Sai Construction Talcher, Angul V. The ITO, Bhubaneswar

ITA 550/CTK/2012

• Counselvise Citation: 55022114 RSA 2012
• Duration Of Justice: 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 12-11-2012
• Court: TRIBUNAL
• Department Lawyers: N K NEB
• Assessee Lawyers: D K SHETHM SHETH ARS
• Keywords: Presumptive income; Income from undisclosed sources
• Section: 44AD

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 550/CTK/2012 / ASSESSMENT YEAR 2008 - 09 SAI CONSTRUCTION, BRAHMAN SASAN,AT/P.O.TALCHER, DIST. ANGUL 759 100. PAN: AAVFS 0645 N - - - VERSUS - INCOME - TAX OFFICER, WAR D 1(3), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI D.K.SHETH/M.SHETH, ARS / FOR THE RESPONDENT: / SHRI N.K.NEB, DR / DATE OF HEARING: 13.12.2012 / DATE OF PRONOUNCEMENT: 14.12.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY ISSUE THAT THE ASSESSING OFFICER ON NOT HAVING BEEN ABLE TO PROCURE ANY EXPLA NATION FOR THE EXPENDITURE CLAIMED BY THE ASSESSEE, THE ASSESSEE BEING A CIVIL WORKS CONTRACTOR, PROPOSED TO PASS THE ASSESSMENT ORDER U/S.143(3) BY REJECTING THE PROFIT DECLARED BY THE ASSESSEE AS PER ITS FINANCIAL STATEMENT DULY AUDITED U/S.44AB BY TAKIN G GUIDANCE FROM THE PROVISIONS OF SECTION 44AD AT 8% OF THE GROSS RECEIPTS WHEN THE ASSESSEE HAD RETURNED NET PROFIT AT 5.3%, THEREAFTER ALLOWING SALARY AND INTEREST PAID TO THE PARTNERS, THE ASSESSEE BEING A PARTNERSHIP FIRM. 2. AGGRIEVED, THE ASSESSEE A PPEALED BEFORE THE APPELLATE AUTHORITY, WHO CONSIDERED THE FOLLOWING. 4. I HAVE GIVEN CAREFUL CONSIDERATION TO THE MATTER. THE APPELLANT HAS OFFERED INCOME AS PER P&L ACCOUNT SUBMITTED. HOWEVER, THE P&L ACCOUNT HAS NOT BEEN SUPPORTED WITH PROPER I.T.A.NO. 550/CTK/2012 2 BOOKS OF ACCOUNTS AND BILLS & VOUCHERS. NO RELIANCE COULD BE PLACED ON THE IMPROPER BOOKS OF ACCOUNTS. THE GENUINENESS AND CORRECTNESS OF EXPENDITURE CLAIMS HAVE NOT BEEN ESTABLISHED. IT IS NOT TRUE THAT THE BOOKS OF ACCOUNTS ARE REJECTED BECAUSE OF LOW PROFIT AS SUBMITTED BY THE APPELLANT. BECAUSE OF LOW PROFIT, THE RESULT OF P&L ACCOUNT WAS NOT ACCEPTABLE TO THE A O WHO ESTIMATED INCOME AT A RATE HIGHER THAN OFFERED BY THE APPELLANT. UNDER THE CIRCUMSTANCES, THE AO WAS CORRECT IN ESTIMATING THE INCOME. THE ONLY RE QUIRE MENT UNDER THE CIRCUMSTANCES IS THAT THE ESTIMATION SHOULD BE REASONABLE. THE INCOME TAX ACT PROVIDES PRESUMPTIVE INCOME IN RESPECT OF CONTRACT BUSINESS U/S.44AD WHEREIN THE INCOME IS ESTIMATED @ 8% OF THE GROSS RECEIPTS. THE SECTION 44AD IS APPLICABL E FOR TURNOVER OF RS.40 LACS AND BELOW FOR AY 2010 - 11 AND BEFORE. IN THE APPELLANTS CASE, THE TURNOVER IS MORE THAN RS.40 LACS, HENCE THE SECTION 44AD CANNOT BE INVOKED. HOWEVER THE PRINCIPLE BEHIND THE SECTION 44AD IS VERY MUCH RELEVANT TO ESTIMATE INCOM E IN THE APPELLANTS CASE. ACCORDINGLY, THE ESTIMATION BY THE AC BEING WHICH IS ALSO THE RATE PROVIDED IN THE SECTION 44AD, IS CONSID ERED REASONABLE. FURTHER, THE AO HAS ALLOWED SALARY AND INTEREST ON CAPITAL TO THE PARTNERS, WHICH MEANS THE NET INCOME E STIMATED IS BELOW 8% OF GROSS RECEIPTS. IN VIEW OF THE SAME, THE EST IMATE MADE BY THE AO IS CONFIRMED. 3. THE LEARNED COUNSEL OF THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE BASIS FOR ENHANCEMENT HAS BEEN CONTRADICTED BY THE AUTHORITIES THEMS ELVES INSOFAR AS THE NET PROFIT BEFORE THE SALARY AND INTEREST TO THE PARTNERS WAS 5.3% WHICH ALLOWABLE UNDER THE GUIDELINES OF SECTION 44AD INSOFAR AS THE ASSESSEE IS REQUIRED TO MAINTAIN BOOKS OF ACCOUNT TO DECLARE A PROFIT LESS THAN 8% IN THE CASE OF CI VIL CONTRACT WORKS. HE POINTED OUT THAT THE PROFIT & LOSS AC COUNT CLEARLY INDICATE THAT THE ASSESSEE IS INDULGED IN GROSS RECEIPT OF 5.5 CRORES AGAINST WHICH THE MAIN EXPENDITURE ON MATERIAL PURCHASED BY THE ASSESSEE WAS ON BEHALF OF THE I.T.A.NO. 550/CTK/2012 3 CONTRACTEES WHICH IN ITSELF WOULD NOT RENDER INCOME @8% WAS NOT CONSIDERED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A). HE POINTED OUT THAT THE VERY FACT THAT VAT HAS BEEN BORNE BY THE ASSESSEE INDICATE THAT THE ASSESSEE WAS TO BEAR THE COST OF MATERIAL TO OBTAIN THE G ROSS RECEIPTS AS PER THE CONTRACTS ENTERED INTO BETWEEN THE ASSESSEE AND THE CONTRACTEES. THE MAJOR EXPENDITURE THEREFORE WAS MORE THAN 92% HAS NOT BEEN APPRECIATED BY THE AUTHORITIES BELOW BUT HAVE NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOU NT FOR THE PURPOSE OF RESORTING TO ESTIMATION FROM SEEKING GUIDELINES UNDER THE PROVISIONS OF SECTION 44AD. HE PRAYED THAT IN ORDER TO SET THE MATTER AT REST, THE ASSESSEE HAS RETURNED NET PROFIT PRIOR TO INTEREST AND SALARY TO THE PARTNERS AT 5.3% BE AT B EST BE ENHANCED TO 6% OF THE GROSS RECEIPTS. 4. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL OF THE ASSESSEE. HE SUBMITTED THAT REASONABLENESS AS COMPUTED BY THE ASSESSING OFFICER HAS BEEN GOVERNED BY THE P ROVISIONS OF THE I.T.ACT. NON - PRO DUCTION OF BOOKS OF ACCOUNT, BILLS AND VOUCHERS RESULTS IN DISALLOWANCE OF EXPENDITURE THEREFORE WAS ESTIMATE AT 8% IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT ITSELF CANNOT NOW BE CHALLENGED INSOFAR AS THE NET PROFIT DECLARED AT 5.3% BY THE ASSESSEE IS BEFORE SALARY AND INTEREST TO PARTNERS AND NOT BECAUSE 8% OF THE GROSS RECEIPTS IS ON THE BASIS OF REJECTION OF BOOKS OF ACCOUNT. HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. ON C AREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO FIND THAT THE AUTHORITIES BELOW HAVE NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT OR IN THE AUDITED FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE I INSOFAR AS BOTH THE AUTHORITIES BELOW HAVE HELD A VIEW THAT THE PROFIT I.T.A.NO. 550/CTK/2012 4 DECLARED BY THE ASSESSEE IS LOW. THE PROFIT IS LOW BECAUSE THE LEARNED COUNSEL OF THE ASSESSEE EXPLAINED THAT THE 50% OF THE RECEIPTS FROM THE CONTRACTEES IS BASICALLY REIMBURSEMENT OF THE MA TERIAL COST INCURRED FOR EXECUTION OF CONTRACT FOR WHICH BILLS AND VOUCHERS WERE SUBMITTED TO THE CONTRACTEES. THE CONTRACTEES CANNOT CLAIM THAT THE COST OF MATERIAL SUPPLIED WAS LESS THAN WHAT THE CONTRACTOR HAS BILLED THEM. THE LEARNED DR HAS TRIED TO EX PLAIN THAT THE ASSESSEE HAS TRIED TO GENERATE UNACCOUNTED INCOME TO ITSELF THERE FROM THEREFORE BECOMES AN ISSUE BEYOND CONSIDERATION . IN ANY CASE, IT CANNOT BE SAID THAT THE ASSESSEE PROPOSED TO MAKE INCOME FROM ITS OWN EXPENDITURE AS SUGGESTED BY THE LEA RNED DR WHEN THE ASSESSEE WAS SUBJECTED TO SO MANY CHECKS AND FILTERS WHICH BECOMES THE PU RPOSE FOR CONDUCTING THE BUSINESS IN A PARTICULAR MANNER AND NOT BECAUSE THE BOOKS OF ACCOUNT CANNOT BE RELIED UPON. A PROFIT HIGHER OR LOWER IS BEST KNOWN TO THE BUS INESSMAN WHICH CANNOT BE CONSIDERED FOR THE PURPOSE OF RATE OF RETURN FOR A PARTICULAR CONTRACT AT A PARTICULAR TIME. WE FIND THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE APPROPRIATE THAT THE ASSESSEE FUNCTIONED BY BORROWING FUNDS FROM THE BANK AN D IT WAS ON INTEREST REDUCED FUNDING FROM THE BANK TO BE CHARGED LESS INTEREST AND BECAUSE THE MATERIAL CONSUMED IS MORE THAN 50% OF THE GROSS RECEIPTS IS STILL AVAILABLE ON CREDIT TO IT PARTLY THEREFORE CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE INSOFAR AS 8 % EST IMATION IS FOR A TURNOVER OF LESS THAN 40 LAKHS. IN THIS VIEW OF THE MATTER, WE ARE INCLINED TO HOLD , AS SUBMITTED BY THE LEARNED COUNSEL OF THE ASSESSEE , THAT AT BEST 6% OF THE GROSS RECEIPTS MAY BE CONSIDERED FOR TAXATION BEFORE INTEREST AND SALARY TO T HE PARTNERS AS REASONABLE. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO ADOPT 6% NET PROFIT OF THE GROSS RECEIPTS FROM CONTRACT WORK BEFORE ALLOWING INTEREST AND SALARY TO PARTNERS. I.T.A.NO. 550/CTK/2012 5 6. IN THE RES ULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/ - SD/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.12.2012 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : SAI CONSTRUCTION, BRAHMAN SASAN,AT/P.O.TALCHER, DIST. ANGUL 759 100. 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 1(3), BHUBANESWAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 13.12.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEF ORE THE DICTATING MEMBER 14.12.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.12.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE G OES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.