Maa Highways Pvt. Ltd., Khammam, Hyderabad V. ACIT, Circle-1, Khammam, Khammam

ITA 140/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6206 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 17-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 10-02-2016
• Court: TRIBUNAL
• Department Lawyers: G V HEMALATHA DEVI
• Assessee Lawyers: P MURALI MOHAN RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 140/HYD/2016 ASSESSMENT YEAR: 2011-12 M/S. MAA HIGHWAYS PVT. LTD., KHAMMAM [PAN: AAGCM3484R] VS ACIT, CIRCLE-1, KHAMMAM (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SMT G.V. HEMALATHA DEVI, CIT-DR DATE OF HEARING : 18-08-2016 DATE OF PRONOUNCEMENT : 14-09-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-7, HYDERABAD, DATED 30-11-2015 FOR THE AY. 2011-12. 2. BRIEFLY STATED, ASSESSEE HAS OFFERED INCOME AT 5.88 % ON THE CONTRACT RECEIPTS. EVEN THOUGH BOOKS OF ACCOUNT WERE PR ODUCED BEFORE THE ASSESSING OFFICER (AO), ON THE REASON THAT ASSESSEE HAS NOT PRODUCED THE VOUCHERS AND OTHER DETAILS, AO HAS REJ ECTED THE BOOKS OF ACCOUNT. THIS ASPECT WAS NOT IN DISPUTE. REL YING ON THE DECISION OF THE CO-ORDINATE BENCH OF ITAT IN THE CAS E OF M/S. KNR CONSTRUCTIONS LTD., VS. DCIT VIDE ITA NO. 09/HYD/2007, AO ESTIMATED THE INCOME AT 12.5% OF THE RECEIPTS NET OF ALL EXPENDITURE. I.T.A. NO. 140/HYD/2016 M/S. MAA HIGHWAYS PVT. LTD., :- 2 -: 3. THE MAIN CONTENTION BEFORE THE LD. CIT(A) WAS THAT AS SESSEE IS A SUB-CONTRACTOR OF M/S. MADHUCON PROJECTS LIMITED A ND M/S. MADHUCON PROJECTS LIMITED HAS DECLARED THE PROFIT OF 8% TO 10% ON THE SAME TURNOVER AND PUT TOGETHER WITH THE 5.88% NET PRO FIT DECLARED BY ASSESSEE, THE PROFIT DECLARED ON THIS WORK IS ABOUT 13.88% WHICH IS A VERY REASONABLE FIGURE. ASSESSEE FURTHER CONTENDED THAT THE ESTIMATED INCOME @ 12.5% OF ASSESSEE ALONG WITH 8% TO 10% PROFIT DECLARED BY THE MAIN CONTRACTOR WOULD PUT TO PROFIT AT 20.5% TO 22.5% WHICH IS NOT PROBABLE AT AL L. 3.1. ASSESSEE WAS ASKED BY LD. CIT(A) TO FURNISH THE DETAILS REGARDING THE NET PROFIT SHOWN BY THE MAIN CONTRACTOR W HICH WAS CLAIMED TO BE 8% TO 10%. ASSESSEE SUBMITTED THAT THE NE T PROFITS OF M/S. MADHUCON PROJECTS LIMITED WAS ACTUALLY 4.1% D URING THE RELEVANT PERIOD AND A COPY OF ANNUAL REPORT WAS FURNI SHED. LD. CIT(A) NOTICED THAT THE CLAIMED BY ASSESSEE THAT THE MAIN CONTRACTOR HAD ALREADY SHOWN PROFIT OF 8% TO 10% ON TH E ABOVE WORK WAS NOT CORRECT AND THE CLAIM WAS WRONGLY MADE. ASSESSEE ARGUED THAT INCOME OFFERED BY THE MAIN CONTRACTOR AND A SSESSEE PUT TOGETHER 9.98% IS REASONABLE. 4. LD. CIT(A) AFTER EXAMINING THE DOCUMENTS PLACED BE FORE HIM HAS REDUCED THE ESTIMATE TO 9% BY STATING AS UNDER: 5.2 THE HON'BLE ITAT HAS HELD IN VARIOUS CASES THA T THE PROFIT OF 8% IN THE CASE OF MAIN CONTRACTOR IS REASONABLE IN NORMAL CASES. THE HON'BLE ITAT IS ALSO HELD THAT PROFIT OF 5% IS REASONABLE IN CASE OF SUB-CONTRACTORS. THE ASSESSEE HAS RELIED ON THE CASE OF M/S. MAA HIGHWAYS, A SISTER CONCERN WHEREIN ITAT HAS EST IMATED 5% PROFIT IN CASE OF SUB-CONTRACTOR (ITA 747/HYD/2009 DT 30.07.2013 FOR ASST. YEAR 2006-07) THE PROFIT IN CASE OF CONTR ACTOR AND SUB- CONTRACTOR PUT TOGETHER AS PER THE ABOVE DECISION W OULD BE 13%. IN THIS CASE THE MAIN CONTRACTOR AND THE ASSESSEE ARE RELATED CONCERNS I.T.A. NO. 140/HYD/2016 M/S. MAA HIGHWAYS PVT. LTD., :- 3 -: HENCE THE PROFIT SHIFTING CANNOT BE RULED OUT. SIN CE, THE MAIN CONTRACTOR HAS OFFERED THE INCOME AT 4% ONLY THE SU B-CONTRACTOR WOULD HAVE HIGHER SHARE OF INCOME WHICH WOULD BE AR OUND 9% (13% - 4%). ACCORDINGLY IT IS HELD THAT THE INCOME ESTI MATE @ 9% WOULD BE REASONABLE IN THAT FACTS AND CIRCUMSTANCES OF THE C ASE. IT IS DIRECTED ACCORDINGLY. 5. AGGRIEVED, ASSESSEE HAS RAISED THE FOLLOWING GROU NDS: 1. THE ORDER OF THE LD. CIT(A)-7, HYDERABAD IS ERR ONEOUS BOTH ON FACTS AND IN LAW. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT THE AO HAS NO JURISDICTION OVER THE CASE OF ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 3. THE LD. CIT(A)-7 ERRED IN ESTIMATION OF INCOME A T 9% ON CONTRACTS RECEIPTS. 4. THE LD. CIT(A)-7 ERRED IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT BOOKS WERE AUDIT ED. 5. THE LD. CIT(A)-7 OUGHT TO HAVE APPRECIATED THE F ACT THAT THE APPELLANT FIRM IS HAVING ALL THE RELEVANT DOCUMENTS AND INFOR MATION REQUIRED FOR COMPLETION OF ASSESSMENT. 6. WITHOUT PREJUDICE TO THE ABOVE THE LD. CIT(A)-7 OUGHT TO HAVE ESTIMATED THE INCOME OF THE APPELLANT FIRM BASED ON THE PAST PROFITS DECALRED BY THE APPELLANT COMPANY. 6. IT WAS THE SUBMISSION OF LD. COUNSEL THAT THE INCOME CANNOT BE DETERMINED AS WAS DONE BY THE LD. CIT(A) BASED ON THE RESULT OF MAIN CONTRACTOR. IT WAS SUBMITTED THAT ASSESSEE IS A SUB - CONTRACTOR AND SO THE INCOME DECLARED AT 5.88% IS MORE THAN WHAT ITAT IS ESTIMATING AT 5% IN SIMILAR SUB-CONTRACT CASES. IT WAS THE SUBMISSION THAT BOOK RESULTS CAN BE ACCEPTED AS THE PR OFITS DECLARED ARE REASONABLE. LD. COUNSEL RELIED ON THE FOLLOWING ORDERS: I. ASSESSEES OWN CASE IN ITA NOS. 747/HYD/2009, 761/HYD/2010 AND 53 & 54/HYD/2013 DT. 30-07-2013; I.T.A. NO. 140/HYD/2016 M/S. MAA HIGHWAYS PVT. LTD., :- 4 -: II. GROUP OF APPEALS OF M/S. MADHUCON GRANITES LTD., KHAMMAM AND M/S. MADHUCON PROJECTS LTD., HYDERABAD STARTING FROM ITA NO. 666/HYD/2010 (FOR DIFFERENT ASSESSMENT YEARS) DT. 28-12-2012; 7. LD. DR HAS SUBMITTED THAT AO HAS ESTIMATED THE INCOME S AS A MAIN CONTRACTOR, SO THE ESTIMATION CONFIRMED BY LD. CI T(A) AT 9% IS REASONABLE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE ORDERS OF THE AUTHORITIES. AS SEEN FROM THE ORDER OF A O, THERE IS NO DISCUSSION WHETHER ASSESSEE IS A MAIN CONTRACTOR OR S UB- CONTRACTOR? THE LD.AO RELIED ON THE ORDER OF M/S. KNR CONSTRUCTIONS LTD., VS. DCIT VIDE ITA NO. 09/HYD/2007 (SUPRA), WHEREIN INCOME WAS ESTIMATED ON THE BASIS OF THE CONTR ACT RECEIPTS AS A MAIN CONTRACTOR. THIS INDICATES THAT AO HAS CONSI DERED ASSESSEE AS A MAIN CONTRACTOR AND NOT AS A SUB-CONTRAC TOR. IT WAS SUBMITTED BEFORE THE CIT(A) THAT ASSESSEE WAS A SUB-CON TRACTOR. THIS ASPECT WAS NOT EXAMINED BY THE CIT(A) AT ALL. HOW EVER, HE HAS CONSIDERED AND ACCEPTED THE CONTENTIONS AND ON NO TICING THAT THE MAIN CONTRACTOR HAS DISCLOSED LESS THAN 5% INCOME, HAS CONFIRMED INCOME AT 9% IN ASSESSEES CASE HOLDING THA T THE POSSIBILITY OF SHIFTING INCOMES COULD NOT BE RULED O UT. ASSESSEES MAIN CONTENTION BEFORE US WAS THAT IT IS A SUB-CONTRACTOR AND INCOME CAN BE ESTIMATED AT 5% AND SINCE THE INCOME ALR EADY DECLARED BY ASSESSEE IS MORE THAN THAT, NO FURTHER ADDI TION IS REQUIRED. LD. COUNSEL ALSO PLACED ON RECORD TWO AG REEMENTS IN WHICH ASSESSEE HAD UNDERTAKEN THE WORKS DURING THE YEA R. AGREEMENT NO.1 DT. 01-04-2010 PLACED AT PG. 34-42 IS W ITH M/S. I.T.A. NO. 140/HYD/2016 M/S. MAA HIGHWAYS PVT. LTD., :- 5 -: MADHUCON PROJECTS LTD. AS PER THE TERMS OF THE CONTRACT, THE CONTRACT ASSIGNED TO ASSESSEE IS A PIECE RATE CONTRACT . HOWEVER, WHETHER IT IS AN INDEPENDENT CONTRACT BETWEEN M/S. MADHU CON PROJECTS AND ASSESSEE COULD NOT BE VERIFIED AS THE CON TRACT BETWEEN MADHUCON PROJECTS LTD., AND ENGINEER-IN-CHARGE AT JAYA NT OCP OF NCL, NORTHERN COAL FIELDS WAS NOT PLACED ON RECORD. AS SEEN FROM THE PAYMENT TERMS AT CLAUSE-15, IT CAN BE NOTICED THAT M/S . MADHUCON PROJECTS IS KEEPING 5% OF THE AMOUNT RECEIVE D FROM NCL AND PASSING ON THE ENTIRE AMOUNT TO ASSESSEE. THAT ME ANS, MADHUCON PROJECTS LTD., CANNOT EARN MORE THAN 5% ON THE PROJECT. THAT MAY BE THE REASON WHY CIT(A) COULD HAVE OBSERVED THAT THERE IS A PROFIT SHIFTING. BE THAT AS IT MAY, WE ARE UNABLE TO GIVE ANY FINDING ON THIS ISSUE BECAUSE THE AGREEMENT OF MADHUC ON PROJECTS-NCL IS NOT PLACED ON RECORD AND WHETHER THIS IS SUB- CONTRACT OR ANY INDEPENDENT CONTRACT ALSO COULD NOT BE AS CERTAINED ON THE BASIS OF DOCUMENTS PLACED ON RECORD. 9. COMING TO THE OTHER AGREEMENT WHICH WAS ALSO DT. 25 -05- 2010 WITH M/S. MADHUCON PROJECTS, IT WAS ALSO PIECE RATE CONTRACT AGREEMENT BUT CLAUSE-I IN THE AGREEMENT SUBMITS THAT IN CONSIDERATION OF THE PAYMENT OF THE SUM CALCULATED ON T HE BASIS OF UNIT RATES RS. 12 CRORES ONLY OR SUCH OTHER SUM AS MAY BE ARRIVED ON THE BASIS OF UNIT RATES AND QUANTITIES, MAA HIGHWA YS PVT. LTD., WILL EXECUTE AND COMPLETE WORKS WHICH M/S. MADHUCON HAS ENTERED INTO AGREEMENT WITH SEPL THERMAL POWER PROJEC T. THE TERMS INDICATE THAT IT COULD BE AN INDEPENDENT CONTRACT, HOWEVER, HERE ALSO THE MAIN CONTRACT IS NOT ON RECORD IN ORDER TO EXAMINE WHETHER THE RATES APPROVED ARE INDEPENDENT OR PART OF TH E MAIN CONTRACT WHICH WAS PASSED ON TO ASSESSEE, WITH CERTAIN RETENTION OF I.T.A. NO. 140/HYD/2016 M/S. MAA HIGHWAYS PVT. LTD., :- 6 -: THE AMOUNT. SINCE THESE DETAILS ARE NOT AVAILABLE ON R ECORD, WE CANNOT GIVE ANY FINDING WHETHER ASSESSEE IS A MAIN CO NTRACTOR OR SUB-CONTRACTOR. IN VIEW OF THIS, WITHOUT GIVING ANY FI NDING WHETHER ASSESSEE IS A MAIN CONTRACTOR OR SUB-CONTRACTOR WHICH AFFECTS THE RATE OF ESTIMATION OF INCOME, WE SET ASIDE THE ORDER OF AO AND CIT(A) ON THE ISSUE AND RESTORE THE ASSESSMENT TO THE FI LE OF THE AO TO EXAMINE THE NATURE OF AGREEMENT, THE TURNOVERS INVOL VED IN EACH AGREEMENT AND GIVE A FINDING WHETHER ASSESSEE IS A MA IN CONTRACTOR OR SUB-CONTRACTOR. IF ASSESSEE IS A SUB-CON TRACTOR EITHER ON ONE PROJECT OR ON BOTH THE PROJECTS UNDERTAKEN DURIN G THE YEAR, THEN, THE ESTIMATION OF INCOME HAS TO BE CONSIDERED BY T HE AO, KEEPING IN MIND THE ORDERS OF THE ITAT IN THIS REGAR D. IF ASSESSEE IS A MAIN CONTRACTOR, THEN THE INCOME CAN BE ESTIMATED AS A MAIN CONTRACTOR, BUT IN NO CASE SHOULD EXCEED 9% CONFIRMED BY THE CIT(A) AS REVENUE HAS NOT COME IN APPEAL ON THE REL IEF GRANTED BY THE LD. CIT(A). WITH THESE DIRECTIONS, THE ENTIRE ISSU E OF ESTIMATION OF INCOME IS RESTORED TO THE FILE OF AO, WITH A DIRECTIO N TO IDENTIFY WHETHER ASSESSEE IS A MAIN CONTRACTOR OR SUB-CONTRACTO R OR PARTLY MAIN CONTRACTOR AND PARTLY SUB-CONTRACTOR BY EXAMINING THE AGREEMENTS AND TERMS OF AGREEMENTS AND THEN ESTIMATE IN COME AS PER LAW AND ORDERS OF ITAT ON THE ISSUE AS THE CASE MAY BE. 10. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 14 TH SEPTEMBER, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 14 TH SEPTEMBER, 2016 TNMM I.T.A. NO. 140/HYD/2016 M/S. MAA HIGHWAYS PVT. LTD., :- 7 -: COPY TO : 1. M/S. MAA HIGHWAYS PVT. LTD., KHAMMAM. C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. ACIT, CIRCLE-1, KHAMMAM. 3. CIT (APPEALS)-7, HYDERABAD. 4. PR.CIT-7, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.