IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 20.07.2017 CORAM : Hon'ble Ms.INDIRA BANERJEE, CHIEF JUSTICE AND Hon'ble Mr.JUSTICE M.SUNDAR Tax Case Appeal No.302 of 2017 Principal Commissioner of Income Tax 4, No.121, Nungambakkam High Road, Chennai-600 034. .. Appellant Vs. M/s.Marg Limited Marg Axis, 4/318 Rajiv Gandhi Salai, Kottivakkam Chennai- 600 041 PAN: ACC CM 8770 G .. Respondent Tax Case Appeal is preferred under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, Madras 'C' Bench, dated 25th November 2016 in ITA No.1151/Mds/2016. For Appellant : Mr.Karthik Ranganathan ---- http://www.judis.nic.in 2 JUDGMENT Hon'ble Chief Justice and M.Sundar, J. This appeal to High Court by Principal Commissioner of Income Tax 4, Chennai (hereinafter referred to as 'Revenue' for sake of brevity) is under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as 'IT Act' for sake of brevity) 2.Brief facts that are essential for appreciating controversy / issues are set out under caption 'Factual Matrix'. 3 FACTUAL MATRIX : 3(a) Assessment Year, which is subject matter of this appeal, is 2012-13 (hereinafter referred to as 'said Assessment Year' for sake of brevity). sole respondent before us, namely Marg Limited is Assessee and is hereinafter referred to as 'assessee' for sake of brevity, clarity and convenience. 3(b) Assessee filed return of Income for said Assessment Year electronically on 01.12.2012. Revenue selected case for scrutiny. On statutory notice being issued, Assessee filed initial details. 3(c) To be noted, Assessee is public limited company http://www.judis.nic.in 3 engaged in business of civil construction and related services. 3(d) As stated supra, case of Assessee for said Assessment Year was selected for scrutiny and ultimately Assessment under Section 143(3) of IT Act was completed on 31.03.2015. 3(e) On completion of Assessment as aforesaid for said Assessment Year, two main aspects relevant to this case that emerge from assessment order are to be noted and they are follows: i) Assessing Officer (hereinafter referred to as 'AO' for brevity) added estimated income of Rs.21,40,00,000/- for certain projects; ii) Assessing Officer disallowed amount of Rs.2,61,96,790/- under Section 14A of IT Act; 3(f) Therefore, issues involved in order of AO are addition of estimated income and dis-allowance of certain amounts under Section 14A of IT Act. 3(g) Aggrieved by order of AO (order dated 31.03.2015), Assessee preferred statutory appeal to Commissioner of Income Tax (Appeals)-8, Chennai (hereinafter http://www.judis.nic.in referred to as CIT (A) for brevity) by way of appeal being ITA 4 No.168/2015-16. 3(h) After detailed hearing, CIT (A) confirmed disallowance of Rs.2,61,96,790/- made by AO under Section 14A of IT Act. To be noted Assessee accepted this order of CIT(A) and gave legal quietus to same. 3(i) Therefore, on above said two issues in order of AO, one was put to rest. only other surviving issue is addition of Rs.21,40,00,000/- on estimate basis for certain projects as this was deleted by CIT (A). 3(j) Aggrieved by deletion of estimated income, Revenue filed statutory appeal before Income Tax Appellate Tribunal, Madras C Bench (hereinafter referred to as ITAT for sake of brevity). appal before ITAT is ITA No.1151/Mds/2016. 3(k) ITAT, confirmed order of CIT (A) and held that deletion made by CIT (A) is correct. 3(l) Aggrieved and claiming that substantial questions of law arise, Revenue has preferred instant Statutory Appeal before us under Section 260-A of IT Act. 4. We now proceed to merits of matter under caption http://www.judis.nic.in 5 Discussion infra: DISCUSSION 4(a) As stated supra, Assessee is Public Limited Company engaged in business of civil construction and related services. 4(b) AO had made addition to income returned by Assessee by estimating gross profit. power to make such addition on estimate basis is available to AO under Section 144 of IT Act. Section 145 enables AO to invoke power under Section 144 when certain conditions adumbrated in Sub- section (3) of Section 145 are satisfied. Therefore, it becomes necessary and useful to extract Section 145(3) of IT Act, which reads as follows: 145(3)Where Assessing Officer is not satisfied about correctness or completeness of accounts of assessee, or where method of accounting provided in sub- section (1) has not been regularly followed by assessee, or income has not been computed in accordance with standards notified under sub-section (2), Assessing Officer may make assessment in manner provided in Section 144. 4(c) Therefore, it is sine qua non that AO to come to http://www.judis.nic.in 6 conclusion that Books of Accounts maintained by Assessee are incorrect, incomplete or unreliable and reject Books of Accounts before proceeding to make his own assessment. In instant case, there is no reference in Assessment Order of AO regarding rejection of Books of Accounts. 4(d) Therefore, there is nothing on record to show that AO came to conclusion that Books of Accounts maintained by Assessee are incorrect, incomplete, unreliable and as consequence rejected Books of Accounts. 4(e)Therefore, after setting out plethora of case laws on this point, CIT (A) held that accounts of Assessee cannot be rejected merely based on perception of AO that Assessee has declared low profit margin for certain projects when Books of Accounts have not been rejected. Considering factual position that there is no reference in Assessment Order made by AO regarding Books of Accounts (this has been fairly admitted by Revenue before ITAT), we are not, therefore, labouring through labyrinth of case laws relied on by CIT(A). relevant portion pertaining to admission in this regard by Revenue is at Paragraph 4 of order of ITAT and same reads as follows: 4.On query from bench, whether assessing http://www.judis.nic.in 7 officer rejected books of account during course of assessment proceedings, learned department representative very fairly submitted that there is no reference in assessment order in rejection of books of account....... 4(f) As this factual position has been admitted, ITAT, dismissed appeal of Revenue by holding that profits of Assessee cannot be estimated without rejecting books of account. 4(g) ITAT has expressed its considered opinion that only when assessee is not maintaining Books of Accounts properly and correct income cannot be estimated on basis of Books of Accounts, Books of Accounts can be rejected. ITAT has gone on to hold that AO can estimate profit only thereafter. 4(h) It is also seen that Assessee is doing civil construction work for residential projects, many projects for Government, Government related agencies and some for Non- Governmental Organizations (NGOs) across country. Considering this spectrum, there can be certainly low profit margins in projects for Government and Government related agencies. So can be case for NGOs. 4(i) We now examine two questions proposed by Revenue http://www.judis.nic.in 8 before us as Substantial Questions of Law in this appeal. They are as follows: 1.Whether on facts and in circumstances of case and in law, ITAT was right in deleting impugned addition on estimation of profit even though it is established that assessee is definitely showing low rate of profits in comparison to regular civil construction and hence profit can be estimated by Assessing Officer in instant case in absence of regular bills and vouchers? 2.Whether on facts and circumstances of case and in law, ITAT was correct and justified in not following Hon ble Apex Court s decision in case of CIT Vs.British Paints India Ltd., 188 ITR 44 (SC), wherein it is held that even if assessee had adopted regular systems of accounting it was duty of AO u/s.145 to consider whether correct profits and gains could be deduced from accounts so maintained by assessee? 4(j) We examine whether aforesaid two questions would qualify as substantial questions of law? Hon ble Supreme Court of India in Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. & Mfg. Co. Ltd. [AIR 1962 SC 1314], while agreeing with and approving Full Bench Judgment of this Court in Rimmalapudi Subba Rao vs Noony Veeraju And Ors reported in AIR 1951 Mad 969 laid down principles as to when question of law becomes substantial question of law at all. http://www.judis.nic.in 9 4(k) Thereafter, with regard to 'substantial questions of law', tests were laid down by Hon'ble Supreme Court of India for finding out whether given set of questions of law are mere questions of law or substantial questions of law and same are found in Hero Vinoth Vs. Seshammal [(2006) 5 SCC 545] case. ratio / tests laid down by Supreme Court is found in paragraphs 21 to 24 of said judgment, which read as follows : 21. phrase substantial question of law , as occurring in amended Section 100 CPC is not defined in Code. word substantial, as qualifying question of law , means of having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contradistinction with technical, of no substance or consequence, or academic merely. However, it is clear that legislature has chosen not to qualify scope of substantial question of law by suffixing words of general importance as has been done in many other provisions such as Section 109 of Code or Article 133(1)(a) of Constitution. substantial question of law on which second appeal shall be heard need not necessarily be substantial question of law of general importance. In Guran Ditta v. Ram Ditta [(1927-28) 55 IA 235 : AIR 1928 PC 172] phrase substantial question of law as it was employed in last clause of then existing Section 100 CPC (since omitted by Amendment Act, 1973) came up for consideration and their Lordships held that it did not mean substantial http://www.judis.nic.in question of general importance but substantial 10 question of law which was involved in case. In Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] Constitution Bench expressed agreement with following view taken by Full Bench of Madras High Court in Rimmalapudi Subba Rao v. Noony Veeraju [AIR 1951 Mad 969 : (1951) 2 MLJ 222 (FB)] : (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR p. 557) When question of law is fairly arguable, where there is room for difference of opinion on it or where Court thought it necessary to deal with that question at some length and discuss alternative views, then question would be substantial question of law. On other hand if question was practically covered by decision of highest court or if general principles to be applied in determining question are well settled and only question was of applying those principles to particular fact of case it would not be substantial question of law. This Court laid down following test as proper test, for determining whether question of law raised in case is substantial: (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR pp. 557-58) proper test for determining whether question of law raised in case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects rights of parties and if so whether it is either open question in sense that it is not finally http://www.judis.nic.in settled by this Court or by Privy Council or 11 by Federal Court or is not free from difficulty or calls for discussion of alternative views. If question is settled by highest court or general principles to be applied in determining question are well settled and there is mere question of applying those principles or that plea raised is palpably absurd question would not be substantial question of law. 22. In Dy. Commr. v. Rama Krishna Narain [1954 SCR 506 : AIR 1953 SC 521] also it was held that question of law of importance to parties was substantial question of law entitling appellant to certificate under (the then) Section 100 CPC. 23. To be substantial question of law must be debatable, not previously settled by law of land or binding precedent, and must have material bearing on decision of case, if answered either way, insofar as rights of parties before it are concerned. To be question of law involving in case there must be first foundation for it laid in pleadings and question should emerge from sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for just and proper decision of case. entirely new point raised for first time before High Court is not question involved in case unless it goes to root of matter. It will, therefore, depend on facts and circumstance of each case whether question of law is http://www.judis.nic.in substantial one and involved in case or not, 12 paramount overall consideration being need for striking judicious balance between indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in life of any lis. (See Santosh Hazari v. Purushottam Tiwari [(2001) 3 SCC 179] .) 24.The principles relating to Section 100 CPC relevant for this case may be summarised thus : (i) inference of fact from recitals or contents of document is question of fact. But legal effect of terms of document is question of law. Construction of document involving application of any principle of law, is also question of law. Therefore, when there is misconstruction of document or wrong application of principle of law in construing document, it gives rise to question of law. (ii) High Court should be satisfied that case involves substantial question of law, and not mere question of law. question of law having material bearing on decision of case (that is, question, answer to which affects rights of parties to suit) will be substantial question of law, if it is not covered by any specific provisions of law or settled legal principle emerging from binding precedents, and, involves debatable legal issue. substantial question of law will also arise in contrary situation, where legal position is clear, either on account of express provisions of law or binding precedents, but court below has decided matter, either ignoring or acting contrary to such http://www.judis.nic.in legal principle. In second type of cases, 13 substantial question of law arises not because law is still debatable, but because decision rendered on material question, violates settled position of law . (iii) general rule is that High Court will not interfere with concurrent findings of courts below. But it is not absolute rule. Some of well-recognised exceptions are where (i) courts below have ignored material evidence or acted on no evidence; (ii) courts have drawn wrong inferences from proved facts by applying law erroneously; or (iii) courts have wrongly cast burden of proof. When we refer to decision based on no evidence , it not only refers to cases where there is total dearth of evidence, but also refers to any case, where evidence, taken as whole, is not reasonably capable of supporting finding. 4(l) We also usefully refer to judgment of Supreme Court reported in M.Janardhana Rao Vs. Joint Commissioner of Income Tax [2005 273 ITR 50 (SC)] wherein and whereby Hon'ble Supreme Court of India held that principles contemplated under Section 100 of Code of Civil Procedure (hereinafter referred to as CPC for brevity) would apply to 260-A of IT Act too. 4(m)We applied above tests / principles laid down by Hon'ble Supreme Court of India to two questions proposed by http://www.judis.nic.inthe revenue in instant case, more so in light of factual 14 matrix of case. 4(n) It becomes obvious that there is no legal position which is debatable. Equally, no settled position of law has been misapplied by authorities in answering material questions either. Therefore, we have no hesitation whatsoever in coming to conclusion that no substantial question of law arises in instant appeal. As stated supra, we have tested questions proposed by Revenue in backdrop of factual matrix of instant case. As matter of abundant caution, we also applied our minds independently and examined / searched if any other substantial question of law arises, but in vain. 5 CONCLUSION : Owing to all that have been stated supra, there is no merit whatsoever in appeal filed by Revenue as addition of income on estimate basis for certain projects has admittedly / concededly (as admitted / conceded by Revenue before ITAT) been done without scrutiny and without rejecting Books of Accounts. Equally, no substantial question of law arises. 6 DECISION : Owing to and in light of all that have been stated supra, http://www.judis.nic.in 15 appeal by Revenue in T.C.A.No.302 of 2017 is dismissed as bereft of merits and as one in which no substantial question of law arises for being entertained under Section 260-A of IT Act. No costs as this Appeal is being dismissed at admission stage. (I.B., CJ.) (M.S., J.) 20.07.2017 Index : Yes gpa/vvk To Income Tax Appellate Tribunal, 'C' Bench, Chennai. http://www.judis.nic.in 16 Hon'ble Chief Justice and M.Sundar, J. gpa/vvk T.C.A.No.302 of 2017 20.07.2017 http://www.judis.nic.in Principal Commissioner of Income-tax-4 v. Marg Limited