The ACIT, Circle-2, Bhavnagar V. M/s. Ghansham Babubhai, Bhavnagar

ITA 603/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9251 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 09-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Keywords: Gross profit estimation; Unexplained cash credit

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI H.L.KARWA AND SHRI A.N.PAHUJA ITA NO.603/AHD/2006 (ASSESSMENT YEAR : 2001-02) ACIT, CIRCLE-2, BHAVNAGAR. VS. M/S DHANSHYAM BABUBHAI, LOKHAND BAZAR, BHAVNAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.C.PANDIT, SR. D.R. RESPONDENT BY : NONE ( (( ( )/ )/)/ )/ ORDER PER KARWA, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF CIT(A)-XVIII AHMEDABAD DATED 01.12.2005 RELATING TO ASSESSMENT YEAR 2001-02. 2. THE FIRST GROUND RAISED BY THE REVENUE READS AS UNDE R: 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN DIRECT ING TO WORK OUT G.P.10.11% OF RS.1,30,84,831/- INSTEAD OF RS.1,89, 76,481/- . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FIRM IS IN CONSTRUCTION WORK ON CONTRACT BASIS. DURING THE ASSESSMENT YE AR UNDER CONSIDERATION, THE TOTAL RECEIPT FROM BUSINESS OF CONSTRUCT ION ON CONTRACT BASIS WAS RS. 1,89,76,481/- ON WHICH GROSS PROFIT OF RS.12, 50,449/- WAS SHOWN WHICH AMOUNTED TO GROSS PROFIT PER CENTAGE OF 6.58 %. THE ASSESSING OFFICER OBSERVED THAT FOR THE FINANCIAL YEARS 19 97-98, 1998-99 AND 1999-2000, THE PER CENTAGE OF GROSS PROFIT WAS 22. 55%, 28.42% AND 14.02%, RESPECTIVELY. THE ASSESSING OFFICER FURTHER NOTED THAT SUBSTANTIAL PAYMENTS IN RESPECT OF LABOUR CHARGES AND CERTAIN PURCHASE S HAD BEEN MADE ON THE BASIS OF SELF-MADE VOUCHERS. THE ASSESSING OF FICER ALSO 2 OBSERVED DISCREPANCIES IN THE VOUCHERS AS SOME OF THE VOUCHER S WERE NOT SIGNED BY THE RECEIVERS OF THE PAYMENTS. DETAILS IN SOME OF THE VOUCHERS HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER IN RESPECT OF WHICH THE TOTAL EXPENDITURE COMES TO RS.70,750/-. THE ASSESSING OFF ICER REJECTED THE BOOKS OF ACCOUNT U/S 145(2) OF THE I.T.ACT, 1961 (IN SHORT THE ACT) IN VIEW OF THE ABOVE DISCREPANCIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ALSO PROFIT BEING LOW. THE ASSESSING OFFICER HAS ADOPT ED THE PERCENTAGE RATE AT 10.11% AND ACCORDINGLY MADE AN ADDI TION OF RS. 6,69,869/-. 4. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 5. THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER WAS JU STIFIED IN REJECTING THE BOOK RESULTS U/S 145(2) OF THE ACT. THE CI T(A) HAS ALSO UPHELD THE ACTION OF THE ASSESSING OFFICER IN ADOPTING T HE GROSS PROFIT RATE OF 10.11% FOR THE PURPOSE OF CALCULATION OF GROSS PROFIT . HOWEVER, THE CIT(A) HAS REDUCED THE GROSS RECEIPTS FROM RS.1,89,76,48 1/- TO RS.1,30,84,831/- OBSERVING AS UNDER: 9. THE APPELLANT HAS SUBMITTED THAT DURING THIS PER IOD THEY HAD RECEIVED A WORK CONTRACT FOR RS.58,97,9577- FROM PWD. T HIS WORK WAS TO BE CARRIED OUT AT AHMEDABAD. IT HAS BEEN POINTE D OUT BY THE APPELLANT THAT IT WAS NOT POSSIBLE FOR THEM TO CARRY OU T THE WORK AT AHMEDABAD, WITHIN THE TIME ALLOWED AND, THEREFORE, THEY WERE FORCED TO ASSIGN THE CONTRACT TO THIRD PARTY ON 'NO PROF IT NO TOSS'1 BASIS, U HAS BEEN POINTED OUT BY THE APPELLANT THAT I N THE CIRCUMSTANCES, NO PRO ILL HAD ACCRUED TO THEM ON THE SAID CONTRACT OF RS.58,91,657/- WHICH WAS SHOWN AS RECEIPT IN THEIR ACCOU NTS BECAUSE TAX WAS DEDUCTED BY PWD ON THIS ACCOUNT. IT HAS BEE N CONTENDED THAT IF THIS RECEIPT IS EXCLUDED FROM THE TOT AL RECEIPT THEN THE G.P. RATE WOULD BE 9.58% IS HIGHER THAN THE GOVERNMENT NORM AT 8% U/S. 44AD. IT HAS ALSO BEEN CONTENDED THAT NO CONTRACTOR CAN SHOW THE SAME PROFIT YEAR AFTER YEAR AND VARIATIONS IN G.P. FROM YEAR TO YEAR IS NATURAL. IT HAS ALSO BEEN POINTED OUT THAT EACH YEAR OF THE SAME ASSESSEE IS SEPARATE ENTITY AND DIFFERENT 3 CIRCUMSTANCES MAY BE THERE FOR DIFFERENT YEARS. 10. AFTER CONSIDERING THE ABOVE CONTENTION OF THE ASSESSE E, I FIND IT REASONABLE THAT IN THE EVENT OF CONTRACT TO THE EXT ENT OF RS.58,91,657/-HAVING BEEN GIVEN OUT TO SUB-CONTRACTOR O N NO PROFIT NO LOSS BASIS, THEN THE GROSS PROFIT MARGIN RATIO SHALL BECOME 9.58 AS THE GROSS PROFIT OF RS.12,50,449/- SHALL ARISE ON GROSS RECEIPT OF RS.1,30,84,831/-. HOWEVER, THIS GROSS PROFIT RATE IS ALSO LOWER AS COMPARED TO, ASSESSEE'S CASE IN THE EARLIER YEARS. IN VIEW OF THIS, IT HAS TO BE HELD THAT WHILE THE APPELLANT'S GROSS PROFIT RATE SHALL BE TAKEN AT 9.58% IN PLACE OF 6.58% AS TAKEN BY THE A.O. , THE GROSS PROFIT RATE LO BE ADOPTED FOR THE PURPOSE OF ESTIMATI ON OF GROSS PROFIT SHALL BE 10.11% AS HAS BEEN ADOPTED BY THE A.O. IN THE ASSESSMENT ORDER. ADOPTION OF THE GROSS PROFIT RATE AT 10 .11% FOR ESTIMATION OF THE GROSS PROFIT IS QUITE REASONABLE IN VI EW OF THE FACT THAT FOR THE THREE CONSECUTIVE EARLIER YEARS, THE APPE LLANT HAS EARNED GROSS PROFIT AT A MUCH HIGHER RATE WHICH VARIES F ROM 14.02%''FOR THE IMMEDIATELY PRECEDING YEAR, TO 28.42 % FOR THE F.Y. 1998-99. IN VIEW OF ABOVE DISCUSSION AND AFTER CAREFUL CONSIDERATION OF FACTS AND SUBMISSIONS OF THE APPELLANT, THE A.O. IS DIRECTED TO ESTIMATE GROSS PROFIT AT RATE OF 10.IL'-/O ON GROSS RECEIPT OF RS.1,30,84,8317- AND CALCULATE THE SHORTAGE OF GROSS PROFIT IN VIEW OF THE ABOVE OBSERVATIONS FOR MAKING ADDITION. A CCORDINGLY, THE GROUND IS DISPOSED OFF. 6. WE HAVE HEARD THE LD. DR AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI M.C.PANDIT, THE L D. D.R. COULD NOT CONTROVERT THIS FACT THAT DURING THE PERIOD UNDER CONSI DERATION, THE ASSESSEE HAD RECEIVED A WORK CONTRACT FOR RS.58,91,650/- FR OM PWD. THIS WORK WAS TO BE CARRIED OUT AT AHMEDABAD. THE ASSESSEE ASSIG NED THE CONTRACT TO THIRD PARTY ON NO PROFIT NO LOSS BASIS BECA USE IT WAS NOT POSSIBLE FOR HIM TO CARRY OUT THE WORK AT AHMEDABAD WI THIN THE TIME ALLOWED. THUS, NO PROFIT HAD ACCRUED TO ASSESSEE ON THE SA ID CONTRACT OF RS.58,91,650/- WHICH WAS SHOWN AS RECEIPT IN THEIR ACCOUNTS BECAUSE TAX WAS DEDUCTED BY PWD ON THIS ACCOUNT. IN FACT, THERE IS NO MATERIAL ON RECORD TO CONTROVERT THE ABOVE FACTS AND ACCORDINGLY, WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT GROSS 4 PROFIT @10.11% OF RS.1,30,84,831/- INSTEAD OF RS.1,89, 76,481/-. THIS GROUND OF APPEAL IS DEVOID OF ANY MERIT AND ACCORDINGL Y, WE DISMISS THE SAME. 7. GROUND NO.2 READS AS UNDER: 2. THE LEARNED CIT(A) ERRED ON FACTS AND IN DELETING ADD ITION OF RS.70,750/- ON ACCOUNT OF BOGUS BILLS/VOUCHERS. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER MADE TH E ADDITION OF RS.70,750/- ON ACCOUNT OF BOGUS BILLS AND VOUCHERS. 8. ON APPEAL, THE CIT(A) DELETED THE ADDITION OBSERV ING AS UNDER: 11. THE NEXT GROUND IS REGARDING ADDITIONS MADE ON ACCOUNT OF BOGUS BILLS AND VOUCHERS AMOUNTING TO RS.70,75 0/- IN VIEW OF THE FACT THAT THE ADDITION IS BEING MADE O N ACCOUNT OF LOW GROSS PROFIT, WHICH NATURALLY TAKES CARE OF ANY UNSUSTAINABLE CLAIM REGARDING INFLATION OF EXPENSES, TH ERE IS NO BASIS FOR MAKING FURTHER DISALLOWANCE ON ACCOUNT OF BOGUS BILLS/VOUCHERS. THIS VIEW IS SUPPORTED BY THE DECISION OF HON'BLE ANDHRA PRADESH HIGH COURT (37 ITR 369) IN THE CASE OF MADDI SUDARSHAN OIL MILLS VS. CIT WHEREIN IT WAS HE LD THAT ONCE THE ACCOUNT BOOKS OF THE ASSESSEE ARE REJECTED AND GROSS PROFIT IS ESTIMATED AT A FLAT RATE ON THE BASIS OF TURNOVER, THE ITO CANNOT FALL BACK ON THE ACCOUNT BOOKS TO MAKE A FURTHER ADDITION TOWARDS UNEXPLAINED CASH CREDIT . IN VIEW OF THIS, THE ADDITION OF RS.70,7507- MADE ON ACCO UNT OF BOGUS BILLS/VOUCHERS IS DELETED . 9. AFTER HEARING THE LD. D.R. WE DO NOT SEE ANY MERI T IN THIS GROUND OF APPEAL. WHILE DELETING THE ADDITION, THE CIT(A) HAS CORRECTLY FOLLOWED THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF MADDI SUDARSHAN OIL MILLS CO. V. CIT (1959) 37 ITR 369 (AP ). IN VIEW OF THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT (SUPRA), W E ARE OF THE VIEW THAT THE CIT(A) HAS CORRECTLY DELETED THE ADDITIO N OF RS. 70,750/- MADE ON ACCOUNT OF BOGUS BILLS/VOUCHERS. ACCORDINGLY, WE DISMISS THE GROUND. 5 10. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28.8 .2009. SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER SD/- (H.L.KARWA) JUDICIAL MEMBER AHMEDABAD, DATED:28.8.2009 PSP* COPY TO : (1) THE ASSESSEE (2) THE ASSESSING OFFICER (3) THE CIT(A) CONCERNED, (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD.