DCIT, Central Circle-2(4), Hyderabad, Hyderabad V. Godavari Developers, Hyderabad, Hyderabad

ITA 1516/HYD/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6887 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 10-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Search and seizure
• Section: 44AD; 132; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH , HYDERABAD BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 1516/HYD/2016 ASSESSMENT YEAR: 2013 - 14 DCIT, CENTRAL CIRCLE - 2(4), HYDERABAD. VS. M/S. GODAVARI DEVELOPERS, HYDERABAD. PAN: AAFFG 5872 K (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI K.C. DEVDAS REVENUE BY: SHRI SUNIL KUMAR PANDEY, DR DATE OF HEARING: 09/ 02/2021 DATE OF PRONOUNCEMENT: 07 /04/2021 ORDER PER A. MOHAN ALANKAMONY, AM.: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT (A) - 12, HYDERABAD IN APPEAL NO. 0029/2015 - 16, DATED 20/07/2016 PASSED U/S. 144 R.W.S 250(6) OF THE ACT FOR THE AY 2013 - 14. 2. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPEAL HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD. CIT (A) HAS ERRED IN ESTIMATING THE INCOME @ 10% AS THE ASSESSEE IS ENGAGED IN REAL ESTATE BUSINESS AND NOT AS CIVIL CONTRACTOR. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN REAL ESTATE AND DEVELOPMENT BUSINESS . INITIALLY, THE ASSESSEE HAD 2 FAILED TO FILE ITS RETURN OF INCOME FOR THE AY 2013 - 14. MEANWHILE, SEARCH AND SEIZURE OPERATIONS U/S. 132 OF THE ACT WAS CONDUCTED IN THE CASE OF RAMKEY ESTATES AND FARMS LIMITED ON 7/2/2013. DURING THE COURSE OF SEARCH A DEVELOPMENT AGREEMENT - CUM - GPA DATED 29/11/2007 WAS FOUND AND SEIZED WHEREIN THE ASSESSEE WAS INVOLVED AND THEREFORE THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED IN CENTRA L CIRCLE . EVEN D URING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE FAILED TO FILE ITS RETURN OF INCOME AS REQUIRED UNDER THE ACT AND THEREFORE, THE LD. AO MADE BEST JUDGMENT ASSESSMENT BY ESTIMATING 25% OF THE GROSS RECEIPTS STATED IN THE P & L ACCOUNT OF THE ASSESSEE WHICH WORKED OUT TO RS. 4, 10,98,225/ - . ON APPEAL, THE LD. CIT (A) RELYING ON CERTAIN DECISIONS OF THE HYDERABAD BENCH OF THE TRIBUNAL AND TAKING NOTE OF THE RATE OF TAX PRESCRIBED UNDER SECTION 44AD OF THE ACT DIRECTED T HE LD. AO TO COMPUTE THE NET PROFIT OF THE ASSESSEE AT 10% OF ITS GROSS RECEIPTS BY OBSERVING AS UNDER: - 5.4. IN THIS CONTEXT, IT MAY BE RELEVANT TO REFER TO THE DECISION OF ITAT, HYDERABAD IN THE CASE OF R.K. TOWNSHIP PROMOTERS PVT LTD . SUPRA, WHEREIN TH E HONBLE ITAT EXAMINED THE FACTS OF SIMILAR NATURE AND CONCLUDED THAT WHEN THE REVENUE COULD NOT SUBMIT OR ASCERTAIN WHO HAD DECLARED HIGHER PERCENTAGE OF INCOME WHO ARE IN SIMILAR NATURE OF BUSINESS, IT IS DIFFICULT TO ACCEPT THE ADOPTING OF ABNORMAL RAT ES OF PROFITS, ON ESTIMATION. THE RELEVANT PORTION OF THE DECISION RUN AS UNDER: - THE ABOVE DECISION IS RELEVANT PARTICULARLY WHEN THE REVENUE COULD NOT SUBMIT OR ASCERTAIN WHO HAD DECLARED HIGHER PERCENTAGE OF INCOME, WHO ARE IN THE SIMILAR BUSINESS OF ASSESSEE. IN OUR CONSIDERED VIEW, IN THE PRESENT CASE, THE BOOKS OF THE ASSESSEE CANNOT BE ACCEPTED DUE TO THE COMPLEXITY OF THE NATURE OF BUSINESS AND MAINTENANCE OF BOOKS OF ACCOUNT AT THE SAME TIME 3 THE PRO FIT & LOSS COMPUTED BY THE SPECIAL AUDITOR ALSO HAS RELIABILITY ISSUE, WHICH WERE COMPUTED BASED ON PRESUMPTIONS. THIS IS THE FIT CASE TO ESTIMATE THE INCOME OF THE ASSESSEE. IN THIS GIVEN SITUATION, THE PRESUMPTIVE RATE AVAILABLE IN THE SECTION 44AD MAY BE ADOPTED EVEN THOUGH THE TURNOVER OF THE ASSESSEE IS MORE THAN THE TURNOVER OF THE ELIGIBLE ASSESSEE AS PRESCRIBED IN THE SECTION 44AD. THIS IS THE RATE WHICH IS NEAR TO THE PERCENTAGE ARRIVED AFTER FACTORING THE RELIABILITY AND THE INCOME COMPUTED BY THE SPECIAL AUDITOR. HENCE, WE DIRE CT THE AO TO ADOPT 8% OF THE SALES AS DETERMINED BY THE SPECIAL AUDITOR, TO COMPUTE THE INCOME OF THE ASSESSEE YEAR TO YEAR BASIS FOR AY 2000 - 01 TO 2006 - 07. 5.5. CONSIDERING THE FACTS OF THE CASE REFERRED AND RELIED UPON BY THE ASSESSEE, IT IS REASONABLE TO CONCLUDE THAT EVEN IN CASES OF ESTIMATION OF PROFITS, SUCH ESTIMATION SHOULD BE BASED ON REASONABLE INFORMATION AND SHOULD BE RELATED TO FACTS OF THE CASES WHERE SIMILAR ACTIVITIES OR BUSINESS ARE CARRIED. IN THE SAID REFERRED CASE OF DECISION, THE HON BLE ITAT HAD DIRECTED THE AO TO ADOPT THE PROFIT AT 8% BASED ON THE FINDINGS OF A SPECIAL AUDIT AND ALSO CONSIDERING THE PERCENTAGES OF PROFITS IN SIMILAR LINES OF BUSINESS, WHILE ALSO HOLDING THAT ESTIMATION MAY FOLLOW THE RATES AS APPLIED IN 44AD CASES. IN THE PRESENT CASE, THE APPELLANT FAILED TO FURNISH THE RETURN OF INCOME DUE TO WHICH THE ADOPTION OF COMPARATIVE RATE OF PROFITS OF THE ASSESSEE FOR EARLIER YEARS WAS NOT AVAILABLE. SIMILARLY, THE RATES AS APPLICABLE TO THE OTHER CASES OF SIMILAR NATU RE OF BUSINESS WERE NEITHER BROUGHT ON RECORD BY THE ASSESSEE NOT THE AO. UNDER THE CIRCUMSTANCES, THE ONLY RATE AS AVAILABLE FOR ADOPTION WAS THE RATE OF 8% AS PRESCRIBED BY SECTION 44AD. FURTHER, THE ASSESSEE FAILED TO PROVE THAT HE WAS ONLY SELLING TH E OPENING STOCK OF PLOTS AS CLAIMED BY HIM AND A LSO FAILED TO ESTABLISH THAT HIS RATES OF PROFITS FOR EARLIER YEARS WERE NOT MORE THAN 8%. THE JUDICIAL DECISIONS MAY SET THE GUIDING PIPELINES, BUT THE RATE OF PROFITS MAY VARY FROM CASE TO CASE, DEPENDING ON FACTS OF EACH CASE. FURTHER, AS MENTIONED BY ASSESSEE, IN THE CASE LAW UNDER REFERENCE, THERE WAS AN INDICATION AS TO THE RATE OF PROFIT AT 8% AS SET OUT BY SPECIAL AUDIT REPORT. IN THIS CASE, THE ASSESSEE UNDER REFERENCE, NO SUCH BASIS OR YARDSTICK IS AVAILABLE TO INDICATE THAT PROFITS OF THE ASSESSEE ARE CONFINED TO 8%. THUS, CONSIDERING THE FACTS OF THE CASE, WHEREIN THE ESTIMATION WAS NOT QUESTIONED BY THE ASSESSEE AND THE CORRECT RATES OF PROFIT NOT PROVED TO BE NOT MORE THAN 8%, IT MAY BE REASONABLE TO ESTIMATE SUCH PROFITS AT 10% OF THE GROSS RECEIPTS AND THIS MAY DO JUSTICE AT BOTH THE ENDS, IN LIGHT OF FACTS OF THE CASE, AS BROUGHT ON RECORD. UNDER THE CIRCUMSTANCES, THE AO IS ORDERED TO COMPUTE THE NET PROFITS AT 10% OF THE GROSS RECEIPTS, NET OF AL THE CLAIMS/ EXPENSES AND RECOMPUTE THE TOTAL INCOME. THUS, THE GROUNDS RELATED TO THIS ISSUE ARE TREATED AS PARTLY ALLOWED. 4 4. BEFORE US, THE LD. DR VEHEMENTLY ARGUED BY STATING THAT THE ASSESSEE IS IN REAL ESTATE BUSINESS AND THEREFORE ITS PROFIT WILL BE SUBSTANTIAL LY HIGHER WHETHER IT IS ARISEN FROM C OMMISSION RECEIVED OR MARGIN TOWARDS PURCHASE AND SALE OF IMMOVABLE PROPERTY . HE FURTHER SUBMITTED T HAT CONSIDERING THE NATURE AND LOCALITY WHERE THE BUSINESS IS CONDUCTED THE LD. AO HAS FAIRLY ESTIMATED THE NET PROFIT AT 25% OF THE TURNOVER. HE THEREFORE PRAYED THAT THE ORDER OF THE LD. AO MAY BE UPHELD. THE LD. AR ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT (A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, IT IS A PPARENT THAT THE ASSESSEE HAS GROSSLY ERRED BY NOT MAINTAINING THE PARTICULARS OF ITS BUSINESS . THE ASSESSEE HAS ALSO FAILED TO PRODUCE THE BOOKS OF ACCOUNTS AND ANY RELEVANT DOCUMENT CONCERNING THE SAME BEFORE THE LD. REVENUE AUTHORITIES. IT IS ALSO A F ACT THAT THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS WHERE THE PROFIT IS LUCRATIVE. IT IS PERTINENT TO MENTION THAT IF THE ASSESSEE HAD EARNED COMMISSION FROM PURCHASE AND SALE OF IMMOVABLE ASSET THEN THE EXPENDITURE TOWARDS THE SAME WILL BE MINIMAL IE., NOT BEYOND 40% OF THE TURNOVER THUS THE NET PROFIT WILL BE OVER 50%. FURTHER , THE PROFIT MARGIN WILL BE HIGH WITH RESPECT TO PURCHASE AND SALE OF IMMOVABLE PROPERTY. MOREOVER, GROSS TURNOVER OF THE ASSESSEE IS AS HIGH AS RS. 16.5 CRS THEREFORE, THE PROVISIONS OF PRESUMPTIVE TAX U/S. 44AD OF THE ACT WILL NOT AT ALL BE APPLICABLE NOR ANY POSITIVE INFERENCE 5 CAN BE DRAWN FROM THE SAME IN THE CASE OF THE ASSESSEE WHICH THE LD.CIT(A) HAS RELIED UPON . THEREFORE , WE ARE OF THE VIEW THAT THE ORDER OF THE LD. CIT (A) DOES NOT HAVE MUCH MERIT. HOWEVER , K EEPING IN VIEW OF THE FACTS AND CIRCUMSTANCE OF THE CASE AND BY TAKING A LENIENT VIEW , W E ARE OF THE VIEW THAT THE ESTIMATION OF NET TAXABLE INCOME @ 18% OF THE TURNOVER WOULD SUFFICE IN THE CASE OF THE ASSESSEE . ACCORDINGLY, WE HEREBY SUSTAIN THE ORDER OF THE LD.AO TO THAT EXTENT . IT IS ORDERED ACCORDINGLY. 6. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 0 7 TH APRIL , 2021. SD/ - SD/ - ( S.S. GODARA ) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 0 7 TH APRIL , 2021. OKK COPY TO: - 1. M/S. GODAVARI DEVELOPERS , H.M.T, SATAVAHANA NAGAR, KUKATPALLY , HYDERABAD. 2. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(4), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 4. 3. THE CIT (A) - 12, HYDERABAD. 4. THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), HYDERABAD. 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. 6. GUARD FILE.