M/s Lotus Infrabuild Ltd., Barnala V. DCIT, Sangrur

ITA 804/CHANDI/2014

• Counselvise Citation: 80421514 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Depreciation
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 804/CHD/2014 ASSESSMENT YEAR: 2010-11 M/S LOTUS INFRABUILD LIMITED, VS. THE DCIT, CIRCL E, BARNALA (PUNJAB) SANGRUR PAN NO. AABCL2654F & ITA NO. 909/CHD/2014 ASSESSMENT YEAR: 2010-11 THE DCIT, CIRCLE, VS. M/S LOTUS INFRABUILD LIMITE D, SANGRUR BARNALA (PUNJAB) PAN NO. AABCL2654F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHWANI KUMAR RESPONDENT BY : MS. RAJINDER KAUR DATE OF HEARING : 07.10.2015 DATE OF PRONOUNCEMENT : 05.11.2015 ORDER PER H.L.KARWA, VP THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVE NUE ARE DIRECTED AGAINST THE ORDER OF CIT(A), PATIALA DATED 27.8.201 4 RELATING TO ASSESSMENT YEAR 2010-11. 2. GROUND NO1 & 2 OF THE ASSESSEES APPEAL READS AS UNDER:- 2 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME-TAX ACT , 1961 BY THE LD. CIT(A), PATIALA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF T HE LD. ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SEC TION 145(3) . 2. THAT HE WAS FURTHER NOT JUSTIFIED IN ARBITRARY HOLD ING THAT THE NET PROIFT RATE OF 7% OF GROSS RECEIPTS SHOULD BE APPLI ED ON GROSS RECEIPT OF RS. 33,35,55,467/- THEREBY CONFIRMING A N ADDITION OF RS. 94,05,334/- 3. GROUND NOS. 1 TO 3 OF THE REVENUES APPEAL READS AS UNDER:- 1. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, LD. C1T(A) HAS ERRED IN NOT UPHOLDING THE NET PROFIT RA TE @12% APPLIED BY THE AO AFTER REJECTING BOOK RESULTS U /S 145(3) FOR REASONS MENTIONED IN THE ASSESSMENT ORDER. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) HAS ERRED IN FOLLOWING THE DECISION IN THE CASE OF M/S HARBHAJAN SINGH & CO., SANGRUR PARTICULARLY WHEN THE DEPARTMENT IS IN APPEAL BEFORE THE HON'BLE HIGH COU RT AGAINST THE SAID DECISION. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RELYING UPON THE TRADIN G RESULTS OF EARLIER YEAR TO ESTIMATE THE NET PROFIT, IGNORING T HE FACT THAT EACH YEAR HAS TO BE ASSESSED ON ITS MERITS WHICH HA S BEEN DONE BY THE AO, AND THAT SEVERAL SHORTCOMINGS WERE NOTED IN THE ACCOUNTS OF THE ASSESSEE FOR THE PRESENT ASSESSMENT YEAR WHICH WERE NOT PRESENT DURING THE ASSESSMENT OF THE PRECE DING ASSESSMENT YEARS COMPLETED BY THE JCIT AND THAT, TH EREFORE, THE PREVIOUS ASSESSMENT RESULTS CANNOT BE RELIED UPON T O ESTIMATE THE PROFIT IN THE CURRENT ASSESSMENT YEAR. 3 4. THE RELEVANT FACTS RELATING TO ABOVE GROUNDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND ALSO TRADING OF CONSTRUCTION MATERIAL. IN THE TRADING AN D PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2010, THE ASSESSEE DECLARED NE T PROFIT OF RS. 1,54,13,020/- ON THE GROSS RECEIPTS AND RS. 33,12,92,343/- WHICH GIVES NET PROFIT RATE OF 4.5%. IN THE ASSESSMENT YEAR 2008-09 AND 2009-10, THE ASS ESSEE HAD SHOWN NET PROFIT RATE OF 7.25% AND 6.24 % RESPECTIVELY. THE ASSESSIN G OFFICER REQUIRED THE ASSESSEE TO GIVE THE REASONS FOR DOWNFALL OF NET PR OFIT WITH SUPPORTING DOCUMENTARY EVIDENCE. IN RESPONSE TO THE SAID QUER Y, THE ASSESSEE SUBMITTED WRITTEN REPLY DATED 7.12.2012 WHICH WAS REJECTED BY THE ASSESSING OFFICER STATING THAT THE ONUS WAS ON THE ASSESSEE TO PRODUC E EVIDENCE IN SUPPORT OF ITS CLAIM. THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE COMPLETE BOOKS OF ACCOUNT ALONG WITH BILLS / VOUCHERS OF EXPENSES CLAIMED IN PROFIT AND LOSS ACC OUNT. IN COMPLIANCE, THE ASSESSEE PRODUCED ONLY LEDGER ACCOUNTS, SALE BILLS AND PURCHASE INVOICES OF MATERIAL. HOWEVER, NO STOCK REGISTER WAS PRODUCED B EFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER NOTICED CERTAIN DISCREPANCIES IN THE BOOKS OF ACCOUNT AND VIDE LETTER DATED 7.12.2012 THE ASSESSING OFFICER A SKED THE ASSESSEE TO FURNISH THE REPLY TO THE LETTER WHEREIN IT WAS STATED THAT AS TO WHY BOOKS OF ACCOUNT SHOULD NOT BE REJECTED U/S 145(3) OF THE INCOME-TA X ACT, 1961 (IN SHORT 'THE ACT') ON THE FOLLOWING GROUNDS:- I) NO STOCK REGISTER OF CEMENT, BRICKS AND IRON GOO DS AS WELL AS COMPARABLE GOODS WERE KEPT BY YOU. (II) NO PROPER RECORDS OF LABOUR CHARGES AMOUNTING TO RS.6,98,07,338/- AND LABOUR CESS OF RS.8,68,834/- I .E. LABOUR ATTENDANCE REGISTER WITH COMPLETE ADDRESSES OF THE LABOURERS AND EXPENDITURE VOUCHERS OF THE LABOUR CHARGES DEBI TED TO THE TRADING AND MANUFACTURING /PROFIT AND LOSS ACCOUNT HAS BEEN PRODUCED. 4 (III) NO MEASUREMENT BOOK WAS PRODUCED BEFORE TH E UNDERSIGNED, (IV) VIDE QUESTIONNAIRE DATED 08.08.2012, THE ASSES SEE WAS ASKED TO FURNISH THE QUANTITATIVE DETAILS OF ALL TH E WORK IN PROGRESS AS WELL AS CLOSING STOCK OF WORK IN PROGRE SS WITH BASIS OF VALUATION OF OPENING STOCK AND CLOSING STOCKS DU LY SUPPORTED BY DOCUMENTARY EVIDENCE. (V) A PERUSAL OF THE FORM NO. 26AS THE ASSESSEE HAS BEEN PAID/CREDITED TOTAL AMOUNT OF RS.33,87,08,5527- FRO M THE PERIOD 01.04.2009 TO 31.03.2010 WHERE AS THE ASSESS EE HAS SHOWN THE RECEIPTS OF RS.33,12,92,343/-ONLY. FROM T HE ABOVE FACTS, IT IS CLEAR THAT THE ASSESSEE HAS UNDERSTATE D THE RECEIPTS OF RS.74,16,209/- IN THE PROFIT & LOSS ACCOUNT BY N OT SHOWING THE RECEIPT OF RS.74,16,209/- FOR THE YEAR UNDER CO NSIDERATION. 5. IN RESPONSE TO THE SAID LETTER, THE ASSESSEE SUB MITTED A DETAILED REPLY ON 19.12.2012. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE STATING THAT NO STOCK REGISTER HAS BEE N MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT NO COMPLETE REC ORDS IN RESPECT OF MAIN ITEMS USED IN CONSTRUCTION WHICH CONSTITUTED MORE T HAN 70% OF COST OF CONSTRUCTION I.E. BRICKS, CEMENT, AGGREGATE & STRUC TURE, STEEL ETC. HAVE BEEN MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER O BSERVED THAT ASSESSEE HAS ALSO FAILED TO MAINTAIN PROPER BOOKS OF ACCOUNT AND RECORD OF THE STOCK. THE ASSESSING OFFICER ALSO POINTED OUT THAT ASSESSEE HA S ADMITTED THAT MOST OF THE PAYMENTS WERE MADE THROUGH LABOUR CONTRACTORS WHO M AINTAINED RECORD OF THE LABOUR ATTENDANCE. HOWEVER, THE ASSESSEE HAS NOT FU RNISHED COPY OF THE AGREEMENT, IF ANY, EXECUTED WITH THE LABOUR CONTRA CTOR INDICATING TERMS AND CONDITIONS OF THE CONTRACT NOR THE CONTRACTOR TO WH OM PAYMENTS HAVE BEEN MADE, WAS PRODUCED. THE ASSESSEE ALSO FAILED TO FURNISH T HE DETAILS OF LABOUR TO WHOM SOME PAYMENTS HAS BEEN MADE AS CLAIMED BY THE ASSES SEE. REGARDING 5 QUANTITATIVE DETAILS OF ALL WORK IN PROGRESS AND VA LUATION OF CLOSING STOCK, THE ASSESSEE FAILED TO SUBMIT SEPARATE DETAILS. NO DETA ILS OF WORK IN PROGRESS WERE SUBMITTED. THE ASSESSING OFFICER ALSO POINTED OUT THAT AMOUNT OF RS. 34,86,392/- ON WHICH TCS (TAX COLLECTED AT SOURCE) HAVE BEEN MA DE BY M/S ABHISHEK INDUSTRIES LIMITED AND M/S MAGHAR SINGH & SONS ON PURCHASE ACCOUNT WAS ALSO INCLUDED IN THE GROSS RECEIPTS OF RS. 33,87,08 ,550/-. ACCORDING TO ASSESSING OFFICER, THE AMOUNT WAS NOT REDUCED FROM THE GROSS RECEIPTS AS SHOWN IN 26AS DETAILS. SIMILARLY, THE BANK INTEREST OF RS . 16,44,785/- ON WHICH TDS HAS BEEN MADE WAS ALSO SHOWN IN THE GROSS RECEIPTS AND THE SAME WAS REQUIRED TO BE REDUCED FROM THE GROSS RECEIPTS SINCE BANK IN TEREST HAVE BEEN CONSIDERED SEPARATELY IN THE COMPUTATION OF INCOME. IN VIEW OF THE ABOVE DISCREPANCIES, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND APPLIED A NP RATE OF 12% OF THE GROSS RECEIPTS. 6. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). THE LD. CIT(A) REDU CED THE NP RATE TO 7% AS AGAINST 12% ESTIMATED BY THE ASSESSING OFFICER. THE RELEVANT FINDINGS OF THE CIT(A) ARE AS UNDER:- 4.3 I HAVE CONSIDERED THE SUBMISSION MADE. IN THIS CASE, IT IS SUBMITTED BY THE A.O. THAT THE COMPLETE BOOKS OF ACCOUNTS WERE NOT PRODUCED BEFORE THE A.O. THE DOCUMENTARY E VIDENCE IN SUPPORT OF THE RECONCILIATION CHART IN RESPECT O F CERTAIN ITEMS WERE ALSO NOT PRODUCED. CERTAIN DETAILS OF CLOSING STOCK/WORK IN PROGRESS WERE ALSO NOT FILED. IN MY OPINION SINCE THE APPELLANT FAILED TO PRODUCE COMPLETE BOOKS OF A CCOUNTS DURING THE ASSESSMENT PROCEEDINGS THEREFORE THE A.O . HAS CORRECTLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE IT ACT'61. FURTHER, THE APPELLANT COULD NOT EXPLAIN THE DISCREPANCY IN THE GROSS RECEIPT SHOWN VIS-A-VIS, T HE 26-AS STATEMENT BY WAY OF PROPER EVIDENCES. THEREFORE, IN MY 6 OPINION, THERE IS NO ERROR ON THE PART OF THE A.O. IN CALCULATION OF GROSS RECEIPT AS PER RECORD AVAILABLE. NOW COMING TO THE ESTIMATION PART OF NET PROFIT, TH E APPELLANT HAS SUBMITTED THAT DURING THIS YEAR THERE WAS DOWN FALL IN NET PROFIT DUE TO CERTAIN FACTORS AS MENTIONED IN THE A SSESSMENT ORDER ALSO. FOR EXAMPLE, IT IS CONTENDED THAT THE C ONSTRUCTION EXPENSES HAS INCREASED FROM 7.82% TO 11.3%, THE CON SUMPTION OF MATERIAL HAS INCREASED FROM 48.96% TO 52.85%. TH E LABOUR CHARGES HAS GONE FROM 18.93% TO 21.07%, THE MACHINE RY HAS GONE UP 0.85% TO 75%. FURTHER IT SUBMITTED THAT IN THE A.Y. 2009-10 THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE RETURNED NET PROFIT OF 6.21% WAS ACCEPTED B Y THE JCIT. IN THE CASE OF HARBHAJAN SINGH AND CO. A.Y. 2008-09 IN ITA NO. 183/CHD/2013 THE HON'BLE JURISDICTIONAL RELIED ON UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT RENDE RED IN THE CASE OF CIT VS PARVEEN KUMAR MITTAL AND CONTENDED T HAT EVEN AFTER REJECTION OF BOOKS OF ACCOUNTS THE PAST HISTO RY OF THE ASSESSES HAS TO BE APPLIED AND ADOPTED FOR THE PURP OSE. IT IS HELD THAT THE PAST HISTORY OF THE ASSESSEE IS THE B EST GUIDE TO ASCERTAIN AND DETERMINE THE TRADING RESULT OF A PAR TICULAR YEAR. IN THIS CASE, THE A.O. HAS SUBMITTED THAT COMPLETE BOOKS OF ACCOUNTS ARE NOT PRODUCED. HOWEVER, THE PURCHASE AN D SALE BILLS ARE PRODUCED ALONGWITH LEDGER OF THE PARTIES. NO DISCREPANCY IS RECORDED BY THE A.O. IN PURCHASES OR SALE BILLS. THE REASON FOR DOWNFALL IN THE PROFIT IN THIS YEAR IS EXPLAINED BY INCREASE IN COST OF OPERATIONAL EXPENSES. AN ILL USTRATIVE CHART IN THIS RESPECT WAS ALSO SUBMITTED WHICH WAS NOT REBUTTED BY THE A.O. THE APPELLANT HAS SUBMITTED THAT IN THE A.Y. 2009- 10, THE A.O. HAS DULY ACCEPTED NET PROFIT OF 6.24% DECLARED BY APPELLANT. GOING BY THE FACTS OF THE CASE AND THE S UBMISSION MADE AND ALSO CONSIDERING THE INCREASE IN OPERATION AL COST IN THIS YEAR, I AM OF THE OPINION THAT THE NET PROFIT IN THIS YEAR MAY BE TAKEN @7% IN PLACE OF 4.6% DECLARED BY THE A PPELLANT 7 AND 12% ESTIMATED BY THE A.O. IN THE RESULT THIS GR OUND OF APPEAL IS PARTLY ALLOWED. 7. THE ASSESSEE IS AGGRIEVED WITH THE ORDER OF CIT( A) IN SUSTAINING THE NET PROFIT RATE OF 7% OF GROSS RECEIPTS WHILE THE REVE NUE IS AGGRIEVED WITH THE ORDER OF THE CIT(A) IN REDUCING THE NET PROFIT RATE FROM 12% TO 7%. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSES SEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT. IT IS APPARENT FROM THE RECORD THAT COM PLETE RECORDS IN RESPECT OF MAIN ITEMS USED IN THE CONSTRUCTION WHICH CONSTITUT ES MORE THAN 70% OF COST OF CONSTRUCTION I.E. BRICKS, CEMENT AND STEEL ETC. HA VE NOT BEEN MAINTAINED BY THE ASSESSEE. NO DETAILS REGARDING ANY AGREEMENT WITH T HE LABOUR CONTRACTOR WAS FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS CONTENT ION THAT LABOURERS WERE PAID THROUGH THE LABOUR CONTRACTOR WHO MAINTAINED THE RE CORDS OF THE ATTENDANCE. NO DETAILS OF WORK IN PROGRESS AND FULL QUANTITATIVE D ETAILS OF CLOSING STOCK WERE NOT PRODUCED BEFORE THE AUTHORITIES BELOW. IN OUR V IEW, THE ASSESSEE ALSO FAILED TO GIVE ANY SATISFACTORY EXPLANATION REGARDING FALL IN RATE OF NET PROFIT. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, WE ARE OF THE VIEW THAT ASSESSING OFFICER WAS JUSTIFIED IN REJECT ING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. AS REGARDS THE ESTIMATION PART OF THE NET PROFIT, WE ARE OF THE VIEW THAT LD. CIT(A) WAS JUSTIFIED IN APPLYING NP O F 7% IN PLACE OF 4.6% DECLARED BY THE ASSESSEE. THE NET PROFIT OF 12% AP PLIED BY THE ASSESSING OFFICER IS WITHOUT ANY BASIS PARTICULARLY IN COMPARISON WIT H THE NET PROFIT DECLARED BY THE ASSESSEE IN PRECEDING TWO YEARS. ACCORDINGLY, W E UPHOLD THE ORDER OF CIT(A) AND REJECT GROUND NOS. 1 & 2 OF THE ASSESSEE S APPEAL AND GROUND NOS. 1 TO 3 OF THE REVENUES APPEAL. 8 9. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS UN DER:- 3 THAT HE WAS FURTHER NOT JUSTIFIED IN NOT ADJUDIC ATING GROUND NO.3 RAISED BY THE APPELLANT WITH RESPECT OF THE A DOPTION OF GROSS RECEIPT FIGURE OF RS. 33,35,55,467/- AS AGAIN ST CORRECT FIGURE OF RS. 33,12,92,343/- WHICH IS AS PER PROFIT AND LOSS ACCOUNT OF THE APPELLANT COMPANY. 10. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CONTENTION OF THE A SSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT CORRECT FIGURE OF THE GROSS RECEIP T IS RS. 33,12,92,343/- AS AGAINST RS. 33,35,55,467/- AS ADOPTED BY THE ASSESS ING OFFICER. THE ASSESSING OFFICER SHOULD RECOMPUTE THE INCOME OF ASSESSEE ACC ORDINGLY. 11. IN THIS APPEAL THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND OF APPEAL WHICH READS AS UNDER:- THAT THE APPELLANT COMPANY BE ALLOWED CLAIM OF DEPRECIATION AMOUNTING TO RS. 11,87,593/- AS CLAIME D IN THE RETURN EVEN IF FOR THE PURPOSES OF COMPUTING OF INC OME A NET PROFIT RATE IS APPLIED IN THE CASE OF THE APPELLANT COMPANY. 12. SHRI ASHWANI KUMAR, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT WHILE RAISING THE ORIGINAL GROUND OF APPEAL, THE ASSESSEE OMITTED TO RAISE THE ABOVE GROUND OF APPEAL WITH RESPECT TO THE CLAIM OF DEPRE CIATION. ACCORDING TO HIM, THE FACTS RELATING TO THIS ISSUE ARE ALREADY ON REC ORD AND THE GROUND BEING RAISED IS PURELY LEGAL. 9 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ALS O THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CO.LTD. (1998) 229 ITR 383 (SC) , WE ADMIT THE ADDITIONAL GROUND. SHRI ASHWANI KUMA R, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V BHULLAR BUILDERS P. LTD. (2006) 2 86 ITR 686 (P&H) WHEREIN IT HAS BEEN HELD THAT ASSESSEE WOULD BE ENTITLED FOR C LAIM OF DEPRECIATION EVEN IF NET PROFIT RATE IS APPLIED. RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION TO THE ASSESSEE EVEN IF THE PROFIT IS ESTIMATED BY APPLYING NET PROFIT OF 7%. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED . 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED PARTLY AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.11.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : NOVEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR