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TMI Blog2023 (7) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... of work done in respect of cash purchases against declared NP of 10% by assessee on such receipts while filing revised return before AO. (NP of 10% declared in revised return on work done as per audited books of account is already accepted by learned CIT(Appeals)) 4. Briefly the facts of the case are that the assessee engaged in the business of the civil construction had filed its return of income under section 139 on 22/10/2013 declaring total income of Rs. 40,34,600/-. Subsequently, search and seizure operation under section 132(1) were carried out at the business premises of the assessee and thereafter notice under section 153A was issued to the assessee on 15/11/2019. In response to the notice under section 153A, the assessee has filed its return of income on 16/03/2020 declaring total income of Rs. 40,34,600/- as declared in the original return of income. Thereafter, on 30/03/2021, the assessee revised its return of income declaring total income of Rs. 1,08,44,600/- wherein the assessee made a disclosure of additional income of Rs. 68,10,000/-. Subsequently, notice under section 143(2) and 142(1) were issued and thereafter after considering the submission filed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading and P&L account of the assessee company. Further, it has been admitted by the Ld. AR on behalf of the assessee company that complete bills and vouchers of expenses, which have been claimed to be incurred by the site owner directly, are not maintained with the assessee company and therefore, these bills and vouchers are not available for verification. Thus, the genuineness and allowability of these expenses, which have not been routed through the P&L account of the assessee company, vis-a-vis provisions of section 40A(3) of the Act are not open to verification. Further, site-wise position of stock has not been maintained by the assessee company, hence, the trading results shown by the assessee company are not reliable. Therefore, after considering all facts and circumstances of the case, the trading results shown by the assessee company in its audited books of accounts are hereby rejected as per provisions of section 145(3) of the Act. 7.2 The assessee has shown profit rate of 10% in the revised ITR filed by the assessee company on 30.03.2021 on the gross work done by the assessee company after including the amount of cash component mentioned in column 'Outstanding CS&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, which comes to Rs. 1,40,93,913/-. Therefore, after considering all facts and circumstances of the case, an addition of Rs. 32,52,441/- (Rs. 1,40,93,913 - Rs. 1,08,41,472) is made to the income of the assessee over. and above the income disclosed by the assessee in its revised ITR filed u/s 153A of the Act dated 30.03.2021. Penalty proceedings, u/s 271(1)(c) of the Act is hereby initiated on this issue for furnishing inaccurate particulars of income." 6. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) wherein the assessee submitted that AO did not compute the net profit correctly and has applied 13% gross profit without allowing deduction for indirect expenses. After considering the submissions of the assessee, the addition of Rs. 32,52,441/- made by the AO was restricted to Rs. 7,29,223/- and the balance addition was deleted and the relevant findings of the Ld. CIT(A) are contained in para 5 of the impugned order and the contents thereof reads as under: "5. The facts of the case and material on record have been gone through. As per the assessment order, the appellant is working as a civil contractor wherein he undertakes civil constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year the appellant has incurred indirect expenses of Rs. 1,03,51,418/- as evident from the audited books of account, genuineness of the same has not been doubted by the AO. After reducing such indirect expenses from gross margin of 13% , net profit rate for the year under consideration would work out to be 3.45%. However the appellant has declared net profit rate of 10% in respect of total contract expenses as against 13% applied by the AO. There are 2 component of total construction receipt of Rs. 10,84,14,271/- in this case - contract receipts of Rs. 8,41,07,284/- as disclosed in the audited books of accounts and remaining contract receipts of Rs. 2,43,07,440/- received in cash which are not part of books of accounts and are recorded in the seized documents. The appellant has debited indirect expenses (Rs. 1,03,51,418/-) in the books of accounts further out of gross profit @ 13% . Thus the AO was not justified in not allowing indirect expenses from such gross profit rate in respect of contract receipts as per books of account. The AO has not disputed genuineness indirect expenses as debited in the books of accounts. Therefore on such fact it is held that the appellant was jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in the business of construction contracts. In the said business, the appellant does not carry-on construction activities on its own account, but undertake construction contracts for the customers. The customers, which mainly comprise of land/house owners, engage the appellant to complete new/renovate residential buildings on the land/old houses owned by such customers. The appellant is thus, it would be appreciated, just a service provider helping the land/house owner(s) in construction of their houses. 27. It is an admitted fact by the Ld. AO in para 7.2 of the assessment order that as part of the aforesaid service contract, the appellant is to purchase material and engage labour, for and on behalf of the customers, with an understanding of earning margin of 10- 20% on such total cost of construction and only such margin is the receipt of the appellant and not the whole construction cost or payments received from the client. Accordingly, the Ld. AO made the addition on account of the alleged effective net profit @ 13% computed as under: Particulars Gross profit ratio where margin is charged @ 10% Gross Profit ratio where margin is charged @ 15% Gross Profit rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Cost - Rs. 72,41,347/- Depreciation - Rs. 19,50,058/- Other Expenses - Rs. 11,60,013/- Total - Rs. 1,03,51,418/- 33. It is an important fact that these expenses were neither doubted by the Ld. AO nor any incriminating document was found during the course of search regarding the abovestated expenses of Rs. 1,03,51,418/-. Also, these expenses are duly allowable as these are the essential business expenditures which are mandatory and unavoidable for running the business of the appellant. 34. Also, in para 7.1 of the assessment order the Ld. AO mentioned that COMPLETE BILLS AND VOUCHERS OF EXPENSES, WHICH HAVE BEEN CLAIMED TO BE INCURRED BY THE SITE OWNER DIRECTLY, ARE NOT MAINTAINED WITH THE ASSESSEE COMPANY AND THEREFORE, THESE BILLS AND VOUCHERS ARE NOT AVAILABLE FOR VERIFICATION. THUS, THE GENUINENESS AND ALLOWABILITY OF THESE EXPENSES, WHICH HAVE NOT BEEN ROUTED THROUGH THE P&L ACCOUNT OF THE ASSESSEE COMPANY, VIS-A-VIS PROVISIONS OF SECTION 40A(3) OF THE ACT ARE NOT OPEN TO VERIFICATION. In this observation also, the Ld. AO categorically stated that the genuineness and allowability of the bills and vouchers of expenses, which have been claimed to be incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, submitted that it is limited prayer of the assessee that the net profit rate of 10% is well above the net profit rate as held by the Ld. CIT(A) at 3.45% and therefore on the total contract receipts, the net profit rate of 10% already declared by the assessee be accepted and necessary relief be provided to the assessee. 11. Per contra, the Ld. CIT DR has supported the orders of the lower authorities. It was submitted that the assessee has already been provided sufficient relief by the Ld. CIT(A)and therefore given the facts and circumstances of the present case, no further relief is warranted in the instant case. It was accordingly, submitted that the grounds of appeal so taken by the assessee be dismissed and the order of the Ld. CIT(A) be confirmed. 12. We have heard the rival contentions and purused the material available on record. On perusal of the order so passed by the ld CIT(A), it is noted that there is no difference in the quantification of total contract receipts as determined by the AO and as submitted by the assessee as part of its revised return of income. The assessee has disclosed contract receipts of Rs 8,41,07,284/- as per its books of accounts and there ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts which is not in dispute before us. 16. The limited dispute that arises relates to application of net profit rate on contract receipts of Rs 2,43,07,440/- which were not part of the books of accounts but very much offered to tax as part of the revised return of income. As per ld CIT(A), where the assessee has been allowed the benefit of indirect expenses against the declared contract receipts, there is no basis for allowing the benefit of indirect expenses again against the contract receipts outside the books of accounts as the same would amount to double deduction and has thus, upheld the application of profit rate of 13% as against 10% declared by the assessee. 17. Conceptually, there is no dispute that the assessee can be allowed the benefit of indirect expenses only once while working out its taxable income. However, when the same principle is applied to the facts of the present case, we find that the net profit rate of 3.45% has been determined as a percentage of the total contract receipts of Rs 10,84,14,721/- which includes both types of contract receipts which are reflected in the books of account to the tune of Rs 8,41,07,284 and Rs 2,43,07,440/- which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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