ITO 25(3)(1), MUMBAI V. GORDHAN D. BALANI, MUMBAI

ITA 6676/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8798 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 24-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER. I.T.A. NO. 6676/MUM/2010 ASSESSMENT YEAR : 2006-07. THE INCOME-TAX OFFICER, SHRI GORDHAN D. BALANI, 25(3)(1), MUMBAI. VS. 112, DIMPLE ARCADE, ASHA NAGAR, KANDI VALI (E) MUMBAI 400 101. PAN AABPB2534P APPELLANT. RESPONDENT. APPELLANT BY : SHRI A.K.NAYAK. RESPONDENT BY : NONE. DATE OF HEARING : 24-08-2012 DATE OF PRONOUNCEMENT : 26-9-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-35, MUMBAI DATED 28-06-2010 WHEREBY HE RESTRICTED THE ADDITIONS/DISALLOWANCE OF RS.18,18,098/- MADE BY TH E AO TO THE TOTAL INCOME OF THE ASSESSEE TO RS.1,48,775/-. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS ENGAGED IN THE BUSINESS AS ELECTRICAL CONTRACTOR IN THE NAME AND S TYLE OF HIS PROPRIETARY CONCERN M/S SHREE SAIBABA ELECTRICALS. THE RETURN OF INCOME FOR THE YEAR UNDER 2 ITA NO.6676/MUM/2010 CONSIDERATION WAS FILED BY IT ON 26-10-2006 DECLARI NG TOTAL INCOME OF RS.3,13,667/-. THE SAID RETURN WAS SELECTED BY THE AO FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE BOOKS OF ACCO UNT WERE VERIFIED BY THE AO. ON VERIFICATION, THE AO FOUND VARIOUS DEFECTS IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. ON THE BASIS OF THE DEFECTS SO POI NTED OUT SPECIFICALLY IN THE ASSESSMENT ORDER, THE AO CAME TO THE CONCLUSION THA T THE SAME WERE NOT PROPERLY MAINTAINED AND WERE NOT IN CONSONANCE WITH THE MET HOD OF ACCOUNTING CLAIMED TO BE FOLLOWED BY THE ASSESSEE. HE, THEREFORE, REJECT ED THE BOOK RESULTS DECLARED BY THE ASSESSEE AND MADE AN ADDITION OF RS.10,30,686/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DIFFERENCE IN THE CONTRACT R ECEIPTS AS DECLARED BY THE ASSESSEE AND THE AMOUNT OF CONTRACT RECEIPTS AS REF LECTED IN THE TDS CERTIFICATE. HE ALSO MADE FURTHER ADDITIONS OF RS.67,829/- ON ACCOU NT OF DISALLOWANCE OF LABOUR CHARGES, RS.44,103/- ON ACCOUNT OF DISALLOWANCE OUT OF VARIOUS EXPENSES AND RS.6,75,480/- ON ACCOUNT OF UNPROVED SUNDRY CREDITO RS. ACCORDINGLY, TOTAL ADDITIONS OF RS.18,18,098/- WERE MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) VID E AN ORDER DATED 19-12-2008. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND AF TER CONSIDERING THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE BEFORE HIM AS WELL A S THE MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(APPEALS) RESTRICTED THE ADD ITIONS OF RS.18,18,098/- MADE BY THE AO TO RS.1,48,775/- FOR THE FOLLOWING REASON S GIVEN IN PARAGRAPH NO.5.1 OF HIS IMPUGNED ORDER : I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESEN TATIVE AND THE STAND TAKEN BY THE A.O. IT IS SEEN FROM THE PROFIT AND LO SS ACCOUNT THAT NO CLOSING STOCK IS ADMITTED. THE APPELLANT HAS ACCOUNTED CO NTRACT RECEIPTS AND LABOUR 3 ITA NO.6676/MUM/2010 CHARGES RECEIPTS AND CLAIMED THE EXPENDITURE TOWARD S PURCHASES AND LABOUR CHARGES. EVEN THOUGH IT WAS CONTENDED BEFORE THE A. O. THAT THE APPELLANT WAS FOLLOWING CASH METHOD OF ACCOUNTING, THE SAME C ANNOT E ACCEPTED BECAUSE THE APPELLANT HAS CLAIMED SUNDRY DEBTORS A ND CREDITORS IN THE BALANCE SHEET AS HELD BY HE A.O. THE APPELLANT HAS NOT MADE ANY ADJUSTMENT IN THE STATEMENT OF TOTAL INCOME FOR CASH METHOD OF ACCOUNTING EVEN THOUGH THE BOOKS OF ACCOUNT ARE MAINTAINED ON MERCANTILE B ASIS. IF THE BOOKS OF ACCOUNT WERE MAINTAINED ON MERCANTILE BASIS, THE AP PELLANT OUGHT TO HAVE ADMITTED THE CLOSING STOCK IN THE PROFIT AND LOSS A CCOUNT. THE ENQUIRY CONDUCTED BY THE A.O. DURING THE COURSE OF REMAND P ROCEEDINGS ESTABLISHES THE FACT THAT THE APPELLANT HAS CARRIED OUT WORK TO THE EXTENT OF RS.13,53,476/- TO M/S HCC LTD. FOR WHICH THE COMPAN Y HAD MADE PROVISION BUT THE APPELLANT HAS NOT ADMITTED THE CLOSING STOC K. WHEN THE APPELLANT HAS BOOKED PURCHASES AND LABOUR CHARGES ON MERCANTILE B ASIS, THE CLOSING STOCK SHOULD ALSO HAVE BEEN ADMITTED. AT THE SAME TIME, I T IS FURTHER SEEN THAT THE APPELLANT HAS NOT ADMITTED ANY OPENING STOCK AND, T HEREFORE, BY MAKING ADDITION TO CLOSING STOCK ALONE WOULD GIVE DISTORTE D PROFITS FOR THIS YEAR. AS RIGHTLY HELD BY THE A.O., THE BOOKS OF ACCOUNT CANN OT BE TAKEN AS COMPLETE AND CORRECT AND, THEREFORE, SECTION 145(3) IS TO BE INVOKED. IT IS SEEN FROM THE PROFIT AND LOSS ACCOUNT THAT THE APPELLANT HAS RECEIVED CONTRACT RECEIPTS AND LABOUR CHARGES TO THE EXTENT OF RS.46,24,418/-. AS CONTENDED BY THE REPRESENTATIVE, IF THE ADDITIONS MADE BY THE A.O. A RE CONFIRMED, THE TOTAL INCOME OF THE APPELLANT WORKS OUT TO RS.21,31,770/- WHICH WORKS OUT TO NET PROFIT @46% WHICH IS IMPOSSIBLE IN THE LINE OF ELEC TRICAL CONTRACT BUSINESS. I, THEREFORE, DIRECT THE A.O. TO ESTIMATE THE INCOM E OF THE APPELLANT @ 10% OF THE CONTRACT CHARGES AND LABOUR CHARGES RECEIPT AND THEREBY THE TOTAL INCOME WORKS OUT TO RS.4,62,442/-. AS THE INCOME OF THE APPELLANT IS ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT, ALL TH E ADDITIONS MADE BY THE A.O. SHALL BE SUBSTITUTED BY ESTIMATION OF 10% NET PROFIT. ACCORDINGLY, THE A.O. SHALL DETERMINE THE TOTAL INCOME OF THE APPELL ANT AT RS.4,62,442/- AS AGAINST RS.21,31,770/- IN THE ASSESSMENT ORDER. THE A.O. SHALL NOT GIVE CREDIT FOR TDS CERTIFICATE OF RS.15,186/- AS REPORT ED BY HIM. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE AS ABOVE, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4 ITA NO.6676/MUM/2010 4. AT THE TIME OF HEARING BEFORE US, NOBODY HAS APP EARED ON BEHALF OF THE ASSESSEE. THIS APPEAL OF THE REVENUE IS, THEREFORE, BEING DISPOSED OF EXPARTE QUA THE RESPONDENT ASSESSEE AFTER HEARING THE ARGUMENTS OF THE LEARNED DR AND PERUSING THE RELEVANT MATERIAL ON RECORD. IT IS OBS ERVED THAT THE ACTION OF THE AO IN REJECTING THE BOOK RESULTS DECLARED BY THE ASSESSEE HAS BEEN UPHELD BY THE LEARNED CIT(APPEALS) BY HIS IMPUGNED ORDER. HE, HOWEVER, HA S FOUND THE INCOME ESTIMATED BY THE AO AT RS.21,431,765/- TO BE HIGHLY EXCESSIVE AND UNREASONABLE AFTER HAVING FOUND THAT THE SAME WORKS OUT TO 46% O F THE CONTRACT RECEIPTS WHICH IS VIRTUALLY IMPOSSIBLE IN THE LINE OF ELECTRICAL CONT RACTING BUSINESS. HE, THEREFORE, DIRECTED THE AO TO ESTIMATE THE INCOME OF THE ASSES SEE FROM ELECTRICAL CONTRACTING BUSINESS BY ADOPTING THE NET PROFIT RATE OF 10% OF THE TOTAL CONTRACT RECEIPTS FOR THE YEAR UNDER CONSIDERATION. IT IS WELL SETTLED THAT W HEN THE BOOK RESULTS DECLARED BY THE ASSESSEE ARE REJECTED AND THE INCOME IS DETERMI NED ON ESTIMATE BASIS, SUCH ESTIMATE HAS TO BE FAIR AND REASONABLE BASED ON THE FACTS OF THE CASE AS WELL AS THE MATERIAL AVAILABLE ON RECORD. IN OUR OPINION, IF AL L THE FACTS OF THE PRESENT CASE ARE TAKEN INTO CONSIDERATION INCLUDING ESPECIALLY THE N ATURE OF ASSESSEES BUSINESS OF ELECTRICAL CONTRACTOR, THE ESTIMATE MADE BY THE AO WHICH WORKED OUT TO 46% OF CONTRACT RECEIPTS WAS CERTAINLY EXCESSIVE AND UNREA SONABLE AND THE LEARNED CIT(APPEALS) HAS BEEN FAIR AND REASONABLE IN RESTRI CTING THE SAME BY DIRECTING THE AO TO ADOPT THE NET PROFIT RATE OF 10%. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR HAS NOT BEEN ABLE TO RAISE ANY MATERIAL CONTENTION TO SHOW THAT THE ESTIMATE MADE BY THE LEARNED CIT(APPEALS) BY ADOPTI NG THE NET PROFIT RATE OF 10% IS NOT FAIR AND REASONABLE IN THE FACTS AND CIRCUMS TANCES OF THE CASE. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE FIND NO J USTIFIABLE REASONS TO INTERFERE WITH THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON T HIS ISSUE AND UPHOLDING THE SAME, WE DISMISS THIS APPEAL FILED BY THE REVENUE. 5 ITA NO.6676/MUM/2010 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 26 TH DAY OF SEPT. , 2012. SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 26 TH SEPT., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES, MUMB AI. WAKODE