M/s B Engineers & Builders Ltd, Bhubaneswar V. Addl. CIT, Bhubaneswar

ITA 139/CTK/2011

• Counselvise Citation: 13922114 RSA 2011
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-03-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHYDR
• Assessee Lawyers: D K MOHANTYC R JENA ARS
• Keywords: Period of limitation; Time period of passing order
• Section: 44AD

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 139/CTK/2011 (ASSESSMENT YEAR 2005 - 06) M/S.B.ENGINEERS & BUILDERS L T D., 72/A, MANCHESWAR INDUSTRIAL ESTATE, BHUBANESWAR 751 010 PAN: AAACB 9689 H VERSUS ADDL. COMMISSIONER OF INCOME - TAX, RANGE 2,BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.MOHANTY/C.R.JENA, ARS FOR THE RESPONDENT SMT. PARAMITA TRIPATHY,DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : THE APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER PASSED U/S.144 OF THE INCOME - TAX ACT,1961. 2. THE ASSESSEE IS A CLOSELY HELD COMPANY ENGAGED IN EXECUTION OF CIVIL AND MECHANICAL CONTRACTS UNDER VARIOUS ORGANIZATIONS AND DEPARTMENTS. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 06 WAS FILED ON 31.10.2004 DECLARING INCOME OF 1,38,52,220.NOTICES WERE ISSUED FOR APPEARING BEFORE THE ASSESSING OFFICER ALONG WITH THE BOOKS OF ACCOUNT AND OTHER MATERIALS AS REQUISITIONED U/S.142(1) WERE TAKEN UP FOR HEARING FROM 15.10.2007 WHEN THE ORDER U/S.144 WAS PASSED ON 31.12.2007 BY ENHANC ING THE INCOME AT 4,74,59,940. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO IN HIS DETAILED ORDER HELD THAT THE PURPORTED BOOKS OF ACCOUNT COULD NOT BE SAID TO HAVE BEEN MAINTAINED PROPERLY AND THE PROFIT OF THE ASSESSEE FROM THE EXECUTION OF THE CONTRACT WORKS WAS TO BE ESTIMATED. REITERATING THE ORDER SHEET OF THE ASSESSING OFFICER, HE CONFIRMED THE ESTIMATION OF NET PROFIT AT 10% OF THE GROSS RECEIPTS AMOUNTING TO 3,33,67,770. HOWEVER, HE CONSIDERED THAT THE ASSESSING OFFIC ER WAS NOT ITA NO.139/CTK/2011 2 JUSTIFIED TO TREAT INTEREST AND SCRAPS INCOME SEPARATELY WHICH ADDITIONS AMOUNTING TO 57,14,131 WAS DELETED. HE ALSO CONSIDERED THE DISALLOWANCE U/S.40(A)(IA) AND 40 A (2) WHICH HE DELETED ON THE BASIS OF THE FACT THAT ONCE ESTIMATION OF THE NET PROFIT HAS BEEN RESORTED TO BY THE ASSESSING OFFICER, THE OTHER DISALLOWANCE CONFORMING INTEGRAL PART OF THE EXPENSES CLAIM ED CANNOT BE DISALLOWED ADDITIONALLY. THE ASSESSEE IS IN APPEAL BEFORE US AGITATING THE ORDERS OF THE AUTHORITIES BELOW BECOMING SEL F CONTRADICTORY. 3. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATED HIS ARGUMENTS BY SUBMITTING THAT THE MERE TWO MONTHS PERIOD WAS CONSIDERED FOR PASSING THE ORDER U/S.144 WHEN IT HAS BEEN SUBMITTED BY THE LEARNED DR THAT THE NOTICE U/S.143(2) WAS ISSUED W ITHIN THE PERIOD OF LIMITATION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER OUGHT NOT TO HAVE GIVEN A PERIOD OF SEVEN MONTHS FOR COMPLYING TO THE NOTICE WHEN HE HIMSELF TOOK UP THE CASE FOR HEARING IN THE MONTH OF OCTOBER , 200 7 TO PROCEED FOR PASSING THE ORDER U/S.144 REQURING SPECI FIC CONSIDERATION WHICH PARTLY HAS BEEN CONSIDERED BY THE LEARNED CIT(A) IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT INSOFAR AS RESORTING TO ESTIMATION COULD NOT LEAD TO ADDITIONAL DISALLOWANCE OF EXPENSES WHEN 90% OF THE EXPENSES HAVE BEEN CONSIDERED ALLOWABLE BY THE ASSESSING OFFICER WITHOUT REJECTING THE BOOK RESULTS. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSEE IS A LIMITED COMPANY SUBJECT TO STATUTORY AUDIT UNDER THE PROVISIONS OF THE COMPANIES ACT AND ALSO UNDER THE PROVISIONS OF SECTION 44AB OF THE I.T.ACT. BOTH THE AUDITORS CERTIFIED THE FINANCIAL RESULT ON THE BASIS OF BOOKS OF ACCOUNT PRODUCED BEFORE THEM THEREFORE LEAVES MUCH TO BE DESIRED FOR THE ASSESSING A UTHORITIES TO PASS THE ORDER TO THEIR BEST OF JUDGMENT . THE LEARNED CIT(A) DID NOT BRING ON RECORD THE BASIS FOR HOLDING 10% INCOME EXCEPT ON THE BASIS OF GROSS RECEIPTS WHEN THE LAW PROVIDES THAT THE ASSESSEES ARE NOT ITA NO.139/CTK/2011 3 REQUIRED TO MAINTAIN BOOKS OF ACCOUNT WHEN THE TURNOVER DOES NOT EXCEED 40 LAKHS UNDER THE PROVISIONS OF SECTION 44AD AT 8% . THE BASIS OF ENHANCING THE NET PROFIT BY 2% IN THE CASE OF A LIMITED COMPANY, THEREFORE, BECOMES ILLEGAL , ARBITRARY, AND UNJUST, FOR NO FAULT OF THE ASSESSEE INSOFAR AS THE ASSESSING OFFICER NEVER REQ UIRED THE ASSESSEE TO ESTABLISH THE DEFECTS , IF ANY, IN THE BOOKS OF ACCOUNT BY COMPARING THE FINANCIAL RESULTS THERE FROM. THE LEARNED CIT(A) THEREAFTER DID CONSIDER THE CASE OF THE ASSESSEE THAT THE DEEMING PROVISIONS OF EXPENSES DISALLOWABLE CANNOT BE I NVOKED AT THIS STAGE WHEN THE ESTIMATION OF INCOME ON THE BASIS OF BOOK RESULT HAS BEEN RESORTED TO BY DISALLOWING THE ACTUAL EXPENSES CLAIMED WHEN THE INCOME COULD NOT BE CORRECTLY COMPUTED FROM8% TO 10%. HE PRAYED THAT THE MISINTERPRETATION OF THE LEGAL PROVISIONS ON THE FACTS BROUGHT ON RECORD BY THE AUTHORITIES BELOW CLEARLY INDICATE THAT JUSTICE HAS NOT BEEN RENDERED TO THE ASSESSEE INSOFAR AS THE NON - COMPLIANCE TO THE NOTICE U/S.143(2) RESULTED IN PASSING THE ORDER U/S.14 4 TO THE BEST OF THE ASSESSING OFFICERS JUDGMENT WHICH ASSESSMENT HAS BEEN SUBJECTED TO SCRUTINY THE LEARNED CIT(A) HIMSELF CONFIRMED THE ESTIMATION AT 10% IS AGAINST THE SPIRIT OF ALL THE SAID PROVISIONS ONLY BECAUSE THE ASSESSING OFFICER WAS TO MEET THE LIMITATION. HE PRAYED THAT A N OPPORTUNITY BE GRANTED TO THE ASSESSEE TO COMPLY WITH THE NOTICE ISSUED U/S.143(2) WHEN A REASONABLE PERIOD FOR COMPLIANCE MAY BE INDICATED TO CONSIDER THE RETURNED INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT. 4. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. SHE SUBMI TTED THAT THE ASSESSEE IS A LARGE TAX PAYER AND OUGHT TO HAVE COMPLIED WITH THE NOTICE ISSUED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) OBSERVED WAS APPROPRIATE FOR PASSING THE ORDER U/S.144 . THE LEARNED COUNSEL FOR THE ASSESSEES SUBMISSION THAT 8% ESTIMATION OF INCOME ON THE GROSS ITA NO.139/CTK/2011 4 RECEIPTS WAS TO BE ADOPTED WHEN THE ASSESSEE DOES NOT MAINTAIN BOOKS OF ACCOUNT IS TO BE CONSIDERED IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAD NOT COMPLIED TO THE NOTICES INSPITE OF SEVERA L OPPORTUNITIES GRANTED. SHE SU PPORTED THE ORDER OF THE LEARNED CIT(A) TO THE EXTENT ONCE ESTIMATION HAS BEEN RESORTED TO BY THE ASSESSING OFFICER THE DEEMING PROVISIONS OF EXPENSES NOT BE ALLOWED CANNOT BE TINKERED WITH. SHE PRAYED THAT THE ORDER OF THE LEARNED CIT(A) BE CONFIRMED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE ARE UNABLE TO SATISFY OURSELVES TO THE FACT THAT A PUBLIC LIMITED COMPANY HAS BEEN SUBJECTED TO ORDER U/S.144 AT THE FAG END OF THE LIMITATION PERIOD WHEN THE NOTICE U/S.143(2) WAS ISSUED WAY BACK ONE AND HALF YEARS AGO. THE ASSESSING OFFICER OUGHT NOT TO HAVE GIVEN A NOTICE ONE AND HALF YEARS A GO TO BE COMPLIED WITH THE FIRST DATE OF HEARING ON 15.10.2007. THE NO TICE ISSUED BY THE ASSESSING OFFICER IS DT.28.9.2006 WHEREAS THE NOTICE RECEIVED BY THE ASSESSEE IS DT.28.9.2007.WITHOUT GETTING INTO THE CONTROVERSY OF THE IMPROPER ISSUE OF NOTICE U/S.143(2), THE LEARNED COUNSEL FOR THE ASSESSEE HAS PRAYED FOR RESTORATIO N OF THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRAMING DE NOVO ASSESSMENT AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE FOR PRODUCTION OF BOOKS OF ACCOUNT WHICH HAVE BEEN AUDITED UNDER THE PROVISIONS OF SECTION 44AB AND UNDER THE PROVISIONS OF COMP ANIES ACT,1956. THE ISSUE IS LEANING IN FAVOUR OF THE ASSESSEE INSOFAR AS THE ASSESSING OFFICER AFTER HAVING RESORTED TO ESTIMATION PROPOSED TO DISALLOW EXPENSES WHICH HE HAD ALREADY CONSIDERED BY ALLOWING 10% OF THE GROSS RECEIPTS AS INCOME. THE LEARNED C IT(A) ON THE OTHER HAND CORRECTED THE ORDER OF THE ASSESSING OFFICER BY DELETING THOSE EXPENSES UNDER THE DEEMING PROVISIONS OF SECTION 40(A)(IA) AND 40 A (2) BUT FAILED TO CONSIDER THE CASE OF THE ASSESSEE THAT THE FINANCIAL RESULTS WERE ON THE BASIS OF AUD ITED BOOKS OF ITA NO.139/CTK/2011 5 ACCOUNT WHICH THE ASSESSEE HELD AND NOT BECAUSE 8% NET PROFIT WAS TO BE ESTIMATED AS UNDER THE PROVISIONS OF SECTION 44AD WHEN THE LAW PROVIDES THAT THE 8% INCOME HAS TO BE ACCEPTED WHEN THE ASSESSEE DOES NOT GET ITS BOOKS OF ACCOUNT AUDITED . WE FIND FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO COMPLY WITH THE NOTICES WHEN THE LEARNED CIT(A) HIMSELF NOTICED THAT THE HEARING OF THE CASE OF THE ASSES SEE BEFORE THE ASSESSING OFFICER BEGAN ON 15.10.2007 IN COMPLIANCE TO A NOTICE ISSUED UNDER THE PROVISIONS OF SECTION 143(2) WAY BACK ON 28.9.2006. THE LEARNED DR SUBMITTED THAT IT WAS THE USUAL PRACTICE FOR ISSUE OF NOTICE FOR COMPL IANCE BEYOND THE PERIOD OF FOUR MONTHS IS UNACCEPTABLE IN THIS REGARD. THE ORDER OF THE LEARNED CIT(A), THEREFORE, IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ASSESS THE INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT DE NOVO AFTER AFFORDING A REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN OPEN COURT ON DT. 5 TH AUGUST, 2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 5 TH AUGUST, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.B.ENGINEERS & BUILDERS LTD., 72/A,MANCHESWAR INDUSTRIAL ESTATE, BHUBANESWAR 751 010. 2. THE RESPONDENT: ADDL. COMMISSIONER OF INCOME - T AX, RANGE 2,BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER,