Aggarwal Engineering Co v. Assistant Commissioner Of Income Tax

ITA No. 478 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Aggarwal Engineering Co. Versus Assistant Commissioner of Income Tax ITA No. 478 of 2006 Date of Decision: 6.12.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.L. Goyal, Senior Advocate with Mr. Sandeep Goyal, Advocate for the appellant.Mr. Sandeep Goyal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 449, 457 and 478 of2006 as common questions of law and facts are involved therein. Forbrevity, the facts are being extracted from ITA No. 478 of 2006. 2.This Court vide order dated 21.8.2007 while admitting theappeal had framed the following substantial questions of law fordetermination by this Court:- i)Whether on the facts and circumstances of the case,the decision of the Tribunal upholding the net profitrate at 13% of the total contract receipts (ascompared to 8% fixed under Section 44AD) and 10%assessed by Assessing Officer in reassessmentthe decision of the Tribunal upholding the net profitrate at 13% of the total contract receipts (ascompared to 8% fixed under Section 44AD) and 10%assessed by Assessing Officer in reassessment proceedings and 8% assessed in originalproceedings, is perverse in nature and erroneous inlaw and, therefore, liable to be set aside? ii)Whether the rate of 10% applied by AssessingOfficer and 13% applied by the CIT and upheld bythe Tribunal are arbitrary in nature, fixed on mereconjectures and surmises without any material onrecord?” 3.Put shortly the facts for adjudication as narrated in theappeal are that the assessee is a partnership firm and is doing thebusiness of civil construction. It filed its return on 4.7.1995 for theassessment year 1994-95 declaring an income of Rs.1,09,890/-. On22.4.1997, the Assessing Officer issued notice under Section 148 of theIncome Tax Act, 1961 (in short “the Act”) for reassessment on theground that the appellant had received total payments of Rs.27,42,891/-and by applying a net profit rate of 8% on the gross receipts provided inSection 44AD, the profit worked out to be Rs.2,19,431/- as against thereturned income of Rs.1,09,890/- and had, therefore, escaped incomeof Rs.1,09,541/-. In response to the re-assessment notice, revisedreturn was filed showing gross payments of Rs.61,36,300/- as againstRs.27,42,891/- shown in the original return. Against the originalreturned income of Rs.1,09,890/-, the assessee filed return showing anincome of Rs.3,94,900/-. Accordingly, the Assessing Officer acceptedthe return of income wherein the receipts were shown applying the netprofit rate of 8%. The Commissioner of Income Tax, Jalandhar whileexercising the powers under Section 263 of the Act vide order dated 18.11.1999 set aside the order of the Assessing Officer and directedthat the assessment be made after a detailed investigation including thedetails of expenditure incurred as per Trading Account originally filedand admissibility of claim of interest paid to the partners. Thereafter,the Assessing Officer vide order dated 30.3.2001 applied a net profitrate of 10% on the total receipts against the rate of 8% shown by theassessee. Feeling aggrieved, the assessee took the matter in appealonly to the extent of rate of profit at 10% against the rate of 8% beforethe Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. TheCIT (A) not only upheld the order of the Assessing Officer but enhancedthe rate of net profit from 10% to 13%. Accordingly, the income of theassessee was enhanced by Rs.1,84,089/-. On further appeal by theassessee, the Tribunal vide order dated 16.12.2005 upheld the order ofthe CIT(A) and dismissed the appeal. Hence, the present appeal by theassessee. 4.We have heard learned counsel for the parties. 4.We have heard learned counsel for the parties. 5.The Assessing Officer had applied the net profit rate of10% which was enhanced by the CIT(A) to 13%. The Tribunal hadupheld the applicability of 13% rate of net profit. However, a perusal ofthe order of CIT(A) does not show that how this net profit rate of 13%has been arrived at. The finding recorded by the CIT(A) reads thus:- “2.2It was the case of the AO on the other handthat in the subsequent assessment years i.e. 1995-96 and 1996-97, the income was enhanced byapplying net profit rate of 13% by the undersigned onthe total receipts declared by the assessee as fair and reasonable. It was thus mentioned by the AOthat following the judgment therein the enhancement@ 3% in the net profit on the total receipt may kindlybe effected to bring it at par to the net profit rate asapplied in subsequent years. 2.3After considering the submissions from boththe sides, I find that the receipts for the year asdeclared in the revised return take the case out of thepurview of section 44AD. It was a case whereneither any books were maintained nor any voucherswere produced. Therefore, application of net profitrate 8% is ruled out and in this regard, I do not findmerits in submissions of appellant. By applying saidrate in reasons to believe the AO worked out thoughincome of Rs.1,09,541/- having escaped assessmentbecause at that time the receipts as per TDScertificates were below Rs.40 Lacs but appellant filedreturn with receipts exceeding Rs.40 lacs thus rulingout application at rate of 8%. The facts for the yeari.e. asstt. years 1995-96 and 1996-97, appellant wasasked as to why the net profit rate be not applied toresults of the year as applied in the succeeding yearsand the income be not enhanced in view of section251(1)(a) of I.T. Act. 2.4The Ld. AR for appellant chose to rely on thedecision of Hon'ble ITAT, Amritsar Bench in ITA No. 733(ASR)/1990 dated 28.04.1999 and mentionedthat in view of reasons recorded, the results declaredby the assessee at the most were subjectableapplication of net profit rate of 8%. 2.5The submissions of the appellant areconsidered in light of facts in subsequent assessmentyears i.e. 1995-96 and 1996-97 decided vide appealNo. 58-59/02-03/CIT (A) Jal dated 26.02.2003. Thefacts of the year are more or less similar to the factsin those years as in the relevant year there were nobooks of accounts when in succeeding years, thebooks of accounts were not at all reliable. Thedecision of Hon'ble Jurisdictional ITAT relied upon bythe appellant have been distinguished in theappellate orders dated 26.02.2003 (supra) andfollowing the decision therein, the net profit rate of13% is applied to the receipts declared by theappellant which results in enhancement of income tothe extent of Rs.1,84,089/-.” 6.The aforesaid finding was affirmed by the Tribunal. TheTribunal in para 5 of its order had recorded as under:- “5.On consideration of the above facts and thecircumstances, we are of the view that the matter indetail has been considered by this Tribunal in thesubsequent assessment years 1995-96 and 1996-97vide order dated 22.08.2005 in which the order of the CIT(A) was confirmed for the two years andenhancement was confirmed. The relevant paras 22and 23 are reproduced as under: 6.The aforesaid finding was affirmed by the Tribunal. TheTribunal in para 5 of its order had recorded as under:- “5.On consideration of the above facts and thecircumstances, we are of the view that the matter indetail has been considered by this Tribunal in thesubsequent assessment years 1995-96 and 1996-97vide order dated 22.08.2005 in which the order of the CIT(A) was confirmed for the two years andenhancement was confirmed. The relevant paras 22and 23 are reproduced as under: 22.Now we take up the assessee's appeal. Theassessee challenged the application of net profit of13% as enhanced by the CIT(A). It is an admittedfact that the books of accounts of the assessee arenot reliable. Same were, therefore, rightly rejectedby the authorities below. In the assessment year1994-95, the assessee has accepted and applied thenet profit rate of 10%. The assessee in the originalreturn concealed substantial receipts from therevenue department and again with the A.O. as perbooks of accounts of the assessee filed revisedreturn showing the receipts but even proper receiptswere not shown, therefore, the return was furtherrevised on 26.6.1997 and gross receipts were shownat Rs.71,54,922/-. The CIT(A) considered the factsof the case and bogus entries made on account ofcash credits itself on the bank withdrawals and theentries made in the books of the assessee was of theview that it is a fit case for enhancement of theincome. The CIT(A) considering the totality and thecircumstances enhanced the net profit rate from 10%as applied by the A.O. to 13%. The learned counselfor the assessee tried to justify that in another case net profit rate is applied from 8% to 10% but in hisown case in the assessment year 1997-98 the netprofit rate of 10% was confirmed by the earlier Benchof the I.T.A.T., Amritsar. Considering the abovefacts, we are of the view that there is no hard andfast rule as regards application of net profit rate. Itdepends upon the facts of each case considering thetotality of the facts and the circumstances. May be inother cases lesser gross profit rate is applied but it isa fact that in the preceding assessment year theassessee himself declared and accepted the netprofit rate of 10%, as is observed by the A.O. in theassessment order. 23.The facts of the case, as noted above, showthat the assessee concealed the gross receipts fromthe department and accordingly manipulated theentries in the books of accounts and further, some ofthe payments made for purchases were notaccounted for in the books of accounts. Therefore, itwas a fit case for enhancement of the income of theassessee. The CIT(A) rightly exercised thejurisdiction in view of the peculiar facts of the case.Nothing is pointed out to us that similar were thefacts in the assessment year 1997-98 in the case ofthe same assessee or in other years. It is also notpointed out that in the orders referred to by the learned counsel for the assessee, similar were thefacts. Considering the above discussion, we are ofthe view that the CIT(A) has rightly enhanced theapplication of net profit rate from 10% to 13%. As aresult, there is no merit in the appeal of the assesseeand same is also dismissed.” 7.The aforesaid findings clearly show that both the appellateauthorities had failed to discuss any material on the basis of which itcould come to the conclusion that 13% net profit rate was justified. Inthe absence of any reference to the material on record, there is no otheroption with this court except to set aside the orders under appeal andremand the matter to the CIT (A) to examine the same afresh. 8.The substantial questions of law are answered accordinglyand the orders impugned in the appeals are set aside. The matter isremitted to the CIT(A) for fresh decision on the basis of the materialavailable on record, in accordance with law. 9.The appeals stand disposed of. 7.The aforesaid findings clearly show that both the appellateauthorities had failed to discuss any material on the basis of which itcould come to the conclusion that 13% net profit rate was justified. Inthe absence of any reference to the material on record, there is no otheroption with this court except to set aside the orders under appeal andremand the matter to the CIT (A) to examine the same afresh. 8.The substantial questions of law are answered accordinglyand the orders impugned in the appeals are set aside. The matter isremitted to the CIT(A) for fresh decision on the basis of the materialavailable on record, in accordance with law. 9.The appeals stand disposed of. 10.The parties through their counsel are directed to appearbefore the CIT(A) on 14.2.2011 for further proceedings in accordancewith law. (AJAY KUMAR MITTAL) JUDGE December 6, 2010gbs (ADARSH KUMAR GOEL)JUDGE ITA No. 478 of 2006 -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Aggarwal Engineering Co. Versus The Income Tax Officer-IV ITA No. 457 of 2006 Date of Decision: 6.12.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.L. Goyal, Senior Advocate with Mr. Sandeep Goyal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. For orders, see ITA No. 478 of 2006 (AggarwalEngineering Co. v. Assistant Commissioner of Income Tax ). (AJAY KUMAR MITTAL) JUDGE December 6, 2010gbs (ADARSH KUMAR GOEL) JUDGE -10- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Aggarwal Engineering Co. Versus The Income Tax Officer-IV ITA No. 449 of 2006 Date of Decision: 6.12.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.L. Goyal, Senior Advocate with Mr. Sandeep Goyal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. For orders, see ITA No. 478 of 2006 (AggarwalEngineering Co. v. Assistant Commissioner of Income Tax ). (AJAY KUMAR MITTAL) JUDGE December 6, 2010gbs (ADARSH KUMAR GOEL) JUDGE