Commissioner of Income-tax v. K. N. Gupta, Construction Co
[Citation -2014-LL-0818-21]

Citation 2014-LL-0818-21
Appellant Name Commissioner of Income-tax
Respondent Name K. N. Gupta, Construction Co.
Court HIGH COURT OF RAJASTHAN
Relevant Act Income-tax
Date of Order 18/08/2014
Judgment View Judgment
Keyword Tags substantial question of law • estimation of income • method of accounting • question of fact • ad hoc addition • contract work
Bot Summary: The respondent-assessee declared a total contract work at Rs. 12,32,57,523 declaring a net profit rate of 5.38 per cent. The Assessing Officer was dissatisfied with the explanation offered by the assessee and not only invoked the provisions of section 145 of the Act and rejected the book results but he further disallowed the expenses to the tune of Rs. 1,17,75,202 out of the major heads of the expenses, namely, out of purchases of Rs. 7,50,39,180 disallowed at 20 per cent. The Commissioner of Income-tax was also of the view that the results of the assessee are to be compared alone and in view of the past history, where the Tribunal in the case of the assessee itself applied the rate of 5 per cent. The learned Tribunal, after analysing the evidence on record and the fact that in the immediate past assessment years in the case of assessee itself, it was repeatedly held by the Tribunal that the rate of 5 per cent. The assessment order is totally silent about similarly situated other traders/businessmen showing the net profit over and above what the assessee had shown and compared by the Assessing Officer and no evidence has been brought on record as to how the Assessing Officer was justified in applying the net profit rate at 13.7 per cent. Compared with the said fact, in the present assessment year though the contract receipts have sharply increased from Rs. 10.60 crores to Rs. 12.32 crores in the immediate past assessment year at the same time the net profit has increased from 5.02 per cent. The assessee has earned gross profit varied from 6.32 per cent.


JUDGMENT judgment of court was delivered by J. K. Ranka J.-The instant appeal under section 260A of Incometax Act, 1961 (for short "the Act"), is directed against order of Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short "the ITAT"), dated January 30, 2014, passed in I. T. A. No. 583/JP/2012 relating to assessment year 2009-10. Brief fats which have been noticed from impugned order and other material on record are that respondent-assessee being partnership firm is engaged in business of civil contractor and has furnished his income-tax return for above assessment year under appeal along with audit report and other information. respondent-assessee declared total contract work at Rs. 12,32,57,523 declaring net profit rate of 5.38 per cent. subject to interest and remuneration to partners. On perusal of order, it is noticed that net profit rate in immediate preceding assessment year, i.e., assessment year 2008-09 was 5.02 per cent. During course of assessment proceedings, respondent- assessee was directed to provide material to justify expenses claimed in profit and loss account vis-a-vis receipts and number of queries were raised. assessee appears to have replied to various queries raised by Assessing Officer and it was admitted that nature of work of assessee is fully unorganised and that work is carried out at various sites, where he could not maintain proper system of accounting. It was also admitted by assessee that accounting work was conducted by labour supervisor, who was also promoted from amongst labourers and did not have knowledge of accounting and was unable to maintain coordination between assessee and suppliers and those sites. It was further submitted that turnover and net profit rate is better vis-a-vis last five preceding years and, therefore, book results should be accepted. However, Assessing Officer was dissatisfied with explanation offered by assessee and not only invoked provisions of section 145 of Act and rejected book results but he further disallowed expenses to tune of Rs. 1,17,75,202 out of major heads of expenses, namely, out of purchases of Rs. 7,50,39,180 disallowed at 20 per cent., out of labour charges of Rs. 3,72,48,425 disallowed 10 per cent., out of salary to tune of Rs. 9,48,000 disallowed 20 per cent., out of vehicle expenses of Rs. 69,850 disallowed 20 per cent., out of vehicle charges of Rs. 69,850 disallowed 20 per cent., out of water charges of Rs. 49,252 disallowed 20 per cent., out of welfare expenses of Rs. 16,245 disallowed 20 per cent., out of vehicle insurance of Rs. 17,190 disallowed 20 per cent., and out of other deduction of Rs. 12,90,245 disallowed Rs. 2,68,219. Thus, Assessing Officer in effect by disallowing Rs. 1,17,75,202 determined net profit at 13.7 per cent. Dissatisfied with addition of Rs. 1,17,75,202 appeal was preferred before Commissioner of Income-tax (Appeals) (for short "the CIT(A)), before whom detailed explanation was offered and Commissioner of Income-tax (Appeals), after considering facts on record, was of view that provisions of section 145(3) have rightly been invoked as various defects have been noticed by Assessing Officer and assessee has not been able to give satisfactory explanation with regard to deficiencies noticed by Assessing Officer. Commissioner of Income-tax (Appeals) was also of view that results of assessee are to be compared alone and in view of past history, where Tribunal in case of assessee itself applied rate of 5 per cent., therefore, Commissioner of Income-tax (Appeals), under such circumstances, sustained and ad hoc addition of Rs. 10 lakhs on account of possible leakage of income of profit and appellant and deleted balance addition. Aggrieved by order of Commissioner of Income-tax (Appeals), both parties preferred separate appeals before Income-tax Appellate Tribunal. learned Tribunal, after analysing evidence on record and fact that in immediate past assessment years in case of assessee itself, it was repeatedly held by Tribunal that rate of 5 per cent. is reasonable and since in present year though net profit rate of 5.38 per cent. had been shown but still sustained ad hoc addition of Rs. 5 lakhs as against Rs. 10 lakhs made by Commissioner of Incometax (Appeals). It is deletion of addition of about Rs. 1.12 crores, which has been assailed before us by Revenue. Mr. Praveen Verma, Assistant Commissioner of Income-tax, appearing on behalf of Revenue, submitted that in instant case several queries were raised and assessee was unable to produce vouchers and/or relevant information to substantiate claim made in profit and loss account. He contended that though results shown may be technically said to be better in comparison to past years but when very vouchers have not been produced, therefore, mere acceptance in past years cannot be ground not to make addition in subsequent years like present one, where assessee failed to substantiate expenses claimed. He further submitted that if said analogy is accepted then in all such cases, where there is slight rise in very trading result or results are almost similar vis-a-vis in past year then addition can never be made. He contended that order of Assessing officer was well reasoned one and substantial question of law arises out of said impugned order, therefore, appeal deserves to be admitted. We have considered submissions of officer appearing on behalf of Revenue and have perused impugned order so also orders of lower authorities. In our view, no substantial question of law can be said to arise out of impugned order as it is essentially finding of fact by two appellate authorities. It is admitted fact that provisions of section 145(3) of Act have rightly been invoked by Assessing Officer so also upheld by appellate authorities but in case where provisions of section 145(3) are invoked, one has to consider either past history of assessee or history of similarly situated other businessmen/traders. However, on perusal of assessment order, we notice that Assessing Officer is absolutely silent as to justifying net profit rate to extent of 13.7 per cent, whether addition/disallowance made by Assessing Officer can be said to be appropriate. assessment order is totally silent about similarly situated other traders/businessmen showing net profit over and above what assessee had shown and compared by Assessing Officer and no evidence has been brought on record as to how Assessing Officer was justified in applying net profit rate at 13.7 per cent. In our view, while comparing with past history, if results are fair and reasonable then invariably no addition need to be made. It would be appropriate to reproduce trading results of assessee for year under appeal including last five years, which reads as under: Percentage NP Percentage applied in Appeal Year Turnover declared of NP declared assessment effect done by AO 5.78 by 2009- 123257523 6629223 5.38 13.7 ad hoc add of 10 Rs. 5 lakhs Accepted 2008- 106227305 5338548 5.02 5.02 without 09 09 scrutiny Accepted 2007- 48834743 2389297 5.10 5.10 without 08 scrutiny 2006- 5% by 21090878 1056688 5.01 6 07 ITAT 2005- 5% by 12632146 471641 3.73 6 06 ITAT 2004- 5% by 24003129 852775 3.55 8 05 ITAT On perusal of above, it is apparent that out of past five assessment years in three of assessment years, i.e., 2004-05, 2005-06, 200607, matter travelled up to stage of Tribunal where Tribunal applied rate of 5 per cent. Compared with said fact, in present assessment year though contract receipts have sharply increased from Rs. 10.60 crores to Rs. 12.32 crores in immediate past assessment year at same time net profit has increased from 5.02 per cent. to 5.38 per cent. or now as per order of Tribunal it can be said to be raised at 5.78 per cent. with addition of Rs. 5 lakhs sustained. Though argument of learned officer of Revenue can be said to be proper and justified that in case where assessee manipulates accounts by keeping profit margins commensurate with past assessment years or slightly increases and that itself by large cannot be basis for acceptance of results. But, in face of said facts, if it is for Assessing Officer to bring on record some concrete material/evidence to make proper addition. We have already noticed hereinabove that Assessing Officer has merely disallowed 20 per cent. or 10 per cent., as case may be, out of various expenses, which, in our view, is not proper and he had to bring on record justifiable basis for making of addition and bring on record some evidence for making of addition. hon'ble apex court as well as this court had held that invoking of provisions of section 145(3) and/or estimation of income by itself is finding of fact and it would be appropriate to refer to few judgments in this regards. hon'ble apex court in case of Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733 (SC) has observed as under (page 737): "We may point out that we are not concerned with correctness of conclusion and we are only concerned with question whether there is any material in support of finding of Appellate Tribunal. In cases involving applicability of proviso to section 13, question to be determined by Income-tax Officer is question of fact, namely, whether income, profits and gains can or cannot be properly deduced from method of accounting regularly adopted by assessee. There is nothing special about this question of fact, and generally only question of law that can possibly arise is whether there is any material for finding. In our opinion High Court was right in refusing to call for statement of case." This court in case of CIT v. Singhal Natural Stone P. Ltd. [2012] 21 Taxmann.com 493 (Raj) has held that finding about rejection of income from particular amount (from Rs. 20,78,821 to Rs. 5,15,259) was based on appreciation of material on record and, accordingly, it was observed that no question of law, much less substantial question of law, arises so as to entertain said appeal. This court, again in case of CIT v. Amrapali Jewels P. Ltd. reported in [2012] 19 Taxmann.com 207 (Raj) observed as under: "In our opinion, therefore, once Tribunal accepted factual explanation of assessee and accordingly, deleted additions in question made by Assessing Officer in exercise of its appellate discretionary powers, then it would not involve any substantial issue of law as such. In other words, this court in its appellate jurisdiction under section 260A ibid, would not again de novo hold yet another factual inquiry with view to find out as to whether explanation offered by assessee and which found acceptance to Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when factual finding recorded had been entirely de hors subject, or when it had been based on no reasoning, or when it had been based on absurd reasoning to extent that no prudent man of average judicial capacity could have ever reached to such conclusion, or when it had been found against any provision of law, then case for formulation of any substantial question of law on such finding can be said to arise. Such is not case here on facts." This court in case of Pansari Gems International v. CIT reported in [2013] 33 Taxmann.com 667 (Raj) has held as under: "The total turnover during year under reference is Rs. 8.86 crores. Income-tax Appellate Tribunal has held that gross profit rate does not depend on basis of specification of item, but it depends upon quality, shine, etc. assessee has earned gross profit varied from 6.32 per cent. to 26.45 per cent., but from chart filed by assessee, it cannot be concluded that gross profit rate declared by assessee was correct. Assessing Officer has found that purchases were not fully verifiable. books of account were rejected for various reasons. Previous year also gross profit rate was 18.87 per cent. and this year, it has been accepted at 17 per cent. by Commissioner of Income-tax (Appeals) and order passed by Commissioner of Income-tax (Appeals) has been affirmed by Income-tax Appellate Tribunal. In view of reasons assigned by Commissioner of Income-tax (Appeals) as well as Income-tax Appellate Tribunal in its orders, we find that no substantial question of law arises in present appeal. facts of case and evidence have been properly appreciated by Commissioner of Income-tax (Appeals) as well as Income-tax Appellate Tribunal." That other judgments on above aspect are in case of CIT v. Dr. A. P. Bahal reported in [2010] 322 ITR 71 (Raj), CIT v. Jaimal Ram Kasturi [2013] 33 Taxmann.com 315 (Raj), CST v. Girja Shanker Awanish Kumar [1996] 11 SCC 648; [1997] 104 STC 130 (SC), CIT v. Jas Jack Elegence Exports [2010] 324 ITR 95 (Delhi), Arya Confectionery Works v. CIT [1983] 143 ITR 814 (MP) and Awadhesh Pratap Singh Abdul Rehman and Brothers v. CIT [1994] 210 ITR 406 (All). This court in case of CIT v. Inani Marbles P. Ltd. [2009] 316 ITR 125 (Raj) and also Delhi High Court in case of Action Electricals v. Deputy CIT [2002] 258 ITR 188 (Delhi) have observed that past history of assessee would be one of reliable guidelines to make or not to make any estimation/addition. We have already referred to hereinabove that Assessing Officer has failed to bring on record any comparable case so as to justify any estimation/addition, addition has been deleted by Commissioner of Income-tax (Appeals) as well as upheld by Income-tax Appellate Tribunal. In view of what we have observed hereinabove, it is essentially finding based on appreciation of evidence and is pure finding of fact. Thus, there is no question much less substantial question of law, which can be said to arise out of order of Tribunal. Consequently, we find no merit in instant appeal and same stands dismissed, in limine. *** Commissioner of Income-tax v. K. N. Gupta, Construction Co
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