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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by the Revenue against the order of CIT(A), Aurangabad, dated 28-08-2014 for the Assessment Year 2010-11.
Grounds raised by the Revenue read as under :
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in estimating the profit of the assessee firm without considering the fact of non- estimation of the income as per assessment order u/s.143(3) of the Act and disregarding the fact of the completion of Special Audit u/s.142(2A) of the Act.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.33,56,060/- towards addition in respect of cash payments on account of site expenditure above Rs.20,000/- u/s.69C & 40A(3) of the Act.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.21,34,500/- towards addition in respect of cash payments on account of site expenditure above Rs.20,000/- u/s.40A(3) of the Act.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.81,132/- towards disallowance of interest to non- banking financial company without TDS u/s.40(a)(ia) of the Act.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.62,20,000/- towards disallowance of Machinery Hire Charges u/s.40(a)(ia) as TDS not deducted u/s.194-I of the Act.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.4,18,35,803/- towards disallowance of labour payment u/s.40A(3)/40(a)(ia) of the Act.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.86,52,000/- towards addition u/s.68 of the Act on account of unpaid outstanding labour charges.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.15,19,186/- towards disallowance of interest u/s.36(1)(iii) of the Act in respect of loans and advances for non-business purposes.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.1,92,000/- towards disallowance of interest u/s.36(1)(iii) of the Act in respect of loans and advances for non-business purposes.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.80,00,000/- towards part of the amount outstanding in respect of development agreement for land transferred added as income.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.11,92,700/-, which is a protective addition u/s.40A(3)/40(a)(ia) of the Act and substantive addition is made in the case of M/s. Ambarwadikar & Company.
The order of the A.O be restored and that of the CIT(A) be vacated.
The appellant craves leave to add, amend or alter any or all the grounds of appeal.”
Briefly stated relevant facts are that the assessee is a firm and
engaged in the business of Civil Contracts. There was survey action
u/s.133A of the Act on the Ambarwadikar group of cases on 10-12-2012
to 12-12-2012. Survey action resulted in discovery of incriminating
documents and books of account etc. AO impounded them. There was
recording of statement of concerned persons on oath u/s.131 of the Act.
Considering the complexity of the accounts and voluminous
papers/documents impounded by the Revenue, with the approval of CIT,
Aurangabad, a Special Audit was ordered u/s.142(2A) of the Act. After
considering the report of the Special Audit, the AO made the assessment
u/s.143(3) of the Act determining the assessed income at
Rs.7,77,54,680/-. AO made the following additions (page 17 of the
assessment order) and the same are extracted as under :
“Add : i) Addition as discussed in para-6 above Rs.33,56,060/- ii) Addition as discussed in para-7 above Rs.21,34,500/- iii) Addition as discussed in para-8(2) above Rs. 81,132/- iv) Addition as discussed in para-8.5 above Rs.62,20,000/- v) Addition as discussed in para-9.2 above Rs.4,18,35,803/- vi) Addition as discussed in para-10 above Rs. 88,52,000/- vii) Addition as discussed in para-11 (ii) above Rs.15,19,186/- viii) Addition as discussed in para-11 (iii) above Rs.1,92,000/- ix) Addition as discussed in para-12 above Rs.80,00,000/- x) Addition as discussed in para-13 above Rs.11,92,700/- Rs.7,31,83,381 ------------------------ ------------------------- Total income Total Assessed Income Rs. 7,77,54,681/- Rounded off to Rs.7,77,54,680/- ==============
From the above, it is evident that the AO made various itemised
additions based on the report given by the Special Auditors under the
provisions of section 142(2A) of the I.T. Act. Some of these additions
constitutes ‘protected addition’, which are otherwise added substantively
in the case of the group cases, i.e. M/s. Ambarwadikar & Company.
Assessee raised various grounds on the said itemised additions
before the First Appellate Authority. CIT(A) has granted reasonable
opportunity of being heard to the assessee and partly allowed the appeal
of the assessee. As evident from the order of CIT(A) who merely extracted
the reasons given by the AO for making additions on the item-wise and
also the submissions of the assessee, and did not find relevant to give
any specific adjudication on the above said itemised additions. The same
is not in accordance with the provisions of section 250(6) of the Act.
These facts are evident upto Para 7 of his order. From Para No.8
onwards, the CIT(A) discussed the submission of the parties only on the
aforesaid itemised additions, and, however, analysed the GP rate of the
assessee on the gross receipts and held that GP is much higher than
60% gross contract receipts of the assessee’s business. After discussing
various case laws, the CIT(A) proceeded to restrict the GP rate to 13% of
the gross contract receipts. It appears that the said percentage of 13%
GP rate is common qua the assessment for A.Y. 2010-11 in the case of
M/s. Ambarwadikar & Company. In fact some of the additions are
commonly made in the case of the assessee on protective basis as well as
in the said case of M/s. Ambarwadikar & Company. In fact, some of
these additions are found deleted by the CIT(A) in the instant case.
Ld. CIT-DR for the Revenue brought our attention to the grounds
and submitted that the CIT(A) failed to adjudicate the additions made by
the AO giving conclusions on each of the grounds raised before him. His
approach in deciding the issues on the basis of GP rate is nowhere the
ground of the assessee before him. Further, Ld. CIT-DR submitted that
the decision of not making additions invoking the provisions of section
40A(3), 40(a)(ia), 68, 36(1)(iii) etc. over and above the GP rate above is
also not in tune with the legal provisions. Ld. CIT-DR submitted that
when there are multiple sources of income to the assessee, the additions
u/s.68, 69 could also be justified and sustainable n law. Further, Ld.
CIT-DR mentioned that, in case appeals in other group cases of M/s.
Ambarwadikar & Company stand remanded to the file of CIT(A) by the
Tribunal (vide ITA No. 2038/PUN/2014 dated 23-02-2018), the same
should be followed in the instant case also with similar directions.
Per Contra, it is the prayer of Ld. Counsel for the assessee that the
appeal in this case has to be decided in conjunction with the appeal by
M/s. Ambarwadikar & Company considering the commonality of certain
issues and the common conclusions of the CIT(A). Ld. Counsel for the
assessee filed written submissions justifying 13% the GP rate as well as
other reliefs granted by the CIT(A).
We heard both the parties and perused the orders of the Revenue
and also perused the orders of the Tribunal in the case of M/s.
Ambarwadikar & Company (supra). The facts of the case, findings of the
special auditors, manner of making order by the CIT(A), the GP rates and
other manners of treating the itemised additions by the CIT(A) are
identical in this appeal qua the appeal in the case of M/s. Ambarwadikar
& Company. The reasoning given by the CIT(A) in giving relief as well as
in adopting the common GP rate of 13% are also the same. While
adjudicating the case of M/s. Ambarwadikar & Company where some of
the additions were made on substantive basis in that case and protective
additions are made in the present case of the assessee we find the issues
are to be adjudicated in harmony. The Tribunal in the case of M/s.
Ambarwadikar & Company, vide order dated 28-02-2018, remanded the
issues to the file of CIT(A) for fresh adjudication after granting reasonable
opportunity of being heard to the assessee. We therefore find it relevant
to extract the finding given by the Tribunal in the case of M/s.
Ambarwadikar & Company (para 12 of the order) and the same reads as
under :
“12. We have heard both the parties and find there are couple of issues that requires our attention (1) if the GP rates arrived at 164.14% for A.Y. 2010-11 and 60% for A.Y. 2011-12 in view of the itemized additions, is good enough reason for the CIT(A) to resort to changing the approach of the AO and further resort to the GP estimations restricting to the normal GP rate of the assessee, which is surveyed u/s.133A of the Act, and (2) if the CIT(A) is justified in restricting the GP rate to 13% for A.Y. 2010-11 when the assessee himself offered the profit rate @24% in the subsequent A.Y. 2011-12.
Regarding the first issue, we find the AO made itemised additions/disallowances invoking the provisions of section 32, 69C, 40A(3), 40(a)(ia) and 37 and 14A etc. These are the disallowances made by the AO in view of the violations of the said provisions for the reasons of non-fulfilment of the conditions by the assessee specified in the Act. Such legal disallowances/additions cannot be confused with the ‘profits’ of the business of the assessee. In our view, the conclusion of CIT(A)’s order, is
in the zone of errors by restricting to the GP rates without giving finding on itemised additions. In our view, the provisions of the Act were ignored along with the conditions specified therein. From that point of view, the conclusion given by the CIT(A) in Para No.12 in our view is without legal support. Alarming GP rates of 164.14% and 60% GP did not permit the CIT(A) to decide the itemised additions meaningfully in accordance with the provisions of section 250(6) of the Act.
Further, with regard to the said itemised additions, we find the CIT(A) merely extracted the reasons for making additions/disallowances and also extracted the contention of the assessee and has not adjudicated the grounds raised before him. The only reason for not adjudicating each of the itemised additions/disallowances in both the years is linked to the decision in Para No.12 wherein the estimated additions for A.Y. 2010-11 @13% is confirmed. No expressive reasons are mentioned by the CIT(A) justifying the said rate of 13% for this year. It is also not clear as to why 13% is sustainable when the assessee himself offered the GP rate of 24% for the A.Y. 2011-12. Therefore, it is reasonable to presume that the order passed by the CIT(A) does not constitute a speaking order which should have been made by giving the reasons also on the itemised additions for both the assessment years. CIT(A) need not be guided by the GP rates of the assessee from the perspective of fairness, in a case like this where there is coercive action by the Department by way of invoking the provisions of section 133A of the Act. In such survey action, there is an element of gathering of incriminating evidences and the statements of the assessee which also assumes significance. By the estimations arrived at by the CIT(A), we are of the view that the discoveries made by the Department from the assessee’s premises through invoking the provisions of section 133A of the Act have become redundant. Usually, the profits of the assessee are higher, normally in the assessment where action u/s.133A, 132, 131, 133(6) etc are invoked. The GP rates in such years need not be on par with the GP rates of the assessee normally either in earlier year or later assessment years. Therefore, we are of the view that both the assessments should be remanded to the file of CIT(A) for fresh adjudication after granting reasonable opportunity of being heard to the assessee. CIT(A) is directed to pass a speaking order by giving his reasons on each of the itemised additions in both the assessment years. CIT(A) shall grant reasonable opportunity of being heard to the assessee in accordance with the set principles of natural justice.
Thus, we find it relevant that CIT(A) need to give specific
adjudication on each of the additions made by the AO. The provisions of
section 250(6) of the Act command the same. There is need for writing a
speaking order as to why 13% is appropriate in the given facts of each
case. There is need for justifying the deletion of other additions over and
above the estimated GP, if the same is the approach of the CIT(A) as well
in these cases. There are various judicial orders on this topic with
special reference to making addition u/s.69 of the Act, when the profits
are estimated for any sustainable reasons. Considering the same, we are
of the view that the appeal in the present case should also be remanded
to the file of CIT(A) for fresh adjudication with identical directions. We
order accordingly. Thus, the grounds raised by the Revenue are allowed
for statistical purposes.
In the result, appeal of the Revenue is allowed for statistical
purposes.
Order pronounced in the open court on this 09th day of March,
2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक सद�य �याियक सद�य /JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER �याियक �याियक सद�य सद�य लेखा लेखा सद�य सद�य
पुणे Pune; �दनांक Dated : 09th March, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A), Aurangabad 4. CIT, Aurangabad िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” 5. Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune