ACIT, Chandigarh V. Sh. Gurinder Pal Singh, Chandigarh

ITA 847/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60886 (ITAT-CHANDIGARH)
• Duration Of Justice: 42 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Assessee Lawyers: ATUL MANDHAR
• Keywords: Rejection of books of accounts; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 847/CHD/2011 ASSESSMENT YEAR: 2008-09 ACIT, C-5(1), V SHRI GURINDER PAL SINGH, CHANDIGARH. # 66, SECTOR 27-A, CHANDIGARH. PAN: ACNPS-7888M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKHILESH GUPTA RESPONDENT BY : SHRI ATUL MANDHAR DATE OF HEARING : 13.06.2012 DATE OF PRONOUNCEMENT : 22.06.2012 ORDER PER T.R.SOOD, AM IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE NET PROFIT RATE FROM 12 % TO 7 %, OF RECEIPT A S REDUCED BY THE COST OF MATERIAL SUPPLIED BY THE GOVT./GOVT. AGENCIES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 426796/- ON ACCOUNT OF INTEREST AS THE ASSESSEE HAS NOT SHOWN BANK INTEREST WHEREAS TDS WAS CLAIMED AS PER THE TDS CERTIFICATES. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 14,26,304/-ON ACCOUNT OF MARGIN IN SUB-CONTRACT WORK TO THE TUNE OF 6% WHICH WAS HALF OF NET PROFIT. 2 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWIN G GROUND OF APPEAL NO.8 WITHOUT PASSING SPEAKING ORDER RELATING TO THE ISSUE OF CIRCULAR ISSUED BY CBDT W.R.T DEPRECIATION BY HOLDING THAT THE ISSUE HAD ALREADY BEEN ADJUDICATED. 6. ON THE FACTS AND CIRCUMSTANCES OF THE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWING GROUND OF APPEAL NO. 9 AND 10 RELATING TO REJECTION OF BOOKS OF ACCOUNTS WITHOUT PASSING A SPEAKING ORDER BY HOLDING THAT THE ISSUE HAD ALREADY BEEN ADJUDICATED. 2. GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT REQUIRE SEPARATE ADJUDICATION. 3. IN GROUND NO. 2, AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT AN D ACCORDINGLY, AO APPLIED NET PROFIT RATE OF 12%. ON APPEAL, IT WAS POINTED OUT BEFORE LD. CIT(A) THAT IN THE EARLI ER YEARS, TRIBUNAL HAS APPLIED NET PROFIT RATE OF 7% WHICH HA S BEEN CONFIRMED EVEN BY HON'BLE PUNJAB & HARYANA HIGH COU RT, THEREFORE, RATE OF 7% ONLY SHOULD HAVE BEEN APPLIED . LD. CIT(A) AGREED WITH THE SUBMISSION AND DIRECTED AO T O ASSESS NET PROFIT RATE AT 7%. 4. BEFORE US, LD. DR POINTED OUT THAT EVEN IN THE L ATEST ORDER OF THE TRIBUNAL, IN CASE OF ASSESSEE IN ITA N O. 279/CHD/2011, IT HAS BEEN CLARIFIED IN PARA 6 AS UN DER : IT IS, HOWEVER CLARIFIED THAT THIS ORDER WILL NOT O PERATE AS PRECEDENT IF THE ASSESSING OFFICER IS IN A POSITION TO BRING SUFFICIENT MATERIALS ON RECORD WARRANTING ADOPTION OF HIGHER PERCENTAGE OF NET PROFIT OR HIGHER AMOUNT OF DISALL OWANCE OF EXPENSES. THEREFORE, IF THE FACTS WERE DIFFERENT IN THIS YEAR , THEN THE EARLIER RATE OF 7% COULD NOT BE APPLIED. THEREAFTE R, HE 3 REFERRED TO PAGE 13 OF THE ASSESSMENT ORDER WHEREIN IT HAS BEEN POINTED OUT THAT A SURVEY HAD TAKEN PLACE IN T HE PREMISES OF THE ASSESSEE ON 12.03.2009 AND A PRINT- OUT WAS TAKEN IN RESPECT OF LABOUR EXPENSES. AS PER THIS P RINT-OUT, THE TOTAL WAGES WERE RS.2,05,60,856/- WHEREAS IN PR OFIT & LOSS ACCOUNT, THE ASSESSEE HAD SHOWN WAGES OF RS.9,06,13,880/-. THEREFORE, IT CANNOT BE SAID THA T FACTS IN THIS YEAR ARE ALSO THE SAME BECAUSE IF EXCESS WAGES WERE IGNORED, THEN THE NET PROFIT RATIO WOULD WORK OUT T O 23.6%. THEREFORE, ADMISSION OF NET PROFIT AT 12% WAS REASO NABLE. 5. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE CONTRACTOR WAS EXECUTING PR OJECTS IN VARIOUS PARTS OF THE COUNTRY AND ACCOUNTS WERE B EING CONSOLIDATED IN CHANDIGARH OFFICE. DURING SURVEY, WAGES DETAILS WERE EXTRACTED ONLY FROM ONE COMPUTER, WHER EAS WAGES WERE RECORDED ON VARIOUS COMPUTERS. HE FURTH ER SUBMITTED THAT SURVEY WAS CONDUCTED ON 12.03.2009. THEREFORE, NO COGNIZANCE CAN BE TAKEN FOR THE SAME IN THE ASSESSMENT YEAR 2008-09. IN ANY CASE, ONCE THE TRI BUNAL HAS ESTIMATED THE NET PROFIT AT 7%, WHICH HAS BEEN CONFIRMED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN ITA NO. 260 & 261 FOR ASSESSMENT YEAR 2005-06 AND 2006- 07 (COPY OF THE DECISION AT PAGE 17-18 OF THE PAPER BO OK). SO, NO INTERFERENCE IN THAT RATE CAN BE MADE IN THE PRE SENT YEAR. 4 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY A ND FOUND THAT LD. CIT(A) HAS ALLOWED THE RELIEF VIDE P ARA 3.3.1 OF HIS ORDER, WHICH READS AS UNDER : 3.3.1 MY PREDECESSOR HAS ALSO ADJUDICATED VIDE PARA-3 OF HER ORDER (RECTIFICATION) DATED 31.03.201 1 IN APPEAL NO. 410/09-10 FOR A.Y. 2007-08 THAT NET PROFIT RATE OF 7% WAS TO BE APPLIED IN THE CASE OF THE APPELLANT. I AM ENTIRELY IN AGREEMENT WITH THE FINDINGS GIVEN BY MY PREDECESSOR AND HON'BLE ITAT, CHANDIGARH IN THE RESPECTIVE ORDERS. HENCE, THE A.O. IS DIRECTED TO RECOMPUTE THE NET PROFIT BY APPLYING NET PROFIT RATE OF 7% INSTEAD OF 12% TO TH E CONTRACT RECEIPTS LESS COST OF BITUMEN PURCHASED! FROM GOVT. AGENCIES AFTER VERIFICATION AND COST OF THE MATERIAL SUPPLIED BY THE GOVERNMENT. GROUND OF APPEAL NO. 2 IS ALLOWED. 7. THE ABOVE CLEARLY SHOWS THAT CIT(A) HAS OBSERVED THAT FACTS ARE IDENTICAL WITH THE EARLIER YEARS BUT SAME IS NOT TRUE AS POINTED OUT BY LD. DR. AO HAS CLEARLY OBSERVED THAT THERE WAS A SURVEY AND DURING WHICH THE DETAIL S OF WAGES TAKEN OUT FROM COMPUTER SHOWS THAT ACTUAL WAG ES WERE RS.2,05,60,856/- WHEREAS WAGES WERE SHOWN AT RS.9,06,13,880/-. THOUGH IT WAS STATED THAT THIS W AS UNSIGNED PRINT-OUT BUT THE SAME WOULD HAVE GREAT RELEVANCE TO THE FACTS GIVEN IN THE PRESENT YEAR. O NCE THE ACCOUNTS OF ASSESSEE WERE AUDITED, HOW THERE COULD BE DIFFERENCE IN THE WAGES RECORDED IN THE COMPUTER PR INT-OUT AND THE AMOUNT GIVEN IN THE PROFIT & LOSS ACCOUNT. WE FURTHER FOUND THAT TRIBUNAL HAS RECORDED FOLLOWING 5 OBSERVATION IN ITA NO. 279/CHD/2011 I.E. ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 2007-08 : IT IS, HOWEVER CLARIFIED THAT THIS ORDER WILL NOT O PERATE AS PRECEDENT IF THE ASSESSING OFFICER IS IN A POSITION TO BRING SUFFICIENT MATERIALS ON RECORD WARRANTING ADOPTION OF HIGHER PERCENTAGE OF NET PROFIT OR HIGHER AMOUNT OF DISALL OWANCE OF EXPENSES. 8. IT WAS CLARIFIED BY THE TRIBUNAL THAT THE SAID 7 % RATE COULD BE APPLIED ONLY IF THE FACTS WERE IDENTICAL. FROM THE FINDINGS GIVEN BY AO AT PAGE 13 OF ASSESSMENT ORDER , IT CANNOT BE SAID THAT FACTS ARE IDENTICAL. THEREFORE, WE SET ASIDE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF CIT(A), WITH A DIRECTION TO RE-EXAMINE THE ISSUE IN THE LIGHT OF FACTS RECORDED BY AO. 9. IN GROUND NO.2, WE HAVE HEARD BOTH THE PARTIES A ND FIND THAT DURING ASSESSMENT PROCEEDINGS, AO NOTICED THAT AS PER TDS CERTIFICATE, ASSESSEE RECEIVED BANK INTE REST AMOUNTING TO RS.4,26,796/- FROM CANARA BANK, WHEREA S THIS INTEREST WAS NOT SHOWN AS INCOME IN THE PROFIT & LOSS ACCOUNT, BUT CREDIT FOR TDS AMOUNTING TO RS.44,590/ - WAS CLAIMED. ON ENQUIRY, IT WAS SUBMITTED THAT INTERES T ON ACCOUNT OF BANK INTEREST WAS DEBITED TO PROFIT & LO SS ACCOUNT, NET OF THE RECEIPTS AMOUNTING TO RS.4,26,7 96/-. AO OBSERVED THAT SINCE BOOKS OF ACCOUNT WERE NOT PRODUCED, THIS FACT COULD NOT BE VERIFIED AND ACCOR DINGLY, HE BROUGHT TO TAX INTEREST AMOUNTING TO RS.4,26,796 /-. BEFORE CIT(A), SUBMISSIONS MADE BEFORE AO WAS REITE RATED AND IT WAS FURTHER SUBMITTED THAT NO SEPARATE DEDUC TION HAS BEEN ALLOWED ON ACCOUNT OF INTEREST EXPENDITURE . 6 THEREFORE, EVEN INCOME FROM INTEREST COULD NOT BE S UBJECTED TO TAX. LD. CIT(A) AGREED WITH THE SUBMISSION AND F OLLOWING HIS PREDECESSORS ORDER, ALLOWED THE CLAIM. 10. BEFORE US, LD. DR STRONGLY SUPPORTED THE ORDER OF AO AND SUBMITTED THAT SINCE NO DETAILS WERE FILED, ADD ITION IS JUSTIFIED. ON THE OTHER HAND, LD. COUNSEL OF THE A SSESSEE SUBMITTED THAT DETAILS OF INTEREST WERE DULY FILED BEFORE THE AO, COPY OF WHICH IS AT PAGE 21 TO 25 OF THE PAPER BOOK. HE PARTICULARLY BROUGHT TO OUR ATTENTION THE CREDIT ENTRIES WHICH TOTALED TO RS.4,26,796/- WHICH HAS BEEN REDUC ED FROM TOTAL INTEREST EXPENDITURE OF RS.22,56,225/-. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND FIND THAT IT HAS BEEN STATED IN THE PAPER BOOK THAT CONTENTS OF THE PAPER BOOK WERE AVAILABLE BEFORE THE AO WHIC H MEANS DETAILS OF INTEREST WERE FILED BEFORE THE AO. THE DETAIL OF INTEREST AT PAGE 21 TO 25 CLEARLY SHOWS T HAT TOTAL INTEREST EXPENDITURE WAS RS.22,56,225/- AND RECEIPT S WERE RS.4,26,796/- AND ONLY NET EXPENDITURE OF RS.18,29, 429/- HAS BEEN CLAIMED. SINCE ONLY NET INTEREST EXPENDITU RE HAS BEEN CLAIMED, NO SEPARATE ADDITION COULD HAVE BEEN MADE ON ACCOUNT OF INTEREST INCOME AND ACCORDINGLY, WE F IND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND CONF IRM THE SAME. 12. IN GROUND NO.4, AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS DEBITED A SUM OF RS.2,37,71,741/- TOWA RDS SUB-CONTRACT WORK. IT WAS CLAIMED THAT THIS CONTRA CT WORK 7 SHOULD BE ALLOWED TO BE REDUCED FROM THE GROSS RECE IPTS AS PER THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH C OURT IN CASE OF CIT V PRAN NATH GUPTA 328 ITR 165. ASSESSEE HAD ALSO FILED COPIES OF TDS CERTIFICATES ALSO AND THE COPIES OF RETURNS FILED B Y THE SUB- CONTRACTOR. AO OBSERVED THAT THE DECISION OF HON'BL E PUNJAB & HARYANA HIGH COURT WAS DISTINGUISHABLE BECAUSE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNT AS A RESULT OF WHICH, INCOME WAS BEING ESTIMATED. HE FURTHER OB SERVED THAT GROSS RECEIPTS, MINUS SALE TAX AND, MINUS MATE RIAL SUPPLIED, AS PER TDS CERTIFICATE WAS TO BE TAKEN FO R THE PURPOSE OF APPLICATION OF RATE OF PROFIT. AS THE C ONTRACTS WERE TAKEN IN DIFFERENT OCCASIONS, THE ASSESSEE WOU LD DEFINITELY RETAIN SOME PROFIT AND IN ABSENCE OF BOO KS OF ACCOUNT, IT WOULD BE REASONABLE TO HOLD THAT PROFIT MARGINS OF THE ASSESSEE ON SUCH SUB-CONTRACT, WOULD BE HALF OF THE NET PROFIT THAT HE WOULD HAVE EARNED, HAD BE EXECUT ED THE WORKS CONTRACT. ACCORDINGLY, HE ESTIMATED THE PROF IT RATE OF 6% ON SUCH SUB-CONTRACT WORK AND MADE ADDITION OF RS.14,26,304/-. 13. BEFORE CIT(A), IT WAS MAINLY SUBMITTED THAT TO INCREASE THE TURNOVER, ASSESSEE HAD TAKEN MORE WORK S THEN IT COULD EXECUTE ITSELF BECAUSE CERTAIN ADVANTAGES CAN BE DERIVED BY SHOWING HIGHER TURNOVER. THEREFORE, EVE N IF SUB- CONTRACT WORK WAS GIVEN ON PAR, THEN THAT SITUATION IS ADVANTAGEOUS TO THE ASSESSEE. OTHERWISE ALSO, MAIN CONTRACTOR CANNOT EARN THE SAME PROFIT AS ON SUB-LE T WORK. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE PUNJAB 8 & HARYANA HIGH COURT IN THE CASE OF CIT V PRAN NATH GUPTA (SUPRA). LD. CIT(A) OBSERVED THAT EVEN IN ASSESSME NT YEAR 2004-05, THE VALUE OF SUB-CONTRACT WAS REDUCED FROM GROSS RECEIPTS AND THE ISSUE WAS COVERED BY THE DECISION OF CIT V PRAN NATH GUPTA (SUPRA) AND ACCORDINGLY, HE DELETED THE ADDITION. 14. BEFORE US, LD. DR SUBMITTED THAT IN CASE OF PRA N NATH GUPTA (SUPRA), THE ASSESSEE HAD FILED AFFIDAVITS AN D HAD ALSO PRODUCED THE BOOKS OF ACCOUNT. MOREOVER, THE AMOUNT WAS HELD TO BE ALLOWED AS DEDUCTION AND THEREFORE, DECISION WAS TOTALLY DISTINGUISHABLE. 15. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE APPELLATE ORDER. 16. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND TH AT AO HAS NOT APPROACHED THE ISSUE CORRECTLY. THERE CANN OT BE A SEPARATE ADDITION ON ACCOUNT OF MARGIN ON THE WORK WHICH HAS BEEN SUB-CONTRACTED BY THE ASSESSEE. THE HON'B LE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V PRAN N ATH GUPTA (SUPRA) HAS CLEARLY CONFIRMED THE DECISION OF TRIBUNAL, THROUGH WHICH THE DEDUCTION WAS ALLOWED O N ACCOUNT OF PAYMENTS MADE TO SUB-CONTRACTORS. HOWEV ER, IN CASE BEFORE US, ASSESSEE WANTS TO REDUCE THE TURNOV ER BY THE PAYMENTS MADE TO SUB-CONTRACTORS WHICH IS NOT T HE CORRECT POSITION IN LAW. ONCE THE WORK WAS DONE BY SUB- CONTRACTORS, ASSESSEE CAN CLAIM SUCH EXPENDITURE BU T THE TURNOVER CANNOT BE REDUCED BECAUSE THERE IS NO EVID ENCE TO SHOW THAT SUB-CONTRACT WORK WAS GIVEN ON THE SAME R ATES 9 AS RECEIVED BY THE ASSESSEE. THEREFORE, THIS ISSUE HAS TO BE EXAMINED WHILE ESTIMATING THE PROFITS OF THE ASSESS EE AND THE CORRECT TURNOVER HAS TO BE TAKEN, WHICH IS GENE RALLY GROSS TURNOVER AS PER TDS CERTIFICATE, MINUS SALE T AX AND, MINUS MATERIALS SUPPLIED BY THE GOVERNMENT. THEREF ORE, WE UPHOLD DECISION OF LD. CIT(A) IN DELETING THIS ADDI TION, BUT THE PRINCIPLE OF REDUCTION OF TURNOVER IS NOT UPHEL D AND THAT HAS TO BE CONSIDERED WHILE ADJUDICATING THE FI RST GROUND AND ACCORDINGLY, THIS ISSUE IS ALSO SET ASID E TO THE FILE OF AO. 17. THROUGH GROUND NOS. 5 & 6, REVENUE HAS RAISED OBJECTION REGARDING DEPRECIATION AND REJECTION OF B OOKS. SINCE LD. CIT(A) HAS ALSO APPLIED THE RATE OF PROFI T AND NO DEDUCTIONS HAVE BEEN ALLOWED SEPARATELY FOR DEPRECI ATION, THEREFORE, THESE GROUNDS ARE INFRUCTUOUS AND ARE DI SMISSED AS INFRUCTUOUS. 18. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22ND JUNE,2012. SD/- SD/- (H.L.KARWA) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 22 ND JUNE,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH