Dy. Commissioner of Income Tax, Circle-3(1), Hyderabad V. R A U S Constructions Private Limited, Hyderabad

ITA 1734/Hyd/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5678 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB-B
• Assessment Year: 2014-2015
• Appeal Filed On: 10-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Corroborative evidences; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ‘B’ BENCH, HYDERABAD. BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI L. P. SAHU, ACCOUNTANT MEMBER (Through Virtual Hearing) ITA No.1734/Hyd/2017 (Assessment Year : 2014-15) Dy. Commissioner of Income Tax, Circle 3(1), Hyderabad. .....Appellant. Vs. M/s. R A U S Constructions Pvt. Limited, Hyderabad. ..Respondent. PAN AADCR 7422F Appellant By : None. Respondent By : Shri L. Jeevanlal. (D.R) Date of Hearing : 22.12.2021. Date of Pronouncement : 23.12.2021. O R D E R Per L.P.Sahu, A.M. : This is an appeal filed by the Revenue against the order passed by the Commissioner of Income Tax-3, Hyderabad order dt.16.08.2017 for the Assessment Year 2014-15 on the following grounds of appeal : 2 ITA No.1734/Hyd/2017 “ 1. Ld. CIT(A) erred on both law and facts of the case. 2. The ld. CIT(A) erred in restricting the estimation of income done by A.O. by a speaking order without giving any reasoning for such restriction. 3. The ld. CIT(A) erred in deleting the addition made at Rs.48,60,911 by A.O. towards other income. 4. The appellant prays that the order of the ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to amend or alter any grounds or add a new ground, which may be necessary. 6. Any other ground(s) that may be urged at the time of hearing.” 2. None appeared on behalf of the assessee, therefore, case was heard exparte. Heard learned DR. 3. The brief facts of the case are that the assessee is engaged in the business of execution of works 3 ITA No.1734/Hyd/2017 contracts and it has done main contract works and sub-contract works. The total turnover for the year is Rs.61,17,85,750 and the assessee had offered 4.59% profit and admitted an amount of Rs.48,60,911 under the head ‘other income’. The assessee filed Return of Income on 28.11.2014 declaring a total income of Rs.3,80,37,716. The case was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings, the Assessing Officer after detailed examination of the books of account and supporting evidences found many discrepancies/deficiency in maintaining of the books of accounts and bills & vouchers, accordingly rejected the books of accounts u/s.145(3) and estimated 15% net profit on the total turnover of Rs.61,17,85,750 which comes to Rs.9,17,67,862. There was other income of Rs.48,60,911 also. Accordingly, the Assessing Officer completed the scrutiny assessment and assessed income at 4 ITA No.1734/Hyd/2017 Rs.19,66,28,773. Aggrieved the assessee filed an appeal before the CIT(A). The CIT(A) after examining the details, directed the Assessing Officer to restrict the profit estimation from 15% to 8% on the total turnover and he also accepted that once the books of accounts are rejected u/s.145(3), no other addition can be called for. Accordingly, he deleted the other income of assessee under the head ‘income from other sources’ of Rs.48,60,911. He partly allowed the appeal of the assessee. Aggrieved by the order of CIT(A), the Revenue filed an appeal before the Tribunal. 4. The learned departmental representative submitted that the CIT(A) is not justified in directing the Assessing Officer to restrict the profit estimation at 8% on total turnover and he also not justified to hold that once the books of accounts are rejected, no separate addition can be called for, therefore, he 5 ITA No.1734/Hyd/2017 requested before the Bench, the order of the Assessing Officer should be upheld. 5. After hearing the learned DR and perusal of the records available before us, we observe that during the assessment year under consideration, the assessee achieved the turnover of Rs.61,17,85,750 out of main contract and sub-contract works. The assessee is a civil contractor. The reason for rejecting the books of accounts by the Assessing Officer which culled out from the assessment order to which the CIT(A) has restricted upto 8% of the net profit from the total turnover achieved during the assessment year under consideration. Recently, the Hon’ble jurisdictional High Court in ITTA Nos.40 & 41 of 2020 has held as under : “ 18. We are of the view that the above finding of the Tribunal is based on the finding recorded by the CIT(A)himself that the net profit of the assessee is to be estimated at 9% 6 ITA No.1734/Hyd/2017 on main contract works and 6% on sub- contract works. 19. The Tribunal specifically observed that the CIT(A) could not have adopted 9% net profit on this entire amount and he ignored the fact that the appellant was also working both as a main contractor and a sub- contractor. 20. Therefore, the finding of the Tribunal appears to be in consonance with the findings of the CIT(A), and it did not commit any error in directing the Assessing Officer to recompute the net profit at 9% of the turnover on the main contracts and at 6% of the turnover on the sub-contract works. These are finding of facts and no substantial question of law arises for consideration in appeal under section 260-A of the Income Tax Act, 1961.” In the case on hand, the assessee is a civil contractor and the decision cited above by us supra is also a case of civil contractor, therefore, the nature of business is similar in nature. Respectfully following the judicial precedence, the issue of net profit on 7 ITA No.1734/Hyd/2017 main contract works and sub-contract works done by the assessee, we remit the matter to the file of Assessing Officer and direct the Assessing Officer to compute net profit @ 9% on main contract works done and 5% on sub-contract works done by the assessee. 7. Further in respect of Ground No.3, deleting the addition by CIT(A), made by the Assessing Officer of Rs.48,60,911; the assessee had himself stated as other income, which was interest received by the assessee to which the CIT(A) has deleted by holding as under : “ 7. Ground No.5 relates to addition under ‘income from other sources.’ Facts and circumstances of the case, grounds of appeal and assessment order were perused. As seen from the assessment order, the Assessing Officer after rejecting the books of account u/s.145(3) of the IT Act, 1961, made an addition of Rs.48,60,911 towards other income. However, the appellant contended 8 ITA No.1734/Hyd/2017 that once the books of account are rejected and assessment is completed on estimating income at 15% of the total turnover, no separate addition is warranted since this income has nexus to the business operations of the appellant company. Considering the facts and issues of the case, the contention of the appellant holds water since the books of accounts are rejected and the assessment is completed on estimation basis, no separate addition called for. Hence, the addition made on this count is deleted and the ground No.5 in appeal is allowed.” From the above order of the CIT(A), we observe that the CIT(A) has deleted this addition by holding that once the books of accounts were rejected, no separate addition can be called for since this income has nexus to the business of the assessee. We observe from the order of the CIT(A) that these observations are not culled out from the order of the Assessing Officer that there was a direct nexus with the business of the assessee towards earning this income. It is clear from the order of the Assessing 9 ITA No.1734/Hyd/2017 Officer at para 2 that the assessee has itself offered under the head ‘other income’ but there is no clarity from the orders of both the authorities below that there is direct nexus between the business of the assessee and for earning the interest income as there should be purpose test for earning the interest income. Therefore, this issue is also remitted to the file of Assessing Officer with a direction to decide the same as per law after providing reasonable opportunity of hearing to the assessee and the assessee is directed to furnish necessary details that the interest earned was having direct nexus with the business of the assessee to substantiate its claim before the AO. Thus, this ground of revenue is allowed for statistical purposes. We make it clear that the assessee will not get any deduction under the head profit “profits and gains of business or profession” under Chapter – IV of the IT Act, from the estimated profits as quoted supra. 10 ITA No.1734/Hyd/2017 8. In the result, the appeal of the revenue is partly allowed for statistical purposes in above terms. Order pronounced in the open court on 23rd Dec.,2021. Sd/- Sd/- (S.S. GODARA) (L.P. SAHU) Judicial Member Accountant Member Hyderabad, Dt. 23.12.2021. * Reddy gp Copy to : 1. M/s. R A U S Constructions Pvt. Ltd., H.No.4-7-31/4/1, Saraswathi Nagar Colony, Bapuji Nagar, Nacharam, Hyderabad. 2. DCIT, Circle 3(1), Hyderabad. 3. Pr. C I T-3, Hyderabad. 4. CIT(Appeals)-3, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File. By Order Sr. Pvt. Secretary, ITAT, Hyderabad.