JANTA CONSTRUCTION CO., Jaipur V. ITO, Jaipur

ITA 861/JPR/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2165 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 17-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 861/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 JANTA CONSTRUCTION CO., E-47, ROAD NO. 2B, VKI AREA, JAIPUR (RAJ). CUKE VS. INCOME TAX OFFICER, WARD-4(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABFJ 0003 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 24/04/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 28/04/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES FR OM THE ORDER DATED 14/10/2014 PASSED BY THE LD. CIT(A)-II JAIPUR FOR THE A.Y. 2011-12. 2. THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN TH E WORK OF CIVIL CONTRACTOR, EXECUTING CONTRACTS FOR GOVERNMENT DEPA RTMENTS LIKE PWD, HOUSING BOARD ETC. FOR THE YEAR UNDER CONSIDERATION , RETURN WAS FILED DECLARING INCOME OF RS. 6,49,000/-. THE ASSESSING OF FICER ASSESSED THE INCOME AT RS. 36,72,240/- BY MAKING VARIOUS ADDITIO NS/DISALLOWANCES. ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 2 3. THE LD. CIT(A) ALLOWED THE APPEAL PARTLY. NOW THE AS SESSEE IS IN APPEAL BEFORE THE ITAT BY TAKING FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY ON FACTS IN HOLDING THAT THE NATURE OF CONTRACTS EXECUTED BY TH E ASSESSEE HAVE UNDERGONE SIGNIFICANT CHANGE AND HENC E PAST HISTORY OF THE ASSESSEE MAY NOT BE A CORRECT INDICATOR. 2. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY ON FACTS IN CONFIRMING ADDITION IN CLOSING WIP FOR RS. 5,32,072 /-. 3. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 9,98,282/- MADE B Y LD. A.O. ON ACCOUNT OF LABOUR CHARGES. 4. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY ON FACTS IN CONFIRMING ADDITION MADE BY LD. A.O. ON ACCOUNT OF INTEREST ON IT REFUND FOR RS. 59,448/- AND INTEREST ON SALES TAX REFUND FOR RS. 35,850/-. 5. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 3,58,064 MADE BY LD. A.O. ON ALLEGED DIVERSION OF INTEREST BEARING FUNDS FOR GRANTING INTEREST FREE ADVANCE. 4. GROUND NO. 4 OF THE APPEAL IS NOT PRESSED, THERE FORE, THE SAME STANDS DISMISSED AS NOT PRESSED. 5. IN THE GROUNDS NO. 1,2,3 AND 5 OF THE APPEAL, TH E ASSESSEE HAS CHALLENGED THE ADDITION SUSTAINED BY THE LD. CIT(A) BY WAY OF DISALLOWANCES OUT OF LABOUR EXPENSES OF RS. 9,98,282 /-, ADDING RS. 5,53,072/- TO THE CLOSING STOCK OF BITUMEN AND DISA LLOWING INTEREST ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 3 EXPENDITURE OF RS. 3,58,064 AND THEREBY INCREASING THE NP RATE DECLARED. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER INVOKED THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) BY REJECTING BOOKS OF ACCOUNT ON THE BASIS THA T THE ASSESSEE IS NOT MAINTAINING PROPER VOUCHERS FOR VARIOUS EXPENSES, E XCEPT BITUMEN, NO STOCK REGISTER WAS MAINTAINED AND ALSO SITE WISE RECO RDS OF MATERIAL AND LABOUR WAS NOT AVAILABLE. AFTER INVOKING THE PROVISI ONS OF SECTION 145(3) OF THE ACT, THE ASSESSING OFFICER MADE VARIOUS DISA LLOWANCES OUT OF EXPENSES DEBITED TO P&L ACCOUNT. THE LD AR SUBMITTED THAT THE ASSESSEE IS A CIVIL CONTRACTOR, ENGAGED IN CONSTRUCTION OF R OADS AGAINST CONTRACTS AWARDED BY THE GOVERNMENT DEPARTMENTS LIKE PWD AND H OUSING BOARD. THE CONTRACTS ARE AWARDED THROUGH OPEN TENDER ADVERTI SED IN PUBLIC AND OPEN FOR ALL CONTRACTORS, WHO PARTICIPATE IN LARGE N UMBER OF EACH TENDER. THE BID IS OPENED IN FAVOUR OF THE CONTRACTOR, WHO SU BMITS THE LOWERS BID. THE RATES ON WHICH WORK IS AWARDED ARE BASED ON THE BSR WHICH IS A BASIC SCHEDULE RATE MADE AND PUBLISHED BY THE STATE PWD FOR ANY KIND OF CIVIL CONSTRUCTION RELATED WORK TO BE PERFORMED I N THE STATE OF RAJASTHAN FOR VARIOUS GOVERNMENT DEPARTMENTS AND AU THORITIES. THE ASSESSEE HAD DONE ENTIRE WORK IN RELATION TO THE GOV ERNMENT DEPARTMENTS ONLY, WHICH ALSO UNDERGONE SERIOUS INSPECTION BY VAR IOUS GOVERNMENT AGENCIES AND FREQUENT REDOING OF THE WORK IS ALSO A COMMON FEATURE ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 4 WHICH RESULTS INTO EXTRA COST WHICH IN TURN AFFECTS THE PROFITABILITY ADVERSELY. IN THIS LINE OF BUSINESS, IT IS NOT POSS IBLE TO MAINTAIN DAY TO DAY STOCK REGISTER AS WORK AT VARIOUS SITES SITUATED AT DISTANT PLACES. THE NATURE OF MATERIAL USED IN THE EXECUTION OF WORKS LI KE GRIT, SAND, STONE, BRICKS ETC. IS SUCH THAT MAINTENANCE OF DAY TO DAY INVENTORY IS NEITHER PRACTICAL NOR POSSIBLE. THE ASSESSEE IS FOLLOWING THE SAME METHOD OF ACCOUNTING SINCE INCEPTION AND MERELY FOR NON MAINT ENANCE OF DAY TO DAY STOCK REGISTER, THE PROVISIONS OF SECTION 145(3) WER E INVOKED AND VARIOUS ADDITIONS WERE MADE. LD. AR ALSO PLEADED THAT EVEN I F PROVISIONS OF SECTION 145(3) OF THE ACT ARE INVOKED THEN ONLY GRO SS PROFIT COULD HAVE BEEN ESTIMATED. IN ASSESSEES CASE THE INCOME DECLA RED FOR THE YEAR UNDER CONSIDERATION WAS IN CONFORMITY WITH PAST HIST ORY OF ASSESSEE. IN ASSESSEES OWN CASE 8% N.P. APPLIED SUBJECT TO DEPRE CIATION INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. THE LD AR RELI ED ON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF GOT AN LIME KHANIZ UDYOG 256 ITR 243 FOR THE PROPOSITION THAT MERE REJECTION OF BOOKS OF ACCOUNT SHOULD NOT NECESSARILY LEAD TO AN ADDITION. THE ASSE SSING OFFICER WITHOUT HAVING ANY MATERIAL IN HIS POSSESSION AND WITHOUT B RINGING ANYTHING CONTRARY ON RECORD THROUGH INDEPENDENT ENQUIRIES, A DDITIONS WERE MADE ARBITRARILY ONLY TO INCREASE THE NP RATE. THE LD AR ALSO SUBMITTED THAT IN THE PRECEDING YEARS, THE ASSESSMENT WAS COMPLETED U/ S 143(3) OF THE ACT ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 5 AND ALSO REACHED TO THE ITAT WHERE NP RATE DECLARED B Y THE ASSESSEE WAS ACCEPTED AND THE DETAILS OF THE SAME ARE AS UNDER:- AY GROSS RECEIPTS NET PROFIT DECLARED BEFORE DEPR. AND PAYMENT TO PARTNERS NP RATE NP RATE ACCEPTED BY THE CIT(A)/ HONBLE ITAT 2008-09 88078982 7483744 8.50% 5.50% 2009-10 46166265 4141707.33 8.97% NP RATE ACCEPTED WITH FURTHER DISALLOWANCE U/S 40(A)(IA) 2010-11 52624384 4748859 9.02% 9.02% 2011-12 25466376 2485737 9.76% RELEVANT YEAR UNDER APPEAL HE FURTHER SUBMITTED THAT BY CONSIDERING THE ADDITI ONS MADE BY THE ASSESSING OFFICER, THE NP RATE ON THE TURNOVER OF R S.2,54,66,376/- COMES TO 17.18%, WHICH IS EXORBITANT IN THIS LINE OF BUSIN ESS AND SUCH NP RATE IS NEVER POSSIBLE TO BE ACHIEVED AND SUCH ADDITIONS AR E NOT REALISTIC. HE ALSO RELIED ON THE FOLLOWING DECISIONS: (I) 84 TTJ 693 ITO VS. CHOHTAN CONSTRUCTION CO. (JD. ) 5 TH MARCH, 2004. (II) KANSARA BEARINGS PVT. LTD. VS. ACIT REPORTED IN 270 ITR 235 (III) COLLECTOR RAM SHARMAVS. DCIT [ITAT (JPR) IN IT A NO. 771/JP/2012 (IV) PRASHANT OIL MILL VS. ITO [72 TAXMANN.COM 136 (G UJ)] (V) 99 TTJ 164 AJAY GOYAL VS. ITO (JD.) (VI) 5 ITR 170 (PC) CIT V/S LAXMINARAIN BADRIDAS (VII) 60 ITR 239 (SC) STATE OF KERALA V/S VELUKUTTY ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 6 (VIII) 115 ITR 524 (SC) BRIJ BHUSHAN LAL PARDUMAN KU MAR, ETC. V/S CIT, HARYANA, HIMACHAL PRADESH AND NEW DELHI-III FURTHER HE ALSO PLEADED THAT THERE WAS NO NEED TO DI STURB THE DECLARED RESULTS AS THE NP RATE DECLARED IN THE YEAR UNDER C ONSIDERATION WAS BETTER THAN EARLIER YEARS, WHICH IS 9.76% IN COMPARSION TO 9.02% ACCEPTED BY THE HONBLE ITAT IN THE IMMEDIATE PRECEDING YEAR. HE ALSO PLEADED THAT THE HONBLE RAJASTHAN HIGH COURT AS WELL AS HONBLE ITAT HAVE CONSISTENTLY TAKEN A VIEW THAT IN THE CASE OF CIVIL CONTRACTORS WHERE NET PROFIT RATE IS APPLIED THEN FURTHER DEDUCTIONS FOR THE DEPRECIATION, INTEREST AND REMUNERATION PAID TO PARTNERS SHOULD BE ALLOWED. HE FURTHER RELIED ON THE FOLLOWING CASE LAWS:- 1. CIT V/S JAIN CONSTRUCTION CO. 245 ITR 527 (RAJ. H /C) 2. M/S KIRAN UDYOG V/S DCIT 34 TW 80 (JPR, ITAT) 3. KALINDEE RAIL NIRMANENGG. LTD V/S JCIT 25 TW 89 (ITAT, JPR) 4. MOHTA CONSTRUCTION & CO. V/S ITO, 21 TW 257 (ITAT, JP) 5. KHARTARAM CHOUDHARY V/S ITO, 21 TW 6 (ITAT, JAIPUR ) 6. ITO V/S. GOPALARAM PREMARAM 24 TW 442 (ITAT JODHP UR ) 6. THE LD. SR.DR HAS RELIED ON THE ORDERS OF THE AUT HORITIES BELOW. 7. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE AS SESSEE HAS DECLARED N.P. RATE FOR THE YEAR UNDER APPEAL WAS 9.7 6%, WHICH WAS BETTER THAN ALL OF THE THREE YEARS I.E. ASSESSMENT YEARS 2008-09 TO 2010- 11. THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 TO ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 7 2008-09 HAS ACCEPTED THE GROSS PROFIT RATE AS DECLA RED BY THE ASSESSEE. THE ITAT IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2010-11 HAS ALSO ACCEPTED THE DECLARED NP RATE OF 9.02%. THE RELEVANT PORTION OF THE ITAT ORDER IS REPRODUCED HEREUNDER:- 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDER AND FINDING OF THE LD. CIT(A). IN THE PAST, T HE COORDINATE BENCHES HAVE TAKEN A CONSISTENT VIEW THAT NP RATE WHICH SHOULD BE CONSIDERED FOR EXAMINATION IS N P RATE BEFORE DEPRECIATION, INTEREST AND REMUNERATION TO P ARTNERS. NOTHING HAS BEEN BROUGHT TO YOU NOTICE FOR DEVIATIN G FROM THE SAID SETTLED POSITION. FURTHER, DURING THE YEAR UNDER CONSIDERATION, THE NP RATE BEFORE DEPRECIATION, INT EREST AND REMUNERATION TO PARTNERS IS DISCLOSED BY THE ASSESS EE AT 9.02% WHICH IS ON A PROGRESSIVE SCALE HENCE THERE IS NO BASIS TO DISTURB THE SAME. SECONDLY THE EXPENSES HA VE BEEN DISALLOWED ON AN AD HOC BASIS. IN ABSENCE OF ANY SPE CIFIC FINDING OF THE A.O. WHEREBY SPECIFIC EXPENSES/TRANSA CTIONS HAVE BEEN HELD TO BE NOT INCURRED FOR THE PURPOSES OF BUSINESSES, WE ARE UNABLE TO ACCEDE TO THE POSITION ADOPTED BY THE A.O. HENCE WE DO NOT SEE ANY INFIRMITY IN OR DER OF LD. CIT(A) WHICH IS CONFIRMED. ALL THE GROUNDS TAKEN BY T HE REVENUE ARE DISMISSED. THUS, THE AVERAGE NET PROFIT RATE OF THE PAST YEARS IS LOWER THAN THE CURRENT YEAR. ONCE THE BOOKS OF ACCOUNT HAVE BEEN R EJECTED THEN THE ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 8 SPECIFIC DISALLOWANCE UNDER VARIOUS HEADS SHOULD NOT HAVE BEEN MADE AND ONLY THE GROSS PROFIT/NET PROFIT RATE SHOULD HA VE BEEN ESTIMATED. SINCE THE AVERAGE N.P. RATE OF THE PAST SIX YEARS C OMES LESSER THAN THE DECLARED N.P. RATE OF 9.76% FOR THE YEAR, THEREFORE , I FIND MERIT IN THE CONTENTION OF THE ASSESSEE AND ON THAT BASIS, I DIR ECT TO DELETE THE ADDITION MADE FROM VARIOUS EXPENSES. THIS VIEW IS AL SO GET SUPPORT FROM THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. POPULAR ART PALACE LTD. (2017) 391 ITR 352 (RAJ), WHE REIN THE HON'BLE HIGH COURT HAS HELD AS UNDER:- HELD, THAT THE ADOPTING OF GROSS PROFIT BY THE ASSE SSING OFFICER AT 35 PERCENT WAS HIGH. THE AVERAGE OF PROFIT SHOWN BY TH E ASSESSEE FROM THE YEAR 1991-92 TO 1996-97, WAS 31.4 PERCENT AND FOR T HAT THE ESTIMATE OF 32 PERCENT COULD BE ADOPTED INSTEAD OF 35 PERCENT BY T HE ASSESSING OFFICER. THE ASSESSING OFFICER WAS TO MAKE CALCULATIONS BY A DOPTING ESTIMATED PROFIT OF 32 PERCENT. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/04/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28 TH APRIL, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- JANTA CONSTRUCTION CO., JAIPUR. ITA 861/JP/2014_ JANTA CONSTRUCTION CO. VS ITO 9 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD-4(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 861/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR