ACIT, Bhubaneswar V. M/s Nirmani Engineers & Construction (P), Bhubaneswar

ITA 125/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4446 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 13-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2010
• Court: TRIBUNAL
• Department Lawyers: NARAD P SAHU
• Assessee Lawyers: S K DASH
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 125/CTK/2010 / ASSESSMENT YEAR 2006 - 07 ACIT, CIRCLE 2(2), BHUBANESWAR. - - - VERSUS - M/S.NIRMANI ENGINEERS & CONSTRUCTION (P) LD.,NAYAPALLI, BHUBANESWAR. PAN: AABCN 3332 J. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI NARAD P. SAHU, AR / FOR THE RESPONDENT: / SHRI S.K.DASH, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTAN T MEMBER. THE REVENUE IS IN APPEAL AGITATING THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN GRANTING ASSESSEE RELIEF ON ACCOUNT OF ESTIMATING THE PROFIT AT 5.75% AS AGAINST 11% ESTIMATED BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF S ECTION 144 OF THE INCOME - TAX ACT,1961. THE LEARNED CIT(A) ALSO ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW EXPENSES TO THE ASSESSEE FROM OTHER THAN CONTRACT RECEIPTS BY DIRECTING THE ASSESSING OFFICER TO COMPUTE INCOME THERE FROM AT A MUCH LOWER RATE EVEN WHEN THE SAME WAS NOT CLAIMED AS EXPENSES BY THE ASSESSEE. 2. THE BRIEF FACTS, AS BROUGHT ON RECORD, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY FILED ITS RETURN OF INCOME DECLARING INCOME AT 10,41,499. IT HAS BEEN OBSERVED THAT THE FIRST NOT ICE WAS ISSUED U/S.143(2) FIXING DATE ON 21.8.2008 WHEN THEREAFTER THE CASE WAS TAKEN UP FOR SCRUTINY JUST A MONTH PRIOR TO THE FINAL ORDER PASSED U/S.144 ON 28.11.2008. THE ASSESSING OFFICER HAS COMPARED THE ASSESSEES BOOK RESULT WITH ANOTHER ASSESSEE WH O WAS NOT I.T.A.NO. 125/CTK/2010 2 CONFRONTED FOR REBUTTAL BEFORE THE ASSESSEE, WHEREIN GROSS MARGIN @11% AFTER DEPRECIATION WAS ACCEPTED. IT WAS ALSO NOTICED THAT THE INCOME FROM OTHER SOURCES AS DISCLOSED WAS ALSO TO BE TAXED SEPARATELY. THIS WAS CONSIDERED BY THE ASSESSING OFF ICER TO ASSESS THE INCOME OF THE ASSESSEE U/S.144 AT 38,35,798 WHICH WAS APPEALED AGAINST BEFORE THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(A) PERUSED THE ASSESSMENT ORDER INDICATING THE PROCEDURE LAID OUT BY THE ASSESSING OFFICER TO ASSESSEE U/S.14 4 AND AS ALSO INCORPORATED IN THE WRITTEN SUBMISSIONS AS MADE BY THE ASSESSEE APPELLATE BEFORE HIM. THE LEARNED CIT(A) THEREAFTER PROCEEDED TO CONSIDER THE CONTENTION OF THE ASSESSING OFFICER VIS - - VIS MAINTENANCE OF BOOKS OF ACCOUNT FOR NON - PRODUCTION BEFOR E THE ASSESSING OFFICER WITHOUT INVOKING THE PROVISIONS OF SECTION 145(3). HE CONSIDERED THAT THE ASSESSEE - APPELLANTS TOTAL TURNOVER VARIED DURING THE EARLIER YEARS AND ALSO THE FACT THAT THE OTHER INCOME OTHER THAN THE CONTRACT RECEIPTS HAD VARIED BUT N O SEPARATE ADDITION HAD BEEN MADE THEREIN. HE CONSIDERED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEES INCOME HAD BEEN ASSESSED AT 5.5% AND NO OTHER INCOME WAS TAXED SEPARATELY. HOLDING THE ASSESSMENT HIGH - PITCHED MEANING THEREBY RATE O F INCOME DOUBLED FROM 5.5% TO 11% IN THE IMPUGNED ASSESSMENT YEAR, HE DIRECTED THE AO TO COMPUTE THE INCOME AT 5.75% AT 12,80,693. HAVING SAID SO HE ALSO DIRECTED THE AO TO ALLOW EXPENSES FROM OTHER INCOME IN THE SAME MANNER BY COMPUTING THE TAXABLE PORTION OF INCOME FROM OTHER INCOME RETURNED BY THE ASSESSEE AT 13,85,010 TO 76,118 ONLY. 3. THE LEARNED DR SUBMI TTED THAT THE LEARNED CIT(A) CLEARLY HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE INSOFAR AS WHAT COULD NOT BE PRODUCED BEFORE THE ASSESSING OFFICER EVEN IN A SHORT SPAN OF 1 MONTH TO BE CONSIDERED BY HIM FOR PASSING THE ORDER U/S.144, THE LEARNED CIT( A) COULD NOT APPLY THE I.T.A.NO. 125/CTK/2010 3 RESJUDICATA PRINCIPLES BY COMPARING THE IMMEDIATELY PRECEDING YEAR TO THE IMPUGNED ASSESSMENT YEAR ALONG WITH THE GLARINGLY IMPROPER FACT THAT THE OTHER INCOME DID NOT REQUIRE SIMILAR CONSIDERATION FOR TAXATION WHEREIN 95% HAS BEEN A LLOWED AS EXPENSES IS TOTALLY BEYOND ANY COMPREHENSION AND MATTER OF RECORD. IN OTHER WORDS, THE LEARNED DR VEHEMENTLY ARGUED THAT THERE WAS NO OCCASION BEFORE THE LEARNED CIT(A) TO ALLOW EXPENSES TO THE ASSESSEE MORE THAN WHAT IT HAD CLAIMED. HE, THEREFOR E, PRAYED THE A SUITABLE DIRECTION BE MADE ON THE BASIS OF FACTS BROUGHT ON RECORD. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A) INSOFAR AS DUE TO PAUCITY OF TIME, THE ASSESSING OFFICER HAD REQUIRED CERTAIN CLA RIFICATION AND EXPLANATION BY ISSUING A NOTICE FIXING THE CASE FOR HEARING ON 4.11.2008 AND PASSED THE ASSESSMENT ORDER ON 28.11.2008. THE ASSESSEE WAS NOT ABLE TO APPEAR BEFORE THE AO DUE TO THE MANAGING DIRECTORS INDISPOSITION. THE COMPARABLE CASE, AS N OTED BY THE ASSESSING OFFICER, HAS NO BEARING TO THE ASSESSEES CASE WAS THEREFORE, RIGHTLY APPRECIATED WITH BY THE LEARNED CIT(A) IN COMPARING THE BOOK RESULT OF THE ASSESSEE FOR IMPROPER COMPARISON TO THE IMPUGNED ASSESSMENT YEAR BUT WITH THE IMMEDIATELY PRECEDING YEAR. THERE IS NO VIOLATION OF RULE 46A OF THE I.T.RULES, 1962 AS SUGGESTED BY THE LEARNED DR HERE. SIMILARLY, THE LEARNED CIT(A) RIGHTLY OBSERVED THAT OTHER INCOME WAS TO BE CONSIDERED FOR CLAIMING COMPOSITE EXPENSES THERE FROM IN VIEW OF THE LEARNED CIT(A) HOLDING THAT THE OTHER INCOME IS ON ACCOUNT OF SUB - CONTRACT RECEIPTS AND PETTY INCOME FROM INTEREST AND OTHER MISC. ITEMS. THEREFORE, THE MARGIN THEREIN WAS RIGHTLY DIRECTED TO BE ADOPTED AT 5.75% AGAINST WHICH NO CONTROVERSY HAS BEEN POINT ED OUT BY THE LEARNED DR. HE SUPPORTED THE ORDER OF THE LEARNED CIT(A) FOR HIS PART SUBMISSION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL I.T.A.NO. 125/CTK/2010 4 AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) COULD NOT PROCEED TO ADJUDICATE ON THE ISSUES CONSIDERED BY THE ASSESSING OFFICER FOR WANT OF APPEARANCE AND DETAILS OF THE ASSESSEE. MERE ESTIMATION FOR WANT OF BOOK RESULT BE VERIFIED AGAINST THE BOOKS BUT DUE TO TIME LIMITATION WAS NOT A DHERED TO BY THE ASSESSEE OR THE ASSESSING OFFICER, THEREFORE, LEAVES NO ROOM FOR FURTHER REQUIRING THE COMPARISON TO BE THE BONE OF CONTENTION BEFORE THE LEARNED CIT(A). NOT A WHISPER HAS BEEN MADE BY THE LEARNED CIT(A) ON THE BASIS AS WAS CONSIDERED BY T HE ASSESSING OFFICER FOR BRINGING TO TAX ON ESTIMATION OF INCOME TO BE CONSIDERED FOR TAXATION ONLY ON THE ASSESSEES BOOK RESULT FOR THE IMMEDIATELY PRECEDING YEAR. WHEN IN HIS WISDOM THE LEARNED CIT(A) HAS APPLIED THE SAME ANALOGY TO THE OTHER INCOME WHI CH IF ACCEPTED IN ITS ENTIRETY WOULD RENDER THE ASSESSEES INCOME TO BE CONSIDERED ONLY ON ESTIMATION AND NOT ON THE BOOK RESULT WHICH HAS NOT BEEN CONTROVERTED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US. THE SUB - CONTRACT RECEIPTS DO NOT SUFFER TAX ATION AT THE SAME RATE AS HAS BEEN PUT FORTH BY THE LEARNED CIT(A) INSOFAR AS THE NATURE OF BUSINESS MAY BE THE SAME BUT RENDERING WORK FOR A SUB - CONTRACT REQUIRES EXPENDITURE TO BE CONSIDERED IN ACCORDANCE WITH THE AGREEMENT ENTERED WITH THE MAIN CONTRACT OR. THE ASSESSEE HAVING RETURNED INCOME MORE THAN 10 LAKHS THEREFORE WAS IDENTIFIED TO BE REDUCED FROM THE ASSESSMENT U/S.144 FROM RS.38 LAKHS APPROXIMATELY TO 13 LAKHS APPROXIMATELY AS AGAINST RETURNED INCOME BY THE ASSESSEE AT 10 LAKHS APPROXIMATELY. THE ASSESSEE IF WERE TO INCUR EXPENSES ON THE NATURE OF THIS INCOME IN ACCORDANCE WITH THE BOOKS OF ACCOUNT WOULD NOT BE ABLE TO EXPLAIN THE SAME AS OF NOW. IN OTHER WORDS, IT APPEARS TO BE A CASE WHERE THE ASSESSEE THOUGHT IT ADVANTAGEOUS FOR GETTING THE ASSESSMENT DONE U/S.144 THEN UNDER REGULAR ASSESSMENT PROCEEDINGS U/S.143(3). WE ARE UNABLE TO I.T.A.NO. 125/CTK/2010 5 SATISFY OURSELVES WITH THIS PROPOSITION UNLESS SPECIFIC DELETI ON AND ALLOWANCE HAVE TO BE MADE ON SPECIFIC FINDINGS ON AN APPEAL BY THE ASSESSEE BEFORE THE LEARN ED CIT(A). THE CASE LAWS CITED BY THE LEARNED CIT(A) FOR JUSTIFYING THE ESTIMATION EITHER FOR GROSS INCOME OR ALLOWANCE OF COMPOSITE EXPENSES DO NOT COME TO ITS RESCUE UNLESS THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT BY FURNISHING AUDIT REPORT WHICH DO NOT INDICATE THE BOOKS WERE NOT PROPERLY MAINTAINED OR PRODUCED BEFORE THE ASSESSING OFFICER DUE TO PAUCITY OF TIME. IN VIEW OF THIS, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE ISSUES TO THE FILE OF THE AO FOR CONSIDERATION AFRESH AF TER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 21 ST APRIL, 2011 S D/ - S D/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DAT E: 21 ST APRIL, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ACIT, CIRCLE 2(2), BHUBANESWAR. 2 / THE RESPONDENT: M/S.NIRMANI ENGINEERS & CONSTRUCTION (P) LD.,NAYAPALLI, BHUBANESWAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY.