Shri Vinay Chhajed, v. The ITO 2(1),

ITA 404/IND/2007 | 2001-2002
Pronouncement Date: 25-02-2010 | Result: Allowed

Appeal Details

RSA Number 40422714 RSA 2007
Assessee PAN ACKPC2967N
Bench Indore
Appeal Number ITA 404/IND/2007
Duration Of Justice 2 year(s) 8 month(s) 7 day(s)
Appellant Shri Vinay Chhajed,
Respondent The ITO 2(1),
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 25-02-2010
Date Of Final Hearing 27-01-2010
Next Hearing Date 27-01-2010
Assessment Year 2001-2002
Appeal Filed On 18-06-2007
Judgment Text
PAGE 1 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI V.K. GUPTA ACCOUNTANT MEMBER PAN NO. : ACKPC2967N I.T.A.NO. 404/IND/2007 A.Y. : 2001-02 SHRI VINAY CHAJJED ITO PROP. PRATIBHA ASSOCIATES VS 2(1) A-18/5 MIG VED NAGAR UJJAIN UJJAIN APPELLANT RESPONDENT APPELLANT BY : SHRI TRIBHUVAN SACHDEVA ADV. RESPONDENT BY : SMT.APARNA KARAN SR. DR DATE OF HEARING : 27/01/2010 O R D E R PER V.K. GUPTA A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF ORD ER OF THE LD. CIT(A) UJJAIN DATED 27.02.2007 FOR THE ASSESSME NT YEAR 2001-02. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. THE GROUND RAISED IN THIS APPEAL IS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN UPHOLDING LEVY OF PENALTY ON AC COUNT OF PAGE 2 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN ALLEGED SUPPRESSION OF WORK IN PROGRESS OF RS. 7 16 408/- AND DISALLOWANCE U/S 40A(3) AT RS. 13 296/-. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS A CI VIL CONTRACTOR WHO WAS FILING HIS RETURNS UP TO ASSESSMENT YEAR 19 98-99 U/S 44AD OF THE INCOME-TAX ACT 1961. AS THE RECEIPTS WERE BELOW RS . 40 LACS NO REGULAR BOOKS OF ACCOUNT WERE REQUIRED TO BE MAINTAINED. FR OM THE ASSESSMENT YEAR 1999-2000 THE ASSESSEES RECEIPTS CROSSED RS. 40 LACS AND THE REGULAR BOOKS OF ACCOUNT WERE MAINTAINED AND FIRST TIME THE ACCOUNTS WERE AUDITED. IT WAS THE PRACTICE OF THE ASSESSEE T O DECLARE THE CONTRACT RECEIPTS ON RECEIPT BASIS ONLY. THE ASSESSEE UNDER A BONA FIDE BELIEF CONTINUED TO DECLARE THE CONTRACT RECEIPTS ON RECEI PT BASIS AS WAS DONE EARLIER IN ALL THE YEARS. IN THE YEAR UNDER APPEAL THE ASSESSEE HAD DECLARED A CLOSING STOCK ( WIP ) AT RS. 19 000/- ONLY. ON EN QUIRY THE A.O. FOUND THAT AN AMOUNT OF RS. 7 16 406/- WAS RECEIVED BY TH E ASSESSEE ON 16.04.2001 IN RESPECT OF CIVIL WORK DONE FOR M.P. POLICE HOUSING CORPORATION. THE A.O. WAS OF THE OPINION THAT SINCE THE ASSESSEE WAS MAINTAINING BOOKS ON MERCANTILE SYSTEM THIS AMOUNT OF RS. 7.61 LAKHS OUGHT TO HAVE BEEN SHOWN AS CLOSING WIP IN THE BOOK S FOR ASSESSMENT YEAR 2001-02. ACCORDINGLY THE ADDITION WAS MADE AN D WHICH WAS CONFIRMED IN QUANTUM APPEAL BEFORE THE LD. CIT(A). SUBSEQUENTLY PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT 1961 WERE ALSO PAGE 3 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN INITIATED IN RESPECT OF DISALLOWANCE MADE ON ACCOUN T OF WORK IN PROGRESS AND DISALLOWANCE MADE U/S 40A(3) AND DISALLOWANCES MADE OUT OF LABOUR EXPENSES. THE ASSESSEE MADE VARIOUS SUBMISSIONS BEF ORE THE A.O. WHEREIN IT WAS ARGUED THAT ADDITION ON ACCOUNT OF C LOSING W.I.P. DID NOT AMOUNT TO CONCEALMENT OF INCOME. THE A.O. HOWEVER HELD THAT THE ASSESSEE IN THE RETURN HAD NOT STATED THE FACT OF R ECEIPTS BEING SHOWN ON CASH BASIS AND THUS REDUCED ITS INCOME AND IN SUB SEQUENT YEAR THE INCOME INCLUDING THE RECEIPTS REPRESENTED BY SUCH W ORK IN PROGRESS WAS LESS HENCE THE ASSESSEE EVADED THE TAX. ACCORDING LY HE LEVIED PENALTY ON THE AMOUNT OF SUCH DISALLOWANCE. THE A.O. ALSO LEVI ED THE PENALTY ON OTHER TWO DISALLOWANCES. AGGRIEVED BY THIS THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACT ION OF A.O. IN REGARD TO LEVY OF PENALTY IN RESPECT OF WORK IN PROGRESS A ND DISALLOWANCE MADE U/S 40A(3). THE LD. CIT(A) ALSO HELD THAT AS PER PR INCIPLE OF ACCOUNTANCY THE APPELLANT OUGHT TO HAVE DISCLOSED WORK IN PROGRESS. HENCE THE DECISION OF HON'BLE M.P.HIGH COURT IN TH E CASE OF DY. CIT VS. RURAL ELECTRICAL COOPERATIVE SOCIETY LIMITED AS REP ORTED IN 152 TAXMAN 237 WAS NOT OF ANY HELP. STILL AGGRIEVED THE ASSE SSEE IS IN APPEAL BEFORE US. 5. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT FOR THE ASSESSMENT YEAR 2001-02 TOTAL CONTRACT REC EIPTS DECLARED AT RS. PAGE 4 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN 83.24 LAKHS ALSO CONSISTED OF A RECEIPT OF RS. 5 74 182/- FOR WHICH WORK WAS CARRIED OUT IN ASSESSMENT YEAR 1999-2000 BUT T HE PAYMENT OF WHICH WAS RECEIVED ONLY DURING THE PREVIOUS YEAR IN QUEST ION AND HENCE THE SAME WAS OFFERED FOR TAX IN THE PREVIOUS YEAR ONLY. THIS FACT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) UJJAIN DURING THE QUANTUM APPEAL ALSO. A CERTIFICATE TO THIS EXTENT WAS OBTAINED FROM THE PU BLIC WORKS DEPARTMENT DEWAS ON 7.2.2004 COPY OF WHICH WAS FILED BEFORE T HE CIT(A) AND IS ALSO PLACED ON RECORD BEFORE THE TRIBUNAL AT PAGE 3 OF THE PAPER BOOK. COPIES OF THE BALANCE SHEETS FOR THE ASSESSMENT YEA RS 1999-2000 2000- 01 AND 2001-02 WERE ALSO FILED TO SHOW THAT THE ASS ESSEE WAS NOT DECLARING ANY SEPARATE FIGURE TOWARDS CLOSING W.I.P . ONLY THE CLOSING STOCK OF BUILDING GOODS ETC. WAS BEING SHOWN AS CL OSING BALANCE EVERY YEAR. THE ASSESSEE HAD ALSO BEEN TAXED AT THE HIGHE ST RATE OF TAXATION IN THE ASSESSMENT YEARS 2001-02 AND SUBSEQUENTLY IN TH E ASSESSMENT YEAR 2002-03 WHEREIN THE ASSESSEE HAD DECLARED INCOME L EVELS OF RS. 2 69 219/- AND RS. 1 82 476/- RESPECTIVELY IN BOTH THE ASSESSMENT YEARS. COPIES OF ACKNOWLEDGEMENT OF RETURNS ALSO PLACED BE FORE US AT PAGES 4 & 5 OF THE PAPER BOOK. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THERE IS NO CONCEALMENT OF INCOME ON THE PART OF TH E ASSESSEE AS THE AMOUNT OF RS. 7 16 406/- WAS DULY OFFERED TO TAX IN THE SUBSEQUENT YEAR. PAGE 5 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANC E ON THE FOLLOWING DECISIONS :- 1. DY. CIT V. RURAL ELECTRICAL COOP. SOCIETY LIMITED (2006) 152 TAXMAN 237 ( M.P. ). 2. CIT VS. K.P. MADHUSUDHANAN 251 ITR 99. 3. SIR SHADILAL SUGAR & GENERAL MILLS LIMITED VS. CIT 168 ITR 705 ( S. C.) 4. ADDL. CIT VS. SMT. CHANDRKANTA 205 ITR 607 & 60-9 (MP) 5. CIT VS. ASK ENTERPRISES (1998) 230 ITR 48 50 ( BO M) 6. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER PLACED STRONG RELIANCE ON THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF CEMENT MARKETING COMPANY OF INDIA LIMITED VS. ACIT (1980) 124 ITR 15 18 ( S. C. ) WHEREIN THE HON'BLE SUPREME COURT HAS OBSE RVED AS UNDER :- A RETURN CANNOT BE FALSE UNLESS THERE IS AN ELEME NT OF DELIBERATENESS IN IT. IT IS POSSIBLE THAT EVEN W HERE THE INCORRECTNESS OF THE RETURN IS CLAIMED TO BE DU E TO WANT OF CARE ON THE PART OF THE ASSESSEE AND THERE IS NO REASONABLE EXPLANATION FORTHCOMING FROM THE ASSESSEE FOR SUCH WANT OF CARE THE COURT MAY IN A GIVEN CASE INFER DELIBERATION AND THE RETURN MAY B E LIABLE TO BE BRANDED AS A FALSE RETURN. BUT WHERE THE PAGE 6 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN ASSESSEE DOES NOT INCLUDE A PARTICULAR ITEM IN THE TAXABLE TURNOVER UNDER A BONA FIDE BELIEF THAT HE I S NOT LIABLE SO TO INCLUDE IT IT WOULD NOT BE RIGHT TO CONDEMN THE RETURN AS A FALSE RETURN INVITING IMPOSITION OF PENALTY.. 7. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT ANY ADDITION MADE TOWARDS CLOSING WORK IN PROGRESS ON I TS OWN WOULD BECOME THE OPENING WORK IN PROGRESS OF THE NEXT YEA R AND HENCE THE ASSESSEE WOULD BE ENTITLED FOR RELIEF IN THE SUBSEQ UENT YEAR. THIS BEING THE CASE THE ADDITION MERELY ON THE GROUND OF CLOS ING WORK IN PROGRESS CANNOT BE TREATED AS CONCEALMENT AND THE PENALTY MA Y BE CANCELLED. 8. THE LD. DEPARTMENTAL REPRESENTATIVE PLACED STRONG R ELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 10. IT IS NOTED THAT IT IS FIRST YEAR OF AUDIT AS THE T URNOVER OF THE ASSESSEE HAS GONE BEYOND RS. 40 LAKHS FOR THE FIRST TIME. IT IS ALSO NOTED THAT PRIOR TO THIS THE ASSESSEE HAS FILED RETURN OF INCOME AS PER THE PROVISIONS OF SECTION 44AD WITHOUT MAINTAINING ANY BOOKS OF ACCOUNT. IT IS ALSO NOTED THAT IN SUCH YEARS FOR APPLYING THE P ROVISIONS OF SECTION 44AD THE GROSS AMOUNT RECEIVED IN A PARTICULAR YEA R HAS BEEN TAKEN AS PAGE 7 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN BASIS AND NOT THE WORK DONE AND THIS HAS BEEN ACCEP TED BY THE DEPARTMENT. THE ASSESSEE HAS ALSO PLACED BALANCE SH EET OF EARLIER YEARS ON RECORD TO SHOW THAT IT HAS NOT VALUED THE WORK I N PROGRESS IN EARLIER YEARS. THUS THOUGH THE PRACTICE FOLLOWED BY THE AS SESSEE MAY NOT BE CORRECT IN VIEW OF THE MERCANTILE SYSTEM OF ACCOUN TING FOLLOWED BY THE ASSESSEE. HOWEVER IN THE FACTS AND CIRCUMSTANCES O F THE CASE IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCEALED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME FOR THE REASON THA T THE METHOD OF ACCOUNTING AS SUCH IS NOT PURE MERCANTILE SYSTEM OF ACCOUNTING AS REPORTED BY THE AUDITOR AS IT IS A CASE OF MIXED METHOD OF ACCOUNTING. NO DOUBT THE MIXED METHOD OF ACCOUNTING IS NOT AVAILA BLE NOW TO THE ASSESSEE. HENCE THE ADDITION TO THE INCOME CANNOT BE DISPUTED BUT MERELY FOR THIS FACT ALONE IN OUR CONSIDERED OPINIO N THE PENALTY CANNOT BE LEVIED AS IT IS A TECHNICAL/COMPLEX MATTER. ACCORDI NGLY WE CANCEL THE PENALTY LEVIED BY THE ASSESSING OFFICER IN RESPECT OF ADDITION OF WORK IN PROGRESS. 11. AS REGARDS TO PENALTY LEVIED IN RESPECT OF DISALLOW ANCES MADE U/S 40A(3) THIS IS AN INSTANCE OF DISALLOWANCE MAD E ONLY ON THE BASIS OF TAX AUDIT REPORT FILED ALONGWITH THE RETURN OF INCO ME. HENCE HAVING REGARD TO SMALL QUANTUM AND NATURE OF SUCH DISALLOW ANCE WE HOLD THAT PAGE 8 OF 8 - I.T.A.NO. 404/IND/2007 - VINAY CHHAJ ED UJJAIN PENALTY ON THIS DISALLOWANCE IS ALSO NOT JUSTIFIED. ACCORDINGLY THE SAME IS ALSO CANCELLED. THUS GROUND NO.1 OF THIS APPEAL IS ACCEPTED. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY 2010. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25 TH FEBRUARY 2010. CPU* 22232