High Court Of Allahabad
Ravi Dubey vs. CIT
Section : 44AD
Assessment Year : 2006-07
Tarun Agarwala And Dr. Satish Chandra, JJ.
IT Appeal No. 520 Of 2012
February 18, 2015
JUDGMENT
Dr. Satish Chandra, J. – This appeal is filed by the assessee against the impugned order dated November 21, 2011, passed by the Income-tax Appellate Tribunal, Agra, in I. T. A. No. 228/Agr/2010 for the assessment year 2006-07.
2. The assessee has raised following substantial questions of law :
“(a) Whether in view of the fact that the assessment order and the Income-tax Appellate Tribunal record a finding that it was the first year of the business of the appellant, disallowance by the Tribunal under section 40(a)(ia) for failure of the appellant to comply with section 194C is sustainable in law ?
(b) Whether the finding of the Tribunal that there was no material to show it was the first year of business or that the monetary limit in the preceding year had not been breached does not advert to the detailed reasons recorded by the Commissioner of Income-tax (Appeals) on the issue is perverse and liable to be set aside ?
(c) Whether the Income-tax Appellate Tribunal, having confirmed the direction of the Commissioner of Income-tax (Appeals) to compute income of the appellant at 8 per cent, of the net receipts, ought to delete the addition of Rs. 2,74,88,625 as it was the cost of material and labour supplied by the main contractor and on which no liability to deduct tax could arise on the appellant ?”
3. The brief facts of the case are that the assessee is a proprietor of the business of sub-contractor for road construction. For the assessment year under consideration, the assessee has filed the return by showing a total income of Rs. 3,13,995 stating that he is working as sub-contractor for M/s. Gammon India Ltd. But the Assessing Officer passed the impugned order ex parte and assessed the income of the assessee at Rs. 29,88,132 by applying the profit at 8 per cent. Further, the Assessing Officer made the disallowance pertaining to the rent and labour, rent of machinery under section 40(a)(ia) by observing that no TDS has been deducted. The first appellate authority has partly allowed the appeal and gave the substantial relief to the assessee. Being aggrieved, the Department has filed the second appeal before the Tribunal which was allowed by restoring the disallowance of Rs. 3,23,00,625 made by the Assessing Officer Being aggrieved, the assessee has filed the present appeal.
4. With this background, heard Sri Rahul Agarwal, learned counsel for the appellant-assessee, who submits that the Assessing Officer has erred in presuming that the books of account of the assessee was not available with the assessee hence he was not justified in taking the profit on sub-contract work at 8 per cent, amounting to Rs. 29,88,132. He also submits that the assessee is the proprietor of the business. The receipts shown are the part of the turnover of the main contractor and the turnover of the business of the assessee is not exceeding the monetary limit prescribed by section 44AB of the Act. The Tribunal has wrongly restored the disallowance made by the Assessing Officer. It is also the submission of the learned counsel for the appellant that as per the audit report, it was a new business of the assessee, as such, the liability of the assessee to deduct TDS under section 194C did not arise. The Tribunal has overlooked the fact that there was no liability to deduct the TDS which was the cost of the material and labour supplied by the main contractor as it was a cost incurred by the main contractor and not by the assessee. He also submits that the miscellaneous application is still pending before the Tribunal.
5. On the other hand, Sri Dhananjay Awasthi, learned counsel for the Department, has relied on the order of the Tribunal. He submits that the assessee had declared the net profit of Rs. 3,13,394 on the total receipt of Rs. 98,63,056 which comes out to approximately 3.18 per cent., which is too low in the peculiar facts and circumstances of the case. The books of account were rejected as per the provisions of section 145(3) of the Act. Pertaining to the disallowance under section 40(a)(ia) of the Act, he relied on the ratio laid down in the case of CIT v. Pradeshiya Industrial & Investment Corpn. of U. P. Ltd. [2010] 325 ITR 583 (All). This case has already been discussed by the lower authorities in their orders. The documents pertaining to the previous years were not put up by the assessee before the Assessing Officer so no benefit can be given to the assessee pertaining to the turnover in the previous year. Lastly, he justified the impugned order.
6. After hearing both the parties and on a perusal of the record, it appears that the assessee is a sub-contractor, as per the agreement he was responsible for mixing of the material on given portion of the proposed road. He was supposed to perform the following arrangements :
(I) Arrangement for enough labour.
(II) Arrangement for labour camp at site.
(III) Transportation of material from GIL camp to site.
(IV) Arranging machineries for laying and compacting GSB and WMM mixture.
(V) Arrangement of generator for power.
(VI) Arrangement of water for construction of road.
(VII) Arrangement for security.
7. From the above, it appears that the assessee was not responsible to purchase the raw materials like sand, gitti, etc., and it was purchased by the main contractor. Therefore, prima facie the assessee was not responsible to deduct the TDS.
8. Regarding the net profit rate, it appears that the assessee has shown the net profit rate at 3.18 per cent. But the books of account were rejected so the Assessing Officer has estimated the profit at 8 per cent. and made addition. The Tribunal upholds the 8 per cent. net profit on the total receipt of the appellant. But the raw material belongs to the main contractor and not to the assessee. Thus, there is a contradiction about the facts and same was not discussed in the Tribunal’s order.
9. In the case of Srichand Agarwala v. CIT [1984] 148 ITR 34 (Ori.), it was observed that the material supplied by the contractee cannot be taken into account. Similar jurisdictional High Court in the case of CIT v. Haridas Kapoor & Co. [1989] 180 ITR 329 (All.) observed that the profit rate should be estimated with reference to the net payment only after excluding the cost of material supplied to the assessee in terms of the contract.
10. The Tribunal has ignored the abovementioned factual as well as legal position. In other words, there is contradiction regarding the facts recorded by the lower authorities and the same were not adjudicated by the Tribunal properly. When it is so, then we set aside the impugned order passed by the Tribunal and restore the matter, the Tribunal is further directed to decide the appeal afresh in the light of the above discussion and by providing the reasonable opportunity to the assessee who is permitted to raise all grounds afresh as per law at the earliest preferably within a period of three months after receiving certified copy of this order.
11. In view of the above, the answer to the proposed substantial questions of law is not required specially when we have restored the matter back to the Tribunal.
12. In the result, the appeal filed by the assessee is allowed for the statistical purpose.
[Citation : 375 ITR 469]
