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2015 (10) TMI 2421

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....g the addition of Rs. 38,60,745/- out of total addition of Rs. 40,21,610/- on account of disallowance of contract expenses. The assessee is a contractor. He filed his return on 05/10/2010 declaring total income of Rs. 72,88,200/-. The case was scrutinized U/s 143(3) read with Section 144 of the Income Tax Act, 1961 (in short the Act). The ld Assessing Officer observed that the assessee was non-cooperative not only in furnishing the requisite detail but also producing the books of account and also all supporting evidences for verification. In compliance to the first notice issued U/s 143(2) of the Act on 23/09/2011 whereby the date of compliance was fixed for 30/09/2011, nobody was attended nor any written reply was filed nor any application for adjournment was filed. In response to the notice U/s 142(1) alongwith detailed questionnaire on 07/2/2012 whereby the date of compliance was fixed for 16/2/2012, no body attended nor any written reply was filed nor any application for adjournment was filed, therefore, the ld Assessing Officer issued a letter for non-compliance on 14/5/2012 whereby it was duly pointed out to the assessee that the details and documents including books of accou....

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....g one pretext or the other for complying to the requirements of the assessment proceedings. The AR of the assessee once again asked to furnish the details on the next date of hearing fixed for 10/09/2012. On 10/09/2012 Shri Many Dhankar, C.A. attended on behalf of the assessee. In this regard the notings made on the ordersheet on 10/09/2012 are reproduced verbatim as under:- "Sh. Manu Dhankar, C.A. and son of the AR Shri M.S. Dhankar, C.A. attends once again without the books of accounts. Sh. Manu Dhankar, CA is once again made aware of the fact on record that the books of accounts, bills of purchases and bills of expenses in original have been repeatedly required to be produced for verification, first by way of notice U/s 142(1) dated 07/02/2012, than by way of specified notice U/s 142(1) dated 01/08/2012 and lastly by way of order sheet entry dated 24/08/2w012. He is also appraised of the fact that even the copy of the audit report has not been furnished till date despite specific requirement in the notice U/s 142(1) dated 07/02/2012 at Sr. No. 3 of the questionnaire. Sh. Manu Dhankar, CA submits that books of accounts shall be produced at the time of next hearing. Copy of the a....

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.... been produced for verification. None of the actions of the assessee during the course of assessment proceedings give any reason to form an opinion that the proper books of account have been maintained and such books of account are duly and adequately supported by the bills of purchases, bills of various expenses debited to the contract expenses account and bills or vouchers pertaining to the various expenses to the P&L account. Therefore, the provisions of Section 145(3) are clearly and squarely applicable in the instant case. Accordingly he rejected the book result of the assessee. 2.1 After rejecting book U/s 145(3) of the Act, the ld Assessing Officer has to estimate the income of the assessee U/s 144 of the Act on the past history of the case but past history of the assessee's case is not to be considered an appropriate method for finalizing the assessment because the figure disclosed in the P&L account and balance sheet are also not reliable. BY mere filing of return alongwith copy of balance sheet and P&L account is not sufficient to prove the transaction correct and complete. The statute is provided scrutiny of the case U/s 143(3) of the Act. It is further held that even i....

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....nced a sum of Rs. 44,78,927/- to a family member Smt. Babita Khaitan and another sum of Rs. 6,83,512/- has been advanced to M/s Vaishali Stone Crusher. During the year under consideration, no income, either in the form of interest or otherwise has been received from these two sources. Hence, the total advances made to these two entities amounting to Rs. 51,62,439/- is hereby held to be for non business purposes. This fact does not leave any doubt as to the conclusion that the entire non business assets have been acquired out of interest bearing borrowed funds on which interest amounting to Rs. 17,48,663/-has been debited to the P&L account. Accordingly he disallowed the interest debited in the P&L account at Rs. 17,48,663/-. The ld Assessing Officer asked to furnish detail of contract expenses debited at Rs. 13,40,53,661/- vide letter dated 07/2/2012. The assessee submitted reply vide letter dated 10/09/2012 wherein it was submitted that contract expenses debited in single head 'contract expenses' and it is not possible to bifurcate in different heads of expenses. The ld Assessing Officer held that the assessee has deliberately chosen not to furnish the specific details called for ....

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....eads was not furnished. Therefore the A.O. came to the conclusion that the contract expenses amounting to Rs. 13.40 crores approximately and which were about 91.09% of the total receipts were not subject to proper verification. The A.O. accordingly disallowed 3% of such contract receipt leading to addition of Rs. 40,21,610/-. On the other hand the appellant case is that proceedings were attended on specific dates with regular books of accounts and that on those specific dates the A.O. was not available. It is also claimed that the appellant has maintained constant N.P. and G.P. rate and that even when the case written submissions completed under scrutiny assessment in the past the income was assessed @ 5 to 6% subject to claim of depreciation interest payment and remuneration to the partners. It is also contended that before disallowing 3% of contract expenses the A.O. has not given any proper opportunity of being heard or any show cause notice. On careful consideration of relevant facts it may be noted that the A.O. has fixed the proceedings on different dates as mentioned in the chart on page No. 3 and though the attendance of the appellant on some of the proceedings may not be d....

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....93 ITR 669. (iii) CIT Vs Dr. A.P. Bahel 2 DTR 387 (Raj.) (iv) CIT Vs. Suresh Marbles Pvt. Ltd. 18 DTR 118 (Raj.) (v) Shri Ram Jhanwar Vs. ITO (2005) 98 TTJ 639 (ITAT Jodhpur). (vi) Ajay Goyal Vs. ITO 99 TTJ, ITAT, Jodhpur. (vii) ITO Vs. Girish M. Mehta (2006) 153 Taxman. It may be mentioned that during assessment proceedings the A.O. has specifically required to justify the claim of the contract expenses and prima facie such expenses were not subject to proper verification. The appellant case is that the GP/NP of the assessee is broadly consistent and that the same A.O. has completed the assessment for A.Y. 2009-10 by making lump sum addition of Rs. 5 lac. In this connection it may be stated that the facts of the earlier assessment years were different with the facts of the assessment years under consideration inasmuch as in the year under consideration the books of account and particularly the contract expenses were not subject to proper verification. In this background it may be stated that during the assessment proceedings the appellant was required to furnish the details of contract expenses in respect of earlier two assessment years viz a viz its comparison with the tota....

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....nsidering the inflation in cost. In A.Y. 2008-09, the percentage of contract expenses to total receipt was 86.90%. In A.Y. 2009-10, the ld Assessing Officer made ad hoc addition of Rs. 5 lacs against the contract expenses, which gives the contract percentage of total receipt at 89.21%. It means the ld Assessing Officer had accepted the inflation @ 2.31%. He further argued that cost of inflation index also increased from preceding year to the year under consideration. If this inflation is applied on the contract receipts, the percentage of contract expenses on contract receipt would be 91.09%. The difference in A.Y. 2010-11 and compared to A.Y. 2009-10 was only 1.55% as against the difference of 2.31% in A.Y. 2009-10 in comparison to A.Y. 2008-09. Therefore, these differences deserved to be accepted, no disallowance on account of contract expenses should be made. He further relied on the decision of Hon'ble Rajasthan High Court in the case of CIT Vs Bhawan Va Path Nirman (Bohra) & Co (No. 1) 258 ITR 431 and argued that past history of the assessee's case is the best guiding factor to decide the assessee's income U/s 144 of the Act. He further argued that it is not necessary to make ....

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....essee U/s 131 and also can impose penalty U/s 271(1)(b) of the Act, which has not been initiated by him. Therefore, he prayed to delete the addition. 5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the assessee's attitude was not cooperative. He has not produced the books of account before the Assessing Officer on fixed date. It is a fact that the ld Assessing Officer had given number of opportunities to the assessee but required details were not submitted before him. Even the assessee had not produced books of account before the ld CIT(A). Therefore he prayed to confirm the order of the ld CIT(A). 6. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee has shown total turnover during the year at Rs. 14.71 crores on which net profit has been shown @ 5.02%, which was Rs. 27.98 crores and net profit rate @ 5.77% in immediate preceding year. The assessee claimed that he produced the books of account but the Assessing Officer was not available in the office but books were examined by the Inspector on behalf of the Assessing Officer. The ld Assessing Officer applied Sectio....

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....oses was arrived at 3.99 crores approximately. Therefore, as per A.O. as against available own capital of the appellant amounting to Rs. 2.81 crores, the deployment of capital in the business use stood at Rs. 3.00 crores and the remaining investments including on personal assets and advancement of interest free loan was out of interest bearing borrowed fund. The A.O. has accordingly held that the interest bearing borrowed fund amounting to Rs. 1.72 crores were not used for business purposes and that the same were used for acquiring personal assets etc. Accordingly, interest paid amounting to Rs. 17,48,663/- was disallowed. On the other hand the appellant case is that all such personal assets amounting to Rs. 1.54 crores were purchased from the business profits and not from interest bearing borrowed funds. The appellant has also furnished individual balance sheet of Sh. S.K. Khetan and according to such balance sheet such personal assets were acquired out of his own capital. As regards the advancing of interest free loans to Smt. Babita Khetan and M/s Vaishali Stone Crushers the appellant has not furnished any specific explanation or jurisdiction. On careful consideration of all rel....

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....n such capital and therefore, interest free funds was much more than the investment in non income bearing investments. Therefore, no disallowance on account of interest paid can be made. He further submitted that the lower authorities have considered that the capital of the assessee has utilized in business assets and borrowed funds were utilized in non business assets. Hon'ble ITAT Jaipur Bench has considered this aspect in the case of ACIT Vs Ram Kishna Verma and held that when there are mixed funds then non-interest bearing funds are to be considered as utilized for non interest bearing funds. The ld CIT(A) held that if the investment in plots and interest free advances would have not been made by the assessee then such money would have been available for business and to that extent it may not have been necessary to borrow the funds from bank. He placed reliance on the following case laws:- (i) CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC). (ii) Assistant Commissioner of Income Tax Vs. Ram Kishan Verma ITAT, Jaipur 'B' Bench ITA NO. 589/JP/2011; ASST. YR. 2006-07 order dated 31st October, 2011 (2011) 30 CCH 0561 Jaipur Trib (2012) 143 TTJ 0001 (UO). (iii) Satish Kat....