THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S. SILPA PROJECT & INFRASTRUCTURES (INDIA) PVT LTD

ITA/178/2016HC KeralaKLHC01026977201625 September 2017Author: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU,HONOURABLE MR.JUSTICE ANTONY DOMINIC8 pages

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What were the facts?

The Revenue has appealed an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2010-11. The assessee, a contractor, returned an income of ₹4,06,96,700/-. The Assessing Officer added ₹1,75,00,000/- to the total income. The CIT(A) restricted the addition to ₹39,83,347/-, using the average gross profit of 16.94% and applying a difference of 0.44% to the total turnover. The ITAT directed exclusion of ₹31,07,29,889/- from the total turnover and applied the additional 0.44% on the reduced turnover of ₹59,45,76,475/-. The Revenue challenges this exclusion and the method of calculation by the ITAT.

What did the High Court hold?

The High Court held that the exclusion of items from turnover by the Tribunal could not be sustained. Relying on the Supreme Court's decision in CIT v. Punjab Stainless Steel Industries, the Court stated that 'turnover' should be understood in its accounting and commercial parlance, implying that all parts of the turnover, regardless of their nature, should be included. The Court noted that the assessee had itself included these items in its returned turnover and had not excluded similar items in prior years. Furthermore, the Court found a fallacy in the Tribunal's calculation of the additional profit. It reasoned that if the exclusion was to be made, the gross profit percentage should have been calculated on the reduced gross turnover first, which would have resulted in a higher percentage of gross profit and a consequently higher addition, contrary to the Tribunal's finding. The Court set aside the order of the Tribunal and allowed the appeal in favour of the Revenue.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the exclusion of no-profit expenditure from turnover, in the absence of any factual finding by the Tribunal and without evidence from the assessee, is right and in accordance with law? (Question of law turning on the interpretation of 'turnover' and the burden of proof). 2. Is the order of the Tribunal perverse, illogical, and militating in light of ground (C)? (Question of law concerning the reasonableness and logic of the Tribunal's findings). 3. Did the assessee discharge the burden of proof? (Question of mixed law and fact concerning the assessee's obligation to substantiate its claims). Assessee's Contention: The items to be excluded are reimbursements and cannot form part of the assessee's turnover. Revenue's Contention: The Tribunal erred in excluding items from the gross turnover without justification. The term 'turnover' should be understood in its commercial and accounting parlance, meaning every part of the turnover, irrespective of its nature, should form part of the total turnover. The assessee had itself included these items in its returned turnover and had not excluded similar items in previous years. The Tribunal's method of calculating the additional profit on the reduced turnover was also flawed.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 143(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 25TH DAY OF SEPTEMBER 2017/3RD ASWINA, 1939 ITA.No. 178 of 2016 ----------------------- AGAINST THE ORDER IN ITA 224/2015 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 10-06-2016 -------- APPELLANT/RESPONDENT: ------------------------------ THE PRINCIPAL COMMISSIONER OF INCOME TAX KOCHI-I, KOCHI, INCOME TAX OFFICES, CENTRAL REVENUE BUILDING, I.S. PRESS ROAD, KOCHI 682 018. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: ------------------------------ M/S. SILPA PROJECT & INFRASTRUCTURES (INDIA) PVT LTD 3RD FLOOR, NORTH AVENUE, PARAMARA ROAD, KOCHI 682 018

R1 BY ADV. SRI.K.SRIKUMAR (SR.) R1 BY ADV. SRI.P.K.RAVISANKAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25-09-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ANTONY DOMINIC, & DAMA SESHADRI NAIDU, JJ. ------------------------------------------------ I.T.A. No.178 of 2016 ------------------------------------------------ Dated this the 25th da

The order continues below.

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