M/s.EDCO India Pvt., Ltd., Hyderabad V. Dy. CIT, Hyderabad

ITA 1268/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6036 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 24-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-09-2013
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Opportunity of being heard
• Section: 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1268/HYD/2013 ASSESSMENT YEAR: 2010-11 M/S. EDCO INDIA PVT. LTD., HYDERABAD [PAN: AAACE4487E] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SHRI P. CHANDRA SEKHAR, DR DATE OF HEARING : 24-10-2016 DATE OF PRONOUNCEMENT : 04-11-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, HYDERABAD DATED 16-07-2013 ON THE ISSUE OF RATE OF ESTIMATION OF PRO FIT. THERE IS NO DISPUTE WITH REFERENCE TO REJECTION OF BOOKS OF ACCOUNT AND THE TURNOVER OF ASSESSEE. THE DISPUTE IS WITH REFERENCE TO ESTIMATION OF RATE OF PROFIT WHICH IS DEPENDENT WHETHER THE ASSESSEE IS A MAIN CONTRACTOR OR A SUB-CONTRACTOR? 2. BEFORE ADVERTING TO THE ADJUDICATION OF THE ISSUE, THIS FORUM HAS NOTICED THAT FORM 36 HAS NOT BEEN PROPERLY VE RIFIED AND I.T.A. NO. 1268/HYD/2013 M/S. EDCO INDIA PVT. LTD., :- 2 -: WHEN THE DEFECTS WERE POINTED OUT, THERE WERE IRREGULARI TIES COMMITTED. VIDE INTERIM ORDER DT. 24-03-2016, THE ITAT A BENCH HAS AWARDED COST OF RS. FIVE THOUSANDS DIRECTED TO BE PAID BY WAY OF REMITTANCE TO THE PRIME MINISTERS RELIEF FUND WHICH WAS COMPLIED WITH. ACCORDINGLY, THE APPEAL IS CONSIDERED ON MERITS. 3. AS ALREADY BRIEFLY STATED, THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO ESTIMATION OF INCOME. ASSESSING OFFICER (AO) IN THE ORDER DT. 28-03-2013 INVOKED BOTH SECTION 143(3) AS WE LL AS SECTION 144 IN COMPLETING THE ASSESSMENT AND REJECTED TH E BOOKS OF ACCOUNT, ESTIMATED THE INCOME AT 12.5% OF THE GROSS RECEIPTS, FOLLOWING THE CO-ORDINATE BENCH DECISION IN THE CASE OF M/S. KNR CONSTRUCTIONS LTD., VS. DCIT IN ITA NO. 1141/HYD/2005 AND ITA NO. 09/HYD/2007. THE TOTAL CONTRACT RECEIPTS WERE DETER MINED AT RS. 89,65,69,516/- AND 12.5% ON THAT WAS DETERMINED A T RS. 11,20,71,190/-. 4. BEFORE THE LD.CIT(A), ASSESSEE SUBMITTED THAT IT HAS OFFERED PROFIT OF RS. 5,19,51,059/- IN THE P&L A/C AN D AFTER ADJUSTMENTS, TOTAL INCOME WAS OFFERED AT RS. 5,26,40,190 /- (WHICH IS MORE THAN 5%), ON THE CONTRACT RECEIPTS AND FOLLOWING THE PRINCIPLES LAID DOWN BY THE CO-ORDINATE BENCH OF IT AT IN THE CASE OF M/S. MADHUCON PROJECTS LTD., WHICH WAS SIMILARLY P LACED AS THAT OF ASSESSEE, THE NET PROFIT IS TO BE DETERMINED AT 8% O F THE DIRECT CONTRACT RECEIPTS AND 5% OF THE SUB-CONTRACT RECEIPTS. HO WEVER, WITHOUT EXAMINING THE ISSUE OF DIRECT CONTRACTS AND S UB-CONTRACTS, LD.CIT(A) REDUCED THE ESTIMATION OF NET PROFIT FROM 12.5 % TO 10% HOLDING THAT IT WOULD BE REASONABLE IN THE CURRENT CA SE. REVENUE I.T.A. NO. 1268/HYD/2013 M/S. EDCO INDIA PVT. LTD., :- 3 -: HAS ACCEPTED THE DECISION, WHERE AS ASSESSEE IS IN A PPEAL BEFORE US. 5. LD. COUNSEL REFERRING TO VARIOUS CASES PLACED O N RECORD SUBMITTED THAT ASSESSEE HAS REQUESTED FOR ESTIMATION OF I NCOME AT 8% ON THE DIRECT CONTRACTS AND 5% ON SUB-CONTRACTS. IT W AS FURTHER SUBMITTED THAT ASSESSEE HAD ABOUT 30.07 CRORES OF TURNOVER FROM M/S. MAYTAS-NCC (JV) AND ABOUT RS. 50.74 CRORES FROM RITHWIK PROJECTS PVT. LTD., WHICH ARE SUB-CONTRACT W ORKS, WHEREAS THE BALANCE AMOUNT IS FROM DIRECT CONTRACTS. IT WAS SUBMITTED THAT SINCE THESE TURNOVERS ARE FOR BOTH DIRECT CO NTRACTS AS WELL AS SUB-CONTRACTS, ASSESSEE HAS NO OBJECTION IF THE INCOMES ARE ESTIMATED AT 8% AND 5% ON THE RESPECTIVE TURNOVERS, AS WAS DONE IN OTHER CO-ORDINATE BENCH DECISION CASES. 6. LD. DR HOWEVER, SUBMITTED THAT ASSESSEE HAS NOT CO- OPERATED WITH THE AO AND HAS NOT FURNISHED ANY DETAILS, NOT ONLY IN THIS YEAR BUT ALSO IN OTHER YEARS, THEREFORE, IT I S NOT POSSIBLE TO ACCEDE TO THE REQUEST OF ASSESSEE WITHOUT EXAMINING THE BOOKS OF ACCOUNT. IT WAS FURTHER SUBMITTED THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. PARBHAT KUMAR C ONTRACTOR IN ITA NO. 293/2008 DT. 14-11-2008 HAS CONFIRMED THE ESTIMATION OF NET PROFIT ON CONTRACT RECEIPTS AT 12%. IT WAS ALSO SU BMITTED THAT CO-ORDINATE BENCH OF ITAT IN THE CASE OF ASSESSIN G OFFICER VS. POOJA CONSTRUCTION CO. [69 ITD 147] HAS CONFIRMED 10% NET RATE ON THE CONTRACT RECEIPTS. HE ALSO REFERRED TO THE DECISI ON OF M/S. KNR CONSTRUCTIONS LTD., RELIED ON BY THE AO, WHEREIN THE CO- ORDINATE BENCH RELIED ON THE CASE OF M/S. KRISHNA MOH AN I.T.A. NO. 1268/HYD/2013 M/S. EDCO INDIA PVT. LTD., :- 4 -: CONSTRUCTION COMPANY, A THIRD MEMBER CASE FOR DETERMIN ING THE PROFIT AT 12.5%. 7. IN REPLY, LD. COUNSEL SUBMITTED THAT CO-ORDINATE BENCHES IN THE FOLLOWING CASES HAVE CONFIRMED 8% AN D 5% ON MAIN CONTRACTS AND SUB-CONTRACTS RESPECTIVELY WHICH SHOULD BE FOLLOWED: S.NO NAME OF THE CASE COURT CITATION GIST 1. MADHUCON GRANITES LIMITED HYDERABAD ITAT 666/H/2010 INCOME ON SUB- CONTRACT RECEIPTS TO BE ESTIMATED @ 5% 2. MAA HIGHWAYS HYDERABAD ITAT 747/H/2009 INCOME ON SUB- CONTRACT RECEIPTS TO BE ESTIMATED @ 5% 3. PEDDIREDDY VENKATA RAMANA REDDY HYDERABAD ITAT 304/H/2014 INCOME ON SUB- CONTRACT RECEIPTS TO BE ESTIMATED @ 3% 4. DNR CONSTRUCTIONS HYDERA-BAD ITAT 817/H/2015 INCOME ON SUB- CONTRACT RECEIPTS TO BE ESTIMATED @ 5% 5. VARALAKSHMI GRANITES P LTD HYDERABAD ITAT 1435- 1438/H/10 WITHOUT REJECTING BOOKS OF ACCOUNTS ESTIMATION OF INCOME CANNOT BE MADE 6. SRI NAGENDRA CONSTRUCTIONS HYDERABAD ITAT 200- 201/H/2015 INCOME ON SUB- CONTRACT RECEIPTS TO BE ESTIMATED @ 5% 7. P. RAMA GANGI REDDY HYDERABAD ITAT 279/H/2014 INCOME ON SUB- CONTRACT RECEIPTS TO BE ESTIMATED @5% 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE DOCUMENTS AND CASE LAW PLACED ON RECORD. AS SEEN FROM THE ORDERS, IT IS A FACT THAT ASSESSEE HAS NOT CO-OPERATED BEFORE THE AO BY FURNISHING ANY EVIDENCE. THEREFORE, HE HAS REJE CTED THE BOOKS OF I.T.A. NO. 1268/HYD/2013 M/S. EDCO INDIA PVT. LTD., :- 5 -: ACCOUNT AND ESTIMATED THE INCOME. FOR THE REASONS BEST K NOWN TO ASSESSEE, ASSESSEE ALSO ACCEPTED THE REJECTION OF BOO KS OF ACCOUNT BUT REQUESTED FOR ESTIMATION OF INCOME ON THE REASON THA T ASSESSEE IS INVOLVED IN SUB-CONTRACT WORK AND PROFIT ESTIMATION A S THE MAIN CONTRACTOR IS NOT WARRANTED. THIS ISSUE HAS HOWEVER, COME UP FOR CONSIDERATION IN AN EARLIER YEAR ALSO, WHEREIN THE CO -ORDINATE BENCH IN THAT YEAR HAS DIRECTED THE AO TO EXAMINE WH ETHER ASSESSEE HAS EXECUTED SUB-CONTRACT WORKS. THE ORDER O F ITAT IN ITA NO. 1800/HYD/2014 FOR AY. 2009-10 IS AS UNDER: 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDE RS OF REVENUE AUTHORITIES. UNDISPUTEDLY, ASSESSEES APPEAL BEFOR E LD.CIT(A) WAS DELAYED BY 659 DAYS. THOUGH, ASSESSEE HAD FILED A PETITION SEEKING CONDONATION OF DELAY, BUT, LD.CIT(A) WAS NO T SATISFIED WITH THE REASON SHOWN. ACCORDINGLY, HE REFUSED TO CONDO NE THE DELAY AND DISMISSED THE APPEAL EX-PARTE AS ASSESSEE DID N OT APPEAR BEFORE HIM. THE LIMITED PRAYER OF ASSESSEE BEFORE US, IS FOR GRANTING ONE MORE OPPORTUNITY TO REPRESENT ITS CASE BEFORE D EPARTMENTAL AUTHORITIES. THEREFORE, WITHOUT ENTERING INTO THE DISPUTE, WHETHER HEARING NOTICES ISSUED BY LD.CIT(A) WAS AT ALL SER VED ON ASSESSEE AND WHETHER REASONS SHOWN FOR CONDONING THE DELAY A RE SUFFICIENT OR NOT, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE ONE MORE OPPORTUNITY IS REQUIRED TO BE GIVEN TO ASSESSEE FOR EXPLAINING ITS CASE. FURTHER, CONSIDERING ASSESSEES CLAIM THAT D URING THE YEAR ASSESSEE HAS ONLY EXECUTED SUB-CONTRACT WORK, RATE OF PROFIT ON WHICH CANNOT BE ADOPTED AT 8% IN VIEW OF CERTAIN DE CISIONS OF ITAT, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE FIL E OF AO, AS ASSESSEE IS REQUIRED TO ESTABLISH ON RECORD BY FURN ISHING ADEQUATE EVIDENCE THAT DURING THE YEAR IT HAS EXECUTED THE W ORKS BY ON SUB- CONTRACT BASIS. WE, ACCORDINGLY, SET ASIDE THE ORD ER OF LD.CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO FOR DEC IDING AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. WE ALSO DIRECT ASSESSEE TO COOPERATE WITH AO IN FINALI ZING THE PROCEEDING BY COMPLYING TO THE NOTICES TO BE ISSUED BY AO. 8.1. IN VIEW OF THAT, CONSIDERING THAT ASSESSEE SUBMITTE D THAT IT HAS UNDERTAKEN SUB-CONTRACT WORK, WHICH ASPECT H AS NOT BEEN EXAMINED BY THE AO OR CIT(A), WE ARE OF THE OPIN ION THAT THE I.T.A. NO. 1268/HYD/2013 M/S. EDCO INDIA PVT. LTD., :- 6 -: ISSUE OF ESTIMATION AFTER VERIFICATION OF NATURE OF CON TRACTS HAS TO BE RESTORED TO THE FILE OF AO FOR FRESH EXAMINATION OF THE ACCOUNTS OF THE ASSESSEE/CONTRACTS OF ASSESSEE AND DETERMINE THE INCOMES. AS FAR AS THE RATE OF INCOME IS CONCERNED, WE ARE NO T GIVING ANY CLEAR FINDING AS THE ESTIMATION OF INCOME DEPENDS ON FACTS OF THE CASE, NATURE OF WORK UNDERTAKEN. IN FACT, AS SEEN FRO M ASSESSEES OWN BOOKS OF ACCOUNT, THE PROFIT RATE IS MORE THAN 5%. THEREFORE, DETERMINATION AT 5% IS NOT APPROPRIATE AS ASSESSEES IN COME OFFERED IS MORE THAN THAT PERCENTAGE. THEREFORE, WITHOU T GIVING ANY FINDING ON THE RATE OF PROFIT, WE RESTORE THE ISSUE TO TH E FILE OF AO TO EXAMINE THE NATURE OF CONTRACTS UNDERTAKEN BY ASSESSEE D URING THE YEAR AND ALSO IN EARLIER AND LATER YEARS AND DETE RMINE THE INCOME AFTER KEEPING IN MIND THE VARIOUS CASE LAW R ELIED ON BY ASSESSEES COUNSEL AND THE LD. DR. HOWEVER, WE MAK E IT CLEAR THAT IN NO CASE, THE PROFIT RATE SHOULD EXCEED 10% AS DIRECTED BY THE CIT(A), ON WHICH REVENUE HAS NOT COME UP IN APPEA L. WITH THESE DIRECTIONS AND OBSERVATIONS, THE ISSUE OF ESTIMATIO N OF INCOME AND EXAMINATION OF NATURE CONTRACTS, WHETHER DIRE CT OR SUB-CONTRACTS, IS RESTORED TO THE FILE OF THE AO FOR FRE SH DETERMINATION. 9. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 4 TH NOVEMBER, 2016 TNMM I.T.A. NO. 1268/HYD/2013 M/S. EDCO INDIA PVT. LTD., :- 7 -: COPY TO : 1. M/S. EDCO INDIA PVT. LTD., HYDERABAD. C/O. P. MU RALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(2 ), HYDERABAD. 3. CIT (APPEALS)-III, HYDERABAD. 4. CIT-II, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.