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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ORDER Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)-7, Kolkata vide Appeal No. 567/CIT(A)-7/Wd-26(4)/15-16 dated 19.05.2016. Assessment was framed by ITO, Wd- 53(4), Kolkata u/s. 144 of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2011-12 vide his order dated 27.03.2014.
The ground no.1 raised by the assessee was stated to be not pressed by the Ld. AR during the course of hearing. Accordingly, the same is dismissed being not pressed.
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) is justified in upholding the adoption of net profit @ 8% on turnover as profit of the assessee and also confirming the addition u/s. 68 of the Act in the sum of Rs.3,21,966/- in the facts and circumstances of the case.
Brief facts of this issue are that the assessee is a civil contractor and carrying on a proprietary concern under the name and style of M/s. Constructive Construction following mercantile system of accounting. The assessee stated before the Ld. AO that the books of account, bills and vouchers which were kept in green poly bag were lost by him while
Shri Badal Krishna Saha, AY 2011-12 travelling in Auto Rickshaw on 15.12.2013 at 10.30AM from his residence at 222, Shree Colony, Kolkata-92 to Baghajatin crossing. It was stated that while getting down from Auto Rickshaw the assessee forgot to take the bag containing books of account, bills and vouchers and by that time the assessee realized the same the concerned Auto Rickshaw had already left the venue. Accordingly, the assessee also lodged a complaint before Patuli Police Station on the same day by filing a “General Diary”. Under these circumstances, the assessee prayed that the books of account were duly audited by a Chartered Accountant u/s. 44AB of the Act and the returns filed accordingly. Hence, he prayed for acceptance of books results thereof by placing reliance on the Chartered Accountant who had conducted the tax audit. The AO sought directions from Joint Commissioner of Income-tax being the Range Head who vide his direction dated 25.03.2014 directed the AO to make an estimated net profit at 8% of turnover and also directed the AO to make an addition of Rs.20,71,966/- towards unsecured loans outstanding in the Balance Sheet of the assessee as the assessee has failed to prove the identity, genuineness of transaction and creditworthiness of loan creditors thereon. The AO followed the directions of Ld. Jt. CIT u/s. 144A of the Act and completed the assessment by making the addition contemplated thereon. Before the Ld. CIT(A) the assessee reiterated the same submissions that were made before the AO. The Ld. CIT(A) relied on the decision of Indore Special Bench of ITAT in the case of Arihant Builders, Developers & Investors (P) Ltd. Vs. ACIT reported in (2007) 106 ITD 10 wherein the Hon’ble Special Bench upheld the rejection of books of account in absence of non- maintenance of labour registers and not satisfied the AO with regard to correctness of vouchers and also held that estimation of income at 8% on the basis of section 44AD of the Act is a good indicator which could be a guideline for the purpose of applying a particular net profit rate. Accordingly, the Ld. CIT(A) confirmed the addition made on account of net profit at 8% of turnover.
With regard to the addition made u/s. 68 of the Act towards unsecured loan creditors in the sum of Rs.20,71,966/-, the Ld. CIT(A) was satisfied that a sum of Rs.17,50,000/- represents genuine loan creditors and sustained the remaining addition of Rs.3,21,966/-. The assessee before the Ld. CIT(A) initially sought for telescoping all these cash credit
Shri Badal Krishna Saha, AY 2011-12 additions with the addition made on account of net profit on estimate basis, but thereafter withdrew the said claim vide letter dated 09.02.2016. Accordingly, the Ld. CIT(A) held the addition u/s. 68 of the Act to the tune of Rs.3,21,966/-. Aggrieved, assessee is in appeal before us on the following grounds: “
2. That the application of 8% rate of profit as per the direction u/s. 144A of the Income Tax Act, 1961 is an error in facts and law and the judgment of the CIT(A)-7 that the Assessee is a main contractor is wrong.
3. That the addition of accrued interest of Rs.2,71,966/- is erroneous since Profit has been estimated.
4. The appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of this appeal petition.
5. That the addition of Rs.50,000/- towards loan is unwarranted and needs to be telescoped against estimated increase in profit.”
The Ld. AR argued that it is a fact that assessee had duly got its accounts audited through the independent Chartered Accountant u/s. 44AB of the Act. He argued that books of account could not be produced before the AO due to reasons beyond control of the assessee as the same were lost as enumerated above. The assessee had also duly lodged a General Diary in this regard and the police authorities tried to search the books of account but the efforts were in vain. He prayed for estimation of net profit on a reasonable basis based on the past history of net profits of the assessee. Without prejudice to this argument he also placed on record a copy of the Coordinate Bench of this Tribunal in assessee’s own case for AY 2008-09 in dated 08.10.2015 wherein this Tribunal had held that the books of account having been rejected by the AO, the Ld. CIT(A) was justified in estimating the net profit at 4% of the turnover of the assessee to be the taxable income from business. He prayed that similar direction may kindly be given in this year also. With regard to reliance placed by the Ld. CIT(A) on the Special Bench decision in the case of Arihant Builders, Developers & Investors (P) Ltd., supra, he argued that in the facts before the Special Bench, turnover was less than Rs. 40 lacs , hence the Special Bench concluded that in such circumstances, resorting to 8% of turnover as net profit of the assessee as contemplated in section 44AD of the Act would be a good indicator and be a guideline for determination of net profit on estimate basis. Whereas in the instant case, the turnover of the assessee is admittedly more than Rs. 40 lacs and hence, the provisions of section 44AD
Shri Badal Krishna Saha, AY 2011-12 of the Act per se cannot be made applicable as per the mandate provided in such section itself. With regard to the addition made towards unsecured loan u/s. 68 of the Act, the Ld. AR argued that the assessee be given benefit of telescoping of this addition with the addition made on account of net profit.
In response to this, the Ld. DR argued that the profit of the assessee had dropped from 2.16% to .79% as per his return and assessee seems to be a habitual offender in not producing proper books of account and there seems to be a mala fide intention on the part of the assessee in this regard. He argued that the decision relied on by the Ld. CIT(A) on the Special Bench of Indore tribunal is squarely applicable to the facts of this case and called for non-interference. With regard to ground nos. 3 and 5 raised by the assessee, Ld. DR argued that these two grounds are to be dismissed in limine as assessee had withdrawn this claim before the Ld. CIT(A) vide his letter dated 09.02.2016 which is also clearly reflected in the order of the Ld. CIT(A) itself.
We have heard the rival submissions and perused the materials available on record. We find that the short question that arises for our consideration is only resorting to estimation of net profit in the facts and circumstances of the case. We find that the Coordinate bench of this Tribunal had already considered the adoption of 4% turnover as net profit from business for AY 2008-09 in dated 08.10.2015. In that year the books of account were rejected by the AO and ultimately the matter got settled at 4% of turnover. In the year under appeal, the books could not be produced by the assessee due to reasons stated supra and hence, the decision rendered in AY 2008-09 could be followed in this year also and accordingly, we direct the AO to determine the net profit as income from business at 4% of turnover. With regard to the addition made in the sum of Rs.3,21,966/- towards unsecured loan u/s. 68 of the Act, we find lot of force in the argument of the Ld. DR that this issue has been withdrawn by the assessee before the Ld. CIT(A) vide his letter dated 09.02.2016 and hence, we are not inclined to entertain the grounds raised by the assessee in this regard. Hence, these grounds i.e. ground nos. 3 and 5 raised by the Shri Badal Krishna Saha, AY 2011-12 assessee deserve to be dismissed in limine. Accordingly, the grounds raised by the assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed as indicated above.