ACIT, Pune V. Balasaheb Vithal Pasalkar, Pune

ITA 725/PUN/2010

• Counselvise Citation: 72524514 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA
• Assessee Lawyers: SUINIL GANOO
• Keywords: Rejection of books of accounts; Depreciation
• Section: 44AD; 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 725/PN/2010 (ASSTT. YEAR: 2006-07) ASSISTANT COMMISSIONER OF INCOME TAX , ... APPELLANT CIRCLE 3, PUNE V. BALASAHEB VITHAL PASALKAR, RESPONDENT S.NO.819, LANE NO.2, KARVENAGAR, PUNE 411 030 PAN : ABJPP1754A APPELLANT BY : SHRI S.K. AMBASTHA RESPONDENT BY : SHRI SUINIL GANOO DATE OF HEARING :23.12.11 DATE OF PRONOUNCEMENT: 23.12.11 ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER MA INLY ON THE GROUND THAT THE LD CIT(A) HAS ERRED IN REDUCING THE PROFIT MARG IN FROM 15% TO 8% INSTEAD OF CONFIRMING THE SAME. 2. IN SUPPORT OF THE GROUND, THE LD D.R. SUBMITTED THAT ASSESSEE IS A CIVIL CONTRACTOR WORKED MOSTLY AS SUB-CONTRACTOR FOR HIND USTAN CONSTRUCTION CO. LTD. AND FOR SOME WORK FOR PWD. HE SUBMITTED THAT THE LD C IT(A) WITHOUT APPRECIATING THIS MATERIAL FACT THAT THE A.O AFTER POINTING OUT A SPE CIFIC REASON FOR REJECTION OF BOOKS OF ACCOUNTS, HAS ERRED IN REDUCING THE NET PROFIT MARGIN FROM 15 % TO 8% OF THE CONTRACT RECEIPTS. HE SUBMITTED THAT THE ASSESSEE COULD NOT ESTABLISH GENUINENESS OF SOME CLAIMED EXPENDITURE. THE LD D.R. SUBMITTED FURTHER THAT WHILE ADOPTING 8% NET PROFIT RATE, THE LD CIT(A) HAS ERRED IN APPL YING THE PROVISIONS OF SECTION 44AD WHICH IS ADMITTEDLY NOT APPLICABLE IN THE CASE OF ASSESSEE HAVING TURNOVER MORE THAN RS. 40,00,000. THE LD. D.R. PLACED RELIA NCE ON THE FOLLOWING DECISIONS : ITA . NO 725/PN/2010 BALASAHEN V. PASALKAR A.Y. 2006-07 PAGE OF 5 2 1) CIT VS. KAILASH KACCHAWAHA (2007) 293 ITR 449 ( RAJ.) 2) SHRI RAJENDRA M. CHORAGE VS. DCIT AND VICE VERS A, ITA NO. 643 & 739/PN/2009 (A.Y. 2005-06), ORDER DATED 22 ND JUNE 2011. 3. THE LD. A.R. ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER. HE POINTED OUT THAT THE ASSESSEE IS A SUB CONTRACTOR, HENCE THE CASES CITED BY THE A.O ARE NOT COMPARABLE TO APPLY 15% OF THE NET PROFIT R ATE IN THE CASE OF THE ASSESSEE. NET PROFIT AT THE RATE OF 8% IS GENERALLY SHOWN BY THE MAIN CONTRACTOR IN CIVIL WORK. THE LD. A.R. SUBMITTED FURTHER THAT BOOKS OF THE AS SESSEE ARE AUDITED, AND NO SERIOUS DEFECT WAS POINTED OUT THEREIN. 4. WE FIND FROM THE ORDERS OF THE AUTHORITIES BELOW THAT ON THE BASIS OF HIS OBSERVATION THAT THE ASSESSEE COULD FURNISH CONFIRM ATION FROM 19 PARTIES ONLY FOR SUNDRY TRADERS CREDITS OF RS. 73,96,747 OUT OF THE TOTAL SUNDRY CREDITS CLAIMED OF RS. 1,62,90,973/- AND FURTHER THAT THE ASSESSEE COULD N OT PRODUCE SUPPORTING BILLS FOR SUB CONTRACT CHARGES PAID, DUPER HIRE CHARGES PAID AND BILLS OF MAMATA STONE CRUSHER, THE A.O REJECTED THE BOOKS OF ACCOUNTS. . THE A.O OBSERVED FURTHER THAT THERE WERE CERTAIN OTHER VIOLATIONS OF PROVISION OF SECTION 40A(3) AND NON-DEDUCTION OF TDS ETC. THE A.O CITED THE RESULTS OF M/S. S.K. ORSE & CO ALSO IN THE BUSINESS OF CIVIL CONTRACT AND ESTIMATED THE PROFIT OF THE ASSE SSEE BY APPLYING NET PROFIT RATE OF 15% RESULTING INTO AN ADDITION OF RS. 47,86,605/-. 5. AFTER DISCUSSING THE NATURE OF WORK DONE BY THE ASSESSEE AND OTHER RELEVANT FACTOR LIKE THE ASSESSES IS A SUB-CONTRACTOR, HENCE CASE OF M/S. S.K. ORSE & CO. SHOWING NET PROFIT OF 12% CANNOT BE COMPARED, THE LD CIT(A) HAS APPLIED 8% OF NET PROFIT RATE ON THE ON THE GROSS TURNOVER AFTER HAVING CONSIDERED THE EXPENSES INCLUDING DEPRECIATION, INTEREST ETC. OF COURSE, WE FULLY AGREE WITH THE CONTENTION OF THE LD. D.R. THAT PROVISION OF SECTION 44 AD ARE NO T APPLICABLE IN THE CASE OF THE ASSESSEE AS TURNOVER SHOWN BY IT IS MORE THAN RS. 40 LAKHS BUT AT THE SAME TIME IT ITA . NO 725/PN/2010 BALASAHEN V. PASALKAR A.Y. 2006-07 PAGE OF 5 3 IS VERY MATERIAL TO NOTE IN THE PRESENT CASE THAT ASSESSEE IS A SUB-CONTRACTOR, HENCE ADMITTEDLY HIS PROFIT MARGIN WOULD BE LESSER THAN T HAT SHOWN BY A CONTRACTOR LIKE M/S. S.K. ORSE & CO. THUS, THE CASE OF S.K. ORSE & CO. CANNOT BE STATED AS A COMPARABLE CASE TO APPLY THE SAME NET PROFIT RATE A S SHOWN BY M/S S.K. ORSE & CO. IN THE CASE OF THE ASSESSEE, MAJORITY OF THE TURNOV ER WAS ON ACCOUNT OF SUB-CONTRACT RECEIPT FROM HINDUSTAN CONSTRUCTION COMPANY AMOUNTI NG TO RS. 4,45,58,844/- WHEREAS CONTRACT RECEIPTS FROM PWD WAS OF ONLY RS. 34,80,058/-. CONSIDERING THESE MATERIAL ASPECTS OF THIS CASE, WE ARE OF THE VIEW THAT THE FIRST APPELLATE AUTHORITY HAS RIGHTLY APPLIED N.P. RATE OF 8% ON T HE GROSS TURNOVER TREATING THE APPLICATION OF N.P. RATE OF 15% APPLIED BY THE A. O AS NOT REASONABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. FOR A READY REFERENCE PARA 3.2 & 3.3 OF THE FIRST APPELLATE ORDER ARE BEING REPRODUCED H EREUNDER : 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND MATERIAL AVAILABLE ON RECORD. IT IS NOTICED FROM THE CASE RE CORDS OF THE CITED CASE OF M/S. S.K. ORSE & CO. THAT THIS CONCERN WAS A CIVIL CONTRACTOR WORKING MOSTLY FOR PUNE MUNICIPAL CORPORATION, DOING DRILLING WORK ETC. ON THE OTHER HAND, IT HAS BEEN EXPLAINED WITH RELEVANT FACTS AND FIGURES BY THE APPELLANT THAT THE MAJORITY OF THE APPELLANTS TURNOVER WAS ON ACCOUNT OF SUB-CONTRACT RECEIPTS FROM HINDUSTAN CONSTRUCTION CO. LTD. AMOUNTING TO R S. 4,45,58,844/-, WHEREAS CONTRACT RECEIPTS FROM PWD WAS OF ONLY RS. 34,00,858/-. IT IS, THEREFORE, STATED BY THE APPELLANT THAT PROFIT RATE OF A SUB-CONTRACTOR CANNOT BE BLINDLY COMPARED WITH THE PROFIT RATE OF THE MAI N CONTRACTOR. ONE IMPORTANT POINT NOTICED FROM THE CASE RECORDS OF M /S. S.K. ORSE & CO. WAS THAT AS PER THE TAX AUDIT REPORT, THE NET PROFIT U PON TURNOVER WAS 11.57% BEFORE THE PARTNERS REMUNERATION AND IT REDUCED T O 0.27% AFTER PARTNERS REMUNERATION. IT IS FURTHER NOTICED FROM ITS PROF IT AND LOSS ACCOUNTS THAT AS AGAINST THE TURNOVER OF RS. 4,64,45,893/-, THE DEPR ECIATION CLAIMED BY M/S. S.K. ORSE & CO. WAS ONLY RS. 41,282/-. ON THE OTH ER HAND IN THE APPELLANTS CASE THE DEPRECIATION WAS RS. 5,59,856/- ON A SIMIL AR TURNOVER OF RS. 4,79,59,702/-, BESIDES HAVING INTEREST EXPENSES WH ICH WAS ALSO NOT THERE IN M/S. S.K. ORSE & CO. THE APPELLANT HAS THUS CONTEN DED THAT SINCE PROPER BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED, WHICH HAVE ALSO BEEN AUDITED, THE BOOK RESULTS BE ACCEPTED OR IN THE ALTERNATIVE IT M AY BE REASONABLY ESTIMATED ITA . NO 725/PN/2010 BALASAHEN V. PASALKAR A.Y. 2006-07 PAGE OF 5 4 SUBJECT TO GRANT OF FURTHER DEDUCTION ON ACCOUNT OF DEPRECIATION AND INTEREST PAYMENT. CERTAIN DECISIONS WERE PRODUCED BY THE A. R. IN WHICH, FOR THE PURPOSE OF ESTIMATION OF NET PROFIT RATE, THE BENCH MARK OF 8% RATE OF NET PROFIT AS PROVIDED U/S. 44AD OF THE I.T. ACT WAS HE LD TO BE APPLICABLE. THE RATIO OF THESE DECISIONS IMPLY THAT INSPITE OF THE FACT THAT NET PROFIT RATE OF 8% U/S. 44AD WAS TO BE APPLIED ONLY WHEN THERE WERE N O BOOKS OF ACCOUNTS MAINTAINED, IT CANNOT BE SAID TO BE AN IRRELEVANT C ONSIDERATION WHILE CONSIDERING THE ESTIMATION TO BE MADE FOR NET PROFI T RATE IN CASE OF CIVIL CONTRACT. THIS WAS THE RATIO IN THE CASE OF CIT VS . KAILASH KACCHWAHA (2007) 293 ITR 449 (RAJ.). IN THE CASE OF EASTERN CONSTRU CTION CO. VS. ITO (1997) 59 TTJ (DEL ) 723, ALSO A NET PROFIT OF 8% ON CONTR ACT RECEIPTS WAS UPHELD WHEN NO VOUCHERS OF DOCUMENTARY EVIDENCES WERE PROD UCED BEFORE THE A.O TO SUPPORT THE VARIOUS EXPENSES CLAIMED IN THE PROF IT AND LOSS ACCOUNT. IN THE CASE OF SURENDRA PRASAD MISRA VS. ITO (2006) 1 04 TTJ (LUCKNOW) 292 ALSO THE NET PROFIT RATE OF 8% IN THE CASE OF CIVIL CONTRACT WORK APPLYING THE BENCHMARK OF SECTION 44AD OF THE I.T. ACT WAS UPHEL D. 3.3. I HAVE CONSIDERED THE SUBMISSIONS AND THE MATE RIAL AVAILABLE ON RECORD INCLUDING THE RATIO OF ABOVE DISCUSSED DECISION. I HAVE ALSO CONSIDERED THE APPELLANTS ARGUMENTS THAT THE MAJORITY OF THE WORK DONE BY IT DURING THE YEAR WAS THAT OF A SUB CONTRACTOR; AND THE CASE CIT ED BY THE A.O., I.E. M/S. S.K. ORSE AND CO. WAS NOT COMPARABLE DUE TO REASON S DISCUSSED ABOVE. CONSIDERING THESE FACTS, NET PROFIT RATE OF 8% ON T HE GROSS TURNOVER, AFTER HAVING CONSIDERED ALL EXPENSES INCLUDING DEPRECIAT ION, INTEREST ETC., WOULD BE FAIR AND REASONABLE IN THE APPELLANTS CASE I.E. AF TER APPLYING 8% RATE ON GROSS TURNOVER, NO FURTHER EXPENDITURE WILL BE ALLO WABLE. THE APPELLANT GETS A RELIEF ACCORDINGLY. GROUNDS OF APPEAL NOS. 1, 4 AND 5 ARE TREATED TO BE PARTLY ALLOWED. WE FIND THAT THE FIRST APPELLATE ORDER ON THE ISSUE IS COMPREHENSIVE AND REASONED ONE WHICH DOES NOT NEED ANY INTERFERENCE. THE SAME IS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. 6. IN RESULT, APPEAL IS DISMISSED. ITA . NO 725/PN/2010 BALASAHEN V. PASALKAR A.Y. 2006-07 PAGE OF 5 5 THE ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 RD DECEMBER 2011. SD/- SD/- ( G.S. PANNU ) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 23 RD DECEMBER 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -II, PUNE 4. THE CIT(A)-II, PUNE 4. THE D.R. A BENCH, PUNE 5. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE