Hemant Popli, Shimla V. DCIT, Chandigarh

ITA 1069/CHANDI/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5070 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 05-11-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Additional evidence; Question of law; Set aside; Capital Gains
• Section: 142(1); 143(2); 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A, CHANDIGARH . . , ! ' , # '$ BEFORE: SHRI N.K.SAINI, VP & SHRI RAJPAL YADAV, JM ./ ITA NO. 1069/CHD/2016 # % &% / ASSESSMENT YEAR : 2011-12 SHRI HEMANT POPLI HEMANT LODGE MURRAY FIELD ESTATE NAV BAHAR, SHIMLA PAN : AIAPP 6983 B '( VS. DCIT, CENT.CIR.II CHANDIGARH ( )* / APPELLANT) ( +,)* / RESPONDENT) # %-. / 0 / ASSESSEE BY : SHRI VISHAL MOHAN, ADV. !$ / 0 / REVENUE BY : : SHRI CHANDRAJIT SINGH, CIT-DR 1 2 / .3 / DATE OF HEARING : 05/11/2019 '45& / .3 / DATE OF PRONOUNCEMENT : 06 /11/2019 / ORDER PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF LD.CIT(A)-3, GURGA ON DATED 25.7.2016 PASSED FOR THE ASSTT.YEAR 2011-12. 2. THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL; OUT OF WHICH GROUND NO.4 IS GENERAL IN NATURE, WHICH DOES NOT CALL FOR RECOR DING OF ANY SPECIFIC FINDING, HENCE REJECTED. ITA NO NO.1069/CHD/2016 2 3. IN GROUND NO.1 AND 2, THE ASSESSEE HAS PLEADED AS UNDER: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE TREATING IF THE INCOME F ROM SALE OF PROPERTY AS INCOME FROM BUSINESS AND PROFESSION. THE FACTS OF THE MATTER IS THAT THE SAME SHOULD HAVE BEEN ASSESSED AS CAPITAL GAINS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) IS NOT JUSTIFIED IN ASSESSING THE PROFIT FROM THE SALE OF PROPERTIES @ 21% OF THE SALES VALUE. 4. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET OUT SUBMITTED THAT IDENTICAL ISSUE WAS INVOLVED IN THE ASSTT.YEAR 2008-09 AND 2010-11. THE DISPUTE TRAVELLED UPTO THE TRIBUNAL IN ITA NO NO.1163 AND 1164/CHD/2013. THE TRIBUNAL HAS DECIDED THIS ISSUE AGAINST THE A SSESSEE AND APPEAL PREFERRED BY THE ASSESSEE STANDS ADMITTED BY THE HONBLE HIGH COURT. THEREFORE, IN VIEW OF THE ABOVE DEVELOPMENT, HE SUBMITTED THAT BOTH THESE ISSUES ARE COVERED BY ORDER OF THE TRIBUNA L. HOWEVER, HE PUT A CAVEAT AND ALLEGED THAT THE TRIBUNAL FAILED TO ADJUDICAT E THE ISSUE WHETHER THE INCOME ON SALE OF PROPERTY DESERVES TO BE ASSE SSED AS BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAIN. HE TOOK U S THROUGH FINDING OF THE TRIBUNAL RECORDED IN PARA-12 OF THE ORDER DATED 11.3.2016. ON THE OTHER HAND, THE LD.CIT-DR CONTENDED THAT SINCE IDENTICAL IS SUE HAS BEEN DECIDED AGAINST THE ASSESSEE, THEREFORE, BOTH THESE GROUNDS BE REJECTED. 5. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GONE THROUGH THE RECORD. WE FIND THAT EXCEPT VARIATION IN QUANTUM, IDENTICAL IS SUES HAVE BEEN CONSIDERED BY THE TRIBUNAL. THE DISCUSSION MADE BY THE TRIBUNAL IN THESE TWO ASSESSMENT YEARS READ AS UNDER: ITA NO NO.1069/CHD/2016 3 8. GROUND NOS.2 AND 3 OF APPEAL RAISED BY THE ASSES SEE READ AS UNDER: '2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD COMMISSIONER OF INCOME TAX (APPEALS) IN NOT JUSTIFIED IN UPHOLDIN G THE TREATING OF INCOME FROM THE SALE OF PROPERTY AS INCOME FROM BUS INESS AND PROFESSION . THE FACT OF THE MATTER IS THAT THE SAME SHOULD HAV E BEEN ASSESSED AS CAPITAL GAINS AS RETURNED BY THE ASSESSEE . 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD COMMISSIONER OF INCOME TAX ( APPEALS) IS NOT JUSTIFIED IN UPHOLDI NG THE ESTIMATING THE PROFIT ON SALE OF FLATS @ 30% OF THE SALES VALUE OF RS 9,00,000/- AND THEREBY UPHOLDING AN ADDITION OF RS 2,70,000/-.' 9. THE ASSESSING OFFICER MADE THE ADDITION OF RS.2,7 0,000/- ON ACCOUNT OF PROFIT ON SALE OF IMMOVABLE PROPERTIES. THE ASSESSIN G OFFICER NOTED THAT THE TRANSACTIONS MADE IN LAND AND BUILDING, AMOUNT SPEN T ON CONSTRUCTION HAVE NOT BEEN ROUTED THROUGH THE TRADING AND PROFIT & LOS S ACCOUNT. NO PROFIT WAS SHOWN BY THE ASSESSEE ON ACCOUNT OF SALE OF PROPERT Y. NO EXPLANATION WAS ALSO TENDERED BY THE ASSESSEE IN THIS REGARD. SINCE THE TRANSACTIONS HAVE NOT BEEN ROUTED THROUGH PROFIT & LOSS ACCOUNT, THE TRADING AC COUNT IN RESPECT OF CONSTRUCTION AND SALE OF IMMOVABLE PROPERTY IS CAST BELOW BY THE ASSESSING OFFICER AND GROSS PROFIT WAS TAKEN @ 30%:- F.Y. 2007-08 TO BY OPENING STOCK: RS.16,14,307/- SALE: RS.9,00,000 /- CONSTRUCTION: RS.5,01,860/- CLOSING STOCK: RS.14, 86,167/- GROSS PROFIT: RS.2,70,000/- RS.23,86,167/- RS.23,86,167/- 10. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO W HY THE PROFIT OF RS.2,70,000/- ON SALE OF IMMOVABLE PROPERTY SHOULD NOT BE TREATED AS BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION. IN RESPONS E TO THE ABOVE QUERY, THE ASSESSEE SUBMITTED THAT HE IS A CIVIL CONTRACTOR AN D HE HAD INVESTED IN PROPERTIES AND ALSO PURCHASED A BUILDING FOR CONSTRUCTION OF H IS OFFICE GODOWN, WHICH WAS SUBSEQUENTLY SOLD BY HIM. HE FURTHER SUBMITTED THAT THE ENTIRE INVESTMENT IN THE PROPERTIES HAVE BEEN ROUTED THROUGH THE BOOKS O F ACCOUNT AND HAVE BEEN SHOWN AS A FIXED ASSET UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION'. ITA NO NO.1069/CHD/2016 4 BUT THE SAME WAS ASSESSABLE UNDER THE HEAD 'INCOME F ROM CAPITAL GAINS'. THE ASSESSING OFFICER DID NOT FIND ANY FORCE IN THE ABO VE CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER CONCLUDED THAT IN THE CASE OF THE ASSESSEE HE IS A CONTRACTOR AND ENGAGED IN THE BUSINESS OF CIVIL CON STRUCTION. HE FURTHER NOTED THAT APART FROM EXECUTING CONTRACT WORK, HE IS ALSO ENGAGED IN CONSTRUCTION OF BUILDING AND SELLING THE SAME REGULARLY. THE ASSESSI NG OFFICER REJECTED THE CONTENTION OF THE ASSESSEE THAT THE CONSTRUCTION AN D SALE OF BUILDING BY HIM SHOULD NOT BE TREATED AS HIS BUSINESS INCOME. THE AS SESSING OFFICER ALSO REJECTED THE OTHER CONTENTION OF THE ASSESSEE REGAR DING ESTIMATION OF PROFIT @ 30%. THE ASSESSING OFFICER NOTED THAT THE SAID ESTI MATION WAS BASED ON THE PROFIT EARNED IN SIMILAR KIND OF CONSTRUCTION BUSIN ESS. THEREFORE, THE PROFIT ON SALE OF PROPERTY HAS BEEN WORKED OUT AT RS.2,70,000 /- BY THE ASSESSING OFFICER AND THE SAME WAS TREATED AS UNDISCLOSED INCOME OF T HE ASSESSEE. THIS AMOUNT OF RS.2,70,000/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 11. ON APPEAL, THE LEARNED CIT (APPEALS) UPHELD THE ADDITION FOR THE REASONS STATED IN PARA 6.1 OF THE IMPUGNED ORDER