PRAGATI ENTERPRISES, MUMBAI V. ITO WD 15(3)(2), MUMBAI

ITA 4668/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100782 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , ACCOUNTANT MEMBER AND SHRI PAWAN SINGH , JUDICIAL MEMBER ./ I.T.A. NO. 4668/MUM/2012 ( / ASSESSM ENT YEAR: 2007 - 08 ) PRAGATI ENTERPRISES A - 403, PADMAVATI NAGAR, DUMPING ROAD, MULUND (W), MUMBAI - 400 080 / VS. ITO WARD 15(3)(2), MUMBAI ./ ./ PAN/GIR NO. AAHFP 19041 B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI BHUPENDRA SHAH / RESPONDENT BY : SHRI B. S. BIST / DATE OF HEARING : 12.08.2015 / DATE OF PRONOUNCEMENT : 19 .08.2015 / O R D E R PER R. C. SHARMA , A . M.: THIS IS AN A PPEAL FILED BY THE ASSESSEE AGAINST THE O RDER BY THE LD. CIT(A) - 26 , MUMBAI DATED 16.04.2012 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR (A.Y.) 2007 - 08 . FOLLOWING GROUNDS HAVE BEEN TAKEN B Y THE ASSESSEE: 1. IN THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ERRED IN HOLDING THAT PROFIT OF 10.25% OF THE WORK RECEIPTS IS A FTER INTEREST PAYABLE TO THE PARTNERS BY DISREGARDING THE PRO FIT AND LOSS ACCOUNT AS WELL AS A UDITED BOOKS 2 ITA NO. 4668/MUM/2012 (A.Y. 2007 - 08) PRAGATI ENTERPRISES VS. ITO OF ACCOUNTS IN WHICH INTEREST ON C APITAL AS WELL AS REMUNERATION TO THE PARTNER IS OFFERED IN PROFIT & LOSS APPROPRIATION ACCOUNT AND ALSO DISREGARDING THE PARTNERSHIP DEED PERMITTING SUCH INTEREST PAYABLE TO THE PARTNERS ON THEIR CAPITAL ACCO UNT. THE COMMISSIONER OF INCOME TAX(A) ALSO ERR ED IN NOT DECIDING THE SAME. 2. IN THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX(A) E RRED IN MAKING AN ENHANCEMENT OF PR O FITS @ 17% OF BOOKING AMOUNTS INSTEAD OF 10.25% DECLARED BY T HE APPELLANT, ALTHOUGH THE SAID ADDITION WAS NOT MADE BY THE ASSESSING OFFICER IN T HE ORIGINAL ASSESSMENT ORDER AND THAT TOO WITHOUT APPRECIATING REPLY TO T HE NOTICE OF ENHANCEMENT AS REGUIRE D UNDER THE LAW. WITHOUT PREJUDICE TO THE ABOVE A ND ALTERNATIVELY . 3. IN THE FA CTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE COMMISSIONER OF INCOME TAX (A) ERRED IN MAKING A N ENHANCEMENT OF PRO FI TS @ 17% OF BOOKING AMOUNTS INSTEAD OF 10.25% DECLARED BY TH E APPELLANT WITHOUT DIRECTING ASSESSING OFFI CER TO RECALCULATE WIP & N.P. OF A Y. 2008 - 09, AY 2009 - 10 & AY 2 010 - 11 DIRECTL Y AFFECTED BY THIS ESTIMATION SO AS TO NULLIFY THE EFF E C T OF PREPONED WIP OVER THE PROJECT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. F ACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF BUILDERS & DEVELOPERS. DURING THE YEAR, THE ASSESSEE HAS DECLARED 10.25% PROFIT ON BOOKING AMOUNT COLLECTED DURING THE YEAR. DURING ASSESSMENT YEAR THE FLAT INSTALLMENTS RECEIVED IS ` .9,06,12,965/ - . ASSESSEE HAS ESTIMATED THE PROFIT @ 10.25% ` .92,87,801/ - . OUT OF THIS ASSESSEE HAS CLAIMED INTEREST ON CAPITAL AMOUNTING ` .18,25,005/ - . WITHOUT GIVING ANY REASON THE AO DID NOT ALLOW THE ASSESSEES CLAIM OF INTEREST AND TAKEN 10.25% PROFIT AS THE ASSESS EES INCOME AND ONLY ALLOWED CLAIM OF REMUNERATION TO THE PARTNERS. IN APPEAL FILED BEFORE THE LD. CIT(A), HE ENHANCED THE ASSESSMENT BY TAKING 17% OF THE BOOKING AMOUNT INSTEAD OF 10.25% DECLARED BY THE ASSESSEE. AGAINST THE ORDER OF LD. CIT(A), THE ASSES SEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS A PARTNERSHIP FIRM, THE TERMS OF PARTNERSHIP DEED CLEARLY PROVIDE FOR PAYMENT OF INTEREST ON T HE PARTNERS CAPITAL AS PER THE PROVISION OF 3 ITA NO. 4668/MUM/2012 (A.Y. 2007 - 08) PRAGATI ENTERPRISES VS. ITO SECTION 40(B) OF THE ACT. ACCORDINGLY, THERE IS NO MERIT IN THE A.O.S ACTION FOR NOT ALLOWING THE ASSESSEES CLAIM OF INTEREST ON PARTNERS CAPITAL WHICH WAS PRECISELY AS PER THE TERMS OF THE PARTNERSHIP DEED. A CCORDINGLY, WE AGREE WITH THE CONTENTION OF THE LD. AR THAT THE A.O. HAS WRONGLY DISALLOWED THE ASSESSEES CLAIM OF INTEREST ON PARTNERS CAPITAL. WE FOUND THAT THE ASSESSEE HAS ESTIMATED ITS PROFIT AT 10.25% ON THE GROSS RECEIPTS. HOWEVER, THE LD. CIT(A) ENHANCED THE SAME TO 17% ON THE PLEA THAT THE ASSESSEE HAD SHOWN HIGH PROFIT RATE IN THE EARLIER AND SUBSEQUENT YEAR. AS PER OUR CONSIDERED VIEW WITHOUT REJECTING THE BOOKS OF ACCOUNT AND WITHOUT FINDING ANY FAULT IN THE ENTRIES MADE IN THE BOOKS OF ACCOU NT, THE LD. C IT(A) CANNOT ENHANCE THE NET PROFIT RATE SHOWN BY THE ASSESSEE , INSOFAR AS THE NET PROFIT RATE SO SHOWN WAS EVEN MORE THAN THAT PRESUM ATIVE RATE OF 8% IN CASE OF CONTRACTOR . THE ASSESSEE HAD SHOWN NET PROFIT RAT E OF 10.25% WHICH IS MORE THAN 8 %, WHICH IS TAKEN BY THE DEPARTMENT IN CASE THE ASSESSEE IS NOT KEEPING PROPER BOOKS OF ACCOUNT AND ITS TURNOVER IS BELOW AUDIT LIMIT. MERELY BECAUSE IN EARLIER AND SUBSEQUENT YEAR THE ASSESSEE HAD HIGH NET PROFIT RATE BECAUSE OF THE LOWER SALES, IT IS NOT OPEN TO THE LD. CIT(A) TO ENHANCE THE NET PROFIT RATE ON PRESUMPTION AND SURMISES WITHOUT FINDING FAULT IN BOOKS OF ACCOUNTS AND REJECTING THE SAME U/S.145(3) OF I. T. ACT . ACCORDINGLY, WE DO NOT FIND AN Y MERIT IN THE ENHANCEMENT OF NET PROFIT RATE MADE B Y THE LD. CIT(A) WITHOUT SHOWING ANY COGENT REASON. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 1 9 , 201 5 SD/ - SD/ - ( PAWAN SINGH ) ( R. C. S HARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI ; / DATED : 19 . 0 8 .201 5 . . ./ ROSHANI , SR. PS 4 ITA NO. 4668/MUM/2012 (A.Y. 2007 - 08) PRAGATI ENTERPRISES VS. ITO / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI