Prarthana Construction Pvt. Ltd, Ahmedabad v. ITO Wd. 5(2), Ahmedabad

ITA 1115/AHD/2003 | 1995-1996
Pronouncement Date: 07-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 111520514 RSA 2003
Bench Ahmedabad
Appeal Number ITA 1115/AHD/2003
Duration Of Justice 7 year(s) 9 month(s) 16 day(s)
Appellant Prarthana Construction Pvt. Ltd, Ahmedabad
Respondent ITO Wd. 5(2), Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 26-02-2007
Date Of Final Hearing 21-10-2010
Next Hearing Date 21-10-2010
Assessment Year 1995-1996
Appeal Filed On 21-03-2003
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI MAHAVIR SINGH J.M. AND HON'BL E SHRI D.C. AGRAWAL A.M.) I.T.A. NOS. 1114 & 1115/AHD./2003 ASSESSMENT YEARS : 1994-1995 & 1995-1996 M/S. PRARTHANA CONSTRUCTION PVT. LTD. -VS.- INCOME TAX OFFICER WARD-5(2) AHMEDABAD AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MEHUL K. PATEL RESPONDENT BY : SHRI K. MADHUSUDAN SR. D .R. O R D E R PER SHRI D.C. AGARWAL ACCOUNTANT MEMBER : THERE ARE TWO APPEALS FILED BY THE ASSESSEE FOR TH E ASSESSMENT YEARS 1994-95 & 1995-96. SINCE THE ISSUES INVOLVED IN BOTH THE APPEALS ARE C OMMON THEREFORE WE HAVE DECIDED TO DISPOSE OF THE APPEALS BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FOR THE ASSESSMENT YEAR 1994-95 THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS :- (1) THAT THE LEARNED ASSESSING OFFICER HAS ERRED I N MAKING CERTAIN UNWARRANTED OBSERVATION AND POSTPONING THE ADDITION OF INCOME OF NTC/SOCIETY FOR WHICH THE DEVELOPMENT AGREEMENT WI TH THE APPELLANT EXIST CONSIDERING THE APPELLANT AS REAL OWNER OF THE SCHE ME. THAT NO ADDITION IN FUTURE BE PERMITTED ON FACTS & CIRCUMSTANCES OF THE CASE. (2) THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN ADDING RS.8 66 000/- BY APPLYING PROVISION OF SECTION 145 AND ESTIMATING PR OFIT OF WORLD BUSINESS CENTRE AT 15.66%. (3) THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING ADDITION OF RS.1 80 000/- AS UNACCOUNTED RECEIPTS ON FACTS AND CIRCUMSTANCES OF THE CASE. FOR THE ASSESSMENT YEAR 1995-96 THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS :- (1) THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING CERTAIN UNWARRANTED OBSERVATION AND POSTPONING THE ADDITION OF INCOME OF NTC/SOCIETY FOR WHICH THE DEVELOPMENT AGREEMENT WI TH THE APPELLANT EXIST CONSIDERING THE APPELLANT AS REAL OWNER OF THE SCHE ME. THAT NO ADDITION IN FUTURE BE PERMITTED ON FACTS & CIRCUMSTANCES OF THE CASE. 2 ITA NO. 1114 & 1115-AHD-2003 (2) THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN ADDING RS.5 32 000/- TO THE TOTAL INCOME BY ESTIMATING PROFIT AT 15% OF PRA RTHANA ALOK. (3) THAT THE LEARNED ASSESSING OFFICER HAS ERRED BY NOT ALLOWING FULL CLAIM OF THE FOREIGN TRAVEL OF DIRECTORS AND THEIR SPOUSE OF FACTS AND CIRCUMSTANCES OF THE CASE. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRI VATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE. THE ASSESSEE FILED RETURN ON 29.11.1994 FOR THE ASSESSMENT YEAR 1994-95 DECLARING TOTAL INCOME AT RS.20 97 135/-. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE A.O. FOUND THAT THE ASSESSEE HAS LAUNCHED VARIOUS PROJ ECTS IN REAL ESTATE SUCH AS WORLD BUSINESS CENTRE WHICH IS A COMMERCIAL COMPLEX PRARTHANA VI HAR IS A BUNGLOW PREMISES AND HASUNAGAR COOPERATIVE SOCIETY HOUSING SCHEME. IN RESPECT OF W ORLD BUSINESS CENTRE THE ASSESSING OFFICER WORKED OUT PROFIT OF THE ASSESSEE AT RS.15. 66 LAKHS ON TOTAL COST OF CONSTRUCTION OF RS.100 LAKHS. THIS WAS WORKED OUT AT 15.66%. WHILE ARRIVIN G AT THIS ESTIMATION THE ASSESSING OFFICER OBSERVED THAT PROJECTION AND ACTUAL FIGURES OF CONT RIBUTION EXPENSES DIFFER VASTLY. THEY DO NOT HAVE THE CORRELATION WITH THE ACTUAL CONTRIBUTION F ROM THE MEMBERS AND ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD WORKED O UT THE PROFIT ON THE BASIS OF PROJECTED FIGURES WHICH WAS REJECTED BY THE ASSESSING OFFICER BY INVO KING PROVISIONS OF SECTION 145. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CO NFIRMED THE ADDITION BY HOLDING AS UNDER:- 4.2. I HAVE CONSIDERED THE APPELLANTS SUBMISSIONS AND THE REASONS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I T IS SEEN THAT IN PRARTHANA VIHAR THE APPELLANT COMPANY CARRIED OUT CONSTRUCTIO N WORK AT RS.159.55 LACS EXCLUDING COST OF LAND THE APPELLANT COMPANY RECOVE RED RS.25 LACS AS DEVELOPMENT CHARGES AS PER SPECIFIC TERMS AND CONDI TIONS OF THE AGREEMENT WHICH SHOWS THAT THE DEVELOPMENT CHARGES ARE BEING RECOVERED IN THE YEAR UNDER CONSIDERATION AT THE RATE OF 15.66% UPTO THE TOTAL COST OF CONSTRUCTION DURING THE YEAR. THE A.O. HAS OBSERVED THAT IT IS M ATTER OF RECORD THAT THE PROJECTED MEMBERS CONTRIBUTION EXPENSES AND PROFIT DURING THE YEAR UNDER CONSIDERATION AS CALCULATED BY THE APPELLANT IS NOT BASED ON ACTUAL FIGURE BUT IT IS BASED ON ESTIMATED FIGURE. IT IS NOTED TH AT THIS PROJECTED FIGURE DO NOT HAVE ANY CORRELATION WITH THE ACTUAL CONTRIBUTION F ROM THE MEMBERS AND THE ACTUAL EXPENDITURE OF THE PROJECT DURING THE YEAR U NDER CONSIDERATION. FOR EXAMPLE THE CONTRIBUTION FROM THE MEMBER IS PROJEC TED AT RS.200 LACS BUT THE ACTUAL MEMBERSHIP FEE OF RS.9.5 LACS HAS BEEN R ECEIVED DURING THE YEAR UNDER CONSIDERATION. SIMILARLY THE COST OF CONSTRU CTION DURING THE YEAR UNDER CONSIDERATION IS PROJECTED AT RS.125.00 LACS BUT A CTUAL EXPENDITURE ON THE 3 ITA NO. 1114 & 1115-AHD-2003 PROJECT DURING THE YEAR HAS BEEN CALCULATED AT RS.1 00 LACS. THIS CLEARLY SHOWS THAT THE PROJECT PROFIT ON THE BASIS OF WHICH DEVELOPMENT CHARGES OF WORLD BUSINESS CENTRE HAS BEEN DETERMINED ON ESTIMA TED BASIS AND IT IS NOT BASED ON ACTUAL COST OF CONSTRUCTION OR MEMBERSHIP COLLECTION. HENCE THE A.O. HELD THAT IT CANNOT BE RELIED UPON. IN THESE C IRCUMSTANCES THE A.O. HAS RIGHTLY INFERRED THAT THE APPELLANTS RECEIPTS WITH REGARD TO WORLD BUSINESS CENTRE DO NOT REFLECT THE CORRECT PROFIT DERIVED. F URTHER THE A.O. WAS JUSTIFIED IN ESTIMATING IT AT THE RATE OF 15.66% OF THE TOTAL COST OF CONSTRUCTION BECAUSE THE APPELLANT COMPANY ITSELF HAS BEEN RECEI VING DEVELOPMENT CHARGES FOR PRARTHANA VIHAR AT THE RATE OF 15.66%. THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.8 66 000/- IS CONFIRMED. 4. BEFORE US THE LD. A.R. OF THE ASSESSEE SUBMITTE D THAT PROFIT ESTIMATED BY THE ASSESSING OFFICER IS VERY HIGH AND IN ANY CASE IT DOES NOT CO NFIRM TO THE PROVISION UNDER SECTION 44AD WHERE PROFIT RATE OF ONLY 8% IS APPLIED. IN FACT T HE ASSESSEE HAD ESTIMATED THE PROFITS @7% AT RS.7 LACS. HE DID NOT FAIRLY OBJECT TO THE REJECTIO N OF THE BOOKS AS THERE WAS NO SUCH GROUND TAKEN BY THE ASSESSEE. HE SUBMITTED THAT THE PROFIT EARNE D BY THE OTHER COMPANIES DURING THE PERIOD IS ABOUT 12.5% WHICH IS NORMALLY TAKEN BY THE A.OS WH ILE ASSESSING INCOME FROM CIVIL CONTRACT WORK. THEREFORE ESTIMATION AT 15.66% IS UNREASONAB LE AND IS NOT IN CONFORMITY WITH THE PREVALENT PRACTICE. FURTHER ACCORDING TO LD. A.R. SCHEME CONTINUED FOR SEVERAL YEARS AND THEREFORE FINAL INCOME IS OFFERED AFTER COMPLETION OF THE PROJECT. ON THE OTHER HAND THE LD. D.R. SUPPORTED THE ESTIMATE OF ASSESSING OFFICER. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE CONSIDERED VIEW THAT NEITHER THE ASSESSEE HAS ANY DEFINITE MATERIAL TO SUBSTANTIATE THE PROFITS AT 7% NOR THE ASSESSING OFFICER HAS ANY MATERIAL TO ENHANCE IT AT 15.66%. CONSIDERING T HE TOTALITY OF THE CIRCUMSTANCES AND NET PROFIT RATE ADOPTED BY THE DEPARTMENT IN THAT PERIOD WE D IRECT TO APPLY NET PROFIT RATE AT 12.5% AND DIRECT TO COMPUTE THE INCOME ACCORDINGLY. AS A RESU LT THIS GROUND OF ASSESSEES APPEAL IS PARTLY ALLOWED. 6. THE NEXT GROUND IS ABOUT ADDITION OF RS.1 80 000 /- BEING UNACCOUNTED RECEIPTS. 7. THE ASSESSING OFFICER MENTIONED THAT PRARTHANA V IHAR SOCIETY HAS MADE PAYMENT OF RS.1 80 000/- TO THE ASSESSEE-COMPANY WHICH WAS NOT CREDITED IN THE PROFIT & LOSS A/C. SINCE NO SUPPORTING EVIDENCE WAS SUBMITTED BY THE ASSESSEE THE ASSESSING OFFICER MADE ADDITION OF THE 4 ITA NO. 1114 & 1115-AHD-2003 AFORESAID SUM. THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE ADDITION ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SUBSTANT IATE THE CLAIM THAT EITHER IT IS CAPITAL RECEIPT OR IT IS FULLY EXPLAINED. BEFORE US THE LD. A.R. SUBMITT ED THAT THE ASSESSEE HAD RECEIVED RS.1 80 000/- FROM HASUNAGAR SOCIETY ON 20.11.1993 AND ACCOUNTANT HAD BY MISTAKE TAKEN THIS ENTRY ON 19.02.1994. IT WAS SUBMITTED THAT THIS MONEY WAS TA KEN FOR PURCHASE OF MATERIAL AND FOR PAYMENTS TO SUB-CONTRACTORS. 8. IN THE ALTERNATIVE THE LD. A.R. SUBMITTED THAT NET PROFIT ADDITION MADE IN RESPECT OF GROUND NO. 1 SHOULD BE CONSIDERED AS SOURCE OF THIS MONEY AND THEREFORE TELESCOPING EFFECT SHOULD BE GIVEN. 9. BEFORE US THE LD. D.R. SUBMITTED THAT NO EVIDEN CE IS SUBMITTED BEFORE THE ASSESSING OFFICER TO EXPLAIN THESE RECEIPTS. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE CONSIDERED VIEW THAT THE SUM OF RS.1 80 000/- IS NOT EXPLAINED SATISFACTORILY. HOWE VER THERE IS A CONSIDERABLE FORCE IN THE ARGUMENT OF THE ASSESSEE THAT TELESCOPING EFFECT TO THE ADDITION MADE IN THE AMOUNT SHOULD BE GIVEN. IT IS FOR THE ASSESSEE TO HOLD THAT UNACCOUN TED RECEIPT IS COMING OUT OF INTANGIBLE ADDITION. IF IT IS SO CLAIMED THERE IS NO REASON TO DISALLOW THE SAME SUBJECT TO THE NECESSARY IMPLICATIONS. WE THEREFORE ALLOW THE TELESCOPING EFFECT AND HOL D THAT SOURCE OF UNACCOUNTED RECEIPT IS ADDITIONAL PROFIT GENERATED IN CONSTRUCTION BUSINES S WHICH HAS BEEN PARTLY SUSTAINED BY US AS ABOVE. AS A RESULT THIS GROUND OF ASSESSEE IS ALLO WED. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 12. IN THE ASSESSMENT YEAR 1995-96 GROUND NO. 1 RE LATES TO OBSERVATION OF THE ASSESSING OFFICER THAT INCOME OF NTC/ SOCIETY BELONGED TO THE ASSESSEE. SINCE NO ADDITION HAS BEEN MADE IN RESPECT OF THIS WE DECLINE TO ADJUDICATE TO THE SAME AS IT IS MERELY ACADEMIC. THIS GROUND IS ACCORDINGLY REJECTED. 5 ITA NO. 1114 & 1115-AHD-2003 13. GROUND NO. 2 RELATES TO ESTIMATION OF PROFIT FR OM CIVIL CONTRACT WORK. THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT AT 15% AS AGAINST DECLARED PROFIT RATE 8.78%. IN FACT AFTER REJECTING THE BOOKS BY INVOKING THE PROVISIONS OF S ECTION 145 THE ASSESSING OFFICER ESTIMATED THE PROFIT ON RECEIPT FROM CONSTRUCTION BUSINESS AT RS.85.46 LAKHS AT RS.12.82 LACS. SINCE THE ASSESSEE HAD DECLARED PROFIT AT RS.7.5 LACS IT RES ULTED IN ADDITION OF RS.5.32 LACS. THE ASSESSING OFFICER HAD ALSO OBSERVED THAT THE ASSESSEE HAD DEC LARED PROFIT AT 15.6% FROM SANFRANSISCO ASSOCIATION IN THE ASSESSMENT YEAR 1994-95. 14. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ADDITION BY HOLDING THAT ESTIMATION OF PROFIT AT 15% IS REASONABLE BY O BSERVING AS UNDER :- 5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. OF THE APPELLANT CAREFULLY AND THE REASONS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. IN VIEW OF THE FINDINGS GIVEN BY THE UNDERSIGNED FOR T HE ASSESSMENT YEAR 1994-95 IN THE APPELLANTS OWN CASE VIDE ORDER IN A PPEAL NO. CIT(A.)- XI/61/97-98. I AM OF THE VIEW THAT THE A.O. WAS JUS TIFIED IN ESTIMATING THE PROFIT AT THE RATE OF 155 OF THE TOTAL COST OF CONS TRUCTION. FURTHER IT MAY BE POINTED OUT HERE THAT COMPARING THE PROFIT SHOWN WI TH REFERENCE TO THE CONSTRUCTION CARRIED OUT IN ALL OTHER SCHEMES THE PROFIT IN THIS SCHEME @ 8.78% (WHICH SEEMS TO BE ESTIMATED ONE ONLY) IS VER Y LOW AND THE A.O. WAS JUSTIFIED IN ESTIMATING IT AT 15% ON THE CONSTR UCTION EXPENSES. THEREFORE THE ADDITION MADE BY THE A.O. AMOUNTING TO RS.5 32 000/- IS CONFIRMED. 15. WE HAVE HEARD THE PARTIES AND CAREFULLY GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE ASSESSMENT YEAR 1994-95 WE HAVE DIRECTED TO AP PLY NET PROFIT RATE OF 12.5% ON THE CIVIL CONSTRUCTION WORK CARRIED OUT BY THE ASSESSEE. SINC E THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES WE DIRECT THIS YEAR ALSO TO APPLY NET PROFIT RATE OF 12.5% AND ESTIMATE THE INCOME ACCORDINGLY. THE ASSESSEE WILL GET CONSEQUENTIAL RE LIEF. 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 07.01.20 11 SD/- SD/- (MAHAVIR SINGH) (D.C. AGR AWAL) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED : 07/ 01 / 2011 6 ITA NO. 1114 & 1115-AHD-2003 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIS TRAR ITAT AHMEDABAD LAHA/SR.P.S.