Income Tax Appellate Tribunal - Mumbai
Kiran Construction Co., Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH 'H' MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA Nos. 5542 & 5543/Mum/2007 Assessment Years-2000-01 & 2001-02 The ITO-24(3)(1), C-11, 7th Floor, B.K.C., Bandra (E), Mumbai-400 051 Vs. M/s. Kiran Construction Co., B-1/6, Veena Vadini CHS, M.G. Road, Goregaon (W), Mumbai-400 090 PAN-AAAFK0398R (Appellant) (Respondent) Appellant by: Shri Nutan Wodeyar Respondent by: None O R D E R
PER SMT. ASHA VIJAYARAGHAVAN (JM) These two appeals preferred by the Revenue are directed against the orders dt. 22.6.2007 passed by the Ld. CIT(A)-XXIV, Mumbai for the assessment years 2000-01 & 2001-02. As both appeals were heard together and involve connected issues, these appeals are being disposed of by way of this consolidated order. None appeared on behalf of the assessee therefore we heard the Ld. DR and dispose of this matter ex parte on merit.
2. The assessee firm is engaged in the business of civil contract. It furnished the return of income of Rs. 8,83,700/-. The Assessing Officer completed the assessment u/s. 143(3) on 26.3.20063 at the total income of Rs. 20,77,650/-. While passing the order u/s. 143(3), the AO made certain disallowances.
3. The assessee accepted the assessment order dt. 26.3.2003 and did not file appeal against it. Subsequently, the Ld. CIT-24 found the assessment order was erroneous and prejudicial to the interest of the revenue as the AO had disallowed Rs. 5,00,000/- out of the expenses of Rs. 1,23,36,067/- claimed on labour charges, transport charges and payment to sub-contractors. He passed order u/s. 263 on 22.2.2005 and set aside the assessment order dt. 26.3.2003 and directed the AO to pass fresh assessment order after giving the opportunity to the assessee Hon'ble ITAT vide order in ITA Nos. 2957 & 2058/M/05 dt. 14.6.2006 upheld the order of Ld. CIT u/s. 263.
4. During the course of the fresh assessment proceeding, the AO allowed several opportunities to the assessee for furnishing evidences in respect of the aforesaid expenses on labour charges, transport charges and payment to sub-contractors. However, no evidence was furnished before the AO. The AO completed the fresh assessment order u/s. 144 r.w.s. 263 on 14.2.2006 and estimated the income from contract @ 8% of the gross contract receipts of Rs. 3,92,67,940/- which came to Rs. 31,41,435/-. As the income was computed on estimate basis, the AO did not make separate disallowances on account of depreciation, personal expenses etc. which were disallowed in the original assessment dt. 26.3.2003.
5. Aggrieved by the order of the AO dt. 14.2.2006 passed in pursuance to the directions of the CIT u/s. 263, the assessee preferred an appeal before Ld. CIT(A).
6. Firstly the assessee alleged that the AO had not given a proper opportunity to explain the case. The Ld. CIT(A) dismissed the ground holding that numerous opportunities have been given to the assessee but the assessee had not properly complied and therefore the ground was rejected.
7. With respect to estimation of income at 8% of contract receipt, the Ld. AR submitted that the AO was not justified in calculating the net profit @ 8% by applying the provisions of Sec. 44AD of the I.T. Act as the turnover of the assessee was much above Rs. 40 lakhs. The Ld. AR relied on the order of the Hon'ble Special Bench of ITAT in the case of Allied Construction Vs DCIT 11 SOT 101 (Del)(SB) wherein it has been held that provisions of Sec. 44AD cannot be applied where gross receipts from the business of civil construction exceeded Rs. 40 lakhs and if the past results showed loss or nominal net profit rate the AO would not be justified in applying the 8% rate.
8. The Ld. CIT(A) further held that even the best judgement assessment should have reasonable nexus to the available material and the estimate must be honest and fair. The net profit of the assessee has always been in the range of 1% to 2% of gross contract receipts and so the estimation of profit @ 8% during the year was highly excessive and unreasonable.
9. The Ld. CIT(A) held as follows:
"I have considered the facts of the case and submissions of Ld. AR carefully. This is admitted fact that the appellant did not furnish proper evidences in support of various expenses claimed by it. As it could not justify the genuineness of the expenses incurred against the contract receipts, the AO was left with no option but to estimate the net income. It is seen from the assessment order that the AO had not applied the provisions of Sec. 44AD. She was of the opinion that even though the provision of Sec. 44AD was applicable for turnover upto Rs. 40 lakhs, its ratio could be applied to the facts of the case of the appellant. In her opinion, the profit rate of 8% was a reasonable rate and so she applied that rate. However, looking into the past history of the case, I find that the rate of profit applied by her was on higher side. Following is the past history of the case. A.Y Turnover Assessed income Section % 1996-97 6930548 167590 143(1) 2.42 1997-98 9755988 184524 143(1) 1.89 1998-99 14777165 306280 143(1) 2.07 1999-00 36828553 924930 143(1) 2.51 2000-01 39267940 2077650 143((3) dt. 26.3.2003 5.29 2001-02 33875043 1306455 143(3) dt. 26.3.2003 3.86 20-02-03 17362585 293697 143(1) 1.69 2003-04 13359090 215332 143(1) 1.61 2004-05 18219362 422670 143(1) 2.32 The average of the rate of assessed income in the ratio of turnover of 9 assessment years comes to 2.63%. However, the appellant had accepted the profit rate of 5.29% during this assessment year itself which was assessed vide the original assessment order u/s. 143(3) dt. 26.3.2003. It had not filed appeal against the said assessment order. So, its income cannot be assessed in accordance with the direction u/s. 263 at a figure lower than 5.29%. Looking into all these facts and Reasonable, I am of the opinion that the profit rate of 5.50% will be fair and reasonable. I, therefore, direct the AO to assess the income of the appellant from the business of contract @ 5.50% of the contract receipts. These grounds are partly allowed."
10. Aggrieved by the order of the Ld. CIT(A), Revenue is in appeal before us.
11. The grounds of appeal raised by the Revenue read as follows:
"1. On the facts & circumstances of the case and in law, the CIT(A) erred in directing the AO to adopt the profit at 5.5% without considering the fact that the assessee had not produced any evidence with regard to expenses claimed.
2. On the facts & circumstances of the case and in law, the CIT(A) erred in holding that the income cannot be assessed below 5.29% of total turnover as directed in order passed u/s. 263, whereas the order passed u/s. 263 doesn't specify any such direction."
12. We find that the grounds of appeal raised by the Revenue is incorrect in as much as the Ld. CIT(A) observed that the assessee has accepted the profit rate of 5.25% during the original assessment order u/s. 143(3) dt. 26.3.2003 and the assessee had not filed the appeal against the said assessment order and therefore the CIT held that the assessee's income cannot be assessed at a figure lower than 5.29% while deciding the appeal against the order of the AO passed under the directions of the Commissioner u/s. 263. That is to say he cannot determine the profit rate lower than that admitted by the assessee. Therefore this ground of appeal of the Revenue is dismissed.
13. With respect to ground No. 1, the assessee filed a chart of profits for F.Y. 1997-98 to 2003-04 in support of his submission. The assessee also submitted that all the records of the assessee were damaged due to heavy rain and flood on 26.7.2005 and so non production before the AO was not intentional. The assessee was requested by CIT(A) to furnish the copy of acknowledgements of returns of income, computation of income, profit and loss account and orders u/s. 143(3)/143(1) for all the assessment years mentioned in the chart and the same were furnished by him. We have perused the same. We are in agreement with the commissioner since he has gone thoroughly through the details of assessment for the past 9 years as seen from the chart at page 5 of his order and has worked out the income of the assessee from the business of contract @ 5.50% after much deliberation. Therefore, we confirm the order of the Ld. CIT(A) and dismiss the ground No. 1 of the department.
14. In the result, the appeals filed by the Revenue are dismissed.
Order pronounced on this 9th day of February, 2010 Sd/- Sd/-
(J. SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN)
Accountant Member Judicial Member
Mumbai, Dated 9th February, 2010
Rj
Copy to :
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The Respondent
The CIT-concerned
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The DR 'H ' Bench
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ITA Nos5542 & 43 /M/07