Sanatan Parrida, Jagatsinghpur V. DCIT, Cuttack

ITA 509/CTK/2011

• Counselvise Citation: 50922114 RSA 2011
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: SUNIL MISHRA
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM, AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 509/CTK/2011 (ASSESSMENT YEAR 2007 - 08) SANATAN PARIDA, MADHUBAN, PARADEEP, JAGATSINGHPUR PAN: AGPPP 7320 M VERSUS DCIT, CIR CLE 1(1), CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SUNIL MISHRA, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 14.02.2012 DATE OF PRONOUNCEMENT : 17.02.2012 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSES SEE IS ON THE LIMITED ISSUE OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CONFIRMING THE ESTIMATION OF INCOME O N THE BASIS OF GROSS RECEIPTS ON ACCOUNT OF SUB - CONTRACT WORK RENDERED BY THE ASSESSEE AND ALSO ITS SCRAP BUSINESS BY THE ASSESSING OFFICER IN HIS ORDER U/S.144 OF THE I.T.ACT,1961. 2. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS SUBJECTED TO SCRUTINY WHEN NOTICES WERE ISSUED AND THE AR OF THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER. THE BOOKS OF ACCOUNT WERE PRODUCED WHICH WERE CONSIDERED FOR REJECTION OF THE BOOK RESULT U/S.145(3). THE ASSESSEE HAD BEEN RENDERING INCOME FROM THE SAME BUSINESS IN THE EARLIER YEARS AND HAD DISCLOSED INCOME OF 7,99,200 FOR THE COMBINED BUSINESS IN THIS YEAR. THE ASSESSING OFFICER CONSI DERED THE TOTAL RECEIPTS OF TWO BUSINESSES WHICH WERE DULY AUDITED UNDER THE PROVISIONS OF SECTION 44AB. HE ESTIMATED 6% INCOME ON ACCOUNT OF THE GROSS CONTRACT RECEIPTS AND GROSS SCRAP SALES AS AGAINST 3.42% DECLARED ON THE SUB - CONTRACT WORKS RECEIPTS AND 4.5% ON THE SCRAP SALES. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO UPHELD THE ESTIMATION OF THE ASSESSING OFFICER BY HOLDING A VIEW THAT THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE BOOK ITA NO.509/CTK/2011 2 RESULTS AND ESTIMATING THE IN COME TO THE BEST OF HIS JUDGMENT UNDER THE PROVISIONS OF SECTION 144. 3. INITIATING HIS ARGUMENTS ON THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE, THE LEARNED AR OF THE ASSE SSEE SUBMITTED THAT HE IS NOT KEE N ON PRESSING FOR GROUND RELATING TO ARBITRARY AS SESSMENT MADE BY THE ASSESSING OFFICER U/S.144. HE WANTED TO POINT OUT THAT THE ASSESSING OFFICER HAD GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAD BEEN RETURNING INCOME FROM SUB - CONTRACT RECEIPTS COULD NOT BE TAXED AT 8% AS IS PROVIDED U/S.44AD THEREF ORE, THE ASSESSEE HAVING DECLARED NP 3.42% SOUGHT TO ESTIMATE IT AT 6% WHICH WAS NEVER THE PROVISIONS OF THE I.T.ACT. A SUB - CONTRACT OR COULD NOT EARN 8% AS STIPULATED U/S.44AD WHEN THE VERY BUSINESS OF CONTRACT OF SUB - CONTRACTING INDICATES SHARING OF THE I NCOME WHICH MEANS THE SUB - CONTRACT OR IS TO EARN 4%. FURTHERMORE HE SUBMITTED THAT THE SCRAP SALES WHICH REQUIRED DETERMINATION OF GROSS PROFIT WAS AT 10% WHICH THE ASSESSING OFFICER HAS ORIGINALLY CONSIDERED FOR TAXATION AT 6% BUT AS NET PROFIT. HE POINTED OUT THAT THE ASSESSEE HAD RETURNED 4.5% NET PROFIT IN SCRAP DEALINGS AND THE BOOKS OF ACCOUNT ARE AUDITED AND THEREFORE, COULD NOT BE ESTIMATED AT A HIGHER RATE INSOFAR AS THERE IS NO HARD AND FAST PERCENTAGE OF PROFIT AFTER THE GROSS MARGIN HAS BEEN DETE RMINED. THE LEARNED CIT(A) THEREFORE, ERRED IN GIVING A FINDING THAT THE DEPRECIATION WAS NOT TO BE ALLOWED WHICH WAS NOT THE CASE OF THE ASSESSEE INSOFAR AS THE FACTS ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE ON CASE LAWS RELIED UPON BY THE L EARNED CIT(A) IN PARA 6.2 OF HIS ORDER. HE PRAYED THAT A SUITABLE ESTIMATION OF INCOME MAY BE DIRECTED TO BE ADOPTED INSOFAR AS THE NET PROFIT IS CONCERNED AND I N VIEW OF THE ASSESSING AUTHORITIES NOT P OINTING OUT ANY DISCREPANCY IN THE CLAIM OF EXPENDITUR E AFTER THE GROSS MARGIN HAS BEEN DETERMINED . FOR THIS PURPOSE, HE HAS SUBMITTED THE FINANCIAL STATEMENTS DULY AUDITED WHICH ARE SELF EXPLANATORY ESPECIALLY IN ITA NO.509/CTK/2011 3 VIEW OF THE FACT THAT THE SUB - CONTRACT HAS BEEN RENDERED TO THE MAIN CONTRACTOR WHO HAS GIVEN TH E INCOME BY DEDUCTING TAX @ 1% ONLY. 4. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE LEARNED AR OF THE ASSESSEE BY SAYING THAT THE LEARNED CIT(A) HAS NOT ADJUDICATED THE ISSUE WITH RESPECT TO EXAMINATION OF CONTRACT WORK WHICH THE LE ARNED COUNSEL FOR THE ASSESSEE HAS NOW POINTED OUT AS A SUB - CONTRACT. AS THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS WISDOM HAS RIGHTLY NOT PRESSED GROUND RELATING TO COMPLETION OF ASSESSMENT U/S.144, HE RELIED ON THE LEARNED CIT(A) CONFIRMING THE ESTIMATION BY THE ASSESSING OF FICER FOR HIS PART OF SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO FIND T HAT COMPUTATION OF NET PRO FIT AS A FIXED PERCENTAGE WAS NEVER THE CASE OF THE ASSESSEE SPECIALLY FOR THE PURPOSE OF SCRAP SALES. THE SALE S OF THE ASSESSEE ARE EXPLAINED THAT THE GROSS MARGIN ON ACCOUNT OF SCRAPS SALES IS ABOUT 10%, WHICH HE HAD RETURNED AT 4.5% NET PROFIT. SIMILARL Y IN THE PAST HE HAD DECLARED 3.52% WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT AND WAS NOT ESTIMATED ON THE BASIS OF REJECTION OF BOOKS OF ACCOUNT UNDER THE PROVISIONS OF SECTION 145. THE REJECTION OF BOOKS RESULT HAS LEADING TO THE PASSING OF THE ORDER U /S.144 THEREFORE, SUFFERS FROM INFIRMITY INSOFAR AS NO CONTROVERSY IN CLAIMING OF EXPENDITURE HAS BEEN FOUND EITHER BY THE ASSESSING OFFICER OR BY THE LEARNED CIT(A). THE LEARNED CIT(A) THEREFORE, DID NOT CONSIDER THE CASE OF THE ASSESSEE IN THE MANNER AS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO THE EXTENT THAT THE SUB - CONTRACTOR CANNOT HAVE INCOME ON THE BASIS OF PURCHASE OF MATERIALS WHEN THE GROSS BILLS DRAWN ON THE MAIN CONTRACTOR ARE SUBJECT TO SCRUTINY WHO WOULD NOT PART WITH HIS PORTION OF INCO ME THAT HE WOULD HAVE RENDERED AT 8%. IN OTHER WORDS THE ASSESSEE HAD RETURNED NET MARGIN OF ITA NO.509/CTK/2011 4 3.42% THEREFORE, WAS SPECIFICALLY ALLOWABLE FOR TAXATION AT 4%, WHICH WE ARE INCLINED TO UPHOLD. THE ESTIMATION HAS TO BE IN THE MANNER SO AS TO JUSTIFY THE CLAIMI NG OF EXPENSES WHICH ARE DIRECTLY LINKED AND CLAIMED IN THE PROFIT & LOSS ACCOUNT WHICH COULD NOT BE CONSIDERED FOR REJECTION OF BOOKS OF ACCOUNT UNDER THE PROVISIONS OF SECTION 145(3). SIMILARLY THE SCRAP SALES HAVE BEEN DIRECTLY CONSIDERED FOR THE NET MA RGIN WITHOUT INDICATING WHETHER THE GROSS MARGIN RETURNED THEREON AT 10% WAS NOT ACCEPTABLE. WE HAVE PERUSED THE FINANCIAL STATEMENTS AND FIND THAT MINOR EXPENSES HAVE BEEN CLAIMED AFTER THE GROSS MARGIN OF 10% THEREFORE WOULD MEET THE INTEREST OF JUSTICE IN CASE THE NET PROFIT FROM SCRAP SALES BUSINESS IS ADOPTED AT 5%. FOR THE REASONS DISCUSSED ABOVE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ADOPT THE RATE OF NET INCOME AT 4% ON THE GROSS RECEIPTS OF SUB - CO NTRACT WORKS AND TO ADOPT THE RATE OF NET INCOME FROM SCRAP SALES BUSINESS AT 5% OF SALES . 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 17.02.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SANATAN PARIDA, MADHUBAN, PARADEEP, JAGATSINGHPUR 2. THE RESPONDENT: DCIT, CIRCLE 1(1), CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.