Heavenly Homes (P) Ltd, Cochin V. The DCIT, Cochin

ITA 109/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7534 (ITAT-COCHIN)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: REJI A GEORGE
• Keywords: Business income; Application of stay
• Section: 43B; 69; 11

Judgement Text

ITA NO . 109 & SP 11 /C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 109/COCH/2015 (ASST YEAR 2007 - 08 ) & STAY PETTIION NO. 11/COCH/2015 ) HEAVENLY HOMES (P) LTD RAVIPURAM COCHIN 16 VS THE DY COMMR OF INCOME TAX CIRCLE 2(1), ERNAKULAM KOCHI ( APPELLANT) (RESPONDENT) PAN NO. AABCH6146C ASSESSEE BY SH REJI A GEORGE REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 21 ST JAN 2015 DATE OF PRONOUNCEMENT 28 TH JAN 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DIRECTED AGAINST THE CIT(A)S ORDER DATED 19.12.2014. THE RELEVANT ASSESSMENT YEAR IS 2007 - 08. 2 THE ASSESSEE HAS FILED THE REVISED GROUND IN THE MEMORANDUM OF APPEAL. IN THE REVISED GROUNDS , TWO ISSUES WERE RAISED; NAMELY; I) WHETHER THE CIT(A) IS JUSTIFIED IN UPHOLDIN G THE ESTIMATION OF THE INCOME BY AN ADDITION OF 2.5% OF THE TURNOVER . II ) DISALLOWANCE U/S 40(A)(IA) AMOUNTING TO RS. 3,20,000/ - AND THE DISALLOWANCE OF RS. 1,76,932/ - STATING THAT T HE EXPENDITURE IS FOR NON - BUSINESS PURPOSES. ITA NO . 109 & SP 11 /C/2015 2 2.1 DURING THE COURSE OF HEARING, THE LD AR DID NOT PRESS THE SECOND ISSUE NAMELY DISALLOWANCE U/S 4(A)(IA) AMOUNTING TO RS. 3,20 LAKHS AND DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 1,76,932/ - . HENCE, THE GROUND RELATING TO THE ADDITION OF RS. 3.20 LAKHS AND RS. 1,76,932/ - IS REJECTED. 3 THE BRIEF FACTS RELATING TO THE SOLE SURVIVING ISSUE; NAMELY THE ESTIMATION OF INCOME, ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF DEVELO PING OF REAL ESTATE, CONSTRUCTION OF FLATS AND VILLAS. FOR THE RELEVANT ASSESSMENT YEAR, THE RETURN OF INCOME WAS FILED ON 1.10.2007 DECLARING A TOTAL BUSINESS INCOME OF RS. 33,26,933/ - . THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY BY ISSUA NCE OF NOTICE U/S 14 3 (2) OF THE ACT. THE SCRUTINY ASSESSMENT WAS COMPLETED VIDE ORDER DATED 15.12 .2009 , BY MAKING AN ADDITION OF R S. 33,10,533 - ON ACCOUNT O F LOW PROFITS. THE RELEVANT FINDINGS OF THE AO , FOR READY REFERENCE, READ AS UNDER: 3. THE EXPLANAT ION GIVEN BY THE ASSESSEE FOR THE LOW MARGIN OF PROFIT AND ALSO THE DETAILS FILED ON RECORD HAVE BEEN GIVEN CAREFUL CONSIDERATION. NOTWITHSTANDING ALL THE REASONS ADVANCED FOR VERY LOW PROFIT. I FIND THAT THE PROFITS ARE QUIRE INADEQUATE IN THIS LINE OF BU SINESS, PARTICULARLY IN MANY OTHER CASES THE PROFITS FOR THE PERIOD RELEVANT TO AY 2007 - 08 IS FAR ABOVE THE PROFIT MARGIN DISCLOSED BY THE ASSESSEE. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE WAS NEW IN THIS FIELD OF BUSINESS AN ALSO THAT LOW RATE WAS QUOTED BY THE ASSESSEE TO OVERCOME COMPETITION I FEEL THAT IT WOULD BE FAIR AND REASONABLE, IF THE NET PROFIT IS PEGGED UP BY 2.5% TO MAKE THE LEVEL OF PROFIT MARGIN TO A REASONABLE EXTENT THIS WILL MEAN AN ADDITION OF RS. 33,10,533/ - 4 ON APPEAL, THE CI T(A) CONFIRMED THE ADDITION, THE RELEVANT FIND OF THE CIT(A) FOR READY REFERENCE READ AS FOLLOWS: ITA NO . 109 & SP 11 /C/2015 3 (III) IT IS S EE N THAT THERE APPEARS TO BE A CONSISTENT FAILURE ON PART OF THE APPELLANT TO HAVE MAINTAINED THE BOOKS OF ACCOUNTS WHERE ESPECIALLY, THE EXPENSE S COULD HAVE BEEN SUPPORTED WITH ALL THE BILLS AND VOUCHERS. THEN, IN SUCH A CASE, THE PLEA TAKEN BY THE APPELLANT THAT ASSESSING OFFICER HAS NOT GIVEN ANY SPECIFIC FINDINGS FOR HAVING NOT RELIED UPON THE BOOK RESULTS IS NOT SUSTAINABLE. SIMILARLY, THE PLE A THAT THE BOOKS OF ACCOUNTS ARE AUDITED VX] S. 44AB ALSO, DOES NOT SUPPORT THE APPELLANT'S CLAIM FOR ITS CORRECTNESS. ONE OTHER PLEA TAKEN BY THE APPELLANT THAT THE ASSESSING OFFICER HAS ASSESSED THE FRINGE BENEFITS IS]. 115WE (3) , MEANING THEREBY, THE BOOKS MAINTAINED BY THE APPELLANT HAVE BEEN ACCEPTED PER SE, IS ALSO NOT CORRECT BECAUSE THE PURPORT OF FRINGE BENEFITS STANDS AT A TOTALLY DIFFERENT BASIS AND, THE SAME CANNOT BE COMPARED TO JUSTIFY THE CLAIM OF EXPENDITURE INCURRED IN RESPECT OF THE CONSTRUCTION WORKS FOR WHICH BILLS/VOUCHERS HAVE NOT BEEN MAINTAINED ADEQUATELY. MOREOVER, THE FAILURE ON PART OF THE APPELLANT SEEMS TO BE CONSISTENTLY MAINTAINED, WHICH IS APPARENT FROM THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. ALTHOUGH, EACH ASSESSMENT YEAR IS SEPARATE BUT, JUST IN ORDER TO CAPTURE THE SENSE, AS TO HOW THE APPELLANT HAS BEEN MAINTAINING THE BOOKS OF ACCOUNTS AND, T HEIR STAND ON GOING FOR AGREED ASSESSMENT: IT IS RELEVANT TO MENTION THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, WHERE DISALLOWANCE HA VE BEEN MADE ON ACCOUNT OF INTEREST ON LOAN TO D IRECTORS AND, THE SAME HAS NOT BEEN CONTESTED BY THE APPELLANT. THE INCOME HAS BEEN THUS, ASSESSED FOR THE A.Y. 2009 - 10 AT RS. 39,72 ,266/ - AS AGAINST THE RET URNED INCOME OF RS. 26,99,343/ - . DISALLOWANCE O F RS. 10,00,000/ - ON ACCOUNT OF INTEREST PAID TO THE DIRECTORS ON LOANS HAS BEEN MADE. IN VIEW OF THE DISCUSSIONS MADE IN THE FORGOING PARAS AND THE FACTS OF THE CASE FOR THE ASSESSME NT YEAR UNDER APPEAL, CO MPARES WITH . THE IDENTICAL FACTS AND CIRCUMS TANCES FOR THE ASSESSMENT YEAR 2006 - 07 AND THE ASSESSMENT YEAR 2009 - 10: IT IS HELD THAT THE STAND TAKEN BY THE ASSESSING OFFICER FOR ESTIMATING THE PROFIT BY AP P LYING RATE ON THE TOTAL TURNOVER HAVE BEEN CONSIST ENT AND AFTER, GIVING FULL CONSIDERATION TO THE BUSINESS CIRCUMSTANCES AS WELL AS THE ADEQUACY OF THE BOOKS OF ACCOUNTS MAINTAINED. ACCORDINGLY , NOT FINDING ANY INFIRMITY IN THE ASSESSING OFFICER'S ORDER , THE ADDITION ON . . ACCOUNT OF ESTIMATED INCOME TO T HE EXTENT OF RS. 33,10,533/ - IS UPHELD AND, THE APPEAL IN THIS GROUND IS DISMISSED. ITA NO . 109 & SP 11 /C/2015 4 5 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) ERRED IN LAW AND FACTS BY FAILING TO NOTE THAT THE AO H AS MADE AN ADDITION OF 2.5% OF THE TOTAL TURNOVER OF THE ASSESSEE WITHOUT POINTING OUT ANY MISTAKES; I) IN THE RECEIPTS OR EXPENDITURE ACCOUNTED BY THE ASSESSEE II) IN THE ACCOUNTING STANDARDS FOLLOWED BY THE ASSESSEE III)IN ANY OF THE ENTRIES SUPPORTED BY SELF MADE VOUCHERS IV) ON THE PART OF THE ASSESSEE IN COOPERATING WITH THE AO. 5.1 IT WAS FURTHER SUBMITTED THAT THE CIT (A) FAILED TO NOTE THAT THE ADDITION MADE DURING THE AY 2006 - 07 AND 2009 - 10 WERE DUE TO SPECIFIC MISTAKES IN THE BOOKS OF ACCOUNTS , SUCH AS INTEREST ON FUNDS DIVERTED AND INTEREST ON KVAT U/S 43B OF THE I T ACT WHICH IS NOT COMPARABLE WITH THE REASONS MENTIONED IN THE A Y 2007 - 08. MOREOVER, THE AO HAS MADE A COMPARISON OF BUILDERS PARTICULARLY DEALING IN COMMERCIAL COMPLEX WITH THE A SSESSEE WHO IS A BUILDER OF RESIDENTIAL APARTMENTS AND VILLA PROJECTS. THE LD DR, PRESENT SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ADDITION OF RS. 33,10,533/ - WAS ON ACC OUNT OF LOW ITA NO . 109 & SP 11 /C/2015 5 PROFIT MARGIN SHOWN BY THE ASSESSEE. THE AO MADE THE ADDITION AT THE RATE OF 2.5 % OF THE TURNOVER DISCLOSED BY THE ASSESSEE. IN DOING SO, THE AO HAD TAKEN INTO ACCOUNT THE COMPARABLE CASES. THE ASSESSEE , ON ITS PART , HAS NOT PRODUCED ANY MATERI AL/DOCUMENT TO SHOW THAT THE GP DISCLOSED BY THE ASSESSEE IS REASONABLE, COMPARED TO THE OTHER ASSESSEE IN THE SIMILAR LINE OF BUSINESS. THE ASSESSEE HAS ALSO FAILED TO SUBSTANTIATE THAT THE BOOK RESULTS OF THE CURRENT YEAR IS REASONABLE WITH REGARD TO GP DISCLOSED BY THE ASSESSEE IN THE EARLIER AYS AND THE SUBSEQUENT AYS . SINCE NO MATERIAL/DOCUMENT HAS BEEN PRODUCED BY THE ASSESSEE TO DISPEL THE FINDING OF THE CIT(A), WE HOLD THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO IN TERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDINGLY. 7 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. STAY PETITION NO.11/COCH/2015 8 THE ASSESSEE FILED A STAY PETITION SEEKING STAY OF DEMAND OF RS. 13,23,670/ - . SINCE THE APPEAL FILED BY THE ASSESSEE IS DECIDED AGAINST THE ASSESSEE, THE STAY PETITION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED. ITA NO . 109 & SP 11 /C/2015 6 9 TO SUM - UP, BOTH THE APPEALS AS WELL AS THE STAY PETITION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE O PEN COURT ON THIS 28 TH DAY OF JAN 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 28 TH JAN 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN