The DCIT, Circle-1, JUNAGADH V. M/s. Madhvi Construction Co., AMRELI

ITA 38/RJT/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5201 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJEET SINGH
• Assessee Lawyers: DR ADHIA
• Keywords: Rejection of books of accounts; Difference of opinion
• Section: 44AD; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.38/RJT/2013 (ASSESSMENT YEAR : 2009-10) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 1, JUNAGARH VS. MADHVI CONSTRUCTION CO. SUKNATH ROAD AMRELI 365 601 [PAN NO.AADFM 3359 D] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI RANJEET SINGH, CIT-DR RESPONDENT BY : SHRI D.R. ADHIA, AR DATE OF HEARING 18/10/2019 DATE OF PRONOUNCEMENT 22/10/2019 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE APPEAL WAS ORIGINALLY HEARD BY THE TRIBUNAL DAT ED 29-05-2013/1-10- 2013 AND THE ORDER PROPOSED WAS AUTHORED BY THE HON BLE D.K. SRIVASTAVA, ACCOUNTANT MEMBER BUT THE SAME WAS NOT ACCEPTABLE T O THE HONBLE T.K. SHARMA, JUDICIAL MEMBER. ACCORDINGLY, HE WROTE THE DISSENT ON THE ORDER PROPOSED BY THE HONBLE ACCOUNTANT MEMBER. AS A RES ULT OF DIFFERENCE IN THE OPINION, THE MATTER WAS REFERRED TO THIRD MEMBER BE NCH COMPRISING OF JUSTICE P P BHATT ( HONBLE PRESIDENT), HONBLE PROMOD KUMAR, V ICE PRESIDENT AND HONBLE MADHUMITA ROY, JUDICIAL MEMBER TO RESOLVE THE DEAD LOCK IN THE OPINION OF THE MEMBERS. ACCORDINGLY, THE FOLLOWING QUESTIONS WERE REFERRED FOR THE ESTEEMED OPINION TO A THIRD MEMBER BENCH UNDER SECTION 255(4 ) OF THE ACT. - 2 - ITA NO. 38/RJT/2013 DCIT VS. MADHVI CONSTRUCTION CO. ASST.YEAR 2009-10 PER JUDICIAL MEMBER WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS CORRECT IN HOLDING THAT THE PROVISIONS OF SECTION 145(3) ARE N OT APPLICABLE AND ONLY IN RESPECT OF SPECIFIC DEFECT/MISTAKE IN VALUATION OF WORK-IN-PRO GRESS, ADDITION OF RS.5,45,991/- CAN BE MADE AS AGAINST ADDITION OF RS.1,17,85,514/- (AS SESSED INCOME RS.2,63,29,570 - RETURNED INCOME RS.1,45,44,056) MADE BY THE ASSESSI NG OFFICER IN THE ASSESSMENT ORDER? OR WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER REGARDIN G REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE INCOME-TAX ACT, 1961 AND UPHOLD THE A DDITION OF RS. 1,17,85,514/- (ASSESSED INCOME RS.2,63,29,570 - RETURNED INCOME R S.1,45,44,056) MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER? PER ACCOUNTANT MEMBER (I) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AS HIGHLIGHTED IN THE ORDER PROPOSED BY THE ACCOUNTANT MEMBER, THE FINDIN G RECORDED BY THE ASSESSING OFFICER THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE COULD NOT BE SAID TO BE CORRECT AND COMPLETE SO AS TO ENABLE HIM TO CORRECT LY WORK OUT THE TAXABLE PROFITS OF THE ASSESSEE, IS SUSTAINABLE ON FACTS AND IN LAW? (II) WHETHER, THE DECISIONS OF CO-ORDINATE BENCHES TO WHICH-ONE OF THE MEMBERS OF ANOTHER DIVISION BENCH IS A PARTY, CAN BE DISREGARD ED, IN IDENTICAL FACT-SITUATION, TO WRITE DISSENTING NOTE WITHOUT ANY DISCUSSION AS TO THE REASONS FOR DISREGARDING THE DECISION TO WHICH HE HIMSELF IS A PARTY AND THE FAC T-SITUATION OF WHICH IS ALSO SIMILAR? (III) WHETHER APPLICATION OF NET PROFIT RATE OF 8% IS IN CONFORMITY WITH THE DECISION IN GAYATRI CONSTRUCTION V. ITO, ITA NO.86/RJT./2011 TO WHICH BOTH THE MEMBERS OF THIS BENCH ARE PARTY? THE HONBLE THIRD MEMBER BENCH UPHELD THE VIEW ADOP TED BY THE HONBLE T.K. SHARMA, JUDICIAL MEMBER BY OBSERVING AS UNDER: 7. THE SHORT QUESTION BEFORE US, WHICH REALLY REQUI RES OUR ADJUDICATION, IS WHETHER THE CIT(A) WAS JUSTIFIED IN REVERSING THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE NET PROFIT RATE OF 8% UPON REJECTION OF THE BOOKS O F ACCOUNTS. ONCE WE HOLD THAT THE CIT(A) IS JUSTIFIED IN THIS ACTION, THE REJECTION O F BOOKS OF ACCOUNTS WILL END UP BEING ACADEMIC. THE ELABORATE WORDING OF THE POINTS OF DI FFERENCES, AS DRAWN BY THE LEARNED MEMBERS CONSTITUTING THE DIVISION BENCH, ARE NOTHIN G BUT ARGUMENTS IN SUPPORT OF THEIR RESPECTIVE STANDS. THE ACTUAL POINT OF DIFFERENCE, IN OUR CONSIDERED VIEW, IS WHETHER OR NOT THE LEARNED CIT(A) WAS JUSTIFIED IN REVERSING T HE STAND OF THE ASSESSING OFFICER IN - 3 - ITA NO. 38/RJT/2013 DCIT VS. MADHVI CONSTRUCTION CO. ASST.YEAR 2009-10 ADOPTING THE NET PROFIT RATE OF 8% ADOPTED. THAT IS PRECISELY WHAT THE CIT(A) HAS DONE AND THE APPEAL BEFORE US CHALLENGES THE RELIEF SO G RANTED BY THE CIT(A). LEARNED MEMBERS HAVE DIFFERED ON THIS SHORT POINT. 8. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS I SSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY A THIRD MEMBER DECISION IN THE CAS E OF DCIT VS AMBABHAI K PATEL [ITA NO. 14/RJT/ 2012; ORDER DATED 30 TH JANUARY 2018], WHEREIN ONE OF US (I.E. THE VICE PRESIDENT) HAS, INTER ALIA, OBSERVED AS FOLLOWS: 7. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 8. I FIND THAT, AS HELD BY HONBLE RAJASTHAN HIGH C OURT, IN THE CASE OF RAM JHANWAR LAL VS ITO [(2010) 321 ITR 400 (RAJ)] , HAS INTER ALIA OBSERVED AS FOLLOWS: 9. COMING TO QUESTION NO. 3; A BARE READING OF THE PROVISIONS OF SECTION 44AD DOES SHOW, THAT ACCORDING TO PROVISO TO SUB-SE CTION (1), NOTHING IN SUB-SECTION (1) APPLIES IN CASES WHERE GROSS RECEIP TS EXCEEDS MORE THAN RS. 40 LAKHS. IT IS NOT IN DISPUTE, THAT IN THE PRE SENT CASE, THE SAID AMOUNT EXCEEDS RS. 40 LAKHS, OBVIOUSLY THEREFORE, S ECTION 44AD, AS SUCH, IS NOT APPLICABLE. SO FAR AS THE PERMISSIBILITY OF ADOPTING PRINCIPLE UNDERLYING THEREIN IS CONCERNED, NO LEGAL AUTHORITY HAS BEEN SHOWN, TO SUPPORT THE PREPOSITION, THAT IN THIS MANNER THE PR INCIPLE UNDERLYING THEREIN CAN BE ADOPTED. MAY BE, THAT THE LEARNED TR IBUNAL CLAIMS TO BE ADOPTING THIS PRACTICE, BUT THEN, IN OUR VIEW, IN T AXING STATUTES, SUCH ADOPTING THE PRINCIPLE UNDERLYING OTHER SECTIONS, C ANNOT BE SAID TO BE PERMISSIBLE, AND SOONER THE PRACTICE IS STOPPED, TH E BETTER . THUS, QUESTION NO. 3 IS ANSWERED IN FAVOUR OF THE REVENUE , AND AGAINST THE ASSESSEE, AND IT IS HELD, THAT THE TRIBUNAL WAS NOT JUSTIFIED IN ADOPTING THE PRINCIPLE UNDERLYING SECTION 44AD, WHEN IT WAS NOT APPLICABLE, AS SUCH. RATHER ALL THE TRIBUNALS ARE DIRECTED TO STOP THIS PRACTICE FORTHWITH, IF THEY ARE STILL CONTINUING. (EMPHASIS, BY UNDERLINING, SUPPLIED BY ME NOW) 9. THE VIEWS SO EXPRESSED BY THEIR LORDSHIPS, IN TH E ABSENCE OF ANYTHING TO THE CONTRARY BY HONBLE JURISDICTIONAL HIGH COURT, BIND US. IT IS ALSO ELEMENTARY THAT THE VIEWS EXPRESSED BY THE SPECIAL BENCH, AS I N THE CASE OF ARIHANT BUILDERS DEVELOPERS & INVESTORS PVT LTD VS ACIT [(2007) 106 ITD SB 10 (INDORE)], HAVE TO MAKE WAY FOR THE VIEWS EXPRESSED BY A SUPERIOR F ORUM, SUCH AS HONBLE HIGH COURT- EVEN IF THE HONBLE HIGH COURT IS A NON-JURI SDICTIONAL HIGH COURT. IF NEEDED, AUTHORITY FOR THIS PROPOSITION, AND DETAILE D REASONING FOR THE SAME, IS CONTAINED IN THE CASE OF TEJ INTERNATIONAL PVT LTD VS DCIT [(2000) 69 TTJ 650 (DEL)]. I RESPECTFULLY ADOPT THE SAME. THERE IS, TH US, NO LEGALLY SUSTAINABLE BASIS FOR ADOPTING 8% NET PROFIT FOR THE PURPOSES OF ESTI MATION OF NET PROFIT. I ALSO - 4 - ITA NO. 38/RJT/2013 DCIT VS. MADHVI CONSTRUCTION CO. ASST.YEAR 2009-10 FIND THAT THE LEARNED CIT(A) HAS GIVEN HIS DETAILED REASONS FOR JUSTIFICATION OF THE NET PROFIT RATE ADOPTED BY HIM, AND THAT LEARNE D DR HAS NOT BEEN ABLE TO POINT OUT ANY SPECIFIC INFIRMITY IN THE SAME. AS A THIRD MEMBER, I CAN ADOPT EITHER THE CONCLUSION ARRIVED AT BY THE LEARNED AM [I.E. ESTIMATION OF NET PROFIT @ 8%] OR ADOPT THE CONCLUSION ARRIVED AT BY THE LEA RNED JM [I.E. CONFIRMING THE RELIEF GRANTED BY THE CIT(A) AND THUS ADOPT 2% NET PROFIT FOR NORMAL TURNOVER AND 4% NET PROFIT FOR THE SUPPRESSED TURNOVER]. I A M OF THE CONSIDERED VIEW THAT THE COURSE ADOPTED BY THE LEARNED JUDICIAL MEMBER, ON THIS ASPECT OF THE MATTER, IS THE RIGHT COURSE OF ACTION. 10. IN VIEW OF THE DETAILED REASONS SET OUT ABOVE, I REPLY THE SECOND POINT OF DIFFERENCE BY HOLDING THAT THE ORDER OF THE CIT(A) IS TO BE APPROVED, CONCUR WITH THE VIEWS OF THE LEARNED JUDICIAL MEMBER, AND IN FA VOUR OF THE ASSESSEE. 9. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE AFORESAID THIRD MEMBER BENCH. RESPECTFULLY FOLL OWING THE SAME, WE CONCUR WITH THE VIEWS OF THE LEARNED JUDICIAL MEMBER AND HOLD THAT FACTS AND CIRCUMSTANCES OF THE CASE DID NOT JUSTIFY THE ADOPTION OF 8% NET PROFIT. 10. IN ANY EVENT, WE ARE ALSO IN CONSIDERED AGREEME NT WITH THE WELL-REASONED STAND OF THE LEARNED CIT(A) THAT THE DEFICIENCIES, AS POI NTED BY THE ASSESSING OFFICER, DID NOT WARRANT OR JUSTIFY THE REJECTION OF BOOKS OF ACCOUN TS. FOR THIS REASON ALSO, WE CONCUR WITH THE CONCLUSIONS ARRIVED AT BY THE LEARNED JUDI CIAL MEMBER 11. THE MATTER WILL NOW GO BACK TO THE DIVISION BEN CH FOR GIVING EFFECT TO THE MAJORITY VIEWS. 2. THE VIEWS ARTICULATED BY THE HON'BLE THIRD MEMB ER BENCH AND THE RESPECTIVE SEPARATE ORDERS PASSED BY THEN JUDICIAL MEMBER AND THE THEN ACCOUNTANT MEMBER CONSTITUTING THIS DIVISION BENCH ARE NOW PLACED BEF ORE US FOR GIVING EFFECT TO THE MAJORITY OPINION. 3. THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). - 5 - ITA NO. 38/RJT/2013 DCIT VS. MADHVI CONSTRUCTION CO. ASST.YEAR 2009-10 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE PROVISION OF SUB -SECTION (4) OF SECTION 255 OF THE ACT HAS A DIRECT BEARING ON THE CONTROVERSY ON HAND. THUS IT IS IMPERATIVE TO REFER THE PROVISION OF SECTION 255(4) OF THE ACT AS REPRODUCED UNDER: 255. (1) (2) (3). (4) IF THE MEMBERS OF A BENCH DIFFER IN OPINION ON ANY POINT, THE POINT SHALL BE DECIDED ACCORDING TO THE OPINION OF THE MAJORITY, IF THERE IS A MAJOR ITY, BUT IF THE MEMBERS ARE EQUALLY DIVIDED, THEY SHALL STATE THE POINT OR POINTS ON WHICH THEY DIFFE R, AND THE CASE SHALL BE REFERRED BY THE PRESIDENT OF THE APPELLATE TRIBUNAL FOR HEARING ON SUCH POINT OR POINTS BY ONE OR MORE OF THE OTHER MEMBERS OF THE APPELLATE TRIBUNAL, AND SUCH POINT O R POINTS SHALL BE DECIDED ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBERS OF THE APPEL LATE TRIBUNAL WHO HAVE HEARD THE CASE, INCLUDING THOSE WHO FIRST HEARD IT. A HARMONIOUS READING OF THE AFORESAID PROVISION SHO WS THAT THE MAJORITY DECISION OF THE BENCH OF THE TRIBUNAL HAS TO PREVAIL AND IN CASE OF DIFFERENCE OF OPINION AMONG EQUAL NUMBER OF MEMBERS OF THE TRIBUNAL, THE MATTER IS FURTHER REQUIRED TO BE DECIDED BY ONE OR MORE OF THE OTHER MEMBERS OF T HE TRIBUNAL AND SUCH POINT OR POINTS SHALL BE DECIDED ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBERS OF THE APPELLATE TRIBUNAL WHO HAVE HEARD THE CASE, INC LUDING THOSE WHO FIRST HEARD IT. THUS, IT IS THE FINAL CONCLUSION OF MAJORITY OF THE MEMBERS OF THE TRIBUNAL WHICH IS TO PREVAIL. WE DRAW SUPPORT AND THE GUIDANCE FROM THE JUDGMENT OF HONBLE APEX COURT IN ASSISTANT COLLECTOR OF CENTRAL EXCISE V. DUNLOP IND IA LTD.(1985) 154 ITR 172 (SC), WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDE R: WE DESIRE TO ADD AND AS WAS SAID IN CASSELL AND CO . LTD. V. BROOME [1972] AC 1027 (HL), WE HOPE IT WILL NEVER HE NECESSARY FOR US TO SAY SO AG AIN THAT IN THE HIERARCHICAL SYSTEM OF COURTS WHICH EXISTS IN OUR COUNTRY, IT IS NECESSARY FOR EACH LOWER TIER , INCLUDING THE HIGH COURT, TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS . IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPE LLATE TRIBUNAL WHICH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBERS OF THE JUDICIARY BUT THE JUDICIAL SYSTEM ONLY WORKS IF SOMEONE IS ALLOWED TO HAVE THE LAST WORD AND THAT L AST WORD, ONCE SPOKEN, IS LOYALLY ACCEPTED (SEE OBSERVATIONS OF LORD HAILSHAM AND LORD DIPLOCK IN BROOME V. CASSELL). THE BETTER WISDOM - 6 - ITA NO. 38/RJT/2013 DCIT VS. MADHVI CONSTRUCTION CO. ASST.YEAR 2009-10 OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. THAT IS THE STRENGTH OF THE HIERARCHICAL JUDICIAL SYSTEM THERE IS NO DISPUTE THAT THERE WAS A DIFFERENCE OF OPINION BETWEEN THE TWO MEMBERS WHO ORIGINALLY HEARD THE APPEAL AND THE REF ERENCE WAS MADE TO THE HONBLE PRESIDENT OF THE TRIBUNAL, U/S 255(4) OF TH E ACT FOR REFERRING THE POINTS OF DIFFERENCE TO THE HONBLE THIRD MEMBER BENCH. THE H ONBLE THIRD MEMBER BENCH AFTER GIVING THE OPPORTUNITY TO THE PARTIES HAS UPH ELD THE VIEW EXPRESSED BY THE JUDICIAL MEMBER AS ELABORATED ABOVE. THUS THE HONB LE THIRD MEMBER BENCH HELD THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE WERE NOT LIABLE TO BE REJECTED UNDER SECTION 145(3) OF THE ACT AND CONSEQUENTLY TH E ESTIMATION OF PROFIT @ 8% WAS NOT WARRANTED. THUS, IN THIS CASE, OPINION OF T HE MAJORITY HAS ARRIVED AT IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/ 10 /2019 SD/- SD/- ( MS. MADHUMITA ROY ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 22/ 10 /2019 . . , . . ./ T.C. NAIR, SR. PS - 7 - ITA NO. 38/RJT/2013 DCIT VS. MADHVI CONSTRUCTION CO. ASST.YEAR 2009-10 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-IV, RAKOT 5. , , /DR,ITAT, RAJKOT 6. !' / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, RAJKOT 1. DATE OF DICTATION .. 21.10.2019 ( WORD PROCESSED BY HONBLE AM IN HIS COMPUTER BY DRA GON ) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22.10.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.23.10.2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.10.2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER