Seven Hills Enterprises, Hyd., Hyderabad V. ITO, Ward-6(4), Hyd, Hyderabad

ITA 1289/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6309 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: M S R PRASAD
• Keywords: Depreciation
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.1289/HYD/2015 ASSESSMENT YEAR 2010-2011 SEVEN HILLS ENTERPRISES, HYDERABAD 024 PAN ABNFS1000Q VS., THE INCOME TAX OFFICER, WARD-6(4) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. M.S.R. PRASAD FOR REVENUE : MR. B. KURMI NAIDU DATE OF HEARING : 14.06.2016 DATE OF PRONOUNCEMENT : 20 .07.2016 ORDER PER D. MANMOHAN, V.P. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A)-IV, HYDERABAD AND IT PERTAINS TO THE A.Y. 2010-2011. 2. THE ASSESSEE FIRM IS CARRYING ON WORKS CONTRACT . APART FROM THE FACT THAT IT DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT, MOST OF THE PAYMENTS WERE MADE BY WAY OF C ASH VOUCHERS PARTICULARLY WITH REGARD TO EXPENSES. IN R ESPECT OF REPAIRS AND MAINTENANCE, SPARES CONSUMED, TYRES RE- TREADING EXPENSES, EXCEPT SELF-MADE VOUCHERS THE ASSESSEE CO ULD NOT FURNISH ANY EVIDENCE TO PROVE THE CORRECTNESS OF TH E EXPENDITURE. THE A.O. THEREFORE, REJECTED THE BOOKS OF ACCOUNT A ND ESTIMATED THE GROSS PROFIT AT 8% ON THE GROSS RECEIPTS CLEAR OF ALL 2 ITA.NO.1289/HYD/2015 SEVEN HILLS ENTERPRISES, HYDERABAD. DEDUCTIONS ALLOWABLE TO THE ASSESSEE. THE NET INCOM E ESTIMATED AT 8% OF THE GROSS RECEIPTS OF RS.7.06 CRORES WORKS OUT TO RS.56,51,263. IN ADDITION TO THAT THE A.O. HAS ALSO DISALLOWED A SUM OF RS.89,760 TOWARDS INADMISSIBLE EXPENDITURE. HE THUS DETERMINED THE TOTAL INCOME AT RS.57,47,023. ON AN APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE A.O. BY OBSERVIN G THAT IN THE ABSENCE OF PROPER VOUCHERS TO PROVE THE GENUINENESS OF THE EXPENDITURE, THE A.O. HAS NO OTHER ALTERNATIVE EXCE PT TO ESTIMATE THE INCOME. FURTHER AGGRIEVED, THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 3. THE LD. COUNSEL FOR THE ASSESSEE FILED CERTAIN FRESH MATERIAL BEFORE US WITH A REQUEST TO ADMIT THE SAME BY FILING A PETITION UNDER RULE 29 OF THE APPELLATE TRIBUNAL RU LES. HE HAS SUBMITTED THAT FOR THE ASSESSMENT YEAR UNDER CONSID ERATION I.E., A.Y. 2010-2011 THE ASSESSEE DECLARED GROSS PROFIT O F 22.36% BY OFFERING AN INCOME OF RS.1,57,94,551 BUT UPON CLAIM ING STATUTORY DEDUCTIONS SUCH AS DEPRECIATION, REMUNERA TION TO PARTNERS AND INTEREST TO PARTNERS, THE PERCENTAGE N ET PROFIT WORKED OUT TO 7.07%. SIMILARLY, FOR THE A.Y. 2011-2 012 I.E., IMMEDIATELY SUCCEEDING YEAR THE NET PROFIT RATE WOR KED OUT TO 8.38% WHEREAS THE GROSS PROFIT WORKED OUT TO 19.63% . RIGHT FROM THE A.YS. 2009-2010 TO 2014-2015 THE PERCENTAG E OF DECLARED INCOME, BEFORE CLAIMING STATUTORY DEDUCTIO NS WAS BETWEEN 9.58% TO 22.36%. HE POINTED OUT THAT IN THE A.Y. 2009- 2010 THE NET PROFIT RESULTED IN MINUS FIGURE OF - 2% AND FOR THE A.YS. 2012-2013 TO 2014-2015 THE NET PROFIT WORKED OUT TO 5.90%, 2.85% AND 3.23% RESPECTIVELY AFTER ALLOWING THE STATUTORY DEDUCTIONS SUCH AS DEPRECIATION, REMUNERA TION TO PARTNERS ETC. HE RELIED UPON THE DECISION OF THE I TAT, HYDERABAD 3 ITA.NO.1289/HYD/2015 SEVEN HILLS ENTERPRISES, HYDERABAD. BENCH IN THE CASE OF M/S. ADARSH CONSTRUCTIONS (ITA.NO.164/H/2013) TO CONTEND THAT THOUGH THE HON BLE A.P. HIGH COURT, IN THE CASE OF INDWELL CONSTRUCTIONS LI MITED 232 ITR 776 OBSERVED THAT ONCE THE BOOKS OF ACCOUNT ARE REJ ECTED AND PROFIT ESTIMATED, THE ENTIRE EXPENDITURE SHOULD BE DEEMED TO HAVE BEEN ALLOWED AND THERE IS NO NEED FOR ALLOWING DEPRECIATION, INTEREST AND SALARY TO PARTNERS BUT THE SAID DECISI ON PERTAINS TO THE A.Y. 1981-1982 WHEREAS THERE WAS AN AMENDMENT T O THE PROVISIONS W.E.F. 01.04.1993 WHEREBY ALL FIRMS ARE UNIFORMLY ASSESSABLE TO TAX, PROFIT DERIVED FROM THE PARTNERS HIP FIRM IS EXEMPT IN THE ASSESSMENT OF THE PARTNERS AS THE SAM E IS BEING TAXED AT NORMAL RATES IN THE ASSESSMENT OF PARTNERS HIP FIRM ITSELF AND ONLY SALARY OR INTEREST PAID TO PARTNERS IS SUB JECT TO TAX IN THE ASSESSMENT OF THE PARTNERS AS THE SAME IS EXCLU DED FROM THE ASSESSMENT OF THE PARTNERSHIP FIRM; EVEN AS PER PRO VISIONS OF SECTION 40(B) INTEREST PAID TO PARTNERS AND REMUNER ATION ALLOWABLE AS DEDUCTION. APART FROM THE FACT THAT TH E DECISION OF THE HONBLE HIGH COURT WAS RENDERED PRIOR TO 01.04. 1993, SECTION 44AD WAS ALSO INTRODUCED IN THE STATUTE BOO K W.E.F. 01.04.1994 WHICH ALSO PERMITS ALLOWANCE OF INTEREST AND SALARIES SEPARATELY FROM THE ESTIMATED INCOME AND THIS REASO NING WAS APPLIED BY THE ITAT IN THE CASE OF M/S. ADARSH CONS TRUCTIONS TO HOLD THAT EVEN IN THE CASE OF ESTIMATION OF INCOME STATUTORY DEDUCTIONS HAVE TO BE SEPARATELY ALLOWED. 4. ON THE OTHER HAND, THE LD. D.R., APPEARING ON B EHALF OF THE REVENUE, SUBMITTED THAT THE ASSESSEE ADMITTE DLY DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT AND THEREFORE, A.O . WAS JUSTIFIED IN HOLDING THAT THE BOOK RESULTS DESERVE TO BE REJECTED. WHILE ESTIMATING THE INCOME IT IS FOR THE ASSESSEE TO SHOW THAT 4 ITA.NO.1289/HYD/2015 SEVEN HILLS ENTERPRISES, HYDERABAD. HE WISHES TO CLAIM STATUTORY DEDUCTIONS SEPARATELY WHEREAS NO SUCH CLAIM WAS MADE EITHER BEFORE THE A.O. OR THE C IT(A) AND HE HAS AGREED TO ESTIMATE THE NET INCOME, CLEAR OF ALL DEDUCTIONS AND ONLY UNDER THOSE PECULIAR CIRCUMSTANCES, THE A. O. PROCEEDED TO ESTIMATE THE INCOME AT 8%. HE ALSO SUB MITTED THAT EVEN AS PER THE ASSESSEES COMPARATIVE STATEMENT FO R THE A.YS. 2009-2010 TO 2014-2015 THE GROSS PROFIT, BEFORE ALL OWING STATUTORY DEDUCTIONS, WORKED OUT TO 22.3% IN THE YE AR UNDER CONSIDERATION AND IN NONE OF THE YEARS, WHICH WERE REFLECTED IN THE COMPARATIVE STATEMENT, THE GROSS PROFIT WAS 8%, AS HAS BEEN ESTIMATED IN THIS YEAR. THUS THE ONLY INFERENCE THA T CAN BE DRAWN IS THAT THE A.O. HAS SOUGHT TO ESTIMATE THE I NCOME AT 8% MAINLY BECAUSE DEPRECIATION, REMUNERATION TO PARTNE RS ETC., ARE TAKEN INTO CONSIDERATION WHILE ESTIMATING THE INCOM E. IF STATUTORY DEDUCTIONS HAVE TO BE SEPARATELY ALLOWED, AS HAS BEEN CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THEN THE SAME COULD HAVE BEEN PUT-FORTH BEFORE THE A.O. WHO COULD HAVE REASONABLY ESTIMATED THE GROSS INCOME BUT THAT WAS NOT THE CASE HERE, AND IF THE PLEA OF THE ASSESSEE HAS TO BE ACC EPTED, THE A.O. SHOULD BE GIVEN ONE MORE OPPORTUNITY TO REASONABLY ESTIMATE THE INCOME ON THE FACTS OF THE CASE. HE THUS SUPPORTED THE ORDERS PASSED BY THE TAX AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER THE DIRECTIO NS OF THE BENCH THE ASSESSEE HAS FILED A COMPARATIVE STATEMEN T OF PROFITABILITY FOR A.YS. 2009-2010 TO 2014-2015 WHIC H WERE NOT ON RECORD BEFORE THE TAX AUTHORITIES. IN THE INTERE ST OF SUBSTANTIAL JUSTICE, WE TAKE THE FRESH PAPER BOOK ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. D.R. THE A.O. HAS PROCEEDED TO ESTIMATE THE 5 ITA.NO.1289/HYD/2015 SEVEN HILLS ENTERPRISES, HYDERABAD. INCOME UPON REJECTION OF THE BOOK RESULTS, MAINLY O N THE ASSUMPTION THAT NET INCOME ESTIMATED WOULD TAKE CAR E OF DEPRECIATION, REMUNERATION TO PARTNERS AND INTEREST TO PARTNERS. HOWEVER, SINCE THE PLEA OF THE ASSESSEE IS THAT NET INCOME CANNOT BE ESTIMATED AND STATUTORY DEDUCTIONS HAVE T O BE SEPARATELY ALLOWED, EVEN FROM OUT OF THE NET INCOME , IN THE LIGHT OF FRESH FACTS PLACED BEFORE THE BENCH, THE A.O. SH OULD BE GIVEN ONE MORE OPPORTUNITY TO RE-CONSIDER THE SAME ON MER ITS. 6. IN OUR CONSIDERED OPINION, THE INTEREST OF SUBS TANTIAL JUSTICE WOULD BE FAIRLY MET IF THE ISSUE IS SET ASI DE TO THE FILE OF THE A.O. WHO SHOULD TAKE INTO CONSIDERATION THE NOR MAL GROSS PROFIT TAKEN AND ACCEPTED BY THE A.O. FROM YEAR TO YEAR, IN THE ASSESSEES CASE AND ESTIMATE A FAIR GROSS PROFIT, N ET OF OTHER DEDUCTIONS, AND THEREAFTER, ALLOW DEPRECIATION, REM UNERATION TO PARTNERS AND INTEREST TO PARTNERS SEPARATELY. SINCE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS BEFORE THE TAX AUTHO RITIES AND EVEN THE SUBSEQUENT YEARS DETAILS WERE FURNISHED F OR THE FIRST TIME BEFORE THIS BENCH, WE DEEM IT FIT AND PROPER T O RESTORE THE MATTER TO THE FILE OF THE A.O, AS OBSERVED HEREINAB OVE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20.07.2016. SD/- SD/- (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD DATED 20 TH JULY, 2016 VBP/- 6 ITA.NO.1289/HYD/2015 SEVEN HILLS ENTERPRISES, HYDERABAD. COPY TO 1. SEVEN HILLS ENTERPRISES, D.NO.305A, ROAD NO.12, MLAS COLONY, BANJARA HILLS, HYDERABAD 500 024. 2. THE INCOME TAX OFFICER, WARD - 6(4), HYDERABAD. 3. CIT(A) - 4, 3 RD FLOOR, ANNEXE, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 4. PR. CIT - 6, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE