M/S.TOUCH HOME BUILDERS vs. THE DY.COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE MONDAY, THE 30TH DAY OF SEPTEMBER 2013/8TH ASWINA, 1935 ITA.No. 351 of 2010 ( ) ------------------------ AGAINST THE ORDER/JUDGMENT IN ITA 686/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-10-2009 APPELLANT(S): ------------- M/S.TOUCH HOME BUILDERS & REALTORS (P) LTD., TRIVANDRFUM, P.A.NO.5.701. BY ADVS.SRI.K.SRIKUMAR SRI.K.MANOJ CHANDRAN RESPONDENT(S): -------------- THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, TRIVANDRUM-695 001. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 30-09-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

MANJULA CHELLUR, C.J & A.M.SHAFFIQUE, J. ---------------------------------------------- I.T.A.No. 351 of 2010 ---------------------------------------------- Dated this the 30th day of September, 2013 JUDGMENT Manjula Chellur, C.J. Heard learned counsel for the appellant. We have also gone through the orders of the first appellate authority and also the Tribunal. 2. It is not in dispute that the appellant Company came to be incorporated in the year 2000 and it conducted business of construction and sale of residential apartments. It is also not in dispute that till search and seizure came to be conducted by the Department in the premises of the Company on 21.2.2006, no returns came to be filed by the Company in question. Certain incriminating documents were seized indicating various transactions relating to the business of construction carried on by the appellant. In spite of issuance of notices in accordance with the procedure, the appellant kept quiet without filing returns, therefore, proceedings came to be initiated and proposal for completion of assessment under Section 144 of the Income Tax

Act, 1961 (best judgment) proposing income as the 20% of the gross receipts came to be issued. However, according to the appellant, audited accounts, including balance sheet were produced, though returns were not filed. The Company came up with its objection for the first time objecting the estimation of 20% of gross receipts as income without any justification. According to them, except one project in question, nothing came to be undertaken by the Company and due to lack of experience, the Company went into problems. They had no proper planning, hence it resulted in loss as revealed in the audited accounts. According to them, subsequent to 2003, no business was carried on. Therefore, the assessment ought to have been done under Section 44-AD of the Income Tax Act taking 8% as the gross receipts. The assessing authority confirmed the proposal. However, the first appellate authority held that the percentage of completion of the project is below 5%, therefore, estimation of income came to be deleted, however, 5% so far as income from the receipts came to be assessed. This came to be challenged by the revenue filing an appeal and the Tribunal held that the order of the first appellate authority was not sustainable and restored the order of assessment. The entire discussion pertaining to this aspect is at paragraph 29, which reads as under:

“29. The CIT (Appeals) while deleting the income estimated for the assessment year 2002-03 has made a finding that even 5% of the project was not completed during the previous year relevant to the assessment year 2002-03. Without explaining and coming to a conclusion on the method of recognition of income deployed by the assessee, how the CIT (Appeals) could justify the deletion of income estimated for the assessment year 2002-03? If the assessee has not followed the project completion method or substantial completion method, how the finding of the CIT (Appeals) is justified? And above all, where is the material to show that the project was not completed even upto 5%? As already stated, in the absence of relevant details, the Assessing Officer was constrained to make an assessment on the basis of the materials available before her. The only material available before the Assessing Officer was the details of gross collections, that too not fully safe-vouched. It was in such circumstances that the Assessing Officer has estimated the income at 20% of gross collections.” 3. The main contention of the appellant is, estimation of income at 20% of gross collection is not reasonable as the activities carried on by the appellant Company resulted in a loss on account of lack of experience and this is also one of the reasons why returns were not filed, though they had an audited

balance sheet. It is well settled that ignorance or innocence of law is no excuse. Once he commenced business of construction in 2000 and if he has receipt of income as seen from the records, he is expected to file returns. If he knew that the accounts need to be audited by an auditor, definitely, the Company was also aware of the fact that they were expected to file returns. Therefore, inexperience or ignorance cannot be a ground not to file returns. 4. Second ground taken up by them is, they sustained loss, therefore, they did not file returns. We are afraid that such a contention cannot be entertained. Sustaining loss definitely will not entitle an assessee, who is required to file returns, not to file returns. He can show loss and then file returns, therefore, the Tribunal was justified in saying it is not a good ground at all. 5. Then coming to the third ground of invoking provisions of Section 44-AD of the Income Tax Act seeking 8% as the income from receipts, going through the provisions of Section 44-AD, it is very clear that the activity carried on by a builder or realtor would not attract the provisions of Section 44-AD and it would rather attract the case where the assessee were to be a civil contractor. It is not in dispute that the work carried on by the appellant Company is not as a civil contractor, but as a builder, therefore, definitely, the income earned by the Company would be more

than the income earned by a civil contractor as opined by the Tribunal. On the other hand, when we go through the orders of the Tribunal, there was no material to substantiate the contention that the project was not completed even upto 5%. All the receipts during this period plus non filing of the returns and disclosure of the receipt of accounts in the search and seizure would clearly show there was no bona fides on the part of the appellant Company in not filing the returns, therefore, we are of the opinion, the estimation of profit at 20% from the receipts of the income for the assessment year 2002-2003 is justified. Accordingly, the Appeal is dismissed confirming the order of the Tribunal. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE vgs1.10