IN THE ITAT CUTTACK BENCH
Girish Chandra Nayak
IT Appeal NoS. 269, 377 & 378 (Ctk.) of 2012
C.O. No. 29 (Ctk.) of 2012
[Assessment yearS 2007-08 & 2008-09]
September 28, 2012
K.K. Gupta, Accountant Member
ITA No.378/CTK/2012 filed by the assessee and ITA No.269/CTK/2012 filed by the Revenue are against order dt.20.1.2012 of the Commissioner of Income-tax (Appeals). The assessee has also filed Cross Objection No.29 in ITA No.269/CTK/2012 filed by the Revenue supporting the impugned order of the learned CIT(A) on the issue raised by the Revenue in their appeal for the Assessment Year 2008-09.
2. ITA No.377/CTK/2012 filed by the assessee against the order dt. 20.1.2012 of the Commissioner of Income-tax (Appeals) pertains for the Assessment Year 2007-08.
3. The appeal filed by the assessee for the Assessment Year 2008-09 is belated by 53 days, the cause of which has been explained in the petition for condonation of delay filed before the Tribunal that the assessee being a contractor, due to exposure at work site, he was affected with viral Heapatitis and was under treatment of doctor from 20.2.2012 to 4.6.2012 supported by Medical Certificate placed on record. Considering the same to be reasonable cause, we condone the delay and admit the appeal for hearing.
4. For the Assessment Year 2007-08 the assessee is in appeal agitating the estimation of income of the assessee at 8% as against the Assessing Officer’s finding that the assessee is a civil contractor maintaining no proper books of account was subjected to assessment u/s.144 in a brief order estimating the net income at 8% of the gross receipts.
5. We propose to take up appeal for the Assessment Year 2007-08 first when the assessee has raised the issue on the facts and circumstances case the learned CIT(A) could not have confirmed the Net Profit @8% of the gross receipts as computed by the Assessing Officer u/s.144. For this proposition the learned Counsel for the assessee submitted the financial statements duly audited which were part of the return scrutinized by the AO u/s.144. He submitted that the assessee is a Government Contractor for constructing roads for the Government and was able to receive Rs. 2.29 Crores from the Government for construction of roads when it paid Rs. 11,83,589 as royalty to the Government for making boulders chips. The assessee also incurred material cost amounting to Rs. 1.56 Crores which goes directly for reimbursement by the contractees. Therefore, the contractees who do not bear the sales tax cannot be the income of the assessee when the Assessing Officer chose to estimate the income u/s.144 on the basis of gross receipts indicating no cooperation from the assessee on issue of notice u/s.142(1). The learned Counsel for the assessee argued that it was not the case of Civil Contractor as construed by the Assessing Officer when the facts are glaring that more than 87% of the receipts were purely reimbursement of the material cost incurred by the assessee. The learned CIT(A) therefore, did not consider these contentions in confirming the estimation of 8% when he chose to rely on the decision of ITAT, Cuttack Bench in the case of S.N. Kanungo & Associates v. Asstt. CIT in ITA NO.090/CTK/2011 for the Assessment Year 2006-07 who had held that the provisions of section 44AD would apply in case the books of account are not maintained or they are not properly maintained as noted by the Assessing Officer. The learned Counsel for the assessee argued that the figures have been taken from audited financial statements which are reported by the auditors, which are on the basis of books of account maintained by the assessee duly verified by the auditors and reported in Form 3CD. Therefore, the learned CIT(A) erred in relying on the decision which are on different facts and findings. He prayed that a reasonable estimate may be made in view of the clinching fact that 80% material cost cannot be part of the income contributing expenditure when the remaining civil work for 12% cannot be yield more income than as rendered by the assessee.
6. The learned DR supported the order of the learned CIT(A). She submitted that non-cooperation to appear as per the notice issued by the Assessing Officer rendered the assessment to be made to the best judgment of the AO which is confirmed by the learned CIT(A) by assigning reasons for such estimation. She fully supported the orders of the authorities below.
7. For the assessment year 2008-09, on the appeal of the Revenue, the learned DR contended that the learned CIT(A) is not justified in deleting the additions/disallowance while estimating the net profit @8% of the gross receipts. The learned Counsel for the assessee, on the other hand, supported the order of the learned CIT(A) to the extent he has deleted the additions/disallowances as urged in the Cross objection filed by the assessee. However, on the appeal filed by the assessee for the Assessment Year 2008-09, the learned Counsel for the assessee submitted that the percentage of 8% on gross receipts as adopted by the learned CIT(A) as income of the assessee is on higher side.
8. We have heard the rival submissions of the parties and perused the material available on record. We have perused the orders of the authorities below and also the fact that the assessments for both the AYs have been passed u/s.144 which has been taken note of by the learned CIT(A). The learned CIT(A) thought it fit to estimate the income at 8% for both the AYs when for the Assessment Year 2007-08 the Assessing Officer on a specific finding that the assessee is not cooperating resorted to pass the order u/s.144. He passed the estimation of 8% on the gross receipts as given in the financial statements duly audited by the Chartered Accountant. He chose to apply the same rate as was acceptable to the Department without comparing the facts to the extent that the Tribunal has also rendered decisions on the basis of facts in those cases at a percentage lower than 8% which percentage alone is to be adopted when the assessee does not maintain books of account and are not subjected to invocation of the provisions of section 145(3). The learned CIT(A) therefore for both the AYs chose to apply the same rate when the technicalities considered by the Assessing Officer was different for the Assessment Year 2008-09. The learned Counsel for the assessee before us has submitted that rejection of books of account and computing correct under the provisions of Section 145(3) is a proposition different than passing of order u/s.144 to the best of the Assessing Officer’s judgment insofar as the very figures as given in the books of account and disclosed in the financial statements are adopted by the authorities. We find force in the submission of the learned Counsel for the assessee that the learned CIT(A) for the Assessment Year 2008-09 resorted to estimation when the Assessing Officer has made specific disallowance and addition u/s.68 and u/s.69 by accepting the book results choosing to accept the rate of return on the gross margin which he had assessed at a higher rate in the immediately preceding year. C.O. has been filed by the assessee for the Assessment Year 2008-09 before us indicates that part of the learned CIT(A) contentions are acceptable to the extent that the estimation should not lead to taxing of incomes again specifically those incomes which are not incomes on which actually material cost directly billed to the assessee when the bills for the material purchased are also submitted to the contractees. In other words, the maintenance of books of account has been more to the benefit to the assessee which non-maintenance has taken recourse by the authorities to make the assessment and that too on estimation. The learned Counsel for the assessee has relied on certain decisions of the Tribunal which on the facts and circumstances of the case granted relief to the extent that the books of account maintained are for the purpose of disclosing lower rate of income than 8% as envisaged in section 44AD. We have perused the financial statements as were before the authorities below and we find that for the Assessment Year 2007-08 the assessee has made more than 80% of the purchases which were billed forming part of the gross receipts from the contractees. We find that the remaining amount could not only fetch only 8% as per provisions of section 44AD when the assessee rendered civil contract work without material. It was not the case of the assessee to make profit of 8% on the material cost. In this view of the matter, we feel it reasonable to estimate the income on gross receipts @6% for the Assessment Year 2007-08. However, as per the financial result disclosed for the Assessment Year 2008-09 we do find that the Assessing Officer had made additions on account of disallowance of sundry creditors which had increased not in proportion to the increase in the material cost therefore indicated that the assessee had raised bills on the contractees when the material cost was still to be borne by the assessee. In this view of the matter, the estimation at 8% confirmed by the learned CIT(A) by deleting these additions and disallowances made u/ss.68 and 69 we hold 7% profit as reasonable to be taxable income on the gross receipts disclosed by the assessee in its financial statements. To conclude for the Assessment Year 2007-08 the AO is directed to tax 6% of the gross receipts as taxable income of the assessee and for the Assessment Year 2008-09 he is directed to tax 7% of the gross receipts as taxable income of the assessee.
9. In the result, the appeals of the assessee are allowed. The appeal of the Revenue is dismissed. The Cross objection of the assessee is disposed of accordingly.