TaxTMI 
TaxTMI 
2013 (1) TMI 133
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt year 2006-07. The assessee had also shown total cash credits of Rs.54,50,000/-. The AO in the assessment, treated cash credits as income of the assessee as the same were not explained satisfactorily. The AO also disallowed the purchases to the tune of Rs.2,87,57,709/- as not supported by proper evidence. The AO further disallowed claim of sub-contract charges payable by the assessee to the tune of Rs.2,13,78,870/- in respect of related concerns and Rs.2,23,83,278/- in respect of other concerns. The AO had also disallowed claim of penalty of Rs.2,88,353/-. In appeal, CIT(A) confirmed the addition on account of cash credit to the tune of Rs.44,50,000/- and deleted the additions on account of bogus purchases and sub-contract charges and instead estimated GP profit @ 8% on the gross contract receipts. CIT(A) also deleted the addition made on account of penalty charges. Aggrieved by the decision of CIT(A), both the parties are in appeal before the Tribunal. Whereas the revenue has challenged the order of CIT(A) in allowing relief in respect of cash credit as well as in relation to disallowance of purchase, contract charges and penalty, the assessee has disputed the order of CIT(A)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,00,000/- Sh. Ratansingh Total 30,00,000/- 3.3 The assessee submitted before the AO that the loan creditors were assessed to tax and filed loan confirmations giving their Income tax acknowledgement receipt, P.A. Number etc. The AO made enquiry through notice server who reported that the parties were not found at the given address. This was pointed out to the assessee whereupon the assessee furnished the new addresses. The AO got enquiries made through inspector who, in the report dated 14.12.2009 mentioned that the parties at Sl.No.1,2, & 3 were not residing at the new addresses given and instead some other parties were residing and in respect of party No.4 it was reported that the address was incomplete. The AO also verified the Income tax returns of the parties and noted that they had not filed their balance sheet and P&L account and that the loan advanced to the assessee was not reflected in their Income tax returns. The AO therefore, concluded that the credit worthiness of the party was not proved. The AO therefore, treated the loans of Rs.30.00 lacs as unexplained income of the assessee. Thus total addition made under section 68 was Rs.54,50,000/-. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., he computed the peak credit at Rs.44,50,000/- and addition to that extent was confirmed and balance addition was deleted. Aggrieved by the said decision both the parties are in appeal. 3.6 Before us, the ld. AR submitted that the assessee had given details of land holdings as well as addresses with confirmations from the agriculturists and therefore without producing any diverse material AO was not justified in making addition and CIT(A) was not justified in confirming the addition of peak credit. It was also submitted that the assessee had not agreed for peak addition before CIT(A).It was further submitted that the assessee is a semi literate person who had signed the letter dated 16.3.2010 filed before CIT(A), which had been prepared by his tax practitioner, without explaining the contents and implications of the said letter. An affidavit dated 22.6.2012 to the above effect has been filed from the assessee. The ld. DR on the other hand submitted that burden was on the assessee to prove not only the identity of the creditors but also credit worthiness of the creditors which had not been discharged by the assessee and therefore, the entire cash credit was required to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... found at the addresses given or the addresses given by the assessee were incomplete. The AO also verified their income tax returns as per P.A. Number given on confirmations and has given a finding that loans advanced to the assessee were not reflected in the income tax returns. The AO, therefore, proceeded to conclude that the credit worthiness of the parties was not proved, without giving any further opportunity to the assessee to explain the credit. CIT(A) has also not examined this aspect as he confirmed the peak credit on the basis of admission of the assessee which has since been denied, and is supported by an affidavit. Therefore, in our view matter is required to be examined by CIT(A) afresh for giving finding on merit of the case i.e., the credit worthiness and genuineness of transactions both in relation to agriculturists and other creditors. We, therefore, set aside the order of CIT(A) and restore the matter back to him for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. 5. The second dispute is regarding disallowance of bogus purchases and sub-contract charges. The AO during the assessment proceedings noted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to 8 persons which were related parties under section 40A(2)(b), as per details given below:- S.No. Name of the subcontractor Amount (Rs.) Sub contracted by 1. Kedarnath Enterprises 29,81,000/- M/s. Ratansingh & Bros. 2. Mallikaarjun Const. Co. 30,72,000/- M/s. Ratansingh & Bros. 3. Nageshwar Construction Co. 30,21,300/- M/s. Ratansingh & Bros. 4. Omkareshwar Enterprises 29,67,650/- M/s. Ratansingh & Bros. 5. Parlevejnath Contruction Co. 29,86,380/- M/s. Ratansingh & Bros. 6. Somnath Construction Co. 30,41,850/- M/s. Ratansingh & Bros. 7. Trambakeshwar Enterprises 29,96,300/- M/s. Ratansingh & Bros. 8. Bhimashanker construction Co. 30,12,390/- M/s. Ratansingh & Bros. Total 2,13,78,870/- 5.3 The assessee submitted that the sub-contract charges were bonafide and parties were assessed to tax and payments were made in subsequent year by cheque. The AO however collected information from the parties under section 133(6) which was compiled as under :- S.No Name of the subcontractor Receipts other than from assessee Capital introduced by partners Returned income Method of computatio n of income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....2,23,83,278/- on account of sub-contract charges payable to nine other parties as per details given below:- S.No. Name of the subcontractor Amount (Rs.) Payment Outstanding from assessee 1. Parbhat Singh 31,15,000/- 11,86,685/- 2. Hansraj Prajapati 19,85,000/- 19,62,975/- 3. Chhelsingh Deora (HUF) 30,68,865/- 42.19,832/- 4. Babusingh B. Deora 19,75,450/- 19,53,531/- 5. Bhimsingh B. Deora (HUF) 20,15,000/- 19,92,643/- 6. Sheela S. Jain 10,22,694/- - 7. Karan Enterprises 30,38,637/- 20,70,790/- 8. Prahlad Singh Deora 30,21,032/- 29,54,000/- 9. Anil R. Gupta 31,41,600/- 30,07,473/- Total 2,23,83,278/- 2,02,47,929/- 5.6 In these cases also, the assessee claimed that the transactions were genuine and parties were assessed to tax and also enclosed the contract order and invoice. It was also submitted that the payments had been made to the parties in the subsequent year by cheque. 5.7 The AO was, however, not satisfied by the explanation given. It was observed by him that out of total claim of contract charges of Rs.2,23,83,278/-, a sum of Rs.2,02,47,929/- was outstanding at the end of the year. These p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted that due to various discrepancies and omissions pointed out by AO, he could have rejected the books of account and was required to make proper estimation of net profit which in any case could not be 34.43%. The net profit rate declared by the assessee was reasonable. 5.10 CIT(A) agreed with the assessee that the AO was not justified in disallowing total purchases and sub-contract charges and thus assessing net profit at 34.43%. It was observed by him that no doubt there were many discrepancies in the books of account which could not be considered as correct and complete. But the AO had brought no material or any comparative material to show that net profit rate in case of Government contractors could be 34.43%. He referred to the decision of the Tribunal in the case of Singhal & Bros. in ITA No.7253/Mum/2004 dated 24.7.2007 for assessment year 2001-02 in which net profit had been estimated at 5% of gross contract receipts. CIT(A) further observed that the assessee had filed details of comparative cases in which net profit varied from 3% to 10%. CIT(A) therefore, held that net profit rate of 8% would be reasonable in case of the assessee who had shown contract receipt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally high net profit rate of 34.43%. CIT(A) held that on account of various discrepancies pointed out by AO the books of account could be rejected and in that case net profit has to be estimated reasonably. He has estimated net profit rate at 8%. The case of the assessee is that the purchases and sub contract charges were supported by bills and sub-contract orders, and books of the assessee were audited and, therefore, no addition is called for. 5.13 The case of the department is that the purchases and subcontract charges are not supported by proper evidence in view of several discrepancies pointed out and, therefore, these were required to be disallowed fully and CIT(A) was not justified in confirming the addition only on the basis of 8% of net profit rate. 5.14 We have given careful thought to various aspects of the matter. In our view, the arguments of the assessee that the books of account could not be rejected can not be accepted. The assessee had shown total purchases of Rs.2,87,57,790/- from three parties. The income tax P.A. Number given by the assessee of the two parties was found to be wrong. The proprietor of the third party was found to be a different perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....considered as reasonable. The assessee had given comparative cases of net profit varying from 2.93% to 9.96% as per details in para 5.8 earlier. The ld. AR for the assessee has argued that 6.65% net profit rate declared by the assessee is reasonable and net profit rate of 8% adopted by the AO is not correct as rate of 8% is to be taken under section 44AD which is applicable only in case of assessees having turnover of less than 40.00 lacs. We are unable to accept the arguments advanced on behalf of the assessee. Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs.40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs.40.00 lacs. In fact with rise in volume, working becomes more economical and profitability may normally be higher. Each case has to be decided on its own facts and circumstances. Even in the comparable cases cited, the net profit rate had varied from 2.93% to 9.96%. These are big concerns who maintain proper accounts and also maintain quality standards. In case of the assessee as held earlier, accounts are not reliable and therefore, in our view on the facts of the ca....