TRIDEVH CONSTRUCTION COMPANY,MUMBAI vs. ACIT - 29 (3), MUMBAI

Commissioner of Income Tax (Appeals)-40 [the ld. CIT(A)], Mumbai dated 11.03.2019 for Assessment Year 2014-15. The assessee has raised the following grounds of appeal:

Brief facts of the case are that the assessee-company is a firm engaged the business of building and construction. A survey action under section 133A was carried out at the premises of assessee on 20.03.2013. During the survey action, the statement of partner of assessee namely Shri Mulchand Gosar was recorded. Shri Mulchand Gosar in reply to the question no. 10 offered estimated profit of 15% for the work-in-progress for the year ending on 31.03.2014.

The assessee filed its return of income for Assessment Year 2014-15 on 23.09.2014 declaring income of Rs. 3,06,71,128/-. The return of income was selected for scrutiny and after serving statutory notice under section 142(1) and 143(2). The Assessing Officer completed the assessment under section 143(3) on 29.12.2016. The Assessing Officer while making assessment noted that assessee has offered Gross Profit of 10% on the work-in-progress in respect of project Sapphire. The Assessing Officer issued show-cause notice dated 19.12.2016 as to why the difference of Gross Profit as disclosed/ offered during the Mum 2019-Tridevh Construction Company survey should not be added back to the income of assessee. The assessee filed its reply dated 23.12.2016. In the reply, it was stated on behalf of assessee that at the time of survey on 22.1.2013, the statement was given about the profitability of the project around 15% on rough estimate. However, after the finalizing the accounts during the course of audit, it was noted overall profitability of the project was not 15% as interest expenditure on account of secured loan from LIC Housing Finance was high and the project was delayed resulting in project expenses. The assessee also furnished the detailed of profitability of the project. The contention of assessee was not accepted. The Assessing Officer noted that in the detailed furnished in the chart, the profitability statement of project, the assessee in succeeding year has declared 20% as Gross Profit. The assessee in the survey declared 15% as estimated profit than in succeeding year also Gross Profit would have worked out to 20%. Thus, the estimation of assessee at the time of survey was correct. The Assessing Officer worked out the profitability for the Assessment Year under consideration at Rs. 82,11,408/- and made addition accordingly. On appeal before the ld. CIT(A), the action of the assessing officer was upheld. Further aggrieved, the assessee has filed the present appeal before us. Mum 2019-Tridevh Construction Company

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that during the survey action, the assessee offered 15% Gross Profit on the basis of mere estimation. However, while preparing audited account, it was noted that the estimation disclosed at the time of survey was not correct. The assessee while filing return of income declared actual profit earned during the year. The Assessing Officer made addition of difference of income offered during the survey and the income shown in the return of income. The ld. AR of the assessee further submits that the books of account were not rejected by Assessing Officer. In Assessment Year 2014-15, the assessee has offered 20% of the Gross Profit. The Assessing Officer combined it with Assessment Year 2013-14 and taken it to 10%. It was further submitted that the statement given under section 133A has no evidentiary value. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Apex Court in CIT vs. Kader Khan [2012] 25 taxmann 413 (SC), Delhi High Court in CIT vs. Dhingra Metal Works [2011] 196 taxmann 488(Del.), Kerala High Court in Paul Mathews & Sons vs. CIT [2003] 129 TAXMANN 416 (Ker.), decision of Tribunal in D.S. Agencies & Associates vs. ACIT Mum 2019-Tridevh Construction Company (Mum ITAT) ITA No. 33 & 34 of 2011, DCIT vs. Premsons (Mum. ITAT) (ITA No. 4698/Mum/2006, Unitex Products Ltd. vs. ITO (Mum. ITAT) (ITA No. 153 & 154/Mum/2003, M/s Swadeshi Commercial Co. Ltd. vs. CIT (ITA No. 219 of 2001) & Arup Kumar Hazara vs. ITO (ITA No. 2385/Kol/2017).

On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that the statement of partner Shri Mulchand Gosar (supra) was recorded on oath. The gist of statement recorded during the survey is referred by Assessing Officer in para-4 of the assessment order. In the statement the partner of assessee offered 15% of profit for the year under consideration. The statement was not retracted by the partner of the assessee. The statement recorded under section 131, was recorded on oath and is admissible against the assessee. In support of his submission, the ld. DR for the revenue relied upon the decisions in Dinesh Jain vs. ITO [145 taxmann.com 442(Bombay), Raj Hans Towers vs. CIT [56 taxmann.com 67 (Del.)], Pr. CIT vs. Avinash Kuamr Setia [81 taxmann.com 476(Delhi)], in Pebble Investment vs. ITO [ITA 988/2014, Bombay HC], Pebble Investment vs. ITO [SLP No. 11784/2017], Navdeep Dhingra vs. CIT [56 taxmann.com 75 (P&H)] and Sanjeev Agrawal vs. I.T.SC [2015] (56 taxmann 214 (Alld.)]. Mum 2019-Tridevh Construction Company

We have considered the rival submission of the parties and have gone through the orders of authorities below. There is no dispute that during the survey, the statement of partner of assessee offered 15% of profit for the year ending on 31.03.2014. However, while filing return of income, the assessee offered gross profit of 10% of the work-in- progress. The Assessing Officer made addition of difference of income offered during the survey and shown in the return of income. The ld. CIT(A) while confirming the action of Assessing Officer concluded that the assessee has not specified any unforeseen circumstances which reduce the profit at the end of year. As there is no clarity on the short realization of profit due to unforeseen circumstances, therefore, the explanation offered by assessee was rejected and the action of Assessing Officer was confirmed. We have noted that during the survey action, the statement of partner of assessment recorded. For appreciation of statement of partner, the relevant part of question no. 10 and answerer thereof is extracted below:

Before us, the ld. AR of the assessee vehemently submitted that during the survey, the assessee offered 15% of Gross Profit on mere estimation basis.The estimation of assessee was proved to be wrong.

The ld. AR also relied upon the decision of Delhi High Court in CIT vs. Dhingra Metal Works (supra) wherein it was held that it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who made this admission, to show that it is incorrect. The assessee in said case was able to explain the discrepancy in the stock found during the course of survey by production of relevant record including excise register of its Associate Company, it was held that the Assessing Mum 2019-Tridevh Construction Company Officer could not have made the addition solely on the basis of statement made on behalf of assessee during the course of survey.

Further, the Hon’ble Kerala High Court in Paul Mathews & Sons vs. CIT(supra), held that the power to examine the person on oath is specifically conferred on the authorised officer only under section 132(4) in the course of search or seizure. Section 133A enables the Income-tax Authority to record any statement of any person which may be used to but does not authorize for taking any statement on oath.

Considering the facts, which have noted above that the assessee has sufficiently explained in the reply to the show-cause notice that the statement made during the survey was mere on estimation basis, which was proved to be incorrect at the time of finalization of accounts on the year ended on 31/03/2014. In our view, the assessee has sufficiently explained about the incorrectness of the statement recorded during the survey. Therefore, the Assessing Officer was not entitled to add the difference of estimated income projected during the survey.

The case laws relied by ld. DR for the revenue are factually at variance. In Dinesh Jain vs. ITO (supra), the assessee in that case raised the grievance that no reliance can be placed upon the statement Mum 2019-Tridevh Construction Company made by the assessee during the survey proceedings under section 133A for the reason that it was recorded on oath. The assessee in the said case could not furnish any evidence to justify his stand. Moreover, the statement of assessee was corroborated with the loose papers titled as ‘ page no. 17’ . The assessee in that case took the stand that entry on the diary was inflated for seeking a loan; the assessee not named the banker nor produces any evidence to support his stand. Therefore, the statement of the assessee which was supported with the entry on the diary was treated as admission against the assessee. However, the facts of the present case are entirely on different footings. The Assessing Officer himself has noted that assessee offered income on estimate basis.

In Navdeep Dhingra vs. CIT (supra), the statement was retracted belatedly i.e. after years of the survey. Moreover, no reason was given to substantiate the retraction. However, in the present case the assessee sufficiently explained during the assessment that their estimation was wrong and furnished the working of the actual profit, which was offered for taxation.

In Raj Hans Towers P. Ltd. vs. CIT (supra), the assessee has not offered any satisfactory explanation regarding surrender of amount being not bonafide and it was not borne out from the contentions raised ITA No. 3064 Mum 2019-Tridevh Construction Company before lower authorities. In PCIT vs. Avinash Kumar Setia (supra), the statement was retracted after two year without any satisfactory explanation, which was not treated as bonafide.

Peeble Investment & Finance Ltd. vs. ITO, the facts are entirely different, the Hon’ble Court has clearly distinguished the fact of Khader Khan Son case (supra). The Hon’ble Court clearly held that in absence of offering any explanation why the statement cannot be relied, no fault can be found on the reliance of statement of Director.

Now against turning to the fact of the present case, the assessee has clearly explained before the Assessing Officer by furnishing the details of profitability of the project, which in our view was a sufficient explanation. The Assessing Officer has not brought any fact on record to disbelieve the explanation furnished by assessee during the assessment about low profit earned by the assessee. The Assessing Officer made addition solely on the basis of statement recording during the survey. At the cost of repetition, we may re-treat that during the statement, the income was solely offered on estimation, which was proved to be incorrect as substantiate by assessee. The Assessing Officer not rejected the statement of account of the assessee before bringing the alleged difference for taxation. Therefore, in our view, the Assessing Officer was not justified in bringing the difference of Mum 2019-Tridevh Construction Company estimated income offered during the survey and the actual income offered for taxation in the return of income. In the result, the ground of appeal raised by assessee is allowed.

In the result, appeal filed by assessee is allowed.