DCIT, New Delhi V. M/s. Veolia Water (India) Pvt. Ltd., New Delhi

ITA 4503/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91126 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 02-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SYED NASIR ALI
• Assessee Lawyers: SANAT KAPOOR S
• Keywords: Rejection of books of accounts
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.4503/DEL./2011 (ASSESSMENT YEAR : 2008-09) JCIT, CIRCLE 17 (1), VS. M/S. VEOLIA WATER (INDIA) PVT. LTD., NEW DELHI. B 1, MARBLE ARCH, 9, PRITHVI RAJ ROAD, NEW DELHI 110 011. (PAN : AAEPG6222A) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SALIL KAPOOR & SANAT KAPOOR, ADVOCATES REVENUE BY : SHRI SYED NASIR ALI, CIT DR DATE OF HEARING : 02.06.2015 DATE OF PRONOUNCEMENT : .06.2015 O R D E R PER GEORGE GEORGE K., JM : THIS APPEAL, AT THE INSTANCE OF THE DEPARTMENT, IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-X IX, NEW DELHI DATED 11.07.2011. THE RELEVANT ASSESSMENT YEAR IS 2008-09 . 2. THE SOLITARY EFFECTIVE GROUND RAISED READS AS FO LLOWS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) HAS ERRED IN ACCEPTING THE TRADING RESULTS OF THE ASSESSEE BY IGNORING THE FACT THAT T HE ASSESSEE WAS NOT DECLARING CORRECT INCOME, THEREBY ESCAPING FLAT NP RATE WHEREIN NO COMPARABLE CASE WAS FURNISHED. ITA NO.4503/DEL./2011 2 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF CIVIL CONSTRUCTION, OPERATION & MAINTENANCE, CONSULTANCY & OUTSOURCING SERVICES IN PROCESS WATER & WASTE WATER MANAGEMENT FOR MUNICIPALITIES AND INDUSTRIAL COMPANIES. IN THE RELEVANT ASSESSME NT YEAR, ASSESSEE HAS FILED RETURN OF INCOME DECLARING LOSS OF RS.8,00,15 ,557/-. ASSESSMENT WAS TAKEN UP FOR SCRUTINY AND THE SCRUTINY ASSESSMENT W AS COMPLETED U/S 143(3) OF THE ACT ASSESSING A TOTAL INCOME OF RS.4, 64,30,837/- AND RAISED A DEMAND OF RS.2,01,20,356/-. SUBSEQUENTLY, ON THE B ASIS OF A RECTIFICATION U/S 154 OF THE ACT, TOTAL ASSESSABLE INCOME WAS RED UCED TO RS.93,19,262/- AND TAX WAS DEMANDED AT RS.34,33,111/- (RECTIFIED O RDER DATED 07.02.2011). THE ASSESSING OFFICER HAD ESTIMATED T HE NET INCOME @ 8% OF THE TURNOVER. THE RELEVANT OBSERVATION OF THE A SSESSING OFFICER IN ESTIMATING THE NET PROFIT AT 8% OF THE TURNOVER AND REJECTING THE BOOKS OF ACCOUNTS READS AS UNDER : 2.9 ABOVE REPLY OF THE ASSESSEE WAS CONSIDERED AN D EXAMINED. THERE IS NO MERITS IN REPLY OF THE ASSESSEE. IT IS SEEN THAT THE ASSESSEE HAS ABSOLUTELY NO SCIENTIFIC BASIS FOR YEAR-WISE AP PORTIONING OF EXPENSES AND RECOGNITION OF REVENUE. ASSESSEE HAS S UBMITTED THAT THE CONTRACTS AND PROJECTS ARE CONTINUING AT VARIOUS SI TES AND THAT THE SAME ARE OF CONTINUING NATURE INVOLVING MANY YEARS TO GET COMPLETED. IT IS SEEN THAT ASSESSEE IS NOT DECLARING CORRECT I NCOME ON YEAR-WISE BASIS AND THEREFORE METHOD OF APPLYING FLAT NP RATE IN THE CASE IS NECESSITATED. THE NET PROFIT RATIO 2 TO 3% AS DIVUL GED BY THE ASSESSEE IS EXTREMELY LOW. ASSESSEE DID NOT FURNISH ANYTHING \ TO THE EFFECT OF COMPARABLE CASE, FOR WHICH IT WAS SPECIFICALLY ASKE D TO EXPLAIN AND BRING. IT IS NOTED THAT A COMPARABLE CASE OF CIT V. K.Y. PILLIAH & SONS, 63 ITR 411 (SC) WAS FOUND. CONSIDERING ALL TH E FACTS AND CIRCUMSTANCES OF THE CASE, A NET PROFIT RATIO OF 8% ON TOTAL TURNOVER IS ADOPTED AND ACCORDINGLY THE TOTAL INCOME OF THE ASS ESSEE FOR THIS ASSESSMENT YEAR IS ASSESSED BASED ON SUCH NET PROFI T RATIO BEING @ 8% OF TURNOVER DECLARED BY THE ASSESSEE :- ITA NO.4503/DEL./2011 3 WITH THE ABOVE REMARKS, THE TOTAL INCOME OF THE ASS ESSEE IS COMPUTED AS UNDER :- TOTAL TURNOVER DECLARED BY THE ASSESSEE FOR THE YEAR : RS.51,85,07,326/- LESS: INTEREST INCOME RS. 53,80,708/- BUSINESS TURNOVER RS.51,31,26,618/- NET PROFIT ASSESSED @ 8% ON ABOVE TURNOVER RS. 4, 10,50,129/- ADD : INTEREST INCOME RS. 53,80,708/- TOTAL INCOME RS. 4,64,30,837/- 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO T HE FIRST APPELLATE AUTHORITY. THE CIT (A) HELD THAT ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE INCOME AT FLAT NET PROFIT OF 8% OF THE TURNOVER. THE CIT (A) WAS OF THE VIEW THAT ASSESSING OFFICER HAD NOT POINTED OUT ANY MISTAKE IN THE BOOKS OF ACC OUNTS AND THERE WAS NO UNDER-STATEMENT OF INCOME. THE CIT (A) DIRECTED THE ASSESSING OFFICER TO ACCEPT AUDITED BOOKS OF ACCOUNTS. THE RELEVANT FIN DING OF THE CIT (A) READS AS FOLLOWS :- 7.9 THE OTHER ISSUE IS WHETHER THE AO IS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT TO ESTIMATE INCOME. THE APPELLANT HAS FURNISHED THE DETAILS CALLED FOR. THE BOOKS OF ACCOUNT AS PRESCRIBED ARE MAINTAINED AND ALSO THE B OOKS OF ACCOUNT ARE AUDITED AS SEEN FROM THE 3 CA AND 3 CD REPORTS. THE APPELLANT HAS RECOGNIZED THE INCOME AS PER ONE OF THE RECOGNIZED METHODS OF ACCOUNT FOLLOWING ACCO UNTING STANDARDS IN TERMS OF S. 145. THE AO HAS NOT POINT ED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT. THE AO MUST PR OVE THAT INCOME WAS UNDERSTATED OR INCOME COULD NOT BE COMPUTED FROM THE ACCOUNTS MAINTAINED. IN THIS CASE THERE ARE AUDITED BOOKS OF ACCOUNT. LOW INCOME MAY BE ONE OF THE FACTORS TO BE TAKEN INTO ACCOUNT WHILE RESORTIN G TO REJECTION OF TRADING RESULTS BUT IT SHOULD NOT BE T HE SOLE BASIS. THE AO MADE SOME CASUAL REMARKS AND PROCEEDE D TO ESTIMATE INCOME. THE ACTION OF THE AO IS NOT IN ACC ORDANCE ITA NO.4503/DEL./2011 4 WITH THE LEGAL POSITION AS ON DATE ON THE ISSUE. IN VIEW OF THE ABOVE DISCUSSION, THE AO IS HEREBY DIRECTED TO ACCE PT THE PROFIT DECLARED BY THE APPELLANT AND DISALLOW THE F UTURE LOSS OF RS.1,98,13,410. 5. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFOR E US. 6. LD. DR RELIED ON THE ORDER OF THE ASSESSMENT ORD ER. THE AR, ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME-TAX AUTHORITIES AND RELIED ON THE JUDGMENT OF HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. WINNER CONSTRUCTIONS PVT. LT D. IN ITA NO.796/2011 ORDER DATED 3 RD MAY, 2012 WHICH, ACCORDING TO HIM, IS IDENTICAL TO THE FACTS OF THE INSTANT CASE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER HAD RESORTED TO ESTI MATION OF NET PROFIT AT THE RATE OF 8% OF THE TURNOVER, PRIMARILY STATING T HAT THE ASSESSEE HAS ABSOLUTELY NO SCIENTIFIC BASIS FOR YEARWISE APPORTI ONING OF EXPENSES AND RECOGNITION OF REVENUE . THE ASSESSEE COMPANY HAS BEEN FOLLOWING ACCOUNTING STANDARDS AS-7, NAMELY, RECOGNIZING INCO ME ON PERCENTAGE COMPLETION METHOD. THE ASSESSEE COMPANY HAD MAINTA INED SEPARATE ACCOUNTING FOR ALL THE ONGOING PROJECTS AND THE EXP ENSES ARE ALSO BOOKED UNDER THE RESPECTIVE PROJECTS. THOUGH THE ASSESSEE COMPANY HAD STARTED OPERATIONS IN THE CURRENT ASSESSMENT YEAR, THIS MET HOD OF ACCOUNTING WAS CONSISTENTLY FOLLOWED IN THE SUBSEQUENT ASSESSMENT YEARS ALSO. THE TOTAL INCOME AND ITS RECONCILIATION WITH THE TDS ARE ENCL OSED IN THE PAPER BOOK ITA NO.4503/DEL./2011 5 FILED BY THE ASSESSEE. THE DETAILS OF THE INCOME A ND THE PARTY-WISE RECEIPTS OF THE ASSESSEE COMPANY DURING THE RELEVANT ASSESSM ENT YEAR ARE ALSO FILED. THE COMPANY HAD LISTED OUT THE REASONS FOR BUSINESS LOSSES IN THE VARIOUS PROJECTS BEFORE THE INCOME-TAX AUTHORITIES. THE CI T (A) HAD TAKEN INTO CONSIDERATION THE REASONS GIVEN BY THE ASSESSEE FOR INCURRING HUGE LOSS, WHILE ARRIVING AT HIS CONCLUSIONS. THE ASSESSEE COM PANY HAD POINTED OUT THAT THE RELEVANT ASSESSMENT YEAR WAS THE FIRST YEA R OF THE OPERATION AND DURING THE IMPLEMENTATION/REHABILITATION AND AUGMEN TATION STAGE OF A PROJECT, THE PROFIT MARGINS ARE NEGLIGIBLE. IT WA S SUBMITTED THAT PROFITS STARTED TO ACCRUE ONLY ON THE COMPLETION STAGE OR W HEN THE MAINTENANCE STAGE IS ARRIVED. IT WAS FURTHER SUBMITTED THAT TH E COMPANY ERRED IN MAKING COST ESTIMATES OF THE PROJECT WHICH HAD RESULTED IN LOSSES TO THE COMPANY. THE CIT (A) HAD CATEGORICALLY FOUND THAT THE ASSESS ING OFFICER HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS MAI NTAINED BY THE ASSESSEE WHICH ARE DULY AUDITED. THE ASSESSING OFFICER HAS MERELY ADOPTED FLAT RATE OF 8% OF NET PROFIT OF THE TURNOVER DISCLOSED BY THE ASSESSEE. WE ARE OF THE VIEW THAT REJECTION OF BOOKS OF ACCOUNTS AND MAKING OF AN ESTIMATION OF INCOME WITHOUT POINTING OUT ANY SPECI FIC DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WHICH WAS DU LY AUDITED, IS UNCALLED FOR. THE JUDGMENT RELIED ON BY THE ASSESSING OFFIC ER IN THE CASE OF CIT VS. K.Y. PILLAH & SONS REPORTED IN 63 ITR 411 IS DI STINGUISHABLE ON FACTS. IN THE ABOVE REFERRED CASE, THE ASSESSING OFFICER MADE DETAILED ENQUIRY ITA NO.4503/DEL./2011 6 AND HAD FOUND THAT ASSESSEE HAD AFFECTED SALES IN HIS SONS NAME AND THE SAME HAS NOT BEEN ENTERED INTO THE BOOKS OF ACCOUNT OF THE ASSESSEE. FURTHER, THE GP (NOT NP) ON SALES WO RKED OUT AT 3.8% WHILE IN THE CASE OF OTHER MERCHANTS CARRYING OUT SIMILAR BUSINESS IN THE SAME LOCALITY WORKED OUT AT 6 TO 7% AND THERE WAS NO EVI DENCE OF ACTUAL PAYMENT OF CREDIT PURCHASES SHOWN IN THE BOOKS OF A CCOUNTS. IN THE INSTANT CASE, THE FACTS ARE ENTIRELY DIFFERENT AS ALL THE R ECEIPTS AND PAYMENTS HAVE BEEN PROPERLY DISCLOSED IN THE BOOKS OF ACCOUNTS AN D NO INFIRMITY PER SE ON THE ACCOUNTS OF THE ASSESSEE WAS POINTED OUT BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ALSO NOT BEEN ABLE TO SHOW AN Y COMPARABLE CASES IN ADOPTING NET PROFIT OF 8% OF THE TOTAL TURNOVER IN SIMILAR LINE OF BUSINESS. THE CIT (A)S REASONING IN DIRECTING THE ASSESSING OFFICER TO ACCEPT THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY ADOPTING THE N ET PROFIT RATE OF 2 3% OF THE TOTAL TURNOVER DISCLOSED BY THE ASSESSEE IS REASONABLE AND DOES NOT WARRANT ANY INTERFERENCE. IT IS ORDERED ACCORDINGL Y. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 5 TH DAY OF JUNE, 2015. SD/- SD/- (N.K. SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 5 TH DAY OF JUNE, 2015/TS ITA NO.4503/DEL./2011 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.