Ramanlal & Brothers, Ahmedabad V. The Dy.CIT.,(OSD)Circle-9, Ahmedabad

ITA 546/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5819 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S V AGARWAL
• Keywords: Business income
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 14/06/2008 DRAFTED ON: 21/06/ 2010 ITA NO.546/AHD/2008 ASSESSMENT YEAR : 2003-04 M/S.RAMANLAL & BROTHERS S-8, SHROFF CHAMBERS OPP. NAVCHETAN SCHOOL PALDI, AHMEDABAD-380007 VS. THE DY.CIT (OSD) CIRCLE-9 AHMEDABAD PAN/GIR NO. : AAEFR 9043 G (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.V. AGARWAL RESPONDENT BY: SHRI K.MADHUSUDAN, SR. D.R. O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-XV, AHMEDABAD DATED 13/12/2007. THE ONLY ISSUE PERTAINED TO THE CONFIRMATION OF LEVY OF PENALTY U/S.271(1)(C) OF THE I.T. ACT, 1961 OF R S.2,87,845/-. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING PENALTY ORDER U/S.271(1)(C) DATED 06/08/2007 AND THE ASSESSMENT O RDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 06/03/2006 W ERE THAT THE ASSESSEE- FIRM WAS IN THE BUSINESS OF ROAD CONSTRUCTION. IT WAS NOTICED BY THE ASSESSING OFFICER THAT DURING THE YEAR UNDER CONSID ERATION THE PROFIT WAS 0.41% AS AGAINST THE PROFIT @ 28.24% FOR ASSESSMENT YEAR 2002-03. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT FOR AS SESSMENT YEAR ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 2 - 2001-02 AS WELL THE RATE OF PROFIT WAS 31.59%. THE APPELLANT WAS GIVEN OPPORTUNITY, HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION SUBMITTED IN RESPECT OF THE IMPUGNED FA LL IN GROSS PROFIT. IN THE ABSENCE OF MAINTENANCE OF STOCK REGISTER, DETAI LS OF CONSUMPTION, ETC. THE ASSESSING OFFICER HAS INVOKED THE PROVISIO NS OF SECTION 145(3) OF THE I.T. ACT, 1961 AND ESTIMATED THE GROSS PROFIT A T 20% WITH THE RESULT, GROSS PROFIT ADDITION WAS MADE. 3. IN THE PENALTY ORDER IT HAS ALSO BEEN NOTED BY T HE ASSESSING OFFICER THAT WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS DIRECTED TO COMPUTE THE BUSINESS INCOME @ 8% OF THE GROSS RECEIPTS OF THE CONTRACTS AS PRESCRIBED U /S.44A, 44D OF THE I.T. ACT, 1961. IN RESPECT OF SALE OF CONSTRUCTION MATERIAL SUPPLIED THE PROFIT RATE AT 5% AS PRESCRIBED U/S.44AF OF TH E I.T. ACT, 1961 WAS APPLIED. SINCE A PART RELIEF WAS GRANTED, THER EFORE, THE ASSESSING OFFICER HAS TAKEN A VIEW THAT CONSIDERING THE FACTS OF THE CASE THAT THE ACCOUNTS HAVE NOT BEEN PROPERLY PRODU CED AND THE APPELLANT DELIBERATELY FAILED TO SUBSTANTIATE ITS R ETURNED INCOME, THEREFORE, LIABLE TO BE PENALIZED U/S. 271(1)(C) OF THE I.T.ACT, 1961. ACCORDINGLY, A PENALTY OF RS.2,87,845/- WAS IMPOSED . BEING AGGRIEVED THE ASSESSEE HAS CHALLENGED THE LEVY OF P ENALTY BEFORE THE FIRST APPELLATE AUTHORITY. 3.1. THOUGH THE LEARNED CIT(APPEALS) HAS ELABORATEL Y DISCUSSED THE LEGAL ASPECT AND THE SUBMISSIONS OF THE ASSESSE E, HOWEVER, HE ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 3 - HAS OPINED THAT THE ASSESSEE WAS NOT ABLE TO JUSTIF Y THE FALL OF GROSS PROFIT EITHER BY PRODUCING EVIDENCE OR THE NECESSAR Y BOOKS OF ACCOUNT. VIDE PARAGRAPH NO.15, THE LEARNED CIT(AP PEALS) HAS COMMENTED THAT ON ONE HAND THE ASSESSEE HAS CLAIMED THAT THE RETURN WAS FILED ON THE BASIS OF THE AUDITED BOOKS OF ACC OUNT, HOWEVER, ON THE OTHER HAND, THE ASSESSEE DID NOT FILE ANY PAPER IN SUPPORT OF THE FIGURES DECLARED IN THE SAID RETURN. HE HAS ALSO M ENTIONED THAT IN QUANTUM APPEAL, THE REJECTION OF BOOKS OF ACCOUNT W AS UPHELD BY THE LEARNED CIT(APPEALS) AND ON LEGAL PRINCIPLE THE ADD ITION WAS REDUCED BY INVOKING SECTION 44AD AND 44AF OF THE I. T. ACT, 1961. HE HAS ALSO NOTED THAT NO SECOND APPEAL WAS FILED B EFORE THE TRIBUNAL BY THIS ASSESSEE. THE LEVY OF PENALTY WAS AFFIRMED. 4. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO PERUSED THE COMPILATION FILED BEFORE US THROUGH WHI CH LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS PRIMA RILY RELIED UPON THE DETAILS FURNISHED BEFORE THE ASSESSING OFFICER IN SUPPORT OF THE EXPENSES CLAIMED AND THE GROSS PROFIT DECLARED. IT HAS ALSO BEEN PLACED ON RECORD THAT DUE TO CERTAIN UNAVOIDABLE CI RCUMSTANCES WHICH WERE BEYOND THE REACH OF THIS ASSESSEE, THE B OOKS OF ACCOUNT COULD NOT BE PRODUCED AT THAT POINT OF TIME. IT WA S EXPLAINED THAT THE ENTRY GATE OF THE ASSESSEES BUSINESS PREMISE S WAS SEALED BY THE AHMEDABAD MUNICIPAL CORPORATION, HENCE, DURING THOSE DAYS WHEN THE ASSESSMENT PROCEEDINGS WERE GOING ON, THE BOOKS OF ACCOUNT WERE NOT READILY AVAILABLE WHEN DEMANDED BY THE ASSESSING ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 4 - OFFICER. HOWEVER, THE VEHEMENT CONTENTION OF THE ASSESSEE WAS THAT THE BOOKS OF ACCOUNT WERE DULY AUDITED AND THE RE WAS NO CLASSIFICATION WAS MADE BY THE CHARTERED ACCOUNTANT , HENCE, THE CORRECTNESS OF GROSS PROFIT WAS DUE TO CERTAIN EXPL AINED REASON WHICH OUGHT TO HAVE BEEN APPRECIATED BY THE ASSESSI NG OFFICER WHILE IMPOSING THE PENALTY. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS ALSO DRAWN OUR A TTENTION ON THE CALCULATION OF THE GROSS PROFIT AND POINTED OUT THA T A MISTAKE WAS COMMITTED WHILE DISCLOSING THE SAME AT 0.41%. INS TEAD OF BIFURCATING THE GROSS PROFIT INTO SEPARATE ACTIVITI ES, NAMELY, RE-SALE ACTIVITY, ROAD CONSTRUCTION, ACTIVITY WHEREIN THE P ERCENTAGE WAS 10.70% AND 17.59%; A COMBINED GROSS PROFIT RESULT WAS DISCLOSED WHICH WAS NOT DEPICTING THE TRUE AND CORRECT PICTUR E OF THE BUSINESS RESULTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE H AS MENTIONED THAT IT WAS CLEARLY EXPLAINED THAT GROSS PROFIT IN RE-SALE ACTIVITY WAS 10.70%, GROSS PROFIT IN ROAD CONSTRUCTION ACTIVITY WAS 17.59% AND GROSS PROFIT IN COMBINED ACTIVITY WAS 14.87%. AN A NOTHER ASPECT HAS ALSO BEEN VEHEMENTLY ARGUED BEFORE US THAT THE FIGURES OF TRADING INTEREST OF RS.13,65,690/- AND THE RENT OF THE MACHINERY OF RS.57,000/- WAS INCLUDED FOR THE PURPOSE OF CALCUL ATION OF GROSS PROFIT BY THE AUDITOR AND THEREAFTER ARRIVED AT 0.4 1%. IT WAS ARGUED THAT IN THE PAST IT HAD NEVER BEEN CALCULATED IN TH AT MANNER, THEREFORE, THE GROSS PROFIT DISCLOSED THIS YEAR @ 0.41% WAS ONLY DUE TO THE SAID CALCULATION MISTAKE. ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 5 - 5. BE THAT AS IT WAS, THE FACT THAT THE LEARNED CIT (APPEALS) HAS GRANTED PART RELIEF AND TAKEN A TANGENT VIEW BY INV OKING THE PROVISIONS OF SECTION 44AF AND 44AD AND ALSO TAKEN THE GUIDANCE FOR ADOPTION OF PERCENTAGE OF PROFIT ITSELF PROVES THAT THE ASSESSING OFFICER AS WELL AS LEARNED CIT(APPEALS) BOTH HAVE M ERELY PROCEEDED ON AN ESTIMATION TO DETERMINE THE PROFIT OF THE ASSESSEE. RATHER, DURING THE COURSE OF ARGUMENT IT WAS ALSO POINTED OUT THAT THE LEARNED CIT(APPEALS) HAS WRONGLY DIRECTED TO CO MPUTE THE INCOME U/S.44AF OR U/S.44AD OF THE I.T. ACT, 1961 B ECAUSE THE TURNOVER OF THE ASSESSEE HAD EXCEEDED THE PRESCRIBE D LIMIT, THEREFORE, THE APPLICATION OF PRESUMPTIVE RATE OF P ROFIT AS PRESCRIBED IN THOSE SECTIONS SHOULD NOT HAVE BEEN APPLIED. THIS IS NOT THE CASE WHERE THE ASSESSEE HAS DELIBERATELY NOT PRODUCED TH E BOOKS OF ACCOUNT BUT THE FACTS HAVE REVEALED THAT DUE TO CER TAIN UNFORESEEN AND UNAVOIDABLE CIRCUMSTANCES THE BOOKS WERE SEALED BY A GOVERNMENT AUTHORITY. HOWEVER, THIS FACT SHOULD AL SO NOT BE OVER- LOOKED THAT THE BOOKS OF ACCOUNT HAVE DULY BEEN AU DITED AND THE AUDITORS REPORT WAS VERY MUCH A PART OF THE REVENUE RECORD BEING FILED ALONGWITH THE RETURN. NO SPECIFIC DEFECT WAS POINTED OUT TO DEMONSTRATE THAT A PARTICULAR ITEM OF INCOME WAS CO NCEALED BY THE ASSESSEE. RATHER A GENERAL VIEW WAS TAKEN THAT SIN CE THE RATE OF GROSS PROFIT WAS SHOWN AT LOWER PERCENTAGE, THEREFO RE, THE ASSESSEE WAS LIABLE FOR CONCEALMENT PENALTY. ON THOSE VERY FACTS A VIEW HAS BEEN TAKEN BY THE ITAT LUCKNOW BENCH IN THE CASE OF SAHYOG ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 6 - SAHKARI SHRAM SAMVIDA SAMITI LTD. VS. ASST.CIT REP ORTED AS 111 TTJ 540 (LUCKNOW) THAT MERELY BECAUSE BOOKS OF ACC OUNT OF THE ASSESSEE HAVE BEEN REJECTED, IPSO FACTO NOT BE HEL D THAT THE ASSESSEE HAD CONCEALED THE PARTICULARS OF ITS INCOME OR THE ASSESSEE IS GUILTY OF FRAUD OR WILLFUL NEGLECT UNLESS AND UNTIL A CONC EALMENT IS DETECTED. IN THE PRESENT APPEAL, THERE WAS NO POS ITIVE EVIDENCE TO DEMONSTRATE THAT THE CONCEALMENT OF INCOME WAS DETE CTED BY THE ASSESSING OFFICER. THERE IS ONE MORE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF MIMOSA INVESTMENT CO.(P) LTD. VS. ITO REPORTED AS 28 SOT 470 (MUMBAI) AND THEREIN A VIEW WAS TAKEN THAT ONCE ALL RELEVANT FACTS WERE FURNISHED ALONGWITH T HE RETURN BUT MERELY ON ACCOUNT OF FACT THE ASSESSING OFFICER REC ALCULATED THE PROFIT, THE ASSESSEE MUST NOT BE HELD RESPONSIBLE F OR CONCEALMENT OF THE PARTICULARS OF ITS INCOME OR EVEN FURNISHING IN ACCURATE PARTICULARS OF SUCH INCOME. THE ARGUMENT WAS THAT NOTHING WAS CONCEALED OR HIDDEN BY THE ASSESSEE, RATHER EVERYTH ING WAS IN THE KNOWLEDGE OF REVENUE DEPARTMENT DUE TO THE FURNISHI NG OF THE AUDITORS REPORT. AN ANOTHER DECISION OF ITAT PUNE BENCH IN THE CASE OF DARSHAN ENTERPRISES VS. ITO REPORTED AS 113 TTJ 857 (PUNE) HAS ALSO BEEN CITED FOR THE LEGAL PROPOSITION THAT ONCE THE DEEMING PROVISION HAVE BEEN INVOKED, I.E. 44AF AND 44AE OF THE I.T. ACT, 1961, THEN THERE WAS NO REASON TO ASSUME THE JURISD ICTION FOR LEVY OF PENALTY U/S. 271(1)(C) OF THE I.T.ACT, 1961. IN T HAT DECISION, INTERESTINGLY IT WAS NOTED THAT SECTION 44AF STARTS WITH A NON OBSTANTE CLAUSE GIVING OVERRIDING EFFECT TO OTHER PROVISION S SUCH AS ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 7 - THE PROVISIONS OF SS.28 TO 43C OF THE I.T. ACT, 196 1. IN A NORMAL SITUATION, THE PROFITS ARE TO BE COMPUTED UNDER THE PROVISIONS OF SECTIONS 28 TO 43C OF THE I.T. ACT, 1961 BUT IN SEC TION 44AF AN OVERRIDING EFFECT IS PRESCRIBED WHICH MEANS THAT TH E PROFITS COMPUTED IN THOSE TWO SECTIONS WAS NOTHING BUT THE IMPOSITION OF PRESUMPTIVE TAX BY DEEMING THE INCOME OF THE ASSESS EE. DUE TO THIS REASON, THE RESPECTED CO-ORDINATE BENCH HAS HELD N OT A FIT CASE FOR LEVY OF CONCEALMENT PENALTY. THE VIEW EXPRESSED B Y THE BENCH APPLIES MUTATIS MUTANDIS ON THE FACTS OF THE PRESEN T CASE. THE REVENUE AUTHORITIES HAVE IMPOSED THE TAX ON THIS AS SESSEE BY APPLYING THE PRESUMPTIVE PROVISIONS OF SECTION 44A F AND 44AD OF THE I.T. ACT, 1961 BY ADOPTING AN ESTIMATED PERCENT AGE OF PROFIT WITHOUT NARRATING ANY PARTICULAR INSTANCE OF CONCEA LMENT, THEREFORE, FOLLOWING THE LEGAL RATIO LAID DOWN IN THE ABOVE CI TED DECISIONS, WE HEREBY REVERSE THE FINDINGS OF THE LEARNED CIT(APPE ALS) AND DIRECT TO DELETE THE PENALTY. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/ 06 /2010. SD/- SD/- ( N.S. SAINI ) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30 / 06 /2010 T.C. NAIR, SR. PS ITA NO .546/AHD/2008 M/S.RAMANLAL & BROTHERS VS. DY.CIT ASST.YEAR - 2003-04 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-XV, AHMEDABAD 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD