REFERENC E TO THE EXPENDITURE WHICH IS DISALLOWED BY THE AO, THE AO HAS TAKEN INT O ACCOUNT THE ADDITION MADE ON ACCOUNT OF PRIVATE RECEIPTS AND ALSO TAKEN THE NATURE OF EXPENSES AND THE PRACTICAL DIFFICULTIES FACED BY THE ASSESSE E IN PROCURING THE BILLS AND VOUCHERS IN RESPECT OF EXPENSES IN THE SITE/PROJECT AREAS. THE CIT(APPEALS) HAS NOT GIVEN AN INDEPENDENT REASONING FOR RESTRICTING THE DISALLOWANCE TO 1%. IN THE INTEREST OF JUSTICE AND TAKING INTO ACCOUNT TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF T HE VIEW THIS MATTER NEEDS RECONSIDERATION BY CIT(APPEALS), HENCE THESE TWO ISSUES ARE RESTORED TO THE FILE OF THE CIT(APPEALS) FOR FRESH CONSIDERATION AND FOR A PROPER FINDING. THE ASSESSEE SHALL BE AFFORDED A R EASONABLE OPPORTUNITY OF BEING HEARD BEFORE FRESH ORDER IS DRAWN UP. 11. SINCE THE WHOLE ISSUE IS REMITTED BACK TO THE F ILE OF THE LD. CIT(APPEALS), THE GROUNDS RAISED IN THE CROSS OBJEC TIONS DO NOT SURVIVE FOR ADJUDICATION AND THE SAME IS DISMISSED AS INFRUCTUO US. 12. IN THE RESULT, THE APPEAL BY THE REVENUE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF SEPTEMBER 2009. SD/- SD/- ( K.K. GUPTA ) ( GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 18 TH SEPTEMBER, 2009. DS/- ITA NO.506 & CO NO.27 OF 09 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.