SHRI MAHENDRA KUMAR SETHIA, Jaipur V. ITO, Jaipur

ITA 868/JPR/2011

• Counselvise Citation: 86823114 RSA 2011
• Duration Of Justice: 2 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 05-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Keywords: Rejection of books of accounts; Retrospective amendment
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JAIPUR BENCH : JAIPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 868/JP/2011 (A.Y. 2007-08) MAHENDRA KUMAR SETHIA, 202,, VS. ITO, WARD-4(2), A-15, GALAXY PLAZA, CENTRAL SPINE, JAIPUR. VIDHYADHAR NAGAR, JAIPUR. PAN NO. AYFPS 7521 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJEEV SOGANI. DEPARTMENT BY : SHRI D.C. SHARMA - D.R. DATE OF HEARING : 15/01/2014. DATE OF PRONOUNCEMENT : 26/02/2014. O R D E R PER N.K. SAINI, A.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 12/07/2011 OF LD. CIT (A)-II, JAIPUR. THE FOLLOWIN G GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO I N DISALLOWING A SUM OF RS. 20,14,877/- U/S 40(A)(IA) OF THE I.T. ACT, 1 961. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND A GAINST THE FACTS OF THE 2 CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID DISALLOWANCE OF RS. 20,14,877/- U/S 40(A)(IA). 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN ESTIMATING THE INCOME BY APPLYING A NET PROFIT RATE OF 5% RESULTIN G INTO TRADING ADDITION OF RS. 3,18,827/-. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS. RELI EF MAY PLEASE BE GRANTED BY REASONABLY ESTIMATING THE INCOME AS PER LAW. 3. THE ASSESSEE CRAVES HIS RIGHT TO ADD, AMEND OR A LTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 2. THE FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE C ONFIRMATION OF ADDITION OF RS. 20,14,877/- MADE BY THE ASSESSING O FFICER UNDER SECTION 40(A)(IA) OF THE I.T. ACT, 1961 (HEREINAFTER REFERR ED TO AS THE ACT IN SHORT). 3 FACTS OF THIS ISSUE IN BRIEF ARE THAT THE ASSESSIN G OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD MADE TDS ON SUB-CONTRACT PAYMENTS, HOWEVER, THAT WAS NOT DEPOSITED TO THE GOVERNMENT ACCOUNT WITHIN A TIME PRESCRIBED UNDER S ECTION 200 OF THE ACT READ WITH RULE 30 OF THE I.T. RULES. HE THEREF ORE, ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY A SUM OF RS. 20,14,877/- BE NOT DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSING OFFICE R OBSERVED THAT THE ASSESSEE HAD NOT FURNISHED ANY SUBMISSIONS ON THE S AID ISSUE, HE THEREFORE, MADE ADDITION OF IMPUGNED AMOUNT. 3 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED THAT THE DETAIL OF FILING THE RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS 31/07/2007 AND THE ASSESSEE DEPOSITED TDS BEFORE FILING OF THE RETURN. THE DETAIL WAS GIVEN AS UNDER:- SECTION NAME OF DEDUCTEE AMOUNT PAID (IN RS.) TDS ( IN RS.) DATE OF DEDUCTION DUE DATE OF DEPOSIT ACTUAL DATE OF PAYMENT TO GOVT. ACCOUNT 194C KISHANGARH GRANITE PVT. LTD. 5,12,151 10,243 25/11/06 07/12/06 12/05/07 194C KANHAIYA LAL, BHOLA RAM, MOHAN SINGH 1,97,100 2,010 31/07/06 07/08/06 12/05/07 194C SUNIL SINGH, LALACHAND, RAJKUMAR, DHUNDI RAM, MOHAN SINGH 2,76,100 2,817 31/08/06 07/09/06 12/05/07 194C MOHAN SINGH 63,900 652 30/03/06 07/06/06 12/05/07 194A YASH GEMS 7,500 765 21/01/07 07/02/07 29/05/07 194C DHUNDI RAM, KANHAIYA LAL, BHOLA RAM, SUNIL SINGH, LALCHAND, RAJKUMAR, MOHAN SINGH 1,65,150 1,685 28/02/07 07/03/07 12/05/07 194C PRAGATI CONSTRUCTION CO. 7,92,976 16,177 28/02/07 07/03/07 12/05/07 TOTAL 20,14,877 34,349 5. IT WAS FURTHER STATED THAT THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT HAS BEEN AMENDED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 01/04/2005 I.E. THE DATE ON WHICH THE SECTION 40(A)(IA) OF THE ACT 4 HAD BEEN INSERTED, THEREFORE, NO DISALLOWANCE WAS T O BE MADE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1. KANUBHAI RAMJIBHAI VS. ITO (135 TTJ 364 AHD) 2. AYUSHAKTI AYURVED PVT. LTD. VS. ACIT (4 ITR (TR IB) 537) 6. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE OBSERVED THAT THE AMENDMENT HAS BEEN DONE BY THE FI NANCE ACT 2010 W.E.F. 01/04/2010, THEREFORE, THE AMENDED PROVISION WILL APPLY FOR AND FROM A.Y. 2010-11 AND NOT TO THE EARLIER ASSESSMENT YEARS. HE THEREFORE, CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. NOW THE ASSESSEE IS IN APPEAL. 7 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE F OLLOWING DECISIONS:- 1. CIT VS. VIRGIN CREATIONS (ITAT N. 302 OF 2011) ( CALCUTTA HIGH COURT) 2. BHARTI SHIPYARD LILMITED VS. DCIT 141 TTJ (MUM) (SB) 129 (2011) 3. SHRI PIYUSH C. MEHTA VS. ACIT 25(3) I.T. ACT, 19 61 NO. 1321/MUM/2009 (A.Y. 2005-06) ORDER DATED 11/04/2012 . 4. CIT VS. NARESH KUMAR (2013) 39 TAXMANN.COM 182 ( DEL.) 5. ACIT VS. SMT. VIMLA S. WARAD (2013) 37 TAXMANN.C OM 209 (BANG). 6. RANA BUILDERS VS. ITO (2013) 31 TAXMANN.COM 372 (RAJKOT) 7. KANUBHAI RAMJIBHAI VS. ITO (2011) 135 TTJ (AHD) 5 8. AYUSHAKTI AYURVED P. LTD. VS. ACIT (2010) 4 ITR (TRIB) 537 (MUM) 8 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS (SUPRA), WHEREIN IT HAS BEEN OBSERVED AN D HELD AS UNDER:- WE HAVE HEARD MR. NIZAMUDDIN AND GONE THROUGH THE IMPUGNED JUDGMENT AND ORDER. WE HAVE ALSO EXAMINED THE POIN T FORMULATED FOR WHICH THE PRESENT APPEAL IS SOUGHT TO BE ADMITTED. IT IS ARGUED BY MR. NIZAMUDDIN THAT THIS COURT NEE DS TO TAKE DECISION AS TO WHETHER SECTION 40(A)(IA) IS HAVING RETROSPECTIV E OPERATION OR NOT. THE LEARNED TRIBUNAL ON FACT FOUND THAT THE ASSES SEE HAD DEDUCTED TAX AT SOURCE FROM THE PAID CHARGES BETWEEN THE PERIOD APRIL 1, 2005 AND APRIL 28, 2006 AND THE SAME WERE PAID BY THE ASSESS EE IN JULY AND AUGUST 2006, I.E. WELL BEFORE THE DUE DATE OF FILIN G OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THIS FACT UAL POSITION WAS UNDISPUTED. MOREOVER, THE SUPREME COURT, AS HAS BEEN RECORDED BY THE LEARNED TRIBUNAL, IN THE CASE OF ALLIED MOTORS PVT. LTD. AN D ALSO IN THE CASE OF ALOM EXTRUSIONS LTD., HAS ALREADY DECIDED THAT THE AFORESAID PROVISION HAS RETROSPECTIVE APPLICATION. AGAIN, IN THE CASE REPORTED IN 82 ITR 570, THE SUPREME COURT HELD THAT THE PROVISION, WHI CH HAS INSERTED THE REMEDY TO MAKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED WITH 6 RETROSPECTIVE OPERATION SO THAT REASONABLE DEDUCTIO N CAN BE GIVEN TO THE SECTION AS WELL, IN VIEW OF THE AUTHORITATIVE PRONOUNCEMENT OF THE SUPREME COURT, THIS COURT CANNOT DECIDE OTHERWISE. HENCE, WE DISMISS T HE APPEAL WITHOUT ANY ORDER AS TO COSTS. 10 . IN THE PRESENT CASE ALSO, THE ASSESSEE DEPOSITED TDS BEFORE FILING THE RETURN OF INCOME THEREFORE BY KEEPING IN VIEW T HE RATIO LAID BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS (SUPRA) WE ARE OF THE CONFIRMED VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUS TIFIED. ACCORDINGLY THE SAME IS DELETED. 11. THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO THE SUSTENANCE OF TRADING ADDITION OF RS. 3,18,827/-. 12. FACTS OF THE CASE RELATING TO THIS ISSUE IN BRI EF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS , NOTICED THAT THE ASSESSEE HAD DECLARED NET PROFIT RATE OF 2.02% WHIL E IN THE EARLIER YEAR, IT WAS 3.59%. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAILS OF STOCK REGISTER A ND ALSO PAID JOB CHARGES TO PETTY URDS SUB-CONTRACTORS WHICH WERE N OT IDENTIFIABLE AND 7 THE PAYMENTS MADE TO SUCH PERSONS WERE NOT VERIFIAB LE. THE ASSESSING OFFICER THEREFORE, REJECTED THE BOOKS OF ACCOUNTS B Y INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. HE APPLIE D NET PROFIT RATE OF 5% ON THE CONTRACT RECEIPTS DECLARED BY THE ASSESSEE A ND MADE THE ADDITION OF RS. 3,18,827/-. 13. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER HAD IGNORE D THE VITAL FACTS THAT THE TURNOVER DURING THE YEAR HAD INCREASED FROM RS. 41.88 LAC TO RS. 107.56 LAC. IT WAS FURTHER STATED THAT IN THE IMME DIATELY PRECEDING YEAR AFTER REJECTION OF THE BOOKS OF ACCOUNTS, THE NET P ROFIT RATE OF 8% WAS APPLIED AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE ORDER DATED 09/11/2009 QUASHED THE APPLICA TION OF 8% NET PROFIT RATE AND UPHELD THE ADDITION MERELY OF RS. 1 0,000/- AND IF SAID ADDITION OF RS. 10,000/- WAS TO BE CONSIDERED, THE NET PROFIT RATE OF IMMEDIATELY PRECEDING YEAR CAME TO 3.84%. 14. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE TOTAL TURNOVER OF THE ASSESSEE HA D INCREASED BY 250% AS COMPARED TO THE PRECEDING YEAR. HE FURTHER OBSERVE D THAT IN THE 8 PRECEDING YEAR, THE ASSESSEE DECLARED NET PROFIT RA TE OF 3.59% WHEREAS IN THE CURRENT YEAR, THE NET PROFIT RATE AT 2.02% WAS QUITE LOW. HE ALSO OBSERVED THAT THE SUBSTANTIAL PART OF WAGES OF RS. 42,69,510/- PAID TO UNREGISTERED SUB-CONTRACTORS WAS ALSO UNVERIFIABLE. HE THEREFORE, HELD THAT THE ASSESSING OFFICER WAS REASONABLE IN APPLYI NG THE NET PROFIT RATE OF 5%. ACCORDINGLY THE ADDITION MADE BY THE ASSESS ING OFFICER WAS CONFIRMED. NOW THE ASSESSEE IS IN APPEAL. 15. LEARNED COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW WHILE LEARNED D.R. SU PPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE TURNOVER OF T HE ASSESSEE INCREASED TREMENDOUSLY IN COMPARISON TO THE EARLIER YEAR WHER EIN THE TURNOVER WAS AT RS. 41.88 LAC ONLY WHILE IN THE YEAR UNDER CONSI DERATION, IT WAS AT RS. 107.56 LAC. SO, THERE WAS ABOUT 2.5 TIMES INCR EASED. IT IS ALSO NOTICED THAT IN THE EARLIER YEAR AFTER THE APPEAL E FFECT, THE NET PROFIT RATE IN ASSESSEES CASE CAME TO 3.84%. WE THEREFOR E, CONSIDERING THE 9 TOTALITY OF THE FACTS ARE OF THE VIEW THAT THE NET PROFIT RATE APPLIED BY THE ASSESSING OFFICER AND SUSTAINED BY LD. CIT(A) A T 5% IS EXCESSIVE AT THE SAME TIME IT IS ALSO TRUE THAT THE EXPENSES CLAIMED BY THE ASSESSEE PARTICULARLY THE WAGES WERE NOT FULLY VERIFIABLE. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACTS OF THE PRESEN T CASE, ARE OF THE VIEW THAT IF NET PROFIT RATE OF 4% IS APPLIED IT WILL ME ET THE ENDS OF JUSTICE. ACCORDINGLY WE MODIFY THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO WORK OUT THE INCOME OF THE ASSESSEE BY APPLYING NET PROFIT RATE OF 4%. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 26 TH FEBRUARY, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH FEBRUARY, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JAIPUR.