THE ACIT, CIRCLE - 1, Rajahmundry V. Shri Akkina Muni Koteswara Rao, Rajahmundry

ITA 158/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9851 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts
• Section: 142(1); 14A; 145

Judgement Text

ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 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.NOS.158&159/VIZAG/2014 ( / ASSESSMENT YEAR:2009-10 & 2010-11) ACIT, CIRCLE - 1, RAJAHMUNDRY VS. SHRI AKKINA M U NI K OTESWARA RAO, RAJAHMUNDRY [PAN: ABDPA9567E ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI ARAVINDAKSHAN, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 15.09.2016 / DATE OF PRONOUNCEMENT : 22.09.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AG AINST THE COMMON ORDER PASSED BY THE CIT(A), VISAKHAPATNAM DA TED 14.2.2014 FOR THE ASSESSMENT YEAR 2009-10 & 2010-11. SINCE, THE FACTS ARE ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 2 IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OFF, BY WAY OF THIS COMMON ORDER FOR THE S AKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF WORKS CONTRACT FOR INDIA N RAILWAYS, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 & 2010-11 DECLARING TOTAL INCOME OF RS.25,08,288/- AND RS.15,84,960/-, BESIDES AGRICULTURAL INCOME OF RS.35,000/- AND RS.40,000/- RESPECTIVELY. THE CASE HAS BEEN SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY, N OTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTI CES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND PRODUCED BOOKS OF ACCOUNTS, COPIES OF LEDGER ACCOUN TS, COPIES OF AGREEMENT AND OTHER INFORMATION CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS GOT CONTRACT FOR SUPPLY OF MACHINES CRUSHED STONE BALLA ST TO INDIAN RAILWAYS, WHICH WAS SUB CONTRACTED TO M/S. CHERUKUR I VEERRAJU & CO., RAJAHMUNDRY. THE ASSESSEE HAS SUB CONTRACTED THE E NTIRE WORKS CONTRACT TO M/S. CHERUKURI VEERRAJU & CO., BY RETAI NING A MARGIN OF 1.25% ON THE TOTAL CONTRACT VALUE. THE REASONS GIV EN BY THE ASSESSEE FOR SUB CONTRACTING THE WORK TO M/S. CHERUKURI VEER RAJU & CO. IS THAT THE FIRM HAD REQUIRED EXPERIENCE AND EQUIPMENT TO HANDL E SUCH TYPE OF WORKS CONTRACT. ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 3 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE ARE NOT SUSCEPTIBLE FOR VERIFICATION, AS THE ASSESSEE HAS F AILED TO ACCOUNT SECURITY DEPOSIT DEDUCTED BY INDIAN RAILWAYS IN THE WORK BILLS IN THE BOOKS OF ACCOUNTS. THE A.O. FURTHER OBSERVED THAT ON VERIFICATION OF LEDGER ACCOUNTS OF THE SECURITY DEPOSIT (SEIGNORAGE DEPOSIT), IT WAS FOUND THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS .38,79,632/-, HOWEVER, ON CROSS VERIFICATION OF THE RELEVANT ENTR IES, THE INDIAN RAILWAYS HAS NOT DEDUCTED ANY SEIGNORAGE CHARGES IN RESPECT OF HARD AND DURABLE MACHINES CRUSHED STONE BALLAST OF 50MM GAZE. THEREFORE, THE A.O. WAS OF THE OPINION THAT THE BOOKS OF ACCOU NTS OF THE ASSESSEE ARE NOT SHOWING TRUE AND CORRECT POSITION OF FINANC IAL RESULTS AND HENCE, REJECTED THE BOOKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 145 OF THE ACT AND ESTIMATED NET PROFIT OF 10% ON TOTAL CO NTRACT RECEIPTS. BESIDES, THE A.O. MADE FURTHER ADDITIONS TOWARDS DI SALLOWANCE OF INTEREST UNDER SECTION 14A OF THE ACT FOR WHICH THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AGREED. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 4 THAT THE A.O. WAS ERRED IN REJECTION OF BOOKS OF AC COUNTS, AS THE DISCREPANCIES NOTICED BY THE A.O. ARE NOT CORRECT. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS CONSIDERED SECURITY DEPOSIT DEDUCTED BY INDIAN RAILWAYS FOR THE WORK BILLS WHICH WAS DEB ITED TO SEPARATE LEDGER ACCOUNT UNDER THE HEAD SECURITY DEPOSIT, T HEREFORE, THE A.O. WAS NOT CORRECT IN HOLDING THAT THE BOOKS OF ACCOUN TS ARE NOT SUSCEPTIBLE FOR VERIFICATION. AS REGARDS ESTIMATION OF NET PRO FIT, THE ASSESSEE SUBMITTED THAT HE HAD SUB CONTRACTED TOTAL WORKS TO A PARTNERSHIP FIRM WHEREIN HE IS ONE OF THE PARTNER, BECAUSE THE FIRM HAD RELEVANT EXPERIENCE AND MACHINES TO UNDERTAKE THE WORK, THER EFORE, THE A.O. WAS ERRED IN ESTIMATION OF 10% NET PROFIT ON TOTAL CONTRACT RECEIPTS, INSPITE OF PRODUCING AGREEMENT BETWEEN THE FIRM AND THE ASSESSEE, WHEREIN THE PROFIT MARGIN WAS RETAINED AT 1.25% OF TOTAL CONTRACT BILLS. SIMILARLY, AS REGARDS DISALLOWANCE OF INTEREST U/S 14A OF THE ACT, IT WAS SUBMITTED THAT WHEN NET PROFIT IS ESTIMATED ON GROS S CONTRACT RECEIPTS FURTHER ADDITIONS TOWARDS INTEREST U/S 14A OF THE A CT IS UNWARRANTED. 5. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, HELD THAT NONE OF THE DEFICIENCIES POINTED OUT BY T HE A.O., IN THE BOOKS OF ACCOUNTS WERE FOUND TO BE CORRECT. THE A.O. HAS POINTED OUT CERTAIN DISCREPANCIES WITH REGARD TO ACCOUNTING OF SECURITY DEPOSITS DEDUCTED ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 5 FROM WORK BILLS, HOWEVER, FROM THE FACTS IT REVEALS THAT THE ASSESSEE HAS CONSIDERED SECURITY DEPOSIT DEDUCTED FROM WORK BILL S UNDER THE HEAD SECURITY DEPOSIT (SEIGNORAGE CHARGES), THEREFORE, THE A.O. WAS NOT CORRECT IN REJECTION OF BOOKS OF ACCOUNTS WITHOUT P OINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS, WITH THE SE OBSERVATIONS, DIRECTED THE A.O. TO DELETE ESTIMATION MADE ON GROS S CONTRACT RECEIPTS. AS REGARDS SEPARATE ADDITIONS TOWARDS INTEREST, THE CIT(A) HELD THAT SINCE THE ASSESSEE HAS AGREED FOR ADDITIONS TOWARDS INTEREST BEFORE THE A.O., THE PRINCIPLE OF PROMISSORY ESTOPPEL WOULD DE BAR THE ASSESSEE FROM RAISING THIS ISSUE IN THE PRESENT APPEAL. WITH THESE OBSERVATIONS, UPHELD THE ADDITIONS MADE BY THE A.O. TOWARDS INTER EST U/S 14A OF THE ACT. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. D.R. SUBMITTED THAT THE CIT(A) IS NOT CO RRECT IN DELETING ADDITIONS ON ACCOUNT OF ESTIMATION OF NET PROFIT, A S THE A.O. HAS REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 1 0%. THE D.R. FURTHER SUBMITTED THAT THE ASSESSEE FAILED TO ADDUC E ANY VALID REASONS FOR SUB CONTRACTING THE WORK TO M/S. CHERUKURI VEER RAJU & CO., AS THE CONTRACT ENTERED INTO BY THE ASSESSEE WITH M/S. IND IAN RAILWAYS PROHIBITS ANY SUB CONTRACT OF WORKS TO THIRD PARTIE S. THE D.R. FURTHER ARGUED THAT THE CIT(A) DELETED THE ADDITIONS ONLY O N ASSUMPTIONS AND ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 6 PRESUMPTIONS WITHOUT CONSIDERING THE SUBMISSION PRE SENTED BY A.O. IN HIS REMAND REPORT THAT THE SUB CONTRACT AGREEMENT B ETWEEN CHERUKURI VEERRAJU & CO. AND THE ASSESSEE, NO WAY SPECIFIES T HE PERCENTAGE OF INCOME AND TRANSFER OF PROFIT WAS NOT QUANTIFIED, T HEREFORE, THE A.O. HAS RIGHTLY ESTIMATED NET PROFIT OF 10% AND HIS ORDER S HOULD BE UPHELD. 7. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). 8. 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 BOOKS OF ACCOUNTS UNDER THE PROVISION S OF SECTION 145 OF THE ACT AND ESTIMATED NET PROFIT OF 10% ON GROSS CO NTRACT RECEIPTS. THE A.O. WAS OF THE OPINION THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, AS THE BOOKS OF A CCOUNTS MAINTAINED BY THE ASSESSEE ARE FOUND WITH NUMBER OF DISCREPANCIES . ACCORDING TO THE A.O., THE ASSESSEE HAS NOT CONSIDERED SECURITY DEPO SIT DEDUCTED BY THE INDIAN RAILWAYS FROM THE WORK BILLS. THE A.O. FURT HER WAS OF THE OPINION THAT THE ASSESSEE HAS NOT ADDUCED ANY VALID REASONS FOR SUB CONTRACTING THE WORK TO A PARTNERSHIP FIRM WHEREIN THE ASSESSEE WAS ONE OF THE PARTNER. IT IS THE CONTENTION OF THE ASSESSEE THAT THE A.O. WAS NOT CORRECT IN OBSERVING THAT THE BOOKS OF ACCOUNTS ARE NOT SHOWING TRUE ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 7 AND CORRECT FINANCIAL POSITION OF THE ASSESSEE. TH E ASSESSEE FURTHER CONTENDED THAT NONE OF THE DISCREPANCIES POINTED OU T BY THE A.O. ARE CORRECT AS HE HAD ACCOUNTED SECURITY DEPOSIT DEDUCT ED BY INDIAN RAILWAYS AND KEPT UNDER SEPARATE LEDGER ACCOUNT UND ER THE NAME SECURITY DEPOSIT (SEIGNORAGE DEPOSIT) AND COPIES OF WHICH WERE FILED BEFORE THE A.O. THEREFORE, THE A.O. WAS ERRED IN R EJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF NET PROFIT OF 10% ON GRO SS CONTRACT RECEIPTS IGNORING EVIDENCES FILED IN THE FORM OF AGREEMENT B ETWEEN M/S. CHERUKURI VEERRAJU & CO. AND THE ASSESSEE, WHEREIN MARGIN OF 1.25% WAS KEPT ON TOTAL CONTRACT RECEIPTS. 9. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FO R THE REASON THAT THE ASSESSEE HAS SUB CONTRACTED ENTIRE WORKS CONTRA CT TO M/S. CHERUKURI VEERRAJU & CO. BY AN AGREEMENT AND AS PER THE SAID AGREEMENT, THE ASSESSEE HAS RETAINED 1.25% MARGIN ON TOTAL CONTRAC T RECEIPTS, WHICH WAS NOT DISPUTED BY THE A.O. THE A.O. REJECTED BOO KS OF ACCOUNTS FOR THE SIMPLE REASON THAT THE ASSESSEE HAS NOT CONSIDE RED SECURITY DEPOSIT DEDUCTED BY THE INDIAN RAILWAYS IN HIS BOOKS OF ACC OUNTS. BUT THE FACT IS THAT THE ASSESSEE HAS CONSIDERED SECURITY DEPOSI T DEDUCTED BY INDIAN RAILWAYS AND KEPT UNDER SEPARATE HEAD SECURITY DEP OSIT (SEIGNORAGE CHARGES), THE COPIES OF WHICH WERE FURNISHED BEFOR E THE A.O. AS ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 8 REGARDS THE SUB CONTRACT OF SUPPLY CONTRACT TO PART NERSHIP FIRM, THE ASSESSEE HAS GIVEN REASON THAT THE CONCERNED FIRM H AD RELEVANT EXPERIENCE AND EQUIPMENTS TO HANDLE SUCH TYPE OF WO RKS CONTRACT. THE A.O. WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS AND ALSO THE MODUS OPERANDI OF THE ASSESSEE, SIMPLY DISBELIE VED THE SUB CONTRACT AGREEMENT AND ESTIMATED NET PROFIT OF 10% WHICH IS INCORRECT. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE AS SESSEE AND RELEVANT DETAILS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. TOWARDS ESTIMATION OF NET PROFIT. WE DO NOT SEE ANY REASONS TO INTERFERE WITH THE ORDER OF THE CIT(A) AND HENCE WE INCLINED TO UPHOLD THE CIT(A) O RDER AND REJECT THE APPEAL FILED BY THE REVENUE. 10. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS.158 & 159/VIZAG/2014 ARE DISMISSED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND SEPT16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 22.09.2016 VG/SPS ITA NO.158&159/VIZAG/2014 SHRI AKKINA MUNI KOTESWARA RAO, RAJAHMUNDRY 9 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-1, RAJAHMUNDRY 2. / THE RESPONDENT SHRI AKKINA MUNI KOTESWARA RAO, D.NO.24-14-105, RV NAGAR, RAJAHMUNDRY 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM