M/s. Vijay Construction, GANDHIDHAM V. The Assistant Commissioner of Income Tax, Gandhidham Circle, GANDHIDHAM

ITA 60/RJT/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76376 (ITAT-RAJKOT)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT B JHAVERI DR
• Assessee Lawyers: CHETAN AGARWAL
• Keywords: Rejection of books of accounts; Depreciation; Principle of natural justice; Corroborative evidences
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT BEFORE SHRI T. K. SHARMA, JM AND SHRI B. R. JAIN, A M ITA NO. 60/RJT/2013 / ASSESSMENT YEAR : 2009-10 M/S. VIJAY CONSTRUCTION, AT & POST SHINAY GANDHIDHAM PAN : AAFFV 2844 Q ( / APPELLANT) ACIT, GANDHIDHAM CIRCLE, GANDHIDHAM-KUTCH / RESPONDENT ! ' #$ / ASSESSEE BY SHRI CHETAN AGARWAL, CA % ! ' #$ / REVENUE BY DR. JAYANT B. JHAVERI, DR # & ' ! ( / DATE OF HEARING 07.01.2014 ) ! ( / DATE OF PRONOUNCEMENT 10.01.2014 / ORDER .. , / T. K. SHARMA, J. M.: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 20.02.2013 OF LD. CIT(A) -II, RAJKOT FOR THE ASSESSING YEAR 2009-10. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A FIRM, ENGAGED IN CIVIL CONSTRUCTION ACTIVITIES. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 30.09.2009 DECLARING TOTAL INCOME AT RS.20,99,072/- . THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND RETURN IS ACCOMPANIED BY T AX AUDIT REPORT U/S 44AB OF THE INCOME-TAX ACT. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID IN CASH RS.3,70,98,9 50/- AND THESE PAYMENTS WERE MADE TO LABOURERS, DRIVERS AND CLEANERS. ON FURTHER VERIFICATION OF THE REGISTERS PRODUCED, THE ASSESSING OFFICER NOTED THE FOLLOWING DISCREPANCIES:- I) THE REGISTER/ SHEETS AND VOUCHERS SEEMED TO BE FRESHLY PREPARED AND NEW. II) SAME THUMB IMPRESSIONS WERE THERE IN FRONT OF D IFFERENT NAMES. [ANNEXURE 1,2,3] III) THE SIGNATURES AND HANDWRITING WERE ALSO THE SAME IN FRONT OF DIFFERENT NAMES TO WHOM PAYMENT WERE MADE. [ANNEXURE 5] IV) IN MANY SHEETS THE STAMP WERE REMOVED AND SIGN WERE TAKEN. [ANNEXURE 4] V) ABSENCE OF SIGN/ THUMB IMPRESSION FOR FEW PAYM ENTS MADE. VI) NO SPECIFICATION OF WORK IS THERE. VII) NO NAME, SIGN OF THE DISBURSING OFFICER ON AN Y REGISTER/ SHEET. 60-RJT-2013 - VIJAY CONSTRUCTION 2 3. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER A LSO OBSERVED THAT IT IS CLEAR THAT ONE PERSON HAS PREPARED REGISTER AND PUT THE THUMB IMPRESSIONS AT ONE GO. NO WORK SPECIFICATION IS MENTIONED REGARDING THE WORK CARRI ED OUT. THE ASSESSEE WAS NOT ABLE TO PRODUCE ANY BASIC DOCUMENTS LIKE MUSTER ROLE, ATTEN DANCE REGISTER, JOB CARD OR ANY SUPPORTING EVIDENCE DURING THE TIME OF ASSESSMENT P ROCEEDINGS WHICH IS NECESSARY AT THE TIME OF MAKING PAYMENTS TO LABOURERS, DRIVERS A ND CLEANERS AND ACCORDING TO HIM, THE MOST IMPORTANT THING THAT THESE PAYMENTS ARE MA DE IN CASH. THE ASSESSING OFFICER ACCORDINGLY VIDE ORDER SHEET ENTRY DATED 01.11.2011 ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY 10% OF THE PAYMENT MADE TO LABOURERS, DRI VERS AND CLEANERS SHOULD NOT BE DISALLOWED. THE REPLY SUBMITTED BY THE ASSESSEE TO THE SAID SHOW-CAUSE NOTICE READS AS UNDER:- PLEASE REFER TO YOUR SHOW CAUSE NOTICE FOR THE ABO VE SUBJECT BY WHICH YOUR KIND OFFICE HAD PROPOSED TO DISALLOW 10% OF CASH EXPENDI TURE. IN THIS REGARDS, IT IS SUBMIT THAT WE ARE CONSTRUCT ION CONTRACTOR AND AS YOUR AWARE THAT MAXIMUM CASH PAID TO VARIOUS TYPE OF LABOUR, D RIVER AND CLEANER AND CARTING EXP. FOR FREIGHT BECAUSE, THEY HAVE NOT MAINTAINING ANY BANK ACCOUNT SO WE HAD NOT ABLE TO PAID THE SAME PAYMENT THROUGH CHEQUE OF DEMAND DRAFT SO WE ARE REQUEST YOU TO PLEASE NOT DISALLOW OUR CASH EXPENSE S. IT IS ALSO TO SUBMIT THAT THE NP HAD BEEN ARRIVED A T AFTER DEDUCTING THE REMUNERATION AND INTEREST PAID TO PARTNERS. IF THE REMUNERATION AND INTEREST HAD BEEN ADDED BACK TO THE NP, THEN THE NP RATIO WILL B E 3.24% FOR AY 2009-10. THEREFORE SIR, OUR PROFIT ALREADY REFLECT A GOOD NP WHICH ALSO HARMONIZED WITH THE GENERAL NP RATIO. THEREFORE SIR, YOUR KIND OFFICE IS REQUESTED NOT TO DISALLOW OUR CASH EXPENDITURE. 4. AFTER CONSIDERING THE AFORESAID REPLY, IN THE AS SESSMENT ORDER THE ASSESSING OFFICER MENTIONED THAT THE AFORESAID REPLY OF THE A SSESSEE IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS:- A) THE ASSESSEE IS DOING THE BUSINESS OF CIVIL CO NSTRUCTION. IT REVEALS FROM THE RECORDS THAT, THE NP SHOWN BY THE ASSESSEE IS O N VERY LOWER SIDE, ONLY 1.66% OF THE TURNOVER; B) DURING THE COURSE OF ASST. PROCEEDING, AND VER IFICATION OF SUPPORTING DOCUMENTS, ALL REGISTER/SHEETS FOR CASH PAYMENTS WE RE FOUND WHICH WERE WITHOUT ANY NARRATIONS OF THE WORK DONE. THEY WERE UNSIGNED BY THE AUTHORIZED SIGNATORY OR ANY DISBURSING AUTHORITY AND DID NOT C ONTAIN THE REQUISITE DETAILS. C) IT IS SEEN THAT NOT A SINGLE VOUCHER WAS WITH A NY KIND OF SUPPORTING BILL, DOCUMENTS WHICH COULD PROVE THAT THE PARTICULAR EXP ENSE IS INCURRED FOR A PARTICULAR PURPOSE. MAJORITY OF THE REGISTER/SHEETS ARE VERY NEW AND PREPARED HURRIEDLY FOR PRODUCTION DURING THE PROCEEDINGS AND NO SUPPORTING DOCUMENTS 60-RJT-2013 - VIJAY CONSTRUCTION 3 WERE FOUND FOR CASH PAYMENT. NO ATTENDANCE REGISTER OR JOB CARD AND MUSTER ROLE WERE PRESENTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. D) IT IS WORTHWHILE TO MENTION THAT NO BASIC INFOR MATION LIKE NO. OF DAYS, RATE AND TYPE OF LABOUR, JOB DESCRIPTION, TRUCK NO. TYPE OF GOODS, NO. OF TRIPS, FOR TRANSPORTATION CHARGES AND DESCRIPTION FOR WORK DON E. THE COPIES OF THESE HAVE BEEN PLACED ON RECORD. [ANNEXURE 5 TO 11] E) OUT OF MANY CASH VOUCHERS IT IS SEEN THAT ALL T HESE PAYMENT WERE MADE JUST BELOW RS 20,000. .AS CASH IS A VERY VOLATILE F ACTOR IN BUSINESS AND IT IS VERY EASY TO MANIPULATE IT. THE ASSESSEE HAS TRIED HIS L EVEL BEST TO CREATE SUCH BOGUS VOUCHERS AND THE ASSESSEE HAS INFLATED THE EXPENSES FOR EVASION OF TAX. [ANNEXURE 8 TO 11] F) ON GOING THROUGH THE BOOKS OF ACCOUNTS, IT IS NO TICED THAT IN SEVERAL CASES, THE AMOUNT OF PAYMENT IS RS 19,000/- (THE HIGHEST B EING RS 20,000/-) BUT NOT A SINGLE ONE DOES CROSS RS 20,000/ (20,000/- IS THE S TATUTORY LIMIT ABOVE WHICH PAYMENTS HAVE TO BE MADE BY CHEQUE). IN MY OPINION, THIS CLEARLY INDICATES THAT THESE FIGURES HAVE BEEN MANIPULATED TO KEEP EVERY S INGLE FIGURE BELOW THE STATUTORY LIMIT OF RS 20,000/ -. [ANNEXURE 8 TO 11] G) CONSIDERING ALL THE ABOVE POINTS IN TOTALITY AND THE BOOK RESULTS OF THE ASSESSEE, IT IS FOUND THAT ASSESSEE HAS FAILED TO M AINTAIN VARIOUS REGISTERS LIKE, LABOUR REGISTER, MUSTER ROLE, ATTENDANCE .REGISTER, ETC. THESE FACTS CLEARLY INDICATE THAT THE ASSESSEE HAS SUPPRESSED ACTUAL PROFIT AND THE SAME IS NOT OFFERED TO TAX. THE REPLY OF THE AS SESSEE IS NOT SATISFACTORY AND IS GENERAL IN NATURE. THEREFORE, CONSIDERING THE TOTAL ITY OF THE CIRCUMSTANCES AND ABOVE FACTS, THE BOOKS OF ACCOUNTS ARE FOUND OUT IN CORRECT, INGENUINE AND INCOMPLETE. THE ASSESSING OFFICER ALSO ENCLOSED A FEW REGISTER SHEET (SCANNED COPY) AND REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE AC T AND CONSIDERING THE NATURAL JUSTICE AND NP @ 1.66% SHOWN BY THE ASSESSEE, HE DISALLOWED 10% OF SUCH EXPENSES OF RS.3,70,98,950/- WHICH COMES TO RS.37,09,895/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. FINALLY, IN THE ASSESSMENT ORDER THE ASSESSING OFFICER OBSERVED THAT AFTER MAKING THE DISALLOWANCE THE NET PROFIT COMES TO RS.58,08,967/- I.E. 4.56% OF THE GROSS RECEIPTS WHICH IS QUITE REASONABLE CONSIDERIN G THE TOTAL TURNOVER AND KEEPING IN VIEW OF THE COMPARABLE CASES WHERE THE NP DISCLOSED BY THE ASSESSEE IS MUCH MORE. 5. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE FI LED WRITTEN SUBMISSION ON 28.01.2013 WHICH IS REPRODUCED BY THE LD. CIT(A) IN PARAGRAPH 3.1 OF THE IMPUGNED ORDER. AFTER CONSIDERING THESE WRITTEN SUBMISSIONS , KEEPING IN VIEW OF THE PROVISIONS CONTAINED IN SECTION 40A OF THE INCOME-TAX ACT AND THE FACT THAT IN THE ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER DISALLOWED 5% OF ABO VE EXPENSES AND THE SAID DECISION OF THE ASSESSING OFFICER WAS ACCEPTED BY THE ASSESS EE AS NO APPEAL WAS FILED AGAINST 60-RJT-2013 - VIJAY CONSTRUCTION 4 THE SAID ORDER. IN PARAGRAPH 3.6 OF THE IMPUGNED OR DER, THE LD. CIT(A) EXAMINED THE GROSS TURNOVER AND NP DECLARED BY THE ASSESSEE; AND THEREAFTER HE STATED THAT TO ARRIVE AT A JUDICIOUS PERCENTAGE OF DISALLOWANCE, ANOTHER TABLE DEPICTING THE DISALLOWANCE AT DIFFERENT PERCENTAGES AND THE NP% BEFORE INTEREST A ND REMUNERATION TO PARTNERS IS PREPARED WHICH WOULD BE AS UNDER:- GROSS TURNOVER 12,74,32,126 12,74,32,126 12,74,32,1 26 TOTAL EXPENSES 37098950 37098950 37098950 DISALLOWANCE @ 5% 7.5% 10% 1941948 2782421 3709895 ASSESSED INCOME BEFORE INTEREST & REMUNERATION TO PARTNERS 60,72,168 69,12,642 80,14,116 NP % 4.7 5.4 6.29 FROM THE AFORESAID TABLE, LD. CIT(A) OBSERVED THAT IF DISALLOWANCE IS DONE @ 7.5%, THE NP BEFORE INTEREST & REMUNERATION TO PART NERS COMES TO 5.4%. THE ASSESSING OFFICER HAS QUOTED VARIOUS COMPARABLE CASES ON PAGE 6 OF THE ASSESSMENT ORDER. FROM THESE CASES IT CAN BE SEEN THAT THE CASES WHICH ARE HAVING COMPARABLE GROSS TURNOVER, NP % BEFORE INTEREST AND REMUNERATION TO PARTNERS I S IN THE RANGE OF 5.3% TO 5.5%. THE DISALLOWANCE @ 7.5%, ACCORDING TO LD. CIT(A), IN TH E PRESENT CASE BRINGS THE NP% TO 5.4% WHICH IS QUITE COMPARABLE TO SIMILAR CASES. TH E LD. CIT(A) ACCORDINGLY RESTRICTED THE DISALLOWANCE TO 7.5% I.E. RS.27,82,421/- AS AGA INST RS.38,83,895/-. AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE ASSESS EE IS NOW IN APPEAL BEFORE THIS TRIBUNAL ON THE FOLLOWING GROUNDS:- LEARNED CIT(A) ERRED IN LAW AS WELL AS IN FACTS SU STAINING ADDITION OF RS.27,82,421/- BY RESTRICTING DISALLOWANCE AT 7.5% INSTEAD OF 10% OF CERTAIN EXPENDITURE ON ADHOC BASIS MADE BY AO. 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE, SHRI CHETAN AGARWAL, CA, APPEARED AND POINTED OUT THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF ROAD CONSTRUCTION. THE LD. COUNSEL OF THE ASSESSEE FURTH ER POINTED OUT THAT ROADS ARE BEING CONSTRUCTED IN THE REMOTE AREAS. MOST OF THE EXPENS ES I.E. DRIVER CLEANER SALARY, LABOUR CHARGES, MATI CARTING ETC. ARE PAID IN CASH. THE L ABOURERS ARE UNEDUCATED, WORK AT SITE, HAVE NO PERMANENT RESIDENCE, THEREFORE THE ASSESSEE IS COMPELLED TO MAKE THE PAYMENT IN CASH ON SITE, OTHERWISE THEY WILL NOT WO RK AND THE ASSESSEE CANNOT CONDUCT 60-RJT-2013 - VIJAY CONSTRUCTION 5 BUSINESS. ON VARIOUS DISCREPANCIES, THE LD. AR SUBM ITTED THAT THE BOOKS OF ACCOUNTS CANNOT BE REJECTED AS THE DEFECTS POINTED OUT BY TH E ASSESSING OFFICER ARE OF GENERAL IN NATURE. HE FURTHER SUBMITTED THAT IN THIS LINE OF BUSINESS, SUCH DEFECTS ARE INHERENT AND CANNOT BE CURED, OTHERWISE THE ASSESSEE HAS TO CLOS E THE BUSINESS. HE FURTHER SUBMITTED THAT IN RESPECT OF EACH AND EVERY DEFECT POINTED BY THE ASSESSING OFFICER, THE ASSESSEE MADE COUNTER COMMENTS WHICH ARE EXHIBITED IN ANNEXURE-2 OF THE WRITTEN SUBMISSION. THE LD. COUNSEL OF THE ASSESSEE ALSO P RODUCED A COPY OF THE ASSESSMENT ORDER PASSED U/S 143(3) DATED 05.11.2008 FOR THE AS SESSMENT YEAR 2006-07, WHEREIN THE ASSESSING OFFICER DISALLOWED 5% OF THE EXPENSES AND THE ASSESSEE HAS ACCEPTED THE SAME LOOKING TO THE SMALLNESS OF THE TAX INVOLV ED. TO SUM-UP, THE LD. COUNSEL OF THE ASSESSEE PLEADED THAT IT IS NOT A FIT CASE TO R EJECT THE BOOKS ACCOUNTS AND THE ASSESSING OFFICER BE DIRECTED TO ACCEPT THE BOOKS R ESULTS. 7. AS AGAINST THIS, DR. JAYANT B. JHAVERI, DR, APPE ARED FOR THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT(A). HE POINTED OUT T HAT IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS PAID LABOUR CHARGES OF RS. 2,47,46,500/-, MATI CARTING CHARGES RS.46,51,800/-, DRIVER CLEANER SALARY RS.26,76,000/ - AND C.C. LINING EXPENSES RS.50,24,650/-. HE FURTHER SUBMITTED THAT ALL THESE EXPENSES ARE NOT VERIFIABLE AND THE POSSIBILITY OF INFLATION OF THESE EXPENSES CANNOT B E RULED OUT. THE LD. DR SUBMITTED THAT IN THE IMPUGNED ORDER THE LD. CIT(A) RESTRICTED THE DISALLOWANCE OF EXPENSES TO 7.5% AND THEREAFTER THE NP BEFORE INTEREST AND REMUNERAT ION TO PARTNERS COMES TO 5.4% WHICH IS FAIR AND REASONABLE; THEREFORE, THE ORDER OF LD. CIT(A) BE UPHELD. THE LD. DR ALSO BROUGHT ON RECORD THAT THE REVENUE HAS ACCEPTE D THE IMPUGNED ORDER OF LD. CIT(A) ALLOWING PARTIAL RELIEF TO THE ASSESSEE. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSMENT YEAR 2005-06, THE ASSESSING OFFICER DISALLOWED 5% OF SUCH EXPENSES. I F 5% OF SUCH EXPENSES ARE DISALLOWED, THE NP WORKS OUT TO 4.7%. LAST YEAR, NP DECLARED BY THE ASSESSEE BEFORE INTEREST AND DEPRECIATION IS 3% AND IN THE ASSESSME NT YEAR 2006-07, AFTER DISALLOWANCE OF 5% OF SUCH EXPENSES, NP WORKS OUT TO 3.76%. KEEP ING IN VIEW OF THESE CONSPICUOUS FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE DISA LLOWANCE OF 7.5% OF AFORESAID 60-RJT-2013 - VIJAY CONSTRUCTION 6 EXPENSES IS ON THE HIGHER SIDE. IN OUR OPINION, IT WILL MEET THE ENDS OF JUSTICE IF THE DISALLOWANCE OUT OF SUCH EXPENSES IS RESTRICTED TO 5% I.E. RS. 18,54,948/- (5% OF RS.3,70,98,950/-). WE HOLD ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MEN TIONED HEREINABOVE. SD/- SD/- (B. R. JAIN) (T. K. SHARM A) $( #*% / ACCOUNTANT MEMBER #*% /JUDICIAL MEMBER *$+ ,*-/ ORDER DATE 10.01.2014 /RAJKOT *BT / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT- M/S. VIJAY CONSTRUCTION, AT & POST SHI NAY, GANDHIDHAM 2. /RESPONDENT- ACIT, GANDHIDHAM CIRCLE, GANDHIDHAM-KU TCH 3. #-2- & 3 / CIT, RANGE-1, RAJKOT 4. & 3 - / CIT(A)-II, RAJKOT 5 . 678 , , / DR, ITAT, RAJKOT 6 . 89 :; / GUARD FILE. *$+ #$ / BY ORDER , TRUE COPY PRIVATE SECRETARY, , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.