THE DCIT, CIRCLE - 2(1), Vijayawada V. Sri Vallabaneni Venkateswara Rao, Vijayawada

ITA 207/VIZ/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1098 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI
• Keywords: Rejection of books of accounts; Depreciation
• Section: 145

Judgement Text

ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.207/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) DCIT, CIRCLE - 2(1), VIJAYAWADA VS. SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA [PAN: AAYPV7501M ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI K. RAVI, DR / RESPONDENT BY : SHRI C. SUBRA HMANYAM, AR / DATE OF HEARING : 24.05.2016 / DATE OF PRONOUNCEMENT : 10.06.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A), VIJAYAWADA DATED 1.1.2013 AND IT PERTAINS T O THE ASSESSMENT YEAR 2009-10. ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF EXECUTION OF WORKS CONTR ACT FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 30.9.2 009 DECLARING TOTAL INCOME OF RS.2,38,16,223/-. THE RETURN WAS PROCESSE D U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED AS THE AC T) ON 17.1.2011. SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTI NY AND ACCORDINGLY, NOTICE U/S 143(2) OF THE ACT DATED 19.8.2010 WAS IS SUED. IN RESPONSE TO THE NOTICE, THE AUTHORIZED REPRESENTATIVE OF THE AS SESSEE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF ACCOUNTS, BILLS & VOUCHERS AND OTHER INFORMATION CALLED FOR. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE A.O. NOTICED THAT MOST OF THE EXPENDITURE DEBIT ED TO P&L ACCOUNT LIKE MATERIAL PURCHASE AND LABOUR CHARGERS ARE SUPP ORTED BY SELF MADE VOUCHERS. IT WAS FURTHER OBSERVED THAT THE VOUCHER S DID NOT CONTAIN THE ESSENTIAL DETAILS REGARDING THE ADDRESS OF THE PAYE E, THE QUANTUM OF WORK DONE OR SERVICES RENDERED, THE RATE PER UNIT O F TIME/WORK, ETC. TO FACILITATE THE CROSS VERIFICATION OF THE GENUINENES S OF THE EXPENDITURE OR THE REASONABLENESS OF THE QUANTUM OF EXPENDITURE WI TH REFERENCE TO THE EXTENT OF WORK DONE. IN THE LIGHT OF THE ABOVE DEF ICIENCIES AND ALSO CONSIDERING THE LOW NET PROFIT ADMITTED BY THE ASSE SSEE, THE A.O. ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY THE BO OKS OF ACCOUNTS SHALL NOT BE REJECTED UNDER THE PROVISIONS OF SECTI ON 145 OF THE ACT AND ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 3 INCOME FROM THE BUSINESS SHALL NOT BE ESTIMATED. I N RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT HE HAD CA RRIED OUT WORK AT VARIOUS PLACES AND MATERIAL REQUIRED FOR COMPLETING THE WORK WERE OBTAINED FROM VARIOUS PERSONS RESIDING IN THOSE PLA CES FOR REASONS OF EXPEDIENCY IN REASONABLE TERMS. THE EXPENDITURE SH OWN UNDER DIFFERENT HEADS CLAIMED ARE GENUINE IN NATURE AND INCURRED FO R EARNING THE INCOME. ALL THE EXPENDITURE IS SUPPORTED BY PROPER VOUCHERS, HOWEVER, IN FEW EXPENSES LIKE LABOUR AND OTHER LIKE CHARGES, THE EXPENDITURE IS SUPPORTED BY SELF MADE VOUCHERS, BECAUSE HE HAD MAD E THE PAYMENTS ON WEEKLY BASIS TO LABOURERS, THEREFORE, THE NET PR OFIT ADMITTED BY HIM SHOULD BE ACCEPTED. THE A.O. AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE HELD THAT THE BOOKS OF AC COUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS NOT SUPPORTED ANY EX PENDITURE WITH PROPER BILLS & VOUCHERS. ALL THE EXPENDITURE CLAIM ED ARE SUPPORTED BY SELF MADE VOUCHERS. WITH THESE OBSERVATIONS REJECTED THE BOOKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 145 OF THE ACT AND ESTIMATED THE NET PROFIT OF 12.5% ON MAIN CONTRACT WORKS AND 8% ON SUB CONTRACT WORKS WITH FURTHER DEDUCTION TOWARDS DEPRECIATION. ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 4 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED THAT HE HAD EXECUTED WORKS CONTRACT ON VARIOUS PLAC ES AND PROCURED THE MATERIALS LOCALLY DEPENDING UPON THE CIRCUMSTANCES AND ALSO BUSINESS EXPEDIENCY. THE ASSESSEE FURTHER SUBMITTED THAT MOS T OF THE EXPENDITURE ARE SUPPORTED BY PROPER BILLS & VOUCHER S, HOWEVER, IN RESPECT OF LABOUR AND OTHER LIKE CHARGES, THE EXPEN DITURE IS SUPPORTED BY SELF MADE VOUCHERS. THEREFORE, THE A.O. WAS NOT CO RRECT IN REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF NET PROFIT OF 1 2.5% ON MAIN CONTRACT WORKS AND 8% ON SUB CONTRACT WORKS. THE C IT(A) AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSES SEE HELD THAT THE POINT TO BE NOTED HERE IS THAT AS TO WHAT IS THE AP PROPRIATE YIELD DEPENDS ON FACTS AND CIRCUMSTANCES OF THE EACH CASE AND THERE ARE NO HARD AND FAST RULES TO BE APPLIED ON UNIVERSAL BASI S FOR ESTIMATION OF NET PROFIT. THE CIT(A) FURTHER HELD THAT THE A.O. RELIE D UPON THE ITAT, DECISION IN THE CASE OF M/S. K.N.R. CONSTRUCTIONS, WHERE THE ITAT UPHELD THE ESTIMATION OF NET PROFIT OF 12.5%, WHEREAS THE ASSESSEE HAS RELIED UPON THE ITAT DECISION IN THE CASE OF M/S. SRINIVAS A LAKSHMI CONSTRUCTIONS, WHEREIN UNDER SIMILAR CIRCUMSTANCES ITAT, UPHELD THE ESTIMATION OF NET PROFIT OF 8%. CONSIDERING THE OVE RALL FACTS AND ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 5 CIRCUMSTANCES OF THE CASE, THE CIT(A) SCALED DOWN T HE ESTIMATION OF NET PROFIT ON MAIN CONTRACT WORKS TO 9% AS AGAINST THE 12.5% ADOPTED BY THE A.O., HOWEVER UPHELD THE ACTION OF A.O. FOR EST IMATION NET PROFIT IN CASE OF SUB CONTRACT RECEIPTS AND ROYALTY ON SUB CO NTRACT WORKS GIVEN TO OTHERS. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE A.O. REJECTED THE BOOKS OF ACCOUN TS AND ESTIMATED NET PROFIT AFTER CONSIDERING THE FACTS OF THE CASE OF T HE ASSESSEE AND ALSO THE EXPENDITURE INCURRED BY THE ASSESSEE. THE D.R. FUR THER SUBMITTED THAT THE ASSESSEE NEITHER APPEARED BEFORE THE A.O NOR FU RNISHED ANY BOOKS OF ACCOUNTS AND OTHER DETAILS TO SUBSTANTIATE THE R ETURN OF INCOME FILED BY THE ASSESSEE. THE A.O. AFTER CONSIDERING THE IN FORMATION AVAILABLE ON RECORD ESTIMATED THE PROFIT OF 12.5% ON GROSS CONTR ACT RECEIPTS, THEREFORE, THE ASSESSMENT ORDER SHOULD BE UPHELD. 5. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). THE A.R. FURTHE R SUBMITTED THAT THE CIT(A) HAS SCALED DOWN THE ESTIMATION OF NET PROFIT TO 9% AFTER CONSIDERING EXPLANATION FURNISHED BY THE ASSESSEE, THEREFORE, CIT(A) ORDER SHOULD BE UPHELD. ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 6 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE A.O. ESTIMATED NET PROFIT OF 12.5% ON MAIN CONTRACTS. THE A.O. WAS OF THE OPINION THAT THE BOO KS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION. THE A.O. FURTHER OBSERVED THAT MOST OF THE EXPENDITURE CLAIMED BY THE ASSESSEE ARE SUPPORTED BY SELF MADE VOUCHERS. THER EFORE, REJECTED THE BOOKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 1 45 OF THE ACT AND ESTIMATED THE NET PROFIT BY RELIED UPON THE DECISIO N OF ITAT, HYDERABAD BENCH IN THE CASE OF M/S. KNR CONSTRUCTIONS. IT IS THE CONTENTION OF THE ASSESSEE THAT HE HAD EXECUTED WORKS CONTRACT IN DIF FERENT PLACES AND PROCURED THE MATERIAL LOCALLY DEPENDING UPON THE BU SINESS EXPEDIENCY AND FACTS AND CIRCUMSTANCES OF THE WORK. THE ASSESS EE FURTHER CONTENDED THAT MOST OF THE EXPENDITURE ARE SUPPORTE D BY PROPER BILLS & VOUCHERS, HOWEVER IN RESPECT OF LABOUR AND OTHER LI KE CHARGES, THE EXPENDITURE IS SUPPORTED BY SELF MADE VOUCHERS. TH EREFORE, THE A.O. WAS NOT CORRECT IN REJECTION OF BOOKS OF ACCOUNTS A ND ESTIMATION OF NET PROFIT OF 12.5% ON MAIN CONTRACT WORKS. THE ASSESS EE FURTHER SUBMITTED THAT THE A.O. RELIED UPON THE DECISION OF ITAT IN T HE CASE OF M/S. KNR CONSTRUCTIONS, WHEREIN THE ITAT HAS UPHELD THE ESTI MATION OF 12.5% NET PROFIT ON MAIN CONTRACT WORKS, WHEREAS IN THE CASE OF M/S. SRINIVASA LAKSHMI CONSTRUCTIONS (SUPRA), THE ITAT UPHELD THE ESTIMATION OF 8% ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 7 NET PROFIT ON MAIN CONTRACT WORKS. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THERE IS NO HARD A ND FAST RULE FOR ESTIMATION OF NET PROFIT FROM CIVIL CONTRACT BUSINE SS. IT IS AN ADMITTED FACT THAT ESTIMATION OF NET PROFIT FROM CIVIL CONTR ACT RECEIPTS IS CONSISTENTLY FOLLOWED BY THE DEPARTMENT ON VARIOUS RATES DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE EACH CASE. THE ITAT, ALSO UPHELD THE ESTIMATION OF NET PROFIT RANGING FROM 8 TO 12.5% ON MAIN CONTRACTS. IT IS AN ADMITTED FACT THAT THE PROFIT RATIO CANNOT BE A CONSTANT FACTOR FOR EACH AND EVERY CONTRACTOR IN AL L CASES. IT VARIES FROM PLACE TO PLACE DEPENDING UPON THE TYPE AND NATURE O F WORKS CONTRACT EXECUTED BY THE CONTRACTOR. IN THE PRESENT CASE ON HAND, THE ASSESSEE CONTENDED THAT HE HAD EXECUTED WORKS CONTRACT IN VA RIOUS PLACES, WHEREIN HE HAS PROCURED MATERIAL LOCALLY DEPENDING UPON THE BUSINESS EXPEDIENCY. THE ASSESSEE CONTENDS THAT HE HAD ADMI TTED A NET PROFIT OF 7.5% WHICH IS REASONABLE WHEN COMPARED TO THE NATUR E OF WORKS EXECUTED BY HIM. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS AND ALSO TAKEN INTO ACCOUNT THE RATIO OF THE JURISDICTI ONAL ITAT, IN THE CASE OF M/S. SRINIVASA LAKSHMI CONSTRUCTIONS (SUPRA) HAS SC ALED DOWN THE ESTIMATION OF NET PROFIT TO 9% ON MAIN CONTRACT WOR KS NET OF ALL DEDUCTIONS INCLUDING DEDUCTION TOWARDS DEPRECIATION . WE DO NOT SEE ANY ITA NO.207/VIZAG/2013 SRI VALLABANENI VENKATESWARA RAO, VIJAYAWADA 8 ERROR OR INFIRMITY IN THE ORDER OF CIT(A). HENCE, W E INCLINED TO UPHELD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILE D BY THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10 TH JUN16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 10.06.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWAD A 2. / THE RESPONDENT SRI VALLABANENI VENKATESWARA RA O, SHOP NO.21, IGMS COMPLEX, LABBIPET, VIJAYAWADA 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A),VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM