Sh. Naresh Katare Contractors, Gwalior V. A.C.I.T., Circle-3, Gwalior

ITA 567/AGR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0324 (ITAT-AGRA)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Question of law
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 567/AGRA/2012 ASSTT. YEAR : 2009-10 SHRI NARESH KATARE, VS. A.C.I.T., CIRCLE-3, CONTRACTOR, SINGHPUR ROAD, GWALIOR NEAR PATEL PETROL PUMP, MORAR, GWALIOR. (AAFFN 3404 N) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI WASEEM ARSHAD, SR. D.R. DATE OF HEARING : 08.03.2013 DATE OF PRONOUNCEMENT OF ORDER : 15.03.2013 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A), GWALIOR DATED 25.10.2012 FOR THE ASSESSMENT YEAR 20 09-10 ON THE FOLLOWING GROUNDS : 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN COMPUTING THE INC OME OF THE APPELLANT ON ADHOC BASIS BY A NON-SPEAKING & NON-RE ASONED ORDER AT 6% OF GROSS CONTRACT RECEIPTS & WITHOUT FURTHER ALL OWING DEPRECIATION, INTEREST & SALARY TO THE PARTNERS ARB ITRARILY DISREGARDING THE DECISION IN COMPARABLE & IDENTICAL CASES OF THE CONTEMPORANEOUS PERIOD. AN APPROPRIATE & SUITABLE N ET PROFIT RATE SUBJECT TO FURTHER DEDUCTION OF DEPRECIATION, INTER EST AND SALARY TO ITA NO. 567/AGRA/2012 2 PARTNERS MAY KINDLY BE APPLIED, CIT(A)S ORDER INTE RFERED WITH & RELIEF ALLOWED TO THE APPELLANT. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER , MODIFY, SUBSTITUTE OR DELETE ANY GROUND AT THE TIME OR BEFO RE HEARING OF APPEAL. 2. THE ASSESSEE ALSO FILED APPLICATION FOR ADMISSIO N OF ADDITIONAL GROUND NO. 3, WHICH READS AS UNDER : 3. THAT WHILE MAKING THE ADDITION BY REJECTING OF THE BOOKS U/S. 145(3) OF I.T. ACT BY THE AO AND SUSTAINED BY THE CIT (APPEALS) BY APPLYING THE NET PROFIT RATE AT 6% WITHOUT ALLOW ING OF THE INTEREST, SALARY AND DEPRECIATION TO THE ASSESSEE, THEY HAVE COMPLETELY IGNORED THAT THE AO WHILE MAKING THE ASSESSMENT HAS NOT FOL LOWED THE MANNER AS PROVIDED U/S. 144 WHILE INVOKING THE PROVISION O F SECTION 145(3), THE PROCEDURE AS PRESCRIBED UNDER THE ACT FOR COMPL ETING OF THE ASSESSMENT BY INVOKING THE PROVISIONS OF SECTION 14 5(3) IS MANDATORY TO BE FOLLOWED BY THE AO, IN ABSENCE OF WHICH THE A SSESSMENT COMPLETED IS BAD IN LAW, ADDITION MADE ON THIS SCOR E AND SUSTAINED BY THE CIT(APPEALS) ARE LIABLE TO BE DELETED. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED RETURN OF INCOME DECLARING INCOME OF RS.19,20,210/-. THE ASSESSEE IS A PARTNERSHIP FIRM AND EARNED INCOME FROM CIVIL CONSTRUCTION ON CONTRACT BASIS FO R CONTRACTS RECEIVED FROM GOVERNMENT AND SEMI-GOVERNMENT DEPARTMENTS. THE ASS ESSEE MAINTAINED MERCANTILE SYSTEM OF ACCOUNTING. DURING THE YEAR IT HAS ADMITTED A SUM OF RS.13,53,83,530/- IN THE PROFIT AND LOSS ACCOUNT TO WARDS CONTRACT RECEIPTS. THE AO ON CONSIDERATION OF THE EXPENDITURE FOUND THAT MAJO RITY OF THE EXPENSES ARE MADE IN CASH AND CERTAIN VOUCHERS WERE PRODUCED, BUT THE SAME WERE NOT AMENABLE FOR ITA NO. 567/AGRA/2012 3 VERIFICATION AND NOT SUPPORTED BY ANY EVIDENCE. THE AO CONSIDERING THE DEFECTS IN THE VOUCHERS OF THE EXPENSES, REJECTED THE BOOK RES ULTS AND APPLIED PROFIT RATE