Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH: “F”, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
This appeal by the Revenue is directed against order dated 25/05/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-I, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2010-11, raising following grounds:
1. On the facts and circumstances of the case the Ld. CIT(A) has erred in law in determining the income of the assessee in accordance with the provisions of section 44AD even though the said section is not applicable to the assessee being a company.
2. On the facts and circumstances of the case the Ld. CIT(A) has erred in law an on facts in not giving a clear finding on merit in respect of the following additions made by the A.O. giving clear finding on each issue: - Rs.47,08,000/- being unexplained cash credit u/s 68 of Income-tax Act, 1961. - Rs.2,67,61,098/- being unproved sundry creditors. - Rs.14,73,417/- being provision for repair and maintenance expenses disallowed.
3. On the facts and circumstances of the case Ld. CIT (A) has erred in law in admitting additional evidence under Rule 46A even though the assessee does not fall under any of the clauses (a) to (d) of Rule 46A (1) of I.T. Rules. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground (s) of appeal at any time before or during the hearing of this appeal.
2. Briefly stated facts of the case are that the assessee was engaged in the business of civil construction, scrap trading, dismantling, demolition etc. For the year under consideration, the assessee filed return of income on 14/10/2010, declaring total income of Rs.52,88,094/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and served upon the assessee. Though the assessee, applied for adjournment for the first date of hearing, however, thereafter proceedings were attended partly only. The Ld. Assessing Officer has reproduced the chart of non-compliance made by the assessee on various dates. The Assessing Officer in view of the part compliance, made following additions in the assessment order passed under section 143(3) of the Act on 04/03/2013:
S.No. Additions Amount 1. Disallowance of wages at the rate of 20% of total wage Rs.75,60,014/- expenses 2. Addition of unsecured loan as Unexplained cash credit Rs.47,08,000/- 3. Addition of sundry creditors as unexplained cash credit Rs.2,67,61,098/- 4. Addition for provisions made under that current Rs.14,73,417 liability 5. Addition for difference in receipts as perform No. Rs.37,91,782/- 26AS and Rishav declared in the return of income 2.1 Aggrieved, the assessee filed appeal before the Ld. CIT(A) and filed additional evidence in terms of Rule 46A of the Income- tax Rules, 1962 (in short ‘the Rules’). The Ld. CIT(A) called for remand report from the Assessing Officer and after obtaining rejoinder from the assessee deleted the disallowance/additions but estimated the profit from the receipt of Rs.18,63,33,097/- at the rate of 8% subject to depreciation. The Ld. CIT(A) in this manner sustained addition of Rs.74,84,805/- and deleted all the additions made by the Assessing Officer. The Revenue is agreed with the above finding of the Ld. CIT(A).
Before us, no one attended on behalf of the assessee despite notifying the date of hearing. Notice was served upon the assessee on many occasions by way of registered post as well as through the Department. The notice for hearing dated 07/01/2019 has been served by the Department by hand and a report of said service submitted by the Department is available on the record. Despite the service of the notice, none attended on behalf of the assessee. We were of the opinion that further adjourning of the matter would not serve any purpose as the assessee is not interested in prosecuting the matter, and thus case was heard ex parte qua the assessee.
Ld. DR submitted that the Ld. CIT(A) was not justified in deleting the additions made under section 68 of the Act without giving any specific finding of burden discharged by the assessee in terms of section 68 of the Act. He submitted that estimation of the profit from the business activity cannot cover the additions made under section 68 of the Act accordingly, he submitted that additions made under section 68 of the Act may be upheld.
We have heard Ld. DR appeared on behalf of the Revenue. During assessment proceeding before the Assessing Officer, the assessee failed to produce the necessary documents and thus in addition to the disallowance of wages of Rs.75,60,014/- and difference in receipt of Rs.37,91,782/-, the Assessing Officer made disallowance in terms of section 68 of the Act for various credits in the form of unsecured loan, sundry creditors, provision under the current liability. The Ld. CIT(A) deleted the addition of wages of Rs.75,60,014/- and difference in receipt amounting to Rs.37,91,782/- observing as under: “5.3 I have carefully considered the submissions of the appellant, remand report of the AO and the rejoinder of the appellant on AO’s remand report. In the remand report dated 13.04.2015 the AO has admitted that the disallowances of Rs.75,60,014/- on account of wages expenses and addition of Rs.37,91,782/- on account of difference in receipts as compared to Form 26AS were wrongly made in the assessment order. Therefore, these additions are not sustainable as admitted by the AO himself in the remand report.” 5.1 With regard to the other additions, he sustained addition of Rs.74,84,805/-, and deleted the additions observing as under: “5.3.1 With regard to addition of unsecured loan of Rs.47,08,000/- the submission of the appellant is that it has furnished the confirmation of the parties. If the notice issued by the AO to the loan creditor has returned back unserved, the submission of the appellant is that it cannot be a ground for drawing adverse inference in its case. With regard to addition of sundry creditors amounting to Rs.2,67,61,098/-, the submission of the appellant is that merely AO was not justified in making the addition. With regard to addition of Rs.14,73,417/- on account of provision for repair and maintenance the submission of the appellant is that this amount consist of Rs.13,14,192/- being the opening balance and that only Rs.1,59,225/- is the provision relating to the year under consideration. 5.3.2 On consideration of the submission of the appellant including the additional evidences filed and the remand report of the AO, it is undisputed that the appellant has not filed the complete details and supporting of expenses before the AO during the course of assessment proceedings. Even the details of various expenses filed before me are not fully supported by vouchers and bills. Though the AO has made the disallowance of wages expenses on account of non deduction of TDS, the correct reason for disallowance should have been that supporting bills and vouchers for all the expenses were not furnished. During the course of appellate proceedings, the appellant was apprised of the situation. In its submission filed on 18.05.2015, the appellant has recognized this position and has submitted as under:
“The learned A.O. has assessed the total income at Rs.4.96 Crores which amounts to 27% of the gross the same is not possible keeping in view the nature of business and is too excessive in comparison to the even prescribed under section 44AD of the Income Tax Act. Even the Act has given due cognizance to the that in case of lower turnover (i.e. 8% on turnover below 40 Lacs) but since in this case turnover is very high, 4% rate on gross turnover is sufficient to cover the all possible revenue leakages. ” On overall consideration of the facts and circumstances, even though provisions of Section 44AD are strictlyjnot applicable to the appellant’s case, yet fafong"ar^ue"ahd ’ guidance from the provisions of said Section, I am of the view that the ends of justice will be met if the income of the appellant is computed at 8% of total business receipts. There is no basis in the submission of the appellant that profit rate of 4% should be applied. The appellant himself has admitted certain revenue leakages. The total business receipts as per the Profit & Loss A/c of the appellant for the year under appeal is Rs.18,63,33,097/-. The income @ 8% thereon comes to Rs.1,49,06,647/-. Since the income has been computed by adopting net profit rate, no further deduction or addition is called for except for depreciation allowance of Rs.21,33,748/-, which is a statutory allowance. Thus, the total taxable income comes to Rs.1,27,72,899/- (Rs.1,49,06,647/- - Rs.21,33,748/-). Since the appellant has declared income of Rs.52,88,094/- in its return of income, the AO is required to make addition of Rs.74,84,805/- to the income of the appellant. Therefore, the various disallowance made by the AO are directed to be deleted and instead of that addition of Rs.74,84,805/- is made to the returned income of the appellant. In the result, the ground of appeal is partly allowed in the manner indicated above.”
5.2 We find that, the Ld. CIT(A) has made reference to section 44AD of the Act, where estimation of the profit @ 8% is provided in case of turnover below certain threshold amount. The Ld. CIT(A) has mentioned that section 44AD is not strictly applicable to the case of the assessee. Thus, the contention of the Revenue that the Ld. CIT(A) has invoked the provision of section 44AD despite the assessee being company, is not correct . 5.3 According to the Ld. CIT(A), the assessee had admitted certain Revenue leakage but the profit rate @ 4% declared by the assessee was not found by him to be sufficient and he estimated the net profit rate @ 8% on the total receipt declared by the assessee subject to depreciation allowance. 5.4 According to the Ld. CIT(A), all the additions made by the assessee would subsumed in the additions of Rs.74,84,805/- sustained by the Ld. CIT(A) to cover low profit declared by the assessee. In our opinion, estimation of the business profit can only cover the leakage in the profit declared by the assessee due to excess claim of the expenditure or non-maintenance of the expense vouchers etc. related to expenses claimed in profit and loss account of the assessee, because the expenses in relation to business receipts are claimed under “profit and loss account”. Whereas the item of additions made under section 68 of the Act are part of balance sheet for the year ending. These additions cannot be covered under estimation of the profit of the business and have to be considered separately. Since the action of Ld. CIT(A) in deleting the addition under section 68, is without examining the requirement of section 68 of the Act, we feel it appropriate to restore the issue of addition of unsecured loan of Rs.47,08,000/-; sundry creditors of Rs.2,67,61,098/- and provision of Rs.14,73,417/- under that current liability, back to the file of the Ld. CIT(A) for deciding afresh after affording opportunity of being heard to both the parties. 5.5 The ground No. 1 of the appeal is dismissed, whereas the ground no. 2 of the appeal is allowed for statistical purposes.
The ground No. 3 is in relation to admission of the additional evidence by the Ld. CIT(A). Since the issue in dispute of additions under section 68 has been sent back to the Ld. CIT(A), the ground related to admission of the additional evidences in relation to those additions has rendered infructuous, accordingly the said ground is dismissed.
Accordingly, the appeal of the Revenue is allowed partly for statistical purposes. Order is pronounced in the open court on 24th April, 2019.