ACIT, Anantapur V. M/s Suguna Constructions, Anantapur

ITA 335/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59273 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 06-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PHANI KISHORE
• Assessee Lawyers: BALAJI NAGARAJ
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 335/HYD/2009 (ASSESSMENT YEAR : 2006-07) I.T.A. NO. 343/HYD/2009 (ASSESSMENT YEAR : 2005-06) ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, ANANTAPUR VS. M/S. SUGUNA CONSTRUCTIONS ANANTAPUR PAN: AAIFS8784P APPELLANT RESPONDENT I.T.A. NO. 342/HYD/2009 (ASSESSMENT YEAR : 2006-07) M/S. SUGUNA CONSTRUCTIONS ANANTAPUR PAN: AAIFS8784P VS. ADDL. COMMISSIONER OF INCOME-TAX, ANANTAPUR RANGE ANANTAPUR APPELLANT RESPONDENT REVENUE BY: SHRI PHANI KISHORE ASSESSEE BY: SHRI BALAJI NAGARAJ DATE OF HEARING: 28 . 02 .201 2 DATE OF PRONOUNCEMENT: 28.02.2012 O R D E R PER CHANDRA POOJARI, AM: I.T.A. NO. 335/HYD/2009 AND I.T.A. NO. 342/HYD/200 9 ARE RELATING TO ASSESSMENT YEAR 2006-07 AND ARE CROSS A PPEALS BY THE REVENUE AND THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(A), TIRUPATI DATED 31.12.2008. I.T.A. NO. 343/HYD/2009 IS BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE CIT(A), T IRUPATI DATED 28.1.2009 FOR ASSESSMENT YEAR 2005-06. SINCE COMMO N ISSUES ARE INVOLVED, ALL THE ABOVE THREE APPEALS ARE CLUBBED T OGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS. 335, 342 & 343 /HYD/2 009 M/S. SUGUNA CONSTRUCTIONS, ANANTAPUR ============================== 2 I.T.A. NO. 343/HYD/2009 (A.Y. 2005-06) BY REVENU E: 2. FIRSTLY, WE WILL TAKE UP I.T.A. NO. 343/HYD/2009 BY THE REVENUE. THE FACTS RELATING TO THIS ASSESSMENT YEA R ARE THAT THE ASSESSEE IS A CIVIL WORKS CONTRACTOR CARRYING ON WO RKS CONTRACT ITSELF AND ALSO ON SUB-CONTRACT BASIS. THE TOTAL C ONTRACT RECEIPTS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS RS. 5,13,29,669 AND THE ASSESSEE DECLARED INCOME AT RS. 12,26,260. ACCORDING TO THE ASSESSING OFFICER THE NET PROFIT DECLARED BY TH E ASSESSEE WORKS OUT AT 2.5%. IT IS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE INCURRED SUBSTANTIAL EXPENDITURE LIKE BITU MEN, METAL DIESEL, OIL FOR HEAVY MACHINERY LIKE TIPPERS, JCB, ROLLER AND VIBRATOR AND INCURRED LABOUR CHARGES. THE ASSESSEE ALSO PAID FOR SUB-CONTRACT WORKS. IT WAS OBSERVED BY THE ASSESSI NG OFFICER THAT MAJOR PORTION OF THE EXPENDITURE INCURRED IN CASH I S NOT PROPERLY SUPPORTED BY THE VOUCHERS ESPECIALLY PAYMENTS MADE TOWARDS EARTHWORK, LABOUR, VEHICLE REPAIRS, ETC. HE DISALL OWED THE FOLLOWING ITEMS: (A) EXPENSES DISALLOWED - RS. 9,00,000 (B) CESSATION OF LIABILITIES OF CREDITORS - RS. 12,08,345 (C) DISALLOWANCE OF GROSS RECEIPTS - RS. 1,82,412 ----------------- TOTAL RS. 22,90,757 ============= 3. THUS THE TOTAL INCOME WAS DETERMINED AT RS. 35,17,0 17. AGAINST THIS THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE ADDITION TOWARDS DISALLOWANCE OF EXPENSES AT RS. 9,00,000 AND CESSATION OF LIABILITIES AT RS. 12 ,08,345. HOWEVER, HE CONFIRMED THE ADDITION TOWARDS THE DIFF ERENCE IN GROSS RECEIPTS AT RS. 1,82,412. AGAINST THE DELETION BY THE CIT(A) IN RESPECT OF THE ABOVE TWO ITEMS, THE REVENUE IS IN A PPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. ADMITTEDLY IN THIS CASE BOOKS OF ACCOUNT ARE I.T.A. NOS. 335, 342 & 343 /HYD/2 009 M/S. SUGUNA CONSTRUCTIONS, ANANTAPUR ============================== 3 NOT RELIABLE AND ARE NOT VERIFIABLE. BEING SO, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT. AFTER REJECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER RELIED ON THE SAME B OOKS TO MAKE ADDITIONS. IN OUR OPINION, THIS IS NOT PROPER. ON CE THE ASSESSING OFFICER REJECTS THE BOOKS OF ACCOUNT IT IS FAIR TO ESTIMATE INCOME OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY AGREED FOR THIS PROPOSITION. ACCORDINGLY, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ESTIMATE THE INCOME O F THE ASSESSEE AT 8% ON THE MAIN CONTRACT WORKS CARRIED OUT BY THE ASSESSEE AND AT 4% IN THE CASE OF SUB-CONTRACTS. THEREAFTER THE ASSESSEE IS ENTITLED FOR DEDUCTION TOWARDS REMUNERATION AND INT EREST PAID TO THE PARTNERS. HOWEVER, THE ASSESSEE IS NOT ENTITLE D FOR DEDUCTION TOWARDS DEPRECIATION AS THE EXPENDITURE ALLOWABLE U /SS. 30 TO 38 OF THE ACT IS DEEMED TO HAVE BEEN ALLOWED WHEN WE E STIMATE THE INCOME OF THE ASSESSEE. FINALLY THE INCOME SO DETE RMINED CANNOT BE MORE THAN THE INCOME DETERMINED BY THE ASSESSING OFFICER. THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. I.T.A. NO. 335 & 342/HYD/2009 (A.Y. 2006-07) (CROS S APPEALS): 5. NOW COMING TO THE CROSS APPEALS RELATING TO THE ASS ESSMENT YEAR 2006-07. THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE AT 10% OF THE GROSS RECEIPTS AND THEREAFTE R HE MADE THE ADDITION TOWARDS INTEREST AND CASH CREDITS. AGAINS T THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT (A) DIRECTED THE ASSESSING OFFICER TO DISALLOW EXPENDITURE TO THE TU NE OF RS. 30,84,971 TOWARDS EXPENSES. HOWEVER, HE DELETED TH E ADDITION TOWARDS CASH CREDITS AT RS. 13,50,000 AS IT IS NOT RELATING TO ASSESSMENT YEAR UNDER CONSIDERATION. HE ALSO DELET ED DISALLOWANCE OF INTEREST AT RS. 2,51,820. HOWEVER, HE HAD GIVEN DIRECTION TO DISALLOW AN EXPENDITURE OF RS. 30,84,9 71. REGARDING THE ALLOWABILITY OF INTEREST AND REMUNERATION TO PA RTNERS, HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE SAME IN ACCORDANCE I.T.A. NOS. 335, 342 & 343 /HYD/2 009 M/S. SUGUNA CONSTRUCTIONS, ANANTAPUR ============================== 4 WITH LAW. THE ASSESSEE IS IN APPEAL BEFORE US WITH REGARD TO DISALLOWANCE OF EXPENDITURE OF RS. 30,84,971 AND AL SO FOR NOT ALLOWING DEPRECIATION. THE REVENUE IS IN APPEAL BE FORE US AGAINST THE DELETION OF ADDITION TOWARDS CASH CREDITS. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. AS HELD ABOVE IN THE CASE OF REVENUE APPEA L FOR A.Y. 2005- 06, ADMITTEDLY IN THIS CASE ALSO BOOKS OF ACCOUNT A RE NOT RELIABLE AND ARE NOT VERIFIABLE. BEING SO, THE ASSESSING OF FICER REJECTED THE BOOKS OF ACCOUNT. AFTER REJECTING THE BOOKS OF ACC OUNT, THE ASSESSING OFFICER RELIED ON THE SAME BOOKS TO MAKE ADDITIONS. IN OUR OPINION, THIS IS NOT PROPER. ONCE THE ASSESSIN G OFFICER REJECTS THE BOOKS OF ACCOUNT IT IS FAIR TO ESTIMATE INCOME OF THE ASSESSEE. IN THE PRESENT CASE CONSIDERING THE FACTS AND CIRCU MSTANCES OF THE CASE, WE ESTIMATE THE INCOME OF THE ASSESSEE AT 8% ON THE MAIN CONTRACT WORKS CARRIED OUT BY THE ASSESSEE AND AT 4 % IN THE CASE OF SUB-CONTRACTS. THEREAFTER THE ASSESSEE IS ENTIT LED FOR DEDUCTION TOWARDS REMUNERATION AND INTEREST PAID TO THE PARTN ERS. HOWEVER, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION TOWARDS DEPRECIATION AS THE EXPENDITURE ALLOWABLE U/SS. 30 TO 38 OF THE ACT IS DEEMED TO HAVE BEEN ALLOWED WHEN WE ESTIMATE THE INCOME OF TH E ASSESSEE. THE CROSS APPEALS ARE ALLOWED PARTLY. 7. IN THE RESULT, APPEALS OF THE REVENUE AND THE APPEA L OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 28 TH FEBRUARY, 2012 I.T.A. NOS. 335, 342 & 343 /HYD/2 009 M/S. SUGUNA CONSTRUCTIONS, ANANTAPUR ============================== 5 COPY FORWARDED TO: 1. THE ASST. COMMISSIONER OF INCOME - TAX, CIRCLE - 1, AAYAKAR BHAVAN, ANANTAPUR. 2. THE ADDL. COMMISSIONER OF INCOME - TAX, ANANTAPUR RANGE, ANANTAPUR. 3 . M/S. SUGUNA CONSTRUCTIONS, 12 - 356, SAI NAGAR, NEW TOWN, ANANTAPUR 4. M/S. SUGUNA CONSTRUCTIONS, C/O. M/S. BALAJI NAGARAJ & CO., CHARTERED ACCOUNTANTS, 313, SRI DATTASAI COMPL EX, RTC X ROADS, HYDERABAD-500 020. 5. THE CIT(A), TIRUPATI 6 . THE CIT, TIRUPATI CHARGE, TIRUPATI 7 . THE DR A BENCH, ITAT, HYDERABAD. TPRAO