In the case of VV Constructions v ACIT, ITAT Pune held that the Books of account cannot be rejected for only the reason that there was some over writing in one of the transactions. Also, it can’t be rejected because the Assessee have furnished the PAN numbers and made TDS in all the transactions.
Facts of the Case
The assessee is a partnership firm engaged in the business of Civil Construction. During the course of assessment proceedings the AO noted that assessee firm has shown net profit of Rs.47,21,819/- on a total turnover of Rs.8,68,76,534/- which comes to 5.48%. In the immediately preceding AY the assessee has shown net profit of Rs.53,32,302/- on a total turnover of Rs.6,52,17,258/- which comes to 8.18%. According, to the Assessee the fall in profit was due to increase in labour, material and overhead cost. The assessee also submitted that there is substantial increase in Diesel, Petrol, Salary and Bonus, Wages and Transportation charges. From the various bills and vouchers produced before the Assessing Officer he noted that in the wages register only name of the workers are mentioned. Their complete address and nature of work carried out by them or details of work completed by them are not mentioned. Further, most of the signatures placed on register were in English which according to the AO seems to be doubtful. The Assessing Officer also doubted on the authenticity of some bills. The AO was not satisfied with the explanation given by the assessee and observed that possibility of inflation of expenses cannot be ruled out especially when most of the payments were made in cash. In view of the above, the Assessing Officer raised the provisions of section 145(3) and rejected the book results.
Order of Ld. CIT(A)
Ld.CIT(A) held that merely because the wage register is signed by some labourers in English the authenticity of the same cannot be doubted. However, he observed that the transport bills do not contain the Registration No. of vehicles as well as detailed addresses and contact numbers of suppliers. Therefore, the bills and vouchers of the assessee firm cannot be relied upon fully. He, therefore, upheld the action of the Assessing Officer in rejecting the book results. The ld. CIT(A) further observed that that there is some truth in the explanation of the assessee that due to increase in certain overhead expenses as well as royalty payment there was decline in profit. He accordingly directed the AO to restrict the addition of Rs.20 lakhs.
Contention of the Assessee
The Ld. Counsel for the assessee submitted that so far as the signature of the labourers in English is concerned, the same cannot be a ground for rejection of the book results. Referring to the bills, the ld. Counsel for the assessee submitted that PAN number was furnished and TDS was made. Therefore, in absence of any adverse material before the AO, the AO should not have rejected the book results on account of transportation charges. Further, he contended that in all the cases the assessee has provided the PAN Numbers of the sub contractors and TDS has been made. The assessee has given the detailed addresses of the sub contractors.
The Ld. Counsel refer to the P/L account and submitted that as against the material consumption at 28.89% in the preceding year such consumption has gone upto 36.79% during the current year. Similarly, as against royalty charge of Rs.3,67,898/- in the preceding year, the same has gone upto Rs.23,23,403/- during the current year. He submitted that royalty payment is paid to the Government and there is no scope of any pilferage.
The ld. Counsel for the Assessee relied on the Judgment of CIT Vs. Om Overseas reported in 315 ITR 185 and submitted that in absence of specific defect in the books of account the lower profit cannot be a ground for rejecting the book results. Referring to the decision of the Hon’ble Bombay High Court in the case of R.B. Jessaram Fatechand (Sugar Department) Vs. CIT reported in 75 ITR 33 he submitted that the Hon’ble High Court in the said decision has held that books of accounts cannot be rejected and profit estimated merely on the ground that address of the assessees are not mentioned in the case of cash transactions.
Contention of the Revenue
The Revenue submitted that the AO had categorically given a finding that the book results are not reliable due to defects in wage register, transportation expenses and the defects in the bills raised by the sub contractors and overwriting in some of the bills. Therefore, the CIT(A) was not justified in sustaining only an amount of Rs.20,00,000/- as against Rs.55,08,898/- added by the AO.
Judgment of the Hon’ble Tribunal
The Hon’ble Tribunal observed that from the various details furnished by the assessee, that the Assessing Officer should not have disbelieved the transportation charges. The contention of English Signatures was rejected by the ld CIT(A). Further, wages register usually do not give the nature of work done. Address of the labourers in some registers are optional which could not be a ground for rejecting the book results. The assessee has furnished complete address of the 17 labour contractors giving their name, address, etc. The assessee has given PAN Numbers in all cases and TDS has been deducted from such payments. Under these circumstances there is no ground for rejecting the book results. So far as the other observation of the Assessing Officer that in one of the bill there is some overwriting the same cannot be a ground for rejecting the entire book result. The royalty charges has been paid to Government, thus, there is almost an increase of about Rs.20 lakhs in the royalty payment. Therefore, the profit from sub-contract work will be less since the main contractor retains a part of the profit.
The Hon’ble Tribunal relied on the Judgment of R.B. Jessaram Fatechand (Supra) where it was held that in the case of cash transaction where delivery of goods is taken against payment, it is hardly necessary for the seller to bother about the name and address of the purchaser. The account books of an assessee cannot therefore be rejected merely on the ground that the particulars of the assessee are not mentioned in the case of cash transactions.
Taking into consideration all the factual and legal issues the Hon’ble Tribunal held that the rejection of books of account in the instant case is not justified. The income returned by the assessee has to be accepted. The grounds raised by the assessee were allowed and the grounds raised by the Revenue were dismissed.