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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. SANJAY ARORA & SH. N.K.CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER I.T.A No.258(Asr)/2017 Assessment Year:2012-13
Space Age Power Pvt. Ltd. Vs. ITO Ward-3(3), Auqaf Building, OLD Zero Srinagar, Bridge, Kashmir Srinagar-Kashmir PAN:AALCS-2676J (Appellant) (Respondent) Appellant by: Sh. A.M.Zargar (C.A) Respondent by: Sh. Rajeev Gubgotra (D.R) Date of hearing : 20.12.2017 Date of pronouncement: 23.01.2018 ORDER Per Sanjay Arora, A.M. This is an Appeal filed by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals), Jammu (‘CIT(A)’ for short) dated 30.03.2017, dismissing the assessee’s appeal contesting its' assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for Assessment Year (A.Y.) 2012-13 vide order dated 25/3/2015.
The present appeal is by an assessee, in the business of trading in electrical appliances, stated to be transformers (up to 10 KVA), as well as installation thereof as Govt. Contractors (100KV and above). It was hit by the floods of September, 2014 in Srinagar, preventing it from producing it’s books of account in assessment proceeding, called for by the Assessing Officer (AO) in support of it’s return of income for the year, filed on 29.09.2012 at an income of Rs.14,18,230/-.
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The AO observed that the disclosed income works to 2.57% of the gross receipt of Rs.550.94 lacs for the year. He, accordingly, made comparison with the ratios obtaining in other cases, viz. Shivam Construction Co. (10%); Construction Engineers, Srinagar, (6.5%); Abdul Jabbar Bhat; and Mohan Singh, decided in appeal/s, by the Amritsar and Chandigarh Benches of the Tribunal. He, accordingly, applied a rate of 8% on the contract receipt (Rs.480.13 lacs) and 5% on trading receipt (at Rs.70.81 lacs), subject to no other allowance, and assessed the assessee’s business income at Rs.41,95,073/-. In appeal, the assessee sought adjournments for time to time; in fact, even disregarding the several opportunities by way of dates (8) to which the hearing was adjourned by the ld. CIT(A). The appeal was accordingly dismissed by him in limine, for want of prosecution, so that, aggrieved, the assessee is in second appeal.
We have heard the parties, and perused the material on record. The appellate raises the following grounds of appeal. “1. On the law and facts of the case, the Hon’ble CIT(A) was not justified in dismissing the appeal without giving an opportunity of being heard in accordance with the principles of natural justice. 2. The Hon’ble CIT(A) was not justified in dismissing the appeal in utter disregard to the grounds of appeal put forth by the appellant assessee. 3. As a consequence of dismissal of appeal, the Hon’ble CIT(A) was not justified in upholding the assessment made by Ld. AO after applying a rate of 8% & 5% on contract receipts & trading receipts respectively in utter disregard to instructions of CBDT contained in instruction No.F.No.225/303/2014/ITA-11 in respect of flood victims of J&K.”
The first thing that we observe in the matter is that the impugned order is not sustainable in law in-as-much as the first appellate authority ought to have, in view of the clear mandate of section 250(6) of the Act, disposed the assessee’s appeal, per a speaking order. No doubt, there was no representation by the assessee before
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him, but that would only imply that an appellate authority is constrained to pass an order on merits on the basis of the material on record. A perusal of the assessment order reveals that the comparable cases cited and relied upon by the AO are of civil contractors and, thus, not comparable. Why, the assessee itself carrying on two different businesses, both of which cannot be compared with each other, even as the assessee projects and canvasses the reasonability of a single profit rate (of 2.57%). Then, again, there is no reference to the disclosed results for the preceding years, wherein the assessee is stated to be engaged in the same businesses, or even, for that matter, the immediately succeeding year. Though, as clarified by the ld. Authorized Representative (AR), the assessee counsel, upon query by the Bench, that there was no assessment u/s. 143(3) for any of those years, the operative results for the same could well be indicative. In fact, the trading margin (on transformers) across years should be examined with reference to the disclosed results as well as the purchase and sales bills for those years, even if subsequent, as are available. Similarly, the gross margin on contracts could be examined with reference to the cost composition, comprising, in the main, of bought out cost of transformers; transportation and installation costs, which would stand evidenced - at least for some years, revealing the said margin, so that the question that needs to be answered would be if the same could be applied or inferred for the current year as well. Why, the Value Added Tax (VAT) record, including returns (filed with the Sale Tax Department), may itself throw light on the extent on the value addition qua the activities being undertaken by the assessee. Further, the assessee following the different accounting standards incident on it with reference to its' activities. Further still, sec.145A of the Act postulates, overriding anything to the contrary, valuation of all purchases, sales and inventories at inclusive of all levies and taxes incident on the
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traded goods. Though, the ld. AR would claim that the results for the preceding years were placed on record and relied upon before the AO, there is nothing on record to exhibit the same. Apart from the internal comparison afore-said, the assessee could also justify its’ operating results, separately for both business, is with comparable cases. We are, when we say so, conscious that the AO could embark on the estimation exercise only where he is not satisfied with the correctness or completeness of the accounts of the assessee or the method of accounting followed by it in as-much-as the same does not enable computing the income in accordance with the accounting standards notified u/s. 145(2). Merely because the books of account were not produced; the genuineness of the reason for which (non-production) being not doubt, may not by itself imply that the books of account as maintained are/were not reliable or did not bear the true account of the assessee’s business(es) and/or disclose correct income there-from. It is in fact in this context that the examination of the books of account or the method of accounting followed for other years may be relevant in-as-much as the assessee would presumably be observing the same method from year to year. Further, an apparent ‘lower’ (which is by itself relative) reporting of income would not by itself imply that the results are not correct, though may definitely give rise to a reason to investigate further. In the present case, apart from the non-specification of the separate (profit) rates for the two businesses, it is the apparent lower rate of profit coupled with no satisfactory explanation to the AO’s observations qua the assessee’s accounts, made with reference to its' final accounts (at para 3 of the assessment order), that would validate the invocation of sec.145(3) - which in fact is not in dispute and, accordingly, his proceeding to estimate the assessee’s income as provided u/s. 144, i.e., to the best of his judgment. Again, at the cost of repetition, it is precisely for
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these reasons that we have placed due emphasis on the assessee’s results for other years, even though admittedly the same could vary from year to year. This is again subject to the same being found valid in terms of sec.145(3).
In the circumstances, we only consider it proper to, subject to the assessee- company paying a cost of Rs.10,000/- (INR ten thousand), restore the matter back to the file of the AO for proper determination of income in terms of sec.144. The same, we emphasize, ought to be on the basis of the material on record, and not de hors the same. In other words, in accordance with law, by issuing definite findings of fact. The cost imposed on the assessee is on account of its’ delinquent behavior before the first appellate authority, for which no valid explanation stands furnished before us, amounting to thus an abuse of the process of law. The same shall be paid, as undertaken by the ld. AR, by the end of December, 2017, to the account of the Central Government, under the head ‘Others’, i.e., the same head under which appeal fees to the Tribunal is paid. The assessee is not to be allowed credit qua the same by way of tax on regular assessment, as appears to be the case in respect of the deposit of the appeal fee (Rs.10,000/-) for the instant appeal on 02.5.2017. Such a credit/s, if ‘allowed’ to the assessee, which would in that case be system driven and, thus, automatic, is directed to be withdrawn by the AO. We decide accordingly.
In the result, the assessee's appeal is allowed for statistical purposes. Order pronounced in the open Court on January 23 , 2018 Sd/- Sd/- (N.K.Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 23.01.2018 /PK/ PS
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Copy of the order forwarded to: (1) The Assessee M/s Space Age Power Pvt. Ltd. (2) The ITO Ward-3 (3), Srinagar (3) The CIT(A), Jammu (4) The CIT concerned (5) The SR DR, I.T.A.T. True copy By Order