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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI LALIET KUMAR & DR. M. L. MEENA
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA
BEFORE:SHRI LALIET KUMAR, JUDICIAL MEMBER AND DR. M. L. MEENA, ACCOUNTANT MEMBER
I.T.A No. 306/Agra/2017 (ASSESSMENT YEAR: 2012-13)
Sh. Shobha Ram Sharma, Contractor, Vs.. ACIT,Circle-3, AA-2, Chandanvan, Mathura. Mathura. PAN:AABPS2246F (Appellant) Respondent)
I.T.A No. 296/Agra/2017 (ASSESSMENT YEAR: 2012-13)
ACIT-3, Vs.. Sh. Shobha Ram Sharma, Contractor, Rahika Bihar, Delhi Bye Pass AA-2, Chandanvan, Mathura. Mathura. PAN:AABPS2246F (Appellant) Respondent)
Appellant by Shri Anurag Sinha, Adv.. Respondent by Shri Waseem Arshad, Sr. DR
Date of Hearing 10.07.2019 Date of Pronouncement 04 .09.2019
ORDER Per, Dr. M. L. MEENA, A. M.:
These are cross appeals, filed by the assessee as well by the
revenue, calling into question correctness of order dated 31.03.2017
passed by the learned CIT(A)-I, Agra in the matter of assessment
passed under section 144 of the Income Tax Act, 1961 for Assessment
2 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 Year 2012-13 by the ACIT, Circle-3, Mathura.The assessee has taken following groundsin I.T.A No. 306/Agra/2017:
Because, in any view, addition confirmed by CIT(A) to the extent of Net Profit of Rs.2,21,78,118/- against Rs.48,05,287/- declared in the business of "M/s Shobha Ram Sharma, Contractor" is grossly arbitrary, highly unjust, wrong, illegal and in any view highly excessive.
Because, in any view, the Net Profit estimated by CIT(A) at 8% i.e Rs.2,21,78,118/- of Gross Profit against 1.73% i.e., Rs.48,05,287/- as per Audited Profit & Loss A/c in the "Contractors business" is grossly arbitrary, highly unjust, wrong, illegal and in any view highly excessive .
Because, in any view, CIT(A) has grossly erred in dismissing the ground against the Assessment u/s 144 of the I.T Act.
Because in any view, and without prejudice to the above grounds, addition confirmed, interest charged and the Assessment order passed are wrong, illegal, without opportunity, bad in law and against the facts and law of the case. The department in ITA NoI.T.A No. 296/Agra/2017has raised the following grounds of appeal:
“1.The Ld. CIT(A) has erred in law and on facts in restricting net profit rate to 8% of Gross Receipts in place of net profit rate of 12% estimated by the A.O., even though the assessee deliberately did not produce the books of accounts / information required by the AO due to which the AO had no alternative than to estimate assessee’s income by applying net profit rate, and to complete assessment u/s 44 of the I.T. Act, 1961.
3 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 2. The Ld. CIT(A) has erred in law' and on facts in deleting addition to the tune of Rs. 1,10,89,0558/- by restricting net profit rate to 8% of Gross Receipts in place of net profit rate of 12% estimated by the A.O. without properly appreciating facts of the case. 3. The appellant craves leave to add. alter, amend one or more grounds of appeals before the appeal is heard and disposed off.”
Since the cross appeals relate to the common issue of estimation of Net Profit by the AO and by the learned CIT(A) we take up appeal by the assessee first bearing ITA No. I.T.A No. 306/Agra/2017Vide Grounds No. 1,2 & 3 assessee has challenged the action of the authorities below in making trading addition by application of N.P rate @ 12%, which during the course of first appeal was reduced to 8% by the learned CIT(A) on contract receipts ignoring the fact that such a rate of profit is highly excessive in the line of business in which assessee is engaged.
The assessee is a civil contractor doing civil construction work. Return of Income was filed electronically showing income of Rs.43,58,630/-. Case was selected for scrutiny under ‘CASS’, which got culminated into Assessment order dated 2012-13 passed under section 144 of the I.T. Act by applying N.P rate of 12% on gross receipts of Rs. 27,72,26,469/-which worked out to Rs.2,84,61,888/- which was reduced
4 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 to Rs.1,73,72,830/- by Ld. CIT(A) who estimated N.P by applying rate of 8% on above Gross Receipts and thus allowed relief of Rs.1,10,89,058/-
The appellant’s Ld. Counsel Shri Anurag Sinha, Adv. filed a Paper 4. Book running into 120 pages which is on records. The Ld. A.R submitted that where books of accounts are rejected and profit is to be estimated due consideration has to be given to the business of the assessee and comparable cases. He for this proposition invited our attention to the orders passed by this Bench in ITA No 330(Agra)/2016the case of Smt. Archana Dutta Vs ACIT, Mathura (APB 106 -114) wherein vide order dated 14.05.2018 the Bench has applied average N.P rate of 4.16% on gross receipts of 8,43,16,720/-, further attention was drawn toITA No 160(Agra)/2015 &ITA No 160(Agra)/2016the case of M/s. Sri Siddheshwar Engineer India (P) Ltd. Vs ACIT-5, Firozabad (APB 115- 120) wherein the Bench vide order dated 13.03.2018 applied average N.P rate of 2.65% on gross receipts of 11,27,43,678/- and Rs. 53,36,76,866/-respectivelyand latest order dated 22.03.2019 passed by the Bench in ITA No 331(Agra)/2016 the case of Shri Om Prakash Singh Vs ACIT-Circle-3, Mathura (APB 84-105) in which average N.P rate of 3.50% on gross receipts of 14,35,07,199/-was applied. He thus pleaded that appellant Gross receipts being Rs.27,72,26,469/- rate of 2.65% as
5 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 was applied in the case of M/s. Sri Siddheshwar Engineer India (P) Ltd.(supra) would be the reasonable rate to be applied in the case of the assessee.
The respondent, D.R. Shri. Waseem Arshadstrongly disputed the arguments raised by the Ld. A.R, supported the order of the Assessing officer, placed reliance upon the order passed by the Assessing officer and also submitted that estimate is a question of fact and not question of law and relied upon Judgement of the Hon’ble Gujarat High Court in the case of Sanjay Oilcake Industries Vs CIT 316 ITR 274 (Gujarat) for the proposition that estimate should be at a particular sum or at a different sum, can never be a question of law. It was also submitted that this Judgement by the Hon’ble Gujarat High Court stood affirmed by the Hon’ble Supreme Court.
We have heard both the sides, perused the material on records and the judgments relied upon. It is undisputed fact that books of account are rejected by invoking provisions of Section 145(3) of the Act, pointing out that during the entire assessment proceedings no compliance was made on any date. Though, assessee vide Ground No. 4 had raised ground challenging rejection of accounts and framing of assessment under section 144 of the Act. However, during the course of
6 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 hearing before us it was specifically stated to be not pressed. Thus, in principle assessee has accepted to the rejection of the books of account. Therefore, in absence of any challenge by the assessee the rejection of accounts is final. After rejection of accounts keeping in mind the judicial guideline available on issue the income of the assessee is to be estimated and for the purpose of such an exercise history of the assessee and any comparable case is the best guide subject to parity in facts and circumstances. However, it is equally settled position in law that merely because provisions of section 145(3) are invoked and best judgement assessment is made the Assessing officer in all such cases acquires jurisdiction to reach a different figure of profit against what is disclosed by the assessee. This view was propounded by the Hon’ble Rajasthan High Court in the case of Gotan Lime Khanij Udhyogh 256 ITR 243 (Raj.) and stood duly approved by the Jurisdictional High Court in the case of CIT Vs Mahadev Fleet (P) Limited in ITA No. 232 of 2013 order dated 10.09.2013.
We agree with the submission of the Sr. D.R that estimation is a pure question of fact and to which position there is no challenge by any party. Similar view was adopted by the Hon’ble Allahabad High Court in the case of CIT Vs Sahu Construction (P) Ltd 362 ITR 609 (All.) wherein
7 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 the Assessing Officer has made the additions on the estimate basis and CIT (A) has reduced the same on estimate basis and the Tribunal has further reduced on estimate basis. The Hon’ble High Court held that “Needless to mention that the estimate is question of fact as per the ratio laid down in the cases of Commissioner of Customs (Import) v. Stonemann Marble Industries, 2 SCC 758, Vijay Kumar Talwar v. CIT, 1 SCC 673; New Plaza Restaurant v. ITO 309 ITR 259 (HP); and Sanjay Oilcake Industries v. CIT 316 ITR 274 (Guj.).” Similar view was reiterated by the Jurisdictional High Court in plethora of cases to name a few CIT Vs Electra Jaipur (P) Ltd. 177 ITR 86 (All.) ; CIT Vs Surjit Singh 210 ITR 83 (All.) in which case the order of the Tribunal was upheld where it has applied flat rate of N.P based on past history and profit disclosed in comparable case operating in similar area.
We are reminded here thatthe Hon’ble Supreme Court in the case 8. of CIT vs. Siamon Carves Ltd. 105 ITR 212 (S.C.) guiding the administration of justice has observed that “The taxing authorities exercise quasi-judicial. In doing so they must act in a fair and not a partisan manner. Although it is a part of their duty to ensure that no tax legitimately due form an appellant should remain un-recovered, they must also at the same time not act in a manner as might indicate that
8 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 scales are weighed high against the appellant. The assessing authority has to look to the substance of the situation and decide the matter in such a manner that neither the Revenue is put to unreasonable loss nor is the assessee subjected to unreasonable hardship as held by the Hon’ble Calcutta High Court in the case of CIT Vs Hazaribagh Coal Syndicate Pr. Ltd. 177 ITR 135 (Cal.)
In this background of the matter and in the light of precedents we bring ourselves to the order passed by the learned Assessing officer who has chosen to apply N.P rate of 12% without bringing on record any comparable case where such an exorbitant rate of N.P was either shown by the assessee or assessed by the AO which has become final. The AO while framing assessment has totally lost sight of the fact that during the year under consideration the turnover of the assessee has grown up by more than five times as compared to last year and therefore, assessee cannot be expected to report the same rate of Net Profit as was earned in last year. The Audited Accounts for year under consideration as well as for past assessment years were undisputedly available with the Department. It is not the case of the AO by drawing comparison with the past years Audited Accounts in the year under consideration assessee had either shown certain expenses in abnormal
9 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 terms or that certain expenses were debited for an abnormal amount. Hon’ble Delhi High Court in the case of Additional CIT Vs Jai Engineering Works 113 ITR 389 (Del.) had the occasion to consider a question that whether the report of the Auditor could be said to be ‘material’ on which reliance could be placed by the Income Tax Authorities. The Hon’ble High Court while approving the order passed by the Tribunal ruled that in case where books are not made available for AO’s verification the AO should rely on the Audit Report because the said evidence is admissible under Indian Evidence Act, 1872.
This brings us to the second part of the controversy as to the fact that upon above facts what would be the reasonable rate of Net Profit. Since, the turnover, has gone up manifold in the year under consideration from Rs. 5,59,62,965/ to Rs. 27,72,26,469/- therefore, reliance to past years trading results may not be an appropriate guide. This leaves us with another guide which is comparable cases engaged in the same line of business operating in the same area. We find that this Bench recently vide order dated 22.03.2019in ITA No 331(Agra)/2016 the case of Shri Om Prakash Singh Vs ACIT-Circle-3, Mathura in where Gross receipts were Rs. 14,35,07,199/-on which average N.P rate of 7.50% was applied. Assessee therein was based in
10 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 Mathura, the Assessing officer framing the assessment happened to be the same, circumstances leading to best judgment were also found to be the same and even the business format is also same both being Proprietorship firm. We, therefore, reject the submission of the assessee to apply 2.65% as Net Profit as was applied in the case of M/s. Sri Siddheshwar Engineer India (P) Ltd.(supra)as assessee therein is based in Etawah, and is a Private Limited Company and the Assessing framing the assessment happened to be different. Therefore, preference cannot be given to M/s. Sri Siddheshwar Engineer India (P) Ltd (supra). Thus, we direct the learned Assessing officer to apply N.P rate of 6% on gross receipts of Rs. 27,72,26,469/-.
Ours view finds support from the Judgement of the Hon’ble 11. Supreme Court in the case of CIT Vs K.Y Pilliah &Sons 63 ITR 411 (S.C) wherein the Hon’ble Supreme Court framed the following question of law for its judicial consideration: "(1) whether the estimate of the income of the assessee confirmed by the Tribunal rests upon irrelevant considerations and the estimate is not made in accordance with law?
The Hon’ble Supreme Court answered the question of law holding as under:
11 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 12. The ITO computed the profits from the business at a flat rate. The gross profits disclosed by the assessees yielded a rate of 3.8%. It appeared, however, that the normal rate of gross profits in similar business carried on by other merchants in the locality varied from 6 to 7%. The assessees furnished no explanation at all as to why profit at the normal rate was not earned. Once the books of account of the assessees were rejected and the rate of gross profit earned by them was found unreliable, it was open to the ITO to estimate the gross profit at a rate at which profit was earned in similar business by other merchants. We are unable to hold that the reasons recorded by the Tribunal in support of its order levying tax on profits computed on estimated turnover of Rs. 12 lakhs at the rate of 6.5% were "irrelevant". We also make it clear that assessee shall not be entitled for any 12.
other deduction such as depreciation and interest paid. Thus, ground of appeal No.1 to 4 are partly allowed. 13. The revenue in I.T.A No. 296/Agra/2017, has challenged the decision of the Ld. CIT(A) in estimating the business income by way of adopting N.P. rate of 8% on gross receipts of Rs. 27,72,26,469/- and thereby reducing the addition to Rs. 1,73, 72,830/- as against addition of Rs. 2,84,61,888/- made by the AO. Thus, the CIT(A) has granted relief of Rs. 1,10,89,058/- to the assessee. Considering the peculiar facts of the case, we have applied N.P. rate of 6% on the gross receipts of Rs. 27,72,26,469/- in view of the detailed discussion made hereinbefore, therefore, the issue in revenue appeal becomes academic in nature.
12 I.T.A No. 306/Agra/2017 I.T.A No. 296/Agra/2017 Even otherwise, the Tax effect on the disputed addition of Rs. 1,10,
89,058/- would work out to be less than Rs. 50,00,000/- and therefore
the revenue appeal is liable to be held non-maintainable in view of latest
CBDT Circular No. 17/2019 dated 08/08/2019.
In the result, the appeal of the assessee is partly allowed and that
of revenue is dismissed.
Order pronounced in the open court on 04/09/2019.
Sd/- Sd/- (LALIET KUMAR) (DR. M. L. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER *AKV/DOC* Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT SR. PRIVATE SECRETARY ITAT AGRA