DCIT, Sikar V. M/S CENTURY P P INDUSTRIES, Sikar

ITA 553/JPR/2010

• Counselvise Citation: 55323114 RSA 2010
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH SHARMA
• Keywords: Business income; Depreciation; Diversion of income; Wrong claim

Judgement Text

1 ITA 553(2)-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 553/JP/2010 ASSTT. YEAR : 2007-08. THE DCIT, CIRCLE, VS. M/S.CENTURY P P INDUSTRIES , SIKAR. F-57, INDUSTRIAL AREA, SIKAR. (APPELLANT) (RESPONDENT) C.O. NO.43/JP/2010 ( ARISING OUT OF ITA NO.553/JP/2010 ) ASSTT. YEAR : 2007-08. M/S. CENTURY P.P. INDUSTRIES, VS. THE DCIT, CIRCL E, SIKAR. SIKAR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI SATISH SHARMA RESPONDENT BY : SHRI MANISH AGARWAL ORDER DATE OF ORDER : 10/06/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AND A CROSS OBJECT ION BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 20 07-08. 2. IN THE DEPARTMENTAL APPEAL THE FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. NOT UPHOLDING THE APPLICATION OF PROVISION OF SE CTION 145(3) DESPITE VARIOUS DISCREPANCIES MENTIONED BY THE AO IN THE AS SESSMENT ORDER. 2 II. DELETING THE ENTIRE TRADING ADDITION RESULTING FROM APPLICATION OF N.P. @ 10% IN RESPECT OF BUSINESS OF REPAIR/MAINTENANCE OF TRANSFORMERS ON CONTRACT BASIS. III. DELETING THE ENTIRE TRADING ADDITION RESULTING FROM APPLICATION OF N.P. @ 10% IN RESPECT OF BUSINESS OF SUPPLY AND INSTALLATI ON OF MCCB BOXES. IV. RESTRICTING THE ADDITION MADE ON ACCOUNT OF SAL E OF SCRAP TO RS. 91,876/- IN PLACE OF RS. 4,28,706/- MADE BY A.O. V. NOT UPHOLDING THE DISALLOWANCE OF RS. 2,86,400/- MADE U/S 40A(2)(B) OF THE I.T. ACT. VI. NOT UPHOLDING THE DISALLOWANCE OF RS. 4,06,740/ - MADE UNDER SECTION 40A(2)(B) OF THE IT ACT ON ACCOUNT OF INTEREST. VII. NOT UPHOLDING THE DISALLOWANCE OF RS. 8,47,80 5/- FROM JOB WORK CHARGES. VIII. DELETING ADDITION OF RS. 17,36,562/- MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE I.T. ACT FOR PURCHASES MADE FROM R ELATED PERSONS. IX. NOT UPHOLDING THE DISALLOWANCE OF RS. 4,16,190/ - MADE BY THE AO UNDER SECTION 40(A)(IA) OF THE I.T. ACT. 3. THE LD. CIT D/R HAS PLACED RELIANCE ON THE ORDER OF A.O. VARIOUS DEFECTS NOTED BY AO WERE EXPLAINED ALSO. ACCORDINGLY IT WAS SUBM ITTED THAT THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND THEREBY MAKING A DDITION IN TRADING ACCOUNT. IT WAS FURTHER SUBMITTED THAT THOUGH AO HAS APPLIED N.P. R ATE OF 10% AND HAS MADE ADDITION ON THE BASIS OF MATERIAL BEFORE HIM, THE LD. CIT (A) W AS NOT JUSTIFIED IN HOLDING THAT PROVISIONS OF SECTION 145(3) WERE NOT APPLICABLE AN D ADDITION MADE @ 10% N. P. WAS ALSO NOT JUSTIFIED. IT WAS FURTHER STATED THAT DELETING THE ADDITION MADE UNDER SECTION 40A(2)(B) WAS ALSO NOT JUSTIFIED AT THE END OF LD. CIT (A). IN SUPPORT OF HIS CONTENTION THE FINDINGS OF THE AO WERE EXPLAINED BEFORE THE TR IBUNAL. 3 4. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE HAS PLACED STRONG RELIANCE ON THE ORDER OF LD. CIT (A). CONTENTIONS RAISED BEFORE LD. CIT (A) WERE REITERATED. FURTHER PLACED RELIANCE ON THE WRITTEN SUBMISSIONS PLACED O N RECORD. IT WAS FURTHER SUBMITTED THAT EXCEPT GROUND NO. 3, 7 & 8, ALL OTHER GROUNDS ARE C OVERED BY THE ORDER OF TRIBUNAL FOR EARLIER YEAR AS IN EARLIER YEAR ON SIMILAR FACTS AN D CIRCUMSTANCES, THE ADDITION WAS MADE AFTER REJECTING THE BOOKS OF ACCOUNT BY INVOKING PR OVISIONS OF SECTION 145(3) AND THEY WERE DELETED BY THE TRIBUNAL. COPY OF THE ORDER FOR A.Y. 2006-07 IN ITA NO. 538/JP/2009 DATED 31.3.2010 IS PLACED ON RECORD. 5. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. C IT (A), WE FIND THAT LD. CIT (A) HAS EXAMINED ALL THE ISSUES IN DETAIL AND THEN ONLY IMPUGNED RELIEF HAS BEEN GRANTED WHICH HAS BEEN CHALLENGED HERE BEFORE US BY THE DEP ARTMENT. 6. NOW THE APPEAL OF THE DEPARTMENT IS DISPOSED OFF IN THE FOLLOWING MANNER. 7. THE BRIEF FACTS AS NOTED BY AO AT PAGE 2 OF HIS ORDER ARE AS UNDER :- AS IN EARLIER YEARS, THE ASSESSEE MAINLY DERIVED INCOME FROM BUSINESS OF TRANSFORMER REPAIR/SUPPLY ON CONTRACT, AWARDED BY V ARIOUS ELECTRICITY BOARDS/NIGAMS. DURING THE YEAR ASSESSEE HAS EXECUTED ANOTHER WORK OF SUPPLY AND INSTALLATION OF MCCB BOXES FOR DHBVNL. AS PER THE MANUFACTURING AND TRA DING ACCOUNTS, ASSESSEES SALES/RECEIPTS INCLUDING LABOUR CHARGES RECEIPTS AR E RS. 12,11,06,197/-, AGAINST WHICH GROSS PROFIT OF RS. 1,41,21,012/- @ 11.66% IS DECLA RED. AS PER THE SEPARATE TRADING ACCOUNT OF SCRAP, TOTAL SALES ARE RS. 51,82,004/- A GAINST WHICH G.P. OF RS. 89,494/- @ 1.7% HAS BEEN DECLARED. AS PER ANOTHER SEPARATE TRA DING ACCOUNT OF MCCB BOX, SALES/RECEIPTS INCLUDING LABOUR CHARGES RECEIPTS AR E RS. 4,85,21,849/- AGAINST WHICH GROSS PROFIT OF RS. 35,09,597/- @ 7.2% IS DECLARED. AS P ER COMBINED PROFIT AND LOSS ACCOUNT OF 4 ALL THE THREE TRADING ACCOUNTS, THE ASSESSEE HAS DE CLARED NET PROFIT OF RS. 62,23,170/- (WHICH IS ALSO THE TOTAL INCOME DECLARED BY ASSESSE E), AFTER DEDUCTING ALL EXPENSES INCLUDING DEPRECIATION AND INTEREST TO PARTNERS. T HE BUSINESS OF ASSESSEE FIRM IS ESSENTIALLY OF REPAIR AND SUPPLY ON CONTRACT BASIS . RECEIPTS OF THE ASSESSEE INCLUDE LABOUR CHARGES RECEIPTS RELATING TO LABOUR WORK DONE BY AS SESSEE ON CONTRACT. RECEIPTS ARE ESSENTIALLY FROM VARIOUS ELECTRICITY BOARDS/NIGAMS ; WHETHER ON ACCOUNT OF REPAIR OF TRANSFORMERS, SUPPLY OF TRANSFORMERS, MCCB BOXES OR LABOUR WORK FOR THEIR INSTALLATION. THESE RECEIPTS ARE ESSENTIALLY OF CONTRACT NATURE A ND HAVE ALL THE CHARACTERISTIC FEATURES OF CONTRACT WORK. EXPENSES LIKE CASH DISCOUNT RS. 37, 21,596/- DEBITED IN P & L ACCOUNT RELATE TO TIMELY PAYMENT BY ELECTRICITY BOARD AND I N FACT RELATES TO TRADING ACCOUNT RATHER THAN P & L ACCOUNT. SIMILARLY TRUCK AND JEEP (PICK UP) ARE USED FOR TRANSPORTING THE TRANSFORMERS ETC. TO AND FROM TO VARIOUS SITES. SI MILARLY FOR THE SAME PURPOSE ASSESSEE HAS DEBITED ITS P & L ACCOUNT BY RS. 12,66,334/- AS FREIGHT EXPENSE. ALL THESE EXPENSES ARE OF TRADING NATURE AND CHARGEABLE AGAINST CONTRA CT RECEIPTS. IN THE CIRCUMSTANCES OF THE ASSESSEES CASE, ITS INCOME CAN BE BETTER ESTIMATED BY APPLYING N.P. RATE AS IN THE CASE OF OTHER CONTRACTORS. 7.1. THEREAFTER, AO NOTED THAT THERE ARE SO MANY DE FECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNT AND HE HELD THAT THE PROVISIONS OF SECTI ON 145(3) ARE APPLICABLE. THE AO ALSO OBSERVED THAT THE FACT AND CIRCUMSTANCES OF THE ASS ESSEES CASE AND POSITION OF ACCOUNTS IS SIMILAR FOR THIS YEAR AS IN EARLIER YEAR. SOME ADD ITIONAL FACTS ARE DISCUSSED INFRA. ON BEING ASKED THE ASSESSEE, VIDE LETTER DATED 3.12.20 09 OBJECTED TO THE APPLICATION OF THE PROVISIONS OF SECTION 145(3) STATING THAT ASSESSEE IS MAINTAINING PROPER BOOKS OF ACCOUNT AND VOUCHERS AND THAT RESULTS SHOWN BY ASSESSEE WER E ACCEPTED BY THE APPELLATE 5 AUTHORITIES. THE AO BY OBSERVING THAT ASSESSEES O BJECTION/EXPLANATION CAN NOT BE ACCEPTED AS IN THE RESULT OF EARLIER YEAR HAS NOT R EACHED ITS FINALITY AS APPEALS ARE PENDING BEFORE HONBLE HIGH COURT OR BEFORE ITAT FOR THESE YEARS. THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3) AND PROCEEDED TO COMPLETE ASSESSMENT ACCORDINGLY. WHILE INVOKING PROVISIONS OF SECTION 145(3), THE AO HAS POINTED OUT IN HIS ORDER THE FOLLOWING DISCREPANCIES :- A) POSITION OF THE BOOKS OF ACCOUNT AND THE WORKI NG DONE DURING THE YEAR ARE SIMILAR AS FOR THE A.Y. 2005-06 {AO PAGE 3 PARA 3.1 }. B) PAYMENT OF JOB WORK TO HOSHIYAR SINGH IS NOT FO UND GENUINE (AO PAGE 3 PARA 3.2). C) PAYMENT TO LABOURERS AT SITE ARE NOT PROPERLY V OUCHED AND AUDITORS NOTE FOR NON MAINTAINING OF PETTY CASH VOUCHERS {AO PAGE 4 P ARA 3.5}. D) SHORTAGE IN RAW MATERIAL AND % YIELD OF FINISH ED PRODUCT IS NOT ASCERTAINABLE {AO PAGE 4 PARA 3.4}. E) DEFECT IN ACCOUNTING OF SCRAP AS REGARDS TO TH E DIFFERENCE IN PURCHASES OF SCRAP AND TCS CERTIFICATE AMOUNT {PAGE 4 PARA 3.6}. F) ASSESSEE HAS PAID INTEREST AT HIGHER RATES TO T HE RELATED PARTIES {AO PAGE 4 PARA 3.7}. G) PAYMENT OF FREIGHT OUTWARD AND INWARD ARE NOT FOUND REASONABLE (AO PAGE 5 PARA 3.8 & 3.9). H) ASSESSEE HAS MADE PURCHASES FROM RELATED PARTIE S FOR DIVERSION OF INCOME {AO PAGE 5-6 PARA 3.10}. 8. ON APPEAL, THE LD. CIT (A) HELD THAT PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE. IT WAS OBSERVED BY LD. CIT (A) THAT ON SIMILAR CIRCUMSTANCES THE PROVISIONS OF SECTION 145(3) WERE INVOKED FOR ASSESSMENT YEAR 200 5-06 ALSO AND TRIBUNAL HAS HELD THAT 6 THE PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE FOR ASSESSMENT YEAR 2005-06. ACCORDINGLY THIS GROUND WAS ALLOWED IN FAVOUR OF TH E ASSESSEE. 9. AFTER EXAMINING THE ORDERS OF AO AND LD. CIT (A) , WE FIND THAT LD. CIT (A) WAS CORRECT IN HOLDING THAT PROVISIONS OF SECTION 145(3 ) ARE NOT APPLICABLE. FOR A.Y. 2003-04, 05-06 AND 06-07 THE PROVISIONS OF SECTION 145(3) WE RE INVOKED BY THE AO. MATTER REACHED TO THE STAGE OF TRIBUNAL AND THE TRIBUNAL H AS HELD THAT THE PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE AS ASSESSEE HAS MAINTAINE D PROPER BOOKS OF ACCOUNT. DEFECTS NOTED BY THE AO RE NOT SUCH THAT IT CAN BE HELD THA T PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE. ORDER OF THE TRIBUNAL FOR THESE YEARS A RE PLACED AT PAGES 86, 97 OF THE PAPER BOOK AND FOR ASSESSMENT YEAR 2006-07 THE ORDER OF T HE TRIBUNAL IS FILED ALONG WITH WRITTEN SUBMISSIONS. LATEST ORDER PASSED BY TRIBUN AL FOR ASSESSMENT YEAR 2006-07 IS IN ITA NO. 538/JP/2009 AND ITA NO. 652/JP/2009 DECIDED ON 31.3.2010. IN THIS YEAR ALSO THE PROVISIONS OF SECTION 145(3) WERE APPLIED AND G .P. RATE WAS ESTIMATED AT 3.5% ON THE DECLARED TURNOVER AGAINST G.P. RATE OF 0.08% SHOWN IN EARLIER YEAR. FACTS AND CIRCUMSTANCES ARE SIMILAR FOR THE YEAR UNDER CONSID ERATION AND THIS FACT HAS ALSO BEEN MENTIONED BY THE AO IN HIS ORDER AT PAGE 3 THAT FOR ASSESSMENT YEARS 2003-04 05-06 AND 06-07 THE PROVISIONS OF SECTION 145(3) ARE MADE APP LICABLE. HOWEVER, THE LD. CIT (A) HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE BUT SIN CE THE DEPARTMENT HAS FILED APPEAL BEFORE THE TRIBUNAL AND BEFORE HONBLE HIGH COURT, THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION ALSO. SIN CE IN EARLIER YEAR THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THEREFORE, FOR T HE SAME REASONING GIVEN BY TRIBUNAL, WE CONFIRM THE ORDER OF THE LD. CIT (A) FOR THE YEAR U NDER CONSIDERATION ALSO. ACCORDINGLY, GROUND NO. 1 IN APPEAL OF THE DEPARTMENT IS REJECTE D. 7 10. NEXT GROUND IS AGAINST DELETING THE TRADING ADD ITION MADE BY AO BY APPLYING N.P. RATE IN RESPECT OF BUSINESS OF REPAIR/MAINTENANCE O F TRANSFORMERS ON CONTRACT BASIS. 11. AFTER REJECTING THE BOOKS OF ACCOUNT, THE AO AP PLIED 10% N.P. RATE IN RESPECT TO BUSINESS OF REPAIR/MAINTENANCE OF TRANSFORMERS. TH E FOLLOWING OBSERVATIONS HAVE BEEN GIVEN BY THE AO WHILE APPLYING N.P. RATE OF 10% :- AS IN THE EARLIER YEARS THE BUSINESS OF THE ASSES SEE CONTINUES TO BE OF REPAIR OF THE TRANSFORMERS ON CONTRACT WITH VARIOUS ELECTR ICITY BOARDS / NIGAMS. WHILE COMPLETING THE ASSESSMENT FOR 2005-06 AND 2006-07, AFTER GIVING DETAILED REASONS, THE AO HAD ESTIMATED THE PROFIT FROM CONTR ACT BUSINESS BY APPLYING NET PROFIT RATE OF 10% ON DECLARED GROSS RECEIPTS. ADMI TTEDLY, THE FACTS AND CIRCUMSTANCES OF THE CASE ARE SIMILAR AS IN THE PRE CEDING YEARS. MOREOVER, THE ASSESSEE HAS FURTHER GROWN IN EXPERIENCE IN THE LIN E OF BUSINESS AND THERE ARE NO ABNORMAL ADVERSE FACTS AND CIRCUMSTANCES WHICH WOUL D JUSTIFY LOWER THAN THE NORMAL PROFIT RATE INVOLVED IN CONTRACT BUSINESS THUS AFTER CONSIDERING THE EXPLANATION GIVEN BY THE ASSESSEE AND THE FACTS AND CIRCUMSTANCES OF THE CASE PARTICULARLY EXTENT OF BOGUS CLAIMS AND NORMAL PROF IT INHERENT IN CONTRACT BUSINESS OF THIS NATURE, PROFIT FROM CONTRACT BUSIN ESS IS ESTIMATED BY APPLYING NET PROFIT RATE OF 10% OF GROSS RECEIPTS SUBJECT TO FUR THER DEDUCTION ON ACCOUNT OF DEPRECIATION AND INTEREST TO PARTNERS IT WAS SUBMITTED BEFORE LD. CIT (APPEALS) THAT A GROSS RECEIPT CHART SHOWING G.P. RATE FOR LAST TH REE YEARS AND YEAR UNDER CONSIDERATION IS AS UNDER: A.Y. TURNOVER LABOUR RECEIPTS TOTAL TURNOVER INCLUDING LABOUR RECEIPTS GROSS PROFIT G.P. % 2004- 05 3,19,92,473.00 54,27,910.00 3,74,20,388.00 49,58,615.00 13.25% 2005- 06 3,55,22,941.00 60,28,466.00 4,15,51,407.00 56,18,992.00 13.52% 2006- 07 4,60,35,667.00 37,61,882.00 4,97,97,549.00 64,87,368.00 13.03% 8 2007- 08 11,22,15,051.00 88,91,146.00 12,11,06,197.00 1,41,21,012.00 11.66% FROM PERUSAL OF ABOVE CHART IT IS EVIDENT THAT GROS S RECEIPTS HAVE INCREASED BY MORE THAN ALMOST 2.5 TIMES IN COMPARISON TO THE PRECEDING YEAR AND THERE IS A SLIGHT DECREASE IN G.P. RATE DUE TO CUT THROAT COMP ETITION IN THE MARKET. FURTHER THE PURCHASES AND SALES ARE FULLY VOUCHED AND BACKED BY THE NECESSARY EVIDENCE, THUS THE RESULTS DECLARED BY THE ASSESSEE DESERVES TO BE ACCEPTED. THE LD. AO WHILE ESTIMATING THE PROFIT HAS BASED HI S CONCLUSION ON FOLLOWING COUNTS: A) DEFECTS POINTED OUT IN THE MAINTENANCE OF BOOKS OF ACCOUNTS. B) BY ALLEGING THE JOB WORK PAYMENT OF ` 8,47,805/- AS IN-GENUINE. C) BY ALLEGING THAT PAYMENT OF INWARD AND OUTWARD F REIGHT MADE TO RELATED PARTIES AS UNREASONABLE AND EXCESSIVE. D) THE PAYMENT OF INTEREST TO RELATED PARTIES BEING UNREASONABLE AND EXCESSIVE. THE JOB WORK PAYMENT HAS BEEN DOUBTED BY THE LD. AO BY SOLELY FOLLOWING THE CONCLUSION DRAWN IN THE PRECEDING ASS ESSMENT YEARS, WITHOUT MAKING ANY FRESH ENQUIRY IN THE YEAR UNDER APPEAL. IT IS PERTINENT TO MENTION HERE THAT UNDER SIMILAR CIRCUMSTANCES AND BY MAKING SIMI LAR ALLEGATION JOB WORK WAS DISALLOWED IN IMMEDIATELY PRECEDING ASSESSMENT YEAR WHICH HAS BEEN DELETED BY THE HONBLE ITAT IN A.Y. 2003-04 IN ITA NO. 194/JP/ 08 VIDE ORDERS DATED 24.10.2008 (APB 80-87) AND IN ITA NO. 10/JP/09 VIDE ORDERS DATED 21.08.200 9 (APB 96-99 ) FOR A.Y. 2005-06 AND IN ITA NO. 538/JP/09 DATED 31 .03.20010 FOR A.Y. 2006-07 (WS PAGES 20-21). 12. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD AND TAKING INTO CONSIDERATION THE ORDER OF TRIBUNAL FOR EARLIE R YEARS, THE LD. CIT (A) FOUND THAT THERE IS NO BASIS FOR APPLYING THE G.P. RATE OF 10% . ACC ORDINGLY HE DELETED THE ADDITION. 9 13. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) AND THE TRIBUNAL FOR EARLIER YEARS, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE LD. CIT (A) HAS ALLOWED THE RELIEF BY OBSERVING THAT PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE ON THE FACTS OF THE CASE AS THERE WAS NO DISCREPANCY IN MA INTAINING THE BOOKS OF ACCOUNT. THE LD. CIT (A) FURTHER NOTED THAT ON SIMILAR CIRCUMSTA NCES FOR EARLIER YEAR ALSO SIMILAR ADDITIONS WERE MADE WHICH WERE DELETED BY THE TRIBU NAL. ACCORDINGLY HE DELETED THE ADDITION. NEITHER THE FINDING OF LD. CIT (A) COULD BE CONTROVERTED NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD TO HOLD OTHERWISE. ACCORDING LY WE CONFIRM THE ORDER OF LD. CIT (A) IN THIS RESPECT. 14. NEXT ISSUE RELATES TO DELETING THE ADDITION MAD E BY AO BY APPLYING N.P. RATE OF 10% IN RESPECT OF BUSINESS OF SUPPLY AND INSTALLATI ON OF MCCB BOXES. 15. BRIEF FACTS OF THIS CASE IN THIS REGARD ARE THA T DURING THE YEAR UNDER CONSIDERATION ASSESSEE TOOK UP A NEW ACTIVITY OF SUPPLYING AND IN STALLATION OF THE MCCB BOXES IN TERMS OF THE ORDERS ALLOTTED BY DHBVNL. AS AGAINST THE TOTAL RECEIPTS OF RS. 4,.85,21,849/- (SALES RS. 4,47,70,277 + LABOUR RS. 37,51,572) ASSESSEE HAS DECLARED G.P. OF RS. 35,09,597/- AND THE RESULTANT G.P. DECLARED BY THE ASSESSEE WAS 7.23%. HOWEVER, THE AO WAS NOT SATISFIED WITH THE RESULT SHOWN BY A SSESSEE AS HE HAS INVOKED THE PROVISIONS OF SECTION 145(3). THEREFORE, HE APPLIED N.P. RATE OF 10% IN THE BUSINESS OF SUPPLY AND INSTALLATION OF MCCB BOXES. IT WAS SUB MITTED BEFORE LD. CIT (A) THAT FOR THIS NEW ACTIVITY UNDERTAKEN BY THE ASSESSEE, THE ASSESS EE PURCHASED READYMADE GOODS FROM OUTSIDE PARTIES WHICH INCLUDED THE PURCHASE OF GOOD S FOR ` 1,62,28,884/- OUT OF THE TOTAL PURCHASES OF ` 4,34,19,412/- FROM THE SUPPLIERS FALLING IN THE CA TEGORY OF PERSONS SPECIFIED U/S 40A(2)(B) OF THE INCOME TAX ACT, 1961 . IN THIS REGARD, IT IS SUBMITTED THAT 10 THE PURCHASES MADE BY THE ASSESSEE FROM THE SUPPLIE RS FALLING U/S 40A(2)(B) WOULD BE FOUND GENUINE AND THE PRICE PAID HAS BEEN AT PAR WI TH THOSE FROM WHOM THE GOODS WERE PURCHASED DURING THE SAME PERIOD WITH SIMILAR SPECI FICATIONS, THUS THE ALLEGATION OF THE AO THAT THE PURCHASES HAVE BEEN MADE TO DIVERT THE PROFITS IS TOTALLY UNFOUNDED AND BASELESS. PARTICULARLY WHEN THE GOODS WERE PURCHASE D FROM THE EXISTING LIVING BEINGS AND THERE IS NO ALLEGATION OF BENAMI AND MORE PARTICULA RLY WHEN THE PRICE PAID IS AT PAR WITH OTHERS, THERE IS NO PROVISION UNDER THE SCHEME OF T HE ACT THAT THE GOODS CANNOT BE PURCHASED FROM THE PARTIES FALLING U/S 40A(2)(B) OF THE INCOME TAX ACT, 1961. ON THE OTHER HAND THE MECHANISM OF SECTION SIMPLY WARRANTS A PROBE TO FIND OUT THE NATURE OF PAYMENT WITH REFERENCE TO ITS REASONABLENESS OR EXC ESSIVENESS. FURTHER THE PRICE PAID TO THE QUESTIONED PARTIES ARE TOTALLY INCONSONANCE WIT H OTHER SUPPLIERS BASED ON MATERIAL AND THE AVERAGE G.P. RATE OF 7.24% WOULD BE PROVED WITH PURCHASE BILLS (APB 34-50). 16. THE LD. AO HAS OBSERVED IN HIS ORDER THAT THE P RICE CHARGED FOR INSTALLATION OF MCCB BOX AT ` 890.94 BUT HE HAS IGNORED THE FACT THAT THE RATES SO CHARGED KEEP VARYING WITH THE SPECIFIED CAPACITY OF THE MCCB BOXES WHICH IN TURN IS RELATED WITH THE CAPACITY POINTS OF THE TRANSFORMERS ALONGWITH WHICH THE MCCB BOXES WERE INSTALLED AND THE PRICE OF INSTALLATION ALSO CHANGES WITH THE SITE OF INSTA LLATION. 17. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) DELETED THE ADDITION BY HOLDING THAT THERE IS N O JUSTIFICATION AT THE END OF THE AO TO APPLY N.P. RATE OF 10%. ACCORDINGLY THE ADDITION M ADE BY AO WAS DELETED BY LD. CIT (A) ON THIS ACCOUNT. WHILE DELETING THE ADDITION, THE LD. CIT (A) HAS OBSERVED THAT ASSESSEE HAD MADE PURCHASES FROM THE PARTIES COVERE D UNDER SECTION 40A(2)(B). ACCORDINGLY THE RESULT DECLARED BY ASSESSEE WAS ACC EPTED BY LD. CIT (A). 11 18. THE FINDINGS OF LD. CIT (A) ARE FINDINGS OF FAC T WHICH NEITHER COULD BE CONTROVERTED NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD TO HOLD OTHERWISE. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF L D. CIT (A). ACCORDINGLY THE FINDINGS OF LD. CIT (A) ARE CONFIRMED. 19. GROUND NOS. 4, 5 AND 6 ARE AGAINST RESTRICTING THE ADDITION ON ACCOUNT OF SALE OF SCRAP TO RS. 91,876/- AGAINST ADDITION OF RS. 4,28, 706/- MADE BY AO AND DELETING THE ADDITION MADE UNDER SECTION 40A(2)(B) AT RS. 2,86,4 00/- AND AT RS. 4,06,740/-. 20. THESE ADDITIONS WERE MADE BY AO ON THE BASIS OF EARLIER YEAR. THE LD. CIT (A) HAS DELETED THESE ADDITIONS BY OBSERVING THAT SIMIL AR ADDITIONS WERE MADE IN EARLIER YEAR AND ORDER OF LD. CIT (A) HAS BEEN CONFIRMED BY THE TRIBUNAL FOR EARLIER YEAR. ACCORDINGLY THE ADDITION ON ACCOUNT OF SALE OF SCRA P WAS RESTRICTED TO RS.91,876/- AND ADDITION MADE UNDER SECTION 40A(2)(B) WERE DELETED. 21. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHICH IS BASED ON THE FINDIN G OF TRIBUNAL GIVEN IN EARLIER YEAR. NEITHER THE FINDINGS OF THE LD. CIT (A) COULD BE C ONTROVERTED NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD TO HOLD OTHERWISE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONFIRM THE ORDER OF LD. CIT (A) ON THESE ISSUES. 22. GROUND NO. 7 RELATES TO CONFIRMING ADDITION OF RS. 8,47,805/- MADE ON ACCOUNT OF JOB WORK CHARGES BY THE AO. 23. SIMILAR ADDITION WAS MADE FOR THE ASSESSMENT YE ARS 2003-04, 05-06 AND 06-07. THE LD. CIT (A) DELETED THE ADDITIONS AND THE ORDER OF THE LD. CIT (A) HAVE BEEN AFFIRMED BY THE TRIBUNAL FOR EARLIER YEARS. ON THE SAME BAS IS, THE LD. CIT (A) HAS DELETED THIS DISALLOWANCE. 12 24. AGAIN THE DISALLOWANCE DELETED BY LD. CIT (A) I S BASED ON THE ORDER OF TRIBUNAL FOR EARLIER THREE YEARS. THEREFORE, WE SEE NO REAS ON TO INTERFERE WITH THE FINDING OF LD. CIT (A) IN THIS RESPECT ALSO. 25. GROUND NO. 8 RELATES TO DELETING THE ADDITION O F RS. 17,36,562/- MADE BY AO UNDER SECTION 40A(2)(B) FOR PURCHASES MADE FROM REL ATED PERSONS. 26. THE AO MADE ADDITION FOR THE REASON THAT THEY H AVE PURCHASED FROM THE PERSONS COVERED UNDER SECTION 40A(2)(B). IT WAS SUBMITTED BEFORE LD. CIT (A) THAT THE ASSESSEE HAS MADE THE PURCHASES OF MCCB BOXES OF RS. 62,71,3 04/- FROM M/S SHIV ELECTRICALS AND RS. 1,00,57,580/- WERE MADE FROM M/S AKSHAT ENTERPRISE S, THE RELATED PARTIES U/S 40A(2)(B). THE LD. AO HAS MADE THE DISALLOWANCE OF THE DIFFERENCE BETWEEN THE PURCHASES AND SALES OF THESE FIRMS BY IGNORING THE FACT THAT BOTH THE FIRMS HAS THAT MANUFACTURED THE MCCB BOXES AS PER THE SPECIFICATIO N PROVIDED BY THE ASSESSEE AND THE EXPENSES CLAIMED IN THE MANUFACTURING ACCOUNT WITH REGARD TO THE FREIGHT, POWER AND WAGES WERE GROSSLY IGNORED BY THE LD. AO WHO HIS OW N WHIMS AND FANCIES HAS IMAGINATED THAT THESE FIRMS HAS SUPPLIED THE MCCB B OXES WITHOUT INCURRING ANY MANUFACTURING COST. IT IS FURTHER SUBMITTED THAT TH E FIRMS HAS ALSO SOLD THE GOODS TO OTHER PARTIES WHICH FACT WAS ALSO IGNORED BY THE LD. AO A ND OUT OF THE TOTAL PURCHASE AND SALES MADE BY THEM THE DIFFERENCE WAS ADDED IN THE HANDS OF THE ASSESSEE. 27. THAT THE NECESSARY CHARTS PROVIDING THE DETAILS OF PURCHASES MADE FROM THE RELATED PARTIES [SECTION 40A(2)(B)] AND NON RELATED PARTIES CONTAINING FINE DETAILS OF EACH BILL ALONGWITH DESCRIPTION OF GOODS PURCHASED WAS SUBMIT TED BEFORE THE LD. AO (APB 155- 170). FURTHER LEDGER ACCOUNT OF RELATED PARTIES WAS ALSO SUBMITTED WITH REGARD TO PURCHASES MADE DURING THE YEAR (APB171-174). 13 28. LD. AO HAS FURTHER IGNORED THE FACT THAT BOTH T HE FIRMS ARE SEPARATELY ASSESSED TO INCOME TAX AND ARE INCOME TAX ASSESSEE AND THEIR RE TURNS WERE AVAILABLE BEFORE THE INCOME TAX AUTHORITIES WHICH WERE NOT DOUBTED AND T HE INCOME DECLARED BY THEM WERE ACCEPTED BY THE DEPARTMENT. THE PRICE PAID WAS IN P ARITY WITH PAYMENT MADE TO UNRELATED PARTIES, THEREFORE, THE ALLEGATION OF SUPPRESSION O F PURCHASES OR DIVERSION OF PROFITS IS WITHOUT ANY BASIS. 29. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT PAYMENTS MADE TO RELATED PERSONS ARE SIMILAR AS MADE TO PRIVATE PARTIES. ON SIMILAR RATES THE ASSESSEE HAS PURCHASED THE MAT ERIAL COVERED UNDER SECTION 40A(2)(B) AND ON SAME RATE THE SAME MATERIAL HAS BEEN PURCHAS ED FROM PRIVATE PARTIES ALSO. THEREFORE, HE HELD THAT PROVISIONS OF SECTION 40A(2 )(B) ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. ACCORDINGLY HE DELETED THE ADDIT ION. 30. AGAIN THE LD. CIT (A) HAS GIVEN FINDING OF FACT WHICH NEITHER COULD BE CONTROVERTED NOR ANY OTHER MATERIAL BROUGHT ON RECO RD TO HOLD OTHERWISE. ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE ALSO . 31. REMAINING GROUND OF THE DEPARTMENT IS AGAINST D ELETING THE ADDITION OF RS. 4,16,190/- MADE UNDER SECTION 40(A)(IA) OF THE ACT. 32. THE ADDITION WAS MADE BY THE AO BY OBSERVING TH AT ASSESSEE HAS NOT DEDUCTED TDS ON THE AMOUNT OF LABOUR CHARGES PAID TO TWO CON TRACTORS, NAMELY, M/S. RAJ CONTRACTOR AND M/S. JAIBIR CONTRACTOR. BEFORE LD. CIT (A) IT WAS SUBMITTED THAT AS PER THE DETAILS SUBMITTED DURING THE COURSE OF ASSESSME NT PROCEEDINGS ASSESSEE HAS CLAIMED LABOUR CHARGES OF ` 15,92,840/- IN THE TRADING ACCOUNT FOR MCCB BOXES OUT OF WHICH RS. 4,16,190/- HAD REMAINED OUTSTANDING AT THE END OF T HE YEAR OUT OF WHICH RS. 2,82,340/- 14 PERTAINS TO M/S RAJ CONTRACTOR AND RS. 1,33,850/- PERTAINS TO M/S JAIBIR CONTRACTOR (APB- 24). 33. SINCE THE TOTAL PAYMENT OF RS. 4,16,190/- RELAT ES TO THE LABOUR CHARGES INCURRED FOR THE MONTH OF MARCH AND THE TDS OF THE SAME WAS DEPO SITED BEFORE THE FILING OF THE RETURN (APB 110-113) THEREFORE IN TERMS OF THE AMENDED PROVISION OF SECT ION 40(A)(IA) THE SAME IS ALLOWABLE ON PAYMENT BASIS. 34. AFTER EXAMINING THE DETAILS, THE LD. CIT (A) FO UND THAT THE TDS HAS BEEN DEDUCTED AND THE PAYMENTS HAVE BEEN MADE BEFORE FILING RETUR N OF INCOME. THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA). 35. SINCE THE ASSESSEE HAS DEPOSITED THE TDS DEDUCT ED BEFORE FILING OF RETURN OF INCOME, THEREFORE, IN VIEW OF THE AMENDED PROVISION S OF LAW, NO ADDITION CAN BE MADE. ACCORDINGLY WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THIS ADDITION ALSO. 36. THERE IS NO OTHER GROUND IN THE APPEAL OF THE D EPARTMENT. 37. IN CROSS OBJECTION FILED BY THE ASSESSEE THE ON LY ISSUE IS AGAINST UPHOLDING A LUMP SUM TRADING ADDITION OF RS. 91,876/- IN SELLING SCR AP BY APPLYING A G.P. RATE OF 3.5% AGAINST 1.73% SHOWN BY THE ASSESSEE. 38. THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSE E BY THE TRIBUNAL IN IMMEDIATELY PRECEDING YEAR. LD. COUNSEL OF THE ASSESSEE HAS FA IRLY STATED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN EAR LIER YEAR. 39. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE SE E NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDINGLY WE REJECT THIS GROUND OF THE ASSESSEE. 40. IN THE RESULT, APPEAL OF THE DEPARTMENT AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. 15 41. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 .6.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE DCIT, CIRCLE, SIKAR. M/S. CENTURY P.P. INDUSTRIES, SIKAR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 553(2)/JP/2010) BY ORDER, AR ITAT JAIPUR.