ITO-3(1)(1), MUMBAI v. M/s. ASSARDAS WADHWANI CONSTRUCTION PVT. LTD., MUMBAI

ITA 1342/MUM/2008 | 2004-2005
Pronouncement Date: 30-09-2010 | Result: Allowed

Appeal Details

RSA Number 134219914 RSA 2008
Assessee PAN AACCA9627J
Bench Mumbai
Appeal Number ITA 1342/MUM/2008
Duration Of Justice 2 year(s) 7 month(s) 7 day(s)
Appellant ITO-3(1)(1), MUMBAI
Respondent M/s. ASSARDAS WADHWANI CONSTRUCTION PVT. LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-09-2010
Date Of Final Hearing 26-10-2009
Next Hearing Date 26-10-2009
Assessment Year 2004-2005
Appeal Filed On 22-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI D. MANMOHAN VP AND SHRI T.R. SOOD AM I.T.A.NO.1342/MUM/2008 ASSESSMENT YEAR : 2004-05 THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -3(1) ROOM NO.607 6 TH FLOOR AAYAKAR BHAVN MUMBAI. 400 020. VS. M/S. ASSARDAS WADHWANI CONSTRUCTION PVT. LTD. 908 DALAMAL TOWERS 211 NARIMAN POINT MUMBAI 400 021. PAN: AACCA 9627 J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D. SONGODE RESPONDENT BY : NONE O R D E R PER T.R. SOOD AM: IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWIN G TWO GROUNDS : 1. ON THE FACT AND CIRCUMSTANCES O THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ESTIMATION OF PROFIT A T 8% OF GROSS RECEIPTS MADE BY THE A.O. WITHOUT APPRECIATING THE SPECIFIC DISCREPANCIES WERE POINTED OUT BY THE A.O. IN THE A CCOUNTS OF THE ASSESSEE. 2. ON THE FACT AND CIRCUMSTANCES O THE CASE AND IN LAW THE CIT(A) ERRED IN RESTRICTING THE PROFIT ON ESTIMATIO N OF SALES TO RS. 46 000/- WITHOUT APPRECIATING THAT THE ASSESSEE HAD SOLD MANY UNITS BELOW THE MARKET PRICE. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE THE DATE FOR HEARING HAVING BEEN NOTED. IT IS SEEN THAT THIS CASE HAS B EEN FIXED ON VARIOUS DATES AND ADJOURNMENTS WERE SOUGHT ON BEHALF OF THE ASSESSEE BY M/S. S.P. JAIN & ASSOCIATES CHARTERED ACCOUNTANTS. ON THE PRESENT D ATE OF HEARING I.E. ON 9 TH SEPTEMBER 2010 AGAINST WHICH A LETTER WAS FILED ON BEHALF OF THE ASSESSEE BY M/S. S.P. JAIN & ASSOCIATES SEEKING FURTHER ADJOURNMENT . IT WAS NOTICED THAT NO POWER OF ATTORNEY HAS BEEN FILED BY THE ASSESSEE ON BEHA LF OF M/S. S.P. JAIN & ASSOCIATES CHARTERED ACCOUNTANTS. WHEN THE REPRESE NTATIVE OF M/S. S.P. JAIN & ASSOCIATES WAS CONFRONTED WITH THIS SITUATION HE G AVE AN EVASIVE REPLY AND THEREFORE WE ARE LEFT WITH NO OPTION BUT TO PROCEE D WITH THE HEARING ON EX PARTE ITA NO. 1342/M/08 M/S.ASSARDAS WADHWANI CONSTRUCTION PVT. LTD. 2 BASIS BECAUSE VARIOUS ADJOURNMENTS HAVE ALREADY BEE N GRANTED AND DESPITE OF MANY OPPORTUNITIES GIVEN THE ASSESSEE HAS NOT EVEN BOTHERED TO FILE THE POWER OF ATTORNEY IN FAVOR OF M/S. S.P. JAIN & ASSOCIATES. 3. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE. WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER DIRECTED THE ASSESSEE TO FURNISH CERTAIN DETAILS PARTICULARLY THE DETAILS IN RESPECT OF PAYMENTS MADE TO SUB- CONTRACTORS BUT A GENERAL REPLY WAS FILED WHICH RE ADS AS UNDER: IT IS GENERALLY PRACTICE OF THE CONSTRUCTION BUSIN ESS THAT WHEN CONTRACT ARE TAKEN ON TURNKEY BASIS ALONG WITH LABOUR OF OUR OWN OTHER VARIOUS TYPE OF WORK ARE MOSTLY DONE BY PETTY CONTRACTOR WH O HAVE SPECIALIZE IN WORK AND LOOKING TO THE TIME BOUND PROGRAMME A CONS TRUCTION WE ALSO ENGAGED SOME OTHER PARTY CONTRACTOR TO COMPLETE THE WORK SPEEDLY AND TDS IS ALSO DEDUCTION BY US FOR PAYMENT MADE TO THE M AND ISSUE THE TDS CERTIFICATE. 4. UPON EXAMINING THIS THE ASSESSING OFFICER ASKED THE ASSESSEE TO FILE COPIES OF THE AGREEMENT WITH SUB-CONTRACTORS AGAIN ST WHICH THE FOLLOWING REPLY WAS GIVEN: DURING THE PERIOD WE HAVE EXECUTED VARIOUS CONTRAC T FOR WHICH WE HAVE TO ENGAGE MANY OF THE PETTY CONTRACTOR AND AS PER T HEIR WORK COMPLETION WE MAKE PAYMENT TIME TO TIME TO THEM AND FOR ALL PA YMENT WE DEDUCT TDS ALSO AS PER RULE FROM THEIR PAYMENT AND IN MAY CASES ONE PETTY CONTRACT IS ALSO ENGAGED IN MORE THAN ONE SITES DEP ENDING ON HIS WORKING CAPACITY. THEN HE WENT ON TO EXAMINE THE AMOUNTS PAID TO SUB- CONTRACTORS MOST OF WHICH WERE EITHER DIRECTORS OR THEIR RELATIVES AND HE NOT ICED THAT THE DETAILS GIVEN IN THE TAX AUDIT REPORT REGARDING PAYMENTS MADE TO RELATIV ES AND THE DETAILS FILED BY THE ASSESSEE BEFORE THE A.O. THERE WERE CERTAIN DISCREP ANCIES WHICH ARE AS UNDER: SR.NO. NAME OF THE PERSON AMOUNT AS PER 3CD AMOUNT AS PER AR 1 SHRI KISHAN WADHWANI 11 77 565 NIL 2 SHRI SANJAY WADHWANI 32 44 593 32 12 469 3 SHRI HARISH WADHWANI 30 19 361 29 91 516 4 SHRI JAYESH WADHWANI 11 26 263 11 26 263 5 RAJKUMAR A. WADHWANI (HUF) 11 19 242 11 19 2 42 6 SHRI SUNIL BACHANI 23 84 114 23 62 648 7 KISHAN WADHWANI HUF NIL 11 06 500 TOTAL 1 20 71 138 1 19 18 638 ITA NO. 1342/M/08 M/S.ASSARDAS WADHWANI CONSTRUCTION PVT. LTD. 3 SOME OTHER DISCREPANCIES WERE ALSO FOUND AND THE A. O. NOTED THAT EVEN THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BEFORE HIM. THEREFORE ULTIMATELY THE BOOK RESULTS DECLARED BY THE ASSESSEE WAS REJECTED AND NET PROFI T WAS ESTIMATED @ 8% OF THE GROSS RECEIPTS DECLARED BY THE ASSESSEE AND ACCORDI NGLY AN ADDITION OF RS. 65 61 291/- WAS MADE TO THE INCOME OF THE ASSESSEE. 5. BEFORE THE CIT(A) VARIOUS SUBMISSIONS WERE MADE AND ULTIMATELY THE LEARNED CIT(A) AFTER EXAMINING VARIOUS SUBMISSIONS DECIDED THE ISSUE AS UNDER: I HAVE GONE THROUGH THE ABOVE FACTS AND THE SUBMIS SIONS MADE BY THE APPELLANT AND REMARKS OF THE A.O. THE FACT THAT THE APPELLANT COMPANY FOLLOWS PROPORTIONATE COMPLETION METHOD OF ACCOUNTI NG CONSISTENTLY FOR THE YEARS NEEDS TO BE ACCEPTED. THE DEPARTMENT HAS ALSO ACCEPTED THE SAME. THE ACCOUNTS OF THE COMPANY ARE AUDITED UNDER THE COMPANIES ACT AS WELL AS THE INCOME-TAX ACT. THE A.O. HAS FAILED TO POINT OUT ANY DISCREPANCY IN THE ACCOUNTING METHOD ADOPTED BY THE APPELLANT COMPANY. INSTEAD THE A.O. HAS MIXED VERY TRIVIAL ISSUE ON SU B-CONTRACT WORK GIVEN BY THE COMPANY. I AGREE WITH THE A.R. THAT SUB-CONT RACT WORK GIVEN BY THE COMPANY. I AGREE WITH THE A.R. THAT SUB-CONTRAC T WORK IS NOT IN THE NATURE OF ENTIRE TURN KEY CONTRACT AWARDED TO ANY T HIRD PARTY. IT IS VERY COMMON FOR BUSINESS ENTERPRISES AND IN FACT VERY MU CH NECESSARY TO OUT SOURCE SERVICES FROM VARIOUS PARTIES WHO ARE PROVI DING SPECIALIZED SERVICES E.G. LABOUR CONTRACT FABRICATION WORK DRILLING WELDING PAINTING CENTERING PLUMBING WATER PROOFING ETC. THE LIST CAN BE VERY LONG. THE A.O. COULD HAVE ASCERTAIN THIS FROM THE P ARTY WISE DETAILS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS. THEREF ORE THE A.OS CONTENTION THAT THE CONSENT OF THE CONTRACTEE GRAN TING WORK TO THE APPELLANT COMPANY WAS NOT TAKEN FOR THE SUB-CONTRAC T WORK IS NOT CORRECT. SIMILARLY THE CONCLUSION OF THE A.O. THAT THE COMP ANY HAS NOT SUBCONTRACTED THE WORK IS FACTUALLY INCORRECT. THE ISSUE THAT SOME SUB- CONTRACT WORK HAS BEEN DONE THROUGH RELATED PARTIES AND RECONCILIATION OF SMALL DIFFERENCE IN THE DETAILS SUBMITTED AND IN FO RM 3CD IS ALSO UNNECESSARY AND NOT AGAINST THE APPELLANT. MOREOVER I HAVE ALSO GONE THROUGH THE CHART SUBMIT TED BY THE A.R. GIVING THE FINANCIAL DETAILS OF PAST YEARS. IT IS C LEARLY REFLECTED THAT THERE HAS BEEN A SUSTAINED UPWARD TREND IN THE TURNOVER A ND THE NET PROFIT DECLARED BY THE APPELLANT COMPANY. THE NET PROFIT R ATIO HAS BEEN 1.67% (1994) 1.73%(1995) 1.77% (1996) 2.01% (1997) 2.4 9% (1998) 2.52% (1999) 2.46% (2000) 2 47% (2001) 2.5% (200 2) 3.44% (2003) AND 3.37% (2004 I.E. CURRENT YEAR). THE TOTAL INCOM E AS ASSESSED BY THE A.O. FOR THE YEAR IS 174.54 LACS WHICH WOULD WORKE D UT TO 13.58% OF THE TOTAL TURNOVER FOR THE YEAR. THIS CLEARLY BRINGS OU T AN UN-COMPARABLE AND ABNORMAL RESULT IN COMPARISON TO THE PAST HISTORY A S WELL AS OTHER ASESSEES HAVING SAME BUSINESS OF THE SIMILAR MAGNIT UDE. THE A.O. HAS ADOPTED A VERY SIMPLISTIC APPROACH BY ESTIMATION OF NET PROFIT. THE ITA NO. 1342/M/08 M/S.ASSARDAS WADHWANI CONSTRUCTION PVT. LTD. 4 REASONS GIVEN BUT ASSESSING OFFICER FOR THE SAME A RE ARBITRARY TOO SIMPLISTIC AND VERY NAVE. IN VIEW OF THE ABOVE I FIND THAT THE ADDITION MADE BY THE A.O. BY ESTIMATING THE PROFIT AT 8% CAN NOT BE SUSTAINED. THUS THE IMPUGNED ADDITION IS DELETED. THE APPELLA NT SUCCEEDS ACCORDINGLY. 6. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT THE LEARNED CIT(A) HAS GIVEN RELIEF WITHOUT APPRECIATIN G THE FAT THAT THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BY THE ASSESSEE AND VARI OUS DETAILS CALLED FOR WERE ALSO NOT PRODUCED. IN THIS REGARD HE REFERRED TO T HE OBSERVATION MADE AT PAGE 4 OF THE ASSESSMENT ORDER. 7. AFTER CONSIDERING THE SUBMISSION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE RELEVANT MATERIAL ON RECORD WE FIND THAT BOOKS OF ACCOUNTS HAVE NOT BEEN PRODUCED BEFORE THE A.O. IN THE ABSEN CE OF BOOKS OF ACCOUNT THE A.O. COULD NOT HAVE VERIFIED VARIOUS DETAILS AND HE HAS ALREADY POINTED OUT SOME DISCREPANCIES IN THE ASSESSMENT ORDER. IN THE LIGHT OF THESE FACTS THE LEARNED CIT(A) SHOULD HAVE ASKED THE ASSESSEE TO PRODUCE TH E BOOKS OF ACCOUNT BEFORE ARRIVING AT HIS CONCLUSIONS WHICH HAS NOT BEEN DONE . THEREFORE IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. FOR EXAMINATION OF THE WHOLE I SSUE. THE ASSESSEE IS ALSO DIRECTED TO CO-OPERATE WITH THE PROCEEDINGS AND PRO DUCE THE BOOKS OF ACCOUNT AS WELL AS ALL THE RELEVANT DETAILS AS REQUIRED BY THE A.O. 8. AS FAR AS GROUND NO.2 IS CONCERNED DURING THE A SSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE WAS ALSO DONG TH E BUSINESS AS A BUILDER AND HAD CONSTRUCTED A BUILDING IN INDORE KNOWN AS NAV REGENCY. THE ASSESSEE SHOWN THE VALUE OF OPENING STOCK OF FLATS AT RS.49 01 890 /- AND THE ASSESSEE HAS SOLD PART OF THE OPENING STOCK. THE CLOSING STOCK WAS SH OWN AT RS. 23 53 940/- THAT MEANS STOCK OF RS. 25 47 950/- I.E. (RS.49 01 890 23 53 940) AGAINST WHICH THE SALES WERE SHOWN AT RS. 20 48 718/-. THE A.O. OBSER VED THAT THERE WAS AN UPWARD TREND IN THE REAL ESTATE MARKET AND THERE WAS NO RE ASON FOR SELLING THE FLATS AT A ITA NO. 1342/M/08 M/S.ASSARDAS WADHWANI CONSTRUCTION PVT. LTD. 5 LOSS. SINCE THE ASSESSEE COULD NOT GIVE ANY REASON FOR THE SAME THE AO ESTIMATED THE SALES OF FLAT AT RS. 31 84 938/- AND ADDED A SU M OF RS. 11 36 220/- ON THIS ACCOUNT TO THE INCOME OF THE ASSESSEE. 9. ON APPEAL THIS ADDITION WAS DELETED BY THE LEAR NED CIT(A) BY OBSERVING THAT THE A.O. IS NOT JUSTIFIED IN GOING BY THE PRIN CIPLES OF PROBABILITY AND THE A.O. HAS FAILED TO POINT OUT ANY DISCREPANCY IN THE FACT S AND EVIDENCES FILED DURING THE ASSESSMENT PROCEEDINGS. 10. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY REASON FOR LOWER SALES A ND THEREFORE A.O. WAS JUSTIFIED IN MAKING THIS ADDITION. 11. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNE D DEPARTMENTAL REPRESENTATIVE AND THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE HAS NOT GIVEN ANY REASON FOR SELLING VARIOUS FLATS AT L OWER THAN THE COST. MOREOVER THE BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE THE A.O. THEREFORE THE A.O. COULD NOT HAVE THE POSSIBILITY TO POINT OUT THE DEFECTS IN TH E BOOKS OF ACCOUNT. THEREFORE IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. FOR RE-EXAMINAT ION AS WE HAVE ALREADY DIRECTED WHILE ADJUDICATING GROUND NO. 1 THAT THE ASSESSEE S HOULD COOPERATE IN THE ASSESSMENT PROCEEDINGS AND FILE ALL NECESSARY DETAI LS INCLUDING THE BOOKS OF ACCOUNT SO THAT THE ASSESSMENT COULD BE COMPLETED I N THE PROPER MANNER. 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER 2010. SD. SD. (D. MANMOHAN) (T. R. SOOD) VICE-PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED THE 30 TH SEPTEMBER 2010. KN ITA NO. 1342/M/08 M/S.ASSARDAS WADHWANI CONSTRUCTION PVT. LTD. 6 COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CITY-3 MUMBAI 4. THE CIT(A)-XXVII MUMBAI 5. THE DR A BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI