Income Tax Appellate Tribunal - Allahabad
Dcit, Sultanpur vs Shri Shakeel Haider, Amethi on 30 September, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
ALLAHABAD BENCH, ALLAHABAD
BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
AND
SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER
ITA Nos.145 /Alld/2016
A.Y. 2011-12
Dy. Commissioner of Shri. Shakeel Haider,
Income Tax, Circle- vs. Prop. Shakeel Haider Engg. &
Sultanpur, U.P. Contractors, Jagdishpur Industrial
Area, Amethi, U.P.
PAN:ABRPH4513R
(Appellant) (Respondent)
&
ITA No.225/Alld/2016
A.Y. 2012-13
Asstt. Commissioner of Shri. Shakeel Haider,
Income Tax, Circle- vs. Prop. Shakeel Haider Engg. &
Sultanpur, U.P. Contractors, Jagdishpur Industrial
Area, Amethi, U.P.
PAN:ABRPH4513R
(Appellant) (Respondent)
Assessee by: Sh. Praveen Godbole
Revenue by: Dr. Neel Jain, CIT DR
Date of hearing: 06.08.2024
Date of pronouncement: 30.09.2024
ORDER
PER SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER:
These two appeals have been filed against the orders of the ld. CIT(A), Faizabad, vide his orders dated 16.03.2016 and 4.08.2016 for the assessment years 2011-12 and 2012-13.
1ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider
2. As the issues involved in the above two appeals are common, they are being taken up for disposal by means of a common order. The grounds of appeal preferred by the Revenue are as under:-
A.Y. 2011-12 "1. The Ld. CIT(A), Faizabad has erred in law and on facts in deleting the addition of Rs. 3,46,85,183/- ignoring the facts that the AO has applied NP rate @8% after rejecting the books of accounts of the assessee u/s 145(3) of the I.T. Act, 1961 which has not been challenged by the assessee in appeal. On the other hand, contrary to this, he has confirmed the penalty order made by AO which was based on non audit of books of accounts.
2. The Ld. CIT(A), Faizabad has erred in law and on facts in not appreciating the fact that once the books have been rejected and the same has not been challenged it means the case of the assessee becomes without books & in view of sec. 44AD of the I.T. Act minimum NP rate @ 8% should be applied which the AO has correctly done.
3. The Ld. CIT(A), Faizabad has erred in law and on facts in deleting the addition of Rs. 3,46,85,183/- without appreciating the fact that the facts of the present case are different in all respects from the facts in other earlier cases of the assessee and it would not be proper to make assessments solely on the basis of appellate orders without the books of accounts or any supporting evidence which the assessee failed to produce during the assessment proceedings.
4. That the appellant also craves to modify, amend, change and revise the above grounds of appeal and add further grounds of appeal, if necessary."
A.Y. 2012-13 "1. The Ld. CIT (A), Faizabad has erred in law and on facts and is not justified in deleting addition of Rs. 3,03,53,615/- relying upon the order of the Hon'ble ITAT in assessee's own case without appreciating the fact that even the case of an assessee may have different facts & circumstances and the facts & circumstances of the present case are different from the earlier.
2. The Ld. CIT (A), Faizabad has erred in law and facts in reducing the N.P. to 2.5% of the gross receipts without taking into account the 2 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider judgment of the Hon'ble Allahabad High Court in WTA No. 400/2016 in the case of Ajay Kumar Singh Vs. CIT, Gorakhpur in which the Hon'ble High Court upheld the 10% N.P. rate of the gross receipts.
3. That the appellant also craves to modify, amend, change and revise the above grounds of appeal and add further grounds of appeal, if necessary."
A.Y. 2011-12
3. The facts of the case are that the assessee filed a return on 31.03.201 showing a total income of Rs. 1,56,01,340/-. The ld. Assessing Officer noted that in spite of several opportunities provided to the assessee, the books of account were not furnished and the despite being served with the show cause notice, the assessee simply filed submissions wherein it tried to take shelter of the decisions in past assessment and appellate proceedings and filed some ledger account in a, "haphazard and disorganized manner" just for the sake of creating a claim of doing compliance. But no replies were furnished in respect of the specific queries raised. The ld. Assessing Officer held that the acceptability and genuineness of financial results and the allowability and viability of each and every expenditure was required to be looked into and had to be analyzed on an year to year basis, depending on the facts prevailing in that particular year and, in view of the failure of the assessee to produce any details, documents or evidences in respect of the queries raised, the department could not be compelled to accept the financial results disclosed by him only on the basis of past precedents. It was further argued that the excuses of illness of accountant etc., that were furnished were not acceptable because if the assessee could manage his entire business with health problems for so many years, then furnishing replies to income tax queries could surely be 3 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider managed with the help of qualified professionals. The ld. Assessing Officer further held that a major point of departure from previous assessment years was that in those assessment proceedings, the assessee had furnished books of accounts, bills and vouchers but in the year under consideration, the same had not been produced by the assessee. He further held that the few copies of accounts filed by the assessee on the last date, vide its reply dated 7.03.2014 did not hold any evidentiary value in the absence of any bills, vouchers and other financial records and were papers which could not be relied upon for the determining the financial results disclosed by the assessee. The ld. Assessing Officer pointed out that in the absence of books of accounts and materials available on record, it was virtually impossible to judge, ascertain and determine the true and correct profits of the assessee and the assessee had not even cared to file the audited financial statements and audit report. This led the ld. Assessing Officer to conclude that the books of accounts had not been audited as per the provisions of section 44AB of the Act and possibly revealed that regular books of accounts had not been maintained. Under these circumstances, he rejected the financial results of the assessee under section 145(3) of the Income Tax Act and estimated the net profit of the assessee by applying a rate of 8% on total gross contract receipts of Rs. 62,85,81,544/-. Since, the assessee had already disclosed a total income of Rs. 1,56,1,340/-, he made an addition of Rs.3,46,85,183/-, being the balance amount and thereafter initiated penalty proceedings under section 271(1)(c).
A.Y. 2012-13
4. In the assessment year 2012-13, the assessee filed a return of income on 31.03.2014 declaring a total income of Rs.1,36,06,860/-. In this 4 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider year also, the ld. Assessing Officer records that the assessee did not make proper compliance and that the assessee's attitude was not cooperative in the completion of the assessment proceedings. In this assessment year also, the assessee took the plea that the non-compliance was due to the assessee and his Accountant being ill. It was submitted that despite its illnesses, the assessee was submitting copies of invoices, bank accounts, labour register, ledgers, party accounts, vouchers, details of expenses and income details of receipts from Department etc,. It was further submitted that the assessee was able to obtain work from NHAI because he never lowered his standards and procured the work on account of lower margin and heavy expenses incurred on account of dependency on employees. It was further submitted that the case had been under scrutiny right since assessment year 2001-02 and consistently the Hon'ble High Court had rejected the stand of the Department to make adhoc additions after estimation of rates. The assessee reproduced a chart of his contract receipts, gross profit, net profit, gross profit rate and net profit rate, to demonstrate that he was showing an ever increasing trend in both G.P. and N.P. and prayed that considering the past history of the cases, the returned income of the assessee may be accepted. The ld. Assessing Officer records that only an application was received in this office, but the documents narrated were not produced for verification and nor were the books produced by him during assessment proceedings. He, therefore, rejected the book profit declared by the assessee and estimated the net profit @8% on total receipts of Rs.55,18,83,876/-. Furthermore, he added back interest income of Rs. 57,21,119/- and determined the total income of the assessee at Rs.4,98,71,829/-. Penalty proceedings under section 271(1)(c) were initiated.
5ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider
5. Both these matters travelled to the ld. CIT(A), Faizabad. In the assessment year 2011-12, the ld. CIT(A) held as under:-
"5. The undersigned has examined the assessment order and written submissions of the appellant. Copies of appellate orders of Ld. CIT(A) Hon'ble ITAT and Hon'ble High Court were produced in appellants own case for earlier AY's. The issues involved in appeal are discussed and decided as under:-
"a) The appellant is an individual engaged in Road Construction Work for NHAI, State Highway Authorities etc. The appellant is in the same line of business since A.Y. 2001-02. The appellant's case has been taken up for scrutiny since A.Y. 2001-02. As a result, appeals have been adjudicated by Ld.CIT(A), Hon'ble ITAT and Hon'ble ITAT in the appellants case.
b) The appellant has contended that as per the online ITR all the relevant details of audited accounts were uploaded. It was stated that nature of assessees work i.e. Road Construction is the same every year since 2001-02. The appellant contended that on one hand the AO has held that appellant was non cooperative during assessment proceedings and on the other hand has stated that the Ld. AR appeared before the AO on various dates.
c) The appellant has contended that books of accounts were examined by Ld. AO and ledger accounts of expenses were produced but due to handmade vouchers of wages and freight the AO termed it haphazard. It was stated that around 500 pages of photocopies of bills/vouchers were produced. However, the AO has categorically mentioned in the assessment order that books of accounts were not produced and only copies of some ledger accounts were filed along with appellants own submissions for the sake of compliance.
d) The issue involved in the present case is that AO has Invoked the provisions of section 145(3) of the Act and estimated the net profit of the appellant @ 8% of the gross receipts.
e) With this background, it will be pertinent to examine the history of the appellant as the appellant is in the line of Road Constriction and case has been scrutinized starting from A.Y. 2001-02. The results reflected by the appellant from A.Y. 2001-02 to A.Y. 2011-12 in the returns of income filed are tabulated as under:-6
ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider A.Y. Contract G.P. N.P. G.P. N.P. receipts Rate Rate 2001-02 73498137.00 4237715.00 1185109.84 5.76% 1.61% 2002-03 94656213.00 6770734.00 1743326.00 7.15% 1.84% 2003-04 155113709.00 9260114.00 3072370.00 5.96% 1.98% 2004-05 182129952.00 10036659.00 3456740.00 5.51% 1.90% 2005-06 160407682.00 7499421.00 3079827.00 4.97% 1.88% 2006-07 303910792.00 18088560.00 5853154.00 5.97% 1.93% 2007-08 295253578.00 205520775.0 5758018.00 6.94% 1.95% 0 2008-09 733116699.94 54161866.94 20972366.39 7.39% 2.86% 2009-10 333982072.35 27531695.35 7551074.48 8.24% 2.27% 2010-11 628581544.00 44612053.00 7551074.48 7.10% 2.48% Perusal of the above table reveals that the NP rate shown for the year under consideration is highest since A.Y. 2001-02 in spite of the fact that there is substantial increase in turnover.
f) The status of appellant proceedings in earlier years is as under:-
• Α.Y. 2003-04 In this case the Hon'ble ITAT applied GP rate of 6.5% on contract receipts.
Α.Y. 2004-05 Assessment was completed u/s 144 of the Act. AO applied NP rate of 5% as against 1.7% shown by appellant.
The Ld. CIT(A) relied on order of Hon'ble ITAT Allahabad in appellants own case for A.Y. 2003-04 dated 1.10.2007 wherein GP rate of 6.5% on contract receipts was upheld. Accordingly GP rate of 6.5% was upheld instead of 4.5% shown by appellant. Revenue went before Hon'ble ITAT Allahabad who vide consolidated order for A.Y. 2004-05 and A.Y. 2005-06 dated 21.11.08 applied GP rate of 6.5% on contract receipts Revenue went before Hon'ble High Court where it was held that assessment made by CIT(A) and Tribunal is finding of fact on which no question raises for consideration. Appeal was dismissed.
Α.Y. 2005-06 Hon'ble ITAT applied GP rate of 6.5% on contract receipts Α.Y. 2006-07 AO made additions/disallowances on account of purchase of material, wages, creditors, depreciation, business promotion expenses, site 7 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider expenses, staff welfare expenses. Disallowances to the extent of Rs. 3.45 crore were made.
The Ld. CIT(A) relied on the order of Hon'ble ITAT for A.Y. 2004-05 and A.Y. 2005-06 and upheld GP rate of 6.5% on contract receipts. * The Hon'ble ITAT upheld the GP rate of 6.5% on contract receipts. Α.Υ. 2007-08 AO applied GP rate of 7.5% on gross contractual receipts and made addition of Rs. 26.76 lacs.
The Ld. CIT(A) held that there are no valid reasons to differ with the finding of ITAT given in the preceding AY's as regard to GP rate applied at 6.5%. It was held that there is no reason to enhance the GP rate.
Revenue filed appeal before Hon'ble ITAT. It was held that in similar set of circumstances the ITAT in A.Y. 2004-05 and 2005-06 had upheld GP rate at 6.5% as compared to earlier years, the GP rate shown by appellant was on higher side so there was no justification for making addition.
Α.Υ. 2009-10 AO applied GP rate @ 7.81% on gross receipts as against 7.39%. shown by the appellant.
The Ld. CIT(A) vide order dated 12.11.2013 held that GP rate shown is much higher than that held in order of Hon'ble ITAT and Hon'ble High Court in appellants own case i.e. GP rate of 6.5% on contract receipts. In view of the same the addition of Rs. 73,31,486/- was deleted by the Ld. CIT(A).
8) The analysis of the above mentioned orders of Ld. CIT(A), Hon'ble ITAT and Hon'ble High Court in the appellants own case reveals that GP rate @ 6.5% on contract receipts has been upheld in appellant proceedings. The assessments for A.Y. 2003-04, 2004-05, 2005-06 and 2006-07, 2007-008, and 2009-10 have either been completed on ex- parte basis or the books of accounts were rejected by invoking provisions of section 145(3) of the Act and GP rate/NP rate was estimated. In A.Y. 2006-07 disallowances of expenses to the tune of Rs. 3.45 crore was made. However, in appeal before Ld. CIT(A) and Hon'ble ITAT the GP rate @ 6.5% on contract receipts has been upheld as in earlier AY's. It was held that there was no justification in making an addition on the higher side.
8ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider
h) Admittedly, there is no change in the business activities of the appellant during the year. The appellant is in the same line of business since A.Y. 2001-02. It is also a fact that in the present case the gross receipts of the appellant have been accepted by the AO. The AO has estimated NP rate @ 8% on the contract receipts by invoking provisions of section 145(3) of the Act. It is also a fact on record that Hon'ble ITAT has upheld GP rate @ 6.5% on contract receipts. The AO has not given any new facts in this year which show that decisions of Hon'ble ITAT given in preceding AY's became inapplicable in the present year. The AO has enhanced NP rate @ 8% on adhoc basis. Even in cases where no material is placed on record by the assessee, a reasonable estimate has to be made by the AO having reasonable nexus to the past history of the case. In the present case GP rate @ 6.5% has been upheld by Hon'ble ITAT through different AY's in the appellant's case and the same has been adjudicated up to Hon'ble High Court, therefore, it would not be appropriate to allow the same to be altered in the year under consideration.
i) In the present AY the appellant has shown GP rate @ 7.10% and NP rate @2.48% (highest since A.Y. 2001-002) which is higher than that held by Hon'ble ITAT in appellants own case in earlier AY's. The AO is not entitled to make a pure guess without reference to the past history, incriminating and corroborative evidence and circumstances of the present case.
In view of the fact that GP rate shown by the appellant (7.10%) is higher than that held in orders of Ld. CIT (A) and Hon'ble ITAT in earlier years (6.50%) in appellants case, it is held that there is no justification in making addition by estimating NP-rate @ 8% of gross receipts. In view of these facts the addition of Rs. 3,46,85,183)- made by the AO is deleted.
6. As a result the appeal is allowed."
6. In the assessment year 2012-13, after considering the facts, the ld. CIT(A) held as under:-
"4(4) I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. The first issue is the rejection of the books of accounts of the appellant under section 145 of the Act. Section 145(3) of the Act enables the AO to make a best judgment assessment in the manner provided in section 144 of the Act, if 9 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider he is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or Accounting standards as notified under sub-section (2) have not been regularly followed by the assessee.
In the aforesaid provisions the completeness of accounts refers not only to the accounting entries for all the transaction done in the previous year but also to the list of ledger/books of accounts as described in section 2(12A) of the Act and logically it also refers to the support registers, documents, bills, invoices etc. In other words, the failure to maintain relevant registers or any other books described in the provisions makes the accounts of the assessee incomplete. On the other hand, the correctness of the accounts refers to the quality or accuracy or reliability of the accounts maintained by the assessee and it covers the reconcilable mistakes or errors in accounts. Thus, the completeness refers to list of books of accounts and entries therein and the accuracy refers to the quality of the accounts of the assessee. The Assessing Officer has therefore to establish the inaccuracy in the books of account maintained by the assessee and the triviality or otherwise is not the issue. The provisions are clear that in principle the Assessing Officer can assume jurisdiction under section 145 either for the reasoning of the 'incompleteness of the books or for the reasoning of the inaccuracy of the same.
4(5) In the instant case the AO has given a categorical finding that the assessee failed to produce necessary books of accounts and purchase and other vouchers for verification of the authenticity of the books of accounts. Under the circumstances I am of the considered view that the AO is justified in rejecting the books of accounts by taking recourse to provisions contained in section 145 of the Act. 4(6) The second issue at hand, is the justification of estimating the income of the appellant. The AO, having rejected the books of accounts and rightly so, estimated the income of the appellant, @8% of the contract receipts of Rs. 55,18,83,876/R 4,41,50,710/-. The income of the appellant was therefore assessed at Rs. 4,98,71,830/- including interest income of Rs. 57,21,119/- as against income of Rs. 1,36,06,860/-shown in the return of income. The appellant claims that the rate of 8% adopted for estimation of income is arbitrary and highly excessive in the contractual business. The appellant is engaged in Road Construction Work for NHAI, State Highway Authorities etc. The appellant is in the same line of business since assessment year 2001-2002. I find that the reasons given by the AO though sufficient 10 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider for rejection of books of accounts do not justify adoption of exorbitant rate of 8% for estimating the income of the appellant from contract business Neither any reasons have been given by the AO to adopt the rate nor has any comparable case been pointed out to adopt the rate of 8%.
4(7)(i) In CIT v. Laxminarain Badridas [1937] 5 ITR 170 (PC) their Lordships of the Privy Council observed as follows:
"The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessment must be, to some extent, arbitrary. "
Since the law relating to "best judgment assessment" is the same both in the case of income-tax assessment and sales tax assessment, the following observations in Raghubar Mandal Harihar Mandal v. State of Bihar [1957] 8 STC 770, 778 (SC), a case under the Bihar Sales Tax Act, would be material:
"No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than mere suspicion."
Again in State of Kerala v. C. Velukutty (1966) 60-ITR-239 (SC), which was a case under the Travancore-Cochin General Sales Tax Act, the court observed:
11ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider "The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case."
4(7)(ii) It will appear clear from what has been said above that the authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case. It has been laid down by Hon'ble Calcutta High Court in the case of Dabros Industries Company (P) Ltd Vs CIT (1977) 108 ITR 424 (Cal) as under -
Accounts rejection -ITO applied s145 and made certain additions on the basis of past performance in absence of proper accounts to arrive at a correct profit - rejection and estimation on the basis of available material justified once the books of accounts of an assessee are rejected then profit has to be estimated on the basis of available material.
4(8) In view of above, I am of the opinion that once the books of accounts of the assessee have been rejected under section 145(3) of the Act, the best course available to the AO to estimate the income of the assessee to the best of his judgment as per section 144 of the Act is to estimate the profit of the assessee as a percentage of receipts However, the estimation should have some nexus to the final accounts submitted by the assessee along with its return of income. 4(9) I find that the comparative position of the financial statements of the assessee for earlier years and current year is as under -
A.Y. Contract G.P. N.P. G.P. N.P.
receipts Rate Rate
2001-02 73498137.00 4237715.00 1185109.84 5.76% 1.61%
2002-03 94656213.00 6770734.00 1743326.00 7.15% 1.84%
2003-04 155113709.00 9260114.00 3072370.00 5.96% 1.98%
2004-05 182129952.00 10036659.00 3456740.00 5.51% 1.90%
2005-06 160407682.00 7499421.00 3079827.00 4.97% 1.88%
12
ITA Nos.145 & 225/Alld/2016
A.Ys. 2011-12 & 2012-13
Shakeel Haider
2006-07 303910792.00 18088560.00 5853154.00 5.97% 1.93%
2007-08 295253578.00 205520775.00 5758018.00 6.94% 1.95%
2009-10 733116699.94 57161866.94 20972366.39 7.39% 2.86%
2010-11 333982072.35 27531695.35 7551074.48 8.24% 2.27%
2011-12 628581544.00 44612053.00 7551074.48 7.10% 2.48%
2012-13 551883876 558684459 13606856 10.12% 2.47%
4(10) Perusal of the above table reveals that the gross profit rate shown for the ye under consideration is highest since assessment year 2001-2002 in spite of the fact that there is substantial increase in turnover. The position of appellant proceedings in earlier years is as under:-
In the Assessment Year 2003-2004 and Assessment Year 2004-2005, the Hon'ble ITAT, Allahabad applied gross profit rate of 6.5% on contract receipts in ITA No. 236 and 237/All/08 dated 21.11.2008. Revenue went befo Hon'ble High Court where it was held that no question of law arises for consideration and the Appeal filed by the Department was dismissed.
In the Assessment Year 2005-2006 the Hon'ble ITAT, Allahabad applied gross profit rate of 6.5% on contract receipts vide order date 21.11.2008. In the Assessment Year 2006-2007 the AO made additions/disallowances on account of purchase of material, wages, creditors, depreciation, business promotion expenses, site expenses, staff welfare expenses. Disallowances to the extent of Rs. 3.45 crore was made. The CIT(A) relied on the order of Hon'ble ITAT, Allahabad for assessment years aforesaid and upheld gross profit rate of 6.5% on contract receipts. The Hon'ble ITAT, Allahabad upheld the gross profit rate of 6.5% on contract receipts.
In the Assessment Year 2007-2008 the AO applied gross profit rate of 7.5% on contractual receipts and made addition of Rs. 26.76 lakh. The CIT(A) held that there are no valid reasons to differ with the finding of Hon'ble ITAT. Allahabad given in the earlier assessment years as regard the rate applied at 6.5%. It was held that there is no reason to enhance the gross profit rate. Revenue filed appeal 13 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider before Hon'ble ITAT. Hon'ble ITAT, Allahabad vide their order dated 20.05.2011 held that in similar set of circumstances the Bench in earlier assessment years had upheld rate at 6.5% and rate shown by appellant was on higher side so there was no justification for making addition.
In the Assessment Year 2009-2010 the AO applied gross profit rate of 7,81% on receipts as against 7.39% shown by the appellant. The CIT(A) vide onder dated 12.11.2013 held that profit rate shown is much higher than that held in order of Hon'ble ITAT and Hon'ble High Court in appellants own case gross profit rate of 6.5% on contract receipts. In view of the same the addition of Rs. 73,31,486/- was deleted by the CIT(A). The appeal filed by the Revenue was dismissed by the Hon'ble ITAT, Allahabad in ITA No. 46/All/2014 dated 09.05.2016.
In Assessment Year 2011-2012 the addition made by the AO stands deleted by CIT(A) in Appeal No. 137/CIT(A)-FZD/14-15 dated 16.03.2016.
4(10) It is evident from the discussion above that gross profit rate of 6.5% adopted has been consistently followed in earlier years. In the year under consideration the appellant has shown gross profit rate of 10.12% and net profit rate of 2.47%. Since the rate shown by the appellant is more than the rate of 6.5% adopted in earlier years, the same looses significance in the year under consideration. Taking all factors into consideration I am of the considered view that net profit rate of 2.5% be applied for the year under consideration. In view of the discussion above, the income of the appellant is estimated as under:-
Gross receipts Rs.55,18,83,876/- Profit @ 2.5% Rs. 1,37,97,096/- Add Intersex income Rs. 57,21,119/- Assessed Income confirmed Rs. 1,95,18,215/-
The income assessed by the AO at Rs.4,98,71,830/- is confirmed to the extent of Rs.1,95,18,215/- giving relief of Rs. 3,03,53615/- to the appellant."
14ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider
7. The Revenue is aggrieved at this decision of the ld. CIT(A) and has accordingly come before us.
8. Sh. A.K. Singh, Sr. DR (hereinafter referred to as the 'ld. Sr. DR) pointed out that the assessee had not contested the rejection of his books of accounts. On a query from the Bench regarding the production of books of accounts by the assessee in the past assessment years, it was submitted that in 2003-04, the books had not been produced as stated in the ld. Assessing Officer's order for the assessment year 2004-05. In 2004-05 also the books of accounts had not been produced as stated by the AO under section 144. Neither were these produced in 2005-06 or 2006-07. Copies of all these orders passed by the AO under 144 were filed. In 2007-08, the ld. Sr. DR submitted that the books were produced, but they were supported by self-made vouchers only as stated by the AO in his order under section 143(3). It was only in 2009-10 that the books of accounts were produced, as stated in AOs order under section 143(3). But in 2011-12 and 2012-13, the books of accounts were not produced. The fact of the non-production of the books of accounts had also been mentioned in the ITAT's earlier order in assessment year 2011-12 (which had since been recalled). The ld. Sr. DR pointed out that the assessee was a habitual defaulter and deliberately did not produce the books of accounts before the ld. Assessing Officer in order to compel the department to accept his financial results based upon decisions of higher authorities in previous assessment years. It was submitted that each assessment year was separate and accounts were required to be examined on an year to year basis. The past history of the case could not be the sole ground to determine the profits of the assessee from the year to year because otherwise there would be no need for fresh 15 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider assessments of the case. He, therefore submitted that since it was a well thought out strategy on the part of the assessee to avoid production of the books of accounts and supporting documents before the department, the net profit determined by the ld. Assessing Officer should be upheld as a deterrent measure. He also drew reference to the decision of the Hon'ble Allahabad High Court in the case of Ajay Kumar Singh vs. Commissioner of Income Tax, wherein the Hon'ble Allahabad High Court in Writ Tax No. 400/2016, had held as under:-
"The assessing authority had rejected the account books leaving no other material before him on the basis of which any estimation of income could have been done except for the Gross Contract Receipts of the year 2010-11. Therefore, he proceeded to assess the income on its basis.
The assessment on the basis of the past income of the petitioner could not have been very safe. An assessee in the past may be having low income whereas his business fortunes may have improved upon considerably in the year in question. Therefore, when the Gross Contract Receipt was on record, it was more safe and prudent to depend upon it rather than the past tax record. In Commissioner of Income-Tax vs. Mettewal Co-operative Society 2015 ITR 377 it has been held that the power of assessment conferred upon the Assessing Officer is quasi-judicial in nature and must be guided by reason which may involve a degree of guesswork but upon a rational analysis of facts. It refers to few significant factors one of it being the past tax history of the assessee.
The past tax history of the assessee may be one of the guiding factors for making best judgement assessment under Section 144 of the Act but the Gross Contract Receipt of the relevant year appears to be a more authentic and a sure guide for the assessment. The past tax history would have been more useful in the absence of Gross Contract Receipt.
Accordingly, assessment on its basis cannot be faulted merely for the reason that past tax history was not considered.16
ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider The question is to whether the assessment should have been @ 10% of the Gross Contract Receipt or at some reduced rate dependants upon the facts and circumstances of the each case. In the event, the assessing authority has exercise the discretion to assess it on 10% of the Gross Contract Receipt, the same is not liable to be disturbed in exercise of extra ordinary discretionary jurisdiction, unless it is shown that the application of the said rate was patently erroneous in law.
No such material has been placed before me to show that the assessment @ 10% of the Gross Contract Receipt is arbitrary or palpably erroneous.
The revisional authority held that the case of Jaswant Singh, wherein the income of the contractor was assessed to 6% of the Gross Contract Receipt is not applicable in the present case. In view of the aforesaid facts and circumstances of the case, I find no force in the petition.
The petition is dismissed."
He, therefore, prayed that in view of the observations of the Hon'ble Allahabad High Court, the estimations made by the ld. Assessing Officer deserved to be upheld.
9. On the other hand, Shri. Praveen Godbole, C.A. (hereinafter referred to as the 'ld. AR') pointed out that the ld. CIT(A) has applied a net rate of 2.5 on declared receipts after considering the entire facts and evidences placed on record and after considering the decision of the Hon'ble Allahabad High Court and the Hon'ble ITAT Benches in the assessee's own case. It was submitted that the orders passed by the ld. CIT(A) were well reasoned and speaking orders in the eyes of law. It was further submitted that during the appellate proceedings, comparative chart showing trading results, decisions of the Hon'ble ITAT Benches and the Hon'ble High Court decisions in the assessee's own case was furnished and in the said decisions, the trading results were accepted. The comparative charts 17 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider showing trading results and the decision of the Hon'ble ITAT Benches in the assessee's own case had been reproduced in the order of the ld. CIT(A) at page nos. 6 and 7 of the order for the assessment year 2012-13. It was submitted that the ld. CIT(A) had accepted the G.P. rate because the assessee had disclosed a better G.P. rate during the year. The ld. AR placed reliance on the decision of M/s Prakash Industries Limited 324 ITR 391 in which it was held that once the Revenue had accepted the view of the Commissioner (Appeals) in a particular assessment year then it was not open to the Revenue to challenge a similar findings and deviate from its earlier stand. Therefore, under the principle of consistency, the Revenue was required to accept the trading results declared by the assessee as had been sustained in appeal and not deviate from the past history of the case. The ld. AR also filed a paper book containing the various decisions of the ITAT and the Hon'ble Allahabad High Court in the assessee's own case in previous assessment years. Finally, he submitted that the issue was primarily that net profit and a number of cases had been referred to Third Member for determination as to whether estimate could be made by taking a clue from the provisions of section 44AD or whether the past history of the assessee was the best guiding factor in the instant case and the ld. Third Member had held that the past history was the best guiding factor for determining net rate. Accordingly, the net rate disclosed by the assessee should be accepted.
10. We have duly considered the facts and circumstances of the case. We observe that the ld. CIT(A), in assessment year 2011-12 has upheld the rejection of the books of accounts by the ld. Assessing Officer in assessment year 2011-12, while the assessee has not contested the rejection of books 18 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider of accounts in assessment year 2012-13. Thus, it is not in doubt that the conclusions drawn by the ld. Assessing Officer with regard to be the fact that the books of accounts were incomplete and incorrect and possibly not even audited stand upheld by the first appellate authority. However, as the ld. CIT(A) have pointed out in both the assessment years, even in cases where no material is placed by the assessee, a reasonable estimate has to be made by the ld. Assessing Officer having a reasonable nexus to the final accounts submitted by the assessee or the past history of the case. In both years, the ld. CIT(A) have relied upon the past history of the case to determine the estimate of income. We also observe that while there are justified reasons for the ld. Assessing Officer to reject the books of the assessee, the ld. Assessing Officer has not taken any exercise by way of comparison with other similar cases to demonstrate that the book results being shown by the assessee, amounted to an understatement of income. We observe that there are sufficient penal provisions in the Income Tax Act to compel the assessee to keep, maintain or retain books of accounts, documents etc., to get such books of accounts audited before the due date and to compel him to produce accounts and documents but the assessment order does not reveal that the ld. Assessing Officer resorted to any of these penal provisions, in order to compel the production of the necessary books of accounts or documents before him, so as to enable him to do a proper assessment of the income of the assessee. In our view, the estimation of income at a higher figure without reference to any comparable cases or the past history of assessee and without reference to any material whatsoever, cannot be a substitute for exercising the penal powers available with the ld. Assessing Officer to compel compliance during assessment proceedings or punish for failure to comply. We have duly considered the judgment of 19 ITA Nos.145 & 225/Alld/2016 A.Ys. 2011-12 & 2012-13 Shakeel Haider Hon'ble Allahabad High Court which has been relied upon by the ld. Sr. DR. We observe that the Hon'ble Allahabad High Court has itself held, that the question of whether the assessment should have been at a particular estimate or not depends on the facts and circumstances of each case and, if the assessing authority has exercised its discretion to assess it at a particular percentage of the gross contract receipt, the same was not liable to be disturbed unless it is shown that the application of the said rate was patently erroneous in law. However, in the case before us, it is observed that the ld. Assessing Officer has not given any reason for applying a net profit rate of 8%. Hence, the same appears to be arbitrary and whimsical without being based on any scientific analysis or comparable instances. In such a case, the aforesaid judgment of the Hon'ble Allahabad High Court would not come to the aid of the Revenue, particularly when there are several judgments in the assessee's own case that have been relied upon by the ld. CIT(A) to uphold the assessee's disclosed rate or to enhance it with minor variation. We, therefore, find no infirmity in the orders of the ld. CIT(A) and we accordingly uphold the same. Both appeals are accordingly dismissed.
11. In the result, the appeals of the Revenue are dismissed.
Order pronounced on 30.09.2024 at Lucknow, U.P. Sd/- Sd/-
[SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY]
JUDICIAL MEMBER ACCOUNTANT MEMBER
DATED: 30/09/2024
Sh
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ITA Nos.145 & 225/Alld/2016
A.Ys. 2011-12 & 2012-13
Shakeel Haider
Copy forwarded to:
1. Appellant -
2. Respondent -
3. CIT DR , ITAT,
4. CIT,
5. The CIT(A)
By order
Sr. P.S.
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