R.K.Township Constructions Pvt. Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1262/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6130 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 10-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Keywords: Depreciation; Search and seizure
• Section: 44AD; 40A(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1 2 6 2 /HYD/201 3 200 5 - 0 6 R K TOWNSHIP CONSTRUCTIONS PVT LIMITED, HYDERABAD [PAN: AACCR6127Q] THE DCIT, CIRCLE-3(1), HYDERABAD 1304/HYD/2013 2005 - 06 THE DCIT, CIRCLE-3(1), HYDERABAD R K TOWNSHIP CONSTRUCTIONS PVT LIMITED, HYDERABAD [PAN: AACCR6127Q] FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SMT G. APARNA RAO, CIT-DR DATE OF HEARING : 04-10-2016 DATE OF PRONOUNCEMENT : 21-10-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE CROSS-APPEALS FOR AY. 2005-06 AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYD ERABAD DATED 10-07-2013. 2. BRIEFLY STATED, ASSESSEE IS A PRIVATE LIMITED COMPA NY FORMED IN THE YEAR 2003. CONSEQUENT TO SEARCH AND SEIZURE OP ERATIONS CONDUCTED IN ASSESSEES CASE ON 12-12-2005, PROCEEDI NGS U/S. 153A OF THE INCOME TAX ACT [ACT] WERE INITIATED FOR THIS YEAR. ASSESSEE HAS SHOWN SALES IN THE ORIGINAL RETURN AT RS. 5.61 CRORES AND HAS REVISED THE SALES TO RS. 8,58,96,664/- IN THE PROCEEDINGS U/S. 153A. ASSESSEE HAS ORIGINALLY OFFERED INCOME AT RS. I.T.A. NOS. 1262 & 1304/HYD/2013 RK TOWNSHIP CONSTRUCTIONS PVT. LTD., :- 2 -: 13,42,435/- AND IN THE RETURN U/S. 153A, INCOME WAS O FFERED AT 1,29,16,404/-. IN THE PROCEEDINGS U/S. 153A, THE AS SESSING OFFICER (AO) DETERMINED THE INCOME AT RS. 3,10,46,622/- BY TH E ORDER DT. 31-12-2007. ON APPEAL, THE CIT(A) DIRECTED THE AO TO ESTIMATE THE PROFIT REJECTING THE BOOK RESULTS. ON FURTHER APPEAL BY ASSESSEE AS WELL AS DEPARTMENT, ITAT, VISAKHAPATNAM VIDE ORDER DT. 24-01- 2011, SET ASIDE THE ASSESSMENT WITH A DIRECTION TO RE-D O THE ASSESSMENTS AFRESH. WHILE SETTING ASIDE THE ASSESSMENT, ITAT OBSERVED THAT AO IF CONSIDERED NECESSARY CAN AVAIL TH E SERVICES OF A C.A., IN ACCORDANCE WITH THE PROVISIONS OF SECTION 142 (2A) OF THE ACT. IN THE CONSEQUENTIAL PROCEEDINGS, AO MADE A REFE RENCE U/S. 142A FOR SPECIAL AUDIT. ON THE BASIS OF THE REPORT, AO FINALISED ASSESSMENT VIDE ORDER DT. 16-08-2012 AND DETERMINED TH E INCOME AT RS. 5,38,84,528/-. IN THE APPEAL, LD.CIT(A) HOWEV ER, DIRECTED THE AO TO ESTIMATE THE PROFIT AT 15% ON GROSS SALES AS WOR KED OUT BY THE SPECIAL AUDITOR IN THE SPECIAL AUDIT REPORT U/ S. 142(2A) OF THE ACT. HE ALSO FURTHER DIRECTED THE DISALLOWANCE U/S . 40A(3) AS SUCH. BOTH ASSESSEE AND REVENUE ARE AGGRIEVED ON THE ABOVE ORDERS. 3. AT THE OUTSET, LD. COUNSEL SUBMITTED THAT CO-ORDINATE BE NCH HAS CONSIDERED THE APPEALS IN ASSESSEES GROUP CASE I.E., RK TOWNSHIP PROMOTERS PVT. LTD., ON SIMILAR FACTS AND ESTI MATED THE INCOME AT 8%. WHILE REFERRING TO THE ABOVE ORDER, IT W AS THE SUBMISSION OF ASSESSEES COUNSEL THAT ASSESSEE IS NOT A CIVIL CONTRACTOR AND THE INCOME WAS DETERMINED AT A HIGHER P ERCENTAGE AND DEPRECIATION AND INTEREST SHOULD ALSO BE ALLOWED. I.T.A. NOS. 1262 & 1304/HYD/2013 RK TOWNSHIP CONSTRUCTIONS PVT. LTD., :- 3 -: 4. LD. DR HOWEVER, RELIED ON THE ORDERS OF CIT(A) TO THE EXTENT OF CONFIRMING THE AMOUNTS BUT HOWEVER, SUBMITTED THAT REVENUE IS ALSO IN APPEAL ON THE DELETIONS MADE BY THE CIT(A). 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS ON RECORD. IT IS TRUE THAT BOTH ASSESSEE AND RE VENUE HAVE COME IN APPEAL IN THE FIRST ROUND AND ITAT HAS SET ASI DE THE ISSUE TO THE FILE OF AO TO CONSIDER IT AFRESH. HOWEVER, THE CO-ORDINATE BENCH IN THE CASE(S) OF RK TOWNSHIP PROMOTERS PVT. LT D., (DT. 29- 04-2016) HAS EXAMINED THE SPECIAL AUDIT REPORT IN THAT CASE AND OTHER ASPECTS AND DECIDED THE ISSUE AS UNDER: 13.2 THERE IS NO DOUBT THAT THE BOOK KEEPING ADOPT ED BY THE ASSESSEE WAS COMPLEX AND THE RELEVANT DATA GENERATE D BY THE ASSESSEE BASED ON BILLS AND VOUCHERS WERE NOT AVAILABLE WITH THE ASSESSEE AND PART OF THE DOCUMENTS WERE SEIZED BY THE DEPARTMENT , WHICH WAS USED BY THE SPECIAL AUDITOR TO RECAST THE P&L A/C. THE DEGR EE OF RELIANCE AND RELIABILITY OF INFORMATION ADOPTED BY THE SPECIAL A UDITOR IS THE MAIN GROUNDS OF APPEAL BY THE ASSESSEE. THERE IS NO DISP UTE THAT THE SPECIAL AUDITOR HAD TO RELY ON THE INFORMATION AVAILABLE WI TH HIM & WITH THE AO WHICH WERE ACQUIRED DUE TO SEARCH AND SEIZURE OPERA TION. THE ASSESSEE ALSO EXPRESSED IN ONE OF THE COMMUNICATION WITH THE SPECIAL AUDITOR THAT DUE TO EFFLUX OF TIME, THE ASSESSEE WAS NOT IN A PO SITION TO SUBMIT THE RELEVANT BILLS AND VOUCHERS EITHER BECAUSE OF SEIZU RE OR NOT IN A POSITION TO SUBMIT DUE TO THE FACT THAT THE PASSAGE OF TIME, SH IFTING OF PREMISES ETC. 13.3 WE ARE IN AGREEMENT WITH THE ASSESSEE THAT THE RELIABILITY OF THE SPECIAL AUDIT REPORT AND RECASTING OF P&L A/C W ERE COMPUTED BASED ON THE INFORMATION AVAILABLE AND PRESUMPTIONS ADOPTED BY SPECIAL AUDITOR. IT IS WORTHWHILE TO MENTION HERE THAT THE INCOME STATU S GENERATED BY SPECIAL AUDITOR ARE NOT CORRELATING TO THE TURNOVER OF THE COMPANY, I.E. OUT OF SEVEN AYS, IN THREE AYS ARE LOSS. IN THE REAL ESTATE BUSI NESS, THE PROFIT GENERATED AGAINST SALES HAS TO BE ON THE BAND RANGE, IT CANNO T BE FLUCTUATING IN SUCH HIGH DEGREE. THE PROFIT HAS TO BE ARRIVED BASED ON THE MATCHING PRINCIPLE, IN OUR CONSIDERED VIEW, THE SPECIAL AUDITOR HAS FAI LED IN THIS REGARD. THE RELATED COST HAS TO BE ALIGNED WITH THE RELEVANT SA LES/COLLECTION. IN THE ABOVE STATED SITUATION, WE ARE INCLINED TO SUGGEST THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE MUST BE REJECTED , AT THE SAME TIME, THE RECASTED ACCOUNT CANNOT BE RELIED UPON DUE TO R ELIABILITY FACTOR. I.T.A. NOS. 1262 & 1304/HYD/2013 RK TOWNSHIP CONSTRUCTIONS PVT. LTD., :- 4 -: 13.4 WE ARE LEFT WITH THE OVERALL TURNOVER OF THE A SSESSEE AND NET INCOME DETERMINED BY THE AO, CIT(A) , SPECIAL AUDIT OR AND ESTIMATED PROFIT @ 15% IN THE SUBSEQUENT YEAR BY THIS COORDINATE BEN CH. WE CANNOT ADOPT 15% OF SALES SIMPLY BECAUSE THE COORDINATE BENCH TR EATED THE BUSINESS OF THE ASSESSEE AS CIVIL CONTRACT BUSINESS AND THE SAM E WAS NOT CONTROVERTED BY THE ASSESSEE. BUT FROM THE RECORDS SUBMITTED BEF ORE US BY BOTH ASSESSEE & DR AS THE BUSINESS OF ASSESSEE IS IN REA L ESTATE DEALING ONLY IN BUYING, DEVELOPING AND SELLING LANDS. 13.5 THE RELEVANT DATA BEFORE US ARE (EXTRACTED FRO M PAPER BOOK SUBMITTED BY THE ASSESSEE) CUMULATIVE FIGURES A) CUMULATIVE TURNOVER FOR 7 AYS 100.61 CRORES (AS PER SPECIAL AUDIT REPORT ACCEPTED BY THE ASSESSEE) B) INCOME ASSESSED BY ACIT 21.20 CRORES (21.07%) C) INCOME ASSESSED BY CIT(A) 11.64 CRORES (11.57 %) D) INCOME COMPUTED BY SPECIAL AUDITOR 9.71CRORES(9 .65%) WHILE ANALYZING THE ABOVE VALUES, WE ARE OF THE VIE W THAT INCOME ASSESSED BY ACIT IS RULED OUT AS IT IS AT 21.07% AS THE ABOVE % IS MORE THAN 15%, WHICH WAS ALREADY REJECTED BY ITAT AND AL SO THE PROFIT ARRIVED WERE BEFORE SPECIAL AUDIT. SIMILARLY, THE ASSESSEE HAD SUBMITTED & RELIED ON THE CASE LAW IN THE CASE OF MADHAV PROPCON PVT. LTD., OF DELHI ITAT, WHEREIN IT WAS HELD THAT THE INCOME OF THE ASSESSEE S AT 2.24% OF THE TOTAL GROSS RECEIPTS, WHO ARE ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT ACTIVITIES. WE CANNOT FOLLOW THIS PERCENTAGE BECAUS E THE ACTIVITIES INVOLVED WERE ONLY FOR LAND DEVELOPMENT ACTIVITIES BUT IN TH E PRESENT CASE THE ASSESSEE IS IN THE ACTIVITIES WHICH INVOLVE PURCHAS E, DEVELOPMENT AND SALE OF LAND. WITH RESPECT TO CIT(A) ARRIVED AT THE PROF IT OF RS. 11.64 CRORES AS CUMULATIVE PROFIT FOR 7 YEARS (I.E. 11.57%). BUT HE HAD ACCEPTED THE SPECIAL AUDIT PROFIT AS THE BASE AND GAVE PARTIAL RELIEF TO ASSESSEE BY DELETING THE DISALLOWANCE MADE ON SITE DEVELOPMENT ETC. AFTER DE LETING THE DISALLOWANCE MADE BY THE AO, THE PROFIT ARRIVED BY THE CIT(A) IS MORE THAN THE SPECIAL AUDITOR. THE CIT(A) HAD ACCEPTED THE SP ECIAL AUDITORS REPORT AND PROFIT ARRIVED BY THEM, THE MERE ADJUSTMENT CAN NOT INCREASE THE PROFIT ARRIVED BY SPECIAL AUDITORS. CIT(A) HAS NOT FOUND A NYTHING NEW WHILE ADJUDICATING BUT HAD ONLY REJECTED THE GROUNDS RAIS ED BY THE ASSESSEE. HENCE, THERE CANNOT BE ANY INCREMENTAL PROFIT ARRIV ED BY CIT(A). HENCE, THE PROFIT ARRIVED AFTER CONSEQUENTIAL TO CIT(A)S ORDER CANNOT BE RELIED. 13.6 WE ARE LEFT WITH INCOME COMPUTED BY SPECIAL AU DITOR AT 9.65%. BUT THIS INCOME ARRIVED BY SPECIAL AUDITOR BY ADOPT ING PRESUMPTIONS AND MODIFYING THE VALUES OF PURCHASE, SALES, OPENING AN D CLOSING STOCK. BASED ON THE SUBMISSIONS OF DR AND ASSESSEE, WE ARE OF TH E VIEW THAT THE RELIABILITY OF THE SPECIAL AUDIT COULD BE IN BETWEE N 80- 85%. ON APPLYING THE RELIABILITY FACTOR TO THE INCOME DETERMINED BY SPECIAL AUDITOR OF 9.65%, WE WILL END UP ARRIVING THE INCOME AT 8%, WHICH IS SIMILAR TO SECTION 44AD. I.T.A. NOS. 1262 & 1304/HYD/2013 RK TOWNSHIP CONSTRUCTIONS PVT. LTD., :- 5 -: 13.7 ON THE OTHER HAND, THE PROVISIONS OF SECTION 4 4AD PROPOSED TO ADOPT 8% OF THE TOTAL TURNOVER OR GROSS RECEIPTS OF THE ASSESSEE SHALL BE DEEMED TO BE PROFITS & GAINS OF THE BUSINESS CHARGE ABLE TO TAX. THIS SECTION PRESCRIBES A THUMB RULE OR PRESUMPTIVE NET PROFIT RATE APPLIED FOR THOSE ASSESSEES WHOSE TURNOVER ARE LESS THAN ONE CR ORE. NO DOUBT, THE TURNOVER OF THE ASSESSEE IS MORE THAN THE PRESCRIBE D LIMIT IN THE SECTION 44AD BUT IT GIVES THUMB RULE TO ESTIMATE THE INCOME OF THE ASSESSEE. WHEN THE BOOKS ARE NOT MAINTAINED OR REJECTED, FLAT RATE OF 8% CAN BE ADOPTED AS DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUBODH GUPTA, ITA N 80 OF 2014, DATED 09/12/2014. 13.8 THE ABOVE DECISION IS RELEVANT PARTICULARLY WH EN THE REVENUE COULD NOT SUBMIT OR ASCERTAIN WHO HAD DECLARED HIGH ER PERCENTAGE OF INCOME, WHO ARE IN THE SIMILAR BUSINESS OF ASSESSEE . IN OUR CONSIDERED VIEW, IN THE PRESENT CASE, THE BOOKS OF THE ASSESSE E CANNOT BE ACCEPTED DUE TO THE COMPLEXITY OF THE NATURE OF BUSINESS AND MAINTENANCE OF BOOKS OF ACCOUNT AT THE SAME TIME THE RECASTED PROFITS & LOSS COMPUTED BY THE SPECIAL AUDITOR ALSO HAS RELIABILITY ISSUE, WHICH W ERE COMPUTED BASED ON PRESUMPTIONS. THIS IS THE FIT CASE TO ESTIMATE THE INCOME OF THE ASSESSEE. IN THIS GIVEN SITUATION, THE PRESUMPTIVE RATE AVAIL ABLE IN THE SECTION 44AD MAY BE ADOPTED EVEN THOUGH THE TURNOVER OF THE ASSE SSEE IS MORE THAN THE TURNOVER OF THE ELIGIBLE ASSESSEE AS PRESCRIBED IN THE SECTION 44AD. THIS IS THE RATE WHICH IS NEAR TO THE PERCENTAGE ARRIVED AF TER FACTORING THE RELIABILITY AND THE INCOME COMPUTED BY THE SPECIAL AUDITOR. HENCE, WE DIRECT THE AO TO ADOPT 8% OF THE SALES AS DETERMINE D BY THE SPECIAL AUDITOR, TO COMPUTE THE INCOME OF THE ASSESSEE YEAR TO YEAR BASIS FOR AY 2000-01 TO 2006-07. 5.1. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE INCOME CAN BE DETERMINED IN THIS CASE ALSO AT 8% ON THE GROSS SALES SHOWN BY ASSESSEE AT RS. 8,58,96,664/-. IN CASE THE INCOME SO ESTIMATED IS LESS THAN THE RETURNED INCOME OF RS. 1,29,16,404/-, AO IS DIRECTED TO ACCEPT THE INCOME RETURNED. SINCE THE INCO ME IS ESTIMATED AT NET BASIS, CONSIDERING THE FACTS OF THE CAS E, NO FURTHER DEDUCTION UNDER DEPRECIATION AND INTEREST SHOULD BE ALL OWED ON THE ESTIMATED INCOME. AO IS DIRECTED TO DO ACCORDINGL Y. 6. AS FAR AS THE REVENUE APPEAL IS CONCERNED, THE REV ENUE IS CONTESTING THE DELETIONS MADE BY THE LD.CIT(A) OF EXPEND ITURE ON ESTIMATION BASIS AND DETERMINATION OF PROFIT AT 15% ON G ROSS SALES. I.T.A. NOS. 1262 & 1304/HYD/2013 RK TOWNSHIP CONSTRUCTIONS PVT. LTD., :- 6 -: SINCE THESE ARE ON THE SAME ISSUE OF ESTIMATION OF INCO ME, NO SEPARATE ADJUDICATION IS REQUIRED AS INCOME OF 8% I S CONSIDERED REASONABLE ON THE FACTS OF THE CASE. SUBJECT TO OBSERV ATIONS MADE ABOVE IN ASSESSEES CASE, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN REVENUES CONTENTIONS. AO IS DIRECTED TO DETE RMINE THE INCOME AT 8% ON NET ON THE SALES DECLARED OR INCOME R ETURNED IN THE PROCEEDINGS U/S. 153A, WHICHEVER IS HIGHER. 7. IN THE RESULT, ASSESSEES APPEAL IS CONSIDERED PAR TLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 21 ST OCTOBER, 2016 TNMM COPY TO : 1. RK TOWNSHIP CONSTRUCTIONS PVT. LIMITED, HYDERABA D. C/O. B. NARSING RAO & CO., CHARTERED ACCOUNTANTS, P LOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD. 2. THE DCIT, CIRCLE-3(1), HYDERABAD. 3. CIT(APPEALS)-IV, HYDERABAD. 4. CIT-III, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.