Income Tax Appellate Tribunal - Chandigarh
Dcit, Chandigarh vs M/S B.L. Mehta Construction Pvt. Ltd., ... on 19 June, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACOCUNTANT MEMBER
ITA No. 282/Chd/2015
Assessment years: 2010-11
M/s B.L. Mehta Construction Pvt. Ltd, Vs. The DC IT, Central Circle 1,
Chandigarh Chandigarh
PAN No. AACCB5332P
ITA No. 454/Chd/2015
Assessment years: 2010-11
The DC IT, Central Circle-1, Vs. M/s B.L. Mehta Construction Pvt. Ltd,
Chandigarh Chandigarh
PAN No. AACCB5332P
ITA No. 455/Chd/2015
Assessment years: 2011-12
The DC IT, Central Circle-1, Vs. M/s B.L. Mehta Construction Pvt. Ltd,
Chandigarh Chandigarh
PAN No. AACCB5332P
&
C.O. No.15/Chd/2015
(in ITA No. 455/Chd/2015)
Assessment years: 2011-12
M/s B.L. Mehta Construction Pvt. Ltd, Vs. The DC IT, Central Circle 1,
Chandigarh Chandigarh
PAN No. AACCB5332P
(Appellant) (Respondent)
Appellant By : Sh. T.N. Singla
Respondent By : Sh. Ravi Sarangal
Date of hearing : 23.03.2017
Date of Pronouncement : 19.06.2017
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ORDER
PER ANNAPURNA GUPTA, AM
The above appeals relate to same assessee and pertain to assessment years 2010-11 and 2011-12. The appeals in ITA Nos. 282/Chd/2015 and 454/Chd/2015 are cross appeals by the assessee and Department against the order of the CIT(A) dated 09-02-15 passed for assessment year 2010-11 while ITA No. 455/Chd/2015 is appeal of the Revenue against the order of Ld. CIT(A) dated 09-02-15 passed for assessment year 2011-12 in which the assessee has filed cross objections in C.O. No. 15/Chd/2015.
2. At the outset it may be pointed out that both the appeals filed by the Revenue were time barred by 10 days. An application for condonation of delay was filed before us dated 21.3.2017, which states as under:-
"2. In this regard, it is kindly submitted that the delay of ten days in filing the appeal in the above cited case occurred since this office had to call for Form No. 35 from the office of the Ld. Commissioner of Income Tax (Appeal)(Central), Gurgaon in the said appeals. The office being at Gurgaon is at a distance and hence it took time to arrange for copies of Form No. 35. These Forms are required to be attached with the appeals to be filed before the Hon'ble ITAT. Also, this office had to go the photocopying of the concerned documents including assessment order, CIT(A)'s order in six copies each to be attached with the appeals from the outside sources which had to be arranged at short notice since at the time the photocopier machine of the office was not 3 functional.
3. In view of the above facts & circumstances, it is requested that the grant of condonation for delay of ten days in filing the above said appeal before the Hon'ble ITAT may kindly be granted."
The Ld. Counsel for the assessee did not object to the same. Since we find that there was bonafide reason for the delay of 10 days in filing the appeal by the Revenue, we accordingl y condone the same.
3. We shall now proceed to adjudicate the appeals. It was common ground between both the parties that the issue involved in all the appeals was common and identical and, therefore, they were heard together and are being disposed off by way of a common and consolidated order. For the sake of convenience, we shall deal with the cross appeal of the assessee and Department pertaining to assessment year 2010-11.
ITA No. 282/Chd/2015 and 454/Chd/2015:-
4. The facts relating to the case are that search u/s 132(1) of the Income-tax Act, 1961 (in short 'the Act') was conducted on Mehta & Zander Group of cases on 18.2.2011 by the Investigation Wing of Income Tax, Chandigarh. The assessee M/s B.L. Mehta Construction Pvt. Ltd was one of the persons covered in the search. Notice u/s 153A of the Act was issued to the assessee, in response to which return of income declaring total income of Rs. 4,03,74,110 was filed by the assessee on 08.02.2013. Thereafter notice u/s 143(2) of the Act was issued to the assessee and assessment proceedings initiated, during the course of which the Assessing officer found that during search operation, the books of account of the assessee were neither found at its business or residential premises. The complete books of account were also not produced by the assessee 4 post-search operations. The CPU was however impounded but the same was found altered. In this backdrop the Assessing officer held that the books were incomplete and unreliable and citing instances of seizure of crucial documents, non maintenance of stock register and quantitative and qualitative detail of stock apart from non recording of expenditure properl y in the books of account, he rejected the books of accounts of the assessee u/s 145(3) of the Act and estimated profits earned by appl ying net profit rate of 7% as against 5.93% returned by the assessee. Thus an addition of Rs. 70,24,327/- was made to the income of the assessee.
Aggrieved, the assessee filed appeal before the Ld. CIT(A) who upheld the rejection of books but reduced the net profit rate applied to 6.5%, thus partl y allowing the assessee's appeal.
5. Aggrieved by the same, both the assessee and Revenue have come up in appeal before us. The assessee challenged the rejection of books of account and the application of net profit rate of 6.5% for estimating the profit earned by the assessee as also not allowing set off of surrendered income of Rs. 265 lacs against the addition made on estimated basis. The Revenue, on the other hand, challenged the reduction of net profit rate for estimating the profit of the assessee from 7% to 6.5% by the Ld. C IT(A).
6. We shall first be taking up the appeal filed by the assessee in ITA No. 282/Chd/2015. Ground No.1 raised by the assessee reads as under:-
1. That the order of Ld. Principal CIT (OSD) is bad, against the facts and law.
The above ground being general in nature needs no adjudication. 5
7. Ground No.2 raised by the assessee is against the estimation of profits @6.5% while ground no.3 challenges the rejection of Books of accounts u/s 145(3) of the Act. Since the rejection of Books of accounts precedes the estimation of profits, we shall be taking up ground No.3 first. Ground No.3 of the appeal reads as under:-
3. That the Ld. Principal CIT (OSD) has wrongly upheld the rejection of regular of books of account maintained by the assessee.
8. The Ld. Counsel for the assessee vehementl y contested the rejection of books of account and stated that the findings of the Ld. CIT(A), that assessee had failed to maintain or retain the books of account and other documents to enable determination of the total income of the assessee, was false. The Ld. Counsel for the assessee stated that complete books of account supported by vouchers were maintained by the assessee which is evident from the report of the Statutory Auditors to the Balance Sheet for the impugned assessment year wherein they have categoricall y stated that proper books of account as required by law have been kept by the company. Ld. Counsel for the assessee drew our attention to the auditor's report making the aforesaid observations placed at paper book page No.1. The Ld. Counsel for the assessee stated that even the Tax Auditor's report categoricall y mentioned that necessary books of account were maintained and examined by them, which include the cash book, ledger, stock record, bank book, at head office and branches at Chandigarh and New Delhi. Ld. Counsel for the assessee drew our attention to paper book page No.5 in this regard which was the tax audit report. Ld. counsel also pointed out to the fact that these facts were brought to the notice of the Assessing officer during assessment proceedings vide letter dated 28.2.2013. Further, Ld. Counsel for the assessee pointed out that penalt y levied for non maintenance of books of account u/s 271A in the case of the assessee for all of the search years was 6 deleted by the Ld. CIT(A) vide his order dated 7.8.2015, wherein he categoricall y held that he disagreed with the observation of the Assessing officer that regular books of account were not maintained in the case of the assessee. Ld. Counsel for the assessee drew our attention to the relevant paras of the order of CIT(A) stating so placed at paper book page no.35. The Ld. counsel also drew our attention to the order sheet entries made for the impugned assessment year and pointed out that the Assessing officer had noted in the order sheet entry dated 22.2.2013 that he had observed that books of account of the assessee were found and seized from his residence. The relevant noting in the order sheet placed at paper book page No. 41 reads as under:-
"Shri T.N. Singla, CA AR of the assessee attended and filed part reply written reply to the questionnaire dated 16.01.2013. He was asked to file the audited balance sheet & P&C account along with its annexures. Also, he was asked to show cause that since the books of account of M/s B.L. Mehta Construction Pvt Ltd found and seized from assessee's residence and business premises were incomplete books of account and were not being regularly written and were lacking in terms of supporting evidences / bills vouchers / on various accounts and assessee has failed to produce his books even after the search before the DDIT(Inv), Chandigarh, so why the same submitted now during the assessment proceedings should not be rejected and an estimation of profits be made for the contractor business. Case fixed for 08.03.2013 to rely to the above show cause."
9. The Ld. Counsel for the assessee also pointed out that even the order of the Assessing officer was contrary in this regard. The Ld. counsel stated that while in para 5, the Assessing officer stated that no books of account were found during the course of search, whereas in para 6 the Assessing officer states 7 that" complete" books of account were not produced before DDIT (Inv.) even after search. The Ld. counsel pointed out that it is not clear as to what exactl y was the charge against the assessee, whether of non maintenance the books of account or maintaining incomplete books. The Ld. Counsel for the assessee stated that evidently the charge cannot be of non maintenance of books of account, in view of his submissions made above. Further, Ld. Counsel for the assessee pointed out that if no books of account were maintained by the assessee, how the Assessing officer pointed out discrepancies in the same in the assessment order. As for incomplete books of account maintained, Ld. counsel stated that nowhere in the assessment order or even in the C IT(A)'s order, it was coming out clearl y as to how the books of accounts produced were incomplete since the same has not been specified either by the Assessing officer or by the CIT(A).Vis-a-vis discrepancies noted in the books of account, Ld. counsel for the assessee drew our attention to the submissions made before the CIT(A) in this regard reproduced at pages 10 to 12 of the CIT(A) order and stated that all the so called discrepancies were dul y explained and clarified. The Ld. Counsel thus stated that there was no reason at all to reject the Books of Accounts of the assessee.
10. The Ld. DR On the other hand, relied on the order of C IT(A) and stated that since the books of account were not found during the search or even produced by the assessee post-search, therefore, the Ld. CIT(A) had rightl y held that the assessee failed to maintain or retain the books of account and thus had rightl y upheld the rejection of books of account u/s 145(3) of the Act. Ld DR also drew our attention to the deficiencies pointed out by the AO in the Books of accounts which justified their rejection.
11. We have considered the rival submissions and perused the orders of the authorities below, as also the documents to which our attention was drawn. The 8 first fact which emerges from the above discussion and the documents produced before us, is that during the course of search, books of account were found at the assessee premises. The order u/s 133A of the Act impounding the books of account lists alongwith certain loose papers, a C.D. and in the impounding order u/s 133(1) placed at paper book page no.38 before us, it has been stated that CPU containing the books of account was impounded. As per the observations of the AO at para 5 of his order, the said CPU was operated upon and found to be altered and the files were not readable and when the assessee was confronted with the same at the time of recording statement u/s 132(4), no repl y was furnished by the assessee. These facts have not been rebutted by the Ld.Counsel for the assessee. Thus, virtuall y, no books were found to be maintained by the assessee during the course of search. But it appears from the order sheet noting made on 22-02-13, as reproduced above, that another set of Books of Accounts were produced by the assessee which the AO expressed his intention to reject, in the backdrop of the fact that the books of account found during search were incomplete .The relevant order sheet entry is being reproduced to highlight this fact:
"Shri T.N. Singla, CA AR of the assessee attended and filed part reply written reply to the questionnaire dated 16.01.2013. He was asked to file the audited balance sheet & P&C account along with its annexures. Also, he was asked to show cause that since the books of account of M/s B.L. Mehta Construction Pvt Ltd found and seized from assessee's residence and business premises were incomplete books of account and were not being regularly written and were lacking in terms of supporting evidences / bills vouchers / on various accounts and assessee has failed to produce his books even after the search before the DDIT(Inv), Chandigarh, so why the same submitted now during the assessment proceedings 9 should not be rejected and an estimation of profits be made for the contractor business. Case fixed for 08.03.2013 to rely to the above show cause."
(emphasis supplied by us) The finding of the Ld.C IT(A) in his order dt.18-08-15 deleting penalt y levied u/s 271A, which is for failing to keep and maintain any books of account and other documents as required u/s 44A of the Act, further corroborates this fact. The Ld.C IT(A) has categoricall y held in the said order that he disagreed with the AO that regular Books of accounts were not maintained by the assessee. On perusal of the order of the Ld. C IT(A), we find that the Ld.C IT(A) had observed that the assessee had contended that it had maintained proper books of account and produced the same during assessment proceedings and this contention of the assessee had not been rebutted by the Assessing officer. The Ld. C IT(A),we find, further noted that the Assessing officer had observed that there were incomplete entries in the books maintained, stock register were not maintained, purchase vouchers were absent and expenses were not properl y recorded in the books. The Ld. C IT(A) held that the said observations pertained to regular books of account maintained by the assessee and discrepancy noted therein were the reasons for rejecting the books. On this basis, the Ld. CIT(A) held that it could not be stated that regular books of account were not maintained by the assessee. This fact is further corroborated by the report of the statutory auditor's and the tax auditors of the company as pointed out before us who have categoricall y mentioned that regular books of accounts were maintained by the assessee. In the above circumstances of the case, we are unable to agree with finding of the Ld. CIT(A) that the assessee failed to maintain or retain the books of account 10 Further, even the discrepancies pointed out in the books of account, we find, have been adequately addressed by the assessee in his submissions before the Ld.C IT(A) as under:-
"3.1. Incomplete entries in the regular books of accounts being maintained by the assessee concern:-
The Learned assessing officer has objected that the assessee could not explain the source of payment made for the transfer of property SCO 273, Sector 32D, Chandigarh. In this regard, we would like to submit that the assessee has duly explained the sources of the payment for the purchase of the above said property to the satisfaction of the Learned Assessing Officer, that is why there is no separate addition u/s 68/69 for the investment in the property so alleged. Your attention is further invited to the fact that investment in the said property was made on 23.10.2008 relevant to AY 2009- 10 which is not during the year under consideration as such the same cannot be a basis for rejection of books for the AY 2007-08.
2. Non - maintenance of Stock Register & full qualitative and quantative tally:-
AO has alleged that day to day stocks register with quantitative and qualitative details were not available. Your attention is invited to the fact that assessee is having different Contract sites operative during the years and contract site wise payment details is attached at page 119. That construction site is usually managed through Munshi and it is not possible to maintain Stock Register for each item at Construction site. The material purchased includes Steel, Cement, Bricks, Sand, Bajri, Gatka and other consumable. That as per the norms laid out by Military Engineering Services for whom assessee is executing construction contracts stock details for Cement and Steel are maintained as per contract norms and the same are also maintained by MES authorities to release Secured Advance 11 and pass the bills. However, it is not possible to maintain day to day consumption of large number of consumables used in the construction line. As stock of sand, bazri, different sizes of gravels, electrical goods, plumbing goods, involves a large number of items and it is not possible to maintain consumption of every item. The fact was explained to AO during the course of assessment proceedings. The complete details of quantity consumed are available in the books of account which is always available for examination and analysis.
The method of valuation of stock was also described via written reply during the assessment proceedings.
Assessee Company has maintained the best practice as voucher of every expenditure including consumables is obtained and inventory at the end of the year and the same is adopted in the books of accounts as Closing stock of the respective year.
The accounts of the Company were audited from a Chartered Accountant as per the requirement of the Companies Act and Income Tax Act. No major discrepancy is ever found in the regular books of accounts maintained by the assessee company. Further at the end of every year we physically take stock of each and every item at the site and value these items at cost or realizable value, whichever is lower. All purchase & sales are supported by bills and vouchers and if the stock register cannot be maintained due to practical point of view, it cannot form the basis of rejection of books of account.
We also place our reliance on the judgment of Hon'ble jurisdictional high court Pandit Bros Vs CIT 26 ITR 159 (P&H) which dearly states that "the fact that the profits appeared to be tow or that no Stock register was maintained would not be sufficient material to reject the books of accounts", (copy enclosed at page 121-126JSimilarIy in the case of Ashoke Refractories P Ltd vs. CIT 279 ITR 457 12 (Cal) (copy enclosed at page 127-134) a similar view is taken by Calcutta High Court.
3. Expenditure incurred/investment not properly recorded in the books of accounts:
The Learned Assessing Officer has objected that the assessee concern has made payments of salaries & wages and of other expenses in cash Co various persons and there are purchases/ Investments which have not been properly recorded in books of accounts.
As far was as payment of wages is concerned the payment to the labour is made in cash but the same within the limits u/s 40A(3). In reference to Purchase/ Investments not properly recorded without any specific reference is a vague statement and can not be commented and relied. The kind attention of your honor is further invited to the fact that it is a settled principle of law "One cannot be condemned unheard" which in present case means that unless Purchases / Investments which have not been recorded in the books of accounts are confronted to the assessee, no adverse inference can be taken. The similar view was expressed in the case of CIT vs. Eastern Commercial Enterprises 210 ITR 103 (Cal) wherein it was held "No adverse inference can be drawn against a party unless that party is put on notice of the case made against him."
It is evident from the above that vis-a-vis the incomplete entries in the books of accounts, the assessee pointed out that the same was observed on account of a transfer of propert y to the assessee, the source of which was not dul y explained. The assessee had explained that the same did not pertain to the impugned year but to the assessment year 2009-10 and thus could not be the basis of holding that the entries in the books of account of the assessee were incomplete. The Revenue has not controverted these facts. Thus we do not find 13 any merit in the charge against the assessee of incomplete entries in the books of accounts.
As for non maintenance of stock register and quantitative and qualitative tall y, the assessee we find had adequately explained the impracticabilit y of maintaining day to day record of the material consumed by the assessee, being in the construction line using material such as bricks, sand, bajri, cement etc. The assessee had also explained the method of valuation adopted by it by stating that the stock was physicall y taken at the end of the year and valued at the cost of realizable value. Even the ld CIT(A), we find, has appreciated the impracticabilit y of maintaining stock register and quantitative and qualitative tall y of each and every item of raw material, but at the same time, held that it should have some control mechansm over purchase and consumption of at least the major items and thus should have maintained stock register failing which the books were incomplete and liable to be rejected. We are unable to agree with this contention of the Ld. C IT(A) since in a number of decisions it has been held that non maintenance of stock register would not be sufficient material to reject the books of account, more specificall y the decision of the Hon'ble Punjab & Haryana High Court in the case of Pandit Brothers Vs. C IT 261 ITR 159 (P&H)
12. As for the discrepancy pertaining to expenditure incurred or investment not properl y recorded in the books of account, the observation of the Assessing officer was that certain salary and wages had been paid in cash and purchases had not been properly recorded. In response,the assessee has pointed out that no specific reference has been made and the allegation of the Assessing officer was merel y a vague statement. Further, the assessee has contended that the payment of wages in cash was within the permissible limits prescribed u/s 40A(3) of the Act. We are in agreement with the contention of the assessee in this regard. The allegation and the charge of the Assessing officer of not properl y recording purchases or investments or expenses in the books is a vague statement and no 14 specific instance has been pointed out at any stage. In view of the same, we hold that there is no basis to the allegation leveled by the Assessing officer in this regard.
As is evident from the above, it is clear that the assessee is maintaining regular books of account and there is no discrepancy in the same so as to warrant rejection u/s 145(3) of the Act. In view of the same, we set aside the order of the Ld. CIT(A) rejecting the books of account of the assessee. Ground No.3 of the assessee's appeal, therefore, stands dismissed.
13. Since we have set aside the rejection of books of account, other grounds raised by the assessee vis-a-vis the estimation of net profit and the telescoping of the addition made on account of same against the surrender made by the assessee needs no adjudication, since the estimation of net profits was consequential to the rejection of books of accounts .
In view of the same, the appeal of the stands allowed and appeal of the Revenue is accordingl y dismissed.
ITA No. 455/Chd/2015 & C.O. No. 15/Chd/2015
14. Since the issue raised in the appeal by the Revenue and Cross objection by the assessee are identical to that were raised in the assessee's appeal and Revenue's cross appeal in ITA No. 282/Chd/2015 and 454/Chd/2015 respectivel y, as also the submissions of both the parties being similar on identical issues raised, the decision rendered above in the case of assessee and Revenue in ITA Nos. 282/Chd/2015 and in ITA No. 455/Chd/2015 above will appl y mutatis mutandis to these appeals also.
15. In the result, the appeal of the assessee in ITA No. 282/Chd/2015 and 15 Cross objection of the assessee in C.O. No. 15/Chd/2015 are allowed whereas the appeals of the Revenue stands dismissed.
Order pronounced in the Open Court on 19.06.2017
Sd/-` Sd/-
(BHAVNESH SAINI) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 19.06.2017
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR