ITO, Ward -2., Nellore V. M/s Bollineni Constructions, Nellore

CO 82/HYD/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7187 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 24-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS SHRI K VISWANATHAM
• Keywords: Depreciation; Principle of natural justice

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 NO.1542/HYD/2011 : ASSESSMENT YEAR 2008-09 INCOME-TAX OFFICER, WARD-2, NELLORE. V/S. M/S. BOLLINENI CONSTRUCTIONS, NELLORE. ( PAN - AAHFB 9677 M ) (APPELLANT) (RESPONDENT) C.O. NO.82/HYD/2011 (IN ITA NO.1542/HYD/2011) : ASSESSMENT YE AR 2008-09 M/S. BOLLINENI CONSTRUCTIONS, NELLORE. ( PAN - AAHFB 9677 M ) V/S. INCOME - TAX OFFICER, WARD - 2, NELLORE. (CROSS - OBJECTOR) (APPELALNT - IN - APPEAL) DEPARTMENT BY : SHRI V.SRINIVAS &SHRI K.VISWANATHAM ASSESSEE BY : NONE DATE OF HEARING 20.3.2012 DATE OF PRONOUNCEMENT 18.5.2012 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE AND CROSS-OBJEC TION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT( A) GUNTUR DATED 29.6.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. EFFECTIVE GRIEVANCE OF THE REVENUE IN ITS APPE AL IS AGAINST THE RELIEF GRANTED BY THE CIT(A), BY DIRECTING THE ASSESSING O FFICER TO DETERMINE THE INCOME OF THE ASSESSEE BY ESTIMATING THE SAME AT 8 % INSTEAD OF 12.5%, AND ALSO DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUC TIONS IN RESPECT OF INTEREST ON ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 2 CAPITAL AND REMUNERATION PAID TO PARTNERS AND DEPRE CIATION OUT OF THE INCOME SO DETERMINED. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS. FOR THE ASSESSMENT YEAR 2008-09, ASSESSEE FILED E-RETURN OF INCOME ON 30.9.2008, DEC LARING TOTAL INCOME OF RS.1,84,800. DURING THE FINANCIAL YEAR 2007-08, REL EVANT TO THE ASSESSMENT YEAR 2008-09, ASSESSEE HAS SHOWN CONTRACT RECEIPTS AMOUN TING TO RS.2,36,76,132 AND NET PROFIT AT RS.1,84,800, AFTER CLAIMING EXPE NSES UNDER VARIOUS HEADS, WHICH GAVE A PROFIT PERCENTAGE OF 0.78%. WHILE COM PLETING THE ASSESSMENT, THE ASSESSING OFFICER FOUND THE PERCENTAGE OF PROFIT SH OWN BY THE ASSESSEE TO BE VERY LOW IN ITS LINE OF COMMERCIAL ACTIVITY. HENCE , DURING THE COURSE OF SCRUTINY PROCEEDINGS, ASSESSING OFFICER ASKED THE LEARNED AU THORIZED REPRESENTATIVE FOR THE ASSESSEE TO FILE BOOKS OF ACCOUNT AND BILLS AND VOUCHERS FOR THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR 2 007-08. HOWEVER, THE ASSESSEE COULD NOT PRODUCE THE SAME TILL COMPLETION OF ASSESSMENT AND EXPRESSED THAT HE IS UNABLE TO PRODUCE THE SAME AND EVIDENCE FOR THE EXPENDITURE CLAIMED. IN THIS VIEW OF THE MATTER, SINCE THE ASSESSEE COULD NOT ADDUCE ANY VALID EXPLANATION FOR THE LOW PROFIT DIS CLOSED, AND ALSO COULD NOT PRODUCE THE BOOKS OF ACCOUNT AS PER THE PROVISIONS OF S.145(3) OF THE ACT, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS, AND PR OCEEDED TO ESTIMATE THE NET PROFIT OF THE ASSESSEE AT 8% OF THE GROSS RECEIPTS. ON THAT BASIS, WORKING OUT THE NET PROFIT OF THE ASSESSEE AT 8% OF THE GROSS R ECEIPTS OF RS.2,36,76,132, THE ASSESSING OFFICER DETERMINED THE INCOME OF THE ASSE SSEE AT RS.18,94,090 AND COMPLETED THE ASSESSMENT ACCORDINGLY ON SUCH INCOME , VIDE ORDER OF ASSESSMENT DATED 23.12.2010 PASSED UNDER S.143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT THUS MADE, THE ASSE SSEE PREFERRED APPEAL BEFORE THE CIT(A) AND ALSO FILED ELABORATE W RITTEN SUBMISSIONS, RAISING THE FOLLOWING OBJECTIONS AGAINST THE ASSESSMENT, DULY M ENTIONING THE CASE-LAWS IN SUPPORT THEREOF- ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 3 (A) THE ASSESSING OFFICER ERRED IN NOT ISSUING A SHOW-C AUSE NOTICE RELATING TO THE CONTENTS OF THE ASSESSMENT ORDER UN DER QUESTION BEFORE THE ORDER IS PASSED, WHICH IS AGAINST THE PR INCIPLES OF NATURAL JUSTICE. (B) THE ASSESSING OFFICER ERRED IN ESTIMATING INCOME AT 8% ON TURNOVER ARBITRARILY WITHOUT ANY BASIS OF ESTIMATING THE SAM E. (C) THE ASSESSING OFFICER ERRED IN NOT CONSIDERING THE FACT WHILE ESTIMATING THE INCOME THAT ASSESSEE IS A SUB-CONTRA CTOR AND NOT THE MAIN CONTRACTOR (D) THE ASSESSING OFFICER ERRED IN NOT ALLOWING AS A DE DUCTION THE DEPRECIATION, INTEREST AND REMUNERATION PAID TO PAR TNERS FROM THE INCOME ESTIMATED WHICH OUGHT TO HAVE BEEN ALLOWED. (E) THE ASSESSING OFFICER ERRED IN NOT CONSIDERING THE AVERAGE PROFITS OF THE ASSESSEES IN EARLIER YEARS WHILE ESTIMATING THE INCOME. (F) THE ASSESSING OFFICER ERRED IN NOT CONSIDERING THE AVERAGE PROFITS OF OTHER ASSESSEES ENGAGED IN THE SIMILAR BUSINESS (G) THE CASE LAWS MENTIONED BY THE AO BEAR NO CITATIONS AND HENCE, ARE VAGUE AND NOT VERIFIABLE. WITH UTMOST DIFFICULTY T HE CITATION IN RESPECT OF VISHAL INFRASTRUCTURES LTD. COULD BE TRA CED OUT AS 104 ITD 537-(HYD). THAT DECISION OF THE TRIBUNAL, WHEREIN ASSESSING OFFICER WAS DIRECTED TO ACCEPT THE BOOK RESULTS AND NOT TO ESTIMATE THE INCOME IS IN FACT FAVOURABLE TO THE ASSESSEE AND AG AINST THE ASSESSING OFFICER, AND THE ACTION OF THE ASSESSING OFFICER IN CITING THIS DECISION FOR ESTIMATION OF PROFIT AT 8% IS HIGHLY U NJUST AND NOT TENABLE. (H) THE CONCLUDING PART OF THE ASSESSMENT ORDER SAYING HENCE THE PROFIT IS ESTIMATED AT 8% OF GROSS RECEIPTS TO DETE RMINE THE TAXABLE INCOME DOES NOT MEET THE ENDS OF JUSTICE UNLESS DE PRECIATION, INTEREST REMUNERATION TO PARTNERS ARE DEDUCTED FROM THE PROFIT SO ESTIMATED. ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 4 5. THE CIT(A), AFTER DUE CONSIDERATION OF THE SU BMISSIONS OF THE ASSESSEE, OBSERVED THAT WHEN ESTIMATION OF INCOME I N THE CASE OF A PARTNERSHIP IS MADE THEN WHILE DETERMINING THE TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION, THE AO IS DUTY BOUND TO ALLOW REMUNE RATION OF THE WORKING PARTNERS, INTEREST PAID ON PARTNERS CAPITAL ACCOUN TS AND DEPRECIATION. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONS AS TO W HY HE HAS NOT ALLOWED THESE CLAIMS OF THE ASSESSEE, WHICH ARE LEGALLY SUPPORTED BY VARIOUS DECISIONS OF APPELLATE AUTHORITIES. THE CIT(A) ACCORDINGLY DIRE CTED THE ASSESSING OFFICER TO REDETERMINE THE TOTAL INCOME AFTER ALLOWING REMUNER ATION TO WORKING PARTNERS, INTEREST ON CAPITALS OF THE PARTNERS AND ALSO DEPRE CIATION, DULY ENSURING THAT THE INCOME THUS DETERMINED SHALL NOT BE LESS THAN THE I NCOME RETURNED BY THE ASSESSEE AND IF IT GOES BELOW THE RETURNED INCOME, TO FINALISE ASSESSMENT ON THE RETURNED INCOME ONLY BY SUITABLY RESTRICTING THE A BOVE DEDUCTIONS. 6. AGGRIEVED BY THE RELIEF GRANTEED BY THE CIT(A), AS ABOVE RVENUE HAS PREFERRED APPEAL BEFORE US. THE ASSESSEE HAS FILED CROSS-OBJECTIONS IN THE APPEAL OF THE REVENUE, SUPPORTING THE ORDER OF THE CIT(A). 7. AT THE TIME OF HEARING, NONE APPEARED FOR THE A SSESSEE RESPONDENT. THOUGH A PETITION SEEKING ADJOURNMENT OF HEARING SC HEDULED FOR 20.3.2012, ON HEALTH GROUNDS, WAS RECEIVED ON 13.3.2012 BY POST F ROM THE CA OF THE ASSESSEE, THE SAME WAS REJECTED AS THE ISSUE INVOLVED IN THE SE MATTERS IS SIMPLE AND COVERED ONE. ACCORDINGLY, WE PROCEEDED TO HEAR THE LEARNED DEPARTMENTAL REPRESENTATIVE AND TO DISPOSE OFF THESE MATTERS EX- PARTE ON MERITS QUA THE ASSESSEE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE INCOME OF THE ASSESSEE HAVING BEEN ESTIMATED AT 8% INSTEAD OF 12.5% AS DECIDED BY THE HONBLE ITAT HYDERABAD IN THE CASE OF KIMC CONS TRUCTIONS, THE CIT(A) OUGHT NOT HAVE DIRECTED TO ALLOW INTEREST ON CAPITAL, REM UNERATION PAID TO PARTNERS AND DEPRECIATION. HE FURTHER SUBMITTED THAT THE ASSESS EE IN THE PRESENT CASE COULD ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 5 NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE EXPENDIT URE INCURRED INCLUDING INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS NO R THE ASSET ACCOUNT FOR ALLOWING DEPRECIATION. HE FURTHER SUBMITTED THAT THIS IS A CASE OF NO BOOKS OF ACCOUNT, BUT NOT DEFICIENT BOOKS OF ACCOUNT, TO ALL OW INTEREST ON CAPITAL AND REMUNERATION PAID TO THE PARTNERS ETC. HE ALSO CON TENDED THAT IN THE ABSENCE OF ANY BOOKS OF ACCOUNT OR DOCUMENTS WHATSOEVER FILED BY THE ASSESSEE, THERE IS NOTHING TO ALLOW AFTER ARRIVING AT THE PROFIT END B EFORE ARRIVING AT THE TAXABLE INCOME. THE CIT(A), IT IS SUBMITTED SHOULD HAVE APPRECIATED THE NOTING MADE BY THE ITO THAT THERE IS NEITHER BOOKS OF ACCOUNT N OR EVIDENCE FOR EXPENDITURE, AND THEREFORE, THE OBSERVATION OF THE CIT(A) THAT T HE ASSESSING OFFICER HAS NOT ADDUCED ANY REASONS FOR NOT ALLOWING INTEREST ON CA PITAL, REMUNERATION PAID TO PARTNERS, ETC. IS UNJUSTIFIED AND UNWARRANTED. 9. THROUGH THE ELABORATE GROUNDS RAISED IN THE CRO SS-OBJECTIONS, THE ASSESSEE COUNTERED THE GROUNDS OF THE REVENUE IN IT S APPEAL, WHICH HAVE BEEN HIGHLIGHTED BY THE LEARNED DEPARTMENTAL REPRESENTAT IVE IN HIS ARGUMENTS NOTED IN THE PRECEDING PARA. 10. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATI VE AND PERUSED THE MATERIAL ON RECORD, INCLUDING THE ORDERS OF THE REV ENUE AUTHORITIES AND THE PAPER-BOOKS FILED BY THE ASSESSEE, ALREADY ON RECOR D. IT IS AN UNDISPUTED FACT THAT THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE, WHO IS ENGAGED IN EXECUTING CIVIL CONTRACTS AS A SUB-CONTRACTOR, B Y ADOPTING A RATE OF 8% ON THE GROSS RECEIPTS. THE ASSESSING OFFICER NEITHER CONS IDERED NOR ALLOWED ANY DEDUCTION TOWARDS EXPENDITURE OR OTHERWISE, OUT OF THE INCOME SO DETERMINED. THE CIT(A), BY THE IMPUGNED ORDER, DIRECTED THE ASS ESSING OFFICER TO SEPARATELY ALLOW DEDUCTION TOWARDS DEPRECIATION, INTEREST ON C APITAL, REMUNERATION TO PARTNERS OUT OF THE INCOME SO DETERMINED. THE GRIE VANCE OF THE REVENUE IN ITS APPEAL IS THAT THE INCOME OF THE ASSESSEE HAVING BE EN ALREADY ESTIMATED AT 8% AS AGAINST 12.5% IN SIMILAR CASES AS APPROVED BY TH E TRIBUNAL IN THE CASE OF KMC CONSTRUCTIONS, NO SEPARATE DEDUCTION IS JUSTIFI ED, AND IN ANY EVENT THE ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 6 ASSESSING OFFICER WAS JUSTIFIED IN NOT GRANTING THE SAME IN THE ABSENCE OF BOOKS OF ACCOUNT OR OTHER EVIDENCE ADDUCED BY THE ASSESSE E BEFORE THE ASSESSING OFFICER. WE FIND THAT THE COORDINATE BENCHES IN SIM ILAR CASES, AS IN ACIT V/S. RISHI PROJECTS DATED 12.4.2012 IN ITA NO.982/HYD/20 11, TO WHICH BOTH OF US ARE PARTIES, HAVE BEEN CONSISTENTLY UPHOLDING ESTIMATIO N OF NET PROFIT IN CASE OF WORKS EXECUTED BY AN ASSESSEE ON SUB-CONTRACT BASIS AT 8% . WE FIND THAT EVEN THE ISSUES RELATING TO ALLOWABILITY OF SEPARATE DED UCTIONS IN RESPECT OF DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS, OUT OF SUCH INCOME DETERMINED BY RESORTING TO ESTIMATION, ARE C OVERED BY THOSE DECISIONS OF THE TRIBUNAL IN SIMILAR MATTERS. THE RELEVANT PORT IONS OF THE TRIBUNAL IN THE AFORESAID ORDER OF THE TRIBUNAL DATED 12.4.2012 ARE REPRODUCED BELOW FOR READY REFERENCE. 3. ON CAREFUL CONSIDERATION OF THE MATTER, WE FIND THAT AS FAR AS RATE TO BE ADOPTED FOR ESTIMATION OF INCOME IS CONCERNED, THIS TRIBUNAL HAS BEEN CONSISTENTLY HOLDING, AS IN ITS RECENT DECISION IN ITA NO.1191/HYD.2011 IN ACIT V/S. TEJA CONSTRUCTIONS SECUNDERABAD FOR THE A SSESSMENT YEAR 2006- 07 VIDE ORDER DATED 17 TH FEBRUARY, 2012, TO WHICH BOTH OF US ARE PARTIES, TH AT ESTIMATION OF INCOME AT 9% IN RESPECT OF THE CONTRA CTS TAKEN BY THE ASSESSEE ITSELF AND EXECUTED BY IT; AT 8% IN RESPECT OF RECE IPTS FROM SUB-CONTRACT WORKS TAKEN FROM OTHERS AND EXECUTED BY THE ASSESSE E; AND 4% OF THE GROSS RECEIPTS IN RESPECT OF CONTRACTS GIVEN BY THE ASSES SEE TO THIRD PARTIES ON SUB-CONTRACT BASIS, AS REASONABLE. IN CONSONANCE WI TH THE VIEW TAKEN IN SIMILAR CASES, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE INCOME OF THE AS SESSEE AT 9% OF THE GROSS RECEIPTS IN RESPECT OF CONTRACTS TAKEN ON IT S OWN AND EXECUTED BY THE ASSESSEE ITSELF, AND AT 8% IN RESPECT TO RECEIPTS F ROM SUB-CONTRACT WORKS TAKEN FROM OTHERS AND EXECUTED BY THE ASSESSEE. REV ENUES GROUNDS ON THIS ASPECT ARE PARTLY ALLOWED. 9. AS FOR THE ALLOWABILITY OF DEPRECIATION OUT OF E STIMATED INCOME IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN SIMILAR MA TTERS, AS IN ITA NO.1191/HYD/2011 IN THE CASE OF M/S. TEJA CONSTRUCT IONS, SECUNDERABAD, NOTED ABOVE, HAS BEEN CONSISTENTLY HOLDING THAT DEP RECIATION BEING AN ALLOWABLE DEDUCTION UNDER S.32 OF THE ACT, AND SINC E ALL OUT GOINGS FALLING UNDER S.30 TO 38 ARE DEEMED TO HAVE BEEN ALLOWED WH ILE ESTIMATING THE INCOME, NO SEPARATE DEDUCTION IS ALLOWABLE IN RESPE CT OF THE SAME OUT OF THE ESTIMATED INCOME IN THIS RESPECT. IN THIS VIEW OF T HE MATTER, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ASPECT, AND RESTORE THE ORDER OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10. AS FOR THE DEDUCTION IN RESPECT OF REMUNERATION TO PARTNERS, HOWEVER, WE FIND THAT THE DIRECTION OF THE CIT(A) IN THIS BEHAL F IS IN CONSONANCE WITH THE ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 7 DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF INDWELL CONSTRUCTIONS (SUPRA). IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ASPECT. 11. WE FIND THAT ESTIMATION OF INCOME OF THE ASSE SSEE, WHO HAS BEEN EXECUTING CIVIL WORKS AS A SUB-CONTRACTOR, ADO PTING A RATE OF 8% IS IN CONSONANCE WITH THE VIEW TAKEN BY THE TRIBUNAL IN S IMILAR MATTERS AS NOTED ABOVE, AND THERE IS NO MERIT IN THE CONTENTION OF T HE REVENUE IN ITS APPEAL THAT HAVING ESTIMATED INCOME AT THE RATE OF 8% INST EAD OF 12.5%, NO FURTHER DEDUCTION TOWARDS OTHER ITEMS IS WARRANTED. 12. AS FOR DEDUCTION TOWARDS DEPRECIATION, FOLLOW ING THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL IN SIMILAR MATTERS, AS N OTED ABOVE, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) ON THAT ASPECT AND DIRECT THE ASSESSING OFFICER NOT TO ALLOW ANY DEDUCTION IN THAT BEHALF A ND RECOMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. 13. HOWEVER, WITH REGARD ALLOWABILITY OF DEDUCTIO NS IN RESPECT OF INTEREST ON CAPITAL AN REMUNERATION TO PARTNERS, WE UPHOLD THE ORDER OF THE CIT(A), FOLLOWING THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL ON THAT ASPECT IN SIMILAR MATTERS. 14. IN THE RESULT, REVENUES APPEAL IS PARTLY ALL OWED AND CROSS OBJECTION OF THE ASSESSEE, BEING MERELY IN SUPPORT OF THE ORDER OF THE CIT(A), IS INFRUCTUOUS, AND IT IS ACCORDINGLY DISMI SSED AS SUCH. ORDER PRONOUNCED IN THE COURT ON 18.5.2012 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/- 18 TH MAY, 2012 COPY FORWARDED TO: 1. M/S. BOLLINENI CONSTRUCTIONS, 25-2-275, VEAYA PA LEM, NIPPO BACKSIDE, NELLORE. ITA NO.1542/HYD/1 1 AND CO THEREIN M/S. BOLLINENI CONSTRUCTIONS, NELLORE. . 8 2 . INCOME TAX OFFICER, WARD - 2. NELLORE 3. COMMISSIONER OF INCOME - TAX(APPEALS) GUNTUR 4. COMMISSIONER OF INCOME - TAX GUNTUR 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S