DCIT, CENTRAL CIRCLE-2(4), AHMEDABAD, AHMEDABAD vs. HIRALAL DAYARAM THAKKAR, AHMEDABAD

The grounds of appeal taken by the Revenue in this appeal are as under:

The grounds raised by the assessee in the Cross Objection are as under:

Succinctly, the facts of the case are that a search and seizure action was conducted u/s 132 of the Income Tax Act, 1961 (in short ‘the Act’) in the case of Dharmadev Group on 15.10.2013 and the premises of the assessee was also covered in the search operation. The assessee had filed his return of income for A.Y. 2012-13 belatedly, after the search action, on 31.10.2013 declaring total income of Rs.11,26,910/-. Since, the return was filed for the first time after the date of search, this was a case of abated assessment. In response to notice u/s.153A of the Act, the assessee had filed return on 07.10.2014 declaring the same income of Rs.11,26,910/-. The assessee is a builder and contractor and was engaged in undertaking various projects under his proprietary concerns. In the course of assessment, the AO found that the assessee had shown addition of Rs.31,88,001/- to the capital account of his proprietorship concern Neelkanth Builders. Similarly, there were additions to capital account of other proprietorship concerns viz. M/s. Harikrupa Builders and Swaminarayan Developers. In addition, unsecured loans were also taken in the various proprietorship concerns. In the course of assessment, the assessee did not furnish any explanation regarding additions to capital account and no evidence was brought on record in respect of unsecured loans taken during the year, in spite of specific requisition by the AO. Therefore, the AO treated the entire contract receipt of Rs.3,45,46,640/- as unexplained and accordingly made the addition u/s. 68 of the Act. Further, the assessee had disclosed net profit @ 3% on the gross , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 5 – contractual receipt. The AO found that the assessee was not maintaining his accounts in accordance with the recognized method of accounting of project completion or percentage completion method. Therefore, he rejected the books of accounts of the assessee and estimated the profit @ 20%. Accordingly, the assessment for A.Y. 2012-13 was completed u/s.143(3) r.w.s. 153A of the Act on 30.03.2016 at total income of Rs.5,69,88,460/-.

Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was decided by the Ld. CIT(A) vide the impugned order. The Ld. CIT(A) had deleted the addition made by the AO in respect of unexplained credit of Rs.3,45,46,640/- and reduced the addition in respect of profit from 20%, as made by the AO, to 10% of the total booking receipts.

Shri Kalpesh Rupavatia, Ld. Sr. DR submitted that in the course of assessment, no compliance was made by the assessee and the details and evidences as called for by the AO were not furnished. No explanation was given by the assessee in respect of addition to capital account of various proprietorship concerns as well as in respect of unsecured loans taken during the year. Therefore, the AO had no option but to treat the entire contractual receipt of Rs.3,45,46,640/- as unexplained. The Ld. Sr. DR submitted that the Ld. CIT(A) had allowed relief to the assessee on this issue by considering additional evidences and without calling for any remand report from the AO, which was contrary to the provision of Rule 46A of the IT Rules. He, therefore, , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 6 – requested that the matter may be set aside to the file of the AO with a direction to examine the fresh evidences brought on record by the assessee before the Ld. CIT(A) in the course of appellate proceeding.

In respect of the second ground of estimation of income, the Ld. Sr. DR submitted that the Ld. CIT(A) had upheld the rejection of books of accounts by the AO. However, he was not correct in reducing the estimation of income as made by the AO from 20% to 10% without any basis.

Per contra, Shri Vivek Chavda, Ld. AR of the assessee submitted that the addition made by the AO was without any application of mind and, therefore, the Ld. CIT(A) had rightly allowed the relief. He submitted that the AO had not only made addition for entire contract receipt of Rs.3,45,46,640/- but also made addition of profit on the contract receipts @ 20%, which resulted into double addition. According to the Ld. AR, both the additions could not have been made by the AO. He, therefore, strongly supported the decision of the ld. CIT(A) deleting the addition of Rs.3,45,46,640/-, which was based on incorrect appreciation of facts of the case. With respect to admission of additional evidences by the ld. CIT(A) without allowing any opportunity to the AO, the ld. AR submitted that the matter may be set aside to the file of ld. CIT(A) and not to the AO.

As regarding addition on account of estimation of net profit, the Ld. AR submitted that the action of the Ld. CIT(A) in restricting the addition to 10% of the contract receipt was not , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 7 – correct. He submitted that the assessee was engaged in construction activity in remote area where the margin of profit was low and the profit rate of 3% as disclosed by the assessee was correct. The ld. AR submitted that the assessee had disclosed profit in all the earlier years at the same rate which was accepted by the Revenue. Therefore, the addition for profit sustained by the Ld. CIT(A) @ 10% was too high and not correct. The Ld. AR strongly supported the grounds in this regard in the CO of the assessee.

We have considered the rival submissions. It is found that no compliance was made by the assessee in the course of assessment proceedings and the details called in respect of addition to capital, unsecured loan, contract receipts etc. were not furnished. The AO had, therefore, treated the entire contract receipt of Rs.3,45,46,640/- as unexplained. Prima facie, the action of the AO in treating the entire contract receipt of the assessee as unexplained cannot be held as correct. The AO had made queries in respect of addition to capital accounts and fresh loans taken during the year. If the assessee did not comply in respect of these issues, the additions should have been restricted to these specific items. The action of the AO in treating the entire contract receipt as unexplained can’t be held as correct. Further when the entire contact receipt was treated as unexplained and added to income; there cannot be any justification for making further addition in respect of net profit derived out of such contractual receipt. It is found that the Ld. CIT(A) has given a detailed finding in respect of the source of the contractual receipts, after considering the additional evidence filed by the , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 8 – assessee, which is duly reproduced in the order of the Ld. CIT(A). However, as per provision of Rule 46A(3) of the IT Rules, the Ld. CIT(A) was prevented from taking into account any additional evidence filed in the course of appeal proceeding, without allowing a reasonable opportunity to the AO to examine the fresh evidences. It is found from the order of the Ld. CIT(A) that the AO was not allowed any opportunity to examine the additional evidences furnished by the assessee in the course of appeal proceedings. Thus, the order of the Ld. CIT(A) on this issue is patently in contravention to the provisions of Rule 46A(3) of IT Rules and can’t be sustained for this reason. The request of the assessee is to set aside the matter to the file of the Ld. CIT(A) while the Revenue has requested to set aside the matter to the AO. Since, the default of admitting additional evidence without allowing any opportunity to the AO, has been committed by the ld. CIT(A), we deem it proper to set aside the matter to the file of the first appellate authority. The ld. CIT(A) is directed to obtain a remand report of the AO on the additional evidences filed by the assessee in the course of appeal proceeding and thereafter re-adjudicate this issue. In the result, the ground no.-1 taken by the Revenue is allowed for statistical purposes.

The second ground taken by the Revenue is against restricting the addition of profit on sale of flats/plots from 20% to 10%. Further, all the grounds taken by the assessee in the cross objection, pertain to this addition only. The assessee had disclosed net profit @3% of the booking receipts. It was explained by the assessee that this percentage was based on his long-term experience of more than 20 years in the business of , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 9 – construction activities. The working of the profit by the assessee at a pre-conceived rate of 3% of the booking receipts cannot be held as correct. Merely because the Revenue had accepted the profit on this basis in the earlier years, the assessee cannot take a plea that the matter cannot be looked into in the current year. It is a settled position that the principle of res-judicata is not applicable to income tax proceedings. When the assessee was engaged in the construction activity, he was duty bound to follow the prescribed accounting standard of either project completion or percentage completion method. In the course of assessment, even the basic details of unit-wise or party-wise receipts of sales were not made available by the assessee. The AO had, therefore, rejected the books of accounts of the assessee, which was upheld by the Ld. CIT(A) by observing as under:

We do not find anything wrong with the order of ld. CIT(A) upholding the rejection of books of accounts of the assessee by the AO. When the books of accounts are rejected, the profit has to be worked out on estimate basis. The AO had applied a rate of 20% to work out the net profit out of the gross booking receipts. However, the AO didn’t give any reason or any basis for application of this rate. On the other hand, the Ld. CIT(A) had restricted the addition @10% of the contract receipts. The presumptive rate of tax as stipulated u/s.44AB of the Act is 8%. Therefore, the net profit rate of 10%, as applied by the Ld. CIT(A), is found to be reasonable. The decision of the ld. CIT(A) on this issue is, therefore, upheld. Accordingly, the ground taken by the Revenue as well as the cross objection filed by the assesse in respect of this addition, both are dismissed.

In the result, the appeal of the Revenue is partly allowed for statistical purposes and the cross objection filed by the assessee is dismissed.

The grounds raised by the Revenue in this appeal as well as ground of the assessee in this cross objection are identical to ITA , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 11 – No.157/Ahd/2024 and CO No. 39/Ahd/2024. Accordingly, decision in CO No. 39/Ahd/2024 is applicable mutatis mutandis to the appeal/CO for A.Y.2013-14. The appeal of the Revenue in is partly allowed for statistical purposes and the cross objection in CO No. 40/Ahd/2024 is dismissed.

The first two grounds taken by the Revenue in CO No. 39/Ahd/2024 are involved in this appeal/CO for A.Y. 2014- 15 as well. Accordingly, the decision in those cases in respect of first two grounds and the CO, is applicable to & CO No. 41/Ahd/2024 as well.

The additional ground taken by the Revenue in this year is as under: “3). "Whether, on the facts and in the circumstances of the case and in law, the ld. CIT(A) is correct in deleting the addition of Rs.1,45,05,456/- out of addition of Rs.1,47,26,040/- made on account of suppression of income on sale of flats/plots?"

The Ld. Sr. DR explained that as per AIR information, the assessee had sold two plots of land during the year for total consideration of Rs.2.82 Crore on which profit of Rs.8,95,218/- was disclosed by the assessee. In the course of assessment, no evidence in this regard was brought on record. The details of the property sold, copy of purchase deed, copy of sale deeds etc. were not brought on record in spite of specific requisition by the AO. The AO had found that identical transactions were made by the , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 12 – assessee in A.Y. 2010-11 & 2011-12, wherein the ratio of suppressed income was 52.22%. Accordingly, the AO had applied the same ratio and worked out the suppressed income of Rs.1,47,26,040/- in the current year. The Ld. Sr. DR submitted that the Ld. CIT(A) had deleted this addition by considering additional evidences and without allowing any opportunity to the AO to examine those evidences. He, therefore, requested that the matter may be set aside to the file of the AO.

Per contra, the Ld. AR submitted that the Ld. CIT(A) had not allowed entire relief but had confirmed addition to the extent of Rs.2,20,584/- after considering the evidences brought on record by the assessee.

We have considered the rival submissions. It is found that no evidence was brought on record in the course of assessment proceeding in respect of profit on sale of plots as disclosed by the assessee. The details of the property sold, copy of purchase deed, copy of sale deeds etc. were not furnished before the AO. The Ld. CIT(A) has allowed the relief after considering the additional evidences brought on record before him. It is found that the order of the Ld. CIT(A) is in contravention to Rule 46A(3) of the IT Rules as the AO was not allowed any opportunity to examine the fresh evidences filed in the appellate proceeding. We, therefore, deem it proper to set aside the matter to the file of the ld. CIT(A) with a direction to call for a remand report from the AO on the additional evidences filed by the assessee in the course of appeal proceeding and thereafter re- , 158 & 159/Ahd/2024 A/w. CO Nos. 39, 40 & 41/Ahd/2024 - [Hiralal Dayaram Thakkar] A.Ys. 2012-13, 2013-14 & 2014-15 - 13 – adjudicate the matter. The ground of Revenue is allowed for statistical purposes.

In the result, appeal of the Revenue is partly allowed for statistical purposes and the cross objection of the assessee is dismissed.

In the combined result, all the three appeals of the Revenue are partly allowed for statistical purposes and all three cross objections of the assessee are dismissed.