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The Deputy Commissioner of Vs Shri Harbans Singh Sahni, Income Tax, Ragho Majra, Circle, Karah Wala Chowk, Patiala, Patiala.
May, 01st 2014
       IN THE INCOME TAX APPELLATE TRIBUNAL
         CHANDIGARH BENCH `A' CHANDIGARH

     BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER
     AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
                               ITA No .189/ CH D/ 2014
                            Assessm ent Y ear : 2009- 10

T he Deput y Co mmi ssi oner of             Vs     Shr i Har bans Si ngh Sahni ,
Inco me T ax,                                      Ragho Maj r a,
Ci r cl e,                                         K ar ah Wal a Chowk,
Pat i al a,                                        Pat i al a.

                                                   PAN : AF NPS3490Q
                                            &
                                  C.O . No. 19/ CH D/ 2014
                                In ITA No.189/ C H D/ 2014

Shr i Har bans Si ngh Sahni ,               Vs     T he Deput y Co mmi ssi oner of
Ragho Maj r a,                                     Inco me T ax,
K ar ah Wal a Chowk,                               Ci r cl e,
Pat i al a.                                        Pat i al a.

 (Appellant )                                            (R espondent )


              Departm ent b y :      S hri J .S.Nagar
              Assess ee b y   :      S hri K.P.Bajaj

              Date of Heari ng :                   16.04.2014
              Date of P ronouncem ent :            28.04.2014



                                     O R D E R


PE R SUSHMA CH OWLA, JM


       The appeal by the revenue and the Cross Objections by the

assessee are directed against the order of the Commissioner of

Income Tax (Appeals), Patiala dated 27.12.2013 against the order

passed under section 143(3) of the Income-tax Act, 1961 ( 'the Act'

for short).


2.     The revenue has raised the following grounds of appeal :


        1.    In the facts and circumstances of the case, Ld. CIT(A) has
              erred in restricting the addition of Rs.20,06,597/- made by the AO
              by applying net profit rate of 12% of gross receipts after rejecting
                                                         2




                   the books of accounts u/s 145(3) of the Act, by applying the net
                   profit rate of 7.78%.
           2.      In the facts and circumstances of the case, Ld. CIT(A) has
                   erred in reducing the net profit rate to 7.78% even though the
                   assessee has failed to file the details of stock/labour register, in
                   the absence of which, the labour expenses as well as valuation of
                   closing stock were not verifiable and cannot be relied upon.
         3.        In the facts and circumstances of the case, Ld. CIT(A) has
                   erred in restricting the net profit rate to 7.78% on the basis of past
                   results, without appreciating that labour charges were claimed to
                   have not been paid for several months, the valuation of closing
                   stock as not substantiated and no plausible explanation for low
                   gross profit rate for work done in Punjab was submitted.


3.            In Cross Objections, the assessee has raised following

ground:


                   "That the Commissioner of Income Tax (Appeals) was not
                   justified in upholding the estimation of income from contract
                   business at 7.78% as against the rate declared by the assessee at
                   6.78% which is higher than that accepted in earlier years."



4.       The appeal of the revenue and the Cross Objection filed by

the assessee were heard together and are being disposed of by this

consolidated order for the sake of convenience.


5.       The revenue is aggrieved by the order of Commissioner of

Income Tax (Appeals) in estimating the income in the hands of the

assessee by applying a net profit rate of 7.78% to the gross

receipts as against net profit rate of 12% to the gross receipts

applied by the Assessing Officer. The assessee is aggrieved by the

upholding of estimation of income from contract business of 7.78%

as against the rate declared by the assessee at 6.78% which was

h i g h e r t h a n t h a t a c c e p t e d i n t h e e a r l i e r ye a r s .


6.       The       brief      facts      of     the     case      are      that   the   assessee   was

contractor and filed the return of income showing net profit rate of

6.78% to its gross receipts.                          The Assessing Officer, during the
                                                      3




course of assessment proceedings noted that the assessee had

debited labour expenses of Rs. 18,30,574/- and in the balance

s h e e t , t h e l a b o u r p a ya b l e w a s d e c l a r e d a t R s . 2 8 , 9 3 , 5 0 0 / - .      The

Assessing Officer was surprised that such huge amount of labour

e x p e n s e s r e m a i n e d p a ya b l e i n t h e k i n d o f b u s i n e s s c a r r i e d o n b y

the assessee.           The Assessing Officer show caused the assessee to

explain the same and also asked the assessee to explain why the GP

rate was too low for the work done in Punjab as compared to the

work done in Haryana.                   The assessee was also show caused that in

case of failure to explain the same, the books of account would be

rejected and assessment would be made under section 145(3) read

with section 144 of the Income Tax Act.


7.       I n r e p l y, i t w a s s u b m i t t e d b y t h e a s s e s s e e t h a t t h e l a b o u r

expenses for the year under consideration were entirely paid and

t h e a m o u n t o f R s . 2 8 , 9 3 , 5 0 0 / - r e p r e s e n t e d l a b o u r c h a r g e s p a ya b l e

f o r t h e e a r l i e r ye a r s a n d a d d i t i o n o n t h a t a c c o u n t w a s a l r e a d y m a d e

i n a s s e s s m e n t ye a r 2 0 0 6 - 0 7 .    The assessee had drawn two trading

accounts        as    the VAT numbers                     f o r H a r ya n a    and Punjab were

different and the turnover had to be explained before the excise

authorities.          However, the expenses relating to both the projects

were debited to the same Profit & Loss Account and it was pointed

out that the GP rate declared by the assessee was highest as

c o m p a r e d t o t h e p a s t t h r e e ye a r s ' G P r a t e .     The Assessing Officer

further noted from the examination of books of account that the

assessee had failed to produce any documentary evidence with

r e s p e c t t o t h e l a b o u r p a i d d u r i n g t h e ye a r s e i t h e r i n t h e f o r m o f

labour register or vouchers and further the assessee did not make

a n y l a b o u r p a ym e n t s t i l l O c t o b e r , 2 0 0 8 a n d e v e n w h e n t h e p a ym e n t

was made through cheque, it was made to single person.                                          I n r e p l y,
                                                        4




the assessee explained that the labour registers and vouchers were

in the charge of supervisor which were not traceable at that point

a n d i t w a s f u r t h e r p o i n t e d o u t t h a t a s c o m p a r e d t o t h e e a r l i e r ye a r s ,

t h e l a b o u r p a ym e n t s f o r t h e ye a r u n d e r c o n s i d e r a t i o n , w e r e a t a

l o w e r p e r c e n t a g e . I n r e s p e c t o f t h e p a ym e n t s o f l a b o u r b e i n g m a d e

i n O c t o b e r , 2 0 0 8 , t h e a s s e s s e e e x p l a i n e d t h a t t h e s a i d p a ym e n t s

were made to the labourers when they went home and earlier, only

the `rashan' was supplied by the karyana dealers on the assessee's

guarantee and the said account was settled when assessee was in a

p o s i t i o n t o p a y. F u r t h e r , i t w a s p o i n t e d o u t b y t h e a s s e s s e e b e f o r e

the Assessing Officer that there were three labourers with the same

n a m e a n d h e n c e , t h e p a ym e n t s w e r e s h o w n i n t h a t m a n n e r .


8.       The Assessing Officer in view of the fact that the assessee

failed to produce labour register and/or the vouchers for labour

p a ym e n t s , r e j e c t e d t h e p l e a o f t h e a s s e s s e e o n a l l a c c o u n t s a n d i n

view of the provisions of sub-section 145(3) of the Act rejected the

books of account maintained by the assessee.                                      In view thereof and

in order to cover leakage of the revenue, the Assessing Officer

e s t i m a t e d t h e n e t p r o f i t r a t e b y a p p l yi n g 1 2 % t o t h e g r o s s r e c e i p t s

and computed the income of the assessee.


9.       In appeal, the Commissioner of Income Tax (Appeals) though

upheld the rejection of books of account, but estimated the net

p r o f i t s b y a p p l yi n g n e t p r o f i t r a t e o f 7 . 7 8 % .    The     revenue         is     in

appeal        against        the     said      scaling        down           of   estimation        by     the

Commissioner of Income Tax (Appeals) and the assessee is in

appeal against the part upholding of addition in his hands.


10.      Shri K.P.Bajaj appeared for the assessee and Shri J.S.Nagar

appeared for the revenue and put forward their contentions.
                                                      5




11.      We have heard the rival contentions and perused the record.

The assessee has not raised any ground of appeal against the

rejection of books of account under section 145(3) of the Act.

A c c o r d i n g l y, t h e s a i d r e j e c t i o n o f b o o k s o f a c c o u n t u n d e r s e c t i o n

145(3) of the Act is upheld.                           After the books of account are

rejected in the hands of the assessee, the net profit rate has to be

a p p l i e d t o e s t i m a t e t h e i n c o m e i n t h e c a p t i o n e d a s s e s s m e n t ye a r .

In the entiret y of the facts and circumstances, we are in conformity

with the estimation made b y the Commissioner of Income Tax

(Appeals). We uphold the application of net profit rate of 7.78% to

the gross receipts in order to determine the income in the hands of

the assessee where the assessee had failed to produce the vouchers

f o r l a b o u r p a ym e n t a n d h a d a l s o f u r t h e r f a i l e d t o p r o d u c e a n y

labour registers to justify the claim of labour expenditure, in

addition to other discrepancies pointed out by the Assessing

Officer.        The assessee had declared GP rate of 6.68% as against

which the income in the hands of the assessee has been estimated

b y a p p l yi n g n e t p r o f i t r a t e o f 7 . 7 8 % .        We uphold the same and

dismiss the grounds of appeal raised by the revenue and cross

objections filed by the assessee.

12.      In the result, both the appeal filed b y the revenue and the

Cross Objection filed by the assessee are dismissed.

         Order pronounced in the open Court on 28th April,2014.


                  Sd/-                                                              Sd/-

      ( T.R.SOOD)                             (S USHMA CHO WLA)
  ACCO UNTANT ME MBER                         JUDICIAL ME MBER
  Dated: 28 t h April,2014
`Poonam '
Copy to:
      The Appell ant, The Respondent, The C IT(A), The C IT,DR.

                                                           Assi st ant Regi st r ar
                                                                IT AT ,CHD.

 
 
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