Sri Nadella Venkata Nageswara Rao, Vijayawada V. THE DCIT, CIRCLE - 2(1), Vijayawada

CO 127/VIZ/2013

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3303 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 25-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D KOMALI KRISHNA
• Keywords: Business income; Depreciation
• Section: 145

Judgement Text

ITA NO.430/VIZAG/2013 SRI NADELLA VENKATA NAGESWARA RAO, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.430/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) DCIT, CIRCLE - 2(1), VIJAYAWADA VS. SRI NADELLA VENKATA NAGESWARA RAO VIJAYAWADA [PAN: AARPN3710B ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NO.127/VIZAG/2013 (ARISING OUT OF I.T.A.NO.430/VIZAG/2013) ( / ASSESSMENT YEAR: 2009-10) SRI NADELLA VENKATA NAGESWARA RAO VIJAYAWADA VS. DCIT, CIRCLE - 2(1), VIJAYAWADA ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SMT. D. KOMALI KRISHNA, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 03.05.2016 / DATE OF PRONOUNCEMENT : 06.05.2016 ITA NO.430/VIZAG/2013 SRI NADELLA VENKATA NAGESWARA RAO, VIJAYAWADA 2 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE AND CROSS APPEAL FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A), VIJAYAWADA DATED 26.3.2013 FOR THE ASSESSMENT YEAR 2009-10. 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIV IDUAL, DERIVING INCOME FROM EXECUTION OF CIVIL CONTRACT WORKS FILED A RETURN OF INCOME BY DECLARING TOTAL INCOME OF RS.1,54,50,315/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A.O. ON VERIFICATION OF BILLS & VOUCHERS IN SUPPORT OF THE EXPENDITURE CLAIMED UNDER THE HEAD M ATERIAL PURCHASE LIKE SAND, RAW METAL BREAKING, METAL AND LABOUR CHA RGES, IT WAS NOTED BY THE A.O. THAT MOST OF THE BILLS/VOUCHERS ARE SELF M ADE ONES AND THEY DO NOT CONTAIN THE ESSENTIAL DETAILS REGARDING THE ADD RESS OF THE PAYEE, THE QUANTUM OF WORK DONE OR SERVICES RENDERED, THE RATE PER UNIT OF TIME/WORK ETC. TO FACILITATE THE CROSS VERIFICATION OF THE GENUINENESS OF THE EXPENDITURE OR THE REASONABLENESS OF THE QUANTU M OF WORK DONE. AS THESE BILLS/VOUCHERS ARE UNVERIFIABLE, THE A.O. REJ ECTED THE BOOKS OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') AND RESORTED TO ESTIMATION OF INCOME FROM CIVIL CONTRACT WORKS AT 12.5% ON MAIN C ONTRACTS, 8% ON ITA NO.430/VIZAG/2013 SRI NADELLA VENKATA NAGESWARA RAO, VIJAYAWADA 3 SUB CONTRACTS, 3% ON MAIN CONTRACTS WERE GIVEN FOR SUB CONTRACTS, BALLAST SALES AT 12.5%. ON APPEAL BEFORE THE LD. C IT(A), THE ASSESSEE HAS SUBMITTED THAT THE ESTIMATION MADE BY THE A.O. IS ON HIGHER SIDE AND PRAYED THAT THE SAME MAY BE SCALED DOWN. THE L D. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, HE HAS SCALED DOWN THE ESTIMATION OF PROFITS ON MAIN CONTRACT WORKS AT 12. 5% TO 9% AND SUB CONTRACTS AT 8% IS CONFIRMED. MAIN CONTRACT WORK G IVEN FOR SUB CONTRACT WORK AT 3% IS CONFIRMED. BALLAST SALES AT 12.5% WA S REDUCED TO 8%. THE RELEVANT PORTION OF THE ORDER OF THE CIT(A) IS EXTRACTED AS UNDER: THE THIRD GROUND IS AGAINST ESTIMATION AT 12.5% ACR OSS THE TABLE. AS SEEN FROM THE RECORDS, THE APPELLANT WAS THE MAI N CONTRACTOR FOR SCR REGION AND RENDERED DIRECT CONTRACT WORKS AND IN TU RN GOT SUB CONTRACT WORKS FROM OTHER CONTRACTORS. IN ADDITION AS PER TH E TENDERS ALLOTTED, SUPPLIED BALLAST ON WHICH ALSO ESTIMATION WAS RESOR TED TO AT THE RATE OF 12.5% FROM WHICH DEPRECIATION WAS ALLOWED, WHICH IN PRINCIPLE APPEAR TO BE NOT PROPER. AS PER THE JUDICIAL DECISIONS, IT I S A SETTLED POSITION BY NOW THAT IN CASE OF A MAIN CONTRACT WORKS, THE INCOME I S ESTIMATED AT 9%, NET OF ALL EXPENSES INCLUDING DEPRECIATION AND IN CASE OF SUB CONTRACT WORKS TAKEN FROM OTHERS, AN ESTIMATE OF 8% IS RESORTED TO , AGAIN NET OF ALL EXPENSES. IN AS MUCH AS SUPPLY OF BALLAST IS CONCE RNED, SINCE IT IS AKIN TO RETAIL TRADE IN TERMS OF SECTION 44AD, ESTIMATION O F INCOME AT 8% IS DEEMED APPROPRIATE, AGAIN NET OF ALL EXPENSES. OTHER 2 GROUNDS ARE RESOLVED IN THIS PARAGRAPH. T HERE IS ANOTHER POINT TO BE CONSIDERED IN AS MUCH AS THE MAIN CONTR ACT WORKS ARE CONCERNED, I.E. CLOSING WORK IN PROGRESS AT RS.1,26 ,00,000/- ON WHICH ALSO THE A.O. HAS MADE ESTIMATION. SINCE, CLOSING WORK IN PROGRESS IS THE OPENING WORK IN PROGRESS FOR THE NEXT YEAR AND AS N O ELEMENT OF INCOME IS EMBEDDED IN IT, THE A.O. IS DIRECTED TO DELETE T HE SAME FROM THE QUANTUM OF MAIN CONTRACT WORKS RENDERED, IN CASE TH E ALLEGATION OF THE APPELLANT IS FOUND CORRECT ON VERIFICATION, AND EST IMATE THE INCOME AT 9% AND ON SUB CONTRACT WORKS TAKEN FROM OTHERS, THE IN COME MAY BE ESTIMATED AT 8%. AS ALREADY SPELT OUT HEREIN ABOVE ON TOTAL BALLAST SUPPLIED ALSO INCOME MAY BE CURBED OUT AT 8%. ITA NO.430/VIZAG/2013 SRI NADELLA VENKATA NAGESWARA RAO, VIJAYAWADA 4 3. ON BEING AGGRIEVED, REVENUE CARRIED MATTER IN AP PEAL BEFORE THE TRIBUNAL AND SUBMITTED THAT THE LD. CIT(A) SCALED D OWN THE ESTIMATION WITHOUT GIVING ANY REASONS AND URGED THAT THE A.O. S ORDER IS TO BE SUSTAINED. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A) AND SU BMITTED THAT SUB CONTRACT WORKS ESTIMATED BY A.O. AT 8% AND CONFIRME D BY CIT(A), THE SAME MAY BE REDUCED TO 4%. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) A FTER CONSIDERING THE EXPLANATION GIVEN BY THE ASSESSEE BY TAKING INTO CO NSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, THE ESTIMATION IS SC ALED DOWN. WE FIND NO INFIRMITY EXCEPT ESTIMATION IN RESPECT OF SUB CO NTRACTS. WE FIND THAT A.O. HAS ESTIMATED SUB CONTRACTS AT 8% AND THE SAME WAS CONFIRMED BY THE CIT(A). WE FIND THAT TO MEET THE ENDS OF JUSTIC E, THE ESTIMATION IN RESPECT OF SUB CONTRACTS HAS TO BE REDUCED FROM 8% TO 5%. IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) EXCEPT AS INDICATED ABOVE. 6. IN SO FAR AS WORK IN PROGRESS IS CONCERNED, THE ASSESSEE HAS SUBMITTED BEFORE THE CIT(A) THAT THE A.O. HAS MADE AN ADDITION ON ACCOUNT OF WORK IN PROGRESS IS AT ` 1,26,00,000/- ON ESTIMATION BASIS. ITA NO.430/VIZAG/2013 SRI NADELLA VENKATA NAGESWARA RAO, VIJAYAWADA 5 SINCE THE CLOSING WORK IN PROGRESS IS THE OPENING W ORK IN PROGRESS FOR NEXT YEAR, NO ADDITION CAN BE MADE AND THE ADDITION MADE BY THE A.O. AMOUNTING TO DOUBLE ADDITION AND SUBMITTED THAT SAM E MAY BE DELETED. THE LD. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE DIRECTED THE A.O. TO VERIFY THE FACTS AND IF THE SU BMISSION MADE BY THE ASSESSEE IS CORRECT, DELETE THE SAME. WE FIND THAT THE LD. CIT(A) ONLY DIRECTED THE A.O. TO VERIFY FACTS AND DECIDE ACCORD ING TO THE LAW. WE FIND NO REASON TO INTERFERE WITH THE ORDERS PASSED BY THE LD. CIT(A). 7. SO FAR AS INTEREST INCOME IS CONCERNED, THE A.O. HAS NOT DISCUSSED THE SAME IN THE ASSESSMENT ORDER. HOWEVER, THE LD. CIT(A) GAVE A FINDING THAT THE FIXED DEPOSITS ARE INTRICATELY CO NNECTED WITH ALLOTMENT OF CONTRACT WORKS AND AS SUCH, THE APPELLANT TREATE D THEM AS PART OF BUSINESS RECEIPTS, WHICH IN MY OPINION JUST AND PRO PER. WITH THE ABOVE OBSERVATION, THE LD. CIT(A) DIRECTED THE A.O. TO TR EAT THE INTEREST INCOME AS A PART AND PARCEL OF THE BUSINESS RECEIPT AND DIRECTED TO DELETE THE ADDITION. WE FIND THAT THERE IS NO MATER IAL PLACED BEFORE US THAT WHAT IS THE NATURE OF THE DEPOSITS MADE BY THE ASSESSEE AND HOW IT IS CONNECTED TO THE BUSINESS OF THE ASSESSEE. THE LD. CIT(A) SIMPLY GAVE A FINDING WITHOUT ANY BASIS. WE THEREFORE, SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS COUNT AND DIRECT T HE A.O. TO EXAMINE THIS ISSUE AFRESH AND DECIDE IN ACCORDANCE WITH LAW . ITA NO.430/VIZAG/2013 SRI NADELLA VENKATA NAGESWARA RAO, VIJAYAWADA 6 8. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE RE VENUE IS PARTLY ALLOWED AND THE C.O. FILED BY THE ASSESSEE IS ALSO PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6 TH MAY16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 06.05.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWAD A 2. / THE RESPONDENT SRI NADELLA VENKATA NAGESWARA R AO, D.NO.59-10-5, GAYATRI NAGAR, VIJAYAWADA 3. ) / THE CIT, VIJAYAWADA 4. ) ( ) / THE CIT(A), VIJAYAWADA 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM