Shri Bhushan Pal, Ahmedgarh. V. Addl. CIT, Ludhiana

ITA 141/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9071 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 11-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 29-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Gift
• Section: 44AD; 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.141/CHD/2016 (ASSESSMENT YEAR : 2011-12) SHRI BHUSHAN PAL VS. THE ADDL.CIT, PROP M/S TEK ENTERPRISES, RANGE-IV, GRAIN MARKET, AHMEDGARH. LUDHIANA. PAN: AFTPPP3330A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 20.07.2016 DATE OF PRONOUNCEMENT : .09.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAI NST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA DATED 28.01.2016 FOR ASSESSME NT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN REJECTING THE BOOKS OF ACCOUNT U/S 145 (3). 2. THAT THE WORTHY CIT (A) HAS ERRED IN CONFIRMING THE APPLICATION OF NET PROFIT RATE OF 6% AGAINST 8% NET PROFIT RATE AS APPLIED BY THE ASSESSING OFFICER ON THE BUSINESS BEING RUN UNDER THE NAME AND STYLE OF M/S TEK ENTERPRISES. 2 2(B) NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEA L, IT IS SUBMITTED THAT THE APPLICATION OF 6% RATE OF PROFIT AS APPLIED BY THE ASSESSING OFFICER IS HIGHLY EXCESSIVE AND TH E FACTS OF THE CASE DOES NOT WARRANT SUCH HIGHER APPLICATION OF NE T PROFIT RATE. 2(C) THAT THE WORTHY CIT(A)/AO HAS ERRED IN IGNORI NG THE PAST HISTORY OF THE CASE, WHEREIN THE NET PROFIT RATE OF 0.74% TO MAXIMUM OF 2% HAVE BEEN DISCLOSED /ASSESSED AND EVE N NO COMPARABLE CASES HAVE BEEN CITED BY THE ASSESSING O FFICER AND COMPARABLE CASES AS CITED BY THE ASSESSEE BEFORE TH E CIT(A), WHEREIN NET PROFIT RATE OF 1.23% TO 1.47% HAVE BEEN ACCEPTED BY DEPARTMENT, HAVE BEEN IGNORED BY THE WORTHY CIT(A). M/S B.S. CONTRACTORS 3. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN REJECTING THE BOOKS OF ACCOUNT U/S 145 (3) BEING RU N UNDER THE NAME ARID STYLE OF B.S. CONTRACTOR, CARRYING ON BUSINESS OF LABOUR CONTRACTS. 3(A) THAT THE WORTHY CIT (A) HAS ERRED IN CONFIRMIN G THE RATE OF 8% OF NET PROFIT AS APPLIED BY THE ASSESSING OFFICE R, WHICH IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3(B). NOTWITHSTANDING THE ABOVE SAID GROUND OF APPE AL, THE CIT (A) HAS IGNORED THE PAST HISTORY OF THE CASE, WHEREIN T HE NET PROFIT RATE HAVE BEEN ACCEPTED BY THE DEPARTMENT BETWEEN 1 .23% TO 3.22% IN DIFFERENT FINANCIAL YEAR AND THERE WAS NO JUSTIFICATION FOR ADOPTING SUCH HIGHER NET PROFIT. 3(C) THAT THE ADOPTION OF 8% OF NET PROFIT RATE IS TOTALLY OUT OF CONTEXT LOOKING INTO THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE, WHICH IS OF THE LABOUR CONTRACT NOT OF TH E BUILDING CONTRACT. 4(A) THAT THE WORTHY CIT (A) HAS ALSO ERRED IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACC OUNTS IN RESPECT OF BUSINESS OF TRADING OF MUSTARD STRAW BEING RUN IN T HE SELF NAME OF THE ASSESSEE. 4(B) THAT THE WORTHY CIT (A) HAS ALSO ERRED IN CONF IRMING THE APPLICATION RATE OF 8% AS APPLIED BY THE ASSESSING OFFICER BY REJECTING THE BOOKS OF ACCOUNTS. 4(C) NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEA L, IT IS SUBMITTED THAT THE ADOPTION OF 8% OF NET PROFIT RATE IS HIGHL Y EXCESSIVE, UNCALLED FOR AND WITHOUT ANY JUSTIFICATION OR COMPA RABLE CASES. 5. THAT THE WORTHY CIT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 1 LAC ON ACCOUNT OF GIFT RECEIVED FROM RELATIVE S NAMELY SH. VIJAY KUMAR GUPTA. 6. THAT THE CIT (A) HAS ERRED IN NOT DECIDING THE I SSUE OF ALLOWANCE OF DEDUCTION OF RS. 1 LAC U/S 801C. 3 3. GROUND NOS.1, 3, 4(A), 5 AND 6 WERE NOT PRESSED BEFORE US. THE SAME MAY, THEREFORE, BE TREATED AS DISMISSED. 4. THE ONLY EFFECTIVE GROUNDS IN THE PRESENT APPEA L, PERTAIN TO ADOPTION OF 8% NET PROFIT RATE ON THE BU SINESS OF THE ASSESSEE, AFTER REJECTING THE BOOKS OF ACCOU NT OF THE ASSESSEE. 5. BRIEF FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE WAS CARRYING ON SEVERAL BUSINESSES BEING BUSINESS OF TRADING RICE HUSK CARRIED ON IN THE NAM E OF M/S TEK ENTERPRISES, CONTRACTOR FOR SUPPLYING LABOU R CARRIED ON IN THE NAME OF M/S B.S. CONTRACTORS AND TRADING OF WHEAT STRAW IN HIS INDIVIDUAL CAPACITY. THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING INCOM E OF RS.8,30,230/-. ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS FRAME D ON THE ASSESSEE, IN WHICH THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED UNDER SECTION 145(3) OF THE ACT AND THE NET PROFIT OF ITS THREE DIFFERENT BUSINESSES ES TIMATED @ 8% BY TAKING GUIDANCE FROM THE RATE PROVIDED UNDER SECTION 44AD OF THE ACT. CONSEQUENTLY, ADDITION ON ACCOUNT OF THE NP ESTIMATED OF THE DIFFERENT BUSINE SSES WAS MADE AS FOLLOWS : M/S TEK ENTERPRISES RS.68,50,789/ - M/S B.S. CONTRACTORS RS. 3,72,218/- WHEAT & MUSTARD STRAW TRADING RS. 6,51,447/- 4 6. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LEARNED CIT (APPEALS) WHO UPHELD THE ADDITIONS MADE IN THE CASE OF BUSINESS CARRIED ON IN THE NAME OF M/S B S CONTRACTORS AND IN THE BUSINESS OF WHEAT AND MUSTAR D STRAW TRADING, WHILE RESTRICTED THE ADDITION TO 6% OF THE TURNOVER IN THE CASE OF BUSINESS CARRIED ON IN THE NAME OF M/S TEK ENTERPRISES. 7. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. IN THE COURSE OF ARGUMENTS BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THA T IT IS SETTLED LAW THAT FOR THE PURPOSE OF FRAMING BEST JU DGMENT ASSESSMENT THERE HAS TO BE SOME LOGICAL AND RATIONA L BASIS AND IT CANNOT BE AN ARBITRARY EXERCISE. FURT HER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIN CE FOR ASSESSMENT YEAR 2009-10, REGULAR ASSESSMENT WAS FRA MED ON THE ASSESSEE, THE TRADING RESULTS ARRIVED IN THA T COULD BE TREATED AS A BENCHMARK FOR DECIDING THE NET PROFIT OF THE ASSESSEE FOR THE IMPUGNED YEAR. THE LEARNED COU NSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT VS. PARVEEN KUMAR MITTAL IN ITA NO.272 OF 2011 DATED 13.10.2011 AND TELELINKS VS. CIT, 377 ITR 158. 8. THE LEARNED D.R., ON THE OTHER HAND, RELIED UPO N THE ORDERS OF THE LOWER AUTHORITIES AND STATED THAT IN VIEW OF THE GLARING IRREGULARITIES POINTED OUT IN THE BO OKS OF ACCOUNT OF THE ASSESSEE AND IN THE VIEW OF GUIDANCE PROVIDED UNDER SECTION 44AD OF THE ACT, FOR ADOPTIO N OF 5 PRESUMPTIVE NET PROFIT RATE, THE ACTION OF THE ASSE SSING OFFICER AND CIT (APPEALS) IN ADOPTING 8% NP RATE WA S CORRECT. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. WE FIND MERIT IN THE CONTENTIONS AND ARGUMENTS OF T HE LEARNED COUNSEL FOR THE ASSESSEE. THE REJECTION O F THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT HA VING NOT BEEN CHALLENGED BEFORE US, THE ONLY ISSUE IS VI S--VIS IS THE BEST JUDGMENT ASSESSMENT TO BE FRAMED. IN T HIS REGARD, THERE IS NO IOTA OF DOUBT THAT THIS EXERCIS E CANNOT BE AN ARBITRARY EXERCISE, TO BE DONE AT THE WHIMS A ND FANCIES OF THE ASSESSING OFFICER. UNDOUBTEDLY, TH ERE HAS TO BE A LOGICAL BASIS FOR DETERMINING THE INCOME OF THE ASSESSEE, WHEN THE BOOKS OF ACCOUNT CANNOT BE RELIE D UPON. THE JURISDICTIONAL HIGH COURT WHILE DEALING WITH THIS ISSUE IN TELELINKS (SUPRA) HAS VERY CATEGORICA LLY EXPLAINED AT PARAS 9, 10 & 12 OF ITS ORDER AS FOLLO WS : 9. DISCRETION TO DETERMINE AN ADEQUATE NET PROFIT RATE UNDOUBTEDLY VESTS WITH AUTHORITIES UNDER THE A CT BUT THE DISCRETION SO VESTED IS NEITHER UNBRIDLED N OR UNGUIDED AS IT MUST BE GUIDED BY REASON I.E. SHOULD BE PRECEDED BY REASONS WHICH, IN TURN, SHOULD BE PRECEDED BY A PERCEPTIBLE PROCESS OF REASONING BASED UPON DUE CONSIDERATION OF ALL RELEVANT FACTS. HOWEVER, AUTHORITIES UNDER THE ACT APPEAR TO CONSTRUE THEIR JURISDICTION AS A DISCRETION TO APPL Y A 6 THUMB RULE DEPENDENT ALMOST ENTIRELY UPON THE WHIMS OF A PARTICULAR OFFICER. 10. DISCRETION TO DETERMINE A NET PROFIT RATE MUST NECESSARILY BE EXERCISED ON THE BASIS OF RELEVANT FACTORS WHICH HIGH COURT SHALL ENUMERATE BUT BEFORE DOING SO, WOULD CLARIFY THAT THESE FACTORS ARE NEIT HER EXHAUSTIVE NOR A FINAL WORD ON RELEVANT FACTORS THA T MAY BE CONSIDERED WHILE DETERMINING THE NET PROFIT RATE, A FEW SIGNIFICANT FACTORS ARE THE PAST TAX HI STORY OF THE ASSESSEE, IF AVAILABLE, ASSESSMENT ORDERS TH AT MAY HAVE BEEN PASSED AND ACCEPTED BY THE DEPARTMENT, THE NATURE OF THE ASSESSEES' BUSINESS, AN APPRAISAL OF THE VALUE OF THE CONTRACT, PREVAILING ECONOMIC CONDITIONS VIS-A-VIS THE ASSESSEE'S BUSINESS, THE PRICE OF RAW MATERIAL, LABOUR ETC. TH E RISE IN PRICE INDEX AS NOTIFIED BY THE CENTRAL GOVERNMEN T 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 ETC. AT THIS STAGE, IT WOULD BE APPROPRIATE TO CLARIFY THAT THE WORD SI MILAR IS NOT SYNONYMOUS WITH THE WORD 'IDENTICAL'. FACTOR S REFERRED TO ABOVE ARE MERELY ILLUSTRATIVE AND NOT EXHAUSTIVE OF THE CIRCUMSTANCES THAT MAY OR MAY NOT BE TAKEN INTO CONSIDERATION. 12. IN STATE OF KERALA VS. C. VELUKUTTY, 1966 ITR V OL. (LX) 239, WHEREIN WHILE DEALING WITH THE EXPRESSION 'BEST OF HIS JUDGMENT', IT HAS BEEN HELD THAT THE DISCRETION TO DETERMINE NET PROFIT RATE VESTS IN TH E AUTHORITIES BUT DISCRETION SHALL NOT BE ARBITRARY A ND SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE, FOLLOWE D BY REASONS THAT APPEAR TO BE LEGAL AND VALID. A REFERENCE MAY ALSO BE MADE TO JUDGMENT OF THIS COUR T IN ITA NO. 478 OF 2006 TITLED AS AGGARWAL 7 ENGINEERING CO. VS. ASSISTANT COMMISSIONER OF INCOM E TAX, DECIDED ON 06.12.2010. 10. HAVING SAID SO WE FIND THAT IN THE PRESENT CAS E THE ONLY AVAILABLE BASIS FOR DETERMINING THE REASON ABLE NET PROFIT RATE TO BE APPLIED , IS THE ASSESSMENT F RAMED ON THE ASSESSEE FOR ASSESSMENT YEAR 2009-10, IN WHICH THE NET PROFIT FOR THE RICE HUSK BUSINESS WAS DETERMINE D AT 2.04% ,WHILE FOR THE LABOUR CONTRACTOR BUSINESS WAS DETERMINED AT 4.35%.IN THE ABSENCE OF ANY OTHER BAS IS GIVEN BY BOTH THE PARTIES WE HOLD THE TRADING RESUL TS ASSESSED FOR A.Y 2009-10 TO BE A REASONABLE BASIS F OR DETERMINING THE NET PROFIT OF THE IMPUGNED YEAR AN D DIRECT THAT THE NET PROFIT FOR THE AFOREMENTIONED BUSINESSES BE DETERMINED BY APPLYING THE SAME. 11. AS FOR THE BUSINESS OF TRADING IN AGRICULTURAL WASTES SUCH AS WHEAT STRAW AND MUSTARD STRAW THE LD COUNSEL FOR THE ASSESSEE HAD SUBMITTED THAT THE PRO FIT IN THIS LINE OF BUSINESS IS PRACTICALLY THE SAME AS IN PADDY HUSK AND THE RATE APPLIED IN THAT LINE OF BUSINESS OF THE ASSESSEE MAY BE APPLIED IN THIS CASE ALSO. THE LEA RNED D.R. DID NOT CONTROVERT THIS ARGUMENT. IN VIEW OF THE SAME AND IN THE ABSENCE OF ANY OTHER REASONABLE BAS IS SUBMITTED BEFORE US, WE HOLD THAT THE NET PROFIT RA TE OF 2.04% APPLIED IN THE CASE OF RICE HUSK TRADING BUSI NESS OF THE ASSESSEE ,BE APPLIED IN THIS CASE ALSO. 8 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH SEPTEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH