Income Tax Appellate Tribunal - Ahmedabad
Industrial Security Services,, Surat vs Assessee on 12 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " B "
Before Shri BHAVNESH SAINI, JUDICIAL MEMBER and
Shri D.C.AGRAWAL, ACCOUNTANT MEMBER
Date of hearing : 12/01/2010 Drafted on: 12/01/2010
ITA No.3926/AHD/2007
Assessment Year : 2004-05
Industrial Security Vs. The Asst.CIT
Services Circle-7
st
1 Floor, Upper Tower Surat
Vaishali Cinema Road
Surat
PAN/GIR No. : AAKFM 1044 N
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri J.P. Shah
Respondent by: Shri B.S. Gehlot, CIT-D.R.
ORDER
PER BHAVNESH SAINI, JUDICIAL MEMBER:
This appeal by the Assessee is directed against the order of the Ld.CIT(Appeals)-V, Surat dated 14/08/2007 passed for Assessment Year 2004-05 on the following grounds:
(1) The CIT(Appeals) ought to have allowed the appeal in toto keeping in mind the overall facts and circumstances of the case.ITA No.3926/Ahd/2007
Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -2- (2) The Learned CIT(Appeals) erred in law and in fact in rejecting the books of account of the appellant under sec.145 of the Act.
(3) The Learned CIT(Appeals) further erred in law and in fact in upholding the addition of Rs.42,28,443/- on account of alleged low net profit.
2. We have heard Learned Representatives of both the parties, perused the findings of authorities below and very carefully gone the material available on record. Briefly, the facts of the case are that assessee is engaged in the business of providing security services. The assessee has shown Net Profit of Rs.14,83,635/- at the rate of 0.85% on the turnover of Rs.17,36,68,915/- as compared to Net Profit of Rs.71,30,820/- at the rate of 5% on the turnover of Rs.14,21,41,479/- in the immediately preceding assessment year. Thus, Assessing Officer noted that there is a fall in the Net Profit shown in the year under consideration by 4.15%. Show-cause notice was issued to the assessee seeking explanation for fall in the Net Profit. It was found by Assessing Officer that security charges have been decreased from 92.78% shown in the last year to 91.5% during the year. It is also noted that administrative expenses have been increased from 5.98% to 8.62% of the turnover. The assessee explained that in the ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -3- preceding assessment year 2003-04, assessee had made a disclosure of Rs.60 lacs shown under the head "other income". If out of total profit of Rs.71,30,820/-, the undisclosed income of Rs.60 lacs is taken out, the profit would come down to Rs.11,30,820/- which is 0.80% of this security income earned by the assessee. It was, therefore, explained that the profit of the assessee rose to 5% in the preceding assessment year because of Rs.60 lacs was surrendered as additional income. It was also explained that the profit of the assessee has always remained between 0.75% to 1% of this security income. It was also explained that in the preceding Assessment Years 2001-02 & 2002-03, the Net Profit of the assessee was 0.95% and 1% respectively in the above year. As regards, comparable cases cited by Assessing Officer, it was explained that in the cases of the comparable cases, the turnover is much lower compared to the turnover of the assessee. It was, therefore, explained that Net Profit will, always, be lower, if the turnover of the Unit is too high because the expenses of the Unit also will remain very high. The Assessing Officer, however, did not accept the contention of the assessee and noted that the profit rate could not be ignored merely because assessee has declared undisclosed income. The Assessing Officer, further, noted the expenses incurred by the assessee on account of unpaid liabilities on Diwali bonus and incentives ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -4- as well as unpaid leave wages are not proved and noted that reply of the assessee is not acceptable and that book results of the assessee are liable to be rejected u/s.145 of the I.T. Act, 1961, because the genuineness of the expenses could not be proved satisfactorily and are not subjected to verification. Book results were accordingly rejected u/s.145 of the I.T. Act, 1961. The Assessing Officer made addition of Rs.20,08,297/- on account of unpaid incentives and also made addition of Rs.10,65,600/- on account of unpaid leave wages. The Assessing Officer considering the above facts and the additions made above and considering the rectification order passed u/s.154 of the I.T. Act, 1961, enhanced the Gross Profit rate of the assessee to 3.5% as against shown by the assessee at 0.85%. The addition of Rs.42,28,443/- was made on account of low net profit. The Assessing Officer specifically mentioned in the assessment order that the above additions on account of unpaid incentives and on account of leave wages, additions are covered under the above addition made on account of Net Profit rate.
3. The assessee reiterated the submissions before the Learned CIT(Appeals), while challenging the addition of Rs.42,28,443/- on account of Net Profit. It was, briefly, submitted before the Learned ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -5- CIT(Appeals) that profit is to be ascertained with reference to the relevant material on record and that book results in this case should not have been rejected. The contention of the assessee was not accepted by the Learned CIT(Appeals) because of the separate additions made by the Assessing Officer on account of unpaid liability/incentives/leave wages. The Learned CIT(Appeals) noted that book results have been correctly rejected in the matter. The Learned CIT(Appeals) also confirmed the addition on merit by rejecting the explanation of the assessee. Appeal of the assessee was accordingly dismissed.
4. Before us, the ld. counsel for the assessee reiterated the submissions as were made before the authorities below and submitted that Net Profit of the assessee in the preceding assessment year enhanced because of the additional income surrendered in a sum of Rs.60 lacs. He has submitted that otherwise Net Profit of the assessee is consistent as compared to Net Profit declared in the preceding assessment years in question. He submitted that the reply of the assessee is not appreciated by the authorities below in proper perspective. He has referred to paper-book page Nos.49 & 50 which is the reply filed before the Assessing Officer to explain that addition is clearly unjustified. The ld. counsel for the ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -6- assessee accordingly submitted that addition is without any justification and should have been deleted or in alternate contention submitted that addition is excessive and unreasonable.
5. On the other hand, Learned Departmental Representative relied upon the orders of the authorities below and submitted that even the Assessing Officer cited comparable cases in which the Net Profit ranges from 1.64% to 3.06%, therefore, authorities below were justified in rejecting the book results and in making addition on account of low Net Profit rate. The Learned Departmental Representative further submitted that even in case the addition on account of Net Profit is deleted or modified, but the assessee has not challenged the additions made by the Assessing Officer on account of unpaid incentives in a sum of Rs.20,08,297/- as well as an addition of Rs.10,65,600/- on account of leave wages. The Learned Departmental Representative submitted that even these additions were not challenged before the Learned CIT(Appeals), therefore, in case of modification in the addition on account of Net Profit rate, such addition would stand and could not be subjected to interference. The Learned Departmental Representative, further submitted that even in the ground of appeal before the Tribunal, assessee ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -7- has not challenged the above additions. The Learned Departmental Representative submitted that in case of any interference in the Net Profit addition, the above addition would stand in the order of the Assessing Officer because Assessing Officer has specifically mentioned about these additions would cover under the addition made on the ground of Net Profit percentage.
6. In rejoinder, the ld. counsel for the assessee submitted that since the Assessing Officer did not make the above additions on account of leave wages and unpaid incentives separately, therefore, the assessee did not challenge the same either before the Learned CIT(Appeals) or before the Tribunal and in case, addition on account of Net Profit is modified, the matter may be remanded to the file of Learned CIT(Appeals) to re- consider the same.
7. We have considered the rival submissions and perused the material available on record. It is undisputed fact that the Assessing Officer considered the issue of unpaid salary and wages, unpaid Diwali bonus expenses and unpaid incentives and unpaid leave wages. The Assessing Officer considering these issues in the light of the total turnover of the assessee and considering that the administrative expenses have increased ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -8- as compared to the security charges, therefore, such an issue should be considered. The assessee has failed to furnish relevant material and facts to the Assessing Officer to explain the expenditure which have a direct nexus with the business income of the assessee. Since the assessee has not provided any satisfactory response and evidence and the authenticity and genuineness of the expenses could not be proved, the Assessing Officer, therefore, made addition on account of unpaid incentives in a sum of Rs.20,08,297/- and further addition was made on account of leave wages of Rs.10,65,600/-. Both the above additions were treated to be covered under the addition made on the ground of low Net Profit percentage. The assessee did not challenge both the above additions before the Learned CIT(Appeals) or before the Tribunal. Therefore, such additions have reached finality and could not be subjected to interference by the Tribunal more specific when no such ground of appeal or the arguments are raised on that account. Contention of assessee that it may be referred to Learned CIT(Appeals) in case of modification on addition o9n merits is, therefore, rejected.
8. The above facts therefore would show that books of account of the assessee have been rightly rejected by the Assessing Officer u/s.145 of the ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05 -9- I.T. Act, 1961. The ld. counsel for the assessee also did not make any elaborate argument on the rejection of the book results and ultimately submitted that addition on account of low Net Profit rate is excessive, unreasonable and without any basis. On consideration of above submissions, we may note that assessee in the assessment year under appeal has shown Net Profit of 0.85% on the turnover of Rs.17,36,68,915/-. The assessee in the preceding assessment year 2003- 04 has shown Net Profit rate of 5.01% on account of additional income surrendered in a sum of RS.60 lacs. If the additional income noted during the course of survey is excluded, the profit of the assessee as per books would come down to Rs.11,30,820/-, which would be at 0.80% of the security income earned by the assessee. In the other preceding Assessment Years 2001-02 and 2003-03, assessee has shown Net Profit rate of 0.95% and 1.00% respectively. The Assessing Officer has also noted comparable cases in the assessment order, however, in those cases the turnover of the comparable cases are much lower as compared to the turnover of the assessee. The Hon'ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udhyog 256 ITR 243 (Raj.) held that on mere rejection of books of account u/s.145(3) of the I.T. Act, 1961 does not mean addition is necessarily to be made. The Privy Council in the ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05
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case of CIT vs. Laxminarain Badraidas 05 ITR 170 held that estimate of profit should be fair. The Assessing Officer should not act dishonestly or vindictively or capriciously. Own knowledge, previous history, local knowledge and circumstances of the assessee to be considered to arrive at fair and proper estimate of income. The Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills 26 ITR 775( SC) held that in making the assessment u/s.23(3) of the I.T. Act, 1961, the ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence in a court of law, but the ITO is not entitled to make a pure guess work and make an assessment without reference to any evidence or any material at all. There should be something more above mere suspicion to support the assessment order.
9. Considering the facts and circumstances of the case noted above, it is clear that the Assessing Officer did not accept the book results of the assessee because Net Profit was compared with the preceding Assessment Year 2003-04. However, the Assessing Officer forgot to note that the Net Profit of the assessee in the preceding assessment year increased because of additional income of Rs.60 lacs was surrendered which was found during the course of survey. However, in the assessment year under ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05
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appeal, no such material was found against the assessee and even no survey is conducted. In the other preceding assessment years, the assessee has shown Net Profit rate of 0.95% and 1% respectively and in case additional income is excluded in the preceding assessment year, the Net Profit rate of the assessee would have 0.80% of the security income earned by the assessee. Admittedly, the assessee has only source of income from providing security services. Therefore, security income is to be compared with the earlier year. In case in Net Profit rate is compared with the preceding assessment years as noted above excluding the additional income offered for taxation in a sum of Rs.60 lacs, there is no fall in Net Profit rate as noted by the authorities below. It is also noted above that turnover of the assessee is much more higher than compared with the comparable cases noted by the Assessing Officer in the assessment year, therefore profit margin could not be same. In this view of the matter and considering the previous history of the assessee, we do not find it a fit case for enhancing the Net Profit rate in the matter. Even if book results are rejected u/s.145(3) of the I.T. Act, 1961, the entire addition of Rs.42,28,443/- on account of Net Profit rate is clearly unjustified, unreasonable and without any basis. We accordingly set aside the orders of the authorities below on this issue and delete the addition of ITA No.3926/Ahd/2007 Industrial Security Services Vs. Asst.CIT Asst.Year - 2004-05
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Rs.42,28,443/- Since this addition is deleted, therefore, the separate addition made by the Assessing Officer on account of unpaid incentive and leave wages would stand in the assessment order because they were covered by the aforesaid addition on account of Np rate by the Assessing Officer.
10. With the above finding and observation, the appeal of the assessee is partly allowed.
11. In the result, the appeal of the assessee is partly allowed. Order signed, dated and pronounced in the Court on 22 /01 /2010 Sd/- Sd/-
( D.C. AGRAWAL ) ( BHAVNESH SAINI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 22 / 01 /2010
T.C. NAIR
Copy of the Order forwarded to :
1. The Appellant. 2. The Respondent
3. The CIT Concerned. 4. The ld. CIT(Appeals)-V, Surat
5. The DR, Ahmedabad Bench. 6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad