AMR Constructions Ltd., (Presently known as AMR India Limited), Hyderabad V. ACIT, Central Circle-3, Hyderabad

CO 55/HYD/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9851 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 12-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: A V RAGHURAM; Y R RAO
• Keywords: Rejection of books of accounts; Unexplained expenditure; Depreciation; Search and seizure; Document seized; Additional evidence; Documents seized
• Section: 43B; 153A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICAL MEMBER ITA.NO.1153, 1154 & 1155/HYD/2013 ASSESSMENT YEARS 2007-08, 2008-09 & 2009-10 DCIT, CENTRAL CIRCLE-3, HYDERABAD. VS. M/S. AMR CONSTRUCTIONS LTD., HYDERABAD-500 073. PAN AADCA-3750-D (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.53, 54 & 55/HYD/2013 ARISING OUT OF ITA.NO. 1153, 1154 & 1155/HYD/2013 ASSESSMENT YEARS 2007-08, 2008-09 & 2009-10 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD-500 073. PAN AADCA-3750-D VS. DCIT, CENTRAL CIRCLE-3, HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : MR. D. SUDHAKAR RAO FOR ASSESSEE : MR. A.V. RAGHURAM & MR. Y.R. RAO DATE OF HEARING : 22.07.2014 DATE OF PRONOUNCEMENT 05.09.2014 ORDER PER B. RAMAKOTAIAH, A.M. THE APPEALS ARE BY REVENUE AGAINST THE SEPARATE ORDERS OF THE CIT(A)-V, HYDERABAD DATED 28.03.2013 FOR A.YS. 2007-08, 2008-09 AND 2009-10, ON THE ISSUE OF ADDIT IONS MADE BY THE A.O. CONVERTED INTO ESTIMATION OF INCOME BY THE LD. CIT(A). 2 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. ASSESSEE PREFERRED CROSS-OBJECTIONS ON THE ISSUE OF JURISDICTION CONTENDING THAT THE LD. CIT(A) ERRED IN SUSTAINING A FRESH ASSESSMENT ORDER AFTER ASSESSMENT PROCEEDINGS STOOD CONCLUDED BY VIRTUE OF APPROVAL OF ADDL. CIT UNDER SECTION 15 3D OF THE I.T. ACT, 1961 BY AN EARLIER DRAFT ORDER. LD. CIT(A) PAS SED LEAD ORDER IN A.Y. 2008-09 WHICH WAS FOLLOWED IN OTHER YEARS. SIN CE COMMON ISSUES ARE THERE AND FACTS BEING SIMILAR, THESE APP EALS ARE CONSIDERED TOGETHER BY THIS COMMON ORDER. WE HEARD LD. D.R. AND LD. COUNSEL AND PERUSED THE PAPER BOOKS PLACED ON R ECORD FROM PAGES 1 TO 412. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED I N THE BUSINESS OF CIVIL CONTRACTS. DURING THE IMPUGNED AS SESSMENT YEARS IT HAS EXECUTED THE FOLLOWING TYPES OF CONTRACTS I. OWN CONTRACTS II. SUB-CONTRACT GIVEN TO OTHERS III. BACK TO BACK CONTRACTS IV. SUB-CONTRACT RECEIVED FROM OTHERS. 2.1. SEARCH AND SEIZURE OPERATIONS WERE CARRIED OU T IN THIS CASE ON 16.12.2008. CONSEQUENT TO SEARCH, NOTICES U NDER SECTION 153A WERE ISSUED AND ASSESSEE HAS FILED RETURNS OF INCOME DECLARING INCOMES AS PER THE BOOKS OF ACCOUNTS. A.O . CONSIDERING THAT THERE ARE VARIOUS ADJUSTMENTS MADE TO THE ACCO UNTS AND VARIOUS SUB-CONTRACTS GIVEN, REFERRED THE ACCOUNTS TO SPECIAL AUDIT UNDER SECTION 142A AND FINAL ASSESSMENT HAS BEEN MA DE ON THE BASIS OF FINDINGS IN THE SPECIAL AUDIT REPORT AS WE LL AS HIS ENQUIRIES. IN VARIOUS ASSESSMENT YEARS, THE MAIN CO NTENTION OF A.O. WAS THAT ASSESSEE HAS GIVEN SUB-CONTRACTS TO H IS EMPLOYEES/RELATIVES, TO COMPANIES BASED IN KOLKATA, WEST BENGAL WHICH COULD NOT BE TRACED AND CONTRACTS TO ENTITIES WHICH DO NOT 3 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. EXIST. THESE CLASSIFICATION WAS MADE ON THE BASIS O F ENQUIRIES CONDUCTED IN THE CASE OF EMPLOYEES/RELATIVES AND EN QUIRIES MADE WITH INVESTIGATION WING IN KOLKATA ON KOLKATA BASED COMPANIES AND IN SOME CASES WHERE NO DETAILS WERE FURNISHED, EXCEPT THE NAMES AND ALSO ON THE BASIS OF LETTERS ADDRESSED TO SUB- CONTRACTORS RETURNED UN-SERVED AND ALSO WHERE, THOU GH LETTERS WERE SERVED, NO DETAILS WERE RECEIVED. BASICALLY, A .OS CONTENTION WAS THAT ALL THE SUB-CONTRACTS GIVEN BY THE ASSESSE E TO VARIOUS PERSONS UNDER VARIOUS CATEGORIES ARE BOGUS AND DEVI SED ONLY TO REDUCE THE TAXABLE INCOME. THEREFORE, UNDER VARIOUS HEADS ENTIRE SUB-CONTRACT WORK AMOUNTS WERE ADDED AS INCOME OF T HE ASSESSEE. IN ADDITION, THERE WERE DISALLOWANCE UNDER SECTION 40(A)(IA), UNDER SECTION 43B AND DEPRECIATION APART FROM MISCELLANEO US ADDITIONS. THE DETAILS OF INCOMES RETURNED BY THE ASSESSEE AND ADDITIONS MADE BY THE A.O. AS SUBMITTED BY ASSESSEE COUNSEL A RE AS UNDER : S.NO. DESCRIPTION A.Y.2007-08 RS. A.Y.2008-09 RS. A.Y. 2 009-10 RS 1 TOTAL TURNOVER 288,04,38,164 542,09,96,641 739,20,40,753 2 SUB CONTRACT 48,16,35,207 387,67,34,491 535,29,78,058 3 % OF SUB CONTRACT TO TURNOVER 16.72% 71.51% 72.41% 4 ROI 38,66,37,333 54,18,49,810 73,56,55,224 5 ADDITIONS 87,25,19,990 308,03,50,400 450,74,68,896 6 INCOME ASSESSED 125,91,57,323 362,22,00,210 524,31,24,120 7 % OF INCOME ADMITTED TO TURNOVER 13.42% 10% 9.95% 8. % OF INCOME ASSESSED TO TURNOVER 43.71% 66.80% 70.90% 3. BEFORE THE LD. CIT(A), ASSESSEE HAS FURNISHED D ETAILED SUBMISSIONS APART FROM SOME ADDITIONAL EVIDENCE WHI CH WAS ALSO ENQUIRED BY THE A.O. IN REMAND PROCEEDINGS. BASED O N THE REMAND REPORTS AND ALSO REPORT BY THE ADDL. CIT DATED 19 TH FEBRUARY, 2013, LD. CIT(A) PARTLY CONFIRMED SOME OF THE OBSER VATIONS OF THE A.O. WITH REFERENCE TO SUB-CONTRACTS AND PARTLY DEL ETED SOME OF THE ADDITIONS, BUT ULTIMATELY RESORTED TO REJECTION OF BOOKS OF ACCOUNTS 4 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. AND ESTIMATION OF INCOME. LD. CIT(A) IN A.Y. 2008-0 9 HAS CONFIRMED THE ASSESSING OFFICERS OBSERVATIONS THAT VARIOUS SUB CONTRACTS GIVEN ARE ONLY NAME SAKE PARTICULARLY TO THE EMPLOYEES / RELATIVES, SOME OTHER CONCERNS WHOSE NAMES ARE ONLY GIVEN AND TO THAT EXTENT FINDINGS OF THE A.O. THAT THESE SUB-CON TRACTS WERE ONLY NAME SAKE WERE ACCEPTED. HOWEVER, CONSIDERING THAT WORK GOT EXECUTED AND ASSESSEE HAS BILLED AMOUNTS TO MAIN CO NTRACTOR AND SINCE A.O. HAD NOT DISPUTED THE RECEIPT OF THE CONT RACT AMOUNTS, LD. CIT(A) REJECTED THE DISALLOWANCE OF THE ENTIRE SUB CONTRACT AMOUNTS. BASED ON THE REMAND REPORT OF THE A.O. AS WELL AS ADDL. CIT, HE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATE D THE INCOMES AT 12.5% ON THE CONTRACTS, INCLUDING THE SUB-CONTRA CTS GIVEN BY ASSESSEE WHOSE TURNOVER HAS ALREADY REPORTED BY THE ASSESSEE AS ITS TURNOVER AND 8% ON SUB-CONTRACTS UNDERTAKEN BY THE ASSESSEE WHERE ASSESSEE IS NOT THE MAIN CONTRACTOR. ACCORDIN GLY, HE DIRECTED THE A.O. TO ESTIMATE THE INCOMES. IN THE P ROCESS, SOME OF THE STATUTORY DISALLOWANCES MADE BY THE A.O. UNDER SECTION 40(A)(IA) AND 43B WERE ALSO ADJUSTED. 3.1 IN VIEW OF THIS, REVENUE IS IN APPEAL RAIS ING THE GROUNDS AS UNDER : 1. THE LD. CIT(A) ERRED BOTH IN FACTS AND IN LAW IN D ELETING THE ADDITIONS MADE. 2. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CTS THAT THE CASE HAS REFERRED TO SPECIAL AUDIT U/S.142(2A) AND HAS DECIDED MERELY ON THE LEGALITY OF THE ADDITIONS. 3. THE LD. CIT(A) ERRED IN IGNORING THE SUBMISSION MAD E IN REMAND REPORT AND DIRECTED THE A.O. TO ESTIMATE THE INCOME ON A ENTIRE GROSS CONTRACT RECEIPT DESPITE BEING BR OUGHT TO THE NOTICE OF THE LD. CIT(A) (AS DISCUSSED BY LD. CIT(A ) IN THE BODY OF THE ORDER IN PAGE NO.76 FOR A.Y. 2009-10); THAT WHILE RESORTING TO ESTIMATION OF INCOME, THE PAYMENTS MAD E TO 5 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. ALLEGED SUB-CONTRACTS WHEREVER THE CLINCHING EVIDEN CE IS THERE TO SHOW THAT THESE SUB-CONTRACTORS ARE NON-GE NUINE, THE SAME BE KEPT OUT OF THE PURVIEW OF THE ESTIMATI ON WHILE DECIDING THE APPEAL. 4. THE LD. CIT(A) OUGHT TO HAVE EXCLUDED THE ADDITION MADE BY THE A.O. BASED ON CLINCHING EVIDENCE WHILE ESTIMATI NG THE INCOME AND SHOULD HAVE DIRECTED TO MAKE THE ADDITIO N BASED ON CLINCHING EVIDENCE SEPARATELY. 5. THE LD. CIT(A) HAS ERRED IN APPRECIATING THAT WHERE ENQUIRIES WERE MADE AND GOT REPLIES AND CONFESSION BY THE SUB CONTRACTS THAT THEY HAVE NOT DONE ANY WORKS AND THEY HAVE NOT IN RECEIPT OF ANY SUCH AMOUNT I.E., EVEN T HE DENIALS AND DISCREPANCIES FROM SUB-CONTRACTS ALSO IGNORED W HILE TAKING DECISION. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF H EARING. THESE GROUNDS ARE COMMON FOR ALL THE YEARS. 4. LD. D.R. SUBMITTED THAT THE FINDINGS OF THE SPE CIAL AUDIT WERE NOT REFERRED TO BY THE LD. CIT(A) NOR TH E PAYMENTS ALLEGED TO HAVE BEEN MADE IN THE GUISE OF SUB-CONTR ACTS WERE CONFIRMED, EVEN THOUGH ADDL.CIT REPORTED THAT THE S AME MAY BE KEPT OUT OF PURVIEW OF ESTIMATION WHILE DECIDING TH E APPEALS. HE ALSO SUBMITTED THAT SUB CONTRACTS ALLEGEDLY EXECUTE D BY FAMILY MEMBERS AND RELATIVES SHOULD HAVE BEEN DISALLOWED W HILE ESTIMATING THE INCOME. HE REFERRED TO VARIOUS FACTS AS POINTED OUT BY THE A.O. AND REFERRED TO THE ORDERS OF LD. CIT(A ) AND HIS FINDINGS ON EACH ISSUE. 5. LD. COUNSEL, HOWEVER, SUBMITTED THAT A.O. HAS ACCEPTED THAT BOOKS OF ACCOUNTS MAINTAINED BY THE A SSESSEE ARE COMPLICATED SO THE MATTERS WERE REFERRED TO SPECIAL AUDIT WHOSE REPORT, EVEN THOUGH WAS AVAILABLE, WAS NOT CONSIDER ED BY THE A.O. FULLY. MOREOVER, IT WAS SUBMITTED THAT ASSESSEE HAS GOT THE WORK EXECUTED THROUGH SUB CONTRACTS AS ASSESSEE ITSELF C OULD NOT 6 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. UNDERTAKE THE CONTRACTS, IN VIEW OF THE INCREASE IN BUSINESS ACTIVITY AND TURNOVERS AND THE FACT THAT THE MAIN C ONTRACTORS PAID THE AMOUNTS ON COMPLETION OF WORK ITSELF PROVE THAT WORK WAS EXECUTED BY THE ASSESSEE. IN VIEW OF THIS, LD. CIT( A) ESTIMATED THE INCOME, AS CONSIDERED BY THE ITAT IN SIMILAR CASES AND PARTICULARLY RELIED ON THE COORDINATE BENCH DECISIO N IN THE CASE OF KNR CONSTRUCTIONS VS. DCIT, CIT(A)-2 IN MA.NOS.113 & 114/HYD/2012 DATED 12.10.2012. IN VIEW OF THIS, ASS ESSEE IS NOT OBJECTING TO ESTIMATION OF INCOME, WHEREAS ASSESSEE S CROSS- OBJECTIONS IS ON THE JURISDICTION ISSUE. IT WAS CON TENDED THAT A.O. SENT DRAFT ORDER FOR APPROVAL TO THE ADDL.CIT AND L ATER ON DUE TO CHANGE OF INCUMBENT, REVISED THE DRAFT ORDER ON ALT OGETHER DIFFERENT ISSUES AND MADE ADDITIONS. IT WAS THE CON TENTION THAT A.O. WAS PRECLUDED IN REVISING THE ORDER ONCE DRAFT ORDER WAS PREPARED AND SENT TO THE ADDL. CIT FOR APPROVAL ON WHICH APPROVAL WAS ALREADY GRANTED. HOWEVER, IN THE COURSE OF ARGU MENTS, THESE CROSS OBJECTIONS ARE NOT PRESSED, AS THERE IS NO EV IDENCE ON RECORD THAT THE ORIGINAL DRAFT ORDERS WERE APPROVED BY THE ADDL. CIT. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE PAPER BOOK PLACED ON RECORD. THERE IS NO DISPUT E WITH REFERENCE TO THE FACT THAT A.O. DISALLOWED VARIOUS AMOUNTS ONLY OF SUB-CONTRACTS GIVEN BY ASSESSEE AND IN SOME CASES M ONIES SEEMS TO HAVE DEPOSITED OR ADVANCED TO THE DIRECTORS OF T HE ASSESSEE COMPANY. BE THAT AS IT MAY, BOTH THE A.O. AS WELL A S ADDL. CIT IN THE REMAND REPORT AGREED THAT ASSESSMENT OF INCOME AS WAS DONE BY THE A.O. WAS VARYING FROM 43.71% TO 70.90% OF TH E TOTAL TURNOVER AND THEREFORE, ADDL. CIT IN HIS REMAND REP ORT DATED 19.02.2013, SUGGESTED TO THE LD. CIT(A) THAT REASON ABLE ESTIMATION CAN BE RESORTED. HOWEVER, IN THE REPORT THERE WAS N O SPECIFICATION OF ANY CLINCHING EVIDENCE AGAINST THE ASSESSEE REGA RDING NON- 7 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. EXECUTION OF WORK OR UNEXPLAINED EXPENDITURE. THE R EPORT OF THE ADDL. CIT PLACED IN PAPER BOOK AT PAGE NO. 94 TO 98 PARTICULARLY WITH REFERENCE TO FINAL CONCLUSION IS AS UNDER : KEEPING IN VIEW THE NON-GENUINENESS OF THE SUB- CONTRACT PAYMENTS AS ESTABLISHED BY A.O. AFTER DETA ILED DISCUSSION IN THE ASSESSMENT ORDER BUT AT THE SAME TIME KEEPING IN VIEW THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE PROFIT IS ASSESSED AT ABNOR MALLY HIGH AT 70.9% OF THE TURNOVER & CERTAIN BACK TO BACK CON TRACT CONSTITUTES MAJOR PART OF THE TURNOVER, THE LD. CIT (A) MAY DECIDE THE ISSUE ON MERITS AND CONSIDER ESTIMATING THE INCOME IF THE FINDING OF THE AO IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT IS HELD TO BE UNREASO NABLE. HOWEVER, WHEREVER THERE IS CLINCHING EVIDENCE AGAIN ST THE ASSESSEE REGARDING NON-EXECUTION OF WORK OR UNEXPLA INED EXPENDITURE, IT IS REQUESTED THAT THE SAME SHOULD BE UPHELD AND SHOULD BE KEPT OUT OF THE PURVIEW OF ESTIMATION IF THE LD. CIT(A) DECIDES TO ESTIMATE THE INCOME. 6.1. THEREFORE, THERE IS NO OBJECTION FOR ESTIMAT ION OF INCOME BY THE REVENUE. MOREOVER, THE GROUNDS AS RAI SED BY THE REVENUE ARE ALSO NOT ON THE ISSUE OF RESORTING TO E STIMATION AFTER REJECTING THE BOOKS OF ACCOUNTS. THE ONLY ISSUE WHI CH THE REVENUE IS CONTENDING THAT THE LD. CIT(A) SHOULD HAVE EXCLU DED THE AMOUNTS ON WHICH THERE IS CLINCHING EVIDENCE AGAINS T THE ASSESSEE REGARDING NON-EXECUTION OF WORK OR UNEXPLAINED EXPE NDITURE. NEITHER THE A.O. NOR THE ADDL. CIT(A) IN THE REMAND REPORT INDICATED OR QUANTIFIED THE AMOUNTS ON WHICH THERE WAS CLINCHING EVIDENCE AGAINST THE ASSESSEE. IN FACT, LD. CIT(A) ALSO CONSIDERED THIS ISSUE AND HIS FINDINGS ARE AS UNDER : REASONS FOR ESTIMATION: AFTER A CAREFUL ANALYSIS OF THE SUBMISSIONS AND EVI DENCES FILED BY THE APPLICANT FROM TIME TO TIME VIS-A-VIS THE FACTS OF THE CASE, I AM OF THE OPINION THAT THERE IS CONSIDE RABLE FORCE IN THE CONTENTION OF THE APPELLANT WITH REGARD TO D ISALLOWANCE OF SUB-CONTRACT EXPENDITURE. AS IS EVIDENT FROM THE DETAILED 8 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. SUB-CONTRACT SUBMISSIONS MADE BY THE APPELLANT, WIT H REGARD TO THE GROUNDS OF DISALLOWANCE OF SUB-CONTRACT EXPE NDITURE, SUCH DISALLOWANCE MADE BY THE AO WAS PRIMARILY BASE D ON CERTAIN PRESUMPTIONS, SUSPICION AND ON THE GROUND O F UNVERIFIABLE NATURE OF EXPENDITURE. IT IS AN UNDISP UTED FACT THAT ALL THE RECEIPTS IN RESPECT OF THE WORKS GIVEN ON SUB- CONTRACT WERE OFFERED AS INCOME BY THE APPELLANT AN D NO SUPPRESSION OF RECEIPTS WAS NOTICED EITHER DURING T HE COURSE OF SEARCH OR ASSESSMENT PROCEEDINGS. EVEN THE AO HA S ACCEPTED SUCH RECEIPTS AS INCOME OF THE APPELLANT. NEITHER THE SPECIAL AUDITOR HAD GIVEN ANY ADVERSE FINDING, WITH ANY COGENT EVIDENCE, NOR THE AO HAD BROUGHT ANY CLINCHI NG EVIDENCE ON RECORD TO PROVE THAT EITHER THE WORK WA S NOT ACTUALLY EXECUTED OR ANY OTHER WORK EXPENDITURE WAS DEBITED IN ITS BOOKS, IN ADDITION TO THE SUB-CONTRACT EXPEN DITURE, IN RESPECT OF WORKS SUBLET TO SUCH SUB-CONTRACTORS. FU RTHER, THE AO INFERRED FROM THE SEIZED DOCUMENTS ENCLOSED AS ANNEXURE-I TO III TO THE ASSESSMENT ORDER THAT THE APPELLANT MANIPULATED ITS ACCOUNTS TO INFLATE SUB-CONTRACT EX PENDITURE. HOWEVER, THE DETAILED SUBMISSIONS OF THE APPELLANT THAT EVEN ASSUMING, WITHOUT ADMITTING, THAT ALL THE ENTRIES T HEREIN WERE AIMED AT MANIPULATING THE BOOKS OF ACCOUNT, THE NET EFFECT OF SUCH ENTRIES WOULD GO TO INCREASE THE INCOME OF THE APPELLANT COMPANY, BUT NOT OTHERWISE, AS ALLEGED BY THE AO, W AS ALSO NOT CONTROVERTED BY THE AO. A CAREFUL READING OF SU CH INFORMATION CLEARLY SUBSTANTIATES THE APPELLANT'S C ONTENTIONS. ALL THE PAYMENTS WERE MADE TO THE SUB-CONTRACTORS THROUGH BANKING CHANNELS AND AS RIGHTLY ARGUED BY T HE APPELLANT THERE WAS NEITHER, A NY ALLEGATION THAT THE APPELLANT RECEIVED BACK SUCH AMOUNTS, NOR WAS ANY EVIDENCE TO THAT EFFECT FOUND/GATHERED, EITHER DURI NG THE SEARCH OR ASSESSMENT PROCEEDINGS. EVEN OTHERWISE IT IS A SETTLED PRINCIPLE OF LAW THAT WHEN THE RECEIPTS/INC OME, IN RESPECT OF THE WORKS GIVEN ON SUB-CONTRACT, ARE ACC EPTED, THE CORRESPONDING EXPENDITURE FOR EARNING SUCH INCOME C ANNOT BE DISALLOWED IN FULL EVEN ASSUMING THAT THE SUB-CO NTRACTS WERE NOT ESTABLISHED TO THE FULLEST SATISFACTION OF THE AO. DESPITE SUBMISSIONS OF ONE-TO-ONE CORRELATION OF TH E PROJECTS EXECUTED, THE AO FAILED TO ASSESS THE IMPACT OF THE DISALLOWANCE OF THE EXPENDITURE RELATING TO A PROJE CT IN TOTO. THE DISALLOWANCE OF THE ENTIRE EXPENDITURE, RELATIN G TO THE ACTUAL EXECUTION OF WORK, THE INCOME FROM WHICH IS ADMITTED BY THE APPELLANT AND ACCEPTED BY THE AO, RESULTED I N ABNORMALLY HIGH PROFITS. IT IS A FACT THAT APART FR OM THE SUB- CONTRACT EXPENDITURE, NO OTHER EXPENDITURE WAS CLAI MED ON 9 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. SUCH WORKS. THE FACTUAL ANALYSIS OF PROFITS RESULTI NG FROM SUCH DISALLOWANCE, FILED BY THE APPELLANT, WAS ALSO NOT CONTROVERTED BY THE AO. THE DISALLOWANCE OF MOST OF THE SUB-CONTRACT EXPENDITURE HAS LED TO A SITUATION WHE RE THE ASSESSED INCOME WAS ABOUT 30.29% OF THE NET CONTRAC T RECEIPTS, FOR THE AY 2007-08, WHICH IS IMPOSSIBLE T O ACHIEVE IN THIS LINE OF BUSINESS. IN FACT, THE ADDITIONAL CIT, CENTRAL RANGE-2, HYDERABAD, HAS CONCURRED WITH THIS VIEW, IN HIS FOR WARDING COMMENTS VIDE LETTER DATED 19.02.2013 FOR THE AY 20 08-09 & 09-10. FURTHER, IT IS ALSO AN UNDISPUTED FACT THAT DESPITE A THOROUGH SEARCH AT THE PREMISES OF THE APPELLANT, N O ASSETS OVER AND ABOVE THOSE RECORDED IN THE BOOKS WERE FOU ND TO JUSTIFY THE HUGE ADDITIONS/ DISALLOWANCES MADE IN T HE IMPUGNED ASSESSMENT. THE AO FAILED TO ESTABLISH ANY NEXUS BETWEEN THE ALLEGED SUPPRESSED INCOME AND CORRESPONDING INVESTMENTS IN ASSETS. HOWEVER, IT IS ALSO A FACT THAT THE APPELLANT COULD NOT ESTABLISH THE ENT IRE SUB- CONTRACT EXPENDITURE TO THE SATISFACTION OF THE AO. NEITHER THE APPELLANT NOR THE AO/HAD CONCLUSIVELY PROVE D THAT BOOKS MAINTAINED BY THE APPELLANT ARE RELIABLE AND RESULT S SHOWN THERE OFF REFLECT THE TRUE AND CORRECT INCOME OF TH E APPELLANT. THE AO EVEN AFTER SPECIAL AUDIT HAD NOT BROUGHT OUT ANY CLINCHING EVIDENCE FOR NON EXECUTION OF WORK AND BOGUS NATURE OF EXPENDITURE. IN VIEW OF THE ABOVE FACTS, I AM OF TH E OPINION THAT IT IS A FIT CASE FOR REJECTION OF BOOKS AND CONSEQU ENT ESTIMATION OF INCOME, PRESUMING THAT SUB-CONTRACT WORKS INCLUDING BACK-TO- BACK WERE EXECUTED BY THE APPELLANT COMPANY ITSELF. IN FACT, THE ADDITIONAL CIT, CENTRAL RANGE-2, VIDE HIS LETTER DA TED 19.02.2013, RECOMMENDED ALTERNATIVELY FOR ESTIMATIN G THE INCOME AND WHEREVER CLINCHING EVIDENCE WAS AVAILABL E AGAINST THE APPELLANT REGARDING NON-EXECUTION OF WORK OR UN EXPLAINED EXPENDITURE, THE SAME SHOULD BE KEPT OUT OF THE PUR VIEW OF ESTIMATION, WHILE DECIDING THE APPEAL. HOWEVER, AS SEEN FROM THE RECORD, NO CLINCHING EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE WORKS WERE NOT ACTUALLY EXECUTED. SIM ILARLY, AS IS EVIDENT FROM THE ASSESSMENT ORDER ITSELF, NO ADDITI ON HAS BEEN MADE ON ACCOUNT OF UNEXPLAINED EXPENDITURE. AS THE APPELLANT IS IN THE BUSINESS OF CIVIL CONTRA CTS, ENDS OF JUSTICE WOULD BE MET IF THE INCOME FROM BUSINESS IS ESTIMATED. ACCORDINGLY, I DIRECT THE AO TO ESTIMATE @ 12.5% IN RESPECT OF RECEIPTS ON ACCOUNT OF CONTRACTS RECEIVED DIRECTLY BY THE APPELLANT FROM THE CONTRACTEES, IN WHICH CASE, THE APPELLANT COMPANY ITSELF WILL BE THE MAIN CONTRACTOR AND @ 8% ON WORKS 10 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. TAKEN ON SUB-CONTRACT FROM PRINCIPAL CONTRACTORS. O N SIMILAR FACTS, IN THE APPELLANT'S OWN CASE FOR A.Y.2008-09 AND 2009-10, THE ADDL CIT, CENTRAL RANGE ALTERNATIVELY RECOMMEND ED FOR ESTIMATION OF INCOME. THE DETAILS OF SUB-CONTRACTS RECEIVED AND EXECUTED FOR THE AY 2007-08, IS SHOWN IN THE TABULA R FORM AS UNDER : DESCRIPTION CONTRACT RECEIPTS (RS.) TO BE ESTIMATED NOW (%) TOTAL INCOME ESTIMATED NOW FOR TAXATION (RS.) SUB CONTRACT RECEIVED FROM OTHERS. 333388010 8% 26671041 DIRECT WORKS RECEIVED 2547050154 12.50% 318381269 TOTAL TURNOVER 2880438164 TOTAL 345052310 THIS RATE OF PERCENTAGE IS ADOPTED BASED ON THE VAR IOUS JUDICIAL DECISIONS FROM TIME TO TIME AND ALSO THE DECISION BY HON'BLE ITAT, HYDERABAD IN THE CASE OF KNR CONSTRUC TIONS VS DCIT, C-2, IN MA NOS. 113 & 114/HYD/2012, DATED 12.10.2012. THE OBSERVATIONS OF THE HON'BLE TRIBUNA L IS AS UNDER: ...... , THE ARGUMENT OF THE ASSESSEE COUNSEL IS TH AT THE ASSESSEE IS ALSO UNDERTAKEN SUB CONTRACT FROM OTHER CONTRACTORS. HOWEVER, THE AO NOT CONSIDERED THE SAM E SINCE THE ASSESSEE FAILED TO FURNISH THE AGREEMENT OR WORK ORDERS OR CONFIRMATION FROM THE SUB- CONTRACTO RS TO PROVE THAT THE ASSESSEE HAS TAKEN SUB-CONTRACT. IN THE EVENT, ASSESSEE HAS EXECUTED CONTRACT ON SUB CONTRACT BASIS, THE PROFIT MARGIN CANNOT BE SAME AS CONTRACTS EXECUTED ON OWN. IF THE ASSESSEE IS ABLE TO PROVE THAT IT HAS CARRIED OUT THE SUB CONTRACT AND ON THAT CONTRACT THE PERCENTAGE OF PROFIT TO BE ESTIMA TED 8% SINCE THE ASSESSEE HAS TO FOREGO CERTAIN PROFIT ON SUB-CONTRACT BASIS AND THE PROFIT CANNOT BE SAME AS IN THE CASE OF MAIN CONTRACTS GOT AND EXECUTED BY ASSESSEE OWN. HENCE WE DIRECT THE AO TO RE-COMPUTE THE PROFIT ON MAIN CONTRACT AT 12.5% AS HELD BY TRIBUNAL IN THE CASE CITED SUPRA AND ON SUB CONTRAC T 8% OF THE CONTRACT RECEIPT ... IN THE INSTANT CASE, THE AO HAS NOT DISPUTED THE SU B- CONTRACTS RECEIVED BY THE APPELLANT. HE HAS ONLY DI SPUTED THE SUB-CONTRACTS GIVEN TO OTHERS. THIS OFFICE HAS OBTA INED THE DETAILS OF WORK ORDERS RELATING TO SUB-CONTRACTS RE CEIVED BY THE APPELLANT, WHICH WERE FURNISHED BY THE APPELLAN T DURING 11 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. THE COURSE OF APPELLATE PROCEEDINGS. HENCE, THE ABO VE METHOD OF 8% ON SUB-CONTRACTS RECEIVED BY THE APPELLANT IS SQUARELY APPLICABLE IN THIS CASE, AND IS ACCORDINGLY ESTIMAT ED, WHICH IS SHOWN IN THE ABOVE TABLE. IT IS FURTHER CLARIFIED THAT THIS ESTIMATION DIRECT ED ABOVE TAKES CARE OF THE SHORTCOMINGS/DISCREPANCIES NOTICED WITH REGARD TO VARIOUS CONTRACT WORKS OF TH E APPELLANT FOR THE AY 2007-08. THEREFORE, NO FURTHER DISALLOWANCE/STATUTORY DEDUCTIONS ENVISAGED IN SECT ION 30 TO 43D OF THE ACT, IS CALLED FOR SEPARATELY, SIN CE, THE ESTIMATION TAKES CARE OF THE ABOVE STATUTORY DISALLOWANCES/DEDUCTIONS. HOWEVER, IT MAY BE CLARIFIED THAT IF IT IS FOUND BY THE AO THAT INCOME, DETERMINED BY ADOPTING THE PERCENTA GE AS DIRECTED ABOVE, IS LESS THAN THE TOTAL INCOME RE TURNED, THEN SUCH RETURNED INCOME SHOULD BE ADOPTED FOR THE PURPOSE OF COMPUTATION OF INCOME AND THE DISALLOWAN CE OF INTEREST AND DISALLOWANCE U/S 438 UNDER ADDITION NO S.VII & VIII RESPECTIVELY, SHOULD ALSO BE CONSIDERED FOR DETERMINING THE TOTAL INCOME. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED, SUBJEC T TO MY OBSERVATIONS AS ABOVE. 6.2. BASED ON THE ABOVE IN A.Y. 2008-09, SIMILAR DIRECTIONS WERE GIVEN IN OTHER YEARS. 7. BEFORE US, REVENUE COULD NOT POINT OUT ANY OF T HOSE CLINCHING EVIDENCES WHICH ARE TO BE EXCLUDED FROM T HE TURNOVER OR TO BE BROUGHT TO TAX SEPARATELY. IN THE ABSENCE OF ANY QUANTIFICATION OF THE AMOUNTS EITHER BY THE A.O. OR BY THE ADDL. CIT IN THEIR REPORTS OR BEFORE US BY ANY PARTICULAR MEANS, WE ARE NOT IN A POSITION TO DIFFER FROM THE ORDERS OF THE LD. CIT(A) GIVEN ON THE FACTS. LD. CIT(A) SEEMS TO HAVE EXAMINED ALL TH E ISSUES, ACCEPTED PART OF THE FINDINGS OF THE A.O. THAT THE SUB-CONTRACTS ARE ONLY NAME SAKE. HOWEVER, HE DID NOT AGREE FOR DISAL LOWANCE OF ENTIRE SUB-CONTRACT EXPENDITURE WHEN THE PROJECT WA S UNDERTAKEN BY THE ASSESSEE AND CONTRACT RECEIPTS WERE ACCOUNTE D FOR. IN VIEW 12 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. OF THIS, AS BOTH THE AUTHORITIES OF REVENUE ACCEPTE D THE ESTIMATION OF INCOME AND AS LD. CIT(A) RESORTED TO ESTIMATION BASED ON THE NORMS ALREADY BEEN FORMED IN THIS REGARD I.E., ESTI MATION OF INCOME AT 12.5% ON THE MAIN CONTRACTS AND 8% ON SUB -CONTRACTS UNDERTAKEN, WE DO NOT SEE ANY REASON TO INTERFERE W ITH THE ORDER OF THE LD. CIT(A). AS SEEN FROM THE CONSEQUENTIAL ORDE RS PASSED BY THE A.O. EXCEPT IN A.Y. 2007-08 WHERE INCOME RETURN ED IS MORE THAN THE ESTIMATION, IN OTHER YEARS THE ASSESSED IN COME IS MORE THAN THE INCOME RETURNED BY THE ASSESSEE. IN VIEW O F THIS, WE UPHOLD THE ORDERS OF LD. CIT(A). SINCE REVENUE HAS NOT QUESTIONED THE ESTIMATION AT THE ABOVE RATES AND SINCE NO EVID ENCE HAS BEEN FILED TO ESTABLISH THE CLINCHING EVIDENCE OF NON-EX ECUTION OF CONTRACT WORK OR UNEXPLAINED EXPENDITURE, THE GROUN DS RAISED BY THE REVENUE DO NOT REQUIRE ANY CONSIDERATION ON MER ITS. ACCORDINGLY, THEY ARE REJECTED. 8. ASSESSEES CROSS OBJECTIONS BECOMES ACADEMIC AN D IN FACT, IN THE COURSE OF PRESENT PROCEEDINGS, LD. COU NSEL AGREED TO WITHDRAW THE SAME. IN VIEW OF THIS, CROSS OBJECTION S ARE DISMISSED AS WITHDRAWN. 9. IN THE RESULT, APPEALS OF THE REVENUE AND CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.09.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 05 TH SEPTEMBER, 2014 VBP/- 13 ITA.NO.1153, 1154 & 1155/H/2013 & C.O.NO.53, 54 & 55/HYD/2013 M/S. AMR CONSTRUCTIONS LTD., HYDERABAD. COPY TO 1. DCIT, CENTRAL CIRCLE-3, 8 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. AMR CONSTRUCTIONS LTD., 8-3-833, PLOT NO.37 & 38, PHASE-3, KAMALAPURI COLONY, HYDERABAD 500 073. 3. CIT(A) V, HYDERABAD + 5 COPIES. 4. CIT-(CENTRAL), HYDERABAD 5. D.R. B BENCH, ITAT, HYDERABAD.