ITO, CHENNAI V. Naresh Kumar Jain, CHENNAI

ITA 833/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5754 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 04-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S PANDIAN IRS
• Assessee Lawyers: D ANAND

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , , BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./I.T.A. NO.833/MDS/2017 / ASSESSMENT YEAR : 2012-2013. THE INCOME TAX OFFICER, NON CORPORATE WARD 9(3) CHENNAI VS. SHRI. NARESH KUMAR JAIN, NO.13, 2 ND FLOOR, VALLIAMMAL ROAD, VEPERY, CHENNAI 600 007. [PAN AADPJ 4202A] ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : DR. S. PANDIAN, IRS, JCIT. $%! ' # /RESPONDENT BY : SHRI. D. ANAND, ADVOCATE & ' ' () /DATE OF HEARING : 05-12-2017 *+ ' () /DATE OF PRONOUNCEMENT : 07-12-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL WHICH IS DIRECTED AGAINST AN ORDER DATED 30.01.2017 OF LD. C OMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI ARE REPRODUCED HE REUNDER:- ITA NO.833/MDS/2017 :- 2 -: 1. THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER WHEN BOTH THE OPENING AND CLOSING WORK IN PROGRESS WERE TAKEN INTO ACCOUNT. 3. THE COMMISSIONER OF INCOME(APPEALS) HAS ERRED IN ACCEPTING THE ASSESSEE'S ADMISSION OF 8% OF THE TOTAL CONTRACT RECEIPTS AS INCOME WITHOUT ANY BASIS. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN DIGGING AND LAYING OF TELEPHONE CABLES, ON CONTRACT BASIS HAD F ILED HIS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF @6,64,530/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, LD. ASSESSING OFFICER NOTED THAT ASSESSEE HAD SHOWN A S UM OF @1,15,17,290/- AS PART OF WORK IN PROGRESS IN HIS BALANCE SHEET UNDER THE HEAD CURRENT ASSETS. HOWEVER, IN THE TRADING ACCOUNT THERE WAS NO WORK IN PROGRESS SHOWN BY THE ASSESSEE. AS PER THE LD. ASSESSING OFFICER, ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND WAS REQUIRED TO SHOW WORK IN PROGRESS IN THE TRADIN G ACCOUNT. ITA NO.833/MDS/2017 :- 3 -: ASSESSEE WAS PUT ON NOTICE ON THIS LACUNA. REPLY OF THE ASSESSEE WAS AS UNDER:- .........THE AMOUNT OF @1,15,17,290/- APPEARING I N THE BOOKS AS WORK IN PROGRESS IS THE AMOUNT CARRIED FORWARD BEING ORDERS WHICH WERE IN PROGRESS AND NOT COMPLETED DURING THE YEAR. THE BREAKUP OF THE SAME IS ENCLOSED HEREWITH. THE RESPECTIVE EXPENSES HAVE BEEN CREDITED AND WORK IN PROGRESS DEBITED FOR THE SAID AMOUNT ON 31.03.2012. THESE AMOUNTS ARE AGAIN DEBITED ON 01.04.2014 AND CREDITED WORK IN PROCESS ACCOUNT. IN THE SAME WAY THE AMOUNT OF @34,96,888/- SHOWN AS WORK IN PROCESS AS @34,96,888/- WAS TRANSFERRED TO THE RESPECTIVE EXPENSE ACCOUNT ON 01.04.2012 AND WORK IN PROCESS ACCOUNT WAS CREDITED . HOWEVER, LD. ASSESSING OFFICER DID NOT ACCEPT THE A BOVE REPLY. ACCORDING TO HIM, ASSESSEE WAS FOLLOWING A PRACTI CE OF NOT SHOWING WORK IN PROGRESS IN HIS TRADING PROFIT AND LOSS ACC OUNT, THOUGH THIS WAS SHOWN IN HIS BALANCE SHEET. ACCORDING TO HIM, DIFFERENCE BETWEEN CLOSING AND OPENING WORK IN PROGRESS HAD TO BE TAK EN AS INCOME OF THE ASSESSEE. WORK IN PROGRESS AS PER BALANCE SHEE T AS ON 31.03.2011 WAS @34,96,888/- AND WORK IN PROGRESS AS PER BALANCE SHEET AS ON 31.03.2012 WAS @1,15,17,290/-. DIFFERE NCE OF @80,20,402/-WAS ADDED BY THE LD. ASSESSING OFFICER. 3. LD. ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HAD IN THE PROFIT AND LOSS ACCOUNT EXCLUDED EXPENDITURE COMING UNDER WORK IN PROGRESS FROM DIRECT COST. ACCORDING TO HIM, WORK IN PROGRESS HAVING ITA NO.833/MDS/2017 :- 4 -: BEEN BROUGHT INTO THE TRADING ACCOUNT, IT WAS REQ UIRED THAT EXPENDITURE WHICH WENT INTO SUCH WORK IN PROGRESS W AS INCLUDED IN THE DIRECT COST. HE WORKED OUT A SUM OF @4,27,346/- AS NET PROFIT NOT TAKEN INTO ACCOUNT WHEN THE SUCH EXPENDITURE WAS CHARGED TO THE PROFIT AND LOS ACCOUNT. THUS A TOTAL ADDITION OF @ 84,47,748/- WAS MADE. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF T HE ASSESSEE WAS THAT IT WAS FOLLOWING PROJECT COMPLETION METHO D. AS PER THE ASSESSEE, IF THE WORK IN PROGRESS WAS TREATED AS PART OF TRADING PROFIT AND LOSS ACCOUNT, THEN EXPENDITURE WHICH FOR MED SUCH WORK IN PROGRESS SHOULD ALSO GO INTO SUCH TRADING ACCOUNT. AS PER THE ASSESSEE, IT HAD EARLIER EXCLUDED SUCH WORK IN PROG RESS AS WELL AS EXPENDITURE COMPONENTS THEREIN FROM THE TRADING PR OFIT AND LOSS ACCOUNT. CONTENTION OF THE ASSESSEE WAS THAT EVEN IF THESE WERE INCLUDED IN THE TRADING PROFIT AND LOSS ACCOUNT, IT MADE NO DIFFERENCE. ASSESSEE ALSO GAVE A WORK-OUT OF HIS NET PROFIT RATIO FOR VARIOUS ASSESSMENT YEARS WHICH READ AS UNDER:- AY 2010-11 2011-12 2012-13 2013-14 2014-15 NP RATIO 6.63% 4.70% 4.36% 2.51% -34.83% ITA NO.833/MDS/2017 :- 5 -: 5. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE OPINION THAT LD. ASSESSING OFFICER HAD NOT PROPERLY UNDERSTOOD THE METHOD OF A CCOUNTING FOLLOWED BY THE ASSESSEE. AS PER THE LD. COMMISSIONER OF IN COME TAX (APPEALS) WHEN EXPENDITURE INCLUDED IN WORK IN PROG RESS WAS NOT RECKONED WHILE PREPARING THE TRADING PROFIT AND L OSS ACCOUNT, THEN EXCLUSION OF WORK IN PROGRESS MADE NO DIFFERENCE. HOWEVER, AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) NET P ROFIT SHOWN BY THE ASSESSEE WAS WIDELY FLUCTUATING. IT SEEMS ASSESSEE S REPRESENTATIVE AGREED ON AN ESTIMATED PROFIT OF 8%. LD. COMMISSIO NER OF INCOME TAX (APPEALS) UPHELD THE ADDITION TO THE EXTENT OF @7,51,430/- BEING DIFFERENCE BETWEEN WHAT WAS RETURNED BY THE ASSESSE E AND PROFIT ESTIMATED AT 8%. 6. NOW BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT WITHOUT CONSIDERING OPENING AND CLOS ING WORK IN PROGRESS, TRADING PROFIT AND LOSS ACCOUNT COULD NOT BE ACCEPTED. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, LD. ASSESS ING OFFICER WAS JUSTIFIED IN REWORKING THE TRADING ACCOUNT INCLUDIN G WORK IN PROGRESS. CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE WAS THAT INCREASE IN WORK IN PROGRESS WAS RIGHTLY CONSIDERED AS PART OF INCOME. ITA NO.833/MDS/2017 :- 6 -: ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (A PPEALS) FELL IN ERROR IN REJECTING THE METHOD ADOPTED BY LD. ASSESS ING OFFICER AND ESTIMATING THE PROFIT OF THE ASSESSEE AT 8% OF HIS CONTRACT RECEIPTS. 7. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT AS SESSEE HAD NOT SHOWN OPENING WORK IN PROGRESS AND CLOSING WORK IN PROGRE SS IN ITS TRADING PROFIT AND LOSS ACCOUNT, THOUGH THESE SUMS WERE SHO WN IN THE BALANCE SHEET. CONTENTION OF THE ASSESSEE IS THAT EXPENDI TURE GOING IN THE WORK IN PROGRESS WERE NEVER INCLUDED IN THE DIRECT COST CHARGED TO THE TRADING ACCOUNT. OR IN OTHER WORDS, AS PER THE AS SESSEE IF THE WORK IN PROGRESS WAS FORCIBLY INTRODUCED IN THE TRADING ACC OUNT THEN THE CORRESPONDING DIRECT EXPENDITURE SHOULD ALSO BE I NCREASED PROPORTIONALLY. WE FIND MUCH STRENGTH IN THIS CONTE NTION OF THE ASSESSEE. LD. ASSESSING OFFICER HAD NOT INCREASED THE DIRECT COST THAT WENT INTO THE WORK IN PROGRESS IN THE REWORKED TR ADING ACCOUNT. IF SUCH COST WAS INCLUDED THEN IN OUR OPINION THERE W OULD NOT HAVE BEEN MUCH EFFECT OF EXCLUSION OR INCLUSION WORK IN PROG RESS ON THE PROFIT OF THE ASSESSEE. THAT APART, LD. COMMISSIONER OF INCOM E TAX (APPEALS) HAD APPRECIATED THE MATCHING PRINCIPLE, AND HAD EST IMATED THE PROFIT ITA NO.833/MDS/2017 :- 7 -: OF THE ASSESSEE AT 8% OF CONTRACT RECEIPTS, SINCE T HE WORKING RESULTS WERE VARYING WILDLY OVER THE YEARS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ORDER PRONOUNCED ON THURSDAY, THE 7TH DAY OF DECEMB ER, 2017, AT CHENNAI. SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER SD/- ( . ! ' ) (ABRAHAM P. GEORGE) $ %& / ACCOUNTANT MEMBER - ' / CHENNAI . / DATED: 7TH DECEMBER , 2017. KV / ' $(0 1 2 1 ( / COPY TO: 1 . ! / APPELLANT 3. & 3( ( ) / CIT(A) 5. 167 $(8 / DR 2. $%! / RESPONDENT 4. & 3( / CIT 6. 79 :' / GF