M/S. MADHAV CONSTRUCTION,AHMEDABAD vs. INCOME TAX OFFICER, WARD-9(2)(3),, AHMEDABAD

This appeal by the Assessee is directed against the order of the Ld. CIT(A)-5, Ahmedabad dated 21.09.2015 pertaining to A.Y. 2009-10 and following grounds have been taken:

In this case, assessment for A.Y. 2009-10 was finalized u/s.143(3) of the I. T. Act, on 12/12/2011 determining total income of Rs.23,46,301/- against the return income of Rs.4,31,390/- after making the following additions :- 1) Addition on account of cession of liabilities u/s.41(i) - Rs.9,51,611/- 2) Addition on account of fall in GP - Rs.9,63,300/-

Another opportunity was given to the assessee vide this letter dated 20/1/2014 due to change to the incumbent of this office.

The assessee has submitted its reply vide letter dated 03/02/2014, the same areas under:-

Assessee reply is considered but found not acceptable. In this case, the addition made on account of cessation of liabilities of Rs. 9,51,611/- has been deleted by the ld. CIT(A)-XV, Ahmedabad vide appeal No. CIT(A)-

During the course of assessment proceedings, it was observed that the assessee has declared GP @ 16.15% on the total turnover of Rs.2,50,20,805/- as compared to the GP @ 20.30% on the total turnover of Rs.3,42,17,760/-. The assessee was requested to produce books of accounts with bills and .vouchers and documents by the then AO. However, the assessee failed to produce the books of account with vouchers and bills.

The assessee failed to comply the same. In absence of bills and vouchers and relevant documents the correctness and genuineness with transaction and expenses could not be verified. In view of this facts, the book result of the assessee was rejected by the then AO In view of the provision of section 145(3) of the I. T. Act. Since, there was a drastic fall in GP as compared to the preceding the year, the then AO estimated the GP @ 10% and accordingly made addition of Rs.9,63,300/-.

While confirming this addition, the Ld.-CIT(A)'s has stated that in absence of bills and vouchers and books of accounts (not produced before the AO as well as before him) and certificate from the Architect to certify such value of work done, the rejection of books of accounts by the AO was held justify.

It is further stated that in the case of R. K. Brothers (2003) 87 ITD 649 (All), it had been held that when concealment of income is apparent from record, penalty can be imposed even on the basis' of estimate of income. In the decision in the case of Kirit Dahyabnai Patel, dated 17/7/2009, reported in 285 DTR AMD (TM) (Trib) 380 it has been held that the fact of. penalty

The assessee has furnished inaccurate particulars of income by showing lesser GP as compared to the preceding year with, regard to reduce its tax liability for the year under consideration.

In view of the above it is established that the assesses has furnished inaccurate particulars of income and concealed the income as stated above and committed default u/s.274 r.w.s. 271(l)(c) of the I.T. Act. .

And hence penalty was levied to the tune of Rs. 297660/-.

Against the levy of penalty, assessee preferred first statutory appeal before the ld. CIT(A) who dismissed the appeal of the assessee.

Now by way of second appeal, assessee has come before us.

In the case, appellant is a partnership firm and engaged in the business of civil construction. During the course of asstt. Proceedings, the A.O. noticed that the appellant had disclosed GP @ 16.15% as against GP of 20.30% for the last year. Hence, the A.O. called upon the appellant to produce books of accounts with bills/vouchers and documents which the appellant failed to produce. Hence, the A.O. estimated GP at 20% and made an addition of Rs. 9,63,300/-.

Being aggrieved, assessee preferred appeal to ld.CIT(A) who confirmed rejection of the book result as well as estimation of cross profit rate for the identical reasons as canvassed by A.O.

On the other hand, appellant submitted the books of accounts were audited and same could not be produced before the lower authorities for sufficient cause and further contended that books of accounts were subject to tax audit and the same were prepared following the Accounting Standard by ICAI. And even the ld. CIT(A) had not called for certificate from architect.

In quantum proceeding in assessee’s own case in ITA NO. 1454/Ahd/2013 for the assessment year 2009-10, the Co-ordinate Bench reduced lump sum gross profit percentage of 17% as against 20% and held the reduction of gross profit would meet the end of justice.

As we can see, this is the case of estimation of profit. In the instant case, the assessee applied a different gross profit and ld. A.O. and ld. CIT(A) adopted different estimates and it could not be said the assessee had concealed the particulars of income so as to attract penalty under 271(1)(c).

In the case of CIT vs. Birla Cotton Spinning & Weaving Mills Ltd., the Hon’ble High court has held that in the case of estimation of income or gross profit, penalty cannot be levied. In the case of ITO vs. J.K. Synthetics Ltd. ITAT held the real question is whether the assessee or had reason to believe that the estimate submitted by it were true at the time when assessee made them. Where assessee offer an explanation and adduce evidences, the nature of the evidence

Therefore in our considered opinion, in the case of estimation of gross profit wherein revenue authorities and ITAT differ with the conclusion in such cases, penalty cannot be levied.

In the result, appeal filed by the Assessee is allowed.