ITO 9(2)(3), MUMBAI vs. MAHALAXMI TOURISM DEVELOPMENT CO. P. LTD, MUMBAI

None appeared for and on behalf of the assessee-respondent when the Revenue’s appeal was called out for hearing, nor any adjournment application stands received. The Bench observed complete non-representation by the assessee during the (A.Y. 2008-09) ITO vs. Mahalaxmi Tourism Development Co. Pvt. Ltd. course of hearing of the instant appeal, i.e., on each occasion to which the hearing of the appeal was adjourned. There is also no power of attorney/letter of authority favoring any Counsel on record. Rather, the communication of the memo of appeal, dispatched by the Registry on 24.3.2014 (vide registration no. 2885 dated 25.3.2014), came back un-served, with the postal remark ‘Left’. The ld. Departmental Representative (DR) would submit that the address of communication, which is the same as that appearing in Forms 35 and 36, is also that available on the Revenue’s records. Under the circumstances, it was considered proper to proceed to hear the appeal ex parte qua the assessee-respondent.

The only issue in appeal is the confining of the estimate of the net profit of the assessee’s transport business from 20% of the turnover, as estimated by the Assessing Officer (A.O.), to 6% by the ld. CIT(A) (i.e., as against the returned profit of 1.18% by the assessee, who though is not in appeal). The said estimation was undertaken by the A.O. as the assessee had failed to substantiate its’ claims per its return in any manner. The ld. DR would before us rely on the assessment order, and who was required by the Bench to read out the relevant part of the impugned order.

We have heard the party before us, and perused the material on record. The assessee has during the year, as stated by the Revenue authorities, undertaken only transport business – the hotel business being under litigation, with its buses being hired by Pune Municipal Corporation (PMC) (Transport Division – TD) at a fixed rate of Rs. 17.99 per km (to the extent of 17000 km per month per bus). The assessee failed to produce the books of account, vouchers, etc. before the assessing authority, so that the correctness and completeness thereof could not be verified. Rejecting the assessee’s book results, he estimated the assessee’s net profit at 20% of the turnover of Rs.281.19 lacs, i.e., at Rs.56,23,797/-, invoking section 145(3) of the Act. Toward this, he compared the expenditure incurred and claimed with that for the immediately preceding year (AY 2007-08), viz. repair and maintenance (Rs.50,374/-)

(A.Y. 2008-09) ITO vs. Mahalaxmi Tourism Development Co. Pvt. Ltd. and power & fuel (Rs.1.17 lacs), and nil for the other head of expenses, viz. purchase, salaries, interest and other expenses, the aggregate of which for the current year worked to Rs.229.22 lacs). Without doubt, the assessee completely failing to discharge the onus that lies on it in substantiating its’ return, the A.O. rejected the books of account, being not produced before him (so that their correctness or completeness could not be verified), and estimated the assessee’s income for the year, which aspect is not in dispute in-as-much as the ld. CIT(A) has confirmed the A.O.’s action in this regard, with the assessee being not in appeal. As regards the assessment, we observe that the ld. CIT(A) had rightly noted that regard for the purpose is to be made to all the relevant facts and circumstances as gathered or borne out by the record and, further, that some guess work is inherent to the exercise of estimation. He, accordingly, modifying the A.O’s estimate of 20%, finding it to be without basis, applied the rate of 6% in-as-much as the average for the preceding four year, i.e., A.Ys. 2004-05 to 2007-08, is at 6.10%. In our view, the A.O.’s estimation cannot be given credence to, being ad hoc, with no stated basis. The very fact that expenditure stood claimed at a total of Rs.1.68 lacs under the six principal heads of account (listed at para 6 of the assessment order), as against Rs.229.22 lacs for the current year, only signifies the two years as not comparable. The assessee, despite such a low claim for expenditure, has yet disclosed a net profit of only 1.24% for A.Y. 2007-08. As a concomitant of the result for that year being not comparable, how could the net profit for that year be taken into account in arriving at the estimate for the current year? On the other hand, if A.Ys. 2006-07 and 2007-08 are comparable, the question of a drastic decline in the net profit rate for these years would need to be ascertained, as also if the said conditions – and to the extent they do, obtain for the current year as well. This fallacy attends the impugned order as well. Further, the assessee has disclosed a net profit of 14.09% and 18.66% for A.Ys. 2004-05 and 2005-06 respectively, i.e., the first two of the four years for which the average has been worked out and applied for the current year. Then, again,

In the result, the Revenue’s appeal is allowed for statistical purposes. प�रणामतः राज�व क� अपील सां�यक�य उ�दे�य के �लए �वीकृत क� जाती है। Order pronounced in the open court on February 29, 2016