Shri Sallauddin M Kadri, Surat v. The Dycit Cir-2(2), Surat

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.165/AHD/2001 A. Y.: 1997-98 SHRI SALLAUDDIN M. KADRI PROP. CRONY ELECTRICALS C/50 G. I. D. C. PANDESARA SURAT PA NO. 31-867-PX-2447 VS THE D. C. I. T. CIRCLE 2(2) ROOM NO.213 AAYAKAR BHAVAN MAJURAGATE SURAT (APPELLANT) (RESPONDENT) ITA NO.401/AHD/2001 A. Y.: 1997-98 THE D. C. I. T. CIRCLE 2(2) ROOM NO.213 AAYAKAR BHAVAN MAJURAGATE SURAT VS SHRI SALLAUDDIN M. KADRI PROP. CRONY ELECTRICALS C/50 G. I. D. C. PANDESARA SURAT PA NO. 31-867-PX-2447 (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI S. N.SOPARKAR AND PM MEHTA DEPARTMENT BY SHRI C. K. MISHRA DR O R D E R PER BHAVNESH SAINI: BOTH THE CROSS APPEALS ARE DIRECTED AGAINST ORDER OF THE CIT(A)-II SURAT DATED 06-11-2 000 FOR ASSESSMENT YEAR 1997-98. BOTH THE APPEALS WERE EARLIER DISPOSE D OF BY THE TRIBUNAL VIDE ORDER DATED 09-02-2007. THE AFORESAID ORDER WA S RECALLED IN M.A. NO.110 AND 111/AHD/2007 VIDE ORDER DATED 17-07-2009 AND BOTH THE APPEALS WERE ACCORDINGLY RE-FIXED BY THE OFFICE FOR DISPOSAL IN ACCORDANCE WITH LAW. ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 2 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. THE ASSESSEE ON GROUND NO.1 OF THE APPEAL CHALLE NGED THE ORDER OF THE LEARNED CITI(A) IN UPHOLDING THE ACTION OF THE AO TO TREAT THE LABOUR PAYMENT AGGREGATING TO RS.18 45 444/- AS NOT GENUIN E AND PROCEED TO ESTIMATE THE NET PROFIT OF RS.6 09 817/- @10% OF T HE RECEIPT. IT WAS PRAYED THAT THE LEARNED CIT(A) SHOULD HAVE DELETED THE ENTIRE ADDITION. THE REVENUE IS ALSO IN APPEAL ON THE SAME GROUND CH ALLENGING THE ORDER OF THE LEARNED CIT(A) IN REDUCING THE ADDITION OF R S.18 45 444/- BY ESTIMATING THE NET PROFIT AT 10% OF THE TOTAL RECEI PTS. 4. BRIEFLY THE FACTS OF THE CASE ON THIS ISSUE ARE THAT THE ASSESSEE FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME A T RS.2 02 450/- WHICH WAS ACCOMPANIED BY THE TAX AUDIT REPORT. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAS SHOWN GROSS PROFIT OF RS.6 05 083/- WHICH COMES TO GROSS PROFIT RATE OF 9.92% AS AGAINST GROSS PROFIT RATE OF 11.83% SHOWN IN THE I MMEDIATE PRECEDING ASSESSMENT YEAR. THE AO AFTER CONSIDERING THE ASSES SEES EXPLANATION ON FALL IN THE GROSS PROFIT PROCEEDED TO VERIFY THE G ENUINENESS OF THE VARIOUS EXPENSES AND SINCE LABOUR CHARGES WERE THE MAJOR EX PENSES HE PROCEEDED TO VERIFY THE GENUINENESS OF THE LABOUR/M AJURI EXPENSES. FROM THE DETAILS RELATING TO THE EXPENDITURE ON THESE EX PENSES THE AO NOTICED THAT PAYMENTS TO THE TUNE OF RS.18 45 444/- MADE TO 7 CONTRACTORS WERE IN CASH THEREFORE HE PROCEEDED TO VERIFY THE GENU INENESS OF THE FOLLOWING PAYMENTS: SR.NO. NAME OF PARTY 1 AMOUNT (RS.) I) M/S. BHAGAT ENGG. & CONS. CO. 66 477 II) SHRI JANARDHAN T. BHAGNURE 1 46 847 III) M/S. LAXMI ELECTRICALS 1 17 343 IV) M/S. PECIFIC ELECTRICALS 3 79 784 ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 3 V) SHRI RAMA M. WADEKAR 3 15 624 VI) M/S. S. J. ELECTRICALS 7 52 139 VII) M/S. SWAMI ELECTRICALS 67 260 TOTAL 18 45 444 5. THE AO AFTER PROCURING COPIES OF THE ACCOUNTS OF THE AFORESAID 7 CONTRACTORS FROM THE ASSESSEE SUMMONED TO ALL OF TH EM BY ISSUING NOTICE U/S 131 OF THE IT ACT AND ALSO CALLED FOR DETAILS L IKE COPY OF THE STATEMENT OF TOTAL INCOME ACKNOWLEDGEMENT TRADING AND PROFI T & LOSS ACCOUNT. IN COMPLIANCE TO THE AFORESAID NOTICE U/S 131 OF THE I T ACT 5 PARTIES OUT OF THE AFORESAID 7 PARTIES TO WHOM SUMMONS WERE ISSUED U/131 OF THE IT ACT ATTENDED THE OFFICE OF THE AO AND THEIR STATEME NTS WERE ALSO RECORDED. THE AO REFERRED THEIR STATEMENTS IN THE A SSESSMENT ORDER IN RESPECT OF THE PARTIES MENTIONED AT SR. NO.1 3 4 6 AND 7. THE COPIES OF THE STATEMENTS OF THESE PARTIES WERE SUPPLIED TO TH E ASSESSEE AND EXPLANATION OF THE ASSESSEE WAS CALLED FOR. THE ASS ESSEE BRIEFLY EXPLAINED THAT THE ASSESSEE HAS BEEN CARRYING OUT TWO TYPES O F ACTIVITIES I.E. TRADING IN ELECTRICAL PARTS AND CONTRACT FOR ELECTRICAL WOR KS. THE ASSESSEE HAS DONE WORK FOR ONGC KRIBHCO L & T AND SURAT MUNICI PAL CORPORATION. IT WAS EXPLAINED THAT THE NATURE AND PLACE OF WORK IS NOT FIXED THEREFORE IN ORDER TO ATTEND THE CONTRACT WORK THE ASSESSEE HAS PERIODICALLY REQUIRED TO ENGAGE THE SERVICES OF THE SUB CONTRACTORS AND M OST OF THE WORK TO BE DONE AS MANUALLY AND REQUIRES UN-SKILLED LABOURERS. THE ASSESSEE FOR EARNING LABOUR INCOME HAS TO DEPEND UPON THE LABOUR ERS FOR WHICH COMPLETE DETAILS ARE FILED ALONG WITH THE BILLS. S INCE THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS THEREFORE TH E SAME WERE ALLOWABLE AS DEDUCTION. IT WAS ALSO EXPLAINED THAT ALL THE SU B CONTRACTORS APPEARED BEFORE THE AO HAVE ADMITTED THAT THEY HAVE DONE WO RK FOR THE ASSESSEE AND THE DETAILS ARE GIVEN EXPLAINING THE NATURE OF THE WORK DONE BY THE ASSESSEE. IT WAS THEREFORE PRAYED THAT NO ADVERSE INFERENCE BE DRAWN AGAINST THE ASSESSEE. THE AO HOWEVER CONSIDERING T HE MATERIAL ON RECORD AND VARIOUS DISCREPANCIES NOTED IN THE STATE MENT OF ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 4 THE SUB CONTRACTORS CONSIDERING THEIR STATEMENT HAS HELD THAT THE LABOUR EXPENSES ARE NOT GENUINE. ONE OF THE SUB CONTRACTOR S IS HAVING EMPLOYEE -EMPLOYER RELATION WITH THE ASSESSEE PAYMENT IS DI SOWNED FROM THE STATEMENT IT IS NOT ESTABLISHED THAT CONTRACT WORK FOR THE ASSESSEE AND ULTIMATELY THE AO DISALLOWED THE LABOUR EXPENSES IN RESPECT OF THE AFORESAID 7 PARTIES AMOUNTING TO RS.18 45 444/- AND ADDITION WAS ACCORDINGLY MADE. THE ADDITION WAS CHALLENGED BEFOR E THE LEARNED CIT(A). THE SAME SUBMISSIONS WERE REITERATED AND IT WAS SUB MITTED THAT THE AO HAS DISALLOWED ALMOST HALF OF THE MAJURI EXPENSES W HICH WERE INCURRED BY THE ASSESSEE IN NORMAL COURSE OF BUSINESS. THE L ABOUR CONTRACTORS CONFIRMED TO HAVE RECEIVED THE MAJURI EXPENSES AND ALL OF THEM ADMITTED PRIMARY FACTS THAT THEY CARRIED OUT THE JOB ENTRUST ED TO THEM BY THE ASSESSEE. PARTS OF THE PAYMENTS WERE MADE THROUGH B ANKING CHANNEL. IT WAS CLAIMED THAT THE ASSESSEE SPENT TOTAL MAJURI EX PENSES UPON THE CONTRACTORS IN A SUM OF RS.35 50 845/-. THEREFORE DISALLOWANCE IS WITHOUT ANY BASIS. IT WAS ALSO SUBMITTED THAT THERE WAS NO DISPUTE THAT CONTRACT HAS BEEN CARRIED OUT BY THE ASSESSEE AND T HE ASSESSEE WERE DOING ELECTRICAL JOB WORK ON CONTRACT BASIS FOR VAR IOUS PARTIES. THEREFORE THERE WAS NO MUCH PROFIT EARNED OUT OF THESE CONTRA CTS WITH REPUTED PARTIES. THE LEARNED CIT(A) CONSIDERING THE SUBMISS IONS OF THE ASSESSEE AND MATERIAL ON RECORD HELD THAT THE PAYMENTS MADE BY THE ASSESSEE CANNOT BE TREATED AS GENUINE. HOWEVER ON ALTERNATI VE CONTENTION THE LEARNED CIT(A) NOTED THAT THE ADDITION MADE BY THE AO IS EXCESSIVE AND ACCORDINGLY ESTIMATED NET PROFIT BY APPLYING 10% OF THE NET PROFIT RATE AGAINST RECEIPTS OF RS.60 98 171/- AND DETERMINED T HE PROFIT AT RS.6 09 817/-. REST OF THE ADDITION WAS DELETED. TH E FINDING OF THE LEARNED CIT(A) IN PARA 7 AND 8 ARE REPRODUCED AS UN DER: 7. I HAVE CONSIDERED THE SUBMISSIONS MADE ON BEHAL F OF THE APPELLANT AND THE REMAND REPORT SUBMITTED BY TH E ASSESSING OFFICER. IT IS OBSERVED THAT THE ASSESSIN G OFFICER HAS EXAMINED FIVE OF SEVEN PARTIES AND SUCH EXAMINA TION ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 5 REVEALED THAT SOME OF THESE PERSONS SHOWN TO BE CON TRACTORS WERE ACTUALLY THE EMPLOYEES OF THE APPELLANT. THE S TATEMENT RECORDED BY THE ASSESSING OFFICER DURING THE COURSE OF HIS INVESTIGATION FORM PART OF THE ASSESSMENT ORDER AND DOES NOT NEED FURTHER REPETITION. I FULLY AGREE WITH THE ASS ESSING OFFICER THAT THE CLAIM OF THESE PERSONS WORKING AS INDEPEND ENT CONTRACTORS IS FULLY DISPROVED BY THE INVESTIGATION CARRIED OUT BY THE ASSESSING OFFICER AND THE PAYMENTS SHOWN IN THEIR HANDS CANNOT BE TREATED AS GENUINE. TO THAT EXTENT THE FINDINGS OF THE ASSESSING OFFICER ARE CONFIRMED. 8. NOW COMING TO THE ALTERNATE ARGUMENT OF THE AUTH ORIZED REPRESENTATIVE OF THE APPELLANT THAT WHAT SHOULD B E THE CORRECT PROFIT IN SUCH A CASE THE ARGUMENT OF THE APPELLANT HAS DEFINITE MERIT AND NEEDS TO BE CONSIDERED. THE SUBM ISSION OF THE APPELLANT THAT THE DISALLOWANCE OF RS.18 45 444 /- WHICH IS MORE THAN 50% OF THE LABOUR AND MAJURI EXPENSES IS CORRECT AND THE FACT IS BORNE BY THE RECORD AS AGAINST THE CLAIM OF THE ASSESSING OFFICER MADE IN THE REMAND REPORT. THE EN TIRE DISALLOWANCE HAS BEEN MADE OUT OF THE MAJURI PAYMEN TS OF RS.35 50 845/- ONLY WHILE THE KARIGAR PAGAR AND WA GES TO REGULAR EMPLOYEES HAVE BEEN FULLY ALLOWED. EVEN THO UGH THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE TO TH E FACTS OF THE APPELLANTS CASE BECAUSE THE TURNOVER EXCEEDS RS.40 LACS AS PRESCRIBED UNDER THE ABOVE PROVISIONS IT SHOULD BE APPRECIATED THAT THE PROVISIONS OF SECTION 44AD PRO VIDE A BASIS FOR THE ESTIMATE OF REASONABLE RATE OF NET PR OFIT IN SUCH CASES. THE CASE OF THE APPELLANT IS ONLY MARGINAL O UTSIDE THE PURVIEW OF SECTION 44AD BECAUSE THE TURNOVER IN TH IS CASE IS APPROXIMATELY RS.60 LACS AS AGAINST THE LIMIT OF RS .40 LACS PRESCRIBED UNDER THE ABOVE PROVISIONS. THE FACT THA T THE APPELLANT HAS DONE THE CONTRACT WORK FOR REPUTED ORGANIZATIONS AND THE PAYMENT HAS BEEN RECEIVED IN LIEU THEREOF THE ARGUMENT CANNOT BE IGNORED AND APPELLA NT MUST HAVE INCURRED RELEVANT EXPENSES FOR EXECUTION OF SU CH A JOB. IN SUCH A SITUATION WHEN JOB WORK HAS BEEN CARRIED OUT IT IS A CASE WHERE FAIR ESTIMATE OF THE PROFIT HAS TO BE MA DE LOOKING TO THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE. CONSIDERING THE ENTIRETY OF THE SITUATION I ESTIMATE THE NET P ROFIT OF THE APPELLANT AT 10% OF THE TOTAL RECEIPTS OF RS.60 98 171/-. THIS PROFIT SHALL ALSO INCLUDE ALL OTHER DISALLOWANCES M ADE BY THE ASSESSING OFFICER FOR WHICH NO SEPARATE ADDITION S HALL BE MADE. THE TOTAL INCOME OF THE APPELLANT SHALL BE AC CORDINGLY DETERMINED AT RS.6.09 817/- OR ROUNDED OFF TO RS.6 09 820/-. THE APPELLANT GETS A RELIEF OF RS.15 06 677/- (RS.2 1 16 497 RS.6 09 820). ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 6 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO T HE STATEMENTS OF SUB CONTRACTORS RECORDED BY THE AO COPIES OF WHICH ARE FILED IN THE PAPER BOOK AND SUBMITTED THAT THE CONTRACTORS HAVE BY AND LARGE ACCEPTED TO HAVE DONE SOME WORK FOR THE ASSESSEE. THE LEARNED C OUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE DETAILS OF BILLS RECE IVED FROM THE CONTRACTORS AND THEIR ACCOUNTS IN THE BOOKS OF ACCOUNT OF THE A SSESSEE TO SHOW THAT ALL THE PAYMENTS ARE PROPERLY VOUCHED. HE HAS ALSO SUBMITTED THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE CARRIED OUT ELECTR ICAL JOB WORK CONTRACT FOR VARIOUS PARTIES IN WHICH PROFIT MARGIN WAS VERY LESS. HE HAS SUBMITTED THAT FOR EARNING THE INCOME OF ELECTRICAL JOB WORK THE ASSESSEE SHALL HAVE TO ENGAGE SUB CONTRACTORS FOR COMPLETING THE WORKS. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO REFERRED TO P B -135 WHICH IS PROFIT & LOSS ACCOUNT OF THE ASSESSEE TO SHOW THE DETAILS IN THE PROFIT & LOSS ACCOUNT CLEARLY REVEAL THAT ADDITION IS HIGHLY UNRE ASONABLE AND EXCESSIVE. THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT EVEN IF ACCORDING TO THE STATEMENT OF THE SUB CONTRACTORS T HE ENTIRE DETAILS OF THE AMOUNT SPENT BY THE ASSESSEE ARE NOT PROVED BUT THE AUTHORITIES SHOULD HAVE MADE REASONABLE DISALLOWANCE OUT OF THE TOTAL EXPENDITURE. THE LEARNED COUNSEL FOR THE ASSESSEE ULTIMATELY SUBMITT ED THAT REASONABLE DISALLOWANCE MAY BE MADE OUT OF THE EXPENDITURE BEC AUSE OF THE DISCREPANCY NOTED IN THE STATEMENT OF THE SUB CONTR ACTORS BY THE AO. 7. ON THE OTHER HAND THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS FAILED TO PROVE THE GENUINENESS OF THE EXPENDITURE. THEREFORE THE AO W AS JUSTIFIED IN MAKING THE ADDITION. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED COMPUTING THE NET PROFIT RATE OF 10% FOR THE PURPOSE OF ESTIMATING THE INCOME OF THE ASSESSEE. THE LEARNED DR SUBMITTED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE REVERSED AND THE ORDER OF THE AO MAY BE RESTORED. ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 7 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT DURI NG THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN TH E BUSINESS OF ELECTRICAL JOB WORK CONTRACT FOR VARIOUS PARTIES IN CLUDING SURAT MUNICIPAL CORPORATION L & T ONGC KRIBHCO ETC. IT IS ALSO N OT IN DISPUTE THAT THE CONTRACTS HAVE BEEN CARRIED OUT BY THE ASSESSEE FOR WHICH THE ASSESSEE HAS RECEIVED THE PAYMENTS. THE ASSESSEE ALSO EXPLAI NED THAT IT HAS CARRIED OUT TWO TYPES OF ACTIVITIES DURING THE YEAR I.E. TRADING IN ELECTRICAL PARTS AND CONTRACT FOR ELECTRICAL WORKS. THE ASSESS EE IN THE PROFIT & LOSS ACCOUNT (PB -135) HAS SHOWN SALES IN A SUM OF RS.24 29 049/- AND MAJURI/LABOUR INCOME IN A SUM OF RS.36 69 122/-. TH E ASSESSEE HAS AGAINST MAJURI INCOME CLAIMED MAJURI EXPENDITURE IN A SUM OF RS.35 50 845/-. THE ABOVE FACT THEREFORE WOULD PR OVE THAT MAJURI EXPENDITURE HAS BEEN SPENT FOR THE PURPOSE OF EARNI NG MAJURI INCOME. ON ELECTRICAL JOB WORK CONTRACT THE MAJURI EXPENSE S ARE THE MAJOR COMPONENT WITHOUT WHICH THE ASSESSEE COULD NOT HAVE EARNED MAJURI INCOME. THE ASSESSEE EXPLAINED THAT SINCE THE SITES OF VARIOUS COMPANIES ARE AT DIFFERENT PLACES FOR COMPLETION OF ELECTRICA L WORKS CONTRACTS THEREFORE THE SERVICES OF SUB CONTRACTORS ARE ENGA GED FOR COMPLETION OF THE WORKS CONTACTS. THE EXPLANATION OF THE ASSESSEE IS PROBABLE AND ACCEPTABLE BECAUSE THE ASSESSEE ALONE HIMSELF COULD NOT HAVE COMPLETED SO MANY CONTRACTS AT A TIME. THE AO DISALLOWED MORE THAN 50% OUT OF THE CLAIM OF MAJURI EXPENSES BECAUSE THE PARTIES HA VE FAILED TO EXPLAIN THE GENUINENESS OF THE PAYMENT. BUT ON OVERALL CON SIDERATION OF THE STATEMENT OF ALL THE CONTRACTORS WHO APPEARED BEFOR E THE AO WOULD REVEAL THAT THEY DID SOME WORKS FOR THE ASSESSEE AND ALSO CONFIRMED TO HAVE EXECUTED SOME PART OF THE CONTRACT FOR THE ASSESSEE . IT MIGHT BE THEREFORE POSSIBLE THAT THE REMAINING WORK WAS GOT COMPLETED BY THE ASSESSEE THROUGH OTHER CONTRACTORS BUT THE BILLS O F THESE CONTRACTORS HAVE BEEN OBTAINED. AT THE MOST THE STATEMENT OF T HE CONTRACTORS WHO HAVE APPEARED BEFORE THE AO WOULD SHOW THAT THEY CO ULD NOT GET THE ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 8 VERIFICATION OF THE BILLS PRODUCED BY THE ASSESSEE. BUT IT IS NOT DISPUTED FACT THAT THE ASSESSEE SHALL HAVE TO SPENT MAJURI E XPENDITURE FOR EARNING MAJURI INCOME OUT OF THE ELECTRICAL JOB WORK CONTRA CT. THE LEARNED CIT(A) WAS THEREFORE JUSTIFIED IN CONSIDERING THE ALTERN ATE CONTENTION OF THE ASSESSEE THAT THE CORRECT PROFIT SHOULD HAVE BEEN C OMPUTED IN THE MATTER. BECAUSE OF 50% OF THE EXPENDITURE IS DISALL OWED IT WOULD GIVE AN UNREASONABLE AND EXHAUSTIVE FIGURE OF THE INCOME WH ICH IS NOT POSSIBLE TO HAVE BEEN EARNED BY THE ASSESSEE OUT OF ELECTRIC AL JOB WORK CONTRACT. THE LEARNED CIT(A) WAS THEREFORE JUSTIFIED IN CON SIDERING THAT EVEN THOUGH THE PROVISIONS OF SECTION 44AD OF THE IT ACT ARE NOT APPLICABLE TO THE FACTS OF THE CASE BECAUSE THE TURNOVER OF THE A SSESSEE EXCEEDED RS.40 LACS IT HAS TO BE APPRECIATED THAT THE PROVISIONS OF SECTION 44AD OF THE IT ACT WOULD PROVIDE SOME BASIS FOR COMPUTATION OF REA SONABLE INCOME IN THE CASE OF THE ASSESSEE BECAUSE THE TURNOVER OF TH E ASSESSEE WAS NEARING TO THE TURNOVER PRESCRIBED U/S 44AD OF THE IT ACT. THE LEARNED CIT(A) WAS ALSO JUSTIFIED IN HOLDING THAT IN SUCH A SITUATION WHEN THE JOB WORK IS CARRIED OUT BY THE ASSESSEE AND CONTRACTS H AVE BEEN COMPLETED THE REASONABLE AND FAIR ESTIMATE OF THE PROFIT SHOU LD HAVE BEEN MADE CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE CASE. THE PROPER COURSE WOULD THEREFORE BE TO REJECT THE BOOK RESU LT OF THE ASSESSEE AND ESTIMATE FAIR AND REASONABLE PROFIT OF THE ASSESSEE INSTEAD OF MAKING HUGE UNREASONABLE AND EXCESSIVE ADDITION BY DISALL OWING THE EXPENDITURE. THE LEARNED CIT(A) WAS HOWEVER NOT JU STIFIED IN APPLYING THE NET PROFIT RATE OF 10% AGAINST TOTAL RECEIPT OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE INCOME OF THE ASSESSEE. TH E LEARNED CIT(A) HAS NOT APPRECIATED THE FACTS THAT THE ASSESSEE HAS DEC LARED RETURNED INCOME AT RS.2 02 450/- AND THE STATUS OF THE ASSESSEE IS INDIVIDUAL. THE GROSS PROFIT OF THE ASSESSEE IS DECLARED AT RS.6 05 083/- AND AFTER EXCLUDING THE VARIOUS EXPENSES AS PER THE PROFIT & LOSS ACCOUNT THE PROFIT OF THE ASSESSEE WOULD BE AROUND RS.2.24 LACS APPROXIMATELY . HONBLE PRIVY COUNCIL IN THE CASE OF CIT CENTRAL AND UNITED PROV INCES VS LAXMINARAIN ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 9 BADRIDAS 5 ITR 170 HELD THAT ESTIMATE OF INCOME SHOULD BE FAIR. AO SHOULD NOT ACT DISHONESTLY OR VINDICTIVELY. ALL KNO WLEDGE PREVIOUS HISTORY LOCAL KNOWLEDGE AND CIRCUMSTANCES OF THE A SSESSEE TO BE CONSIDERED TO ARRIVE AT FAIR AND PROPER ESTIMATION OF INCOME. CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND THE RETURNED INCOME AND THE OVERALL BUSINESS HISTORY OF THE ASSE SSEE AND THE EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT W E ARE OF THE VIEW THAT REASONABLE AND FAIR ESTIMATE OF INCOME SHOULD HAVE BEEN COMPUTED BY APPLYING NET PROFIT RATE OF 8% IN THE MATTER FOR RE JECTING THE BOOK RESULTS. IF THE NET PROFIT OF 8% IS APPLIED AGAINST THE TOTA L RECEIPT OF THE ASSESSEE OF RS.60 98 171/- THE ENTIRE NET PROFIT OF THE ASS ESSEE WOULD BE COMPUTED AND DETERMINED AT RS.4 87 853/-. THE ASSES SEE HAS DECLARED PROFIT AS PER THE PROFIT & LOSS ACCOUNT (PB -135) A T RS.2 24 759/-. IF THE AFORESAID FIGURE IS REDUCED THE OVERALL ADDITION C OULD BE MADE IN A SUM OF RS.2 63 094/-. WE ACCORDINGLY DIRECT THE AUTHORI TIES BELOW TO MAKE ADDITION OF 2 63 100/- (ROUND FIGURE) IN ALL. WE AC CORDINGLY SET ASIDE AND MODIFY THE ORDERS OF THE AUTHORITIES BELOW TO THE A BOVE EXTENT AND RESTRICT THE ADDITION TO RS.2 63 100/- IN ALL. AS RESULT TH E APPEAL OF THE ASSESSEE ON THIS ISSUE IS PARTLY ALLOWED AND THE DEPARTMENTA L APPEAL IS DISMISSED. 9. IN THE APPEAL OF THE ASSESSEE GROUND NO.2 IS RAI SED EXPLAINING THAT THE LEARNED CIT(A) HAS FAILED TO ADJUDICATE GROUND NO.3 CHALLENGING ADDITION OF RS.56 451/- ON ACCOUNT OF WORK-IN-PROGR ESS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THIS ISSUE IS NOT DECIDED BY THE LEANED CIT(A) THEREFORE MATTER MAY BE REMA NDED TO THE FILE OF THE LEARNED CIT(A) FOR ADJUDICATION IN ACCORDANCE WITH LAW. ON CONSIDERATION OF THE ABOVE FACTS WE ARE OF THE VIEW THAT THE MAT TER REQUIRES RECONSIDERATION BY THE LEARNED CIT(A) BECAUSE THIS ISSUE IS NOT DECIDED IN THE IMPUGNED ORDER. WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF THE LEARNED CIT(A) WITH DIRECTION TO DECIDE THIS GROUND IN ACCORDANCE WITH LAW BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ITA NO.165 AND 401/AHD/2001 SHRI SALLAUDDIN M. KADRI 10 ASSESSEE. AS A RESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE APPEAL OF THE ASSESSEE ON GROUND NO.3 TH E ASSESSEE SUMMARILY STATED THAT THE LEARNED CIT(A) HAS FAILED TO ADJUDICATE GROUND NO.7 WITH REGARD TO CHARGING OF INTEREST U/S 234B O F THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER SUBMITTED THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND MAY BE DISPOSED OF AC CORDINGLY. IN THIS VIEW OF THE MATTER WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE IN THE MATER. CHARGING OF INTEREST IS CONSEQUENTIAL AND IS ACCORD INGLY DISMISSED. 11. IN VIEW OF THE ABOVE DISCUSSIONS THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED AND THE DEPARTMENTAL APPEAL IS DISMI SSED. ORDER PRONOUNCED ON 23-04-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 23- 04-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD