ACIT, Jaipur V. M/S RAKESH CONSTRUCTION COMPANY, Jaipur

ITA 694/JPR/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5228 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BHATEJA
• Assessee Lawyers: S K GOGRA CA DHK
• Keywords: Depreciation; Corroborative evidences; Royalty expenses
• Section: 142(1)

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 HKKXPUN] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF;D LN L; DS LE{K BEFORE:SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, J M VK;DJ VIHY LA-@ ITA NO. 694/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 THE ACIT CIRCLE -7 JAIPUR CUKE VS. M/S. RAKESH CONSTRUCTION COMPANY 61/35, PRATAP NAGAR, HOUSING BOARD SANGANER, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABFR 3344 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY: SHRI O.P. BHATEJA, ADDL. CIT -DR FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.K. GOGRA, CA LQUOKBZ DH RKJH[K@ DATE OF HEARING : 13/06/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 15/06/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)- III, JAIPUR DATED 31-05-2012 FOR THE ASSESS MENT YEAR 2009-10 RAISING THEREIN FOLLOWING GROUNDS OF APPEAL. (I) THE ORDER OF THE LD. CIT(A) IS PERVERSE IN RE STRICTING THE SPECIFIC DISALLOWANCE OF EXPENSE TO THE EXTENT OF RS. 17,75,488/- BY ADOPTING THE EFFECTIVE NET PROFIT RA TE AT 5.05% ONLY AS AGAINST 10.2% APPLIED BY THE AO EVEN WHILE UPHOLDING THE APPLICABILITY OF SECTION 145(3) OF TH E I.T. ACT, 1961. ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 2 (II) THE LD. CIT(A)S ORDER IS PERVERSE AS SPECIFIC DEFECTS, IN CASE OF DEBITED EXPENSES HAVE BEEN IGNORED, IN P REFERENCE TO ARBITRARILY ADOPTED NET PROFIT RATE OF 5.05 ONLY . (III) THE ORDER OF THE LD. CIT(A) IS PERVERSE IN DE LETING THE DISALLOWANCE OF RS. 58,87,032/- MADE BY THE AO U/S 41(1) IN SPITE OF THE FACT THAT THE ASSESSEE HAD NEITHER FIL ED CONFIRMATIONS NOR WERE THESE PERSONS PRODUCED FOR EXAMINATION. 2.1 APROPOS GROUND NO. 1 AND 2 OF THE REVENUE WHERE IN BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR THE ASSE SSMENT YEAR 2009-10 WAS E-FILED BY THE ASSESSEE ON 28-09-2010 DECLARIN G TOTAL INCOME OF RS. 16,62,273. THE RETURN WAS PROCESSED U/S 143(1) OF T HE ACT ON THE RETURNED INCOME. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY. THE NOTICE WAS ISSUED ON THE ASSESSEE ON 25-08-2010 WHICH WAS SERVED ON THE ASSESSEE. THE LD. AR OF THE ASSESSEE ATTENDED THE H EARING FROM TIME TO TIME AND FURNISHED REQUIRED THE INFORMATION. THE BO OKS OF ACCOUNT WERE PRODUCED BY THE LD. AR OF THE ASSESSEE AND EXAMINED ON TEST CHECK BASIS BY THE AO. THE AO OBSERVED THAT THE ASSESSEE IS ENG AGED IN THE CIVIL CONSTRUCTION WORK I.E. MAINLY OF RAJASTHAN HOUSING BOARD AND RIICO. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS WENT THROUGH THE BOOKS OF ACCOUNT OF THE ASSESSEE AND MADE FOLLOWING OBSERVATIONS. (I) NO STOCK DETAILS HAVE BEEN MAINTAINED. ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 3 (II) DIESEL AND OIL EXPENSES OF RS. 22,85,671/- WER E NOT FULLY SUPPORTED BY BILLS AND VOUCHERS. PARTICULARLY FOR THE PURCHASES FROM D.D. SHARMA PETROLEUM, NOT EVEN A SI NGLE BILL WAS PRODUCED. (III) CONVEYANCE EXPENSES OF RS. 23,55,000/- WERE N OT FULLY SUPPORTED BY BILLS AND VOUCHERS (IV) ON A PERUSAL OF THE SALARY REGISTER FOR SALARY EXPENSES OF RS. 3,00,000/- AD SUPPORTING EVIDENCES, IT WAS N OTICED THAT ONLY SELF MADE VOUCHERS WERE AVAILABLE FOR ONLY TWO PERSONS AND NO SUPPORTING EVIDENCE WAS AVAILABLE FOR THE RE ST OF THE EMPLOYEES. THE LEDGER ACCOUNT ITSELF WAS MUM ABOUT THE NUMBER OF EMPLOYEES AND IT WAS NOT CLEAR AS TO HOW MUCH WAS PAID TO EACH OF THE EMPLOYEE. LATER THE ASSESSE E PRODUCED THE IDENTITY PROOF AND CONFIRMATION OF ONE OF THE ACCOUNTANT WHILE STATING THAT THE OTHER ONE LEFT TH E JOB. NO PROOF REGARDING THIS WAS PRODUCED. (V) OUT OF TOTAL CLAIMED ROYALTY EXPENSES OF RS. 9, 97,692/- , THE ASSESSEE FIRM COULD PRODUCE DOCUMENTS RELATED ONLY TO ROYALTY EXPENSES OF RS. 9,51,239/-. THE REST OF THE AMOUNT OF RS. 46,453/- REMAINED UNSUBSTANTIATED (VI) OFFICE EXPENSES OF RS. 41,270/- WERE NOT SUPPO RTED BY PROPER BILLS AND VOUCHERS. (VII) OUT OF MISCELLANEOUS EXPENSES OF RS. 45,040/- , THE ASSESSEE WAS ABLE TO PRODUCE BILLS AND VOUCHERS FOR ONLY RS. 7,408/-. FOR THE REST OF THE AMOUNT OF EXPENSES, NO BILLS WERE PRODUCED. (VIII) THE PAYMENTS OF RS. 2,35,25,400/- MADE TO L ABOUR WERE DONE IN CASH AND WERE SUPPORTED BY HANDMADE VOUCHERS ONLY. NO LABOUR PAYMENT REGISTER HAD BEEN MAINTAINED. ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 4 2.2 THE AO RAISED THE QUERY FOR THE ABOVE DISCREPAN CIES AND DEFECTS TO THE ASSESSEE TO EXPLAIN THE SAME AND THE SAME WAS R EPLIED BY THE ASSESSEE. HOWEVER, THE REPLY OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO BECAUSE THE REPLY OF THE ASSESSEE WAS GENERAL IN NATURE AND NOT CONNECTED WITH DOCUMENTARY EVIDENCES. THE AO THUS MADE FOLLOWING D ISALLOWANCE UNDER DIFFERENT HEARD OF EXPENSES. HEAD OF EXPENSES AMOUNT CLAIMED % DISALLOWED AMOUNT DISALLOWED REMARKS DIESEL AND OIL 2285671 20 457134 - CONVEYANCE 2355000 20 471000 - SALARY 300000 20 60000 - ROYALTY 997692 46453 BILLS/RECEIPTS NOT AVAILABLE OFFICE 41270 20 8254 - MISCELLANEOUS 45040 37632 BILLS NOT AVAILABLE LABOUR 23525400 10 2352540 NO LABOUR PAYMENT REGISTER THE AO OBSERVED THAT NO CORRECT STATE OF THE PROFIT / INCOME OF THE ASSESSEE FIRM COULD BE ASCERTAINED FROM THE BOOKS O F ACCOUNT. THE AO THUS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT. THE AO FURTHER OBSERVED THAT NET PROFIT RATE SUBJEC T TO INTEREST AND REMUNERATION TO PARTNERS FOR THE ASSESSMENT YEAR 20 08-09 AND 2009-10 IS ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 5 STATIC AT 5.15% AND FOR ASSESSMENT YEAR 2007-08 IT WAS 5.05%. THE AO THUS OBSERVED THAT IN THIS SCENARIO , SPECIFIC DISA LLOWANCES HAVE BEEN MADE AND NET PROFIT RATE IS INCREASED ACCORDINGLY T O 10.2% AND HENCE AN ADDITION OF RS. 34,33,013/- HAS BEEN MADE BY THE AO TO THE INCOME OF THE ASSESSEE FIRM. 2.3 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) WHO PARTLY ALLOWED THE GROUND OF ASSESSEE BASING NE T PROFIT RATE OF 5.05% BY OBSERVING AS UNDER:- CONCLUSION:-IN VIEW OF THE AFORESAID FACTUAL AND LEGAL POSITION, IT IS HELD THAT THE RATIO UPHELD IN THE ABOVE DECISIONS, IN RESPECT OF ESTIMATION OF INCOME U/S 145(3), IS ALSO APPLICABLE IN THE PRESENT CASE, THUS THE PAST HISTORY OF THE APPELLANT IS TO BE APPLIED TO COMPUTE THE TRADI NG INCOME OF THE APPELLANT OF THE CURRENT YEAR. AO OBSERVED F ROM THE RELEVANT PAST HISTORY, IT IS FOUND THAT THE APPELLA NT HAD ADMITTED OF HAVING EFFECTIVE NP AT 5.05%, IN THE IM MEDIATE PREVIOUS YEAR, THUS THE AOS ESTIMATION OF NP @ 10. 2%, RESULTANT OF THE ADHOC ADDITION RS. 34,33,013/-, IS FOUND RATHER ON HIGHER SIDE AND AGAINST THE GUIDELINES PR OVIDED BY THE COURTS, IN THIS REGARD. THUS IN THE LIGHT OF T HE ABOVE FACT AND CIRCUMSTANCES, I AM OF THE CONSIDERED VIEW THAT APPLYING THE EFFECTIVE NET PROFIT RATE OF THE PREVIOUS YEAR, I.E. 5.05% IN THE CURRENT YEAR, WOULD BE FAIR, PROPER AND SUFFICI ENT TO MEET THE BOTH ENDS OF THE JUSTICE, AS SUCH. ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE ESTIMATION OF INCOME BY AD OPTING THE EFFECTIVE OF NP RATE AT 5.05% ONLY (AFTER DEDUCTION OF THE DEPRECIATION, INTEREST AND REMUNERATION PAID TO PAR TNERS), AS AGAINST THE MULTIPLE ADDITIONS OF RS. 34,33,013/-, MADE U/S 145(3) IN THIS REGARD. THE ABOVE PROPOSITION WOULD RESULT ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 6 INTO THE CONFIRMATION OF THE TRADING ADDITION TO TH E EXTENT OF RS. 17,75,488, [(RS. 3437761 (@5.05%) RS. 1662273 (@2.44%)], AGAINST THE ADDITION OF RS. 34,33,013, B Y THE AO. ACCORDINGLY, THE ADDITION MADE U/S 145(3) IN TH IS REGARD IS, PARTLY UPHELD UPTO RS. 17,75,488 ONLY. CONSEQUE NTLY, THIS GROUND OF APPEAL IS PARTLY UPHELD. 2.4 NOW THE REVENUE IS BEFORE US AND DURING THE COU RSE OF HEARING THE LD. DR RELIED ON THE ORDER OF THE AO ON THIS IS SUE. 2.5 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) ON THIS ISSUE . 2.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) HA S EFFECTIVELY TAKEN THE NET PROFIT RATE AT 5.05% WHICH IS BASED ON THE PREV IOUS HISTORY OF THE ASSESSEE. THE LD. DR WAS NOT ABLE TO CONTROVERT THE FACT RECORDED BY THE LD. CIT(A) IN HIS ORDER. THEREFORE, WE FIND NO MERI T IN THIS GROUND OF APPEAL OF THE REVENUE WHICH IS DISMISSED. THUS GROU ND NOS. 1 AND 2 OF THE REVENUE ARE DISMISSED. 3.1 APROPOS GROUND NO. 3 OF THE REVENUE WHEREIN BRI EF FACTS OF THE CASE ARE THAT THE AO VIDE QUESTIONNAIRE ANNEXED TO NOTICE U/S 142(1) DATED 15-11-2011 ASKED THE ASSESSEE FIRM TO PROVIDE CONFIRMATION OF ACCOUNTS OF ALL THE SUNDRY CREDITORS ABOVE RS. 1,00 ,000/-. THE ASSESSEE FILED THE CONFIRMATIONS IN RESPECT OF ONLY THREE PA RTIES VIZ RAKESH EARTHMOVERS (P) LTD. , VIJAY ENTERPRISES AND RAJAST HAN ENTERPRISES. ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 7 ACCORDING TO THE AO, THERE WERE 08 SUCH PARTIES AN D ACCORDINGLY SUMMONS WERE ISSUED BY THE AO. THE AO OBSERVED THAT EXCEPT FOR ONE, I.E. JAIPUR STEEL TECH INDIA (P) LTD., NO ONE APPEA RED BEFORE HIM. THE ASSESSEE WAS CONFRONTED WITH THIS AND ASSESSEE WAS GIVEN A SHOW CAUSE NOTICE DATED 24-1-2011 ASKING TO PRODUCE THE SUNDRY CREDITORS OF ABOVE RS. 1.00 LAC SO THAT AMOUNTS SHOWN ARE NOT ADDED BA CK TO THE ASSESSEE'S INCOME U/S 41(1) OF THE ACT. THE AO OBSERVED THAT N EITHER THE ASSESSEE ATTENDED THE PROCEEDINGS NOR THE PARTIES WERE PRODU CED BEFORE HIM. IN THIS VIEW OF THE MATTER, THE AO ADDED THE WHOLE AMO UNT SHOWN AS DUE TO THEM TO THE TOTAL INCOME OF THE ASSESSEE GIVING DET AILS OF THE AMOUNT OF THE PARTIES AS UNDER:- NAME OF THE PARTY AMOUNT ( IN RS.) BADIWAL SUPPLIERS 686979 BAJAKI STONE SUPPLIERS 840880 MEHTA BUILDING MATERIAL SUPPLIERS 955160 RAJASTHAN ENTERPRISES 980056 RAKESH EARTHMOVERS (P) LTD. 911300 SHIV SHANKAR DIESEL ENGINE 218915 VIJAY ENTERPRISES 1293742 TOTAL 5887032 THUS THE AO MADE THE ADDITION OF RS. 58,87,032/- TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 8 3.2 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) WHO HAS DELETED THIS ADDITION OF RS. 58,87,032/- BY OBSERVING AS UNDER:- CONCLUSION: FROM THE ABOVE DETAILED DELIBERATION, IT IS EVIDENT THAT THE AO HAS INVOKED THE PROVISION OF SECTION 41(1), IN RESPECT OF TRADING LIABILITY UNDER CONSI DERATION, RATHER IN HASTE AND CRYPTIC MANNER, WITHOUT FOLLOWI NG THE REQUISITE PROCEDURE/PRECONDITIONS, AS STIPULATED BY THE VARIOUS COURTS, AS DISCUSSED ABOVE. FROM THE RECORD , IT IS ALSO EVIDENT THAT SUCH LIABILITIES WERE NOT OLD IN NATURE AND MOSTLY RELATED TO THE CURRENT YEAR ITSELF OR IMMEDI ATE PRECEDING YEAR ONLY. MOREOVER, THE RELEVANT ACCOUNT S ARE ALSO FOUND ACTIVE IN NATURE, SHOWING SEVERAL TRANSA CTIONS ENTERED INTO IN THE CURRENT YEAR AND SUBSEQUENT YEA R ALSO. IN OTHER WORDS, IN MY CONSIDERED WORD, THE AO HAS INVO KED THE PROVISION OF SECTION 41(1), MERELY ON THE SUSPICION AND CONJECTURE, WITHOUT BRINGING ANY SUPPORTING MATERIA L IN THIS REGARD. ACCORDINGLY, IT IS HELD THAT ADDITION OF RS . 58,87,032, MADE IN THIS REGARD, IS FOUND UNTENABLE AND UNJUSTI FIED, UNDER THE GIVEN CIRCUMSTANCES, THUS DELETED. CONSEQ UENTLY, THIS GROUND OF APPEAL IS UPHELD. 3.3 NOW THE REVENUE IS BEFORE US AND DURING THE COU RSE OF HEARING THE LD. DR RELIED ON THE ORDER OF THE AO ON THIS IS SUE. 3.4 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) ON THIS ISSUE . 3.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE REV ENUE WAS THAT THE ASSESSEE HAS NEITHER FILED CONFIRMATIONS NOR THESE PARTIES WERE PRODUCED FOR EXAMINATION. ON THE OTHER HAND, THE LD. AR SUBM ITTED THAT THESE WERE THE TRADING LIABILITIES AND WERE NOT OLD IN NATURE. MOST OF THE LIABILITIES ITA NO. 694/JP/2012 THE ACIT, CIRCLE- 7, JAIPUR VS. M/S. RAKESH CONSTRU CTION COMPANY, JAIPUR . 9 WERE OF CURRENT YEAR OR IMMEDIATELY PRECEDING YEAR AND THE ACCOUNTS WERE ACTIVE IN NATURE AND THE TRANSACTIONS WERE BEING CA RRIED OUT FOR THE CURRENT YEAR AS WELL AS IN THE SUBSEQUENT YEAR. CONSIDERING THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION AND FIND NO INFIRMITY IN HIS ORDER WHICH IS SUSTAINED. THUS GROUND NO. 3 OF THE REVENUE IS DISM ISSED. 4.0 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/06/2016 . SD/- SD/- YFYR DQEKJ HKKXPUN (LALIET KUMAR) (BHAGCHAND ) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 15/06/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ACIT, CIRCLE-7. JAIPUR 2. IZR;FKHZ@ THE RESPONDENT-M/S.RAKESH CONSTRUCTION COMPANY, JAI PUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 694/JP/2012) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR