The Commissioner Of Income Tax, Gandhinagar v. A.d. Infracon Pvt. Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 1083 of 2018 ========================================================== THE COMMISSIONER OF INCOME TAX, GANDHINAGARVersusA.D. INFRACON PVT. LTD ========================================================== Appearance:MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1MR SN SOPARKAR, SENIOR ADVOCATE with MR BS SOPARKAR with MR VIJAY S RANJAN(6126) for the RESPONDENT(s) No. 1========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI andHONOURABLE MR.JUSTICE B.N. KARIA Date : 17/09/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The Revenue has filed this appeal challenging the judgment of the Income-tax AppellateTribunaldated22.3.2018. Respondent assessee is a private limited company and is engaged in the business of real estate development. On 5.12.2012, the assessee was subjected to a survey operation. During the course of survey proceedings, several documents were seized and impounded. Statements of the representatives of the company were recorded. During assessment, notices were issued. Several details were called for from the assessee in such notices. Assessing Officer put the assessee to notice about not being satisfied with the C/TAXAP/1083/2018 ORDER declaration of profit by the assessee in which he referred to the impounded documents which included loose papers indicating cost of construction, cost of land, money received etc., in the hand writing of the representative of the company. Assessee strongly objected to the Assessing Officer invoking best judgment assessment principles. The Assessing Officer passed the order of assessment on 31.3.2016, in which he noted that the company had not maintained scheme-wise details of expenses. It was therefore impossible to work out the scheme-wise profit. It was also not possible to work out the expenses not recorded in the books of accounts. He recorded detailed reasons why in his opinion the books were liable to be rejected. He concluded that since correct and complete records pertaining to expenditure incurred are not available, it was reasonable to estimate the income from all projects of the assessee company by applying the reasonable net profit rate of 15% on the gross sales as noted in the loose papers found impounded. He accordingly worked out the assessee's revised liability. He assessed the assessee's total income at Rs.15.02 crores (rounded off). In one of the notices that Assessing Officer had issued in the course of the assessment on 30.10.2015, he had, besides other details, called for the TDS deducted and deposited by the assessee on the expense claimed on interest, royalty commission, brokerage, rent, as also the paymentofprofessional,technical, managerial services. It was further stated that if TDS was not deducted with respect to any of these expenditures, the assessee should give detailed item-wise reasons for the same. The assessee had replied to such query in response letters. 2. The order of assessment was challenged by the assessee before the CIT (Appeals) mainly contending that the estimate of income at the rate of 15% of the receipt was erroneous as against rate of 12.5% offered by the assessee. CIT (Appeals) passed a detailed order dated 9.3.2017 in which he confirmed the Assessing Officer's application of net profit at the rate of 15% of the turn over or total receipts as gathered from the impounded materials.Hehowevergavecertain consequential directions for recomputing such net profit. 3. After this order was passed by the Appellate Commissioner, the Commissioner of Income-tax 2. The order of assessment was challenged by the assessee before the CIT (Appeals) mainly contending that the estimate of income at the rate of 15% of the receipt was erroneous as against rate of 12.5% offered by the assessee. CIT (Appeals) passed a detailed order dated 9.3.2017 in which he confirmed the Assessing Officer's application of net profit at the rate of 15% of the turn over or total receipts as gathered from the impounded materials.Hehowevergavecertain consequential directions for recomputing such net profit. 3. After this order was passed by the Appellate Commissioner, the Commissioner of Income-tax C/TAXAP/1083/2018 ORDER in exercise of his powers under Section 263 of the Income-tax Act, 1961 ('the Act' for short) passed an order on 31.3.2017. In the notice that he had issued to the assessee for exercising revisional powers and the final order that he passed he had touched on two issues. His first concern was that the Assessing Officer had not adopted correct rate of net profit. He was of the opinion that the assessee had disclosed profit at the rate of 27.48% and the Assessing Officer therefore could not have estimated such profit at the rate of 15%. Second aspect was that certain statutory liabilities like TDS of Rs.5.62 lacs (rounded off), VAT of Rs.2.35 lacs and unpaid service tax of Rs.3.59 crores etc., had to be verified by the Assessing Officer in absence of production of books of accounts. He further elaborated the second aspect by noting that the possible violation of Section 40(A)(3) of the Act cannot be ruled out, since the assessee had not produced the books of account and the verification could not be done on the basis of loose papers impounded during the survey. 4. The Commissioner of Income-tax was of the opinion that the order of assessment passed by the Assessing Officer was erroneous and prejudicial to interest of Revenue. He rejected the assessee's contention that once the books of accounts were rejected and profit was estimated, no other additions or disallowances can be made. 5. The assessee carried this order in appeal before the Tribunal. The Tribunal by the judgment which is impugned by the Revenue reversed the decision of Commissioner of Income-tax. Tribunal referred to the statutory provision contained in Section 263 of the Act and several leading decisions primarily suggesting that the power of the Commissioner to revise an order of assessment could be exercised only if the same is found to be erroneous and prejudicial to the interest of Revenue and further that a case of insufficient or defective inquiry cannot be equated with total lack of inquiries. The Tribunalrecordedthatunlessthe Commissioner holds and records the reasons how the assessment is erroneous, he cannot set aside the same merely on the ground that the Assessing Officer had not conducted proper inquiry. The Tribunal also noted that as the issue of determination of the assessee's undisclosed income had travelled to the Appellate Authority, action under Section 263 of the Act could not be taken by the Commissioner. Section 263 of the Act could not be taken by the Commissioner. 6. Counsel for the Revenue submitted that the Tribunal committed serious error in setting aside the order of revision passed by the Commissioner. He had recorded proper reasons for invoking such powers. He had noted that the Assessing Officer had estimated net profit at the rate substantially lower than what the assessee itself had offered. Various expenditure and payment were not scrutinized by the Assessing Officer. Commissioner was therefore justified in asking the Assessing Officer to undertake such exercise. Tribunal committed serious error in setting aside the order of revision passed by the Commissioner. He had recorded proper reasons for invoking such powers. He had noted that the Assessing Officer had estimated net profit at the rate substantially lower than what the assessee itself had offered. Various expenditure and payment were not scrutinized by the Assessing Officer. Commissioner was therefore justified in asking the Assessing Officer to undertake such exercise. 7. On the other hand, learned senior counsel Shri Soparkar for the assessee opposed the appeal raising following contentions :- Shri Soparkar for the assessee opposed the appeal raising following contentions :- (i) The main issue of appropriate rate of return was subject matter of appeal filed by the assessee. It was thereafter not open for the Commissioner to touch this aspect of the matter. (ii) Once the Assessing Officer had rejected the book results and made additions on the basis of estimated net profit, no further disallowance or additions could be made. In this context he relied on the following decisions :- (a) Order dated 1.2.2016 passed by the Division Bench of this Court in Tax Appeal No.911 of 2015, in case of Principal Commissioner of Income-tax vs. Backbone Construction P. Ltd. (b) Judgment of Supreme Court dated 10.3.2017 in case of M/s. Pradeep Singh Wazir vs. Commissioner of Income-tax and Anr. (iii) Counsel lastly contended that the Assessing Officer had made detailed inquiry with respect to all aspects of the matter including the TDS required to be deducted on the payments made by the assessee. The Commissioner without recording any reasons asked the Assessing Officer to examine the claim of expenditure of statutory liabilities in the context of actual deposit of such amounts with the Government revenue. He submitted that essentially, the Commissioner has ordered a fishing inquiry. 8. Having heard learned counsel for the parties and having perused documents on record we find that the first issue on which the Commissioner of Income-tax found fault with the Assessing Officer was not available (iii) Counsel lastly contended that the Assessing Officer had made detailed inquiry with respect to all aspects of the matter including the TDS required to be deducted on the payments made by the assessee. The Commissioner without recording any reasons asked the Assessing Officer to examine the claim of expenditure of statutory liabilities in the context of actual deposit of such amounts with the Government revenue. He submitted that essentially, the Commissioner has ordered a fishing inquiry. 8. Having heard learned counsel for the parties and having perused documents on record we find that the first issue on which the Commissioner of Income-tax found fault with the Assessing Officer was not available for examination in the revision proceedings. We may recall, his objection to the order of assessment was that the assessee itself having offered net profit at 27.48%, the Assessing Officer could not have computed profit at the rate of 15% of the total receipt. Quite apart from our serious doubt about the assertion of the Commissioner that the assessee had offered profit at the rate of 27.48%, the fact remains that the Assessing Officer had after detailed inquiry, come to the conclusion that the assessee's projection of 12.5% of profit on the gross receipts was not substantiated. He therefore rejected the assessee's accounts and proceeded to estimate the net profit independently. That is how he came to the conclusion that 15% would be a reasonable profit and that is how he taxed the assessee. It was the assessee who was aggrieved by this order and carried the matter before the Commissioner (Appeals). The Commissioner (Appeals) substantially confirmed the view of the Assessing Officer but placed the matter back before the Assessing Officer for re-computation of scheme or project-wise profit at the same rate of 15% of net profit ratio. In terms of the Clause (c) in Explanation 1 to sub-section 1 of Section 263, the powers C/TAXAP/1083/2018 ORDER of the Commissioner would extend to such matters as had not been considered and decided in an appeal arising out of such order of assessment. In the present case, this issue having been subject matter of appeal and duly discussed by the Appellate Authority, was beyond the purview of the Commissioner's revision powers. 9. With respect to the statutory payments, a ground on which the Commissioner desired that further inquiries be made, for several reasons, the order cannot be sustained. Firstly, the Assessing Officer had taken a holistic picture and arrived at the net profit percentage that the assessee could be reasonably expected to have earned out of the ventures. While doing, so he had also examined various aspects, including the payments such as for commission, for interest etc., and whether the assessee had deducted tax at source on such payments. Thus, the element of disallowing certain expenditure was in the mind of the Assessing Officer. It is true that with respect to statutory payments which may have bar of Section 43B of the Act on claiming without actual deposit with the Government revenue, there was no direct inquiry during the assessment or reasons, the order cannot be sustained. Firstly, the Assessing Officer had taken a holistic picture and arrived at the net profit percentage that the assessee could be reasonably expected to have earned out of the ventures. While doing, so he had also examined various aspects, including the payments such as for commission, for interest etc., and whether the assessee had deducted tax at source on such payments. Thus, the element of disallowing certain expenditure was in the mind of the Assessing Officer. It is true that with respect to statutory payments which may have bar of Section 43B of the Act on claiming without actual deposit with the Government revenue, there was no direct inquiry during the assessment or discussion in the order of assessment. However, the Commissioner merely referred to some possibility on such expenditure not being allowable without collecting proof of payment in the Government revenue. He did not even prima facie come to the conclusion that in absence of such deposit the expenditure was not allowable. His order exercising revisional powers therefore on such grounds cannot be sustained. We may however clarify that this should not be seen as our unconditional acceptance of one of the legal contentions raised by Shri Soparker that once the book results are rejected and profit is computed on estimation, irrespective of nature of expenditure, disallownace is simply not permissible. We will advert to such a question when called upon in appropriate situation. 10. In the result, tax appeal is dismissed. (AKIL KURESHI, J) K.K. SAIYED (B.N. KARIA, J)