The Principal Commissioner of Income Tax, Kochi-I v. 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.224/2015 concerning the Assessment Year 2010-11, the Revenue has filed this appeal. 2. The assessee is a contractor undertaking construction works. Assessee filed its return for the assessment year 2010-11 returning an income of `4,06,96,700/- and claimed refund of `32,92,907/- on account of excess tax paid through TDS. The return was selected for scrutiny under Section 143(3) and notice under Section 143(2) was issued to the assessee. After completing the procedural formalities, the Assessing Officer passed Annexure-A order whereby `1,75,00,000/- was added to the total income returned and the assessment was completed. -2- I.T.A. No.178 of 2016 The assessee filed appeal before the Commissioner of Income Tax (Appeals) who by Annexure-B order found it appropriate to consider gross profit, instead of net profit, as the basis for levy of tax. Thereafter, the first appellate authority made reference to the gross turnover, gross profit and percentage of gross profit returned by the assessee for the Assessment Years 2009-10, 2010-11 and 2011-12 and found that average gross profit returned was 16.94%. Then, he took note of the fact that for the assessment year in question, the assessee had returned gross profit at 16.5% only. On that basis, it was ordered that 0.44%, being the difference in the average gross profit and the returned gross profit, should be applied and ordered that the addition to total income be restricted to `39,83,347/-. 3. The assessee carried the matter in appeal to the Tribunal. The Tribunal made extensive reference to the orders of the statutory authorities and thereafter, directed that `31,07,29,889/- be excluded from the total turnover and that the additional 0.44% be levied on `59,45,76,475/-. The reasoning of -3- I.T.A. No.178 of 2016 the Tribunal is contained in paragraph 10 of its order which reads as under: “10. However, the Ld. CIT(A) has discarded the said estimation made by the Assessing Officer and has gone into estimation of the income of the assessee on the basis of average gross profit of three years as under: |Asst.<br>Year|Gross Turnover|Gross Profit|% of G.P.|Average<br>%age| |---|---|---|---|---| |2009-10|62,34,40,558|11,43,65,379|18.34%|| |2010-11|90,53,06,363|14,99,85,294|16.50%|16.94%| |2011-12|80,38,25,083|12,81,03,397|16.00%|| Out of the average gross profit of 16.94%, if the gross profit declared by the assessee at 16.50% is reduced, the difference comes to 0.44% which has been directed by the Ld. CIT(A) to adopt on the total turnover. While estimating the income, the Ld. CIT(A) has committed an error that cost of material amounting to Rs.24,39,40,964/- and the cost of shuttering materials at Rs.5,05,85,544/-, Kerala VAT at Rs.1,12,17,821/-, Goa VAT at Rs.3,95,726/- and other expenses where no profit element has been involved, were not excluded which totals to Rs.31,07,29,889/-. Therefore, the said amount of Rs.31,07,29,889/- included in the turnover, has to be essentially excluded while estimating the income and accordingly, the Assessing Officer is directed to apply the gross profit rate of 0.44% after excluding the said turnover of Rs.31,07,29,889/- at Rs.59,45,76,475/-. It is ordered accordingly. Thus assessee gets the part relief and appeal of the assessee is partly allowed.” -4- I.T.A. No.178 of 2016 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 circumstances of the case, exclusion of no profit expenditure from turnover in the absence of any factual finding by the Tribunal and on any evidence being brought in by the assessee is right and in accordance with law? - (b) Is not the order of the Tribunal perverse, illogical and in the light of ground (C) militating? - (c) Did the assessee discharge the burden of proof?” 5. We heard the learned Senior Counsel for the Revenue and the learned Counsel appearing for the assessee. 6. While the learned Senior Counsel for the Revenue found no justification whatsoever in the order of the Tribunal in excluding certain items of turnover from the gross turnover of the assessee, it was contended by the learned counsel for the assessee that having regard to the fact that the items to be excluded are reimbursements, cannot form part of the turnover of the assessee. 7. We have considered the submissions made by both -5- 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 in the manner as the term is used in accounting parlance and commercial parlance. If so, as rightly contended by the learned counsel for the Revenue, every part of the turnover, irrespective of its nature, should form part of turnover. If that is the standard to be adopted, there cannot be any justification for excluding any of the items while computing the total turnover of the assessee. 9. Insofar as this case is concerned, the turnover has been returned by the assessee itself and such returned turnover of the assessee included the items which are now ordered to be excluded by the Tribunal. Further, the assessee itself has no case that in the gross turnover for the previous years relied on by the first appellate authority, it had excluded the items which are now ordered to be excluded by the Tribunal. If that be so, the assessee could not have contended that for the assessment year -6- I.T.A. No.178 of 2016 in question, the Revenue should not have estimated its gross turnover 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 been worked out on the reduced gross turnover applying the gross profit of `14,99,85,294/-. If it is so done, the percentage of gross profit for the Assessment Year in question would have been 25.23%, and if so, the average percentage of gross profit would have been 19.86%, as against 16.94% now adopted. Consequently, the addition to be made would also have been 3.36% as against 0.44% now ordered by the Tribunal. Similar exercise would have been needed for the other years as well. 11. Therefore, for both grounds, the exclusion now ordered by the Tribunal cannot be sustained. We, therefore, set aside the order of the Tribunal and dispose 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