ACIT, TIRUNELVELI vs. T.CHINNARAMASIVAN, TIRUNELVELI

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The revenue filed this appeal against the order of the

Commissioner of Income Tax (Appeals)-3, Madurai in ITA No. 0015/16-17

dated 27.02.2017 for assessment year 2013-14.

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the construction and repair works of road and other civil structures etc.

Since, the assessee did not comply to the requirements under u/s 142 and did

not produce books of accounts etc, the AO issued show cause notice u/s. 144

as to why the assessment should not be completed to the best of his

judgement by taking 8% of the receipts as net profits for which also the

assessee did not comply. Hence, the Assessing Officer estimated the total

income of the assessee , on the gross receipts of Rs. 10,58,45,016/- at the

rate of 8%, at Rs. 84,67,601/-. Further he held that the assessee has

deposited cash at Rs. 24,61,000/- in saving bank account during the year for

which the assessee offered no explanations and hence he treated it as an

unexplained money in the hands of the assessee u/s. 69A and taxed the same

on maximum marginal rate invoking section 115BBE. Aggrieved against the

assessment order, the assessee filed an appeal before the CIT(A). The

CIT(A)-3, Madurai, following the precedence in the assessee’s case held that it

would be justified to estimate the income at 6% of contract receipts. On the

addition u/s. 69A, the CIT(A) held that the AO has not recording the finding

that the bank accounts in which cash deposit were not disclosed to the

department in the balance sheet. Relying on the copy of cash book

containing the bank transactions submitted by the assessee, he deleted the

addition.

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appeal:

“2. The CIT(A) ought to have considered the fact that the AO is not satisfied with the corrections or completeness of the accounts maintained. 3. The CIT(A) failed to consider the fact that the AO issued show cause notice dated 01.03.2016 calling for the objection, if any, to the proposal complete the assessment u/s. 144 rws 145(3) of the I.T. Act 1961 estimating income at 8% but no objections were raised before the AO to the said proposal. 4. The CIT(A) ought to have considered the fact that the assessee failed to produced supporting evidence in respect of claim for various expenses despite repeated opportunities and thus the AO completed the assessment in the manner provided in section 144 of the I.T. Act 1961. 5. The CIT(A) failed to consider the fact that the principle of res judicata is not applicable to Income-tax proceedings and hence decision taken in a particular year is not binding in a subsequent year. 6. The CIT(A) failed to note the judgement of Hon’ble Madras High Court in the case of CIT vs. A. Vajjram and Bros (Tax case Appeal No. 1266 of 2008) (326 ITR 551) wherein it is held that estimation of 8% of the contract receipts is judicious and requires no interference. 7. The CIT(A) failed to consider the fact that the assessee offered no explanation about the cash deposits in a saving bank account. The CIT(A) ought to have given reasonable opportunity to the AO as per rule 46A of the I.T. Rules 1962 to verify the fresh evidence produced by the assessee during the course of appellate proceedings before the CIT(A).”

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appeal visa vis the CIT(A) order and submitted that on the facts and

circumstances, the estimation of 8% of the contract receipts is judicious and

requires no interference. The CIT(A) failed to consider the fact that the

assessee offered no explanation about the cash deposits in a saving bank

account and hence he ought to have given reasonable opportunity to the AO

as per rule 46A of the I.T. Rules 1962 to verify the fresh evidence produced

before the CIT(A) . None was present for the assessee.

assessment for assessment year 2013-14, the Assessing Officer issued notice

u/s. 142(1) etc calling for required particulars. The assessee did not comply.

Further, he issued specified questionnaire by a letter dated 16.11.2015 for

which partial submissions was made. From the details furnished, the AO

noticed that the assessee maintained the rough register and self-made

vouchers and the expenses were not supported by reliable and cogent

evidence. Therefore, the AO required sign/attested ledger folios along with

certain details. The assessee did not comply. The AO issued a show cause

notice u/s. 144 as to why this assessment should not be completed to the

best of Assessing Officer judgement by taking 8% receipts as net profits for

which also the assessee did not comply. The AO found that the assessee’s

gross receipts from contract is at Rs. 10,58,48,060/- and the net profit

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reported is Rs. 52,92,250/- which is exactly 5% of the gross receipts. The

assessee reported labour charges to the tune of Rs. 5,02,62,500/- as per

books which is 47.49% of the gross receipts. The assessee also claimed

material purchased to the tune of Rs 3,51,97,369/-. Out of labour and

material charges claimed Rs. 2,35,07,275/- remains outstanding as expenses

payable as per balance sheet. When the assessee was asked to produce

details of expenses claimed along with the supporting evidence, the assessee

furnished non-attested ledger folios and rough wage registers with some

signatures which were incomplete. Consequently, it has become impossible to

verify the correctness of the expenditure incurred on wages which amounts to

Rs. 5,02,62,500/- for which no verifiable ledgers have been produced nor any

vouchers/receipts of payments/complete wages register etc and thus no other

reference is available for cross verification. It created a doubt about the

correctness of the books of accounts and also whether any books of account

has been maintained by the assessee in the least. He was of the view that

the books of account have been subsequently prepared by the assessee so as

to reduce the incidence of tax liability and circumvent the provisions of TDS

and other compliances. The net profit is calculated at 5% of the gross

receipts and then other expenses are contrived to suit the calculation arrived

at. In the facts and circumstances, the AO was not satisfied about the

correctness and completeness of the accounts of the assessee and found no

good reason to place reliance on the books of accounts furnished by the

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assessee. Hence, the Assessing Officer rejected the books of accounts and

found that the assessment has to be proceeded u/s. 144. He issued a show

cause notice u/s. 144 to explain why the assessment should not be

completed to the best of his judgement by taking 8% of total receipts as net

profit. The assessee did not comply. Relying on the ratio of the Hon’ble

Madras High Court in CGT Vs A. Vajjram Bros., 326 ITR 551 (Mad) and the

observation of the ITAT in that case that in section 44AD, where certain

business turnover or gross receipts in a year does not exceed an amount of

one crore rupees, 8% of total receipts is taxed. Even though this section is

not applicable here, there is no good reason for estimating profit at a lower

percentage than at 8% as small assessee with turnovers less than Rs. 1

crores are legally required to offer tax on profit estimated at 8%, the

Assessing Officer estimated the total income of the assessee on the gross

receipts of Rs. 10,58,45,016/- at the rate of 8% at Rs. 84,67,601/-. In this

regard, the relevant portion of the CIT(A) order is extracted as under:

“3.2. At the time of hearing the representative did not seriously contest the rejection of books of accounts and estimation of income. He only submitted that in the contract of laying the road work, the appellant would not able to maintain proper vouchers in respect of material purchases and wages. He submitted that the wages relating to the last two or three months would be outstanding as the appellant was to get the bill amount from the Government. He submitted that for earlier assessment years when the books of accounts of the appellant were rejected, the income was estimated at 6% of the contract receipts and he had no objection for assessing the income at 6% of the gross

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contract receipts. For this purpose, he submitted a copy of assessment orders in assessee's own case for assessment year 2006-07 and 2007- 08, in which the income was estimated at 6% of the contract receipts.

3.3. I have considered the submissions of the representative. Admittedly, the Assessing Officer was not satisfied with the genuineness of books of accounts and the relevant vouchers and, therefore, rejected the books of accounts and resorted to estimation of income. The representative at the time of hearing accepted that the books of accounts could be rejected but only submitted that the contract income could be estimated at 6% of the contract receipts as in the assessment years 2006-07 and 2007-08 and submitted copies of assessment orders. For assessment year 2006-07, the assessment u/s 143(3) was completed on 25.11.2008 by Income Tax Officer, Ward 1(1), Tirunelveli estimating the contract income at 6% of the contract receipts. Similarly, for assessment year 2007-08 the contract income of the appellant was estimated at 6% of the gross contract receipts in the assessment order u/s 143(3) dated 6.10.2009 by the Income Tax Officer, Ward 1, Tirunelveli. Following the precedents in the assessee's own case, I consider that it would be justified to estimate the income of the appellant at 6% of the contract receipts. Accordingly, the Assessing Officer shall work out the income from the contract at 6% of the contract receipts as against 8% in the assessment order. “

show cause notice issued by the AO, u/s. 144, requiring him to explain as to

why the assessment should not be completed to the best of his judgement by

taking 8% of total receipts as net profit. He has also not explained before the

CIT(A) as to whether, he was prevented by sufficient cause from producing

any evidence including the evidences produced by him before the CIT(A). The

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CIT(A) has not examined as to whether the assessee’s turnover, payables

shown and other business environment etc in the earlier years prevailed on

similar set of facts etc as is found and deliberated by the AO in this

assessment year. In the facts and circumstances, we are of the view that the

order passed by the CIT(A) is not based on relevant material, he is not

justified in his decision and hence, we set aside the order of the CIT(A) and

restore the order of the AO.

deposited cash at Rs. 24,61,000/- in savings bank account during the year for

which the assessee offered no explanations and hence he treated it as an

unexplained money in the hands of the assessee u/s. 69A and taxed the same

on maximum marginal rate invoking section 115BBE. In this regard, the

relevant portion of the order of the CIT (A) is extracted as under:

4.2. At the time of hearing the representative submitted that it is not known wherefrom the Assessing Officer adopted the figure of cash deposits at Rs.24,61,000/-. He submitted that the Assessing Officer never proposed this addition and invited the objections of the appellant. He submitted a copy of cash book and pointed out that the cash deposits made by the appellant were duly reflected in the cash book. He submitted that the total cash deposits in the bank accounts of the appellant with Karur Vysya Bank, State Bank of India and Indian Overseas Bank is only Rs.7,10,000/- and the appellant has also withdrawn RS.8,34,9001- from the same accounts during the year as per cash book. He submitted that the Assessing Officer did not record a

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finding that the bank accounts were not disclosed to the department in the balance sheet filed. along with the return of income. He submitted that the appellant had disclosed all the bank accounts in the balance sheet and each and every transaction in the bank account is reflected in the cash book maintained by the appellant. 4.3. I have considered the submissions of the representative. The Assessing Officer passed a brief order on this point without incorporating the explanation of the appellant. At the outset, it is not known wherefrom the Assessing Officer adopted the figure of RS.24,61,000/- in the assessment order. The Assessing Officer has not recorded a finding that the bank accounts in which cash was deposited were not disclosed to the department in the balance sheet. In the absence of above finding, there is no case for adding the cash deposits. As contended by the representative, the appellant is having three bank accounts viz. State bank of India, KarurVysya Bank, and Indian Overseas Bank and the total deposits made as per the books of accounts is only RS.7,10,000/- through out the year and further the appellant has periodically withdrawn money from the same accounts to the extent of Rs.8,34,900/- . A copy of cash book containing only the bank transactions is enclosed to this appellate order. In view of the above, I find that the addition is not justified and the same is deleted.”

observing that the Assessing Officer has not recorded a finding about the

bank accounts in which cash was deposited which were not disclosed to the

department in the balance sheet. It is seen from the order of the CIT(A) none

was present for the department. In such case, the case records should have

been before the first appellate authority. From the above order, it is clear

that the CIT(A) has neither examined the case record nor forwarded the copy

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of cash book containing only the bank transactions furnished by the assessee

to the AO and sought his comment. The enclosed copy is also not any bank

statement but a single page cash book extract signed by the assessee alone

and not by an auditor. For the disclosed turnover, his books should have been

audited u/s 44AB. From such cash book extract, it is not possible to draw any

conclusion. The Revenue makes out a case under rule 46A also. In the facts

and circumstances, this issue is restored to the AO for a fresh examination.

The AO shall afford adequate opportunity to the assessee and then pass a

speaking order.

purposes.

Order pronounced on Wednesday, the 27th day of September, 2017 at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (एसजयरामन) (N.R.S. GANESAN) (S. JAYARAMAN) लेखासद"य/Accountant Member !या�यकसद"य/Judicial Member

चे�नई/Chennai, 0दनांक/Dated: 27th September, 2017 JPV आदेशक&)�त1ल2पअ3े2षत/Copy to: 1. अपीलाथ%/Appellant 2. )*यथ%/Respondent 3. आयकरआयु4त (अपील)/CIT(A) 4. आयकरआयु4त/CIT 5. 2वभागीय)�त�न�ध/DR 6. गाड7फाईल/GF