M/s. Engineering Design & Construction Co, Bhubaneswar V. ITO, Ward-2(2), Bhubaneswar, Bhubaneswar

ITA 113/CTK/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90808 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 19-05-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 22-02-2013
• Court: TRIBUNAL
• Department Lawyers: SHOVAN KRISHNA SAHU
• Assessee Lawyers: S K AGRAWALA
• Keywords: Depreciation
• Section: 44AD; 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH , CUTTACK [ , . . , BEFORE SHRI SUNIL KUMAR YADAV , J M & SHRI B.P.JAIN , A M ./ ITA NO. 1 13 &114 / CTK /20 1 3 ( [ [ / ASSESSMENT YEAR S : 2005 - 06 & 2006 - 07 ) M/S ENGINEERING DESIGN & CONSTRUCTION CO., NAHARKANTA, COLLEGE ROAD, BHUBANESWAR VS. ITO, WARD - 2(2), BHUBANESWAR - 751007 ./ ./ PAN/GIR NO. : A A BFE 3743 P ( / APPELLANT ) .. ( / RESPONDENT ) [ /ASSESSEE BY : SHRI S.K.AGRAWALA /REVENUE BY : SHRI SHOVAN KRISHNA SAHU / DATE OF HEARING : 1 9 TH MAY , 201 5 / DATE OF PRONOUNCEMENT 21 ST MA Y ,2015 / O R D E R PER SUNIL KUMAR YADAV ( J .M) : TH ESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT (A) - II , BHUBANESWAR DATED 26 - 11 - 2012 FOR THE ASSESSMENT YEAR S 2005 - 06 & 2006 - 07 ON COMMON GROUNDS AND FOR THE SAKE OF REFER ENCE, WE EXTRACT THE GROUNDS RAISED IN APPEAL NO.113/CTK/2013 AS UNDER : - 1. BECAUSE THAT THE LEARNED THE COMMISSIONER OF INCOME TAX (APPEALS - II) ERRED IN LAW AS WELL AS IN FACTS BY UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER FOR TREATING THE CLOSIN G WORK IN PROGRESS OF RS. 58,46,000/ - AS A COMPONENT OF GROSS TURNOVER. 2. BECAUSE THAT THE LEARNED THE COMMISSIONER OF INCOME TAX (APPEALS - II) ERRED IN LAW AS WELL AS IN FACTS BY UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER FOR ESTIMATING THE INCOME FROM CONTRACT BUSINESS @8% OF THE CONTRACT RECEIPTS. 3. BECAUSE THAT THE LEARNED THE COMMISSIONER OF INCOME TAX (APPEALS - II) ERRED IN LAW AS WELL AS IN FACTS BY UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER FOR NOT ALLOWING DEPRECIATION FROM THE INCOM E SO ESTIMATED WHICH NOT ACCORDANCE WITH THE WELL SETTLED PRINCIPLE OF LAW. ITA NO S . 113&114 /1 3 2 2. THE ASSESSEE HAS ALSO MOVED AN ADDITIONAL GROUND THAT THE ASSESSING OFFICER ERRED IN LAW AS WELL AS IN FACT BY NOT ALLOWING INTEREST ON CAPITAL PAID TO PARTNERS AND THE REMUNER ATION PAID TO WORKING PARTNERS FROM THE INCOME ESTIMATED @8% OF TURNOVER WHICH SHOULD HAVE BEEN ALLOWED AS PER THE PROVISIONS OF LAW. 3. DURING THE COURSE OF HEARING, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSMENT WAS FRAMED U/S.144 OF THE ACT AND THE BOOKS OF ACCOUNTS WERE REJECTED BY THE AO AND ESTIMATED THE NET PROFIT @8% OF THE GROSS TURNOVER. AGAINST WHICH THE ASSESSEE PREFERRED APPEAL S BEFORE THE CIT(A), BUT HE DID NOT FIND FAVOUR WITH HIM. NOW, THE ASSESSEE IS IN FURTHER APPEALS BEFO RE US FOR BOTH THE ASSESSMENT YEARS. 