M/s. Mahendra Singh & Co., JODHPUR V. ACIT, BIKANER

ITA 668/JODH/2006

• Counselvise Citation: 66823314 RSA 2006
• Duration Of Justice: 4 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-07-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 26-12-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Assessee Lawyers: U C JAIN
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 145

Judgement Text

ITA NO.668/JU/2006 1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH : JODHPUR BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.668/JU/2006 ASSESSMENT YEAR : 2003-04 M/S MAHENDRA SINGH & CO., M.P. NAGAR, BIKANER. PAN : AACFM0279K VS. ACIT, CIRCLE-2, BIKANER. ASSESSEE BY : SHRI U.C. JAIN, ADVOCATE REVENUE BY : SHRI G.R. KOKANI, DR O R D E R PER K.D. RANJAN, AM: THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 03-04 ARISES OUT OF THE ORDER OF CIT (A)-II, BIKANER. THE GROUNDS OF APPEAL RAISED ARE AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE ORDER PASSED BY LD. CIT (A) IS BAD IN LAW, BAD IN FACTS A ND VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT (A) GROSSLY ERRED IN ESTIMATING INCOME OF APPELLANT FIR M FROM CONTRACT BUSINESS AT RS.40,71,974/- AS AGAINST DECLARED AT RS.16,05,2 50/- WHEREBY SUSTAINING. [A] AN ADDITION OF RS.9,33,975/- MADE BY THE A.O. [B] ENHANCING THE INCOME BY A SUM OF RS.14,85,094/- OVER AND ABOVE ASSESSED BY AO. 3. WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNATIV E [I] THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN MAKING AN ADDITION ON A/C OF SUPPRESSI ON OF CLOSING STOCK AND WORK IN PROGRESS BY RS.23,57,392/- [II] DISALLOWANCE OUT OF EXPENDITURE CLAIMED RS. 10,00,000/- RS.33,57,392/- ITA NO.668/JU/2006 2 [III] THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE RATE OF PROFIT DECLARED BY THE APPELLANT IS REASONABLE A ND OUGHT TO HAVE ACCEPTED. [IV] THAT WHEN THE AUTHORITIES BELOW REJECTED THE BOOK VERSION UNDER THE PROVISIONS OF SEC.145 THEN NO SPECIFIC AD DITIONS OR DISALLOWANCES ARE CALLED. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, WHEN PROFIT ARE ESTIMATED BY APPLICATION OF NET PROFIT RATE THE N SPECIFIC DISALLOWANCES MADE BY T HE AO AND CONFIRMED BY CIT (A) IS ERRONEO US AND THE FOLLOWING DISALLOWANCES REQUIRES TO BE DELETED. [A] OUT OF TELEPHONE EXP. RS.16 ,412/- [B] OUT OF VEHICLE EXP. RS .20,000/- [C] OUT OF DEP. ON VEHICLES RS.11, 307/- 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT (A) ERRED IN CHANGING THE MODE OF ASSESSMENT ADOPTED IN PAST AND ESTIMATING THE INCOME AS PER HIS OWN METHOD. 6. 7. THAT THE PETITIONER MAY KINDLY BE PERMITTED TO R AISE ANY ADDITIONAL AND/OR ALTERNATIVE GROUND AT OR BEFORE THE HEARING OF APPEAL. 8. THE PETITIONER PRAYS FOR JUSTICE & RELIEF. 2. AT THE TIME OF HEARING, GROUND NO.1 WAS NOT PRES SED AND, AS SUCH, THE SAME IS DISMISSED. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.16,05,250/-. THE ASSE SSEE FIRM DERIVES INCOME FROM CONTRACT WORK. THE NET PROFIT DECLARED IN THE YEAR UNDER CONSIDERA TION IS AT 10.17% AS AGAINST 9.32% IN THE IMMEDIATE PRECEDING YEAR AND 15.56% IN ASSESSMENT Y EAR 2001-02. THE AO ASKED THE ASSESSEE TO JUSTIFY FALL IN NET PROFIT DURING THE YEAR UNDER CONSIDERATION IN VIEW OF THE FACT THAT ITAT, JAIPUR BENCH IN THE CASE OF M/S JAIN CONSTRUCTION C OMPANY VS. ITO APPROVED NET PROFIT RATE OF 12.5% SUBJECT TO DEPRECIATION, INTEREST AND REMUNER ATION TO PARTNERS. HONBLE RAJASTHAN HIGH COURT AFFIRMED THE ORDER OF ITAT. HOWEVER, SINCE N O SATISFACTORY REPLY WAS FURNISHED, THE AO APPLIED THE NET PROFIT RATE OF 11.5% AS AGAINST 10. 17% DECLARED BY THE ASSESSEE. THIS RESULTED IN ADDITION OF RS.9,33,975. THE AO WHILE ESTIMATING T HE NET PROFIT AT 11.5% REJECTED THE BOOKS OF ACCOUNT U/S 145 FOR THE REASONS THAT NO STOCK RECOR D WAS MAINTAINED OR PRODUCED IN ORDER TO ITA NO.668/JU/2006 3 VERIFY THE GENUINENESS AND CORRECTNESS OF VEHICLE O F CLOSING STOCK AND MOST OF THE EXPENSES WERE NOT PROPERLY VOUCHED. LD. AO THEREAFTER MADE DISAL LOWANCE OUT OF TELEPHONE EXPENSES, VEHICLE RUNNING EXPENSES AND THE DEPRECIATION ON ESTIMATE BASIS. 4. ON APPEAL BEFORE CIT(A), LD. AR OF THE ASSESSEE DID NOT OBJECT THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3), BUT ONLY OBJECTED TO APPLICATIO N OF NET PROFIT RATE OF 11.5%. HE ALSO OBJECTED TO DISALLOWANCE OF 1/6 TH OUT OF TELEPHONE EXPENSES, VEHICLE EXPENSES AND DEP RECIATION ON VEHICLES ON ACCOUNT OF PERSONAL USE BY THE PARTNERS . LD. CIT (A) WHILE EXAMINING THE GENUINENESS OF PROFITS DECLARED AND CLAIMED BY THE ASSESSEE, NOTED THE DISCREPANCIES OF SERIOUS NATURE; WORKING OF WORK-IN-PROGRESS; AND ALSO EXCES S CLAIM OF EXPENDITURE. LD. CIT (A) ISSUED ENHANCEMENT NOTICE AND CALLED FOR THE COMMENTS OF T HE ASSESSEE. IN RESPONSE THERETO, LD. AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS, BUT, DID NO T PRODUCE BOOKS OF ACCOUNT AND DOCUMENTS CALLED FOR VIDE SHOW CAUSE NOTICE, BUT, ONLY PRODUC ED LEDGER AND ABSTRACT FROM THE LEDGER. LD. CIT (A) OBTAINED THE COMMENTS OF THE ASSESSEE IN RE SPECT OF EXCESS CONSUMPTION OF BITUMEN, DIESEL AND FUEL, GRIT & BLAST, FREIGHT AND CARRIAGE S. THE ASSESSEE SUBMITTED EXPLANATION, IN RESPECT OF ALL THE ITEMS. LD. CIT (A), AFTER CONSI DERING THE FACTS, UPHELD THE REJECTION OF BOOKS OF ACCOUNT. ON MERITS LD. CIT (A) EXAMINED THE MATTER IN DETAIL. DURING THE COURSE OF HEARING, LD. AR OF THE ASSESSEE AGREED FOR ADDITION OF RS.10 LAC ON ACCOUNT OF EXCESS CLAIM OF EXPENDITURE UNDER THE HEAD LDO, FREIGHT AND CARRIAGE, DIESEL, ETC., AS AGAINST RS.13,87,460/- OF EXCESS EXPENDITURE OF DIESEL, LDO AND FREIGHT AND CARRIAGE . LD. CIT (A) ALSO MADE ADDITION OF RS.23,57,392/- ON ACCOUNT OF SUPPRESSION OF WORK-IN -PROGRESS. THE AO HAD MADE ADDITION OF RS.9,33,975/- BY APPLYING NET PROFIT RATE OF 11.5% AFTER REJECTING THE BOOKS OF ACCOUNT. LD. CIT (A) ALLOWED SET OFF OF ADDITION OF RS.9,33,975/- AG AINST THE ADDITION OF RS.33,57,392/- MADE ON ACCOUNT OF SUPPRESSION OF WORK-IN-PROGRESS AND INFL ATED EXPENDITURE WHICH RESULTED IN NET ENHANCEMENT OF RS.24,23,470/-. 5. BEFORE US, WHEN THE CASE CAME UP FOR HEARING, LD . AR OF THE ASSESSEE SUBMITTED THAT THE COUNSEL FOR THE ASSESSEE WAS NOT AUTHORIZED TO SURR ENDER THE AMOUNT ON BEHALF OF THE ASSESSEE. HE FURTHER SUBMITTED THAT PROPER OPPORTUNITY WAS NO T ALLOWED TO THE ASSESSEE TO CONFRONT THE PROPOSED ENHANCEMENT. IT WAS ALSO SUBMITTED THAT TH E ASSESSING OFFICER HAD ALREADY ESTIMATED NET INCOME AFTER REJECTING THE BOOKS ACCOUNTS AND THER EFORE, FURTHER ENHANCEMENT ON THE BASIS OF ITA NO.668/JU/2006 4 DEFECTS RESULTING IN REJECTION OF BOOKS OF ACCOUNT IS AGAINST JUDICIAL PRONOUNCEMENTS. HENCE A REQUEST WAS MADE TO SET ASIDE THE MATTER TO THE FIL E OF LD. CIT (A) WITH THE DIRECTIONS TO DECIDE THE APPEAL AFTER PROVIDING THE ASSESSEE AN OPPORTU NITY OF BEING HEARD. 6. ON THE OTHER HAND, LD. SR. DR SUPPORTED THE ORDE R OF THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, THE ASSESSEE RAISED A DDITIONAL GROUND REGARDING DISALLOWANCE OF RS.23,57,397/- AND RS.10 LAC ON THE BASIS OF SURREN DER MADE BY AUTHORIZED REPRESENTATIVE SINCE THE ASSESSEE HAS CONTESTED THE SURRENDER MADE BY TH E AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WITHOUT ANY AUTHORITY OF THE ASSESSEE. SINCE THE A SSESSEE HAD NOT AGREED, THE SURRENDER MADE BY THE AUTHORIZED REPRESENTATIVE WILL NOT BE BINDING O N THE FIRM. THE ASSESSEE HAD ALSO CHALLENGED THE COMPUTATION OF CALCULATION OF EXCESS CONSUMPTIO N OF MATERIAL. THE ASSESSING OFFICER HAD REJECTED BOOKS OF ACCOUNT AND ESTIMATED INCOME BY A PPLYING NET PROFIT OF 11.5%. ONCE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THE SAME CANNOT BE USE D FOR THE PURPOSES MAKING ADDITIONS BASED ON THEM ON ACCOUNT SO CALLED DISCREPANCIES. NO DOUBT LD. CIT(A) HAD EXAMINED THE BOOK RESULTS IN DETAIL DURING THE COURSE OF APPELLATE PROCEEDINGS B UT PROPER OPPORTUNITY OF BEING HEARD HAD BEEN GIVEN PARTICULARLY IN VIEW OF THE FACTS WHEN REJECT ION OF BOOKS OF ACCOUNTS IS UPHELD AND AT THE SAME TIME ENHANCEMENT OF ASSESSMENT IS BASED ON THE SAME SET OF REJECTED BOOKS OF ACCOUNT. WE, THEREFORE, SET ASIDE THE ENTIRE MATTER TO THE FILE OF LD. CIT (A) WITH THE DIRECTIONS TO EXAMINE THE CLAIM OF THE ASSESSEE AND DECIDE THE MATTER AFR ESH AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. WITHOUT PREJUDICE WE MA Y LIKE TO MAKE IT CLEAR THAT OUR ABOVE OBSERVATIONS WOULD NOT ADVERSELY AFFECT THE CASE OF EITHER PARTY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28.07.2011. SD/- SD/- [RAJPAL YADAV] [K.D. RANJAN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 28 TH JULY, 2011 ITA NO.668/JU/2006 5 DK COPY FORWARDED TO:- 1. APPELLANT. 2. RESPONDENT 3. INCOME-TAX OFFICER, 4. CIT 5. DR 6. GUARD FILE ASSTT. REGISTRAR ITAT, JODHPUR