DCIT,, Nashik v. Shri Vijay D. Madan,, Nashik

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER ITA NO. 653/PN/2008 (ASSESSMENT YEAR: 2005-06) DY. COMMISSIONER OF INCOME-TAX (H.QRS-1) NASHIK .. APPELLANT VS. SHRI VIJAY DAVLATSINGH MADAN .. RESPONDENT VIJAY VILLA COLLEGE ROAD NASHIK PAN AFDPM7496J AND C.O NO 01/PN/2010 (ARISING OUT OF ITA NO 653/PN/08 AY 2005-06) SHRI VIJAY DAVLATSINGH MADAN .. CROSS OBJECTOR VIJAY VILLA COLLEGE ROAD NASHIK VS. DY. COMMISSIONER OF INCOME-TAX .. RESPONDENT (H.QRS-1) NASHIK .. DEPARTMENT BY: SHRI H. SHARMA ASSESSEE BY: SHRI SUNIL P ATHAK ORDER PER D. KARUNAKARA RAO A.M: 2 THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I NASHIK DATE D 12.3.2008 WHICH IN TURN HAS ARISEN FROM AN ORDER DATED 31.12.2007 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT 1961 (I N SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2005-06. THE GROUNDS OF APPEAL RAISED READ AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD CIT (A) ERRED IN TREATING THE TOTAL AMOUNT OF COMPENSATION INCLUSIVE OF INTER EST OF RS.1 00 11 578/- ON GROSS BUSINESS RECEIPTS WITHOUT APPRECIATING THE FA CT THAT THE INTEREST COMPONENT ACTUALLY CAN ONLY BE CLASSIFIED UNDER THE HEAD INC OME FROM OTHER SOURCES SINCE THERE IS NO DIRECT NEXUS BETWEEN THE INTEREST INCOM E AND THE ACTUAL BUSINESS OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD CIT (A) ERRED IN APPLYING HE NET PROFIT RATE OF10.25% MERELY BEING T HE MEAN VALUE OF THE RATE APPLIED BY THE AO AND THE RATE OFFERED BY THE ASSES SEE WITHOUT ANY BASIS AND PURELY BASED ON ESTIMATION NET SUPPORTED BY ANY COM PARATIVE ANALYSIS OR SUPPORTING EVIDENCES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS WILLFUL LY BYPASSED THE MANDATORY PROVISIONS OF SECTION 44AB FOR NOT RETURNING THE CO RRECT PROFIT TO EVADE THE TAX BY RETURNING THE NET PROFIT AT THE LOWER RATE OF 8%. T EL WILFUL OMISSION OF THE ASSESSEE ITSELF SUPPORTS THE FACT THAT THE NET PROF IT MUST BE QUITE HIGHER THAN 10.25% AND HENCE THE AO WAS FULLY JUSTIFIED IN APPL YING THE NET PROFIT RATE OF 12.5%. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD CIT (A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE CASE LAWS CITED BY T HE ASSESSEE ARE DIFFERENTIABLE ON FACTS. 5. THE ORDER OF THE CIT (A) BE VACATED & THAT OF TH E AO BE RESTORED. 2. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF GOVIND CHOWDARY REPORTED IN 203 ITR 881 (SC) AND MENTIONED THAT THE ISSUE IN GROUND NO. 1 RAISED BY THE REVENUE RELATES TO WHETHER INTEREST COMPONENT RELAT ABLE TO THE COMPENSATION IS TAXABLE RECEIPT UNDER THE HEAD INCOME FROM OTHER S OURCES OR UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. IN THIS REGARD HE MENTIONED THAT THE AO ATTEMPTED TO TAX THE SAME AS INCOME FROM OT HER SOURCES AS THE AMOUNT INVOLVED IS INTEREST RECEIPT WHICH IS GENERALLY TA XED U/S 56 OF THE ACT. THE COMMISSIONER OF INCOME-TAX (APPEALS) RELYING ON TH E SUPREME COURT JUDGMENT IN THE CASE GOVIND CHOWDARY (SUPRA) AND ALSO IN VIE W OF THIS BENCH DECISION IN THE CASE OF G.K. BHATTACHARYA ITA NO 1820/PN/2005 HELD THAT INTEREST IN 3 QUESTION PARTAKES THE CHARACTER OF COMPENSATION AND THEREFORE IT IS TAXABLE AS A REVENUE RECEIPT UNDER THE HEAD PROFITS AND GAINS F ROM BUSINESS OR PROFESSION. FURTHER HE MENTIONED THAT THE INTEREST IN QUESTION RELATES TO THE DELAY IN PAYMENT OF COMPENSATION AND THEREFORE IT IS A REVENUE RECE IPT TAXABLE UNDER THE HEAD PROFITS AND GAINS FROM THE BUSINESS OR PROFESSION AND THEREFORE HE PRAYED FOR CONFIRMING THE VIEWS OF THE CIT(A) ON THE SUBJECT . 3. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4. ON PERUSAL OF THE SAID ORDER OF THE HONBLE SUPR EME COURT AS WELL AS PARA 6.1 OF THE IMPUGNED ORDER WE FIND THAT THE COMMISS IONER OF INCOME-TAX (APPEALS) HAS REPRODUCED THE RELEVANT CONTENTS OF T HE SUPREME COURT JUDGMENT IN THE CASE OF GOVIND CHOWDARY (SUPRA) BEFORE CONCL UDING THAT THE SAID AMOUNT IS TAXABLE UNDER THE HEAD PROFITS AND GAINS FROM THE BUSINESS OR PROFESSION . WE FIND NO REASON TO INTERFERE WITH THE SAME AS THE CO MMISSIONER OF INCOME-TAX (APPEALS) HAS FOLLOWED THE ORDER OF THE SUPREME COU RT. FURTHER REVENUE HAS NOT FILED ANY CONTRARY JUDGMENT AGAINST THE VIEWS O F THE CIT(A) AND IN TURN TO SUPPORT THE VIEWS OF THE AO IN THIS REGARD. THEREF ORE WE ARE OF THE OPINION THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEAL S) DOES NOT CALL FOR ANY INTERFERENCE ON THIS ISSUE. ACCORDINGLY GROUND NO .1 OF THE REVENUE HAS TO BE DISMISSED . 5. GROUND NOS. 2 & 3 RELATE TO THE CORRECT ESTIMATE WITH REGARD TO THE PERCENTAGE OF PROFITS. IN THIS REGARD THE LEARNED COUNSEL NARRATED THAT THE ASSESSEE OFFERED THE NET PROFIT AT THE RATE OF 8% A S PER THE PROVISIONS OF SECTION 40AB OF THE ACT. THE ASSESSING OFFICER APPLIED 12.5 % AS NET PROFIT IN PLACE OF 8%. IN THIS REGARD THE ASSESSING OFFICER IS OF THE OPINION THAT PROVISIONS OF SECTION 44AB ARE INAPPLICABLE TO THE FACTS OF THE C ASE AS THE TURNOVER OF THE ASSESSEE FOR THE ASSESSMENT YEAR EXCEEDED THE LIMIT PRESCRIBED IN THE SAID 4 SECTION. THE COMMISSIONER OF INCOME-TAX (APPEALS) H AS DISCUSSED THIS ISSUE IN PARA 6.2 OF THE IMPUGNED ORDER AND THE SAME READS A S FOLLOWS: 6.2 THE SECOND ISSUE TO BE DECIDED IS AT WHAT PERCE NTAGE NET PROFIT ON THE GROSS BUSINESS RECEIPT IS TO BE REASONABLY ESTIMATED AS T HE APPELLANT HAS NOT MAINTAINED BOOKS OF ACCOUNTS. THE APPELLANT CLAIMED THAT SECTION 44A D LAYS DOWN THAT PROFIT OF CIVIL CONSTRUCTION BUSINESS IS TO BE ESTIMATED AT 8% IN T HE CASES WHERE THE GROSS BUSINESS RECEIPT OF CIVIL CONTRACTORS BUSINESS IS LESS THAN RS 40 LAKHS. THE APPELLANT REQUESTED TO APPLY THE SAME PERCENTAGE OF NET PROFIT TO HIS CASE THOUGH HIS GROSS BUSINESS RECEIPT EXCEEDED RS 40 LACS. THE AO ON THE OTHER HAND CONTE NDED THAT THE PROVISIONS OF SECTION 44AD OF THE INCOME-TAX ACT 1961 ARE NOT APPLICABL E TO THE APPELLANT AS HIS BUSINESS RECEIPTS EXCEEDED RS 40 LACS. THE AO FURTHER STATED THAT THOUGH THE APPELLANT WAS LIABLE TO MAINTAIN BOOKS OF ACCOUNTS AND GET THE SAME AUDI TED U/S 44AB OF THE ACT HE HAS FAILED TO DO SO AND HENCE HE ESTIMATED NET PROFIT A T 12.5% ON COMPENSATION RECEIVED (EXCLUDING INTEREST)S BY THE APPELLANT. THE APPELLA NTS CONTENTION CANNOT BE ACCEPTED AS HIS TURNOVER EXCEED RS 40 LACS AND THE AOS CONTENT ION ALSO NOT ACCEPTABLE IN TOTO AS THE SAME IS NOT SUPPORTED BY ANY SUPPORTING EVIDENCE OR COMPARATIVE CASES. IN ORDER TO MEET THE END OF JUSTICE I HOLD THAT THE NET PROFIT ON THE GROSS BUSINESS RECEIPT OF RS 1 71 16 603 IS TO BE ASSESSED AT 10.25% I.E. AVERAG E OF THE CLAIM OF THE APPELLANT OF 8% AND THAT OF THE AO AT 12.5% WHICH WORKS OUT AT RS 1 7 54 452/- AS AGAINST RS 8 88 128/- ESTIMATED BY THE AO (12.5% OF RS 71 05 025/-).THE A O IS DIRECTED ACCORDINGLY. FROM THE ABOVE IT IS EVIDENT THAT THE ISSUE REVOLV ES AROUND WHAT IS THE APPROPRIATE PERCENTAGE OF NET PROFIT THAT SHOULD BE ADOPTED ON THE GROSS BUSINESS RECEIPTS OF RS 1 71 16 603/- THE COMMISSI ONER OF INCOME-TAX (APPEALS) HAS TAKEN AVERAGE OF BOTH 8% (OFFERED BY THE ASSESSEE) AND 12.5% ADOPTED BY THE ASSESSING OFFICER AND HELD THAT AVER AGE NET PROFIT ON THE SAID TURNOVER IE @ 10.25% WOULD BE FAIRER. FURTHER WE FIND THAT THER E ARE SERIES OF ESTIMATIONS IN THIS CASE BY THE ASSESSEE AO AND TH E CIT(A) AND THERE EXISTS NO EXPLAINED BASIS AND NOTHING RELYING ON THE BOOKS OF THE ACCOUNTS. BY NOT FILING APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS) BY INFERENCE THE ASSESSEE HAS NO OBJECTION FOR SUBSTI TUTING HIS 8% BY 10.25%. AS WE AGREE WITH THE FACT THAT THE PROVISIONS OF SECTI ON 44AB ARE INAPPLICABLE TO THE FACTS OF THIS CASE AND THE ASSESSEE IS PRIMA FACIE INCORRECT IN INVOKING THE SAID PROVISIONS AND THE 8% REFERRED TO THEREIN. FROM THE REVENUE POINT ALSO THERE IS NO BASIS FOR 12.5% IN OUR OPINION IT IS A MERELY AN ESTIMATION BASED BY CONVENTION. AO HAS NOT BROUGHT ANY STUDY MATERIAL T O DEMONSTRATE THAT THE 12.5% IS THE MOST APPROPRIATE TO THE FACTS OF THIS CASE. WHEN THE PROFITS MARGINS ARE DISTURBED BY THE AO AND ADOPT DIFFERENT % OF PR OFITS HIGHER THAN THE ONE ADOPTED BY THE ASSESSEE AS SUCH THE ONUS IS ON THE AO. IN THIS CONTEXT NO 5 ATTEMPTS HAVE BEEN MADE BY THE AO TO DISCUSS THE CO NTEMPORARY COMPETITIVENESS IN THE BUSINESS/PROFESSION AND CONS EQUENTLY DISTURBED PROFIT MARGINS IN THE LINE OF BUSINESS OF THE ASSESSEE IN PARTICULAR. THEREFORE WE ARE OF THE OPINION THAT THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) ON THIS ISSUE THOUGH SPECIFIC TO THIS CASE DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY GROUNDS 2 AND 3 OF THE REVENUE ARE DISMISSED . 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . 7. IN THE CROSS-OBJECTION FILED BY THE ASSESSEE TH E ONLY CONTENTION RAISED IS THAT THE NET PROFIT FROM BUSINESS BE ESTIMATED AT 8 % ON GROSS RECEIPTS OF RS 1 71 16 603/-. WE HAVE DEALT WITH THIS ISSUE IN TH E APPEAL OF THE REVENUE WHEREBY WE HAVE CONFIRMED THE ORDER OF THE CIT(A) O N THIS ASPECT. ACCORDING THIS ISSUE RAISED IN THE CROSS-OBJECTION IS ALSO DI SMISSED. 8. IN THE RESULT THE CROSS-OBJECTION IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- SD/- (I.C. SUDHIR) (D. KARUNAKA RA RAO) JUDICIAL MEMBER ACCO UNTANT MEMBER PUNE DATED: 28 TH FEBRUARY 2011 COPY TO:- 1) SHRI VIJAY D MADAN NASHIK 2) DCIT (H.QRS-1) NASHIK 3) THE CIT (A)-I NASHIK 4) THE CIT-I NASHIK 5) THE DEPARTMENTAL REPRESENTATIVE A BENCH I.T.A.T. PUNE. BY ORDER TRUE COPY ASST. REGISTRAR I.T.A.T. PUNE B 6