COASTAL INFRA,KOLKATA vs. JCIT, RANGE-34, KOLKATA, KOLKATA

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-10, Kolkata dated 06.09.2016. Assessment was framed by JCIT, Range-34, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 23.03.2015 for assessment year 2012-013.The grounds raised by the assessee per its appeal are as under:- “1) That the learned Commissioner of Income Tax (Appeals) erred in law as well as facts in sustaining addition of Rs.2945490/- out of addition of Rs.5610944/- made by Assessing Officer.

2. Ground NO. 1 to 3 are inter related and therefore being taken up together. The only issue raised before us by assessee is that the Ld. CIT(A) erred in sustaining the addition of Rs. 29,45,490/- made by the Assessing Officer .

3. Brief stated facts of the issue are that assessee is a Partnership Firm and engaged in civil construction services. During the assessment proceedings, the AO found that the most of the business expenses were supported with the self-made vouchers and no day-to-day stock register was maintained. The AO also asked the assessee to produce certain documents but the assessee failed to file the same. Therefore, the business expenses claimed by the assessee were not substantiated on the basis of lack of the documentary evidences. Accordingly AO rejected the books of accounts u/s 145(3) and estimated the profit @ 6.5% of the gross turnover and hence the addition was made amounting to Rs.56,10,944/- to the total income of the assessee.

4. Aggrieved assessee preferred an appeal before ld. CIT(A) against the disallowance made by the AO. During the appellate proceedings, assessee submitted that its revenue has reduced substantially in last two years. But the net profit percentage was more or less same as shown in the last year. Further assessee submitted that in the last two A.Y. i.e. 2010-11 & 2011-12, assessment was framed u/s 143(3) and addition of Rs. 33,46,155/- and Rs.32,40,028/- were made by the AO after rejecting the books of account considering the profit @ 5.13% and 5.77% respectively. A.Y. 2012-13 Coastal Iinfra vs. JCIT, Rg-34 Kol. Page 3 However, the AO had made estimation of profit @ 6.5% without considering the comparable cases which are engaged in the same line of business. However the ld. CIT(A) after considering the facts of the case and material available on record partly allowed relief to the assessee by observing as under:- “5. I have carefully considered the action of the Ld. AO In rejecting the book of the appellant-assessee on account of the Inability to furnish documents as called for. I find that the rejection of books has not been challenged by the assessee, and that the main point that the appellant has challenged is that from its own case in earlier years, the estimation @ 6.5% was excessive and without any justification. The appellant has also submitted figures for the immediate two preceding assessment years, namely 2010-11 & 2011-12, which had also been subject to scrutiny, and additions had been made in similar circumstances. It appears that the assessee had not preferred appeal for those years, whereas It had preferred appeal for the subject assessment year. It have a closer look at the arguments of the appellant-assessee, It is worthwhile to look closely and compare the figures for the three years under consideration: a. For the A.V 2010-11, the scrutiny assessment has been completed on 30.03.2013, after the rejection of books. For that year the Ld.AO had a compared the results of the assessee with another case, namely M/s Valecha Engineering, which was a public listed company in the same line of business. The Ld, AO has reckoned that the profits before Interest and depreciation was to be estimated at 7.5% of the turnover. In effect, after Interest and depreciation, the final result was that after additions, the percentage of profit worked out to be 5.13% of the total turnover, whereas the assessee had disclosed a percentage of 4.84%. The assessee had not preferred appeal against such addition. b. For the A.Y 2011-12, the scrutiny assessment had been completed on 30.03.2014. In that year, the Ld. AO after the rejection of the books had adopted the same percentage of 5.15% of the turnover to be the estimated profit, and had made an addition accordingly. As further additions / disallowances had also been made, in effect the assessee was assessed at 5.77% of the total turnover in this year, the assessee had disclosed a percentage of profit of 5.44% as per the book profits. In this year also the assessee has not preferred any appeal. c. From the aforesaid It is seen that the Ld AOs have adopted a benchmark of 5.15% approximately for the two immediately preceding years, and have completed the assessment, after making certain other additions on account of disallowable such as Incorrect claim of Sec 80G. At any rate, It is observed that the estimated percentage of profits on the total turnover have been kept at 5.77%. d. For the year under consideration, It is observed that the turnover of the assessee-firm has come down drastically from Rs.97.30 crores in the immediate preceding A.Y2011-12 to Rs.57.11.crores for the subject Assessment Year 2012-13. However, simultaneously, the disclosed profits as a percentage of turnover is 5.48 % as against 5.44% for the immediate preceding A.Y, which had almost 80% more turnover. In the circumstances, in my considered opinion, while the Ld AO was correct in rejecting the books of accounts, the estimation of 6.50% as net profit over the turnover appears to be A.Y. 2012-13 Coastal Iinfra vs. JCIT, Rg-34 Kol. Page 4 high when compared to the figures and method adopted by the Ld.AO in the immediate two preceding years which had been subject to scrutiny, and there appears to be merit In the arguments advanced by the Ld A.R for the appellant. The Ld AO has also not elaborated on the reasons as to why he has adopted a higher figure for the subject assessment year when the figures adopted In the earlier years, more specifically A.Y 2010-11 was based on a comparable case of a listed company executing similar work as the assessee- appellant. Having perused carefully the assessment orders of the earlier years, which had not been appealed against by the assessee, I find that there Is no material difference In the factual matrix, as elaborated by the Ld. AO for those years compared with the subject assessment year under consideration. I find that the assessee has disclosed a fair rate of profit vis-a-vis the earlier years in which the additions had been made by the Ld.AO, more so in a situation where the turnover of the assessee-firm had gone down exponentially. The Ld. AO has also not made out any comparable cases, as had been done for the A.Y 2010-11, and followed for the A.Y 2011-12. That also, in my considered opinion in the matter may not be justified when the assessee's past history was a part of the records available with the Ld.AO. In the case of Commissioner of Income Tax, Bikaner VS M/s Ashok Behi Bharat Sethy &. Party, date of order being 15.01.2013, reported In [2013] 35 taxmann.com 214 (Rajasthan), the Hon'ble High Court as held as under: IT: Addition in gross profit rate of assessee with reference to case of another assessee was not justified, when assessee's past history was available and there was no material difference in facts pertaining to relevant assessment year and past history year Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of profit [Gross profit, rate] - Assessment year 1994-95 - Whether addition in gross profit rate of assessee with reference to case of another assessee was justified when assessee's past history was available and there was no material difference In facts pertaining to relevant assessment year and past history year - Held, no [para7] [In favour of assessee]

6. Having considered the entirely of the situation, I find that It would be adequate and fair is the profit percentage is kept at 6% nearer to the percentage adopted in the earlier years by the Ld AO. 6% of the turnover would work out to Rs.3,42,65,420 (6% of Rs.57,lO,90,332/- ) and the difference would work out to Rs.29,45,490/-. This portion of the addition made by the Ld AO out of Rs.56,10,944/- Is therefore sustained, and the balance is directed to be deleted. In effect, the ground of appeal is partly allowed to the extent indicated above.” Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.

5. Ld. AR before us filed paper book as well as written submissions consisting pages from 1 to 5 and financial data (copy filed) representing the profitability of the assessee in the last two Assessment years as detailed under : A.Y. 2012-13 Coastal Iinfra vs. JCIT, Rg-34 Kol. Page 5 Coastal Infra Asstt. Year 2012-13 [figures in crores in rupees] Asst. Turnover Returned income Percentage Assessed percentage CIT(A) percentage Year 2010-12 115.12 5.57 4.84% 5.13% No appeal 2011-12 97.30 5.29 5.44% 5.77% No appeal 2012-13 57.11 3.13 5.48% 6.50% 6% (in appeal before ITAT)

Submission before Hon'ble Income Tax Appellate Tribunal (i) Continuous fall in turnover from 115.12 crore to 57.11 crore almost half during the year under appeal. (ii) Returned income percentage improved from 4.84% to 5.48% during the year under appeal. (iii) CIT(Appeals)adopting 6% estimated income on turnover and thereby sustaining addition of Rs.29,45,490/- merely on surmises and guesses without any comparative case and ignoring steep fall in turnover and ignoring still improvement in income percentage.

The ld. AR before prayed that the addition confirmed by the ld. CIT-A should be reduced from 6% to 5.48% as declared by the assessee. On the other hand the ld. DR vehemently relied on the order of Authorities Below.