ACIT, Cir.2, Nashik, v. S.N.Mantri, Nashik

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER I.T.A. NO. 225/PN/2009 : A.Y. 2005-06 ASSTT. CIT CIR. 2 NASIK APPELLANT VS. M/S. S.N. MANTRI SUBHASH ROAD NASIK ROAD PAN ABBFS 9437 P RESPONDENT APPELLANT BY: SHRI HEMANT KUMAR LEUVA RESPONDENT BY: SHRI SUNIL PATHAK ORDER PER SHAIALENDRA KUMAR YADAV JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDE R OF THE CIT(A)-II NASIK DATED 24-11-2008 FOR A.Y. 2005- 06 ON THE POINT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS. 1 12 63 407/-. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRANS PORT CONTRACTS. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE OFFERED THE TOTAL CONTRACT RECEIPTS OF RS. 2 60 13 951/- INCLUDING TH E RECEIPTS ATTRIBUTABLE TO THEIR OWN TRUCKS AMOUNTING TO RS. 29 09 527/-. THE ASSESSEE ADMITTED AN AMOUNT OF PAGE 2 OF 7 ITA NO. 225/PN/2009 S.N. MANTRI A.Y. 2005-06 RS. 5 40 000/- OUT OF THE RECEIPTS OF RS. 29 09 527 /- U/S 44AE OF THE ACT. IN RESPECT OF OTHER RECEIPTS AMOU NTING TO RS. 2 31 04 424/- THE ASSESSEE ESTIMATED THE PROFIT @ 30% BEFORE PAYMENT OF INTEREST AND REMUNERATION TO THE PARTNERS. THUS THE ASSESSEE ADMITTED INCOME IN RES PECT OF THEIR OWN TRUCKS U/S 44AE OF THE ACT AND INCOME IN RESPECT OF TRANSPORT CONTRACTS ON ESTIMATED BASIS. AFTER A RRIVING AT THE INCOME THE ASSESSEE CLAIMED INTEREST ON CAPITA L AND REMUNERATION TO THE PARTNERS AND FINALLY ARRIVED AT THE BUSINESS INCOME OF RS. 44 97 999/-. 3. BEFORE THE ASSESSING OFFICER THE ASSESSEE STATE D THAT THERE WERE NO REGULAR BOOKS OF ACCOUNTS WHICH COULD BE PRODUCED BEFORE HIM AND HENCE IT WAS NOT POSSIBLE T O WORK OUT ITS LIABILITY FOR TDS U/S 194C OF THE ACT. IN VIEW OF THIS THE ASSESSEE CLAIMED THAT THE PROVISIONS OF S ECTION 40(A)(IA) WERE NOT APPLICABLE. THE ASSESSING OFFIC ER CONDUCTED A SURVEY U/S 133A OF THE ACT ON 19-12-200 7 AND FOUND THAT THERE WERE NO REGULAR BOOKS OF ACCOUNTS FOR THE FINANCIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT Y EAR UNDER CONSIDERATION. DURING THE COURSE OF SURVEY A STATEMENT OF A PARTNER SHRI M.B. MANTRI WAS RECORD ED WHO ADMITTED THAT THERE WERE NO BOOKS OF ACCOUNTS AND T HAT THERE MIGHT HAVE BEEN SOME DEFAULT U/S 194C AND PAGE 3 OF 7 ITA NO. 225/PN/2009 S.N. MANTRI A.Y. 2005-06 ACCORDINGLY AGREED FOR A DISCLOSURE OF RS. 30 00 00 0/-. WHEN THE PARTNER WAS CONFRONTED WITH THE DETAILS AB OUT THE TRANSPORT PAYMENTS IT WAS SUBMITTED THAT IN VIEW OF THE AMENDMENT TO THE FIRST PROVISO TO SECTION 194C(3) W .E.F. 1-10-2004 HE AGREED TO MAKE A DISCLOSURE OF RS. 13 51 221/- IN RESPECT OF THE PAYMENTS MADE AFT ER 1-10-2004 WHICH WERE HIT BY THE AMENDMENT INSTEAD OF DISCLOSURE OF RS. 30 00 000/- MADE EARLIER. HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMIS SIONS OF THE ASSESSEE AND PROCEEDED TO COMPUTE THE INCOME ON ESTIMATED BASIS. THE ASSESSING OFFICER WAS OF THE V IEW THAT THE PROVISIONS OF SECTION 194C WERE APPLICABLE EVEN IF THE INCOME WAS COMPUTED ON ESTIMATED BASIS AND THAT IN VIEW OF THE AMENDMENT IF THE PAYMENTS/CREDITS DURING TH E WHOLE FINANCIAL YEAR EXCEEDED RS. 50 000/- EVEN THO UGH SUCH PAYMENTS/CREDITS WERE LESS THAN RS. 20 000/- INDIVIDUALLY EVEN PRIOR TO 1-10-2004. THE ASSESSING OFFICER ACCORDINGLY WORKED OUT THE ESTIMATED LIABILITY ON A CCOUNT OF DEFAULT U/S 194C(3) AT RS. 1 12 63 407/-. 4. ON APPEAL THE CIT(A) HELD THAT THE ASSESSING OF FICER SHOULD NOT HAVE ESTIMATED THE DISALLOWANCE U/S 40(A )(IA) OF THE ACT IN THE ABSENCE OF ANY BOOKS OF ACCOUNTS OR DETAILS OF PAYEES ETC. THE CIT(A) ALSO HELD THAT THE PAYME NTS PAGE 4 OF 7 ITA NO. 225/PN/2009 S.N. MANTRI A.Y. 2005-06 MADE BY THE ASSESSEE ARE CLEARLY LIABLE FOR DISALLO WANCE U/S 40(A)(IA) R.W.S. 194C OF THE ACT. AFTER CONSIDE RING THE VARIOUS SUBMISSIONS PUT FORTH BY THE ASSESSEE THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 27 23 908/- U/S 40(A)(IA) OF THE ACT. CONSIDERING THE DISALLOWANCE U/S 40(A)( IA) OF THE ACT THE GROSS INCOME OF THE ASSESSEE IN RESPECT OF TRANSPORT RECEIPTS WAS TAKEN AT RS. 56 11 961/- BY THE CIT(A) . ACCORDING TO THE CIT(A) IF THE INTEREST ON CAPITAL AND REMUNERATION TO THE PARTNERS AMOUNTING TO RS. 29 73 328/- IS CONSIDERED AS ALLOWED BY THE ASS ESSING OFFICER THE NET INCOME WOULD WORK OUT TO RS. 26 38 633/-. WHEREAS IN THE INSTANT CASE THE ASSESSEE OFFERED T HE BUSINESS INCOME OF RS. 39 57 999/- IN THE RETURN IN RESPECT OF OTHER TRANSPORT RECEIPTS THUS THE INCO ME DECLARED BY THE ASSESSEE TAKING INTO ACCOUNT THE PO SSIBLE PAYMENTS MADE IN VIOLATION OF THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT IN RESPECT OF TRANSPORT BUSINE SS IS REASONABLE AND HENCE NO SEPARATE ADDITION WAS REQUI RED TO BE MADE U/S 40(A)(IA) OF THE ACT. THEREFORE THE A SSESSING OFFICER WAS DIRECTED TO ACCEPT THE INCOME OF RS. 44 97 999/- OFFERED BY THE ASSESSEE IN RESPECT OF TRANSPORT BUSINESS INCLUDING THE INCOME IN RESPECT OF THEIR OWN TRUCKS OFFERED U/S 44AE OF THE ACT. PAGE 5 OF 7 ITA NO. 225/PN/2009 S.N. MANTRI A.Y. 2005-06 5. AGGRIEVED THE DEPARTMENT IS IN APPEAL BEFORE US ON THE GROUND THAT THE CIT(A) ERRED IN DIRECTING THE A SSESSING OFFICER TO ACCEPT THE INCOME AS RETURNED BY THE ASS ESSEE AND THAT THE ASSESSING OFFICER HAD CORRECTLY ESTIMA TED THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT AT RS. 1 12 6 3 407/-. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTING THE DECISION OF THE CIT(A) PLACED RELIANCE ON THE DECIS ION OF HYDERABAD A BENCH OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT (2010) 36 DTR 220 AND SUBMIT TED THAT THE CIT(A) WAS RIGHT IN DIRECTING THE ASSESSIN G OFFICER TO ACCEPT THE INCOME AS RETURNED BY THE ASSESSEE. ON THE OTHER HAND THE LEARNED DR SUPPORTED THE ORDER OF T HE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED TH E MATERIAL ON RECORD. WE FIND THAT THE ISSUE INVOLVE D IN THIS APPEAL IS COVERED BY THE DECISION OF THE HYDERABAD BENCH A OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIO NS (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: THE ASSESSEES PAST TRACK RECORDS SHOW THAT THE ASSESSEE HAS NEGLECTED THE PRESENTING OF THE BOOKS OF ACCOUNT IN ACCORDANCE WITH LAW. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE IT IS MANDATORY ON THE PAR T OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT SUPPORTED BY PROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS NOT PRODUCED THE PROPER BOOKS OF ACCOUNT TRUE PROFITS OR LOSS CANNOT BE DEDUCTED FR OM PAGE 6 OF 7 ITA NO. 225/PN/2009 S.N. MANTRI A.Y. 2005-06 THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE A.O HAVI NG NO OTHER OPTION REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME AT 10% OF GROSS RECEIPTS. BUT THE POSITION IS THAT THE ASSESSEE IS CARRYING ON T HREE KINDS OF CONTRACTS AS IN EARLIER YEARS I.E. (I) O WN CONTRACTS (II) CONTRACTS TAKEN FROM THE SUB- CONTRACTORS (III) CONTRACTS GIVEN TO OTHER PARTIES ON SUB-CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE IT SELF. IN THESE CONTRACTS THE ASSESSEE AGREED THAT HIS INCOME IS AT 9% OF THE GROSS RECEIPTS. THUS ACCORDINGLY THE A.O IS DIRECTED TO ESTIMATE THE INC OME ON THE CONTRACTS EXECUTED BY THE ASSESSEES OWN AT 9%. IN CASE OF CONTRACTS TAKEN BY ASSESSEE ON SU B- CONTRACT THE INCOME TO BE ESTIMATED AT 8% OF THE GROSS RECEIPTS. IN CASE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE THIRD PARTY ON SUB-CONTRACT INCOME TO BE ESTIMATED AT 4%. THIS IS BECAUSE WHEN THE ASSESSEE GIVES CONTRACT TO THE OTHER PARTIES ON SUB - CONTRACT THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9% IT HAS TO FORGO CERTAIN PORTION OF PROFIT I.E. AROUND 5% TO THE SUB-CONTRAC TORS. SIMILAR IS THE POSITION IN THE CASE OF CONTRACTS TA KEN BY ASSESSEE ON SUB-CONTRACT FROM OTHER PARTIES. FURTHER THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION AND INTERESTS TO PARTNERS ON THE PROF IT ESTIMATED BY A.O AT APPLICABLE RATES BECAUSE THE INCOME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AND INTEREST AD REMUNERATION OF TH E PARTNERS. ACCORDINGLY THE A.O IS DIRECTED TO COMPU TE THE INCOME OF THE ASSESSEE AFRESH. 8. SO FOLLOWING THE AFORESAID DECISION OF HYDERABA D BENCH A OF THE TRIBUNAL IN THE CASE OF TEJA CONSTR UCTIONS (SUPRA) WE RESTORE THE MATTER TO THE FILE OF THE AS SESSING OFFICER WITH A DIRECTION TO RE-COMPUTE THE INCOME O F ASSESSEE AS HELD IN M/S. TEJA CONSTRUCTIONS (SUPRA) AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE AS SESSEE. PAGE 7 OF 7 ITA NO. 225/PN/2009 S.N. MANTRI A.Y. 2005-06 9. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY 2011. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 10 TH FEBRUARY 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A)-II NASIK 4. THE CIT NASIK 5. THE D.R B BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE