Mr. Gajraj Makardhwaj Singh, Chandigarh V. Income Tax Officer, Chandigarh

ITA 852/CHANDI/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51540 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 09-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: PRIKSHIT AGARWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 852/CHD/2011 ASSESSMENT YEAR: 2007-08 MR. GAJRAJ MAKARDHWAJ SINGH, VS THE ITO, CHANDIGARH WARD 3(2), CHANDIGARH PAN NO. AQTPS4454M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRIKSHIT AGARWAL RESPONDENT BY : SHRI N.K. SAINI DATE OF HEARING : 25.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), DATED 30.6.2011 RELATING TO ASSESSMENT YEAR 2007-08. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE A ND HENCE NO COMMENTS ARE BEING GIVEN. 3. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES AND LEGA L POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED I N ESTIMATING THE INCOME OF THE APPELLANT AT THE RATE OF 7% OF THE GROSS RECEIPTS EVEN WHEN THE PROFIT DECLARED AT THE RATE OF 3% WAS TRUE AND GENUINE. IN THIS WAY WORTHY CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 3,79,853/-. 2 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS DERIVING INCOME FROM BUSINESS OF MANUFACTURE AND TRADING OF POLLUTION CONTROL MACHINERY AND INSTALLATION ON CONTRACT BASIS. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLE D FOR DETAILS OF PAYMENT TO CONTRACTORS. ONE OF THE CONTRACTORS, SHR I ABASS AHMED ATTENDED BUT DID NOT PRODUCE THE COMPLETE DETAILS O F RECEIPT OF PAYMENT. THE ASSESSING OFFICER COULD NOT COLLECT ANY INFORMA TION FROM OTHER CONTRACTOR M/S SUNRISE ENGINEERS. THE ASSESSING OF FICER TOOK THE VIEW THAT WHOLE OF THE ACCOUNTS MAINTAINED BY THE ASSESS EE IS ONLY AN AFTER THOUGHT. THE ASSESSING OFFICER FURTHER OBSERVED TH AT THE ASSESSEE FAILED TO JUSTIFY THE CORRECTNESS OF HIS BOOKS OF ACCOUNT MAINTAINED FOR HIS BUSINESS. PAYMENTS BY CHEQUES HAVE BEEN MADE FOR T HE PURCHASE OF SOME OF THE MATERIALS BUT MOST OF THE EXPENSES DEBITED T O PROFIT AND LOSS WERE MADE IN CASH. THE ASSESSING OFFICER ACCORDINGLY RE JECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND APPLIED RATE OF 10% ON GROSS RECEIPTS BY APPLYING T HE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ITA NO. 167 OF 2007 DATED 7.5.2007 IN THE CASE OF CIT-III, LUDHIANA V SHIVAM CONSTRUCTION CO. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE TOOK THE PLEA TH AT THE CONTRACTORS TO WHOM PAYMENTS WERE MADE, WERE PETTY CONTRACTORS. THE ASSESSEE ALSO SUBMITTED BEFORE THE CIT(A) THAT THE RATE APPLIED O F 10% WAS ON THE BASIS OF DECISION IN THE CASE OF A CIVIL CONTRACTOR WHERE AS THE PRESENT ASSESSEE IS NOT A CIVIL CONTRACTOR. 3 7. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO APP LY THE NET PROFIT RATE OF 7% ON GROSS RECEIPTS AS AGAINST NET PROFIT OF 10% APPLIED BY THE ASSESSING OFFICER. THE RELEVANT FINDINGS OF THE CI T(A) ARE AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COU NSEL FOR THE APPELLANT. THE ASSESSING OFFICER HAS MADE INQU IRIES FROM THE CONTRACTORS BUT COULD NOT GATHER ANY WORTHWHILE INFORMATION AGAINST THE APPELLANT. THE ONLY OBSER VATION MADE BY THE ASSESSING OFFICER IS THAT MOST OF THE E XPENSES DEBITED TO P&L ACCOUNT WERE IN CASH AND CORRECTNESS OF BOOKS OF ACCOUNT COULD NOT BE JUSTIFIED BY THE APPE LLANT. THE ASSESSING OFFICER HAS APPLIED THE RATE OF 10% ON GR OSS RECEIPTS BY FOLLOWING THE JUDGMENT OF SHIVAM CONSTR UCTION CO. (SUPRA). THE LD. COUNSEL FOR THE APPELLANT HAS SUBMITTED THAT THE APPELLANT IS NOT A CIVIL CONTRACTOR AND SO THE RATE OF 10% SHOULD NOT BE APPLIED IN THIS CASE. IN MY CONS IDERED VIEW, THERE IS FORCE IN THE ARGUMENT OF THE LD. COU NSEL BECAUSE THE APPELLANT IS IN THE BUSINESS OF MANUFAC TURING AND TRADING OF POLLUTION CONTROL MACHINERY AND INSTALLA TION ON CONTRACT BASIS AND SO THE ASSESSING OFFICER WAS NOT RIGHT IN APPLYING THE NET PROFIT RATE OF 10%. HENCE, KEEPIN G IN VIEW THE FACT THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY SUBSTANTIAL MATERIAL ON RECORD TO APPLY SUCH A HIGH N.P. RATA, I HOLD THAT IT WOULD BE APPROPRIATE TO APPLY THE NE T PROFIT RATE OF 7% ON GROSS RECEIPTS. THE ASSESSING OFFICER IS D IRECTED ACCORDINGLY. GROUND OF APPEAL NO.3 IS PARTLY ALLOW ED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. AFTER PERUSING THE ORDERS OF THE ASSESSING OFFICER AS WELL AS CIT(A), WE ARE OF THE VIEW, THAT THERE WERE VALID REASONS FOR REJECTING THE BOOKS OF ACCOUNT U/S 145( 3) OF THE ACT. WE, THEREFORE, REJECT THIS PLEA OF SHRI PRIKSHIT AGGARW AL, LD. COUNSEL FOR THE ASSESSEE THAT THERE WAS NO JUSTIFICATION IN REJECTI NG THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. IN THE ASSESSMENT ORDER, TH E ASSESSING OFFICER HAS 4 GIVEN SUFFICIENT REASONS FOR INVOKING THE PROVISION S OF SECTION 145(3) OF THE ACT AND THE CIT(A) HAS CORRECTLY UPHELD THE SAM E. AS REGARDS THE NET PROFIT RATE, SHRI PRIKSHIT AGGARWAL, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT ASSESSEE IS NOT A CIVIL CONTRACTOR AND, THEREF ORE, THE DECISION RELIED UPON BY THE ASSESSING OFFICER IN THE CASE OF SHIVAM CONSTRUCTION CO. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESE NT CASE. HE ALSO SUBMITTED THAT THE YEAR UNDER CONSIDERATION IS THE FIRST YEAR OF ASSESSEES BUSINESS AND, THEREFORE, NET PROFIT RATE APPLIED BY THE CIT(A) IS ON HIGHER SIDE. CONSIDERING THE PECULIAR NATURE OF ASSESSEE S BUSINESS AND THE YEAR BEING FIRST YEAR OF BUSINESS, WE ARE OF THE VIEW TH AT NET PROFIT RATE OF 5% WILL MEET THE ENDS OF JUSTICE. WE, THEREFORE, DIRE CT THE ASSESSING OFFICER TO APPLY THE NET PROFIT RATE OF 5% ON GROSS RECEIPT S AND RE-COMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. HOWEVER, IT IS MADE CLEAR THAT THE FINDINGS GIVEN BY US IN THIS YEAR WILL NOT BECOME A PRECEDENT IN SUBSEQUENT YEARS BECAUSE WE HAVE DIRECTED THE ASSES SING OFFICER TO APPLY NET PROFIT RATE OF 5% ON GROSS RECEIPTS KEEPING IN VIEW THE PECULIAR FACTS OF THE YEAR UNDER CONSIDERATION AND ALSO THE YEAR B EING THE FIRST YEAR OF BUSINESS OF THE ASSESSEE. NO OTHER POINT WAS RAISED OR ARGUED BEFORE US. 9. IN THE RESULT, APPEAL IS ALLOWED PARTLY AS INDIC ATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 31 ST OCTOBER, 2011 RKK 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR