IN THE HIGH COURT OF ALLAHABAD
Income Tax Appeal No. 281 Of 2017
JUGENDER SINGH YADAV
PRINCIPAL COMMISSIONER OF INCOME TAX
AGRA AND ANOTHER
Bharati Sapru & Piyush Agrawal, JJ
Dated: August 19, 2019
Appellant Rep by: Suyash Agarwal
Respondent Rep by: SSC, Krishna Agarawal
Income Tax – Sections 40(a)(ai) & 40A(3)
Keywords – Stock register – Self-made vouchers
The assessee, a civil contractor in the return for the relevant AY, disclosed the net profit @ 5.09% on gross receipt and interest income accrued on FDR and JCB machines. The AO, during the scrutiny proceedings, after verifying the books, bill and vouchers, noted that most of the expenses incurred were paid in cash and the assessee was not maintaining stock register and instead was only maintaining some self-made vouchers which were not verifiable. Thus, enhancing the net profit @8%, disallowances were made u/s 40(a)(ai) and section 40A(3). The AO also issued a penalty notice for concealment & furnishing of inaccurate particulars in income.
Having heard the parties, the High Court held that,
Whether no substantial question arises before the writ court when the lower Revenue forum has collectively confirmed the factual settings relating to additions made on account of concealment of income – YES: HC
++ where the assessee has not voluntarily maintained its books of account, as required under the Act, the books of account have rightly been rejected and the net profit, which has been fixed at 8%, is quite reasonable. Moreover, all the authorities below have rejected the contention of the appellant. At this stage, no substantial question of law arises in the present appeal. The appeal is, accordingly, dismissed.
Revenue’s appeal allowed
Per: Piyush Agrawal:
We have heard Shri Suyash Agarwal, learned counsel for the assessee – appellant and Shri Krishna Agarwal, learned standing counsel for the respondents – Department and perused the materials brought on record.
The present appeal has been filed against the judgement & order dated 28.04.2017 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra for the Assessment Year 2011-12.
The said appeal was admitted on 21.09.2017 by this Court on the following questions of law formulated in the memo of appeal:-
“(i) Whether the Appellate Tribunal was legally justified in applying net profit rate at 8% u/s 44AD when the gross turnover of the Appellant exceeded 1 crore and books of accounts were maintained as per section 44AB of the IT Act?
(ii) Whether the Appellate Tribunal was justified in framing assessment by applying net profit rate at 8% on the basis of statement of assessee contrary to standard procedure of assessments provided under section 143 and 144 of IT Act?
(iii) Whether the Appellate Tribunal is legally justified in treating interest income from FDR and rental income from JCB as income other than business income for the assessment year in question?”
The facts of the case, in brief, are that the appellant is a civil contractor engaged in execution of works contract with Agra Development Authority, Agra. The present appeal relates to the Assessment Year 2011-12. The assessee filed its returns showing net profit of Rs. 42,62,972/-, which gives net profit @ 5.09% on gross receipt of Rs. 8,37,12,896/-. The appellant has earned interest on FDR and JCB machines amounting to Rs. 3,46,883/-, the total income being Rs. 46,09,455/-.
The appellant filed its return on 10.09.2012 showing total income of Rs. 44,95,900/-. The return was processed under section 143 (1) of the Income Tax Act and the case was selected for scrutiny. Consequently, on 13.09.2012, notice under section 143(2) of the Income Tax Act was issued, which was properly served upon him on 14.09.2012. A notice dated 14.06.2013 under section 142(1) of the Income Tax Act, along with questionnaire, was issued. In response to the said notice, the reply was submitted along with required documents were also attached. Thereafter, on 17.01.2014, another notice was issued directing the appellant to produce complete books of account. On verifying the books of account, bill, vouchers, etc., it was found that most of the expenses were paid in cash and vouchers were self-made, which was not verifiable.
The assessee admitted, during the course of assessment proceedings, that the maintenance of stock register and quantitative tally is not possible. The Assessing Authority, while framing the assessment order dated 22.01.2014, has enhanced the net profit @ 8% and has observed as under:_
“During the period assessee’s contractual gross receipt is Rs. 8,37,12,897/-. Net profit taken @ 8% on gross receipt comes to Rs. 66,97,032/-, assessee has also shown interest from FDRs Rs. 1,93,893/- & from rent of JCB Rs. 1,52,590/-, total net profit comes to Rs. 70,43,515/- in which assessee has already shown net profit in his P&L Account of Rs. 46,09,455/-. Therefore, difference of Rs. 24,34,060/- (Rs. 70,43,515 – 46,09,455/-) disallowed out of expenses and added back in his total income. This disallowance also includes Rs. 4,88,222/- u/s 40(a)(ia) on non deduction of tax payment of M/s Agra Development Authority as interest and any other possible disallowance u/s 40(a)(ia) or 40A(3). Assessee is agree for the same vide order sheet entry dated 22.01.2014. Penalty notice u/s 271(1)(c) of the IT Act is being issued separately for concealment & furnishing of inaccurate particulars in income.”
Feeling aggrieved by the aforesaid assessment order, the appellant preferred an appeal before the Commissioner of Income Tax (Appeals), Agra, who vide order dated 31.07.2015, dismissed the appeal and confirmed the assessment order. The Commissioner of Income Tax (Appeals), in its order, has observed as under:-
” … Here it is a matter of legal principles that once an assessing officer detects any defects in the books of accounts, any conditional offer by the assessee for offering any income as not supported by the bills and vouchers as also a request that he is accepting such income to avoid litigation and to purchase peace of mind has no legal validity. ……
Since in this case, assessing officer while verifying the books of accounts of the assessee has detected that the assessee is not maintaining stock register of the raw materials, making various payments of labour wages and some small material purchase in cash and instead of maintaining proper bills and vouchers towards various expense is only maintaining some self-made vouchers which were not verifiable, therefore, the rejection of books of accounts by the assessing officer is justified.”
Still feeling aggrieved by the order of the Commissioner of Income Tax (Appeals), Agra, the assessee – appellant preferred an appeal before the Tribunal, who by the impugned order, has dismissed the appeal of the appellant observing as follows:-
“14. We find the order of the ld. CIT (A) is reasonable and justified in respect of estimation of income at the NP rate admitted by the assessee himself, in the course of assessment proceedings. We also find that the ld. CIT (A) has not applied the provisions of section of section 44AD of the Act, rather he had justified the assessee’s admission of 8% NP rate before the A.O. With the support of judicial pronouncements, wherein net profit rate ranges from 8% to 13% in the cases of civil contractors. Thus, the ld. CIT (A) considered the facts and circumstances of the case that the assessee has admitted NP of 8% in compliance to show cause issued by the A.O. during the course of assessment proceedings and that subsequently, retraction in appeal is irrelevant on account of conditional admission, because the penalty proceedings under section 271(1)(c) of the Act, does not change the basic fact that assessee was not maintaining stock register and expenditure vouchers of the assessee were not verifiable. However, the assessee’s admission of an estimated income at the NP rate of 8% which has been treated as if detected by the A.O. in compliance to show cause notice, during the course of assessment proceedings has not been supported with corroborative documentary evidences to prove to the contrary, that it was not the offer of the assessee to show his bonafides that he is offering such income to avoid litigation, or to buy peace of mind. Thus, the fact as regards to the conditional admission of NP rate of 8% by the assessee either of his own or in compliance to the show cause notice during the course of assessment proceedings, has not been established.
15. In view of the above, it is proved that the assessee has made an admission of 8% net profit rate before the A.O. vide order sheet entry dated 22.01.2014. The ld. CIT (A) action in confirming the net profit rate at 8% as admitted by the assessee before the A.O. vide order sheet entry dated 22.01.2014 as above, is justified, with the support of judicial precedent relevant and the law applicable in the case of assessee. We also notice that the allegation raised by the assessee, in respect of the lower authorities, are baseless and without documentary evidence as regards the estimation of his income, in any arbitrary or capricious manner.”
Feeling aggrieved by the aforesaid order of the Tribunal, the assessee has preferred the present appeal.
It has been argued by the counsel for the appellant that at the time of assessment proceedings, the assessee has given consent for acceptance of 8% of gross net profit only with a condition that no penal action shall be taken against him and therefore, when the penalty proceedings were initiated, he retracted with his consent. He further submits that the appellant has produced all books of account before the authorities below, but the same have wrongly been rejected. It is further submitted that since the nature of the business of the assessee is of the works contractor and in many cases, the payment has to be made in cash, for which relevant bills cannot be produced, therefore, it is not a case for rejection of books of account on that count. It is further submitted that the net profit has to be commensurate with the previous years, in which the net profit of 6.7% has been accepted and therefore, in the disputed year, the net profit of 8% is not justified.
Learned counsel for the Department has supported the orders passed by the lower authorities and has argued that all the authorities below have decided the issue against the appellant and it is concluded by findings of fact and no substantial question of law arises in the present appeal.
From the perusal of the record, it reveals that the books of account of the assessee has been rejected and the authorities have rightly made the assessment enhancing the net profit @ 8%. Once, on finding of fact, it has been found that substantial amount has been spent by making payment in cash and that too, with vouchers having been self-made and not verifiable, admittedly, the appellant has not maintained the stock register and quantitative tally is not being made. Further, the assessee has also not shown the interest derived from FDR to the tune of Rs. 1,93,893/- as well as the lease rent of Rs. 1,52,590/- so received from leasing out of JCB machines.
Once it has been found that the assessee has not voluntarily maintained its books of account, as required under the Act, the books of account have rightly been rejected and the net profit, which has been fixed at 8%, is quite reasonable. Moreover, all the authorities below have rejected the contention of the appellant. At this stage, no substantial question of law arises in the present appeal.
The appeal is, accordingly, dismissed. The substantial questions of law are answered accordingly against the Assessee and in favour of the Revenue.