Income Tax Appellate Tribunal - Ahmedabad
K.B.Mehta Construction Pvt.Ltd.,, ... vs Department Of Income Tax on 5 September, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'D' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI SHAILENDRA YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA.No.672/Ahd/2013
नधा रण वष /Asstt. Year: 2008-09
The DCIT (OSD)-1 K.B. Mehta Construction P. Ltd.
Ahmedabad. Vs 509, Milestone
Opp: T.V. Tower
Thaltej Road, Ahmedabad.
PAN : AABCK 6922 H.
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Revenue by : Shri Vimal I. Mehta, Sr.DR
Assessee by : Smt.Urvashi Shodhar, AR
ु वाई क तार ख/ Date
सन of Hearing : 28/07/2016
घोषणा क तार ख / Date of Pronouncement: 05/09/2016
आदे श/O RDER
PER AMARJI SINGH, ACCOUNTANT MEMBER:
The Revenue is in appeal before the Tribunal against the order of the ld.CIT-XXI dated 10.12.2012 passed for the Asstt.Year 2008-09.
2. The Revenue has raised mainly three grounds of appeal in its appeal. In the first ground of appeal, the Revenue is aggrieved by the action of the ld.CIT(A) in not rejecting the books of accounts of the assessee and deleting the addition of Rs.45,53,246/- made by the AO by adopting gross profit rate at 13%.
ITA No.672/Ahd/2013 23. Briefly stated facts of the case are that the assessee is engaged in construction business. It has filed its return of income electronically on 30.9.2008 declaring total income at Rs.141,34,080/-. Thereafter, the assessee revised its return and increased its returned income to Rs.150,70,140/- which was subsequently re-revised on 21.10.2010 to Rs.151,87,340/-. The return was processed under section 143(1) of the Act, and thereafter, the case of the assessee was selected for scrutiny assessment, and issued notice under section 143(2) of the Act on 29.9.2009 which was duly served upon the assessee on 30.9.2009. Besides that, the assessee was also served upon questionnaire on 25.01.2010. Since the assessee has not complied with various notices issued under section 142(1) and under section 271(1)(b) of the Act for furnishing of various information/details, the assessment order was framed by the AO under section 144 of the Income Tax Act. During the assessment proceedings, the AO noticed that the assessee has shown total income from its operation at Rs.11,84,15,055/- excluding other income of Rs.9,98,683/- as compared to preceding year's operational income of Rs.3,98,12,748/- and other income of Rs.1,93,822/-. The AO noticed that there is fall in GP to 11% from 13% in comparison to previous year (AY 2007-08). The assessee did not furnish explanation for fall in GP, therefore, the AO issued a notice dated 6.12.2010, show- causing the assessee as to why books of accounts of the assessee should not be rejected under section 145(2) and GP should not be adopted at 13% of the total turnover instead of 11% shown by the assessee. In response thereto, the assessee vide letter dated 27.12.2010 replied that ITA No.672/Ahd/2013 3 fall in GP was due to increase in the cost of direct material and labour vis-à-vis previous financial year 2006-07. The AO was not satisfied with the explanation of the assessee in the absence of requisite books of accounts and supporting documents/details. The AO, accordingly, made an addition of Rs.45,53,246/- being the difference between assessee's claim and GP was estimated at the rate of 13% on the turnover.
4. The action of the AO was challenged by the assessee before the ld.CIT(A), who by impugned order has held that the action of the AO in rejecting the books of accounts of the assessee under section 145 was not tenable, and estimated addition held to be without any basis. The CIT(A), thus, deleted the addition of Rs.45,53,246/-.
5. Before us, the ld.DR relied upon the order of the AO and contended that ld.CIT(A) has wrongly deleted the addition of Rs.45,53,246/- made by the AO and also ld.CIT(A) not correct in deciding that the books of accounts were wrongly rejected by the AO.
6. The ld.counsel for the assessee relied on the order of the ld.CIT(A) and contended that the action of the AO for invoking section 145 of the Income Tax Act is not correct as no specific defect in the audited account nor in the evidences during the course of assessment proceedings were pointed out by the AO. It was explained to the AO that there was fall in GP ratio due to increase in the cost of direct material and labour cost in comparison with the preceding year. He also stated that sales during the year was also increased from Rs.11.94,15,055/- in A.Y.2007-08 to Rs.25,39,72,616/- in the Asstt.Year ITA No.672/Ahd/2013 4 2008-09 the increase in the sale is more than double in comparison to the preceding year. The ld.counsel also referred the letter dated 27.6.2011 addressed to the AO by the ld.CIT(A) regarding verification of the submission of the assessee that all the details were furnished during the assessment proceedings. The AO submitted vide letter dated 1.2.2012 to the ld.CIT(A) that the assessment order was actually made u/s.143(3) of the Act as clearly mentioned in the conclusive paragraph of the assessment order, and not under section 144 which is mentioned in the assessment order. The AO also submitted to the ld.CIT(A) vide above referred letter that no fresh comment is to be offered, as the assessee has not furnished any additional evidences. The ld.counsel also mentioned about the assessee's letter dated 27.12.2010 explaining that GP has reduced due to increase in the cost of direct material and labour compared to the F.Y.2006-07 and 2005-06 and further clarified that the net profit ratio has increased to 6% in the F.Y.2007-08 compared to 5% in the F.Y.2006-07.
7. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. The relevant part of the order of the ld.CIT(A) reads as under:
"6.5 I have considered the order passed by the AO, the evidences placed on record and also the remand report submitted by the AO. I find that the action of the AO invoking Section 145 of the Income-tax Act does not have any sound-footing as no specific defect in the audited account nor in the evidences, which were admittedly furnished during the course of assessment proceedings, were pointed out by the AO. It may be highlighted that the in the remand report, the AO has agreed that none of the evidences filed ITA No.672/Ahd/2013 5 during the course of appellate proceedings are additional evidences. Accordingly, such evidences were before the AO before finalization of the order u/s. 143(3) of the Act by him. In the order framed by the AO, not even a single defect has been pointed out by the AO for the details filed by the appellant in support of figures in the returned income filed by it. Accordingly, I am of the view that the action of the AO for invoking provisions of Section 145 is not tenable. Ground Nos. 1 & 2 are thus allowed.
7. As regards the Ground No. 3 about the merit of addition of Rs.45,53,246/- made by A.O. by adopting G.P. at 13%, the Id A.R. submitted that in the appellant's letter dated 27.12.2010, the G.P and N.P. percentage were given along with figures of working of G.P. and N.P. The Id A.R brought to my notice that from the said working, it was evident that in terms of percentage, the cost of material and labour which was 80.63% of the Sales in Asst. Year 2007-08, it had increased to 89.64 % in Asst. Year 2008-09 i.e. year under appeal. The cost of material and labour was Rs.9,54,76,368 against sales of Rs. 11,84,15,055 in Asst. Year 2007-08 which rose to Rs.22,81,76,534 against sales of Rs.25,39,72,616/- This was the main reason for fall in G.P. which was explained along with above figures . The Id A.R. further vehemently argued that when the self same A.O. accepted book results as per accounts maintained on consistent basis from year to year in Asst. Year 2007-08 in which also, there was a fall in G.P. due to increase in sales and increase in direct cost, how the result for the year under appeal could be rejected when sales had almost more than doubled and cost had increased by about 9%. He relied on the case laws attached at page 18 to 24 of Ahmedabad Tribunal in which it is held that when books of account are audited under s. 44AB no addition for low G.P. can be made when no specific item of defect in the accounts is found and that maintaining a static G.P is not feasible. The Id A.R. also relied on the decision of Ahmedabad Tribunal in the case of Kiran Construction ITA No. 1203/Ahd/ 2005 a copy of which was furnished during hearing of appeal in which even in a case where the assessee had not challenged the rejection of book results u/s 145 and several defects were noticed, a net profit of 5% was estimated in similar business whereas the net profit for the year ITA No.672/Ahd/2013 6 under appeal was 6% which was more than Net profit of 5% in the appellant's own case in immediate preceding year. The Id A.R. submitted that G.P is a balancing figure when all items of trading account are fully vouchsafed and verified and certified by the auditors. He therefore submitted that there is absolutely no justification for making any addition on account of G.P. both on facts and in view of above legal position settled by binding jurisdictional Tribunal decisions.
7.2 I have considered the order of the AO, the evidences placed before me by the appellant and the remand report in the matter. Considering the details discussion above and also the discussion made in respect of ground Nos. 1 & 2 which are allowed above, I am of the view that the AO is not justified in adopting the gross figure of 13% as has been done by him in para 3.5 of his order. Consequently, the addition of Rs.45,53,246/- made by the Assessing Officer has no basis. The same is thus directed to be deleted. Ground No. 3 is therefore allowed."
We find that the ld.CIT(A) has examined the issue involved in its correct perspective, and have assigned cogent reasons for not approving the order passed by the AO. We also noticed that sales during the year was increased from Rs.11,94,15,055/- in the Asstt.Year 2007-08 to Rs.25,39,72,616/- in the Asstt.Year 2008-09. There is a tremendous increase in the sale which is more than double compared to the preceding year. The GP has reduced due to increase in the cost of direct material and labour compared to the F.Y. 2006-07 and F.Y.2005-06 and it is also seen that the net profit ratio has increased to 6% in the F.Y.2007-08 compared to 5% in the F.Y.2006-07. In view of the above stated facts and circumstances, we uphold the order of the ld.CIT(A) and the appeal of the Revenue is rejected on this ground.
ITA No.672/Ahd/2013 78. In the second ground, the grievance of the Revenue is that the ld.CIT(A) has erred in deleting the disallowance of depreciation of Rs.2,70,978/- in respect of motor car.
9. Brief facts of the case are that the AO during the assessment proceeding found that the assessee has claimed total depreciation of Rs.3,77,503/- which included assets which were newly purchased. The case of the assessee is that the assessee-company was having control over the assets and that assets were used for the business purpose. However, the AO has not accepted this contention of the assessee and held that in order to claim depreciation, asset must be owned by the assessee and must be used for business purposes during the relevant previous year. Since assessee has not furnished evidence of ownership of the assets, claim of deduction on account of depreciation was denied by the AO. In the first appeal before the ld.CIT(A), the assessee challenged this addition. The ld.CIT(A) relying upon the decision of ITAT, Ahmedabad in the case of ITO Vs. Typhoon Financial Services P.Ltd. ITA No.1703/Ahd/2009 order dated 21.1.2011 and also Studio 3 Architech P.Ltd., ITA No.1841/Ahd/2009 order dated 21.01.2011 allowed the claim of the assessee.
10. Before us, the ld.DR contended that the ld.CIT(A) is not correct in allowing the claim of depreciation of the assessee, as the assessee has failed to substantiate its claim for addition to fixed assets (vehicles) and depreciation with tenable evidences. She relied on the orders of the AO. The ld.counsel relied on the order of the ld.CIT(A). The ld.CIT(A) relied on the decision of Ahmedabad Tribunal in the case of ITO Vs. ITA No.672/Ahd/2013 8 Typhoon Financial Services P.Ltd. ITA No.1703/Ahd/2009 order dated 21.1.2011 and also Studio 3 Architech P.Ltd., ITA No.1841/Ahd/2009 order dated 21.01.2011. The benefit of depreciation cannot be denied when the assets like motor car is purchased for valuable consideration and is debited as assets in the books of the assessee, even if the same stand in RTO records or billed in the name of directors. We have considered the rival contentions, perused the material as per the records and uphold the decision of the ld.CIT(A) on this ground.
11. In the third ground of appeal, the grievance of the assessee is that the ld.CIT(A) has erred in deleting the disallowance of expenses of Rs.9,89,044/- out of expenses claimed on rent, rates and taxes as well legal expenses totaling to Rs.37,58,920/-.
12. On perusal of the return of income, the AO noticed that assessee has claimed rent, rate and taxes of Rs.30,23,627/- and legal & professional expenses of Rs.7,35,293/-. Assessee was asked to furnish evidences in support of genuineness and correctness of the expenses. However, the assessee could submit evidence for sales tax payment of Rs.25,09,605/-, service tax of Rs.6,227/-, rent of Rs.2,53,044/- and profession tax of Rs.1,000/-. According to the AO, the assessee could not discharge its primary onus to substantiate its claim, therefore, the AO in the absence of any information/detail disallowed total expenses of Rs.9,89,044/-. However, in the first appeal the ld.CI(A) has deleted the addition made by the AO. The relevant observations of the ld.CIT(A) on this issue reads as under:
ITA No.672/Ahd/2013 9"9.2 Before me, the Id A.R. submitted that the appellant had furnished all details of above expenditure along with its letter dated 13.12.2010 at Sr No. 15 & 16 , like ledger account showing the amount and the name of payee, copy of rent agreement too was furnished with its letter dated 16.12.2010 and further the details were furnished with letter dated 27.12.2010 copies of which were attached with written submissions. He drew attention to Sr No 15 & 16 of appellant's letter dated 13.12.2010 in which details of Office Rent of R Rs.4,96,768 is given and legal and professional fees expenses of Rs.7,35,293 are given. The same were again repeated in appellant's letter dated 27.12.2010 which gave complete break up of Rs.30,23,627 being expenses under the head rent, rates and taxes. It was submitted that despite above details and abundant evidences furnished, the Id A.O for the reasons best known to him, did not look in to those details and in great haste within few days of furnishing details, made disallowance by putting blame on appellant. He further submitted that the above payments are made by banking channel and are incurred every year which are vouchsafed and certified by auditors in their report without any qualification. He submitted that it is one thing to say that details and evidence were not furnished and another thing to observe that evidences were not furnished without any query or examination of details and evidences.
9.3 I have considered the above submissions of the Id A.R. and the observations of the A.O. and I find that details submissions for claim of rent, rates and taxes have been made by the appellant The gist of the main details is reproduced in the preceding para. In view of the details furnished which have also not been disputed by the AO in the remand proceedings, I find no basis to sustain the disallowance of Rs.9,89,044/-. Ground No. 5 raised by the appellant is thus allowed."
13. The ld.DR relied on the order of the AO and contended that the ld.CIT(A) is not correct in deleting the disallowance of Rs.9,89,044/- made by the AO out of expenses as rent, rates or taxes, legal & professional expenses. On the other hand, the ld.counsel relied on the ITA No.672/Ahd/2013 10 order of the ld.CIT(A) and contended that during the course of assessment proceedings vide letter dated 27.12.2010, the details of these expenses were furnished before the AO along with break-up of these expenses. The ld.CIT(A) held that detailed submission for claim of rent, rates and legal & profession charges were made before the AO and the same also not disputed by the AO in the remand proceedings. After considering the submission of both the parties and perusal of the records, we uphold the order the decision of the ld.CIT(A) on this ground.
14. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 5th September, 2016 at Ahmedabad.
Sd/- Sd/- (SHAILENDRA YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER