Pallav D. Chokhani, Ahmedabad V. The ACIT, (OSD), Circle-9, Baroda

ITA 343/AHD/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 5384 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 16-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Rejection of books of accounts; Opportunity of being heard; Tax effect; Revised return
• Section: 145; 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA.NO.343/AHD/2015 / ASSTT. YEAR: 2011-2012 PALLAV D. CHOKHANI PROP: CHOKHANI CONSTRUCTION A-33, KARAMCHARI NAGAR GHATLODIA ROAD, GHATLODIA AHMEDABAD 380 061. PAN : AAHPC 3304 J VS ACIT (OSD) CIR.9 AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI SAKAR SHARMA, AR REVENUE BY : SHRI S.K. DEV, SR.DR / DATE OF HEARING : 08/10/2018 / DATE OF PRONOUNCEMENT: 09/10/2018 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-4, AHMEDABAD DATED 13.1.2015 PASSED FOR THE ASSTT.YEAR 2012-12. 2. THE ASSESSEE HAS PLEADED THAT LD.CIT(A) HAS ERRE D IN CONFIRMING THE COMPUTATION OF INCOME BY ADOPTING NET PROFIT RATE A T 3.5% OF THE TURNOVER AFTER UPHOLDING REJECTION OF BOOK RESULT UNDER SECT ION 145(3) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D FILED HIS RETURN OF INCOME ON 30.9.2011 DECLARING TOTAL INCOME AT RS.23 ,95,570/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND NOTICE UNDER SECTION ITA NO.343/AHD/2015 2 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. TH E ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN CONSTRUCTION ACTIVITIES. IT HA S SHOWN TOTAL CONTRACT RECEIPT OF RS.10,11,47,729/- AND NET PROFIT AT THE RATE OF 2.04%. THE GP WAS SHOWN AT 11.56%. THE LD.AO HAS EXAMINED THE BOOKS OF ACCOUNTS AND REJECTED THE BOOK RESULT. HE WORKED OUT PROFIT BY ADOPTING 5% NET PROFIT RATE AND MADE ADDITION OF RS.29,90,653/-. ON APPEAL, TH E LD.CIT(A) CONFIRMED THE REJECTION OF BOOK RESULTS, BUT REDUCED THE RATE OF PROFIT REQUIRED TO BE APPLIED FOR COMPUTING INCOME OF THE ASSESSEE AT 3.5% AS AGA INST 5% ADOPTED BY THE AO. THE RELEVANT DISCUSSION MADE BY THE LD.CIT(A) READS AS UNDER: NOW COMING TO THE ESTIMATION OF PROFIT, THE AO HAS ESTIMATED THE NET PROFIT AT 5%. INSTEAD OF 2.04% DISCLOSED BY THE APP ELLANT. DURING APPEAL PROCEEDINGS, APPELLANT WAS DIRECTED TO SUBMIT THE D ETAILS OF NET PROFIT, GROSS PROFIT FOR TWO PRECEEDING AND TWO SUBSEQUENT ASSESSMENT YEARS. THE DETAILS OF NET PROFIT ARE AS BELOW: ASS.YEAR CONTRACT RECEIPT NET PROFIT NET PROFIT % 2009-10 37986941.00 1147347.00 3.02% 2010-11 78105278.00 1738407.00 2.23% 2011-12 101147729.00 2066733.00 2.04% 2012-13 FL 5091 584.00 2390478.00 2.08% 2013-14 102162007.00 2464790.00 2.41% 4.3.2 THE APPELLANT COULD NOT GIVE ANY JUSTIFICATIO N FOR FALL IN NET PROFIT FROM 3.02% IN ASSESSMENT YEAR 2009-10 TO 2.04% IN A SSESSMENT YEAR 2011-12. THE CONTRACT RECEIPTS OF THE APPELLANT HAV E SUBSTANTIALLY INCREASED FROM RS. 3.8 CRORES IN ASSESSMENT YEAR 20 09 -10 TO RUPEES 10.14 CRORES IN ASSESSMENT YEAR 2011-12. IN VIEW OF FALL IN NET PROFIT AND CONSIDERING THE DISCREPANCIES DISCUSSED ABOVE IN TH IS ORDER, IT IS HELD THAT ESTIMATION OF NET PROFIT AT 3.5% WOULD MEET TH E ENDS OF JUSTICE. AO HAS NOT GIVEN ANY SPECIFIC REASON OR COMPARABLE INS TANCE FOR ESTIMATING THE PROFIT AT 5%. IT IS A SETTLED POSITION OF LAW T HAT THE PROFIT RATE SHOWN BY THE IN OTHER YEARS MAY BE A GOOD INDICATOR FOR ESTI MATION OF PROFIT IN A RELEVANT PREVIOUS YEAR. ITA NO.343/AHD/2015 3 4.3.3 IN VIEW OF ABOVE FACTUAL AND LEGAL MATRIX IT IS HELD THAT REJECTION OF BOOKS OF ACCOUNTS BY THE AO WAS JUSTIFIED. THE I NCOME OF THE APPELLANT IS ESTIMATED AT 3.5% OF CONTRACT RECEIPTS OF RS. 10,11,47,729/- WHICH COMES TO RS.35,40,170/-. APPEL LANT HAS SHOWN NET PROFIT OF RS. 20,66,733/-. ACCORDINGLY, ADDITIO N TO THE EXTENT OF RS. 14,73,440/-IS SUSTAINED. GROUND NUMBER 1 TO 4 ARE A CCORDINGLY, PARTLY ALLOWED. 4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT P ROFIT RATE AT 3.02% AND 2.23% SHOWN BY THE ASSESSEE IN THE ASSTT.YEAR 2009- 10 AND 2010-11 WAS ACCEPTED BY THE AO IN SCRUTINY ASSESSMENT. SIMILAR LY IN SUBSEQUENT YEARS, THE RATES DISCLOSED BY THE ASSESSEE WERE NOT DISTURBED BY THE DEPARTMENT. HENCE, THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE CO MPUTATION OF INCOME AT THE RATE OF 3.5% OF THE TURNOVER. ON THE OTHER HAND, T HE LD.DR RELIED UPON THE ORDERS OF THE AO. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. SECTION 145 OF THE INCOME TAX ACT IS TH E RELEVANT PROVISION FOR THIS ISSUE THEREFORE, IT IS PERTINENT TO TAKE NOTE OF TH IS SECTION. IT READS AS UNDER : 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE], THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.] ITA NO.343/AHD/2015 4 6. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB- SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PRO FIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSES SEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SECTION 145 OF THE ACT. SUB-SEC TION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE FROM TIME TO TIME, THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE I.E. CASH OR MERCANTILE, SUCH METHOD HAS T O BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS , IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF M ETHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATION OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATI ON OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN TH E DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, INCOME CANNOT BE DETERMINED AND AS SESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEP ING IN VIEW THE GUIDING FACTOR FOR ESTIMATING SUCH INCOME. 7. AS FAR AS REJECTION BOOK RESULTS IS CONCERNED, T HE LD.COUSNEL FOR THE ASSESSEE DID NOT PRESS THIS FOLD OF SUBMISSIONS ALO NG WITH ARGUMENTS. HENCE, BOOK RESULTS HAS RIGHTLY BEEN REJECTED BY THE AO. ITA NO.343/AHD/2015 5 8. FOR EXERCISING THE BEST JUDGMENT, SECTION 144 OF THE INCOME TAX ACT PROVIDE THE GUIDANCE TO THE LD.AO. THIS SECTION RE ADS AS UNDER: 144. [(1)] IF ANY PERSON (A) FAILS TO MAKE THE RETURN REQUIRED [UNDER SUB-S ECTION (1) OF SECTION 139] AND HAS NOT MADE A RETURN OR A REVISED RETURN UNDER SUB- SECTION (4) OR SUB-SECTION (5) OF THAT SECTION, OR (B) FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB- SECTION (1) OF SECTION 142 [OR FAILS TO COMPLY WIT H A DIRECTION ISSUED UNDER SUB-SECTION (2A) OF THAT SECTION], OR (C) HAVING MADE A RETURN, FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB-SECTION (2) OF SECTION 143, THE [ASSESSING] OFFICER, AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE [ASSESSING] OFFICER HAS GATHERED, [SHAL L, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD, MAKE THE AS SESSMENT] OF THE TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT AN D DETERMINE THE SUM PAYABLE BY THE ASSESSEE [* * *] ON THE BASIS OF SU CH ASSESSMENT : [PROVIDED THAT SUCH OPPORTUNITY SHALL BE GIVEN BY THE ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SH OW CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ASS ESSMENT SHOULD NOT BE COMPLETED TO THE BEST OF HIS JUDGMENT : PROVIDED FURTHER THAT IT SHALL NOT BE NECESSARY TO GIVE SUCH OPPORTUNITY IN A CASE WHERE A NOTICE UNDER SUB-SECTION (1) OF S ECTION 142 HAS BEEN ISSUED PRIOR TO THE MAKING OF AN ASSESSMENT UNDER T HIS SECTION.] [(2) THE PROVISIONS OF THIS SECTION AS THEY STOOD I MMEDIATELY BEFORE THEIR AMENDMENT BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987 (4 OF 1988), SHALL APPLY TO AND IN RELATION TO ANY ASSESS MENT FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSMENT YEAR AND REFERENCES IN THIS SECT ION TO THE OTHER PROVISIONS OF THIS ACT SHALL BE CONSTRUED AS REFERE NCES TO THOSE PROVISIONS AS FOR THE TIME BEING IN FORCE AND APPLI CABLE TO THE RELEVANT ASSESSMENT YEAR.] ITA NO.343/AHD/2015 6 9. IT IS PERTINENT TO NOTE THAT THAT SECTION 144 WO ULD SUGGEST THAT IN ORDER TO ESTIMATE INCOME, LEARNED ASSESSING OFFICER HAS T O EXERCISE HIS DISCRETION WHICH SHOULD BE IN CONSONANCE WITH BEST OF HIS JUDG MENT. WE ARE CONSCIOUS OF THE FACT THAT IN VARIOUS AUTHORITATIVE PRONOUNCE MENTS, IT HAS BEEN PROPOUNDED THAT IN MAKING A BEST JUDGMENT ASSESSMEN T, THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICI OUSLY. HE MUST MAKE, WHAT HE HONESTLY BELIEVE TO BE A FAIR ESTIMATE OF THE PR OPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST BE ABLE TO TAKE INTO CONSI DERATION, LOCAL KNOWLEDGE, REPUTATION OF THE ASSESSEE ABOUT HIS BUSINESS, THE PREVIOUS HISTORY OF THE ASSESSEE OR THE SIMILARLY SITUATED ASSESSEE. IT IS ALSO PERTINENT TO MENTION THAT JUDGMENT IS A FACULTY TO DECIDE MATTER WITH WISDOM, TRULY AND LEGALLY. JUDGMENT DOES NOT DEPEND UPON THE ARBITRARY, CAPRIC E OF AN ADJUDICATOR, BUT ON SETTLED AND INVARIABLY PRINCIPLES OF JUSTICE. TH US, IN A BEST JUDGMENT, EVEN IF, THERE IS AN ELEMENT OF GUESS WORK, IT SHOULD NO T BE A WILD ONE, BUT SHALL HAVE REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF EACH ASSESSEE. 10. AS OBSERVED ABOVE, ESTIMATION OF INCOME WOULD A LWAYS INVOLVE GUESS WORK. TWO SEPARATE AUTHORITIES HAVE EXERCISED THEI R DISCRETION IN ESTIMATING INCOME OF THE ASSESSEE. THE LD.AO HAS ESTIMATED AT THE RATE OF 5% WHEREAS LD.CIT(A) HAS SUBSTANTIALLY REDUCED THE RATE TO 3.5 %. TO OUR MIND 2 ND APPELLATE AUTHORITY OUGHT NOT TO DISTURB THE DISCRE TION EXERCISED BY THE LD.CIT(A) SIMPLY FOR THE REASON THAT SOME MINOR VAR IATION ON ACCOUNT OF RESULTS SHOWN BY THE ASSESSEE IN EARLIER AND SUBSEQ UENT YEAR IS POSSIBLE TO BE MADE. THE BASIC REASON FOR THIS IS THAT, THE AO HA S AN OCCASION TO VISUALIZE ABOUT STATUS OF THE ASSESSEE ON THE BASIS OF HIS PE RSONAL KNOWLEDGE. THE KIND OF INQUIRY MADE FOR REJECTING THE BOOK RESULTS MUST HAVE LEAD TO HARBOURING A BELIEF THAT SOME HIGHER ELEMENT OF INCOME IS INVOLV ED IN THE CASE OF THE ITA NO.343/AHD/2015 7 ASSESSEE. THIS HAS BEEN RE-APPRECIATED BY THE LD.C IT(A). FORMATION OF SUCH ESTIMATED OPINION OUGHT NOT TO BE DISTURBED BY THE SECOND APPELLATE AUTHORITY UNLESS SOMETHING VERY SERIOUS FLAWS ARE BEING POINT ED OUT OR IT HAS BEEN ESTABLISHED THAT SUCH BELIEF WAS FORMED BY THE LD.C IT(A) ON SOME EXTRANEOUS DECISION. NO SUCH SITUATION HAS BEEN BROUGHT TO OU R NOTICE, AND HENCE, WE DO NOT WISH TO INTERFERE IN THE DISCRETION OF THE LD.C IT(A) ON THE ESTIMATED RATE OF PROFIT REQUIRED TO BE APPLIED WHILE COMPUTING THE I NCOME OF THE ASSESSEE. WE DO NOT FIND ANY MERIT IN THIS GROUND OF THE ASSESSE E. IT IS DISMISSED. 11. IT IS ALSO PERTINENT TO POINT OUT THAT QUANTUM APPEAL FILED AT THE END OF THE REVENUE CHALLENGING PART OF THE RELIEF GIVEN BY THE LD.CIT(A) HAS ALREADY DISMISSED FOR WANT OF LOW TAX EFFECT INVOLVED IN IT . 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE COURT ON 9 TH OCTOBER, 2018 AT AHMEDABAD. SD/- SD/- ( PRADIPKUMAR KEDIA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER