ACIT, JAIPUR vs. BHIVARAM PANNALAL, JAIPUR

PER SHRI KUL BHARAT, J.M.

The revenue and the assessee have challenged the order of ld. CIT (Appeals)-II, Jaipur dated 08.10.2013 pertaining to assessment year 2010-11 by filing appeal and cross objection respectively. Both the appeal and the

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cross objection are taken up together and are being disposed of by way of a

common order, for the sake of convenience.

the modified grounds as taken by the revenue reads as under :-

“ 1. Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) was justified in reducing the addition in contract receipts to Rs. 3,87,00,000/- (Cash receipts only) against addition of Rs. 9,41,35,821/- made by the AO in the contract receipts on the basis of agreement and final bill statement found during the survey proceedings.”

for scrutiny assessment and the assessment under section 143(3) of the

Income Tax Act, 1961 (hereinafter referred to as the Act) was framed vide

order dated 01.03.2013. While framing the assessment, the AO noticed

various defects in the books of accounts and proceeded to reject the book

result and applied the net profit @ 10% on the total contract receipts of Rs.

28,51,47,718/-. The AO made addition into the contract receipts in respect of

the final bill seized in the case of M/s. Shivgyan Developers Pvt. Ltd. i.e. the

developer where the assessee had carried out the construction work.

Aggrieved by this, the assessee preferred an appeal before ld. CIT (A), who

after considering the submissions partly allowed the appeal thereby the ld.

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CIT (A) confirmed the estimation of profit @ 10%. However, he restricted the

unaccounted contract receipts to Rs. 3,87,00,000/- against the accounted

contract receipts of Rs. 9,41,35,821/-. Aggrieved by this, both the revenue

and assessee are before this Tribunal by way of appeal and cross objection.

not wish to press Cross Objection. The ld. D/R has no objection. Accordingly,

the Cross Objection No. 7/JP/2014 of the assessee is dismissed as not

pressed.

ground of the revenue’s appeal is against reducing the contract receipts from

Rs. 9,41,35,821/- to Rs. 3,87,00,000/-. The ld. D/R submitted that ld. CIT (A)

was not justified in reducing the contract receipts. He submitted that the

dispute relates to the final bill recovered from the premises of M/s. Shivgyan

Developers. He drew our attention to page 4 of the paper book of the

revenue wherein the final bill has been enclosed. He submitted that the

assessee has not disputed the other contents of the bill except the payment

made towards Steel and Cement. He submitted that on the same bill there is

a mention of payment made by cash of Rs. 3,87,00,000/- which has been

included by the assessee in its return of income and the taxes have been

paid. However, he submitted that in respect of the payment made towards

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Steel and Cement is not accepted i.e. amount of Rs. 2,78,20,000/- towards

Steel and Rs. 1,62,01,000/- towards Cement.

5.1. On the contrary, ld. Counsel for the assessee opposed the submissions

of ld. D/R and submitted that there is no description as to how this payment

was made to the assessee. He pointed out that there are two payments –

one by cash and another by cheque. The total amount as paid to the

assessee was Rs. 3,87,00,000/- and Rs. 3,14,53,887/-. The other payments

were made directly to the suppliers.

5.2. We have heard rival contentions, perused the material available on

record and gone through the orders of the authorities below. The only issue

to be decided is whether the assessee has received a sum of Rs.

2,78,20,000/- related to Steel and Rs. 1,62,01,000/- relate to Cement. For

the sake of clarity, the relevant contents of the Final Bill are reproduced as

under :-

“ Detail of payment to Bhivaram Pannalal as follow :

Steel : 1070000 Kgs @ 26 2,78,20,000/- Cement : 95300 Bags @ 170 1,62,01,000/- Cash paid 3,87,00,000/- Paid by Cheque 3,14,53,887/- Suppliers Bills Paid 1,13,62,585/- ------------------ 12,55,37,472/- ------------------ “

In this background, the ld. CIT (A) decided the issue by observing as under :-

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“ 3.3. I have considered the facts of the case; assessment order and appellant’s written submission. Appellant was contractor of M/S Shivgyan Developers Pvt. Ltd. During the course of search/survey two agreements of the same date were found. As per first agreement, appellant was to carry out construction work with material and as per second agreement, appellant was to undertake only Labour work. Appellant has accounted for labour receipt of Rs. 3,14,53,887/- from M/s Shivgyan Developers Pvt. Ltd. whereas a document found during search, which is Annexure to the assessment order, indicated payment of Rs. 125537472/-. Based on this document, assessing officer increased appellant’s turnover from Rs. 31453887/- to Rs. 125537472/- and applied 10% net profit to it. Appellant did not agree to the AO’s contention that first agreement is relevant after entering into second agreement for the same contract. Since AO has taken turnover figures from seized paper annexed to assessment order, the controversy regarding applicability of 1st agreement or 2nd is not relevant. Even appellant also submitted explaining the seized document that on the same page the entire payment details to the assessee is mentioned and as per this payments were given to him by way of steel, cement and other suppliers’ bills apart from cash and cheque payment. Appellant further agreed to include cash received Rs. 3,87,00,000/- as appearing in the seized paper as his turnover for the purpose of estimating profit. Except these two payments, appellant did not receive any payment other than supplied given by M/s. Shivgyan Developers Pvt. Ltd. It is not in dispute that appellant actually received from M/S Shivgyan Developers Pvt. Ltd. Rs. 3,87,00,000/- and Rs. 3,14,53,887/-. Balance amount was given by way of steel, cement and other suppliers’ bills. Assessing Officer applied net profit rate of 10% on the entire amount including payment on account of steel, cement and suppliers bills. Appellant submitted that there is no element of profit in the supply of steel cement etc by M/S Shivgyan Developers Pvt. Ltd. The fact of supply of steel, cement and other material is clearly mention in the same seized paper which cannot be ignored. Appellant relied upon several decisions including decisions of jurisdictional High Court in which in the similar facts, it is held that material supplied by the party cannot be included in turnover of the contractor for estimating profit. The relevant part of the decisions relied upon by the appellant are quoted below-

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1- The Supreme Court while deciding the appeal in Brij Bhushan Lal Parduman Kumar V. CIT (1978) 115 ITR 524 held as under:

”… in substance and in reality, such stores/material always remains the property of the department and the contractor has merely the custody of it and he fixes or incorporates the same into the works. It seems to us clear that in such circumstances and having regard to the terms and conditions on which such supply of stores/materials is made there is not even a theoretical possibility of any element of profit being involved in the turnover represented by the cost of such stores/material… when stores/material is, supplied by the Government department at fixed rates for being sued, fixed or incorporated in the work on terms indicated above, there would be no element of profit involved in the turnover represent by the cost of such material. It is turn that, ordinarily, when a works contract is put through or completed by a contractor the income or profits derived by the contractor from such contract is determined on the value of the contract as a whole and cannot be determined by considering several items that go to form such value of the contract but in our view where certain stores/material is supplied at fixed rates by the department to the contractor solely for being used or fixed or incorporated in the works undertaken on terms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/materials so supplied. Therefore, since no element of profit was involved in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee-firms, the income or profits derived by the assessee-firms from such contracts will have to be determined on the basis of the value of the contract represented by the cash payments received by the assessee-firms from the M.E.S. department exclusive of the cost of the materials/ stores received for being used, fixed or incorporated in the works undertaken by them.” (p.532)

2- The Rajasthan High Court is case of CIT Vs Rameshwar Das Narsingh Das & Co. ( 1985) 155 ITR 270 (Raj).

”It is well settled that the value of the materials supplied by the Government departments to a contractor for being used in the execution of the works is to be excluded while determining the turnover of the assessee- contractor. Accordingly, the cost of materials supplied by the Government was not includible in the gross receipts for the purpose of estimating the net income of the assessee.”

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3- The Rajasthan High Court in case of Addl. CIT Vs. Heman Das Dhanrajmal (1985) 155 ITR 533

”The value of the materials supplied by the State Government to the contractor for being exclusively used for the execution of the work was to be excluded while determining the turnover of the contractor-assessee. The Tribunal was, therefore, right in holding that the cost of materials supplied by the State Government could not be included in the gross receipt of the business of the assessee while calculating the net profits of the assessee’s business.”

4- The Rajasthan High Court in case of Girdhari Lal and Co. Vs. CIT (1998) 230 ITR 510 ( Raj.)

” In the instant case, the Tribunal, while holding that receipts by way of adjustment of raw materials were to be included in the gross receipts for purpose of estimation of gross profit, had, after taking into consideration the various clauses of contract, found that the case of the assessee was having similar facts as were in the case of Brij Bushan Lal V. CIT [1971] 81 ITR 497 ( Pun) & Har.) decided by the Allahabad High Court. Since the said decision had already been overruled by the Apex Court in Brij Bhushan Lal Praduman Kumar v. CIT [1978] 115 ITR 524, the natural corollary would be that the assessee would be entitled for reducing the cost of materials supplied from the gross amount of the contract and the tax liability would be only on the balance payment.”

From the aforesaid decision of Supreme Court and jurisdictional High Court, it is clear that that material directly supplied by the party or receipts by way of adjustment of raw material are to be excluded from the turnover of the contractor for the purpose of calculating net profit. In the case of appellant, apart from money received by cheque Rs. 3,14,53,887/- and cash Rs. 3,87,00,000/-, other payments are either direct material supplied or adjustment in respect of material supplied and therefore the same has to be excluded from the turnover of appellant while estimating net profit. Assessing Officer included Rs. 9,41,35,821/- as appellant’s unaccounted turnover which includes adjustment in respect of steel, cement and supplier’s bills. This also includes cash payment of Rs. 3,87,00,000/- which appellant has also accepted as part of his turnover. Respectfully following the decisions of jurisdictional High Court and Supreme Court, assessing officer is directed to exclude adjustment in respect of steel, cement and suppliers

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bills from the gross bills for the purpose of estimation of net profit is therefore reduced from Rs. 9,41,35,821 to Rs. 3,87,00,000.”

The above finding of fact is not controverted by the revenue by placing any contrary material on record. Moreover, the final bill as relied by the revenue

states payment by cash and cheque and the description is clear that there is no ambiguity in this regard. Therefore, we do not see any reason to interfere

into the order of ld. CIT (A), the same is hereby affirmed. The ground raised by the revenue is dismissed.

Order pronounced in the open court on 28/02/2017.

Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Kul Bharat) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/02/2017. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- The ACIT, Circle-6, Jaipur. 2. izR;FkhZ@ The Respondent- M/s. Bhivaram Pannalal, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 966/JP/2013 & CO No. 7/JP/14} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत

9 ITA No. 966/JP/2013 M/s. Bhivaram Pannalal