ACIT, Jaipur V. SETHI CONSTRUCTION COMPANY, Jaipur

ITA 624/JPR/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99521 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BHATEJA
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NOS. 624/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2008-09 . THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-5, JAIPUR. CUKE VS. M/S. SETHI CONSTRUCTION CO., S-53, 54, SHOPPING CENTRE, JANTA COLONY, JAIPUR.L LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAPFS 2462 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BHATEJA (ADDL. CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY S BY : SHRI P.C. PARWAL, CA LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18.11.2015. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 27/11/2015. VKNS'K@ ORDER PER SHRI LALIET KUMAR, J.M. THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT (A)-II, JAIPUR DATED 06.03.2013. THE SOLITARY GROUND RAISED IN TH E APPEAL IS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DIRECTING THE AO TO ALLOW DE PRECIATION AND FINANCIAL EXPENSES OUT OF THE INCOME DETERMINED THE AO BY APP LYING NP @ 8% WITHOUT APPRECIATING THAT NO FURTHER DEDUCTION CAN BE ALLOWED WHEN ONCE NP RATE IS APPLIED BY AO. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 27.09.2008 DECLARING TOTAL INCOME OF RS. 38,21,110/ -. THE CASE WAS SELECTED FOR 2 ITA NO. 624/JP/2013 A.Y. 2008-09. ACIT VS. M/S. SETHI CONSTRUCTION CO. SCRUTINY AND PROCESSED UNDER SECTION 143(3) OF THE IT ACT. THE ASSESSEE IS ENGAGED IN THE CONTRACT WORK OF CIVIL WORK AND ROAD AWARDED BY VARIOUS GOVERNMENT DEPARTMENTS AND CPWD/PWD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN NET PROFIT AT RS. 25,29,229/- OUT OF TURNOVER OF RS. 12 ,17,91,119/-. 2.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS NOT PRODUCED COMPLETE BILLS OF PURCHASES OF MAT ERIALS EXPENSES AND VOUCHERS OF EXPENSES. EVEN THE DETAILS OF CONSTRUCTION MATERIAL PURCHASED WERE NOT MAINTAINED. BEFORE THE AO, THE ASSESSEE ADMITTED THAT IT DID NO T MAINTAIN DAY TO DAY STOCK REGISTER, CONSUMPTION REGISTER, OPENING AND CLOSING STOCK INV ENTORY. THE ASSESSEE HAS ALSO NOT MAINTAINED ANY DETAILS, VOUCHERS, REGISTERS, PAYMEN T SHEETS AND MUSTER ROLL ETC. IN RESPECT OF THESE EXPENSES. AS SUCH, THE LABOUR AND WAGES EXPENSES OF RS. 3,15,45,500/- AS CLAIMED BY THE ASSESSEE, ARE NOT V ERIFIABLE. THE ASSESSEE HAS ALSO NOT MAINTAINED DETAILS OF TRANSPORTATION AND TRUCK EXPE NSES AND HIRE CHARGES AMOUNTING TO RS. 7,97,698/- AND RS. 2,05,310/- RESPECTIVELY. TH E ASSESSEE HAS ALSO NOT MAINTAINED ANY SITE-WISE RECORD IN RESPECT OF WORKS CARRIED OU T BY IT AT DIFFERENT SITES DURING THE YEAR. THE ASSESSEE CARRYING ON VARIOUS CIVIL CONTRA CT WORKS AND IN ABSENCE OF DAY-TO- DAY STOCK REGISTER AND OTHER ASSOCIATED DETAILS, IT IS NOT POSSIBLE TO VERIFY THE CONSUMPTION OF VARIOUS MATERIALS, INPUT OF LABOUR V IS--VIS THE WORK DONE, WHICH MEANS THAT THE NET PROFIT DECLARED BY THE ASSESSEE IS NOT AMENABLE TO VERIFICATION. THE AO OBSERVED THAT NON-MAINTENANCE OF ABOVE DETAILS IS A SPECIFIC DEFECT WHICH SHOWS THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT COMPL ETE TO DEDUCE THE CORRECT PROFIT THERE FROM AND CALLS FOR REJECTION OF BOOKS OF ACCO UNT BY INVOKING PROVISIONS OF SECTION 3 ITA NO. 624/JP/2013 A.Y. 2008-09. ACIT VS. M/S. SETHI CONSTRUCTION CO. 145(3) OF THE IT ACT. THE ASSESSEE WAS APPRISED TH E ABOVE DEFECTS VIDE NOTE SHEET DATED 29.11.2010. IN RESPONSE, THE ASSESSEE COULD NOT FURNISH ANY SATISFACTORY EXPLANATION BEFORE THE AO. THEREFORE, THE AO TAKING INTO CONSIDERATION THE ABOVE FACTS, APPLIED NP RATE OF 8% ON THE TOTAL TURNOVER OF THE ASSESSEE WHICH RESULTED IN AN ADDITION OF RS. 97,43,290/-. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT (A), WHO ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AT PAGE 6 O F HIS ORDER AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSME NT ORDER AND THE ARGUMENTS OF THE LD. AR. THE ASSESSEE HAS NOT CHALL ENGED THE APPLICATION OF SECTION 145(3). THEREFORE INCOME NEEDS TO BE ES TIMATED. THE AO HAS APPLIED NET PROFIT RATE OF 8% ON THE DECLARED CONTR ACT RECEIPT. HOWEVER, HE HAS NOT ALLOWED THE CLAIM OF DEPRECIATION AND FI NANCIAL EXPENSES FROM THE NET PROFIT RATE APPLIED BY HIM. I FIND THAT HO NBLE ITAT HAVE CONSISTENTLY HELD IN THE CASE OF THE ASSESSEE THAT AFTER APPLICATION OF NET PROFIT RATE, THE DEPRECIATION AND FINANCIAL EXPENSE S NEEDS TO BE ALLOWED. THEREFORE, I DIRECT THE AO TO ALLOW THE CLAIM OF DE PRECIATION OF RS. 19,47,501/- AND FINANCIAL EXPENSES OF RS. 67,47,235 /- FROM THE NET PROFIT RATE APPLIED BY HIM APART FROM INTEREST AND REMUNER ATION PAID TO THE PARTNERS AND ALLOWED BY HIM. HOWEVER, I FIND THAT I F THIS IS ALLOWED, THE INCOME WOULD GO BELOW THE RETURNED INCOME. IN THESE CIRCUMSTANCES, I DIRECT THE AO TO ALLOW TO ASSESSEE THE INCOME OF TH E ASSESSEE AS DECLARED BY HIM. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. 4 ITA NO. 624/JP/2013 A.Y. 2008-09. ACIT VS. M/S. SETHI CONSTRUCTION CO. 5. AT THE OUTSET, THE LD. D/R SUPPORTED THE ORDER O F THE AO AND REQUESTED THAT THE ORDER OF THE AO BE CONFIRMED. 6. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE S UBMITTED THAT THE ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNTS AND THE SAME ARE SUBJECT TO AUDIT UNDER SECTION 44AB. HE ALSO SUBMITTED THAT THE NATURE OF ACTIVIT Y OF THE ASSESSEE IS SUCH THAT PROPER SUPPORTING OF ALL THE EXPENSES IS NOT POSSIBLE. THE PAYMENTS FOR VARIOUS PURCHASES/EXPENSES LIKE STONE, BAZRI, TRANSPORTATIO N, WAGES ETC. ARE MADE TO LABOURERS/VILLAGERS WHO ARE ILLITERATE AND THEY DO NOT ISSUE ANY BILLS AND THE ASSESSEE INCORPORATES THE SAME ON THE BASIS OF THE SELF MADE VOUCHERS DULY VERIFIED BY THE SITE IN CHARGE. THIS IS A COMMON PRACTICE FOUND IN EVERY CO NTRACTOR. HENCE, SOLELY ON THE BASIS OF GENERAL OBSERVATION OF THE AO, IT CANNOT BE HELD THAT THE INCOME OF THE ASSESSEE IS NOT PROPERLY DEDUCIBLE FROM THE RECORD MAINTAINED B Y IT WITHOUT CONSIDERING THE FACTS OF THE ASSESSEES CASE. 6.1. THE AO HAS APPLIED NP RATE OF 8% ON CONTRACT R ECEIPT AND ALLOWED INTEREST AND REMUNERATION TO PARTNERS. IN DOING SO, HE IGNORED T HE PAST HISTORY OF THE ASSESSEE. HOWEVER, CLAIM OF DEPRECIATION OF RS. 19,47,501/- A ND FINANCIAL EXPENSES OF RS. 67,47,235/- WAS NOT ALLOWED FROM THE SAME. IT IS A SETTLED POSITION THAT IN CASE OF CONTRACT BUSINESS, WHEREVER ANY NET PROFIT RATE IS APPLIED THEN DEDUCTION ON ACCOUNT OF DEPRECIATION AND FINANCIAL EXPENSE SHOULD BE ALLOWE D SEPARATELY FROM THE NET PROFIT SO ESTIMATED. TO STRENGTHEN HIS VIEW, HE PLACED RELIAN CE IN THE CASE OF CIT VS. BHAWAN PATH NIRMAN (BOHRA) & CO., 258 ITR 440 (RAJ.). THE LD. A/R REQUESTED THAT KEEPING IN VIEW THE ABOVE FACTS, THE ADDITION MAY KINDLY BE DE LETED. 5 ITA NO. 624/JP/2013 A.Y. 2008-09. ACIT VS. M/S. SETHI CONSTRUCTION CO. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDER PASSED BY LD. CIT (A ) AND THE ORDER PASSED BY THE TRIBUNAL FOR THE A.Y. 2006-07 AND 07-08. WE DO NOT FIND ANY JUSTIFICATION TO AGREE WITH THE ORDER PASSED BY THE AO. THE ORDER PASSED BY LD . CIT (A) IS BASED ON THE ORDER OF THE TRIBUNAL FOR PREVIOUS YEAR. THEREFORE, WE UPHOL D THE ORDER PASSED BY LD. CIT (A). BESIDES THE ABOVE, THERE IS INCREASE IN NP AND THE REMUNERATION AND INTEREST PAID TO THE PARTNERS @ 4.24% WHICH IS MORE THAN THE NP RATE FOR THE A.Y. 2007-08. THEREFORE, WE DO NOT FIND ANY MERIT IN THE APPEAL FILED BY THE REVENUE AND THE SAME IS DISMISSED. THOUGH WE HAVE HELD THAT THE REVENUES APPEAL IS NO T MAINTAINABLE, A DISTURBING FEATURE HAS COME TO OUR NOTICE THAT THE BOOKS OF AC COUNT OF THE ASSESSEE WERE REJECTED FOR THE ASSESSMENT YEAR 2006-07 AS THE ASSESSEE HAS NOT MAINTAINED THE PROPER VOUCHERS, REGISTERS, PAYMENT SHEET AND THE MUSTER R OLL AND HAS ALSO NOT MAINTAINED ANY RECORD IN RESPECT OF TRANSPORTATION, TRUCK AND TRAC TOR EXPENSES AND HIRE CHARGES FOR SHUTTERING AND MACHINERIES. THIS PRACTICE, WE NOTI CED, WAS REPEATED IN THE CURRENT ASSESSMENT YEAR I.E. 2008-09 ALSO. WE DO NOT APPRE CIATE AND APPROVE THE PRACTICE OF NOT MAINTAINING PROPER BOOKS OF ACCOUNTS BY THE ASS ESSEE IN RESPECT OF THE AFORESAID HEADS. SINCE THE ASSESSEE WAS NOT MAINTAINING THE B OOKS OF ACCOUNTS, THEREFORE, THE AO HAS NO OPTION BUT TO REJECT THE BOOKS OF ACCOUNT S OF THE ASSESSEE AND HAS ESTIMATED THE INCOME ON ESTIMATION BASIS. THE ASSESSEE CANNOT BE PERMITTED TO TAKE THE BENEFIT OF HIS OWN WRONG FOR NOT MAINTAINING THE BOOKS OF A CCOUNT AND TO RELY UPON THE PAST HISTORY. IN THE PRESENT CASE, IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED, THEN THE ASSESSED INCOME WILL BE LESS THAN THE DECLARED INCO ME BY THE ASSESSEE. IN THE PRESENT 6 ITA NO. 624/JP/2013 A.Y. 2008-09. ACIT VS. M/S. SETHI CONSTRUCTION CO. CASE WE ARE NOT DECIDING THE CONTENTION OF NON MAIN TENANCE OF BOOKS OF ACCOUNT AND THE CONSEQUENCES THEREOF, AS THE MATERIAL AVAILABLE ON RECORD IN THE FORM OF ORDER PASSED BY THE AO LACKING THE NECESSARY MATERIAL ON THE BASIS OF WHICH THE ESTIMATION HAS BEEN ARRIVED. THE BENCH WILL BE DECIDING THE I SSUE IN THE APPROPRIATE CASE IF THE ASSESSEE DO NOT MAINTAIN THE BOOKS OF ACCOUNT AND T AKES THE BENEFIT OF NON- MAINTENANCE OF BOOKS OF ACCOUNTS ON REGULAR BASIS. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/11/201 5. SD/- SD/- VH-VKJ-EHUK YFYR DQEKJ (T.R. MEENA) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 27/11/2015 DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ACIT CIRCLE-5, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S. SETHI CONSTRUCTION CO., JAIPUR . 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 624/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR 7 ITA NO. 624/JP/2013 A.Y. 2008-09. ACIT VS. M/S. SETHI CONSTRUCTION CO.