ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KOTA vs. GOODWILL ADVANCE CONSTRUCTION COMPANY PVT. LTD., KOTA

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ITA 588/JPR/2017Status: DisposedITAT Jaipur03 October 2017AY 2013-145 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, finding that using a five-year average of net profit rates is a fair method for estimation. The Tribunal also confirmed the deletion of disallowance for late PF contribution based on High Court precedent.

What were the facts?

The Assessing Officer (AO) rejected the assessee's books of account and made an addition to business income by applying a net profit rate of 8%. The CIT(A) restricted this addition to Rs. 25,00,000/-. The Revenue appealed this decision.

What were the issues?

Whether the CIT(A) erred in restricting the addition to business income and deleting the disallowance for late PF contribution.

Which sections of the Income-tax Act were involved?

Section 145(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR

Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No.588/JP/17

For Respondent: Shri R.A. Verma (Addl. CIT) fu/kZkfjrhdh vksj ls@Assessee by : Shri Mahendra Gargieya (Adv.)
Hearing: 29.09.2017

PER SHRI VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the Revenue against the order of Ld. CIT(A), Kota dated 03.05.2017 for A.Y. 2013-14. The grounds of appeal taken by the Revenue are as under:- “On the facts and in the circumstances of the case, the ld. CIT(A) has erred in:- (i) restricting the addition of Rs. 2,62,35,760/- made towards the business income of the assessee by applying net profit rate of 8% after allowing depreciation and interest to Rs. 25,00,000/- by not adopting harmonious interpretation on AO’s above said decision;

ITA No. 588/JP/17 ACIT Vs. M/s Goodwill Advance (ii) deleting the amount of Rs. 25,889/- added by the AO on account of late deposit of PF Contribution relying on the decision of Hon’ble High Court of Rajasthan in Commissioner of Income Tax, Udaipur V/s Udaipur Dugdh Utpadak Sahakari Sangh Ltd. when the matter has been taken to Hon’ble Supreme Court of India by the department and decision therein is pending.;”

2.

Regarding ground no. 1, the brief the facts of the case are that the assessee who is engaged in the business of civil construction work filed its return of income on 26.09.2013 declaring total income of Rs. 7,36,22,480/-. During the year under consideration, the assessee had shown gross contract receipts of Rs. 106,90,96,706/- and net profit of Rs. 5,87,07,925/-, giving NP rate of 5.49% (after interest & deprecation) as against gross contract receipts at Rs. 62,88,21,658/- and N.P. shown at Rs. 3,26,31,301/- giving NP rate of 5.19% (after interest & depreciation) last year.

2.

1 The AO rejected the books of account under Sec. 145(3) and enhanced the NP rate to 8% (after interest and depreciation) and thus, made trading addition of Rs. 2,62,35,760/-. In the first appeal, the ld. CIT(A) upheld the application of section 145(3) but restricted the addition upto Rs. 25,00,000/-. Against the findings of the ld CIT(A), the Revenue is in appeal before us but the assessee has not challenged and has accepted the findings of the ld CIT(A).

3.

We now refer to the relevant finding of the ld. CIT(A) which are under challenge before which are reproduced as under:-

“As regards the estimation of profits, it is seen that the AO in the assessment has assessed the FDR interest income, discount received, etc. Rs. 1,43,30,504/- as income from other sources. Therefore, the income from business after re-computation (excluding interest income) has been worked to Rs. 8,55,27,736/- after taking a N.P. of 8% (as ACIT Vs. M/s Goodwill Advance against 5,87,07,925/- shown @ 5.49% by the appellant) on the contract receipt of Rs. 106,90,96,706/-. The business income declared by assessee (including other sources income) comes to Rs. 7,36,22,480/- which gives a net profit rate of 6.88%. The business income of the assessee after excluding other courses income come to Rs. 5,92,91,976/- which gives a net profit rate of 5.54%. Considering the above, the business results are found to be reasonably acceptable being in the 6% vicinity. The income of assessee would be Rs. 10,67,27,405/- before allowing for depreciation & interest giving a net profit rate of 9.98%. Thus on a totality of facts and considering the past history, A.O’s concerns as well as the present business results, I am of the opinion that an addition of Rs. 25,00,000/- would meet the end of justice. Thus after the above addition, the assessee’s net income after interest & depreciation would become Rs. 6,17,91,976/- with a N.P. of 5.78%. The AO is directed to take assessee’s net business income at Rs. 6,17,91,976/-. The interest etc income would be separately assessed as other sources income. These grounds of appeal are therefore partly allowed.”

4.

During the course of hearing, the assessee drawn our reference to the comparative chart of gross receipts and N.P. rate declared by the assessee as under:

A.Y. Gross Receipt Net profit NP Rate 2009-10 Rs. 36,39,25,564/- Rs. 1,98,81,280/- 5.46% 2010-11 Rs. 57,57,96,344/- Rs. 4,03,19,320/- 7.00% 2011-12 Rs. 43,74,68,783/- Rs. 1,31,81,619/- 3.10% 2012-13 Rs. 62,88,21,656/- Rs.3,26,31,301/- 5.19% 2013-14 Rs.106,90,96,706/- Rs. 5,87,07,925/- 5.49% ACIT Vs. M/s Goodwill Advance It was submitted that the Gross Receipts have sharply increased from Rs. 62.88 crores last year to Rs. 106.91 crores this year, registering sharp increase of 67.13% and despite such increase, the assessee has been able to show much better result i.e. NP rate (after all deductions) from 5.19% to 5.49%.

4.

1 It was further submitted that the Hon’ble Rajasthan High Court these days has been adopting five years average in the cases of fair estimation. Applying the same, in the instant case, it will be observed that the average NP rate (after all deductions) declared from assessment year 2009-10 to 2013- 2014 (for five years) stood at 5.23%, as against which the NP rate (after all deductions) declared this year stood at 5.49%.

4.

2 It was further submitted that the Hon’ble ITAT has even upheld the NP rate at 5.74% in A.Y. 2009-10 vide its order dated 30.05.2017 in ITA No. 2/JP/2014 and even also upheld the NP rate as low as 5.35% in A.Y. 2012-13 vide its order dated 07.07.2017 in ITA No. 618/JP/2016 as against declared 5.49%.

5.

The ld. DR supported the order of the Assessing Officer and submitted that the NP rate estimated by the Assessing officer @ 8% is justifiable given the facts and circumstances of the case as against adhoc addition of Rs. 25,00,000/- sustained by the ld. CIT(A).

6.

Having heard both the parties, we are of the view that the principle of averages taking into consideration last five years (past history) is clearly a robust and fair estimation of determining the net profits for the year under consideration. The principle of average has been determined by the Hon’ble Rajasthan High Court and is thus clearly binding and applicable in the instant case. The average NP rate declared from assessment year 2009-10 to 2013- 2014 stood at 5.23%, as against which the NP rate of 5.49% declared this ACIT Vs. M/s Goodwill Advance year. In any case, there is addition of Rs 25,00,000 sustained by the ld CIT(A) which has not been challenged by the assessee which further builds up the net profit rate. In light of the same, we donot feel there is any need to interfere with the findings of the ld CIT(A) and which are hereby confirmed. In the result, ground no.1 of the revenue’s appeal is dismissed.

7.

Regarding second ground of appeal wherein the disallowance of Rs. 25,889/- on account of late deposit of PF Contribution has been made by the AO, the matter is covered by the decision of Hon’ble Rajasthan High Court in case of Commissioner of Income Tax, Udaipur V/s Udaipur Dugdh Utpadak Sahakari Sangh Ltd. Hence, the addition deleted by the ld. CIT(A) is confirmed. In the result, ground no.2 of the revenue’s appeal is dismissed.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 03/10/2017. ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Santosh* Jaipur Dated:- 03/10/2017 आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The ACIT, Circle-1, Kota. 1. izR;FkhZ@The Respondent- M/s Goodwill Advance Construction Company

2.

Pvt. Ltd., 41-42, 1st Floor, CAD Circle, Kota. vk;dj vk;qDr@CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए 5. xkMZ QkbZy@Guard File (ITA No.588/JP/2017) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत.

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