Ita/351/2010 Of M/S.touch Home Builders v. The Dy.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE MONDAY, THE 30TH DAY OF SEPTEMBER 2013/8TH ASWINA, 1935 ITA.No. 351 of 2010 ( ) ------------------------ AGAINST THE ORDER/JUDGMENT IN ITA 686/2008 of I.T.A.TRIBUNAL,COCHINBENCH DATED 28-10-2009 APPELLANT(S):------------- M/S.TOUCH HOME BUILDERS & REALTORS (P) LTD.,TRIVANDRFUM, P.A.NO.5.701. BY ADVS.SRI.K.SRIKUMAR SRI.K.MANOJ CHANDRAN RESPONDENT(S): -------------- THE DEPUTY COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE, TRIVANDRUM-695 001. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON30-09-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: MANJULA CHELLUR, C.J & A.M.SHAFFIQUE, J. ---------------------------------------------- I.T.A.No. 351 of 2010 ---------------------------------------------- Dated this the 30[th] day of September, 2013JUDGMENT Manjula Chellur, C.J. Heard learned counsel for the appellant. We have also gone through the orders of the first appellate authority and also theTribunal. 2. It is not in dispute that the appellant Company came to beincorporated in the year 2000 and it conducted business ofconstruction and sale of residential apartments. It is also not indispute that till search and seizure came to be conducted by theDepartment in the premises of the Company on 21.2.2006, noreturns came to be filed by the Company in question. Certainincriminating documents were seized indicating varioustransactions relating to the business of construction carried on bythe appellant. In spite of issuance of notices in accordance withthe procedure, the appellant kept quiet without filing returns,therefore, proceedings came to be initiated and proposal forcompletion of assessment under Section 144 of the Income Tax ITA.351/10 Act, 1961 (best judgment) proposing income as the 20% of thegross receipts came to be issued. However, according to theappellant, audited accounts, including balance sheet wereproduced, though returns were not filed. The Company came upwith its objection for the first time objecting the estimation of 20%of gross receipts as income without any justification. According tothem, except one project in question, nothing came to beundertaken by the Company and due to lack of experience, theCompany went into problems. They had no proper planning,hence it resulted in loss as revealed in the audited accounts.According to them, subsequent to 2003, no business was carriedon. Therefore, the assessment ought to have been done underSection 44-AD of the Income Tax Act taking 8% as the grossreceipts. The assessing authority confirmed the proposal.However, the first appellate authority held that the percentage ofcompletion of the project is below 5%, therefore, estimation ofincome came to be deleted, however, 5% so far as income fromthe receipts came to be assessed. This came to be challenged bythe revenue filing an appeal and the Tribunal held that the orderof the first appellate authority was not sustainable and restoredthe order of assessment. The entire discussion pertaining to thisaspect is at paragraph 29, which reads as under: ITA.351/10 ITA.351/10 “29. The CIT (Appeals) while deleting the incomeestimated for the assessment year 2002-03 has madea finding that even 5% of the project was notcompleted during the previous year relevant to theassessment year 2002-03. Without explaining andcoming to a conclusion on the method of recognitionof income deployed by the assessee, how the CIT(Appeals) could justify the deletion of incomeestimated for the assessment year 2002-03? If theassessee has not followed the project completionmethod or substantial completion method, how thefinding of the CIT (Appeals) is justified? And above all,where is the material to show that the project was notcompleted even upto 5%? As already stated, in theabsence of relevant details, the Assessing Officer wasconstrained to make an assessment on the basis ofthe materials available before her. The only materialavailable before the Assessing Officer was the detailsof gross collections, that too not fully safe-vouched. Itwas in such circumstances that the Assessing Officerhas estimated the income at 20% of grosscollections.” 3. The main contention of the appellant is, estimation of income at 20% of gross collection is not reasonable as theactivities carried on by the appellant Company resulted in a losson account of lack of experience and this is also one of thereasons why returns were not filed, though they had an audited ITA.351/10 balance sheet. It is well settled that ignorance or innocence of lawis no excuse. Once he commenced business of construction in2000 and if he has receipt of income as seen from the records, heis expected to file returns. If he knew that the accounts need tobe audited by an auditor, definitely, the Company was also awareof the fact that they were expected to file returns. Therefore,inexperience or ignorance cannot be a ground not to file returns. 4. Second ground taken up by them is, they sustained loss,therefore, they did not file returns. We are afraid that such acontention cannot be entertained. Sustaining loss definitely willnot entitle an assessee, who is required to file returns, not to filereturns. He can show loss and then file returns, therefore, theTribunal was justified in saying it is not a good ground at all. 5. Then coming to the third ground of invoking provisions of Section 44-AD of the Income Tax Act seeking 8% as the incomefrom receipts, going through the provisions of Section 44-AD, it isvery clear that the activity carried on by a builder or realtor wouldnot attract the provisions of Section 44-AD and it would ratherattract the case where the assessee were to be a civil contractor.It is not in dispute that the work carried on by the appellantCompany is not as a civil contractor, but as a builder, therefore,definitely, the income earned by the Company would be more ITA.351/10 than the income earned by a civil contractor as opined by theTribunal. On the other hand, when we go through the orders ofthe Tribunal, there was no material to substantiate the contentionthat the project was not completed even upto 5%. All the receiptsduring this period plus non filing of the returns and disclosure ofthe receipt of accounts in the search and seizure would clearlyshow there was no bona fides on the part of the appellantCompany in not filing the returns, therefore, we are of the opinion,the estimation of profit at 20% from the receipts of the income forthe assessment year 2002-2003 is justified. Accordingly, the Appeal is dismissed confirming the order ofthe Tribunal. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE vgs1.10