AND, HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI VISHAL MOHAN, LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE DISCRETION TO DETERMINE THE GROSS PROFIT R ATE MUST NECESSARILY BE EXERCISED ON THE BASIS OF RELEVANT FACTORS. ACCORDI NG TO HIM, THE ASSESSING OFFICER HAS NOT CONSIDERED THE PAST HISTORY OF THE ASSESSEE, THE NATURE OF ASSESSEE'S BUSINESS, PREVAILING ECONOMIC CONDITIONS VIS-- VIS THE ASSESSEE'S BUSINESS. HE HAS ALSO POINTED OUT THAT THE ASSESSIN G OFFICER SHOULD HAVE CONSIDERED THE PRICE OF RAW MATERIAL, LABOUR, RISE IN PRICE INDEX FROM TIME TO TIME. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSE SSEE, THE AUTHORITIES BELOW HAVE NOT CITED ANY COMPARABLE CASE WHILE APPLYING T HE GP RATE OF 30%, WHICH IS ARBITRARY AND WITHOUT ANY BASIS. THE LEARNED COUN SEL FOR THE ASSESSEE POINTED OUT THAT THE REPUTED BUILDER OF SHIMLA M/S RAJDEEP BUILDERS HAD RETURNED A PROFIT OF 18.22%, WHICH IS EVIDENT FROM THE COPY OF BALANCE SHEET OF THE SAID CONCERN AS ON 31.3.2005. A COPY OF THE SAME IS AVAI LABLE AT PAGE 40 OF THE PAPER BOOK. THE AUTHORITIES BELOW HAVE CONVENIENTLY IGNORED THE CASE OF M/S RAJDEEP BUILDERS OF SHIMLA IN WHOSE CASE A PROFIT OF 18.22% FOR ASSESSMENT YEAR 2005- 06 HAS BEEN ACCEPTED. ACCORDING TO THE LEARNED COUN SEL FOR THE ASSESSEE, THE SAID CONCERN IS ALSO ENGAGED IN SIMILAR ACTIVITIES AS TH OSE OF THE ASSESSEE. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS NOT BROUGHT ANY COMPARABLE CASE ON RECORD AND HIS ESTIMATION IS TOO FAR WAY FROM THE R EALITY AND IS ALSO WITHOUT ANY BASIS. RECENTLY, THE HON'BLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF TELELINKS VS. CIT (2015) 377 ITR 158 (P&H) AFTER CONSI DERING THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. VS. ITA NO NO.1069/CHD/2016 5 CIT (1954) 26 ITR 775 (SC) AND THAT OF PRIVY COUNCIL IN THE CASE OF CIT VS. LAXMI NARAIN BADRIDAS (1937) 5 ITR 170 (PC), HELD AS UNDER : '10. THE DISCRETION TO DETERMINE A NET PROFIT RATE MUST NECESSARILY BE EXERCISED ON THE BASIS OF RELEVANT FACTORS WHICH WE SHALL ENUMERATE BUT BEFORE DOING SO, WOULD CLARIFY THAT THESE FACTORS A RE NEITHER EXHAUSTIVE NOR A FINAL WORD ON RELEVANT FACTORS THAT MAY BE CO NSIDERED WHILE DETERMINING THE NET PROFIT RATE. A FEW SIGNIFICANT FACTORS ARE THE PAST TAX HISTORY OF THE ASSESSEE, IF AVAILABLE, ASSESSMENT O RDERS THAT MAY HAVE BEEN PASSED AND ACCEPTED BY THE DEPARTMENT, THE NATURE O F THE ASSESSEES' BUSINESS, AN APPRAISAL OF THE VALUE OF THE CONTRACT , PREVAILING ECONOMIC CONDITIONS VIS-A-VIS THE ASSESSEE'S BUSINESS, THE P RICE OF RAW MATERIAL, LABOUR ETC. THE RISE IN PRICE INDEX AS NOTIFIED BY THE CENTRAL GOVERNMENT FROM TIME TO TIME IF APPLICABLE AND IF THE ASSESSIN G OFFICER PROCEEDS TO RELY UPON ASSESSMENTS OF OTHER ASSESSEES ENGAGED IN SIMILAR BUSINESS TO DO SO ONLY AFTER DETERMINING POINTS OF SIMILARITY E TC. AT THIS STAGE, IT WOULD BE APPROPRIATE TO CLARIFY THAT THE WORD SIMIL AR IS NOT SYNONYMOUS WITH THE WORD 'IDENTICAL'. FACTORS REFERRED TO ABOV E ARE MERELY ILLUSTRATIVE AND NOT EXHAUSTIVE OF THE CIRCUMSTANCE S THAT MAY OR MAY NOT BE TAKEN INTO CONSIDERATION. AT THIS STAGE, IT WOULD BE APPROPRIATE TO REPRODUCE A FEW WORDS FROM DHAKESWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 775 (SC) SO AS TO PLACE OUR CONCLUSIO NS IN THEIR CORRECT PERSPECTIVE:- '.....THE INCOME TAX OFFICER IS NOT BARRED BY TECHN ICAL RULES OF EVIDENCE AND PLEADINGS, AND HE IS ENTITLED TO ACT O N MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW, BUT IN MAKING THE ASSESSMENT UNDER SUBS. (3) OF S. 23 THE ITO IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMEN T WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. TH ERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE A SSESSMENT UNDER S. 23(3). IN THIS CASE THE TRIBUNAL VIOLATED C ERTAIN FUNDAMENTAL RULES OF JUSTICE IN REACHING ITS CONCLU SIONS. FIRSTLY, IT DID NOT DISCLOSE TO THE ASSESSEE WHAT INFORMATIO N HAD BEEN SUPPLIED TO IT BY THE DEPARTMENTAL REPRESENTATIVE. NEXT, IT DID NOT GIVE ANY OPPORTUNITY TO THE COMPANY TO REBUT TH E MATERIAL FURNISHED TO IT BY HIM, AND LASTLY, IT DECLINED TO TAKE ALL THE MATERIAL THAT THE ASSESSEE WANTED TO PRODUCE IN SUP PORT OF ITS CASE. THE RESULT IS THAT THE ASSESSEE HAD NOT HAD A FAIR HEARING. THE ESTIMATE OF THE GROSS RATE OF PROFIT ON SALES, B OTH BY THE ITO AND THE TRIBUNAL, SEEMS TO BE BASED ON SURMISES, SUS PICIONS AND CONJECTURES. IT IS SOMEWHAT SURPRISING THAT THE TRIB UNAL TOOK FROM THE REPRESENTATIVE OF THE DEPARTMENT A STATEME NT OF GROSS PROFIT RATES OF OTHER COTTON MILLS WITHOUT SHOWING THAT STATEMENT ITA NO NO.1069/CHD/2016 6 TO THE ASSESSEE AND WITHOUT GIVING HIM AN OPPORTUNI TY TO SHOW THAT STATEMENT HAD NO RELEVANCY WHATSOEVER TO THE C ASE OF THE MILL IN QUESTION. IT IS NOT KNOWN WHETHER THE MILLS WHIC H HAD DISCLOSED THESE RATES WERE SITUATE IN BENGAL OR ELSE WHERE, AND WHETHER THESE MILLS WERE SIMILARLY SITUATED AND CIR CUMSTANCED. NOT ONLY DID THE TRIBUNAL NOT SHOW THE INFORMATION G IVEN BY THE REPRESENTATIVE OF THE DEPARTMENT TO THE APPELLANT, BUT IT REFUSED EVEN TO LOOK AT THE TRUNK LOAD OF BOOKS AND PAPERS PRODUCED BEFORE IT BY ASSESSEE. THE ITO AND THE TRIBUNAL IN ESTIMATIN G THE GROSS PROFIT RATE ON SALES DID NOT ACT ON ANY MATERIAL BU T ACTED ON PURE GUESS AND SUSPICION. THE ORDER OF THE TRIBUNAL WAS S ET ASIDE AND THE MATTER WAS REMANDED TO IT WITH DIRECTIONS THAT IN ARRIVING AT ITS ESTIMATE OF GROSS PROFITS AND SALES IT SHOULD G IVE FULL OPPORTUNITY TO THE ASSESSEE TO PLACE ANY RELEVANT M ATERIAL ON THE POINT THAT IT HAS BEFORE THE TRIBUNAL, WHETHER IT I S FOUND IN THE BOOKS OF ACCOUNT OR ELSEWHERE AND IT SHOULD ALSO DI SCLOSE TO THE ASSESSEE THE MATERIAL ON WHICH THE TRIBUNAL IS GOING TO FOUND ITS ESTIMATE AND THEN AFFORD HIM FULL OPPORTUNITY TO ME ET THE SUBSTANCE OF ANY PRIVATE INQUIRIES MADE BY THE ITO IF IT IS INTENDED TO MAKE THE ESTIMATE ON THE FOOT OF THOSE ENQUIRIES. ' 11. A RELEVANT EXTRACT FROM CIT CENTRAL & UNITED PROV INEER VS. LAXMI NARAIN BADRE DASS (1937) 5 ITR 170 THE PRIVY COUNCIL (PAGE 180) READS AS FOLLOWS :- '.....THE OFFICER IS TO MAKE AN .ASSESSMENT TO THE BEST OF HIS JUDGMENT AGAINST A PERSON WHO IS IN DEFAULT AS REGA RDS SUPPLYING INFORMATION. HE MUST NOT ACT DISHONESTLY, OR VINDIC TIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE JUDGMENT IN T HE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ES TIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE H E MUST, THEIR LORDSHIP THINKS, BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEE'S CI RCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND AS SESSMENTS OF THE ASSESSEE, AND ALL OTHER MATTERS WHICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; THOUGH T HERE MUST NECESSARILY BE GUESS WORK IN THE MATTER, IT MUST BE HONEST GUESS WORK. IN THAT SENSE, TOO, THE ASSESSMENT MUST BE TO SOME EXTENT ARBITRARY. THEIR LORDSHIPS THINK THAT THE SECTION PL ACES THE OFFICER IN THE POSITION OF A PERSON WHOSE DECISION AS TO AM OUNT IS FINAL AND SUBJECT TO NO APPEAL, BUST WHOSE DECISION IF IT CAN BE SHOWN TO HAVE BEEN ARRIVED AT WITHOUT AN HONEST EXERCISE OF JUDGMENT, MAY BE REVISED OR REVIEWED BY THE COMMISSIONER UNDER TH E POWERS CONFERRED UPON THAT OFFICIAL BY SECTION 33. ' ITA NO NO.1069/CHD/2016 7 12. IT WOULD ALSO BE NECESSARY TO REFER TO ANOTHER JUDGMENT IN STATE OF KERALA VS. C. VELUKUTTY, 1966 ITR VOL. (LX) 239, WHE REIN WHILE DEALING WITH THE EXPRESSION 'BEST OF HIS JUDGMENT', IT HAS BEEN HELD THAT THE DISCRETION TO DETERMINE NET PROFIT RATE VESTS I N THE AUTHORITIES BUT DISCRETION SHALL NOT BE ARBITRARY AND SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE, FOLLOWED BY REASONS THAT APPEAR TO BE LEGAL AND VALID. A REFERE NCE MAY ALSO BE MADE TO JUDGMENT OF THIS COURT IN ITA NO. 478 OF 2006 TI TLED AS AGGARWAL ENGINEERING CO. VS. ASSISTANT COMMISSIONER OF INCOME TAX, DECIDED ON 06.12.2010. THE SECOND QUESTION OF LAW IS ANSWERED ACCORDINGLY.' 13. IN THE ABOVE CASE, THERE WAS A DISPUTE REGARDIN G APPLICATION OF NET PROFIT RATE. HOWEVER, IN THIS CASE, DISPUTE IS REGARDING T HE GROSS PROFIT RATE. IN BOTH THE CASES, THE QUESTION IS REGARDING THE ESTIMATION OF PROFIT AND, THEREFORE, THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIG H COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE ABOVE DECISION, THE HON'BLE HIGH COURT HAS CLEARLY LAID DOWN THAT THE DISCRETIO N TO DETERMINE A NET PROFIT RATE MUST NECESSARILY BE EXERCISED ON THE BASIS OF RELEVANT FACTORS. THE HON'BLE HIGH COURT FURTHER LAID DOWN THAT A FEW SIGNIFICANT FACTORS ARE THE PAST TAX HISTORY OF THE ASSESSEE, IF AVAILABLE, ASSESSMENT O RDERS, THE NATURE OF THE ASSESSEE'S BUSINESS, AN APPRAISAL OF THE VALUE OF T HE CONTRACT, PREVAILING ECONOMIC CONDITIONS VIS--VIS THE ASSESSEE'S BUSINE SS, PRICE OF RAW MATERIAL, LABOUR, ETC., THE RISE IN PRICE INDEX AS NOTIFIED B Y THE CENTRAL GOVERNMENT FROM TIME TO TIME, IF APPLICABLE AND IF THE ASSESSING OF FICER PROCEEDS TO RELY UPON ASSESSMENTS OF OTHER ASSESSES ENGAGED IN SIMILAR BU SINESS TO DO SO ONLY AFTER DETERMINING POINTS OF SIMILARITY. IN THE INSTANT CA SE, THE ASSESSING OFFICER HAS NOT CONSIDERED ANY OF THE FACTORS WHICH ARE STATED HEREINABOVE. HE HAS APPLIED ARBITRARY RATE OF 30% WITHOUT ANY BASIS. IN OUR OPI NION, THE RATE OF PROFIT APPLIED BY THE ASSESSING OFFICER IS NOT BASED UPON A RATIONAL ANALYSIS OF FACTS. THE AUTHORITIES BELOW HAVE ALSO NOT GIVEN ANY REASON AS TO WHY THE CASE CITED BY THE ASSESSEE OF A REPUTED BUILDER OF SHIMLA M/S RAJDEEP BUILDERS WAS NOT COMPARABLE WITH THE CASE OF THE ASSESSEE. THUS, CONS IDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF PRESENT CASE, WE ARE OF THE VIEW T HAT A PROFIT RATE OF 21% WILL MEET THE ENDS OF JUSTICE IN THIS CASE. IT IS RELEVA NT TO OBSERVE HERE THAT THE ASSESSEE FAILED TO GIVE HIS PAST TAX HISTORY. THE AS SESSEE HAS ALSO NOT SHOWN ANY PROFIT ON SALE OF IMMOVABLE PROPERTIES. IT IS EVIDE NT FROM THE RECORD THAT THE ASSESSEE IS EXECUTING CONTRACT WORK AND IS ALSO ENG AGED IN THE CONSTRUCTION OF BUILDING AND SELLING THE SAME REGULARLY. WE MAY ALS O OBSERVE THERE THAT THE GROSS PROFIT RATE CANNOT BE UNIFORM IN ALL THE YEAR S AND THE PROFIT RATE DEPENDS ON MANY FACTORS. THEREFORE, THE GROSS PROFIT RATE OF 21% FOR THE YEAR UNDER CONSIDERATION SHOULD NOT BE GUIDING FACTOR IN OTHER YEARS. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO APPLY A PROFIT RATE OF 21% AS AGAINST 30% APPLIED BY THE REVENUE AUTHORITIES. THE ASSESSING OF FICER SHOULD GIVE A RELIEF TO ITA NO NO.1069/CHD/2016 8 THE ASSESSEE ACCORDINGLY. THUS, GROUND NOS.2 AND 3 O F THE APPEAL ARE ALLOWED PARTLY. 6. SINCE THE APPEAL AT THE INSTANCE OF THE ASSESSEE IMPUGNING THE ABOVE FINDING HAS BEEN STATED TO BE ADMITTED BY THE HONBLE H IMACHAL PRADESH HIGH COURT, THEREFORE, IN THE FITNESS OF THINGS, WE DEE M IT APPROPRIATE THAT, LET THIS ISSUE BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION IN ACCORDANCE WITH ULTIMATE O UTCOME OF THE ISSUE AFTER THE DECISION OF THE HONBLE HIMACHAL PRAD ESH HIGH COURT. IT IS PERTINENT TO OBSERVE THAT THE ALLEGED RATE O F PROFIT FOR COMPUTATION OF INCOME FOR ASSESSMENT OUT OF SALE OF PROP ERTY IS DEPENDED UPON THE ISSUE, WHETHER THE PROFIT FROM SALE OF PR OPERTY IS TO BE ASSESSED AS A BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAIN FROM INVESTMENTS. IN TWO YEARS, THIS ISSUE IS SUBJECT MATTER O F APPEAL BEFORE THE HONBLE HIGH COURT. THEREFORE, THERE IS NO JUSTIFICATIO N FOR DEALING THEM SPECIFICALLY IN THIS ASSESSMENT YEAR. THE ASSESSING OFF ICER HAS TO FIRST DETERMINE, WHETHER PROFIT FROM SALE OF PROPERTY IS T O BE ASSESSED AS INCOME FROM BUSINESS/PROFESSION OR UNDER THE HEAD INCOME FR OM CAPITAL GAINS. IN CASE IT IS DETERMINED THAT INCOME FROM SUCH ACTIVITY IS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME/PROFESSION, THEN THE RATE OF PROFIT BE DETERMINED AFRESH. ACCORDINGLY, BOTH THESE GROU NDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 7. IN GROUND NO.3, THE ASSESSEE HAS PLEADED THAT THE LD.CI T(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.13,45,647/- WHICH WAS ADDED BY THE ASSESSING OFFICER AS UNEXPLAINED CASH FOUND AT THE TIME O F SEARCH. ITA NO NO.1069/CHD/2016 9 8. BRIEF FACTS OF THE CASE ARE THAT A SEARCH UNDER SECTIO N 132 OF THE INCOME TAX ACT WAS CONDUCTED AT THE PREMISES OF POPLI GRO UP OF CASES ON 8.10.2010. A NOTICE UNDER SECTION 142(1) WAS ISSUED ON THE ASSESSEE CALLING FOR RETURN OF INCOME FOR THE ASSTT.YEAR 2011-12 WH ICH WAS DULY SERVED UPON HIM. HE FILED RETURN OF INCOME ON 7.7.2012 DECLARING TOTAL INCOME AT RS.18,37,302/-. NOTICE UNDER SECTION 143(2) WA S ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, T HE LD.AO OBSERVED THAT DURING THE COURSE OF SEARCH, CASH OF RS.2 1,46,150/- WAS FOUND. THE DETAILS OF SUCH CASH AND EXPLANATION OF THE ASSESSE E HAS BEEN NOTICED IN PARAS-7 OF THE ASSESSMENT ORDER WHICH READS AS U NDER: A) CASH AS PER HE BOOKS OF SHRI. RAJESH POPLI PROP. M/S.NEW SHIMLA HARDWARE RS.3,71,084.77 B) CASH AS PER THE BOOKS OF HEMANT POPLI RS.13,45,647.L07 C) CASH OF THE DAUGHTER OF THE ASSESSEE JYOTI KHAJUIRA RS.3,00,000.00 D) CASH OF SHRI. VIJAY KISHAN SHARMA PENDING PAYMENT FOR WHICH CONFIRMATION SHALL BE FILED IN DUE COURSE 1,50,000.00 TOTAL RS.21,66,731,84 .. ..... REGARDING CASH IN HAND THE DETAILED SUBMISSIO NS HAVE ALREADY BEEN MADE WHICH HAVE ALSO BEEN REPRODUCED BY YOU. JUST BECAUSE CASH IS FOUND WOULD NOT LEAD THE INFERENCE WITH SAME IS UNACCOUNT ED. JUST BECAUSE SURRENDER HAS BEEN RETRACTED DOES NOT EMPOWER THE R EVENUE TO MAKE UNNECESSARY ADDITIONS. THE ABSTRACT OF THE CASH OF SHRI. RAJESH POPLI HAS ITA NO NO.1069/CHD/2016 10 ALREADY BEEN PLACED ON RECORD. NO DISCREPANCY IN T HE SAME HAS BEEN POINTED OUT. HIS BROTHER SHRI. RAJESH WAS OWNED CA SE AS PER HIS BOOKS OF ACCOUNT OF RS.3,71,084.77. THE SISTER AND BROTHER I N LAW OF THE ASSESSEE HAD OWNED THE CASH OF RS.3 LAKHS AND THEIR STATEMEN T WAS ALSO RECORDED DURING THE COURSE OF PROE3EINGS UNDER SECTION 132 O F THE INCOME TAX ACT, 1961. THE FATHER IN LAW OF THE ASSESSEE SHRI. VIJAY KISHAN SHARMAS CASH OF RS.1,50,000/- WAS LYING IN THE HOSUE OF THE ASSE SSEE AND CONFIRMATION IN THIS REGARD IS PLACED ON RECORD FOR YOUR KIND PE RUSAL AND READY REFERENCE. 9. THEREAFTER, THE LD.AO HAS MADE REFERENCE TO THE STATEM ENT OF THE ASSESSEE RECORDED DURING THE COURSE OF SURVEY CONDUCTED AT THE BUSINESS PREMISES, AND ULTIMATELY HELD THAT OUT OF RS.21,46,150/-, A SUM OF RS.8,00,503/- WAS ADDED IN THE CASE OF SHRI RAJESH POPLI A ND BALANCE AMOUNT OF RS.13,45,647/- REMAINED UNEXPLAINED WHICH REQUIRED T O BE ADDED IN THE HANDS OF THE ASSESSEE. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 10. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ADDITION SUBMITTED THAT CASE OF SHRI RAJESH POPLI TRAVELLED UPTO THE TRIBUNAL VIDE APPEAL NO.94 & 95/CHD/2014 FOR THE ASSTT.YEAR 2010-1 AN D 2011-12. THE TRIBUNAL HAS DISCUSSED THIS ISSUE ON PAGE NO.16,PARA 41. OUT OF ADDITION OF RS.8,00,000/-, THE TRIBUNAL HAS DELETED ADDITION TO THE EX TENT OF RS.2,20,000/- AND REST WAS CONFIRMED. HE POINTED OUT T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS EXPLAINE D THE POSITION OF CASH. HE SUBMITTED THAT OUT OF RS.13,45,647/ - A SUM OF RS.31,71,084/- WAS OWNED UP BY SHRI RAJESH POPLI AND IT IS REFLECTED IN HIS BOOKS OF ACCOUNTS. SIMILARLY, HIS SISTER AND BROTHER IN LAW O WNED UP RS.3,00,000/- EACH AND WAS APPEARING IN THEIR BOOKS OF ACC OUNTS. RS.1,50,000/- WAS BELONGED TO FATHER-IN-LAW, SHRI VIJAY K ISHAN SHARMA. ITA NO NO.1069/CHD/2016 11 FOR BUTTRESSING THIS EXPLANATION, CASH BOOK AND OTHER EVIDENC E WAS SUBMITTED BY THE ASSESSEE. BUT THESE HAVE NOT BEEN EXAM INED ANALYTICALLY EITHER BY THE ASSESSING OFFICER OR BY THE CIT(A). THE LD.CIT(A) WHILE CONSIDERING THIS ISSUE HAS OBSERVED THAT THIS EXPLA NATION HAS BEEN GIVEN FOR THE FIRST TIME, AND NO APPLICATION FOR PERM ISSION TO LEAD ADDITIONAL EVIDENCE UNDER RULE 46A WAS SUBMITTED BY THE A SSESSEE. THE LD.COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE FINDING OF THE LD.CIT(A) IN PARA 5.6.2 ON THIS ISSUE, WHICH READ AS UNDER : 5.6.2 THE APPELLANT DURING THE ASSESSMENT PROCEEDI NGS HAD FILED EXTRACTS OF CASH BOOK OF M/S HP TRADERS & CONTRACTORS AS ON DATE OF SEARCH I.E. 08.10.2010 FILED IN THE COURSE OF ASSESSMENT PROCEE DINGS WAS RS.1,45,647/- INSTEAD OF RS.13,45,647/- WHICH WAS N OT ACCEPTED BY THE ASSESSING OFFICER. THE APPELLANT DURING THE APPELL ATE PROCEEDINGS HAS FILED A COPY OF CASH BOOK WHEREIN CASH IN HAND IN T HE BOOKS OF HP TRADERS AND CONTRACTORS IS SHOWN AT RS.13,45,647/-. THIS C ASH BOOK WITHOUT ANY SUPPORTING DOCUMENT IS ONLY A SELF SERVING DOCUMENT WHICH WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER. THE APPELLA NT HAS NOT FILED A REQUEST FOR ADMISSION OF THE SAME AS ADDITIONAL EVI DENCE UNDER RULE 46A. IN VIEW OF THE SAME, THE ADDITIONAL EVIDENCE IS NOT ADMITTED. 11. HE SUBMITTED THAT NEITHER OF THE AUTHORITY HAS EXAMINED THIS ASPECT ON MERIT, RATHER REJECTED THE EXPLANATION OF THE ASSE SSEE IN A CURSORY MANNER. THE LD.DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE REVENUE AUTHORITIES. HE POINTED OUT THAT THE LD.AO HAS SPECIFICALLY DEALT WITH EXPLANATION OF THE ASSESSEE, AND HE WA S NOT SATISFIED WITH QUALITY OF THE EVIDENCE PRODUCED BY THE ASSE SSEE TO DEMONSTRATE THAT OUT OF THE CASH BALANCE OF RS.13,45,647/ -CASH OF FOUR INDIVIDUALS WAS AVAILABLE. 12. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GONE THROU GH THE RECORD CAREFULLY. NO DOUBT, DURING THE COURSE OF SEAR CH, CASH WAS ITA NO NO.1069/CHD/2016 12 FOUND. ONUS WAS ON THE ASSESSEE TO EXPLAIN THE SOURCE AND NATURE OF THE CASH. ACCORDING TO THE ASSESSEE, HE HAS EXPLAINED THE SOURCE BY PLEADING THAT A SUM OF RS.3,71,084/- BELONGS TO SHRI RAJESH POPLI. RS.3,00,000/- BELONGS TO SISTER AND BROTHER-IN-LAWS OF THE ASSESSEE, AND RS.1,50,000/- BELONGS TO FATHER-IN-LAW, SHRI VIJAY KISHAN SHARMA. ASSESSME NTS OF THESE PERSONS WERE ALSO WITH THE ASSESSING OFFICER. THE AS SESSING OFFICER OUGHT TO HAVE APPRAISED HIMSELF STATUS OF CASH FLOW IN THE BOOKS OF THESE PERSONS, AND HOW THEY HAVE OWNED UP THE CASH IN THEIR ACCOUNTS. HE OUGHT TO HAVE NOT DISBELIEVED THE VERSION OF THE ASSESSEE WITHOUT ANY ANALYSIS. WE HAVE ALREADY SET ASIDE TWO ISSUES T O THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. WE DEEM IT AP PROPRIATE TO REMIT THIS ISSUE ALSO FOR RE-ADJUDICATION. THE LD.AO SHOULD M AKE AN ANALYSIS OF THE TREATMENT GIVEN BY THE ALLEGED CREDITORS ABOUT THE CASH BALANCE FOUND AT THE TIME OF SEARCH IN THEIR BOOKS, AND THERE AFTER FORM AN OPINION, WHETHER CASH FOUND DURING THE COURSE OF SEARCH STANDS EXPLAINED OR NOT. IT IS NEEDLESS TO SAY THAT OBSERVATION MAD E BY US WILL NOT IMPAIR OR INJURE THE CASE OF THE AO AND WILL NOT CAUSE ANY PREJUDICE TO THE DEFENCE/EXPLANATION OF THE ASSESSEE. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 6 TH NOVEMBER, 2019. SD/- SD/- (N.K. SAINI) VICE-PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER CHANDIGARH; DATED, 6/11/2019