M/s Sri Sai Sampath Constructions, Visakhapatnam V. THE ITO., WARD-1(1), Visakhapatnam

ITA 145/VIZ/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2025 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: I SARISH KUMARDR
• Keywords: Rejection of books of accounts; Depreciation
• Section: 142(1); 234B

Judgement Text

ITA NO.145/VIZAG/2013 SRI SAI SAMPATH CONSTRUCTIONS, VSKP 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.145/VIZAG/2013 ( / ASSESSMENT YEAR: 2007-08) SRI SAI SAMPATH CONSTRUCTIONS VISAKHAPATNAM VS. ITO , WARD - 1(1) , VISAKHAPATNAM [PAN: ABCFS 9063Q] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI I. SARISH KUMAR,DR / DATE OF HEARING : 02.03.201 6 / DATE OF PRONOUNCEMENT : 18.03.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 28.1.2013 AND IT PERTAI NS TO THE ASSESSMENT YEAR 2007-08. ITA NO.145/VIZAG/2013 SRI SAI SAMPATH CONSTRUCTIONS, VSKP 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM, WHICH IS ENGAGED IN THE BUSINESS OF CONSTRUCT ION OF APARTMENTS. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 19.10.2007 DECLARING TOTAL INCOME AT RS. 2,60,180/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY, NOTICE U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HE REINAFTER CALLED AS THE ACT) WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FURNISHED THE BOOKS OF ACCOUNTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON EXAMINATION OF BOOKS OF ACCOUNTS AN D VOUCHERS PRODUCED BY THE ASSESSEE, THE A.O. NOTICED THAT THE PROFIT DECLARED BY THE ASSESSEE IS LESS, WHEN COMPARED TO ITS TOTAL TU RNOVER. THE A.O. FURTHER OBSERVED THAT THE EXPENDITURE CLAIMED LIKE BRICKS, SAND, METAL AND OTHER EXPENSES HAVE BEEN INCURRED MAINLY IN CAS H AND ARE SUPPORTED BY SELF MADE VOUCHERS. SINCE, THE ASSESSE E COULD NOT ABLE TO SUBSTANTIATE THE EXPENDITURE WITH SUPPORTING BILLS AND VOUCHERS, THE A.O. REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED T HE NET PROFIT FROM THE BUSINESS. WHILE DOING SO, THE A.O. BIFURCATED TH E GROSS TURNOVER INTO TWO PARTS I.E. RECEIPT FROM SALE OF LAND AND RECEIP T FROM CONSTRUCTION OF APARTMENTS AND APPLIED NET PROFIT @ 12.5% ON TOTAL TURNOVER PERTAINS TO SALE OF LAND WITHOUT ALLOWING ANY FURTHER DEDUCTION S TOWARDS ITA NO.145/VIZAG/2013 SRI SAI SAMPATH CONSTRUCTIONS, VSKP 3 DEPRECIATION INTEREST ON PARTNERS CAPITAL AND REMU NERATION TO PARTNERS. SIMILARLY, THE A.O. HAS ESTIMATED NET PROFIT OF 12. 5% ON TOTAL TURNOVER PERTAINS TO CONSTRUCTION OF APARTMENTS AND FURTHER ALLOWED DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE SUBMITTED THAT THE A.O. ERRED IN REJECTION OF BOOKS OF ACCOUN TS AND ESTIMATION OF NET PROFIT, WITHOUT POINTING OUT ANY MISTAKES IN TH E BOOKS OF ACCOUNTS. THE ASSESSEE FURTHER SUBMITTED THAT THE NET PROFIT ESTIMATED BY THE A.O. IS QUITE HIGH, WHEN COMPARED TO THE NATURE OF BUSIN ESS AND SIZE OF TURNOVER FOR THE YEAR UNDER CONSIDERATION. THE ASSE SSEE FURTHER SUBMITTED THAT THE A.O. HAS ERRED IN BIFURCATING TH E TURNOVER INTO TWO PARTS I.E. RECEIPTS FROM SALE OF LANDS AND RECEIPTS FROM CONSTRUCTION OF APARTMENTS AND APPLYING DIFFERENT METHOD OF ESTIMAT ION OF NET PROFIT. THE CIT(A), AFTER CONSIDERING THE EXPLANATIONS FURN ISHED BY THE ASSESSEE DIRECTED THE A.O. TO ADOPT 12.5% NET PROFIT ON TOTA L TURNOVER INCLUDING RECEIPTS FROM LANDS AND RECEIPTS FROM CONSTRUCTION CONTRACTS. THE CIT(A) FURTHER HELD THAT THE METHOD ADOPTED BY THE A.O. FO R ESTIMATION OF NET PROFIT IS INCONSISTENT WITH THE PROVISIONS OF LAW. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.145/VIZAG/2013 SRI SAI SAMPATH CONSTRUCTIONS, VSKP 4 4. THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT THE CIT(A) WAS ERRED IN ESTIMATING THE NET PROFIT @ 12.5%. THE A.R. FURT HER SUBMITTED THAT THE NET PROFIT ESTIMATED BY THE CIT(A) IS QUITE HIG H WHEN COMPARED TO THE NATURE OF BUSINESS OF THE ASSESSEE. THEREFORE, REQUESTED TO SCALE DOWN THE ESTIMATION OF NET PROFIT FROM 12.5% TO 8%. ON THE OTHER HAND, THE LD. D.R. OF THE ASSESSEE STRONGLY SUPPORT ED THE ORDER OF THE CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED 1 2.5% NET PROFIT FROM THE BUSINESS. THE A.O. WAS OF THE OPINION THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUPPORT ED BY PROPER BILLS & VOUCHERS. THE EXPENDITURE CLAIMED BY THE ASSESSEE S UCH AS BRICKS, SAND AND OTHER DIRECT EXPENDITURE IS SUPPORTED BY SELF M ADE VOUCHERS AND ALSO MAINLY INCURRED IN CASH. THEREFORE, REJECTED T HE BOOKS OF ACCOUNTS AND RESORTED TO ESTIMATION OF NET PROFIT. THE A.O. ESTIMATED NET PROFIT OF 12.5% ON THE TURNOVER PERTAINS TO RECEIPTS FROM SAL E OF LAND WITHOUT FURTHER DEDUCTIONS TOWARDS SALARY AND REMUNERATION TO PARTNERS. THE A.O. FURTHER ESTIMATED NET PROFIT OF 12.5% ON GROSS RECEIPTS PERTAINS TO CONSTRUCTION OF APARTMENTS AND ALLOWED FURTHER DEDU CTIONS TOWARDS ITA NO.145/VIZAG/2013 SRI SAI SAMPATH CONSTRUCTIONS, VSKP 5 REMUNERATION, SALARY TO PARTNERS AND INTEREST ON PA RTNERS CAPITAL ACCOUNT. IT WAS THE CONTENTION OF THE ASSESSEE THA T THE METHOD OF COMPUTATION OF NET PROFIT APPLIED BY THE A.O. IS IN CONSISTENT WITH THE PROVISIONS OF LAW. THE ASSESSEE FURTHER SUBMITTED T HAT THE NET PROFIT ESTIMATED BY THE A.O. AS WELL AS CONFIRMED BY THE C IT(A) IS QUITE HIGH WHEN COMPARED TO THE PREVAILING MARKETING CONDITION S AND ALSO NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSE E AND ORDERS OF THE AUTHORITIES BELOW. THE A.O. AS WELL AS CIT(A) H AVE ESTIMATED THE NET PROFIT AT 12.5% ON GROSS TURNOVER. IT WAS THE CONTE NTION OF THE ASSESSEE THAT THE NET PROFIT ESTIMATED BY THE AO AS WELL AS CIT(A) IS QUITE HIGH. THEREFORE, REQUESTED TO SCALE DOWN THE NET PROFIT T O 8%. FROM THE FACTS AVAILABLE ON RECORDS, WE FIND THAT THE A.O. AS WELL AS CIT(A) HAS ADOPTED 12.5% NET PROFIT FROM THE BUSINESS. HOWEVE R, BOTH THE AUTHORITIES HAVE FAILED TO SUBSTANTIATE THE RATE OF NET PROFIT WITH ANY COMPARABLE CASES OR OTHER EVIDENCES. AT THE SAME TI ME, THE ASSESSEE ALSO FAILED TO FURNISH ANY EVIDENCES IN SUPPORT OF HIS CLAIM THAT THE NET PROFIT FROM THE BUSINESS IS ONLY 8%. UNDER THESE CI RCUMSTANCES, TO MEET THE ENDS OF JUSTICE, WE DEEM IT APPROPRIATE TO ESTI MATE THE NET PROFIT OF 10% ON TOTAL TURNOVER FROM THE BUSINESS. ACCORDINGL Y, WE DIRECT THE ITA NO.145/VIZAG/2013 SRI SAI SAMPATH CONSTRUCTIONS, VSKP 6 A.O. TO ADOPT 10% NET PROFIT ON TOTAL TURNOVER AND FURTHER ALLOW DEDUCTIONS TOWARDS DEPRECIATION, INTEREST ON PARTNE R CAPITAL AND REMUNERATION TO PARTNERS. ACCORDINGLY, THE GROUND R AISED BY THE ASSESSEE IS PARTLY ALLOWED. 7. THE NEXT ISSUE CAME UP FOR OUR CONSIDERATION IS LEVY OF INTEREST U/S 234B OF THE ACT. THE LEVY OF INTEREST U/S 234B IS C ONSEQUENTIAL AND MANDATORY IN NATURE AND A.O. DOES NOT HAVE ANY DISC RETIONARY POWERS. THEREFORE, WE DISMISS THE GROUND RAISED BY THE ASSE SSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 TH MAR16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 18.03.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI SAI SAMPATH CONSTRUCTIONS, 2 6-44-11/1, KIRLAMPUDI LAY OUT, VISAKHAPATNAM, 2. / THE RESPONDENT ITO WARD-1(1), VISAKHAPATNAM 3. + / THE CIT-1, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM