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Income Tax Appellate Tribunal - Indore

Acit - 5(1), Indore vs S.C.C. Project Pvt. Limited, Indore on 7 November, 2016

आयकर अपील य अ धकरण, इ दौर यायपीठ, इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE ी डी.ट .गरा सया, या यक सद य तथा ी ओ.पी.मीना, लेखा सद य के सम% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER आ.अ.सं./ I.T.A. No. 612/Ind/2013/88&144 &145/Ind/2015 %नधा'रण वष' /Assessment Year:2009-10, 2010-11 & 2011-12 SCC Projects Pvt. Ltd. Addl. CIT Range-3, 206, Mourya Centre, 16 Vs. Indore Race Course Road , Indore PAN: AABCM 3529 L अपीलाथ /Appellant यथ /Respondent अपीलाथ क ओर से/Appellant by Shri C. P. Rawka, CA यथ क ओर से/Respondent by Shri Mohmd. Javed, Sr. (DR) सुनवाई क तार ख/ 04.10.2016 Date of hearing उ घोषणा क तार ख/ 07-11-2016 Date of pronouncement आदे श /O R D E R PER O. P. MEENA, ACCOUTANT MEMEBR.

These are cross appeals filed by the assessee and revenue against the separate orders of CIT (A)-I, Indore; pertaining to the Assessment Year 2009-10, 2010-11 & 2011-12 and are being M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 2 of 15 decided by a common order for the sake of convenience as facts, circumstances, submissions of the parties before the tribunal are the same remained identical in all these appeals.

1. The grounds of appeal are also identical barring the amount of addition sustained or deleted by the ld. CIT (A) after upholding the rejection of books of accounts u/s. 145(3) of the Act. The assessee as well department has raised following grounds of appeal:

I. I.T. A. No. 612/Ind/2013/AY2009-10-Assessee `s Appeal

1. That the ld. CIT (A) erred in law and facts of the case and confirmed the addition made by Assessing Officer at Rs. 75 lacs on account of rejection of books of accounts u/s. 145(3) on ad-hoc basis without considering full facts and reasoning.

The addition therefore, made by the Assessing Officer and confirmed by CIT (A) is very wrong on facts of the case. II. I.T. A. No. 144/Ind/2015/Revenue appeal AY 2010-11.

1. On the facts and in the circumstances of the case and in law , the CIT (A) has erred in I in deleting addition of Rs.72 lakhs made by the AO with a view to cover up leakages of profit in view of shortcomings found in the course of assessment in the accounts of the assessee justifying the wrong claim of expenses and relying on self made vouchers as produced by the Assessee in the course of assessment proceedings.

Justifying cash payments made by the Assessee on various heads of expenses , in total contravention of specific provisions of I T Act 1961, which compelled the AO to reject the books of accounts for the year under consideration by invoking provisions of section 145(3) of the Act. III. I. T. A. No. 145/Ind/2015/Revenue appeal AY 2011-12 I. On the facts and in the circumstances of the case and in law, the CIT (A) has erred in I. in deleting addition of Rs.24 lakhs made by the AO with a view to cover up leakages of profit in view of shortcomings found in the course of assessment in the accounts of the assessee justifying the wrong claim of expenses and relying on self made vouchers as produced by the Assessee in the course of assessment proceedings.

Justifying cash payments made by the Assessee on various heads of expenses , in total contravention of specific provisions of I T Act 1961, which compelled the AO to reject the books of accounts for the year under consideration by invoking provisions of section 145(3) of the Act. IV. I. T. A. No. 88/Ind/2015/Assessee appeal for AY 2011-12 (1) That the ld. CIT (A) erred in law and facts of the case and confirmed the addition made by Assessing Officer at Rs. 76 lacs out of Rs. 100 lakhs made by the AO on ad-hoc basis by rejecting of books of accounts u/s. 145(3) The addition therefore, made by the AO and confirmed by the CIT (A) is totally wrong on the fact of the case (2) That the ld. CIT (A) erred in law and facts of the case and confirmed the addition on account of difference in interest M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 4 of 15 income at Rs. 4,58,118/- without considering full facts and reasoning.

The addition therefore, made by the AO and confirmed by the CIT (A) is totally wrong on the fact of the case

2. Since the issue related to rejection of books of accounts and addition on account of net profit is common for all the three years hence same is being discussed together.

3. Succinctly, facts as culled out from the orders of lower authorities are that the assessee is a Pvt. Ltd. Company engaged in construction activity mainly Road construction at various places mainly at Indore, Biaora, Guna, Bareli, Ujjain and other small sites. During the course of assessment proceedings , the assessee has furnished a chart showing net profit rate as under :

particulars assessment year (Amount in Rs. Lakhs) 07-08 08-09 09-10 10-11 11-12 Net profit before 502 446 521 536 529 depreciation Add depreciation 131 177 413 212 201 Net profit after before 634 623 722 749 730 depreciation Turnover 6482 7016 8131 7410 10430 Net profit rate in before 9.78% 8.89% 8.88% 10.11% 7.01% depreciation % Net profit rate after 7.75% 6.6% 6.42% 7.23% 5.07% depreciation in %

4. For the AY 09-10, the AO noted that the assessee has declared net profit rate after depreciation and interest @6.42% of its contract receipts in comparison to 6.36% last year. The AO M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 5 of 15 observed that the trading result is better but it is not acceptable due to following reasons as the valuation of work in progress(WIP) is being done on estimate basis , expenses on various sites are not properly vouched, and some of the vouchers were found self-made and payments is being made in cash, hence genuineness is not verifiable. The AO found that abnormal increase of 91.60% in asphalt and in emulsion expenses of 21.26% in sub contract, 1165 in legal, professional, and 258% in mess and refreshment as compare to preceding year. Proper bills do not support vouchers and payments is made in cash, hence genuineness is not verifiable.

5. The labour and wages is paid through muster roll by taking signature or thumb impression for payment made in cash and 60% of site salary is being paid in cash. The assessee purchased gritty, muram and sand of Rs. 321 lakhs from unregistered dealers and most of payments are made in cash hence not fully verifiable. Considering these defects, the AO rejected the books of accounts u/s. 145(3) and made ad-hoc addition of Rs. 75 lakh for A.Y. 07-08 to cover-up any leakages of profit because of above shortcomings.

6. Aggrieved, the assessee filed appeal before CIT (A). The ld. CIT (A) observed that the valuation of WIP is done on estimated basis; there is no scientific method basis for valuation hence verification for correctness is not possible. Similarly, expenses on various sites have been incurred in cash, self-made vouchers of which full details of expenses and evidences were not available. The ld. CIT (A) has also supported this view by placing reliance in the case of Goodyear India Ltd. 66 TTJ 164(Del-Tribunal) wherein it was held that even if auditor has not made adverse comments disallowance of such expenses has to be upheld. The ld. CIT (A) also noted that there is abnormal increase in various expenses like 91.60% in asphalt, 21.26% in emulsion, 116% in legal and professional and 258% in mess and refreshment expenses of which vouchers are prepared in cash and payments made in cash hence not fully verifiable. The ld. CIT (A) observed that in the case of increase in legal and professional burden on the appellant to substantiate factum of expenditure and it is permissibility as held in the case of Annamma Alexander 176 ITR 229(Ker) and S Devraj 73 ITR 1 (Mad). Major expenses of 182 lakh is paid in cash and 60% of salary also paid in cash , the register which are not cross verified by the AO. Purchases of gitti, sand, murram also in cash from M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 7 of 15 unregistered dealers. Considering these facts, the ld. CIT (A) upheld the rejection of books of accounts u/s. 145(3) of the Act and confirmed the ad-hoc addition of Rs. 75 lakhs made by the AO.

7. Being aggrieved, the assessee filed an appeal for AY 2009-10 and for AY 2011-12 before this tribunal and department has filed appeal for AY 2010-11 & AY2011-12.

8. The learned counsel for the assessee, submitted that rejection of books of accounts is not justified as for rejection the AO has to consider whether the assessee regularly employed a method of accounting , whether annual profit is properly deduced from the method employed, whether accounts are correctly maintained and complete, if the AO found the above questions in affirmative, then the AO has to compute profit on the basis of books of accounts and cannot invoke provisions of section 145(3) of the Act as held by Patna High Court in case of Mohammad Umar vs. CIT 101 ITR 525(Pat). The ld. A. R. stated that the assessee is civil contractor having scatted work places few hundred kms from each other. It was submitted that site engineers /supervisors keeps records of raw material consumed and payment of wages and at the year end, the site engineer evaluates last which are communicated to M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 8 of 15 head office which in turn aggregates the figure and compares with receipts of month of April and May of subsequent year and same is accounted for as WIP . It was submitted that petty expenses are incurred in cash only and same is supported by vouchers but none of expenses are un-vouched The increase in expenses relates to receipts and completion of work, and if work reached to final stage , the expenses have to be increased. The keeping of muster roll is requirement of labour laws. The assessee has no option but to make purchase of Gitty, Muram and sand from unregistered dealer from local at far flung places and if the same were purchased for registered dealer, it would give rise to cost tremendously, whereas unorganised sector deliver goods at competitive price without much expenditure on transportation. Thus, it was submitted that there is no change in method of accounting system. Hence, rejection of books of accounts is unjustified. Further, without prejudice to above, it was submitted that lump sum addition of Rs. 75 lakh is arbitrary and unjustified, whereas the AO himself noted that net profit disclosed during the year is higher than preceding year, therefore, there was no basis to make further addition to returned income. In support of his contention, the ld. AR has relied on following case laws: Karnataka M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 9 of 15 Forest Industry Ltd. vs. CIT 201 ITR 674(Kar), VB Gadkari vs. Income Tax Officer 59STC326 (MP) and others. The ld. CIT (A) after analysis of submission, deleted addition of Rs. 75 lakh in AY 2010-11. However, in AY 2011-12 restricted the addition of Rs. 76 lakhs.

9. The ld. Departmental Representative supported the order of CIT (A) for Assessment year 2009-10 , and relied on the order of the AO for Assessment year 2010-11 and 2011-12. It was submitted that the issue may be decided based on finding of tribunal for Assessment year 2008-09.

10. We have heard the rival submissions, have gone through the orders of the lower authorities, and perused the material available on record. We find that the AO has rejected books of accounts as he found that the valuation of work in progress(WIP) was being done on estimated basis, expenses on various sites are not properly vouched, and some of the vouchers were found self-made and payments is being made in cash, hence genuineness of these expenses is not found verifiable. The AO found that abnormal increase of 91.60% in asphalt and in emulsion expenses of 21.26% in sub contract, 116% in legal, professional, and 258% in mess and refreshment as compare to preceding year. Vouchers are M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 10 of 15 not supported by proper bills and payments is made in cash, hence genuineness is not found verifiable. The labour and wages is paid through muster roll by taking signature or thumb impression for payment made in cash and 60% of site salary is being paid in cash. The assessee purchased gitty, muram and sand of Rs. 321 lakhs from unregistered dealers and most of payments are made in cash hence not fully verifiable. In view of above, and considering we hold that rejection of books of accounts u/s. 145(3) is justified.

11. So far ad-hoc addition of Rs. 75 lakh for A.Y. 09-10 is concerned we find that the assessee has furnished a chart during the course of assessment proceedings giving details of net profit rate as under

:

particulars assessment year (Amount in Rs. Lakhs) 07-08 08-09 09-10 10-11 11-12 Net profit after depreciation 502 446 521 536 529 Add depreciation 131 177 413 212 201 Net profit before depreciation 634 623 722 749 730 Turnover 6482 7016 8131 7410 10430 NP Rate before depreciation % 9.78 8.89 8.88 10.11 7.01 Net profit rate after 7.75 6.36 6.42 7.23 5.07 depreciation in % Addition confirmed by CIT (A) 15 66.65 75 -72 76 / Tribunal Net profit after tribunal order 649 689.65 NP rate after tribunal order 10.06% 9.50%

12. Form the above chart, it is seen that net profit rate disclosed for Assessment year 2009-10 is 8.89% which is less than the net M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 11 of 15 profit rate of preceding years net profit rate of 8.89%. We find that tribunal has decided the appeal in the case of the assessee for AY 2007-08 and AY 2008-09 in I. T. A. No. 204 & 205/Ind/2012 vide order dated 22.08.2012, wherein tribunal has analysed the net profit rate declared by the Assessee. The Hon'ble tribunal observed as " It is clear for the above that turnover of the assessee has increased substantially to Rs. 64.82 Crores and Rs. 70.16 Crores in the assessment year 2007-08 and assessment year 2008-09 as compared to the turnover of Rs. 37.31 Crore in the assessment year 2006-07. After considering the addition of Rs. 15 lakhs as confirmed by us, the net profit rate for assessment year 2007-08 works out to be 10.06% . In the assessment year 2008-09, since there is increase in turnover to Rs. 70.16 Crores, as against turnover of Rs. 64.82 Crores in the preceding year, it will be reasonable to uphold the addition by taking net profit rate at 9.50%. Accordingly, the Assessing Officer is directed to re-compute the addition by taking net profit rate of 9.50% on the turnover of Rs. 70.16 Crores as against declared net profit rate 6.36%. We direct accordingly."

13. We are therefore, following the ratio laid down by the tribunal in the case of assessee, are of the considered opinion that 9.50% net M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 12 of 15 profit rate as upheld by the tribunal for assessment year 2008-09 would be reasonable for Assessment year 2009-10 as turnover for AY 2009-10 is at Rs. 81.31 Crores on which net profit rate declared is at 8.88% . Therefore, the AO is directed to re-compute the net profit by applying net profit rate of 9.50% on turnover of Rs. 81.31 Crores. This grounds of appeal of the assessee is partly allowed.

14. However, for assessment year 2010-11 , we find that the turnover of the assessee is shown at Rs. 74.10 Crores as against the turnover of Rs. 81.31 Crores in AY 2009-10, on which net profit rate declared is at 10.11%. Since, the assessee has shown better result, hence, the net profit rate shown is upheld as reasonable, and accordingly, the deletion of addition of Rs.72 lakhs by the ld. CIT (A) is upheld. Accordingly, revenue grounds of appeal is dismissed.

15. So far the assessment year 2011-12 is concerned, against which revenue as well as the assessee is appeal before us. We find that turnover for this year is at Rs. 104.30 Crores; hence, there is substantial increase in the turnover as compared to AY 2010-11 where turnover was at Rs. 74.10 Crores. The assessee has disclosed net profit rate at 7.01%, which is lower as compare to M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 13 of 15 preceding year, but we find that there is increase in turnover. Further, we find that the AO has made addition of Rs. 1 Crores for this year, which has been reduced to Rs. 76 lakh by ld. CIT (A). If we add the same to net profit of Rs. 7.30 Crores disclosed, then net profit comes to 8.06 Crores, which will give net profit rate at 8%. However, we find that ld. CIT (A) has considered the peculiar facts for this year, as the sub-contract receipts are shown at Rs. 42.33 Crore as compared to Rs. 3.20 Crores in AY 2010-11 Thus there is substantial increase in sub contract receipts. We find that ld. CIT (A) has considered the net profit rate at 8.11% on contract receipt of Rs. 99.40 Crores, and accordingly upheld the addition of Rs. 76 lakhs after allowing reduction of 2% in net profit in sub contract work resulting in deletion of Rs. 26 lakhs added by the AO. Considering the facts that for this year are different as there in increase in turnover, which includes receipts of Rs. 42.33 Crore is mainly due to sub contract this year as compare to preceding year on which profit margin normally, remains low as compare to own contract work. In such circumstances, we find no infirmity in the order of ld. CIT (A). Accordingly, the appeal of revenue as well as the assessee is dismissed for assessment year 2011-12.

16. Ground No. 2 in I. T. A. No. 88/Ind/2015 for AY 11-12 of assessee`s appeal relates to addition of Rs. 4,58,118/- being difference in interest income.

17. We find that no submission were made on this ground therefore, the ld. CIT (A) has dismissed this ground. Before us also no submission is made. However, we find that the addition was made as there was interest receipts of Rs. 72,64,119/- whereas the assessee has offered interest receipts at Rs. 68,06,001/-. Hence the AO required to the assessee to explain the same but no reply was filed hence addition was made. Before, us no submission is made. Hence, this ground is dismissed.

18. In the result, appeal of the assessee in I. T. A. No. 612/Ind/2013 for AY 2009-10 is partly allowed. Appeal for AY 2010-11 of department in I. T. A. No. 144/Ind/2015 is dismissed. The appeal of department for Assessment year 2011-12 in I. T. A. No. 145/Ind/2015 and appeal of the assessee for AY 2011-12 in I. T. A. No. 88/Ind/2015 is dismissed.

19. The order pronounced in the open court on 07.11.2016 Sd/- (डी.ट .गरा सया) Sd/-(ओ.पी.मीना) या यक सद य लेखा सद य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER M/s. SCC Projects Pvt. Ltd.: I.T.A. No.88-144-145/Ind/2015-16/A.Y:10-11&11-12/ Page 15 of 15 &दनांक /Dated : 7th November, 2016.OPM