Sri KV Ramakrishna Rao, Narasapuram V. The ACIT, Central Circle, Rajahmundry

ITA 128/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50217 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 14-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Keywords: Search and seizure

Judgement Text

ITA NOS 110O 116 OF2011 KV RAM KUMAR AND 124 TO 1 30 OF KV RAMA KRISHNA RAO RAJAHMUNDRY PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NOS.110 TO 116/VIZAG/2011 ASSESSMENT YEARS:2000-01 TO 2006-07 K.V. RAM KUMAR, NARASAPURAM VS. ACIT CENTRAL CIRCLE, RAJAHMUNDRY (APPELLANT) PAN NO: ACWPK 3299 H (RESPONDENT) ITA NOS. 124 TO 130/VIZAG/2011 ASSESSMENT YEARS:2000-01 TO 2006-07 K.V.RAMA KRISHNA RAO NARASAPURAM VS. ACIT CENTRAL CIRCLE, RAJAHMUNDRY (APPELLANT) PAN NO: AGXPK 5879 Q (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI J. SIRI KUMAR, DR ORDER PER BENCH: THESE APPEALS OF THE ASSESSEES ARE DIRECTED AGAINST THE ORDERS PASSED BY LEARNED CIT(A), RAJAHMUNDRY IN THEIR RESP ECTIVE HANDS CONFIRMING THE PENALTY OF RS.25,000/- EACH LEVIED U NDER SECTION 271A OF THE ACT FOR EACH OF THE ASSESSMENT YEARS 2000-01 TO 200 6-07. SINCE THE PENALTY HAS BEEN LEVIED ON IDENTICAL FACTS, ALL THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER, FOR THE SAKE OF CONVENIENCE. 2. THE FACTS RELATING TO THE SOLITARY ISSUE ARE STATED IN BRIEF. THE ASSESSEES HEREIN ARE CIVIL CONTRACTORS. CONSEQUENT TO THE SEARCH AND SEIZURE OPERATIONS CONDUCTED UPON THE ASSESSEES, IT CAME TO LIGHT THAT THESE ASSESSEES HAVE OBTAINED CONTRACT WORKS IN THE IR RESPECTIVE NAMES, BUT EXECUTED THE CONTRACT WORKS THROUGH VARIOUS PAR TNERSHIP FIRMS FLOATED BY THEM. DURING THE COURSE OF SEARCH PROCEEDINGS, THESE ASSESSEES ADMITTED THAT THE PARTNERSHIP FIRMS ARE FICTITIOUS ONES AND ACCORDINGLY ITA NOS 110O 116 OF2011 KV RAM KUMAR AND 124 TO 1 30 OF KV RAMA KRISHNA RAO RAJAHMUNDRY PAGE 2 OF 5 AGREED TO OFFER THE INCOME DECLARED BY THE PARTNERS HIP FIRMS IN THEIR RESPECTIVE HANDS. THE ASSESSMENTS WERE COMPLETED AC CORDINGLY. SUBSEQUENTLY, THE ASSESSING OFFICER FELT THAT THESE ASSESSEES HAVE VIOLATED THE PROVISIONS OF SEC. 44AA OF THE ACT BY NOT MAINT AINING THE BOOKS OF ACCOUNT IN THE YEARS UNDER CONSIDERATION AS REQUIRE D UNDER THE PROVISIONS OF SEC. 44AA OF THE ACT FOR THE CONTRACT BUSINESS ASSE SSED IN THEIR RESPECTIVE HANDS. ACCORDINGLY THE ASSESSING OFFICER LEVIED PE NALTY OF RS.25,000/- IN EACH OF THE YEARS UNDER CONSIDERATION BY INVOKING T HE PROVISIONS OF SECTION 271A OF THE ACT. THESE ASSESSEES COULD NOT SUCCEED IN THE APPEALS FILED BEFORE LEARNED CIT(A). HENCE, THEY ARE IN APPEAL B EFORE US IN ALL THE YEARS CITED ABOVE. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. IN THE INSTANT CASES, THE PENALTY HAS BEEN LEVIED UN DER SECTION 271A OF THE ACT. THE SAID SECTION READS AS UNDER: 271A. WITHOUT PREJUDICE TO THE PROVISIONS OF SECTI ON 271, IF ANY PERSON FAILS TO KEEP AND MAINTAIN ASSESSMENT YE AR SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS REQUIRED BY SECTION 44AA OR THE RULES MADE THERE UNDER, IN RESPECT OF A NY PREVIOUS YEAR OR TO RETAINS SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOR THE PERIOD SPECIFIED IN THE SAID RULES, THE ASS ESSING OFFICER OR THE COMMISSIONER (APPEALS) MAY DIRECT THAT SUCH PERSON SHALL PAY, BY WAY OF PENALTY, A SUM OF TWENTY-FIVE THOUSAND RUPEES. THOUGH PENALTY UNDER SECTION 271A OF THE ACT MAY BE LEVIED IN DIFFERENT KINDS OF SITUATION, IN THE INSTANT CASES, THE ASSES SING OFFICER HAS LEVIED THE SAID PENALTY FOR FAILURE TO MAINTAIN THE BOOKS OF A CCOUNT IN ACCORDANCE WITH SEC. 44AA OF THE ACT. ACCORDING TO SEC. 44AA(2) OF THE ACT, EVERY PERSON CARRYING ON BUSINESS OR PROFESSION SHALL KEEP AND M AINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS MAY ENABLE THE ASSES SING OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. 4. DURING THE COURSE OF HEARING, THE LEARNED A.R RELIED UPON THE FOLLOWING CASE LAW TO SUPPORT HIS CONTENTION THAT THE PROVISI ONS OF SEC. 271A FOR NON- ITA NOS 110O 116 OF2011 KV RAM KUMAR AND 124 TO 1 30 OF KV RAMA KRISHNA RAO RAJAHMUNDRY PAGE 3 OF 5 MAINTENANCE OF BOOKS OF ACCOUNT ARE NOT ATTRACTED I N THE CASE OF CIVIL CONTRACTORS. A) A.C.I.T VS. AGGARWAL CONSTRUCTION CO. (2007 ) 107 TTJ (CHD)(TM)623 B) CIT VS. BABU REDDY (2010)(38 DTR (KAR)147) IN THE CASE OF AGGARWAL CONSTRUCTION,(SUPRA) IT HAS BEEN HELD THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE SHOULD ENABLE THE ASSESSING OFFICER TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE . IN THAT CASE, THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSES SEE AT 12% OF THE GROSS CONTRACT RECEIPTS, SINCE THE BOOKS OF ACCOUNT MAINT AINED BY THE ASSESSEE WAS NOT FOUND TO BE RELIABLE BY THE ASSESSING OFFIC ER. THE ASSESSING OFFICER ALSO DID NOT RECORD IN THE ASSESSMENT ORDER THAT HE WAS NOT ABLE TO COMPUTE THE INCOME OF THE ASSESSEE. ACCORDINGLY IT WAS HELD THAT THERE WAS NO FAILURE TO COMPLY WITH THE PROVISIONS OF SEC. 44 AA AND HENCE THE PENALTY IMPOSED UNDER SECTION 271A WAS CANCELLED. IN THE CAS E OF BABU REDDY, (SUPRA), THE KARNATAKA HIGH COURT HAS HELD THAT THE PENALTY UNDER SECTION 271A IS NOT LEVIABLE IN THE CASE OF CIVIL CONTRACTO RS IF THE ASSESSING OFFICER COULD PROCESS THE RETURN ON THE BASIS OF BOOKS MAIN TAINED BY THE ASSESSEE. IN THE ABOVE SAID CASE, THE ASSESSEE HAD BEEN MAINTA INING SOME BOOKS, THOUGH IT WAS NOT THE BOOKS REGULARLY MAINTAINED BY THE BUSINESS PEOPLE. THE HON'BLE KARNATAKA HIGH COURT NOTICED THAT THE A CT OR RULES DOES NOT PRESCRIBE ANY BOOKS FOR THE BUSINESS OF CIVIL CONTR ACTS. ACCORDINGLY IT WAS HELD THAT THE PENALTY UNDER SECTION 271A IS NOT LEV IABLE IF THE ASSESSING OFFICER IS ABLE TO PROCESS THE RETURN ON THE BASIS OF BOOKS, IF ANY, MAINTAINED BY THE ASSESSEE. 5. IN THE INSTANT CASES, THOUGH THE ASSESSEES H AVE OBTAINED CONTRACT WORKS IN THEIR NAMES, BUT THEY HAVE EXECUTED THE SA ID CONTRACT WORKS THROUGH VARIOUS PARTNERSHIP FIRMS THAT WERE FLOATED BY THEM. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE SAID PARTN ERSHIP FIRMS HAVE MAINTAINED THE BOOKS OF ACCOUNT AND THEY ALSO FILED THEIR RESPECTIVE RETURNS OF INCOME. DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS ONLY, THE ABOVE SYSTEM OF EXECUTING THE CONTRACT WORKS THROUG H PARTNERSHIP FIRMS WAS FOUND FAULT WITH AS THE ASSESSEE COULD NOT EXPL AIN THE DETAILS RELATING ITA NOS 110O 116 OF2011 KV RAM KUMAR AND 124 TO 1 30 OF KV RAMA KRISHNA RAO RAJAHMUNDRY PAGE 4 OF 5 TO THE PARTNERSHIP FIRMS. HENCE, THESE ASSESSEES H AVE DECLARED THE INCOME DERIVED FROM ALL THE CONTRACT RECEIPTS IN THEIR RES PECTIVE HANDS, EVEN THOUGH THEY HAVE OFFERED THE INCOME IN THE HANDS OF VARIOU S PARTNERSHIP FIRMS. IN THIS PROCESS THE PARTNERSHIP FIRMS WERE DISREGARDED . 6. NOW THE QUESTION THAT WOULD ARISE IS WHETHER THESE ASSESSEES CAN BE PENALIZED FOR NON-MAINTENANCE OF BOOKS. IT IS NOT A CASE THAT THE ASSESSEES HAVE FAILED TO MAINTAIN THE BOOKS OF ACCOUNT FOR TH E IMPUGNED BUSINESS ACTIVITIES. SINCE THEY HAD PLANNED EARLIER TO EXEC UTE THE WORKS THROUGH THE PARTNERSHIP FIRMS, THE BOOKS OF ACCOUNT WERE MAINTA INED BY THE RESPECTIVE PARTNERSHIP FIRM. AT THAT TIME, THESE ASSESSEES CO ULD NOT HAVE VISUALIZED THE SEARCH AND ALSO CONSEQUENT ADMISSION OF ALL INC OME BY DISREGARDING THE PARTNERSHIP FIRMS. AS STATED EARLIER, ONLY DURING THE COURSE OF SEARCH, THESE ASSESSEES CAME FORWARD TO OFFER ENTIRE INCOME IN TH EIR RESPECTIVE HANDS BY DISREGARDING THE PARTNERSHIP FIRMS. THUS EFFECTIVE LY THE ASSESSMENT OF INCOME DERIVED FROM CONTRACT WORKS HAS BEEN SHIFTED FROM THE HANDS OF PARTNERSHIP FIRMS TO THE HANDS OF ASSESSEES HEREIN. THE SAID PARTNERSHIP FIRMS HAVE MAINTAINED THE BOOKS OF ACCOUNT. 7. SEC. 44AA OF THE ACT ALSO STATES THAT THE AS SESSEES SHOULD KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS MAY ENABLE THE ASSESSING OFFICER TO COMPUTE THE TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. AS ALREADY STATED, THERE IS NO FINDING FROM THE ASSESSING OFFICER THAT HE WAS UNABLE TO COMPUTE THE TOTAL INCOME IN THE HANDS OF THE ASSESSEES. IN THE CASE LAW RELIED UPON BY THE ASSESSEE, IT HAS BEEN HELD THAT THE PENALTY UNDER SECTION 271A IS NO T LEVIABLE IF THE ASSESSING OFFICER IS ABLE TO COMPUTE THE TOTAL INCO ME FROM THE RECORD MAINTAINED BY THE ASSESSEE. ACCORDINGLY IT CANNOT BE SAID THAT THERE WAS VIOLATION OF PROVISIONS OF SEC.44AA OF THE ACT BY T HESE ASSESSEES IN ALL THE YEARS UNDER CONSIDERATION. 8. IN VIEW OF THE FOREGOING DISCUSSIONS, IN OUR CONSIDERED VIEW, THE PENALTY UNDER SECTION 271A OF THE ACT IS NOT LEVIAB LE IN THE HANDS OF THE ITA NOS 110O 116 OF2011 KV RAM KUMAR AND 124 TO 1 30 OF KV RAMA KRISHNA RAO RAJAHMUNDRY PAGE 5 OF 5 ASSESSEES FOR THE YEARS UNDER CONSIDERATION. ACCOR DINGLY, WE REVERSE THE ORDERS OF LEARNED CIT(A) AND DIRECT THE ASSESSING O FFICER TO DELETE THE IMPUGNED PENALTY LEVIED IN ALL THE YEARS UNDER CONS IDERATION. 9. IN THE RESULT, THE APPEALS FILED BY THE ASSES SEES ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH MY, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:24-05-2011 COPY TO 1 SHRI K.V. RAM KUMAR, 6-12-18 MAIN ROAD, NARASAPUR AM, W.G. DISTT. 2 SHRI K.S.V. RAMA KRISHNA RAO, 6-12-18 MAIN ROAD, NARASAPURAM, WEST GODAVARI 2 THE ACIT, CENTRAL CIRCLE, RAJAHMUNDRY 3 4. THE CIT CENTRAL, HYDERABAD THE CIT(A),RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM