NOBLE CONSTRUCTION COMPANY,PUNE vs. DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(1), PUNE, PUNE

The appeal filed by the assessee is directed against the order dated 10.01.2024 of the Ld. Commissioner of Income Tax (Appeals), Pune-11 [“CIT(A)”] pertaining to Assessment Year (“AY”) 2013-14.

The assessee has raised the following grounds of appeal :-

Briefly stated, the facts of the case are that the assessee is engaged in the business of Civil Construction. It undertakes civil contract and sub- contract work for Central Railway, State Government, Pune Municipal Corporation and some private parties. The assessee has filed its return of income for the AY 2013-14 on 01.10.2013 declaring total income of Rs.67,08,290/-. The case was selected for scrutiny. Statutory notice(s) u/s 143(2)/142(1) of the Income Tax Act, 1961 (the “Act”) were issued and duly served upon the assessee. In response thereto, the assessee filed its submissions before the Ld. Assessing Officer (“AO”) which were not found satisfactory by him. He proceeded to complete the assessment vide order dated 30.03.2016 u/s 144 r.w.s.145(3) of the Act rejecting the books of account of the assessee and estimating the business income from the civil contract business by applying net profit @ 8% of gross receipts amounting to Rs.1,05,77,501/-, thereby assessing the income of the assessee at Rs.1,48,81,041/-.

Aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) in para 5 of his appellate order noted the reasons for which the books of account were rejected by the Ld. AO which are as under : “i) Despite giving number of opportunities and reasonable time, the assessee failed to furnish all the required details, books of accounts, bills, vouchers, etc. (para 4.1 of assessment order). ii) The details of WIP filed by the assessee are incomplete and incorrect. It filed details of WIP only for 2 sites and did not file details of other 3 sites despite of issuing a specific show cause notice. (para 4.4 of assessment order). iii) The assessee submitted that the WIP is being valued as per work mentioned in running bills but no copy of any running bill was filed. Neither any reconciliation was filed by the assessee. Thus, Valuation of WIP is arbitrary and without any basis. (para 4.1 of assessment order). iv) As per the provisions of section 145A, the assessee was required to value its purchases, sales and inventory by including VAT, however, same was not done by the assessee. (para 4.1 of assessment order). v) In case of few subcontractors, the assessee has credited net amount after TDS with respect to bills raised by them whereas in case of some of the sub-contractors, gross amount of bills are credited to their accounts. (para 4.1 of assessment order). No explanation to this was filed inspite of specific show cause on this issue. (para 4.6 of assessment order). vi) Even after issue of a show-cause notice, the appellant could not furnish complete details as well as reconciliation regarding WIP.(para 4.4 of assessment order). vii) As detailed in para 4.5 of the assessment order, some of the entries in confirmation vis a vis ledger extracts do not match.”

Further, the appellant has explained that VAT was not added in the value of purchases, sales or closing WIP by following its accounting policy which is in sync with Accounting Standards. In this connection, it is seen that section 145A(ii) of the Act, specifically provides that VAT is required to be included. Since, this has been specifically provided in the Income Tax Act, same shall supersede any other accounting policy followed by the appellant.

Besides above, there are other deficiencies in the books of accounts such as complete books were never produced before the AO neither complete bills or vouchers were produced. Considering the totality of facts of the case, the action of the assessing officer of rejecting the appellant's books of accounts u/s 145(3) of the Act, is upheld. Further, the action of the assessing officer of estimating the net profit @8% of gross receipts is also upheld. The grounds of appeals raised by the appellant are DISMISSED.”

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

The Ld. AR submitted that the Ld. CIT(A) has confirmed the action of the Ld. AO in rejecting the books of account of the assessee as the assessee could not furnish complete details of WIP and its valuation for all sites with supporting documentary evidence to substantiate its case. The Ld. AR also submitted that the assessee could not produce proper books of account before the Ld. AO. He submitted that given an opportunity the assessee is in a position to file the required details/documentary evidence in support of its claim. He, therefore, requested that the matter may be set aside to the file of the Ld. AO to decide the issues afresh.

The Ld. DR relied on the order of the Ld. CIT(A) and submitted that the assessee is a big civil contractor and therefore it is expected of him to maintain proper books of account which would have been submitted by it during the assessment/appellate proceedings if available. However, it failed to do so. Therefore, the Ld. CIT(A) was completely justified in upholding the order of the Ld. AO. On merits, the Ld. DR submitted that the decision of the Hon’ble Apex Court in the case of CIT Vs. Realest Builders & Services Ltd. (2008) 307 ITR 202 (SC) relied by the Ld. AR is not applicable to the present case of the assessee as the facts are distinguishable.

We have heard the Ld. Representatives of the parties and perused the material on record. We find that the Ld. AO completed the assessment u/s 144 r.w.s. 145(3) of the Act rejecting the books of account of the assessee and estimating the net profit from construction business @ 8% of the gross receipts for the reasons which are reproduced above which are mainly pertaining to non-filing of the required/relevant documentary evidence by the assessee before him. We also notice that the Ld. CIT(A) has upheld the action of the Ld. AO for the same reasons i.e. non- production of the complete details/documentary evidence by the assessee. Admittedly, there was lack on the part of the assessee to furnish proper books of account and other supporting documentary evidence in support of its claim before the Ld. AO as well as Ld. CIT(A). Before us, the Ld. Counsel for the assessee has requested that given an opportunity the assessee is in a position to submit the required details/documentary evidence in support of its case and has therefore prayed that the matter may be set aside to the file of the Ld. AO. Considering the totality of the facts and in the circumstances of the case, we deem it fit, in the interest of justice and fair play to restore the matter to the file of Ld. AO to decide the impugned issues afresh on merits in light of the details documents/ evidence already available on record as well as such other details information/documentary evidence as may be called upon by him during fresh proceedings. The assessee is hereby granted one more opportunity to produce the proper books of account and other supporting documentary evidences before the Ld. AO as undertaken by it before this Tribunal. The assessee is directed to appear before the Ld. AO and present its case before him on the appointed date without seeking adjournment under any pretext, failing which the Ld. AO shall be at liberty to pass appropriate order as per fact and law. We order accordingly.

In the result, the appeal of assessee is allowed for statistical purpose.