Z Axis Constructions Private Limited, Hyderabad V. DCIT., Central Circle-7, Hyderabad, Hyderabad

ITA 112/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6033 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 17-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2015
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NOS. 112 & 223/HYD/2015 ASSESSMENT YEARS: 2010-11 & 2011-12 Z AXIS CONSTRUCTIONS PVT. LTD., HYDERABAD [PAN: AAACZ3473F] VS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-7, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SHRI A. SITARAMA RAO, DR DATE OF HEARING : 17-10-2016 DATE OF PRONOUNCEMENT : 04-11-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE TWO ARE ASSESSEES APPEALS FOR AYS. 2010-11 & 2011-12 AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX ( APPEALS)- XII, HYDERABAD DATED 27-11-2014 & 27-01-2015 RESPEC TIVELY. 2. BRIEFLY STATED, ASSESSEE-COMPANY WAS ISSUED NOTIC ES U/S. 153C OF THE INCOME TAX ACT [ACT] CONSEQUENT TO THE SEARCH IN THE GROUP CASES OF M/S. S.R. HATCHERIES AND OTHERS. IN RESPONSE, ASSESSEE CLAIMING TO BE IN THE BUSINESS OF CONSTRUCTIO NS, FILED ITS RETURNS OF INCOME FOR AY. 2008-09 TO 2011-12, FILIN G NIL RETURNS. ASSESSING OFFICER (AO) NOTICED THAT ASSESSEES ANNUAL ACCOUNTS INDICATE THAT IT HAS UNDERTAKEN CONSTRUCTION WORK AND HAS SHOWN WORK IN PROGRESS AT AN AMOUNT OF RS. 1,28,97,344/- AS ON 31-03-2008 AND RS. 3,62,19,801/- AS ON 31-03-2009 A ND RS. 5,45,54,794/- AS ON 31-03-2010 AND NIL FOR AY. 31-0 3-2011. ON Z AXIS CONSTRUCTIONS PVT. LTD., :- 2 -: BEING ENQUIRED, ASSESSEE SUBMITTED THAT IT HAS UNDERTAKEN CONSTRUCTION WORK ON BEHALF OF TWENTY CO-OWNERS, WHO HAVE GIVEN FUNDS AND CONSTRUCTED THIRTY FOUR APARTMENTS KNOWN AS Z EE HABITAT, A RESIDENTIAL COMPLEX AT PEDDABAVI CHILKA PATTA OF MADEENAGUDA VILLAGE, SERILINGAMPALLY MANDAL, HYD WI THIN THE JURISDICTION OF GHMC AND THIS EXERCISE WAS UNDERTAKEN FOR GAINING EXPERIENCE AND NO INCOME HAS ACCRUED. AO HOWEVER, HAS NOT ACCEPTED. HE HAS NOTICED THAT ASSESSEE HAS SHOWN THE C OST OF EXPENDITURE AND RECEIPTS IN THE BALANCE SHEET AS ON 31- 03-2009 AND HAS EXCLUDED THEM FROM BALANCE SHEET AS ON 31-03- 2010. AS THERE WERE NO SALES, THERE WAS NO P&L A/CS AS WELL. ON ENQUIRY AS TO WHAT HAPPENED TO THE AMOUNT OF RS. 5.45 CRORES ASSE SSEE HAS INVESTED AS PER THE BOOKS OF ACCOUNT, IT WAS SUBMITTED THA T IT ONLY ACTED AS A FACILITATOR FOR THE GROUP OF TWENTY CO-OWN ERS AND CONSTRUCTED FLATS AS PER THEIR PREFERENCES BY POOLING U P THE FUNDS COLLECTED FROM THEM AND PARTITION DEEDS WERE ENTERED INTO AMONG THESE CO-OWNERS AS PER THEIR INVESTMENT RATIOS AND OBTAIN ED CONSTRUCTED FLATS. ASSESSEE REITERATED THAT IT HAD TAKEN THE PROJECT FOR GAINING THE WORK EXPERIENCE AND NO INCOME HAS AC CRUED TO IT. 3. AO DID NOT ACCEPT THIS EXPLANATION. AS ASSESSEE- COMPANY IS INCORPORATED UNDER THE STATUTE AND WERE SHOWI NG ADVANCES AND CONSTRUCTION VALUE AS INVENTORY, HE CONS IDERED THE TOTAL COST OF CONSTRUCTION UP TO 31-03-2010 AT RS. 5,45, 54,794/- FOR THE PURPOSE OF ESTIMATING PROFIT AND ASSESSED 8% AS PROFIT ON THAT AMOUNT. THUS, HE BROUGHT AN AMOUNT OF RS. 43,64,4 40/- AS TOTAL INCOME OF THE YEAR. SIMILARLY, FOR AY. 2011-12, AO NOTICED THAT ASSESSEE HAS INVESTED AN AMOUNT OF RS. 1.24 CROR ES AND SIMILAR ESTIMATION AT 8% WAS MADE FOR THAT YEAR AS WELL. Z AXIS CONSTRUCTIONS PVT. LTD., :- 3 -: 4. BEFORE THE LD.CIT(A), IT WAS SUBMITTED THAT THERE WAS NO SALES OR PURCHASES OR EXPENDITURES INCURRED BY THE CO MPANY FOR THE PURPOSE OF ITS OWN ACTIVITY. IT WAS ONLY OVERSEEI NG THE CONSTRUCTION ACTIVITY. IT IS FURTHER SUBMITTED THAT THE SITE DOES NOT BELONG TO THE COMPANY NOR ANY EXPENDITURE INCURRED TO WARDS CONSTRUCTION OUT OF ITS OWN FUNDS. IT RECEIVED CONTRIB UTION FROM CO- OWNERS AND CONSTRUCTED AREA WAS TAKEN BY THEM IN THE SAM E RATIO IN WHICH THEY CONTRIBUTED THEIR FUNDS. IT WAS SUBMITTED TH AT COMPANY HAD NO MARGIN AND THIS EXERCISE WAS TAKEN UND ER NO RISK AND THEREFORE, NO REAL INCOME CAN BE BROUGHT TO TAX. LD.CIT(A) HOWEVER, DID NOT AGREE. HE WAS OF THE OPINION THAT EV EN THOUGH THE LAND NEVER BELONGED TO THE COMPANY AND FROM THE COP Y OF THE PARTITION DEED FILED, NOTED THAT TWENTY CO-OWNERS HAVE C ONSTRUCTED THE FLATS BY INVESTING THEIR FUNDS AND OBTAINING APPROV ALS FOR PLANS. HE ALSO NOTED THAT ASSESSEE IS NOT A DEVELOPER COMPAN Y WHICH WAS INCURRING ANY DEVELOPMENT EXPENDITURE. HOWEVER, UNDE R THE CIRCUMSTANCES, HE HAS CONSIDERED THAT ASSESSEES WORK RESEMBLES SOMETHING LIKE A SPECIAL CONTRACTOR WORK. HE ALSO NO TED THAT ALL THE ELEMENTS OF A SUB-CONTRACT WORK LIKE AGREEMENT, TERM S AND CONDITIONS, RISK AND RESPONSIBILITY AND RULES ARE N OT CLEARLY CAST. THEREFORE, HE CAME TO A CONCLUSION THAT THESE TYPE OF TRANSACTIONS RESEMBLE MORE OF SOMETHING LIKE ENGAGEMENT OF A CONSULTANT/SUPERVISOR TO OVERSEE THE WORK FOR A FEE. T HUS, NOTING THAT IT CANNOT BE TAKEN THAT COMPANY WAS INDEPENDENTLY IN THE BUSINESS OF CONSTRUCTION WITH ASSOCIATED RISK AND RE WARDS, IT DID SUPERVISE THE WORK AND BEING AN INDEPENDENT ENTITY, SI MILAR TO A SUB-CONTRACTOR CUM SUPERVISOR A HYBRID OF TWO ROLE S IT CAST ON ITSELF, DETERMINED PROFIT @ 5% ON THE TOTAL CONSTRUCTED C OST OF RS. 5.45 CRORES OF THE EXPENDITURE. ACCORDINGLY, HE GAVE A FINDING THAT Z AXIS CONSTRUCTIONS PVT. LTD., :- 4 -: INCOME TO BE ASSESSED TOWARDS SUB-CONTRACTOR CUM SUPER VISOR WORK UNDER THE HEAD BUSINESS INCOME AT 5% ON THE G ROSS RECEIPTS. SIMILARLY, FOR AY. 2011-12, HE HAS DETERMINED PROFI T AT 5% ON GROSS EXPENDITURE OF RS. 1.24 CRORES. 5. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS NOT UNDERTAKEN ANY BUSINESS ACTIVITY AND IT HAS ONLY SUPER VISED ACTIVITY AND FINDINGS OF THE CIT(A) ARE NOT CORRECT. I T IS SUBMITTED THAT IT HAS NO INCOME AND THEREFORE, ASSESSEES GROUNDS ARE TO BE ALLOWED. 6. LD. DR HOWEVER, SUBMITTED THAT ASSESSEE HAS SHOWN THE EXPENDITURE IN ITS BALANCE SHEET AND SINCE AMOUNT WAS BROUGHT TO TAX AS SUB-CONTRACTOR CUM SUPERVISOR, THE OR DER OF THE CIT(A) IS REASONABLE. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE FINDINGS GIVEN BY THE CIT(A) AS WELL AS THE PAPER BOOK PLACED ON RECORD. AS SEEN FROM ASSESSEES ACCOUNTS FOR AY. 2008-09 AND 2009-10, ASSESSEE DID INFACT MENTION THE AMOUNTS IN ITS BALANCE SHEET AS EXPENDITURE INCURRED ON CONSTRUCTION. ONLY F INANCIAL YEAR ENDING 2010, THERE WAS NO AMOUNT MENTIONED IN BALANCE SHEET, LIKE-WISE FOR YEAR ENDING 2011. AS SEEN FROM THE PA RTITION DEED, PARTITION HAS HAPPENED AS ON 30 TH MAY, 2009 I.E., DURING AY. 2010- 11. AS SEEN FROM THE ORDER OF AO FOR AY. 2008-09 AL SO THERE IS NO INCOME ESTIMATED BY THE AO, EVEN THOUGH EXPENDITURE W AS INCURRED IN THAT ASSESSMENT YEAR. SINCE THE PROJECT HAS BEEN COMPLETED AND EACH OF THE CO-OWNER GOT THEIR SHARE BY MAY, 2009, IT COULD BE POSSIBLE THAT THE ENTIRE EXPENDITURE WAS EXCL UDED FROM Z AXIS CONSTRUCTIONS PVT. LTD., :- 5 -: ASSESSEES BALANCE SHEET AS ON 31-03-2010. HOWEVER, IT DOES NOT TAKE AWAY THE FACT THAT ASSESSEE HAD COORDINATED THE CONS TRUCTION WORK OF THE PROJECT DURING THE INTERVENING YEARS. THIS ASPECT OF SUPERVISION HAS NOT BEEN EXAMINED BY THE AO AT ALL WHE THER THE FUNDS HAVE BEEN RECEIVED FROM THE INDIVIDUAL OWNERS AND ASSESSEE ONLY SUPERVISED OR ASSESSEE HAS UNDERTAKEN THE PROJEC T REQUIRES EXAMINATION WITH REFERENCE TO BOOKS OF ACCOUNT. SINCE THIS WAS NOT EXAMINED, THE FINDINGS OF THE CIT(A) THAT ASSESSEES WORK IS IN THE FORM OF HYBRID CAPACITY CANNOT BE ACCEPTED AS SUCH. THEREFORE, WITHOUT ADJUDICATING ASSESSEES CONTENTIONS THAT IT HA S NOT DONE ANY WORK OR CIT(A)S FINDING THAT IT IS A HYBRID SORT O F WORK, WE ARE OF THE OPINION THAT THE FACTS REQUIRE EXAMINATION BY THE AO. IN CASE ASSESSEE DID UNDERTAKE ON BEHALF OF THE THIRD PA RTY WHETHER IT CAN BE CONSIDERED AS SUB-CONTRACT WORK ON WHICH GENER ALLY 5% INCOME IS CONSIDERED REASONABLE IN VARIOUS ORDERS O F THE ITAT OR IT HAS TAKEN ONLY A SUPERVISORY WORK WITHOUT ANY INCOME AS CONTENDED OR WHETHER THERE IS ANY INCOME ELEMENT IN THE SUPERVISORY ACTIVITY IS TO BE ADJUDICATED BY THE AO AFRESH ON THE BASIS OF THE FACTS AS CAN BE CULLED OUT FROM ASSESSEE S BOOKS OF ACCOUNT AND OTHER DOCUMENTS. THEREFORE, THE ENTIRE ISSU E OF CONSIDERING THE INCOME ON THE PROJECT AND THE RATE AT WH ICH INCOME IS TO BE ESTIMATED IS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN AY. 2010-11. FOR THIS PURPOSE, THE O RDERS OF THE AO AND CIT(A) ARE SET ASIDE AND THE ENTIRE ISSUE IS RESTOR ED TO THE FILE OF AO TO DO ACCORDINGLY. 8. COMING TO AY. 2011-12, WE ARE UNABLE TO EXAMINE FROM WHERE THE EXPENDITURE OF RS. 1.24 CRORES WAS ARRIVED AT BY THE AO. AS PER THE BALANCE SHEETS PLACED ON RECORD, THE PROJE CT WAS Z AXIS CONSTRUCTIONS PVT. LTD., :- 6 -: COMPLETED IN AY. 2010-11 ITSELF. THEREFORE, THERE CA NNOT BE ANY FURTHER EXPENDITURE IN THIS YEAR. THE SOURCE FROM WHI CH AO HAS CONSIDERED THIS AMOUNT IS NOT FORTHCOMING FROM THE ORDE RS OR FROM THE RECORD. AS SEEN FROM THE ORDER OF CIT(A) ALSO H E HAS MENTIONED ONLY THE EXPENDITURE INCURRED UPTO 31-03-2010 IN THE B ODY OF THE ORDER, BUT THERE IS NO FINDING ON THE EXPENDITURE QUAN TIFIED BY THE AO FOR THIS YEAR. THEREFORE, WITHOUT ADJUDICATING THE RATE OF INCOME ON THE AMOUNT SO DETERMINED, WE ARE OF THE OPI NION THAT AO HAS TO FIRST ESTABLISH THAT ASSESSEE HAS INDEED INCU RRED EXPENDITURE ON THE PROJECT DURING THE YEAR. IN CASE THERE IS NO EXPENDITURE INCURRED BY ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR, THERE CAN BE NO INCOME, AS ASSESSEE SEEMS TO HA VE NOT DONE ANY OTHER WORK. IN ORDER TO EXAMINE THE NATURE OF EX PENDITURE AND RELEVANT EVIDENCE CONSIDERED BY THE AO, WE SET ASIDE TH E ORDERS OF THE AO AND CIT(A) IN AY. 2011-12 ALSO AND RESTORE THE ISSUE TO THE FILE OF AO FOR RECONSIDERING THE ENTIRE ASSESSMENT. H E SHOULD KEEP IN MIND THE FINDINGS IN AY. 2010-11 AND CAN ESTIMATE INCOME ONLY IF ASSESSEE HAS INCURRED ANY EXPENDITURE, WHICH WAS NOT INCLUDED UPTO AY. 2010-11. WITH THESE OBSERVATIONS, THE GROUND S IN AY. 2011-12 ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOS ES. 9. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 4 TH NOVEMBER, 2016 TNMM Z AXIS CONSTRUCTIONS PVT. LTD., :- 7 -: COPY TO : 1. Z AXIS CONSTRUCTIONS PVT. LTD., PLOT NO. 59, GAF OOR NAGAR, IMAGE HOSPITAL LANE, MADHAPUR, HYDERABAD. 2. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-7 , HYDERABAD. 3. CIT (APPEALS)-XII, HYDERABAD. 4. CIT (CENTRAL), HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.