ITO,Ward-52(4), Kolkata, Kolkata V. M/s Akash Developers, Kolkata

ITA 859/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100080 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 30-05-2012
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA PRASAD
• Assessee Lawyers: N O N E
• Keywords: Bogus purchase; Business income
• Section: 40A(3); 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NO. 859/KOL/2012 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, WD-52(4), KOLKATA. VS. M/S. A KASH DEVELOPERS (PAN: AAKFA4288J) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 17.11.2015 DATE OF PRONOUNCEMENT: 20.11.2015 FOR THE APPELLANT: SHRI RAJENDRA PRASAD, JCIT, SR. DR FOR THE RESPONDENT: N O N E ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT(A)-XXXIII, KOLKATA IN APPEAL NO. 390/CIT(A)-XXXIII/ITO WD-52(4),KOLKATA/0 9-10 DATED 27.03.2012. ASSESSMENT WAS FRAMED BY ITO, WARD-52(4), KOLKATA U /S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2007-08 VIDE ITS ORDER DATED 31.12.2009. 2. THE ONLY SUBSTANTIAL ISSUE IN THIS APPEAL OF RE VENUE IS AGAINST THE ORDER OF CIT(A) IN ESTIMATING NET PROFIT RATE AT 8% AS AGAINST ADDI TIONS MADE BY AO ON ACCOUNT OF ADVANCES AND SALES AND DISALLOWANCE OF EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NOS. 1 TO 3: 1. THAT THE LD. CIT(A)-XXXIII, KOLKATA IS ERRED I N DIRECTING THE AO TO ESTIMATE THE BUSINESS INCOME OF THE ASSESSEE WHEN THE ASSESSEE M AINTAINED THE RECORD OF TRANSACTIONS IN HIS BOOKS OF ACCOUNT THOUGH NOT MAINTAINED AS PER A CCOUNTING STANDARDS FOR DEVELOPERS. 2. THE LD. CIT(A) ERRED IN IGNORING THE FALSE CLAI M OF ADVANCES AND SALES DETECTED BY THE AO DULY ESTABLISHED BY IRREFUTABLE EVIDENCES. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION O F RS.7,75,980/- MADE U/S. 40(A)(IA) WITHOUT APPRAISING THE FACT BEHIND THE ADDITION AND ONLY ON THE CONSIDERATION THAT SEPARATE DISALLOWANCE WAS NOT TO BE MADE WHEN HE DIRECTED TO ESTIMATE THE BUSINESS INCOME. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A SMALL DEVELOPER ENGAGED IN CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL FLATS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PERUSAL OF BOOKS OF ACCOU NT AND OTHER DOCUMENTS AND DETAILS FILED BY ASSESSEE POINTED OUT MANY MISTAKES/IRREGUL ARITIES IN THE BOOKS OF ACCOUNT AND FINALLY ASSESSED THE FOLLOWING ITEMS TO THE RETURNE D INCOME OF THE ASSESSEE: UNDISCLOSED SALE AS DISCUSSED IN PARA 7(A) OF ASS ESSMENT ORDER - RS.12,45,000/- BOGUS PURCHASE AS DISCUSSED IN PARA 7(B) OF ASSES SMENT ORDER - RS. 78,419/- 2 ITA NO. 859/KOL/2012 M/S. AKASH DELVELOPERS AY 2008-08 DISALLOWED EXPENDITURE AS PER PROVISION OF SEC. 4 0(A)(IA) - RS. 7,75,980/- UNDISCLOSED SALE AS DISCUSSED IN PARA 7(D) OF ASSES SMENT ORDER - RS. 40,000/- UNDISCLOSED SALE AS DISCUSSED IN PARA 7(E) OF ASS ESSMENT ORDER - RS. 2,25,440/- BOGUS PURCHASE AS DISCUSSED IN PARA 7(F) OF ASSES SMENT ORDER - RS. 1,29,610/- DISALLOWED EXPENDITURE AS PER PROVISION OF SEC. 3 7(1) AS DISCUSSED IN PARA 7(G) OF ASSESSMENT ORDER - RS. 14,000/- AGGRIEVED AGAINST THE ACTION OF AO, ASSESSEE PREFER RED APPEAL BEFORE CIT(A). THE CIT(A) NOTED THE FACT THAT THE ASSESSEE IS MAINTAIN ING ITS ACCOUNT ON CASH BASIS AND WHENEVER THEY RECEIVED ADVANCE FROM PURCHASER IT SH OWED THE AMOUNT AS SALES. THE ASSESSEE ALSO PURCHASED CONSTRUCTION MATERIAL BOTH ON CASH AS WELL AS CREDIT. BUT THE ASSESSEE HAS NOT MAINTAINED THE ACCOUNTS PROPERLY A ND HAS GIVEN DIFFERENT TREATMENT TO ADVANCE RECEIVED AS WELL AS PURCHASE OF MATERIAL ON CREDIT AS WELL AS ON CASH. CONSIDERING THESE FACTS, THE CIT(A) REJECTED THE BO OKS OF ACCOUNT BY APPLYING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND DIRECTE D THE AO TO WORK OUT THE NET PROFIT RATE ESTIMATING THE SAME @ 8% BY OBSERVING IN PARA 6 AS UNDER: 6. CONSIDERING ALL THE ABOVE FACTS, I AM OF THE O PINION THAT ACCOUNT OF APPELLANT ARE NOT CORRECT AND COMPLETE AND DO NOT GIVE TRUE PICTURE O F ITS INCOME. THEY ARE THEREFORE, LIABLE TO BE REJECTED AS PER THE PROVISIONS OF SECTION 145 (3) OF I. T. ACT. AS PER THE FACTS DISCUSSED IN THE ASSESSMENT ORDER, THE SALE RECEIPTS SHOWN BY THE APPELLANT ARE UNDERSTATED BY RS. 12,45,000/- IN RESPECT OF THE FLATS SOLD TO SRI PRA SANT K SAHA SMT. JUTHIKA MITRA AND SMT. RUPARSHEE BHATTACHARJEE, BY RS. 40,000/- IN RESPECT OF FLAT SOLD TO SRI SANJAY BHAGAT AND BY RS. 2,25.440/- IN RESPECT OF FLAT SOLD TO SRI AR PAN CHOWDHURY. THEREFORE THE SALES SHOWN BY THE APPELLANT IN ITS TRADING ACCOUNT IS REQUIRED TO BE INCREASED BY THE AFORESAID AMOUNTS. HOWEVER, IF THESE AMOUNTS ARE SIMPLY ADDED TO THE INCOME, AS DONE BY THE ASSESSING OFFICER, IT RESULTS IN UNREALISTICALLY HI GH NET PROFIT RATE. AS DISCUSSED EARLIER, THE APPELLANT'S SYSTEM OF ACCOUNTING IS UNRELIABLE NOT ONLY IN RESPECT OF BOOKING RECEIPTS, BUT ALSO EXPENSES. WHILE BRINGING SUPPRESSED RECEIPTS T O TAX, CREDIT FOR CORRESPONDING EXPENSES IS ALSO REQUIRED TO BE GIVEN TO ARRIVE AT REAL INCOME. THEREFORE, IN MY OPINION, AN APPROPRIATE RATE OF NET PROFIT IS TO BE APPLIED TO ARRIVE AT A REASONABLE ESTIMATE OF INCOME. SINCE THE APPELLANT'S ACCOUNT OF THE EARLIER YEARS SUFFERS FROM SAME DEFECTIVE METHOD OF RECOGNITION OF INCOME AND EXPENSES, THEY CANNOT PRO VIDE ANY USEFUL INDICATION OF PROFIT RATE. IN ABSENCE OF ANY OTHER BASIS AND CONSIDERING THE LINE OF BUSINESS IN WHICH THE APPELLANT IS ENGAGED, I AM OF THE VIEW THAT NET PRO FIT RATE OF 8 % WOULD BE A REASONABLE ESTIMATE. THEREFORE, THE ASSESSING OFFICER IS DIREC TED TO WORK OUT THE BUSINESS INCOME OF APPELLANT BY APPLYING NET PROFIT RATE OF 8% ON THE RECEIPTS ADJUSTED FOR SUPPRESSION DISCUSSED EARLIER. THIS NET PROFIT SHALL COVER ALL THE OTHER ADDITION MADE FOR BOGUS PURCHASE AND DISALLOWABLE EXPENSES. ALSO IT HAS BEE N HELD BY THE SPECIAL BENCH KOLKATA ITAT IN THE CASE OF ITO VS. KENARAM SAHA AND SUBHAS H SAHA & ORS. 116 ITD 1 (KOL-SB) THAT WHEN A NET PROFIT RATE IS APPLIED, THERE REMAI NS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE ON TECHNICAL GROUNDS. THE TRIBUNAL ACCORDINGLY DELETED U/S. 40A(3) BY FOLLOWING RATIO SET BY THE DECISION OF ALLAHABAD HI GH COURT IN THE CASE OF CIT VS. BANWARILAL BANSHIDHAR 148 CTR 533 (ALL). IN THE DE CISION IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT 129 TTJ 57 (HYD), THIS PRINC IPLE HAS BEEN EXTENDED TO DISALLOWANCE U/S. 40(A)(IA) AS WELL. IN VIEW OF TH E RATIO OF THE AFORESAID DECISIONS, SEPARATE DISALLOWANCE U/S. 40(A)(IA) IS ALSO NOT TO BE MADE WHEN NET PROFIT IS ESTIMATED. 3 ITA NO. 859/KOL/2012 M/S. AKASH DELVELOPERS AY 2008-08 4. IT IS TO BE NOTED THAT THE CIT(A) DIRECTED THE A O TO DELETE THE REST OF THE ADDITIONS AS NET PROFIT RATE AS APPLIED. AGGRIEVED, NOW REVEN UE IS IN APPEAL BEFORE TRIBUNAL. 5. WE HAVE HEARD LD. SR. DR AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THERE ARE ERRORS/INCONSISTENCIES IN TH E MAINTENANCE OF BOOKS OF ACCOUNT BECAUSE IN SEVERAL CASES FOR THE RELEVANT AY BOOKIN G OF SALES DOES NOT TALLY WITH THE YEAR OF REGISTRATION. EVEN THE METHOD OF RECOGNITION OF SALE ADOPTED BY THE ASSESSEE IS INCONSISTENT, DEFECTIVE AND NOT IN ACCORDANCE WITH ANY RECOGNIZED SYSTEM OF ACCOUNTING. EVEN BEFORE THE AO OR BEFORE THE CIT(A), THE ASSESS EE COULD NOT EXPLAIN THE BASIS OF BOOKING OF VARIOUS CONSTRUCTION EXPENSES IN RESPECT OF FLATS KEPT IN STOCK IN TRADE. IN VIEW OF THESE DIFFERENCES, WE FIND THAT THE CIT(A) HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT BY APPLYING THE PROVISIONS OF SECTION 145(3 ) OF THE ACT AND WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN APPLYING PROFIT RATE OF 8 %. 6. IN REPLY TO OTHER ADDITIONS, IT IS CLEAR THAT ON CE NET PROFIT RATE IS APPLIED, THE EXPENSES OR OTHER DISALLOWANCES, SINCE RELATING TO BUSINESS, CANNOT BE MADE SEPARATELY BECAUSE THE PROFIT ELEMENT OF EXPENSES OR DISALLOW ANCES HAVE ALREADY BEEN CONSIDERED WHILE APPLYING PROFIT RATE. ACCORDINGLY, WE CONFIR M THE ORDER OF CIT(A). APPEAL OF REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.11.2 015 SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20TH NOVEMBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ITO, WD-52(4), KOLKATA. 2 RESPONDENT M/S. AKASH DEVELOPERS, 26, PANCHANANTA LA ROAD, HARIDEVPUR, KOLKATA-700041. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .