DCIT, Central Circle-2(1), Hyderabad, Hyderabad V. MAA Highways, Khammam, Khammam

ITA 136/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5916 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P MURALI MOHANA RAO
• Assessee Lawyers: VASUNDHARA SINHA
• Keywords: Business income; Search and seizure; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER A ND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. ASST YEAR APPELLANT RESPONDENT 136/HYD/2015 137/HYD/2015 138/HYD/2015 166/HYD/2015 2008-09 2009-10 2010-11 2007-08 DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYDERABAD M/S. MAA HIGHWAYS, KHAMMAM (PAN AAIFM 0756 B) 192/HYD/2015 193/HYD/2015 194/HYD/2015 195/HYD/2015 2007-08 2008-09 2009-10 2010-11 M/S. MAA HIGHWAYS, KHAMMAM (PAN AAIFM 0756 B) DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYDERABAD 168/HYD/2015 169/HYD/2015 2010-11 2011-12 DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYDERABAD M/S. SREE NAGENDRA CONSTRUCTIONS, KHAMMAM (PAN AAUFS 4784 M) 200/HYD/2015 201/HYD/2015 2009-10 2010-11 M/S. SREE NAGENDRA CONSTRUCTIONS, KHAMMAM (PAN AAUFS 4784 M) DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYDERABAD 1 73 /HYD/2015 174/HYD/2015 2009 - 10 2010-11 DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYDERABAD M/S. RAGINI CONSTRUC - TIONS, KHAMMAM (PAN AAFFR 7361 G) 203 /HYD/2015 204/HYD/2015 2009 - 10 2010-11 M/S. RAGINI CONSTRUC - TIONS, KHAMMAM (PAN AAFFR 7361 G) DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYDERABAD APPELLANTS BY : SHRI P. MURALI MOHANA RAO RESPONDENT BY : SMT. VASUNDHARA SINHA CIT - DR DATE OF HEARING 16.3.2016 DATE OF PRONOUNCEMENT 31.3.2016 ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 2 O R D E R PER BENCH : THERE ARE SIXTEEN APPEALS IN THIS BUNCH, CONCERNI NG THREE ASSESSEES OF A COMMON GROUP. THERE ARE CROSS APPEA LS FOR ASSESSMENT YEARS 2007-08 TO 2010-11 IN THE CASE OF M/S. MAA HIGHWAYS, KHAMMAM, BESIDES CROSS APPEALS FOR ASSES SMENT YEARS 2009-10 AND 2010-11 IN THE CASE OF M/S. RAGINI CONS TRUCTIONS. IN THE CASE OF M/S. SREE NAGENDRA CONSTRUCTIONS, THERE ARE CROSS APPEALS ONLY FOR ASSESSMENT YEAR 2010-11 AND THERE IS ONLY ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10 AND ONLY REVENUES APPE AL FOR ASSESSMENT YEAR 2011-12. SINCE THE FACTUAL BACKGRO UND AND THE ISSUES INVOLVED IN ALL THESE APPEALS ARE COMMON, TH ESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON AND CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. 2. FACTS OF THE CASE COMMON IN ALL THESE CASES ARE THAT THERE WAS A SEARCH AND SEIZURE OPERATION UNDER S.132 OF T HE ACT IN THE CASE OF MADHUCON PROJECTS LIMITED AND GROUP OF CASES ON 4.2.2011. AFTER THE SEARCH IN THE CASE MADHUCON PROJECTS LTD. AND I TS GROUP CONCERNS INCLUDING THE ASSESSEES HEREIN, NOTICES UNDER S.153 A WERE ISSUED TO THE ASSESSEES. IN RESPONSE THERETO, THE ASSESSEES F ILED RETURNS OF INCOME FOR RELEVANT ASSESSMENT YEARS. DURING THE AS SESSMENT PROCEEDINGS, UNDER S.143(3), THE BOOKS OF ACCOUNT M AINTAINED BY THE ASSESSEES WERE REJECTED AND THE INCOME OF THE ASSES SEES WAS ESTIMATED AT 8% OF THE GROSS RECEIPTS, AND THE ASSE SSING OFFICER ACCORDINGLY MADE ADDITIONS TO THE INCOME RETURNED B Y THE ASSESSEES. 3. FURTHER, THE ASSESSING OFFICER ALSO OBSERVED T HAT THE COMPANYS ADDRESS GIVEN BY M/S. MADHUCON PROJECTS L TD. WAS ACTUALLY ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 3 A SMALL ROOM ON THE TERRACE AND NO DOCUMENTS OR PAP ERS RELATING TO THE ASSESSEE OR M/S. MADHUCON GROUP WERE AVAILABLE. HE FURTHER OBSERVED THAT DURING THE COURSE OF SEARCH AND IN TH E POST SEARCH PROCEEDINGS, THOUGH THE ASSESSEES WERE GIVEN SUFFIC IENT TIME TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER SUPPORTING D OCUMENTS, THE ASSESSEES HAVE FAILED TO PRODUCE THE SAME. HE FUR THER OBSERVED THAT THE ASSESSEES WERE MAINLY STATIONED AT KHAMMAM AND HAVE OPENED BANK ACCOUNTS IN HYDERABAD AND NEW DELHI, WHERE TH EY DO NOT HAVE ANY OPERATIONS, AND THEREFORE, HE CAME TO THE CONCL USION THAT THESE BANK ACCOUNTS ARE OPENED ONLY TO FACILITATE THE DI VERSION OF FUNDS TO THE PRINCIPAL CONTRACTOR, MADHUCON PROJECTS LTD. H E FURTHER OBSERVED THAT THESE ACCOUNTS ARE USED FOR WITHDRAWING FUNDS BY THE EMPLOYEES OF MADHUCON PROJECTS LTD., AS IT WAS UNEARTHED DURI NG THE COURSE OF SEARCH AND THAT THOUGH THE PAYMENTS ARE REALISED AN D CHEQUES WERE ISSUED IN FAVOUR OF THESE SUB-CONTRACTORS, THE MONE Y WAS EVENTUALLY WITHDRAWN BY THE PROMOTERS OF M/S. MADHUCON PROJECT S LTD. THROUGH THEIR EMPLOYEES BY WAY OF SELF SIGNED CHEQUES, WH ICH ARE HANDED OVER BY THESE SUB-CONTRACTORS TO THE MANAGERS OF M/ S MADHUCON PROJECTS. OBSERVING THAT THESE AMOUNTS WERE WITHDR AWN AND SIPHONED BACK TO THE MANAGEMENT OF M/S. MADHUCON PROJECTS LT D. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSING OFFICER CONC LUDED THAT THESE AMOUNTS WERE NEVER USED FOR THE BUSINESS ACTIVITY O F THE ASSESSEES HEREIN BUT WERE RETURNED BACK TO THE CONTRACTOR. HE THEREFORE, DISALLOWED THE SAME IN THE HANDS OF THE PRINCIPAL C ONTRACTOR, AND ADDED THE SAME PROTECTIVELY IN THE HANDS OF THE AS SESSEE FIRMS HEREIN. 4. AGAINST THE ASSESSMENTS THUS MADE, ASSESSEES PR EFERRED APPEALS BEFORE THE CIT(A), WHO THOUGH, CONFIRMED TH E ESTIMATION OF INCOME AT 8% OF THE GROSS RECEIPTS, GRANTED RELIEF BY DELETING THE ADDITIONS MADE ON PROTECTIVE BASIS. ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 4 5. LEARNED COUNSEL FOR THE ASSESSEES SUBMITTED TH AT THE ASSESSEES WERE MAINTAINING REGULAR BOOKS OF ACCOUNT , BUT THE ASSESSING OFFICER REJECTED THE SAME AND ESTIMATED T HE INCOME OF THE ASSESSEES AT 8% OF THE GROSS RECEIPTS. HE SUBMITTED THAT THIS ESTIMATION OF INCOME IN AN ASSESSMENT COMPLETED UND ER S.143(3) READ WITH S.153A IS NOT SUSTAINABLE. EVEN OTHERWISE, HE SUBMITTED THAT THE ISSUE OF ESTIMATION OF INCOME IN THE CASE OF M/S MA A HIGHWAYS, ONE OF THE ASSESSEES HEREIN, HAS COME UP BEFORE THIS TRIBU NAL IN ITA NO.54/HYD.2013 AND THIS TRIBUNAL VIDE ITS ORDER DAT ED 30.7.2013 HAS DIRECTED ESTIMATION OF INCOME AT 5% OF THE GROS S RECEIPTS IN THE CASE OF SUB-CONTRACTS AND THEREFORE, SINCE ALL THE ASSESSEES HEREIN BELONG TO THE SAME GROUP AND FACTUAL BACKGROUND IN THESE CASES ALSO BEING SAME, INCOME OF THESE ASSESSEES HEREIN SHOULD ALSO BE ESTIMATED AT 5%. 6. AS REGARDS THE ESTIMATION OF INCOME, THE LEARN ED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THERE IS NO FIXED PERCENTAGE OF GROSS RECEIPTS, WHICH CAN BE ADOPTED TO ESTIMATE THE INCOME OF THE ASSESSEES, AND THAT AS THE BOOKS OF A CCOUNT OF THE ASSESSEES ARE NOT RELIABLE, THE ASSESSING OFFICER O N A NOTIONAL BASIS CAN ESTIMATE THE INCOME. ACCORDING TO HER, THE ESTI MATION OF INCOME AT 8% OF THE GROSS RECEIPTS IS QUITE REASONABLE AND JU STIFIED. 7. AS REGARDS THE REVENUES APPEAL AGAINST THE DE LETION OF ADDITIONS MADE ON PROTECTIVE BASIS, THE LEARNED DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT SINCE THE SUBSTANTIVE ADDITIONS MADE IN THE HANDS OF M/S. MADHUCON PROJECTS LTD., ARE PENDI NG ADJUDICATION BY THE CIT(A), THESE APPEALS MAY BE KEPT PENDING, TO W HICH THE LEARNED COUNSEL FOR THE ASSESSEE OBJECTED. THE LEARNED DEPA RTMENTAL REPRESENTATIVE ALSO RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PRABHU WINES IN ITA NO .1100/HYD.2013 ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 5 DATED 23.10.2013, WHEREIN AFTER CONSIDERING THE PRI NCIPLES LAID DOWN IN INDWELL CONSTRUCTIONS (232 ITR 776), IT HAS BEEN HE LD THAT THEY ARE APPLICABLE ONLY TO THE EXTENT OF COMPUTATION OF INC OME UNDER THE HEAD BUSINESS AND AS FAR AS ADDITION OF CASH CREDITS U NDER S.68 AND S.69, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CITV/S. DEVI PRASAD VISHWANATH PRASAD REPORTED IN 72 ITR 194 (S C) WAS FOLLOWED. 8. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEES ALSO RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (232 ITR 776), WHEREIN IT WAS HELD THAT WHERE THE INCOME OF AN ASSESSEE IS ESTIMATED, THERE CANNO T BE ANY OTHER ADDITION. THEREFORE, ACCORDING TO HIM, THE ADDITION OF REROUTING OF FUNDS IN THE HANDS OF THE ASSESSEES HEREIN ON PROTE CTIVE BASIS IS RIGHTLY DELETED BY THE CIT(A). 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT ON THE ISSUE OF ESTIMATION OF BUSINESS INCOME, THE ISSUE HAS ALREADY BEEN CONSIDERED AND ADJUDICATED B Y THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ONE OF THE AS SESSEES HEREIN, VIZ., MAA HIGHWAYS, FOR ASSESSMENT YEAR 2007-08, WHEREIN ESTIMATION OF INCOME IN THE HANDS OF SUBCONTRACTS AT 5% OF THE GR OSS RECEIPTS WAS HELD TO BE REASONABLE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT IN ALL THESE CASES AS WELL, THE BUSINESS INCOME OF THE ASSESSEES FOR THE YEARS UNDER APPEAL BE ESTIMATED AT 5% OF THE GROSS RECEIPTS, AND ADDITIONS IF ANY, MAY BE DETERMINED ACCORDINGLY. A SSESSEES APPEALS ARE ACCORDINGLY TREATED AS ALLOWED. 10. AS REGARDS THE REVENUES APPEALS AGAINST THE DELETION OF THE ADDITIONS MADE ON PROTECTIVE BASIS IN THE CASES OF THESE ASSESSEES, WE FIND THAT THE ADDITIONS HAVE BEEN MADE CONSEQUEN T TO DETECTING THAT THE ASSESSEES RECEIVED FUNDS FROM M/S. MPL LTD . AND REROUTED ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 6 THE SAME BACK TO M/S. MPL ITSELF. ASSESSING OFFICER THEREFORE, PRESUMED THAT THE ASSESSEES HAVE NOT EXPENDED THE S AID RECEIPTS TOWARDS THEIR BUSINESS ACTIVITY. BUT AS RIGHTLY HE LD BY CIT(A), ALL WITHDRAWALS CANNOT BE PRESUMED TO BE THE BUSINESS E XPENDITURE OF THE ASSESSEE, PARTICULARLY, WHEN, THE SAME IS NOT DEBIT ED TO THE PROFIT & LOSS ACCOUNT. THE CIT(A), AFTER EXAMINING THE ISSU E HAS HELD AT PARA 6.5.3 AS UNDER- 6.5.3. KNOWING THAT THE AMOUNT WITHDRAWN FROM BANK ACCOUNT WAS APPROPRIATED BY THE MAIN CONTRACTOR AND THAT IT WAS NOT USED BY THE APPELLANT IS ONE ASPECT. HOWEV ER, TO SAY THAT THIS ITEM NEEDS TO BE DISALLOWED IN THE HANDS OF THE APPELLANT, WE HAVE TO FIRST ESTABLISH THAT THE SPEC IFIC WITHDRAWALS WERE ACCOUNTED IN BOOKS AS EXPENDITURE INCURRED DURING THE YEAR AND FURTHER, THE EXPENDITURE WAS NO T ONLY REVENUE IN NATURE BUT WAS ALSO DEBITED TO THE P&L A CCOUNT TO BE DISALLOWED AS EXPENDITURE. IN THE ABSENCE OF BO OKS AND VOUCHERS, ONE CANNOT SPECIFICALLY CONCLUDE THAT THE AMOUNTS WITHDRAWN WERE INDEED DEPLOYED AND WERE INCURRED TO WARDS REVENUE EXPENDITURE AND GOT DEBITED TO P&L ACCT. I T IS ALSO SEEN THAT THE WITHDRAWALS WERE ACTUALLY MORE THAN T HE ENTIRE TURNOVER OF THE APPELLANT FIRM IN AY 2011-12 INDICA TING THAT ALL WITHDRAWALS COULD NOT HAVE BEEN DEBITED IN THE APPE LLANTS BOOKS AS EXPENDITURE. SIMILAR FEATURE WAS FOUND IN THE CASE OF THE OTHER TWO SUBCONTRACTING FIRMS NAMELY, M/S. VAR ALAKSHMI CONSTRUCTIONS, THE WITHDRAWLS FROM BANK WERE MORE T HAN TURNOVER FOR ASSESSMENT YEAR 2010-11. FOR M/S RAGI NI CONSTRUCTIONS, THE WITHDRAWALS WERE MORE THAN THE T URNOVER FOR A.Y. 2010-11 AND A.Y. 2011-12. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HAD RELIED UPON THE DECISION IN THE CASE OF MADHU WINES CITED (SUPRA), BUT WE FIND THAT THE DECISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL R EPRESENTATIVE ARE NOT APPLICABLE TO THE FACTS OF THE CASES BEFORE US. IN THE CITED CASE, BESIDES THE ADDITION ON ACCOUNT OF ESTIMATION OF BU SINESS INCOME, FURTHER ADDITIONS UNDER S.68 WERE UPHELD. IN THE CA SES BEFORE US, THOUGH THE AUTHORITIES BELOW HAVE NOT MENTIONED THE SECTION UNDER WHICH THE DISALLOWANCE AND THE CONSEQUENTIAL ADDITI ONS ARE MADE, FROM THE ORDER OF THE ASSESSING OFFICER, IT APPEARS THAT THE RECEIPTS OF THE ASSESSEE WERE DISALLOWED AS THEY ARE NOT USED F OR BUSINESS ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 7 ACTIVITY. THUS, IT IS DISALLOWANCE OF BUSINESS EXPE NDITURE. THE CIT(A) HAS RIGHTLY POINTED OUT THAT THE AMOUNTS WITHDRAWN CANNOT BE PRESUMED TO HAVE BEEN DEPLOYED AND INCURRED TOWARDS REVENUE EXPENDITURE AND GOT DEBITED TO THE PROFIT & LOSS AC COUNT. WHERE THERE IS ESTIMATION OF BUSINESS INCOME, DISALLOWANCE AND CONSEQUENTIAL ADDITION OF REVENUE EXPENDITURE IS NOT SUSTAINABLE, AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTIONS (SUPRA). IN VIEW OF THE SAME, WE AGREE WITH THE VIEW OF THE CIT(A) THAT THIS ISSUE IS ALSO SQUARELY COVERED BY THE DECISION OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA), WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT WHERE BUSINESS INCOME OF AN ASSESSEE IS ESTIMATED, NO OTHER DISALLOWANCE MAY BE MADE. IN T HE CASE OF MAA HIGHWAYS, CITED SUPRA, AS WELL, THE TRIBUNAL HAS TA KEN INTO CONSIDERATION THE DECISION OF THE JURISDICTIONAL HI GH COURT AND HELD THAT NO SEPARATE DISALLOWANCE OF EXPENDITURE SHALL BE MA DE ONCE INCOME IS DETERMINED BY RESORTING TO ESTIMATION. RESPECTFUL LY FOLLOWING THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH TH E ORDERS OF THE CIT(A). 11. IN THE RESULT, APPEALS OF THE ASSESSEES ARE TR EATED AS ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2016 SD/- SD/- (S.RIFAUR RAHMAN) ( P.MADHAVI DEVI) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 31 ST MARCH, 2016 ITA NO.136/HYD/2015 & 19 ORS M/S. MAA HIGHWAYS AND THREE OTHERS KHAMMAM 8 COPY FORWARDED TO: 1. M/S. MAA HIGHWAYS (KHAMMAM) C/O. M/S.P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3 -655/2/3, 1ST FLOOR, SOMAJIGUDA, HYDERABAD-82 2. M/S. SREE NAGENDRA CONSTRUCTIONS, (KHAMMAM) C/O. M/S.P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3 -655/2/3, 1ST FLOOR, SOMAJIGUDA, HYDERABAD-82 3. M/S. MAA HIGHWAYS (KHAMMAM) C/O. M/S.P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1ST FLOOR, SOMA JIGUDA, HYDERABAD-82 4. M/S. RAGINI CONSTRUCTIONS (KHAMMAM) C/O. M/S.P.M URALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1ST FLOOR, SOMAJIGUDA, HYDERABAD-82 5 . DY. COM MISSIONER OF INCOME - TAX CENTRAL CIRCLE 3, HYDERABAD 6 . COMMISSIONER OF INCOME - TAX(APPEALS) VII, HYDERABAD 7 . COMMISSIONER OF INCOME - TAX (CENTRAL), HYDERABAD 8 . DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.