KIRAN INFRA ENGINEERS LTD., Jaipur V. ACIT, Jaipur

ITA 897/JPR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4890 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 04-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH ADD CIT DHK
• Keywords: Rejection of books of accounts
• 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 BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO ] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.897/JP/15 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 M/S KIRAN INFRA ENGINEERS LTD., B-141, ROAD NO. 9D, VKI AREA, JAIPUR CUKE VS. THE ACIT, CIRCLE-4, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCK 8188 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO.997/JP/15 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 THE ACIT, CIRCLE-4, JAIPUR CUKE VS. M/S KIRAN INFRA ENGINEERS LTD., B-141, ROAD NO. 9D, VKI AREA, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCK 8188 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA SINGH (ADD. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 14.10.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 28/11/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS ARE TWO CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-2, JAIPUR DATED 26.10.2015 WHEREIN THE ASSESSEE AS WELL AS THE REVENUE HAVE TAKEN FO LLOWING GROUNDS OF APPEAL: ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 2 ITA NO. 897/JP/15 (ASSESSEES APPEAL) (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS AND INVOKING PROVISIONS OF SECTION 145(3) OF THE IT ACT , 1961. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ADDITION OF RS. 1,4 1,721/- BY SUSTAINING THE APPLICATION OF G.P. RATE OF 8% AS AGAINST 6.76% DECLARED BY THE ASSESSEE ON TURNOVER OF RS. 1,14,52,126/- IN MANUFA CTURING ACTIVITY ARBITRARILY, WITHOUT APPRECIATING THE SUBMISSIONS M ADE, THUS THE SAME DESERVES TO BE DELETED. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS GROSSLY ERRED IN MAKING A LUMP SUM DISALLOWANCE OF RS. 30 LACS OUT OF VARIOUS EXPENSES AS AGAINST THE APPLICATION OF PRO FIT RATE OF 8% ON CONTRACT RECEIPTS OF RS. 45,08,97,697/- BY THE LD. AO RELATING TO THE SIGNALLING AND TELECOM WORK DONE FOR INDIAN RAILWAY S ARBITRARILY, WITHOUT APPRECIATING THE SUBMISSIONS MADE AND RECORDS PRODU CED AND FURTHER WITHOUT BRINGING ON RECORD ANY MATERIAL TO SUPPORT OF SUCH A HIGH LUMP SUM DISALLOWANCE, THUS THE DISALLOWANCE SO MADE ON LUMP SUM BASIS DESERVES TO BE DELETED. ITA NO. 997/JP/15 (REVENUES APPEAL) (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE CIT(A ) HAS ERRED IN MAKING DISALLOWANCE OF EXPEN SES INSTEAD OF TRADING ADDITION RELYING UPON THE DECISION OF THE EARLIER YEAR IGNORING THE FACT THAT THE AO MADE ADDITION REASONABLY AND AFTER REJE CTING BOOKS OF ACCOUNT POINTING OUT SPECIFIC DEFECTS. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A ) HAS ERRED IN APPRECIATING THE FACT THAT PAS T HISTORY OF THE ASSESSEE REFLECTS REJECTION OF BOOKS OF ACCOUNT WHICH WAS UP HELD BY THE ITAT, WHICH ESTABLISHES THE FACT THAT TRUE PROFIT CANNOT BE DEDUCTED FROM THE REJECTED BOOKS OF ACCOUNT. (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A ) HAS MADE LUMP SUM DISALLOWANCE OF RS. 30 LA CS INSTEAD OF TRADING ADDITION OF RS. 89,72,864/- MADE BY THE AO WITHOUT GIVING ANY REASONABLE BASIS. THE CIT(A) FAILED TO ACKNOWLEDGE THAT THE AO HAD PIN POINTED SPECIFIC DEFECTS AND REASONABLY APP LY GP RATIO. ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 3 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE DECLARING T OTAL INCOME AT 25,06,330 AND THE ASSESSMENT WAS COMPLETED U/S 143(3) AT A TO TAL INCOME OF RS. 1,16,21,740/- BY MAKING VARIOUS ADDITIONS AFTER INV OKING THE PROVISIONS U/S 145(3) OF THE ACT. IN FIRST APPEAL, LD. CIT(A)-I, P ARTLY ALLOWED THE APPEAL. IN RESPECT OF ADDITIONS SUSTAINED BY LD. CIT(A), ASSES SEE HAS PREFERRED THIS APPEAL AND IN RESPECT OF RELIEF GRANTED BY LD. CIT(A), DEP ARTMENT IS IN APPEAL BEFORE US. 3. IN GROUND NO. 1 OF ASSESSEES APPEAL, THE ASSESS EE HAS CHALLENGED THE ACTION OF LD CIT(A) IN CONFIRMING REJECTION OF BOOK S OF ACCOUNTS AND APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE ACT. DURING THE COURSE OF HEARING, THE LD AR HAS NOT PRESSED THIS GROUND OF APPEAL. HENCE, G ROUND NO. 1 OF ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. 4. THE GROUND NO. 2 OF ASSESSEES APPEAL RELATES TO ACTION OF LD.CIT(A) IN UPHOLDING THE ADDITION OF RS.1,41,721/- BY SUSTAINI NG THE APPLICATION OF G.P RATE OF 8% APPLIED BY LD. AO AS AGAINST 6.76% DECLA RED BY THE ASSESSEE ON TURNOVER OF RS.1,14,52,126/ IN RESPECT OF ITS MANUF ACTURING ACTIVITY. 4.1 THE AR OF THE ASESSEE HAS SUBMITTED THAT THE AS SESSEE HAD DECLARED G.P. OF RS.9,16,170/-, WHICH COMES TO 6.76%. HOWEVER, LD . AO APPLIED RATE OF 8% IN RESPECT OF TURNOVER OF MANUFACTURING ACTIVITY ALSO. LD. CIT(A) VIDE PARA 3.3 PAGE 10 OF HIS ORDER, CONFIRMED THE ORDER OF AO ON THE B ASIS OF OBSERVATIONS OF HONBLE ITAT FOR A.Y.2009-10, WHICH ARE AS UNDER: IN GROUND NO.3 IN CROSS OBJECTION OF ASSESSEE, THE ASSESSEE HAS CHALLENGED THE ESTIMATION OF INCOME BY APPLICATION OF GROSS PROFIT RATE OF 4.25% ON THE TURNOVER OF RS. 5,00,07,802/- IN MANUFACTURING ACTIVITY RESULTING INTO SUBSTANCE ADDITION OF RS.3, 02,290/-. THE LD. CIT(A) VIDE PARA 4.2 OF THE IMPUGNED ORDER HAS REST RICTED THE TRADING ADDITION ON THE BASIS OF HIS BEST JUDGEMENT AND FOU ND NO RATIONAL IN THE ESTIMATES RESORTED TO BY THE ASSESSING OFFICER, WE THEREFORE DO NOT ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 4 FIND ANY GOOD REASON TO INTERFERE IN THE SUCH REASO NING TAKEN BY THE EXERCISE OF HIS CONTERMINOUS POWER AS THAT OF THE A SSESSING OFFICER. IN THIS REGARD IT IS SUBMITTED THAT IN A.Y.2009-10, ASSESSEE HAD ATTAINED TURNOVER OF RS. 5,00,07,802/- AND DECLARED G.P. @ 3 .65%, WHEREAS LD. AO APPLIED GP RATE OF 7%. ON APPEAL, LD. CIT(A) REDUCE D THE GP RATE TO 4.25% ON FOLLOWING OBSERVATIONS : HOWEVER CONSIDERING THAT THE APPELLANT COMPANY HAD DECLARED GP IN THE VICINITY OF 5.38% TO 5.90% IN THE PRECEDING YEA RS AND THAT THERE WAS INCREASE IN THE TURNOVER BY 660% AS COMPARED TO PRECEDING YEAR, I DIRECT THE AO TO APPLY GP @ 4.25% ON THE GROSS TU RNOVER. SUBSEQUENTLY, HONBLE ITAT CONFIRMED THE ABOVE VIEW OF LD. CIT(A), WHICH HAS BEEN MADE BASIS BY LD. CIT(A) FOR CONFIRMING THE RA TE APPLICATION FOR CAPTIONED ASSESSMENT YEAR. HERE, IT WOULD BE PERTINENT TO EXAMINE COMPARATIVE GROSS PROFIT CHART FOR THE MANUFACTURING ACTIVITY, WHICH IS AS FOLLOWS: A.Y. SALES GROSS PROFIT RATE DECLARED BY THE ASSESSEE 2010-11 2,04,89,004 12,14,346 5.92% 2011-12 1,38,80,048 8,41,865 6.06% 2012-13 1,14,52,126 7,74,449 6.76% A BARE PERUSAL OF ABOVE FACTS WOULD REVEAL THAT FOR A.Y.2009-10, LD. CIT(A) RESTRICTED THE ADDITION MADE BY AO IN VIEW OF GP RA TE DECLARED BY ASSESSEE IN PRECEDING YEARS, WHEREAS IN CAPTIONED A.Y., LD. CIT (A) HAS RELIED UPON THE ORDER OF HONBLE ITAT BRUSHING ASIDE THE FACT THAT ASSESSEE HAS ALREADY DECLARED THE GP AT 6.76% WHICH IS VERY MUCH IN PARI TY WITH PRECEDING YEARS, THUS THE RELIANCE PLACED IS MISPLACED MORE PARTICUL ARLY WHEN THE G.P. UPHELD IN A.Y. 2009-10 WAS ONLY 4.25%. BESIDES RELYING UPON T HE ORDER OF HONBLE ITAT IN ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 5 A.Y. 2009-10, LD. CIT(A) HAS GIVEN NO BASIS FOR UPH OLDING THE G.P. RATE OF 8%. IN VIEW OF ABOVE FACTS, IT IS PRAYED THAT GP RATE DECL ARED BY ASSESSEE MAY PLEASE BE ACCEPTED AND ADDITION OF RS.1,41,721/- MAY PLEAS E BE DELETED. 4.2 THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDE R OF THE LD CIT(A). 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. THE AO HAS NOT SPECIFIED THE BASIS FOR ADOPTING 8% G.P RATE WHICH IS APPARENTLY FOLLOWED AS IN THE PAST YEARS. IF WE LOOK AT THE PAST HISTORY IN RESPECT OF APPELLANTS MANUFACTURING ACTIVITY, THE APPELLANT HAS REPORTED A G.P RATE OF 6.76% ON TURNOVER OF RS 114,52,126 WHICH IS BETTER THAN G.P RATE OF 6.06% ON TURNOVER OF RS 1,38,80,048 REPORTED DURING AY 2011-12. SIMILARLY, FOR AY 2010-11, ON TURNOVER OF RS 2,04,89,004, THE APPE LLANT HAS REPORTED A G.P RATE OF 5.92%. THE TREND WHICH IS EMERGING IS THAT THOUGH THE TURNOVER OF THE APPELLANT HAS DECREASED DURING THE YEAR, IT IS ABLE TO REPORT A G.P RATE OF 6.76% WHICH IS BETTER THAN PAST YEARS. GOING BY THE PAST HISTORY OF THE CASE, WE THEREFORE DELETE THE ADDITION OF RS.1,41,721/- IN R ESPECT OF MANUFACTURING ACTIVITY. GROUND NO. 2 OF THE ASSESSEES APPEAL IS THUS ALLOWED. 5. IN RESPECT OF GROUND NO.3 OF ASSESSEES APPEAL A ND GROUND NO.1 TO 3 OF REVENUES APPEAL, IT IS NOTED THAT ALL THESE GROUND S OF APPEAL RELATE TO ADDITION IN RESPECT OF CONTRACTUAL ACTIVITIES MADE BY AO BY APPLYING GP RATE OF 8% ON GROSS CONTRACT RECEIPTS OF RS.45,08,97,697 AND THER EBY MAKING TRADING ADDITION OF RS.89,72,864/-. ON APPEAL, LD. CIT(A) D ELETED THE ADDITION MADE BY AO BY APPLYING GP RATE AND RATHER CONFIRMED THE DI SALLOWANCE OF RS.30,00,000/- ON AD HOC BASIS RELYING UPON THE DEC ISION PASSED BY HONBLE ITAT FOR A.Y.2009-10. IN RESPECT OF ADDITION SUSTAI NED TO THE TUNE OF RS.30 LACS, ASSESSEE HAS PREFERRED THE APPEAL, WHEREAS IN RESPE CT OF RELIEF GRANTED BY LD. CIT(A), DEPARTMENT HAS PREFERRED THE APPEAL BEFORE US. ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 6 5.1 THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT D URING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPANY CONTINUED ITS OLD A CTIVITY OF RAILWAY CONTRACTOR WHERE THE JOB MAINLY RELATES TO THE CONV ERSION OF OLD TRADITIONAL SIGNALING SYSTEM TO THE MODERN COLOUR LIGHT SIGNALI NG SYSTEM FOR VARIOUS DIVISIONS OF INDIAN RAILWAYS. THE CONTRACTS ARE AWA RDED BY THE RAILWAY AFTER OBJECTIVE ANALYSIS OF THE TENDER SUBMITTED AND THE WORK EXECUTED ARE SUBJECT TO THE CRITICAL AND REGULAR INSPECTION AND SUPERVIS ION BY THE RAILWAYS AUTHORITIES REQUIRING FREQUENT RE-DOING OF THE JOB AS ANY FAILURE IN THE SIGNALING SYSTEM INVOLVES PRECIOUS PUBLIC LIFE. SAFETY AND TH E INFALLIBILITY OF THE INDIAN RAILWAY SIGNALING SYSTEM IS A WELL KNOWN FEATURE TH US THE JOB REQUIRES VERY HIGH TECHNICAL COMPETENCE AND IS ALWAYS MATERIAL IN TENSIVE I.E. THE MATERIAL PART OF THE JOB IS SUBSTANTIALLY ON THE HIGHER SIDE IN COMPARISON TO OTHER ELEMENTS LIKE LABOUR ETC. THE MATERIAL INVOLVED IN SUCH JOBS IS OF SPECIAL TYPES AND THE PATTERNS DEVELOPMENT FOR OBTAINING SPECIALL Y DESIGNED PRODUCTS MAKES IT A HIGH COST AFFAIR. THIS IS ALSO RELEVANT TO STA TE HERE THAT THE EXECUTION OF WORKS ALSO NEEDS CO-ORDINATION WITH VARIOUS RAILWAY AUTHORITIES / DEPARTMENTS SUCH AS TRAFFIC, SAFETY, ELECTRICITY ETC. SO THAT T HE INSTALLATION OF SIGNALLING SYSTEM CAN BE DONE AS ON LINE WORKING RESULTING I NTO DELAYS AND CO- ORDINATION EXPENDITURE. DURING THE YEAR UNDER CONSIDERATION THE WORKS EXECU TED BY THE ASSESSEE ARE OF SIMILAR NATURE AS EXECUTED IN THE IMMEDIATELY PRECE DING ASSESSMENT YEAR AND SOME WORKS WERE THE CARRIED OVER FROM THE PRECEDING ASSESSMENT YEARS. SO FAR AS MAINTENANCE OF BOOKS OF ACCOUNTS ARE CONC ERNED, THE ASSESSEE COMPANY HAS CONSISTENTLY FOLLOWED THE MERCANTILE SY STEM OF ACCOUNTING AS PROVIDED U/S 145A OF THE INCOME TAX ACT, 1961. ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 7 FURTHER, AS REGARDS THE MAINTENANCE OF STOCK RECORD S, THE MATERIAL APPLIED IN JOB WORK IS FIRST DELIVERED TO THE RAILWAY AUTHORIT IES WHO AFTER MAKING COMPREHENSIVE INSPECTION ABOUT THE QUALITY HAS KEPT THE SAME IN ITS STOCK YARDS AND THEREAFTER GOODS ARE RELEASED TO ASSESSEE FOR THE EXECUTION AS PER THE DAILY REQUIREMENT AT WORK SITE. THUS IN THIS PR OCESS ALL THE PURCHASES AND CONSUMPTION OF ALL THE MAJOR ITEMS ARE FULLY ACCOUN TED FOR AND VERIFIABLE. REGARDING LABOUR PAYMENTS, IT IS SUBMITTED THAT THE SAME HAS BEEN INCURRED AT THE VARIOUS WORK SITES BY THE SITE INCHARGE BY ENGA GING LOCAL LABOURS FOR WHICH THE AMOUNTS ON LUMP SUM BASIS HAS BEEN TRANSFERRED TO SITE WHICH HAS UTILIZED ACCORDINGLY. THE WORK HAS BEEN CARRIED OUT AT THE S ITE WHICH ARE LOCATED PARALLEL TO THE RAILWAY TRACK LYING IN THE REMOTE A REAS INCLUDING JUNGLES AS WELL WHERE THE BASIC FACILITY SUCH AS WATER, ELECTRICITY , FOOD ETC. TO THE LABOUR WERE NOT AVAILABLE AND IN THOSE CONDITIONS THE WORK HAS TO BE COMPLETED WITHIN THE TIME FRAME OF THE CONTRACT WHICH FACT HAS ALSO ADVE RSELY EFFECTED THE MAINTENANCE OF THE PRECISE RECORDS. ALSO DUE TO THE FACT THAT WORK SITES WERE SPREAD ALL OVER THE COUNTRY IT IS PRACTICALLY NOT P OSSIBLE TO EMPLOY PERMANENT LABOURS AND THEREFORE, WORK HAS BEEN COMPLETED BY H IRING LOCAL LABOURS WHO ARE NOT ONLY HABITUAL TO THE LOCAL CONDITIONS BUT A LSO COSTED LESS AS COMPARED TO THE PERMANENT LABOUR SINCE THE TRANSPORTATION AN D LOCAL STAY OF THE PERMANENT LABOUR WOULD BE THE ADDITIONAL COST THERE FORE, THE WORK HAS BEEN COMPLETED BY ENGAGING LOCAL LABOUR. SINCE THE PRECI SE DETAILS OF THE EXPENDITURE INCURRED AT SITES WERE NOT AVAILABLE, A UDITORS HAD PUT THE REMARKS IN THEIR AUDIT REPORT. AS SUBMITTED ABOVE ASSESSEE IS A RAILWAY CONTRACTOR AND THE WORK INVOLVED IS HIGHLY SPECIALIZED AND IS OF TECHNICAL NATURE WHICH INVOLVES HUMAN SAFETY AT ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 8 LARGE AND RECEIVES HIGHEST POSSIBLE ATTENTION FROM THE CONTRACTEES BECAUSE THE WORKS INVOLVED BEING IN THE NATURE OF CREATION OF S IGNALING SYSTEMS, ANY ERROR/FAILURE OF THE SYSTEM MAY ENDANGER THE LIFE O F THOUSANDS OF HUMAN BEINGS AS THE FAILURE OF SIGNAL MAY LEAD TO DREADED ACCIDENTS RESULTING INTO COLOSSAL LOSS OF RAILWAY PROPERTIES THEREFORE THE A SSESSEE CANNOT BE PUT AT PAR WITH THE CIVIL CONTRACTORS. THE FINE POINTS DISTING UISHING THE ASSESSEE FROM A CIVIL CONTRACTOR ARE SUMMARIZED AS UNDER :- - THAT THE ASSESSEE COMPANY ABSOLUTELY DEALING WI TH INDIAN RAILWAYS AND SOLELY EXECUTING THE WORKS CONTRACT FOR THEM, IT CA NNOT BE TAKEN AT PAR WITH OTHER CIVIL CONTRACTORS PARTICULARLY WHEN IT HAS NO T DONE ANY CIVIL WORKS. - THE ENTIRE CONTRACT WORK DONE IS HIGHLY SPECIALIZED AND IS OF TECHNICAL NATURE WHICH INVOLVES HUMAN SAFETY AT LARGE AND REC EIVES HIGHEST POSSIBLE ATTENTION FROM THE CONTRACTEES BECAUSE THE WORKS IN VOLVED BEING IN THE NATURE OF CREATION OF SIGNALING SYSTEMS, ANY ERROR/ FAILURE OF THE SYSTEM MAY ENDANGER THE LIFE OF THOUSANDS OF HUMAN BEINGS AS T HE FAILURE OF SIGNAL MAY LEAD TO DREADED ACCIDENTS RESULTING INTO COLOSSAL L OSS OF RAILWAY PROPERTIES. - THE ASSESSEE COMPANY UNDERTAKES CREATION OF SIGNALI NG SYSTEM INCLUDING REPLACEMENT OF TRADITIONAL SIGNALING SYSTEM TO COLO UR LIGHT SIGNALING SYSTEM. THE ASSESSEE COMPANY ALSO UNDERTAKES THE SUPPLY AND ERECTION OF OPERATIONAL MECHANISM INCLUDING THE EQUIPMENT UTILI ZED THEREIN LYING AT A DISTANCE OF FEW KMS. FROM RAILWAYS STATIONS AND THE SIGNALLING POSTS REQUIRING MOST PRECISE AND METICULOUS WORKING OF TH E SYSTEM, THE FAILURE OF WHICH MAY NOT ONLY LEAD TO SERIOUS FINANCIAL IMPLIC ATIONS IN THE NATURE OF PENALTY BUT EVEN PUT THE PARTNERS OF THE FIRM TO CR IMINAL CONSEQUENCES. - THE MATERIAL INVOLVED IN THE EXECUTION OF WORKS CON TRACTS IS COMPULSORILY REQUIRED TO BE PROCURED FROM THE APPROVED SUPPLIERS OF THE RAILWAYS (TECHNICALLY KNOWN AS RDSO APPROVED SUPPLIERS). IT MAY INCIDENTALLY BE ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 9 NOTED THAT THE APPROVED SUPPLIERS ALWAYS TEND TO CH ARGE HIGHER PRICES AS COMPARED WITH THE OPEN MARKET BECAUSE OF THE HIGHER STANDARDS APPLIED FOR PRODUCTION OF MATERIAL FOR RAILWAYS HAVING RICH SPECIFICATIONS, WHICH IS NOT OF ROUTINE NATURE. - THE QUALITY CONTROL OVER THE MATERIAL AND ERECTION JOB AT CONTRACTEE'S END (RAILWAYS) IS VERY STRONG AND THE ASSESSEE COMPANY HAS TO SUFFER REPEATED REJECTIONS OF THE WORKS DONE DUE TO STRICT AND VIGO ROUS INSPECTION BY THE CONTRACTEES. THE JOB INVOLVED IS HIGHLY SPECIALIZED AND TECHNICAL IN NATURE. 5.2 THE RESULTS DECLARED BY THE ASSESSEE IN CONTRAC T ACTIVITY FOR THE YEAR UNDER APPEAL AND OF IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS ARE TABULATED AS UNDER: A.Y. GROSS CONTRACT RECEIPTS G.P. RATE 2010-11 65,06,27,000.00 5.94% 2011-12 52,29,79,837.00 5.99% 2012-13 45,05,97,697.00 6.00% FROM THE PERUSAL OF THE ABOVE CHART IT WAS SUBMITTE D THAT THE APPELLANT HAS BEEN ABLE TO MAINTAIN THE PROFIT RATE DESPITE OF FA LL IN GROSS RECEIPTS. IT IS ALSO RELEVANT TO NOTE THAT THE EXPENDITURE INCURRED BY T HE ASSESSEE ON THE VARIOUS WORK SITES ARE MOST REASONABLE AND MODERATE LOOKING TO THE NATURE OF WORK WHICH ARE DULY SUPPORTED BY THE RELEVANT INVOICES A ND VOUCHERS MAINTAINED FOR THE EXPENDITURE CLAIMED. THE ALLEGATIONS OF THE LD. AO REGARDING THE MAINTENANCE OF BOOKS OF ACCOUNT ARE GENERAL IN NATU RE AND NO SPECIFIC MATERIAL HAS BEEN BROUGHT ON RECORD IN SUPPORT OF THE ALLEGA TIONS MADE BY THE LD. AO. IT IS THUS SUBMITTED THAT THE RESULTS DECLARED DESERVE S TO BE ACCEPTED. WITHOUT PREJUDICE TO OUR ABOVE SUBMISSION, IT IS SU BMITTED THAT WHILE SUSTAINING THE DISALLOWANCE OF RS.30 LACS ON AD HOC BASIS, LD. CIT(A) AT PARA 4.3 ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 10 PAGE 12 OF HIS ORDER HAS OBSERVED THAT SINCE THE NATURE OF CONTRACT AND WORKS BEING EXECUTED BY THE ASSESSEE HAVE REMAINED THE SA ME AND RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL AS ABOVE A DISA LLOWANCE OF EXPENSES OF RS.30 LACS IS MADE INSTEAD OF ESTIMATING THE GROSS PROFIT AS DONE IN PAST. IT IS WORTHWHILE TO NOTE HERE THAT LD. CIT(A), THOU GH HAS FOLLOWED THE DECISION OF HONBLE ITAT, HOWEVER WITHOUT CONSIDERING THE FA CT THAT FOR A.Y.2009-10, GROSS CONTRACT RECEIPTS AMOUNTED TO RS. 46,28,68,97 6/- AGAINST WHICH HONBLE BENCH CONFIRMED DISALLOWANCE OF RS.10 LACS, WHEREAS FOR THE CAPTIONED ASSESSMENT YEAR, DISALLOWANCE OF RS.30 LACS HAS BEE N SUSTAINED BY LD. CIT(A) AGAINST THE TOTAL TURNOVER OF RS.45,08,97,697/-,WHI CH IS EVEN LOWER THAN THAT OF A.Y.2009-10. IT IS THEREFORE, SUBMITTED THAT ADDITI ON, IF ANY, BE SUITABLY REDUCED LOOKING TO ABOVE FACTS. 5.3 THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDE R OF THE ASSESSING OFFICER. 5.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE BOOKS OF ACCOUNTS REJECTED U/S 145( 3) ARE NOT IN DISPUTE. THE LIMITED ISSUE FOR OUR CONSIDERATION RELATES TO ESTI MATION OF G.P RATE IN RELATION TO APPELLANTS CONTRACTUAL ACTIVITIES UNDERTAKEN FO R INDIAN RAILWAYS. THE ASSESSEE HAS REPORTED A G.P RATE OF 6% AS AGAINST 8 % ESTIMATED BY THE AO. INTERESTINGLY, BOTH THE APPELLANT AND THE REVENUE H AVE STOOD THEIR GROUND OVER THE PAST MANY YEARS AND MAINTAINED A CONSISTEN T POSITION OF REPORTING 6% IN THE RETURN OF INCOME AND THE AO ESTIMATING IT AT 8%. THE MATTER HAD THEN REACHED THE TRIBUNAL AND THE TRIBUNAL OVER THE PAST MANY YEARS HAS UPHELD G.P RATE OF 7% EXCEPT FOR AY 2009-10. NOTHING HAS BEEN BROUGHT TO OUR NOTICE IN TERMS OF SUBSEQUENT APPEAL BEFORE THE HONBLE HI GH COURT BY EITHER OF THE PARTIES IN RESPECT OF THESE YEARS. IN AY 2009-10, THE COORDINATE BENCH, AFTER ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 11 TAKING INTO CONSIDERATION EARLIER ORDERS OF THE COO RDINATE BENCHES FOR THE PAST YEARS, FOLLOWING THE HONBLE RAJASTHAN HIGH COURT D ECISION IN CASE OF KANHIYA LAL JANGIR (217 ITR 354) HAS UPHELD A DISALLOWANCE OF RS 10,00,000 ON REPORTED TURNOVER OF RS. 46,28,68,976/-. 5.5 THE FINDINGS OF THE COORDINATE BENCH FOR A.Y.20 09-10 IN ITA NO. 712/JP/2012 & C.O NO. 01/JP2013 DATED 26/04/2013 , ON THE BASIS OF WHICH LD. CIT(A) HAS CONFIRMED DISALLOWANCE, ARE CONTAINED AT PARA 16 PAGE 18 OF ITS ORDER WHICH IS REPRODUCED AS UNDER: ...... THE LD. CIT(A) IS ALSO NOT FOUND TO HAVE CONSIDERED THESE PECULIAR FACTS WHEN HE BASED HIS DECISION ON THE ESTIMATE RE SORTED BY THE LD. CIT(A) IN EARLIER YEARS AND SUSTAINED BY THE APPELL ATE TRIBUNAL WHEN REVENUE PREFERRED AN APPEAL AGAINST THAT ORDER. THE APPELLANT, THOUGH CLAIMS TO BE NOT SATISFIED WITH THE EARLIER YEARS ESTIMATIONS YET DID NOT PREFER ANY APPEAL AGAINST THE ORDER OF LD. CIT(A) IN THOSE YEARS FOR VARIOUS REASONS INCLUDING THE FACT THAT I T WANTED TO SET THE CONTROVERSY AT REST. FINDING THAT THE DEPARTMENT IS AMUSED IN RAISING CONTROVERSY AND HAS DISREGARDED THE FACTUAL POSITIO N OF CORRECTNESS OF ACCOUNT. THE APPELLANT HAS FILED CROSS APPEAL IN TH IS YEAR SO THAT THE JUSTICE IS RENDERED TO IT.THE APPELLANT, THEREFORE, HAS CONTESTED THAT THE TRUE PROFITS CAN BE DEDUCED FROM THE REJECTED A CCOUNTS AS WELL. WE THEREFORE, HAVING REGARD TO THE JUDGEMENT RENDER ED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF KANHIYA LA L JANGIR VS ACIT (2008) 217 TR 354 (RAJ.)AND CONSIDERING THE OVER AL L CONSPECTUS AS WELL AS CIRCUMSTANCES AND PECULIAR FACTS OF THIS CA SE AND ALSO THE EARLIER IN ISSUED JUDGEMENTS, FIND NO RATIONAL IN S UCH ESTIMATION IN THE IMPUGNED YEAR. WE, THEREFORE, CONSIDER IT REASONABL E TO ESTIMATE THE PROFIT FOR THE PECULIAR YEAR UNDER CONSIDERATION BY MAKING A DISALLOWANCE OF EXPENSES OF RS.10 LACS AND MODIFY T HE TRADING ADDITION SUSTAINED BY THE LD. CIT(A) ACCORDINGLY. 5.6 GIVEN THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE ORDER OF THE COORDINATE BENCH FOR AY 2009-1 0 IS THE LATEST DECISION ON THE MATTER WHICH HAS CONSIDERED THE EARLIER DECISIO NS OF THE COORDINATE BENCHES, RESPECTFULLY FOLLOWING THE SAME, WE DEEM I T REASONABLE TO SUSTAIN THE ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 12 TRADING ADDITIONS TO RS 10 LACS AND MODIFY THE TRAD ING ADDITIONS SUSTAINED BY LD CIT(A). THE GROUND NO. 3 OF ASSESSEES APPEAL IS P ARTLY ALLOWED AND GROUND NO. 1-3 OF THE REVENUES APPEAL IS DISMISSED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/1 1/2016. SD/- SD/- ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 28/11/2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S MIRAN INFRA ENGINEERS LTD., JAIP UR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-4, JAIPUR 3. VK;DJ VK;QDR@ CIT II, JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-II, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.897/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR. ITA NO. 897/JP/15 & ITA NO. 997/JP/15 M/S KIRAN INFRA ENGINEERS LTD. VS. ACIT, CIRCLE-4, JAIPUR 13