9911796707
TMI Blog2024 (11) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... r short CIT(A) ], dated 19.02.2024 for the assessment years 2016-17 in the case of the above named assessee. That of the ld. CIT(A) in turn arise because the assessee challenged the order dated 30.12.2018 passed under section 143(3) of the Income Tax Act, 1961 (here in after Act ), by the ACIT, Circle-4, Jaipur. 2. The assessee has raised the following grounds: - 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in confirming the action of ld. AO in rejecting the books of accounts and invoking the provisions of section 145(3) of Income Tax Act, 1961 arbitrarily. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding G.P. rate of 7% on turnover from entire receipts (including manufacturing and contracting) without appreciating the fact that Hon'ble ITAT in assessee's own case for A.Y. 2012-13 has accepted the GP rate declared by assessee, thus the application of GP rate of 7% deserves to be struck down and the GP declared by assessee deserves to be accepted. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in allowing re-computation of turnover declared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed that the assessee has shown sale of service contract receipts less by Rs. 1,22,46,750.32/- and assessee was asked to show cause as to why the contract receipts shown in Form 26AS of Rs. 82,99,48,240.20/- shall not be treated as assessee real turnover / receipts. Failing to file explanation on issue the difference amount of Rs. 1,22,46,750.32 shall be added to the total contract turnover for the year under consideration and taxed accordingly. 3.1 In response to the above show cause notice, the assessee submitted written reply on 24.12.2018 stating that the different is on account of receipts of Rs. 4,00,52,739/- which is received from IRCON towards the work executed by the assessee at Sri Lanka through its overseas branch. The entire receipts from this project stood credited to the respective branch who had executed the work and declared the receipts in its balance sheet at Srilanka, copy of that audit report was placed on record. Further, the assessee has credited the profits from the Srilanka Branch in its profit loss account at Rs. 12,82,233.64. If this amount of receipt of Rs. 4,00,52,739/- is excluded from the gross receipts as per form 26AS at Rs. 82,99,48,240.20, the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). The books of accounts, vouchers, bill as statutorily required for the branch office are maintained and kept at branch office and the accounting of the branch is done is accordance with the prevalent law of Sri Lanka and the same are duly audited by a firm of Chartered Accountants in Sri Lanka. The financial results of the branch office are incorporated in the books of accounts of the head office at Jaipur and are reflected as Balance with branch (in Assets) and investment in branch (in Assets) accordingly. Further the Balance Sheet of branch duly audited by firm of chartered accountant in Sri Lanka which is enclosed herewith for your kind perusal and record. With regard to the stock register, as has already been submitted assessee has not maintained day to day stock records and goods purchased are directly charged to revenue which is also reported by the auditors in the report. Further the stock lying at the yearend is physically verified and the same is declared ion actual verification. The site wise records of expenses claimed are tendered herewith alongwith the other bills and vouchers of the expenses claimed of more than Rs. 10.00 le the P L account. Also produced muster ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total taxable income to the assessee for the year under consideration. 4. Aggrieved from that order of the assessing officer, assessee preferred an appeal before the ld. CIT(A). Apropos the ground so raised by the assessee and the relevant finding of the ld. CIT(A) reads as under : 5. Decision:- 5.1 I have perused the assessment order, grounds of appeal, statement of facts and submissions of the appellant. On perusal of the assessment order, it is noted that the case was selected in scrutiny and the appellant was issued statutory notices as per law. The appellant is engaged in contractual and manufacturing activities during the relevant financial year and the AO has compared the GP Rate and figures of the turnover and gross profit of preceding two assessment years with the instant assessment year. The AO issued notice u/s.142(1) of the Act to furnish details of expenditures debited in the P L A/c, but the appellant failed to furnish complete details. The AO issued show cause notice dated 19.12.2018 requesting for reconciliation of receipts shown in ITR vis- -vis receipts shown in Form 26AS, production of complete stock register, bills and vouchers of site wise expenses, books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in this year also the books of accounts of the appellant were rejected by the AO and the GP rate of 8% had been applied on the total receipts of the appellant. As per the CIT(A) order dated 05.11.2018 filed by the appellant, learned CIT(A) in para 2.3 has held that considering the past history of the case, the action of the AO of rejection of books of accounts is upheld. The learned CIT(A) relied upon decision of Hon'ble ITAT in A.Y. 2009-10 and 2012-13 and since the appellant had continued with the same line of business, based on the substantial reduced turnover in the instant assessment year as compared to earlier year, learned CIT(A) sustained the addition to the extent of Rs. 12 lakhs for contractual receipts and Rs. 1 lakh for trading receipts. The appellant has relied upon the past appellate history in its case in the submissions made before the NFAC. It is noted that Hon'ble ITAT has not disagreed with the AO / CIT(A) as regards rejection of books of accounts, in A.Y. 2009-10-ITA No.712/JP/2012 dated 26.04.2013, para 14 of order of Hon'ble ITAT, Jaipur, but reduced the quantum of profits estimated and partly allowed the appeal of the assessee/Revenue. Similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the arguments made by the appellant regarding justification of net profits claimed by it is not found correct. Based on the above discussion, the rejection of books of accounts made by the AO citing specific defects as mentioned in the assessment order is found correct. It is noted that estimation of profits after rejecting books of accounts has been upheld in earlier years by learned CIT(A) and Hon'ble ITAT also. Accordingly, ground No.1 filed by the appellant is dismissed. 5.3 As regards the submissions of the appellant where it has been pointed out that the addition sustained by the appellate authorities is not 8% but a lower figure, it needs to be clarified that facts of every year are not exactly similar and for estimation of profits, every year has to be examined separately Since the appellant has failed to submit necessary evidences before the AO/NFAC despite repeated opportunities and simply relied upon its own ledger accounts and did not reconcile its stock details, did not furnish expenditure evidences above Rs. 10 lakhs and other necessary details in support of the claims of GP rate / NP rate, it is held that the addition made by the AO with respect to the NP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire sales / contract works has been done for Indian Railways. Also in the year under appeal assessee has executed certain work of similar nature through its overseas branch at Sri Lanka as sub-contractor for IRCON - a government of India undertaking engaged in the installation and operation of railway track system. The said work was awarded to the assessee in the preceding assessment years where majority of the work was executed and income received was declared. Apart from this, assessee also owned two Wind Mill plants installed at Jaisalmer where electricity generated is sold to state owned electricity Boards. Return of Income for the year under appeal was filed declaring total income at Rs. 2,71,32,290/- after claiming deduction 80IA at Rs. 52,40,124/- on the Wind Mill income and assessment was completed u/s 143(3) at Rs. 6,52,17,770/- after making trading addition of Rs. 3,80,85,480/- by invoking the provisions of section 145(3) of the Income Tax Act, 1961. Against this order passed by ld.AO, assessee decided to file an appeal before CIT(A) wherein ld. CIT(A) erred in confirming the rejection of the assessee s books of accounts and invoking the provisions provided u/s 145(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to be utilized was firstly delivered to the Railway Authorities who conducted a thorough inspection for ensuring the quality and quantity check, it was then stored in the railways stock yards for subsequent release to assessee for execution of work as per the daily requirements at the work sites on a daily basis. this Thus, establishing that the assessee had no role in maintenance and storage of the stock required for executing the daily work requirements of the railways as per the contracts and also provides for the verifiability and accountability of all the purchases and consumption of all the major items due to the railway authorities interference in the process. Moreover, the practice of physical verification of the stock remaining unutilized at the end of the year in the stock yards being also declared on actual verification proves for the accountability of the assessee and the Railway authorities in the case at hand. For the failure of assessee to provide the muster roll of labourers working at their sites, assessee had earlier explained the difficulties posed by the nature and the geographical limitations of the work sites for non-employment of permanent labourers and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the company and therefore, there was no reason for the ld. AO to doubt the same for exclusion from the assessee s income for tax purposes. Moreover the domain to verify the correctness and completeness of the books of accounts maintained at the branch at Srilanka are subject matter of Srilankan Tax Authorities and assessee is eligible for claim of credit of the taxes paid in Srilanka on such profits as per the DTAA executed between India and Sri Lanka. However, in the instant case the assessee has not claimed any credit for the taxes paid on such profits in Sri Lanka and the action of ld.AO doubting the completeness and correctness of the books of accounts of the branch at Srilanka is outside the scope the Indian Tax authorities. Grounds of Appeal No. 2 3: In these grounds of appeal, the assessee had challenged the action of ld. CIT(A) in upholding the G.P. rate of 7% on turnover from entire receipts (including manufacturing and contracting and also of the contract work executed by the overseas branch at Sri Lanka) without appreciating the fact that Hon'ble ITAT in assessee's own case for A. Y. 2012-13 has accepted the GP rate declared by assessee. Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of the Sri Lanka branch by the assessee and the net profit from such branch was included in the total profit by crediting the same in the Profit Loss account. It was also submitted that if the corresponding receipts from IRCON is excluded out of the total receipts as per form 26AS,the remaining figure of contract receipts would be even less than the gross contract receipts declared by the assessee in its Profit Loss account from Indian operations. For such negative difference it was explained that in some cases TDS has not been deducted though work is executed by Assessee Company and consequent receipts are included in the gross receipts declared. Ld. AO has failed to appreciate this fact and wrongly included the receipt of Sri Lanka branch for making estimation of profit which action is confirmed by ld. CIT(A) by fully ignoring the fact, as submitted above, that the turnover of overseas branch cannot be included in the total turnover for taxing the income earned from Indian operation by the assessee company. Moreover, while making the estimation of income by including the contract receipts of overseas branch at Sri Lanka, ld.AO as well as ld. CIT(A) has failed to appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing laid down by Hon ble Jaipur bench of ITAT, in assessee s own case for A.Y.2013-14, in ITA No. 571/JP/18 may be looked into wherein it has been held partly in favour of the assessee that: 13. We have heard the rival contentions and perused the material available on record. It is a settled legal proposition that once the books of accounts have been rejected and have not been disputed as in the instant case, the Assessing Officer is required to estimate the N.P rate in the hands of the assessee. In the instant case, the assessee company has reported segmental results in respect of its manufacturing as well as contract activity wherein it has reported NP rate of 6% in respect of its manufacturing activities and 5.42% in respect of its contractual activities. The AO has applied NP rate of 8% across both the segments and Id CIT(A) has reduced it to 7% in respect of manufacturing activities and has done a lump sum disallowance of Rs 25 lacs in respect of contractual activities. Further, the Id AR has relied upon the decision of the Tribunal in assessee's own case for AY 2009-10 and AY 2012-13 where lumpsum disallowance was sustained at Rs 10 lacs in respect of contractual activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.897 and 997/JP/15 confirmed the disallowance at Rs. 10 lacs. The facts and the circumstances as existed in the preceding assessment years and in the year under appeal are the same, and neither the mode nor the manner of maintaining the books of accounts by the assessee has changed, as also the principal i.e. Indian Railway have remained the same. Therefore, ld.CIT(A), while passing orders for A.Y.2014-15 2015-16 has also sustained certain ad hoc additions and deleted the balance additions. Further reliance is placed on the following decisions: 65 DTR 196 CIT V/s. Amrapali Jewels (P) Ltd. (Raj.) Appeal (High Court). Substantial question of law. Estimation of income and GP rate. It is essentially for the taxing authorities to decide as to what should be percentage rate of GP that should be applied on particular turnover of the assessee. It is a matter of discretion to be exercised on settled practice world. Once the Tribunal accepted the factual explanation of assessee and accordingly, deleted the additions in question made by AO in exercise of its appellate discretionary powers, then it would not involve any substantial question of law. 316 ITR 125 Inani Marbles (Raj.) That in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. AO. It is thus submitted that the results declared deserves to be accepted and the additions made by applying profit rate of 7% deserves to be deleted. 6. While hearing, the ld. AR of the assessee in addition to the written submission so filed vehemently argued that profit of Sri Lanka project is already reflected in the profit and loss account already on record. There cannot be any further addition on estimation to that profit and turnover already reflected in the accounts. The income so disclosed and the related facts placed on record has not been appreciated by the lower authorities. The ld. AR of the assessee also submitted that in past also the books of accounts of the assessee were rejected and in respect of the contract receipt, the profit were estimated. That profit so estimated if compared with the current year profit then the assessee has shown the better results. To explain that aspect of the matter he relied upon the following chart; A.Y. Declared by Assessee Applied by AO Applied by CIT(A) Applied by ITAT 2007-08 6.00% 8.00% 7.00% 7.00% 2009-10 6.01% 8.00% 7.00% 10.00 Lacs Lumpsum out of expenses) 2012-13 5.98% 8.00% 30.00 Lacs (lumpsum out of expenses) 10.00 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its manufacturing activities and 5.42% in respect of its contractual activities. The AO has applied NP rate of 8% across both the segments and ld CIT(A) has reduced it to 7% in respect of manufacturing activities and has done a lump sum disallowance of Rs 25 lacs in respect of contractual activities. Further, the ld AR has relied upon the decision of the Tribunal in assessee s own case for AY 2009-10 and AY 2012-13 where lumpsum disallowance was sustained at Rs 10 lacs in respect of contractual activities. However, we find that both the ld CIT(A) and the Tribunal have not gone into the issue of reasonable and proper estimate by applying average NP rate based on past history as held by the Hon ble Jurisdictional High Court in case of CIT vs Gupta K N Construction 116 DTR 377 as well as in various other decisions wherein it has been held that the best guide in the case of fair estimation is the past history of profit rate declared by the assessee which can be applied by the Assessing Officer for estimating such profits in absence of any third party comparables. For the purposes, past one or two year results are not determinative rather the average of the NP rate for the past at le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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