Accurate Electrical Co, V. Jt.CIT,

ITA 579/PUN/2010

• Counselvise Citation: 57924514 RSA 2010
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-05-2012
• Assessment Year: misc
• Appeal Filed On: 03-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MISHRA
• Keywords: Gross profit estimation
• Section: 40A(3); 143(3); 194C; 145; 144

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 579/PN/10 (ASSTT. YEAR: 2006-07) M/S ACCURATE ELECTRICAL CO. .. APPELLANT A-1, PARANJAPE HOUSING SOCIETY, MADHAVNAGAR ROAD, SANGLI PAN AADFA0815A VS. JT. COMMISSIONER OF INCOME-TAX, .. RESPONDENT RANGE-2, SANGLI APPELLANT BY : SHRI M K KULKARNI RESPONDENT BY : SHRI ALOK MISHRA DATE OF HEARING : 18.05.20 12 DATE OF PRONOUNCEMENT : 25.05 .2012 ORDER PER G.S. PANNU, A.M .: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.3.2009 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPE ALS), KOLHAPUR, WHICH IN TURN, HAS ARISEN FROM THE ORDER DATED 26.12. 2008 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED MULTIPLE GROU NDS OF APPEAL. HOWEVER, ESSENTIALLY THE APPEAL HAS BEEN PROSECUTED ON T WO ISSUES RELATING TO (I) INVOKING OF SECTION 145(3) OF THE ACT AND REJECTIN G THE BOOK RESULTS AND MAKING AN ADDITION OF RS 10,80,758/- ON THIS COUNT, AND (II) INVOKING OF SECTION 40(A)(IA) OF THE ACT AND TO MAKE A DISALLOWANCE OF RS 9 ,05,772/- FOR NON- DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE ACT. THE OTHER GROUNDS RAISED BY THE ASSESSEE, NAMELY, GROUND NOS. (1) AND (2) RELATING TO SELECTION OF THE ASSESSMENT FOR SCRUTINY AS PER CBDT INSTRUCTIONS, GR OUND NO. 4 RELATING TO DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT HAVE NOT BEEN PRESSED AT THE TIME OF HEARING AND ARE ACCORDINGLY DISMISSED. SIMILARLY , GROUND NOS. (6), (7), (8) AND (9) BEING GENERAL IN NATURE DO NOT REQUIRE ANY ADJUDICATION AND ARE ACCORDINGLY DISMISSED. 3. WE MAY FIRST TAKE UP FOR CONSIDERATION THE DISPUTE RELATING TO THE ADDITION OF RS 10,80,758/- ON ACCOUNT OF LOW GROSS PROFI T AFTER REJECTION OF THE BOOK RESULTS BY INVOKING SECTION 145(3) OF THE ACT. IN B RIEF, THE FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF ELECTRICAL EQUIPMENT ERECTION AND CONSTRUCTION CONTRACTS. FOR THE YEA R UNDER CONSIDERATION, THE ASSESSEE FILED A RETURN OF INCOME DECLA RING A TOTAL INCOME OF RS 15,79,560/-. THE RETURN OF INCOME SO FILED WAS ACCOMP ANIED BY THE AUDITED ACCOUNTS, PRESCRIBED AUDIT REPORT UNDER SECTION 44AB OF T HE ACT, ETC. THE SAID RETURN WAS SUBJECT TO A SCRUTINY ASSESSMENT IN THE COURSE OF W HICH THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE REAS ONS FOR LOW GROSS PROFIT VIS--VIS THE NET PROFIT DURING THE YEAR IN COM PARISON TO THE EARLIER ASSESSMENT YEARS OF 2003-04, 2004-05 AND 2005-06. THE ASS ESSEE EXPLAINED THE REASONS WHICH WERE TO THE EFFECT THAT IN THIS YEAR A NEW ACTIVITY OF SUPPLY OF MATERIALS WAS CARRIED OUT WHICH WAS HITHERTO NOT DONE IN THE PAST; THAT UNLIKE THE PAST, IN THIS YEAR ASSESSEE HAD EARNED 50% OF THE TO TAL RECEIPTS FROM SUB- CONTRACTING BUSINESS WHERE THE PROFIT MARGIN IS LOWER; T HAT IN THIS YEAR THE CONTRACTS EXECUTED WERE OF PRIVATE COMPANIES WHEREAS IN TH E PAST YEARS IT WAS OF GOVERNMENT UNDERTAKINGS AND THE PROFIT MARGIN I N THE CASE OF PRIVATE SECTOR CONTRACTS WAS LOWER; AND, THAT GROSS TURNOVER IN T HIS YEAR HAD DOUBLED AND, HENCE LOWER PROFIT MARGIN. THE ASSESSING OFFICER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND FOUND IN PARTICULAR THAT TH E ASSESSEE HAD INCURRED SITE EXPENSES OF RS 51,13,893/-, WHICH WERE NOT AT ALL INCURRED IN ANY OF THE EARLIER ASSESSMENT YEARS AND FURTHER THAT THE L ABOUR PAYMENTS OF RS 62,62,166/- SHOWED AN ABNORMAL INCREASE TO 28.97% A S COMPARED TO 14.92% AND 20.23% IN ASSESSMENT YEARS 2003-04 AND 2004-05 RESPE CTIVELY. IT WAS EXPLAINED THAT SITE EXPENDITURE WAS INCURRED IN THIS YE AR AS THE ASSESSEE HAD EXECUTED ELECTRICAL WORK OF WINDMILL AT BRAMHANWEL, DH ULIA DISTRICT, WHICH WAS A REMOTE PLACE IN A HILLY AND FOREST AREA. AS THE LA BOUR AND SUPERVISING STAFF DEPUTED TO THIS AREA WAS PROVIDED WITH ALL FACILITIES, THE EXPENDITURE INCURRED WAS ON A HIGHER SIDE AND THAT IN ANY CASE IN THE PAST Y EARS NO SUCH SITE WORK WAS UNDERTAKEN. THE ASSESSEE ALSO EXPLAINED THAT THE LABOU R PAYMENT WAS ON A HIGHER SIDE ON ACCOUNT OF THE NATURE OF WORK CARRIED O UT IN THIS YEAR. THE ASSESSING OFFICER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND FOUND THAT THE SITE EXPENSES OF RS 51,13,893/- WERE SUPPORTED BY ON LY SELF-MADE VOUCHERS AND WAS ALSO NOT SATISFIED WITH THE EXPLANATI ON WITH REGARD TO THE ABNORMALLY HIGH LABOUR EXPENSES INCURRED. CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT TH E BOOK RESULTS WERE REQUIRED TO BE REJECTED UNDER SECTION 145(3) OF T HE ACT, AS THERE WAS NON-MAINTENANCE OF PROPER ACCOUNT BOOKS, EVIDENCES/DOCUME NTS COULD NOT BE FURNISHED IN RESPECT OF VARIOUS EXPENSES ON THE GROUND TH AT DUE TO FLOOD, PAPERS WERE NOT AVAILABLE AND FURTHER HAVING REGARD TO UNVERIFIABILITY OF LABOUR EXPENSES AS WELL AS THE SITE EXPENSES INCURRED IN THIS YE AR. FOR ALL THESE REASONS, HE THEREFORE DEEMED IT FIT TO ESTIMATE INCOME BY ADOPTING AN ADDITIONAL GROSS PROFIT AT 5% OF THE CONTRACT RECEIPTS O F RS 2,16,15,157/- WHICH CAME TO RS 10,80,758/-. THIS WAS IN ADDITION TO GROSS PRO FIT PERCENTAGE OF 12.63% DECLARED BY THE ASSESSEE. ACCORDINGLY UPON REJECTION OF THE BOOK RESULTS, THE ADDITION OF RS 10,87,758/- WAS THUS MADE. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). THE COMMISSIONER OF INCOME-TAX (AP PEALS) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER OF REJECTING THE BOO K RESULTS. IN PARTICULAR, THE FOLLOWING DISCUSSION IN THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS WORTHY OF NOTICE: IN THE AUDIT REPORT, THE AUDITORS MADE VARIOUS QUA LIFICATIONS WHICH HAVE A BEARING ON THE INCOME OF THE APPELLANT, E.G. (I) WORK-IN-PROGR ESS AT THE END OF THE YEAR WAS NOT PHYSICALLY VERIFIED BY THEM, (II) FOR EXPENSES LIKE DRAFT COMMISSION, MISCELLANEOUS EXPENSES, TRANSPORTATION, TRAVELLING, SITE EXPENSES , SALARY, HAMALI, OFFICE EXPENSES, SITE ENGINEER PAYMENT, VEHICLE REPAIRS, ETC ONLY HO ME VOUCHERS WERE ON RECORD, (III) PROVISION AS ON 31.3.2006 OF SITE EXPENSE ND LABOUR CHARGES PAYABLE IS MADE ON AD HOC BASIS, (IV) PERSONAL EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT IN RESPECT OF MAINTENANCE OF VEHICLE AND PETROL CANNOT BE FOUND O UT. CONSIDERING ALL THESE FACTS, THE ACTION OF THE AO IN EJECTING THE BOOKS OF ACCOU NT AND ESTIMATING THE GROSS PROFIT CANNOT BE FOUND FAULT WITH. THEREFORE, ALL THE GROU NDS OF APPEAL RELATING TO THIS ISSUE ARE DISMISSED. 5 AGAINST THE AFORESAID ACTION, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT BOTH THE LOWER AUTHORITIES HAVE UNJUSTLY REJECTED THE BOOK RESULTS BY INVOKING SECTION 145(3) OF THE ACT. IT WAS SUBMITTED THAT THE ASSESS EE HAD UNDERTAKEN THE CONTRACTS IN THE YEAR UNDER CONSIDERATION WHICH WERE NOT SIMILAR TO THE CONTRACTS EXECUTED IN THE EARLIER YEARS. THE SAID EXPLAN ATION HAS BEEN WRONGLY REJECTED SO AS TO HOLD THE BOOK RESULTS AS UNRELIABLE. NOTWITHSTANDING THE AFORESAID, THE LEARNED COUNSEL FURTHER POINTED OUT TH AT THE ADDITION MADE BY THE LOWER AUTHORITIES IS QUITE EXCESSIVE, INASMUCH AS EVEN IF THE INCOME IS TO BE ESTIMATED AFTER REJECTION OF BOOKS OF ACCOUNT, THE ESTI MATION IS TO BE MADE ONLY OF THE NET INCOME AND NOT THE GROSS PROFIT AS DONE BY THE ASSESSING OFFICER. IN THIS MANNER, THE ORDERS OF THE AUTHORITIE S BELOW ARE SOUGHT TO BE ASSAILED. 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE, IN PARTICULAR THE PORTION OF THE ORDER OF THE COMMISSI ONER OF INCOME-TAX (APPEALS), WHICH WE HAVE EXTRACTED ABOVE. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. SECT ION 145(3) OF THE ACT EMPOWERS AN ASSESSING OFFICER TO MAKE AN ASSESSMENT T O THE BEST OF HIS JUDGMENT AS PROVIDED IN SECTION 144 OF THE ACT, IF HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OF SECTI ON 145 OR THE ACCOUNTING STANDARD NOTIFIED IN SUB-SECTION (2) OF SECTIO N 145 HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IN THIS CASE, OSTENSI BLY THE PROVISIONS OF SECTION 145(3) HAVE BEEN INVOKED BY THE ASSESSING OFFICER ON NOT BEING SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE ACC OUNTS OF THE ASSESSEE. THE SAID ACTION HAS SINCE BEEN UPHELD BY THE COMM ISSIONER OF INCOME-TAX (APPEALS). THE PRIMARY REASON WEIGHING WITH THE ASSESSING OFFICER TO HOLD THE BOOK RESULTS AS UNRELIABLE IS ON ACCOUNT OF I NCURRENCE OF SITE EXPENSES OF RS 51,13,893/- WHICH WAS UNVERIFIABLE AS IT W AS ENTIRELY BASED ON SELF-MADE VOUCHERS. SECONDLY, THE LABOUR PAYMENTS OF RS 62,62,166/- WAS ALSO FOUND ABNORMALLY INCREASED TO 28.97% IN COMPARISON TO 14.92% AND 20.23% INCURRED IN ASSESSMENT YEAR 2003-04 AND 2004-05 RESPECTIVELY. WE FIND THAT APART FROM THE AFORESAID, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS FOUND CERTAIN DEFICIENCIES, WHICH PORTION WE HAVE AL READY EXTRACTED ABOVE. 9. ON ALL THESE ASPECTS, WE FIND THAT NO CREDIBLE AND CO NVINCING EXPLANATION HAS BEEN RENDERED BY THE ASSESSEE. WHILE TH E ASSESSEE IS JUSTIFIED IN ASSERTING THAT SITE EXPENSES HAVE BEEN INCURR ED PARTICULARLY IN THIS YEAR ON ACCOUNT OF EXECUTION OF A CONTRACT AT A REMOT E PLACE WHICH WAS NOT DONE SO IN THE PAST, YET THE SUBSTANTIATION OF INCURREN CE OF SUCH EXPENDITURE HAS NOT BEEN CARRIED OUT BY THE ASSESSEE EITHER BEFORE T HE ASSESSING OFFICER OR EVEN BEFORE THE COMMISSIONER OF INCOME-TAX (APPEAL S).ADDITIONALLY, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS BROUGHT OUT P OINTS WHICH WE HAVE EXTRACTED ABOVE, WHICH SHOW THAT THERE ARE INFIRMITIES IN THE ACCOUNTS MAINTAINED BY THE ASSESSEE. WE MAY ALSO NOTE HERE THAT IN SO FAR AS THE POINTS BROUGHT OUT BY THE COMMISSIONER OF INCOME-TAX (A PPEALS) IS CONCERNED, THERE IS NO ARGUMENT SET-UP BEFORE US. CONSIDERING ALL THESE, IN OUR VIEW, SECTION 145(3) OF THE ACT HAS BEEN CORRECTLY INVOKED BY T HE REVENUE AUTHORITIES IN THIS CASE. 10. NOW WE MAY COME TO THE QUANTUM OF INCOME DETERMIN ED BY THE ASSESSING OFFICER AFTER REJECTION OF THE BOOK RESULTS. ON T HAT ACCOUNT, WE FIND THAT THE ESTIMATION IS QUITE EXCESSIVE AND UNJUSTIFIED. HAVING REGARD TO THE DISCUSSION IN THE ORDER OF THE ASSESSING OFFICER, WE FIND THAT THE MAIN OBJECTION WAS IN RELATION TO THE EXPENSES INCURRED ON A CCOUNT OF SITE EXPENSES AND LABOUR PAYMENTS. CONSIDERING THE AFORESAID ASPECTS A ND ALSO PAST HISTORY WHEREIN LEVEL OF PROFITS DECLARED BY THE ASSESSEE ARE NOT SO HUGE, WE DEEM IT FIT AND PROPER THAT AN ADDITION OF RS 5,00,000/- WOU LD SUFFICE TO PLUG THE LEAK OF REVENUE, IF ANY, ON THIS ACCOUNT. THEREFORE, TO THAT EXTENT, ASSESSEE SUCCEEDS AND WE ACCORDINGLY SET ASIDE THE ORDER OF THE COMMISSION ER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE B ALANCE ADDITION OF RS 5,80,758/- MADE ON THIS COUNT. THUS, ON THIS COUNT, ASSESSE E PARTLY SUCCEEDS. 11. THE ONLY OTHER GROUND ARGUED BY THE ASSESSEE BEFOR E US RELATES TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER INVOKING SECTION 4 0(A)(IA) OF THE ACT ON THE GROUND THAT DEDUCTION OF EXPENSES ON ACCOUNT OF LABOUR CHARGES, AND TRACTOR RENT HAVE BEEN CLAIMED WITHOUT DEDUCTION O F TAX A SOURCE UNDER SECTION 194C OF THE ACT. ON THIS GROUND, THE PRIMARY PO SITION TAKEN BY THE APPELLANT BEFORE US IS THAT THE ENTIRE EXPENDITURE H AS BEEN ACTUALLY PAID OUT AND, THEREFORE, PROVISIONS OF SECTION 40(A)(IA) ARE INA PPLICABLE. APART THEREFROM, THE LEARNED COUNSEL HAS ALSO POINTED OUT T HAT IN RELATION TO THE EXPENDITURE ON TRACTOR RENT OF RS 4,18,678/-, IT WAS A CASE OF PAYMENT OF LEASE RENTAL FOR MACHINERY AND NO TAX WAS LIABLE TO BE DED UCTED UNDER SECTION 194-I OF THE ACT AND IN HIS REGARD, RELIANCE WAS PLACED ON TH E DECISION OF THE TRIBUNAL IN THE CASE OF 143 TTJ 415 (DEL.) FURTHER, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS V. ADDL. CIT 70 DTR (VISAKHA)(SB) (TRIB) 81. IT IS SOUGHT TO BE POINTED OUT THAT THE ENTIRE EXPENDITURE IN QU ESTION HAS BEEN ACTUALLY PAID OUT AND THEREFORE, EVEN IF THERE WAS A DEFAULT IN DE DUCTION OF TAX AT SOURCE UNDER SECTION 194C, DISALLOWANCE UNDER SECTION 40(A)(IA) CANNOT BE MADE HAVING REGARD TO THE RATIO OF THE JUDGMENT OF THE S PECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) 12. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 13. HAVING CONSIDERED THE RIVAL SUBMISSIONS ON THIS ASPECT, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER FOR A DECISION AFRESH. IN OUR VIEW, THE REMAND IS NECESSITATED IN VIEW OF THE SUBSEQUENT DECISION OF THE SPECIAL BENCH IN THE CASE OF ME RILYN SHIPPING & TRANSPORTS (SUPRA) WHEREBY IT HAS BEEN LAID DOWN THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) SHALL BE LIMITED TO ONLY SUCH EXPENDIT URE WHICH IS FOUND PAYABLE AS ON 31 ST MARCH OF THE YEAR AND NOT TO EXPENDITURE WHICH HAS OTHERWISE BEEN ACTUALLY PAID DURING THE YEAR ITSELF. T HE SAID PROPOSITION LAID DOWN BY THE SPECIAL BENCH WAS NOT AVAILABLE AT THE TIM E OF DETERMINATION OF THE ASSESSMENT BY THE ASSESSING OFFICER AND WE, THEREFORE, DEEM IT FIT AND PROPER THAT THE SAME BE CONSIDERED BY THE ASSESSING AUTH ORITY TO EVALUATE THE CORRECT TAX LIABILITY OF THE ASSESSEE. NEEDLESS TO MENTION , IN THE REMAND PROCEEDINGS, THE ASSESSEE SHALL ALSO BE ELIGIBLE TO SUBSTA NTIATE ITS CLAIM BEFORE THE ASSESSING AUTHORITY THAT IT WAS NOT LIABLE T O DEDUCT TAX AT SOURCE ON ANY OF THE IMPUGNED PAYMENTS SO AS TO ESCAPE FROM THE RI GORS OF SECTION 40(A)(IA) OF THE ACT. WE, THEREFORE, SET ASIDE THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASPECT AND RESTORE THE MAT TER BACK TO THE FILE OF THE ASSESSING OFFICER TO BE ADJUDICATED AFRESH AS PER LAW. AS A RESULT, ON THIS ASPECT, THE ASSESSEE PARTLY SUCCEEDS. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF MAY, 2012. SD/- SD/- (I C SUDHIR) (G.S . PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED 25 TH MAY, 2012 B COPY TO:- 1) ACCURATE ELECTRICAL CO. SANGLI 2) JT.CIT R-2 SANGLI 3) THE CIT (A) KOLHAPUR 4) CIT KOLHAPUR 4) DR, B BENCH, I.T.A.T., PUNE. 5) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE