Madhav Propcon Pvt. Ltd., New Delhi vs Department Of Income Tax

Income Tax Officer, vs Madhav Propcon Pvt. Ltd. Ward-6(1), H-54, 2nd Floor, DDA Flats, New Delhi. Ashok Vihar, Phase-I, New Delhi-110052 (PAN: AAFCM5920R) (Appellant) (Respondent) Appellant by: Shri Rajiv Saxena, Adv. Miss Sumangla Saxena, Adv. Respondent by: Shri P. Dam Kanunjna , Sr.DR

ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

The above appeal has been filed by the Revenue against the order of

CIT(A)-IX, New Delhi dated 8.8.2012 in Appeal No.151/10-11 for AY 2008-

09. The sole ground raised by the revenue reads as under:-

"1.Whether in the facts and circumstances of the case and in Law, the Learned CIT(A) has erred in directing the A.O. to adopt the income of assessee at 2.24% of gross receipts by admitting additional evidences in the form of details of comparable cases without providing any opportunity of rebuttal to the A.O. under Rule 46A?"

1 ITA No.6011/Del/2012 Asstt.Year: 2008-09 2. Brief facts giving rise to this appeal are that the assessee company was

engaged in the business of land development work during the year under

consideration. The assessee company filed return of income on 25.09.2008

declaring an income of Rs.1211/- and the same was processed u/s 143(1) of the

Act. Subsequently, the case was selected for scrutiny and statutory notice u/s

143(2) of the Act was issued and duly served upon the assessee. The AO

rejected the books of accounts of the assessee and completed assessment u/s

143(3) of the Act vide order dated 15.12.2010 at an income of Rs.3,74,17,210

making an addition of Rs.3,74,16,000 disallowing 75% of the land development

expenses claimed by the assessee as per profit and loss account. Being

aggrieved by the above assessment order, the assessee preferred an appeal

before the CIT(A) which was allowed by passing the impugned order. The

CIT(A) upheld the rejection of books of account but the estimated addition of

75% of expenses was dismissed and the AO was directed to adopt the income of

the assessee at 2.24% of the total gross receipts during the year under

consideration. Now, the aggrieved revenue is before this Tribunal with the sole

ground as reproduced hereinabove.

3. We have heard arguments of both the sides and carefully perused the

relevant material placed on record.

4. On the issue of violation of Rule 46A of the Income Tax Rules 1962,

from vigilant perusal of the assessment order, we note that the assessee has not

filed any additional evidence during the first appellate proceedings and we are 2 ITA No.6011/Del/2012 Asstt.Year: 2008-09

unable to see that the CIT(A) has admitted any additional evidence in

contravention to provisions of Rule 46A of Income Tax Rules, 1962.

Therefore, legal objection of the revenue is not found to be sustainable.

5. Ld. DR submitted that the CIT(A) was not correct in directing the AO to

adopt the income of the assessee at 2.24% of gross receipts by admitting

additional evidence in the form of details of comparable cases. Ld. DR further

submitted that the CIT(A) ought to have considered other better comparable

cases on the issue of estimation of net profit. Ld. DR has placed reliance on the

decision of Hon'ble High Court of Punjab & Haryana dated 20.11.2014 in

ITA No. 269 and 225 of 2014 in the case of Telelinks vs CIT, Bathinda and

CIT vs Mattewal Cooop L/C Society, decision of Hon'ble Punjab &

Haryana High Court dated 5.2.2013 in ITA NO. 825/2010 in the case of

CIT vs Smt. Kamlesh & Other cases and the decision of Hon'ble

Jurisdictional High Court of Delhi dated 9.12.2014 in ITA No. 80/2014 CIT

vs Subodh Gupta and submitted that even if Rule 44AB of the Act is not

applicable, then also 8% of gross receipts of the assessee should be adopted for

estimation of net profit rate.

6. Ld. Counsel of the assessee replied that the case of the assessee is

squarely covered in favour of the assessee by various decisions of the Tribunal

on the similar set of facts and circumstances including decision of ITAT Delhi

"F" Bench in ITA No.2044/Del/2011 for AY 2008-09 in the case of ITO vs

Radha Ballabh Nest Build Pvt. Ltd. wherein net profit @2.24% has been upheld 3 ITA No.6011/Del/2012 Asstt.Year: 2008-09

by the Tribunal dismissing the appeal of the revenue. Ld. Counsel further

contended that the ratio of the case laws relied upon by the ld. DR are not

applicable to the present case.

7. On careful consideration of above submissions, at the very outset, we

note that in the similar set of facts and circumstances in the case of ITO vs

Radha Ballabh Nest Build Pvt. Ltd. (supra) dismissing the appeal of the

revenue, the coordinate bench of this Tribunal has upheld the estimation of net

profit @2.24% of the gross receipts from M/s PACL India Ltd. The operative

part of this order of the Tribunal reads as under:-

"6. Since, the issues raised in the grounds are covered by earlier decision of the Tribunal in the group case of the assessee as well as the recent order of the Tribunal for the similar assessment year 2008-09 in ITA No. 2042 and 2043/D/2011 (Supra) we do not find infirmity in the first appellate order. In that case also the Tribunal has upheld the first appellate order on identical issues. Addition made by the AO on account of TDS treating the amount claimed from PACL India Ltd. and PGF India Ltd. as real income of the assessee deleted by the Ld. CIT(A) has been upheld. The Tribunal has also upheld the action of the 1st appellate authority in restricting the addition made on account of 4% commission on debit and credit entries ITA No. 2044/D/2011 5 regarding providing of accommodation entries to the said companies to 2.4% of the gross receipt shown in the profit and loss account from the above companies.

7. Under the above background, we do not find reason to interfere to the first appellate order in this regard. The same is upheld. The grounds are accordingly rejected."

8. First of all, it would be just and proper to consider the applicability of the

decisions relied by the ld. DR appearing for the Revenue. In the case of 4 ITA No.6011/Del/2012 Asstt.Year: 2008-09 Telelink (supra), the AO estimated net profit @12% and the CIT(A) reduced the

same @6%. The Tribunal, allowing the appeal by the revenue, set aside the

order of the CIT(A) by restoring that of the AO affirming the net profit rate at

12%. The Hon'ble High Court held that if net profit rate is perverse and

arbitrary, the findings so rendered shall be illegal and restored the matter to the

file of the AO for re-determination of net profit by reference to and after due

consideration of relevant factors. Hence in our humble understanding, Hon'ble

High Court held that if net profit rate is perverse and arbitrary, then the findings

so rendered shall be illegal and with this proposition, the matter is restored to

the file of the AO for re-determination of net profit. We also respectfully note

that Hon'ble High Court did not determine any net profit rate, hence, there is no

guideline about suitable and appropriate percentage of profit.

9. We further note that the Hon'ble Punjab & Haryana High Court in the

case of CIT vs Kamlesh & other cases (supra), their lordships in the cases of

individuals held that the income disclosed by the assessee as their income has

been assessed to tax as income in terms of section 44AD of the Act, then it was

held to be sustainable. Ld. Counsel of the assessee submitted that the present

case is related to a company having turnover of about Rs.5,00 crores, hence, the

net profit rate admitted by individual assessee u/s 44AD of the Act is not

applicable and the cases of CIT vs Kamlesh (supra) is related to individual

assessee who do not maintain books of accounts and surrender themselves to

provisions of Section 44AD of the Act. Ld. DR could not lead us to hold that 5 ITA No.6011/Del/2012 Asstt.Year: 2008-09

facts of these cases are similar to the present case. Thus, we agree with these

contentions of the ld. Counsel as the facts of the extant case are clearly

distinguishable from the facts of the case of CIT vs Kamlesh etc. (supra).

10. In the case of CIT vs Subodh Gupta, the Hon'ble Jurisdictional High

Court of Delhi held that the appellate authorities have not applied section 44AD

of the Act but where difficulty arose as they had to estimate reasonable rate of

net profit, hence in absence of any data and details, they applied net profit rate

as mentioned in section 44AD of the Act. In that case, their lordships further

also noted that the AO in the subsequent years accepted the figure of 8% of net

profit. Ld. Counsel of the assessee submitted that in the case of Subodh Gupta

(supra), no instance was quoted by the Revenue about any higher profit rate and

in absence of any contrary data and details the net profit rate of 8% was

approved by Hon'ble High Court but in the present case, there were number of

cases wherein in the similar set of facts and circumstances, net profit rate of

2.24% was accepted by the department in several suitably comparable cases

including order in the case of Radha Ballabh Nest Build Pvt. Ltd. (supra),

therefore, the ratio of the decision of Subodh Gupta (supra) does not support the

case of the Revenue in the present appeal.

11. On careful consideration of above contentions of both the sides, first of

all, we noted that on our specific query from ld. DR, we have been informed by

the ld. DR that the decisions of the Tribunal (supra) as relied by the assessee

and accepted by the CIT(A) as suitable comparables have not been set aside or 6 ITA No.6011/Del/2012 Asstt.Year: 2008-09

modified or disturbed by the Tribunal itself or by Hon'ble High Court. Hence,

in absence of any other order, which may lead us to take a different view or

opinion, we are of the considered opinion that the CIT(A) was quite justified in

considering the suitable comparable cases for determination of net profit rate of

2.24% of gross receipts of the assessee.

12. On careful consideration of the order of the coordinate bench of this

Tribunal in the case of Radha Ballabh Nest Build Pvt. Ltd.(supra), we are of the

considered opinion that the issue raised by the revenue in the sole ground is

covered by the decision of the Tribunal for similar AY 2008-09 passed in ITA

No.2044/Del/2011 (supra). We are unable to see any ambiguity, infirmity or any

other valid reason to interfere with the impugned order of the first appellate

authority. In the case of ITO vs Radha Ballabh Nest Build Pvt. Ltd.(supra), the

Tribunal, on identical set of facts and circumstances, has upheld the order of the

CIT(A) and the addition made by the AO has been deleted by upholding the

order of the CIT(A) which adopted rate of 2.24% of the gross receipts from M/s

PACL India Ltd. for estimation of net profit in a peculiar situation when the

conclusion of rejection of books of accounts by the AO has been upheld by the

CIT(A). The Tribunal has also upheld the conclusion of the CIT(A) in this

regard and we are unable to see any valid reason to take a different view on the

similar issue. We also respectfully hold that the benefit of the ratio of the

decisions relied by the revenue is not available for the revenue as the facts and

circumstances of these cases are clearly distinguishable from the factual matrix 7 ITA No.6011/Del/2012 Asstt.Year: 2008-09

of the present case. Therefore, we hold that the present case of the assessee is

squarely covered in favour of the assessee by the order of the Tribunal in the

case of Radha Ballabh Nest Build Pvt. Ltd. (supra). Accordingly, sole ground

of the revenue being devoid of merits is dismissed.

13. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 12.3.2015.

Sd/- Sd/-

(G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER

DT. 12th MARCH 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt. Registrar

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