Ita/178/2016 Of The Principal Commissioner Of Income Tax v. M/S. Silpa Project & Infrastructures (India) Pvt Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 25TH DAY OF SEPTEMBER 2017/3RD ASWINA, 1939 ITA.No. 178 of 2016 ----------------------- AGAINST THE ORDER IN ITA 224/2015 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 10-06-2016 -------- APPELLANT/RESPONDENT: ------------------------------ THE PRINCIPAL COMMISSIONER OF INCOME TAX KOCHI-I, KOCHI, INCOME TAX OFFICES, CENTRAL REVENUE BUILDING, I.S. PRESS ROAD, KOCHI 682 018. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: ------------------------------ M/S. SILPA PROJECT & INFRASTRUCTURES (INDIA) PVT LTD 3RD FLOOR, NORTH AVENUE, PARAMARA ROAD, KOCHI 682 018 R1 BY ADV. SRI.K.SRIKUMAR (SR.) R1 BY ADV. SRI.P.K.RAVISANKAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25-09-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC, & DAMA SESHADRI NAIDU, JJ. ------------------------------------------------ I.T.A. No.178 of 2016 ------------------------------------------------Dated this the 25[th] day of September, 2017 JUDGMENT Antony Dominic, J. 1. a Aggrieved by the order passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A. No.224/2015concerning the Assessment Year 2010-11, the Revenue has filedthis appeal. 2. The assessee is a contractor undertaking constructionworks. Assessee filed its return for the assessment year 2010-11returning an income of `4,06,96,700/- and claimed refund of`32,92,907/- on account of excess tax paid through TDS. Thereturn was selected for scrutiny under Section 143(3) and noticeunder Section 143(2) was issued to the assessee. Aftercompleting the procedural formalities, the Assessing Officerpassed Annexure-A order whereby `1,75,00,000/- was added tothe total income returned and the assessment was completed. The assessee filed appeal before the Commissioner of IncomeTax (Appeals) who by Annexure-B order found it appropriate toconsider gross profit, instead of net profit, as the basis for levy oftax. Thereafter, the first appellate authority made reference tothe gross turnover, gross profit and percentage of gross profitreturned by the assessee for the Assessment Years 2009-10,2010-11 and 2011-12 and found that average gross profitreturned was 16.94%. Then, he took note of the fact that for theassessment year in question, the assessee had returned grossprofit at 16.5% only. On that basis, it was ordered that 0.44%,being the difference in the average gross profit and the returnedgross profit, should be applied and ordered that the addition tototal income be restricted to `39,83,347/-. 3. The assessee carried the matter in appeal to theTribunal. The Tribunal made extensive reference to the orders ofthe statutory authorities and thereafter, directed that`31,07,29,889/- be excluded from the total turnover and that theadditional 0.44% be levied on `59,45,76,475/-. The reasoning of the Tribunal is contained in paragraph 10 of its order which readsas under: “10. However, the Ld. CIT(A) has discarded the saidestimation made by the Assessing Officer and hasgone into estimation of the income of the assessee onthe basis of average gross profit of three years asunder: 3. The assessee carried the matter in appeal to theTribunal. The Tribunal made extensive reference to the orders ofthe statutory authorities and thereafter, directed that`31,07,29,889/- be excluded from the total turnover and that theadditional 0.44% be levied on `59,45,76,475/-. The reasoning of the Tribunal is contained in paragraph 10 of its order which readsas under: “10. However, the Ld. CIT(A) has discarded the saidestimation made by the Assessing Officer and hasgone into estimation of the income of the assessee onthe basis of average gross profit of three years asunder: Out of the average gross profit of 16.94%, if the grossprofit declared by the assessee at 16.50% is reduced,the difference comes to 0.44% which has beendirected by the Ld. CIT(A) to adopt on the totalturnover. While estimating the income, the Ld. CIT(A)has committed an error that cost of materialamounting to Rs.24,39,40,964/- and the cost ofshuttering materials at Rs.5,05,85,544/-, Kerala VATat Rs.1,12,17,821/-, Goa VAT at Rs.3,95,726/- andother expenses where no profit element has beeninvolved, were not excluded which totals toRs.31,07,29,889/-. Therefore, the said amount ofRs.31,07,29,889/- included in the turnover, has to beessentially excluded while estimating the income andaccordingly, the Assessing Officer is directed to applythe gross profit rate of 0.44% after excluding the saidturnover of Rs.31,07,29,889/- at Rs.59,45,76,475/-.It is ordered accordingly. Thus assessee gets the partrelief and appeal of the assessee is partly allowed.” 4. It is this order which is challenged before us and the questions of law framed by the Revenue read as under: "a)Whether on the facts and in the circumstancesof the case, exclusion of no profit expenditurefrom turnover in the absence of any factualfinding by the Tribunal and on any evidencebeing brought in by the assessee is right and inaccordance with law?of the case, exclusion of no profit expenditurefrom turnover in the absence of any factualfinding by the Tribunal and on any evidencebeing brought in by the assessee is right and inaccordance with law? (b)Is not the order of the Tribunal perverse,illogical and in the light of ground (C) militating?illogical and in the light of ground (C) militating? (c)Did the assessee discharge the burden ofproof?”proof?” 5. We heard the learned Senior Counsel for the Revenueand the learned Counsel appearing for the assessee. and the learned Counsel appearing for the assessee. 6. While the learned Senior Counsel for the Revenue foundno justification whatsoever in the order of the Tribunal inexcluding certain items of turnover from the gross turnover of theassessee, it was contended by the learned counsel for theassessee that having regard to the fact that the items to beexcluded are reimbursements, cannot form part of the turnoverof the assessee. 7. We have considered the submissions made by both I.T.A. No.178 of 2016 sides. 8. As held by the Apex Court in its judgment in CIT v.Punjab Stainless Steel Industries [2014] 364 ITR 144(SC), “turnover” is a term which is required to be understood inthe manner as the term is used in accounting parlance andcommercial parlance. If so, as rightly contended by the learnedcounsel for the Revenue, every part of the turnover, irrespectiveof its nature, should form part of turnover. If that is the standardto be adopted, there cannot be any justification for excluding anyof the items while computing the total turnover of the assessee. 7. We have considered the submissions made by both I.T.A. No.178 of 2016 sides. 8. As held by the Apex Court in its judgment in CIT v.Punjab Stainless Steel Industries [2014] 364 ITR 144(SC), “turnover” is a term which is required to be understood inthe manner as the term is used in accounting parlance andcommercial parlance. If so, as rightly contended by the learnedcounsel for the Revenue, every part of the turnover, irrespectiveof its nature, should form part of turnover. If that is the standardto be adopted, there cannot be any justification for excluding anyof the items while computing the total turnover of the assessee. 9. Insofar as this case is concerned, the turnover has beenreturned by the assessee itself and such returned turnover of theassessee included the items which are now ordered to beexcluded by the Tribunal. Further, the assessee itself has no casethat in the gross turnover for the previous years relied on by thefirst appellate authority, it had excluded the items which are nowordered to be excluded by the Tribunal. If that be so, theassessee could not have contended that for the assessment year in question, the Revenue should not have estimated its grossturnover including the items that are now ordered to be excluded. 10. Yet another fallacy in the order of the Tribunal is that,the Tribunal has ordered that 0.44% be estimated on`59,45,76,475/-. According to us, if it is to be so estimated,firstly, the percentage of the gross profit should have beenworked out on the reduced gross turnover applying the grossprofit of `14,99,85,294/-. If it is so done, the percentage of grossprofit for the Assessment Year in question would have been25.23%, and if so, the average percentage of gross profit wouldhave been 19.86%, as against 16.94% now adopted.Consequently, the addition to be made would also have been3.36% as against 0.44% now ordered by the Tribunal. Similarexercise would have been needed for the other years as well. 11. Therefore, for both grounds, the exclusion now orderedby the Tribunal cannot be sustained. We, therefore, set aside the order of the Tribunal anddispose of this appeal answering the questions of law in favour of I.T.A. No.178 of 2016 -7- the Revenue and against the assessee. Sd/- ANTONY DOMINIC JUDGE Sd/- DAMA SESHADRI NAIDU JUDGE kns/- //TRUE COPY// P.S. TO JUDGE