Income Tax Appellate Tribunal - Amritsar
Arihant Builders, Jalandhar vs Department Of Income Tax on 10 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No. 401(Asr)/2011
Assessment year:2007-08
PAN :AABFA4896P
Asstt. Commr. of Income-tax, vs. M/s. Arihant Builders,
Circle IV, Jalandhar. Sodal Road, Jalandhar.
(Appellant) (Respondent)
C.O. No.18(Asr)/2011
(Arising out of I.T.A. No. 401(Asr)/2011)
Assessment year:2007-08
PAN :AABFA4896P
M/s. Arihant Builders, Vs. Asstt. Commr. of Income-tax,
Sodal Road, Jalandhar. Circle IV, Jalandhar.
(Appellant) (Respondent)
Department by: Sh. R.L. Chhanalia, DR
Respondent by: Sh. Kuldip Bhagat, CA
Date of hearing: 10/07/2012
Date of pronouncement:16/07/2012
ORDER
PER BENCH ;
The Revenue has filed the present appeal against the impugned order of the CIT(A), Jalandhar, dated 29.04.2011 for the assessment year 2007-08. The assessee has also filed C.O. 2 ITA No.401(Asr)/2011 CO No.18(Asr)/2011
2. The grounds of appeal raised by the Revenue are as under:
"1. That on the facts and in the circumstances of the case the ld.
CIT(A) has erred in law by directing the A.O. to apply the N.P. rate 4% on the total receipt as against 8% applied by the A.O. 1a. While doing so, the Ld. CIT(A) has failed to appreciate that the A.O. applied the N.P. rate of 8% after examining the books of account and duly established hat the receipts on account of sale of old dismantled material had been suppressed, expenditure on account of wages had been inflated and stock particulars were not verifiable.
2. It is prayed that the order of the ld. CIT(A) be set-aside and that of the A.O. be restored.
3. The appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of."
3. In the C.O. the assessee has raised following grounds:
"1. That on the facts and circumstances of the case, ld. CIT(A), Jalandhar, has grossly erred in upholding the rejection of book results by the A.O. u/s 145(3) of the Income-tax Act.
2. That the Ld. CIT(A) Jalandhar, has wrongly applied N.P. rate of 4% of the Gross receipts against the 2.79% declared by the assessee, as books of accounts properly maintained and audited u/s 44AB of the Income-tax Act.
3. That the appellant requests for leave to add or annex any other grounds of cross objections before the appeal is heard or disposed off."
4. The disputes in the appeal filed by the Revenue as well as C.O. filed by the assessee are that whether the ld. CIT(A) has erred in applying N.P. rate of 4% on the total receipts as against 8% applied by the A.O. and 3 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 secondly whether the ld. CIT(A), Jalandhar, has rightly upheld the action of the A.O. in rejecting the books of account u/s 145(3) of the Act inspite of the fact that the assessee's books of account has been audited under section 44AB of the Act.
5. The facts relating to the issues in dispute are that the assessee is a civil contractor, filed its return of income on 30.10.2007 declaring total income of Rs.17,07,660/- and the same was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter called 'the Act'). The AO selected the case for scrutiny by issuing notice u/s 143(2) of the Act on 24.09.2009, which was served on the assessee on 26.09.2008. The AO also issued another notices under section 143(2) and 142(1) alongwith questionnaire to the assessee on 10.09.2009. In response to the said notices, the authorized representative of the assessee attended the proceedings before the A.O. from time to time and furnished all necessary documentary evidence alongwith the books of account, bills and vouchers in support of expenses claimed etc. The AO examined the same. After examining all necessary documentary evidence filed by the assessee, the AO found that during the year under consideration, the assessee executed two contracts of M.E.S. as per profit & loss account of the assessee annexed with the return of income on receipts of 4 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 Rs.5,93,57,918/-. During the year under consideration, the N.P. of Rs.17,07,660/- has been returned, which gave the net profit rate of 2.87% only as compared to 4.38% returned during immediate preceding assessment year. The AO asked the assessee to explain the decline in N.P. rate as compared to preceding assessment year, the assessee filed its reply dated 4th Nov., 2009 and contended that for the works executed by the assessee, the cost of cement used was Rs.153/- per bag. However, the cost of the cement gradually increased to Rs.242/- per bag. The price of the cement which was selling at Rs.21.10. per kg. during the month of Nov., 2005 rose to Rs.28.88 per kg. towards March, 2007 and the price of the bricks which was available at the rate of Rs.1000/- per thousand of bricks also rose to Rs.1400/- per thousand. The assessee further pleaded that almost all material prices were increased to 30% to 35% and the assessee has also attached the copies of the relevant purchase bills in support of its contention before the AO. After examining the reply dated 04.11.2009 filed by the assessee alongwith other documentary evidence, the AO again doubted on the decreasing N.P. rate in the case of the assessee and asked various questions to the assessee and the assessee replied the same from time to time with the support of the documentary evidence. The AO also examined the register for wages produced by the assessee and lastly the AO pointed out various 5 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 defects in the books of account as he has discussed in appeal in paragraph 4(a), 4(b) & 4(c) in the assessment order and finally, he rejected the books of account u/s 145(3) of the Act, being incorrect and incomplete and not reflecting true and correct assessable income of the assessee-firm by inflating all expenses and suppressing the receipts.
6. The AO has relied upon various case laws on the subject and used the same against the assessee, which is at pages 13 to 15 and lastly the AO held that the Hon'ble Jurisdictional High Court as well as the ITAT have upheld the application of N.P. rate @ 10% to 12% in the cases of civil contractors and the assessee is also not entitled to any further deduction on account of depreciation. He finally held that in the case of the assessee under consideration, the turnover is much more than Rs.40 lacs. The N.P. rate is extremely low and therefore, it would be fair and reasonable to estimate N.P. rate in the case of the assessee @ 8% of the gross receipts and he completed the assessment under section 143(3) of the Act on 17.12.2009.
7. Aggrieved by the order of the AO, the assessee filed an appeal before the ld. first appellate authority, who vide impugned order dated 29.04.2011 partly allowed the appeal of the assessee by reducing the N.P. rate to 4% of 6 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 the gross receipts computed by the AO and upheld the action of the AO in rejecting the book results under section 145(3) of the Act.
8. Now, aggrieved by the order of the ld. CIT(A), the Revenue as well as the assessee has filed appeal and C.O. before us. The Revenue has challenged the direction given by the ld. first appellate authority to the AO to apply N.P. rate of 4% on the total receipts as against 8% applied by the A.O. and the assessee is aggrieved by upholding the rejection of book results by the A.O. under section 145(3) of the Act as well as requesting to accept the N.P. rate of 2.79% as declared by the assessee in its return of income.
9. We have heard both the parties and perused the record available with us especially, the orders passed by the Revenue Authorities on the issues in dispute. We are of the view that as a matter of fact, the assessee has executed two contracts of M.E.S. and as per profit & loss account of the assessee annexed with the return of income during the year under consideration. The assessee has declared Net profit rate of 2.87% as compared to 4.38% returned during the year immediate preceding assessment year. The assessee has furnished its reply dated 4th Nov., 2009, which was reproduced by the AO in para 3 of his order. The AO having still doubt on the subject and asked various questions for which the assessee has given reply with the 7 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 support of evidence. No doubt, there are certain wages register regarding booking of labour etc. are not verifiable. In other words the assessee has not verified the same to the satisfaction of the A.O. Therefore, the AO has rightly applied the provisions of section 145(3) of the Act, for the reasons discussed in detail in paras 4(a), 4(b) & 4(c) in the assessment order and he rejected the books of account. The ld. first appellate authority has also rightly upheld the action of the A.O. by discussing in detail in the impugned order. The Ld. first appellate authority has given an ample opportunity to the assessee for applying the provisions of section 145(3) of the Act in the case of the assessee. He has also given full opportunity to the AO to controvert the evidence filed by the assessee under Rule 46A of the Income Tax Rules, 1962. The Ld. first appellate authority has discussed in detail, the submissions of the assessee as well as comments of the A.O. on the fresh evidence produced by the assessee. He has discussed in detail from pages 3 to 32 on the subject with the support of various decisions rendered by the Hon'ble Courts and especially the case laws relied upon by the AO in the assessment order. Lastly, the ld. first appellate authority has rightly upheld the applicability of provision of section 145(3) of the Act because the ld. first appellate authority has passed a well reasoned order with the support of 8 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 decisions rendered by various Hon'ble Courts. Accordingly, we uphold the same.
9.1. As regards to the applicability of N.P. rate @ 4% on the total receipts as against 8% applied by the AO, we are of the view that the AO has applied various case laws in the case of the assessee without confronting the same to the assessee and the ld. first appellate authority has rightly disagreed with the estimation made by the AO at N.P. rate of 8% only on the basis of case laws relied upon by the A.O. without confronting the same to the assessee. The ld. first appellate authority has reduced the N.P. rate of 4% to the gross receipts computed by the A.O. instead of 8% applied by the A.O. on the basis of previous assessment year and especially the increase in the rates of the material used by the assessee in its construction business. The ld. first appellate authority has discussed each and every aspect on the issue in dispute and lastly has rightly directed the A.O. to apply N.P. rate @ 4% to the gross receipts computed by the A.O. in order to meet ends of justice. 9.2. Keeping in view the facts and circumstances of the case explained above and the well reasoned order passed by the ld. first appellate authority, we are of the considered view that no interference is called for in the well reasoned order passed by the ld. first appellate authority on the issue in dispute raised by the Revenue as well as by the assessee. Therefore, we 9 ITA No.401(Asr)/2011 CO No.18(Asr)/2011 uphold the impugned order by dismissing the appeal filed by the Revenue and C.O. filed by the assessee.
10. In the result, the appeal of the Revenue in ITA No.401(Asr)/2011 and C.O. No.18(Asr)/2011 of the assessee are dismissed.
Order pronounced in the open court on 16th July, 2012.
Sd/- Sd/-
(B.P. JAIN) (H.S. SIDHU)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 16th July, 2012
/SKR/
Copy of the order forwarded to:
1. The Assessee:M/s. Arihant Builders, Jalandhar.
2. The ACIT, Cir.IV, JLR.
3. The CIT(A)
4. The CIT
5. The SR DR, ITAT, Amritsar.
True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.