Income Tax Officer, Ward-2, Kadapa V. Sri D.V.Nara Simha Reddy, Kadapa

ITA 1722/HYD/2013

• Counselvise Citation: 172222514 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Rejection of books of accounts
• Section: 143(3)

Judgement Text

ITA NO.1722 OF 2013 D V NARASIMHA REDDY KADAPA PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1722/HYD/2013 (ASSESSMENT YEAR: 2010-11) INCOME TAX OFFICER, WARD-2 KADAPA VS. SRI D.V. NARA SIMHA REDDY 2-559 NAGARAJPET, KADAPA PAN: AETPD 0351 G (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAMAKRISHNA BANDI, DR FOR ASSESSEE : SHRI M. CHANDRAMOULESWARA RAO DATE OF HEARING : 24 .09 .2015 DATE OF PRONOUNCEMENT : 09 . 10 . 2015 O R D E R PER SMT.P. MADHAVI DEVI, J.M. THIS IS REVENUES APPEAL FOR THE A.Y 2010-11. IN T HIS APPEAL, THE REVENUE IS AGGRIEVED BY THE RELIEF ALLO WED BY THE CIT (A) TO THE ASSESSEE BY DETERMINING THE NET INCOME O F THE ASSESSEE AT 7% OF THE NET CONTRACT RECEIPTS AS AGAINST THE E STIMATION OF NET PROFIT BY THE AO AT 12.5% OF THE GROSS RECEIPTS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, FILED HIS RETURN OF INCOME FOR A.Y 2010-11 ON 14.10 .2010 DECLARING INCOME OF RS.9,15,450 AND THE SAME WAS PR OCESSED U/S 143(1) ON 2.2.2012. THEREAFTER, THE CASE WAS SE LECTED FOR SCRUTINY AND A NOTICE U/S 143(2) ALONG WITH A QUEST IONNAIRE WAS ISSUED AND SERVED ON THE ASSESSEE ON 12.09.2011. IN RESPONSE TO THE SAID NOTICE, ASSESSEE APPEARED, BUT SOUGHT ADJO URNMENTS FROM TIME TO TIME FOR SUBMISSION OF BOOKS OF ACCOUN TS AND OTHER ITA NO.1722 OF 2013 D V NARASIMHA REDDY KADAPA PAGE 2 OF 6 RELEVANT INFORMATION CALLED FOR BY THE AO. ULTIMATE LY, THE ASSESSEE FILED ONLY THE BANK ACCOUNT STATEMENT. VID E LETTER DATED 16.10.2013, THE AO PROPOSED ADOPTION OF NET INCOME @ 12.5% OF THE GROSS RECEIPTS. THE CASE WAS FINALLY DISCUSSED ON 14.11.2012 WITH THE ASSESSEE AND THE ASSESSEE DID NOT OBJECT T O THE PROPOSAL OF THE AO AND THE AO THEREFORE, HOLDING THAT THE BO OKS OF ACCOUNTS/BILLS & VOUCHERS FOR EXPENDITURE CLAIMED A RE NOT FILED, HE REJECTED THE ASSESSEES BOOKS. FURTHER ALSO IN V IEW OF THE FACT THAT ASSESSEE DID NOT RAISE ANY OBJECTION TO THE AO S PROPOSAL, THE AO DECIDED TO ADOPT 12.5% OF GROSS CONTRACT REC EIPTS AS ASSESSEES NET INCOME. THUS, ASSESSMENT WAS COMPLE TED U/S 143(3) ON 20.11.2012 DETERMINING THE INCOME AT RS.5 9,31,760 BEING 12.5% OF GROSS CONTRACT RECEIPTS OF RS.4,74,5 4,102, WHICH LED TO AN ADDITION OF RS.50,16,310 TO THE INCOME RE TURNED BY THE ASSESSEE. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE CIT (A) AGAINST THE REJECTION OF BOOKS OF ACCOUNTS BY THE A O AND AGAINST THE ESTIMATION OF INCOME AT AN EXORBITANT RATE AT 1 2.5% OF GROSS CONTRACT RECEIPTS. ASSESSEE SUBMITTED THAT HE IS CA RRYING ON THE BUSINESS AS A CIVIL CONTRACTOR FOR THE LAST MANY YE ARS AND IS PRIMARILY ENGAGED IN EXECUTING CONTRACTS FOR STATE GOVT./DEPARTMENTS AND THAT THERE HAS BEEN NO CHANGE IN THE NATURE OF HIS BUSINESS OVER THE YEARS AND THAT DUE TO COMPETITIVE BIDDING AND NEGOTIATIONS BEFORE AWARD OF CONTRACTS, THE MARGIN OF PROFIT IN THIS LINE IS VERY LOW. IT WAS FURTHER SUB MITTED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY HIM ARE TRUE AND FA IR AND REFLECT THE CORRECT POSITION OF PROFIT FROM BUSINES S. IT WAS FURTHER SUBMITTED THAT THOUGH THE ASSESSEE HAS SUBMITTED BO OKS OF ACCOUNTS, BILLS AND VOUCHERS IN SUPPORT OF HIS CLAI M FOR ITA NO.1722 OF 2013 D V NARASIMHA REDDY KADAPA PAGE 3 OF 6 EXPENDITURE BEFORE THE AO, AO HAS NOT POINTED OUT A NY DEFECTS BUT HAS REJECTED THE BOOKS WITHOUT ANY BASIS AND TH EREFORE, REJECTION OF BOOKS OF ACCOUNTS BY THE AO IS UNJUSTI FIED. ASSESSEE FURTHER SUBMITTED BEFORE THE CIT (A) THAT IN EACH O F THE EARLIER YEARS, EVEN AFTER DISALLOWANCES, THE ASSESSED INCOM E DETERMINED BY THE AO WAS IN THE RANGE OF 1.63% TO 5.82% 4. IN SUPPORT OF HIS CONTENTIONS, THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. GIRIDHARILAL (2002) 258 ITR 331 (GUJ.), WHEREIN IT HAS BEEN HELD THAT EVERY ASSESSEE NEED NOT NECESSARILY GET SAME RATE O F PROFIT AND THE PROFITS WILL DIFFER FROM ASSESSEE TO ASSESSEE . THUS THE ASSESSEE SUBMITTED THAT THE AOS RELIANCE ON IT AT DECISION IN THE CASES OF M/S KNR CONSTRUCTIONS LTD., TO ESTIMAT E THE PROFIT @ 12.5% OF GROSS RECEIPTS IS NOT SUSTAINABLE. ON CO NSIDERATION OF ASSESSEES CONTENTIONS, THE LEARNED CIT (A) OBSERVE D THAT ASSESSEES CASE WAS SUBJECTED TO SCRUTINY FOR EARLI ER FOUR CONSECUTIVE YEARS AND THAT IN NONE OF THE YEARS, IT HAS BEEN SUGGESTED THAT THE ASSESSEE IS NOT MAINTAINING THE BOOKS OF ACCOUNTS, NOR ANY PENALTY HAS BEEN LEVIED FOR NON A UDIT OF BOOKS AND FURTHER THAT THE AO HAS NOT POINTED OUT ANY SP ECIFIC ERRORS IN THE BOOKS. HE, THEREAFTER CONSIDERING THE ASSESS EES CONTENTIONS DETERMINED THE NET INCOME AT 7% AMOUNTI NG TO RS.4,34,70,891 OF NET CONTRACT RECEIPTS (GROSS CONT RACT RECEIPTS REDUCED BY SALES TAX, SEIGNORAGE CHARGES AND CESS) AND THE NET INCOME WAS WORKED OUT TO BE AT RS.30,42,962. 5. AGGRIEVED BY THE ABOVE RELIEF GRANTED BY THE CIT (A), REVENUE IS IN APPEAL BEFORE US. ITA NO.1722 OF 2013 D V NARASIMHA REDDY KADAPA PAGE 4 OF 6 6. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR CARRYING ON GOVT. CONTRACTS. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS BEING ASSESSED U/S 143(3) FOR THE EARLIER A.YS. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE ASSESSEE HAS FILED THE BANK ACCOUNT STATEMENTS, BUT DID NOT FILE THE BOOKS OF ACCOUNTS OR BILLS/VOUCHERS FOR THE EXP ENDITURE CLAIMED. THE GROSS TURNOVER OF THE ASSESSEE OF RS.4 ,75,54,102 IS ALSO NOT IN DISPUTE. THE ONLY DISPUTE IS THE ESTIMA TION OF THE NET PROFIT OF THE ASSESSEE FROM CARRYING ON OF THE WORK OF THE CONTRACTS. WHILE THE ASSESSEE HAS ADMITTED A NET PR OFIT OF 2% OF THE GROSS RECEIPTS, THE AO HAS ESTIMATED IT AT 12.5 % OF THE GROSS RECEIPTS ON THE BASIS OF THE DECISION OF THIS TRIBU NAL IN THE CASE OF KNR CONSTRUCTIONS LTD. THE CIT (A), HOWEVER, RES TRICTED IT TO 7% OF THE NET CONTRACT RECEIPTS (I.E AFTER REDUCING THE GROSS RECEIPTS BY DEDUCTIONS AMOUNTING TO RS.39.83 LAKHS MADE BY THE GOVERNMENT TOWARDS SALES TAX, SEIGNORAGE CHARGES AN D CESS). IN THE ABOVE CASE, THE AO AS WELL AS THE CIT (A) HAVE ESTIMATED THE NET INCOME. WHILE THE AO HAS ESTIMATED IT AT 12.5% OF THE GROSS RECEIPTS, THE CIT (A) HAS RESTRICTED IT TO 7% TO T HE NET CONTRACT RECEIPTS. WHILE THE AO HAS RELIED UPON THE DECISION OF THE TRIBUNAL, THE CIT (A) HAS CONSIDERED THE NET INCOME OFFERED BY THE ASSESSEE IN ASSESSEES OWN CASE FOR THE EARLIER A.YS FOR RESTRICTING IT TO 7%. AS HELD BY THE HON'BLE GUJARA T HIGH COURT IN THE CASE OF CIT VS. GIRIDHARILAL (2002) 258 ITR 331 (GUJ), EVERY ASSESSEE NEED NOT NECESSARILY GET SAME RATE OF PROF IT AND THE PROFITS WILL DIFFER FROM ASSESSEE TO ASSESSEE. WE F IND THAT THE CIT (A) HAS RIGHTLY FOLLOWED THE ABOVE DECISION IN HOLD ING THAT THE ESTIMATED NET INCOME AT 12.5% OF THE GROSS CONTRACT RECEIPTS CANNOT BE ACCEPTED. AS RIGHTLY OBSERVED BY THE CIT (A), THE PROFIT MARGIN OF A CONTRACTOR WILL DEFINITELY DEPEND UPON THE RATE AT ITA NO.1722 OF 2013 D V NARASIMHA REDDY KADAPA PAGE 5 OF 6 WHICH THE CONTRACT HAS BEEN ALLOTTED, QUANTUM OF MA TERIAL BEING USED, LABOUR CHARGES, PERIOD OF CONTRACT, ETC. THER EFORE, THE ESTIMATION OF INCOME BY ITAT IN THE CAZSE OF A CIVI L CONTRACTOR MAY NOT BE EXACTLY APPLICABLE TO THE ASSESSEE HEREI N. AS OBSERVED BY THE CIT (A) IN THE ASSESSEES CASE, THE NET PROF IT THAT IS REFLECTED IS 1.93% OF THE GROSS CONTRACT RECEIPTS, WHEREAS THE DEDUCTIONS MADE TOWARDS SALES TAX, SEIGNORAGE CHARG ES AND CESS ITSELF WORKS OUT TO 8.39% OF THE GROSS CONTRAC T RECEIPTS. FURTHER AS SEEN FROM THE RECORDS, IN THE ASSESSEES OWN CASE, THE INCOME ASSESSED FOR THE A.Y 2009-10 WAS ITSELF 5.82 % OF THE GROSS CONTRACT RECEIPTS. IT WAS IN THESE CIRCUMSTAN CES THAT THE CIT (A) HAS ESTIMATED THE NET INCOME AT 7% OF THE N ET CONTRACT RECEIPTS I.E. GROSS RECEIPTS REDUCED BY DEDUCTIONS MADE BY THE GOVT. TOWARDS SALES TAX, SEIGNORAGE CHARGES AND CES S. AS THE DECISION OF THE CIT (A) IS ON THE BASIS OF THE ASSE SSMENTS COMPLETED IN A.Y 2009-10 IN THE ASSESSEES OWN CASE AS AGAINST THE ESTIMATION OF INCOME BY THE AO ON THE BASIS OF A DECISION OF ITAT IN ANOTHER CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). REVENUES APPEAL IS ACCOR DINGLY DISMISSED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2015. S D/ - S D/ - (B. RAMAKOTAIAH) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 9 TH OCTOBER, 2015. ITA NO.1722 OF 2013 D V NARASIMHA REDDY KADAPA PAGE 6 OF 6 VNODAN/SPS COPY TO: 1. INCOME TAX OFFICER WARD 2 SIMHAPURI COLONY, KADAPA 2. SR. D.V. NARA SIMHA REDDY, 2-559 NAGARAJPET, KADAPA 3. CIT (A), GUNTUR 4. CIT, TIRUPATI 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER