Gujarat High Court
Principal Commissioner Income Tax ... vs M/S. Jay Kesar Bhavani Developers Pvt. ... on 7 July, 2022
Author: Bhargav D. Karia
Bench: N.V.Anjaria, Bhargav D. Karia
C/TAXAP/267/2022 ORDER DATED: 07/07/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 267 of 2022
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PRINCIPAL COMMISSIONER INCOME TAX SURAT SURAT 1
Versus
M/S. JAY KESAR BHAVANI DEVELOPERS PVT. LTD.
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Appearance:
MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the
Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 07/07/2022
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Heard learned advocate Mr.Nikunt Raval appearing on behalf of learned advocate Mrs.Kalpana K. Raval for the appellant.
2. Learned advocate Mr.Raval has tendered a draft amendment to amend the substantial questions of law in paragraph no.5 of the present Tax Appeal. The same is allowed in terms of the draft. To be carried out forthwith.
3. The Revenue has preferred this Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short "the Act, 1961") being aggrieved by the judgment and order dated 13th February, 2020 passed by the Income Tax Appellate Tribunal, Surat (for short "the Tribunal") in ITA Page 1 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 No.1196/AHD/2013 for A.Y. 2009-2010.
4. Following substantial questions of law are proposed for consideration in this Tax Appeal :
"I. Whether the Hon'ble ITAT was right in the facts of the case in considering only 6% of the money receipts as income?
II. Whether the Hon'ble ITAT was correct in law and on facts in considering eligibility of assessee for deduction u/s 80IB(10) for consideration of profit @ 6% despite the assessee not pressing such claim?
III. Whether the Hon'ble ITAT was right in considering the claim of the assessee for profit component of 6 % on money receipts despite the rejection of books of accounts u/s 145(3) being found proper?"
4.1 It is pertinent to note that the question No.II raised by the appellant does not arise out of the order of the Tribunal, as the Tribunal has not given any finding with regard to disallowance of deduction under Section 80IB(10) of the Act, 1961, as the same was not pressed by the respondent assessee during the course of hearing of the appeal before the Tribunal.
5. The brief facts of the case are as under :
5.1 The respondent assessee, who is engaged in the business of construction of residential units, filed its return of income for the A.Y. 2009-10 on 8th October, 2009 declaring total Page 2 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 income of Rs.8,82,070/-.
5.2 A survey action under Section 133A of the Act, 1961 was carried out at the business premises of the assessee on 30th December, 2009.
The case of the assessee was selected for scrutiny and during the course of assessment proceeding, it was found by the Assessing Officer that turnover of Rs.6,90,92,636/- was shown by the assessee claiming expenses of Rs.6,65,08,089/- and gross profit of Rs.25,84,547/- before taxes and Rs.22,71,622 after taxes in original return of income, whereas, after survey action, the assessee filed revised P & L account disclosing turnover of Rs.25,94,55,680/- and expenditure of Rs.25,71,84,057/- showing gross profit of Rs.22,71,622/- after tax. The Assessing Officer, therefore, observed that the assessee claimed additional expenditure of Rs.4,29,02,369/- to cover up additional amount of construction work of Rs.4,29,02,369/- credited in the revised P & L account. The Assessing Officer, therefore, rejected the book result by invoking the provisions of Section 145(3) of the Act, 1961 and further observed that total receipt for the year under consideration as per impounded material was of Rs.10,39,86,000/-, whereas, in the return of income, the assessee had shown gross receipt of Rs.5,67,83,632/-. Therefore, the Assessing Officer made an addition of Rs.4,72,02,368/- as Page 3 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 undisclosed income and further disallowed the deduction claimed by the assessee under Section 80IB(10) of the Act, 1961 amounting to Rs.30,23,019/- and thereby determined the total income of Rs.5,11,07,459/- by passing the assessment order on 9th December, 2011.
5.3 The assessee being aggrieved preferred an appeal before the CIT (Appeals) who by order dated 1st February, 2013 dismissed the appeal and upheld the assessment order observing that the housing project was got approved by the assessee from the local authority on 9th July, 2008 and therefore, the basic condition of Section 80IB(10) of the Act, 1961 was not fulfilled. With regard to the addition for undisclosed income the CIT (Appeals) held that the assessee not only tried to make an inflated claim of expenses in such a manner so that its net profit remained the same, which is an unrealistic proposition, but assessee also tried to increase closing stock by Rs.14,74,60,675/-, and therefore, considering such attempt on part of the assessee, the CIT (Appeals) dismissed the appeal.
5.4 The assessee, therefore, carried the matter before the Tribunal challenging the disallowance under Section 80IB(10) of the Act, 1961 as well as the addition made on account of undisclosed income by the Assessing Officer. The assessee did not press the ground for Page 4 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 disallowance of deduction claimed under Section 80IB(10) of the Act, 1961, however, on issue of unrecorded receipts, the Tribunal decided the issue partly in favour of the assessee by holding that the entire receipt could not be added to the total income of the assessee and only profit element embedded in the said receipt would be added to the total income relying upon various decisions, and accordingly, the Tribunal estimated the profit element @ 6% of the net profit on total unrecorded receipts of Rs.4,72,02,368/-.
5.5 In such circumstances, the Revenue has filed this appeal being aggrieved by the impugned order of the Tribunal so far it relates to applying the rate of 6% on the unrecorded amount received by the assessee as income.
6. Learned advocate for the appellant submitted that it is not in dispute that there was unrecorded receipts of Rs.4,72,02,368/- detected during the course of survey on account of suppression of receipts from the customers by the assessee claiming various expenses paid through cash in the revised Profit & Loss account so that the net income remains the same. It was also pointed out that in support of its claim of expenses under various heads, the assessee has produced self-prepared cash vouchers, wherein, payment less than Rs.20,000/- is shown in each Page 5 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 voucher, however, none of the persons to whom the payment is made are produced by the assessee before the survey team nor any voucher was produced during the course of survey. It was submitted that the closing stock was also increased to Rs.14,74,60,675/- and it is improbable that the income and expenditure would be the same. It was submitted that the assessee has inflated the expenses at its will and whim so as to arrive at a tailor made profit and therefore, the estimation of net profit @ 6% on account of unaccounted receipts by the Tribunal is without any basis.
6.1 It was submitted that in case of Jay Builders Vs. ACIT, this Court has upheld the decision of the Tribunal estimating the net profit @ 15% of on-money receipts and therefore, the Tribunal has committed an error by brushing aside the facts of the case. It was submitted that the Tribunal has committed an error by estimating the profit element @ 6% on the entire on-money receipts.
7. We have considered the submissions made by the learned advocate for the appellant and also perused the order passed by the Tribunal. We are of the opinion that the Tribunal was justified in upholding the contention of the assessee that considering the fact that entire money receipts cannot be taxed in entirety and only the profit Page 6 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 embedded therein and such receipts is to be considered for arriving at correct, true and real income to be taxed under the provisions of the Act, 1961.
8. The Tribunal to arrive at such conclusion has relied upon the decision of this Court in case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89, wherein, it is held that, "it has been consistently held by this court and some other courts have been following the principle that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that were the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation."
9. The Tribunal thereafter relied upon the decision in case of CIT Vs. President Industries reported in [2002] 258 ITR 654 (Gujarat) and also CIT Vs. Abhishek Corporation reported in [2000] 158 CTR 374 (Gujarat) to hold that, in case of on-money receipts, only profit embedded therein is to be taxed and not the entire money receipts. The Tribunal following the decision of this Court, therefore, came to the conclusion by estimating the net profit @ 6% as under :
"13. In the light of above discussion, and respectfully following the judgements of Hon'ble Jurisdictional High Court as discussed above and also of Tribunal, we are of the considered opinion Page 7 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022 C/TAXAP/267/2022 ORDER DATED: 07/07/2022 that Ld. CIT(A) was not justified in confirming the addition of entire on-money receipts amounting to Rs.4,72,02,368/-. Therefore, only estimated net profit is required to be taxed. We find that the assessee has shown net profit at 4.55% for the assessment year under consideration and 4.59% for A.Y. 2010-11. Further, the Hon'ble High Court in the case of CIT V. Abhishek Corporation (supra) has upheld the net profit at 1.31% as declared by the assessee in that case. The net profit rate disclosed at 4.55% during the assessment year under consideration by the assessee in books of accounts and considering the facts that the project undertaken by the assessee comes under deduction of Section 80IB(10) of the Act, hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking into account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on- money receipts of Rs.4,72,02,368. Accordingly, the AO is directed to tax net profit @ 6% on total on- money receipts of Rs.4,72,02,368. In view of these facts and circumstances, the Ground No.4 to 6 of appeal are partly allowed."
10. Thus, the Tribunal, after following the decision of this Court and after considering that the assessee had shown net profit at 4.55% for the assessment year under consideration and 4.59% for A.Y. 2010-11 in the books of account and considering the fact that the project undertaken by the assessee comes under deduction of Section 80IB(10) of the Act, 1961, there was no intention on the part of the assessee to disclose the lower rate of profit and in that view of the matter, the Tribunal estimated 6% net profit of total on- money receipts of Rs.4,72,02,368/-.
Page 8 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022C/TAXAP/267/2022 ORDER DATED: 07/07/2022
11. In our view, the Tribunal has not committed any error in estimation of 6% of net profit on the total on-money receipts of the respondent assessee and as such there is no legal infirmity in the impugned order of the Tribunal giving rise to any question of law, much less any substantial question of law, proposed or otherwise. The present Tax Appeal is therefore, summarily dismissed.
(N.V.ANJARIA, J) (BHARGAV D. KARIA, J) Dolly Page 9 of 9 Downloaded on : Sat Dec 24 20:34:03 IST 2022