ACIT, Cent. Cir., Aurangabad V. Shri Mallikarjun B. Patil, Aurangabad

ITA 806/PUN/2011

• Counselvise Citation: 80624514 RSA 2011
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-01-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 13-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income
• Section: 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.806/PN/2011 (ASSESSMENT YEAR: 2005-06) THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, AURANGABAD . APPELLANT VS. SHRI MALLIKARJUN B. PATIL 115-116, SFS COMPLEX, JALNA ROAD, AURANGABAD PAN: ABFPP5818F . RESPONDENT APPELLANT BY : SHRI RAJESH DAMOR RESPONDENT BY : SHRI NIKHIL PATHAK DATE OF HEARING : 13-01-2015 DATE OF PRONOUNCEMENT : 19-01-2015 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CI T(A), AURANGABAD, DATED 07.03.2011 RELATING TO ASSESSMENT YEA R 2005-06 AGAINST ORDER PASSED UNDER SECTION 144 R.W.S. 143(3) OF TH E INCOME-TAX ACT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN HOLDING THAT THE RETURNED INCOME BE ACCE PTED EVEN THOUGH THE LD. CIT (A) HIMSELF HAS WORKED OUT ADDITION OF RS. 2,97,341/- AS PER PARA 7 OF HIS ORDER, WHICH IS CONTRADICTORY 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN HOLDING THAT THE PROFIT ON MACHINERY HIR E CHARGES COMES TO 5% ONLY WHEREAS THE ASSESSEE HIMSELF ADMITTE D NET PROFIT OF 6.44% ON THOSE RECEIPTS IN THE REMAND PROCEEDING S. ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) ERRED IN HOLDING THE BOOK RESULTS BE ACCEPTED EVEN THOUGH ON SIMILAR FACTS BOOK RESULTS WERE REJECTED FOR A.Y. 2006 -07 WHICH WAS ACCEPTED BY THE ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) ERRED IN HOLDING THAT THE PROFIT PERCENTAGE OF 5% SHOULD BE TAKEN ON MACHINERY HIRE CHARGES AS IN A.Y. 2006-07 EV EN THOUGH THE RECEIPTS FOR THE A.Y. 2005-06 INCLUDE CERTAIN ITEMS LIKE SALE OF SCRAP ETC., WHICH WERE NOT IN THE RECEIPTS OF A.Y. 2006 -07 AND ON WHICH A BLANKED RATE OF 5% CANNOT BE ADOPTED. 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE ESTIMATION OF INCOME IN THE HANDS OF THE ASSESSEE BY THE ASSESSING OFFICER, WHICH HAS BEEN DELETED BY THE CIT(A). 4. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF CONTRACT AND ALSO MACHINE HIRE CHARGES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECLARED CON TRACT RECEIPTS OF RS.12.92 CRORES AND MACHINE HIRE CHARGES OF RS.4.07 CROR ES. IN ADDITION, THE ASSESSEE HAD ALSO DECLARED AGRICULTURAL INCOM E OF RS.6,50,000/-. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 143(2) OF T HE ACT TO APPEAR ON 14.09.2007. NONE APPEARED ON THE SAID DATE O F HEARING. THEREAFTER, ANOTHER OPPORTUNITY OF HEARING WAS GRANTED TO THE ASSESSEE ON 14.12.2007. THE ASSESSING OFFICER PASSED THE ASSESSMEN T ORDER UNDER SECTION 144 OF THE ACT. THE ASSESSING OFFICER NOTED THAT, AGAINST THE RECEIPTS DECLARED BY THE ASSESSEE, THE NET PROFIT DECLARED WAS ONLY 3.63% OF THE TOTAL TURNOVER, WHICH WAS VERY LOW. FURTH ER, THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON PAYMENT OF PROFESSIONAL FEES OF RS.1,50,400/-. FURTHER, THE ASSESSING OFFICER ALSO NOT ED THAT THE AGRICULTURAL INCOME OF RS.6,50,000/- WAS DECLARED BUT T HE DETAILS OF AGRICULTURAL LAND WERE NOT REFLECTED IN THE BALANCE SHEE T. IN ADDITION, CERTAIN OBSERVATIONS WERE MADE BY THE AUDITOR IN THE AUDIT ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 3 REPORT I.E. DIESEL, FUEL EXPENSES WERE NOT PROPERLY SUPPORT ED BY PROPER BILLS AND VOUCHERS AND SOME OF THE BANK STATEMENTS WERE NOT PROVIDED BY THE ASSESSEE. CERTAIN PAYMENTS IN RESPECT OF VARIOUS EXPENSES AND FOR SUPPLY OF CAPITAL GOODS AND MATERIALS WERE NOT SUPPOR TED BY VOUCHERS / BILLS. IN VIEW OF THE ABOVE DISCREPANCIES, THE A SSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3 ) OF THE ACT AND RE-COMPUTED THE INCOME IN THE HANDS OF THE ASSESSE E. THE ASSESSING OFFICER ADDED NET PROFIT OF 5% TO THE TOTAL CONTR ACT RECEIPTS AND WORKED OUT THE INCOME AT RS.64,60,981/-. AGAINST TH E MACHINE HIRE CHARGES, THE ASSESSING OFFICER WAS OF THE VIEW THAT ON LY 40% OF OIL AND FUEL CHARGES WERE TO BE ALLOWED AND ALSO DRIVERS SA LARY AND OTHERS WERE RESTRICTED TO 2% OF THE TOTAL RECEIPTS. THE ESTIMA TED NET PROFIT WAS WORKED OUT AT RS.87,10,608/- AND AFTER MAKING THE AD DITION ON ACCOUNT OF VARIOUS OTHER ACCOUNTS DECLARED BY THE ASSE SSEE, TOTAL PROFITS FOR THE YEAR WERE DETERMINED AT RS.1,80,10,968/-, AG AINST WHICH, THE ASSESSEE HAD DECLARED INCOME OF RS.80,36,635/- A ND THE BALANCE OF RS.99,74,330/- WAS TREATED AS UNDISCLOSED INCOM E OF THE ASSESSEE. 5. BEFORE THE CIT(A), THE EXPLANATION OF THE ASSESSEE WAS THAT, ON THE FINAL DATE OF HEARING I.E. 14.12.2007, THE MANAGER AND A CCOUNTANT OF THE ASSESSEE ATTENDED BEFORE THE ACIT. HOWEVER, THE HEARING COULD NOT TAKE PLACE SINCE THE ACIT, CENTRAL CIRCLE WAS BUSY IN HIS OFFICE DUE TO THE OFFICIAL VISIT OF JCIT, CENTRAL CIRCLE. IT WAS COMMUNICA TED TO THE REPRESENTATIVE OF THE ASSESSEE THAT THE NEXT DATE WOU LD BE COMMUNICATED TO HIM SHORTLY. HOWEVER, NO NEXT DATE OF HEARING WAS COMMUNICATED AND THE ASSESSMENT ORDER WAS PASSED EXP ARTE UNDER SECTION 144 OF THE ACT. THE LEARNED AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE POINTED OUT THAT ONLY ONE OPPORTUNITY OF HEAR ING WAS GIVEN IN ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 4 THE ASSESSMENT PROCEEDINGS TO THE ASSESSEE AND THERE WAS REJECTION OF BOOKS OF ACCOUNT BY APPLYING THE PROVISIONS OF SECTION 14 5(3) OF THE ACT, WHICH WAS CONTRARY TO THE PROVISIONS OF LAW. THE BOOKS OF ACCO UNT MAINTAINED BY THE ASSESSEE WERE CLAIMED TO BE AUDITED AN D IN THE ABSENCE OF ANY DISCREPANCY FOUND BY THE AUDITORS, THERE WAS NO MERIT IN THE REJECTION OF BOOKS OF ACCOUNT. WITH REGARD TO TH E REMARKS IN THE AUDIT REPORT, THE ASSESSEE CONTENDED THAT NO EXPLANATIO N WAS CALLED FROM THE ASSESSEE IN RESPECT THEREOF. FURTHER, SUBMISSIO NS WERE RAISED AGAINST THE ESTIMATION OF INCOME BY THE ASSESSING O FFICER WHILE PASSING THE ORDER UNDER SECTION 144 OF THE ACT. IT WAS ALSO POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE THAT THE ASSESSEE WAS REGULARLY BEING ASSESSED TO INCOME TAX AN D ALL HIS ASSESSMENTS EXCEPT, FOR THE ASSESSMENT YEAR 2005-06 WERE COMPLETED UNDER SECTION 143(3) OF THE ACT. THE CIT(A) FORWARDED THE SUBMISSIONS OF THE ASSESSEE TO THE ASSESSING OFFICER, WHO IN TURN, SUBM ITTED THE REMAND REPORT WHICH WAS REPRODUCED UNDER PARA 5.4 OF T HE APPELLATE ORDER. THE CIT(A) NOTED THAT THE ASSESSEE HAD FILED DET AILED SUBMISSIONS ALONG WITH LETTERS DATED 14.12.2007, 03.08.2010 A ND 16.08.2010 ALONG WITH ENCLOSURES SUCH AS LEDGER EXTRACT S OF VARIOUS EXPENDITURE ACCOUNTS, PURCHASE ACCOUNTS, SALE ACCOUNTS, CREDITORS ACCOUNTS, BILLS FOR THE PURCHASE OF CAPITAL ASSETS, 7/12 EX TRACTS IN SUPPORT OF AGRICULTURAL INCOME, EXTRACTS OF BANK ACCOUNTS, STATEMENT OF NET WEALTH FILED ALONG WITH RETURN OF WEALTH, ETC. THE CIT (A) FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY MISTA KE IN THE BOOKS OF ACCOUNT IN THE REMAND REPORT, BUT HAS R EITERATED THE REASON STATED BY THE ASSESSING OFFICER IN THE ASSES SMENT ORDER FOR REJECTION OF BOOKS OF ACCOUNT. THE CIT(A) FURTHER ON THE PERUSAL OF THE VARIOUS RECORDS, REMAND REPORT, SUBMISSIONS OF THE ASSES SEE OBSERVED THAT IN THE REMAND REPORT, THE ASSESSING OFFICER HAD ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 5 ESTIMATED THE PROFIT OF CONTRACT BUSINESS OF THE ASSESSEE @ 5% STATING THAT WHILE ASSESSING INCOME FOR ASSESSMENT YEAR 2006-07, THE SAME BASIS OF ESTIMATING NET PROFIT @ 5% OF THE CONTRACT RECEIPT S AND HIRING RECEIPTS HAD BEEN FOLLOWED AND THE SAME HAD BEEN ACCEP TED BY THE ASSESSEE. THE CIT(A) FURTHER NOTED THAT THE ASSESSING OFFICER IN THE REMAND REPORT WHILE ESTIMATING THE INCOME, HAD NOT FOLLOWED THE SAME BASIS OF ESTIMATING THE PROFIT @ 5% IN RESPECT OF GROSS TURNOVER OF THE CONTRACT BUSINESS AND MACHINERY HIRING ACTIVITY, WHICH WAS FOLLOWED BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2006-0 7. CONSIDERING THE TURNOVER OF THE ASSESSEE FOR THE CAPTION ED ASSESSMENT YEAR, THE PROFIT OF THE BUSINESS AND THE BASIS OF ADDITIONS AS ADOPTED BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2006-07, TH E ADDITIONS FOR THE YEAR UNDER CONSIDERATION WERE WORKED OUT BY TH E CIT(A) AS UNDER:- PARTICULARS ASSTT. YEAR 2006-07 ASSTT. YEAR 2005-06 CONTRACT RECEIPTS RS.6,44,60,952/- RS.12,92,19,623/ - MACHINERY HIRE CHARGES RS.2,36,80,630/- RS.4,07,67, 992/- TOTAL TURNOVER RS.8,81,14,582/- RS.16,99,87,615/- NET PROFIT @ 5% RS.44,07,079/- RS.84,99,381/- LESS: BUSINESS INCOME RETURNED RS.23,12,243/- RS.82 ,02,040/- ADDITION RS.20,94,836/- RS.2,97,341/- 6. THE NEXT ASPECT CONSIDERED BY THE CIT(A) WAS THAT T HE ASSESSING OFFICER IN THE REMAND REPORT HAD ESTIMATED THE GROSS PRO FIT OF MACHINERY HIRING ACTIVITY AT 19% TO WORK OUT THE ADDITION OF RS.4,39,854/- AS AGAINST THE GP OF MACHINERY HIRING ACTIVITY DECLARED FOR ASSESSMENT YEARS 2002-03 TO 2005-06 AT 19.45%, 10.6 4%, 14.02% AND 17.98%, RESPECTIVELY. THE AVERAGE GROSS PROFIT PERCE NTAGE WORKED OUT TO 15.52%. THE CIT(A) THUS, HELD THAT WHERE THE GROS S PROFIT RATE FOR ASSESSMENT YEARS 2002-03 AND 2004-05 WAS 19.45% A ND 14.02%, RESPECTIVELY, THE AVERAGE PERCENTAGE OF THE SAID YEARS WORKS OUT TO 16.73% AND THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMAT ING THE ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 6 GROSS PROFIT OF HIRING ACTIVITY AT 19%. ACCORDINGLY, THE CIT (A) HELD THAT THERE WAS NO MERIT IN ANY ADDITION IN RESPECT OF MACHINERY HIRING ACTIVITY OF THE ASSESSEE. ANOTHER POINT RAISED BY THE AS SESSEE WAS THAT, THE MACHINERY OWNED BY HIM WAS UTILIZED FOR ITS OWN C ONTRACT BUSINESS AND WHEN THE SAME WAS NOT REQUIRED FOR OWN CO NTRACT BUSINESS, THE SAME WAS LET OUT ON HIRE. AS PER THE ASSE SSEE, THE BUSINESS ACTIVITY OF THE CONTRACT WORK AND MACHINE HIRIN G WAS A COMPOSITE ACTIVITY AND PROFIT FROM EACH ACTIVITY, COULD NOT B E WORKED OUT SEPARATELY AS THE BOOKS OF ACCOUNT FOR EACH ACTIV ITY COULD NOT BE / HAVE NOT BEEN SEPARATELY MAINTAINED. THE CIT(A) VIDE PAR A 7.2 THUS, OBSERVED THAT IN CASE THE BASIS ADOPTED BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2006-07 FOR ESTIMATING INCOME OF ASSE SSMENT YEAR 2005-06 WAS ACCEPTED, THE RESULTANT ADDITION COULD ONLY BE RS.2,97,341/- AS AGAINST RS.3,00,683/- WORKED OUT BY THE A SSESSING OFFICER IN THE REMAND REPORT. IN VIEW OF THE SAME, THE GROUNDS OF APPEAL NOS.4, 5 AND 7 RAISED BY THE ASSESSEE BEFORE THE CIT(A) WERE PARTLY ALLOWED TO THE ABOVE EXTENT. 7. THE NEXT ISSUE CONSIDERED BY THE CIT(A) WAS, THE REJ ECTION OF BOOKS OF ACCOUNT AND IT WAS OBSERVED THAT THERE WAS N O MERIT IN THE REJECTION OF BOOKS OF ACCOUNT ON THE VARIOUS ISSUES RAIS ED AS POINTED OUT IN PARAS 8 TO 8.2 AT PAGES 9 TO 11 OF THE APPELLATE ORDER AND IT WAS HELD THAT WHERE THE ASSESSING OFFICER HAD NOT NOTICED AND POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT, IN REPLY TO SUBMISSION S FILED BY THE ASSESSEE, IN REMAND PROCEEDINGS, THERE WAS NO JUSTIFICATIO N FOR THE REJECTION OF BOOK RESULTS, WHICH WERE DULY AUDITED. THE C IT(A) THUS, HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTIN G THE BOOK RESULTS AND BOOKS OF ACCOUNT, WHICH WERE DULY AUDITED WIT HOUT POINTING OUT ANY SERIOUS DEFECT IN THE BOOKS OF ACCOUNT VIDE PARA 8.4 O F ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 7 THE APPELLATE ORDER. THE CIT(A) CONCLUDED THAT THE ASSES SING OFFICER WAS DIRECTED TO ACCEPT THE INCOME RETURNED BY THE ASSESSEE. 8. THE REVENUE IS IN APPEAL AGAINST THE CONTRARY FINDINGS OF THE CIT(A) WHERE IN PARA 7, THE CIT(A) OBSERVED THAT THE ADDIT ION OF RS.2,97,341/- BE UPHELD IN THE HANDS OF THE ASSESSEE AND VIDE PARA 8.4, THE CIT(A) ERRED IN HOLDING THAT THE RETURN OF INCOME B E ACCEPTED. ANOTHER OBJECTION RAISED BY THE REVENUE IS AGAINST THE ACCEPTANCE OF THE BOOK RESULTS EVEN THOUGH ON SIMILAR FACTS, BOOK RESU LTS FOR ASSESSMENT YEAR 2006-07 WERE REJECTED, WHICH HAD BEEN ACCEPTED BY THE ASSESSEE. FURTHER, THE REVENUE IS ALSO AGGRIEVED BY THE APPLICATION OF PROFIT RATE OF 5% TO THE MACHINERY HIRE CHARG ES, WHEREAS THE ASSESSEE HIMSELF ADMITTED NET PROFIT AT 6.44% ON THOSE RECEIPTS IN THE REMAND PROCEEDINGS. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE PLACED RELIANCE ON THE ORDER OF CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ASSESSEE WAS CARRYING ON BUSINESSES OF CONTRACT AN D WAS ALSO EARNING MACHINE HIRE CHARGES. THE EXPLANATION OF THE ASS ESSEE WAS THAT THE BUSINESSES CARRIED ON BY THE ASSESSEE WERE C OMPOSITE, WHERE IN THE BUSINESS OF CARRYING ON THE CONTRACT WORK, THE MA CHINERY OWNED BY THE ASSESSEE WAS UTILIZED. HOWEVER, WHEN THE SAID MAC HINERY WAS LYING IDLE, THE SAME WAS GIVEN ON HIRE. THE ASSESSEE HAD MAINTAINED COMPOSITE BOOKS OF ACCOUNT IN RESPECT OF THE TWO LINES OF BUSINESSES BEING CARRIED ON BY THE ASSESSEE AND THE CLAIM OF THE AS SESSEE WAS THAT TWO BUSINESSES COULD NOT BE SEGREGATED IN ORDER T O DETERMINE THE INCOME FROM EACH OF THE BUSINESSES. IN THE ENTIRETY OF T HE ABOVE FACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE PLEA OF THE ASSESSE E VIS--VIS ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 8 THE COMPOSITE BUSINESS OF CONTRACT WORK AND MACHINERY H IRING BEING CARRIED ON BY THE ASSESSEE AND WE FIND NO MERIT IN THE E STIMATING INCOME FROM EACH OF THE BUSINESSES SEPARATELY, IN ORDER T O COMPUTE THE INCOME OF THE ASSESSEE FOR THE CAPTIONED ASSESSMENT YEAR. 11. THE SECOND ASPECT OF THE ISSUE RAISED BEFORE US WAS THAT, THE REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFICER. FR OM THE PERUSAL OF THE ASSESSMENT ORDER, IT REFLECTS THAT THE ASS ESSING OFFICER PROVIDED ONLY TWO OPPORTUNITIES TO THE ASSESSEE AND ON THE SECOND DATE OF HEARING, THE REPRESENTATIVE OF THE ASSESSEE APPE ARED BEFORE THE ASSESSING OFFICER, WHO WAS UNABLE TO ATTEND TO THE REPRES ENTATIVE OF THE ASSESSEE BECAUSE OF CERTAIN OTHER ENGAGEMENTS IN T HE OFFICE ITSELF. NO OTHER OPPORTUNITY OF HEARING WAS GRANTED TO THE ASS ESSEE AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 144 OF THE ACT AFTER REJECTING THE BOOK RESULTS AND BOOKS OF ACCOUNT OF THE ASSESSEE UNDER SECTION 145(3) OF THE ACT. THE CIT(A) HOWEVER, ALLOWED THE ASSESSEE TO FURNISH THE COMPLETE INFORMATION AND EVIDENCES DURING APPELLATE PRO CEEDINGS, WHICH IN TURN, WERE FORWARDED TO THE ASSESSING OFFICER, WHO FURNISHED HIS REMAND REPORT AND THE CIT(A) DECIDED THE APPEAL AFTER CONSIDERING THE SAME. SINCE THE APPELLATE PROCEEDINGS ARE CONTINUATIO N OF THE ASSESSMENT PROCEEDINGS, THE CIT(A) HAVING ALLOWED THE ASSE SSEE THE OPPORTUNITY TO FURNISH COMPLETE DATA AND ALSO OBTAINED T HE REMAND REPORT FROM THE ASSESSING OFFICER, MEETS THE ENDS OF JUST ICE. HOWEVER, THE QUESTION WHICH ARISES IN THE PRESENT APPEAL IS THE CO NTRARY VIEW OF THE CIT(A) IN FIRST ESTIMATING THE INCOME IN THE HANDS OF THE ASSESSEE VIDE PARA 7 OF THE APPELLATE ORDER AND THEREAFTER, ACCEPT ING BOOK RESULTS AND BOOKS OF ACCOUNT OF THE ASSESSEE AND DIREC TING THE ASSESSING OFFICER TO ACCEPT THE RETURN OF INCOME VIDE PARA 8.4 OF THE ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 9 APPELLATE ORDER. ANOTHER OBJECTION RAISED BY THE REVENU E IS VIS--VIS NP RATE TO BE APPLIED TO THE MACHINERY HIRE CHARGES. 12. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAD POIN TED OUT VARIOUS DEFECTS IN THE ACCOUNTS OF THE ASSESSEE AND HA D ALSO CONSIDERED THE OBJECTIONS RAISED BY THE AUDITOR. HOWEVE R, ALL THE SAID OBJECTIONS WERE RE-CONSIDERED IN THE REMAND PROCEEDINGS AND THE ASSESSING OFFICER FURNISHED POINT-WISE REPORT ON EACH OF THE ITEMS, WHICH IS AS UNDER:- 5. THE POINT WISE REPORT IS SUBMITTED AS UNDER :- I. THE ESTIMATION OF PROFIT @ 5% ON CONTRACT RECE IPTS APPEARS TO BE IN ORDER AS THE ESTIMATION AT 5% FOR THE AY 2006-07 BY THE SAME ASSESSING OFFICER HAS BEEN ACCEPTED BY THE ASSESSES THE ASSESSMENT OF WHI CH IS COMPLETED VIDE ORDER U/S 143(3) DATED 31.12.2008. AS SUCH THE SAME DOES NOT WARRANT ANY INTERFERENCE. THE ADDITION ON THIS ACCOUNT WORKS OUT AS UNDER:- CONTRACT RECEIPTS DERIVED RS. 12,92,19,623/- NP @ 5 % RS. 64,60,581/- LESS: NP SHOWN RS. 54,10,280/- LESS: SCRAP SALE RS. 8,10,128/- RS. 46,00,152/- (INCLUDED THEREIN) NET ADDITION RS. 18,60,829/- II. (A) SO FAR AS THE ASSESSEE'S CLAIM THAT INTERES T ON FDR AT RS.13,53,250/- FORMS THE INTEGRAL PART OF PROFIT DERIVED FROM CONT RACT BUSINESS IS CONCERNED, THE SAME IS FOUND ACCEPTABLE IN THE LIGHT OF THE FACT T HAT, THE AO VIDE ORDER U/S 143(3) DATED 31.12.2008 FOR THE AY 2006-07 HAS ESTI MATED THE NET PROFIT @ 5% OF THE CONTRACT RECEIPTS AND NO SEPARATE ADDITION O N INTEREST ON FDRS AT RS.13,56,479/-, CREDITED IN P & L A/C FOR THE AY 20 06-07 IS MADE. (B) SO FAR AS THE ISSUE OF THE SCRAP SALE AND INSUR ANCE CLAIM RESPECTIVELY AT RS.8,10,128/- AND RS.26,000/- IS CONCERNED THE ASSE SSEE'S SUBMISSION THAT IT IS INCLUDED IN THE RETURNED INCOME DISCLOSED IS ACC EPTABLE. THE AO WHILE FINALIZING THE ASSESSMENT HAS COMPUTED THE TAXABLE INCOME BY TAKING INTO ACCOUNT THE INCOME AS PER RETURN AT RS.80,36,635/- WHICH INCLUDES THESE ITEMS AS SUCH MAKING A SEPARATE ADDITION ON THESE ACCOUNT S TANTAMOUNT TO DOUBLE ADDITION. III. WHILE COMPUTING THE INCOME FROM MACHINERY HIRE CHARGES THE AO HAD ESTIMATED THE EXPENSES ON ACCOUNT OF OIL AND FUEL C HARGES @ 40 % AND SALARY AT 2@. IT IS MERELY AN ESTIMATION OF EXPENSES AND NOT SUPPORTED BY MATERIAL DATA. THE ASSESSEE VIDE SUBMISSION DATED 16.08.2010 FURNI SHED THE YEARWISE POSITION IN REGARD TO THE RECEIPTS AND EXPENSES REL EVANT TO THE ASPECT OF MACHINERY HIRE CHARGES. THE SAME HAS BEEN VERIFIED ON THE BASIS OF THE AVAILABLE RECORDS. THE YEARWISE POSITION THEREOF RE VEALED THE FOLLOWING PICTURE:- S.NO. AY GROSS RECEIPTS EXPENSES G.P. G.P.% N.P% 1 2 3 4 5 (3 - 4) 6 7 1 02 - 03 1,98,13,170 1,59,59,063 38,54,107 19.45 15.41 2 03 - 04 2,17,80,590 1,94,62,213 23,18,376 10.64 4.62 3 04 - 05 3,12,38 ,045 2,68,59,243 43,78,801 14.02 9.17 4 05 - 06 4,07,67,992 3,34,61,927 73,32,064 17.98 6.44 ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 10 FOR THE AY 2002-03 & 2004-05 THE ASSESSMENTS HAVE B EEN COMPLETED AFTER SCRUTINY BY ACCEPTING THE MACHINERY HIRE CHARGES AS DISCLOSED IN THE RETURN OF INCOME. CONSIDERING THIS PECULIAR FACT AND ALSO TAK ING INTO ACCOUNT THE VOLUME OF RECEIPTS DERIVED AS ABOVE, IT WOULD BE FAIR TO E STIMATE THE GROSS PROFIT @ 19 % OF THE RECEIPTS DERIVED FOR THE YEAR UNDER CONSIDER ATION. AS SUCH THE GROSS PROFIT @ 19% COMES TO RS.77,45,918/- AS AGAINST THE GROSS PROFIT SHOWN AT RS. 73,32,064/- WORKED OUT AS PER THE SUBMISSION MADE. THE RESULTANT ADDITION ON THIS ACCOUNT WOULD BE RS.4,39,854/- CONSIDERING THE ELEMENT OF INSURANCE CLAIM INCLUDED IN THE PROFIT SHOWN IN HIRE CHARGES, AS UNDER:- GROSS HIRE CHARGES RS.4,07,67,992/- GP @ 19% RS.77 ,45,918/- LESS: G.P. SHOWN RS. 73,32,064/- INSURANCE CLAIM RS. 26,000/- RS.73,06,064/- INCLUDED THEREIN (AS PER THE SUBMISSION MADE) RS.4,39,854/- IV. SO FAR AS THE ISSUE OF ADDITION AT RS.6,50,000/ - CREDITED IN CAPITAL A/C UNDER THE GUISE OF AGRICULTURAL INCOME IS CONCERNED, THE AO'S ACTION DOES NOT APPEAR IN ORDER IN ABSENCE OF ANY SUPPORTINGS THEREOF. VERIFICATION OF THE RECORDS REVEALED THAT THE ASSES SEE IS HAVING SUFFICIENT LAND HOLDING THE AGRICULTURAL INCOME HAS BEEN CREDITED IN THE CAPITAL ACCOUNT FOR THE RESPECTIVE YEARS AS UNDER: - A.Y. AGRICULTURAL INCOME. 02-03 RS.6,25,000/- 03-04 RS.5,95,000/- 04-05 RS.5,75,000/- 05-06 RS.6,50,000/- THE ADDITION IN CAPITAL ACCOUNT AT RS.6,25,000/- & RS.5,25,000/- RESPECTIVELY FOR THE AY 2002-03 & 2004-05 HAS BEEN ACCEPTED IN T HE PAST DURING THE COURSE OF ASSESSMENT COMPLETED AFTER SCRUTINY. AS SUCH TH E SAME APPEARS TO BE IN ORDER IN ABSENCE OF ANY EVIDENCE TO THE CONTRARY. IN VIEW OF THE ABOVE POSITION TOTAL INCOME FINDS THE FOLLOWING PICTURE:- INCOME SHOWN AS PER RETURNED INCOME RS.82,02 ,040/- ADD: I. ADDN ON A/C OF NP ON CONTRACT RECEIPTS RS. 18,60,829/- II. ADDN ON A/C OF MACHINERY HIRE CHARGES RS.4,39,854/- RS.23,00,683/- TOTAL RS.1,05,02,723/- 13. THE PERUSAL OF THE ABOVE SAID DETAILS REFLECTS THAT IN RESPECT OF THE CONTRACT RECEIPTS, THE ASSESSING OFFICER HAD APPLIED NP RATE OF 5% TO THE GROSS RECEIPTS AND HAD EXCLUDED SCRAP SALES TO WORK OUT THE NET ADDITION OF RS.18,60,829/-. THE NP RATE OF 5% WAS THE ESTI MATION OF INCOME IN THE HANDS OF THE ASSESSEE IN ASSESSMENT YEAR 2006-07 WHILE PASSING THE ORDER UNDER SECTION 143(3) OF THE ACT. THE C ONTENTION OF THE ASSESSEE WAS THAT INTEREST ON FDRS FORMS INTEGRA L PART OF THE PROFIT DERIVED FROM CONTRACT BUSINESS, WAS ACCEPTED BY THE ASS ESSING OFFICER SINCE SIMILAR PLEA WAS ACCEPTED IN ASSESSMENT YEAR 2006-0 7. ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 11 SIMILARLY, THE ISSUE OF SCRAP SALES AND INSURANCE CLAIM BEING INCLUDED IN THE RETURN OF INCOME WAS ALSO ACCEPTED BY THE ASSES SING OFFICER IN THE REMAND PROCEEDINGS. IN RESPECT OF THE INCOME FROM M ACHINERY HIRE CHARGES, WHERE CERTAIN ESTIMATION OF EXPENSES WAS MA DE IN THE ORIGINAL ASSESSMENT ORDER, THE ASSESSING OFFICER IN THE REMA ND PROCEEDINGS NOTED THAT FOR ASSESSMENT YEARS 2002-03 A ND 2004-05 WHERE THE ASSESSMENTS WERE COMPLETED UNDER SCRUTINY, T HE MACHINERY HIRE CHARGES DECLARED BY THE ASSESSEE WERE ACCEPTED IN TOTO. FURTHER, ESTIMATION OF THE GROSS PROFIT FOR THE YEAR UNDER APPEAL W AS MADE @ 19% OF THE RECEIPTS AND ADDITION OF RS.4,39,854/- WAS PROP OSED. FURTHER, THE ASSESSING OFFICER ACCEPTED THE AGRICULTURAL INC OME DECLARED BY THE ASSESSEE ON VERIFICATION OF THE LAND HOLDIN G OF THE ASSESSEE. THE CIT(A) HOWEVER, WAS OF THE VIEW THAT PROF ITS OF THE BUSINESS, DETERMINED ON THE SAME BASIS AS ADOPTED BY TH E ASSESSING OFFICER FOR ASSESSMENT YEAR 2006-07, UNDER WHICH ON THE T OTAL TURNOVER OF THE ASSESSEE, NET PROFIT RATE OF 5% WAS APPLIE D, AS REFERRED TO BY US IN THE PARAS HEREINABOVE. THE CIT(A) HAD COMP UTED THE ADDITION IN THE HANDS OF THE ASSESSEE FOR THE CAPTIONED ASSESSMENT YEAR AT RS.2,97,341/-. THE TABULATED DETAILS ARE REPRODU CED BY US IN THE PARA 5 OF THIS ORDER AND IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES AND ALSO THE ADMISSION OF THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE, WE UPHOLD THE ADDITION O F RS.2,97,341/-. IN THE FACTS OF THE ASSESSEE, WE REVERSE THE FINDING OF CIT(A) IN PARA 8.4 VIS-A-VIS NO ADDITION BEING MADE IN THE H ANDS OF THE ASSESSEE, WHICH IS CONTRARY TO THE FINDING OF THE CIT(A) VIDE PARA 7.2 OF THE APPELLATE ORDER. THE ESTIMATION OF THE NET PROFIT RA TE OF 5% ON MACHINERY CHARGES IS IN LINE WITH THE SIMILAR ESTIMATION BEING MADE IN ASSESSMENT YEAR 2006-07 AND WE FIND NO MERIT IN THE OBJ ECTIONS RAISED ITA NO.806/PN/2011 SHRI MALLIKARJUN B. PATIL 12 BY THE REVENUE IN THIS REGARD. IN VIEW THEREOF, THE GROU NDS OF APPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JANUARY, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 19 TH JANUARY, 2015. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A), AURANGABAD 4) THE CIT, AURANGABAD; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE