M/s K.Venkataraju, V. THE ACIT, Rajahmundry

ITA 176/VIZ/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9018 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T SATYANADHAM
• Keywords: Business income; Depreciation
• Section: 44AD; 142(1)

Judgement Text

ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.168/VIZAG/2015 ( / ASSESSMENT YEAR: 2010-11) ACIT, CIRCLE - 2(1), RAJAHMUNDRY M/S. K. VENKATA RAJU, VEMAGIRI [PAN NO. AABF K4007A ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.176/VIZAG/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. K. VENKATA RAJU, VEMAGIRI ACIT, CIRCLE - (1), RAJAHMUNDRY ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI T. SATYANADHAM, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 10.04.2017 / DATE OF PRONOUNCEMENT : 12.04.2017 / O R D E R PER SHRI MANJUNATHA, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE REVENUE, AS WELL A S THE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE CIT(A), RAJAHMUND RY DATED 27.2.2015 ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 2 AND IT PERTAINS TO THE ASSESSMENT YEAR 2010-11. SI NCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 11.10.201 0 DECLARING TOTAL INCOME OF ` 1,05,24,000/-. THE CASE HAS BEEN SELECTED FOR SCR UTINY AND NOTICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WERE ISSUED. IN RESPONSE TO N OTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TOME AND FURNISHED BOOKS OF ACCOUNTS AND OTHER DETAILS AS CA LLED FOR. THE A.O. AFTER CONSIDERING THE BOOKS OF ACCOUNTS AND OTHER D ETAILS FURNISHED BY THE ASSESSEE, REJECTED BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND ESTIMATED NET PROFIT FROM THE BUSINESS BY ADOPTING NET PROFIT OF 10% ON MAIN CONTRACT RECEIPTS, 6% ON SUB-CONTRACT RECEIPTS AND 4% ON SUB- CONTRACT WORKS GIVEN TO THIRD PARTIES NET OF ALL DE DUCTIONS, INCLUDING DEPRECIATION AND INTEREST ON CAPITAL AND REMUNERATI ON TO PARTNERS. APART FROM ESTIMATION OF NET PROFIT, MADE SEPARATE ADDITI ONS TOWARDS INTEREST RECEIVED FROM FIXED DEPOSIT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE CONTENDED ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 3 THAT THE A.O. WAS ERRED IN REJECTING BOOKS OF ACCOU NTS, AS THE ASSESSEE HAS FURNISHED COMPLETE BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOUCHERS FOR EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUN T. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. WAS NOT CORRECT IN ESTIMATING NET PROFIT OF 10% ON MAIN CONTRACT RECEIPTS, 6% ON SUB CONTRAC T RECEIPTS AND 4% ON SUB CONTRACT WORKS GIVEN TO THIRD PARTIES. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. ERRED IN NOT ALLOWING DEPRE CIATION, INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS AGAINST ESTIMA TED INCOME. AS REGARDS, SEPARATE ADDITION TOWARDS INTEREST INCOME, THE ASSESSEE SUBMITTED THAT IT HAS KEPT FIXED DEPOSIT IN BANK FO R THE PURPOSE OF OBTAINING BANK GUARANTEES TO BE GIVEN TO THE PRINCI PALS FOR CONTRACTS, THEREFORE, ANY INCOME IN THE FORM OF INTEREST RECEI PTS FORMS PART OF BUSINESS RECEIPTS, HENCE, THE SAME SHOULD BE CONSID ERED AS PART OF GROSS CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATI ON OF NET PROFIT. THE CIT(A) AFTER CONSIDERING THE RELEVANT SUBMISSIONS O F THE ASSESSEE, SCALED DOWN ESTIMATION OF NET PROFIT TO 7% ON MAIN CONTRACTS, 5% ON SUB CONTRACTS AND 1% ON SUB CONTRACTS GIVEN AND ALL OWED FURTHER DEDUCTIONS TOWARDS INTEREST AND REMUNERATION TO PAR TNERS AS PER THE PROVISIONS OF SECTION 40(B) OF THE ACT. HOWEVER, R EJECTED CLAIM OF DEDUCTION TOWARDS DEPRECIATION, BY FOLLOWING THE DE CISION OF HONBLE JURISDICTIONAL HIGH COURT, IN THE CASE OF INDWELL C ONSTRUCTIONS VS. CIT ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 4 232 ITR 776. AGGRIEVED BY THE CIT(A) ORDER, THE RE VENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE AS WELL AS THE ASSESSEES APPEAL IS ESTIMATION OF NET PROFIT FROM BUSINESS. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASS ESSEE AND THE LD. D.R. SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2009-10, WHEREIN THE ITAT HAS DIREC TED THE A.O. TO ESTIMATE NET PROFIT OF 8% ON MAIN CONTRACT RECEIPTS , 5% ON SUB CONTRACT RECEIPTS AND 1% ON SUB CONTRACT WORKS GIVEN TO THIR D PARTIES. WE FIND THAT THE COORDINATE BENCH OF ITAT, VISAKHAPATNAM IN ITA NO.370/VIZAG/2012 DATED 30.11.2015 FOR THE ASSESSME NT YEAR 2009-10 HAS CONSIDERED SIMILAR ISSUE AND AFTER CONSIDERING THE RATIO OF SPECIAL BENCH DECISION OF ITAT, IN THE CASE OF ARIHANT BUIL DERS PVT. LIMITED VS. ACIT 299 ITR 49 AND ALSO THE DECISION OF ITAT, HYDE RABAD BENCH IN THE CASE OF ACIT VS. TEJA CONSTRUCTIONS IN ITA NO.1191/ HYD/2001, HAS DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 8% ON M AIN CONTRACT RECEIPTS, 5% ON SUB CONTRACT RECEIPTS AND 1% ON SUB CONTRACT WORKS GIVEN TO THIRD PARTIES. THE RELEVANT PORTION OF THE ORDER I S EXTRACTED BELOW: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THIS CASE, THE ASSESSING OFFICER REJ ECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE NET PROFIT FROM CONTRACT RECEIPTS @ 10% ON MAIN CONTRACTS, 8% ON SUB CONTRACTS AND 4% ON SUB CONTRA CTS EXECUTED THROUGH THIRD PARTIES. THE ASSESSEE CONTENDED THAT IT IS C ONSISTENTLY DECLARING A NET ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 5 PROFIT OF 5% TO 6% FOR THE PAST SEVERAL YEARS WHICH WAS ACCEPTED BY THE DEPARTMENT. THE ASSESSEE FURTHER SUBMITTED THAT TH E ELEMENT OF PROFIT IN WORKS CONTRACTS IS LESS, BECAUSE THERE IS A HUGE CO MPETITION IN THE MARKET. THEREFORE, THE PROFIT DECLARED BY THE ASSESSEE SHOU LD BE ACCEPTED. THE CIT (A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS SC ALED DOWN THE NET PROFIT ESTIMATED BY THE ASSESSING OFFICER TO 8% ON MAIN CO NTRACTS, 5% ON SUB CONTRACTS AND 1% ON SUB CONTRACT WORKS EXECUTED THR OUGH THIRD PARTIES. WHILE DOING SO, THE CIT (A) RELIED UPON THE ITAT SP ECIAL BENCH DECISION IN THE CASE OF ARIHANT BUILDERS PVT. LTD. VS. ACIT 291 ITR 49 AND ALSO HYDERABAD BENCH DECISION IN THE CASE OF C. EASHWAR REDDY AND COMPANY IN ITA NO.668 & 670/HYD/2009. WE HAVE GONE THROUGH THE CIT (A)S ORDER AND ALSO CASE LAWS RELIED UPON BY THE PARTIES. IT IS AN ADMITTED FACT THAT ESTIMATION OF NET PROFIT FROM CIVIL CONTRACTS RECEIPTS IS CONSISTENTL Y FOLLOWED BY THE DEPARTMENT ON VARIOUS RATES DEPENDING UPON THE FACTS AND CIRCU MSTANCES OF EACH CASE. THE ITAT HAVE UPHELD THE ESTIMATION OF NET PROFIT R ANGING FROM 8% TO 12.5% ON MAIN CONTRACTS AND 2% TO 7% ON SUB CONTRACT. THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ARIHANT BUILDERS PVT. LTD. (SUPRA) TOOK A CLUE FROM SECTION 44AD OF THE ACT, HELD THAT 8% NET PROFIT F ROM CIVIL CONTRACTS IS JUSTIFIED. THE RELEVANT PORTION OF THE HONBLE TRI BUNAL ORDERS IS REPRODUCED HEREUNDER: WE HAVE CAREFULLY GONE THROUGH THE ORDER OF TH IS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA), K. C. R EDDY ASSOCIATES (SUPRA), SRI SRINIVASA CONSTRUCTIONS (SUPRA) AND M. BHASKAR REDDY (SUPRA). NO DOUBT THIS TRIBUNAL ESTIMATED THE PROFI T FROM 12.59165 TO 8% DEPENDING UPON THE FACTUAL SITUATION. THE LEARNE D DR MADE AN ATTEMPT TO DISTINGUISH THE ORDER OF THIS TRIBUNAL I N M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOVER IS ONLY RS. 54, 40,420. IT IS A WELL KNOWN FACT THAT WHENEVER THE TURNOVER INCREASE S THE PROFIT RATIO WOULD GO DOWN. MERELY BECAUSE THE TURNOVER INCREASE S THE PROFIT MAY NOT GO UP. THEREFORE, WE DO NOT AND ANY JUSTIFI CATION IN THE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THI S TRIBUNAL ESTIMATED THE PROFIT AT 8% IN THE CASE OF M. BHASKA R REDDY (SUPRA) ONLY BECAUSE THE TURNOVER WAS RS.51, 40,420. A BARE READING OF THE ORDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) DEARLY SHOWS THAT THIS TRIBUNAL AFTER CONSIDERING THE JUDGEMENT OF TH E APEX COURT IN C. VELUKUTTY, 60 ITR 239 AND THE DECISION OF THE SPECI AL BENCH OF THIS TRIBUNAL IN ARIHANT BUILDERS PVT. LTD. VS. AC17 291 41 (SB) AND BY TAKING A DUE FROM SECTION 44AD OF LT ACT THE PROFIT WAS ESTIMATED 896. ADMITTEDLY SECTION 44AD WOULD BE APPLICABLE IN RESPECT OF A CASE WHERE THE GROSS 4ONTRACT RECEIPT DOES NOT EXCE ED RS. 40 LAKHS. WHEREVER THE GROSS CONTRACT RECEIPTS EXCEED RS.40 L AKHS THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE. THER EFORE, THE PROFIT CAN BE ESTIMATED EITHER AT LOWER THAN 896 OR ABOVE 8916 DEPENDING UPON THE FACTUAL SITUATION. AS DISCUSSED EARLIER, F OR THE PURPOSE OF ESTIMATING THE PROFIT VARIOUS FACTORS SUCH AS THE P ROFIT RATIO OF THE ASSESSEE IN THE EARLIER YEAR, PROFIT RATIO OF THE S IMILARLY PLACED TRADERS IN THE SAME LOCALITY, DEMAND FOR THE PRODUCT, AVAIL ABILITY OF LABOURERS, RAW MATERIALS, ETC., AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK, ETC., HAVE TO BE TAKEN INTO CONSIDER ATION. THEREFORE, II ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 6 OUR OPINION, REFERENCE TO EARLIER ORDER OF THIS TRI BUNAL ALONE FOR THE PURPOSE OF ESTIMATING THE PROFIT AT 12.5910 MAY NOT BE JUSTIFIED AT ALL. 9. IN FACT, IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS I N ITA NOS. 116 AND 117/HYD/2007 FOR A. YS. 1993-94 AND 1994-95 THE TRIBUNAL ESTIMATED THE PROFIT ONLY AT 8% EVEN THOUG H THE PROFIT WAS ESTIMATED AT 12.5% FOR A. Y. 1992-92. THIS ITSELF S HOWS THAT FOR EACH YEAR THE PROFIT HAS TO BE ESTIMATED DEPENDING UPON THE FACTORS WHICH PREVAIL IN THE LOCALITY. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF T HE LOWER AUTHORITIES. THE CIT(A) AFTER REFERRING TO THE DECI SION OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) AND THE SPECIAL BENCH DECISION IN ARIHANT BUILDERS (SUPRA) ESTIMATED THE PROFIT AT 8% FOR MAIN CONTRACT AND FOR SUB CONTRACT AT 5%. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THIS TRIBUNAL U NIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 1 2.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% O N THE SUB CONTRACT DEPENDING UPON THE FACTUAL SITUATION. THER EFORE, IN OUR OPINION, ESTIMATION OF PROFIT AT 8% BY THE CIT(A) O N MAIN CONTRACT AND AT 5% ON SUB CONTRACT IS JUSTIFIED. WE DO NOT F IND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY TH E SAME IS CONFIRMED. 10. THE ITAT, HYDERABAD BENCH IN THE CASE OF ACIT V S. TEJA CONSTRUCTIONS IN ITA NO.1191/HYD/2001, WHILE DEALIN G WITH THE SIMILAR ISSUE HELD AS UNDER: THE ASSESSEES PAST TRACK RECORDS SHOW THAT THE AS SESSEE HAS NEGLECTED THE PRESENTING OF THE BOOKS OF ACCOUNT IN ACCORDANCE WITH LAW. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY ON THE PART OF THE ASSESSEE TO PRODUCE THE BOOKS OF AC COUNT SUPPORTED BY PROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS N OT PRODUCED THE PROPER BOOKS OF ACCOUNT, TRUE PROFITS OR LOSS CANNO T BE DEDUCED FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAVING NO OTHER OPTION REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INC OME AT 10 PER CENT OF GROSS RECEIPTS. BUT THE POSITION IS THAT, THE AS SESSEE IS CARRYING ON THREE KINDS OF CONTRACTS, AS IN EARLIER YEARS, I.E. , (I) OWN CONTRACTS, (II) CONTRACTS TAKEN FROM THE SUB-CONTRACTORS, (III) CON TRACTS GIVEN TO OTHER PARTIES ON SUB-CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE ITSELF. IN T HESE CONTRACTS, THE ASSESSEE AGREED THAT HIS INCOME IS AT 9 PER CENT OF THE GROSS RECEIPTS. THUS, ACCORDINGLY THE AO IS DIRECTED TO ESTIMATE TH E INCOME ON THE CONTRACTS EXECUTED BY THE ASSESSEES OWN AT 9 PER C ENT. IN CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB-CONTRACT, THE IN COME TO BE ESTIMATED AT 8 PER CENT OF THE GROSS RECEIPTS. IN CA SE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE 3RD PARTY ON SUB-CONTRACT, I NCOME TO BE ESTIMATED AT 4 PER CENT. THIS IS, BECAUSE, WHEN THE ASSESSEE GIVES ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 7 CONTRACT TO THE OTHER PARTIES ON SUB-CONTRACT, THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9 PER CENT, IT HAS TO FORGO CERTAIN PORTION OF PROFIT I.E., AROUND 5 PER CENT TO THE SU B-CONTRACTORS. SIMILAR IS THE POSITION IN THE CASE OF CONTRACTS TAKEN BY A SSESSEE ON SUB- CONTRACT FROM OTHER PARTIES. FURTHER, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION, AND INTERESTS TO PAR TNERS ON THE PROFIT ESTIMATED BY AO AT APPLICABLE RATES, BECAUSE THE IN COME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AN D INTEREST AND REMUNERATION OF THE PARTNERS. ACCORDINGLY, THE AO I S DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. 11. IN THE PRESENT CASE ON HAND, THE ASSESSEE DECLAR ED A NET PROFIT OF 5.28% ON GROSS CONTRACT RECEIPTS. THE ASSESSING OF FICER HAS ESTIMATED NET PROFIT OF 10% ON MAIN CONTRACT WORKS, 8% ON SUB CON TRACTS AND 4% ON SUB CONTRACTS EXECUTED THROUGH THIRD PARTIES. THE CIT (A) SCALED DOWN THE NET PROFIT TO 8%, 5% AND 1% RESPECTIVELY. THE CIT (A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, RIGHTLY ES TIMATED THE NET PROFIT, THEREFORE, HIS ORDER DOES NOT REQUIRE ANY INTERFERE NCE. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO ERROR OR INFIRMITY IN THE ORDER PASSED BY THE CIT (A), HENCE, WE ARE INCLINED TO UPHELD THE ORDER OF THE CIT (A). 5. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, WE DIRECT THE A.O. TO ESTIMATE NET PROFIT OF 8% ON MAIN CONTRACT WORKS, 5% ON SUB CONTRACT WORKS AND 1% ON SUB CONTRACT WORKS GIVEN TO THIRD PARTIES. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM BOTH THE APPEALS IS DEDUCTIONS TOWARDS DEPRECIATION, REMUNER ATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNTS. THE A. O. HAS ESTIMATED NET PROFIT FROM THE BUSINESS NET OF ALL DEDUCTIONS INCL UDING DEPRECIATION, INTEREST ON PARTNERS CAPITAL ACCOUNT AND REMUNERAT ION TO PARTNERS. THE ASSESSEE CONTENDED THAT EVEN IF NET PROFIT IS ESTIM ATED FROM CONTRACT RECEIPTS, DEDUCTIONS TOWARDS REMUNERATION TO PARTNE RS AND INTEREST ON ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 8 CAPITAL IN CASE OF PARTNERSHIP FIRMS SHALL BE ALLOW ED IN VIEW OF SEPARATE DEDUCTIONS PROVIDED U/S 44AD OF THE ACT. THE CIT(A ) ALLOWED DEDUCTIONS TOWARDS REMUNERATION TO PARTNERS AND INT EREST ON PARTNERS CAPITAL U/S 40(B) OF THE ACT, HOWEVER, DENIED DEDUC TIONS TOWARDS DEPRECIATION BY RELYING UPON THE HONBLE A.P. HIGH COURT JUDGEMENT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT 232 ITR 7 76. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL AVAILABLE ON RECORD, WE FIND THAT A SIMILAR ISSUE HAS BEEN CONSI DERED BY THE COORDINATE BENCH IN ASSESEES OWN CASE FOR THE ASSE SSMENT YEAR 2009-10 IN ITA NO.370/VIZAG/2012 DATED 30.11.2015 A ND AFTER CONSIDERING THE RELEVANT PROVISIONS OF THE ACT AND ALSO BY FOLLOWING THE DECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF SRIV ALLI SHIPPING & TRANSPORTERS, IN ITA NOS.79 TO 95/VIZAG/2013 HELD T HAT DEPRECIATION, INTEREST ON PARTNERS CAPITAL ACCOUNTS AND REMUNERA TION TO PARTNERS IS ALLOWABLE DEDUCTION, EVEN AFTER ESTIMATION OF NET P ROFIT FROM THE CONTRACT RECEIPTS. THE RELEVANT PORTION OF THE ORD ER IS EXTRACTED BELOW: 17. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW EXP RESSED BY THE HONBLE JURISDICTIONAL HIGH COURT AND ALSO CONSIDERING THE COORDINATE BENCH DECISION OF THIS TRIBUNAL, WE ARE OF THE OPINION TH AT DEPRECIATION IS A ALLOWABLE DEDUCTION, EVEN AFTER ESTIMATION OF NET P ROFIT FROM THE CONTRACT RECEIPTS. THEREFORE, WE DIRECT THE ASSESSING OFFIC ER TO ALLOW THE DEPRECIATION AGAINST THE INCOME ESTIMATED FROM THE CONTRACT RECEIPTS. AS FAR AS THE DISALLOWANCE OF REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT IS CONCERNED, THE STATUTE ITSELF IN SECTION 44AD OF THE ACT, ALLOWED SEPARATE DEDUCTIONS TOWARDS INTERE ST ON CAPITAL ACCOUNTS AND REMUNERATION TO PARTNERS, AFTER ESTIMATION OF NET PROFIT FROM THE GROSS RECEIPTS. THE CIT (A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS RIGHTLY DIRECTED THE A.O. TO ALLOW REMUNERATION TO ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 9 PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT FROM THE NET PROFIT ESTIMATED. THEREFORE, WE FIND NO ERROR OR INFIRMIT Y IN THE ORDER OF THE CIT (A), HENCE, WE INCLINED TO UPHELD THE ORDER OF THE CIT (A). 8. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2009-10, WE ARE OF THE VIEW THAT DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS IS DEDUCTIBLE EVEN AFT ER ESTIMATION OF NET PROFIT FROM THE CONTRACT RECEIPTS. THEREFORE, WE D IRECT THE A.O. TO ALLOW DEPRECIATION, INTEREST ON PARTNERS CAPITAL ACCOUNT AND REMUNERATION TO PARTNERS AGAINST INCOME ESTIMATED FROM CONTRACT REC EIPTS. 9. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ADDITIONS TOWARDS INCOME FROM OTHER SOURCES BEING INTEREST EA RNED ON FIXED DEPOSITS. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, IN ITA NO.370/VIZAG/2012 DATED 30.11. 2015. WE FIND THAT THE COORDINATE BENCH, IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2009-10, HAS CONSIDERED SIMILAR ISSUE AND DECI DED THE ISSUE AGAINST THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: 12. COMING TO THE NEXT ISSUE, I.E. ADDITIONS TOWAR DS INCOME FROM OTHER SOURCES BEING INTEREST EARNED ON FIXED DEPOSITS. T HE ASSESSING OFFICER, IN ADDITION TO ESTIMATION OF NET PROFIT FROM CONTRACT RECEIPTS, MADE SEPARATE ADDITIONS TOWARDS INTEREST INCOME OF RS.25,00,490/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT (A), DELETED TH E ADDITIONS HELD THAT NO SEPARATE ADDITION TOWARDS INTEREST INCOME IS TO BE MADE, AS THE INTEREST ACCRUED ON THE SECURITY DEPOSIT KEPT FOR O BTAINING BANK GUARANTEE, USED FOR THE PURPOSE OF SECURING THE CON TRACT WORKS WOULD BE ASSESSABLE AS PART OF BUSINESS INCOME. THE D.R. AR GUED THAT INTEREST EARNED FROM FIXED DEPOSITS IN BANK HAS NOTHING TO D O WITH CONTRACTS ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 10 EXECUTED BY THE ASSESSEE. THOUGH FIXED DEPOSITS AR E KEPT IN BANK AS MARGIN MONEY FOR BANK GUARANTEE ISSUED IN FAVOUR OF PRINCIPLES FOR SECURING THE WORKS CONTRACT, IT CANNOT BE CONSTRUED AS RECEIPTS ACCRUED ON ACCOUNT OF CARRYING OUT THE BUSINESS ACTIVITY, THER EFORE, ADDITION TOWARDS INTEREST INCOME SHOULD BE SUSTAINED. WE FIND FORCE IN THE ARGUMENTS OF THE LEARNED D.R. THAT INCOME FROM OTHER SOURCES BEI NG INTEREST RECEIVED FROM BANK DEPOSIT CANNOT BE CONSTRUED AS BUSINESS R ECEIPTS RECEIVED ON ACCOUNT OF CARRYING OUT THE BUSINESS ACTIVITY OF TH E ASSESSEE. THE ASSESSEE EARNED THE INTEREST FROM BANK DEPOSITS, WH ICH ARE KEPT AS MARGIN MONEY FOR TAKING BANK GUARANTEES. THOUGH TH ESE BANK GUARANTEES ARE FURNISHED FOR OBTAINING CONTRACT WOR KS, THE INTEREST EARNED FROM THESE DEPOSITS, CANNOT BE AT ANY STRETCH OF IM AGINATION CONSIDERED AS BUSINESS RECEIPTS FOR THE ESTIMATION OF NET PROF IT. THERE IS NO NEXUS BETWEEN THE EARNING OF INTEREST AND WORKS CONTRACT, EXCEPT THE FACT THAT IT IS KEPT IN BANK AS MARGIN MONEY FOR OBTAINING BANK GUARANTEE. THERE SHOULD BE DIRECT NEXUS BETWEEN BUSINESS ACTIVITY AN D EARNING OF INCOME. IF THESE INTEREST RECEIPTS ARE ARISES FROM THE WORKS CONTRACTS, THEN DEFINITELY THESE ITEMS FORMS PART OF CONTRACT RECEI PTS. BUT, IN THIS CASE THE INTEREST EARNED IS FROM BANK DEPOSITS. THEREFORE, THE AO RIGHTLY TREATED INTEREST EARNED FROM BANK DEPOSITS UNDER THE HEAD I NCOME FROM OTHER SOURCE BUT, THE CIT (A) IGNORED THE BASIC FACT THAT THERE IS NO NEXUS BETWEEN THE EARNING OF INTEREST AND THE ASSESSEES CONTRACT WORKS, DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER . THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , WE REVERSE THE ORDER OF THE CIT (A) AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 10. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULL Y FOLLOWING THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, WE ARE OF THE VIEW THAT INTEREST EARN ED FROM FIXED DEPOSITS KEPT IN BANKS FOR THE PURPOSE OF OBTAINING BANK GUARANTEE IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S, BUT NOT UNDER THE HEAD INCOME FROM BUSINESS. THE CIT(A) AFTER CONSIDERING THE RELEVANT PROVISIONS HAS RIGHTLY UPHELD THE ACTION O F THE A.O. TREATING INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER S OURCES. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, W E INCLINED TO UPHOLD THE CIT(A) ORDER AND REJECT THE GROUND RAISED BY TH E ASSESSEE. ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 11 11. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE TH E TOTAL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IN ACCORDA NCE WITH THE DECISIONS RENDERED BY US ON VARIOUS ISSUES IN THE P RECEDING PARAGRAPHS. HOWEVER, THE INCOME SO COMPUTED WORKS OUT TO LESS T HAN THE INCOME RETURNED BY THE ASSESSEE, THEN, THE TOTAL INCOME SO COMPUTED SHALL NOT GO BEYOND THE RETURNED INCOME AND IT SHOULD BE REST RICTED TO THE INCOME RETURNED BY THE ASSESSEE, SINCE, THE ASSESSED INCOM E SHOULD NOT BE LESS THAN THE RETURNED INCOME. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.176/VIZAG/2015 AND APPEAL FILED BY THE REVENUE I N ITA NO.168/VIZAG/2015 ARE PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 12 TH APR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 12.04.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-2(1), RAJAHMUND RY 2. / THE RESPONDENT M/S. K. VENKATA RAJU, CONTRACTO RS, D.NO.4-53, PENUGONDA NAGAR, VEMAGIRI. 3. / THE RESPONDENT THE ACIT, CIRCLE-1, RAJAHMUNDRY 4. + / THE CIT, RAJAHMUNDRY ITA NOS.168 & 176/VIZAG/2015 M/S. K. VENKATA RAJU, VEMAGIRI 12 5. + ( ) / THE CIT (A), RAJAHMUNDRY 6. # . , . , # / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM