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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This Revenue’s appeal for A.Y. 2013-14, arises from order of the CIT(A)-3, Rajkot dated 30-06-2017, in proceedings under section 250 of the Income Tax Act, 1961; in short “the Act”.
Page No 2 ACIT vs. M/s. Shanti Structure P. Ltd.
The Department has taken the following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in validating the books of accounts of the assessee. The Ld.CIT(A) ought to have upheld the rejection of books of accounts of the assessee, since the rejection of books of accounts was the result of the compounding effect of the severe irregularities brought on record by the AO..
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,80,03,636/- made by the AO on account of estimation of NP.
3. The Ld.CIT(A), Rajkot has erred on facts in enhancing the returned income byRs.3,00,000/-only, which is negligible amount as compared to the volume of the business of the assessee and without any rationale and justification of this particular amount of Rs.3,00,000/-.
4. Any other ground that the Revenue may raise before or during the proceedings before the Hon'ble ITAT.
On the facts of the case and in law, the Ld. C.I.T.(A) ought to have upheld the assessment order of the A.O.
6. It is, therefore, prayed that the order of the C.I.T.(A) may be set aside and that of the A.O. be restored to the above extent.”
The brief facts of the case are that the assessee is a private limited company and is dealing in execution of civil contract work awarded by the Government and other agencies. The return of income was filed by the assessee for the year under consideration declaring total income of � 1,55,85,030/-. During the course of assessment, the AO observed that on examination of the books of accounts, vouchers and details filed by the Page No 3 ACIT vs. M/s. Shanti Structure P. Ltd. assessee, it is apparent that there are certain discrepancies in the books of accounts of the assessee. The AO observed that quantitative details/Tally is not maintained by the assessee, the opening and closing stock is valued by the assessee on estimated basis as per Notes to the Accounts of the Auditors Report, while the assessee has got substantial work done through sub- contractors but no separate accounts of such work done by sub-contractor’s is maintained so as to ascertain the profit margin attributed to such work, part of the purchases are from unregistered dealers and such expenses cannot be independently verified, permanent attendance register for labour is not maintained in respect of raw materials purchased in stores and other item consumed during the contract work, no stock registered is maintained wherein the inputs are recorded etc. Accordingly, in light of the above discrepancies pointed out by the AO in the books of accounts of the assessee, the AO was of the view that all the vital links in the accounts are missing and leakage in profit cannot be ruled out. Accordingly, in the light of the observations, the AO rejected the books of the assessee under section 145(3) of the Act and proceeded to estimate the profit of the assessee. The AO estimated the profits of the assessee by taking recourse to section 44AD of the Act and accordingly added a sum of � 3,71,36,545/- to the income of the assessee as per table reproduced in the assessment order.
The assessee filed appeal before Ld. CIT(Appeals) who allowed the appeal of the assessee by firstly holding that in the instant set of facts, the AO has not been able to provide any sound basis for rejecting the books of accounts of the assessee under section 145(3) of the Act and accordingly, he held that the books of accounts of the assessee are not liable to be rejected.
Page No 4 ACIT vs. M/s. Shanti Structure P. Ltd. Further, the Ld. CIT(Appeals) also observed that identical issue was involved in the assessee’s own case for assessment year 2009-10 to assessment year 2011-12, wherein also the books of accounts were rejected and income of the assessee was estimated by the AO on identical contentions. In the first appeal for all the said three years before CIT(Appeals), it was held by his predecessor CIT(A) that rejection of books of accounts was improper and estimation of income was also unjustified. Accordingly, Ld. CIT(Appeals) relied on the order passed by his predecessor CIT(Appeals) for assessment year 2009-10 to assessment year 2011-12 and allowed the appeal of the assessee. He further observed that in assessment years 2009-10 to 2011-2, lump-sum disallowances of � 3 lakhs were made to cover possible irregularities and deficiencies. Following the same order passed by his predecessor CIT (Appeals) and keeping in mind the quantum of gross receipts, Ld. CIT(Appeals) made a lump-sum disallowance of � 3 lakhs to the returned income of the assessee. Accordingly, Ld. CIT(Appeals) restricted the disallowance to � 3 lakhs in the appellate proceedings.
5. The Department is in appeal before us against the order passed by Ld. CIT(Appeals) restricting the disallowance to � 3 lakhs. The DR submitted that looking into the facts of the case, the books of the assessee are liable to be rejected under section 145(3) of the Act since they do not reflect the correct quantum of profits earned by the assessee. The DR submitted that the principal of Res Judicata does not apply to income tax proceedings and each year has to be independently analysed. Further, the DR also pointed out that clearly it is not possible in the instant facts to accept the argument of the assessee that it is not possible for the assessee to maintain the books of Page No 5 ACIT vs. M/s. Shanti Structure P. Ltd. accounts in this line of business of civil construction. The DR submitted that it is not possible to accept the contention that it is not possible for the assessee to correctly maintain the books of accounts and therefore, the action of the AO in rejecting the books of accounts of the assessee under section 145(3) of the Act is liable to be upheld. The DR further submitted before us that there is no basis for restricting the disallowance to � 3 lakhs which has been done by the Ld. CIT(Appeals) in a totally arbitrary manner and without any sound basis and cogent reasoning.
In response, the counsel for the assessee submitted that the assessment for assessment year 2009-10 to assessment year 2011-12 was completed in similar fashion and the issues under consideration involved in the impugned assessment year i.e. assessment year 2013-14 was also present in these earlier assessment years i.e. assessment year 2009-10 to assessment year 2011-12. For all the three assessment years i.e. assessment year 2009-10 to assessment year 2011-12, the assessee preferred appeal before CIT (Appeals) challenging the assessment done by the AO. After detailed submission and multiple hearings, CIT (Appeals) for the above assessment years decided the appeals in favour of the assessee and restricted the disallowance to � 3 lakhs. In the appeals against the aforesaid order passed by Ld. CIT(Appeals), the Department filed appeal before ITAT Rajkot, who vide order dated 24-11-2016 in ITA number 419/Rjt/2013 and in ITA numbers 618 and 619/Rjt/2014 dismissed all the appeals filed by the Department and upheld the order of CIT (Appeals) for assessment years 2009-10 to assessment year 2011-12. Accordingly, the counsel for the assessee submitted that the appeal in the instant year is squarely covered by Page No 6 ACIT vs. M/s. Shanti Structure P. Ltd. the assessee’s own case of earlier assessment year 2009-10 to 2011-12 and copy of the order of ITAT for above assessment years was placed before us for our records and perusal.
We have heard the rival contentions and perused the material on record. We observe that the appeal of the assessee is covered by order of ITAT Rajkot in assessee’s own case for assessment year 2009-10 to 2011- 12, wherein on identical issue, the ITAT Rajkot decided the issue in favour of the assessee and dismissed the appeal of the Department. We are producing hereunder the relevant extracts of the order passed by ITAT Rajkot for reference:
“11. We have given a thoughtful consideration to the orders of the authorities below. Provisions of section 145(3) are applicable when the Assessing Officer was not satisfied about the correctness or completeness of the accounts of the assessee or when the method of accounting have not been regularly followed by the assessee. Only then the A.O. may make an assessment in the manner provided in Section 144 of the Act. A perusal of the impugned assessment order shows that nowhere the Assessing Officer has doubted the correctness or completeness of the accounts of the assessee. Merely because due to practical difficulty in the line of business, the assessee could not provide the stock movement register or vehicle log register would not ipso facto justify the action of the A.O. We further find that the A.O. has made a passing remark in respect of purchases made from unregistered dealers but has nowhere pointed out how the cost of the materials purchased appear to him to be inflated. The A.O. has also failed to bring on comparable cases to justify his method of estimation of profit. In our considered opinion, the approach of the Assessee Officer is not only erroneous but also against the facts of the case, keeping in mind the nature of business of the assessee. We, therefore, have no hesitation to say that there is no error or infirmity in the findings of the ld. CIT(A). Appeal filed by the Revenue is dismissed.
Page No 7 ACIT vs. M/s. Shanti Structure P. Ltd.
Since the lump-sum addition confirmed by the ld. CIT(A) would meet the ends of justice, we do not find any merit in the cross objections of the assessee. Accordingly, cross objections are also dismissed.”
7.1 Respectfully following the aforesaid order passed by ITAT Rajkot in assessee’s own case for assessment year 2009-10 to assessment year 2011- 12 on identical set of facts, we are hereby dismissing the appeal of the Department for the impugned assessment year under consideration.
In the result, the appeal of the Department is dismissed.
Order pronounced in the open court on 21-03-2023