ACIT, Hyderabad V. M/s Essvy Constructions, Secunderabad

ITA 149/HYD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3018 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Depreciation
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA-149/HYD/2010 ASSESSMENT YEAR 2006-07 THE ACIT, CIRCLE 3 (3), HYDERABAD VS M/S ESSVY CONSTRUCTIONS, SECUNDERABAD (PAN AAAFE 9281 F) (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. NIVEDITA BISWAS, DR RESPONDENT BY: SHRI A.V. RAGHURAM O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) VI, HYDERABAD DATED 12.11.2009 A ND PERTAIN TO THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE RAISED THE FIRST TWO GROUNDS IN ITS APPEAL ARE AS FOLLOWS: 2. THE PERCENTAGE OF PROFITS DEPENDS ON THE NATURE OF WORKS EXECUTED. THE WORK EXECUTED BY THE ASSESSEE ARE NOT IDENTICAL WITH THE WORKS EXECUTED BY M/S THAHIR ALI CONSTRUCTIONS. THEREFOR E THE CIT(A) IS NOT CORRECT TO ADOPT THE PROFITS APPLICABLE TO M/S THAH IR ALI CONSTRUCTIONS TO THE ASSESSEE. 3. AS PER THE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF INDWEL CONSTRUCTIONS VS. CIT (232 ITR 776) WHEN INCOME IS ESTIMATED BY REJECTING THE BOOKS OF ACCOUNTS, ALL THE EXPENDITUR E COVERED BY THE PROVISIONS OF SEC.30 TO SEC.43D ARE DEEMED TO HAVE BEEN ALLOWED. THE CIT(A) IS NOT CORRECT IN ALLOWING REMUNERATION AND INTEREST FROM THE ESTIMATED INCOME. ITA NO.149/HYD/2010 M/S ESSVY CONSTRUCTIONS, SECUNDERABAD 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE STATUS OF A FIRM CARRIED ON THE BUSINESS OF CIVIL CONSTRUCTION AND FI LED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2006-07 ON 31.10.2006 DE CLARING TOTAL INCOME AT RS.31,18,490/-. THE ASSESSING OFFICER REJECTED T HE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME AT 10% OF GROSS RECEIPTS ON THE MAIN CONTRACTS AND 8% ON THE SUB CONTRACTS. ON APPEAL CIT(A) DIRECTED THE ASSESSING OFFICER TO COMPUTE THE INCOME AT 7% ON GROSS ON M AIN CONTRACTS AND 5% ON SUB CONTRACTS. HE ALSO DIRECTED THE ASSESSI NG OFFICER TO ALLOW INTEREST ON CAPITAL AND SALARY TO PAR TNERS AFTER ESTIMATING THE INCOME. AGAINST THIS THE REVENUE IS IN APPEAL BEF ORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. SIMILAR ISSUES WERE CAME UP FOR CO NSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF M/S TEJA CONSTRUCTIO NS VS. ACIT, HYDERABAD IN ITA NO.308/HYD/2009 DATED 23/10/2009 W HEREIN IT WAS HELD THAT : 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. IN THE PRESENT CASE, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT ON THE REASON THAT, THE ASSESSEE NOT MAINTAINED PROPER BOOKS OF ACCOU NT AND ALSO FAILED TO PRODUCED VOUCHERS FOR VERIFICATION AND THE EXPENDITURE CLAIMED BY THE ASSESSEE ARE NOT SUBSTANTIATED. THE ASSESSEE IN EARLIER YEARS ALSO HAVE NOT MAINTAINED THE PROPER BOOKS OF ACCOUNT. THE ASSESSEE'S PAST TRACK RECORDS S HOW THAT THE ASSESSEE HAS NEGLECTED THE PRESENTING OF THE BOOKS OF ACCOUNT IN ACCORDANCE WITH LAW. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY ON TH E PART OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT SUPPORTED BY PROPER BIL LS AND VOUCHERS. SINCE THE ASSESSEE NOT PRODUCED THE PROPER BOOKS OF ACCOUNT, TR UE PROFITS OR LOSS CANNOT BE DEDUCED FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER HAVING NO OTHER OPTION REJECTED THE BOOKS OF ACCOUNT AND ESTIMAT ED THE INCOME AT 10% OF GROSS RECEIPTS. BUT THE POSITION IS THAT, THE ASSESSEE IS CARRYING ON THREE KINDS OF CONTRACTS, AS IN EARLIER YEARS., I.E. (I) OWN CONTRACTS, (II) CON TRACTS TAKEN FROM THE SUB CONTRACTORS, (III) CONTRACTS GIVEN TO OTHER PARTIES O N SUB CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY TH E ASSESSEE ITSELF. IN THESE CONTRACTS, THE ASSESSEE AGREED THAT HIS INCOME IS AT 9% OF THE GROSS RECEIPTS. THUS, ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ESTIMAT E THE INCOME ON THE CONTRACTS EXECUTED BY THE ASSESSEE'S OWN AT 9%. IN CASE OF CONT RACTS TAKEN BY ASSESSEE ON SUB CONTRACT, THE INCOME TO BE ESTIMATED AT 8% OF THE GROS S RECEIPTS. IN CASE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE 3RD PARTY ON SUB CONTRAC T, INCOME TO BE ESTIMATED AT 4%. THIS IS, BECAUSE, WHEN THE ASSESSEE GIVEN CONTRACT TO THE OTHER PARTIES ON SUB CONTRACT, THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9%, IT HAS TO FORGO CERTAIN PORTION OF PROFIT I.E. AROUND 5% TO THE SUB CONTRACTORS. SIMILAR POSITION ITA NO.149/HYD/2010 M/S ESSVY CONSTRUCTIONS, SECUNDERABAD 3 IN THE CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB CONT RACT FROM OTHER PARTIES. FURTHER, IN OUR OPINION, THE ASSESSEE IS ENTITLED FOR DEPREC IATION AND REMUNERATION, AND INTERESTS TO PARTNERS ON THE PROFIT ESTIMATED BY ASSE SSING OFFICER AT APPLICABLE RATES, BECAUSE THE INCOME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AND INTEREST AND REMUNERATION OF THE PARTNERS. ACCORDINGL Y, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. ACCORD INGLY, THIS GROUND OF THE ASSESSEE APPEAL IS PARTLY ALLOWED. 5. RESPECTFULLY FOLLOWING THE SAME RATIO LAID DOWN I N THE ORDER CITED SUPRA, WE DIRECT THE ASSESSING OFFICER TO ASSESS THE INCOM E OF THE ASSESSEE AT 9% OF THE GROSS RECEIPTS IN CASE OF MAIN CONTRACTS A ND 8% IN CASE OF SUB CONTRACTS RECEIPTS AND THEREAFTER THE ASSESSEE IS ENTITLED FOR DEDUCTION TOWARDS REMUNERATION, AND INTERESTS TO PARTNERS ON THE PROF IT ESTIMATED . ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS PART LY ALLOWED. 6. THE NEXT IS WITH REGARD TO DELETION OF ADDITION MADE ON ACCOUNT OF INTEREST RECEIVED FROM THE FIXED DEPOSITS. TH E ASSESSING OFFICER HAS MADE SEPARATE ADDITION OF INTEREST FROM FIX ED DEPOSIT TREATING THE SAME AS SURPLUS MONEY BY INVOKING THE DECISION OF THI S TRIBUNAL IN THE CASE OF ALLIED CONSTRUCTIONS REPORTED IN 291 ITR 16 (AT) ( DELHI). ON THE OTHER HAND, THE CIT(A) DELETED THE ADDITION ON THE REASON THAT THE FIXED DEPOSIT MADE BY THE ASSESSEE WAS NOT OUT OF SUR PLUS FUNDS, THEY HAVE BEEN OFFERED EMD AND SECURITY DEPOSITS AS PER THE REQUIREMENTS OF INDIAN RAILWAYS AND ALSO THE BANK INTE REST RECEIVED ON FIXED DEPOSIT WHICH MADE TOWARDS MARGIN MONEY. THE CI T(A) FURTHER OBSERVED THAT INTEREST INCOME ON DEPOSITS IS PART AND PAR CEL OF BUSINESS INCOME OF THE ASSESSEE AND THERE CANNOT BE ANY SEPARATE AD DITION ON THIS COUNT. AGAINST THIS THE REVENUE IS IN APPEAL BEFO RE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATER IAL AVAILABLE ON RECORD ON THIS ISSUE. THE INTEREST HAS BEE N RECEIVED ON DEPOSITS MADE BY THE ASSESSEE IN BANK OF BARODA. THE CONT ENTION OF THE ITA NO.149/HYD/2010 M/S ESSVY CONSTRUCTIONS, SECUNDERABAD 4 ASSESSEE IS THAT THIS HAS BEEN MADE AS PER REQUIREMENT OF T HE INDIAN RAILWAYS AS AN EMD AND THE SECURITY DEPOSITS OFFERED EITH ER WAY OF FIXED DEPOSIT OR BANK GUARANTEE. ACCORDING TO THE LEARNED CO UNSEL, THE ORDER OF THE TRIBUNAL CITED SUPRA IS IN FAVOUR OF THE ASSESSEE. HE DREW OUR ATTENTION TO THE PARA NOS.24, 25, 38 OF THAT ORDER. WE HAVE CAREFULLY GONE THROUGH THE ABOVE ORDER OF THIS TRIBUNAL. IN O UR OPINION, THE ABOVE ORDER DOES NOT HELP THE ASSESSEE. THE ASSESSEE HAS R ECEIVED INTEREST ON DEPOSITS AS NOT PART OF BUSINESS INCOME. EV EN THE DEPOSITS HAVE BEEN MADE FOR THE PURPOSE OF MEETING THE SOME B USINESS REQUIREMENTS, THEN ALSO IT CANNOT BE CONSIDERED AS INCOM E FROM BUSINESS AS THERE IS NO NEXUS BETWEEN THE BUSINESS AND INT EREST INCOME. INTEREST INCOME WAS EARNED FROM DEPOSITS AND NOT FROM BU SINESS OF THE ASSESSEE. IN OUR HUMBLE OPINION, THE INTEREST INCOME IS T O BE ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES AND NOT AS BUSINE SS INCOME. EVEN IN THE ASSESSMENT YEARS, IF THE ASSESSEE HAS NOT CARRIED ON BUSINESS, THE INTEREST WOULD HAVE BEEN ACCRUED TO THE ASSE SSEE. THE ASSESSEE HAD PUT THE MONEYS INTO FIXED DEPOSITS WITH THE B ANK AND HAD EARNED INCOME IN THE ASSESSMENT YEAR IN QUESTION ON THE D EPOSITS. AS SUCH, IT IS TO BE ASSESSED INCOME FROM OTHER SOURCES SEPARATEL Y. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 16.7.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 16 TH JULY, 2010 ITA NO.149/HYD/2010 M/S ESSVY CONSTRUCTIONS, SECUNDERABAD 5 COPY FORWARDED TO: 1. M/S ESSVY CONSTRUCTIONS, 199, THIRUMALA CONSTRUCTIONS, 2 ND FLOOR, SIKH VILLAGE, SECUNDERABAD. 2. ACIT, CIRCLE 10 (1), ROOM NO.515, AC GUARDS, IT TO WER, HYDERABAD 3. CIT(A)-VI, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP