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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
The above captioned appeal filed at the instance of assessee pertaining to Assessment Year 2014-15 is directed against the orders of Ld. Commissioner of Income Tax (Appeals) (in short ‘Ld.CIT(A)’], Indore dated 16.11.2017 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 26.11.2016 framed by ACIT,2(1) Ujjain.
ITANo.33/Ind/2018 Shri Lav Narang
Assessee has raised following grounds of appeal;
That the Ld. CIT(A) has erred in confirming the addition of Rs.39,86,369/- by assessing net profit @ 10% on total turnover of Rs.7,97,27,381/- as against net profit rate of 5% declared by the assessee, which is wrong and bad in law and is liable to be deleted.
Brief facts as culled out from the records relating to this issue are that the assessee is an individual engaged in the business of Civil Contractor. Income of Rs.41,38,987/- declared the e-return of income filed on 30.11.2014. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. During the course of hearing though the assessee submitted complete details of contracts executed and the relevant work records but regular books of accounts were not maintained even though the gross receipts of the assessee was to the tune of Rs.7,97,27,381/-. Thus financial statement remained unaudited. Ld. Assessing Officer rejected the incomplete book records u/s 145(3) of the Act, and estimated net profit @ 10% as against 5% declared by assessee thereby assessing the income at Rs.79,72,738/-.
Aggrieved assessee preferred an appeal before the ld. CIT(A) but failed to succeed, as Ld. CIT(A) confirmed the action of the Ld. AO observing as follows:
Ground No.1:- Through this ground of appeal the appellant has challenged the addition of Rs.39,86,369/- on account of low net profit. The appellant is not maintaining the books of account. The appellant is a civil contractor and the turnover of 2
ITANo.33/Ind/2018 Shri Lav Narang the appellant is at Rs.7,97,27,381/-. The appellant is conveniently ignoring the maintenance of books of account in order to declare the net profit at his convenience. The appellant is carrying out the' contractor business since long time. The appellant has not maintained the books of account therefore the statutory requirement of getting the books of account audited was also not complied. The appellant has also not prepared. the profit and loss account. All the contractors more or less having such voluminous business are maintaining the books of account therefore, it is mandatory on the part of the appellant to maintain the books of account. The appellant has deliberately not maintained the books of account. The appellant has not submitted the method of estimating the net profit @ 5% and filing the return of income. The appellant adopted the 5% net profit as per his convenience without any basis. If It would had been the first year of the business then the non-maintenance of the books of account can be justified, but it is a consistent failure' on the part of the appellant to maintain the books of account. As per section 44AB of the 1. T. Act net profit of 8% is adopted when the turnover is below Rs.1,00,00,000/-. But the appellant was having the turnover of more than Rs.1,00,00,000/- therefore, section 44AD is not applicable to the appellant. Since, the appellant has consistently and deliberately defaulted in maintaining the books of account, the AO is justified in adopting 10% net profit on the total turnover. It is not the case that the AO has rejected the books of account and adopted net profit but it is the case that the appellant deliberately not maintained the books of account in order to show low profit. Therefore, the addition made by the AO amounting to Rs.39,86,369/- is confirmed. Therefore, the appeal on this ground is dismissed.
Aggrieved assessee is now in appeal before the Tribunal raising sole ground challenging the finding of Ld. CIT(A) confirming the action of the Ld. AO applying net profit @ 10% on the total turnover as against the net profit @ 5% declared by the assessee.
ITANo.33/Ind/2018 Shri Lav Narang
Ld. counsel for the assessee reiterated the submissions made before the lower authorities and Ld. Departmental Representative(DR) supported the finding of lower authorities.
We have heard rival contentions and perused the records placed before us. Sole grievance of the assessee is against the application of net profit @ 10% as against the 5% declared by the assessee. The total turnover of the assessee as a civil contractor amounted to Rs.7,79,27,381/- under the year under appeal. The gross receipt being business receipts is not in dispute before us. Regular books of accounts were not maintained. Financial statements are not audited. Both the lower authorities had applied net profit @ 10% but assessee had declared net profit @ 5%.
Provisions of section 44AD of the Act relates to “special provision for computing profits and gains of business on presumptive basis”. undoubtely, the provisions of section 44AD of the Act do not apply directly on the case of assessee since total turnover is exceeding the limit prescribed u/s 44AB of the Act. However, in the case of a person having turnover below the prescribe limit u/s 44AB of the Act and not maintaining regular books of accounts and engaged in the “eligible business” i.e. any business except of business of plying, hiring or leasing goods carriages, referred to in section 44AE of the Act, then in such circumstances sub-section (1) of section 44AD of the Act provides that “ Notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an eligible assessee, who is engaged in the eligible business, a sum equal to 4
ITANo.33/Ind/2018 Shri Lav Narang eight percent (8%) of the total turnover or gross receipts of the assessee in the previous year. On account of such business or, as the case may be, sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “ Profits and gains of business or professions”.
We, thus, drawing inference from provision of section 44AD and looking to the fact that assessee is not engaged in business of plying, hiring or leasing goods carriages and also not maintaining regular books of accounts, are of the considered view that applying of 8% of net profit rate on the undisputed total business turnover of Rs.7,97,27,381/- disclosed by the assessee shall be justified and fair to both the parties. We, however, would like to make it clear that our this decision of applying of 8% net profit rate on total turnover exceeding the limit prescribed u/s 44AB of the Act where books of accounts are not maintained properly shall not be taken as binding precedence for other cases, as much depends on facts and circumstances of the particular case and thus the decision of applying net profit rate may vary from case to case. Accordingly, revenue is directed to sustain the addition in the hands of assessee only to the extent of applying net profit rate of 8% on total turnover and thus addition of Rs.23,91,821/- is sustained. Sole ground of the assessee’s appeal is partly allowed.
ITANo.33/Ind/2018 Shri Lav Narang
In the result appeal of the assessee is partly allowed. The order pronounced in the open Court on 22.01.2020.