Income Tax Appellate Tribunal - Chandigarh
Hemant Popli, Shimla vs Dcit, Chandigarh on 6 November, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH "A", CHANDIGARH
ी एन.के.सैनी, उपा य एवं ी राजपाल यादव, या#यक सद$य
BEFORE: SHRI N.K.SAINI, VP & SHRI RAJPAL YADAV, JM
आयकर अपील सं./ ITA NO. 1069/CHD/2016
#नधा%रण वष% / Assessment Year : 2011-12
Shri Hemant Popli बनाम DCIT, Cent.Cir.II
Hemant Lodge Vs. Chandigarh
Murray Field Estate
Nav Bahar, Shimla
PAN : AIAPP 6983 B
(अपीलाथ*/Appellant) (+,यथ*/Respondent)
#नधा%-रती क/ ओर से/Assessee by : Shri Vishal Mohan, Adv.
राज$व क/ ओर से/ Revenue by : : Shri Chandrajit Singh,
CIT-DR
सुनवाई क/ तार ख/Date of Hearing : 05/11/2019
उदघोषणा क/ तार ख/Date of Pronouncement : 06 /11/2019
आदे श/ORDER
PER RAJPAL YADAV, JUDICIAL MEMBER : Assessee is in appeal
before the Tribunal against the order of ld.CIT(A)-3, Gurgaon dated 25.7.2016 passed for the Asstt.Year 2011-12.
2. The assessee has taken four grounds of appeal; out of which ground no.4 is general in nature, which does not call for recording of any specific finding, hence rejected.
ITA No No.1069/Chd/2016
3. In Ground no.1 and 2, the assessee has pleaded as under:
"1. That in the facts and circumstances of the case the ld.CIT(A) is not justified in upholding the treating if the income from sale of property as income from business and profession. The facts of the matter is that the same should have been assessed as capital gains.
2. That in the facts and circumstances of the case the ld.CIT(A) is not justified in assessing the profit from the sale of properties @ 21% of the sales value."
4. The ld.counsel for the assessee at the very outset out submitted that identical issue was involved in the Asstt.Year 2008-09 and 2010-11. The dispute travelled upto the Tribunal in ITA No No.1163 and 1164/Chd/2013. The Tribunal has decided this issue against the assessee and appeal preferred by the assessee stands admitted by the Hon'ble High Court. Therefore, in view of the above development, he submitted that both these issues are covered by order of the Tribunal. However, he put a caveat and alleged that the Tribunal failed to adjudicate the issue whether the income on sale of property deserves to be assessed as "business income" or under the head "capital gain". He took us through finding of the Tribunal recorded in para-12 of the order dated 11.3.2016. On the other hand, the ld.CIT-DR contended that since identical issue has been decided against the assessee, therefore, both these grounds be rejected.
5. We have duly considered rival submissions and gone through the record. We find that except variation in quantum, identical issues have been considered by the Tribunal. The discussion made by the Tribunal in these two assessment years read as under:
2ITA No No.1069/Chd/2016
8. Ground Nos.2 and 3 of appeal raised by the assessee read as under:
"2. That in the facts and circumstances of the case the Ld Commissioner of Income Tax (Appeals) in not justified in upholding the treating of income from the sale of property as income from business and profession . The fact of the matter is that the same should have been assessed as capital gains as returned by the assessee .
3. That in the facts and circumstances of the case the Ld Commissioner of Income Tax ( Appeals) is not justified in upholding the estimating the profit on sale of flats @ 30% of the sales value of Rs 9,00,000/- and thereby upholding an addition of Rs 2,70,000/-."
9. The Assessing Officer made the addition of Rs.2,70,000/- on account of profit on sale of immovable properties. The Assessing Officer noted that the transactions made in land and building, amount spent on construction have not been routed through the trading and Profit & Loss Account. No profit was shown by the assessee on account of sale of property. No explanation was also tendered by the assessee in this regard. Since the transactions have not been routed through Profit & Loss Account, the trading account in respect of construction and sale of immovable property is cast below by the Assessing Officer and gross profit was taken @ 30%:-
F.Y. 2007-08 To By Opening Stock: Rs.16,14,307/- Sale: Rs.9,00,000/-
Construction: Rs.5,01,860/- Closing Stock: Rs.14,86,167/-
Gross Profit: Rs.2,70,000/-
Rs.23,86,167/- Rs.23,86,167/-
10. The Assessing Officer asked the assessee as to why the profit of Rs.2,70,000/- on sale of immovable property should not be treated as business income for the year under consideration. In response to the above query, the assessee submitted that he is a civil contractor and he had invested in properties and also purchased a building for construction of his office godown, which was subsequently sold by him. He further submitted that the entire investment in the properties have been routed through the books of account and have been shown as a fixed asset under the head 'income from business and profession'.3
ITA No No.1069/Chd/2016 But the same was assessable under the head 'income from capital gains'. The Assessing Officer did not find any force in the above contention of the assessee. The Assessing Officer concluded that in the case of the assessee he is a contractor and engaged in the business of civil construction. He further noted that apart from executing contract work, he is also engaged in construction of building and selling the same regularly. The Assessing Officer rejected the contention of the assessee that the construction and sale of building by him should not be treated as his business income. The Assessing Officer also rejected the other contention of the assessee regarding estimation of profit @ 30%. The Assessing Officer noted that the said estimation was based on the profit earned in similar kind of construction business. Therefore, the profit on sale of property has been worked out at Rs.2,70,000/- by the Assessing Officer and the same was treated as undisclosed income of the assessee. This amount of Rs.2,70,000/- was added to the total income of the assessee.
11. On appeal, the learned CIT (Appeals) upheld the addition for the reasons stated in para 6.1 of the impugned order and, hence the assessee is in appeal before the Tribunal.
12. We have heard the rival submissions and perused the materials available on record. Shri Vishal Mohan, learned counsel for the assessee vehemently argued that the discretion to determine the gross profit rate must necessarily be exercised on the basis of relevant factors. According to him, the Assessing Officer has not considered the past history of the assessee, the nature of assessee's business, prevailing economic conditions vis-à- vis the assessee's business. He has also pointed out that the Assessing Officer should have considered the price of raw material, labour, rise in price index from time to time. According to the learned counsel for the assessee, the authorities below have not cited any comparable case while applying the GP rate of 30%, which is arbitrary and without any basis. The learned counsel for the assessee pointed out that the reputed builder of Shimla M/s Rajdeep Builders had returned a profit of 18.22%, which is evident from the copy of Balance Sheet of the said concern as on 31.3.2005. A copy of the same is available at page 40 of the Paper Book. The authorities below have conveniently ignored the case of M/s Rajdeep Builders of Shimla in whose case a profit of 18.22% for assessment year 2005- 06 has been accepted. According to the learned counsel for the assessee, the said concern is also engaged in similar activities as those of the assessee. In the instant case, the Assessing Officer has not brought any comparable case on record and his estimation is too far way from the reality and is also without any basis. Recently, the Hon'ble Punjab & Haryana High Court in the case of Telelinks Vs. CIT (2015) 377 ITR 158 (P&H) after considering the decisions of the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. 4 ITA No No.1069/Chd/2016 CIT (1954) 26 ITR 775 (SC) and that of Privy Council in the case of CIT Vs. Laxmi Narain Badridas (1937) 5 ITR 170 (PC), held as under :
"10. The discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors which we shall enumerate but before doing so, would clarify that these factors are neither exhaustive nor a final word on relevant factors that may be considered while determining the net profit rate. A few significant factors are the past tax history of the assessee, if available, assessment orders that may have been passed and accepted by the department, the nature of the assessees' business, an appraisal of the value of the contract, prevailing economic conditions vis-a-vis the assessee's business, the price of raw material, labour etc. the rise in price index as notified by the Central Government from time to time if applicable and if the Assessing Officer proceeds to rely upon assessments of other assessees engaged in similar business to do so only after determining points of similarity etc. At this stage, it would be appropriate to clarify that the word similar is not synonymous with the word 'identical'. Factors referred to above are merely illustrative and not exhaustive of the circumstances that may or may not be taken into consideration. At this stage, it would be appropriate to reproduce a few words from Dhakeswari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) so as to place our conclusions in their correct perspective:-
".....The Income Tax Officer is not barred by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but in making the assessment under subs. (3) of s. 23 the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under S. 23(3). In this case the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the Departmental Representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the Department a statement of gross profit rates of other cotton mills without showing that statement 5 ITA No No.1069/Chd/2016 to the assessee and without giving him an opportunity to show that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the Department to the appellant, but it refused even to look at the trunk load of books and papers produced before it by assessee. The ITO and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion. The order of the Tribunal was set aside and the matter was remanded to it with directions that in arriving at its estimate of gross profits and sales it should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the material on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private inquiries made by the ITO if it is intended to make the estimate on the foot of those enquiries. "
11. A relevant extract from CIT Central & United Provineer Vs. Laxmi Narain Badre Dass (1937) 5 ITR 170 the Privy Council (Page 180) reads 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 Lordship thinks, 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; though there must necessarily be guess work in the matter, it must be honest guess work. In that sense, too, the assessment must be to some extent arbitrary. Their Lordships think that the section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, bust whose decision if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official by section 33. "6
ITA No No.1069/Chd/2016
12. It would also be necessary to refer to another judgment in State of Kerala Vs. C. Velukutty, 1966 ITR Vol. (LX) 239, wherein while dealing with the expression 'best of his judgment', it has been held that the discretion to determine net profit rate vests in the authorities but discretion shall not be arbitrary and should have a reasonable nexus to the available material and the circumstances of the case, followed by reasons that appear to be legal and valid. A reference may also be made to judgment of this Court in ITA No. 478 of 2006 titled as Aggarwal Engineering Co. Vs. Assistant Commissioner of Income Tax, decided on 06.12.2010. The second question of law is answered accordingly."
