S. Thirupathi Reddy & Co., Karimnagar, Karimnagar V. ITO, Ward-4, Karimnagar, Karimnagar

ITA 362/HYD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2706 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Unexplained investment
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 362/HYD/2015 ASSESSMENT YEAR: 2010-11 M/S. S. THIRUPATHI REDDY & CO., RAMAGUNDAM, KARIMNAGAR [PAN: AAXFS4227J] VS THE INCOME TAX OFFICER, WARD-4, KARIMNAGAR (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHU RAM, AR FOR REVENUE : SHRI SUNKU SRINIVAS, DR DATE OF HEARING : 04-01-2018 DATE OF PRONOUNCEMENT : 10-01-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-2, HYDERABAD D ATED 27-01-2015. THE ISSUES IN THIS APPEAL ARE WITH REFERE NCE TO ESTIMATION OF INCOME AND ADDITION U/S. 68 OF THE INCOM E TAX ACT [ACT]. 2. BRIEFLY STATED, ASSESSEE-FIRM IS STATED TO BE ENGAGED IN THE BUSINESS OF LABOUR SUPPLY CONTRACT AND FILED THE RETURN OF INCOME AT RS. 8,54,110/-. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF I.T.A. NO. 362/HYD/2015 :- 2 - : THE ACT ON 27-02-2013, ESTIMATING THE INCOME AT 8% OF THE GROSS RECEIPTS OF RS. 17.18 CRORES, AFTER REJECTING THE BOOK S OF ACCOUNT. ASSESSING OFFICER (AO) ALSO NOTICED THAT THERE WAS A FRESH CAPITAL INVESTMENT BY THE PARTNERS TO AN EXTENT OF RS. 28 LAKHS A ND IN THE ABSENCE OF ANY DOCUMENTARY PROOF OF THE SAME, TREATED THE AMOUNT AS UNEXPLAINED INVESTMENT( SIC ) OF THE FIRM (SECTION NOT CLEARLY STATED). AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD.CIT(A), WHO CONFIRMED THE ESTIMATION AT 8% FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF ITAT IN THE CASE OF M/S. K. RAMAKRISHNA CONTRACTORS, PVT. LTD., IN ITA NO. 461/HYD /2006, DT. 04-12-2009, BUT DIRECTED THE AO TO ALLOW THE INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS UNDER THE PROVISIONS OF SE CTION 40(B). WITH REFERENCE TO UNEXPLAINED INVESTMENT IN THE F IRM, LD.CIT(A) CONFIRMED THE SAME STATING THAT ASSESSEE FAIL ED TO SUBSTANTIATE ITS CLAIM WITH NECESSARY DOCUMENTARY EVIDE NCE. 3. IT WAS THE SUBMISSION OF LD. COUNSEL THAT ASSESSEE H AS BEEN DOING THE BUSINESS FOR A LONGER PERIOD AND IN THE L ABOUR SUPPLY CONTRACTS ASSESSEE IS DECLARING INCOMES AROUND 5% IN EARLIER YEARS, HENCE, ESTIMATION AT 8% IS ON HIGHER SIDE. WITH REFERE NCE TO SHARE CAPITAL OF THE PARTNERS, IT WAS SUBMITTED THAT FIRM IS AN EXISTING FIRM AND PARTNERS HAVE INTRODUCED CAPITAL OUT OF THEIR O WN SOURCES, HENCE, CANNOT BE TREATED AS INCOME OF THE FIRM. IF ASSESSEES CONTENTIONS ARE NOT ACCEPTED, THEN LD. COUNSEL WANTED TH E BENEFIT OF TELESCOPING OF THE SHARE CAPITAL INTO THE HIGHER INC OME ESTIMATED. 4. LD.DR, HOWEVER, SUBMITTED THAT ASSESSEE HAS NOT FURN ISHED THE BOOKS OF ACCOUNT AND BOOKS ARE PROPERLY REJECTED AND IT WAS I.T.A. NO. 362/HYD/2015 :- 3 - : ALSO SUBMITTED THAT ESTIMATION AT 8% WAS APPROVED BY THE I TAT IN SIMILAR NATURE OF WORK AND RELIED ON THE CO-ORDINATE BENCH DECISION AS STATED IN CIT(A) ORDER. WITH REFERENCE TO SHARE CAPITAL ADDITION, IT WAS SUBMITTED THAT ASSESSEE HAS NOT FURNISHE D ANY EVIDENCE, HENCE AO HAS TREATED THE AMOUNTS AS UNEXPL AINED CREDITS. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE DOCUMENTS PLACED ON RECORD. AS SEEN FROM THE VARIOUS TDS CERTIFICATES PLACED ON RECORD ALONG WITH RETURN, ASSES SEE IS NOT ONLY IN SUPPLY OF LABOUR BUT ALSO IN CIVIL CONTRACT AND THE RE IS WORK IN PROGRESS IN P&L A/C AND BALANCE SHEET. THEREFORE, A SSESSEE IS NOT PURELY LABOUR SUPPLY CONTRACTOR BUT ALSO INVOLVED IN OTHER CONTRACTS OF CIVIL NATURE. KEEPING THAT IN MIND, WE ARE OF THE OPINION THAT THE ESTIMATION OF INCOME AT 8% AND THEN, ALL OWING INTEREST ON CAPITAL AND REMUNERATION TO WORKING PARTNER S IS APPROPRIATE. THE CO-ORDINATE BENCH DECISION IN THE CA SE OF M/S. K. RAMAKRISHNA CONTRACTORS, PVT. LTD., (SUPRA) HAS SIMI LARLY DECIDED WHICH THE LD. CIT(A) HAS FOLLOWED. WE DO NO T FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LD.CIT(A) IN THIS REGARD. ACCORDINGLY, THE ESTIMATION OF INCOME AT 8% ON THE GRO SS BILLS AND ALLOWING INTEREST ON CAPITAL AND REMUNERATION TO WORKING PARTNERS U/S. 40(B) OF THE ACT IS CONFIRMED. 5.1. COMING TO THE ISSUE OF SHARE CAPITAL INTRODUCED B Y THE PARTNERS, IT IS TRUE THAT ASSESSEE HAS NOT SUBSTANTIATED THE CLAIM BEFORE THE AUTHORITIES. HOWEVER, THE FIRM IS ALREADY A N EXISTING FIRM AND PARTNERS ARE ALREADY ON RECORD. THEREFORE, THE IDENTITY OF THE PARTNERS IS NOT IN DOUBT. IN THOSE CIRCUMSTANCES, THE SHARE I.T.A. NO. 362/HYD/2015 :- 4 - : CAPITAL COULD HAVE BEEN EXAMINED IN THE INDIVIDUAL PA RTNERS HANDS. MOREOVER, THE ALLOWANCE OF INTEREST ON CAPITAL IS ALSO LINKED WITH THAT OF SHARE CAPITAL OF THE PARTNERS. THEREFOR E, WE ARE OF THE OPINION THAT ADDITION OF SHARE CAPITAL IN THE FIRM IS PER SE NOT LEGALLY TENABLE. FURTHER AO CONSIDERS THE SAME AS UNEX PLAINED INVESTMENT OF FIRM, RATHER THAN UNEXPLAINED CREDITS. THI S IS NOT AS PER THE PROVISIONS OF THE ACT. HOWEVER, SINCE ASSESSE E SUBMITS THAT THE PARTNERS HAVE SOURCES, PARTICULARLY OF WITHDRAW ALS OF EARLIER YEARS, THIS ASPECT REQUIRES EXAMINATION BY THE AO. THEREFORE, WITHOUT ADJUDICATING THE ISSUE ON MERITS, W E RESTORE THE ISSUE TO THE FILE OF AO TO EXAMINE AND IF THE PARTNERS ARE EXISTING PARTNERS, THEN, AO IS FREE TO TAKE NECESSARY STEPS TO TAX THE AMOUNTS IN THEIR HANDS, SUBJECT TO THE PROVISIONS OF INC OME TAX ACT. THE GROUNDS ARE ACCORDINGLY CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JANUARY, 2018 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 10 TH JANUARY, 2018 TNMM I.T.A. NO. 362/HYD/2015 :- 5 - : COPY TO : 1. M/S. THIRUPATHI REDDY & CO., 5-6-160/B, KRISHNA NAGAR, NTPC JYOTHI NAGAR, RAMAGUNDAM, KARIMNAGAR. 2. INCOME TAX OFFICER, WARD-4, KARIMNAGAR. 3. CIT (APPEALS)-2, HYDERABAD. 4. CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.