R.mathaiyan v. Assistant Commissioner Of Income Tax,Circle-2

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.03.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAMandThe Honourable Ms.Justice R.N.MANJULA Tax Case Appeal Nos.417 & 419 of 2019 and C.M.P.Nos.21373 & 21375 of 2019 R.Mathaiyan ... Appellant in both cases Vs Assistant Commissioner of Income Tax,Circle-2, No.3, Gandhi Road,Salem. ... Respondent in both cases COMMON PRAYER: Appeals under Section 260A of the Income Tax Act,1961 against the order dated 09.05.2019 made inITA.No.2879/Chny/2018andC.O.No.06/Chny/2019inITA.No.2879/Chny/2018 for the assessment year 2013-14 on thefile of the Income Tax Appellate Tribunal, 'D' Bench, Chennaipreferred against the order of the Office of the Commissioner ofIncome Tax(Appeals) No.3, Gandhi Road, Salem-7, made inITA.No.76/2016-17, dated 31/07/2018, PAN/GIR No./TAN : , Assessment year : 2013-14 and date of order :31/07/2018 and against the order of the Office of the Assistant Commissionerof Income Tax, Circle-2, Salem, made in PAN/GIR No. ,Ward/Circle/Range Circle-2, Salem, Status : Individual,Assessment year : 2013-14 and date of order : 23/03/2016. For Appellant : Mr.G.BaskarFor Respondent : Mrs.S.Premalatha, Jr.SC COMMON JUDGMENT (Delivered by T.S.Sivagnanam,J) These appeals filed by the assessee under Section 260A ofthe Income Tax Act, 1961 ('the Act' for brevity) is directed https://hcservices.ecourts.gov.in/hcservices/ against the common order dated 09.05.2019 made inITA.No.2879/Chny/2018andC.O.No.06/Chny/2019inITA.No.2879/Chny/2018 for the assessment year 2013-14 on thefile of the Income Tax Appellate Tribunal, 'D' Bench, Chennai('the Tribunal' for brevity). 2. The assessee has raised the following substantialquestions of law for consideration:"1. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law inperversely finding that earlier andsubsequent returns filed by the Assesseewould not give true and clear picture of theincome of the Appellant since there aremultiple variables, such as, turnover,expenditure and location of the business ofthe Appellant, more particularly, in spite ofthe fact that there is no change in nature ofbusiness and scrutiny assessment for A.Y.2012-13 had computed the net profit at 3.21%of the Gross receipts? and 2. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law inperversely upholding the rejection of booksof accounts maintained by the Appellant whenthere is no specific sustainable finding orreason for such rejection?" 3. We have elaborately heard Mr.G.Baskar, learned counselfor the appellant and Mrs.S.Premalatha, learned Junior StandingCounsel appearing for the respondent-Revenue. 4. The short which falls for consideration is whether theTribunal was justified in restoring the best judgment assessmentmade by the assessment order in fixing the net profit at 8% ofthe total receipts. The reason for doing so is by placingreliance on the decision of the Division Bench of this Court inthe case of Commissioner of Gift Tax Vs. A.Vajjiram & Bros.[(2010) 326 ITR 551]. 5. Admittedly, the assessee did not cooperate in theassessment by producing certain labour registers, which wascalled for by the Assessing Officer and therefore, the AssessingOfficer, taking note of Section 44AD of the Act, which is aspecial provision for computing profits and gains of business onpresumptive basis, applied the decision in A.Vajjiram & Bros.(supra) and estimated the profit at 8% of the total receipts. 5. Admittedly, the assessee did not cooperate in theassessment by producing certain labour registers, which wascalled for by the Assessing Officer and therefore, the AssessingOfficer, taking note of Section 44AD of the Act, which is aspecial provision for computing profits and gains of business onpresumptive basis, applied the decision in A.Vajjiram & Bros.(supra) and estimated the profit at 8% of the total receipts. 6. The assessee carried the matter by way of appeal beforethe Commissioner of Income Tax (Appeals), Salem [CIT(A)]. Beforethe First Appellate Authority, the assessee filed copies of theassessment order passed for the assessment year 2012-13 and alsoa comparative chart for the assessment years 2010-11, 2011-12,2012-13 and 2013-14. After taking note of the facts and figuresplaced before him, the CIT(A) took note of the decision of theTribunal in M/s.V M Kumar Vs. Income Tax Officer, Ward I (3),Trichy in ITA.No.1703/Mds/2009 and also took note of theassessment orders passed for the earlier years and fixed thegross profit at 3.5%, holding the same to be reasonable. 7. The Revenue filed appeal before the Tribunal and theassessee also filed a cross objection. The Tribunal, applied thedecision in A.Vajjiram & Bros., and fixed the gross profit at 8%. 8. On a reading of paragraph 6 of the impugned order, wefind that the Tribunal did not find fault with the finding ofthe CIT(A) as to why he was of the opinion that 3.5% of theGross Contract Receipts will be reasonable. The finding renderedby the CIT(A) is based on facts and by examining the trend forthe previous assessment year. As rightly pointed out by thelearned counsel for the appellant, the decision in A.Vajjiram &Bros. was taken note of and the applicability of Section 44AD ofthe Act was considered by the Division Bench of this Court inK.Kannan Vs. Assistant Commissioner of Income-Tax, Circle-I[(2013) 39 taxmann.com 10 (Madras)]. The operative portion ofthe judgment reads as follows: "6. A reading of Section 44 AD of the Income Tax Act, 1961 shows that notwithstandinganything to the contrary contained in Section28 to 43C, in the case of eligible assesseehaving business with a gross receipts notexceeding Rs.40 lakhs, the assessee would beassesed on a presumptive basis, to be taxedat 8% on the total turnover gross receipts inthe previous year on account of such businessor as the case may be a sum higher than theaforesaid sum claimed to have been earned bythe eligible amount under the head "profitand gain of the business or profession". SubSection (2) states that any deductionallowable under the provisions of Sections 30to 38, shall, for the purpose of Sub Section(1), be deemed to have been already givenfull effect to and no further deduction wouldbe allowed under those Sections. In otherwords, considering the percentage ofliability fixed as income on the eligible assessees who are defined under clause (a)Explanation and eligible business definedunder Clause (b) Explanation, so long as thegross turnover does not exceed Rs.40 lakhs,the income would be assessed at the specifiedpercentage of the gross turnover. There is nodenial of the fact, as is evident from theorder of assessment that the assessee's grosscontract receipt was Rs.4,02,10,611/- for theassessmentyear2006-2007andRs.5,34,96,995/- for the assessment year2007-2008, which means, Section 44 AD of theAct has no relevance. assessees who are defined under clause (a)Explanation and eligible business definedunder Clause (b) Explanation, so long as thegross turnover does not exceed Rs.40 lakhs,the income would be assessed at the specifiedpercentage of the gross turnover. There is nodenial of the fact, as is evident from theorder of assessment that the assessee's grosscontract receipt was Rs.4,02,10,611/- for theassessmentyear2006-2007andRs.5,34,96,995/- for the assessment year2007-2008, which means, Section 44 AD of theAct has no relevance. 7. As far as this case is concerned, it is amatter of record and it is not disputed bythe assessee that it had not filed any profitand loss account or the balance sheet for theassessment years under consideration alongwith the returns of income. Even the vouchersgiven by the assessee were found to bedefective. It is pointed out in the Appealsfiled by the assessee, the Commissioner ofIncome Tax (Appeals) mainly scaled down suchestimate for the reason that in the earlierassessment year 2005-2006, 3.69% of turnoverwas considered to be appropriate forcompleting the assessment. The Income TaxAppellate Tribunal held that 8% of the grossreceipts would be a justifiable assessmenteven by way of best of assessment. Thus, theTribunal restored the order of the AssessingOfficer. In so holding, the Tribunal furtherheld that while so fixing the income at 8% ofthe gross receipts, the claim of thedepreciation be allowed thereafter. However,after granting the depreciation if the incomegoes below, then the Assessing Officer shallassess the income at the returned levelitself. With these directions, the appealswere disposed of. Thus on the admitted fact,that the assessee had no materials to producein support of his income assessable under theprovisions of the Act, the only ground thusavailable on which the assessee's incomecould be assessed would be a best of judgmentassessment. It is no doubt true while passingthe Assessment Order for the assessment year2006-07, the Assessing Officer had adopted 8%based on Section 44AD of the Act. But in stricto sensu, one cannot take this as anassessment under Section 44AD of the Act fortaxing the assessee on a presumptive basis.The Commissioner of Income Tax (Appeals)accepted the contention of the assesseee thatit was an assessment under Section 44 AD ofthe Act. 8. Before the Commissioner of Income Tax(Appeals), the assessee submitted that thetotal income of the assessee was notexceeding 4% at anytime in the preceding yearwhen the turnover was low and that highpercent of net profit in the assessment year2006-07 was not possible when the turnoverwas high i.e. above Rs.4 Crores. It wasfurther submitted by the assessee that thenature of business was such that they had toface lot of practical difficulties inmaintaining the bills and vouchers andconsidering the quality maintenance in civilwork, the assessee had to sacrifice theprofit. Thus, taking note of thesesubmissions and other materials on record andsince the net profit was shown in the rangeof 1.26 to 3.69 per cent in the precedingyear, assessing the income at high rate of 8%was not called for. In the circumstances, asa via-media the Commissioner of Income Tax(Appeals) fixed it at 5%. 9. Thus in the background of the factsconsidered by the Commissioner of Income Tax(Appeals) and in the context of the assesseenot maintaining any books of accounts orfiling profit and loss account and balancesheet, the assessee felt satisfied that therelief granted by the the Commissioner ofIncome Tax (Appeals) fixing the assessableincome at 5% was acceptable to it.Consequently no appeal was filed thereafterby the assessee before the Tribunal." 9. Thus in the background of the factsconsidered by the Commissioner of Income Tax(Appeals) and in the context of the assesseenot maintaining any books of accounts orfiling profit and loss account and balancesheet, the assessee felt satisfied that therelief granted by the the Commissioner ofIncome Tax (Appeals) fixing the assessableincome at 5% was acceptable to it.Consequently no appeal was filed thereafterby the assessee before the Tribunal." 9. Before us, the appellant has filed a chart showing acomparison of the figures for the assessment years 2012-13 to2019-20 and we find that the net profit ratio to turnover inpercentage ranges between 2.86% and 3.42%. Further, from the https://hcservices.ecourts.gov.in/hcservices/ assessment order for the year 2017-18, it is seen that theAssessing Officer adopted 3.16% and held the same to bereasonable and completed the assessment by order dated21.12.2019. Thus, we find that the Tribunal committed an errorin reversing the order passed by the CIT(A) and restoring theorder of the Assessing Officer. 10. For the above reasons, the tax case appeals are allowedand the order passed by the Tribunal is set aside and thesubstantial questions of law are answered in favour of theappellant/assessee. Consequently, the order passed by the CIT(A)is restored. No costs. Connected miscellaneous petitions areclosed. Sd/-Assistant Registrar //True Copy//Sub Assistant RegistrarHVKTo1. The Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai.2. The Assistant Commissioner of Income Tax, Circle-2, No.3, Gandhi Road, Salem.3. The Commissioner of Income Tax, (Appeals) No.3, Salem-7 +1cc to Mr.S.Baskar, Advocate SR.No.20417 +1cc to Mr.M.Swaminathan, Senior Standing Counsel SR.No.20961 TCA.Nos.417 & 419 of 2019 andC.M.P.Nos.21373 & 21375 of 2019 JP-II(CO)TE (30/04/2021) https://hcservices.ecourts.gov.in/hcservices/