Shri Nishikant T Patne, Pune V. ACIT, Pune

ITA 55/PUN/2012

• Counselvise Citation: 5524514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 11-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Section: 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 55/PN/2012 (ASSESSMENT YEAR : 2007-08) SHRI NISHIKANT T. PATNE 16-A, ANUREKHA SOCIETY, KARVE NAGAR, PUNE 411 052 PAN : AAUPP2810R . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 3, PUNE . RESPONDENT ITA NO. 162/PN/2012 (ASSESSMENT YEAR: 2007-08) DY. COMMISSIONER OF INCOME TAX CIRCLE 3, PUNE . APPELLANT VS. SHRI NISHIKANT T. PATNE 16-A, ANUREKHA SOCIETY, KARVE NAGAR, PUNE 411 052 PAN : AAUPP2810R . RESPONDENT APPELLANT BY : MR. KISHORE PHADKE RESPONDENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 02-07-2013 DATE OF PRONOUNCEMENT : 15-07-2013 ORDER PER G. S. PANNU, AM THE CAPTIONED CROSS-APPEALS, EACH BY THE ASSESSEE AND THE REVENUE, PERTAINING TO THE ASSESSMENT YEAR 2007-08, WERE HEA RD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE AND BREVITY. THE CAPTIONED APPEALS ARE DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - II, PUNE DAT ED 05.10.2011 WHICH, IN ITA NO. 55/PN/2012 ITA NO. 162/PN/2012 SHRI NISHIKANT T. PATNE A.Y. 2007-08 TURN, HAS ARISEN FROM AN ASSESSMENT ORDER DATED 29. 12.2009 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT), FOR THE ASSESSMENT YEAR 2007- 08. 2. IN BOTH THE APPEALS, THE ISSUE RAISED IS COMMON, NAMELY, DETERMINATION OF ASSESSEES INCOME FROM THE BUSINESS OF CONTRACTI NG. 3. IN BRIEF, THE FACTS ARE THAT ASSESSEE INDIVIDUAL IS A CIVIL CONTRACTOR ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONSTRUC TION WORKS FOR GOVERNMENT ORGANIZATIONS AND ALSO PRIVATE SECTOR. FOR THE ASSE SSMENT YEAR UNDER CONSIDERATION, HE FILED A RETURN OF INCOME DECLARIN G TOTAL INCOME OF RS.17,16,909/-. THE ASSESSEE HAD DECLARED GROSS REC EIPTS OF RS.3,30,15,099/- AND NET PROFIT OF RS.18,62,056/-, WHICH WAS 5.64% O F THE GROSS RECEIPTS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER CALLED FOR THE BOOKS OF ACCOUNT AND OTHER SUPPORTING VOUCHERS. THE ASSES SING OFFICER AFTER NOTICING CERTAIN DISCREPANCIES IN THE BOOKS OF ACCOUNT, WHIC H HAVE BEEN DETAILED IN PARA 9 OF THE ASSESSMENT ORDER, REJECTED THE BOOK R ESULTS INVOKING SECTION 145(3) OF THE ACT. AFTER REJECTING THE BOOK RESULTS DECLARED, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME BY ESTIMATING T HE NET PROFIT RATIO OF 15% OF GROSS RECEIPTS AS AGAINST 5.64% DECLARED IN THE RET URN OF INCOME AND ACCORDINGLY, BROUGHT TO TAX THE DIFFERENTIAL AMOUNT . ACCORDINGLY, AN ADDITION OF RS.30,90,210/- WAS MADE TO THE RETURNED INCOME THER EBY RESULTING IN THE ASSESSED INCOME AT RS.48,07,120/- AS AGAINST THE RE TURNED INCOME OF RS.17,16,909/-. 4. IN APPEAL BEFORE THE CIT(A), ASSESSEE CHALLENGED THE REJECTION OF BOOK RESULTS AND ALSO THE ADOPTION OF NET PROFIT RATIO O F 15% INSTEAD OF 5.64% DECLARED BY THE ASSESSEE ON THE GROUND THAT THE SAM E WAS EXCESSIVE AND UNREASONABLE. THE CIT(A) AFFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULTS DECLARED. HOWEVER, WITH REGARD TO THE ESTIMATION OF ITA NO. 55/PN/2012 ITA NO. 162/PN/2012 SHRI NISHIKANT T. PATNE A.Y. 2007-08 INCOME FROM CONTRACTING BUSINESS, THE CIT(A) SCALED DOWN THE NET PROFIT RATIO TO 12% OF GROSS RECEIPTS INSTEAD OF 15% ADOPTED BY THE ASSESSING OFFICER. THUS, THE CIT(A) ALLOWED PARTIAL RELIEF WHEREBY THE TOTAL INCOME ASSESSABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS DETERMI NED AT RS.39,61,812/- INSTEAD OF RS.48,07,120/- DETERMINED BY THE ASSESSI NG OFFICER. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US, BOTH ON THE POINT OF REJECTION OF THE BOOK RESULTS AND ADOPTION OF NET PROFIT RATIO OF 12% INSTEAD OF 5.64% DECLARED IN THE RETURN OF I NCOME. THE REVENUE IN ITS CROSS-APPEAL HAS CHALLENGED THE PART RELIEF ALLOWED BY THE CIT(A) WHEREBY THE NET PROFIT FROM CONTRACTING BUSINESS HAS BEEN ESTIM ATED AT 12% AS AGAINST 15% ESTIMATED BY THE ASSESSING OFFICER. SINCE, THE CROSS GROUNDS RELATE TO THE SAME ISSUE, WE PROCEED TO ADJUDICATE THE SAME TOGET HER. 5. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THOUGH ASSESSEE WAS AGGRIEVED BY THE ACTION OF THE INCOME- TAX AUTHORITIES IN REJECTING THE BOOK RESULTS BY INVOKING SECTION 145( 3) OF THE ACT, HOWEVER, IF THE NET PROFIT OF THE ASSESSEE IS DETERMINED BY APPLYIN G A REASONABLE PERCENTAGE OF GROSS RECEIPTS, THE ASSESSEE WOULD SATISFIED. AC CORDING TO THE LEARNED COUNSEL, THE NET PROFIT ESTIMATED BY THE LOWER AUTH ORITIES WAS ON A HIGHER SIDE AND EXCESSIVE. IN THIS CONNECTION, THE LEARNED COUN SEL HAS REFERRED TO AN ASSESSMENT FINALIZED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT FOR ASSESSMENT YEAR 2010-11 VIDE ORDER DATED 18.02. 2013 WHEREIN THE BOOK RESULTS WERE NOT REJECTED, BUT ON ACCOUNT OF CERTAI N DISCREPANCIES NOTICED IN THE MAINTENANCE EXPENSE VOUCHERS, A SMALL ADDITION OF RS.1,00,000/- HAS BEEN MADE TO THE TAXABLE INCOME. IT IS POINTED OUT THAT THE NET PROFIT RATIO DECLARED FOR THE ASSESSMENT YEAR 2010-11 WAS APPROX IMATELY 5% AND SIMILAR IS THE POSITION EVEN WITH REGARD TO THE PRECEDING A SSESSMENT YEARS OF 2005-06 AND 2006-07. IT IS ALSO CONTENDED THAT IN SOMEWHAT AND SIMILAR CIRCUMSTANCES, THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF EAST ERN CONSTRUCTION COMPANY VS. ITO (1997) 59 TTJ 723 (DEL.) HAS ESTIMATED THE CONTRACT RECEIPTS AT 8% BY ITA NO. 55/PN/2012 ITA NO. 162/PN/2012 SHRI NISHIKANT T. PATNE A.Y. 2007-08 REFERRING TO THE PROVISIONS OF SECTION 44AD OF THE ACT WHEREIN SUCH A RATE HAS BEEN PRESCRIBED FOR THE SPECIFIED ASSESSEE, FOR EST IMATING INCOMES FROM THE BUSINESS OF CIVIL CONSTRUCTION. IT WAS, THEREFORE, CONTENDED THAT THE ESTIMATION MADE BY THE LOWER AUTHORITIES IS EXCESSIVE AND UNRE ALISTIC, CONSIDERING THE LINE OF BUSINESS OF THE ASSESSEE. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE DEFENDED THE ASSESSMENT ORDER BOTH ON THE POINT OF REJECTION OF BOOK RESULTS AND THE ESTIMATION OF NET PROFIT AT 15% OF THE GROSS RECEIP TS BY POINTING OUT THAT HAVING REGARD TO THE DISCREPANCIES NOTICED, ADOPTION OF A RATE OF 15% TO ESTIMATE THE ASSESSEES INCOME FROM CONTRACTING BUSINESS WAS JUS TIFIED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN SO FAR AS THE ACTION OF THE INCOME-TAX AUTHORITIES IN REJECTING T HE BOOK RESULTS BY INVOKING SECTION 145(3) OF THE ACT IS CONCERNED, THE SAME IS NOT ADJUDICATED ON ACCOUNT OF THE SUBMISSION OF THE ASSESSEE. THE LEAR NED COUNSEL FOR THE ASSESSEE HAS CANVASSED FOR ADOPTION OF THE NET PROF IT RATIO OF 8% ON CONTRACT RECEIPTS IN THE PRESENT CASE IN ORDER TO ESTIMATE T HE INCOME FROM THE BUSINESS OF CONTRACTING. OSTENSIBLY, THERE IS NO HARD AND FA ST RULE FOR ESTIMATING INCOME FROM THE BUSINESS OF CIVIL CONSTRUCTING. SO, HOWEVE R, SECTION 44AD OF THE ACT PRESCRIBES ESTIMATION FROM CONTRACT BUSINESS IN CAS ES SPECIFIED THERE AT THE RATE OF 8% OF GROSS RECEIPTS. SECTION 44AD COVERS C ASES OF CIVIL CONSTRUCTION WHERE THE GROSS RECEIPTS FROM CONTRACT BUSINESS DO NOT EXCEED RS. 40 LACS. OF COURSE, THE ASSESSEE BEFORE US DOES NOT FALL WITHIN THE PRESCRIPTION OF SECTION 44AD OF THE ACT AS ITS CONTRACT RECEIPTS EXCEED RS. 40 LACS. HOWEVER, THE PRESUMPTIVE RATE OF NET PROFIT OF 8% INCORPORATED I N SECTION 44AD REFLECTS A LEGISLATIVE APPROVED RATE OF NET PROFIT, WHICH CAN BE CONSIDERED AS FAIR AND REASONABLE TO ESTIMATE INCOME FROM CONTRACT BUSINES S IN CASES LIKE THAT OF THE PRESENT ASSESSEE WHERE THE BOOKS OF ACCOUNT ARE NOT FOUND RELIABLE BY THE ASSESSING OFFICER. MOREOVER, IN THE ASSESSMENT YEAR 2010-11 ALSO WHERE THE ITA NO. 55/PN/2012 ITA NO. 162/PN/2012 SHRI NISHIKANT T. PATNE A.Y. 2007-08 ASSESSMENT HAS BEEN FINALIZED BY THE ASSESSING OFFI CER UNDER SECTION 143(3) OF THE ACT, THE DETERMINATION OF INCOME FROM CONTRA CTING BUSINESS IS ALSO PROXIMATE TO THE RATE OF NET PROFIT OF 8% CONTAINED IN SECTION 44AD OF THE ACT. THEREFORE, CONSIDERING THE OVERALL FACTS AND CIRCUM STANCES OF THE CASE, IN OUR VIEW, IT WOULD BE JUST AND PROPER IN THE PRESENT CA SE THAT THE INCOME FROM CONTRACTING BUSINESS OF THE ASSESSEE BE ESTIMATED A T 8% OF THE GROSS RECEIPTS AND THE ADDITION BE WORKED OUT ACCORDINGLY. THUS, A SSESSEE PARTLY SUCCEEDS IN ITS APPEAL. 8. BEFORE PARTING, WE MAY MAKE A REFERENCE TO THE D ISCUSSION OF THE CIT(A) CONTAINED IN PARA 4 OF THE APPELLATE ORDER W HEREBY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF EASTERN CONSTRUCTION COMPANY (SUPRA) HAS BEEN DISTINGUISHED BY NOTICING THAT IT PERTAINS TO AN ASSESSEE WHOSE CONTRACT RECEIPTS WAS BELOW RS.40 LACS AND TH EREFORE, THE TRIBUNAL APPLIED THE PRESUMPTIVE RATE OF NET PROFIT OF 8% IN CORPORATED UNDER SECTION 44AD OF THE ACT. IN OUR CONSIDERED OPINION, THE AFO RESAID POINT MADE OUT BY THE CIT(A) IS QUITE MISPLACED INASMUCH AS THE DELHI BENCH OF THE TRIBUNAL WAS CONSIDERING THE CASE OF AN ASSESSEE WHOSE BOOKS OF ACCOUNT WERE FOUND UNRELIABLE AND THE CONTRACT RECEIPTS EXCEEDED RS.40 LACS. THEREFORE, THE TRIBUNAL OBSERVED THAT STRICTLY SPEAKING, SECTION 4 4AD OF THE ACT DID NOT APPLY TO THE ASSESSEE BEFORE IT, HOWEVER, CONSIDERING THA T THE PRESUMPTIVE NET PROFIT RATE OF 8% INCORPORATED UNDER SECTION 44AD OF THE A CT WHICH REPRESENTED A JUST, FAIR AND EQUITABLE RATE OF NET PROFIT, THE TR IBUNAL FOUND IT FIT TO APPLY THE SAME RATE TO CALCULATE INCOME FROM CONTRACT BUSINES S OF THE ASSESSEE WHO WAS OTHERWISE NOT COVERED BY THE PROVISIONS OF SECT ION 44AD OF THE ACT. THE OBSERVATION OF THE CIT(A) TO THE EFFECT THAT THE CA SE OF EASTERN CONSTRUCTION COMPANY (SUPRA) PERTAINS TO AN ASSESSEE WHOSE CONTR ACT RECEIPTS WERE BELOW RS.40 LACS IS A MISNOMER AND CONTRARY TO THE STATED POSITION, AS EVIDENT FROM A PERUSAL OF THE DECISION IN THE CASE OF EASTERN CONS TRUCTION COMPANY (SUPRA). IN-FACT, THE RATIO OF THE DECISION OF THE DELHI BEN CH OF THE TRIBUNAL IN THE CASE ITA NO. 55/PN/2012 ITA NO. 162/PN/2012 SHRI NISHIKANT T. PATNE A.Y. 2007-08 OF EASTERN CONSTRUCTION COMPANY (SUPRA) IS APPLICAB LE TO THE FACT SITUATION OF THE PRESENT CASE ALSO AND THEREFORE, WE HAVE DEEMED IT APPROPRIATE TO HOLD THAT THE INCOME FROM THE CONTRACTING BUSINESS OF TH E ASSESSEE BE DETERMINED BY APPLYING NET PROFIT RATIO OF 8% OF THE GROSS CON TRACT RECEIPTS. 9. IN THE RESULT, WHEREAS THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 15 TH JULY, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE.