SADASHIV NARHARI NAVALE,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME-TAX,

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

There are 2 appeals filed by the assessee under consideration involving assessment years 2008-09 and 2009-10. They are filed against two separate orders of CIT(A)-2, Nashik commonly dated 03-11-2014.

“1. On the facts and in the circumstances of the case and in law, Lower Authorities have erred in making an addition of Rs.10,99,378/- by estimating the net profit @20.52% by disregarding appellant contention and further erred in rejecting appellant profit declared @8%, the addition made by Learned Assessing Officer may kindly be deleted and income declared in return of income may kindly be accepted. 2. On the facts and in the circumstances of the case and in law, Lower Authorities are not justified in making addition of Rs.60,00,000/- being alleged initial investment in the project assumed @10% of WIP, same needs to be struck down as it is without any evidences/basis or any supporting documents, especially when income of the appellant is estimated.”

AO/CIT(A) for A.Y. 2008-09 include that the assessee is an individual

engaged in the activities of building and development of land/flats.

There was survey operation u/s.133A of the Act on 29-03-2011. The

survey action revealed that the assessee did not maintain any books of

account and no financial statements were being drawn on regular basis

based on the books of account. The survey team discovered a rough

notes which constitutes primary records for making of the books of

account. The survey also resulted in the discovery of non-filing of the

return of income for the A.Y. 2008-09. This is the year where

construction activity of a project named “M/s. S.P. Developers and

Builders” has commenced. The facts regarding this construction

activity include that the assessee entered into a development agreement

for development of land owned by Shri Khopade. The agreement

involves construction of Bungalows at the cost of the assessee and to

handover 17 of the constructed Bungalows to Khopade, who is the

owner of the land on which said project was constructed. Resultantly,

the assessee’s share comes to 41 Bungalows. Survey action also

resulted in declaration of additional income of Rs.1.55 crores for A.Yrs.

2008-09 to 2011-12 based on the number of Bungalows sold by the

assessee. At the time of filing of return of income for these assessment

years, assessee offered the net income @ 8% of the gross receipts which

amounts to retraction of the above said disclosure of additional income.

Assessee did not comply with the declaration of Rs.1.55 crores.

However, ignoring the profits disclosed in the returns, in the

assessment proceedings, the AO adopted the said declared amount of

Rs.1.55 crores, i.e. 20.52% of the gross receipts of Rs.7.55 crores and

staggered the same among the 4 assessment years (supra). The details

of gross receipts are given as under :

A.Y. Gross Receipts found during survey 2008-09 Rs.88,17,000/- 2009-10 Rs.5,02,50,000/- 2010-11 Rs.35,93,000/- 2011-12 Rs.1,28,46,000/- Total Rs.7,55,06,000/-

Rs.10,99,378/- as per the discussion given by the AO in Para No. 5.3 of

his order. The said amount is arrived at applying the flat net profit rate

of 20.52% of the turnover of that year. From the table mentioned

above, the gross turnover of the assessee for all 41 Bungalows works

out to Rs.7.55 crores (rounded off). Based on the number of bungalows

sold in each year, value of the Bungalows sold for A.Y. 2008-09 comes

to Rs.88,17,000/-. The net profit @ 20.52% on Rs.88,17,000/- comes

to Rs.10,99,378/-. Relevant lines from the assessment order are

extracted as under :

“5.3 As the assessee has only produced the audit report not containing any ledgers, P&L account, it is not possible to compute actual profit and loss. The assessee has estimated his N.P. at 8.05% for which he has produced no documentary evidences, no details of expenses, no ledgers. Thus, the estimation of N.P. by the assessee is not based on facts. There is no working of P&L account. The N.P. is only on estimation and hence not acceptable. The assessee has not furnished any reason as to why his N.P. should be considered at 8.05% and not at 20.52% as declared during the survey. Hence, the N.P.% declared during the survey is considered as the N.P.% for the year under consideration. Accordingly, Rs.18,09,968/- (88,17,000 X 20.52%) is considered as the Net Profit of the assessee and amount of Rs.10,99,378/- (18,09,968 – 7,10,590) is added in the total income of the assessee.. . . . . . .”

Thus, the AO reduced the income returned by the assessee before

the differential amount was added to the income returned by the

assessee. Ld. Counsel for the assessee submitted that subsequent

A.Yrs. 2010-11 and 2011-12 are pending for disposal before the First

Appellate Authority.

Rs.1,03,15,405/- for the A.Y. 2009-10.

09 towards initial investment in the construction activity. According to

the AO, out of the gross receipts of Rs.7.55 crores which resulted in

income of Rs.1.55 crores, the cost of construction should be around

Rs.6 crores. AO estimated 10% of the said cost of construction as the

initial investment by the assessee considering the fact that the sources

were explained by the assessee. As per the discussion by the AO in

Para No. 6.2 of the assessment order, AO estimated the said cost of

initial investment at Rs.60,00,600/-, i.e. 10% of the cost of

construction. CIT(A) dismissed the appeal of the assessee and upheld

both the additions, i.e. (1) estimation of profits applying rate of 20.52%

on total turnover as well as (2) initial investment in the construction

activity.

with the concise ground referred above.

and submitted that the AO erred in estimating the profits @20.52%

ignoring the estimated income offered in return adopting the profit rate

of 8% of the turnover. As per the assessee, such estimation needs to be

honoured when the books of account are not maintained. Admitting the

facts that books of account were never maintained by the assessee and

explaining the fact that the project run into lots of troubles which

resulted in lower returns on the venture, Ld. Counsel submitted that

adopting the rate of 20.52% is on very high side. Mentioning various

case laws of the Pune Bench and others, Ld. Counsel for the assessee

submitted that profit rate offered by the assessee @8% of the turnover

may be affirmed by the Tribunal. However, he submitted that adopting

the flat rate of 20.52% is never there in this line of business activity and

requested for substantial reduction in the same. Further, referring to

the admission of Rs.1.55 crores by the assessee during the survey

action, Ld. Counsel submitted that the said figure lacks any credibility

and leavealone any incriminating documents seized by the Department

during the survey action. He submitted that the reliance placed by the

AO and the CIT(A) on the statement of the assessee during survey

action adopting the figure of Rs.1.55 crores is not sustainable in the

absence of any incriminating evidences against the assessee. On the

above said logic, Ld. Counsel prayed for reducing the gross profit rate in

favour of the assessee.

on the orders of the AO and the CIT(A) and submitted that this is the

case where turnovers has exceeded the statutory limits for adopting the

said flat rate of 8% as net profit. These profit rates are applicable to

small turnover cases and not to this case when the projects total

turnover is in the range of Rs.7.55 crores. He also submitted that the

fact that assessee suo motu offered the same at Rs.1.55 crores as

income on the project and the AO merely apportioned the said income

basing on the sustainable additions of year-wise turnover. Further, he

highlighted the undisputed fact of non-maintenance of books of account

and other discrepancies/statements of the assessee.

the Revenue and the written submissions filed before us. There is no

dispute on the basic facts about non-maintenance of the books of

account, non-filing of the return of income for the A.Y. 2008-09

onwards at the time when survey action was conducted in the month of

March, 2011 and offer of additional income of Rs.1.55 crores, i.e. at the

rate of 20.52% of the gross turnover of this venture. Further no specific

document is referred to by the lower authorities as can be seen from

their orders regarding the existence of any incriminating papers in

support of retraction of disclosure of Rs.1.55 crores for the entire

project constructing 58 Bungalows. Therefore, we have to examine the

sanctity of the said sum of Rs.1.55 crores. On perusal of the records, it

is reasonable to infer that the figure of Rs.1.55 crores is not sacrosanct.

Nevertheless, the project involves earning of income and the same may

be somewhere between 8% as offered by the assessee and 20.52%

adopted by the AO. We are also aware of the fact that in this line of

construction activity the maximum net profit is around 12.5% of the

turnover of the order. Therefore, we are of the view that the decision of

AO and the CIT(A) adopting the figure of 20.52% is not approved.

Consequently, we direct the AO to estimate the profits of the project

applying the rate of 12.5% of the yearly turnover. Accordingly, the

concise Ground No.1 raised by the assessee is partly allowed.

addition of Rs.60 lakhs raised in concise Ground No.2, we have already

narrated the facts leading to the arrival of addition of Rs.60,00,600/-

(not Rs.60 lakhs as mentioned in the concise ground). In this regard,

argument of the Ld. Counsel includes that the assessee is an

agriculturist and owns huge track of land. Assessee earns agricultural

income and the said income constitutes initial investment for the

project under consideration. This is the major project undertaken by

the assessee. He also submitted that estimation @10% of the cost of

construction as initial investment is again linked to the project turnover

of Rs.7.55 crores which is merely a pigment of imagination. Further,

Ld. Counsel submitted that the fact that assessee has agricultural

income, no separate/independent addition is called for on account of

initial investment. However, in response to the query from the Bench

on the existence of evidence in this regard, Ld. Counsel submitted for

grant of time to furnish the same.

the AO and the CIT(A). He also mentioned that facts about the

agricultural income and declaration of the same in the returns of

income of the assessee in the past were not brought to the notice of the

AO at the time of assessment proceedings. He also submitted assessee

never borrowed funds for the purpose of initial investment. Therefore, it

is reasonable to presume that the initial investment is from

unaccounted sources. This is the correct estimation based on which

the addition can be made by the AO. Therefore, addition of @10% of

the cost of the project as initial investment should be sustained.

Nevertheless, on the issue of earning of Agricultural income, Ld. DR has

nothing to say as this is a new argument from the Ld. Counsel for the

assessee.

the Revenue and the facts placed before us. We have also considered

the written submissions given by the Ld. Counsel for the assessee. It is

an undisputed fact the assessee owns agricultural land. Consequently

the claim of earning of agricultural income is a bi-product in case of any

assessee. This fact was totally unattended to by both the parties during

the assessment/appeal proceedings before the AO and the CIT(A). We

have also called for the evidences, if any, in support of the claim of

agricultural income by the assessee in the returns of income. With the

exception of the written submissions, there is no evidence to support

the claim of Agricultural income. Instead of dismissing the said claim,

we find it relevant to grant an opportunity to the assessee to file the

evidences. Accordingly, this part of the claim is allowed statistical

purposes. AO shall admit the additional evidences if any on this issue

and verify the claim as per the set procedure and adjudicate the issue

after granting reasonable opportunity of being heard to the assessee.

Accordingly, the issue is allowed for statistical purposes.

statistical purposes.

ITA No.139/PUN/2015 (A.Y. 2009-10)

“On the facts and in the circumstances of the case and in law Lower Authorities have erred in making an addition of Rs.62,54,705/- by estimating the net profit @20.52% by disregarding appellant contention and further erred in rejecting appellant profit declared @8%, the addition made by Learned Assessing Officer may kindly be deleted and income declared in return of income may kindly be accepted.”

estimation of the net profit for the year under consideration.

parties are identical to the one already adjudicated by us in connection

with appeal ITA No.138/PUN/2015 for the A.Y. 2008-09.

already dismissed both the profit rate of 8% adopted by the assessee as

well as the profit rate of 20.52% adopted by the AO. Further, we have

directed the AO to adopt 12.5% as net profit of the turnover of in that

year. In our view, we find no reason to deviate from the same for this

assessment year also. Accordingly, with similar directions we partly

allow the appeal of the assessee.

allowed for statistical purposes and ITA No.139/PUN/2015 filed by the

assessee is partly allowed.

Order pronounced in the open court on this 28th day of February, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 28th February, 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)-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