MEASSAGE DHARAM PAL CONTRACTOR HOTMIX PLANT, MANSA V. DEPUTY COMMISSIONEROF INCOME TAX CIRCLE- II, BATHINDA

ITA 543/ASR/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5749 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 12-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 113; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. MAHAVIR PRASAD, JUDICIAL MEMBER AND DR. M. L. MEENA, ACCOUNTANT MEMBER I.T.A. Nos. 543 to 545/Asr/2019 Assessment Years: 2013-14 to 2015-16 M/s Dharm Pal Contractor, Hotmix Plant, Danewala, Tehsil Sardulgarh, Mansa 151505- Punjab [PAN: AAEFD 2575M] (Appellant) Vs. The Deputy Commissioner of Income Tax, Circle-II, Bathinda (Respendent) Appellant by Sh. P. N. Arora, Adv. Respondent by Sh. S. M. Surendranath, D.R Date of Hearing 10.12.2021 Date of Pronouncement 23.12.2021 ORDER Per Bench: These appeals of the assessee are directed against the order of Ld. CIT(A), Bathinda dated 14.06.2019 in respect of Assessment Years 2013-14 to 2015-16. 2. The assessee has raised the following grounds of appeal: In ITA No. 543/Asr/2019 2 I.T.A. Nos. 543 to 545/Asr/2019 “1. The Ld. CIT(A) erred on facts & law in allowing partial relief resulting in assessed income at Rs. 84,45,610/- as against the income declared in the return at Rs. 57,34,950/-. 2. The Ld. CIT(A) erred on facts & law in confirming the validity of the reassessment proceedings initiated by the AO without rebutting the following specific grounds of appeal raised by the assessee:- (i) The reasons recorded by the AO to initiate re-assessment proceedings are reasons to suspect and not reasons to believe. (ii) The re-assessment proceedings were initiated only for the purpose of verification of accounts which is against the settled principles of law. 3. The Ld. ClT(A) erred on facts & law in confirming the action of the AO of applying the provisions of section 145(3) of the Income Tax Act by rejecting the books of account despite the fact that no specific defect was pointed out by the AO in the books of account maintained by the assessee which were also audited by the tax auditor. 4. Alternatively, without prejudice to the above said grounds of appeal, the Ld. CIT(A) erred on facts & law in confirming the action of the AO of applying net profit rate of 8% without bringing any comparable case on record to justify the net profit rate of 8%. 5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” In ITA No. 544/Asr/2019: “1. The Ld. CIT(A) erred on facts St law in allowing partial relief resulting in assessed income at Rs. 18,99,270/- as against the income declared in the return at Rs. 10,50,840/-. 2. The Ld. CIT(A) erred on facts St law in confirming the action of the AO of applying the provisions of section 145(3) of the Income Tax Act by rejecting the books of account despite the fact that no specific defect was pointed out by the AO in the books of account maintained by the assessee which were also audited by the tax auditor. 3. Alternatively, without prejudice to the above said grounds of appeal, the Ld. CIT(A) erred on facts St law in confirming the action of the AO of applying net 3 I.T.A. Nos. 543 to 545/Asr/2019 profit rate of 8% without bringing any comparable case on record to justify the net profit rate of 8%. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” In ITA No. 545/Asr/2019: “1. The Ld. CIT(A) erred on facts Et law in allowing partial relief resulting in assessed income at Rs. 44,06,640/- as against the income declared in the return at Rs. 25,31,610/-. 2. The Ld. CIT(A) erred on facts & law in confirming the action of the AO of applying the provisions of section 145(3) of the Income Tax Act by rejecting the books of account despite the fact that no specific defect was pointed out by the AO in the books of account maintained by the assessee which were also audited by the tax auditor. 3. Alternatively, without prejudice to the above said grounds of appeal, the Ld. CIT(A) erred on facts & law in confirming the action of the AO of applying net profit rate of 8% without bringing any comparable case on record to justify the net profit rate of 8%. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” 3. The Ld. Counsel has withdrawn ground no. 2 regarding validity of reason to reopen the assessment, in ITA No. 543/Asr/2019 as not pressed and accordingly, it is dismissed as withdrawn. 4. The appellant has raised common grounds in all the three years other than the legal issue as dismissed withdrawn, regarding rejection of books of account and estimation of income by applying net profit rate of 8% without bringing any comparable case on record to justify. 4 I.T.A. Nos. 543 to 545/Asr/2019 5. Since, there is common issue being involved, these appeals were heard together and disposed of by this common order for convenience and brevity. 6. The facts of the case as per record are noted for Assessment Year 2013 -14 which is being taken as a lead case to adjudicate the issue common issue. The assessee is a partnership firm carrying on the business of hot mix plant at village- Danewala, Tehsil - Sardulgarh, District Mansa. During assessment proceeding, the AO vide assessment order u/s. 143(3) dated 20.12.2016 rejected the books of account by invoking the provisions of section 145(3) and applied the net profit rate of 8% on the gross receipts. However, the AO has allowed salary and interest from net profit estimated @ 8% but the claim of depreciation was disallowed besides treating the interest on fixed deposits as income from other sources and assessed it accordingly. 7. The Ld. CIT(A) has confirmed the action of the AO, applying the provisions of section 145(3) to estimate the income by rejecting the books of account. The CIT(A) has also confirmed the action of the AO of applying net profit rate of 8% but allowed the claim of depreciation to the assessee. 8. The aggrieved is in appeal before us, against the order of the CIT(A). The ld. AR submitted that the Ld. CIT(A) erred on facts and law in confirming the action of the AO of applying the provisions of section 145(3) of the Income 5 I.T.A. Nos. 543 to 545/Asr/2019 Tax Act by rejecting the books of account despite the fact that no specific defect was pointed out by the AO in the books of account maintained by the assessee which were also audited by the tax auditor. He has plead alternatively, without prejudice to the above said grounds of appeal, that the Ld. CIT(A) erred on facts & law in confirming the action of the AO of applying net profit rate of 8% without bringing any comparable case on record to justify the net profit rate of 8%. The assessment for AY 2006-07 to AY 2012-13 has been framed vide assessment order u/s 143(3) in which disallowances were made out of expenses without application of the provisions of the 145(3) and books of account were always accepted. [Assessment orders for AYs 2006-07 to AYs 2012-13 is on 77-101 of Paper book] and that regular books of account have been maintained and the report of the tax auditor has been placed on record. [ITR, Computation of income and Audit report for the AY 2013-14 is on PB 24-49 of Paper book]. 9. The counsel further submitted that the CIT(A) while confirming the action of the AO of applying net profit rate of 8% while relying on the order of the Chandigarh Bench of the ITAT in the case of Ashok Kumar in ITA No. 340/CHD/2014, had ignored the contentions of the assessee raised during the course of appellate proceedings which reads as under: 6 I.T.A. Nos. 543 to 545/Asr/2019 [Written submissions filed before CIT(A) is on PB 104-114 of Paper book and the relevant submissions on PB 113 of Paper book] “The AO has further stated on page-7 of the assessment order that the appellant authorities in the case of ITO vs. Ashok Kumar in ITA No. 340(Chd.)/2014 has upheld the net profit rate of 8% and the case of the assessee is comparable with that of Sh. Ashok Kumar as both the cases are similar and working in similar locations. But the facts of this case are neither identical nor similar. Sh. Ashok Kumar, c/o M/s AK Bansal, Barnala (ITAT, Chandigarh) In this case the assessee was working for defense ministry for Air force and the locations where it was working has not been mentioned in the appellate order of the ITAT. Hence, the conclusions drawn by the assessee are factually wrong. In para-12 of the order the Chandigarh Bench of the Hon'ble ITAT has given the finding that substantial defect has been pointed in maintenance of books of account which could not give true picture of profit and further in para-10 it has been that the assessee was doing the work assigned by defense ministry. Thus, the AO has wrongly applied the net profit rate of 8% without bringing on record the comparable cases of Bathinda area. It is further submitted that a statutory deduction on account of depreciation is available in the Income Tax Act, 1961. However, in the present case, the AO after applying NP rate of 8% on the total contract receipts, declined the statutory claim of depreciation to the assessee which is neither legal nor justified.” Comparable cases: The case of the assessee is covered by the order of this Hon’ble Bench in the case of Satish Aggarwal & Co. in ITA No. 328/ASR/2013 in which this Hon’ble Bench confirmed the estimation of profit by 7 I.T.A. Nos. 543 to 545/Asr/2019 applying 5% rate of net profit and also to allow depreciation for which the relevant order is on [PB 36-55 of the Judgement Set]and findings are on [PB 54 of the Judgement Set] of the judgment set. That the Hon’ble P&H High Court restored the matter to this Hon’ble Bench for determining the N.P. rate in terms of the ratio of Tele links of the jurisdictional High Court reported as [2015] 377 ITR 158. The order of the Hon’ble P&H High Court is on [PB 56-58of the Judgement Set]. That this Hon’ble Bench again vide ITA No. 483/ASR/2013 vide order dated 21.01.2016upheld the application of N.P. rate of 5%.[PB 61-69 of the Judgement Set]. The detailed discussion of the facts of the case is in para 10 and 11 of the order which is on [PB 66-69 of the Judgement Set]. Net profit declared by the assessee after depreciation/salary/interest to the partner is 6.26% for which the detailed chart of NP is on [PB 103 of Paper book]and in the case of Satish Aggarwal & Co. is on [PB102 of Paper book]which is 4.24% to 4.59% for AY 2009-10 to 2012-13 without depreciation and confirmed by this Bench @5% subject to depreciation. The case of the assessee is also covered by the following orders of this Hon’ble Bench in which NP rate of 5% has been accepted. • Abdul Salam Mir vs. DCIT in ITA No. 102(Asr)/2013 vide order dated 18/03/2014 [Refer Page No 70 to 83 of the Compilation of judgments ] • Shri Mohan Singh Contractor vs. ITO in ITA No. 59(Asr)/2012 vide order dated 05/06/2012 [Refer Page No 84 to 88 of the Compilation of judgments ] • M/s Walia Construction Co. vs. DCIT in ITA No. 361(Asr)/2013 vide order dated 26/03/2014 [Refer Page No 89 to 106 of the Compilation of judgments] 8 I.T.A. Nos. 543 to 545/Asr/2019 Trading Results: Past History showing GP% and NP% PARTICULAR A.Y. 2010-2011 AY. 2011-2012 A.Y. 2012-2013 A.Y. 2013-2014 AY. 2014-2015 AY. 2015-2016 GROSS RECEIPT 210530060.00 145386666.00 170453195.00 161932679.00 109004597.00 80413116.00 GROSS PROFIT 13119289.96 6.23% 119527 51.47 8.22% 15220526. 33 8.93% 16936626.0 0 10.46 % 12309893.15 11.29% 12370492.0 0 15.38% NET PROFIT 4078444.56 1.94% 215738 6.94 1.48% 4947604.9 7 2.90% 5734951.08 3.54% 2529263.92 2.32% 1074923.00 1.34% Add: Depredation 1865020.30 186708 5.00 2359537.0 0 2009975.00 1561798.00 1451153.00 1 Partner Interest 667599.00 119781 7.00 1373797.0 0 1889795.00 2439957.00 2697648 00 Partner Salary 504000.00 504000 .00 504000.00 504000.00 504000.00 504000 00 NET PROFIT INCLUDING PARTNER SALARY, INTEREST & DEPRECIATION 7115063.86 3.38% 572628 8.94 3.94% 9184938.9 7 5.39% 10138721.0 8 6.26% 7035018.92 6.45% 5727724.00 » 7.12% INCOME DECLARED 4109074.00 1.95% 215739 0.00 1.48% 4947604.0 0 2.90% 5734953.00 3.54% 2531614.00 2.32% 1050840.00 1.31% INCOME ASSESSED 4707500.00 2.24% 294577 0.00 2.03% 5277610.0 0 3.10% 11192680.0 0 6.91% , 6769310.00 6.21% 3893550.00 4.84% 10. The Ld. DR relies on the impugned order. 11. Having heard both the parties, perused the evidences referred and the impugned order, an undisputed fact is noted that the books of accounts have been rejected by the AO. It is a settled law that after rejecting the books of accounts, the next course of action is to estimate the income of the assessee. The estimation of income is part of best judgment assessment, providing that while making best judgment assessment, the AO must be fair and honest in its approach of estimating the income and should not be inconsistent but the 9 I.T.A. Nos. 543 to 545/Asr/2019 estimation should have reasonable nexus to the material available on records and circumstances of the case. 12. It is seen that the assessee has been a regular assessed to tax; that he has been assessed under section 143(3) of the act and even in the immediately preceding years where the net profit was accepted at 2.90% and that even in the impugned year, the A.O. has not given any basis of estimation of net profit @ 8%. The trading results of the assessee’s past history reveals net profit rate of 1.94%, 1.40% and 2.90% for the assessment year 2010-11, 2011-12, and 2012-13 respectively. 13. The ld CIT(A) has confirmed the finding of the AO, endorsing the observation of the AO’s relying in the case of ITO vs. Ashok Kumar in ITA No. 340(Chd.)/2014 and upheld the net profit rate of 8%, although the case of the assessee is not comparable with that of Sh. Ashok Kumar as both the cases are neither identical nor similar being of different locations. The ld. CIT(A) ought to have considered the various judicial precedents on facts circumstances, parametria similar in terms of the past history along with surrounding circumstances, which are the most appropriate indicators of the assessee's profits as pleaded before us by the appellant. Such a decision of CIT(A) confirming estimating the assessee’s net profit @ 8 % of the gross 10 I.T.A. Nos. 543 to 545/Asr/2019 turnover as adopted by the A.O. ignoring the past history of the case and similar business activity in same location or surrounding can not be approved. 14. The coordinate Bench in the cases of “Abdul Salam Mir vs. DCIT”; “Shri Mohan Singh Contractor vs. ITO”, and “M/s Walia Construction Co. vs. DCIT”, (Supra) held 5% Net Profit Rate on contract receipt justified with allowing salary, interest and depreciation subject to that the computed income does not fall below the returned income. 15. In the case of “Satish Aggarwal & Co.”, (Supra) the Coordinate Bench has delivered a judgement wherein it has upheld the net profit rate of 5% and allowed depreciation (CLPB, Pg.36-55). While allowing relief to the assessee the Bench has observed as under (CLPB, Pg.54): “11. Accordingly, with our observations hereinabove and looking to the facts and circumstances of the present case, while rejecting the books of account, we have given our findings with regard to the non-maintenance of the wages register and it was held that the ld. CIT(A) was not justified in confirming the invocation of provisions of section 145(3) with regard to the maintenance of wages register for the reasons mentioned hereinabove. 12. As regards the maintenance of stock register with regard to sand, soil, cement, crusher etc. in view of our finding hereinabove, there is no allegation as to that the assessee has made bogus purchases or has debited bogus expenditure. It is only a question whether the same has been consumed or not. If the same has not been consumed, the same must be lying as the closing stock. If the closing stock is available with the assessee, which is the part of the profit & loss account and also there is opening stock declared in the Profit & Loss Account. But the accuracy of the same cannot be verified. 11 I.T.A. Nos. 543 to 545/Asr/2019 Accordingly, we find there is every possibility of leakage of revenue. The assessee has declared Net Profit rate of 4.42% on the gross receipts of Rs.23,09,62,133/- and to cover up possible leakage, we estimate Net Profit rate at 5% of the gross receipts as mentioned hereinabove and direct the A.O. to allow depreciation as per law subject to the income does not go down below the returned income. We order accordingly. Thus, the appeal of the assessee is partly allowed and that of the Revenue is dismissed.” 16. Following the cording Bench (Supra), the grievance of the assessee is accepted justified. In the present case, in our view, it would be fair to apply the Net Profit Rate of 5% with allowability of depreciation subject to that the computed income does not fall below the returned income. Accordingly, the AO is directed to adopt Net Profit Rate of 5% as against 8% in the case of the assessee. 17. The facts of the case in the following two assessment years i.e. 2014-15 and 2015-16 are similar to the facts of the assessment year 2013-14 in matatus mutandis and hence the finding of Net Profit Rate of 5% in respect of the assessment year 2013-14 shall be applicable to assessment years i.e. 2014-15 and 2015-16 in matatus mutandis. 18. In the result, all the three appeals of the assessee are partly allowed. Order pronounced U/R 34(4) on 23.12.2021 Sd/- Sd/- (Mahavir Prasad) (Dr. M. L. Meena) Judicial Member Accountant Member Dated: 23/12/2021 12 I.T.A. Nos. 543 to 545/Asr/2019 *GP/Sr./P.S.* Copy of the order forwarded to: (1) The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order