Rajinder Kumar & Co., Fatehabad V. ITO, Hisar

ITA 5575/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2726 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 25-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.5575/DEL/2011 (ASSESSMENT YEAR : 2008-09) RAJINDER KUMAR & CO., VS. ITO, WARD 2, SIRSA ROAD, HISAR. FATEHBAD. (PAN : AAFFR5330M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. YADAV, ADVOCATE REVENUE BY : SHRI SUKHVEER SINGH CHOUDHARY, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF CIT (APPEALS), ROHTAK DATED 29.09.2011. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND DERIVING INCOME FROM LABOUR CONTRACT WORKS. THE RETURN OF INCOME WAS FILED ON 27.09.2008. DURIN G THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER TEST CHECKED THE BOOKS OF ACCOUNT S OF THE ASSESSEE. THE ASSESSING OFFICER NOTICED SOME DISCREPANCIES IN THE CLAIM OF THE TDS. FURTHER, THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE IS NOT MAINTAINING S ALARY AND ATTENDANCE REGISTER AND HAS ALSO NOT DEDUCTED EPF (EMPLOYEES PROVIDENT FUND). THE AS SESSING OFFICER ALSO HELD THAT ASSESSEE IS HAVING MORE THAN 20 LABOURERS AND REQUI RED TO DEDUCT THE EPF. ASSESSEE IS NOT MAINTAINING PROPER RECORD OF EMPLOYEES, LABOURERS A ND SALARIES AND WAGES PAID TO THEM. ITA NO.5575/DEL/2011 2 ASSESSING OFFICER HELD THAT THE BOOKS OF ACCOUNT AR E NOT RELIABLE. ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS AND ESTIMATED THE GROSS PROFIT @ 8% ON ACCOUNT OF TOTAL RECEIPTS OF RS.1,62 ,85,963/-. AGAINST WHICH, THE ASSESSEE FILED THE APPEAL BEFORE THE CIT (A) AND THE CIT (A) REDUCED THE ESTIMATE OF GROSS PROFIT RATE FROM 8% TO 4% OF THE GROSS RECEIPTS BEFORE ALL OWING THE INTEREST AND REMUNERATION TO THE PARTNERS. 3. NOW, THE ASSESSEE IS IN APPEAL BEFORE US BY TAKI NG THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE REJECTION OF BOOK S OF ACCOUNTS OF THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (APPEALS) ERRED IN APPLYING THE NET PROFIT RATE OF 4% AS AGAINST THE N.P. RATE OF 8% ADOPTED BY THE A.O. AND N.P. RATE OF 1.5 9% DECLARED BY THE APPELLANT. 4. WHILE PLEADING ON BEHALF OF THE ASSESSEE LD. AR SUBMITTED THAT THE ASSESSEE HAS EXPLAINED THE DISCREPANCY NOTICED BY THE ASSESSING OFFICER BY STATING THAT THE ASSESSEE WAS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND THE DIF FERENCE IN THE GROSS RECEIPTS WAS RECONCILED. LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS NOT MADE ANY PAYMENT OF MORE THAN RS.20,000/- IN A DAY TO ANY PERSON. THIS FACT IS EVIDENT FROM THE AUDITORS REPORT IN FORM 3CD. THE CIT (A) HAS WRONGLY STATED THIS FACT IN HIS ORDER. LD. AR ALSO SUBMITTED THAT ASSESSEE HAS NEITHER GIVEN ANY SUB-CONTRACT NO R HAS ENTERED INTO ANY AGREEMENT FOR CONTRACT/SUB-CONTRACT WITH ANY PERSON. THE WORK HAS BEEN EXECUTED BY LABOUR SUPPLIED ON ITS OWN. THE WAGES WERE PAID TO THE INDIVIDUAL LABO URERS DIRECTLY WITHOUT DEDUCTING ANY TDS. LD. AR ALSO SUBMITTED THAT SINCE THE EPF ACT W AS NOT APPLICABLE TO ASSESSEE, NO EPF WAS DEDUCTED. SINCE THERE WERE NO EMPLOYEE OF THE A SSESSEE, THEREFORE, NO SALARY AND ATTENDANCE REGISTER WERE MAINTAINED. LD. AR ALSO SU BMITTED THAT THE CIT (A) HAS ESTIMATED THE GROSS PROFIT RATE @ 4% WITHOUT ANY BASIS. NO CO MPARABLE CASE HAS BEEN QUOTED EITHER ITA NO.5575/DEL/2011 3 BY ASSESSING OFFICER OR BY CIT (A). THE ASSESSEES BOOKS OF ACCOUNT WERE AUDITED AND, THEREFORE, THE BOOK RESULTS OF THE ASSESSEE DESERVE TO BE ACCEPTED. NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE ASSESSING OFFICER, THEREFOR E, THE REJECTION OF THE BOOKS ITSELF IS UNJUSTIFIED. FURTHER, THE EPF PROVISIONS ARE NOT AP PLICABLE TO THE ASSESSEE, THEREFORE, RELIANCE ON NON-COMPLIANCE OF EPF IS COMPLETELY BAS ELESS. HE FURTHER SUBMITTED THAT THE VIOLATION OF ANY OTHER LAW HAVE NO IMPACT ON THE AP PLICABILITY OF THE PROVISIONS OF ACT AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF COCA C OLA REPORTED IN 231 ITR 200 (SC). LD. AR FURTHER SUBMITTED THAT BOOKS OF ACCOUNT CAN BE REJECTED ONLY IF THE PROVISIONS OF SECTION 145(3) OF THE ACT ARE SATISFIED. THE ASSESS ING OFFICER HAS POWER TO REJECT THE BOOKS IF HE IS NOT SATISFIED WITH THE COMPLETENESS AND CO RRECTNESS OF THE ACCOUNTS OF THE ASSESSEE AND WHERE THE ASSESSEE WAS NOT FOLLOWING ANY PRESCR IBED METHOD OF ACCOUNTING. LD. AR SUBMITTED THAT NONE OF THE CONDITIONS AS REFERRED T O IN SECTION 145(3) ARE APPLICABLE IN THE CASE OF THE ASSESSEE. HE FURTHER RELIED ON THE DECI SION OF HON'BLE KERALA HIGH COURT IN THE CASE OF ST. TERESAS OIL MILLS VS. STATE OF KERALA REPORTED IN 76 ITR 365 (KERALA) FOR THE PROPOSITION THAT THE ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. HE SUBMITTED THAT DEPARTMENT H AS TO PROVE SATISFACTORILY THAT THE ACCOUNT BOOKS ARE UNRELIABLE, INCORRECT OR INCOMPLE TE BEFORE REJECTING THE ACCOUNTS AND REJECTION OF THE BOOKS IS NOT A MATTER TO BE DONE L IGHT HEARTEDLY. HE FURTHER SUBMITTED THAT ASSESSING OFFICER HAS MADE A GROUND THAT ASSESSEE W AS NOT MAINTAINING ATTENDANCE REGISTER. ONLY ON THAT BASIS, THE BOOKS OF ACCOUNT ARE DISMISSED AS ASSESSING OFFICER HAS PIN POINTED THE DEFECTS EITHER IN THE METHOD OF ACC OUNTING OR IN THE BOOKS OF ACCOUNT WHEN THERE WAS NO NECESSITY OF MAINTAINING THE ATTENDANC E REGISTER, IT CANNOT BE A BASIS FOR