M/s. Ganesh Rolling Shultters & Engineering Works, Hyderabad V. ACIT. Circle-10(1), Hyderabad

ITA 1066/HYD/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2941 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 10-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Non-deduction of tax
• Section: 40A(3); 194C; 145; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1066/HYD/2012 ASSESSMENT YEAR: 2005-06 GANESH ROLLING SHUTTERS & ENGINEERING WORKS, HYDERABAD. PAN AAABFG7891C VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 10(1), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: SRI V. RAGHAVENDRA RAO RESPONDENT BY: SMT. K. MYTHILI RANI DATE OF HEARING: 05/01/2016 DATE OF PRONOUNCEMENT: 05/02/2016 O R D E R PER S. RIFAUR RAHMAN, AM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT-V, HYDERABAD DATED 25/ 03/2010 PASSED U/S 263 OF THE ACT, FOR ASSESSMENT YEAR 2005 -06. 2. BRIEFLY THE FACTS OF THE CASE ARE, THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2005-06 ON 31.10.2006 A DMITTING INCOME AT RS.35,43,290/- THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S.143(3) ON 31.1 2.2007 BY REJECTING BOOKS OF THE ASSESSEE AND ESTIMATING INCOME AT 10% OF GROSS RECEIPTS OF RS.8,59,47,435/-. 3. THEREAFTER, THE CIT CALLED FOR THE ASSESSMENT R ECORD OF THE ASSESSEE AND ON EXAMINING THE SAME, WAS OBSERV ED THAT THE ASSESSING OFFICER FAILED TO OBTAIN DETAILS OF P AYMENTS MADE TOWARDS LABOUR CHARGES, HIRE CHARGES, CONSULTA NCY CHARGES AND FABRICATION CHARGES WITH REGARD TO VERI FICATION OF I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 2 THE COMPLIANCE WITH THE PROVISIONS OF SECTIONS 194C AND 194J OF THE I.T. ACT, WHICH IS WARRANTED FOR MAKING DISA LLOWANCE UNDER SECTION 40(A)(IA) OF THE I.T. ACT. FURTHER, T HE ASSESSING OFFICER WHILE ESTIMATING THE INCOME ADOPTED GROSS R ECEIPTS WRONGLY AT RS.8,59,47,435/- AS AGAINST CORRECT GROS S RECEIPTS OF RS.8,90, 10,662/-. 3. IN VIEW OF THE ASSESSING OFFICER'S FAILURE TO C ONDUCT PROPER ENQUIRY/ INVESTIGATION WITH REGARD TO THE AB OVE MENTIONED POINTS, THE CIT TREATED THE ORDER U/S 143 (3) PASSED BY THE ASSESSING OFFICER AS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE. BY VIRTUE OF POWERS VESTED U/S 263, THE CIT ISSUED NOTICE TO THE ASSESSEE ON 27.02.2008 DIRECTING TO SHOW CAUSE WHY THE ORDER PASSED ON 31.12.2007 SH OULD NOT BE REVISED. SINCE THERE WAS NO COMPLIANCE FROM ASSE SSEE, THE CIT(A) DECIDED THE ISSUE EX-PARTE BASED ON THE INFO RMATION AVAILABLE ON RECORD. 4. THE CIT OBSERVED THAT THE ASSESSEE IS LIABLE F OR DEDUCTION OF TAX AT SOURCE UNDER SECTIONS 194C AND 194J ON THE PAYMENTS MADE TOWARDS LABOUR CHARGES, HIRE CHAR GES, CONSULTANCY CHARGES AND FABRICATION CHARGES. FAILUR E TO DEDUCT TAX AT SOURCE AS PER THE PROVISIONS OF CHAPT ER XVIIB OF THE I.T. ACT ATTRACT DISALLOWANCE UNDER SECTION 40( A)(IA). SIMILARLY, THE GROSS RECEIPTS OF THE ASSESSEE DURIN G FINANCIAL YEAR RELEVANT TO THE ASST. YEAR 2005-06 ARE RS.8,90 ,10,662/-. BUT WHILE ESTIMATING THE INCOME AT 10%, THE AO WRON GLY ADOPTED THE GROSS TURNOVER AT RS.8,59,47,435/-. 5. IN VIEW OF THE ASSESSING OFFICER'S FAILURE TO V ERIFY THE DISALLOWANCES U/S 40(A)(IA) AND TO ADOPT CORRECT GR OSS TURNOVER, THE CIT HELD THAT THE ASSESSMENT ORDER PA SSED ON 31.12.2007 IS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF THE I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 3 REVENUE. HE, THEREFORE, SET ASIDE THE ASSESSMENT AN D REMITTED THE FILE TO THE ASSESSING OFFICER TO VERIFY AND DIS ALLOW THE AMOUNTS ATTRACTING PROVISIONS OF SECTION U/S 40(A) (IA) AND TO ADOPT THE CORRECT GROSS TURNOVER FOR ESTIMATING THE INCOME . 6. AGGRIEVED BY THE ORDER OF CIT, THE ASSESSEE IS I N APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: 01. THE ORDER PASSED BY THE CIT - V, HYDERABAD, IS ARBITRARY, UNJUSTIFIABLE. 02. AFTER THOROUGH VERIFICATION OF THE BOOKS OF AC COUNTS, DUE TO CERTAIN DEFICIENCIES, NON PRODUCTION OF TOTAL BILL S AND VOUCHERS TO THE EXTENT OF EXPENDITURE CLAIMED IN THE PROFIT & LOSS ETC, THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED, P ROFIT WAS ESTIMATED @ 10% ON THE GROSS RECEIPTS (EXCLUDING I NTEREST ON FDR), IT WAS FOUND THAT THERE WAS NO LIABILITY TO TDS, HENCE, CIT WAS NOT JUSTIFIED IN DIRECTING DISALLOWANCE, U/S 4 0(A)(IA). 03. WHEN THE CASE WAS POSTED FOR HEARING, THE AR O F THE ASSESSEE FIRM COULD FILE, A SET OF PAPER BOOKS, A COPY OF WHICH WAS FILED BEFORE THE CIT (A) -VI, HYDERABAD (APPEA L OF THE ASSESSEE FIRM WAS PENDING FOR THE SAME AY), WITH A REQUEST TO CONSIDER THE CONTENTS OF THE SAME, BEFORE ADJUDICA TING THE PROCEEDINGS U/S 263. HENCE, CIT-V WAS NOT JUSTIFIE D, IN IGNORING THE FACTS OF THE CASE AND COMPLETING THE CASE EX-P ARTE. 04. NOTHING WAS BROUGHT OUT ON RECORD DURING THE A SST. PROCEEDINGS, WHETHER THE PAYMENTS EXCEEDING RS.20, 000 OR IN AGGREGATE RS.50,000 P.A. WERE FOUND, OR ANY CONTRA CT WORK TO ANY PERSON ESTABLISHED WHICH MAKES THE FIRM LIABLE FOR TDS U/S 194 C AND 194 J, AND HENCE, CIT -V WAS NOT JUSTIFIED IN PASSING THE ORDER, THAT THE FIRM IS LIABLE FOR TDS U/S 194 C A ND 194 J. HENCE THE ORDER PASSED U/S 263 IS NOT MAINTAINABLE. 7. LD. AR SUBMITTED THAT THE BOOKS OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AND ESTIMATED THE TAXABLE INCOME AT 10% OF GROSS CONTRACTUAL RECEIPTS. HE SUB MITTED THAT AS HELD IN THE CASE OF INDWELL CONSTRUCTIONS V S. CIT [1998] 232 ITR 776, THE HONBLE AP HIGH COURT AFTER THE REJECTION OF BOOKS OF THE ASSESSEE, THE REVENUE CAN NOT RELY ON THE SAME BOOKS FOR ADDITION OF EXPENDITURE SHOWN IN P&L A/C AND WHERE BOOKS OF THE ASSESSEE ARE REJECTED AND IN COME IS ESTIMATED, THE DEDUCTIONS REFERRED TO U/S 29 ARE DE EMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING ESTIMATE INCLUDING I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 4 DISALLOWANCE U/S 40. IN THIS CONNECTION, LD. AR RE LIED ON THE OBSERVATIONS MADE BY THE TRIBUNAL IN CASE OF TEJA CONSTRUCTIONS VS. ACIT, [2010] 129 TTJ 57 (ITAT (HY D.), WHICH ARE AS FOLLOWS: IT IS ONLY APPLICABLE IN RESPECT OF 'PAYABLE AMOUN T' SHOWN IN THE BALANCE SHEET AS OUTSTANDING EXPENSES ON WHICH TDS HAS NOT BEEN MADE. FURTHER, TAX IS DEDUCTIBLE UNDER SS. 193, 19 4A, 194C, 194H AND 194J EITHER AT THE TIME OF PAYMENT OR AT THE T IME OF GIVING CREDIT TO THE RECIPIENT. HOWEVER, S. 40(A)(IA) IS APPLICABLE ONLY IN RESPECT OF TDS CAPITAL DEFAULTS AMOUNT IS 'PAYABLE '. IF AMOUNT IS ACTUALLY PAID AND TAX IS NOT DEDUCTED UNDER THE AB OVE SECTION, S. 40(A)(IA) IS NOT APPLICABLE. AS SUCH, THE PROVISIONS OF S. 40(A)(IA) ARE NOT AP PLICABLE IN THE PRESENT FACTS OF THE CASE. THE DISALLOWANCE, IF AN Y REQUIRED TO BE MADE SHALL BE RESTRICTED TO THE EXTENT OF PAYABLE SHOWN IN THE BALANCE SHEET AT THE END OF THE YEAR. HOWEVER, THI S IS NOT THE CASE IN THE PRESENT CASE BECAUSE ONCE THE ESTIMATION OF INCOME IS MADE, FURTHER DISALLOWANCES ARE UNWARRANTED. IT MAY ALSO BE OBSERVED THAT IF AN ASSESSEE CLAIMS ANY EXPENDITURE AS NECESSARY TO EARN THE BUSINESS INCOME AND AS SU CH THE SAME IS ALLOWABLE UNDER S. 28; AND NOT UNDER S. 37, BECAUS E S. 28 TAXES PROFITS OF THE BUSINESS WHICH CAN BE WORKED OUT ON LY AFTER ALLOWING EXPENDITURE, SUCH EXPENDITURE GOES OUT OF THE CLUT CHES OF THE DISALLOWANCES IN TERMS OF THE PROVISIONS OF S. 40. IT MAY FURTHER BE OBSERVED THAT ALL THE EXPENDITUR E, JUST AS LABOUR CHARGES IN THE INSTANT CASE, WHICH REPRESENTS DIRE CT COSTS AND THEREFORE, ADJUSTABLE AGAINST REVENUE FOR THE PURP OSE OF DETERMINING THE PROFIT UNDER S. 28(I) OF THE ACT, DO NOT COME WITHIN THE PROVISIONS UNDER S. 40(A)(IA). AS SUCH, IT MAY BE OBSERVED THAT IT IS ONLY THE DEDUCTIONS REFERRED TO IN SS. 30 TO 38 WHICH WOULD DEFINITELY FALL FOR CONSIDERATION OF DISALLOWANCE UNDER S. 40 AND THEY CANNOT BE CLAIMED AS DEDUCTION UNDER S. 28. THIS R EASONING APPLIES WITH EQUAL FORCE TO THE ANALOGOUS PROVISIONS OF S. 43, S. 44AD, S. 44AE, S. 44AF, S. 44B, S. 44BB, S. 44ABA, S. 44BBB , S. 44C, S. 44D AND SO ON WHICH ALL RELATE TO COMPUTATION OF BUSIN ESS INCOME AND CLEARLY START WITH A NON OBSTANTE CLAUSE, WHICH IS SIMILAR TO THE ONE IN S. 40, BUT READING 'NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SS. 28 TO 43C'. IN THIS VIEW OF THE MATTER, IT MAY BE OBSERVED THAT THE PROVISIONS OF S. 40(A)(IA) ARE APPLICABLE ONLY TO ITEMS COVERED BY S. 30 TO S. 38 AND NOT TO S. 28 AND ALL THE DIR ECT COST/EXPENDITURE COVERED BY S. 28 OF THE ACT, ARE BEYOND THE SCOPE OF DISALLOWANCE UNDER S. 40(A)(IA) OF THE ACT. AS FOR THE PERMISSIBILITY OF THE INDEPENDENT DISAL LOWANCE IN TERMS OF S. 40(A)(IA), AFTER DETERMINING THE INCOME BY RESO RTING TO ESTIMATION AS A PERCENTAGE OF TURNOVER/GROSS RECEI PTS, WE FIND THAT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT (1999 ) 151 CTR (AP) 207 : (1998) 232 ITR 776 (AP) IT HAS BEEN CLEARLY HELD THAT WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THE REVEN UE CANNOT RELY ON THE SAME BOOKS OF ACCOUNT FOR ADDITION OF AN EX ACT AMOUNT OF I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 5 EXPENDITURE IN THE P&L A/C. IT WAS ALSO HELD IN TH AT CASE THAT WHEN AN ESTIMATE IS MADE, IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED UNDER S. 29 AND IN OTHER WORDS, ALL THE D EDUCTIONS WHICH ARE REFERRED TO UNDER S. 29 ARE DEEMED TO HAVE BEE N TAKEN INTO ACCOUNT, WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN, THE HIGH COURT OBSERVED, THE EMBARGO PLACED IN S. 40 I S ALSO TAKEN INTO ACCOUNT. IT HAS BEEN HELD IN THE CONCLUDING PARAS 4 AND 5 OF THAT DECISION AS FOLLOWS : WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTIO N OF THE INCOME THAT IS TO BE COMPUTED UNDER S. 29. IN OTHER WORDS , ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER S. 29 ARE D EEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIM ATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN S. 40 IS ALSO TAKEN INTO ACCOUNT. 7.1 THE AR ALSO RELIED ON THE OBSERVATIONS OF THE C OORDINATE BENCH OF THE ITAT, CHANDIGARH IN CASE OF CIT VS. M/S HIND AGRO INDUSTRIES, IN ITA NO. 418/CHD/15 AND OTHERS VIDE ORDER DATED 1 2/08/15, WHICH ARE AS UNDER: 3. RS. 51945/- WAS PAID TO M/S P.K. TRADERS FOR P URCHASE OF MATERIALS OF ADVERTISEMENT & PUBLICITY EXPENSES. T HERE ITEMS WERE PURCHASED VIDE BILL NO. 61 OF RS.21945/- AND BILL NO. 62 OF RS.30000/-. THE MATERIAL PURCHASED FOR ADVERTISEME NT & PUBLICITY EXPENSES ARE NOT SUBJECT TO DEDUCTION OF TDS U/S 1 94C HENCE NO TDS WAS DEDUCTED. THESE EXPENSES WERE WRONGLY ADDE D BACK IN THE INCOME FOR THE A.Y.2010-11 U/S 40 (A) (IA) OF THE LT. ACT, 1961. THE SUBMISSION OF THE ASSESSEE HAS BEEN WRON GLY IGNORED BY THE CIT(A), PATIALA. THE ADDITIONS OF RS. 51945/- DESERVES TO THE DELETED.' SINCE, WE HAVE UPHELD THE ESTIMATION OF GROSS PROF IT @ 11.5% WHILE ADJUDICATING THE EARLIER GROUNDS, NO OTHER D ISALLOWANCE OF ANY EXPENSES SEPARATELY IS CALLED FAR. OUR VIEW GETS S TRENGTHEN BY THE JUDGEMENT OF THE HON'BLE HIGH COURT OF ANDHRA PRAD ESH IN THE CASE OF INDWELL CONSTRUCTIONS VS. COMMISSIONER OF INCOM E TAX(1998) 232 ITR 776, WHEREBY HON'BLE HIGH COURT HELD AS UN DER: THE COMPUTATION UNDER S.29 IS TO BE MADE UNDER S. 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASS ESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE. THE ITO MAY REJ ECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGEME NT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE I NCOME THAT IS TO BE COMPUTED UNDER S. 29. IN OTHER. WORDS. ALL THE DED UCTIONS WHICH ARE REFERRED TO UNDER S. 29 ARE DEEMED TO HAVE BEE N TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL A LSO THAT THE EMBARGO PLACED IN S. 40 ALSO TAKEN INTO ACCOUNT.' 7.2 LD. AR SUBMITTED THAT THE EXPENDITURES IN THE P &LA/C LIKE HIRE CHARGES, ELECTRICAL CHARGES, LABOUR CHARG ES AND CONSULTANCY CHARGES WERE CONSIDERED FOR DISALLOWANC E U/S I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 6 40(A)(IA). HE BROUGHT TO OUR NOTICE THAT THE OUTSTA NDING LIABILITIES IN THE BALANCE SHEET FOR LABOUR CHARGES ARE RS.3,43,300/-. THE REVENUE CAN DISALLOW ONLY TO THA T EXTENT AS HELD IN THE CASE OF MERLYN SHIPPING & TRANSPORTS VS . ADDL. CIT [2012] 136 ITD 0023 (SB) AND NOT ENTIRE AMOUNT DEBI TED IN THE P&L A/C (REFER PAGES 26 & 27 OF THE PABER BOOK). 7.3 LD. AR SUBMITTED THAT ON GROSS CONTRACTUAL RECE IPTS, THE ACTUAL RECEIPT IS ONLY RS. 859,47,435/- AFTER DEDUC TING SINERAGE CHARGES AND STATUTORY DEDUCTION. THE GROSS CONTRACTUAL RECEIPT ADOPTED BY THE ASSESSING OFFICE R IS CORRECT. THE CIT HAD WRONGLY PRONOUNCED THAT IT SHO ULD BE RS. 8,90,10,662 BEFORE ADJUSTING STATUTORY DEDUCTIONS. HE BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD WROTE LETTER TO ASSESSING OFFICER FOR RECTIFICATION OF GROSS CONTRACTUAL REVE NUE, IN WHICH THE GROSS RECEIPTS CALCULATED AFTER DEDUCTING THE S TATUTORY DUES (REFER PAGE 6 & 7 OF PAPER BOOK). 7.4 LD. AR SUBMITTED THAT THE CIT WAS WRONG IN INVO KING SECTION 40(A)(IA) AFTER REJECTING THE BOOKS OF ACCO UNT AND ESTIMATING THE INCOME OF THE ASSESSEE AND ALSO SUBM ITTED THAT THERE IS NO MISTAKE IN GROSS CONTRACTUAL REVENUE AD OPTED BY THE ASSESSING OFFICER. THE LD. AR ALSO RELIED ON TH E FOLLOWING DECISION: 1. ACIT VS. M/S JANAPRIYA PROPERTIES PVT. LTD., IT A NO. 1614/HYD/12 AND OTHERS, DATED 19/01/2015. 8. LD. DR SUBMITTED THAT SECTION 40(A)(IA) WILL BE APPLICABLE EVEN THOUGH THE INCOME WAS ESTIMATED AS THE DEDUCTION OF TDS WAS STATUTORY COMPLIANCE ON THE PA RT OF ASSESSEE TO FOLLOW AND ALSO THE ASSESSEE IS CLEARLY IN DEFAULT IN ABOVE COMPLIANCE. HE RELIED ON THE ORDER OF CIT. I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 7 9. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND MATERIAL FACTS ON RECORD. WE HAVE CAREFULLY ANALYSE D THE JUDICIAL PRONOUNCEMENT OF THE HONBLE JURISDICTIONA L HIGH COURT. THE CIT HAD USED HIS REVISIONAL POWER U/S 26 3 TO REVISE THE ASSESSMENT ORDER FINDING ERROR ON THE FOLLOWING COUNTS: A) THE ASSESSEE IS LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194C & 194J ON PAYMENTS MADE TOWARDS LABOUR CHARGES, HIRE CHARGES, CONSULTANCY CHARGES AND FABRICATION CHARGES. FAILURE TO DEDUCT TAX AT SOUR CE WILL ATTRACT DISALLOWANCE U/S 40(A)(IA). B) THE GROSS RECEIPTS OF THE ASSESSEE DURING FY RELEVANT TO AY 2005-06 ARE RS. 8,90,10,662/-, BUT, WHILE COMPUTING ESTIMATION, ASSESSING OFFICER WRONGLY ADOPTED RS. 8,59,47,425/-. 9.1 WITH REGARD TO POINT (A) ABOVE, THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF M/S INDWELL CONSTRUCTIONS (SUPRA) CLEARLY HELD THAT WHEN THE INCOME IS ESTIMATED AFTE R REJECTING BOOKS OF ACCOUNT, DEDUCTIONS REFERRED U/S 29 ARE DE EMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING ESTIMATE INCLUDING DISALLOWANCE U/S 40. SEPARATE ADDITION ON EXPENDITU RE, THEREFORE, IS NOT JUSTIFIED. ALSO, THE HONBLE SPEC IAL BENCH OF ITAT, KOLKATA IN CASE OF ITO VS. KENARAM SAHA AND SUBHASH SAHA, 301 ITR (AT)17 (KOL.) (SB) HAS CONSIDERED SI MILAR ISSUE OF DISALLOWANCE U/S 40A(3) AND HELD AS UNDER: NOW COMING TO THE DEPARTMENTAL APPEAL IN THE CASE OF SHRI SHYAMAL KR. DEY VIDE ITA NO. 1772(KOL)/2007, T HE AO HAS DETERMINED THE INCOME BY APPLYING A NET PROF IT RATE OF THE TURNOVER. THE AO IN ADDITION TO THE DETERMINATION OF NET PROFIT AS A PERCENTAGE OF TURN OVER, MADE FURTHER DISALLOWANCE U/S 40A(3). THE CIT(A) DELETED THE DISALLOWANCE MADE U/S 40A(3). THE REVEN UE AGGRIEVED WITH THE ORDER OF THE CIT(A) IS IN APPEAL BEFORE US. IT IS CONTENDED BY LEARNED COUNSEL THAT ONCE A NET PROFIT RATE IS APPLIED, NO FURTHER ADDITION/DISALLOWANCE CAN BE MADE U/S 40A(3). IN SUPPORT OF THIS CONTENTION, HE HAS RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 8 CIT VS. BANWARI LAL BANSHIDHAR [1998] 229 ITR 229 I N WHICH THEIR LORDSHIPS HELD AS UNDER (HEAD NOTE): AFFIRMING THE DECISION OF THE TRIBUNAL, THAT NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(J) OF THE INCOME-TAX RULES, 1962, AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE. WHEN THE GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE AO TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES MADE BY THE ASSESSEE. THE ABOVE DECISION OF THE HONBLE ALLAHABAD HIGH CO URT WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. WHEN A NET PROFIT RATE IS APPLIED, THERE REMAINS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE ALLAHAB AD HIGH COURT HOLD THAT THE CIT(A) WAS JUSTIFIED IN DE LETING THE DISALLOWANCE U/S 40A(3) MADE BY THE AO. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE REVENUES APPEAL. 9.2 HENCE, IN LINE WITH THE ABOVE DECISIONS, WE HOL D THAT THE ASSESSMENT ORDER IS NOT ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE INTERESTS OF REVENUE. THUS, WE ARE INCLINED TO REJECT THE ACTION OF THE CIT. 9.3 WITH REGARD TO POINT (B) ABOVE, THE GROSS CONTR ACTUAL RECEIPTS OF THE ASSESSEE ARE RS. 8,59,47,425/- ONLY AFTER ADJUSTING THE SENIORAGE CHARGES AND STATUTORY TAX D EDUCTION. THE CIT WAS WRONG IN CONSIDERING THE GROSS CONTRACT UAL RECEIPT AT RS. 8,90,10,662 WITHOUT DEDUCTION OF ABO VE CHARGES. IT IS TO BE NOTED THAT ASSESSING OFFICER HAD ALREAD Y CONSIDERED THE GROSS RECEIPT AFTER CONSIDERING THE DEDUCTIONS. THE SAME ISSUE CANNOT BE REVIEWED BY CIT. I.T.A. NO. 1066/HYD/2012 GANESH ROLLING SHUTTERS & ENGINEERING WORKS. 9 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY, 2016 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER HYDERABAD, DATED 5 TH FEBRUARY, 2016 KV COPY FORWARDED TO: 1. M/S GANESH ROLLING SHUTTERS & ENGINEERING WORKS, FLAT NO. 102, SAI RANGA ASIAN RESIDENCY, MADHAVANAGAR COLONY, MIYAPUR, HYDERABAD. 2. ACIT, CIRCLE 10(1), HYDERABAD 3. CIT -V, HYDERABAD 4 ADDL. CIT, RANGE 10, HYDERABAD 5 THE DR, ITAT, HYDERABAD