M/S. DEWAN CHAND,NEW DELHI vs. ACIT, NEW DELHI

This appeal by Assessee has been directed against the order of Learned Commissioner of Income Tax (Appeals)-XX, New Delhi (for short hereinafter referred to as the “Ld. CIT(A)”) dated 13.02.2015 for Assessment Year 2010-11, on the following grounds of appeal: “1.1 The learned CIT[A] has erred in not deleting the whole of disallowance Rs. 99,25,000/- debited on account of the debits of Material Supplied by Contractees as unverifiable purchases. 1.2 That both the learned CIT[A] and the AO have failed to appreciate that Materials Supplied by Contractees is a Contra entry with Contract Receipts, which can only be cross checked. Page 1 of 8

ITA No.-2707/Del/2015. M/s Dewan Chand. 1.3 The leaned CIT[A] gas erred in adopting he presumptive rate of 8% income of Contract receipts- despite the fact that the said section is not applicable in the present case 2. That the above grounds are independent and without prejudice to each other. 3. That the appellant seeks leave to add, amend, alter or abandon any of the above grounds at the time of hearing of the appeal.”

(2) There was a survey Under Section (“U/s”) 133A of Income Tax Act, 1961 (for short the “Act”) at the business premises of the Assessee on 17.09.2010, during which, statement of Mr. Vikram Kumar, partner was recorded. In his statement, Mr. Vikram Kumar, partner, stated as under:

“Books of accounts along with original bills and vouchers I will be producing on 24.09.2010. Presently all these documents are lying at venous sites/projects. Further, we are offering additional income of Rs. 2.25 crores, break up of this additional income is given as under: Additional income of Rs 65 lacs for A.Y. 2009-10, Rs. 70 lacs for A.Y. 2010-11 & Rs. 90 lacs for A.Y. 2011-12. This income is over and above our regular income for which gross income of (2.25 crores is offered during the A.Y. 2009-10, 2010-11 & 201-12. Also, income of the following years we shall be filing at the approximately similar margin as above. This income I am voluntarily offering to avoid any kind of litigation with the department and to cover up all type of discrepancies arising out of none submission of wages bills/vouchers, purchase bills or other expenses which have been incurred considering the nature of the business. These documents may not be available with us or may be lost in transit. I pray that no penalty proceedings should be initiated against us in view of our co-operation. We will file the revised return for March, 2009 with the said revised income.”

(2.1) The Assessee filed return of income on 14.10.2010 showing income of Rs. 1,40,68,144/-. The returned income included the aforesaid disclosure of additional income of Rs. 70,00,000/- at the time of survey, U/s 133A of I.T. Act, in accordance with the aforesaid statement of Mr. Vikram Kumar, Partner. The Assessment Order U/s 143(3) of I.T. Act was passed on 25.03.2013, in which an addition of Rs. 99,25,000/- was made by the Assessing Officer, on account of unverifiable expenses; and the total

ITA No.-2707/Del/2015. M/s Dewan Chand. income was assessed at Rs. 2,39,93,740 (rounded off). The Assessee filed an appeal before Ld. CIT(A), objecting to the above mentioned addition of Rs. 99,25,000/-. The Ld. CIT(A) observed that the assessee had failed to produce certain bills for the expenditure claimed by the assessee. The Ld. CIT(A) also observed certain discrepancies/deficiencies in the bills of M/s Sri Ram Builders, M/s P.K. Builders and M/s Anupam Steel Builders. The Ld. CIT(A) further observed that the assessee did not furnish evidence of payment in respect of certain bills including in respect of cost of transportation of the materials. The Ld. CIT(A) furthermore observed that certain payments that were claimed to have been made through cheques as per ledger account were not supported by evidence in the form of bank statement. Moreover, the Ld. CIT(A) also observed that the purchase bills in respect of cement and sand were also not produced. Noticing these deficiencies/discrepancies, the Ld. CIT(A) rejected the books of account of the assessee and estimated the net profit rate at the 8%. The relevant portion of the order of Ld. CIT(A) is reproduced as under:

“5.4 I have carefully considered the assessment order and submission thereof. The facts of the case as per assessment order are that a survey under section 133A was carried out on 17.09.2010 at the premises of the assessee firm and the partners were asked to produce^ copies of ledger account of wages, purchases, sundry creditors unsecured loans, material purchase under different heads, work done and work in progress for A.Y. 2008-09, 2009-10 and 2010-11. The statement of the partner Shri Vikram Kumar was also recorded. In the statement the partner offered additional income of Rs.2.25 crores consisting of Rs.70 lacs for the relevant assessment year as income over and above the regular income. During the year the assessee has shown gross profit of 12.65% and net profit of 2.94%. After the additional income offered during survey the gross profit stood at 15.74% and net profit at 6.03%. During assessment proceedings the assessee failed to produce several documents called for like copies of ledger account of wages, purchases , sundry creditors, unsecured loans, material purchase under different heads, work done and work in progress. The assessee had debited an amount of Rs.99.25 lacs on account of material supplied by the contractee. The Assessing Officer asked the assessee to explain how the same was booked under expenses and to provide the ledger account of the material supplied by the contractee with supporting document of the bills to verify the claim. No reply was filed to justify the claim of expense. The Assessing Officer held that in case the material was supplied by the assessee normally the agreement would mention the same and the receipt Page 3 of 8

ITA No.-2707/Del/2015. M/s Dewan Chand. would be net of any such supplies by the contractee. Since no such details were filed by the assessee, the Assessing Officer made an addition of Rs.99,25,000/- on account of material supplied by the contractee but booked as an expense by the assessee.

5.5 In appeal the appellant claimed that the contract rates were inclusive of material and the contractee deducted the value of materials supplied by them. The appellant had submitted the ledger account of the material supplied by the employer and also the contra credits in the contract receipts. It is a common practice that in a contract the employer supplies material of their specification-and deduct the same from the bills. The perusal of the details filed by the appellant showed that there were increase in the expenses under the head Aluminum fittings, cement and bricks in the 7 months period post survey. The appellant was therefore asked to produce copy of account of the purchases made under this head. The perusal of the details filed by the appellant in response to the above_ queries showed that in respect of • steel account purchases of Rs.24,80,100/- had been made but no bill number was mentioned in the ledge account enclosed. • Cement account showed purchase of Rs.25,91,799/- during the period upto 22.08.2009 and the entire purchases had been made from M/s. Laxmi Cement Trading Co. In the period after 23.08.2009 the total closing balance was Rs.45,63,373/-and included bills of Sriram Builders and Shri D K Builders wherein the bill number were not mentioned. Purchase of bricks was also debited to the cement account. • The brick account showed total purchases of Rs.27,53,228/- in the post survey period and Rs.19,18,323/- in the pre survey period. Bill numbers of number of parties were missing in the post survey period. • Aluminum fittings showed total purchases of Rs. 64.57.132/- in the post survey period and Rs. 27,85,225/-in the pre survey period. Bill numbers of number of parties were missing in the post survey period or were mentioned as 000. _

The appellant was therefore asked to produce the bills where no bill number had been mentioned and to produce bills for expenditure, cement and Badapur Sand wherein the total expenditure was claimed at Rs.86 lacs Rs.67 lacs respectively inspite of the fact that as per the contracts both the items were mentioned as ‘to be provided’ by the contracted. The appellant produced bills of Sri Ram Builders, P K Builders and Anupam Steel builders. The perusal of the bills showed that that neither the ST Numbers, nor the TIN Number were mentioned in the case of Sri Ram Builders and Shri D K Builders from whom purchases of Rs.17,18,250/- and Rs.10,11,300 had been shown respectively. No bill of M/s Mahabir Aluminum from purchase of Rs.8 lacs had been shown was produced,-Only— bill of Anupam Steel Centre dated 15.10.2009 and 10.10.2009 were produced. No evidence of payments in respect of these bills and transportation of material were filed. The copy of ledger account produced by the appellant showed some payments through cheques however the same was not backed by evidence in the form of Bank Statement, Purchase bills in respect of cement and Sand were also not produced. The Assessing Officer has pointed out that appellant had claimed expense on purchase of material which was provided by the contractee The appellant was therefore required to explain why the books should not be rejected and 8% net profit be applied. The appellant claimed that the books could not be rejected as most of the expenses were adequately supported and as some bills could not be produced therefore he had already surrendered additional income of Rs.70 lacs. After considering all the facts as discussed in details above in The assessment order and submissions of the appellant show cause was issued vide order sheet entry dated 13.01.2015, to the appellant as to why his book results should not be rejected and profit rate of 8% not be applied After considering his reply I have no option but to reject the books of accounts of the appellant and determine Page 4 of 8

ITA No.-2707/Del/2015. M/s Dewan Chand. income at 8% of the total turnover i.e. 8% of Rs.22.67.91.668/- i.e Rs 1,81,43,333/- out of which Rs. 1,36,79,725/- has already been shown by the appellant. The addition thus being sustained in the appellant’s income is Rs.44,63,608/-. This would also cover the addition of Rs.99,25,000/- made by the Assessing Officer. The ground of appeal is accordingly disposed off.”

(3) This appeal before us has been filed by the assessee against the aforesaid order dated 13.02.2015 of Ld. CIT(A). At the time of hearing before us, the Ld. Counsel for assessee submitted that the disclosures of additional income, at the time of survey, amounting to Rs. 70,00,000/-, should have been accepted and no further addition should have been made either by the Assessing Officer or by the Ld. CIT(A). The Ld. Counsel for Assessee also submitted that despite deficiencies/discrepancies pointed out by the Ld. CIT(A), she should not have rejected the assessee’s books of accounts and that in any case the estimation of net profit rate at the 8% was excessive/arbitrary.

The Ld. Counsel for Assessee drew our attention to paragraph 2 of the Assessment Order to highlight that the net profit ratio in the case of the assessee, in the past was much lower than 8%. On the other side, Ld. Departmental Representative (“DR”) strongly supported the order of Ld. CIT(A) and read out the relevant portion of order of the Ld. CIT(A).

(4) We have heard both sides patiently. We have considered the materials on record carefully. We find that the Ld. CIT(A) has pointed out several deficiencies/discrepancies in the books of account of the assessee, some of which have been mentioned in the forgoing paragraph 2.1 of this order. The relevant portion of the order of Ld. CIT(A) has also been reproduced for ready reference. In view of these deficiencies/discrepancies, we are satisfied that the Ld. CIT(A) had sufficient materials

ITA No.-2707/Del/2015. M/s Dewan Chand. to reject the books of accounts of the assessee. However, we find that there is no discussion, in the order of the Ld. CIT(A), as to why, net profit rate of 8% was adopted by the Ld. CIT(A). The order of Ld. CIT(A) is not a speaking order. On the reason for adopting net profit rate of 8%, the Ld. CIT(A) has merely stated: ”… After considering all the facts as discussed in details above in The assessment order and submissions of the appellant show cause was issued vide order sheet entry dated 13.01.2015, to the appellant as to why his book results should not be rejected and profit rate of 8% not be applied. After considering his reply I have no option but to reject the books of accounts of the appellant and determine income at 8% of the total turnover…”. The order of Ld. CIT(A) is silent on what reply was furnished to her by the assessee; and why it did not find favour with her. The Ld. CIT(A) has also not explained why she has selected 8% as the net profit rate. As the order of Ld. CIT(A) is silent on these important aspects, we are of the view that the entire issue requires fresh consideration by Ld. CIT(A) for a denovo order. Accordingly, we restore the issues in dispute to the file of the Ld. CIT(A) for a fresh denovo order. The Ld. CIT(A) is directed to pass a speaking order, after giving opportunity of being heard to the assessee.

(5) In the result, appeal filed by the Assessee is partly allowed for statistical purposes.