Deputy Commissioner of Income-tax, V. Shri Vinod Jagannath Chandsarkar, Jalgaon

ITA 624/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2648 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Section: 14A; 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.624/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 DY.CIT, CIRCLE-1, JALGAON . / APPELLANT V/S SHRI VINOD JAGANNATH CHANDSARKAR, UNITY PLY PITRU-CHHAYA, NEHRU CHOWK, NAVI PETH, JALGAON 425 001 PAN NO. AAJPC8239Q . / RESPONDENT / ASSESSEE BY : SHRI SUNIL GANOO / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30-01-2014 OF THE CIT(A)-II, NASHIK RELATING TO ASSESSMENT YEAR 2010-11. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON BLE CIT(A), NASHIK HAS ERRED IN ESTIMATING THE INCOME AT 1 7% OF GROSS RECEIPTS AGAINST THE ADDITIONS MADE ON SPECIFIC GROUNDS. / DATE OF HEARING :12.01.2016 / DATE OF PRONOUNCEMENT:04 .03.2016 2 ITA NO.624/PN/2014 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF PLASTIC MOULDED FURNITURES, JOB WORK AND CONSTRUCTION. HE FILED HIS RETURN OF INCOME ON 15-10-2010 DECLARING TOTAL INCOME AT RS.49,76,110 /- AND AGRICULTURAL INCOME OF RS.20,000/-. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO NOTED THAT ASSESSEE IS CONDUCTING BUSINESS IN INDIVIDUAL STATUS UNDER NAME AND ST YLE OF (A) M/S. UNITY PLY AT JALGAON AND CHALISGAON WHEREIN THE ASSESSEE IS DOING BUSINESS OF TRADING ON RETAIL BASIS OF PLA STIC MOULDED FURNITURE, CHAIRS, TATA SKY DISH, DVD ETC.; (B) M/S. SIDDHANT INDUSTRIES WHERE THE ASSESSEE IS DOING JOB WOR K OF ALUMINUM ROD SUPPLIED BY EMCO LTD.; (C) M/S. SIDDHANT BUILDERS AND DEVELOPERS WHERE THE ASSESSEE HAS CONDUCT ED THE WORK OF CONSTRUCTION OF FACTORY SHED OF SHOP J3 AND J2 AT UMALA; AND (D) M/S. V.J. ENTERPRISES WHEREIN NO BUSINESS HAS BEEN CONDUCTED DURING THE YEAR. 4. ON EXAMINATION OF THE BOOKS OF ACCOUNT, THE AO NOTED THAT FOR THE BUSINESS OF M/S. SIDDHANT BUILDERS AND DEVELOP ERS THE ASSESSEE COULD NOT PRODUCE ANY PARTY IN PERSON NO R THE PURCHASE VOUCHERS OF BRICKS, SAND, KHADI, MURUM ETC. HE FURTHER NOTED THAT THE PURCHASE OF MATERIAL AND VARIOUS ITEMS REQUIRED FOR CONTRACT WORK WERE NOT APPEARING DURING TH E PERIOD 01-04-2009 TO 28-10-2009. HE, THEREFORE, ESTIMATED THE QUANTITY AND VALUE OF THE SAME AS PREPARED BY THE ENGINEER AND MADE ADDITION OF RS.12,50,182/-. WHILE DOING SO, HE OBSERVED THAT SINCE THE CONSTRUCTION WORK HAS BEEN CARRIED OUT AND THE MATERIAL HAS NOT BEEN DEBITED IN THE BOOKS OF ACCOUNT, T HE ASSESSEE MUST HAVE PURCHASED THESE ITEMS OUTSIDE BOOK S OF 3 ITA NO.624/PN/2014 ACCOUNT. HE ACCORDINGLY MADE ADDITION OF RS.12,50,182/- U/S.69 OF THE I.T. ACT. 5. THE AO FURTHER NOTED THAT DURING THE PERIOD 26-09-2 009 TO 07-02-2010 THERE WAS DEFICIT OF CASH BALANCE AND THE PEAK DEFICIT COMES TO RS.23,34,760/-. THE AO MADE ADDITION OF TH E ABOVE AMOUNT BY HOLDING THAT THE SET OFF OF ADDITION U/S.6 9 CANNOT BE GIVEN TO THE ASSESSEE FOR THE PERIOD BECAUSE THE ASSESSEES EXPENDITURE HAS BEEN WORKED OUT BY ITS EN GINEER AND THE SAME HAS BEEN ACCEPTED IN TOTO AND THERE IS N O CASH AVAILABLE TO THE ASSESSEE. 5.1 THE AO SIMILARLY EXAMINED THE LABOUR PAYMENTS AND NOTED THAT AS AGAINST THE TOTAL RECEIPT OF RS.1,78,16,222/- THE LABOUR CHARGES PAID FOR THE FIRST PERIOD, I.E. 01-04-2009 TO 28- 10-2009 IS ONLY RS.22.50,907/-. THUS, THE PERCENTAGE OF THE LABOUR CHARGES PAID FOR THE FIRST PERIOD COMES TO 12.63%. THE AO, THEREFORE, APPLIED THE SAME PERCENTAGE OF 12.63% FOR TH E SECOND PERIOD WHERE THE GROSS RECEIPT WAS RS.4,58,44,592/ -. BY APPLYING THE SAME RATIO, HE NOTED THAT THE LABOUR CHARG ES FOR THE SECOND PERIOD COMES TO RS.57,90,172/-. SINCE THE ASS ESSEE HAS DEBITED THE LABOUR PAYMENT OF RS.1,80,06,411/- THE AO TREATED THE AMOUNT OF RS.1,22,14,391/- BEING THE DIFFERENCE BETWEEN THE TWO AS EXCESS LABOUR CHARGE. 5.2 SIMILARLY, THE AO ANALYSED CONSUMPTION OF VARIOUS MATERIALS SUCH AS STEEL, CEMENT, MURUM, SAND ETC. AND NOT ED THAT AS AGAINST THE TOTAL GROSS RECEIPT OF RS.1,78,16,222/- , THE EXPENDITURE ON ACCOUNT OF MATERIAL IS RS.12,50,182/- WHICH COMES TO 7.01%. APPLYING THE SAME RATIO FOR THE SECOND PERIOD, 4 ITA NO.624/PN/2014 THE AO COMPUTED CONSUMPTION OF MATERIAL AT RS.32,16,961/- ON THE GROSS RECEIPT OF RS.5,48,44,592/-. HE THUS MADE ADDITIO N OF RS.1,52,96,323/- BEING EXCESS CONSUMPTION OF MATERIAL. APPLYING THE SIMILAR PRINCIPLES THE AO DISALLOWED AN AMOUNT O F RS.24,64,218/- ON ACCOUNT OF EXCESS CONSUMPTION OF CEMENT AND STEEL. IN EFFECT, THE AO MADE ADDITION OF RS.2,99,74,932/ - ON ACCOUNT OF EXCESS EXPENDITURE CLAIMED IN THE CONTRAC T BUSINESS. THE AO FURTHER MADE DISALLOWANCE OF RS.1,22,881/- BY APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. ACCORDINGLY, THE AO DETERMINED THE INCOME OF THE ASSESSE E AT RS.3,91,11,910/- AS AGAINST RS.1,54,29,150/- DECLARED BY HIM. 6. BEFORE CIT(A) THE ASSESSEE MADE ELABORATE SUBMISSIONS. IT WAS SUBMITTED THAT ALTHOUGH VARIOUS DETAILS SUCH AS PURCHASE BILLS/VOUCHERS OF BRICKS, SAND, KHADI, MURUM ETC. WERE PRODUCED FOR VERIFICATION, HOWEVER, THE AO HAS NOT PROPERLY VERIFIED THE SAME. IT WAS SUBMITTED THAT THESE EXPENSES WERE NOT RECORDED IN THE BOOKS OF ACCOUNT ON THE DATE ON WHICH GOODS WERE RECEIVED BUT WERE RECORDED ON THE DATE ON WHICH THE PAYMENT WAS MADE AND THEREFORE THE SAID PAYM ENTS WERE NOT APPEARING IN THE FIRST PART. THEREFORE, IT COULD N OT BE HELD THAT THE EXPENSES WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. 7. SO FAR AS THE ISSUE RELATING TO RETURN OF NOTICES U/S.133(6)/SUMMONS U/S.131 TO THE LABOUR CONTRACTORS IS CONCERNED IT WAS ARGUED THAT THESE LABOURERS AND CONT RACTORS FREQUENTLY CHANGE THEIR PLACES, THEREFORE, THOSE LETTER MI GHT HAVE RETURNED UNSERVED WHERE SUCH LABOURERS HAD CHAN GED 5 ITA NO.624/PN/2014 THEIR PLACES. HOWEVER, WHEN THE RETURN OF SUCH NOTICES W AS BROUGHT TO THE NOTICE OF THE ASSESSEE BY THE AO THE ASSESSEE HAD CONTACTED THOSE LABOURER/CONTRACTORS AND FILED THEIR CONFIRMATIONS AND ACCOUNT EXTRACTS BY SPEED POST. THE VARIOUS DISALLOWANCES MADE BY THE AO WERE CHALLENGED AND IT WAS SUBMITTED THAT IF THE ASSESSMENT DONE BY THE AO IS ACCE PTED IT WILL GIVE A PROFIT RATE OF 64.46% WHICH IS JUST NOT POSSIBLE IN CONSTRUCTION BUSINESS. IT WAS SUBMITTED THAT SINCE THER E WERE CERTAIN DEFECTS DUE TO NON MAINTENANCE OF SUBSIDIARY BOOK S SUCH AS INWARD REGISTER, DELIVERY REGISTER AND MUSTER RO LL, CONSUMPTION REGISTER, STOCK REGISTER ETC., THE PROVISIONS O F SECTION 145(3) ARE ATTRACTED AND THE AO HAS ALSO INVOKED THE PROVISIONS OF SECTION 145(3). HOWEVER, IN RESPECT OF ESTIM ATING THE INCOME ON PERCENTAGE BASIS TO THE GROSS RECEIPTS T HE AO HAD MADE SPECIFIC ADDITIONS BY ESTIMATING THE EXPENDITURE INCUR RED BY DETERMINING THE PERCENTAGE OF EXPENDITURE IN RESPECT OF WORK DONE. RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE APPROACH ADOPTED BY THE AO IS NOT JUSTIFIED. IT WAS FURT HER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED BOOKS OF AC COUNT FOR EACH BUSINESS AND THOSE BOOKS WERE AUDITED AND THE AUDITORS HAVE NOT POINTED OUT ANY DEFECTS. IT WAS ACCO RDINGLY ARGUED THAT THE BOOK RESULTS DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED. 8. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD.CIT(A) DIRECTED THE AO TO ADOPT THE PROFIT RATE OF 17% OF THE GROSS RECEIPTS WHICH AMOUNTS TO ADDITION OF RS.34,68,700/-. ACCORDING TO HIM, THE ADDITION OF THIS AMOUNT WILL TAKE CARE OF THE ADDITION OF RS.23,34,760/- MADE BY THE AO ON ACCOUNT OF 6 ITA NO.624/PN/2014 SHORTAGE OF CASH IN THE CASH BOOK DURING THE PERIOD 26- 09-2009 TO 07-02-2010 AND THE DISALLOWANCE OF RS.1,22,881/- U/S.14A OF THE I.T. ACT. THIS WILL ALSO TAKE CARE OF THE DISCREPANCY OF NON MAINTENANCE OF INWARD REGISTER, OUTWARD REGISTER, DELIVERY RESISTER, STOCK RECORD ETC. HE FURTHER HELD THAT SINCE T HE ASSESSEE IS EXECUTING CIVIL CONTRACT FOR EMCO LTD., JALGAON WHICH WILL PROPERLY SUPERVISE AND CHECK THE QUALITY OF THE WORK AND THE SAID COMPANY WILL NOT COMPROMISE ON THE QUALITY OF THE END PRODUCT, THEREFORE, THE ADDITION OF SUCH HUGE AMOUNT BY THE AO IS NOT JUSTIFIED. HE ACCORDINGLY HELD THAT THE EST IMATE AT 7% OF THE GROSS RECEIPT WILL MEET THE ENDS OF JUSTICE. 9. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 10. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISION OF THE LD.CIT(A) IS NOT ACCEPTABLE SINCE THE AO HA S MADE THE ADDITION ON THE BASIS OF FACTUAL POSITION AS DETERMINED ON THE BASIS OF MATERIAL MADE AVAILABLE ON RECOR D. HE SUBMITTED THAT ALL THOUGH THE PROVISIONS OF SECTION 14 5 HAD NOT BEEN MADE APPLICABLE, HOWEVER, THE AO HAS CLEARLY WOR KED OUT THE SPECIFIC ADDITIONS ON THE BASIS OF MATERIAL AVAILABLE O N RECORD AND ON THE BASIS OF WORKING GIVEN BY THE ASSESS EES ENGINEER. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF TH E CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 11. THE LD. AUTHORISED REPRESENTATIVE ON THE OTHER HAN D HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT DURING A.Y. 2009-10 THE ASSESSEE HAS DECLARED A PROFIT PERCENTAGE OF 10.8% AND THE RETURN WAS ACCEPTED U/S.14 3(1). 7 ITA NO.624/PN/2014 DURING THE IMPUGNED ASSESSMENT YEAR THE NET PROFIT SHOW N BY THE ASSESSEE FROM CONTRACT BUSINESS COMES TO 11.61% WH ICH HAS BEEN ENHANCED BY THE CIT(A) TO 17% WITHOUT GIVING AN Y REASON. ALTHOUGH THE ASSESSEE HAS NOT CHALLENGED THE O RDER OF THE CIT(A), HOWEVER, SUCH ESTIMATION ITSELF BY THE CIT(A) IS ON THE HIGHER SIDE. FURTHER, THE AO ON THE BASIS OF COMPARIS ON OF THE FIRST PERIOD AND THE SECOND PERIOD HAS MADE THE ADD ITION WHICH IS NOT JUSTIFIED. THE ASSESSEE HAS PRODUCED ALL RELEV ANT BILLS AND VOUCHERS, THE BOOKS OF ACCOUNT WERE AUDITED AND THE PERCENTAGE OF PROFIT SHOWN DURING THE CURRENT YEAR IS MO RE THAN THAT OF THE PRECEDING ASSESSMENT YEAR. FURTHER, THE AS SESSEE IS DOING WORK FOR PRIVATE PARTIES AND THEREFORE PERCENTAGE OF PROFIT CANNOT BE HIGH UNLIKE GOVERNMENT CONTRACTS. HE SUBMIT TED THAT THE CIT(A) BY FOLLOWING VARIOUS DECISIONS HAS ESTIMATED THE PROFIT AT 17%. THEREFORE, THE REVENUE SHOULD NOT BE AGGR IEVED. HE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY TH E REVENUE SHOULD BE DISMISSED. 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDE RED THE VARIOUS DECISIONS CITED BEFORE THE CIT(A) WHO HAVE REPRODUCED THE SAID DECISIONS IN THE BODY OF THE APPEAL ORDER. WE FIND IN THE INSTANT CASE THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF DEALING IN PLASTIC MOULDED FURNITURES, JOB WORK AND CONSTRUCTION. FROM THE DISCUSSIO N IN THE BODY OF THE ASSESSMENT ORDER, WE FIND THE MAIN GRIEVA NCE OF THE AO IS REGARDING THE VARIOUS DEFECTS IN THE ACCOUNTS OF THE CONSTRUCTION BUSINESS. ACCORDING TO HIM ALTHOUGH THE AS SESSEE 8 ITA NO.624/PN/2014 HAS EXECUTED SOME CONTRACT WORK DURING THE FIRST PERIO D, HOWEVER, HE HAS NOT DEBITED CERTAIN EXPENSES WHICH ARE VITAL FOR SUCH CONSTRUCTION ACTIVITY. HE ACCORDINGLY MADE ADDITION OF RS.12,50,182/- U/S.69 OF THE I.T. ACT. FURTHER, THERE IS SHORTAGE OF CASH IN THE BOOKS OF ACCOUNT DURING A PARTIC ULAR PERIOD FOR WHICH THE AO MADE ADDITION OF RS.23,34,760/- BEING THE PEAK DEFICIT. IT IS ALSO THE ALLEGATION OF THE AO THAT IF THE RATIO OF CONSUMPTION OF MATERIAL TO GROSS RECEIPT DURING TH E FIRST PERIOD IS APPLIED TO THE CONSTRUCTION EXPENSES AND GROSS RECEIPTS FOR THE SECOND PERIOD, THEN THERE IS EXCESS CONSUMPTION OF MATERIAL DURING THE SECOND PERIOD FOR WHICH HE MADE DISALLOWANCE ON ACCOUNT OF EXCESS LABOUR CHARGES AND EXC ESS CONSUMPTION OF MATERIAL TO THE TUNE OF RS.2,99,74,932/-. WE FIND IN APPEAL THE LD.CIT(A) NOTED THAT IF THE DISALLOWANCE IS UPHELD, THEN THE PERCENTAGE OF PROFIT COMES TO MORE THAN 64% WHICH IS JUST NOT POSSIBLE IN SUCH LINE OF BUSINESS. CONSID ERING THE TOTALITY OF THE FACTS OF THE CASE, THE LD.CIT(A) DIRECTE D THE AO TO ADOPT A PROFIT PERCENTAGE OF 17% WHICH WILL TAKE CAR E OF THE SHORTAGE OF CASH IN THE CASH BOOK AND THE DISALLOWAN CE U/S.14A. IT WILL ALSO TAKE CARE OF THE VARIOUS OTHER SHORTCOMINGS IN MAINTENANCE OF BOOKS OF ACCOUNT. WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ADMITTEDLY, THERE ARE CERTAIN DEFECTS IN THE BOOKS OF ACC OUNT SUCH AS NON-MAINTENANCE OF SUBSIDIARY LEDGERS, GOODS INWAR D AND OUTWARD REGISTER, STOCK REGISTER ETC. THEREFORE, THE BOOKS OF ACCOUNT ARE NOT AMENABLE TO PROPER VERIFICATION. AT THE SAME TIME, IF THE APPROACH ADOPTED BY THE AO IS ACCEPTED, THEN THE CONSTRUCTION BUSINESS GIVES A PROFIT PERCENTAGE OF MORE T HAN 9 ITA NO.624/PN/2014 64% WHICH IS NOT POSSIBLE IN THIS LINE OF BUSINESS ESPECIALLY WHEN THE ASSESSEE HAS UNDERTAKEN CONSTRUCTION WORK FO R PRIVATE PARTIES. THE VARIOUS BENCHES OF THE TRIBUNAL ARE CONSIDERING PROFIT RATE OF 8% TO 15% IN CONSTRUCTION BUSINE SS AS REASONABLE. SINCE THE LD.CIT(A) IN THE INSTANT CASE HAS D IRECTED THE AO TO ADOPT PROFIT PERCENTAGE OF 17%, THEREFORE, IN OU R OPINION, SUCH PROFIT PERCENTAGE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IS REASONABLE AND DOES NOT CA LL FOR ANY INTERFERENCE. WE ACCORDINGLY UPHOLD THE ORDER OF T HE CIT(A) AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-03-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 04 TH MARCH, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - I I , NASHIK 4. 5. 6. THE CIT-II, NASHIK $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // $ ' //TRUE C /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE