Income Tax Appellate Tribunal - Jaipur
Income Tax Officer vs Devi Singh Solanki on 21 October, 2005
Equivalent citations: (2006)99TTJ(JP)890
ORDER
N.K. Karhail, J.M.
1. This appeal of the Revenue is directed against the order dt. 16th Dec., 2002 passed by the learned CIT(A)-II, Jaipur, for asst. yr. 1995-96. The ground of appeal reads as under:
On the facts and in the circumstances of the case and in law, the learned CIT(A)-II, Jaipur, has erred in deleting the addition of Rs. 6,84,788 made by the AO on account of unexplained investment/expenditure/payment, despite that the net profit from the business was determined at Rs. 1,17,913 only. The learned CIT(A) has erred in deleting the addition without reconciling the total cash available and the source of payments effected through cheques.
2. Briefly stated, the facts are that the assessee is a contractor and was engaged in the contracts awarded by PWD. In the return of income filed for the asst. yr. 1995-96, the assessee had shown net profit of Rs. 22,990 on contract receipts of Rs. 14,73,914. The net profit rate shown by the assessee was worked out to 1.55 per cent on contract receipts. The assessee was asked to produce books of account and other supporting evidences in respect of his income and expenses. The assessee submitted that he had not maintained regular books of account and, therefore, he was unable to produce the same. It was also submitted that gross contract receipts were not more than Rs. 40 lakhs and the provisions of Section 44AD would be applicable in the assessee's case. The assessee had furnished details of contract receipts and no books of account or other records in respect of expenses incurred were produced. The AO applied the provisions of Section 44AD and determined the profit and gains of the contract business at the rate of 8 per cent on the gross receipts of Rs. 14,73,914. The AO, however, in view of the provisions of Section 44AD did not allow any further deductions claimed by the assessee. The net income from the contract work was computed at Rs. 1,17,913. The AO, however, asked the assessee to furnish confirmation and other details in respect of sundry creditors and the new loans. The assessee submitted that he had not maintained the books of account and the provisions of Sections 28 to 43C and 44AD(5) do not apply in his case and claimed that the assessee had not maintained any books of account therefore, the provisions of Section 68 could not be applied as addition under Section 68 could be made only if a sum was found credited in the books of account of the assessee maintained for any previous year. The AO considered the said contention of the assessee and observed that it would be apparent that credit entry in the books of account was required in the books of account however, it was informed to the assessee that in the balance sheet filed there were corresponding assets whose source of acquisition was to be proved by the assessee. The assessee ultimately filed a detailed letter dt. 26th Dec., 2000 in which he had submitted a fund flow statement for acquisition of new assets. However, the said fund flow statement was rejected. The AO made various additions on the basis of balance sheet under Section 69 of the Act. Thus, the AO made the assessment on a total income of Rs. 7,94,820 as against the returned income of Rs. 22,990 after making an addition of Rs. 6,64,788.
3. On appeal, the learned CIT(A) has deleted the additions made by the AO by observing thus :
I have considered the facts as pointed out by the AO as well as the explanations and submissions of the appellant and noticed that the additions made under Section 69 and others totalling to Rs. 6,64,788 are erroneous and unjustified and the same are not sustainable as the appellant has explained the source of all entries whether made for purchase of assets or for repayment of liabilities. Even after application of provisions of Section 44AD(1) of IT Act, 1961, no other additions were required to be made. In view of the facts and circumstances of the case, the various additions as made of which total comes to Rs. 6,64,788 are deleted. In other words, the income worked out under Section 44AD(1) at Rs. 1,17913 and income from other sources as declared by the appellant at Rs. 22,120 (Rs. 6,469 + Rs. 2,076 + Rs. 13,575) remain as taxable income. Interest under Sections 234A and 234B is consequential in nature and the same be calculated afresh as per appeal effect.
4. Before us, the learned Departmental Representative has argued in support of the ground of appeal while relying upon the reasoning assigned by the learned AO in making the impugned addition in respect of the assets shown in the balance sheet. He has submitted that since the assessee has failed to explain the source of investment made in the assets shown in the balance sheet, the AO was justified to make the impugned additions. Thus, he has supported the order passed by the AO,.
5. On the other hand, the learned counsel for the assessee has submitted that a new provision was brought on statute overriding Section 44AD wherein in the case of civil contractor a fix rate of net profit shall apply to ascertain the taxable income in a given year. The AO though assessed the business income of the assessee by applying Section 44AD but has also assessed other income as declared by the assessee. At the same time, he still proceeded to make the addition under Section 69 alleging that various investments in the purchase of car and other assets, repayment of liability reduction of sundry creditors, etc. have taken place during the previous year, the source of which was not explained. He has further submitted that the basic question that arises for consideration is that once the legislature itself allowed the assessee (a civil contractor) not to maintain any books of account and once the income in the case of such an assessee has already been assessed, what is the necessity to refer to other provision of the Act and to make addition. In fact this shows a contradictory approach in the stand of the Revenue. He has pointed out that the purpose of Section 44AD was to estimate the income of the civil contractor for a given period. Once it is done, there is no necessity to make separate addition on account of alleged investment/reduction in liabilities. Thus, to assess income under Section 44AD and still making additions separately under Section 69 is nothing but normally a case of double addition. Hence, this would render Section 44AD as purposeless. The learned counsel has further submitted that the assessee did not maintain day-to-day books however, in any case, statement of affairs and the opening and closing (stock) were prepared. Therefore, for explaining source of fund, a fund flow statement was made by comparing the assets and the liabilities standing as on 31st March, 1994 and those stood as on 31st March, 1995. With the help of this fund flow (statement) various investments/outgoing/reduction of liabilities were explained. The AO however rejected the said fund flow statement without suggesting alternative fund flow statement to be prepared. The assessee submitted another fund flow statement before the CIT(A) to take care of the mistakes pointed out by the AO. Most of the mistakes were not real mistakes and it is only the reduction in the liability which could not be taken into account were corrected. He has pointed out that a detailed explanation with regard to each and every outgoing was also submitted before him and it is notable that in almost all cases, the outgoings were by account payee cheques only. Admittedly, the assessee was in respect of a substantial amount of Rs. 14.81 lakhs during the year from PWD Department as is evident from the certificate of TDS filed along with the return of income. Admittedly, these funds were available as deposited (from) time-to-time in the bank account and, therefrom, the same were drawn and utilized towards these outgoings. There were various other credits also. The AO has not at all doubted/denied the substantial receipts from the PWD Department nor it was shown that the same was utilized elsewhere. Thus, all the outgoings had to be treated fully explained, therefore, the CIT(A) has correctly deleted the addition made by the AO. The learned counsel has further relied upon the order passed by the CIT(A).
6. We have heard the parties and perused the records of the case. Admittedly, the assessee is a civil contractor and the total contract receipts are below Rs. 40 lakhs. In such a situation, Section 44AD provides that the profits chargeable to tax would be 8 per cent of the gross receipt payable to the assessee or the higher sum declared by the assessee in the return. This section is a deeming section and it overrides the provisions of Sections 28 to 43C provided the total receipt paid or payable does not exceed Rs. 40 lakhs. In view of such a mandatory provision, the business income of the assessee carrying on construction activity is to be determined under Section 44AD and not in accordance with the provisions of Sections 28 to 43C. It may however be mentioned that there is no dispute about the application of provisions of Section 44AD of the Act to the civil construction business of the assessee, the dispute is with regard to the assets shown in the balance sheet of the assessee filed in the matter. We are not in agreement with the submissions of the learned counsel for the assessee that once the income of the civil construction business is estimated under Section 44AD of the Act, there is no necessity to make separate addition on account of alleged investment/reduction in liability inasmuch as the provisions of Section 44AD have limited overriding effect over Sections 28 to 43C of the Act. Therefore, the provisions of the other sections of the Act would be independently applicable to the facts of a case even if the income of the assessee engaged in the civil construction business is assessed under Section 44AD of the Act. It is however seen that the CIT(A) has examined the source of purchase of the assets/reduction of liability in great detail and has found that the same has been duly explained by the assessee inasmuch as the same were mostly made by account payee cheques/drafts. The Department has not placed any material on record to rebut the said finding of the learned CIT(A). We, therefore, uphold the order passed by the CIT(A) deleting the addition made by the AO.
7. In the result, the appeal of the Revenue is dismissed.