Income Tax Appellate Tribunal - Indore
Ram Enterprises, Bhopal vs Department Of Income Tax on 2 August, 2011
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
And
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
IT(SS)A Nos.128 to 133/Ind/2011
A.Ys. 2000-01 to 2005-06
Assistant Commissioner of
Income Tax 1(2)
Bhopal :: Appellant
Vs
M/s Ram Enterprises
Bhopal
PAN - AAFFR-1033F :: Respondent
ITA Nos.134 to 139/Ind/2011
A.Ys. 2000-01 to 2005-06
M/s Ram Enterprises
Bhopal :: Appellant
Vs
Assistant Commissioner of
Income Tax 1(2)
Bhopal :: Respondent
2
Department by Shri R.A. Verma
Assessee by Shri H.P. Verma and
Shri Girish Agrawal
Date of hearing 03.05.2012
Date of pronouncement 04.05.2012
O R D E R
PER JOGINDER SINGH , judicial member
This bunch of 12 cross-appeals filed by the Revenue and the assessee arises out of the common order of the learned CIT(A) dated 2.8.2011. We would like to deal with the appeals of the Revenue first (ITA Nos.128 to 133/Ind/2011) wherein the following common ground has been raised :-
" On the facts and in the circumstances of the case, the CIT (Appeals) has erred in applying Gross Profit of 12% (A.Ys. 2000-01, 2001-02, 2002-03, 2004-05 and 2005-06) when the assessee himself has shown Gross Profit of 24.14% (A.Y. 2003-04) and Gross Profit of 25% as against 30% applied by the AO for the A.Y. 2003-04."
2. During hearing of these appeals, we have heard Shri R.A. Verma, learned Senior DR and Shri H.P. Verma along with Shri Girish Agrawal, ld. Counsel for the assessee. The crux of arguments on behalf of the Revenue is that there is a contradictory finding in the impugned order for which our attention was invited to para 5.10 (page 19) by pointing out that 3 for the assessment year 2003-04 the assessee itself showed GP @ 24.14% against which the learned CIT(A) adopted the gross rate at 25%, therefore, it was pleaded that there was no justification for applying the gross profit rate at 12% for assessment years 2000-01 to 2002-03 and 2004-05 to 2005-06. On the other hand, the learned counsel for the assessee contended that the assessee showed the gross profit rate at 4.68% (assessment year 2000-01), 8.38% (assessment year 2001-02), 10% (assessment year 2002-03), 24.14% (assessment year 2003-04), 4.61% (assessment year 2004-05) and 6.84% (assessment year 2005-
06), consequently it was pleaded that the learned CIT(A) has adopted a higher rate of net profit. The learned representatives from both the sides pleaded that a reasonable net profit rate may be adopted. Alternatively, the ld. Counsel for the assessee contended that in the appeals of the revenue from the assessment years 2002-03 to 2005-06 the tax effect is less than the prescribed limit, therefore, the revenue is not permitted to file the appeals before the Tribunal.
3. We have considered the rival submissions and perused the material available on record. The crux of arguments on behalf of the assessee is that a higher GP rate has been adopted by the 4 learned CIT(A) whereas the contention on behalf of the Revenue is that such gross profit rate is towards lower side. Before coming to any conclusion, we are reproducing hereunder the relevant portion of the order of the learned CIT(A) :-
"5.7 I have carefully considered the submission of the appellant and the facts of the case. It is noticed that the Assessing Officer had issued specific questionnaire to the appellant alongwith the notice u/s 142(1) to furnish evidence/detail regarding the original booking of bungalows in all projects and complete addresses of the transacting parties alongwith their confirmation from whom purchase or sales exceeding Rs. 1,00,000/- was made. However, no such complete detail was furnished though it was stated that verification can be made from the books of accounts. It may be stated that the appellant was engaged in the business of purchase and sale of plot as also a builder and information regarding the purchase and sale of the plots viz-a-viz the genuineness of the purchase and sale consideration was definitely vital information of the income of the appellant. The provisions of section 145(3) clearly provides that where the Assessing Officer is not satisfied about the correctness and completeness of the accounts, the Assessing Officer can make an assessment in a manner provided in section 144. In these circumstances, when the two main ingredients of the total income of the appellant i.e. purchase and sales consideration were not subject to proper verification, it cannot be said that the books of accounts maintained by the appellant, were complete and correct. It may also be noted that one of the partner of the firm namely Shri Ram Nath Sharma also admitted in statement recorded u/s 132( 4) that the group was earning undisclosed money on purchase and sales of properties by receiving and paying "on money". Considering the totality of the facts and circumstances, I am of the opinion that the Assessing Officer was justified in rejecting the books of account by applying the provisions of section 145(3) of IT Act.
5.8 The Assessing Officer after rejection of books of account has applied GP rate of 30 % in all the assessment years as against GP rate ranging from 2% to 24.14 % different GP rates shown by the appellant. It is noticed that the Assessing Officer has not given any specific reason for applying GP rate of 30 %. It is a settled law that when the books of accounts are rejected. the profit are to be ascertained / determined on some logical basis having some nexus with material on record and that assessment cannot be made arbitrarily. This opinion finds support from the following case laws:-
(i) 288 ITR 10SC [Kachwala Gems-vs-.JCIT 5 "It is well-settled that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned '- should trv to make an honest and fair ~.
estimate of the income even in a best judgment assessment and should not act totally arbitrarily, hut there is necessarily some amount of guess work involved in a best judgment assessment and it is the assessee himself who is to blame as he did not submit proper accounts.
(ii) 8 STC 770SC [Raghubar mandai Harihar mandal] vs.State of Bihar "When the returns and the hooks oj' accounts are rejected. the Assessing Officer must make estimate and to that extent he must make an estimate and to that extent he must make a guess hut the estimate must he related to some evidence or material and it must be something more than mere suspicion."
(iii) 76 ITR 690 SC [State of Orissa] Vs-maharaja Shri B.P.Singh Deo The mere fact that the material placed hy the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order. The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words that assessment must he based on some relevant material. It is not a power can be exercised under the sweet will and pleasure e concerned authorities. The scope of that power has been explained over and over again by this court. "
5.9 The Ld. AR in his submission contended that the GP rate of the appellant varied from 4% to 25 % during the year under consideration and that such major variation was due to the reason that the business was being closed down. The Ld. AR also stated that Assessing Officer has not cited any reason where NP or GP rate of 30 % is shown by any builder. The AR also claimed tha. in the case of M/s SA V Builders carrying on the same business in same locality, the Hon'ble ITA T has applied NP rate of 6 % as against the NP rate of 8 % applied by the CIT (A). It was accordingly claimed that even if the books of accounts are rejected, the NP rates @6% may be applied.
5.10 It is noticed that the appellant is not a contractor or simply engaged in the business of civil construction and in fact the appellant is engaged in the business of sale & purchase of plots and construction of houses/ shops and sale thereof. In this background in such business it is not necessary to apply NP rate and in such business where the books of accounts are rejected and found to be incorrect, GP rate can also be applied. In my opinion, what is more important is what GP rate should be adopted for the period under consideration. It is noticed that sales of the appellant were on the decreasing trend. In A.Y. 2000-01 the total sales were for RsA4.80 6 Lacs whereas in A.Y. 2005-06 the sales were for Rs.l.40,000/- only. It is also noticed that the highest GP rate is shown in A.Y. 2003-04 which was 24.14 % however, during this assessment year sales were only for RsA,34A80/-. The Ld. AR has also filed specific reasons for higher GP rate during this assessment year. In this background the application of higher GP rate of a particular year for all the assessment years under consideration may not be justifiable. It may be noted that the appellant has shown following GP rate in various assessment years under consideration:
S.No A.Y. G.P.
. Rate
01 2000-01 4.68%
02 2001-02 8.38%
03 2002-03 10%
04 2003-04 24.14%
05 2004-05 4.61%
06 2005-06 6.84%
Considering the totality of the facts and circumstances of the case, I am of the opinion that it would be fair and reasonable if GP Rate of 12 % is applied for A.Y. 2000-01, 2001-02,2002-04, 2004-05 & 2005-06. In A. Y. 2003-04 the appellant has shown GP rate of 24.] 4 %, however, to cover up possible leakage of income, I consider it appropriate to apply GP rate of 25 %. After applying GP rate as discussed above, the estimation of gross profit and relief allowed to the appellant is works out as under :-
S. A. Y. Sales GP G.P. rate G.P. G.P. to be GHP on Relief No. shown by Rate estimated estimated applied as application, granted to the shown by the AO by the AO discussed ofGP rate I the appellant by the above @ 12%/ I appellant appellant ---------
25% ----
,
01 2000-01 4480000 4.68% 30% 1344000 12% 537600 806400
02 2001-02 3485000 8.38% 30 '% 1045000 12% 418200 626800
03 2002-03 1886700 10% 30% 566010 12% 226404 339606
04 2003-04 434480 24.14% 30 % 130344 25% 108620 21724
-_.
05 2004-05 800000 4.61 % 30% 240000 12% 96000 144000
12%
06 2005-06 140000 6.84% 30 % 32412 16800 15612
Accordingly, ground nos. 3 % 4 are partly allowed."
4. The facts, in brief, are that a search and seizure operation u/s 132(1) was carried out on 16.9.2005 in "Sharma group" and 7 at their premises, certain documents relating to the assessee were found. The assessee is engaged in the business of purchase and sale of plots, construction, developer and also running a hotel. During the assessment proceedings, it was noticed by the learned Assessing Officer that the assessee has shown low gross profit. The assessee was asked to furnish details/information regarding booking of houses in respect of all projects along with details of parties with whom such transactions of purchase and sale exceeding Rs. 1 lac were made. It was further noticed that in the ledger account the addresses of parties were not mentioned. The statement of Shri Ramnath Sharma, one of the partners of the main group, was recorded who admitted of earning unaccounted money out of purchase and sale of properties and also having made unaccounted investment in land and building. He offered Rs.1.83 crores as undisclosed income out of such business transactions. In the absence of reliability of books of accounts, the learned Assessing Officer applied gross profit rate at 30% on the turnover resulting into addition as has been mentioned in the assessment order. On appeal, the learned CIT(A) adopted the gross profit rate at 12% against which the assessee as well as the revenue are aggrieved. However, for the 8 assessment year 2003-04, against the claimed gross profit of 24.14% (by the assessee) the learned CIT(A) adopted the same at 25%. Admittedly, the assessee is not merely a contractor or engaged in civil construction rather the assessee is also engaged in the business of purchase and sale of plots, construction of shops, houses and sale thereof, therefore, the rate of 8% cannot be applied. The books of accounts of the assessee were also not found reliable and the same were rightly rejected u/s 145(3) of the Act. To put an end to the litigation, the only option with the revenue authorities and also with us remains adoption of gross profit rate. So far as the assessment year 2003-04 is concerned, the assessee has shown the gross profit rate 24.14%, therefore, it cannot be disturbed, consequently, the gross profit rate is retained at 24.14% in place of 25% adopted by the learned CIT(A). For the remaining assessment years, the gross profit rate has been shown by the assessee at 4.61% to 10% against which the learned CIT(A) applied the rate of 12%. Keeping in view the totality of facts, assertion made by the learned respective counsel and the business activities of the assessee, we deem it appropriate to apply the gross profit rate at 10% in place of 12% 9 (adopted by the learned CIT(A)) for the remaining assessment years, therefore, the appeals of the Revenue are partly allowed.
5. Since identical issue is involved in the appeals of the assessee, in view of our findings given above, the appeals of the assessee are disposed of accordingly.
5.1 Since the tax effect involved in the appeals of the revenue for the assessment years 2002-03 to 2005-06 is below the prescribed monetary limit, therefore, the appeals of the revenue are dismissed being not maintainable. However, it is made clear that since we have disposed of the appeals of the Revenue on merit, therefore, our aforesaid finding will remain in operation.
Finally, the appeals of the revenue are dismissed whereas the appeals of the assessee are allowed in part.
This order was pronounced in the open Court on 4th July, 2012.
Sd/- sd/- (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 4th July, 2012
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-33 10