R K Township Promoters Pvt Limited, Hyderabad V. The JCIT(OSD), Circle 3(1), Hyderabad

ITA 1657/HYD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6125 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 04-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-11-2012
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Keywords: Depreciation; Search and seizure
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1656/HYD/2012 2008 - 09 R K TOWNSHIP PROMOTERS PVT LIMITED, HYDERABAD [PAN: AACCR3049K] THE JCIT (OSD), CIRCLE-3(1), HYDERABAD 1657/HYD/2012 2009 - 10 352/HYD/2015 2010 - 11 THE DCIT, CIRCLE-3(1), HYDERABAD FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SMT G. APARNA RAO, CIT-DR DATE OF HEARING : 04-10-2016 DATE OF PRONOUNCEMENT : 21-10-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE THREE APPEALS PERTAIN TO ASSESSEE IN AYS. 2008- 09, 2009-10 & 2010-11 AND ALL THE APPEALS ARE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYDERAB AD (FOR AYS. 2008-09 & 2009-10) & CIT(A)-3, HYDERABAD (FOR AY. 2 010-11). ORIGINALLY, APPEALS IN ITA NOS. 1656/HYD/2012 & 165 7/HYD/2012 ARE DISMISSED FOR NON-PROSECUTION BY THE ORDERS DT. 1 2-09-2013. HOWEVER, A MISCELLANEOUS APPLICATION WAS PREFERRED BY ASSESSEE. THESE WERE RECALLED BY THE ORDER DT. 22-11-2013. SIN CE THE ISSUES INVOLVED ARE COMMON, THESE APPEALS ARE DISPOSED-OFF BY THIS COMMON ORDER. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT, ASSESSEE IS A PRIVATE LIMITED COMPANY. THERE WERE SEARCH AND SEIZURE OPER ATIONS IN ASSESSEES CASE AND PROCEEDINGS WERE INITIATED FOR AL L THE I.T.A. NOS. 1656, 1657/HYD/2012 & 352/HYD/2015 RK TOWNSHIP PROMOTERS PVT. LTD., :- 2 -: ASSESSMENT YEARS FROM 2000-01 TO 2006-07 AND ORDERS WERE PASSED. ON FURTHER APPEALS, THE MATTER WAS RESTORED AGA IN AND FINALLY, THE ISSUE OF DETERMINATION OF INCOME WAS FIN ALISED BY THE ORDER OF THE CO-ORDINATE BENCH FOR THE ASSESSMENT YEARS UPTO 2006-07, BY THE ORDER DT. 29-04-2016. THERE WAS NO A PPEAL IN AY. 2007-08 IN WHICH IT SEEMS, ASSESSEE HAS ACCEPTED ESTI MATION OF INCOME AT 12% BY THE CIT(A). FOR THE IMPUGNED ASSESS MENT YEARS I.E., 2008-09, 2009-10 AND 2010-11, AO ESTIMATED THE I NCOME AT 25% OF THE SALES ON THE TURNOVERS IN THE RESPECTIVE AS SESSMENT YEARS I.E., IN AY. 2008-09 & 2009-10, AT 15% IN AY. 2010-11. AO ALSO MADE FURTHER DISALLOWANCES U/S. 40(A)(IA) ETC., ON AN APPEAL, LD.CIT(A) DIRECTED THE ESTIMATION OF INCOME AT 15% OF T HE TURNOVER IN ALL THE THREE YEARS, HOWEVER, DELETED THE OTHER ADD ITIONS MADE. ASSESSEE IS AGGRIEVED ON THE ABOVE ORDER OF THE LD.CI T(A), WHEREAS REVENUE HAS NOT PREFERRED APPEALS ON THE DELETIONS MAD E BY THE CIT(A). 3. AT THE OUTSET, IT WAS SUBMITTED THAT CO-ORDINATE BENCH IN OTHER YEARS HAS DETERMINED THE INCOME AT 8%. HOWEVER, LD. COUNSEL SUBMITTED THAT ASSESSEE IS NOT A CIVIL CONTRACTOR AND ESTIMATION OF 8% IS ON HIGHER SIDE AND REQUESTED FOR REDUCTION OF THE PERCENTAGE. 4. LD. DR HOWEVER, SUBMITTED THAT THE ORDERS OF CIT(A) A RE CORRECT ON THE FACTS AND FAIRLY ADMITTED THAT IN EARLIER YEARS, ITAT HAS DETERMINED THE INCOME AT 8%. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES. THE CO-ORDINATE BENCH IN EA RLIER YEARS HAS CONSIDERED THE APPEALS OF SEARCH PERIOD, INCLUD ING THE I.T.A. NOS. 1656, 1657/HYD/2012 & 352/HYD/2015 RK TOWNSHIP PROMOTERS PVT. LTD., :- 3 -: RELIABILITY OF THE SPECIAL AUDIT REPORT AND HAS DECID ED THE DETERMINATION OF INCOME AS UNDER: 13.2 THERE IS NO DOUBT THAT THE BOOK KEEPING ADOPT ED BY THE ASSESSEE WAS COMPLEX AND THE RELEVANT DATA GENERATE D BY THE ASSESSEE BASED ON BILLS AND VOUCHERS WERE NOT AVAILABLE WITH THE ASSESSEE AND PART OF THE DOCUMENTS WERE SEIZED BY THE DEPARTMENT , WHICH WAS USED BY THE SPECIAL AUDITOR TO RECAST THE P&L A/C. THE DEGR EE OF RELIANCE AND RELIABILITY OF INFORMATION ADOPTED BY THE SPECIAL A UDITOR IS THE MAIN GROUNDS OF APPEAL BY THE ASSESSEE. THERE IS NO DISP UTE THAT THE SPECIAL AUDITOR HAD TO RELY ON THE INFORMATION AVAILABLE WI TH HIM & WITH THE AO WHICH WERE ACQUIRED DUE TO SEARCH AND SEIZURE OPERA TION. THE ASSESSEE ALSO EXPRESSED IN ONE OF THE COMMUNICATION WITH THE SPECIAL AUDITOR THAT DUE TO EFFLUX OF TIME, THE ASSESSEE WAS NOT IN A PO SITION TO SUBMIT THE RELEVANT BILLS AND VOUCHERS EITHER BECAUSE OF SEIZU RE OR NOT IN A POSITION TO SUBMIT DUE TO THE FACT THAT THE PASSAGE OF TIME, SH IFTING OF PREMISES ETC. 13.3 WE ARE IN AGREEMENT WITH THE ASSESSEE THAT THE RELIABILITY OF THE SPECIAL AUDIT REPORT AND RECASTING OF P&L A/C W ERE COMPUTED BASED ON THE INFORMATION AVAILABLE AND PRESUMPTIONS ADOPTED BY SPECIAL AUDITOR. IT IS WORTHWHILE TO MENTION HERE THAT THE INCOME STATU S GENERATED BY SPECIAL AUDITOR ARE NOT CORRELATING TO THE TURNOVER OF THE COMPANY, I.E. OUT OF SEVEN AYS, IN THREE AYS ARE LOSS. IN THE REAL ESTATE BUSI NESS, THE PROFIT GENERATED AGAINST SALES HAS TO BE ON THE BAND RANGE, IT CANNO T BE FLUCTUATING IN SUCH HIGH DEGREE. THE PROFIT HAS TO BE ARRIVED BASED ON THE MATCHING PRINCIPLE, IN OUR CONSIDERED VIEW, THE SPECIAL AUDITOR HAS FAI LED IN THIS REGARD. THE RELATED COST HAS TO BE ALIGNED WITH THE RELEVANT SA LES/COLLECTION. IN THE ABOVE STATED SITUATION, WE ARE INCLINED TO SUGGEST THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE MUST BE REJECTED , AT THE SAME TIME, THE RECASTED ACCOUNT CANNOT BE RELIED UPON DUE TO R ELIABILITY FACTOR. 13.4 WE ARE LEFT WITH THE OVERALL TURNOVER OF THE A SSESSEE AND NET INCOME DETERMINED BY THE AO, CIT(A) , SPECIAL AUDIT OR AND ESTIMATED PROFIT @ 15% IN THE SUBSEQUENT YEAR BY THIS COORDINATE BEN CH. WE CANNOT ADOPT 15% OF SALES SIMPLY BECAUSE THE COORDINATE BENCH TR EATED THE BUSINESS OF THE ASSESSEE AS CIVIL CONTRACT BUSINESS AND THE SAM E WAS NOT CONTROVERTED BY THE ASSESSEE. BUT FROM THE RECORDS SUBMITTED BEF ORE US BY BOTH ASSESSEE & DR AS THE BUSINESS OF ASSESSEE IS IN REA L ESTATE DEALING ONLY IN BUYING, DEVELOPING AND SELLING LANDS. 13.5 THE RELEVANT DATA BEFORE US ARE (EXTRACTED FRO M PAPER BOOK SUBMITTED BY THE ASSESSEE) CUMULATIVE FIGURES A) CUMULATIVE TURNOVER FOR 7 AYS 100.61 CRORES (AS PER SPECIAL AUDIT REPORT ACCEPTED BY THE ASSESSEE) B) INCOME ASSESSED BY ACIT 21.20 CRORES (21.07%) I.T.A. NOS. 1656, 1657/HYD/2012 & 352/HYD/2015 RK TOWNSHIP PROMOTERS PVT. LTD., :- 4 -: C) INCOME ASSESSED BY CIT(A) 11.64 CRORES (11.57 %) D) INCOME COMPUTED BY SPECIAL AUDITOR 9.71CRORES(9 .65%) WHILE ANALYZING THE ABOVE VALUES, WE ARE OF THE VIE W THAT INCOME ASSESSED BY ACIT IS RULED OUT AS IT IS AT 21.07% AS THE ABOVE % IS MORE THAN 15%, WHICH WAS ALREADY REJECTED BY ITAT AND AL SO THE PROFIT ARRIVED WERE BEFORE SPECIAL AUDIT. SIMILARLY, THE ASSESSEE HAD SUBMITTED & RELIED ON THE CASE LAW IN THE CASE OF MADHAV PROPCON PVT. LTD., OF DELHI ITAT, WHEREIN IT WAS HELD THAT THE INCOME OF THE ASSESSEE S AT 2.24% OF THE TOTAL GROSS RECEIPTS, WHO ARE ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT ACTIVITIES. WE CANNOT FOLLOW THIS PERCENTAGE BECAUS E THE ACTIVITIES INVOLVED WERE ONLY FOR LAND DEVELOPMENT ACTIVITIES BUT IN TH E PRESENT CASE THE ASSESSEE IS IN THE ACTIVITIES WHICH INVOLVE PURCHAS E, DEVELOPMENT AND SALE OF LAND. WITH RESPECT TO CIT(A) ARRIVED AT THE PROF IT OF RS. 11.64 CRORES AS CUMULATIVE PROFIT FOR 7 YEARS (I.E. 11.57%). BUT HE HAD ACCEPTED THE SPECIAL AUDIT PROFIT AS THE BASE AND GAVE PARTIAL RELIEF TO ASSESSEE BY DELETING THE DISALLOWANCE MADE ON SITE DEVELOPMENT ETC. AFTER DE LETING THE DISALLOWANCE MADE BY THE AO, THE PROFIT ARRIVED BY THE CIT(A) IS MORE THAN THE SPECIAL AUDITOR. THE CIT(A) HAD ACCEPTED THE SP ECIAL AUDITORS REPORT AND PROFIT ARRIVED BY THEM, THE MERE ADJUSTMENT CAN NOT INCREASE THE PROFIT ARRIVED BY SPECIAL AUDITORS. CIT(A) HAS NOT FOUND A NYTHING NEW WHILE ADJUDICATING BUT HAD ONLY REJECTED THE GROUNDS RAIS ED BY THE ASSESSEE. HENCE, THERE CANNOT BE ANY INCREMENTAL PROFIT ARRIV ED BY CIT(A). HENCE, THE PROFIT ARRIVED AFTER CONSEQUENTIAL TO CIT(A)S ORDER CANNOT BE RELIED. 13.6 WE ARE LEFT WITH INCOME COMPUTED BY SPECIAL AU DITOR AT 9.65%. BUT THIS INCOME ARRIVED BY SPECIAL AUDITOR BY ADOPT ING PRESUMPTIONS AND MODIFYING THE VALUES OF PURCHASE, SALES, OPENING AN D CLOSING STOCK. BASED ON THE SUBMISSIONS OF DR AND ASSESSEE, WE ARE OF TH E VIEW THAT THE RELIABILITY OF THE SPECIAL AUDIT COULD BE IN BETWEE N 80- 85%. ON APPLYING THE RELIABILITY FACTOR TO THE INCOME DETERMINED BY SPECIAL AUDITOR OF 9.65%, WE WILL END UP ARRIVING THE INCOME AT 8%, WHICH IS SIMILAR TO SECTION 44AD. 13.7 ON THE OTHER HAND, THE PROVISIONS OF SECTION 4 4AD PROPOSED TO ADOPT 8% OF THE TOTAL TURNOVER OR GROSS RECEIPTS OF THE ASSESSEE SHALL BE DEEMED TO BE PROFITS & GAINS OF THE BUSINESS CHARGE ABLE TO TAX. THIS SECTION PRESCRIBES A THUMB RULE OR PRESUMPTIVE NET PROFIT RATE APPLIED FOR THOSE ASSESSEES WHOSE TURNOVER ARE LESS THAN ONE CR ORE. NO DOUBT, THE TURNOVER OF THE ASSESSEE IS MORE THAN THE PRESCRIBE D LIMIT IN THE SECTION 44AD BUT IT GIVES THUMB RULE TO ESTIMATE THE INCOME OF THE ASSESSEE. WHEN THE BOOKS ARE NOT MAINTAINED OR REJECTED, FLAT RATE OF 8% CAN BE ADOPTED AS DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUBODH GUPTA, ITA N 80 OF 2014, DATED 09/12/2014. 13.8 THE ABOVE DECISION IS RELEVANT PARTICULARLY WH EN THE REVENUE COULD NOT SUBMIT OR ASCERTAIN WHO HAD DECLARED HIGH ER PERCENTAGE OF INCOME, WHO ARE IN THE SIMILAR BUSINESS OF ASSESSEE . IN OUR CONSIDERED I.T.A. NOS. 1656, 1657/HYD/2012 & 352/HYD/2015 RK TOWNSHIP PROMOTERS PVT. LTD., :- 5 -: VIEW, IN THE PRESENT CASE, THE BOOKS OF THE ASSESSE E CANNOT BE ACCEPTED DUE TO THE COMPLEXITY OF THE NATURE OF BUSINESS AND MAINTENANCE OF BOOKS OF ACCOUNT AT THE SAME TIME THE RECASTED PROFITS & LOSS COMPUTED BY THE SPECIAL AUDITOR ALSO HAS RELIABILITY ISSUE, WHICH W ERE COMPUTED BASED ON PRESUMPTIONS. THIS IS THE FIT CASE TO ESTIMATE THE INCOME OF THE ASSESSEE. IN THIS GIVEN SITUATION, THE PRESUMPTIVE RATE AVAIL ABLE IN THE SECTION 44AD MAY BE ADOPTED EVEN THOUGH THE TURNOVER OF THE ASSE SSEE 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 AF TER FACTORING THE RELIABILITY AND THE INCOME COMPUTED BY THE SPECIAL AUDITOR. HENCE, WE DIRECT THE AO TO ADOPT 8% OF THE SALES AS DETERMINE D BY THE SPECIAL AUDITOR, TO COMPUTE THE INCOME OF THE ASSESSEE YEAR TO YEAR BASIS FOR AY 2000-01 TO 2006-07. 5.1. EVEN THOUGH LD. COUNSEL MADE VEHEMENT PLEA FOR R EDUCTION OF THE PERCENTAGE AS ASSESSEE IS NOT A CIVIL CONTRACTOR , WE ARE NOT CONVINCED WITH THE ARGUMENT AS ASSESSEE ACCEPTED THE ES TIMATION OF 12% IN AY. 2007-08. KEEPING IN VIEW THE ABOVE FA CT AND ORDERS OF THE CO-ORDINATE BENCH, WE ARE OF THE OPINION THAT AO CAN ADOPT 8% OF THE SALES TURNOVER AS INCOME OF THE YEAR. EVEN THOUGH THERE WAS A PLEA FOR ALLOWING DEPRECIATION AND INTEREST FROM THAT AMOUNT, CONSIDERING THE PAST RECORD OF ASSESSEE AND THE ORDERS OF CO-ORDINATE BENCH, WE DETERMINE THE NET PROFIT OF 8% ON THE SALES DISCLOSED BY ASSESSEE, WHICH SHOULD JUSTIFY THE PARTI ES ON THE FACTS OF THE CASE. ACCORDINGLY, WE MODIFY THE ORDERS OF C IT(A) AND ALLOW THE GROUNDS OF ASSESSEE PARTLY. 6. IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 21 ST OCTOBER, 2016 TNMM I.T.A. NOS. 1656, 1657/HYD/2012 & 352/HYD/2015 RK TOWNSHIP PROMOTERS PVT. LTD., :- 6 -: COPY TO : 1. RK TOWNSHIP PROMOTERS PVT LIMITED, HYDERABAD. C/ O. B. NARSING RAO & CO., CHARTERED ACCOUNTANTS, PLOT N O. 554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD. 2. THE JCIT (OSD), CIRCLE-3(1), HYDERABAD. 3. THE DCIT, CIRCLE-3(1), HYDERABAD. 4. CIT(APPEALS)-IV, HYDERABAD. 5. CIT(APPEALS)-3, HYDERABAD. 6. CIT-III, HYDERABAD. 7. D.R. ITAT, HYDERABAD. 8. GUARD FILE.