Balbir Singh Yadav, Kanpur V. Income Tax Officer- 3(1), Kanpur

ITA 596/LKW/2013

• Counselvise Citation: 59623714 RSA 2013
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 26-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Keywords: Depreciation; Principle of natural justice
• Section: 44AD; 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKN BENCH A : LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA , ACCOUNTANT MEMBER I.T.A. NO. 596 /LKW/201 3 ASSESSMENT YEAR :2005 - 2006 SHRI BALBIR SINGH YADAV, VS. INCOME TAX OFFICER - 3(1), 12/36/8,GWALTOLI, KANPUR. KANPUR. PAN:AACPY1372R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH GARG, ADVOCATE RESPONDENT BY : SHRI ALOK MITRA, D.R. DATE OF HEARING : 12 / 11 /2013 DATE OF PRONOUNCEMENT :18/12/2013 ORDER PER SUNIL KUMAR YADAV: TH IS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE AS UNDER: 1. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN PASSING THE ASSESSMENT EXPARTE, WHICH IS CONTRARY TO FACTS, BAD IN LAW AND THEREFORE, BE SET ASIDE. 2. BECAUSE NO NOTICE UNDER SECTION 143(2) HAVING BEEN SERVED ON THE ASSESSEE WITHIN THE STIPULATED PERIOD AND THE ASSESSEE HAVING RAISED THE OB JECTION, THE ASSESSING 2 OFFICER WAS NOT JUSTIFIED IN FRAMING THE ASSESSMENT EX - PARTE. 3. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT ONLY CONFIRMING THE INCOME ASSESSED AT RS.25,93,960/ - AS AGAINST RETURNED INCOME OF RS.2,75.450/ - BUT ENHANCING THE SAME BY A SUM OF RS.52,00,000/ - WHICH ALL ACTION INCLUDING THAT OF ENHANCEMENT OF INCOME IS CONTRARY TO FACTS, BAD IN LAW, THE ORDER BE QUASHED. 4. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ACCOUNTS OF THE APPELLANT HAVE BEEN TAX AUDITED A ND A COPY OF THE SAME WAS FILED BEFORE THE ASSESSING OFFICER (CONTAINING THE NAME AND ADDRESS OF THE AUDITOR), THE ASSESSING OFFICER COULD HAVE VERIFIED THE BOOKS / DETAILS FROM THE AUDITORS, AUDITING THE ACCOUNT, AS AGAINST DECIDING THE MATTER EX - PARTE. 5. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE, THAT ONCE THE BOOKS OF ACCOUNT HAVE NOT BEEN PRODUCED BY THE ASSESSEE AND A FLAT RATE OF 8% HAS BEEN APPLIED, THEN NO SEPARATE ADDITION SHOULD OUGHT TO HAVE BEEN MADE IN VIEW OF THE DECISION OF THE JURISDICTI ONAL HIGH COURT - 229 ITR 229. 6. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS.25,93,957/ - MADE BY THE AO BY APPLYING THE NET PROFIT RATE OF 8% ESTIMATING THE INCOME, THEN IT CANNOT BE SAID THAT THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED. THE CIT(A) HAS ERRED ON FACTS IN RELYING UPON THE SAME BOOKS AND ENHANCING THE INCOME, WHICH IS TOTALLY UNWARRANTED AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 7. BECAUSE IN ANY CASE AND IN ALL CIRCUMSTANCES OF THE CASE, THE ESTIMA TE OF INCOME AS WELL AS THE ENHANCEMENT OF INCOME IS ALL CONTRARY TO THE PROVISIONS OF LAW AND BE DELETED. 3 8. BECAUSE IN VIEW OF THE PAST HISTORY AND THE SUBSEQUENT ASSESSMENTS FRAMED THEREON, IT CANNOT BE SAID THAT THE RESULTS DECLARED BY THE ASSESSEE AR E NOT IN PARITY AND COMPARABLE, THE ADDITION MADE BY THE AO AND THE INCOME ENHANCED BY THE CIT(A) BE DELETED. 2. THOUGH VARIOUS GROUNDS ARE RAISED BY THE ASSESSEE BUT THEY ALL RELATE TO THE ESTIMATION OF INCOME AT 8% AND OTHER ADDITIONS ON AD HOC BASIS U NDER DIFFERENT HEADS. THE FACTS, IN BRIEF, RELATING TO CONTROVERSIES INVOLVED IN THIS APPEAL, ARE THAT THE RETURN OF INCOME SHOWING AN INCOME OF RS.2,75,450/ - WAS FILED ON 26/09/2005, WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 03/10/2005 WITH A RESULT O F REFUND OF RS.2,28,415/ - . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S143(2) AND 142(1) AND QUESTIONNAIRE WERE ISSUED TO THE ASSESSEE ON SEVERAL OCCASIONS BUT NEITHER THE ASSESSEE NOR HIS LEGAL REPRESENTATIVE CO - OPERATED IN HEARING OF THE CASE. BOOKS OF ACCOUNT ALONG WITH THE RECEIPTS AND PAYMENT VOUCHERS WERE ALSO DEMANDED TO VERIFY THE CORRECTNESS OF THE RETURN. INITIALLY, THE LEARNED COUNSEL FOR THE ASSESSEE APPEARED BUT BOOKS OF ACCOUNT WERE NOT PRODUCED AND ADJOURNMENT WAS SOUGHT . SEVERAL ADJOURNMENTS WERE GRANTED FOR THE PRODUCTION OF BOOKS OF ACCOUNT ALONG WITH THE VOUCHERS IN RESPECT OF EXPENSES, PROFIT & LOSS ACCOUNT BUT THE SAME WERE NOT FURNISHED. ON THE LAST DATE OF HEARING , DESPITE LAST OPPORTUNITY GIVEN TO THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNT , NONE ATTENDED ON BEHALF OF THE ASSE SSEE. THE ASSESSING OFFICER HAD NO OPTION BUT TO COMPLETE EX - PARTE ASSESSMENT U/S 144 OF THE ACT. THE ASSESSING OFFICER ACCORDINGLY ADOPTED THE NET PROFIT RATE OF 8% ON TOTAL RECEIPT SHOWN BY ASSESSEE AT RS.4,32,32,619/ - AGAINST WHICH AN APPEAL WAS FILED BEFORE THE CIT(A) AND THE CIT(A ) AGAIN ASKED THE ASSESSEE SPECIFICALLY TO PRODUCE THE BOOKS OF 4 ACCOUNT ALONG WITH THE BILLS AND VOUCHERS AND BANK STATEMENT BUT DESPITE SEVERAL OPPORTUNITIES NEITHER BOOKS OF ACCOUNT WERE PRODUCED NOR BANK STATEMENT HAVE BEEN ANALYZED FOR SUBSTANTIATING T HE TRANSACTIONS. THE CIT(A) HAS CALLED THE REMAND REPORT FROM THE ASSESSING OFFICER TO VERIFY THE UNSECURED LOAN OF RS.19,56,859/ - , LABOUR CHARGES OF RS.71,23,684, MACHINE HIRE CHARGES OF RS.26,45,201, DIESEL AND PETROL CHARGES OF RS.15,65,24/ - AND SUNDR Y CREDITORS OF RS.24,94,803/ - . BUT THE ASSESSING OFFICER COULD NOT VERIFY THE SAME AS IT WAS STATED BY THE ASSESSEE THAT THE BOOKS OF ACCOUNT ARE DESTROYED IN FLOOD BUT NO PROOF REGARDING THE SAME HAS BEEN PRODUCED BEFORE HIM AND THE ASSESSING OFFICER AGA IN REACHED TO A CONCLUSION THAT THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS FOR SUBSTANTIATING ITS CLAIM. ON THE BASIS OF THE REMAND REPORT, THE CIT(A) HAS CONFIRMED THE PROFIT ESTIMATED BY THE ASSESSING OFFICER AT RS.25,93,957/ - BESIDES HE HAS ALSO EST IMATED DISALLOWANCE AGAINST THE EXPENSES DEBITED UNDER VARIOUS HEADS AND MADE THE ADDITIONS AS UNDER: TRANSACTIONS RECORDED DISALLOWANCE MADE -------------------------- ----------------------- 1. OUT OF LABOUR CHARGES OF RS.71,23,684/ - RS.35 LACS 2. OUT OF MACHINE HIRE CHARGES AT RS.26,45,201/ - RS.5 LACS 3. OUT OF DIESELAND PETROL CHARGES AT RS.15,65,224/ - RS.5 LACS 4. OUT OF SUNDRY CREDITORS OF RS.24,94,803/ - RS.5 LACS 5. OUT OF UNSECURED LOAN OF RS.19,56,859/ - RS.2 LACS 3. AGGRIEVED WITH THE ORDER OF CIT (A), THE ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND PLACED RELIANCE UPON THE COMPARATIVE CHART OF THE TRADING RESULTS OF THE EARLIER YEARS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT IN THE ABSENCE OF BOOKS OF ACCOUNT, THE GROSS PROFIT MAY BE ESTIMATED AND NO OTHER ADDITIONS ARE CALLED FOR. IN SUPPORT OF HIS CONTENTION HE PLACED RELIANCE UPON THE TRIBUNAL ORDER IN THE 5 CASE OF PRAGATI ENGINEERING CORPN. I.T.A. NO.304/LKW/2011, UNIVERSAL CONSTRUCTION I.T.A. NO.289/LKW/2009 AND BAL MUKUND YADAV I.T.A. NO.344/LKW/2012. 4. THE LEARNED D.R., ON THE OTHER HAND, HAS SUBMITTED THAT THE ASSESSEE HAS BEEN GIVEN NUMBER OF OPPORTUNITIES TO PRODUCE THE BOOKS OF ACCOUNT AND TO JUSTIFY THE EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT BUT THE AS SESSEE COULD NOT FILED THE SAME AND HAS TAKEN A PLEA BEFORE THE CIT(A) THAT THE BOOKS OF ACCOUNT WERE LOST BUT NO EVIDENCE WAS PLACED ON R ECORD IN SUPPORT OF THIS STAND, THEREFORE, THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT INTENTIONALLY AND HE CANN OT BE ALLOWED TO TAKE THE BENEFIT OF ITS OWN WRONG. 5. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUS AL OF THE MATERIALS AVAILABLE ON RECORD AND THE JUDGMENTS REFERRED TO BY THE PARTIES, WE FIND THAT IT HAS BEEN REPEATEDLY HELD BY THE TRIBUNAL AS WELL AS THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRAGATI ENGINEERING CORPN. VS. I.T.O. IN APPEAL NO. 11 OF 2012 THAT IN THE ABSENCE OF BOOKS OF ACCOUNT, THE NET PROFIT MAY BE ESTIMATED ON THE GROSS RECEIPTS AND THE ASSESSING OFFICER OUGHT TO HAVE CONSIDERED THE OTHER DOCUMENTS I.E. LIKE THE AUDITORS REPORT. SO FAR AS THE ISSUE OF ESTIMATION OF NET PROFIT RATE IS CONCERNED, WE F I ND THAT IN VARIOUS CASES, DIFFERENT VIEWS ARE TAKEN BY THE TRIBUNAL AND THE ESTIMATION OF PROFIT DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH AND EVERY CASE. IN THE CASE OF CIVIL CONTRACTOR, AS PER PROVISION OF SECTION 44AD, WHERE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION, A S UM EQUAL TO 8% OF THE GROSS RECEIPTS PAID OR PAYABLE BY THE ASSESSEE IN THE PREVIOUS YEAR ON ACCOUNT OF SUCH BUSINESS, SHALL BE DEEMED TO BE THE 6 PROFITS AND GAINS OF THE BUSINESS CHARGEABLE UNDER THE HEADS PROFITS AND GAINS OF THE BUSINESS OR PROFESSION. BUT AS PER PROVISO TO SUB SECTION (1), THE PROVISIONS OF THIS SECTION WOULD NOT APPLY TO THOSE CASES WHERE THE GROSS RECEIPTS PAID OR PAYABLE EXCEEDED AN AMOUNT OF RS.40 LACS. UNDISPUTEDLY, THE GROSS RECEIPTS IN THE INSTANT CASE IS MORE THAN RS.40LACS. TH EREFORE, THE PROVISION OF SECTION 44AD MAY NOT STRICTLY BE APPLIED BUT IN THE ABSENCEOF BOOKS OF ACCOUNT, THE INFERENCE OF THIS PROVISION CAN BE DRAWN. IN THE OTHER CASES REFERRED TO BY THE ASSESSEE, THE NET PROFIT WAS ESTIMATED AT DIFFERENT RATES, THEREF ORE, NO UNIFORM FORMULA CAN BE LAID DOWN TO ESTIMATE THE NET PROFIT RATE ON THE GROSS RECEIPTS IN THE CASE OF ALL CIVIL CONTRACTORS. IT DEPENDS UPON VARIOUS FACTORS. 5.1 IN THE INSTANT CASE, THE ASSESSING OFFICER HAS ESTIMATED NET PROFIT AT 8% AND HAS NOT ALLOWED THE OTHER ELIGIBLE DEDUCTIONSLIKE DEPRECIATION, SALARY TO PARTNERS ANDINTEREST ON PARTNERS CAPITAL. IN THE CASE OF PRAGATI ENGINEERING CORPORATION, THE TRIBUNAL HAS HELD THE RATE OF 5.25% ADOPTED BY THE ASSESSEE AS REASONABLE. SIMILARLY, IN T HE CASE OF UNIVERSAL CONSTRUCTION (SUPRA), THE TRIBUNAL HAS ESTIMATED THE NET PROFIT @5.25% AND THEREAFTER ALLOWED THE DEDUCTION OF DEPRECIATION, INTEREST ON BORROWED CAPITAL. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS ESTIMATED THE NET PROFIT AT 8% W ITHOUT ALLOWING ANY DEDUCTION OF DEPRECIATION OR INTEREST ON BORROWED CAPITAL. IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENT, WE ARE OF THE VIEW THAT WHEN THE BOOKS OF ACCOUNT COULD NOT BE PRODUCED FOR ANY REASON, THE ASSESSING OFFICER CAN REJECT THE BOO KS OF ACCOUNT AND MAKE HIS OWN ESTIMATION OF THE NET PROFIT KEEPING IN VIEW THE NATURE OF BUSINESS ACTIVITIES UNDERTAKEN BY THE ASSESSEE AND ALSO THE PAST RECORD. THE ASSESSEE HAS FILED THE COMPARATIVE CHART OF THE NET PROFIT RATE DECLARED BY 7 IT INDIFFERE NT ASSESSMENT YEARS. IN THE ASSESSMENT YEAR 2010 - 2011, THE ASSESSEE HAS DECLAREDTHE NET PROFIT RATE OF 3.38% BUT ASSESSING OFFICER HAS APPLIED AT 5.92% AGAINST WHICH APPEAL IS PENDING BEFORE THE CIT(A). IN OTHER YEARS, THE NET PROFIT RATE WAS DECLARED BY THE ASSESSEE FROM 1.77% TO 3.38%. EXCEPT IN ASSESSMENT YEAR 2006 - 2007 AND 2010 - 2011, THE DECLARED NET PROFIT RATE WAS ACCEPTED BY THE REVENUE U/S 143(1) OF THE ACT. 5.2 KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PA ST RESULT DECLARED BY THE ASSESSEE, WE ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT BEFORE THE ASSESSING AUTHORITY, THE ASSESSING OFFICER HAS NO OTHER OPTION BUT TO ESTIMATE THE INCOME OF THE ASSESSEE BY APPLYING THE NET PR OFIT RATE BUT WHILE DOING SO HE SHOULD KEEP IN MIND THE OTHER FACTORS AND THE NATURE OF BUSINESS ACTIVITIES UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE HAS FILED A COMPARATIVE CHART OF TRADING RESULTS BUT HE HAS NOT FURNISHED THE DETAILS OF NET PROFIT RATE DECLARED BY THE ASSESSEE EITHER IN THE IMMEDIATELY PRECEDING YEAR OR OTHER PAST YEARS. WHATEVER CHART I S FILED, IT RELATES TO THE ASSESSMENT YEAR 2005 - 06 ONWARDS, WHICH WOULD NOT BE AVAILABLE BEFORE THE ASSESSING OFFICER WHILE ESTIMATING THE TOTAL INCOME OF THE ASSESSEE. BUT FROM THE CAREFUL PERUSAL OF THE CHART, IT APPEARS THAT THE ASSESSEE HAS NOT BEEN MAINTAINING THE PROPER BOOKS OF ACCOUNT AND EVERY TIME ITS BOOKS OF ACCOUNT ARE REJECTED BY THE ASSESSING OFFICER AND INCOME WAS ESTIMATED. THIS PRACT ICE ADOPTED BY THE ASSESSEE CANNOT BE APPRECIATED. WE HOWEVER, IN THE INTEREST OFJUSTICE HAVE TO REESTIMATE THE NET PROFIT IN THE LIGHT OF GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND ACCORDING TO US THE NET PROFIT RATE SHOULD BE ESTIMATED AT 7% OF THE G ROSS 8 RECEIPTS OF THE ASSESSEE AND THEREAFTER THE DEDUCTION OF DEPRECIATION AND INTEREST ON BORROWED CAPITAL FROM THE NET PROFIT IS TO BE ALLOWED. ONCE THE BOOKS OF ACCOUNT ARE REJECTED AND INCOME IS ESTIMATED, NO FURTHER DISALLOWANCE CAN BE MADE ON AD HOC BASIS. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE TOTAL INCOME OF THE ASSESSEE IN TERMS INDICATED ABOVE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRON OUNCED IN THE OPEN COURT ON 18/12/2013 ) SD/. SD/. (A. K. GARODIA) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18/12/2013 *CL SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR