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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
1. This appeal by the assessee arises out of the order passed by the Learned Commissioner of Income Tax (Appeals) – 7, Kolkata (in short the ld CITA) in Appeal No. 547/CIT(A)-7/Cir-27/14-15 dated 29.02.2016 against the order passed by the ACIT, Circle-Haldia [ in short the ld AO] under section 144/143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 21.03.2014 for the Assessment Year 2012-13.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in estimating the income as a percentage of turnover in the facts and circumstances of the case.
The brief facts of this issue is that the assessee had filed its return of income for the Asst Year 2011-12 on 29.9.2011 declaring total income of Rs 40,16,180/-. The 2 Hotel Shankha Chil (P) Ltd. A.Yr.2011-12 assessee is running a hotel (lodge) under the name and style of Hotel Shankhachil Pvt Ltd and during the year it received room rents amounting to Rs 66,80,535/- and had credited the same in its profit and loss account. The assessee is also providing canteen service to M/s Indian Oil Refinery, Haldia and against the contract, it had received Rs 1,89,12,184/- during the year and the same was also duly credited in its profit and loss account. The assessee also has labour establishment contract with M/s Indian Oil Refinery, Haldia and had received against the said contract Rs 4,55,76,289/- inclusive of service tax and had credited the same in its profit and loss account. The ld AO called for details of wages and salaries but the same were not furnished by the assessee. Later the ld AO issued summons u/s 131 of the Act to the Managing Director of the assessee company calling for specific details of expenses including the production of books of accounts with supporting documents, which remained uncomplied by the assessee. The ld AO accordingy proceeded to make the following disallowances / additions in the assessment :- a) Disallowance of depreciation – Rs 1,04,460/- b) Addition towards PF, ESI and Gratuity - Rs 39,08,531/- c) Disallowance of Salaries - Rs 31,14,709/- d) Disallowance of Wages – Rs 78,83,232/- e) Disallowance u/s 40A(3) – Rs 19,77,700/- f) Disallowance of Grocery expenses – Rs 87,566/- g) Disallowance of LPG purchases – Rs 10,30,000/- h) Disallowance of building materials – Rs 1,69,670/- The ld AO after making the aforesaid disallowances / additions , determined the total income of the assessee at Rs 2,22,92,048/- as against the returned income of Rs 40,16,180/-.
3 Hotel Shankha Chil (P) Ltd. A.Yr.2011-12 4. The ld CITA upheld the action of the ld AO in disallowing the depreciation in the sum of Rs 1,04,460/-. The ld CITA deleted the addition made towards PF, ESI and Gratuity in the sum of Rs 39,08,531/- . With regard to other disallowances / additions made by the ld AO, the ld CITA observed that the ld AO while disallowing various expenses on estimation basis, had not rejected the books of accounts produced by the assessee before him. The ld CITA observed that the assessee during the course of assessment proceedings had not furnished the various details such as salaries and wages, canteen materials, grocery purchases, payments made in cash, cooking gas details with supporting evidences. When these discrepancies on the part of the assessee were brought to notice of the assessee by the ld CITA, the assessee agreed for a reasonable estimation of net profit. The ld CITA observed that in view of several discrepancies , the ld AO ought to have rejected the books of accounts of the assessee and should have resorted to make reasonable estimate of net profits of the assessee’s business. He accordingly held that 10% of turnover of Rs 7,11,69,008/- would have to be determined as net profit of the business of the assessee and that addition would meet the ends of justice apart from independent addition towards interest income of Rs 4,16,574/-. Aggrieved, the assessee is in appeal before us on the following revised grounds:-
For that the Ld. CIT(Appeals) made a higher estimate of income of 10% of turnover, this should be reduced to reasonable figure.
2. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.
We have heard the rival submissions and perused the materials available on record. We find that the short issue to be decided in this appeal is with regard to estimation of net profit of assessee’s business in view of the fact that the books of accounts have been rejected by the ld CITA. We find that the revenue is not in appeal before us on the action of the ld CITA rejecting the books of accounts and resorting to estimation of net 3
4 Hotel Shankha Chil (P) Ltd. A.Yr.2011-12 profits of the assessee’s business. The assessee also is not in dispute with regard to the rejection of books of accounts. It is only disputing the percentage of 10% of turnover estimated by the ld CITA as its net profit from business. The ld AR before us filed the statement showing the yearly details of turnover, net profit and interest earned for various years (both preceding year and subsequent years including the year under appeal) as under:-
We find that the ld AO had assessed net profit at 7.04% from its business in Asst Year 2010-11 (i.e in immediately preceding year) u/s 143(3) of the Act for the Asst Year 2010-11 vide order dated 13.3.2013. In this regard, he stated that the earlier year profits should be the basis for determining the profit of the year under appeal, in support of which, he placed reliance on various decisions. We have gone through the said decisions and on perusal of the same and taking into account the possible growth in 4
5 Hotel Shankha Chil (P) Ltd. A.Yr.2011-12 profits of the assessee, we hold that the net profit from business at the rate of 7.5% of turnover would meet the ends of justice. This would be in addition to interest income of Rs 4,16,574/-. Accordingly, the grounds raised by the assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 04.04.2018