TMI Blog2012 (5) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... addition also. - ITA No. 879/JP/2011 - - - Dated:- 25-5-2012 - SHRI R.K. GUPTA AND SHRI SANJAY ARORA Appellant by : Shri Sunil Mathur Respondent by Shri P.C. Parwal ORDER PER R.K. GUPTA, J.M. This is an appeal by the Revenue against the order of the ld. CIT(A) relating to assessment year 2008-09. 2.0 There are three main grounds in the appeal of the Department. 2.1 The first ground is against restricting various disallowances of expenses on wages, petrol hire charges etc. totaling to ₹ 2,27,66,258/-, to ₹ 31,22,932/-. 2.2 In fact, the AO has made total addition on account of various disallowances at ₹ 3,09,63,950/-. The details of the addition made by the AO has been tabulated at page 2 in the order of the ld. CIT(A) which is as under:- S. No. Particulars Reason Disallowed 1. Freight Expenses u/s 40a(ia) of IT Act 1961 7,13,662 2. Job Work u/s 40a(ia) of IT Act 1961 28,63,005 3. Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ji Earthmovers, towards purchase of Hydraulic Excavator, was considered as an expenditure of capital nature. No explanation was given by the assessee in respect of above aspect. Thus the above payment, being of capital nature, has been added to Total income. (c) In the Para - 3.D(a), the AO has observed that out of the total expenses of ₹ 16679259, the assessee had made payments of ₹ 26,14,621/- on account of Vehicle Hire Charges to various parties, without deducting tax at source under section 194C and no explanation was offered by the assessee on this account. Thus the same was added to the total income of the assessee u/s 40(a)(ia). - Moreover in Para - 3.D(b), it was further observed that the assessee has made single payments through bank account to various parties amounting ₹ 7,60,404/- without deduction of tax u/s 194C and no explanation was offered in this regard. Thus the same has been added back, u/s 40(a)(ia), to the total income of the appellant. - In Para - 3.D(c), it is further observed that in violation of section 40A(3), the assessee has made payments to various persons, exceeding ₹ 20,000/- in cash, of ₹ 1,78,495/-. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious parties, under the head ''Repair Maintenance . Thus the same were found made in contravention of the provisions of Sec. 40A(3), hence disallowed. -In Para - 3.F(b), reference of payment of ₹ 2,05,707/-to various parties is made, wherein the assessee has failed to deduct tax u/s 194C and the AO has disallowed the amount of ₹ 2,05,707/- by invoking the provisions of section 40(a)(ia) of IT Act. (f) In Para - 3.G of the impugned order, the AO has discussed the non compliance of section 194J towards payment of ₹ 39100/- made under the head Legal Fees and the AO has made addition of the same by invoking the provisions of section 40(a)(ia). (g) The AO, vide Para - 3.H (a) of the assessment order, had discussed that the assessee has claimed a sum of ₹ 3,30,17,260/- on account of 'wages', out of which 62,12,600/- were shown as 'Wages Payable . The assessee could not provide any specific reply and also substantiate such expenses debited in its P L account. Accordingly, it was concluded that a disallowance @10% of the balance wages (Rs. 3,30,17,260/- minus ₹ 62,12,600/-) of ₹ 2,68,04,660/- i.e., ₹ 26,80,466 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Profit before Depreciation, Payment to partners and Interest (a) 2,01,96,008 168,67,510 50,07,163 38,07,055 35,65,048 N.P. (in %) Before Depreciation, payment to partners and Interest 9.96 10.02 10.78 31.45 10.48 Less:(i) Depreciation 46,92,549 35,10,651 27,00,150 27,04,378 23,55,119 (ii) Remuneration and Interest to partners 14,37,492 14,56,071 10,80,824 6,12,294 6,16,833 (iii) Interest 29,55,133 11,23,112 3,22,798 2,34,277 2,00,776 Total (b) 90,85,174 60,89,834 41,03,772 35,50,949 31,72,728 Net Profit (a-b) 1,11,10,834 1,07,77,676 9,03,391 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside the disallowances in question made out of claimed expenses. (d) The Ld AR argued that, in the present case Ld. AO has rejected the book results and made several additions to the returned income. It is most important while making the assessment that AO must go to the root of the matter. Several defects have been pointed out by the AO in the books of accounts maintained by the appellant. Thus, by implication, the AO have found the books of accounts maintained by the appellant as not reliable to deduce the correct income of the appellant. In these circumstances books of accounts of the appellant were rejected by implication. It is submitted that it is not required to reject the books of accounts u/s 145(3) of the Act with specific mentioning about it. Hon'ble Jaipur bench of the Tribunal in the case of ACIT vs. M/s Rishabh Construction (P) Ltd. ITA No. 581/JP/2009 (AY 2006-07). Order dt. 17- 06-2010 has accepted the principle of implied rejection of books. In the order Hon ble Jurisdictional ITAT has stated that, once the books of accounts are rejected, implied or specifically, the only course available under the Act is to frame best judgment assessment u/s 144 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n needs to be construed strictly. The CBDT in circular no. 5 of 2005, dt. 15th July 2005 has also clarified that the provision of the Section 40(a)(ia) is to augment compliance of TDS provision in the case of residents and curb bogus payments to them. In present case the payment is not in dispute and on the issue whether tax is to be deducted at source on such payment is not free from doubt. In any case since appellant has made actual payment of the expenses as per the evidence placed on the record, provisions of Section 40(a)(ia) are not applicable. He relied on the case of Jaipur Vidyut Vitran Nigam Ltd. Vs. DCIT (2009) 123 TTJ (JP). - The Ld. AR further relied on the case of Teja Constructions vs. AC1T (2010) 36 DTR 220 (ITAT, Hyderabad A Bench), wherein it is held that the books of accounts of the appellant was not relied, and rejected by the AO and the same was confirmed. Now, based on the reliance on the same books, for the purpose of invoking the provisions of s. 40(a)(ia) is improper. The estimation of income takes care of the irregularities committed by the appellant. Further addition by invoking s. 40(a)(ia) amounts to punishing the appellant for a same offence on doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing towards vehicle hire charges total of ₹ 178495/- and repair and maintenance expenses of ₹ 61549/- are made to persons who are not having any bank accounts and residing in very remote area, that area have not been served by the banking services. The payment made to Amit Filling Station as mentioned at serial no. 10 and 11 above, was made in parts and one payment does not exceed to ₹ 20,000/- . Although due to centralized accounting system, one journal voucher has been passed for payments to single party in a month. In the given case the payment has been made by Barloot Site, and after getting the details from Barloot site, a consolidated voucher has been passed of ₹ 114240/- and ₹ 100000/- respectively. 2.2.4. With regards to the additions made under section 40(a)(ia), 40A(3), 69 etc., as discussed above, the Ld. AR also relied upon various case laws, which are being discussed as under10 i.) Once the books are rejected, whether implied or specifically mentioning under section 145, than addition under section 40A(3), it was held in the case of CIT vs. Banwari Lal Banshidhar (1998) 229 ITR 229 (ALL) could not be made, as there is no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perusing the materials on record, the ld. CIT(A) segregated the addition under four heads and thereafter he decided the issue headwise. 2.6 Under head (1) Adhoc disallowances which were on account of 10% of Wages, 5% of Diesel and Petrol, Expenses, Wages Payable, Hire Charges Expenses and Diesel and Petrol Expenses totaling to ₹ 2,27,66,258/-, were reduced to ₹ 31,22,932/-. The other additions under the head (ii) and (iii) which were made u/s 40(a)(ia) and 40A(3), were deleted by the ld. CIT(A) by giving separate findings at pages 14 and 15 of his order. Under head (iv) other Misc. Addition of ₹ 3,16,191/- was sustained by the ld. CIT(A). 2.7 The finding in respect of adhoc disallowance under head (i) at ₹ 2,27,66,258/- has been given by the ld. CIT(A) vide para 2.3.1 of his order in the following manner. . As stated above, the AO has made such additions as he found the books of accounts of the appellant as not reliable and also in wants of sufficient details and supporting documents in this regards. While opposing the above, the Ld. AR has argued that when the books of account have been impliedly rejected by the AO, then best course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is allowed in part. From the subject matters of the above appellate order of the Hon ble ITAT, it is evident that the major issues/disallowances are similar or identical to the present proceeding also. Thus in the light of the views/rulings, given in the decision of Hon ble ITAT in appeal of A.Y. 2007-08, towards such common issues, and also following the principle of Judicial disciple, I am of the considered opinion that the above decision of the Hon ble ITAT is squarely binding on the present proceeding as such. Accordingly, while respectfully following the verdict of the Hon ble ITAT, given in the A.Y. 07-08 of the appellant, I also hold that the AO was not justified in making separate addition on different heads, under deemed rejection of books of a/c u/s 145(3). It is rather felt that he should have make a composite/common addition towards the lower net profit shown by the appellant. The undisputed fact is that the N.P of the immediate preceding year, (i.e. A.Y.07-08), has been estimated by the Hon ble ITAT at 11.50% in the relevant appellate order, whereas in the current year the same is offered at 9.96% only. Accordingly while following the principles purported by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is unreasonable. 2.9 On the other hand, the ld. Counsel for the assessee explained the case in detail. The findings of the AO as well as observations of the ld. CIT(A) were explained. It was submitted that the ld. CIT(A) has rejected the books of accounts and thereafter had followed the order of the Tribunal for the immediately preceding year. It was further submitted that undisputedly, there were numerous defects in the books of accounts and therefore, the best course available with the AO was that after rejecting the books of accounts, the profit rate should have been applied as per past history of the case. The ld. CIT(A) has taken into consideration the past history of the case and then following the order of the Tribunal for the immediately preceding year, had reduced the addition to the reasonable extent. It was further explained that in earlier year i.e. assessment year 2006- 07 also, the Tribunal has held that net profit rate has to be applied as per past history of the case after rejecting the books of accounts. Accordingly, it was submitted that there is no defect in the order of the Tribunal which is liable to be sustained. 2.10 We have heard the rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply the net profit rate of 11.5%. The facts are similar in the year under consideration and on the basis of the similar facts and after taking into consideration the past history of the case, the ld. CIT(A) by holding that the books of accounts are to be treated as rejected and net profit rate has to be applied and thus the net profit rate of 11.5% was applied as per past history of the case against net profit rate of 9.96% shown by the assessee. Since the order of the Tribunal is in consonance with the findings of the Tribunal, therefore, we see no reason to interfere in the findings of the ld. CIT(A) on the issue. Accordingly, we confirm his order in respect of various disallowances made by the AO and reduced by the ld. CIT(A). 3.1 The next ground of the Revenue is against deletion of addition of ₹ 73,27,214/- made by the AO u/s 40(a)(ia) of the Act. 3.2 The ld. CIT(A) has given his findings in para 2.3.2 at page 14 of his order which is as under:- 2.3.2 Additions made u/s 40(a)(ia) - ₹ 7327214/- In this regard, it can be seen that the AO has made different additions of above nature for non compliance of the provision of sec. 194C, towards the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The findings of the ld. CIT(A) are in consonance with the findings of the Special Bench. Therefore, we confirm the order of the ld. CIT(A) on this issue. 4.1 The remaining issue in the appeal of the Department is against deletion of addition of ₹ 5,54,284/- made by the AO u/s 40A(3) of the Act. 4.2 The finding of the ld. CIT(A) in this respect has been recorded at page 15 in para 2.3.3 of his order which is as under:- 2.3.3. Additions made u/s 40A(3)- Rs.-5,54,284/- The AO has made the additions u/s 40A(3) towards various payments made by the appellant, for the reason that the he could justified the such payment made to various persons, exceeding the limit prescribed in the relevant section. However the Ld. AR, while justifying the need of such payments on the basis of business exigencies and also argued that in the various decision, including in the Banwari Lal Banshidhar (1998) 229 ITR 229 (ALL), it has been held that, when income of the appellant was computed, while applying the gross profit rate and when no deduction was allowed in regard to the purchases of the appellant, there was no need to look into the provisions of section 40A(3) and r.6DD(j). Conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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