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TMI Blog2021 (12) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... were heard together and are being disposed of by this common order for sake of convenience and brevity. We will first take up Cross Appeal bearing ITANo.374/KOL/2018 & ITANo.533/KOL/2018 pertaining to A.Y. 2012-13 3. Brief facts of the case as culled out from the records are that the assessee is a Private Ltd. Company engaged in the business of construction of building bridges. Income of Rs. 35,09,550/- declared in the return of income filed on 30th September 2012. Notices u/s 143(2)& 142(1) of the Act were issued but there was no compliance. Subsequently the assessee made submissions through Speed Post on 12.03.2015 but the said submission did not contain the requisite information asked by the Ld. AO. Since the ld. AO did not receive necessary information, he disallowed the total expenses claimed in the P & L Account. Similarly, Ld. AO possessed the information from AIR about sale of immovable property but due to lack of necessary details which were not furnished by the assessee, the sale consideration from immovable property was also disallowed. Based on the records available Ld. AO proceeded to frame ex-parte order u/s 144 of the Act, assessing the income at Rs. 113.41 Cr. aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was inclusive of purchase which remained unverified and therefore warranted disallowance of the entire sum. 3]. The Ld.CIT(A) erred in deleting the disallowances made towards expenses without appreciating the fact that the assessee had not been able to produce any supporting evidences of its claim and also Ld. CIT(A) decided the issue without reminding to AO for verification. 4]. The appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing. 6. Ld. counsel for the assessee has submitted following written submissions: 1] As regards ground of appeal No. 1 of assessee's appeal and ground of appeal No. 1 to 3 of departmental appeal. a] That in the audited financial statement the assessee had disclosed income and expenditure as under:- Particulars Amount Particulars Amount Opening stock 5,68,47,415 Contract receipts (sales) 87,45,69,722 Purchases [ work allotted to sub contractors back to back] 79,61,15,855 Commission and other receipts 11,17,53,928 Fright, Power & Fuel and Salary & Wages 14,49,03093 Other income 7,76,96,586 Other expenses against other income 7,30,20,695 Closing Stock 4,16,85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e materials placed by the assessee were unreliable did not empower the Assistant Collector to make an arbitrary order of enhancement. The power to levy assessment on the basis of best judgment is not an arbitrary power. The assessment had to be based on relevant material. Further also same view had been taken by the Hon'ble Supreme Court in the case of BrijBhushanLalParduman Kumar vs. CIT reported in 115 ITR 524 (SC). Further also the Hon'ble Supreme Court in the case of CIT v. Excel Industries Limited (2013) 358 ITR 295 (SC), held that income tax cannot be levied on hypothetical income and it has really accrued to the assessee. f] From the order it is appeared that in the case of assessee the ld AO had used arbitrarily power and has rejected one side i.e. debit side of audited P&L a/c and disallowed the entire expenditure as claimed by assessee, however corresponding other side on such audited P&L a/c where the source of such expenditure had been recorded i.e. gross business receipt and income which has been treated as genuine. If the expenditure claimed by appellant as bogus, than the A.O ought to have reduced the corresponding income shown by the appellant. Since the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 264 (Punjab & Haryana), under identical circumstances has held as follows:- "7. Section 44AD of the Act was inserted by the Finance Act, 1994 with effect from 1-4-1994. Sub-section (1) of section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8 per cent, of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head "profits and gains" of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs. 40 lakhs. iii. The Hon'ble ITAT, Kolkata Bench in the case of ITO V/s ShriRabindraNath ITA No 1097/Kol/2015 dated 20/04/2018 "We have heard the rival contentions of both the parties and perused the materials available on record and the judicial decisions cited by the parties. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uided by rules of justice, equity and good conscious. In the case of State of Orissa vs. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690 (SC), Hon'ble Supreme Court held that the power of levy on best judgment was not an arbitrary power. The assessment had to be made on relevant material. Hon'ble Calcutta High Court, in the case of CIT vs. Ranicherra Tea Co. Ltd. (1995) 124 CTR (Cal) 113 : (1994) 207 ITR 979 (Cal), also held that although the AO is not bound by strict judicial principles, in making best judgment assessment, he does not possess absolutely arbitrary authority to assess any figure as he likes. He should be guided by the rules of justice, equity and good conscious. Looking to the ratio of these cases, if past results showed loss or nominal net profit rate, then, the AO will not be justified in applying 8 per cent rate." i] That when the profit rate declared by the assessee had been accepted under scrutiny assessment in A.Y. 2009-10, 2010-11 & 2011-12 and the method of computation of income followed by the assessee had been duly accepted. Therefore the ldCIT(A) should have applied the profit rate looking to the past history of the case. It is crystal clear from the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not involve any substantial question of law, hence, dismissed." iv. The Hon'ble ITAT Cuttak Bench in the case of Shreegopal Mundhravs ITO in ITA No.437/CTK/2016 for assessment year 2010-2011 order dated 30.1.2017 has held as under:- "I find that the rejection of books of account of the assessee is not under challenge before me. The only submission of the ld A.R. of the assessee is that the net profit rate applied to estimate the income is excessive. It is not in dispute that the net profit rate declared and accepted by the department in the immediately preceding assessment year's is in A.Y. 2007-08 @ 3.04%, in A.Y. 2008-09 @ 2.77% and in A.Y. 2009-10 @ 2.64%. In my considered view, after rejecting of book results of the assessee, the income of the assessee has to be estimated by the Assessing Officer but while doing so, he cannot make a wild guess of the same. The past accepted results are a guide to the estimation of the income of the assessee. Considering the past accepted results of the assessee, I am of the considered view that estimation of income of the assessee by applying the net profit rate of 4% will meet the ends of justice. I, therefore, modify the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant before the AO. Therefore the books of account are liable to be rejected. However, I also agree with the logistic contention of the AR that disallowance of entire incentive to agents amounting to Rs. 6,64,83,650/- would only result in an absurd net profit rate of 13.90% in this particular line of business in which the appellant company is engaged in. Considering the facts and circumstances of the case as well as the normal profit rends in this line of business, I am of the view that book profit declared is liable to be rejected. The income of the company may be estimated keeping in view materials available on record. In this regard, I have already decided the appellant's appeal for the AYs 2001-11 & 2011-12 by adopting the theory of estimation. Following the same principle, total income is estimated @ 0.4% of total turnover of Rs. 48,47,08,894/- which works to Rs. 19,38,835/-. The AO is directed accordingly. The appellant get a relief of Rs. 6,54,70,185/- (6,74,09,020/- - 19,38,835)." 4. Learned CIT -DR vehemently contends during the course of hearing that CIT (A) has erred in law as well as on facts in estimating assessee's income @ 0.4% of its total turnover. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of accounting under Section 145 of the Act. Otherwise, it will be presumed that the entire exercise is revenue neutral. Method of Accounting regularly followed by the taxpayer which was accepted by the AO in past cannot be rejected in future years without expressing the dissatisfaction about the correctness or completeness of the accounts of the assessee. In light of above, the addition made by ld AO and partly sustained by Ld CIT(A) may kindly be deleted. 2] As regards ground of appeal No. 2 of assessee's appeal relating to addition of Rs. 2,81,70,890/- in respect of unexplained income from sale of property. a] As submitted that the assessee company is also dealing in sale and purchase of properties on commission basis and had shown income from brokerage in the books of account. On behalf of purchaser the assessee company had made agreement with seller and thereafter had transferred the property in the name of purchaser as it is regular practice in line of business. b] It is worthwhile to mention here that the assessee company is working as a broker, makes agreement for purchase of the property for his clients, and ultimately the sale deed is executed in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT v/s Consulting Engineering Group Ltd. reported in 369 ITR 284 held that when the contract work allotted to sub contractor on commission basis and the ld AO found such transaction are not real transaction the ld AO should have made addition in respect of commission earned on such transaction not entire transaction as undisclosed income of the assessee. g] That in the 2011-12, the department had accepted the brokerage income on alleged transaction and the facts narrated in affidavit filed by director of assessee remained uncontroverted and as such the principle of consistency required that the view taken by the Department in the preceding years should not be disturbed as held in following case:- i. Arihant Builders v/s. ITAT (2005) 277 ITR 239 (MP) ii. ACIT v/s. Gendala Hazarilal& Co. (2003) 263 ITR 679 (MP) iii. CIT v/s. Neo Poly Pack Pvt. Ltd. (2000) 245 ITR 492 (Delhi) iv. Dhansiram Agarwalia v/s. CIT (1996) 217 ITR 4 (Gau) v. CIT v/s. Shiv Sagar Estate (2002) 257 ITR 59 (SC) vi. UOI v/s. SatishPannalal Shah (2001) 249 ITR 221 (SC) vii. CIT v/s. Paul Brothers (1995) 216 ITR 548 (Bom. - Nag.) Looking to nature of business and accepted past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in one of the sister concern M/s B.B.C. Project Services Pvt. Ltd. This Tribunal vide its order dated 30.11.2018 in ITANo.1669/Kol/2016 for A.Y. 2009- 10,has adjudicated very same issue of estimation of net profit on the total turnover of Rs. 48.47 cr. and after considering the submission of both sides this tribunal held as follows: 2. The Revenue raises two substantive grounds in its instant appeal. Its former grievance pleads that CIT(A) has erred in estimating assessee's income @ 0.4% of the. total turnover of Rs. 48,47,08,894/- without appreciating the relevant facts. It then seeks to revive sec. 40(a)(ia) disallowance of Rs. 6,64,83,650/- made by the Assessing Officer on account of non-deduction of TDS and reversed in lower appellate proceedings. 3. We find in this backdrop of pleadings that CIT (A)'s order qua the instant twin issue(s) reads as follows:- "5 I have considered the submissions of the AR of the appellant and have also gone through the assessment order on the issue at hand. I find that facts emerging from records reveal that the appellant submitted primary documents in support of return already filed i.e. copy of return (lTR-6), Audited Accounts, Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss thereof failed during the course of hearing. We therefore find no fault in CIT(A)'s action estimating the assessee's income @ 0.4% of its turnover. 5. The Revenue's latter substantive ground seeking to revive u/s 40(a)(ia) (supra) that has no legs to stand since the relevant books forming foundation thereof already stand rejected. The Revenue fails in its both substantive grounds accordingly. 9.3. From perusal of the above finding of this tribunal we find that the net profit rate of 0.4% has been accepted by this Tribunal in one of the sister concern of the assessee. We also find that the net profit declared by the assessee for A.Y. 2009-10 to 2011-12 was within the range of 0.2 % to 0.29& and even in the scrutiny proceedings the revenue authorities in assessee's own case have estimated net profit below the rate of 1% so by no means estimating the net profit @ 8% could be justified,looking to the fact that there is no change of business during all these years, books of account are duly audited, no specific error has been pointed out by both lower authorities. 9.4. One more important fact which is relevant in the instant appeal is that subsequent to the assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A), various details were filed and even in the body of impugned order Ld. CIT(A) has observed that they were not one but many transactions of sale of immovable property which happened during the year. Still Ld. CIT(A) did not made any efforts to examine those transactions and proceeded just to confirm the addition made by the ld. AO. 10.1 We, however on perusal of the submissions made by the assessee as well as the copy of deed of conveyance, Memorandum of Understanding (in short MoU) and Board Resolution in respect of purchase of land for M/s Siddhi Vinayak Cement Ltd. find that the assessee company is also dealing in sale and purchase of properties on commission basis and had also shown income from brokerage in the books of account. 10.2 We notice there was MoU between assessee and third party for purchase of industrial land situated at Pali in December 2009. As per MoU the assessee had collected the industrial land for third party and after conversation of agricultural land to industrial land through respective land holder the documents was registered through conveyance deed in favour of him and immediately thereafter transferred to third party. The transaction in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conveyance deed executed by the appellant along with MoU& Board Resolution is at page 29 to 35 of the paper book. 10.6. On perusal of same we observe that on behalf of the purchaser the assessee companies enters into an agreement with sellers and thereafter transfer the property in the name of the purchaser. This business of earning commission from purchase and sale of land is being consistently carried out by the assessee in the previous year also and same are regularly entered in the books of account. Even for A.Y. 2011-12 the department had accepted the brokerage income on alleged transaction and the facts narrated in affidavit filed by the Director of the assessee remained uncontroverted. When the assessee is carrying out similar type of business transaction every year and is also being assessed under the scrutiny assessment by revenue authorities, the principle of consistency ought to be applied and the view taken by the department in the preceding years should not be disturbed as held in following cases: i. Arihant Builders v/s. ITAT (2005) 277 ITR 239 (MP) ii. ACIT v/s. Gendala Hazarilal& Co. (2003) 263 ITR 679 (MP) iii. CIT v/s. Shiv Sagar Estate (2002) 257 ITR 59 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed so far as arbitrary estimation of profit from operations is concerned. 2.That on the fact and in the circumstances of the case, the Ld. CIT(A) is wrong and unjustified in determining profit at Rs. 9,46,84,148/- being 8% of turnover without properly examining Books of accounts and assessee's submission made on 12.01.2018. 3.That on the facts and in the circumstances of the case, Ld. CIT (A) is wrong and unjustified in determining profit @ 8% on turnover which is quite high, absurd and unrealistic in a large business of civil construction. 4.That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal. 13. From perusal of the above grounds we find that only issue relates to estimation of net profit on the contract business carried out by the assessee. We find that of the ld. AO while framing the assessment disallowed the difference opening and closing stock as well as gross profit, disallowed the expenses and when the matter came up before the Ld. CIT(A) he estimated the profit from contractual business by applying @8% on the total business turnover. 14. Both the parties stated that the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence and its transaction. 3. The Ld.CIT(A) erred in deleting the additions made on account of bogus purchase amounting to Rs. 48.81 cr. and disallowances made on account of expenses amounting to Rs. 11.88 cr. and substituting the income of the assessee with the estimated net profit @ 8% of revenue from operation by completely overlooking the fact that the AO had made such additions and disallowances after conducting a detailed enquiry &evidences brought on record and that the assessee could not establish the genuineness of such transactions in-spite sufficient opportunity being given to it during the course of assessment proceedings. 4. Since the purchase of the assessee remained unverifiable, the Ld. CIT(A) has erred in estimating net profit @8% of revenue from operation. 5. The appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing. 16. From perusal of the above grounds we find that one common issue relates to estimation of net profit on the contract business. We find that the same has already been dealt by us in preceding paras while dealing with the cross appeal for A.Y. 2012-13 and assessee's appeal for A.Y. 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annel. The advances so received are duly recorded and also appear in audited financial statement, which is part of the paper book. (P.B. Page 13 to 20).Further out of total trade advances of Rs. 66,48,50,000/- the assessee company had also given advance of Rs. 61,81,00,000/- to sub-contractor and remaining amount was shown as commission income in the subsequent year. The advances given to subcontractor are duly recorded and also appear in audited financial statements. (P.B. Page 1 to 12 & 21 to 28). That in the audited financial statement the assessee had shown above transaction as under:- Particulars 2013-14 2014-15 2015-16 Particulars 2013-14 2014-15 2015-16 Advance from customers 4,47,50,000 66,48,50,000 4,47,50,000 Advance given towards contracts 0 61,81,00,000 3,95,00,000 19.2 From the above, it is crystal clear that the advances as appearing in the audited financial statement in the name of M/s Trishakti Power Private Limited is a trade advances for execution of contract work. Further the payment so received as advance against execution of contract work from M/s Trishakti Power Private Ltd was transferred to sub-contractor. Subsequently the subc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rishakti Power P. Ltd. in favour of the assessee is placed on record which defines scope of work, consideration security deposit, etc. and confirmation of account is also placed at page 19 which shows that advance of Rs. 62.01 cr. have been received through banking channel. Further the customers namely M/s Trishakti Power P. Ltd has also certified to have given the advance to the company. In the subsequent financial year i.e. F.Y. 2014-15 the advance given towards contract work from M/s Trishakti Power P. Ltd has been adjusted in gross turnover for F.Y. 2014-15. It is also an undisputed fact that the assessee after receiving advance from M/s Trishakti Power P. Ltd gave the sum to the sub-contractor for doing the work and genuineness of such payment has not been disputed by the Ld. AO. 19.7 We, therefore, under the given facts and circumstances and after going through of details and documentary evidences, are satisfied that the alleged sum of Rs. 62.01 cr. is a duly unexplained advance from customers namely M/s Trishakti Power P. Ltd received by the assessee as part of regular business transaction for the purpose of completing a contract (duly documented by a work order ) and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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