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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & Ms. MADHUMITA ROY
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)–3, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-3/Cir.3(2)/673/16- 17 Dated 05/05/2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 31/03/2016 relevant to Assessment Year (AY) 2013-14.
The Revenue has raised the following grounds of appeal:
The Ld.CIT(A) has erred in law and on facts in estimating profit ratio @ 5% before allowing interest and remuneration to the partners instead of profit assessed @8% which is reasonable for taxation purpose for assessee engaged in the business of construction activities.
ITA No.2513/Ahd/2017 DCIT vs. Siddhi Construction Asst.Year – 2013-14 - 2 - 2. The Ld.CIT(A) has erred in law and on facts in granting relief on point of discrepancy in receipts by only taking consideration of the plea of the assessee that the ITS database figures of contract receipts were inclusive of service tax, although there was huge difference in terms of party wise contract receipts. 3. On the facts and circumstances of the case, the Ld.Commissioner of Income-tax(A) ought to have upheld the order of the Assessing Officer in respect of above issues. 4. It is, therefore, prayed that the order of the Ld.Commissioner of Income- tax(A) may be set-aside and that of the Assessing Officer be restored.
The first issue raised by the Revenue is that the Ld. CIT (A) has erred in estimating the profit at the rate of 5% instead of 8% in the business of the construction activities.
The facts of the case are that the assessee a partnership firm and engaged in the business of contracting work of earth excavation. The AO in the year under consideration was not satisfied with the books of accounts of the assessee. Therefore he rejected the same and estimated the profit of the assessee at the rate of 8% of the gross receipts as per the provisions of section 44 AD of the Act.
The aggrieved assessee preferred an appeal to the learned CIT (A) who has restricted the profit of the assessee at the rate of 5% of the gross receipts before the interest and remuneration to the partners. Thus the appeal filed by the assessee was allowed by the learned CIT-A in part.
ITA No.2513/Ahd/2017 DCIT vs. Siddhi Construction Asst.Year – 2013-14 - 3 - Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
Both the parties before us relied on the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the assessee has declared its turnover in the subsequent assessment year 2014-15 at rupees 13.87 crores. The AO determined the income in the assessment framed under section 143(3) of the Act for the subsequent assessment year at the rate of 5.70% of the gross receipts before the interest and remuneration to the partners. The assessee accepted such profit determined by the AO.
Now, the issue arises for the year under consideration what should be the reasonable rate of profit in the event of the rejection of the books of accounts under the provisions of section 145(3) of the Act. It is a settled law that once the books of accounts have been rejected, the only option available to the Revenue is to estimate the profit of the assessee based on some scientific basis. As there is no change in the facts and circumstances in the year under consideration vis-a-vis to the facts and circumstances of the subsequent assessment year except the amount of the turnover, therefore we are of the view that the guidance can be taken from such AY.
ITA No.2513/Ahd/2017 DCIT vs. Siddhi Construction Asst.Year – 2013-14 - 4 - As such, we note that the turnover of the assessee in the subsequent assessment year has increased by the amount of Rs. 2 crores in comparison to the year under consideration. Generally, when the turnover of the assessee increases than the margin decreases, it is because it is assumed that the assessee to achieve a higher amount of turnover has compromised with his profit margin. But in the case on hand, we find that the turnover of the assessee has increased in the subsequent year along with the higher profit margin. Therefore in such circumstances, we are of the view that the higher margin declared by the assessee in the subsequent assessment year should be used as guidance for determining the rate of profit for the year under consideration. It is because the facts for both the years are common subject to the difference in the minor turnover. Accordingly, considering the facts and circumstances, we are inclined to estimate the net profit of the assessee at the rate of 5.75% of the gross receipts before the amount of remuneration and interest to the partners in the interest of justice and fair play. Hence the ground of appeal of the Revenue is partly allowed.
The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO by observing that turnover of the assessee is inclusive of the service tax.
At the outset, the learned DR has not substantiated the grounds of appeal raised by the Revenue. Therefore, we dismiss the same as infructuous.
ITA No.2513/Ahd/2017 DCIT vs. Siddhi Construction Asst.Year – 2013-14
In the result, the appeal of the Revenue is partly allowed. This Order pronounced in Open Court on 31/05/2019
Sd/- Sd/- (Ms. MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 31/05/2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
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 आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-3, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 28.5.17(word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member 28.5.17 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….31.5.19 7. Date on which the file goes to the Bench Clerk…………………31.5.19 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……………