Ch.Marthand Rao&Co, Hyderabad V. THE ACIT, Hyderabad

ITA 1228/HYD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69722 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-02-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 17-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV BENJWAL
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Business income; Depreciation; Reasonable cause
• Section: 143(3); 133A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1228/HYD/2010 ASSESSMENT YEAR : 2008-09 CH. MARTHAND RAO & CO., APPELLANT HYDERABAD. (PAN AADFC 5418 K) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPONDENT CENTRAL CIRCLE 3, HYDERABAD. APPELLANT BY : SHRI K.A. SAI PRASAD RESPONDENT BY : SHRI RAJEEV BENJWAL DATE OF HEARING : 07/08/2013 DATE OF PRONOUNCEMENT : 07/08/2013 ORDER PER CHANDRA POOJARI, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER PASSED BY THE CIT(A)-I, HYDERABAD ON 29/03/2 010, FOR ASSESSMENT YEARS 2008-09. 2. ON PERUSAL OF RECORD, WE FIND THAT THERE WAS A DELAY OF 112 DAYS IN FILING THE APPEAL BEFORE US. IN THIS CO NNECTION, THE ASSESSEE FILED A PETITION PRAYING FOR CONDONATION O F DELAY, WHEREIN IT WAS STATED AS FOLLOWS: THE PETITIONER FILED AN APPEAL AGAINST THE ORDERS O F THE CIT(A)-I, HYDERABAD. THE ORDER OF THE CIT(A) DATED 29/03/2010 WAS RECEIVED IN THE MONTH OF APRIL 2010 (EXACT DATE WAS NOT RECORDED) AND THE APPEAL IS DUE TO BE FILED BY 2 ITA NO. 1228/HYD/10 CH. MARTHAND RAO & CO. JUNE 2010 WHEREAS THE APPEAL IS FILED ON 17/09/2010 . THE REASON FOR THE DELAY IS THAT THE ACCOUNTANT OF PETI TIONER FIRM WHO RECEIVED THE ORDER MISPLACED THE SAME AND DID N OT BRING THE MATTER TO THE NOTICE OF ANY OF THE PARTNE RS. SUBSEQUENTLY, AFTER COMING TO KNOW THAT THE APPEAL FILED BEFORE THE CIT(A) FOR THE ASST. YEAR 2008-09 WAS DI SPOSED OFF THE PARTNERS TRIED TO TRACE OUT THE ORDER AND I N THAT PROCESS THE ACCOUNTANT BROUGHT TO THE NOTICE OF THE PARTNERS THAT THE APPEAL ORDER WAS RECEIVED. IMMEDIATELY, TH E MATTER WAS BROUGHT TO THE NOTICE OF THEIR AR FOR FILING OF APPEAL BEFORE THE HONBLE ITAT, HYDERABAD. THUS THE APPEAL WAS FILED ON 17/09/2010 WITH A DELAY. THE DELAY IS QUIT E UNINTENTIONAL AND INADVERTENT DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE PETITIONER FIRM. THE PETITIONER THEREFORE PRAYS THAT THE DELAY OCCURRED IN FILING OF THE APPE AL MAY PLEASE BE CONDONED AND THE APPEAL BE ADMITTED. 3. THE ASSESSEE ALSO FILED AN AFFIDAVIT AFFIRMI NG THEREIN THAT THE DELAY IS QUITE UNINTENTIONAL AND INADVERTENT DU E TO CIRCUMSTANCES BEYOND HIS CONTROL. 4. AFTER GOING THROUGH THE CONDONATION PETITIO N FILED BY THE ASSESSEE, WE FIND THAT THERE WAS A REASONABLE CAUSE FOR FILING THE APPEAL BELATEDLY BY THE ASSESSEE BEFORE US AND, THE REFORE, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 5. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM CARRYING ON THE BUSINESS OF EXECUTION CIVIL CONTRAC T WORKS. THE ASSESSEE FILED RETURN OF INCOME FOR THE AY 2008-09 ON 28/09/2008 DECLARING TOTAL INCOME OF RS. 3,49,21,256/-. SUBSEQ UENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY. THERE WAS A SURVEY U/S 133A IN THE PREMISES OF THE ASSESSEE ON 29/08/2008. THE ASS ESSEE AGREED FOR ESTIMATION OF PROFIT AT 12.5% ON GROSS R ECEIPTS OF CONTRACTS EXCLUDING BACK TO BACK TURNOVER SUBJECT T O ALLOWING OF DEDUCTION OF PARTNERS REMUNERATION, INTEREST ON CAP ITAL AND DEPRECIATION. THE ASSESSING OFFICER PASSED ORDER U/ S 143(3) ON 31/12/2009. WHILE COMPUTING THE TOTAL INCOME THE AS SESSING 3 ITA NO. 1228/HYD/10 CH. MARTHAND RAO & CO. OFFICER ESTIMATED AT 9% ON GROSS RECEIPTS AND ADDED BACK THE COMMISSION ON BACK TO BACK CONTRACTS RECEIVED. HOWE VER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE FIRM WITH REGARD TO PARTNERS REMUNERATION, INTEREST PAID TO P ARTNERS AND DEPRECIATION ON FIXED ASSETS RELYING ON THE DECISIO N OF AP HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT, 232 ITR 776. 6. ON APPEAL, THE CIT(A) DIRECTED THE ASSESSI NG OFFICER TO ESTIMATE THE PROFIT AT 8% IN RESPECT OF CONTRACT WO RKS EXECUTED ON OWN AND FURTHER DIRECTED TO ADD BACK THE COMMISS ION IN RESPECT OF CONTRACT WORKS EXECUTED THROUGH SUB-CONT RACTORS. WITH REGARD TO ASSESSEES CLAIM FOR ESTIMATION OF PROFIT IN RESPECT OF SALES TAX REFUND OF RS. 31,25,547/- TREATING THE SA ME ON PAR WITH CONTRACT RECEIPTS, THE CIT(A) REJECTED THE ASSESSEE S CONTENTION. 7. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US A ND HAS RAISED THE GROUNDS OF APPEAL: 1. THE ORDER OF THE ASSESSING OFFICER ERRONEOUS IN LAW AND IN FACTS OF THE CASE. 2. THE ASSESSING OFFICER OUGHT NOT TO HAVE REJECTED THE ACCOUNT BOOKS IN A SUMMARY MANNER WITHOUT EXAMINING THE SAME. THE ASSESSEE CRAVES FOR ADMISSION OF THIS GRO UND IN VIEW OF HONBLE SUPREME COURT DECISION IN THE CASE OF NATIONAL THERMAL POWER CORPORATION, 229 ITR 383-387 . 3. THE CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO COMPUTE THE INCOME AS PER PROVISIONS OF THE INCO ME TAX ACT TAKING INTO CONSIDERATION VARIOUS CLAIMS OF THE ASSESSEE. 4. THE CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE WITH REGARD TO I NTEREST ON CAPITALS OF PARTNERS, SALARIES TO PARTNERS AND DE PRECIATION. 5. THE CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSES SEE AGREED AT THE TIME OF SURVEY U/S 133A FOR ESTIMATIO N OF PROFIT SUBJECT TO STATUTORY DEDUCTIONS AND THEREFOR E SHOULD HAVE ALLOWED THE CLAIM OF THE ASSESSEE. 6. THE CIT(A) OUGHT TO HAVE HELD THAT THE DECISION OF THE HIGH COURT OF ANDHRA PRADESH (INDWELL CONSTRUCTIONS VS. CIT 232 ITR 766) RELIED UPON BY THE ASSESSING OFFICER W AS NOT 4 ITA NO. 1228/HYD/10 CH. MARTHAND RAO & CO. APPLICABLE TO THE FACT OF THE CASE, AS THE FACTS OF THE CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE OF T HE ASSESSEE. 7. THE CIT(A) OUGHT TO HAVE HELD THAT EVEN PROFITS ARE ESTIMATED THE SAME WOULD NOT DISENTITLE THE ASSESSE E FOR STATUTORY DEDUCTIONS U/S 32, SECTION 40(B)(IV) AND 40(B)(V). 8. THE CIT(A) OUGHT TO HAVE CONSIDERED THAT SALES T AX REFUND CONSTITUTE BUSINESS RECEIPTS AND SHOULD BE TREATED ON PAR WITH CONTRACT RECEIPTS FOR COMPUTATION OF INCOME. 8. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT THE ISSUES IN DISPUTE ARE SQUA RELY COVERED BY THE DECISION OF THE JURISDICTIONAL TRIBUNAL IN THE CASE OF IN THE CASE OF TEJA CONSTRUCTIONS, SECUNDERABAD IN ITA NO. 1191/HYD/2011 FOR AY 2006-07 VIDE ORDER DATED 17/02 /2012, WHEREIN IT WAS HELD AS FOLLOWS: 10. THE FIRST TWO GROUNDS ARE AGAINST THE ORDER OF THE CIT(A) (A) DIRECTING THE ASSESSING OFFICER TO ESTIMATE THE INC OME OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS, 8% ON CONTRACT S TAKEN BY ASSESSEE ON SUBCONTRACTS AND @ 5% ON CONTRACTS GIVE N BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS AND (B) DIRECTING THE ASSESSING OFFICER TO ALLOW REMUNERATION, INTEREST O N CAPITAL AND DEPRECIATION OUT OF ESTIMATED INCOME. THE REVENUE S UBMITS THAT WHEN NET INCOME IS ESTIMATED ALL OTHER EXPENDITURE AND DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND DEPRECIATION I S DEEMED TO HAVE BE TAKEN CARE OF IN VIEW OF THE CASE LAW IN TH E CASE OF M/S INDWELL CONSTRUCTIONS 232 ITR 776 (AP) AS DECIDED B Y 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. HOWEVER THE ISSUE IS COVERED BY THE ORDER OF THE ITAT IN THE AS SESSEES OWN CASE FOR THE EARLIER YEAR. FOR THAT YEAR THE ITAT HAS ES TIMATED THE PROFITS OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS, 8% ON C ONTRACTS 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 REMUNERATION, INTEREST O N CAPITAL AND DEPRECIATION AND HENCE ITAT DIRECTED THAT THESE AMO UNTS SHOULD BE REDUCED OUT OF THE ESTIMATED INCOME. THE RELIANCE O F THE REVENUE ON OTHER 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 VAR Y FROM CASE TO CASE. THE ESTIMATE MAY BE GROSS PROFITS AFTER WHICH OTHER EXPENDITURE MAY BE ALLOWED OR THE ESTIMATE MAY OF T HE NET INCOME 5 ITA NO. 1228/HYD/10 CH. MARTHAND RAO & CO. AFTER ALL THE EXPENDITURE. THE ITAT HAS HELD IN THE ASSESSEES OWN CASE THAT THEIR ESTIMATE OF INCOME AS A PERCENTAGE OF GROSS RECEIPTS IS PRIOR TO ALLOWANCE OF DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION. THE CIRCUMSTANCES THIS YEAR BEING IDE NTICAL AS THE EARLIER YEAR AND AS DEPARTMENT HAS NOT BROUGHT ANYT HING ON RECORD TO PERSUADE US TO TAKE A DIFFERENT VIEW, RESPECTFUL LY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE UPHOLD THE ORD ER OF THE CIT(A) REGARDING THE RATE OF PROFITS TO BE ADOPTED ON THE GROSS RECEIPTS AND A FURTHER ALLOWANCE OF REMUNERATION, INTEREST ON CA PITAL AND DEPRECIATION. THE REVENUES APPEAL ON THESE ISSUES IS DISMISSED. 11. REGARDING DEPRECIATION, IT IS ALLOWABLE U/S 32 OF THE IT ACT AND IT FALLS UNDER THE PROVISION OF SECTION 30 TO 38 AN D BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT WHILE ESTIMATIN G THE INCOME OF THE ASSESSEE. HENCE WITH RESPECT TO DEPRECIATION, THE GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOWED. HENCE GRO UND NO.3 RAISED BY THE REVENUE IS PARTLY ALLOWED. 9. IN VIEW OF THE SAID DECISION OF THE COORDINATE B ENCH, WE ARE INCLINED TO HOLD THAT THE INCOME OF THE ASSESSEE FR OM CONTRACT RECEIPTS TO BE COMPUTED AT 9% AND HENCE, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE FROM CONTRACT RECEIPTS AT 9%. 10. WITH REGARD TO INTEREST ON CAPITALS OF PARTNER S, AND SALARIES TO PARTNERS, WE SET ASIDE THE ORDER OF THE CIT(A) A ND DIRECT THE ASSESSING OFFICER TO ALLOW THE SAID CLAIM OF THE A SSESSEE. 11. REGARDING DEPRECIATION, IT IS ALLOWABLE U/S 32 OF THE IT ACT AND IT FALLS UNDER THE PROVISIONS OF SECTION 30 TO 38 AND BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT WHILE ESTIMATING THE INCOME OF THE ASSESSEE AND WE ALSO MAKE IT CLEA R THAT SUCH INCOME SO COMPUTED SHALL NOT GO BELOW THE INCOME RE TURNED BY THE ASSESSEE. HENCE WITH RESPECT TO DEPRECIATION, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 6 ITA NO. 1228/HYD/10 CH. MARTHAND RAO & CO. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH AUGUST, 2013 SD/- SD/- (SAKTIJIT DEY) JUDICIAL MEMBER (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 7 TH AUGUST, 2013 KV COPY TO:- 1) CH. MARTHAND RAO & CO., C/O B. NARSING RAO & CO. , COMPANIES ACT, 1956 (1 OF 1956), PLOT NO. 554, ROAD NO.92, JUBILEE HILLS, HYDERABAD 500 033. 2) ACIT, CC-3, HYDERABAD 3) THE CIT (A)-I, HYDERABAD 4) THE CIT(CENTRAL), HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER