ITO, Mancherial V. M/s. Renu Singh & Co., Adilabad

ITA 1622/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59192 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V RAGHURAM
• Assessee Lawyers: B V PRASAD REDDY
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1622/HYD/2010 ASSESSMENT YEAR 2006-07 THE ITO, WARD -1, MANCHERIAL VS M/S RENU SINGH & CO., ADILABAD (PAN AABEFR7621P) APPELLANT RESPONDENT CO.NO.87/HYD/2011 IN ITA NO. 1622/HYD/2010 ASSESSMENT YEAR 2006-07 M/S RENU SINGH & CO., ADILABAD (PAN AABEFR7621P) VS THE ITO, WARD -1, MANCHERIAL APPELLANT RESPONDENT ASSESSEE BY : SHRI B.V. PRASAD REDDY REVENUE BY : SHRI A.V. RAGHURAM DATE OF HEARING : 4.1.2012 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A) VI, HYDERABAD DATED 30.9.2010 AND IT PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS A FIRM ENGAGED IN SUPPLY OF LABOUR OF INDUSTRIAL REQUIREME NTS. FOR THE ASSESSMENT YEAR 2006-07 IT HAS FILED ITS RETURN OF INCOME ADMITTING AN INCOME OF RS 2,11,810/- THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AFTER SCRUTINY DETERMINING THE INCOME ITA NO.1622 OF 2010 & CO.87 OF 2011 M/S RENU SINGH & CO., ADILABAD 2 2 AT RS 27,17,900/- WHILE DOING SO THE ASSESSING OFF ICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME AT 10 % ON THE CONTRACT RECEIPTS CLEAR OF DEPRECIATION AND DEDUCTI ON U/S 40(B). 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SUBMITTED THAT IN LABOUR CONTRACTS THE MARGIN WILL BE VERY LOW AND THAT EVEN IN EARLIER YEARS THE ASSESSMENT WAS M ADE AFTER SCRUTINY AND ONLY ESTIMATED DISALLOWANCES WERE MAD E WHEREAS THE BOOKS WERE NOT REJECTED TO ESTIMATE INCOME. 4. THE ASSESSING OFFICER HOWEVER REJECTED THE BOOK S OF ACCOUNT AND ESTIMATED INCOME AT 10% MERELY STATING THAT THE RATE OF INCOME IS 10 TO 12% IN THIS LINE. 5. ON FURTHER APPEAL BEFORE THE CIT(A), THE CIT(A) , RELYING ON THE DECISION OF CHABRA ASSOCIATES (IN ITA NO.,1162/ HYD/2009 DATED 9.7.2010) WHEREIN THE TRIBUNAL HELD THAT EVEN WHERE THE INCOME IS ESTIMATED DEDUCTION U/S 40(B) IS TO BE AL LOWED, ALLOWED DEDUCTION TOWARDS INTERESTS TO PARTNERS FRO M THE ESTIMATED INCOME. 6. THE CIT(A) HELD AS FOLLOWS: IT IS ALSO SEEN FROM THE EARLIER RETURNS OF INCOME FOR THE ASST. YEARS 2004-05 AND 2005-06 THE APPELLANT GOT HIS ACC OUNTS AUDITED AND FILED A COPY OF THE SAME ALONG WITH THE RETURN. UNDER THE CIRCUMSTANCES, IT IS NOT KNOWN HOW THE AP PELLANT COULD GET HIS ACCOUNTS AUDITED WITHOUT THE SUPPORT OF ANY MATERIAL EVIDENCE, EVEN AT APPELLATE STAGE THE APPELLANT CO ULD NOT PRODUCE ANY EVIDENCE IN THE SHAPE OF BOOKS OF ACCOU NTS ETC., IN SUPPORT OF HIS CLAIM FOR ADOPTION OF 3% OF GROSS P ROFIT ON GROSS RECEIPTS. THE STANCE OF THE APPELLANT THAT IN PREV IOUS YEARS ONLY LESSER PERCENTAGE WAS ACCEPTED BY THE DEPARTMENT IT IS CLEAR THAT EACH ASSESSMENT IS UNIQUE AND THE PROCEEDINGS OF O NE YEAR CANNOT BE TAKEN AS ANALOGY FOR ANOTHER YEAR FOR INC OME TAX ITA NO.1622 OF 2010 & CO.87 OF 2011 M/S RENU SINGH & CO., ADILABAD 3 3 PURPOSES. HENCE I DO NOT FIND ANY INFIRMITY IN ESTI MATION OF INCOME ON GROSS RECEIPTS BY THE ASSESSING OFFICER. HOWEVER CONSIDERING THE FACT THAT THE ASSESSEE IS A LABOUR CONTRACTOR AND TO VOUCH THE EXPENDITURE WHOLLY INCURRED IS NOT POS SIBLE AT TIMES BEING THE LABOUR UNEDUCATED, I HOLD THAT ESTIMATION OF INCOME AT 6% OF GROSS RECEIPTS WOULD MEET THE ENDS OF JUSTICE . ACCORDINGLY I DIRECT THE ASSESSING OFFICER TO ADOPT 6% AS GROSS P ROFIT FROM THE GROSS RECEIPTS. 7. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US AN D HAS RAISED THE FOLLOWING GROUNDS: 1 .THE CIT(A) HAS ERRED IN ESTIMATING THE INCOME OF T HE ASSESSEE @ 6% ON THE GROSS CONTRACT RECEIPTS, WHEN THE AO MADE AN ESTIMATE OF INCOME @ 10% AFTER REJECTING TH E BOOKS OF ACCOUNT. 2. AS PER THE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF INDWELL CONSTRUCTIONS VS CIT (232 ITR 776) WHEN INCOME IS ESTIMATED BY REJECTING THE BOOKS OF ACCOU NT, ALL THE EXPENDITURE COVERED BY THE PROVISIONS OF SEC 30 TO SEC. 43D ARE DEEMED TO HAVE BEEN ALLOWED. SO THE CIT(A) IS NOT CORRECT IN ALLOWING INTEREST ON CAPITALS OF PARTNER S FROM THE ESTIMATED INCOME. 8. FURTHER THE ASSESSEE HAS FILED CROSS OBJECTION AS FOLLOWS: 1. THE CIT(A) HAS ERRED IN ESTIMATING THE INCOME OF TH E ASSESSEE @ 6% ON THE GROSS CONTRACT RECEIPTS. HAVI NG REGARD TO THE FACTS OF THE CASE AND THE NATURE OF L ABOUR CONTRACTS, THE CIT(A) OUGHT TO HAVE ACCEPTED THE ES TIMATION OF INCOME @ 3% OF GROSS RECEIPTS BEFORE ALLOWING IN TEREST AND REMUNERATION TO PARTNERS. 2. THE CIT(A) FURTHER FAILED TO APPRECIATE THE FACT TH AT AO IN THE PRECEDING ASSESSMENT YEAR HAS DETERMINED INCOM E AT ITA NO.1622 OF 2010 & CO.87 OF 2011 M/S RENU SINGH & CO., ADILABAD 4 4 1.31% IN SCRUTINY ASSESSMENT MADE IN THE ASSESSEES OWN CASE. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI RAGHU RAM SUBMITTED THAT FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSMENT WAS COMPLETED DETERMINING THE INCOME AT RS.3,16,982 /- AFTER MAKING DISALLOWANCE OF RS.1,43,512. THE TOTAL INCO ME WAS DETERMINED AT RS.3,16,982/- AND ON GROSS BILLS OF RS.24,110,895/- WHICH GAVE A PERCENTAGE OF 1.31%. THE REPRESENTATIVE ALSO PLEADED THAT ON AN EARLIER OCCA SION ON GROSS BILLS OF RS.18,623,615/- THE NET PROFIT ADMITTED WA S RS.1,33,628/- WHICH GAVE A PERCENTAGE OF 0.73. IT WAS SUBMITTED THAT THIS PERCENTAGE ARRIVED AT ABOVE IS AFTER ALLOWING INTEREST TO PARTNERS ON CAPITAL. IF SUCH INTEREST PAID TO PARTNERS IS CONSIDERED THE PERCENTAGE WILL BE AROUND 3% AND PLEADED THAT THE AO BE DIRECTED TO ADOPT A PERCENTAGE OF 3 BEFOR E ALLOWING INTEREST TO PARTNERS. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED ON THE CASE OF AO VS. POOJA CONSTRUCTIO NS (69 ITD 147) WHEREIN IT HAS BEEN HELD THAT BASED ON ALL CIV IL CONTRACT CASES WHERE NET PROFIT RATE OF 10% WAS APPLIED BUT NEITHER DEPRECIATION NOR INTEREST DEBITABLE TO PROFIT AND L OSS ACCOUNT WERE SEPARATELY ALLOWED, A NET PROFIT RATE OF 10% E STIMATED BY AO IN INSTANT CASE WAS RATIONALE AND REASONABLE. 11. THE DR FURTHER RELIED ON THE FOLLOWING JUDGEME NTS: 1. RAM CHANDRA SINGH RAMNIK LAL VS. CIT VOL. XLII PAGE 780 2. SN NAMASIVAYAM CHETTIAR VS. CIT, MADRAS VOL.XXXV III 579 ITA NO.1622 OF 2010 & CO.87 OF 2011 M/S RENU SINGH & CO., ADILABAD 5 5 3. AWADESH PRATAP SINGH ABDUL REHMAN & BROTHERS VS. CIT (210 ITR 406) 4. BHAI SUNDER DASS, SARDAR SINGH (P) LTD. VS. CIT (DELHI) (84 ITR 106) 5. SARAYA ENGINEERING WORKS VS. CIT (168 ITR 455) 6. DHONDIRAM DALICHAND VS. CIT (81 ITR 609) 7. INDWELL CONSTRUCTIONS VS. CIT (232 ITR 776) 12. WE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. WE FIND THAT DURING THE COU RSE OF HEARING BEFORE THE AO, THE ASSESSEE WAS ASKED TO FURNISH BO OKS OF ACCOUNT, VOUCHERS AND BILLS IN SUPPORT OF VARIOUS E XPENDITURE CLAIMED. AS SEEN FROM THE ASSESSMENT ORDER THE CASE WAS POSTED FOR HEARING ON 21.5.2007, 13.7.2007, 8.8.2007, 27.8 .2007, 16.10.2007, 28.11.2008 AND 30.12.2008 FOR PRODUCTIO N OF THE ABOVE MATERIAL BEFORE THE AO. HOWEVER, ON THE LAST DATE OF HEARING ON 30.12.2008, THE ASSESSEES AR EXPRESSED HIS INABILITY TO PRODUCE BOOKS OF ACCOUNT, VOUCHERS ETC. CALLED F OR. IN THE ABSENCE OF ANY DETAILS, THE AO ESTIMATED THE INCOME AT 10% OF THE GROSS RECEIPTS OF RS.2,69,82,027/-. 13. FURTHER EVEN BEFORE THE CITA THE ASSESSEE COUL D NOT PRODUCE ANY EVIDENCE SUCH AS BOOKS OF ACCOUNT, ETC. IN SUPPORT OF ITS CLAIM FOR ADOPTION OF 3% OF GROSS PROFIT ON GROSS RECEIPTS. THE ONLY ARGUMENT OF THE ASSESSEE WAS THAT IN THE P REVIOUS YEAR LESSER PERCENTAGE WAS ACCEPTED BY THE DEPARTMENT. IN THESE CIRCUMSTANCES, WE DEEM IT FIT THAT THE ISSUE SHOULD GO BACK TO THE AO AND THE ASSESSEE SHALL PRODUCE BOOKS OF ACCO UNT POINTING OUT SPECIFIC DISCREPANCIES AND THE AO SHALL COMPLET E THE ASSESSMENT IN ACCORDANCE WITH LAW. ITA NO.1622 OF 2010 & CO.87 OF 2011 M/S RENU SINGH & CO., ADILABAD 6 6 14. IN THE RESULT, THE APPEALS OF REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON: 3.2.2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 3 RD JANUARY, 2012 COPY FORWARDED TO: 1. THE ITO, WARD 1, MANCHERIAL 2. M/S RENU SINGH & CO., Q NO.R-7, OCC, DEVPUR, ADILA BAD DISTRICT 3. THE CIT(A)-VI HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/