M/s Ratna Constructions, Vijayawada V. The ACIT,Circle-2(1), Vijayawada, Vijayawada

ITA 370/VIZ/2011

• Counselvise Citation: 37025314 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Business income
• Section: 44AD; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BEFORE S/SHRI B. RAMAKOTAIAH (AM) & SAKTIJIT DEY (JM) I.T.A. NO.370/VIZ/2011 ASSESSMENT YEAR : 2007 - 08 M/S. RATNA CONSTRUCTIONS, D.NO.59 - 7 - 1 - /1A, ACHARYA RANGA STREET, GAYATRI NAGAR, VIJAYWADA. VS. ACIT, CIRCLE - 2(1), VIJAYWADA. PAN/GIR NO. : AAEFR 5790 C ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI G.V.N. HARI RESPONDENT BY : SHRI K.V.N.CHARYA DATE OF HEARING : 10/12/2013 DATE OF PRONOUNCEMENT : 13 /12/2013 O R D E R PER SAKTIJIT DEY, JM : THE ASSESEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007 - 08 AGAINST ORDER DATED 10.8.23011 OF LD CIT - VIJAYWADA, IN THE MATTER OF ORDER UNDER SECTION 263 OF THE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: 1. THE ORDER OF THE LD CIT, VIJAYWADA IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE TO THE FACTS OF THE CASE. 2. THE LD CIT ERRED IN DIRECTING THE AO TO DISALLOW THE INTEREST ON PART NERS CAPITAL OF RS.7,10,676/ - AND REMUNERATION OF RS.4,80,000/ - . 3. THE LD CIT OUGHT TO HAVE APPRECIATED THAT THE DECISION OF HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF INDWELL CONSTRUCTION DOES NOT DISENTITLE THE APPELLANT FROM CLAIMING INTEREST ON PARTNERS CAPITAL OF RS.7,10,676/ - AND REMUNERATION OF RS.4,80,000/ - . 4. THE LD CIT OUGHT TO HAVE APPRECIATED THAT THE ORDER OF THE AO IN ALLOWING INTEREST ON CAPITAL OF PARTNERS AND REMUNERATION TO PARTNERS IS NOT ERRONEOUS. 2 I.T.A. NO.370/VIZ/2011 ASSESSMENT YEAR : 2007 - 08 3. AS CAN BE SEEN FROM TH E GROUNDS RAISED, THE ASSESSEE IS BASICALLY AGGRIEVED OF THE ORDER PASSED BY THE CIT IN DIRECTING THE AO TO DISALLOW INTEREST ON PARTNERS CAPITAL OF RS.7,10,676/ - AND REMUNERATION OF RS.4,80,000/ - UNDER SECTION 40(B) OF THE ACT. 4. BRIEFLY STATED THE REL EVANT FACTS ARE , THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN CIVIL CONSTRUCTION WORK. IN THE IMPUGNED ASSESSMENT YEAR, ASSESSEE FILED ITS RETURN OF INCOME ON 25.10.2007 DECLARING TOTAL INCOME AT RS.53,90,217/ - . THE AO COMPLETED THE ASSESSMENT UNDER SEC TION 143(3) OF THE ACT VIDE ORDER DATED 8.12.2009 DETERMINING THE TOTAL INCOME OF RS.62,11,900/ - BY APPLYING THE RATE OF 8% ON GROSS CONTRACT RECEIPTS. THE COMMISSIONER OF INCOME TAX IN EXERCISE OF HIS POWER UNDER SECTION 263 CALLED FOR THE ASSESSMENT REC ORDS OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AND WHILE EXAMINING THE SAME, WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS THE ASSESSEE HAS ESTIMATED THE INCOME @ 8% ON GROSS CONTRACT RECEIPTS OF RS.8,83,25,889/ - AS PER PROFIT AND LOSS ACCOUNT, WHEREAS THE GROSS CONTRACT RECEIPTS OF THE ASSESSEE ON THE BASIS OF TDS CERTIFICATE ENCLOSED TO THE RETURN OF INCOME WORKED OUT TO RS.9,04,88,315/ - . HENCE, THE CORRESPONDIN G TDS CREDIT RESULTED IN SHORT COMPUTATION OF INCOME OF RS. 1,72,994/ - . IT WAS IN THIS BACKDROP THAT THE CIT ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE U/S.263 OF THE ACT. THE CIT IN THE SHOW CAUSE NOTICE FURTHER POINTED OUT THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REV ENUE AS THE AO AFTER ESTIMATING THE INCOME OF THE ASSESSEE HAS ALLOWED PARTNERS REMUNERATION TO THE TUNE OF RS.4,80,000/ - AND INTEREST ON CAPITAL AT RS.7,10,676IN THE COURSE OF PROCEEDINGS UNDER SECTION 263, THE ASSESSEE APPEARING BEFORE THE CIT AGREED T O THE ADDITION OF INCOME TO THE EXTENT OF RS.1,72,994. THE CIT AFTER CONSIDERING THE REPLY OF THE ASSESSEE NOTED THAT IN VIEW OF THE OBSERVATION MADE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS CIT, 232 ITR 776( AP) T O THE EFFECT THAT WHEN AN ESTIMATE IS MADE, IT IS SUBSTITUTION OF INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 30 TO 43 OF THE I.T.ACT, WHICH