Asst.CIT, Circle-9(1), Hyderabad V. M/s Adarsh Constructions, Hyderabad

ITA 164/HYD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87474 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 20-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-02-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: S RAMA RAO
• Keywords: Rejection of books of accounts; Depreciation
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 164/HYD/2013 ASSESSMENT YEAR: 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9(1), HYDERABAD VS M/S. ADARSH CONSTRUCTIONS, SAIDABAD, HYDERABAD [PAN: AAFFA1681G] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAJAT MITRA, DR FOR ASSESSEE : SHRI S. RAMA RAO, AR DATE OF HEARING : 22 - 0 1 - 201 5 DATE OF PRONOUNCEME NT : 31 - 0 3 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS REVENUE'S APPEAL WAS FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), VIJAYAWADA DAT ED 30-11-2012. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO RATE OF ESTIMATION OF INCOME IN THE HANDS OF THE FIRM AND ALLOWANCE OF DEDUCTION TOWARDS INTEREST AND REMUNERATION PAID TO PARTNERS U/S.40(B). I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 2 -: 2. BRIEFLY STATED, ASSESSEE IS CARRYING ON BUSINESS OF CONSTRUCTION AND SALE OF FLATS AND ALSO CONSTRUCTION OF HOUSES O N CONTRACT BASIS. THE ASSESSING OFFICER IN THE SCRUTINY ASSESSMENT DISALL OWED 10% OF THE COST OF CONSTRUCTION CLAIMED AS POSSIBLE INFLATION AND F URTHER, 5% OF THE CLOSING STOCK TOWARDS ESTIMATED SUPPRESSION. HE AL SO DISALLOWED CERTAIN PAYMENTS THROUGH BEARER CHEQUES U/S.40A(3) OF THE I NCOME TAX ACT (ACT). IN ADDITION TO THAT, ASSESSING OFFICER ALSO DISALLOWED AMOUNTS PAID TOWARDS WORK CONTRACTS ON THE REASON THAT TDS WAS N OT DISALLOWED U/S.40(A)(IA). EVEN THE DEPRECIATION WAS ALSO PARTL Y DISALLOWED. THUS, AS AGAINST THE INCOME RETURNED AT RS.6,36,055/-, THE T OTAL INCOME WAS DETERMINED AT RS.96,21,910/-. 3. THE LD.CIT(A) AFTER CONSIDERING THE DETAILED SUB MISSIONS OF THE ASSESSEE HELD THAT THE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER ARE NOT JUSTIFIED. THE REVENUE IS NOT IN A PPEAL ON THE ISSUE OF DELETION OF ADDITIONS OR DISALLOWANCES MADE BY THE ASSESSING OFFICER. THE LD.CIT(A) WHILE HOLDING THAT THE DISALLOWANCE A ND ADDITIONS CANNOT BE SUSTAINED AS THEY ARE NOT BASED ON FACTS BUT ON PRESUMPTIONS HOWEVER, REJECTED THE BOOKS OF ACCOUNTS AND ESTIMAT ED THE INCOME AT 8% OF THE TURNOVER AND ALLOWED INTEREST ON PARTNER'S C APITAL AND REMUNERATION PAID TO PARTNERS. HE ACCORDINGLY DETE RMINED THE TOTAL INCOME AT RS.15,90,638/- IN HIS ORDER. REVENUE IS AGGRIEVED ON THE RATE OF ESTIMATION OF INCOME AND ALLOWING DEDUCTION TOW ARDS INTEREST AND REMUNERATION PAID TO PARTNERS U/S.40(B). 4. LD.DR SUBMITTED THAT ESTIMATION OF INCOME AT 8% IS VERY LOW AND FURTHER BASED ON THE DECISION OF THE HON'BLE HIGH C OURT IN THE CASE OF INDWELL CONSTRUCTIONS (232 ITR 776), DEDUCTION TOWA RDS INTEREST AND REMUNERATION CANNOT BE ALLOWED. I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 3 -: 5. LD.COUNSEL, HOWEVER, SUBMITTED THAT ORDER OF THE CIT(A) IS REASONABLE, AS INCOME WAS CORRECTLY ESTIMATED AT 8% BEING IN THE BUSINESS OF CONSTRUCTION OF HOUSES AND FURTHER SUBM ITTED THAT THE JUDGMENT OF INDWELL CONSTRUCTIONS WAS BEFORE THE AM ENDMENT TO THE ACT AND CO-ORDINATE BENCH IN THE CASE OF M/S. C.ESWARA REDDY & CO., DISTINGUISHED THE SAME. FURTHER, RELYING ON THE SP ECIAL BENCH DECISION IN THE CASE OF ARIHANT BUILDERS [291 ITR 41 AT(SB)] , IT WAS SUBMITTED THAT THE ESTIMATION AT 8% IS CORRECT. 6 WE HAVE CONSIDERED THE ISSUE AND PERUSED THE RIVA L ARGUMENTS. IN THIS CASE, EVEN THOUGH ASSESSING OFFICER HAS MADE V ARIOUS ADDITIONS/DISALLOWANCES AND HAS NOT REJECTED THE BO OKS OF ACCOUNTS, LD.CIT(A) REJECTED THE BOOKS OF ACCOUNTS AND RESORT ED TO ESTIMATION OF INCOME. REVENUE HAS NOT RAISED ANY GROUND ON REJEC TION OF BOOKS OF ACCOUNTS NOR ASSESSEE IS CONTESTING THE SAME BY WAY OF CROSS-APPEAL. CONSEQUENTLY, THE ISSUE OF REJECTION OF BOOKS OF AC COUNTS IS NOT DISPUTED BY EITHER OF PARTIES. WHEREAS ASSESSEE HAS NOT DIS PUTED THE ESTIMATION AT 8% AND ALLOWANCE OF INTEREST ON REMUNERATION TO THE PARTNERS BY THE CIT(A) IN HIS ORDER, REVENUE HAS RAISED THE GROUNDS CONTESTING THE ESTIMATION AT 8% AS WELL AS ALLOWANCE OF DEDUCTION PARTICULARS, INTEREST AND REMUNERATION PAID TO PARTNERS. 7. AS FAR AS ESTIMATION OF INCOME AT 8% IS CONCERNE D, THERE CANNOT BE ANY HARD AND FAST RULE OF FIXING A RATIO IN ESTIMAT ING THE PROFITS. THE TRIBUNAL IS GENERALLY ESTIMATING THE INCOMES FROM 8 % TO 12.5% DEPENDING ON THE FACTUAL SITUATION. IN THE CO-ORDI NATE BENCH DECISION OF KRISHNAMOHAN CONSTRUCTIONS IN ITA NO.116 & 117/HYD/ 2007 FOR AYS.1993-94 AND 1994-95, THE TRIBUNAL ESTIMATED THE PROFIT AT 8% EVEN THOUGH THE PROFIT WAS ESTIMATED AT 12.5% FOR AY.199 1-92. THIS ITSELF SHOWS THAT FOR EACH YEAR, THE PROFIT HAS TO BE ESTI MATED DEPENDING UPON I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 4 -: THE FACTORS WHICH PREVAIL IN THE BUSINESS. IN THE CASE OF ARIHANT BUILDERS (SUPRA), THE SPECIAL BENCH ESTIMATED THE PROFIT AT 8% FOR MAIN CONTRACTS. THE SPECIAL BENCH TOOK INTO CONSIDERATION THE PROVI SIONS OF SECTION 44AD OF THE ACT IN ARRIVING AT THE PROFIT AT 8% OF THE GROSS RECEIPTS. NO DOUBT, THE PROVISIONS OF SECTION 44AD ARE APPLICABL E FOR THOSE CASES WHERE THE TURNOVER/TOTAL CONTRACT RECEIPTS DOES NOT EXCEED RS.40 LAKHS UP TO AY.2010-11 (WHICH WAS SUBSEQUENTLY MODIFIED T O RS.60 LAKHS AND NOW W.E.F. 01-04-2013 STOOD AT RS.1 CRORE). THESE INDICATE THAT RATE OF PROFIT CANNOT BE A FIXED FIGURE FOR EACH YEAR. IT W OULD VARY DEPENDING UPON VARIOUS FACTUAL SITUATIONS/FACTORS. IT CANNOT BE FIXED ON THE BASIS OF THE TRIBUNAL OR JUDGMENT OF THE HIGH COURT. IN OUR OPINION, THE DECISION OF THE TRIBUNAL OR JUDGMENT OF THE HIGH CO URT MAY BE ONE OF THE GUIDING FACTORS FOR FIXING THE PROFIT RATIO FOR PAR TICULAR ASSESSEE IN A PARTICULAR YEAR. IN THIS CASE, AS SEEN FROM ASSESS EE'S P&L A/C ASSESSEE'S SALES STOOD AT RS.2.71 CRORES, WHEREAS ITS CLOSING STOCK WAS AT RS.2.88 CRORES. CONSTRUCTION COST DURING THE YEAR IS ABOUT RS.3.81 CRORES. THIS INDICATE THAT THE PROJECT HAS NOT YET BEEN COMPLETE D OR PARTLY COMPLETED. HOWEVER, AS SEEN FROM THE P&L A/C PLACED ON RECORD WHICH WAS BASIS FOR THE ASSESSING OFFICER TO MAKE DISALLOWANCES, ASSES SEE HAS EARNED GROSS PROFIT AT 15% AND NET PROFIT 5.4%. ASSESSEE HAS MA JOR LIABILITY IN THE FORM OF INTEREST ON TERM LOANS FOR REDUCTION IN PRO FIT FROM 15% GROSS TO 5% NET. KEEPING THESE FACTORS AND ALSO THE FACT THA T ASSESSEE PAID RS.14,51,871/- AS INTEREST ON THE TERM LOANS, APART FROM OTHER EXPENDITURE TO INDICATE THAT ESTIMATION BY THE CIT( A) AT 8% ON THE GROSS RECEIPTS IS REASONABLE. REVENUE HAS NOT BROUGHT ON RECORD ANYTHING TO COUNTER HOW THIS ESTIMATION IS LESS ON THE GIVEN SE T OF FACTS. IN VIEW OF THIS, WE UPHOLD THE ESTIMATION AT 8%. 8. THE NEXT CONTENTION IS WITH REFERENCE TO ALLOWAN CE OF INTEREST ON PARTNERS' CAPITALS AND PARTNERS' REMUNERATIONS. AS SESSEE HAS CLAIMED I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 5 -: AN AMOUNT OF RS.4,95,401/- AS INTEREST ON PARTNERS' CAPITALS AND RS.84,000/- AS REMUNERATION TO THE PARTNERS AND ARR IVED AT NET PROFIT OF RS.8,87,273/-. DUE TO VARIATION IN THE DEPRECIATIO N CLAIMS ETC., THE INCOME OFFERED BY ASSESSEE AS CAN BE SEEN FROM THE ASSESSMENT ORDER WAS AT RS.6,36,055/-. ONE OF THE DEDUCTIONS ALLOWE D BY THE CIT(A) IS WITH REFERENCE TO REMUNERATION AND INTEREST TO THE PARTNERS WHICH WAS CONTESTED BY THE REVENUE AS NOT ALLOWABLE U/S.40(B) RELYING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF INDWELL CONSTRUCTIONS VS. CIT [232 ITR 776]. IT WAS THE CO NTENTION OF THE REVENUE THAT ONCE THE BOOKS OF ACCOUNTS WERE REJECT ED AND PROFIT WAS ESTIMATED, ALL EXPENDITURES ARE DEEMED TO HAVE BEEN ALLOWED, THEREFORE, THERE IS NO NEED FOR ALLOWING DEPRECIATION, INTERES T AND SALARY TO PARTNERS. REVENUE IS NOT CONTESTING THE ISSUE OF D EPRECIATION IN THIS CASE AS THE CIT(A)'S ORDER CONSIDERED IT AS DEEMED ALLOWANCE. THE ISSUE IS ONLY RESTRICTED TO THE STATUTORY ALLOWANCE OF DE DUCTION U/S.40(B). EVEN THOUGH IN THE ABOVE REFERRED CASE, THE HON'BLE A.P. HIGH COURT CONSIDERED THE PROVISIONS AND HELD THAT NO FURTHER DISALLOWANCES ARE REQUIRED TO BE MADE ONCE INCOME IS ESTIMATED, THE S AID JUDGMENT RELATES TO AY.1981-82. THE PROVISIONS OF SECTION 40(B) THE N EXISTING PROVIDES FOR DISALLOWANCE OF PAYMENT OF INTEREST, SALARY, BONUS COMMISSION OR REMUNERATION MADE BY THE FIRM TO THE PARTNER. THES E AMOUNTS ARE NOT ALLOWABLE AS DEDUCTION IN THE ASSESSMENT OF A PARTN ERSHIP FIRM THEN EXISTING. AT THE RELEVANT POINT OF TIME UP TO THE CHANGE OF PROVISIONS WITH EFFECT FROM 01-04-1993, THE FIRMS ARE CLASSIFI ED AS REGISTERED FIRMS U/S.185 OR AS UN-REGISTERED FIRMS. THE INCOME OF THE REGISTERED FIRM WAS NOT TAXED AT THE NORMAL RATES AND THE SAME WAS DISTRIBUTED AMONG THE PARTNERS IN ACCORDANCE WITH THE PROVISIONS OF S ECTION 67 OF THE ACT. WHILE DISTRIBUTING THE INCOME AMONG THE PARTNERS IN TEREST, SALARY, COMMISSION OR REMUNERATION PAID TO PARTNERS ARE TO BE REDUCED FROM THE GROSS INCOME OF THE PARTNERSHIP FIRM. THE BALANCE IS DIVIDED AMONG THE I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 6 -: PARTNERS IN THEIR PROFIT SHARING RATIO, THE AMOUNTS PAID TO PARTNERS I.E., INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION ARE ADDED TO THE INCOME OF THE INDIVIDUAL PARTNER. THE PROFITS DIS TRIBUTED WERE ASSESSED IN THE ASSESSMENT OF THE PARTNERS. HOWEVER, THE PR OVISIONS WITH REGARD TO THE ASSESSMENT OF PARTNERSHIP FIRMS HAVE UNDERGO NE CHANGE FROM 01-04-1993 I.E., FOR THE AY.1993-94 ONWARDS. NOW, ALL FIRMS ARE UNIFORMLY ASSESSABLE AS FIRMS ONLY AND THERE IS NO DIFFERENCE IN TAX RATES. THE PROFIT DERIVED FROM THE PARTNERSHIP FIR M IS EXEMPT IN THE ASSESSMENT OF THE PARTNERS AS THE SAME IS BEING TAX ED AT NORMAL RATES IN THE ASSESSMENT OF THE PARTNERSHIP FIRM ITSELF. ONL Y SALARY OR INTEREST PAID TO THE PARTNERS IS SUBJECT TO TAX IN THE ASSES SMENT OF THE PARTNERS AS THE SAME IS EXCLUDED FROM THE ASSESSMENT OF THE PARTNERSHIP FIRM. PROVISIONS OF SECTION 40(B) ALLOWS INTEREST PAID TO PARTNERS AND REMUNERATION PAID TO THE PARTNERS AS AN ALLOWABLE D EDUCTION, SUBJECT TO CERTAIN CONDITIONS MENTIONED IN SECTION 40(B) OF TH E ACT. THEREFORE, THERE IS A CHANGE IN THE PROVISIONS ITSELF FROM A D ISALLOWANCE PROVISIONS TO ALLOWANCE PROVISIONS SUBJECT TO RESTRICTIONS. T HUS, W.E.F. 1993-94, SECTION 40(B) IS ENABLING A DEDUCTION TOWARDS INTER EST AND REMUNERATION PAID TO THE PARTNERS BY WAY OF STATUTORY DEDUCTION. THEREFORE, JURISDICTIONAL HIGH COURT JUDGMENT GIVEN FOR AY.198 1-82 IN THE CONTEXT OF THE PROVISIONS THEN EXISTING IS NO LONGER APPLIC ABLE TO THE REVISED ASSESSMENT PROCEDURE. THIS SAME VIEW WAS HELD BY V ARIOUS CO-ORDINATE BENCHES. IN THE CASE OF M/S. C.ESWARA REDDY AND CO . IN ITA NO.668 & 670/HYD/2009 AND CROSS-APPEALS IN ITA NO.685 & 686/ HYD/2009 FOR AYS.2003-04 & 2004-05, THE CO-ORDINATE BENCH VIDE O RDER DT.31-01- 2011 HELD AS UNDER: 15. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL C ONSTRUCTION (SUPRA). THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT WAS ASSESSMENT YEAR 1981-82. SECTION 44 AD WAS INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 1. 4.1994. THEREFORE, I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 7 -: THE JURISDICTIONAL HIGH COURT HAD NO OCCASION TO C ONSIDER THE PROVISIONS OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND AS IT WOULD BE APPLIC ABLE WITH EFFECT FROM 1.4.2011. IN VIEW OF THE PROVISION OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERA TION AND THE AMENDMENT MADE WITH EFFECT FROM 1.4.2011 IT IS OBV IOUS THAT THE LEGISLATURE INTENDED TO ALLOW THE INTEREST AND SAL ARY SEPARATELY FROM THE ESTIMATED INCOME. THEREFORE, THE JUDGEMEN T OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL C ONSTRUCTIONS (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE IN THI S CASE. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ALL OW THE SALARY AND INTEREST PAID TO THE PARTNER SUBJECT TO THE LIMITA TION PROVIDED IN SECTION 40(B) OF THE ACT. 9. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF CO-OR DINATE BENCH DECISION IN THE CASE OF MARUTHI CONSTRUCTIONS, VIJA YAWADA VS. ACIT IN ITA NO. 67 & 373/VIZAG/12 DT.03-03-2014. THE VIEW EXPRESSED BY THE CO-ORDINATE BENCHES IS ALSO CONSISTENT WITH THE JUD GMENTS OF THE HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. VIJA Y CONSTRUCTIONS [213 CTR 105] WHEREIN ON SIMILAR FACTS OF REJECTION OF B OOKS OF ACCOUNTS, IT WAS HELD THAT STATUTORY DEDUCTIONS ALLOWABLE U/S.40 (B) CANNOT BE DENIED MERELY BECAUSE ITS BOOKS OF ACCOUNTS HAVE BEEN REJE CTED AND BEST JUDGMENT ASSESSMENT HAS BEEN MADE. IT WAS HELD: 'THE PROCEDURE FOR MAKING ASSESSMENT IN A MATTER W HERE VOLUNTARY RETURN SUBMITTED BY THE ASSESSEE UNDER S.139(1) IS NOT ACCEPTED BY THE AO HAS BEEN GIVEN UNDER S.143( 3), WHEREAS PROCEDURE FOR GIVING BEST JUDGMENT ASSESSM ENT IS GIVEN UNDER S.144. MERELY BECAUSE THE PROCEDURES F OR SUCH ASSESSMENTS HAVE BEEN SEPARATELY PROVIDED IN THE A FORESAID TWO SECTION RELATING TO AN ASSESSEE WHERE THE VOLU NTARY RETURN HAS NOT BEEN FOUND AS ACCEPTABLE BY THE AO AND WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED AND BEST JU DGMENT ASSESSMENT HAS BEEN MADE, IT WOULD NOT IN ITSELF BE SUFFICIENT TO HOLD THAT THE STATUTORY DEDUCTIONS WHICH ARE OTH ERWISE AVAILABLE TO THE ASSESSEE, WOULD NOT BE AVAILABLE TO THE ASSESSEE WHO HAS BEEN ASSESSED UNDER BEST JUDGMENT ASSESSMENT BY THE AO, UNLESS, OF COURSE, ANY RULE OR PROVISION OF THE ACT EXPRESSLY EXCLUDES THE BENEFI T OF STATUTORY DEDUCTIONS TO SUCH AN ASSESSEE. IF THE INTERPRETAT ION GIVEN BY I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 8 -: THE REVENUE IS ACCEPTED, IT WOULD MEAN THAT IN A C ASE WHERE THE ASSESSEE'S BOOKS OF ACCOUNT HAVE BEEN REJECTED OR, FOR ANY OTHER REASON, WHATSOEVER, BEST JUDGMENT ASSESS MENT HAS BEEN MADE THAT WOULD ENTAIL PENALTY OR ADVERSE CIVI L CONSEQUENCES OF DEPRIVING THE ASSESSEE FROM HAVING THE STATUTORY DEDUCTIONS, WHICH WOULD HAVE BEEN OTHERW ISE AVAILABLE TO HIM, IN CASE HIS VOLUNTARY RETURN FIL ED UNDER S.139(1) HAS BEEN ACCEPTED OR REGULAR PROCEEDINGS UNDER S.143(3) WERE TAKEN. THIS INTERPRETATION WOULD LEA D TO AN ANOMALOUS SITUATION, BESIDES THE SAME DOES NOT FLO W FROM THE SCHEME OF ASSESSMENT UNDER THE ACT. IT IS ONLY THE METHOD OF ASSESSING THE INCOME OF THE ASSESSEE FIRM WHICH EI THER HAS TO BE DONE BY ACCEPTING THE VOLUNTARY RETURN FILED UN DER S.139(1) OR IT HAS TO BE REGULARLY ASSESSED UNDER S.143(3) OR BEST JUDGMENT ASSESSMENT IS TO BE MADE UNDER S.144. THE FINAL OUTCOME OF THE ASSESSMENT OF THE INCOME OF THE ASS ESSEE FIRM CALLS FOR CONSEQUENTIAL IMPOSITION OF TAX AND REALI SATION THEREOF. THE STATUTORY DEDUCTIONS THUS WHICH ARE A VAILABLE TO THE ASSESSEE FIRM CANNOT BE TAKEN AWAY OR SNATCHED AWAY FROM THE FIRM MERELY BECAUSE THEIR BOOKS OF ACCOUNT HAVE BEEN REJECTED AND BEST JUDGMENT ASSESSMENT HAS BEE N MADE. SALARY AND INTEREST, WHICH IS GIVEN TO THE PARTNER S IN TERMS OF THE PARTNERSHIP DEED, THE TAX LIABILITY OF THE SAI D AMOUNT SHIFTS UPON THE PARTNERS AND CANNOT BE TAKEN AS TAX LIABI LITY OF THE FIRM. THE APPLICABILITY OF S.28(V) CANNOT BE EXCLU DED IN THE MATTER OF BEST JUDGMENT ASSESSMENT IN RESPECT OF A N ASSESSEE FIRM. IT WAS THE SPECIFIC CASE OF THE ASSESSEE THA T THE PARTNERS WERE WORKING PARTNERS AND THEY WERE ENTITLED TO SA LARY AND INTEREST, AS PER TERMS OF THE DEED IN ACCORDANCE W ITH S.40(B). IN THE ABSENCE OF ANY MATERIAL HAVING BROUGHT BY THE REVENUE IN REBUTTAL AND MORE SO WHEN NO SUCH PLEA WAS EVER TA KEN OR RAISED IN THE APPEAL, AS ALSO NO SUBSTANTIAL QUEST ION OF LAW HAS BEEN FRAMED IN THIS REGARD, THE PLEA IS BOUND TO F AIL. CONCLUSION: STATUTORY DEDUCTIONS WHICH ARE ALLOWABLE UNDER S.4 0(B) TO THE ASSESSEE FIRM CANNOT BE DENIED MERELY BECAUSE ITS BOOKS OF ACCOUNT HAVE BEEN REJECTED AND BEST JUDGMENT ASSES SMENT HAS BEEN MADE'. I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 9 -: 10. ON SIMILAR FACTS, EVEN IN A CASE WHERE CASH SYSTEM OF ACCOUNTING WAS MAINTAINED, HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SUPREME BUILDERS [303 ITR 1 (P&H)] HELD AS UNDER: 'THE PROFIT HAS BEEN COMPUTED BY APPLICATION OF FLA T RATE ON RECEIPTS, AS THE AO HAS REJECTED THE RESULTS OF TH E ASSESSEE BY RECORDING A FINDING OF FACT THAT THE ASSESSEE HAS NOT MAINTAINED THE REGULAR BOOKS OF ACCOUNTS. THE PART NERSHIP DEED IS NOT DISPUTED BY THE REVENUE AND AS PER THIS PARTNERSHIP DEED, THE REMUNERATION OF THE PARTNERS WAS TO BE CREDITED IN THE CAPITAL ACCOUNT OF THE PARTIES IN THE END OF THE FINANCIAL YEAR. SINCE THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNT UNDER THE CASH SYSTEM OF ACCOUNTING, DEDUC TION ON ACCOUNT OF SALARY AND INTEREST TO BE PAID TO THE PA RTNERS WAS ALLOWABLE AS PER THE PARTNERSHIP DEED. IN THIS REG ARD, THE ASSESSEE HAD ALSO RELIED UPON THE BOARD CIRCULAR N O. 739, DT. 25TH MARCH, 1996, WHICH IS NOT DISPUTED BY THE DEPA RTMENT. IN REGARD TO THE ASSESSMENT OF INCOME PERTAINING T O DIFFERENCE IN RECEIPTS, THE PROFIT HAVING BE DETERMINED BY APPLICATION OF FLAT RATE, THE DIFFERENCE IN PAYMENTS DOES NOT JUS TIFY THE DIFFERENT TREATMENT. IT IS NOT A CASE OF AN ASSESS EE WHO HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS AND THE RESUL T DISCLOSED HAVING BEEN ACCEPTED BY THE DEPARTMENT IN WHICH CA SE THE DIFFERENCE IN RECEIPTS WOULD HAVE BEEN THE IMPACT OF ENHANCING THE INCOME TO THE EXTENT OF SUCH DIFFERE NCE. THEREFORE, IN THE PRESENT CASE, REGULAR BOOKS OF A CCOUNTS NOT HAVING BEEN MAINTAINED AND A FLAT RATE APPLIED, TH E EXTRA PAYMENT RECEIPT BY THE ASSESSEE DESERVED THE SAME TREATMENT AS OTHER PAYMENTS. CONCLUSION: ASSESSEE'S BOOKS HAVING BEEN REJECTED AN DPROFITS ARRIVED AT BY APPLYING FLAT RATE, SALARY AND INTEREST TO PARTN ERS OF ASSESSEE FOLLOWING CASH SYSTEM OF ACCOUNTING WAS S EPARATELY ALLOWABLE AS PER DEED OF PARTNERSHIP, THOUGH NOT A CTUALLY PAID'. 11. IN VIEW OF THE DECISION OF THE CO-ORDINATE BENC HES AS SUPPORTED BY THE JUDGEMENTS OF HIGH COURTS STATED SUPRA, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS CO NSISTENT WITH THE VIEWS I.T.A. NO. 164/HYD/2013 M/S. ADARSH CONSTRUCTIONS :- 10 -: EXPRESSED BY THE CO-ORDINATE BENCHES. THEREFORE, W E DO NOT SEE ANY MERIT IN THE GROUNDS RAISED BY THE REVENUE. 12. IN THE RESULT, REVENUE'S APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 ST MARCH, 2015. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTA NT MEMBER HYDERABAD, DATED 31 ST MARCH, 2015 TNMM COPY TO : 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 9(1), 1 ST FLOOR, 'B' BLOCK, INCOME TAX TOWERS, A.C.GUARDS, HYDERABAD -4. 2. M/S. ADARSH CONSTRUCTIONS, H.NO.17-1-383/A/47, V INAY NAGAR COLONY, SAIDABAD, HYDERABAD. 3. CIT(APPEALS), VIJAYAWADA 4. CIT-VI, HYDERABAD 5. D.R. ITAT, HYDERABAD.