PRINCIPAL COMMISSIONER OF INCOME TAX I vs. FERRO CONCRETE CONSTRUCTION INDIA PVT. LTD.

1 Income Tax Appeal No.84/2017 (Principal Commissioner of Income Tax-I, Aaykar Bhawan, Indore Versus Ferro Concrete Construction India Private Limited) Indore, Dated 04.01.2018 Ms. Veena Mandlik, learned counsel for the appellant. Shri S.C. Bagadia, learned Senior Counsel with Shri D.K. Chhabra, learned counsel for the respondent. Heard on the question of admission. O R D E R This appeal under Section 260-A of the Income Tax Act, 1961 (herein after referred to as "the Act") has been filed by the appellant – Department against order dated 15.12.2016 (Annexure 'C'), passed by the learned Income Tax Appellate Tribunal, Indore Bench, Indore in Income Tax Appeal No.509/Indore/2016 and Income Tax Appeal No.672/Indore/2016 for the assessment year 2011-12, by which the learned Appellate Tribunal was of the opinion that the estimation of profits by the Assessing Officer has not been found based on some cogent and relevant material. Therefore, the learned Commissioner of Income Tax (Appeal) was reasonable to increase the profit by 1% which will take the net profit for the relevant year at 6.14% which will still be much higher than 5.5%, the average of two preceding assessment years; and dismissed the appeal of the revenue as well 2 as the assessee. 2. Facts of the case are that the respondent – assessee filed its return of income for Assessment Year 2011-12 on 30.09.2011, declaring total income of Rs.7,59,97,540/-. Survey proceedings were conducted under Section 133-A of the Act on 02.08.2011. As per Scrutiny Guidelines, the case was selected for compulsory scrutiny under Section 143 (2) of the Act and accordingly notice was issued on 05.09.2012, which was duly served on the assessee on 06.09.2012. Subsequently, notice under Section 142 (1) of the Act and query letters were issued from time to time. Authorized representative of the assessee appeared before the Assessing Officer and filed written submission.

The

assessee

surrendered Rs.5,27,17,556/- on the basis of net profit and Rs.1,51,27,608/- under Section 40-A (3) of the Act. The assessee submitted total expenditure of Rs.213 crores, but was not debited in the books of account, therefore, the difference was surrendered and it was shown in the return of income and after query, the Assessing Officer was of the view that the assessee has carried out the working activities at different sites of Indore, Dhar, Biaora, Rajasthan, etc. and has claimed excessive expenses in respect of all the sites. No register is maintained for separate sites, therefore, the 3 Assessing Officer has rejected the books of accounts and increased the net profit to 2% of the receipts which comes to Rs.1,25,64,214/-. 3. The learned Commissioner of Income Tax (Appeal) allowed the appeal filed by the assessee in part and directed the Assessing Officer to recompute the profits by increasing the same at the rate of 1% as against 2% applied in the assessment order. In the appeal filed by the Department, the learned Income Tax Appellate Tribunal, considering the fact that in Assessment Years 2006-07, 2007-08, 2008-09, 2009- 10 and 2010-11, the net profit ratio comes to 4.88%, 4.42%, 5.42%, 5.39%, 5.28% and 5.75% and accordingly, applied 4% net profit rate for Assessment Year 2005-06, and therefore, came to the conclusion that the learned Commissioner of Income Tax (Appeal) is justified in increasing the profit of the assessee by 1%, and dismissed the appeal of the revenue as well as assessee. 4. Relevant paragraph No.7 of order dated 15.12.2016 passed by the learned Appellate Tribunal reads, as under: - "7. We have considered the submissions of both the sides. We find that the net profit for the A.Y. 09- 10 and A.Y. 10-11 has been shown by the assessee at 5.28% and 5.75% respectively. Therefore, if 2% increase is considered, the net profit for the relevant assessment year will go up to 7.14% which is much higher than the average net profit in the above 4 mentioned assessment years. We are, therefore, of the opinion that the estimation of profits by the A.O. has not been found based on some cogent and relevant material. Therefore, the learned CIT (A) was reasonable in increasing the profit by 1% which will take the net profit for the relevant year at 6.14% which will still be much higher than 5.5%, the average of two preceding assessment years. In view of the above discussion and the facts and circumstances of the case, we hold that the learned CIT (A) was justified in directing the Assessing Officer to recompute the profits by increasing the same @ 1% as against 2% applied by the Assessing Officer. We, therefore, confirm the order of the learned CIT (A)." 5. On due consideration of the arguments of the learned counsel for the parties, so also the law laid down by the Supreme Court in the case of State of Orissa v. Maharaja Shri B.P. Singh Deo reported in 1971 (3) SCC 52 and a Division Bench of this Court in the case of Karan Singh v. Commissioner of Wealth Tax reported in MANU/MP/0112/1980 = [1981] 127 ITR 25 (MP), we are of the view that the order passed by the learned Appellate Tribunal is based on "best judgment assessment". The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. Therefore, the Tribunal was in error in confirming the decision of the Commissioner of Income Tax (Appeal). 6. No case to interfere with impugned order dated 15.12.2016 (Annexure 'C') passed by the learned 5 Appellate Tribunal, as prayed for, is made out; nor any substantial question of law is arising in this appeal. 7. Accordingly, Income Tax Appeal No.84/2017 has no merit and is hereby dismissed. (P.K. Jaiswal) (Virender Singh) Judge Judge Pithawe RC Ramesh Chandra Pithwe Digitally signed by Ramesh Chandra Pithwe DN: c=IN, o=High Court of Madhya Pradesh, ou=Administration, postalCode=452001, st=Madhya Pradesh, 2.5.4.20=5657c7dcce52095b400cf9f273e 8b1cd636bdbf86f330909bb87923adec1e 27a, cn=Ramesh Chandra Pithwe Date: 2018.01.10 16:06:08 +05'30'