Soham Builders, Ahmedabad vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER आयकर अपील सं./ ./ ITA No. 1467/Ahd/2011 िनधा रण वष /Assessment Year: 2007-08 Soham Builders, V/s. ACIT, 404/E, Sahjanand Shopping Central Circle - 2(2), Centre, Opp. Swaminarayan Ahmedabad Temple, Shahibaug, Ahmedabad PAN : AAWFS 6518 D

अपीलाथ / (Appellant) ू"यथ यथ / (Respondent)

Assessee(s) by : Shri Gaurav Nahta, AR Revenue by : Shri Dinesh Singh, Sr. DR.

सुनवाई क% तार'ख/ / Dateof Hearing : 12/06/2015 घोषणा क% तार'ख / Date of Pronouncement: 19/06/2015

आदे श/O R D E R

PER G.D. AGRAWAL, VICE PRESIDENT:

This is an appeal filed by the assessee and is directed against the order of the Ld. Commissioner of Income-tax(Appeals)-III, Ahmedabad dated 01.04.2011, pertaining to Assessment Year 2007-08.

2. The only ground raised in this appeal by the assessee is against the levy of penalty of Rs. 16,34,840/- u/s 271(1)(c) of the Income-tax Act.

3. At the time of hearing before us, it is submitted by the ld. Counsel that the assessee derives income from construction of bungalows and sales thereof. That apart from the standard work and fittings in the bungalows, if some buyers require any specific work to be performed or any specific fittings to be provided, then the assessee charged separately which was over ITA No.1467/Ahd /2011 Soham Builders vs ACIT For AY 2007-08 2

and above the sale price of the bungalows. That during the accounting year relevant to assessment year under consideration, the total collection from the additional work performed by the assessee was Rs.2,78,96,582/-. That in the return filed, the assessee has disclosed additional income of Rs.30,00,000/- on the receipt from extra work amounting to Rs.2,78,96,582/-. The net profit estimated by the assessee on the above receipt was 10.75%. The Assessing Officer was of the opinion that in performing the extra work no expenditure was incurred; therefore, he was of the opinion that entire receipt of Rs.2,78,96,582/- is to be assessed. Since the assessee had already offered income of Rs.30,00,000/-, he made the addition of Rs.2,48,96,582/-. On appeal by the assessee, the CIT(A) estimated the profit from the extra work done @ 25% of the receipt which was worked out to Rs.78,56,911/-. After reducing Rs.30,00,000/- already offered by the assessee, he sustained the addition at Rs.48,56,911/-. The assessee accepted the order of the CIT(A) while the Revenue filed the appeal before the ITAT. The ITAT upheld the order of the CIT(A). That the Assessing Officer levied penalty u/s 271(1)(c) in respect of the addition of Rs.48,56,911/-. It is submitted by the ld. Counsel that the only dispute is whether the income from the extra work performed by the assessee should be at 25% of the receipt or at 10.75% of the receipt. That merely because higher percentage of the income is estimated than what is offered by the assessee will not amount to concealment of income so as to liable by the assessee for penalty u/s 271(1)(c). In this regard, he relied upon the decision of Hon'ble Gujarat High Court in the case of CIT vs. Whitelene Chemicals, (2014) 360 ITR 385 (Guj.). He also submitted that the extra work is done by the assessee only as a service provided to the customers who have purchased bungalow from the assessee. Therefore, while providing such services, there is no profit motive and many a time many builders provide such services at cost. The ITA No.1467/Ahd /2011 Soham Builders vs ACIT For AY 2007-08 3

assessee has already disclosed the profit of 10.75% on the receipt from such extra services which was quite fair and reasonable. That merely because a higher percentage of income is estimated, the assessee should not be penalized for concealment of income.

4. The ld. Departmental Representative, on the other hand, relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Kalindi Rail Niman Engg. Ltd. vide ITA No.244/2013, decision dated 15.04.2014.

5. We have carefully considered the arguments of both the sides and perused the material placed before us. The undisputed facts are that the assessee offered the income @ 10.75% on the receipt from extra work performed by the assessee in respect of bungalows sold by it. The CIT(A) estimated the income @ 25% of the receipt which is upheld by the ITAT. The Assessing Officer has levied the penalty in respect of addition ultimately sustained after the order of the ITAT. Now the question is whether the assessee can be said to be liable for penalty u/s 271(1)(c) merely because the income has been estimated at a higher percentage than what is disclosed by the assessee.

6. We find that this issue is considered by the Hon'ble jurisdictional High Court in the case of Whitelene Chemicals (supra), wherein the Hon'ble High Court has observed as under:

"2. Issue pertains to penalty imposed by the Assessing Officer and confirmed by CIT(Appeals) under section 271((1)(c) of the Income Tax Act,1961 for the assessment year 2001-2002. Such penalty in further appeal came to be deleted by the Tribunal. Primarily, penalty was imposed on two counts. Firstly, that additions were made in the income of the assessee after rejection of book results on the basis of fair gross profit rate. Second limb of the penalty was that assessee had retained 3% of the sales tax with it.

ITA No.1467/Ahd /2011 Soham Builders vs ACIT For AY 2007-08 4

3. With respect to first aspect of the penalty, the Tribunal observed that no penalty can be imposed merely because account books of assessee were rejected and that profit was estimated on the basis of fair gross profit ratio. With respect to retention of the portion of the sales tax, the Tribunal stated that no evidence was brought by the Revenue to suggest that assessee had retained a portion of sales tax with it. Assessee filed its explanation which could not be termed as not bona fide. In absence of any corroborative evidence to prove the charge that the portion of sales tax bill was retained by the assessee, penalty could not be imposed. From the above discussion, it can be seen that the opinion of the Tribunal with respect to deletion of penalty is based on appreciation of evidence on record. With respect to additions made after rejection of book result and on the basis of fair gross profit ratio, the Tribunal found no additional material to sustain the penalty. With respect to so-called retention of the sales tax, the Tribunal found that the Revenue could not establish such charge. Explanation offered by the assessee could not be termed as not bona fide. We do not see any question of law arising. Tax Appeal is therefore, dismissed."

7. The ratio of above decision would be directly applicable to the facts of the assessee's case. In the above case also the Assessing Officer has estimated the income after rejection of the books of accounts by estimating the higher gross profit ratio. In this case also finally the income is assessed by estimating the higher net profit ratio. No additional material has been brought on record by the Revenue that actual income of the assessee was 25% and not 10.75%. The assessee has given the explanation that the extra work is done by the builder as service to the buyer of the bungalows. The extra work is not done with the profit motive and usually, it is done either on no profit or no loss basis or on negligible profit. The assessee has already disclosed reasonable profit which is 10.75%. The explanation of the assessee is plausible and reasonable. Considering the facts of the case, in our opinion, the decision of Hon'ble jurisdictional High Court would be squarely applicable. The ld. Departmental Representative has relied upon the decision of Hon'ble Delhi High Court in the case of Kalindi Rail Niman Engg. Ltd. (supra) in support of Revenue. However, the decision of Hon'ble Gujarat High Court would be binding upon all lower authorities, including ITA No.1467/Ahd /2011 Soham Builders vs ACIT For AY 2007-08 5

the Tribunal, working within the State of Gujarat. In view of above, we are bound by the decision of Hon'ble Gujarat High Court and we, therefore, respectfully following the decision of Hon'ble jurisdictional High Court in the case of Whitelene Chemicals (supra), hold that the levy of penalty u/s 271(1)(c) was not justified and the same is cancelled.

8. In the result, the assessee's appeal is allowed.

Order pronounced in the Court on 19th June, 2015 at Ahmedabad.

Sd/- Sd/-

(S. S. GODARA) (G.D. AGRAWAL) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 19/06/2015 Biju T., PS

षत Copy आदे श क% ूितिल-प अमे-षत/ of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू"यथ / The Respondent. 3. संबंिधत आयकर आयु/ / Concerned CIT 4. आयकर आयु/(अपील) / The CIT(A)

5. -वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

/ BY ORDER, आदे शानु सार

TRUE COPY Dy./Asstt.Registrar) उप/सहायक पंजीकार ( उप/ अिधकरण, अहमदाबाद / आयकर अपीलीय अिधकरण, ITAT, Ahmedabad