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Before: Shri Abraham P. George & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 22.08.2017 relevant to the assessment year 2011-12. Besides, raising the issue of estimating the assessee’s gross profit at 14.02%, the assessee has mainly challenged the ex-parte order passed by the ld. CIT(A).
Brief facts of the case are that the assessee is engaged in business of the civil construction for 'New Chennai Township Pvt. Ltd; a developer of SEZ project and filed its return of income on 30.09.2011. The case was selected for scrutiny and the notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] dated 01.08.2012 was duly served on the assessee. In response to the statutory notices, the assessee produced the books of accounts and the details called for. From the details filed by the assessee, the Assessing Officer noticed from the cost of construction that there was a considerable ratio of expenses in the nature of labour charges. Most of the evidence for the labour expenses was in the nature of self made vouchers which are not verifiable with the third party. In this context the gross profit earned by the assessee during the relevant accounting period was analysed in relation with the gross profit earned during the earlier years on the same work for the same customer. It was observed that there is an acute drop in the gross profit during the financial year 2010-11. During the course of assessment proceedings, the AR of the assessee was asked to explain in detail the reasons for the sharp fall in gross profit percentage when all the parameters and the nature of work, as such, was the same and continuous from the earlier years. The AR did not furnish any reply in this context. To state the figures, gross profit for the year in question was 4.5% in comparison to GP of 17.08% for the assessment year 2009-10 and 10.96% for the assessment year 2010-11. In view of the reason that a major component of the expenditure was not verifiable and the reasons for drop in gross profit percentage could not be explained, the Assessing Officer proposed to estimate the gross profit at the average rate of the gross profit for the earlier two years which works out to 14.02%.
2.1 The assessee filed a reply on 28.03.2014, wherein, it was pleaded to drop the proposal to estimate the income. It was submitted that due to the recessionary trade prevailed in the market, disruption of work due to cyclones, shortage of labour and increase in the pricing of materials etc. the gross profit of the company has declined. However the assessee did not deny the fact that the labour cost forms a considerable proportion of the total expenditure and the said expenditure was not verifiable. Though some reasoning was given for decline in gross profit, they are very bald and have no basis. The assessee failed to produce any facts and figures as to how the increase in pricing of the materials or any other reason has resulted in decline in the profit. Apart from all this, the Assessing Officer noticed that the work was done only to a sister concern and if there was any price escalation the same could have been definitely negotiated with said company for better profits. As the company awarding contract was SEZ and the majority of the material for the said company was available from market for a price excluding the VAT and other taxes most of the material was supplied by the said company to the assessee company. In view of this, a high proportion of the expenditure of the assessee was towards labour expenses, which was unverifiable. In these circumstances as the assessee also failed to prove with facts and figures and reasoning for decline in the gross profit, the Assessing Officer disallowed the expenditure towards labour charges and estimated gross profit at 14.02% which is the average of the gross profit of earlier two years and concluded the assessment under section 143(3) of the Act by computing the business income of the assessee at ₹.2,26,76,683/-.
The assessee carried the matter in appeal before the ld. CIT(A). Despite giving 17 notices of hearing to the assessee from 24.07.2015 to 16.08.2017, there was no representation from the assessee. Therefore, by applying the decision in the case of CIT v. Multiplan (India) Pvt. Ltd. 38 ITD 320 (Del), the ld. CIT(A) dismissed the appeal filed by the assessee.
On being aggrieved, the assessee is in appeal before the Tribunal. By referring to the grounds of appeal, the ld. Counsel for the assessee has submitted that the ld. CIT(A) has not adjudicated the issues raised before him on merits and prayed that necessary directions may be given to the ld. CIT(A) to adjudicate the issue by giving one more opportunity of being heard to the assessee to submit his case before the ld. CIT(A).
5. On the other hand, the ld. DR has submitted that the assessee was given sufficient opportunities to present his case before the ld. CIT(A) and no reasonable cause was given for non-appearance.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. It is evident from the appellate order that the ld. CIT(A) has given sufficient opportunities to the assessee to present his case before the ld. CIT(A), but not availed of by the assessee. At the same time, we find that the ld. CIT(A) has not adjudicated the ground raised by the assessee before him on merits, which is found to be unfair. Under the above facts and circumstances, we direct the ld. CIT(A) to adjudicate the grounds raised in the appeal on merits based on the materials available on record with six months from the date of this order, whether or not the assessee present his case before the ld. CIT(A). The assessee is also directed not to seek adjournment for just cause and advised to cooperate with the department. Thus, the ground raised by the assessee is allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 27th February, 2018 at Chennai.