BDR Projects (P) Ltd., Hyd, Hyderabad V. ACIT, Circle-1(3), Hyd, Hyderabad

ITA 1065/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98643 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 14-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: D V ANJANEYULU; P PRAVALLIKA
• Keywords: Depreciation
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.1065/HYD/2015 ASSESSMENT YEAR 2007-08 BDR PROJECTS (P) LTD., HYDERABAD PAN AAACB8263D VS. ACIT, CIRCLE 1(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. D.V. ANJANEYULU & MS. P. PRAVALLIKA FOR REVENUE : MR. B. KURMI NAIDU DATE OF HEARING : 04 .1 1 .2015 DATE OF PRONOUNCEMENT : 06 .11.2015 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF THE LD. CIT(A)-I, HYDERABAD DATED 11.06.20 15 FOR THE A.Y. 2007-08. 2. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A)-I, HYDERABAD IN NOT CONSIDERING THE DECI SION OF JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN THE PREVIOUS ASSESSMENT YEARS WHEREIN THE HONBLE HIGH COURT HAS HELD THAT WHERE THE PROFIT OF THE ASSESSE E IS DETERMINED ON PERCENTAGE BASIS ALSO, DEDUCTIONS LIK E DEPRECIATION IS ALLOWABLE. ASSESSEE IS ALSO AGGRIEV ED BY THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE DISAL LOWANCE 2 ITA.NO.1065/HYD/2015 BDR PROJECTS (P) LTD., HYDERABAD. MADE BY THE A.O. UNDER SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT FILED ANY BILLS AN D VOUCHERS AND HENCE, NOT ALLOWABLE UNDER SECTION 37 AS WELL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN EXECUTION OF C IVIL CONTRACT WORKS, FILED ITS E-RETURN OF INCOME ON 31. 10.1997 DECLARING AN INCOME OF RS.8,54,504. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE I.T. ACT, THE A.O., ON VERIFICATION OF THE LEDGER EXTRAC TS PRODUCED BY THE ASSESSEE, OBSERVED THAT THE ASSESSE E HAS NOT DEDUCTED TDS ON VARIOUS PAYMENTS TOTALING TO RS.9,74,170. THEREFORE, THE A.O. PROPOSED TO DISALL OW THE EXPENDITURE AGGREGATING TO RS.9,74,150 IN ACCORDANC E WITH THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT . THE ASSESSEE WAS REQUIRED TO FURNISH ITS OBJECTIONS AND ALSO TO PRODUCE BILLS/VOUCHERS RELATING TO THE SAID PAYMENT S. IN RESPONSE TO THIS, THE ASSESSEE FILED A LETTER DATED 18.12.2009 STATING THAT THE PROPOSED ADDITION OF EX PENSES UNDER SECTION 40(A)(IA) IS NOT CORRECT SINCE THESE EXPENSES WERE ALREADY PAID/INCURRED AND WERE DEBITED TO THEI R RESPECTIVE ACCOUNTS AND THUS, AMOUNTS PAID TO THE LABOURERS AS PER THE MUSTER REGISTER AND IN THE ABS ENCE OF ANY CONTRACT/SUB-CONTRACT ARE NOT AMENABLE TO TH E PROVISIONS OF SECTION 40(A)(IA) AND HENCE, THE SAID ADDITION IS NOT MAINTAINABLE. 3 ITA.NO.1065/HYD/2015 BDR PROJECTS (P) LTD., HYDERABAD. 3.1. THE A.O., HOWEVER, HELD THAT THE ASSESSEE HAS NOT PRODUCED THE BILLS/VOUCHERS RELATING TO THE ABO VE PAYMENTS AND THEREFORE, THE SAID EXPENDITURE IS NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. THEREAFTER, HE PROCEEDED TO CONSIDER THE GROSS PROFIT RETURNED BY THE ASSESSEE AT 3.9% AND HELD IT TO BE TOO LOW. HE OBSE RVED THAT IN ASSESSEES OWN CASE FOR THE A.Y. 2004-05, T HE TRIBUNAL HAS DIRECTED THE A.O. TO ADOPT GROSS PROFI T OF THE ASSESSEE @ 8% WITHOUT ANY ALLOWANCE. HE OBSERVED TH AT ON ACCOUNT OF THE DISALLOWANCE OF EXPENDITURE CLAIM ED UNDER SECTION 37 OF THE ACT, THE PERCENTAGE OF INCO ME AGAINST THE GROSS RECEIPTS FOR THE RELEVANT ASSESSM ENT YEAR WORKED OUT TO 8.4% WHICH IS FAIR AND REASONABL E AND THEREFORE, KEEPING IN VIEW THE LOW MARGIN OF THE PR OFIT SHOWN BY THE ASSESSEE, HE HELD THAT THE DISALLOWANC E OF EXPENDITURE ON ACCOUNT OF ASSESSEES FAILURE TO PRO VE THE EXPENDITURE INCURRED, BY PRODUCING THE RELEVANT BILLS/VOUCHERS, IS JUSTIFIED. 3.2. WITHOUT PREJUDICE TO THE ABOVE, THE A.O. ALSO DISALLOWED THE SAID EXPENDITURE UNDER SECTION 40(A) (IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT PRO DUCED THE EVIDENCE OF PAYMENTS TO LABOURERS AS PER THE MU STER. FURTHER, HE HELD THAT THE LEDGER ACCOUNT EXTRACT SH OWS THAT EACH PAYMENT DEBITED EXCEEDED TO RS.20,000 PER DAY AND THEREFORE, IN VIEW OF THAT PAYMENT, HE HELD THA T IT IS TO BE MADE THROUGH CHEQUE. HE THEREFORE, HELD THAT THE SAID PAYMENTS AMOUNT TO PAYMENTS IN PURSUANCE OF CONTRACT WITH THE SUB-CONTRACTOR FOR CARRYING OUT T HE WORK 4 ITA.NO.1065/HYD/2015 BDR PROJECTS (P) LTD., HYDERABAD. UNDERTAKEN BY THE CONTRACTOR I.E., ASSESSEE HEREIN, WITHIN THE MEANING OF PROVISIONS OF SECTION 194(2) OF THE ACT. THEREFORE, SINCE THE ASSESSEE FAILED TO DEDUCT TDS, HE OBSERVED THAT THE PROVISIONS OF SECTION 40(A)(IA) A RE ATTRACTED AND ACCORDINGLY, DISALLOWED THE SAME AT RS.9,74,150 AND ADDED IT TO THE RETURNED INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL B EFORE THE LD. CIT(A) WHICH WAS DISMISSED AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED COPIES OF THE WRITTEN SUBMISSIONS FILED BY THE ASSE SSEE BEFORE THE LD. CIT(A) AS WELL AS THE COMPUTATION OF INCOME FOR THE A.Y. 2006-07, THE DEPRECIATION STATEMENT AS PER I.T. ACT AND OTHER FINANCIAL DOCUMENTS AS WELL AS C OPY OF THE ORDER OF THE HONBLE HIGH COURT OF A.P. IN ASSE SSEES OWN CASE FOR THE A.Y. 1998-99. 5. THE LD. D.R., ON THE OTHER HAND, HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND P LACED RELIANCE UPON THE DECISION OF HONBLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF S.S. CROP CARE LTD., VS. CIT (2014) 41 TAXMANN.COM 549 (M.P.). 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT ASSESSEES CLAIM O F EXPENDITURE UNDER SECTION 37 OF THE I.T. ACT HAS BE EN DISALLOWED BY THE A.O. ON THE GROUNDS THAT (I) ASSE SSEE HAS NOT PRODUCED THE COPIES OF THE BILLS/VOUCHERS I N SUPPORT OF SUCH CLAIM ; AND (II) THE ASSESSEE HAS N OT MADE 5 ITA.NO.1065/HYD/2015 BDR PROJECTS (P) LTD., HYDERABAD. TDS BEFORE MAKING SUCH PAYMENTS UNDER SECTION 194(2 ) OF THE ACT AND HENCE HAS TO BE DISALLOWED U/S.40(A) (IA) OF THE ACT. THE A.O. HAS JUSTIFIED THE DISALLOWANCE BY OBSERVING THAT AFTER THE DISALLOWANCE OF THE SAID EXPENDITURE, THE GROSS PROFIT OF THE ASSESSEE WOULD COME TO 8.4% WHICH IS NEARER TO 8% DIRECTED TO BE ADOPTE D BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR. WHILE MAKING THE DISALLOWANCE OF T HE EXPENDITURE, THE A.O. HAS NOT ALLOWED THE CLAIM OF DEPRECIATION TO THE ASSESSEE. THE LD. CIT(A) ALSO D ID NOT ALLOW THE CLAIM OF DEPRECIATION TO THE ASSESSEE. TH E DECISION OF THE HONBLE HIGH COURT OF A.P. IN THE C ASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR (RELIE D UPON BY THE ASSESSEE) IS TO THE EFFECT THAT WHERE THE IN COME IS ESTIMATED OR ASSESSED AT A PERCENTAGE OF THE TURNOV ER, THEN EVEN IN THOSE CIRCUMSTANCES, THE CLAIM OF DEPRECIATION, INTEREST ETC., IS ALLOWABLE. IT IS TH E CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN SPITE OF B RINGING TO THE NOTICE OF THE LD. CIT(A), THE DIRECTIONS OF THE HONBLE HIGH COURT IN ASSESSEES OWN CASE, THE LD. CIT(A) HAS NOT ALLOWED THE CLAIM OF DEPRECIATION TO THE AS SESSEE. HAVING GONE THROUGH THE FORM-35 AND THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) , WE FIND THAT ASSESSEES OBJECTION WAS ONLY AGAINST THE DISALLOWANCE OF THE EXPENDITURE BOTH UNDER SECTION 37(1) AS WELL AS UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE HAS NEVER MADE A CLAIM FOR DEPRECIATION BEFORE THE LD. CIT(A). IT IS ONLY BEFORE US THAT ASSESSEE HAS RAIS ED GROUND NO.2 STATING THAT THE LD. CIT(A) HAS IGNORED THE 6 ITA.NO.1065/HYD/2015 BDR PROJECTS (P) LTD., HYDERABAD. DIRECTION OF THE HONBLE HIGH COURT TO ALLOW ELIGIB LE DEDUCTIONS LIKE DEPRECIATION WHERE PROFIT OF THE AS SESSEE IS DETERMINED ON PERCENTAGE BASIS. WE FIND THAT IN THE CASE BEFORE US, THE A.O. HAS NOT ESTIMATED THE INCO ME @ 8% BUT HAS JUSTIFIED THE DISALLOWANCE BY STATING TH AT THE DISALLOWANCE WOULD RESULT IN THE ASSESSED INCOME BE ING 8% OF THE GROSS PROFIT. BOTH THE A.O. AS WELL AS TH E LD. CIT(A) HAVE NOT GIVEN ANY REASONING AS TO WHY THE C LAIM OF DEPRECIATION HAS NOT BEEN ALLOWED. AS RIGHTLY POINT ED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE TO THE PAYMENT S ALREADY MADE. THEREFORE, THE DISALLOWANCE UNDER SEC TION 40(A)(IA) IS NOT SUSTAINABLE. HOWEVER, IN THE ABSEN CE OF BILLS/VOUCHERS PRODUCED BY THE ASSESSEE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C IT(A) THAT THE DISALLOWANCE UNDER SECTION 37(1) IS JUSTIF IED. HOWEVER, WITH REGARD TO CLAIM OF DEPRECIATION, WE D EEM IT FIT AND PROPER TO REMIT THE ISSUE BACK TO THE FILE OF A.O. FOR CONSIDERATION OF THE SAME IN THE LIGHT OF JUDGMENT OF THE HONBLE A.P. HIGH COURT IN ASSESSEES OWN CASE FOR A.Y. 1998-99. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06.11.2015. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 06 TH NOVEMBER, 2015 VBP/- 7 ITA.NO.1065/HYD/2015 BDR PROJECTS (P) LTD., HYDERABAD. COPY TO : 1. BDR PROJECTS (P) LTD., HYDERABAD. C/O. M/S. ANJANEYULU & CO. CHARTERED ACCOUNTANTS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD 500 080. 2. THE ACIT, CIRCLE - 1( 3 ) , HYDERABAD. 3. CIT(A) - 1, HYDERABAD 4 . PR. CIT - 1, HYDERABAD 5 . D.R. ITAT B BENCH, HYDERABAD. 6 . GUARD FILE