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TMI Blog2013 (1) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... wn total cash credits of Rs.54,50,000/-. The AO in the assessment, treated cash credits as income of the assessee as the same were not explained satisfactorily. The AO also disallowed the purchases to the tune of Rs.2,87,57,709/- as not supported by proper evidence. The AO further disallowed claim of sub-contract charges payable by the assessee to the tune of Rs.2,13,78,870/- in respect of related concerns and Rs.2,23,83,278/- in respect of other concerns. The AO had also disallowed claim of penalty of Rs.2,88,353/-. In appeal, CIT(A) confirmed the addition on account of cash credit to the tune of Rs.44,50,000/- and deleted the additions on account of bogus purchases and sub-contract charges and instead estimated GP profit @ 8% on the gross contract receipts. CIT(A) also deleted the addition made on account of penalty charges. Aggrieved by the decision of CIT(A), both the parties are in appeal before the Tribunal. Whereas the revenue has challenged the order of CIT(A) in allowing relief in respect of cash credit as well as in relation to disallowance of purchase, contract charges and penalty, the assessee has disputed the order of CIT(A) in confirming the cash credit addition part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were assessed to tax and filed loan confirmations giving their Income tax acknowledgement receipt, P.A. Number etc. The AO made enquiry through notice server who reported that the parties were not found at the given address. This was pointed out to the assessee whereupon the assessee furnished the new addresses. The AO got enquiries made through inspector who, in the report dated 14.12.2009 mentioned that the parties at Sl.No.1,2, & 3 were not residing at the new addresses given and instead some other parties were residing and in respect of party No.4 it was reported that the address was incomplete. The AO also verified the Income tax returns of the parties and noted that they had not filed their balance sheet and P&L account and that the loan advanced to the assessee was not reflected in their Income tax returns. The AO therefore, concluded that the credit worthiness of the party was not proved. The AO therefore, treated the loans of Rs.30.00 lacs as unexplained income of the assessee. Thus total addition made under section 68 was Rs.54,50,000/-. 3.4 The assessee disputed the decision of AO and submitted before CIT(A) that the loans had been received through account payee cheques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land holdings as well as addresses with confirmations from the agriculturists and therefore without producing any diverse material AO was not justified in making addition and CIT(A) was not justified in confirming the addition of peak credit. It was also submitted that the assessee had not agreed for peak addition before CIT(A).It was further submitted that the assessee is a semi literate person who had signed the letter dated 16.3.2010 filed before CIT(A), which had been prepared by his tax practitioner, without explaining the contents and implications of the said letter. An affidavit dated 22.6.2012 to the above effect has been filed from the assessee. The ld. DR on the other hand submitted that burden was on the assessee to prove not only the identity of the creditors but also credit worthiness of the creditors which had not been discharged by the assessee and therefore, the entire cash credit was required to be treated as income. 4. We have perused the records and considered the rival contentions carefully. The dispute raised is regarding addition on account of cash credit to the tune of Rs.54,50,000/- made by the AO which consisted of a sum of Rs.24.50 lacs claimed to be rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The AO, therefore, proceeded to conclude that the credit worthiness of the parties was not proved, without giving any further opportunity to the assessee to explain the credit. CIT(A) has also not examined this aspect as he confirmed the peak credit on the basis of admission of the assessee which has since been denied, and is supported by an affidavit. Therefore, in our view matter is required to be examined by CIT(A) afresh for giving finding on merit of the case i.e., the credit worthiness and genuineness of transactions both in relation to agriculturists and other creditors. We, therefore, set aside the order of CIT(A) and restore the matter back to him for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. 5. The second dispute is regarding disallowance of bogus purchases and sub-contract charges. The AO during the assessment proceedings noted that the assessee had shown purchases of Rs.2,87,57,709/- from three parties as per details given below:- S.No. Name of the Purchase Party Amount Purchased (Rs.) Amount outstanding as on 31.3.2007 Purchased by 1. N.B. Enterprises 94,39,722/- 74,64,389/- M/s. Ratansigh & Bros. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Co. 30,21,300/- M/s. Ratansingh & Bros. 4. Omkareshwar Enterprises 29,67,650/- M/s. Ratansingh & Bros. 5. Parlevejnath Contruction Co. 29,86,380/- M/s. Ratansingh & Bros. 6. Somnath Construction Co. 30,41,850/- M/s. Ratansingh & Bros. 7. Trambakeshwar Enterprises 29,96,300/- M/s. Ratansingh & Bros. 8. Bhimashanker construction Co. 30,12,390/- M/s. Ratansingh & Bros. Total 2,13,78,870/- 5.3 The assessee submitted that the sub-contract charges were bonafide and parties were assessed to tax and payments were made in subsequent year by cheque. The AO however collected information from the parties under section 133(6) which was compiled as under :- S.No Name of the subcontractor Receipts other than from assessee Capital introduced by partners Returned income Method of computatio n of income Date of Partnership Deed Payment of Outstandin g from assessee as on 31.3.2007 1. Kedarnath Enterprises Nil 50,000/- 2,38,480/ u/s. 44AD 1.1.2007 29,14,106/- 2. Nallikaarjun Const. Co. Nil 50,000/- 2,45,760/- u/s. 44AD 1.1.2007 30,03,065/- 3. Nageshwar Construction Co. Nil 50,000/- 2,41,700/- u/s. 44AD 1.1.2007 29,53,502/- 4. Omkareshwar Enterprises Nil 50,000/- 2,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain 10,22,694/- - 7. Karan Enterprises 30,38,637/- 20,70,790/- 8. Prahlad Singh Deora 30,21,032/- 29,54,000/- 9. Anil R. Gupta 31,41,600/- 30,07,473/- Total 2,23,83,278/- 2,02,47,929/- 5.6 In these cases also, the assessee claimed that the transactions were genuine and parties were assessed to tax and also enclosed the contract order and invoice. It was also submitted that the payments had been made to the parties in the subsequent year by cheque. 5.7 The AO was, however, not satisfied by the explanation given. It was observed by him that out of total claim of contract charges of Rs.2,23,83,278/-, a sum of Rs.2,02,47,929/- was outstanding at the end of the year. These parties were claimed to have done work valued up to Rs.20-30 lacs each during the year with almost no capital when the job was labour intensive for which payments are required to be made regularly. They had filed returns of income under section 44AD showing income of Rs.2.5 to 3 lacs on estimation whereas assessee had claimed full deduction of Rs.20-30 lacs in each case. These parties had not done business with any other concern. The AO also noted that date of agreements with the parties was 1.4.2006 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as correct and complete. But the AO had brought no material or any comparative material to show that net profit rate in case of Government contractors could be 34.43%. He referred to the decision of the Tribunal in the case of Singhal & Bros. in ITA No.7253/Mum/2004 dated 24.7.2007 for assessment year 2001-02 in which net profit had been estimated at 5% of gross contract receipts. CIT(A) further observed that the assessee had filed details of comparative cases in which net profit varied from 3% to 10%. CIT(A) therefore, held that net profit rate of 8% would be reasonable in case of the assessee who had shown contract receipts of Rs.21,14,74,874/-. Accordingly he estimated net profit at Rs.1,69,17,830/- in place of declared net profit of Rs.1,38,49,505/- and thus upheld the addition of Rs.30,68,325/- and deleted the balance addition of Rs.6,94,51,532/-. Aggrieved by the decision of CIT(A), both the parties are in appeal before the Tribunal. Whereas the assessee has disputed the decision of CIT(A) to estimate net profit rate at 8%, the department has challenged the order allowing substantial relief of Rs.6.94 crores. 5.11 Before us the ld. AR reiterated the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence in view of several discrepancies pointed out and, therefore, these were required to be disallowed fully and CIT(A) was not justified in confirming the addition only on the basis of 8% of net profit rate. 5.14 We have given careful thought to various aspects of the matter. In our view, the arguments of the assessee that the books of account could not be rejected can not be accepted. The assessee had shown total purchases of Rs.2,87,57,790/- from three parties. The income tax P.A. Number given by the assessee of the two parties was found to be wrong. The proprietor of the third party was found to be a different person than the person who had signed the confirmation. Further the said party had shown turnover of only Rs.37,91,849/- whereas the purchases claimed to be made by the assessee from the party was Rs.1,00,02,704/-. Further, the assessee had shown the outstanding amount of Rs.74,43,585/- payable to the party whereas the said party had shown debit of only Rs.3,27,938/-. Under these circumstances the purchases shown by the assessee can not be said to be supported by proper evidence. As regards the sub-contract payment to related parties, AO has placed material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % in cases where accounts are not maintained and turnover is up to Rs.40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs.40.00 lacs. In fact with rise in volume, working becomes more economical and profitability may normally be higher. Each case has to be decided on its own facts and circumstances. Even in the comparable cases cited, the net profit rate had varied from 2.93% to 9.96%. These are big concerns who maintain proper accounts and also maintain quality standards. In case of the assessee as held earlier, accounts are not reliable and therefore, in our view on the facts of the case, estimation of net profit rate of 8% by CIT(A) is justified. The order of CIT(A) is accordingly upheld. 6. In the departmental appeal, a ground has also been raised regarding deletion of addition of Rs.2,88,353/- made by AO on account of penal charges on delayed execution of contract work. The AO disallowed the claim under the provisions of section 37(1) holding it of penal in nature. In appeal, the assessee submitted before CIT(A) that AO had made addition without giving proper opportunity of hearing to the assessee. It was submitted that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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