M/s. Rekha Construction Company, Surat v. The ACIT.,Cent.Circle-2,, Surat

ITA 435/AHD/2009 | 2002-2003
Pronouncement Date: 22-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 43520514 RSA 2009
Assessee PAN AAEFR4596G
Bench Ahmedabad
Appeal Number ITA 435/AHD/2009
Duration Of Justice 2 year(s) 5 month(s) 11 day(s)
Appellant M/s. Rekha Construction Company, Surat
Respondent The ACIT.,Cent.Circle-2,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 22-07-2011
Date Of Final Hearing 20-07-2011
Next Hearing Date 20-07-2011
Assessment Year 2002-2003
Appeal Filed On 10-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND A. MOHAN ALAN KAMONY AM) ITA NO.433 434 435 436 AND 437/AHD/2009 A. Y.: 1999-2000 2000-01 2002-03 2003-04 AND 2004 -05 M/S. REKHA CONSTRUCTION COMPANY SAGAR HOUSE MEZZANINE FLOOR PARSHWA NAGAR COMPLEX KAILASH NAGAR SURAT VS THE A. C. I. T. CENT. CIRCLE-2 SURAT PA NO. AAEFR 4596 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI MIHIR GANDHI AR RESPONDENT BY SHRI P. R. GHOSH DR O R D E R PER BENCH: ALL THE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST TWO DIFFERENT ORDERS OF THE LEARNED CIT(A)- II AHMEDABAD DATED 01-10-2008 FOR THE ABOVE ASSESSMENT YEARS. 2. THE LEARNED CIT(A) DISPOSED OF ALL THE APPEALS F OR ASSESSMENT YEARS 1999-2000 2000-01 2002-03 AND 2003-04 THROU GH COMMON ORDER AND THE APPEAL FOR ASSESSMENT YEAR 2004-05 WA S DECIDED VIDE SEPARATE ORDER OF THE EVEN DATE. THE ISSUES ARE COM MON IN ALL THE APPEALS THEREFORE ALL THE APPEALS WERE HEARD TOGE THER AND WE DISPOSE OF THE SAME THROUGH THIS COMMON CONSOLIDATE D ORDER. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 2 4. BRIEFLY THE FACTS OF THE CASE ARE THAT IN THE C ASES OF SAGAR BUILDER GROUP SEARCH OPERATION U/S 132 OF THE IT A CT WAS CARRIED OUT AT VARIOUS PLACES ON 10-12-2003 TO 30-12-2003. ASSE SSMENT PROCEEDINGS FOR THE ASSESSMENT YEARS UNDER APPEAL W ERE INITIATED U/S 153C OF THE IT ACT BY ISSUING NOTICE AGAINST THE AS SESSEE. THE ASSESSEE IN RESPONSE TO THE NOTICE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AS PER THE ORIGINAL RETURN FILED. THE AO FURTHER NOTED THA T WHILE SCRUTINIZING THE SEIZED MATERIALS AND DETAILS FILED BY THE ASSES SEE THE AO CONCLUDED THAT COMPLEXITY IS INVOLVED IN THE ACCOUN TING OF THE ASSESSEE THEREFORE THE AO PASSED THE ORDER U/S 14 2(2A) OF THE IT ACT WITH THE APPROVAL OF THE COMMISSIONER OF INCOME TAX DIRECTING THE ASSESSEE TO GET ITS ACCOUNTS AUDITED. THE ASSES SEE FILED AUDIT REPORT U/S 142 (2A) OF THE IT ACT. IT IS FURTHER NO TED BY THE AO THAT DURING THE COURSE OF SEARCH THE GROUP HAS DISCLOSED IN THE HANDS OF THEIR CONCERNS NAMELY M/S. PATDI COMMERCIAL AND INV ESTMENT CO. LTD. RS. 3 00 00 000/- AND IN THE HANDS OF M/S. VIB HA CONSTRUCTION CO. RS.25 00 000/- TOTALING TO RS.3 25 00 000/-. TH E AO FRAMED THE ASSESSMENTS FOR ALL THE YEARS AND THE MATTER REMAIN ED IN APPEAL BEFORE THE LEARNED CIT(A) WHO HAS DISMISSED ALL THE APPEALS OF THE ASSESSEE. THE ASSESSEE IS IN APPEAL IN ALL THE YEAR S RAISING VARIOUS ISSUES. THEREFORE ALL THE APPEALS ARE DECIDED ISSU E WISE AS UNDER. ISSUE NO.1 5. ON ISSUE NO.1 THE ASSESSEE CHALLENGED IN ALL TH E ASSESSMENT YEARS REJECTION OF BOOK RESULTS U/S 145 OF THE IT A CT APPLICATION OF NET ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 3 PROFIT RATE OF 10% ON THE SALES AND APPLYING THE PR OVISIONS OF SECTION 44AD OF THE IT ACT IN ESTIMATING THE PROFIT. 5.1 THE AO NOTED THAT THE ASSESSEE HAS FILED AUDIT REPORT U/S 142 (2A) OF THE IT ACT. IT WAS SEEN THAT THE AUDITOR HAS NOT PREPARED ANY FINAL ACCOUNTS IN THIS CASE. NO MAJOR DEFECTS HAVE BEEN POINTED OUT. HOWEVER THE COMMON COMMENTS OF THE AUDITOR FOR ALL THE YEARS ARE - (I) QUANTITATIVE DETAILS ARE NOT PRODUCED FOR VERIF ICATION IN RESPECT OF THE ACTIVITIES OF THE ASSESSEE. (II) AS APPEARED FROM THE SUBMISSION OF RECORDS PH YSICAL VERIFICATION IS NOT CONDUCTED IN RESPECT OF RAW MAT ERIALS STORES AND FINISHED PRODUCTS. (III) NO VERIFICATION COULD BE CARRIED OUT IN RESPE CT OF PAYMENTS OTHER WISE THAN BY CROSSED CHEQUES OR BANK DRAFTS. (IV) THERE ARE CERTAIN CASH PAYMENTS VIOLATING THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT. (V) NO EVIDENCES REGARDING INVESTMENTS ARE PRODUCED . (VI) THERE IS A NEGATIVE CASH BALANCE ON VARIOUS DA TED MAXIMUM AMOUNT IS RS.24 361/- IN ASSESSMENT YEAR 2004-05. HOWEVER IT WAS CERTIFIED THAT TRUE AND CORRECT REG ULAR RETURN OF INCOME ARE FILED ALONG WITH INCOME AND EXPENDITURE AND THERE WERE ONLY FEW TRANSACTIONS WITHIN THE GROUP WHICH HAVE N O IMPLICATION ON THE INCOME OF THE ASSESSEE FIRM. FUND FLOW STATEMEN TS OF CASH AND BANK ACCOUNTS HAVE BEEN DRAWN. INCOME EARNED IS NOT COMPUTED. ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 4 THE ASSESSEE FIRM IS A BUILDER AND CONTRACTOR AND D URING THE ASSESSMENT YEARS UNDER APPEAL IT HAS CARRIED OUT TH E PROJECT AS BUILDER AND DEVELOPER NAMELY SHIVANJALI TOWERS OF 3 2 FLATS AND SMALL PROJECT OF SHOPS IS CONSTRUCTED AT PARVATGAM. THE D ETAILS OF CONSTRUCTION SALES PROFIT ETC. FOR ALL THE YEARS WERE FILED WHICH ARE NOTED IN THE ASSESSMENT ORDER. THE INTEREST AND REM UNERATION IS NOT PAID TO THE PARTNERS. THERE IS NO CONSISTENCY IN TH E PROFIT EARNING RATIO OVER THE SALES OF THE UNITS BY THE ASSESSEE. IN THE ASSESSMENT YEAR 2002-03 THE ASSESSEE HAS CARRIED OUT CONTRACT WORK OF RS.32 LACS. LIKEWISE IN THE ASSESSMENT YEARS THE ASSESSEE FIR M HAS EXPLOITED ITS STOCK IN TRADE AND HAS EARNED RENTAL INCOME. FO R THE ASSESSMENT YEAR THE ASSESSEE FIRM HAS TAKEN ONE PREMISES ON R ENT MADE SOME ADDITION/ALTERATIONS IN IT IN THE FORM OF FURNITURE AND TABLE SPACE WHICH IS RENTED. FOR ALL SUCH ACTIVITIES NO SEPARATE ACCO UNTS ARE MAINTAINED FROM WHICH INCOME COULD BE COMPUTED. THE AO ON THE BASIS OF THESE OBSERVATIONS AND FINDING IN THE ASSESSMENT ORDER FO UND THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNT S. SHOW-CAUSE NOTICE WAS GIVEN TO THE ASSESSEE WHY THE BOOK RESUL TS SHOULD NOT BE REJECTED AND NET PROFIT BE ESTIMATED. THE REPLY OF THE ASSESSEE WAS HOWEVER NOT FOUND ACCEPTABLE. FOR ALL THE YEARS TH E AO REJECTED THE BOOK RESULTS AND NET PROFIT WAS ESTIMATED AT 10% OF THE SALES OF SHIVANJALI TOWERS 10% ON CONTRACT RECEIPT 10 OF O THER INCOME EARNED IN THE FORM OF RENT AND RENTED PROPERTY AND 100% RENT RECEIVED ON EXPLOITATION OF BUSINESS STOCK AS IT FO RM BUSINESS INCOME. RELATED EXPENSES WHICH MAY BE VERY MEAGER WERE COVERED IN THE PROJECT EXPENDITURE. SUBJECT TO THIS INCOME OF THE ASSESSEE WAS COMPUTED IN ALL THE ASSESSMENT YEARS AS UNDER: ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 5 A. Y. AMOUNT (RS.) 1999-2000 16 82 440/- 2000-2001 6 36 000/- 2002-2003 1 21 450/- 2003-2004 5 31 795/- 2004-2005 1 78 894/- 5.2 THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A ) THAT THERE WAS NO MAJOR DEFECT IN THE AUDIT REPORT THEREFORE BOOK RESULTS SHOULD NOT BE REJECTED. NO SPECIFIC DEFECTS HAVE BEEN POIN TED OUT; THEREFORE ESTIMATION OF PROFIT BY APPLYING 10% IS UNJUSTIFIED . THE LEARNED CIT(A) CONSIDERING THE AUDITORS COMMENT IN THE AUDIT REP ORT AND FINDING OF THE AO THAT THERE WAS NO CONSISTENCY IN PROFIT EARN ING RATIO OVER THE SALES OF UNITS CONFIRMED THE REJECTION OF THE BOOK RESULTS. THE LEARNED CIT(A) ALSO NOTED THAT THE ASSESSEE IS A BUILDER AN D CONTACTOR AND AS PER SECTION 44AD OF THE IT ACT IN THE BUSINESS OF CIVIL CONSTRUCTION 8% OF GROSS RECEIPT IS TO BE ESTIMATED AS INCOME AN D IT INCLUDES ALLOWANCE OF ALL THE EXPENSES INCLUDING DEPRECIATIO N. IT WAS ALSO NOTED THAT ALTHOUGH THIS PROVISION IS APPLICABLE FO R THE ASSESSEE HAVING TURNOVER BELOW RS.40 LACS BUT IT IS REASONA BLE TO APPLY 8% RATE TO THE ASSESSEE HAVING TURNOVER OVER RS.40 LAC S. THEREFORE CONSIDERING THE ASSESSEE IS A BUILDER AND INVOLVED IN CONSTRUCTION ACTIVITY ACTION OF THE AO WAS FOUND JUSTIFIED APPL YING 10% NET PROFIT RATE. APPEALS OF THE ASSESSEE ON THIS ISSUE WERE AC CORDINGLY DISMISSED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ASSESSEE MAINTAINED BOOKS OF ACCOUNTS AND NO SP ECIFIC DEFECTS ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 6 HAVE BEEN POINTED OUT BY THE SPECIAL AUDITOR AND NO ADVERSE COMMENTS HAVE BEEN GIVEN IN THE AUDIT REPORT U/S 14 2(2A) OF THE IT ACT. THEREFORE BOOK RESULTS SHOULD NOT BE REJECTED . HE HAS SUBMITTED THAT THE PROVISIONS OF SECTION 44 AD OF THE IT ACT WOULD NOT APPLY TO THE CASE OF THE ASSESSEE BECAUSE THE TURNOVER EXCE EDS RS.40 LACS WHICH IS ALSO ADMITTED BY THE LEARNED CIT(A) AND RE LIED UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHRI RAM JHANWAR LAL VS ITO 10 DTR 229 IN WHICH IT WAS HELD THAT WHEN GROSS RECEIPTS OF THE ASSESSEE CONTRACTOR IS MORE T HAN RS.40 LACS SECTION 44AD AS SUCH IS NOT APPLICABLE NOR T HE PRINCIPLE UNDERLYING SECTION 44AD COULD BE APPLIED FOR ESTIMA TING THE PROFITS. ON THE OTHER HAND THE LEARNED DR RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE AO HAS SPECIFICALLY NOTED IN THE ASSESSMENT ORDER THAT WHI LE SCRUTINIZING THE SEIZED MATERIAL AND THE DETAILS FILED BY THE ASSESS EE IT WAS FOUND THAT COMPLEXITY IS INVOLVED IN THE ACCOUNTS OF THE ASSES SEE. THE ACCOUNTS WERE THEREFORE REFERRED TO FOR SPECIAL AUDIT. THE ASSESSEE IS A BUILDER AND CONTRACTOR AND INVOLVED IN CIVIL CONSTR UCTION. IN THE GROUP CASES WHEN SEARCH WAS CONDUCTED THE GROUP HAS DISC LOSED RS.3.25 00 000/- AS UNDISCLOSED INCOME. THE AUDITOR HAS POINTED OUT SEVERAL COMMENTS IN THE ACCOUNTS OF THE ASSESSEE WH ICH ARE NOTED ABOVE AND CLEARLY PROVE THAT NO QUANTITATIVE DETAIL S WERE PRODUCED FOR VERIFICATION AND EVEN PHYSICAL VERIFICATION OF THE RAW MATERIAL WAS NOT POSSIBLE. NO VERIFICATION COULD BE CARRIED OUT FOR PAYMENTS MADE OTHER WISE THAN BY CHEQUES OR BANK DRAFTS. CASH PAY MENTS ARE MADE ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 7 IN VIOLATION OF LAW. NO EVIDENCE OF INVESTMENTS HAS BEEN PRODUCED. THERE WAS NEGATIVE CASH BALANCE IN ASSESSMENT YEAR 2004-05. THE AO REPRODUCED THE DETAILS OF SEVERAL YEARS IN THE A SSESSMENT ORDER TO SHOW THE SALES CONSTRUCTION COST EXPENSES ETC. AND FOUND THAT THERE IS NO CONSISTENCY IN PROFIT EARNING RATIO OVE R THE SALES OF THE UNIT. EVEN NO INTEREST AND REMUNERATION IS PAID TO THE PARTNERS IN ALL THE ASSESSMENT YEARS. EVEN THE BUSINESS STOCK IS U SED FOR OTHER THAN BUSINESS PURPOSES. IT WAS NOT CLARIFIED WHY TH ERE WERE SO MANY DISCREPANCIES IN THE ACCOUNTS OF THE ASSESSEE AND F ROM WHERE THE PARTNERS WERE GETTING THE AMOUNT FOR THEIR PERSONAL PURPOSES. FOR SEVERAL ACTIVITIES CONDUCTED BY THE ASSESSEE NO SEP ARATE ACCOUNTS HAVE BEEN MAINTAINED. THESE FACTORS CLEARLY SUPPORT THE FINDINGS OF THE AO THAT PROPER INCOME OF THE ASSESSEE CANNOT BE COMPUTED AND THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS O F ACCOUNTS. IN THE CASE OF THE BUILDER AND CONTRACTOR THE ABOVE OB JECTIONS NOTED BY THE AUDITOR IN THE AUDIT REPORT U/S 142(2A) OF THE IT ACT CLEARLY PROVE THAT BOOK RESULT OF THE ASSESSEE WERE NOT RELIABLE AND AS SUCH THE SAME HAVE BEEN RIGHTLY REJECTED BY THE AUTHORITIES BELOW FOR THE PURPOSE OF COMPUTATION OF BUSINESS INCOME. FURTHER WHEN IN THE GROUP CASES SEVERAL CRORES OF UNDISCLOSED INCOME IS DECLARED WOULD SUPPORT THE FINDINGS OF THE AUTHORITIES BELOW THAT THE BOOK RESULTS OF THE ASSESSEE WERE NOT RELIABLE AND NO CORRECT PROFI T COULD BE DEDUCED. WE THEREFORE CONFIRM THE REJECTION OF TH E BOOK RESULTS U/S 145 OF THE IT ACT. HOWEVER WE DO NOT AGREE WITH TH E FINDINGS OF THE LEARNED CIT(A) THAT EVEN THOUGH TURNOVER IS ABOVE R S.40 LACS PROVISIONS OF SECTION 44AD OF THE IT ACT COULD BE A PPLIED IN SUCH CASES. IT IS ADMITTED FACT THAT THE PROVISIONS OF S ECTION 44AD OF THE IT ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 8 ACT CANNOT BE APPLIED IN THE CASES IN WHICH THE GRO SS RECEIPT EXCEEDS AN AMOUNT OF RS.40 LACS. THE TOTAL SALES FIGURE FOR ALL THE YEARS HAVE BEEN NOTED IN THE ASSESSMENT YEAR UNDER APPEAL WHIC H DISCLOSE THAT THE TURNOVER OF THE ASSESSEE EXCEEDED RS.40 LACS. T HEREFORE PROVISION OF SECTION 44 AD OF THE IT ACT OR ITS PRI NCIPLE WOULD NOT APPLY TO THE CASE OF THE ASSESSEE. SAME VIEW IS TAK EN BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHRI RAM JHANWA R LAL (SUPRA). THE LEARNED CIT(A) WAS THEREFORE NOT JUSTIFIED IN APPLYING THE PRINCIPLE OF SECTION 44AD OF THE IT ACT IN THE CASE OF THE ASSESSEE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS CLEAR THAT THE ASSESSEE DID NOT CHALLENGE THE SALES TAKEN BY T HE AUTHORITIES BELOW FOR THE PURPOSE OF COMPUTING THE BUSINESS INC OME OF THE ASSESSEE. HOWEVER WE FIND THAT THE RATE OF PROFIT APPLIED IN THE CASE OF THE ASSESSEE AT 10% IS ON EXCESSIVE SIDE. THE SA ME IS THEREFORE REDUCED AND MODIFIED TO 8% IN ALL THE CASES. THE FI NDINGS OF THE AUTHORITIES BELOW IN PRINCIPLE ARE THEREFORE MAIN TAINED FOR REJECTING THE BOOK RESULTS HOWEVER THEIR ORDERS ARE SET ASI DE TO THE EXTENT THAT NET PROFIT RATE OF 8% WOULD BE APPLIED IN ALL THE A SSESSMENT YEARS FOR THE PURPOSE OF COMPUTING BUSINESS INCOME OF THE ASS ESSEE. ISSUE NO.1 IS THEREFORE PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE IN ALL THE ASSESSMENT YEARS. ISSUE NO.2 8. IN ALL THE APPEALS THE ASSESSEE RAISED GROUND TH AT ITEMS OF REGULAR ASSESSMENT CANNOT BE ADDED BACK IN THE PROC EEDINGS U/S 153C OF IT ACT AND ONLY UNDISCLOSED INCOME DETECTED IN THE COURSE OF SEARCH CAN BE ADDED AND SUBJECTED TO TAX U/S 153C O F THE IT ACT IT ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 9 WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT NO ADD ITION CAN BE MADE UNLESS THERE IS A UNDISCLOSED INCOME RELATING TO SEARCH PROCEEDINGS. THE LEARNED CIT(A) REJECTED THIS GROUN D OF APPEAL OF THE ASSESSEE BECAUSE ASSESSMENTS HAVE BEEN FRAMED U/S 1 43 (3) READ WITH SECTION 153A OF THE IT ACT. IT WAS NOTED THAT THIS ASSESSMENT IS FOR ALL THE UNDISCLOSED INCOME WHETHER DISCLOSED IN REGULAR RETURN OR ON THE BASIS OF THE MATERIAL FOUND IN THE SEARCH. T HIS GROUND WAS ACCORDINGLY REJECTED BY THE LEARNED CIT(A). 9. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ITEMS OF REGULAR ASSESSMENT CANNOT BE ADDED IN THE ASSESSMENT ORDERS U/S 153C OF THE IT ACT. HOWEVER THE LEARNED COUNSEL FOR THE ASSESSEE WAS NOT ABLE TO POINT OUT IF THERE IS ANY REGULAR ASSESSMENT FRAMED PRIOR TO THE ASSESSMENT YEARS UNDER APPEAL. HE WAS NOT AWARE OF ANY OF THE BACKGROUND OF THE CASE AND MERE LY STATED PERHAPS RETURNS ARE ONLY PROCESSED U/S 143(1) (A) O F THE IT ACT. FROM HIS WRITTEN SUBMISSION HE HAS PLACED RELIANCE UPON THE DECISION OF ITAT CALCUTTA BENCH IN THE CASE OF LMJ INTERNATIONA L LTD. VS DCIT 22 SOT 315 AND DECISION OF ITAT PUNE BENCH IN THE C ASE OF ACIT VS SRJ PREETY STEELS PVT. LTD. 53 DTR 347 AND SUBMITT ED THAT WHEN NOTHING INCRIMINATING WAS FOUND IN SEARCH ADDITION CANNOT BE MADE. HOWEVER HE HAS AGAIN COULD NOT EXPLAIN THIS ISSUE AND COULD NOT SUBMIT HOW THESE DECISIONS ARE APPLICABLE TO THE FA CTS OF THE CASE. ULTIMATELY THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT HE WOULD NOT BE PRESSING THIS GROUND OF APPEAL IN ALL THE APPEALS. IN VIEW OF THE ABOVE THERE IS NO NEED TO CONSIDER THIS ISS UE FURTHER. HOWEVER ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 10 WE MAY NOTE THAT ITAT AHMEDABAD BENCH IN THE CASE O F DR. MANSUKH KANJIBHAI SHAH VS ACIT 129 ITD 376 CONSIDE RED THE ISSUE IN DETAIL AND DISTINGUISHED THE EARLIER PROVISIONS CONTAINED IN CHAPTER XIV B OF THE IT ACT AND THE PROCEEDINGS U/S 153A OF THE IT ACT. IT WAS HELD THAT ONCE WARRANT OF AUTHORIZATION IS ISSUED A ND SEARCH IS CONDUCTED AND PANCHNAMA IS DRAWN THE ASSESSMENT FO R ALL THE SEVEN YEARS INCLUDING THE INSTANT YEAR HAVE TO BE C OMPLETED U/S 153A 153B AND 153C OF THE IT ACT. EVEN THE ASSESS MENTS WHICH ARE COMPLETED PRIOR TO THE DATE OF SEARCH SHALL GET REOPENED AND THOSE ASSESSMENTS WHERE PROCEEDINGS ARE PENDING AT THE TIME OF SEARCH SHALL ABATE. THE AO SHALL ASSESSEE OR RE-AS SESS SUCH INCOME FOR ALL THESE YEARS. CONSIDERING THE ABOVE D ISCUSSIONS IN THE LIGHT OF THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THESE GROUNDS OF THE APPEALS ARE DISMISSED. THIS IS SUE IS DECIDED AGAINST THE ASSESSEE. ISSUE NO.3 10. IN ALL THE YEARS THE ASSESSEE HAS ALSO CHALLENG ED THE LEVY OF PENALTY U/S 271 (1) (C) OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON THE TOP OF FIRST PAGE OF THE IMPUGNED ORDER THE LEARNED CIT(A) IN PARA 4 MENTIONED PENAL TY/FINE IMPOSED. HE HAS ADMITTED THAT THE LEARNED CIT(A) HAS NOT DEC IDED ANY PENALTY MATTER IN THE IMPUGNED ORDER. THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT SINCE THE WORD PENALTY IS MENTIONE D ON THE FRONT PAGE OF THE IMPUGNED ORDER HE PRESUMED THAT PENALT Y IS IMPOSED BY THE LEARNED CIT(A). SINCE HE HAS ADMITTED THAT THE LEARNED CIT(A) ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 11 HAS NOT LEVIED ANY PENALTY AND THERE IS NO DISCUSSI ON OF THE PENALTY MATTER IN THE IMPUGNED ORDERS THEREFORE HE WOULD NOT BE PRESSING THIS ISSUED. 11. ON CONSIDERATION OF THE ABOVE FACTS WE FIND TH AT THIS GROUND RAISED IN ALL THE APPEAL IS WITHOUT SUBSTANCE AND I S FRIVOLOUS. THE LEARNED CIT(A) HAS NOT LEVIED PENALTY OR IMPOSED AN Y PENALTY AND HAS NOT DISCUSSED ANY THING OF THE PENALTY MATTER W HICH IS ALSO DISTINCT AND SEPARATE PROCEEDINGS. THE ASSESSEE HAS RAISED THIS GROUND WITHOUT ANY REASON. THIS GROUND IS ACCORDING LY REJECTED AND THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. ISSUE NO.4 12. ON THIS ISSUE THE ASSESSEE CLAIMED DEPRECIATIO N IN ASSESSMENT YEAR 2003-04 IN ITA NO.436/AHD/2009. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT NEW MACHINERIES AND TRUCKS ARE PURCHASED THEREFORE CLAIM OF DEPRECIATION SHOULD BE ALLOWED SEPARATELY EVEN IF THE INCOME IS ESTIMATED AND REL IED UPON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF BISHAMBHAR DAYAL & CO 210 ITR 118. HOWEVER THE LE ARNED CIT(A) DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND NOTED THAT AFTER AMENDMENT OF SECTION 44AD OF THE IT ACT THE CIRCUL AR REFERRED IN THIS DECISION IS NOT APPLICABLE BECAUSE THE DEPRECIATION WOULD ALSO BE INCLUDED IN THE SAME PROVISION. THE LEARNED CIT(A) GET SUPPORT FROM THE PROVISIONS OF SECTION 44AD OF THE IT ACT AND NO TED THAT ONCE NET PROFIT IS APPLIED IT INCLUDES DEPRECIATION ALSO. T HIS GROUND WAS ACCORDINGLY DISMISSED. ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 12 13. WE HAVE HELD ABOVE THAT PROVISIONS OF SECTION 4 4AD OF THE IT ACT WOULD NOT APPLY IN THE CASE WHERE TURNOVER EXCE EDS RS.40 LACS. THEREFORE IN THE CASE OF THE ASSESSEE SUCH PROVISI ON IS NOT APPLICABLE. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF BISHAMBHAR DAYAL & CO 210 ITR 118 HELD AS UNDER: HELD THAT THE TRIBUNAL HAD RELIED UPON A CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES NO.29 D (XIX) OF 1965 F. NO.45/239/65-ITC DATED MARCH 31 1965. UNDER THIS CIRCULAR THE BOARD HAS ISSUED INSTRUCTIONS THAT WHERE INCOME WAS PROPOSED TO BE COMPUTED BY APPLYING A FLAT RATE AND THE ASSESSEE HAD FURNISHED THE PRESCRIBED PARTICULARS FOR THE CL AIM IN RESPECT OF DEPRECIATION THE DEPRECIATION SHOULD BE ALLOWED SEPARATELY AND DEDUCTED OUT OF THE GROSS PROFITS. THE ORDER OF THE TRIBUNAL WAS IN CONFORMIT Y WITH THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DI RECT TAXES. THERE IS NO PROVISION IN THE INCOME-TAX ACT WHICH MAKES THE CLAIM OF DEPRECIATION INADMISSIBLE WHERE THE INCOME IS COMPUTED BY APPLYING THE FLAT RATE. THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE INCOME-TAX OFFICER TO ALLOW DEPRECIATION. NO QUESTI ON OF LAW AROSE FROM ITS ORDER (SEE P. 120C P). 13.1 THE HONBLE RAJASTHAN HIGH COURT IN THE CASE O F SHRI RAM JHANWAR LAL (SUPRA) ALSO HELD THAT EVEN IF PROFIT RATE IS APPLIED FOR COMPUTING THE BUSINESS INCOME DEPRECIATION SHALL H AVE TO BE ALLOWED SEPARATELY. 14. CONSIDERING THESE DECISIONS WE SET ASIDE THE O RDER OF THE LEARNED CIT(A) AND DIRECT THE AO TO ALLOW DEPRECIAT ION TO THE ASSESSEE IN ACCORDANCE WITH LAW BY VERIFYING THE FA CTS AND DETAILS TO BE PRODUCED BEFORE HIM BY THE ASSESSEE. THIS GROUND OF APPEAL OF ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 13 THE ASSESSEE IN ASSESSMENT YEAR 2003-04 IS ALLOWED. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ISSUE NO.5 15. IN ASSESSMENT YEAR 2004-05 IN ITA NO.437/AHD/20 09 THE ASSESSEE SIMILARLY CLAIMED DEPRECIATION. BY FOLLOWI NG THE ORDER ON ISSUE NO.4 ABOVE WE DIRECT THE AO TO ALLOW DEPRECI ATION TO THE ASSESSEE IN ACCORDANCE WITH LAW AS IS DIRECTED ABOV E. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED IN ASSESSMENT YEA R 2004-05. ISSUE NO.6 16. IN ASSESSMENT YEAR 2004-05 THE ASSESSEE FURTH ER CHALLENGED THE ADDITION OF RS.24 361/- ON ACCOUNT OF NEGATIVE CASH BALANCE. THE AUDITOR HAS OBSERVED THERE WAS NEGATIVE BALANCE OF RS.24 361/- WHICH WAS TREATED AS INTRODUCTION OF UNACCOUNTED CA SH IN THE BOOKS OF ACCOUNTS. ADDITION WAS ACCORDINGLY MADE OF RS.24 361/- SEPARATELY ON ACCOUNT OF UNACCOUNTED CASH. THE LEAR NED CIT(A) CONFIRMED THE ADDITION. 17. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE D O NOT FIND ANY JUSTIFICATION TO SUSTAIN THIS ADDITION. ONCE THERE IS NEGATIVE CASH BALANCE IT MAY BE A GOOD GROUND FOR REJECTION OF B OOK RESULT BUT IT CANNOT BE TREATED AS INTRODUCTION OF UNACCOUNTED CA SH. NO CASE IS MADE OUT BY THE AO OF EXCESS CASH FOUND DURING THE SEARCH FOR MAKING ADDITION ON ACCOUNT OF UNACCOUNTED CASH. THE WHOLE BASIS OF MAKING THE ADDITION IS UNJUSTIFIED. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION OF RS.24 361/-. ITA NO.433 434 435 436 AND 437/AHD/2009 M/S. REKHA CONSTRUCTION CO. VS ACIT CENT. CIRCLE-2 SURAT 14 THIS GROUND OF APPEAL OF THE ASSESSEE IN ASSESSMENT YEAR 2004-05 IS ALLOWED. AS A RESULT ISSUE NO.6 IS DECIDED IN FAVO UR OF THE ASSESSEE. 18. NO OTHER POINT IS ARGUED OR PRESSED. 19. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 22-07-2011 SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 22-07-2011 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