M/s Lotus Constructions, Kakinada V. The ITO, Ward-1, Kakinada

ITA 201/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56813 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B B RAJENDRA PRASAD
• Assessee Lawyers: P PRABHAKARA MURTHY
• Keywords: Set aside
• Section: 44AD; 143(3); 263; 63

Judgement Text

ITA NO201/VIZ/2011 LOTUS CONSTRUCTIONS, KAKINADA. 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 201 /VIZAG/ 20 11 ASSESSMENT YEAR : 2006 - 07 LOTUS CONSTRUCTION S KAKINADA VS. ITO WARD - 1 KAKINADA (APPELLANT) (RESPONDENT) PAN NO.AACFL 4544N APPELLANT BY: SHRI P. PRABHAKARA MURTHY, ADVOCATE RESPONDENT BY: SHRI B.B. RAJENDRA PRASAD, DR DATE OF HEAR I NG: 07.07.2011 DATE OF PRONOUNCEMENT: 29 .08.2011 ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT PASSED U/S 263 OF THE INCOME-TAX ACT (HEREINAFTER C ALLED AS AN ACT) SETTING ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO MAKE THE ASSESSMENT DE-NOVO AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEES HAVING OBSERVED THAT THE ASSESSMENT ORDER IS ERRONE OUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND EXECUTION OF CIVIL, ELECTRICAL AND MECHANICAL WORKS. IT FILE D ITS RETURN OF INCOME DISCLOSING THE TOTAL INCOME AT ` 3,34,000/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT U/S 143(3) OF THE ACT W AS COMPLETED DETERMINING THE TOTAL INCOME AT ` 5,77,125/- AFTER ALLOWING REMUNERATION AND INTEREST ON ESTIMATED INCOME @ 6% OF THE CONTRACT R ECEIPTS. THE ASSESSMENT ORDER WAS TAKEN UP FOR SCRUTINY BY THE CIT AND HE F ORMED A VIEW THAT ORDER ITA NO201/VIZ/2011 LOTUS CONSTRUCTIONS, KAKINADA. 2 OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE FOR FOLLOWING REASONS AND ISSUED A SHOW CAU SE NOTICE:- I. ALLOWING INTEREST AND REMUNERATION PAID TO PARTNERS AFTER ESTIMATING THE NET PROFIT AT 6% OF THE RECEIPTS. II. ESTIMATION @ 6% NOT BASED ON SOUND PRINCIPLES. III. NO PENALTY PROCEEDINGS WERE INITIATED. IV. MATERIAL PURCHASES NOT ENQUIRED INTO. V. REASONS FOR LOW PROFIT NOT ANALYSED. VI. SOURCES FOR INTRODUCTION OF CAPITAL BY PARTNERS/FIR M NOT VERIFIED. VII. THE GENUINENESS OF SUNDRY CREDITORS NOT EXAMINED. 3. THE ASSESSEE FILED A DETAILED REPLY TO THE SHOW CAUSE NOTICE WITH THE SUBMISSION THAT DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER HAS ISSUED THE NOTICES AND THE QUESTIONNAIR ES WHICH WERE DULY REPLIED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. THE ASSESSING OFFICER HAS EXAMINED THE REPLY FURNISHED BY THE ASS ESSEE. HE HOWEVER WAS OF THE VIEW THAT THE BILLS AND VOUCHERS MAINTAINED BY THE ASSESSEES ARE NON- VERIFIABLE IN NATURE. HE ACCORDINGLY ESTIMATED THE INCOME @ 6% OF THE NET CONTRACT RECEIPT BEFORE DEDUCTION OF REMUNERATIONS TO PARTNERS AND INTEREST ON CAPITALS, RESULTING INTO ADDITION OF ` 2,43,129/-. THE DETAILED REPLY FURNISHED BY THE ASSESSEE WAS EXAMINED BY THE CIT B UT WAS NOT CONVINCED WITH IT. HE ACCORDINGLY, SET ASIDE THE ASSESSMENT ORDER. 4. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSIO N THAT ONCE THE ASSESSING OFFICER HAS APPLIED HIS MIND TO THE ISSUE S IN DISPUTE AND HAS TAKEN A PARTICULAR VIEW, THE ASSESSMENT ORDER CANNOT BE CAL LED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ONLY FOR THE REASONS THAT CIT DOES NOT CONSIDER THE ESTIMATION MADE BY THE A.O. AS REA SONABLE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER PLACED A RELIANCE UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. D. PURUSHOTHAM RED DY & COMPANY IN ITA NO.465/VIZAG/2004 IN WHICH THE ASSESSEE IS A CIVIL CONTRACTOR AND THE ESTIMATION OF INCOME @ 7.62% OF THE GROSS RECEIPTS WAS CONSIDERED TO BE REASONABLE. HE HAS ALSO PLACED A RELIANCE UPON THE NATURE OF ORDER OF THE TRIBUNAL IN THE CASE OF MOOKAMBICA CONSTRUCTIONS VS . CIT ITA NO.25/VIZAG/2009 IN WHICH THE NET INCOME WAS ESTIMA TED @ 2% OF THE GROSS ITA NO201/VIZ/2011 LOTUS CONSTRUCTIONS, KAKINADA. 3 CONTRACT RECEIPT AND THE ORDER WAS REVISED BY THE C IT U/S 263 OF THE ACT. WHILE KNOCKING DOWN THE ORDER OF THE CIT, THE TRIBU NAL HAS OBSERVED THAT ONCE THE ASSESSING OFFICER HAS APPLIED HIS MIND TO THE DETAILED INFORMATION FURNISHED BEFORE HIM AND ESTIMATED THE PROFIT AT A PARTICULAR PERCENTAGE, THE ASSESSMENT ORDER CANNOT BE REVISED BY THE CIT U/S 2 63 ONLY FOR THE REASONS THAT THE ESTIMATION MADE BY THE ASSESSING OFFICER W AS NOT CONSIDERED TO BE REASONABLE BY THE CIT. COPY OF THE ORDERS OF THE T RIBUNALS ARE PLACED ON RECORD. HE HAS ALSO PLACED A RELIANCE UPON THE JUD GEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIAL INDIA LIM ITED 203 ITR 108 IN SUPPORT OF HIS CONTENTION THAT IN ORDER TO EXERCISE JURISDICTION U/S 263 THE COMMISSIONER MUST HAVE MATERIAL TO PRIMA FACIE COME TO CONCLUSION THAT ORDER OF THE ITO IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEAV Y RELIANCE UPON THE ORDER OF THE CIT. HE HOWEVER, HAS ALSO CONTENDED T HAT AFTER REJECTING THE BOOKS OF ACCOUNTS IN CASE OF A CIVIL CONTRACTOR, TH E PROFIT IS TO BE ESTIMATED IN THE LIGHT OF PROVISIONS OF SECTION 44AD OF THE ACT. BUT THE ASSESSING OFFICER DID NOT DO THE SAME AND HAS ESTIMATED THE PROFIT @ 6% OF THE GROSS RECEIPT WITHOUT ANY BASIS. 6. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE R IVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF ORDERS OF THE LOWER AUTHO RITIES, WE FIND THAT WHILE SETTING ASIDE THE ORDER OF THE A.O., THE CIT HAS EX AMINED THE VARIOUS INDIVIDUAL ISSUES IN HIS ORDER PASSED U/S 263 OF TH E ACT. WE HAVE ALSO NOTICED FROM THE MATERIAL AVAILABLE ON RECORD THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HAS ISSUED THE NOTICES AS WEL L AS THE QUESTIONNAIRES WHICH WERE DULY REPLIED BY THE ASSESSEES. THE REPL Y FURNISHED BY THE ASSESSEE IN THE SHAPE OF PAPER BOOK IS AVAILABLE ON RECORD AT PG.NO.8 TO 23 OF THE COMPILATION AND FROM A CAREFUL PERUSAL OF THIS DOCUMENT, WE FIND THAT ASSESSEE HAS FURNISHED THE DETAILED INFORMATIONS BE FORE THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE MA INTENANCE OF THE BOOKS OF ACCOUNTS AND HE REJECTED THE SAME AND ESTIMATED THE NET INCOME @ 6% ITA NO201/VIZ/2011 LOTUS CONSTRUCTIONS, KAKINADA. 4 BEFORE DEDUCTION OF REMUNERATION TO PARTNERS AND IN TEREST ON CAPITALS. ONCE THE BOOKS OF ACCOUNTS ARE REJECTED, THE ASSESSING O FFICER CANNOT EXAMINE THE INDIVIDUAL ISSUES ON THE BASIS OF DIFFERENT ENTRIES IN THE BOOKS OF ACCOUNTS. WHEREAS, CIT HAS TRIED TO ADJUDICATE THE INDIVIDUAL ISSUES IN HIS ORDER. NOW THE QUESTION ARISE WHETHER THE ESTIMATION MADE BY T HE A.O. AFTER REJECTING THE BOOKS OF ACCOUNTS @ 6% OF NET CONTRACT RECEIPT BEFORE DEDUCTION OF REMUNERATION TO PARTNERS AND INTEREST ON CAPITALS I S REASONABLE OR NOT. THE REASONABLENESS CANNOT BE EXAMINED BY THE CIT HAVING INVOKED ITS JURISDICTION U/S 263 OF THE ACT. IT IS A SETTLED POSITION OF LA W THAT ONCE THE ASSESSING OFFICER HAS DULY APPLIED HIS MIND AND FRAMED THE AS SESSMENT AFTER ESTIMATING THE INCOME, THE ORDER OF THE ASSESSING OFFICER CANN OT BE REVISED ONLY FOR THE REASONS THAT THE ESTIMATION MADE BY THE A.O. DOES N OT APPEAR TO BE REASONABLE BY THE CIT. SO FAR AS ESTIMATION OF PRO FIT AS PER PROVISION OF SECTION 44AD IS CONCERNED, WE ARE OF THE VIEW THAT SECTION 44AD CAN ONLY BE INVOKED WHERE THE GROSS RECEIPTS ARE LESS THAN ` 40 LAKHS. IF IT IS MORE THAN ` 40 LAKHS, THE PROVISIONS OF SECTION 44AD CANNOT BE INVOKED NOR IT CAN BE TAKEN AS A GUIDING FACTOR TO ESTIMATE THE INCOME OF THE ASSESSEES. WE HAVE ALSO EXAMINED THE ORDERS OF THE TRIBUNALS REFERRED TO BY THE ASSESSEES AND WE FIND THAT IN CASE OF DCIT VS. D. PURUSHOTTAM RED DY AND COMPANY (SUPRA) IN REGULAR APPEAL, THE TRIBUNAL HAS CONSIDERED THE ESTIMATE @ 7.62% AS REASONABLE BEFORE ALLOWING DEDUCTION OF DEPRECIATIO N ON PAYMENT MADE TO PARTNERS. IN THE OTHER CASE, NOOKAMBICA CONSTRUCTI ONS, THE TRIBUNAL HAVE ALSO REITERATED THE SAME VIEW THAT ONCE THE ESTIMAT ION IS MADE BY THE A.O. AFTER HIS DUE APPLICATION OF MIND, THE ASSESSMENT O RDER CANNOT BE CALLED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE ONLY FOR THE SIMPLE REASON THAT THE ESTIMATION MADE BY THE A.O. IS NOT ACCEPTABLE TO CIT. 7. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CI RCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS FRAMED THE ASSESSMENT AFTER MAKING A NECESSARY VERIFICATION AN D ENQUIRIES. THEREFORE, THE ASSESSMENT ORDER FRAMED BY HIM ESTIMATING THE I NCOME @ 6% OF THE CONTRACT RECEIPTS CANNOT BE CALLED TO BE ERRONEOUS AND PREJUDICIAL TO THE ITA NO201/VIZ/2011 LOTUS CONSTRUCTIONS, KAKINADA. 5 INTEREST OF THE REVENUE. WE THEREFORE, FIND NO MER IT IN THE ORDER OF THE CIT AND WE ACCORDINGLY SET ASIDE THE SAME. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29.8.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 29 TH AUGUST, 2011 COPY TO 1 LOTUS CONSTRUCTIONS, D.NO.9 - 61/1, RAMANAYYA PE TA, KAKINADA - 533 005, EAST GODAVARI DISTRICT, A.P. 2 ITO, WARD - 1, KAKINADA 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM