DCIT, Nizamabad V. M/s Srinivasa Laxmi Constructions, Adilabad

ITA 1347/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9937 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 25-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: PRAMOD AVADHANI
• Keywords: Depreciation
• Section: 44AD; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.1347/H/2010 ASSESSMENT YEAR 2007-08 THE DCIT, CIRCLE-I, NIZAMABAD VS M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD (PAN AAGFS 3278 N) (APPELLANT) (RESPONDENT) CO.NO.98/H/2010 ARISING OUT OF ITA NO.1347/H/2010 ASSESSMENT YEAR 2007-08 M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD (PAN AAGFS 3278 N) VS THE DCIT, CIRCLE-I, NIZAMABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.V.N. CHARYA, DR RESPONDENT BY : SHRI PRAMOD AVADHANI O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THE APPEAL PREFERRED BY THE REVENUE IN ITA NO.134 7/H/2010 AND THE CROSS OBJECTION PREFERRED BY THE ASSESSEE I N CO.NO.98/H/2010 ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) VI, DATED 26.8.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED IN BOTH LAW AND FACTS 2. THE CIT(A) ERRED REDUCING THE ESTIMATION OF GRO SS RECEIPTS TO 6% WHILE IN SIMILAR NATURE OF WORK CARRIED OUT BY M/S TEJA CONSTRUCTIONS, THE ESTIMATION ON GROSS RECEIPTS @ 10% WAS CONFIRME D. 3. THE CIT(A) ERRED IN APPRECIATING THE DECISION O F HONBLE AP HIGH COURT IN THE CASE OF M/S INDWELL CONSTRUCTIONS (232 ITR 776) IN FOLLOWING THE PRINCIPLE THAT NO APPLICATION OF SECT ION 30 TO 44D WHEN BOOKS ARE REJECTED. ITA NO.1347/H/2010 & CO.98/H/2010 M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD 2 2 3. THE CO FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE CIT(A). 4. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSE E IS A CONSTRUCTION COMPANY LOCATED AT MANCHERIAL, ADILABAD DISTRICT, A P IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS. THE ASSESSEE FIRM FIL ED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 DECLARING A TOTAL INCOM E OF RS.55,64,210/-. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME OF THE ASSESSEE AT 10% OF THE CONTRACT RECEI PT ON THE GROUND THAT THE DETAILS OF EXPENSES INCURRED BY THE ASSESSEE AT EACH SITE WERE NOT FURNISHED, THE LABOUR PAYMENT MADE TO DIFFERENT PER SONS WERE SELF-MADE VOUCHERS GIVING NO PARTICULARS ETC. ON APPEAL, TH E CIT(A) DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE INCOME AT 6% ON G ROSS RECEIPTS INSTEAD OF 10% MADE BY THE ASSESSING OFFICER. FURTHER, THE CIT(A) HAS GIVEN A DIRECTION TO THE ASSESSING OFFICER TO ESTIMATE THE INCOME ON HIRE CHARGES AT 3% ON THE REASON THAT THE HIRE CHARGES HAD BEEN CRE DITED TO THE PROFIT & LOSS ACCOUNT SEPARATELY AS THIS HAS NOT CONSIDERED BY THE ASSESSING OFFICER SEPARATELY. FURTHER, HE HAS GIVEN DIRECTION THAT T HE INCOME SO DETERMINED IS THE NET OF DEPRECIATION, REMUNERATION ETC. AGAI NST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEES BO OKS OF ACCOUNT ARE NOT RELIABLE. VARIOUS DISCREPANCIES HAVE BEEN FOUND IN THE BOOKS OF ACCOUNT AND IT WAS OBSERVED THAT THE PAKKA BILLS/CORRECT VO UCHERS ARE NOT AVAILABLE AND CERTAIN EXPENDITURES WERE SUPPORTED ONLY BY SEL F MADE VOUCHERS LIKE LABOUR PAYMENTS, SPARE PARTS, REPAIRS AND MAINTENAN CE, BOULDER AND METALS ETC. SOME OF THE VOUCHERS DO NOT CONTAIN PR OPER ADDRESS OF THE PAYEE. HENCE THE BOOKS OF ACCOUNT TO BE REJECTED A S BOOK RESULT WILL NOT ITA NO.1347/H/2010 & CO.98/H/2010 M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD 3 3 REFLECT THE CORRECT PROFIT OF THE ASSESSEE. THEREF ORE, THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT. AFTER R EJECTING THE BOOKS OF ACCOUNT, REASONABLE ESTIMATION OF INCOME TO BE DONE . THE PROFIT RATIO CANNOT BE A CONSTANT FACTOR FOR EACH CONTRACTOR IN THIS LINE OF ACTIVITY; IT DEPENDS UPON THE PLACE OF EXECUTION OF THE WORK, AV AILABILITY OF RAW MATERIAL, LABOUR AND ASSESSEES OWN FUNDS. THEREFO RE FOR THE PURPOSE OF ESTIMATING THE PROFIT, THE LOWER AUTHORITIES MAY TA KE INTO CONSIDERATION THE PROFIT RATIO OF SIMILAR CASES IN THE SAME LOCALITY AND VARIOUS OTHER FACTORS WHICH ARE BEARING ON THE PROFIT EARNING CAPACITY OF THE ASSESSEE. THE ASSESSING AUTHORITY SHALL KEEP THE FACTUAL SITUATIO N IN MIND AND HAS TO BE DETERMINED THE PROFIT OF THE ASSESSEE. IN OUR OPIN ION, THE ESTIMATION OF INCOME IN THE PRESENT CIRCUMSTANCES AT 10% IS VERY HIGH AND AT THE SAME TIME THE ESTIMATION OF INCOME AT 6% BY CIT(A) IS VE RY LOW. THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF M/S ARIHANT B UILDERS (P) LIMITED VS. ACIT (291 ITR 41) (AT) (SB) CONSIDERED SIMILAR FAC TS AND CIRCUMSTANCES OF THE CASE AND AFTER TAKING CLUE FROM PROVISIONS OF S ECTION 44AD, THOUGH IT IS NOT APPLICABLE, HELD THAT THE ESTIMATION OF INCOME AT 8% OF THE TURNOVER IS REASONABLE. IN OUR OPINION, IN THIS CASE, ESTIMATI ON AT 8% IS VERY REASONABLE BECAUSE THE TRIBUNAL ESTIMATED THE INCOM E RANGING FROM 8% TO 12.5 % DEPENDING UPON THE FACTS OF THE SITUATION. BEING SO, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME AT 8% OF T HE GROSS CONTRACT RECEIPT. THE SAME IS APPLICABLE IN RESPECT OF HIRE CHARGES A LSO. 6. NOW COMING TO DEPRECIATION, WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 44AD OF THE ACT. NO DOUBT TH IS PROVISION IS APPLICABLE FOR THOSE CASES WHERE THE TURNOVER/TOTAL CONTRACT R ECEIPT DOES NOT EXCEED RS.40 LAKHS. HOWEVER, BY FINANCE (NO.2) ACT 2009 W .E.F. 1.4.2011 THE LEGISLATURE REMOVED THE RESTRICTION OF THE TOTAL CO NTRACT RECEIPTS OF RS.40 LAKHS. BY TAKING A CLUE FROM THE PROVISION OF SECT ION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISIONS WHICH ARE ITA NO.1347/H/2010 & CO.98/H/2010 M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD 4 4 APPLICABLE W.E.F. 1.4.2011, WE FIND THAT THE DEDUCT ION AVAILABLE U/SS 30 TO 38 SHALL BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED. D EPRECIATION IS ALLOWABLE U/S 32 OF THE IT ACT. THEREFORE, AS PROVIDED IN SE CTION 44AD NO FURTHER/SEPARATE DEDUCTION SHALL BE ALLOWED. IN VI EW OF THE ABOVE, IN OUR OPINION, THE CLAIM OF DEPRECIATION ON THE ESTIMATED INCOME IS NOT JUSTIFIED. 7. NOW COMING TO THE PAYMENT OF SALARY TO THE PA RTNER, PROVISO TO SECTION 44AD(2) CLEARLY SAYS THAT SALARY AND INT EREST PAID TO THE PARTNER SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SU B SECTION (1) OF S.44AD SUBJECT TO LIMITATION U/S 40(B) OF THE ACT. AS WE HAVE ALREADY OBSERVED THOUGH THERE WERE RESTRICTIONS WITH REGARD TO APPLICATION OF S.44AD WHEREVER THE TOTAL CONTRACT RECEIPTS EXCEED RS.40 LAKHS, W.E.F. 1.4.2011 SUCH RESTRICTION WAS REMOVED BY THE LEGISL ATURE. MOREOVER, THE CO-ORDINATE BENCH OF THIS TRIBUNAL VIDE ORDER DATED 19.10.2007 IN THE CASE M. BHASKAR REDDY VS. ITO IN ITA NO.168/H/2006 HELD THAT AFTER TAKING A CLUE FROM SECTION 44AD ESTIMATED THE PROFI T AT 8% OF THE CONTRACT RECEIPT. THEREFORE, BY TAKING CLUE FROM THE PROVIS ION OF S.44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION AND THE PROVISIONS WHICH WOULD COME INTO OPERATION W.E.F. 1.4.2011, 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 FR OM THE ESTIMATED INCOME. 8. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTION VS. CIT (1998) (237 ITR 776). THE ASSESSMENT YEAR UNDER CO NSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT WAS ASSESSMENT YEAR 1981- 82. SEC. 44AD WAS INTRODUCED IN THE STATUTE BOOK W.E.F. 1.4.1994. TH EREFORE, THE JURISDICTIONAL HIGH COURT HAD NO OCCASION TO CONSID ER THE PROVISIONS OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER ITA NO.1347/H/2010 & CO.98/H/2010 M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD 5 5 CONSIDERATION AND AS IT WOULD BE APPLICABLE W.E.F. 1.4.2011. IN VIEW OF THE PROVISION OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE AMENDMENT MADE W.E.F. 1.4.201 1 IT IS OBVIOUS THAT THE LEGISLATURE INTENDED TO ALLOW THE INTEREST AND SALARY SEPARATELY FROM THE ESTIMATED INCOME. THEREFORE, THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE IN THIS CASE. ACCORDINGL Y, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SALARY PAID TO THE P ARTNER SUBJECT TO THE LIMITATION PROVIDED IN SECTION 40(B) OF THE ACT. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IN IT A NO.1347/H/2010 IS PARTLY ALLOWED AND THE CROSS OBJE CTION OF THE ASSESSEE IN CO NO.98/H/2010 STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 21.1.201 1 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 21 ST JANUARY, 2011 COPY FORWARDED TO: 1. THE DCIT, CIRCLE 1, NIZAMABAD 2. M/S SRINIVASA LAXMI CONSTRUCTIONS H.NO.18-456/1 , INANI COLONY, MANCHERIAL, ADILABAD DISTRICT. 3. CIT(A)-VI, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP ITA NO.1347/H/2010 & CO.98/H/2010 M/S SRINIVASA LAXMI CONSTRUCTIONS, ADILABAD 6 6