Neelambar Catterers Pvt. Ltd., Kolkata vs Department Of Income Tax

आयकर अपील य अधीकरण, यायपीठ - "C" कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA (सम )Before ी महावीर संह, यायीक सद य एवं/and ी शामीम याहया, लेखा सद य) [Before Shri Mahavir Singh, JM & Shri Shamim Yahya, AM]

आयकर अपील सं या / I.T.A No. 569/Kol/2011 नधॉरण वषॅ/Assessment Year: 2006-07

Deputy Commissioner of Income-tax, Vs. M/s. Neelambar Catterers Pvt. Ltd. Central Circle-X, Kolkata. (PAN:AABCN1101B) (अपीलाथ /Appellant) ( यथ /Respondent)

Date of hearing: 09.01.2015 Date of pronouncement: 16.01.2015

For the Appellant: Shri Dipankar Mukhopadhyay, JCIT, Sr. DR For the Respondent: Shri Anil Kochar, Advocate

आदेश /ORDER

Per Shri Mahavir Singh, JM :

This appeal by revenue is arising out of order of CIT(A), Central-II, Kolkata in Appeal No. 216/CC-XVIII/CIT(A)C-II/08-09 dated 05.01.2011. Assessment was framed by DCIT, Central Circle-X, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2006-07 vide his order dated 30.12.2008.

2. The only issue in this appeal of revenue is against the order of CIT(A) accepting the net profit declared by assessee even though the books of account were rejected. For this, revenue has raised following ground no.1:

"1. This in the facts and circumstances of the case, and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.14,24,220/- made on account of low profit while holding that the rejection of books of accounts of the assessee was correct in view of deficiencies as pointed out by the AO and the materials as brought on record."

3. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that the assessee is engaged in the business of Catering Services and Restaurant. The assessee filed its return of income for AY 2006-07 i.e. the relevant assessment year on 16.01.2008 and assessee's case was selected for by issuing notice u/s. 143(3) of the Act. During the course of assessment proceedings, the AO rejected the book results and applied average net profit @ 20.86% by estimating the turnover at Rs.2.10 cr. As against the turnover declared by assessee at Rs.2,00,38,155/- by observing as under:

2 ITA No.569/K/2011 M/s. Neelambar Catterers Pvt. Ltd. AY 2006-07

"Considering the fact of the case and defects in maintenance of the account in the forgoing para the sales is estimated at Rs.2,10,00,000/- as against sales of Rs.2,00,38,155/- shown by the assessee. As it is settled that assessee's case is the best comparable case for the application of the NP rate. The assessee has declared Net Profit rate for the year under consideration i.e. AY 2006-07 at 14.75% and for the preceding year at 26.98%. Therefore by applying the average NP rate of 20.86% (14.75% + 26.98%) on the net turnover shown at Rs.2,10,00,000/-, net Profit works out to Rs.43,80,600/-. The assessee has already shown Net Profit of Rs.29,56,380/- in the Profit & Loss Account, therefore, the difference of Rs.14,24,220/- (Rs.43,80,600/- minus Rs.29,56,380/-) in net profit is added to the total income of the assessee."

4. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the action of AO rejecting the books of account by invoking the provisions of section 145(3) of the Act and estimating the Profit of the business of the assessee. But the CIT(A) noted that the assessee has declared gross profit @ 22% in the relevant assessment year and has also incurred a particular expenditure i.e. rent paid for hiring of 'Convention Centre and Auditorium' in Science City during the relevant year and paid rent of Rs.38,60,352/- by virtue of which net profit was reduced and accordingly, net profit was also reduced. The CIT(A) deleted the addition by observing as under:

"4.2. The comparative figures of financial account of appellant for Assessment Year 2005-06 and Assessment Year 2006-07, are as under:

Asstt. Catering Profit before % Administrative Hall maintenance, Other Year Receipts depreciation Exp. Labour & service Receipts charge 2005-06 12645522 3411398 26.98 1608370 4257990 979988 2006-07 20038155 2956380 14.75 6873518 3466914 547032

In the above table, if the administrative expenses, Hall maintenance, labour and service charges had also increased proportionate to Catering receipts in Assessment Year 2006-07 in comparison to Assessment Year 2005-06, they should not have been about Rs 83 lakh for Assessment Year 2006-07. However the Administrative expenses and Labour charges and service charges for Assessment Year 2006-07 are about Rs. 103 lakh (Rs 68.5 lakh + Rs 34.5 lakh). Therefore, if the administrative charges had not gone up abnormally, the "PBT" in Assessment Year 2006-07 would have been higher by Rs 103 lakh - Rs 83 lakh = Rs 20 lakh. In that case the PBD for Assessment Year 2006-07 could be Rs 49 lakh on a sale of about Rs 2 crore, i.e 24.5% of sale. Moreover if the "Other Receipts" of about Rs 9.8 lakh in Assessment Year 2005-06 and Rs. 5.5 lakh in Assessment Year 2006-07 are excluded from the profits, then the PBD in respect of catering business only for Assessment Year 2005- 06 would have been 19% and the PBO of Assessment Year 2006-07 would have been about 22% after excluding abnormal increase in administrative cost of about Rs 20 lakh. The rent of Rs. 38,60,352 paid by appellant for "Convention Centre and Auditorium" in science city in Assessment Year 2006-07 was excessive even after considering the savings that the appellant made on account of hall maintenance and labour charges in Assessment Year 2005-06. The decision of taking Convention Centre and Auditorium on rent did not prove profitable and appellant discontinued this facility in science city in subsequent years. All these facts prove that the excessive rent of Convention Centre and Auditorium in science city brought down the PBD in Assessment Year 2006-07 wrt Assessment Year 2005-06 and the reason 3 ITA No.569/K/2011 M/s. Neelambar Catterers Pvt. Ltd. AY 2006-07

for fall the PBD in Assessment Year 2006-07 is not the purchase of raw material/labour and sale of catering material/services. The PBD on account of sale and purchase of catering material and services only, without considering other receipts, and without considering abnormal rise in administrative cost (Rs.20 lakh), is in fact higher at 22% in Assessment year 2006-07 than 19% in Assessment Year 2005-06 as mentioned above. The abnormal rise in administrative expenses is well explained first time expenditure of rent of Rs.38,60,352/- for "Convention Centre and Auditorium". Therefore, a comparison with the profits of catering business of Assessment Year 2005-06 would not result in any higher estimation of profit for Assessment Year 2006-07. I therefore direct the Assessing Officer to delete the addition of Rs.14,24,220/- made by him to the total income of the appellant on account of estimation of profit and reduce the total income accordingly."

4. When a query was put to Ld. Sr. DR that whether the rent paid for 'Convention Centre and Auditorium' in Science City for a sum of Rs.38,60,352/- is genuine or not whether the same was doubted by the AO or not. The Ld. Sr. DR could not answer. Even records show that this expenditure was considered by the AO and was allowed. In view of this factor, we find that the CIT(A) has rightly considered the estimation of profit and deleted the addition made by AO at Rs.14,24,220/-. We find no infirmity in the order of CIT(A) and the same is confirmed. Appeal of revenue is dismissed.

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

6. Order is pronounced in the open court 16.01.2015 Sd/- Sd/-

शामीम याहया, लेखा सद य महावीर संह, यायीक सद य (Shamim Yahya) (Mahavir Singh) Accountant Member Judicial Member

Dated : 16th January, 2015 व र ठ निज स चव Jd.(Sr.P.S.) आदेश क त ल प अ े षतः- Copy of the order forwarded to: 1. अपीलाथ /APPELLANT - DCIT, Central Circle-X, Kolkata.

2 यथ /Respondent - M/s. Neelambar Catterers Pvt. Ltd., 222, A.J.C. Bose road, 3 rd floor, Kolkata-700 017. 3. आयकर क मशनर (अपील)/ The CIT(A), Kolkata 4. आयकर क मशनर/ CIT Kolkata

5. वभा गय तनीधी / DR, Kolkata Benches, Kolkata स या पत त/True Copy, आदेशानुसार/ By order,

सहायक पंजीकार/Asstt. Registrar.