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Facts
The appeal was filed by the assessee against an ex-parte order of the CIT(A) confirming an addition of Rs. 80,84,622/- made by the AO for disallowance of 20% of expenses. There was a significant delay of 549 days in filing the appeal, attributed to the arrest of the assessee's Chartered Accountant.
Held
The Tribunal condoned the delay of 549 days due to bonafide reasons. The Tribunal found that the AO's addition of expenses at a flat rate of 20% without proper justification or consideration of past trading history was arbitrary and violated principles of natural justice. The Tribunal applied a Net Profit (NP) rate of 2.5% to the total receipts.
Key Issues
Whether the delay in filing the appeal should be condoned, and whether the ex-parte addition of expenses by the AO and confirmed by CIT(A) was justified.
Sections Cited
144, 250, 44AB
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Income Tax Appellate Tribunal, JAIPUR BENCHES, “A” JAIPUR
Before: SH. SANDEP GOSAIN & DR. M. L. MEENA
The captioned appeal is filed by the assessee against the order of the ld. CIT(A) National Faceless Appeal Centre (NFAC), Delhi dated 05.05.2022 in respect of Assessment Year 2017-18 arising out of the ex-
Mritunjay Knowledge Consultancy S. P. Ltd. v. ITO parte order passed by the AO u/s 144 of the Income Tax Act, 1961 dated 30.11.2019.
There was a delay of 549 days in filing the appeal before the tribunal.
The learned AR submitted that order passed under section 250 of the Income Tax Act was not served upon the assessee as the email ID and contact number given on the ITBA portal are related to Shri Himanshu Vijay, the chartered accountant of the assessee who was arrested by the police as per newspaper cutting enclosed with the application for condonation of delay. The appellant assessee came to know about the appellate order passed by Ld. CIT appeal when he received a call for conducting audit under section 44AB of Income Tax Act 1961, in December 2023. Accordingly, he prepared and filed the appeal on 04/01/2024 with the delay of 549 days, due to arrest of its CA by the Police Department which constitute a bonafide and non intentional reason for delay on the part of the assessee. The AR submitted that it is settled principle of law that where the delay was bonafide and not malafide or intentional delay in filing appeal, the delay should be condoned by the appellate authorities especially when it is necessary for rendering the substantial justice to the assessee. He plays reliance on number of judicial judgements in support. Considering the bonafide and unintentional reason of delay in filing the appeal by the Mritunjay Knowledge Consultancy S. P. Ltd. v. ITO appellant before the Tribunal, against the impugned order passed exparte qua the assessee by the revenue authorities, it is justified to condone the delay of 549 days in filing the appeal by the appellant assesse to advance substantial justice. Accordingly, the delay is condoned and appeal is admitted on merits of the case.
The Ld. AR submitted that the case of the assessee was selected for scrutiny under CASS and the assessment was completed on 30/11/2019 on total income of Rs.85,09,780/- as against returned income of Rs. 4,25,160/- under section 144 of the IT Act, 1961. The assessee was not afforded proper opportunity of hearing by the Learned Assessing Officer.
While framing the assessment, the Learned Assessing Officer made an addition of Rs. 80,84,622/- by outright disallowance of 20% of expenses claimed at Rs. 40423109/-. The assessment was completed on 30/11/2019 with addition of Rs. 80,84,622/- on account of disallowance of expenses @ 20% by exparte order u/s 144 of the Act, which has been confirmed by the Ld. CIT(A) by exparte order qua the appellant in violation of principles of natural justice.
The AR argued that addition of expenditure at a flat rate of 20% without pointing out deficiency or comparable case and brushing aside the Mritunjay Knowledge Consultancy S. P. Ltd. v. ITO past trading history of the appellant is arbitrary is unlawful, unjustified and against the settled principle of applying NP/GP rate in case of a civil contractor. Similarly, the action of the Learned CIT(A) in confirming and upholding the action of the Learned Assessing Officer in verbatim in the impugned order passed exparte qua the assesse is equally unlawful and unjustified. He contended that the Trading Results disclosed are in consonance with the history of the case as under:
Asst. Year Gross receipts Net Profit NP rate 2016-17 2 31 37 198 1 52 210 0.65% 2017-18 4 08 48 269 4 25 160 1.04% 2018-19 3 14 53 507 4 56,915 1.45%
Per Contra, the learned additional CIT (DR) supported the impugned order and submitted that the matter may be remanded to the AO for de novo assessment.
5. We have heard both the sides, perusal of record and impugned orders. It is admitted fact on record that the assessment order and the impugned appellate order confirming the addition of Rs. 80,84,622/- on account of disallowance of expenses @ 20% were passed exparte qua the Mritunjay Knowledge Consultancy S. P. Ltd. v. ITO assesse in arbitrary manner without appreciating the merits of the case and in violation of principles of natural justice.
It is evident from the record that addition of expenditure at a flat rate of 20% are made without pointing out any deficiency or reference to a comparable case and further brushing aside the past trading history of the appellant is arbitrary is certainly unlawful, unjustified and against the settled principle of applying NP rate for disallowance of expenditure in case of a civil contractor. It can be seen from the trading result as above that net profit rate disclosed by the assessee at 1.04% is better even on double the receipts in comparison to the preceding assessment year and at par to the succeeding assessment.
In the case of CIT vs. Inanai Marbles P. Ltd, the Hon'ble Rajasthan High Court (2009) 316 ITR 125(Raj) has observed that assessee's own result of immediately preceding assessment year at 2.51 per cent having been accepted upto the level of Tribunal, Tribunal was justified in applying the same GP rate for the assessment year in question as against 15 per cent applied by the AO as against 2.30 per cent declared by the assessee.
In the present case, the AO has applied NP rate at 20 % as against NP rate at 1.04% declared by the appellant assesse ignoring the history of Mritunjay Knowledge Consultancy S. P. Ltd. v. ITO Trading result and reference to comparable case. In view of the factual matrix and nature of civil contract work, it would be appropriate to apply NP @ 2.5% of the total receipts to meet the end of justice. Accordingly, we apply NP@ 2.5% of the total receipts for the year under consideration.
Thus, the ground of appeal is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in open court as on 10 .04.2024 Sd/- Sd/- (Sandeep Gosain) (Dr. M. L. Meena) Judicial Member Accountant Member *DOC* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The ld. CIT (4) The ld. CIT(A) (5) The DR, I.T.A.T., Jaipur (6) Guard File By Order, Asstt. Registrar
Mritunjay Knowledge Consultancy S. P. Ltd. v. ITO
Date Initial 1. Draft dictated on 15.02.24 Sr.PS/PS 2. Draft placed before author Sr.PS/PS 3. Draft proposed & placed before the 08.04.24 JM/AM Second Member 4. Draft discussed/approved by JM/AM Second Member 5. Approved Draft comes to the Sr. Sr.PS/PS P.S./P.S. 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8. Date on which file goes to the Head Clerk 9. Date on which file goes to the AR 10. Date of dispatch of Order