2012 (12) TMI 182 - AT - Income Tax

Tribunal Adjusts Expense Disallowance & Profit Rates, Deems Assessing Officer's Actions Unjust

M/s. Hare Krishna Colonizers Pvt. Ltd. Versus ACIT, 1(2), Bhopal

M/s. Hare Krishna Colonizers Pvt. Ltd. Versus ACIT, 1(2), Bhopal - TMI Issues Involved:1. Net profit rate applied by CIT(A).2. Legality of the order passed by the Assessing Officer.3. Validity of the action under section 153C.4. Addition on account of sale of plot at Chuna Bhatti.Issue-wise Detailed Analysis:1. Net Profit Rate Applied by CIT(A):The common grievance in all the assessment years (2000-01 to 2006-07) relates to the net profit rate applied by CIT(A) at 6.5% against the net profit rate of 4.7% shown by the assessee. The assessee argued that the books of accounts were regularly maintained, duly audited, and no defects were pointed out by the Assessing Officer. The Assessing Officer had applied a gross profit rate of 25%, which was deemed unreasonable. The CIT(A) observed that in the case of contractors and builders, a net profit rate should be applied instead of a gross profit rate and concluded that a net profit rate of 6.5% was fair and reasonable. The Tribunal found that the gross profit rate of the assessee increased year by year, and the turnover also increased. The Tribunal modified the orders of the lower authorities and directed that the disallowance of expenses should be restricted based on verifiability year-on-year.2. Legality of the Order Passed by the Assessing Officer:The assessee contended that the CIT(A) was unjustified in holding that the order passed by the Assessing Officer was not illegal, invalid, and untenable. The Tribunal noted that the Assessing Officer rejected the books of accounts and applied a gross profit rate of 25% without any basis or reference to seized material or evidence. The Tribunal found that the books of accounts were maintained in the regular course of business, duly audited, and no major discrepancies were noted. The Tribunal concluded that the application of a 25% gross profit rate was arbitrary and directed a more reasonable approach.3. Validity of the Action under Section 153C:The assessee argued that the provisions of section 153C were harsh and should not equate a person against whom no search warrant was authorized with a person against whom a search was authorized. The Tribunal considered the submissions and noted that no incriminating material belonging to the assessee was found, and the Assessing Officer had simply disturbed the old assessment by applying a higher gross profit rate without pointing out any defects in the books of accounts. The Tribunal found that the notice issued under section 153C and the consequent assessment were illegal, as there was no incriminating material seized and no satisfaction recorded.4. Addition on Account of Sale of Plot at Chuna Bhatti:During the search, an agreement to sell a plot for Rs. 1,42,70,256 was found. One of the directors admitted that Rs. 71,00,000 had been received, with Rs. 30,00,000 unaccounted for. The assessee later claimed the agreement was canceled, and the property was sold for Rs. 40,00,000. The Assessing Officer did not accept this, noting the possession was given, and the property was being developed. The CIT(A) upheld the addition to the extent of Rs. 75,02,692, considering the improbability of a property initially valued at Rs. 1.42 crores being sold for Rs. 40,00,000. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the assessee's ground for the assessment year 2006-07.Conclusion:The Tribunal provided a detailed analysis of each issue, modifying the orders of the lower authorities where necessary and ensuring that the assessments were based on verifiable and reasonable grounds. The Tribunal upheld the CIT(A)'s decision on the net profit rate and the addition on account of the sale of the plot, while finding the action under section 153C and the application of a 25% gross profit rate by the Assessing Officer to be unjustified.