Assistant Commissioner of Income-tax, Circle -2, Nashik V. M/s. Pingle Builders Pvt.Ltd, Nashik

ITA 1580/PUN/2018

AI Insights

The case involves the Assistant Commissioner of Income Tax, Circle 2, Nashik (Appellant) vs. M/s. Pingle Builders Pvt. Ltd. (Respondent) concerning the assessment year 2013-14. The primary issue was the estimation of net profit and the verification of expenses claimed by the assessee. The Assessing Officer (A.O.) had initially made a best judgment assessment under section 144 of the Act due to non-compliance by the assessee. The CIT(A) later estimated the net profit at 10% of the turnover, rejecting the detailed accounts maintained by the assessee. The Revenue appealed against the CIT(A)'s decision, contesting the estimation method and the allowance of expenses without proper verification. The Tribunal's decision addressed these concerns, particularly focusing on the appropriateness of the estimation method and the scope of further verification of expenses.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124429 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 08-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 30-09-2018
• Other Referred Cases: Banwarilal Banshidhar (1998) 229 ITR 0229, CIT Vs. Purshottamlal Tamrakar Uchehra (2004) 270 ITR 0314
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Additional evidence; Set aside
• Section: 147; 144; 40A(3); 143(1); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, PUNE BEFORE SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA No. 1580/PUN/2018 : A.Y.2013-14 The Asst. C.I.T. Circle 2, Nashik Appellant Vs. M/s. Pingle Builders Pvt. Ltd., 1 st floor, Stadium Complex, M.G. Road, Nashik – 422 002 Respondent PAN: AADCP9891N Appellant by : Shri Sardar Singh Meena Respondent by : None Date of Hearing : 09-05-2023 Date of Pronouncement : 10-5-2023 ORDER PER SHRI PARTHA SARATHI CHAUDHURY, J.M. This appeal preferred by the Revenue emanates from order of the ld. CIT(A)-2, Nashik, dated 10-07-2018 for A.Y. 2013-14 as per the following grounds of appeal. (i) Whether on the facts and in the circumstances of the case, the ld. CIT(A)-2, Nashik was justified in estimating the net profit of the assessee at 10% of the total turnover of Rs. 10,66,30,000/- which works out to Rs. 1,06,63,000/- even after the assessee was failed to substantiate its claim about the expenditure of Rs. 5,10,86,839/- out of the total expenses of Rs. 9,52,78,012/-/ (ii) The appellant prays to adduce such further evidence to substantiate his case. (iii) The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands. 2. The relevant facts are that the assessee is a company engaged in the business of Mining, Quarrying and Civil Construction. The assessee filed its return of income on 01-10-2013 declaring total loss of Rs. 9,72,180/-. The case was selected for scrutiny under CASS. During the assessment proceedings, the A.O had issued various notices and also show cause notice u/s 144 of the Income-tax Act, 1961 (hereinafter referred to as the „Act‟) to the assessee company. However, the assessee never complied with these notices through 2 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 its authorised representative. Therefore, the A.O was compelled to pass best judgment assessment order u/s 144 of the Act on the basis of material available on record assessing the total income at Rs. 11,55,28,789/-. 3. Being aggrieved with the order of the A.O the assessee filed an appeal before ld. CIT(A). The assessee had filed additional evidences/documents during the course of appellate proceedings and the same forwarded to the office of the ld. A.O. (Asstt. CIT Cir. 2, Nashik) from time to time for remand reports. After scrutinising the additional evidences/documents during the remand proceedings, it was observed by the A.O that the documents for A.Y. 2013-14 were prepared in F.Y. 2013-14 and the return of income for A.Y. 2013- 14 was submitted on 01-10-2023. It was also observed that the documents for A.Y. 2014-15 were prepared in F.Y. 2016-17 and the audit report for A.Y. 2014- 15 was also prepared on 25-03-2017. The return of income for A.Y. 2014-15 was filed on 31-03-2017 which was out of time, non-est and belated one and was not processed u/s 143(1) of the Act. During the remand proceedings, the bank statements, Form No. 26AS, RA bills and other supporting documents were also verified and it was observed by the A.O that the assessee received gross receipts of Rs. 11,65,00,969/- during the F.Y. 2012-13 but failed to disclose the same in the return of income filed for A.Y. 2013-14. Hence there was no ambiguity regarding the year of taxability of these receipts and was rightly brought to tax in the A.Y. 2013-14. Moreover, during the remand proceedings, the A.O had written letter to the third parties for confirmation of facts that whether the amount received by the assessee during the F.Y. 2012- 13 were in the form of advance or receipt. The two parties viz. PCDA (SC) Pune and Garrison Engineer, Ahmednagar replied that the amount was paid to the assessee for work done by the assessee. Hence, the same can be treated as gross receipts and not as an advance. Therefore, the third party 3 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 confirmation has proved that the receipts claimed by the assessee in A.Y. 2014-15 have already been paid against the work performed during the A.Y. 2013-14. Hence, the gross receipts received during the F.Y. 2012-13 were rightly brought to tax in A.Y. 2013-14 by the A.O. The ld. CIT(A) while considering the remand reports submitted by the A.O and the contention of the assessee, observed on perusal of books of accounts that the assessee had not properly maintained the books of accounts and has not correctly prepared the financial statements of accounts. This fact was accepted by the assessee during the appellate proceedings. Hence, the ld. CIT(A) rejected the books of accounts u/s 145(3) of the Act stating that the books of accounts maintained by the assessee are not reliable. Further, the assessee has alternatively accepted the net profit of 9.73% on the business receipts. Considering the totality of facts the ld. CIT(A) estimated the net profit at 10% of Rs. 10,66,30,000/- which works out to Rs. 1,06,63,000/- as business profit and in addition to this, interest receipt on bank fixed deposits of Rs. 3,80,289/- was taxed under the head “income from other sources”. The ld. CIT(A) also directed the A.O to examine and verify the issue regarding RAR bills submitted by the assessee, the expenditure claimed, the genuineness of the creditors and the profit shown by the assessee for A.Y. 2014-15 as per the relevant provisions of the Act. The ld. CIT(A) also directed to ensure that the amount which is already taxed in the A.Y. 2013-14 is not subjected to taxation again. In case the return is non-est, the case for A.Y. 2014-15 can be reopened u/s 147 of the Act to determine the correct profits for the A.Y. 2014-15. It is in this backdrop that the revenue has come in appeal before this Tribunal contesting the decision of the ld. CIT(A), firstly in estimating the net profit at 10% of the business receipts, allowing the whole expenses claimed by the assessee which, as per the department remained to be verified. In one of the remand proceedings, the A.O has given the findings that the assessee has not furnished any details about the 4 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 expenses of Rs. 5,10,86,839/- out of total expenses of Rs. 9,52,78,012/- and therefore, the ld. CIT(A) should have considered this remand report and determine the veracity and genuineness of these expenses while framing his order. Secondly, the department also contends the findings of the ld. CIT(A) directing the A.O to determine the genuineness of the creditor and the profit shown by the assessee for A.Y 2014-15 and also to check that there should not be any double taxation. 4. We have given thoughtful consideration to the submissions made before us by the parties herein, analysed the facts and circumstances in this case. At the time of hearing before us, none appeared for and on behalf of the assessee. The office records shows that the notices were served at the given address of the assessee and irrespective of this fact, there was non- appearance by the assessee. We also observe that this is an old matter filed way back in 2018 and already the matter has been adjourned eight times and it was verified from the records that the official liquidator has been appointed for the assessee and even this Bench had directed on earlier occasion and had served the notice through the D.R to the official liquidator. Inspite of these process even on the date of hearing, there was no compliance from the assessee through official liquidator and considering the fact that it is an old pending matter, taking guidance from the decision of Hon‟ble Supreme Court, where emphasis has to be given for speedy disposal of cases, this matter was heard recording the submissions of the ld. D.R and considering the materials/documents on record. 5. As we have already examined in the preceding paragraphs that it is a case of best judgment assessment u/s 144 of the Act and irrespective of several opportunities provided by the A.O to the assessee there was non- 5 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 compliance before the A.O. During the proceedings before the ld. CIT(A) various remand reports from time to time have been called and after going through these remand reports and the submissions made by the assessee the ld. CIT(A) has rejected the books of accounts u/s 145(3) of the Act and has estimated the net profit of the assessee at 10%. It is the contention of the department that while arriving at the income of the assessee at net profit of 10% the ld. CIT(A) has allowed the entire expenses claimed by the assessee irrespective of the fact that in one of the remand proceedings it has been stated by the A.O that the assessee has not furnished any details about the expenses of Rs. 5,10,86,839/- out of total of Rs. 9,52,78,012/- and therefore, without verifying these expenses it was not appropriate for the ld. CIT(A) to arrive at this conclusion. We are of the considered view that once the books of accounts have been rejected by the ld. CIT(A) u/s 145(3) of the Act stating that the contents therein are not reliable and thereafter, he had arrived at the net profit of the assessee at 10% then in such scenario such estimation of net profit shall cover all other expenses and additions whatsoever. Meaning thereby, once the income is arrived at on percentage of net profit while rejecting the books of accounts, then such estimation of income is conclusive of all other expenses in the case of the assessee and after such estimation of income rejecting the books of accounts there is no scope for any further addition for any other expenses. We take guidance from the decision of Hon‟ble Allahabad High Court in the case of Banwarilal Banshidhar (1998) 229 ITR 0229, wherein it was observed and held as follows: “All the three questions, referred to this Court, revolve round the same controversy. The question for consideration is that when no deduction was sought and allowed u/s 40A(3), was there any need to go into sec. 40A(3) and r. 6DD(j). We see force in the view taken by the Tribunal that when income of the assessee was computed applying the gross profit rate and that when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of sec. 4A(3) and r. 6DD(j). No disallowance could have been made in view of the provisions of sec. 40A(3) r.w. rule 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When gross profit rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the 6 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 assessee. 6. Therefore, as it now stands the rule of law once the income is determined through percentage of turnover rejecting the books of accounts then the A.O becomes powerless to again go through the books of accounts and make separate addition. Though this decision was in respect of addition u/s 40A(3) of the Act but the ratio decidendi remains that once the estimation of income through percentage of turnover has been done rejecting the books of accounts that covers all other expenses, disallowances and no further separate disallowances are warranted. Even directly on the point of estimation of net profit the Hon‟ble Madhya Pradesh High Court in the case of CIT Vs. Purshottamlal Tamrakar Uchehra (2004) 270 ITR 0314 has held that once the net profit is applied while determining the income of the assessee then section 40A(3) of the Act is not applicable. Reverting to the facts of the present case, when the ld. CIT(A) has rejected the books of accounts u/s 145(3) of the Act and had arrived at net profit at 10% that would cover all expenses and disallowances and therefore, the contention of the department that certain expenses have been allowed without verifying, the issue now becomes irrelevant and immaterial. Considering the entire facts and circumstances on this issue, we do not find any infirmity with the findings of the d. CIT(A) which is therefore, upheld. This part of the ground in revenue‟s appeal is dismissed. 7. The second aspect of the CIT(A)‟s order where he had directed the A.O to examine the expenses claimed and genuineness of the creditors and the profit shown by the assessee for A.Y. 2014-15, on this issue we hold that the relevant year before us is A.Y. 2013-14 and not A.Y. 2014-15. Therefore, the determination on the issue pertaining to the taxation for A.Y. 2014-15 in the case of the assessee is not the subject matter of adjudication for the relevant assessment year 2013-14 and hence this part of the findings in the CIT(A)‟s order is set aside as premature and infructuous. We order accordingly. This part of the revenue‟s contention is accepted and allowed. 7 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 8. In the result, appeal of the Revenue stands partly allowed. Order pronounced in the open Court on this 10 th day of May 2023. Sd/- sd/- (DR. DIPAK P. RIPOTE (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, the 10 th day of May 2023. Ankam Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-2 Nashik 4. Pr. CIT-2 Nasik 5. The D.R. ITAT „B‟ Bench Pune. 6. Guard File BY ORDER, Sr. Private Secretary ITAT, Pune. /// TRUE COPY /// 8 ITA No. 1580 of 2018 Pingle Builders Pvt. Ltd. A.Y. 2013-14 Date 1 Draft dictated on 09-05-2023 Sr.PS/PS 2 Draft placed before author 09-05-2023 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 10-05-2023 Sr.PS/PS 7 Date of uploading of order 10-05-2023 Sr.PS/PS 8 File sent to Bench Clerk 10-05-2023 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order