M/s. Madhav Construction, Ahmedabad V. Income Tax Officer, Ward-9(2)(3), Ahmedabad

ITA 3384/AHD/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6346 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 07-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Rejection of books of accounts; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 3384/AHD/2015 (ASSESSMENT YEAR: 2009-10) MADHAV CONSTRUCTION 16, SNEHKUNJ SOCIETY NR. MANEKBAUG HALL, SR ROAD, AMBAWADI, SAHMEDABAD V/S INCOME TAX OFFICER, WARD- 9(2)(3), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AANFM 8341D APPELLANT BY : SHRI S. N. DIVETIA, AR RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. ( )/ ORDER DATE OF HEARING : 01 -11-201 8 DATE OF PRONOUNCEMENT : 01 -02-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-5, AHMEDABAD DATED 21.09.2015 PERTAINING TO A.Y. 2009- 10 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO3384/A HD/2015 . A.Y. 2009-1 0 2 1.1 THE ORDER PASSED U/S.250 ON 21.09.2015 BY CIT(A )-5 ABAD FOR A.Y.2009-10 CONFIRMING PENALTY OF RS..2,97,660/- LEVIED U/S.271 (L)(C) BY ITO, WARD 9(2), ABAD IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIP LES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN NOT CONS IDERING FULLY AND PROPERLY THE EXPLANATION FURNISHED BY THE APPELLANT. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN UPHOLDING PENALTY OF D.2,97,660 LEVIED U/S.271(L)(C) ON THE GROUND THAT BY FAILURE TO PRODUCE BOOKS OF ACCOUNTS, THE APPELLANT HAD FURNISHED INACCURATE PA RTICULARS AND CONCEALED INCOME TO THE EXTENT OF GP ADDITION OF RS..9,63,300 /-. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THAT THE APPELLANT HAD FURNISHED INACCURATE PARTICULARS AND CONCEALED INCOME TO THE EXTENT OF G P ADDITION OF RS..9,63,300 AND THEREBY CONFIRMED PENALTY OF RS..2,97,660 U/S.2 71(L)(C). 2. IN THIS CASE, ASSESSMENT FOR A.Y. 2009-10 WAS FINAL IZED U/S.143(3) OF THE I. T. ACT, ON 12/12/2011 DETERMINING TOTAL INCOME OF RS.2 3,46,301/- AGAINST THE RETURN INCOME OF RS.4,31,390/- AFTER MAKING THE FOL LOWING ADDITIONS :- 1) ADDITION ON ACCOUNT OF CESSION OF LIABILITIES U/ S.41(I) - RS.9,51,611/- 2) ADDITION ON ACCOUNT OF FALL IN GP - RS.9,63,300/- PENALTY PROCEEDINGS INITIATED U/S.271(L)(C) OF/THE ACT IN RESPECT OF THE ABOVE ADDITIONS. 3. ANOTHER OPPORTUNITY WAS GIVEN TO THE ASSE SSEE VIDE THIS LETTER DATED 20/1/2014 DUE TO CHANGE TO THE INCUMBENT OF THIS OF FICE. 4. THE ASSESSEE HAS SUBMITTED ITS REPLY VIDE LETTER DA TED 03/02/2014, THE SAME AREAS UNDER:- ITA NO3384/A HD/2015 . A.Y. 2009-1 0 3 ' DURING THE COURSE OF SCRUTINY HEARING, I/ WE HAVE- PRESENTED THE AUDIT REPORT U/S.44AB AS MANDATORILY REQUIRED BY THE PROVISION O F INCOME TAX ACT, 1961 WITH AUDITED BALANCE SHEET AND PROFIT & LOSS ACCOUNT. TH E AUDIT HAS ALSO BEEN MANDATORILY DONE BY THE PROVISION OF OBJECTED THE F ALL G.P. AS BEING CONSIDERED BY THEN ITO JUST BY COMPARING WITH PREVIOUS YEAR FIGUR E. GP HAS BEEN DIFFERING FROM BUSINESS TO BUSINESS AND INDUSTRY TO INDUSTRY DEPEN DING UPON THE CYCLE OF THE PROCESS THAT THE BUSINESS IS REQUIRED. CONSTRUCTION OF RESIDENTIAL PROJECT IS SPREAD OVER 3 TO 4 YEARS IS GENERAL AND HENCE CYCLE OF THE PROCESS ONLY COMPLETE AFTER THAT AND FULL AND FINAL PROJECT COST ARRIVED. AS PER ACCOUNTING STANDARD 9 'REVENUE RECOGNITION' IS SUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT CLARIFIED THE POINT OF RECOGNI TION OF REVENUE IN PARTICULAR WHEN BUSINESS CYCLE IS SPREAD OVER MORE THAN 1 YEAR . IT SAYS, REVENUE CAN ONLY BE RECOGNIZED WHEN THERE WILL BE CERTAINTY WITH REGAR D TO IT. MOREOVER, AS 7 'CONSTRUCTION CONTRACT' ALSO STATED THAT, WHEN PERCENTAGE COMPLETION METHOD HAS BEEN ADOPTED, THE MARK UP OR SALES WORK DONE VALUE HAS TO BE ARRIVED TAKING INTO CONSIDERATION OF RECEIPTS FROM THE PROSPECTIVE MEMBER ALONG WITH THE COST INCURRED TILL A DATE. THE TOTAL COST INCURRED UP TO 31ST MARCH, 2008 AS P ER PERCENTAGE COMPLETION METHOD IS RS.4,71,30,800 WHILE DURING THE YEAR COST INCURRED WITH, MARK UP AS PER PERCENTAGE COMPLETION METHOD COMES TO RS.2,50,2 0,805 TOTALING RS. 7,21,51,605. AND THOUGH MEMBER RECEIPTS UPTO 31ST M ARCH 2009 WAS RS.5,40,58,226/-. SO COST OR WORK DONE HAS BEEN ESCALATING DUE-TO PRICE RISE AND OTHER THINGS WHILE MEMBER RECEIPTS HAS NOT BEEN RECEIVED IN THAT SPACE AND THIS MAKE SOME IF UNCERTAINTY TOWARDS THE BUSINESS SALE RECEIPTS WHICH AS PER AS 9 PREVENT TO BEING SHOWN THAT MUCH GP MARGIN COMPAR ED TO PREVIOUS IT YEAR. ALTHOUGH GP OF WHOLE PROJECT / SCHEME-HAS BEEN REMA IN 43.90% AS EVIDENT BY CONSOLIDATED P & L A/C FROM1.4.2006 TO 31.3. 2013 A TTACHED HEREWITH FOR YOUR REFERENCE. 5. ASSESSEE REPLY IS CONSIDERED BUT FOUND NOT ACCEPTAB LE. IN THIS CASE, THE ADDITION MADE ON ACCOUNT OF CESSATION OF LIABILITIES OF RS. 9,51,611/- HAS BEEN DELETED BY THE LD. CIT(A)-XV, AHMEDABAD VIDE APPEAL NO. CIT (A)- ITA NO3384/A HD/2015 . A.Y. 2009-1 0 4 XV/ITO/9(4)/439/11-12 DATED 4/02/2013, WHEREAS THE ADDITION MADE ON ACCOUNT OF GP AMOUNTING TO RS. 9,63,300/- HAS BEEN UPHELD. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAS DECLARED GP @ 16.15% ON THE TOTAL TURN OVER OF RS.2,50,20,805/- AS COMPARED TO THE GP @ 20.30% ON THE TOTAL TURNOVE R OF RS.3,42,17,760/-. THE ASSESSEE WAS REQUESTED TO PRODUCE BOOKS OF ACCO UNTS WITH BILLS AND .VOUCHERS AND DOCUMENTS BY THE THEN AO. HOWEVER, TH E ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT WITH VOUCHERS AND BILL S. 7. THE ASSESSEE FAILED TO COMPLY THE SAME. IN ABSENCE OF BILLS AND VOUCHERS AND RELEVANT DOCUMENTS THE CORRECTNESS AND GENUINENESS WITH TRANSACTION AND EXPENSES COULD NOT BE VERIFIED. IN VIEW OF THIS FAC TS, THE BOOK RESULT OF THE ASSESSEE WAS REJECTED BY THE THEN AO IN VIEW OF THE PROVISION OF SECTION 145(3) OF THE I. T. ACT. SINCE, THERE WAS A DRASTIC FALL I N GP AS COMPARED TO THE PRECEDING THE YEAR, THE THEN AO ESTIMATED THE GP @ 10% AND ACCORDINGLY MADE ADDITION OF RS.9,63,300/-. 8. WHILE CONFIRMING THIS ADDITION, THE LD.-CIT(A)'S HA S STATED THAT IN ABSENCE OF BILLS AND VOUCHERS AND BOOKS OF ACCOUNTS (NOT PRODU CED BEFORE THE AO AS WELL AS BEFORE HIM) AND CERTIFICATE FROM THE ARCHITECT T O CERTIFY SUCH VALUE OF WORK DONE, THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO WAS HELD JUSTIFY. 9. IT IS FURTHER STATED THAT IN THE CASE OF R. K. BROT HERS (2003) 87 ITD 649 (ALL), IT HAD BEEN HELD THAT WHEN CONCEALMENT OF INCOME IS AP PARENT FROM RECORD, PENALTY CAN BE IMPOSED EVEN ON THE BASIS' OF ESTIMA TE OF INCOME. IN THE DECISION IN THE CASE OF KIRIT DAHYABNAI PATEL, DATE D 17/7/2009, REPORTED IN 285 DTR AMD (TM) (TRIB) 380 IT HAS BEEN HELD THAT THE F ACT OF. PENALTY ITA NO3384/A HD/2015 . A.Y. 2009-1 0 5 PROCEEDINGS IN SOME OR1 THE YEARS MAY HAVE BEEN DRO PPED, WAS NOT OF MATERIAL CONSIDERATION. THE PLEA THAT MENS REA HAS TO BE EST ABLISHED IS NOT SUSTAINABLE, FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE 219 CTR 617. THE DECISION ALSO U PHOLDS THE APPLICABILITY OF SECTION 271(L)(C) OF THE I. T. ACT,! 1961. 10. THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS O F INCOME BY SHOWING LESSER GP AS COMPARED TO THE PRECEDING YEAR WITH, REGARD T O REDUCE ITS TAX LIABILITY FOR THE YEAR UNDER CONSIDERATION. 11. IN VIEW OF THE ABOVE IT IS ESTABLISHED THAT THE ASS ESSES HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND CONCEALED THE INCOME AS S TATED ABOVE AND COMMITTED DEFAULT U/S.274 R.W.S. 271(L)(C) OF THE I.T. ACT. . 12. AND HENCE PENALTY WAS LEVIED TO THE TUNE OF RS. 297 660/-. 13. AGAINST THE LEVY OF PENALTY, ASSESSEE PREFERRED FIR ST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE . 14. NOW BY WAY OF SECOND APPEAL, ASSESSEE HAS COME BEFO RE US. 15. IN THE CASE, APPELLANT IS A PARTNERSHIP FIRM AND EN GAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. DURING THE COURSE OF ASSTT. PROCEEDIN GS, THE A.O. NOTICED THAT THE APPELLANT HAD DISCLOSED GP @ 16.15% AS AGAINST GP OF 20.30% FOR THE LAST YEAR. HENCE, THE A.O. CALLED UPON THE APPELLANT TO PRODUCE BOOKS OF ACCOUNTS WITH BILLS/VOUCHERS AND DOCUMENTS WHICH THE APPELLA NT FAILED TO PRODUCE. HENCE, THE A.O. ESTIMATED GP AT 20% AND MADE AN ADD ITION OF RS. 9,63,300/-. ITA NO3384/A HD/2015 . A.Y. 2009-1 0 6 16. BEING AGGRIEVED, ASSESSEE PREFERRED APPEAL TO LD.CI T(A) WHO CONFIRMED REJECTION OF THE BOOK RESULT AS WELL AS ESTIMATION OF CROSS PROFIT RATE FOR THE IDENTICAL REASONS AS CANVASSED BY A.O. 17. ON THE OTHER HAND, APPELLANT SUBMITTED THE BOOKS OF ACCOUNTS WERE AUDITED AND SAME COULD NOT BE PRODUCED BEFORE THE LOWER AUT HORITIES FOR SUFFICIENT CAUSE AND FURTHER CONTENDED THAT BOOKS OF ACCOUNTS WERE SUBJECT TO TAX AUDIT AND THE SAME WERE PREPARED FOLLOWING THE ACCOUNTING STANDARD BY ICAI. AND EVEN THE LD. CIT(A) HAD NOT CALLED FOR CERTIFICATE FROM ARCHITECT. 18. IN QUANTUM PROCEEDING IN ASSESSEES OWN CASE IN ITA NO. 1454/AHD/2013 FOR THE ASSESSMENT YEAR 2009-10, THE CO-ORDINATE BENCH REDUCED LUMP SUM GROSS PROFIT PERCENTAGE OF 17% AS AGAINST 20% AND HELD TH E REDUCTION OF GROSS PROFIT WOULD MEET THE END OF JUSTICE. 19. AS WE CAN SEE, THIS IS THE CASE OF ESTIMATION OF PR OFIT. IN THE INSTANT CASE, THE ASSESSEE APPLIED A DIFFERENT GROSS PROFIT AND LD. A.O. AND LD. CIT(A) ADOPTED DIFFERENT ESTIMATES AND IT COULD NOT BE SAID THE AS SESSEE HAD CONCEALED THE PARTICULARS OF INCOME SO AS TO ATTRACT PENALTY UNDE R 271(1)(C). 20. IN THE CASE OF CIT VS. BIRLA COTTON SPINNING & WEAV ING MILLS LTD., THE HONBLE HIGH COURT HAS HELD THAT IN THE CASE OF ESTIMATION OF INCOME OR GROSS PROFIT, PENALTY CANNOT BE LEVIED. IN THE CASE OF ITO VS. J. K. SYNTHETICS LTD. ITAT HELD THE REAL QUESTION IS WHETHER THE ASSESSEE OR HAD RE ASON TO BELIEVE THAT THE ESTIMATE SUBMITTED BY IT WERE TRUE AT THE TIME WHEN ASSESSEE MADE THEM. WHERE ASSESSEE OFFER AN EXPLANATION AND ADDUCE EVIDENCES, THE NATURE OF THE EVIDENCE ITA NO3384/A HD/2015 . A.Y. 2009-1 0 7 MAY PROVIDE THE MATERIAL TO COME TO THE CONCLUSION WHETHER ASSESSEE DELIBERATELY FILED FALSE ESTIMATE. 21. THEREFORE IN OUR CONSIDERED OPINION, IN THE CASE O F ESTIMATION OF GROSS PROFIT WHEREIN REVENUE AUTHORITIES AND ITAT DIFFER WITH TH E CONCLUSION IN SUCH CASES, PENALTY CANNOT BE LEVIED. 22. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 01- 02- 2019 SD/- SD/- (PRAMOD KUMAR) (MAHAVIR PRASAD) VICE PRESIDENT TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 01/02/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD