THE ITO, WARD - 2, Eluru V. M/s Nara Constructions, Eluru

CO 19/VIZ/2013

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2856 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 25-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: T SATYANANDAM
• Keywords: Depreciation
• Section: 142(1)

Judgement Text

ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 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.NOS.471 & 472/VIZAG/2012 ( / ASSESSMENT YEAR:2008-09 & 2009-10) ITO, WARD - 2, ELURU M/S. NARA CONSTRUCTIONS, ELURU [PAN NO. AAD FN6957C ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NOS.19 & 20/VIZAG/2013 ( ./I.T.A.NOS.471 & 472/VIZAG/2012) ( / ASSESSMENT YEAR:2008-09 & 2009-10) M/S. NARA CONSTRUCTIONS, ELURU ITO, WARD - 2, ELURU ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI T. SATYANANDAM, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 07.03.2017 / DATE OF PRONOUNCEMENT : 28.03.2017 ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 2 / O R D E R PER SHRI MANJUNATHA, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE AND CROSS O BJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMM ON ORDER PASSED BY THE CIT(A), GUNTUR DATED 3.10.2012 FOR THE ASSESSME NT YEAR 2008-09 AND 2009-10. SINCE, THE FACTS ARE IDENTICAL AND IS SUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF EXECUTION OF WORKS CONTRACTS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 & 2009-10 DECLARING TOTAL INCOME OF ` 10,61,330/- AND ` 15,02,900/- RESPECTIVELY. THE CASES HAVE BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY, NO TICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT') WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZE D REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF A CCOUNTS AND OTHER DETAILS AS CALLED FOR. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE A.O. NOTICED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT AMENABLE FOR VERIFICATION AS THE ASSESSEE HAS N OT MAINTAINED SUPPORTING BILLS AND VOUCHERS IN RESPECT OF EXPENDI TURE DEBITED IN THE P&L ACCOUNT AND ACCORDINGLY REJECTED BOOKS OF ACCOU NTS U/S 145(3) OF THE ACT AND ESTIMATED NET PROFIT OF 8% ON CONTRACTS EXECUTED DIRECTLY ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 3 AND 4% ON CONTRACTS EXECUTED THROUGH SUB CONTRACTOR . THE A.O. ALLOWED FURTHER DEDUCTION TOWARDS DEPRECIATION FOR THE ASSESSMENT YEAR 2008-09, HOWEVER, THE SAME HAS BEEN NOT ALLOWED FOR THE ASSESSMENT YEAR 2009-10. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE CONTENDED THAT NET PROFIT ESTIMATED BY THE A.O. IS ON HIGHER SIDE WHEN COMPARED TO THE PECULIAR FACTS OF THE CASE AND ALSO THE ASSESSE E IS EXECUTING MAJOR PART OF CONTRACTS THROUGH SUB CONTRACTS. THE ASSES SEE FURTHER CONTENDED THAT IT IS EXECUTING SOME OF THE WORKS IN THE STATE OF JAMMU & KASHMIR WHERE HE WORKS AS A SUB CONTRACTOR, WHERE IN THE PROFIT MARGIN IS MUCH LOWER THAN THE NORMAL PROFIT DERIVED FROM REGULAR WORKS CONTRACTS. IT WAS FURTHER SUBMITTED THAT IN RESPEC T OF POLAVARAM PROJECT BECAUSE OF UNFORESEEN REASONS, IT HAS PRE-CLOSED CO NTRACTS AND INCURRED HUGE LOSSES. THE A.O. WITHOUT CONSIDERING ANY OF T HESE FACTORS, SIMPLY ESTIMATED NET PROFIT OF 8% ON WORKS CONTRACTS EXECU TED DIRECTLY AND 4% ON WORKS CONTRACTS EXECUTED THROUGH SUB CONTRACTS. 4. THE CIT(A) AFTER CONSIDERING THE RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT THE PECULIAR F ACTS OF THE CASE HAS DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 2.5% ON CONTRACTS EXECUTED DIRECTLY AND 2% ON CONTRACTS EXECUTED THROUGH SUB C ONTRACTOR. IN SO FAR ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 4 AS POLAVARAM PROJECT IS CONCERNED, THE CIT(A) DIREC TED THE A.O. TO TAKE 0% NET PROFIT ON TOTAL TURNOVER AND IGNORED THE LOS S DECLARED BY THE ASSESSEE. AGGRIEVED BY THE CIT(A) ORDER, THE REVEN UE IS IN APPEAL BEFORE US. 5. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ESTIMATE PROFIT FROM CONTRACT WORKS AT 2.5% AS AGAINST 8% ESTIMATED BY THE A.O. AND AT 2% ON WORKS GIVEN ON S UB CONTRACT TO OTHERS AS AGAINST 4% ESTIMATED BY THE A.O. THE D.R . FURTHER SUBMITTED THAT THE CIT(A) ERRED IN NOT APPRECIATING FACT THAT THE ASSESSEE FAILED TO PRODUCE PURCHASE BILLS, REGULAR BOOKS OF ACCOUNTS W ITH REGARD TO JAMMU & KASHMIR PROJECT AS THEY WERE CLAIMED TO HAVE BEEN LOST IN JOURNEY FROM JAMMUJ TO REASO. THE D.R. FURTHER SUBMITTED T HAT THE CIT(A) OUGHT TO HAVE CONSIDERED THE CASE LAW RELIED UPON B Y THE A.O. TO JUSTIFY THE ESTIMATION OF NET PROFIT OF 8% AND 4% BEFORE CO NCLUDING THAT IT IS FAIR AND JUSTIFIED IN ESTIMATING NET PROFIT OF 2.5% AND 2% RESPECTIVELY ON CONTRACTS EXECUTED DIRECTLY AND CONTRACTS EXECUTED THROUGH SUB CONTRACTORS. THE LD. CIT(A) ERRED IN ACCEPTING PER CENTAGE OF ASSESSED INCOME OF THE ASSESSEE FOR THE PREVIOUS ASSESSMENT YEARS WHICH WERE INCONSISTENT WITH THE FIGURES OF ASSESSED INCOME AS PER RECORDS. THE A.O. AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTAN CES OF THE CASE HAS RIGHTLY ESTIMATED NET PROFIT OF 8% ON CONTRACTS EXE CUTED DIRECTLY AND 4% ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 5 ON CONTRACTS EXECUTED THROUGH SUB CONTRACTORS AND H IS ORDER SHOULD BE UPHELD. 6. THE LD. A.R. FOR THE ASSESSEE, ON THE OTHER HAND STRONGLY SUPPORTING THE ORDER OF THE CIT(A), SUBMITTED THAT THE LD. CIT(A) ESTIMATED NET PROFIT FROM CONTRACT WORKS BASED ON T HE PAST ASSESSED RESULTS OF THE ASSESSEE, WHICH ARE MORE REALISTIC A ND MORE COMPARABLE. THE A.R. FURTHER SUBMITTED THAT BECAUSE OF PECULIAR FACTS OF THE CASE, THE ASSESSEE CANNOT RELY ON ANY CASE LAW FOR ESTIMA TING NET PROFIT, AS THE MAJOR PORTION OF THE WORK HAS BEEN EXECUTED THR OUGH SUB CONTRACT AND ALSO THE ASSESSEE HAS EXECUTED WORKS IN THE STA TE OF JAMMU & KASHMIR, WHEREIN THE NET PROFIT PERCENTAGE NORMALLY LESS THAN THE NORMAL NET PROFIT THAT CAN BE DERIVED FROM REGULAR WORKS CONTRACTS. THE A.R. FURTHER SUBMITTED THAT BECAUSE OF UNFORESEEN R EASONS, THE ASSESSEE HAS INCURRED HUGE LOSSES IN POLAVARAM PROJECT, WHIC H IS ONE OF THE REASONS FOR LOW NET PROFIT ADMITTED IN THE BOOKS OF ACCOUNTS. THE A.O. WITHOUT APPRECIATING THE FACTS PROPERLY, SIMPLY EST IMATED NET PROFIT OF 8% AND 4% RATES WHICH IS INCORRECT. THE CIT(A) AFT ER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY DIRECTED THE A.O. TO EST IMATE NET PROFIT OF 2.5% AND 2% AND HIS ORDER SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 6 A.O. REJECTED BOOKS OF ACCOUNTS U/S 145(3) OF THE A CT AND ESTIMATED NET PROFIT OF 8% ON WORKS CONTRACT DIRECTLY EXECUTED AN D 4% ON WORK CONTRACTS EXECUTED THROUGH SUB CONTRACTOR. THE A.O . WAS OF THE OPINION THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE ARE NOT AMENABLE FOR VERIFICATION AS THE ASSESSEE HAS FAILE D TO PRODUCE BILLS AND VOUCHERS FOR THE EXPENDITURE DEBITED IN THE P&L ACC OUNT. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS MAINTAINED R EGULAR BOOKS OF ACCOUNTS AND ALSO FURNISHED NECESSARY BILLS AND VOU CHERS IN RESPECT OF ALL WORKS CONTRACTS, EXCEPT IN THE CASE OF WORKS CO NTRACTS EXECUTED IN THE STATE OF JAMMU & KASHMIR, WHERE THE BOOKS OF AC COUNTS ARE LOST IN TRANSIT BECAUSE OF THAT THE ASSESSEE COULD NOT BE A BLE TO PRODUCE BILLS AND VOUCHERS. THE ASSESSEE FURTHER CONTENDED THAT IT HAS REPORTED A NET PROFIT OF ABOUT 3% IN THE PREVIOUS FINANCIAL YE ARS AND BASED ON THE PREVIOUS FINANCIAL RESULTS OF THE ASSESSEE, THE CIT (A) HAS ESTIMATED NET PROFIT OF 2.5% AND 2% RESPECTIVELY. 8. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND THAT THE A.O. HAS REJECTED BOOKS OF ACCOUNT S FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PRODUCE NECESSARY BILLS AND VOUCHERS IN RESPECT OF EXPENDITURES. ALTHOUGH THE ASSESSEE CLA IMS THAT IT HAS PRODUCED BILLS AND VOUCHERS IN RESPECT OF MAJOR EXP ENDITURE, FAILS TO SUBSTANTIATE THE CLAIM WITH NECESSARY EVIDENCES, TH EREFORE, WE ARE OF ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 7 THE VIEW THAT THE A.O. WAS RIGHT IN REJECTION OF BO OKS OF ACCOUNTS AND ESTIMATION OF NET PROFIT. HAVING SAID, LET US EXAM INE ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE A.O. WAS RIG HT IN TAKING NET PROFIT OF 8% ON GROSS CONTRACT EXECUTED DIRECTLY AN D 4% ON WORKS CONTRACT EXECUTED THROUGH SUB CONTRACTORS. THE ASS ESSEE HAS FILED A PAPER BOOK CONTAINING FINANCIAL STATEMENTS AND ALSO A STATEMENT OF GROSS CONTRACT RECEIPTS AND NET PROFIT DECLARED IN THE PREVIOUS FINANCIAL YEARS. ON PERUSAL OF THE DETAILS FILED BY THE ASSE SSEE, WE FIND THAT THE ASSESSEE HAS DECLARED A NET PROFIT OF 2.87% TO 6.74 % ON DIFFERENT PROJECTS, HOWEVER, THE AVERAGE NET PROFIT DECLARED BY THE ASSESSEE IS AT 2.87% FOR THE FINANCIAL YEAR 2006-07. IT IS AN ADM ITTED FACT THAT THE ASSESSEE HAS FAILED TO PRODUCE NECESSARY BILLS AND VOUCHERS IN SUPPORT OF EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT . IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS NOT FURNISHED B OOKS OF ACCOUNTS IN RESPECT OF J&K WORKS CONTRACTS. UNDER THESE CIRCUM STANCES, THE A.O. IS LEFT WITH NO OPTION, HAS ESTIMATED NET PROFIT BASED ON CERTAIN FACTS AND CIRCUMSTANCES. IN THIS CASE, THE A.O. HAS ADOPTED NET PROFIT OF 8% AND 4% BASED ON CERTAIN JUDICIAL PRECEDENTS, HOWEVER FA ILED TO JUSTIFY NET PROFIT RATES WITH ANY COMPARABLE CASES. THE ASSESS EE CLAIMS THAT IT HAS EXECUTED MAJOR PORTION OF CONTRACTS THROUGH SUB CON TRACTS WHERE THE MARGIN OF NET PROFIT IS MUCH LOWER THAN THE NET PRO FIT MARGIN IN THE ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 8 NORMAL WORKS CONTRACTS. THE ASSESSEE ALSO CLAIMS T HAT IT HAS INCURRED HUGE LOSSES IN POLAVARAM PROJECT BECAUSE OF UNFORES EEN REASONS. THEREFORE, CONSIDERING THE OVERALL FACTS OF THE PRE SENT CASE, WE DEEM IT APPROPRIATE TO ESTIMATE NET PROFIT OF 4% ON CONTRAC TS EXECUTED DIRECTLY INCLUDING CONTRACT RECEIPTS FROM POLAVARAM PROJECT AND 3% ON CONTRACTS EXECUTED THROUGH SUB CONTRACTOR NET OF ALL DEDUCTIO NS INCLUDING DEPRECIATION. ACCORDINGLY, WE DIRECT THE A.O. TO E STIMATE NET PROFIT AS DIRECTED ABOVE. 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED. 10. THE ASSESSEE HAS FILED CROSS OBJECTIONS IN SUPP ORT OF THE ORDER OF THE LD. CIT(A). THEREFORE, FOR THE REASONS RECORDE D IN THE PRECEDING PARAGRAPHS, WE DISMISS THE CROSS OBJECTIONS FILED B Y THE ASSESSEE AS NOT MAINTAINABLE. 11. IN THE RESULT, THE CROSS OBJECTIONS FILED BY TH E ASSESSEE ARE ALSO DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 28 TH MAR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 28.03.2017 VG/SPS ITA NO.471 & 472/VIZAG/2012 M/S. NARA CONSTRUCTIONS, ELURU 9 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2, ELURU 2. / THE RESPONDENT M/S. NARA CONSTRUCTIONS, 24A-16 -9, ALLASANI PEDDANA STREET, ASHOK NAGAR, ELURU-534 002. 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM