Shri K.L.Reddy & Co., Rajahmundry V. THE Addl. CIT, Rajahmundry

ITA 307/VIZ/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0168 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 03-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Section: 142(1); 145

Judgement Text

ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 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.307/VIZAG/2013 ( / ASSESSMENT YEAR : 2009-10 ) SHRI K.L. REDDY & CO. RAJAHMUNDRY VS. ACIT RAJAHMUNDRY [ PAN : AAGFK1926P ] ( & & & & / APPELLANT) ( '(& '(& '(& '(& / RESPONDENT ) & ) / APPELLANT BY : SHRI G.V.N. HARI, AR '(& ) / RESPONDENT BY : SHRI M. NARAYANA RAO, DR ) - / DATE OF HEARING : 19.11.2015 ) - / DATE OF PRONOUNCEMENT : 04.12.2015 / O R D E R PER BENCH: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 14.3.2013 FOR THE ASSES SMENT YEAR 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GRO UNDS: ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 2 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE TO THE FACTS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION MADE BY TH E ASSESSING OFFICER BY ESTIMATING THE PROFIT IN RESPE CT OF CONTRACTS RECEIPTS AT 8% AND IN RESPECT OF SUB-CONT RACT RECEIPTS @ 6%. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PROFIT ESTIMATED BY THE ASSESSING OFFICER IS ON A HIGHER SIDE. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF A PPEAL HEARING. 2. BRIEF FACTS OF THE CASE, ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF EXECUTION OF CI VIL WORKS CONTRACT. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 29.9.2009 DECLARING TOTAL INCOME OF RS.6 5,90,250/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE IN COME-TAX ACT, 1961. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICE U/S 142(1) & 143(2) OF THE ACT HAS BEEN ISSUED ON 8.12.2010. IN RESPONSE TO NOTICE, SHRI V.S. SHIVRAM ITO AND AUTHORISED REPRES ENTATIVE OF THE ASSESSE APPEARED FROM TIME TO TIME AND FURNISHED IN FORMATION I.E. PROFIT & LOSS ACCOUNT, BALANCE SHEET AND RETURN OF INCOME FILED FOR THE LAST 3 YEARS. THE A.O. ISSUED ONE MORE NOTICE ON 27.11.20 07 ALONG WITH A DETAILED QUESTIONNAIRE AND CALLED FOR FURTHER INFOR MATION. THE A.R. APPEARED ON THE DATE OF HEARING AND FURNISHED ALL T HE INFORMATION CALLED FOR EXCEPT BOOKS OF ACCOUNTS. SINCE, ASSESSEE DID NOT PRODUCED BOOKS OF ACCOUNTS, THE A.O. ISSUED A SHOW-CAUSE NOTICE DA TED 3.3.2011 AND ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 3 ASKED, WHY THE INCOME FROM BUSINESS SHALL NOT BE ES TIMATED IN THE ABSENCE OF BOOKS OF ACCOUNTS. THE ASSESSE FAILED T O PRODUCE BOOKS OF ACCOUNTS, THEREFORE, THE A.O. COMPLETED THE ASSESSM ENT BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT AND ESTIMATED THE NET PROFIT OF 8% ON MAIN CONTRACT RECEIPTS AND 6% NET PROFIT ON SUB CONTRACT RECEIPTS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE CIT(A), THE ASSES SEE SUBMITTED THAT THE A.O. WAS NOT CORRECT IN ESTIMATING 8% NET PROFI T FROM MAIN CONTRACTS AND 6% NET PROFIT FROM SUB CONTRACT WORKS. THE ASS ESSEE FURTHER SUBMITTED THAT IT HAS ACCEPTED WORKS MAINLY FOR STA TE GOVERNMENTS AND THE ELEMENT OF NET PROFIT IN STATE GOVERNMENT WORKS IS GENERALLY LOW WHEN COMPARED TO WORKS ALLOTTED BY THE CENTRAL GOVE RNMENT. THE ASSESSEE FURTHER SUBMITTED THAT IN RESPECT OF SUB C ONTRACT WORKS EXECUTED, THE ASSESSEE ACCEPTED SUB CONTRACT WORKS FROM HES INFRA LTD., WHEREIN THE PRINCIPAL CONTRACTOR HAS RETAINED A MARGIN OF 2.5%. THEREFORE, ITS NET PROFIT MARGIN FROM THIS CONTRACT WORK CANNOT BE ESTIMATED @ 6%. SIMILARLY, IT HAS ACCEPTED SUB CONT RACT WORKS FROM G.V.V. CONSTRUCTIONS PVT. LTD., WHEREIN THE PRINCIP AL CONTRACTOR HAS RETAINED A MARGIN OF 4.5%. THEREFORE, THE A.O. IS NOT CORRECT IN ESTIMATING 6% FROM THIS CONTRACT WORKS. HOWEVER, T HE CIT(A) AFTER ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 4 CONSIDERING THE SUBMISSIONS OF THE ASSESSE, HELD TH AT THE ASSESSEE HAS FAILED TO PRODUCE BOOKS OF ACCOUNTS AND ALSO BILLS & VOUCHERS FOR THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT, THERE FORE, UPHELD THE ESTIMATION OF INCOME AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. THE AUTHORISED REPRESENTATIVE OF THE ASSESSE, SU BMITTED THAT THE A.O. IS NOT CORRECT IN ESTIMATING 6% NET PROFIT ON SUB CONTRACT WORKS, AS THE ASSESSEE HAS SHARED THE PROFIT WITH PRINCIPAL C ONTRACTOR. THE A.R. FURTHER SUBMITTED THAT IN RESPECT OF SUB CONTRACT W ORKS EXECUTED FOR HES INFRA LTD, THE PRINCIPAL CONTRACTOR HAS RETAINED A MARGIN OF 2.5%. THEREFORE, THE A.O. IS NOT CORRECT IN ADOPTING 6% N ET PROFIT FROM THIS CONTRACT WORKS. TO THIS EFFECT, HE HAS FILED A COP Y OF AGREEMENT ENTERED INTO WITH THE PRINCIPAL CONTRACTOR. THE A.R. FURTH ER SUBMITTED THAT AS FAR AS G.V.V. CONSTRUCTIONS PVT. LTD. WORKS IS CONCERNE D, THE PRINCIPAL CONTRACTOR HAS RETAINED A MARGIN OF 4.5%, THEREFORE , 6% NET PROFIT ESTIMATED BY THE ASSESSING OFFICER IS QUITE HIGH. TO THIS EFFECT, HE HAS FURNISHED A COPY OF THE AGREEMENT ENTERED BY THE AS SESSEE ALONG WITH PRINCIPAL CONTRACTOR. HOWEVER, THE A.R. DID NOT AR GUE ON THE ESTIMATION OF NET PROFIT FROM THE MAIN CONTRACT WORKS. 5. ON THE OTHER HAND, THE D.R. STRONGLY SUPPORTED T HE ORDERS OF THE CIT(A). THE D.R. FURTHER SUBMITTED THAT THE A.O. R IGHTLY ESTIMATED NET ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 5 PROFIT OF 6%, AFTER CONSIDERING THE FACTS THAT THE ASSESSEE FAILED TO FURNISH THE BOOKS OF ACCOUNTS AND BILLS AND VOUCHER S CALLED FOR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, R EQUESTED TO UPHOLD THE ASSESSMENT ORDER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. IN THIS CASE, THE ASSESSING O FFICER HAS ESTIMATED THE NET PROFIT OF 8% FROM MAIN CONTRACT WORKS AND 6% ON SUB CONTRACT WORKS EXECUTED BY THE ASSESSEE. THE A.O. WAS OF TH E OPINION THAT IN SPITE OF REPEATED OPPORTUNITIES, THE ASSESSEE HAS F AILED TO PRODUCE BOOKS OF ACCOUNTS AND BILLS & VOUCHERS FOR THE EXPE NDITURE DEBITED TO THE P&L ACCOUNT. THEREFORE, INVOKED THE PROVISIONS OF SECTION 145 AND ESTIMATED THE NET PROFIT. THE ASSESSEES CONTENTIO N IS THAT IN RESPECT OF SUB CONTRACT WORKS EXECUTED FOR IES INFRA PVT. LTD, THE PRINCIPAL CONTRACTOR HAS RETAINED 2.5% MARGIN. THEREFORE, TH E NET PROFIT EARNED BY THE ASSESSEE FROM THIS CONTRACT WORKS CANNOT BE AT 6%. AS FAR AS THE OTHER SUB CONTRACT WORK EXECUTED FOR G.V.V. CONSTRU CTIONS PVT. LTD., THE ASSESSEE CONTENDED THAT THE PRINCIPAL CONTRACTOR HA S RETAINED THE MARGIN OF 4.5%. TO THIS EFFECT, FILED COPIES OF AG REEMENT ENTERED INTO WITH THE PRINCIPAL CONTRACTOR. IT IS AN ADMITTED F ACT THAT THE ASSESSEE DID NOT PRODUCED BOOKS OF ACCOUNTS BEFORE THE ASSESSING OFFICER. IT IS ALSO ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 6 AN ADMITTED FACT THAT THE ESTIMATION OF NET PROFIT UNDER CIVIL CONTRACT WORKS IS CONSISTENTLY FOLLOWED BY THE DEPARTMENT ON VARIOUS RATES DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. 7. IN THE PRESENT CASE ON HAND, THE ASSESSE HAS FAI LED TO PRODUCE ANY BOOKS, DESPITE SEVERAL OPPORTUNITIES OF HEARING IS GIVEN. THEREFORE, THE A.O. HAS CHOSEN TO ADOPT A NET PROFIT OF 6% ON SUB CONTRACT WORKS, CONSIDERING THE FACT THAT THE ASSESSEE HAS NOT PROD UCED ANY BOOKS OF ACCOUNTS AND SUPPORTING BILLS FOR THE EXPENDITURE D EBITED TO P&L ACCOUNT. THOUGH, THE ASSESSE CONTENDS THAT THE PRI NCIPLE CONTRACTOR HAS TAKEN SOME PROFIT OUT OF THE CONTRACT WORKS, THIS C ANNOT BE THE SOLE FACTOR FOR DECIDING THE NET PROFIT. THERE IS NO HAR D AND FAST RULE FOR ESTIMATION OF NET PROFIT. THE TRIBUNAL HAS UPHELD THE NET PROFIT OF 4% TO 8% ON SUB CONTRACT WORKS, DEPENDING UPON FACTS OF E ACH CASE. THEREFORE, WE ARE OF THE OPINION, THAT THE A.O. HAS RIGHTLY ESTIMATED 6% NET PROFIT FROM THE SUB CONTRACT WORKS IN THE ABSEN CE OF BILLS AND VOUCHERS FOR EXPENDITURES. THE CIT(A), AFTER CONSI DERING THE FACTS THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNTS AND BILLS & VOUCHERS FOR THE EXPENDITURE DEBITED TO P&L ACCOUNT, UPHELD THE ESTIMATION MADE BY THE A.O. WE DO NOT FIND ANY ERROR OR INFIRMITY I N THE ORDER PASSED BY ITA NO.307/VIZAG/2013 SHRI K.L. REDDY & CO., RAJAHMUNDRY 7 THE CIT(A). THEREFORE, WE INCLINED TO UPHELD THE O RDER OF THE CIT(A) AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 4 TH DEC15. SD/- SD/- ( . ) ( . . . . ) ( (( ( V. DURGA RAO ) )) ) ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 3 / DATED : 4.12.2015 VG/SPS ) ' 4 / COPY OF THE ORDER FORWARDED TO :- 1. & / THE APPELLANT SHRI K.L. REDDY & CO., D.NO.81-21-12, VENKATESWARA NAGAR, PRAKASH NAGAR, RAJAHMUNDRY 2. '(& / THE RESPONDENT THE ACIT, RAJAHMUNDRY 3. 5 / THE CIT, RAJAHMUNDRY 4. 5 () / THE CIT (A), VISAKHAPATNAM 5. ' , , / // / DR, ITAT, VISAKHAPATNAM 6 . . . . / GUARD FILE / BY ORDER // TRUE COPY // 9: ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM