ANKUR REALTORS, MUMBAI V. ACIT CIR 15(2), MUMBAI

ITA 6653/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84121 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAND DUBE
• Assessee Lawyers: NITESH GANDHI
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A.NO. 6653/M/2010 (AY: 2007 - 2008 ) M/S. ANKUR REALTORS, 303, GALAXY ARCADE, 10, M.G. ROAD, VILE PARLE (E), MUMBAI 400 057. PAN; AALFA3069J VS. THE ACIT, CIRCLE - 15(2), 1 ST FLOOR, MATRU MANDIR, TARDEO, MUMBAI 400 007. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH GANDHI RESPONDENT BY : SHRI SACHIDANAND DUBE DATE OF HEARING: 3.11.2014 DATE OF ORDER: 12 .11.2014 O R D E R PER D. KARUNAKARA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE ON 16.9.2010 IS AGAINST THE ORDER OF THE CIT (A) - 26, MUMBAI DATED 28.7.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) - 26, MUMBAI ERRED IN CONFIRMING ADDITIONS OF RS. 1,14,96,128/ - MADE IN THE RETURNED INC OME OF RS. 13,92,094/ - BY THE AO ON APPLYING ESTIMATED PROFIT RATIO OF 10% ON WIP AT RS. 12,86,12,220/ - AS ON 31.3.2007 IN THE ASSESSMENT ORDER PASSED WITHOUT GIVING SUFFICIENT, REAL AND EFFECTIVE OPPORTUNITIES TO THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) - 26, MUMBAI ERRED IN UPHOLDING THE STAND OF THE AO OF REJECTING THE BOOK RESULTS OF THE APPELLANT MERELY ON THE GROUND OF LOW G.P AND WITHOUT BRINGING ON RECORD ANY COGENT EVIDENCE AS TO THE DEFECTS IN TH E BOOKS OF ACCOUNTS JUSTIFYING REJECTION OF BOOKS ACCOUNT MAINTAINED BY THE APPELLANT. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDING AND DEVELOPING OF PROPERTIES. ASSESSEE FIELD THE RETURN OF INC OME DECLARING THE TOTAL INCOME OF RS. 13,92,094/ - AND ENCLOSED THE COMPUTATION OF INCOME, TAX AUDIT REPORT U/S 44AB ALONG WITH THE ANNEXURES, FINANCIAL STATEMENTS ETC. ASSESSEE FOLLOWS MERCANTILE METHOD OF ACCOUNTING. AO IS OF THE 2 OPINION THAT ASSESSEE D ECLARED THE TOT AL PROFITS SHOWING THE GP OF @ 1.10% OF THE TOTAL WORK IN PROGRESS (WIP) OF RS. 12.86 CRS. DURING THE ASSESSMENT PROCEEDINGS, AS PER THE NOTING OF THE ORDER SHEET ENTRY DATED 14.12.2009, AO ASKED THE ASSESSEE TO ESTIMATE THE PROFITS @ 10% OF THE TOTAL WIP. CONSIDERING THE ABSENCE OF ANY REPLY FROM THE ASSESSEE, AO REJECTED THE BOOKS OF ACCOUNTS U/S 145 OF THE ACT AND ESTIMATED THE PROFITS APPLYING THE FLAT RATE OF 10% ON THE SAID WIP OF RS. 12.86 CRS. ASSESSMENT WAS COMPLETED DETERMINING TH E ASSESSED INCOME AT RS. 1,28,61,222/ - . AGGRIEVED WITH THE SAME, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, ASSESSEE CONTENDED BOTH THE ISSUES, NAMELY (I) REJECTION OF THE BOOKS OF ACCOUNTS WHEN THE BOOKS ARE COMPLETE AND CORRECT AND (II) APPLYING THE FLAT RATE OF 10% OF THE TOTAL WIP, WHICH WAS ALREADY SUFFERED TAX IN THE PAST ASSESSMENT YEARS. ASSESSEE ARGUED THAT THE GP RATE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON THE WIP COMPLETE D DURING THE YEAR IS MUCH MORE THAN 10% ESTIMATED BY THE AO. HE ALSO SUBMITTED THAT AO SHOULD ONLY CONSIDER THE WIP COMPLETED IN THE YEAR UNDER CONSIDERATION AND NOT THE WIP OF THE EARLIER YEARS . HE ALSO MENTIONED THAT THE SHOW CAUSE NOTICE WAS GIVEN ONL Y ON 14.12.2009 AND THE ASSESSMENT WAS COMPLETED ON 16.12.2009 WITH A GAP OF ONLY ONE DAY. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE AND THE PAPER BOOK FILED BEFORE HIM, CIT (A) EXAMINED THE PAPERS AVAILABLE BEFORE HIM AND HELD THAT THE REJECTION OF BOOKS OF ACCOUNTS INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT IS REASONABLE. FURTHER, HE ALSO HELD THAT ESTIMATION OF PROFITS @ 10% APPLYING THE RATE OF 10% OF THE WIP IS ALSO NOT EXCESSIVE. HOWEVER, HE DID NOT CONSIDER THE FACT THAT THE WIP OF RS. 12.86 CRS INCLUDES THE OPENING WIP EXECUTED IN THE EARLIER ASSESSMENT YEARS, WHICH WAS ALREADY SUBJECTED TO TAX BY THE ASSESSEE, APPLYING THE RATE OF 10%. A SSESSEE DID NOT RAISE THIS PARTICULAR ARGUMENT FORMALLY . IN THESE CIRCUMSTANCES, CIT (A) IS OF THE OPINION THAT THE GP OF 1.10% DECLARED FOR THE YEAR UNDER CONSIDERATION IS LOW. ACCORDINGLY, HE CONFIRMED THE ADDITION OF RS. 1,2 8 ,61,222/ - . AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND MENTIONED THAT THE BOOK RESULTS OF 3 THE ASSESSEE WERE UNFAIRLY REJECTED BY THE REVENUE UNDER THE WRONG BELIEF OF LOW GP OF 1.10% W HEN THE FACTUAL GP IS MUCH HIGHER THAN THE GP OF THE EARLIER ASSESSMENT YEARS. IN THIS REGARD, HE FURNISHED THE GP PARTICULARS FOR THE YEAR UNDER CONSIDERATION (11.07%) AS WELL AS THE AY 2006 - 2007 (10.71%). FURTHER, HE ALSO HIGHLIGHTED THE FACT THAT THE GP OF 11.07% IS NOT TO BE CONSIDERED AS LOW AND IT IS MUCH HIGHER THAN 10% ESTIMATED BY THE AO IN THE ASSESSMENT. THEY ALSO BROUGHT OUR ATTENTION TO THE CALCULATION SHEET SHOWING YEAR WISE WIP AND THE GP RATES DISCLOSED BY THE ASSESSEE WHICH ARE EX CLUDED BY THE REVENUE IN THE ASSESSMENT FOR THE AY 2006 - 2007. HE ALSO MENTIONED THAT THE BOOKS ARE COMPLETE AND ACCURATE AND THE ASSESSING OFFICER CANNOT REJECT THE BOOK PROFITS WHEN THE BOOKS ARE COMPLETE AND ACCURATE IN ALL RESPECTS. LOW GP IS NOT A SUSTAINAB LE BASIS FOR REJECTION OF THE BOOKS OF ACCOUNTS. ADDING THE WIP OF THE EARLIER YEARS TO THAT OF THE WIP COMPETED UNDER THE YEAR CONSIDERATION FOR THE PURPOSE OF DETERMINING THE GP RATES AMOUNTS TO DOUBLE TAXATION AND THE WIP, AS THE WIP OF THE EARLIER YE ARS ALREADY SUFFERED TAX IN THE RELEVANT ASSESSMENT YEARS 2005 - 06 AND 2006 - 07. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES DUTIFULLY. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WEL L AS THE PAPER BOOK FILED BEFORE US. IT IS UNDISPUTED FACT THAT THE AO AND THE CIT (A) ARE UNDER THE GENUINE BELIEF THAT THE GP OFFERED IN THE YEAR UNDER CONSIDERATION IS ONLY 1.10%. FOR THIS, REVENUE CONSIDERED THE GROSS GP INSTEAD OF CONSIDERING ONLY WI P OF THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND, IT IS THE CASE OF THE ASSESSEE THAT IF ONLY THE WIP OF THE YEAR UNDER CONSIDERATION IS CONSIDERED, THE GP WORKS OUT TO 11.07% WHICH IS MUCH HIGHER THAN THAT OF THE 10% GP RATE ADOPTED BY THE AO AFTER R EJECTING THE BOOKS OF ACCOUNTS FOR NO REASON. IT IS NOT THE CASE OF THE REVENUE THAT BOOKS SUFFER FROM ANY INACCURACY AND / OR ANY INCOMPLETENESS. THE DETAILS OF METHOD OF ACCOUNTING ORDERED IN THE INCOME AND THERE IS NO DEVIATION BY THE ASSESSEE WITH RE GARD TO THE METHOD OF ACCOUNTING AND THE WIP BASED PROFIT RECOGNITION FOR THE PURPOSE OF TAXATION. WHEN THE ASSESSEE IS OFFERING PROFITS BASED ON THE PERCENTAGE COMPLETION METHOD, IN OUR OPINION, AO IS NOT JUSTIFIED IN INCLUDING THE COMPLETED WORKS OF THE EARLIER YEARS AGAIN IN THE YEAR 4 UNDER CONSIDERATION. BY THIS, AO ERRONEOUSLY CALCULATED THE GP RATE OF 1.10%, WHICH IS PRIMA FACIE UNSUSTAINABLE IN LAW. THEREFORE, WE ARE OF THE OPINION THAT THE AO ERRED IN REJECTING THE BOOKS OF ACCOUNTS INVALIDLY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. FURTHER, ON MERITS, WE ARE OF THE OPINION THAT THE ESTIMATION OF PROFITS @ 11.07% OF THE WIP COMPLETED DURING THE YEAR IS FAIR AND REASONABLE QUA THE PROFITS OFFERED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006 - 07. THEREFORE, THE ARGUMENT RAISED BY THE LD COUNSEL IS FAIR AND REASONABLE. ACCORDINGLY, THE GROUNDS R AISED BY THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUN CED IN THE OPEN COURT ON 1 2 T H NOVEMBER, 2014. S D / - S D / - (H.L. KARWA) (D. KARUNAKARA RAO) PRESIDENT ACCOUNTANT MEMBER DATE: 1 2 .11.2014. AT :MUMBAI OKK COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR A, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI