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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Before: SHRI INTURI RAMA RAO & SHRI LALIT KUMAR
Date of hearing : 06/11/2017 Date of pronouncement : 17/01/2018 O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the order of the learned Commissioner of Income-tax (Appeals), Bengaluru-6, Bengaluru [CIT(A)] dated 04/07/2016 for the assessment year 2011-12.
The assessee raised the following grounds of appeal and additional grounds of appeal: Page 3 of 5
3. Brief facts of the case are that that assessee is a company duly incorporated under the provisions of the Companies Act 1956. It is engaged in the business of real estate development. The return of income for assessment year 2011-12 was filed on 11/11/2012 declaring income of Rs.2,27,61,870/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax circle 12(3), Bangalore vide order dated 14/03/2014 u/s 143(3) of the Income Tax Act 1961 ][hereinafter referred to as ‘the Act’] at total income of Rs.2,31,95,039. While doing so the Assessing Officer estimated the profit at 8% of the gross receipts and also assessed interest income of Rs.4,33,169/- under the head ‘income from other sources’. The reasons given by the Assessing Officer for estimating the profit are as under: i. Returned profit is low as compared to assessment year 2010-11. ii. The assessee had not produced any books of account and vouchers and bills. iii. Confirmation from sundry creditors and loans has not been produced.
Being aggrieved by the above additions, an appeal was preferred before the learnt ld CIT(A) who, vide impugned order, confirmed the action of the Assessing Officer in estimation of books of account. During the course of proceedings before the ld.CIT(A), the appellant had chosen not to cause any appearance. However, filed an explanation and letter stating that books of account are available for verification and the percentage of profits in the same line of business does not exceed 4 to 5%. These submissions were rejected by the ld.CIT(A).
Being aggrieved, the assessee is in appeal before us.
The learned authorized representative of the assessee vehemently contended that the basis for the Assessing Officer to estimate profit is invalid both on facts and law as in the immediately preceding Page 4 of 5 assessment year, profit declared was 5.3% and for the assessment years 2008-09 to 2009-10 the declared profit was ranging from 4 to 6% of the gross receipts. He further submitted that low profit cannot be the reason for estimation of profit. Reliance in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Paradise Holidays (325 ITR 113). He further submitted that even if estimation of profit is required, percentage of profit declared by the assessee in the earlier years should be taken as guidance for estimation of profits for the year. He further contended that the Assessing Officer is not justified in concluding that no books of account were available for verification as the books of account were audited both under the Companies Act and under the provisions of Section 44 AB of the Act. He further contended that interest income from banks is inextricably connected with the business carried on by the assessee as interest was earned on fixed deposits made for obtaining bank guarantees. Therefore, it should form part of the business income. The ld.AR further contended that the Assessing Officer ought to have given credit for TDS of Rs.42,96,363/-.
On the other hand, the learned DR placed reliance on the orders of the lower authorities.
We heard rival submissions and perused material on record. The issue in the present appeal is whether the Assessing Officer was justified in estimating profits of the business of the assessee. The only reason given by the Assessing Officer for estimation of GP was that the assessee had failed to produce confirmation letter from the sundry creditors, bills and vouchers and books of account for verification. This finding of the Assessing Officer remains uncontroverted. However it is settled position of law that even while estimating profits, there should be a valid basis for adoption of particular rate of profit.
In this connection, profits declared in earlier year can be valuable guidance or basis for estimating the profits of the subsequent year as held by the Hon’ble Mysore High Court in the case of P.Venkanna vs. CIT (72 ITR 328). It was contended before the AO as well as the Page 5 of 5 ld.CIT(A) that profit declared in earlier years was also 5% only where as the Assessing Officer presumed that profits returned were 8% of the gross receipts. Therefore, we remitthis issue back to the file of the Assessing Officer to estimate profit at the same rate as shown in the earlier two years after verification of the records.
The next ground of appeal is whether interest income earned on fixed deposits with banks should be assessed under the head ‘income from other sources’. This issue also requires verification from the assessing officer to verify whether this interest income was on the fixed deposits made for the purpose of securing bank guarantee for this purpose and if so, to treat it as part of business income.
The other Grounds of appeal relates to credit for TDS. This issue is also remanded to the Assessing Officer for verification with credit available in the Form 26AS.
In the result, the appeal filed by assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on 17th January, 2018.