M/s National Guniting, Bhopal v. The Asstt. Commissioner of Income Tax 1(1), Bhopal

ITA 550/IND/2010 | 2007-2008
Pronouncement Date: 30-09-2011 | Result: Allowed

Appeal Details

RSA Number 55022714 RSA 2010
Assessee PAN AAAFN8576G
Bench Indore
Appeal Number ITA 550/IND/2010
Duration Of Justice 1 year(s) 1 month(s) 11 day(s)
Appellant M/s National Guniting, Bhopal
Respondent The Asstt. Commissioner of Income Tax 1(1), Bhopal
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 30-09-2011
Date Of Final Hearing 24-08-2011
Next Hearing Date 24-08-2011
Assessment Year 2007-2008
Appeal Filed On 19-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI R.C.SHARM A A.M. PAN NO. : AAAFN8576G I.T.A.NO. 550/IND/2010 A.Y. : 2007-08 M/S.NATIONAL GUNITING ACIT 14/1 SHALIMAR ENCLAVE VS 1(1) E-3/ARERA COLONY BHOPAL. BHOPAL. APPELLANT RESPONDENT APPELLANT BY : SMT. AMITA VARSHNEY C.A. RESPONDENT BY : SHRI ARUN DEWAN SR. DR DATE OF HEARING : 22.09.2011 DATE OF PRONOUNCEMENT : 30.09.2011 O R D E R PER R. C. SHARMA A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 12.5.2010 FOR THE ASSESSMENT YEAR 2 007-08 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) DATED 24.10.2009. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN IN THIS APPEAL :- -: 2: - 2 (1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT HAS ERRED IN CONFIRMING REJECTION OF BOOKS OF ACCOUNT WITHOUT INVOKING PROVISIONS OF SECTION 145(3) AND WITHOUT ACCEPTING EXPLANATION OFFERED BY THE APPELLANT. (2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT HAS ERRED IN CONFIRMING ADDITION OF RS. 17 04 737/- OUT OF TOTAL ADDITION OF RS. 24 63 873/- BY ESTIMATING NET PROFIT @ 6% WITHOUT CONSIDERING EXPLANATION OFFERED BY THE APPELLANT. (3) THAT AT ANY EVENT THE LD. LOWER AUTHORITIES ERRED AND WERE NOT JUSTIFIED IN HOLDING THAT THE BOOKS OF ACCOUNT MAINTAINED WERE NOT CORRECT AND COMPLETE AND THEREBY ESTIMATING THE NET PROFIT AT 8% TO AND 6% BY CIT(A). (4) THAT LD. CIT HAS ERRED AND WAS NOT JUSTIFIED IN APPLYING THE RATIO OF DECISION IN CASE OF M/S. -: 3: - 3 S.K.JAIN WITHOUT INFORMING AND GIVING OPPORTUNITY TO THE APPELLANT. (5) THAT THE LD. CIT(A) HAS ERRED ON FACTS AND ON LAW IN NOT ACCEPTING THE DOCUMENTS AND EXPLANATIONS OFFERED BY THE APPELLANT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FIRM IS A PARTNERSHIP FIRM ENGAGED IN CONTRACTORSHIP OF GUNIT ING WORK. THE CONTRACTS UNDERTAKEN ARE ALL GOVERNMENT CONTRAC TS INVOLVING INFRASTRUCTURE WORK. NET PROFIT DECLARED BY THE FIRM IS 4.13 % DURING THE YEARS. DURING THE COURSE OF ASSES SMENT THE AO OBSERVED THAT AS PER THE PROFIT AND LOSS ACCOUNT OF THE FIRM THE ASSESSEE IS HAVING WIP (WORK IN PROGRESS) OF RS . 33 00 624/- . VIDE ORDER SHEET ENTRY DATED 12.10.20 09 ASSESSEE WAS ASKED TO FURNISH THE QUALITATIVE AND Q UANTITATIVE DETAILS OF WIP ALONGWITH DETAILS OF EACH ITEM. FURT HER ASSESSEE WAS ALSO ASKED TO FURNISH THE METHOD OF DETERMINATI ON OF WORK IN PROGRESS. ON 14.9.2009 ASSESSEE FURNISHED ITS WR ITTEN REPLY WHICH IS AS UNDER :- -: 4: - 4 REGARDING VALUATION OF CLOSING STOCK AND WORK IN PROCESS IT IS SUBMITTED THAT CLOSING STOCK IS VALU ED AT COST. THE WORK IN PROCESS IS THE WORK WHICH IS BEIN G EXECUTED AND NOT YET COMPLETED AS ON 31.3.2007. THE BILL OF THAT WORK IS SUBMITTED IN APRIL OF NEXT FIN ANCIAL YEAR. A COPY OF LEDGER ACCOUNT OF CONTRACT RECEIPT FROM 1.4.2007 TO 30.4.2007 IS ENCLOSED WHERE IN THE BILL IS OF 31.61 LACS. IF WE REMOVE GROSS PROFIT OF 12 % TH EN COST OF PROJECT WILL BE ABOUT 28 LACS. THE BALANCE IS CLOSING STOCK OF ABOUT 5 LACS MATERIAL COST. AS PER AO THE SUBMISSION FILED BY THE ASSESSEE WAS NOT ACCEPTABLE. THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS OF EACH ITEM INCLUDED IN WIP AND METHOD OF DETERMINATION OF COST. ITEM-WISE DETAILS ARE NOT FURNISHED BY ASSESSEE. IN VIEW OF THE ABOVE BOOKS O F ACCOUNT OF THE ASSESSEE ARE REJECTED AND NET PROFIT IS ESTIMATED AT THE RATE OF 8 %. 4. BY THE IMPUGNED ORDER THE LD. CIT(A) REDUCED THE N ET PROFIT RATE OF 8 % TO 6 % BY OBSERVING THAT THE AS SESSEES TURNOVER WAS RS. 3.79 CRORE WHICH WAS MORE THAN RS . 40 -: 5: - 5 LAKHS THEREFORE THE PROVISIONS OF SECTION 44AD AR E NOT BEYOND STRICTLY APPLICABLE. THE LD. CIT(A) FURTHER OBSERVED THAT WHEN THE TURNOVER INCREASES THE RATIO OF NET PROFI T DOES NOT REMAIN THE SAME AND IT TEND TO REDUCE. BY STATING T HAT THE AO HAD NOT ALLOWED THE DEDUCTION OF INTEREST AND REMUN ERATION PAID TO THE PARTNERS AFTER APPLYING NET PROFIT RATE OF 8 % ON TOTAL RECEIPT WHICH IS APPLICABLE IN THE CASE WHER E SECTION 44AD IS ATTRACTED. IN THIS WAY THE LD. CIT(A) REDU CED THE NET PROFIT RATE FROM 8 % TO 6 %. 5. SMT. AMITA VARSHNEY C.A. APPEARED ON BEHALF OF TH E ASSESSEE AND VEHEMENTLY ARGUED THAT WITHOUT INVOKIN G PROVISIONS OF SECTION 145(3) THE AO HAS DECLINED T O ACCEPT THE BOOK RESULT. SHE FURTHER POINTED OUT THAT NO DEFEC T WAS FOUND OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUN T AND MERELY ON THE PLEA THAT THE ASSESSEE HAS NOT FURNIS HED ITEM- WISE DETAILS OF WORK IN PROGRESS HE REJECTED THE B OOKS OF ACCOUNT AND APPLIED THE NET PROFIT RATE OF 8 % ON THE NET CONTRACT RECEIPTS OF RS. 3.79 CRORES. THE LD. AUTHO RIZED REPRESENTATIVE FURTHER DREW OUR ATTENTION TO THE NE T PROFIT RATE SHOWN BY THE ASSESSEE IN EARLIER YEAR WHICH WAS TO THE TUNE OF -: 6: - 6 3.94 % AND 3.83 % IN THE ASSESSMENT YEAR 2005-06 & 2006- 07 RESPECTIVELY WHEREAS NET PROFIT RATE FOR THE YE AR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2007-08 WAS 4.13 %. SHE FURTHER CONTENDED THAT DURING THE COURSE OF HEARING THE ASSESSEE FIRM HAS PRODUCED COMPLETE BOOKS OF ACCOUN T BILLS AND VOUCHERS AND OTHER RELATED DOCUMENTS AND INFORM ATION CALLED BY THE ASSESSING OFFICER HOWEVER NO WHERE DURING ASSESSMENT PROCEEDINGS THE AO COULD POINT OUT ANY DEFECT OR DEFICIENCY IN THE BOOKS OF ACCOUNT OR BILLS/VOUCHER S OF EXPENSES. AFTER DRAWING OUR ATTENTION TO VARIOUS OB SERVATION OF THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS S HE CONTENDED THAT THE ORDERS PASSED BY THE LOWER AUTHORITIES ARE DEVOID OF ANY MERIT AND THE SAME DESERVES TO BE SET-ASIDE AND THE BOOK RESULTS DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED . 6. ON THE OTHER HAND SHRI ARUN DEWAN LD. SENIOR D.R. RELIED ON THE OBSERVATION OF THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AND SUBMITTED THAT THE ASSESSEE C OULD NOT FURNISH ITEM WISE DETAILS OF WORK IN PROGRESS THER EFORE THE AO WAS JUSTIFIED IN APPLYING THE NET PROFIT RATE OF 8 % AND CIT(A) WAS FURTHER JUSTIFIED IN RETAINING NET PROFIT RATE OF 6% IN CASE -: 7: - 7 OF CIVIL CONSTRUCTION WORK UNDERTAKEN BY THE ASSESS EE DURING THE YEAR. HE FURTHER RELIED ON THE OBSERVATIONS MAD E BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONTRACTORSHIP OF GUNITING WORK. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD P RODUCED AND COMPLETE SET OF BOOKS OF ACCOUNT WHICH WERE DUL Y AUDITED ALONGWITH BILLS AND VOUCHERS OF EXPENSES AND COMPLE TE DETAILS OF CONTRACT RECEIPTS. DURING THE YEAR UNDER CONSIDE RATION THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 4.13 % BEFOR E REMUNERATION AND INTEREST TO PARTNERS. BY OBSERVING THAT THE ASSESSEE HAS NOT FURNISHED ITEM WISE DETAILS OF WOR K IN PROGRESS THE AO WITHOUT INVOKING PROVISIONS OF SEC TION 145(3) REJECTING BOOKS OF ACCOUNT AND WITHOUT POINTING OUT ANY FAULT THEREIN ESTIMATED NET PROFIT RATE OF 8 % IN THE NE T CONTRACT RECEIPTS. THE ASSESSEE HAD ALSO FURNISHED THE BILLS RAISED AND CONTRACT RECEIPTS IN THE FIRST MONTH AFTER END OF Y EAR. AFTER REDUCING THE PROFIT ELEMENT THE NET CONTRACT RECEIP TS OF EQUAL -: 8: - 8 TO THE AMOUNT OF WORK-IN-PROGRESS SHOWN AT THE END OF THE YEAR. THUS THERE WAS NO UNDER STATEMENT OF VALUE O F WORK-IN- PROGRESS. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY MERIT IN THE ACTION OF AO FOR ESTIMATING PROFIT WITHOUT I NVOKING PROVISIONS OF SECTION 145(3) AND WITHOUT POINTING O UT ANY DEFECTS EITHER IN THE METHOD OF ACCOUNTING REGULARL Y FOLLOWED BY ASSESSEE OR IN THE BOOKS OF ACCOUNT OR IN THE VO UCHERS AND DETAILS SO MAINTAINED BY THE ASSESSEE. ALL THE RECO RDS BOOKS OF ACCOUNT BILLS AND VOUCHERS ETC. WERE PRODUCED BEFO RE THE AO WHICH HE HAS EXAMINED. NO WHERE THE AO HAS RAISED A NY DOUBT REGARDING ANY OF THE EXPENDITURE HAVING BEEN DEBITED WITHOUT INCURRING THE SAME OR WITHOUT SUPPORTING VO UCHES NOR IT IS THE CASE OF THE AO THAT THE ASSESSEE HAS NOT RECORDED ANY OF ITS CONTRACT RECEIPTS NOR IT IS A CASE OF THE AO THAT THE ASSESSEE HAS INFLATED THE EXPENDITURE TO SHOW LOWER NET PROFIT. ON THE OTHER HAND THE COMPARATIVE RATES OF PROFIT DECLARED BY THE ASSESSEE DURING THE YEAR WAS MUCH BETTER THAN T HE PROFIT RATE DECLARED DURING THE EARLIER TWO YEARS. IT IS ALSO NOT THE CASE OF THE AO THAT WORK IN PROGRESS SHOWN BY THE A SSESSEE IN RESPECT OF THE CIVIL CONSTRUCTION WORK WAS LOWER TH AN THE COST -: 9: - 9 OR MARKET VALUE NOR IT IS THE CASE OF THE AO THAT H E HAS PHYSICALLY CARRIED OUT THE VALUATION OF THE WORK AS ON THE CLOSE OF THE YEAR WHICH WAS FOUND TO BE LOWER THAN THE A CTUAL COST INCURRED THEREON. WE THEREFORE DO NOT FIND ANY ME RIT IN THE ACTION OF THE AO FOR APPLYING NET PROFIT RATE OF 8 % MERELY BECAUSE OF THE LACK OF MINUTE DETAILS OF WORK IN PR OGRESS SHOWN BY THE ASSESSEE AS AT THE END OF THE YEAR. IN VIEW OF THE NATURE OF ASSESSEES BUSINESS WHICH WAS CIVIL CONST RUCTION IT IS NOT PRACTICABLE TO GIVE DETAIL OF EACH AND EVERY ITEM BEING PUT IN WORK IN PROGRESS IN SO FAR AS COMPLETE DETA ILS OF PURCHASE OF MATERIAL AND LABOUR PUT IN THE WORK IN PROGRESS WAS DULY DISCLOSED IN THE BOOKS OF ACCOUNT WHEREIN NO DEFECT WAS FOUND BY THE ASSESSING OFFICER DURING THE ASSES SMENT PROCEEDINGS. 8. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY MERIT IN THE ESTIMATION OF NET PROFIT BY THE ASSESS ING OFFICER AND CIT(A) WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT. WE THEREFORE DIRECT THE AO TO ACCEPT THE NET PROFIT RATE OF 4.13 % SHOWN BY THE ASSESSEE BEFORE REMUNE RATION AND INTEREST TO THE PARTNERS. WE DIRECT ACCORDINGLY . -: 10: - 10 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH SEPTEMBER 2011. CPU*