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Department by Shri Abhishek Gautam, Sr. DR Assessee by Shri Kamlesh Bhatt, CA Date of hearing 08/04/2022 Date of pronouncement 11/04/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: The appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-3, Vadodara [in short ‘ld. CIT(A)] dated 29/06/2018 for the Assessment Year (AY) 2015-16. The Revenue in its appeal has raised the following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting addition of Rs.1,68,42,822/- out of total addition of Rs.1,68,49,975/- by holding that addition has been made on the basis of presumption and statistical analysis only and all vital facts of the case as well as reconciliation of turnover/direction of Addl. CIT have been ignored by the Assessing Officer by accepting the assesee's submission at face value ignoring the factual finding recorded in the assessment order and that the A.O. while finalizing assessment u/s. 143(3) of the Act had duly followed the direction given by the Add. CIT u/s. 144A of the Act.
ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel 2. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting addition of Rs1,68,42,822/- out of total addition of Rs.1,68,49,975/- by relying on Form 26AS ignoring the fact that Form 26AS does not contain details of payment on which tax has not been deducted/not deposited into Govt. A/c. and the A.O. could not ignore the figures of turnover reported in Service Tax Return filed by the assessee and accepted by the Service Tax Authorities.
3. On the facts and circumstances of the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition of Rs.1,68,42,822/- out of total addition of Rs.1,68,49,975/ without appreciating that the A.O. after considering the assesee's submission and reply of M/s. Aarti Industries Ltd. in response to notice u/s. 133(6) of the Act had recorded his finding on the reconciliation statement filed by the assessee during the course of assessment proceedings in the body of assessment order. The assessee had given contradictory submissions during the course of assessment proceedings.
The appellant craves to add to, amend or alter the above ground as may be deemed necessary.”
Brief facts of the present case are that the assessee is individual and engaged in the business of industrial construction and undertook civil construction works for M/s Aarti Industries Ltd. for the relevant financial year under construction. The assessee filed his return of income for the year under consideration on 28/09/2015 declaring total income of Rs. 64,07,930/-. The case of the assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the case of assessee was selected for scrutiny and one of the reason for selection was higher turnover reported in service tax return as compared to income tax return. Therefore, during the assessment, the Assessing officer issued questionnaire on 20/06/2017 asking the assessee to reconcile the amount of gross receipt shown in the income tax return and service tax return and explained the mismatch. In response to the said notice, the assessee filed his reply on 29/06/2017. The relevant part of the reply of assessee is extracted in para 4.1 of the ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel assessment order. In reply, the assessee submitted that the turnover as per the service tax is Rs. 9.52 crores, turnover as per income tax is Rs. 7.84 crores, thus there seems to be difference of 1.68 crore. The reason for difference was that the assessee raised invoices against the contractee company i.e. M/s Aarti Industries and after verification by their engineer, the cost of certain items were reduced to the extent of Rs. 1.15 crore and certain invoices of Rs. 53.14 lacs were withdrawn by the assessee but the assessee paid service tax thereon including on the invoices which was reduced to the extent of Rs. 1.15 crore. It was also explained that the difference in service tax turnover and income tax turnover is due to frequent correction in invoices by the other party. The service tax returned filed on or before 21st October and 25th April for each half of the year. Many of the invoices were corrected after filing service tax return. Hence, uncertified invoices were reported in service tax returns. And only 90 days period is prescribed for revising service tax return, therefore, the assessee could not revise the actual turnover in service tax return. This reply of the assessee was not accepted by the assessing officer by taking a view that the assessee has declared total receipt/turnover for the year under consideration at Rs. 7.84 crores as per the income tax and as per the service tax, the assessee has shown total receipts/turnover at Rs. 9.52 crores. It was claimed that the service tax return was filed on or before 21st October and 25th April for each of half of the year respectively and that the many invoices were certified by M/s Aarti Industries after filing service tax return. Uncertified invoices were reported in service tax return and only 90 days time is provided in revising service tax return. The Assessing officer in order to verify the genuineness of transactions, issued notice under section 133(6) of the Income ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel tax Act, 1961 (in short, the Act) to M/s Aarti Industries on 11/07/2017. Notice was replied by M/s Aarti Industries wherein they stated that as per their policy, they accept only those bills which are certified by their engineers and hence no question of billing for uncertified amount arise. The Assessing officer noted that the first bill was issued by the assessee on 21/04/2014 which was certified by M/s Aarti Industries on 08/05/2014 and the last bill invoice for half yearly filing of service tax return was raised by assessee on 17/09/2014 of Rs. 6,38,055/- and the date of certification is unclear. Further, bill raised for the first half of the year i.e. April to September on 26/08/2014 was certified by M/s Aarti Industries on 13/09/2014 which is before the last date of filing of service tax return. Thus, the contention of assessee that bills are certified by M/s Aarti Industries after a long period and difference in turnover occurred in service tax return is not acceptable. The assessee was again asked to reconcile the return reported in service tax return vide notice dated 29/06/2017. The assessee again furnished the reconciliation as recorded in para 4.1.3 of the assessment order. Finally, the Assessing officer held that there is difference of Rs. 1.68 crores in income tax return compared to service tax return and accordingly, the difference was added to the income of the assessee.
Aggrieved by the addition made in the assessment, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed his detailed written submissions. The detailed written submission of assessee is recorded in para 5 of the order of ld. CIT(A). Before the ld. CIT(A), the assessee reiterated the same submission as submitted before the Assessing Officer. In addition to that, the assessee stated that during the assessment, the assessee sought direction under section 144A of the Act and 4 ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel the direction was given by the Range head/Addl.CIT, Range-1, Bharuch on 04/12/2017. In the direction, the range head clearly stated that instead of applying statistical ratios emphasis should be given on invoices issued by the assessee and the corresponding entries in company’s ledger. The Assessing officer inspite of clear direction, completed the assessment by applying statistical grossed up ratio and made huge addition. The direction given under section 144A of the Act is mandatory and the assessment order passed in defiance, thus, whole assessment order is null and void. The turnover reported in service tax return is not actual one as proper classification of services were not mentioned in the service tax return and his claim was proved from various other supporting documentary evidences.
4. The ld. CIT(A) after considering the contents of the assessment order, direction of Range head under section 144A of the Act and the submission of assessee, partly allowed the appeal of the assessee by taking a view that the assessee before the Assessing Officer vehemently submitted that the work done by him only for single company which is M/s Aarti Industries and the turnover mentioned in the service tax return of the first half was not the actual one, which is proved by the invoices issued during the first six months of the year. The difference of turnover was derived by grossing up the turnover mentioned in service tax return of first half by 50% and considered fully as works contract service liable to partial reverse charge. The submission of the assessee were brushed aside by the Assessing officer and preferred calculating the turnover on the basis of service tax paid and ignoring by Form - 26AS which is an authentic document to substantiate the actual turnover of the assessee. The assessee sought direction under section 144A of the 5 ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel Act from the Additional CIT, who vide his direction dated 04/12/2017, clearly directed that instead of applying statistical ratios emphasis should be given on invoices shown by the assessee and the corresponding entries in the company’s ledger. All those evidences were placed before the Assessing Officer and before him (ld. CIT(A)]. The Assessing officer in spite of clear direction, completed the assessment by applying statistical grossed upon ratio and made huge addition in the hands of assessee. The assessee has shown total 151 invoices were raised by the assessee company and the said company has paid Rs. 7,85,15,834/-. The assessee has shown the same at Rs. 7,84,40,700/-. The difference is negligible, if at all, some addition could be made that can be of the profit on such differences. The profit on such differences can be made @ 10% which will be Rs. 7,513/- and accordingly, the addition was restricted to that extent. It was further held that in response to notice under section 133(6) alongwith reply of M/s Aarti Industries, Form 26AS were furnished, the Assessing officer ignored all those details. The Assessing Officer also ignored reconciliation and written submission filed by the assessee. The direction of Addl.CIT undersection 144A of the Ac were also overlooked. The Assessing Officer given two folds justification in support of his calculation of turnover of assessee. First relates to service tax return and other is that in earlier year i.e. A.Y. 2014-15, the addition of Rs. 2,57,974/- on account of less turnover shown in income tax return as compared to service tax return were made and no objection was raised by the assessee on such proposed addition and no further appeal was filed by the assessee. The said justification of the assessee was also not accepted by the ld. CIT(A). The ld. CIT(A) held that merely the assessee accepted the addition in earlier year to save the cost of litigation that does not ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel give liberty to the Assessing Officer to make huge addition without pointing out specific defects in the books of assessee or reply received from contractee party. All the payments were received from M/s Aarti Industries Ltd. either by way of account payee cheques or RTGS only. There is no occasion for earing any out of book receipts from M/s Aarti Industries. On the basis of aforesaid observation, the ld. CIT(A) deleted the substantial part of addition except sustaining the addition of 10% of difference qua service tax return and income tax return. Aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before this Tribunal.
We have heard the submission of the ld. Sr.DR for the revenue and the ld. authorised representative of the assessee and have gone through the orders of lower authorities. The Ld. DR for the revenue submits that the turnover as per the service tax is Rs. 9.52 crores, turnover as per income tax is Rs. 7.84 crores, thus there seems to be difference of 1.68 crore. Before, assessing officer could not explained the basis of difference and thus the assessing officer made addition of such difference. The Ld. CIT(A) accepted the submissions of the assessee and granted relief to the assessee. The ld. Sr. DR has supported the order of Assessing Officer and would submits that the order passed by the assessing officer may be restored by reversing the order of Ld. CIT(A).
On the other hand, the ld AR of the assessee has submitted that the ld. CIT(A) granted relief to the assessee by proper appreciation of facts of the case. The Ld. AR for the assessee submits that the reason for difference was that the assessee raised invoices against the contractee company Aarti Industries and after verification by their engineer, ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel the cost of certain items were reduced to the extent of Rs. 1.15 crore and certain invoices of Rs. 53.14 lacs were withdrawn by the assessee but the assessee paid service tax thereon including on the invoices which was reduced to the extent of Rs. 1.15 crore. It was further submitted that the difference in service tax turnover and income tax turnover is due to frequent correction in invoices by the other party. The service tax returned filed on or before 21st October and 25th April for each half of the year. Many of the invoices were corrected after filing service tax return. Hence, uncertified invoices were reported in service tax returns. And only 90 days period is prescribed for revising service tax return, therefore, the assessee could not revise the actual turnover in service tax return. The assessing officer made huge additions by ignoring the explanation furnished by the assessee. During the assessment the assessee sought direction under section 144A from Range head. The Range head directed the assessing officer that instead of applying statistical ratios emphasis should be given on invoices shown by the assessee and the corresponding entries in the company’s ledger. All those evidences were placed before the Assessing Officer and before him (ld. CIT(A)]. The Assessing officer in spite of clear direction, completed the assessment by applying statistical grossed upon ratio and made huge addition in the hands of assessee. The Ld. CIT(A) appreciated the facts and considered the reconciliation of Form-26AS and granted relief to the assessee.
We have considered the submissions of both the parties and have gone through the orders of the lower authorities. The Assessing Officer made addition by taking a view that the assessee has declared total receipt/turnover for the year under consideration at Rs. 7.84 crores as per the income tax and as per the service tax return, the assessee has 8 ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel shown total receipts/turnover at Rs. 9.52 crores. It was claimed that the service tax return was filed on or before 21st October and 25th April for each of half of the year respectively and that the many invoices were certified by M/s Aarti Industries after filing service tax return. Uncertified invoices were reported in service tax return and only 90 days time is provided in revising service tax return. The Assessing officer in order to verify the genuineness of transactions, issued notice under section 133(6) of the Act to M/s Aarti Industries on 11/07/2017 and the same was replied by M/s Aarti Industries wherein they stated that as per their policy, they accept only those bills which are certified by their engineers and hence no question of billing for uncertified amount arise. The Assessing officer noted that the first bill was issued by the assessee on 21/04/2014 which was certified by M/s Aarti Industries on 08/05/2014 and the last bill invoice for half yearly filing of service tax return was raised by assessee on 17/09/2014 of Rs. 6,38,055/- and the date of certification is unclear. Further, bill raised for the first half of the year i.e. April to September on 26/08/2014 was certified by M/s Aarti Industries on 13/09/2014 which is before the last date of filing of service tax return.
We find that the ld. CIT(A) while restricting the addition has reasonably restricted the addition to the extent of profit element if any in the difference of receipt/turnover reported in service tax return as well as income tax return. The ld. CIT(A) held that, the assessee stated during the assessment, the assessee sought direction U/s 144A of the Act and the direction was given by the Range head/Addl.CIT, Range-1, Bharuch on 04/12/2017. In the direction, the range head clearly stated that instead of applying statistical ratios emphasis should be given on invoices issued by the assessee and the 9 ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel corresponding entries in company’s ledger. The Assessing officer inspite of clear direction, completed the assessment by applying statistical grossed up ratio and made huge addition. The direction given under section 144A of the Act is mandatory and the assessment order passed in defiance whole assessment order is null and void. The turnover reported in service tax return is not actual one as proper classification of services were not mentioned in the service tax return and his claim was proved from various other supporting documentary evidences. The ld. CIT(A) after considering the material placed on view, took his view that the assessee before the Assessing Officer vehemently submitted that the work done by him only for single company which is M/s Aarti Industries and the turnover mentioned in the service tax return of the first half was not the actual one, which is proved by the invoices issued during the first six months of the year. The difference of turnover was derived by grossing up the turnover mentioned in service tax return of first half by 50% and considered fully as works contract service liable to partial reverse charge. We find that the submission of the assessee were brushed aside by the Assessing officer and preferred calculating the turnover on the basis of service tax paid and ignoring for 26AS which is an authentic document to substantiate the actual turnover of the assessee. In the direction U/s 144A of the Act from the Addl.CIT, it was clearly directed that instead of applying statistical ratios emphasis should be given on invoices shown by the assessee and the corresponding entries in the company’s ledger. We find that all those evidences were placed before the Assessing Officer and before the ld. CIT(A). Before, Ld. CIT(A) the assessee has shown total 151 invoices, which were raised by the assessee company and the said company has paid Rs. 7,85,15,834/-. The assessee ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel has shown the same at Rs. 7,84,40,700/- and the difference is not much. The Ld. CIT(A) restricted the addition to the extent of profit on such differences. The profit on such differences can be made @ 10% which will be Rs. 7,513/- and accordingly, the addition was restricted to that extent. In response to notice U/s 133(6) of the Act alongwith reply of M/s Aarti Industries,
We find the in Form 26AS were furnished, the Assessing officer ignored all those details. The Assessing Officer also ignored reconciliation and written submission filed by the assessee. The direction of Addl.CIT under section of the Act were also overlooked and given two folds justification in support of his calculation of turnover of assessee. First relates to service tax return and other is that in earlier year i.e. A.Y. 2014-15, the addition of Rs. 2,57,974/- on account of less turnover shown in income tax return as compared to service tax return were made and no objection was raised by the assessee on such proposed addition and no appeal was filed by the assessee. The said justification of the assessee was also not accepted by the ld. CIT(A). The ld. CIT(A) held that merely the assessee accepted the addition in earlier year to save the cost of litigation that does not give liberty to the Assessing Officer to make huge addition without pointing out specific defects in the books of assessee or reply received from contractee party. All the payments were received from M/s Aarti Industries Ltd. either by way of account payee cheques or RTGS only. There is no occasion for earing any out of book receipts from M/s Aarti Industries. And deleted the substantial part of the addition. We find that the order of Ld. CIT(A) is also based on factual analysis of Fo-26AS as well. Therefore, we do not find ITA 630/SRT/2018 DCIT Vs Sh. Yogesh Patel any reason to deviate from the findings of the ld. CIT(A) and we affirm the same. No contrary fact or law is brought to our notice to take other view.
In the result, this appeal of the Revenue stands dismissed.