ITO, Ward-11(1), Hyderabad V. M/s Chella Constructions, Hyderabad

ITA 1007/HYD/2013

• Counselvise Citation: 100722514 RSA 2013
• Duration Of Justice: 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K HARITA
• Keywords: Depreciation
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1007/HYD/2013 ASSESSMENT YEAR 2009-2010 THE ITO, WARD 11(1) HYDERABAD. VS. M/S. CHELLA CONSTRUCTIONS HYDERABAD PAN AAFFC6561P (APPELLANT) (RESPONDENT) FOR REVENUE : MS. K. HARITA FOR ASSESSEE : MR. MOHD. AFZAL DATE OF HEARING : 23.01.2014 DATE OF PRONOUNCEMENT : 05.02.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) DATED 21.03.2013 WHEREIN THE LEARNED CIT(A) REDUCED THE ESTIMATION OF INCOME FROM 12% OF GROSS RECEIPTS TO 8% ON GROSS RECEIPTS AND DIRECTED THE A.O. TO ALLOW INT EREST AND REMUNERATION TO THE PARTNERS. THE REVENUE IS AGGRIEVE D AND HAS RAISED SEVEN GROUNDS OUT OF WHICH GROUNDS NO. I AND VII ARE GENERAL IN NATURE AND THEREFORE NEED NOT BE ADJUDICATED. 2. THE MAIN CONTENTION OF THE REVENUE IN GROUND NO II TO VI IS THAT THE LEARNED CIT(A) ERRED IN ALLOWING RELIEF INSTEAD OF TREATING THE PROFIT AT 12% ON GROSS RECEIPTS AS ADMITTED ASSESSEE (WRONGLY STATED AS ADMITTED BY ASSE SSING OFFICER IN THE GROUND II) IN THE COURSE OF SURVEY PROCEEDI NGS. THE OTHER CONTENTION IS THAT IN THE GROUP CONCERN I.E., M/S. R- ITA.NO.1007/HYD/2013 M/S. CHELLA CONSTRUCTIONS, HYD. NEST CONSTRUCTION SIMILAR ESTIMATION OF 12% OF GROSS RECE IPTS WAS HONOURED BY THAT ASSESSEE. THEREFORE, LEARNED CIT(A) E RRED IN GIVING RELIEF. 3. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL APARTMENTS AND IN THE COURSE OF SURVEY CONDUCTED UNDER SECTION 133A ON 19.09.2008 I.E., DURING THE FINANCIAL YEAR 2008-09, THE ASSESSEES MANA GING PARTNER AGREED TO DISCLOSE THE PROFIT AT 12% ON THE GROSS RECEIPTS FROM ITS ACTIVITY OF CONSTRUCTION AND SALE OF FL ATS. HOWEVER, ASSESSEE AT THE END OF YEAR, GOT THE BOOKS OF ACCOUNTS AUDITED AND ADMITTED NET PROFIT OF RS.18,51, 815/- ON A TOTAL TURNOVER OF RS.5,00,22,866/- WHICH CAME TO THE RATE OF 3.7%. THE REDUCTION IN PROFIT WAS ATTRIBUTED TO SLUMP IN THE MARKET AND INCREASE IN COST OF MATERIALS. ON THE REASO N THAT ASSESSEE DID NOT SUBSTANTIATE THE FALL IN BUSINESS, A.O. ESTIMATED THE PROFIT AT 12% ON GROSS RECEIPTS AND ESTIMAT ED INCOME AT RS.60,02,743/- AND BROUGHT TO TAX THE DIFFEREN CE AMOUNT OF RS.41,50,928/-. 4. AGGRIEVED BY THE ABOVE, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT ASSESSEES BOOKS OF ACCOUNTS WERE AUDITED AND THERE IS NO REJECTION OF B OOKS OF ACCOUNTS BY THE A.O. AND THERE IS NO NEED FOR ESTIMATI ON OF INCOME. THE MATTER WAS REMANDED TO THE A.O. AND HIS COMMENTS WERE OBTAINED. THE A.O. IN HIS REPORT DATED 18.03.2013 REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER AND JUSTIFIED THE ESTIMATION OF PROFITS AT 12% ON GROSS RECEIPTS. ONE OF THE CONTENTIONS OF THE A.O. WAS THAT IN THE CASE OF M/S. R-NEST CONSTRUCTION WHICH IS A GROUP CONCERN AND IN THE SAME LINE OF BUSINESS, IT ACCEPTE D THE PROFIT ITA.NO.1007/HYD/2013 M/S. CHELLA CONSTRUCTIONS, HYD. PERCENTAGE OF 12% ON THE RECEIPTS OF RS.68,45,884/- AN D THE DEVIATION IN ASSESSEES CASE IS NOT WARRANTED. 5. ON CONSIDERING THE ASSESSEES SUBMISSIONS AND REPORT OF THE A.O. THE LEARNED CIT(A) WENT ON TO ANALYSE THE BOOKS OF ACCOUNTS MAINTAINED AND VIDE PARAS 5.6, 5.7 AN D 5.8 CAME TO THE CONCLUSION THAT EXPLANATION OFFERED BY THE ASSESSEE WERE NOT SUBSTANTIATED AND SO ACCOUNTS OF THE ASSESSEE ARE HELD TO BE UNRELIABLE AND AS SUCH THE PROFITS ARE REQUIRED TO BE ESTIMATED. HAVING CONSIDERED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER REFERENCE ARE NOT RELIAB LE, THE LEARNED CIT(A) WENT ON TO CONSIDER THE ESTIMATION OF INCOME VIDE PARA 5.9 AND DECIDED THE ISSUE AS UNDER : 5.9. HAVING CONCEDED THAT THE BOOKS OF THE ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER REFERENCE ARE NO T RELIABLE AND INCOME NEED TO BE ESTIMATED, THE NEXT RELEVANT QUESTION WOULD BE ON THE RATE OF PROFIT THA T IS TO BE ADOPTED ONE ESTIMATION BASIS. IN THIS CASE , THE NATURE OF THE BUSINESS IS CIVIL CONSTRUCTION AND IN SIMILAR LINES OF BUSINESS, THE PROFIT IS GENERALLY IN THE RANGE OF 8 TO 12%, DEPENDING ON THE FACTS OF THE CASE SUCH AS LOCATION, SIZE, TYPE OF THE PROJEC T ETC. IN THIS CASE, THOUGH THE REASONS OFFERED BY THE APPELLANT ARE NOT FULLY ACCEPTABLE, THERE MAY BE A CHANCE OR AN INSTANCE, WHERE THE PROFITS OF ONE OF THE PROJECTS UNDERTAKEN AND UNDER CONSTRUCTION, GOING DOWN IN THE SUBSEQUENT YEARS. THIS WAS INDICATED BUT NOT SUBSTANTIATED BY ANY REAL INFORMATION OR EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD. IT MAY BE RELEVANT TO NOTE THAT THE PROFITS IN THE REAL ESTATE ACTIVITY DURING THE YEAR UNDER REFERENCE APPEARS TO BE ON A STABLE PATH. UNDER THE CIRCUMSTANCES, I AM OF THE CONSIDERED OPINION THAT IT MAY BE REASONABLE TO ACCEPT THE PROFIT @ 8% ON THE GROSS RECEIPTS AS ADMITTED BY THE AR DURING THE COURSE OF THE APPELLATE PROCEEDINGS, AS AGAINST THE PROFITS @ 3.70% ADMITTED BY THE APPELLANT IN THE RETURN OF INCOME. ACCORDINGLY, THE A.O. IS DIRECTED TO ADOPT THE PROFI T OF THE BUSINESS @ 8% ON THE GROSS RECEIPTS OF ITA.NO.1007/HYD/2013 M/S. CHELLA CONSTRUCTIONS, HYD. RS.5,00,22,866/- AND TO RE-COMPUTE THE TAXABLE INCOME, AFTER ALLOWING THE DEDUCTIONS FOR REMUNERATION AND INTEREST TO THE PARTNERS AS PER THE PROVISIONS OF SEC.40(B) OF THE IT ACT. ACCORDINGLY, THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 6. LEARNED D.R. RELYING ON THE ORDER OF THE A.O. SUBMITTED THAT ASSESSEE HAS GIVEN A STATEMENT AS IT HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNTS ON THE DAY OF SURVEY A ND THEN ONLY STATEMENT WAS GIVEN UNDER SECTION 131(3). THERE FORE, CIT(A) ERRED IN NOT CONSIDERING THE ADMISSION BY THE AS SESSEE. IT WAS FURTHER SUBMITTED THAT BY THE TIME SURVEY WAS CONDUCTED, ASSESSEE RECEIPTS FROM VARIOUS PROJECTS WERE TO THE TUNE OF RS.3.97 CRORES AND MANY PROJECTS HAVE BEEN COMP LETED BY THAT TIME. OUT OF BALANCE TWO PROJECTS WHICH ARE UNDE R COMPLETION ON THE DATE OF SURVEY, FURTHER RS.1.23 CRORE S ONLY HAS ALREADY BEEN RECEIVED. THEREFORE, ABOUT 80% OF GROSS RECEIPTS HAS ALREADY BEEN RECEIVED BY THE TIME OF SURVE Y THEREFORE, CIT(A) ERRED IN REDUCING THE ESTIMATION, WITH OUT CONSIDERING THE STATEMENT. 7. LEARNED A.R. PLACED ON RECORD PAPER BOOK CONTAINING VARIOUS PROJECTS, ITS RECEIPTS, AUDITED REPO RTS AND OTHER CLARIFICATIONS GIVEN TO THE A.O. AND CIT(A). IT WA S SUBMITTED THAT EVEN THOUGH ASSESSEE DID NOT EARN THA T MUCH PROFIT, THE ORDER OF THE CIT(A) WAS ACCEPTED AS ASSESSEE C OULD NOT SUBSTANTIATE SOME OF THE CONTENTIONS RAISED BY THE A.O. BUT THE PROFIT RATE ADMITTED AT THE TIME OF SURVEY WAS ONLY AN ESTIMATION AND NOT BASED ON FACTS. IT WAS SUBMITTED TH AT ASSESSEE HAD MANY ON GOING PROJECTS AND THE PROFIT VARIES FROM PROJECT TO PROJECT, LOCATION TO LOCATION AND COST. THEREFORE , ASSESSEE EVEN THOUGH DID NOT EARN THAT MUCH PROFIT, A CCEPTED THE ORDER OF THE CIT(A). IT WAS FURTHER SUBMITTED THAT OT HER ITA.NO.1007/HYD/2013 M/S. CHELLA CONSTRUCTIONS, HYD. GROUP CONCERN ACCEPTED ESTIMATION AS THE TURNOVER WAS VERY SMALL. HE RELIED ON THE ORDERS OF THE CIT(A). 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A ). ADMITTEDLY, THE SURVEY WAS CONDUCTED DURING THE MIDDLE OF THE YEAR AND VARIOUS PROJECTS WERE IN DIFFERENT STAGES OF COMPLETION. EVEN THOUGH ASSESSEE MAINTAINED BOOKS OF ACCOUNTS, RECEIPTS, PART OF SALES/ADVANCES WHICH WERE TAKEN INTO CONSIDERATION, ASSESSEE EARNED ONLY PROFIT OF RS.3.7% AFTER CLAIM OF DEPRECIATION AND INTEREST AND REMUNERATION AS P ER THE PROVISIONS OF THE ACT. LEARNED CIT(A), CONSIDERING THE F ACTS OF THE CASE, DETERMINED THE NET PROFIT AT 8% OF THE GRO SS RECEIPTS AND DIRECTED THE A.O. TO ALLOW ONLY REMUNERATION AND INTE REST. THERE IS NO FIXED RATIONAL IN ARRIVING AT THE NET PROFIT FROM THE BUSINESS OF CONSTRUCTION AS FACTS VARY FROM CASE TO CASE AND YEAR TO YEAR. NOT ONLY THAT MARKET CONDITIONS AND OTHER ASPECTS ARE ALSO TO BE TAKEN INTO ACCOUNT. CONSIDERING THAT AS SESSEES PROFIT WAS LESS THAN 4%, ESTIMATION BY CIT(A) AT 8% IS REASONABLE, REVENUE HAS NOT MADE OUT ANY CASE ON THE BAS IS OF PROFITS EARNED BY THE ASSESSEE IN EARLIER YEARS OR LA TER YEARS IN SUBSTANTIATING THE ESTIMATION AT 12%. MAY BE IN O THER GROUP CONCERN ASSESSEE, IT COULD HAVE ACCEPTED 12% BUT THE FACTS OF THE CASE ARE NOT BEFORE US, WHETHER THAT THE ASSESSEE W AS OFFERING INCOMES ON PERCENTAGE COMPLETION METHOD OR PROJEC T COMPLETION METHOD. MOREOVER, NATURE OF BUSINESS UNDERTAKE N BY THAT GROUP CONCERN WAS ALSO NOT DISCUSSED. IN FACT, IN THE ASSESSMENT ORDER, THERE IS NO REFERENCE EVEN TO M/S. R-NEST CONSTRUCTION AND ITS ADMISSION. ONLY IN THE REMAND PROCEEDINGS, THE A.O. RELIED ON THE CASE OF M/S. R-NEST , WITHOUT EXAMINING THE NATURE OF BUSINESS OR REASONS FOR ADMISSION, MAINTENANCE OF BOOKS OF ACCOUNT ETC.. IN THE ITA.NO.1007/HYD/2013 M/S. CHELLA CONSTRUCTIONS, HYD. ABSENCE OF ANY FACTS ON RECORD, WE ARE NOT SURE HOW REV ENUE COULD RELY ON THE CASE AS A COMPARABLE CASE WHEN A.O . HIMSELF HAS NOT RELIED ON THE SAME IN THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, WE DO NOT SEE ANY MERIT IN THE REVENUES CONTENTIONS. ACCORDINGLY, GROUNDS ARE REJECT ED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.02.2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATE 05 TH FEBRUARY, 2014 VBP/- COPY TO : 1. I T O , WARD 11(1), I.T. TOWERS, A.C. GUARDS, HYDERABAD 2. M/S. CHELLA CONSTRUCTIONS, PLOT NO.3, ROAD NO.3, K.P.H.B. COLONY, KUKATPALLY, HYDERABAD. 3. CIT(A)-VI, HYDERABAD 4. CIT-V, HYDERABAD 5. D.R. ITAT, A BENCH, HYDERABAD.