Income Tax Appellate Tribunal - Jaipur
Choudhary And Brothers, Jaipur vs Assessee on 28 September, 2016
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh Hkkxpan] ys[kk lnL; ,oa Jh yfyr dqekj] U;kf;d lnL; ds le{k
BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 54/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2006-07
M/s Choudhary & Brothers, cuke A.C.I.T.,
Village-Ladana, Phagi, Vs. Circle-7,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFC 0190 M
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 164/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2006-07
A.C.I.T., cuke M/s Choudhary & Brothers,
Circle-7, Vs. Village-Ladana, Phagi,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFC 0190 M
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajiv Sogani (CA)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 23/08/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 28/09/2016
vkns'k@ ORDER
PER: LALIET KUMAR, J.M. These are the cross appeals, one by the assessee and another by the revenue arise against the order dated 27/11/2012 passed by the ld 2 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT CIT(A)-III, Jaipur for the A.Y. 2006-07, wherein the effective grounds of assessee as well as revenue's appeals are reproduced as under:-
Grounds of assessee's appeal:-
"1. In the facts and circumstances of the case and in law, the ld. CIT (A) has erred in confirming the action of the ld. AO in rejecting the books of accounts and confirming the net profit rate of 15% against the declared rate of 10.12% and net profit rate 29.52% estimated the ld. A.O. which resulted into confirming the trading addition of Rs. 22,55,589/- out of the total addition of Rs. 89,73,464/- made by the ld. AO. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by accepting the book results and deleting the said addition of Rs 22,55,589/-.
2. In the facts and circumstances of the case and in law, the ld CIT (A) has erred in confirming the action of the ld. AO in disallowing a sum of Rs. 6,63,750/- on account of depreciation. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 6,63,750/-.
3. (a) In the facts and circumstances of the case and in law the ld CIT(A) has erred in confirming the action of the ld AO in exceeding his jurisdiction and further in not following the directions of the Hon'ble ITAT while adding a sum of Rs. 16,40,214/-.The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 16,40,214/-.
3 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT
(b) In the facts and circumstances of the case and in law, the ld CIT (A) has erred in confirming the action of the ld. AO in adding a sum of Rs. 16,40,214/- out of outstanding liabilities. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 16,40,214/-."
Grounds of revenue's appeal:-
"i The CIT(A) has erred in reducing the net profit rate from 29.52% to 15% even when the Hon'ble ITAT in its set aside order dated 30/09/2010 had directed the A.O., to estimate net profit on the basis of past history of the assessee"
2. Brief facts of the case are that the assessee is a civil contractor. The 1st ground of the assessee's appeal as well as revenue is against for confirming the action of the ld. AO in rejecting the books of accounts and confirming the net profit rate of 15% against the declared rate of 10.12% and net profit rate 29.52% estimated the ld. A.O., for which the Assessing Officer has observed that the year consideration i.e. for the A.Y. 2006-07, the assessee disclosed GP @10.12% on total turnover of Rs. 4,62,66,360/- before allowing depreciation, remuneration and interest to partners. In the A.Y. 2005-06, appellant disclosed GP @ 29.52% on turnover of Rs. 1,21,02,939/-. On the examination of books of accounts and bills/vouchers, it was noticed by AO that expenses are not fully vouched. The assessee has maintained consolidated expenses account 4 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT and no bifurcation is available. AO completed the assessment by making addition of Rs. 3410365/-by way of disallowance of various expenses @10% to 15%. The same was confirmed by CIT(A). However, Hon'ble ITAT, Jaipur set aside the assessment to the AO vide order dated 30.09.2010 in ITA No. 583/JP/2009. Hon'ble ITAT upheld the rejection of books of accounts by invoking the provisions of Sec. 145(3) of the Act. However, it directed that the instead of making lump sum disallowance of various expenses, AO should estimate the profit of the assessee in view of the past history. In the fresh proceedings AO estimated the profit @ 29.52% as shown by the assessee in the last year.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had partly allowed the appeal by observing as under:-
" 02.3 I have duly considered the material available on record.
It is noticed that the Hon'ble ITAT, Jaipur in its subsequent order dated 31/05/2011 for A.Y. 2007-08, has estimated the profit @ 11.5% on the turnover of Rs. 16.84 crore. The Hon'ble Bench has also considered its order for A.Y. 2006-07, the past history of the assessee and the defects in accounts books of the assessee, pointed out by the A.O. Assessee has claimed that with the increase of turnover, profit rate is decreased. For 5 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT this very reason, he has challenged the application of profit rate shown in A.Y. 2005-06. Considering the profit rate of 11.5% on turnover of 16.84 crores estimated by Hon'ble Tribunal in A.Y. 2007-08, the profit is estimated @ 15% on turnover of 4.62 crores in A.Y. 2006-07. The ground raised by the appellant is partly allowed."
4. Now, the assessee as well as the revenue in appeal before us. The ld. AR of the assessee has submitted that in the A.Y. 2005-06, the assessee worked more on private contract orders, wherein the profit margin is comparatively higher than the government contracts. Due to this reason, the N.P. rate in the A.Y. 2005-06 is higher as compared to the A.Y. 2006-07. Further, in AY 2005-06 assessee's Gross Receipts were almost 1/4th of the Gross Receipts recorded for the year under reference.
The Gross Receipts, for the year under reference, are similar and closely comparable to A.Y. 2004-05. If the gross profit rates for the two years are compared, the gross profit rate has improved from 9.89% (N.P. rate for A.Y. 2004-05) to 10.08% (N.P. rate for A.Y. 2006-07).
It is further submitted that in the Assessment Year 2004-05, the N.P. rate of 9.89% (as declared) [Subject to depreciation, interest & remuneration to partners] was accepted by the Id. CIT (A) which was also upheld by the Hon'ble ITAT. Thus it constitutes settled past history.
6 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT Since, in the current year, assessee declared NP rate of 10.08% [Subject to depreciation, interest & remuneration to partners], the same should be upheld being better than the comparable preceding year i.e. AY 2004-05.
Ld. CIT(A), although has referred to the order of the Hon'ble ITAT Jaipur Bench dated 31.05.2011 for AY 2007-08 wherein NP rate of 11.5% was upheld by the Hon'ble ITAT Jaipur Bench. However, Id. CIT(A) has erred in not adopting the rate of 11.50% and applied a higher rate of 15% without giving any cogent reason.
Thus, alternatively relief to the assessee may be allowed by reducing the rate from 15% to 11.5%. However, there is no merit in the departmental appeal as ld. CIT(A) has already applied a higher rate than the rate upheld in assessee's own case by the Hon'ble ITAT Jaipur Bench.
It is also brought to the notice that in assessee's own case, for the AY 2008-09, Hon'ble ITAT vide its order dated 25.05.2012 upheld the NP rate of 11.50 % [subject to deduction of salary, interest and remuneration to partners].
In view of the above, relief may please be granted, by accepted declared results which are better than the past results upheld by the Hon'ble ITAT Jaipur Bench for AY 2004-05, being the most comparable 7 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT year or [ALTERNATIVELY], by following the judgment of the Hon'ble ITAT Jaipur Bench in assessee's own case for the AY 2008-09, by applying the Net Profit rate of 11.5% [subject to deduction of salary, interest and remuneration to partners].
5. At the outset, the ld. DR has vehemently supported the order of the Assessing Officer.
6. We have heard the rival contentions of both the parties and perused the material available on the record. The Tribunal in its order dated 30/09/2010, has directed to estimate the profit of the assessee keeping in view the past result of the assessee after affording opportunities of being heard to the assessee in this regard. The ld. CIT(A) has relied upon the order of the Tribunal dated 31/5/2011 passed in the assessment year 2007-08 to estimate the profit of the assessee @ 15% on the turnover. In our view, the order dated 30/09/2010, has directed the Assessing Officer to estimate the profit of the assessee keeping in view the past result of the assessee i.e. the results, which are available for the past years and were existing at the time of passing of the order. In our view, the order dated 31/5/2011 was passed by the Tribunal after passing the order dated 30/09/2010, therefore, the same 8 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT cannot be considered to be past result considering the direction issued by the Tribunal in its earlier order dated 30/09/2010. Having said so, now we have to examine whether the Assessing Officer has rightly estimated the profit @ 29.52% or not? The NP rate of 29.52% were there for the assessment year 2005-06 and 9.89% for the assessment year 2004-05. In our view, the past result will not mean the immediate past result i.e. result for the A.Y. 2005-06 as the said result was available with the Tribunal even at the time of passing of the order on 30/09/2010, therefore, the estimation is required to be done based on the earlier results available i.e. for the A.Y. 2004-05 and 2005-06. In the year 2005- 06, the turnover of gross contract receipts was Rs. 12102939/- and whereas gross receipts in the year was Rs. 34012026/-. Whereas the gross receipt in the A.Y. 2006-07 was Rs. 46441234/- . Rs 46114965 is the gross contract receipts for the year 2004-05 and 2005-06, in our view, in fact the gross receipt of 2006-07 was Rs. 46441234/-. Thus, the gross receipts of 2006-07 is matching the gross receipts for the earlier two years. Therefore, to apply the NP rate for the year 2005-06 @ 29.52%, in our view, was not correct and therefore, a rational view is required to be taken estimating the profit of the assessee. The ends of justice would be served if the estimate of profit of the assessee is 9 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT estimated at 17% subject to depreciation, interest and remuneration to the partners. Thus, the appeal of the assessee is dismissed and appeal of the revenue is partly allowed on this ground.
7. The 2nd ground of appeal is against confirming the action of the ld. Assessing Officer in disallowing a sum of Rs. 6,63,750/- on account of depreciation. In this regard, the Assessing Officer has observed that the Hon'ble ITAT, Jaipur restored this issue to the AO since it found contradiction in the date of purchases of the machinery. AO asked the assessee to explain the discrepancy in the date of purchase of the machine under consideration shown to be on 30.03.2006 while the seal of RST payments is dated 01.04.2007. Assessee did not furnish any explanation. It was only stated that once the books are rejected, further deduction of depreciation is not noteworthy. AO also noticed that auditor's note given at the end of schedule-5 annex, with ITR mentions that the machine was put to use after 31.03.2006. In view of these facts, he disallowed the depreciation of Rs. 6,63,750/- on the said machine.
The ld. CIT(A) has upheld the order of the Assessing Officer by observing that it has not explained the discrepancies on the date of purchase of the machine, for which purpose, the Hon'ble Tribunal has set 10 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT aside the issue. In view of the specific note of the auditor and assessee's inability to explain the discrepancy.
8. Now the assessee is in appeal before us. The ld. AR of the assessee has submitted that the Hon'ble ITAT Jaipur Bench remanded the matter to the file of the Id. AO with the below mentioned direction "....Since there is contradiction in the date of purchase of the machinery, we remand the matter back to the file of the A.O to decide the issue afresh after verifying the very date of purchase of machine and that when it was ready to use in view of the decision cited by the Id. A.R. after affording opportunity of being heard to the assessee.." Ld. AO at page 4 of his order came up with a specific finding that the date of purchase of machine was 30.03.2006. Thus, it is undisputed that the machine was purchased on 30.03.2006 itself and was available for use within the relevant previous year. It is to be noted that with regard to depreciation of machinery, even the machinery which is available/ready to use and not put to use, will be eligible for claiming depreciation under the Income Tax Act. Hon'ble Delhi High Court in the case of National Thermal Power Corpn. Ltd. [2012] 28 taxmann.com 89 (Delhi) (Case Law Page 50), adjudicated the following question of law:-
"... Whether on the facts and in the circumstances of the case, the assessee is entitled to depreciation in respect of capital construction equipment acquired by the assessee and kept ready for use by the contractor putting up the power plants of the assessee..."
11 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT It was held by the Hon'ble Delhi High that "In the aforesaid circumstances, we are of the view that the Tribunal erred in rejecting the assessee's claim for depreciation on capital construction equipment kept ready for use, though not actually used, for the assessment years 1979- 80 and 1980-81. The common question of law is accordingly answered in the affirmative, in favour of the assessee and against the Revenue..." The lower authorities have completely ignored the legal proposition with regard to the allow ability of depreciation w.r.t asset ready to use even though not put to use. In view of the above, depreciation on the relevant machinery may please be allowed as the same was purchased and ready for use within the relevant previous year.
9. At the outset, the ld. DR has vehemently supported the order of the ld. CIT(A).
10. We have heard the rival contentions of both the parties and perused the material available on the record. The ld. AR has failed to point out the bill showing that it was purchased prior to 30/03/2006 and was put to use by the assessee in the year under consideration. Since the assessee has failed to produce any document showing the uses of machine in the assessment year under consideration, therefore, 12 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT depreciation on the machine is disallowed. Accordingly, this ground of appeal is dismissed.
11. The 3rd ground of the assessee's appeal is against confirming the action of the ld AO in exceeding his jurisdiction and further in not following the directions of the Hon'ble ITAT while adding a sum of Rs. 16,40,214/-. The Assessing Officer has observed that the assessee's reply has been considered but not found acceptable. The question of disallowing depreciation of a certain amount does not end with the invoking of provisions of Section 145(3). Since the N.P. rate before giving allowance for depreciation, interest and remuneration has been applied here, assessee's contention does not hold good. Further, the assessee has provided no explanation regarding the discrepancy between the two dates mentioned on the same bill (which has been brought on record). The Auditor's note given at the end of the Schedule-5 annexed with ITR speaks about the machine being put to use only after 31/03/2006. In view thereof, a sum of Rs. 27,00,150/- claimed as depreciation by the assessee, for which, a sum of Rs. 6,63,750/- is disallowed by the Assessing Officer.
13 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT
12. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had upheld the disallowance by observing as under:-
"0.4.3 I have duly considered the submission of the Id. AR and material available on records. Hon'ble Tribunal has nowhere dealt with the issue of addition of unexplained liabilities (wages payable). It has only held that instead of making disallowance of expenses, A.O. should estimate the profit on the basis of past history. Addition of unexplained liability in the balance sheet is not by way of disallowance of expenses and can be made even where the books of accounts are rejected and profit estimated. The assessee has not given any argument/explanation/ evidence on the merit of the issue. He has not proved that the liability shown in the balance sheet is genuine. He has not given the names and addresses of the persons to whom the amount was payable. The addition of unexplained liability is sustained u/s 68 of the Act. Reliance is placed on the following case laws where it has been held that there is nothing in law which prevents AO in taxing both unexplained cash credit and business income estimated after rejecting the books of accounts being unreliable-
1. CIT V/S Devi Prasad Vishwanath Prasad (72 ITR
194) (SC) 14 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT
2. Kale Khan Mohammed Hanif V/s CIT (50 ITR 1) (SC)
3. Ratanchand Dipchand v/s CIT (38 ITR 188) (MP)
4. CIT v/s Madhuri Rajaiahgari Kistaiah (38 ITR 188) (MP)
5. D.C. Auddy & Bros, vs. CIT (28 ITR 713) (Cal)
6. S. Kumaraswami Reddiar Vs. CIT (40 ITR 590) (Ker)
7. Grover Fabrics (India) P. Ltd. vs. CIT (332 ITR
312) (P&H) Reliance is also placed on the decision of Hon'ble Kerala High Court in the case of CIT vs. Smt. Annamkuty Jose (2008) (174 Taxman 328)/ (2009) (221 CTR 474) where it has been held that if assessee claims amount as due to creditors, it is for the assessee to prove same through confirmation letters as and when demanded by AO. Otherwise sundry credits can be disallowed u/s 68 of the Act and added as income of the assessee. In view of the above discussion, addition of Rs. 16,40,214/- is confirmed."
13. Now the assessee is in appeal before us. The ld. AR of the assessee has submitted that the lower authorities have misread the order of the Hon'ble ITAT. Lower authorities have misunderstood that addition of outstanding liabilities was upheld by the Hon'ble ITAT in its order dated 30.09.2010.
15 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT In view of the above, the assessee's appeal stood fully allowed and no addition was confirmed with regard to disallowance of outstanding expenses.
In view of this, the separate addition for unpaid outstanding liabilities deserves to be deleted so as to make the assessment order in consonance with the set aside directions as NP rate has already been applied.
Without prejudice to the above, it is further submitted that where books are rejected by the ld. AO, no further addition can be made by relying on the same books of accounts. Hon'ble Jurisdictional High Court in the case of G.K. CONTRACTOR (2009) 19 DTR 0305 (Raj) held that:
"...However, in our considered opinion, even if the assessee has failed to discharge his onus of proof in explaining the cash credits shown in the books of account as "market outstanding", the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of the Act of 1961. We are in complete agreement with the view taken by the CIT(A), confirmed by the Tribunal. Thus, no substantial question of law arises for consideration of this Court in this appeal...."
He further relied on the following case laws:-
(i) Dulla Ram, Labour Contractor, Kotkapura [2014] 42 taxmann.com 349 (Punjab & Haryana)
16 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT
(ii) CIT vs. Dhiraj R Rungta [2013] 40 taxmann.com 284 (Gujarat)
(iii) CIT vs. Banwari Lai Banshidhar [1998] 229 ITR 229 (ALL.)
(iv) Nardev Kumar Gupta [2013] 142 ITD 303 (Jaipur - Trib.) In view of the above, disallowance made with regard to outstanding expenses may please be deleted as the ld. AO not only exceeded the remand jurisdiction set out by the Hon'ble ITAT, but also since the books were rejected by the ld. AO, no disallowance can further be made relying on the same set of books.
14. At the outset, the ld. DR has vehemently supported the order of the ld. CIT(A).
15. We have heard the rival contentions of both the parties and perused the material available on the record. The order dated 30/09/2010 mentioned that the outstanding liabilities of wages has been shown as Rs. 1640214, which was disallowed by the Assessing Officer and confirmed by the ld. CIT(A). Again the said disallowance and other disallowances , the assessee was in appeal. Moreover, at page 6 of the earlier Tribunal order, it is categorically mentioned that the Assessing Officer had disallowed the claim liabilities of Rs. 1640214 towards the payable wages on the basis that it is not verifiable. Thereafter, the 17 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT Tribunal, by the specific direction has held that the disallowances in question (referred at page 1 of the order), the matter was remanded back to the Assessing Officer to estimate the profit of the assessee keeping in view the past result of the assessee.
16. In our view, the Assessing Officer was not required to travel and examine the outstanding liabilities of wages of Rs. 1640214, which was specifically disallowed by the Assessing Officer in the earlier years and the order of the Assessing Officer was set aside after upholding the rejection of books and specific directions were issued to estimate the profit on the basis of the past history. Since the profit of the assessee has been estimated @ 17% of the turnover by the Tribunal hereinabove, that will take care of all the disallowances earlier made by the Assessing Officer in its assessment year and therefore, no specific addition should have been made by the Assessing Officer under the outstanding liability (wages payable), as the said adjudication by the Assessing Officer is beyond the scope of the remand proceedings, in view thereof, we have no hesitation to delete the addition made by the Assessing Officer to the extent of Rs. 16,40,214/- towards unexplained liability shown in the balance sheet. Moreover, the Assessing Officer has made the disallowances U/s 68 of the Act, in view of the judgment of the Hon'ble 18 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT Jurisdictional High court in the case of CIT Vs. G.K. Contractor, once the books are rejected and the income of the assessee is estimated, no separate addition can be made U/s 68 of the Act. In view thereof, this ground of assessee is allowed.
17. In the result, appeal of the assessee as well as the revenue are partly allowed.
Order pronounced in the open court on 28/09/2016.
Sd/- Sd/-
¼Hkkxpan½ ¼yfyr dqekj½
(BHAGCHAND) (Laliet Kumar)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 28th September, 2016
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Choudhary & Brothers, Jaipur.
2. izR;FkhZ@ The Respondent- The A.C.I.T., Circle-7, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 54 & 164/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar