Case Law Details
MD Yasin Construction Pvt Ltd Vs ACIT (ITAT Ranchi)
In the case of MD Yasin Construction Pvt Ltd Vs ACIT (ITAT Ranchi), the Income Tax Appellate Tribunal (ITAT) remanded the matter back to the Commissioner of Income Tax (Appeals) (CIT(A)) due to a procedural lapse. The appeal contested the addition of ₹54,70,260 to the company’s income, which was estimated by the Assessing Officer (AO) at a 10% profit margin without rejecting the company’s books of account. The AO’s estimate was challenged on grounds that it was based on assumptions and lacked comparative support. The CIT(A) had dismissed the appeal without providing specific reasons for the decision and without addressing the issues raised, particularly the absence of proper documentation and non-compliance by the assessee. ITAT found that the CIT(A) failed to mention reasons for dismissal as required under Section 250(6) of the Income Tax Act. Consequently, the ITAT directed a de novo consideration of the appeal, emphasizing the need for a fair adjudication process and proper documentation. The case was allowed for statistical purposes, and the assessee was instructed to comply with all notices and requirements in the remanded proceedings.
FULL TEXT OF THE ORDER OF ITAT RANCHI
The captioned appeal has been filed at the instance of the assessee against order u/s 250 of the Income Tax Act,1961 (hereinafter ‘the Act’) dated 27.12.2022 passed by the ld. CIT(A), Patna-3 for the assessment year 2015-2016, on the following grounds of appeal :-
1. For that Id AO was not justified in estimating net profit @ 10% on the total turnover simply on the assumption that assessee is a government/ PSU contractor and in such government or PSU contracts there is provision of 10% profit. The estimate made is simply on AO own assumption without any basis and as such, the addition made for Rs. 54,70,260/- is fit to be deleted.
2. For that Ld AO was not justified in estimating the net profit without rejecting the audited books of the assessee. No estimate of profit can be made by the AO without rejecting the books of the assessee.
3. For that there was no basis for the AO to have estimated net profit @ 10%. The assessee during the year had disclosed a Net Profit of 3.98% which was reasonable enough and compared well with previous and subsequent years records. Profit being estimated on assumption basis by the Ld AO without any parallel/ comparative source is highly unreasonable and uncalled for, and as such, the addition made thereby for Rs. 54,70,260/- is fit to be deleted.
4. For that the Ld AO was not justified in charging interest U/s 234 on the assessed income. Following the decision of Hon’ble Jharkhand High Court, interest U/s 234 A and B should be charged on the returned income and not on the assessed income.
5. For that other grounds in detail will be argued at the time of hearing.
2. Facts in brief are that the assessee is a company which derives income from civil construction work and filed its return of income on 31.03.2017 declaring total income at Rs.2,31,08,550/-. The return was processed under Section 143(1) of the Act and the case was selected for limited scrutiny through CASS on the following issues :-
a) Large current liabilities in comparison to total asset in Balance Sheet;
b) Large other expenses claimed in the Profit & Loss A/c.
3. Accordingly, the AO issued notice u/s.143(2) of the Act which was served upon the assessee, which remained non-complied. Subsequent notices were issued to the assessee. However, the assessee neither made any proper compliance nor filed any explanation regarding his claim. As a result of continuous non- compliance on the part of the assessee, the AO also imposed penalty u/s.271(1)(b) of the Act. Thereafter, he issued a show cause notice to the assessee as to why not assessment be completed u/s.144 of the Act but the same was also not replied by the assessee. Accordingly, the AO completed the assessment u/s.144 of the Act estimating the net profit @10% of the total turnover of the assessee i.e. Rs 28,57,88,098/-and after considering the disclosed income of Rs 2,31,08,550/-added the difference of Rs 54,70,260/- to the total income of the assessee.
4. Before the ld.CIT(A) , the assessee filed as many nine grounds of appeal contesting the addition made by the AO. It was claimed that despite the audited books of account not being rejected, the AO applied net profit of 10% of profit on the disclosed turnover which was excessive. Before him, the assessee in support of the grounds submitted that the disclosed net profit for the year was 8.07% which is quite high in the trade. Even w.r.t. section 44AD provides for disclosing profit at the rate of 8% only. The ld. CIT(A) however, observed that the assessee has neither complied with the penalty levied by the AO u/s.271(1)(b) of the Act nor complied with the notices issued by the AO u/s.143(2)/142(1) of the Act during the course of assessment proceedings. It did not produce the books of account or any other documentary evidence for the AO to make a judicious analysis of its books of account. As a result, the AO could not examine the same so as to apply provisions of section 145(3) of the Act. Accordingly, the ld.CIT(A) did not intend to interfere with the estimation made by the AO and sustained the same.
5. Now, against the order of the ld. CIT(A), the assessee is in further appeal before us.Ld.AR before us placed a written submission which reads as under :-
Points in dispute
1. That the sole issue involved in this appeal is with respect to the addition of Rs,54,70,260/- made by the Ld AO estimating net profit @ 10% of the disclosed turnover of Rs. 28,57,88,0987-.
2. That assenting that during the course of assessment proceedings, proper compliance could not be made, the AO completed the assessment by estimating a Net Profit of 10% on the disclosed turnover of Rs. 28,57.88,0987-. The AO while making the estimate has nowhere rejected the books of the assessee or invoked the provisions of section 145(3), rather in a vague manner has simply stated that “The assessee is a government/PSU Contractor and in such government or PSU contracts, there is a provision of 10% net profit.”
3. That Ld CIT(A) dismissing the appeal of the assessee has ignored the submissions made by the appellant.
4. That it is a settled law that profit can only be estimated when the books have been rejected by the AO invoking the provisions of section 145(3). In case of the assessee no such action has been adopted by the AO. Moreover, the estimate made by the AO is purely on presumptive basis without any comparable or corroborated detail. Once when the assessment is being made on bets judgment and the profit is being estimated, the same should be backed by some comparative case. Merely stating that in case of PSU contracts there is a margin of 10% net profit is not justified and sufficient.
5. That the assessee during the appellant proceedings before CIT(A) has duly submitted a gross profit/ net profit chart, copy of which is attached herewith stating that the profit disclosed by the assessee in the current year compares well with the past records and rather is the highest as compared to 3 immediate previous years.
6. That the Ld CIT(A) failed to consider and appreciate the fact that in majority of the contractors case, where the profit is estimated by the revenue department, 8% is considered as a reasonable and accepted profit percent. In case of the assessee we have duly disclosed a net profit of 8.07% and as such, no further addition is called for.
7. That the authorities below have further failed to consider and appreciate the fact that the depreciation (as allowable by the IT Act) should be deducted separately from the estimated profit so as to arrive as Net profit charged to tax.
8. That the assessee humbly submits that the profit disclosed @8.07% (after depreciation) was reasonable enough and compared well with the previous year records and as such, no further estimate made by the Ld AO is called for in an instant where books have not been rejected and no comparative case has been bought on record. The addition made on presumptive and estimate basis is uncalled for and fit to be deleted.
As such, we submit that the addition made for Rs. 54,70,260/-on presumptive and estimate basis, without rejecting the books of accounts and invoking the provisions of section 145(3) is uncalled for and fit to be deleted.
6. On the other hand, ld. Sr. DR relied on the orders of the authorities below.
7. We have considered the rival submissions and perused the materials available on record. The ld. AR has vehemently contested the conclusion drawn by the AO and in making the impugned addition. However, the fact remains that he has not been able to explain the reasons for non-production of books of account either before the AO or even the ld.CIT(A) which needed to be examined, more so in the light of the reasons for selection of the case for scrutiny of large expenses etc. No explanation has also been adduced for complete non-compliance to various notices issued during the assessment proceedings from time to time. The Ld.CIT(A) has also appreciated and recorded such a non-compliant attitude of the assessee. It also failed to produce the books of account and other details as called for leading to best judgement order u/s 144 of the Act. We consider that in the interest of justice and fair play, the assessee may be accorded one last opportunity to explain its case before lower authorities. Moreover, as per the provisions of Section 250(6) of the 1961 Act, ld.CIT(A) is also obligated to state points for determination in appeal before him, the decision thereon and the reasons for determination rather than dismissing the appeal merely on the ground of non prosecution by the assessee either before himself or before the AO.
7.1 During the hearing, the Bench proposed for restoration of the matter to the ld.CIT(A) for a de novo consideration. The Revenue did not vehemently oppose this plea. Thus, in the interest of justice, we deemed it appropriate to allow the appeal for statistical purposes, emphasizing the need for a thorough and compliant adjudication process. The ld. CIT(A) shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in the set aside remand proceedings for de novo adjudication of the appeal of the assessee filed before him. Needles to state, the assessee would comply with notices and any details sought by the appellate authority in adjudication of its appeal.
8. In the result, the appeal is allowed for statistical purposes.
Order pronounced in the open court on 14/08/2024.
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