Income Tax Appellate Tribunal - Chandigarh
Harjeet Singh, Kaithal vs Assessee on 6 March, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.1011 /Chd/2011
(Assessment Year : 2008-09)
Harjeet Singh, Vs. The A.C.I.T.,
Govt. Contractor, Circle Kurukshetra.
1341, Model Town,
Kaithal.
PAN: AFJPS6484G
(Appellant) (Respondent)
Appellant by : Shri K.R.Chhabra
Respondent by : Shri N.K.Saini, DR
Date of hearing : 06.03.2013
Date of Pronouncement : 15.03.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals), Karnal dated 17.08.2011 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 a g a i n s t t h e o r d e r p a s s e d u / s 1 4 3 ( 3 ) of the Income Tax Act, 1961 (in short 'the Act').
2. The assessee has raised following grounds of appeal:
"1. Orders passed by Lnd ACIT and CIT (A) are illegal, arbitrary and bad in law.
2. On facts and in circumstances of the case Lnd. ACIT and CIT (A) were not justified in applying the provision of section 145(3) of the I.T.Act.
3. On facts and in circumstances of the case Lnd. CIT (A) was not justified in confirming the N.P.Rate of 12% on the net contract receipt and the application of flat N.P.Rate of 12% is highly excessive without any basis, material and data on the record .2
4. On facts and in circumstances of the case Lnd. CIT(A) was not justified in making addition of Rs.15220/- as accrued interest on Income Tax Refund when no income tax refund was received during the year under assessment."
4. The ground No.1 raised by the assessee is general in nature and hence the same is dismissed.
5. The issues in ground No.2 and 3 raised by the assessee are against rejection of books of account and application of net profit rate of 12% on net contract receipts. The issue in ground No.4 raised by the assessee is against addition on account of income tax refund.
6. The brief facts of the case are that the assessee was a road c o n t r a c t o r a n d f o r t h e ye a r u n d e r c o n s i d e r a t i o n h a d f u r n i s h e d r e t u r n o f income declaring total income of Rs.23,79,734/- on 4.10.2008. The assessee had furnished audited account alongwith the return of income. T h e c a s e o f t h e a s s e s s e e w a s p i c k e d u p f o r s c r u t i n y. During the course of assessment proceedings the Assessing Officer issued questionnaire from time to time, in response to which the learned counsel for the assessee furnished information. Thereafter vide order-sheet dated 21.6.2010, the assessee was required to furnish certain information as mentioned under para 2 at pages 1 and 2 of the assessment order. The assessee was also asked to produce stock register. As per the Assessing Officer the assessee furnished incomplete information and another show cause notice was issued to the assessee as to why books of account be not rejected under section 145(3) of the Act for not maintaining stock/muster roll and also for not providing original vouchers for purchases. The assessee through its counsel appeared on 6.12.2010 and furnished written reply and also produced books of account as noted by the Assessing Officer in para 4 of the assessment order. As per the Assessing Officer, the reply furnished by the assessee was not 3 acceptable as the books of account produced were not supported by vouchers/bills, payment to wagers. The assessee had not maintained any stock register or muster roll. In view thereof, the books of account of the assessee were rejected under section 145(3) of the Act and in view of the judgment of the Hon'ble Punjab & Haryana High Court in M/s Prabhat Kumar, Contractor, Sirsa Vs. CIT in ITA No.293 of 2008, flat rate of 12% was applied to the gross receipts less material supplied by the government department and income was estimated at Rs.53,19,600/-. The CIT (Appeals) upheld the order of the Assessing Officer.
7. The assessee is in appeal against the order of the CIT (Appeals). The learned A.R. for the assessee pointed out that the accounts of the assessee were audited and it had maintained books of account. Further the plea of the learned A.R. for the assessee was that the adoption of net profit rate of 12% was not justified as the assessee on its own had shown very high NP rate. As per the learned A.R. for the assessee, the a s s e s s e e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n h a d s h o w n N P r a t e o f 5 . 6 7 % o n n e t p a ym e n t a f t e r d e d u c t i o n o f m a t e r i a l s u p p l i e d . During the a s s e s s m e n t ye a r 2 0 0 5 - 0 6 , N P r a t e o f 3 . 7 2 % , i n a s s e s s m e n t ye a r 2 0 0 6 - 0 7 N P r a t e o f 4 . 0 4 % a n d i n a s s e s s m e n t ye a r 2 0 0 7 - 0 8 N P r a t e o f 5 % w a s declared and accepted in the hands of the assessee.
8. The learned D.R. for the Revenue placed reliance on the orders of the authorities below.
9. We have heard the rival contentions and perused the record. The assessee was a road contractor and was engaged in the said business f r o m t h e p a s t ye a r s . T h e a s s e s s e e h a d d e c l a r e d g r o s s r e c e i p t s o f R s . 4 . 7 9 crores out of which deduction on account of material supplied by the government department to the extent of Rs.35,86,636/- was deducted out of gross receipts. From the perusal of the order of the CIT (Appeals) we 4 find that another deduction on account of sales tax of Rs.14,86,045/- has been allowed b y the CIT (Appeals). The assessee though had filed audited accounts but books of account produced by the assessee were incomplete to the extent that the assessee failed to produce muster rolls i.e. the evidence of salary paid to the wagers and it also failed to produce original vouchers in respect of the purchases made by it. Further objection of the Assessing Officer was that the assessee had not maintained stock register. The maintenance of stock register is not compulsory in line of business carried on by the assessee as the same is not required under the law. However, the assessee claimed to have maintained stock list at cost price, which as per the assessee was produced before the Assessing Officer. However, in view of other defects pointed out by the Assessing Officer against which the assessee has failed to furnish any evidence, we uphold the rejection of books of account under section 145(3) of the Act.
10. The second issue which arises in the present appeal is application of net profit rate for determining the income in the hands of the assessee. The authorities below had applied net profit rate of 12% in view of the ratio laid down by the Jurisdictional High Court in the case of M/s Prabhat Kumar, Contractor, Sirsa (supra). We find that similar issue of adoption of net profit rate to determine the income in the hands of the assessee, where the books of account had been rejected, arose before the Tribunal in Shri Sukhwinder Singh Vs. ITO (supra). The Tribunal in Sukhwinder Singh Vs. JCIT, Kurukshetra in ITA No.1461/Chd/2010 vide dated 24.11.2011 held as under :
"10. The second issue to be addressed in the case is the application of NP ratio. The Tribunal (supra) in assessee's own case relating to assessment year 2005-06 had directed the application of net profit rate of 1.08% to the gross receipts of Rs.3.22 crores 5 in comparison to net profit rate of 6.5% to the total receipts applied by the Assessing Officer. The CIT (A) during the year under consideration had rejected the claim of the assessee in view of the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. M/s Prabhat Kumar Contractor (supra) wherein the rate of profit @ 12% was applied by the Hon'ble Court.
11. The assessee is a road contractor and not civil contractor as in the case before the Hon'ble Punjab & Haryana High Court. The assessee had disclosed the income for the year under consideration at net profit rate of 1.20% and the Assessing Officer for computing the income of the year had applied net profit rate of 6.5%.
The basis for the application of the said net profit rate by the Assessing Officer was similar rate applied in assessment year 2005-06 and the CIT (A) had placed reliance to the ratio laid down by the Hon'ble Punjab & Haryana High Court in the case of another contractor in CIT Vs. Parbhat Kumar Contractor (Supra). The CIT (A) had applied net profit rate of 6.5% in view of the rate applied by the Hon'ble Punjab & Haryana High Court. In the facts of the case before the Hon'ble Punjab & Haryana High Court, the reasons for the application of the said rate was the un-verifiability of the wages claimed as expenditure. There is no merit in the stand of the CIT (A) that in case of contractors, higher rate to gross receipts is to be applied in all cases in view of ratio laid down in CIT Vs. Prabhat Kumar, Contractor (supra). We find that the Hon'ble Punjab & Haryana High Court in Raja Ram Contractors Vs. CIT in ITA No. 689 of 2009, date of decision 7.4.2010, has upheld application of net profit rate of 10% as Net Profit Rate. It has been further laid down by the Hon'ble Jurisdictional High Court that where the books of account have been rejected, the estimation of income by applying of flat rate inherently involves an element of subjectivity."
12. In view of the aforesaid decision and the facts being similar, we find no merit in the adoption of NP rate of 12% to determine the income in the hands of the assessee. T h e a s s e s s e e d u r i n g t h e ye a r u n d e r consideration had declared net profit rate of 5.67% o n t h e n e t p a ym e n t after deduction of material supplied and sales tax deducted. We direct the Assessing Officer to determine the income in the hands of the a s s e s s e e b y a p p l yi n g t h e n e t p r o f i t r a t e o f 7 % a s t h e a s s e s s e e h a s f a i l e d to produce complete vouchers to establish its case. The ground No.2 of 6 appeal raised by the assessee is dismissed and ground No.3 is partly allowed.
13. The ground No.4 in the present appeal is against the addition of Rs.15,220/-. The said addition was made by the Assessing Officer on account of accrued interest on income tax refund. Admittedly the a s s e s s e e h a d n o t r e c e i v e d a n y r e f u n d d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n and the Assessing Officer had estimated the accrued interest on refund d u e t o t h e a s s e s s e e f o r a s s e s s m e n t ye a r 2 0 0 7 - 0 8 . In the absence of an y refund being determined and the interest being paid to the assessee, we find no merit in the addition of Rs.15,220/- and the same is deleted. The ground No.4 raised by the assessee is thus allowed.
14. In the result, the appeal of the assessee is partl y allowed.
Order pronounced in the open court on this 15th day of March, 2012.
Sd/- Sd/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 15 t h March, 2013 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 7