The ITO, Ward-1(2),, JUNAGADH v. M/s J.B. Construction,, JUNAGADH

ITA 170/RJT/2009 | 2005-2006
Pronouncement Date: 19-03-2010 | Result: Dismissed

Appeal Details

RSA Number 17024914 RSA 2009
Assessee PAN AACFJ7685F
Bench Rajkot
Appeal Number ITA 170/RJT/2009
Duration Of Justice 11 month(s) 13 day(s)
Appellant The ITO, Ward-1(2),, JUNAGADH
Respondent M/s J.B. Construction,, JUNAGADH
Appeal Type Income Tax Appeal
Pronouncement Date 19-03-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 19-03-2010
Assessment Year 2005-2006
Appeal Filed On 06-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI M.V.NAYAR (AM) AND SHRI D.T. GARASIA (J M) ITA NO. 120/RJT/2009 (A.Y. 2005-06) M/S. J B CONSTRUCTION RAJKOT APPELLANT V/S. THE INCOME TAX OFFICER WARD 1(2) JUNAGADH RESPONDENT ITA NO. 170/RJT/2009 (A.Y. 2005-06) THE INCOME TAX OFFICER WARD 1(2) JUNAGADH APPELLANT V/S. M/S. J B CONSTRUCTION JUNAGADH RESPONDENT PAN : AACFJ7685F APPELLANT BY : SHRI S L MEENA CIT(DR) RESPONDENT BY : SHRI J C RANPURA CA O R D E R PER M.V. NAYAR A.M. THE ASSESSEE AND REVENUE HAVE FILED THE APPEALS AG AINST THE ORDER OF CIT(A)-I RAJKOT IN APPEAL NO. 0147/07-08 VIDE ORDER DTD. 16/01/2009. ITA NO. 120 & 170/RJT/2009 A.Y. 2005-06 2 ITA NO. 120/RJT/2009 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS GIVEN BELOW. A. THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW I N CONFIRMING THE ADDITION OF RS. 23 99 500/- MADE U/S. 68 OF THE ACT ON ACCOUNT OF UNSECURED LOANS RECEIVED FROM VARIOUS PARTIES. B. THE LD. CIT(A) HAS ERRED ON FACTS AS ALSO IN L AW IN RETAINING ADDITION OF RS. 7 11 013/- OUT OF TOTAL ADDITION OF RS. 40 46 509/ - MADE OUT OF LABOUR CHARGES. 3. IN THE FIRST GROUND THE ASSESSEE HAS CHALLENGED THE DECISION OF THE LD. CIT(A) WHO HAD CONFIRMED THE ADDITION OF RS. 23 99 500/- MADE U/S. 68 OF THE I T ACT. THE AO OBSERVED THAT THE ASSESSEE OBTAINED NEW LOANS OF RS. 23 99 500/- DURI NG THE RELEVANT YEAR FOR WHICH IT FILED IDENTICAL CONFIRMATION LETTERS FROM ALL THE DEPOSIT ORS STATING THAT LOAN WAS GIVEN TO THE ASSESSEE FROM THEIR AGRICULTURAL INCOME AND PAST SAVINGS AND A COPY OF CERTIFICATE OF FORM NO 7/12 AND 8A WAS FILED IN SUPPORT OF THE SAME. THE AO WAS NOT SA TISFIED ABOUT THE DEPOSITORS AND HELD THAT MERE FILING OF CONFIRMATION LETTERS DOES NOT ABSOLV E THE ASSESSEE FROM ITS BASIC ONUS TO PROVE SATISFACTORILY THE IDENTITY CAPACITY AND THE GENUI NENESS OF THE TRANSACTION AND THAT THE IDENTIFY OF THE DEPOSITORS IS NOT VERIFIABLE BECAUSE THE SIGNAT URE AVAILABLE ON THE CONFIRMATION LETTER IS NOT ATTESTED BY ANY AUTHORITY AND THE BANK ACCOUNTS OF THE DEPOSITORS HAVE ALSO BEEN FURNISHED. HE FURTHER HELD THAT IN THE ABSENCE OF ANY RELATIONSH IP IT IS NOT UNDERSTOOD HOW AND WHY SUCH INTEREST FREE LOAN WAS GIVEN TO THE ASSESSEE. HE TH EREFORE TREATED THE ENTIRE LOAN AMOUNT OF RS. 23 99 500/- AS UNEXPLAINED CASH CREDIT U/S. 68 OF T HE ACT. 4. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) WHO CONFIRMED THE ADDITION BY HOLDING THAT- THE ASSESSEE HAS NOT ESTABLISHED THE CREDITWORTHINE SS OF THE LENDERS AND ACCORDINGLY THE GENUINENESS OF LOANS. IN THE ABSENC E OF THE SAME IT CANNOT BE SAID THAT THE ASSESSEE HAS DISCHARGED THE PRIMAR Y ONUS OF ESTABLISHING THE GENUINENESS OF LOANS. ALL THE EVIDENCE FURNISHE D BY THE ASSESSEE DO NOT PROVE AT ALL THAT THE LENDERS HAD THE CAPACITY TO A DVANCE LOAN AMOUNT. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT COMPLETE DETAILS WERE FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS TO PROVE THE CREDIT WORTHINESS AND GENUINENESS. COPIES OF DOCUMENTS FILED BEFORE THE A SSESSMENT PROCEEDINGS WERE ALSO PRODUCED BEFORE US AS PART OF THE PAPER BOOK. AFTER HAVING GONE THROUGH THE EVIDENCES ON RECORD PROPER ITA NO. 120 & 170/RJT/2009 A.Y. 2005-06 3 VERIFICATION OF FACTS IS REQUIRED TO BE CARRIED OUT . THEREFORE IN THE INTERESTS OF NATURAL JUSTICE AN D FAIR PLAY IT WOULD BE MOST APPROPRIATE IF THE MATT ER IS RESTORED BACK TO THE FILES OF THE AO WITH A DIRECTION TO VERIFY THE RECORDS AND EVIDENCES AND D ECIDE THE MATTER ACCORDINGLY. HE IS TO ENSURE THAT PROPER OPPORTUNITY IS GRANTED TO THE ASSESSEE WHILE DECIDING THE ISSUE DENOVO. THE ASSESSEE WILL ALSO CO-OPERATE AND PRODUCE THE DEPOSITORS AS MAY BE DIRECTED BY THE AO. THIS GROUND IS THEREFORE SET ASIDE. HENCE GROUND OF APPEAL IS ALL OWED. 6. THE SECOND GROUND IS ADDITION OUT OF LABOUR WAGE S. SINCE ISSUE UNDER CONSIDERATION HAS BEEN DECIDED IN THE APPEAL OF THE REVENUE (FIRST GR OUND NARRATED SUPRA) THIS GROUND REQUIRES NO ADJUDICATION AND HENCE THE ASSESSEES SECOND GROUN D IS DISMISSED. 7. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ITA NO.170/RJT/2009 (REVENUES APPEAL) THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE APPELLATE ORDER PASSED BY THE CIT(A)-IV RAJKOT DATED 16.1.209. THE FOLLOWING GROU ND HAS BEEN RAISED IN THE PRESENT APPEAL. A. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS. 40 46 509/- IN RESPECT OF OUTSTANDING WAGES. 8. THE ASSESSEE IS A REGISTERED GOVERNMENT CONTRACT OR AND ALSO DOING CONSTRUCTION / LABOUR WORK FROM OTHER PRIVATE PARTIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT IN THE ASSESSEES P&L ACCOUNT THE ASSESSEE H AD SHOWN GROSS CONTRACT RECEIPTS OF RS. 1 45 61 934/- AGAINST WHICH THE LABOUR WAGES PAYMEN T WAS TO THE TUNE OF RS. 71 04 218/- WHICH IS GROSSLY DISPROPORTIONATE TO THE MATERIAL CONSUME D AS ALSO THE RECEIPTS SHOWN. FURTHER OBSERVING THAT IN THE ASSESSEES BALANCE SHEET HE HAD SHOWN AN AMOUNT OF RS. 40 46 509/- AS OUTSTANDING PAYABLE AT THE END OF THE YEAR THEREFO RE DISALLOWED AN AMOUNT OF RS. 40 46 509/- ON THE GROUND THAT IN THE ASSESSEES LINE OF BUSINESS LABOUR PAYMENT IS A SHORT TERM PHENOMENA AND IT IS DIFFICULT TO BELIEVE THAT THE LABOUR PAYMENTS ARE CARRIED FORWARD. HE ALSO OBSERVED THAT IN THIS LINE OF BUSINESS THE ELEMENT OF LABOUR IS ROU GHLY 20 TO 25% AND THE MATERIAL IS ABOUT 60 TO 65% AND THEREFORE LABOUR PAYMENT ONLY TO THE EXTEN T OF RS. 30 00 000/- APPEARS REASONABLE HAVING REGARD TO THE MATERIAL CONSUMED AND THEREFOR E THE OUTSTANDING AMOUNT OF RS. 40 46 506/- IS BOGUS. HE THEREFORE DISALLOWED AND ADDED A SUM O F RS. 40 46 509/- TO THE ASSESSEES TOTAL INCOME. ITA NO. 120 & 170/RJT/2009 A.Y. 2005-06 4 9. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT( A)-IV RAJKOT. THE LD. CIT(A) VIDE HIS ORDER DATED 16.1.2009 RESTRICTED THE ADDITION TO R S. 7 11 013/- BY ESTIMATING THE ASSESSEES NET PROFIT AT 5% OF THE GROSS RECEIPTS AND ADDING THE D IFFERENCE AMOUNT IN THE HANDS OF THE ASSESSEE. THEREFORE THE ADDITION ON THIS ACCOUNT WAS RESTRIC TED TO 7 11 013/- BY THE LD. CIT(A). TO THAT EXTENT THE DEPARTMENTS GROUND OF APPEAL IS PARTIA LLY INCORRECT AS ACCORDING TO THE REVENUE THE LD. CIT(A) HAD DELETED ADDITION OF RS. 40 46 509/-. WHILE RESTRICTING THIS ADDITION THE LD. CIT(A) UNDER PARA 6.3 OF HIS ORDER HELD AS UNDER:- IN THE LIGHT OF THE EVIDENCE BROUGHT ON RECORD DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS AND DURING THE COURSE OF APPELLATE PROC EEDINGS IT CAN SAFELY BE INFERRED THAT OUT OF THE TOTAL LIABILITY OF RS. 40 .90 LACS VIDE OPENING BALANCE THE ASSESSEE HAS MADE PAYMENT OF RS. 21.39 LAC ONLY. IN OTHER WORDS IF OUT OF RS. 61.85 LACS THE PAYMENT OF RS. 21.39 LAC IS REDUCED THE AMOUNT PAID OUT OF THE WAGES DURING THE YEAR IS ONLY RS. 40.46 LACS WHICH MEANS OUT OF RS. 40.46 LACS INCURRED DURING THE YEAR THE PAYMENT OF RS. 21.39 LAC HAS BEEN MADE WHICH IS 43% OF THE WAGES INCURRED DURING THE YEAR. IN OTHER WORDS IF THE CONTENTION OF THE AO THAT THE ENTIRE AMOUNT OF RS. 40 46 509/- WH ICH IS OUTSTANDING DURING THE YEAR IS NOT EXISTING IS ACCEPTED IT WOULD AMOUNT T O STATING THAT LABOUR EXPENSES HAVE BEEN INFLATED TO THE EXTENT OF 57% OF THE TOTA L WAGES DURING THE YEAR. HOWEVER AS STATED EARLIER THE AO HAS NOT BROUGHT ANY EVIDENCE IN THIS REGARD BUT AT THE SAME TIME THE ASSESSEE HAS NOT PRODUCED THE RELEVANT RECORDS TO SATISFACTORILY EXPLAIN THE EXISTENCE OF THE ABOVE L IABILITY OR DISCHARGE OF THE ENTIRE LIABILITY DURING THE SUBSEQUENT MONTHS AFTER THE EN D OF THE FINANCIAL YEAR. IN SUCH A SITUATION I HOLD THAT THE BEST COURSE OF ACTION IS TO EXAMINE THE NP DECLARED BY THE ASSESSEE. I FIND THAT THE NP DECLARED AFTER THE DEPRECIATION AND INTEREST ON BORROWINGS IS LESS THAN 5%. THE ASSESSEES SUBMISSI ON IS THAT IN THE CONTRACT LINE THE SAME IS BETWEEN 3% TO 4%. IN VIEW OF THE FACTS DISCUSSED THE ASSESSEES CONTENTION CANNOT BE ACCEPTED. I THEREFORE ESTIMATE THE NP AT 5% OF THE TOTAL RECEIPTS THAT IS AT RS. 7 28 097/-. I ACCORDINGLY HOLD THAT THE DIFFERENCE OF RS. 7 11 013/- IS TO BE ADDED TO THE INCOME OF THE CONT RACT BUSINESS. THE NET PROFIT OF RS. 7 28 097/- IS TAKEN AFTER ALLOWING FOR DEDUCTIO N ON ACCOUNT OF DEPRECIATION INTEREST AND REMUNERATION TO PARTNERS. 10. BEFORE US THE LD. CIT DR CONTENDED THAT THE LD . CIT(A) WAS OF THE ASSESSEE CONTENDED ALL RELEVANT DETAILS AND EXPLANATIONS WERE FURNISHE D BEFORE THE AO AND THE ADDITION IS MADE WITHOUT PROPER APPRECIATION OF FACTS ON RECORD. REG ARDING THE OUTSTANDING LABOUR WAGES THE LD. AR SUBMITTED THAT THE SAME WERE PAID OFF IMMEDIATEL Y IN THE IMMEDIATE SUCCEEDING YEAR. HE FURTHER SUBMITTED THAT THE WORKERS ARE HAVING INCO ME FROM OTHER SOURCES LIKE INCOME OF OTHER MEMBERS OF THE FAMILY WHO ARE MAINLY DOING SIMILAR WORK AND SINCE THEY ARE MIGRANTS AND HAVE NO ACCESS TO BANK ACCOUNTS OR ANY PROPER FORMS OF S AVING THEY KEEP SOME PART OF THEIR WAGES AS OUTSTANDING TO BE CARRIED ALONG WITH THEM WHEN THE Y GO TO THEIR NATIVE PLACE. THEREFORE THE ITA NO. 120 & 170/RJT/2009 A.Y. 2005-06 5 AOS CONTENTION THAT NO LABOURER WOULD KEEP HIS LAB OUR WAGES OUTSTANDING IS A MERE PRESUMPTION. THE LD. AR IN RESPONSE TO THE AOS STA ND THAT THE SHARE OF LABOUR IN TOTAL CONTRACT RECEIPT IS TO THE EXTENT OF 20 TO 25% ONLY SUBMITT ED THAT THE AO FAILED TO UNDERSTAND THE NATURE OF WORK CARRIED OUT BY THE ASSESSEE. THE WORK MAY D IFFER FROM NATURE AND VOLUME OF CONTRACT. THE RATIO OF LABOUR AND MATERIAL CONSUMED CANNOT BE THE SAME IN THE CASE OF A CONTRACTOR CONSTRUCTING DAM AND A CONTRACTOR LAYING AN ASPHALT ROAD. HENCE THE FINDING OF THE AO IS ON MERE SUSPICION AND WITHOUT PROPER UNDERSTANDING OF THE FACTS. HE FURTHER SUBMITTED THAT IF THE AO IS TO BE BELIEVED THEN AN ADDITION OF RS. 40.46 LACS WOULD RESULT IN NP OF 27.90% WHICH IS UNHEARD OF IN THIS LINE OF BUSINESS. HE THEREFORE P RAYED THAT THE ADDITION MAY BE DELETED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE AL SO PERUSED THE FACTS ON RECORD. THE LD. DR RELIED UPON THE FINDING OF THE AO. THE LD. AR OF THE ASSESSEE MAINLY RELIED ON THE SUBMISSIONS BEFORE THE LD. CIT(A) AND CONTENDED THA T THE NET PROFIT RATE APPLIED BY THE LD. CIT(A) HIS ON HIGHER SIDE. LOOKING TO THE FACTS AND CIRCUMSTANCES CASE WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS ON PROPER APPRECIATION OF RELEVA NT RECORDS FAIRLY ESTIMATED THE NET PROFIT RATE AND NEITHER THE AR OF THE ASSESSEE NOR THE LD CIT D R HAS BROUGHT ANYTHING ON RECORD TO NEGATE HIS FINDING. IN LIGHT OF THE ABOVE THE BEST RECOUR SE IS THE ONE ADOPTED BY THE LD. CT(A) WHO HAD ESTIMATED THE NET PROFIT AT 5% WHICH TAKES CARE OF ALL THE DISCREPANCIES. THEREFORE WE DECLINE TO INTERFERE IN THE FINDING OF THE LD. CIT(A) AND UPHO LD THE SAME. IN THE RESULT THE DEPARTMENTS GROUND OF APPEAL IS DISMISSED. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON _19 /03/2010 _ SD/- SD/- (D.T. GARASIA) (M.V. NAYAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 19/03/2010 RAJKOT ITA NO. 120 & 170/RJT/2009 A.Y. 2005-06 6 COPY FORWARDED TO 1. M/S J.B. CONSTRUCTION CO. JUNAGADH OPP. S.T. DIVISION OFFICE KANERIYA SCHOOL BUILDING NEAR MOTI BAUG JUNAGADH 2. THE INCOME TAX OFFICER WARD-1(2) JUNAGADH 3. THE CIT-III RAJKOT 4. THE CIT(A)-IV RAJKOT 5. THE D.R. I.T.A.T. RAJKOT 6. THE GUARD FILE TRUE COPY BY ORDER SENIOR P RIVATE SECRETARY