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The Income Tax Officer, Ward 5 (4) , Pune. Versus M/s Balaji Constructions

2016 (1) TMI 631 - ITAT PUNE

Estimation of business income - books of account have not been produced - tax audit report filed before him for the first time is marred with serious discrepancy like; securing of loan and deposit in cash are in question contravention of provisions of section 269SS and 269T of the Act - CIT(A) CIT(A) estimated the income @ 5.3% - Held that:- From the audit report, it is not known whether the assessee had maintained any daily stock register for raw material and WIP and even if the same is maintai .....

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presumptive being equal to 8% of the total turnover or gross receipts.

This is a provision of beneficial nature which seeks to reduce hardships and tax hassles. It overrides the normal provisions of section 28 to section 43C of the Act to unable the assessee to avail this alternative route for computation of taxable business income. The statutory percentage estimated at 8% of the total turnover or gross receipts though made available to the assessee of the smaller size i.e. having a .....

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ar in preference to the statutory percentage. - Decided in favour of revenue. - ITA No.694/PN/2014 - Dated:- 28-10-2015 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant by : Shri B. C. Malakar For The Respondent by : None ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal filed by the Revenue is against the order of CIT(A)-III, Pune dated 19.02.2014 relating to assessment year 2009-10 passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. Th .....

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me of the hearing, the order of the Commissioner of Income-tax (Appeals)-III, Pune may be vacated and that of the Assessing Officer be restored. 3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the ITAT. 3. None appeared on behalf of the assessee inspite of specific information of hearing. It is seen from the record that the matter was earlier listed on 13.08.2015, wherein the adjournment was gra .....

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by the Revenue in the present appeal is correctness of relief of ₹ 16,85,093/- granted by the CIT(A) by adopting the profit percentage at the same rate i.e. 5.3% as disclosed by the assessee during the immediately preceding assessment year as against the estimation of income derived @ 8% of the total contract receipts by the Assessing Officer. 5. The relevant facts, in brief, as per the assessment order are that the assessee is a civil contractor and filed his return of income for the asse .....

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d stated to have furnished financial statements, work order details, bank pass book extracts, purchase register etc.. However, as per the Assessing Officer, the assessee could not furnish any evidence supporting the expenditure claimed and profits shown. It was also noted by the Assessing Officer that though the turnover of the assessee was more than ₹ 6 crores, no audit report under section 44AB of the Act was furnished which led the Assessing Officer to draw the inference that the assess .....

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itted before the CIT(A) that the partner of the assessee firm filed computation of total income, audited copy of the Profit & Loss Account and Balance Sheet, copies of work orders, extract of bank books and purchase register, etc. before the Assessing Officer. The assessee, however, was prevented from attending the further proceedings after his first attendance. He has been working at Bihar near Indo Nepal Border as Senior Project Manager for his employer. In view of the aforesaid, the detai .....

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ore the CIT(A). On behalf of the assessee, it was reiterated before the CIT(A) that due to genuine difficulty, the assessee was prevented from complying with the requirements of the Assessing Officer, namely, filing of the tax audit report and supporting evidences to corroborate profits and expenditure shown in the Profit & Loss Account. On merits, it was submitted on behalf of the assessee before the CIT(A) that inspite of the presence of audited final accounts copies of TDS certificates, p .....

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account and tax audit report were not produced before the Assessing Officer, the Assessing Officer should at best could make disallowance @ 10% of the expenses as against 8% of the total contract receipts estimated by him. 7. The CIT(A), however, agreed with the findings of the Assessing Officer that the assessee could not substantiate the reasonableness of the profits disclosed, by producing supporting books of account and corroborating evidences nor it could show that such books, if any, got a .....

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45(3) of the Act. He also relied upon the decision of the Jurisdictional High Court in the case of National Plastic Industries reported in 309 ITR 191 (Bom) to support the action of the Assessing Officer. However, he adopted the profit percentage @ 5.3% of the contract receipts as profit during the year on estimation basis quantified at ₹ 17,44,619/- based on the value addition made of ₹ 3,29,17,352/- to the opening WIP of ₹ 2,73,25,297/-. As a result, the addition of ₹ 3 .....

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of ₹ 34,29,712/- by adopting the net profit at 8% of the total receipts/turnover. The Assessing Officer has not brought any reason or basis for adopting the net profit at 8%. No comparison or profit ratio of preceding years disclosed by the appellant is drawn nor any comparative instances of cases engaged in similar line of business has been brought out by the Assessing Officer. Apparently, the Assessing Officer's action is driven by the provisions of sec.44AD which prescribes 8% net p .....

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parameters. As already brought out above, no such exercise has been carried out by the Assessing Officer but he has straight away determined the profit at 8% of the turnover. Even in cases of a firm where provisions of sec.44AD are attracted, the assessee is further entitled to deduct remuneration and interest to partners from the profit so determined. In the present case, such aspects also have not been considered by the Assessing Officer while determining the percentage of profit. Therefore, i .....

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appellant has disclosed a gross profit of ₹ 27,41,196/- on a gross sales of ₹ 6,02,42,649/- which works out to 4.5%. However, during the immediately preceding year, the gross profit stood at 14.37% while the net profit disclosed stood at 5.36% of the WIP. This makes it clear that there is considerable increase in the direct expenses during the year. In this regard, it would be relevant to carry out a comparative analysis of the components of direct expenses during this year and the .....

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last year. From the above analysis, it can be seen that while there is a decrease in the expenses on account of purchases during this year as compared to the preceding year, the expenditure on account of labour has shot up considerably from 19.89% in the preceding year to 29.23% in the year under consideration. Similarly, while there was no claim on account of transport in the A.Y. 2008-09, the same has been claimed at ₹ 10,57,355/- during the year. It cannot be possible that the appellan .....

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was working on two projects, namely on behalf of Vidya Prathisthan, Baramati and Shree Pandurang Prathisthan, Pandharpur. As per the copy of the work order dated 10/01/2009 given by Shree Pandurang Prathisthan, the work was to be commenced from 15/01/2009 i.e. during the year under consideration and completed by 15/05/2009. However, no WIP in respect of this work is shown in the profit & loss account and the entire sales pertain to the other work i.e. pertaining to Vidya Prathisthan. These d .....

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person's business of similar kind in the same area or on the assessee's own financial results of the preceding years. 4.2.3 Having considered the facts and circumstances of the case, I am of the opinion that it would be fair and reasonable to adopt the profit percentage at the same rate as was disclosed by the appellant during the immediately preceding year. This is being so done after considering the fact that the profit disclosed by the appellant during this year also pertains to the .....

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consequential relief of ₹ 16,85,093/-. Ground of appeal No.l & 2 are partly allowed. 9. The Ld. Departmental Representative for the Revenue strongly relied upon the order of the Assessing Officer and submitted that in the absence of books of account, there is no justification to adopt the net profit rate of the previous year as each year is independent financial year. Admittedly, the books of account have not been produced for which the grounds cited are very flimsy. The tax audit rep .....

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admitted position that books of account have not been produced at all for the relevant assessment year. The CIT(A) himself has recorded a finding of fact in para 4.1 of his order that the tax audit report filed before him for the first time is marred with serious discrepancy like; securing of loan and deposit in cash are in question contravention of provisions of section 269SS and 269T of the Act. It was also observed that tax audit report gives a disclosure that closing WIP value are certified .....

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for raw material and WIP and even if the same is maintained whether the valuation of the stock was done in accordance with accepted accounting standard and practices is not known. In the backdrop of error of such magnitude as observed by the CIT(A), we hardly find any justification to scale down the estimation made by the Assessing Officer. The statutory provision as per section 44AD of the Act entitles the assessee of relatively smaller size engaged in the eligible business including the impug .....

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