M/s. AMV Associates, Nashik V. Additional Commissioner of Income-tax,

ITA 861/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7215 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-11-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 04-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: DR V L JAIN
• Keywords: Unexplained cash credit; Depreciation; Rule of consistency
• Section: 32; 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.861/PUN/2015 / ASSESSMENT YEAR : 2011-12 M/S. AMV ASSOCIATES, 5, VAIBHAV PARK, KALE NAGAR, SUYOG COLONY, SATPUR, NASHIK 422 007 PAN : AAQFA4894R . /APPELLANT VS. ACIT, RANGE-1, NASHIK . / RESPONDENT ASSESSEE BY : DR. V.L. JAIN, AR REVENUE BY : SHRI MUKESH JHA, CIT-DR / DATE OF HEARING : 09.11.2017 / DATE OF PRONOUNCEMENT: 17.11.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I, NASHIK, DATED 30-04-2015 FOR THE ASSESSMENT YEAR 2011-12. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE BROUGHT O UR ATTENTION TO THE GROUNDS AND SUBMITTED THAT THE GROUND NO.1, RELATING TO THE REJECTION OF BOOKS U/S.145 OF THE ACT, AND THE GROUND NO.3, RELATING TO THE ADDITION OF RS.21,79,036/-, ARE NOT PRESSED. ON HEARING BOTH THE P ARTIES, THE SAID GROUNDS ARE DISMISSED AS NOT PRESSED. THAT LEAVES GR OUND NOS. 2 AND 4 FOR ADJUDICATION. THE SAME ARE EXTRACTED AS UNDER : 2. THE LD.CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN ESTIMATING THE NET PROFITS AT RS.2,00,41,924/- @15% OF THE TOTAL CONTR ACT RECEIPTS. ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 2 4. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFI RMING THE ADDITION OF RS.20,00,000/- U/S.69 ON ACCOUNT OF UNEXPLAINED INT RODUCTION OF CAPITAL BY THE PARTNER. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A CIVIL CONTRACTOR AND IS A SUB-CONTRACTOR TO M/S. ASHOKA BUILDCON LTD., NASHIK FOR THE YEAR UNDER CONSIDERATION. THE SUB-CONTRA CT INVOLVES SIX LANNING OF PIMPALGAON-NASHIK-GONDE SECTION ON NH3. ASSESSE E FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.31,95,837/- AND THE AO DETERMINED THE ASSESSED INCOME OF THE ASSESSEE AT RS.1,3 4,24,870/-. AO MADE VARIOUS ITEM-WISE ADDITIONS ON ACCOUNT OF BOGUS PURC HASES AS WELL AS ON ACCOUNT OF UNEXPLAINED CASH CREDITS U/S.69 OF THE ACT. 4. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) FOUND THAT TURNOVER OF THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION IS AROUND RS.13.36 CRORES (ROUNDED OFF). CIT(A) HELD THAT ALL IS NOT WE LL WITH THE BOOKS OF ACCOUNT OF THE ASSESSEE. ACCORDING TO THE PR OFIT AND LOSS ACCOUNT OF THE ASSESSEE, CIT(A) NOTED THAT THE ASSESSEE INCURRED AROUND RS.7.75 CRORES ON ACCOUNT OF PURCHASES OF RAW MATERIAL AND OTH ER DIRECT EXPENSES WORKS OUT TO RS.5.01 CRORES. ACCORDINGLY, THE ASSESSEE REGISTERED GP RATE OF AROUND 5% IN THE YEAR UNDER CONSIDERATION WITH THE NP RATE OF AROUND 2.39%. THE SAID PERCENTAGES ARE EXTREMELY LOW QUA THE GP AND NP RATES OF OTHER ASSESSMENT YEARS, I.E. POSTERIOR AND ANTERIOR TO THE A.Y. 2011-12. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE COMPILED THE FOLLOWING DATA ON THE PROFIT RATES OF THE ASSESSEE FOR VARIOUS ASSESSMENT YEARS. ANALYSING THE GP AND NP RATES, TURNOVERS OF VARIOUS YEARS OF THE ASSESSEE, THE CIT(A) EVENTUALLY ENHANCED THE ASSESSMENT FOLLOWING DUE PROCES S OF LAW. IN THE PROCESS, CONSIDERING THE FAILURE OF THE ASSESSEE IN SUBSTA NTIATING THE ENTRIES IN THE BOOKS OF ACCOUNTS, THE CIT(A) INVOKED THE P ROVISIONS OF SECTION 145 OF THE ACT AND REJECTED THE BOOKS OF ACCOU NT. CONSEQUENTLY, ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 3 THE CIT(A) ESTIMATED THE PROFITS APPLYING THE GP OF AROUND 15% ON THE SAID TURNOVER AND THE ADDITION ON THIS ACCOUNT WORKS OU T TO RS.2,00,41,924/- 15% OF THE TOTAL CONTRACT RECEIPTS OF RS .13,36,12,831/-. CONTENTS OF PARA 25 OF THE ORDER OF CIT(A) ARE RELEVANT. F URTHER, THE CIT(A) ALSO ENHANCED THE ASSESSMENT BY ANOTHER ADDITION OF A N AMOUNT OF RS.20 LAKHS U/S.69 OF THE ACT. THIS AMOUNT CONSTITUTES THE CAP ITAL INTRODUCED BY THE ASSESSEE INTO THE FIRM. CIT(A) TREATED THE SAME A S INCOME OF THE ASSESSEE. DEVIATING FROM THIS APPROACH, ON THE OTHER S UCH CASH INTRODUCTION INTO THE FIRM, CIT(A) DIRECTED THE AO TO MAKE 5. AGGRIEVED WITH THE ABOVE ENHANCEMENT OF THE INCOME B Y THE CIT(A), THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US WITH THE ABOVE EXTRACTED GROUNDS. 6. REGARDING THE ADDITION OF RS.2,00,41,924/-, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS EXTREMELY UNFAIR TO ESTIMAT E THE PROFITS OF THE ASSESSEE, WHO IS MERELY A SUB-CONTRACTOR, APPLYING THE RATE OF 15%. TO SUPPORT THE SAME, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES OWN NET PROFIT IN THE A.Y. 2011-12 AND SUBSE QUENT ASSESSMENT YEARS WITH MEAGER TURNOVER OF A CRORE, WHICH IS IN THE RA NGE OF AROUND 9.7% FOR A.Y. 2013-14 TO 19.07% FOR A.Y. 2014-15. HE SUBMITT ED THAT THE SAID NET PROFIT RATES ARE ACHIEVED WHEN THE ASSESSEE WA S A CONTRACTOR. REFERRING TO THE LOWER NET PROFIT RATES FOR THE YEAR UNDE R CONSIDERATION, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS MERELY A SUB- CONTRACTOR TO M/S. ASHOKA BUILDCON LTD. AND THEREFORE TH E NET PROFIT RATE IS NEVER AS HIGH AS 15%. LD. COUNSEL FOR THE ASSESSEE R EQUESTED FOR READING DOWN THE SAME. REFERRING TO DECISION OF THE TRIBU NAL OF INDORE BENCH IN THE CASE OF S.K. JAIN VS. DCIT VIDE ITA NO.21/IND/2 013 ORDER DATED 17-04-2013, LD. COUNSEL SUBMITTED THAT IN CASES LIKE THIS, IT IS HELD ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 4 THAT ADOPTING 6.25% PERCENTAGE AS NET PROFIT RATE IS FAIR AND REASONABLE. LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE STA TUTORY DEDUCTIONS ON ACCOUNT OF DEPRECIATION AND REMUNERATION TO PARTNERS IS ALLOWABLE OUT OF THE SAID ESTIMATES. 7. ON THE OTHER HAND, LD. DR FOR THE REVENUE HIGHLIGHTED T HE EXTREME DEFECTS IN THE BOOKS OF ACCOUNT AND NON-COOPERATION OF THE ASSESS EE BEFORE THE AO AS WELL AS THE CIT(A). HE SUBMITTED THAT THE ORD ER OF THE CIT(A) SHOULD BE CONFIRMED ON THE ISSUE OF ESTIMATION OF PROFITS APPLYING 15%. 8. DURING THE REBUTTAL TIME, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THE DECISION TO ADOPT 15% GP RATE AGAINST ORIGINAL P ROPOSAL OF 10% WITHOUT GIVING DEDUCTION TO OTHER STATUTORY DEDUCTIONS S UCH AS REMUNERATION, DEPRECIATION ETC. CONSTITUTES AN AFTERTHOUGH T. REFERRING TO THE SHOW CAUSE NOTICES AND OTHER CORRESPONDENCES WIT H THE ASSESSEE, LD. COUNSEL SUBMITTED THAT THE CIT(A) INITIALLY PROPOSED FOR ADOPTING ONL Y 10% AS GP RATE WITHOUT GIVING ANY DEDUCTIONS. HOWEVER, DUE T O SOME REASONS, THE CIT(A) CHANGED HIS MIND AND ADOPTED AN EXTREMELY HIG HER GP RAT OF 15% WITHOUT ANY SUSTAINABLE REASON AND UNSUPPORTED BY ANY JUDGMENTS TO SUPPORT HIS DECISION. 9. WE HEARD BOTH THE PARTIES ON THIS ISSUE OF ESTIMATION OF GP RATE. THERE IS NO DISPUTE ON THE FACTS ABOUT REJECTION OF BOOK S OF ACCOUNT U/S.145 OF THE ACT. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS ISSUE BEFORE US. WE ALSO PERUSED THE DECISIONS CITED BY THE LD . COUNSEL FOR THE ASSESSEE IN THE CASE OF S.K. JAIN (SUPRA) AND FIND WITH 6.25% THE SAME ARE NOWHERE CLOSE TO 15% ADOPTED BY THE CIT(A) IN THIS C ASE WITH 6.25%. THE CASE OF S. K.JAIN (SUPRA) IS SAID TO BE A CASE OF A SUB -CONTRACTOR. THEREFORE, IN PRINCIPLE, WE FIND THE DECISION OF THE CIT(A) TO GO FOR 15% GP RATE IS NOT FAIR AND REASONABLE. ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 5 10. HAVING DISAPPROVED THE DECISION OF THE CIT(A) IN ADOPT ING THE GP RATE OF 15% AS AGAINST THE ORIGINALLY PROPOSED 10% AND A LSO ON CONSIDERING THE FACT THE CIT(A) DENIED THE BENEFIT OF DEDUCT ION OUT OF THE SAID ESTIMATED PROFITS TOWARDS THE STATUTORY DEDUCTIONS U/S.40(B) AND SECTION 32 OF THE ACT, WE FIND THE INDORE BENCH OF THE TRIBUNAL HAS TAK EN A VIEW IN THE CASE OF S.K. JAIN SAID TO BE A COMPARABLE CASE T O THE PRESENT ASSESSEE AND IN FAVOUR OF ADOPTING THE PROFIT RATE OF 6.25% . IN THIS CASE, AVERAGE OF INTERNAL GP IS CONSIDERED. ALLOWABILITY OF STATUTOR Y DEDUCTIONS WAS NOT MENTIONED IN THE ORDER OF THE TRIBUNAL. FOR THE SAKE OF COMPLETENESS, WE EXTRACT THE CONTENTS OF PARA NO.12 OF T HE SAID ORDER OF THE TRIBUNAL AND THE SAME IS RELEVANT FOR PROFIT RATE EST IMATION. THE SAME READS AS FOLLOWING : 12. . . . . . . . . . ACCORDINGLY, ASSESSING OFFIC ER IS DIRECTED TO COMPUTE THE PROFIT BY APPLYING NET PROFIT RATE OF 6.25% ON THE GROSS CONTRACT RECEIPTS. WE DIRECT ACCORDINGLY. 11. THE CASE LAW OF S.K. JAIN (SUPRA) IS A CASE OF A CIVIL CONTR ACTOR ENGAGED IN EXECUTING THE GOVERNMENT CONTRACTS - IRRIGA TION DEPARTMENT. THE ASSESSEE IN THAT CASE EXECUTED SUB-CONTRACT WORK S TOO. WE HAVE EXAMINED THE COMPARATIVE DATA OF PROFIT RATES OF THE ASSE SSEE OVER THE YEARS WHICH ARE RECORDED BY THE ASSESSEE AND FIND THER E IS HUGE VARIANCE RANGING FROM 2.40% TO 9.70%. THERE IS GP RATE OF 19.07% FO R A.Y. 2014- 15 TOO AND IT APPEARS TO BE AN EXTRAORDINARY GP RATE . EXCLUDING THE SAID EXTRAORDINARY ITEM, THE AVERAGE OF THE REST OF THE PROFIT RATES FROM A.YRS. 2011-12 TO 2017-18 WORKS OUT TO 5.92%, WHICH FAR BELOW T HE PROFIT RATE OF 6.25% CONFIRMED BY THE INDORE BENCH OF THE TRIBUNAL IN TH E CASE OF S.K. JAIN (SUPRA). FURTHER, ON PERUSAL OF THE SAID DECISION OF IN DORE BENCH TRIBUNAL, WE FIND THE FACTS OF THE CASE DOES NOT SEEM TO B E COMPARABLE TO THE FACTS OF THE PRESENT CASE WHERE THE ASSESSEE IS A CIVIL SUB-CONTRACTOR ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 6 TO M/S. ASHOKA BUILDCON LTD., AND IS SUBCONTRACTED FOR W ORK OF SHIFTING OF DRINKING WATER PIPELINE ALONG THE NATIONAL HIGHWAY NO.3 FOR PIM PALGAON- NASHIK-GONDE SECTION. WHEREAS; IN THE CASE OF S.K. JAIN (SUP RA), IT IS A CASE OF AN INDIVIDUAL ENGAGED IN THE CONTRACT WORK GIVEN B Y THE IRRIGATION DEPARTMENT IN MADHYA PRADESH. IT IS ALSO NOT CLEAR WHET HER THE SAID ASSESSEE IS A SUB-CONTRACTOR AND THERE IS NO CLARITY ON THE FACTS RELATING TO THE PROFIT PERCENTAGES, IF THEY RELATE ONLY TO THE SUB-CO NTRACTS. THEREFORE, WE FIND PAUCITY OF COMPARABLE CASES OF THIS REGION ENGAGED IN THE SUB- CONTRACT WORKS FOR SUCH WORKS RELATING TO SHIFTING OF DRIN KING WATER PIPELINE ALONG THE NATIONAL HIGHWAY. THEREFORE, IT IS THE NEED IN THE INTEREST OF ADMINISTRATION OF JUSTICE THAT THIS ISSUE MUST BE REMANDED TO THE FILE OF THE AO FOR BRINING THE COMPARABLE CASES OF SUB-CONTRACTORS OF THIS VARIETY AND ADOPT THE APPROPRIATE PROFIT RATES AND MAKE THE BEST JUDGMENT AS SESSMENT ADOPTING FAIR AND REASONABLE PROFIT RATES BASED ON THE COMPARABLE CASES INVOLVED IN SUCH CONTRACTS OF OTHER SECTION OF NH 3, IF ANY. AS SUCH, THE VALIDITY OF THE REJECTION OF BOOKS OF ACCOUNT IS NOT AN ISSUE NOW AS THE SAME IS NOT PRESSED BY THE LD. COUNSE L FOR THE ASSESSEE BEFORE US. FURTHER, THE CIT(A)S DECISION TO ESTIMATE THE PROFITS APPLYING RATE OF 15% IS ALSO NOT APPROVED AS THE SAME IS NOT SUP PORTED BY ANY MATERIAL OR ANY CASE LAWS. CONSIDERING THE ABOVE CONCLUDED ISSUES, AO IS DIRECTED TO EXAMINE THE ALLOWABILITY OF STATUTORY DEDUCTIONS U/S.40B RELATING TO THE REMUNERATION TO THE PARTNERS AND U/S.32 RELATING TO THE DEPRECIATION OUT OF THE PROFITS SO ESTIMATED BY THE AO IN THE REMAND PROC EEDINGS AND PASS A SPEAKING ORDER ON THIS ISSUE AFTER CONSIDERING THE DECIS IONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE (1) SHRI RAM JHANWA R LAL VS. ITO AND ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 7 ORS 321 ITR 400 (RAJ.), (2) TEJAS CONSTRUCTION VS. ACIT 18 9 TTJ 213 (HYD.) AND (3) NARULA TRANSPORT COMPANY VS. ACIT 87 TTJ 803 (AMR.). ASSESSEE IS ALSO DIRECTED TO DISCHARGE THE ONUS FROM HIS SIDE BY FURNISHING THE RELEVANT COMPARABLE CASES DURING THE REMAND PROCEE DINGS BEFORE THE AO TO HELP HIM TAKING BEST DECISION RELATING TO PROFIT PERC ENTAGE. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. 12. REGARDING THE OTHER ISSUE OF ADDITION OF RS.20 LAKHS U/ S.69 OF THE ACT RAISED BY THE ASSESSEE IN GROUND NO.4 ABOVE, WE FIND THE CIT(A) IS NOT FAIR IN DIRECTING THE AO TO ASSESS THE SAID AMOUNT OF RS.2 0 LAKHS OF CAPITAL INTRODUCED BY THE PARTNER OF THIS FIRM. WE FIND THERE ARE SIMILAR CAPITAL INTRODUCTION BY OTHER PARTNERS AND AO/CIT(A) DID NOT CON SIDER NEED OF TAXING THE SAME IN THE HANDS OF THE FIRM. IN OUR VIEW, CON SIDERING THE PRINCIPLE OF CONSISTENCY, THIS AMOUNT SHOULD ALSO BE EXAMINED FOR TAXATION IN THE HANDS OF THE PARTNER INVOLVED. AS SUCH, THERE IS N O NEXUS ESTABLISHED BY THE REVENUE THAT THE SAID AMOUNT OF RS.20 LAKHS HAS GENESIS IN THE FIRMS PROFITS. ACCORDINGLY, GROUND NO.4 IS A LLOWED IN FAVOUR OF THE ASSESSEE. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF NOVEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 17 TH NOVEMBER, 2017. ITA NO.861/PUN/2015 M/S. AMV ASSOCIATES 8 / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A) - I , NASHIK CIT - I , NASHIK , , B BENCH PUNE; / GUARD FILE.