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TMI Blog2023 (8) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... N SINGH, JM & DR. A. L. SAINI, AM For the Appellant : Shri Ashish Pophare, CIT (DR) For the Respondent : Shri P. M. Jagasheth, CA ORDER PER DR. A. L. SAINI, AM: This is bunch of four cross appeals filed by Revenue and Assessee, pertaining to the Assessment Years (AYs) 2013-14 to 2014-15, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals) [in short "the ld. CIT(A)"], which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3)/144 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 2. Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No.751/SRT/2018 for assessment year 2014-15, have been taken into consideration for deciding the above appeals en masse. 3. Grounds of appeal raised by the assessee as per lead case, in ITA No. 751/SRT/2018 for AY.2014-15 are as follows: "1. The Ld. CIT(A)-3, Vadodara has erred in law and in facts in rejecting the method of accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g regard to the reasons given in the petition, we condone such minor delay of two days and admit both these appeals for hearing. 7. Succinct facts are that assessee has filed his return of income for Assessment Year 2014-15 on 29.11.2014, declaring total income of Rs. 3,85,727/-. The case was selected for scrutiny through CASS and accordingly notice under section 143(2) of the I.T. Act, 1961 was issued on 31.08.2015 and served upon the assessee on 05.09.2015. Thereafter, notice under section 142(1) of the I.T. Act along with questionnaire was issued on 12.07.2016 calling for details and the same was duly served upon the assessee. In response to the show cause notice, the assessee filed list of creditor. The assessee also submitted the address of some of the creditors on 24.11.2016 and filed confirmation of some of the creditors. Further for making verification, notice under section 133(6) of the Act, was issued to 32 creditors but confirmations were not received. The assessing officer noted that assessee did not file copy of bills raised by the creditors, therefore, assessing officer held that assessee miserably failed to prove the genuineness of the creditors and therefore, made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, net profit ratio computed by ld CIT(A) is wrong. The Ld. Counsel also pointed out that net profit estimated by the Ld. CIT(A) at the rate of 15% is excessive and unreasonable and such estimation of net profit is neither based on accounting principles nor based of taxation principles, because ld CIT(A) added receipt from customers as a part of turnover. The Ld. CIT(A) has considered the addition at the rate of 15% of turnover which is after including the advances received and booking amount received from customer. Therefore, the estimation of net profit by the Ld. CIT(A) at the rate of 15% on turnover includes the advance received/booking advance received from the customers which is not the income at all and hence such type of estimation is not a fair estimation. Therefore, ld Counsel contended that for assessment year 2013-14, the net profit ratio @ 10.31% and for assessment year 2014-15, the net profit ratio @ 13.46% before remuneration and interest to partners should be considered for fair estimation of net profit. 11. Shri Jagasheth also pointed out that assessee has not submitted any additional evidence during the appellate proceedings before ld CIT(A). The Ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the analysis of the net profit of the assessee, which is placed at paper book page no. 232, and the same is reproduced below: With help of the above chart of net profit ratio, the ld Counsel stated that net profit estimation for assessment year 2013-14 should be at the rate of 10.31% before remuneration and interest to partners and net profit estimation for assessment year 2014-15 should be at the rate of 13.46% before remuneration and interest to partners. 14. The Ld. Counsel further pointed out that ld CIT(A), has taken into account unsecured loan interest for net profit estimation which gives unrealistic net profit ratio for both the assessment years. Hence, ld Counsel contended that net profit ratio at the rate of 15% taken by ld CIT(A) after considering the receipts from customers/booking advances, should not be relied for estimation purposes. We agree with the plea taken by Ld. Counsel that receipts from customers/advance booking amount should not be taken into account for the purpose of computation of estimated profit. The agreed sale consideration has already been considered as part of turnover by assessee, thus advance received from customers or booking advance should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has also failed to take into account the average past profits/results of the assessee for the purpose of making profit estimation. It is well settled that in a best judgment assessment there is always a certain degree of guesswork. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily. Department must act judiciously, while estimating net profit and must be guided by judicial consideration and by rule of justice, equity and good conscience. And also that there must be honest and fair estimate of the proper figure of assessment, for which consideration of local knowledge and repute, besides the previous returns an assessment of the assessee concerned, and all other matters must be taken into account for fair and proper estimate which of course, would fall in the category of guesswork, but a honest guesswork. 18. Now, we shall take the arguments advanced by the Ld. Counsel for the assessee. The Ld. Counsel submitted that net profit estimation by the Ld. CIT(A) is arbitrary and it is neither based on accounting principles nor based on taxation principles. While es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the books of account as sales turnover in subsequent year. The Assessing officer accepted in the assessment order that none of the advances were outstanding up to the date of assessment order. Before us, the ld. AR vehemently submitted that in the business of jewellery, the customers made advances and details of such advances in the form of chart from assessment year 2009-10 to 2014-15, indicating 3.6 to 5.5% of the total turnover was shown in the balance sheet as customers' advance. We find that similar facts were brought in the notice of ld. CIT(A), which is not converted before us. We further find that the Assessing Officer has not made any investigation on the address furnished by assessee. There is no allegation of Assessing Officer that such person is not available at the given addresses. The Hon'ble Supreme Court in PCIT Vs Montage Enterprises P Limited (supra) held that where the High Court upheld the order of Tribunal in deleting the addition made under Section 68 in respect of trade advances on the ground of that the said advances were adjusted against sales made in the subsequent assessment years, the special leave filed against the said decision was to be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wild one, but shall have reasonable nexus to the available material and circumstances of each assessee. 20. During the course of hearing, we have confronted the ld. counsel for the assessee to show the basis for estimating income at 8%. Similarly, we have confronted the ld.CIT-DR as to how the figure of 20% should be taken up. The ld. counsel for the assessee drew our attention towards page nos.50-51 of the paper book wherein the assessee has kept the details of receipts received through account payee cheque as well as received cash in the booking of flats as well as shops. In the case of Koshor Mohanlal Telwala (supra) the Tribunal has observed that 8% profit offered by the assessee on the alleged gross receipts of on-money received in cash is fair and reasonable. This figure was construed as fair and reasonable by taking guidance from section 44AD of the Act, wherein it was provided by the Legislature that in case an assessee is engaged in civil construction, and if gross receipts remains under a particular slab, then such assessee needs not to maintain books of accounts, and its profit can be assumed at 8%. Though this special provision is not applicable in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve made and such profit at 8 per cent offered by assessee on total receipts was fair and reasonable. It was held by the Tribunal as under:- "Thus, what can be added as the undisclosed income of the assessee under section 158 BC, is a reasonable amount of profit which the assessee could have earned by charging "on money" in respect of flats and the Mumbai Bench of the Tribunal in the case of Mrs. Mehroo N. Irani in ITA No. 1140/Bom/89 has taken the view that when a person is found to have been engaged in building construction activity and has received unaccounted money, what is required to be taxed is not the receipt but only 5 per cent of the receipt which is to be taken as a net profit. As against the above decision the assessee has himself offered 8 per cent profit on the total receipts which should be considered fair and reasonable." 5.7 Hon'ble High Court of Madhya Pradesh in the case of CIT Vs Chandrika Towers [2005] 275 ITR 173 (MP) have also upheld Net Profit rate of 8% in case of builders. I am also in agreement with the Authorized Representative that ITAT, Jaipur in the case of H.S. Builders Vs ITO (1996) 86 Taxmann 214 (Jaipur-Mag) accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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