Income Tax Appellate Tribunal - Indore
Rajdeep Construction Co., Betul vs Jcit Range-2, Bhopal on 23 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.673/Ind/2014 %नधा'रण वष' /Assessment Year: 2010-11 M/s.Rajdeep Jt. CIT, Construction Company, Vs. Range 2, Bhopal Betul था.ले.सं./PAN: AAFFR6339H अपीलाथ /Appellant यथ /Respondent अपीलाथ क ओर से/Appellant by Shri Ashish Goyal and Shri N. D. Patwa,, Adv.
यथ क ओर से/Respondent by Shri Mohd. Javed, Sr. DR
सुनवाई क तार ख 16.11.2016
Date of hearing
उ घोषणा क तार ख 23.11.2016
Date of pronouncement
आदे श /O R D E R
PER O.P. MEENA, ACCOUTANT MEMEBR.
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-I, Bhopal I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 2 of 34 [hereinafter referred to as the CIT(A)] dated 08.08.2014 and pertains to assessment year 2010-11 as against appeal decided in assessment order passed u/s 143(3) of the Act dated 12.03.2013 of Jt. CIT Range 2, Bhopal [hereinafter referred to as the AO].
2. The assessee has taken as many as eight grounds of appeal. However, during the course of hearing of the appeal before us, the Ld. Counsel for the assessee has not pressed in respect of ground nos. 1, 6, 7 & 8. Therefore, these grounds are treated as dismissed as not pressed, which leaves, ground nos. 2 to 5, which are being dealt with as under.
3. Ground nos. 2 & 3 relate to maintaining the addition of Rs. 2,50,000/- in the name of Smt. Arti Singh Kiledar and Rs. 2,50,000/- in the name of Mrs. Pritisha Singh Kiledar u/s 68 of the Income-tax Act, 1961.
4. Briefly stated, the facts of the case are that the assessee firm is a Civil Contractor. The assessee filed return of income on 09.10.2010 declaring total income at Rs. 71.46.260/-. During the course of assessment proceedings, I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 3 of 34 the AO noticed that the partner of the assessee firm viz. Mrs. Arti Singh Kiledar and Mrs. Pritisha Singh Kiledar have introduced total capital of Rs. 5 lakhs by cash, the date wise details are as under :-
S.No. Date Amount by Amount
Smt. Arti by Smt.
Kiledar Pritisha
(Rs.) Kiledar
(Rs. )
1. 01/03/2010 25,000/-
2. 04/03/2010 25,000/-
3. 06/03/2010 25,000/-
4. 08/03/2010 25,000/-
5. 10/03/2010 25,000/-
6. 12/03/2010 25,000/-
7. 16/03/2010 25,000/-
8. 20/03/2010 25,000/- 50,000/-
9. 22/03/2010
10. 24/03/2010 25,000/-
11. 25/03/2010
12. 26/03/2010 25,000/-
13. 27/03/2010 50,000/-
Total 2,50,000/- 2,50,000/-
5. The AO required the assessee to explain above mentioned capital of Rs. 5 lakhs introduced by the two lady partners of the firm in cash, in response to which copy of income tax return, capital account and balance sheet was filed in the case of Mrs. Arti Singh Kiledar and copy of balance sheet only filed in the case of Smt. Pritisha Singh Kiledar. On verification, it was noticed that Mrs. Arti Singh Kiledar had I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 4 of 34 declared her total income at Rs. 3,14,200/- with agricultural income of Rs. 32,000/- for assessment year 2010-11 and she has claimed interest income of Rs. 3,64,164/- received from M/s. Rajdeep Construction. The AO noted that she has introduced capital of Rs. 2.50 lakhs at the fag end of the financial year 2009-10 during the period from 01.03.2010 to 26.03.2010 in ten equal instalments of Rs. 25,000/- each, which is abnormal transaction and she has also not maintained any day to day cash book nor copy of saving bank account was furnished, whether there was any cash withdrawal of Rs. 2.50 lakhs from the said account before making payment to the assessee firm. In the extract of account of Mrs. Arti Singh Kiledar in the books of assessee firm for assessment year 2009-10 also does not reflect any cash withdrawal prior to payment made to the firm. The assessee did claim agricultural income of Rs. 33,000/- during financial year 2009-10 but also claimed withdrawals of Rs. 56,975/- on account house hold expenses and payment of income tax. In the balance sheet as on 31.03.2010, no outstanding I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 5 of 34 loan/credit payable were claimed, therefore, the AO concluded that source of cash deposit of Rs. 2.50 lakhs is not out of income/fund of financial year 2009-10 under consideration. Further, no capital account or balance sheet for earlier financial year 2008-09 has been furnished. No details as regards pending cash in hand as on 01.04.2009 and source thereof has been furnished. Accordingly, the assessee firm has failed to establish the creditworthiness of Mrs. Arti Singh Kiledar and genuineness of the transaction. Therefore, the same was added. Similarly, in the case of Smt. Pritisha Singh Kiledar except copy of balance sheet and capital account for financial year 2009-10, the assessee did not furnish any other details supported by documentary evidence to explain the source of Rs. 2.50 lakhs. In her case also, the capital of Rs. 2.50 lakhs was introduced at the fag end of the financial year from 20.03.2010 to 27.03.2010 in five equal instalments of Rs. 50,000/- each. No copy of bank account was furnished for verification to ascertain whether there is any cash withdrawal of Rs. 2.50 lakhs from the said Bank account. Further, the I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 6 of 34 account of Smt. Pritisha Singh Kiledar in the books of the firm for assessment year 2009-10 also does not reflect any cash withdrawal prior to the payment made to the firm, though the assessee did claim agricultural income of Rs. 25,000/-, but there are withdrawals of Rs. 86,587/- on account of house hold expenses and deposit in PPF account. Further, in the balance sheet as on 31.03.2010, no outstanding loans/creditors payable were claimed. No details regarding opening cash in hand as on 01.04.2009 and the same has been furnished nor the copy of capital account was furnished. In the light of these facts, the AO treated the amount of Rs. 2.50 lakhs each appeared in the name of Smt. Arti Singh Kiledar and Smt. Pritisha Singh Kiledar as unexplained cash introduced in the books of the firm and ,accordingly, taxed the said amount of Rs. 5 lakhs as unexplained cash credit u/s 68 of the Act.
6. Being aggrieved the assessee filed the appeal before the ld. CIT(A).
I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 7 of 34
7. Before the CIT(A), the same arguments were repeated. The ld. CIT(A) observed that the assessee had not furnished prior period balance sheet and capital accounts of Smt.Arti Singh Kiledar and Smt. Pritisha Singh Kiledar during the assessment proceedings and, therefore, the contention of the assessee and that prior period balance sheet as on 31.03.2009 were filed before the AO during the assessment proceedings is not found to be correct.
8. During appellate proceedings also, the assessee furnished the following details in respect of Mrs. Arti Singh Kiledar :-
Received from M/s. Rajdeep Company: 2,69,433.00 Add: Agriculture Income 32,000.00 Saving bank interest : 35.00 3,01,468.00 Less : Given to be Rajdeep Constn. Co. 2,50,000.00 Similarly, in the case of Mrs. Pritisha Singh Kiledar also, it was noticed that the assessee, during assessment I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 8 of 34 proceedings, simply explained that she had introduced the capital out of her income during the year. In appellate proceedings also, the appellant furnished the following details in this regard :-
Received from M/s. Rajdeep Co. : 2,27,946.00 Add: Agriculture income : 25,000.00 Saving Bank interest : 2,445.00 Commission received from Bajaj Alliance : 63,846.00 3,19,237.00 Less: Gvien to be Rajdeep Company : 2,50,000.00"
9. The ld. CIT(A) has also relied in the case of Banshidhar Agrawal, Panna vs. CIT, (1984) 148 ITR 523 (MP), wherein it was observed as under :-
"A perusal of Sections 68 & 69 of the Income-tax Act, 1961, shows that Section 68 applies when the sum in respect of which the explanation of the assessee is not accepted is found credited in the books of accounts in such a situation, the sum so credited is charged to income-tax as the I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 9 of 34 income of the assessee of that previous year in which it is found credited in the books of accounts. Section 69 applies to unexplained investments which are not recorded in the books of accounts."
10. The Jurisdictional M.P. High Court in another case of CIT vs. Shiv Shakti Timbers, (1998) 229 ITR 505 (MP) also observed that where the firm's books are showing cash credits in the name of the partner and no satisfactory explanation is furnished, Section 68 is applicable and it will be deemed to be income of the firm. In this case, the assessee-firm was maintaining books of accounts. The AO found credits recorded in the books in the names of partners and after considering that the explanations were not satisfactory, made an addition in the assessment of the firm u/s 68 of the Income-tax Act, 1961. On appeal, the CIT(A) partly sustained the addition. The Tribunal allowed the appeal filed by the assessee on the ground that cash credits were in the names of partners and Section 69 of the Act was applicable, not Section 68 of the Act. I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 10 of 34 On a reference, the Hon'ble Jurisdictional M.P. High Court held as under :-
"Held, that a close reading of both the sections makes it clear that in Section 68, there should be a credit entry in the books of accounts, whereas in Section 69, there may not be an entry in the books of accounts. The present case was governed by Section 68, because there were entries in the books of accounts. Where there is a credit entry in the books of accounts of the assessee and there is no satisfactory explanation, then it will be deemed to be in the income of the firm."
11. In view of the above, the addition of Rs. 5 lakhs made by the AO u/s 68 of the Act is confirmed.
12. Being aggrieved, the assessee has filed the appeal before us.
13. The Ld. Counsel for the assessee submitted that in the case of Smt. Arti Singh Kiledar, copy of income tax return, balance sheet, cash flow statement, capital account and I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 11 of 34 working of accounts were given, justified the capital and she has shown cash in hand balance at Rs. 3.20 lakhs as on 31.03.2009. Further, as per cash flow statement Rs. 2,69,433/- was received from firm besides agricultural income of Rs. 33,000/-. Thus, there was sufficient balance amount to make capital contribution in the assessee firm. Similarly, in the case of Mrs. Pritisha Singh Kiledar, it was submitted that she is assessed to income tax, here main source of income is interest as partner of the firm and share of profit and agricultural income. In the balance sheet, she has shown cash in hand at Rs. 5.15 lakhs and as per cash flow statement interest income of Rs. 2,27,946/- was received from firm, besides agricultural income of Rs. 25,000/- and commission income of Rs. 63,846/-. Therefore, it was contended that the capital stands proved. The ld. CIT(A) denied the transaction holding that her creditworthiness was doubtful and stated that she received the amount from Rajdeep Construction Company on 31.03.2010, whereas she gave amount to Rajdeep Construction Company on different dates in March. Thus, it I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 12 of 34 was impossible to have made payment and the availability of cash was doubtful. In his finding, the ld. CIT(A) ignored the opening balance available which was clearly reflected in the balance sheet and cash flow as stated above. The Ld. Counsel for the assessee also argued that once the partner has accepted the credit, if the AO had any doubt, inquiry as to the source of the credit should have been made in the hands of all the partners. In the alternative, the ld. Authorized Representative of the assessee contended that the AO has rejected the books of accounts and has applied profit rate. No separate addition can be made from cash credit. The ld. Authorized Representative of the assessee supported his view by placing reliance in the case of CIT vs. Agrawal Engg. Co., (2006) 156 Taxman 40 ( P & H) and CIT vs. M. Venkateshwar, (2015), 57 Taxman.comm 373 ( A.P. & Telangana ).
14. We have heard the rival submissions and have perused the material available on record. We find from the table as reproduced in para above regarding introduction of cash in the books of accounts of the assessee firm in the name I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 13 of 34 of Smt. Arti Singh Kiledar and Smt. Pritisha Singh Kiledar that the same has been introduced during the period from 01.03.2010 to 27.03.2010. We further note from the findings of the assessment order as well as appellate order and as reproduced the findings of the CIT(A) above that the source of the cash introduction was explained by the above partners from the amount received from M/s. Rajdeep Construction Company and agricultural income. However, it is a fact that the A.O. has verified from the books of the assessee firm that the amount of interest of Rs. 2,27,946/- was paid by the firm to M/s. Pritisha Singh Kiledar on 31.03.2010 from C.C. account with S.B.I.Betul. Therefore, the amount of Rs. 2.50 lakhs shown to be introduced in five instalments of Rs. 50,000/- each in cash from 20.03.2010 to 27.03.2010 i.e. before the date of receipt of interest income by Mrs. Pritisha Singh Kiledar in the books of firm is not found as explained as it is claimed out of current income account from firm. Therefore, it is impossible for the partner of the firm to utilize the amount received on 31.03.2010 for making payment in I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 14 of 34 cash of Rs. 2.50 lakhs before the date. Similarly, no such claim was made that the amount introduced by the amount of opening cash balance of Rs. 5.15 lakhs as is clearly seen from the reply furnished by the assessee during the course of assessment proceedings. Therefore, the claim of the assessee that payment is made out of opening cash balance available as per cash flow statement is nothing but an after thought. Similarly, in the case of Smt. Arti Singh Kiledar, it was noticed that the interest amount of Rs. 2,69,433/- was received by her from the firm by cheque of SBI, Betul. Hence, it cannot be accepted that this amount was utilized for introducing Rs. 2.50 lakhs in cash on earlier dates from 01.03.2010 to 26.03.2010. Further, the amount was received ten instalments were itself abnormal transaction. Therefore, the claim of the assessee before us that the amount was paid out of opening cash balance as on 01.04.2009 is also an after thought and same is not supported by the findings of the lower authorities, wherein they have denied to have received any such explanation from the assessee and it is also seen from her I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 15 of 34 explanation given during the assessment proceedings that she had claimed the amount of Rs. 2.50 lakhs paid to the assessee firm from the amount received from the assessee firm amounting to Rs. 2,27,946/- and agricultural income of Rs. 2.25 lakhs from the firm during the assessment year under consideration. Therefore, the explanation offered now by the Ld. Counsel for the assessee is an afterthought and does not require to be considered for explaining the source of the cash credit amounting to Rs. 5 lakhs. The case laws relied upon by the ld. Authorized Representative of the assessee does not help the assessee as in the case of Agrawal Engineering Company (supra), the net profit rate was applied in the case of contract receipt of assessee for estimating income from contract work and, therefore, it was held that in respect of purchases and introduction of cash is not justified and, therefore, it was held that the addition in respect of purchases and introduction of cash was not justified, whereas in the case of assessee firm, there are no such bogus purchases and introduction of cash in the books of the assessee. Therefore, I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 16 of 34 the facts of the case are distinguishable. Moreover, the introduction of cash in the case of assessee firm is in the name of partners whereas cash introduced in the said case was in the books of the said firm of assessee only. Therefore, facts are distinguishable. Similarly, in the case of Venkateshwar Rao (supra), the facts were entirely different as there was an introduction of capital by the partners in the firm of contribution made by them. Therefore, the case laws are distinguishable. Further, the Hon'ble Jurisdictional High Court in the case of CIT vs. Shiv Shakti, (1998) 229 ITR 505 (MP) has held that where the firm books are showing a cash credit in the name of partner and no satisfactory explanation is furnished, Section 68 is applicable and it will be deemed to be income of the firm. Thus, this decision is squarely applicable in the case of the assessee firm. Accordingly, we are of the considered opinion that there is no infirmity in the orders of the lower authorities. Therefore, ground nos. 2 & 3 of the appeal are dismissed.
I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 17 of 34
15. Ground nos. 4 & 5 relate to maintaining addition of Rs. 36,14,649/- on account of unexplained expenditure/short stock including net profit of Rs. 68,735/-.
16. Briefly stated, the facts are that the AO noticed that the assessee has claimed/accounted for receipts from various parties against the working done for them. However, no corresponding expenses related to certain gross receipts were found to be debited in the books of accounts. The book amount of such expenses being negative stock was worked out to Rs. 1,07,19,928/-. Therefore, the assessee was asked to explain as to why the same should not be treated as unexplained expenditure no recorded in the books of accounts.
17. In response to which, the assessee furnished its reply vide letter dated 11.01.2013 which is reproduced by the AO in the assessment order as under :-
"In response to your point no.3, we should like to submit that assessee is basically a Road Contractor. In road Construction the raw material used are Stone, Black I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 18 of 34 stone, stone zeera, Bitumen, cement, Steel sand etc. Except the steel and cement which is kept in store rest all items are dumped at road side. These all items are acquired for various sites, dumped at the site itself and thereafter consumed at the site only and this process becomes so fast that it is almost impossible to keep any record related to quantity of stock. All the details as regards closing stock in such cases is being done simply on the basis of physical verification by site engineer at the year end. Since the work is being carried on at so many places and the accounting is centralized all the account is being maintained at one place. Since the material used are Stone, Black stone, stone zeera, Bitumen etc. and are dumped at the sites where work is continue, no quantitative details as such can be maintained work wise. Assessee has maintained books of accounts i. e cash book, ledger, journal etc. and the same is being produced to you for your verification. Infact the chart I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 19 of 34 of Total expenditure, Sales etc. has been worked out by you on the basis of Books of accounts produced only. Sales in this case has been 100% verified by you and even got it tallied also party wise with form 26AS along with books. You have verified Bank reconciliations, Addition. in Fixed assets, Loan creditors, Creditors and debtors and expenses and found them tallied with books hence it is not fair to conclude that books results shown are not verifiable and cannot be accepted.
You have souqht for our comments as to why not Rs 10719928/- should be treated as unexplained Expenditure ? If you look at your chart you will find that though there are some negative figures at the last column but on the other hand there are some positive figures also which has finally reached to a positive figure' and very much tallies with the stock taken by the assessee in his books. Here we would like to state that ours is a Road Construction I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 20 of 34 business and in Road contracts, the contract amount of entire work is being determined thereafter, running bills are being raised which represent certain % of work completed at some regular intervals without waiting for the completion of work and this process gets continue round the year till work gets completed.
Hence, in such type of contract work no such mechanism may be applied so as to match total expenditure/sales and profit thereupon at point of time in mid of the year or month wise. Total expenditure which you have taken month wise in details of month wise work in progress chart is infact expenditure incurred for the entire project taken all the sites together where as the sales represents running bills submitted .It is not necessary that the bills submitted are against that site only against which expenses are being incurred. So no inferences can be made by I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 21 of 34 looking at the chart on monthly basis. This type of calculation may be fit for Trading activity or some manufacturing activity where counting and matching of expenditure vs sales are possible. Sec. 145(1) lays down that profits and gains of business shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee and s. 145(3) empowers the AO to reject the book results only when he is not satisfied about the correctness or the completeness of the accounts of the assessees or where the method of accounting provided in s. 145(1) or accounting standards as notified u/s 145(2) have not been regularly followed by the assessee. If these reasons do not exist, the AO is not justified in estimating the profit. Hence in light of our above, we do not agree with your contention that it is assessee unexplained I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 22 of 34 expenditure."
7.3 Further, the assessee has made additional submission vide letter dated 08/03/2013, the relevant portion of which is reproduced below :-
"You have considered the expenditure purely on the cutoff date of 10th of September and accordingly taken Rs. 18,20,538/- expenditure till 10th of September. Here we would like to submit that you have not considered one labour payment of Rs. 11.80,620/-.and one petty contractor payment of Rs. 55,08,400/- made on 12.09.2009 whereas out of these both payments expenses up to 10th of September were incurred fat the sales what you have considered while making the details of month-. wise work in, progress. Since labour payment is being made every week it is quite reasonable to add, five days labour charges which comes to Rs. 111,80,620/- / 7 x 5 = 843300/- and since petty contractor Mr. Indrapal Dangi who had provided his I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 23 of 34 services for Datia work and for which you have considered sales also till the date of your calculation it is quite oblivious that expenditure on the petty contractor for Rs. 55,08,400/- too has to be considered."
18. The AO analyzed the explanation offered by the assessee and observed that it is expected that the contractor should record the sales/contract receipts on the date of preparation of running bills and at the most on the dates on which it is approved by the contractee. In the case of the assessee, the assessee recorded contract receipts on the date on which the cheque was credited in its bank account i.e. much after the date of preparation/sanction of running bills. Therefore, the AO concluded that the said expenses not incurred otherwise the corresponding running bills would not have been issued for which the payments are received. Accordingly, the AO made the addition of Rs. 1,07,19,928/- on account of expenses incurred which were not recorded in the books of accounts. The AO further noted that there are various I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 24 of 34 defects in the books of accounts of the assessee. Therefore, specific comments were called for which were analyzed by the AO. The AO noted that the reply furnished by the assessee is vague and general in nature. The claim of the assessee that no quantitative recorded can be maintained and workings is not at all tenable as the assessee is guided by sufficient technical staff, professionally etc. in maintaining details of quantitative recorded of various materials received/consumed is not at all difficult. The AO further noted that the assessee firm has undertaken contract work from various Governments/Semi- Governments/Private Persons and received receipts of Rs. 17.93 crores from fifteen different persons. However, it is not maintained separate set off books of accounts for each contract. The AO further noted that no contract wise details were maintained nor day to day stock register was maintained nor closing stock/work in progress was claimed. The closing stock and work in progress was claimed at Rs. 10 lakhs as on 31.03.2010, but no specific details thereof supported by documentary evidence was maintained nor any certificate from I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 25 of 34 approved Engineer regarding valuation of stock/work in progress was furnished. The AO further found that the auditor has not given any information against para 28(a) or 28(b) regarding quantitative details and only made the remarks 'not applicable'. The AO further found that out of total expenditure of Rs. 15.08 crores a major portion of Rs. 6.95 crores i.e. 46.03 % is on account of labour charges, which are incurred in cash and not supported by bills. It was also noticed that certain expenses exceeding Rs. 20 lakhs were incurred in cash in violation of provisions of Section 40A(3) of the Act. Accordingly, the AO rejected the books of accounts by invoking the provisions of Section 145(3) of the Act. While doing so, the AO has also placed reliance on various case laws ,viz., Ram Chandra Singh Ramnik Lal vs. CIT, 42 ITR 780 (Pat), Bhai Sundar Dass Sardar Singh (P) Ltd. vs. CIT, 84 ITR 106 (Del) and Arihant Builders, Developers & Investor P.Ltd. vs. ACIT, (I.T.A.T. Indore SB),106 ITD 10. Considering the defects noticed in the books of accounts, the AO applied 10% profit rate on the contract receipt of Rs. 17,93,49,239/- and worked I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 26 of 34 out the net income of Rs. 1,79,34,924/- as against net profit of Rs. 71,46,260/- claimed by the assessee. Accordingly, this amount was considered for addition. However, since the AO has already made addition of Rs. 1,07,19,928/- on account of unexplained expenditure (negative stock), therefore, net addition of Rs. 68,735/-was made to the total income declared by the assessee.
19. Being aggrieved, the assessee has filed the appeal before the CIT(A).
20. The ld. CIT(A) noted that the AO on verification of month-wise details of gross receipt and gross expenses claimed by the assessee has worked out the peak amount of such unexplained expenditure at Rs. 1,07,19,928/- as on 10.09.2009, which were added by the AO, besides the AO has found various defects in the books of accounts and ,accordingly, rejected the books of accounts as per the provisions of Section 145(3) of the Act. The ld. CIT(A) noted that the AO has calculated unexplained investment/negative stock of work in progress by matching the sales accounted for I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 27 of 34 reducing the gross profit at a constant rate of 13.5314 % with the expenses debited in the books of accounts. The ld. CIT(A) noted that the argument of the assessee has force as in the most of the cases, raw materials suppliers keep on supplying the goods and bills are raised after a particular interval of time mainly items like stone, black stone and sand. It is the general practice in this type of business. Therefore, the ld. CIT(A) was of the view that it is not practical to work out such an unexplained expenditure by making a mathematical calculation of sales/gross profit vis-à-vis the expenditure debited in the books of accounts. In the case of the contractor, there is a normal tendency to debit more expenses than actual expenses incurred. Therefore, in the absence of any iota of evidence in regard to incurring unaccounted expenditure, the AO was not justified in making the addition on account of unexplained expenditure of Rs. 1,07,19,928/- in the total income declared by the assessee. However, as regards invoking the provisions of Section 145(3), the ld. CIT(A) confirmed the rejection of books of accounts, considering the I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 28 of 34 facts that the assessee has shown the closing stock on estimate basis at Rs. 10 lakhs only and no specific details supported by any documentary evidence was furnished and other defects pointed out by the AO. The ld. CIT(A) has also placed reliance in the case of CIT vs. British Paints India Limited, (1991) 188 ITR 44 ( S.C.). The ld. CIT(A) further noted that in assessment year 2008-09 and assessment year 2009- 10, additions of Rs. 3,70,922/- and Rs. 2,93,000/- were made in the returned income in assessment order passed u/s 143 of the Act. Therefore, invocation of provisions of Section 145(3) was upheld. With regard to net profit rate of 10%, the ld. CIT(A) found the same as on very higher side considering the past history, total turnover of the assessee and also assessee has given some work to the sub-contractors wherein the profit earned would be less than the profit earned in the work undertaken by the assessee itself. According to the ld. CIT(A), there would be fair and reasonable if net profit rate of 6% of the total receipt of the assessee is applied to compute the net income chargeable to tax. Accordingly, the ld. CIT(A) has I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 29 of 34 worked out 6% of the total turnover at Rs. 1,07,60,954/- and after reducing the net profit of Rs. 71,46,260/- as shown by the assessee, an addition of balance of Rs. 36,14,694/- was confirmed. The ld. CIT(A) further noted that as against the addition made on account of unexplained expenditure/negative stock of Rs 1,07,19,928/-, the net addition on estimation of net profit works out to Rs. 68,735/- i.e. Rs. 1,07,60,954 (-) Rs. 1,07,19,928). Accordingly, the ld. CIT(A) has maintained the addition of net profit of Rs. 68,835/- + Rs. 34,14,694/- on this account.
21. Being aggrieved, the assessee has filed the appeal before the Tribunal.
22. The Ld. Counsel for the assessee submitted that the AO rejected the books of accounts and applied profit rate of 10% . The ld. CIT(A) sustained it to 6%. The assessee is challenging the addition as the net profit declared by the assessee may be accepted. The Ld. Counsel for the assessee submitted a chart giving the comparative gross receipts as well I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 30 of 34 as net profit rate declared from the assessment year 2007-08 to 2010-11, which reads as under :-
Particular A.Y.2007-08 A.Y.2008-09 A.Y.2009-10 Year under Appeal Gross Receipt 55367036 124968803 159908451 179349239 Gross profit 7883640 17530088.41 20905089.81 24268511.48 Gross profit % 14.23 % 14.02 % 13.07% 13.53 % on turnover Net profit 4714700 11242289.71 14151236.39 19503705.55 before depreciation Depreciation 2386454 5063253.69 6188982.81 5053046.20 Net profit 2328246.47 6179036.02 7962253,58 14450659.35 before interest and salary to partners Interest and 1255325 3257145.55 42904512.24 7304398.66 salary to partners Net profit 1072919.74 2921890.47 3671841.34 7146260.49 Net profit % on 4.20% 4.94% 4.97% 8.05 % turnover before interest and salary to partners Net profit % on 1.93% 2.33% 2.29% 3.98% turnover after interest and salary to partners Therefore, the assessee claimed that for making the estimate of profit, the past data with the past estimate of profit are to be considered, as held in the case of Brij Lal Mani Lal & Company, 92 ITR 287 (MP). The ld. Authorized Representative of the assessee submitted that main basis of rejection of books is the closing stock, which was valued at Rs.10 lakhs on I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 31 of 34 estimated basis, if the closing stock is shown excess would result in increase of profit in current year but correspondingly decreased the profit in the subsequent year. Therefore, it was urged to consider the adoption of net profit rate on reasonable basis.
23. We have heard the rival submissions and have perused the material available on record. We find that the AO has noticed various defects which were specific in nature like non-maintenance of quantitative details of stock. Closing stock was made on estimated basis. Expenditure were increased as compared to earlier year. Further in the past also, the books of accounts of the assessee was rejected and net profit was estimated. Therefore, considering the past history and defects as pointed out by the AO and ld. CIT(A), the rejection of books of accounts is justified. We are also aware of the fact that the assessee has not challenged the rejection of books of accounts before us, which shows that the rejection of books of accounts upheld by the lower authorities was acceptable to the I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 32 of 34 assessee. Now the issue remains with us to adjudicate the issue regarding application of net profit on the gross receipts.
24. We find that the assessee has shown profit rate at 1.93 % in assessment year 2007-08, 2.33 % in assessment year 2008-09, 2.29 % in assessment year 2009-10 and 3.9 % during year under consideration . Thus, the profit rate disclosed by the assessee shows a growth over the past year. However, we also find that during year under consideration, the AO has found specific defects in the books of accounts and also worked out peak negative expenses amounting to Rs. 1.07 crores. This fact was not in the earlier years. We also note that the profit rate disclosed at 2.33 % in assessment year 2008-09 was also not found acceptable by the Department, hence, the gross profit addition was made and after which the gross profit rate was worked out to 2.63%. Similarly, in assessment year 2009-10, the profit rate disclosed was at 2.29%, which was increased by the AO at 2.47% after making gross profit addition. In the present case, the ld. CIT(A) has upheld the gross profit rate at 6% as against 10% estimated by the AO I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 33 of 34 and ld. CIT(A) has also allowed set off of Rs. 1.07 crores expenditure as against the estimation of gross profit. It is also not in dispute that the books of accounts are not correctly maintained from which the profit can be adduced properly. Therefore, considering the past history of this case and the facts noticed by the lower authorities in maintenance of books of accounts, particularly the unexplained expenditure of Rs. 1.07 crores, in our view, it would be reasonable and fair to adopt a gross profit rate at 5% on total gross receipts of Rs. 17,93,49,239/-, which works out to Rs. 89,67,461/- as against the profit declared at Rs. 71,46,260/-. Accordingly, the addition of Rs. 18,21,201/-( 89,67,461 (-) 71,46,260 ) is confirmed as against 36,14,694/- upheld by the ld. CIT(A) . Accordingly, the assessee will get relief of Rs. 17,93,493/- (36,14,694 (-) 18,21,201) besides we also find that the ld. CIT(A) has maintained an addition on net profit at Rs. 68,735/-, which in our considered opinion would be includible in the total gross profit rate of 5% as estimated by us. Accordingly, the said addition is also deleted. I.T.A.No. 673/Ind/2014 A.Y.2010-11 M/s.Rajdeep Constrution,Bhopal Page 34 of 34
25. Thus, ground nos. 4 & 5 are partly allowed.
26. In the result, the appeal is partly allowed.
The order has been pronounced in open court on the 23rd November, 2016.
Sd/- Sd/-
(डी.ट
.गरा सया) (ओ.पी.मीना)
या यक सद य लेखा सद य
(D.T.GARASIA) (O.P.MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*दनांक /Dated : 23rd November, 2016.
CPU*
1722