Ashok Jain , Kota vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 414/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

The A.C.I.T. cuke Shri Ashok Jain, Circle-2, Kota Vs. 3-D-33, Mahaveer Nagar-IIIrd, Kota.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADFPJ 2090 R vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 344/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

Shri Ashok Jain, cuke The Addl.C.I.T. 3-D-33, Mahaveer Nagar-IIIrd, Vs. Range-2, Kota Kota.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADFPJ 2090 R vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Ajay Malik (Addl.CIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Mahendra Gargieya & Shri Fajlur Rahman (Advocate)

lquokbZ dh rkjh[k@ Date of Hearing : 24/11/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015 2 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

These are cross appeals, one by the revenue and another by the

assessee against the order dated 29/02/2012 by the learned CIT(A),

Kota for A.Y. 2008-09. Respective grounds of appeal are as under:

Departmental appeal:-

"On the facts and in the circumstances of the case, the learned CIT(A), Kota has erred in:-

i) applying net profit rate of 12% inspite of the fact that the A.O. has made disallowance out of the expenses claimed in P&L account and learned CIT(A) held that discrepancies mentioned by A.O. with retrospective effect correct for making disallowance;

ii) the appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing."

Assessee's appeal in ITA No. 344/JP/2012

"1. That under the facts and circumstances of the case, the learned Assessing Officer has erred in disallowing 20% of the total expenditure of Rs. 70,97,212/- incurred on material purchased, 20% of the total expenditure of Rs. 31,15,522/- incurred on diesel purchase, 20% of the total expenditure of Rs. 40,48,354/- incurred on machinery, JCB, Truck & Tractor, 10% of the total expenditure of Rs. 7,84,374/- incurred on blasting and bore well expenses and 10% of total expenditure of Rs. 19,37,702/- incurred on labour payment and further erred in adding Rs. 27,19,588/- to the total income of the appellant. The Hon'ble CIT 3 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

(Appeals) has further erred in applying Net Profit Rate 12% and assessing the net taxable profit at Rs. 24,90,804/- as against Rs. 12,49,467/- declared by the appellant on the gross contract receipt of Rs. 2,07,56,706/-.

2. The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing."

2. Brief facts of the case are that the assessee works as a civil

contractor. During the course of assessment proceedimgs, learned

Assessing Officer observed that the assessee deliberately went on

seeking adjournments and did not produce relevant evidence. Various

queries raised by the Assessing Officer remained uncomplied with. The

Assessing Officer has made detailed observations in this behalf with

further observations that the assessee has not been able to support the

claims of expenditure made in his information contained in the return

was found to be uncorroborated and wrong. Looking at the

inconsistencies, non-cooperation and recalcitrant attitude of the

assessee, following additions were made:-

1. Disallowance of material purchased Rs. 1419442/-

2. Disallowance of diesel purchased Rs. 623104/-

3. Disallowance of Machinery & JCB, Truck And Tractor expenses Rs. 404835/-

4. Disallowance of Blasting & Bore well Expenses Rs. 78437/-

5. Disallowance of labour expenses Rs. 193770/-

4 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

3. Aggrieved, the assessee preferred first appeal before the learned

CIT(A), but did not raise any ground to counter the observations of

Assessing Officer that the assessee did not produce proper information

and render cooperation in the assessment proceedings, only respective

additions were challenged before the learned CIT(A). The learned

CIT(A) gave part relief by following observations:-

"In this case, during the course of hearing it was found that purchases to the tune of Rs. 44,65,509/- were through bogus bills.

It was also found that assessee has purchased diesel of Rs. 31,15,522/- in cash. However, the assessee did not produce log book or record of use of diesel and bills and vouchers.

It was also found that the assessee has incurred hiring charges of Rs. 9,38,450/- for machinery and Rs. 31,09,904/- for hiring JCB, truck and tractor. However, the addresses of the recipients were not furnished.

It is also found that assessee has incurred blasting expenses of Rs. 4,40,674/- and borewell expenses of Rs. 3,43,700/-. However, complete address of the recipients were not given.

It is also found that assessee has incurred labour expenses of Rs. 19,37,702/-. Various discrepancies were noticed in relation to these payments also.

The A.O. disallowed a sum of Rs. 14,19,442/- out of purchase expenses, Rs. 6,23,104/- out of diesel expenses, Rs.

5 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

4,04,835/- out of hiring charges, Rs. 78,437/- out of blasting and borewell expenses and Rs. 1,93,770/- out of labour expenses, totaling to Rs. 27,19,587/-.

Before me also no details to challenge the findings given by A.O. were furnished. Accordingly, the discrepancies mentioned by A.O. were found to be correct.

The assessee is a contractor doing the work for Govt. Departments. During the year, the turnover of assessee was Rs. 2,07,56,706/- and the assessee has shown a profit of Rs. 12,49,467/-. After adding the disallowance by A.O., the profit from the business comes to Rs. 39,69,054/-. This gives N.P. rate of 19.12%.

I have already held that the discrepancies mentioned by A.O. were found to be correct. However, after totaling the disallowance, the Net Profit of the assessee comes to 19.12% which appears to be on higher side.

In my opinion, once these discrepancies were found the A.O. should have rejected the books of accounts and should have estimated the Net Profit of the assessee.

In view of the above, it would be fair and reasonable to estimate the income of assessee. Considering that assessee was involved in large scale manipulation of accounts and that the assessee has submitted bogus bills to the tune of Rs. 44,65,509/-, I am of the opinion that a higher rate of Net Profit should be applied in the case of the assessee.

6 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

Accordingly, a Net Profit rate of 12% is considered reasonable in this case. This gives a Net Profit of Rs. 24,90,804/- as against Rs. 12,49,467/- declared by assessee.

Accordingly, addition of Rs. 12,41,337/- is confirmed. The A.O. is directed to delete the balance addition of Rs. 14,78,250/-. These grounds of appeal are therefore partly allowed."

4. Aggrieved, both the parties are before us on their respective grievances.

5. Learned counsel for the assessee contends that:

i. there is no justification in making such huge estimated

disallowance by the Assessing Officer, who has not provided any basis

of making ad hoc disallowances.

ii. The learned CIT(A) also held that in the light of adverse

observations, the assessee's books of account should have been

rejected and therefore estimated the net profit @ 12%, the same is

arbitrary and harsh.

Apropos merits, following is submitted:-

(a) Material purchases expenses: - The learned Assessing Officer

disallowed 20% of the total expenditure observing that cement might

have been purchased from some other parties and this technique was

used to reduce the profit of the firm. It assumes that assessee actually

purchased the claimed quantity of cement bags albeit from other 7 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

parties, even then it becomes allowable expenditure, disallowance of on

20% ad hoc basis is arbitrary.

(b) Diesel Expenses:- The assessee purchased petrol and diesel

from one M/s Agarwal Filling Station, Bundi. Copies of bills and

vouchers were produced alongwith ledger copies. The assessee had no

bank account at Bundi, therefore, cash payment above Rs. 20,000/-

amounting to Rs. 623104/- has been disallowed by the Assessing

Officer without proper justification and applying the Rule 6DD of the

Income Tax Rules, 1962.

(c) Machinery, JCB Truck and Tractor Rent: - The assessee

provided complete addresses of the payees, owners of such earth

moving machinery they are residing in villages where no house number

is allotted. Because assessee did not provide name of the father of the

owner, 10% ad hoc disallowances has been unjustifiably made.

(d) Blasting and Bore well expenses:- 10% of the expenditure has

been disallowed by the Assessing Officer again on the same footing

about the addresses of the recipients being non-verifiable.

(e) Labour payment expenses:- The assessee provided copy of

ledger account and muster roll and gave complete addresses of the

labourers. As against total contract receipts of more than 2 crores, the 8 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

total labour payment of Rs. 193770/- were justified. 10% ad hoc

disallowance was unjustifiably made by the Assessing Officer.

5.1 It is further contended that learned CIT(A), however, held that

looking at the discrepancies, the Assessing Officer should have rejected

the books and estimated the net profit of the assessee @ 12%. The

findings of ld. CIT(A) are again arbitrary, unjustified; it has been held

by various judicial precedents that in case of rejection of books, the

assessee's earlier years N.P. are average thereof, may be adopted.

Reliance is placed on the following case laws:-

(i) Indwell Construction Vs. CIT (1999) 151 CTR (AP) 207 :

(1998) 232 ITR 776 (AP) (DPB 5-7).

(ii) Banwalirala Banshidhar (1998) 148 CTR (All) 533 : (1998) 229 ITR 229 (All)

(iii) CIT Vs. G.K. Contractor (2009) 19 DTR 305 (Raj) (DPB 12-

14).

(iv) ACIT Vs. Smt. Renu Mukerjee (2008) 15 DTR (Del) (Trib) 205 (DPB 15-25).

(v) Eastern Construction Company Vs. ITO (1997) 59 TTJ (Del) 723 (DPB 26-36).

Even when the assessee's books of account are rejected, the

consequent best judgment assessment has to be reasonable and not

arbitrary. Reliance is placed on the decision in the case of CIT Vs.

Gotan Lime Khaniz Udyog 256 ITR 243 (Raj) holding that mere rejection

of books of account need not necessarily lead to additions to the 9 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

returned income. As compared to earlier years, there is only minor fall

of 0.48%, which is attributable to steep increase in turnover. In order

to achieve higher T O assessee had to appoint new and inexperienced

staff in a tough competitive market, therefore, the marginal reduction in

NP is justified.

5.2 Even in case of presumptive taxation on contractors, N.P. rate of

8% is prescribed by the law U/s 44AD of the Income Tax Act, 1961.

Alternatively it is pleaded that even if contractors NP is estimated

deduction of interest of Rs. 42403/- and deprecation of Rs. 26641/- is

to be separately allowable relying on the following case laws:-

(i) CIT Vs. Jain Construction Co. and Others (1999) 156 CTR (Raj.) 290.

(ii) Rikhabdas Jain Contractor Vs. ITO (2001) 72 TTJ (Jd) 526.

(iii) Teja Construction Vs. ACIT (2010) 129 TTJ 57 (Hyd) (UO).

(iv) ITO Vs. Shri Ram traders (2013) 90 DTR 217 (Jd)

(v) Bharat Construction Co. Vs. CIT (2002) 258 ITR 140 (Raj).

6. The learned D.R. on the other hand, contends that the assessee's

non-cooperation, non submission of documents and relevant

information was deliberate and palpable. The finding of the Assessing

Officer that the assessee was non-cooperative and did not produce

relevant information has neither been challenged before the CIT(A) nor

before the Hon'ble ITAT, thus, the assessee's dubious role emerges 10 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

from the record. The learned CIT(A) ought to have appreciated that

Assessing Officer gave several chances to assessee to produce the

relevant information, which was not provided. If the assessee is not

forthcoming with the relevant information Assessing Officer had no

choice but to adopt one of the reasonable ways to frame the

assessment on estimate, disallowance of expenditure on estimated %

basis cannot be found fault with as the assessee failed to substantiate

its claim of expenditure. The Assessing Officer, in the absence of

cooperation disallowed the expenditure on a conservative basis. The

learned CIT(A) should have upheld his order instead of applying 12%

N.P. rate. Reliance is placed on the decision of Hon'ble Rajasthan High

Court in the case of Kansara Bearing Pvt. Ltd. Vs. ACIT 270 ITR 235

holding that if the finding of estimated profit is borne out by the record

then the same becomes the finding of fact against which should not be

routinely interfered and against which no substantial question of law

arises.

7. We have heard the rival contentions of both the parties and

perused the material available on the record. It emerges from the

record the assessee's conduct during assessment proceedings was one

of non-cooperation and non-compliance qua the queries which resulted

in ex parte assessment. This observation and conclusion has not been 11 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

agitated the assessee either before the CIT(A) or before the ITAT in

grounds. Similarly neither before CIT(A) nor before us any prayer for

admission of any addition evidence has been made to improve on the

merits. Thus, this case involves peculiar facts for determination of

taxable income, learned CIT(A) gave part relief observing that the

assessee's books should have been rejected instead of % disallowance

of expenditure. Ld. CIT(A) estimated the N.P. @ 12% as reasonable

estimation.

According to the Revenue, the learned CIT(A) should have upheld

the order of the Assessing Officer and the assessee claims that in case

of rejection of books, its N.P. in earlier years should have been applied.

In our view, assessee's conduct during the course of assessment and

appellate proceedings does not give a conducive picture, in the entirety

of facts and circumstances of the case, there is no infirmity in the order

of ld. CIT(A) holding that the assessee's books of account should have

been rejected and NP should be estimated at 12%. This way of

estimation in case of rejection of books is also a recognized manner.

8. Having held so, the next question arises about reasonableness of

estimation of the taxable income. The learned CIT(A) after considering

all the facts and circumstances was of the view that the non-

cooperation of the assessee cannot be put to its advantage in only 12 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

adopting earlier years N.P. The assessee cannot on the one hand chose

to be to non-cooperative, non compliant and obstructing a fair

assessment and on the other hand, claim a particular percentage of

N.P. to be adopted as a prize for his recalcitrance. The assessee has not

been able to demonstrate that the 2% adopted by learned CIT(A) order

is arbitrary. The only reliance placed is on case law that a lesser profit

should be taken, nothing has been adverted to explain why the

assessee cannot earn 12% NP. In some cases contractors earn more

also, in the given facts and circumstances it is the burden of the

assessee to objectively prove that he earned less than the estimate.

This burden has not been properly discharged.

9. It is trite law that while challenging the estimate made by the

income tax authorities, the burden is on the assessee to convincingly

demonstrate that the estimate is arbitrary, so as to enable the appellate

authority to interfere. In absence of any convincing arguments or

evidence in this behalf, we see no reason to interfere in the order of

estimate made by the learned CIT(A). In these circumstances, we see

no reason to interfere with the rate of N.P. as estimated by the learned

CIT(A). However, we find merit in the alternate prayer of the learned

counsel for the assessee that a relief of interest of Rs. 42403/- and 13 ITA 414 & 344/JP/2012_ ACIT Vs Ashok Jain

depreciation of Rs. 26641/- should be given which is allowed to the

assessee.

10. In the result, revenue's appeal is dismissed and the assessee's

appeal is partly allowed.

Order pronounced in the open court on 13/02/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 13th February, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The A.C.I.T., Circle-2, Kota/Addl.CIT, Range-2, Kota.

2. izR;FkhZ@ The Respondent- Shri Ashok Jain, Kota.

3. vk;dj vk;qDr¼vihy½@The CIT(A), Kota.

4. vk;dj vk;qDr@ CIT, Jaipur

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 414 & 344/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar