THE HOODA CO-OPERATIVE L/C SOCIETY LTD.,ROHTAK vs. JCIT, ROHTAK

The first two effective grounds are against the rejection of books of account maintained by the assessee and consequential confirmation of addition of Rs.34,90,928/- to its total income.

Briefly stated, the facts of the case are that the assessee society is engaged in the work of civil construction. It filed its return declaring gross total income of Rs.2,91,265/- and total income at Rs. Nil after claiming deduction u/s 80P(2)(a)(vi) of the Income-tax Act, 1961. The AO required the assessee to produce books of account, details of opening and closing work-in-progress, details of all the contract works and other financial details etc. to verify the authenticity of the computed profit. The assessee furnished a register containing minutes of the General Body Meeting held on four occasions. Apart from that, the assessee produced Wage sheets in original and vouchers of expenses and salary registers along with back up copy of books of accounts. The AO observed that the total gross receipts of the assessee society were to the tune of Rs.6.65 crore, which included payment of Rs.3.84 crore to sub- contractor. Rejecting the books of account, the AO applied 4% profit rate on the contracts executed through sub-contractors and 8% on the contracts executed directly. That is how, the assessee’s business income was computed at Rs.37,82,192/-. As the assessee had already shown profit at Rs.2,91,264/-, an addition of Rs.34,90,928/- was made.

I have heard the rival submissions and perused the relevant material on record. The AO has rejected the books of account by noticing that the assessee did not maintain books of account in normal course and manipulated the books because in his opinion, all the vouchers of expenses and salaries and wage sheets, etc., `appeared to have been prepared in one go’. In my considered opinion, this cannot be a good reason to reject the books of account, more specifically, when details of all the relevant expenses backed by the necessary evidence along with the books of account were produced before the AO. Any apprehension cannot take the place of an evidence. Since the AO only suspected that the vouchers of expenses, salaries and wage sheets were prepared in one go without controverting the evidence substantiating the payment of such expenses, I find it difficult to countenance the rejection of the books of account. The maintenance of accounts in proper manner is, ergo, upheld and consequently, the estimation of income made by the AO at 8% and 4% of the contracts executed directly and through sub- contractors is set aside and the declared profit of Rs.2,91,264/- is accepted.

The next issue is against the disallowance of claim of deduction u/s 80P(2)(a)(vi) and granting deduction u/s 80P(2)(c)(ii). The assessee claimed deduction for the full income under 80P(2)(a)(vi) which was turned down by the AO who held that the case of the assessee did not fall under this provision as there was income from sub-contract and the requirement u/s 80P(2)(a)(vi) being the ‘collective disposal of the labour of its members’ was not satisfied. He, therefore, allowed deduction u/s 80P(2)(c)(ii) at Rs.50,000/-. The ld. CIT(A) upheld the assessment order on this point.

I have heard the rival submissions and perused the relevant material on record. In my considered opinion, no fault can be found in the opinion of the authorities below in rejecting the assessee’s claim for deduction u/s 80P(2)(a)(vi) because the assessee was not engaged in the disposal of labour of its members alone as it has also sub-contracted the contract work to some extent. I, therefore, approve the view taken by the authorities in granting deduction u/s 80P(2)(c)(ii). This ground is not allowed.

In the result, the appeal is partly allowed.