ACIT, Circle-6(1), Hyderabad V. M/s. Sri Harsha Constructions, Hyderabad

ITA 1139/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66420 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUDHAKAR REDDY
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Rejection of books of accounts; Business income; Depreciation
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 929/HYD/2011 ASSESSMENT YEAR 2007-08 M/S. SRI HARSHA CONSTRUCTIONS, HYDERABAD PAN: AACFS8025M VS. THE ASST. CIT CIRCLE-6(1) HYDERABAD APPELLANT RESPONDENT I.T.A. NO. 1139/HYD/2011 ASSESSMENT YEAR 2007-08 THE ASST. CIT CIRCLE-6(1) HYDERABAD VS. M/S. SRI HARSHA CONSTRUCTIONS, HYDERABAD PAN: AACFS8025M APPELLANT RESPONDENT ASSESSEE BY: SRI K.A. SAI PRASAD REVENUE BY: SRI A. SUDHAKAR REDDY DATE OF HEARING: 16.10.2012 DATE OF PRONOUNCEMENT: 31.10.2012 O R D E R PER CHANDRA POOJARI, AM: THESE TWO APPEALS ARE CROSS APPEALS DIRECTED AGAIN ST THE ORDERS OF THE CIT(A) DATED 31.3.2011. 2. FIRST WE WILL TAKE UP ASSESSEES APPEAL. BRIEF FAC TS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF CIVIL CONTRACTS. AS PER THE ASSESSMENT ORDER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE HAD PRODUCED THE LEDGER COPIES, VOUCHERS ETC., MAINTAINED FOR CO NTRACTS. THE ASSESSING OFFICER, AFTER VERIFICATION OF THE DETAIL S, OPINED THAT THERE WERE CERTAIN DIFFERENCES BETWEEN THE AMOUNTS CLAIMED IN THE P&L ACCOUNT AND THE AMOUNTS FOUND FROM THE LEDG ER ACCOUNTS IN RESPECT OF LABOUR CHARGES, LABOUR CHARG ES SINKING, I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 2 SAND ETC. HE FURTHER NOTICED THAT MAJORITY OF THE V OUCHERS FOR THE EXPENDITURE CLAIMED BY THE ASSESSEE FIRM WERE S ELF MADE AND AROUND 30% - 40% THEREOF WERE FOR CASH PAYMENTS . HE, THEREFORE, PROPOSED TO ESTIMATE THE NET PROFIT OF T HE ASSESSEE AT 12.5% ON THE GROSS CONTRACT RECEIPTS, BEFORE DEPREC IATION. 3. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT SOME OF THE LEDGER ACCOUNTS FOR EXPENDITURE WERE NOT SUBMITTED EARLIER. SUBMITTING SUCH LEDGER ACCOUNTS, IT WAS CONTENDED T HAT IF THE SAME ARE CONSIDERED, THERE WOULD BE NO DIFFERENCE I N THE EXPENDITURE CLAIMED IN THE P&L ACCOUNT AND THE AMOU NTS MENTIONED IN THE LEDGER ACCOUNTS. THE ASSESSEE ALSO FURNISHED A RECONCILIATION OF THE HEADS OF EXPENDITURE. CONSIDE RING THE DETAILS SO PRODUCED, THE ASSESSING OFFICER ACCEPTED THE RECONCILIATION OF THE HEADS SUBMITTED BY THE ASSESS EE. HOWEVER, HE TOOK THE NOTE OF THE FACT THAT THE PAYMENTS HAD BEEN MADE BY THE ASSESSEE IN CASH TO THE EXTENT OF 30 TO 40%, AS EVIDENCED BY THE VOUCHERS PRODUCED. FURTHER, THESE CASH PAYME NTS WERE SUPPORTED BY SELF MADE VOUCHERS ONLY AND SOME OF TH E EXPENDITURES WERE NOT EVEN SUPPORTED BY VOUCHERS. F OR EXAMPLE, HE NOTED THAT IN RESPECT OF THE PAYMENT MA DE TO SHC SURJBERI ACCOUNT FOR SINKING WORK, OUT OF THE TOTAL PAYMENTS OF RS. 31,86,937, CASH PAYMENTS OF RS. 9,53,156 WERE S UPPORTED BY THE SELF MADE VOUCHERS ONLY. FURTHER, HE NOTICED TH AT PAYMENTS HAD BEEN MADE TO SRI G. NARAYANA RAO ACCOUNT FOR KA ZIPET ROB WORK, ADARSH GAS SUPPLY, N SAHAY AND ASSOCIATES P L TD. AND MADHAVI VISHARYI SANGAM FOR SHC SURJBERI PARTLY IN CASH, BESIDES CHEQUE PAYMENTS MADE TO THEM. IN ADDITION TO THE ABOVE OBSERVATIONS IN RESPECT OF VOUCHERS AND CASH PAYMENTS, THE ASSESSING OFFICER COMPARED THE FIGURES OF THE L AST YEAR I.E. A.Y., '2006-07 WITH THOSE OF THE YEAR UNDER APPEAL AS UNDER: I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 3 HEADS A.Y. 2006-07 A.Y. 2007-08 GROSS RECEIPTS 13,34,06,883 20,71,77,389 NET PROFIT SHOWN 81,37,221 1,06,47,555 LESS: OTHER INCOME 4,43,817 1,76,79,077 KEYMAN INSURANCE RECD. 14,99,750 -- TECHNICAL CONSULTANCY CHARGES 13,01,286 -- INTEREST 2,63,491 3,81,972 ACTUAL NET PROFIT 46,28,877 (3.46%) - 74,13,494 4. FROM THE ABOVE, THE ASSESSING OFFICER FOUND THAT TH E INCOME SHOWN BY THE ASSESSEE FOR THE CURRENT ASSESS MENT YEAR WAS EXTREMELY LOW. HE NOTED THAT THE ASSESSEE HAD R ECEIVED 'OTHER INCOME', I.E. INCOME FROM ARBITRATION AWARD, OF RS. 1,76,79,077 DURING THE YEAR. ACCORDINGLY, HE CONCLU DED THAT THE ASSESSEE HAD DECLARED 'LOSS' WITH A VIEW TO NEUTRAL IZE THE AMOUNTS RECEIVED FROM ARBITRATION/OTHER INCOME. FIN ALLY, HE FELT THAT THE AFFAIRS OF THE ASSESSEE CANNOT BE ACCEPTED ON THE BASIS OF MATERIALS AND THE BOOKS OF ACCOUNTS PRODUCED, FO R THE REASONS DISCUSSED ABOVE. ACCORDINGLY, THE BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE WERE NOT ACCEPTED AS REFLE CTING THE FULL AND CORRECT PICTURE OF THE ASSESSEE'S BUSINESS AFFAIRS. KEEPING IN VIEW THE DISCREPANCIES FOUND IN THE ACCO UNTS, THE BOOKS OF ACCOUNTS WERE REJECTED AND THE INCOME OF T HE ASSESSEE FIRM WAS ESTIMATED AT 8% OF GROSS CONTRACT RECEIPTS OF RS. 20,71,77,389, RESULTING IN NET ESTIMATED INCOME OF RS. 1,65,74,191. THE ASSESSING OFFICER ADDED THE ARBIT RATION INCOME OF RS. 1,76,79,077 SEPARATELY, BESIDES ADDIN G THE INTEREST ON MARGIN MONEY ADMITTED AT RS. 3,81,972. THUS, TH E INCOME OF THE ASSESSEE IS COMPUTED AS FOLLOWS: GROSS CONTRACT RECEIPTS 20,71,77,389 NET INCOME AT 8% OF THE ABOVE 1,65,74,191 INTEREST ON MARGIN MONEY AS ADMITTED BY THE ASSESSE E 3,81,972 OTHER INCOME INSURANCE ... 4,04,091 OTHER INTEREST RECEIVED 17,682 TECHNICAL CONSULTATION CHARGES RECEIVED 18,93,661 COMMISSION ON SUB - CONTRACT 20,81,649 I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 4 TECHNICAL PERSON SALARY 1,63,087 ARBITRATION RECEIVED 1,31,18,770 1,76,79,077 GRAND TOTAL 3,46,35,240 5. ON THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). THE CIT(A) GIVEN A FINDING THAT THERE IS NO DISPUTE REGARDING TOTAL CONTRACT RECEIPTS AT RS. 20,71,77,389. OUT O F THIS THE CONTRACT GOT EXECUTED THROUGH SUBCONTRACT IS AT RS. 6.91 CRORES. ON THIS, THE ASSESSEE RECEIVED COMMISSION AT RS. 20 ,81,649. THIS INCOME INCLUDED AND REFLECTED UNDER THE HEAD OTHER INCOME IN THE PROFIT AND LOSS ACCOUNT AND THEE IS NO ESTIMATING THE INCOME ONCE AGAIN ON THIS SUBCONTRACT GOT EXEC UTED FROM OTHER PERSONS. THE ASSESSEE ACTED AS SUBCONTRACTOR IN RESPECT OF CONTRACT VALUE OF RS. 9,25,47,573. THE INCOME O N THIS HAS TO BE ESTIMATED AT 6%. THE BALANCE CONTRACT OF RS. 4, 55,29,816 EXECUTED BY THE ASSESSEE ITSELF HAS TO BE CONSIDERE D TO ESTIMATE THE INCOME AT 8%. OUT OF OTHER INCOME DECLARED IN THE P&L ACCOUNT AT RS. 1,76,99,077, HE DIRECTED TO EXCLUDE RS. 20,81,649 WHICH REPRESENTS THE COMMISSION INCOME ON SUBCONTRA CT. FURTHER HE OBSERVED THAT THE INTEREST INCOME RS. 4,04,091, OTHER INSURANCE RS. 17,682, TECHNICAL CONSULTANCY CHARGES RS. 18,93,661 AND TECHNICAL PERSON SALARY RS. 1,63,087 TO BE CONSIDERED SEPARATELY AS INCOME OF THE ASSESSEE. F URTHER HE OBSERVED THAT ARBITRATION RECEIVED AT RS. 1,31,18,7 70 HAS TO BE CONSIDERED AS INCOME OF THE ASSESSEE AS THE ASSESSE E ALREADY CLAIMED ALL THE EXPENSES RELATING TO THIS INCOME. FURTHER HE OBSERVED THAT INTEREST ON MARGIN MONEY AT RS. 3,81, 972 HAS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES IN VIEW OF THE JUDGEMENT OF SUPREME COURT IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. (227 ITR 172) . AGAINST THIS FINDING, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE GRIEVANCE OF THE DEPARTMENT IN ITS APPEAL IS TH AT ESTIMATION OF INCOME ON SUBCONTRACT AT 6% OF RS. 9, 25,47,573 IS I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 5 NOT JUSTIFIED AND IT IS TO BE AT 8% IN VIEW OF THE ORDER OF THE TRIBUNAL IN THE CASE OF SRI M. SRINIVAS RAO, PROPRI ETOR, M/S. PAVITRA CONSTRUCTIONS IN ITA NO. 55/HYD/10 DATED 30 .12.2010. 7. THE LEARNED AR AT THE OUTSET OBJECTED REJECTION OF BOOKS OF ACCOUNT. THE AR SUBMITTED THAT EXCEPT THE PRESE NCE OF SELF MADE VOUCHERS, AND CASH PAYMENTS WHICH CANNOT BE AV OIDED IN THIS LINE OF BUSINESS, THERE ARE NO SERIOUS DEFICIE NCIES POINTED OUT BY ASSESSING OFFICER IN THE BOOKS FOR REJECTION . THE MINOR VARIATIONS IN THE HEADS OF EXPENDITURE AS SUBMITTED BEFORE CIT(A) WERE DULY RECONCILED. EVEN IN THE REMAND REP ORT, THE MAJOR OBJECTION OF THE ASSESSING OFFICER IS THAT IN EARLIER YEAR THE APPELLANT ADMITTED 3.46% AND IN THE YEAR UNDER CONSIDERATION, THE BOOK RESULTS SHOWED NEGATIVE INC OME. THE AR SUBMITTED THAT THE ASSESSMENTS FOR EARLIER ASSES SMENT YEARS I.E., 2005-06 & 2006-07 WERE COMPLETED U/S 143(3) W ITHOUT REJECTION OF BOOKS OF ACCOUNTS AND SUITABLE ADDITIO NS WERE MADE TO THE INCOME RETURNED. HENCE THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX ARE NOT JUSTIFIED IN REJ ECTING THE BOOKS AND ESTIMATING THE INCOME. THE ASSESSEE IN IT S SUBMISSIONS BEFORE COMMISSIONER OF INCOME TAX CLAIM ED THAT THE WORKS ARE BEING EXECUTED AT REMOTE PLACES HENCE THE PAYMENTS WERE NECESSARILY TO BE MADE IN CASH. THIS CLAIM CANNOT BE BRUSHED ASIDE. IN ANY CASE THE TOTAL CASH PAYMENTS IDENTIFIED BY ASSESSING OFFICER IS RS. 20.12 LAKHS AS AGAINST THE TOTAL EXPENDITURE CLAIM OF RS. 23.37 CRORES I.E., H ARDLY 0.01 % WHICH IS NEGLIGIBLE. HENCE THE REJECTION OF BOOKS O N THIS SCORE IS NOT JUSTIFIED. THE AR ALSO SUBMITTED THAT SOME OF T HE WORKS HAVE REACHED THE FINAL STAGES AND THE SPECIAL EXPEN DITURE REQUIRED TO BE INCURRED IN THE CLOSING STAGES LIKE EXPENSES TOWARDS ERECTING BRIDGE BEARINGS (RS. 74.61) LAKHS HAVE A BEARING ON THE LOW PROFITABILITY IN THIS YEAR AND THE LOWER AUTHORITIES WITHOUT CONSIDERING ALL THIS HAVE SIMPLY REJECTED T HE BOOKS AND I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 6 ESTIMATED THE INCOME FOR THE REASON THAT THE ASSESS EE HAD OFFERED LOSS ON BUSINESS OPERATIONS. THE REMAND REP ORT AND COMMISSIONER OF INCOME TAX ARE SILENT ON THIS ISSUE . IT HAD ALSO SUBMITTED THAT THE MAIN CONTRACTOR DEDUCTED 16% OF THE WORK ALLOTTED TO APPELLANT AS SUB CONTRACT AND HENCE THE INCOME ELEMENT OF THE ASSESSEE IS FAR LESS ON SUCH CONTRAC TS. 8. THE LEARNED AR SUBMITTED THAT THE LOWER AUTHORITIES HAVE NOT GIVEN ANY VALID REASONS FOR REJECTION AND HENCE THEY MAY BE DIRECTED TO ACCEPT THE BOOKS RESULTS CONSIDERING TH E VARIOUS PECULIAR CIRCUMSTANCES OF THE CASE ESPECIALLY THE F ACT THAT THE MAIN CONTRACTOR AWARDED A SUB CONTRACT TO THE APPEL LANT AFTER DEDUCTING THEIR PROFIT OF 16%. THIS SUBCONTRACT WAS TO THE TUNE OF RS.8.96 CRORES AS AGAINST THE TOTAL SUB-CONTRACT S TAKEN AND EXECUTED AT RS. 9.26 CRORES. HENCE THE APPELLANT CA NNOT EARN SUCH HUGE MARGIN OF 6% TO 8%. EVEN THE LOWER AUTHOR ITIES CONFIRM THAT THE PROFIT % IN EARLIER YEARS IS 3.46% ONLY. IN THE ALTERNATIVE THE AR SUBMITTED THAT THE RATE OF PROFI T MAY BE ESTIMATED. THOUGH THE ORDER IN ITA NO. 1139/H/11 IS SINCE RECALLED, THE INCOME @ 6.5% DETERMINED THEREIN MAY IN THE ALTERNATE BE DIRECTED TO BE ADOPTED FOR TURNOVERS W ORKS EXECUTED ON OWN AND WORKS EXECUTED AS SUB-CONTRACTO R. 9. THE AR SUBMITTED THAT IN ASSESSEE APPEAL IN ITA NO. 929/ HYD/2011, THE ASSESSEE PRAYED THAT INTEREST ON CAPI TAL RS. 25,75,863 AND REMUNERATION TO PARTNERS RS. 6,00,000 MAY BE ALLOWED. THE ITAT HYDERABAD BENCH IS CONSISTENTLY A LLOWING SUCH CLAIM. FOR THIS PURPOSE HE RELIED ON THE ORDE R OF THE TRIBUNAL IN THE CASE OF AMSRI BUILDERS IN ITA NO. 8 66/H/11 VIDE ORDER DATED 30.04.12. THE AR SUBMITTED THAT SINCE THE FIXED DEPOSITS ARE TAKEN FOR GETTING BANK GUARANTEES IN T HE COURSE OF BUSINESS FOR THE WORK CONTRACTS AWARDED, THE INTERE ST OF RS. 3,81,972 ON MARGIN MONEY FIXED DEPOSITS CANNOT BE S EPARATELY I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 7 ADDED AFTER ESTIMATING THE INCOME FROM THE BUSINESS AS A WHOLE. FOR THIS PURPOSE, THE AR RELIED ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS. PRODUCIN (290 ITR 598) FOR THE PREPOSITION THAT IF THE FIXED DEPOSITS HAVE LINK TO THE BUSINESS ACTIVITY THE INTEREST THERE ON IS BUSINESS INCOME. IN THE CASE OF CIT VS. VIDYUT STEEL LTD (219 ITR 30) THE AP HIGH C OURT HELD THAT THE INTEREST ON MARGIN MONEY DEPOSITS CANNOT BE ASS ESSED U/S 56 OF THE IT ACT. 10. THE AR SUBMITTED THAT THE ADDITION OF OTHER INCOME OF RS. 1,55,97,428: (RS. 1,76,79,077 RS. 20,81,649) WHIL E COMPUTING THE TOTAL INCOME THE ASSESSING OFFICER ADDED SEPARA TELY THE AMOUNT OF RS. 1,76,79,077 CREDITED TO PROFIT AND LO SS ACCOUNT. THE DETAILS OF OTHER INCOME ARE AS UNDER:- S. NO. PARTICULARS AMOUNT 1 INSURANCE IN RESPECT OF CAR POLICY RECEIVED 4,04,091 2 INSURANCE RECEIVED 17,682 3 TECHNICAL CONSULTANT CHARGES 18,93,661 4 COMMISSION ON SUB-CONTRACT 20,81,649 5 TECHNICAL PERSON SALARY 1,63,087 6 ARBITRATION RECEIVED 1,31,18,770 TOTAL: 1,76,79,077 SINCE COMMISSION ON SUB-CONTRACTS I.E., S. NO. 4 RS . 20,81,649 IS SEPARATELY ASSESSED, THE SUBMISSIONS ON OTHER ITEMS OF RS. 1,55,97,428/- ARE AS UNDER: 11. THE AR SUBMITTED THAT THE CONTRACTS ALL RISK POLICY (CAR POLICY) (RS. 4,04,091) WAS OFFERED TO THE AUTHORITI ES FOR ALLOTTING THE CONTRACTS. AS PER AGREEMENT WITH AUTHORITIES T HE POLICY WAS OFFERED AS A SECURITY. ON COMPLETION OF THE WORK TH E POLICY AMOUNT WAS CLAIMED AND REIMBURSED TO THE ASSESSEE F IRM. WHILE OBTAINING THE POLICY THE ASSESSEE FIRM DEBITED THE EXPENDITURE I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 8 TO THE PROFIT AND LOSS ACCOUNT. AFTER DEDUCTING TH EIR CLAIMS THE CONCERNED AUTHORITIES REIMBURSED THE BALANCE AMOUNT THEREFORE, THE AMOUNT CONSTITUTE BUSINESS RECEIPTS FOR THE ASS ESSEE. IF THE INCOME IS ASSESSED ON ESTIMATE BASIS NO SEPARATE AD DITION CAN BE MADE FOR SUCH RECEIPT. THE AR SUBMITTED THAT TH IS INCLUDES AN AMOUNT OF RS. 12,270 RECEIVED BY THE ASSESSEE FR OM UNITED INDIA INSURANCE. THE ASSESSEE'S VEHICLE A SANTRO CA R WITH REGISTRATION NO. AP 9 AM 9691 MET WITH AN ACCIDENT IN APRIL 2006 AT HYDERABAD. THE ASSESSEE PUT A CLAIM FOR INS URANCE AND RECEIVED THE AMOUNT OF RS. 12,270 AS PER PROCEEDING S DATED 12.04.2006. THIS IS NOTHING BUT REIMBURSEMENT OF EX PENDITURE INCURRED BY THE ASSESSEE FOR REPAIRS OF THE VEHICLE . SIMILARLY RS. 5,592 IS THE AMOUNT RECEIVED ON MATURITY OF POLICY UNDER WORKMEN WORK CONTRACT ACT. IF INCOME ASSESSED IS O N ESTIMATE BUSINESS, THE RECEIPT CANNOT BE TAXED AS SEPARATE I NCOME RS. 1,63,087. 12. THE AR FURTHER SUBMITTED THAT RS. 1,63,087 IS SALAR Y OF TECHNICAL PERSON. GENERALLY IT IS THE UNDERSTANDIN G BETWEEN THE PERSON AWARDING THE CONTRACT AND THE ASSESSEE THAT PART OF THE SALARY PAID TO CERTAIN TECHNICAL PERSONNEL SHOULD B E BORNE BY THE PERSON WHO AWARDED THE CONTRACT. GENERALLY THE ASSE SSEE MADE REGULAR PAYMENTS OF SALARY TO THOSE TECHNICAL PERSO NS AS THEY ARE ON THE PAY ROLLS OF ASSESSEE FIRM. AS AND WHEN THE AWARDER OF THE CONTRACT PAYS THE AMOUNT AS AGREED UPON, TO THE ASSESSEE, THE ASSESSEE CREDITS THE SAME TO THE PROFIT & LOSS ACCOUNT AS OTHER INCOME. IF THE EXPENDITURE IS PART OF ESTIMAT ED INCOME, NO SEPARATE ADDITION IS CALLED FOR THIS AMOUNT. REGAR DING ARBITRATION AMOUNT RECEIVED RS. 1,31,18,770, THE AR SUBMITTED THAT THOUGH THE ASSESSEE HAD RECEIVED THIS SUM AGAI NST THE CONTRACTS EXECUTED IN EARLIER YEAR, IT HAD TO INCUR SOME EXPENDITURE IN CONNECTION WITH AWARD PROCEEDINGS. M OST OF THE PAYMENTS ARE TO THE CONSULTANTS AND THE AMOUNT INCU RRED IS RS. I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 9 15,98,500 AS PER THE DETAILS ENCLOSED. SINCE THE EX PENDITURE INCURRED THROUGH BANKING CHANNELS RELATED TO AWARD AMOUNT RECEIVED, HE REQUESTED THE TRIBUNAL BE PLEASED TO D IRECT THE ASSESSING OFFICER TO ASSESS ONLY NET ARBITRATION AM OUNT RECEIVED AS OTHER INCOME. 13. THE AR SUBMITTED THAT SINCE THE COMMISSIONER OF INC OME TAX ADOPTED 6% ON WORKS EXECUTED AS SUB-CONTRACTOR, THE REVENUE FILED THE APPEAL AND REQUESTED THAT 8% MAY BE ADOPTED. THE TRIBUNAL IN ITA NO. 1139/HYD/2011 DIRECTED THE ASSESSING OFFICER TO ADOPT 6.5%. THE SAID APPEAL IS SINCE REC ALLED. AS SUBMITTED IN DETAIL IN EARLIER PARAS, THE MAIN CONT RACTOR WHO AWARDED A CONTRACT OF RS. 8.96 CRORES OUT OF TOTAL SUB CONTRACT WORKS OF RS. 9.26 CRORES EXECUTED BY THE ASSESSEE, DEDUCTED THEIR PROFIT @ 16%. HENCE THE ASSESSEE IS IN NO POS ITION TO EARN SUCH HUGE MARGIN OF 6% OR 8%. THE FACT REMAINS THAT THE ASSESSEE ENDED UP LOSING HEAVILY ON THIS PROJECT. T HE AR SUBMITTED THAT THE TRIBUNAL MY DIRECT THE ASSESSING OFFICER TO ADOPT 3.46% (BEING THE BOOK RESULTS ACCEPTED IN EAR LIER YEARS IN AN ASSESSMENT COMPLETED U/S 143(3)) ON THE WORKS EX ECUTED AS SUB-CONTRACTOR I.E. ON THE CONTRACTS MENTIONED AT S . NO. 3 ABOVE. IN THE ALTERNATE THE RATE ADOPTED BY COMMISSIONER O F INCOME TAX MAY BE SUSTAINED ON RS. 9,25,47,573. 14. ON THE OTHER HAND, THE DR STRONGLY RELIED ON THE OR DER OF THE CIT(A). 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THE PRESENT CASE THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE. MOST OF THE PAYMENTS WE RE MADE BY THE ASSESSEE IN CASH, 30 TO 40% OF CASH PAYMENTS AR E SUPPORTED BY SELF MADE VOUCHERS. BESIDES, SOME OF THE EXPEND ITURE WAS NOT SUPPORTED BY THE VOUCHERS. THE RATE OF PROFIT DECLARED BY I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 10 THE ASSESSEE AS COMPARED TO EARLIER YEAR IS VERY LO W. ADMITTEDLY, THERE WAS A LOSS FROM CONTRACT BUSINESS OPERATIONS FOR THIS ASSESSMENT YEAR AT RS. 74,13,494 AS AGAINS T ACTUAL NET PROFIT AT RS. 46,28,877 FOR A.Y. 2006-07. THEREFOR E, IT IS OPINED THAT THE ASSESSEE TO NEUTRALISE THE RECEIPT RECEIVE D FROM ARBITRATION AT RS. 1,31,18,770 SHOWN THE RESULT FRO M BUSINESS AS LOSS. FROM THIS ONE CAN EASILY DRAW CONCLUSION THA T THE ASSESSEE MANIPULATED BY BOOKING INFLATED EXPENDITURE BY WAY OF SELF- MADE VOUCHERS. THERE IS EVERY CHANCE OF INFLATING THE EXPENDITURE WHERE THERE IS SELF-MADE VOUCHERS NOT S UPPORTED BY EXTERNAL EVIDENCE. BEING SO, THE ASSESSING OFFICER IS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT. THE SAME IS CONFIR MED. 16. NOW COMING TO THE FIRST GROUND OF APPEAL IN ASSESSE ES APPEAL, ESTIMATION OF INCOME AT 8% ON THE CONTRACT AT RS. 4,55,29,869 ON THE CONTRACTS EXECUTED BY THE ASSESS EE OWN FUNDS, WE ARE OF THE OPINION THAT THIS ISSUE WAS C ONSIDERED BY THIS TRIBUNAL ON VARIOUS OCCASIONS AND IT WAS HELD THAT 8% INCOME ESTIMATED ON ITS OWN CONTRACTS IS JUSTIFIED. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF TEJ CONSTRUCTIONS VS. ACIT 129 TTJ 57. THE FINDINGS OF THE CIT(A) ON THIS ISSUE IS CONFIRMED. THIS GROUND IS REJECTED. 17. REGARDING ESTIMATION OF INCOME AT 6% ON CONTRACT OF RS. 9,25,47,573 EXECUTED BY THE ASSESSEE IN THE CAPACIT Y AS A SUBCONTRACTOR, IN OUR OPINION, ESTIMATED INCOME AT 6% ON THIS CONTRACT IS JUSTIFIED IN VIEW OF THE JUDGEMENT IN T HE CASE OF TEJ CONSTRUCTIONS CITED SUPRA. THE REVENUE IS ALSO IN APPEAL BEFORE US ON THIS ISSUE. THE GROUNDS RAISED BY THE ASSESS EE AS WELL AS THE REVENUE ARE REJECTED. 18. THE NEXT GROUND IS WITH REGARD TO ALLOWABILITY OF EXPENDITURE I.E., DEPRECIATION, INTEREST TO PARTNER S AND REMUNERATION TO PARTNERS. IN OUR OPINION, WHEN THE INCOME IS I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 11 ESTIMATED ALL THE DEDUCTIONS ALLOWABLE U/SS. 30 TO 38 ARE TO BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL DEDUCTION AN D NO FURTHER DEDUCTION COULD BE GIVEN UNDER THESE SECTIO NS. HOWEVER, THE REMUNERATION AND INTEREST TO PARTNERS HAS TO BE ALLOWED SEPARATELY SUBJECT TO THE CONDITIONS AND LI MIT SPECIFIED IN CLAUSE (B) OF SECTION 40 OF THE ACT PROVIDED IF IT IS CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME AND PROVIDED I N THE PARTNERSHIP DEED OF THE ASSESSEE FIRM. THIS GROUND IS PARTLY ALLOWED. 19. REGARDING THE INTEREST ON MARGIN MONEY THIS ISSUE C AME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF KNR CONSTRUCTIONS IN ITA NO 1141/HYD/2005. THE TRIBUNA L WHILE PASSING THE ORDER DATED 30.11.2009 CONSIDERED THE J UDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VIDYUT H STEELS LTD. (CITED SUPRA), WHEREIN IT WAS HELD THAT INTEREST EA RNED ON MARGIN MONEY WAS INEXTRICABLY CONNECTED WITH THE CONTRACT OF GUARANTEE ITSELF. THE INCOME DERIVED FROM THE MARG IN MONEY FOR OBTAINING BANK GUARANTEE COULD NOT BE SEPARATEL Y ASSESSED UNDER SECTION 56 OF THE ACT. FURTHER THE TRIBUNAL CONSIDERED THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SPONGE IRON INDIA LTD. (201 ITR 770). FURTHER, WHI LE DECIDING THE CASE OF VIDYUTH STEELS LTD., JUDGEMENT IN THE CASE OF SPONGE IRON INDIA LTD. WAS NOT BROUGHT TO THE NOTICE OF THE COU RT. IT IS ALSO ON RECORD THAT THE SUPREME COURT JUDGEMENT IN THE C ASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS VS. CIT (227 ITR 172) IS ALSO AGAINST THE ASSESSEE WHICH WAS FOLLOWED BY THE TRIBUNAL WHILE DISPOSING THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 20. FURTHER IN THAT CASE THE ASSESSEE FILED MA AND THE SAME WAS DISMISSED VIDE ORDER DATED 12 TH OCTOBER, 2012 IN MA NOS. 113 & 114/HYD/2012. ACCORDINGLY THIS GROUND IS DEC IDED AGAINST THE ASSESSEE. FURTHER, WE ARE OF THE OPINI ON THAT I.T.A. NO. 929 & 1139/HYD/2011 M/S. SRI HARSHA CONSTRUCTIONS ========================= 12 SEPARATE ADDITION OF RS. 1,55,97,428 MADE BY THE AS SESSING OFFICER IS JUSTIFIED AS THIS AMOUNT IS NOT INCLUDED IN THE GROSS CONTRACT RECEIPTS AND THIS IS ENTIRELY DIFFERENT FR OM CONTRACT RECEIPTS. FURTHER THE ASSESSEE CHALLENGED THE TREA TING THE ENTIRE AMOUNT OF RS. 1,31,18,770 WHICH REPRESENTS THE ARBI TRATION AMOUNT RECEIVED AS INCOME OF THE ASSESSEE. ACCORDI NG TO THE ASSESSEE EXPENDITURE RELATING TO THIS INCOME HAS TO BE ALLOWED. HOWEVER, THERE WAS A FINDING BY THE LOWER AUTHORITI ES THAT THE ASSESSEE ALREADY CLAIMED ALL THE EXPENSES RELATING TO THIS INCOME IN EARLIER YEARS. IF IT IS SO THERE CANNOT BE ANY FURTHER DEDUCTION. THE ASSESSEE COUNSEL PLEADED BEFORE US THAT THE FIN DINGS OF THE CIT(A) ARE WRONG, HOWEVER, NOT PLACED ANY MATERIAL OR DOCUMENTS TO CONTROVERT THE ABOVE FINDINGS. IN THE SE CIRCUMSTANCES, WE ARE INCLINED TO CONFIRM THE FINDI NGS OF THE CIT(A). 21. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST OCTOBER, 2012 TPRAO COPY FORWARDED TO: 1. M/S. SRI HARSHA CONSTRUCTIONS, C/O. M/S. B. NARS ING RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD-96. 2. THE ASST. CIT, CIRCLE-6(1), 7 TH FLOOR, D BLOCK, IT TOWERS, MASAB TANK, HYDERABAD. 3. THE CIT-IV, HYDERABAD. 4. THE CIT-III, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD