A.K. Patel & Co.(Construction) Pvt.Ltd.,, Surat v. The Dy.CIT., Circle-1,, Surat

ITA 3840/AHD/2007 | 2004-2005
Pronouncement Date: 12-02-2010 | Result: Dismissed

Appeal Details

RSA Number 384020514 RSA 2007
Assessee PAN AACCA8128Q
Bench Ahmedabad
Appeal Number ITA 3840/AHD/2007
Duration Of Justice 2 year(s) 4 month(s) 1 day(s)
Appellant A.K. Patel & Co.(Construction) Pvt.Ltd.,, Surat
Respondent The Dy.CIT., Circle-1,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 12-02-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 12-02-2010
Date Of Final Hearing 02-02-2010
Next Hearing Date 02-02-2010
Assessment Year 2004-2005
Appeal Filed On 11-10-2007
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI T. K. SHARMA JM AND D.C.AGRAWAL AM ITA NO. ASST. YEAR 1. 2625/AHD/2004 2001-02 2. 647/AHD/2006 2002-03 3. 2356/AHD/2006 2001-02 A. K. PATEL & CO. (CONSTRUCTION) (P) LTD. 401-402 PRESIDENT PLAZA OPP. JIVAN BHARTI SCHOOL NANPURA SURAT-395001 ITO WARD 1(1) SURAT. 4. 2357/AHD/2006 2003-04 A. K. PATEL & CO. (CONSTRUCTION) (P) LTD. 401-402 PRESIDENT PLAZA OPP. JIVAN BHARTI SCHOOL NANPURA SURAT-395001 ASSTT. CIT CIR.1 SURAT 5. 3840/AHD/2007 2004-05 6 4466/AHD/2007 2005-06 A. K. PATEL & CO. (CONSTRUCTION) (P) LTD. 401-402 PRESIDENT PLAZA OPP. JIVAN BHARTI SCHOOL NANPURA SURAT-395001 DY. CIT CIRCLE-1 SURAT 7. 3566/AHD/2008 2004-05 ASSTT. CIT CIR.1 SURAT A. K. PATEL & CO. (CONSTRUCTION) (P) LTD. 401- 402 PRESIDENT PLAZA OPP. JIVAN BHARTI SCHOOL NANPURA SURAT-395001 8. 308/AHD/2009 2003-04 DY. CIT CIRCLE-1 SURAT A. K. PATEL & CO. (CONSTRUCTION) (P) LTD. 401- 402 PRESIDENT PLAZA OPP. JIVAN BHARTI SCHOOL NANPURA SURAT-395001 2 PAN NO.AACCA8128 Q APPELLANT RESPONDENT ASSESSEE BY :- SHRI K. N. BHATT AR REVENUE BY:- SHRI C. K. MISHRA SR.DR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER . ALL THESE APPEALS INVOLVE COMMON ISSUES FOR DIFFERE NT ASST. YEARS AND HENCE THEY ARE TAKEN UP TOGETHER FOR THE SAKE O F CONVENIENCE. ITA NO.2625/AHD/2004 ASST. YEAR 2001-02 2. THIS IS AN APPEAL FILED BY THE ASSESSEE FOR ASST . YEAR 2001-02 AGAINST THE ORDER OF CIT(A) SURAT DATED 16.07.2004 . THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. A O. HAS ERRED IN MAKING THE ADDITION OF RS. 4 67 112/- U/S. 69 C OF THE INCOME TAX ACT 1961 AND HENCE YOUR PETITIONER PRAY S THAT THE SAME BE DELETED. 2 . IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. A O HAS ERRED IN DISALLOWING THE SUM OF RS 5 17 531 U/S 40 A (2)(B) OF THE INCOME TAX ACT 1961 AND HENCE YOUR PETITIONER PRAY S THAT THE SAME BE DELETED. 3. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. A. O HAS ERRED IN DISALLOWING THE INTEREST TO THE EXTENT OF RS. 8 05 635 -ON ACCOUNT OF THE ALLEGED NON BUSINESS ADVANCE WITHOUT INTEREST OUT OF THE BORROWED FUNDS - AND HENCE YOUR PETITIONER P RAYS THAT THE SAME BE DELETED. 4. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. A. 0. HAS ERRED IN DISALLOWING THE SUM OF RS. 10.000/- U/S. 4 0 A (3) OF THE 3 INCOME TAX ACT L%1 AND HENCE YOUR PETITIONER PRAYS THAT THE SAME BE DELETED. 5. YOUR PETITIONER PRAYS THAT SUCH OTHER RELIEFS) AND REBATES AS MAY BE ALLOWABLE TO IT UNDER THE (HEN EXISTING PROVISIONS OF THE ACT BE ALLOWED TO IT. 6. YOUR PETITIONER CHALLENGES ALL THE ADDITIONS DISALLOWANCES AND THE LEVY OF INTERESTS UNDER VARIOUS SECTIONS AND PRAYS THAT THE RETURN OF INCOME FILED BY IT BE ACCEPTED. 3. THE ASSESSEE IS A PRIVATE LTD. CO. ENGAGED IN TH E EXECUTION OF VARIOUS CONTRACTS FOR EARTH WORK I.E. PREPARING KAC HCHA ROADS LEVELING OF ROADS OR MAKING RCC ROADS. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS SHOWN TO H AVE MADE PAYMENT OF RS.8 87 527/- AS MACHINERY HIRE EXPENSES UNDER T HE HEAD OF EXPENSES ON EXECUTION OF CONTRACT. THE AO CALLED THE VOUCHE RS THEREOF FOR VERIFICATION FROM WHICH HE NOTICED THAT TWO VOUCHER S FOR A PAYMENT OF RS.4 67 412/- DID NOT CONTAIN ANY ADDRESS OR IDENTI FICATION. THE DETAILS OF THESE PAYMENTS WERE AS UNDER :- SL.NO. NATURE OF EXPENDITURE NAME OF THE PARTY AMOUNT DATE OF VOUCHER 1. MACHINE & HIRE M/S PANKAJ CONTRACTOR 232 887 15.4.2000 2. MACHINE & HIRE M/S PANKAJ CONTRACTOR 234 225 09.05.2000 TOTAL 467 112 THE AO REQUIRED THE ASSESSEE TO GIVE COMPLETE NAME AND ADDRESS OF THE PARTY TO WHOM THE PAYMENTS WERE MADE BUT THESE DETA ILS WERE NOT PROVIDED EVEN THOUGH AS PER AO 4-5 OPPORTUNITIES WE RE GIVEN. NO EXPLANATION SEEMS TO HAVE BEEN FURNISHED. THE AO AC CORDINGLY MADE THE ADDITION. THE LD. CIT(A) CONFIRMED THE ADDITION EVE N THOUGH ASSESSEE 4 SEEMS TO HAVE FURNISHED A CONFIRMATION FROM THE PAR TY IN JHARKHAND. ACCORDING TO THE LD. CIT(A) THE CONFIRMATION FURNIS HED BY THE ASSESSEE FROM SHRI PANKAJ CONTRACTOR HAZARIBAGH IS NOT CRE DIBLE. 4. BEFORE US LD. AR FOR THE ASSESSEE SUBMITTED THA T PANKAJ CONTRACTOR AND THE ASSESSEE BOTH WERE WORKING FOR RELIANCE PET ROLEUM AT JAMNAGAR AND ASSESSEE UTILIZED THE MACHINERY OF PANKAJ CONTR ACTOR AT JAMNAGAR AND PAID THE RENTAL CHARGES OF THOSE MACHINERIES. THE A SSESSEE HAS ALSO MADE TDS ON SUCH PAYMENTS AND RECEIVED THE CONFIRMATIONS FROM THAT PARTY. MONEY HAS BEEN PAID THROUGH ACCOUNT PAYEE CHEQUE(S) THEREFORE NO ADDITION COULD BE MADE UNDER SECTION 69C. FURTHER I T CANNOT BE SAID THAT ASSESSEE HAS MADE TDS FOR NOTHING. BOOKS OF ACCOUNT S HAVE BEEN ACCEPTED AND THEREFORE GENUINENESS OF THE PAYMENT S CANNOT BE DOUBTED. 5. AGAINST THIS LD. DR RELIED ON THE ORDERS OF AUT HORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE RESTORE THIS ISSUE TO THE FILE OF LD. AO TO VERIFY THE TDS CERTIFICATE AND AL SO MAKE ENQUIRIES FROM RELIANCE PETROLEUM JAMNAGAR OR FROM THE AO HAZARI BAGH JHARKHAND ABOUT THIS ASSESSEE. HE MAY ALSO VERIFY THE PAYMENT S ACTUALLY MADE BY THE ASSESSEE INTO THE ACCOUNT OF PANKAJ CONTRACTOR AS CLAIMED. THEREFORE THE AO WILL GIVE OPPORTUNITY TO THE ASSESSEE TO PRO VIDE NECESSARY PAN AND OTHER INGREDIENTS OF THE IDENTITY OF PANKAJ CON TRACTOR AS WELL AS SOME EVIDENCE OF SERVICE HAVING TAKEN FROM THAT PARTY FO R WHICH PAYMENT IS CLAIMED TO HAVE BEEN MADE. IF NO EVIDENCE OF ANY SE RVICE RENDERED ARE PRODUCED THEN THE DISALLOWANCE SHOULD BE CONSIDERED UNDER SECTION 37(1). AS A RESULT THIS GROUND IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. 5 7. GROUND NO.2 RELATES TO THE DISALLOWANCE UNDER SE CTION 40A(2)(B). THE FACTS OF THE CASE ARE THAT ASSESSEE MADE TOTAL CONTRACT MATERIAL AMOUNTING TO RS.40 LACS OUT OF WHICH MATERIAL WORTH RS.11 99 160/- WAS PURCHASED FROM M/S VIJAY QUARRY WHICH IS SISTER CO NCERN OF THE ASSESSEE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE MAT ERIAL WHICH ARE PURCHASED FROM THE SISTER CONCERN IS CALLED KAPCHI. THE AO VERIFIED THE RATES OF MATERIAL PURCHASED FROM SISTER CONCERN AND FROM THE OTHER PARTIES IN THE OPEN MARKET AND FOUND THAT PURCHASES FROM SI STER CONCERN WAS @ RS.475/- WHEREAS FROM OTHER PARTIES THEY WERE PURCH ASED AT RS.270/-. THUS THERE IS A DIFFERENCE OF RS.205/-. THE AO FOUN D THE PAYMENT MADE TO THE SISTER CONCERN AS EXCESSIVE AND UNREASONABLE AND MADE THE DISALLOWANCE OF RS.5 17 531/-. THE LD. CIT(A) OBSER VED THAT ROAD CONSTRUCTION REQUIRES PARTICULAR QUALITY OF KAPCHI AND IT IS NOT SOMETHING FOR WHICH THERE WILL BE HUGE DIFFERENCE IN QUALITY AS HAS BEEN ARGUED BEFORE HIM. FURTHER THE ROADS ARE CONSTRUCTED ON CO NTRACT BASIS AS PER SPECIFICATION AND IT IS NOT OPEN TO THE CONTRACTOR TO SELECT MATERIAL AS PER ONES FANCY. HE HELD THE EXPLANATION FURNISHED BY THE AS UNTRUE AND UPHELD THE ADDITION. 8. BEFORE US LD. AR FOR THE ASSESSEE SUBMITTED THAT IT IS INCORRECT TO PRESUME SAME TYPE OF MATERIAL WAS PURCHASED FROM OT HER PARTIES AS WELL AS FROM SISTER CONCERN. WHAT WAS PURCHASED FROM OTH ER PARTIES WAS OF INFERIOR QUALITY AND OF LOWER DIMENSION WHEREAS WHA T WAS PURCHASED FROM SISTER CONCERN WAS OF HIGHER DIMENSION REQUIRE D FOR CONSTRUCTING THE ROADS. THEY ARE IN FACT SMALL BOULDERS OF VARIOUS D IMENSIONS REQUIRED FOR ROAD CONSTRUCTION. SISTER CONCERN NAMELY VIJAY QUAR RY HAS PURCHASED BOULDER MAKING MACHINE WHICH IS CAPABLE OF MAKING B OULDERS OF DIFFERENT SIZES. THUS ACCORDING TO THE REQUIREMENTS OF THE AS SESSEE COMPANY VIJAY QUARRY HAVE MADE BOULDERS OF HIGHER DIMENSIONS WHIC H WERE NOT 6 AVAILABLE IN THE MARKET. WHAT WAS PURCHASED FROM OT HER TWO PARTIES WAS BOULDER OF VERY SMALL DIMENSIONS. 9. LD. DR ON THE OTHER HAND SUBMITTED THAT ONUS IS ON THE ASSESSEE THAT WHAT WAS PURCHASED FROM SISTER CONCERN WAS AT MARKET PRICE OR AT ARM-LENGTH PRICE. IT IS NOT PROVED THAT WHAT WAS PU RCHASED BY THE ASSESSEE FROM SISTER CONCERN WAS OF DIFFERENT DIMENSIONS WHI CH WOULD BE AVAILABLE AT HIGHER RATES AS COMPARED TO THE PURCHASES MADE B Y THE ASSESSEE FROM OTHER TWO PARTIES IN THE MARKET. WHILE THIS IS SO THE DISALLOWANCE MADE BY THE AO IS REASONABLE AND SHOULD BE UPHELD. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW AO HAS NOT MADE A NY VERIFICATION AS TO WHAT WAS PURCHASED BY THE ASSESSEE FROM SISTER CONC ERN AND WHETHER THEY WERE OF SAME DIMENSIONS AS TO THE PURCHASES MADE BY THE ASSESSEE FROM OTHER TWO PARTIES IN THE MARKET. ON THE OTHER HAND ASSESSEE IS ALSO NOT ABLE TO PROVE THAT ITS PURCHASES FROM SISTER CONCER N ARE AT ARM-LENGTH PRICE. CONSIDERING THE TOTALITY OF FACTS AND CIRCUM STANCES OF THE CASE WE CONFIRM THE ADDITION TO THE EXTENT OF RS.1 60 000/- AS BEING EXCESSIVE AND REASONABLE PAYMENT. THE ASSESSEE GETS CONSEQUENTIAL RELIEF. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 11. GROUND NO.3 RELATES TO DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.8 05 635/- ON ACCOUNT OF ALLEGED NON-BUSINESS AD VANCE TO THE SISTER CONCERN. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE AO FOUND THAT ASSESSEE HAS GIVEN A DEPOSIT OF RS.20 00 000/- AND ANOTHER SUM OF RS.33 30 788/- AS LOANS AND ADVANCES TO M/S VIJAY Q UARRY (P) LTD. WHICH IS ADMITTEDLY A SISTER CONCERN OF THE ASSESSEE. THE DIRECTORS IN THAT COMPANY ARE ALSO DIRECTORS IN ASSESSEE COMPANY. THE AO FOUND THAT 7 OPENING BALANCE IN THE ACCOUNT OF THAT COMPANY WAS RS.26 20 823/-. THE ASSESSEE MADE A PAYMENT OF RS.33 30 788/- ON BEHALF OF THE SISTER CONCERN AGAINST SUPPLY OF GOODS. BUT IN FACT THAT C OMPANY HAD SUPPLIED GOODS WORTH RS.16 67 975/- ONLY. ON THE OTHER HAND ASSESSEE HAS PAID INTEREST ON THE BORROWED FUNDS. THE AMOUNT OF INTER EST WORKED OUT ON DEPOSITS AS LOANS AND ADVANCES TO VIJAY QUARRY AMOU NTED TO RS.8 05 635/-. ON BEING ASKED TO FURNISH EXPLANATIO N IT WAS SUBMITTED BY THE ASSESSEE THAT M/S VIJAY QUARRY HAS PUT UP ENTIR E PLANT FOR MANUFACTURE OF KAPCHI. THIS PLANT WAS PURCHASED FROM IRCON (IND IAN RAILWAYS CONSTRUCTION COMPANY) AT A COST OF RS.48 LACS. THE ENTIRE MATERIAL PRODUCED BY VIJAY QUARRY IS SUPPLIED TO THE ASSESSE E AND NO SALE IS MADE TO OUTSIDERS. ACCORDINGLY ADVANCE GIVEN TO THAT COM PANY WAS FOR BUSINESS PURPOSES. THE AO HOWEVER DID NOT AGREE W ITH THE ASSESSEE AND HELD THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO SISTER CONCERN AND HE ACCORDINGLY DISALLOWED THE INTEREST TO THE EXTEN T AS ABOVE. 12. THE LD. CIT(A) SUMMARILY REJECTED THE CONTENTIO N OF THE ASSESSEE AND UPHELD THE ADDITION. 13. AGAINST THIS LD. AR FOR THE ASSESSEE SUBMITTED THAT ENTIRE SUM WAS GIVEN TO VIJAY QUARRY FOR BUSINESS PURPOSES AS ENTI RE PRODUCT MANUFACTURED BY THAT COMPANY IS PURCHASED BY THE AS SESSEE. FURTHER ASSESSEE HAS SUBSTANTIAL SHARE CAPITAL AND INTEREST FREE FUNDS TO THE EXTENT OF RS.490 LACS AND THEREFORE PRESUMPTION WAS THAT INTEREST FREE ADVANCES TO SISTER CONCERN WERE GIVEN OUT OF INTEREST FREE C APITAL AVAILABLE WITH THE ASSESSEE. IN ANY CASE IF IT IS CONSIDERED NECESSAR Y THE PRO-RATA DISALLOWANCE IN THE RATIO OF INTEREST BEARING CAPIT AL TO INTEREST FREE CAPITAL SHOULD ONLY BE DISALLOWED. THE INTEREST BEARING CAP ITAL BORROWED BY THE ASSESSEE AMOUNTS TO APPROXIMATELY RS.72 LACS. THE C ASE OF THE ASSESSEE IS 8 SQUARELY COVERED BY THE DECISION OF HON. SUPREME CO URT IN THE CASE OF S.A. BUILDERS VS. CIT (2007) 288 ITR 1 (SC). 14. AGAINST THIS LD. DR SUBMITTED THAT THE FUNDS A RE APPARENTLY GIVEN TO PURCHASE PLANT AND MACHINERY WHICH IS EXCLUSIVEL Y THE LIABILITY OF SISTER CONCERN NOT OF THE ASSESSEE. IF M/S VIJAY QU ARRY COULD HAVE PURCHASED PLANT AND MACHINERY AFTER BORROWING FUNDS FROM FINANCIAL INSTITUTION THEN IT WOULD HAVE PAID INTEREST ON SUC H BORROWINGS. THUS ASSESSEE COMPANY HAS IN FACT TAKEN OVER ITSELF THE LIABILITY OF SISTER CONCERN AND THEREBY REDUCED ITS OWN TAXABLE INCOME. THIS CANNOT BE PERMISSIBLE UNDER THE GARB OF BUSINESS CONSIDERATIO N. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW IF PAYMENT IS MAD E BY THE ASSESSEE TO SISTER CONCERN FOR THE PURPOSE OF TRADE AND THE SAM E IS PENDING IN THE CURRENT YEAR ACCOUNT OF THE ASSESSEE IN THE BOOKS O F SISTER CONCERN THEN IT MAY BE HELD TO BE BUSINESS CONSIDERATION AND THEREF ORE NO DISALLOWANCE OF INTEREST BE MADE. WHAT IS TO BE SEEN IS THAT INT EREST FREE ADVANCES GIVEN BY THE ASSESSEE TO THE SISTER CONCERN ARE ADJUSTED AGAINST SALES MADE BY THE SISTER CONCERN TO THE ASSESSEE. BUT WHERE THE A SSESSEE HAS MET OUT THE LIABILITY OF SISTER CONCERN LIKE PURCHASE OF PLANT AND MACHINERY THEN IT CANNOT BE SAID THAT THERE WAS A BUSINESS CONSIDERAT ION. BUSINESS CONSIDERATION CANNOT BE EXTENDED TO PROVIDING FUNDS FOR SETTING UP OF PLANT AND MACHINERY AND THEREBY TRANSFERRING THE LI ABILITY OF INTEREST OF SISTER CONCERN TO THE ASSESSEE COMPANY. IN OUR CONS IDERED VIEW THE TRANSFER OF FUNDS FOR PURCHASE OF PLANT AND MACHINE RY IS APPARENTLY FOR PERSONAL CONSIDERATION AND NOT FOR BUSINESS CONSIDE RATION. THEREFORE THE INTEREST LIABILITY WHICH ACTUALLY PERTAINED TO THE SISTER CONCERN CANNOT BE ADJUSTED AGAINST INCOME OF ASSESSEE COMPANY. WE HO WEVER ACCEPT THE 9 ALTERNATIVE SUBMISSION OF THE LD. AR THAT PRO-RATA DISALLOWANCE OF INTEREST CAN BE MADE BECAUSE ASSESSEE COMPANY HAS SUBSTANTIA L INTEREST FREE CAPITAL. THE AO WILL FIND OUT THE FUNDS TRANSFERRED BY THE ASSESSEE FOR PURCHASE OF PLANT AND MACHINERY AND WORK OUT THE RA TIO OF THESE FUNDS WITH THE TOTAL INTEREST FREE CAPITAL AVAILABLE. HE WILL WORK OUT INTEREST PAYABLE ON FUNDS TRANSFERRED FOR PURCHASE OF PLANT AND MACHINERY TO THE SISTER CONCERN AND DISALLOW IN THE RATIO OF SUCH FU NDS TO TOTAL FUNDS INCLUDING INTEREST FREE CAPITAL AS POINTED OUT BY THE ASSESSEE. THE ASSESSEE WILL GET CONSEQUENTIAL RELIEF. 16. GROUND NO.4 IS NOT PRESSED BY THE LD. AR HENCE THE SAME IS REJECTED AS NOT PRESSED. 17. GROUND NOS.5 & 6 DO NOT REQUIRE ANY SPECIFIC AD JUDICATION AND THEREFORE THEY ARE REJECTED. 18. APPEAL OF THE ASSESSEE IS THEREFORE PARTLY AL LOWED FOR STATISTICAL PURPOSES. ITA NO.647/AHD/2006 ASST. YEAR 2002-03 19. IN THIS YEAR THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS :- 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF' THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 4.4 6.460/- OUT OF THE CRUSHING EXPENSES U/S. 40 A (2)(B) OF THE INCOM E TAX ACT 1961 AND HENCE YOUR PETITIONER PRAYS THAT THE SAME BE DELETED 2. JN VIEW OF THE FACTS AND CIRCUMSTANCES OF TH E CASE THE LD CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RI. 94 364/- OUT OF THE 10 PURCHASE PRICE OF MATERIAL U/S . 40 A (2)(B) OF THE INCOME TAX ACT 1961 AND HENCE YOUR PETITIONER PRAYS THAT THE SAME BE DELETED. 3 . IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OUT OF INT EREST TO THE EXTENT OF RS 5 47 584/- ON ACCOUNT OF THE ALLEGED N ON BUSINESS ADVANCE WITHOUT INTEREST OUT OF THE BORROWED FUNDS - AND HENCE YOUR PETITIONER PRAYS THAT THE SAME BE DELETED 4 . IN VIEW OF ME FACTS AND CIRCUMSTANCES OF THE CASE THE LD. A O. HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1 47 20 3/- OUT OF THE INTEREST/COMMISSION PAID TO SHROFF AND HENCE YOUR P ETITIONER PRAYS THAT THE SAME HE DELETED. 5. YOUR PETITIONER PRAYS THAT SUCH OTHER RELIE F(S) AND REBATES AS MAY BE ALLOWABLE TO IT UNDER THE THEN EXISTING PROVISIONS OF THE ACT BE ALLOWED TO IT. 6. YOUR PETITIONER CHALLENGES ALL THE ADDITIONS . DISALLOWANCES AND THE LEVY OF INTERESTS UNDER VARIOUS SECTIONS AND PRAYS THAT THE RETURN OF INCOME FIFED BY IT BE ACCEPTED. 20. GROUND NOS.1 & 2 RELATE TO DISALLOWANCE UNDER S ECTION 40A(2)(B) FOR PURCHASES MADE FROM SISTER CONCERN. FACTS IN TH IS YEAR REMAIN THE SAME AS IN ASST. YEAR 2001-02. FOLLOWING OUR REASON INGS IN THAT YEAR WHERE WE HAVE DISALLOWED 15% (APPROX) OF THE TOTAL CLAIM WE MAKE DISALLOWANCE UNDER THAT SECTION AT RS.1 75 000/- IN RESPECT OF GROUND NO.1 & 2 TOGETHER AS BEING EXCESSIVE AND UNREASONABLE. T HE ASSESSEE GETS CONSEQUENTIAL RELIEF. 21. GROUND NO.3 RELATES TO DISALLOWANCE OF INTEREST OF RS.5 47 584/-. THE FACTS AND CIRCUMSTANCES OF THE CASE REMAIN THE SAME AS IN ASST. YEAR 2001-02. FOLLOWING OUR ORDER IN THAT YEAR WE RESTRI CT THE DISALLOWANCE ON PRO-RATA BASIS AS DISCUSSED IN THAT YEAR. THE AO WI LL WORK OUT THE DISALLOWABLE AMOUNT. THE ASSESSEE WILL GET CONSEQUE NTIAL RELIEF. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 11 22. GROUND NO.4 RELATES TO DISALLOWANCE OF INTEREST OF RS.1 47 203/- BEING INTEREST/COMMISSION PAID TO SHROFF FOR DISCOU NTING CHEQUES. THE CLAIM OF ASSESSEE IS THAT IT HAS SUBMITTED CHEQUES WORTH RS.18 34 483/- WHO HAS DEDUCTED 27% COMMISSION AS AGAINST RATE OF 18% OF INTEREST. THE AO ALLOWED THE CLAIM TO THE EXTENT OF 18% AND M ADE THE DISALLOWANCE OF RS.1 47 203/-. THE LD. CIT(A) CONFI RMED THE ADDITION. 23. WE HAVE HEARD THE LD. AR & THE LD. DR. IN OUR C ONSIDERED VIEW THE DISALLOWANCE IS MOST REASONABLE. IT IS BECAUSE RECO VERY PERIOD OF CHEQUES IS ABOUT 3 MONTHS THEREFORE FUNDS OF THE SHROFF A FTER DISCOUNTING CHEQUES WILL BE BLOCKED ONLY FOR 3 MONTHS. EVEN IF INTEREST @ 24% IS CONSIDERED THEN SHROFF WOULD BE ENTITLED TO 6% ONLY AND IF SOME COMMISSION IS ALSO ADDED THEN NOT MORE THAN 8-9% SH OULD HAVE BEEN REASONABLE AMOUNT TO BE PAID TO THE SHROFF FOR DISC OUNTING CHEQUES. THE AO ALLOWED 18% WHICH IN OUR VIEW IS MORE THAN REASO NABLE. THIS GROUND OF ASSESSEE IS REJECTED. 24. GROUND NO.5 & 6 ARE GENERAL IN NATURE AND DO NO T REQUIRE ANY SPECIFIC ADJUDICATION. THEY ARE REJECTED. THE APPEA L FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2357/AHD/2006 ASST. YEAR 2003-04 25. IN THIS YEAR THE ASSESSEE HAS RAISED FOLLOWING GROUNDS :- 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE REJECTION OF BOOKS OF A CCOUNTS OF THE APPELLANT AND HENCE YOUR PETITIONER PRAYS THAT THE ORDER OF THE LD. CIT BE SET ASIDE ON (HIS POINT AND THE LD ACIT BE D IRECTED TO ACCEPT THE BOOKS OF ACCOUNTS OF THE APPELLANT. 12 2. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN RETAINING THE ADDITION LO THE EXTENT O F RS. 9.93.000 ON ACCOUNT OF THE ALLEGED LOW OP AND HENCE YOUR PETITI ONER PRAYS THAT THE SAME BE DELETED. 3 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OUT OF INT EREST TO THE EXTENT OF RS. 3.73 213 -ON ACCOUNT OF THE ALLEGED N AN BUSINESS ADVANCE WITHOUT INTEREST OUT OF THE BORROWED FUNDS MID HENCE YOUR PETITIONER PRAYS THAT THE SAME BE DELETED. 4 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE EA SE [HE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS 2 5 0 969.'- OUT OF THE INTEREST/COMMISSION PAID TO SHROFF AND HENCE YO UR PETITIONER PRAYS THAT THE SAME BE DELETED. 5. YOUR PETITIONER PRAYS THAT ALL OTHER RELIEFS AND REBATES AS MAY BE ALLOWABLE LO IT UNDER THE THEN EXISTING PROVISIONS OF THE ACT HE ALLOWED TO IT. 6. YOUR PETITIONER CHALLENGES ALL THE ADDITIONS DI SALLOWANCES AND THE LEVY OF INTERESTS UNDER VARIOUS SECTIONS AND PRAYS THAT THE RETURN OF INCOME TILED BY IT BE ACCEPTED. 26. THIS YEAR AO HAS REJECTED THE BOOKS OF ASSESSEE AND ESTIMATED GP. THE REASONS GIVEN FOR THE REJECTION OF BOOKS ARE TH AT ASSESSEE HAS NOT PRODUCED THE BASIC RECORDS AND HAS NOT SUBMITTED TH E DETAILS OF WORK-IN- PROGRESS OF RS.1 17 53 271/-. THE ASSESSEE HAS ALSO NOT MAINTAINED PROJECT-WISE CONSUMPTION OF RAW MATERIAL. THEREAFTE R THE AO ESTIMATED THE PROFITS BY APPLYING GP RATE OF 25.39% WHICH WAS GP RATE LAST YEAR AS AGAINST GP RATE OF 22.96% THIS YEAR. ACCORDINGLY TH E AO ENHANCED THE GP RATE BY 2.43% WHICH RESULTED IN AN ADDITION OF R S.10 LACS APPROXIMATELY. THE LD. CIT(A) RESTRICTED THE ADDITI ON TO RS.9 93 000/-BY CORRECTING ADDITION RESULTING FROM ENHANCING PROFIT RATES BY 2.4% ON TOTAL REVENUE OF RS.4 13 74 804/-. HE UPHELD THE REJECTIO N OF BOOKS FOR THE REASONS AS GIVEN BY AO. HE FURTHER RELIED ON THE DE CISIONS OF HON. 13 SUPREME COURT IN THE CASES OF S. N. NAMASIVYAM CHET TIAR VS. CIT 38 ITR 579(SC) AND CIT VS. MACMILLAN & CO. 33 ITR 182 AS ASSESSEE HAS NOT MAINTAINED THE TYPES OF DETAILS REQUIRED BY THE AO AND COMPLETE SET OF ORIGINAL VOUCHERS AND BASIC RECORDS. 27. BEFORE US LD. AR SUBMITTED THAT IN EARLIER YEAR S BOOK RESULTS HAVE BEEN ACCEPTED AND THEREFORE THERE IS NO REASON TO REJECT THE BOOKS IN THIS YEAR. IN ANY CASE ESTIMATION OF PROFIT IS ON HIGHER SIDE. 28. LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS O F AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT IF ADDITIONS MADE IN EARLIER YEARS ARE TAKEN INTO CONSIDERATION THE NET PROFIT RATE IN EAR LIER YEAR WOULD BE ON HIGHER SIDE. 29. IN REJOINDER THE LD. AR SUBMITTED THAT THE DIE SEL BILLS OF THE ASSESSEE HAVE GONE HIGH ON ACCOUNT OF INCREASE OF D IESEL PRICES PER LITRE. THIS HAS RESULTED IN LOWER NET PROFIT AS COMPARED T O EARLIER YEARS. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW REJECTION OF BOOK S IS JUSTIFIED BECAUSE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE BASIC RECORDS . IF THERE ARE NO VOUCHERS FOR VERIFICATION OR PROJECT-WISE DETAILS O F WORK IN PROGRESS OR RAW MATERIAL CONSUMED AND PROFITS CANNOT BE DEDUCED CORRECTLY THEN BOOK RESULTS CANNOT BE ACCEPTED. WE UPHOLD THIS DECISION OF AUTHORITIES BELOW. 31. REGARDING APPLICATION OF NET PROFIT RATE WE AR E OF THE CONSIDERED VIEW THAT ENHANCEMENT OF 2.4% IS QUITE REASONABLE W HEN WE COMPARE VARIOUS ADDITIONS MADE AND SUSTAINED IN EARLIER YEA RS. THEREFORE THE ADDITION OF RS.9 93 000/- SUSTAINED BY THE AUTHORIT IES BELOW IN THE NET 14 PROFIT IS REASONABLE AND IT IS CONFIRMED. THIS GROU ND OF ASSESSEE IS REJECTED. 32. GROUND NOS. 3 & 4 RELATE TO DISALLOWANCE OF INT EREST AND DISALLOWANCE OF INTEREST/COMMISSION PAID TO THE SHR OFF. IN PRINCIPLE WE CONFIRM THE ADDITION FOR THE REASONS GIVEN BY US IN ASST. YEAR 2001-02 BUT ONCE BOOKS ARE REJECTED AND PROFITS ARE ESTIMAT ED NO FURTHER ESTIMATION IN RESPECT OF ITEMS OF TRADING ACCOUNT O R PROFIT AND LOSS ACCOUNT CAN BE MADE. ACCORDINGLY NO SEPARATE ADDITI ON IN RESPECT OF THESE TWO AMOUNTS ARE TO BE MADE ONCE NET PROFIT OF RS.9 93 000/- IS SUSTAINED BY US AS ABOVE. THESE TWO ADDITIONS ARE DELETED AND HENCE THESE TWO RELATED GROUNDS ARE ACCORDINGLY ALLOWED. 33. GROUND NOS.5 & 6 ARE GENERAL IN NATURE. THEY DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 34. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLO WED. ITA NO.3840/AHD/2007 ASST. YEAR 2004-05 35. IN THIS YEAR THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS :- 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE REJECTION OF HOOKS OF A CCOUNTS OF THE APPELLANT AND HENCE YOUR PETITIONER PRAYS THAT THE ORDER OF THE LD CIT HE SET ASIDE ON THIS POINT AND THE LD. ACIT BE DIRECTED TO ACCEPT THE HOOKS OF ACCOUNTS OF THE APPELLANT. 2. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN RETAINING THE ADDITION TO THE EXTENT O F RS. 10 76 243/- ON ACCOUNT OF THE ALLEGED LOW GP AND HENCE YOUR PET ITIONER PRAYS THAT THE SAME HE DELETED. 15 3. IN VIEW OF THE FACTS UND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 40 338/- OUT OF THE INTEREST/COMMISSION PAID TO SHROFF AND HENCE YOUR P ETITIONER PRAYS THAT THE SAME BE DELETED. 4. YOUR PETITIONER PRAYS THAT ALL OTHER RELIEF(S) A ND REBATES AS MAY BE ALLOWABLE TO IT UNDER THE THEN EXISTING PROVISIONS OF THE ACT BE ALLOWED TO IT. 5. YOUR PETITIONER CHALLENGES ALL THE ADDITIONS DI SALLOWANCES AND THE LEVY OF INTERESTS UNDER VARIOUS SECTIONS AND PRAYS THAT THE RETURN OF INCOME FILED BY IT BE ACCEPTED. 36. THE FIRST TWO GROUNDS RELATE TO REJECTION OF BO OKS AND ESTIMATION OF PROFITS. THE FACTS AND CIRCUMSTANCES OF THE CASE RE MAIN THE SAME AS IN ASST. YEAR 2002-03 AND 2003-04. FOR THE REASONS MEN TIONED IN ASST. YEAR 2003-04 WE UPHOLD THE REJECTION OF BOOKS. THIS YEAR TOTAL REVENUE RECEIPT BY THE ASSESSEE IS RS.5 38 12 190/- AND GP 55 82 18 8/- WHICH IS ABOUT 10.37%. EARLIER GP DECLARED WAS 22.31% ON A RECEIPT OF RS.4 13 29 225/- THE AO ALLOWED A MARGIN OF 6.87% ON ACCOUNT OF INCR EASE IN PRICE OF PETROLEUM PRODUCT AND ADDITIONAL EXPENSES OF ROYALT Y AND WORKED OUT THAT EVEN GP WOULD BE ONLY 20.88%. HE ACCORDINGLY PROPOS ED AN ADDITION OF 2.08% AND WORKED OUT THE GP ADDITION AT RS.10 75 24 3/- 37. THE LD. CIT(A) CONFIRMED THE ADDITION AS ACCORD ING TO HIM AO HAS TAKEN INTO CONSIDERATION ALL THE FACTORS WHICH RESU LTED IN REDUCTION IN GP. 38. WE HAVE HEARD THE LD. AR & THE LD. DR. AFTER CO NSIDERING THE RIVAL SUBMISSIONS WE CONFIRM THE REJECTION OF BOOKS FOR THE REASONS MENTIONED BY LD. CIT(A) IN HIS ORDER THIS YEAR AND BY US IN E ARLIER ASSESSMENT YEAR AS ABOVE. REGARDING ADDITION PROPOSED BY THE AO WE ARE OF THE VIEW THAT IT IS QUITE REASONABLE BECAUSE IN ASST. YEAR 2002-03 G P RATE APPLIED IS 25% WHEREAS THIS IT IS ONLY ABOUT 23%. THERE IS NO COMP ARISON OF NP RATE THIS 16 YEAR. EVEN IF WE CONSIDER ADDITION PROPOSED BY THE AO AT RS.10 76 243/- TO THE DECLARED INCOME OF RS.23 38 261/- IT WILL WO RK OUT TO APPROXIMATELY 6.39% WHEREAS IN EARLIER ASST. YEAR N ET PROFIT HAS BEEN APPROXIMATELY AT 10%. IN VIEW OF THIS WE HOLD THAT ADDITION MADE BY AND SUSTAINED BY CIT(A) IS REASONABLE AND CONFIRMED. 39. GROUND NO.3 RELATES TO DISALLOWANCE OF INTEREST TO SHROFF. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES. IN OUR CONSIDERED VIEW NO SEPARATE ADDITION IS CALLED FOR WHERE NET PROFIT AD DITION IS MADE. WE CONSIDERED THIS ADDITION AS NET PROFIT AND THEREFO RE FURTHER ADDITION IN RELATION TO VARIOUS ITEMS IN TRADING ACCOUNT OR PRO FIT AND LOSS ACCOUNT IS NOT REQUIRED. AS A RESULT THIS GROUND OF ASSESSEE IS ALLOWED. 40. GROUND NOS.4 & 5 ARE GENERAL IN NATURE AND THEY DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 41. THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.4466/AHD/2007 ASST. YEAR 2005-06 42. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE REJECTION OF HOOKS OF A CCOUNTS OF THE APPELLANT AND HENCE YOUR PETITIONER PRAYS THAT THE ORDER OF THE LD. CIT HE SET ASIDE ON THIS POINT AND THE LD AC'IT BE DIRECTED TO ACCEPT THE HOOKS OF ACCOUNTS OF THE APPELLANT. 2. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN RETAINING THE ADDITION LO THE EXTENT O F RS. 7.91 850/- ON ACCOUNT OF THE ALLEGED LOW GP AND HENCE YOUR PETITI ONER PRAYS THAT THE SAME HE DELETED. 17 3. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE 1 D (.]|'L (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 31 303/- OUT OF CHARITY AND DONATION AND HENCE YOUR PETITIONER PRAY S THAT THE SAME HE DELETED. 4. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE EA SE THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS 57.5 10/- OUT OF DEPRECIATION AND HENCE YOUR PETITIONER PRAYS THAT T HE SAME BE DELETED 5. YOUR PETITIONER PRAYS THAT ALL OTHER RELIEF(S) A ND REBATES AS MAY BE ALLOWABLE TO IT UNDER THE THEN EXISTING PROVISIONS OF THE ACT BE ALLOWED TO IT. 6. YOUR PETITIONER CHALLENGES ALL THE ADDITIONS DISALLOWANCES AND THE LEVY OF INTERESTS UNDER VARIOUS SECTIONS AND PRAYS THAT THE RETURN OF INCOME FILED BY IT BE ACCEPTED. 43. GROUND NOS.1 & 2 RELATES TO REJECTION OF BOOKS AND ESTIMATION OF PROFITS. FOR THE REASONS DISCUSSED BY US IN ASST. Y EAR 2002-03 TO 2004-05 WE CONFIRM THE REJECTION OF BOOKS BECAUSE STATE OF ACCOUNTS REMAINS THE SAME. THE ASSESSEE DID NOT PRODUCE BASIC RECORDS AN D THEREFORE IT WAS NOT POSSIBLE FOR THE AO TO DEDUCE INCOME CORRECTLY. 44. REGARDING APPLICATION OF GP RATE WE FIND THAT G P SHOWN BY THE ASSESSEE IS 68.82 LACS ON NET RECEIPT OF RS.7.91 CR ORES AS COMPARED TO ASST. YEAR 2004-05 WHERE REVENUE RECEIPTS WERE OF R S.15.44 CRORES GP OF 55.82 LACS GIVING A RATE OF 10.37%. THE AO AFTER EXAMINING THE RECORDS MADE THE ADDITION OF RS.7 91 850/-. HE FOUN D THAT FALL IN GP IS ABOUT 1.79%. HE ALLOWED A MARGIN DUE TO INCREASE IN PRICES OF PETROLEUM PRODUCTS AND ENHANCED THE GP BY 1% WHICH RESULTED THE ABOVE ADDITION. THE LD. CIT(A) CONFIRMED THE ADDITION FOR THE REASO NS FOLLOWING HIS ORDERS FOR EARLIER YEARS. 18 45. WE HAVE HEARD THE PARTIES. FOR THE REASONS MENT IONED BY US IN ASST. YEAR 2003-04 & 2004-05 WE CONFIRM THE REJECTI ON OF BOOKS. STATE OF BOOKS REMAINED THE SAME. BASIC RECORDS WERE NOT PRODUCED. THIS GROUND OF ASSESSEE IS REJECTED. 46. REGARDING APPLICATION OF RATE WE FIND THAT ENHA NCEMENT BY 1% IS QUITE REASONABLE BECAUSE IF WE CONSIDER IT FROM THE NET PROFIT POINT OF VIEW THEN ON TOTAL RECEIPT OF RS.7.91 CRORES DECLAR ED INCOME IS RS.48 26 150/-. IF TO THIS ADDITION OF RS.9 91 850/ - IS MADE THEN TOTAL INCOME WOULD BE RS.56 18 000/- WHICH IF DIVIDED BY 7.91 CRORE WILL GIVE A NET PROFIT OF 7.1% WHICH IS REASONABLE AS COMPARE D TO THE NET PROFIT OF RATE COMPARED WITH EARLIER YEAR. ACCORDINGLY THE AD DITION IS CONFIRMED. THIS GROUND OF ASSESSEE IS REJECTED. HOWEVER FOR T HE REASONS MENTIONED BY US IN ASST. YEAR 2003-04 & 2004-05 THE ADDITION OF RS.31 303/- AND DEPRECIATION OUT OF CHARITY AND DONATION IS NOT CAL LED FOR AS NO FURTHER ADDITION OUT OF PROFIT AND LOSS ACCOUNT SHOULD BE MADE ONCE BOOKS ARE REJECTED. THIS GROUND OF ASSESSEE IS ALLOWED. 47. REGARDING CLAIM OF DEPRECIATION LD. AR DID NOT PRESS THE GROUND HENCE IT IS REJECTED. 48. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLO WED. ITA NO.2356/AHD/2006 ASST. YEAR 2001-02(ASSESSEES APPEAL) 49. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAI NST CONFIRMATION OF LEVY OF PENALTY OF RS.3 89 426/- UNDER SECTION 271( 1)(C). 19 50. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXECUTION OF VAR IOUS CIVIL CONTRACTS RELATING TO ROADS AND EARTH-WORK. DURING THE ASST. YEAR 2001-02 AO MADE FOLLOWING ADDITIONS :- -DISALLOWANCE U/S 40A(3) RS.10 000/- -DISALLOWANCE U/S 69C RS.4 67 112/- -DISALLOWANCE U/S 40A(2)(B) RS.5 17 531/- -DISALLOWANCE OF INTEREST RS.8 05 635/- THE AO ISSUED SHOW CAUSE NOTICE FOR LEVY OF PENALTY IN RESPECT OF THESE ADDITIONS. IN RESPONSE TO THIS ASSESSEE REQUIRED TH E AO TO KEEP THE PROCEEDINGS IN ABEYANCE BUT THE AO PROCEEDED TO LE VY THE PENALTY. HE TOOK INTO CONSIDERATION THE COMMENTS MADE BY CIT(A) IN RESPECT OF ADDITION OF RS.4 67 112/- BEING ON ACCOUNT OF DISAL LOWANCE OF UNEXPLAINED EXPENDITURE U/S 69C AND IN RESPECT OF D ISALLOWANCE U/S 40A(2)(B). ACCORDING TO THE LD. AO THE CLAIM OF EXP ENDITURE TO PANKAJ CONTRACTOR WAS NOT GENUINE AND EXCESS PRICE HAS BEE N PAID TO THE SISTER CONCERN NAMELY VIJAY QUARRY FOR PURCHASE OF MATERIA L AND THIS HAS LED TO DIVERSION OF INCOME OF THE ASSESSEE TO VIJAY QUARRY AND AGAINST WHICH THAT SISTER CONCERN HAS CLAIMED HEAVY DEPRECIATION. 51. LD. CIT(A) CONFIRMED THE LEVY OF PENALTY. HE OB SERVED IN RESPECT OF TWO ITEMS FOR LEVY OF PENALTY AS UNDER :- 2.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE OBSERVATIONS OF THE AO. FROM THE FACTS DISCUSSED BY THE AO AND AS STATED ABOVE IT IS CLEAR THAT THE APPELLANT HAS FAILED TO PROVE THE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED IN RESPECT OF TWO BIL LS PAID TO M/S PANKAJ CONTRACTOR. THIS EXPLANATION OFFERED BY THE APPELLA NT IS HIGHLY UNBELIEVABLE THAT A CONTRACTOR FROM JHARKHAND OPERA TING IN JHARKHAND WOULD COME AND DO A JOB OF RS.4.67 LACS IN GUJARAT. IN ANY CASE THE APPELLANT HAS FAILED TO PROVIDE CREDIBLE EVIDENCE I N THIS REGARD. MERELY PRODUCING A LETTER HAVING ADDRESS OF SOME VILLAGE D OES NOT ESTABLISH SUFFICIENT AND CREDIBLE EVIDENCE. SIMILARLY THE AP PELLANT HAS FAILED TO 20 SHOW THAT KAPCHI WHICH IS USED FOR ROAD CONSTRUCTIO N IS ANYTHING BUT STONE AND THAT ITS QUALITY IS BETTER THAN PURCHASED THAT FROM OUTSIDE PARTIES. THE APPELLANT HAS PURCHASED FOR RS.270/- F ROM OUTSIDE PARTIES AND FROM SISTER CONCERN THE SAME IS PURCHASED AT RS .475/-. NO CREDIBLE EVIDENCE TO SHOW THAT A BETTER QUALITY WAS REQUIRED AND BETTER QUALITY WAS INDEED RECEIVED HAS BEEN SHOWN. FROM THIS IT IS CLE AR THAT THE APPELLANT HAS TRIED TO CONCEAL ITS INCOME BY DELIBERATELY INC LUDING EXPENDITURE WHICH IT HAS NOT BEEN ABLE TO PROVE. WITH RESPECT T O THE POSITION OF LAW FOR LEVY OF PENALTY THE LEGAL POSITION IS AS UNDER: 52. IT SEEMS THAT THERE IS NO FINDING OF LD. CIT(A) IN RESPECT OF LEVY OF PENALTY ON ADDITION OF RS.5 17 531 MADE UNDER SECTI ON 40A(2)(B). HE HAS HOWEVER DISCUSSED SEVERAL AUTHORITIES FOR THE FOLLOWING PROPOSITIONS : (1) WHEREVER THERE IS A DIFFERENCE BETWEEN THE RE TURNED AND ASSESSED INCOME THERE IS AN INFERENCE OF CONCEALME NT AS A RULE OF LAW (2) THE RESPONSIBILITY FOR REBUTTING SUCH INFE RENCE IS SQUARELY ON THE TAX PAYER (3) THE ASSESSEE IS EXPECTED TO OFFER AN EXP LANATION FOR THE DIFFERENCE. ABSENCE OF ANY EXPLANATION BY ITSELF WILL MERIT PENALTY. (4) THE EXPLANATION WHERE OFFERED SHOULD NOT BE FOUND TO BE FALSE. (5) MERELY BECAUSE THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE HIS EXPLANATION PENALTY MAY NOT BE EXIGIBLE IF SUCH E XPLANATION IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY HIM. ACCORDING THE LD. CIT(A) LEVY OF PENALTY IS JUSTIFI ED IF ADDITION REPRESENTS REAL INCOME. HE RELIED ON THE DECISION OF HON. GUJA RAT HIGH COURT IN THE CASE OF NATIONAL TEXTILES VS. CIT 249 ITR 125 (GUJ) . FURTHER ACCORDING TO HIM THE RESPONSIBILITY FOR REBUTTING THE INFERENCE IS SQUARELY ON THE 21 ASSESSEE AND HE IS EXPECTED TO OFFER AN EXPLANATION FOR THE ADDITION. IF THE EXPLANATION IS NOT VALID THE PENALTY IS LEVIABLE. H E THEN RELIED ON THE DECISION OF HON. MADHYA PRADESH HIGH COURT IN THE C ASE OF M/S D & H SECHERON ELECTRODES (P) LTD. VS. CIT 144 TAXMAN 689 (2005) (M.P.) FOR THE PROPOSITION THAT WHERE SUPPRESSION WAS WITHIN T HE KNOWLEDGE OF THE ASSESSEE THEN LEVY OF PENALTY WOULD BE JUSTIFIED. H E ACCORDINGLY DISMISSED THE APPEAL FILED BY THE ASSESSEE. 53. BEFORE US LD. AR FOR THE ASSESSEE SUBMITTED THA T THERE IS NO ALLEGATION AGAINST THE ASSESSEE THAT ASSESSEE HAS C ONCEALED ANY INCOME OR FURNISHED ANY INACCURATE PARTICULARS OF INCOME. ASS ESSEE HAS FURNISHED AN EXPLANATION IN RESPECT OF THE ADDITION. SUCH EXPLAN ATION HAS NOT BEEN FOUND FALSE AND FURTHER THERE IS NO ALLEGATION THAT SUCH EXPLANATION IS NOT BONA FIDE OR ASSESSEE HAS SUPPRESSED ANY MATERIAL F ACT. ONCE THIS IS SO THE PENALTY CANNOT BE LEVIED EITHER UNDER THE MAIN PROVISIONS OR UNDER THE EXPLANATION. WHERE ADDITIONS ARE ON ESTIMATE BASIS NO PENALTY CAN BE LEVIED IN VIEW OF THE FOLLOWING DECISIONS :- (1) CIT VS. RAVAIL SINGH & CO.(2002) 254 ITR 191 ( P & H) (2) CIT VS. PREM DAS (2001) 248 ITR 234 (P & H) (3) JHAVAR PROPERTIES (P) LTD. VS. ACIT (2009) 317 ITR (AT) 0278 (ITAT MUM) (4) CIT VS. SANGRUR VANASPATI MILLS LTD. (2008) 303 ITR 53 (P & H) (5) CIT VS. VALMIKBHAI H. PATEL (2006) 280 ITR 487 (GUJ) 54. AGAINST THIS LD. DR RELIED ON THE ORDER OF CIT( A). 55. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW PENALTY CANNOT BE LEVIED UNDER THE 22 PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. IN RES PECT OF FIRST ADDITION THE MATTER HAS BEEN RESTORED TO THE FILE OF AO FOR MAKING ENQUIRIES AFRESH AND THEREFORE NO PENALTY IS LEVIABLE. IF AFTER CA RRYING OUT ENQUIRIES AO CONSIDERS IT NECESSARY HE CAN INITIATE PENALTY PROC EEDINGS AFRESH IN THE REASSESSMENT ORDER. 56. REGARDING SECOND ADDITION WE NOTICE THAT LD. CI T(A) HAS NOT OFFERED ANY COMMENT. PROBABLY HE HAS OMITTED TO MAK E DISCUSSION ON THE ISSUE. NOTWITHSTANDING THERE IS NO MATERIAL ON RECO RD TO SUGGEST THAT ASSESSEE HAS MADE EXCESSIVE PAYMENT DISALLOWABLE UN DER SECTION 40A(2)(B). DISALLOWANCE HAS BEEN MADE BY ESTIMATE W HICH HAS BEEN REDUCED BY THE TRIBUNAL IN THE QUANTUM ORDER BUT FO R THAT REASON ALONG NO CASE CAN BE MADE OUT FOR THE LEVY OF PENALTY. ESTIM ATE MADE BY THE AO HAS BEEN SUPERSEDED BY THE ESTIMATE MADE BY THE TRI BUNAL. THERE IS NOTHING TO SUGGEST THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED ANY INACCURATE PARTICULARS OF INCOME. EVEN IN THE QUANTUM ADDITION IT IS NOT SHOWN THAT SAME MATERIAL HAS BEE N PURCHASED BY THE PARTY FROM THE OTHER PARTIES AT LOWER RATE AS COMPA RED TO THAT FROM THE SISTER CONCERN. NECESSARY ENQUIRIES FROM THE OUTSID E PARTIES HAVE NOT BEEN CARRIED OUT TO SHOW THAT THE MATERIAL PURCHASED BY THE ASSESSEE FROM THE OUTSIDE PARTIES WAS OF THE SAME GRADE AND QUALITY A S PURCHASED FROM SISTER CONCERN. THEREFORE THERE BEING NO CASE OF FURNISHI NG INACCURATE PARTICULARS OF INCOME OR OF CONCEALING INCOME RESU LTING INTO LEVY OF PENALTY UNDER THE MAIN PROVISIONS. WHEN WE APPLY EX PLANATION-1 TO SECTION 271(1)(C) TO THE FACTS OF THE PRESENT CASE WE NOTICE THAT ASSESSEE HAS SOUGHT TO KEEP THE PENALTY PROCEEDINGS IN ABEYA NCE WHICH WAS REJECTED BY THE AO. UNDER THESE CIRCUMSTANCES EXPLA NATION FURNISHED BY THE ASSESSEE DURING QUANTUM PROCEEDINGS SHOULD HAVE BEEN CONSIDERED. IT 23 HAS BEEN EXPLAINED BY THE ASSESSEE THAT RATES CHARG ED BY SISTER CONCERN ARE AS PER MARKET RATES AND NO EXCESSIVE PAYMENT HA S BEEN MADE. 57. FURTHER FOR INVOKING EXPLANATION-1 TO SECTION 2 71(1)(C) THE DEPARTMENT IS REQUIRED TO SHOW THAT ALL THE THREE I NGREDIENTS MENTIONED IN EXPLANATION-1B ARE SATISFIED. THESE INGREDIENTS ARE (I) THE ASSESSEE HAS OFFERED HIS EXPLANATION WHICH IS NOT BELIEVED TO SU BSTANTIATE; (II) HE FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE; (III) THAT ALL THE FACTS RELATING TO THE EXPLANATION AND MATERIAL TO THE COMPUTATION OF TOTAL INCOME HAVE NOT BEEN DISCLOSED BY THE ASSESSEE. UNLESS THE AO G IVES A FINDING ON THE BASIS OF MATERIAL ON RECORD THAT ALL THESE CONDITIO NS ARE CUMULATIVELY AND SIMULTANEOUSLY SATISFIED PENALTY UNDER SECTION 271 (1)(C) READ WITH EXPLANATION 1B CANNOT BE LEVIED. IN THE INSTANT CAS E THERE WAS AN EXPLANATION FROM THE ASSESSEE THAT RATES PAID TO TH E SISTER CONCERN WERE COMMERCIAL RATES. THIS EXPLANATION IS APPARENTLY BO NA FIDE INASMUCH AS THERE IS NO MATERIAL TO SHOW THAT IT WAS EITHER FAL SE OR INCORRECT. WHEN AN EXPLANATION IS FURNISHED BY AN ASSESSEE UNLESS THER E IS APPARENT CONTRADICTION OR CONTRADICTION WITH MATERIAL AVAILA BLE ON RECORD PRESUMPTION GOES THAT SUCH AN EXPLANATION IS BONA F IDE. IT IS FOR THE AO TO SHOW BY COMPARING VARIOUS INGREDIENTS FACTS OR AS SERTION MADE IN THE EXPLANATION FURNISHED BY THE ASSESSEE WITH THE MAT ERIAL AVAILABLE ON RECORD OR COLLECTED ON ENQUIRY THAT EXPLANATION SO FURNISHED IS EITHER NOT BONA FIDE OR INACCURATE OR FALSE. MERELY NOT CONSI DERING OR REJECTING EXPLANATION CANNOT TURN THE EXPLANATION MALA FIDE. SIMILARLY THERE IS NO FINDING OF THE AO OR LD. CIT(A) THAT ASSESSEE HAS N OT BEEN ABLE TO SUBSTANTIATE WHAT HE HAS CLAIMED DURING QUANTUM PRO CEEDINGS. THERE IS ALSO NOTHING ON RECORD TO SUGGEST THAT ASSESSEE HAS NOT FURNISHED RELEVANT MATERIAL NECESSARY FOR ASSESSMENT. IN VIEW OF THIS NO PENALTY CAN BE 24 LEVIED FOR CONCEALMENT OF INCOME OR FOR FILING INAC CURATE PARTICULARS OF INCOME. 58. OUR VIEW IS SUPPORTED BY VARIOUS DECISIONS REFE RRED BY THE ASSESSEE ABOVE. HON. GUJARAT HIGH COURT IN THE CASE OF NATIO NAL TEXTILE CORPORATION (SUPRA) OBSERVED THAT IN ORDER TO JUSTI FY THE LEVY OF PENALTY TWO FACTORS MUST CO-EXIST (I) THERE MUST BE SOME MA TERIAL OR CIRCUMSTANCES LEADING TO THE REASONABLE CONCLUSION THAT THE AMOUNT THUS REPRESENTS ASSESSEES INCOME. IT IS NOT ENOUGH FOR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSESSED AS INCOME AND (II ) SECONDLY THE CIRCUMSTANCES MUST SHOW THAT THERE WAS ANIMOUS I.E. CONSCIOUS CONCEALMENT OR ACT OF FURNISHING INACCURATE PARTICU LARS ON THE PART OF THE ASSESSEE. EXPLANATION-1 TO SECTION 271(1)(C) DOES N OT AFFECT FACTOR NO.(I) BUT HAS A BEARING ON FACTOR NO. (II). EXPLANATION - 1 TO SECTION 271(1)(C) DOES NOT MAKE THE ASSESSMENT ORDER A CONCLUSIVE EVI DENCE THAT AMOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. NO PENALTY CAN BE IMPOSED IF THE FACTS AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE HYPOTHESIS THAT AMOUNT DOES NOT REPRESENT CONCEALED INCOME WITH THE HYPOTHESIS THAT IT DOES. WHERE THE EXPLANATION FURN ISHED BY THE ASSESSEE HAS NOT DISPROVED THOUGH REMAINED UNPROVED THE EXP LANATION-1 TO SECTION 271(1)(C) CANNOT HELP THE DEPARTMENT BECAUS E THERE WILL NOT BE ANY MATERIAL TO SHOW THAT THE AMOUNT IN QUESTION WA S AN INCOME OF THE ASSESSEE. 59. THE DECISION IN THE CASE OF NATIONAL TEXTILE CO RPORATION PERTAIN TO ASST. YEAR 1974-75 AND AFTER AMENDMENTS MADE IN SEC TION 271 WITH EFFECT FROM 1.4.1975 THE QUESTION OF PROVING ANIMOU S IS NO LONGER NECESSARY WHICH IS ALSO SO HELD BY HON. SUPREME COU RT IN UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS (2008) 306 ITR 27 7 (SC) HOLDING THAT 25 LEVY OF PENALTY IS ONLY A CIVIL LIABILITY AND WILLF UL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENTS TO BE ESTABLISHED BEFORE LEVY OF PENALTY FOR CONCEALMENT. IN VIEW OF THIS MERELY REJECTING THE E XPLANATION OF THE ASSESSEE AND RELYING ON THE ADDITION MADE THAT TOO MADE ON ESTIMATE BASIS WILL NOT BE SUFFICIENT FOR ATTRACTING PENALT Y FOR CONCEALMENT. THERE CANNOT BE ANY COMPROMISE WITH THE FIRST FACTOR ELAB ORATED BY HON. GUJARAT HIGH COURT IN THE CASE OF NATIONAL TEXTILE CORPORATION (SUPRA). IN OTHER WORDS REVENUE HAS TO BRING SOME MATERIAL TO S HOW THAT WHAT WAS ADDED BY THE AO WAS IN FACT ASSESSEES INCOME AND T HAT EVEN THOUGH THE ADDITION IS MADE ON ESTIMATE BASIS EXPLANATION FURN ISHED BY THE ASSESSEE IS NOT BONA FIDE OR IT IS NOT SUBSTANTIATED AND THA T IT HAS SUPPRESSED ANY MATERIAL FACT NECESSARY FOR ASSESSMENT. WE MAKE IT CLEAR THAT EVEN WHERE AN ADDITION IS MADE ON ESTIMATE BASIS IT MAY INVITE LEVY PENALTY. IT DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AVAILABILITY OF INCRIMINATING MATERIAL COLLECTED BY THE REVENUE TO SHOW THE FALSITY OF THE CLAIM OF THE ASSESSEE OR WRONGLY SUBSTANTIATING EXP LANATION OR SUPPRESSION OF MATERIAL FACT. IN VIEW OF THIS WE C ANCEL THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD. CIT(A). APPEAL O F ASSESSEE IS ALLOWED. ITA NO.3566/AHD/2008 ASST. YEAR 2004-05 (REVENUES APPEAL) 60. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF LD. CIT(A). IN THIS CASE PENALTY HAS BEEN CANCELLED LEV IED BY AO FOR A SUM OF RS.3 86 102/- IN RESPECT OF ADDITION OF RS.10 76 243/- MADE ON ACCOUNT OF LOW GP. 61. WE HAVE HEARD THE LD. DR & LD. AR. FOR THE REAS ONS DISCUSSED BY US IN THE ASST. YEAR 2001-02 WE HOLD THAT IN ABSEN CE OF ANY POSITIVE 26 MATERIAL SHOWING THAT ADDITION MADE BY THE AO WAS I N FACT ASSESSEES INCOME PENALTY CANNOT BE LEVIED. WE RELY ON OUR RE ASONS AND AUTHORITIES REFERRED TO BY US WHILE DISPOSING OF THE APPEAL IN ASST. YEAR 2001-02 ON THE QUESTION OF LEVY OF PENALTY UNDER SECTION 271(1 )(C). AS A RESULT WE UPHOLD THE CANCELLATION OF PENALTY BY LD. CIT(A) AN D DISMISS THE APPEAL FILED BY THE REVENUE. ITA NO.308/AHD/2009 ASST. YEAR 2003-04 (REVENUES A PPEAL) 62. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) RESTRICTING THE LEVY OF PENALTY OF RS.3 64 9 27/- LEVIED BY THE AO U/S 271(1)(C) ON AN ADDITION OF RS.10 00 000/-. 63. WE HAVE HEARD THE LD. DR & LD. AR. FOR THE REA SONS DISCUSSED BY US IN THE ASST. YEAR 2001-02 WE HOLD THAT IN ABSEN CE OF ANY POSITIVE MATERIAL SHOWING THAT ADDITION MADE BY THE AO WAS I N FACT ASSESSEES INCOME PENALTY CANNOT BE LEVIED. WE RELY ON OUR RE ASONS AND AUTHORITIES REFERRED TO BY US WHILE DISPOSING OF THE APPEAL IN ASST. YEAR 2001-02 ON THE QUESTION OF LEVY OF PENALTY UNDER SECTION 271(1 )(C). AS A RESULT WE UPHOLD THE ORDER OF LD. CIT(A) IN CANCELING THE PEN ALTY. THE APPEAL OF REVENUE IS DISMISSED. SIMILAR VIEW HAS BEEN TAKEN B Y THE TRIBUNAL MUMBAI BENCH IN THE CASE OF JHAVAR PROPERTIES (P) L TD. VS. ACIT (SUPRA). 64. IN THE RESULT ASSESSEES APPEAL NOS.2625 & 647 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES APPEAL NOS.2357 3840 & 4 466 ARE PARTLY 27 ALLOWED APPEAL NO.2356 IS ALLOWED AND REVENUES AP PEAL NOS.308 & 3566 ARE DISMISSED. SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 12/2/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 12/2/2010