Srinivasa Civil Works Pvt. Ltd., Hyderabad V. Dy.CIT, Circle-3(2), Hyderabad

ITA 352/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69996 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation
• Section: 145

Judgement Text

ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.352/HYD/2012 (ASSESSMENT YEAR: 2008-09) SRINIVASA CIVIL WORKS PRIVATE LIMITED HYDERABAD PAN-AAECS 1716 J VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI RAMAKRISHNA BANDI, DR DATE OF HEARING : 18/03/2015 DATE OF PRONOUNC EMENT : 20 /03/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL HAS BEEN RECALLED BY ORDER DATED 13.10 .2014 IN M.A. NO.132/HYD/2014 ARISING OUT OF ITA NO. 352/HYD /2014 FOR THE A.Y 2008-09. 2. GROUND NOS. 1 & 6 ARE GENERAL IN NATURE. GROUND NO. 2 IS AS FOLLOWS: '2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT AND IN HOLDING THAT THE PROVISIONS OF SEC. 145 OF THE IT ACT ARE APPLICABLE TO THE FACTS OF THE CASE. ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 2 OF 8 3. BRIEFLY THE FACTS RELATING TO THIS ISSUE ARE THA T ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF 'EXECUTION OF CIVIL WORKS' SUCH AS DAMS, CANALS, BRIDGES ETC., IN THE STATES O F ANDHRA PRADESH, MADHYA PRADESH, UTTER PRADESH AND CHATTISG ARH. DURING THE YEAR, IT HAD SUB-CONTRACTED THE CONTRACT WORKS TO M/S VENKATA KRISHNA CONSTRUCTIONS P. LD., M/S SIR VENKA TA SAI CONSTRUCTIONS & CO. AND M/S LAXMI SUMA CONSTRUCTION S & CO., ETC. IT HAD ITSELF EXECUTED WORKS TO THE EXTENT OF RS. 5.40 CRORES, OUT OF THE TOTAL TURNOVER OF RS. 47.90 CRORES, MEAN ING THEREBY THAT MAJORITY OF THE WORKS I.E. WORKS WORTH TO RS. 42.50 CRORES, WERE SUB CONTRACTED TO THE ABOVE SUB CONTRACTORS. T HE ASSESSEE RECEIVED COMMISSION VARYING FROM 1.18% TO 5% FROM T HE SUB CONTRACTORS, DEPENDING UPON THE NATURE OF WORK, PLA CE OF WORK AND OTHER SITE CONDITIONS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS AND VOUCHERS IN RESPECT OF THE WORKS COMPLETED BY IT ALONG WITH ITS BOOKS OF ACCOU NTS AND WAS ALSO REQUIRED TO FURNISH THE SUB CONTRACT AGREEMENT S AND THE DETAILS OF TDS MADE ON THE SUB CONTRACT AMOUNTS PAI D TO THE ABOVE MENTIONED PARTY. FROM THE DETAILS AND VOUCHER S OF THE WORKS SUBMITTED BY THE ASSESSEE, THE AO FOUND THAT THE VOUCHERS HAD NOT BEEN MAINTAINED PROPERLY AND BESID ES, SOME OF THE VOUCHERS WERE SELF MADE. IT WAS CONTENDED BEFOR E HIM THAT ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 3 OF 8 EXPENDITURE HAD ACTUALLY BEEN INCURRED AND FURTHER THAT MAINTENANCE OF SELF MADE VOUCHERS IS A NORMAL PRACT ICE IN THE BUSINESS OF CIVIL CONTRACTORS. HE CONTENDED THAT AL L THE SAID VOUCHERS WERE GENUINE. THE AO FOUND THAT SIMILAR ST ATE OF AFFAIRS IN RESPECT OF WORKS EXECUTED BY THE SUB CONTRACTORS ALSO. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS TO W HY ITS BOOKS OF ACCOUNT SHOULD NOT BE REJECTED FOR NON MAINTENANCE OF PROPER VOUCHERS, AS THE MARGIN OF NET PROFIT WAS VERY LOW AND THE ASSESSEE WAS ALSO REQUIRED TO SHOW REASON AS TO WHY THE NET PROFIT SHOULD NOT BE ESTIMATED AND ADOPTED @ 8%. 5. THOUGH THE AR OF ASSESSEE INITIALLY OBJECTED TO THE REJECTION OF THE BOOKS OF ACCOUNT, WHEN CONFRONTED WITH THE DEFI CIENCIES IN THE BILLS AND VOUCHERS, AS ALSO THE ABSENCE OF THE DETAILS AND EVIDENCE REGARDING ARRIVAL OF PLANT & MACHINERY AT THE WORK SITES, HE EXPRESSED NO OBJECTION FOR THE SAME. IT WAS HOWE VER REQUESTED THAT INCOME IN RESPECT OF WORKS DONE BY THE ASSESSE E ITSELF TO THE TUNE OF RS. 5,39,78,537/- BE ESTIMATED AT 8%, BEFOR E ALLOWANCE FOR DEPRECATION. HOWEVER, SINCE THE BOOKS OF ACCOUN T WERE REJECTED AND THE LOSSES BEING DISALLOWED INCLUDED T HE LOSS ON ACCOUNT OF DEPRECIATION, THE AO DETERMINED INCOME F ROM OWN WORKS OF THE ASSESSEE OF RS. 5.40 CRORES @ 8%, CLEA R OF DEPRECIATION. ON APPEAL, THE CIT(A) CONFIRMED THE A CTION OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 4 OF 8 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. AS SEEN FROM THE ORDER OF THE AO, WHEN THE A O POINTED OUT THE DEFECTS IN THE BOOKS OF ACCOUNT BY OBSERVIN G THAT ASSESSEE WAS NOT ABLE TO PRODUCE BILLS AND VOUCHERS AND MOST OF THE VOUCHERS ARE SELF-MADE VOUCHERS, THE AR OF ASSE SSEE STATED BEFORE THE AO THAT HE HAS NO OBJECTION IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATION OF INCOME AT 8% ON GROSS REC EIPTS. BEING SO, ONCE THE ASSESSEE IS ACCEPTED THE REJECTION OF BOOKS OF ACCOUNT BEFORE THE AO, THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE THAT THE AO ERRED IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATION OF INCOME AT 8% ON GROSS RECEIPTS. THERE FORE, THE GROUNDS RAISED BY THE ASSESSEE DO NOT HAVE ANY MERI T AND HENCE THE SAME ARE HEREBY REJECTED. GROUND NOS. 2 IS DISM ISSED. 7. GROUND NO.3 IS AS FOLLOWS: 3. THE LD CIT(A) ERRED IN HOLDING THAT THE ROYALTY AND COMMISSION RECEIVED OF RS.1,39,54,683/- IS ENTIRELY LIABLE FOR TAXATION WITHOUT CONSIDERING THAT THE APPELLANT HAD TO INCUR SEVERAL EXPENSES WITH REGARD TO THE SAID AMOUNT INCLUDING PROVISION OF BANK GUARANTEE FOR WHICH INTEREST IS PAID. 8. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT T HERE ARE CERTAIN RECOVERIES INCLUDED IN THE RECEIPTS AND THE SAME HAVE TO BE REDUCED FROM THE GROSS TURNOVER. FOR THIS PROPOS ITION, HE ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 5 OF 8 RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BRIJ BHUSHAN LAL PARDUMAN KUMAR VS. CIT, 115 ITR 52 4 (SC) WHEREIN IT WAS HELD THAT WHILE MAKING ASSESSMENT, T HE AO MUST MAKE HONEST AND FAIR ESTIMATION OF THE INCOME OF AS SESSEE AND THOUGH ARBITRARINESS CANNOT BE RULED OUT IN SUCH ES TIMATION, THE SAME MUST NOT BE CAPRICE, BUT, SHOULD HAVE REASONAB LE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF THE CAS E. ACCORDING TO THE LEARNED COUNSEL, RECOVERIES HAVE NO PROFIT E LEMENT AND, THEREFORE, THE SAME SHOULD BE EXCLUDED FROM THE GRO SS RECEIPTS. 9. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE ASSESSEE HAS NOT PRODUCED NECESSARY DETAILS OF RECO VERIES BEFORE THE AO, BEING SO, IT IS NOT POSSIBLE FOR THE AO TO DETERMINE THE RECOVERIES. THE LD DR ALSO STATED THAT SPECIFIC GRO UND OF APPEAL IN THIS REGARD WAS NOT RAISED BEFORE THE CIT (A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN PRINCIPLE WE AGREE WITH THE CONTENTION OF THE ASSES SEE'S COUNSEL, HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF RECOVERIES, WHICH DO NOT CONTAIN ELEMENT OF PROFIT BEFORE THE A O. THEREFORE, CONSIDERING THE PLEA OF THE ASSESSEE, WE DIRECT THE AO TO EXCLUDE THE RECOVERIES IF ANY, RECEIVED FROM THE PARTIES FO R BEING USED IN WORKS UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE IS D IRECTED TO ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 6 OF 8 PRODUCE THE NECESSARY DETAILS/MATERIAL IN SUPPORT O F ITS CLAIM. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO.4 IS AS FOLLOWS: ' THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ROYALT Y AND COMMISSION RECEIVED AT RS. 1,39,54,683/- IS ENTIRELY LIABLE FOR TAXATION WITHOUT CONSIDERING THAT THE APPELLANT HAD TO INCUR SEVERAL EXPENSES WITH REGARD TO THE SAID AMOUNT INC LUDING PROVISION OF BANK GUARANTEE FOR WHICH INTEREST IS P AID . 12. THE AO WORKED OUT THE ROYALTY/COMMISSION RECEI VABLE ON THE WORKS ALIENATED TO THE SUB-CONTRACTORS HAD BEEN WORKED OUT AT RS. 1,39,54,683/- ADOPTING THE VALUE OF THE WORK ALIENATED TO THE SUB-CONTRACTORS AS PER THE TDS CERTIFICATES AND APPLYING THE PERCENTAGE OF ROYALTY AGREED UPON AS PER THE RESPEC TIVE SUB- CONTRACT AGREEMENT. 13. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBM ITTED THAT THE AO TREATED THE ENTIRE ROYALTY RECEIPT OF RS. 1, 39,54,683/- AS THE NET INCOME OF THE ASSESSEE. HE AVERRED THAT THE ASSESSEE HAD INCURRED SOME EXPENDITURE, WHICH WAS ATTRIBUTABLE T O THE COMMISSION RECEIPTS. EXPLAINING THE SAME, HE SUBMIT TED THAT THE ASSESSEE HAD DEPOSITED AMOUNTS WITH THE GOVERNMENT FOR OBTAINING CONTRACTS AND INTEREST HAD TO BE PAID THE REON TO THE EXTENT OF RS. 2,75,17,000/-. BESIDES, HE CLAIMED TH AT EVEN MAJOR PART OF ADMINISTRATIVE CHARGES AND EMPLOYEES CHARG ES, AMOUNTING TO RS. 1.89 CRORES, ARE ATTRIBUTABLE TO T HE WORKS ON ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 7 OF 8 SUB-CONTRACT, WHICH SHOULD HAVE BEEN REDUCED IN PRO PORTIONATE RECEIPTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE ACTION OF THE AO BY HOLDING TH AT THE ASSESSEE HAD NOT BEEN ABLE TO DEMONSTRATE THAT ANY EXPENDITURE HAS BEEN SPECIFICALLY INCURRED FOR EARNING SUCH ROYALTY/COMMISSION. 14. WE ARE OF THE OPINION THAT IN RESPECT OF THE CO NTRACT WORKS WHICH WERE ALLOTTED TO SUB CONTRACTORS, THE ASSESSE E MIGHT HAVE HAD TO INCUR EXPENDITURE IN WHICH CASE THE ENTIRE R OYALTY AMOUNT CANNOT BE THE INCOME OF THE ASSESSEE. IN THESE CIRC UMSTANCES, WE REMIT THE ISSUE TO THE FILE OF THE AO TO GIVE ONE M ORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE THE EXPENDITURE INC URRED BY HIM AND THE AO SHALL THEREAFTER DECIDE THE ISSUE IN ACC ORDANCE WITH LAW. 15. GROUND NO.5 IS AS FOLLOWS: 'THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE IN TREATING THE INTEREST INCOME OF RS. 18,04,044/- SEPA RATELY WHEN THE NET INCOME IS ESTIMATED.' 16. THE GRIEVANCE OF THE ASSESSEE BEFORE THE CIT(A ) WAS THAT HAVING ESTIMATED THE NET INCOME FROM BUSINESS, THE AO SHOULD NOT HAVE ADDED THE OTHER INCOME, INCLUDING THE INTE REST INCOME OF RS. 18,04,044/-. THE CIT(A) HELD THAT THIS GROUN D WAS NOT ITA NO.352 OF 2012 SRINIVASA CIVIL WORKS PVT LTD HY DERABAD PAGE 8 OF 8 PRESSED DURING THE APPELLATE PROCEEDINGS, NOR ANY S UBMISSIONS HAVE BEEN MADE IN THIS REGARD IN THE STATEMENT OF F ACTS. HE ACCORDINGLY DISMISSED THE GROUND. 17. AS THIS GROUND WAS NOT PRESSED BEFORE THE CIT( A), WE DECLINE TO ENTERTAIN THIS GROUND AT THIS STAGE. THE REFORE, GROUND NO. 5 IS DISMISSED. 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 20 TH MARCH, 2015. VNODAN/SPS COPY TO: 1. SRINIVASA CIVIL WORKS PVT. LTD., C/O SRI S. RAMA RA O, ADVOCATE, FLAT NO. 102, SHRIYA'S RESIDENCY, ROAD NO. 9, HIMAYATNAGAR, HYDERABAD. 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(2)HYDERABA D 3. THE CIT(A) IV HYDERABAD 4. THE CIT III HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER