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Shashi Kant Khetan Versus Assistant Commissioner of Income Tax, Circle-Jhunjhunu.

2015 (10) TMI 2421 - ITAT JAIPUR

Disallowance of total contract expenses - rejection of books of account of the assessee - CIT(A) allowed part relief - Held that:- The assessee has shown total turnover during the year at ₹ 14.71 crores on which net profit has been shown @ 5.02%, which was ₹ 27.98 crores and net profit rate @ 5.77% in immediate preceding year. The assessee claimed that he produced the books of account but the Assessing Officer was not available in the office but books were examined by the Inspector o .....

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usiness. It is also fact that required details of contract expenses were not submitted before the Assessing Officer and net profit has declined for which the assessee explained that price has gone up. He also referred the cost of inflation index for this purpose, which supports the assessee’s claim. The lower authorities also have not compared the case with other assessee’s for estimating the NP rate, therefore, in the interest of justice, we apply N.P. rate @ 5.1% on turnover of ₹ 14,71,7 .....

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een made in those years and there being no material on record to show that loans raised for business purposes were utilised in purchasing properties in personal name of the assessee and therefore, AO was not justified in disallowing interest The facts and circumstances of the case are identical to the case of Ganesh Chawala Vs. Income Tax Officer (supra). There was also fact that netting of interest is positive, therefore, no disallowance can be made by the Assessing Officer without establishing .....

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- SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM For The Assessee : Shri Vijay Goyal (CA) For The Revenue : Shri Ajay Malik (JCIT) ORDER PER T.R. MEENA, A.M. This is an appeal filed by the assessee against the order dated 05/09/2013 of the learned C.I.T.(A)-III, Jaipur for A.Y. 2010-11. The effective grounds of appeal are as under:- 1. On the facts and in the circumstances of the case and in law the ld CIT(A), Central erred in confirming the addition of ₹ 38,60,745/- out of total addition .....

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ition of ₹ 38,60,745/- out of total addition of ₹ 40,21,610/- on account of disallowance of contract expenses. The assessee is a contractor. He filed his return on 05/10/2010 declaring total income of ₹ 72,88,200/-. The case was scrutinized U/s 143(3) read with Section 144 of the Income Tax Act, 1961 (in short the Act). The ld Assessing Officer observed that the assessee was non-cooperative not only in furnishing the requisite detail but also producing the books of account and .....

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ment was filed, therefore, the ld Assessing Officer issued a letter for non-compliance on 14/5/2012 whereby it was duly pointed out to the assessee that the details and documents including books of account and other evidence called vide notice U/s 142(1) dated 07/2/2012 had not been produced. An opportunity was granted to submit the details and produced the books of account on 05/6/2012. In compliance thereof, a letter requesting adjournment was filed on 04/6/2012. Again the case was refixed for .....

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. On 24/8/2012, the AR of the assessee filed written submissions with regard to show cause notice issued on 31/7/2012 wherein it was submitted that on given date i.e. 07/2/2012 the ld Assessing Officer was not in the office and on 17/08/2012 the ld Assessing Officer was again with the Chief Commissioner of Income Tax during visit of Jhunjhunu circle. As per Assessing Officer submission, there was non compliance of the notice issued U/s 142(1) of the Act, therefore, he requested to drop the penal .....

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ring the fact that the Assessing Officer was not present in the office on one occasion and was busy with some other official work, the details called for vide questionnaire annexed to the notice U/s 142(1) dated 07/02/2012 could still have been filed. The present of the Inspector and DAK receipt counter was sufficient enough if the assessee truly intended to furnish the details. Inspite of this fact, the assessee chose not to furnish the details. Even while submitting the reply to the show cause .....

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r, C.A. and son of the AR Shri M.S. Dhankar, C.A. attends once again without the books of accounts. Sh. Manu Dhankar, CA is once again made aware of the fact on record that the books of accounts, bills of purchases and bills of expenses in original have been repeatedly required to be produced for verification, first by way of notice U/s 142(1) dated 07/02/2012, than by way of specified notice U/s 142(1) dated 01/08/2012 and lastly by way of order sheet entry dated 24/08/2w012. He is also apprais .....

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ced on record. Case is adjourned for hearing on 03/10/2012 at 3.00 P.M. He further observed that on the appointed date of compliance i.e. 03/10/2012, the assessee failed to furnish any written submission or produce books of account as required. Therefore, another notice U/s 142(1) dated 09/10/2012 was issued fixing the date of compliance on 30/10/2012 wherein it was specifically required to furnish reply of notice U/s 142(1) dated 07/02/2012 alongwith books of account and documents as required v .....

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ournment are not found convincing because the written submission with details and information could have been furnished even in the absence of the AR Sh. Manu Dhankar CA appearing on behalf of the assessee is made aware of the earlier non compliance and repeated adjournments. However, in view of the request made the case is adjourned and refixed for hearing on 20/11/2012 at 2:15 P.M. On 20/11/2012 none attended nor any written submissions filed by the assessee. Therefore, once again notice U/s 1 .....

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e form of bills, vouchers and other relevant evidences. As regards the books of account, the elaborate discussion made in the assessment order that the books of account and other relevant evidences had not been produced for verification. None of the actions of the assessee during the course of assessment proceedings give any reason to form an opinion that the proper books of account have been maintained and such books of account are duly and adequately supported by the bills of purchases, bills .....

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s case is not to be considered an appropriate method for finalizing the assessment because the figure disclosed in the P&L account and balance sheet are also not reliable. BY mere filing of return alongwith copy of balance sheet and P&L account is not sufficient to prove the transaction correct and complete. The statute is provided scrutiny of the case U/s 143(3) of the Act. It is further held that even in past, the assessee s GP and NP had been accepted by the department, the assessee i .....

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e. The ld Assessing Officer compared the total contract receipts from 26AS and found discrepancy of ₹ 15,000/-, which was separately added in the income of the assessee. The assessee had shown total contract receipts of ₹ 14,71,70,861/- in the P&L account. A sum of ₹ 17,48,663/- had been debited under the head bank charges and interest no any separate details furnished by the assessee in this respect showing detail of interest paid to the particular bank/financial instituti .....

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actor, he never was dealing in the business of trading of land. The assessee has credit balance in capital account at ₹ 2,81,21,267/-. The assessee against this capital had applied in fixed assets amounting to ₹ 5,35,28,344/-. After reducing the application for non business assets there from the correct application in fixed assets for the purpose of business amounting to ₹ 3,80,57,127/-. In addition to this, the current assets invested in various banks and financial institutes .....

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s Vaishali Stone Crusher. During the year under consideration, no income, either in the form of interest or otherwise has been received from these two sources. Hence, the total advances made to these two entities amounting to ₹ 51,62,439/- is hereby held to be for non business purposes. This fact does not leave any doubt as to the conclusion that the entire non business assets have been acquired out of interest bearing borrowed funds on which interest amounting to ₹ 17,48,663/-has be .....

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r held that the assessee has deliberately chosen not to furnish the specific details called for and given a vague and unacceptable excuse for not furnishing the details. The assessee has debited contract expenses at ₹ 13.4 crores as against total contract receipts of ₹ 14.71 crores, which constitutes to 91.09% of the cross receipts. The ld Assessing Officer found these percentage of expenses not wholly and exclusively incurred for the business purposes in absence of required details .....

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still remained an undeniable fact that the assessee must have incurred various expenses to execute the contract work. In absence books of account and vouchers, the book result cannot be accepted and are not verifiable. He considered proportion of the contract expenses at 91.09% excessive. Therefore, he disallowed 3% of the total contract expenses of ₹ 13,40,53,661/- and made disallowance of ₹ 40,21,610/- in the income of the assessee. 3. Being aggrieved by the order of the Assessing .....

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such rejection of books of accounts and making of such addition was without any basis. The A.O s case is that the proceedings were fixed for hearing on different dates and that very specific query was raised regarding bifurcating the consolidated amount of contract expenses and furnishing of month wise statement of different heads in contract expenses. As per A.O. the appellant never produced books of accounts as also that the complete detail of contract expenses viz a viz expenses incurred unde .....

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s the A.O. was not available. It is also claimed that the appellant has maintained constant N.P. and G.P. rate and that even when the case written submissions completed under scrutiny assessment in the past the income was assessed @ 5 to 6% subject to claim of depreciation interest payment and remuneration to the partners. It is also contended that before disallowing 3% of contract expenses the A.O. has not given any proper opportunity of being heard or any show cause notice. On careful consider .....

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ng of bifurcated account of contract expenses under different heads was made by the A.O. vide notice U/s 142(1) dated 07/02/2012 and which was repeatedly requested for on the subsequent dates of hearing but the appellant never complied with such specific requirement raised by the A.O. It may be noted that in the contract account of M/s S.K. Khetan the appellant has claimed contract expenses in a consolidated manner for ₹ 13.40 crores approximately and for making proper verification of such .....

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books of accounts of the appellant cannot consider to be correct or complete and therefore the A.O. has rightly rejected the books of accounts and made the assessment in the manner provided U/s 144 of IT Act. Therefore the action of the A.O. in rejection of books of accounts and applying provisions of 145(3) of IT Act is confirmed. As regards estimation of profit, after invoking the provisions of Sec. 145(3) of IT Act, it may be stated that it is settled law that even after invoking the provisio .....

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lowing case laws:- (i) M/s Brijbhushan Lal Pradhuman Kumar Vs. CIT 115 ITR 524. (ii) Shree Shankar Khandsari Sugar Mills Vs. CIT 193 ITR 669. (iii) CIT Vs Dr. A.P. Bahel 2 DTR 387 (Raj.) (iv) CIT Vs. Suresh Marbles Pvt. Ltd. 18 DTR 118 (Raj.) (v) Shri Ram Jhanwar Vs. ITO (2005) 98 TTJ 639 (ITAT Jodhpur). (vi) Ajay Goyal Vs. ITO 99 TTJ, ITAT, Jodhpur. (vii) ITO Vs. Girish M. Mehta (2006) 153 Taxman. It may be mentioned that during assessment proceedings the A.O. has specifically required to justi .....

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the books of account and particularly the contract expenses were not subject to proper verification. In this background it may be stated that during the assessment proceedings the appellant was required to furnish the details of contract expenses in respect of earlier two assessment years viz a viz its comparison with the total turnover and the appellant furnished such details as under:- Asstt. Year Total turnover Contract Exp. Percentage 2008-09 119.86 104.17 86.90 2009-10 279.88 250.20 89.54 2 .....

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to the extent of 88.21% (being average of earlier two years) is considered to be fare and reasonable and accordingly 2.88% of total contract expenses amounting to ₹ 1,34,05,361/- are disallowed. This will make disallowance/addition of ₹ 38,60,745/- as against disallowance of ₹ 40,21,610/- made by the A.O. The appellant accordingly gets relief of ₹ 1,60,865/-. The ground of appeal is partly allowed. 4. Now the assessee is appeal before us. The ld AR of the assessee has sub .....

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ses. Both the lower authorities have not considered the past history of the case and no comparative case was applied for in support of his estimation made by the Assessing Officer and confirmed by the ld CIT(A). The Ld A.O. had disallowed 3% of contract expenses without any basis. He had not given any logic or supporting material to justify disallowance of 3% out of total contract expenses. The Ld CIT (A) also allowed part relief by considering the simple average of earlier two years of contract .....

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at 89.21%. It means the ld Assessing Officer had accepted the inflation @ 2.31%. He further argued that cost of inflation index also increased from preceding year to the year under consideration. If this inflation is applied on the contract receipts, the percentage of contract expenses on contract receipt would be 91.09%. The difference in A.Y. 2010-11 and compared to A.Y. 2009-10 was only 1.55% as against the difference of 2.31% in A.Y. 2009-10 in comparison to A.Y. 2008-09. Therefore, these d .....

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ejectable U/s 145(3) of the Act as held in the case of CIT Vs Gotan Lime Khanij Udhog (2002) 256 ITR 243 (Raj). The assessee is carrying out contract work at various sites and due to local factors the cost cannot remain same. Local availability of material, labour and transportation cost affects the total contract cost. The lower authorities have not considered this aspect while estimating the total contract expenses. The lower authorities had not considered this aspect while estimating the tota .....

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applying N.P. rate @ 10%, which was confirmed by the ld CIT(A), but the Hon ble ITAT restricted this addition @ 5% N.P. rate. The Hon ble Allahabad High Court has upheld the decision of ITAT by holding that the estimation is matter of pure facts. The assessee also has completed this work through sub-contractor more than ₹ 1.22 crores, on which the profit margin is shared by the assessee as well as sub-contractor and assessee earned lesser margin of profit in sub-contract business. He furth .....

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required date, attended the assessment proceedings with books of account but the Assessing Officer was not available in the office. The books of account were produced even in absence of Assessing Officer and the same were also produced before the Inspector for examination. The Assessing Officer is empowered to issue summons to the assessee U/s 131 and also can impose penalty U/s 271(1)(b) of the Act, which has not been initiated by him. Therefore, he prayed to delete the addition. 5. At the out .....

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e heard the rival contentions of both the parties and perused the material available on the record. The assessee has shown total turnover during the year at ₹ 14.71 crores on which net profit has been shown @ 5.02%, which was ₹ 27.98 crores and net profit rate @ 5.77% in immediate preceding year. The assessee claimed that he produced the books of account but the Assessing Officer was not available in the office but books were examined by the Inspector on behalf of the Assessing Offic .....

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equired details of contract expenses were not submitted before the Assessing Officer and net profit has declined for which the assessee explained that price has gone up. He also referred the cost of inflation index for this purpose, which supports the assessee s claim. The lower authorities also have not compared the case with other assessee s for estimating the NP rate, therefore, in the interest of justice, we apply N.P. rate @ 5.1% on turnover of ₹ 14,71,70,861/- and remaining addition .....

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the appellant has claimed expenses on account of bank charges/interest payment amounting to ₹ 17,48,663/-. The total borrowing of the appellant on which such interest has been paid is arrived at ₹ 1,72,60,615/-. The A.O. s case is that the appellant was invested in non-business personal assets for ₹ 1,54,71,217/- as also that interest free advances of ₹ 44,78,927/- and ₹ 6,83,512/- were made to Smt. Babita Khetan and M/s Vaishali Stone Crushers and that such invest .....

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crores approximately. Therefore, as per A.O. as against available own capital of the appellant amounting to ₹ 2.81 crores, the deployment of capital in the business use stood at ₹ 3.00 crores and the remaining investments including on personal assets and advancement of interest free loan was out of interest bearing borrowed fund. The A.O. has accordingly held that the interest bearing borrowed fund amounting to ₹ 1.72 crores were not used for business purposes and that the sam .....

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advancing of interest free loans to Smt. Babita Khetan and M/s Vaishali Stone Crushers the appellant has not furnished any specific explanation or jurisdiction. On careful consideration of all relevant facts it may be noted that the appellant has not been able to point out any specific mistake in the finding of the A.O. in respect of such addition. Though the appellant has furnished individual balance sheet of Sh. S.K. Khetan but it is not known as to on what basis such balance sheet has been pr .....

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res would not have been purchased and interest free advances amounting to ₹ 51,00,000/-approximately would not have been advanced from the interest bearing borrowed funds then such money would have been available to the assessee for its business purposes and to that extent it may not have been necessary to borrow from the banks or to continue the borrowings from the bank. For such findings reliance is placed on the decision of Hon ble Allahabad High Court in the case of CIT Vs. H.R. sugar .....

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fresh investment in these assets were of ₹ 17,25,000/- during the year and investment of ₹ 1,37,46,217 ( 15471217-1725000) is coming from previous year. Further the ld AO mentioned that the assessee has also advanced a sum of ₹ 44,78,927/- to a family member and another sum of ₹ 6,83,512/-to Vaishali Stone Crusher, on which the assessee has not earned any income. Thus, the total investment in non business assets comes to ₹ 15471217+4478927+683512= ₹ 2,06,33,6 .....

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n non business assets. Hon ble ITAT Jaipur Bench has considered this aspect in the case of ACIT Vs Ram Kishna Verma and held that when there are mixed funds then non-interest bearing funds are to be considered as utilized for non interest bearing funds. The ld CIT(A) held that if the investment in plots and interest free advances would have not been made by the assessee then such money would have been available for business and to that extent it may not have been necessary to borrow the funds fr .....

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dated 31st July, 2008 (2008) 27 CCH 0580 Jaipur Trib (2008) 13 DTR 0237. (iv) Commissioner of Income Tax Vs. Vijay Solvex Ltd. (2015) 113 DTR 0382 (Raj). (v) CIT vs. Motor Sales Ltd. (2008) 304 ITR 123 (Allahabad). He further argued that during the year under consideration, the cash investment in plot/land was only ₹ 17.25 lacs only and remaining was coming from previous year. The previous year i.e. A.Y. 2009-10 was completed by the Assessing Officer U/s 143(3) of the Act and no such disal .....

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7; 27,92,287/- and paid interest at ₹ 17,48,663/-. The net result in interest income was more than interest payment and net result is income of ₹ 10,43,624/-. The ld Assessing Officer had disallowed the interest expenses without considering the interest income of the assessee. Had the netting of the interest was done by the Assessing Officer than there could not be any disallowance on account of interest. The ld CIT(A) misplaced the reliance on the decision of Hon ble Allahabad High .....

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aj) wherein it has been held that if the assessee s capital is more than interest free advances made by it than there was no question of any disallowance of notional interest on loan taken by it. Therefore, he prayed to delete the addition. 9. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the assessee has invested ₹ 1.55 crores in immovable properties including agricultural land and also had interest bearing borrowing from the banks on which s .....

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