ITO, WD-36(1), KOLKATA, KOLKATA vs. SRI RAJESH AGARWAL, KOLKATA

As far as ITA No.6/Kol/2016 to 9/Kol/2016 which are appeals filed by the revenue for A.Y.2007-08 to 2010-11 are concerned it was agreed by the parties at the time of hearing that the tax effect in these four appeals by the revenue are below Rs.10 lakhs.

For this purpose, "tax effect" means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as "disputed issues"). However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.”

In para-10 of the said circular it has further been clarified that the revised monetary limits will apply retrospectively. The relevant para-10 of the Circular reads thus: “10. This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/ Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/ not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.”

It is a settled law that the Circulars issued by CBDT are binding on the Revenue. This position was confirmed by the Apex Court in the case of Commissioner of ustoms vs Indian Oil Corporation Ltd. reported in 267 ITR 272 wherein their Lordships examined the earlier decisions of the Apex Court with regard to binding nature of the Circular and laid down that when a circular issued by the Board remains in operation then the Revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the statute. The appeal under consideration has certainly been filed contrary to the Circular issued by the CBDT Circular No.21 dated 10.12.2015.

In view of the above, We hold that the appeal filed by the Department, against the impugned order of the Ld. CIT(A), is contrary to the policy decision of the Department and as such the appeal filed by the Department is dismissed in limine.

In the results all the appeals by the revenue are dismissed.

As far as ITA Nos. 24/Kol/2016 to 26/Kol/2016 are concerned, these are appeals filed by the assessee for A.Y.2008-09, 2009-10 and 2010-11. The only common issue that arises for consideration in these appeals by the assessee is as to whether CIT(A) was justified in estimating the income of the assessee by applying the profit rate of 10% of the turnover of contractual receipts. The facts and circumstances under which these appeals arise for consideration are identical.

The Assessee is an individual. He derives income from carrying out construction activities and also acting as labour contractor. The assessment for all the three assessment years were made u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 (Act). The assessments were reopened for the reason that in the course of examining the assessment records for A.Y.2011-12 and also based on the information available in 26AS details, it transpired that the assessee had contractual receipts from executing 3 4 and 6 to 9/Kol/2016 Shri Rajesh Agarwal A.Yr.2007-08 to 2010-11 contracts and also rental income for three assessment years set out above which had not been disclosed in the return of income. It is on the basis of such information that reassessment proceedings u/s 147 of the Act were initiated for all the three assessment years set out above. In the course of reassessment proceedings the AO noticed that in support of the income declared by the assessee in the return of income from contract business, the assessee had filed profit and loss account and could not explain the receipts and expenses as shown in the said account to justify the profit declared from contractual business. The AO therefore rejected the books of account and estimated the income of the assessee on contract business by applying the profit rate of 12%. The percentage of the profit declared by the assessee in the return of income was 4.7% of the turnover in A.Y.2008-09 and 7.7% in A.Y.2009-10 and 5.8% in A.Y.2010-11. Consequent to the estimation of income as made above a sum of Rs.20,33,530, Rs.10,95,650/- and Rs.15,12,518/- was added to the total income of the assessee by the AO.

On appeal by the assessee the CIT(A) reduced the estimation of income as made by the AO from 12% to 10%. The assessee had submitted before CIT(A) that he was not a professional engineer or an architect and by his hard work and labour he started and flourished in his business. The assessee submitted that estimation of income at 12% was without any basis. The assessee also submitted that the profit declared by the assessee in A.Y.2007-08 at 15% of the turn over was because of the lower quantum of turn over declared in that year. The assessee also submitted that the turn over in A.Y.2007-08 was Rs.37,70,700/- and it grew in A.Y.2008-09 to Rs.2.77 crores. The assessee pleaded that it had to compromise on the profit margin in view of the higher volume of business.

The CIT(A) on consideration of the above submissions was of the view that ends of justice would be met if the profit rate of 10% profit to the turn over i.e. contractual receipts is applied and the income of the assessee determined accordingly.

The ld.counsel for the assessee submitted that though the turn over of the assessee is more than Rs.40 lakhs, yet keeping in mind the facts and circumstances of the present case the estimation of profit of the assessee should be made on the basis of the presumptive rate of profit of 8% as set out u/s 44AD of the Act. It is an admitted position that for the relevant period the limit of turn over for application of section 44AD of the Act was Rs.40 lacs and below and therefore the said provisions are not applicable to the assessee. Yet the prayer was made to apply the aforesaid provision keeping in mind the background of the assessee who operates in an unorganized sector without a professional qualification. The ld. DR relied on the order of CIT(A).

After considering the rival submissions, we find that there is no basis for estimation of profits as done by the AO and as done by CIT(A). Generally when the books of accounts are rejected, the past history of the assessee is the best yardstick to estimate the income. In the present case however the past history cannot be adopted for the reason that the volume of business of the assessee has grown substantially. We find 5 6 and 6 to 9/Kol/2016 Shri Rajesh Agarwal A.Yr.2007-08 to 2010-11 merit in the submission of the assessee that the capital outlay of the assessee remains the same and the assessee in order to achieve higher turnover it had to compromise on its margin. Keeping in mind all these aspects, we are of the view that it would be just and appropriate that the income of the assessee be determined by applying the rate of 8% of the total turnover i.e. contractual receipts instead of 10% adopted by CIT(A). Thus the appeals of the assessee are treated as partly allowed.

In the result the appeals by the revenue are dismissed and the appeals of the assessee are partly allowed.