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Backbone Construction P Ltd And Others Versus Deputy Commissioner of Income Tax, Central Circle-2, Rajkot And Others

2015 (7) TMI 112 - ITAT RAJKOT

Estimation of net income at the rate of 16% - Held that:- The estimate of net income from the contract work at the rate of 16% of the turnover was without any basis. We find that as per the provisions of section 44AD of the Income Tax Act, net profit from contract work declared by the assessee at the rate of 8% of the turnover would be accepted if the turnover of the assessee is less than the limit specified in that section. Though the said section is not applicable in the instant case, as the t .....

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he AO on the ground that the expenditure was not genuine, and ₹ 60,00,000/- on account of section 40(a)(ia) of the Act - Held that:- When the CIT(A) has estimated the net profit, question of allowing or disallowing of any specific expenditure does not arise. The DR could explain as to why after estimation of net profit, still the disallowance of certain expenses of ₹ 1,25,00,000/- and ₹ 60,00,000/- was warranted, and how it can be held that such expense was allowed by the CIT(A .....

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in the absence of any corroborative material to support the admission made during the course of search under section 132(4) of the Act addition cannot be sustained, especially when such admission was later on retracted by the assessee by filing the return of income as well as by filing a separate retraction letter also. We, therefore, delete the addition of ₹ 1,78,00,000/- and allow this ground of the appeal of the assessee. See Kailashben Manharlal Chokshi Vs. CIT [2008 (9) TMI 525 - GUJ .....

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question of making allowance or disallowance as per provision of sections 28 to 43AC does not arise. In the instant case, we have upheld the computation of business income on the basis of estimation in ground no.3 of the appeal of the assessee, though, at the rate of 8% of the turnover in replace of 16%, and therefore, the question of further disallowance by invoking the provisions of section 40(a)(ia) of the Act does not arise. See CIT Vs. Banwari Lal Banshidhar(1997 (5) TMI 37 - ALLAHABAD High .....

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by the assessee and the Revenue for the Asstt.year 2009- 10. ITA No.709/RJT/2014 is the appeal filed by the assessee against the order of the CIT(A) for the Asstt. year 2010-11. ITA No.710/RJT/2014 and ITA No. 21/RJT/2015 are the cross appeals filed by the assessee and the Revenue for the Asstt.year 2011- 12. The appeals for the Asstt.Years 2008-09, 2009-10 and 2010-11 are filed against the consolidated order of the CIT(A)-IV, Ahmedabad dated 31.10.2014 and the appeal for the Asstt.Year 2011-12 .....

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h reads as under: "The ld.CIT(A)-IV, Ahmedabad has erred in dismissing the appeal whereby the addition made by the Assessing Officer has disallowance u/s.40A(3) made an addition of ₹ 5,47,500/- is unwarranted, unjustified and bad in law." Since the DR had no objection for admission this additional ground of appeal of the assessee, the same was admitted and parties were allowed to make their submissions thereon. In the Revenue's appeal for the Asstt.Year 2008-09, sole ground t .....

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re interconnected, therefore, both grounds are considered and decided together. 4. After hearing rival submissions and perusing the material available on record, we find that during the year under consideration, the assessee is engaged in construction of widening and deepening of Mithi River from Mahim causeway to Dharavi Bridge. The assessee was awarded contract by Mumbai Metropolitan Region Development Authority on 25.4.2007. The assessee was required to widen and deepen of Mithi River from Ma .....

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ack of proper evidences, and thereafter, worked out the total income at ₹ 18,65,26,818/-. 5. On appeal, the CIT(A) after calling remand report in respect of various fresh evidences produced before him, came to conclusion that the books of accounts of the assessee contain certain discrepancies, and therefore, the book results is not acceptable. Thereafter, the CIT(A) proceeded to estimate the net income of the assessee, which was estimated by him at the rate of 16% of the turnover. 6. Again .....

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hus, we find that the rejection of the book results, and therefore, estimation of net income by the CIT(A) is not in dispute before us. The only grievance of the assessee is that after rejection of the books of accounts, the CIT(A) was not justified in arbitrarily estimating the net income at the rate of 16%, which is excessive and unrealistic considering the nature and volume of the business of the assessee. 8. On the other hand, the DR supported the order of the CIT(A) and submitted that the e .....

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s explained that the work executed during the preceding year was not of under-sea project, whereas, the work involved during the year was of under-sea project. In respect of tender documents, it was explained that the net profit embedded in the project was 11.11% as well as loss of 22.20%, which was verified from work order No.ED/C.E./MRW/Work-4/07/220 dated 25.4.2007 and work order no.ED/C.E./MRW/Work-1/07/218 dated 25.4.2007 respectively. 10. The DR has not disputed the above explanation of th .....

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e in the instant case, as the turnover of the assessee is more than the turnover specified in that section, however, taking a cue from the provision of this section and taking into consideration normal trend that the percentage of net profit is generally less when the turnover is higher, in our considered view, it shall meet ends of justice, if the net profit is estimated at 8% of its turnover. 12. Further, in respect of Revenue's ground, we find that when the CIT(A) has estimated the net pr .....

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of the appeal of the assessee is partly allowed, and the ground of the Revenue is dismissed. 13. The ground no.2 of the assessee's appeal for the Asstt.Year 2008- 09 reads as under: "2. The CIT(A) has erred in upholding decision of the AO in imposing penalty u/s.271(1)(c)/271AAA of the Act is unjustified, unwarranted and bad in law." 14. This ground of appeal is premature, and therefore, the same is dismissed. 15. The ground no.3 of the appeal of the assessee is as under: "3. .....

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) has erred in dismissing the appeal whereby upholding the addition made by the AO of ₹ 1,74,194/- on the alleged ground of unexplained interest on cash loan is unjustified, unwarranted and bad in law." 18. Because of smallness of the amount, the AR of the assessee made no specific submission in respect of this ground of appeal, and therefore, the same is dismissed for lack of prosecution. 19. In the assessee's appeal, the ground no.2 reads as under: 2. The ld.CIT(A) has erred in .....

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- and restricting the profit @ 16% of gross profit on account of bogus claim of expenditure." 20. After hearing rival submissions, we find that the facts and issues involved in the above grounds of appeal are exactly the same, as was involved in the ground no.1 of the appeal of the assessee and the ground no.1 of the appeal of the Revenue in the Asstt.Year 2008-09, except for change in figures. 21. During the year under consideration also the assessee was engaged in the contract work of wid .....

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e Asstt.Year 2008-09, direct the AO to estimate the net profit of the assessee of the year at the rate of 8% of the turnover from contract work. 22. Thus, after estimation of net profit from contract work, the question of allowance or disallowance of specific expenditure does not arise. Consequently, the ground of appeal of the assessee is partly allowed and the ground of the Revenue is dismissed. 23. The ground no.3 of the assessee's appeal for the Asstt.Year 2009- 10 reads as under: " .....

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appeal by the AR of the assessee. We hold that charging of interest under section 234A, 234B and 234C is consequential in nature, and accordingly, dismiss this ground of appeal of the assessee. Assessment Year 2010-2011 27. The ground no.1 of the appeal of the assessee reads as under: "1. The ld.CIT(A) has erred in dismissing the appeal whereby upholding the addition made by the AO of ₹ 1,78,00,000/- on the alleged ground of retraction of income admitted during the search is unjustif .....

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rded under section 132(4) of the Act, wherein, in reply to question no.6, the said deponent disclosed undisclosed income of various persons including ₹ 1,78,00,000/- on account of assessee-company for the assessment year under consideration, and ₹ 7,00,00,000/- for the Asstt.Year 2011-12. Thereafter, the assessee filed return of income for the assessment year under consideration on 4.12.2012, showing total income of ₹ 53,63,900/-. The assessee also filed a letter of retraction .....

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on letter was filed after about two-and-half years of date of disclosure. 31. On appeal, the CIT(A) confirmed the action of the AO and also placed reliance on the decisions of various High Courts, none of which is jurisdictional High Court, in support of his decision. 32. Before us, the AR of the assessee submitted that absolutely no incriminating material relating to the assessee-company was found during the course of search. He pointed out that apart from the statement of Shri Dinesh J. Jakasa .....

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hargava, AIR 1963 (SC) 1094 and Chikkam Koteswara Rao, AIR 1971 (SC) 1542. 34. On the other hand, the DR supported the order of the CIT(A) and submitted that the statement recorded under section 132(4) of the Act on 10.8.2010 was voluntary statement, and therefore, the addition made was justified. 35. We find that in the statement recorded under section 132(4) on 10.8.2010 while disclosing undisclosed income of ₹ 1,78,00,000/- for the assessee-company of the year under consideration Shri D .....

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undisclosed income of ₹ 1,78,00,000/- of the assessee stands utilized on the date of search, it was represented by which assets, or was utilized for which expenditure. Still further, we find that DR could not controvert the submission of the assessee that no incriminating material relating to the assessee-company was found during the course of search, and even the lower authorities could not bring any corroborative material, which was found during the course of search, which could support .....

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-tax Act, 1961at the premises of the firm and the partners a statement of the assessee under section 132(4) was recorded. The assessee disclosed an unaccounted investment in house property at ₹ 4 lakhs, unaccounted cash of ₹ 1 lakh, unaccounted investment in furniture of ₹ 1 lakh, unaccounted investment in gold ornaments of ₹ 1 lakh. After a lapse of two months the assessee retracted the statement made and stated that the disclosure of ₹ 7 lakhs was made under press .....

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132(4) of the Act at midnight. In normal circumstances, it was too much to give any credit to the statement recorded at such odd hours. The person would not be in a position to make any correct or conscious disclosure in a statement if such statement was recorded at such odd hours. The assessee had given proper explanation for all the items under which disclosure was sought to be obtained from the assessee. With regard to the investment in house property he had stated that he took the plot in 19 .....

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n to make addition of ₹ 4 lakhs on the basis of the disclosure made by the assessee. The Revenue had not brought any evidence to establish that the assessee had in fact incurred ₹ 4 lakhs and that amount was invested out of undisclosed income. The addition on account of gold ornaments could not be sustained since looking into the quantum of holding and the assessee's explanation this was a normal holding which could be found in any middle class Indian family. The furniture on the .....

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on of the assessee was convincing but not been considered by the authorities below. Merely on the basis of the admission of the assessee the additions could not be made unless and until some corroborative evidence was found in support of such admission. The statement recorded at such odd hours could not be considered to be a voluntary statement, if it was subsequently retracted and necessary evidence was led contrary to such admission. The Tribunal was not justified in making addition of ₹ .....

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ion was later on retracted by the assessee by filing the return of income as well as by filing a separate retraction letter also. We, therefore, delete the addition of ₹ 1,78,00,000/- and allow this ground of the appeal of the assessee. 39. The ground no.2 of the appeal of the assessee reads as under: "2. The ld.CIT(A) has erred in making disallowance of ₹ 20,00,000/- u/s.40(a)(ia) and enhancing the same amount is unjustified, unwarranted and bad in law." 40. We find that i .....

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allowance or disallowance as per provision of sections 28 to 43AC does not arise. In the instant case, we have upheld the computation of business income on the basis of estimation in ground no.3 of the appeal of the assessee, though, at the rate of 8% of the turnover in replace of 16%, and therefore, the question of further disallowance by invoking the provisions of section 40(a)(ia) of the Act does not arise. For this we find support from the decision of the Hon'ble Allahabad High Court in .....

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ted and bad in law." 42. After hearing rival submissions, we find that the facts and issues involved in the above grounds of appeal are exactly the same, as was involved in the ground no.1 of the appeal of the assessee in the Asstt.Year 2008-09, except for change in figures. 43. During the year under consideration also the assessee was engaged in the contract work of widening and deepening of Mithi River. Quantity of work done was measured and certified by the Engineer-incharge appointed by .....

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from contract work. Thus, this ground of appeal of the assessee is partly allowed. 44. The ground no.4 of the assessee's appeal for the Asstt.Year 2010- 11 reads as under: "4. The CIT(A) has erred in upholding decision of the AO in imposing penalty u/s.271(1)(c)/271AAA of the Act is unjustified, unwarranted and bad in law." 45. This ground of appeal is premature, and therefore, the same is dismissed. 46. The ground no.5 of the appeal of the assessee is as under: "5. The ld.CI .....

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ces of the case the ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 35,45,89,920/- and restricting the profit @ 16% of gross profit on account of bogus claim of expenditure. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the AO on the issue of addition of ₹ 35,45,89,920/- on account of bogus claim." 49. The above ground of appeal does not arise out of the order of the CIT(A), and therefore, they .....

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he course of search. However, the AO held that the retraction made by the appellant was an afterthought and not acceptable and added ₹ 7,00,00,000/- to be income of the appellant." 51. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The issue involved in this ground of the appeal is similar to the issue involved in the ground no.1 of the appeal of the assessee for the Asstt.Year 2010-11. The facts are also similar excep .....

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