M/s Live well Constructions Pvt.,Ltd., Visakhapatnam V. THE DCIT, Central Circle, Vijayawada

ITA 329/VIZ/2012

• Counselvise Citation: 32925314 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 11-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: C SUBRAMANYAM
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH , VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 326, 327 & 329/VIZ/2012 ASSESSMENT YEAR : 2006-07, 2007-08 & 20091-0 LIVE WELL CONSTRUCTIONS PVT. LTD., VIJAYAWADA. PAN AABCL 0257A DY. COMMISSIONER OF INCOME- TAX, VIJAYAWADA (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI C. SUBRAMANYAM REVENUE BY SHRI K.V.N. CHARYA DATE OF HEARING 03-07-2014 DATE OF PRONOUNCEMENT 03-07-2014 O R D E R PER J. SUDHAKAR REDDY, A.M.: THESE APPEALS ARE FILED BY THE ASSESSEE. THE APPEAL S BEING ITA NO. 326 & 327/VIZ/12 ARE DIRECTED AGAINST A COMMON ORDE R OF CIT(A) FOR AY 2006-07 AND 2007-08 AND THE APPEAL BEING ITA NO. 32 9/VIZ/12 IS DIRECTED AGAINST A SEPARATE ORDER OF CIT(A) FOR AY 2009-10. ALL THE SAID ORDERS OF THE CIT(A) ARE DATED 26/06/2012. AS THE IDENTICAL I SSUES ARE INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND THEREFORE THESE APPEALS ARE DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY ISSUE THAT ARISES FOR OUR CONSIDERATION IN THESE APPEALS IS, WHETHER THE FIRST APPELLATE AUTHORITY WAS RIGHT IN ESTIMATING THE NET PROFIT AT 20% ON THE ADDITIONAL WORKS UNDERTAKEN BY THE AS SESSEE FOR WHICH CERTAIN AMOUNTS WERE COLLECTED. 2 ITA NO. 326, 327 & 329/VIZ/2012 LIVEWELL CONSTRUCTIONS PVT. LTD. 3. THE ASSESSEE IN THIS CASE IS IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL APARTMENTS IN AND AROUND OF VIJAYAWADA CITY. THE FIRST APPELLATE AUTHORITY HAS COME TO A CONCLUSION THAT A DDITIONAL AMOUNTS OF RS. 7 LAKHS AND RS. 5LAKHS/RS. 4.5 LAKHS WERE REC EIVED BY THE ASSESSEE ON ACCOUNT OF THREE BED ROOM AND TWO BED ROOM FLATS RESPECTIVELY FOR THE PURPOSE OF PROVIDING ADDITIONAL WORKS. HE HELD THAT THE AO WAS WRONG IN TREATING THE GROSS RECEIPTS AS NET PROFITS. HE WORK ED OUT THE PERCENTAGE OF PROFITS AS ARRIVED BY THE AO AND HELD THAT 50.6% FO R AY 2006-07 AND 49.1% FOR AY 2007-08 IS VERY HIGH AND UNREASONABLE. THE CIT(A) HELD AS FOLLOWS: 8.5..SUCH PROFIT MARGINS ARE NOT SEEN IN N ORMAL CIRCUMSTANCES. ON HAS TO CONSIDER THE NATURE OF BUS INESS CARRIED ON BY THE APPELLANT. IN THIS CASE, THE APPELLANT ENTER ED INTO A DEVELOPMENT AGREEMENT WITH LAND OWNERS IN RESPECT O F SOME OF THE VENTURES AND RECEIVED TO ITS SHARE OF FIXED NUMBER OF FLATS WHICH HAVE BEEN SOLD TO OUTSIDERS. THEREFORE, ONE CANNOT EXPECT HUGE MARGINS IN SUCH TYPE OF DEVELOPMENT WORKS. THEREFOR E, IT REQUIRE REASONABLE ESTIMATION OF INCOME ON SUCH GROSS RECEI PTS. VARIOUS JUDICIAL PRONOUNCEMENTS LISTED IN THE PRECEDING PAR AGRAPHS, RELIED ON BY THE APPELLANT, ARE DULY APPLICABLE TO THE FAC TS OF THE APPELLANTS CASE. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, THE APPELLANT ESTIMATED PROFIT @ 8% ON RECEIPTS FOR ADDITIONAL WORKS (RS. 1.30 CRORES AND RS. 2.14 CRORES) RESPECTIVELY. HOWEVER, CONSIDERING THE NATURE OF WO RKS, I FEEL THE PROFIT ELEMENT ON SUCH CONTRACT WORKS WILL BE MORE THAN THE ONE ESTIMATED BY THE APPELLANT. IT IS REASONABLE TO EST IMATE THE NET PROFIT @ 20% ON THE ADDITIONAL WORKS WHICH COMES TO RS. 26 ,00,000/- (20% ON 1,30,00,000) FOR AY 2006-07 AND RS. 42,80,0 00/- (20% ON RS. 2,14,00,000) FOR AY 2007-08 RESPECTIVELY. THE A O IS DIRECTED TO SUBSTITUTE THE ABOVE INCOMES ON ADDITIONAL WORKS FO R THE ASSESSMENT YEAR 2006-07 AND 2007-08 IN PLACE OF PRO FITS ON SUCH ADDITIONAL WORKS AS DISCLOSED BY THE APPELLANT IN I TS RETURN OF INCOME. CONSEQUENTLY, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 1.30 CRORES FOR THE AY 2006-07 AND RS. 2.14 CRO RES FOR THE AY 2007-08 AND RE-WORK THE TOTAL INCOME OF THE ASSESSE E FOR THESE TWO YEARS BY MAKING THE ABOVE ADDITIONS. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUNDS, WHICH ARE COMMON IN ALL THE APPEALS UNDER CONSIDERATION: 1.0 THE ORDERS PASSED U/S 143(3) R.W.S. 153C OF THE IT ACT ARE CONTRARY TO THE FACTS OF THE CASE AND PROVISIONS OF LAW. 3 ITA NO. 326, 327 & 329/VIZ/2012 LIVEWELL CONSTRUCTIONS PVT. LTD. 1.1 THE ISSUE OF NOTICE U/S 153C OF THE IT ACT AND COMPLETION OF THE ASSESSMENT THERETO IS LEGALLY NOT TENABLE IN TH E ABSENCE OF ANY INCRIMINATING MATERIAL FOR DRAWING ADVERSE INFERENC E AGAINST THE ASSESSEE COMPANY. 1.2 THE LEARNED CIT(A) HAS NO BASIS FOR ESTIMATING THE INCOME BY APPLYING PERCENTAGE OF PROFIT AS HIGH AS 20%, ON CE RTAIN DETERMINED ADDITIONAL WORKS ENTRUSTED BY THE CUSTOMERS IN RESP ECT OF CONSTRUCTION OF RESIDENTIAL APARTMENTS, AS AGAINST 8% OFFERED BY THE ASSESSEE. 1.3 FOR THESE AND OTHER REASONS THAT ARE TO BE URGE D AT THE TIME OF HEARING OF THE CASE, THE APPELLANT PRAYS THAT THE A DDITIONS MADE BY THE AO AND TO THE EXTENT SUSTAINED BY THE LEARNED C IT(A) ARE AGAINST THE FACTS OF THE CASE AND PROVISIONS OF LAW AND THE SAME NEEDS TO BE DELETED IN THE INTEREST OF JUSTICE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI C. SUB RAMANYAM DID NOT PRESS GROUND NOS. 1.0 AND 1.1. GROUND NO. 3 IS GENE RAL IN NATURE, HENCE, NEED NOT BE ADJUDICATED. HE ONLY EMPHASIZED THAT E STIMATION OF PROFIT AT 20% FOR ADDITIONAL WORKS IS ON THE HIGHER SIDE. HE SUBMITTED THE DATA FOR THE LAST THREE YEARS AND ARGUED THAT PERCENTAGE OF PROFIT IS BETWEEN 9.31% IN AY 2007-08 AND 7.92% IN AY 2008-09. HE PRAYED TH AT THE ESTIMATION OF PROFIT SHOULD BE RESTRICTED TO 8%. 6. THE LEARNED DR SHRI K.V.N. CHARYA, ON THE OTHER HAND, OBJECTED TO THE CONTENTION OF THE ASSESSEE AND SUBMITTED THAT N ATURE OF ADDITIONAL WORKS CANNOT BE COMPARED WITH THE REGULAR WORKS OF THE ASSESSEE AND NORMALLY THE PERCENTAGE OF PROFIT FOR UNDERTAKING A DDITIONAL WORKS IS HIGH. HE POINTED OUT THAT CIT(A) HAS REALISTICALLY ESTIMA TED THE NET PROFIT AT 20% OF THE ADDITIONAL WORKS AND THE SAME SHOULD BE UPHE LD. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BEL OW, WE ARE OF THE CONSIDERED OPINION THAT ENDS OF JUSTICE WOULD BE ME T IF THE NET PROFIT IS ESTIMATED AT 15% ON THE ADDITIONAL WORKS IN THE LIG HT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE AGRA BENCH OF THE TRIBUNAL IN T HE CASE OF M/S PRERNA CONSTRUCTION PVT. LTD. VS. DCIT IN ITA NO. 128/AGR/ 2012, DATED 4 ITA NO. 326, 327 & 329/VIZ/2012 LIVEWELL CONSTRUCTIONS PVT. LTD. 28/09/2012 AND ANOTHER DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF POONAM BUILDERS IN ITA NO. 3773/MUM/2012, D ATED 22/05/2014. THESE ARE ALL FACTUAL ISSUES AND THEY CANNOT BE CLA IMED AS COVERED BY THE DECISIONS OF THE COORDINATE BENCH. ESTIMATION OF PR OFIT DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE CASE O N HAND, THE ASSESSEE, IN ADDITION TO REGULAR RECEIPTS, COLLECTS ADDITIONA L AMOUNTS FOR UNDERTAKING CERTAIN WORKS AT THE REQUEST OF THE CUSTOMERS. INHE RENTLY, SUCH WORKS CARRY A HIGHER PERCENTAGE OF PROFIT. 8. IN THE LIGHT OF THE ABOVE DISCUSSION, WE DIRECT THE AO TO ESTIMATE THE PROFIT AT 15% ON THE ADDITIONAL WORKS UNDERTAKEN BY THE ASSESSEE IN STEAD OF 20% ESTIMATED BY THE CIT(A). 9. IN THE RESULT, ALL THE THREE APPEALS UNDER CONSI DERATION ARE ALLOWED IN PART. PRONOUNCED IN THE OPEN COURT ON 03/07/2014. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 3 RD JULY, 2014 KV COPY TO:- 1) LIVE WELL CONSTRUCTIONS (P) LTD., C/O SRI C. SUB RAHMANYAM,CA, 102, LAKSHMI APARTMENTS, FACOR LAYOUT, WALTAIR UPLA NDS, VISAKHAPATNAM 530 003 2) DCIT, CENTRAL CIRCLE, VIJAYAWADA 3) CIT(A)-I, HYDERABAD 4) CIT(CENTRAL), HYDERABAD. 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., V IZAG.