ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. AMBARWADIKAR & COMPANY, AURANGABAD

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

There are 4 appeals filed by the Revenue and the Assessee under consideration involving assessment years 2010-11 and 2011-12. Main appeals ITA Nos. 2038 and 2039/PUN/2014 are filed by the Revenue

against the common order of CIT(A), Aurangabad, dated 28-08-2014.

Assessee filed the Cross objections vide C.O. Nos. 88 and 89/PUN/2017.

2010-11 & 2011-12 in the following paragraphs.

ITA Nos.2038 & 2039/PUN/2014 (By Revenue - A.Yrs. 2010-11)

No.2038/PUN/2014 are that assessee is a firm 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 these papers and documents. Statement of

Mr. Suryant Ambarwadikar was also recorded on oath u/s.131 of the

Act. Further, 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. M/s. S.R. Rahalkar and Associates, Chartered Accountants

were the Special Auditors. After taking into account the report of the

Special Audit, the assessment was completed determining the total

income of Rs.19,66,83,090/- against the returned income of

Rs.1,05,34,323/-. AO made various additions invoking the provisions of

sections, 32, 69C, 40A(3), 40(a)(ia), 37, 14A etc. The details of the

additions as appearing on page 40 of the assessment order are extracted

as under :

“Disallowance as per Para No.6 Rs.5,84,736 Disallowance as per Para No.7 Rs.2,00,000 Disallowance/Addn. as per Para No.8 Rs.45,69,900 Disallowance as per Para No.9 Rs.16,74,572 Disallowance as per Para No.10 Rs.12,70,400 Disallowance as per Para No.11 Rs.2,75,750 Addition as per Para No.12 Rs.11,218

Disallowance as per Para No.13 Rs.10,35,634 Disallowance as per Para No.14 Rs.9,99,142 (5,76,742+3,02,400+1,20,000) Addition as per Para No.16 Rs.82,60,000 Addition as per Para No.167 Rs.1,44,54,828 Disallowance as per Para No.18 Rs.7,48,82,935 Disallowance as per Para No.19 Rs.4,63,30,250 Addition as per Para No.20 Rs.20,53,000 Addition as per Para No.21.3 Rs.1,90,95,000 Addition as per Para No.21.4 Rs.1,04,51,302 Rs.18,61,48,767 ------------------------ ------------------------- Total income Rs. 19,66,83,090 --------------------------

itemised additions, the assessee filed an appeal before the CIT(A) raising

various grounds on merits of the additions. In the impugned order, the

CIT(A) examined each of these additions and found that, with the said

additions, the GP rate of the assessee works out to a phenomenal GP rate

of 164.14% of the contract receipts for the A.Y. 2010-11. Similarly, the

GP rate for the subsequent assessment year 2011-12 works out to 60%

of the contract receipts. Relevant discussion is given in Para Nos. 12

along with its sub-paragraphs of the order of CIT(A).

The discussion given in Para Nos. 12.1 to 12.6 constitutes

operational paragraphs and the summary of the same includes that the

contract receipts for the A.Y. 2010-11 works out to Rs.12.99 crores.

Assessee declared in the return of income Rs.56,88,654/- only. AO

made addition of Rs.18.61 crores (rounded off).

For the next A.Y. 2011-12, AO made additions amounting to

Rs.56,57,055/- which resulted in recording of 60% net profit rate. CIT(A)

held that the gross profit rates of 164.64% for the A.Y. 2010-11 and 60%

for the A.Y. 2011-12 are unreasonably high.

Therefore, considering the unusual GP rates of 164.14% and 60%

for A.Yrs. 2010-11 and 2011-12, in principle, the CIT(A) dismissed the

manner of assessment by AO, which involves itemised additions, in both

the assessment years. Alternatively, the CIT(A) invoked the provisions of

section 145 of the Act and proceeded to estimate the profits relying on

various decisions of the Pune Bench, Hyderabad Bench and other

Benches of the Tribunal. The details are mentioned in Para No. 12.3 to

12.6 of the order of CIT(A) and they are extracted as under :

“12.3 In view of the ratio laid down by various decisions, including the decisions of Hon’ble ITAT, Pune relied on by the appellant and particularly in view of the ratio laid down by the above mentioned decision in the case of N. Ramchandra Reddy, I hereby reject the book results of the appellant firm for A.Ys. 2010-11 and 2011-12 by invoking provisions of section 145(3) of the Act.

12.4 After rejecting the book results for A.Y. 2010-11, I estimate the profit of the business of the appellant @13% of the business receipts before remuneration to partners or actual income returned by the appellant. The business profit for A.Y. 2010-11 @13% on contract receipts of Rs.12,99,58,419/- works out to Rs.1,68,94,594/- and after reducing the remuneration to partners Rs.6,00,000/-, the same works out to Rs.1,62,94,594/- as against shown by the appellant at Rs.56,88,654/-. Therefore the addition made by the A.O. stands upheld to the extent of Rs.1,06,05,940/- and the remaining addition stands deleted. The A.O. is directed accordingly.

12.5 The contention of the appellant that the addition, if any, confirmed in A.Y. 2010-11 is to be reduced from the income for A.Y. 2011-12 is rejected as the same is not supported by any corroborative evidence and particularly in view of the fact that the income for A.Y. 2010-11 is being decided by rejecting book results and by estimating business profit @13%.

12.6 After rejecting the book results for A.Y. 2011-12, the business profit of the said year is to be estimated. The business profit for A.Y. 2011-12 @13% on the contract receipts of Rs.6,38,30,637/- works out to Rs.82,97,983/- and after reducing the remuneration to partners Rs.12,00,000/-, the same works out to Rs.70,97,983/- which is much less than the business income returned by the appellant at Rs.1,57,71,802/-. The income of the appellant firm cannot be reduced to the figure less than the income returned, particularly in view of the assets appearing in the balance sheet as at 31/03/2011, the source of which is out of income returned and the items of liability side of the balance sheet. Therefore, the total income returned by the appellant at Rs.2,47,58,468/-, including the business profit at Rs.1,57,71,802/- is to be considered subject to further addition of Rs.5,26,263/- on account of apparent mistake of claim of depreciation on building which has not been contested by the appellant in appeal. Therefore the A.O. is directed to assess the income of the appellant for A.Y. 2011-12 at Rs.2,52,84,731/-.”

(1) the estimation of profits @13% of the business receipts for the A.Y.

2010-11 is reasonable. Effectively, the addition to the extent of

Rs.1,06,05,940/- was confirmed against the addition of

Rs.18,61,48,767/-, (2) the profits returned by the assessee for A.Y. 2011-

12, which amounts to the GP rate of 24% constitutes reasonable and

hence, the income returned by the assessee with business profits of

Rs.1,57,71,802/- is fair and reasonable. As per the return, assessee

returned the total income of Rs.2,47,58,468/-. With these profits, the

gross profit rate is found to be around 24%. Therefore, the CIT(A)

confirmed the same and deleted the entire itemised additions in both the

assessment years.

AO in both the assessment years, the Revenue is in appeal before us.

Revenue holds that there is no bar in making addition u/s.69C of the Act

over and above the estimated profits for A.Y. 2010-11. Further, Revenue

desires confirming of the itemised additions. Further, aggrieved with the

additions confirmed by the CIT(A) in both the assessment years, assessee

filed the Cross Objections vide C.O. Nos. 88 and 89/PUN/2017.

the Revenue in both the appeals for the A.Yrs. 2010-11 and 2011-12.

We also find both the cross-objections filed by the assessee are linked to

the issues raised by the Revenue. Otherwise, Revenue raised 19 grounds

in the appeal memo and all these grounds relate to the merits of the

additions. On finding certain deficiencies in the grounds, Revenue filed

‘additional grounds’ in two instalments on 22-02-2017 and 04-09-2017.

The said additional grounds are extracted as under :

“1. On the facts and circumstances of the case and Law and without prejudice to Ground No.1 in the original Grounds of Appeal, the Ld. CIT(A), Aurangabad, erred in holding that no separate addition can be made u/s.69C of the Act once the profits are estimated. In this regard reliance is placed on the following decisions : a. CIT Vs. K.M.N. Naidu 221 ITR 451 b. Kale Khan Mohammad Hanif Vs. CIT 50 ITR 1 c. Devinder Singh Vs. ACIT 101 TTJ 505

finding that there is no requirement of any investigation into the facts for

adjudication of the issues, we find the said grounds should be admitted

for adjudication.

years relate to legal bar if any for making separate additions u/s.69C of

the Act over and above the profits estimated u/s.145(3) of the Act.

Further, the correctness of estimation of profits @13% for A.Y. 2010-11

and deleting itemized additions amounting to Rs.18,61,48,267/- were

also raised. Infact, additional Ground No.3 relates to one of the itemized

additions and the correctness of the relief granted by the CIT(A).

Revenue submits that when the profits are estimated by invoking the

provisions of section 145 of the Act, there is no bar for making additions

u/s.69C of the Act over and above the estimated profits. Of course,

Revenue is also aggrieved against the lower profit rate of 13% determined

by the CIT(A) when the assessee offered the profit rate at 24% on the

turnover in the A.Y. 2011-12. Therefore, we have to now examine (1) if

the additions u/s.69C to the estimated profits is allowable in law once

the profits are estimated involving the provisions of section 145 of the

Act; and (2) if the CIT(A)’s decision in approving the profit rate of 13% for

A.Y. 2010-11 when the assessee returned income at the GP rate of 24%

for the A.Y. 2011-12.

who vehemently argued in favour of confirming of itemized additions in

both the years. The fact of failure of CIT(A) in not adjudicating the

itemized additions was specially highlighted by the Ld. DR. She also

brought to our notice the fact that this is a case where survey action was

undertaken and submitted that the profit percentages of such

assessment years are always on higher side due to the discovery of

discrepancies by survey team and they are not on par with the normal

assessment years where such coercive action is not taken by the

Department. To that extent, as per the Ld. DR, the order of the CIT(A) is

erroneous and his decisions should not be sustained. The glaring fact of

the existence of unbridgeable gap between the GP rates of 13% and 24%

in the A.Yrs. 2010-11 and 2011-12 were also highlighted. Ld. CIT-DR

also submitted that the order of CIT(A) cannot be described as a speaking

order when the same constitutes an appealable order. Ld. DR submitted

that the matter should be remanded to the file of CIT(A) for want of

speaking order on each of the itemized additions before he takes any

decision eventually. Bringing our attention to Form No.35, Ld. DR

submitted that it is never the prayer of the assessee that the itemized

additions should be deleted and gross profit should be estimated in the

years under consideration.

Kulkarni, Ld. Counsel for the assessee.

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.

C.O. Nos.88 & 89/PUN/2017 (By Assessee - A.Yrs. 2010-11 and 2011-12)

the Cross Objections and submitted that the objections raised by the

assessee for both the assessment may be treated as ‘not pressed’.

opinion that the dismissal of the Cross Objections when the impugned

orders are being remanded to the file of CIT(A) becomes premature.

Therefore, we remand the Cross Objections filed by the assessee to the

file of CIT(A) for fresh adjudication on each of the objections raised by the

assessee. Accordingly, the Cross objections filed by the assessee for both

the assessment years are allowed for statistical purposes.

Revenue and CO Nos. 88 and 89/PUN/2017 filed by the assessee are

allowed for statistical purposes.

Order pronounced in the open court on this 28th day of February,

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 : 28th February, 2018 सतीश आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-2, Nashik 4. CIT-2, Nashik ि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