ACIT, Circle-10(1), Hyderabad V. M/s. Teja Constructions, Secunderabad

ITA 1191/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59237 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 17-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Question of law; Assessment record
• Section: 143(3); 32; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, AM & SMT. ASHA VIJAYARAGHAVAN J.M. ITA NO.1191/HYD/2011 ASSESSMENT YEAR 2006-07 THE ACIT, CIRCLE 10(1), HYDERABAD VS M/S TEJA CONSTRUCTIONS SECUNDERABAD. (PAN AABFT4261D) APPELLANT RESPONDENT APPELLANT BY : SHRI V SRINIVAS RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 19.1.2012 DATE OF PRONOUNCEMENT : 17.2.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) VI, HYDERABAD DATED 15.3.2011 AND PERTAINS TO THE ASSESSMENT YEAR 2006- 07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A CIVIL CONTRACTOR .THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASST. YEAR 2006-07 ON 31.10.2006, ADMITTING A TOTAL INCOME OF RS 26,76,740/- THE CASE WAS PROCESSED U/S 143(1) AND WAS SELECTED FOR SCRUTINY. NOTICE U/S 143(2) WAS I SSUED AND SERVED UPON THE ASSESSEE. 3. AFTER EXAMINING THE PROFIT AND LOSS ACCOUNT THE AO FOUND THAT THE ASSESSEE DEBITED VARIOUS EXPENSES LI KE BUND PREPARATION CHARGES, EXCAVATION CHARGES, LABOUR CHA RGES TO THE CONTRACT RECEIPTS OF RS. 8,06,55,267/- AND SH OWED A ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 2 NET PROFIT OF RS 26,76,740/- WHICH WAS ABOUT 3.32% DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESS EE WAS ASKED TO PRODUCE THE BILLS AND VOUCHERS PERTAINING TO THE EXPENDITURE CLAIMED. THE SUBMITTED DETAILS WERE EXA MINED AND FOUND IT WAS THAT THEY WERE NOT SUPPORTED BY TH E VOUCHERS AND THEREBY THE AO CONCLUDED THAT IN THE A BSENCE OF SUCH VOUCHERS FROM THE BOOKS OF ACCOUNTS FURNISH ED BY THE ASSESSEE THE PROFITS CANNOT BE DEDUCTED. THE A R OF THE ASSESSEE SUBMITTED THE BOOKS OF ACCOUNTS AND ALSO SUPPORTING VOUCHERS. IN THE OPINION OF THE AO, THE INCOMPLETE BOOKS OF ACCOUNTS WERE TO BE REJECTED AN D HE PROPOSED TO ESTIMATE THE PROFITS AT 10% AFTER TAKIN G INTO ACCOUNT THE ALLOWABLE DEPRECIATION SALARY AND INTER EST AND AT THE SAME TIME EXPRESSED HIS LIABILITY TO SUBMIT ALL THE VOUCHERS PERTAINING TO THE EXPENDITURE INCURRED DUE TO THE NATURE OF BUSINESS AND OBJECTED TO THE ESTIMATION O F INCOME AT 10% OF THE GROSS RECEIPTS AS UNJUSTIFIED.. THE A SSESSING OFFICER CONSIDERED THE SUBMISSIONS FURNISHED BY THE ASSESSEE AND STATED IN THE ORDER THAT SIMILAR ISSUE S AROSE IN THE PAST YEARS WHEREIN THE BOOK RESULTS WERE REJECT ED ON THE GROUND THAT DUE TO IMPROPER MAINTENANCE OF VOUCHERS AND CORRESPONDING BILLS DURING THE ASST. YEAR 2005-06 THE INCOME OF THE ASSESSEE WAS ESTIMATED AT 10% OF THE GROSS CONTRACT RECEIPTS NET OF EXPENDITURE INCLUDING DEPR ECIATION SALARY AND REMUNERATION TO PARTNERS. BASED ON THIS OBSERVATION AND RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF JT. CIT VS KACHWALA GEMS, 288 ITR 10 (SC) THE AO MADE AN ADDITION OF 10% OF THE CONTRACT RECEIPTS AMOUNTING TO RS 80,06,526/- AND A DDED BACK TO THE INCOME. ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 3 4. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE SHOWED AN AMOUNT OF RS 47,47,442/- AS AMOUNT PAYABL E TO SUB CONTRACTORS IN THE BALANCE SHEET AS ON 31.3.200 6 AND ASKED THE ASSESSEE TO SUBMIT THE PROOF OF THE ABOVE LIABILITY AND ALSO TO CONFIRM THE SAME BY THE SAID PARTIES T O WHOM THE PAYMENTS WERE TO BE MADE. ON VERIFICATION OF T HE LEDGERS OF THE SAID PARTIES IT WAS FOUND BY THE ASS ESSING OFFICER THAT OUT OF RS 47,47,442/- AN AMOUNT OF RS 42,49,755/- WAS BROUGHT FORWARD AS OUTSTANDING LIAB ILITIES AND WERE SHOWN PENDING FROM 1.4.2005. HOWEVER THE ASSESSING OFFICER MADE AN ADDITION OF THE ENTIRE LI ABILITY SHOWN AMOUNTING TO RS 47,47,442/- ON THE GROUND THA T THOUGH THE LIABILITY IS VERY OLD BUT THE ASSESSEE F AILED TO FURNISH SUBSEQUENTLY THE ADDRESSES OF THE PARTIES, GENUINENESS OF EXISTENCE, AND PROOF OF PAYMENT MADE BY THE ASSESSEE. BEFORE MAKING SUCH AN ADDITION SINCE THE ASSESSEE COULD NOT FURNISH THE CONFIRMATIONS THE AS SESSING OFFICER BROUGHT TO THE NOTICE OF THE ASSESSEE THAT THE CONTRACT AMOUNT PAYABLE WAS DEEMED TO BE THE INCOME OF THE ASSESSEE AS PER THE PROVISIONS U/S 41(1) OF THE IT ACT 1961 AND ADDED BACK AN AMOUNT OF RS 47,47,442/- /S 41(1) OF THE IT ACT 1961. 5. IT WAS NOTICED BY THE ASSESSING OFFICER THAT AN AMOUNT OF RS 5,11,453/- WAS RECEIVED AND CREDITED T O THE P & L A/C AS INSURANCE CLAIMED. SINCE THE BOOK RESULT S WERE REJECTED AND INCOME ESTIMATED THE INSURANCE CLAIM R ECEIVED BY THE ASSESSEE WAS TREATED UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. IT WAS NOTICED BY THE ASSESSING OFFICER THAT IN THE BALANCE SHEET THE ASSESSEE SHOWED AN AMOUNT OF RS 1,36,89,357 AS OUTSTANDING SUNDRY CREDITORS AS ON ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 4 31.3.2006. THE ASSESSING OFFICER THEREFORE ASKED T HE ASSESSEE TO FILE THE CONFIRMATIONS FROM THE PARTIES AND THE PROOF OF SUCH PAYMENTS MADE BY THE ASSESSEE. VIDE L ETTER DATED 1.12.2008, THE PARTNERS OF THE FIRM WERE ALSO ASKED TO PRODUCE THE DETAILS OF SUCH SUNDRY CREDITORS. THE A SSESSEE VIDE LETTER DATED 8.12.2008 FILED A REPLY WHICH THE ASSESSING OFFICER OPINED AS BEING GENERAL IN NATURE WHILE SPE CIFIC DETAILS WERE CALLED FOR. THE AO ALSO OPINED THAT TH OUGH THE PAYMENTS WERE MADE BY A MODE OF CHEQUE, YET THE ASS ESSEE FAILED TO PROVE THE GENUINENESS OF EXISTENCE OF CRE DITORS AND THE DISCHARGE OF SUCH LIABILITY. HE STATED THAT AN ATTEMPT WAS ALSO MADE TO VERIFY THE PAYMENT OF SAID LIABILI TY IN THE NEXT YEAR I.E. ASST. YEAR 2007-08 AND FOUND NO RETU RN WAS FILED TILL THE DATE OF THIS ORDER AND HENCE HE INIT IATED PROCEEDINGS U/S 148 OF THE I.T. ACT. WHILE DOING SO, HE RELIED ON THE OBSERVATION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS PRECISION FINANCE LTD 208 ITR 46 5 (SC), WITH THE OBSERVATIONS THE LIABILITY AMOUNTING TO RS 1,36,89,357/- WAS ADDED BACK TO THE INCOME OF THE ASSESSEE U/S 41(1) OF THE I.T. ACT. 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL TO THE CIT(A) AGAINST THE ORDER OF ASSESS MENT. THE ASSESSEE FILED WRITTEN SUBMISSIONS ARE GIVEN AS UNDER: THE ASSESSEE HEREIN IS A PARTNERSHIP FIRM CARRYING ON BUSINESS IN CONTRACTS. DURING THE PREVIOUS YEAR UNDER CONSIDERATION THE GROSS RECEIPTS OF THE ASSES SEE AGGREGATED TO RS 8,06,55,267/- THE ASSESSING OFFICE R CONVERTED THE CASE TO SCRUTINY AND PROCEEDED TO COMPLETE THE ASSESSMENT U/S 143(3) ON 19.12.2008 DETERMINING THE TOTAL INCOME AT RS 2,70,13,778/- TH E ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 5 ASSESSING OFFICER WHILE DETERMINING THE SAID INCOME MADE THE FOLLOWING ADDITIONS: 1. HE ESTIMATED THE PROFIT ON THE GROSS RECEIPTS OF RS 8,06,55,267/- AT 10% 2. THE ASSESSING OFFICER ADDED LIABILITY ON ACCOUNT OF AMOUNTS PAYABLE SHOWN IN THE BALANCE SHEET OF RS 47,47,442/- AND 3. THE SUNDRY CREDITORS FOUND IN THE BALANCE SHEET ARE TREATED AS THE INCOME OF THE ASSESSEE RS 1,36,89,357/- HE THUS ARRIVED AT A TOTAL INCOME OF RS 2,70,13,778 /- THE ASSESSEE HUMBLY SUBMITS THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN ESTIMATING THE NET INCOME AT 10% OF TH E GROSS CONTRACT RECEIPTS. THE CONTRACT RECEIPTS COMPRISES OF THE FOLLOWING: A. TOTAL CONTRACT RECEIPTS RS 8,06,55,267 B. RECOVERIES MADE BY THE GOVT. I. CMR RS. 17,288 II) NAC RS. 6,76,976 III)RECOVERIES RS.1,42,37,624 IV) SALES TAX RS. 15,14,388 ______________ RS. 1,64,46,276 _______________ ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 6 THE ASSESSEE HUMBLY SUBMITS THAT IN SO FAR AS THE R ATE OF PROFIT IS CONCERNED (IN THE CASE OF THE ASSESSEE HEREIN) FOR THE IMMEDIATELY PRECEDING ASSESSMENT YE AR, THE LEARNED COMMISSIONER OF INCOME TAX (A) REDUCED THE PROFIT RARE TO 9%. THE SAME WAS CONFIRMED BY T HE HONBLE ITAT HOWEVER IN RESPECT OF THE SUB CONTRACT S THE HONBLE TRIBUNAL OBSERVED THAT IT WOULD BE 5% O N THE NET CONTRACT RECEIPTS AFTER REDUCING THE DEPARTMENTAL RECOVERIES. THE ASSESSEE REQUESTS THE HONBLE COMMISSIONER OF INCOME TAX (A) TO KINDLY PA SS APPROPRIATE ORDERS IN THE MATTER. IT IS FURTHER SU BMITTED THAT THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION OF SALARY AND INTEREST TO PARTNERS FROM THE INCOME ESTIMATED. THE ASSESSING OFFICER ALSO DID NOT ALLO W DEPRECIATION FROM THE ESTIMATED INCOME. THE ASSESSING OFFICER ADDED RS 47,47,442/- ON THE GROUND THAT THE LIABILITY TO PAY THE AMOUNT TO THE SUB CONTRACTOR IS NOT PROVED. ACCORDING TO THE ASSESSIN G OFFICER THIS AMOUNT WAS OUTSTANDING EVEN AS ON 1.4.2005. IT IS CLEAR THERE FROM THAT THESE CREDITS PERTAIN TO THE EARLIER YEAR AND THE AMOUNT DOES NOT RELATIN G TO THE YEAR OF ACCOUNT,. THE ASSESSING OFFICER IS OF T HE VIEW THAT AS THE AMOUNT WAS NOT PAID AND IS NOT LIKELY T O BE PAID THE SAID AMOUNT IS LIABLE FOR TAX U/S 41(1) OF THE I T ACT. IT IS HUMBLY SUBMITTED THAT FOR THE IMMEDIATELY PRECEDING YEAR THE ASSESSING OFFICER DID NOT ALLOW ANY SPECIFIC EXPENDITURE. HE ESTIMATED THE INCOME AND E VEN THE TRIBUNAL CONFIRMED THE ESTIMATION THROUGH THE PERCENTAGE OF THE PROFIT IS REDUCED. THEREFORE THE ASSESSING OFFICER CANNOT CLAIM THAT ANY SPECIFIC ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 7 EXPENDITURE ALREADY ALLOWED IN THE EARLIER YEAR AND THE PROVISIONS OF SEC 41(1) DO NOT APPLY./ FURTHER WHEN THE WORK WAS ALREADY GOT DONE AND THE AMOUNT IS OUTSTANDING THE SAME BECOMES PAYABLE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE AMOUNT IS NOT PAY ABLE. THERE IS A LIABILITY TO MAKE THE PAYMENT AND SUCH A LIABILITY DID NOT CEASE. IN THE CIRCUMSTANCE, THE A SSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE AMOU8NT OF RS. 47,47,442/- AS THE INCOME OF THE ASSESSEE BY VIRTUE OF THE PROVISIONS OF SEC 41(1) OF THE IT ACT. ADDITION OF RS 1,36,89,357/- IN SO FAR AS THIS AM OUNT IS CONCERNED THE ASSESSEE HUMBLY SUBMIT THAT THE AMOUN T REPRESENTS THE LABOUR PAYMENTS DUE, HIRE CHARGES PAYABLE, PAYMENTS DUE TO METAL SUPPLIES, DIESEL, PE TROL ETC. THESE AMOUNTS HAVE BEEN PAID IMMEDIATELY AFTE R THE END OF THE PREVIOUS YEAR. ACCORDING TO THE ASSESSI NG OFFICER THE ASSESSEE DID NOT PROVIDE ANY DATA. THE ASSESSEE IS SUBMITTING COPIES OF THE LABOUR ACCOUNT S FOR KIND PERUSAL. IT CAN BE SEEN THAT THE ENTIRE AMOUN T IS DEBITED TO THE EXPENDITURE ACCOUNT,. AS THE AMOUNT WAS NOT PAID DURING THE PREVIOUS YEAR THE SAME WAS KEPT AS OUTSTANDING LIABILITY UNDER SUNDRY CREDITORS,. THE ASSESSING OFFICER RESORTED TO ESTIMATION OF INCOME FROM BUSINESS AND THEREFORE HE IS NOT JUSTIFIED IN SEPAR ATELY DISALLOWING ANY PART OF SUCH EXPENDITURE. IT IS FUR THER SUBMITTED THAT THERE IS NO EVIDENCE WITH THE ASSESS ING OFFICER THAT THE ASSESSEE PAID THESE AMOUNTS DURING THE PREVIOUS YEAR AND THEREFORE THE SAME CANNOT BE ADDE D EVEN U/S 69 OF THE IT ACT. IT IS FURTHER SUBMITTED THAT THESE AMOUNTS HAVE BEEN PAID IN THE IMMEDIATELY SUCCEEDIN G YEAR AND THERE IS NO DISPUTE WITH REGARD TO SUCH FA CT. IN ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 8 THE CIRCUMSTANCES, THE ASSESSING OFFICER IS NOT JU STIFIED IN MAKING THE SAID ADDITION. IN VIEW OF THE ABOVE THE ASSESSEE PRAYS THE HON BLE COMMISSIONER OF INCOME TAX (A) TO KINDLY ALLOW THE APPEAL AS PRAYED FOR. 8. THE CIT(A) HAS HELD: I HAVE GONE THROUGH THE DETAILED WRITTEN SUBMISSIO NS ASSESSMENT ORDER AND ASSESSMENT RECORD AND THE ORDE R OF THE HONBLE ITAT IN ITS OWN CASE. I HAVE ALSO PE RUSED THE RELEVANT CASE LAWS SUBMITTED BY THE ASSESSEE AN D ALSO THOSE REFERRED BY THE ASSESSEE AND CONSIDERED THEM JUDICIOUSLY. THE MAIN QUESTION OF LAW THAT ARI SE IN THE PRESENT CASE IS:- ON THE BASIS OF FACTS AND CIRCUMSTANCES THE AO REJ ECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ESTIMATED THE PROFITS ON GROSS RECEIPTS. WHETHER SPECIFIC ITEMS L IKE TRADE LIABILITY SUNDRY CREDITORS ETC SHOULD BE ADDE D IN ADDITION TO AN ESTIMATE OF GROSS RECEIPTS OR NOT OR ONLY AN ESTIMATE SHOULD BE MADE INCLUSIVE OF SUCH LIABIL ITIES WHICH DID NOT CEASE? IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN CI T VS BRITISH PAINTS INDIA LTD (1991) 188 ITR 44 (SC) THA T IT IS NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSESSING OF FICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. THE FACT THAT THE ASSESSEES BOOKS WERE REJECTED IN THE PAST YEARS MAY BE A CIRCUMSTANCE TO BE TAKEN INTO ACCOUNT AND JUSTIFY THE REJECTION IN THE SUBSEQUENT YEAR, WHERE THEY ARE MAINTAINED IN THE SAME PATTERN AS BEFORE. IN THE FOLLOWING CASES: ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 9 CIT VS VIRAJLAL MANILAL & CO (1973) 92 ITR 287 (MP) CIT VS MULJI UDHAVJI (1984) 145 ITR 575 (MP) CIT VS DINANATH DUBEY (1986) 260 ITR 1 (MP) CIT VS DELHI ENGG. CO. P. LTD (1990) 180 ITR 383 (A LL) IT IS HELD THAT ONCE THE BOOKS ARE REJECTED THE PA ST HISTORY OF THE CASE BECOMES PERHAPS THE MOST RELEVA NT CRITERION FOR ESTIMATING THE INCOME. ON PERUSAL OF THE ASSESSMENT ORDER IT IS SEEN THAT THE AO REQUIRED THE ASSESSEE TO FURNISH SUPPORTING VOUC HERS AND BILLS FOR THE EXPENSES DEBITED TO PROFIT AND LO SS ACCOUNT LIKE BUND PRECAUTION CHARGES EXCAVATION CHARGES LABOUR CHARGES ETC. THE DETAILS FURNISHED B Y THE ASSESSEE ARE PARTLY INCURRED EXPENSES WHICH ARE INCOMPLETE. THE AO RIGHTLY SHOWED THE ABOVE CAUSES AS TO WHY THE ASSESSEES BOOKS OF ACCOUNTS SHOULD BE REJECTED DUE TO THE FACT THAT THEY ARE NOT PROPERLY MAINTAINED WITH CORRESPONDING BILLS AND VOUCHERS. THE AO OBSERVED THAT FOR THE PAST SEVERAL YEARS THE BOO K RESULTS WERE REJECTED DUE TO THE REASONS QUOTED SUP RA. THEREFORE THE ASSESSEE DID NOT PRESENT ADEQUATE EVIDENCE WITH REGARD TO ITS CONTRACTS AND RECEIPTS NOR IT HAS PRESENTED ANY EVIDENCE WITH RESPECT TO ITS EXPENDITURE. SINCE THE ASSESSEE DID NOT GIVE AN ACCURATE PICTURE OF ITS FINANCIAL AFFAIRS THE AO IS WELL WITHIN ITS RIGHT TO ESTIMATE THE INCOME. DURING THI S YEAR ALSO, AS IN THE EARLIER YEARS IT IS ESTABLISHED THA T THE ASSESSEE HAS NOT MAINTAINED CORRECT BOOKS OF ACCOUN T AND THE TRUE INCOME COULD NOT BE DEDUCTED AND THERE FORE ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 10 ESTIMATION OF INCOME IS LEGITIMATE. IN THE EARLIER YEAR I.E. AY 2005-06 MY PREDECESSOR HELD THAT 9% OF THE PROFI TS ESTIMATED ON GROSS RECEIPTS SEEMED TO MEET THE END OF JUSTICE AS THE HONBLE ITAT ALSO HAD CONFIRMED THE SAME. THE HONBLE UITAT HAS GIVEN CLEAR DIRECTIONS IN ITS ORDER DATED 23.10.2009 IN THE CASE OF THE ASSES SEE WHICH IS REPRODUCED AS UNDER: THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE ITSELF. IN THESE CONTRACTS THE ASSESSEE AGREED THAT HIS INCOME IS AT 9% OF THE GROSS RECEIPTS. THUS ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME ON THE CONTRACTS EXECUTED BY THE ASSESSEES OWN AT 9%. IN CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB CONTRACT THE INCOME TO BE ESTIMATED AT 8% OF THE GROSS RECEIPTS. IN CASE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE 3 RD PARTY ON SUB CONTRACT INCOME TO BE ESTIMATED AT 4% THIS IS BECAUSE WHEN THE ASSESSEE GIVEN CONTRACT TO THE OTHER PARTIES ON SUB CONTRACT THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9% IT HAS TO FORGO CERTAIN PORTION OF PRO FIT I.E. AROUND 5% TO THE SUB CONTRACTORS. SIMILAR POSITION IN THE CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB CONTRACT FROM OTHER PARTIES. FURTHER IN OUR OPINION THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION AND INTERESTS TO PARTNERS ON THE PROFIT ESTIMATED BY ASSESSING OFFICER AT APPLICABLE RATES BECAUSE THE INCOME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AND INTEREST AND REMUNERATION OF THE PARTNERS. ACCORDINGLY, WE DIRECT THE ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 11 ASSESSING OFFICER TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. ACCORDINGLY THIS GROUND OF THE ASSESSEE APPEAL IS PARTLY ALLOWED. ON THE BASIS OF THE ABOVE DIRECTIONS GIVEN BY THE HONBLE ITAT, I DIRECT THE AO TO ESTIMATE THE INCOM E ON THE CONTRACTS EXECUTED BY THE ASSESSEE AS OWN AT 9 % AND IN THE CASE OF THE CONTRACTS TAKEN BY THE ASSES SEE ON SUBCONTRACT AT 8% AND THE CONTRACT GIVEN BY THE ASSESSEE TO THE THIRD PARTY AT 5% AND TO ALLOW DEPRECIATION REMUNERATION AND INTEREST TO THE PARTN ERS. REGARDING THE ADDITION MADE BY THE AO AMOUNTING TO RS 47,47,442/- U/S 41(1) OF THE IT ACT 1961 AND RS 1,36,89,357/- ON ACCOUNT OF DUE PAYMENTS I.E. LABOU R PAYMENT DUE, HIRE CHARGES PAYABLE, PAYMENTS DUE TO METAL SUPPLIES ETC., IT SEEMS THE AO HAS NOT APPLI ED A JUSTIFIED METHOD, WHILE MAKING THE ASSESSMENT, IT I S SEEN THAT IN THE PRECEDING YEAR THE AO DID NOT ALLO W ANY SPECIFIC EXPENDITURE AND ESTIMATED THE INCOME WHICH THE HONBLE TRIBUNAL CONFIRMED. FURTHER IT IS SEEN THA T WHEN ANY SPECIFIC EXPENDITURE IS ALLOWED IN THE EAR LIER YEARS THE SAME CANNOT BE CLAIMED IN THE SUBSEQUENT YEAR WHEN A WORK IS COMPLETED AND SUCH EXPENDITURE IS NOT PAID THE SAME BECOMES PAYABLE. THERE IS A LIABILITY TO DISCHARGE AND SUCH A LIABILITY DID NOT CEASE BECAUSE IT WOULD BE CARRIED FORWARD. THEREFORE THE AO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS 47,47,442 /- U/S 41(1) OF THE IT ACT, WHEN SUCH LIABILITY IS AL READY INCLUDED IN THE ESTIMATION OF PROFITS ON GROSS RECE IPTS AND THEREFORE, I DIRECT THE AO TO DELETE SUCH AN AD DITION OF RS. 47,47,442/- WHERE LIABILITY HAS NOT CEASED. THE AO ALSO HAS NOT VERIFIED AND BROUGHT ANYTHING ADVER SE ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 12 ON RECORD TO SAY THAT EXPENDITURE CLAIMED WAS PAID IN THE EARLIER YEAR AND YET SHOWED IT AS LIABILITY. SIMILARLY, THE AO MADE AN ADDITION ON ACCOUNT OF LIABILITY TO BE DISCHARGED TOWARDS SUNDRY CREDITORS AMOUNTING TO RS 1,36,89,357/- MAINLY BECAUSE THE ASSESSEE DID NOT PROVIDE ANY DATA PERTAINING TO THE SAME. THE ASSESSEE SUBMITTED COPIES OF LABOUR ACCOUNTS DURING THE APPELLATE PROCEEDINGS. ON PERUS AL IT IS SEEN THAT ENTIRE AMOUNT IS DEBITED TO THE EXPEND ITURE ACCOUNT. AS THE AMOUNT WAS NOT PAID THE SAME WAS SHOWN AS OUTSTANDING LIABILITY UNDER SUNDRY CREDITO RS. THE AO HAS NOT BROUGHT OUT ANY EVIDENCE ON RECORD TO STATE THAT THE AMOUNT OF RS 1,36,89,357/- WAS PAID AND LIABILITY HAS BEEN DISCHARGED IN THE EARLIER YEAR I TSELF. WITHOUT ANY ADVERSE MATERIAL EVIDENCE ON HAND IT CANNOT BE TERMED AS BOGUS BY THE AO SINCE HE HAS TO ESTABLISH THE SAME. THE AR OF THE ASSESSEE ARGUED THAT THESE PAYMENTS WERE MADE IN THE SUBSEQUENT YEARS. I T IS CLEARLY SEEN THAT SINCE THE AO RESORTED TO ESTIM ATE THE INCOME REJECTING THE BOOKS AS INCOMPLETE HE IS NOT JUSTIFIED IN SEPARATELY DISALLOWING ANY PART OF SUC H EXPENDITURE. THEREFORE, I DELETE THE ADDITION OF RS 1,36,89,357/- FOR THE ESTIMATED INCOME ON ACCOUNT O F OUTSTANDING LIABILITY AND DIRECT THE ASSESSING OFFI CER TO PASS AN ORDER ACCORDINGLY. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 9. AGGRIEVED THE REVENUE IS ON APPEAL AND HAS RAIS ED THE FOLLOWING GROUNDS: ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 13 1. THE CIT(A) IS ERRED IN DIRECTING THE ASSESSING OFFI CER TO ESTIMATE THE INCOME OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS, 8% ON CONTRACTS TAKEN BY ASSESSEE ON SUBCONTRACTS AND @ 5% ON CONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS. 2. THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATION OUT OF ESTIMATED INCOME WHEN NET INCOME IS ESTIMATED ALL OTHER EXPENDITURE AND DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND DEPRECIATION IS DEEMED TO HAVE BE TAKEN CARE OF IN VIEW OF THE CASE LAW IN THE CASE OF M/S INDWELL CONSTRUCTIONS 232 ITR 776 (AP) AS DECIDED BY THE JURISDICTIONAL AP HIGH COURT AND ALSO DECISION IN T HE CASE OF M/S AYYAPPA INFRA PROJECTS P. LTD IN ITA NO.608/H/2009. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT IN SPITE OF GIVING SEVERAL OPPORTUNITIES THE ASSESSEE FAILED TO PROVE THE GENUNINESS OF THE TRANSACTIONS TO THE EXTENT OF RS 47,47,442/- APPEARING AS LIABILITY IN THE BALANCE SHEET AS ON 31.3.2006. 4. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT IN SPITE OF GIVING SEVERAL OPPORTUNITIES THE ASSESSEE FAILED TO PROVE THE LIABILITY AMOUNTING TO RS 1,36,89,357/- SHOWN IN THE BALANCE SHEET. 10. THE FIRST TWO GROUNDS ARE AGAINST THE ORDER OF THE CIT(A) (A) DIRECTING THE ASSESSING OFFICER TO ESTIM ATE THE INCOME OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS, 8% ON CONTRACTS TAKEN BY ASSESSEE ON SUBCONTRACTS AND @ 5 % ON CONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS AND (B) DIRECTING THE ASSESSING OFFICER TO ALLOW ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 14 REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATION OUT OF ESTIMATED INCOME. THE REVENUE SUBMITS THAT WHEN NET INCOME IS ESTIMATED ALL OTHER EXPENDITURE AND DEDUC TIONS SUCH AS REMUNERATION TO PARTNERS AND DEPRECIATION I S DEEMED TO HAVE BE TAKEN CARE OF IN VIEW OF THE CASE LAW IN THE CASE OF M/S INDWELL CONSTRUCTIONS 232 ITR 776 (AP) AS DECIDED BY THE JURISDICTIONAL AP HIGH COURT AND ALS O DECISION IN THE CASE OF M/S AYYAPPA INFRA PROJECTS P. LTD IN ITA NO.608/H/2009 . HOWEVER THE ISSUE IS COVERED BY THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR TH E EARLIER YEAR. FOR THAT YEAR THE ITAT HAS ESTIMATED THE PROF ITS OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS, 8% ON CONTRACT S TAKEN BY ASSESSEE ON SUBCONTRACTS AND @ 5% ON CONTR ACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS. THIS ESTIMATE ACCORDING TO ITAT IS BEFORE ALLOWING REMUN ERATION, INTEREST ON CAPITAL AND DEPRECIATION AND HENCE ITAT DIRECTED THAT THESE AMOUNTS SHOULD BE REDUCED OUT O F THE ESTIMATED INCOME. THE RELIANCE OF THE REVENUE ON OT HER CASES WHERE THE ESTIMATED INCOME INCLUDES DEDUCTION OF REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATION DOES NOT REALLY HELP THE REVENUES CASE. ESTIMATE OF INCOME MAY VARY FROM CASE TO CASE. THE ESTIMATE MAY BE GROSS PROFIT S AFTER WHICH OTHER EXPENDITURE MAY BE ALLOWED OR THE ESTIM ATE MAY OF THE NET INCOME AFTER ALL THE EXPENDITURE. TH E ITAT HAS HELD IN THE ASSESSEES OWN CASE THAT THEIR ESTI MATE OF INCOME AS A PERCENTAGE OF GROSS RECEIPTS IS PRIOR T O ALLOWANCE OF DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION. THE CIRCUMSTANCES THIS YEAR BEING IDE NTICAL AS THE EARLIER YEAR AND AS DEPARTMENT HAS NOT BROUG HT ANYTHING ON RECORD TO PERSUADE US TO TAKE A DIFFERE NT VIEW, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH, WE UPHOLD THE ORDER OF THE CIT(A) REGARDING THE RAT E OF ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 15 PROFITS TO BE ADOPTED ON THE GROSS RECEIPTS AND A F URTHER ALLOWANCE OF REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATION. THE REVENUES APPEAL ON THESE ISSUES IS DISMISSED. 12. REGARDING DEPRECIATION, IT IS ALLOWABLE U/S 32 OF THE IT ACT AND IT FALLS UNDER THE PROVISION OF SECTION 30 TO 38 AND BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT WH ILE ESTIMATING THE INCOME OF THE ASSESSEE. HENCE WITH RESPECT TO DEPRECIATION, THE GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOWED. HENCE GROUND NO.3 RAISED BY THE REVENU E IS PARTLY ALLOWED. 13. THE NEXT GROUND OF APPEAL BY THE REVENUE IS AG AINST THE CIT(A) DELETING THE ADDITION RS 47,47,442/- AND RS 1,36,89,357/- APPEARING AS LIABILITY. IT IS THE SUB MISSION OF THE REVENUE THAT IN SPITE OF GIVING SEVERAL OPPORTU NITIES THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE TRA NSACTIONS TO THE EXTENT OF RS 47,47,442/- AND RS 1,36,89,357/ - APPEARING AS LIABILITY IN THE BALANCE SHEET AS ON 3 1.3.2006. THE CIT(A) HAS FOUND AS A FACT THAT THESE LIABILITI ES PERTAINS TO EXPENDITURE INCURRED FOR THE CURRENT YEAR AND EA RLIER YEAR. HOWEVER THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAS BEEN REJECTED FOR BOTH THE YEARS AND THESE EXPENDIT URE ACCOUNTED BY THE ASSESSEE HAS NOT BEEN TAKEN INTO A CCOUNT WHILE DETERMINING THE TAXABLE INCOME OF THE ASSESSE E IN THE YEARS IN WHICH THEY WERE INCURRED. THIS BEING THE C ASE, THESE AMOUNTS CANNOT BE CONSIDERED AS HAVING BEEN ALLOWED IN COMPUTING THE INCOME OF THE ASSESSEE FOR THOSE YEARS. SEC 41(1) IS APPLICABLE ONLY IN THE CASE OF REDUCTION OR REMISSION OF ANY LIABILITY WHICH HAS BEEN ALLOWE D AS A DEDUCTION IN THE EARLIER YEARS. IN THIS CASE, WHILE EXPENDITURE OF THE NATURE CLAIMED BY THE ASSESSEE H AS BEEN ITA NO.1191 OF 2011 M/S TEJA CONSTRUCTIONS, SBAD 16 KEPT IN MIND FOR DETERMINING THE ESTIMATED PROFITS FROM BUSINESS, NONE OF THE INDIVIDUAL EXPENDITURE CAN BE CONSIDERED AS HAVING BEEN ALLOWED IN COMPUTING THE TAXABLE INCOME. IN FACT THE BOOKS OF THE ASSESSEE HAS BEEN REJECTED AND THE PROFITS HAVE BEEN ESTIMATED AS A PERCENTAGE OF THE GROSS RECEIPTS. IN THE CIRCUMSTANCES, THE BASIC PRE CONDITION FOR APPLICATION OF SEC 41(1), VIZ., ALLOWANCE OF TH E EXPENDITURE/ LIABILITY HAS BEEN MADE IN THE ASSESSM ENT ANY PREVIOUS YEAR IS NOT SATISFIED. THIS BEING THE CASE THE CIT(A) HAS CORRECTLY HELD THAT THE ADDITION OF. RS.47,47,4 42/- AND RS.1,36,89,357/- APPEARING AS LIABILITY IN THE BOOK S OF ACCOUNT OF THE ASSESSEE AS PROFITS U/S 41(1) IS NOT SUSTAINABLE. WE UPHOLD THE ORDER OF THE CIT(A) DELE TING THE ADDITION OF RS.47,47,442/- AND RS.1,36,89,357/- APP EARING AS LIABILITY IN THE BOOKS OF THE ASSESSEE AND CONFI RM THE DELETION OF THESE AMOUNTS. 14. IN THE RESULT THE APPEAL OF THE REVENUE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON : 17.2.2 012 SD/- SD/- (CHANDRA POOJARI) ( ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 17 TH FEBRUARY, 2012 COPY FORWARDED TO: 1. THE ACIT, CIRCLE 10(1), ROOM NO.525, AC GUARDS, IT TOWERS, HYDERABAD 2. M/S TEJA CONSTRUCTIONS, 1-3-83, OLD ALWAL, SECUNDERABAD. 3. THE CIT(A) VI, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/