SHIVAM BUILDERS PRIVATE LIMITED,AHMEDABAD vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), AHMEDABAD
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: & SHRI NARENDRA PRASAD SINHA
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA RAGHUNATH KAMBLE, JUDICAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 317/Ahd/2022 (िनधा�रण वष� िनधा�रण वष� िनधा�रण वष� / Assessment Years : 2015-16) िनधा�रण वष� Shivam Builders Private Deputy Commissioner of बनाम/ बनाम बनाम बनाम Limited Income Tax Vs. 802, 8th Floor, Rajvi Circle 4(1)(1), Ahmedabad Arcade, Nr. Gurukul Drive in Road, Memnagar, Ahmedabad, Gujarat 380052 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AACCS0296D (Appellant) .. (Respondent) Shri Hem Chhajed, A.R. अपीलाथ� ओर से /Appellant by : ��यथ� क� ओर से/Respondent by : Shri J L Bhatia, Sr. DR Date of Hearing 18/04/2024 09/05/2024 Date of Pronouncement O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, (in short ‘the CIT(A)’) dated 27.07.2022 for the Assessment Year 2015-16.
The assessee has raised the following grounds in this appeal:
“1. The order passed by the Ld. CIT(A) is against law, equity & justice.
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 2 – 2.) The Ld. CIT(A) has erred in law and/or facts in upholding the rejection of books of accounts made by the Ld. AO. 3. The Ld. CIT(A) has erred in law and/or facts in upholding that notices issued by Ld. AO is valid and is not in contravention to the instruction No. 01/2011 of CBDT. 4. The Ld. CIT(A) has erred in law and/or facts in upholding the addition of Rs.54,02,545/- made by the Ld. A.O. being estimated net profit @ 10% of total receipts. 5. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.”
Brief facts of the case 3. The brief facts of the case are that the assessee had e-filed its return of income for A.Y. 2015-16 on 26.09.2015 declaring loss of Rs.3,29,55,888/-. The case was selected for complete scrutiny under CASS and accordingly notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) was issued by the DCIT. The AO noticed that in the current year the assessee had shown loss of Rs.3,29,55,888/- on total turnover of Rs.5,40,25,457/- whereas in the preceding year the assessee had declared net profit of Rs.26,21,429/- on total turnover of Rs.1,47,09,632/-. Thus, the assessee had shown negative NP of minus 61% during the year as compared to positive NP of 17.82% in the preceding year. The assessee is a builder involved in development of various projects. In the course of assessment, the AO had called for various details from the assessee which was only partly complied. As the assessee did not furnish the complete details as required by the AO, he rejected the books of accounts u/s.145(3) of the Act and estimated income of the assessee @ 10% at Rs.54,02,545/-, which was upheld by the ld. CIT(A).
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 3 – Submission of the assessee 4. Shri Hem Chhajed, ld. AR appearing for the assessee submitted at the outset that the notice issued by the AO was in contravention to the Instruction No. 01/2011 of CBDT and was, therefore, not valid. He explained that as per the said Instruction, the jurisdiction over corporate returns with income of above Rs.30 Lakhs in the Metro Cities was with the DCIT/ACIT and the jurisdiction of the case with income upto Rs.30 Lakhs was with ITOs. As the assessee had not disclosed income above Rs.30 Lakhs in the current year, the jurisdiction was not with the DCIT and, therefore, the issue of notice u/s.143(2) of the Act by the DCIT was incorrect. In this regard, he has relied upon following decisions: i. UCO Bank vs. CIT, [1999] 104 Taxman 547 (SC) ii. Keshavji Ravji & Co. vs. CIT, 183 ITR 1 (SC) iii. DCIT & Anr. vs. Proficient Commodities Pvt. Ltd. & Anr., [2020] 58 CCH 0291 (Kol. Trib.) iv. Royal Western India Turf Club Ltd. vs. ACIT, [2019] 73 ITR 0670 (Mum. Trib.)
On merits, the ld. AR submitted that the documents as required by the AO were submitted by the assessee but the evidences brought on record were brushed aside by the AO. He contended that the AO had passed the order on surmises and conjunctures with a pre-determined mind and without pointing out any defect in the books of accounts and the method of accounting adopted by the assessee. He further submitted that
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 4 – the AO had not given any basis for estimating the net profit @ 10% of total receipts. He further submitted that if the addition as made by the AO is accepted then the gross profit would be 78.6%, which was absurd and not possible in the construction industry. It was pointed out by the ld. AR that as a result of addition as made by the AO, the closing stock of current year will increase and accordingly, the opening stock of next year will also increase by the equivalent amount and, therefore, this addition will have no tax impact in the long run. He further submitted that the CIT(A) had mechanically confirmed the addition made by the AO without applying his mind to the facts of the case. The ld. AR has relied upon the following decision in respect of wrong rejection of books of accounts:
Gujarat High court in the case of CIT vs Vikram Plastics [1999] 239 ITR 161 (GUJ.) 2. ITAT Ahmedabad in the case of Pankaj Diamond vs. Assistant Commissioner of Income-tax [2010] 5 ITRCTRIB.) 469 (Ahmedabad) 3. ITAT Ahmedabad in the case of Nice Industries vs ITO,Wd- 5(3),Surat,[2010] 7 taxmann.com 89 (Ahmedabad) 4. ITAT Ahmedabad in the case of Deputy Commissioner of Income-tax, Ahmedabad vs. Asian Grantio India Ltd [2020] 113 taxmann.com 445 (Ahmedabad - Trib.) 5. Ahmedabad ITAT in the case of Inspecting Assistant Commissioner Vs. Dinesh Tiles Factory [1988] 37 TAXMAN 357 (AMD.) (MAG.) 6. ITAT Mumbai in the case of Kamani Oil Industries Pvt. Ltd. Vs DCIT I.T.A. No. 5465/Mum/2017 7. ITAT Rajkot in the case of Panchshil Exim Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2020) 58 CCH 0326 Rajkot Trib”
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 5 – 6. Further, the Ld. AR has relied upon the following decisions in respect of wrong estimation of income:
“1. Hon'ble Supreme court in the case of Brij Bhushan Lal Parduman Kumar vs. Commissioner of Income-tax [1978] 115 ITR 524 (SC) 2. Hon'ble Supreme court in the case of Dhakeswari Cotton Mills Ltd. vs. Commissioner of Income Tax (1955) 27 ITR 0126 3. Hon'ble Gujarat High Court Principal Commissioner of Income Tax vs. Swastik Construction [2018] 91 taxmann.com 10 (Gujarat)” Submission of the Revenue 7. Shri J. L. Bhatia, the ld. Sr. DR, on the other hand, strongly supported the order of the AO as well as the CIT(A). On the issue of jurisdiction, ld. Sr. DR submitted that it is a settled principle that ‘income’ includes ‘loss’ and this concept has been approved by the Hon’ble Supreme Court in a number of cases. As the ‘loss’ disclosed by the assessee during the year was in excess of Rs.30 Lakh the notice was rightly issued by the DCIT as the ITO had jurisdiction only over the case with income, which includes loss, upto the amount of Rs.30 Lakh only. He submitted that the notice issued by the DCIT was correct and was in accordance with the Board’s Instructions.
On merits, ld. Sr. DR explained that the assessee had not explained the reason for huge loss in the current year when it was consistently showing profit in the earlier years. Further, the details as required by the AO were not furnished and the genuineness of the loss as claimed was not established. The assessee had not furnished all the details as called for by the AO
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 6 – in the course of assessment proceeding. The non-furnishing of the vital details had a direct bearing on the correctness of accounts of the assesse and the AO had rightly rejected the books of accounts after giving a cogent reason. The details as not produced before the AO were also not produced before the CIT(A) in the course of appeal proceeding. Therefore, the rejections of books of accounts as made by the AO was correct which was rightly confirmed by the CIT(A). He further submitted that the estimation of income as made by the AO was made after considering the profit as disclosed by the assessee itself in the past years. The ld. Sr. DR also relied upon the decision of ITAT Cochin Bench in the case of ACIT vs. Skyline Builders [2010] 194 Taxman 61 (Cochin) (MAG).
Findings and Order 9. We have given a thoughtful consideration to the rival submissions and have perused the materials brought on record. We do not find any merit in the objection of the assessee to the jurisdiction issue. The assesse has relied upon certain judicial pronouncements in this regard. The issue involved in the case of UCO Bank vs. CIT (supra) was whether CBDT Circular dated 9-10- 1984 was in conflict with provisions of section 145 of the Act and the decision of the Supreme Court in the case of Keshavji Ravji & Co. (supra) was on the binding nature of CBDT Circular & Instructions. The other decisions are also not found on the exact issue as involved in this case. As per Instruction No. 01/2011 of CBDT, the jurisdiction over corporate assessee with income of Rs.30 Lakhs and above in
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 7 – metro cities was with the DCIT/ACIT. In the current year, the assessee had disclosed loss of Rs.3,29,55,888/-. The definition of income in Section 2(24) of the Act is an inclusive definition and it is a settled principle that under the provision of Income Tax Act, income includes loss. The Hon’ble Supreme Court had held in the case of CIT v. Harprasad & Co. P. Ltd. (1975) 99 ITR 118 (SC) that the words ‘income’ or ‘profits and gains’, should be understood as including losses also. To reproduce from the order:
From the charging provisions of the Act, it is discernible that the words "income" or "profits and gains" should be understood as including losses also, so that, in one sense "profits and gains" represent "plus income" whereas losses represent "minus income" CIT v. Karamchand Prem Chand Ltd. [1960] 40 ITR 106 ; [1960] 3 SCR 72. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee.
In the subsequent decision of CIT vs. Gold Coin Health Food Pvt. Ltd. (2008) 304 ITR 308 (SC), it was reiterated by the Apex Court that in view of the decision of CIT v. Harprasad & Co. P. Ltd. (supra), there was irresistible conclusion that income also includes losses. As the income as defined under the Income Tax Act includes losses, the CBDT Instruction regarding jurisdiction of corporate assessee in metro cities being with ACIT/DCIT was in respect of both the cases of income as well as losses over Rs.30 Lakhs. Therefore, the notice u/s. 143(2) of the Act was correctly issued by the DCIT in this case. As the objection of the assessee on the issue of jurisdiction is devoid of merit, the ground No.3 as taken by the assessee is dismissed.
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 8 – 11. Ground Nos. 2 & 4 pertain to rejection of books of account and estimation of profit @10% of total receipts. The assessee is engaged in the business of construction and development projects. It is found that the case was selected for scrutiny for the reason that the assesse has disclosed huge loss with negative NP of 61% as against income and NP of 17.82% in the preceding year. In the course of assessment, the AO had called for various details in respect of WIP/closing stock, purchase with supporting bills, transportation bills with delivery challans, party-wise ledge account etc. and the copy of the notice u/s. 142(1) of the Act along with the questionnaire is reproduced in the assessment order. The assessee had complied with the said notice and furnished only part of the details. As per the finding given by the AO, the following details were not provided in the course of assessment:
“(i) The assessee failed to furnish the project-wise details including the copy of brochure, lay out/plan, permission from local authority till BU, G-map location and names of such project by which they are marketed. (ii) The assessee had not furnished the copy of loan application and copy of project report and sanction letter for secured loan from bank and other parties. (iii) The details of usage motors in specified format is not submitted. (iv) No confirmation in respect of advance received from the buyers were submitted. (v) No details regarding reasons of advance given to related parties is furnished. (vi) No details of project wise WIP called in specified format was submitted. Further, no details regarding cost of land or JV agreement was submitted. (vii) No documentary evidence for purchases made as called for was provided. No proof like copy of bills / transportation bill and delivery challan of purchases and services has been submitted by the assesse.”
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 9 – 12. The assessee has contended that all the details that were not furnished had no impact on the profitability of the assessee and that it had furnished the trial balance which was examined and analysed in the assessment order. It is true that all the details and documents as not produced by the AO may not have impact on the profit but nevertheless they have a bearing on the correctness of the accounts. The assessee had not explained as to why these documents were not produced before the AO or even before the CIT(A). The assessee has not come forward and produced these evidences before us in the course of present appeal as well and neither the reason for non-production of these details of the accounts has been explained.
In the assessment order, the AO had analysed the trial balance furnished by the assessee and found that accounts pertained to three different projects undertaken by the assessee. The analysis chart of the AO appearing in the assessment order is found to be as under:
Rajvi Garnet Rajvi Pearl Rajvi Oasis Sale 45710000/- 5262000 0 Closing WIP 9,60,87,5007- 17533057 16,98,3387- Total 141808317 22795057 16,98,3387- Direct expense 153101870 22795057 0
Indirect 20188467 0 16,98,338 expenses Total 173290337 22795057 16,98,338
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 10 – N.P. - 31482020/- 0 0
It is apparent from the above table that the entire loss was in respect of the project Rajvi Garnet and the net profit of the other two project was Nil. On the basis of above analysis and for the failure to produce the details as called for, the AO had rejected the books of accounts and the reason for rejection as appearing in the assessment order is found to be as under:
“Analysis: It is clear from the above table that assessee has either booked sales at value lower than in cost price or has shown WIP at much lower amount than what it should have been. Further, direct and indirect expenses are much higher than sales and closing WIP for entire project which also indicate over invoicing of expenses. In the above back ground and assessee’s intentional avoidance to provide any data to verify genuineness, reasonableness and business nexus for such huge expenses compels the undersigned to question reliability of his/her books of accounts.
3.1.6 In view of the above irregularities found in the books of the assessee and since, the assessee failed to furnish the requisite details of WIP and supporting evidences like bills and vouchers of expenditure as stated above and also failed to furnish complete details of projects alongwith proof of necessary approvals from Local Authority as mentioned in above notice, vide e-mail notice dated 21.12.2017, the assessee was requested to show cause as to why Net Profit @ 10% should not be estimated on its turn over by rejecting the books of the assessee u/s 145(3) of the Act. (ie. why disallowance of unreasonable and excessive expenditure should not be made and consequently GP should not be estimated at 10%) However, in reply, instead of submitting required details, assessee asked for adjournment in reply dated 22/12/2017 (4 working days left before time barring date) which clearly shows delaying attitude of assessee rather than submitting details to facilitate assessing officer understand the reasonableness and expediency of the transactions. 3.1.7 As stated above, the assessee failed to produce/furnished justification as well as supporting evidences like basis of WIP, copy of bills and transportation details of expenditure claimed in its books, party-wise ledger account of purchases and services and also failed to furnish project-wise details with copy necessary approval
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 11 – proof. Therefore assessee definitely defaulted in this respect. Further, discrepancies as discussed in above paras have also been found in the net profit result shown by the assessee during the year under consideration. In absence of details of closing stock and expenditure claimed by the assessee, it is not possible to verify the genuineness of claim and closing stock shown by the assessee in its books. Further it cannot be proved that all the purchases made by the assessee are genuine. Thus there is no evidence to verify the closing stock as well as expenditure claimed on account of purchases and services. Accordingly it is not possible to fairly deduce the income of the assessee in absence of quantitative stock register and verification of closing stock as well as in absence of details and supporting documentary evidences of various expenditure claimed by the assessee. Further, it is pertinent to mention here that during the relevant year, there was huge decline in the net profit 78.82% from the last assessment year 2014-15 despite of increase in sales/turn over by almost 4 times. 3.1.8 The above narrated facts demonstrate unreliability of books and consequently, the profit margin shown by the assessee. The books maintained by the assessee are defective and under the circumstances the book result cannot be accepted. Therefore, books of account of the assessee is rejected u/s 145(3) of the Act. Looking into entirety of the facts and circumstances of the case, since, the appellant has itself shown net profit of 17.82% in the previous Assessment Year 2014-15. However, looking to the fact that the turnover of the assessee is increased from the previous year, the net profit rate of 10% is taken for this year, compared to (-)61% shown. Accordingly, Net Profit is estimated @ 10% which comes to Rs.54,02,545/- and accordingly the income of assessee is determined at Rs.54,02,545/- Penalty proceedings u/s 271(1)(c) of the Act are separately initiated on this issue for furnishing inaccurate particulars of income.”
It is found from the above reasons as recorded by the AO that books of accounts were not rejected on flimsy ground. It is a settled principle that books of accounts maintained by the assessee must be supported by evidences in the form of vouchers, bills etc. and all receipts and payments must be properly vouched and supported. These are primary evidences towards various expenditures claimed as deduction by the assessee for purchase of material and for other expenses as well. The AO had
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 12 – specifically pointed out that the copy of bills and the delivery challan for purchases were not produced, neither any supporting evidence for expenditure as claimed in the books of accounts were brought on record. Further, the party-wise ledger account of purchases and expenses were not provided, which prevented the AO from making any enquiry in this respect. The assesse was duty-bound to support the accounts maintained by it with the basic details and in the absence of primary evidences of bills, vouchers, challans, party-wise accounts etc., it was not possible to rely on the veracity of the accounts maintained by the assesse. The quantitative details and workings of WIP were also not produced. As mentioned earlier, the sales had increased almost four-times during the year and the purchases during the year had declined to Rs.59.32 Lakhs only as against purchase of Rs.1.25 crores in the preceding year and in spite of these events there was a huge loss during the year, which had raised the eyebrow of the Department. The assesse was duty-bound to produce the details and information as called for by the AO and explain the reason for the abnormal loss incurred during the year. The non- production of the details as mentioned earlier and the analysis of the accounts and information as available led the AO to conclude that either the sales were booked at lower than its cost price or the WIP was shown at a much lower amount than what it should actually happen. The assesse has not explained as to why the details and the information as required by the AO were not produced either before the AO or in the course of the appeal proceedings. In view of the defects as pointed out by the AO and for the failure on the part of the assessee to produce the relevant
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 13 – details as required by the AO we find that the AO was justified in rejecting the accounts of the assessee and estimating the income on a reasonable basis.
The assessee has relied upon the various judicial pronouncements. It is found that the facts involved in all those cases were different. In the case of Vikram Plastics (supra) the Assessing Officer had rejected the books of account maintained by assessee and made disallowance under section 40A(2)(a) in respect of lease rent and also on account of excess raw materials consumed. The Tribunal found on facts that there was no discrepancy or defects in books of account maintained by assessee on mercantile system of accounting and that the books of account maintained by assessee were not found to be incorrect or incomplete and no material was brought on record to prove that purchases and expenses had been inflated or sales had been suppressed. The Hon’ble Gujrat High Court held that the findings recorded by Tribunal were findings of facts and no referable question of law arose therefrom. The facts of that case were thus different from the present case. Here, the assesse itself has not produced the required details which raises a question mark on the correctness and completeness of the accounts. In the absence of details of purchases, sales and expenses the AO could not have made any enquiry to verify their correctness.
the book result of the In Pankaj Diamond (supra) diamond trader was rejected only on the ground that quality-wise details of diamonds were not kept by the assesse and addition was
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 14 – made on estimate basis without bringing on record any material to show that the assessee had earned any income in excess of the amount disclosed in the return. The coordinate Bench of this tribunal had held as under:
“The book result of the assessee diamond trader were rejected by the lower authorities only on the ground that quality-wise details of diamonds were not kept by the assessee. The addition was made merely on estimate basis without bringing on record any material to show that the assessee had earned any income in excess of the amount disclosed in the return. It is an established position of law that even after rejecting the book result if the assessing authority adds any income to the income declared by the assessee, then, the said addition has to be based on some material and the same cannot be added on the whims or caprice of the assessing authority. In the instant case, it was observed that the trading result shown by the assessee compared favourably with the past accepted position in the case of the assessee itself. Therefore, merely rejecting the book result on the ground that quality-wise details of diamonds had not been maintained would not empower the Assessing Officer to add any income to the income shown by the assessee.” The assesse in that case was not only in a different trade but the books were rejected due to absence of quality-wise details of diamonds. Further, the book results in that case were comparable with past results. Thus the facts are found to be totally different.
In the case of Nice Industries (supra), the assessee was engaged in the process of yarn and had maintained records of quantity of yarn including opening stock, closing stock, purchases, sales oil gain etc. The AO had noted that gross profit ratio of the assesse had fallen steeply as compared to two preceding years which was explained due to shift in office and due to the partners not paying attention to manufacturing/business. It was stated that the sale of texturised yarn/twisted yarn/dyed yarn/grey clothes in Surat Textile Market depended upon commission agents. The AO did not accept the explanation of the assessee and rejected the book results and estimated the gross profit @ 11.15 per cent i.e., average of preceding two years. It was
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 15 – on consideration of these facts that the Coordinate Bench of this Tribunal had held that the AO had rejected the book results of the assessee without pointing out any defect in the books and consequential estimation of profit by the Assessing Officer was without any basis. The assessee had produced records before the AO and no defect in the books was pointed out and there was no unaccounted production and sales as well and the AO had rejected the book results but found no defects in the books of account of the assesse.
In the case of Asian Grantio India Ltd. (supra), the Assessing Officer had rejected the book results of the assessee based on the finding that there was less production of tiles in comparison to the companies available in the public domain and non-maintenance of production registers properly. In the light of these facts, the Assessing Officer invoked the provisions of section 145(3) of the Act and made certain upward additions on account of suppressed production which was sold outside the books. It was on these facts that the Coordinate Bench of this Tribunal had held that the AO did not point out any defect in the details of the consumption of raw materials furnished by the assesse and that the books of account cannot be rejected until and unless the AO pointed out any specific mistake.
In the case of Dinesh Tiles Factory (supra), the assesse was doing business of manufacturing of cement tiles of three qualities, i.e., plain tiles, gray mosaic tiles and colour tiles and also dealt in purchase and sale of marble and various types of stones. The AO had rejected the books of accounts on finding the following defects: (i) no stock register of raw material or semi-finished goods or finished goods was maintained nor any daily manufacturing account was prepared,
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 16 – (ii) the production of various types of tiles was not verifiable with reference to specific quantity of raw materials consumed during the production process and wastage/breakage and scrap was also not verifiable as neither such record was maintained nor made available, and (iii) claim of maintenance of quantity was not substantiated and the only quantity maintained and made available was on the basis of purchase and sales accounts. The Coordinate Bench of this Tribunal held that the type of business carried on by the assessee reflected special features attached to the nature of the business which made it rather impossible to maintain day-to-day quantitative tally in respect of the consumption, production and disposal of the stocks at various levels. Further, the assessee had produced before the Tribunal, the relevant sales registers wherein various details were given in respect of the sales bills prepared against which the goods were delivered together with the challan number, etc. On consideration of these facts it was held by the Ld. Tribunal that there was no reason to reject either the books of account or to make any addition.
In the case of Panchshil Exim Pvt. Ltd (supra) the AO had found that the assessee had sold certain products at a price less than the cost of acquisition which resulted in gross loss to the assessee. The AO doubted that the assessee had suppressed sale price by showing sale of the goods at loss and accordingly rejected the books of accounts under section 145(3) of the Act. The Ld. ITAT held that before rejecting the books of accounts, the AO must record the specific reason for rejecting the books of accounts and that such satisfaction has to be established and substantiated based on facts and figures, which depended
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 17 – on the circumstances of each case. It was held that mere minor mistakes/typological errors/absence of stock registers/lower GP may not ipso facto amount to incorrectness/incompleteness of accounts in terms of section 145(3) of the Act. But the case would be different where the above-mentioned mistakes are coupled with other findings.
In the case of Brij Bhushan Lal Parduman Kumar (supra), the assessee was a Military Engineering Service’s contractor and for execution of Engineering services works and certain materials were supplied at fixed rate by the Government. Though, such materials were in the custody of the contractors, they always remained the property of the Government. The AO had rejected the books results for the reason that the details of materials supplied from Government was not furnished. The matter travelled up to the Hon’ble Supreme Court and the Apex Court held that no element of profit was involved in the turnover represented by the materials supplied by the MES to the assessee.
It is thus found that the above discussed as well as other case laws relied upon by the assessee have all been rendered in different set of facts. In the present case the Assessing Officer has given specific reason for rejecting the books of account. He has recorded his satisfaction in this respect and has established and substantiated his reason based on facts and figures. It is an undisputed fact in this case that during the course of assessment proceedings the assessee did not produce the books of account and other documents as sought by the Assessing Officer. Therefore, the Assessing Officer has rejected the books of account of the assessee under section 145(3) of the Act and estimated the income. In the case of Skyline Builders (supra) relied upon by the Revenue the
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 18 – rejection of books of accounts for non-production of evidences in support of expenses was upheld.
It is thus found that the facts involved in all the cases relied upon by the assesse were different and the ratio of those decisions can’t be imported to the facts of the present case. It is found that the AO has rejected the books of accounts in this case for valid reasons. The assesse didn’t respond to the opportunity provided by the AO for rejection of accounts and estimation of income. It was the assesse itself who was to be blamed for rejection of accounts as it didn’t submit proper accounts as called for by the AO. Having failed to provide the primary evidences and to provide the other details as required by the AO, the assesse can’t blame the AO for rejection of accounts. The assesse can’t be absolved from its responsibility of supporting the accounts with proper evidences and explaining the huge loss incurred during the year.
Once the books of account are rejected and the assessee is not co-operating, the only option left with the Assessing Officer was to estimate reasonable income after taking into account the total receipts of the year. The AO estimated the income of the assessee @ 10% for the reason that net profit disclosed by the assessee in the preceding year was 17.82%. The rate of estimate of 10% as applied by the AO is found to be reasonable. The work of the assessee is mostly in the nature of civil construction and estimation rate of 10% is prescribed u/s. 44BBB of the Act to compute the profit and gain of the foreign companies engaged
ITA No. 317/Ahd/2022 (Shivam Builders Private Limited vs. DCIT) A.Y.– 2015-16 - 19 – in the business of civil construction. Considering the presumptive rate of taxation as prescribed under the Act, the estimation as made by the AO is found to be reasonable. Therefore, we are not inclined to interfere in the quantum aspect as well and disturb the estimation of income as made by the AO and as upheld by the CIT(A).
In the result, appeal filed by the assessee is dismissed.
This Order pronounced on 09/05/2024
Sd/- Sd/- (SUCHITRA RAGHUNATH KAMBLE) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 09/05/2024 S. K. SINHA True Copy आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार
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