13. In the above case, there was a dispute regarding application of net profit rate. However, in this case, dispute is regarding the gross profit rate. In both the cases, the question is regarding the estimation of profit and, therefore, the ratio laid down by the Hon'ble Punjab & Haryana High Court is squarely applicable to the facts of the present case. In the above decision, the Hon'ble High Court has clearly laid down that the discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors. The Hon'ble High Court further laid down that a few significant factors are the past tax history of the assessee, if available, assessment orders, the nature of the assessee's business, an appraisal of the value of the contract, prevailing economic conditions vis-à-vis the assessee's business, price of raw material, labour, etc., the rise in price index as notified by the Central Government from time to time, if applicable and if the Assessing Officer proceeds to rely upon assessments of other assesses engaged in similar business to do so only after determining points of similarity. In the instant case, the Assessing Officer has not considered any of the factors which are stated hereinabove. He has applied arbitrary rate of 30% without any basis. In our opinion, the rate of profit applied by the Assessing Officer is not based upon a rational analysis of facts. The authorities below have also not given any reason as to why the case cited by the assessee of a reputed builder of Shimla M/s Rajdeep Builders was not comparable with the case of the assessee. Thus, considering the entire facts and circumstances of present case, we are of the view that a profit rate of 21% will meet the ends of justice in this case. It is relevant to observe here that the assessee failed to give his past tax history. The assessee has also not shown any profit on sale of immovable properties. It is evident from the record that the assessee is executing contract work and is also engaged in the construction of building and selling the same regularly. We may also observe there that the gross profit rate cannot be uniform in all the years and the profit rate depends on many factors. Therefore, the gross profit rate of 21% for the year under consideration should not be guiding factor in other years. Accordingly, we direct the Assessing Officer to apply a profit rate of 21% as against 30% applied by the revenue authorities. The Assessing Officer should give a relief to 7 ITA No No.1069/Chd/2016 the assessee accordingly. Thus, ground Nos.2 and 3 of the appeal are allowed partly."
6. Since the appeal at the instance of the assessee impugning the above finding has been stated to be admitted by the Hon'ble Himachal Pradesh High Court, therefore, in the fitness of things, we deem it appropriate that, let this issue be remitted back to the file of the Assessing Officer for adjudication in accordance with ultimate outcome of the issue after the decision of the Hon'ble Himachal Pradesh High Court. It is pertinent to observe that the alleged rate of profit for computation of income for assessment out of sale of property is depended upon the issue, whether the profit from sale of property is to be assessed as a business income or under the head "capital gain" from investments. In two years, this issue is subject matter of appeal before the Hon'ble High Court. Therefore, there is no justification for dealing them specifically in this assessment year. The Assessing Officer has to first determine, whether profit from sale of property is to be assessed as income from business/profession or under the head income from capital gains. In case it is determined that income from such activity is to be assessed under the head business income/profession, then the rate of profit be determined afresh. Accordingly, both these grounds of appeal are allowed for statistical purpose.
7. In ground no.3, the assessee has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs.13,45,647/- which was added by the Assessing Officer as unexplained cash found at the time of search.
8ITA No No.1069/Chd/2016
8. Brief facts of the case are that a search under section 132 of the Income Tax Act was conducted at the premises of Popli Group of cases on 8.10.2010. A notice under section 142(1) was issued on the assessee calling for return of income for the Asstt.Year 2011-12 which was duly served upon him. He filed return of income on 7.7.2012 declaring total income at Rs.18,37,302/-. Notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, the ld.AO observed that during the course of search, cash of Rs.21,46,150/- was found. The details of such cash and explanation of the assessee has been noticed in paras-7 of the assessment order which reads as under:
a) Cash as per he books of Shri. Rs.3,71,084.77
Rajesh Popli
Prop. M/s.New Shimla
Hardware
b) Cash as per the books of Hemant Rs.13,45,647.l07
Popli
c) Cash of the daughter of the Rs.3,00,000.00
assessee Jyoti Khajuira
d) Cash of Shri. Vijay Kishan 1,50,000.00
Sharma pending payment for
which confirmation shall be filed
in due course
Total Rs.21,66,731,84
......
.....
..... Regarding cash in hand the detailed submissions have already been made which have also been reproduced by you. Just because cash is found would not lead the inference with same is unaccounted. Just because surrender has been retracted does not empower the revenue to make unnecessary additions. The abstract of the cash of Shri. Rajesh Popli has 9 ITA No No.1069/Chd/2016 already been placed on record. No discrepancy in the same has been pointed out. His brother Shri. Rajesh was owned case as per his books of account of Rs.3,71,084.77. The sister and brother in law of the assessee had owned the cash of Rs.3 lakhs and their statement was also recorded during the course of proe3eings under section 132 of the Income Tax Act, 1961. The father in law of the assessee Shri. Vijay Kishan Sharma's cash of Rs.1,50,000/- was lying in the hosue of the assessee and confirmation in this regard is placed on record for your kind perusal and ready reference."
9. Thereafter, the ld.AO has made reference to the statement of the assessee recorded during the course of survey conducted at the business premises, and ultimately held that out of Rs.21,46,150/-, a sum of Rs.8,00,503/- was added in the case of Shri Rajesh Popli and balance amount of Rs.13,45,647/- remained unexplained which required to be added in the hands of the assessee. Appeal to the CIT(A) did not bring any relief to the assessee.
10. The ld.counsel for the assessee while impugning the addition submitted that case of Shri Rajesh Popli travelled upto the Tribunal vide appeal no.94 & 95/Chd/2014 for the Asstt.Year 2010-1 and 2011-12. The Tribunal has discussed this issue on page no.16,para 41. Out of addition of Rs.8,00,000/-, the Tribunal has deleted addition to the extent of Rs.2,20,000/- and rest was confirmed. He pointed out that during the course of assessment proceedings, the assessee has explained the position of cash. He submitted that out of Rs.13,45,647/- a sum of Rs.31,71,084/- was owned up by Shri Rajesh Popli and it is reflected in his books of accounts. Similarly, his sister and brother in law owned up Rs.3,00,000/- each and was appearing in their books of accounts. Rs.1,50,000/- was belonged to father-in-law, Shri Vijay Kishan Sharma.
10ITA No No.1069/Chd/2016 For buttressing this explanation, cash book and other evidence was submitted by the assessee. But these have not been examined analytically either by the Assessing Officer or by the CIT(A). The ld.CIT(A) while considering this issue has observed that this explanation has been given for the first time, and no application for permission to lead additional evidence under Rule 46A was submitted by the assessee. The ld.counsel for the assessee took us through the finding of the ld.CIT(A) in para 5.6.2 on this issue, which read as under:
"5.6.2 The appellant during the assessment proceedings had filed extracts of cash book of M/s HP Traders & Contractors as on date of search i.e. 08.10.2010 filed in the course of assessment proceedings was Rs.1,45,647/- instead of Rs.13,45,647/- which was not accepted by the Assessing Officer. The appellant during the appellate proceedings has filed a copy of cash book wherein cash in hand in the books of HP Traders and Contractors is shown at Rs.13,45,647/-. This cash book without any supporting document is only a self serving document which was not produced before the Assessing Officer. The appellant has not filed a request for admission of the same as additional evidence under Rule 46A. In view of the same, the additional evidence is not admitted."
11. He submitted that neither of the authority has examined this aspect on merit, rather rejected the explanation of the assessee in a cursory manner. The ld.DR, on the other hand, relied upon the orders of the Revenue authorities. He pointed out that the ld.AO has specifically dealt with explanation of the assessee, and he was not satisfied with quality of the evidence produced by the assessee to demonstrate that out of the cash balance of Rs.13,45,647/-cash of four individuals was available.
12. We have duly considered rival contentions and gone through the record carefully. No doubt, during the course of search, cash was 11 ITA No No.1069/Chd/2016 found. Onus was on the assessee to explain the source and nature of the cash. According to the assessee, he has explained the source by pleading that a sum of Rs.3,71,084/- belongs to Shri Rajesh Popli. Rs.3,00,000/- belongs to sister and brother-in-laws of the assessee, and Rs.1,50,000/- belongs to father-in-law, Shri Vijay Kishan Sharma. Assessments of these persons were also with the Assessing Officer. The Assessing Officer ought to have appraised himself status of cash flow in the books of these persons, and how they have owned up the cash in their accounts. He ought to have not disbelieved the version of the assessee without any analysis. We have already set aside two issues to the file of the Assessing Officer for re-adjudication. We deem it appropriate to remit this issue also for re-adjudication. The ld.AO should make an analysis of the treatment given by the alleged creditors about the cash balance found at the time of search in their books, and thereafter form an opinion, whether cash found during the course of search stands explained or not. It is needless to say that observation made by us will not impair or injure the case of the AO and will not cause any prejudice to the defence/explanation of the assessee.
13. In the result, appeal of the assessee is allowed for statistical purpose.
Pronounced in the Open Court on 6th November, 2019.
Sd/- Sd/-
(N.K. SAINI) (RAJPAL YADAV)
VICE-PRESIDENT JUDICIAL MEMBER
Chandigarh; Dated, 6/11/2019
12