ACIT, Circle-6(1), Hyderabad V. M/s. Ratna Constructions, Hyderabad

CO 45/HYD/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6787 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 22-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M AND SMT. ASHA VIJAYARAGHAVAN,J.M ITA NO.716/HYD/2011 ASSESSMENT YEAR 2007-08 RATNA CONSTRUCTIONS, HYDERABAD. ( PAN AAEFR 8909 H) VS ACIT, CIRCLE-6(1), HYDERABAD. (APPELLANT) (RESPONDENT) C.O. NO. 45/HYD/2011 ARISING OUT OF ITA NO.716/HYD/2011 ASSESSMENT YEAR 2007-08 ACIT, CIRCLE-6(1), HYDERABAD. VS RATNA CONSTRUCTIONS, HYDERABAD. ( PAN AAEFR 8909 H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI V. SRINIVAS DATE OF HEARING: : 02.11.2011 DATE OF PRONOUNCEMENT : 16.12.2011 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT (A)-IV, HYDERABAD DATED 30-12- 2010 AND PERTAINS TO THE ASSESSMENT YEAR 2007-08. THE CROSS OBJECTION IS FILED BY THE REVENUE IN SUPPORT OF THE CIT(A)S ORDER. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS BEFORE US :- 1. THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RESORTING TO ESTIMATION OF INCOME ON THE ENTIRE RECEIPTS OF RS.247,38,48,963 WITHOUT CONSIDERING THE FACT THAT THE APPELLANT RECEIVED COMMISSION ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 2 BY GIVING THE CONTRACT TO THE EXTENT OF RS.105,63,81,791 ON WHICH COMMISSION WAS ADMITTED IN THE RETURN OF INCOME FILED. 2. THE CIT (A) OUGHT TO HAVE DIRECTED THAT THE ESTIMATION IS TO BE MADE ONLY IN RESPECT OF THE CONTRACTS UNDERTAKEN BY THE APPELLANT HEREIN AND NOT GIVEN ON SUB CONTRACT FOR WHICH THE APPELLANT RECEIVED ONLY COMMISSION. 3. THE CIT (A) ERRED IN CONFIRMING THE ADDITION MADE OF RS.81,15,346/- BEING MACHINERY HIRE CHARGES RECEIVED WITHOUT CONSIDERING THE FACT THAT THIS AMOUNT IS THE GROSS RECEIPT AND THE ASSESSING OFFICER SHOULD HAVE TAXED ONLY THE NET INCOME THEREON. 4. THE CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.2,20,70,000/- MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE APPELLANT ACCEPTED FOR DISALLOWANCE OF THE LABOUR EXPENSES TO THE EXTENT OF RS.2,20,70,000/-. 5. THE CIT (A)_ OUGHT TO HAVE SEEN TAT THE BOOKS OF ACCOUNT ARE REJECTED AND THE INCOME IS ESTIMATED AND HENCE THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ANY SEPARATE ADDITION IN THIS REGARD. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON BUSINESS IN ENGINEERIN G CONTRACTS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASS ESSEE RECEIVED GROSS CONTRACT RECEIPTS AGGREGATING TO RS. 247,38,48,963/- AND THE ASSESSEES INCOME AS PER PR OFIT & LOSS A/C WORKS OUT TO RS.22,64,03,039/- BEFORE CLAI MING DEPRECIATION OF SALARY AND INTEREST TO THE PARTNERS . THE BIFURCATION OF CONTRACT RECEIPTS IS AS FOLLOWS. I) CONTRACTS MADE BY SELF - RS.141,74,97,172 II) GIVEN TO SUB-CONTRACTS RS.105,63,51,791 TOTAL RS. 247,38,48,963 - -------------------- ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 3 4. THE ASSESSEE DECLARED THE TOTAL INCOME AT RS.18,97,47,977. THERE WAS A SEARCH UNDER SECTION 133A OF THE ACT IN THE CASE OF THE ASSESSEE ON 29-9-2006. DURING THE SURVEY OPERATIONS, THE ASSESSEE HAD DECLARED ADDITI ONAL INCOME OF RS.2,02,20,000/-. THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT ESTIMATED THE INCOME AT RS.28,74,34,405. WHILE COMPUTING THE INCOME, THE AS SESSING OFFICER MADE THE FOLLOWING ADDITIONS:- (A) THE ASSESSING OFFICER ESTIMATED THE INCOME AT 1 2.5% OF THE GROSS CONTRACT RECEIPTS AT RS.247,38,48,963. (B) HE ALLOWED DEPRECIATION BUT DISALLOWED THE EXCE SS DEPRECIATION CLAIMED OF RS.40,65,848/- AND ADDED SEPARATELY AN AMOUNT OF RS.2,02,70,000/- BEING THE AMOUNT DECLARED DURING THE COURSE OF SURVEY. ( C) THE ASSESSING OFFICER ADDED OTHER INCOME OF RS.2,03,37,456/- (D) HE DISALLOWED THE CLAIM OF THE APPELLANT TOWARD S PAYMENT MADE TO THE SUB CONTRACTOR SRI P. RAMACHAND RA REDDY RS.1,33,81,171/- (E) HE DEDUCTED THE AMOUNT DISALLOWED BY APPLYING T HE PROVISIONS OF SEC.40(A)(IA) FOR THE IMMEDIATELY PRE CEDING YEAR OF RS.2,01,91,542. (F) HE DID NOT ALLOW DEDUCTION UNDER SECTION 40(B) BEING REMUNERATION AND INTEREST TO PARTNERS. 5. AGGRIEVED BY THE ABOVE ACTION OF THE ASSESSING OFFI CER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). ON APP EAL, THE CIT (A) DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE INCOME ON TOTAL CONTRACT RECEIPTS OF RS. 247,38,48,963 AT 8% INSTEAD OF 12.5% DETERMINED BY THE ASSESSING OFFICER. THE CIT (A) DELETED THE ADDITION OF RS.1,33,81,178/- ON ACCOUNT PAYMENT MADE TO SUB-CONTRACTORS AS THE PROFIT HAS BEEN ESTIMATED IN RESPECT OF ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 4 THE ENTIRE TURNOVER, NO FURTHER DISALLOWANCE ON ACC OUNT OF UNPROVED/BOGUS EXPENDITURE IS REQUIRED. WITH REG ARD TO THE ADDITION OF RS.203,37,456/- IS CONCERNED, HE OBSERV ED THAT THE SAME INCLUDES ROYALTY AND THE SUBCONTRACTORS HAD NOT BEEN ESTABLISHED BEYOND DOUBT AND THE AMOUNT OF SUB-CONT RACTS, CLAIMED TO BE OF RS.105,63,51,791 HAS BEEN INCLUDED IN THE GROSS CONTRACT RECEIPTS OF RS.247,38,48,963. WITH REGARD TO THIS HE OBSERVED THAT THE PROFIT HAS BEEN ESTIMATED IN RESPECT OF THE ENTIRE GROSS RECEIPTS, THE ROYALTY OF RS.1 ,20,52,716 RECEIVED FROM SUB-CONTRACTORS CANNOT BE ADDED AS P ROFIT ELEMENT IN RESPECT OF SUCH WORKS ARE ALSO EMBEDDED IN THE TOTAL ESTIMATION. ACCORDINGLY, AN ADDITION OF RS.1, 20,52,716/- IS DELETED. HOWEVER, THE INCOME ON HIRING OF MACHI NERY AT RS.81,15,346/- HE SUSTAINED ON THE REASON THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS IN RESPECT OF THE EXPENSES INCURRED FOR EARNING SUCH INCOME. THE ADDI TION ON ACCOUNT OF FDRS AT RS.88,824/- AND ADDITION ON ACC OUNT OF SALE PROCEEDS OF SCRAP AT R.80,570/-WERE UPHELD AND THE ADDITION OF RS.2,02,17,000/- RETURNED DURING THE CO URSE OF SURVEY WAS CONFIRMED. NOW, THE ASSESSEE IS IN APPEA L BEFORE US WITH REGARD TO THE ESTIMATION OF INCOME AT 8% ON T HE ENTIRE GROSS RECEIPTS OF RS.2,47,38,48,963/-. THE ASSES SEE IS ALSO ON APPEAL BEFORE US WITH REGARD TO THE CONFIRMATION OF ADDITION OF RS.81,15,346/- BEING MACHINERY HIRE CHARGES RECE IVED AND ALSO THE ASSESSEE IS AGGRIEVED AGAINST THE ADDITIO N OF RS.2,20,70,000/- WHICH HAS BEEN OFFERED DURING THE COURSE OF SURVEY OPERATION AND EVEN AFTER REJECTING THE BOOKS OF ACCOUNT, THE SAME AMOUNTS TO DOUBLE TAXATION. 6. THE ASSESSEE ALSO RAISED THE ADDITIONAL GROUND BEFO RE US WHICH READS AS UNDER:- THE CIT (A) ERRED IN HOLDING THAT THE ENTIRE SUB CONTRACT PAYMENTS HAVE NOT BEEN PROVED WHEN THE ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 5 ASSESSING OFFICER OBSERVED THAT ONLY IN RESPECT OF ONE SUB CONTRACT PAYMENT THERE WAS SOME ALLEGATION. THE CIT (A) OUGHT TO HAVE OBSERVED THA T WITH REGARD TO THE SAID SUB CONTRACT PAYMENT OF RS.1,33,81,171/- PAID TO SRI P. RAMACHANDRA REDDY, ONE OF THE SUB CONTRACTORS, THE INCOME COULD BE ESTIMATED AT 8% AND NOT IN RESPECT OF ALL OTHER CONTRACTS GIVEN ON SUB-CONTRACT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, T HERE WAS A DELAY OF 9 DAYS IN FILING THE APPEAL FOR WHICH THE ASSESSEE EXPLAINED THE REASONS FOR THE SAID DELAY. WE HAVE GONE THE EXPLANATION GIVEN BY THE ASSESSEE IN THIS REGARD AN D WE ARE SATISFIED WITH THE REASONS ADVANCED FOR THIS DELAY. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APP EAL. 8. REGARDING MERIT OF THE FIRST GROUND OF THE APPEAL O F THE ASSESSEE THE GRIEVANCE IS WITH REGARD TO ESTIMATION OF INCOME ON TOTAL CONTRACT BASIS THOUGH THERE WAS SUBCONTRAC T GIVEN BY THE ASSESSEE. IN OUR OPINION, THE UNIFORM RATE AT 8% ON THE TOTAL CONTRACT OF RS. 247,38,48,963 CANNOT BE TAKEN . THE ASSESSEE MADE PAYMENT OF RS. 105,63,51,791 TOWARDS SUBCONTRACT. THIS PORTION OF CONTRACT HAS TO BE EX CLUDED FROM THE TOTAL CONTRACT AMOUNT OF RS. 247,38,48,963 WHIL E MAKING THE ESTIMATION OF PROFIT. THE PROFIT AT 8% HAS TO BE ESTIMATED ON THE MAIN CONTRACT RECEIPT OF RS. 141,74,97,172 A ND THE AMOUNT OF COMMISSION RECEIVED ON SUBCONTRACT HAS TO BE CONSIDERED AS INCOME OF THE ASSESSEE SEPARATELY. T HE CONTENTION OF THE ASSESSEE HEREIN IS THAT THE AMOUN T OF COMMISSION ON THIS CONTRACT IS ALREADY OFFERED FOR TAXATION AND THE SAME HAS TO BE CONSIDERED AS INCOME RECEIVED FR OM SUBCONTRACT. IF THE ASSESSEE HAS ALREADY OFFERED T O TAX THE AMOUNT OF COMMISSION ON SUBCONTRACT THE SAME HAS TO BE CONSIDERED AS INCOME ON SUBCONTRACT. ALTERNATIVELY, THE INCOME ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 6 FROM SUB-CONTRACT HAS TO BE ESTIMATED AS PER THE TR IBUNAL DECISION IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT , 129 TTJ (HYD)(UO) 57 HELD AS FOLLOWS: THIS IS, BECAUSE, WHEN THE ASSESSEE GIVES CONTRACT TO THE OTHER PARTIES ON SUB CONTRACT, THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9 PER CENT, IT HAS TO FORGO CERTAIN PORTION OF P ROFIT I.E., AROUND 5 PER CENT TO THE SUB-CONTRACTORS. SIMILAR IS THE POSITION IN THE CASE OF CONTRACTS TA KEN BY ASSESSEE ON SUBCONTRACT FROM OTHER PARTIES. FURTHER, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION, AND INTERESTS TO PARTNERS ON THE PROFIT ESTIMATED BY ASSESSING OFFICER AT APPLICABLE RATES, BECAUSE THE INCOME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AND INTEREST AN D REMUNERATION OF THE PARTNERS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. 9. AS HELD IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA) I NCOME ON SUBCONTRACT HAS TO BE CONSIDERED AT 5 PER CENT I NSTEAD OF 8%. HOWEVER, THE TOTAL INCOME SO ESTIMATED FROM TH E TOTAL CONTRACT RECEIPTS SHALL NOT GO BELOW THE RETURNED I NCOME OF THE ASSESSEE. THIS GROUND IS PARTLY ALLOWED. 10. WITH REGARD TO THE NEXT GROUND I.E., ESTIMATION OF INCOME ON MACHINERY HIRE CHARGES, THE ASSESSEE HAS NOT MAI NTAINED SEPARATE ACCOUNT REGARDING EXPENSES INCURRED ON THI S COUNT. HENCE, IN OUR OPINION, IN THE ABSENCE OF DETAILS OF EXPENSES, WE FEEL IT APPROPRIATE TO CONSIDER THE INCOME FROM MAC HINERY HIRE CHARGES AT 50% OF THE CHARGES RECEIVED. THIS GROUN D IS PARTLY ALLOWED. 11. THE NEXT GROUND IS WITH REFERENCE TO INCLUSION OF T HE ADDITIONAL INCOME RECEIVED BY THE ASSESSEE AT RS. 2 ,20,70,000 AS ADDITIONAL INCOME OF THE ASSESSEE EVEN AFTER EST IMATION OF INCOME OF THE ASSESSEE WITHOUT ACCEPTING THE RETURN ED INCOME. THE ASSESSEE ORIGINALLY DECLARED INCOME VIDE RETURN OF INCOME ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 7 DATED 23.11.2007 AT RS. 18,97,47,777. LATER BEING THERE WAS A SURVEY, THE ASSESSEE OFFERED ADDITIONAL INCOME OF R S. 2,02,20,000. THIS ADDITION WAS CONFIRMED BY THE CI T(A) EVEN AFTER NOT ACCEPTING THE RETURNED INCOME. IN OUR OP INION, WHEN THE RETURNED INCOME OF THE ASSESSEE WAS NOT ACCEPTE D AND THE LOWER AUTHORITIES ESTIMATED THE INCOME EVEN AFTER T HE ASSESSEE OFFERED THE ADDITIONAL INCOME TO FILL UP THE DISCRE PANCIES SUSTAINING OF ADDITIONAL INCOME OFFERED BY THE ASSE SSEE AS ADDITION IS NOT PROPER. HOWEVER, WE MAKE IT CLEAR THAT THE FINAL INCOME SO ESTIMATED WHILE PASSING THE GIVING EFFECT ORDER TO THIS ORDER CANNOT GO BELOW THE TOTAL INCOME RETURNE D PLUS THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE. IN OTHE R WORDS, THE FINAL INCOME DETERMINED CONSEQUENT TO THIS ORDER CA NNOT GO BELOW RS. 20,99,67,777 AS RETURNED BY THE ASSESSEE. FURTHER, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BECOME S INFRUCTUOUS AS WE HAVE ALLOWED THE FIRST GROUND OF THE ASSESSEE. 12. THE REVENUE FILED THE CROSS OBJECTION IN SUPPORT OF THE CIT(A)'S ORDER. AS WE HAVE ALLOWED THE APPEAL OF T HE ASSESSEE, THE CROSS OBJECTION FILED BY THE REVENUE BECOMES IN FRUCTUOUS AND DISMISSED BEING INFRUCTUOUS. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AN D THE CO FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER, 2011. SD/- (ASHA VIJAYARAGHAVAN) SD/- (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 16 TH DECEMBER, 2011 ITA NO.716/HYD/2011 RATNA CONSTRUCTIONS ================ == 8 COPY FORWARDED TO: 1. M/S. RATNA CONSTRUCTIONS, C/O . D. VENUGOPAL & CO., FLAT NO. 102, SRI SAI SAMPADA PLAZA, HABSIGUDA, HYDERABA D-7. 2. A CIT, CIRCLE - 6(1) , HYDERABAD. 3. CIT(A) - I V , HYDERABAD. 4. CIT - III , HY DERABAD. 5. THE DR, ITAT, HYDERABAD. JMR*/ TPRAO