DY. CIT, CHANDRAPUR CIRCLE, Chandrapur V. SHRI SADANAND R. GANMUKULWAR, Gadchiroli

ITA 16/NAG/2015

• Counselvise Citation: [2014] 117 COUNSELVISE.COM (IT) 8868 (ITAT-NAGPUR)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 23-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 09-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PG N
• Assessee Lawyers: R K BARAL SHRI MUKESH AGARWAL
• Keywords: Non compliance; Tax effect; TDS
• Section: 44AD; 143(3); 142(1); 11

Judgement Text

ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 1 IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI , JUDICIAL MEMBER ITA NO S . 16 , 286 & 287 /NAG. / 2015 ( ASSESSMENT YEAR S : 2010 - 11 , 2011 - 12 & 2012 - 13 ) DY. COMMISSIONER OF INCOME TAX, CHANDRAPUR CIRCLE, CHANDRAPUR 442 401 APPELLANT V/S SHRI SADANAND R. GANMUKULWAR AT/OST AHERI, DIST. GADCHIROLI, PIN 442 402 PAN ABYPG 4544 N .... RESPONDENT A S SESSEE BY : SHRI R. K. BARAL REVENUE BY : SHRI MUKESH AGARWAL DATE OF HEARING 10.05.2018 DATE OF ORDER 0 1 . 0 6 . 2018 O R D E R PER BENCH : TH E S E ARE APPEAL S BY THE REVENUE AGAINST THE SEPARATE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR THE CONCERNED ASSESSMENT YE ARS. IN EACH OF THE APPEAL, COMMON GROUNDS ARE RAISED . 2. THE COMMON GROUNDS READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) - II, NAGPUR HAS ERRED IN ESTIMATING INCOME OF THE ASSESSEE @ 8% OF THE TURNOVER AND HOLDING THAT THE ASSESSEE RUNS HIS BUSINESS IN SUCH A HEAVY NAXAL PRONE ZONE, WHERE IT IS VERY DIFFICULT TO MAINTAIN BOOKS OF ACCOUNTS, ABSOLVES THE ASSESSEE FROM MANDATORY PROVISIONS LAID OUT IN INCOME TAX ACT, 1961 WITH REGARDS TO MAINTENANCE OF BOO KS OF ACCOUNTS AND AUDIT OF THE SAME. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) - II, NAGPUR HAS ERRED IN ACCEPTING THE ASSESSEE'S CONTENTION THAT THE INCOME BE ESTIMATED @ 8% OF TURNOVER UNDER THE PROVISIONS OF SECT ION 44AD OF THE ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 2 INCOME TAX ACT, 1961, WHEN THE TURNOVER OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR IS MORE THAN ONE CRORE AND THUS FALLS BEYOND THE SCOPE OF SECTION 44AD OF THE INCOME TAX, ITA NOS.16, 286 & 287/NAG./2015 3. AT TH E OUTSET, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN ORDER TO CUT DOWN ON FRIVOLOUS LITIGATION AND TAXPAYER'S GRIEVANCE, THE CBDT, WHICH FORMULATES POLICIES FOR THE INCOME TAX DEPARTMENT, HAS ISSUED RECENT INSTRUCTION NO.21/2015 DATED 10.12.2015 REV ISING THE MONETARY THRESHOLD FIXING THE TAX EFFECT LIMIT OF RS.10 LACS FOR THE REVENUE TO FILE APPEAL BEFORE THE ITAT AND SINCE IN THIS APPEAL, THE TAX EFFECT IS BELOW RS.10 LAKHS, THE APPEAL FILED BY THE REVENUE IS NOT MAINTAINABLE AND LIABLE TO BE DISMIS SED IN LIMINE. 4. THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT DISPUTED THE PROPOSITION AND COULD NOT POINT OUT THAT THE ASSESSEES CASE FOR THESE YEARS FALLS IN ANY OF THE EXCEPTION CAR VE D OUT IN THE SAID CIRCULAR. THE COMPUTATIONS OF THE TAX EFFECT IN THI S REGARD AS SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE ARE AS UNDER: SR. NO. A.Y. 2011 - 12 A.Y. 2012 - 13 1) GROSS RECEIPTS 2,92,99,322/ - 4,86,35,570/ - 2) INCOME @ 5% SHOWN BY THE ASSESSEE 14,64,966/ - 24,31,780/ - 3) INCOME @ 12% ESTIMATED BY A.O. 35,15,918/ - 58,36,268/ - 4) INCOME @ 8% BY CIT(A) 23,43,946/ - 38,90,422/ - 5) INCOME IN DISPUTE (3 - 4) 11,71,942/ - 19,45,422/ - 6) TAX EFFECT @ 30% 3,51,592/ - 5,83,627/ - 5. ACCORDINGLY, SINCE THE TAX EFFECT FOR ASSESSMENT YEARS 2011 - 12 AND 2012 - 13 IS BELOW THE LIMIT FIXED BY THE CBDT FOR FILING THE APPEAL BEFORE THE ITAT , T HE APPEALS FOR THESE YEARS NAMELY ITA NO. 206/NAG./2015 AND 287//NAG./2015 ARE DISMISSED IN LIMINE ON ACCOUNT OF TAX EFFECT. ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 3 ITA NO.16/NAG./2015 6. THE GROUNDS OF APPEAL ARE THE SAME AS REFERRED HEREIN ABOVE. 7. BRIEFLY THE FACTS ARE THAT THE R ETURN OF INCOME DECLARING INCOME OF RS. 28 , 48 , 630/ - WAS FILED ON 22 - 07 - 2011. DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOUS NOTICES U/S 143(2) & 142(1) W ERE ISSUED BY THE ASSESSING OFFICER REQUIRING THE ASSESSEE TO FILE VARIOUS DETAILS. HOWEVER IN SPITE OF SEVERAL OPPORTUNITIES, THERE WAS NO COMPLIANCE AT THE END OF THE ASSESSEE . IN VIEW OF THE SAME , THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THERE WAS NO OPTION BUT TO COMPLETE THE ASSESSMENT ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND CONSEQUENTLY HE DOWNLOADED THE RETURN OF INCOME OF THE ASSESSEE FROM AST. HE NOTED THAT THE ASSESSEE HAD NOT FILED ANY DETAILS IN THE E - FILED RETURN. THE ONLY INFORMATION THAT WAS AVAILABLE WAS AS UNDER: - INCOME FROM BUSINESS & PROFESSION RS. 28,80,750 / - INCOME FROM OTHER SOURCES RS. 67,876 / - GROSS TOTAL INCOME RS. 29,48,626 / - DEDUCTION UNDER CHAPTER VIA RS. 1,00,000 / - TOTAL INCOME RS. 28,48,630 / - TDS CLAIMED RS. 1,90,764 / - SELF ASSESSMENT CLAIMED RS. 72,420 / - THUS THE ASSESSING OFFICER NOTED THAT BESIDES THE ABOVE FIGURES, NO OTHER INFORMATION WAS AVAILABLE AND HE THEREFORE SOUGHT FURTHER INFORMATION FROM THE FORM 26AS AND NOTED THAT THE TOTAL GROSS PAYMENT RECEIVED BY THE ASSESSEE WAS RS.3 , 47 , 08 , 040/ - . THE ASSESSING OFFICER HAS ALSO GATHERED INFORMATION THAT THE ASSESSEE IS A CONTRACTOR. IN VIEW OF THE NON COMPLIANCE AT THE END OF THE ASSESSEE AND NON AVAILABILITY OF ANY INFORMATION IN THE E - FILED RETURN, THE ASSESSING OFFICER CAME TO THE CONCLUSTION THAT NO DEDUCTION COULD B E ALLOWED TO THE ASSESSEE ON ACCOUNT OF ANY EXPENDITURE ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 4 INCURRED AND HE BROUGHT TO TAX THE ENTIRE TURNOVER OF THE ASSESSEE, BEING RS.3,47,08,040/ - AS INCOME OF THE ASSESSEE. 8. UPON THE ASSESSEES APPEAL, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ELAB ORATELY CONSIDERED THE ISSUE. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE MADE ADDITIONAL SUBMISSIONS. THESE WERE REMANDED TO THE ASSESSING OFFICER. IN THE REMAND REPORT, THE A . O . SUBMITTED THAT INCOME OF THE ASSESSEE SHOULD BE ES TIMATED @ 12% OF THE GROSS RECEIPT. THEREAFTER, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AL SO REFERRED TO THE PAST PERFORMANCE OF THE ASSESSEE AND THE RESULTS OF COMPARABLE UNITS AS THAT OF THE ASSESSEE. ULTIMATELY , THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) HELD THAT NET PROFIT SHOULD BE ESTIMATED @ 8%. 9. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) MAY BE GAINFULLY REFERRED AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, WRITTEN SUBMISSIONS OF THE APPELLANT, REMAND R EPORT OF THE LD. AO AND REPLY OF THE APPELLANT. IT IS SEEN THAT THE APPELLANT HAS SUBMITTED THAT IN VIEW OF THE DISTURBED SITUATION BECAUSE OF EXTENSIVE NAXAL ACTIVITIES IN GADCHIROLI DISTRICT, THE BOOKS OF ACCOUNT COULD NOT BE MAINTAINED AS NO ACCOUNTANT WAS AVAILABLE TO WORK IN THE SAID AREA. THERE IS MERIT IN THE ABOVE CONTENTION OF THE APPELLANT AS VARIOUS EVIDENCES IN THE FORM OF NEWS ITEMS HAVE BEEN SUBMITTED BY THE APPELLANT WHICH ESTABLISH THAT THERE WAS VIOLENCE DURING THE YEAR UNDER CONSIDERATION. THE COPY OF THE NEWS ITEMS FROM THE TIMES OF INDIA/BBC CLEARLY SHOWS THAT THERE WAS EXTENSIVE NAXALITE A CTIVITIES WHICH INCLUDED ATTACK ON POLICE PERSONNEL, BLOCKING OF ROADS, INDISCRIMINATING FIRING ETC. IN SUCH ENVIRONMENT IT IS EVIDENT THAT THE APPELLA NT MAY NOT HAVE BEEN ABLE TO ARRANGE AN ACCOUNTANT TO MAINTAIN REGULAR BOOKS OF ACCOUNT. THE MATTER IS ALL THE MORE DIFFICULT IN THE CASE OF THE APPELLANT AS HE HAS CARRIED OUT GOVERNMENT CONTRACTS AND IS THEREFORE VIEWED AS AGENT OF THE GOVERNMENT AND TH EREFORE WOULD BE AT THE RECEIVING END OF THE NAXATITE. ALSO THE FACT THAT THE ROAD CONSTRUCTION ACTIVITIES THE CARRIED OUT BY THE APPELLANT IN REMOTE AREA OF GADCHIROLI DISTRICT RESULTED IN FURTHER EXPOSURE OF THE APPELLANT TO NAXAL ACTIVITIES. IN SUCH CIR CUMSTANCES THE INABILITY OF THE APPELLANT TO AR R ANGE AN ACCOUNTANT TO MAINTAIN BOOKS OF ACCOUNT CANNOT BE FAULTED. ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 5 6.1 ALSO THERE IS MERIT IN THE SUBMISSION OF THE APPELLANT THAT THE GROSS SHOWN @ 8% IS MUCH HIGHER THAN THE GROSS PROFIT PERCENTAGE SHOWN BY THE APPELLANT IN EARLIER YEARS. THE APPELLANT HAS SHOWN GROSS PROFIT AS UNDER: - FINANCIAL YEAR GROSS RECEIPT NET PROFIT N. P. RATIO REMARKS 2005 - 06 14,316,269 5,95,084 4.16% AUDITED AND ASSESSED U/S. 143(3) 2006 - 07 21,490,349 1,081,809 5.03% AUDITED 2007 - 08 18,675,034 1,194,224 6.39% AUDITED 2008 - 09 17,294,051 1,122,291 6.49% AUDITED 2009 - 10 34,708,040 29,48,626 8% NOTE AUDITED 6.2 THUS IT IS EVIDENT THAT THE NET PROFIT RATIO SHOWN BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION IS SIGNIFICANTLY HIGHER THAN THE NET PROFIT RATIO SHOWN FOR FOUR PRECEDING YEARS. HERE IT IS ALSO IMPORTANT TO NOTE THAT FOR AY 2006 - 07, AY 2007 - 08 & AY 2008 - 09, THE BOOKS OF ACCOUNT OF THE APPELLANT WERE DULY AUDITED AND WERE PROCESSED U/S 143(1). ALSO, FOR AY 2005 - 06 THE BOOKS OF ACCOUNT WERE AUDITED AND AFTER SCRUTINY U/S 143(3) AND NET PROFIT RATION OF 4.16% WAS DULY ACCEPTED. IN SUCH CIRCUMSTANCES THE FACT THAT THE APPELLANT WAS DISCLOSING NET PROFIT RATIO @ 8% IN VIEW OF THE FACT THAT IT WAS NOT MAINTAIN ED BOOKS OF ACCOUNT CANNOT BE FAULTED. 6.3 ALSO THE NET PROFIT PERCENTAGE SHOWN BY THE APPELLANT @ 8% IS SIGNIFICANTLY HIGHER THAN THE OTHER ASSESSEE'S IN THE SAME AREA OF BUSINESS OPERATING IN GADCHIROLI, AS A MATTER OF FACT IN THE CASE OF SHRI VENKATESH BOMMAWAR THE APPELLANT HAD SHOWN NET PROFIT RATION OF 6.96% IN AY 2007 - 08 WHICH WAS NOT ACCEPTED BY THE LD. AO AND HE HAD MADE AN ADDITION OF RS. 2361810/ - BY ESTIMATING THE NET PROFIT @ 8% IN VIEW OF PROVISIONS OF SECTION 44AD. AFTER GIVING DETAILED REAS ON AND TAKING INTO CONSIDERATION THE DISTURBED CONDITION IN GADCHIROLI RELIEF WAS GIVEN TO THE APPELLANT AND THE NET PROFIT RATION @ 6.96% WAS ACCEPTED. AS STATED BY THE APPELLANT, THE DEPARTMENT HAS ACCEPTED THE SAID APPEAL ORDER OF SHREE VENKATESHWAR BOM MAWAR AND NO SECOND APPEAL HAS BEEN FILED AGAINST THAT ORDER. 6.4 IT IS I M PORTANT TO NOTE THAT ALL THE ABOVE EVIDENCES INCLUDING PAST NET PROFIT RATIOS AND RECORD OF ASSESSMENT OF THE APPELLANT AS WELL AS THE NET PROFIT OTHER ASSESSEE'S WHO WERE SIMILARLY PLACED, WERE FORWARDED TO THE COMMENTS. THE LD. AO, IN HIS REPLY, HAS NOT COMMENTED AT ALL IN COMPARABLE CASES OR THE CASE OF THE APPELLANT HIMSELF (FOR EARLIER YEARS). THUS THE ARGUMENT MADE BY THE APPELLANT IN FAVOUR OF ACCEPTANCE OF NET PROFIT RATION @ 8% REMAINED UNREBUTTED. ALSO THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT BEST GUIDE FOR ESTIMATION OF THE TRADING RESULTS, AFTER REJECTING THE BOOKS, IS EITHER THE PAST HISTORY OF THE ASSESSEE OR ANY OTHER COMPARABLE CASE AND THE PAST HISTORY OF TH E ASSESSEE TAKES PREFERENCE OVER A COMPARABLE CASE. FOR THE YEAR UNDER CONSIDERATION THE APPELLANT HAS DISCLOSED NET PROFIT RATION OF 8% WHICH IS SIGNIFICANTLY MORE THAN THE NET PROFIT RATIO SHOWN IN THE LAST FOUR YEARS WHICH WERE AUDITED/SCRUTINIZED. AT THE SAME TIME THE LD. AO ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 6 HAS NOT MADE OUT ANY CASE OR JUSTIFICATION FOR ESTIMATING THE NET PROFIT RATION IN THE CASE OF THE APPELLANT @ 12%. NO COMPARABLE CASE OR BASIS FOR WORKING THE NET PROFIT @ 12% HAS BEEN SUBMITTED. 7. CONSIDERING THE ABOVE TOTALITY OF FACTS I DO NOT AGREE WITH THE CONCLUSION OF THE LD. AO THAT THE ESTIMATION OF INCOME IN THE CASE OF THE APPELLANT SHOULD BE MADE @ 12% OF THE GROSS RECEIPTS. IN VIEW OF THE ABOVE FACTS, THE LD. AO IS DIRECTED TO ACCEPT THE NET PROFIT @ 8% AS DI SCLOSED BY THE APPELLANT IN HIS RETURN OF INCOME. 10. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE IN THE ABSENCE OF DETAIL ED RECORD , THE INCOME OF THE ASSESSEE IS BEING ESTIMATED. IT IS SETTLED LAW THAT WHEN INCOME IS TO BE ESTIMATED, IT HAS TO BE BASED UPON COGENT BASIS AND NO T UPON WHIMS AND FANC IES . IN THE CHART REFERRED HERE - IN - BELOW IN THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ORDER IT IS NOTED THAT THE RATE OF 8% ESTIMATED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) COMPARES FAVORABLY WITH THE PAST ASSESSMENT IN ASSESSEES OWN CASE. EVEN FOR THE SAKE OF REPETITION, THE SAID CHART IS REPRODUCED HEREUNDER: FINANCIAL YEAR GROSS RECEIPT NET P ROFIT N. P. RATIO REMARKS 2005 - 06 14,316,269 5,95,084 4.16% AUDITED AND ASSESSED U/S. 143(3) 2006 - 07 21,490,349 1,081,809 5.03% AUDITED 2007 - 08 18,675,034 1,194,224 6.39% AUDITED 2008 - 09 17,294,051 1,122,291 6.49% AUDITED 2009 - 10 34,708,040 29,48,626 8% NOTE AUDITED 12. FURTHERMORE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO REFERRED TO THE SIMILAR BUSINESS OPERATING IN THE SAME AREA WHEREIN EVEN LOWER PROFIT WAS ACCEPTED BY THE ASSESSING OFFICER. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE A RE OF THE CONSIDERED OPINION THAT THE ESTIMATED PROFIT @ 8% ACCEPTED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DOES NOT SUFFER FROM ASSESSMENT YEAR INFIRMITY. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ITA NO S . 16, 286 & 287/NAG./2015 SHRI SADANAND R. GANMUKULWAR 7 13. IN T HE RESULT, THESE APPEALS BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 1 . 0 6 . 2 0 1 8 SD/ - RAM LAL NEGI JUDICIAL MEMBER SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER NAGPUR , DATED : 0 1 . 0 6 . 2 0 1 8 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR ; (6) GUARD FILE . TRUE COPY BY ORDER ROSHANI , SR. PS ( SR. P.S. / P.S. ) ITAT, NAGPUR