Shri M Mohandoss Arakkonam v. Acit Vellore

In The Incometax Appellate Tribunal B Bench Chenn Ai Before U B S Bedi Judicial Memb Er And Shri Abraham P George Accountant Member Ita Nos 1581 1582 Mds 09 Co No 110 111 Mds 09 Asst Years 2000 01 2001 02 The Act Co Cir I 2 Chennai Vs M S Bbc Associates Ltd 15 Neelakanta Mehta St T Nagar Chennai 600017 Pan Aaacb 3586 B Appellant Respondent Cross Objector Appellant By Respondent Cross Objector By Shri K E B Rangarajan Jr Standing Counsel Shri T Banusekar Order Per Abraham P George Accountant Member These Are Appeals Of The Revenue Against The Order S Dated 22 07 2009 Of The Cit A For The Respective Years And Cro Ssobjections Of The Assessee For The Same Years Ita Nos 1581 2 Co 110 111 Mds 09 2 2 Appeal Of The Revenue For Asst Year 2000 01 Is Taken First For Disposal 3 Short Facts Apropos Are That The Assessee A Pr Operty Developer Had Filed Its Return Of Income For The Impugned Ass Essment Year Pursuant To A Notice Under Sec 148 Of The Income Tax Act 19 61 The Act For Short On 10 02 2004 Declaring Nil Income During The Cour Se Of Assessment Ao Required The Assessee To Produce The Books Of Accou Nt And Various Other Details However These Were Not Produced And Asses Sment Was Completed Under Sec 144 Of The Act To The Best Of Judgment Of The Ao He Rejected The Book Results Itself Shown By The Asse Ssee In Its Return And On The Gross Turnover Estimated Net Profit At 8 And C Ompleted The Assessment 4 In Its Appeal Before The Cit A Submission Of Th E Assessee Was That There Was A Set Back In Its Business Due To A Searc H And Seizure Proceedings Conducted By The Revenue In March 1996 Resulting In Enmasse Resignation Of Employees And Directors From The Company According To The Assessee Due To Search Bankers A Nd Creditors Withdrew Their Support And Day To Day Business Activities Su Ffered Assessee Therefore Sought Leave From The Cit A For Produci Ng The Books Of Account And Other Related Records Before The Ao Cit A Was Of The Opinion That There Was Reasonable Cause For Non Production Of B Ooks Of Account And Ita Nos 1581 2 Co 110 111 Mds 09 3 Details He Therefore Sought A Remand Order From The Ao And Directed The Assessee To Produce The Books Of Account And De Tails Required By The Ao Before The Latter The Pertinent Part Of The Rem And Order Is Reproduced Hereunder After Considering The Submissions I Find That Ther E Was Reasonable Cause For Not Producing The Books Of Accounts Due T O Setback In The Business And Therefore The Case Is To Be Remanded Back To The Ao For Verification The Appellant Shall Be Entitled T O Produce The Books Of Accounts And Such Other Details As Required By T He Ao During The Course Of Remand Proceedings The Ao Shall Examine The Books Of Accounts And Other Details And Submit A Remand Repo Rt Regarding Acceptance Of Books Of Accounts Maintained By The A Ppellant In Case There Were Defects In The Books Of Accounts T He Ao Shall Specify The Defects In The Books Of Accounts And Ma Ke Out A Case For Rejection Of Books Of Accounts And Estimation Of In Come In Case The Income Is To Be Estimated The Ao Shall Furnish Comp Arable Cases Based On Which The Income Of The Appellant Can Be E Stimated For Both The Asst Years The Ao Shall Submit His Reman D Report Covering The Above Points Within One Month From The Date Of Receipt Of This Order 5 Pursuant To This A Remand Report Dated 29 04 200 9 Was Received By The Cit A The Remand Report Covered Asst Year 20 00 01 As Well As Asst Year 2001 02 Ao In The