THE DCIT, CIRCLE-1,, JUNAGADH vs. M/S. MADHVI CONSTRUCTION CO.,, AMRELI

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The appeal was originally heard by the Tribunal dated 29-05-2013/1-10- 2013 and the order proposed was authored by the Hon’ble D.K. SRIVASTAVA, Accountant Member but the same was not acceptable to the Hon’ble T.K. SHARMA, Judicial Member. Accordingly, he wrote the dissent on the order proposed by the Hon’ble Accountant member. As a result of difference in the opinion, the matter was referred to third member bench comprising of Justice P P Bhatt ( Hon’ble President), Hon’ble Promod Kumar, Vice President and Hon’ble Madhumita Roy, Judicial Member to resolve the dead lock in the opinion of the members. Accordingly, the following questions were referred for the esteemed opinion to a Third Member Bench under section 255(4) of the Act.

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Per Judicial Member

“Whether, on the facts and in the circumstances of the case, the ld. CIT(A) is correct in holding that the provisions of Section 145(3) are not applicable and only in respect of specific defect/mistake in valuation of work-in-progress, addition of Rs.5,45,991/- can be made as against addition of Rs.1,17,85,514/- (Assessed income Rs.2,63,29,570 - Returned income Rs.1,45,44,056) made by the Assessing Officer in the assessment order? OR Whether, on the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the action of the Assessing Officer regarding rejection of books of accounts u/s 145(3) of the Income-tax Act, 1961 and uphold the addition of Rs. 1,17,85,514/- (Assessed income Rs.2,63,29,570 - Returned income Rs.1,45,44,056) made by the Assessing Officer in the assessment order?”

Per Accountant Member

“ (i) Whether, on the facts and in the circumstances of the case as highlighted in the order proposed by the Accountant Member, the finding recorded by the Assessing Officer that the books of account maintained by the assessee could not be said to be correct and complete so as to enable him to correctly work out the taxable profits of the assessee, is sustainable on facts and in law? (ii) Whether, the decisions of co-ordinate Benches to which-one of the Members of another Division Bench is a party, can be disregarded, in identical fact-situation, to write dissenting note without any discussion as to the reasons for disregarding the decision to which he himself is a party and the fact-situation of which is also similar? (iii) Whether application of net profit rate of 8% is in conformity with the decision in Gayatri Construction v. ITO, ITA No.86/Rjt./2011 to which both the Members of this Bench are party?”

The Hon’ble Third Member Bench upheld the view adopted by the Hon’ble T.K. SHARMA, Judicial Member by observing as under:

“7. The short question before us, which really requires our adjudication, is whether the CIT(A) was justified in reversing the action of the Assessing Officer in applying the net profit rate of 8% upon rejection of the books of accounts. Once we hold that the CIT(A) is justified in this action, the rejection of books of accounts will end up being academic. The elaborate wording of the points of differences, as drawn by the learned Members constituting the division bench, are nothing but arguments in support of their respective stands. The actual point of difference, in our considered view, is whether or not the learned CIT(A) was justified in reversing the stand of the Assessing Officer in

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adopting the net profit rate of 8% adopted. That is precisely what the CIT(A) has done and the appeal before us challenges the relief so granted by the CIT(A). Learned Members have differed on this short point. 8. Learned representatives fairly agree that this issue is now covered, in favour of the assessee, by a Third Member decision in the case of DCIT Vs Ambabhai K Patel [ITA No. 14/Rjt/ 2012; order dated 30th January 2018], wherein one of us (i.e. the Vice President) has, inter alia, observed as follows:

“7. I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 8. I find that, as held by Hon’ble Rajasthan High Court, in the case of Ram Jhanwar Lal vs ITO [(2010) 321 ITR 400 (Raj)], has inter alia observed as follows: 9. Coming to question No. 3; a bare reading of the provisions of section 44AD does show, that according to proviso to sub-section (1), nothing in sub-section (1) applies in cases where gross receipts exceeds more than Rs. 40 lakhs. It is not in dispute, that in the present case, the said amount exceeds Rs. 40 lakhs, obviously therefore, section 44AD, as such, is not applicable. So far as the permissibility of adopting principle underlying therein is concerned, no legal authority has been shown, to support the preposition, that in this manner the principle underlying therein can be adopted. May be, that the learned Tribunal claims to be adopting this practice, but then, in our view, in taxing statutes, such adopting the principle underlying other sections, cannot be said to be permissible, and sooner the practice is stopped, the better. Thus, question No. 3 is answered in favour of the revenue, and against the assessee, and it is held, that the Tribunal was not justified in adopting the principle underlying section 44AD, when it was not applicable, as such. Rather all the Tribunals are directed to stop this practice forthwith, if they are still continuing. (Emphasis, by underlining, supplied by me now)

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find that the learned CIT(A) has given his detailed reasons for justification of the net profit rate adopted by him, and that learned DR has not been able to point out any specific infirmity in the same. As a Third Member, I can adopt either the conclusion arrived at by the learned AM [i.e. estimation of net profit @ 8%] or adopt the conclusion arrived at by the learned JM [i.e. confirming the relief granted by the CIT(A) and thus adopt 2% net profit for normal turnover and 4% net profit for the suppressed turnover]. I am of the considered view that the course adopted by the learned Judicial Member, on this aspect of the matter, is the right course of action. 10. In view of the detailed reasons set out above, I reply the second point of difference by holding that the order of the CIT(A) is to be approved, concur with the views of the learned Judicial Member, and in favour of the assessee. 9. We see no reasons to take any other view of the matter than the view so taken by the aforesaid Third Member bench. Respectfully following the same, we concur with the views of the learned Judicial Member and hold that facts and circumstances of the case did not justify the adoption of 8% net profit. 10. In any event, we are also in considered agreement with the well-reasoned stand of the learned CIT(A) that the deficiencies, as pointed by the Assessing Officer, did not warrant or justify the rejection of books of accounts. For this reason also, we concur with the conclusions arrived at by the learned Judicial Member 11. The matter will now go back to the division bench for giving effect to the majority views.”

- 5 - ITA No. 38/Rjt/2013 DCIT vs. Madhvi Construction Co. Asst.Year – 2009-10 5. We have heard the rival submissions of both the parties and perused the materials available on record. The provision of sub-section (4) of section 255 of the Act has a direct bearing on the controversy on hand. Thus it is imperative to refer the provision of section 255(4) of the Act as reproduced under:

“255. (1) …… (2) … (3)…. (4) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it.” A harmonious reading of the aforesaid provision shows that the majority decision of the Bench of the Tribunal has to prevail and in case of difference of opinion among equal number of members of the Tribunal, the matter is further required to be decided by one or more of the other members of the Tribunal and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it. Thus, it is the final conclusion of majority of the members of the Tribunal which is to prevail.

We draw support and the guidance from the judgment of Hon’ble Apex Court in Assistant Collector of Central Excise v. Dunlop India Ltd.(1985) 154 ITR 172 (SC), wherein it has been observed and held as under:

“We desire to add and as was said in Cassell and Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never he necessary for us to say so again that ” in the hierarchical system of courts ” which exists in our country, ” it is necessary for each lower tier “, including the High Court, ” to accept loyally the decisions of the higher tiers “. ” It is inevitable in a hierarchical system of courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary ……But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted” (See observations of Lord Hailsham and Lord Diplock in Broome v. Cassell). The better wisdom

- 6 - ITA No. 38/Rjt/2013 DCIT vs. Madhvi Construction Co. Asst.Year – 2009-10 of the court below must yield to the higher wisdom of the court above. That is the strength of the hierarchical judicial system……” There is no dispute that there was a difference of opinion between the two Members who originally heard the appeal and the reference was made to the Hon’ble President of the Tribunal, u/s 255(4) of the Act for referring the points of difference to the Hon’ble Third Member Bench. The Hon’ble Third member bench after giving the opportunity to the parties has upheld the view expressed by the judicial member as elaborated above. Thus the Hon’ble Third Member Bench held that the books of accounts maintained by the assessee were not liable to be rejected under section 145(3) of the Act and consequently the estimation of profit @ 8% was not warranted. Thus, in this case, opinion of the majority has arrived at in favour of the assessee.

This Order pronounced in Open Court on 22/ 10 /2019

Sd/- Sd/- ( Ms. MADHUMITA ROY ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER

Ahmedabad; Dated 22/ 10 /2019

ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS

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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)-IV, Rakot 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot 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, राजोकट / ITAT, Rajkot 1. Date of dictation .. 21.10.2019 (word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member …22.10.2019 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…….23.10.2019 7. Date on which the file goes to the Bench Clerk…………………23.10.2019 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………………