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
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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
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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,
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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.
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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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