ITO, DUNGARPUR V. M/s. Maya Construction, DUNGARPUR

ITA 510/JODH/2013

• Counselvise Citation: 51023314 RSA 2013
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AND CROSS OBJECTION CO
• Assessee Lawyers: ARE DIRECTED A GAINST
• Keywords: Business income; Depreciation
• Section: 234B; 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. 510 / JU/ 20 1 3 ASSESSMENT YEAR: 200 9 - 10 THE INCOME - TAX OFFICER VS. M/S MAYA CONSTRUCTIO N WARD OPP. COLLECTORATE DUNGARPUR DUNGARPUR PAN NO. AA LFM 9939 P (APPELLANT) (RESPONDENT) CO NO. 43 /JU /201 3 A/O ITA NO. 51 0 / JU/20 13 ASSESSMENT YEAR: 200 9 - 10 M/S MAYA CONSTRUCTION VS. THE INCOME - TAX OFFICER OPP. COLLE CTORATE WARD DUNGARPUR DUNGARPUR PAN NO. AALFM 9939 P (APPELLANT) (RESPONDENT) A SSESSEE B Y : SHRI MAHENDRA GARGIEYA DEPARTMENT B Y : SHRI N.A. JOSHI , DR DATE OF H EARING : 15 . 0 7 .201 4 DATE OF PRONOUNCEMENT : 18 . 0 7 . 201 4 2 ORDER PER HARI OM MARATHA , J .M. TH IS APPEAL BY THE REVENUE AND CROSS OBJECTION [CO] BY THE ASSESSEE ARE DIRECTED A GAINST THE ORDER OF THE CIT (A) , UDAIPUR DATED 08 . 0 8 .20 1 3 PERTAINING TO A.Y 200 9 - 20 1 0 . 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE - FIRM IS ENGAGED IN THE BUSINESS OF CONTRACT OR SHIP WHO TAKES CONTRACT MOSTLY FROM GOVERNMENT DEPARTMENTS INCLUDING PWD DUNGARPUR AND PWD SAGWARA, UDAIPUR, ETC. FOR A.Y. 2009 - 10, THE FIRM FILED ITS RETURN OF INCOME [ROI] ON 25.9.2009 DECLARING TOTAL INCOME OF RS. 61,77,950/ - AS AGAINST WHICH ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS. 1,09,72,080/ - . THE A.O. HAS MADE TRADING ADDITION OF RS. 40,38,427/ - AND INTEREST INCOME CLAIMED BY THE ASSESSEE AS ITS BUSINESS INCOME OF RS. 7,55,701/ - BY TREATING IT AS INCOME FROM OTHER SOURCES. IN APPEAL, THE ASSESSEE WAS SUCCESSFUL IN GETTING PART RELIEF. NOW BOTH 3 THE PARTIES ARE AGGRIEVED AND HAVE RAISED THEIR RESPECTIVE GROUNDS AS UNDER: 2.1 REVENUES GROUNDS READ AS UNDER: - ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN: 1. RESTRICTING/REDUCING THE TRADING ADDITION FROM RS. 40,38,427/ - TO RS. 18,56,260/ - DESPITE THE FACT THAT APPLICATION OF SECTION 145(3) HAS BEEN UPHELD BY THE LD. CIT(A). 2. REDUCING THE NET PROFI T RATE FROM 5.7% TO 4.5% IGNORING THE FACT THAT THE ASSESSEE HAS ITSELF ACCEPTED THE NET PROFIT RATE ESTIMATED BY THE A.O. @ 5.75% IN A.Y. 2007 - 08 AND EVEN IN A.Y. 2008 - 09 THE ASSESSEE HAS HIMSELF DECLARED NET PROFIT RATE OF 5.21% WHICH WAS NOT UNDER SCRUT INY. 2.2 ASSESSEES GROUNDS READ AS UNDER: - 1.1 RS.18,56,260/ - : THE ID. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE APPLICATION OF SEC. 145(3). THE PROVISION SO INVOKED AND CONFIRMED BY THE CIT(A) BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, THE SAME MAY KINDLY 4 BE QUASHED. CONSEQUENTLY THE TRADING ADDITION OF RS.18,56,260/ - MAY KINDLY BE DELETED IN FULL. ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE 1.2 THE ID. CIT(A) FURTHER ERRED IN LAW AS WE LL AS ON THE FACTS OF THE CASE IN APPLYING THE NP RATE OF 4.5% AS AGAINST 3.43% DECLARED BY THE ASSESSEE AND 5.75% APPLIED BY THE AO. THE NP RATE SO APPLIED AND ADDITION SO MADE BY THE AO AND PARTLY SUSTAINED BY THE CIT(A) IS TOTALLY CONTRARY TO THE PR OVISIONS OF LAW AND FACTS ON THE RECORD AND HENCE, THE ADDITION MAY KINDLY BE DELETED IN FULL. 2. THE ID. AO ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE CHARGING INTEREST U/S 234B & 234C OF THE ACT. THE APPELLANT TOTALLY DENIES IT LIABILITY OF CHARGING OF ANY SUCH INTEREST. THE INTEREST, SO CHARGED, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. IT WAS A RGUED BY THE LD. A.R. THAT DURING THE COURSE OF VERIFICATION OF TURNOVER, AND NET PROFIT RATIO, THE 5 COMPARATIVE FIGURES EXCLUDING THE INCOME FROM OTHER SOURCES IS FOUND AS UNDER: A.Y. TURNOVER NET PROFIT N.P. RATIO 2007 - 08 6,6,1,74,781 25,46,690 3.85 % 2008 - 09 13,22,49,279 68,90,529 5.21% 2009 - 10 17,45,73,358 59,99,541 3.43% FOR THE A.Y. UNDER CONSIDERATION, THAT IS 2009 - 10, NET PROFIT RATE DISCLOSED IS 3.43%. IN A.Y. 2007 - 08, IT WAS 3.85% AND IN A.Y. 2008 - 09, IT WAS 5.21%. HOWEVER, IN A.Y. 2009 - 10, THE TURNOVER HAS TREMENDOUSLY INCREASED TO RS. 17,45,73,358/ - AS AGAINST RS. 6 , 62, 74,781/ - IN A.Y. 2007 - 08. IN THE IMMEDIATELY PRECEDING YEAR, THE TURNOVER WAS RS. 13,22,49,279/ - . THE A.O. HAS FOUND SUBSTANTIAL FALL IN THE NET PROFIT RATE AS COMPARED TO EARLIER YEARS. THE ASSESSEE WAS DEMANDED TO EXPLAIN THE REASONS FOR THIS FALL IN THE NET PROFIT RATIO. IT WAS CLARIFIED THAT DUE TO INCREASE IN IRON AND STEEL, CEMENT AND BITUMEN AND LAB O UR, THE OVERALL COS T OF EXECUTION OF CONTRACTS HAS INCREASED , WH ICH HAS AFFECTED THE NET PROFIT RATIO OF THIS YEAR. IT WAS FURTHER EXPLAINED THAT DUE TO THE ADDITION IN 6 FIXED ASSETS INDIRECT EXPENSES LIKE DEPRECIATION WHICH IS MORE IN COMPARISON TO PRE VIOUS YEAR, THIS FACT HAS ALSO A FFECTED THE NET PROFIT RATIO. 3. 1 THE ASSESSEE PRODUCED A COMPARATIVE CHART I N THIS REGARD WHICH EXPLAINED THAT THE ASSESSEE IS DOING CONTRACT WORK WHICH CAN BE DIVIDED INTO THREE PARTS, NAMELY: 1. OWN CONTRACTS 2. CONTRACTS TAKEN ON SUB - CONTRACTS 3. CONTRACTS GIVEN TO OTHER PARTIES ON THE BASIS OF SUB - CONTRACTS. IT WAS EXPLAINED THAT IN CASE OF CONTRACTS GIVEN BY THE ASSESSEE TO THIRD PARTIES, THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AS IT EARNED FROM CONTRACTS TAKEN BY IT AND THEREFORE, NET PROFIT RATE WOULD DEFINI TELY BE A FFECTED. DURING THE YEAR UNDER CONSIDERATION, GROSS TURNOVER IS AS UNDER: THREE KINDS OF CONTRACTS TURNOVER (I) ASSESSEE OWN CONTRACTS AND MACHINE JOB WORKS 138240932 118000 (II) CONTRACTS TAKEN FROM SUB CONTRACTS 2114290 (III) CONT RACTS GIVEN TO OTHER PARTIES ON SUB CONTRACTS 34100136 GROSS CONTRACT RECEIPT 174573358 7 3.3 AS PER THE LD. A.R., KEEPING IN VIEW THE ABOVE THREE FACTORS, NET PROFIT SHOWN BY THE ASSESSEE IS QUITE REASONABLE IN THE LINE OF HIS CONTRACT BUSINESS . IT WAS ARGUED THAT EVEN AFTER REJECTION OF BOOKS OF ACCOUNT, A REASONABLE ESTIMATION HAS TO BE DONE AND FURTHER ALLOWANCE IN RESPECT OF EXPENSES LIKE DEPRECIATION, THIRD PARTY INTEREST PAID TO BANKS AND FINANCIAL INSTITUTIONS, FINANCIAL CHARGES, BANK GU ARANTEE COMMISSION, BANK CHARGES, PARTNERS SALARY AND INTEREST ETC AS PER THE CATENA OF JUDICIAL DECISION HAVE TO BE ALLOWED. 4. TO THE CONTRARY, THE SUBMISSION OF THE LD. D.R. IS THAT THE WORKING GIVEN BY THE ASSESSEE IS NOT CORRECT AS NET PROFIT HAS BE EN WORKED OUT CONSIDERING THE EXPENSES LIKE DEPRECIATION, INTEREST ETC. ACCORDING TO HIM, CORRECT NET PROFIT RATE AFTER ADOPTING AGRICULTURAL LAND THE ABOVE FACTORS COMES TO SAME RATIO AS HAS BEEN GIVEN IN THE AFOREMENTIONED TABLE. HE ARGUED THAT THE A.O , IN PARA 3.3 OF HIS ORDER HAS AGREED WITH THE ASSESSEE THAT IN THE RELEVANT PERIOD, THERE WAS INCREASE IN THE PRICES OF ITEMS 8 MENTIONED BY THE ASSESSEE. THUS, ACCORDING TO HIM, AFTER REJECTING THE BOOKS AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT, NET PROFIT RATE OF 5.21% AS TAKEN IN A.Y. 2008 - 09 HAS TO BE APPLIED, WHICH HAS BEEN CORRECTLY DONE BY THE A.O. REGARDING THE INTEREST ON COMPULSORY FDRS WHICH ARE SINE QUA NON FOR OBTAINING CONTRACTS, AS PER THE LD. A.R. HAS TO BE TREATED AS BUSINES S INCOME BUT AS PER THE LD. D.R., IT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE HAVE FOUND THAT THERE IS NO DISPUTE REGARDING REJECTION OF BOOKS OF ACCOUNT. THE A.O. HAS ADOPTED RATE OF 5.75% ON THE TOTAL CONTRACT RECEIPTS AND HAS MADE ADDITION OF RS. 40,38,547 - . THE A.O. HAS PARTICULARLY ADDED RS. 7,45,901/ - AS ASSESSEES INCOME FROM OTHER SOURCES. THE LD. CIT(A) HAS HOWEVER, REDUCED THIS ADDITION TO RS. 18,56,260/ - BY INVOKING NET PROFIT RATE OF 4.55 O N THE DECLARED TURNOVER AFTER CONSIDERING THE SUBSTANTIAL INCREASE IN THE TURNOVER WHICH IS MORE THAN RS. 4 CRORES AND AFTER CONSIDERING THE 9 STEEP RISE IN THE PRICES IN VARIOUS ITEMS AS ALSO BEEN ACCEPTED BY THE A.O. TO THAT EXTENT. WE ARE AWARE THAT U/S 145 OF THE ACT, FAIR ESTIMATION OF INCOME HAS TO BE DONE WHEN BOOKS OF ACCOUNT ARE REJECTED. THE PAST HISTORY OF THE ASSESSEE IS THE BEST GUIDE IN THIS REGARD. HOWEVER, AS HAS BEEN HELD BY THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF GOTAN LIME KANIJ U DYOG REPORTED IN 256 ITR 243 [RAJ] THAT EVEN AFTER REJECTION OF BOOKS OF ACCOUNT, ADDITION IS NOT NECESSARY IN ALL CASES. IN CASE VALID REASONS FOR FALL IN THE NET PROFIT RATIO/GROSS PROFIT RATIO ARE ADDUCED BY THE ASSESSEE, THEY HAVE ALSO TO BE CONSIDERED . THE FACT THAT THE ASSESSEE HAS BEEN ADMITTEDLY CARRYING ON THREE TYPES OF CONTRACT WORKS INCLUDING SUB - CONTRACTS IN WHICH NET PROFIT RATE HAS TO BE OBVIOUSLY ON LOWER SIDE. BUT WHEN AFTER REJECTION OF BOOKS OF ACCOUNT FACTS OF THE EARLIER YEARS ARE FOU ND TO BE SAME AND SIMILAR, THEN IT WOULD BE REASONABLE TO ADOPT NET PROFIT RATE OF THE EARLIER YEAR WITHOUT MENTIONING THE WORDS. HOWEVER, WHEN THE ASSESSEE FURTHER EXPLAINED THE FALL IN RATIO OF PROFIT AND SAME IS PLAUSIBLE, IT IS ALSO TO BE CONSIDERED A S HAS BEEN 10 HELD IN THE CASE OF CIT VS. AMRAPALI JEWELS P LTD. [2012] 65 DTR 196 [RAJ] IN WHICH IT HAS BEEN HELD THAT ABNORMAL INCR E ASE IN THE TURNOVER DEFINITELY COMPR OM ISES ITS MARGINS AND SAME HAS TO BE DEFINITELY CONSIDERED WHILE MAKING FAIR ESTIMATION. IT HAS BEEN FOUND IN THIS CASE THAT DURING THE RELEVANT PERIOD, THE ASSESSEE HAS MADE HEAVY INVESTMENT IN PLANT AND MACHINERY WHICH IS EVIDENT FROM THE CLOSING BALANCE OF THE FIXED ASSETS WHICH WERE PRODUCED BEFORE THE A.O. AND ARE ALSO ENCLOSED IN THE P APER BOOK AT PAGES 42 - 43 AND PAGE 4 OF ASSESSEES PAPER BOOK. THESE FACTS HAVE NOT BEEN DENIED EITHER BY THE LD. A.R. OR THE LD. D.R. WHILE ARGUING BEFORE US. THE STEEP RISE IN THE COST AND CONSUMPTION ARE ALSO RELEVANT WHICH ARE FOUND TO BE CORRECT. TH E FACT THAT FROM THE TABLE ITSELF IT HAS BEEN NOTED THAT IN A.Y. 2007 - 08, NET PROFIT RATIO WAS 3.85% AND IT HAS BEEN ACCEPTED BY THE A.O. SHOWING THAT IN THIS ASSESSEES CASE, THERE HAS BEEN VARIANCE IN THE NET PROFIT RATE FOR VARIOUS REASONS APPLICABLE TO THAT PARTICULAR A.Y. THE LD. CIT(A) HAS CONSIDERED THESE FACTORS AND HAS GIVEN PART RELIEF TO THE 11 ASSESSEE. HOWEVER, I N OUR CONSIDERED OPINION, KEEPING IN VIEW ALL THE ABOVE FACTORS WHICH HAVE EITHER BEEN ACCEPTED BY THE A.O. OR HAVE NOT BEEN DENIED BY HIM AND WHICH DEFINITELY CONTRIBUTE TOWARDS A MAGICAL FIGURE OF NET PROFIT RATIO, IT WOULD BE FAIR AND REASONABLE TO SUSTAIN A LUMPSUM ADDITION OF RS. 2.5 LAKHS TO ANSWER THE FALL IN NET PROFIT. ACCORDINGLY, WE PARTLY ALLOW THE ASSESSEES GROUND RAISED IN ITS CROSS OBJECTION AND CANNOT ALLOW REVENUES GROUNDS OF APPEAL. 6. THE OTHER GROUND RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION IS REGARDING TREATING THE INTEREST INCOME ARISING FROM COMPULSORY FDRS DEPOSITS AS INCOME FROM OTHER SOURCES. 7. IT IS AN UNDENIABLE FACT OF THIS CASE THAT THE DEPOSITS WERE MADE FOR OBTAINING CONTRACTS IN QUESTION AND AS PER THE SETTLED POSITION OF LAW IN THIS REGARD, THIS INTEREST INCOME HAS TO BE TREATED AS INCOME FROM ASSESSEES BUSINESS AND NOT INCOME FROM OTHER SOURCES . IN THIS 12 REGARD, WE MAY REFER TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. K & CO. [2013] 88 DTR 165 [DEL] FOR READY REFERENCE. OTHERWISE WE HAVE BEEN TAKING THIS VIEW CONSISTENTLY IN CONTRACTORS CASES. ACCORDINGLY, WE ALLOW THI S GROUND OF APPEAL OF THE ASSESSEE. 8 . IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE STANDS PARTLY ALLOWED . ORDER PRON OUNCED IN THE COURT ON 18 TH JU LY , 2014. SD/ - SD/ - (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEM B ER DATED : 18 TH JU LY , 201 4 VL/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT BY ORDER 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR