Asst.CIT, Circle-9(1), Hyderabad V. M/s S.K.R.Constructions, Suryapet

ITA 1878/HYD/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2607 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 30-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Depreciation; Source of fund
• Section: 40A(3); 143(3); 133(6); 131; 15; 68

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. 1878/HYD/2013 ASSESSMENT YEAR: 2010-11 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 9(1), HYDERABAD. VS. M/S S.K.R. CONSTRUCTIONS, SURYAPET. PAN AAZFS8077Q (APPELLANT) (RESPONDENT) ITA NO. 1819/HYD/2013 ASSESSMENT YEAR: 2010-11 M/S S.K.R. CONSTRUCTIONS, SURYAPET. PAN AAZFS8077Q VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 9(1), HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI J. SIRI KUMAR ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING 14-11-2017 DATE OF PRONOUNCEMENT 24-01-2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS ARE CROSS APPEALS DIRECTED AGAI NST THE ORDER OF CIT(A) VI, HYDERABAD, DATED 09/09/2013 FOR AY 2010-11. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A CIVIL CONTRACTOR. IT E-FILED ITS RETURN OF INCOME FOR AY 2010-11 ON 14/10/2010 DECLARING A TOTAL INCOME OF RS. 1,69,88, 690/-, AGAINST 2 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. WHICH THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT AND DETERMINED THE ASSESSED INCOME OF THE ASSESSEE AT R S. 14,80,41,310/- BY MAKING VARIOUS ADDITIONS. AGGRIEV ED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A ) SUSTAINED SOME ADDITIONS AND DELETED SOME ADDITIONS, WHICH ARE TAB ULATED IN THE FOLLOWING MANNER: S. NO . DESCRIPTION OF ADDITION MADE BY AO AMOUNT OF ADDITION MADE (RS.) AMOUNT OF ADDITION SUSTAINED (RS.) BY CIT(A) RELIEF ALLOWED 1 INTRODUCTION OF CAPITAL BY PARTNERS TREATED AS UNEXPLAINED CASH CREDITS BY THE AO TO THE EXTENT OF RS. 23 LAKHS 23,00,000 3,00,000 20,00,000 2 UNSECURED LOANS TREATED AS UNEXPLAINED CASH CREDITS BY THE AO 26,50,000 21,50,000 5,00,000 3 DISALLOWANCE OF EXPENDITURE U/S 40A(3) OF THE ACT. 2,99,22,945 0 2,99,22,945 4 ADDITION ON ACCOUNT OF RECONCILIATION OF 26AS STATEMENT WITH GROSS RECEIPTS SHOWN BY ASSESSEE 1,83,31,891 24,85,194 1,58,46,697 5 DISALLOWANCE ON ACCOUNT OF SUB- CONTRACT PAYMENTS 7,09,73,678 0 7,09,73,678 6 INTEREST ON TDS DEBITED TO PROFIT & LOSS A/C 2,66,105 2,66,105 0 7 DISALLOWANCE OF CERTAIN EXPENDITURE 66,08,000 0 66,08,000 3. THE REVENUE FILED REVISED GROUNDS OF APPEAL WITH 10 GROUNDS ON 08/02/2017 WHEREAS ALONG WITH APPEAL MEMO IT HAS FI LED ONLY 4 GROUNDS, OUT OF WHICH EFFECTIVE GROUNDS ARE ONLY TW O I.E. GROUND NOS. 2 &3. ON RECORD, IT WAS NOTICED THAT REVENUE HAS NO T FILED APPROVAL FROM PR. CIT U/S 253(2) FOR FILING REVISED GROUNDS OF APPEAL, WHICH WAS CONCEDED BY THE LD. DR. THEREFORE, WE REJECT RE VISED GROUNDS OF 3 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. APPEAL FILED BY THE REVENUE. THEREFORE, WE ARE CONS TRAINED TO ADJUDICATE THE ORIGINAL GROUNDS OF APPEAL FILED BY THE REVENUE. 4. LET US DEAL WITH THE ISSUES GROUND WISE. WITH RE GARD TO REVENUE GROUNDS OF APPEAL I.E. GROUND NOS. 2 & 3, THE SAME ISSUES WERE ALSO CONTESTED BY THE ASSESSEE IN ITS GROUND OF APPEAL I .E. GROUND NOS. 2, 3 , 7 & 8. GROUNDS RAISED BY THE REVENUE ARE AS UN DER: 02. WHETHER THE LD. CIT(A), IS CORRECT IN LAW IN HO LDING THAT THE CAPITAL INTRODUCED BY THE PARTNERS OF THE FIRM IS O UT OF THE SOURCES AVAILABLE WITH THEM, IN THE CIRCUMSTANCES W HEN THE ASSESSEE FIRM COULD NOT ESTABLISH THE SAME BY WAY S UBMITTING ANY DOCUMENTARY EVIDENCES/COGENT MATERIAL TO SUBSTA NTIATE THE SAME. 03. WHETHER THE LD. CIT(A), IS CORRECT IN LAW DIREC TING THE ASSESSING OFFICER TO ESTIMATE THE NET PROFIT OF THE ASSESSEE @10% ON NET CONTRACT RECEIPTS, WHEN THE BOOKS OF AC COUNTS WERE ACCEPTED BY THE ASSESSING OFFICER AND ADDITION S WERE MADE, AS PER THE DEFECTS POINTED OUT OF THE BOOKS P RODUCED. 5. WITH REGARD TO GROUND NO. 2, ADDITIONS MADE U/S 68, THE RELEVANT FACTS ARE AS UNDER: 5.1. AS REGARDS THE INTRODUCTION OF CAPITAL BY PART NERS TREATED AS UNEXPLAINED CASH CREDITS BY THE AO TO THE EXTENT OF RS. 23 LAKHS, THE AO OBSERVED THAT THE FOLLOWING PARTNERS HAD INTRODU CED CASH TOWARDS CAPITAL: 1. SRI ARUN KUMAR RS. 5,00,000 2. SRI RAVINDER RAO RS. 3,00,000 3. SRI PRADEEP KUMAR RS. 5,00,000 4. SMT. HEMALATHA RS.10,00,000 5. SRI S. KRISHNA RAO RS. 1,00,000 TOTAL RS.24,00,000 ========== THE AO ASKED THE ASSESSEE TO FILE COPIES OF RETURNS OF INCOME IN CASE OF THE SAID FIRST FOUR PARTNERS, FOR THE AMOUNT OF RS. 23,00,000/- AND AFTER GOING THROUGH THE DETAILS FURNISHED, THE AO H ELD THAT THE PARTNERS HAD FAILED TO ESTABLISH THEIR SOURCE OF IN COME AND THEREFORE, 4 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. HE DISMISSED THE CLAIMS OF THE PARTNERS AND BROUGHT THE AMOUNT OF RS. 23,00,000/- TO TAX U/S 68 OF THE ACT. 5.2. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE IDENTITY OF THE PARTNERS IS NOT IN DOUBT. THE GENUINENESS OF TH E TRANSACTION ALSO CANNOT BE DOUBTED AS ALL OF THEM ARE THE PARTNERS O F THE FIRM AND RECEIVED INTEREST FROM THE INVESTMENTS MADE BY THEM . FURTHER, IT WAS SUBMITTED THAT THE INTEREST FROM FIRM IS ADMITTED I N THEIR RETURNS OF INCOME AND THEY WERE ALSO ASSESSED TO TAX. THEY HAV E ALSO EXPLAINED THE SOURCE FOR INVESTMENT OF THE FUNDS. THEREFORE, IT WAS SUBMITTED THAT ALL THE REQUIREMENTS OF A GENUINE CREDIT WERE FULFILLED BY THE ASSESSEE HEREIN. THEREFORE, IT WAS SUBMITTED THAT T HE AO WAS NOT JUSTIFIED IN MAKING ADDITION U/S 68 OF THE ACT. 5.3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE CIT(A) SUSTAINED THE ADDITION TO THE EXTENT OF RS. 3,00,00 0/- AND GAVE RELIEF TO THE ASSESSEE OF RS. 20,00,000/- BY OBSERVING AS UNDER: 5.3 PERUSED THE OBSERVATIONS OF THE AO AND THE SUBM ISSIONS OF THE ASSESSEE. AS COULD BE SEEN THE CREDITS IN THE B OOKS OF THE FIRM WERE IN THE NAMES NONE OTHER THAN THE PARTNERS OF THE FIRM. INDEED IT IS A FACT THAT THE CREDITS ARE IN THE FOR M OF CASH. HOWEVER, THE FACT REMAINS THAT ALL SUCH PARTNERS HA VE THEIR OWN SOURCES OF INCOMES, WHICH OF COURSE ARE MATTERS OF DETAILS, TO EXPLAIN THE INVESTMENTS MADE BY THEM, INCLUDING THE CAPITAL BROUGHT INTO THE BOOKS OF THE FIRM, DURING THE YEAR . FURTHER, SRI. ARUN KUMAR, SRI. PRADEEP KUMAR AND MRS. HEMALATHA A RE ASSESSED TO INCOME TAX, WITH RETURNS OF INCOME REGU LARLY FILED AND THE SOURCES OF INCOMES CLEARLY INDICATED IN THE FORM OF AGRICULTURAL INCOME AND INTEREST FROM FIRM ETC. IN CASE OF MRS. HEMALATHA, AN EXTRA SOURCE OF INCOME IN THE FORM OF LOAN OBTAINED AND REALISATION OF DEBTORS WERE INDICATED, WHERE THE INCOME IN THE FORM OF INTEREST WERE SHOWN IN THE RE TURN OF INCOME, ON REGULAR BASIS. LEAVING ALL THESE DETAILS , IT APPEARS THAT THE AO HAS ARRIVED AT THE CONCLUSION THAT THE CREDIT WORTHINESS OF THE PARTIES ARE NOT ESTABLISHED. BASE D ON THE INFORMATION BROUGHT ON RECORD, IDENTITY OF ALL THE PARTNERS ARE ESTABLISHED, WITH CLEAR SOURCES FOR INVESTMENTS IND ICATED IN RETURNS OF INCOME FILED BY THEM EXCEPT IN THE CASE OF SRI. S. RAVINDER RAO, WHERE NEITHER INCOME-TAX ASSESSMENT D ETAILS NOR THE INFORMATION TO INDICATE THAT HE REALLY DERIVED AGRICULTURAL INCOME TO THE EXTENT OF RS. 3,00,000 DURING THE YEA R UNDER 5 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. REFERENCE, WERE FURNISHED, TO PROVE THE REQUIRED CREDITWORTHINESS, AS ENUMERATED IN PROVISIONS OF SE C. 68 OF THE INCOME-TAX ACT. SRI. ARUN KUMAR, SRI PRADEEP KUMAR AND MRS. HEMALATHA ARE ASSESSED TO TAX AND IN CASE THEIR CREDITWORTHINESS WAS NOT PROVED, IT WAS OPEN FOR TH E AO TO PROCEED AGAINST THEM FOR ENQUIRING AND MAKING ADDIT IONS IN THEIR RESPECTIVE HANDS. THUS, BASED ON THE INFORMAT ION BROUGHT ON RECORD, I AM OF THE CONSIDERED OPINION THAT THER E IS NO REQUIRED BASIS TO TREAT THE AMOUNTS BROUGHT IN AS C APITAL BY SRI., ARUN KUMAR (RS. 5,00,000), SRI. PRADEEP KUMAR (RS.5 ,00,000) AND MRS. HEMALATHA (RS. 10,00,000), TOTALLING RS. 2 0,00,000, SINCE THE SAID ENTITIES ARE CAPABLE OF EXPLAINING T HE INVESTMENTS INDEPENDENTLY. HOWEVER, IN CASE OF MR. RAVINDER RAO , THE SOURCES INDICATED FOR INVESTMENT OF RS. 3,00,000 WH ICH IS MOSTLY BY AGRICULTURAL INCOMES, WITHOUT ANY RELEVAN T INFORMATION EXCEPT THE LAND HOLDING DETAILS, AND BEING NOT ASSE SSED TO TAX, STAND ON A DIFFERENT AND DOUBTFUL PLATFORM. MR. RAV INDER RAO, WHOSE IDENTITY THOUGH NOT IN DOUBT, THE CREDIT WORT HINESS IS NOT FULLY ESTABLISHED AND IS INCAPABLE OF EXPLAINING TH E SAID INVESTMENTS OF RS. 3,00,000 BROUGHT INTO THE BOOKS OF ACCOUNT OF THE FIRM AS CAPITAL, THROUGH HIS ESTABLISHED SOU RCES. HENCE, THE SAID AMOUNT IS CONSIDERED TO COME UNDER THE AMB IT OF PROVISIONS OF SEC. 68 OF THE INCOME-TAX ACT. ACCORD INGLY, AS AGAINST THE AMOUNT OF RS. 23,00,000/- TREATED AS UN EXPLAINED CREDITS, THE ADDITION TO THE EXTENT OF RS. 3,00,000 /- IS SUSTAINED AND ASSESSEE GETS RELIEF OF RS. 20,00,000/-. THIS G ROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 6. BEFORE US, LD. DR SUBMITTED THAT ASSESSEE HAS NO T SUBMITTED ANY INFORMATION BEFORE THE AO, BUT, FILED THE INFOR MATION BEFORE THE CIT(A) AND THE CIT(A) SHOULD HAVE GIVEN OPPORTUNITY TO AO BEFORE GIVING BENEFIT TO THE ASSESSEE. HE SUBMITTED THAT T HIS ISSUE MAY BE REMITTED BACK TO THE FILE OF THE AO FOR VERIFICATIO N. 7. LD. AR, ON THE OTHER HAND, SUBMITTED THAT ALL TH E ADDITIONS MADE BY THE AO ARE NOTHING BUT CAPITAL INTRODUCED BY THE RESPECTIVE PARTNERS IN THE BUSINESS. HE SUBMITTED THAT ASSESSE E HAS SUBMITTED RELEVANT RETURN OF INCOME, CONFIRMATION AND PAN DET AILS BEFORE THE CIT(A) AND THE CIT(A) HAS ACCEPTED THE IDENTITY, CR EDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS, EXCEPT IN THE CASE OF SRI RAVINDER RAO, IN WHICH SHRI RAVINDER RAO IS NOT A REGULAR IN COME-TAX ASSESSEE. WHEREAS, HE HOLDS 17 ACRES OF LAND AND HE EARNS 6 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. AGRICULTURAL INCOME. AT THE SAME TIME, HE ALSO FILE D CONFIRMATION LETTER BEFORE THE AO, WHICH IS PLACED ON RECORD AT PAGES 3 8 & 39 OF THE PAPER BOOK. HE SUBMITTED THAT SHRI RAVINDER RAO IS HOLDING SUBSTANTINAL LAND OUT OF WHICH HE HAS EARNED RS. 3 LAKHS, WHICH IS WITHIN HIS CAPACITY TO EARN SUCH INCOME. IN THESE C IRCUMSTANCES, IT PROVES THAT IT IS A GENUINE SOURCE OF INCOME. HE SU BMITTED THAT AO AND CIT(A) HAS NOT EXPRESSED THEIR DOUBT ON THE OWN ERSHIP OF LAND. HE SUBMITTED THAT INTRODUCTION OF RS. 3 LAKHS AS C APITAL IN THE COMPANY BE ALLOWED AS GENUINE CAPITAL. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ASSESSEE HAS FILED CONFIRMATION LETTERS FRO M THE PARTNERS, VIZ., SHRI ARUN KUMAR, SHRI RAVINDER RAO, SHRI PRADEEP KU MAR AND SMT. HEMALTHA. OUT OF THE FOUR PARTNERS, CIT(A) VERIFIE D THE CONFIRMATION LETTERS, INCOME-TAX RETURNS OF SHRI ARUN KUMAR, SHR I PRADEEP KUMAR AND SMT. HEMALTHA AND ACCORDINGLY, HE ACCEPTED THE GENUINENESS AND CREDITWORTHINESS OF THESE THREE PARTNERS AND DE LETED THE ADDITIONS. WHEREAS IN THE CASE OF SHRI RAVINDER RAO , CIT(A) DID NOT ACCEPT THE GENUINENESS, MAINLY, DUE TO THE FACT THA T HE HAS NOT A REGULAR INCOME TAX ASSESSEE. WHEREAS ON RECORD, IT IS SHOWN THAT HE HOLDS 17 ACRES OF LAND AND IT WAS NOT DOUBTED THAT HE HOLDS SUCH LAND. SINCE HE IS HOLDING SUCH QUANTITY OF LAND, IT IS PO SSIBLE THAT HE MUST HAVE EARNED MUCH MORE THAN RS. 3 LAKHS OUT OF SUCH AGRICULTURAL LAND. BY CONSIDERING THE BENEFIT OF DOUBT AND THERE IS POSSIBILITY OF EARNING AGRICULTURAL INCOME MUCH MORE THAN THE CAPI TAL INTRODUCED IN THE COMPANY, THEREFORE, WE ALLOW THE CLAIM OF THE A SSESSEE AND GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND GROU ND RAISED BY THE DEPARTMENT IS DISMISSED. 9. COMING TO THE GROUND NO. 3 OF THE REVENUE AND GR OUND NOS. 7 & 8 OF THE ASSESSEE, THE FACTS RELATING TO THESE GR OUNDS ARE AS UNDER: 7 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. THE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENDITURE: 1. PURCHASE OF CEMENT RS. 21,27,610 2. CRUSHER LABOUR CHARGES RS. 51,730 3. PURCHASE OF IRON AND STEEL RS. 9,97,690 4. LABOUR CHARGES RS. 28,80,660 5. QUARRY LABOUR CHARGES RS. 4,34,910 6. REPAIRS AND MACHINERY RS. 1,15,400 TOTAL RS. 66,08,000 =========== 9.1 IN RESPECT OF PURCHASE OF CEMENT, THE AO HAD CA LLED FOR THE BILLS/INVOICES IN RESPECT OF CASH PAYMENTS BELOW RS . 20,000. THE ASSESSEE HAD PRODUCED THE BILLS FROM CERTAIN PARTIE S HOWEVER, THE AO DOUBTED THEIR AUTHENTICITY. THE AO FURTHER OBSERVED THAT IN THE MONTH OF MARCH, CASH PURCHASES HAVE INCREASED AND OPINED THAT IT WAS A DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO I NFLATE THE EXPENDITURE IN THE BOOKS OF ACCOUNT. HENCE DISALLOW ED 20% OF THE EXPENDITURE INCURRED ON PURCHASE OF SALE AMOUNTING TO RS. 21,27,610/-. 9.2 IN RESPECT OF 'CRUSHER LABOUR CHARGES', THE AO OBSERVED FROM LEDGER THAT PAYMENTS OF RS. 250 EACH HAVE BEEN RECO RDED ON SEVERAL OCCASIONS AND NO VOUCHERS COULD BE PRODUCED BY THE ASSESSEE IN SUPPORT OF THE EXPENDITURE CLAIMED. HENCE, THE AO D OUBTING THE GENUINENESS OF THE CLAIM, HAD DISALLOWED 5% OF SUCH EXPENDITURE WHICH AMOUNTING TO RS. 51,730/-. 9.3 THE ASSESSEE IN RESPECT OF 'PURCHASE OF IRON AN D STEEL' HAD DEBITED AN AMOUNT OF RS. 49,88,447/- IN THE PROFIT & LOSS A/C AND ON VERIFICATION OF THE LEDGER, THE AO OBSERVED THAT TH ERE ARE CASH PAYMENTS VARYING FROM RS. 18,000 TO RS. 20,000. DOU BTING THE VERACITY OF THE BILLS/VOUCHERS PRODUCED THE AO HAD DISALLOWED 20% OF SUCH EXPENDITURE WHICH AMOUNTED TO RS. 9,97,690/-. 8 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. 9.4 THE AO HAD DISALLOWED 5% OF THE 'LABOUR CHARGES ' DEBITED TO THE PROFIT & LOSS A/C AS NO VOUCHERS WERE PRODUCED AND AS A NUMBER OF ENTRIES HAVE BEEN RECORDED TOWARDS PAYMENTS OF RS. 300/-. THE DISALLOWANCE @5% ON RS. 5,76,13,219/- WORKED OUT TO RS. 28,80,660/-. 9.5 ON SIMILAR LINES OF LABOUR CHARGES, THE AO DISA LLOWED 5% OF 'QUARRY LABOUR CHARGES' DEBITED TO THE PROFIT & LOS S A/C. OF RS. 86,98,200/- WHICH WORKED OUT TO RS. 4,34,910/-. 9.6 THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 3,25, 450/- TOWARDS 'REPAIRS AND MACHINERY'. IT WAS OBSERVED BY THE AO FROM THE LEDGER THAT THE ASSESSEE HAD DEBITED THE NAME OF DASHRAD E LECTRICALS WITH AN AMOUNT OF RS.1, 15,400/- BUT THE CORRESPONDING B ILL/INVOICE WAS NOT PRODUCED. HENCE, THE AO DISALLOWED THE SUM OF RS. 1 , 15,400/-AND ADDED BACK TO THE INCOME RETURNED. 10. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE CIT (A) AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE FINDINGS OF THE AO, THE CIT(A) OBSERVED AS UNDER: '11.3 PERUSED THE OBSERVATIONS OF THE AO AND THE SU BMISSIONS OF THE ASSESSEE ON EACH OF THE ITEMS OF DISALLOWANC E. AS IT HAD BEEN NOTICED, THE AO DISALLOWED THE VARIOUS ITEMS O F EXPENSES FOR SERVICES SUCH AS 'LABOUR CHARGES', 'QUARRY LABO UR CHARGES' AND 'CRUSHER LABOUR CHARGES', AT THE RATE OF 5% OF EXPENSES DEBITED UNDER THE SAID HEADS, ON THE REASON THAT VO UCHERS WERE NOT PRODUCED AND GENUINENESS OF EXPENSES IS DOUBTFU L. SIMILARLY, THE EXPENSES TOWARDS PURCHASES SUCH AS ' PURCHASE OF STEEL', 'PURCHASE OF CEMENT', THE EXPENDITURES WERE DISALLOWED AT 20% HOLDING THAT PURCHASE BILLS FROM CERTAIN TRA DERS ARE SERIALLY NUMBERED. FURTHER, EXPENDITURE UNDER THE H EAD 'REPAIRS AND MACHINERY', DISALLOWANCE WAS MADE, HOLDING THAT BILLS WERE NOT PRODUCED, FOR A SPECIFIC AMOUNTS OF PURCHASE. 11.3.1 AS COULD BE SEEN FROM THE OBSERVATIONS OF TH E AO, THE DISALLOWANCES UNDER VARIOUS HEADS OF EXPENSES AS IN DICATED, WERE MADE ON THE EXPENSES/PURCHASES,- WHERE THE PAY MENTS WERE MADE IN CASH, NOT EXCEEDING RS. 20,000. THIS M EANS, WHERE THERE ARE TECHNICAL OMISSIONS/COMMISSIONS COM MITTED BY 9 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. ASSESSEE, DISALLOWANCES WERE MADE, BY APPLYING THE RELEVANT PROVISIONS WITHOUT LOOKING AT THE 'PRACTICABILITY A NGLE' OF THE BUSINESS, AND BY RELYING ON THE BOOKS OF ACCOUNT. W HEREAS IN THE CASES OF EXPENSES MET BY CASH PAYMENTS OF RS. 2 0,000 AND BELOW, DISALLOWANCES WERE MADE AT VARIOUS RATES, WI THOUT RELYING ON THE BOOKS, BUT WITHOUT REJECTING THE BOO KS, THEREBY RESULTING IN HIGH PITCHED ADDITIONS, AS CLAIMED BY THE ASSESSEE. REGARDING THE DISALLOWANCE OF VARIOUS HEADS OF EXPE NSES, IT MAY BE OBSERVED THAT DISALLOWANCES WERE MADE BY SUR MISES AND SAMPLED OBSERVATIONS. UNDER FEW HEADS SUCH AS L ABOUR CHARGES ETC. DISALLOWANCES WERE MADE BY SIMPLE REAS ON THAT VOUCHERS WERE NOT PRODUCED AND WITHOUT PUTTING THE SAME TO THE ASSESSEE, FOR THE RESPONSE OR EXPLANATION. THERE IS NO CONCRETE BASIS FOR SUCH DISALLOWANCES, WHERE BOOKS ARE RELIE D BY THE AG. HENCE, THE DISALLOWANCES, MADE WITHOUT PROPER ENQUI RIES OR EVIDENCES, AND ON THE CONCLUSION THAT THE EXPENSES INCURRED ARE NOT GENUINE, ARE NOT SUSTAINABLE, MORE SO, WHER E THE BOOKS OF ACCOUNT WERE NOT REJECTED. UNDER THE CIRCUMSTANC ES, I HAVE NO HESITATION IN HOLDING ADHOC ADDITIONS MADE, WHIL E HOLDING THAT BOOKS OF ACCOUNT TO BE RELIABLE, ARE NOT SUSTA INABLE. ' 10. FURTHER, THE ASSESSEE FILED WRITTEN SUBMISSIONS AS REGARDS GROUND NOS. 7 & 8 BEFORE THE CIT(A) WHEREIN IT WAS STATED AS UNDER: 11.4 IN ADDITION TO THE ABOVE SUBMISSIONS, THE ASS ESSEE HAD FURTHER MADE WRITTEN SUBMISSIONS AS UNDER: 'THE ASSESSEE IS HEREWITH SUBMITTING THE COMPARATIV E STATEMENT OF EXPENDITURE FOR YOUR KIND CONSIDERATIO N. A PERUSAL OF STATEMENT SHOWS THAT THERE WAS NO CONSIDERABLE I NCREASE UNDER ANY HEAD OF EXPENDITURE EXCEPT IN RESPECT OF LABOR. IN THIS CONNECTION, IT IS SUBMITTED THAT THE LABOUR CHARGES HAS INCREASED BY 11.35% OVER THE PRECEDING YEAR. THIS I S BECAUSE THE INCREASE IN LABOUR CHARGES PER DAY PER PERSON. THE LABOUR CHARGES PER DAY PER PERSON IN THE YEAR 2008-09 WAS 200/- AND WHERE AS IT WAS INCREASED TO 300/- PER DAY PER PER SON FOR THE YEAR 2009-10, THE YEAR UNDER CONSIDERATION. IT IS E VIDENT FROM THE ABOVE THAT COST PER LABOUR IS INCREASED BY 50% WHEREAS THE TOTAL COST TO THE FIRM INCREASED BY JUST 11%. HENCE THE EXPENDITURE DEBITED BY THE ASSESSEE IS MORE REASONA BLE AND THE ASSESSEE IS HAVING THE VOUCHER FOR EVERY PAYMEN T. EVEN IN THE CRUSHER LABOR CHARGES, THE LABOR CHARGES PER DA Y PER PERSON HAS INCREASED BY 50%. HENCE THE ADDITION MADE BY TH E A. A IN RESPECT OF LABOUR AND CRUSHER LABOR MAY BE DELETED. IN RESPECT OF METAL CHIPS AND SAND, SALARIES, BITUM INE, SIGNARAGE, BLASTING MATERIAL PURCHASES, TELEPHONE, TYRES, VEHICLE REPAIRS, VEHICLE INSURANCE AND TAXES, MESS CHARGES, RENT, VAT, NAC, BANK GUARANTEE COMMISSION, PURCHASE OF 10 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. SPARES ENGINE OILS THE EXPENDITURE INCURRED IS. LES SER THAN BY 3.57%, 0.25%, 2.3%, 0.47%, 1.77%, 0.03%, 1.23%, 0.0 3%, .44%, O.18%, 0.07% 1.09%, 0.10%, 0.24%, 4.84% AND 0 .02% RESPECTIVELY OVER THE PRECEDING YEAR. MOREOVER NO INTEREST WAS CLAIMED IN THE EARLIER YEA R. THE INTEREST ON PARTNERS CAPITAL WAS DEBITED TO THE PRO FIT AND LOSS ACCOUNT IN THE YEAR UNDER CONSIDERATION. THE NET PR OFIT SHOWN FOR THE YEAR UNDER CONSIDERATION IS 6.08% ON NET TU RNOVER WHERE AS IT WAS 8.29% IN THE PRECEDING PREVIOUS YEAR. THE VARIATION IS DUE TO INCREASE IN INTEREST ON PARTNERS CAPITAL AND INCREASE IN LABOR CHARGES PER HEAD. IT IS FURTHER SUBMITTED THA T THE ASSESSEE CLAIMED THE EXPENDITURE AND VARIATIONS ARE MORE REASONABLE IN THE INFLATIONARY SITUATION. WE HAVE T AKEN A PLEA BEFORE THE ADDITIONAL COMMISSIONER EVEN TO ADOPT 8% ON NET PROFIT AS WAS HELD BY THE CIT(A)-V, HYD IN OUR OWN CASE FOR THE IMMEDIATELY PRECEDING ASST. YEAR 2009-10. THE SAME IS BEING REPRODUCED FOR YOUR KIND CONSIDERATION. TO BUY PEACE OF MIND, TO OBVIATE UNNECESSARY LITIGA TION AND WITH A VIEW TO CO-OPERATE WITH THE DEPARTMENT, WE R EQUEST THAT ITS INCOME MAY BE COMPUTED BY APPLYING A NET PROFIT RATE OF 8% AFTER ALLOWING SUBCONTRACTS, MATERIALS SUPPLIED, DE DUCTIONS SUCH AS SEIGNARAGE, LABOUR CESS, VAT ETC., DEPRECIA TION, INTEREST ON CAPITALS AND PARTNERS SALARIES. THE ASSESSEE FURTHER SUBMIT THAT THERE IS NO MARGIN DERIVED FROM TO SUBCONTRACT WORKS ASSIGNED. THE SUB CONTRAC T AGREEMENTS WERE ALSO SUBMITTED BEFORE YOU FOR VERIF ICATION. IT IS ALSO SUBMITTED THAT IN THE EARLIER ASST. YEAR 2009- 10, THE A.O ASSESSED PROFIT @ 2% ON THE SUB CONTRACTS AND THE S AME WAS FELT REASONABLE BY THE CIT(A). HENCE IT IS PRAYED T HAT DISALLOWANCE OF ENTIRE SUBCONTRACT EXPENDITURE BY T HE AO NOT JUSTIFIABLE. THE A.O MADE ADHOC ADDITIONS AS PERCENTAGE BASIS IN RESPECT OF SOME EXPENDITURE. IN RESPECT OF CEMENT, THE A.O DISALLOWED 20% OF EXPENDITURE. IN THE YEAR 2007-08, IT IS 4.49 % OF NET CONTRACTS AND WHERE AS IT IS 2.34% OF NET CONTRACTS . THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION IS 3.8 1 % OF NET CONTRACTS. THIS IS LESSER THAN THE PRECEDING PREVIO US YEAR AND MORE THAN THE PREVIOUS YEAR. INCURRING OF EXPENDITU RE UNDER THE DIFFERENT HEADS MAY VARY WITH THE CONTRACT EXECUTED AND COST OF THE CEMENT IN A PARTICULAR PERIOD. THERE IS NO RATI ONALE IN DISALLOWING 20% OF EXPENDITURE UNDER THIS HEAD. HEN CE, THE ASSESSEE HEREBY REQUEST THE CIT (A) TO DELETE THE A DDITION MADE UNDER THIS HEAD. 11 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. IN RESPECT OF THE HEAD IRON AND STEEL, THE A. O. MA DE ADDITION OF 20% OF. EXPENDITURE INCURRED. IN THIS ALSO, THER E IS NO RATIONALE IN MAKING ADDITION. HENCE, THE ASSESSEE I S HEREBY REQUESTED THE CIT(A) TO DELETE THE ENTIRE DISALLOWA NCE MADE ON ADHOC BASIS AS THE EXPENDITURE INCURRED IS VERY REA SONABLE AND VERY NEAR TO THE EARLIER FIGURES. IN VIEW OF THE ABOVE AND CLARIFICATION GIVEN IN EAR LIER HEARING, THE CIT(A) IS REQUESTED TO DELETE THE TOTAL ADDITIO NS MADE IN RESPECT OF 1. INTRODUCTION OF CAPITAL, 2. UNEXPLAIN ED CASH CREDITS, 3. DISALLOWANCE U/S 40A(3), 4. DISALLOWANC E ON ACCOUNT OF MISS MATCH OF 26AS, 5. DISALLOWANCE ON ACCOUNT O F SUB CONTRACT PAYMENTS AND 6. DISALLOWANCE OF EXPENDITUR E MADE ON ADHOC BASIS. INSPITE OF THE ABOVE, THE ASSESSEE REQUESTED THE CO MMISSIONER OF APPEAL-VI TO DISPOSE THE CASE BY ADOPTING THE 8% ON NET TURNOVER AFTER ALLOWING ADMISSIBLE DEDUCTIONS AS TH E ASSESSMENT IS HIGH PITCH ASSESSMENT. 10.1. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE, THE CIT(A) OBSERVED AS UNDER: 12.0 IN THIS CONTEXT IT IS RELEVANT TO REFER TO TH E BACKGROUND OF THE BUSINESS, AND THE ADDITIONS MADE ON VARIOUS COU NTS WITHOUT REJECTING THE BOOKS OF ACCOUNT. THE ASSESSEE IS A C IVIL CONTRACTOR, AND THE GROSS RECEIPTS FOR THE AY 2008- 09, 2009-10, 2010-11 ARE SHOWN AT RS. 28.89 CRORES, RS. 32.13 CR ORES AND RS. 38.48 CRORES RESPECTIVELY, (WHICH INCLUDES THE SUB CONTRACT RECEIPTS) FOR THE AY 20010-11. THE NET PROFITS SHOW N STOOD AT RS. 1.44 CRORES, RS. 1.92 CRORES AND RS. 1.69 CRORE S FOR THE AYS 2008-09, 2009-10 AND 2010-11 RESPECTIVELY. COMP ARISON OF EXPENSES, HEAD WISE, ALSO DO NOT REVEAL ANY ABNORMA L VARIATIONS, EXCEPT UNDER THE HEAD 'LABOUR CHARGES'. AS INDICATED, APART FROM DISALLOWING CERTAIN EXPENSES ON TECHNICAL GROUNDS, THE AO ALSO DISALLOWED CERTAIN EXPENSES, O N ESTIMATION BASIS. THIS RESULTED IN ADDITION, WHEREI N THE ASSESSED INCOME STOOD AT RS. 14,80,41,310/- AS AGAI NST THE RETURNED INCOME OF RS. 1,69,88,690/-, RESULTING IN AN ABNORMAL PROFIT RATIO OF MORE THAN 38% WHICH MIGHT NOT BE PO SSIBLE IN ANY BUSINESS OF CIVIL CONTRACTS. INDEED, THERE ARE CERT AIN EXPENSES, WHICH HAVE BECOME DISALLOWABLE, SUCH AS THE SUB CON TRACT WORKS PAID TO MR. RAGHAVA RAO, WHO DID NOT SUBMIT B ILLS AS ON DATE OF COMPLETION OF SCRUTINY PROCEEDINGS, REPAIRS AND MACHINERY, FOR WHICH NO BILLS WERE PRODUCED, AND CE RTAIN EXPENSES WERE ALSO DISALLOWABLE, WHERE PROCEDURE WA S NOT FOLLOWED, SUCH AS BILLS FOR DIESEL PURCHASES, WHERE NO DETAILS OF LORRY NUMBERS WERE INDICATED AND IN OTHER INSTANCES CERTAIN EXPENSES WERE PAID IN CASH EXCEEDING THE LIMITS PRE SCRIBED, 12 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. SUCH AS SAND PURCHASES ETC. FURTHER, DISALLOWANCES WERE MADE, ON THE PLAIN APPLICATION OF THE PROVISIONS, WITHOUT LOOKING AT THE ANGLE OF PRACTICABILITY OF BUSINESS OR THE EXCEPTIO NS PROVIDED IN THE PROVISIONS, CONCERNED. FOR ALL THESE REASONS TH E BOOKS ARE LIABLE TO BE REJECTED FOR THEIR NON RELIANCE, FOR E XPLAINING THE VERACITY OF CERTAIN EXPENSES CLAIMED. 12.1 IN THIS CONTEXT IT MAY BE RELEVANT TO MENTION HERE THAT THE ASSESSEE MADE AN ALTERNATE PLEA AT THE STAGE OF ASS ESSMENT PROCEEDINGS, TO ESTIMATE THE NET PROFIT AT 8%, ON T HE NET CONTRACT RECEIPTS, AFTER DEDUCTING, SEIONERAGE CHAR GES AND DEPRECIATION AND INTEREST ON CAPITAL OF PARTNERS ET C., WHICH WAS REJECTED BY THE AO MAINLY FOR FOLLOWING REASONS: I) THE DECISION TO REJECT THE BOOKS LIES WITH THE A O, AND THE ASSESSEE CANNOT REQUEST FOR REJECTION OF OWN BOOKS OF ACCOUNT WHICH ARE DULY ACCOUNTED. II) THE PERCENTAGE OF ESTIMATED PROFIT REQUESTED BY ASSESSEE AT 80/0, IS VERY LOW ON FACTS OF THE CASE, SPECIALLY I N LIGHT OF HUGE DISALLOWANCES MADE U/S. 40A(3) OF THE IT ACT, AND R ATE OF PROFITS IN ESTIMATION CASES, DEPENDS ON FACTS OF EACH CASE, AND IN CASE OF ASSESSEE ESTIMATION WAS REQUESTED ON FACE OF HUG E ADDITIONS MADE. III)SINCE, SOME OF THE ADDITIONS SUCH AS CASH CREDI TS MADE U/S. 68 AND THE DISALLOWANCES OF PAYMENTS TO SUB CONTRAC TORS, WERE MADE BASED ON BOOKS OF ACCOUNT, BOOKS COULD NOT BE REJECTED. 12.2 IN THIS CONTEXT, IT MAY BE RELEVANT TO MENTION THAT, DISALLOWANCES OF PAYMENTS TO SUB CONTRACTORS WERE M ADE DISREGARDING THE BOOKS OF ACCOUNTS, THOUGH SUCH AMO UNTS WERE PAID THROUGH BANKS AND GUIDED BY CONTRACT AGREEMENT S, AND EXPLAINABLE THROUGH BOOKS OF ACCOUNT. IT IS ALSO A FACT THAT SUBSTANTIAL DISALLOWANCES WERE MADE UNDER VARIOUS H EADS, REJECTING THE BOOKS. IT IS ALSO RELEVANT TO REFER T O THE FACT THAT THERE IS NO SUBSTANTIAL VARIATIONS IN EXPENSES UNDE R VARIOUS HEADS, EXCEPT UNDER THE HEAD LABOUR CHARGES. HOWEVE R, IT IS A FACT THAT CERTAIN EXPENSES ARE NOT VERIFIABLE WITH THE HELP OF BILLS, AS INDICATED IN ASSESSMENT ORDER. IT IS ALSO A FACT THAT FOR SIMILAR REASONS, THE AO HAS ESTIMATED THE NET PROFI T FOR THE AY 2009-10, IN ASSESSEE'S OWN CASE, AGAINST WHICH THE CIT(APPEALS)-V HAS UPHELD ESTIMATION, ALBEIT WITH A MODIFIED RATE OF PROFITS, WHILE ALLOWING THE PAYMENTS U/S. 4 0(B) AND DEPRECIATION. WITH THE FACTS REMAINING SAME FOR THE YEAR UNDER REFERENCE, AND FOR THE REASONS OF LAPSES POINTED OU T BY THE AO IN THE ASSESSMENT ORDER, I AM OF THE CONSIDERED OPI NION THAT IT IS A FIT CASE FOR ESTIMATION OF PROFITS OF BUSINESS OF CONTRACTS, AS AGAINST VARIOUS DISALLOWANCES AND ADDITIONS MADE IN 13 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. ASSESSMENT ORDER SEPARATELY, WITHOUT REJECTING THE BOOKS. IT IS ALSO A FACT THAT THE ESTIMATION WAS NOT ACCEPTABLE TO THE AO, FOR THE REASON THAT THE RATE OF NET PROFIT OFFERED BY T HE ASSESSEE AT 8% APPEARED TOO LOW. HENCE, THE ESTIMATION OF PROFI TS OF THE BUSINESS BY REJECTION OF BOOKS IS LIABLE TO BE APPL IED IN THIS CASE, BASED ON FACTS. OF HOWEVER, THE ADDITIONS U/S . 68 OF IT ACT, MAY REMAIN UNTOUCHED, SINCE THE SAME HAVE BEEN MADE ON DIFFERENT GROUND. 12.3 IN CASES OF ESTIMATION, THE RATE OF PROFIT MAY BE DETERMINED BY THE FACTS OF EACH CASE, AS DECLARED B Y CATENA OF JUDICIAL DECISIONS AND SUCH ESTIMATED RATES ARE IN THE RAGE OF 8 TO 12.5% IN MAIN CONTRACTS AND 5% IN SUB CONTRACTS, ON THE NET CONTRACT RECEIPTS, EXCLUDING THE RECOVERIES AND SEI ONERAGE CHARGES. THE NET PROFIT ADOPTED IS ALSO SUBJECT TO THE ALLOWANCE OF CLAIMS OF INTEREST AND REMUNERATION CHARGES PAID /PAYABLE TO THE PARTNERS OF THE FIRM APART FROM DEPRECIATION. T HESE OBSERVATIONS ARE BASED ON THE RELEVANT JUDICIAL DEC ISIONS IN THIS REGARD. IN THE INSTANT CASE, BASED ON THE AFORESAID OBSERVATIONS AND FACTS OF THE CASE, ESTIMATION OF PROFITS ON BUS INESS RECEIPTS IS JUSTIFIED AND IT MAY BE REASONABLE TO ADOPT THE NET PROFIT @10% ON MAIN CONTRACTS AND 5% ON SUB CONTRACT RECEI PTS BY THE ASSESSEE. THUS, BASED ON THE FACTS OF THE CASE, AND IN LIGHT OF THE ABOVE OBSERVATIONS, THE AO IS DIRECTED TO RE COMPUTE THE PROFIT OF THE ASSESSEE FIRM BY ESTIMATING THE NET P ROFIT AT 10% ON NET MAIN CONTRACT RECEIPTS AND AT 5% ON NET SUB CONTRACT RECEIPTS. FURTHER THE UNACCOUNTED CONTRACT RECEIPTS , FROM EE NH DIVISION, WARANGAL (RS. 10,98,698) AND AMRP DIVI SION, NALGONDA (RS.13,86,496) MAY BE TAKEN INTO CONSIDERA TION FOR QUANTIFYING THE MAIN CONTRACT RECEIPTS. IT MAY BE R ELEVANT TO OBSERVE THAT THE MAIN NET CONTRACT RECEIPTS AFTER RECOVERIES/DEDUCTIONS OF RS. 31,55,42,763/-, NOW ST AND INCREASED BY RS. 24,85,194/- (10,98,698 + 13,86,496 ). SIMILARLY, THE NET SUB CONTRACT RECEIPTS AFTER GOVE RNMENT DEDUCTIONS STAND AT RS.3,93,88,283/-THE AO IS DIREC TED TO RECOMPUTE THE PROFITS ON SUCH RECEIPTS AT THE RESPE CTIVE RATES OF NET PROFIT OF 10% AND 5%, AND THE DEDUCTIONS U/S 40 (B) OF IT ACT MAY BE ALLOWED. AGGRIEVED, ASSESSEE AND REVENUE ARE IN APPEAL BEFOR E US. 11. LD. AR SUBMITTED THAT THE ASSESSEE HAS DECLARED PROFIT @ 4.5% IN ITS P&L A/C. HE JUSTIFIED THE ESTIMATION OF THE PROFIT BY THE CIT(A) BUT MADE A PLEA THAT IT SHOULD BE REDUCED TO 8% INS TEAD OF 10%. 14 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. 12. LD. DR SUBMITTED THAT AO HAS NOT REJECTED THE BOOKS AND LD. CIT(A) CANNOT REJECT THE SAME AND NOT JUSTIFIED IN ESTIMATING THE INCOME AND RELIED ON THE ORDER OF AO. 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE HAVE NOTICED THAT LD. CIT(A) HAS DISCUSS ED ELABORATELY ABOUT THE REASON FOR REJECTION OF BOOKS. ACCORDING TO US, PROCEEDINGS BEFORE THE CIT(A) IS THE EXTENSION OF ASSESSMENT AN D HE HAD ELABORATELY DISCUSSED AND HAS PROPER REASONS TO REJ ECT THE BOOKS CONSIDERING THE FACT THAT THE ASSESSMENT WAS DONE W ITH HIGH-PITCH ADDITION. LD. CIT(A) WAS RIGHT THAT THERE ARE CATEN A OF DECISIONS CONFIRMING ESTIMATION OF INCOME BETWEEN 12.5% TO 8% DEPENDING UPON THE NATURE OF CONTRACT. BUT, RECENTLY THE HYDE RABAD BENCHES HELD IN NUMEROUS CASES RELATING TO CIVIL CONTRACTOR S, FOR MAIN CONTRACT 8% AND SUB-CONTRACTING 5%. BY FOLLOWING SIMILAR PAT TERN, WE ALSO DIRECT THE AO TO ESTIMATE THE SAME AT 8%. ACCORDIN GLY, GROUND RAISED BY THE REVENUE IS DISMISSED AND ASSESSEES GROUNDS ARE PARTLY ALLOWED. 14. AS REGARDS THE ADDITION OF RS. 26,50,000/- AS U NEXPLAINED CASH CREDIT U/S 68 OF THE ACT, THE ASSESSEE HAD SHOWN TH E UNSECURED LOANS IN THE BALANCE SHEET FROM THE FOLLOWING PERSONS: 1. MS. G. RAMYA RS. 5,00,000 2. SRI M. BUTCHAIAH RS. 7,00,000 3. SRI M. SESHAIAH RS. 4,50,000 4. SRI N. KOTESWARA RAO RS. 5,00,000 5. SRI P. PRASADA RAO RS. 5,00,000 TOTAL RS.26,50,000 ========== 14.1 IN CASE OF MS. RAMYA, THE AO DOUBTED THE CREDI TWORTHINESS AND ON THE BASIS OF DIFFERENCE IN DATES OF ADVANCE OF T HE AMOUNTS, AS PER THE STATEMENT RECORDED U/S 131 AND BOOKS OF ACCOUNT OF THE ASSESSEE, REJECTED THE EXPLANATION OF THE ASSESSEE AND TREATED THE SAME AS UNEXPLAINED CASH CREDIT U/S 68. 15 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. 14.2 IN CASE OF SRI M. BUTCHAIAH, THE AO OPINED THA T SINCE THE INFORMATION U/S 133(6) WAS NOT FILED DIRECTLY BY SR I M. BUTCHAIAH, HIS IDENTITY, CREDITWORTHINESS AND SOURCES WERE NOT PRO VED, HENCE, TREATED THE ADVANCE AMOUNT OF RS. 7,00,000/- AS UNE XPLAINED CASH CREDIT U/S 68. 14.3 IN RESPECT OF THE REST OF UNSECURED LOANS OF R S. 4,50,000/- FROM SRI M. SESHAIAH, RS. 5,00,000/- FROM SRI N. KOTESWA RA RAO AND RS. 5,00,000/- FROM SRI P. PRASADA RAO, THE ASSESSEE WA S ASKED TO GIVE THE ADDRESSES ALONG WITH THEIR CONFIRMATION AND SOU RCES OF INCOME TO PROVE THEIR IDENTITY AND CREDITWORTHINESS. SINCE, THE ADDRESSES OR CONFIRMATION OF THESE PARTIES WAS NOT PRODUCED TO SUBSTANTIATE THE CLAIM MADE BY THE ASSESSEE AND THAT WHETHER THESE P ARTIES HAD ACTUALLY MADE ANY PAYMENT TO INDIAN OIL CORPORATION , VIJAYAWADA WAS ALSO NOT VERIFIABLE, THE AO TREATED THE SAID AMOUNT S TOTALING TO RS. 14,50,000/- AS UNEXPLAINED CASH CREDITS. 15. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) DELETED THE ADDITION IN CASE OF RAMYA OF RS. 5,00,0 00/- AND IN CASE OF OTHER CREDITORS, THE CIT(A) UPHELD THE ACTION OF TH E AO BY HOLDING THAT THE ASSESSEE FAILED TO PROVE GENUINENESS OF TRANSAC TIONS, AND CREDITWORTHINESS OF CREDITORS. 16. AGGRIEVED, THE ASSESSEE IS IN APPEALS BEFORE U S. 17. LD. AR SUBMITTED THAT IN THE CASE OF SHRI M. BU TCHAIAH, HE HAS DEPOSITED THE CASH IN HIS SONS ACCOUNT AND MADE TH E PAYMENT BY CHEQUE. AO CANNOT ASK FOR SOURCE OF SOURCE. WITH RE GARD TO OTHER CREDITORS, HE SUBMITTED THAT THESE PAYMENTS WERE MA DE TO IOC ON BEHALF OF ASSESSEE. IT SHOULD BE TREATED AS TURNOVE R. 18. LD. DR RELIED ON THE FINDINGS OF AO AND CIT(A). 19. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WITH REGARD TO LOAN FROM SHRI M. BUTCHAIAH, HE HAS FILED CONFIRMATION LETTER AND MADE THE PAYMENT THROUGH BA NKING CHANNEL. 16 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. WE HAVE NOTICED THAT ONLY CONFIRMATION LETTER WAS F ILED IN THE PAPER BOOK. IT DOES NOT HAVE ANY PAN OR ANY OTHER INFORMA TION RELATING TO THE CONTRACTOR/CREDITOR. IN THE ABSENCE OF SUCH DET AILS, WE ARE NOT IN A POSITION TO ACCEPT THE SAME AS GENUINE OR IT PROVES ANYWAY THE CREDITWORTHINESS OF THE CREDITOR. WITH REGARD TO OT HER CREDITORS, THEY CLAIM THAT THE PAYMENTS WERE MADE DIRECTLY TO IOC O N BEHALF OF THE ASSESSEE. SINCE, THE PAYMENT WAS MADE TO GOVT. ESTA BLISHMENT, WE ARE CONSTRAINED TO REMIT THIS BACK TO THE FILE OF T HE AO TO VERIFY THE RELEVANT DOCUMENTS IN SUPPORT OF SUCH PAYMENT. IN C ASE IT IS FOUND THAT THESE PAYMENTS WERE MADE TO IOC AND THE SUPPLY WAS MADE IN THE NAME OF ASSESSEE, IT MAY BE TREATED AS TURNOVER , INSTEAD OF ADDITION U/S 68 OF THE ACT. 20. AS REGARDS THE ADDITION ON ACCOUNT OF RECONCILI ATION OF 26AS STATEMENT WITH TURNOVER OF RS. 1,83,31,891/-, THE A O OBSERVED THAT THERE WAS DIFFERENCE IN TURNOVERS REFLECTED IN THE PROFIT & LOSS ACCOUNT WITH THE RECEIPTS AS PER 26AS STATEMENT IN RESPECT OF THE FOLLOWING: NAME OF THE DEDUCTOR AS PER 26AS STATEMENT AS PER P&L ACCOUNT DIFFERENCE M/S APR CONSTRUCTIONS 4,86,82,264/- 4,27,10,896/- 59,71,368/- M/S MADHUCON PROJECTS LTD. 65,83,577/- - 65,83,577/- EXECUTIVE ENGINEER, AMRP DIVISION, NALGONDA, 13,86,494/- - 13,86,494/- SUPERINTENDING ENGINEER 1,09,54,903/- - 1,09,54,903/- ANDHRA BANK 19,126/- - 19,126/- AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO BROUGHT TO TAX THE TOTAL AMOUNT OF RS. 1,83,31,891/-. 21. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE FINDINGS OF THE AO, INTER-ALIA, HELD AS UNDER: 17 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. HOWEVER, THE ENTIRE AMOUNTS OF SUCH CONTRACT RECEIP TS CANNOT BE TREATED AS PROFIT OF THE ASSESSEE AS PER THE JUD ICIAL DECISIONS. DECISION OF CALCUTTA HIGH COURT IN THE C ASE OF CIT VS. NIVEDAN VANIJYA NIYOJAN LTD. (263 ITR 623) AND DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. GURUBACHA N SINGH J. JUNEJA (302 ITR 63), SUPPORT THE SAID VIEW. UNDER T HE CIRCUMSTANCES, I AM OF THE CONSIDERED OPINION THAT THERE IS NO JUSTIFICATION FOR BRINGING THE ENTIRE AMOUNTS BEING THE DIFFERENCE BETWEEN THE PROFIT & LOSS ACCOUNT AND THE 26AS STAT EMENT, TO THE EXTENT OF RS. 1,83,12,765/- FROM THE THREE PART IES, TO TAX. IN STEAD, THE AMOUNTS OF RS. 24,85,194 (RS.1098968 + 1 3,86,496) REPRESENT THE UNACCOUNTED CONTRACT RECEIPTS FOR THE ASSESSEE, FOR THE YEAR UNDER REFERENCE, ON WHICH THE NET PROF IT IS REQUIRED TO BE ESTIMATED. AS REGARD TO THE INTEREST AMOUNT O F RS. 19,126/-, BEING INTEREST FROM ANDHRA BANK, WHICH SH OWN TO HAVE BEEN OFFERED FOR TAX IN EARLIER YEAR, THERE IS NO J USTIFICATION FOR THE ADDITION, WITHOUT BRINGING THE NEEDED INFORMATI ON ON RECORD. UNDER THE CIRCUMSTANCES, THE ADDITION OF RS. 1,83,3 1,891/-, MADE ON THE BASIS OF RECONCILIATION OF 26AS STATEME NT, TREATING THE GROSS CONTRACT RECEIPTS AS UNEXPLAINED INCOME, IS NOT SUSTAINABLE. INSTEAD, THE AO IS DIRECTED TO ESTIMAT E THE NET PROFIT ON THE AMOUNTS OF RS. 24,85,194/-, WHICH HAS BEEN QUANTIFIED AS UNACCOUNTED CONTRACT RECEIPTS, AT A R ATE AS APPLICABLE, IN CASE OF ESTIMATION OF PROFITS OF BUS INESS. 22. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 23. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE HAVE NOTICED THAT IN THE CASE OF NH DIVI SION, WARANGAL, THEY HAVE UPLOADED FORM 26AS AT RS. 109,54,503/- WH EREAS THEY ACTUALLY REMITTED RS. 98,56,205/-. ASSESSEE HAS REC ORDED ONLY RS. 98,56,205/- IN ITS BOOKS OF ACCOUNT, WHICH WAS ALSO CONFIRMED BY THE NH DIVISION. SINCE, THE DIFFERENCE IS EXACTLY 10%, IT COULD BE DUE TO TDS DEDUCTION. IN THE ABSENCE OF ANY CONFIRMATION, WE ARE INCLINED TO ACCEPT THE FINDINGS OF CIT(A). WITH REGARD TO AMRP DIVISION, NALGONDA, ASSESSEE HAS FAILED TO RECORD THE SAME IN ITS BOOKS OF ACCOUNT. THEREFORE, WE ARE IN AGREEMENT WITH THE FI NDINGS OF CIT(A). THEREFORE, THE GROUND RAISED BY THE ASSESSEE IS DIS MISSED. 26. AS REGARDS THE DISALLOWANCE OF INTEREST ON TDS OF RS. 2,66,105/-, THE ASSESSEE DEBITED INTEREST ON TDS OF RS. 2,66,105/- IN THE P&L A/C, WHICH THE AO ADDED BACK AS IT IS NOT AN ALLOWABLE 18 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. EXPENDITURE. THE CIT(A) CONFIRMED THE SAID DISALLOW ANCE BY OBSERVING THAT ASSESSEE NEITHER MADE SUBMISSIONS NO R PRESSED THIS GROUND OF APPEAL. 27. AGGRIEVED BY THE ACTION OF THE CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE US. 28. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. ASSESSEE HAS DEBITED INTEREST ON TDS AND TH E SAME WAS DISALLOWED BY AO. BEFORE CIT(A), ASSESSEE HAS NOT P RESSED OR CONTESTED. ASSESSEE HAS RAISED SEPARATE GROUND BEFO RE US. SINCE INTEREST ON TDS IS ALLOWABLE EXPENDITURE AS IT IS N OT THE PENAL INTEREST CHARGED ON THE TAX. IT IS ONLY A COMPENSATORY IN NA TURE OF LATE REMITTANCE OF TDS. THEREFORE, AO MAY ALLOW THIS EXP ENDITURE AFTER VERIFICATION WHETHER THE INTEREST BELONGS TO DELAY IN REMITTANCE OF TDS. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 29. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2018. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 24 TH JANUARY, 2018 KV 19 ITA NO. 1878 & 1819/HYD/2013 M/S SKR CONSTRUCTIONS. COPY TO:- 1) M/S SKR CONSTRUCTIONS, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREE T NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) ACIT, ROOM NO. 245, 2D, SECOND FLOOR, IT TOWERS, AC GUARDS, MASAB TANK, HYD. 3) CIT(A) VI, HYD. 4) CIT 6, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE