M/s Sri Bhavani Construction Company, Kakinada V. The ITO, Ward-2, Kakinada

ITA 177/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56814 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B B RAJENDRA PRASAD
• Assessee Lawyers: P PRABHAKARA MURTHY ADOVOCATE
• Keywords: Rejection of books of accounts
• Section: 44AD; 143(3); 263

Judgement Text

ITA NOS.176&177/VIZAG/2011 SRI BHAVANI CONSTRUCTION CO., KAKINADA 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO S . 176 & 177 /VIZAG/ 20 11 ASSESSMENT YEAR S : 2006 - 07 & 2007 - 08 M/S. SRI BHAVANI CONSTRUCTIONS CO. KAKINADA VS. ITO WARD - 2 KAKINADA (APPELLANT) (RESPONDENT) PAN NO.AASFS 7033B APPELLANT BY: SHRI P. PRABHAKARA MURTHY, ADOVOCATE RESPONDENT BY: SHRI B.B. RAJENDRA PRASAD, DR DATE OF HEAR I NG: 07.0 7 .2011 DATE OF PRONOUNCEMENT: 29 .08.2011 ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAIN ST THE RESPECTIVE ORDER PASSED BY THE CIT U/S 263 OF THE INCOME-TAX A CT (HEREINAFTER CALLED AS AN ACT) SETTING ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE A.O. TO ADOPT THE STATUS AS PFAS AND TO PASS A FRESH ASSESS MENT ORDER. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CON SOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS CARRYING ON SUB-CONTRACT WO RK FOR M/S. GAYATRI PROJECTS LIMITED. RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2006-07 AND 2007-08 WERE FILED ON 20.12.2007 ADMITTING TOTAL IN COME AT ` 3,13,120/- AND ` 4,15,300/- RESPECTIVELY. RETURN OF INCOME WAS PRO CESSED U/S 143(1) OF THE ACT ON 25.1.2008 AND, SUBSEQUENTLY, SCRUTINY ASSESS MENT WAS COMPLETED U/S 143(3) ON A TOTAL INCOME AT ` 8,32,750/- AND ` 11,04,520/- FOR THE ASSESSMENT YEAR 2006-07 & 2007-08 RESPECTIVELY. ITA NOS.176&177/VIZAG/2011 SRI BHAVANI CONSTRUCTION CO., KAKINADA 2 3. THE ASSESSING OFFICER HAS ESTIMATED THE NET PROF IT AT 2.5% OF THE GROSS RECEIPTS IN THE ABSENCE OF BOOKS OF ACCOUNTS, BASED ON THE ADDITIONS MADE FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSING OFF ICER HAS ALSO TREATED THE STATUS OF THE ASSESSEE AS AOP. THE ASSESSMENTS WER E TAKEN FOR SCRUTINY BY THE CIT AFTER HAVING OBSERVED THAT THE ASSESSMENT O RDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T SOUGHT TO REVISE THE ASSESSMENT ORDER ON FOLLOWING GROUNDS AND ISSUED A SHOW CAUSE NOTICE. A) THE CASE WAS SELECTED FOR SCRUTINY AS PER THE GUIDE LINES ISSUED BY CBDT FOR TAKING UP THE CASES FOR SCRUTINY, WHICH IN THIS CASE IS ADMISSION OF LOWER PERCENTAGE OF PROFITS ON CONT RACT RECEIPTS BELOW 5%. THE ASSESSMENT WAS COMPLETED WITHOUT ENQ UIRY BY THE ASSESSING OFFICER. B) AS PER THE PROVISIONS OF SECTION 44AD WHERE BOOKS O F ACCOUNT ARE NOT MAINTAINED, NET PROFIT CAN BE ESTIMATED AT 8% OF THE GROSS RECEIPTS WHERE THE GROSS RECEIPTS ARE LESS TH AN ` 40 LAKHS. EVEN THOUGH THE RECEIPTS ARE MORE THAN ` 40 LAKHS, NO BOOKS OF ACCOUNT WERE MAINTAINED. C) THE STATUS OF THE ASSESSEE IS SHOWN AS AOP INSTEAD OF PFAS AND, ACCORDINGLY, RATE OF TAX APPLIED IS LOW. 4. SHOW CAUSE NOTICE WAS DULY REPLIED BY THE ASSESS EES WITH THE SUBMISSION THAT CBDT GUIDELINES ARE FOR SELECTING T HE CASE FOR SCRUTINY AND NOT TO BE USED FOR ESTIMATING THE INCOME OF THE ASS ESSEES ON REJECTION OF BOOKS OF ACCOUNTS. WITH REGARD TO THE RELIANCE OF PROVISIONS OF SECTION 44AD, IT WAS STATED BEFORE THE CIT THAT 44AD WOULD BE APP LIED WHERE GROSS RECEIPTS ARE LESS THAN ` 40 LAKHS. THE PERCENTAGE OF PROFIT GIVEN IN SECTI ON 44AD CANNOT BE APPLIED IN THOSE CASES WHERE THE RECEIPTS ARE MORE THAN THE LIMIT. WITH REGARD TO THE STATUS OF THE ASSESSEE, IT WAS C ONTENDED THAT THE REASONS FOR STATING THE STATUS OF THE ASSESSEE AS AOP WAS E XPLAINED TO THE ASSESSING OFFICER. HAVING APPLIED HIS MIND, HE ACCEPTED THE STATUS OF THE ASSESSEES AND FRAMED THE ASSESSMENT. THE EXPLANATIONS FURNISHED BY THE ASSESSEE WERE NOT ACCEPTED BY THE CIT AND HE SET ASIDE THE ASSESS MENT ORDER WITH A DIRECTION TO REFRAME THE ASSESSMENT AFTER ADOPTING THE STATUS AS PFAS. ITA NOS.176&177/VIZAG/2011 SRI BHAVANI CONSTRUCTION CO., KAKINADA 3 5. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSIO N THAT THIS CASE WAS SELECTED FOR SCRUTINY AND PROPER QUESTIONNAIRE WERE ISSUED TO THE ASSESSEE THROUGH WHICH THE RELEVANT INFORMATION WAS SOUGHT. THE ASSESSEE HAS FURNISHED THE REQUISITE INFORMATIONS BEFORE THE ASS ESSING OFFICER VIDE ITS LETTER DATED 17.12.2007, 21.6.2008, 25.7.2008 STATING THAT THE REASONS FOR THE LOWER PROFIT AND THE STATUS OF THE ASSESSEE. IN HI S WRITTEN REPLY, THE REASONS FOR NOT GETTING THE ACCOUNTS AUDITED WERE ALSO EXPL AINED. IT WAS STATED BEFORE THE A.O. THAT ON ACCOUNT OF SEVERAL DISPUTES AMONGST THE PARTNERS, THE DETAILS OF EXPENDITURES INCURRED BY THEM WERE NOT A VAILABLE AND DUE TO THE NON-AVAILABILITY OF THE COMPLETE INFORMATION THE AC COUNTS BOOKS WERE NOT COMPLETED. IT WAS ALSO STATED BEFORE THE A.O. THAT ONE OF THE PARTNERS WERE EXPIRED, THEREFORE, THE PARTNERSHIP FIRM WAS NOT VA LIDLY CONSTITUTED. HAVING TAKEN INTO ACCOUNT ALL THESE RELEVANT FACTS, THE AS SESSING OFFICER HAS ASSESSED THE ASSESSEE AS AN AOP. THE A.O. HAS ALSO TAKEN IN TO ACCOUNT THE WORKING CONDITIONS OF THE ASSESSEES AND THEREAFTER ESTIMATE D THE NET TOTAL INCOME AT 2.5% ON THE GROSS RECEIPTS KEEPING IN ACCOUNT THE N ET INCOME ESTIMATED IN A.Y. 2005-06 @ 2.37% ON TOTAL RECEIPT. SINCE THE A .O. HAS APPLIED HIS MIND TO THE ALL RELEVANT FACTS IN THE REPLY SUBMITTED BY THE ASSESSEE, THE ASSESSMENT ORDER PASSED BY HIM CANNOT BE CALLED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD . COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSMENT OF THE ASSESS EE AS A AOP INSTEAD OF PFAS CANNOT BE CALLED TO BE ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE BECAUSE ON ACCOUNT OF ASSESSMENT AS AN AOP, ASSESSEE WOULD NOT BE ENTITLED TO CERTAIN BENEFITS WHICH CAN BE ALLOWE D TO IT AFTER GETTING ITS ASSESSMENT IN THE STATUS OF PFAS. 6. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEAV Y RELIANCE UPON THE ORDER OF THE CIT. 7. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT INITIALLY THE RETURNS OF INCOME WERE PROCESSED U/S 143(1) AND SUBSEQUENTLY IT WAS SELECT ED FOR SCRUTINY AND NOTICE U/S 143(2) WERE ISSUED. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ISSUED VARIOUS NOTICES AND TH E QUESTIONNAIRES. IN ITA NOS.176&177/VIZAG/2011 SRI BHAVANI CONSTRUCTION CO., KAKINADA 4 RESPONSE THERETO, THE ASSESSEE HAS FILED THE DETAIL ED REPLY. HE HAS TRIED TO EXPLAIN BEFORE THE A.O. ABOUT THE NON-MAINTENANCE O F PROPER ACCOUNT AND ALSO DECLARING THE STATUS AS AN AOP. THE ASSESSEE HAS ALSO FURNISHED THE REASONS FOR DECLARING THE LOWER AMOUNT OF PROFIT. HAVING TAKEN INTO ACCOUNT ALL THESE RELEVANT FACTS, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEES AND INITIATED THE PENALTY PROCEEDINGS U/S 271A AND 271B OF THE I.T. ACT. KEEPING INTO THE ACCOUNT THE NET INCOME ASSESSED IN A.Y. 2005-06 THE ASSESSING OFFICER HAS ESTIMATED TH E INCOME @ 2.5% ON THE GROSS RECEIPT IN THE IMPUGNED ASSESSMENT YEARS, AFT ER HAVING ACCEPTED THAT THE ASSESSEE IS ONLY A SUB-CONTRACTOR TO THE MAIN C ONTRACTOR M/S. GAYATRI PROJECTS LIMITED. THE CIT HAS TAKEN A NOTE OF SECT ION 44AD WHICH IS APPLICABLE ONLY IN THE CASE OF THE MAIN CIVIL CONTR ACTOR WHERE THE GROSS RECEIPTS ARE LESS THAN ` 40 LAKHS. THEREFORE, THE PROVISIONS OF SECTION 44 AD CANNOT BE TAKEN INTO ACCOUNT WHILE ESTIMATING THE I NCOME IN CASE OF A SUB- CONTRACTOR WHERE THE GROSS RECEIPTS ARE MORE THAN ` 40 LAKHS. THEREFORE, FOR THIS REASON, THE ASSESSMENT ORDER CANNOT BE REVISED . 8. WITH REGARD TO THE STATUS OF THE ASSESSEE, IT WA S EXPLAINED BEFORE THE A.O. THAT THE PARTNERSHIP FIRM WAS DISSOLVED ON ACC OUNT OF DEATH OF ONE OF THE PARTNERS AND MORE SO, THERE WERE DISPUTES AMONG ST THE PARTNERS AND THE COMPLETE INFORMATIONS WITH REGARD TO THE ACCOUNTS W ERE NOT AVAILABLE AND FOR THESE REASONS THE BOOKS OF ACCOUNTS WERE NOT COMPLE TED. FOR THESE REASONS, THE ASSESSING OFFICER HAS TREATED THE ASSESSEE AS A OP. IN CASE OF AN AOP, THE ASSESSEE COULD NOT GET CERTAIN BENEFITS WHICH A RE ALLOWABLE TO IT IF IT IS ASSESSED AS A PARTNERSHIP FIRM. THEREFORE, TO ASSE SS THE ASSESSEE AS AN AOP CANNOT BE CALLED TO BE THE PREJUDICIAL TO THE INTER EST OF THE REVENUE. IT HAS BEEN REPEATEDLY HELD BY THE APEX COURT AND VARIOUS HIGH COURTS THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS THAT PROVISIONS OF SECTION 263 CAN ONLY BE INVOKED WHERE THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BEFORE INVOKING THE PROVI SIONS, THE ONUS IS UPON THE CIT TO MAKE OUT A CASE THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF THE ASSESSMENT ORDER IS ONLY ERRONEOUS AND NOT PREJUDICIAL TO THE INTEREST OF TH E REVENUE, THE ASSESSMENT ORDER CANNOT BE REVISED. AT THE MOST BY ASSESSING THE ASSESSEE AS AN AOP, ITA NOS.176&177/VIZAG/2011 SRI BHAVANI CONSTRUCTION CO., KAKINADA 5 THE ORDER CAN BE CALLED TO BE ERRONEOUS BUT BY ANY STRETCH OF IMAGINATION IT CANNOT BE CALLED TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE, THEREFORE, OF THE VIEW THAT FOR ASSESSING THE ASSES SEE AS AN AOP IN PLACE OF PFAS, THE ASSESSMENT ORDER CANNOT BE REVISED. WE T HEREFORE, OF THE VIEW THAT CIT(A) WAS NOT JUSTIFIED IN INVOKING THE JURIS DICTIONS U/S 263 AND THEREAFTER SETTING ASIDE THE ASSESSMENT ORDER. WE ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29.8.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 29 TH AUGUST, 2011 COPY TO 1 M/S. SRI BHAVANI CONSTRUCTION COMPANY, D.NO.2 - 46 - 30, SANTHI NAGAR, KAKINADA-533 003, EAST GODAVARI DISTRICT. 2 ITO, WARD - 2, KAKINADA 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJAHMUN DRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM