ACIT, Jabalpur V. Shri Pawan Kumar Jain, Jabalpur

ITA 79/JAB/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5614 (ITAT-JABALPUR)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K UPADHYAY
• Assessee Lawyers: DR H S MODH
• Keywords: Rule of consistency; Non-deduction of tax
• Section: 44AD; 143(3); 194C; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.79/JAB/2012 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, VS. SHRI PAWAN KUMAR JAIN, CIRCLE 1(1), JABALPUR. 127/1, PITRA CHHAYA SANGA M COLONY, JABALPUR. (PAN ACOPJ 0762 A) C.O. NO.06/JAB/2014 (ITA NO.79/JAB/2012) ASSESSMENT YEAR: 2007-08 SHRI PAWAN KUMAR JAIN, VS. ASSTT. COMMISSIONER OF INCOME TAX, 127/1, PITRA CHHAYA SANGAM COLONY, CIRCLE 1(1), JA BALPUR. JABALPUR. (PAN ACOPJ 0762 A) (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI K.K. UPADHYAY, D.R. ASSESSEE BY : DR. H.S.MODH DATE OF HEARING : 26.03.2014 DATE OF PRONOUNCEMENT : 28.03.2014 ORDER PER T.S. KAPOOR, ACCOUNTANT MEMBER: 2 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 14.12.2011. 2. THE GROUNDS TAKEN BY THE REVENUE ARE AS UNDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS ON THE FOLLOWING GR OUNDS :- A. ADDITION OF RS.27,94,647/- ON ACCOUNT OF ADOPTIN G NET PROFIT. B. ADDITION OF RS.26,26,918/- ON ACCOUNT OF DISALLO WANCE U/S.40(A)(IA). 2. THE APPELLANT RESERVES THE RIGHT TO ADD OR AMEND ANY GROUND OF APPEAL. 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN W HICH THE FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. THAT THE LD COMMISSIONER OF INCOME TAX (APPEALS ) HAS GROSSLY ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE TO APP LY THE NET PROFIT RATE OF 2.6% AS AGAINST THE NET PROFIT SHOWN AT 2.1 %. 2. THAT THE ADDITION CONFIRMED AT RS.97,488/- (ADDI TION OF RS.27,94,947/- (-) RELIEF BY CIT(A) RS.26,97,459/- IS NOT JUSTIFIED. 3. THAT THE ADDITION CONFIRMED FOR RS.70,000/- ON A CCOUNT OF ADVANCE PAYMENT PERTAINS TO ASSESSMENT YEAR 2008-09 IS NOT PROPER AS THE ASSESSEE HAS NOT CLAIMED SUCH EXPENSES IN TH E YEAR UNDER CONSIDERATION. 3 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 4. THAT THE ASSESSEE CRAVES LEAVE TO RAISE ANY OTHE R GROUND/S ON BEFORE THE DATE OF HEARING TO PROVE THAT THE ORDER PASSED BY CIT(A) IS BAD. 4. THE FIRST ISSUE INVOLVED IN THIS CASE IS REGARDI NG DELETION OF ADDITION OF RS.27,94,647 WHICH THE ASSESSING OFFICER HAS MADE B Y APPLYING A G.P. RATIO OF 10%. THE ASSESSEE HAS DISCLOSED NET PROFIT EQUIVAL ENT TO 2.10% OF TURNOVER. THE ASSESSING OFFICER HAS MADE THE ADDITION BY HOLDING AS UNDER:- AS THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED, THERE REMAINS ONLY COURSE FOR ASSESSMENT OF INCOME IS THAT OF EST IMATION ON THE BASIS OF GENERAL MARKET TREND IN THE CIVIL CONSTRUCTION B USINESS. AS ALSO HAS BEEN INDICATED HERE IN ABOVE, THERE ARE ASSESSEES IN THE CIVIL CONSTRUCTION BUSINESS THAT HAVE SHOWN NET PROFIT@ 9 -10% IN CIVIL CONSTRUCTION BUSINESS, THEREFORE IN THE CASE OF ASS ESSEE GROSS PROFIT IS ESTIMATED @ 10%. THEREFORE, THE NET PROFIT UPON GR OSS CONTRACT RECEIPTS OF RS.3,64,52,152/- IS CALCULATED @ 10% WH ICH IS RS.36,45,215/-. AND ADDITION IN INCOME WOULD BE RS .36,45,215/- LESS RS.8,50,567.65 (NP AS SHOWN) = RS.27,94,647.35 FOR MAKING THIS DISALLOWANCE IT IS PRESUMED THAT ASSESSEE HAS MADE COMPLIANCE TO ALL THE SECTION OF INCOME TAX ACT, 1961. 5. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAD MADE VARIOUS PAYMENTS WITHOUT DEDUCTION OF TAX AT SOURCE, THEREF ORE, THE DISALLOWANCE OF RS.27,16,176/- WAS MADE FOR VIOLATION OF PROVISIONS OF SECTION 194C, 194J AND 194A OF THE INCOME TAX ACT, 1961. 4 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 6. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND MADE VARIOUS SUBMISSION. THE LD. CIT(A) ON THE BASIS OF VARIOUS SUBMISSIONS DEALT WITH THE ISSUE AS UNDER DECISION (GROUND NO 2 & 3): I HAVE GONE THROUGH THE MATERIAL ON RECORD AND THE SUBMISSIONS OF THE COUNSEL CAREFULLY . ON GOING THROUGH THESE DOCUMENTS AS WELL AS THE BOOKS OF ACCOUNTS PR ODUCED BEFORE ME, I FIND THAT THE AO HAS NOT PROPERLY VERIFIED OR EXA MINED THE BOOKS OF ACCOUNTS AND THE RELEVANT BILLS OF PURCHASES DURING THE ASSESSMENT PROCEEDINGS ALTHOUGH ALL THE MATERIAL TO THIS EFFEC T WAS ON RECORD. THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED WITHOUT BRINGI NG ANY SUBSTANTIAL REASONS/MATERIAL ON RECORD. THE AO HAS ALSO ESTIMAT ED THE GROSS PROFIT RATE OF THE APPELLANT BY CITING A COMPARABLE FIRM M/S VANSHIKA CONSTRUCTION. I TEND TO AGREE WITH THE COUNSEL WHO HAD PRODUCED THE WORKINGS AS CONTENDED BY HIM IN HIS SUBMISSIONS OF M/S VANSHIKA CONSTRUCTIONS THAT THE RATE OF NP SHOWN BY THE FIRM IS 2.60% FROM CONTRACT WORK. THE APPELLANT HAS SHOWN NP RATE OF 2 .10%. THE AO WORKING OUT THE NET PROFIT AT THE RATE OF 10% AND M AKING ADDITION OF RS.27,94,647/- COMPARING WITH THE CASE OF M/S VANSIKA BASIS WHICH APPEARS INCORRECT AND UNJUSTIFIED. ON GOING THROUGH MATERIAL PLACED BEFORE ME AND THE BOOKS OF ACCOUNTS I FIND THE NP OF 2.10% TO BE ON THE LOWER SIDE. IT WOULD BE FAIR TO ADOPT THE NP RATE OF 2.60%. THE COUNSEL OF THE APPELLANT IS IN AGREEMENT WITH THIS RATE TO BE ADOPTED. THUS, IN VIEW OF THE ABOVE, THE ADDIT ION OF RS.27,94,647/- ADOPTING NP AT 10% IS REDUCED TO 2.6 0% AS AGAINST 2.1% DECLARED BY THE ASSESSEE. THE AO IS DIRECTED T O WORK OUT THE NET PROFIT ACCORDINGLY. THESE GROUNDS OF APPEAL ARE PAR TLY ALLOWED. 6. IN THE NEXT GROUND OF APPEAL THE APPELLANT AGITA TES THE ADDITION MADE OF RS.27,16,176/- FOR FAILURE TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE FOR TRANSPORTATION AND PURCHASES. 6.1 THE COUNSEL FOR THE ASSESSEE CONTENDED THAT TH E ADDITION MADE BY THE AO IS NOT CORRECT AS THE AO HIMSELF MENTIONE D IN THE CHART/ ORDER 'PURPOSE' FOR MAKING PAYMENT FOR PURCHASE OF RETH, GITTI AND SAND AND QUESTIONED AS TO HOW THE PURCHASE OF MATER IALS IS 5 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 CONSIDERED FOR TDS U/S 194C AND VIOLATION OF PROVIS ION OF SECTION 40(A)(IA). IT WAS FURTHER CONTENDED THAT THE PAYMEN TS MADE AT RS.27,16,176/- INCLUDE THE PAYMENTS MADE TO THE UNR EGISTERED DEALER AT RS.25,12,100/-. A COPY OF ENTRY TAX ORDER ENCLOS ED IN SUPPORT TO THE PAYMENT WHICH ALSO ESTABLISHES THAT PAYMENT MADE TO THE PARTIES MENTIONED IN THE LIST AT S.NO. 1 TO 10 IS THE PAYME NTS OF PURCHASE OF MATERIAL AND NOT FOR TRANSPORTATION AND THE PAYMENT AT S.NO.11 FOR RS.1,14,820/- ON WHICH TDS MADE BY THE ASSESSEE S.P AYMENT AT S.NO.11 FOR RS.1,14,820/- ON WHICH IDS MADE BY THE ASSESSEE S. NO. 12 FOR PAYMENT OF ADVANCE OF RS.70,000/- IS AN ADVA NCE NOT CLAIMED AS EXPENSES IN THE TRADING ACCOUNT AND RS.19,256/- ARE FINANCE CHARGES WHICH ARE NOT INTEREST ON WHICH IDS PROVISI ONS ARE APPLICABLE, HENCE THE DISALLOWANCE MADE U/S 40(A)(I A) IS NOT JUSTIFIED. IT WAS FURTHER CONTENDED THAT THE PAYMENTS MADE TO UNREGISTERED DEALERS WERE THROUGH ACCOUNT PAYEE CHEQUES WHICH WE RE DULY VERIFIED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN VIE W OF ABOVE FACTS, THE DISALLOWANCE OF RS.27,16,176/- FOR VIOLATION OF THE PROVISION OF SECTION 194C,194J, AND 194A AND DISALLOWANCE MADE U /S 40A(IA) IS NOT ACCORDING TO LAW AND MAY BE DELETED. DECISION (GROUND NO.4,5,7 & 8): ON PERUSAL OF MATERIAL ON RE CORD AND THE SUBMISSIONS MADE BY THE COUNSEL, I FIND THA T THE ASSESSEE HAS DULY FILED ALL THE RELEVANT DETAILS IN RESPECT OF P URCHASE OF MATERIALS AND PAYMENTS MADE THEREON. THE PROVISIONS OF SECTIO N 40(A)(IA) ARE NOT APPLICABLE IN THE CASE AND THE AO WAS NOT JUSTI FIED IN MAKING SUCH ADDITION. HOWEVER, THE PAYMENT OF ADVANCE AT RS.70, 000/- MADE TO SUNNY BUILDERS DOES NOT FALL IN THIS YEAR, THE SAME HAS TO BE CONSIDERED IN THE A.Y. 2008-09. IN REGARD TO FINANC E CHARGES AMOUNTING TO RS.19,258/- THE SUBMISSION MADE IS NOT SATISFACTORY AND THE ISSUE WAS NOT PRESSED BY THE COUNSEL FOR ANY CO NSIDERATION. HENCE, THESE TWO AMOUNTS STANDS CONFIRMED AND THE B ALANCE OF RS.26,26,918/- IS HEREBY DELETED. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 8. AT THE OUTSET, THE LD. DEPARTMENTAL REPRESENTATI VE INVITED OUR ATTENTION TO THE RELEVANT FINDING OF LD. CIT(A) AND ARGUED THAT SECT ION 44AD OF THE ACT PROVIDES FOR ESTIMATION OF INCOME OF PERSONS ENGAGED IN CIVI L CONSTRUCTION BUSINESS AT THE RATE OF 8% AND, THEREFORE, THE RATE ACCEPTED BY THE LD. CIT(A) IS NOT AS PER THE GUIDING PROVISIONS OF THE ACT. HE FURTHER SUBMITTE D THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED AS THERE WERE VARIOUS IR REGULARITIES AND MOREOVER THE ASSESSING OFFICER HAS HELD THAT VARIOUS ASSESSEES I N THE LINE OF BUSINESS OF THE ASSESSEE WERE DECLARING NET PROFIT IN THE RANGE OF 8 TO 10% AND THEREFORE IT WAS PRAYED THAT ORDER OF ASSESSING OFFICER BE RESTORED. 9. AS REGARDS DISALLOWANCE UNDER SECTION 40(A)(IA), LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER SPECIFICALLY MADE THE LIST OF PAYMENTS WHICH WERE LIABLE FOR TAX DEDUCTION UNDER VARIOUS PROVISIONS OF THE ACT AND THE LD. CIT(A) HAS DELETED THE SAME WITHOUT VER IFYING THE FACTS. 10. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN THE A.Y. 2005-06 AND 2006- 07 THE ASSESSMENTS WERE DONE UNDER SECTION 143(3) O F THE ACT AND THE BOOK RESULT AS DECLARED BY THE ASSESSEE WERE ACCEPTED AND IN TH IS RESPECT ATTENTION WAS INVITED TO PAPER BOOK PAGE NOS.33 TO38 WHERE COPY OF ASSESS MENT ORDER FOR A.Y. 2005- 7 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 06 AND 2006-07 WERE PLACED. THEREFORE, IN VIEW OF THE PRINCIPLE OF CONSISTENCY IT WAS SUBMITTED THAT THE ORDER OF LD. CIT(A) NEEDS TO BE UPHELD. 11. REGARDING DISALLOWANCE UNDER SECTION 40(A)(IA), THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE PAYMENTS DID NOT ATTRACT THE PROVISIONS OF TAX DEDUCTION AND, THEREFORE, THE LD. CIT(A) HAS RIGHTL Y GIVEN THE RELIEF. 12. ARGUING UPON THE CROSS OBJECTION FILED BY THE A SSESSEE, THE LD. AUTHORISED REPRESENTATIVE DID NOT PRESS GROUND NOS.1 & 2, THER EFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 13. AS REGARDS GROUND NO.3 REGARDING CONFIRMATION O F DISALLOWANCE OF RS.70,000/-, THE LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT THE ASSESSEE HAS NOT CLAIMED THE AMOUNT OF PAYMENT AS EXPENSES AND IT WA S ONLY AN ADVANCE WHICH WAS PAID TO SUNNY BUILDERS AND IN THIS RESPECT OUR ATTE NTION WAS INVITED TO PAPER BOOK PAGE NO.9 WHERE LIST OF LOAN AND ADVANCE AS ON 31.0 3.2007 WAS MADE. IT WAS SUBMITTED THAT OUT OF RS.2,35,000/- OUTSTANDING AS ON 31.03.2007, RS,1,65,000/- BELONGED TO THE EARLIER YEAR AND RS.70,000/- WAS PA ID IN THIS YEAR. HE FURTHER SUBMITTED THAT IN A.Y. 2008-09 ON FINAL RECEIPT OF BILLS TDS WAS DEDUCTED ON THE 8 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 WHOLE AMOUNT. THEREFORE, IT WAS PRAYED THAT THE LD . CIT(A) HAS WRONGLY UPHELD THE DISALLOWANCE 14. WE HAVE HEARD THE RIVAL PARTIES AND GONE THROUG H THE MATERIAL PLACED ON RECORD. THE FIRST ISSUE INVOLVED IS REGARDING APPL ICATION OF 10% OF N.P. TO THE GROSS RECEIPTS, THE ASSESSING OFFICER HAD MADE ADDI TION ON ACCOUNT OF NON- RELIABILITY OF BOOKS AND THEREFORE HE REJECTED THE BOOKS AND APPLIED THE RATE OF 10% HOLDING THAT VANISHKA CONSTRUCTION HAS DECLARED N.P . RATIO AT 9 10%. THE LD. CIT(A) HAS DELETED THE ADDITION AFTER HOLDING THAT BOOKS OF ACCOUNT AND RELEVANT VOUCHERS WERE IN PLACE AND THE ASSESSING OFFICER HA D NOT PROPERLY VERIFIED OR EXAMINED THE BOOKS OF ACCOUNT AND THE BOOKS OF ACCO UNT WERE REJECTED WITHOUT BRINGING ANY SUBSTANTIAL REASON/MATERIAL ON RECORD AND HE ON THE SUBMISSIONS OF ASSESSEE ANALYSED THE PROFITS OF THE VANISHKA CONST RUCTION AND ARRIVED AT THE CONCLUSION THAT IN FACT N.P. RATIO IN RESPECT OF CO NTRACTUAL BUSINESS OF THIS ASSESSEE WAS 2.60% AND THEREFORE HE APPLIED N.P. RATIO OF 2. 60%. 15. BEFORE US THE LD. A.R. SUBMITTED THAT DURING TH E EARLIER YEAR 2004-05 AND 2005-06 ASSESSMENTS WERE COMPLETED UNDER SECTION 14 3(3) AND BOOK RESULTS WERE ACCEPTED BY THE DEPARTMENT. IN THIS RESPECT OUR AT TENTION WAS INVITED TO PB PAGE 15 9 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 WHERE A COMPARATIVE CHART OF N.P. RATIO IN THE A.Y. 2004-05 TO 2006-07 WAS PLACED. THE N.P. RATIO RANGED FROM 2.6 TO 2.78%. THE LD. CIT(A) HAS HELD THAT BOOKS OF ACCOUNT WERE WRONGLY REJECTED AND THERE WA S COMPLETE MATERIAL TO VERIFY THE PROFITABILITY OF THE ASSESSEE. THE LD. CIT(A) HAD COMPUTED THE NP @ 2.6% WHICH IS IN LINE WITH THE N.P. RATIO DECLARED IN EA RLIER YEARS. MOREOVER HIS FINDINGS IN RESPECT OF CASE OF VANISHKA CONSTRUCTION ALSO SH OWS THAT N.P. RATIO OF THIS ASSESSEE WAS 2.6% AND NOT 10%. THEREFORE, WE ARE I N AGREEMENT WITH THE CONTENTION OF THE ASSESSEE THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. IN VIEW OF THE ABOVE GROUND NO.1 IS DISMISSED. 16. AS REGARDS SECOND GROUND REGARDING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WE FIND THAT THE LD. CIT(A) HAD RIGHTLY HEL D THAT THE PROVISIONS OF 40(A)(IA) WERE NOT APPLICABLE AS PAYMENTS WERE FOR PURCHASES AND NOT FOR CONTRACTS. THE ASSESSMENT ORDER ITSELF STATES THAT PAYMENTS WERE M ADE FOR RETH, GITTY AND SAND. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE A DDITION. IN VIEW OF ABOVE GROUND NO.2 IS ALSO DISMISSED. 17. AS REGARDS CROSS OBJECTION FILED BY THE ASSESSE E, GROUND NOS.1 &2 HAS NOT BEEN PRESSED THEREFORE THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 10 ITA NO.79/JAB/2012 & C.O. NO.06/JAB/2014 A.Y. 2007-08 18. AS REGARDS THIRD GROUND OF TAX DEDUCTION AT SOU RCE OF RS.70,000/- WE FIND THAT THE ASSESSEE HAS NOT DEBITED THIS AMOUNT IN TH E P& L ACCOUNT AND RATHER IT HAS DECLARED IT AS ADVANCE AND DISCLOSED IN THE LIST OF LOANS AND ADVANCE. THEREFORE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. IN VIEW OF THE ABOVE, GROUND NO.3 OF CROSS OBJECTION IS ALLOWED. 19. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED AND C.O. FILED BY THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28.03.2014) SD/- SD/- (BHAVNESH SAINI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 28 TH MARCH, 2014 PBN/* COPY OF THE ORDER FORWARDED TO :- 1) APPELLANT 2) RESPONDENT 3) CIT (APPEALS) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, JABALPUR BENCH, JABALPUR 6) GUARD FILE. BY ORDER, SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, CAMP AT JABALPUR