The ITO, Ward -5(2), Rajkot V. M/s. Kishan Transport, Rajkot

ITA 94/RJT/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7160 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 06-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Assessee Lawyers: J C RANPURA
• Keywords: Depreciation; TDS
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI M.V.NAYAR (AM) AND SHRI D.T. GARASIA (J M) ITA NO. 94/RJT/2007 (A.Y. 2003-04) THE INCOME TAX OFFICER, WARD 5(2), RAJKOT APPELLANT V/S. M/S. KISHAN TRANSPORT RAJKOT RESPONDENT PAN : AACFK2539C ITA NO. 112/RJT/2007 (A.Y. 2003-04) M/S. KISHAN TRANSPORT RAJKOT APPELLANT V/S. THE INCOME TAX OFFICER, WARD 5(2), RAJKOT RESPONDENT APPELLANT BY : SHRI S L MEENA, CIT(DR) RESPONDENT BY : SHRI J C RANPURA, CA O R D E R PER M.V. NAYAR, AM ITA NO. 94/RJT/2007 (REVENUES APPEAL) THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-IV RAJKOT PASSED VIDE ORDER DATED 14.11.2006 FOR ASSESSMENT Y EAR 2003-04. THE GROUND RAISED WAS THAT, THE LD. CIT(A) HAS ERRED IN ESTIMATING ASSESSEES I NCOME @ 4.54% OF ITS TURNOVER AGAINST 8% AS DETERMINED BY THE ASSESSING OFFICER. ITA NO. 94 & 112/RJT/2007 A.Y. 2003-04 2 2. THE ASSESSEE IS A CIVIL CONTRACTOR AND DERIVES C ONTRACT RECEIPTS FROM STATE GOVERNMENT. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD BEEN SHOWING NET PROFIT OF 1.25%. HE THEREFORE SOUGHT TO VERIFY THE JOB WORK EXPENSES. ACCORDINGLY, HE SUMMONED SOME OF THE PARTIES AND RECORDED THEIR STATEMENTS. ON EXAMINATION HE FOUND THAT THE ASSESSEE HAD ALLEGEDLY INFLATED THE JOB WORK EX PENSES ON A VERY LARGE SCALE. THE AO ALSO OBSERVED THAT, IN THE EARLIER ASSESSMENT YEAR, THE ASSESSEE HAD REVISED ITS RETURN AND HAD SHOWN FURTHER INCOME OF RS 10.00 LAC AFTER DETECTION OF I NFLATION OF JOB WORK EXPENSES WHICH THE ASSESSEE ITSELF HAD ADMITTED TO THE DISCREPANCIES I N THE JOB WORK ON THE BASIS OF VOUCHERS FOUND. HE FURTHER OBSERVED THAT, IN CASE OF SUB-CONTRACTOR S TO WHOM JOB WORK PAYMENTS WERE MADE, HAD WITHDRAWN CASH ON THE SAME DAY WHICH SHOW THAT THE JOB WORK EXPENSES WERE INFLATED TO MINIMIZE THE PROFIT AND TAX LIABILITY. HE THEREFORE REJECTED THE BOOK RESULTS AND ESTIMATED THE NET PROFIT OF THE ASSESSEE AT 8% OF THE GROSS RECEIPTS. 2.1 ON FURTHER APPEAL FILED BY THE ASSESSEE BEFORE THE LD. CIT(A)-IV RAJKOT, ON THE BASIS OF FIRST APPEAL ORDER PASSED BY HIS PREDECESSOR FOR AY 2001-02, RESTRICTED THE ESTIMATION OF NET PROFIT TO 4.54%. WHILE COMING TO THIS CONCLUSION, THE LD. CIT(A) HAD CITED THE FINDING OF THE ERSTWHILE CIT(A), WHO HAD HELD AS UNDER:- THE DOUBTS RAISED ABOUT THE GENUINENESS OF SEVERAL SUB CONTRACTORS ARE ALSO WITHOUT ANY SOUND FACTUAL FOUNDATION. BILLS ARE RAI SED, TDS HAS BEEN DEDUCTED, PAYMENTS ARE BY ACCOUNT PAYEE CHEQUE AND INQUIRIES U/S. 133(6) WAS PROMPTLY RESPONDED TO. IN MY OPINION AND CONSIDERING THE TOT ALITY OF CIRCUMSTANCES, THE BOOKS OF ACCOUNTS DO NOT REQUIRE TO BE REJECTED. TH E DECLARATION OF RS 10,00,000/- BY THE ASSESSEE IS FOLLOWING THE DISCOVERY OF BLANK SIGNED VOUCHERS, WHICH THE ASSESSEE WAS IN NO POSITION TO USE. WHETHER THE ASS ESSEE INTENDED TO USE THEM ACTUALLY TO INFLATE EXPENDITURE REMAINS IN THE REAL M OF SPECULATION. THERE IS NO FINDING THAT ANY RECIPIENT OF PAYMENTS FROM THE ASS ESSEE REFUSED TO ACKNOWLEDGE THE RECEIPT OR WAS NON-EXISTENT. IT IS ALSO NOT KNO WN WHAT WOULD BE A PROPER PAYMENT AND WHAT WOULD BE AN INFLATED CLAIM. THE ON LY MEASURE OF IT AND THE ONLY ALLEGATION AGAINST THE ASSESSEE IS THAT HE CLAIMED TO HAVE PAID MORE BY WAY OF EXPENSES THAN HE ACTUALLY DID AND KEPT THE BALANCE AS A FUND OF UNDISCLOSED INCOME. BUT IT IS DIFFICULT TO SHOW IN THE VERY NAT URE OF THE PROPOSITION THAT THE ASSESSEE ACTUALLY UNDERPAID THE SUBCONTRACTORS COMP ARED TO THE RECORDED DISBURSEMENT. THE PROPOSITION OF THE ASSESSMENT ORD ER IS THAT ASSESSEE COULD HAVE INFLATED EXPENSES IF HE WAS IN POSSESSION OF SIGNED BLANK VOUCHERS AND IF HE COULD BE FOUND IN POSSESSION OF SUCH MATERIAL ONCE, IT CO ULD BE PRESUMED THAT IT WAS HIS REGULAR PRACTICE. .. BESIDES, THE RATIO OF RECEIPTS TO EXPENSES NEED NOT REMAIN CONSTANT FROM QUARTER TO QUARTER OR MONTH TO MONTH. THAT COULD NOT E A GROUND FOR HOLDING THAT ACCOUNTS ARE INCOMPLETE OR INCORRE CT. IN DISCUSSING PAYMENTS MADE TO CERTAIN PARTIES ALSO THE AO RECORDS THEM AS OF DOUBTFUL NATURE WHEN ALL THE CIRCUMSTANTIAL EVIDENCE IS TAKEN INTO ACCOUNT. IF THE PAYMENT IS DECLARED AS ITA NO. 94 & 112/RJT/2007 A.Y. 2003-04 3 NON-GENUINE, THAT ITSELF SHOULD BE DISALLOWED, THE TOTAL DISALLOWANCE WOULD BE MUCH MORE THAN THE ESTIMATED INCOME. IF THAT IS NOT DONE, THE GENUINENESS OF PAYMENT IS IMPLICITLY ACKNOWLEDGED. THAT CAN BE NO GROUND, AGAIN FOR HOLDING THAT THE ACCOUNTING RECORD IS INCOMPLETE OR INCORRE CT. 2.2 BEFORE US, THE LD. AR OF THE ASSESSEE CONTENDED THAT THE AO REJECTED THE BOOK OF ACCOUNT AND ESTIMATED THE INCOME AT 8% OF THE CONTRACT RECE IPTS MAINLY ON THE ALLEGED GROUND THAT THE SUB-CONTRACTORS TO WHOM THE ASSESSEE MADE PAYMENTS BY CHEQUES, HAD WITHDRAWN THE SUM IMMEDIATELY ON DEPOSIT. HOWEVER, HE FAILED TO APPRE CIATE THE FACT THAT, IN RESPONSE TO INQUIRY NOTICE ISSUED U/S. 133(6), ALL SUCH SOB CONTRACTORS HAVE CONFIRMED THE RECEIPT OF CONTRACT AMOUNT FROM THE ASSESSEE. FURTHER, NOTHING HAS BEEN BROUGH T ON RECORD BY THE AO TO DISPROVE THE GENUINENESS OF PAYMENTS MADE OR IN SUPPORT OF THE A OS ACTION IN REJECTING THE BOOK RESULTS. THE LD. AR FURTHER SUBMITTED THAT, THE AO HAS NOT CITED ANY COMPARABLE INSTANCE IN SUPPORT OF HIS ESTIMATION OF INCOME AT 8%. THIS RATE OF PROFIT IS BY AND LARGE ONE OF THE BEST IN SUCH TYPE OF INDUSTRY, AND HE THEREFORE PRAYED THAT THE PROFIT M ARGIN OF 1.25% AS DISCLOSED BY THE ASSESSEE, MAY BE SUSTAINED. THE LD. AR ALSO QUOTED VARIOUS DE CISIONS OF THIS VERY BENCH, IN RESPECT OF VARIOUS CIVIL CONTRACTORS WHEREIN THE PROFIT MARGIN WAS HELD IN THE RATE OF 1.25% TO 3.5%. ANOTHER IMPORTANT ASPECT BROUGHT TO LIGHT BY THE LD . AR WAS THAT, IN THE ASSESSEES OWN CASE FOR AY 2002-03, THE NET PROFIT OF 2.03% WAS ACCEPTED BY THE DEPARTMENT AND THEREFORE, IF AT ALL THE NET PROFIT MARGIN IS NOT ACCEPTABLE, THE SAME MAY B E RESTRICTED TO 2.03%. IT IS ALSO THE CONTENTION OF THE LD. AR THAT, THE ASSESSEE HAD INCURRED LOSS ON ACCOUNT OF COST ESCALATION AS ONE OF ITS FLAGSHIP PROJECT GOT STUCK IN ABEYANCE FOR MORE THA N TWO YEARS ON ACCOUNT CHANGE IN DESIGN IN ORDER TO CONFINE TO THE DISASTER MANAGEMENT NORMS. HAD THE ASSESSEE RECEIVED THE BALANCE AMOUNT OF PRICE ESCALATION OF RS 20.00 LACS AND IF THE SAME IS ADDED TO THE BOOK PROFIT OF RS 8,08,929/- AND GROSS RECEIPT OF RS 6,44,76,155/- TH E NET PROFIT WOULD BE 4.22% AGAINST NP OF 2.48% AND 2.03% FOR AY S 2001-02 AND 2002-03. THUS , THE LD. CIT(A) HAD ERRED IN DISTINGUISHING THE FACTS OF DIFFERENT ASSESSMENT YE ARS. 3. WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE ALS O PERUSED THE FACT ON RECORD. WE FIND THAT THE LD. CIT(A) HAS PASSED A WELL REASONED ORDE R. WE ALSO FIND THAT SURVEY TOOK PLACE IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2001-02 AND SAME BAS IS CANNOT BE CONTINUED FOR MAKING THE ADDITIONS. HOWEVER, IT IS ALSO A FACT THAT, IN THE ASSESSEES LINE OF BUSINESS NOT ALL EXPENSES ARE VERIFIABLE AND HENCE LOOKING TO THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN THE INTEREST OF FAIR PLAY AND JUSTICE, IT WOULD BE APPROPRIATE IF THE NE T PROFIT OF THE ASSESSEE IS ESTIMATED AT 5% OF THE ITA NO. 94 & 112/RJT/2007 A.Y. 2003-04 4 GROSS RECEIPTS. THE ADDITION MADE BY THE AO IS THER EFORE RESTRICTED TO 5% OF THE GROSS RECEIPTS AND ACCORDINGLY THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. ITA NO. 112/RJT/2007 (ASSESSEES APPEAL) 4. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE AS SESSEE IN THE CO NO. 112/RJT/2007. A. THE LD. CIT(A) ERRED IN PASSING ORDER SUSTAINI NG NP AT 4.54% ON THE GROSS CONTRACT RECEIPT. B. THE LD. CIT(A) ERRED IN SUSTAINING ADDITION BASE D ON ESTIMATE WITHOUT ALLOWING DEPRECIATION AND INTEREST ON BORROWED CAP ITAL. 5. THE ASSESSEES SO FAR AS THE FIRST APPEAL IS CON CERNED, THE SAME IS DETERMINED IN THE UPPER PART OF THIS ORDER, AND ACCORDINGLY, THE SAME IS DI SMISSED. 6. SO FAR AS THE SECOND GROUND IS CONCERNED, THE LD . AR OF THE ASSESSEE IN THE WRITTEN SUBMISSION SUBMITTED THAT, THE AO WAS NOT JUSTIFIED IN DENYING THE CLAIM OF DEPRECIATION AND INTEREST AND REMUNERATION TO PARTNER. FOR WHICH HE RELIED ON CBDT CIRCULAR NO. 29D(XXI-14) OF 1965 DATED 31.8.1965 AND VARIOUS JUDICIAL JUDGMENTS . THE LD. CIT-DR RELIED ON THE AOS ORDER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE ALS O PERUSED THE FACTS ON RECORD. ON A CAREFUL CONSIDERATION OF FACTS ON RECORD AND IN VIE W OF THE BOARDS ABOVE REFERRED CIRCULAR, WE DIRECT THE AO TO ALLOW THE CLAIM OF INTEREST AND RE MUNERATION TO PARTNERS OUT OF THE INCOME SO ESTIMATED. HENCE, THE GROUND OF THE ASSESSEE IS PAR TLY ALLOWED. 8. IN THE RESULT BOTH THE APPEALS ARE THEREFORE PAR TLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON _09/ 03/2010 SD/- SD/- (D.T. GARASIA) (M.V. NAYAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 09/03/2010 RAJKOT ITA NO. 94 & 112/RJT/2007 A.Y. 2003-04 5 COPY FORWARDED TO, 1. THE INCOME TAX OFFICER, WARD-5(2), RAJKOT 2. M/S KISHAN TRANSPORT, GANDHI CHAMBERS, GONDAL RO AD, RAJKOT 3. THE CIT-III, RAJKOT 4. THE CIT(A)-IV, RAJKOT 5. THE D.R., I.T.A.T., RAJKOT 6. THE GUARD FILE TRUE COPY BY ORDER SENIOR P RIVATE SECRETARY