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Income Tax Appellate Tribunal, ‘B’ BENCH
Before: Shri P.M Jagtap & Shri S.S.Viswanethra Ravi
Shri S.S. Viswanethra Ravi, JM :-
These two appeals by the assessee in ITA No.2214/Kol/2013 and the revenue in ITA No.2323/Kol/2013 are directed against the order dated 14-06-2013 passed by the Commissioner of Income Tax(Appeals), Asansol for the assessment year 2009-10.
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 1
ITA No.2214/Kol/2013 AY 2009-10 (by the assessee)
The assessee has raised the following grounds:-
For that the order of Ld. Commissioner of Income Tax (A) is arbitrary, excessive hence bad in Law. 2. For that on the facts of the case the ld. CIT(A) was not legally justified in estimating the net profit @ 11% of gross contract receipts which is very much on the higher side and the same may please be modified. 3. For that on the facts of the case the observation of the CIT(A) in Page no.- 8,9 and 10 of the appellate order are contradictory. 4. a) For that on the facts of the case the CIT(A) was not justified in sustaining the addition amounting to Rs.18,00,000/- on Dozer hire charges, Rs.12,57,600/- on Excavator hire charges, and Rs.12,05,200/- on pay loader hire charges u/s. 40(a)(ia) of the Act’61, when book results has been rejected and profit has been estimated at a certain percentage of gross contract receipts, and legally there is no scope for making any further additions and as such the additions may please be deleted. 4. (b) For that. on the facts of the case the C.I.T (A) was not justified in sustaining the addition amounting to Rs. 18,00,0001- on Dozer hire charges, Rs. 12,57,6001- on Excavator hire charges, and Rs. 12,05,2001- on pay loader hire charges, U/S 40(a)(ia) of the Act'61, when the machines were taken on hire from open market, on as per requirement basis, and payments to each person never exceeded the statutory limit u/s 194 I of the Act' 61, during the financial year, and as such the said additions may please be deleted. 5) For that on the facts of the case the Ld. CIT(A) was not legally justified in sustaining the addition of Rs.11 ,42,6001- on A/c of labour wages, when the said payments made to Labour sardars, (supported by wage sheets) are not hit by sec 40(a)(ia) of the Act'61, and the same may please be deleted. 6) For that on the facts of the case the Ld. CIT(A) was not justified in sustaining the addition of Rs.8,63,688/- on A/c of Mr. Sunil Kumar ,( the principal contractor) , when the same is not commission, but the same is the part of his profits retained by him against the Gross contract job sub-let to the appellant( sub contractor), and the addition wrongly made may please be deleted.
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 2
ITA No.2323/Kol/2013 AY 2009-10 (by the revenue)
The revenue has raised the following grounds:- 3.
1) That Ld. Commissioner of Income Tax (Appeal) erred in law and on facts by deleting the addition of Rs. 33,50,562/- on account of undisclosed turnover and restricted the addition to 11 % of undisclosed turnover as assessee has never disclosed this undisclosed turnover during scrutiny proceedings. The specific finding of A.O. is not being taken into concern by Ld.CIT (A).
2) That Ld. Commissioner of Income Tax (Appeal) erred in law and on facts by deleting the addition of Rs. 1,18,058/- on account of partly disallowance of repair & maintenance charges.
3) That Ld. Commissioner of Income Tax (Appeal) erred in law and on facts by deleting the addition of Rs. 11,35,369/- on account of disallowance of excess depreciation on dumpers. Whereas A.O. had made his decision judiciously relying upon decision of CIT Vs Gupta Global Exim (P) Ltd. (2008) 171 Taxmann 474/305 ITR 132(SC) that depreciation block of 30% is applicable only when assessee is in business of hiring out its buses, lorries or taxies. Here assessee used his all dumpers for own business. The specific and rationale finding of A.O. is not being taken into concern by Ld.CIT (A).
4) That Ld. Commissioner of Income Tax (Appeal) erred in law and on facts by deleting the addition of Rs. 10,92,8801- on account of unexplained cash credit u/s 68 of IT. Act, despite of the fact, enough opportunities were given to assessee to offer his explanation, but he totally non complied.
First, we shall take up the assessee’s appeal in ITA No.2214/Kol/2013 for the A.Y 2009-10.
ITA No.2214/Kol/2013 for the A.Y 2009-10
The brief facts relating to the issues are that the assessee is an individual and is a civil contractor and engaged in the business of civil contracts and other miscellaneous contracts and conducted
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 3
his business in the name and style of M/s. Bose Infrastructure and M/s. Continental Techno Co. filed his return of income on 30-09- 2009 declaring total income at Rs.2,47,760/-.Under scrutiny, notices u/s. 143(2)/142(1) were issued. In response to which the ld.AR of the assessee appeared and replied on the questionnaires issued by the AO. During the assessment proceedings the AO found that an amount of Rs.33,50,562/- is an undisclosed income of the assessee as it was not mentioned in the said return of income. The AO on verification of ledger as filed by the assessee was of the view that the assessee has claimed hire charges of Rs.11,09,000/- and Rs.6,91,000/- paid to Sri Dipak Roy and Binod Yadav without deducting the TDS on such payments and added the said amount of Rs.33,50,562/- u/s. 194I of the Act to the total income of the assessee. Similarly, the AO on verification of ledger found that the assessee has paid Excavator hire charges of Rs.12,57,600/- to Sri Prabal Chanda without deducting the TDS u/s. 194(I). The AO added the same to the total income of the assessee. Likewise the AO added the sum of Rs.12,05,200/- towards pay loader hire charges, Rs.11,25,000/- towards roller hire charges u/s. 194C, Rs.11,42,600/- and Rs.8,63,688/- towards labour charges and commission charges u/s. 194H of the Act. The AO also added the sum of Rs.1,18,058, Rs.11,35,369/- and Rs.10,92,880/-towards repairs and maintenance, depreciation charges and cash credit u/s.68 of the Act respectively and finally he determined the total income at Rs.1,33,38,720/- by an order u/s. 143(3) dated 22-12-2011.
Aggrieved by such assessment order passed u/s. 143(3) of the Act, the assessee preferred an appeal before the CIT-A and contended that actual deletion is of Rs.2,24,88,355/-, which is ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 4
more than what was disclosed before the AO. It was the submission that books of account never existed and the tax audit report was disowned. Thus, the ld.AR of the assessee before the CIT-A urged that net profit percentage should be determined at less than the percentage determined by the AO. The AO made the additions/disallowances in view of computing the net profit on estimation basis. Considering the submissions of the assessee the CIT-A opined that there was no reflection of true and correct figures and directed the AO to estimate the net profit at 11% and to reduce the value of material supply and retention of money and further to enquire with regard to deduction claimed on receipts of machinery hire charges.
Aggrieved by such order of the CIT-A, both the assessee and revenue are in appeal before us by raising respective grounds of appeal, which have been mentioned hereinabove.
Before us the ld.AR submits that the assessee has filed the audited accounts, but could not produce the books of account. He further submitted that the CIT-A has estimated the net contract receipts @11%, which is higher than the estimation of earlier years and such assessments were completed by applying the net profit at 8% u/s. 143(3) of the Act. The ld.AR argued that when the authorities have accepted the gross receipts, then the impugned additions made by the AO are invalid. The ld.AR for the assessee further relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Shri Arjun Bhowmick in GA No.2683 of 2014/ITAT No.134 of 2014.
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 5
In reply, the ld.DR submits that the assessee filed his return of income along with the tax audit report. Basing on which, the impugned assessment was completed u/s. 143(3). He further submitted that disowning of the tax audit report and books of account before the CIT-A is incorrect and not fair on the part of the assessee. In support of his contention, he relied on the order/decision of the co-ordinate bench of ITAT, Patna reported in 2015 Taxmann.com 37. The Ld. DR urged to remand the matter to the file of the AO for further verification in respect of additions made towards machinery hire charges and commission.
Heard rival submissions and perused the material available on record including the case laws cited by both the parties before us. We find that, according to the AO the assessee filed his return of income along with tax audit report and books of account. But on subsequent proceedings before the CIT-A the assessee disowned both the tax audit report and non existence of books of account. We find that the AO made the additions/disallowances based on books of account as submitted before him. The CIT-A taking into consideration the submissions of the assessee applied the net profit at 11% and the CIT-A also upheld and modified the other additions/disallowances as made by the AO. Therefore, the question before us is to be decided that whether the CIT-A is justified in directing the AO to adopt the net profit at 11% in the facts and circumstances of the case. Particularly, when the assessee disowned the tax audit report and non existence of books of account. In this regard we may refer to the decision of the Hon’ble Jurisdictional Calcutta High Court in the case of Arjun Bhowmick supra held as the estimation made by AO of net profit
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 6
will take care of every addition related to business income or business receipts and no further disallowance can be made the relevant portion of which is reproduced as under:-
We find that the learned Tribunal while allowing the appeal of the assessee had held as under:- "We find that there is no dispute that there are no books of account as the assessee failed to produce the same. It is also an admitted position that assessee has accepted the application of net profit rate @ 8% on the gross receipts. The dispute only is as regards to disallowance on account of hire charges, transportation charges and slurry removable charges by invoking the provisions of section 40(a)(ia) of the Act. Further, disallowance of supervision charges, labour charges, site expenses, load testing expenses at 50%. Whether the AO can disallow the expenses which are directly related to gross receipt of the assessee on which the AO has estimated net profit by applying the rate of 8%. It is a fact that the assessee has not produced books of account, it means that the AO has not relied on books of account for estimation of profits. This fact is accepted by assessee as well as by revenue. We are of the view that once the net profit rate is estimated the AO cannot base his disallowance on the same books of account for the purpose of disallowance by invoking the provisions of section 40(a)(ia) of the Act or general disallowance u/s. 37 of the Act. The estimation made by AO of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made. We see force in the argument of the assessee that when the income of the assessee was computed applying gross profit rate and no deduction was allowed in regard to the expenses claimed by the assessee, there was no need to look into the provisions of section 40(a)(ia) of the Act or section 37 of the Act. Accordingly, no disallowance could have been made in view of the above facts that once the profit is estimated by applying net profit rate. Accordingly, we direct the AO to delete the other disallowances and restrict the addition by applying Net Profit rate @8% of gross receipts.” We find valid reasons given by the Tribunal in support of this order. Therefore, no substantial question of law arises. Hence, the application and appeal are dismissed.”
Further, we may refer to the another decision as relied on by the Ld.AR passed by the Hon’ble HIGH COURT OF ANDHRA PRADESH in the case of Indwell Constructions v. Commissioner of ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 7
Income-tax [1998] 232 ITR 776 (Andhra Pradesh) wherein the Income- tax Officer rejected the books and estimated the income at Rs. 2,50,000. The Commissioner of Income-tax considered that this estimate was erroneous and prejudicial to the interests of the Revenue and added a sum of Rs. 63,859 under section 263 of the Act. The contention of the assessee was that where the books of account were rejected, the Revenue cannot rely on the same books for addition of cash credits. The Tribunal referred the following question to the Ho’ble High Court.
"Whether, on the facts and in the circumstances of the case, it is correct in law to make a separate addition of Rs. 63,859 representing the interest and remuneration paid to partners, to the income already estimated and assessed from contracts?"
The Hon’ble High Court held that If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income, When such an estimate is made it is in substitution of the income , in other words, all the deductions are deemed to have been taken into account while making such an estimate and the relevant portion of which is reproduced herein below:
The pattern of assessment under the Income-tax Act is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under section 29. In other words, all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account. No doubt there is a big difference between profit earned with own capital and profit earned with borrowed capital and such a difference could have been taken into account by the Income-tax Officer while making an ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 8
estimate. If the Commissioner had set aside the estimate on the ground that the vital fact that the business was carried on with own capital and not with borrowed capital has been ignored by the Income-tax Officer, there may not have been any difficulty in upholding that order. But, when he proposes to add back an exact item in the profit and loss account, he was relying on the rejected books which he could not do as held by the Bench of this court in Maddi Sudarsanam Oil Mills Co. v. CIT [1959] 37 ITR 369. There is also a further difficulty if section 40, as argued by learned counsel, is to be taken into account even after making an estimate. When there are certain other deductions which are to be disallowed such as wealth-tax payment in section 40, can it be said that after making an estimate, the wealth-tax charged in the profit and loss account should again be added back to the profit. This example illustrates how the contention of the Revenue, that section 40(b) makes a difference in the situation, is untenable. In our considered opinion, the answer to the question has to be in the negative and in favour of the assessee.
In the aforesaid decision , the Hon’ble High Court was pleased to refer to a decision in the case of Maddi Sudarsanam Oil Mills Co. v. Commissioner of Income-tax reported in [1959] 37 ITR 369 (AP) passed by HIGH COURT OF ANDHRA PRADESH. The facts therein are that The assessee disclosed a turnover of Rs. 18.18 lakhs and a gross profit of Rs. 92,726 in the books which worked out to 5.1%. The net income disclosed by the assessee was Rs. 25,454. This figure, however, was not accepted by the Income-tax Officer who added four sums on account of the value of the yield of oil and cake from unaccounted for kernel Rs. 34,795, the value of deficit yield of oil and cake from kernel disclosed in the books Rs. 46,001, unaccounted for profit on sale of permits restricted to the unproved cash credits Rs. 56,345, and interest of Rs. 48 in respect of one of the impugned cash credits, making a total of Rs. 1,37,189. An appeal against these additions was rejected. The Tribunal, while maintaining the additions, rejected the books. The following has been referred to the Hon’ble HIGH COURT OF ANDHRA PRADESH.
"Whether on the material placed before it the Tribunal is justified in sustaining the addition of Rs. 1,37,189."
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 9
The Hon’ble High Court observed Having computed the gross profit at 9.5%, further addition a sum of Rs. 56,345 on account of unproved cash credits and such addition is wrong when a flat rate of 9.5% on the total turnover is being adopted in computing the gross profits and the relevant portion of which is reproduced herein below:
The contention of the learned advocate Shri Kuppuswamy is that the Tribunal having adopted as the basis of assessment a gross profit of 9.5% instead of 5.1% had computed the figure of Rs. 1,37,189 wrongly. This contention, in our view, is valid. The Tribunal has made an arithmetical error in the computation, because the additions on account of the value of the yield of oil and cake from the unaccounted for kernel of Rs. 34,795 and on account of the yield of oil and cake from kernel disclosed in the books of Rs. 46,001 would come to Rs. 80,796 and enhance the profit to Rs. 1,72,522 which on a total turnover of Rs. 18,18,308 works out to about 9.5%. The Appellate Assistant Commissioner has also computed these figures as showing a yield of 9.5%, gross profit, which is the gross profit in three other similar cases in Guntur. Having thus computed the gross profit at 9.5%, the Appellate Assistant Commissioner further added a sum of Rs. 56,345 on account of unaccounted for profit on sale of permits restricted to the unproved cash credits. This addition is obviously wrong when a flat rate of 9.5% on the total turnover is being adopted in computing the gross profits. The assessee had recourse to the several entries of cash credits only for the purposes of balancing the accounts with a view to reducing the rate of gross profits. If once the income-tax authorities have rejected the books, they cannot have it both ways, namely, adopting a flat rate to compute gross profit as well as rely on the books for the purposes of adding unexplained cash credits which were part of the scheme of balancing the accounts. The Tribunal, quite properly, rejected this basis and having done so, merely confirmed the additions of the income-tax authorities, probably under the impression that the two items of yield of oil and cake from unaccounted kernel and the value of deficit yield of oil and cake from kernel disclosed in the books would amount to Rs. 1,37,189. We cannot, having regard to the categorical observations of the Tribunal that the addition should be unitary where the proviso to section 13 of the Act is applied by making an estimate, assume that the Tribunal intended to negative the statement by also adding cash credits in computing the gross profits. In the circumstances we have no hesitation in holding that the addition on the flat rate of 9.5% adopted by the Tribunal in estimating the gross profit is proper and that the amount of Rs. 1,37,189, was wrongly computed. Our answer to the reference is in the negative. The assessee will receive costs from the Department. 15. Now, we shall examine the decision relied on by the Ld.DR in the case of Prabhat Construction Company reported in (2015) 60
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 10
taxmann.com 37(Patna-Trib) passed by Patna Bench of Tribunal. The relevant portion which is reproduced herein below:
With regard to the disallowance u/s.40(a)(ia) being not permissible, even where applicable, i.e., where the assessment is framed on estimation basis, we have found the argument as not legally tenable. This is as the assessment of income even under the estimation regime is of the total income under the Act and not of the business profit alone, and which could only be upon considering the applicability or otherwise in the facts of the case of all the relevant provisions of law, to which section 40(a)(ia) is or cannot be any exception. The same in fact is a statutory disallowance, artificially inflating the assessee-payer's income for the time being, which is liable to be allowed as deduction upon complying with the condition prescribed for its non applicability, i.e., of the deposit of TDS to the credit of the payee, in the year in which it stands complied with, introducing thus a timing effect. Not so considering; rather, leads to an anomalous, unacceptable situation. Our reasons in support of our decision stand listed in the foregoing paragraphs of this order. Our decision, based on first legal principles, is supported by the decisions in the case of Shyam Bihari (supra) by the hon'ble jurisdiction high court and Shri Ram Jhanwar Lal (supra). In both these decisions, the hon'ble high courts have held in favour of deduction of statutory allowances even where the income is estimated on global basis, which has been understood by the tribunal to imply that in-as-much as the said allowances have not been considered or factored into by the A.O. in arriving at his estimation, the same being otherwise deductible, with his purview being to assess the total (assessable) income under the Act, would have to be given effect to. True, there is reference to the Circular by the Board, of which support is drawn by the hon'ble courts. However, the said Circular does not and cannot override the law, nor is the same binding on appellate authorities. The premise, or the underlying concern, it needs to be appreciated, is to arrive at the best estimate of the total income after considering all the relevant provisions of law, be it qua an allowance or disallowance in-as-much as the assessment is to be only in accordance with the law. The assessee's argument thus is not valid and, accordingly, we find no infirmity in the direction of the ld. CIT in restoring the assessment for the consideration of the relevant issues to the file of the assessing authority. We decide accordingly.
The Patna Tribunal above has opined that the argument of the Assessee not legally tenable in respect of the disallowance u/s.40(a)(ia) not permissible when the assessment is framed on estimation basis. The Tribunal come to such conclusion basing on the ratio laid down by the decisions in the case of Shyam Bihari (supra) and Shri Ram Jhanwar Lal (supra) by the Hon'ble Jurisdictional High Court wherein the Hon'ble high courts have held in favour of deduction of statutory allowances even where the income is
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 11
estimated on global basis. In our opinion, the order of Patna Tribunal is not binding on us for the reason, the Hon’ble High Court of Calcutta having jurisdiction was pleased to hold, already discussed above in aforementioned paras as the estimation made by AO of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made. Respectfully following the same, we direct the AO to fix the income of the Assessee at 8% and, in view of the same, delete all other disallowances made u/sec 40(a)(ia) of the Act. Therefore, the grounds raised by the assessee are allowed.
Now, we shall deal with appeal of Revenue in ITA No.2323/Kol/2013 AY 2009-10
ITA No.2323/Kol/2013 AY 2009-10
In this appeal, the revenue challenged the order of CIT-A by aforementioned grounds of appeal. We find that the CIT-A deleted the addition of Rs.33,50,562/- made on account of undisclosed turnover on the basis of such direction given to the AO to fix the income of assessee at 11% of the turnover. Likewise, the CIT-A also deleted the additions made on account of disallowance of repair and maintenance charges, excess depreciation on dumpers and addition made u/s. 68 of the Act on account of unexplained cash credit. As we have decided the appeal filed by the assessee, wherein we came to a conclusion basing on the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of supra. Respectfully following the same, we have directed the AO to fix the income of the Assessee at 8% and delete disallowances made by the AO therein. In view of the same, by adopting the same ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 12
conclusion arrived as in assessee’s appeal, the grounds raised by revenue in ITA No.2323/Kol/2013 AY 2009-10 does not require further consideration. Accordingly, the grounds of revenue’s appeal are dismissed.
In the result, the appeal filed by the assessee in ITA No.2214/Kol/2013 for the A.Y 2009-10 is allowed and appeal of the Revenue in ITA No.2323/Kol/2013 AY 2009-10 is dismissed.
Order Pronounced in the Open Court on 30th September,2016
Sd/- Sd/- P.M JAGTAP S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 30 /09/2016
Copy of the order forwarded to:- 1. The Appellant/Assessee: Sri Hribu Bose E-58 Road No.4 New Town, Burnpur 713325(WB). 2. The Respondent/Department; The Income Tax Officer, Ward 1(2), Sahana Building, Lower Chelidnaga,PIN 713304, Asansol. 3. CIT 4. CIT(A) 5. The Departmental Representative 6. Guard File True Copy By order Assistant Registrar ** PRADIP SPS Income Tax Appellate Tribunal Kolkata benches, Kolkata
ITA Nos. 2214 & 2323/Kol/13 Shri Hribu Bose 13