Aparna Constructions, Warangal V. ITO, Kothagudem

ITA 1714/HYD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3247 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: G S MADHAVA RAO
• Keywords: Unexplained cash credit; Principle of natural justice
• Section: 143(3); 147; 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMB ER ITA NO.1714/HYD/08 : A SST. YEAR: 2005-06 APARNA CONSTRUCTIONS, BANDARUGUDEM, DIST. KHAMMAM. (PAN: AAKFA 4048 A) VS INCOME-TAX OFFICER, WARD-1, KOTHAGUDEM. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.S. MADHAVA RAO RESPONDENT BY : SHRI K.J. RAO O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT (A), VIJAYAWADA DATED 9-9-2008 AND IT PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE US:- 1. THE APPELLANT OBJECTS TO ADDITIONS SUSTAINED BY THE CIT (A) AND FURTHER ADDITIONS MADE BY THE CIT (A) AS BAD IN LAW AND ON FACTS. 2. (I) THE APPELLANT SUBMITS THAT THE CIT(A) O UGHT NOT HAVE SUSTAINED THE ADDITIONS OF RS.8,80,000/- BEING INVESTMENT MAD E BY THE PARTNER WHICH WERE CONFIRMED BY THEM WITH NECESSARY EXPLANA TIONS AND CONFIRMATIONS AND DISCHARGED THE INITIAL ONUS CAST ON THE APPELLANT. THE ADDITIONS IF ANY OUGHT TO HAVE BEEN MADE IN THE HANDS OF THE PARTNERS AND NOT THE APPELLANT FIRM. THE PARTNERS ARE OF MEANS THEY ITA NO.1714/HYD/20 08 APARNA CONSTRUCTIONS, BA NDARUGUDEM. ========================= 2 HAVE CREDIT WORTHINESS HOLDING AGRICULTURAL LANDS A ND INCOME AND CREDITS ARE GENUINE. (II) WITHOUT PREJUDICE TO THE ABOVE THE CIT (A) OU GHT NOT HAVE SUSTAINED THE SAID ADDITION OF RS.8,80,000/- WHEN T HE BOOKS OF ACCOUNTS WERE REJECTED AND PROFIT WAS ESTIMATED. 3. THE APPELLANT OBJECTS TO THE INCLUSION OF RS.26 ,22,059/- AS THE RECEIPT OF THE APPELLANT FIRM AND ESTIMATING THE PR OFITS ON THE SAME. I). THE APPELLANT SUBMITS THAT THOUGH THE SYSTE M OF ACCOUNTING WAS TERMED AS MERCANTILE THE APPELLANT WAS FOLLOWIN G CASH SYSTEM ONLY AS IS EVIDENT FROM THE P & L A/C & BALANCE SHE ET, IN SO FOLLOWING APPELLANT HAS TAKEN ACTUAL RECEIPTS FROM S C CO. AN D DEBITED ALL CASH EXPENDITURE EXCEPT THOSE EXPENDITURE FOR WHICH BILL S WERE NOT RECEIVED. THE EXPENDITURE INCURRED FOR THE BILLS PENDING WAS SHOWN AS BILLS RECEIVABLE EVEN ASSUMING THAT THE SYSTEM FOLLOWED I S MERCANTILE THE PROFIT ELEMENT OF WORK IN PROGRESS CAN NOT BE TAKEN IN THE RELEVANT YEAR WHICH INCOME WAS ADMITTED IN THE SUBSEQUENT YE AR. II) THE APPELLANT THEREFORE PRAYS FOR THE DELET ION OF ADDITIONS OF RS.3,27,757/- SUSTAINED BY THE LEARNED CIT(A). 4. THE APPELLANT ALSO OBJECTS THE ADDITION OF RS.63,88 7/- SUSTAINED BY THE CIT(A) AS BAD IN LAW AND ON FACTS AS THE CREDIT S IN BANK ACCOUNT OF THE PARTNER CANNOT BE TAKEN AS A RECEIPT OF THE FIRM AND INCOME ESTIMATED ON THE SAID RECEIPTS WHEN THE CIT (A) HA D GIVEN A CLEAR FINDING THAT THE APPELLANT HAD RECEIPTS ONLY FROM S C CO. WHICH RECEIPTS WERE ALSO CONFIRMED BY THE SAID SCC CO. LT D. 5. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS THE APPE LLANT OBJECTS TO THE ESTIMATION OF INCOME @ 12.5% WHICH IS ON THE HI GHER SIDE AND NORMAL RATE ADOPTED IS SIMILAR IN THAT CIRCLE IS 8% ONLY. KEEPING IN ITA NO.1714/HYD/20 08 APARNA CONSTRUCTIONS, BA NDARUGUDEM. ========================= 3 VIEW THE REMOTE SENSITIVE AREA IN WHICH THE APPELLA NT IS OPERATING OR DOING THE WORKS. 6 (I) THE APPELLANT ALSO OBJECTS TO THE FURTHER A DDITION MADE BY THE CIT (A) OF RS.1,05,600/- BEING INTEREST ON RS.8 ,80,000/- SUSTAINED BY THE CIT (A). (II)THE APPELLANT SUBMITS THAT INTEREST IS ALLOWABL E UNDER SECTION 40(B) OF THE I T ACT AND NO ADDITIONS OR DELETIONS COULD CHANGE THE INTEREST ALLOWANCE UNDER SECTION 40(B) AND HENCE AD DITION OF RS.1,05,600/- MADE MAY BE DELETED. (III)THE APPELLANT SUBMITS THAT THE ADDITION OF RS. 1,05,600/- BY THE CIT (A) WITHOUT GIVING ANY OPPORTUNITY TO THE APPEL LANT WHICH AGAINST THE RULES OF NATURAL JUSTICE AND PROVISIONS OF THE ACT HENCE OUGHT TO BE DELETED. 7. THE APPELLANT THEREFORE PRAYS ON THE GROUNDS URG ED ABOVE OR ANY OTHER GROUNDS THAT MAY BE TAKEN UP AT THE TIME OF H EARING TO DELETE THE ADDITIONS SUSTAINED AND MADE BY THE CIT (A) OR GRANT APPROPRIATE RELIEF. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED IT S RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 9 -8-2005 DECLARING AN INCOME OF RS.71,470/- AND THE RETURN OF I NCOME WAS INITIALLY PROCESSED UNDER SECTION 143(1) ON 3-11-2005. S INCE THE ASSESSEE HAS SHOWN GROSS RECEIPTS AT RS.86,73,839/- AS AGAINST RS.89,69,599/- LEAVING A SHORT-FALL OF RS.2,95,760/-, A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED. IN RESPONSE TO NOTICE I SSUED UNDER SECTION 148 OF THE ACT, THE ASSESSEE FILED A LETTER DATED 26-3-2007 AND SUBSEQUENTLY, THE CASE WAS SELECTED TO SCRUTINY AS PER THE NO RMS LAID ITA NO.1714/HYD/20 08 APARNA CONSTRUCTIONS, BA NDARUGUDEM. ========================= 4 DOWN BY THE CBDT FOR THE FINANCIAL YEAR 2006-07. T HE ASSESSING OFFICER PASSED HIS ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SE CTION 147 OF THE ACT DATED 27-12-2007 ASSESSING THE TOTAL INCOME A T RS.62,15,090/- AGAINST THE DECLARED INCOME OF RS.71,470 /- AFTER MAKING SEVERAL ADDITIONS IN FORM OF THE DISALLOWANCE OF PURCHASE S, UNEXPLAINED CREDIT ETC., AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT (A), VIJAYAWADA. ON APPEAL, CIT (A) AFTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES OF THE CASE , HE HELD THAT THE BOOKS OF ACCOUNT ARE NOT TRUE AND CORRECT AND T HEREFORE HE REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145 OF THE ACT AND THE NET PROFIT IS ESTIMATED. ACCORDINGLY, HE DIRECTED TO ESTIMAT E THE NET PROFIT @12.5% OF THE GROSS RECEIPTS OF RS.86,73,839/- BUT SUBJECT TO DEDUCTION UNDER SECTION 40(B) OF THE INCOME-TAX ACT. I N ADDITION TO THIS, THE CIT (A) HELD THAT THE BILLS RECEIVABLE OF RS.26,22,059/-, WHICH WERE NOT SHOWN BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUN T, WAS TAKEN AS TURNOVER AND ESTIMATED THE NET PROFIT THERE ON @ 12.5%. THE CIT (A) FURTHER HELD THAT NO ADDITION IS REQUIRED IN RESPECT OF INITIAL INVESTMENT OF RS.2,00,000/- SINCE THE BOOKS OF ACCOUNT HA VE BEEN REJECTED AND NET PROFIT HAS BEEN ESTIMATED @12.5%. T HE CIT [A] ALSO CONFIRMED OF RS.8,80,000/- TOWARDS INTRODUCTION OF PAR TNERS UNEXPLAINED CAPITAL. HOWEVER, HE DIRECTED THE ASSESSING O FFICER TO WITHDRAW INTEREST, IF ANY, CLAIMED ON THIS EXPLAINED CAPITAL. AGGRIEVED FURTHER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITIONS SUSTAINED AMOUNTING TO RS.8,80,000 /- BEING INVESTMENT MADE BY THE PARTNER IS NOT CORRECT AS THE RECE IPTS WERE CONFIRMED BY THE PARTNERS WITH NECESSARY EXPLANATIONS AND ITA NO.1714/HYD/20 08 APARNA CONSTRUCTIONS, BA NDARUGUDEM. ========================= 5 CONFIRMATIONS AND DISCHARGED THE INITIAL ONUS CAST ON THE ASSESSEE AND THE ADDITIONS, IF ANY, OUGHT TO HAVE BEEN MADE IN T HE HANDS OF THE PARTNERS AND NOT THE NAME OF THE ASSESSEE FIRM. THE P ARTNERS ARE OF MEANS THEY HAVE CREDIT WORTHINESS HOLDING AGRICULTURAL LANDS AND INCOME AND CREDITS ARE GENUINE. ALTERNATIVELY, IT IS S UBMITTED THAT THE SAID ADDITION OF RS.8,80,000/- IS NOT SUSTAINABLE WHEN T HE BOOKS OF ACCOUNTS WERE REJECTED AND PROFIT WAS ESTIMATED. IT IS SUBMITTED THAT THE INCLUSION OF RS.26, 22, 059/- AS THE RECEIPT OF TH E ASSESSEE FIRM AND ESTIMATING THE PROFITS ON THE SAME IS NOT CORRECT. THOUG H THE SYSTEM OF ACCOUNTING WAS TERMED AS MERCANTILE SYSTEM, THE ASSESSEE WAS FOLLOWING CASH SYSTEM ONLY AS IS EVIDENT FROM THE PROFI T AND LOSS ACCOUNT & BALANCE SHEET. IT IS FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED FOR THE BILLS PENDING WAS SHOWN AS BILLS RECEIVAB LE EVEN ASSUMING THAT THE SYSTEM FOLLOWED IS MERCANTILE THE PROFI T ELEMENT OF WORK IN PROGRESS CAN NOT BE TAKEN IN THE RELEVANT YEAR FOR WHICH INCOME WAS ADMITTED IN THE SUBSEQUENT YEAR. THE LEARNED COUNSEL OBJECTS TO THE ESTIMATION OF INCOME @ 12.5% WHICH IS ON THE HIGHER SIDE AND NORMAL RATE ADOPTED IN SIMILAR LINE OF BUSINESS IN THAT CIRCLE IS 8% ONLY. IT IS THEREFORE PRAYED TO DELETE THE ADDITIONS SUSTAINED AND CONFIRMED BY THE CIT (A). 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE FULLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE ASSESSING OFFICER DETERMINED THE INCOME OF THE ASSESSEE AT RS.62,50, 090/- AFTER MAKING SEVERAL ADDITIONS TOWARDS SHORT PAYMENTS, DISALLO WANCE OF ITA NO.1714/HYD/20 08 APARNA CONSTRUCTIONS, BA NDARUGUDEM. ========================= 6 PARTNERS CAPITAL, DISALLOWANCE OF 25% OF MATERIAL PU RCHASES, OUTSTANDING BILLS NOT ADMITTED ETC. WE ALSO FIND THAT THE CIT [A] CLEARLY HELD THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT TRUE AND CORRECT DUE TO VARIOUS DISCREPANCIES IN THE BOOKS OF A CCOUNT AND LIABLE FOR REJECTION UNDER SECTION 145 OF THE ACT. ON CE THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE REJECTED BY THE CI T [A], WE ARE LEFT WITH ONLY ONE OPTION TO ESTIMATE THE INCOME OF THE ASSESSEE BY RESORTING TO SOME PERCENTAGE BASIS. WE FIND THAT THE CIT [A] IS RIGHT IN BRINGING THE OMITTED RECEIPTS OF RS.26,22,059 AS TURNOV ER WHICH WERE NOT SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT EVEN THOU GH HE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. WE ALSO FIND THAT THE CIT [A] IS RIGHT IN BRINGING THE SALE VALUE OF RS.5,11,097 /- ON ACCOUNT OF UNEXPLAINED CREDITS IN THE BANK AS DISCUSSED BY THE ASSESSIN G OFFICER IN PARA 20 OF HIS ORDER. AFTER CONSIDERING THE TOTALITY FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR CONSIDERED OPINION, ENDS OF JUSTICE WOULD BE MET IF WE ESTIMATE THE INCOME OF THE ASSESSEE AT 12.5% OF THE TOTAL GROSS RECEIPTS INCLUDING OUTSTANDING BILLS NOT ACCOUN TED AND SALE VALUE OF UNEXPLAINED CREDIT IN THE BANK. SINCE WE ARE ESTIMATING THE INCOME OF THE ASSESSEE AT 12.50% OF THE TOTAL GROSS RECEIP TS, THE ESTIMATED INCOME OF THE ASSESSEE SO ARRIVED SHALL BE TELESCOP ED AGAINST ALL OTHER ADDITIONS MADE AND SUSTAINED BY THE LOWER A UTHORITIES LIKE SHORT PAYMENTS, DISALLOWANCE IN PARTNERS CAPITAL, DISALLO WANCE ON MATERIAL PURCHASE ETC. ACCORDINGLY WE DIRECT THE LOWER A UTHORITIES TO ESTIMATE THE INCOME OF THE ASSESSEE AT 12.5% OF THE TOTAL AMOUNT OF RS.1,18,06,995 [IE., GROSS RECEIPTS OF 86,73,839+OUTSTAN DING BILLS NOT ADMITTED RS.26,22,059+SALE VALUE ARRIVED BY THE CIT[A ] ON ACCOUNT OF UNEXPLAINED CREDITS IN THE BANK OF RS.5,11,097] BUT S UBJECT TO DEDUCTION UNDER SECTION 40[B] OF THE ACT. ITA NO.1714/HYD/20 08 APARNA CONSTRUCTIONS, BA NDARUGUDEM. ========================= 7 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 17 -6-2011. SD/- SD/- (G.C. GUPTA)) (AKBER BASHA) VICE PRESIDENT. ACCOUNTANT MEMBER. DT/- 17-06-2011. COPY FORWARDED TO: 1. C/O G.S. MADHAVA RAO & COMPANY, H.NO.11-26-53, MG ROAD, WARANGAL. 2. 3. 4 5. JMR* ITO, WARD-1, HYDERABAD. CIT (A), GUNTUR. CIT, AP, HYDERABAD. THE DR, ITAT, HYDERABAD.