Kolan Engg. Construction Pvt. Ltd, Hyderabad V. ACIT, Hyderabad

ITA 270/HYD/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1434 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SRIT DIWAKAR PRASAD
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Opportunity of being heard
• Section: 44AD; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 958/HYD/07, 270/HYD/09 560/HYD/06 AND 1059/HYD/08 ASSTT. YEARS: 2004-05, 2006-07, 2003-04 AND 2004-05. KOLAN ENGG. CONSTRUCTION PVT. LTD., HYDERABAD. PAN:AABCK 4691F V/S. DY. CIT, CIR-2(1), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI S. RAMA RAO RESPONDENT BY : SRIT. DIWAKAR PRASAD DATE OF HEARING 22-11-2012 DATE OF PRONOUNCEMENT 21 -01-2013 . O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGA INST SEPARATE ORDERS OF CIT (APPEALS)-III, HYDERABAD AND TH EY PERTAIN TO THE ASSESSMENT YEARS 2003-04, 2004-05 , 2005-06 AND 2006- 07. SINCE COMMON ISSUES ARE INVOLVED IN THESE ALL APPEALS, THESE ARE TAKEN UP AND DISPOSED OF BY THIS COMBINED ORDER FOR THE SAKE OF CO NVENIENCE. 2. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT HE DO ES NOT WANT TO PRESS THE GROUND RELATING TO DEDUCTION CLAIMED U/S 80 IA OF THE ACT WHICH IS COMMON IN ITA NOS. 958/HYD/07, ITA NO.270/H/09 AND 1059/HYD/08. IN VIEW OF THE SUBMISSIONS OF THE LEARNED AR THE ITA NO.958 AND OTHERS KOLAN ENGG. CONSTRUCTIONS PVT. LTD. 2 GROUND RELATING TO CLAIM OF DEDUCTION U/S 80IA OF THE ACT IN THE AFORESAID APPEALS ARE DISMISSED AS NOT PRESSED. 3. THE NEXT COMMON ISSUE IN ALL THE APPEALS FILED BY TH E ASSESSEE IS WITH REGARD TO RATE OF ESTIMATION OF PROFIT ON DIFFE RENT TYPES OF CONTRACT WORKS EXECUTED BY THE ASSESSEE. BRIEFLY THE FACTS COMMON TO ALL THE APPEALS ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACT WORKS AS A PRINCIPAL CONTRACTOR AS W ELL AS ON SUB-CONTRACT BASIS. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE MOST OF THE MAJOR EXPEND ITURE CLAIMED BY THE ASSESSEE ARE SUPPORTED BY SELF MADE VOUCHERS ONLY. A MAJORITY OF THE EXPENDITURE WAS ALSO MADE IN CASH. DUE TO UNVE RIFIABLE NATURE OF THE EXPENDITURE CLAIMED, THE ASSESSING OFFICER REJECTE D THE BOOKS OF ACCOUNTS AND PROCEEDED TO ESTIMATE THE PROFIT ON DIFFER ENT TYPES OF CONTRACT WORKS AS UNDER. 1. MAIN CONTRACT WORK EXECUTED BY THE ASSESSEE AT THE RATE OF 12.5% 2. WORK UNDERTAKEN ON SUB-CONTRACT BASIS FROM MAIN CONTRACTOR AND EXECUTED BY THE ASSESSEE 10% 3. SUB-CONTRACT EXECUTED BY THE ASSESSEE THROUGH OTHERS 5% THE ASSESSEE CHALLENGED SUCH ESTIMATION OF PROFIT BY FIL ING AN APPEAL BEFORE THE CIT (A). THE CIT (A) SUSTAINED THE REJECT ION OF BOOKS OF ACCOUNTS AND ESTIMATION OF PROFIT MADE BY THE ASSESSING OF FICER. ITA NO.958 AND OTHERS KOLAN ENGG. CONSTRUCTIONS PVT. LTD. 3 4. THE LEARNED AR SUBMITTED BEFORE US THAT THE R ATE OF ESTIMATION OF PROFIT ADOPTED BY THE DEPARTMENTAL AU THORITIES IS HIGH AND EXCESSIVE CONSIDERING THE FACT THAT IN CASE OF WORK EX ECUTED ON SUB-CONTRACT BASIS, THE PRINCIPAL CONTRACTOR RETAINS HIS SH ARE OF PROFIT AND THEREFORE THE PROFIT EARNED BY THE ASSESSEE CAN BE R EASONABLY ESTIMATED AT 7% TO 8%. SIMILARLY, IN CASE OF WORK EXE CUTED AS MAIN CONTRACTOR PROFIT CANNOT BE ESTIMATED BY APPLYING THE R ATE OF 12.5% BY RELYING UPON THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL IN CASE OF M/S KNR CONSTRUCTIONS LIMITED CANNOT BE APPLIED UNIF ORMLY TO ALL CASES. THE LEARNED AR SUBMITTED THAT SO FAR AS THE WORK GIVEN BY THE ASSESSEE ON SUB-CONTRACT BASIS TO THIRD PARTIES, THE ASSESSEE ON LY EARNS THE COMMISSION AND THEREFORE PROFIT CANNOT BE ESTIMATED AT THE RATE OF 5% ON THE GROSS RECEIPTS. IN SUPPORT OF HIS CONTENTION, THE LEARNED AR RELIED UPON VARIOUS DECISIONS OF THE INCOME-TAX APPEL LATE TRIBUNAL, HYDERABAD BENCH. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE O THER HAND, SUPPORTED THE ORDERS OF THE CIT (A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AFTER GOING THROUGH THE ORDERS OF THE LOWER AUTHORITIES, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS JUSTIFIED IN R EJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE PROFIT AS VARIOUS EXP ENDITURES CLAIMED BY THE ASSESSEE WERE NOT VERIFIABLE DUE TO ABSENC E OF RELEVANT VOUCHERS. DUE TO THIS REASONS, THE GENUINENESS OF THE EXP ENDITURE CLAIMED COULD NOT BE ASCERTAINED. IN THESE CIRCUMSTANCES, TH E ASSESSING OFFICER HAD NO OTHER ALTERNATIVE BUT TO ESTIMAT E THE PROFIT ON RECEIPTS FROM CONTRACT WORKS. FROM THE ASSESSMENT ORDER, IT IS SEEN THAT THE ASSESSING OFFICER WHILE ESTIMATING PROFIT HAS APPLIED THE RATE ITA NO.958 AND OTHERS KOLAN ENGG. CONSTRUCTIONS PVT. LTD. 4 OF 12.5% ON CONTRACT WORKS EXECUTED DIRECTLY BY THE ASSE SSEE, AT THE RATE OF 10% ON WORK EXECUTED ON SUB-CONTRACT BASIS AND 5% ON SUB- CONTRACT WORK EXECUTED BY THE ASSESSEE THROUGH THIRD PA RTIES. IN CASE OF M/S C. ESWARA REDDY AND CO. (ITA NOS. 668 TO 670/HYD/09 DATED 31-1-2011 THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE CONSIDERING SIMILAR ISSUE OF ESTIMATION OF PROFIT IN CASE OF EXECUTION OF DIFFERENT TYPES OF WORK CONTRACT HELD IN THE FOLLOWIN G MANNER:- WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TR IBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA), K.C. REDDY ASSO CIATES (SUPRA), SRI SRINIVASA CONSTRUCTIONS (SUPRA) AND M. BHASKAR REDD Y (SUPRA). NO DOUBT THIS TRIBUNAL ESTIMATED THE PROFIT FROM 12.5% TO 8% DEPE NDING UPON THE FACTUAL SITUATION. THE LEARNED DR MADE AN ATTEMPT TO DISTI NGUISH THE ORDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOVER IS ONLY RS.54,40,420. IT IS A WELL KNOWN FACT THAT WHENEVE R THE TURNOVER INCREASES THE PROFIT RATIO WOULD GO DOWN. MERELY BECAUSE THE TUR NOVER INCREASES THE PROFIT MAY NOT GO UP. THEREFORE, WE DO NOT FIND ANY JUSTI FICATION IN THE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THIS TRIBUNAL E STIMATED THE PROFIT AT 8% IN THE CASE OF M. BHASKAR REDDY (SUPRA) ONLY BECAUSE T HE TURNOVER WAS RS.51,40,420. A BARE READING OF THE ORDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) CLEARLY SHOWS THAT THIS TRIBUNAL AFTER CONS IDERING THE JUDGEMENT OF THE APEX COURT IN C. VELUKUTTY, 60 ITR 239 AND THE DECI SION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN ARIHANT BUILDERS PVT. LTD. VS. ACI T, 291 ITR 41 (SB) AND BY TAKING A CLUE FROM SECTION 44AD OF I.T. ACT THE PRO FIT WAS ESTIMATED AT 8%. ADMITTEDLY SECTION 44AD WOULD BE APPLICABLE IN RESP ECT OF A CASE WHERE THE GROSS CONTRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. WHEREVER THE GROSS CONTRACT RECEIPTS EXCEED RS.40 LAKHS THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE. THEREFORE, THE PROFIT CAN BE ESTIMATED EITHER AT LOWER THAN 8% OR ABOVE 8% DEPENDING UPON THE FACTUAL SITUATION. AS DISCUSSED EARLIER, FOR THE PURPOSE OF ESTIMATING THE PROFIT VARIOUS FACTORS SU CH AS THE PROFIT RATIO OF THE ASSESSEE IN THE EARLIER YEAR, PROFIT RATIO OF THE S IMILARLY PLACED TRADERS IN THE SAME LOCALITY, DEMAND FOR THE PRODUCT, AVAILABILITY OF LABOURERS, RAW MATERIALS, ETC., AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK, ETC., HAVE TO BE ITA NO.958 AND OTHERS KOLAN ENGG. CONSTRUCTIONS PVT. LTD. 5 TAKEN INTO CONSIDERATION. THEREFORE, IN OUR OPINIO N, REFERENCE TO EARLIER ORDER OF THIS TRIBUNAL ALONE FOR THE PURPOSE OF ESTIMATING T HE PROFIT AT 12.5% MAY NOT BE JUSTIFIED AT ALL. IN FACT, IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS IN ITA NOS. 116 AND 117/HYD/2007 FOR A.YS. 1993-94 AND 1994-95 THE TRIB UNAL ESTIMATED THE PROFIT ONLY AT 8% EVEN THOUGH THE PROFIT WAS ESTIMATED AT 12.5% FOR A.Y. 1992-92. THIS ITSELF SHOWS THAT FOR EACH YEAR THE PROFIT HAS TO B E ESTIMATED DEPENDING UPON THE FACTORS WHICH PREVAIL IN THE LOCALITY. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF T HE LOWER AUTHORITIES. THE CIT(A) AFTER REFERRING TO THE DECISION OF THIS TRIB UNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) AND THE SPECIAL BENCH DECISION IN ARIHANT BUILDERS (SUPRA) ESTIMATED THE PROFIT AT 8% FOR MAI N CONTRACT AND FOR SUB CONTRACT AT 5%. IT MAY NOT BE OUT OF PLACE TO MENT ION THAT THIS TRIBUNAL UNIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% ON THE SUB CONTRACT DEPENDING UPON THE FACTUAL SITUATION. THEREFORE, IN OUR OPINION, ESTIMATION OF PROFIT AT 8% BY THE CIT(A) ON MAIN CONTRACT AND AT 5% ON SUB CONTRACT I S JUSTIFIED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. NOW COMING TO THE CLAIM OF THE ASSESSEE TOWARDS SEI NIORAGE CHARGES. NO DOUBT THE SEINIORAGE CHARGES ARE IN RELATION TO THE MATERIAL SUPPLIED BY THE GOVERNMENT FOR EXECUTING THE WORK. THE APEX COURT IN THE CASE OF BRIJ BHUSHANLAL (SUPRA) CONSIDERED THIS ISSUE AND FOUND THAT THE MATERIAL SUPPLIED BY THE GOVERNMENT/CONTRACTOR WILL NOT HAVE ANY ELEM ENT OF PROFIT. THEREFORE, THE SAME SHALL BE REDUCED FROM THE CONTRACT RECEIPT S. IN VIEW OF THE JUDGEMENT OF THE APEX COURT THE SEINIORAGE CHARGES SHALL BE R EDUCED FROM THE TOTAL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER WHILE COMPUTING THE TOTAL CON TRACT RECEIPTS THE SEINIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RE CEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. NOW COMING TO THE DEPRECIATION. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF INDWELL CONSTRUCTION ITA NO.958 AND OTHERS KOLAN ENGG. CONSTRUCTIONS PVT. LTD. 6 (SUPRA). IN THE CASE BEFORE THE JURISDICTIONAL HIG H COURT AN ADDITION WAS MADE TOWARDS INTEREST AND REMUNERATION PAID TO THE PARTN ER WHEN THE PROFIT WAS ESTIMATED. THE JURISDICTIONAL HIGH COURT AFTER CON SIDERING THE PROVISIONS OF SECTION 29 AND 40 FOUND THAT NO SEPARATE ADDITION S HALL BE MADE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT DEPRECIATION SHALL BE ON THE WDV FROM THE PROFIT COMPUTED/ESTIMATED. THE REFORE, DEPRECIATION SHALL BE ALLOWED ON THE PROFIT COMPUTED. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SE CTION 44AD OF THE ACT. NOW DOUBT THIS PROVISION IS APPLICABLE FOR THOSE CASES WHERE THE TURNOVER/TOTAL CONTRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. HOWE VER, BY FINANCE (NO.2) ACT OF 2009 WITH EFFECT FROM 1.4.2011 THE LEGISLATURE R EMOVED THE RESTRICTION OF THE TOTAL CONTRACT RECEIPTS OF RS.40 LAKHS. BY TAKING A CLUE FROM THE PROVISION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YE AR UNDER CONSIDERATION AND THE PROVISIONS WHICH ARE APPLICABLE WITH EFFECT FRO M 1.4.2011, WE FIND THAT THE DEDUCTION AVAILABLE U/SS. 30 TO 38 SHALL BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT AND NO FURTHER DEDUCTION UNDER THOSE SE CTIONS SHALL BE ALLOWED. DEPRECIATION IS ALLOWABLE U/S. 32 OF THE INCOME-TAX ACT. THEREFORE, AS PROVIDED IN SECTION 44AD NO FURTHER/SEPARATE DEDUCTION SHALL BE ALLOWED. IN VIEW OF THE ABOVE, IN OUR OPINION, THE CLAIM OF DEPRECIATION ON THE ESTIMATED INCOME IS NOT JUSTIFIED. THEREFORE, THE LOWER AUTHORITIES HAVE R IGHTLY REJECTED THE SAME. 7. NEITHER THE CIT (A) NOR THE ASSESSING OFFICER HAD THE BENEFIT OF THE AFORESAID ORDER OF THE TRIBUNAL WHILE THEY PASSED THEIR RESPECTIVE ORDERS. IN AFORESAID VIEW OF THE MATTER, WE DEEM IT PROPER TO RESTORE THE MATTERS TO THE FILE OF THE ASSESSING OFFICER WHO SHALL COMPLETE THE ASSESSMENT DE NOVO IN RESPECT OF ALL THE AFORESAID ASSESSMENT YEARS KEEPING IN VIEW THE ORDER PASSED BY THE INCOME-TAX APP ELLATE TRIBUNAL REFERRED TO ABOVE. THE ASSESSING OFFICER SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINAL IZING THE PROCEEDINGS. HENCE, THE GROUNDS RAISED BY THE ASSESSEE FOR ALL THE YEARS UNDER CONSIDERATION ON THIS ISSUE ARE ALLOWED FOR ST ATISTICAL PURPOSES. ITA NO.958 AND OTHERS KOLAN ENGG. CONSTRUCTIONS PVT. LTD. 7 8. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE A RE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOV E. . ORDER PRONOUNCED IN THE COURT ON 21 -01-2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/- 21 ST JANUARY, 2013. COPY FORWARDED TO: 1. C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO.103, H.NO.3-6- 542/4, INDIRADEVI NILAYAM, STREET NO.7, HIMAYATNAGAR, HYDERA BAD. 2. 3. 4. DCIT, CIR-2(1), HYDERABAD. CIT (A)-III, HYDERABAD. CIT CONCERNED, HYDERABAD. 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. JMR *