D.C.I.T Cir - 1,kolkata, Kolkata V. M/s Eldyne Electro Systems Pvt Ltd, Kolkata

ITA 1352/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4978 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 26-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Court: TRIBUNAL
• Department Lawyers: NILOY BARAN SOM
• Assessee Lawyers: N O N E
• Keywords: Rejection of books of accounts; Business income
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NO.1352/KOL/2013 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, VS. M/S. ELDY NE ELECTRO SYSTEMS PVT. LTD. CIRCLE-1, KOLKATA. (PAN: AAACE7357H) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 26.04.2016 DATE OF PRONOUNCEMENT: 29.04.2016 FOR THE APPELLANT: SHRI NILOY BARAN SOM, JCIT, DR FOR THE RESPONDENT: N O N E ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XXIV, KOLKATA VIDE APPEAL NO. 1132/CIT(A)-XXIV/C-1/12-13 DATED 18.02.2013. ASSESS MENT WAS FRAMED BY DCIT, CIRCLE-1, KOLKATA U/S. 144 OF THE INCOME TAX ACT, 1961 (HEREI NAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 06.12. 2010. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN RESTRICTING THE NET PROFIT RATE @ 5.25% INSTEAD OF 6% APPLIED BY AO . FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE NET PROFIT @ 5.25% INSTEAD OF 6% AND THEREBY GI VING RELIEF OF RS.42,22,400/- TO THE ASSESSEE. 3. WE HAVE HEARD LD. SR. DR AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE UNDERTAKES CONTR ACT OF RAILWAYS FOR ELECTRICAL JOBS IN ITS TRAFFIC SYSTEM. THE CONTRACT WORK CONSISTS OF INSTALLING A ND MAINTAINING A MAJOR PART OF AUTOMATED SIGNAL SYSTEM AND COMPUTERIZED COUNTING OF AXEL REV OLUTION RATE AND CONTROLLING MANY OTHER VITAL PARAMETERS OF RAIL ROAD TRAFFIC. THE ASSIGNMENT OF CONTRACT IS HARD TO ACHIEVE FOR (A) FIERCELY COMPETITIVE TENDERING, (B) DEMANDS OF THE HIGHEST S TANDARD OR PERFORMANCE OF THE ELECTRICAL SYSTEMS CREATING FOOL PROOF SAFETY CONDITIONS FOR R OUND THE CLOCK TRAFFIC (C) ALL COUNTRY OPERATIONS ALONG DESOLATE REMOTE TRACTS UNDER AUSTE RE CONDITIONS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS REJECTED THE BOOKS OF ACCOUN T AFTER NOTING MAJOR DEFECTS IN THE BOOKS OF 2 ITA NO.1352/KOL/2013 ELDYNE ELECTRO SYSTEMS PVT . LTD.. AY 2008-09 ACCOUNT, WHICH IS NOT CHALLENGED BEFORE TRIBUNAL. THE AO ADOPTED THE NET PROFIT RATE ON THE BASIS OF ASSESSED NET PROFIT FOR FY 2003-04 RELEVAN T AY 2004-05 AT 6.51% WHICH WAS AFTER DISALLOWANCES. THE ASSESSEE BEFORE CIT(A) FURNISHE D THE GP AND NP RATIO FOR THE PERIOD FROM FY 2002-03 TO 2007-08 WHICH IS AS UNDER: FINANCIAL YEAR TURNOVER G. P. N.P. REMARKS 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 (INSTANT YEAR) 10.01 12.07 10.52 26.45 36.98 56.3 20.06% 19.20% 26.57% 15.39% 26.15% 22.11% 4.23% 4.08% 4.33% 4.42% 5.78% 4.92% 6.51% AFTER DISALLOWANCES THE AO AFTER REJECTING THE BOOKS OF ACCOUNT COMPLET ED THE ASSESSMENT U/S. 144 AFTER ADOPTING NET PROFIT RATE AT 6% OF THE GROSS CONTRACT RECEIPT OF RS.56,29,86,743/- AGAINST APPLICATION OF GP RATE OF 6%. THE ASSESSEE PREFERRED APPEAL BEFORE C IT(A), WHO RESTRICTED THE NET PROFIT RATE AT 5.25% BY OBSERVING IN PARA 2.3.3 AS UNDER: 2.3.3. THE A.O. HAS ALSO OBSERVED THAT THE APPELL ANT COMPANY DID NOT COMPLY TO THE NOTICE ISSUED U/S.142(1). CONSIDERING THE VARIOUS DEFECTS MENTION ED ABOVE, THE A.O. HAS REJECTED THE BOOKS OF ACCOUNTS AND COMPLETED THE ASSESSMENT U/ S.144 AFTE R ADOPTING THE NET PROFIT AT 6% OF GROSS BUSINESS INCOME OF RS.56,29,86,743/-. DURING THE COURSE OF T HE APPELLATE PROCEEDINGS, THE LD. AIR HAS ARGUED THAT (I) NONE OF THE DEFECTS MENTIONED BY THE A.O. CAN BE TREATED AS AN ACCOUNTING ERROR FROM THE PRINCIPLES OF COMMERCIAL ACCOUNTING, (II) THE NET P ROFIT RATE OF 6% OF THE TURNOVER ADOPTED BY THE A.O. IS BASED ON THE NET PROFIT AFTER ADDITIONS/DIS ALLOWANCES DURING A.Y. 2002-03 AND (III) THE A.O. DID NOT GIVE ANY ALLOWANCE FOR THE INCREASE IN THE TURNOVER OF THE APPELLANT COMPANY. THE A.O. HAS NOT ESTABLISHED ANY OF THE DEFECTS WHICH HAVE BEEN SUMMARIZED ABOVE. THE LD. AIR HAS FURNISHED NECESSARY EXPLANATIONS IN RESPECT TO THE ABOVE DEFE CTS POINTED OUT BY THE A.O. THE LD. A/R HAS EXPLAINED THAT THE PERCENTAGE OF THE N.P. IN RESPEC T TO TURNOVER IS 4.08%, 4.33%, 4.42% AND 5.78% FOR F.Y. 2003-04, 04-05, 05-06 AND 06-07 RESPECTIVE LY. THE LD. A/R HAS ALSO STATED THAT THE AVERAGE PROFIT RATE FOR FIVE YEARS COMES TO 5.2%. THE LD. A /R HAS EXPLAINED THAT THE TURNOVER DURING THE ASSESSMENT YEAR 2008-09 IS RS.56.30 CRORES AS AGAI NST THE TURNOVER OF RS.10.01 CRORE IN THE ASSESSMENT YEAR 2003-04. CONSIDERING THE FACTS OF T HE CASE AND ALSO THE EXPLANATIONS FURNISHED BY THE LD. A/R, I AM OF THE OPINION THAT IT WOULD BE F AIR AND REASONABLE IF THE NET PROFIT IS ESTIMATED A T 5.25% OF THE TURNOVER INSTEAD OF 6% OF THE TURNOVE R FOR A.Y. 2008-09. THUS THE NET PROFIT IS ESTIMATED AT 5.25% OF THE TURNOVER WHICH COMES TO R S.2,95,56,804/- (5.25% OF RS.56,29,86,743/-). ACCORDINGLY, THE A.O. IS DIRECTED TO ASSESS THE PRO FIT FROM BUSINESS AT RS.2,95,56,804/- INSTEAD OF RS.3,37,79,204 / -. THE APPELLANT GETS A RELIEF OF RS.42,22,400/- (RS.3,37,79,204/- - RS. 2,95,56,804/ - ). THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. WE FIND FROM THE FACTS OF THE CASE AND AFTER HEA RING LD. DR THAT THE NET PROFIT RATE VARIES FROM 4.08% TO 5.78% AND AVERAGE OF THESE YEARS COME S TO 4.62%. WE FIND THAT THE CIT(A) HAS ESTIMATED THE NET PROFIT AFTER CONSIDERING THE TURN OVER OF THE ASSESSEE AT 5.25%, WHICH IS QUITE REASONABLE. EVEN OTHERWISE, THE LD. SR. DR COULD NO T POINT OUT ANY DEFECT IN THE FACTS NARRATED 3 ITA NO.1352/KOL/2013 ELDYNE ELECTRO SYSTEMS PVT . LTD.. AY 2008-09 BY CIT(A) AND ESTIMATION OF PROFIT RATE AT 5.25%. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.04.2016 SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29TH APRIL, 2016 JD. (SR. P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-1, KOLKATA. 2. RESPONDENT M/S. ELDYNE ELECTRO SYSTEMS PVT. LTD. 3, MADAN STREET, BOWBAZAR, KOLKATA-72. 3. CIT(A) , KOLKATA 4. CIT , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .