Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG & LAXMI PRASAD SAHU
O R D E R Per C.M.Garg,JM This is an appeal filed by the assessee against the order of the CIT(A)-2, Bhubaneswar dated 8.3.2019 for the assessment year 2015-16.
2. The assessee has raised the following grounds of appeal:
“ 1. That, the Ld. Commissioner of Income Tax (Appeals) committed an error of law in confirming the action of the Ld. Assessing Officer in estimating the profit of the appellant at the rate of 8% without giving any comparable cases and also without giving of show cause notice to the appellant, therefore estimation of profit is illegal and the additions of Rs. 1,10,83,477 is liable to be deleted.
That the Ld. Authorities below are not permitted under the law in estimating the profit while passing the assessment order u/s 143(3), therefore the additions of Rs. 1,10,83,477 is liable to be deleted.
3. That, the Ld. Commissioner of Income Tax (Appeals) is wrong in confirming the additions of Rs. 2,44,362 in view of the fact that, after rejecting the books of account no further additions are permissible,
P a g e 1 | 5 44/CTK/201 9 Assessm ent Y ear : 20 15- 16 therefore the additions interest amounting to Rs. 2,44,362 is liable to be deleted.”
Apropos Ground Nos.1 & o2 of appeal, the brief facts of the case are that the assessee derives income from execution of civil contract and filed the return of income showing total income at Rs.2,30,62,360/-. The net profit as shown as per profit and loss account was @ 5.62%, which was considered by the Assessing Officer as abnormally low. The Assessing Officer observed that the assessee did not produce books of account and bills and vouchers. Further, the AO examined ledger accounts of work site hutment expenses, repair and maintenance expenses, hiring charges of vehicles, labour charges, site labour charges-1, site labour charge-2 and site labour charges-3. Hence, the AO was of the opinion that the genuineness of all these expenses is in doubt. The assessee also did not maintain muster roll in respect of labour charges. Therefore, the Assessing Officer concluded that the books of account maintained by the assessee are not correct and complete. He, therefore, rejected the books of account by invoking the provisions of section 145(3) of the Act and estimated the income at 8% of the gross receipts of Rs.42,68,22,962/-/-, which worked at Rs.1,10,83,477/- excluding the income of Rs.2,30,62,360/- shown by the assessee.
Further the order was revised u/s.154 of the Act adding interest income of Rs.24,90,408/- and share of profit as shown in profit and loss account at Rs.15,33,939/-.
On appeal, the ld CIT(A) confirmed the action of the Assessing Officer.
Ld A.R. of the assessee submitted that the income of the assessee for the past three years ranges from 5.62% to 6.66%. He produced a chart and P a g e 2 | 5 44/CTK/201 9 Assessm ent Y ear : 20 15- 16 submitted that in the assessment year 2013-14, the assessee had shown net profit @ 6.66% on gross turnover of Rs.13,83,94,187/-. In the assessment year 2014- 15, the assessee has shown net profit of 5.77% on gross turnover of Rs.18,24,79,793/- and in the present assessment year i.e. 2015-16, the assessee has shown net profit at 5.62% on the total turnover of Rs.43,08,47,309/-.
Therefore, it was his submission that in the given facts of the assessee’s case, estimation of income by applying rate of 8% was excessive and in view of the past accepted results, the net profit at 6% should be applied to determine the income of the impugned assessment year. Ld A.R. also referred to the decision of Hon’ble Gujarat High Court in the case of Pr. CIT vs Garden Silk Mills Ltd., 388 ITR 237 (Guj) and also the decision of Cuttack Bench in the case of DCIT vs M/s. Maa Baghei Construction Pvt Ltd., in TIA No.480/CTK/2014 order dated 29.6.2017 to support his case.
Replying to above, ld D.R. supported the orders of lower authorities.
We have heard the rival submissions and perused the record of the case. In the instant case, the undisputed facts of the case are that the assessee did not produce books and account and other supporting details before the Assessing Officer. Therefore, the Assessing Officer concluded that the books of account maintained by the assessee are not correct and complete and, therefore, rejected the books of account by invoking the provisions of section 145(3) of the Act and estimated the income at 8% of the total turnover and added Rs.1,10,83,477/-.
The only submission of ld A.R. is that considering the past results and the net profit being ranges from 5.62% to 6.6% in the past two assessment years and P a g e 3 | 5 44/CTK/201 9 Assessm ent Y ear : 20 15- 16 present assessment year. Hence, it was submitted by ld A.R. that estimation of income by applying rate of 8% was excessive and in view of the past profit comparison statement, the net profit at 6% for the assessment year under consideration be accepted.
We find that both the Assessing Officer as well as the CIT(A) has not given any basis for applying the rate of net profit at 8% in estimating the income the year under consideration. It is also trite law that after rejection of book results of the assessee, the Assessing Officer has to determine the income of the assessee on some reasonable basis. In the present case, it is observed that the reasonable basis is the past accepted results of the assessee. We also observe that the rate of net profit shown by the assessee ranges from 5.62% to 6.66% and considering the facts of the present case in its entirety, we are of the considered view that in order to protect the leakage of revenue, net profit for the year under consideration should be estimated at 6.5% of the gross turnover. We modify the order accordingly. Thus, the grounds of appeal taken by the assessee are partly allowed.
11. In Ground No.3 of appeal, the grievance of the assessee is that the ld CIT(A) is not justified in confirming the addition of Rs.2,44,362/- after rejecting the books of account as regards to interest.
12. Ld A.R. submitted that once the books of account are rejected, there should not be any addition on account of interest income of Rs.2,44,362/-.
13. We find force in the submission of the assessee that no addition should be done with regard to interest income when the books of account are rejected by the P a g e 4 | 5 44/CTK/201 9 Assessm ent Y ear : 20 15- 16 AO and net profit is estimated. Therefore, we allow this ground and direct the AO to delete the addition of Rs.2,44,362/-.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 10 /06/2020.