REJECTING THE BOOKS OF ACCOUNT AS HELD BY HON'BLE A NDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. MARGADARSI CHIT FUNDS LIMITED REPORTED I N 155 ITR 442 (AP). LD. AR FURTHER ITA NO.5575/DEL/2011 4 SUBMITTED THAT SAMPLE COPIES OF PAYMENT VOUCHERS B EFORE THE ASSESSING OFFICER WAS PRODUCED AND HE HAS NOT PINPOINTED ANY DEFECT IN TH ESE COPIES OF VOUCHERS. HE SUBMITTED THAT THE COPY OF THE VOUCHERS PRODUCED BEFORE THE A SSESSING OFFICER ARE PLACED AT PAGES 19 TO 119 OF THE PAPER BOOK. FINALLY, HE SUBMITTED THA T BOOKS OF ACCOUNT WERE AUDITED AND NO SPECIFIC DEFECT WAS POINTED OUT BY THE ASSESSING OF FICER, HENCE, REJECTIONS OF ACCOUNT WAS UNJUSTIFIED. THE AUDITOR HAS ALSO NOT MADE ANY COMM ENTS IN MAINTAINING THE BOOKS OF ACCOUNT AND HE VEHEMENTLY PLEADED THAT THE CIT (A) HAS REJECTED THE COMPARABLE PRODUCED BY THE ASSESSEE SIMPLY MENTIONING THAT THE ACTIVITI ES OF COMPARABLES WAS DIFFERENT THAN THE ASSESSEE. FINALLY, HE PLEADED TO ACCEPT THE BOOK RE SULT OF THE ASSESSEE AND SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE ASS ESSEE HAS VIOLATED THE EPF ACT PROVISIONS BY NOT SHOWING THE PERSONS FROM WHOM THE WORK IS GETTING DONE AS ITS REGULAR EMPLOYEES. HE FURTHER SUBMITTED THAT THE VOUCHERS S UBMITTED BY THE ASSESSEE SHOW THAT PAYMENT WAS MADE @ RS.300 FOR 8 HOURS. LD. DR FURTH ER SUBMITTED THAT IT WAS TOO EXCESSIVE IN VIEW OF THE WAGES BEING PAID IN THE MA NREGA SCHEME OF GOVERNMENT OF INDIA. EVEN THE MINIMUM WAGES AS PER THE GOVERNMENT MINIMUM WAGES ACT AND MANREGA SCHEME WERE AS MUCH LOWER THAN ASSESSEE PAI D TO THESE LABOURERS. LD. DR ALSO SUBMITTED THAT GROSS PROFIT IS LOW DUE TO INFL ATE WAGES DEBITED BY ASSESSEE. HE ALSO PLEADED THAT WORK DONE WAS NOT TECHNICAL OR SPECIAL IZED WORK, HENCE SUCH HIGH WAGES WERE NOT JUSTIFIED. HE PLEADED THAT THE ORDER OF THE CIT (A) MAY BE CONFIRMED. LD. DR SUBMITTED THAT ALTHOUGH ASSESSEE HAS SUBMITTED VOUC HERS FOR PAYMENT TO THE LABOURER THERE IS NO NUMBERING OF THESE VOUCHERS, HENCE, CANNOT BE TAKEN AS TRUE. 6. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE H AVE ALSO PERUSED THE DOCUMENTS SUBMITTED BY ASSESSEE IN THE PAPER BOOK. WE HAVE AL SO CONSIDERED THE CASE LAWS RELIED UPON BY BOTH THE SIDES. AFTER CONSIDERING ALL THE A SPECTS OF THE CASE, WE FIND THAT THERE ITA NO.5575/DEL/2011 5 WERE CERTAIN DISCREPANCIES IN THE RECEIPTS DISCLOSE D IN THE RETURN OF INCOME AND THE TDS CERTIFICATE. THE RECEIPTS DISCLOSED IN THE RETURN W ERE RS.1,60,10,098/- AND THE GROSS RECEIPTS ADOPTED BY THE ASSESSING OFFICER AS PER THE TDS CER TIFICATE WAS RS.1,62,21,405/-. THE ASSESSEE HAS DISCLOSED NET PROFIT RATE OF 1.59%. TH E AUDITOR HAS ALSO REPORTED THAT SOME EXPENSES ARE SUPPORTED BY INTERNAL EVIDENCE, HENCE, TAKEN AS CORRECT AS ENTERED IN THE BOOKS AND SOME EXPENSES ARE NOT FULLY SUPPORTED. IT IS EVIDENT FROM AUDIT REPORT IN FORM NO.3CD AT PAGE 8 OF THE PAPER BOOK. WITH REGARD TO THE COMMENDS OF THE CASH PAYMENTS OF MORE THAN RS.20,000/-, AUDITOR HAS REPORTED THAT THERE WAS NO PAYMENT OF MORE THAN RS.20,000/-, EVIDENT FORM PAGE 11 OF THE PAPER BOOK . NO CONTRARY EVIDENCE BROUGHT ON RECORD BY REVENUE. THE ASSESSEE SUBMITTED VARIOUS V OUCHERS. THESE VOUCHERS ARE NOT NUMBERED HOWEVER, NARRATION AT THE BACK OF THESE CA SH VOUCHERS SHOW THAT THE ASSESSEE WAS MAKING THE PAYMENT TO THE LABOURERS ON VARIOUS DATES AFTER CALCULATION OF THEIR WORK HOURS AND CONVERTING THEM TO THE DAYS BY DIVIDING T HE SAME WITH 8 HOURS. THE CIT (A) HAS REDUCED THE ESTIMATED GROSS PROFIT RATE AT 4% OF GR OSS RECEIPTS. THE ASSESSEE HAS SUBMITTED TWO COMPARABLE CASES. THE GROSS PROFIT RATE IN THE CASE OF M/S. LAXMI & CO., FATEHBAD WAS 2.36%. THE TURNOVER WAS ALSO RS.1.69 CRORES FOR THE ASSESSMENT YEAR 2010-11. THE OTHER COMPARABLE WAS ALSO FROM FATEHBAD IN THE NAME OF DH ANGAR ADARSH CO-OP. L&C SOCIETY WHERE THE TURNOVER WAS RS.44.50 LACS AND GROSS PROF IT RATE WAS 0.72% FOR THE YEAR 2006-07. THE CIT (A) HAS NOT DISTINGUISHED THE ASSESSEES CA SE WITH THESE COMPARABLE WITH COGENT REASONS. IN OUR CONSIDERED VIEW, THESE COMPARABLES MUST HAVE SOME BEARING ON THE ESTIMATE OF GROSS PROFIT. THE ASSESSEE IS PROVIDING LABOUR AT MANDIES FOR MARKING, STORAGING, LOADING AND UNLOADING, CARTAGE OF AGRICU LTURAL PRODUCES WHICH REQUIRES SOME SKILL TO PERFORM THAT WORK. WE ARE IN AGREEMENT WIT H THE LD. AR THAT ASSESSEE NEED NOT TO EMPLOY REGULAR EMPLOYEES AS THE SEASON IS ONLY FOR 30 35 DAYS. MAKING AND STORAGING REQUIRE LITTLE BIT OF SPECIALIZATION, THEREFORE, WE FIND THAT THE WAGE RATES PAID ABOVE THE ITA NO.5575/DEL/2011 6 MINIMUM WAGE OR WAGES IN MANREGA SCHEME WERE JUSTIF IED. FURTHER, THE LOADING AND UNLOADING IN CARTAGE WORK IN AGRICULTURAL PRODUCE I N THE MANDIS IS ALSO A TEDIOUS WORK, THEREFORE, WE ARE UNABLE TO DRAW ADVERSE INFERENCE WITH REGARD TO WAGE RATE OF RS.300/- FOR 8 HOURS DURING THE RELEVANT PERIOD. CONSIDERING ALL THE ASPECTS OF THE CASE, WE HOLD THAT IT WILL BE APPROPRIATE TO ESTIMATE THE NET PROFIT AT 2 % OF THE GROSS RECEIPTS AFTER ALLOWING INTEREST AND REMUNERATION TO THE PARTNERS. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF JULY, 2013. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 31 ST DAY OF JULY, 2013 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), ROHTAK 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.