Narasi Bucha Mitmedi (M. Narsi Redd), Satara V. Deputy Commissioner of Income-tax,

ITA 405/PUN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93974 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 44AD

Judgement Text

] IQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE ! ' BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS.404 & 405/PN/2014 !# $ %$ / ASSESSMENT YEARS : 2008-09 & 2009-10 SHRI NARASI BUCHA MITMEDI (M. NARSI REDDY), PLOT NO.1, AKSHAYKRUPA HOUSING SOCIETY, KRISHNANAGAR, SATARA - 415003 PAN NO.ABYPM5357K . / APPELLANT V/S DCIT, SATARA CIRCLE, SATARA . / RESPONDENT / APPELLANT BY : NONE / DEPARTMENT BY : SHRI . RAJESH DAMOR & / ORDER PER R.K. PANDA, AM : THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST THE ORDER DATED 02-12-2013 OF THE CIT(A)-III, P UNE RELATING TO ASSESSMENT YEARS 2008-09 & 2009-10 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE, BOTH THE APPEALS WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. / DATE OF HEARING :28.07.2015 / DATE OF PRONOUNCEMENT:29.07.2015 2 ITA NOS.404 AND 405/PN/2014 2. NOTICE ISSUED BY THE REGISTRY THROUGH RPAD WAS RETU RNED BY THE POSTAL AUTHORITIES WITH THE REMARK UNCLAIMED. THE N OTICE WAS SENT TO THE APPELLANT IN THE ADDRESS GIVEN IN FORM N O.36. SINCE THE SAME WAS RETURNED BY THE POSTAL AUTHORITIES AS UNCLAIMED, THEREFORE, IN ABSENCE OF ANY ADJOURNMENT PETITION FILED BY THE ASSESSEE, THE APPEALS ARE BEING DECIDED ON THE B ASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE. 3. FIRST WE TAKE UP ITA NO.404/PN/2014 FOR A.Y. 2008-09. 4. THE ONLY GROUND RAISED BY THE ASSESSEE READS AS UNDER : THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDIN G ESTIMATION OF PROFIT AT 8% OF TOTAL TURNOVER WHEN IN FACT THE PAST HISTORY OF THE ASSESSEE SHOWS THAT ASSESSEES NET PROFIT PERCENTAGE WAS AT AR OUND 5% TO 6%. HE FURTHER FAILED TO APPRECIATE THE CONT ENTIONS AND ARGUMENTS ADVANCED IN THIS BEHALF. 5. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUA L AND IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. HE FILED HIS RETURN OF INCOME ON 31-03-2009 DECLARING TOTAL INCOME OF RS.18,96,31 0/-. DESPITE THE SERVICE OF STATUTORY NOTICES, THERE WAS NON- COMPLIANCE BY THE ASSESSEE FOR WHICH THE AO HAD TO RESORT TO PRO VISIONS OF SECTION 271(1)(B) OF THE I.T. ACT, 1961. THE AO THEREAFTER P ROCEEDED TO COMPLETE THE ASSESSMENT U/S.144 OF THE I.T. ACT. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED FROM THE STATEMENT OF ACCOUNTS ANNEXED TO THE AUDIT REPORT ALON GWITH THE RETURN OF INCOME THAT AS AGAINST TOTAL CONTRACT RECEIPT OF RS.3,13,14,680/- THE ASSESSEE HAS DECLARED PROFIT OF RS.18,96,310/-. FURTHER, THE ASSESSEE HAS DEBITED VARIOUS EXPENSES TO THE PROFIT AND LOSS ACCOUNT WHICH COULD NOT BE EXAMINED IN ABSENCE OF PRODUCTION OF BOOKS OF ACCOUNT. T HE AO 3 ITA NOS.404 AND 405/PN/2014 THEREFORE RESORTING TO THE PROVISIONS OF SECTION 44AD OF T HE I.T. ACT ESTIMATED THE PROFIT FROM CONTRACT WORK @8% OF THE CONTR ACT RECEIPT OF RS.3,13,14,680/- WHICH CAME TO RS.25,05,175/-. SIMILARLY, IN ABSENCE OF PRODUCTION OF ANY EVIDENCE FOR CLAIMING VARIOUS EXPENSES AND OBSERVING FROM THE AUDIT REPORT WHERE THE AUDITORS HAVE REMARKED THAT ELEMENT OF PERSONAL EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT CANNOT BE RULED OUT, THE AO DISA LLOWED EXPENSES OF RS.57,922/- OUT OF TRAVELLING EXPENSES, VEHICLE R EPAIRS AND MAINTENANCE EXPENSES, TELEPHONE CHARGES AND CELL PHO NE CHARGES DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE AO FURTHER NOTED THAT ALTHOUGH THE ASSESSEE HAS RECEIVED INTEREST FROM BANK OF MAHARASHTRA AMOUNTING TO RS.69,363/- ON 31-03-2008, T HE SAME HAS NOT BEEN SHOWN IN THE RETURN OF INCOME. THE A O, THEREFORE, ADDED THIS AMOUNT OF RS.69,363/- TO THE TOTAL INCOME OF THE ASSESSEE. 6. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE ORDER OF THE AO IN ESTIMATING THE PROFIT AT 8% OF THE CONTRACT RECEIPT. IT WAS SUBMITTED THAT PROVISIONS OF SECTION 44AD ARE NOT APPLICA BLE TO THE FACTS OF THE CASE SINCE THE TURNOVER IS MORE THAN RS.40 LAKHS. THE NET PROFIT DISCLOSED BY THE ASSESSEE FROM A.Y. 2004-05 TILL A .Y. 2009-10 WAS BROUGHT TO THE NOTICE OF THE CIT(A) WHICH IS AS UNDER : A.Y. TURNOVER N.P. % 2004-05 20080177 1045816 5.20 2005-06 18356284 638711 3.48 2006-07 29609593 1790088 6.05 2007-08 30365799 1540826 5.07 2008-09 31314689 1996313 6.38 2009-10 32897853 1823240 5.54 4 ITA NOS.404 AND 405/PN/2014 IT WAS ACCORDINGLY SUBMITTED THAT THE NET PROFIT DECLARE D BY THE ASSESSEE DURING THE YEAR AT 6.38% BEING MORE THAN THE PROFIT DISCLOSED IN THE PRECEDING YEARS SHOULD BE ACCEPTED. 7. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. SHE NOTED THAT THE CONTENTION OF THE ASSESSEE IS TECHNICALLY CORRECT AS PROVISIONS OF SECTION 4 4AD ARE ATTRACTED ONLY IN CASES WHERE THE GROSS TURNOVER FROM THE CIVIL CONTRACT BUSINESS EXCEED RS.40 LAKHS. HOWEVER, SHE NOTED THAT THE AO HAS RESORTED TO THE SAME PROVISION TO REASONABLY E STIMATE THE PROFIT OF ASSESSEE FROM SUCH CIVIL CONSTRUCTION BUSINESS SIN CE THE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNTS BEFOR E THE AO NOR ATTENDED THE PROCEEDING BEFORE HIM. THEREFORE, MERE FILING OF THE AUDIT REPORT BY ITSELF DID NOT VOUCH FOR THE ADMISSIB ILITY OF THE VARIOUS CLAIMS MADE BY THE ASSESSEE AND THEY ARE STILL AM ENABLE TO INDEPENDENT VERIFICATION AND EXAMINATION BY THE AO DURING THE SCRUTINY ASSESSMENTS. SHE FURTHER NOTED THAT THE AUDIT ORS IN THE AUDIT REPORT HAVE ALSO QUALIFIED IN COLUMN NO.16(B) FOR BOTH TH E YEARS THAT POSSIBLE CASH PAYMENTS DISALLOWABLE U/S.40A(3) C OULD NOT BE VERIFIED AS THE NECESSARY EVIDENCE IS NOT IN POSSE SSION OF THE ASSESSEE. THEREFORE, IN SUCH A SCENARIO, REJECTION OF BOOK RESULTS BY THE AO AND ESTIMATION OF THE PROFIT FROM CONTRACT RECE IPT CANNOT BE SAID TO BE UNJUSTIFIED. 8. SO FAR AS THE ESTIMATION OF PROFIT AT 8% IS CONCERNED SH E UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE AS SESSEE FAILED MISERABLY TO DISCHARGE THE ONUS CAST ON HIM BY PRODUCI NG THE BOOKS OF ACCOUNT AND SUBSTANTIATE THE VARIOUS EXPENSES CLAIMED. SHE HELD THAT SINCE THE ASSESSEE IN THE INSTANT CASE W AS UNABLE TO 5 ITA NOS.404 AND 405/PN/2014 SUBSTANTIATE THE PROFIT PERCENTAGE DISCLOSED BY IT IN BOTH THE YEARS UNDER CONSIDERATION, THEREFORE, DESPITE THE AUDIT REPORT FILE D BY THE ASSESSEE U/S.44AB OF THE ACT, THE AO WAS JUSTIFIED IN ADOP TING THE PROFIT RATIO SET OUT IN SECTION 44AD AS A COMPARABLE CASE TO ESTIMATE THE PROFIT POSSIBLE IN SUCH CASES. 9. SO FAR AS THE VARIOUS EXPENSES DISALLOWED ON ESTIMATE B ASIS IS CONCERNED, THE LD.CIT(A) DELETED SUCH DISALLOWANCES ON T HE GROUND THAT ONCE THE PROFIT IS ESTIMATED NO FURTHER DISALLO WANCE IS CALLED FOR. THE REVENUE IS NOT IN APPEAL AGAINST SUCH RELIEF. 10. AS REGARDS THE ADDITION OF INTEREST IS CONCERNED IN AB SENCE OF ANY ARGUMENTS BEFORE HER DURING APPEAL PROCEEDINGS SHE SUSTAINED THE ADDITION MADE BY THE AO. THE ASSESSEE IS NOT IN AP PEAL ON THIS ISSUE. 11. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE CONSIDERED THE ARGUMENTS ADVANCED BY THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND IN THE INSTANT CASE THE ASSESSEE IS A C IVIL CONTRACTOR AND FILED HIS RETURN OF INCOME DISCLOSING A PROFIT OF RS.18,96,310/-. ALTHOUGH THE RETURN WAS ACCOMPANIED WITH AUDIT REPORT U/S.44AB, WE FIND THE ASSESSEE DID NOT APPEAR BEF ORE THE AO TO SUBSTANTIATE THE VARIOUS EXPENSES CLAIMED AND THE PROFIT DISCLOSED BY HIM ON A TURNOVER OF RS.3,13,14,689/-. DUE TO THE NON-APPEARANCE OF THE ASSESSEE, THE AO, DERIVING SUPPOR T FROM THE PROVISIONS OF SECTION 44AD, ESTIMATED THE PROFIT FROM CONTRA CT WORK AT 8% OF THE TURNOVER AND DETERMINED THE PROFIT FROM CON STRUCTION 6 ITA NOS.404 AND 405/PN/2014 ACTIVITY AT RS.25,05,175/-. WE FIND ALTHOUGH THE ASSESSEE B ROUGHT TO THE NOTICE OF THE CIT(A) THE TURNOVER AND NET PROFIT FO R DIFFERENT ASSESSMENT YEARS WHICH RANGES FROM 3.48% TO 6.05% FROM A.YRS. 2004-05 TO 2007-07, WE FIND THE LD.CIT(A) UPHELD THE ACT ION OF THE AO IN ESTIMATING THE PROFIT AT 8% OF THE TURNOVER. IT IS THE GRIEVANCE OF THE ASSESSEE IN THE GROUNDS OF APPEAL THAT SINCE THE PROFIT PERCENTAGE WAS AT AROUND 5 TO 6% IN THE PRECEDIN G ASSESSMENT YEAR, THEREFORE, THE ADOPTION OF 8% PROFIT IS N OT JUSTIFIED. FROM THE COMPARATIVE CHART FILED BEFORE CIT(A), WE FIND THE NET PROFIT OF THE ASSESSEE VARIES FROM 3.48% TO 6.05% DURING A.YRS 2004-05 TO 2007-08. FOR THE A.Y. 2008-09, THE ASS ESSEE HAS DECLARED NET PROFIT AT 6.38%. ALTHOUGH THE PROVISIONS OF S ECTION 44AD ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CAS E SINCE THE TURNOVER OF THE ASSESSEE HAS EXCEEDED RS.40 LAKHS AND SINCE THE ASSESSEE HAS ALSO ENCLOSED THE AUDIT REPORT U/S.44AB, HO WEVER, THE FACT REMAINS THAT ASSESSEE HAS NOT PARTICIPATED IN T HE ASSESSMENT PROCEEDINGS BY PRODUCING THE BOOKS OF ACCOU NT MAINTAINED AND THE VOUCHERS FOR VERIFICATION OF THE AO. THE REFORE, THE PROFIT DECLARED BY THE ASSESSEE IN THE RETURN OF INC OME CANNOT BE ACCEPTED IN ABSENCE OF PRODUCTION OF ACCOUNTS BEFORE THE AO. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND CONSIDERING THE PAST RESULTS ADOPTION OF 7% PROFIT ON THE TURNOVER OF RS.3,13,14,689/- IN OUR OPINION WILL MEET THE ENDS OF JUSTIC E. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY TH E ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. ITA NO. 405/PN/2014 (A.Y. 2009-10) : 13. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE REA DS AS UNDER : 7 ITA NOS.404 AND 405/PN/2014 THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDIN G ESTIMATION OF PROFIT AT 8% OF TOTAL TURNOVER WHEN IN FACT THE PAST HISTORY OF THE ASSESSEE SHOWS THAT ASSESSEES NET PROFIT PERCENTAGE WAS AT AR OUND 5% TO 6%. HE FURTHER FAILED TO APPRECIATE THE CONT ENTIONS AND ARGUMENTS ADVANCED IN THIS BEHALF. 14. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE FOR THE IMPUG NED ASSESSMENT YEAR FILED RETURN OF INCOME ON 24-09-2009 DE CLARING TOTAL INCOME OF RS.28,52,860/-. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE AO OBSERVED THAT THE TOTAL CONTRACT R ECEIPT OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR IS RS.3,28,97,85 3/- AND THE ASSESSEE HAS DEBITED VARIOUS EXPENSES TO THE PROFIT AND LOSS ACCOUNT SUCH AS PURCHASE OF RS.1,08,73,287/-, DIRECT EXPENSES OF RS. 1,95,12,834/- AND INDIRECT EXPENSES OF RS.46,22,902/-. IN ABSENCE OF PRODUCTION OF BOOKS OF ACCO UNT AND OTHER DETAILS FOR HIS VERIFICATION DESPITE REPEATED OPPORT UNITIES GIVEN, THE AO REJECTED THE BOOK RESULTS AND ESTIMATED T HE PROFIT FROM CONSTRUCTION BUSINESS AT 8% OF THE TURNOVER WHICH COMES TO RS.26,31,828/- AS AGAINST RS.18,23,240/- DECLARED BY THE ASSESSEE FROM SUCH CONSTRUCTION BUSINESS. IN APPEAL THE LD.CIT(A) U PHELD THE ACTION OF THE AO FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 15. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUND RAISED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR IS IDENTIC AL TO THE GROUND OF APPEAL RAISED IN ITA NO.404/PN/2014 FOR A.Y. 200 8-09. WE HAVE ALREADY DECIDED THE ISSUE AND HAVE DIRECTED THE AO TO ADOPT NET PROFIT OF 7% ON THE GROSS CONTRACT RECEIPT. FOLLOWING THE SAME RATIO, WE DIRECT THE AO TO ADOPT NET PROFIT OF 7% FO R THE IMPUGNED ASSESSMENT YEAR ALSO. THE GROUND RAISED BY T HE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 8 ITA NOS.404 AND 405/PN/2014 16. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; !' DATED : 29 TH JULY, 2015. LRH'K &'(!)*+%) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. $ $ % ( ) - III , IQ.KS / THE CIT(A)-III, PUNE 4. $ $ % - III , IQ.KS / THE CIT-, III, PUNE 5. 6. ()* ++,- , $ ,- , IQ.KS / DR, ITAT, A PUNE; */0 1 / GUARD FILE. &# , / BY ORDER , ( + //TRUE C ( + //TRUE COPY// 234 +5 ,6 / SR. PRIVATE SECRETARY $ ,-, IQ.KS / ITAT, PUNE