TMI Blog2013 (8) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... 133/- and to cover up possible leakage, we estimate Net Profit rate at 5% of the gross receipts as mentioned hereinabove and direct the A.O. to allow depreciation as per law subject to the income does not go down below the returned income. We order accordingly. - I.T.A. No.328(Asr)/2013 and I.T.A. No.483(Asr)/2013 - - - Dated:- 26-8-2013 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P. JAIN, ACCOUNTANT MEMBER. Assessee by: Sh. Ashwani Kalia, CA Respondent by: Sh. Mahavir Singh, DR ORDER PER BENCH; These cross appeals of the assessee and the Revenue arise from the order of the CIT(A), Amritsar dated 30.04.2013 for the assessment year 2009-10. The assessee has raised following grounds of appeal: 1. That Ld. CIT(A) has erred in law and on facts in holding that the AO was justified in rejecting the books of account by invoking the provisions of section 145(3). 2. That the order of the CIT(A) is perverse in confirming the rejection of books of account on the basis of alleged defects in the books of account pointed out by the AO completely ignoring the fact that the assessee had filed proper and justifiable explanation against the so called defects and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er addresses forwarded by the assessee. 7 letters could not be dispatched due to lack of proper addresses and 11 letters came back unserved with postal remarks No such person is available- Returned to the sender. 2. The assessee failed to submit site-wise muster rolls stating that only few muster rolls were maintained and after taking attendance of labour at one site, the muster roll is sent to the other site. This was highly impossible as the sites of contract were spread from H.P., J K and in Punjab from Pathankot to Amritsar. 3. The muster roll carries thumb impression of one or two persons only. 4. The wages payable in the last month was more than 1/3rd (38.52%) of wages of the entire year which made the AO to conclude adjustment arrangements made by the assessee in the books of account. The AO is also of the opinion that as the wages have been paid upto to July next year, the wages debited to the Receipt and Expenditure a/c are likely to be added back to the income for the financial year. 5. No stock register for purchases of sand, soil, crusher, cement, bricks, bitumen and LDO were maintained by the assessee. The AO was of the opinion that in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted u/s 145(3) of the Act and a rate of 10% profit on gross receipts should not be computed for income in terms of the decision of the Hon ble Punjab Haryana High Court in the case of Shivam Construction Co. vs. CIT. This aspect of the matter can be verified from the case records. The averment is crucial to the cause of the appellant. It is respectfully submitted that the AO with a fixed mind set purpose and without any reference to any evidence or material on record whatsoever took the decision on 09.12.2011 to reject the books of account. Such a course was decided upon without even scrutinizing the books. A rate of 10% was decided to be applied purportedly in terms of Punjab Haryana High Court decision in the case of Shivam Construction Co; without even adverting to the similarity or otherwise of the cases and even without having a copy of the cited order. It is further stated that the other reasons cited later on and brought on record for rejection of books of accounts were mere alibis and pretexts which had been done so only to buttress the cause as espoused by AO in terms of the letter dated 09.12.2011. While so doing copious and irrefutable explanation with evidence in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2,24,85.000/- which gave a comparable ratio of around 25.86%. The figure of 38.52% pointed out by the AO was thus completely wrong. In this way the whole edifice of the addition based on excessive wages as a built by the AO collapses. The charts filed in this connection during assessment are annexed. Interestingly, the wages to receipt ratio is at an unassailable 25.21% for the year. Being most satisfactory and conforming, it merited immediate and ready acceptance. 5. The AO has also complained of the inadequacies in the Muster Rolls and the duplication of signatures in some of them. It was explained that similarity of signatures would be because of the Headman collecting the wages on behalf of other labourers. That was because the sites were far removed from the disbursement office and the labourers could not be paraded for collection of their dues and therefore, instead of all of them trooping to the office after traveling long distance, it was generally found convenient by some to assign one of their representatives to collect the wages on their behalf. Besides the Muster Rolls after receipt from sites were all stitched and bound and retained for records. No con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objections of the AO is with regard to payment for crushers not having been made bill-by-bill by the appellant. It was explained to the AO that in order to be able to maintain some hold and control over the suppliers so as to ensure regular and uninterrupted supplies the payments were deliberately delayed and only lump-sum payments were made. All that was done in the best interests of the business so as to ensure that material and men combine optimally to produce the best possible results. 9. Another point of the AO is with regard to self-made vouchers for purchase of earth. As to this, it was explained that earth was procured from tractor trolley operators. They get the material on digging from the neighboring villages. Being unorganized the tractor trolley operators did not have a regular office system in place. The earth brought by them was accepted at site by the appellant s staff after due inspection and measurement and thereafter it was unloaded. Before so doing while taking to stock at site approvals were granted on the basis of vouchers which were made at the site itself. It was for this reason that the vouchers were inevitably self-made. 10. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of account u/s 145(3) of the Act. However, the A.O. was aware that such a rejection could not be made in the event of the assessee maintaining correct and complete books of account and had done so after due compliance with the accounting standards. It is for this reason that the A.O. has attempted to nibble at the veracity of the account by pointing out insignificant and innocuous defects in the vouchers. While doing so the A.O. little realized that the system of accounts and the nature of the business remained the same as that of earlier years and which accounts as maintained had met with departmental acceptance and approval in the earlier years. Only if there was some specific deficiency or defect with the accounts for the year of a serious nature, the A.O. could have taken leave of the previous history of the case. No such defect or deficiency or any significant nature or adverse character has been brought on record by the A.O. Rather the books of account are audited and that too by an expert in such area and as certified the accounts as true and correct which report could not have been ignored. Also the pre-eminent fact that overall results for the year are most favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s could not become the sin qua non for civil contracts in general. 18. Reverting to the facts of the case of Shivam Construction Co. as narrated in the Tribunal s order it is required to be noticed that the cited party did not even maintain the books of account and perhaps it had a turnover of a little over ₹ 40 lakhs. It itself estimated its profit at 10% for the return of income. It charged 90% of the receipts to expenses. It claimed further deduction for depreciation and interest on borrowed money. In such circumstances the Tribunal noticed that in the case of the assessee itself in the preceding years, in the scrutiny assessments a 10% rate had been applied. In conformity with the history of the case the Tribunal deleted 12% rate application of the revenue authorities and provided relief to that assessee with a 10% rate determine him consistent of the past history of the case. 19. The facts in the said case clearly show that there could not have been a directive by the Hon'ble High court for a 10% rate application. It is apparently a case where the Department would have gone to the Hon'ble High Court in respect of the assessee s cases pleading for a 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results were accepted. There is nothing wrong with the wages account or the purchase account or in respect of any other account. No specific discrepancy or deficiency has been pointed out by the AO with the accounts. The wages to receipts ratio on a proper computation compares very favourably with the accepted history of the case. The AO had wrongly computed the ratio. The margin ennuring to the appellant is both critical and short because of acute competition for which there is direct and irrefutabale evidence in the form of rebates on the total contract receipts. The AO had decided to reject the books of account and adopted 10% rate for assessment without proper application of mind and even without pursuing the records. The 10% rate as conjured by the AO is inapplicable to the fact of the subject case. There is no mandate of the Hon ble Punjab Haryana High Court to compute 10% return on every civil contract. This is the AO s mis-impression which perhaps arose because the AO had not even seen the cited order because it was not with her. The books of account are correct and complete without any blemish. The Auditors have endorsed the same as true and correct and certified them a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied to by the A.O. The assessee has distinguished the decision of Shivam Construction Co. Vs. CIT (supra) and copy of the ITAT order submitted before the ld. CIT(A) distinguishing with the facts of the present case and also it was explained that other cases relied upon by the AO are identically relied on the basis of Shivam Construction Co. (supra) which is not applicable to the facts of the present case but the ld. CIT(A) has not taken any cognizance and proceeded to apply net profit rate of 8%. 6.2. The Ld. counsel for the assessee relied upon various decisions of this Bench for allowing a lesser rate of interest and to allow depreciation as claimed. 7. The Ld. DR, on the other hand, relied upon the orders of both the authorities below. 8. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that ultimately after pointing out so many mistakes by the A.O., the AO ultimately observed that the defect was on account of wages and that of the stock register. As regards the wages, firstly, the allegation was that muster rolls were found to be having Thumb impression of few labourers. In this regard, it was submitted that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f all the suppliers to verify the genuineness of the purchases of these items made but the AO due to paucity of time did not verify the same. Therefore, the purchases have been held to be genuine. The only question is that the AO has doubted the consumption of such material. Now the question arises whether there can be any possibility of leakage/pilferage of such items. In the facts and circumstances, we find that in the absence of proper record maintained or in the absence of calculation of consumption presented before the authorities below or before us of such material, books of account cannot be treated as complete and accurate and therefore, we find no infirmity in the order of the ld. CIT(A), who has rightly invoked the provisions of section 145(3) of the Act. 10. As regards the estimation of income, first of all, when we estimate the income, we have to see to the facts and circumstances of the present case of the impugned year before going into past history of the assessee or comparable cases. Even if the books of account have been rejected, no such argument can be accepted that the AO cannot see books of the impugned year and the AO straightway has to jump to the results ..... X X X X Extracts X X X X X X X X Extracts X X X X
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