RUDRAPRATAP R TRIPATHI, THANE V. ACIT CIR 3, THANE

ITA 3896/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9908 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 29-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARAVANAN
• Assessee Lawyers: J P TIWARI
• Keywords: Rejection of books of accounts; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI RAM LAL NEGI , JM ITA NO. 3896 /MUM/201 7 ( ASSESSMENT YEAR : 2012 - 13 ) SHRI RUDRAPRATAP R TRIPATHI 5 TH FLOOR, MODI HOUSE OPP. RTO OFFICE, EASTERN EXPRESS HIGH WAY THANE (W) 400 604 VS. ACIT, CIRCLE - 3, THANE ROOMNO.02, 6 TH FLOOR B - WING, ASHAR IT PARK ROAD NO.16 - Z, WAGLE INDUSTRIAL ESTATE THANE (W) - 400 604 PAN/GIR NO. ACTPT0115A (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI J.P. TIWARI REVENUE BY SHRI J. SARAVANAN DATE OF HEARING 29 / 08 /2019 DATE OF PRONOUNCEMENT 18 / 09 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 3896/MUM/2017 FOR A.Y. 2012 - 13 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 1, AURANGABAD IN APPEAL NO. THN/CIT(A) - 2/328/2015 - 16 DATED 27/04/2015 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 25/03/2015 BY THE LD. ASST. COMMISSIO NER OF INCOME TAX, CIRCLE - 3, THANE (HEREINAFTER REFERRED TO AS LD. AO). ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 2 2. THE SOLITARY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF THE LD. AO IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSES SEE AND CONFIRMING THE ADDITION MADE BY THE LD. AO OF NET PROFIT AT 9% OF TOTAL TURNOVER ON AN ESTIMATED BASIS SUBJECT TO MINOR CORRECTIONS IN THE FIGURES. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS A PROPRIETOR OF TWO CONCERNS NAMELY M/S. INDIAN CORPORATION AND M/S. INDIAN COMPLEX SERVICES ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT AND THE ASSESSEE IS ALSO A CONTRACTOR. THE MAIN BUSINESS OF THE ASSESSEE IS TO ACQUIRE LAND ON DEVELOPMENT BASIS FROM THE VILLAGERS AND CONSTRUCT THE WAREHOUSES ON THAT LAND AND TO RENT OUT THOSE WAREHOUSES TO VARIOUS CUSTOMERS AS PER THEIR REQUIREMENT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN GROSS PROFIT AND NET PROFIT OF RS.8,67,85,966/ - AND RS.6,33,25,718/ - RESPECTIVELY OF TOTAL TURNOVER OF RS.41,66,23,189/ - . THE GROSS PROFIT AND NET PROFIT RATIO WORKED OUT TO 18.79% AND 14.12% OF TOTAL TURNOVER. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE A.Y.2012 - 13 ON 30/09/2012 DECLARING TOTAL INCOME OF RS.5,48,35,710/ - . THE LD. AO OBSERVED IN PARA 1 OF HIS ASSESSMENT ORDER THAT THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE ATTENDED FROM TIME TO TIME AND EXPLAINED THE RETURN BY PRODUCING BOOKS OF ACCOUNTS AND DOCUMENTS, BANK STATEMENTS AND OTHER RECORDS MAINTAINED BY THE ASSESSEE TOGETHER WITH AUDIT ED FINANCIAL STATEMENTS, TAX AUDIT REPORT IN FORM NO.3CB AND 3CD. 3.1. THE SURVEY OPERATION U/S.133A OF THE ACT WAS CARRIED OUT IN THE PREMISES OF THE ASSESSEE ON 28/09/2011 WHEREIN SOME POCKET DIARIES WERE IMPOUNDED BY THE SURVEY TEAM. ADMITTEDLY, THE S AID POCKET DIARIES CONTAINED CERTAIN ENTRIES AGGREGATING TO RS.5,62,00,000/ - WHICH WHEN ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 3 CONFRONTED WITH THE ASSESSEE, THE ASSESSEE CAME FORWARD TO MAKE A DISCLOSURE AT THE TIME OF SURVEY OFFERING SUCH SUM OF RS.5,62,00,000/ - AS PART OF HIS TURNOVER IN CONT RACT BUSINESS. THE ASSESSEE ADMITTEDLY INCLUDED THIS SUM OF RS.5,62,00,000/ - AS PART OF HIS TURNOVER IN CONTRACT BUSINESS WHILE FILING THE RETURN OF INCOME FOR A.Y.2012 - 13. THERE WAS A SPECIFIC QUESTION PUT BY SURVEY TEAM ON THE ASSESSEE VIDE QUESTION NOS. 15 18 AS TO WHY THE SAID SUM OF RS.5,62,00,000/ - SHOULD NOT BE TREATED AS PART OF CASH COMPONENT OF SALE CONSIDERATION IN CONTRACT BUSINESS FOR THE F.Y.2011 - 12 RELEVANT TO A.Y.2012 - 13 WHICH THE ASSESSEE CAME FORWARD TO ACCEPT THAT THE SAID SUM OF RS.5,62 ,00,000/ - TO BE CASH COMPONENT OF SALE PROCEEDS IN HIS CONTRACT BUSINESS FOR THE F.Y.2011 - 12. THE ASSESSEE DECLARED INCOME FROM HIS CONTRACT BUSINESS TO THE TUNE OF RS.5,88,25,751/ - WHICH ADMITTEDLY INCLUDED RS.5,62,00,000/ - , PURSUANT TO WHICH THE GROSS PR OFIT AND NET PROFIT RATIO WORKED OUT TO 18.50% AND 15.71% RESPECTIVELY. THE LD. AO, HOWEVER, OBSERVED THAT THE AMOUNT OFFERED IN THE SUM OF RS.5,62,00,000/ - WAS OVER AND ABOVE THE REGULAR INCOME OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME AND IF THE SA ID SUM OF RS.5,62,00,000/ - IS EXCLUDED FROM THE PROFIT OF CONTRACT BUSINESS, THE NET PROFIT OF THE ASSESSEE WOULD WORK OUT ONLY TO 0 .73% WHICH IS FAR LOW WHEN COMPARED TO THAT EARNED BY THE ASSESSEE IN THE EARLIER YEARS. THE LD. AO ALSO OBSERVED THAT THE P ROFIT OF THE ASSESSEE HAD DECLINED DRASTICALLY DURING THE YEAR IN VIEW OF THE FACT THAT ASSESSEE HAD NOT VALUED ITS WORK IN PROGRESS PROPERLY DURING THE YEAR. WITH THESE OBSERVATIONS, HE PROCEEDED TO REJECT THE BOOK RESULTS OF THE ASSESSEE AND BASED ON EAR LIER THREE YEARS NET PROFIT MARGINS , ARRIVED ON THE AVERAGE NET PROFIT FIGURE OF 9% ON AN ESTIMATED BASIS ON THE TOTAL RECEIPTS OF THE ASSESSEE. THE BASIS OF LD. AO ESTIMATING THE NET PROFIT AT 9% IS WORKED OUT AS UNDER: - ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 4 TOTAL TURNOVER, AS PER COMPUTATIO N GIVEN BELOW: RS. (I) SALES IN CONTRACT BUSINESS 37,44,82,489 (II) DIRECT INCOME 2,02,12,594 (III) MAINTENANCE INCOME 2,19,28,106 41,66,23,189 DEDUCT: TOTAL TURNOVER DULY RECORDED BY THE APPELLANT IN H IS BOOKS OF ACCOUNT A (WHICH FORMED PART OF THE INCOME RETURNED) 5,62,00,000 TOTAL TURNOVER IN CONTRACT BUSINESS 36,04,23,189 NET PROFIT COMPUTED BY APPLYING A RATE OF 9%, BASED ON SO - CALLED AVERAGE OF PRECEDING THREE YEARS 3,24,38,087 DEDUCT: ALREADY DISCLOSED BY THE APPELLANT IN TERMS OF HIS RETURN FILED BY HIM (OVER AND ABOVE THE SUM OF RS.5,62,00,000 AS REFERRED TO IN PARA 2 ABOVE), RS.5, 88,25,750 - RS.5,62,00,000) 26,25,750 INCOME ASSESSED 2,98,12,337 4 . THE LD. CIT(A) UPHELD THE ACTION OF THE LD. AO IN REJECTING THE BOOKS OF ACCOUNTS AND GIVE PARTIAL RELIEF TO THE ASSESSEE STATING THAT THE DIRECT INCOME AND MAINTENA NCE INCOME ARE NOT AKIN TO THE RECEIPTS FROM CONTRACT BUSINESS AND HENCE, THE SAME ARE TO BE EXCLUDED WHILE DETERMINING THE NET PROFIT AT 9% ON TURNOVER OF CONTRACT BUSINESS. ACCORDINGLY, HE ARRIVED AT THE TURNOVER OF CONTRACT BUSINESS AT RS.31,82,82,489/ - (RS.37,44,82,489 INCOME OFFERED OF RS.5,62,00,000/) AND APPLIED 9% ON THE SAID SUM WHICH WORKED OUT TO RS.2,86,45,425/ - AND FROM THE SAID SUM, HE REDUCED THE INCOME ALREADY DISCLOSED BY THE ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 5 ASSESSEE IN THE SUM OF RS.26,25,750/ - (5,88,25,750 RS.5,62,00 ,000/ - ). BY THIS WORKING, THE LD. CIT(A) SUSTAINED THE ADDITION IN THE SUM OF RS.2,60,19,675/ - TOWARDS ESTIMATION OF NET PROFIT AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1. THE HON. CIT (APPEALS) ERRED IN CONFIRMING ADDI TION TO THE EXTENT OF RS.2,60,19,675/ - ON ACCOUNT OF ESTIMATION OF NET PROFIT @ 9% OF TURNOVER, AFTER REJECTING THE BOOK RESULTS U/S 145(3) OF THE I. T. ACT 1961, NOT APPRECIATING THAT THE BOOK RESULTS COULD NOT BE REJECTED ON THE GROUNDS STATED IN THE ASS T, ORDER AND THE ADDITION WAS NOT JUSTIFIED. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR VARY THE GROUNDS OF APPEAL AT ANY TIME BEFORE THE DECISION OF THE APPEAL. 5 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON REC ORD. AT THE OUTSET, WE FIND THAT THE LD. AO HAD INDEED RECORDED A FINDING IN HIS ASSESSMENT ORDER THAT THE ENTIRE BOOKS OF ACCOUNTS TOGETHER WITH AUDITED FINANCIAL STATEMENTS AND TAX AUDIT REPORT WERE DULY FURNISHED BEFORE HIM BY THE ASSESSEE. WE FIND THAT THE LD. AO HAD MERELY RESORTED TO REJECTIONS OF BOOK RESULTS AND BOOKS OF ACCOUNTS U/S.145(3) OF THE ACT MERELY ON THE GROUND THAT THE PROFIT DECLARED BY THE ASSESSEE HAD FALLEN DRASTICALLY DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT IN ORDER TO ARR IVE AT THIS C ONCLUSION THAT PROFIT HAS DECLINED DRASTICALLY DURING THE YEAR, THE LD. AO HAD CONVENIENTLY IGNORED THE AMOUNT OFFERED BY THE ASSESSEE IN THE RETURN TO THE TUNE OF RS.5,62,00,000/ - IN CONSONANCE WITH THE DECLARATION MADE BY THE ASSESSEE AT THE TIME OF SURV EY CONDUCTED ON 29/09/2011. INF A CT, THE LD. ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 6 AO HAD REDUCED RS.5,62,00,000/ - FROM THE NET PROFIT FROM THE CONTRACT BUSINESS DECLARED BY THE ASSESSEE AND THEN COMPARED TH E PROFIT PERCENTAGE AND ARRIVED AT A WRONG CONCLUSION THAT NET PROFIT HAS D ECLINED DRASTICALLY DURING THE YEAR. WE HAVE GONE THROUGH THE STATEMENTS RECORDED FROM THE ASSESSEE AT THE TIME OF SURVEY WHICH IS PART OF THE PAPER BOOK FILED BEFORE US. FROM THE SAID STATEMENT, WE FIND THAT THE QUESTION POSED BY THE SURVEY TEAM ON THE AS SESSEE AND THE REPLIES GIVEN BY THE ASSESSEE CATEGORICALLY INFERRED THAT THE AMOUNTS REFLECTED IN THE POCKET DIARIES IMPOUNDED REPRESENTED CASH COMPONENT OF SALE RECEIPTS FROM CONTRACT BUSINESS OF THE ASSESSEE, MEANING THEREBY, THE SAID SUM OF RS.5,62,00,0 00/ - IS NOTHING BUT UNDISCLOSED TURNOVER OF THE ASSESSEE FROM CONTRACT BUSINESS FOUND DURING THE SURVEY. IT IS NOT IN DISPUTE THAT THIS SUM OF RS.5,62,00,000/ - HAD BEEN DULY INCLUDED FOR TAXATION BY THE ASSESSEE AND IS INCLUDED IN THE TOTAL TURNOVER OF CON TRACT BUSINESS TO THE TUNE OF RS.37,44,82,489/ - . HENCE, WE HOLD THAT THE PRELIMINARY ACTION OF THE LD. AO TO REDUCE RS.5,62,00,000/ - FROM THE DISCLOSED PROFIT FROM CONTRACT BUSINESS OF RS.5,88,25,750/ - IS PATENTLY WRONG. ONCE, THIS ACTION OF THE LD. AO IS FOUND TO BE ERRONEOUS, THE ENTIRE REASONING GIVEN BY THE LD. AO THAT PROFIT HAS DECLINED COMPLETELY VANISHES. WE FIND THAT THE LD. AR HAD PLACED ON RECORD THE COMPARATIVE CHART OF GROSS PROFIT AND NET PROFIT DERIVED BY HIM FROM HIS CONTRACT BUSINESS ALONE AS UNDER: - ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 7 A.Y. G.P RATE NP RATE 2009 - 10 2.63% 10.21% 2010 - 11 6.57% 8.71% 2011 - 12 11.36% 10.44% 2012 - 13 13.46% 15.72% 5.1 . FROM THE ABOVE CHART, IT COULD BE SAFELY CONCLUDED THAT BO TH GROSS PROFIT AND NET PROFIT HAD ONLY INC RE ASED DURING THE YEAR UN DER CONSIDERATION AND HENCE, THE ENTIRE FINDING OF THE LD. AO THAT PROFIT HAS DECLINED DURING THE YEAR WHICH IN TURN WAS DUE TO IMPROPER VALUATION OF WORK IN PROGRESS, NEEDS TO BE COMPLETELY IGNORED AS ERRONEOUS. FROM THE PERUSAL OF THE AUDITED FINANCIAL S TATEMENTS OF THE ASSESSEE, WE FIND THAT ASSESSEE WAS ALSO IN RE CEIPT OF DIRECT INCOME AND MAINTENANCE INCOME TO THE TUNE OF RS.2,02,12,594/ - AND RS.2,19,28,106/ - RESPECTIVELY WHICH WERE OFFERED TO TAX AS BUSINESS INCOME BY THE ASSESSEE AND ASSESSED AS SUCH BY THE LD. AO. THESE TWO FIGURES WERE INCLUDED AS PART OF TOTAL TURNOVER BY THE LD. AO WHILE ESTIMATING THE NET PROFIT OF 9% THEREON , BUT WERE SOUGHT TO BE EXCLUDED BY THE LD. CIT(A) AS THEY WERE NOT DERIVED FROM CONTRACT BUSINESS. WE FIND THAT ASSESSEE HAD MAINTAINED THE CONSOLIDATED FINANCIAL STATEMENTS FOR ALL HIS BUSINESS ACTIVITIES CARRIED OUT INCLUDING THE CONTRACT BUSINESS AND FROM WHICH DIVISION WISE TRANSACTIONS, TURNOVER, PURCHASES, EXPENSES AND ITS RELATED PROFITABILITY COULD BE PROPERLY DEDUCE D THERE FROM. THESE DETAILS WERE ALSO PROVIDED BEFORE THE LD. AO AND BEFORE THE LD. CIT(A). THE LD. CIT(A) HAD RESORTED TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ONLY IN RESPECT OF CONTRACT BUSINESS ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 8 AND DETERMINED THE NET PROFIT THEREON AT 9%. THIS I S A CLASSIC CASE OF REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE PARTIALLY BY THE LD. CIT(A). 5.2 . WE HAVE ALREADY GIVEN OUR DETAILED OBSERVATIONS SUPRA, DISREGARDING THE PRIMARY CONTENTIONS OF THE LD. AO TO REJECT THE BOOKS OF ACCOUNTS. HENCE, WE HOLD THAT THIS IS NOT A FIT CASE FOR REJECTION OF BOOKS OF ACCOUNTS AND BOOK RESULTS U/S.145(3) OF THE ACT AND ESTIMATING THE NET PROFIT OF THE ASSESSEE THEREON. AT THE COST OF REPETITION, WE FIND THAT BOTH THE GROSS PROFIT AND NET PROFIT RATIOS HAD INDEED INCR EASED DURING THE YEAR IN CONTRACT BUSINESS AS WELL AS IN THE OVERALL BUSINESS ACTIVITIES. ACCORDINGLY, WE DIRECT THE LD. AO TO DELETE THE ADDITION MADE IN THE SUM OF RS.2,60,19,675/ - TOWARDS ESTIMATION OF NET PROFIT AND ACCEPT THE BOOK RESULTS OF THE ASSES SEE IN THE FACTS OF THE INSTANT CASE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 09 /201 9 SD/ - ( RAM LAL NEGI ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 09 / 2019 KARUNA , SR.PS ITA NO . ITA NO.3896/MUM/2017 SHRI RUDRAPRATAP R TRIPATHI 9 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CI T 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//