ACIT, Circle-10(1), Hyderabad V. M/s. L.N. Consturctions, Hyderabad

ITA 1695/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66327 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: T CHAITANYA KUMAR
• Keywords: Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1695/HYD/2011 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, ... APPELLAN T CIRCLE 10(1), HYDERABAD VS. M/S L.N. CONSTRUCTIONS, RESPONDENT HYDERABAD. (PAN AACFL4104C) APPELLANT BY : SMT. AMISHA S. GUPT RESPONDENT BY : SHRI T. CHAITANYA KUMAR DATE OF HEARING : 22/08/2012 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A)-VI, HYDERABAD DATED 25/07/2011 FOR THE A SSESSMENT YEAR 2007- 08. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS. IT FILED ITS RETURN OF INCOME ON 12.10.2007 ADMITTING TOTAL INCO ME OF RS.20,90,746/-. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME FROM BUSINESS AT 6% OF THE TURNOVER, NET OF DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. HE ALSO BROU GHT TO TAX 90% OF OTHER RECEIPTS AND INTEREST ON IT REFUND. AGGRIEVED BY T HIS ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 2 ITA NO. 1695/HYD/2011 M/S L.N. CONSTRUCTIONS 3. BEFORE THE CIT(A) THE ASSESSEE PLEADED THAT ALL THE VOUCHERS WITH RESPECT TO THE CLAIMED EXPENDITURE AND OTHER DOCUME NTS HAD BEEN LOST IN A FIRE AT KONAPUR, A VILLAGE WHERE THE ASSESSEE WAS E XECUTING SOME WORK AND, THEREFORE, COULD NOT PRODUCE THE VOUCHERS FOR REASO NS BEYOND ITS CONTROL. THE AR OF THE ASSESSEE SUBMITTED THE ASSESSING OFFI CER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 4. FURTHER, THE LEARNED AR OF THE ASSESSEE SUBMITT ED THAT THOUGH THE ESTIMATION OF PROFIT HAS BEEN MADE BY THE ASSESSING OFFICER AT 6%, THE AO SHOULD HAVE EXCLUDED THE AMOUNT OF SENIORAGE CHARGE AMOUNTING TO RS. 1,84,83,961/- AND ALSO THE INTEREST AND REMUNERATIO N PAID TO PARTNERS AND THE DEPRECIATION FOR THE PURPOSE OF ARRIVING AT THE ESTIMATED INCOME. THE AR RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF BRIJ BHUSHANLAL KUMAR, 115 ITR 524 TO SUPPORT ITS CLAIM THAT DEDUCTION MADE BY PRINCIPAL CONTRACTOR SHOULD BE REDUCED FROM THE TUR NOVER OF THE ASSESSEE. THE LEARNED AR OF THE ASSESSEE, THEREFORE, SUBMITTE D THAT THE SENIORAGE CHARGES SHOULD BE REDUCED FROM THE CONTRACT RECEIPT S. 4. THE CIT(A) OBSERVED THAT THERE WAS NO REASON WHY THE VOUCHERS PERTAINING TO AY 2007-08 WERE KEPT AT THE WORKSITE AT KONAPUR AS LATE AS TILL 30/07/2009, WHEN THE HEAD OFFICE IS LOCATED AT HYDE RABAD, AND SECONDLY, THAT THERE WAS NO REASON WHY THE DETAILS OF THE WOR KSITES OTHER THAN KONAPUR COULD NOT BE PRODUCED. THE CIT(A) HELD THAT IN THE ABSENCE OF ANY RECORDS THE ASSESSING OFFICER HAD NO OPTION BUT TO REJECT THE BOOKS OF ACCOUNT AND ESTIMATE THE PROFITS. 5. THE CIT(A) HELD THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BRIJBHUSHAN LAL PARDUMAN KUMAR (SUPRA), IT IS CLEAR THAT THE TURNOVER IS TO BE ADOPTED AFTER REDUCING THE RE COVERIES MADE BY THE 3 ITA NO. 1695/HYD/2011 M/S L.N. CONSTRUCTIONS PRINCIPAL CONTRACTOR. THE TURNOVER IN THE CASE OF THE ASSESSEE IS THEREFORE TO BE ADOPTED AT RS.6,96,99,068/-. THE CIT(A) FURTHER HELD THAT AS FOR THE RATE OF NET PROFIT, THE ITAT IN ITS ORDER IN THE CASE OF E. ESHWAR REDDY HAS OBSERVED THAT THE PROFIT RATIO CANNOT BE A CONSTANT FACTOR AND MAY VARY DEPENDING ON VARIOUS FACTORS SUCH AS PLACE OF EXECU TION OF CONTRACT, AVAILABILITY OF RAW MATERIAL, LABOUR AND ASSESSEES OWN FUNDS ETC. THE ITAT IN THIS SAME ORDER HAS ALSO ACKNOWLEDGED THAT THE T RIBUNAL HAS BEEN ESTIMATING THE PROFIT AT 5% TO 7% DEPENDING UPON TH E FACTUAL SITUATION. THE CIT(A) CONCLUDED THAT TAKING THE FACTS INTO CONSIDE RATION, THE ESTIMATION OF PROFIT AT 6% OF THE CONTRACT VALUE BY THE ASSESSING OFFICER IS JUSTIFIED AND RELYING AGAIN ON THE DECISION OF THE ITAT IN THE CA SE OF E.ESHWAR REDDY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION TO WARDS DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS AF TER ESTIMATING THE NET PROFIT AT 6% OF THE NET TURNOVER. 6. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US RA ISING THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE CIT(A) IS ERRONEOUS EITHER IN L AW OR FACTS OR BOTH. 2. THE CIT(A) ERRED IN DIRECTING TO ADOPT THE TURNO VER AFTER REDUCING THE RECOVERIES MADE BY THE PRINCIPAL CONTRACTOR REL YING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SRI BRI J BHUSHAN LAL PARDUMAN KUMAR, 115 ITR 524 FOR THIS CASE AS THE FA CTS OF THE PRESENT CASE DIFFER FROM THAT OF THE CASE REFERRED SUPRA. 3. THE CIT(A) ERRED IN ALLOWING DEDUCTION TOWARDS D EPRECIATION AND DEDUCTIONS U/S 40(B) OF THE IT ACT, IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT OF AP IN CASE OF M/S INDWELL CON STRUCTIONS VS. CIT 232 ITR 776, WHEREIN IT WAS HELD THAT WHEN NET INCO ME IS ESTIMATED, ALL DEDUCTIONS COVERED BY THE SECTIONS 30 TO 43D OF THE IT ACT ARE DEEMED TO HAVE BEEN ALLOWED. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. 4 ITA NO. 1695/HYD/2011 M/S L.N. CONSTRUCTIONS 8. AS FOR THE DEDUCTION IN RESPECT OF INTEREST AND REMUNERATION TO PARTNERS, WE FIND THAT THE DIRECTION OF THE CIT(A) IN THIS BEHALF IS IN CONSONANCE WITH THE DECISION OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS IN ITA NO. 1191/HYD/2011 FOR AY 2006- 07. WE DIRECT THE AO TO FOLLOW THE DECISION OF TEJA CONSTRUCTION (SUPRA) AND REWORK THE ASSESSMENT IN ACCORDANCE WITH LAW. 9. REGARDING DEPRECIATION, IT IS ALLOWABLE U/S 32 O F THE IT ACT AND IT FALLS UNDER THE PROVISIONS OF SECTION 30 TO 38 AND BE DEE MED TO HAVE BEEN ALREADY GIVEN FULL EFFECT WHILE ESTIMATING THE INCO ME OF THE ASSESSEE. HENCE WITH RESPECT TO DEPRECIATION, THE GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOWED. 10. AS REGARDS THE CLAIM OF THE ASSESSEE TOWARDS SENIORAGE CHARGES, IT IS CLEAR THAT THE TURNOVER IS TO BE ADOPTED AFTER REDU CING THE RECOVERIES MADE BY THE PRINCIPAL CONTRACTOR. THE APEX COURT IN THE CASE OF BRIJ BHUSHANLAL (SUPRA) HELD AS UNDER: ' SINCE NO ELEMENT OF PROFIT WAS INVOLVED IN THE TURN OVER REPRESENTED BY THE COST OF THE MATERIALS SUPPLIED BY THE GOVER NMENT TO THE APPELLANT, THE INCOME OR PROFITS DERIVED BY THE APP ELLANT FROM SUCH CONTRACTS HAD TO BE DETERMINED ON THE BASIS OF THE VALUE OF THE CONTRACTS REPRESENTED BY THE CASH PAYMENTS RECEIVED BY THE APPELLANT FROM THE GOVERNMENT EXCLUSIVE OF THE COST OF THE MA TERIALS RECEIVED FOR BEING USED, FIXED OR INCORPORATED IN THE WORKS. ' 11. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A ) ON THIS ISSUE AND DIRECT THE AO THAT WHILE COMPUTING THE TOTAL CONTRA CT RECEIPTS, THE SENIORAGE CHARGES SHALL BE REDUCED BY HIM FROM THE TOTAL CONT RACT RECEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. 5 ITA NO. 1695/HYD/2011 M/S L.N. CONSTRUCTIONS 12. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28/09/2012. SD/- SD/- ( D. KARNUKARA RAO) (ASHAVIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 28 TH SEPTEMBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 10(1), ROOM NO. 515, AC GUARDS, IT TOWERS, HYDERABAD. 2) M/S L.N. CONSTRUCTIONS, FLAT NO.A-F03, H.NO. 8-2 -4, ROAD NO. 4, BANJARA HILLS, HYDRABAD 3) THE CIT (A)-VI, HYDERABAD 4) CIT-V, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.