Dwarka Pershad Radhey Ramanlal, Secunderabad V. Dy.Commissioner of Income Tax, Hyderabad

ITA 1438/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3565 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2016-2017
• Appeal Filed On: 18-09-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROHIT MAJUMDAR
• Keywords: Rejection of books of accounts; Business income; Principle of natural justice; Set aside
• Section: 143(3); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD. BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER (THROUGH VIRTUAL HEARING) ITA NO.1438/HYD/2019 (ASSESSMENT YEAR : 2016-17) M/S. DWARKA PERSHAD RADHEY RAMANLAL, 5-2-103/104, R.P.ROAD, SECUNDERABAD-500 003 PAQN AACFD 4470F VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), HYDERABAD. APPELLANT RESPONDENT APPELLANT BY : SHRI C. SURESH. RESPONDENT BY : SHRI ROHIT MAJUMDAR, D.R. DATE OF HEARING : 04.03.2021. DATE OF PRONOUNCEMENT :09.06.2021. O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS IS ASSESSEES APPEAL FOR THE ASST. YEAR 2016 -17 FILED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (A PPEALS)-6, HYDERABAD DT.7.6.2019. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSE E-FIRM, A CIVIL CONSTRUCTION CONTRACTOR FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2016-17 ON 6.10.2016 ADMITTING A TOTAL INCOME OF RS.44,03,430. THE CASE WAS SELECTED FOR LIMITED SCRUTINY UNDER CA SS TO VERIFY AND EXAMINE THE FOLLOWING ISSUES : (I) WHETHER SALES TURNOVER / RECEIPTS HAVE BEEN COR RECTLY OFFERED FOR TAX ? (II) WHETHER CONTRACT RECEIPTS/FEES HAVE BEEN CORRE CTLY OFFERED FOR TAX ? 2 ITA NO.1438/HYD/2019 ACCORDINGLY, NOTICE U. 143(2) OF THE INCOME TAX ACT , 1961 ('THE ACT') WAS ISSUED TO THE ASSESSEE. DURING THE ASSESSMENT PRO CEEDINGS U/S. 143(3) OF THE ACT, THE ASSESSING OFFICER OBSERVED T HAT THE ASSESSEE HAS RECEIVED CONTRACT RECEIPTS OF RS.8,03,01,580. IN T HIS REGARD, THE FINANCIALS OF THE ASSESSEE WERE CALLED FOR U/S. 142 (1) OF THE ACT. IN RESPONSE TO THE NOTICE, THE ASSESSEE SUBMITTED HIS P & L ACCOUNT AND BALANCE SHEET OF THE RELEVANT FINANCIAL YEAR. THE ASSESSING OFFICER OBSERVED THAT THE NET INCOME WAS DECLARED BY THE AS SESSEE AT RS.42,73,140 WHICH INCLUDES THE INCOME (I) BY REFUN D OF VAT AMOUNTING TO RS.11,04,805,(II) INCOME BY INTEREST O N FDR TO RS.19,16,927; AND (III) INCOME BY INTEREST ON DEPOS IT AMOUNTING TO RS.3,383. AFTER REDUCING THE AFOREMENTIONED INDIRE CT INCOMES, THE NET PROFIT FROM CONSTRUCTION ACTIVITY WORKED OUT TO RS. 12,38,025. CONSIDERING THE TURNOVER OF RS.8,03,01,580, NET PRO FIT OF RS.12,38,025 WAS WORKED OUT TO 1.54% OF THE TURNOVER WHICH WAS T OO LOW. THE ASSESSING OFFICER, THEREFORE CALLED FOR BOOKS OF AC COUNTS AND FOUND THAT MOST OF THE VOUCHERS PERTAINING TO LABOUR CHARGES A ND OTHER EXPENSES WERE SELF-MADE. THEREFORE, HE HELD THAT THERE IS N O OTHER OPTION BUT TO REJECT THE ASSESSEES BOOKS OF ACCOUNT AND TO ESTIM ATE THE PROFIT @ 8% OF THE TURNOVER. 3. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE FIL ED AN APPEAL BEFORE THE CIT(A) BY STATING THAT THE ASSESSMENT WAS TAKEN UP FOR COMPLETE SCRUTINY BY THE ASSESSING OFFICER WITHOUT FOLLOWING THE DUE PROCEDURE. THE CIT(A) HOWEVER, HELD THAT THE ASSESSING OFFICER HAS ACTED WITHIN HIS JURISDICTION AND CONFIRMED THE ASSESSMENT ORDER BUT ACCEPTED THE INCOME BY REFUND OF VAT AS BUSINESS INCOME AND THER EAFTER, RESTRICTED THE ESTIMATION OF PROFIT @ 6% OF THE TURNOVER. 3 ITA NO.1438/HYD/2019 4. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFO RE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL : 1. THE LD. CIT(A)-6, HYDERABAD, HAS ERRED IN LAW IN FAILING TO NOTE THAT THE ASSESSING OFFICER HAS TRAVELLED BEYOND THE PARAMETERS OF A LIMITED SCRUTINY AND IN GROSS VIOLATION OF THE RE LEVANT INSTRUCTIONS ISSUED BY THE CBDT, HAS PASSED THE ASSESSMENT ORDER U/S. 143(3) OF THE IT ACT WITHOUT OBTAINING THE APPROVAL OF THE PRINCIPAL CIT. IN THE RESULT THE LD. CIT(A)-6, HYDERABAD FAILED TO NO TE THAT THE ASSESSING OFFICER PASSED BY THE LD. ASSESSING OFFIC ER IS NOT AS PER LAW AND IS LIABLE TO BE QUASHED. 2. THE LD. CIT(A)-6, HYDERABAD, FAILED TO NOTE THAT THE MANDATE OF THE ASSESSING OFFICER UNDER THE LIMITED SCRUTINY WAS THE VERIFICATION OF, WHETHER, THE CONTRACT RECEIPTS / S ALES, TURNOVER HAVE BEEN CORRECTLY OFFERED FOR TAX, AND HAVING FOU ND THAT THE SAME HAVE BEEN CORRECTLY CONSIDERED IN THE COMPUTATION O F INCOME, RESORTING TO ESTIMATION OF INCOME BY REJECTING THE BOOKS OF ACCOUNTS REPRESENTS AN ACTION WHICH IS NOT IN ACCORDANCE WIT H UNDERLYING FACTS, AND THE PRINCIPLES OF NATURAL JUSTICE. 3. THE LD. CIT(A)-6, HYDERABAD, FAILED TO NOTE THAT THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACC OUNTS ON THE GROUND THAT CERTAIN VOUCHERS ARE SELF-MADE IS ENTIR ELY IN VIOLATION OF THE LAW ON THE SUBJECT AND IGNORES WELL REASONED JUDICIAL PRONOUNCEMENTS IN THIS REGARD. FURTHER THE LD. CIT (A)-6, HYDERABAD, HAS CHOSEN TO IGNORE THE JUDICIAL PRONOU NCEMENTS BROUGHT TO HIS NOTICE DURING THE APPELLANT PROCEEDI NGS ON THE SAID ISSUE. 4. THE LD. CIT(A)-6, HYDERABAD, FAILED TO NOTE TH AT THE FIXED DEPOSITS WITH THE BANKS MADE BY THE APPELLANT FIRM ARE PURELY FOR PURPOSES OF BUSINESS AND HENCE THE INTEREST EARNED THEREON REPRESENTS BUSINESS INCOME. 5. THE LD. CIT(A)-6, HYDERABAD, ERRED IN LAW AND FAILED TO NOTE THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT FIRM AR E SUBJECT TO AUDIT AND ALL ITS EARLIER ASSESSMENTS FOR THE LAST SEVERA L YEARS HAVE ALWAYS BEEN MADE ON THE BASIS OF ITS AUDITED BOOKS OF ACCOUNTS AND THERE WAS NEVER BEEN AN OCCASION FOR REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF INCOME, AND HENCE HE FAI LED TO NOTE THAT THE ASSESSMENT ORDER IS IN VIOLATION OF THE PR INCIPLES OF NATURAL JUSTICE. 6. FOR THE REASONS SET OUT IN GROUNDS 1 TO 5 ABO VE, THE APPELLANT RESPECTFULLY PRAYS THAT THE HONOURABLE INCOME TAX T RIBUNAL MAY BE PLEASED TO HOLD THAT THE ASSESSMENT ORDER PASSED IS INVALID IN LAW, AND IS TO BE QUASHED. 7. ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 4 ITA NO.1438/HYD/2019 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THIS IS A CASE OF LIMITED SCRUTINY, WHEREAS THE ASSESSING OFFICER HAS EXCEEDED HIS JURISDICTION BY CONDUCTING COMPLETE SCRUTINY WITHOU T OBTAINING APPROVAL OF THE PR. CIT FOR CONVERSION OF THE ASSESSMENT INT O COMPLETE SCRUTINY ASSESSMENT. HE SUBMITTED THAT FOR THIS REASON ALONE , THE ASSESSMENT HAS TO BE SET ASIDE AND THIS APPEAL IS TO BE ALLOWE D. IN SUPPORT OF THIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE HA S PLACED RELIANCE UPON THE FOLLOWING DECISIONS: I) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX APPE LLANT TRIBUNAL, HYDERABAD - 'B' BENCH IN ITA NO. 429/HYD/20 18 IN T HE CASE OF G. CHANDRAMOULI VS. ITO, WARD - 1, KHAMMAM. II) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX AP PELLANT TRIBUNAL, DELHI - 'B' BENCH IN ITA NO. 6767/DEL/2019 IN THE CASE OF DE V MILK FOODS PVT LTD. VS. ADD. CIT, SPECIAL RANGE - 3, NEW DELHI III) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX A PPELLANT TRIBUNAL, GUWAHATI, 'E COURT' AT KOLKATA IN ITA NO. 395/GAU/ 20I9 IN THE CASE OF SHRI PRABIR DAS, KARIMGANJ VS. ITO, WARD-KARIMGANJ IV) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX AP PELLANT TRIBUNAL, PUNE - 'B' BENCH IN ITA NO. 05/PUN/2016 IN THE CASE OF SURESH JUGRAJ MUTHA VS. ADD. CIT , RANGE-3, DHULE. V) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX APP ELLANT TRIBUNAL, DELHI IN ITA NO. 144/DEL/2019 IN THE CASE OF CBS INTERNATION AL PROJECTS PVT LTD, NEW DELHI VS. ACLT, CIRCLE-5(2), NEW DELHI. VI) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX AP PELLANT TRIBUNAL, MUMBAI - 'G' BENCH IN ITA NO. 3098/MUM/2019 IN THE CASE OF M /S SU-RAJ DIAMOND DEALERS PVT LTD VS. PRINCIPAL COMMISSIONERS OF INCO ME TAX, MUMBAI VII) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX A PPELLANT TRIBUNAL, DELHI - 'G' BENCH IN IT A NO. 3098/MUM/20 19 IN THE CASE OF M/S SPOONER INDUSTRIES PVT LTD VS. ITO, WARD-3(5), HAPUR. VIII) COPY OF JUDGEMENT OF THE HON'BLE INCOME TAX APPELLANT TRIBUNAL, JAIPUR, 'A' BENCH IN ITA NO. 1419/JP/2019 IN THE CASE OF SM T. MANJU KAUSHIK VS. DCIT, RANGE -7, JAIPUR. 6. AS REGARDS THE MERITS OF THE ISSUE, HE SUBMITTED THAT THE ASSESSEES BOOKS OF ACCOUNT WERE AUDITED FOR THE EARLIER A.YS AS WELL AND THE NET PROFIT OFFERED BY THE ASSESSEE AND ACCEPTED BY THE ASSESSING OFFICER FOR ALL THESE YEARS WAS LESS THAN 4% AND THEREFORE, THE INCOME OFFERED BY 5 ITA NO.1438/HYD/2019 THE ASSESSEE SHOULD HAVE ACCEPTED BY THE ASSESSING OFFICER. ON THE ISSUE OF ASSESSING OFFICER EXCEEDING HIS JURISDICTI ON BY CONNECTING THE LIMITED SCRUTINY TO COMPLETE SCRUTINY WITHOUT THE A PPROVAL OF THE PR. CIT, THE LEARNED DR, SUBMITTED THAT THE ASSESSING OFFICE R HAS CONFINED HIMSELF TO THE POINTS FOR WHICH THE ASSESSMENT WAS SELECTED FOR LIMITED SCRUTINY UNDER CASS AND THE CIT (A) HAS PROPERLY AP PRECIATED THE ISSUE AND HAS RIGHTLY HELD THAT THE ASSESSING OFFICER HAS NOT EXCEEDED HIS JURISDICTION AND THAT THERE WAS NO CONVERSION OF LI MITED SCRUTINY INTO COMPLETE SCRUTINY. ON MERITS ALSO, HE PLACED RELIAN CE UPON THE ORDERS OF THE CIT (A) WHO HAS REDUCED THE PROFIT PERCENTAGE T O 6% OF THE TURNOVER. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL PLACED ON RECORD, WE FIND THAT THE POINTS FOR SELECTION OF TH E RETURN OF INCOME OF THE ASSESSEE FOR LIMITED SCRUTINY ARE: (I) WHETHER THE SALES TURNOVER/RECEIPTS HAVE BEEN C ORRECTLY OFFERED OR TAX? AND (II) WHETHER THE CONTRACT RECEIPTS/FEES HAVE BEEN C ORRECTLY OFFERED FOR TAX?. 8. FOR THIS PURPOSE, THE FIRST POINT TO BE EXAMINED IS WHETHER THE SALES TURNOVER DECLARED BY THE ASSESSEE WAS CORRECT OR NOT. THE ASSESSING OFFICER HAS VERIFIED AND FOUND FROM THE I.T DATA THAT THE ASSESSEE HAS RECEIVED CONTRACT RECEIPTS OF RS.8,03, 01,580/-. HE, THEREFORE, ACCEPT6ED IT AS CORRECT. AS REGARDS THE SECOND POINT, THE ASSESSING OFFICER HAD EXAMINED WHETHER THE CORRECT CONTRACT RECEIPTS HAVE BEEN OFFERED TO TAX. IN THIS REGARD WHEN THE A SSESSING OFFICER VERIFIED THE P&L A/C AND BALANCE SHEET OF THE ASSES SEE HE OBSERVED THAT THE ASSESSEE HAS DECLARED THE NET PROFIT AT RS .42,73,140/- AND THAT IT INCLUDED INDIRECT INCOME ALSO SUCH AS INTEREST I NCOME ON FDR AND INTEREST ON DEPOSITS AND ALSO REFUND OF VAT. SINCE THEY DID NOT FORM PART 6 ITA NO.1438/HYD/2019 OF BUSINESS RECEIPTS, HE REDUCED THEM FROM THE NET PROFIT DECLARED BY THE ASSESSEE. THE ASSESSING OFFICER, THEREFORE, WAS RIGHT IN CONSIDERING THE CONTRACT RECEIPTS AND WORKING OUT THE NET PROFI T FROM BUSINESS AND WHETHER THE NET PROFIT OFFERED BY THE ASSESSEE WAS CORRECT AND SINCE THE ASSESSEE HAS FAILED TO PRODUCE THE BOOKS OF ACCOUNT , THE ASSESSING OFFICER HAD NO OPTION BUT TO ESTIMATE THE INCOME OF THE ASSESSEE AT A PERCENTAGE OF THE TURNOVER. THEREFORE, AS RIGHTLY H ELD BY THE CIT (A), THE ASSESSING OFFICER HAS RESTRICTED HIMSELF TO THE POI NTS OF LIMITED SCRUTINY AND HAS NOT CONVERTED LIMITED SCRUTINY INTO COMPLET E SCRUTINY AS ALLEGED BY THE ASSESSEE AND THEREFORE, THERE WAS NO NEED FO R HIM TO OBTAIN THE APPROVAL OF THE PR. CIT BEFORE COMPLETING THE ASSES SMENT. THEREFORE, THE CASE LAW RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE CASE BEFORE US. THEREFORE, GROUND OF APPEAL NOS.1, 2 AND 3 ARE REJECTED. 9. AS REGARDS GROUND NO.4, WE FIND THAT THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST INCOME WAS FRO M THE FIXED DEPOSITS MADE WITH THE BANK FOR THE PURPOSES OF OFFERING BAN K GUARANTEES TO THE CONTRACTEES I.E. VARIOUS GOVT. DEPARTMENTS FROM WHO M THE ASSESSEE RECEIVED THE CONTRACTS AND THEREFORE, SUCH INTEREST INCOME ALSO SHOULD HAVE BEEN CONSIDERED AS BUSINESS INCOME WHILE COMPU TING THE NET PROFIT OFFERED BY THE ASSESSEE. 10. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE CIT (A) BUT HELD THAT THERE IS NO DIRECT NEXUS BETWEEN THE INTE REST FROM DEPOSITS AND THE ACTUAL BUSINESS OF THE ASSESSEE I.E., UNDERTAKI NG CONSTRUCTION CONTRACTS AND HENCE CANNOT BE CONSIDE3RED AS BUSINE SS INCOME OF THE ASSESSEE. 11. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE CIT (A) HAS HELD THAT THE INTEREST INCOME FROM FIXED DEPOSITS IS INCIDENTAL TO THE MAIN BUSINESS ACTIVIT IES, BUT HOWEVER, HE 7 ITA NO.1438/HYD/2019 FURTHER HELD THAT THE SAME CANNOT BE TERMED AS TRAD ING RECEIPTS OR INCOME DERIVED FROM THE BUSINESS OF THE ASSESSEE. T HE CIT (A) HAS PLACED RELIANCE UPON THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (S.C) AND THE ITAT DELHI SPECIAL BENCH DECISION IN THE CASE OF DCIT VS. ALLIED CONST RUCTIONS (2007) 291 ITR (AT) 16. TO COME TO THIS CONCLUSION, WE FIND T HAT IN THESE DECISIONS, THE HON'BLE COURTS HAVE HELD THAT THERE HAS TO BE D IRECT NEXUS BETWEEN THE INTEREST INCOME AND THE BUSINESS OF THE ASSESSE E. IN THE CASE OF ALLIED CONSTRUCTION (SUPRA), THE SPECIAL BENCH OBSE RVED THAT WHERE FDS MADE IN THE BANK WERE UTILIZED TO GIVE BANK GUARANT EES OR AS A PERFORMANCE SECURITY, THE INTEREST INCOME THEREFROM CANNOT BE SAID TO HAVE ANY NEXUS WITH THE BUSINESS OF THE ASSESSEE. T HE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO REBUT THESE F INDINGS OF THE CIT (A) WITH ANY EVIDENCE OR DECISION TO THE CONTRARY AND T HEREFORE, THE ASSESSEES GROUND OF APPEAL NO.4 IS ALSO REJECTED. 12. AS REGARDS THE ESTIMATION OF NET PROFIT AT 6% OF THE GROSS RECEIPTS BY THE CIT (A), THE LEARNED COUNSEL FOR THE ASSESSE E HAS RELIED UPON THE PERCENTAGE OF NET INCOME TO GROSS RECEIPTS IN THE E ARLIER YEARS TO PLEAD THAT THE NET PROFIT FOR THE RELEVANT A.Y IS 2.92% O F THE GROSS TOTAL TURNOVER AND IT SHOULD BE ACCEPTED. 13. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE CIT (A). 14. HAVING GONE THROUGH THE MATERIAL ON RECORD AND ALSO THAT THE AVERAGE NET PROFIT DISCLOSED BY THE ASSESSEE AND DE TERMINED BY THE ASSESSING OFFICER IN THE EARLIER A.Y IS IN THE RANG E OF 2.5% TO 5.8%, WE DEEM IT FIT AND PROPER TO RESTRICT THE NET PROFIT T O 5% OF THE GROSS TOTAL TURNOVER DURING THE RELEVANT A.Y. IN THE RESULT, AS SESSEES GROUND OF APPEAL NO.5 IS TREATED AS PARTLY ALLOWED. 8 ITA NO.1438/HYD/2019 15. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2021. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DT.9 TH JUNE, 2021. PVV/SPS COPY TO : 1. M/S. DWARKA PERSHAD RADHEY RAMANLAL,5-2-103/104, R.P.ROAD, SECUNDERABAD-500 003 2. DCIT,CIRCLE 10(1), HYDERABAD. 3. PR. C I T-6, HYDERABAD. 4. CIT(APPEALS)-6, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE. BY ORDER