Sri Rajendra Prasad Chaudhary, Gonda vs Department Of Income Tax

Dy.C.I.T., Vs Shri Rajendra Prasad Chaudhary, Circle-Gonda, Prop. M/s Pratap Construction, Gonda. Patel Smarak Sansthan, Gandhi Nagar, Basti. PAN:ABVPC7139G (Appellant) (Respondent)

C.O.No.01/Lkw/2015 (in ITA No.875/LKW/2014 Assessment year:2010-11

Shri Rajendra Prasad Vs Dy.C.I.T., Chaudhary, Circle-Gonda, Prop. M/s Pratap Construction, Gonda. Patel Smarak Sansthan, Gandhi Nagar, Basti. PAN:ABVPC7139G (Objector) (Respondent)

Revenue by Shri Anand Kumar Agarwal, CIT, D.R. Assessee by Shri A. R. Rahman, Advocate Date of hearing 16/02/2015 Date of pronouncement 17/03/2015

ORDER PER A. K. GARODIA, A.M.

The appeal is filed by the Revenue and the Cross Objection is filed by the assessee, which are directed against the order of CIT(A)-II, Lucknow dated 13/08/2014 for assessment year 2010-2011.

2. First we take up the appeal filed by the Revenue. In this appeal, the Revenue has raised the following grounds:

2 "1. Whereas the CIT(A)-II, Lucknow has upheld the rejection of books of accounts u/s 145(3) of the I.T. Act in the facts and circumstances of the case but has erred in law and on facts to estimate the N.P. at Rs.27,00,000/- (3.4% of turnover) as against N.P. rate of 8% applied by the A.O, without any basis and in a arbitrary manner because each assessment year is different.

2. Whereas the CIT(A)-II, Lucknow has upheld the addition on account of undisclosed investment in FDRs at serial number 15 and 16 of the chart being unexplained investment in FDRs during the year under consideration but has erred in law and facts in not confirming the unexplained investment in FDRs at serial number 3 and 6 of the chart showing FDRs purchased at Rs. 3,66,262/- and Rs.6,66,407/- respectively.

3. The Ld. CIT(A)-II, Lucknow has erred in confirming only the unexplained investment in FDR of Rs.1,00,000/- on 29.05.2009 and omitted to confirm the balance unexplained investment in FDR at serial number 15 of the chart of Rs.23,286/-."

3. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

4. We have considered the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that this issue was decided by learned CIT(A) by making following observations on page No. 11 & 12 of his order, which are reproduced below for the sake of ready reference:-

"Ground No.4 in respect of application of N.P. rate 8% and assessed extra profit of Rs.39,62,925/-.

The A.O. has discussed this issue in Para- 4(A) of the assessment order mentioned supra. The A.O. has applied N.P. 3

rate 8% of gross contract receipts of Rs.7,94,07,164/- against shown by appellant 3.01% in his books of accounts. The appellant has filed written submission during appellate proceedings and contended that the application of N.P. rate 8% by A.O. was arbitrary/unjustified. The appellant has mentioned in his written submission that the A.O. should have taken into consideration his own past history in estimation of net profit derived from Civil Contract work, as the appellant did the civil contract work last so many years. The appellant has also furnished the comparative chart of contract receipts, net profit, percentage of net profit rate and finally assessed income by A.O. and CIT (Appeals) in earlier assessment years. The appellant has also furnished that even in subsequent assessment year i.e. 2011-12 the A.O. has assessed his income u/s 143(3) of I.T. Act and assessed the net profit rate of 2.09% on contract receipts of Rs.16,36,39,708/-. Further the appellant has mentioned that the A.O. did not mention any comparable case to justify the application of N.P. rate 8%. The A.O. should have accepted the past history of appellant while framing the scrutiny assessment even in best judgment assessment. The appellant has further argued that the N.P. rate declared in assessment year under consideration is on higher side as compared to earlier assessment years. The A.O. should have accepted net profit declared by him as reflected in audited final accounts.

I have examined the written submission of appellant and finding given by the A.O. in assessment order and I found much force in the argument of appellant given in written submissions. The A.O. did not mention any comparable case to justify (he application of N.P. rate 8%. I have also found that the A.O. did not consider the past history of appellant own case, I have also seen that in past years the A.O. has made the disallowances and final assessed income comes to 0.98% to 2.50%. Even subsequent assessment year 2011-12 the A.O. did not apply the N.P. rate and only disallowances were made out of direct & indirect expenses and assessed the appellant income. However looking into the nature of business of appellant, position of books of accounts, bills & vouchers which were admittedly not produced before A.O. during assessment proceedings and past history of appellant own case it would be fair and reasonable if the net profit is taken and assessed at Rs. 27,00,000/- instead of taken by the A.O. of Rs.63,52,573/-.

4 Reliance is placed on the following judicial decisions:-

"The books of account together with past history of the case as also material collected should be considered for estimation of income. Reliance is placed in the case of CIT v. Gotan Lime Khanij Udyog (2002) 256 ITR 243 (Guj).

In the cases of Ajay Goyal v. ITO [2006J 99 TTJ (JD)164, Madan Lal v. ITO [2006] 99 TTJ (JD) 538, CIT v. Popular Electric Co. Pvt. Ltd. [1993] 203 ITR 630 (Cal) and M.A. Rauf v. CIT [1958[ 33 ITR 843 (Pat) the benches of the Tribunal are taking a consistent view that the past history is the best guide where the provisions of section 145(3) are applied."

Hence considering the facts & circumstances mentioned above the net profit of appellant is assessed and confirmed to the extent of Rs.27,00,000/- against shown by the appellant of Rs.23,89,648/-.

Thus to the extent of Rs.3,10,352/- (Rs.27,00,000- 23,89,648) addition made by A.O. under this head is hereby confirmed and rest of addition is liable to be deleted. The A.O. is directed to delete the addition of Rs.36,52,673/- (Rs.39,62,925-3,10,352). Thus the appellant gets relief of Rs.36,52,673/-. This ground is partly allowed."

4.1 From the above Paras from the order of learned CIT(A), we find that it is noted by him that in earlier years, the final assessed income of the assessee was in the range of 0.98% to 2.5%. In the subsequent year i.e. assessment year 2011-12, the income of the assessee was assessed at 2.09% on contract receipt of Rs.1636.39 lac. In the present year, the contract receipt is Rs.794.07 lac. The decision of the CIT(A) to assess the income of the assessee at Rs.27 lac results into net profit rate of 3.40% as against 8% estimated by the Assessing Officer. Since in the present year, the assessee has not produced books of account and vouchers related to the expenses, we feel that applying net profit rate of 4% will meet the ends of justice. We direct the Assessing Officer accordingly that the Assessing 5

Officer should assess the income of the assessee by applying 4% rate as the net profit of the gross receipts. This ground is allowed partly.

5. Regarding ground No. 2 Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

6. We have considered the rival submissions. We find that it is noted by Assessing Officer in the assessment order that from the analysis of TDS report, it was revealed that the assessee has earned interest of Rs.6,58,219/- on total deposit of Rs.94,76,850/- with the bank in financial year 2009-10. He has summarized the TDS report in a tabular form on page No. 2 & 3 of the assessment order. Thereafter, he has noted that out of total deposit of Rs.94,76,850/-, the FDRs totaling Rs.4,53,000/- matured during the financial year 2009-10 and hence, the balance TDRs totaling Rs.90,23,850/- remained invested in the bank as on 31/03/2010. Since, the assessee did not reveal this investment in his balance sheet, he made the addition of this amount. This addition was deleted by CIT(A) by making following observations on page No. 11 of his order, which are reproduced below for the sake of ready reference:-

"I have examined the written submission of appellant, the detailed chart of FDRs submitted by appellant which were issued by bank authority i.e. OBC and finding given by the A.O. in assessment order and I find that the FDRs mentioned in Sl. 1 to 47 except Sl. No. 15 & 16 in assessment order were purchased/invested by appellant in earlier assessment years. The date, initial investment and date of maturity & amount along with interest is duly reflected in the charts issued by OBC as mentioned above. The A.O. was incorrectly taken into consideration as unexplained investment of the accumulated balance of these FDRs reflected as on 31.03.2010 without further verification of the date of principal initial investment, therefore, I hold the A.O. was not justified in making the addition of Rs.90,23,850/- of entire FDRs on account of 6

undisclosed/unexplained investment in FDRs during the assessment year under consideration. However it is observed from the details provided by appellant in respect of FDRs mentioned in said chart, the appellant has invested in FDRs reflected in Sl. No. 15 & 16 during the assessment year under consideration and rest of entire FDRs from Sl. 1 to 47 were found invested prior to assessment year under consideration. During the appellate proceedings also the appellant has failed to explain the source of investment of Rs.2,73,239/- (Rs.1,00.000 on 29.05.2009 & Rs.1,73,239 on 21.08.2009) in purchases of these two FDRs. Therefore, to this extent the action of A.O. treating the investment in FDRs as unexplained/undisclosed in the hands of appellant. Thus the A.O. was justified in making the additions of Rs.2,73,239/- being undisclosed investment in the hands of appellant made by him during assessment year under consideration. Since the rest of investment were made in earlier assessment years and the initial investment + accumulated interest are included in the balances of FDRs as on 21.03.2010, therefore, the A.O. was not justified in making the addition on account of undisclosed investment in FDRs of Rs.87,50,211/- and same liable to be deleted. The A.O. is directed to delete the addition of Rs.87,50,2117-. Thus the appellant gets relief of Rs.87,50,211/-

6.1 From the above Para from the order of learned CIT(A), we find that the basis of decision of CIT(A) is that the Assessing Officer has made addition without further verification of the date of principal initial investment. We do not find any merit in this stand taken by CIT(A) because it is admitted position of fact that the assessee has FDR investment in this year and the same was undisclosed in the balance sheet. If these FDRs were purchased in earlier year then it was the burden on the assessee to establish that by bringing necessary evidence on record. As per the chart reproduced by CIT(A) on pages 8 to 10 of his order, apart from Sl.No. 15 & 16 also, there are other FDRs which were purchased in the present year i.e. Sl.No. 3 Rs.3,66,262/-, Sl. No. 6 Rs.6,66,407/-. Moreover, even if balance FDRs were purchased during the financial year 2008-09 and the same were out of undisclosed sources then also interest on such investment for the 7

present year should be added in assessment year 2009-10 and CIT(A) should have given such direction to the Assessing Officer for making such addition in assessment year 2009-10. The interest accruing in present year on those investments in FDR made in financial year 2008-09 should have been added in present year. Considering these facts, we feel that the order of CIT(A) is not sustainable and the same required a fresh decision in the light of above discussion. Hence, we set aside the order of CIT(A) and restore the matter back to him for fresh decision after providing adequate opportunity of being heard to both the sides. This ground is allowed for statistical purposes.

7. Regarding ground No. 3 Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

8. We have considered the rival submissions. We find that as per the chart reproduced by CIT(A) at Sl.No. 15, the amount of FDR is 1,23,286/- but CIT(A) has confirmed the addition of Rs.1,00,000/- in respect of this FDR. When the investment is admittedly of Rs.1,23,286/-, the addition should have been of this amount and not of Rs.1,00,000/-. Therefore, on this issue, we reverse the order of CIT(A) and restore that of the Assessing Officer. This ground is allowed.

9. In the result, the appeal of the Revenue stands allowed in the terms indicated above.

10. Now we take up the Cross Objection of the assessee. In this Cross Objection, the assessee has raised the following grounds:

"1. That on facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Lucknow is not justified in estimating the appellant's 8

income at Rs.27,00,000/- as against Rs.63,52,573/- which is excessive and unreasonable.

2. That the learned Commissioner of Income-tax (Appeals) is not justified in holding that Rs.2,73,239/- invested in purchase of FDRs does not relate to the year under appeal and hence it is liable to be disallowed.

3. That the learned Commissioner of Income-tax (Appeals) erred in not deleting the interest levied by the Assessing Officer under section 234B of the I.T. Act as tax was deductible at source on the entire receipt from contract business and salary income as held in the case of DIT v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom). CIT and Another vs. Oswal Exports [2014] 369 ITR 630 (All)."

11. Learned A.R. of the assessee reiterated the same contentions which were raised before CIT(A) whereas Learned D.R. of the Revenue supported the orders of the authorities below.

12. We have considered the rival submissions. Regarding ground No. 1 of the assessee company, we find that this issue is inter connected with ground No. 1 of the Revenue's appeal and while deciding ground No. 1 of the Revenue, we have directed the Assessing Officer to adopt net profit rate of 4% and therefore, this ground of the assessee's Cross Objection is decided against the assessee. Ground No. 1 is rejected.

13. In ground No. 2, we find that this ground of the assessee is also de void of any merit because these two FDR of Rs.2,73,239/- were made on 29/05/2009 and 21/08/2009 which falls during the present year and since these investments were not reflecting in the balance sheet of the assessee, the addition was rightly upheld by CIT(A). Accordingly, ground No. 2 is also rejected.

9 14. Regarding ground No. 3, we find that the issue raised by the assessee is regarding levy of interest u/s 234B of the Act. Levy of interest u/s 234B is consequential and therefore, there is no merit in this ground of the appeal. Accordingly, C.O. of the assessee is dismissed.

15. In the combined result, the appeal of the Revenue is allowed and Cross Objection of the assessee is dismissed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:17/03/2015 *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar