DCIT, V. M.R. Mutha,

ITA 746/PUN/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3350 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 30-05-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Gross profit estimation; Unexplained investment
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, A PUNE BEFORE SHRI I.C. SUDHIR, JM AND SHRI D.K. SRIVASTAVA, AM I.T.A. NO. 746/PN/2008: A.Y. 2003-04 DY. CIT AHMEDNAGAR CIRCLE, AHMEDNAGAR APPELLANT VS. MR. M.R. MUTHA, GOVERDHAN APARTMENT, DR. AMBEDKAR MARG, AHMEDNAGAR PAN AADFM 8557 B RESPONDENT I.T.A. NO. 797/PN/2008: A.Y. 2003-04 MR. M.R. MUTHA, GOVERDHAN APARTMENT, DR. AMBEDKAR MARG, AHMEDNAGAR PAN AADFM 8557 B APPELLANT VS. ASSTT. CIT AHMEDNAGAR CIR. AHMEDNAGAR RESPONDENT DEPARTMENT BY : SHRI ABHAY DAMLE ASSESSEE BY: SHRI SUNIL PATHAK ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED THE FIRST APPELLATE ORD ER ON THE SOLE GROUND THAT THE LEARNED CIT(A) HAS ERRED I N DELETING THE ADDITION OF RS. 7,41,818/- WHEN THE ASSESSEE HA D AGREED FOR SUCH ADDITION VIDE ORDER SHEET ENTRY DATED 13-3 -2006. ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 2 2. THE ASSESSEE ON THE OTHER HAND HAS IMPUGNED THE FIRST APPELLATE ORDER MAINLY ON THE GROUND THAT THE LEARN ED CIT(A) HAS ERRED IN: (I) CONFIRMING THE ADDITION OF RS. 18,94,800/- ON ACCOUNT OF DISALLOWANCE MADE BY THE A.O IN RESPECT OF LABOUR AND MATERIAL EXPENSES; AND (II) CONFIRMING THE ADDITION OF RS. 25,00,000/- ON ACCOUNT OF PAYMENTS MADE TO SUB-CONTRACTORS ON THE GROUND THAT THE ASSESSEE MAY HAVE MADE UNACCOUNTED INVESTMENTS. 3. SINCE THE ISSUES RAISED IN THE ABOVE GROUNDS ARE INTERCONNECTED, BOTH THE APPEALS ARE BEING DISPOSED OFF VIDE A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 4. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF THE ORDERS OF LOWER AUTHO RITIES, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELI ED UPON. 5. THE RELEVANT FACTS ARE THAT THE ASSESSEE A CIVIL CONTRACTOR CARRYING OUT GOVERNMENT CONTRACT, HAD DISCLOSED CON TRACT RECEIPTS OF RS. 89,99,523/- DURING THE YEAR. THE A SSESSEE SUBMITTED THE DETAILS SHOWING GROSS PROFIT OF RS. 2 5,41,523/- AFTER DEBITING EXPENDITURE OF RS. 64,58 LAKHS INCLU DING ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 3 OPENING WORK IN PROGRESS. ON VERIFICATION , THE A. O FOUND THAT THE EXPENDITURE CLAIMED AT RS. 31,58,000/- WERE NOT FULLY SUPPORTED BY THE EVIDENCE. BEING NOT SATISFIED WIT H THE EXPLANATION FURNISHED BY THE ASSESSEE IN THIS REGAR D, HE DISALLOWED 60% OF THIS EXPENDITURE AT RS. 18,94,800 /-. IN THIS REGARD, THE A.O AT PAGE 5 OF THE ASSESSMENT ORDER H AS REPRODUCED THE RELEVANT PORTION OF THE ORDER SHEET WHEREBY THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE A GREED FOR SUCH ADDITION. THE A.O ALSO DISALLOWED THE CLAIMED PAYMENT OF RS. 25,00,000/- STATED TO BE MADE ON ACCOUNT OF SUB- CONTRACT. IN THIS REGARD, HE OBSERVED THAT THE WOR K CLAIMED TO HAVE BEEN CARRIED OUT THROUGH THE SUB-CONTRACTOR IS STATED TO BE COMPLETED BEFORE 15-5-2002 WITH THE DATE OF MEAS UREMENT HAVING BEEN ADOPTED AT 30-4-2002 WHEREAS THE PERIOD OF CONTRACT WORK COMMENCED FROM 10-10-2002 AND 6-3-200 3 AS PER AGREEMENT ENTERED INTO WITH THEM. THE A.O ACCO RDINGLY DREW AN INFERENCE THAT SUB-CONTRACTORS WORK DO NOT RELATE TO THE SUB-CONTRACT FOR WHICH THE ASSESSEE IS FOUND TO HAVE MADE SUB-CONTRACT PAYMENT OF RS. 25,00,000/-. THE A.O N OTED FURTHER THAT 28.2% GROSS PROFIT RATE SHOWN DURING T HE YEAR IS MUCH HIGHER AS COMPARED TO PRECEDING YEARS GROSS P ROFIT. HE ACCORDINGLY ADOPTED GROSS PROFIT RATE OF 20% AND M ADE ADDITION AT RS. 7,41,618/- BEING THE DIFFERENCE IN GROSS PROFIT AS DECLARED BY THE ASSESSEE AND DETERMINED BY HIM. THE LEARNED CIT(A) HAS UPHELD THE ADDITION OF RS. 18,94 ,800/- ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 4 MAINLY ON THE BASIS THAT THE ASSESSEE HAD AGREED FO R THIS DISALLOWANCE. THE LEARNED CIT(A) ALSO UPHELD THE A DDITION OF RS. 25,00,000/- SINCE HE ASSESSEE FAILED TO IMPROVE ITS CASE BEFORE HIM. HE HAS HOWEVER, DELETED THE ADDITION O F RS.,7,41,818/- ON THE BASIS THAT THE ASSESSEE HAD A LREADY SHOWN GROSS PROFIT RATE AT 28.2% WHEREAS THE A.O HA S ADOPTED THE GROSS PROFIT RATE AT 20% WITHOUT JUSTIFYING THE SAME. THE REVENUE HAS QUESTIONED THIS ACTION OF THE LEARNED C IT(A) IN DELETING THE ADDITION OF RS. 7,41,618/-. THE ASSES SEE IS HOWEVER, IN APPEAL QUESTIONING THE FIRST APPELLATE ORDER IN SUSTAINING THE EARLIER TWO ADDITIONS I.E. ADDITION OF RS. 18,94,800/-AND RS. 25,00,000/-. 6. IN SUPPORT OF THE GROUND RAISED BY THE REVENUE I N ITS APPEAL, THE LEARNED DR HAS BASICALLY PLACED RELIANC E ON THE ASSESSMENT ORDER WITH THIS SUBMISSIONS THAT THE ASS ESSEE HAD AGREED FOR SUCH ADDITIONS VIDE ORDER SHEET ENTRY DA TED 13-3- 2006. THE LEARNED AR ON THE OTHER HAND SUPPORTED T HE GROUNDS RAISED IN THE APPEAL PREFERRED BY THE ASSES SEE WITH THIS SUBMISSIONS THAT WHILE SUSTAINING THE ADDITION S MADE BY THE A.O THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAS ALREADY DECLARED GROSS PROFIT RATE OF 28.2% WHICH EVEN AS PER THE A.O WAS ON HIGHER SIDE SO THERE WAS NO QUESTION OF MAKING ANY DISALLOWANCE. IT WAS SUBMIT TED THAT EVEN IF THE ADDITIONS MADE BY THE A.O ARE INCLUDED IN THE ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 5 INCOME OF THE ASSESSEE THEN THE GROSS PROFIT FROM T HE PROJECT WORK UNDERTAKEN BY THE ASSESSEE WOULD WORK AT 85.2% WHICH IS IMPOSSIBLE TASK. IT WAS SUBMITTED THAT THE ASSE SSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD ACCEPTED T HE DISALLOWANCE OF RS. 18,94,800/- BY MISTAKE AND WHEN IT WAS REALIZED, THE ASSESSEE FILED A RECTIFICATION APPLIC ATION U/S 154 TO THE A.O OBJECTING THE SAID DISALLOWANCE. THE LE ARNED CIT(A) HAS FAILED TO APPRECIATE ALL THESE MATERIAL FACTS. THE LEARNED AR SUBMITTED THAT THERE IS NO ESTOPPLE AGAINST LAW AND IF THE INCOME IS NOT TAXABLE IT CANNOT BE TAXED MERELY BEC AUSE THE ASSESSEE HAD AGREED TO IT. AGAINST THE DISALLOWANC E OF RS. 25,00,000/- MADE OUT OF THE PAYMENT CLAIMED TO HAVE BEEN MADE TO SUB-CONTRACTORS, THE LEARNED AR SUBMITTED T HAT THE A.O HAD ASKED THE ASSESSEE TO FURNISH EVIDENCE FOR ENTERING INTO CONTRACT WITH ITS SUB-CONTRACTORS. SINCE THE ASSESSEE HAD NOT MADE ANY AGREEMENT WITH THEM ON THE STAMP PAPER , BUT THEY HAD EXECUTED THE WORK WITH AN UNDERSTANDING AR RIVED AT BY THE ASSESSEE WITH THEM WHICH WAS REDUCED ON LETT ER HEAD. THE ASSESSEE, HOWEVER, HAD PRODUCED THE CONCERNED P ERSON FOR EXAMINATION BEFORE THE LEARNED CIT(A) IN ORDER TO PROVE THE NATURE OF WORK DONE BY THEM. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE PAYMENTS ARE MADE TO THEM ON EXECUTION OF CONCERNED SUB-CONTRACT WORK. THE ASSE SSEE HAS MADE PAYMENTS ONLY BY CHEQUES TO THOSE SUB-CONTRACT ORS. THE CONTRACTS WERE OF IRRIGATION DEPARTMENT AND THE ASSESSEE ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 6 HAS RECEIVED THE BILLS FROM THE DEPARTMENT ONLY BY CHEQUE. THE LEARNED AR REFERRED PAGE NO. 1 TO 29 OF THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE I.E. COPIES OF SUBM ISSIONS MADE BY HIM BEFORE THE LEARNED CIT(A); BALANCE SHEET AND PROFIT AND LOSS ACCOUNT; LETTER DATED 20-4-2006; COPIES OF AGR EEMENT ENTERED INTO WITH SUB-CONTRACTORS; COPY OF THE REMA ND REPORT SUBMITTED BY A.O; AND COPY OF ASSESSEES SUBMISSION ON THE REMAND REPORT. THE LEARNED AR PLACED RELIANCE ON T HE FOLLOWING DECISIONS: I) CIT VS. BANWARI LAL BANSHIDAR (1998) 229 ITR 229 (ALLD) III) DHANDIA JEWELLERS VS. CIT (1995) 214 ITR 712 (RAJ) 7. IN REJOINDER AND TO THE SUBMISSIONS OF THE LEARN ED AR MADE IN SUPPORT OF THE APPEAL PREFERRED BY THE ASSE SSEE, THE LEARNED DR TRIED TO JUSTIFY THE ORDERS OF THE LOWER AUTHORITIES ON THE ADDITIONS SUSTAINED. REGARDING THE TRADING ADDITIONS OF RS. 7,41,618/- HE TRIED TO JUSTIFY THE ASSESSMENT O RDER. 8. HAVING GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITIES IN VIEW OF THE ABOVE SUBMISSIONS MADE BY THE PARTIE S, WE FIND THE MATERIAL FACT THAT ADDITION OF RS. 18,94,800/- ON ACCOUNT OF DISALLOWANCE OF CLAIMED LABOUR AND MATERIAL CHAR GES HAS BEEN MADE BY THE A.O SINCE THE ASSESSEE HAD AGREED TO IT FOR WANT OF VOUCHERS. IT IS AN ESTABLISHED PROPOSITION OF LAW THAT ONUS ALWAYS LIES UPON THE CLAIMANT TO ESTABLISH THE ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 7 GENUINENESS OF ITS CLAIM. IT IS NOT A CASE OF THE ASSESSEE THAT IT WAS HAVING SUFFICIENT EVIDENCE TO ESTABLISH THE CLA IMED EXPENSES STATED TO BE INCURRED ON LABOUR AND MATERI AL. REALIZING THIS WEAKNESS ASPECT OF THE CASE, THE ASS ESSEE HAD AGREED UPON THIS DISALLOWANCE WHICH HAS BEEN NOTED BY THE A.O IN ORDER SHEET, REPRODUCED AT PAGE NO. 5 OF THE ASSESSMENT ORDER. THUS, IN OUR VIEW, THERE WAS A CONVINCING R EASON WITH THE ASSESSEE TO ACCEPT THE OFFERED DISALLOWANCE AS IT WAS NOT IN A POSITION TO ESTABLISH THE CLAIMED EXPENSES. THOU GH THE LEARNED AR HAD ADVANCED AN ARGUMENT THAT THE ACCEPT ANCE ON THE PART OF THE ASSESSEE TO THE SAID DISALLOWANCE B EFORE THE A.O WAS A MISTAKE BUT HE HAS NOT EXPLAINED HOW IT W AS A MISTAKE ON THE PART OF THE ASSESSEE IN ACCEPTING TH E SAME. THE LEARNED AR CANNOT BE ALLOWED TO BLOW HOT AND COLD A T THE SAME BREATH. AT ONE BREATH THE ASSESSEE HAD AGREED UPON THE DISALLOWANCE IN QUESTION AND AT SECOND BREATH THE A CCEPTANCE OF THE DISALLOWANCE BY THE A.O IS QUESTIONED ON THE BASIS THAT THE A.O WAS NOT JUSTIFIED IN MAKING THE DISALLOWANC E MERELY BECAUSE THE ASSESSEE HAD AGREED TO IT. IT IS MATER IAL TO NOTE THAT THE EXPENDITURE OF RS. 64,58,000/- WAS CLAIMED TO HAVE BEEN INCURRED ON PROJECTS OUT OF WHICH THE A.O FOU ND THAT THE EXPENDITURE WORTH RS. 18,94,800/- WAS TOTALLY NON-V ERIFIABLE. THE DISALLOWANCE OF THIS NON-VERIFIABLE EXPENDITURE HAS BEEN AGREED UPON BY THE ASSESSEE SINCE THERE WAS NO OPTI ON WITH IT TO ESTABLISH THE GENUINENESS OF IT. APPRECIATING A LL THESE ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 8 MATERIAL FACTS, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY UPHELD THE ADDITION. SIMILARLY, THE A.O DI SALLOWED RS. 25,00,000/-. THE CLAIMED EXPENDITURE ON ACCOUNT OF SUB- CONTRACT WITH THIS OBSERVATION THAT THE WORK CLAIME D TO HAVE BEEN CARRIED OUT THROUGH THE SUB-CONTRACTOR WAS STA TED TO BE COMPLETED BEFORE 25-5-2002 WITH THE DATE OF MEASURE MENT HAVING BEEN ADOPTED AS 30-4-2002 WHEREAS THE PERIOD OF CONTRACT WORK WAS COMMENCED FROM 10-10-2002 AND 6-2 -2003 AS PER THE AGREEMENT ENTERED WITH THEM. THE A.O AC CORDINGLY HELD THAT THE SUB-CONTRACT WORK DO NOT RELATE TO SU B-CONTRACT FOR WHICH THE ASSESSEE IS SHOWN TO HAVE MADE SUB-CO NTRACT PAYMENT OF RS. 25,00,000/-. SINCE THE ASSESSEE COU LD NOT MEET ITS CASE BEFORE THE LEARNED CIT(A), THE LEARNE D CIT(A) HAS UPHELD THE DISALLOWANCE. AS WE HAVE ALREADY DISCUS SED THAT ONUS ALWAYS LIES UPON THE CLAIMANT TO ESTABLISH THE GENUINENESS OF THE CLAIM, EVEN BEFORE US, THE ASSES SEE HAS FAILED TO IMPROVE ITS CASE ON THE ISSUE, WE THUS DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. GROUNDS NO. 1 AND 2 OF THE APP EAL PREFERRED BY THE ASSESSEE ARE ACCORDINGLY REJECTED. 9. SO FAR AS THE ADDITION OF RS. 7,41,818/- ON ACCO UNT OF HIGHER GROSS PROFIT MADE BY THE A.O IS CONCERNED, W E FULLY AGREE WITH THE FINDING OF THE LEARNED CIT(A) THAT T HE A.O WAS NOT JUSTIFIED IN APPLYING THE GROSS PROFIT RATE OF 20% AGAINST ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 9 THE GROSS PROFIT RATE OF 28.2% SHOWN BY THE ASSESSE E RESULTING INTO THE SAID ADDITION. GENERALLY, A DECLARED GROS S PROFIT RATE IS APPLIED BY THE A.O TO ESTIMATE THE PROPER PROFIT WHEN ON THE BASIS OF BOOKS OF ACCOUNT ETC. MADE AVAILABLE BEFOR E THE A.O IT IS NOT POSSIBLE FOR THE A.O TO DEDUCE THE PROFIT OF THE ASSESSEE ON THE BASIS OF THOSE BOOKS OF ACCOUNT WHICH ARE FO UND NON- VERIFIABLE. IN SUCH A SITUATION, THE BOOKS ARE REJ ECTED AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T A REASONABLE HIGHER GROSS PROFIT RATE IS APPLIED ON T HE TURNOVER TO WORK OUT ON ESTIMATED PROFIT BASED UPON THE PAST RESULT OF THE ASSESSEE OR IN ABSENCE THEREOF ON THE BASIS OF SOME COMPARABLE INSTANCES. IN THE PRESENT CASE, THE A.O HAS NOT ONLY MADE AN ADDITION ON ACCOUNT OF NON-VERIFIABLE EXPENSES BUT HAS ALSO DIS-BELIEVED THE HIGHER GROSS PROFIT R ATE SHOWN BY THE ASSESSEE AND HAS APPLIED LOWER GROSS PROFIT RAT E TO ESTIMATE THE PROFIT. IN OUR VIEW, THE A.O IS HAVI NG ONLY ONE OPTION OUT OF THE ABOVE TWO OPTIONS IF BY MAKING DI SALLOWANCE ON NON-VERIFIABLE CLAIMED EXPENSES THE A.O HAS ALRE ADY PLUGGED THE POSSIBLE LEAKAGE NO FURTHER OPTION IS A VAILABLE WITH HIM TO ESTIMATE THE INCOME BY APPLYING THE DIF FERENT GROSS PROFIT RATE TO COVER UP THE LEAKAGE ON THE BA SIS OF THOSE DEFECTS FOUND IN THE BOOKS OF ACCOUNT ETC. MAINTAIN ED BY THE ASSESSEE AGAINST WHICH ADDITION HAS ALREADY BEEN MA DE. THE LEARNED CIT(A) WAS THUS JUSTIFIED IN DELETING THE A DDITION OF RS. 7,41,818/- ADDED DUE TO DIFFERENCE BETWEEN THE GROS S PROFIT ITA NO.746 AND 797/PN/2008 N,R, MUTHA A.Y. 2003-04 10 RATE SHOWN BY THE ASSESSEE AND APPLIED BY THE A.O. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. THE GROUND OF THE APPEAL PREFERRED BY THE REVENUE IS ACCORDINGLY REJECTED. 10. CONSEQUENTLY, THE APPEALS PREFERRED BY THE PART IES ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST 2010. SD/- SD/- (D.K. SRIVASTAVA) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE,DATED THE 31 ST AUGUST 2010 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT- (A) I PUNE (4) CIT I PUNE (5) THE D.R. A BENCH, PUNE TRUE COPY BY ORDER, ASSISTANT REGISTRAR INCOME-TA X APPELLATE TRIBUNAL, PUNE BENCHES, PUNE