Income Tax Appellate Tribunal - Jaipur
Acit, Jaipur vs Choudhary & Brothers, Jaipur on 18 January, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 58/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2009-10
The ACIT, cuke M/s Choudhary & Brothers
Circle-7, Vs. Village- Ladana, Phagi,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFC0190M
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri Rajjev Sagoni &
Shri Rohan Sagoni (C. A.)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl. CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 15/01/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 18/01/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the Revenue is directed against the order dated 08.10.2012 of CIT (A) for the assessment year 2009-10. The Revenue has raised the following grounds:-
"i. The CIT(A) has erred in law and on facts and in perversity, restricted the various disallowance of expenses on wages, petrol, hire charges etc. totaling Rs. 1,30,41,580/- to apply net profit ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur rate of 11.5% on an adhoc basis instead of head-wise disallowances made by the A.O. ii. The CIT(A) has erred in law and on facts and in perversity, deleted the addition of Rs. 19,30,332/- made by the A.O. u/s 40(a)(ia), ignoring the fact that payment of Rs. 17,24,553/- to M/s G.R. Contractors and Rs. 1,31,730/- to M/s Jaswant road carrier were made without TDS u/s 194C.
iii. The appellant craves leave to add, alter, amend, withdraw or insert any ground or grounds of appeal before at the time of hearing of the appeal."
2. Ground No. 1 is regarding the addition made by the AO was restricted by the ld. CIT(A) by applying net profit rate 11.5%. The assessee is a partnership firm and engaged in the business of civil contractor for construction of roads, bridges and other works. For the assessment year under consideration the assessee filed its return of income and declared net profit @ 5.22% as against 5.48% shown in the last year. The Assessing Officer while completing the scrutiny assessment u/s 143(3) of the Income Tax Act disallowed various expenses on account of wages, petrol and hire charges to the extent of 5% and 10% total amounting Rs. 1,30,41,580/- after rejecting of books of accounts u/s 145(3) of the Act. On appeal, the ld. CIT(A) has restricted the disallowance made by the AO by applying the net profit rate of 11.5% before allowing depreciation and interest. The ld. CIT(A) 2 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur has followed the decision of this Tribunal in assessee's own case for the assessment years 2007-08 and 2008-09.
3. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. There is no dispute that the Assessing Officer has rejected the books of account of the assessee by invoking the provisions of section 143 in para 4 as under:-
"4 In view of the above defects, it is evident that the correct state of affairs of the business of the assessee cannot be deducted from the books of accounts maintained. Hence, the books of accounts are liable to be rejected u/s 145(3). For the year under consideration, the assessee has shown a net profit rate of 5.22% as against 5.48% for A.Y. 2008-09. The net profit rate has decreased marginally but the defects noticed as above cannot be compensated by applying 5.48% net profit rate. Here, in view of the above discussion, the following specific disallowances are being made:
Head of expense Amount claimed % Disallowed Amount Disallowed.
Purchase 5,35,60,237/- - 26,83,716
Wages 4,05,75,824 10 40,57,582
Repair & 91,43,014 10 9,14,301
maintenance
Diesel & Petrol 4,36,76,943 10 (includes 43,67,694
disallowance u/s
40A(3))
Freight 9,09,360 5 45,468
Tour 96,394 10 9,639
3
ITA No. 58/JP/2013
ACIT v M/s Choudhary & Brothers, Jaipur
Vehicle hire 65,56,955 10 includes 6,55,695
disallowance u/s
40A(3))
Job work 4,10,265 10 41,025
Staff Welfare 1,03,763 10 10,376
Transportation 19,50,083 10 1,95,008
Miscellaneous 6,10,766 10 61,076
Total 15,00,35,031 1,30,41,580
The Assessing Officer after rejecting the books of accounts has proceeded to make the disallowance of certain expenses to the extent of 10% in most of the case except the freight expenses were disallowed at 5%. Thus, the AO made an addition of Rs. 1,30,41,580/- by disallowing various expenses and adding to the return of income of the assessee. Once, the books results are rejected by the AO then the only recourse available to the Assessing is to assess the income of the assessee on estimate basis and best decision. Therefore, the action of the AO to make these addition by disallowing the specific item of expenditure is not in accordance with the provisions of section 145(3) r.w.s. 144 of the Act. The ld. CIT(A) has confirmed the action of the AO to the extent of rejection of books u/s 145(3) of the Act however, the ld. CIT(A) has applied the net profit rate 11.5% as against 5.22% 4 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur declared by the assessee. The relevant finding of the ld. CIT(A) on this issue are as under:-
"2.3. I have duly considered the submissions of Ld. AR and material available on records. Similar disallowances/additions on the same set of facts were made in the earlier years. In A.Y. 2007-08, AO made the disallowance of various expenses resulting into addition of Rs. 1,39,94,870/-. Hon'ble ITAT disagreed with these disallowances and held that instead of disallowing expenses head-wise, a reasonable net profit rate should be applied. Tribunal directed the A.O. to apply net profit rate of 11.5% before allowing depreciation and interest. This Tribunal's order was subsequently followed by my predecessor in the appellant's case for A.Y. 2008-09 in ITA No. 208/JPR/2010-11 dated 18.07.2011, where disallowances of Rs. 3,09,63,950/- were deleted and A.O. was directed to apply net profit rate of 11.5% subject to depreciation, interest and remuneration to partners.
3. Judicial discipline requires me to follow the decisions of my predecessor and of Hon'ble ITAT in the appellant's own case for earlier year, the facts and circumstances being same. Accordingly, the head-wise disallowances are deleted and A.O. is directed to apply net profit rate of 11.5% as directly by Hon'ble ITAT in A.Y. 2007-08. The ground raised by the appellant is partly allowed."
Since, neither of the parties has challenged the action of the AO and ld. CIT(A) regarding the rejection of books of account u/s 145(3) of the Act, therefore, the decision of the ld. CIT(A) in applying the net profit rate by following the earlier orders of this Tribunal in assessee's own case cannot be faulted with. The Tribunal in assessee's own case for 5 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur the A.Y. 2008-09 vide order dated 25th May, 2012 in ITA No. 879 of 2011 has considered and decided an identical issue. We further note that for the assessment year 2010-11 vide order dated 30.06.2017 in ITA No. 722/JP/2014 the Tribunal has again considered and decided an identical issue in para 10 is as under:-
"10. If we look at the above past history of the assessee for last two assessment years where the matter has reached the Tribunal, it is clear that the AO has disallowed various expenses after rejection of the books of accounts. At the same time, there has been no disallowance of third party interest by the AO in any of these years. Thereafter, instead of specific disallowances, the ld CIT(A) as well as Tribunal have considered the position of net profit rate offered by the assessee and have thereafter directed to apply net profit rate of 11.5%. As we have held above, keeping the past history of the assessee into account, the net profit rate of 11.5% is upheld for the impunged assessment year. Further, the past history of the assessee doesn't suggest disallowance of third party interest either by the AO or by the Coordinate Benches. The Coordinate Benches have compared net profit rate as offered by the assessee which is claimed to be before depreciation, remuneration and interest payment to partners as well as interest to third parties and thereafter, directed to apply 11.5%. For the impunged assessment, we see no reason to deviate from the said settled position as both Revenue and the assessee has relied on the past history as we have discussed above. The AO is directed to apply net profit rate of 11.5% before depreciation, remuneration and interest payment to partners and interest to third parties (bank). Accordingly, there would not be any further disallowance of interest paid to 6 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur third parties amounting to Rs 24,10,948. In the result, ground no. 1 is dismissed and ground no. 2 is allowed."
Accordingly in view of the facts and circumstances of the case, when the books of accounts of the assessee were rejected u/s 145(3) of the Act then, the income of the assessee is required to be assessed on estimate basis and best judgment of the AO. Therefore, the following earlier decision of this Tribunal in assessee's own case, we do not find any error or illegality in the impugned orders of the ld. CIT(A) qua this issue.
4. Ground No. 2 is regarding deletion of disallowance u/s 40(a)(ia) of the Income Tax Act. The Assessing Officer has disallowed Rs. 19,30,332/- u/s 40(a)(ia) of the Act for non deduction of tax at source. On appeal, the ld. CIT(A) has deleted the said disallowance on the ground that the entire expenditure claimed by the assessee was paid and nothing was payable at the end of the year.
5. Before us, the ld. DR has submitted that the issue is now covered by the decision of the Hon'ble Supreme Court in the case of M/s Palam Gas Service vs CIT 394 ITR 300 whereby the Hon'ble Supreme Court has reversed the decision in the case of Vector Shipping Service P. Ltd. Vs. CIT 357 ITR 642.
7 ITA No. 58/JP/2013
ACIT v M/s Choudhary & Brothers, Jaipur
6. On the other hand, ld. AR of the assessee has not disputed that the issue regarding applicability of Section 40(a)(ia) of the Act on the amount already paid is now covered by the decision of Hon'ble Supreme Court in case of M/s Palam Gas Service vs. CIT (supra). However, the ld. AR of the assessee has submitted that once the AO rejected the books of account and the income of the assessee was estimated by the ld. CIT(A) by applying the net profit then, no further disallowance is called u/s 40(a)(ia) of the Act. In support of his contention, he has relied upon various decisions including the decision of the Coordinate Bench of this Tribunal dated 08.01.2018 in case of M/s Power Linder vs. ACIT in ITA No. 194/JP/2017. The ld. DR in his rejoinder has raised an objection that no such issue was raised by the assessee before the ld. CIT(A) or before the AO.
7. We have considered the rival submissions as well as relevant material on record. We find that so far as the issue of the amount paid or payable at the end of the year for the purpose of disallowance u/s 40(a)(ia) of the Act is concerned, the same is now covered by the decision of Hon'ble Supreme Court in case of M/s Palam Gas Service vs. CIT (Supra). Therefore, the order of the ld. CIT(A) qua this issue is not sustainable and liable to be set aside. However, the assessee had 8 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur contested before the ld. CIT(A) against the disallowance made u/s 40(a)(ia) of the Act and the ld. CIT(A) has allowed the claim of the assessee on one aspect of the issue without going into the issue of disallowability u/s 40(a)(ia) of the Act when the income of the assessee is estimated by applying net profit rate. Even if the said particular aspect of the issue was not before the ld. CIT(A) it is to be seen whether any disallowance u/s 40(a)(ia) would be made when the income of the assessee is assessed on the basis of net profit estimated by the ld. CIT(A) after rejection of the books of accounts of the assessee u/s 145(3). At the outset, we note that the Coordinate Bench of this Tribunal in case of M/s Power Liner vs. ACIT has considered this issue in para 5 as under:-
"5. We have considered the rival submissions as well as relevant materials available on the record. There is no dispute that the income of the assessee was determined by the Assessing Officer on the basis of the estimation and best judgment after rejecting the books of account U/s 145(3) of the Act. The Assessing Officer has applied N.P. rate of 8% on the total receipts of Rs. 1,53,44,942/- and accordingly, the addition of Rs. 2,18,277/- was made by the Assessing Officer. The ld CIT(A) has confirmed the addition of the Assessing Officer by rejecting the contention of the assessee. The amount was already paid during the previous year and not payable at the end of the year. Thus, it is clear that the contention raised by the assessee before us that after rejection of books of account and estimation of income of 9 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur the assessee, no further addition can be made by the Assessing Officer, has not been considered or decided by the ld. CIT(A). We find that the Coordinate Bench of this Tribunal in the case of Rakesh Construction Co. Vs. ACIT (supra) while dealing with the identical issue has held in para 2.4 as under:
"2.4 We have heard the rival contentions and perused the material available on record. In the instant case, the books of accounts were rejected u/s 145(3) of the Act and thereafter the AO has estimated net profit @ 5.05% on contract receipt after deduction of depreciation, interest and remuneration paid to partners as against net profit of 2.39% declared by the assessee. From the perusal of the assessment order, it is noted that there have been discussions between the AO and the assessee in terms of estimating the net profit rate once the books of account have been rejected. As part of that discussion, it is noted that in response to AO's show-cause as to why 8.5% net profit rate should not be allowed, the Id. AR has submitted that if the net profit at the rate of 8.5% is applied, then the deduction on account of payment of hiring charges for machinery taken on rent amounting to Rs. 22,41,600/- and Rs. 21,60,000/- are also to be allowed. The Ld. AO finally decided to apply net profit of 5.05% which has been agreed upon by the assessee. It is therefore seen that issue of allowance of payments of machinery hire charges has been duly taken into consideration by the AO while estimating the N.P. rate of 5.05% Further, it is noted that the decision of Hon'ble Kolkatta High Court in the case of Arjun Bhowmick (supra) directly support the case of the assessee. In that case, the view taken by the Kolkotta Bench of the ITAT has been confirmed by the Honble High Court wherein it has held that "once the n.p. rate is estimated, the AO cannot based this disallowance on the same books of accounts for the purpose of disallowance by invoking provisions of section 40(a)(ia) of the Act or general disallowance u/s 37 of the Act. The estimation made by the AO of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made." It is also noted that Jaipur Bench of ITAT in the case of Banas Sand Toll Tax collection (supra) has taken a similar view in the matter following the decision in case of Hon'ble Andhra Pradesh High Court in 10 ITA No. 58/JP/2013 ACIT v M/s Choudhary & Brothers, Jaipur the case of Indwell Construction (232 ITR 776). In light of above, we see no reason for AO to invoke provisions of section 154 of the Act. Hence, the order passed by the AO u/s 154 is quashed and the original order passed u/s 143(3) of the Act is sustained."
Following the order of the Coordinate Bench of this Tribunal (supra) we delete the addition made by the Assessing Officer on this account.
Thus, it is clear that the Tribunal in the above said case as decided this issue in favour of the assessee and against the Revenue by following the earlier decision of this Tribunal as well as the decisions of Hon'ble Kolkatta Benches of Tribunal in case of DCIT vs. Arjun Bhumik 55 SOT 82 as well as decision of Hon'ble Allahabad High Court in case of Geep Industrial Ltd. vs. CIT 232 ITR 456. Following the earlier decision of this Tribunal we decide this issue in favour of the assessee and against the Revenue.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 18/01/2018 Sd/- Sd/-
¼Hkkxpan ½ ¼fot; iky jko½
(Bhagchand) (Vijay Pal Rao)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 18/01/2018.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to: 11 ITA No. 58/JP/2013
ACIT v M/s Choudhary & Brothers, Jaipur
1. vihykFkhZ@The Appellant- ACIT), Circle-7, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Choudhary & Brothers, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 58/JP/2013} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 12