Akula Sambaiah, Warangal, Secunderabad V. ACIT, Circle-1, Warangal, Warangal

ITA 187/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6518 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G N RAGHAVENDRA RAO
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Rejection of books of accounts; Business income
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 187 /HYD/2016 ASSESSMENT YEAR: 2009-10 AKULA SAMBAIAH, WARANGAL PAN AJYPA 1683 L VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 1, WARANGAL (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.V. ANIL KUMAR REVENUE BY : SHRI G.N. RAGHAVENDRA RAO DATE OF HEARING 12-05-2016 DATE OF PRONOUNCEMENT 31-05-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) - 3 , HYDERABAD FOR AY 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF SUPPLYING LABOUR TO COTTON CORPORAT ION OF INDIA (CCI). HE FILED RETURN OF INCOME FOR AY 2009-10 ON 26/01/2 010 ADMITTING INCOME OF RS. 15,02,480/-. SCRUTINY ASSESSMENT WAS COMPLETED BY ESTIMATING THE INCOME @ 10.5% OF GROSS RECEIPTS. FU RTHER, AN ADDITION OF RS. 3 LAKHS WAS ALSO MADE TOWARDS UNEXPLAINED LO AN CREDITOR. THE TOTAL INCOME ASSESSED WAS RS. 45,28,201/-. 2. 1. THE REASONS GIVEN BY A.O. FOR ESTIMATING THE INCOME @ 10.5% ARE AS UNDER: 2 ITA NO. 187/H/16 AKULA SAMBAIAH (A) THE GROSS RECEIPTS OF .THE ASSESSEE WERE RS. 4 ,04,68,818 AND THE NET PROFIT DECLARED BY THE ASSESSEE WAS RS .15,23,497 WHICH WORKS OUT TO 3.76%. (B) DURING THE EXAMINATION OF BOOKS OF ACCOUNTS, B ILLS/VOUCHERS, IT WAS FOUND THAT MOST OF THE VOUCHERS WERE SELF-M ADE, DO NOT CONTAIN THE DETAILS OF RECEIVER, DETAILS OF WORK D ONE, MATERIAL SUPPLIED ETC. (C) THE A.O. CALLED FOR EXPLANATION OF THE ASSESSE E AS TO WHY THE BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED AND P ROFIT BE ESTIMATED. AS NO EXPLANATION WAS SUBMITTED BY THE ASSESSEE, T HE BUSINESS INCOME WAS ESTIMATED AT 10.5% OF GROSS TURNOVER WH ICH WORKS OUT TO RS.42,29,225/-. 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 3.1 DURING APPEAL PROCEEDINGS, THE ASSESSEE FAIRLY ADMITTED THAT HE HAS NO OBJECTION FOR REJECTION OF BOOKS OF ACCOUNTS AND FURTHER SUBMITTED THAT CCL TAKES MILLS ON LEASE AND ENGAGES THE ASSESSEE AS SUB-CONTRACTOR FOR SUPPLY OF LABOUR. THEREFORE, THE APPELLANT IS IN A WAY A SUB-CONTRACTOR. THEREFORE, HIS INCOME SHOULD BE ESTIMATED AT 6% AT BEST AND HE RELIED ON THE FOLLOWING DECISIONS : (I) DEN VS MPB KUTUMBARAO (43 TAXMANN.COM 205) (HY D-TRIB) (II) C. ESWARA REDDY & CO. VS ACIT, APPEAL NO.668 (HYD) OF 2009 DATED 31-01-2011. 3.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE CIT(A) OBSERVED THAT THE CASE-LAWS RELIED UPON BY THE ASSE SSEE REFER TO CONTRACTS PERTAINING TO CIVIL WORKS AND THEY DO NOT PERTAIN TO LABOUR CONTRACTS. IN THE ABSENCE OF ANY COMPARABLE INSTANC ES BROUGHT ON RECORD BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ES TIMATION OF INCOME AT 10.5% OF GROSS RECEIPTS. 3 ITA NO. 187/H/16 AKULA SAMBAIAH 3.3 AS REGARDS THE ADDITION OF RS. 3 LAKHS MADE BY THE AO, THE CIT(A) DELETED THE SAME ON THE GROUND THAT SINCE TH E INCOME FROM THE BUSINESS WAS ESTIMATED AT 10.5%, NO SEPARATE ADDITI ON OF RS. 3 LAKHS CAN BE MADE TOWARDS UNEXPLAINED LOAN CREDITOR. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED IN LAW AND FACTS OF THE CASE I N NOT REDUCING THE ESTIMATE OF INCOME AT 10.5% IGNORING THE FACT T HAT IT IS CASE OF SUB-CONTRACT FOR SUPPLY OF LABOUR. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT YOUR APPELLANT IS A SUBCONTRACTOR AND THE PROFIT ESTIMAT ED AT 10.5% IS ON HIGHER SIDE EVEN WHEN COMPARED WITH PROVISIONS O F SECTION 44AD OF THE INCOME TAX ACT, 1961. 3. YOUR APPELLANT SUBMITS THAT HE IS CARRYING ON TH E BUSINESS OF SUPPLY OF LABOUR AS SUB-CONTRACTOR, THE ESTIMATION OF INCOME MAY CONSIDERED AT 6% OF THE GROSS RECEIPTS. . 4. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT IN THE CASE LAWS, DCIT VS MPB KUTUMBA RAO AND C. ESHWARA REDDY & CO VS ACIT, RELIED ARE APPLICABLE TO THE FACT OF THE P RESENT CASE, BEING SUPPLY OF LABOUR, THEREFORE THE RATIO IN THES E CASES MAY BE APPLIED TO THE PRESENT CASE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTH ORITIES. IT IS TO BE NOTED THAT THIS TRIBUNAL IS UNIFORMLY ESTIMATING TH E PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% ON THE SUB CONTRACT DEPENDING UPON THE FACTUA L SITUATION. IN THE CASE OF C. ESWARA REDDY & CO. VS. ACIT, ITA NO. 668 /HYD/2009, DATED 31/01/2011, THE COORDINATE BENCH HAS HELD AS UNDER: 7. NOW COMING TO THE ESTIMATION OF PROFIT. THE ASSE SSING OFFICER ESTIMATED THE PROFIT AT 12.5%. HOWEVER, THE CIT(A) RESTRICTED THE SAME TO 8% IN RESPECT OF MAIN CONTRACT AND 5% ON SU B-CONTRACT. WHEN THE BOOKS OF ACCOUNT WERE REJECTED THE ONLY ME THOD AVAILABLE TO THE ASSESSING OFFICER IS TO ESTIMATE T HE PROFIT. THE PROFIT RATIO CANNOT BE A CONSTANT FACTOR FOR EACH A ND EVERY YEAR. IN OTHER WORDS, PROFIT RATIO WOULD FLUCTUATE DEPEND ING UPON 4 ITA NO. 187/H/16 AKULA SAMBAIAH VARIOUS FACTORS SUCH AS THE PLACE OF EXECUTION OF C ONTRACT, AVAILABILITY OF RAW MATERIAL, LABOUR AND ASSESSEE'S OWN FUNDS, ETC. THEREFORE, FOR THE PURPOSE OF ESTIMATING THE P ROFIT, THE LOWER AUTHORITIES MAY TAKE INTO CONSIDERATION THE PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME LOCALITY AND O THER FACTORS SUCH AS AVAILABILITY OF LABOUR, DEMAND IN THE MARKE T, ETC., AS DISCUSSED ABOVE. THEREFORE, THE PROFIT RATIO OF THE OTHER ASSESSEES IN THAT LOCALITY MAY BE ONE OF THE FACTOR S TO BE TAKEN INTO CONSIDERATION. HOWEVER, THAT CANNOT BE THE SOL E CRITERIA FOR FIXING THE PROFIT RATIO FROM THE CONTRACT BUSINESS. BY KEEPING THIS FACTUAL SITUATION IN MIND, LET US NOW EXAMINE WHETH ER THE ESTIMATION OF PROFIT BY THE CIT(A) AT 8% ON MAIN CO NTRACT AND 5% ON SUB CONTRACT IS JUSTIFIED OR NOT. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA), K.C . REDDY ASSOCIATES (SUPRA), SRI SRINIVASA CONSTRUCTIONS (SU PRA) AND M. BHASKAR REDDY (SUPRA). NO DOUBT THIS TRIBUNAL ESTIM ATED THE PROFIT FROM 12.5% TO 8% DEPENDING UPON THE FACTUAL SITUATION. THE LEARNED DR MADE AN ATTEMPT TO DISTINGUISH THE O RDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOVER IS ONLY RS.54,40,420. IT IS A WELL KNOWN F ACT THAT WHENEVER THE TURNOVER INCREASES THE PROFIT RATIO WO ULD GO DOWN. MERELY BECAUSE THE TURNOVER INCREASES THE PROFIT MA Y NOT GO UP. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION IN THE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THIS TRIBUNAL ESTIMA TED THE PROFIT AT 8% IN THE CASE OF M. BHASKAR REDDY (SUPRA) ONLY BECAUSE THE TURNOVER WAS RS.51,40,420. A BARE READING OF THE OR DER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) CLEARLY SHOWS THAT THIS TRIBUNAL AFTER CONSIDERING THE JUDGEMENT OF THE APE X COURT IN C. VELUKUTTY, 60 ITR 239 AND THE DECISION OF THE SPECI AL BENCH OF THIS TRIBUNAL IN ARIHANT BUILDERS PVT. LTD. VS. ACI T, 291 ITR 41 (SB) AND BY TAKING A CLUE FROM SECTION 44AD OF I.T. ACT THE PROFIT WAS ESTIMATED AT 8%. ADMITTEDLY SECTION 44AD WOULD BE APPLICABLE IN RESPECT OF A CASE WHERE THE GROSS CON TRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. WHEREVER THE GROSS CON TRACT RECEIPTS EXCEED RS.40 LAKHS THE PROVISIONS OF SECTI ON 44AD ARE NOT APPLICABLE. THEREFORE, THE PROFIT CAN BE ESTIMA TED EITHER AT LOWER THAN 8% OR ABOVE 8% DEPENDING UPON THE FACTUA L SITUATION. AS DISCUSSED EARLIER, FOR THE PURPOSE OF ESTIMATING THE PROFIT VARIOUS FACTORS SUCH AS THE PROFIT RATIO OF THE ASS ESSEE IN THE EARLIER YEAR, PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME LOCALITY, DEMAND FOR THE PRODUCT, AVAILABILITY OF LABOURERS, RAW MATERIALS, ETC., AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK, ETC., HAVE TO BE TAKEN INTO CONSIDER ATION. THEREFORE, IN OUR OPINION, REFERENCE TO EARLIER ORD ER OF THIS TRIBUNAL ALONE FOR THE PURPOSE OF ESTIMATING THE PR OFIT AT 12.5% MAY NOT BE JUSTIFIED AT ALL. 5 ITA NO. 187/H/16 AKULA SAMBAIAH 9. IN FACT, IN THE CASE OF KRISHNAMOHAN CONSTRUCTIO NS IN 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. 1992-93. THIS ITSEL F SHOWS THAT FOR EACH YEAR THE PROFIT HAS TO BE ESTIMATED DEPEND ING UPON THE FACTORS WHICH PREVAIL IN THE LOCALITY. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF THE 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 (SUP RA) ESTIMATED THE PROFIT AT 8% FOR MAIN CONTRACT AND FOR SUB CONT RACT AT 5%. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THIS TRIBUN AL UNIFORMLY 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. ACCO RDINGLY THE SAME IS CONFIRMED. 5.1 IN THE CASE OF ACIT V/S. M/S TEJA CONSTRUCTION S (ITA NO.1191/HYD/2011 DATED 17-2-2012, THE TRIBUNAL DIR ECTED TO ESTIMATE PROFIT IN THE CASE OF DIFFERENT CATEGORIES OF CON TRACTS BY OBSERVING IN THE FOLLOWING MANNER:- HOWEVER, THE ISSUE IS COVERED BY THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE FOR T HE EARLIER YEAR. FOR THAT YEAR THE INCOME-TAX APPELLATE TRIBU NAL HAS ESTIMATED THE PROFITS OF THE ASSESSEE @9% ON OWN CO NTRACT WORKS, 8% ON CONTRACTS TAKEN BY THE ASSESSEE ON SUB CONTRACTS AND @ 5% ON CONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUB-CONTRACTS. 5.2 FOLLOWING THE AFORESAID DECISION OF THE CO-ORDI NATE BENCHES AND THE ASSESSEE IS IN THE BUSINESS OF SUPPLYING LABOUR AS SUB-CONTRACTOR, THERE IS NO OTHER JUDICIAL PRONOUNCEMENTS IN THIS L INE OF SUB-CONTRACT, WE ARE INCLINED TO DIRECT THE AO TO ESTIMATE THE PR OFIT @ 7% OF THE GROSS RECEIPTS AS THE ASSESSEE HIMSELF PROPOSED TO ACCEPT 6% IN THE GROUND OF APPEAL. WE, THEREFORE, DIRECT THE ASSES SING OFFICER TO ESTIMATE THE PROFIT AT 7% IN LINE WITH THE CONSISTE NT VIEW OF THIS TRIBUNAL, THAT FOR SUB-CONTRACT DEPENDING UPON THE FACTUAL SITUATION, DIRECTED AO TO ESTIMATE BETWEEN 5% TO 7%. SINCE, TH ERE IS NO BENCH- 6 ITA NO. 187/H/16 AKULA SAMBAIAH MARKING FOR THE LABOUR SUB-CONTRACT, WE ARE AWARDIN G THE HIGHEST RATE OF 7%. IN VIEW OF THE ABOVE, THE ORDER OF THE CIT ( A) IS MODIFIED TO THIS EXTENT AND GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 31 ST MAY, 2016 KV COPY TO:- 1) SHRI AKULA SAMBAIAH, C/O M. ANANDAM & CO., CAS., 7 A, SURYA TOWERS, S.P. ROAD, SECUNDERABAD. 2) ACIT, CIRCLE 1, WARANGAL 3) CIT(A) - 3, HYDERABAD 4) PR. CIT(CENTRAL) - 3, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.