The Asstt. Commissioner of Income-tax, Srinagar V. Sh. Siraj Ahmad Bhat, Srinagar (KMR)

ITA 546/ASR/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7788 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 03-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 546/(ASR)/2014 ASSESSMENT YEAR: 2010-11 PAN: AJJPB7347P A. C. I. T., CIRCLE-3, SRINAGAR. VS. SH. SIRAJ AHMAD BHAT, NARWARA, SRINAGAR, KASHMIR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAHUL DHAWAN (D. R.) RESPONDENT BY: SH. JOGINDER SINGH (C. A.) DATE OF HEARING: 10.08.2017 DATE OF PRONOUNCEMENT: 04.10.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDE R OF LD. CIT(A), JAMMU DATED 10.06.2014 FOR ASST. YEAR: 2010-11. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: 1. WHETHER THE COMMISSIONER OF INCOME TAX (APPEALS ), JAMMU WAS RIGHT IN LAW IN REDUCING THE NET PROFIT RATE APPLIE D BY THE ASSESSING OFFICER FROM 10% TO 6%. 2. WHETHER THE COMMISSIONER OF INCOME TAX (APPEALS) , JAMMU WAS RIGHT IN LAW IN REDUCING THE NET PROFIT RATE APPLIE D BY THE ASSESSING OFFICER FROM 10% TO 6% THEREBY NOT CONSIDERING THE CASE LAW OF M/S SHIVAM CONSTRUCTION COMPANY OF THE HON'BLE, CHANDIG ARH BENCH. 3. WHETHER THE COMMISSIONER OF INCOME TAX (APPEALS) , JAMMU WAS RIGHT IN LAW IN DELETING THE ADDITION MADE U/S 68 O N ACCOUNTS OF UNEXPLAINED CREDITS AS THE ASSESSING OFFICER HAS NO TICED MANY BILLS FOR PURCHASES BOOKED TWICE IN THE BOOKS OF ACCOUNTS . ITA NO. 546(ASR)/2014 ASSESSMENT YEAR: 2010-11 2 3. AT THE OUTSET, THE LD. DR SUBMITTED THAT LD. CI T(A) HAS REDUCED THE APPLICATION OF NET PROFIT RATE FROM 10% TO 6% A ND HAS IGNORED THE CASE LAW OF M/S SHIVAM CONSTRUCTION COMPANY WHICH H AS DECIDED BY HON'BLE CHANDIGARH BENCH AND THEREFORE IT WAS PRAYE D THAT THE ORDER OF CIT(A) MAY BE SET ASIDE. HE FURTHER ARGUED THAT LD. CIT(A) HAS WRONGLY DELETED THE ADDITION WHICH THE ASSESSING OFFICER HA D MADE U/S 68 OF THE ACT. 4. THE LD. AR ON THE OTHER HAND ARGUED THAT THE CAS E LAW OF M/S SHIVAM CONSTRUCTION COMPANY WAS NOT APPLICABLE TO T HE ASSESSEE AS IN THAT CASE ASSESSEE HAS ITSELF AGREED FOR APPLICATIO N OF 10% OF NET PROFIT RATE WHEREAS IN THE CASE OF ASSESSEE IN THE SUBSEQU ENT YEAR THE INCOME WAS ASSESSED AT THE RATE OF 3.14% U/S 143(3) OF THE ACT AND IN THE IMMEDIATELY PROCEEDING YEAR THE NET PROFIT RATE WAS 5% WHICH WAS ALSO ACCEPTED AND THEREFORE LD. CIT(A) HAS RIGHTLY REDUC ED THE NET PROFIT RATE FROM 10% TO 6%. AS REGARDS THE DELETION OF ADDITION U/S 68 OF THE ACT, THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS UPHELD AN ADDITIO N OF RS.24,11,917/- AND WHICH IN HIS OPINION COVERED THE ADDITION OF RS .23,55,570/- WHICH THE ASSESSING OFFICER HAD MADE ON ACCOUNT OF UNEXPL AINED CREDITORS U/S 68 AND HE FURTHER ARGUED THAT ONCE THE BOOKS OF ACC OUNTS WERE REJECTED AND INCOME OF THE ASSESSEE WAS ESTIMATED, NO FURTHE R ADDITION WAS SUSTAINABLE. ITA NO. 546(ASR)/2014 ASSESSMENT YEAR: 2010-11 3 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSING OFFICER RE JECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE NET PROFIT OF THE ASSESS EE AT THE RATE OF 10% RELYING ON THE CASE OF M/S SHIVAM CONSTRUCTION COMP ANY WHICH WAS UPHELD BY HON'BLE PUNJAB & HARYANA HIGH COURT. THE ASSESSING OFFICER FURTHER MADE THE ADDITION U/S 68 OF THE ACT ON ACCO UNT OF CERTAIN UNEXPLAINED CREDITORS IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) AFTER OBTAINING REMAND REPORT FROM ASSESSING OFFICER AND AFTER EXAMINING THE PAST AND SUBSEQUENT BOOK RESULTS OF THE ASSESSEE AP PLIED A NET PROFIT OF RATE OF 6% AND ALSO DELETED THE OTHER ADDITION WHIC H THE ASSESSING OFFICER HAD MADE U/S 68 OF THE ACT. THE LD. CIT(A) HAS ALSO CORRECTLY DISTINGUISHED THE CASE LAW OF SHIVAM CONSTRUCTION C OMPANY. THE FINDINGS OF THE LD. CIT(A) ARE EXHAUSTIVE AND THE O RDER PASSED BY HIM IS A SPEAKING ORDER. FOR THE SAKE OF COMPLETENESS, THE F INDINGS OF HON'BLE CIT(A) ARE REPRODUCED BELOW: 4.2. GROUND OF APPEAL NO 2 & 3 RELATES TO APPLICAT ION OF NET PROFIT RATE OF 10% BY REJECTING THE BOOKS RESULTS. THE AO HAS REJE CTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND COMPLETED THE AS SESSMENT BY APPLYING 10% NET PROFIT RATE FOLLOWING THE DECISION IN THE C ASE OF SHIVAM CONSTRUCTION COMPANY OF PUNJAB & HARYANA HIGH COURT . THE APPELLANT HAS ARGUED THAT THE BOOK RESULTS HAS BEEN REJECTED BY T HE AO MERELY ON THE GROUND THAT SOME ENTRIES AMOUNTING TO RS 23,55,570/ - WERE INADVERTENTLY ENTERED TWICE IN THE BOOKS OF ACCOUNTS. THE APPELLA NT HAS FURTHER ARGUED THAT THE NET PROFIT RATE OF 10% APPLIED BY THE AO I S VERY HIGH HAVING REGARD TO THE NATURE OF BUSINESS, AREA OF OPERATION, HIGH LABOUR COST, COLD WEATHER CONDITIONS, PAST HISTORY ACCEPTED BOOK RESULTS IN T HE OTHER YEARS. THE APPELLANT HAS PLACED RELIANCE ON THE DECISION OF JU RISDICTIONAL HON'BLE 1TAT BENCH OF AMRITSAR IN THE CASE OF ABDUL SALAM MIR, S RINAGAR VS DCIT, IN WHICH THE JURISDICTIONAL BENCH HAS APPLIED A NET PR OFIT RATE OF 5 % WITH FURTHER ALLOWANCE OF DEPRECIATION, SALARY AND INTER EST TO PARTNERS. ON THE PERUSAL OF SUBMISSION OF THE APPELLANT AND ASSESSME NT ORDER, IT IS NOTICED THAT BESIDE CERTAIN ENTRIES WERE FOUND ENTERED TWIC E IN THE BOOKS OF ITA NO. 546(ASR)/2014 ASSESSMENT YEAR: 2010-11 4 ACCOUNTS, THE AO HAS ALSO POINTED OUT THAT WAGE REG ISTERS AND CERTAIN OTHER RECORDS WERE NOT PRODUCED BEFORE HER. THEREFORE, THE AO WAS JUSTIFIED IN REJECTING THE BO OK RESULTS OF THE ASSESSEE. HOWEVER, IT IS NOTICED THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND IS OPERATING AT TOUGH TERRAINS OF SRINAGAR. FURTHER, IT IS ALSO NOTICED THAT THE DECI SION IN THE CASE OF SHIVAM CONSTRUCTION COMPANY IS NOT APPLICABLE IN THE PRESE NT CASE, AS THE HON'BLE HIGH COURT AND TRIBUNAL IN THE CASE OF SHIVAM CONST RUCTION HAS TAKEN THE PROFIT RATE OF 10% BASED ON THE RATE APPLIED BY THE ASSESSEE IN HIS OWN CASE IN THE YEAR 1998-99 ASSESSED BY THE DEPARTMENT AND FURTHER ALLOWED THE INTEREST AND SALARY TO THE PARTNERS THEREBY TAK ING THE NET PROFIT TO LESS THAN 5%, FURTHER, IT IS ALSO WORTH CONSIDERING THAT THE BOOK RESULTS AT A PROFIT RATE OF 3.14% HAS BEEN ACCEPTED BY THE JCIT, RANGE 3, SRINAGAR U/S 143(3) IN THE SUBSEQUENT ASSESSMENT YEAR IN HIS OWN CASE AND THE NET PROFIT IN THE IMMEDIATELY PRECEDING YEAR WAS AROUND 5%. HAVING REGARD TO THE NATURE OF BUSINESS, HILLY TERRAIN IN WHICH THE APPELLANT OPERATES, HIGH LABOUR COST INVOLVED, FREQUENT STRIKES/CURFEW IN VA LLEY, COLD WEATHER CONDITIONS AND ASSESSED INCOME U/SL43(3) IN SUBSEQU ENT YEAR , IN MY OPINION, THE RATE APPLIED BY THE AO IS ON VERY HIGH ER SIDE. IT IS, THEREFORE, DIRECTED TO REDUCE THE NET PROFIT RATE APPLIED BY T HE AO FROM 10% TO 6% ON GROSS RECEIPTS OF RS 9,19,35,534/- . THEREFORE, THE ADDITION OF RS 27,16,646/- IS UPHELD WHICH WOULD ALSO COVER THE DU PLICACY OF ENTRIES AMOUNTING TO RS 23,55,570/-, THIS GROUND OF APPEAL IS PARTLY ALLOWED AND A RELIEF OF RS 36,77,421/- IS ALLOWED TO THE APPELL ANT. 4.3. GROUND OF APPEAL NO 4 RELATES TO ADDITION OF R S 24,11,917/- AS UNEXPLAINED CREDITORS U/S 68 OF THE ACT. THE APPELL ANT HAS ARGUED THAT SINCE THE BOOKS OF ACCOUNTS HAS BEEN REJECTED AND N ET PROFIT RATE HAS. BEEN APPLIED ON GROSS RECEIPTS , NO SEPARATE ADDITION ON ACCOUNT OF CREDITORS COULD BE MADE. THE APPELLANT HAS ALSO PLACED RELIAN CE ON VARIOUS JUDGMENTS AS UNDER- CIT VS AGGARWAL ENGINEERING CO (2006) 302ITR 646(P& H) WHERE THE COURT HAS CONCLUDED THAT 'NO SEPARATE ADDITION AN ACCOUNT OF CASH CREDIT AND ON ACCOUNT OF EXPLAINED PAYMENTS FOR PURCHASES MADE OU TSIDE THE BOOKS OF ACCOUNTS CAN BE MADE ONCE THE NET PROFIT RATE IS AP PLIED ON CONTRACT RECEIPT OF AN ASSESSEE FOR ESTIMATING HIS INCOME FROM CONTR ACT WORK ', CIT VS GK CONTRACTOR (2009)19 DTR (RAJ) 305 IN WHIC H IT HAS BEEN HELD THAT 'AO HAVING ESTIMATED THE PROFIT BY APPLYING A HIGHER NET PROFIT RATE TO TOTAL CONTRACT RECEIPTS AFTER REJECTING BOOKS OF AC COUNTS BY INVOKING PROVISIONS OF SECTION 145(3), NO SEPARATE ADDITION CAN BE MADE ON ACCOUNT OF CASH CREDIT U/S 68 EVEN THOUGH THE ASSESSEE HAS FAILED TO DISCHARGE HIS ONUS OF PROOF IN EXPLAINING THE AMOUNT SHOWN IN THE BOOKS OF ACCOUNTS AS MARKET OUTSTANDING'. JURISDICTIONAL HON'BLE ITAT BENCH AMRITSAR IN THE C ASE OF M/S RESHI CONSTRUCTION CO SRINAGAR IN ITA NO 462(ASR) 2008 FO R THE ASSESSMENT YEAR 2005-06. THE ISSUE INVOLVED IN THE SAID CASE W AS THAT ONCE THE INCOME OF THE ASSESSEE IS ESTIMATED ON NET PROFIT B ASIS, NO FURTHER ADDITION CAN BE MADE. THE FINDINGS OF THE BENCH ARE AS UNDER : ITA NO. 546(ASR)/2014 ASSESSMENT YEAR: 2010-11 5 'AS REGARDS TO SECOND GROUND REGARDING THE ADDITION OF RS 15,00,000/- ON ACCOUNT OF UNEXPLAINED CREDITS. THE A.O, NOTICED TH E SUNDRY CREDITORS FOR SUPPLIES AND SERVICES UNDER THE HEAD 'CURRENT LIABI LITIES' TO THE TUNE OF RS 66,47,821/-. ON ASKING BY THE A.O, THE ASSESSEE COU LD NOT FURNISH THE ADDRESS OF THE CREDITORS AND SO LUMP SUM ADDITION O F RS 15 LACS WAS MADE ON ACCOUNT OF UNEXPLAINED CREDITS. AS PER THE CONTE NTION OF THE ASSESSEE THAT THE A.O HAS NOT GIVEN ANY BASIS FOR MAKING ANY ADDITION AND NO ADHOC ADDITION COULD BE MADE ONCE THE NET PROFIT RA TE WAS BEING APPLIED. IN SUPPORT OF HIS CONTENTION, THE ASSESSEE CITED TH E JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT REPORTED IN 206 CTR 648 I N THE CASE OF CIT VS. AGGARWAL ENGG.CO (SUPRA). THE LEARNED CIT(A) CALLED FOR THE REMAND REPORT FROM THE A.O. AND DELETED THE ADDITION BY FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA). AFTER GO ING THROUGH THE RELEVANT RECORD AVAILABLE WITH US AND THE DECISION RENDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA), WE ARE OF THE VI EW THAT THE LEARNED CIT (A) HAS DELETED THE ADDITION IN DISPUTE BY FOLLOWIN G THE ORDER OF THE JURISDICTIONAL HIGH COURT (SUPRA), NO INTERFERENCE IS CALLED FOR. THEREFORE, THE SECOND GROUND OF APPEAL RAISED BY THE REVENUE I S DISMISSED. I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLANT AND ASSESSMENT ORDER, IT IS NOTICED THAT OUT OF THE CREDITORS OF R S 24,11,917/- SHOWN IN BALANCE SHEET, CREDITORS AMOUNTING TO RS 23,55,570 ARE ON ACCOUNT OF DUPLICATE BOOKING OF PURCHASES OF MATERIAL DEBITED TO THE PROFIT & LOSS ACCOUNT IN THE YEAR UNDER CONSIDERATION AND BALANCE OF RS 56,347/- ARE ON ACCOUNT OF OTHER TRADE CREDITORS. AN ADDITION OF RS 27,16,646/- HAS BEEN UPHELD IN THE FOREGOING PARA BY APPLICATION OF NET PROFIT RATE OF 6% WHICH COVERS THE ISSUES OF DUPLICITY OF BILLS OF 23,55,57 0/-. IT IS, FURTHER OBSERVED THAT ONCE THE INCOME IS ESTIMATED BY APPLYING NET P ROFIT RATE, NO SEPARATE ADDITIONS ON ACCOUNT OF TRADE CREDITORS CAN BE MADE . THEREFORE, HAVING REGARD TO THE FACTS OF THE CASE AND DECISIONS OF VARIOUS C OURTS, I AM OF THE OPINION THAT THE ADDITION MADE BY THE A0 IS NOT JUS TIFIED. THIS GROUND OF APPEAL IS ALLOWED AND A RELIEF OF RS.24,11,917/- IS ALLOWED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. C IT(A), THEREFORE THE APPEAL FILED BY REVENUE IS DISMISSED. 6. IN VIEW OF THE ABOVE, THE APPEAL FILED BY REVENU E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.10.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04.10.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: ITA NO. 546(ASR)/2014 ASSESSMENT YEAR: 2010-11 6 (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER