M/S Arjit Construction, Jabalpur V. A.C.I.T1(1), Jabalpur

ITSSA 1/JAB/2013

• Counselvise Citation: [2015] 122 COUNSELVISE.COM (IT) 0732 (ITAT-JABALPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-02-2013
• Court: TRIBUNAL
• Department Lawyers: V B SA R GAR LD
• Assessee Lawyers: ANIL GUPTA LD
• Keywords: Depreciation; Question of law
• Section: 44AD; 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , JABALPUR BENCH, JABALPUR [BEFORE SHRI D.T GARASIA, JM & SHRI B.C.MEENA , AM ] I.T (SS) NO S . 01 TO 03/JAB/2013 A.Y S. 200 7 - 08, 08 - 09 & 09 - 10 M/S. ARJIT CONSTRUCTION VS. ASSTT. COMMISSIONER O F INCOME - TAX , PAN: A AF A9450 D 1(1), JABALPUR ( APPELLANT ) ( RESPONDENT ) FOR THE APPELLANT : SHRI ANIL GUPTA , LD.AR FOR THE DEPARTMENT : SHRI V.B SA R GAR, LD.DR DATE OF HEARING: 2 6 - 05 - 2015 DATE OF PRONOUNCEMENT: 29 - 05 - 2015 ORDER PER SHRI D.T GARASIA, J M: TH ESE APPEAL S HA VE BEEN FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF THE LD. CIT(A), JABALPUR DATED 25 - 06 - 2012 FOR THE ASSESSMENT YEAR S 2007 - 08, 08 - 09 A ND 09 - 10 RESPECTIVELY. SINCE THE ISSUES INVOLVED IN ALL THESE THREE APPEALS ARE COMMON, THEREFORE, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING COMMON GROUND S OF APPEAL IN IT(SS) NOS.01, 02 &03/JAB/2013 FOR THE A.YS 2007 - 08, 08 - 09 AND 09 - 10 RESPECTIVELY: - 1 . TH AT THE LD.CIT(A PPEALS) IS NOT JUSTIFIED IN SUSTAINING THE ASSESSED INCOME ESTIMATED AT 5% OF GROSS CONTRACTUAL RECEIPTS WITHOUT GIVING SEPARATE FURTHER DEDUCTION OF DEPRECIATION CLAIM ED VIDE CIRCULAR NO.29 - D (XIX - 14) F NO. 45/239/65 - ITJ ) DATED 31.08.1965, AND INTEREST AND SALARY PAID TO THE PARTNERS U/S.40(B) OF THE I.TAX ACT, 1961, WITHOUT ADJUDICATING THAT THE SAME DOES NOT AMOUNT TO DOUBLE TAXATION. 2 . THAT THE LD.CIT(APPEALS) ERRED IN L AW ON FACTS AND CIRCUMSTANCES OF THE CASE IN SUSTAINING THE ESTIMATED ASSESSED INCOME AT 5% OF GROSS CONTRACT RECEIPTS WITHOUT LOOKING TO THE PAST HISTORY OF THE CASE, WHEREAS HE HIMSELF ACCEPTED U/S.143(3)/153C ORDER THE NET PROFIT SHOWN AT 0.51% (A.Y 200 3 - 04), 0.41%(A.Y 2004 - 05) AND 1.13%(A.Y 1.13% ) OF GROSS CONTRACT RECEIPTS AS AGAINST SHOWN AT 2.06% (A.Y 2007 - 08), 2.66% (A.Y 2008 - 09), 3.64% (A.Y 2009 - 10) . 3 . THAT THE LD.CIT(APPEALS) ERRED IN NOT ACCEPTING THE VARIOUS ITAT JUDGMENTS IN CASE OF CONTRACTORS - S UCH AS ITO VS. B.R CONSTRUCTIONS, INDORE (2005) 3 ITJ 302(INDORE ITAT), SHRI RAM JHANWARMAL VS. ITO(2005) 98 TTJ(JD) 639 ETC. WHICH HELD ESTIMATING 5.03 TO 8% OF GROSS CONTRACT RECEIPT AS REASONABLE SUBJECT TO FURTHER DEDUCTION OF THIRD PARTY INTEREST, DEP RECIATION AND INTEREST AND SALARY TO PARTNERS. 2 IT (SS) NOS.01 TO 03/JAB/2013 M/S. ARJIT CONSTRUCTION 3. C OMMON FACTS OF THE CASE ARE THAT A SEARCH & SEIZURE OPERATION IN THE PREMISES OF SHRI ASHWINI KUMAR SHRIVASTAVA CERTAIN DOCUMENTS AND DIARIES WERE SEIZED WHICH HAD DIRECT LINKS WITH THE FUNCTIONING OF AS SESSE E . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CON STRUCTION. DURING THE COURSE OF HEARING THE A.O. ISSUED NOTICE U/S. 142(1) ALONG DETAILED QUESTIONNAIRE TO VERIFY THE CLAIM OF THE ASSESSEE . A SSESSEE WAS REQUIRED TO SUBMIT THE DETAILS, SUPPO RTING EVIDENCES AND EXPLANATIONS IN CASE PURCHASE OF JEEP [RS. 4,01,000], MOTOR CYCLE [RS. 1,76,972], PLANT & MACHINERY [RS. 41,50,247/ - AND TRUCK [RS.2,24,65,348/ - . THE A.O. ALSO VERIFIED THE OUTSTANDING LOAN OF RS.40,57,132, LABOUR EXPENSES OF RS.12,29,31,4 17/ - , DEDUCTION AND ROYALTY OF PWD [RS. 98,52,917.73, R S. 81,66,236] , DIESEL AND OIL EXPENSES OF RS. 2,19,21,737.79 . VIDE QUERY NO.7 OF THE NOTICE ISSUED U/S. 142(1) DATED 23 - 11 - 10 THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY N.P @5% SHOULD NOT BE ADOPTED FOR A RRIVING AT THE NET INCOME FROM BUSINESS AND ACCORDINGLY ADDITION OF RS.1,15,80,676/ - SHOULD NOT BE MADE IN THE TOTAL INCOME DECLA R E D . THE ASSESSEE REPLIED VIDE PARA 5 OF THE ASSESSMENT ORDER. AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE A.O. WAS OF THE VIEW THAT THE ASSESSEE COULD NOT FILE FULL DETAILS OF VOUCHER REGARDING THE LABOUR PAYMENT , ROYALTY TO PWD AND LABOUR WELFARE EXPENSES . THERE WAS SOME DEFECTS. THEREFORE, THE A.O. HAS REJECTED THE BOOK RESULT AND APPLIED THE N.P @5% AFTER DEPRECIATION ON THE GROSS CONTRACTUAL RECEIPTS FOR EACH ASSESSMENT YEAR UNDER CONSIDERATION TO ARRIVE AT THE NET INCOME OF THE BUSINESS OF THE ASSESSEE. THE REFORE, THE A.O. MADE THE ADDITIONS OF R S.1,46,00,262 FOR THE A.Y 07 - 08, RS.1,14,50,883/ - FOR THE A.Y 08 - 09 AND RS. 52,33,578/ - FOR THE A.Y 09 - 10 RESPECTIVELY. THE A.O. FURTHER HELD THAT INCOME OF THE ASSESSEE SHOULD BE DETERMINED AT 5% OF THE GROSS CONTRACTUAL RECEIPTS WITHOUT GIVING FURTHER DEDUCTION OF DEPRECIATION, INTEREST AND REMUNERATION PAID TO THE PARTNERS AS SHOWN IN THE P & L ACCOUNT. 4 . MATTER CARRIED TO LD. CIT(A) . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS DISMISSED THE APPEAL S OF THE ASSESSEE ON THIS ISSUE . 5. AGAINST THE ORDER OF THE LD.CIT(A) , NOW T HE ASSSSEE IS IN APPEAL BEFORE US. 6 . DURING THE COURSE OF HEARING THE LD.AR FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS A CIVIL CONTRACTOR. THERE WAS A SEARCH & SEIZURE OPERATION IN THE PREMISE OF SH.ASHIWINI KUMAR SHRIVASTAVA, ONE OF THE PARTNER OF THE ASSESSEE FIRM. THEREFORE, THE A.O HAS RE - OPENED THE ASSESSMENTS FOR SIX ASSESSMENT YEARS FROM ASSESSMENT YEARS 2004 - 05 TO 009 - 10 . THE I.T RETURNS FOR THE A.YS 2004 - 05, 05 - 06, 06 - 07 WERE ORIGINALLY PROCESSED U/S. 143(3) OF THE ACT . THE A.O. HAS ACCEPTED THE ORIGINAL R ETURNS FILED U/S. 153C OF THE ACT FOR THE A.YS 04 - 05, 05 - 3 IT (SS) NOS.01 TO 03/JAB/2013 M/S. ARJIT CONSTRUCTION 06 AND 06 - 07, 07 - 08, 08 - 09 & 09 - 10. AGAINST THE A.YS. 2007 - 08 TO 09 - 10 THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE A.O. HAS REJECTED THE BOOKS RESULT AND ESTIMATED N.P @5% FOR THE A.Y S UNDER CONSIDERATION. THE ASSESSEE HAS ACCEPTED THE N.P RATE OF 5% . THE LD.AR SUBMITTED THAT LOOKING TO THE PAST RECORDS FOR THE A.YS 04 - 05, 05 - 06 AND 06 - 07 THE A.O. HAS APPLIED THE N.P AT 5% WITHOUT ALLOWING DEPRECIATION, SALARY AND INTEREST PAYMENT T O PARTNERS FOR THE A.YS UNDER CONSIDERATION. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE A.O. HAS NOT CONSIDERED THE CBDT CIRCULAR NO.029D(XIX - 14 ) DT. 31 ST AUG 1965 . S EPARATE DEPRECIATION AND ALSO DEDUCTION OF INTEREST AND REMU NERATION TO PARTNERS WERE NOT ALLOWED BY THE A.O. IN ESTIMATING THE NET PROFIT/ INCOME OF THE ASSESSEE. THE LD.AR ALSO SUBMITTED THAT THE ASSESSEE HAS SUBMITTED THE AUDITED FINANCIAL STATEMENT IN WHICH THE ASSESSEE HAS SPECIFICALLY CLAIMED DEPRECIATION AND ALSO SHOWN DETAILS OF FIXED ASSETS IN THE BALANCE SHEETS. DETAILS OF DEPRECIATION, INTEREST AND REMUNERATION PAID TO PARTNERS WERE ALSO ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND THE ALSO CLAIMED THE SAME IN THE RESPECTIVE I.T RETURNS . THE A.O. HAS REJECTED T HE BOOKS RESULT AND ESTIMATED THE NP @5% OF GROSS CONTRACTUAL RECEIPTS. MOREOVER, THE LD.AR FOR THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF THE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. M/S. JAIN CONSTRUCTION CO. & ORS REPORTED IN 245 ITR 527( RAJ). 7. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 8 . WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, W E FIND THAT THE ASSESSEE IS CIVIL CONTRACTOR . THERE WAS A SEARCH & SEIZURE OPERATION IN THE PREMISE OF ONE PARTNER, SH. ASHIWINI KUMAR SHRIVASTAVA. THEREFORE, THE ASSESSMENTS FOR THE A.YS 2004 - 05, 05 - 06 & 06 - 07 AND RETURNS FILED IN RESPONSE TO SECTION 153C OF THE ACT WERE ACCEPTED, WHICH A R E AVAILABLE AT PAGES 156 - 181 OF THE APB [ASSESSEE S PAPER BOOK] . IN ALL THESE ASSESSMENT YEARS THE A.O. HAS APPLIED AND ESTIMATED THE N.P AT 5% OF THE GROSS CONTRACTUAL RECEIPTS BY REJECTING THE BOOKS RESULT. THE ONLY DISPUTE BEFORE US THAT IN A.YS. 07 - 08, 08 - 09 AND 09 - 10 THAT THE A.O. ESTIMATED THE N .P AT 5% BY REJECTING THE BOOK RESULT WITHOUT ALLOWING DEPRECIATION, INTEREST AND SALARY PAID TO PARTNERS . WE FURTHER FIND THAT THE SIMILAR ISSUE HAS COME UP BEFORE THE HON BLE RAJASTHAN H.C HAS HELD IN THE CASE OF M/S. JAIN CONSTRUCTION CO. REPORTED IN 245 ITR 0527(RAJ) , WHEREIN IT HAS BEEN HELD AS UNDER: - IN CASE OF WORKING PARTNERS, PAYMENTS OF SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME IT CALLED IN TERMS OF THE PARTNERSHIP DEED IS ALLOWABLE AS DED UCTION TO THE EXTENT OF LIMIT PROVIDED UNDER S.40(B) . IN THIS GROUP OF CASES, THE TRIBUNAL AFTER EXAMINING THE PARTNERSHIP DEED IN ALL INDIVIDUAL CASES FOUND THAT THE CLAIM OF ASSESSEE FOR INTEREST ON CAPITAL CONTRIBUTION BY PARTNERS AND SALARY TO WORKING PARTNERS WAS ALLOWABLE 4 IT (SS) NOS.01 TO 03/JAB/2013 M/S. ARJIT CONSTRUCTION DEDUCTIONS TO THE EXTENT OF LIMIT PROVIDED UNDER S.40(B) . THE TRIBUNAL WAS JUSTIFIED IN DOING SO. THE FINDING OF FACT DOES NOT GIVE RISE TO QUESTION OF LAW. IT IS CLEARLY PROVIDED THAT THE AMENDMENT TO S.40(B) WILL TAKE EFFECT FROM 1 ST APRIL, 1993, AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASST. YR 1993 - 94 AND THE SUBSEQUENT YEARS THERETO. IT IS ALSO PROVIDED THAT IT PERTAINS TO THE PAYMENT TO THE PARTNER DURING PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON 1 ST APRI L, 1993 , THE PREVIOUS YEAR IS 1992 - 93 AND THE ASST. YR. 1993 - 94. DEALING WITH THE QUESTION OF CLAIM OF DEPRECIATION IN A CASE OF DETERMINATION OF INCOME APPLYING THE NET PROFIT RATE, IT WOULD BE PERTINENT TO REFER THE CIRCULAR DT. 31 ST AUG, 1965, ISSUED B Y THE CENTRAL BOARD OF REVENUE, WHICH PROVIDES THAT IF A CLAIM FOR DEPRECIATION IS MADE BY THE ASSESSEE IN THE RETURN AND THE ITO PROPOSES TO ESTIMATE THE PROFITS, THE DEPRECIATION ALONE SHOULD BE SEPARATELY WORKED OUT. THE BOARD CLEALY POINTED OUT THIS ASPECT OF THE MATTER IN PARA 2 OF THE CIRCULAR, WHERE IT PARTICULARLY DIRECTS THAT IN ALL SUCH CASES, THE GROSS PROFIT SHALL BE ESTIMATED AND THE DEDUCTION AND ALLOWANCE INCLUDING THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PRO FIT. THE BOARD HAS FURTHER POINTED OUT THAT IF IT IS CONSIDERED THAT THE NET PROFIT SHOULD BE ESTIMATE, IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THEREFROM. THE CONTENTION THAT THE CIRCULAR OF THE BOARD IS NOT BINDING ON THE COURTS AND IT IS ONLY FOR GUIDANCE OF THE ASSESSING AUTHORITY IS NOT SUSTAINABLE. THERE IS NO MERIT IN THE ANOTHER CONTENTION OF REVENUE THAT GIVING EFFECT TO THE ORDER O THE TRIBUNAL WILL TANTAMOUNT TO SAME DE DUCTIONS TWICE. THE PREMISES OF THE CONTENTION APPEARS TO BE THE PRESUMPTION THAT DEPRECIATION MUST HAVE BEEN CONSIDERED TO HAVE BEEN ALLOWED IN ARRIVING AT THE NET PROFIT. IT IS NOT PERMISSIBLE TO DRAW SUCH PRESUMPTION. AN A.O. IS EXPECTED TO BE CONSCIOU S OF THE CLAIM OF THE ASSESSEE FOR ALLOWANCE OF DEPRECIATION AND THAT HE HAS TO DEAL WITH IT IN COMPUTING THE INCOME, BY APPLYING NET PROFIT. THUS, THE ASSESSEE IS ENTITLED TO DEPRECIATION AS ADMISSIBLE UNDER THE RULES ON THE ASSETS USED IN THE BUSINESS AS CLAIMED IN THE RETURN . IN A CASE OF REJECTION OF ACCOUNTS AND ESTIMATE OF NET PROFIT, DEPRECIATION IS REQUIRED TO BE WORKED OUT SEPARATELY. IT WILL ALSO BE RELEVANT TO CONSIDER S. 44AD , WHICH IS A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF BU SINESS OF CIVIL CONSTRUCTION , ETC. NOW IN CASE OF ASSESSEE ENGAGED IN BUSINESS OF CIVIL CONSTRUCTION OR SUPPLY OF LABOUR FOR CIVIL CONSTRUCTION FIXED RAT OF NET PROFIT OF 8 PER CENT HAS BEEN PROVIDED. P R OVISO TO SUB - S (2) PERMITS SALARY AND INTEREST PA ID TO THE PARTNERS DEDUCTED FROM THE FIXED NET PROFIT OF 8 PER CENT SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CL(B) OF S.40. THUS, THERE IS FURTHER SIMPLICATION AND CERTAINLY IN COMPUTATION OF INCOME. INSTRUCTIONS CONTAINED IN PARA 2 OF THE CIRCULA R OF THE YEAR 1965 HAVE BEEN BROUGHT IN THE STATUTE, THEREBY THE DOUBTS, IF ANY, WITH RESPECT TO SUBJECT CIRCULAR HAVE BEEN SETTLED. THE TRIBUNAL WHILE ALLOWING THE APPEAL HAS DIRECTED THE ASSESSING AUTHORITY TO RECOMPUTED THE TOTAL INCOME AS ESTIMATED B Y HIM AND ALLOW RELIEF ON ACCOUNT OF PAYMENT OF INTEREST AND CLAIM OF DEPRECIATION. THE FINDING RECORDED BY THE TRIBUNAL IS PURELY A FINDING OF FACT, BASED ON PROPER APPRECIATION OF MATERIAL ON RECORD AND THE EVIDENCE PRODUCED BY THE ASSESSEE. AS NO QU ESTION OF LAW ARISES OUT OF THE ORDER 5 IT (SS) NOS.01 TO 03/JAB/2013 M/S. ARJIT CONSTRUCTION PASSED BY THE TRIBUNAL, THERE IS NO FAULT WITH THE ORDER OF THE TRIBUNAL DECLINING TO REFER THE QUESTION. 9. WE FURTHER FIND CBDT CIRCULAR NO.029D(XIX) - 14) DA T ED 31 ST AUGUST, 1965 HAS DISCUSSED THE ISSUE REG. ESTIMA TION OF NET PROFIT AND ALLOWABILITY OF DEPRECIATION , PARTNERS SALARY AND INTEREST ALLOWANCE. WE FIND THAT THE HON BLE RAJASTHAN H.C IN THE CASES (SUPRA) HAS HELD THAT IF THE ASSESSEE IS IN CIVIL CONSTRUCTION BUSINESS AND IF ALL THE BOOKS OF ACCOUNT WERE P RODUCED BEFOR E THE A.O. AND A.O. IS NOT SATISFIED WITH THE BOOKS RESULT OF THE ASSESSEE AND IF HE ESTIMATED THE N.P RATE STILL ASSESSEE IS ENTITLED TO DEDUCTION TOWARDS PAYMENT OF SALARY/INTEREST TO THE PARTNERS TO THE EXTET LIMIT PROVIDED BY AMENDED I N SECTION 40(B) . THE HON BLE HIGH COURT HAS FURTHER HELD THAT THE DEPRECIATION IS TO BE ALLOWED SEPARATELY AS PER SAID CBDT CIRCU LAR NO. 029D(XIX - 14) DT. 31 ST AUGUST 1965. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE HAS SUBMITTED THE AUDITED FINANCIAL STATEMENTS IN WHICH ASSESSEE HAS BASICALLY CLAIMED DEPRECIATION AND ALSO DETAILS OF FIXED ASSETS MENTIONING IN THE BALANCE SHEET . THESE ARE AVAILABLE AT PAGE 62 TO 128 OF THE PB. THE DETAILS OF DEPRECIATION, INTEREST AND REMUNERATION PAID TO PARTNERS ALL ARE ACCOUNTED IN THE BOOKS OF ACCOUNT AND SAME ALSO CLAIMED IN THE I.T RETURNS, AVAILABLE AT PAGE 132 OF THE PB. WE ALSO FIND THAT THE ASSESSEE CLAIMED INTEREST AND REMUNERATION TO PARTNERS AS PER PARTNERSHIP DEED. THEREFORE, RELYING UPON ON THE DOCUMENTS , SAID CBDT CIRCULAR AND THE DECISION AND FINDING OF THE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF (SUPRA) , WE HOLD THAT THE ASSESSEE FIRM IS ENTITLED FOR SEPARATE DEDUCTION OF DEPRECIATION, INTEREST AND SALARY PAYMENT TO PARTNERS. THE A.O. IS DIRECTED T O ALLOW THE SAME AND THEN ESTIMATE THE NET PROFIT/INCOME OF THE ASSESSEE AFTER DEDUCTING THE SEPARATE DEPRECIATION, PARTNERS SALARY AND INTEREST AS SHOWN BY THE ASSESSEE . 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AS STATED ABOVE. ORDER IS P RONOUNCED IN THE OPEN COURT ON 29 - 05 - 2015 SD / - SD/ - ( B.C. MEENA ) ( D.T GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29 - 0 5 - 2015 **PRADIP (SR.P.S.) 6 IT (SS) NOS.01 TO 03/JAB/2013 M/S. ARJIT CONSTRUCTION COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT 2 RESPONDENT 3 . THE CIT(A) CONCERNED 4. 5. THE CIT CONCERNED THE D . R 6. GUARD FILE TRUE COPY, BY ORDER, ASSTT. REGISTRAR .