Income Tax Appellate Tribunal - Jodhpur
Income Tax Officer vs Chohtan Construction Co. on 5 March, 2004
Equivalent citations: (2004)84TTJ(JODH)693
ORDER
N.K. Saini, A.M.
1. This is an appeal by the Department against the order of the learned CIT dt. 24th March, 1990.
2. The first ground of the appeal relates to the deletion of addition of Rs. 1,10,951 representing purchase of cement and expenses incurred towards soiling and concrete, etc.
3. The facts related to the issue in brief are that the assessee was engaged in the business of civil contract and had shown gross receipts of Rs. 9,51,866. The net profit had been declared at Rs. 63,227, after reducing the depreciation of Rs. 48,660. The rate of net profit came to 6.64 per cent after depreciation and 12.27 per cent before depreciation. The assessee claimed expenses at Rs. 1,05,180 in cement and Rs. 50,771 on account of soiling/Kankeri Tudai/water expenses. The AO observed that the assessee had shown closing stock of cement at Rs. 45,000 and was not maintaining proper voucher in respect of expenses claimed. He, therefore, disallowed Rs. 60,180 (Rs. 1,05,180 - Rs. 45,000) out of cement account and whole of the claim amounting to Rs. 50,771 under soiling, Kankari Tudai/water charges was disallowed.
4. The assessee carried the matter to the learned CIT(A) and submitted that the net profit declared by the assessee before depreciation was very much reasonable and no further addition was called for. The learned CIT(A) after considering the submission of the assessee held that no doubt the accounts of the assessee were not acceptable. However, the net profit rate shown was reasonable. Therefore, there was no question of making further addition in the trading account. Accordingly, the additions made by the AO were deleted.
5. Being aggrieved, the Department is in appeal. The learned Departmental Representative supported the order of the AO, In his rival submissions, the learned counsel for the assessee vehemently argued that the expenses claimed by the assessee were very much reasonable and the net profit rate was reasonable in comparison to the preceding year and the AO had not cited any case where the net profit rate was higher in the similar type of business. He further stated that if the addition made by the AO is considered, the profit of the assessee would be at an exorbitant figure which is not heard and seen in such type of business. He, therefore, relied upon the order of the learned CIT(A).
6. After considering the submissions of both the parties and the material available on record, it appears that the AO disallowed the claim of the assessee in an arbitrary manner. The AO had not doubted the net profit rate shown by the assessee. It is not the case of the AO that the net profit rate shown by the assessee in this year was not comparable with the preceding years or with other assessees engaged in similar type of business. The assessee had shown net profit rate before depreciation at 12.27 per cent in the civil contract works. This profit appears to be reasonable particularly when the AO has not doubted the same. We also find substance in the submission of the learned counsel for the assessee that if addition made by the AO is considered, the net profit would be at an exorbitant figure, which is not possible in such type of business. Considering the totality of the facts, we do not see any valid ground to interfere with the order of the learned CIT(A).
7. The next issue agitated by the Department relates to deletion of addition of Rs. 20,000. The AO found that there was a deposit of Rs. 20,000 in the partner Shri Amritlal's account. The AO added the same in the hands of the assessee, considering it as income from undisclosed sources. Before the learned CIT(A), the assessee submitted that the partner Shri Amritlal was separately assessed to tax with the same AO and, therefore, the deposit of Rs. 20,000 made by him should be considered in the partner's assessment. The learned CIT(A) after considering the submissions of the assessee observed that the partner Shri Amritlal was separately assessed to tax and he had made the advance of Rs. 20,000, which could be considered only in his hands. Accordingly the addition was deleted. The learned CIT(A) stated while deleting the aforesaid addition that the partner had confirmed the loan.
8. After considering the submissions of both parties and the material available on record, we are of the view that in the instant case, the identity of the partner was not in doubt. The partner himself admitted giving a loan of Rs. 20,000, i.e., to the assessee-firm. It is also not the case of the AO that partner was not assessed. Therefore, we do not see any infirmity in the order of the learned CIT(A).
9. Before parting, we may refer that the ratio laid down by the Hon'ble Madhya Pradesh High Court in the case of CIT v. Metachem Industries (2000) 245 ITR 160 (MP) is squarely applicable to the facts of the present case, wherein it has been held that:
"Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income-tax payer or not and where he had brought this money from, is not the responsibility of the firm, The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax."
In view of the ratio laid down by the Hon'ble Madhya Pradesh High Court (supra), no addition was called for in the hands of the firm. In that view of the matter, we see no merit in this Departmental appeal on this issue also.
10. In the result, the appeal is dismissed.