Income Tax Appellate Tribunal - Delhi
Subodh Gupta, Delhi vs Acit, Circle-62(1), New Delhi on 15 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: "G", NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
ITA No.1742/Del/2018
Assessment Year: 2014-15
Shri Subodh Gupta, Vs. ACIT,
D-3, East Jyoti Nagar, Circle-62(1), New Delhi
Shahdara, Delhi, New Delhi
PAN :AEVPG4646M
(Appellant) (Respondent)
Appellant by Shri J.B. Sharma, CA
Respondent by Shri N.K. Bansal, Sr.DR
Date of hearing 31.01.2019
Date of pronouncement 15.02.2019
ORDER
PER O.P. KANT, A.M.:
This appeal by the assessee is directed against order dated 28/02/2018 passed by the Ld. Commissioner of Income-tax (Appeals)-20, New Delhi [in short 'the Ld. CIT(A)'] for assessment year, 2014-15, raising following grounds:
1. The Ld. ACIT has arbitrarily and illegally rejected our Books of Accounts and has taken the wrong and illegal view of Section 44AD of Income Tax Act, 1961 which is not applicable to the Assessee's case.
2. The order passed by the Ld. ACIT is in fact not the Assessment done but is the coercive approach of Assessment and burdening the Assessee with the high tax demand. In fact, if we go through the note sheet of the case, your highness would come to know that the Ld. ACIT having satisfied with everything subject to some unverifiable Sundry Creditors which is beyond assessee's control, 2 ITA No.1742/Del/2018 levying false charges of not maintaining the Stock records which is almost of negligible value in terms of percentage (i.e. 0.43% of turnover) which is nothing but scrap/consumables and false allegations of properness of wages register. Ld. ACIT with his pre-
mind set has decided to pass the Assessment order as per the previous footing without application of mind with which the Assessee was never convinced and it appears that it has become the routine matter to assess the Assessee's Case by applying the deeming provisions of Section 44 AD of Income Tax Act, 1961, despite of the good intention of the assessee at all levels in the present circle of assessment, which is on record.
3. That CIT (Appeals)-XX erred in confirming the order of Ld. ACIT (after allowing only partly relief by reducing the percentage of net profit from 8% to 5% on Contract Receipts and deducting there from the Depreciation of Rs. 20,09,838.00) which is apparent from face and assessing the income in the tune of Ld. ACIT u/s.44AD of I.T. Act,1961 which is out of scope as assessee's case is duly audited u/s. 44AB of I.T. Act, 1961. The Partly relief provided by the CIT (A) as mentioned hereinabove is not enough to give him (assessee) the proper justice as is lawfully available to him (assessee).
4. That, one thing which is important to bring in notice that if we look at the provisions of sec.l94C of I.T. Act, 1961 and nature of business in which assessee is engaged all receipts are covered under TDS deduction @1% of the contract receipts which is the barometer of the assessee's earnings as per statute. Keeping in view the intention of law assessees's income needs to be confined only upto the level of TDS deduction in the interest of justice.
5. That assessee is involved in civil construction business at Greater Noida which is known for its competitive environment. Keeping in view of such non avoidable facts and circumstances the action of CIT(Appeals)-XX in estimating income in tune of Ld. ACIT subjects to certain relief as provided hereinabove is on higher side which needs your interference to break such benchmark.
6. It is highly harassing and unlawful to arbitrary estimate the income without considering facts, circumstances and changes in volume of assessee's business in the year under review wherein the turnover has considerably increased from Rs. 2,30,98,823.00 (in the immediate preceding year) to Rs. 33,05,93,841.00, the Gross Profit from 3.97% (in the immediate preceding year) to 4.08% and the Net Profit from 1.12% (in the immediate preceding year) to 1.50%. This fact of substance has been completely ignored by the Ld. ACIT, Circle 62(1) New Delhi.
7. To substantiate we would like to draw your kind attention to certain judicial pronouncements as in the case of:
3 ITA No.1742/Del/2018(a). Hon'ble Allahabad High Court in case of Commissioner of Income Tax Vs Jogendra Singh & Co.(2014) 361 ITR 78 dated 06.01.2014,
(b). Hon'ble Madras High Court in case of K.Kannan Vs. ACIT, Circle-I, dated 01.10.2013,
(c). Hon'ble ITAT in case of Commissioner of Income Tax-I Vs. M/s.
Sahu Construction Pvt. Ltd. Sahu Theatre Building dated 08.010.2013,
(d). Hon'ble High Court of Delhi, New Delhi in the case of Commissioner of Income Tax Vs. Rajender Singh dated 22.05.2015,
(e). Hon'ble ITAT, Kolkata in the case of ACIT Kolkata Vs. M/s.
Gouranglal Chatterjee Construction P Ltd. dated 20.01.2016 and
(f). Hon'ble ITAT, Ahemdabad in the case Quality Construction Prop. Vineet Deorari Vs. ACIT, Surat dated 29.10.2010.
Lastly, we have to express our feelings that such type of hard assessment are not only illegal but are deviating from the fundamental theories of Income Tax Assessment that the assessment should be assessee friendly.
Thus, we can say that the Ld. ACIT Circle 62(1), New Delhi assessed the case Arbitrarily, illegally, beyond the ambit of Law and against the Law of Natural Justice wherein the partly relief given by CIT (A), New Delhi wouldn't suffice to provide the available legal platform to the asessee.
Relief Claimed:
The order passed by the Ld. ACIT Circle 62(1), New Delhi and partly confirmed by CIT (Appeals)- XX needs be disowned and be set aside and assessee's return as submitted be accepted in the interest of justice. The Assessee reserve his rights to provide some other information relevant to the case at the time of hearing.
2. Briefly stated facts of the case are that the assessee is a government contractor and has worked mainly for Greater Noida Authority (Uttar Pradesh). For the year under consideration, the assessee filed return of income on 13/09/2014 declaring total income of Rs.49,27,220/-. The case was selected for scrutiny and statuary notices under the Income-tax Act, 1961 (in short 'the Act') were issued and complied with. The Assessing Officer 4 ITA No.1742/Del/2018 rejected books of accounts of the assessee in view of the low net profit, unverifiable purchases, unverified labour charges, non-
reliable valuation of work in progress, non-maintenance of stock register and other deficiencies pointed out in the assessment order and determined the income at the rate of the 8% on the gross receipt from contract business of Rs.33,05,93,841/-, which was worked out to Rs.2,64,47,507/- and 3% of the supply receipt of Rs.28,54,900/-, which was worked out to Rs.85,647/-. In this manner, the Assessing Officer after reducing the profit shown of Rs.50,27,221/- by the assessee in return of income, made net addition of Rs.2,15,05,933/-. On further appeal, the Ld. CIT(A) upheld the rejection of books of accounts, however, reduced the rate of net profit from contract work from 8% adopted by the Assessing Officer to 5% and further allowed depreciation. In case of receipt from supply, he confirmed the net profit rate of 3%. In this manner, he reduced the total addition from Rs.2,15,05,933/- to Rs.92,78,280/-. Aggrieved with the addition sustained by the Ld. CIT(A), the assessee is in appeal before the Tribunal.
3. Ld. counsel of the assessee filed written submission along with copy of submissions made before the lower authorities. The Ld. counsel submitted that the Assessing Officer while determining the net profit rate of 8%, has completely ignored certain expenditure of statutory nature. List of such expenditure submitted by the Ld. counsel is reproduced as under:
Sl. No. Particulars Amount (INR)
1. Work Contract Tax 1,37,33,756.00
2. Testing Expenses 43,519.00
3. Tender Fees 65,370.00
5
ITA No.1742/Del/2018
4. Bank Charges 45,886.96
5. Interest paid on Borrowed Capital 4,17,817.00
6. Insurance 77,060.00
7. Professional & Legal Fees 2,38,596.00
8. Depreciation 20,09,838.00
9. Audit Fees 2,00,000.00
Total 1,68,31,842.96
4. The Ld. counsel further submitted that if the above statutory expenses are allowed out of the profit at the rate of 8% determined by the Assessing Officer the taxable profit of the assessee would be reduced substantially.
5. Further, the Ld. counsel relied on the decision of the Tribunal, Kolkata bench dated 20/01/2016 in the case of ACIT Vs. M/s Gourangalal Chatterjee Construction Private Limited, wherein net profit estimated at the rate of 8%, was reduced to 2.5% after allowing statutory expenses like depreciation interest on borrowed capital, etc. He also relied on the decision of the Tribunal, Ahemedabad bench in the case of Quality Construction in ITA No. 4544/Ahd./2007 and others and submitted that in the said case the Tribunal confined the net profit at the rate of 3.25% of the receipt. The Ld. counsel also referred to decision dated 22/05/2015 of the Hon'ble High Court of Delhi in the case of CIT- 21 Vs Rajender Singh, wherein the Hon'ble High Court upheld the decision of the Tribunal confirming the net profit rate of 1.94% estimated by the Ld. CIT(A).
6. On the contrary, the Ld. DR relied on the order of the Ld. CIT(A) and submitted that in view of the defects noticed by the Assessing Officer, the Ld. CIT(A) is justified in upholding the 6 ITA No.1742/Del/2018 rejection of books of accounts. On the issue of net profit rate applied by the Ld. CIT(A), he submitted that the Ld. CIT(A) has followed finding of his predecessor in assessment year 2012-13, which the assessee has not challenged further, thus the assessee himself has accepted the net profit rate of 5% on the works contract subject to depreciation and net profit rate of the 3% on supply contract. Accordingly, he submitted that the order of the Ld. CIT(A) might be sustained.
7. We have heard the rival submission and perused the relevant material on record. As far as rejection of books of accounts by the Assessing Officer is concerned, he has pointed out various defects in the books of accounts of the assessee, which could be summarized as under:
(i) Net profit rate declared by the assessee was lower than assessee's carrying similar line of business.
(ii) The purchases made from 5 parties listed on page 3 of the assessment order, could not be verified during enquiry under section 133(6) of the Act and even the assessee could not produce those parties to prove genuineness of the transaction.
(iii) Expenses for construction material such as Tarcol of Rs.10,17,307/- and Rs.9,49,905/-was purchased from Sony traders and payment of which was made in cash ranging from Rs. 15,000/- to 19,500/- on day-to-day basis which was against norms of normal business practice.
(iv) Labour/salary expenses remained non-verified in absence of complete name and address in the muster roll and salary register.7 ITA No.1742/Del/2018
(v) Stock register was not maintained
(vi) None of the bills/vouchers related to purchase bear
any Mark/evidence of transportation of the material
(vii) None of the bills/vouchers related to purchase bear any Mark of evidence of receipt of goods either at the site of work or godown of the assessee
(viii) The assessee did not provide details of project wise material utilization
8. Before us, the Ld. counsel could not contradict the above finding of the Assessing Officer on the defect pointed out in books of accounts, which has been confirmed by the Ld. CIT(A). In our opinion, non-verification of creditor's ledger account and non- maintenance of stock register raise serious doubts on the amount of profit worked out on the basis of the books of accounts. The Assessing Officer in the assessment order has also pointed out that the assessee should have reported its revenue and profit from the projects following the percentile completion method. The Ld. counsel in his written submission has contested the issue of allowing statutory expenses like, depreciation etc. out of the 8% gross profit rate estimated by the Assessing Officer but not contested the issue of rejection of books of account. In view of uncontroverted defects in books of accounts, we don't find any infirmity in the action of the Ld. CIT(A) in upholding the rejection of books of accounts. Accordingly, we uphold the action of the Assessing Officer in invoking section 145(3) of the Act and rejection of books of accounts of the assessee.
9. As far as sustaining the net profit rate of 5% on works contract subject to depreciation and 3% rate on supply, by the 8 ITA No.1742/Del/2018 Ld. CIT(A) is concerned, we find that the Ld. CIT(A) has followed the finding of his predecessor in the case of the assessee for assessment year 2012-13. In the impugned order, the Ld. CIT(A) has reproduced finding of his predecessor in assessment year 2012-13. In view of the finding of his predecessor, the Ld. CIT(A) estimated the profit in the year under consideration as under :
"4.3.5 As the facts and circumstances of the case is almost similar, respectfully following the observation of CIT(A) in A.Y. 2012-13, the rejection of books of accounts of the appellant is upheld as the Assessing Officer has given justified reasons for the same. Further, the appellant could not produce any supporting evidence and approved rates and the reasons of fall in the approved rates during the course of appellate proceedings also. Reliance is placed on the decision of Hon'ble High Court of Allahabad in the case of Awadhesh Pratap Singh Abdul Rehman & Bros. v. CIT 210 ITR 406 Besides this, I am inclined to hold in this year also that the estimation of profit of works contract which is taken by the Assessing Officer @ 8% is excessive and should be calculated @ 5% reduced by the depreciation of Rs.20,09,838/- and the income from supply which is estimated by the Assessing Officer @ 3% deserves to be confirmed. However, no relief is required to be given to the appellant for the 'Work Contract Tax' shown by the appellant in the ledger account which is a part of total contract receipt and once the books of accounts is rejected, the estimation of profit is to be made on the gross contract receipt. Reliance is also placed on the decision of Hon'ble Supreme Court of India in the case of Kachwala Gems v. CIT 288 ITR 10. In this light, the total income of the appellant is to be worked out as under:-
(a) Gross receipts from work contract - Rs.33,05,93,841/-
Profit @ 5% on the above - Rs.1,62,29,692/-
(b) Gross receives from supply - Rs.28,54,900/-
Profit @ 3% of the above - Rs.85,647/-
Less: Depreciation - Rs.20,09,838/-
Total income -(16229692+85647)-2009838
- Rs.1,43,05,501/-
Less: Income shown by the appellant - Rs.50,27,221/-
Addition to be made in the total income - Rs.92,78,280/-
Hence, the addition made by the Assessing Officer of Rs.2,15,05,933/- is restricted to Rs.92,78,280/- and the appellant will get relief accordingly.
9 ITA No.1742/Del/201810. The Ld counsel of the assessee has not brought on record any order of the Tribunal, where this net profit rate applied by the Ld. CIT(A) in assessment year 2012-13 has been disturbed. In absence of any contrary order of the higher appellate forum, the order of the Ld. CIT(A) for assessment year 2012-13 has become final. In view of the above facts and circumstances, we do not find any infirmity in the order of the Ld. CIT(A) for the year under consideration in following the own comparison of profit results of the assessee upheld by the learned CIT(A) for estimating the net profit from works contract as well as from supply contract. The case laws mentioned by the Ld. counsel cannot be relied for estimating profit of the assessee for the year under consideration, when comparative profit results of the assessee for earlier years are available. Accordingly, we uphold the finding of the Ld. CIT(A) on the issue of estimation of the profit also.
11. The grounds of the appeal are accordingly dismissed.
12. In the result, appeal of the assessee is dismissed.
Order is pronounced in the open court on 15th February, 2019.
Sd/- Sd/-
[BHAVNESH SAINI] [O.P. KANT]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 15th February, 2019.
RK/-[d.t.d.s]
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi