SAMTA ORGANISERS PVT. LTD., Ahmedabad V. THE CIT, (A), XIV, Ahmedabad

ITA 994/AHD/2009

• Counselvise Citation: 99420514 RSA 2009
• Duration Of Justice: 4 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 02-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Rejection of books of accounts; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Revenue expenditure
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMADABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' ! ' ! ' ! ' ITA NO. 994 /AHD/2009 ASSESSMENT YEAR :2005-06 SAMTA ORGANISERS PVT. LTD. 4 TH FLOOR, SAHAJ APARTMENT, NR. RAJPATH RAWHOUSE, OPP. CHITRAKUT-I, BODAKDEV, AHMEDABAD V/S . CIT(APPEALS)-XIV, AHMEDABAD PAN NO. A A GCS3441Q (APPELLANT) .. (RESPONDENT) ITA NO. 2778 /AHD/2010 ASSESSMENT YEAR :2005-06 CIT(APPEALS)-XIV, AHMEDABAD V/S . SAMTA ORGANISERS PVT. LTD. 4 TH FLOOR, SAHAJ APARTMENT, NR. RAJPATH RAWHOUSE, OPP. CHITRAKUT-I, BODAKDEV, AHMEDABAD (APPELLANT) (RESPONDENT) # $ % / BY REVENUE SHRI K. C. MATHEWS, SR.D.R. $ % /BY ASSESSEE SHRI S. N. SOPARKAR, A.R. &' $ /DATE OF HEARING 26.02.2014 ()* $ /DATE OF PRONOUNCEMENT 14.03.2014 O R D E R PER : SHRI T. R. MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS FILED BY THE ASSESSEE AND REVENUE ARE ARISING OUT OF THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APP EALS)-XIV, AHMEDABAD, DATED 30.01.2009 IN ITA NO. 994/AHD/2009 & DATED 05.07.2009 IN ITA NO. ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 2 2778/AHD/2010 FOR A.Y. 05-06 IN BOTH APPEALS. THE EFFECTIVE GROUNDS OF BOTH APPEALS ARE AS UNDER: GROUNDS OF ITA NO. 994/AHD/2009 (ASSESSEE'S APPEAL) [1] THE LD. AO AND LD. CIT(A) ERRED IN LAW AND FAC TS, FIRST BY ASSESSING THE TOTAL INCOME AT RS.2,18,010/- AND FURTHER ENHAN CING THE INCOME TO RS.14,21,168/- WITHOUT LOOKING TO BONA FIDE FOR STR UCTURE CREATED BY THE ASSESSEE. [2] IS ASSESSING OFFICER CORRECT IN LAW AND FACTS B Y APPLYING DECISION OF SHRI NIRMAL COMMERCIAL LTD. VS. CIT 193 ITR 964 IN SPITE OF DIFFERENT FACTS, AS DEVELOPER (SANTULAN DEVELOPERS PVT. LTD.) IS ALREADY APPOINTED IN THE ASSESSEES CASE? FURTHER, IS IT APPROPRIATE NOT TO FOLLOW ABOVE DECI SION IN TOTALITY BY ASSUMING THE INCOME THOUGH NO SURPLUS IS AVAILABLE WITH THE ASSESSEE AS RECEIPT IS EQUAL TO CONSTRUCTION EXPENDITURE? [3] LOOKING TO THE CIRCUMSTANCES AND FACTS OF THE C ASE, IS LD. CIT(APPEALS) CORRECT IN REJECTING BOOKS OF ACCOUNT AND LIFTING CORPORATE VEIL BY HOLDING THAT INTENTION OF FORMING ANOTHER C OMPANY APPEARS TO BE AS TO AVOID AND DIVIDE YOUR TAX LIABILITY, PARTICULARL Y WHEN BOTH THE COMPANY HAVE SAME RATE OF TAX UNDER THE ACT? [4] ON THE GROUND ON REAL INCOME THEORY, WHEN NEITH ER ANY RECEIPT NOR ANY EXPENDITURE IS DISAPPROVED BY A.O. OR CIT(APPEA LS), AND WITHOUT ANY MATERIAL ON RECORDS, IS IT JUSTIFIED TO ENHANCE THE INCOME ON THE BASIS OF ESTIMATION? GROUND OF ITA NO. 2778/AHD/2010 1). THE LD. CIT(A)-XIV, AHMADABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY OF RS.10,40,082/- LEVIED U/S. 271(1)(C) OF THE I.T. ACT. FIRST WE TAKE ITA NO. 994/AHD/2009 (ASSESSEE'S APPE AL) 2. ALL FOUR GROUNDS ARE REVOLVING AROUND ENHANCING THE INCOME TO RS.14,21, 168/- FROM THE CONSTRUCTION ACTIVITIES OF THE ASSESSEE COMPANY. ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 3 3. THE A.O. OBSERVED THAT THE COMPANYS MAIN OBJECT IS BUYING THE LAND AND CONSTRUCTION OF HOUSE FOR ITS MEMBERS. ON THE BASIS OF BALANCE SHEET, THE ASSESSEE HAD TAKEN UNSECURED LOAN OF RS.1,17,78 ,450/- AND HAD SHOWN GROSS BLOCK OF ASSETS AT RS.1,13,73,450/-. THE UNS ECURED LOAN CONSTITUTES MEMBERS CONTRIBUTIONS AT RS.1.13 CRORE AND MEMBERS DEPOSIT FOR RS.40 LACS. THE ASSESSEE COMPANY IN SCHEDULE 4 HAD SHOWN CONSTR UCTION AT RS.61,71,325/- IN ASSETS WHICH INCLUDE OPENING WORK -IN-PROGRESS AT RS.70.27 LACS, ADDITION DURING THE YEAR RS.6.44 LACS MINUS M ATERIAL GIVEN ON LOAN BILL OF RS.15 LACS AND NET CLOSING CAPITAL WORK-IN-PROGRESS AT RS.61.71 LACS. THE LD. A.O. FURTHER VERIFIED THE OPENING WORK-IN-PROGRESS AS ON 01.04.2004 OF RS.70.27 LACS AND FOUND THAT THIS WORK-IN-PROGRESS INCLUDES RS.21.19 LACS FOR A.Y. 03-04 AND REMAINING WORK-IN-PROGRESS RS.49.08 LACS FOR A.Y. 04-05. THE ASSESSEE FURTHER MADE ADDITION IN WORK-IN-PROGRESS AT RS.7,48,764/- DURING THE YEAR, WHEREIN A.O. HAD TAKEN THE FIGURE AT RS.6 ,44,174/- ON PAGE 2 AS PER SCHEDULE 4. THE ASSESSEE COMPANY HAD NOT DRAWN P&L ACCOUNT AND HAD NOT BOOKED ANY INCOME FROM THE CONSTRUCTION ACTIVITY. THE ASSESSEE HAD ALREADY STATED THE CONSTRUCTION ACTIVITY BUT NO INCOME HAD BEEN SHOWN ON IT. THE A.O. HAD TREATED RECEIPTS AGAINST ALLOTMENT OF FLOOR SPA CE AS TRADE OR REVENUE RECEIPTS. HE FURTHER ANALYZED THE SECTION 4 OF THE IT ACT. THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE AND PROPOSED GP @ 16% ON TOTAL RECEIPTS. AFTER CONSIDERING ASSESSEES RE PLY, IT WAS HELD BY THE A.O. THAT ASSESSEES CONTENTION THAT IT HAS PURCHASED TH E LAND FOR MEMBERS AND THE ASSESSEE COMPANY IS ONLY A SPECIAL VEHICLE FOR AVOIDANCE OF STAMP DUTY IS NOT CORRECT. THE TRADING RECEIPTS ARE NOTHING BUT THE TRADING RECEIPTS AND AS ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 4 PER PROVISIONS OF SECTION 4 OF THE IT ACT, THE ASSE SSEE COMPANY WAS REQUIRED TO BOOK INCOME ON THE TRADING RECEIPTS. BY ALLOTTI NG THE FLOOR SPACE AND CHARGING THE CONTRIBUTION FROM MEMBERS, SHOWED THE BUSINESS INTENTION OF THE ASSESSEE. THE ASSESSEES CONTENTION THAT IT HAD GI VEN THE DEVELOPMENT CONTRACT AND THAT THE MEMBERS CONTRIBUTION HAD BEEN ROUTED FROM THE MEMBERS VIA DEVELOPER IS ALSO NOT CORRECT. AS PER THE TDS CERTIFICATES ISSUED BY THE ASSESSEE COMPANY, THE CONTRACTOR HAD BEEN GI VEN SUPERVISORY CHARGES AGGREGATING IN ALL RS.8 LACS IN THE LAST THREE ASSE SSMENT YEARS. IT IS ALSO NOT CORRECT THAT ASSESSEE COMPANY IS MERELY A SPECIAL V EHICLE FOR AVOIDANCE OF STAMP DUTY. THE ASSESSEE COMPANY HAD PURCHASED THE MATERIAL, HAD DEBITED THE SUPERVISION CHARGES AND HAD ALSO CHARGED THE ME MBERS CONTRIBUTION WHICH HAD BEEN SHOWN BY THE ASSESSEE AS UNSECURED L OAN. THIS IS NOTHING BUT THE COLORABLE DEVICE TO AVOID THE TAX LIABILITY . THE ASSESSEE COMPANY HAD DEDUCTED TDS ON SUPERVISORY CHARGES PAID TO ITS SIS TER CONCERN, NAMELY, SANTULAN DEVELOPERS PVT. LTD. THE ASSESSEE COMPAN Y HAD MADE AGREEMENT WITH ITS MEMBERS ALLOTTING THEM CERTAIN SPACE IN TH E CONTRACTED HOUSE. IT HAS ISSUED THE ALLOTMENT LETTERS IN RESPECT OF VARIOUS UNITS WITH CERTAIN SPACE IN COMPARISON TO THEIR CONTRIBUTION. THE ASSESSEE COM PANY CLAIMED THAT IT GOT CHARGE OVER THE PREMISES, IS WRONG. BY ALLOTMENT O F SPACE TO THE MEMBERS, THE ASSESSEE COMPANY HAD DEVISED A SCHEME FOR CARRY ING ON THE BUSINESS OF CONSTRUCTION. THE SHARE HOLDERS ENTERED INTO A STA NDARD AGREEMENT WITH THE ASSESSEE COMPANY WHICH WOULD CONFER ON THEM THE RIG HT OF OCCUPATION IN RESPECT OF SPECIFIED FLOORS SPACE IN THE BUILDING E ITHER BY THEM SALVES OR BY THEIR NOMINEES. THE WHOLE TRANSACTION IS IN REALIT Y A SALE OF FLOOR SPACE BY THE ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 5 ASSESSEE COMPANY TO ITS SHARE HOLDERS AND THE RIGHT KEPT WITH THE ASSESSEE COMPANY IS OF NEGLIGIBLE AND DUBIOUS VALUE. THE AS SESSEE COMPANY WAS REQUIRED TO DRAW THE P&L ACCOUNT AND WAS SUPPOSED T O BOOK THE INCOME ON TRADING RECEIPTS. HE FURTHER RELIED UPON THE DECIS ION OF HONBLE BOMBAY HIGH COURT IN CASE OF SHRI NIRMAL COMMERCIAL LTD. VS. CIT REPORTED IN 194 ITR 694 (BOM) AND ALSO DISCUSSED THE REVISED AS7 METHOD FOR DEVEL OPER AND SECTION 4 OF THE IT ACT. THE A.O. FURTHER HELD THAT THE IN COME OF ANY ENTERPRISE HAS TO BE ASCERTAINED IN EACH PREVIOUS YEAR IRRESPECTIVE O F THE FACT THAT IT COMPRISES ACTIVITIES WHOSE SPAN IS SPREAD OVER A NUMBER OF YE ARS. HONBLE SUPREME COURT HAS SETTLED THIS ISSUE IN CASE OF CIT VS. BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC). THE LD. A.O. REJECTED THE BOOK RESULT U/S. 145(3) O F THE IT ACT. THE RECEIPTS OF RS.1,13,73,450/- WAS TREATED AS TRADING RECEIPTS AND ESTIMATED GROSS PROFIT @ 16% ON TOTAL RECEIPTS. AFTER ALLOWI NG CERTAIN EXPENDITURE. NET INCOME OF THE ASSESSEE WAS CALCULATED AT RS.2,18,01 0/- BY THE A.O. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ENHANCED THE INCOM E. LD. CIT(A) HAD HELD THAT APPELLANT HAD CREATED A FRONT WHICH IS AN ASSO CIATE CONCERN OF DIRECTORS ARE THE SAME AS ITS DIRECTORS. NORMALLY, A COMPANY IS FORMED TO DO BUSINESS AND EARN INCOME ONLY FOR HOLDING A PIECE OF LAND NO RMALLY A COMPANY IS NOT REGISTERED NOR FORMED. AS DEVELOPMENT WORK WAS DON E BY AN ASSOCIATE CONCERN WHOSE DIRECTORS ARE SAME AS THOSE OF THE AP PELLANT COMPANY, THE APPELLANT COMPANY COULD HAVE ALSO CARRIED ON THE CO NSTRUCTION OR DEVELOPMENT WORK BY ITSELF AND SHOWN THE PROFIT INS TEAD OF PAYING RS.8 LACS AS SUPERVISION CHARGES TO AN ASSOCIATE CONCERN. THE I NTENTION OF FORMING ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 6 ANOTHER COMPANY WAS TO AVOID AND DIVIDE ITS TAX LIA BILITY. THE A.O. IS ENTITLED TO LIFT THE CORPORATE VEIL AND PIERCE THE ARRANGEME NT AS SETTLED IN MCDOWELL AND CO. 154 ITR 148(SC) AND IN CIT VS. INDIAN EXPRE SS NEWSPAPERS 104 TAXMAN 578/238 ITR 70 (MAD), IT HAS BEEN HELD THAT CORPORATE VEIL CAN BE LIFTED FOR ASCERTAINING REAL CHARACTER OF A TRANSAC TION. BY CONSIDERING HE CASE OF JUGGILAL KAMLAPAT VS. CIT 73 ITR 702 (SC), IT WAS HELD THAT PROFIT IS TAXED IN THE HANDS OF THE APPELLANT COMPANY, HOLDING THAT CO NSTRUCTION WORK HAD BEEN CARRIED OUT BY THE APPELLANT COMPANY ONLY AND THE C OMPANY SANTULAN DEVELOPERS PVT. LTD. IS ONLY A NAME SAKE OR A FRONT OF THE APPELLANT COMPANY. HE FURTHER HELD AS UNDER: 3.2 ALLOTMENT OF SHARES AND ALLOTMENT OF FLATS TO MEMBERS FOR THEIR ENJOYMENT IS DEEMED AS TRANSFER U/S 2(47) OF THE IT . ACT, SO PROFIT ON TRANSFER /SALE OF FLATS IS CONSIDERED IN THE HANDS OF THE APPELLANT .THE CONTENTION OF THE A.R. THAT ONLY WHEN THE SHARES AR E ACQUIRED FROM ANOTHER PERSON THE PROVISIONS OF SECTION 2(47) ARE ATTRACTED IS FAR FROM THE LOGICAL INTERPRETATION AND THE VIEW OF THE A.R. IS NOT SUPPORTED BY ANY LEGAL BASIS. 3.3 THE A.R. HAS STATED THAT THE INCOME OF RS.8 LAK HS HAS BEEN SHOWN AS DEVELOPMENT INCOME BY SANTULAN DEVELOPERS PRIVAT E LTD. AND INTEREST OF 13.43 LAKHS HAVE BEEN SHOWN BY THE DIRECTORS AND THUS 23.21% OF THE COST OF THE PROJECT HAS BEEN SHOWN AS INCOME BY DIF FERENT ENTITIES. BUT THE NET INCOME SHOWN BY THE DEVELOPER COMPANY SANTULAN DEVELOPERS PRIVATE LTD. IN A.Y. 2005-06 IS ONLY NET PROFIT AND NET INCOME OF RS.10,120/- AND NO INTEREST INCOME FROM THE APPELLA NT OR SANTULAN DEVELOPERS PRIVATE LTD. HAS BEEN SHOWN BY SRI BHAVI N SHAH FOR A.Y. 2005-06 AND LIZA JIGISHBHAI SHAH HAS SHOWN INTEREST INCOME FROM PRIVATE PARTIES TO THE TUNE OF RS. 1,28,612/- IN A.Y. 2005- 06 . THUS THE INCOME ASSESSED IN THE HANDS OF THE DEVELOPER COMPANY AND THE DIRECTORS DO NOT AMOUNT TO 23.21% AS STATED BY THE A.R.. ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 7 3.4 THE COPIES OF AGREEMENTS ENTERED BY THE APPELL ANT COMPANY WITH MEMBERS WERE CALLED FOR AND EXAMINED. IN THE ARTICL ES OF AGREEMENT ENTERED BY THE APPELLANT COMPANY WITH ONE MEMBER PO ONAMCHAND R.SHAH , IT HAS BEEN STATED THAT THE COMPANY HAS CA RRIED OUT CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL UNITS AND PLAN FOR C ONSTRUCTION OF BUILDING HAS BEEN APPROVED BY AHMEDABAD MUNICIPAL CORPORATIO N AND THE APPELLANT COMPANY HAS COMPLETED THE CONSTRUCTION AS PER THE APPROVED PLAN AND THE APPELLANT COMPANY HAS HANDED TO THE ME MBER THE PEACEFUL POSSESSION OF THE FLAT , FURTHER AS PER CLAUSE 5 TH E MEMBER SHALL PAY ALL THE TAXES AND BETTERMENT CHARGES WHICH SHALL BE RECOVER ED BY THE LOCAL AUTHORITY .FOR ANY ALTERATION OF THE PREMISES THE M EMBER SHALL BE LIABLE TO CONSEQUENCES . THUS THE MEMBERS ARE THE OWNERS FOR ALL PURPOSES AND EVEN OTHERWISE RELYING ON THE DECISION OF THE APEX COURT IN CIT V. PODAR CEMENT PVT.LTD. (226 ITK 625)(SC)AND MYSORE MINERAL S LTD.239 LTR 775 (SC) ; THE MEMBERS ARE OWNERS AS THEY ARE HAVING POSSESSION OF FLATS . IT HAS BEEN HELD IN THESE CASES THAT THE TERM OWNED HA S TO BE GIVEN A WIDER MEANING AND IF AN ASSESSEE IS IN POSSESSION OF PROP ERTY AND HAS ACQUIRED DOMINION OVER IT AT THE EXCLUSION OF OTHERS , HE IS THE OWNER. IN CIT V. PODAR CEMENT PVTLTD IT HAS BEEN HELD AS UNDER ; 'HENCE, THOUGH UNDER THE COMMON LAW 'OWNER' MEANS A PERSON WHO HAS GOT VALID TITLE LEGALLY CONVEYED TO HIM AFTER COMPL YING WITH THE REQUIREMENTS OF LAW SUCH AS THE TRANSFER OF PROPERT Y ACT, THE REGISTRATION ACT, ETC., IN THE CONTEXT OF SECTION 22 OF THE INCO ME-TAX ACT, 1961, HAVING REGARD TO THE GROUND REALITIES AND FURTHER HAVING R EGARD TO THE OBJECT OF THE INCOME-TAX ACT, NAMELY, TO TAX THE INCOME, 'OWNER' IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT THE REQUIREMENT OF REGISTRATION OF THE SALE DEED IN THE CONTEXT OF SECTION 22 IS NOT WARRANTED.' THUS THE APPELLANT HAS CONSTRUCTED AND TRANSFERRED THE UNITS TO ITS MEMBERS BY ALLOWING THEM TO HAVE POSSESSION AND ENJ OYMENT RIGHTS OVER THE FLATS . 3.5 ON CONSIDERATION OF TOTALITY OF FACTS AS DISCUS SED ABOVE, I CONFIRM THE ACTION OF THE A.O. IN REJECTING BOOKS OF ACCOUN TS AS IT IS NOT POSSIBLE TO ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 8 COMPUTE ITS TRUE INCOME AND I HOLD THAT THE A.O. HA S RIGHTLY REJECTED THE BOOKS OF ACCOUNTS OF THE APPELLANT AND ESTIMATED GP OF THE APPELLANT. BUT IN MY VIEW AS IT IS NOT A TRADING ACTIVITY GP SHOUL D NOT HAVE BEEN ESTIMATED, RATHER NET PROFIT SHOULD HAVE BEEN ESTIM ATED. HENCE AS PROPOSED IN THE ENHANCEMENT NOTICE THE NET PROFIT I S ESTIMATED AT 12.5 % OF TOTAL RECEIPTS OF RS.1,13,73,450/- I.E. AFTER EX CLUDING DEPOSIT OF RS.4 LAKHS FROM TOTAL RECEIPTS OF RS.1,17,73,450/- AND A FTER DEEMING THAT ALL EXPENSES CLAIMED HAVE BEEN ALREADY ALLOWED . THE A. O. HAS APPLIED GP OF 16% AND ALLOWED EXPENSES FOR ADMINISTRATIVE EXPE NSES AND INTEREST OF RS. 14,59,862/-, THEREBY HE HAS ARRIVED AT PROFIT O F RS.2,18,010/- ON CONTRACT RECEIPT OF RS.1.13 CRORES WHICH COMES TO 1 .91% OF PROFIT WHICH IS VERY MUCH BELOW THE PRESUMPTIVE RATE OF PROFIT OF 8 % IN CASE OF CIVIL CONSTRUCTION AS PER SECTION 44AD OF THE I.T.ACT. TH IS LOW PROFIT CAN NOT BE ACCEPTED UNLESS THERE ARE ABNORMAL CIRCUMSTANCES PR EVAILING , IN SUPPORT OF ESTIMATE OF NET PROFIT FOLLOWING CASE LAWS ARE R ELIED UPON; I) 10% NET PROFIT ON PROJECT COST WAS APPLIED BY TR IBUNAL ON CONSTRUCTION CONTRACTS INSTEAD OF GP OF 10% ADOPTED BY A.O. -THE ESTIMATE BY TRIBUNAL WAS UPHELD IN CIT V. RATHI CONSTRUCTIONS CO.-119 TA XMAN 664(P&H) II) REJECTION OF ACCOUNTS AND ESTIMATION OF PROFITS AT 10% WAS HELD-TO BE JUSTIFIED -MANI & CO. V.CIT -256 ITR 373 (KER) III) NET PROFIT OF 10% IN CASE OF CONSTRUCTION ACTI VITY HAS BEEN UPHELD IN CASE OF ACIT V. POOJA CONSTRUCTION CO. 69IT0 147(AS R) , WHEREIN IT HAS BEEN HELD THAT ONCE NET PROFIT IS APPLIED NO DEDUCT ION FOR INTEREST AND DEPRECIATION CAN BE ALLOWED . IV) NET PROFIT OF 10% HAS BEEN UPHELD IN CIT VS. BHAWAN AND PATH NIRMAN BOHRA AND CO.258 ITR 676 (RAJ). HOWEVER CONSIDERING THE FACTS OF THE CASE AND THE S UBMISSIONS OF THE A.R. THAT INCOME OF 23.21% OF THE PROJECT COST HAS BEEN OFFERED AS DEVELOPMENT INCOME IN THE HANDS OF THE DEVELOPER CO MPANY AND INTEREST EARNED BY DIRECTORS , I AM OF THE OPINION THAT ESTI MATE OF NET PROFIT OF 12.5% , NET OF ALL EXPENSES ON RS.L,13,73,450/- I.E . RS. 14,21,168/- WOULD BE JUSTIFIED AND REASONABLE PROFIT IN THE CASE OF T HE APPELLANT .HENCE THE A.O. IS DIRECTED TO RECOMPUTE INCOME OF THE APPELLA NT AS RS. 14,21,168/-. ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 9 3.6 ON CONSIDERATION OF THE ABOVE FACTS , I AM OF T HE VIEW THAT THE INCOME OF THE APPELLANT HAS TO BE ENHANCED TO RS. 1 4,21,168/- . HENCE THE A.O. IS DIRECTED TO ASSESS THE APPELLANT ON NET PRO FIT OF RS. 14,21,168/- AND NO FURTHER DEDUCTION IS ALLOWED FOR EXPENSES OF SUPERVISION CHARGES OR INTEREST OR ANY OTHER EXPENSES WHICH ARE DEEMED TO HAVE BEEN ALLOWED WHILE COMPUTING NET PROFIT AS ABOVE. 5. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THE ASSESSEE COMPANY IS A LIMITED CO MPANY AND FOR A.Y. 05- 06, NO P&L ACCOUNT HAD BEEN DRAWN BY THE COMPANY AL L THE RECEIPTS WERE SHOWN IN BALANCE SHEET ONLY. THE LD. A.O. ESTIMATE D INCOME BY APPLYING THE GP AND AFTER REDUCING THE EXPENSES AT RS.2.18 LACS. HE HAS DRAWN OUR ATTENTION ON PAGE 6 OF THE ASSESSMENT ORDER, WHERE LD. A.O. HAS CONSIDERED THE HONBLE BOMBAY HIGH COURT IN CASE OF SHRI NIRMAL COMMERCIAL LTD. VS. CIT (SUPRA) AND ALL RECEIPTS SHOULD BE TAKEN AS REVENUE EXPENDI TURE ON IT IS TO BE ALLOWED AS REVENUE EXPENDITURE AND INCOME IS TO BE DECIDED ON THE ENTIRETY OF BOTH THE SIDES OF THE P&L ACCOUNT I.E. RECEIPTS AS WELL AS EXPENDITURE AND COMPUTE THE REAL INCOME ON IT. HE FURTHER ARGUED THAT THE APPELLANT COMPANY SHOULD BE ALLOWED OUTGOING IF THE TOTAL RECEIPTS ASSESSED IN THE APPELLANTS HANDS. AT THE OUTSET, LD. SR. D .R. RELIED UPON THE ORDER OF THE CIT(A) AND PRAYED TO CONFIRM THE ORDER. IN REJOIND ER, LD. A.R. HAS DRAWN OUR ATTENTION ON PAGE NO.8 OF THE LD. CIT(A)S ORDER AN D ARGUED THAT ALTERNATIVELY, THE NET PROFIT IS TO BE ESTIMATED @ 8% AS PER SECTI ON 44AD ON TOTAL TURNOVER OR GROSS RECEIPTS OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS IN THE CONSTRUCTION BUSINE SS. IT HAS DEVELOPED THE ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 10 LAND AND ALLOTTED THE SPACE TO ITS MEMBERS (PURCHAS ER). THE ASSESSEE COMPANY HAS SHOWN THESE RECEIPTS UNDER THE HEAD UN SECURED LOAN FROM THE MEMBERS BUT AS PER AGREEMENT MADE BY THE ASSESSEE COMPANY WITH ITS MEMBERS SHOWS THAT THE ASSESSEE COMPANY ITSELF HAS RIGHT TO SELL OF THE CONSTRUCTED AREA. THE ASSESSEE COMPANY ITSELF CONST RUCT OR CAN BE CONSTRUCTED THROUGH ANOTHER PARTY. IN ASSESSEES C ASE ITS SISTER COMPANY, NAMELY, SANTULAN DEVELOPERS PVT. LTD. HAD PROVIDED THE SERVICES FOR WHICH ASSESSEE HAD PAID THE SERVICES CHARGES AT RS. 8 LAC S BUT LD. CIT(A)S FINDING THAT IN BOTH THE COMPANIES, THE ASSESSEE AS WELL AS SANTULAN DEVELOPERS PVT. LTD., DIRECTORS ARE SAME AND THE ASSESSEES ACCOUNT ING OF BUSINESS RECEIPTS GAVE THE DOUBT IN THE MINDS OF THE LOWER AUTHORITIE S THAT IT IS A DEVICE TO AVOID THE TAX, APPEARS TO BE TRUE IN ABSENCE OF ANY P&L A CCOUNT. THE A.O. CANNOT DEDUCE THE CORRECT INCOME OF THE BUSINESS. THEREFO RE, REJECTION OF THE BOOK RESULT MADE BY THE A.O. U/S. 145(3) IS JUSTIFIABLE. THE ISSUE REMAINS THAT WHETHER THE ASSESSEE COMPANY HAD TRANSFERRED THE CO NSTRUCTION AREA ON ARMS LENGTH PRICE, IS REQUIRED TO BE EXAMINED BY TH E A.O. AFRESH BY ALLOWING THE REASONABLE OPPORTUNITY TO THE ASSESSEE. THEREF ORE, WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) TO THE A.O. AS PER AB OVE OBSERVATION & TAKE DECISION AS PER LAW. NOW WE TAKE ITA NO. 2778/AHD/2010 (REVENUE'S APPEAL ) 7. REVENUES APPEAL IS AGAINST DELETING THE PENALTY OF RS.10,40,082/- LEVIED U/S. 271(1)(C) OF THE IT ACT. IN QUANTUM AP PEAL, THIS ISSUE HAS ALREADY BEEN SET ASIDE TO THE A.O. ACCORDINGLY, WE ALSO SE T ASIDE THE PENALTY ORDER TO ITA NOS. 994/AHD/2009 & 2778/AHD/10 FOR A.Y. 05-06 IN SAMTA ORGANISERS PVT. LTD. VS. CIT(A)-XIV PAGE 11 THE A.O. AND HE IS FREE TO INITIATE PENALTY PROCEED ING AT THE TIME OF FRESH ASSESSMENT ON THE DIRECTION OF THE ITAT. 8. IN THE RESULT, BOTH APPEALS FILED BY THE ASSESSE E AND REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. THESE ORDERS PRONOUNCED IN OPEN COURT ON 14/03/2014 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA + + + + $ $$ $ ,- ,- ,- ,- .-* .-* .-* .-* / COPY OF ORDER FORWARDED TO:- 1. # / REVENUE 2. / ASSESSEE 3. 22 3 / CONCERNED CIT 4. 3- / CIT (A) 5. -78 ,& , , / DR, ITAT, AHMEDABAD 6. 8: ;< / GUARD FILE. BY ORDER/ + , =/ 2# , '