M/S Sri Sai Bhgawan Constructions,, ... vs Department Of Income Tax

Department has preferred this appeal against order dated 21-03-2013 passed by Ld. Commissioner of Income Tax (Appeals)-VI, Hyderabad for the Assessment Year (AY) 2009-10.

2. The solitary issue arising for consideration in the aforesaid appeal is whether CIT(A) was justified in applying net profit rate of 8% on the gross receipts as against 11.7% adopted by the Assessing Officer (AO).

3. Briefly the facts relating to the issue are, assessee, a partnership firm is engaged in the business of developer and builder and execution of civil contracts. For the assessment year under consideration, assessee I.T.A. No. 997/Hyd/2013 :- 2 -:

filed its return of income on 27-09-2009 declaring total income of Rs. 50,66,460/-. In the course of assessment proceedings, AO noticed that during survey operations conducted in the business premises of assessee u/s. 133A of the Income Tax Act [Act], on 22-01-2009, on the basis of discrepancies and deficiencies found/noticed, assessee came forward to admit profit at 11.7% and accordingly promised to offer income of Rs. 1,55,43,887/- in the AY. 2008-09 and Rs. 1,54,65,116/- in the AY. 2009-10. The AO further observed while in AY. 2008-09 in pursuance to the notice issued u/s. 148, assessee filed a revised return on 15-06-2009 declaring income of Rs. 1,55,79,020/- keeping in tune with the declaration made at the time of survey but as far as the impugned assessment year is concerned, assessee retracted from the offer made at the time of survey and declared income of Rs. 50,66,460/-. The AO therefore considering the fact that the assessee has declared profit @ 11.7% on the gross receipts in AY. 2008-09 which was also offered to be declared for the assessment year under consideration, at the time of survey, proceeded to estimate the net profit by adopting the rate of 11.7% on the gross receipts and accordingly, determined the taxable income at Rs. 1,62,26,380/-. Being aggrieved of the income so assessed, assessee preferred an appeal before the Ld.CIT(A). In the course of hearing of appeal before First Appellate Authority, it was submitted by the assessee that though at the time of survey operations, the assessee did offer to declare profit at 12% on gross receipts but after the survey operations, there was huge slump in the real estate market in Hyderabad. As a result of which, sale prices came down drastically and cost of construction increased. This has resulted in reduction of profit of the assessee. Explaining the facts further, assessee submitted that it has undertaken two projects viz., 'Sai Ahladam' and 'Sai Signature'. While 'Sai Ahladam' which was completed earlier yielded good profits to the appellant as a result of which assessee declared profit @ 11.7% in I.T.A. No. 997/Hyd/2013 :- 3 -:

AY. 2008-09. Whereas 'Sai Signature' did not yield good profit. That is why due to slump in real estate business and locational disadvantage, the profit on the project also was drastically reduced. Therefore, the assessee retracted from the offer of declaring profit at 12%. Ld.CIT(A) after considering the submissions of the assessee viz-a-viz the facts and material brought on record found that, though the assessee has taken the stand that when all the information and books impounded by the AO and are available with him and the return of income was filed on the basis of such material and Books of Account, only because the assessee has made declaration to offer income at 12% of the gross receipts, the AO cannot solely on that basis estimate the income of the assessee @ 11.7% when the AO does not dispute the fact that there is slump in sale price and escalation of cost of construction nor he has rejected the Books of Account. The Ld.CIT(A) observed that solely on the basis of statement given at the time of survey and in absence of any other adverse information, additions cannot be made. The Ld.CIT(A) further on the basis of informations submitted by assessee on the quantitative particulars of flats sold and area under work in progress along with the value of work in progress with the method of valuation adopted worked out the cost incurred for the year at Rs. 510/- per sq. ft., as against cost of construction of Rs. 262/- per sq. ft. shown by assessee. When this was pointed out to the assessee, as observed by the Ld.CIT(A), the assessee could not explain the deficiency and the AR of the assessee offered to estimate the net profit at 8% on the gross receipts. The Ld.CIT(A) having found that there are discrepancies in the cost of construction done by the assessee held that Books of Account cannot be relied upon. However, the Ld.CIT(A) on the basis of material found that the profits of the assessee on all projects put together is 4.38% on a combined gross receipts of Rs. 13,86,87,011/- which constituted profit declared at 11% on 'Sai Ahladam' project and 0.95% on 'Sai Signature' I.T.A. No. 997/Hyd/2013 :- 4 -:

project. Ld.CIT(A) agreeing to the fact that every project in every year will not fetch the same profit as each project has unique advantages and disadvantages opined that profit has to be estimated on a reasonable basis on the gross receipts of the assessee as a whole. Accordingly, holding 8% as a reasonable rate to be applied, the Ld.CIT(A) directed the AO to estimate net profit @ 8% on the combined gross receipts from all projects at Rs. 13,86,87,011/-. Being aggrieved, the department is before us.

4. The Ld. DR supporting the reasoning of the AO submitted before us that the assessee having declared profit @ 12% at the time of survey for AYs. 2008-09 and 2009-10 was not justified in retracting from such declaration while furnishing his return for AY. 2009-10. Whereas he declared profit @ 12% for AY. 2008-09 keeping with the offer made at the time of survey. Ld. DR submitted, there being no valid reason for estimating the profit at 8%. The rate of profit adopted by AO should be restored. The Ld. AR on the other hand strongly supporting the order of Ld.CIT(A) submitted that only because the assessee declared a profit rate of 12% at the time of survey, solely relying upon that statement, income cannot be estimated at 12% of the gross receipts when there are no other material brought on record by the AO to support the estimation of profit @ 11.7%.

5. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. It is evident from the assessment order that solely on the basis of the declaration made by the assessee at the time of survey, the AO has estimated the profit by adopting @ 11.7%. However, it is seen from record that the Books of Account and other informations on the basis of which assessee filed its return of income for the impugned assessment I.T.A. No. 997/Hyd/2013 :- 5 -:

year were available before the AO. It is not clear from the assessment order whether AO has made any effort to examine assessee's contentions as well as the income declared by verifying the Books of Account and informations submitted by the assessee. On the other hand, it is manifest from the order of Ld.CIT(A), on considering material available on record he found that the overall profit from the two projects shown by assessee is 4.38%. Since the Books of Account maintained by the assessee were not totally reliable, the Ld.CIT(A), did not accept the profit declared by assessee and proceeded to estimate the profit by applying the rate of 8%. Considering the fact that the assessee is basically engaged in the business of civil construction and in similar line of business, a net profit rate of 8% is generally considered to be reasonable for estimation of income, we do not see any reason to disturb the finding of Ld.CIT(A). In view of the aforesaid, we uphold the order of Ld.CIT(A) by dismissing the ground raised.

6. In the result, department's appeal is dismissed.

Order pronounced in open Court on 20th May, 2015

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated 20th May, 2015

TNMM I.T.A. No. 997/Hyd/2013 :- 6 -:

Copy to :

1. Income Tax Officer, Ward-11(3), 'D' Block, 5th Floor, I.T. Towers, A.C. Guards, Hyderabad.

2. M/s. Sri Sai Bhagavan Constructions, Flat No. 81, H. No. 2-22-142/B, Madhavi Nagar, Kukatpally, Hyderabad.

3. CIT(Appeals)-VI, Hyderabad.

4. CIT-V, Hyderabad.

5. D.R. ITAT, Hyderabad