Shri NAtesh Subramanya Jayaram , Kodagu V. Income TAx Officer Ward-1 , Madikeri

ITA 1953/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7239 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 03-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 142(1)

Judgement Text

ITA.1953/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL MEMBER I.T.A NO.1953/BANG/2017 (ASSESSMENT YEAR : 2011-12) SHRI. NATESH SUBRAMANYA JAYARAM, PWD CONTRACTOR, D NO.X/1721 M D BLOCK, SOMWARPET, KODAGU DISTRICT - 571 236 .. APPELL ANT PAN : AFEPJ2909J V. INCOME-TAX OFFICER, WARD 1, MADIKERI .. RESPONDENT ASSESSEE BY : SHRI. SANDEEP C, ADVOCATE REVENUE BY : SHRI. PADMAMEENAKSHI, JCIT HEARD ON : 09.11.2017 PRONOUNCED ON : 17.11.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT (A), MYSURU, DT.28.02.2017, FOR THE ASSESSM ENT YEAR 2011-12, ON THE FOLLOWING GROUNDS : ITA.1953/BANG/2017 PAGE - 2 2. THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN ADDING A SUM OF RS.42,33,642 AS INCOME. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITIO N OF RS.42,33,642 AS INCOME WITHOUT CONSIDERING THAT THE MATERIAL COST AND OVERHEADS WILL BE INCLUDED IN THE GROSS AM OUNT. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) OUGHT TO HAVE HELD THAT ONLY THE NET PROFIT OUT OF THE ABOVE SUM SHOULD BE CONSIDERED AS INCOME AND NOT THE TOTAL AM OUNT RECEIVED. 02. BRIEF FACTS ARE, THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF EXECUTING PUBLIC CIVIL WORKS AWARDED ON CONTRACT BASIS BY THE PUBLIC WORKS DEPARTMENT OF THE GOVERNMENT OF KA RNATAKA. THE ASSESSEE FILED A RETURN OF INCOME ON 01.10.2011 DEC LARING TOTAL INCOME OF RS.7,24,400/-. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICES US.143(2) AND 142(1) WERE ISSUED, IN RESPON SE TO WHICH ASSESSEE FILED CERTAIN INFORMATION. IT WAS RECORDE D BY THE AO THAT A SUM OF RS.45,33,494/- WAS RECEIVED FROM THE GOVERNM ENT DEPARTMENTS BUT WAS NOT DECLARED BY THE ASSESSEE AS INCOME. THE DETAILS OF THE AMOUNTS RECEIVED FROM VARIOUS GOVERN MENT DEPARTMENTS ARE AS UNDER : SL NO NAME OF THE GOVT. DEPARTMENT AMOUNT IN RS. 1 EXECUTIVE ENGINEER, WP & IWTD SPL DIVISION, HUNSUR 25,43,404 2 CHIEF OFFICER, TALUK PANCHAYAT, SOMAWARPET 15,84, 090 3 FINANCE CONTROLLER, MADB, MAINADA SIRI, B H ROAD, SHIMOGA 4,06,000 TOTAL 45,33,494 ITA.1953/BANG/2017 PAGE - 3 IT WAS THE CASE OF THE ASSESSEE THAT THE AO CANNOT MAKE THE ADDITION OF THE WHOLE OF THE AMOUNT RECEIVED BY THE ASSESSEE WA S NOT THE PROFIT, BUT WAS TOWARDS COMPENSATION OR THE SERVICES RENDER ED, MATERIAL UTILISED ETC., AND THEREFORE ONLY PART OF THE AMOUN T CAN BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF ARRIVING AT GROSS PROFIT OF THE ASSESSEE. IT WAS THE CASE OF THE ASSESSEE BEFORE U S AND BEFORE THE LOWER AUTHORITIES THAT THE AMOUNT RECEIVED BY THE A SSESSEE FROM THE GOVERNMENT DEPARTMENT INCLUDED THE MATERIAL COST, S TATUTORY DEDUCTIONS, OVERHEADS ETC., AND THEREFORE CORRESPO NDING EXPENDITURE ALSO TO BE TAKEN INTO ACCOUNT AND ONLY THE PROFITS HAVE TO BE CONSIDERED AS INCOME. OUR ATTENTION WAS DRAWN BY T HE LD. AR, TO THE GP RATE FOR THE FY 2009-10 AS 7.6% AND FOR THE SUBS EQUENT FY 2011- 12 AT 10.30%. 03. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE ORDER PASSED BY THE AO IS REQUIRED TO BE MODIFIED TO THE EXTENT THE NECESSARY CORRECTION OF GP ADDITION BE MADE BASED ON THE PR OFIT DERIVED ON SUCH SUPPRESSED RECEIPT FOR DOING THE CONTRACTOR WO RKS . 04. ON THE OTHER HAND, THE LD. DR RELIES UPON THE O RDER PASSED BY THE AUTHORITIES BELOW. 05. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL. IT IS AN ADMITTED CASE OF THE ASSESSEE BEFORE US THAT THE ASSESSEE IS A GOVERNMENT CONTRACTOR. IT IS ALSO THE ADMITTED CAS E OF THE PARTIES BEFORE US THAT THE AMOUNT OF RS.45,33,494/- WAS REC EIVED BY THE ASSESSEE ON ACCOUNT OF DISCHARGING OF HIS CONTRACTU AL DUTIES UNDER THE ITA.1953/BANG/2017 PAGE - 4 CONTRACT AWARDED TO HIM BY VARIOUS GOVERNMENT DEPAR TMENTS. IN OUR VIEW, THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE FR OM THE GOVERNMENT DEPARTMENTS CANNOT BE CONSIDERED AS A PROFIT OF THE WORK DISCHARGED BY THE ASSESSEE UNDER THE CONTRACT. UNDOUBTEDLY TH E AMOUNT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT DEPARTMENTS WOU LD DEFINITELY INCLUDE THE ELEMENT OF PROFIT ALONG WITH THE MATERI AL COST, STATUTORY DEDUCTIONS, OVERHEADS ETC., THEREFORE THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT (A) FOR THE WHOLE AMOUNT O F RS.45,33,494/- CANNOT BE SUSTAINED AND ONLY A REASONABLE AMOUNT CA N BE CONSIDERED AS A PROFIT FOR THE PURPOSES OF ARRIVED AT THE GP A DDITION. 06. IN THE EARLIER YEARS, THE GP RATE MADE WAS 7.6% AND IN THE SUBSEQUENT YEAR THE GP RATE SHOWN BY THE ASSESSEE W AS 10.30%. BOTH THE GP RATES ARE FAR BELOW THE GP RATE SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THOUGH THE GROSS TUR NOVER FOR BOTH THE ASSESSMENT YEARS PRIOR AND AFTER WERE MUCH MORE, BU T NONETHELESS, CONSIDERING THE TOTALITY OF THE CIRCUMSTANCES AND A S AGREED BY THE LD. AR AT THE TIME OF HEARING THAT IF THE GP RATE IS FI XED AT 15% THAT WILL BE IN THE INTEREST OF JUSTICE TO BOTH THE PARTIES. AS THERE IS NO MECHANISM TO CALCULATE THE PROFIT EARNED BY THE ASS ESSEE ON THE AMOUNT RECEIVED BY THE ASSESSEE PURSUANT TO THE CON TRACT WORK, THEREFORE WE HAVE TO UNDERTAKE A GUESS WORK TO ARRI VE AT GP AND ACCORDINGLY, WE HAVE NO HESITATION TO DIRECT THE AO TO TAKE 15% AS GP RATE INSTEAD OF ADDING THE WHOLE AMOUNT TO THE INCO ME OF THE ASSESSEE. NEEDLESS TO SAY IF THE WHOLE AMOUNT OF RS.45,33,494 /- IS ADDED TO THE INCOME OF THE ASSESSEE THEN GP RATE WOULD BE 29.29% . IN THE BUSINESS ITA.1953/BANG/2017 PAGE - 5 IN WHICH THE ASSESSEE IS ENGAGED, IT WILL BE PREPOS TEROUS TO CONSIDER THE GP RATE AT 29.29%, AS NO CONTRACTOR CAN WORK AT THE RATE OF 29.29%. ACCORDINGLY THE ADDITION MADE BY THE AO TO THE TUNE OF RS.45,33,494/- IS WITHOUT ANY MERIT. THEREFORE, WE HOLD THAT THE GP RATE SHOULD BE TAKEN AT 15% INSTEAD OF 29.29% OR 10 .63%. 07. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF NOVEMBER, 2017. SD/- SD/- (A. K. GARODIA) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 17.11.2017 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY