Income Tax Appellate Tribunal - Mumbai
Stephen Bernard, Mumbai vs Assessee on 28 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "E", MUMBAI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.5904/M/2011
Assessment Year: 2008-09
Shri Stephen Bernard, Addl. CIT, Range - 25(35),
124, Andheri Universal Ind. Pratyakshikar Bhavan, BKC,
Estate, Vs. Bandra (E),
J.P. Road, Andheri (W), Mumbai - 400 051.
Mumbai - 400 058
PAN: ALSPP5878L
(Appellant) (Respondent)
Assessee by : Shri Nishit Gandhi, A.R.
Revenue by : Shri Kishor Dhule, D.R.
Date of Hearing : 14.08.2014
Date of Pronouncement : 28.10.2014
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been filed by the assessee against the order dated 13.07.11 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2008-09.
2. The assessee has agitated the action of the ld. CIT(A) in confirming the adhoc addition of Rs.25,00,000/- made by the Assessing Officer (hereinafter referred to as the AO) on the basis of lower NP ratio shown in the profit & loss account by the assessee.
3. The brief facts are that the assessee, an individual, has been engaged in the business of undertaking works contract in the name and style of M/s. Stephen Bernard Construction Company. For the year under consideration, the 2 ITA No.5904/M/2011 Shri Stephen Bernard AO, during the assessment proceedings under section 143(3) of the Act, noticed that the assessee admitted gross receipts from works contracts at Rs.15,51,85,512/- against which the net profit admitted by the assessee was Rs.15,36,074/- and the net profit rate was worked out to less than 1%. The AO further noticed that the major expenses claimed included purchase of various materials, labour charges, transportation charges, hire charges etc. The AO further noticed that most of the vouchers relating to labour, transportation etc. were self made vouchers without any supporting documents. When required to explain the decrease in the net profit, the assessee submitted that the same was due to fall in the turnover and increased input costs and due to the fact that the assessee met with an accident. The AO considered the reason given by the assessee for decline in the net profit and by order sheet noting dt.16.12.2010 and proposed lumpsum addition of Rs.25,00,000/- for which the assessee's representative agreed and signed in the order sheet. The addition was made on account of cash payments made through self made vouchers without proper documents.
3.1 In appeal before the ld. CIT(A), the representative of the assessee accepted that he had agreed for addition of Rs.25,00,000/- and signed in the order sheet. However, he contended that a letter dt.22.12.2010 was filed before the AO on 23.12.2010 vide which the reasons for less NP ratio were explained. The relevant part of the said letter is reproduced as under:
"Addition of Rs.25 lakhs due to less NP ratio In your proceeding sheet, you proposed to add Rs.25 lakhs to the taxable profit, due to less NP ratio and based on last year (AY 07-08) addition of Rs.5 lakhs. Sir, in the last year, we did not challenge the addition of Rs.5 lakhs due to various reasons, such as, my ill health (I am a high diabetic patient, in last year at least 3 times I was hospitalized), business uncertainty (my present turnover is just Rs.2 crores against Rs.30 crores of 06-07) and to buy peace.
Thus we request you to not to take the addition of A. Y.07-08, as base for current year scrutiny. Please note that we submitted all the details as per your requirement and 3 ITA No.5904/M/2011 Shri Stephen Bernard hereby request you not to make any adhoc additions due to less N.P. ratio.
The less N.P. ratio is due to the genuine reasons, the same were fully described by our A.R's letter dated 03.12.2010".
The ld. A.R. further accepted before the ld. CIT(A) that the above letter was filed after completion of the assessment. However, he contended that the AO was not justified in making addition of Rs.25,00,000/-.
4. The ld. CIT(A) after considering the submissions of the representative observed as under:
"It is seen from the order sheet entry dt.16.12.2010 that it was recorded as under:-
"From the details filed it is seen that most of the vouchers are self made vouchers without any supporting documents. Assessee's reply with regard to fall in net profit has been considered but the same is not acceptable for the reason of incurring of expenses in cash without supporting documents.
The assessee had met with an accident and even now is not fully recovered. On account of discrepancies pointed out to the assessee in voucher produced the assessee has agreed for disallowance of expenses amounting to Rs.25 lacs (Rupees Twenty Five lac). Subject to no penalty /prosecution. The assessee agrees to pay tax on the amount before 15th March, 2011".
From the above, it could be seen that the assessee's representative Mr. M.K. Varghese, C.A. agreed for addition of Rs.25,00,000/- and signed in the order sheet. Further it is noticed that the net profit admitted by the assessee was less than 1% and even after the addition of Rs.25,00,000/- made by the A.O. the net profit rate is still below 2.5%. In the circumstances, I find that the assessee's representative agreed for addition before the AO to avoid further scrutiny of cash payments and, therefore, there is no justification for contesting the agreed addition. In any case the net profit rate admitted by the assessee is very low even when the turnover was more than Rs.15 Cr. Other assessees engaged in similar line of business admitted higher net profit rate even when the total turnover was less. The claim of the assessee that there was decline in the net profit rate due to decreased turnover cannot be accepted. I find that the AO after considering the reasons given by the assessee for low net profit has reasonably added Rs.25,00,000/- that too on agreed basis. Admittedly, the letter dt.22.12.2010 was filed before the AO on 23.12.2010 whereas the assessment was completed on 21.12.2010. Even otherwise having agreed for addition and signed in the order sheet the assessee would not be justified in filing letter dt.22.12.20 10 requesting the AO not to make any addition. The assessee's representative signed in the order sheet agreeing for addition of Rs.25,00,000/- and, therefore, there was no merit in filing the letter dt.22.12.2010. In the circumstances, he did not find any merit in the grounds raised by the assessee and the same is 4 ITA No.5904/M/2011 Shri Stephen Bernard rejected."
4.1 Aggrieved by the order of the ld. CIT(A), the assessee has come in appeal before us.
5. We have heard the rival contentions of the ld. representatives of both the parties. The ld. A.R. of the assessee has submitted before us that the admission for agreeing of adhoc disallowance of Rs.25 lakh was immediately withdrawn vide letter dated 22.12.10. He has further submitted that the NP ratio in the preceding years was high because of the reason that there was growth in the market and the prices of commodities had increased. However, during the year under consideration, the total turnover of the assessee was Rs.2 crore only. He has further contended that though the ld. A.R. of the assessee had made an admission but, the erroneous admission can be withdrawn. He has further referred to the letter dated 03.12.10 of the assessee to submit that the assessee had offered explanation with regard to less NP for the year under consideration.
On the other hand, the ld. D.R. has relied upon the findings of the lower authorities and has further submitted that in this case, the assessee himself had agreed for the adhoc addition of Rs.25 lakh.
6. We have considered the rival submissions of the ld. representatives. In this case, the AO, after considering the submissions of the assessee with regard to lower NP rate, had observed that the major expenditure claim was with regard to the purchase of various materials, labour charges, transportation charges and hire charges etc. and further that most of the vouchers relating to labour, transportation etc. were self made vouchers without any supporting documents. When this was discussed with the ld. representative of the assessee and the explanation given by the ld. A.R. was 5 ITA No.5904/M/2011 Shri Stephen Bernard not found satisfactory, only then the ld. A.R. on behalf of the assessee had agreed for an addition of Rs.25 lakh on account of cash payments made through self made vouchers without proper documents. After the finalization of the assessment, the assessee had contested the said addition on the ground that the addition was made erroneously. However, we do not find any merit in this contention of the assessee. Even before us, the ld. representative of the assessee has not brought any evidence to show that the transportation, labour charges etc. were not excessive or that the same were supported with proper bills. The assessee, through his representative, had not only admitted the said lacuna but had agreed for the amount of addition. We do not find any reason to interfere with the order of the lower authorities which was made with the consent of the ld. representative of the assessee. Accordingly, the appeal of the assessee is hereby dismissed.
Order pronounced in the open court on 28.10.2014.
Sd/- Sd/-
(N.K. Billaiya) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 28.10.2014.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.