Bright Construction, Baroda V. The Income tax Officer,Ward-2(3), Baroda

ITA 3193/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9764 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-08-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K MATHUR
• Assessee Lawyers: J P SHAH SRAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3193/AHD/2008 [ASSTT.YEAR: 2005-06] BRIGHT CONSTRUCTION -VS- INCOME TAX OFFICER 3/1, R.K.CENTRE, FATEHGUNJ WARD-2(3), BARODA MAIN ROAD, BARODA, PAN NO.AAEFB6867E (APPELLANT) (RESPONDENT) REVENUE BY : SHRI V.K. MATHUR, CIT-DR ASSESSEE BY: SHRI J.P. SHAH, SR-AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX (APPEALS)-II, BARODA DATED 14-07-2008. T HE ASSESSMENT WAS FRAMED BY ITO, WARD-2(3), BARODA U/S.143(3) R.W.S. 144 R.W.S. 145(3) R.W.S. 145A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 01-02- 2007 FOR THE ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE REJECTION OF BOOK RESULTS U/S.145 OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE REJECTION OF BOOK RESULT S UNDER SECTION 145A RWS 145(3) OF THE IT ACT, 1961 DESPITE THE FACT THAT TH E CONTENTIONS OF THE ASSESSING OFFICER WERE EXPLAINED AT LENGTH. 3. AT THE OUTSET LD. SR-COUNSEL FOR THE ASSESSEE, S HRI J.P. SHAH STATED THAT HE IS NOT PRESSING THIS ISSUE UNDER INSTRUCTIONS OF THE A SSESSEE. AS THE ASSESSEE IS NOT INTERESTED IN PROSECUTING THIS ISSUE, SAME IS DISMI SSED AS NOT PRESSED. ITA NO.3193/AHD/2008 A.Y. 2005-06 BRIGHT CONSTRUCTION V. ITO WD-2(3), BRD PAGE 2 4. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN RESTRICTING THE GROSS PROFIT AT 16.45% AS AGAINST T HE DECLARED GROSS PROFIT BY ASSESSEE AT 11.45% AND ESTIMATED BY THE ASSESSING O FFICER AT 36.76%. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN LAW AND ON FACTS HAS RESTRICTED THE GROSS PROFIT RATE AT 16.45 % AS AGAINST THE RATE OF 36.76% ESTIMATED BY THE ASSESSING OFFICER INSPITE O F THE FACT THAT THE REASONS FOR THE FALL IN THE GP RATE WERE SUBSTANTIATED AT L ENGTH. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS REJECTED THE BOOK RESULTS AF TER COMPARING THE GROSS PROFIT RATIO IN THE AUDIT REPORT OF THIS YEAR AND PRECEDIN G YEAR AND FOUND THAT THE GROSS PROFIT THIS YEAR IS 11.77% AS COMPARED TO 36.76% IN EARLIE R YEAR. ASSESSING OFFICER DETERMINED THE GROSS PROFIT @ 36.76% THIS YEAR ALSO AND MADE ADDITION OF RS.1,00,71,393/- ON ACCOUNT OF SUPPRESSION OF GROSS PROFIT. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) RESTRICT ED THE ADDITION BY ESTIMATING GROSS PROFIT AT 16.45% BY GIVING FOLLOWING FINDINGS IN PARA-3.3 OF HIS APPELLATE ORDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNSE L AND FACTS OF THE CASE. ASSESSING OFFICER TOOK THE GROSS PROFIT FIGURES WIT HOUT VERIFYING THE PROFIT AND LOSS ACCOUNT. THERE IS DECREASE IN GROSS PROFIT BUT NOT TO THE EXTENT WORKED OUT BY THE ASSESSING OFFICER. THE FIGURES OF GROSS PROFIT MENTIONED BY THE APPELLANT IN THE TABLE GIVEN ABOVE HAS BEEN VERIFIE D FROM THE AUDITED ACCOUNTS SUBMITTED ALONG WITH THE RETURN AND IT IS CLEAR THA T THE GROSS PROFIT LAST YEAR WAS 18.10% AS COMPARED TO 11.45% DURING THE YEAR. T HE SAME WAS 16.19% TWO YEARS EARLIER. THE GROSS PROFIT PERCENTAGE TAKE N BY THE ASSESSING OFFICER FOR THE EARLIER YEAR IS COMPLETELY INCORRECT AS FIG URES OF P & L ACCOUNT DO NOT SUPPORTS SUCH PERCENTAGE. ACCORDINGLY, THE FIGURES OF GP TAKEN BY THE ASSESSING OFFICER IS HELD TO BE WITHOUT ANY BASIS A ND THE FIGURES OF GP OF LAST THREE YEARS AS REFLECTED FROM AUDITED ACCOUNTS ARE TAKEN. EVEN WITH THE CORRECT FIGURES OF GP, THERE IS FALL IN GP AS COMPARED TO EARLIER TWO YEAS. FALL IN GP HAS BEEN EXPLAINED BY THE APPE LLANT AS INCREASE IN COST OF RAW MATERIAL AND LABOUR. HOWEVER, I DO NOT FULLY AGREE WITH THE SUBMISSION OF THE APPELLANT SINCE THE INCREASE IN RAW MATERIAL AND LABOUR COST IS NORMALLY TAKEN INTO ACCOUNT WHILE ENTERING INTO THE CONTRACT BY THE APPELLANT. THERE MAY BE SOME GAPS SIN RESPECT OF OLD CONTRACTS. THER EFORE, THE DIFFERENCE TO THE EXTENT OF 6.7% FALLING GP CAN NOT BE EXPLAINED BY THE REASONS GIVEN BY THE APPELLANT. I CONSIDER THE GROSS PROFIT IN ASSES SMENT YEAR 2003-04 ALSO IN ESTIMATING THE GP AS EXPLAINED BY THE APPELLANT, ESTIMATE THE GROSS PROFIT AT 16.45% WHICH IS 4% HIGHER THAN GROSS PROFIT DISCLOS ED BY THE APPELLANT FOR THE YEAR AND ACCORDINGLY DIRECT THE ASSESSING O FFICER TO ESTIMATE THE SUPPRESSED PROFIT ACCORDINGLY. ITA NO.3193/AHD/2008 A.Y. 2005-06 BRIGHT CONSTRUCTION V. ITO WD-2(3), BRD PAGE 3 AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US . HOWEVER, REVENUE IS NOT IN APPEAL AGAINST DELETION OF ADDITION AS CONFI RMED BY LD. CIT-DR DURING THE COURSE OF HEARING. 6. BEFORE US LD. SR-COUNSEL FOR ASSESSEE, SHRI J.P. SHAH REFERRED TO GROSS PROFIT RATES OF EARLIER YEARS AND CHART OF GROSS PROFIT R ATE OF EARLIER YEARS, WHICH READS AS UNDER:- PARTICULARS A.Y. 2003-04 A.Y. 2004-05 A.Y. 2005-06 INCOME 2,31,18,538/- 1,98,16,,116/- 4,01,64,679/- DIRECT EXPENSES 1,93,75,831/- 1,62,29,516/- 3,55,65 ,470/- GROSS PROFIT 37,42,717/- 35,86,600/- 45,99, 209/- GROSS PROFIT % 16.19% 18.10% 11.45% NET PROFIT % 2.08% 1.03% .57% HE ALSO REFERRED TO CHART OF RAW MATERIALS, WHICH PROVE THAT THERE IS AN INCREASE IN RAW MATERIAL COST AS COMPARED TO EARLIER YEAR AND T HE RELEVANT CHART READS AS UNDER:- MATERIAL UNIT 2004-05 2003-04 CEMENT PER BAG RS.165 RS.112 BRICKS PER 1000 PCS RS.900 RS.700 KAPACHI PER BRASS RS.1,050 RS.1,200 STEEL PER MT RS.33 RS.23 CARTING PER TRIP RS.700 RS.300 IN VIEW OF THE ABOVE, LD. COUNSEL FOR ASSESSEE REQU ESTED THE BENCH THAT A FAIR AND REASONABLE PROFIT RATE BE ESTIMATED. ON THE OTHER HAND, LD. CIT-DR SATED THAT THE CIT(A) HAS MADE VERY REASONABLE ESTIMATE IN ESTIMAT ING THE GP AT 16.45% AFTER CONSIDERING THE GP RATED OF EARLIER YEARS, WHICH IS CLEARLY EVIDENT FROM THE CHART REFERRED BY THE LD. COUNSEL FOR THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE GONE THROUGH THE GP OF LAST THREE YEARS INCLUDING THE RELEVANT ASSESSMENT YEAR AND THE GP R ATE IN ASSESSMENT YEAR 2003-04 WAS AT 16.9% AND IN ASSESSMENT YEAR 2004-05 IT WAS AT 18.10% AND IN THE RELEVANT ASSESSMENT YEAR IT WAS AT 11.45%. WE FIND THAT EVEN THE NET PROFIT RATIO IS ALSO DOWN BY A CONSIDERABLE PERCENTAGE I.E. 1 %. AS ARGUED BY LD. COUNSEL THAT A FAIR AND REASONABLE ESTIMATE OF GP BE ADDED, WE THINK THAT T HE AVERAGE OF THESE THREE YEARS ITA NO.3193/AHD/2008 A.Y. 2005-06 BRIGHT CONSTRUCTION V. ITO WD-2(3), BRD PAGE 4 WILL MEET THE END OF JUSTICE AND THAT WILL BE FAIR GROSS PROFIT. ACCORDINGLY, WE WILL NOW FIND OUT WHAT IS THE AVERAGE OF THREE YEARS GP, WHI CH IS AS UNDER:- I) ASSESSMENT YEAR 2003-04 16.19% II) ASSESSMENT YEAR 2004-05 18.10% III) ASSESSMENT YEAR 2005-06 11.45% TOTAL 45.74% THE AVERAGE GP WILL COMES TO 15.25% BUT CONSIDERING THE OTHER FACTORS ALSO, I.E. THE MATERIAL COST, COST OF LABOUR ETC. WE DIRECT THE AS SESSING OFFICER TO RE-COMPUTE THE INCOME AFTER TAKING THE GP AT 15%, WHICH IS FAIR AN D REASONABLE IN OUR VIEW. ACCORDINGLY, THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. 8. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED ON THIS DAY OF 17 TH SEPT,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 17/09/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-II, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD