Manji Devji Dhanani, Bhuj V. The Assistant Commr. Of Income Tax, Cen.Cir.-2, Rajkot

ITSSA 45/RJT/2018

AI Insights

The case involves appeals by the assessee, Manji Devji Dhanani, against the orders of the CIT(Appeals)-11, Ahmedabad, which confirmed additions made by the Assessing Officer for the Assessment Years 2009-10 and 2010-11. The primary issues in the appeals were the estimation of profit at 16% of contractual receipts and an addition of Rs. 5,00,000 on account of unexplained investment in land. The Tribunal found that the assessee had reasonably declared a net profit of 8% on gross receipts, which was supported by judicial precedents and the provisions of Section 44AD of the Income Tax Act. Regarding the investment in land, the Tribunal accepted the assessee's explanation that the source of the investment was from disclosed contractual receipts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138304 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 13-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-04-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 14-03-2018
• Other Referred Cases: CIT vs. President Industries, Kishor Mohanlal Telwala vs. ACIT, Abhishek Corporation vs. DCIT, Wall Street Construction Ltd. vs. DCIT
• Laws Referred To: Section 132 of the Income Tax Act, Section 153A of the Income Tax Act, Section 44AD of the Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Documents seized
• Section: 132; 44AD; 15; 153A; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T ( S S) .A . N o s . 5 4 & 4 5 / R jt/2 01 8 ( A s s e s s me nt Y ea rs : 2 0 09 - 1 0 & 20 1 0 - 1 1) Sh r i Ma nj i D e v j i D h an a n i Ka l pe sh S . D o s h i & C o. C h ar t e r ed A c co u n ta nts 41 1 , C o s mo C o mp l ex Ma h i la C o lle g e C ir cle , R aj k ot - 3 60 00 1 Vs .A C I T C e n tr a l C ir cle - 2 , R aj k o t [ P AN N o. A G SP D 1 15 9M ] (Appellant) .. (Respondent) Appellant by : Shri Kalpesh Doshi, A.R. Respondent by: Shri Shramdeep Sinha, CIT-DR D a t e of H ea r i ng 01.06.2023 D a t e of P r o no u n ce me nt 14.06.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: These are appeals filed by the assessee for A.Y. 2009-10 & 2010- 11 are against the order passed by the Ld. CIT(Appeals)-11, Ahmedabad in Appeal No. CIT(A)-11/CC-2/RJ/626-R/20152016 vide orders dated 23.01.2018 & 08.01.2018. Since the common issues are involved for both the years under consideration, the same are being disposed of by way of a common order. 2. The assessee has taken the following grounds of appeals for A.Y. 2009-10:- ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 2 - “1. That, the learned CIT(A) has wrongly confirmed addition of Rs. 4,33,959/- by estimating the profit at 16% percent of contractual receipts. 2. That, the findings of the learned AO and CIT(A) are not justified and are bad-in-law. The appellant craves to add, alter, amend or delete any of the above grounds of appeal.” 3. The assessee has taken the following grounds of appeals for A.Y. 2010-11:- “1. That, the learned CIT(A) has wrongly confirmed addition of Rs. 1,24,000/- by estimating the profit at 16% percent of contractual receipts. 2. That the learned CIT(A) has wrongly confirmed the addition of Rs. 5,00,000/- on account of unexplained investment in land. 3. That, the findings of the learned AO and CIT(A) are not justified and are bad-in-law. The appellant craves to add, alter, amend or delete any of the above grounds of appeal.” We shall first take up the appeal of the assessee for A.Y. 2009-10. 4. The brief facts of the case are that the assessee is an individual and is engaged in the business of Civil Construction on contractual basis. During the year under consideration, a search action under Section 132 of ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 3 - the Act was carried out at the residential premises of the assessee. In response thereto, the return of income was filed by the assessee under Section 153A of the Act, declaring total income of Rs. 17,55,180/-. The total contractual receipts of the assessee for the year under consideration were declared at Rs. 1,89,48,230/- and the assessee declared 8% of the gross receipts as it’s taxable income during the year under consideration. Accordingly, the assessee has shown net profit of Rs. 15,03,271/- in respect of the contractual income in the return filed under Section 153A of the Act. During the course of assessment, the Assessing Officer observed that the assessee had done contractual work with respect to one Rajdhani Project and shown income of Rs. 92.31 lakhs from this project. However, the assessee has shown the sum of Rs. 92.31 lakhs as gross receipts and offered only 8% profit on the same. However, on the basis of certain seized material found during the course of search, it is evident that the assessee has earned profit of Rs. 34,57,204/- in respect of the aforesaid Rajdhani Project. Accordingly, the Assessing Officer observed that while the assessee has earned a net sum of Rs. 34,57,204/- as profit from the Rajdhani Project, as against this, the assessee has shown only profit of Rs. 7,38,480/- @ 8% on gross receipt of Rs. 92.31 lakhs from Rajdhani Project. Therefore, the Assessing Officer held that the remaining profit of Rs. 27,18,724/- is the undisclosed income of the assessee and added the same in the hands of the assessee as profit earned from Rajdhani Project. 5. In appeal, the assessee submitted that the assessee has duly shown the income from Rajdhani Project as gross receipts of Rs. 92.31 lakhs for ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 4 - various assessment years. Accordingly, the aforesaid sum of 92.31 lakhs cannot be assessed as income of the assessee for A.Y. 2009-10 alone. Further, the assessee pointed out that for the impugned year under consideration, the consideration from the Rajdhani Project was only Rs. 54.24 lakhs and the assessee had declared profit @ 8% in respect of the aforesaid receipts / consideration in respect of Rajdhani Projects. The assessee submitted that if the figure of profit were to be taken as Rs. 34.57 lakhs as alleged by the Assessing Officer, then net profit of the assessee would be 64% (Gross Receipts of 54.24 lakhs from Rajdhani Projects) for the year under consideration. Accordingly, the assessee submitted that the profit margin @ 8% is quite fair and reasonable and the same may be accepted. 6. The Ld. CIT(A) on consideration of the submissions filed by the assessee agreed that the contractual receipts in respect of Rajdhani Project works, during the year under consideration was Rs. 54.24 lakhs. Therefore, considering the totality of the facts of the case, the CIT(A) directed the Assessing Officer to re-compute the profit @ 16% of total receipts from Rajdhani Projects i.e. 16% of 54.24 lakhs. Since the assessee had already shown income @ 8% on gross receipts of Rs. 54.24 lakhs, therefore, Ld. CIT(A) directed the Assessing Officer to restrict the disallowance to Rs. 4,33,959/- as against Rs. 27,18,724/- made by the Assessing Officer. While partly allowing the appeal of the assessee on this issue, Ld. CIT(A) made following observations:- ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 5 - “6.2 I have carefully considered the submission of the appellant and the assessment order. The AO has made the addition amounting to Rs. 27,18,724/- on account of profit earned from the Rajdhani project for civil construction work. The AO has made the addition on the basis of seized material found during the search. The AR of the appellant on the other hand has stated that the receipts amounting to Rs. 92,31,000/- which are pertaining to various years on account of construction contracts, are reflected in the books of accounts and the various details viz the copy of books of account of contractual period, copies of bills and other documents related construction activities have been furnished to the AO to prove the genuineness of the transaction. During the year, the appellant has carried out contractual work of Rs. 54,24,490/- related to Rajdhani Project Works. The appellant has already disclosed the receipts in the return filed u/s 153A. The AR also contended that what should be taxed is the income earned and not the total receipts. The income was declared at 8 % of the gross receipts and duly reflected in the return of income filed u/s 153A. The appellant has discharged his onus by providing documentary evidences in support of its claim There is no dispute about the fact that there were contractual receipts amounting to Rs. 54,24,490/- for Rajdhani Works which was only declared after the search. Therefore, considering the totality of the facts and the nature of business estimating the ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 6 - income at 16% of the receipts would meet the ends of justice. Therefore, the addition is restricted to Rs. 4,33,959/- as the appellant has already shown income @ 8 percent on the gross receipts of Rs. 54,24,490/-. Therefore, addition of Rs. 4,33,959/- is confirmed as against Rs. 27,18,724/- made by AO. This ground of appeal is partly allowed.” 6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). The Counsel for the assessee drew our attention to Page 9 of the order of Ld. CIT(A) and submitted that the assessee had declared gross turnover of Rs. 1,89,48,230/- in respect of various projects undertaken by the assessee during the year under consideration and computed net profit @ 8% (amounting to Rs. 15,03,271/-) on such gross receipts. The assessee submitted that it had incurred various expenses on land development work like land development expenses, material purchase, construction of concrete road, incentive expenses, administrative expenses, remuneration of interest to partners, other amenities provided, transportation expenses and many other such expenses, and therefore, looking into facts of the case, net profit of 8% as declared by the assessee is quite reasonable, given the facts of the case. The Counsel for the assessee also drew our attention to various judicial precedents on the subject in support of his contention. Further, the Counsel for the assessee also due support from the provisions of Section 44AD of the Act, and submitted that the assessee is a small contractual worker, and therefore, even in light of the provision of Section 44AD of the Act net profit @ 8% is reasonable, given the assessee’s set of facts. ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 7 - 7. In response, the Ld. D.R. placed reliance on the observations made by the Ld. CIT(A) and submitted that Ld. CIT(A) has been very reasonable in restricting the disallowance to 16% of the gross receipts. 8. We have heard the rival contention and perused the material on record. We observe that in the case of CIT vs. President Industries 124 taxmann.com 654, the Gujarat High Court held that:- “The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative.” 9. In the case of Kishor Mohanlal Telwala vs. ACIT 64 TTJ 0543 (Ahmedabad), the ITAT held that what can be taxed under Chapter XIV-B is the undisclosed income and not the undisclosed receipts. Therefore, only a reasonable amount of profit which the assessee could have earned can be added to the income of the assessee. In the instant facts, the ITAT observed that the seized papers indicated that the ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 8 - assessee was receiving “on-money” on sale of flats and further the assessee brought evidence on record to show that he had made unaccounted payment to several parties. Accordingly, in the facts of the case, ITAT held that necessary deduction had to be allowed to the assessee and Assessing Officer was not justified in making addition of total amount of undisclosed receipts since profit earned @ 8% on unaccounted receipts is less than Rs. 17 lakhs which had been disclosed by the assessee as is undisclosed income in the return of income. In the case of Abhishek Corporation vs. DCIT 633 TTJ 0651 (Ahmedabad) , the ITAT Ahmedabad held that even though it is established from seized documents that assessee was receiving premium / “on money” booking of flats belonging third parties, entire receipts of “on money” / premium cannot be treated as undisclosed income of the assessee and only net profit rate can be applied on unaccounted sales / receipts for making addition. In the case of Wall Street Construction Ltd. vs. DCIT 75 TTJ 0653 (Mumbai), the ITAT observed that from the documents seized during the search it was found that assessee had received large amount of “on-money” from purchasers of flats constructed by it. The Ld. CIT(A) applied the profit rate @ 12% “on money” having regard to the profit shown by the sister concern of the assessee and the earlier order of the Tribunal in assessee’s own case. Further, the Department had also not brought any material on record to justify higher rate of profit. Accordingly, the ITAT upheld the order passed by Ld. CIT(A). 10. In view of the arguments put forth by the Counsel for the assessee, the judicial precedents on the subject as highlighted before us and the ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 9 - facts of the instant case, we are of the considered view that estimation of profits @ 8% is justified in the instant facts. Accordingly, we direct that the net profits may be restricted to 8% of the gross receipts as declared by the assessee. 10. In the result, the appeal of the assessee is allowed. Now we shall take up assessee’s appeal for A.Y. 2010-11. 11. Ground No. 1 of assessee’s appeal is the same as Ground No.1 of the assessee’s appeal for immediately preceding assessment year i.e. A.Y. 2009-10. In light of the observations made by us for A.Y. 2009-10, Ground No. 1 of the appeal of the assessee is allowed for A.Y. 2010-11 as well. 12. In the result, Ground No. 1 of assessee’s appeal is allowed. Ground No. 2: CIT(A) erred in confirming addition of Rs. 5,00,000/- on account of unexplained investment in land. 13. The brief facts of the case in relation to this ground of appeal are that during the course of assessment, the Assessing Officer observed that assessee had made investment in land and building amounting to Rs. 5 lakhs during the year under consideration. The land which was sought to be purchased by the assessee was disputed and the Government seized the aforesaid land and therefore, the said land could not be purchased by the assessee. Accordingly, the Assessing Officer held that since the assessee has failed to explain source of investment of Rs. 5 lakhs made in ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 10 - the land during the year under consideration, he treated the same as unexplained investment of the assessee and added the same to the total income of the assessee. 14. In appeal, the Ld. CIT(A) partly allowed the appeal of the assessee by granting benefit of telescoping, with the following observations:- “...The AR of the appellant has contended that the appellant has disclosed additional income in the return filed u/s 153A and the source of this payment should be considered out of additional income shown in the block period. The payment is also reflected in the books of account prepared after search and the purchase of land could not be completed as the land in question is disputed and hence the addition is not warranted. However, I do not find any merit in the argument of the appellant, and he has failed to discharge his onus to prove the source of the investment. Therefore, I uphold the addition made by the AO amounting to Rs. 5,00,000/-. The appellant has also requested to grant credit of telescoping against the addition in ground no. 2. Since, addition of Rs. 1,24,000/- has been confirmed in ground no.2. The appellant is granted telescoping of Rs. 1,24,000/- against the unaccounted investment in land. Therefore, the effective addition of Rs. 3,76,000 is confirmed as against addition of Rs. 5,00,000/-. This ground of appeal is partly allowed.” 15. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) confirming the addition made by the assessee in respect of unexplained investment in land. The Counsel for the assessee ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 11 - submitted that the source of investment of Rs. 5 lakhs in the land has been duly explained since the assessee has received a sum of Rs. 5 lakh on 23.07.2009 from Mavji Dhanaji as contract receipt, the proof of which was found during the course of search. He further submitted that the aforesaid contractual income was duly incorporated in the total income of the assessee in the return of income filed by the assessee. The Counsel for the assessee further drew our attention to Page 40 of the Paper-Book (cash book for the period 01.07.2009 to 31.07.2009) and submitted that the assessee was having opening cash on the said date amounting to Rs. 23,04,838/-, as is evident from the copy of cash book extract as enclosed. Further, the counsel for the assessee drew our attention to Page 26 of the Paper-Book and submitted that during the year under consideration, the assessee had earned indirect incomes amounting to Rs. 1,50,24,500/-, and accordingly, looking into the aforesaid facts, the source of investment of Rs. 5 lakh in the land is duly explained. 16. In response, the Ld. D.R. placed reliance on the observation made by the Ld. CIT(A) and Ld. A.O. in their respective orders. 17. We have heard the rival contention and perused the material on record. We are of the considered view, that looking into the facts of the case and the materials placed on record before us, the assessee has been reasonably been able to explain the source of investment of Rs. 5 lakh in respect of advance towards purchase of land made by him during the impugned year under consideration. Accordingly, Ground No. 2 of the assessee’s appeal is allowed looking into the facts of the case. ITA Nos.54&45/Rjt/2018 Manji Devji Dhanani vs. ACIT Asst.Years –2009-10 & 2010-11 - 12 - 18. In the result, Ground No. 2 of the assessee’s appeal is allowed. 19. In the combined result, the appeal of the assessee is allowed for A.Y. 2009-10 and 2010-11. This Order pronounced in Open Court on 14/06/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 14/06/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot 1. Date of dictation 09.06.2023 2. Date on which the typed draft is placed before the Dictating Member 09.06.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 12.06.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .06.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 14.06.2023 7. Date on which the file goes to the Bench Clerk 14.06.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................