Income Tax Appellate Tribunal - Hyderabad
Dcit, Circle-3(1), Hyd, Hyderabad vs R.K. Township Promoters (P) Ltd., Hyd, ... on 31 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 1221/Hyd/2016
Assessment Year: 2012-13
Dy. Commissioner of Income- Vs. R.K. Township Promoters (P)
tax, Circle - 3(1), Hyderabad. Ltd., Hyderabad.
PAN - AACCR3049K
(Appellant) (Respondent)
Revenue by : Smt. Suman Malik
Assessee by : Shri K.C. Devdas
Date of hearing : 16-03-2017
Date of pronouncement : 31-03-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This is an appeal of the Revenue directed against the order of the learned Commissioner of Income-tax(A) - 3, Hyderabad, dated 02/06/2016 for AY 2012-13.
2. Briefly the facts of the case are that assessee is engaged in the business of real estate. It purchases the land, develops the land into plots and sells the same. It filed return of income of Rs. 45,54,920/- for AY 2012-13 on 01/10/2012. In the scrutiny assessment, the income was determined at Rs. 1,75,87,884/- by estimating the profits at 15% of gross sales.
2.1 The reasons given by the AO for rejecting the books of accounts and estimating the profits at 15% of turnover are as under:
2 ITA No. 1221/H/16RK Township Promoters (P) Ltd., Hyd.
(a) That there was increase in payment of commission to Rs.
81,36,945/- during the present year against similar payment of Rs. 26,66,844/- in immediate previous year even though there was decrease in sales during the year. The assessee did not produce any supporting evidence, did not file details of agents, and did not submit basis of commission payment, as to what percentage of commission was paid.
(b) The sales were to the tune of Rs. 11,61,99,920/-, whereas net profit was only Rs. 47,37,872/- which works out to 4.2% of turnover.
(c) On examination of books of accounts, it was found that much of the expenses were incurred in cash, each payment being less than Rs. 20,000/-. Journal entries were passed at the end of the year transferring expenditure incurred at branches.
(d) The expenditure was supported by self made vouchers and not susceptible for verification.
(e) The expenses were claimed as and when they were incurred, whereas the sales were recognized only when the property was sold and registered in the name of purchaser. Therefore there is no match between expenditure and sales.
(f) That for the earlier assessment year, estimating the income was confirmed by the CIT(A) and the Hon'ble ITAT.
In the above facts and circumstances, especially the assessee's failure to furnish details and assessee's inability to identify the expenditure related to current year, the Assessing Officer was not satisfied with the correctness or completeness of accounts, therefore held that true and correct income cannot be determined from the books, therefore the same were rejected u/s 145(3) of Income Tax Act and income was estimated at 15% of gross sales.
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A).
4. Before the CIT(A), the assessee submitted as under:
(a) That the books of accounts were maintained which was also confirmed by Assessing Officer in the assessment order. The same were subjected to audit by Chartered Accountant, based on which financial statements were prepared and return of income was filed.3 ITA No. 1221/H/16
RK Township Promoters (P) Ltd., Hyd.
(b) The Assessing Officer made only general observations with regard to maintenance of accounts and did not specify the deficiencies or inconsistencies in the books of accounts.
(c) The Hon'ble Supreme Court in the case of indore Malwa United Mills Ltd. Vs State of Madhya Pradesh (10 ITR 41) observed that when an assessee produced before the authority all the registers, it was not open to the department to pick and choose some of the registers which were more favourable to the revenue in the absence of finding of unreliability of any of the entries or any of the registers.
(d ) That the estimation of profit at 15% is unreasonably high and 15% was adopted by Assessing Officer because the same percentage was adopted for the earlier years. Real estate business was in shambles because of Telangana agitation. Ignoring these facts, the Assessing Officer adopted profit at 15% without any basis. Reliance is placed on the decision of Madhya Pradesh High Court in the case of Ramdas Jugani Vs CIT (282 ITR 356), wherein it was held that in making best judgment assessment, the Assessing Officer should not be vindictive or capricious. The assessment should be bonafide and arrived at on a rational basis.
(e) The Hon'ble ITAT in appellant's own case for A.Y.2000-01 to 2006-07 vide its order dated 29.4.2016 directed the Assessing Officer to estimate profit at 8% on sales.
In view of the above submissions there is no reason for AO to reject the books of accounts. Even if the books were rejected, the estimation should be made on reasonable basis keeping in view the facts and circumstances of the past record of the case.
5. After considering the submissions of the assessee the CIT(A) observed that the Assessing Officer did not point any specific defects in the books of accounts before arriving at the conclusion that the true and correctness of income could not be determined in the books of accounts. He further observed that except stating that the commission paid during the years is on higher side compared to commission paid in immediate previous year, and also stating that most of the expenses were in cash and supported by self made vouchers, no specific or serious lapse in maintaining the accounts is quoted by the Assessing Officer. The CIT(A) was of the view that self 4 ITA No. 1221/H/16 RK Township Promoters (P) Ltd., Hyd.
made vouchers are unavoidable as the works are carried out with unskilled and illiterate labour. It appears that the Assessing Officer resorted to estimation of income at 15% only on the ground that even for earlier years, the income was estimated at the same percentage.
5.1 In view of the above observations and following the decision of the ITAT in assessee's own case for AY 2000-01 to 2006-07, the CIT(A) directed the Assessing Officer to estimate the profits at 8% of sales.
6. Aggrieved by the order of the CIT(A) the revenue is in appeal before us raising the following grounds of appeal:
"1. The CIT(A) erred both in law and on facts of the case.
2. The ld. CIT(A) erred in reducing the profit rate from 15% to 18% without appreciating the reasons given by the AO."
7. Before us, the ld. AR of the assessee submitted that the issue is covered by the decision of the coordinate bench in assessee's own case for AYs 2008-09 to 2010-11 in ITA Nos. 1656 & 1657/Hyd/2012 and 352/Hyd/2015 vide order dated 21/10/2016. A copy of the said order is available on record.
8. On the other hand, ld. DR neither controverted to the submissions of the ld. AR nor brought any contrary decision on record.
9. Considered the rival submissions and perused the material facts on record. The coordinate bench of this Tribunal in assessee's own case for AYs 2008-09 to 2010-11, following its decision in assessee's own case for AYs 2000-01 to 2006-07, directed the AO to determine the net profit of 8% on the sales disclosed by the assessee. For the sake of clarity, we reproduce the observations of the coordinate bench in assessee's own case for AYs 2000-1 to 2006-07 as under:
5 ITA No. 1221/H/16RK Township Promoters (P) Ltd., Hyd.
"13.2 There is no doubt that the book keeping adopted by the assessee was complex and the relevant data generated by the assessee based on Bills and Vouchers were not available with the assessee and part of the documents were seized by the department, which was used by the special auditor to recast the P&L A/c. The degree of reliance and reliability of information adopted by the special auditor is the main grounds of appeal by the assessee. There is no dispute that the special auditor had to rely on the information available with him & with the AO which were acquired due to search and seizure operation. The assessee also expressed in one of the communication with the special auditor that due to efflux of time, the assessee was not in a position to submit the relevant bills and vouchers either because of seizure or not in a position to submit due to the fact that the passage of time, shifting of premises etc. 13.3 We are in agreement with the assessee that the reliability of the special audit report and recasting of P&L A/c were computed based on the information available and presumptions adopted by special auditor. It is worthwhile to mention here that the income status generated by special auditor are not correlating to the turnover of the company, i.e. out of seven AYs, in three AYs are loss. In the real estate business, the profit generated against sales has to be on the band range, it cannot be fluctuating in such high degree. The profit has to be arrived based on the matching principle, in our considered view, the special auditor has failed in this regard. The related cost has to be aligned with the relevant sales/collection. In the above stated situation, we are inclined to suggest that the books of account maintained by the assessee must be rejected, at the same time, the recasted account cannot be relied upon due to reliability factor.
13.4 We are left with the overall turnover of the assessee and net income determined by the AO, CIT(A) , special auditor and estimated profit @ 15% in the subsequent year by this coordinate bench. We cannot adopt 15% of sales simply because the coordinate bench treated the business of the assessee as civil contract business and the same was not controverted by the assessee. But from the records submitted before us by both assessee & DR as the business of assessee is in real estate dealing only in buying, developing and selling lands.
13.5 The relevant data before us are (extracted from paper book Submitted by the assessee) Cumulative figures 6 ITA No. 1221/H/16 RK Township Promoters (P) Ltd., Hyd.
a) Cumulative turnover for 7 AYs 100.61 crores (As per special audit report accepted by the assessee)
b) Income assessed by ACIT 21.20 crores (21.07%)
c) Income assessed by CIT(A) 11.64 crores (11.57%)
d) Income computed by special auditor 9.71crores(9.65%) While analyzing the above values, we are of the view that income assessed by ACIT is ruled out as it is at 21.07% as the above % is more than 15%, which was already rejected by ITAT and also the profit arrived were before special audit.
Similarly, the assessee had submitted & relied on the case law in the case of Madhav Propcon Pvt. Ltd., of Delhi ITAT, wherein it was held that the income of the assessees at 2.24% of the total gross receipts, who are engaged in the business of land development activities. We cannot follow this percentage because the activities involved were only for land development activities but in the present case the assessee is in the activities which involve purchase, development and sale of land. With respect to CIT(A) arrived at the profit of Rs. 11.64 crores as cumulative profit for 7 years (i.e. 11.57%). But he had accepted the special audit profit as the base and gave partial relief to assessee by deleting the disallowance made on site development etc. After deleting the disallowance made by the AO, the profit arrived by the CIT(A) is more than the special auditor. The CIT(A) had accepted the special auditors report and profit arrived by them, the mere adjustment cannot increase the profit arrived by special auditors. CIT(A) has not found anything new while adjudicating but had only rejected the grounds raised by the assessee. Hence, there cannot be any incremental profit arrived by CIT(A). Hence, the profit arrived after consequential to CIT(A)'s order cannot be relied.
13.6 We are left with income computed by special auditor at 9.65%. But this income arrived by special auditor by adopting presumptions and modifying the values of purchase, sales, opening and closing stock. Based on the submissions of DR and assessee, we are of the view that the reliability of the special audit could be in between 80- 85%. On applying the reliability factor to the income determined by special auditor of 9.65%, we will end up arriving the income at 8%, which is similar to section 44AD.
13.7 On the other hand, the provisions of section 44AD proposed to adopt 8% of the total turnover or gross receipts of the assessee shall be deemed to be profits & gains of the 7 ITA No. 1221/H/16 RK Township Promoters (P) Ltd., Hyd.
business chargeable to tax. This section prescribes a thumb rule or presumptive net profit rate applied for those assessees whose turnover are less than one crore. No doubt, the turnover of the assessee is more than the prescribed limit in the section 44AD but it gives thumb rule to estimate the income of the assessee. When the books are not maintained or rejected, flat rate of 8% can be adopted as decided by the Hon'ble Delhi High Court in the case of CIT Vs. Subodh Gupta, ITA N 80 of 2014, dated 09/12/2014.
13.8 The above decision is relevant particularly when the revenue could not submit or ascertain who had declared higher percentage of income, who are in the similar business of assessee. In our considered view, in the present case, the books of the assessee cannot be accepted due to the complexity of the nature of business and maintenance of books of account at the same time the recasted profits & loss computed by the special auditor also has reliability issue, which were computed based on presumptions. This is the fit case to estimate the income of the assessee. In this given situation, the presumptive rate available in the section 44AD may be adopted even though the turnover of the assessee is more than the turnover of the eligible assessee as prescribed in the section 44AD. This is the rate which is near to the percentage arrived after factoring the reliability and the income computed by the special auditor. Hence, we direct the AO to adopt 8% of the sales as determined by the special auditor, to compute the income of the assessee year to year basis for AY 2000-01 to 2006-07".
7.1 As the issue under consideration is materially identical to that of AYs 2000-01 to 2006-07 and 2008-09 to 2010-11 in assessee's own cases, respectfully following the decision of coordinate bench in those years, we confirm the order of the CIT(A) in directing the AO to estimate income of the assessee @ 8% of the sales.
8 ITA No. 1221/H/16RK Township Promoters (P) Ltd., Hyd.
8. In the result, appeal of the revenue is dismissed.
Pronounced in the open court on 31 st March, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated:31 st March, 2017.
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Copy to:-
1) DCIT, Circle - 3(1), Room No. 714, 7 th Floor, Signature Towers, Opp. Botanical Garden, Kondapur, Hyderabad.
2) M/s RK Township Promoters (P) Ltd., No. 8-3-319/11, Doyen Chambers, 3 rd Floor, Besides Saradhi Studio, Ameerpet, Hyderabad.
3) CIT(A) - 3, Hyderabad 4 Pr. CIT - 3, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File