Sukhwinder Singh Vs ACIT (ITAT Delhi)
The issue under consideration is whether addition made by AO by application of N.P. rate of 8% is justified in law?
ITAT states that, the profit margin of the assessee was very low and has never reached to the extent of 8% as is applied by the authorities below. The A.O. has not cited any comparable cases to arrive at the decision for application of N.P. rate of 8%, is justified in the matter. It is also not in dispute that in A.Y. 2001-02, the A.O. in the regular assessment under section 143(3) has accepted profit rate declared by assessee at 1.54%. The A.O. made lump sum addition of Rs.1 lakhs on account of the expenses not verifiable and to cover-up the possible leakages. In the case of Laxminarayan Badri Das the Hon’ble Privy Counsel held that “estimate should be fair. The A.O. should not act dishonestly or vindictively or capriciously. His own knowledge of previous returns, local knowledge and circumstances of the assessee to be considered to arrive at fair and proper estimation of income.” In the case of Aero Club the Hon’ble Delhi High Court held that “assessment should be on rational basis. Profit margin disclosed by the assessee cannot be rejected arbitrarily.” Considering the facts of the case and nature of business of assessee and history of the assessee as noted above, where the highest N.P. rate accepted by the Department was of 1.54%, ITAT are of the view that the authorities below were not justified in applying the N.P. rate of 8% to estimate the profit of the assessee. In view of the above discussion and considering the history of the assessee, ITAT set aside and modify the Orders of the authorities below and direct the A.O. to apply N.P. rate of 2% as against 8% for determining the income of the assessee. In view of the above, appeal of assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
We have heard the Learned Representative of both the parties through video conferencing and perused the material available on record.
2. Since common issue is involved in all the appeals, therefore, all were heard together and we dispose of the same through this consolidated Order. The issue in appeals for the A.Ys. 2003-04, 2004-05 and 2008-09 is decided as under.
ITA.No. 1200/Del./2012 – A.Y. 2004-05
ITA.No.1199/Del./2012 – A.Y. 2003-04 &
ITA.No.1201/Del./2012 – A.Y. 2008-09
3. All the appeals of the assessee are directed against the Order of the Ld. CIT(A), Karnal, Dated 03.08.2011 for the above assessment years.
4. All the appeals of the assessee are time barred by 107 days.
5. The assessee filed an application for condonation of delay in filing these appeals. It is contended in the application that the impugned order was received by the assessee on 24.09.2011. It is stated that assessee was prevented from carrying on normal activities since the first week of November, 2011 due to severe and persisting back problem arising in a road accident for which assessee has undergone extensive treatment/therapy. The assessee, therefore, explained that due to his ill-health, the appeals could not be filed on time. The assessee prayed for condonation of delay.
6. After considering the submissions of Learned Representatives of both the parties, we are satisfied that assessee was prevented by sufficient cause in not filing the appeals within the period of limitation. Considering the small issue involved in all the appeals and explanation of assessee, we condone the delay in filing these three appeals.
7. In all the appeals, the assessee has challenged the rejection of books of account and application of net profit of 8% for computing the business income of the assessee. The facts are same. Both the parties during the course of arguments referred to the facts from A.Y. 20042005 [ITA.No.1200/Del./2012]. The assessee is engaged in the business of civil construction. Original assessment in this case was completed under section 143(3)/144 of the I.T. Act, 1961, determining the income at Rs.31,67,500/- by applying the profit rate of 8% on the gross contractual receipts. The appeal of assessee was dismissed by the Ld. CIT(A).
8. The assessee preferred appeal before the Tribunal and the Tribunal remanded the matter back to the file of A.O. for passing the order afresh. The A.O. asked the assessee to produce books of account supported by complete bills and vouchers. The A.O. noted that assessee produced bills for diesel and bitumen. No other bill was produced. The A.O, therefore, concluded that books of account are not verifiable for want of bills and vouchers for all the expenses. Hence, books were rejected. The A.O. again computed the business income of assessee by applying the N.P. rate of 8% on the gross receipts and again made addition of Rs.31,67,480/-. The Ld. CIT(A) confirmed the application of N.P. rate of 8%. The Ld. CIT(A), however, directed that sales tax of Rs.16,76,105/- deducted by the various Departments was not excluded from gross contract receipts for working out the N.P. rate of 8%, since no profit element is involved in sales tax deducted, therefore, A.O. was directed to deduct sales tax from the gross receipts and thereafter, apply N.P. rate of 8%. The Ld. CIT(A) also granted relief to the assessee of rebate under section 88 of the I.T. Act. The appeal of assessee was partly allowed.
9. Learned Counsel for the Assessee contended that rejection of the books of account and application of net profit rate of 8% is unreasonable and book results should have been accepted. He has submitted that previous history of the assessee have also not been considered by the authorities below because in assessment year under appeal, the N.P. rate declared by assessee was of 0.22% and in A.Y. 2001-2002 the assessee declared the N.P. rate of 1.54%, which have been accepted by the A.O. in the assessment under section 143(3) vide Order Dated 12.03.2003, copy of which is filed at page-185 of the PB. He has also submitted that assessee is engaged in civil construction business of constructing roads etc., for various Government Departments and profit margin is very low in this line of business. In alternate contention, he has submitted that application of N.P. rate of 8% is excessive and unreasonable.
10. On the other hand, Ld. D.R. relied upon the Orders of the authorities below.
11. We have considered the rival submissions. It is not in dispute that assessee is engaged in civil construction business and constructing roads etc., for various Government Departments. It is well known that for executing Government contracts, the profit margin is on lower side. The A.O. in his set aside proceedings while applying N.P. rate of 8% has not referred to any comparable cases for arriving at the decision to apply the N.P. rate of 8%. However, it is a fact that assessee despite in remand proceedings have not produced complete bills and vouchers in support of the books of account, therefore, the authorities below were justified in rejecting the book results declared by assessee as per books of account. Now the question is, Whether the application of N.P. rate of 8% is justified in the matter ? Learned Counsel for the Assessee has referred to comparative chart of profitability achieved as per books of account. The assessee has declared the following N.P. rate as under :