Said Remand Report Mentione D That Assessee Had Produced The Books Of Account Namely Cash Books Ba Nk Book Project Expenses Ledgers General Expenses Ledger And Ledg Er For Assets And Liabilities Along With Relevant Vouchers After Ex Amining Such Books For The Relevant Previous Year Viz F Y 1999 2000 The Ao Came To The Following Conclusion Ita Nos 1581 2 Co 110 111 Mds 09 4 I Assessee Was Following Mercantile System Of A Ccounting Ii The Ledger Produced By The Assessee Reflected Project Expenses Of 2 86 70 824 Against 2 87 24 179 Claimed By The Assessee Iii The Total Project Expenses As Per Books Came To 4 73 99 743 Against Assessees Claim Of 4 77 98 162 Iv Individual Cost Of The Projects Given By The Assessee Did Not Tally With The Ledger Accounts 6 For The Above Reasons Ao Was Of The Opinion Th At Profit Of Individual Projects Could Not Be Arrived On The Bas Is Of The Books Of Account Produced By The Assessee Ao Had Also Sough T From The Assessee During The Remand Proceedings Details Of Opening Stock Closing Stock Cost Of Project Value Of Constructi On Agreement Etc And Admittedly These Were Filed By The Assessee Ao Dur Ing Such Proceedings Intimated The Assessee That There Could Not Be A Situation Where Flats Would Be Sold At A Loss Since Real Esta Te Business Was Booming During The Relevant Period At This Assess Ee Consented For Applying Average Gross Profit Method For Projects I N Which It Had Shown Loss Applying Such Gross Profit To The Total Sales Turnover Ao In The Remand Report Noted That Average Gross Profit For T He Relevant Previous Year Came To 3 And At Para 3 7 Of The Remand Rep Ort He Gave The Following Conclusion Ita Nos 1581 2 Co 110 111 Mds 09 5 3 7 If The Average Profit Of 3 Is Adopted The Pr Ofit On The Sale Of 19 Flats For 2 82 94 115 Comes To 8 48 823 The Carry Forward Unabsorbed Loss Of Ay 1999 00 Of 2 57 726 May Be Allowed To Be Set Off Against The Above Income 7 Ld Cit A Based On The Remand Report Directed The Ao To Adopt 3 Of The Sales Turnover Of 19 Flats As The Profit For The Relevant Previous Year And Also Directed The Ao To Set Off Depreciation Lo Ss Of 2 57 726 Carried Forward From Asst Year 1999 00 8 Now Before Us Ld Dr Assailing The Order Of The Cit A Submitted That 6 Weighted Average Profit Ought Have Been Ado Pted Since This Was Percentage Mentioned In That Part Of The Remand R Eport Pertaining To A Y 2001 02 According To Him Remand Report Suggested S Et Off Of Brought Forward Depreciation Of 2 57 726 Erroneously Per Contra Ld Ar Supported The Order Of The Cit A 9 We Have Heard The Parties And Carefully Perused The Orders We Have Reproduced The Pertinent Part Of The Remand Re Port At Para 6 Above We Cannot Fault The Ao For Rejecting The Books Of A Ccount Since There Was Certain Lacunae Noted In The Figures Claimed As E Xpenses By The Assessee And Those Appearing In Its Ledger Nevert Heless At Para 3 7 Of The Report Ao Has Clearly Stated That Carry Forward Unabsorbed Ita Nos 1581 2 Co 110 111 Mds 09 6 Depreciation Can Be Allowed And The Average Profit Of 3 Can Be Adopted For The Relevant Previous Year It Is Specifically Noted In Para 3 6 Of The Remand Report That Assssees Submission And Consent For Applying Average Gross Profit Was Accepted By The Ao And Acc Ordingly He Had Worked Out The Profit Rate 3 Cit A Gave Effect To This Remand Report We Cannot Find Any Fault In The Order Of The Cit A In This Regard There Is No Rule That Unabsorbed Depreciation Of Earlier Yea Rs Cannot Be Deducted Against Estimated Profits In A Later Year There Is No Case For The Revenue That Assessee Was Doing A Different Business In The Relevant Previous Year Vis Vis Earlier Years We Thus Find No Merit In The Appeal Of The Revenue Which Stands Dismissed 10 Now We Come To The Appeal Of The Revenue For A Y 2001 02 Its Grievance Appears At Ground No 2 Which Is Reproduc Ed Hereunder 2 The Ld Cit A Erred In Deleting The Addition M Ade By The Ao On The Ground That The Books Were Rejected In The R Emand Proceedings 2 1 The Ld Cit A Has Failed To Note The Fact That The Assessee Itself Has Accepted That Its Books Were Not Reliabl E And Offered For Applying Average Gross Profit Percentage For The As St Years 2000 01 To 2001 02 The Ao Had Suggested Estimation In This Case Only After The Consent Of The Assessee And Its Acceptance That It Is Unable To Explain The Profit Succinctly Para 3 6 Of Aos Rem And Report 2 2 The Ld Cit A Has Failed To Appreciate That The Assessee Has Claimed Loss Of 23 10 151 On Sale Of Four Flats In Bbc Thallam And Loss Of 21 43 310 On Sale Of 15 Flats In Bbc West End In Asst Year 2001 02 And Has Been Unable To Explain H Ow It Could Sell The Facts At A Loss And Finding Of Ao For Asst Yea R 2000 01 On This Ita Nos 1581 2 Co 110 111 Mds 09 7 And Assessee Admission For Asst Year 2000 01 Are E Qually Applicable To Asst Year 2001 02 2 3 The Assessee Had Before The Cit A Had Taken A Divergent Stand That It Was Not Justified To Apply Average We Ighted Method To Arrive At The Profit In View Of The Change Of Stan D By The Assessee Before The Cit A Subsequent To The Remand Report The Cit A Ought To Have Given An Opportunity To The Ao To Rebut The Argument Of The Assessee 2 4 The Ld Cit A Has Filed To Note The Fact That The Assessee Company Had Continued The Same Projects As Detailed By The Ao In The Remand Report Submitted For The A Y 2000 01 And That The Ao Applied The Same Analogy While Suggesting Estimatio N For Both Asst Years 2001 02 2001 02 On Weighted Average Profit Of 6 On The Basis Of Consolidated Report For A Yrs 2000 01 2 001 02 The Ld Cit A In The Absence Of Materials On Record Wa Rranting Differential Treatment Ought To Have Applied The S Ame Estimation For Both Asst Years 11 As Mentioned In The Ground And As Already Noted By Us The Remand Report Given By The Ao Separately Covered Asst Yea Rs 2000 01 And 2001 02 For A Y 2000 01 Assessee Had Suggested Applicat Ion Of Average Gross Profit Of 3 On The Turnover And This Was Accepted Nevertheless In That Part Of The Remand Report Covering Asst Year 2001 0 2 Ld Ao Had Suggested Average Profit Of 6 06 For The Relevant Previous Year According To The Revenue Ao Had Suggested Such Est Imation Only After Receiving Consent From The Assessee And Assessee C Ould Not Explain How Certain Flats Were Sold At A Loss Ita Nos 1581 2 Co 110 111 Mds 09 8 12 Facts Relevant Are That During The Relevant Pre Vious Year Also Assessee Was Continuing The Same Business However In The Part Of The Remand Report Dated 29 4 09 Covering The Previous Year Relevant To A Y 2001 02 Ao Did Not Point Out Any Defect In The Boo Ks Produced By The Assessee As Already Mentioned By Us At Para 5 Abo Ve For A Y 2000 01 Ao Had Pointed Out Certain Defects In The Books Of Accounts On Account Of Variations Between Its Claims And The Amounts Appearing In The Ledger Under Certain Heads Nevertheless For The Impugned Asst Year No Such Defects Were Pointed Out By The Ao Relevant Part O F The Remand Report Is Reproduced Hereunder 4 Asst Year 2001 02 Similarly For This Asst Year The Assessee Did Not Produce The Books Of Accounts At T He Time Of Scrutiny Proceedings And Also The Tax Audit Report B Efore The Assessing Officer Subsequent To The Remanding Of The Case The Assessee Was Given An Opportunity Of Producing The B Ooks Of Accounts And Also The Copy Of The Tax Audit Report Which Was Stated To Have Been Filed In Circle Ii Investigation The Asses See Was Also Asked To File The Copy Of The Acknowledgement For Having File D The Tax Audit Report In Circle Ii Investigation The Assessee Produced The Copy Of Tax Audit Report Signed By One Mr K Santhanam Ca On 30 8 2001 The Assessee Also Produced The Copy Of Acknowledgeme Nt For Having Filed The Tax Audit Report In Circle Ii Investigat Ion On 25 10 2001 For The Ay 2001 02 The Assessee Also Produced The Following Books Of Accounts I Cash Book Ii Bank Book Iii Ge Neral Expenses Ledger And Iv Journal Along With Relevant Vouchers Th E Books Of Accounts Produced Were Examined After Examining The Books I Submit My Report As Under 4 1 During The Fy 2000 01 Ay 2001 02 The Assess Ee Company Continued The Same Projects As Detailed Para 3 1 Ab Ove During The Ita Nos 1581 2 Co 110 111 Mds 09 9 Year The Assessee Had Sold 05 Flats In Diwan Raman Road 04 Flats In Bbc Thailam Garden 15 Flats In Bbc Westend And 2 F Lats In Bbc Kings Villa The Total Sale Consideration Admitted By The Assessee In The P L A C Was 2 75 76 800 The Cost Of The Project Whi Ch Is Debited To The P L A C Was Arrived At By The Assessee As Under 4 2 The Assessee Was Asked To File The Details Of O Pening Stock Closing Stock Cost Of The Project Value As Per Co Nstruction Agreement Entered Into During The Year I E Income Recognized And Actual Amount Received From The Buyer All Project Wise The Assessee Filed The Details As Stated Above During The Year The Assessee Has Sold 26 Flats In All The Details Are As Under Name Of The Project No Of Flats Sold Cost Of Flat Sale Consideration Of Profit Bbc Diwan Raman Road 05 34 50 807 37 28 010 7 44 Bbc Thailam 04 85 43 651 62 33 500 Nil Bbc Westend 15 1 67 26 985 1 45 83 675 Nil Bbc Kingsvilla 02 23 57 672 30 42 485 Total 26 3 10 79 115 2 75 87 670 4 3 If The Average Profit Of 3 Is Adopted For The Ay 2001 02 As In Ay 2000 01 The Profits Comes To Rs 8 27 630 2 75 87 670 3 4 4 However If The Profits Shown By The Assessee O N The Projects For Both The Ays 2000 01 And 2001 02 Is Taken Toget Her Then The Average Profit Percentage Will Be 6 06 As Under As Discussed In Para 3 6 Above The Average Profit Percentage For B Oth The Assessments Year Is Arrived At As Under Ay 2000 01 Cost Of Flat Of Bbc Thailam Rs 16 45 541 Cost Of Flat Of Bbc Westend Rs 1 25 41 121 Opening Projects Work In Progress Rs 9 76 32 540 Add Project Expenses For The Year Rs 2 08 80 837 Rs 11 85 13 377 Less Closing Work In Progress Rs 8 74 34 262 Cost Of The Project Debited To P L A C Rs 3 10 79 115 Ita Nos 1581 2 Co 110 111 Mds 09 10 Ay 2001 02 Cost Of Flat Of Diwan Raman Road Rs 34 50 807 Cost Of Flat Of Bbc Kingsvilla Rs 23 57 672 1645541 X 8 53 12541121 X 2 28 3450806 X 7 44 2357672 X 22 50 1645541 12541121 3450807 2357672 6 06 4 5 If The Average Profit Of 6 06 Is Adopted The Profit On The Sale Of 26 Flats For Rs 2 75 87 670 Comes To Rs 1 6 71 813 13 The View Taken By The Ao In The Remand Report Was Strongly Objected To By The Assessee Before The Cit A Acc Ording To The Assessee Ao Could Not Specify Any Defects In The B Ooks Of Account And Therefore Rejection Of Books Of Account And Estima Tion Of Income Could Not Have Been Made Assessee Submitted That It Has Prod Uced Books Of Account And All Vouchers Before The Ao And Relying On The Decision Of Cit Vs Abdul Aziz Sahib 7 Itr 647 Of The Jurisdictio Nal High Court It Was Argued That Without Setting Out Reason For Disregar Ding Accounts Rejection Of Books Could Not Have Been Made Ld Cit A Was A Ppreciative Of This Contention He Held That The Rejection Of Books Of Account Was Not Justified According To Him Even If The Books Were Ignored T Here Was No Reason Why A Higher Profit Rate Of 6 Should Have Been Ado Pted For The Impugned Assessment Year When Only 3 Profit Rate Was Adopt Ed For The Immediately Preceding Assessment Year He Therefor E Deleted The Ita Nos 1581 2 Co 110 111 Mds 09 11 Addition Made By The Ao And Directed Him To Apply 3 Profit Rate As Done In The Preceding Year For The Impugned Asst Year Also 14 Now Before Us Ld Dr Submitted That The Remand Report Clearly Mentioned 6 To Be The Average Profit Rate For The Relevant Previous Year And Hence The Cit A Was Not Justified In Directing The Ao To Adopt 3 Per Contra The Ld Ar Submitted Without Rejecting The Books The Estimation Itself Was Unjustified 15 We Have Heard The Rival Submissions And Perused The Orders Relevant Part Of The Remand Report Of The Ao Is Rep Roduced At Para 12 Above It Is Clear That The Assessee Had Produced B Ooks Of Account Along With Relevant Vouchers Assessee Had Also Furnished Details Of Stock Value As Per Construction Agreement Actual Amount Receiv Ed From The Buyers Etc Though The Ao Has Reproduced The Details Given By The Assessee In The Remand Report He Has Not Pointed Out Any Defect In The Books Of Account As Already Mentioned By Us For A Y 2000 0 1 Certain Defects Were Found By The Ao And Therefore He Did Have Sufficie Nt Reason For Coming To A Conclusion As Profits Could Not Be Arrived At On The Basis Of Such Books But For The Impugned Assessment Year No Such Defect S Were Found And In Our Opinion Books Of Account Could Not Have Been Re Jected At The Whims And Fancies Of The Ao In Such A Scenario The Cit A Was More Than Fair To Ita Nos 1581 2 Co 110 111 Mds 09 12 The Revenue In Directing Adoption Of 3 Profit Rate As Done In The Immediately Preceding Assessment Year There Is No Specific Reason Given By The Ld D R As To Why Average Gross Profi T For Two Years Had To Be Considered Especially When Books Were Not Rejected Possibility Of Incurring Or Not Incurring Loss On Sale Of Some Fla Ts In The Scenario Of A Booming Real Estate Business Is A General Commerci Al Question But Under Income Tax Proceedings We Have To Work Out T He Profit Or Loss In Accordance With The Provisions Of The Act And Not I N Accordance With The General Industrial Outlooks We Are Therefore Of T He Opinion That The Order Of The Cit A Does Not Need Any Interference Appe Al Of The Revenue Stands Dismissed 16 Now We Take Up The Cross Objections Of The Asse Ssee For The Respective Years Ld Counsel For The Assessee Subm Itted That The Cross Objections Were Supportive Of The Orders Of The Cit A Since We Have Already Dismissed The Appeals Of The Revenue For Th E Respective Asst Year The Cross Objections Have Become In Fructuous 17 To Summarise The Result Both Appeals Of The Re Venue As Well As The Cross Objections Of The Assessee Are Dismissed Ita Nos 1581 2 Co 110 111 Mds 09 13 Order Pronounced In Open Court On 03 1 2011 Sd Sd U B S Bedi Abraham P George Judicial Member Accountant Member Chennai 3rd January 2011 Nbr Cc Assessee Assessing Officer Cit A Cit D R Guard File