TaxTMI 
TaxTMI 
2020 (6) TMI 127
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....ent year 2008-09 onwards. The assessee had its Headquarters at Panvel and has branches at many places including Nashik. The Nashik Branch handles the contract work for resurfacing the roads at Nashik and it was assigned by the Public Works Department (PWD) and the Municipal Corporation of Nashik (MCN). There was search action u/s 132 of the Act on the business premises of the assessee on 07.02.2008 relevant to the assessment year 2008-09. The search action resulted in discovery of various incriminating papers and CDs. Inflation of expenses, understatements of profits etc are the issues discovered during the search action. Mr. Prashant Thakur and his father manage the business in India and outside of India respectively. Subsequently, Mr. Thakur disclosed the additional income of Rs. 6.5 crores under various heads of income involving the Firm and the Corporate Entities of the Group for the then current assessment year 2008-09. The said details are given in para 3.1 of the order of the CIT(A). The notice u/s 153A of the Act was issued for the said relevant assessment years including the assessment year 2006-07 to 2008-09. The search assessments were made disturbing the claims of the ....
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.... additions based on the incriminating documents in isolation. The Tribunal disapproved the existence of the huge/unusual profit percentage. In the language of the Tribunal, it is held that ".............. In the given circumstances, we need to find out the amount of addition liable to be made. Ordinarily, we would have gone with the evidence actually found at the time of search for making addition, but, the position as instantly prevails is that albeit there is evidence of inflation of expenses, but its precise quantification is not available". Thus, the Tribunal felt judicious to adopt the spirit of the provisions of section 44AD of the Act and increased the profits of the assessee marginally from the recorded GP rate of assessee @ 7.49% to 8% (difference of percentage is 0.51%). This is the finding of the Tribunal for the assessment year 2006-07 vide order dated 17.09.2019. Thus, while upholding the allegation of 'inflation of expenses', the Tribunal adopted the approach of estimation of profit @ 8% for the assessment year 2006-07 due to lack of "precise quantification" of such inflation of expenses. B. Facts/Developments for Assessment Year 2007-08 6. As stated earlier, the as....
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....on of RS. 3773903/- being not warranted by facts and in law may be deleted. 2) The Learned CIT(A) has erred in law and on facts by confirming separate addition of RS. 3773903/- as per ground no 1, by not giving benefit of setoff (telescoping) against total estimated income and as such ignored provision of law and judicial decisions. 3) The Learned CIT(A) has erred in law and facts by confirming alleged expenses RS37,69005/ as unexplained expenditure u/s 69C on the basis of noting found on computer file/dumb document in course of search. The Learned A.O. as well as CIT(A) failed to appreciate that this were dumb one and addition was not being warranted by facts and in law may be deleted 4) The Learned CIT(A) has erred in law and facts by confirming alleged illegal expenses of Nasik Project Rs. 1,51,60,000/ as unexplained expenditure u/s 69C on the basis of noting found on computer file/dumb document in course of search. The Learned A.O. as well as CIT(A) failed to appreciate that this were dumb file and addition was not being warranted by facts and in law may be deleted 5) The Learned CIT(A) has erred in law and facts by confirming alleged illegal expenses of Nasik Project R....
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....re read in toto. 5. The learned C.I.T. (A) also erred in law and on facts same as A.O. by not considering and reading the statements as whole, found from the computer files in respect of Nasik Project in the course of search action, as decided and held by the Judicial Authorities. The Appellant craves leave to add, to alter, to delete and/or to amend any or all of the above grounds of appeal at any time." C. Facts/Developments for the Assessment Year 2008-09 9. The assessee filed the return of income for the year declaring the total income of Rs. 18,72,73,260/-. The Assessing Officer completed the assessment determining the assessed income of Rs. 33,01,50,750/-. The ratio of returned income and the assessed income (at Rs. 18.73 crores : Rs. 33.02 crores) too is extremely huge and abnormal. The details of additions as given in para 16 of the assessment order and the same are extracted hereunder :- Sl. No. Addition under the head Rs. Income from business 188174700 1 Addition on account of Pune Expenses 80,00,000 2 Addition on account of Nashik Panchavati Expenses 26929993 3 Addition on account of inflation of expenses 104269175 4 Addition on account of ....
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....contract receipt also. The assessee has made overall disclosure of Rs. 650 lacs to buy peace of mind though same was not supported by any undisclosed investment/seized assets etc in possession of assessee as per search documents and/or as per Assessment Order. 6) The Learned CIT(A) has erred in law and on facts by not considering the disclosure made by assessee of Rs. 6.50 u/s 132(4) in A.Y. 08-09 to buy peace of mind while sustaining/ confirming part of addition in the assessment. 7) The assessee craves leave to add/alter any of grounds of appeal before or at the time of hearing. Additional Grounds :- 1. On the facts and in the circumstances of the case and in law, the assessment proceedings initiated as well as the assessment order passed u/s, 143(3) r.w.s. 153A of the I.T. Act, is invalid and bad in law. 2. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in not admitting the additional grounds raised before him. 3. On the facts and in the circumstances of the case and in law, the learned A.O. ought to have allowed depreciation while computing the income under the head 'income from business or profession'. 4. On the facts a....
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....deration, ld. AR submitted that the said order of the Tribunal for the assessment year 2006-07 assumes significant for determination of profits for the A.Y. 2007-08 as well. Referring to the order of the CIT(A), the ld. Counsel mentioned that the CIT(A) resorted to estimation of profits of the assessee and it is only way of computation of profits for the year meaningfully and judiciously. The fact that the Tribunal too preferred the method followed by the CIT(A) was also pressed before us. Referring to the recorded GP rate at 9.37% as disclosed by the assessee for the assessment year 2007-08 on the total turnover of Rs. 137.13 crores, ld. Counsel mentioned that the same is quite reasonable and there is no need for further itemised addition or any others. Stating that the Tribunal approved 8% for the assessment year 2006-07, the ld. Counsel mentioned that the GP at 9.37% for the year under consideration is much higher than 8% and similar GP rate of 8% for this year too should be fair and sustainable. 15. Without prejudice, the ld. Counsel submitted that the Tribunal since considered making of further addition @ 0.51% (i.e. 8% - 7.49%) for A.Y. 2006- 07 and the similar addition at t....
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....submitted that, out of 11 additions, Item No.1 of the Chart (Rs. 48,69,491/-); Item No.2 (Rs. 2,29,00,000/-); Item No.3 (Rs. 8,59,200/-); Item No.4 (Rs. 2,61,05,121/-); and, Item No.5 (Rs. 8,74,27,755/-) pertained to the business of the assessee/seized materials. Further, referring to the additions on Item No.6 (Rs. 46,32,920/-); Item No.7 (Rs. 12,87,714/-): Item No.9 (Rs. 5,09,608/-); Item No.10 (Rs. 50,00,000/-); and, Item No.11 (Rs. 1,81,000/-), ld. Counsel submitted that these issues already stand settled and there is no dispute about these additions. Further also, referring to Item No.8 (Rs. 37,73,903/-), ld. Counsel submitted that this addition made u/s 40(a)(ia) of the Act being related to transport charges element in purchase of earth (Murum) is a non- business addition and now stands covered by the decision of the Tribunal in the case of Govind Deorao Patil vide ITA No.127/PUN/2017. Referring to other part of the addition of Rs. 18,52,908/-, ld. AR submitted that the same is not pressed. In this regard, ld. Counsel brought our attention to the page 19 to 21 at para 7 onwards of the written submission. 20. Further, ld. Counsel summed up that if the GP addition @ 0.51% over....
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....Branch. The Assessing Officer followed the method of item-wise additions linked to the seized papers for all the assessment years under consideration. The similar pattern, relying on the seized material/seized CD, were followed by the Assessing Officer for the assessment year 2006-07. On perusal of the common facts, common CDs, common projects of the assessee at Nashik etc, we find the manner of assessment, the finding of the Tribunal for the assessment year 2006-07, etc becomes appropriate for the assessment year 2007-08 as well. In this regard, we perused the relevant paras from the order of the Tribunal in the assessee's own case for the assessment year 2006-07 and proceed to extract the same as under :- "10. The only other issue raised in the assessee's appeal is against the estimation of income at 10% of receipts. The Revenue in its appeal is aggrieved by the decision of the ld. CIT(A) in reducing the estimation of net profit to 10%. 11. The facts apropos these grounds are that a number of incriminating documents were found during the course of search, which were seized. Statement of the partner, namely, Sh. Paresh Ram Thakur was recorded u/s.132(4) of the Act on 8.2.2008.....
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.... both the sides and gone through the relevant material on record, it is seen that the search and seizure action conducted on the assessee revealed the evidence of the assessee having inflated expenses under the heads Transport charges, Machinery hire charges, Labour charges and Sub-contract expenses. It was further seen that the assessee had maintained two sets of books of account for the A.Ys. 2006-07 and next assessment year. Various blank signed letter heads were also found and seized from the office of the assessee. When asked to explain, Sh. Paresh Thakur in his statement recorded u/s 131 on March, 2008 stated that : `These are blank letter heads of sub contractors, some of which are signed. These sub-contractors left the letter head in our office in the course of working.' When the same question was asked to Sh. Anil Bhagat, he stated the reason of the same on behalf of his wife, proprietor of Rohit Construction, whose blank signed letter heads were seized. He explained that : `These signed letter heads have been provided by us to them as per their instructions for preparation of our contract bills to be prepared by M/s S.C. Thakur & Bros/SC Thakur Infraproject, Panvel.' It....
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....s of Civil Construction etc. a sum equal to 8% of the gross receipts or a sum higher than that declared in the return of income shall be deemed to be profits and gains of such business chargeable to tax under the head `Profit and gains from business or profession'. Though the section strictly applied only where the gross receipts did not exceed an amount of Rs. 40.00 lakh, but at any rate, it gave hint about the appropriate percentage of profit in the business of Civil Construction. Even though this section technically does not apply to the assessee because of the amount of gross receipts exceeding Rs. 40.00 lakh, still we can find out a reasonable net profit percentage to be applied in the given circumstances at 8%. We, therefore, hold that a net profit rate of 8% be applied to the Total receipts as against 7.49% declared by the assessee and 10% estimated by the ld. CIT(A). 15. However, in applying this percentage, income in the nature of interest received on income-tax amounting to Rs. 6,994/- and office rent received amounting to Rs. 1,75,500/- which are items of subject matter of Ground No.1 of the Revenue's appeal, should be excluded. Interest received on income-tax should b....
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....he assessee before us that, the finding of the Tribunal for the assessment year 2006-07, i.e. bring additional profit to tax @ 0.51% of the turnover, need to be followed for the year under consideration as the same is binding due to commonness of the facts, the project and mode of inflation of expenses. Therefore, we have two rates for quantifying the additional profits i.e. 0.61% of CIT(A) and 0.51% of the Tribunal for the assessment year 2006-07. The turnover is found increased for the assessment year 2007-08. Considering the same, we are of the opinion that the additional profits at 0.51% needs to be revised marginally. If the same is done, we find the decision of the CIT(A) with 0.61% of additional profits should be considered proper and appropriate. In summary, we proceed to hold that the order of CIT(A) with 10% should be fair and reasonable on this issue of quantification of the business profits. Therefore, we proceed to confirm the manner of quantification of business profits at the rate of 10%. Accordingly, since we confirmed the order of the CIT(A), the relevant grounds/additional grounds raised by the assessee are dismissed. Accordingly, we order the Assessing Officer to....
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....urchased cost of earth/murrum represent transportation charges of the earth/murrum purchase by the assessee. As such the disallowances u/s 40(a)(ia) is basis only on estimate. In their judgement in the case of M/s J.M. Mhatre ITA No. 2345/MUM/2011 the Hon'ble Bombay 'J' Bench of the Tribunal have held in para 6 of the order has held that the disallowances cannot be upheld u/s 40(a)(ia) of the Act when the income was estimated. The disallowances made by the Assessing Officer therefore not sustainable. The Hon'ble Pune Bench of the Tribunal in the case of Dhanvarsha Builders & Developers (P.) Ltd 102 ITD 375 (Pune) have also held that the disallowances cannot be made u/s 40(a)(ia) of the Act when the income has been assessed by estimate. It is further submitted that section 194C of the Act requires TDS to be deducted from payment of transportation charges only when there is a contract between the prayer and the payee for transportation of some material. In the present case there is no contract between the assessee and the transportation as the suppliers of the earth/murrum engaged/deployment random vehicle owners as per the availability of the vehicle. For this reason also ....
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....llowing grounds of appeal :- "1. In the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 11,00,486/- stating that it pertains to outstanding expenses whereas no outstanding expenses would have voucher number. The very fact that voucher numbers were given proves that expenses were not payable but paid, thereby granting excessive relief of Rs. 11,00,486/-. 2. In the fact and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 23,51,272/- on account of insurance claim, ignoring the fact that net profit was estimated @ 10% after the netting of insurance claim which is not permissible. 3. In the facts and circumstances of the case, the Ld. CIT(A) has erred in adding the technical disallowance to net profit of Rs. 12.35 crores in place of correct estimated income of Rs. 13.71 crores. 4. In the facts and circumstances of the case, the Ld. CIT(A) has erred in directing A.O. to estimate income for A.Y. 2007-08 and A.Y. 2008-09 for Nashik project at rate of 10% of contract receipts whereas CIT(A) himself has estimated such profit at of 14% of contract receipts in A.Y. 2008-09. 5. In the facts and circumstances of ....
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....h of the item-wise additions and disapproving the CIT(A) manner of estimation of the profits of the assessee adopting the GP rate of 10% of the gross receipts. We find this aspect of estimation of profits has been discussed elaborately while dealing with the grounds no.2 to 7 of the appeal of the assessee for the assessment year 2007-08. In the said order (supra), we have followed the precedent in assessee's own case for A.Y. 2006-07 and rejected the Assessing Officer's approach of the item- wise additions and relied heavily on the order of the Tribunal dated 17.09.2019 for the assessment year 2006-07. Further, we also approved the estimation of profits at a percentage of profits. We have also approved the requirement of taxing the additional profits applying the rate of 0.61% on the total turnover of Rs. 137.13 crores of the assessee for the assessment year 2007-08. In the process, we slightly deviated from the 0.51% for assessment year 2006-07. In effect, the said grounds no.1 to 5 of the Revenue should be considered as adjudicated while dealing with the grounds no.2 to 7 of the assessee's appeal. Accordingly, we order. Accordingly, grounds no.1 to 5 of the Revenue's appeal are d....
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....itions and not based on the estimation of gross profits. Further, ld. Counsel mentioned that the CIT(A) rejected the above manner of assessment by the Assessing Officer and resorted the estimation of profits at the rate of 10% of the gross receipts. At this stage, the CIT(A) did not understand that the said gross receipts of Rs. 137.13 crores includes Rs. 88,95,333/- of the miscellaneous receipts which are getting taxed by his decision of 10% of the gross receipts. Idly, the CIT(A) should have examined the turnover of the assessee also, if any of receipts which formed part of the turnover or required to be taxed and their entirety and not restricting to 10%. This is the deficiency in the order of the CIT(A). Considering the bonafides, ld. Counsels fairly submitted that this issue can be remanded to the file of the CIT(A) for removal of the deficiency after granting reasonable opportunity of being heard to the assessee. 41. Per contra, ld. DR for the Revenue debated on the manner of itemised additions made by the Assessing Officer and strongly supported the same. Aggrieving with the ld. Counsel's proposition, ld. DR submitted that the estimation of profits, the manner adopted by th....
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....he total turnover of the assessee i.e. part of Rs. 146,76,65,391/- for A.Y. 2008-09. This amount is credited in the Profit & Loss Account of the assessee. For the sake of completeness, the details of additions are extracted in the following table. The total income determined by the assessee by virtue of itemize addition is Rs. 33,01,50,750/-. The details as given at page 46 of the assessment order in page 46 are extracted as under :- Sl. No. Addition under the head Rs. Income from business 188174700 1 Addition on account of Pune Expenses 80,00,000 2 Addition on account of Nashik Panchavati Expenses 26929993 3 Addition on account of inflation of expenses 104269175 4 Addition on account of Fuel Account 1183413 5 Addition u/s 40(a)(ia) 580399 6 Addition on account of amounts inadmissible 391877 7 Addition u/s 40A(3) 16951 8 Addition u/s 14A 604242 Total Assessed Income 330150750 45. From the above table, it is evident that the Assessing Officer not only made itemize additions relating to the business expenditure but also made certain additions u/s 37(1) of the Act (Rs. 80 lakhs), u/s 40(a)(ia) of the Act (Rs. 5,80,399/-) and u/s 40A(3) o....
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....s already approved by the Tribunal in the appeal for A.Y. 2006-07 in assessee's own case (supra)], the net addition works out to Rs. 71,53,593/-. On the other hand, ld. DR heavily relied on the order of AO and submitted that Rs. 6.5 crores addition offered by the assessee should be unaltered. Regarding percentage of profits i.e. 0.51% it is the case of Revenue that itemized addition should be upheld notwithstanding the order of Tribunal for the A.Y. 2006-07. Decision of the Tribunal on estimation of profits for A.Y. 2008-09 49. We have heard both the parties on this issue. Revenue is of the opinion the itemize addition should be approved without any amendment. On the other hand, case of assessee is that Assessing Officer's manner of making additions is already disapproved by the Tribunal in assessee's own case for A.Y. 2006-07. In that appeal the Tribunal felt estimation of profits @ 0.5% is fair and reasonable considering the inadequacy and incompleteness of seized material relating to allegation of inflation of expenses. We find with the itemized additions as done by the AO, the aforesaid GP rate is extraordinarily very high to this industry for the year under consideration. ....
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....ver, as regards the other items of expenses, I find the explanation of the assessee to be unconvincing. Substance is lacking in the argument of the AR. The narration 'commissioner' 50,00,000 and 'Ajit Gavane' 25,00,000 according to me are representative of illegal expenses incurred in connection of business. In other words, the payments of Rs. 50 Lacs made to commissioner, Pune and Rs. 25 Lacs to Ajit Gavane are nothing but illegal payments which are absent in regular books." 53. Aggrieved with the same, the assessee is in appeal before the Tribunal. 54. In this regard, ld. Counsel's argument before us in writing is that the amounts do not reflect payments already made. There are only payable at the time of seized of the papers. 55. On the other hand, it is the case of the Revenue that the balance payable amount only refers to MLA Balance amounting to Rs. 5,00,000/- and not to others. He further mentioned that the CIT(A) already granted relief on that account. Therefore, Rs. 75,00,000/- has to be confirmed by the CIT(A) should be confirmed. 56. On hearing both the sides, we find merit in the DR's argument. Accordingly, the decision taken by the CIT(A) does not call for any int....
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....ioned as against the "MLA Balance", the Revenue aggrieved with this part relief and the assessee aggrieved with the confirmation of Rs. 75 lakhs. 60. On hearing both the sides and perusing of the records placed before us, we find it is escapable discretion that the word used as "MLA Balance". In our considered view that the expression 'balance' cannot be described as payment made in this regard. We perused the relevant discussion given by the CIT(A) on this issue and find the decision of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, ground nos.1 and 2 of the Revenue are dismissed. 61. Referring to the ground no.3, ld. DR submitted that if the profits of the assessee business is estimated at particular percentage of GP income, this ground becomes an academic issue. 62. On the other hand, ld. Counsel for the assessee submitted that the decision of the Tribunal in assessee's own case for the assessment year 2006- 07 (supra) is relevant to bring the litigation to the entire increasing the addition by additional GP of 0.51% over and above GP offered by the assessee should be reasonable. Accordingly, ground no.3 of the Revenue is decided pro....