OF 12.5% ON GROSS RECEIPTS SUBJECT TO ALLOWING DEDUCTI ON U/S. 40(B) AND DEPRECIATION AND COMPUTED THE INCOME OF ASSESSEE AT RS.1,32,23,5 61/-. THE ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A) ON SEVERAL GROUNDS . THE WRITTEN SUBMISSION OF THE ASSESSEE IS INCORPORATED IN THE APPELLATE ORDER, IN WHICH THE ASSESSEE MAINLY EXPLAINED THAT HE MAINTAINED COMPLETE BOOKS, WHICH ARE AUDITED AND COMPLETE DETAILS INCLUDING BANK ACCOUNT, TDS AND PAYMENTS MA DE TO SUB-CONTRACTORS ALONG WITH BILLS AND VOUCHERS WERE FURNISHED. THEREFORE, REJECTION OF BOOKS OF ACCOUNT IS NOT JUSTIFIED. SINCE THE ASSESSEE HAS TO WORK IN DI FFERENT AND FAR OFF PLACES, THEREFORE, IN ITS URGENCY, THE WORKS HAD TO BE COMP LETED WITHIN THE SET TIME FRAME AND IT IS NOT POSSIBLE TO MAINTAIN ALL THE BILLS AN D VOUCHERS OF CIVIL CONSTRUCTION. THE ASSESSEE FILED COMPARATIVE CASES TO SHOW THAT P ROFIT RATE APPLIED @ 12.5% IS UNJUSTIFIED. THE LD. CIT(A), AS FAR AS THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS IS CONCERNED, CONFIRMED THE ORDER OF THE AO BECAUSE TH E ASSESSEE COULD NOT PRODUCE SOME OF THE VOUCHERS FOR EXPENSES. HOWEVER, CONSIDE RING THE ORDERS PASSED BY THE AO IN VARIOUS OTHER COMPARABLE CASES, IN WHICH PROF IT RATE OF 6% OR LESSER HAS BEEN ACCEPTED IN SIMILAR TYPE OF BUSINESS, DIRECTED THE AO TO APPLY 6% PROFIT ON THE GROSS RECEIPTS AND CONFIRMED THE ADDITION OF RS .62,02,802/- AND THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. ITA NO. 567/AGRA/2012 4 4. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND SUBMITTED THAT THE AO HAS NOT FOLLOWED THE P ROCEDURE PROVIDED U/S. 144 OF THE IT ACT FOR ESTIMATING THE INCOME. THEREFORE, RE JECTION OF BOOK RESULTS IS UNJUSTIFIED. HE HAS SUBMITTED THAT THE LD. CIT(A) S HOULD HAVE ALLOWED THE DEDUCTION U/S. 40(B) AND DEPRECIATION AS WAS ALLOWE D BY THE AO AND FILED COMPARATIVE CHART OF HISTORY OF THE ASSESSEE TO SHO W THAT THE ADDITION IS UNJUSTIFIED. HE HAS RELIED UPON THE DECISION OF M.P. HIGH COURT IN THE CASE OF DINA NATH DUBEY VS. CIT, 160 ITR 1, IN WHICH IT WAS HELD THAT APPLICATION OF PROFIT RATE APPLIED AS PER EARLIER YEARS BASIS EVEN IF BOOKS AR E REJECTED IS A QUESTION OF FACT. HE HAS ALSO RELIED UPON THE DECISION OF HONBLE ALLAHA BAD HIGH COURT IN THE CASE OF DELTA ENGINEERING CO. (P) LTD. VS. CIT, 186 ITR 383 , IN WHICH IT WAS HELD THAT EVEN AFTER REJECTION OF THE BOOKS OF ACCOUNT WHEN E STIMATE OF INCOME IS MADE ON THE BASIS OF MATERIAL AVAILABLE AND PAST ASSESSMENT S, NO QUESTION OF LAW ARISES. HE HAS ALSO RELIED UPON OTHER DECISION OF ITAT, AGRA B ENCH IN THE CASE OF OSHO ASSOCIATES VS. ACIT (PB-4) ON THE PROPOSITION THAT REASONABLE PROFIT RATE HAS TO BE ESTIMATED. 5. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SPECIFIC DEFECTS HAVE BEEN POINT ED OUT IN MAINTENANCE OF ITA NO. 567/AGRA/2012 5 VOUCHERS AND BOOKS OF ACCOUNTS AND, THEREFORE, PROF IT RATE OF 6% APPLIED BY THE LD. CIT(A) IS REASONABLE. THE LD. COUNSEL FOR THE ASSES SEE IN FURTHER SUBMISSIONS SUBMITTED THAT IN CASE APPROPRIATE AND REASONABLE N ET PROFIT RATE IS APPLIED, HE WOULD NOT CLAIM DEPRECIATION, INTEREST AND SALARY T O THE PARTNERS. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IN ASSESSMENT YEAR UNDER APPEA L, I.E., 2009-10 HAS SHOWN PROFIT RATE OF 1.53% AFTER DEDUCTION OF INTEREST AN D SALARY PAID TO THE PARTNERS. IN PRECEDING ASSESSMENT YEARS 2007-08 AND 2008-09, THE ASSESSEE HAS DECLARED PROFIT RATE OF 0.62% AND 1.73%. THE AO HAS ALLOWED DEDUCTI ON U/S. 40(B) AND DEPRECIATION IN A SUM OF RS.8,10,776/-, RS.13,67,63 8/- AND RS.15,20,966/- (TOTAL RS.36,99,380/-) WHILE COMPUTING THE INCOME OF ASSES SEE BY APPLYING PROFIT RATE OF 12.5%. THE LD. CIT(A) RIGHTLY CONSIDERING THE COMPA RABLE CASES OF VARIOUS OTHER ASSESSEES IN WHICH THE AO HAS APPLIED PROFIT RATE O F 6% IN SIMILAR CIRCUMSTANCES, CORRECTLY FOUND THAT THE PROFIT RATE APPLIED BY THE AO WAS HIGHLY EXCESSIVE AND UNREASONABLE. SIMILARLY, THE AO HAS POINTED OUT SPE CIFIC DEFECTS IN MAINTENANCE OF VOUCHERS OF EXPENSES, THEREFORE, IT IS CLEAR THAT T HE ASSESSEE HAS INFLATED THE EXPENSES. THEREFORE, THE REJECTION OF BOOKS OF ACCO UNT IS JUSTIFIED IN THE MATTER AND FOR REJECTING THE BOOKS OF ACCOUNT, THE AO HAS INVO KED THE PROVISIONS OF SECTION 145(3) OF THE IT ACT. THEREFORE, THERE IS NO NEED T O TAKE UP ALL OTHER PROVISIONS OF ITA NO. 567/AGRA/2012 6 LAW. THEREFORE, WE DO NOT FIND ANY REASON TO ADMIT THE ADDITIONAL GROUND OF APPEAL. HOWEVER, THE QUESTION IS LEFT AS TO WHAT REASONABLE PROFIT HAS TO BE ESTIMATED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSE L FOR THE ASSESSEE CLEARLY STATED THAT IN CASE REASONABLE NET PROFIT RATE IS APPLIED, HE WOULD NOT CLAIM FURTHER DEDUCTION U/S. 40(B) AND DEPRECIATION ETC. CONSIDER ING THE HISTORY OF THE ASSESSEE AS NOTED ABOVE, WE ARE OF THE VIEW THAT IT WOULD BE REASONABLE AND PROPER TO APPLY THE NET PROFIT RATE OF 3% AGAINST ADMITTED RECEIPTS FOR THE PURPOSE OF COMPUTING THE BUSINESS INCOME OF THE ASSESSEE AS AGAINST 6% PROFI T RATE APPLIED BY THE LD. CIT(A) WITHOUT GIVING FURTHER DEDUCTION TO THE ASSESSEE. W E, THEREFORE, MODIFY THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE AO TO APPLY NET PROFIT RATE OF 3% AGAINST ADMITTED RECEIPT OF THE ASSESSEE AND PROFIT WOULD B E ESTIMATED AT RS.40,61,505/- AND AFTER DEDUCTING INCOME DECLARED BY THE ASSESSEE AT RS.19,20,210/-, THE ADDITION WOULD BE MAINTAINED IN A SUM OF RS.21,41,295/-. WHI LE TAKING THIS FIGURE, DEDUCTION CLAIMED BY THE ASSESSEE OF DEPRECIATION, SALARY PAID TO THE PARTNERS AND INTEREST ON CAPITAL SHALL BE TAKEN CARE OF TO WHICH PROPOSITION THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO AGREED. WE MAY NOTE HERE THAT LES SER NET PROFIT RATE IS APPLIED IN THIS CASE FOR COMPUTING BUSINESS INCOME CONSIDERING THE EARLIER HISTORY OF ASSESSEE AND OBJECTIONS OF THE AO FOR INFLATING EXPENSES AND THAT THE ASSESSEE EARNED INCOME MAINLY FROM GOVERNMENT AND SEMI-GOVERNMENT W HERE PROFIT MARGIN IS ALWAYS LESSER. IN VIEW OF THE ABOVE, FINAL ADDITION IS MAINTAINED IN A SUM OF ITA NO. 567/AGRA/2012 7 RS.21,41,295/- AS AGAINST ADDITION CONFIRMED BY THE LD. CIT(A) IN A SUM OF RS.62,02,802/-. AS A RESULT, THE APPEAL OF THE ASSE SSEE DESERVES TO BE PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY