M/S ANZ REALITY PVT. LTD., Jaipur V. ACIT, CIRCLE-5, Jaipur

ITA 661/JPR/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1993 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard
• Section: 143(3); 145; 6

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 661/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 M/S ANZ REALTY PVT. LTD., 279, DEEPAK MARG, ADARSH NAGAR, JAIPUR CUKE VS. ACIT, CIRCLE - 5, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO.: AAECA0484B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A.VERMA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12/07/2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 24/07/2017. VKNS'K@ ORDER PER:SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- 02, JAIPUR DATED 18.05.2015 WHEREIN THE ASSESSEE HA S TAKEN FOLLOWING GROUNDS OF APPEAL: 1. (A) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD . AO IN REJECTING THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SEC TION 145(3) OF THE I.T. ACT, 1961 AND THEREAFTER ESTIMATING THE NET PR OFIT (BEFORE INTEREST AND DEPRECIATION) @ 6.52% AGAINST THE DECLARED NET PROFIT RATE OF 5.56% AND ASSESSED NET PROFIT RATE OF @ 6.06% RESUL TING INTO CONFIRMATION TRADING ADDITION OF RS. 6,17,973/- AND ENHANCEMENT OF ADDITION OF RS. 5,56,671/-. THE ACTION OF LD. CIT(A ) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE REJECTION OF BOOKS OF ACCOU NTS AND DELETING THE ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 2 TRADING ADDITION OF RS. 6,17,973 AND QUASHING THE E NHANCEMENT OF RS. 5,65,671/-. (B) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ENHANCING THE INCOME WITHOUT FOLLOWING THE PRESCRIBED LAW AND AFFORDING THE OPPORTUNITY TO THE ASSESSEE APPEL LANT. THE ACTION OF LD. CIT(A) IS ILLEGAL. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE ENHANCEMENT. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 57,20,690/-. THE ASSESSING OFFICER REJECTED THE BOO KS OF ACCOUNTS U/S 145(3) OF THE ACT AND THEREAFTER, MADE A TRADITION ADDITIO N OF RS. 6,17,973/- BY APPLYING THE NP RATE OF 5.31% (AFTER INTEREST AND D EPRECIATION) AS AGAINST THE DECLARED NET PROFIT OF 4.81% (AFTER INTEREST AND DE PRECIATION). 3. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHO UPHELD THE REJECTION OF BOOKS OF ACCOUNT S BY PLACING RELIANCE ON ASSESSEES OWN CASE WHEREIN THE TRIBUNAL HAS UPHELD THE REJECTION OF BOOKS OF ACCOUNTS AND THEREAFTER, APPLIED NP RATE OF 6.52% S UBJECT TO INTEREST AND DEPRECIATION. THE FINDINGS OF LD CIT(A) ARE REPRODU CED AS UNDER: 2.4.1 IN THIS YEAR, THE ASSESSEE HAS DISCLOSED A NET PROFIT RATE OF 4.81% WHICH TRANSLATES INTO A NET PROFIT RATE BEFORE DEPR ECIATION AND INTEREST OF 5.56%. THE ASSESSING OFFICER HAS ESTIMATED THE NP R ATE AT 5.31% (IN LINE WITH THE NET PROFIT RATE AFTER THE ADDITION MADE IN THE ORDER U/S 143(3) FOR A.Y. 2008-09) AND MADE A TRADING ADDITION OF RS. 6,17,97 3/-. THE APPELLANT HAS STATED THAT IN THE PRECEDING YEARS, THE ITAT HAS SU STAINED A NET PROFIT RATE BEFORE DEPRECIATION AND INTEREST OF 5% IN A.Y. 2004 -05, 5.45% IN A.Y. 2005- 06 & 2006-07. IT HAS BEEN STATED THAT IN THIS YEAR, THE DECLARED NET PROFIT RATE BEFORE DEPRECIATION AND INTEREST IS HIGHER THAN THE RATE WHICH HAS BEEN SUSTAINED BY THE ITAT IN THE PRECEDING YEARS. ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 3 2.4.2 IN THE PRECEDING YEAR A.Y. 2008-09, THE ASSES SEE HAS DISCLOSED A NET PROFIT RATE BEFORE INTEREST AND DEPRECIATION OF 6.5 2%. THE APPELLANT HAS NOT FURNISHED REASONS FOR DECLINE IN THIS NET PROFIT RA TE BEFORE INTEREST AND DEPRECIATION FROM 6.52% IN THE PRECEDING YEAR TO 5. 56% IN THIS YEAR. IN VIEW OF THE ABOVE DISCUSSION, THE PAST HISTORY OF THE AP PELLANT, THE ORDERS OF THE ITAT IN THE PRECEDING YEARS, THE NET PROFIT BEFORE INTEREST AND DEPRECIATION FOR THIS YEAR IS ESTIMATED AT THE SAME RATE OF 6.52%, A S IN A.Y. 2008-09. THEREFORE, THE TRADING ADDITION IS RESTRICTED ACCOR DINGLY. THE ABOVE GROUND IS PARTLY ALLOWED. 4. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED NP R ATE OF 5.56% AND, THEREFORE, THE ASSESSEES DECLARED NP RATE IS BETTE R THAN THE NP RATE UPHELD BY HONBLE ITAT BEFORE DEPRECIATION AND INTEREST WH ICH IS 5.45% IN A.Y. 2005- 06 AND 2006-07. IT WAS FURTHER SUBMITTED THAT REJECTION OF BOOKS OF ACCOUNTS DOES NOT MANDATE THE TRADING ADDITIONS TO BE MADE. RELIANCE IS PLACE D ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GO TAN LIME KHANIJ UDYOG 256 ITR 243 (RAJ.) WHEREIN IT WAS HELD AS UNDER: NOTWITHSTANDING REJECTION OF BOOKS OF ACCOUNT, THE MATERIAL DISCLOSED BY THE ASSESSEE ALONG WITH OTHER MATERIAL THAT MAY BE COLL ECTED BY THE ITO FORMS THE BASIS OF COMPUTATION OF INCOME. ON THAT BASIS W HAT CONCLUSION IS TO BE REACHED IS INDEPENDENT OF RESULTS SHOWN IN THE BOOK S OF ACCOUNT, IF ANY, MAINTAINED BY THE ASSESSEE. SECTION 145 ONLY PROVID ES THE BASIS ON WHICH COMPUTATION OF INCOME IS TO BE MADE FOR THE PURPOSE OF DETERMINING THE AMOUNT OF TAX PAYABLE BY AN ASSESSEE. THE PROVISION BY ITSELF DOES NOT DEAL WITH ADDITIONS OR DELETIONS IN THE INCOME. ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 4 IT WAS FURTHER SUBMITTED THAT FOR AY 2008-09, LD. C IT(A) VIDE ORDER DATED 25.05.2015 (APPEAL NO. 528/11-12) HAS DELETED THE A D-HOC TRADING ADDITION OF RS. 10,00,000/- AND UPHELD THE DECLARED RESULTS IN SPITE OF CONFIRMING THE REJECTION OF BOOKS. FURTHER, RELIANCE IS PLACED ON THE DECISION OF HON BLE RAJASTHAN HIGH COURT IN THE CASE OF KANSARA BEARING PVT. LTD. VS. ACIT (270 ITR 235), WHEREIN IT WAS HELD THAT ASSESSEES OWN HISTORY IS THE BEST GUIDE FOR APPLICATION OF PROFIT RATE. IT WAS FURTHER SUBMITTED THAT IT IS NOT PRACTICALLY JUSTIFIED TO EXPECT FROM THE ASSESSEE TO DECLARE UNIFORM RATE OF NP YEAR AFTER Y EAR. THUS, LD. CIT(A) HAS ERRED IN ENHANCING THE INCOME BY APPLYING THE NP RA TE OF A.Y. 2008-09 OF 6.52% (SUBJECT TO DEPRECIATION AND INTEREST), IN TH E RELEVANT YEAR AS AGAINST THE NP RATE OF 5.56% DECLARED. IN THIS REGARD, IT I S SUBMITTED THAT ALTHOUGH IT IS A WELL ESTABLISHED THAT ASSESSEES OWN HISTORY I S THE BEST GUIDE FOR APPLICATION OF PROFIT RATE, HOWEVER, THE NP RATE FO R THE IMMEDIATELY PRECEDING YEAR PER SE CANNOT BE THE MIRROR IMAGE OF THE NP RA TE OF THE NEXT YEAR. THE FACT OF SIGNIFICANT INCREASE IN TURNOVER FROM 960.2 3 LAKHS TO 1235.99 LAKHS NEEDS CONSIDERATION FOR APPLYING THE NP RATE. IT WAS FURTHER SUBMITTED THAT WHILE UPHOLDING THE R EJECTION OF BOOKS LD. CIT(A) HAS PLACED RELIANCE ON THE ORDERS OF HONBLE ITAT I N ASSESSEES OWN CASE, HOWEVER, WHILE APPLYING THE NP RATE HE HAS VERY CON VENIENTLY AND WITHOUT ASSIGNING ANY REASON HAS IGNORED THE SAME ORDERS OF HONBLE ITAT IN ASSESSEES OWN CASE WHERE RATE OF NP RATE OF 5.45% SUBJECT TO DEPRECIATION AND INTEREST WAS UPHELD AS AGAINST WHICH LD. CIT(A) HAS APPLIED NP RATE OF 6.56%. WHILE ALLOWING THE APPEAL OF THE ASSESSEE TH E SAME LD. CIT(A) RELIED UPON THE DECISION OF THE HONBLE ITAT IN ASSESSEES OWN CASE FOR AYS. 2005- ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 5 06. HOWEVER, SAME LD. CIT(A) WHILE DECIDING THE APP EAL OF THE ASSESSEE FOR AY 2009-10 HAS NOT FOLLOWED THE SAME JUDGMENTS OF H ONBLE ITAT. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) COMPAR ED THE PAST HISTORY OF THE ASSESSEE WITHOUT ADJUSTING IT WITH REFERENCE TO THE FACTS OF THE YEAR UNDER CONSIDERATION WHICH ARE AS UNDER: - TURNOVER HAS INCREASED FROM 960.23 LAKHS TO 1235.99 LAKHS IN THE RELEVANT YEAR AS COMPARED TO A.Y. 2008-09. THUS, TH ERE IS INCREASE OF 275.76 LAKHS I.E. 28.72 % - GROSS PROFIT HAS INCREASED IN ABSOLUTE TERMS FROM 9 2.42 LAKHS TO 115.44 LAKHS IN THE RELEVANT YEAR AS COMPARED TO A.Y. 2008 -09. THUS, THERE IS INCREASE OF RS. 23.02 LAKHS, WHICH IS 24.91%. - NET PROFIT HAS ALSO INCREASED FROM 40.96 LAKHS TO 5 9.45 LAKHS IN THE RELEVANT YEAR AS COMPARED TO A.Y. 2008-09. THUS, TH ERE IS INCREASE OF RS. 18.49 LAKHS, WHICH IS 45.14%. - ASSESSEE IS ENGAGED CONSTRUCTION OF SCHOOL BUILDING S FOR CHARITABLE SOCIETIES AND TRUSTS AND, THEREFORE, TO ACHIEVE THE HIGH TURNOVER, CONSTRUCTION WAS DONE AT A VERY COMPETITIVE MARKET RATE. - THE MARKET WAS VOLATILE, IT WAS VERY DIFFICULT TO A CHIEVE THE SALES TURNOVER WHILE MAINTAINING THE GP RATE AND NP RATE. IF THE TWO YEARS WRONGLY COMPARED BY THE LD. CIT(A) , I.E. A.Y. 2008-09 AND THE RELEVANT YEAR, ARE ADJUSTED SO AS TO MAKE THEM COMPARABLE, IT WILL BE SEEN THAT THE NP RATE DECLARED BY THE ASSESSEE COMP ANY I.E. 5.56% (SUBJECT TO DEPRECIATION AND INTEREST) IS APT AND, THEREFORE , THE SAME SHOULD BE ACCEPTED. WITHOUT PREJUDICE TO ABOVE, ATTENTION IS DRAWN TOWA RDS SECTION 251(2) OF THE INCOME TAX ACT 1961 WHICH READS AS UNDER: ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 6 SECTION 251: POWERS OF COMMISSIONER (APPEALS) (1)........ (2) THE COMMISSIONER (APPEALS) SHALL NOT BE ENHANCE AN ASSESSMENT OR A PENALTY OR REDUCE THE AMOUNT OF REFUND UNLESS THE A PPELLANT HAS HELD A REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUC H ENHANCEMENT OR REDUCTION. IN THE PRESENT CASE THE ENHANCEMENT WAS MADE WITHOU T GIVING THE SHOW CAUSE NOTICE TO THE ASSESSEE. THUS, IN VIEW OF ABOV E LEGAL POSITION, THE ASSESSEE COMPANY WAS DEPRIVED OF AN OPPORTUNITY OF BEING HEARD, THEREFORE, THE ENHANCEMENT OF RS. 5,65,671 DESERVES TO BE DELE TED ON THIS LEGAL GROUND AS WELL. WE HAVE ALREADY SUBMITTED THAT ENTIRE ADDI TION OVER AND ABOVE THE DECLARED RESULTS DESERVE TO BE DELETED ON MERITS BA SED ON PAST HISTORY OF THE ASSESSEE EMERGING FROM THE ORDERS OF HONBLE ITAT. IN VIEW OF ABOVE, ADDITION MADE BY LD. AO AND ENHANCEMENT MADE BY LD. CIT(A) DESERVE TO BE DELETED. 6. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER O F THE LOWER AUTHORITIES AND SUBMITTED THAT THE POWERS OF LD CIT(A) ARE CO-TERMI NUS WITH THAT OF THE AO AND THERE IS NO INFIRMITY IN HIS ORDER ENHANCING TH E TRADING ADDITION IN THE HANDS OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, IT IS NOT IN DISPUTE THAT THE B OOKS OF ACCOUNTS HAVE BEEN REJECTED. NO ARGUMENTS HAVE BEEN RAISED BY THE LD A R REGARDING REJECTION OF BOOKS OF ACCOUNTS AND HE FAIRLY CONCEDED ON THIS AC COUNT. HENCE, THE GROUND NO 1(A) SO FAR IT RELATES TO REJECTION OF BOOKS OF ACCOUNT IS DISMISSED. NOW, COMING TO ESTIMATION OF N.P RATE, THE AO HAS COMPAR ED AND ESTIMATED THE N.P RATE (AFTER INTEREST AND DEPRECIATION) @ 5.31% AS A GAINST 4.81% FOLLOWING THE ASSESSMENT ORDER FOR IMMEDIATELY PRECEDING AY 2008- 09. THE LD CIT(A) HAS ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 7 ALSO FOLLOWED THE ASSESSMENT ORDER FOR IMMEDIATELY PRECEDING AY 2008-09 AND HOWEVER, HE COMPARED THE NET PROFIT BEFORE INTE REST AND DEPRECIATION AND THEN APPLIED 6.52% AS AGAINST 5.56% OFFERED BY THE ASSESSEE. IN OUR VIEW, THE PRINCIPLE OF AVERAGES TAKING INTO CONSIDERATION LAST FIVE YEARS (PAST HISTORY) IS CLEARLY A MORE ROBUST AND FAIR ESTIMATION OF DET ERMINING THE NET PROFITS FOR THE YEAR UNDER CONSIDERATION. THE SAID PRINCIPLE OF AVERAGE HAS BEEN DETERMINED BY THE HONBLE RAJASTHAN HIGH COURT AND IS THUS CLEARLY BINDING AND APPLICABLE IN THE INSTANT CASE. IN THE INSTANT CASE, WE FIND THAT AVERAGE OF PAST FIVE YEARS OF N.P RATE (SUBJECT TO INTEREST AN D DEPRECIATION) COMES TO 5.64% AS AGAINST 5.56% (SUBJECT TO INTEREST AND DEP RECIATION) OFFERED BY THE ASSESSEE IN ITS RETURN OF INCOME, RESULTING IN A VA RIATION OF 0.08%. THE SAID MINOR VARIATION CAN BE IGNORED GIVEN THE INCREASE I N TURNOVER AND OTHER BUSINESS EXIGENCIES. THE AO IS ACCORDINGLY DIRECTE D TO DELETE THE WHOLE OF THE TRADING ADDITION INCLUDING THE ADDITION ENHANCED BY THE LD CIT(A). IN VIEW OF THE SAME, WE DONT THINK ITS NECESSARY TO EXAMINE T HE LEGALITY OF POWERS OF ENHANCEMENT OF INCOME OF THE LD CIT(A) WITHOUT PROV IDING AN OPPORTUNITY AND PER CONTRA, THE CONTENTION OF THE LD DR REGARDING T HE CO-TERMINUS POWERS OF THE LD CIT(A). HENCE, GROUND NO. 1(A) OF THE ASSES SEES APPEAL IS PARTLY ALLOWED AND GROUND NO. 1(B) IS DISMISSED AS INFRUCT IOUS. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 24/07/2017 *GANESH ITA NO. 661/JP/2015 SH. ANZ REALTY PVT. LTD., JAIPUR VS ACIT, CIRCLE-5, JAIPUR 8 VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - M/S ANZ REALTY PVT. LTD., JAIPUR 2. IZR;FKHZ@ THE RESPONDENT - ACIT, CIRCLE-5, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 661/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.