Income Tax Appellate Tribunal - Chandigarh
M/S Sam Land Developers And Promoters ... vs Dcit, Chandigarh on 21 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'B', CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER
AND Dr.B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA Nos. 701 to 703/CHD/2016
A.Ys : 2009-10 to 2011-12
M/s Sam Land Developers Vs. The DCIT,
& Promoters P.Ltd., Central Circle-1,
SCO 112-113, Ist Floor, Chandigarh.
Sector 8-C,Chandigarh.
PAN No. AAJCS4750M
(Appellant) (Respondent)
Appellant by : Shri S.K.Bhasin,CA
Respondent by : Shri Ravi Sarangal,CIT-DR
Date of hearing : 27.09.2017
Date of Pronouncement : 21.11.2017
ORDER
PER BENCH By these three appeals filed by the assessee the correctness of the separate orders dated 28.03.2016 of CIT (Appeals)-3 Gurgaon pertaining to 2009-10, 2010-11 and 2011-12 assessment years has been assailed. The challenge in each of these appeals posed by the assessee is on identical set of facts, circumstances and on identical grounds that the estimated income is incorrect on facts and estimate itself was not to be resorted to. Accordingly, the parties have maintained that the arguments advanced in 2009-10 assessment year would fully apply to the remaining appeals also.
2. The ld. AR submitted that the assessee is in the business of building and development of properties. Addressing the grounds qua these two prayers, the ld. AR submitted that estimation of net profit @ 14% of gross receipts of Rs. 784.79 lacs is an impossible rate of profit which no one in this line of business can return. It was his submission that the assessee was forced to accept the said rate at the fag end of the assessment proceedings wherein despite the fact that in the case of the sister concern of the assessee itself i.e. Bajwa Developers Ltd. the assessee had agreed to the rate of 7% despite knowing this and making it known to the AO that even then the rate of profit of 14% had to be accepted. Inviting attention to the assessment order, it was submitted that in the last few days of the ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 2 of 15 assessment becoming time barring on 25.03.2013 the assessment order is dated 30.03.2013 the assessee was forced to accept the rate of 14%. Referring to page 24 of the assessment order, it was submitted, that the assessee had stated that the normal rate in this trade was 5 to 6%. The mention of this was to demonstrate that the assessee was aware that profit was 5 to 6% and only under pressure had accepted 14% as even the higher profit forced on its sister concern i.e. Bajwa Developers was also not acceptable which had been stated in the so called offer itself. Accordingly relying upon the order in the case of connected concern dated 17.04.2017 in the case of Shri Surinder Singh Saini Vs DCIT in ITA 105 & 106/CHD/2015 pertaining to 2010-11 and 2011-12 assessment years, it was his submission that a net profit rate of 5.5% as against 7% applied by the AO may be considered appropriate and further the cost of acquisition of the plots paid by the assessee to its sister concern may be reduced from the gross receipts of Rs. 784.79 lacs. Apart from that, the relief as considered by the ITAT relying upon the decision of the Hon'ble High Court dated 13.11.2014 in the case of CIT Vs M/s Harbhajan Singh & Co. may also be granted. On the basis of these arguments, it was submitted, necessary relief in the three years in appeal may be granted.
3. The ld. CIT-DR Mr. Ravi Sarangal heavily relying upon the observations made in the assessment order and the impugned order submitted that it is a case where the books of account of the assessee have not been properly maintained. Thus, the sanctity of the amount of Rs. 784.79 lacs, on records though accepted by the AO, can also be doubted. The argument that the assessee was forced to accept this NP rate of 14% it was submitted, is not coming out from the record. Infact, this is a concession made by the assessee himself and has been recorded in the assessment order itself. Specific page 24 para 7.7 of the assessment order was referred to. Relying on the same, it was his submission that the offer was made by the assessee. Referring to para 6.3 it was submitted that the net profit of the assessee was not acceptable. The AO after show causing the assessee about the non-maintenance of books of account referred to in para 6.5 of the order and considering the reply of the assessee, ultimately held the books to be not reliable in view of the reason given in para 6.7 of the assessment order. Considering the legal position thereon, the AO required the assessee to furnish the specific information referred to in para 7.2 and considering the reply thereon, the AO concluded in para 7.6 that ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 3 of 15 the net profits declared by the assessee were low as a result of that, estimate of profit was necessitated. The assessee was heard. His reply has been extracted in para 7.7 which has led to the addition in the respective orders. These orders, it was submitted, have been upheld by the CIT(A). Accordingly, it was his submission that the addition in the respective years deserves to be maintained.
3.1 Reliance was placed upon the order dated 18.12.2012 in the case of Ram Pal Vs ITO in ITA 465/CHD/2017 for the proposition that once the assessment is agreed upon before the assessing authority, then the assessee cannot be said to be aggrieved by the order consequently the appeal of such an assessee was not maintainable. For ready reference, the relevant extract from the said order is reproduced hereunder :
"10 In any case the Id. CIT(A) has already adjudicated this issue and pointed out that guidelines relied on by the assessee cannot be construed as circular and the same cannot be disclosed to the assessee in view of the order passed by the Central Information Commission. Therefore, the decision of Hon'ble Delhi High Court in case of CIT V. Best Plastics (P) Ltd. ITA No. 951 of 2005 (copy of the same filed by the Id. counsel of the assessee) is distinguishable because that deals with instruction No. 1922 dated March 9, 1995. Instructions and circular are definitely different from guidelines and for Assessment year 2008-09 only guidelines have been issued by the Board Further it is settled law that once the assessment is agreed upon before the assessing authority then such assessee cannot be said to have been aggrieved by the order and accordingly the appeal filed by such assessee is not maintainable. In thisreference may be made to the following decisions:
Ramanlal Kamdar V CIT, 108 ITR 73 (Mad) Sterling Machine Toosl V. CIT, 123 ITR 181 (All) Rameshchandra and Company V CIT, 168 ITR 375 (Bom) Mahesh B. Shah V. ACIT, 238 ITR 130 (Kerala) In case before us, the Id. DR for the revenue has filed a copy of the noting sheet recorded during assessment proceedings on 26.11.2009. The Assessing Officer held pointing out his observations regarding deficiencies in the documents regarding agricultural income and household withdrawals were on lower side. In the proceedings he proposed the additions which have been made in the assessment and the Id. counsel of the assessee, Shri R.K. Aggarwal has agreed for the same by writing "agreed subject to no penalty". It is further to be appreciated that the Assessing Officer has not initiated any penalty u/s 271(1)(c) of the Act. This means that the Assessing Officer accepted the proposal in totality and therefore, the assessee can not now be described as aggrieved party. It is to be further appreciated that once agreement is made, then that leads to the Department to be stopped from making further inquiries and that is why-agreed addition has to be honoured by both the parties. Therefore, we find no merit in the grounds No. 3 & 4 and dismiss the same. In view of these facts, we find no merit in the appeal of the assessee and accordingly we confirm the order of the Id. CIT(A)."
3.2 The ld. Sr.DR also relied upon Rameshchandra and Company V CIT, 168 ITR 375 (Bom), Mahesh B. Shah V. ACIT, 238 ITR 130 (Kerala) and Sterling Machine Tools V CIT 123 ITR 181 submitted that in the facts of the present case till date, there has been no retraction by the assessee and thus, in the absence of the same, the appeal may be dismissed. The decision of the Hon'ble Punjab & Haryana High Court in the case of Bachittar Singh 328 ITR 400 was also relied upon. It was his submission ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 4 of 15 that it was not case of coercion. Addressing the order of the ITAT, it was his submission that claim of depreciation and interest has been allowed on a specific set of facts and thus, the order in the facts of the present case may not be followed. In the alternate, it was his submission that let the matter go back because in case depreciation and interest are allowed as a deduction, the rate of profit may be lower that what has been disclosed by the assessee. In all the years, it was submitted, the arguments remain the same.
4. The ld. AR in reply submitted that it is incorrect on the part of the CIT-DR to argue that it is a case of agreed assessment or for that matter, that the books of account were not maintainable. Attention was invited to consolidated order dated 26.10.2015 passed by CIT-III Gurgaon in the respective assessment years wherein penalty imposed u/s 271A read with Section 274 was quashed holding that books of account were maintained by the assessee for the respective years and the assessee cannot be said to have failed in keeping, maintaining and retaining books of account. The said order, it was submitted, has not been upset by the Revenue by filing any further appeal.
4.1 The reasons given by the AO for rejection of the books of account accordingly, it was submitted, no longer survives. Inviting attention to the assessment order itself, it was submitted, that the case of the Revenue is based entirely on the suspicion that the assessee has made profit over and above what has been disclosed. The assessee, it was submitted, has maintained entire record correctly and has always recorded the amounts received whether in cash or by cheque. The assessee, it was submitted, has never denied that payments in cash were also received and all these have duly been recorded as cash payments in the Books of Account of the assessee and the assessee has also accepted the fact that in the sale Registration, different amounts as per Circle Rate etc. have been mentioned by the purchaser for Stamp Duty purpose. The sale took place with the assessee's sister concern and the purchaser. The sister concern and group has already surrendered an amount of Rs. 2.5 crore. The fact remains that as far as the assessee is concerned, he has accounted for cash as well as cheque constantly in its books of account. It was submitted that when the assessment order is read in entirety, it would be seen that apart from reproducing schedule from the record by the assessee itself where the assessee has recorded all receipt of payments whether cash or cheque ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 5 of 15 correctly. There is no whisper of any wrong doing. The department insists on viewing it with suspicion despite the fact that there was no evidence to the contrary.
4.2 Apart from suspicion, it was submitted, there is nothing on record. In the facts of the present case, the group concern of the assessee has surrendered an amount of Rs. 2.5 Crores out of which Rs. 1 crore has been surrendered in the hands of M/s Surindra Developers.
4.3 It was submitted that in case the estimation of profit, as considered by the AO, is properly carried out wherein even the cost of acquisition of the plot @ Rs. 10,000/- has not been allowed, the resultant net profit would be an impossibly high net profit rate which can never be said to have been earned by anyone. The argument that it was a correct addition on facts, it was submitted, is patently incorrect on the face of the record itself. The so called concession, it was submitted, has been made under the departmental pressure as the assessee had no alternate but to agree.
5. We have heard the submissions and perused the material available on record. It is seen that the assessee was one of the persons/concerns covered u/s 132 of the Income Tax Act,1961. The assessee in response to notice u/s 153A returned an income of Rs. 14,16,221/-, Rs. 15,22,946/- and Rs. 53,38,759/- respectively from the business of building and development of properties in the years under consideration. A perusal of paras 5 to 6.3 addresses the factual background of the issue. The same is reproduced hereunder for ready reference :
"5. The assessee is in the business of building and development of properties. During the year, the assessee conducted its business activity in terms of booking and sale of constructed property in Sunny Enclave project, Kharar.
6. During the course of search u/s 132 on assessee's business and residential premises of various promoters, it was revealed that M/s SAM Land Developers Pvt. Ltd. has entered into MOU with M/s Bajwa Land Developers, Mohali and has agreed to book/purchase plots in the Sunny Enclave project of the M/s Bajwa Developers at a pre-agreed price. The modus operand! is that the assessee company makes an advance payment to Bajwa Developers to block these plots. Thereafter the assessee company develops and constructs the duplex houses on these plots and sells it to the various buyers at the current market price. The registration deed is however done by M/s Bajwa Developers directly with the buyers. In this process the assessee company earns a profit on construction as well as sale of these duplex houses. During the course of search in the office of M/s SAM Land Developers Pvt.Ltd. various documents have also been found and seized which reveal that the sale consideration has been received by the assessee company in both cash and cheque and it is much higher than what has been proclaimed in the registered sale deed for same.
6.1 As per the seized documents and the reply received from the assessee, it was established that the assessee M/s SAM Land Developers & Promoters Pvt. Ltd. had entered into MoU with M/s Bajwa Developers Pvt Ltd to construct and sell plots/houses in Sunny Enclave project at kharar at the rate of Rs.10,000/- per square yard. Money was received both in cash and cheque by M/s SAM Land Developers & Promoters Pvt. Ltd. (SLDP hereafter) and by M/s Bajwa Developers ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 6 of 15 Pvt Ltd. (Bajwa hereafter) against the booking and sale of these constructed flats. The collection and profits were then appropriated between SLDP and Bajwa based on the running ledger where Bajwa retained the corresponding cost of land as per the agreed price of Rs.10,000/- per square yard and the balance was shown a) either paid or outstanding as payable to SLOP in the books of bajwa or b) after passing on the land cost to bajwa, the balance was retained by SLOP as its cost of construction and profits as per the books of SLOP. 6.2 Now, as per the understanding between SLOP and Bajwa, the conveyance deed of land was never done in favour of SLOP. The agreement to sell may be executed by either of the parties, but mostly it was by SLOP but sale of each of such constructed flat/plot was registered directly between Bajwa (as the seller) and the purchaser to avoid double payment of stamp duty. Clearly, in each case, the agreement to sell was at higher price as decided and actually received by the seller SLOP but sale deed registered with the Registrar of properties was at a different and indeed a lower price.
6.3 Now, at the time of assessment proceedings, as per the replies received including the profit and loss account and the balance sheet, it was seen that against a gross receipts of approximately Rs 18.5 crores from sale of plots/houses in Sunny Enclave during the AY 2009-10 to AY 11-2012, the assessee has shown a mere net profit of around Rs. 82 lacs in these three years against the entire project which also includes a surrender of additional income of Rs.50,00,000/- made at the time of search u/s 132(4) and included in the return u/s 142(1) for AY 11-12. A precise description of same is tabulated below :
AY GROSS RECEIPTS or INCOME CREDITED IN NET PROFITS
SALE PRICE P&L ACCOUNT RETURNED
RECEIVED
UPTO 2009-10 7,84,79,000/- 24,85,000/- 14,14,486/-
During 2010-11 2,75,75,000/- 29,25,000/- 14,95,510/-
During 2011-12 7,88,17,000 20,47,000/- 53,29,764/-
SURRENDER OF
50,00,000/-
TOTAL 18,48,7 1,000/- 1,34,57,000/- 82,39,760/-
The profits declared by the assessee appeared to be on the lower side and needed to be verified."
5.1 The AO was of the view that the books of account relied upon by the assessee were held to be defective and estimation of the profits was resorted to. The ld. AR in the course of the arguments has vehemently contended that rejection of the books of accounts was on facts not warranted as each and every entry of cash as well as cheque payments has been properly recorded and explained. It has been argued that it has never been denied by the assessee that the constructed houses were sold for which some parties made payment in cash as well as by cheques. Simply because payments have been received in cash, it has been argued, it cannot be a reason to entertain a suspicion that something over and above that also must be received. These arguments, it was submitted, have been considered and accepted and penalty orders in the respective years for non maintenance of books of account have been cancelled which order has not been assailed or upset by the Revenue till date. It has been argued that all sales have been correctly recorded where each cash as well as cheque payment was recorded for which accounts were rendered to M/s Bajwa Developers. The sale of these flats was made by M/s Bajwa Developers as ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 7 of 15 per the price settled by the parties. This fact is an admitted fact on record. We note that the version of the assessee has been confronted to the Principal Officer of M/s Bajwa Developers Shri Jarnail Singh Bajwa whose statements have been recorded on 20.02.2013. These facts are found mentioned at pages 22-23 of the assessment order. The relevant extracts of the statement included in the assessment order are reproduced hereunder :
"7.5 Simultaneously, in order to verify the claims of the assessee regarding the seized documents, summons u/s 131 were issued to the Principal Officer of /s Bajwa Developers. In response tothis Shri Jarnail Singh Bajwa, s/o Shri Bishan Singh r/o 1002-03 Sector 71, Mohali and Director of M/s Bajwa Land Developers Ltd. attended and his statement was recorded on 20.02.2013. Some of the facts were confirmed by him as well against which no adverse inference is being drawn. The relevant extracts of his statement are reproduced below:
"Q.2. Please explain the nature of business transaction between your company M/s Bajwa Developers Ltd. and M/s SAM Land Developers & Promoters Pvt. Ltd. for the last 7 years from period A.Y. 2005-06 to 2011-12.
Reply: We got an agreement to sell in F.Y.2006-07 w.r.t. plots in Sunny Enclave, Kharar numbering approx. 63 with total land area of 10544 sq. yards @10,000/- per sq. yard amounting to Rs. 10,54, 44,400/-. It was agreed between us that M/s SAM Land Develoeprs Pvt. Ltd. will raise construction with his own sources and the convenience deed will be executed between BDL and the purchasers of plots. The BDL will retain only cost of plot with no sharing of any other profit.
Q.No.3 Various documents were seized from the residence/business premises of Shri Surinder Singh Saini in form of diaries/loose papers. Please explain the contents of same w.r.t. the entries pertaining to M/s Bajwa Developers Ltd.
Reply: We are submitting copy of accounts of M/s SAM Developers & Promoters Ltd. which are appearing in our books of accounts for F.Y. 2005-06 to 201 1-12 with complete details of financial dealing with them and reconciliation statement. Q.No.4. Explain whether sale of plots to PGI employees were made by you or by M/s SAM Land Developers & Promoters Pvt. Ltd and who retain the profits. Reply Regarding sale of plots to PGI employees the same were sold by us however, M/s SAM Land Developers & Promoters Pvt. Ltd. arranged buyers for us. Q.No.5. Explain what amount of the commission was paid by you to M/s SAM Land Developers & Promoters Pvt. Ltd. for providing the sales service of PGI plots. Reply: No commission whatsoever was paid to M/s SAM Land Developers & Promoters Pvt. Ltd. for arranging buyers and receiving some of the advances on our behalf from the said buyers of PGI Society.
Q.6 As per the details submitted by M/s SLDPL they have surrendered Rs.50 lacs based on Rs.47.33 lacs received by BDL during F.Y. 2008-09,2009-10 and 2010-11 from various flat owners and having been informed to SLDPL during F.Y. 2010-11. Do you agree with the above. Reply: Regarding the surrender we have nothing to say. As per our books of accounts we have credit balance of Rs.42,75,274/- as on 31.03.2011 payable to M/s SLDPL. Copy enclosed."
5.2 It would be appropriate to again refer to the assessment order and take note of the fact that despite these facts, the AO has concluded that the profit rate declared by the assessee was low, as a result of which, estimation was held to be warranted. The assessee's reply to this letter dated 25.03.2013 has been extracted in para 7.6 to 7.8 at pages 24 and 25 of the assessment order dated 30.03.2013 and is reproduced hereunder for ready reference :
ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 8 of 15 "7.6 However, still the fact remained that with respect to Sunny Enclave project, the net profits declared by the assessee were low and an estimation of profits is to be made based on what would have been real construction expenditure on each of such flats and what would be the profit made by the assessee as a developer and promoter involved in construction activity as well as direct selling.
7.7 In continuation of his response to the showcause issued on estimation of profits, the assessee submitted vide letter dated 25.03.2013 that "As the assessment proceedings are going on in our case on the basis of various documents/books of accounts seized during the search conducted at our premises on 18-02-2011. It has come to our notice during the proceedings that books of accounts are not complete and we are not able to reconcile the seized documents with the books of account In order to buy peace of mind we are agreeable to be assessed at an estimated rate on gross receipts. Though the rate in our trade is normally 5-6 percent, as you are aware that f have just constructed flats on the land provided by Bajwa Developers Ltd. And in my sister concern also you are applying a rate of 7 percent (which also we have not agreed). Since in this case we have done some direct selling also we offer double the rate applied by you at 14 percent (seven percent for construction and rest on selling). This profit minus the profit already declared may be treated as our income subject to no penalty and prosecution under the act. The year wise break up will be as under
(emphasis supplied):
A.Y. Gross receipts Estimated Profit Net Profit Diff. now offered
(14%) returned
2009-10 78079000 10931060 1414486 9516574
20010-11 27575000 3860500 1495510 2364990
2011-12 78817000 11034380 5329764 5704616
Total 184417000 25825940 8239760 17586180
I will also like to highlight that we exclude the value of land from gross receipts the rate will be much more. The details would be as under Gross Receipts Rs. 18.44 Crores Less : Cost of land Rs. 9.06 Crores (Provided by Bajwa Developers Ltd.) --------------------
Rs. 9.38 Crores
Total Profit Estimated Rs. 2.58 Crores
Percentage of profit 27.50%
5.3 We further note on a perusal of the impugned order that the facts as appreciated by the AO have been extracted by the CIT(A) in his 35 paged order upto page 31 and in pages 32 and 33. The contentions of the assessee have been extracted which are reproduced hereunder :
During the appellate proceedings, the appellant submitted as follows :-
(a) The AO has made addition to the return income of the appellant by estimating net profit @ 14% which is exorbitant.
(b) The AO has not given any reasonable explanation for applying 14% net profit rate on appellant's gross receipts.
(c) The AO applied the net profit @ 14% on gross receipts of Rs. 7,80,79,000/-
instead of estimating profit after giving deduction of cost of land, where cost of land paid to M/s Bajwa Developers Ltd. should be excluded while calculating net profit by applying rate on gross receipts.
(d) It has been admitted by the appellant that during the assessment proceedings in order to buy peace of mind the appellant agreed to be assessed at estimate net profit rate of 14% and agreed that the profit @ 14% profit already ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 9 of 15 declared may be treated as income for the year.
(e) The addition has been arbitrarily or made without any relevance or nexus with the seized documents and no incriminating documents were unearthed during the search proceedings. Reliance placed on the judgement of Hon'ble High Court in the case of Kabul Chawla.
(emphasis supplied) 5.4 It is seen that the addition made by the AO has been sustained in appeal by the CIT(A) holding that the assessee could not reconcile the seized documents with the books of account and since it was a voluntary surrender made by the assessee and since no reason has been given by the assessee why the profit should be taken at a lower rate than that surrendered in the offer on the basis of seized documents. The CIT(A) has concluded that in the circumstances, it is legally permissible for the revenue to still fasten the assessee with the liability of tax.
5.5 On a consideration of the entire factual matrix of the case as per the submissions of the parties before the Bench and as available on record, we find that the inclusion of cost of land as details available on record i.e. pages 31-32 of the impugned order which infact is the reproduction of the contents of the letter dated 25.03.2013 in para 7.7 of the assessment order and extracted in the earlier part of this order in para 5.2, we note that the tax payer has consistently claimed that if its income is estimated @ 14% net profit on the gross receipts of Rs. 784.79 Crore wherein cost of land which has been paid to M/s Bajwa Developers Ltd. at a specific rate is not deducted then the percentage of profit as per the surrender of the assessee would work out to 27.50%. It has been argued that it is an impossibly high profit rate which cannot be envisaged in this line of business. We note that consistently right from the stage of the assessment order till the present proceedings, the tax payer has been pleading that cost of land amounting to Rs. 9.06 Crores should be excluded.
5.6 We note on reading of the orders of the tax authorities that no reasons what-so-ever have been given to justify why the said cost should not be excluded. Since admittedly the assessee, as per the factual position affirmed by the tax authorities from the Principle Officer of M/s Bajwa Developers Shri Jarnail Singh Bajwa which has also been extracted in the earlier part of this order, we find no good reason why the said benefit has been denied to the assessee. Accordingly, the AO is directed to recompute the taxable income of the assessee after excluding the cost of land amounting to Rs. 9.06 Crores.
ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 10 of 15 5.7 We find that in the facts of the present case the tax authorities have been of the view that the surrender made by the assessee is not a voluntary surrender the Ld. CIT DR has also vehemently supported the surrender stating that it was voluntary as is evidenced from para 7.7 record in the assessment order. We have already reproduced the said para in the earlier part of this order. The parties were also directed to read it out again in order to address the contents of the said letter dated 25/03/2013. We note that when the letter is read with an unbiased and unprejudiced clear mind, the surrender cannot be said to be voluntary. The reluctance of the tax payer and pressure on him is clearly evident from the surrender letter extracted in the assessment order itself. The argument of the revenue that it has not been retracted, we find is based on a hyper technical tunnel vision of the facts. The glaring fact on record is that the first opportunity after the "voluntary surrender" was the Appellate Forum of appeal provided by the Statute. What evidence of retraction can be better than the public platform of a ground raised in appeal. The present case is not a case where a surrender letter undated and not readily available on record is the basis of the surrender being retracted. In the facts of the present case, the assessee has availed of the unambiguous platform of statutory appeal. Thus, by no stretch of imagination it can be countenanced that the assessee has not retracted from the surrender. The assessee to our minds in the facts of the present case, has adequately and consistently one after the other availed of the Appellate Forums provided under the Statute and appealed against the additions made on the basis of the offer letter made in the last few days of the assessment proceedings.
5.8 The tax payer has contested the issue before the CIT(A) and no incriminating material has been referred to either by the said authority or by the ld. CIT-DR as to why retraction in these circumstances by way of a ground was not maintainable. No fact or evidence has been brought to our notice to justify that there was something on record to warrant the application of net profit @ 14% of gross receipts. The assessee has contested this so called surrender by way of filing a statutory appeal before the CIT(A). Thus, the fact that it was contested before the CIT(A), itself demonstrates that even if there was surrender which on facts cannot be said to be voluntary, as why would a tax payer say that apply the rate of 14% knowing and quoting that in the case of sister concern, even the rate of 7% is held to be not agreeable. Similarly, why would a tax payer offer a ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 11 of 15 rate of 14% when admittedly in the trade, the normal rate is 5 to 6% as per the knowledge of the tax payer itself evident at the stage the "voluntary surrender" was made. There is no discussion in the order of the AO after the version of the assessee was cross verified from the Principle Officer of M/s Bajwa Developers Shri Jarnail Singh Bajwa.
5.9 Thus, When considered in the light of the facts where the assessee brings to the notice of the assessing officer that the normal rate is 5 to 6% in this trade and in the case of sister concern 7% has been accepted which also was stated to be not acceptable in very categoric term, the offer of 14% as a voluntary surrender does not arouse much confidence. It would be appropriate to again refer to the findings recorded in para 6.1 in 6.2 of the assessment order read with the submissions extracted in page 30 to 32 with 33 of the impugned order which would show that the surrender cannot be said to be voluntary. The surrender letter dated 25.03.2013 as extracted in para 7.7 of the assessment order when read out as a whole, it is seen clearly has been made 5 days before the assessment order has been passed i.e. on the date it was becoming time barred. The assessment order becoming time barred is an area of huge concern for the AO and the pressure on the AO, admittedly was there on record. The pressure on the tax payer is evident from the use of the following words i.e. :
(a) "Though the rate in our trade is normally 5-6 percent........."
(b) ".............in my sister concern also you are applying a rate of 7 percent (which also we have not agreed)"
(c) If the value of land from gross receipts is not excluded, the rate will be 27.50%.
5.10 Accordingly, we do not find any merit what-so-ever in holding that the surrender was not voluntary. Since the rate of net profit is an abnormal rate considering the submissions of the parties before the Bench, we deem it appropriate that in the peculiar facts and circumstances of the case balancing the respective stand of the parties, it would be just and fair to direct the application of net rate of 8% as opposed to 14%. While arriving at the said net profit rate, we have kept in mind the fact that no penalty u/s 271(1)(c) of the Act etc. has been levied by the AO on the tax payer as per the submissions of the ld. CIT-DR. The said observation should not be considered in the context that any penalty was warranted or not. The fact remains that no penalty has been imposed. The Ld. CIT-DR has ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 12 of 15 emphasized the fact that the said offer has been made with the request that no penalty etc. would be attracted and the assessing officer in the facts of the present case has also not initiated any penalty proceedings and has only proceeded to make the addition. We do not think it is necessary to emphasize the aspect that the assessee cannot bind the assessing officer that the surrender was made conditional to the offer that there shall be no penalty. The AO also is not vested with any discretion in regard to the levy of penalty. In case the facts warrant the assessing officer has no choice but to levy penalty and the Statute has not given him any liberty to consider the possibility of bargaining whether penalty is to be levied or not. We have also taken due note of the objection posed by ld. CIT-DR that depreciation and interest should not be given in the peculiar facts. Accordingly considering the facts, the AO is directed to apply the NP rate of 9% after deducting the cost of land paid to sister concern as already held.
5.11 Before parting, we deem it appropriate to add that all the decisions cited before the Bench have been taken into consideration. Even though reference is made to a few of them hereinafter 5.12. The Ld. CIT-DR has referred to order dated 18/12/2012 in Rampal versus ITO. On consideration of the said decision, we find that the said decision is in the context of the guidelines of the CBDT which according to the assessee in the facts of the said case were not adhered to. The conclusion was drawn on facts where the assessee was found to have fully participated in the proceedings. The facts in the present case we find are entirely distinguishable.
5.13 Our attention has also been invited to Sterling Machine Tools Vs CIT 123 ITR 182 (All). On a reading of the facts of the said decision, it is seen that the Court held that the assessee had asked for reference of the specific question as to whether the assessee was confronted with the Experts' Report the Court had declined to direct the reference holding that it was not permissible to urge that the question referred embraced this aspect also. The Court held that once the finding of the Tribunal that the assessee was confronted with the Experts' Report was accepted, it was also not possible to accept the contention that the letter given by S was written under a misapprehension and ignorance of the Experts' Report. The Court held that the letter of S, a partner of the assessee-firm, being a voluntary one and the assessee having agreed to the cost of the machine being ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 13 of 15 worked out on the basis of the Experts' Report, the ITO was held to be justified in working out the profit on the sales of these machines by deducting the cost price as worked out by the experts from the sale price. The conclusion was based on the following finding of fact :
" One of the questions that arose before the Tribunal was as to whether the assessee was bound by the admission made in the letter of its partner dated May 17, 1968. From the order passed by the Tribunal, it appears that the assessee did not dispute the fact that it was bound by the admission made by its partner, Sri Satish Chandra. It was, however, urged on behalf of the assessee that the assessee was not confronted with the experts' report, and further that the experts' report was not on the record".
5.13.1 Accordingly, it is seen that the said decision proceeds on facts peculiar to its own.
5.14 Our attention has also been invited to Ramesh Chander and Company Vs CIT 168 ITR 375 (Bombay-Nagpur Bench). A perusal of the said decision shows that as against the letter to the AO by one of the partners that the discrepancy of purchases of 467 bags of Sarkari could not be reconciled vis-à-vis either with its sales or its closing stock which amounted to only 117 bags and the additions may be made. On the basis of the said statements, additions were made. The addition was not challenged in appeal before the First Appellate Authority by way of any ground. On the date of hearing, the Revenue was unrepresented and only at that stage, the assessee's representative raised three additional grounds. By one of these grounds, the addition was challenged. The ground was admitted without hearing the Tax Authorities and the explanation offered by the assessee was accepted leading to the deletion of the addition holding it to be a case of misunderstanding. On appeal by the Revenue before the ITAT, considering the facts it was held that the deletion of the addition and the admission of additional ground in the facts of the present case to be not maintainable. The decision was arrived at noting that no specific ground was raised originally and the additional ground was raised before the First Appellate Authority as no one was present on behalf of the Department and taking advantage of the fact the ground was found to have been raised. It was noted that even in the additional ground, no mistaken belief was pleaded. The decision, it is seen is on facts peculiar to its own and is entirely distinguishable as has been referred to in the earlier part of this order at length.
ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 14 of 15 5.14.1 A perusal of the said decision shows that their Lordships differed with the decision of the Punjab and Haryana High Court in Chhat Mull Aggarwal's case (1979) 116 ITR 694 and held as under :
"Where an assessee has made a statement of facts, he can have no grievance if the taxing authority taxes him in accordance with that statement. If he can have no grievance, he can file no appeal. Therefore, it is imperative, if the assessee's case is that his statement has been wrongly recorded or that he made it under a mistaken belief of fact or law, that he should make an application for rectification to the authority which passed the order based upon the statement. Until rectification is made, an appeal is not competent.
15. In these circumstances, we are of the view that the Tribunal was right in the conclusion to which it came and we answer the question in the negative and in favour of the Revenue."
5.15 Our attention has also been invited to the decision of the Hon'ble Punjab and Haryana High Court in the case Bachittar Singh Vs CLT (2010) 328 ITR 400. In the facts of the said case, statement was made by the assessee at the time of survey and thereafter retracted. The Court held that the ITAT's view that retraction in the peculiar facts was not permissible was upheld as it was found to be a possible view. The assessee in the facts of that case admittedly failed to place any evidence of agricultural income on record or any other contemporaneous evidence of agricultural activity.
5.16 A perusal of the facts of the said case shows that the decision is distinguishable. In the facts of the present case, the so called "voluntary surrender letter" was made admittedly at the fag end of the assessment proceedings and through out the order, the queries and discrepancies pointed out and noted by the AO it is seen have consistently been replied and explained. The explanation offered has not been considered to be incorrect or faulty and despite this, at the fag end, the assessee makes the offer.
5.17 Reliance has also been placed upon the decision of the Kerala High Court in the case of Mahesh B.Shah Vs ACIT & another in 238 ITR 138 (Ker). A perusal of the facts of the said case show that the addition made by the AO was admitted to be correctly made in writing before the ACIT and the admission was repeated in the revised proceedings before the CIT and only by way of a writ proceedings before the Hon'ble High Court for the very first time, the assessee without any fact or evidence pleaded coercion. It was also demonstrated on record that no retraction to the statement was ever made. Accordingly, the said decision also, it is seen not relevant for deciding the present proceedings.
ITA 701-703/CHD/2017 A.Y. 2009-10 to 2011-12 Page 15 of 15 5.18 In view of the detailed views on facts, arguments and considering the legal position, we deem it appropriate to direct that cost of land be excluded while computing the taxable income and the AO to apply the net profit rate of 8% for the detailed reasons given hereinabove.
6. In the result, appeals of the assessees are partly allowed.
Order pronounced in the Open Court on 21st Nov., 2017.
Sd/- Sd/-
(Dr. B.R.R.KUMAR) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CI T(A)
5. The DR
Asstt. Registrar
ITAT,Chandigarh.