Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SMT. ANNAPURNA GUPTA & SHRI T. R. SENTHIL KUMAR
PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER:
This appeal is filed by the Revenue against the order dated 29.04.2016 passed by the Commissioner of Income Tax (Appeals)-1, Rajkot (in short “CIT(A)”) relating to the Assessment Year 2011-12 against the assessment order dated 22.03.2014 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The brief facts of the case the assessee is a Limited Company engaged in construction business, executing Infrastructure Projects. During the course of assessment proceedings it was noticed by the Assessing Officer the assessee has shown gross contract receipt of
- 2 - ITA No.252/Rjt/2016 ITO vs. Jitendra G. Patel Project Ltd. Asst.Year – 2011-12
Rs.5,68,94,728/- and after debiting expenses in aggregate of Rs.5,37,20,369/- the net profit was shown at Rs.10,30,740/-, thereby has shown gross profit @ 7.54% of total turnover as against the GP ratio shown at 14.73% in the immediate preceding year. Thus there was drastic downfall in the gross profit. Therefore the assessee was asked to produce books of account and bills/vouchers of expenses to verify the expenses. But the assessee did not produce anything to verify. Therefore to save the revenue leakage the GP ratio was estimated at 14.73% of turnover which was worked out to Rs.83,80,594/- and after deducting the GP offered by the assessee the net amount of Rs,40,90,732/-was added to the total income. Further, the assessee has claimed to have incurred sub-contract expenses to the tune of Rs.1,49,14,535/-. As the assessee could not substantiate the incidence of TDS from sub-contract payments, the amount of Rs.l,49,14,535/- was disallowed u/s.40(a)(ia) and added to the total income of the assessee. The assessee has claimed expenses to the tune of Rs.30,97,972/- in Profit & Loss account. The assessee was asked to produce books of account and bills/vouchers of expenses to verify the expenses, but the appellant did not produce the same. Therefore, 25% of such expenses which was worked out to Rs. 7,74,493/- was disallowed and added to the total income of the assessee.
Aggrieved against the same the assessee filed an appeal before the Ld. Commissioner of Income Tax (Appeals). The Ld. CIT(A) deleted all the additions and allowed the assessee’s appeal as follows: “7. I have duly considered the submission of the appellant and also gone through the discussion made in the assessment order. 7.1 So far as estimation of GP @ 14.73% as against shown by the appellant @ 7.54% and thereby making addition of Rs.40,93,732/- is concerned, I am of the
- 3 - ITA No.252/Rjt/2016 ITO vs. Jitendra G. Patel Project Ltd. Asst.Year – 2011-12
considered view that such wild estimation of GP is not permissible under law especially when the books of accounts are audited. Hence, the addition/ disallowance is hereby deleted. 7.2 So far as addition/disallowance of Rs.1,49,15,535/- u/s.40(a)(ia) is concerned, the appellant has already deducted tax and paid to Govt. A/c., hence question of disallowance does not arise. Therefore the addition / disallowance is hereby deleted. 7.3 So far as disallowance of administrative expenses of Rs.7,74,493/- is concerned, I am of the considered view that disallowance of such expenses on adhoc basis is not permissible in law. The AO should refrain from doing so. Hence, the addition/disallowance is hereby deleted.”
Aggrieved against the same Revenue is before us raising the following grounds of appeal: “1. The Ld. CIT(A)-1, Rajkot has erred in law and fact in deleting addition made on account on low net profit to the extent of Rs. 40,90,732/-. 2. The Ld. CIT(A)-1, Rajkot has erred in law and fact in deleting addition made u/s.40(a)(ia) of the Act to the extent of Rs. 1,49,15,535/-. 3. The Ld. CIT(A)-1, Rajkot has erred in law and fact in deleting disallowance made out of administrative expenses to the extent of Rs. 7,74,493/-. 4. On legal and factual status of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is, prayed that order passed by the Ld. CIT(A) may be quashed and that of the Assessing Officer be restored. That the Revenue craves leave to add, amend, alter or withdraw any grounds of appeal.”
The Ld. Sr. D.R. Mr. B. D. Gupta appearing for the Revenue submitted that the CIT(Appeals) failed to consider that the assessment order passed by the Assessing Officer was under Section 144 of the Act after affording ample opportunities to the assessee. The Ld. CIT(A) simply deleted all the additions even without calling for any information from the assessee as well as calling for a remand report from the
- 4 - ITA No.252/Rjt/2016 ITO vs. Jitendra G. Patel Project Ltd. Asst.Year – 2011-12 Assessing Officer, therefore, the order passed by the Ld. CIT(A) is arbitrary and required to be set-aside to the Assessing Officer for verification.
Per contra, Shri D. M. Rindani the Ld. Counsel appearing for the assessee submitted that the Assessing Officer estimated the business profits by applying the Gross Profit ratio of preceding year. When estimate/best judgment is to be made, adopting G.P. rate is not the fair method; the Assessing Officer ought to have adopted the Net Profit method, as held by the Gujarat High Court in the case of ITO vs. Om Silk Mills (230 taxman 189). Thus, the N.P. rate is 1.81% as certified by tax auditor should be correct value, since the Net Profit for the previous year is 1.43%. Regarding Ground Nos. 2 & 3 of the Revenue, the Ld. A.R. submitted the Assessing Officer having made estimation of the profit and making addition of Rs. 40,90,372/- under best judgment assessment, the Assessing Officer has again made separate disallowances of expenses, which is not permissible in law. In this connection, the Ld. A.R. relied upon the Gujarat High Court judgment in the case of CIT vs. Dhiraj R Rungta (40 taxman.com284) and other High Court judgments. Thus, the Ld. A.R. pleaded the finding of the CIT(A) does not require any interference and the Revenue appeal to be dismissed.
We have given our thoughtful consideration and perused the material available on record. It is clearly seen from the assessment order the assessee was given opportunity by issuing a show-cause notice on 05.03.2014 and duly served on the assessee. However, the assessee has not attended or responded to the show-cause notice issued by the
- 5 - ITA No.252/Rjt/2016 ITO vs. Jitendra G. Patel Project Ltd. Asst.Year – 2011-12
Assessing Officer. Therefore, the Assessing Officer passed this best judgment assessment order without verification of records. We further seen from the CIT(A) order that he deleted all the addition without verification of records or any materials placed by the assessee before him. In our considered view, the Ld. CIT(A) ought not have deleted the additions without any material on record. In order to meet the ends of justice, it is appropriate to set-aside the matter back to the file of the Assessing Officer to make fresh verification of records/documents and then pass a speaking order. Thus, so we set-aside the case to the file of Assessing Officer and pass fresh order. Needless to say, the assessee should furnish all the relevant documents, details and cooperate with the Assessing Officer for passing the assessment order.
In the result, the appeal preferred by the Revenue is allowed for statistical purposes. Order pronounced in the Court on 23.11.2022 at Ahmedabad.
Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad, dated 23/11/2022 Tanmay, Sr. PS TRUE COPY आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त ( अपील ) / The CIT(A)- 5. �वभागीय ��त�न�ध , आयकर अपील�य अ�धकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड� फाईल /Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, राजोकट / ITAT, Rajkot