The Income tax Officer (TDS), Lucknow V. D.M.Brothers, Lucknow

ITA 709/LKW/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8161 (ITAT-LUCKNOW)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: D V TANEJA F
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A : LUCKNOW BEFORE SHRI S. K. YADAV, JUDICIAL MEMBER AND SHRI B. R. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 709 /LKW/ 11 ASSESSMENT YEAR: 200 7 - 200 8 INCOME TAX OFFICER (TDS), VS. M/S D. M. BROTHERS, LUCKNOW. 51, RAM TIRTH MARG, LUCKNOW. PAN:AACFD7598J (APPELLANT) (RESPONDENT) APPE LLANT BY : SHRI ALOK MITRA, SR. D.R. RESPONDENT BY : SHRI D. V. TANEJA, F.C.A. DATE OF HEARING : 07 /0 8 /2012 DATE OF PRONOUNCEMENT :23/08/2012 ORDER PER B. R. JAIN: THIS APPEAL BY REVENUE AGAINST THE ORDER DATED 15 / 09 /20 11 OF LEARNED CIT(A) - I , LUCKNOW RAISES THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS BY SETTING ASIDE THE ASSESSMENT OF INCOME MADE BY THE ASSESSING OFFICER BY APPLYING NET PROFIT RATE OF 6% AND BY UPHOLDING THE NET PROFIT RATE DISCLOSED BY THE ASSESSEE. 2. THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THE REJECTION OF THE BOOKS OF ACCOUNT BY THE ASSESSING OFFICER WAS NOT WARRANTED. 2 2. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE DERIVES INCOME FROM CIVIL CONTRACTS. ON GROSS RECEIPTS FROM CONTRACTS FOR ` 5,06,37,000/ - AND INTEREST INCOME OF ` 7,05,706/ - , THE ASSESSEE DECLARED NET INCOME OF ` 5,35,641/ - . DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER FOUND THAT THE BOOKS OF THE ASSESSEE HAVE BEEN AUDITED AND ASSESSEE HAS BEEN SHOWING CONSISTENT NET PROFIT OF 3% FOR THE LAST SEVERAL YEARS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN THE NET PROFIT RATE OF 3.0 7%. THE ASSESSING OFFICER FOUND THAT THE PATTERN OF EXPENSES INCURRED BY THE ASSESSEE REGARDING PURCHASE OF STEEL AND LABOUR BEING THE TWO MOST IMPORTANT DETERMINANTS OF PROFIT AND OTHER MATERIAL, DOES NOT RESONATE WITH THE CLAIM MADE BY THE ASSESSEE. T HE ASSESSEE HAS ALSO NOT SUBMITTED ANY QUANTITATIVE DETAILS OF THE BRICKS, IRON & STEEL, SANITARY GOODS, TILES AND CEMENT. THAT APART, IN RESPECT OF COMPARISON REGARDING CONSUMPTION OF MATERIAL, LABOUR AND OTHER ITEMS, THE FACTS DO NOT MATCH WITH THE EAR LIER TWO ASSESSMENT YEARS AND AS SUCH PRINCIPLE OF RES JUDICATA OR CONSISTENCY TO APPLY THE SAME RATE AS WAS DISCLOSED IN THE EARLIER YEARS, WAS NOT FOUND ACCEPTABLE. HE, THEREFORE, WAS OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS BEEN SHOWING MANIPULATED TRADING RESULTS SO AS TO CONCEAL ITS INCOME THROUGH MANIPULATION O F ACCOUNTS. SINCE CORRECT AND COMPLETE PROFIT COULD NOT BE DEDUCED, HE, THEREFORE, RESORTED TO THE REJECTION OF BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND APPLIED THE NET PROFIT RATE OF 6% THEREBY ALLOWING DEDUCTION FROM SALARY AND INTEREST ON CAPITAL TO PARTNERS. 3 THE INCOME STOOD ASSESSED AT ` 21,38,120/ - AS AGAINST T HE INCOME OF ` 5,41,640/ - DECLARED BY THE ASSESSEE. 3. THE LEARNED CIT(A) VIDE PARA 3.2 OF THE IMPUGNED ORDER, TOOK NOTE OF THE FACT THAT THE NET PROFIT DECLARED BY THE ASSESSEE IN THE PAST HAS BEEN UPHELD BY THE FIRST APPELLATE AUTHORITY AS WELL AS THE AP PELLATE TRIBUNAL AND THE APPEAL FILED BY THE REVENUE BEFORE HON'BLE HIGH COURT STOOD DISMISSED. THE ASSESSING AUTHORITY HAS NOT BROUGHT ANY DEFECT OR DISCREPANCY IN THE BOOKS OF THE APPELLANT ASSESSEE AND AS SUCH REJECTION OF ACCOUNTS AND ESTIMATION OF I NCOME BY APPLICATION OF NET PROFIT RATE IS UNCALLED FOR. HE, THEREFORE, RESORTED TO DELETION OF ADDITION SO MADE. 4. WE HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD. ESSENTIALLY THE BOOKS OF ACCOUNT OF THE ASSESSEE SUFFERED FROM SERIOUS DISCR EPANCIES SUCH AS NON MAINTENANCE OF ANY QUANTITATIVE DETAILS OF THE MATERIAL USED IN THE BUSINESS AND THE CONSUMPTION OF MATERIAL AND LABOUR AND OTHER ITEMS BEING NOT MATCHING AND CONSISTENT TO THE CLAIM OF DEDUCTION MADE IN EARLIER YEARS . T HE ASSESSING O FFICER UNDER SUCH PECULIAR FACTS, HAD REACHED A BONAFIDE CONCLUSION THAT REASONABLE PROFITS CANNOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE. HE, THEREFORE, RESORTED TO THE REJECTION OF BOOKS OF ACCOUNT AND ESTIMATED THE INCOME BY APPLICATIO N OF PROVISIONS OF SECTION 145 OF THE ACT. IT WAS, THERE AFTER THE B O UNDE N DUTY OF THE ASSESSEE TO SHOW THAT THE RESULTS DECLARED BY THE ASSESSEE ON THE BASIS OF SUCH BOOKS OF ACCOUNT ARE STILL CORRECT. 4 THIS PRINCIPLE IS FOUND LAID BY HON'BLE RAJASTHAN H IGH COURT IN THE CASE OF CIT VS. SUNIL TALWAR MURLIDHAR & PARTY 199 CTR (RAJ) 422. IT HOWEVER, HAS NOT BEEN DONE BY THE ASSESSEE . THE LEARNED CIT(A) THUS, HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY CONCRETE DEFICIENCY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR REJECTING THE SAME AND THUS ACCEPTING THE BOOK RESULTS . WE, THEREFORE, SET ASIDE HIS ACTION ON THAT COUNT AND ALLOW THE GROUND RAISED IN APPEAL BY THE REVENUE. 5. IN SO FAR AS THE APPLICATION OF NET PROFIT RATE OF 6% BY THE ASSESSING AUTHORITY IS CONCERNED, THE SAID RATE DOES NOT ACCORD TO THE PAST HISTORY OF THE CASE AND FOR SUCH REASON THE LEARNED CIT(A) PROCEEDED TO DELETE THE ADDITION MADE BY ESTIMATION OF INCOME. IN FACT THE LEARNED CIT(A) DID NOT TAKE INTO ACCO UNT THE MATERIAL FACT THAT THE ASSESSEES BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION SUFFERED FROM SERIOUS DEFECT S AND ASSESSEE HAS FAILED TO SHOW THAT THE RESULTS DECLARED IN HIS BOOKS OF ACCOUNT ARE STILL CORRECT OR THAT THE ACCOUNTS WERE REJECTED IN THE PAST FOR THE SIMILAR REASONS. THE ASSESSMENT OF EACH YEAR BEING INDEPENDENT, THE ASSESSING OFFICER WAS JUSTIFIED IN RESORTING TO ESTIMATION OF INCOME BY APPLYING A DIFFERENT NET PROFIT RATE. KEEPING IN VIEW THE DISCREPANCIES A S HA VE BEEN SET OUT IN THE ASSESSMENT ORDER AND STATED HEREIN BEFORE AND ALSO CONSIDERING THE PAST HISTORY OF THE CASE IN THE LIGHT OF SPECIAL BENCH JUDGMENT IN THE CASE OF DY. CIT VS. ALLIED CONSTRUCTION [2007] 105 ITD 1 (DELHI) (SB), WE FIND THAT THE APPLICATIO N OF NET PROFIT RATE OF 6% IS 5 EXCESSIVE. THE LEARNED CIT(A), ON THE PECULIAR FACTS, OUGHT NOT TO HAVE ACCEPTED THE BOOK RESULTS. WE, THEREFORE, UNDER THE FACT - CIRCUMSTANCES OF THE CASE, CONSIDER IT JUST AND REASONABLE TO APPLY A NET PROFIT RATE OF 3.5% S UBJECT TO DEDUCTION OF INTEREST AND SALARY TO WORKING PARTNERS. THE ORDER OF LEARNED CIT(A) ACCORDINGLY STANDS MODIFIED. 6. IN THE RESULT, THE APPEAL BY REVENUE STANDS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 23/08/2012 ) SD/. SD /. ( S. K. YADAV ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23/08/2012 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR