JAGDISH VISHWANANTH KANKREJ,,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME TAX,,

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by assessee is emanating out of the order of 1. Commissioner of Income Tax (Appeals) – 1, Nashik dated 04.10.2016 for the assessment year 2011-12.

Assessee is an individual stated to be engaged in the business of construction of residential tenements in the name and style of M/s. Siddhi Builders and Developers. Assessee filed his original return

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of income for A.Y. 2011-12 on 09.09.2011 declaring total income of

Rs.26,99,360/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dt.27.02.2014

and the total income was determined at Rs.99,90,500/-. Aggrieved by

the order of AO, assessee carried the matter before Ld.CIT(A), who vide

order dt.04.10.2016 (in appeal No.Nsk/CIT(A)-1/03/2014-15) granted

partial relief to the assessee. Aggrieved by the order of Ld.CIT(A),

assessee is now in appeal before us and has raised the following

grounds :

“1. The learned CIT(A) erred in determining the total income of the assessee at Rs.77,33,500/- as against the returned income of Rs.26,99,360/-.

2.1. The learned CIT(A) failed to appreciate that the purchases of bricks, metal and sand made from the creditors were supported by vouchers, no payment was outstanding as on date and it was duly demonstrated that the construction of various projects would not have been possible in the absence of the impugned purchases made from these creditors and hence, merely because the assessee was not able to produce these creditors after a substantial time gap, there was no reason to reject the books of accounts.

Without prejudice to the above grounds, the assessee submits that –

3.1. The learned CIT(A) failed to appreciate that in the assts. completed for A.Y. 2008 - 09, 2009 - 10 and 2012 - 13, the N.P. of the assessee was assessed by the A.O. @ 2.50%, 4.88% and 6.81 % and in fact, in A.Y.2008 - 09, the A.O. had estimated the N.P. @ 2.50% by rejecting the book results and hence, there was no reason to estimate the N.P. at a substantially higher rate of 10% in this year i.e., A.Y. 2011-12.

3.2. The learned CIT(A) erred in not appreciating the legal principle consistently laid down by Hon'ble Courts that while estimating the N.P. of the current year, past results/ history of the assessee's net profit assessed is the most determining factor and hence, the net profit should have been determined at a substantially lower rate

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than 10% considering the average rate of profits assessed for other years.”

has raised various grounds but the sole controversy is with respect to

the addition made on account of estimation of net profit.

Balance-Sheet, AO noticed that assessee had creditors of

Rs.1,23,82,668/-. Assessee was asked to produce the list of the

creditors, their names, their PAN, addresses and confirmations. On the

basis of list furnished, AO issued notices u/s 133(6) of the Act to

various creditors. AO noted that no reply was received from some of

the creditors. The assessee was therefore asked to show cause as to

why the remaining creditors not be considered to be non-genuine ?

The submissions made by the assessee were not found acceptable to

the AO. AO thereafter on the basis of responses received u/s 133(6) of

the Act held 11 creditors aggregating to Rs.62,77,400/- which are

listed at Para 04.4. of the assessment order to be non-genuine and

made its addition.

Rs.2,25,45,185/-. AO noted that majority of the labour payments were

found to have been made in cash and some of them were by self-made

vouchers and some vouchers were missing. He accordingly disallowed

2% of labour charges amounting to Rs.4,50,903/-. AO also noticed

that there was no closing stock of material and the closing stock was

not correctly reflected in Work-in-Progress (WIP) and WIP was

calculated on an estimated basis. AO also noticed the majority of the

expenses on account of material purchases and labour charges were

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incurred at the year end. He therefore included 1% of material

purchased amounting to Rs.2,98,931/- and 1% of labour expenses of

Rs.2,25,451/- in WIP and thus made aggregate addition of

Rs.5,24,382/-. Aggrieved by the order of AO, assessee carried the

matter before Ld.CIT(A), who after considering the assessee’s

submissions, remand report of AO and reply of assessee to remand

report granted partial relief to the assessee by observing as under :

“9. I have carefully considered the facts of the case, the assessment order, the remand report of the Assessing Officer and the rejoinder to the remand report. From the assessment order and the remand report, it is observed that the addition of sundry creditors have been made on the ground that the creditors could not be produced amidst Assessing Officer either at the time of assessment proceedings nor at the time of remand proceedings. The appellant at the time of remand proceedings had furnished the cost analysis and the quantitative analysis which the Assessing Officer had not examined. The appellant before me has submitted that just because the parties are not produced, it cannot be said that the goods have not been purchased as they were integral for execution of the project. I have gone through" the quantitative analysis and the cost analysis. The quantitative analysis as stated that the goods used by the appellant is on the higher side. Further, the appellant's A.R. has also furnished that as on date, no payment is outstanding. From the payment detail it is observed that the entire payment has been made in cash and therefore money trail of the transaction cannot be established. The parties are not available and therefore the transaction cannot be verified. However, "the argument put forth by the appellant that in absence of the goods i.e. sand, metal and bricks, the project undertaken could not have been executed merits consideration. In the prevailing circumstances, it is possible that the purchases may have been inflated and the parties may have been bogus. It is plausible that goods may have "been purchased from grey market for which no details are available. However, in view of execution of project and quantitative and cost analysis filed by the appellant, the entire sundry creditors for purchases cannot be treated as bogus.

10% of total turnover = Rs.73,60,700/- Add: Income from House property =+ 4,88,000/- Less : Deduction under Chapter VIA = - 1,14,743/-

Revised assessed income =Rs.77,33,957/-

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Assessed Income as per assessment order Dated 27.02.2014 -Rs.99,90,500/- (-) Revised Income as above -Rs.77,33,500/- Relief to the assessee =Rs.22,57,000/-

The Assessing Officer is directed to issue revised demand notice and challan.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal

before us.

and Ld.CIT(A) and further submitted that the estimation of the profit at

10% turnover as made by Ld.CIT(A) is on higher side. He submitted

that in A.Y. 2008-09, the profit was estimated at 2.5% in the

assessment order framed u/s 143(3) of the Act (He also placed on

record the copy of the aforesaid order). He therefore submitted the

addition at 10% of turnover is excessive and that addition, if at all is to

be made, be made at reasonable amount. Ld.D.R. on the other hand,

supported the order of lower authorities.

record. The issue in the present ground is with respect to estimation of

net profits. We find that Ld.CIT(A) after noting various short comings

had rejected the books of accounts and estimated the profits at 10% of

turnover. We find that in A.Y. 2008-09 in the assessment order framed

u/s 143(3) of the Act, the profit of the assessee was estimated at 2.5%

on turnover of Rs.4.45 crores. It is not in dispute that the nature of the

business of the assessee in A.Y. 2008-09 and A.Y. 2011-12 are similar.

Assessee has also placed a table of net profit which is reproduced by

Ld.CIT(A) at Page 11 of his order wherein the average rate of profit

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determined in the assessment completed u/s 143(3) of the Act for A.Y.

2008-09 was 2.50%, for A.Y. 2009-10 was 4.88% and for A.Y. 2012-13

was 6.81%, resulting into an average profits of 4.73%. Considering the

aforesaid facts, we are of the view that the estimation of profits at 10%

of the turnover to be on a higher side. We therefore direct the addition on account of profits be restricted to 5% of the turnover. We thus

direct accordingly. Thus, the grounds of the assessee are partly

allowed.

Order pronounced on 07th day of March, 2019.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 7th March, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.