Income Tax Appellate Tribunal - Chennai
Bbc Associates Ltd., Chennai vs Department Of Income Tax
IN THE INCOMETAX APPELLATE TRIBUNAL: B- BENCH:CHENNAI
(Before U.B.S.Bedi, Judicial Member and
Shri Abraham P. George. Accountant Member )
ITA Nos.1581 & 1582/ Mds/09
&
CO No.110 & 111/Mds/09
(Asst. years 2000-01 & 2001-02)
The ACT vs M/s BBC Associates Ltd,
Co.Cir. I(2), Chennai 15 Neelakanta Mehta St.,
T.Nagar, Chennai 600017.
(PAN AAACB3586B)
(Appellant) (Respondent/Cross-objector)
Appellant by: Shri K.E.B.Rangarajan,
Jr.Standing Counsel
Respondent/Cross objector by: Shri T.Banusekar
ORDER
PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER--
These are appeals of the Revenue against the orders dated 22-07- 2009 of the CIT(A) for the respective years and cross-objections of the assessee for the same years.
ITA NOS. 1581-2 & 2CO 110&111/Mds/09
2. Appeal of the Revenue for asst. year 2000-01 is taken first for disposal.
3. Short facts apropos are that the assessee, a property developer, had filed its return of income for the impugned assessment year pursuant to a notice under sec.148 of the Income-tax Act, 1961 ('the Act' for short), on 10-02-2004 declaring nil income. During the course of assessment, AO required the assessee to produce the books of account and various other details. However, these were not produced and assessment was completed under sec. 144 of the Act to the best of judgment of the AO. He rejected the book results itself shown by the assessee in its return and on the gross turnover estimated net profit at 8% and completed the assessment.
4. In its appeal before the CIT(A) submission of the assessee was that there was a set back in its business due to a search and seizure proceedings conducted by the Revenue in March, 1996 resulting in enmasse resignation of employees and directors from the company. According to the assessee, due to search, bankers and creditors withdrew their support and day to day business activities suffered. Assessee therefore, sought leave from the CIT(A) for producing the books of account and other related records before the AO. CIT(A) was of the opinion that there was reasonable cause for non production of books of account and ITA NOS. 1581-2 & 3 CO 110&111/Mds/09 details. He, therefore, sought a remand order from the AO and directed the assessee to produce the books of account and details required by the AO before the latter. The pertinent part of the remand order is reproduced hereunder:
"After considering the submissions, I find that there was reasonable cause for not producing the books of accounts due to setback in the business and, therefore, the case is to be remanded back to the AO for verification. The appellant shall be entitled to produce the books of accounts and such other details as required by the AO during the course of remand proceedings. The AO shall examine the books of accounts and other details and submit a remand report regarding acceptance of books of accounts maintained by the appellant. In case there were defects in the books of accounts, the AO shall specify the defects in the books of accounts and make out a case for rejection of books of accounts and estimation of income. In case the income is to be estimated the AO shall furnish comparable cases based on which the income of the appellant can be estimated for both the asst. years. The AO shall submit his remand report covering the above points within one month from the date of receipt of this order."
5. Pursuant to this a remand report dated 29-04-2009 was received by the CIT(A). The remand report covered asst. year 2000-01 as well as asst. year 2001-02. AO in the said remand report mentioned that assessee had produced the books of account namely cash books, bank book, project expenses ledgers, general expenses ledger, and ledger for assets and liabilities along with relevant vouchers. After examining such books for the relevant previous year, viz. F.Y 1999-2000, the AO came to the following conclusion:
ITA NOS. 1581-2 & 4
CO 110&111/Mds/09
(i) Assessee was following mercantile system of accounting.
(ii) The ledger produced by the assessee reflected project expenses of `2,86,70,824/- against `2,87,24,179/- claimed by the assessee.
(iii) The total project expenses as per books came to `4,73,99,743/-
against assessee's claim of `4,77,98,162/-.
(iv) Individual cost of the projects given by the assessee did not tally with the ledger accounts.
6. For the above reasons, AO was of the opinion that profit of individual projects could not be arrived on the basis of the books of account produced by the assessee. AO had also sought from the assessee, during the remand proceedings, details of opening stock, closing stock, cost of project, value of construction agreement etc. and admittedly these were filed by the assessee. AO during such proceedings intimated the assessee that there could not be a situation where flats would be sold at a loss since real estate business was booming during the relevant period. At this, assessee consented for applying average gross profit method for projects in which it had shown loss, applying such gross profit to the total sales turnover. AO in the remand report noted that average gross profit for the relevant previous year came to 3% and at para 3.7 of the remand report he gave the following conclusion:
ITA NOS. 1581-2 & 5
CO 110&111/Mds/09 "3.7 If the average profit of 3% is adopted, the profit on the sale of 19 flats (for `2,82,94,115) comes to `8,48,823/-. The carry forward unabsorbed loss of AY 1999-00 of `2,57,726/- may be allowed to be set off against the above income."
7. Ld. CIT(A), based on the remand report directed the AO to adopt 3% of the sales turnover of 19 flats as the profit for the relevant previous year and also directed the AO to set off depreciation loss of `/2,57,726/- carried forward from asst. year 1999-00.
8. Now before us, ld. DR assailing the order of the CIT(A), submitted that 6% weighted average profit ought have been adopted, since this was percentage mentioned in that part of the remand report pertaining to A.Y 2001-02. According to him remand report suggested set off of brought forward depreciation of `2,57,726/-, erroneously. Per contra, ld. AR supported the order of the CIT(A).
9. We have heard the parties and carefully perused the orders. We have reproduced the pertinent part of the remand report at para 6 above. We cannot fault the AO for rejecting the books of account since there was certain lacunae noted in the figures claimed as expenses by the assessee and those appearing in its' ledger. Nevertheless, at para 3.7 of the report AO has clearly stated that carry forward unabsorbed ITA NOS. 1581-2 & 6 CO 110&111/Mds/09 depreciation can be allowed and the average profit of 3% can be adopted for the relevant previous year. It is specifically noted in para 3.6 of the remand report that assssee's submission and consent for applying average gross profit was accepted by the AO and accordingly he had worked out the profit rate 3%. CIT(A) gave effect to this remand report. We cannot find any fault in the order of the CIT(A) in this regard. There is no rule that unabsorbed depreciation of earlier years cannot be deducted against estimated profits in a later year. There is no case for the Revenue that assessee was doing a different business in the relevant previous year, vis-à-vis earlier years. We thus find no merit in the appeal of the Revenue which stands dismissed.
10. Now we come to the appeal of the Revenue for A.Y 2001-02. Its' grievance appears at ground No.2, which is reproduced hereunder:
"2. The ld. CIT(A) erred in deleting the addition made by the AO on the ground that the books were rejected in the remand proceedings.
2.1 The ld.CIT(A) has failed to note the fact that the assessee itself has accepted that its books were not reliable and offered for applying average gross profit percentage for the asst. years 2000-01 to 2001-02. The AO had suggested estimation in this case only after the consent of the assessee and its acceptance that it is unable to explain the profit succinctly (para 3.6 of AO's remand report).
2.2 The ld.CIT(A) has failed to appreciate that the assessee has claimed loss of `23,10,151/- on sale of four flats in BBC Thallam and loss of `21,43,310/- on sale of 15 flats in BBC West End in asst. year 2001-02 and has been unable to explain how it could sell the facts at a loss and finding of AO for asst. year 2000-01 on this and ITA NOS. 1581-2 & 7 CO 110&111/Mds/09 assessee admission for asst. year 2000-01 are equally applicable to asst. year 2001-02.
2.3 The assessee had, before the CIT(A) had taken a divergent stand that it was not justified to apply average weighted method to arrive at the profit. In view of the change of stand by the assessee before the CIT(A) subsequent to the remand report, the CIT(A) ought to have given an opportunity to the AO to rebut the argument of the assessee.
2.4 The ld.CIT(A) has filed to note the fact that the assessee company had continued the same projects as detailed by the AO in the remand report submitted for the A.Y 2000-01 and that the AO applied the same analogy while suggesting estimation for both asst. years 2001-02 & 2001-02 on weighted average profit of 6% on the basis of consolidated report for A.Yrs. 2000-01 & 2001-02. The ld.CIT(A) in the absence of materials on record warranting differential treatment, ought to have applied the same estimation for both asst. years."
11. As mentioned in the ground and as already noted by us, the remand report given by the AO separately covered asst. years 2000-01 and 2001-
02. For A.Y 2000-01 assessee had suggested application of average gross profit of 3% on the turnover and this was accepted. Nevertheless, in that part of the remand report covering asst.year 2001-02, Ld. AO had suggested average profit of 6.06% for the relevant previous year. According to the Revenue, AO had suggested such estimation only after receiving consent from the assessee and assessee could not explain how certain flats were sold at a loss.
ITA NOS. 1581-2 & 8CO 110&111/Mds/09
12. Facts relevant are that during the relevant previous year also, assessee was continuing the same business. However, in the part of the remand report dated 29-4-09, covering the previous year relevant to A.Y 2001-02, AO did not point out any defect in the books produced by the assessee As already mentioned by us at para -5 above, for A.Y 2000-01 AO had pointed out certain defects in the books of accounts, on account of variations between its' claims and the amounts appearing in the ledger under certain heads. Nevertheless, for the impugned asst. year no such defects were pointed out by the AO. Relevant part of the remand report is reproduced hereunder:
"4. Asst. Year 2001-02 : Similarly for this Asst Year, the assessee did not produce the books of accounts at the time of scrutiny proceedings and also the tax audit report before the Assessing Officer. Subsequent to the remanding of the case, the assessee was given an opportunity of producing the books of accounts and also the copy of the tax audit report which was stated to have been filed in Circle II (Investigation). The assessee was also asked to file the copy of the acknowledgement for having filed the tax audit report in Circle II (Investigation). The assessee produced the copy of tax audit report signed by one Mr. K. Santhanam, CA on 30.8.2001. The assessee also produced the copy of acknowledgement for having filed the tax audit report in Circle-II (Investigation) on 25.10.2001 for the AY 2001-02. The assessee also produced the following books of accounts (i) Cash Book (ii) Bank book (iii) General Expenses Ledger and (iv) Journal along with relevant vouchers. The books of accounts produced were examined. After examining the books, I submit my report as under.
4.1. During the FY 2000-01 (AY 2001-02), the assessee company continued the same projects as detailed para 3.1 above. During the ITA NOS. 1581-2 & 9 CO 110&111/Mds/09 year, the assessee had sold 05 flats in Diwan Raman Road, 04 flats in BBC Thailam Garden, 15 flats in BBC Westend and 2 flats in BBC Kings villa. The total sale consideration admitted by the assessee in the P&L A/c was 2,75,76,800/-. The cost of the project which is debited to the P&L A/c was arrived at by the assessee as under.
Opening Projects work in progress : Rs. 9,76,32,540 Add: Project expenses for the year : Rs. 2,08,80,837 Rs. 11,85,13,377 Less: Closing work in progress : Rs. 8,74,34,262 Cost of the project debited to P&L A/c : Rs. 3,10,79,115 4.2 The assessee was asked to file the details of opening stock, closing stock, cost of the project, value as per construction agreement entered into during the year (i.e. income recognized) and actual amount received from the buyer - all project wise. The assessee filed the details. As stated above, during the year, the assessee has sold 26 flats in all, the details are as under.
Name of the project No. of flats Cost of flat Sale % of
SOLD Consideration Profit
BBC Diwan Raman Road 05 34,50,807 37,28,010 7.44%
BBC Thailam 04 85,43,651 62,33,500 Nil
BBC Westend 15 1,67,26,985 1,45,83,675 Nil
BBC Kingsvilla 02 23,57,672 30,42,485
Total 26 3,10,79,115 2,75,87,670
4.3 If the average profit of 3% is adopted for the AY 2001-02 as in AY 2000-01, the profits comes to Rs.8,27,630 (2,75,87,670)(3%).
4.4 However, if the profits shown by the assessee on the projects for both the AYs 2000-01 and 2001-02 is taken together then the average profit percentage will be 6.06% as under. As discussed in para 3.6 above, the average profit percentage for both the assessments year is arrived at as under.
AY 2000-01 : Cost of flat of BBC Thailam : Rs. 16,45,541
Cost of flat of BBC Westend : Rs. 1,25,41,121
ITA NOS. 1581-2 & 10
CO 110&111/Mds/09
AY 2001-02 : Cost of flat of Diwan Raman Road : Rs. 34,50,807
Cost of flat of BBC Kingsvilla : Rs. 23,57,672
(1645541 x 8.53 + 12541121 x 2.28) + (3450806 x 7.44 + 2357672 x 22.50) 1645541 + 12541121 + 3450807 + 2357672 = 6.06% 4.5 If the average profit of 6.06% is adopted, the profit on the sale of 26 flats (for Rs.2,75,87,670) comes to Rs.16,71,813/-."
13. The view taken by the AO in the remand report was strongly objected to by the assessee before the CIT(A). According to the assessee, AO could not specify any defects in the books of account and therefore, rejection of books of account and estimation of income could not have been made. Assessee submitted that it has produced books of account and all vouchers before the AO and relying on the decision of CIT vs. Abdul Aziz Sahib (7 ITR 647) of the jurisdictional High Court, it was argued that without setting out reason for disregarding accounts, rejection of books could not have been made. Ld. CIT(A) was appreciative of this contention. He held that the rejection of books of account was not justified. According to him, even if the books were ignored, there was no reason why a higher profit rate of 6% should have been adopted for the impugned assessment year, when only 3% profit rate was adopted for the immediately preceding assessment year. He, therefore, deleted the ITA NOS. 1581-2 & 11 CO 110&111/Mds/09 addition made by the AO and directed him to apply 3% profit rate as done in the preceding year for the impugned asst. year also.
14. Now before us, ld. DR submitted that the remand report clearly mentioned 6% to be the average profit rate for the relevant previous year and hence the CIT(A) was not justified in directing the AO to adopt 3%. Per contra, the ld. AR submitted without rejecting the books, the estimation itself was unjustified.
15. We have heard the rival submissions and perused the orders. Relevant part of the remand report of the AO is reproduced at para-12 above. It is clear that the assessee had produced books of account along with relevant vouchers. Assessee had also furnished details of stock, value as per construction agreement, actual amount received from the buyers etc. Though the AO has reproduced the details given by the assessee in the remand report he has not pointed out any defect in the books of account. As already mentioned by us, for A.Y 2000-01 certain defects were found by the AO and therefore, he did have sufficient reason for coming to a conclusion as profits could not be arrived at on the basis of such books. But for the impugned assessment year no such defects were found and in our opinion books of account could not have been rejected at the whims and fancies of the AO. In such a scenario, the CIT(A) was more than fair to ITA NOS. 1581-2 & 12 CO 110&111/Mds/09 the Revenue in directing adoption of 3% profit rate as done in the immediately preceding assessment year. There is no specific reason given by the ld. D.R. as to why average gross profit for two years had to be considered, especially when books were not rejected. Possibility of incurring or not incurring loss on sale of some flats in the scenario of a booming real estate business, is a general commercial question, but, under Income-tax proceedings, we have to work out the profit or loss in accordance with the provisions of the Act and not in accordance with the general industrial outlooks. We are therefore, of the opinion that the order of the CIT(A) does not need any interference. Appeal of the Revenue stands dismissed.
16. Now we take up the cross objections of the assessee for the respective years. Ld. counsel for the assessee submitted that the cross- objections were supportive of the orders of the CIT(A). Since we have already dismissed the appeals of the Revenue for the respective asst. year, the cross objections have become in fructuous.
17. To summarise the result, both appeals of the Revenue as well as the cross objections of the assessee are dismissed.
ITA NOS. 1581-2 & 13
CO 110&111/Mds/09
Order pronounced in open Court on 03 -1-2011.
Sd/- Sd/-
( U.B.S.BEDI) (ABRAHAM P. GEORGE)
Judicial Member Accountant Member
Chennai: 3rd January,2011
Nbr"
Cc: Assessee/ Assessing Officer/ CIT(A)/ CIT/ D.R/ Guard File.