M/s Paramount Construction Co., Hyderabad V. ITO, Ward 6(3), Hyderabad

ITA 194/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66153 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: A V RAGHURAM
• Section: 44AD; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 194/HYD/2011 ASSESSMENT YEAR: 2005-06 PARAMOUNT CONSTRUCTION CO. LTD., APPELLA NT HYDERABAD (PAN/GIR NO. AAHFP4998D/P-355) VS. INCOME-TAX OFFICER, WARD-6(3), RESPONDE NT HYDERABAD. APPELLANT BY : SHRI A.V. RAGHURAM RESPONDENT BY : SMT. AMISHA S. GUPT DATE OF HEARING : 26/07/2012 DATE OF PRONOUNCEMENT : 10/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-IV, HYDERABAD DT. 14/10/2010 FOR TH E ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUN AL WITH A DELAY OF 32 DAYS. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, WE CONDONE THE DELAY IN FILING THE APPEAL AND ADMIT THE SAME FOR ADJUDICATION. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN THE CONSTRUCTION OF FLATS. DURING THE COURSE OF ASSESSMENT ITA NO. 194/HYD/11 PARAMOUNT CONSTRUCTION CO. 2 PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASS ESSEE TO PRODUCE CERTAIN BASIC RECORDS. THE ASSESSING OFFICE R OBSERVED THAT AS PER PURCHASE RECORDS, STEEL HAD BEEN PURCHA SED ON 30 OCCASIONS AND CEMENT WAS PURCHASED ON 40 OCCASIONS AND HE FELT THAT IN VIEW OF THE SAME THE ASSESSEE WAS NOT RIGHT IN CONTENDING THAT THE PURCHASES WERE BEING MADE ON DAY TO DAY BA SIS. THE ASSESSING OFFICER WAS OF THE OPINION THAT IN THE AB SENCE OF BASIC RECORDS, THE BOOKS DID NOT REFLECT THE CORRECT STAT E OF AFFAIRS OF THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY, HE RE JECTED THE BOOKS OF ACCOUNT OF THE U/S 145 OF THE ACT AND ESTI MATED THE NET INCOME FROM BUSINESS AT 10% OF THE TOTAL RECEIPTS O F THE BUSINESS, ALLOWING PARTNERS REMUNERATION AND INTERE ST ON CAPITALS OF PARTNERS. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 5. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMIT TED THAT THE ASSESSEE HAD MAINTAINED THE BOOKS OF ACCOUNT TO MEE T THE REQUIREMENT OF THE BUSINESS ENTITY AND AS REQUIRED TO PROVE THE TRANSACTIONS COMPLETED/ENTERED BY THE BUSINESS ENTI TY. HE FURTHER AVERRED THAT THE ASSESSEE HAD MAINTAINED THE BASIC RECORDS LIKE CASH BOOK, BANK BOOK, JOURNAL AND GENERAL LEDGER ET C. IT WAS CLAIMED THAT ALL THE PURCHASES AND OTHER EXPENSES W ERE DULY RECORDED IN THE BOOKS SO MAINTAINED, INCLUDING THE LABOUR PAYMENTS MADE THROUGH VOUCHERS. WHEN THE CIT(A) ASK ED THE ASSESSEE TO EXPLAIN AS TO WHY IN VIEW OF THE FACTS OF THE CASE, THE INCOME OF THE ASSESSEE SHOULD NOT BE ESTIMATED AT 8 % OF THE TOTAL RECEIPTS, CLEAR OF ALL DEDUCTIONS AS HELD BY THE HO NBLE SPECIAL BENCH OF ITAT, INDORE IN THE CASE OF ARIHANT BUILDE RS DEVELOPERS AND INVESTORS P. LTD. VS. DCIT 106 ITD 10, THE AR O F THE ASSESSEE SUBMITTED THAT IN THE CASE OF ARIHANT BUILDERS(SUPR A), THE ITA NO. 194/HYD/11 PARAMOUNT CONSTRUCTION CO. 3 ASSESSEE HAD NOT SATISFIED THE ASSESSING OFFICER RE GARDING THE CORRECTNESS OF THE VOUCHERS FOR THE PURPOSE OF CLAI MING DEDUCTION ON ACCOUNT OF LABOUR CHARGES, CARTAGE CHARGES ETC. HE MAINTAINED IN THE ASSESSEES CASE, THE BOOKS HAVE BEEN VERIFIE D BY THE ASSESSING OFFICER. HE AVERRED THAT THE ASSESSING OF FICER HAS NEVER PROVED THAT THE PURCHASE/PAYMENT VOUCHERS WERE INCO RRECT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CI T(A) HELD AS UNDER:- 7.2 HAVING REJECTED THE BOOK RESULTS, THE ASSESSING OFFICER PROCEEDED TO ESTIMATE THE INCOME @10%, ALLOWING REMUNERATION TO PARTNERS AND INTEREST ON CAPITAL OF PARTNERS. HOWEVER, HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF INDWELL CONSTRUCTIONS VS. CIT (232 ITR 776) HAVE OP INED THAT ONCE AN ESTIMATION IS MADE, NO FURTHER DEDUCTI ONS HAVE TO BE ALLOWED. ON THE OTHER HAND, IT IS SEEN THAT T HE HONBLE SPECIAL BENCH OF ITAT, INDORE IN THE CASE OF ARIHAN T BUILDERS, DEVELOPERS AND INVESTORS P. LTD. HAVE OPI NED THAT THE RATE OF 8% IS TO BE APPLIED IN RESPECT OF GROSS RECEIPTS IN THE CASE OF CIVIL CONTRACTORS. ACCORDINGLY, I AM OF THE VIEW THAT IT WOULD BE APPROPRIATE TO ESTIMATE THE PROFIT S OF THE APPELLANT AT 8% OF THE GROSS RECEIPTS, CLEAR OF ALL DEDUCTIONS, WHICH WOULD WORK OUT TO RS. 9,19,440/-. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO RECOMPUT ED THE TOTAL INCOME OF THE APPELLANT ACCORDINGLY. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL:- 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOT H ON FACTS AND IN LAW IN SO FAR AS IT IS PREJUDICIAL TO THE ASSESSEE. 2. THE LEARNED CIT(A) ERRED IN DIRECTING NOT TO ALL OW DEDUCTION U/S 40(B) WHICH IS STATUTORY DEDUCTION, R ELYING ON THE DECISION OF AP HIGH COURT IN THE CASE OF INDWEL L CONSTRUCTION REPORTED IN 232 ITR 776 WHICH ACTUALLY RELATE TO THE PERIOD WHEN THERE WAS EMBARGO IN ALLOWING DE DUCTION PRIOR TO AMENDMENT OF PROVISION FOR ALLOWING DEDUCT ION. ITA NO. 194/HYD/11 PARAMOUNT CONSTRUCTION CO. 4 7. WE HAVE HEARD THE BOTH THE PARTIES. THE COORDINA TE BENCH OF THE TRIBUNAL IN THE CASE OF M/S SRINIVASA LAXMI CON STRUCTIONS IN ITA NO. 1347/HYD/2010 AND C.O. NO. 98/HY/2010 FOR A Y 2007-08 VIDE ORDER DATED 21/01/2011 WHEREIN IT WAS HELD AS UNDER:- 7. NOW COMING TO THE PAYMENT OF SALARY TO THE PARTN ER, PROVISO TO SECTION 44AD(2) CLEARLY SAYS THAT SALARY AND INTEREST PAID TO THE PARTNER SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB SECTION (1) OF S.44AD SUBJECT TO LIMITATION U/S 40(B) OF THE ACT. AS WE HAVE ALRE ADY OBSERVED THOUGH THERE WERE RESTRICTIONS WITH REGARD TO APPLICATION OF S.4 4AD WHEREVER THE TOTAL CONTRACT RECEIPTS EXCEED RS.40 LAKHS, W.E.F. 1.4.20 11 SUCH RESTRICTION WAS REMOVED BY THE LEGISLATURE. MOREOVER, THE CO-ORDINA TE BENCH OF THIS TRIBUNAL VIDE ORDER DATED 19.10.2007 IN THE CASE M. BHASKAR REDDY VS. ITO IN ITA NO.168/H/2006 HELD THAT AFTER TAKING A CLUE FROM SE CTION 44AD ESTIMATED THE PROFIT AT 8% OF THE CONTRACT RECEIPT. THEREFORE, BY TAKING CLUE FROM THE PROVISION OF S.44AD AS IS APPLICABLE FOR THE ASSESS MENT YEAR UNDER CONSIDERATION AND THE PROVISIONS WHICH WOULD COME I NTO OPERATION W.E.F. 1.4.2011, IN OUR OPINION, THE PAYMENT OF INTEREST A ND SALARY TO THE PARTNER SHALL BE ALLOWED SUBJECT TO LIMITATION SPECIFIED IN SECTION 40(B) OF THE ACT FROM THE ESTIMATED INCOME. 8. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTION VS. CIT ( 1998) (237 ITR 776). THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE THE JURI SDICTIONAL HIGH COURT WAS ASSESSMENT YEAR 1981-82. SEC. 44AD WAS INTRODUCED I N THE STATUTE BOOK W.E.F. 1.4.1994. THEREFORE, THE JURISDICTIONAL HIGH COURT HAD NO OCCASION TO CONSIDER THE PROVISIONS OF SECTION 44AD AS IT IS AP PLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND AS IT WOULD BE APPLICA BLE W.E.F. 1.4.2011. IN VIEW OF THE PROVISION OF SECTION 44AD AS IT IS APPL ICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE AMENDMENT MADE W.E .F. 1.4.2011 IT IS OBVIOUS THAT THE LEGISLATURE INTENDED TO ALLOW THE INTEREST AND SALARY SEPARATELY FROM THE ESTIMATED INCOME. THEREFORE, TH E JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTIONS (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE IN THIS CASE. A CCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SALARY PAID TO THE P ARTNER SUBJECT TO THE LIMITATION PROVIDED IN SECTION 40(B) OF THE ACT. 8. SINCE THE ISSUE IS IDENTICAL TO THAT OF M/S SRIN IVASA LAXMI CONSTRUCTIONS (SUPRA), RESPECTFULLY FOLLOWING THE S AME WE ALLOW THE APPEAL OF THE ASSESSEE. ITA NO. 194/HYD/11 PARAMOUNT CONSTRUCTION CO. 5 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 10 TH AUGUST, 2012. KV COPY TO:- 1) PARAMOUNT CONSTRUCTIONS CO. LTD., C/O AV RAGHURAM & K. VASANTKUMAR, ADVOCATE, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYD-1. 2) ITO, WARD-6(3), HYDERABAD 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.