WOULD MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT WHILE MAKING SUCH ESTIMATE AND THUS REQUIRES NO ADDITION OR DELETION TO THE BUSINESS INCOME. THEREFORE, HE HELD THAT IN VIEW OF THE ABOVE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA), IN CASE OF ESTIMATION OF INCOME AT A FIXED RATE, NO FURTHER DEDUCTION CAN BE ALLOWED TOWARDS INTEREST ON PARTNERS CAPITAL AND REMUNERATION TO 3 I.T.A. NO.370/VIZ/2011 ASSESSMENT YEAR : 2007 - 08 WORKING PARTNERS. THE CIT FURTHER OBSERVED THAT WHERE TWO CONTRARY DECISIONS ON AN ISSUE ARE AVAILABLE, THE DECISION OF JURISDICTIONAL HIGH COUR T IS TO BE TAKEN INTO COGNIZANCE IN DECIDING THE CASE OF SIMILAR ISSUE. THEREFORE, THE CIT TREATED THE ORDER PASSED BY THE AO U/S.143(3) TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, AND, ACCORDINGLY, SET ASIDE THE SAME AND DIRECTED THE AO TO DISALLOW THE AMOUNT OF RS.7,10,676/ - AND RS.4,80,000/ - BEING THE INTEREST ON PARTNERS CAPIT AL AND REMUNERATION TO WORKING PARTNERS, RESPECTIVELY. 5. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. IT IS A FACT ON RECORD THAT THE INCOME OF THE ASSESSEE WAS ESTIMATED @ 8% BY REJECTING BOOKS OF ACCOUNT. THE DISPUTE IS ONLY WITH REGARD TO THE FACT THAT AS TO WHETHER AFTER ESTIMATING THE INCOME FURTHER DEDUCTION CAN BE ALLOWED TOWARDS REMUNERATION AND I NTEREST PAYMENT TO THE PARTNERS. THE CIT IN EXERCISE OF HIS POWER U/S.263 OF THE ACT HAS DIRECTED THE AO TO DISALLOW THE EXPENDITURE CLAIMED BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA). HOW EVER, IT IS TO BE NOTED THAT THE VISAKHAPATNAM BENCH AS WELL AS THE HYDERABAD BENCH ES OF THIS TRIBUNAL IN A NUMBER OF DECISIONS AFTER TAKING INTO CONSIDERATION THE RATIO LAID DOWN IN INDWELL CONSTRUCTIONS (SUPRA) HAVE HELD THAT EVEN IN CASE OF ESTIMATION O F INCOME, FURTHER DEDUCTION TOWARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IS ALLOWABLE. THE ITAT HYDERABAD BENCH IN THE CASE OF P .ESWAR REDDY, (I.T.A. NO.668/HYD/2009) DT.31.1.2011 WHILE CONSIDERING AN IDENTICAL ISSUE NOTED THAT THE DECISION OF I NDWELL CONSTRUCTION (SUPRA) WAS DELIVERED PRIOR TO THE INTRODUCTION OF SECTION 44AD OF THE ACT. HENCE, THE TRIBUNAL HELD THAT AFTER THE INTRODUCTION OF SECTION 44AD OF THE ACT, EVEN IN CASE OF ESTIMATION OF INCOME FURTHER DEDUCTION TOWARDS REMUNERATION AN D INTEREST PAYMENT TO PARTNERS IS ALLOWABLE. SAME VIEW WAS AGAIN REITERATED BY THE ITAT HYDERABAD BENCH IN THE CASE OF VENKATESWARA SWAMY LORRY SERVICES (I.T .A. NO.903 & 353/HYD/2009) DATED 25.11.2009. WHEN THE DEPARTMENT PREFERRED APPEAL AGAINST THIS O RDER OF THE TRIBUNAL, HONBLE JURISDICTIONAL HIGH COURT UPHELD THE VIEW OF THE ITAT HYDERABAD IN JUDGMENT DT.25.6.2013 IN ITTA NO.82 OF 2013 BY HOLDING THAT IN VIEW OF CBDT CIRCULAR DATED 31.8.1965, RELIED UPON BY THE TRIBUNAL, INTEREST HAS TO BE ALLOWED SEPARATELY EVEN IN CASE OF ESTIMATION OF PROFIT. SINCE THE VIEW TAKEN BY THE AO IS IN CONSONANCE WITH THE DECISION OF THE COORDINATE BENCH ES OF THE TRIBUNAL AND THAT VIEW IS ONE OF THE POSSIBLE VIEWS , THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) CANNOT BE HELD TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE 4 I.T.A. NO.370/VIZ/2011 ASSESSMENT YEAR : 2007 - 08 INTERESTS OF THE REVENUE ON THIS ISSUE . IN THE AFORESAID VIEW OF THE MATTER, WE DIRECT THE AO NOT TO DISALLOW THE INTEREST AND REMUNERATION PAYM ENT TO PARTNERS. THE ORDER OF THE CIT IS MODIFIED TO THIS EXTENT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/ 12/2013 . SD/ - S D/ - (B.RAMAKOTAIAH ) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER VISHAKHAPATNAM DATED 13 / 12/2013 PARIDA , SR. PS COPY OF THE ORDER F ORWARDED TO : 1. THE APPELLANT : M/S. RATNA CONSTRUCTIONS,D.NO.59 - 7 - 1 - /1A, ACHARYA RANGA STREET, GAYATRI NAGAR, VIJAYWADA 2. THE RESPONDENT. : ACIT, CIRCLE - 2(1), VIJAYWADA 3. THE CIT(A) - VIJAYWADA 4. CIT , VIJAYWADA 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//