B. Vishnu Vardhan Reddy, Kurnool V. ITO,Ward -1, Hyderabad

ITA 190/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6301 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Business income; Depreciation; Principle of natural justice; Rule of consistency
• Section: 143(3)

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 NOS. 190/HYD/2014 AND 414/HYD/2015 ASSESSMENT YEARS: 2009-10 & 2011-12 B. VISHNU VARDHAN REDDY, KURNOOL. PAN ACPPB 6801P VS. INCOME-TAX OFFICER, WARD 1, KURNOOL. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B. SATYANARAYANA MURTHY REVENUE BY : SHRI K.E. SUNIL BABU DATE OF HEARING 11-08-2016 DATE OF PRONOUNCEMENT 26-08-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS ARE PREFERRED BY THE ASSESSEE A GAINST SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCO ME-TAX(A) FOR AYS 2009-10 AND 2011-12. SINCE IDENTICAL ISSUES ARE INVOLVED, THESE APPEALS WERE CLUBBED AND HEARD TOGETHER, THEREFORE, WE FIND IT CONVENIENT TO DISPOSE OF THESE APPEALS BY WAY OF CO MMON ORDER. 2. ON PERUSAL OF RECORD, WE FIND THAT THERE IS A DE LAY OF TWO DAYS IN FILING THESE APPEALS. TO THIS EFFECT, THE ASSESS EE FILED A PETITION FOR CONDONATION OF SAID DELAY WHEREIN IT WAS STATED THA T AT THE RELEVANT POINT OF TIME THE ASSESSEE WAS OUT STATION, THEREFO RE, THERE IS A DELAY OF TWO DAYS. THE ASSESSEE ALSO FILED AN AFFIDAVIT A FFIRMING THE REASONS MENTIONED IN THE PETITION FOR CONDONATION OF DELAY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, WE CONDONE THE SAI D DELAY OF TWO DAYS AS HE IS PREVENTED BY SUFFICIENT CAUSE IN NOT FILING THE APPEALS 2 ITA NO. 190 /H/14 & 414/HYD/15 B. VISHNU VARDHAN REDDY WITHIN THE STIPULATED TIME AND ADMIT THE APPEALS FO R HEARING AND ADJUDICATION. 3. BRIEFLY THE FACTS OF THE CASE AS TAKEN FROM AY 2009-10 ARE THAT THE ASSESSEE, AN INDIVIDUAL, ENGAGED IN THE BUSINE SS OF CIVIL CONTRACTS ADMITTED A TOTAL INCOME OF RS. 33,23,390/ -. DURING THE ASSESSMENT PROCEEDINGS, THE AO ESTIMATED INCOME FRO M BUSINESS @ 8% OF THE GROSS CONTRACT RECEIPTS AT RS. 89,25,815/ - AND INCOME FROM OTHER SOURCES AT RS. 6,34,992/- AND ASSESSED THE TO TAL INCOME AT RS. 92,72,020/-. 3.1 AS REGARDS THE REJECTION OF BOOKS OF ACCOUNT AN D ESTIMATION OF INCOME AT 8% OF THE GROSS RECEIPTS, THE AO DIRECTED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT FOR VERIFICATION. THE ASSESSEE FAILED TO SUBMIT THE BOOKS OF A/C AS THE SAME HAD BEEN LOST I N FLOODS IN KURNOOL. SINCE THE ASSESSEE WAS NOT IN A POSITION T O PRODUCE HIS BOOKS OF ACCOUNT, THE AO ESTIMATED THE INCOME AT 8 % OF THE GROSS RECEIPTS FOLLOWING JUDICIAL PRONOUNCEMENTS AND ASSE SSED THE TOTAL INCOME AT RS. 89,25,815/-. 3.2 BEFORE THE AO, THE AR OF THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNT HAD BEEN AUDITED BY A CA U/S 44AB, THAT THE AO HAD NOT FOUND FAULT WITH THE CONTENTS OF THE AUDIT REPORT A ND THEREFORE THERE WAS NO QUESTION OF REJECTING THE BOOKS OF ACCOUNT W HEN THE BOOKS ITSELF HAD NOT BEEN PRODUCED. HE SUBMITTED THAT THE ESTIMATION OF INCOME SHOULD HAVE BEEN MADE ON THE BASIS OF THE PA ST RESULT OF THE ASSESSEE AND THAT THE AO HAD NOT CITED ANY COMPARAB LE CASE FOR ADOPTING THE RATE AT 8%. 3.3 THE AR OF THE ASSESSEE SUBMITTED THAT THE AO SH OULD HAVE ALLOWED DEDUCTION FOR THE FOLLOWING AMOUNTS FROM TH E GROSS RECEIPTS: 1. BLASTING CHARGES, 2. LABOUR WELFARE, 3. SEIGINO RAGE CHARGES, 4. QUALITY CONTROL RECOVERY, 5. OTHER RECOVERIES-S ECURITY DEPOSITS ETC., 6. MATERIALS, 7. NAC, 8. CESS, 9. V AT AND 10. DEPRECIATION. 3 ITA NO. 190 /H/14 & 414/HYD/15 B. VISHNU VARDHAN REDDY 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) UPHELD THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT OF ASSESSEE AND ESTIMATION OF INCOME AT 8% FOLLOWING V ARIOUS DECISIONS OF THE COORDINATE BENCHES OF HYDERABAD. 5. AS FAR AS THE DEDUCTION OF THE ITEMS FROM THE T URNOVER FOR THE PURPOSE OF INCOME, THE CIT(A) DIRECTED THE AO TO RE DUCE VAT AND SEIGNIORAGE CHARGES FROM THE TURNOVER OF THE ASSESS EE. HE UPHELD THE ESTIMATION OF INCOME AT RS. 89,25,815/- BY THE AO. 6. AS REGARDS THE ADDITIONAL GROUND RAISED BEFORE T HE CIT(A) RELATES TO THE ASSESSMENT OF A SUM OF RS. 6,34,992 AS INCOME FROM OTHER SOURCES, THE AR HAS SUBMITTED THAT THE APPELL ANT GOT ALL HIS EARNINGS FROM THE BUSINESS CARRIED ON BY HIM AS DEP OSITS IN VARIOUS BANKS ON WHICH INTEREST WAS EARNED AND WAS RETURNED AS INCOME FROM OTHER SOURCES. THE AR HAS FURTHER SUBMITTED THAT TH E APPELLANT HAD ALSO PAID INTEREST OF RS.10,83,503 ON THE AMOUNTS B ORROWED ON PLEDGE OF THESE FIXED DEPOSITS, AND THE BORROWED AM OUNTS WERE UTILIZED FOR THE BUSINESS OF THE APPELLANT, AND THE INTEREST CLAIMED AS A DEDUCTION U/S 36(1)(III). THE AR SUBMITTED THAT T HE ACCRUED INTEREST WAS NOT BROUGHT INTO THE BOOKS AND WAS BEING ACCOUN TED FOR EITHER WHEN IT WAS ADJUSTED BY THE BANK TO THE ACCOUNT OF THE APPELLANT OR AT THE MATURITY OF THE FDS, THAT THE RETURNING OF THE INTEREST AS INCOME FROM THE OTHER SOURCES WAS AN INADVERTENT ERROR AND THAT THE INTEREST PAID TO THE BANK SHOULD BE ALLOWED TO BE SET-OFF AG AINST THE INTEREST RECEIPTS UNDER THE HEAD PROFITS OF BUSINESS. 7. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING ON CASE LAWS, CONFIRMED THE ADDITION MA DE BY THE AO BY OBSERVING THAT DEPOSITING OF SURPLUS FUNDS IN FDS C ANNOT BE SAID TO HAVE AN INTRICATE NEXUS WITH THE BUSINESS OF THE AS SESSEE AND THE INTEREST FROM THESE FDS WAS RIGHTLY ASSESSED AS INC OME FROM OTHER SOURCES FOLLOWING DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. 4 ITA NO. 190 /H/14 & 414/HYD/15 B. VISHNU VARDHAN REDDY 8. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US R AISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDERS OF THE COMMISSIONER OF INCOME-TAX, (A PPEALS)-IV, ARE ERRONEOUS BOTH IN LAW AND ON FACTS. 2. THE COMMISSIONER OF INCOME-TAX, (APPEALS)-IV, FA ILED TO CONSIDER THE BASIC PRINCIPLES OF NATURAL JUSTICE WH ILE PASSING THE ORDER. 3. THE COMMISSIONER OF INCOME-TAX, (APPEALS)-IV, SH OULD HAVE SEEN THAT THE NET AMOUNT RECEIVED BY THE ASSESSEE A FTER DEDUCTIONS MADE BY THE GOVERNMENT IS TO BE TAKEN FO R ESTIMATING THE INCOME. 4. THE COMMISSIONER OF INCOME-TAX, (APPEALS)-IV, NO T JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WITHO UT CONSIDERING THE FACT THAT NO COMPARATIVE CASES WERE PROVIDED TO THE ASSESSEE WHILE ESTIMATING THE INCOME @ 8%. 5. THE COMMISSIONER OF INCOME-TAX, (APPEALS)-IV, FA ILED TO CONSIDER THAT THE PAST HISTORY OF THE ASSESSEE SHOU LD BE TAKEN WHILE ESTIMATING THE INCOME. 6. WHEN NET INCOME WAS ASSESSED BETWEEN 5% AND 6% D URING PREVIOUS YEARS U/S 143(3) IN THE ASSESSEE'S OWN CAS E, THE COMMISSIONER OF INCOME-TAX, (APPEAL)-IV, IS NOT JUS TIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER FOR E STIMATING THE INCOME OF THE ASSESSEE AT 8%. 7. THE COMMISSIONER OF INCOME-TAX, (APPEALS)-IV, IS NOT JUSTIFIED IN DENYING THE CLAIM OF DEPRECIATION WHEN THE CBDT CIRCULAR AND DETAILS OF DEPRECIATION WERE PRODUCED. 8. THE COMMISSIONER OF INCOME-TAX, (APPEALS)-IV, SH OULD HAVE SEEN THAT THE BOARD CIRCULAR ARE BINDING ON THE ASS ESSING OFFICER AND SHOULD HAVE GIVEN DIRECTIONS TO ASSESSING OFFIC ER TO CONSIDER THE DEPRECIATION. 9. THE COMMISSIONER OF INCOME-TAX. (APPEALS)-IV, WA S IN ERROR IN HOLDING THAT THE INTEREST EARNED ON FIXED DEPOSITS IN ASSESSABLE UNDER OTHER SOURCES. THE ASSESSEE ALSO FILED A PETITION FOR RAISING THE FOLLOWING ADDITIONAL GROUND: 5 ITA NO. 190 /H/14 & 414/HYD/15 B. VISHNU VARDHAN REDDY THE LOWER AUTHORITIES SHOULD HAVE ALLOWED THE INTER EST COSTS OF RS. 10,83,503/- FROM THE INCOME ESTIMATED. 9. AS REGARDS THE ESTIMATION OF INCOME AT 8%, THE C ONTENTION OF THE LD AR OF THE ASSESSEE IS THAT WHEN THE NET INCO ME WAS ASSESSED BETWEEN 5% AND 6% DURING PREVIOUS YEARS U/S 143(3) IN THE ASSESSEES OWN CASE, THE REVENUE AUTHORITIES WERE N OT JUSTIFIED IN ESTIMATING THE INCOME OF THE ASSESSEE AT 8%. IN THI S CONNECTION, THE AR OF THE ASSESSEE INVITED OUR ATTENTION TO THE COM PARATIVE STATEMENT OF GROSS BILLS TO BUSINESS INCOME FROM AY 2003-04 T O 2008-09,(REFER PAGE 39 OF THE PAPER BOOK) WHEREIN THE AVERAGE BUSI NESS INCOME OF GROSS BILLS COMES TO 5.28%. FOR AY 2009-10 IT COMES TO 2.67%. IN VIEW OF THESE FACTS AND SINCE THE NET INCOME WAS AS SESSED BETWEEN 5% AND 6% DURING PREVIOUS YEARS U/S 143(3) AND IN T HE YEAR UNDER CONSIDERATION THE PERCENTAGE IS 2.67%, WE DIRECT TH E AO TO ESTIMATE THE INCOME OF THE ASSESSEE AT 6% NET OF ALL DEDUCTI ONS AS THE DEPARTMENT ALL ALONG ACCEPTED THE RETURN OF INCOME FILED BY THE ASSESSEE AND ACCEPTED THE PROFIT IN THE RANGE OF 5- 6%. FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE DIRECT THE AO TO ESTIM ATE THE INCOME OF THE ASSESSEE @ 6% NET OF ALL DEDUCTIONS. THIS GROUN D IS PARTLY ALLOWED. 10. WITH REGARD TO GROUND NO. 3, DEDUCTIONS TO BE A LLOWED IN GROSS RECEIPTS, LD. AR RELIED ON THE CASE LAWS (SUBMITTED IN PAGES 41,47 & 57 OF PAPER BOOK) AND SUBMITTED THAT THE GOVT. DUES SHOULD BE REDUCED FROM THE TURNOVER BEFORE ESTIMATING THE INC OME. ON CAREFUL READING OF THE CASE LAWS RELIED ON BY THE LD. AR, W E FIND THAT THEY ARE RELATING TO RETENTION MONEY. IN THE GIVEN CASE, THE RE IS NO RETENTION MONEY INVOLVED WHEREAS THERE ARE SECURITY DEPOSITS, WHICH ARE NOT PART OF DEDUCTIONS. WE FIND THAT THERE ARE EXPENSES LIKE SENIORAGE AND VAT ARE DEDUCTIBLE EXPENDITURE AS THEY ARE GOVT . DUES AND ALL OTHER EXPENSES ARE NOT FALLING UNDER GOVT. DUES. TH E GOVT. DUES ARE ALLOWABLE EXPENDITURE AS PER THE COORDINATE BENCH D ECISION IN CASE OF SHRI GUTTA HANUMANDLU, ITA NO. 928/HYD/2011. ACCORD INGLY, WE 6 ITA NO. 190 /H/14 & 414/HYD/15 B. VISHNU VARDHAN REDDY DIRECT THE AO TO ALLOW DEDUCTION OF SENIORAGE CHARG ES AND VAT FROM THE GROSS TURNOVER. 11. AS REGARDS THE ADDITION OF RS. 6,34,992/- TOWAR DS INCOME FROM OTHER SOURCES, WHICH HAS BEEN RECEIVED TOWARDS INTE REST ON FDS, AND INTEREST PAID OF RS. 10,83,503/- ON THE AMOUNTS BOR ROWED ON PLEDGE OF THE FDS (RAISED AS ADDITIONAL GROUND), IT IS OBS ERVED THAT REVENUE AUTHORITIES MADE THIS ADDITION ON THE GROUND THAT T HERE IS NO NEXUS BETWEEN THE FDS AND BUSINESS OF THE ASSESSEE. BEFO RE US ALSO, THE AR OF THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BE TWEEN THE FDS AND HIS BUSINESS, THEREFORE, WE CONFIRM THE ADDITION MA DE BY THE REVENUE AUTHORITIES. 12. AS THE FACTS AND GROUNDS ARE MATERIALLY IDENTIC AL IN AY 2011-12 IN ITA NO. 414/HYD/2015, FOLLOWING THE CONCLUSIONS DRAWN THEREIN, GROUND NOS. 1 TO 9 REGARDING ESTIMATION OF INCOME, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME AT 6% NET OF ALL DEDUCTIONS. THESE GROUNDS ARE PARTLY ALLOWED. AS REGARDS, THE G ROUND NOS. 10 & 11 REGARDING ADDITION ON ACCOUNT OF INTEREST ON FIX ED DEPOSITS AS INCOME FROM OTHER SOURCES, THIS ISSUE IS DECIDED A GAINST THE ASSESSEE. 13. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED:26 TH AUGUST, 2016 KV 7 ITA NO. 190 /H/14 & 414/HYD/15 B. VISHNU VARDHAN REDDY COPY TO:- 1) SHRI B. VISHNU VARDHAN REDDY, H.NO. 40/814-9, SR INIVASA NAGAR, KURNOOL. 2) ITO, WARD-1, KURNOOL. 3) CIT(A) - IV, HYDERABAD 4 CIT - III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.