PAWAN KUMAR SHARMA, JHUNJHUNU V. ACIT, JHUNJHUNU

ITA 917/JPR/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99317 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 27-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY MALIK JCIT DHK
• Assessee Lawyers: K L MOOLCHANDAN I
• Keywords: Opportunity of being heard
• Section: 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE:SHRI T.R. MEENA,AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NO. 917/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 SHRI PAWAN KUMAR SHARMA M/S. KUMAR CONSTRUCTION CO., B-23, RIICO, JHUNJHUNU CUKE VS. THE ACIT CIRCLE- JHUNJHUNU JHUNJHUNU LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: ADUPS 0621 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI K.L. MOOLCHANDANI, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY : SHRI AJAY MALIK, JCIT LQUOKBZ DH RKJH[K@ DATE OF HEARING : 7/09/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 17 /09/2015 VKNS'K@ ORDER PER LALIET KUMAR, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 03-09-2013 FOR THE ASSESSM ENT YEAR 2010-11 WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS . (I) UNDER THE FACTS AND CIRCUMSTANCES, THE AO HAS M ADE ALL THE ADDITION ON ESTIMATION BASIS WITHOUT GIVING ANY JUSTIFICATION, REASONABLENESS AND PAST HISTORY OF T HE CASE. THE AO HAS WRONGLY DISALLOWED CONTRACT EXPENSES OF RS. 16,70,445/-. ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 2 (II) THE AO HAS STATED IN HIS ORDER THAT NO FRESH INVESTMENT WAS MADE DURING THE YEAR EVEN THEN THE I NTEREST AMOUNT WAS DISALLOWED AMOUNTING TO RS. 6,47,687/- P AID BY THE ASSESSEE ON VARIOUS LOANS TAKEN ON PLANT AND MA CHINERY ETC. (III) UNDER THE FACTS AND CIRCUMSTANCES, THE AO HAS WRONGLY MADE ADDITION FOR A SUM OF RS. 5,43,077/- O N MATERIAL PURCHASE EXPENSES WHICH IS ALREADY INCLUDE D IN CONTRACT EXPENSES. 2.1 THE GROUND NO. 1 OF THE ASSESSEE IS PERTAINING TO DISALLOWANCE OF CONTRACT EXPENSES AMOUNTING TO RS. 16,70,445/-. BR IEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR AND RET URN FOR THE ASSESSMENT YEAR 2010-11 WAS E-FILED ON 08-10-2011 DECLARING TO TAL INCOME OF RS. 36,62,370/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 23-09-2011 AND THE SAME WAS DULY SERVED ON THE ASSESSEE. AS PER THE AO , THE CASE WAS FIXED FOR HEARING ON DIFFERENT DATES AND THE AO OBSERVED THAT DETAILED QUESTIONNAIRE WAS ISSUED BUT THE ASSESSEE DID NOT C OMPLY WITH SUCH NOTICES. ACCORDINGLY, THE AO COMPLETED THE ASSESSME NT U/S 144 OF THE ACT ON TOTAL INCOME OF RS. 66,52,170/-. THE AO IN G ROUND NO. 1 RELATING TO DISALLOWANCE OF RS. 16,70,445/- OBSERVED THAT TH E ASSESSEE HAS SHOWN CONTRACT EXPENSES IN THE PROFIT AND LOSS ACCOUNT A MOUNTING TO RS. 3,34,08,908/- AND A SPECIFIC QUERY WAS MADE IN THE QUESTIONNAIRE DATED ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 3 07-02-2012 TO BIFURCATE THE CONSOLIDATED AMOUNT OF CONTRACT EXPENSES UNDER DIFFERENT HEADS AND ALSO TO FURNISH MONTHWISE STATEMENT OF PURCHASES IN RESPECT OF ALL SUCH HEADS. THE ASSESS EE IN REPLY TO THE QUERY RAISED BY THE AO STATED THAT ALL THE EXPENSES ARE D EBITED UNDER SEPARATE HEAD AND THAT MONTHWISE DETAIL OF CONTRACT EXPENSES WAS VERY LENGTHY AND IT WILL BE FURNISHED AT THE TIME OF NEXT HEARING BU T THE SAME WERE NOT FURNISHED AND THUS THE AO INVOKED THE PROVISIONS OF SECTION 145(3) BY REJECTING THE BOOKS OF ACCOUNT AND MADE ASSESSMENT IN THE MANNER PROVIDED U/S 144 OF THE ACT. THE AO IN THIS CASE O BSERVED THAT THE ASSESSEE HAS SHOWN GROSS RECEIPTS AT RS. 7.13 CRORE S AGAINST WHICH EXPENSES ARE SHOWN AT RS. 3.34 CRORES WHICH WAS ARR IVED AT 46.48%. THE AO OBSERVED THAT THE PERCENTAGE OF CONTRACT EXPENSE S WAS SUBSTANTIALLY HIGHER INASMUCH AS THE PURCHASES OF BITUMEN, CEMENT , DIESEL, STEEL AND GRIT ARE SEPARATELY DEBITED TO PROFIT AND LOSS ACCO UNT. THE AO OBSERVED THAT NORMALLY THE PROPORTION OF SUCH EXPENSES RANGE S FROM 30% TO 40% OF THE GROSS RECEIPTS. THE AO ACCORDINGLY DISALLOWED 5 % OF THE TOTAL CONTRACT EXPENSES OF RS. 3,34,08,908/- AND THUS MAD E AN ADDITION OF RS. 16,70,445/-. ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 4 2.2 THE LD. CIT(A) HAS CONFIRMED THE REJECTION OF B OOKS OF ACCOUNT U/S 145(3) OF THE ACT AND FURTHER PARTLY ALLOWED THIS G ROUND OF APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER:- ADDITION OF RS. 16,70,45/- OUT OF CONTRACT EXPEN SES- AS REGARDS THESE DISALLOWANCES, IT MAY HE NOTED THAT T HE AO DISALLOWED 5% OF TOTAL CONTRACT RECEIPTS LEADING TO ADDITION OF RS. 16,70,445/-. THE AO HAS MENTIONED THAT THE CONTRACT EXPENSES AMOUNTING TO RS. 3.34 CRORES IN PROPORTION TO TOTAL RECEIPTS OF RS. 7.13 CRORES AMOUNTED TO 46.48% AND THAT SUCH PERCEN TAGE WAS SUBSTANTIALLY HIGHER INASMUCH AS THE PROPORTION OF SUCH EXPENSES SHOULD BE IN THE RANGE OF 30% TO 40% OF GROSS RECEI PTS. HOWEVER, IT MAY BE NOTED THAT NO PROPER BASIS IS GIVEN IN AR RIVING AT THE ABOVE MENTIONED PROPORTIONS AND MAKING SUCH ADDITIO NS. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT WAS REQUIR ED TO FURNISH THE DETAILS OF CONTRACT EXPENSES IN RESPECT OF EAR LIER TWO ASSESSMENT YEARS VIZ A VIZ ITS COMPARISON WITH THE TOTAL TURNOVER AND THE APPELLANT FILED ONLY DETAILS IN RESPECT OF A.Y. 2009-10. AS PER THE APPELLANT, THE ASSESSMENT YEAR 2009-10 AS A GAINST THE TOTAL TURNOVER OF RS. 12.22 CRORES. THE CONTRACT EXPENSE S WERE AT RS. 11.31 CRORES WHICH ARRIVED AT 42.16% OF THE TOTAL C ONTRACT EXPENSES. IN THIS CONNECTION, IT MAY BE NOTED THAT THE PERCENTAGE OF CONTRACT RECEIPT IS SHOWN AT 46.84% WHICH INDICATES INCREASE OF MORE THAN 4%. THE APPELLANT HAS NOT FURNISHED ANY P ROPER EXPLANATION IN RESPECT OF SUCH ABNORMAL INCREASE I N CONTRACT EXPENSES EVEN DURING THE APPELLATE PROCEEDINGS. THE REFORE, KEEPING IN VIEW THE APPELLANT OWN PREVIOUS CLAIM OF CONTRACT EXPENSES IN ASSESSMENT YEAR 2009-10, THE CLAIM OF T HE APPELLANT FOR ASSESSMENT YEAR UNDER CONSIDERATION IS CONSIDERED T O FAIR AND REASONABLE FOR 42.5% AND ACCORDINGLY CLAIM TO THE E XTENT OF 4.34% IS DISALLOWED. ACCORDINGLY, ADDITION TO THE EXTENT OF RS. 14,49,946/- (3,34,08,908*4.34%) IS CONFIRMED. THE APPELLANT ACC ORDINGLY GETS RELIEF OF RS. 2,20,499/- 2.3 THE LD. AR OF THE ASSESSEE IN NUTSHELL PRAYED D URING THE COURSE OF HEARING THAT THE AO WAS NOT PRESENT ON A SINGLE D AY FROM 7 TH JAN. 2012 ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 5 TO 31 ST APRIL, 2012. THE LD. AR OF THE ASSESSEE SUBMITTED THAT HE APPEARED BEFORE THE AO ALONGWITH BOOKS OF ACCOUNT, VOUCHERS AND DETAILED QUESTIONNAIRE ON THE GIVEN DATES BUT THE AO WAS EIT HER NOT PRESENT IN THE OFFICE OR DENIED TO HEAR THE CASE WITHOUT GIVING A NY REASON OF BEING BUSY. THE LD. AR OF THE ASSESSEE SUBMITTED THAT IN THE AB SENCE OF THE AO ON THE GIVEN DATES, HE HAD APPEARED BEFORE THE INSPECTOR O F THE AO AND PRODUCED ALL THE REQUIRED RECORDS FOR EXAMINATION. TO THIS E FFECT, THE LD. AR OF THE ASSESSEE FILED AN AFFIDAVIT CONFIRMING THE ABOVE FA CTS. 2.4 THE LD. DR RELIED ON THE ORDER OF THE LOWER AUT HORITIES. 3.1 AS REGARDS GROUND NO. 2 OF THE ASSESSEE RELATIN G TO DISALLOWANCE OF RS. 6,47,687/- ON ACCOUNT OF INTEREST/ BANK CHARGE S PAID BY THE ASSESSEE FOR VARIOUS LOAN TAKEN ON PLANT AND MACHINERY ETC. IN THIS CASE, THE AO OBSERVED THAT THE ASSESSEE DEBITED A SUM OF RS. 6,4 7,687/- UNDER THE HEAD BANK CHARGES/ INTEREST AND SUCH AMOUNT WAS INCURRED ON BORROWINGS FROM THE BANK AMOUNTING TO RS. 57.63,797/-. THE AO FURTH ER OBSERVED THAT OUT OF TOTAL AVAILABLE FUNDS, A SUM OF RS. 78,72,478/- WAS UTILIZED IN ACQUIRING VARIOUS PLOTS OF LAND INCLUDING RESIDENTIAL AS WELL AS AGRICULTURE LAND. THE AO ACCORDINGLY OBSERVED THAT ENTIRE INTEREST BEARIN G FUNDS HAD BEEN UTILIZED FOR THE ACQUISITION OF NON-BUSINESS ASSETS AND THAT THESE ASSETS HAD BEEN UTILIZED FOR THE ACQUISITION OF NON-BUSINESS A SSETS. THE AO OBSERVED ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 6 THAT CAPITAL ACCOUNT OF THE ASSESSEE REVEALED BALA NCE OF RS. 2,23,42,969/- AGAINST WHICH EARNEST MONEY DEPOSIT WAS AT RS. 2,71 ,29,902/-. THE AO OBSERVED THAT THE ASSESSEE ALSO ADVANCED A SUM OF R S. 2,23,42,969/- AGAINST WHICH EARNEST MONEY DEPOSIT WAS AT RS. 2,71 ,29,902/-. THE AO OBSERVED THAT THE ASSESSEE ALSO ADVANCED A SUM OF R S. 23,14,225/- AS CAPITAL TO VARIOUS PARTNERSHIP FIRMS AND THESE FACT S INDICATED THAT ENTIRE OWN CAPITAL OF THE ASSESSEE WAS UTILIZED IN THE BUS INESS OF THE ASSESSEE. THEREFORE, THE AO OBSERVED THAT ASSESSEE'S ENTIRE N ON-BUSINESS ASSETS WERE ACQUIRED OUT OF INTEREST BEARING FUNDS AND THU S THE AO DISALLOWED THE AMOUNT OF RS. 6,47,688/- 3.2 THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY T HE AO BY HOLDING THAT INTEREST/ BANK CHARGES AMOUNTING TO RS. 6,67,6 87/- WAS NOT INCURRED FOR BUSINESS PURPOSES. 3.3 THE LD. AR OF THE ASSESSEE PRAYED THAT CORRECTN ESS AND GENUINENESS OF THESE EXPENSE IS NOT QUESTIONED AND DISPUTE. SUC H EXPENSES ARE FULLY VOUCHED AND VERIFIABLE. THE BANK AND OTHER BORROWIN GS ARE OLD. THERE IS NO NEW LOAN OR DEPOSIT DURING THE YEAR. THE LD. AR OF THE ASSESSEE MENTIONED THE AO HIMSELF IN THE BODY OF THE ASSESSM ENT ORDER HAD MENTIONED THAT THE ASSESSEE HAD HIS OWN CAPITAL OF RS. 2,23,42,969/- AND IT COULD BE SAFELY CONCLUDED THAT THE PERSONAL ASSE TS OF RS. 78,72,478/- ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 7 AND PERSONAL LOANS ADVANCED TO VARIOUS PARTNERSHIP FIRM OF THE ASSESSEE AMOUNTING T RS. 23,14,225/- WERE MADE AND ACQUIRED OUT OF OWN CAPITAL. THE LD. AR OF THE ASSESSEE SUBMITTED THAT BANK BORR OWINGS AND OTHER LOANS WERE UTILIZED FOR EARNEST MONEY AND THE CONST RUCTION WORKS ETC. THE AUTHORITIES BELOW HAD FAILED TO PROVE NEXUS BETWEEN THE BORROWED FUNDS AND THE PERSONAL ASSETS ACQUIRED. IN ABSENCE OF ANY MATERIAL TO PROVE THE NEXUS, NO DISALLOWANCE COULD BE MADE. 3.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 4.1 AS REGARDS GROUND NO. 3 OF THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN EXPENSES ON ACCOUNT OF MATERIAL EXPENSES I.E. BITUMEN, CEMENT, DIESEL, GRIT AND FURNISH OIL AMOUN TING TO RS. 2,71,53,845/-. THE AO VIDE HIS QUESTIONNAIRE DATED 7-02-2012 REQUIRED THE ASSESSEE TO FURNISH THE EVIDENCE IN SUPPORT OF ALL SUCH CLAIMS BUT THE ASSESSEE FAILED TO DISCHARGE ITS ONUS IN PROVING TH E CORRECTNESS AND GENUINENESS OF SUCH CLAIMS. THE AO ACCORDINGLY DISA LLOWED 2% OF TOTAL MATERIAL PURCHASE EXPENSES OF RS. 2,71,53,845/- AN D THUS MADE AN ADDITION OF RS. 5,43,077/- 4.2 THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY T HE AO BY HOLDING AS UNDER:- ..MOREOVER, THE ASSESSEE HAS NOT FILED ANY EVIDENC E WHICH MAY INDICATE THAT SUCH DISALLOWANCE WAS ON HIGHER S IDE. THEREFORE, ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 8 IN THE GIVEN CIRCUMSTANCES THE DISALLOWANCE OF RS. 5,43,077/-OUT OF MATERIAL PURCHASES EXPENSES IS JUSTIFIED AND CONFIR MED. 4.3 THE LD. AR OF THE ASSESSEE PRAYED THAT THE AO H AS WRONGLY MADE ADDITION FOR A SUM OF RS. 5,43,077/- FOR MATERIAL P URCHASES EXPENSES WHICH IS ALREADY INCLUDED IN CONTRACT EXPENSE. THE AO HAS DISALLOWED 2% OF THE MATERIAL PURCHASE EXPENSE ON THE GROUND O F NON-FURNISHING OF BOOKS. HOWEVER, THE BOOKS AND VOUCHERS IN RESPECT O F EXPENSES WERE PLACED. THE MATERIALS WERE PURCHASED THROUGH BILLS AND THE DISALLOWANCE OF EXPENSES ON ACCOUNT OF MATERIAL PURCHASES IS NO T JUSTIFIED IN SPITE OF PRODUCING THE RECORDS. 4.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS SHOWN TOTAL I NCOME OF RS. 36,62,370/- IN THE RETURN. THE AO MADE TOTAL ADDITI ON ON ACCOUNT OF VARIOUS DISALLOWANCES UNDER THE HEAD EXPENSES TO TH E TUNE OF MORE THAN RS. 29.00 LACS AND APPLIED THE NET PROFIT RATE OF 8 .87%. THE AO HAS NOT CONSIDERED THE PAST HISTORY OF THE CASE. IT IS UNDI SPUTED FACT THAT THERE WAS A COMMUNICATION GAP BETWEEN THE ASSESSEE AND THE AO IN PRODUCTION OF BOOKS OF ACCOUNT DURING THE COURSE OF ASSESSMENT PR OCEEDINGS BUT THE EX- PARTE DECISION SHOULD BE BASED ON FAIR ESTIMATE AND NOT IN CAPRICIOUS MANNER. THE LD. CIT(A) HAS ALSO NOT APPRECIATED EVI DENCES FILED BY THE ITA NO. 917//JP/2013 SHRI PAWAN KUMAR SHARMA VS. ACIT, CIRCLE- JHUNJHUNU . 9 ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS PROPERLY. THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THESE GROU NDS I.E. GROUND NO. 1 TO3 OF THE APPEAL TO THE FILE OF THE AO TO DECIDE THEM AFRESH BY PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE ASSESSEE IS ALSO DIRECTED TO COOPERATE WITH THE AO AND PRODUCE THE RELEVANT EVIDENCE BEFORE HIM TO COMPLETE THE RE-ASSESSMENT PROCEEDING S. THUS THE APPEAL OF THE ASSESSEE CONCERNING THE GROUNDS RAISED BEFORE U S IS SET ASIDE TO THE FILE OF THE AO FOR DE-NOVO ADJUDICATION. 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 17/09/20 15. SD/- SD/- (T.R. MEENA) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 17 /09/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI PAWAN KUMAR SHARMA, JHUNJHUNU 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE- JHUNJHUNU 3. VK;DJ VK;QDRVIHY ) @ CIT(A), JAIPUR 3. VK;DJ VK;QDR@ CIT, JAIPUR 4. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 5. XKMZ QKBZY@ GUARD FILE (ITA NO.917/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR