GUPTA K.N. CONSTRUCTION CO., Jaipur V. ITO, Jaipur

ITA 60/JPR/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5106 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Keywords: Depreciation; Question of law
• Section: 244A; 142(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 60/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S. GUPTA K.N. CONSTRUCTION CO. A-34, GANESH NAGAR, SHYOPUR ROAD SANGANER, JAIPUR CUKE VS. THE ITO WARD- 7(2) JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AADFG 4615 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI S.L. JAIN, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A. VERMA, ADDL CIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05/07/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29 /07/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A)-3, JAIPUR DATED 11-12-2015 FOR THE ASSESSME NT YEAR 2010-11 RAISING THEREIN FOLLOWING GROUNDS:- (I) THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING TRADING ADDITION OF RS. 3,64,15 3/- BY ADHOC APPLICATION OF NET PROFIT RATE. (II) THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN LA W AND FACTS IN NOT ALLOWING THIRD PARTY INTEREST OF RS. 1 ,10,608/- FROM NET PROFIT DETERMINED BY APPLYING NET PROFIT THEORY. ITA NO. 60/JP/2016 M/S. GUPTA K.N. CONSTRUCTION CO. VS. ITO, WARD- 7 ( 2), JAIPUR . 2 (III) THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN L AW AND FACTS IN CHARGING INTEREST U/S 234D OF RS. 13,944/- AND U/S 244A OF RS. 61,645/- 2.1 AS REGARDS GROUND NO. 1 OF THE ASSESSEE, THE B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN DECLARING TO TAL INCOME OF RS. 13,06,350/- ON 1-10-2010. THE CASE OF THE ASSES SEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE AC T ISSUED ON 29-08- 2011 WAS SERVED ON THE ASSESSEE. FRESH NOTICES U/S 142(1) WERE ISSUED AND SERVED SUBSEQUENTLY TO COLLECT CERTAIN INFORMAT ION/ DETAILS. THE LD. AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TI ME TO TIME AND FILED CERTAIN DETAILS / INFORMATION AS REQUIRED BY THE AO . THE AO OBSERVED THAT THE ASSESSEE DERIVES INCOME FROM CIVIL CONSTRUCTION ACTIVITIES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECLARED THE GROSS RECEIPTS OF RS. 10,96,39,345/- AND HAD SHOWN NET PROFIT OF RS. 51,17,816/- FROM CIVIL CONSTRUCTION ACTIVITY. BOOKS OF ACCOUNTS, BILLS VO UCHERS ETC WERE PRODUCED BEFORE THE AO DURING ASSESSMENT PROCEEDING S AND THEY WERE PUT TO TEST CHECK. DURING THE COURSE OF EXAMINATION OF BOOKS OF ACCOUNT, THE AO NOTICED THAT THE ASSESSEE DID NOT MAINTAIN T HE STOCK REGISTER AND LABOUR REGISTER. WHEN THE AO CONFRONTED, THE LD. AR OF THE ASSESSEE EXPLAINED THAT IT WAS VERY DIFFICULT TO MAINTAIN TH ESE RECORDS LOOKING TO THE NATURE OF BUSINESS OF THE ASSESSEE. THE AO DID NOT FIND THE ITA NO. 60/JP/2016 M/S. GUPTA K.N. CONSTRUCTION CO. VS. ITO, WARD- 7 ( 2), JAIPUR . 3 EXPLANATION OF THE ASSESSEE SATISFACTORY. THE AO TH US OBSERVED THAT MAINTENANCE OF COMPLETE RECORDS OF THE ASSESSEE ENA BLES HIM TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE. IN THE INSTANT CA SE, THE AO HAD OBSERVED FOLLOWING DISCREPANCIES IN NON-MAINTENANCE OF STOCK REGISTER AND LABOUR REGISTER. (I) STOCK DETAILS IN THE LINE OF CIVIL CONSTRUCTIO N PLAY A VITAL ROLE TO ASCERTAIN TRUE PROFIT. IT IS O BVIOUS THAT AS ON LAST DAY OF F.Y. THERE LIES HUGE UNUTILIZED BUIL DING MATERIAL AT DIFFERENT SITES OF THE CONTRACTOR. VALU E OF SUCH CLOSING STOCK MAY GIVE SUBSTANTIAL RISE TO THE PRO FIT. (II) THE ASSESSEE HAS DEBITED EXPENSES OF RS. 3,34,89,171/- UNDER THE HEAD LABOUR CHARGES. THE AS SESSEE HAS PAID THESE EXPENSES IN CASH AND THROUGH SELF MA DE VOUCHERS ONLY. IN SUCH SITUATION, THESE EXPENSES AR E NOT OPEN FOR VERIFICATION. HENCE, IT IS NOT POSSIBLE FOR THE AO TO ASCERTAIN T HE CORRECT BOOK RESULTS SHOWN BY THE ASSESSEE AND THE SAME CANNOT BE RELIED UPON. THE AO RELIED ON VARIOUS CASE LAWS AND FOUND THAT THE BOOKS OF AC COUNT OF THE ASSESSEE ARE LIABLE TO BE REJECTED BY INVOKING THE PROVISION S OF SECTION 145(3) OF THE ACT. THE AO THUS CONSIDERING THE PLEAS OF THE A SSESSEE, PAST HISTORY AND OTHER RELEVANT ASPECTS OF THE CASE, APPLIED 5% NET PROFIT RATE WHICH COMES TO RS. 54,81,967/- ON DECLARED GROSS RECEIPTS OF RS. 10,96,39,345/- SUBJECT TO DEPRECIATION, INTEREST AND REMUNERATION TO PARTNERS. HENCE, THE AO MADE A TRADING ADDITION OF RS. 3,64,153/ - BY ADHOC APPLICATION OF NET ITA NO. 60/JP/2016 M/S. GUPTA K.N. CONSTRUCTION CO. VS. ITO, WARD- 7 ( 2), JAIPUR . 4 PROFIT RATE (RS. 5481967 DETERMINED BY AO LESS RS. 51,17,816/- DECLARED BY THE ASSESSEE). 2.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF AO BY OBSERV ING AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO AS ALSO THE ARGUMENTS OF THE AR OF THE APPELLANT. THE ASSESSEE HAS DECLARED NET PROFIT RATE OF 4.67% AGAINST WHICH AO APPLIED 5%. IN A.Y. 2009-10, ASSESSEE DECLARED NET PROFIT RATE OF 5.38% IN ADDITION TO WHICH HON'BLE ITAT JAIPUR FURTHER UPHE LD OF RS. 5 LACS AS DISALLOWANCES AGAINST VARIOUS EXPENSES. THEREFOR E, THIS YEAR APPLICATION OF PROFIT RATE OF 5% SUBJECT TO INTERES T, DEPRECIATION AND REMUNERATION SEEMS REASONABLE. LOOKING TO THE P AST HISTORY OF THE ASSESSEE, THEREFORE, NO INTERFERENCE IS CALLED FOR. 2.3 NOW THE ASSESSEE IS IN APPEAL BEFORE ME CONTEND ING THAT THE LOWER AUTHORITIES HAVE ERRED IN CONFIRMING TRADING ADDITI ON OF RS. 3,64,153/- BY ADHOC APPLICATION OF NET PROFIT RATE. 2.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 2.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEE HAS DECLARED THE NET PROFIT RATE OF 4.67% ON THE TURNOVER OF RS. 10,96,39,345/ -BY SHOWING NET PROFIT OF RS. 51,17,816/-. HOWEVER, THE AO HAS APPLIED THE NET PROFIT RATE AT 5% WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). IT IS S EEN THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNT AND THE AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT U/S 145(3) WHICH HAS BEEN CONFIRMED BY THE ITA NO. 60/JP/2016 M/S. GUPTA K.N. CONSTRUCTION CO. VS. ITO, WARD- 7 ( 2), JAIPUR . 5 LD. CIT(A). IT IS NOTED FROM THE RECORDS THAT THE LOWER AUTHORITIES HAVE MADE THE TRADING ADDITION OF RS. 3,64,153/- WHICH A PPEARS TO ME AT HIGHER SIDE. HENCE, I FEEL IN ORDER TO MEET THE END OF JUS TICE, THE SAME IS RESTRICTED TO RS. 2.00 LACS. THUS THE ASSESSEE WILL GET PARTIAL RELIEF OF RS. 1,64,153/-. 3.1 THE NEXT GRIEVANCE OF THE ASSESSEE IS THAT THE LOWER AUTHORITIES HAVE ERRED IN NOT ALLOWING THIRD PARTY INTEREST OF RS. 1 ,10,608/-FROM NET PROFIT DETERMINED BY APPLYING NET PROFIT THEORY. IT IS NOT ED THAT THE AO DID NOT ALLOW THIRD PARTY INTEREST FROM THE NET PROFIT DETE RMINED BY HIM WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A) BY OBSERVING AS UN DER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO AS ALSO ARGUMENTS OF THE LD. AR OF THE APPELLANT. IN A .Y. 2011-12, INTEREST TO THIRD PARTIES WAS NOT ALLOWED BY THE AO AFTER APPLICATION OF APPLYING NET PROFIT RATE. THIS ORDER WAS ACCEPTE D BY ASSESSEE AND NOT APPEALED AGAINST. THEREFORE, I SEE NO REASON TO INTERFERE IN THE ORDER OF THE AO. THIS GROUND IS DISMISSED. 3.2 NOW THE ASSESSEE IS IN APPEAL BEFORE ME WITH TH E PRAYER THAT THE LOWER AUTHORITIES HAVE ERRED IN NOT ALLOWING THE IN TEREST TO THIRD PARTIES. THE LD. AR OF THE ASSESSEE FURTHER ARGUED THAT IT I S NOT NECESSARY FOR THE ASSESSEE TO APPEAL FOR EVERY DISALLOWANCES MADE BY THE AO. THE ASSESSEE FURTHER SUBMITTED THAT HE IS NOT MUCH AFFECTED BY P AYING THE TAX FOR THE RELEVANT ASSESSMENT YEAR I.E. 2011-12 THEN HE DID N OT CONSIDER IT TO APPEAL ITA NO. 60/JP/2016 M/S. GUPTA K.N. CONSTRUCTION CO. VS. ITO, WARD- 7 ( 2), JAIPUR . 6 AGAINST THE ASSESSMENT ORDER OF THE AO FOR THAT ASS ESSMENT YEAR. THE ASSESSEE IN THE END PRAYED THAT THE INTEREST TO 3 RD PARTIES MAY KINDLY BE ALLOWED IN VIEW OF THE DECISION OF HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. BHAWAN PARTH NIRMAN (BOHRA) AND CO. 258 ITR 431 (RAJ.) 3.3 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. CONSIDERING ALL SCENARIO OF TH E CASE, I FEEL THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. BHAWAN PATH NIRMAN (BOHRA) AND CO. (SUPRA) HAS ALLOWED THE INTE REST TO THIRD PARTIES. THE HELD PORTION OF THE JUDGMENT IS REPRODUCED AS U NDER:- HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL LINK ED THE PROCESS OF ESTIMATING INCOME WITH THE PAST PRACTICE FOLLOWED I N THE ASSESSEES CASE BY THE REVENUE ITSELF CONSISTENTLY FOR FIVE YEARS PRIOR TO THE RELEVANT YEARS IN QUESTION. IN THIS CASE THE VERY FOUNDATION OF FIXIN G THE NET PROFIT RATE HAD BEEN THE AVERAGE NET PROFIT RATE AS HAD BEEN APPLIED BY THE REVENUE IN THE PAST CONSISTENTLY SINCE THE ASSESSMENT YEAR 1989-90 AND WHICH HAD BEEN FOLLOWED IN DETERMINING THE TAXABLE INCOME OF THE ASSESSEE Y EAR AFTER YEAR. IN THE NET PROFIT SO FIXED THE ELEMENT OF DEPRECIATION ON THE FIXED ASSET AND INTEREST ON BORROWINGS HAD NOT BEEN TAKEN INTO CONSIDERATION IN DETERMINING THE NET PROFIT RATE. CONSEQUENTLY, THE TRADING RESULT OBTAINED BY APPLYING SUCH NET PROFIT RATE NEEDED FURTHER APPROPRIATION TOWARDS ALLOWABLE DEPR ECIATION AND INTEREST ON BORROWINGS. THE TRIBUNAL WAS RIGHT IN MODIFYING THE ORDER PASSED BY THE ASSESSING AUTHORITY BY MAKING THE NET PROFIT RATE S UBJECT TO ADJUSTMENT TOWARDS DEPRECIATION AND INTEREST ON BORROWINGS. THIS CONCL USION WAS A PURE FINDING OF FACT AND WOULD NOT GIVE RISE TO A QUESTION OF LA W MUCH LESS A SUBSTANTIAL QUESTION OF LAW. ITA NO. 60/JP/2016 M/S. GUPTA K.N. CONSTRUCTION CO. VS. ITO, WARD- 7 ( 2), JAIPUR . 7 IN VIEW OF THE ABOVE DECISION OF HON'BLE JURISDICTI ONAL HIGH COURT, I FEEL THAT THE INTEREST TO THIRD PARTIES SHOULD BE ALLOWE D. HENCE, GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. 4.1 THE GROUND NO. 3 OF THE ASSESSEE IS CHARGING OF INTEREST U/S 234D OF RS. 13,944/- AND 244A OF RS. 61,645/- WHICH IS M ANDATORY AND CONSEQUENTIAL IN NATURE. 5.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/07/2 016 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 29 /07/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. GUPTA K.N. CONSTRUCTION CO., JA IPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 7 (2), JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 60/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR