DCIT, CIRCLE - 23, HOOGHLY, HOOGHLY vs M/S. MITRA REAL ESTATE PVT. LTD., KOLKATA

Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA

Before: Shri Aby.T Varkey & Shri Waseem Ahmed

O R D E R

PER Waseem Ahmed, Accountant Member:

- This appeal as well as Cross Objection (CO) by the Revenue and assessee is directed against the order of Commissioner of Income Tax (Appeals)-6, Kolkata dated 12.11.2015. Assessment was framed by ACIT, Circle-1, Hooghly u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.03.2014 for assessment year 2011-12. & CO 17/Kol/2016 A.Y 2011-12 DCIT Cir-23 Hgl. Vs. M/s Mitra Real Estate Pvt. Ltd. Page 2 Shri Sallong Yaden, Ld. Departmental Representative appeared on behalf of Revenue and Shri K.M. Roy, Ld. Authorized Representative appeared on behalf of assessee.

At the outset, it is noticed that the Revenue’s appeal for assessment year 2011-12 is barred by limitation by 23 days. Revenue has filed condonation petition supported by affidavit explaining the reasons for the delay in filing the appeal. On query from the Bench, Ld. Counsel for the assessee has not opposed the condonation rather he conceded that delay can be condoned. In view of the above reasons given in the condonation petition and concession given by Ld. Counsel for the assessee, we condone the delay and admit the appeal of Revenue.

3. At the outset, we find that tax effect in this appeal filed by the Revenue is below the limit of ₹ 10 lakh which was fixed by the CBDT vide Circular No. 21 of 2015 dated 10.12.2015 for not filing appeals before the Tribunal. However there are certain exceptions curved out in the said Circular where monetary limit of Rs. 10 lacs is not applicable but Ld. DR could not point out that present appeal falls under any of the exceptions mentioned in the said Circular. In these circumstances, this appeal filed by the Revenue stand dismissed in limine on account of low tax effect.

In the result, Revenue’s appeal stands dismissed in limine. Now coming to assessee’s CO No.17/Kol/2016.

Sole issue raised by assessee in its CO is that Ld. CIT(A) erred in estimating the profit on the amount at ₹93,13,296/- which is inclusive of material supplied by the Govt.

Briefly stated facts are that assessee is a private limited company and engaged in the business of civil construction. The assessee for the year under consideration filed its return of income declaring total income of ₹6,47,908/-. Subsequently the case was selected for scrutiny under CASS module. Accordingly, notices were served u/s 143(2) upon the assessee. During the course of assessment proceedings, Assessing Officer requisitioned the assessee to produce the books of account but assessee failed to do so. & CO 17/Kol/2016 A.Y 2011-12 DCIT Cir-23 Hgl. Vs. M/s Mitra Real Estate Pvt. Ltd. Page 3 Therefore, the AO rejected the books of account and estimated the profit @ 8% on its gross turnover of ₹93,13,296/- under the provision of Section 44AD of the Act.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the gross contract value shown at ₹93,13,296/- is inclusive of material supplied by the Government for ₹40,29,115/- and therefore the same cannot be considered while determining the profit @ 8% on the gross contract value. 6.1 The assessee further submitted that the net profit at the most can be determined on the contract value for ₹52,84,181/- (93,13,296 – 40,29,115) being contractual transfer price. However, Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under:- “7. I have considered the facts of the case, the discussion in the assessment order, the appellant’s submissions and the remand report. I have also examined the assessment record. The second ground of appeal

is against estimation of profit on contractual receipts @ 8% as Rs.7,45,063/-. In the submissions, the only contention of the appellant is that the net contractual receipts after reducing the materials worth Rs.40,29,115/- supplied by the client (department) for use in their project, amounted to Rs.52,84,81/- and the profit should have been determined @ 8% on the net turnover only. In the assessment order, the AO had estimated the profit for want of details / evidence. In the appellate proceedings, neither any details / evidence in relation to expenses has been produced nor have any arguments been made against the fairness of the estimation of profit @ 8%. As regards the only contention that the net turnover for the purpose of estimation of profit should have been taken as Rs.52,84,181/-, I do not agree with the appellant as the receipts of the appellant stood at Rs.93,13,296/- only. It was only a matter of detail that materials consumed for earning such receipts were partly supplied by the client instead of getting supplied by a third party. Hence, the Assessing Officer's approach in estimating profit @ 8% on gross contractual receipts of Rs.93,13,296/- cannot be faulted and computation of profit of Rs.7,45,063/- is confirmed.” Aggrieved by the above finding of Ld. CIT(A) the assessee is in CO before the Tribunal.

7. Ld. AR before us submitted that the material has been supplied by the Government Department / Contractor for ₹40,29,115/-. Therefore, the same cannot be included while determining the profit under provision of Section & CO 17/Kol/2016 A.Y 2011-12 DCIT Cir-23 Hgl. Vs. M/s Mitra Real Estate Pvt. Ltd. Page 4 44AD of the Act. Ld. AR in support of assessee’s claim produced the copy of payment certificate issued by the contractee which is placed on record. Ld. AR in support of assessee’s claim has also relied on the judgment of Hon'ble Supreme Court in the case of Brij Bhusan Lal Pardjmanker vs. CIT reported in 115 ITR 524 (SC), wherein it was held as under:- “in substance and in reality, such stores/material always remained the property of the department and the contractor had merely the custody of it and he fixed or incorporated the same into the works. It seemed clear that in such circumstances and having regard to the terms and conditions on which such supply of stores/materials was made there was not even a theoretical possibility of any element of profit being involved in the turnover represented by the cost of such stores/material. It was conceivable that when the contractor himself purchased materials in the open market and supplies the same to the department by using, fixing or incorporating the same in the works, as in the case of materials other than those specified in Schedule "B", some profit element would be embedded in the turnover represented by the cost of such material but when stores/material was supplied by the Government department at fixed rates for being used, fixed or incorporated in the work on terms indicated above, there would be no element of profit involved in the turnover represented by the cost of such material. It is true that, ordinarily, when a works contract is put through or completed by a contractor the income or profits derived by the contractor from such contract is determined on the value of the contract as a whole and cannot be determined by considering several items that go to form such value of the contract but in our view where certain stores/material is supplied at fixed rates by the department to the contractor solely for being used or fixed or incorporated in the works undertaken on terms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/material so supplied. Therefore, since no element of profit was involved in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee-firm, the income or profits derived by the assessee firm from such contracts would have to be determined on the basis of the value of the contracts represented by the cash payments received by the assessee-firms from the M.E.S. department exclusive of the cost of the material/stores received for being used, fixed or incorporated in the works undertaken by them.” On the other hand, Ld. DR heavily relied on the order of Authorities Below.

8. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, the assessment was framed u/s. 144 of the Act after rejecting the books of account on the ground that assessee failed to produce the same. The AO determined the profit @ 8% of ₹93,13,296/- only and the grievance of assessee is that the AO has taken

DCIT, CIRCLE - 23, HOOGHLY, HOOGHLY vs. M/S. MITRA REAL ESTATE PVT. LTD., KOLKATA