ACIT, Jaipur V. M/S GUPTA K.N. CONSTRUCTION, Jaipur

ITA 583/JPR/2012

• Counselvise Citation: 58323114 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 08-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: PREM LATA
• Keywords: Rejection of books of accounts; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JAIPUR BENCH JAIPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 524/JP/2012 (A.Y. 2009-10) M/S. GUPTA K.N. CONSTRUCTION CO., VS. ACIT, CIRCLE -7, A-34,GANESH NAGAR, SHYOPUR ROAD, JAIPUR. SANGANER, JAIPUR. PAN NO. AADFG4615N (APPELLANT) (RESPONDENT) ITA NO. 583/JP/2012 (A.Y. 2009-10) ACIT, CIRCLE-7, VS. M/S. GUPTA K.N. CONSTRUCTI ON, JAIPUR. A-34,GANESH NAGAR, SHYOPUR ROAD, SANGANER, JAIPUR. PAN NO. AADF G 4615 N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.L. JAIN & MS. PREMLATA DEPARTMENT BY : SHRI D.C. SHARMA - D.R. DATE OF HEARING : 28/01/2014. DATE OF PRONOUNCEMENT : 30/01/2014. 2 O R D E R PER N.K.SAINI, A.M THESE TWO CROSS APPEALS BY THE ASSESSEE AND THE DE PARTMENT ARE DIRECTED AGAINST THE ORDER DATED 23/03/2012 OF CIT(A)-III, JAIPUR. THE GROUNDS RAISED IN THE APPEAL OF THE AS SESSEE READS AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN LAW IN CONFIRMING THE A SSESSMENT ORDER U/S 143(3) WITHOUT PROPER AND VALID SERVICE O F NOTICE U/S 143(3) WITHIN THE PRESCRIBED TIME AND THEREFORE THE ASSESSMENT ORDER SO PASSED IS BAD IN LAW AND WITHOU T JURISDICTION. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS FURTHER GROSSLY ERRED IN CONFIRMING THE PROVISION OF SECTION 145(3) WITHOUT ANY JUSTIFICATION. THE ASSE SSEE HAS MAINTAINED REGULAR AND PROPER BOOKS OF ACCOUNT DULY AUDITED BY CHARTERED ACCOUNTANT AND EXPENSE ARE VOUCHED AND VERIFIABLE. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS FURTHER GROSSLY ERRED IN CONFIRMING ADHO C ADDITION OF RS. 10 LAC WITHOUT PLACING RELIANCE ON THE PAST HISTORY OF THE CASE. THE REVENUE/ITAT HAVE ESTIMATED INCOME O N THE BASIS OF NET PROFIT % THEORY SINCE LAST MANY YEARS. YEAR TURNOVER NP DECLARED % OF NP DECLARED % APPLIED IN ASSTT. DONE BY AO APPEAL EFFECT 2009-10 123257523 6629223 5.38 9.60 6.19 BY ADHOC A D. OF RS. 10 LAC 2008-09 106227305 5338548 5.02 5.02 ACCEPTED WITHOU T SCRUTINY 2007-08 48834743 2489297 5.10 5.10 ACCEPTED WITHOUT SCRUTINY 2006 - 07 21090878 1056688 5.01 6.00 5% BY ITAT 3 2005-06 12632146 471641 3.73 6.00 5% BY ITAT 2004 - 05 24003129 852775 3.55 8.00 5% BY ITAT THE CASE OF THE ASSESSEE IS IDENTICAL WITH THE PAST AND THEREFORE PREVIOUS YEARS NET PROFIT RATE SHOULD HAVE BEEN APP LIED INSTEAD OF ADDITION HOCK ADDITION. THAT THE APPELLANT RESERVES HIS RIGHT TO ADD, AMEND OR ALTER THE GROUND OF APPEAL ON OR BEFORE THE DATE OF APPEAL HE ARING. THE GROUNDS RAISED IN THE DEPARTMENTAL APPEAL READS AS UNDER:- 1. THE ORDER OF THE CIT(A) IS PERVERSE IN RESTRICT ING THE SPECIFIC DISALLOWANCE OF EXPENSES TO ON ADHOC AMOUNT OF RS. 10 LAKHS, EVEN WHILE UPHOLDING THE APPLICABILITY OF SECTION 1 45(3) OF THE I.T. ACT, 1961. 2. THE CIT(A)S ORDER IS PERVERSE AS SPECIFIC FACTS IN THIS CASE HAVE BEEN IGNORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER AMEND, WITHDRAW OR INSERT ANY GROUND OR GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. IN BOTH THE APPEALS, THE COMMON ISSUE AGITATED REL ATES TO THE TRADING ADDITION. THE DEPARTMENT IS IN APPEAL AGAINST THE RELIEF ALLOWED TO THE ASSESSEE WHILE THE ASSESSEE I S AGGRIEVED ON ACCOUNT OF ADDITION SUSTAINED BY THE CIT(A). 3 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE I S A CIVIL CONTRACTOR AND COMPLETED THE TOTAL CONTRACT WORK OF RS. 12,32,57,523/- ON WHICH NET PROFIT RATE OF 5.38% HAD BEEN 4 DECLARED, WHICH WAS SUBJECT TO INTEREST AND REMUNER ATION TO THE PARTNERS AS COMPARED TO RS. 10,62,27,305/- CONTRACT RECEIPTS AND NET PROFIT RATE OF RS. 5.02% FOR THE A.Y. 2008-09. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THE F OLLOWING DEFECTS IN THE BOOKS OF ACCOUNTS:- A. THE ASSESSEE HAD NOT BEEN MAINTAINING STOCK REG ISTER. B. PARTY WISE PURCHASE DETAILS WERE NOT AVAILABLE. PAN-PURCHASE DETAILS OF RS. 7,50,39,180/- COULD NOT BE VERIFIED AS THE DETAILS WERE NOT AVAILABLE. MOREOVER, THE ASSESSEE WAS NOT ABLE TO PRODUCE PURCHASE BILLS FOR ALL THE PURCHASE S. C. FURTHER, NO LABOUR PAYMENT REGISTER FOR RS. 3,72 ,48,425/- HAD BEEN MAINTAINED AND NO VOUCHERS WERE AVAILABLE FOR THESE CASH PAYMENTS AS WELL. D. THE HEAD OF OTHER DEDUCTION OF RS. 12,90,245/- CONSISTED OF ROYALTY AND SALES TAX PAYMENT OUT OF WHICH ROYALTY PAYMENTS OF RS. 2,68,219/- WERE NOT SUPORTED BY REC EIPTS. E. MOREOVER, FOR PRINTING AND STATIONERY EXPENSES O F RS. 22,115/-, VEHICLE EXPENSES OF RS. 69,850/-, ACCOUNT ING CHARGES OF RS. 36,000/-, WATER CHARGES OF RS. 49,25 2/-, WELFARE EXPENSES OF RS. 16,245/- AND VEHICLE INSURA NCE EXPENSES OF RS. 17,190/- NO BILLS AND VOUCHERS WERE AVAILABLE. F. ALSO, THE ASSESSEE WAS ASKED TO PRODUCE THE SALA RY SHEET SHOWING PAYMENTS MADE TO EACH EMPLOYEE SO THAT THE TDS LIABILITY COULD BE ASCERTAINED. THE ASSESSEE DID N OT PRODUCE THE SALARY SHEET FOR SALARY PAYMENTS OF RS. 9,48,00 0/- 5 ON THE BASIS OF THE AFORESAID DEFECTS, THE AO CAME TO THE CONCLUSION THAT THE BOOKS OF ACCOUNTS DID NOT SUGGE ST THE CORRECT STATE OF PROFIT/INCOME OF THE ASSESSEE. HE, THEREF ORE, REJECTED THE BOOKS OF ACCOUNTS AND MADE DISALLOWANCE @ 20% O UT OF THE PURCHASES, SALARY, VEHICLE CHARGES, WATER CHARGES, WELFARE EXPENSES, VEHICLE INSURANCE @ 10% OUT OF LABOUR CHA RGES AND ALSO DISALLOWED A SUM OF RS. 2,68,219/- ON ACCOUNT OF NO N-PRODUCTION OF BILLS. ACCORDINGLY, THE ADDITION OF RS. 1,17,75, 202/- WAS MADE TO THE NET PROFIT OF RS.26,34,532/-, WHICH DETERMIN ES THE NET PROFIT RATE OF 13.7%. ACCORDINGLY THE NET PROFIT W AS INCREASED TO RS.1,44,09,734/-. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A), WHO UPHELD THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT 1961 (HEREINAFTER REFERRED TO AS ACT, IN SHORT) ON THE BASIS OF THE ORDER DATED 31 /05/2011 OF ITAT, JAIPUR BENCH IN THE CASE OF M/S. CHOUDHARY & BROTHERS IN I.T.A.NO. 1177/JP/2010 FOR THE A.Y. 2007-08. THE C ONTENTION OF THE ASSESSEE BEFORE THE LD. CIT(A) WAS THAT IN CASE THE BOOKS OF ACCOUNTS ARE REJECTED BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT, THEN THE RELEVANT PAST HISTORY OF THE A SSESSEE WOULD BE 6 ONE OF THE MOST RELIABLE GUIDELINE IN THIS REGARD. RELIANCE WAS PLACED ON THE FOLLOWING CASE-LAWS:- 1) CIT VS. INANI MARBLES PVT. LTD. [316 ITR 125 (RAJ .)] 2) ACTION ELECTRICALS VS. DCIT [258 ITR 188 (DEL.) ] 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE OBSERVED THAT THE ISSUE UNDER CONSIDERATION HAD ALR EADY BEEN DECIDED BY THE ITAT FOR THE A.Y. 2005-06 & 2006-07, WHEREIN IT HAS BEEN HELD THAT THE APPLICATION OF NET PROFIT RA TE OF 5% ON DECLARED CONTRACT RECEIPTS SUBJECT TO DEDUCTION OF INTEREST AND REMUNERATION TO THE PARTNERS AND DEPRECIATION WOULD BE REASONABLE. HE, THEREFORE, WAS OF THE VIEW THAT PR INCIPALLY, NET PROFIT RATE OF 5% SUBJECT TO THE ABOVE CONDITIONS S HOULD BE APPLIED ON THE CONTRACTUAL RECEIPTS. HE ALSO OBSERVED THAT THE NET PROFIT RATE SHOWN BY THE ASSESSEE AT 5.38% WAS MUCH HIGHER THAN THE NET PROFIT RATE APPROVED BY THE ITAT I.E. 5%, THEREFORE , IN PRINCIPLE NO TRADING ADDITION COULD HAVE BEEN MADE EVEN IF THE B OOKS OF ACCOUNTS WERE REJECTED UNDER SECTION 145(3) OF THE ACT AS STIPULATED BY THE ITAT, JAIPUR BENCH IN THE CASE OF SANJEEV PRAKASHAN (XLI TW 135) (JP). HOWEVER, AT THE SAME TIME, CONSIDERING THE NATURE OF SHORTCOMINGS AS POINTED O UT BY THE AO IN RESPECT OF MAINTENANCE OF BOOKS OF ACCOUNTS ETC., T HE LD. CIT(A) 7 FELT THAT AN ADHOC ADDITION OF RS. 10 LAC WAS REQUI RED TO BE SUSTAINED TO TAKE CARE OF POSSIBLE LEAKAGE OF INCOM E/PROFIT OF THE ASSESSEE. NOW, THE ASSESSEE IS IN APPEAL AGAINST T HE SUSTENANCE OF ADDITION AND THE DEPARTMENT IS IN APPEAL AGAINST TH E RELIEF ALLOWED OUT OF ADDITION MADE BY THE AO. 6. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SU BMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE AO AND REITERATED THE OB SERVATIONS MADE IN THE ASSESSMENT ORDER DATED 09/12/2011. 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT CERTA IN SPECIFIC DEFECTS WERE POINTED OUT BY THE AO WHICH RESULTED I NTO REJECTION OF BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT, THE SAID ACTION OF THE AO WAS UPHELD BY TH E LD. CIT(A). BEFORE US ALSO, NOTHING NEW IS BROUGHT ON RECORD, T HEREFORE WE CONFIRM THE VIEW TAKEN BY THE LD. CIT(A) FOR REJECT ION OF THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT. IN SUCH CIRCUMSTANCES, WHEN THE BOOKS OF ACCOUNTS ARE REJEC TED THE ONLY WAY TO WORKED OUT THE INCOME IS THE ESTIMATION BY C ONSIDERING THE 8 PAST HISTORY OF THE ASSESSEE OR ANY COMPARABLE CASE HAVING SIMILAR FACTS. IN THE INSTANT CASE, THE PROFIT SHOWN BY TH E ASSESSEE AT 5.38% IS HIGHER THAN THE NET PROFIT RATE OF 5% APPR OVED BY THE ITAT IN THE PRECEDING ASSESSMENT YEARS BUT, AT THE SAME TIME, THE AO POINTED OUT CERTAIN SHORTCOMINGS IN THE MAINTENANCE OF BOOKS OF ACCOUNTS ETC. THEREFORE, CERTAIN ADDITION WAS REQU IRED TO TAKE CARE OF POSSIBLE LEAKAGE OF INCOME/PROFIT OF THE AS SESSEE. IN OUR OPINION, THE ADDITION SUSTAINED BY THE LD. CIT(A) A T RS. 10 LAC IS ON HIGHER SIDE. WE, THEREFORE, TO MEET THE ENDS OF JUSTICE AND CONSIDERING THE PECULIAR FACTS OF THIS CASE, DEEM I T APPROPRIATE TO SUSTAIN THE ADDITION OF RS. 5 LAC WHICH WILL TAKE CA RE OF POSSIBLE LEAKAGE OF INCOME/PROFIT OF THE ASSESSEE (IF ANY) O N ACCOUNT OF SHORTCOMINGS POINTED OUT BY THE AO. 8 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMIS SED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 30 TH JANUARY, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH JANUARY, 2014. VR/- 9 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R BY ORDER ASSISTANT REGISTRAR, ITAT, JAIPUR.