Asst. CIT, Circle -10(1), Hyderabad V. M/s K. Satyanarayana Reddy & Co., Secunderabad

CO 126/HYD/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7998 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: J R P GUPTA
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NOS. 1150 & 1151/HYD/2012 ASSESSMENT YEARS: 2008-09 & 2009-10 ASST. COMMISSIONER OF INCOME-TAX, APPELLAN T CIRCLE 10(1), HYDERABAD VS. M/S K. SATYANARAYANA REDDY & CO., RESPONDENT ANANTAPUR. (PAN AAEFC3621R) C.O. NOS. 126 & 127/HYD/2012 (IN ITA NOS. 1150 & 1151/HYD/2012 ASSESSMENT YEARS: 2008-09 & 2009-10) M/S K. SATYANARAYANA REDDY & CO., CROSS OBJECTO R ANANTAPUR. (PAN AAEFC3621R) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPONDE NT CIRCLE 10(1), HYDERABAD REVENUE BY : SHRI M.H. NAIK ASSESSEE BY : SHRI J.R.P. GUPTA DATE OF HEARING : 07/11/2012 DATE OF PRONOUNCEMENT : 09/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THESE APPEALS PREFERRED BY THE REVENUE ARE DIRECTED AGAINST A COMMON ORDER OF THE CIT(A)-VI, HYDERABAD DATED 25/ 05/2012 FOR THE ASSESSMENT YEARS 2008-09 & 2009-10. THE ASSESSE E ALSO FILED ITA NOS. 1150 & 1151/HYD/2012 & COS. 126 & 127/H/12 M/S K. SATYANARAYANA REDDY & CO. 2 CROSS OBJECTION AGAINST THE SAID ORDER OF THE CIT(A ) FOR THE SAID ASSESSMENT YEARS UNDER CONSIDERATION. SINCE THE ISS UE IS IDENTICAL IN BOTH THE YEARS, THE APPEALS WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A FIRM ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACT S FOR VARIOUS GOVERNMENT DEPARTMENTS. THE ASSESSING OFFICER REJEC TED THE BOOKS OF ACCOUNT AND ESTIMATED THE NET PROFIT @8% OF THE TURNOVER OF RS. 8,80,25,526/- FOR THE ASSESSMENT YEAR 2008-09 AND R S. 15,78,45,011/- FOR THE ASSESSMENT YEAR 2009-10. WHI LE DOING SO, HE HELD THAT THE INCOME HAD BEEN ESTIMATED NET OF ALL EXPENSES INCLUDING REMUNERATION AND INTEREST PAID TO PARTNER S. 3. ON APPEAL, BEFORE THE CIT(A) THE LEARNED AR OF T HE ASSESSEE SUBMITTED THAT THE INTEREST AND REMUNERATION PAID T O PARTNERS STAND ON A FOOTING DIFFERENT FROM THE OTHER EXPENSES, THA T SEC. 44AD MANDATES DEDUCTION OF INTEREST AND REMUNERATION WIT HIN THE PRESCRIBED LIMITS AND THAT MERELY BECAUSE THE BOOK PROFIT HAS BEEN REJECTED AND AN ESTIMATED RESORTED TO, THE ASSESSEE COULD NOT BE DENIED THE BENEFIT OF DEDUCTION U/S 40(B). 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, CIT(A) FOLLOWING CASE OF M/S C. ESWARA REDDY & CO VS. ACIT (ITA NOS. 668 & 670/HYD/2009 DATED 31/01/2011[HYD] ), DIRECTED TH E ASSESSING OFFICER TO ALLOW DEDUCTION U/S 40(B) FOR INTEREST A ND REMUNERATION PAID TO PARTNERS FROM THE INCOME ESTIMATED AT 8% OF THE GROSS RECEIPTS. ITA NOS. 1150 & 1151/HYD/2012 & COS. 126 & 127/H/12 M/S K. SATYANARAYANA REDDY & CO. 3 5. AGGRIEVED, THE REVENUE IS IN APPEALS BEFORE US R AISING THE FOLLOWING GROUND OF APPEAL, WHICH IS COMMON IN BOTH THE APPEALS: THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW REMUNERATION TO PARTNERS AND INTEREST ON CAPITAL OU T OF ESTIMATED INCOME, WHEN NET INCOME IS ESTIMATED, ALL OTHER EXPENDITURE AND DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND INTEREST ON CAPITAL IS DEEMED TO HAVE BEEN TAKE N CARE OF IN VIEW OF THE CASE LAW IN THE CASE OF M/S INDWELL CON STRUCTIONS [232 ITR 776] AS DECIDED BY THE JURISDICTIONAL AP H IGH COURT. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT THE ISSUE IS COVERED BY THE DEC ISION JURISDICTIONAL COORDINATE BENCH IN THE CASE OF M/S C. EASWAR REDDY IN ITA NO. 668/HYD/2009 AND ITA NO. 670/HYD/09, WHE REIN THE COORDINATE BENCH HELD AS FOLLOWS:- '14. NOW COMING TO THE PAYMENT OF INTEREST AND SALA RY TO THE PARTNER. PROVISO TO SECTION 44AD(2) CLEARLY SAYS TH AT SALARY AND INTEREST PAID TO THE PARTNER SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB-SECTION(1) OF SECTION 44A D SUBJECT TO LIMITATION U/S 40(B) OF THE ACT. AS WE HAVE ALRE ADY OBSERVED, THOUGH THERE WERE RESTRICTIONS WITH REGAR D TO APPLICATION OF SECTION 44AD WHEREVER THE TOTAL CONT RACT RECEIPTS EXCEED RS. 40 LAKHS, WITH EFFECT FROM 01/0 4/2011 SUCH RESTRICTION WAS REMOVED BY THE LEGISLATURE. MOREOVE R, THE COORDINATE BENCH OF THIS TRIBUNAL IN M. BHASKAR RED DY VS. ITO, ITA NO. 168/HYD/06 DATED 10/10/2007 AFTER TAKING A CLUE FROM SECTION 44AD ESTIMATED THE PROFIT AT 8% OF THE CONT RACT RECEIPT. THEREFORE, BY TAKING A CLUE FROM THE PROVI SION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YE AR UNDER CONSIDERATION AND THE PROVISIONS WHICH WOULD COME I NTO OPERATION WITH EFFECT FROM 01/04/2011, IN OUR OPINI ON, THE PAYMENT OF INTEREST AND SALARY TO THE PARTNER SHALL BE ALLOWED SUBJECT TO LIMITATION SPECIFIED IN SECTION 40(B) OF THE ACT FROM ESTIMATED INCOME.' 11. RESPECTFULLY FOLLOWING THE DECISION OF COORDINA TE BENCH IN THE CASE OF EASWAR REDDY (SUPRA), WE UPHOLD THE ORDER O F THE CIT(A) IN ITA NOS. 1150 & 1151/HYD/2012 & COS. 126 & 127/H/12 M/S K. SATYANARAYANA REDDY & CO. 4 DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 40(B) FOR INTEREST AND REMUNERATION PAID TO PARTNERS FROM THE INCOME ESTIMATED AT 8% OF THE GROSS RECEIPTS, FOLLOWING TH E DECISION M/S C. ESWAR REDDY & C0. (SUPRA). ACCORDINGLY, WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE IN BOTH THE YEARS UNDE R CONSIDERATION. 12. THE C.O.S FILED BY THE ASSESSEE ARE IN SUPPORT OF THE ORDER OF THE CIT(A). SINCE WE HAVE UPHELD THE ORDER OF THE C IT(A) AND DISMISSED THE REVENUE APPEALS, THE COS BECOME INFRU CTUOUS AND THE SAME ARE DISMISSED AS INFRUCTUOUS. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND C.OS OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 9 TH NOVEMBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 10(1), ROOM NO. 515 AC GUARDS, IT TOWERS, HYDERABAD. 2) M/S K. SATYANARAYANA REDDY & CO., 8-5-210/31 TO 37 . FLAT NO. 102, SRINIVASA HOMES, VYSYA BANK, NEAR DUB AI GATE, OLD BOWENPALLY, SECUNDERABAD. 3) THE CIT (A)-VI, HYDERABAD 4) THE CIT-V, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.