B. Ramachandraiah & Sons, Hyderabad V. ADDL.CIT, Range-11, Hyderabad

ITA 1327/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66186 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 15-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K VISWANATHAM
• Keywords: Depreciation; Difference of opinion; Change of opinion
• Section: 44AD; 143(3); 32; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 907/HYD/2011 ASSESSMENT YEAR: 2002-03 ASSTT. DIRECTOR OF INCOME-TAX,, ... APPE LLANT CIRCLE 10(1), HYDERABAD VS. M/S RAMACHANDRAIAH AND SONS, RESPONDENT SECUNDERABAD ITA NO. 1327/HYD/2011 ASSESSMENT YEAR: 2002-03 M/S RAMACHANDRAIAH AND SONS, APPELLANT SECUNDERABAD VS. ASSTT. DIRECTOR OF INCOME-TAX,, ... RESPONDENT CIRCLE 10(1), HYDERABAD REVENUE BY : SHRI K. VISWANATHAM ASSESSEE BY : SHRI A. SRINIVAS DATE OF HEARING : 10/07/2012 DATE OF PRONOUNCEMENT : 31/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF CIT(A)-VI, HYDERABAD DATED 28/02/2011 FOR THE ASSES SMENT YEAR 2002-03. ITA NOS. 907 & 1327/HYD/11 M/S RAMACHANDRAIAH & SONS 2 ITA NO. 907/HYD/2011 REVENUES APPEAL 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE CIT(A) ERRED IN BOTH LAW AND FACTS. 2. THE CIT(A) ERRED IN DIRECTING THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE AT 8% OF GROSS CONTRACT RECE IPTS IN RESPECT OF CONTRACTS EXECUTED BY THE ASSESSEE FIRM AS AGAINST 10% ASSESSED BY THE AO AS IT IS AGAINST THE DECISION OF ITAT, HYDERABAD IN THE CASE OF SSVY CONSTRUCTION S FOR AY 2006-07 WHERE IT WAS DIRECTED TO ADOPT AT 9% OF GRO SS CONTRACT RECEIPTS AS ESTIMATED INCOME OF THE ASSESS EE. 3. THE CIT(A) IS ERRED IN DIRECTING THE AO TO ALLOW DEPRECIATION AND INTEREST ON CAPITAL OF THE PARTNER S OUT OF ESTIMATED INCOME AS IT WAS DECIDED BY THE HONBLE A P HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT, 232 ITR 776 THAT WHEN INCOME IS ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT, ALL THE EXPENDITURE COVERED BY THE PROVISI ONS OF SECTION 30 TO SECTION 43D ARE DEEMED TO HAVE BEEN ALLOWED. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT IN THIS C ASE THE ASSESSMENT WAS ORIGINALLY COMPLETED ON 25/02/2005 A CCEPTING THE TOTAL INCOME AS RETURNED BY THE ASSESSEE AT RS. 21,48,430/-. THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S 1 48 OF THE ACT ON 06/03/2007, ON THE GROUND THAT THE INCOME HA D ESCAPED ASSESSMENT TO THE EFFECT THAT THERE WAS DIFFERENCE BETWEEN THE GROSS RECEIPTS SHOWN IN THE P&L ACCOUNT AND AS PER TDS CERTIFICATES, TO THE TUNE OF RS. 1,37,75,951/-. IN RESPONSE, THE ASSESSEE STATED VIDE HIS LETTER DATED 01/10/2007, T HAT THE RETURN OF INCOME FILED ON 03/10/2002 MAY BE TAKEN AS RETUR N FILED IN COMPLIANCE TO NOTICE ISSUED U/S 148 OF THE ACT. 4. IN RESPONSE TO NOTICES ISSUED U/S 143(2) AND 142 (1), THE AR OF THE ASSESSEE APPEARED ON 07/12/2007 AND PRODUCED BOOKS OF ACCOUNT, BUT EXPRESSES HIS INABILITY TO PRODUCE VOU CHERS STATING ITA NOS. 907 & 1327/HYD/11 M/S RAMACHANDRAIAH & SONS 3 THAT THEY WERE NOT AVAILABLE. HE ALSO STATED THAT T HE VOUCHERS WERE ALREADY SUBMITTED AT THE TIME OF ORIGINAL ASSE SSMENT. THE ASSESSEE WAS ASKED BY THE AO VIDE LETTER DATED 12/1 2/2007 TO FURNISH OBJECTIONS, IF ANY, FOR ESTIMATING THE INCO ME AT 10% OF THE GROSS RECEIPTS OF RS. 4,27,48,985/-, CLEAR OF D EPRECIATION AND INTEREST ON PARTNERS CAPITAL ON THAT THE GROUND TH AT HE IS NOT ABLE PRODUCE THE VOUCHERS FOR VERIFICATION, THE AR OF TH E ASSESSEE FILED A LETTER ON 19/12/2007 STATING THAT THERE WAS NO DI SCREPANCY BETWEEN THE GROSS PROFIT SHOWN BY THE TDS CERTIFICA TES AND THE GROSS RECEIPTS AS SHOWN IN THE P&L A/C, EXCEPTING T HAT CONTRACTS WHICH WERE SUB-LEASED ON WHICH THEY GOT COMMISSION. IN RESPECT OF PRODUCTION OF VOUCHERS, THE ASSESSEE REITERATED THAT ALL THE VOUCHERS WERE PRODUCED BEFORE THE AO, WHO COMPLETED ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT. THE SAID EXPLANAT ION WAS NOT FOUND ACCEPTABLE BY THE AO AND HE HELD THAT SINCE T HE ASSESSEE HAD FAILED TO FURNISH THE REQUIRED EVIDENCE, THE BO OKS OF ACCOUNT WERE REJECTED AND ESTIMATED THE INCOME AT 10% OF TH E GROSS INCOME NET OF DEPRECIATION AND INTEREST ON PARTNER S CAPITAL. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A), THE AR OF THE ASSESSEE REITER ATED THE SUBMISSIONS AS MADE BEFORE THE AO THAT THE ORIGINAL ASSESSMENT WAS COMPLETED BASING ON THE PRODUCTION OF BOOKS OF ACCOUNT AND VOUCHERS TO THE THEN AO, THEREFORE THE ASSESSEE WAS NOT IN A POSITION TO SUBMIT THE SAME ONCE AGAIN. THE AR OF T HE ASSESSEE PLEADED THAT REJECTING THE BOOKS OF ACCOUNTS AND ES TIMATING THE INCOME AT 10% WHEN THE EARLIER AO AFTER VERIFYING T HE BOOKS OF ACCOUNT ETC HAD ACCEPTED THE INCOME AND THAT NO DIS CREPANCY TOWARDS MAINTENANCE OF THE SAME NOTED IN THE ASSESS MENT ORDER, WOULD TANTAMOUNT TO CHANGE OF OPINION BY THE PRESEN T AO. ITA NOS. 907 & 1327/HYD/11 M/S RAMACHANDRAIAH & SONS 4 7. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) DECLINED TO ACCEPT THE ESTIMATION OF INCOME @ 10% BY THE AO REJECTING THE BOOKS OF ACCOUNT. HE, HOWEVER, HEL D THAT SINCE THE ASSESSEE COULD NOT SUBSTANTIATE ITS BOOKS OF AC COUNT WITH BILLS AND VOUCHERS, IT WOULD MEET THE ENDS OF JUSTICE, IF THE INCOME OF THE ASSESSEE IS ESTIMATED AT 8% ALLOWING DEPRECIATI ON AND PARTNERS CAPITAL. THE CIT(A) DIRECTED THE AO ACCOR DINGLY. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL AGAINST THE ACTION OF THE CIT(A) IN DIRECTIN G THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE AT 8% OF GROSS RECEIPTS IN RESPECT OF THE CONTRACTS EXECUTED BY THE ASSESSEE F IRM AS AGAINST 10% ASSESSED BY THE AO AND THE ASSESSEE IS ALSO IN APPEAL AGAINST THE ACTION OF THE CIT(A) IN ESTIMATING THE INCOME AT 8% OF GROSS RECEIPTS. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE UNDER CON SIDERATION IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENC H IN THE CASE OF ITO VS. SSN CONSTRUCTIONS I ITA NO. 1708/HYD/201 1 FOR AY 2008-09 VIDE ORDER DATED 06/06/2012, WHERE THE JM W AS ONE OF THE PARTY. THE RELEVANT FINDINGS OF THE COORDINATE BENCH IN THE SAID CASE ARE EXTRACTED BELOW: 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF M/S ARIHANT BUILDERS (P) LI MITED VS. ACIT (291 ITR 41) (AT) (SB) CONSIDERED UNDER SIMILA R FACTS AND CIRCUMSTANCES OF THE CASE AND AFTER TAKING CLUE FROM PROVISIONS OF SECTION 44AD, THOUGH IT IS NOT APPLIC ABLE, HELD THAT THE ESTIMATION OF INCOME AT 8% OF THE TURNOVER IS REASONABLE. IN OUR OPINION, IN THIS CASE, ESTIMATIO N AT 8% IS VERY REASONABLE BECAUSE THE TRIBUNAL ESTIMATED THE INCOME ITA NOS. 907 & 1327/HYD/11 M/S RAMACHANDRAIAH & SONS 5 RANGING FROM 8% TO 12.5 % DEPENDING UPON THE FACTS OF THE SITUATION. THEREFORE, THE ORDER OF THE CIT(A) IS HE REBY UPHELD AND THE INCOME SHALL BE ESTIMATED AT 8% OF T HE GROSS CONTRACT RECEIPTS. 10. 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. HENCE WITH RESPECT TO D EPRECIATION, THE GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOW ED. 11. WITH RESPECT TO INTEREST ON CAPITAL OF PARTNERS OUT OF ESTIMATED INCOME, WE FIND THAT THE ISSUE IS COVERED BY THE DE CISION JURISDICTIONAL COORDINATE BENCH IN THE CASE OF M/S C. EASWAR REDDY IN ITA NO. 668/HYD/2009 AND ITA NO. 670/HYD/09, WHEREIN THE CO ORDINATE BENCH HELD AS FOLLOWS:- 14. NOW COMING TO THE PAYMENT OF INTEREST AND SALAR Y TO THE PARTNER. PROVISO TO SECTION 44AD(2) CLEARLY SAYS TH AT SALARY AND INTEREST PAID TO THE PARTNER SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB-SECTION(1) OF SECTION 44AD SUBJE CT TO LIMITATION U/S 40(B) OF THE ACT. AS WE HAVE ALREADY OBSERVED, THOUGH THERE WERE RESTRICTIONS WITH REGARD TO APPLI CATION OF SECTION 44AD WHEREVER THE TOTAL CONTRACT RECEIPTS E XCEED RS. 40 LAKHS, WITH EFFECT FROM 01/04/2011 SUCH RESTRICTION WAS REMOVED BY THE LEGISLATURE. MOREOVER, THE COORDINATE BENCH OF THIS TRIBUNAL IN M. BHASKAR REDDY VS. ITO, ITA NO. 168/H YD/06 DATED 10/10/2007 AFTER TAKING A CLUE FROM SECTION 44AD ES TIMATED THE PROFIT AT 8% OF THE CONTRACT RECEIPT. THEREFORE, BY TAKING A CLUE FROM THE PROVISION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISI ONS WHICH WOULD COME INTO OPERATION WITH EFFECT FROM 01/04/20 11, IN OUR OPINION, THE PAYMENT OF INTEREST AND SALARY TO THE PARTNER SHALL BE ALLOWED SUBJECT TO LIMITATION SPECIFIED IN SECTION 40(B) OF THE ACT FROM ESTIMATED INCOME. 12. RESPECTFULLY FOLLOWING THE DECISION OF COORDINA TE BENCH IN THE CASE OF EASWAR REDDY (SUPRA), WE DISMISS THE REVENUES A PPEAL ON THIS ISSUE. ITA NOS. 907 & 1327/HYD/11 M/S RAMACHANDRAIAH & SONS 6 ITA NO. 1327/HYD/11 APPEAL BY THE ASSESSEE 13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. THE ORDER PASSED BY THE CIT(A) IS ERRONEOUS IN L AW AND ON FACTS OF THE CASE. 2. THE CIT(A) ERRED IN DETERMINING TOTAL INCOME AT 8% OF THE ENTIRE CONTRACT RECEIPTS INCLUDING CONTRACT RECEIPT S SUB- LEASED FOR COMMISSION EVEN WHEN THE AO HAD ACCEPTED THE RETURNED INCOME U/S 143(3) BY PURSUING ALL THE RECO RDS PRODUCED BY THE APPELLANT BEFORE HIM DURING THE COU RSE OF ORIGINAL ASSESSMENT PROCEEDINGS. 3. THE ADDITION SUSTAINED BY THE CIT(A) MAY KINDLY BE DELETED. 14. SINCE WE HAVE FOLLOWED THE SPECIAL BENCH DECISI ON OF THE ARIHANT BUILDERS(SUPRA) IN THE CASE OF SSN CONSTRUC TIONS (SUPRA) AND ESTIMATED THE INCOME AT 8% OF GROSS RECEIPTS, T HE ASSESSEES APPEAL ON THIS ISSUE IS DISMISSED. 15. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED AND THE APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2012. SD/- SD/- ( CHANDRA POOJARI) (ASHAVIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 31 ST AUGUST, 2012. KV ITA NOS. 907 & 1327/HYD/11 M/S RAMACHANDRAIAH & SONS 7 COPY TO:- 1) ACIT, CIRCLE 10(1), ROOM NO. 515, AC GUARDS, IT TOWERS, HYDERABAD. 2) M/S RAMACHANDRAIAH AND SONS, 1-8-120, TEMPLE ROAD, SECUNDERABAD. 3) THE CIT (A)-VI, HYDERABAD 4) CIT(A)-V, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.