4. IT IS SUBMITTED BY THE LD. AR THAT THE AO SHOULD HAVE ALLOWED THE INTEREST PAID TO PARTNERS AND DEPRECIATION AGAINST THE ESTIMATED INCOME AS PER LAW. THEREFORE, NECESSARY DIRECTION BE ISSUED TO THE AO TO ALLOW THE I NTEREST PAID TO PARTNERS ON CAPITAL AND REMUNERATION PAID TO WORKING PARTNERS AND DEPRECIATION ALSO AS PER LAW. 5. LD. DR, ON THE OTHER HAND, HAS SUBMITTED THAT WHILE ESTIMATING THE NET PROFIT RATE, THE AO HAS TAKEN INTO ACCOUNT ALL THESE ASPECTS, THEREFOR E, NO FURTHER DIRECTION CAN BE GIVEN. IN SUPPORT OF HIS CONTENTION, HE INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 44AD OF THE ACT WITH THE SUBMISSION THAT WHILE ESTIMATING THE INCOME ALL FACTORS RELATING TO INTEREST ON CAPITAL AND REMUNERATION PAID TO THE PARTNERS AND DEPRECIATION HAS ALREADY BEEN TAKEN INTO ACCOUNT AND NO FURTHER ALLOWANCE CAN BE GIVEN. ITA NO S . 113&114 /1 3 3 6 . WE HAVE HEARD RIVAL CONTENTIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD AND FOUND THAT PROVISIO NS OF SECTION 44AD CAN ONLY BE APPLIED TO THOSE ASSESSEE IN WHICH TOTAL TURNOVER IS LESS THAN A PARTICULAR LIMIT PRESCRIBED IN EXPLANATION BELOW SECTION 44AD. EARLIER THE LIMIT WAS RS.40 LAKHS, THEN IT WAS INCREASED TO RS.60 LAKHS BY THE FINANCE ACT, 2012 AND NOW IT IS INCREASED TO RS.1 CRORE. IN THE INSTANT CASE, THE TURNOVER OF THE ASSESSEE IS MORE THAN RS.1 CRORE, THEREFORE, PROVISIONS OF SECTION 44A D CANNOT BE STRICTLY APPLIED BUT INFERENCE CAN BE DRAWN FROM THIS PROVISION. EVEN THE PROVISO TO SECTION 4 4AD SAYS THAT WHERE THE ELIGIBLE ASSESSEE IS A FIRM, THE SALARY AND INTEREST PAID TO ITS PARTNERS SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB - SECTION (1) SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) OF SECTION 40 OF THE ACT . IN THE INSTANT CASE, THE ASSESSING OFFICER HAS ESTIMATED THE INCOME @8% OF THE TOTAL TURNOVER OF THE ASSESSEE BUT HE HAS NOT ALLOWED THE SALARY AND INTEREST PAID TO THE PARTNERS , THOUGH THE AO WAS REQUIRED TO ALLOW THE SAME EVEN AS PER THE PROVISIONS OF SECTION 44 AD OF THE ACT. IN THE LIGHT OF THE THESE FACTS, WE FIND FORCE IN THE CONTENTION OF THE LD. AR OF THE ASSESSEE, THEREFORE, WE DIRECT THE AO TO ALLOW DEDUCTION ON SALARY PAID TO WORKING PARTNER S AND INTEREST PAID TO THEM ON THEIR CAPITAL FROM THE ESTIMATED INCOME SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) OF SECTION 40 OF THE ACT . ACCORDINGLY, WE MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW ITA NO S . 113&114 /1 3 4 DEDUCTION OF INTEREST AND SALARY PAID TO THE PARTNERS SUBJECT TO CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) OF SECTION 40 OF THE ACT. 7 . IN THE RESULT, BOTH AP PEAL S OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 / 05 / 201 5 . SD/ - SD/ - ( . . ) ( B. P. JAIN ) ( ) ( SUNIL KUMAR YADAV) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 21 /0 5 / 201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, CUTTACK 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT , CUTTACK 6. [ / GUARD FILE. //TRUE COPY//