M/s. Super Construction, Mehsana V. The Income tax Officer,Ward-2, Mehsana

ITA 981/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0130 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 14-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K MAHESH
• Assessee Lawyers: J M TRIVEDI
• Keywords: Depreciation; Reasonable cause; Fair market value
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.981/AHD/2008 A. Y: 2005-06 M/S. SUPER CONSTRUCTION CO., 10, SAHAJANAND, PO MEHSANA VS THE INCOME TAX OFFICER, WARD-2, MEHSANA PA NO. AAFFS 9357P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI J. M. TRIVEDI, AR RESPONDENT BY SHRI M. K. MAHESH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A), GANDHINAGA R DATED 28-1-2008 FOR ASSESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS: 1. THAT THE LEARNED A. O. ERRED IN MAKING ADDITION OF RS.4,47,817/- BY RESORT TO SECTION 40A (2) (B) BY ADOPTING G. P. OF 10.95% AS AGAINST G. P. OF 8.55% DECLARED BY APPELLANT AND LEARNED CIT(A) ERRED IN DIRECTING TO ADD 1% MORE N. P. OVER AND ABOVE INCO ME DECLARED BY THE ASSESSEE. 2. THE DEFECT POINTED OUT BY A. O. DO NOT APPEAR TO BE IN THE NATURE OF DEFECTS IN ACCOUNTS/OMISSION ETC. BUT IS IN RESPECT OF SOME WORK ALLOTTED TO PERSON U/S. 40 A ( 2) (B) 3. THE ESTIMATE OF N.P. BY LEARNED CIT(A) BEING ON HIG HER SIDE, IT IS REQUESTED TO BE DELETED OR SUBSTANTIALL Y REDUCED. 4. THAT WHILE ESTIMATING INCOME, BOTH THE AUTHORITIES HAVE ERRED IN NOT APPRECIATING PROPERLY THE FACTS OF THE CASE, NATURE OF BUSINESS AS WELL AS EXPLANATION FURNISHED BY THE APPELLANT. ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 2 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. THE AO MADE THE ADDITION OF RS.4,47,817/- ON ACC OUNT OF ESTIMATION OF GROSS PROFIT AT 10.95% ON THE TURNOVE R DECLARED BY THE ASSESSEE BY PRIMARILY FOCUSING ON THE SUB CONTRACT ACCOUNT TO 4 PERSONS COVERED U/S 40A (2) (B) OF THE IT ACT. ON PERUSAL O F THE ASSESSMENT ORDER REVEALS THAT THE AO TRYING TO LOCATE THE REASONS F OR FALL IN GROSS PROFIT RATE DURING THE YEAR IDENTIFIED THE PAYMENTS MADE T O THE FOLLOWING 4 SUB CONTRACTORS COVERED U/S 40A (2) (B) OF THE ACT: SR. NO. NAME OF SUB CONTRACTORS RELATIONSHIP AMOUNT OF SU B CONTRACT 1. AMIT JAYANTILAL PATEL SON 925870 2. BABULAL AMBALAL PATEL BROTHER 1103146 3. MAHENDRAKUMAR K. PATEL COUSIN BROTHER 812300 4. PRAVINKUMAR S. PATEL COUSIN BROTHER 956785 THE AO ALSO MADE INQUIRIES OF THE MODE OF PAYMENT T O THE CONTRACTORS, AND RECORDED THEIR STATEMENTS AND FOUND OUT VARIOUS INFIRMITIES IN THE CONTRACT AS WELL AS THE DEALING OF THE ASSESSEE WIT H THEM FOR WHICH HE ISSUED SHOW CAUSE NOTICE. THE AO FOUND THAT THE SUB CONTRACTORS DID NOT HAVE INFRASTRUCTURE TO CARRY OUT THE WORK AND THE A SSESSEE DID NOT CHARGE SUMS FOR THE FACILITIES OFFERED TO THE SUB C ONTRACTORS LIKE USE OF CENTERING MATERIALS ETC. AS WAS REQUIRED BY THE SUB CONTRACTORS. FURTHER, THE AO NOTED THAT THE SUB CONTRACTORS HAVE WORKED W ITH ANY OTHER CONTRACTOR AND HAD NO PREVIOUS EXPERIENCE OF TAKING SUCH CONTRACTS AND THEY HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT. IT WA S FURTHER NOTED BY THE AO THAT ON INQUIRY FROM THE BANKS THAT THE CHEQ UES ISSUED BY THE APPELLANT WERE ENCASHED EITHER BY THE PARTNERS OF T HE APPELLANT OR BY SOMEBODY OF THE APPELLANT FIRM AND NOT BY THE SUB C ONTRACTORS AND THUS, ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 3 THE AO TREATED THE SUB CONTRACTS AS SHAM ARRANGEMEN T OF THE ASSESSEE WITH A VIEW TO REDUCE THE TAX LIABILITY. ACCORDINGL Y, THE AO REJECTED THE BOOK RESULTS AND APPLIED GROSS PROFIT RATE OF 10.95 % BEING AVERAGE OF LAST 3 YEARS AND MADE THE ADDITION OF RS.4,87,817/-. 4. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND IT WAS BRIEFLY EXPLAINED THAT THE ASSESSEE IS A PARTNERSHI P FIRM CARRYING ON THE BUSINESS OF CONSTRUCTION SINCE 24-5-1987. GROSS REC EIPTS IN THE ASSESSMENT YEAR UNDER APPEAL ARE RS.1,96,87,311/- A S AGAINST THE GROSS RECEIPTS IN THE PRECEDING ASSESSMENT YEARS AT RS.1, 03,45,716/- AND RS.74,93,426/- IN THE ASSESSMENT YEAR 2004-05 AND 2 003-04 RESPECTIVELY. THE NATURE OF CONTRACT RECEIPTS FOR T HE RELEVANT YEAR WAS IN RESPECT OF SEVERAL CONSTRUCTIONS OF RING FOUNDATION AND ROAD METALING WORK OF ONGC AND WORK OF HIGH TANK AND PIPE LINE FO R IRRIGATION OF WATER SUPPLY BOARD AND NARMADA NIGAM. THE CONTRACT WORK F OR PREVIOUS YEAR WAS IN RESPECT OF HIGH TANK AND PIPE LINE ONLY. DUE TO CHANGE IN NATURE OF CONTRACT WORK THE GROSS PROFIT RATE WAS REDUCED FROM 10.89% TO 8.55%. DUE TO INCREASE IN THE VOLUME OF WORK, SUB CONTRACT S WERE GIVEN TO THE PERSONS COVERED U/S 40A (2) (B) OF THE IT ACT AS ME NTIONED ABOVE. THE SUB CONTRACTORS IN THEIR STATEMENTS STATED THAT THE WORK IS CARRIED OUT BY THEM FOR THE ASSESSEE AND DETAILED REPLY IS FILED I N THIS REGARD. HOWEVER, THE AO WAS NOT SATISFIED WITH THEIR EXPERIENCE AND QUALIFICATION OR INFRASTRUCTURE TO CARRY OUT THE ACTIVITIES AND WITH DRAWALS OF AMOUNT FROM THE BANK BY SELF CHEQUES. THE AO ACCORDINGLY REJECT ED THE BOOK RESULTS OF THE ASSESSEE U/S 145(3) OF THE IT ACT. IT WAS EXPL AINED THAT MERELY BECAUSE RELATIVES HAVE COMPLETED THE WORK ON BEHALF OF THE ASSESSEE IS NOT GROUND TO REJECT THE BOOK RESULTS. ALL THE CONT RACTORS ARE ASSESSED TO TAX AND HAVE THEIR PAN, PAYMENT MADE TO THEM IS NOT ALSO DISPUTED. NONE OF THEM HAS STATED IN THEIR STATEMENT THAT THE Y HAVE NOT WORKED FOR THE ASSESSEE. THERE WAS NO EVIDENCE THAT THE AMOUNT WITHDRAWN BY THEM FROM THEIR ACCOUNT WAS RETURNED TO THE ASSESSEE. TH E IDENTITY OF THE SUB ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 4 CONTRACTORS IS PROVED AND THE PAYMENT TO THEM IS AL SO NOT IN DISPUTE. THEY HAVE ALSO ACCEPTED THAT THEY WERE DOING SUB CO NTRACT WORK EVEN IN THE EARLIER YEARS. IT WAS EXPLAINED THAT BECAUSE OF NON-INSISTENCE OF ANY TERMS OF AGREEMENT CONSIDERING THE LONG TERM BUSINE SS PROSPECTS, AGREEMENT WOULD NOT BECOME SHAM OR BOGUS. IT WAS EX PLAINED THAT THE SUB CONTRACTORS RECEIVED ONLY PART AMOUNT AS AGAINS T THE MAXIMUM WORK OF THE CONTRACT. DUE TO INCREASE IN THE TURNOVER SA ME INFRASTRUCTURE CANNOT BE ENOUGH. ADDITIONAL WORK IS REQUIRED. SINC E THE TURNOVER OF THE ASSESSEE HAS INCREASED AS COMPARED TO THE OTHER YEA RS, THEREFORE, ESTIMATION OF NET PROFIT BY HIGHER AMOUNT IS NOT JU STIFIED. IT WAS SUBMITTED THAT WHEN BOOKS OF ACCOUNTS ARE REJECTED, ESTIMATION OF THE PROFIT IS TO BE MADE BY APPLYING NET PROFIT RATE. I T WAS SUBMITTED THAT THOUGH GROSS PROFIT IS REDUCED BY 2.04%, THE NET PR OFIT IS REDUCED BY 1.02% ONLY. THEREFORE, THE JUSTIFIED METHOD FOR EST IMATING THE INCOME WOULD BE OF APPLYING THE NET PROFIT RATE. IT WAS FU RTHER EXPLAINED THAT BUSINESS ALWAYS TAKES INTEREST IN INCREASING ADDITI ON IN ABSOLUTE PROFIT. PERCENTAGE IS NOT IMPORTANT. SO, REDUCTION IN THE P ERCENTAGE OF NET PROFIT IS DUE TO ADDITIONAL CONTRACT RECEIPTS, SO ADDITION ON THE GROUND OF LOW PROFIT IS NOT JUSTIFIABLE. THE ASSESSEE ALSO FILED AFFIDAVITS OF ALL THE SUB CONTRACTORS CONFIRMING THAT THEY HAVE WORKED AS SUB CONTRACTOR FOR THE ASSESSEE COMPANY AND HAVE RECEIVED CONSIDERATION FO R THE WORK DONE AND HAVING ALSO GOT BACK THE CASH WITHDRAWN FROM TH E BANK. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ACCEPTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE WITH REGARD TO APPLICATION OF NET PROFIT RATE AND ULTIMATELY DIRECTED THE AO TO APPLY NET PROFIT RATE OF 1% OVER AND ABOVE WHAT HAS BEEN DECLARED BY THE ASSESS EE ON TOTAL RECEIPTS. HIS FINDINGS IN PARA 3 TO 3.3 ARE REPRODUCED AS UND ER: 3. THE MATTER HAS BEEN GIVEN SERIOUS CONSIDERATION . TO START WITH, THERE IS THIS TECHNICAL ISSUE OF APP ELLANT FILING AFFIDAVITS OF SUBCONTRACTORS BEFORE THE UNDERSIGNED . AFFIRMATION OF THE AFFIDAVITS ARE ON THE SAME ASPEC TS WHICH ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 5 HAVE BEEN STATED BY THESE SUBCONTRACTORS BEFORE TH E ASSESSING OFFICER DURING THE STATEMENTS RECORDED U/ S 131, EXCEPT FOR ONE NEW ASPECT, NAMELY THAT THE CASH WIT HDRAWN BY THE APPELLANT OR HIS AGENTS HAD BEEN HANDED OVER TO THEM. ON BEING ASKED WHETHER THERE EXISTED ANY REASONABLE CAUSE FOR NOT MAKING SUCH A STATEMENT BEFORE THE ASSESSIN G OFFICER, EITHER IN THE FORM OF AFFIDAVIT OR OTHERWISE, THE A UTHORISED REPRESENTATIVE COULD NOT PROVIDE A SATISFACTORY ANS WER. THEREFORE, THESE AFFIDAVITS TO THE EXTENT THEY CONT AIN FRESH EVIDENCE/ASSERTIONS, ARE NOT ACCEPTED. 3.1 COMING TO THE SUBSTANTIVE ISSUE OF ADDITION, ALTHOUGH THE ASSESSING OFFICER HAS REJECTED THE ENT IRE BOOKS OF ACCOUNT, THE MATTER PRIMARILY IS IN THE DOMAIN OF S ECTION 40A (2)(B). WHILE ON THE ONE HAND I WILL GENERALLY AGRE E THAT THE APPELLANT SEEMS TO HAVE SOME KIND OF ARRANGEMENT WI TH THESE SUBCONTRACTORS WHICH AFFECTS THE TAX LIABILITY OF T HE APPELLANT, WHEN IT ENTERED INTO CONTRACTS WITH THESE SUBCONTRA CTORS, IT WOULD BE DIFFICULT TO COME TO THE CONCLUSION THAT T HE ENTIRE PAYMENTS MADE TO THE APPELLANTS SUBCONTRACTORS WER E BOGUS IN NATURE. THE ASSESSING OFFICERS COMMENTS IN THE ASSESSMENT ORDER AT VARIOUS PLACES, AFTER HIS ANALY SIS OF THE STATEMENT RECORDED ALSO SEEMS TO POINT TO THE FACT THAT THE WORK STATED TO BE GIVEN TO THESE CONTRACTORS HAVE B EEN DONE BY THE FIRM ONLY. IF IT IS AN ISSUE COVERED U/S. 40 A(2) (B), THEN THE MATTER IS PRIMARILY OF EXCESS PAYMENT. 3.2 THE APPELLANT SEEMS TO HAVE SOME EXPLANATION F OR ALL IN GROSS PROFIT RATE BECAUSE THERE HAS BEEN VER Y SUBSTANTIVE INCREASE OF TURNOVER FROM ABOUT 1.03 CR ORES IN THE PRECEDING YEAR TO ABOUT 1.96 CRORES IN THIS YEAR AN D THERE HAS ALSO BEEN A CHANGE IN THE NATURE OF THE CONTRACT UN DERTAKEN. IT HAS DIVERSIFIED INTO RING FOUNDATION AND ROAD METAL ING WORK OF ONGC ALONG WITH THE HIGH TANK AND PIPELINE WORK FOR IRRIGATION DEPARTMENT, WATER SUPPLY BOARD AND NARMA DA NIGAM, COMPARED TO ONLY THE LATER CATEGORY OF WORK IN THE PRECEDING YEAR. THE FACT THAT DURING THE YEAR, THE APPELLANT HAS SHOWN LESSER LABOUR EXPENSES OF RS.26,41,352/- ON A TURNOVER OF ABOUT RS.1.96 CRORES COMPARED TO RS.3,9 6,875/- ON A TURNOVER OF RS.1.03 CRORES IN THE PRECEDING YE AR AND THERE HAS BEEN AN ADDITIONAL EXPENDITURE OF SUB-CON TRACT EXPENDITURE OF RS.66,79,223/- I0N THIS YEAR, WOULD ALSO SHOW THE APPELLANTS MORE RELIANCE ON THE SUBCONTRACT WO RK. THE AUTHORISED REPRESENTATIVES ARGUMENT THAT WHILE COM PARING THE RESULTS IN THE CASE OF A CONTRACTOR, THE NET PR OFIT SHOULD BE ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 6 COMPARED, ALSO MERITS ATTENTION. IT IS SAID THAT WH ILE THE GROSS PROFIT FOR THE YEAR HAS DECREASED BY ABOUT 2.05% BU T THE NET PROFIT (BEFORE PARTNERS INTEREST, PARTNERS REMUNE RATION, ETC) HAS REDUCED ONLY BY RS.1.02%. THE APPELLANT HAD GIV EN THE WORKING OF THE NET PROFIT BEFORE THE ASSESSING OFFI CER. AS PER THIS WORKING, IF THE NET PROFIT IS CONSIDERED BEFOR E DEPRECIATION, PARTNERS INTEREST/REMUNERATION ETC. THE SAME HAS D ECREASED BY 1.3% COMPARED TO PREVIOUS YEAR. IT MUST, HOWEVER , BE NOTED THAT THE APPELLANTS GROSS PROFIT AND NET PRO FIT (COMPUTED IN ANY MANNER), IN ABSOLUTE NUMBERS IS MUCH HIGHER THAN THE PREVIOUS YEAR DUE TO MUCH LARGER TURNOVER. 3.3 THEREFORE, CONSIDERING ALL THE ASPECTS, I HAVE COME TO THE CONCLUSION THAT THE APPELLANTS DECLARE D RESULTS NEEDED TO BE ESTIMATED. HOWEVER, APPROPRIATE ISSUE OF COMPARISON IS THE NET PROFIT RATE BEFORE DEPRECIATI ON AND INTEREST. SINCE SUCH NET PROFIT HAS BEEN IN THE REG ION OF 6% IN THE PREVIOUS YEARS AND THE SAME HAS BEEN DECLARED A T 4.9% IN THIS YEAR, IN MY VIEW THE ENDS OF JUSTICE SHALL BE MADE IN CASE WE APPLY NET PROFIT RATE OF 1% OVER AND ABOVE WHAT HAS BEEN DECLARED BY THE ASSESSEE ON THE TOTAL RECEIPTS. THE ASSESSING OFFICER MAY RE-COMPUTE AND GIVE THE APPROPRIATE REL IEF TO THE ASSESSEE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T THERE WAS A CHANGE IN THE CONSTRUCTION WORK IN THE ASSESSMENT Y EAR UNDER APPEAL. DUE TO THIS REASON, MORE WORK WAS ASSIGNED TO THE S UB CONTRACTORS AND AS SUCH THERE WAS FALL IN GROSS PROFIT RATE. HE HAS SUBMITTED THAT HOWEVER, TURNOVER OF THE ASSESSEE IS ENHANCED AS CO MPARED TO THE EARLIER YEARS. HE HAS SUBMITTED THAT THE AO HAS REJECTED TH E BOOK RESULTS BY RESORTING TO THE PROVISIONS OF SECTION 40A (2) (B) OF THE IT ACT, HOWEVER, NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN THE MAINTEN ANCE OF THE BOOKS OF ACCOUNT. HE HAS SUBMITTED THAT IN NUTSHELL THE LEAR NED CIT(A) RETAINED THE ADDITION OF 1% I.E. RS.1,96,893/- FROM THE ADDI TION OF RS.4,47,817/-. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON TH E DECISION OF ITAT CHANDIGARH BENCH IN THE CASE OF MICRO INSTRUMENTS C O. VS ITO 12 DTR 501 COPY OF WHICH IS FILED ON RECORD. HOWEVER, THE LEARNED COUNSEL FOR ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 7 THE ASSESSEE ADMITTED THAT THE ASSESSEE HAS NOT RAI SED ANY GROUND OF APPEAL BEFORE THE TRIBUNAL AS REGARDS CONFIRMATION OF THE FINDING OF THE AO WITH REGARD TO REJECTION OF THE BOOK RESULTS U/S 145 (3) OF THE IT ACT. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LEARNED CI T(A) HAS ALREADY GRANTED SUFFICIENT RELIEF TO THE ASSESSEE, THEREFOR E, NO FURTHER INFERENCE IS REQUIRED IN THE MATTER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE AO CONSIDERED THE CASE OF THE ASSESSEE FOR ESTIMATION OF THE BOOK RESULTS BECAUSE THERE WAS FA LL IN THE GROSS PROFIT PARTICULARLY WITH REFERENCE TO SUB CONTRACTS ASSIGN ED TO THE SUB CONTRACTORS WHO ARE FALLING IN THE CATEGORY OF SPE CIFIED PERSON U/S 40 A (2) (B) OF THE IT ACT. THE FINDING OF THE AO WAS DE PEND UPON THE OUTCOME OF THE FINDINGS GIVEN U/S 40A (2) (B) OF THE IT ACT , BECAUSE THE AO WAS OF THE VIEW THAT THE SUB CONTRACTORS HAVE NO REQUIRED EXPERIENCE, QUALIFICATIONS OR INFRASTRUCTURE FACILITIES TO CARR Y OUT CONTRACT ACTIVITIES. SHOW CAUSE NOTICE WAS GIVEN TO THE ASSESSEE AS TO W HY BOOK RESULTS BE NOT REJECTED U/S 145(3) OF THE IT ACT. THE AO CONSI DERING THE EXPLANATION OF THE ASSESSEE REJECTED THE BOOK RESULTS OF THE AS SESSEE AND ESTIMATED THE GROSS PROFIT AT 10.95% FOR THE PURPOSE OF MAKIN G THE ADDITION OF RS.4,47,817/-. ITAT CHANDIGARH BENCH IN THE CASE OF MICRO INSTRUMENTS CO. (SUPRA) HELD AS UNDER: HELD: SEC. 145(3) EMPOWERS AN AO TO REJECT THE TRA DING RESULTS DECLARED BY AN ASSESSEE. IF THE AO IS NOT S ATISFIED ABOUT THE CORRECTNESS OF COMPLETENESS OF THE ACCOUN TS MAINTAINED BY THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING AS NOTIFIED IS NOT FOLLOWED BY THE ASSES SEE, THE AO IS EMPOWERED TO REJECT THE RESULTS SO DECLARED AND MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGMENT. NONE OF THE OBJECTIONS BROUGHT OUT BY THE AO IS STRONG ENOUGH TO NEGATE TH E BOOK RESULTS DECLARED BY THE ASSESSEE. FIRSTLY, WITH REG ARD TO THE FALL IN GP RATE, THE ASSESSEE HAD FURNISHED A DETAI LED EXPLANATION. THE ASSESSEE HAD EXPLAINED THE DECREAS E IN SALE ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 8 PRICE AS ALSO ITS REASONS. THE REASONS WERE ALSO SU BSTANTIATED ON THE BASIS OF THE SALE BILLS OF THE RESPECTIVE YE ARS SHOWING FALL IN THE PRICES OF FINISHED PRODUCTS OF THE ASSE SSEE. IN FACT, IN ITS WRITTEN COMMUNICATION TO THE AO, THE ASSESSE E ALSO POINTED OUT THAT THE FALL IN SALE PRICE WAS ALSO A SUBJECT MATTER OF EXAMINATION BY THE EXCISE AUTHORITIES WITH NO AD VERSE FINDINGS. FURTHER, THE ASSESSEE EXPLAINED THE INCRE ASE IN EXPENSES THIS YEAR IN COMPARISON TO THE EARLIER YEA RS. IN FACT, THE AO HIMSELF HAS ADMITTED THAT THE PURCHASE PRICE OF THE RAW MATERIALS HAS RISEN DURING THE YEAR UNDER CONSI DERATION. THEREFORE, THE EXPLANATION RENDERED BY THE ASSESSEE WITH REGARD TO THE FALL IN GP RATE IS PLAUSIBLE AND COUL D NOT BE GROUND TO REJECT THE BOOKS OF ACCOUNT. SIMILARLY, N ON-REPORTING OF TRANSACTIONS WITH A CONCERN COVERED UNDER S. 40A (2) (B) , AT BEST CAN BE ATTRIBUTED TO THE AUDITORS OF THE ASSES SEE AND CANNOT BE A GROUND TO REJECT THE RELIABILITY OF THE ACCOUNT BOOKS. FURTHER, WITH REGARD TO THE INCURRING OF JOB WORK PAYMENTS TO THE SISTER CONCERN, THE ASSESSEE HAD EX PLAINED THE REASONS FOR MAKING THE PAYMENT. IT HAS BEEN EXP LAINED THAT EARLIER THE JOB WORK WAS BEING GOT DONE FROM O UTSIDE PARTIES AND IN VIEW OF THE SECRECY AND CONFIDENTIAL ITY OF THE MANUFACTURING PROCESS, THE SAME WAS NOW BEING UNDER TAKEN FROM THE SISTER CONCERN. IT IS SUBMITTED THAT NO UN REASONABLE EXPENDITURE HAS BEEN INCURRED ON JOB WORK PAYMENTS TO THE SISTER CONCERN INASMUCH AS IT WOULD HAVE INCURRED S UCH EXPENDITURE EVEN IF THE JOB WORK WAS GOT DONE FROM OTHER PARTIES. THERE IS NO NEGATION TO THE FACT POSITION THAT THE WORK HAS INDEED BEEN UNDERTAKEN FOR THE ASSESSEE BY THE SISTER CONCERN, MI LTD. THE ASSESSEE HAS EXPLAINED EVEN BE FORE THE LOWER AUTHORITIES THE CIRCUMSTANCES IN WHICH THE PA YMENTS HAVE BEEN MADE. THERE IS NOTHING UNREASONABLE IN TH IS REGARD. IN ANY CASE, EVEN FOR APPLYING THE PROVISIO NS OF S. 40A (2) (B), IT IS FOR THE AO TO MAKE OUT A CASE THAT T HE EXPENDITURE INCURRED IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERVICES. NO EFFORT IN THIS RE GARD HAS BEEN MADE BY THE AO. THEREFORE, CONSIDERING THE AFO RESAID, THERE IS NO JUSTIFICATION FOR THE AO TO INVOKE THE PROVISIONS OF S. 145 (3) AND REJECT THE RELIABILITY OF THE ACCOUNT B OOKS MAINTAINED BY THE ASSESSEE. THUS, THE ADDITION MADE BY COMPUTING THE GROSS PROFIT ON ESTIMATE BASIS IS HER EBY SET ASIDE. 7. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS NOT RAISED ANY GROUND OF APPEAL BEFORE THE TRIBUNAL CHALLENGING RE JECTION OF THE BOOK RESULTS BY THE AUTHORITIES BELOW, IT WILL NOT BE PR OPER TO INTERFERE WITH THE ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 9 ORDERS OF THE AUTHORITIES BELOW WITH REGARD TO REJE CTION OF THE BOOK RESULTS U/S 145 (3) OF THE IT ACT. HOWEVER, THE FAC TS NOTED ABOVE CLEARLY PROVE THAT THERE WAS A DIFFERENCE IN THE NATURE OF CONTRACT ASSIGNED TO THE ASSESSEE IN THE ASSESSMENT YEAR IN QUESTION AS COMP ARED TO EARLIER YEARS. THE ASSESSEE HAS DECLARED MORE TURNOVERS AS COMPARED TO THE EARLIER YEARS TURNOVER. THIS WOULD BE THE REASON F OR FALL IN THE GROSS PROFIT RATE AS CLAIMED BY THE ASSESSEE. HOWEVER, IT WAS NOT APPRECIATED BY THE AUTHORITIES BELOW. SIMILARLY, NON-REPORTING OF THE TRANSACTIONS WITH A CONCERN COVERED U/S 40A (2) (B) OF THE IT ACT, AT T HE BEST CAN BE ATTRIBUTED TO THE AUDITORS OF THE ASSESSEE AND CANN OT BE GROUND TO REJECT THE VERSION OF THE ASSESSEE. IN ANY CASE, EVEN FOR APPLYING THE PROVISIONS OF SECTION 40A (2) (B) OF THE IT ACT, IT IS FOR THE AO TO MAKE OUT A CASE THAT EXPENDITURE INCURRED IS EXCESSIVE, THEREFORE, UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVI CES OR FACILITIES FOR WHICH THE PAYMENTS ARE MADE OR THE LEGITIMATE NEED S OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFITS DERIVED BY OR ACCRUING TO HIM THERE FROM, OR WHICH OF THE EXPENDITURE AS IS CONSI DERED BY THE AO TO BE EXCESSIVE OR UNREASONABLE. HOWEVER, NO EFFORT HAS B EEN MADE BY THE AO TO DO SO. IT IS ALSO A FACT THAT THE MAIN WORK ASSI GNED TO THE ASSESSEE UNDER CONTRACT WAS COMPLETED BY THE ASSESSEE THROUG H THE SUB CONTRACTORS. EVEN NO SPECIFIC DEFECT HAS BEEN POINT ED OUT IN MAINTENANCE OF BOOKS OF ACCOUNT BY THE ASSESSEE. NO SALE AND PU RCHASE HAS BEEN FOUND TO HAVE BEEN MADE OUTSIDE THE BOOKS OF ACCOUN T. EXPENSES ARE ALSO NOT FOUND TO BE MADE OUT OF UNACCOUNTED MONEY EXCEPT THE AO NOTED SOME INFIRMITY REGARDING WORK EXPERIENCE ETC. BY THE SUB CONTRACTORS I.E. PERSONS SPECIFIED U/S 40A (2) (B) OF THE IT AC T. 8. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND PARTICULARLY WHEN THE ASSESSEE HAS NOT CHALLENGED T HE FINDINGS OF THE AUTHORITIES BELOW AS REGARDS REJECTION OF BOOK RESU LTS, IT WOULD BE REASONABLE AND PROPER IN THE FACTS AND CIRCUMSTANCE S OF THE CASE TO ITA NO.981/AHD/2008 SUPER CONSTRUCTION CO. VS ITO 2, MEHSANA 10 ESTIMATE INCOME OF THE ASSESSEE REASONABLY. HONBL E PRIVY COUNCIL IN THE CASE OF CIT, CENTRAL AND UNITED PROVINCES VS LAXMIN ARAIN BADRIDAS 5 ITR 170 HELD THAT ESTIMATE OF INCOME SHOULD BE FAIR. AO SHOULD NOT ACT DISHONESTLY OR VINDICTIVELY. ALL KNOWLEDGE, PRE VIOUS HISTORY, LOCAL KNOWLEDGE AND CIRCUMSTANCES OF THE ASSESSEE T O BE CONSIDERED TO ARRIVE AT FAIR AND PROPER ESTIMATION OF INCOME. THE ULTIMATE FINDING OF THE LEARNED CIT(A) WOULD BE THA T ADDITION OF RS.1,96,893/- IS CONFIRMED BY HIM. HOWEVER, CONSIDE RING THE ABOVE DISCUSSIONS AND CONTRACT AND TURNOVER AS COMPARED T O THE EARLIER YEAR, IN THE LIGHT OF THE DECISION OF ITAT CHANDIGARH BEN CH IN THE CASE OF MICRO INSTRUMENTS CO. (SUPRA), WE MODIFY THE ORDERS OF TH E AUTHORITIES BELOW AND RESTRICT THE ADDITION IN ALL IN A SUM OF RS.50, 000/-. 9. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19-08-2010. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 19-08-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD