QUICK BUILDERS, MUMBAI V. ADDL. C.I.T., RANGE 23(3), MUMBAI

ITA 1780/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75857 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 12-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBODH L RATNAPARKHI
• Keywords: Transfer pricing; Principle of natural justice; Reasonable cause

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J B ENCH, MUMBAI , , ! '#$ , % & BEFORE SHRI VIJAY PALO RAO AND SHRI N.K. BILLAIY A, AM ./ I.T.A. NO.1780/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR :2007-08 M/S. QUICK BUILDERS, 201,B.P.S. PLAZA, 2 ND FLOOR, NEAR BEST DEPOT, MULUND (W), MUMBAI-400 082 / VS. THE ACIT, RANGE 23(3), C-10, PRATYAKSHA KAR BHAWAN, BANDRA-KURLA COMPLEX, MUMBAI-400 051 ( % ./ ) ./ PAN/GIR NO. : AAAFQ 0175C ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SHRI SUBODH L. RATNAPARKHI +,(* . - / RESPONDENT BY: SHRI MAURYA PRATAP . /0% / DATE OF HEARING :12.03.2014 12' . /0% / DATE OF PRONOUNCEMENT :21.03.2014 3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-33, MUMBAI DT.17.12.2010 PERTAINING TO A.Y. 2007-08. 2. THE ASSESSEE HAS RAISED ONE GROUND WITH 7 PARTS IN ITS GROUNDS OF APPEAL. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 90,96,499/- MADE TO ITA NO.1780/M/2011 2 THE RETURNED INCOME OF THE ASSESSEE BY ESTIMATING T HE NET PROFIT ON THE BASIS OF ALLEGED AVERAGE PROFIT EARNED BY THE CONT RACTOR/BUILDERS IN THE INDUSTRY. THE ASSESSEE IS FURTHER AGGRIEVED THAT B Y DOING SO THE LD. CIT(A) WITHOUT SHOWING ANY DEFECT IN THE BOOKS OF A CCOUNTS CONFIRMED THE ADDITION. THE ASSESSEE CLAIMED THAT WITHOUT SU FFICIENT AND REASONABLE CAUSE THE BOOK RESULTS OF THE ASSESSEE SUPPORTED BY AUDITED BOOKS OF ACCOUNTS COULD NOT BE REJECTED. 3. THE ASSESSEE IS A BUILDER AND A DEVELOPER. THE ASSESSEE DECLARED TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION AT RS . 51,41,467/- ON A TURNOVER OF RS. 12.75 CRORES. THE NET PROFIT SHOWN BY THE ASSESSEE IS AT RS. 4.67%. DURING THE COURSE OF THE SCRUTINY ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER WENT ON TO CALCULATE THE INDUSTRY PROFIT BY USING CAPITALINE DATABASE VERSION 3.1.0.6 AT 12.8% AND AF TER MAKING FUNCTIONAL ADJUSTMENT OF 1% , THE ADJUSTED AVERAGE INDUSTRY M ARGINS WAS TAKEN AT 11.8% DEDUCTING THERE FROM THE ASSESSEES MARGIN OF 4.67% , THE AO COMPUTED THE SHORTFALL IN MARGIN AT 7.13% AND MADE AN UPWARD ADJUSTMENT TO PROFIT AT RS. 90,96,499/-. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). 5. A WRITTEN SUBMISSION WAS FILED IN WHICH THE ASSE SSEE STRONGLY SUBMITTED THAT THERE WERE NO CONTRACTUAL RECEIPTS D URING THE YEAR UNDER CONSIDERATION THEREFORE THE ESTIMATION OF THE PROFI T CANNOT BE MADE AS THE INCOME IS RECOGNIZED AS PER THE PRINCIPLES LAID DOW N UNDER AS-9 OF THE ICAI. AFTER CONSIDERING THE DETAILED SUBMISSIONS A ND THE FACTS OF THE CASE, THE LD. CIT(A) OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN SALE ONLY ON COMPLETED PRO JECT NAMELY HANUMAN ITA NO.1780/M/2011 3 CHHAYA PROPERTY AND OMKAR PROPERTY. THE LD. CIT(A) FURTHER OBSERVED THAT THE AO HAS NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE THOUGH THE ASSESSEE IS H AVING CONTRACTUAL RECEIPTS AS WELL AS ITS OWN BUILDING AND CONSTRUCTI ON WORK AND HENCE FOR THE CONSTRUCTION CONTRACT AS-7 IS APPLICABLE WHEREA S FOR ITS OWN BUILDING AND CONSTRUCTION PROJECT AS-9 IS APPLICABLE. THE L D. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE WAS UNDER OBLIGATION TO MAINTAIN SEPARATE ACCOUNTS AND ACCORDINGLY COMPUTE SEPARATE PROFITS F OLLOWING AS-7 AND AS-9 WHICH THE ASSESSEE HAS NOT DONE. THEREAFTER, THE LD. CIT(A) COMPARED THE FINANCIALS FOR THE YEAR ENDING 31.3.2 005 AND CAME TO THE CONCLUSION THAT THE ASSESSEE IS NOT MAINTAINING PRO JECT-WISE INCOME AND RECEIPTS AND ACCOUNTS PERTAINING TO ALL THE PROJECT S ALONGWITH CONSTRUCTION CONTRACTS HAS BEEN MAINTAINED BY THE ASSESSEE YEAR AFTER YEAR. IN THE OPINION OF THE LD. CIT(A) TO THIS EXTENT THE BOOKS OF ACCOUNTS ARE DEFECTIVE AND ARE LIABLE FOR REJECTION. AT THE SAM E TIME, THE LD. CIT(A) AGREED THAT ALTHOUGH THE AO FOUND THE PROFIT ABNORM ALLY LOW IN THE CASE OF THE ASSESSEE YET DID NOT POINTED THE DEFECT WHIC H WAS VERY MUCH EMBEDDED IN THE MIXED UP TYPE OF ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE. THE LD. CIT(A) FINALLY CONFIRMED THE FIN DINGS OF THE AO BASED ON CAPITALINE DATABASE. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEF ORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE IS MAINTAINING PROPER BOOKS OF ACCOUNT WHICH WERE SUBJ ECT TO AUDIT AND NEITHER THE AUDITORS NOR THE AO HAS POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT. THE LD. COUNSEL STRONGLY SUBMITT ED THAT WITHOUT POINTING OUT SPECIFIC DEFECT, THE AO IS NOT JUSTIFI ED IN REJECTING THE BOOK RESULTS. THE LD. COUNSEL FURTHER SUBMITTED THAT EV EN THE LD. CIT(A) HAS ITA NO.1780/M/2011 4 REJECTED THE BOOK RESULTS BY STATING THAT THE BOOKS OF ACCOUNTS ARE DEFECTIVE WITHOUT AFFORDING ANY OPPORTUNITY/NOTICE FOR HIS ACTION WHICH IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT DURING THE COURSE OF THE ASSESSMENT PROC EEDINGS, THE AO ASSUMED HIMSELF TO BE IN THE POSITION OF A TRANSFER PRICING OFFICER AND AS IF THE CASE BEFORE HIM INVOLVED INTERNATIONAL TRAN SACTIONS WHICH REQUIRED TP ADJUSTMENT. OUR REMARK IS NOT WITHOUT ANY BASIS . A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT INSTEAD OF CHECKING THE BOOK RESULT, THE AO WENT ON TO CAPITALINE DATABASE VERSION 3.1.0.6 AND AT PARA 6.1 DISCUSSED AT LENGTH VARIOUS ISSUES WHICH MAY BE MORE RELEVANT IN TRANSFER PRICING ASSESSMENT BUT NOT ON THE FACTS UNDER CONSIDERATION . HAVING DONE THAT THE AO DETERMINED THE AVERAGE PROFIT MARGIN AFTER SHORT LISTING 244 COMPANIES/COMPARABLES. IT IS AN UNDISPUTED FACT TH AT IN THE ENTIRE ASSESSMENT ORDER THE AO HAS NOT POINTED OUT ANY SPE CIFIC DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, EVEN THE COMPARA BLES USED BY THE AO, ARE LISTED COMPANIES WHOSE TURNOVERS MAY BE IN THOU SANDS OF CRORES. EVEN THE LD. CIT(A) DID NOT FIND THE ASSESSMENT ORD ER OUT OF ORDER AND WITHOUT FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE THE LD. CIT(A) HELD THAT THE BOOKS OF ACCOUNTS ARE DEFECTIVE AND ARE LI ABLE FOR REJECTION. IT IS ALSO NOT THE CASE OF THE REVENUE THAT DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEES NET PROFIT MARGIN IS NOT COMPARABLE WITH ITS PREVIOUS ASSESSMENT YEARS. CONSIDERING ALL THESE FACTS IN T OTALITY AND IN PARTICULAR MANNER IN WHICH THE ASSESSMENT ORDER IS FRAMED, IN OUR HUMBLE OPINION, ITA NO.1780/M/2011 5 THE ADDITIONS MADE BY THE AO ARE UNCALLED FOR AND D ESERVES TO BE DELETED. ACCORDINGLY, FINDINGS OF THE LD. CIT(A) ARE REVERSE D. THE AO IS DIRECTED TO DELETE THE ADDITION. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.3.2014 . 3 . 2' % 4 5 6 21.3.2014 2 . = SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 5 DATED 21.3.2014 . . ./ RJ , SR. PS 3 . +/ >'/ 3 . +/ >'/ 3 . +/ >'/ 3 . +/ >'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. @= +/ , , / DR, ITAT, MUMBAI 6. =A B / GUARD FILE. 3 3 3 3 / BY ORDER, ,/ +/ //TRUE COPY// C CC C / D D D D (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI