Sai Krishna Constructions, Hyd, Hyderabad V. DCIT, Circle-8(1), Hyd, Hyderabad

ITA 115/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6336 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 02-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2016
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: V RAGHAVENDRA RAO
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 115/HYD/2016 ASSESSMENT YEAR: 2010-11 M/S. SAI KRISHNA CONSTRUCTIONS, HYDERABAD [PAN: AAOFS0684A] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO, AR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 02-08-2016 DATE OF PRONOUNCEMENT : 10-08-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E LD. COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERAB AD, DATED 02-12-2015 CONFIRMING THE ESTIMATION OF INCOME AT 12.5 %. 2. BRIEFLY STATED, ASSESSEE IS A REGISTERED FIRM ENGA GED IN THE BUSINESS OF CONSTRUCTION AND SALE OF FLATS. THE FIRM FILED ITS RETURN OF INCOME FOR THE AY. 2010-11 ADMITTING A TOTAL INCOME O F RS. 77,97,906/- AFTER DEDUCTING REMUNERATION TO THE PARTNER S. THE BUSINESS PROFITS IN THE P&L A/C WERE SHOWN AT RS. 85,1 7,906/-. I.T.A. NO. 115/HYD/2016 M/S. SAI KRISHNA CONSTRUCTIONS :- 2 -: THERE WERE SURVEY OPERATIONS IN THE BUSINESS PREMISE S OF THE FIRM. CONSEQUENT TO THE SURVEY OPERATIONS, EVEN THOUGH ASSESSE E CLAIMS THAT IT DID NOT LEAD TO ANY DISCOVERY OF INCRIMINATING M ATERIAL OR PAPERS, THE AO REJECTED THE BOOKS OF ACCOUNT ON NOTICI NG THAT THE VOUCHERS FOR SITE EXPENSES ARE SELF-MADE AND NO VOU CHERS WERE PRODUCED FOR LABOUR CHARGES AND THE ACCOUNTS ARE NOT I N CONFORMITY WITH THE ACCOUNTING STANDARD (AS-7). AO ES TIMATED THE PROFIT AT 12.5% OF THE GROSS RECEIPTS SHOWN AND THEREA FTER, REDUCED THE REMUNERATION PAID AT RS. 7,20,000/- AND DETERMINE D THE TOTAL INCOME AT RS. 93,26,080/-. ASSESSEE CONTESTED THE SAM E BEFORE THE CIT(A) STATING THAT ESTIMATION OF INCOME AT 12.5% IS O N HIGHER SIDE AND RELIED ON EARLIER YEARS ORDERS TO SUBMIT THA T ESTIMATION OF INCOME AT 10% IS REASONABLE. LD. CIT(A) HOWEVER, CO NFIRMED THE ORDER OF THE AO ESTIMATING THE PROFIT AT 12.5% OF THE GRO SS RECEIPTS. HENCE, THE PRESENT APPEAL. 3. THE ONLY ISSUE CONTESTED IN THE TWO GROUNDS RAISE D IS RATE OF ESTIMATION. THE GROUNDS ARE AS UNDER: 2. THE LEARNED CIT-A IS NOT JUSTIFIED IN SUSTAINI NG THE ESTIMATE OF INCOME AT 12.5% OF THE TURNOVER OF RS. 8,03,68,655/-. 3. LEARNED CIT-A & THE A.O OUGHT TO HAVE NOTICED TH AT THE RATE OF PROFIT ADMITTED BY THE ASSESSEE IS NEARLY 1 0% WHICH IS MORE THAN THAT U/S. 44AD OF THE IT ACT APPLICABLE T O THE CIVIL CONSTRUCTIONS BUSINESS. 4. LD. COUNSEL REFERRING TO THE ORDERS OF THE AO IN E ARLIER YEARS OF 2007-08 & 2008-09 WHEREIN, AO ESTIMATED THE INCOME AT 10% HAS SUBMITTED THAT ASSESSEE ITSELF HAS OFFERED THE INCOME AT 10% AND THEREFORE, THERE IS NO NEED FOR REJECTING THE BOO KS OF ACCOUNT AND ESTIMATION OF INCOME. WHEN ASKED SPECIFICALLY WH ETHER I.T.A. NO. 115/HYD/2016 M/S. SAI KRISHNA CONSTRUCTIONS :- 3 -: ASSESSEE IS CHALLENGING THE REJECTION OF BOOKS OF ACC OUNT, LD. COUNSEL SUBMITTED THAT ASSESSEE IS NOT CHALLENGING REJ ECTION OF BOOKS OF ACCOUNT, THE ONLY CONTENTION IS ESTIMATION OF IN COME AT 12.5%. IT WAS SUBMITTED THAT IN SIMILAR CASES, THE TRIBU NAL WAS ESTIMATING THE INCOME AT 10% AND AO HIMSELF HAS ACCEPTE D 10% OF THE REASONABLE ESTIMATE IN EARLIER YEARS AND THEREFORE, THE ESTIMATION AT 12.5% IS NOT CORRECT. 5. LD. DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITI ES. 6. WE HAVE PERUSED THE RIVAL CONTENTIONS AND EXAMINED THE ORDERS OF THE AUTHORITIES. THIS CASE HAS COME UP FOR COMPULSORY SCRUTINY CONSEQUENT TO THE SURVEY OPERATIONS CONDUCTED . THE AO RECORDS THAT ASSESSEE HAS CLAIMED THE AMOUNT OF RS. 92, 00,250/- AS SITE EXPENDITURE AND NOTED THAT THE BILLS ARE SELF-MAD E AND MOST OF THE VOUCHERS ARE WITH THE SAME SIGNATURES. ASSES SEE WAS ASKED TO EXPLAIN WHY THE ENTIRE EXPENDITURE SHOULD NOT BE DI SALLOWED? SIMILAR FINDING WAS ALSO GIVEN TO LABOUR CHARGES CLA IMED AT RS. 1,02,63,708/-. IN FACT, AO RECORDS THAT ASSESSEE HAS NEITHER PRODUCED ANY EVIDENCE IN THE FORM OF BILLS AND VOUCH ERS NOR HAS FURNISHED ANY VERIFIABLE EVIDENCE FOR THE CLAIM. HE ALSO RECORDS THAT IN THE ABSENCE OF VERIFIABLE EVIDENCE, ACCEPTING THE CLAIM OF ASSESSEE IS DIFFICULT. IN THE ABOVE CONTEXT, THE BOOKS OF ACCOUNT OF ASSESSEE WERE REJECTED AND THE PROFITS WERE ESTIMATED A T 12.5% OF THE GROSS RECEIPTS. AO HOWEVER, ALLOWED REMUNERATION PAID TO THE PARTNERS OUT OF THE ABOVE ESTIMATION. SINCE ASSESSEE I S NOT CONTESTING THE REJECTION OF BOOKS OF ACCOUNT, THE FINDING S GIVEN BY THE AO THAT BOOKS OF ACCOUNT CANNOT BE RELIED UPON HA S TO BE CONFIRMED. I.T.A. NO. 115/HYD/2016 M/S. SAI KRISHNA CONSTRUCTIONS :- 4 -: 7. THE ONLY ISSUE IS WHETHER ESTIMATION OF INCOME AT 12 .5% IS REASONABLE OR NOT? NOTHING WAS BROUGHT ON RECORD NOR ANY SIMILAR CASE WAS PLACED ON RECORD BY ASSESSEE TO EXAMINE WHE THER THE RATE OF PROFIT ESTIMATED BY THE AO IS REASONABLE OR NOT? IN FACT, AS SEEN FROM THE ORDERS OF THE AYS. 2007-08 & 2008-09, ASSESS EE WAS SHOWING MUCH LESS PROFIT AND THEREFORE, AO ESTIMATED TH E INCOME AT 10% OF THE GROSS RECEIPTS IN THOSE YEARS THEREBY MAKI NG SUBSTANTIAL ADDITION OF RS. 47,56,360/- IN AY. 2007-0 8 AND RS. 32,67,560/- IN AY. 2008-09 WHICH WAS ACCEPTED. IN THIS YEAR, ASSESSEES ADMITTED PROFIT ITSELF IS TO THE TUNE OF RS. 85,17,906/- WHICH IS ROUGHLY ABOUT 10%. THIS INDICATES THAT THERE A RE SUBSTANTIAL PROFITS EARNED BY ASSESSEE OVER THE EARLIE R YEARS, WHICH INDICATES THAT THE PROFIT MARGIN IN THE PRESENT YEAR HAS GONE UP. THE PROFITS CANNOT BE AT A STATIC LEVEL YEAR AFTER YEAR . THAT DEPENDS ON THE CIRCUMSTANCES OF THE BUSINESS AND THE PROJECT UN DERTAKEN BY ASSESSEE. NOTHING WAS BROUGHT ON RECORD WHETHER T HE CONSTRUCTION OF FLATS UNDERTAKEN IN AYS. 2007-08 AND 2 008-09 ARE SAME OR SIMILAR TO THE ACTIVITY UNDERTAKEN IN THE IMPUGN ED ASSESSMENT YEAR OF 2010-11. IF THE SALE OF FLATS AS S HOWN IN THE P&L A/C ARE FROM THE SAME PROJECT, THEN MOST OF THE FIX ED EXPENDITURE LIKE COST OF LAND ETC., WOULD HAVE BEEN AL READY INCURRED AND THE PROFITS WOULD CERTAINLY GO UP OVER A PERIOD OF TIME AS SALE PRICE INCREASES. IN VIEW OF THAT, SINCE ASS ESSEES RECORDED TRANSACTIONS ITSELF SHOWS INCREASE IN PROFITS THERE IS NO NEED TO ESTIMATE THE INCOME AT 10% AS WAS DONE IN EARLIER YEAR S. KEEPING THESE FACTS IN MIND AND ALSO THE FACT THAT ITAT IS ALSO E STIMATING THE INCOMES AT 12.5% GENERALLY IN MOST OF THE CONSTRUCTI ON CASES, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE AO AND I.T.A. NO. 115/HYD/2016 M/S. SAI KRISHNA CONSTRUCTIONS :- 5 -: CIT(A) ON THE RATE OF ESTIMATION OF PROFIT. ACCORDINGL Y, ASSESSEES GROUNDS ARE REJECTED. 8. IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 10 TH AUGUST, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 10 TH AUGUST, 2016 TNMM COPY TO : 1. M/S. SAI KRISHNA CONSTRUCTIONS, FLAT NO. G-1, H. NO. 8-3- 988/4 AND 18, SRI PADA TOWERS, SBH QUARTERS, SRINAG AR COLONY, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8(1), HYDERABAD. 3. CIT (APPEALS)-4, HYDERABAD. 4. PR.CIT-6, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.