Asstt.CIT, Cir.-1, Nashik V. Mangalmurti Constructions, Nashik

ITA 796/PUN/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56378 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 17-07-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTUAMA
• Assessee Lawyers: SUNIL PATHAK
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 796/PN/2006 (ASSTT. YEAR: 2003-04) ASSTT. COMMISSIONER OF INCOME - TAX , ... APPELLANT CIRCLE-1, NASHIK V. MANGALMURTI CONSTRUCTIONS, RESPONDENT 13, SHRIRAM SANKUL, OPP. HOTEL PANCHAVATI, NASHIK PAN: AAGFM. 7492Q APPELLANT BY : MS. ANN KAPTUAMA RESPONDENT BY : SHRI SUNIL PATHAK ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CASE THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 28,51,858 /- TO THE TAXABLE INCOME OF THE ASSESSEE 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 80I A(10) ARE NOT APPLICABLE TO THE ASSESSEE. 2. THE FACTS IN BRIEF ARE THAT DURING THE YEAR, ASS ESSEE IN CONSTRUCTION BUSINESS HAD CLAIMED DEDUCTION U/S. 80 IB AT RS. 36,53,752/- . THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. THE A.O NOTICED THAT THE ASSESSEE, A PARTNERSHIP FIRM OF 9 PARTNERS HAD SHOWN NET PROFIT OF RS. 36,53,752/- AT THE RATE OF 45% OF THE TURNOVER AT RS. 80,43,000/-. HE NOTED THAT DURING THE LAST YEAR, IT HAD SHOWN NET PROFIT OF RS. 28,84,412/- AT THE RATE OF 38.7% OF THE TURNOVER AT RS. 74,60,350/-. THE A.O NOTED FURTHER THAT THE PARTNERS ITA . NO 796/PN/2006 MANGALMURTI CONSTRUCTIONS A.Y. 2003-04 PAGE OF 5 2 HAVE WITHDRAWN ALMOST ALL THE PROFIT EARNED DURING THE YEAR AND ALL THE PARTNERS OF THE FIRM ARE ENGAGED IN THE SIMILAR LINE OF BUSINE SS FROM LAND DEVELOPMENT TO CONSTRUCTION ACTIVITIES. UNDER THESE CIRCUMSTANCES , THE A.O WAS OF THE VIEW THAT BUSINESS BETWEEN THE PARTNERS IN INDIVIDUAL CAPAC ITY AND THE ASSESSEE FIRM ARE SO ARRANGED THAT THE BUSINESS TRANSACTION BY THE ASSE SSEE HAS BEEN PRODUCING MORE PROFIT THAN ORDINARY PROFIT SINCE IT IS ELIGIBLE FO R THE DEDUCTION U/S. 80 IB (10) OF THE ACT. THE A.O. THUS CONSIDERING THE DEEMED PROFIT A T THE RATE OF 10% OF THE GROSS TURNOVER HAS JUST AND PROPER FOR THE ELIGIBLE PRO FIT OF 100% DEDUCTION U/S. 80 IB WORKED OUT THE NET PROFIT AT RS. 8,04,300/- AGAINST THE CLAIMED PROFIT OF RS. 36,53, 752/-. 3. BEFORE THE LD CIT(A), THE ASSESSEE EXPLAINED THA T WITHDRAWAL MADE BY THE PARTNER DOES NOT LEAD TO INFERENCE THAT TRANSACTION BETWEEN THE ASSESSEE AND ITS PARTNERS WAS ARRANGED SO AS TO GENERATE EXCESSIVE P ROFIT IN THE HANDS OF THE ASSESSEE FIRM. THE ASSESSEE ALSO CITED INSTANCES W HEREIN MORE INCOME HAS BEEN SHOWN IN SIMILAR BUSINESS. THE ASSESSEE ALSO RAISE D OTHER CONTENTIONS. BEING CONVINCED WITH THE SUBMISSIONS, LD CIT(A) HAS DELET ED THE ADDITION MADE BY THE A.O ON ACCOUNT OF APPLICATION OF NET PROFIT AT 10% BY HIM. AGAINST THIS ACTION OF THE LD CIT(A), THE REVENUE IS IN APPEAL ON THE ABOVE GR OUNDS. 4. IN SUPPORT OF THE GROUNDS, THE LD. D.R. HAS BASI CALLY PLACED RELIANCE ON THE ASSESSMENT ORDER WHICH WE HAVE ALREADY DISCUSSED H EREIN-ABOVE. HE ALSO REFERRED PAGE NOS. 20 AND 21 OF THE PAPER BOOK FILED BY THE DEPARTMENT I.E. COPY OF THE ASSESSMENT ORDER FOR THE YEAR UNDER CONSIDERATION I N THE CASE OF ASSESSEE IN SUPPORT OF THIS CONTENTION THAT THE ASSESSEE FAILED TO EXPLAIN ANY CONVINCING REASON FOR RETURNING SUCH ABNORMAL MARGIN OF PROFIT IN CON STRUCTION BUSINESS AS THE MARGIN OF NET PROFIT IN THE SIMILAR LINE OF THE BUSINESS A RE BEING RETURNED BY OTHER CONTRACTORS AT A VERY LOWER RATE NOT EXCEEDING 6-8 % IN THE MOST OF THE CASES. THE LD CIT(A) HAS ALSO FAILED TO APPRECIATE THAT PROVIS IONS LAID DOWN UNDER SUB-SECTION ITA . NO 796/PN/2006 MANGALMURTI CONSTRUCTIONS A.Y. 2003-04 PAGE OF 5 3 10 TO SECTION 80IA OF THE ACT ARE VERY MUCH APPLICA BLE IN THE CASE OF THE ASSESSEE. LD. D.R. POINTED OUT THAT IN THE CASE OF ASSESSEE, THE BUSINESS OF THE FIRM AND THE PARTNERS IN THEIR INDIVIDUAL CAPACITY HAS BEEN SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM TO THE ASSESSEE WERE MORE T HAN THE ORDINARY PROFITS. 5. THE LD. A.R., ON THE OTHER HAND, TRIED TO JUSTIF Y THE FIRST APPELLATE ORDER ON THE ISSUE. HE SUBMITTED THAT THE A.O HAS DOUBTED T HE HIGHER PROFITS SHOWN BY THE ASSESSEE WITHOUT ASSIGNING ANY SATISFACTORY REASON WHEREAS THE LD CIT(A) HAS DELETED THE ADDITION BEING CONVINCED WITH THE COMPA RABLE INSTANCES DISCUSSED BY HIM IN THE FIRST APPELLATE ORDER. HE REFERRED PAGE NO. 7 TO 12 OF THE PAPER BOOK I.E. COMPARABLE INSTANCE IN CASE OF M/S. INDRALOK CONSTR UCTION AND VISHNU CONSTRUCTION OF NASIK FOR THE SAME A.Y. 2003-04. THESE ARE THE COPIES OF ASSESSMENT ORDERS IN THEIR CASES. IN THE CASE OF M/S. INDRALOK CONSTRUC TION, THE A.O HAS ACCEPTED THE NET PROFIT SHOWN AT 31.04% AND IN THE CASE OF M/S. VISH NU CONSTRUCTION THE NET PROFIT SHOWN AT 45.46% HAS BEEN ACCEPTED BY THE A.O. THE LD. A.R. ALSO REFERRED PAGE NO. 6 OF THE PAPER BOOK I.E. A STATEMENT SHOWING SA LES, NET PROFIT, NET PROFIT AND TURNOVER THEREOF IN THE CASE OF ASSESSEE FOR 5 A.Y S. SHOWING NET PROFIT RATE VARYING FROM 38.66% TO 53.90%. THE LD. A.R. SUBMITTED FURT HER THAT A.O. HAS NOT SPECIFIED THE CONCERN NOR HAS HE DISCUSSED ANY EVIDENCE WHIC H MAY SHOW THAT THE TRANSACTION BETWEEN THE ASSESSEE FIRM AND INDIVIDUA L PARTNERS OR CONCERNS CONTROLLED BY HIM WERE MADE RESULTING INTO GENERATION OF MORE THAN ORDINARY QUANTUM OF PROFIT DURING THE YEAR. THE LD. A.R. OPPOSING GROUND NO. 2 SUBMITTED THAT WITHDRAWAL OF PROFITS BY THE PARTNERS DOES NOT IN ANY WAY LEAD TO THE CONCLUSION THAT THERE WAS CLOSE CONNECTION BETWEEN BUSINESS OF THE FIRM AND T HAT OF OTHER PARTNERS IN THEIR INDIVIDUAL CAPACITY AND THE BUSINESS TRANSACTIONS WERE SO ARRANGED TO SHOW EXCESSIVE PROFIT. HE SUBMITTED THAT IT IS VERY LOG ICAL THAT EXCESSIVE FUNDS AVAILABLE WITH FIRM OUT OF PROFIT EARNED IF REQUIRED FOR EXPE NDITURE SHALL NATURALLY BE WITHDRAWN BY THE PARTNERS. LD. A.R. SUBMITTED FURTHER THAT W HAT THE SECTION 80 IB (10) REQUIRES FOR ITS APPLICABILITY IS THE TRANSACTION BETWEEN THE FIRM AND OTHER ENTITIES ITA . NO 796/PN/2006 MANGALMURTI CONSTRUCTIONS A.Y. 2003-04 PAGE OF 5 4 FOR SHOWING EXCESSIVE PROFIT; LIKE SALES OF THE RES IDENTIAL PREMISES WERE MADE TO THE RELATED PERSONS AT HIGHER PRICE THAN NORMAL PRICE TO SHOW EXCESSIVE PROFIT ETC., 6. CONSIDERING THE ABOVE SUBMISSIONS, ESPECIALLY IN ABSENCE OF REBUTTAL BY COMPARATIVE INSTANCES SHOWING THE SIMILAR RESULT OR BETTER RESULT IN COMPARISON TO THE ASSESSEE CITED BEFORE THE LD CIT(A) OR ANY OTHE R SPECIFIC REASON SHOWN BY THE A.O THAT NET PROFIT SHOWN BY THE ASSESSEE WAS INFL ATED, WE DO NOT FIND REASON TO INTERFERE WITH THE ACTION OF THE LD CIT(A) ON THIS ISSUE. BEFORE THE LD CIT(A), INSTANCES OF M/S. VISHNU CONSTRUCTION AND M/S. INDR ALOK CONSTRUCTION FOR THE SAME A.Y. UNDER CONSIDERATION HAVE BEEN CITED. IN THE C ASE OF M/S. VISHNU CONSTRUCTION, THE A.O HAS ACCEPTED THE NET PROFIT RATE SHOWN AT 4 5.46% AND IN THE CASE OF M/S. INDRALOK CONSTRUCTION, A.O HAS ACCEPTED THE NET PRO FIT RATE SHOWN AT 31.04%. FROM THE FOLLOWING RESULT OF THE ASSESSEE IN DIFFER ENT YEARS, IT IS ALSO EVIDENT THAT ASSESSEE HAS BEEN SHOWING NET PROFIT RATE VARYING F ROM 38.66% TO 53.90% : FINANCIAL YEAR SALES GROSS PROFIT NET PROFIT % OF GROSS PROFIT % OF NET PROFIT 2000 - 2001 67,47,001.00 28,76,986.17 28,76,986,17 42.64% 42.34% 2001 - 2002 74,60,350.00 30,05,269.82 28,84,411.97 40.285 38.66% 2002 - 2003 80,43,000.00 37,43,054.86 36,53,752.00 46.54% 45.43% 2003 - 2004 61,19,000.00 25,88,420.00 25,69,861.21 42.30% 42.00% 2004 - 2005 21,54,000.00 12,02,054.00 11,61,094.00 55.91% 53.90% TOTAL RS. 3,05,23,351.00 1,34,15,784.85 1,31,46,105.35 43.95% 43.07% 7. BEFORE THE LD CIT(A), THE ASSESSEE HAS ALSO TRIE D TO EXPLAIN THE REASONS FOR SHOWING THE ABOVE NET PROFIT. UNDER THE ABOVE CIRCU MSTANCES, WE DO NOT FIND REASON ITA . NO 796/PN/2006 MANGALMURTI CONSTRUCTIONS A.Y. 2003-04 PAGE OF 5 5 TO INTERFERE WITH THE FIRST APPELLATE ORDER ON THE ISSUE. THE SAME IS UPHELD. THE GROUNDS ARE ACCORDINGLY REJECTED. 8. CONSEQUENTLY, APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10TH A UGUST 2011. SD/- SD/- ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 10TH AUGUST, 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -I, NASHIK 4. THE CIT(A)-I, NASHIK 5. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE