Income Tax Officer Ward -2(3), RAIPUR (CG) V. M/s. Dubey Drillers, RAIPUR (CG)

ITA 71/BIL/2011

• Counselvise Citation: 7124714 RSA 2011
• Duration Of Justice: 3 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K JAIN
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI REJENDRA, ACCOUNTANT MEMEBR ITA NO.71/BLPR/2011 A.Y. 2005-06 INCOME TAX OFFICER, VS. M/S. DUBEY DRILLERS, 2(3), RAIPUR. OPP. DAGA PETROL PUMP, STATION ROAD, RAIPUR. (PAN: AABFD 7334 H) C.O. NO.14/BLPR/2011 (IN ITA NO.71/BLPR/2011) A.Y. 2005-06 M/S. DUBEY DRILLERS, VS. INCOME TAX OFFICER, OPP. DAGA PETROL PUMP, 2(3), RAIPUR. STATION ROAD, RAIPUR. (PAN: AABFD 7334 H) (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI D.K. JAIN, SR. D.R. ASSESSEE BY : NONE DATE OF HEARING : 18.12.2014 DATE OF PRONOUNCEMENT : 18.12.2014 ORDER PER H.L. KARWA, PRESIDENT APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE AS SESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A), RAIPUR DATED 30.12 .2010 RELATING TO A.Y. 2005-06. 2 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 2. VIDE GROUND NO.1 OF THE APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.11,89,471 /- MADE BY THE A.O. BY APPLYING THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT), UNDER THE HEAD ROAD CONSTRUCTION WORK 3. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGE D IN THE BUSINESS OF DRILLING OF BORE WELLS, ROAD CONSTRUCTION CONTRACTS AND CABLE L AYING WORK AT RAIPUR AND OTHER PLACES ALL OVER CHHATTISGARH. FOR THE A.Y. 2005-06 , THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCOME AT RS.4 ,95,350/-. THE ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNT, LABOUR REGIST ER, PURCHASE BILL AND VOUCHERS, EXPENSES VOUCHERS ETC. AND THE BOOKS OF ACCOUNT WER E AUDITED UNDER SECTION 44AB OF THE ACT. DURING THE ACCOUNTING YEAR, THE ASSESS EES TOTAL RECEIPTS FROM CONSTRUCTION WORKS WERE RS.1,82,76,292/- ON WHICH P ROFIT OF RS.2,72,632/- WAS DECLARED. THE A.O. OBSERVED THAT THE ASSESSEE DID NOT PROPERLY PROVE THE VARIOUS ITEMS OF EXPENDITURE AND CAME TO THE CONCLUSION THA T PROVISIONS OF SECTION 145 OF THE ACT ARE APPLICABLE. CONSEQUENTLY, THE A.O. REJ ECTED THE BOOK RESULTS. CONSIDERING THE PROFIT RATE DECLARED BY THE ASSESSE E IN THE IMMEDIATELY PRECEDING AND SUCCEEDING YEARS, THE A.O. ESTIMATED THE PROFIT OF THE CURRENT YEAR AT 8% OF THE TOTAL RECEIPT AND ARRIVED AT PROFIT OF RS.14,62,103 /- AS AGAINST RS.2,72,632/- DECLARED BY THE ASSESSEE. THUS, THE DIFFERENCE OF RS.11,89, 471/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE MAIN LINE OF ARGUMENTS OF THE ASSESSEE BEFORE THE LD. CIT(A) WERE AS UNDER :- A) REGULAR AND PROPER BOOKS OF ACCOUNTS HAVE BEEN MAI NTAINED WHICH WERE AUDITED U/S. 44AB, NO ADVERSE COMMENTS HAVE BE EN MADE BY THE AUDITOR. B) MERCANTILE SYSTEM OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE. C) THE HALLMARK OF SECTION 145 IS THE REQUIREMENT OF C ONSISTENCY IN THE METHOD OF ACCOUNTING FROM YEAR TO YEAR. D) THERE WAS NO FINDING THAT ANY OF THE ENTRIES IN THE BOOKS OF ACCOUNTS WERE NOT CORRECT. THERE WAS NO FINDING THAT THE ASS ESSEE WAS NOT EMPLOYING A REGULAR METHOD OF ACCOUNTING AND THERE WAS NO FINDING THAT SUCH A METHOD OF ACCOUNTING HAD BEEN IRREGULAR LY EMPLOYED BY THE ASSESSEE. E) LD. A.O. HAS NOT AT ALL POINTED OUT ANY DEFECT OR I NFIRMITY IN THE BOOKS OF THE APPELLANT. F) THE A.O. HAS NOT POINTED HOW THE PURCHASE AND EXPEN SES WERE NOT VERIFIABLE AND HOW THE BOOKS WERE NOT CORRECT AND C OMPLETE. 5. IN VIEW OF THE ABOVE, THE ASSESSEE OBJECTED TO T HE APPLICATION OF THE PROVISIONS OF SECTION 145 OF THE ACT. 6. THE LD. CIT(A) OBSERVED THAT IN THE INSTANT CASE , THE A.O. REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE ON THE GROUNDS THAT THE LABOUR EXPENSES IN CASE OF ROAD CONSTRUCTION ACTIVITY WAS EXCESSIVE, RENTAL INCOME FROM JCB MACHINE SHOWN WAS AT 4 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 RS.50,000/- ONLY, QUANTITATIVE DETAILS OF METAL CON SUMED NOT PROVIDED AND PROFIT SHOWN WAS LOW. THE LD. CIT(A) HELD THAT IN THIS CA SE, THE PROVISIONS OF SECTION 145 OF THE ACT, HAS CORRECTLY BEEN INVOKED BY THE A.O., BUT AT THE SAME TIME, IT COULD NOT BE SAID THAT HE HAD BEEN ABLE TO PROVE HIS CASE FOR MAKING ADDITIONS BY ADOPTING A PARTICULAR GROSS PROFIT RATE OR NET PROFIT RATE. A CCORDINGLY, THE LD. CIT(A) HELD THAT THE A.O. WAS NOT JUSTIFIED IN ESTIMATING THE INCOME AT 8% OF TOTAL RECEIPT. ACCORDING TO HIM, NORMALLY ESTIMATION OF INCOME AT 8% IS RESORTED TO IN DETERMINING INCOME FROM CIVIL CONSTRUCTION WORK. H OWEVER, THE NATURE OF ASSESSEES ACTIVITIES IS NOT CIVIL CONSTRUCTION BUT LAYING OF ROAD WHEREIN THE MARGIN OF PROFIT CANNOT BE AT PAR WITH THE SAME AS IN CIVI L CONSTRUCTION. THE LD. CIT(A) OBSERVED THAT THE UNDISPUTED FACTS ON RECORD SHOW T HAT THE ASSESSEE HAS TAKEN CONTRACT OF LAYING NATIONAL HIGHWAY IN THIS YEAR, W HEREIN THE STRICT ADHERENCE TO THE NORMS OF THE NATIONAL HIGHWAYS AUTHORITIES INVOLVED ADDITIONAL ELEMENT OF EXPENDITURE IN USAGE OF METAL AND LABOUR; THAT THIS IS THE VERY FIRST YEAR OF BUSINESS IN THIS LINE ; AND THAT THE INCREASE IN PROFIT PERC ENTAGE IN THE NEXT YEAR WAS DUE TO THE FACT THAT IT HAD TAKEN UP ROAD LAYING WORKS OF STAT E HIGHWAYS, WHICH DO NOT INVOLVE THE NORMS AT PAR WITH THE ROAD LAYING WORKS OF NATI ONAL HIGHWAYS. ACCORDINGLY, THE LD. CIT(A) HELD THAT THERE WAS NO CASE FOR ESTI MATION OF THE INCOME AT 8% OF THE TOTAL RECEIPTS. THE LD. CIT(A) CATEGORICALLY HELD THAT THE A.O. COULD NOT BRING ON RECORD ANY COMPARABLE INSTANCES OF ADMISSION OF PRO FIT AT THIS RATE IN THIS LINE OF BUSINESS. 5 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A PPARENT FROM THE RECORDS THAT THE PERIOD UNDER REFERENCE IS FIRST YEAR OF BUSINESS FO R THE ASSESSEE IN EXECUTION OF ROAD LAYING CONTRACT OF NATIONAL HIGHWAY 216 AND THAT AS PER THE NORMS OF THE NATIONAL HIGHWAY AUTHORITY THE WORK CONTRACT INVOLVED DEPLOY ING MORE LABOURS WHICH RESULTED IN HIGHER LABOUR COST. FURTHERMORE, THE E XPLANATION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT AS PER THE ASSESSEE S NATURE OF BUSINESS, IT IS DIFFICULT TO MAINTAIN INTRICATE DETAILS SUCH AS GRADES OF MET AL; AND QUANTITY PURCHASED NOTWITHSTANDING THE FACT THAT THE DATE WISE SUPPLY, RATE AND AMOUNT HAS BEEN FURNISHED BEFORE THE A.O. IT IS WORTHWHILE TO OBSE RVE HERE THAT THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE AB OVE EXPLANATION OF THE ASSESSEE. THE LD. CIT(A) HAS CORRECTLY OBSERVED THAT THE NATU RE OF ASSESSEES ACTIVITY IS NOT CIVIL CONSTRUCTION BUT LAYING OF ROADS WHEREIN MARG IN OF PROFIT CANNOT BE AT PAR WITH THE SAME AS THAT OF CIVIL CONSTRUCTION. WE FULLY A GREE WITH THE FINDINGS OF THE LD. CIT(A) THAT THERE WAS NO CASE FOR ESTIMATION OF INC OME AT 8% OF THE TOTAL RECEIPTS AS AGAINST 1.49% SHOWN BY THE ASSESSEE; PARTICULARLY W HEN THE A.O. FAILED TO BRING ON RECORD ANY COMPARABLE INSTANCES OF ADMISSION OF PRO FIT AT 8% IN THIS LINE OF BUSINESS. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THE GROUND NO.1 OF THE APPEAL. 8. GROUND NO.2 IS DIRECTED AGAINST THE ACTION OF THE LD. CIT(A) IN RESTRICTING THE ADDITION OF RS.1,41,654/- AS AGAINST RS.4,73,510/- MADE BY THE A.O. VIDE GROUND 6 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 NO.1 OF THE CROSS OBJECTION, THE ASSESSEE HAS CHALL ENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.1,41,65 4/- IN CABLE LAYING WORKS ACCOUNT. 9. WHILE FRAMING THE ASSESSMENT, THE A.O MADE ADDIT ION OF RS.4,73,510/- BY ESTIMATING THE PROFIT AT 10% ON TOTAL RECEIPTS OF R S.66,37,068/- FROM CABLE LAYING WORKS. THE A.O. MADE ADDITION MAINLY ON THE GROUND THAT THE EXPENDITURE RECORDED AGAINST LABOUR PAYMENT WAS EXCESSIVE AND THE REGIST ER MAINTAINED FOR THE PURPOSE DID NOT CONTAIN THE SIGNATURES OF THE RECIPIENTS. AFTER REJECTING THE CONTENTS OF THE REPLY OF THE ASSESSEE, THE A.O. ESTIMATED THE PROFI T AT 10% OF THE TOTAL CONTRACT VALUE WHICH COMES TO RS.6,63,706/-. AGAINST THIS, THE AS SESSEE HAS SHOWN PROFIT OF RS.1,90,196/-. THUS, THE DIFFERENCE OF RS.4,73,510 /- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. ON APPEAL, THE LD. CIT(A) HELD AS UNDER :- 6. THE OTHER GROUND RELATED TO THE ADDITION OF RS. 4,73,510/- MADE BY ESTIMATING THE PROFIT AT 10% ON TOTAL RECEIPTS O F RS.66,37,068/- FROM CABLE LAYING WORKS. THE ASSESSING OFFICER NOTED THA T THE EXPENDITURE RECORDED AGAINST LABOUR PAYMENT ARE HIGH; THAT THEY ARE RECORDED ON WEEKLY BASIS AND THAT THE REGISTER MAINTAINED FOR T HE PURPOSE DO NOT HAVE THE SIGNATURE OF THE RECIPIENTS. ON HIS PART, THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER COULD NOT PIN POINT ANY MAJOR DEFECT IN THE BOOKS; THAT ALL THE BILLS FOR PURCHASE OF MATERIAL HAVE BEEN MAINTAINED AND PRODUCED BEFORE THE A.O. AND THAT THE WORK OF C ABLE LAYING WAS UNDERTAKEN FOR M/S. BHARATI AIRTEL LTD WHO HAVE ALS O CERTIFIED THAT THE GROSS MARGIN OFFERED BY THE COMPANY TO ITS CONTRACT ORS IS NOT MORE 7 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 THAN 15%. I HAVE CONSIDERED THE SUBMISSIONS. HERE A LSO, THE ASSESSING OFFICER COULD NOT MAKE OUT A STRONG CASE FOR ESTIMA TION OF INCOME AT 10% AS HIS OBSERVATIONS ARE GENERAL IN NATURE AND D O NOT REFLECT IN PIN POINTING ANY PARTICULAR OMISSION OF COMMISSION IN R ECORDING THE TRANSACTIONS. HOWEVER, TAKING INTO ACCOUNT THE TOTA LITY OF THE CIRCUMSTANCES OF THE CASE AND THE FACT THAT THE PER CENTAGE OF GROSS PROFIT ALLOWED BY THE PAYER-COMPANY IS AROUND 15% F ROM WHICH THE OVERHEAD EXPENSES ARE TO BE MET, I FEEL IT WOULD ME ET THE ENDS OF JUSTICE IF NET INCOME FROM THIS WORK IS ESTIMATED AT 5% OF THE TOTAL CONTRACT RECEIPTS. SO DOING, THE INCOME AT 5% ON THE GROSS R ECEIPTS OF RS.66,37,068/- WORKS OUT TO RS.3,31,850/-.IF THE IN COME ADMITTED OF RS.1,90,196/- IS DEDUCTED THERE FROM, THE ADDITION TO BE MADE ON THIS COUNT WORK OUT TO RS.1,41,654/-. THUS, THE ASSESSEE GETS PART RELIEF OF RS.3,31,856/-. 11. AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATI VE, WE DO NOT SEE ANY INFIRMITY IN THE ABOVE FINDINGS OF THE LD. CIT(A). IN OUR VIEW, THE LD. CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THE PRESENT CASE AND THE REASONS GIVEN BY HIM IN ESTIMATING THE PROFIT @ 5% OF THE TOTAL CONTRACT RE CEIPTS UNDER THE HEAD CABLE LAYING WORK IS FULLY JUSTIFIED AND, THEREFORE, WE UPHOLD THE SAME. CONSEQUENTLY, WE REJECT GROUND NO.2 OF THE REVENUES APPEAL AND G ROUND NO.1 OF ASSESSEES CROSS OBJECTION. 12. GROUND NO.3 OF THE APPEAL RELATES TO DELETION O F ADDITION OF RS.3,11,386/- MADE BY THE A.O. UNDER THE HEAD DRILLING WORK 13. THE A.O. HAS DISCUSSED THIS ISSUE IN PARAGRAPH NOS.5 TO 5.2 OF THE ASSESSMENT ORDER. THE ASSESSEE IS ENGAGED IN DRILLING OF BORE WELL ON CONTRACT BASIS, MOSTLY 8 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 FROM GOVERNMENT DEPARTMENTS. THE TOTAL RECEIPTS UN DER THIS HEAD WAS DECLARED AT RS.1,44,73,364/-. THE ASSESSEE DECLARED NET INCOME OF RS.8,46,475/- WHICH COMES AT 5.84%. THE A.O. MADE ADDITION ON THE GROUND THA T THERE WAS ELEMENT OF SUPPRESSION IN REGARD TO MESS EXPENSES AND AT THE S AME TIME THERE WAS INCREASE IN MATERIAL EXPENSES. FOR THESE REASONS, THE A.O. EST IMATED THE INCOME AT 8% OF THE TOTAL RECEIPTS AND MADE THE ADDITION OF RS.3,11,386 /-. 14. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION STATING THAT THE PERCENTAGE OF PROFIT FROM DRILLING WORKS CANNOT BE AT 8% AS THAT IN THE PROFIT FROM CIVIL CONTRACT WORKS. LD. CIT(A) FURTHER OBSERVED THAT THE REASON ING GIVEN BY THE A.O. FOR ESTIMATION OF PROFIT AT 8% IS NEITHER SUPPORTED BY ANY COMPARABLE CASE NOR IN MAKING OUT A CASE OF INCURRING OF MESS EXPENSES OUT SIDE THE ACCOUNT SO AS TO INFER SUPPRESSION. THE LD. CIT(A) OBSERVED THAT THE A.O. HAS MADE THE ADDITION BY MAKING GENERAL OBSERVATIONS WITHOUT ANY SUPPORTING MATERIALS. ACCORDINGLY, THE LD. CIT(A) HELD THAT THERE WAS NO JUSTIFICATION IN ESTI MATING THE INCOME UNDER THIS HEAD AT 8%. 15. AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATI VE, WE DO NOT SEE ANY VALID GROUND IN INTERFERING WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. IN THE INSTANT CASE, THE A.O. HAS REJECTED THE EXPLANATION OF THE ASSESSEE WITHOUT ASSIGNING ANY COGENT REASONS. THE A.O. HAS ESTIMATED THE PROFIT MERELY ON THE GROUND THAT THERE WAS INCREASE IN MATERIAL EXPENSES AS COMPARED TO IM MEDIATELY PRECEDING YEAR. THE 9 ITA NO .71 & CO NO.14/BLPR/2011 A.Y. 2005-06 LD. CIT(A) HAS CORRECTLY OBSERVED THAT OBSERVATION OF INCREASE IN MATERIAL EXPENSES IS MORE GENERAL IN NATURE AND GIVEN THE UPWARD TREN D IN THE MARKET RATES THERE IS NO JUSTIFICATION TO TREAT THE MATERIAL EXPENSES AS INF LATED. 16. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY MERIT I N THIS GROUND OF APPEAL AND, ACCORDINGLY, WE DISMISS THE SAME. 17. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION SUBMITTED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2014. SD/- SD/- (RAJENDRA) (H.L. KARWA) ACCOUNTANT MEMBER PRESIDENT RAIPUR, DATED: 18.12.2014 PBN/* COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. D.R. ITAT, RAIPUR BENCH, RAIPUR 6. GUARD FILE //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, RAIPUR