Prarthana Construction P. Ltd v. ITO Wd. 5(2)
[Citation -2007-LL-0226-17]

Citation 2007-LL-0226-17
Appellant Name Prarthana Construction P. Ltd
Respondent Name ITO Wd. 5(2)
Court ITAT-Ahmedabad
Relevant Act Income-tax
Date of Order 26/02/2007
Judgment View Judgment
Keyword Tags private limited company • cost of construction • development charges • actual expenditure • civil construction • additional profit • capital receipt • net profit rate • membership fee • civil contract • cost of land • actual cost • real estate • real owner • total cost
Bot Summary: 2 ITA No. 1114 1115-AHD-2003 That the learned Assessing Officer has erred in adding Rs.5,32,000/- to the total income by estimating profit at 15 of PRARTHANA ALOK. 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. The assessee had worked out the profit on the basis of projected figures, which was rejected by the Assessing Officer by invoking provisions of section 145. A.R. of the assessee submitted that profit estimated by the Assessing Officer is very high and in any case it does not confirm to the provision under section 44AD, where profit rate of only 8 is applied. 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 the totality of the circumstances and net profit rate adopted by the Department in that period, we direct to apply net profit rate at 12.5 and direct to compute the income accordingly. The Assessing Officer has estimated the profit at 15 as against declared profit rate 8.78. The Assessing Officer had also observed that the assessee had declared profit at 15.6 from Sanfransisco Association in the assessment year 1994-95.


IN INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (Before Hon ble Shri Mahavir Singh, J.M. and Hon'ble 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. ORDER Per Shri D.C. Agarwal, Accountant Member : There are two appeals filed by assessee for assessment years 1994-95 & 1995-96. Since issues involved in both appeals are common, therefore, we have decided to dispose of appeals by consolidated order for sake of convenience. 2. For assessment year 1994-95, assessee has raised following grounds :- (1) That learned Assessing Officer has erred in making certain unwarranted observation and postponing addition of income of NTC/Society, for which development agreement with appellant exist, considering appellant as real owner of scheme. That no addition in future be permitted on facts & circumstances of case. (2) That learned Assessing Officer has erred in adding Rs.8,66,000/- by applying provision of section 145 and estimating profit of World Business Centre at 15.66%. (3) That learned Assessing Officer has erred in making addition of Rs.1,80,000/- as unaccounted receipts on facts and circumstances of case. For assessment year 1995-96, assessee has raised following grounds :- (1) That learned Assessing Officer has erred in making certain unwarranted observation and postponing addition of income of NTC/Society, for which development agreement with appellant exist, considering appellant as real owner of scheme. That no addition in future be permitted on facts & circumstances of case. 2 ITA No. 1114 & 1115-AHD-2003 (2) That learned Assessing Officer has erred in adding Rs.5,32,000/- to total income by estimating profit at 15% of PRARTHANA ALOK. (3) That learned Assessing Officer has erred by not allowing full claim of foreign travel of directors and their spouse of facts and circumstances of case. 3. Facts of case are that assessee is Private Limited Company engaged in business of real estate. assessee filed return on 29.11.1994 for assessment year 1994-95 declaring total income at Rs.20,97,135/-. During course of assessment proceedings A.O. found that assessee has launched various projects in real estate such as World Business Centre, which is commercial complex, Prarthana Vihar is Bunglow premises and Hasunagar Cooperative Society Housing Scheme. In respect of World Business Centre, Assessing Officer worked out profit of assessee at Rs.15.66 lakhs on total cost of construction of Rs.100 lakhs. This was worked out at 15.66%. While arriving at this estimation, Assessing Officer observed that projection and actual figures of contribution expenses differ vastly. They do not have correlation with actual contribution from members and actual expenditure incurred by assessee. assessee had worked out profit on basis of projected figures, which was rejected by Assessing Officer by invoking provisions of section 145. In appeal, Learned Commissioner of Income Tax (Appeals) confirmed addition by holding as under:- 4.2. I have considered appellant s submissions and reasons given by Assessing Officer in assessment order. It is seen that in Prarthana Vihar appellant company carried out construction work at Rs.159.55 lacs excluding cost of land appellant company recovered Rs.25 lacs as development charges as per specific terms and conditions of agreement which shows that development charges are being recovered in year under consideration at rate of 15.66% upto total cost of construction during year. A.O. has observed that it is matter of record that projected members contribution, expenses and profit during year under consideration as calculated by appellant is not based on actual figure, but it is based on estimated figure. It is noted that this projected figure do not have any correlation with actual contribution from members and actual expenditure of project during year under consideration. For example, contribution from member is projected at Rs.200 lacs but actual membership fee of Rs.9.5 lacs has been received during year under consideration. Similarly, cost of construction during year under consideration is projected at Rs.125.00 lacs, but actual expenditure on 3 ITA No. 1114 & 1115-AHD-2003 project during year has been calculated at Rs.100 lacs. This clearly shows that project profit on basis of which development charges of World Business Centre has been determined on estimated basis and it is not based on actual cost of construction or membership collection. Hence, A.O. held that it cannot be relied upon. In these circumstances, A.O. has rightly inferred that appellant s receipts with regard to World Business Centre do not reflect correct profit derived. Further, A.O. was justified in estimating it at rate of 15.66% of total cost of construction because appellant company itself has been receiving development charges for Prarthana Vihar at rate of 15.66%. Therefore, addition made by Assessing Officer amounting to Rs.8,66,000/- is confirmed . 4. Before us, ld. A.R. of assessee submitted that profit estimated by Assessing Officer is very high and in any case it does not confirm to provision under section 44AD, where profit rate of only 8% is applied. In fact, assessee had estimated profits @7% at Rs.7 lacs. He did not fairly object to rejection of books as there was no such ground taken by assessee. He submitted that profit earned by other companies during period is about 12.5%, which is normally taken by A.Os while assessing income from civil contract work. Therefore, estimation at 15.66% is unreasonable and is not in conformity with prevalent practice. Further, according to ld. A.R., scheme continued for several years and, therefore, final income is offered after completion of project. On other hand, ld. D.R. supported estimate of Assessing Officer. 5. After considering rival submissions, we are of considered view that neither assessee has any definite material to substantiate profits at 7% nor Assessing Officer has any material to enhance it at 15.66%. Considering totality of circumstances and net profit rate adopted by Department in that period, we direct to apply net profit rate at 12.5% and direct to compute income accordingly. As result, this ground of assessee s appeal is partly allowed. 6. next ground is about addition of Rs.1,80,000/- being unaccounted receipts. 7. Assessing Officer mentioned that Prarthana Vihar Society has made payment of Rs.1,80,000/- to assessee-company which was not credited in Profit & Loss A/c. Since no supporting evidence was submitted by assessee, Assessing Officer made addition of 4 ITA No. 1114 & 1115-AHD-2003 aforesaid sum. Learned Commissioner of Income Tax (Appeals) confirmed addition on ground that assessee has failed to substantiate claim that either it is capital receipt or it is fully explained. Before us, ld. A.R. submitted that 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 taken for purchase of material and for payments to sub-contractors. 8. In alternative, 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, ld. D.R. submitted that no evidence is submitted before Assessing Officer to explain these receipts. 10. After considering rival submissions we are of considered view that sum of Rs.1,80,000/- is not explained satisfactorily. However, there is considerable force in argument of assessee that telescoping effect to addition made in amount should be given. It is for assessee to hold that unaccounted receipt is coming out of intangible addition. If it is so claimed there is no reason to disallow same subject to necessary implications. We, therefore, allow telescoping effect and hold that source of unaccounted receipt is additional profit generated in construction business, which has been partly sustained by us as above. As result, this ground of assessee is allowed. 11. In result, appeal filed by assessee is partly allowed. 12. In assessment year 1995-96, Ground No. 1 relates to observation of Assessing Officer that income of NTC/ Society belonged to assessee. Since no addition has been made in respect of this, we decline to adjudicate to 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 from civil contract work. Assessing Officer has estimated profit at 15% as against declared profit rate 8.78%. In fact, after rejecting books by invoking provisions of section 145, Assessing Officer estimated profit on receipt from construction business at Rs.85.46 lakhs, at Rs.12.82 lacs. Since assessee had declared profit at Rs.7.5 lacs, it resulted in addition of Rs.5.32 lacs. Assessing Officer had also observed that assessee had declared profit at 15.6% from Sanfransisco Association in assessment year 1994-95. 14. Learned Commissioner of Income Tax(Appeals) confirmed addition by holding that estimation of profit at 15% is reasonable by observing as under :- 5.2. I have considered submissions of A.R. of appellant carefully and reasons given by A.O. in assessment order. In view of findings given by undersigned for assessment year 1994-95 in appellant s own case vide order in appeal No. CIT(A.)- XI/61/97-98. I am of view that A.O. was justified in estimating profit at rate of 155 of total cost of construction. Further it may be pointed out here that comparing profit shown with reference to construction carried out in all other schemes, profit in this scheme @ 8.78% (which seems to be estimated one only) is very low and A.O. was justified in estimating it at 15% on construction expenses. Therefore, addition made by A.O. amounting to Rs.5,32,000/- is confirmed . 15. We have heard parties and carefully gone through material available on record. In assessment year 1994-95, we have directed to apply net profit rate of 12.5% on civil construction work carried out by assessee. Since there being no change in facts and circumstances we direct this year also to apply net profit rate of 12.5% and estimate income accordingly. assessee will get consequential relief. 16. In result, appeal filed by assessee is partly allowed. Order was pronounced in Court on 07.01.2011 Sd/- Sd/- (Mahavir Singh) (D.C. Agrawal) Judicial Member Accountant Member DATED : 07/ 01 / 2011 6 ITA No. 1114 & 1115-AHD-2003 Copy of order is forwarded to : 1) Assessee (2) Department. 3) CIT(A.) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad. True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S. Prarthana Construction P. Ltd v. ITO Wd. 5(2)
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