DCIT, Circle-2(1), Tirupathi V. M/s Sree Balaji Constructions, Kadapa

ITA 1352/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1389 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANJANA SAHU
• Assessee Lawyers: S RAMA RAO
• Section: 44AD; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO .1352/HYD/12 ASST. YEAR 2009-10 DCIT, CIR-2(1), TIRUPATI. V/S. M/S. SREE BALAJI CONSTRUCTIONS, GANDHI NAGAR,KADAPA. PAN:AAZFS1463J (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ANJANA SAHU RESPONDENT BY : SRI S. RAMA RAO DATE OF HEARING 20-12-2012 DATE OF PRONOUNCEMENT 04-01-2013 . O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THE REVENUE HAS FILED THIS APPEAL BEING AGGRIEVED BY THE ORDER DATED 22-6-2012 PASSED BY THE CIT (A), GUNTUR PASSED IN ITA NO.0175/CIT(A)/GNT/11-12 PERTAINING TO THE ASSESSMENT Y EAR 2009- 10. 2. THE DEPARTMENT HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS BEFORE US:- 1. THE LEARNED CIT (A) ERRED IN FOLLOWING THE ORDE RS OF INCOME- TAX APPELLATE TRIBUNAL WHICH ARE NOT APPLICABLE TO THE FACTS OF THE CASE. 2. THE LEARNED CIT (A) ERRED IN DIRECTING THE ASSE SSING OFFICER TO ALLOW DEDUCTION TOWARDS INTEREST AND SA LARY PAID TO ITS PARTNERS FROM THE INCOME FROM THE BUSINESS OF C IVIL CONTRACTS ITA NO.1352 OF 2012 SREE BALAJI CONST RUCTIONS, KADAPA. 2 ESTIMATED ON RECEIPTS. THE LEARNED CIT (A) OUGHT T O HAVE FOLLOWED THE DECISION OF THE HONBLE AP HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS V/S. CIT 232 ITR 776 WHEREIN IT WAS HELD THAT NO DEDUCTIONS SPECIFIED IN SECTIONS 29 TO 40 OF THE IT ACT ARE TO BE ALLOWED AGAINST THE INCOME ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT U/S 145 OF THE IT ACT. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A PARTNERSHIP FIR M IS CARRYING ON BUSINESS IN EXECUTING CIVIL CONTRACT WORKS. DURING TH E FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSE E HAD RECEIVED FROM WORK EXECUTED AS A MAIN CONTRACTOR AS WELL AS A SUB- CONTRACTOR. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE A SSESSEE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.19,8 5,750. IN COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FO8UND THAT HUGE EXPENDITURE DEBITED TO THE PROFIT AND LOSS A/C COULD NOT BE SUBSTANTIATED WITH BILLS AND VOUCHERS. DUE UNVER IFIABLE NATURE OF EXPENDITURE CLAIMED, THE ASSESSING OFFICER REJECTED TH E BOOKS OF ACCOUNTS AND PROCEEDED TO ESTIMATE THE PROFIT. THE ASSESSIN G OFFICER ESTIMATED THE PROFIT FROM MAIN CONTRACT WORK AT 12.5% AND SO FAR AS SUB-CONTRACT WORK IS CONCERNED, THE ASSESSING OFFICER ESTIMATED THE PROFIT AT 8%. THE ASSESSING OFFICER RELYING UPON THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTR UCTION V/S. CIT (232 ITR 776) DID NOT ALLOW ANY FURTHER DEDUCTION FR OM INCOME SO ESTIMATED. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BY FILING AN APPEAL BEFORE THE CIT (A). IN COURSE OF HEARING BEFO RE THE CIT (A), THE ASSESSEE RELYING UPON THE DECISION OF THE INCOME-TAX APPEL LATE TRIBUNAL, HYDERABAD BENCH IN CASE OF M/S C. ESWARA REDDY AND COMPANY V/S. ACIT IN ITA 668-670/HYD/2009 DATED 31- 1-2011 CONTENDED THAT THE PROFIT IN CASE OF MAIN CONTRACT WOR K SHOULD BE ESTIMATED AT 8% AND IN CASE OF SUB-CONTRACT WORK, THE RA TE OF PROFIT ITA NO.1352 OF 2012 SREE BALAJI CONST RUCTIONS, KADAPA. 3 SHOULD BE 5%. THE ASSESSEE FURTHER CONTENDED THAT FROM T HE PROFITS SO ESTIMATED THE ASSESSEE IS ENTITLED TO AVAIL DEDUCTION TOW ARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IN TERMS WITH TH E ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH. THE CIT (A) FOLLOWING THE DECISION OF THE INCOME-TAX APPELLATE TR IBUNAL, HYDERABAD BENCH IN THE CASE OF M/S . C. ESWARA REDDY AND COMPANY ( SUPRA), DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE PROFIT FROM MAIN CONTRACT WORK AT THE RATE OF 8% AND SUBCONTRACT WORK AT THE RAT E OF 5%. THE CIT (A) FURTHER DIRECTED THE ASSESSING OFFICER TO ALLOW D EDUCTION TOWARDS INTEREST AND REMUNERATION PAYMENT TO THE PART NERS FROM THE PROFITS SO ESTIMATED. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CIT(A) SHOULD NOT HAVE REDUCED THE RATE OF PROFIT EST IMATED BY THE ASSESSING OFFICER SINCE IT WAS IN CONFORMITY WITH THE THIRD MEMBER DECISION OF INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BE NCH IN CASE OF M/S KRISHNA MOHAN CONSTRUCTION COMPANY. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT IN CASE OF DETER MINATION OF INCOME BY ESTIMATION BY REJECTING THE BOOKS OF ACCOUNTS, NO FURTHER STATUTORY DEDUCTION CAN BE ALLOWED FROM THE PROFITS SO E STIMATED IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF INDWELL CONSTRUCTIONS V/S. CIT (232 ITR 776). 5. THE LEARNED AR RELYING UPON THE DECISION OF THE I NCOME-TAX APPELLATE TRIBUNAL HYDERABAD BENCH IN THE CASE OF M/S C. ESWARA REDDY AND COMPANY (SUPRA) SUBMITTED THAT THE RATE OF PROFIT ADOPTED BY THE CIT (A) IS IN CONFORMITY WITH THE DECISION OF T HE INCOME-TAX APPELLATE TRIBUNAL . THE LEARNED AR RELYING UPON THE SAME DECISION OF INCOME-TAX APPELLATE TRIBUNAL FURTHER SUBMITTED THAT THE CIT (A) WAS ITA NO.1352 OF 2012 SREE BALAJI CONST RUCTIONS, KADAPA. 4 PERFECTLY JUSTIFIED IN ALLOWING DEDUCTION TOWARDS PAYM ENT AND INTEREST AND REMUNERATION TO THE PARTNERS. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. SO FAR AS THE FIRST ISSUE WITH REGARD TO THE R ATE OF PROFIT IN ESTIMATING THE INCOME OF THE ASSESSEE IS CONCERNED, THE CIT (A) AS WELL AS ASSESSING OFFICER ARE OF THE VIEW THAT INCOME IN THE CASE OF THE ASSESSEE HAD TO BE ESTIMATED DUE TO UNVERIFIABLE NATURE OF EXPENDITURE CLAIMED WHICH DOES NOT GIVE THE CORRECT BOOK RESULTS. THE ASSESSEE MORE OR LESS HAD ALSO ACCEPTED THE ESTIMATION OF PROFIT. HOWEVER, THE DISPUTE IS WITH REGARD TO THE RATE AT WHICH THE PROFI T IS TO BE ESTIMATED. WHILE THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT IN CA SE OF MAIN CONTRACT WORK AT 12.5% AND IN CASE OF SUB-CONTRACT WORK A T 8%, THE CIT (A) HAS REDUCED IT TO 8% AND 5% RESPECTIVELY. WE F IND THAT, IN A RECENT DECISION, THE INCOME-TAX APPELLATE TRIBUNAL, HYD ERABAD BENCH IN CASE OF ACIT V/S. M/S TEJA CONSTRUCTIONS (ITA NO.1191/HYD /2011 DATED 17-2-2012 DIRECTED TO ESTIMATE PROFIT IN THE CA SE OF DIFFERENT CATEGORIES OF CONTRACTS BY OBSERVING IN THE FOLLOWING MAN NER:- HOWEVER, THE ISSUE IS COVERED BY THE ORDER OF THE I NCOME-TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE FOR T HE EARLIER YEAR. FOR THAT YEAR THE INCOME-TAX APPELLATE TRIBU NAL HAS ESTIMATED THE PROFITS OF THE ASSESSEE @9% ON OWN CO NTRACT WORKS, 8% ON CONTRACTS TAKEN BY THE ASSESSEE ON SUB CONTRACTS AND @ 5% ON CONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUB-CONTRACTS. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BE NCH, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT FROM MAIN CONTRACT WORK AT 9% AND ON SUB-CONTRACT WORK AT 8% OF THE RECEIPTS. IN VIE W OF THE ABOVE, THE ORDER OF THE CIT (A) IS MODIFIED TO THIS EXTENT. ITA NO.1352 OF 2012 SREE BALAJI CONST RUCTIONS, KADAPA. 5 7. SO FAR AS THE SECOND ISSUE WHICH RELATES TO DEDUCT ION TOWARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IS CONCERN ED, IT IS SEEN THAT THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BE NCH IN THE CASE OF M/S C. ESWARA REDDY V/S. CIT (SUPRA) AFTER CONSIDE RING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTION V/S. CIT (SUPRA) AS WELL AS THE PROVISION CONTAINED U/S 44AD OF THE ACT, DIRECTED FOR ALLOWING DEDUCTION TOWARDS INTEREST AND RE MUNERATION PAYMENT TO PARTNERS AFTER ESTIMATION OF INCOME BY REJE CTING BOOKS OF ACCOUNTS IN CASE OF A FIRM ENGAGED IN EXECUTING CONTRACT WO RK. EVEN THEREAFTER IN A SERIES OF DECISIONS, THIS BENCH OF THE TR IBUNAL HAS CONSISTENTLY HELD A VIEW THAT DEDUCTION TOWARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IS TO BE ALLOWED F ROM PROFIT ESTIMATED AFTER REJECTING BOOKS OF ACCOUNT IN CASE OF A FI RM ENGAGED IN THE BUSINESS OF WORKS CONTRACT. IN THE AFORESAID VIEW OF THE MATTER, WE HOLD THAT THE CIT (A) WAS JUSTIFIED IN DIRECTING A LLOWANCE OF DEDUCTION TOWARDS PAYMENT OF INTEREST AND REMUNERATIO N TO THE PARTNERS AFTER ESTIMATING THE PROFIT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT (A) ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 04-01-2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/- 4 TH JANUARY, 2013. ITA NO.1352 OF 2012 SREE BALAJI CONST RUCTIONS, KADAPA. 6 COPY FORWARDED TO: 1. DCIT, CIR-2(1), AAYAKAR BHAVAN, HYDERABAD. 2. 3. 4. M/S. SREE BALAJI CONSTRUCTIONS, 1-1824/7, GANDHI NAGAR, YERRAMUKKALLAPALLI, KADAPA. COMMISSIONER OF INCOME-TAX (APPEALS), GUNTUR CIT CONCERNED, HYDERABAD. 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. JMR *