THE Dy. CIT, CIRCLE - 2(1), Vijayawada V. Sri Vennapusa Koti Sankara Reddy, Vijayawada

ITA 42/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9694 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S ARAVINDAKSHAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

ITA NO.42/VIZAG/2013 V. KOTI SANKARA REDDY, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.42/VIZAG/2013 ( / ASSESSMENT YEAR: 2008-09) DCIT, CIRCLE - 2(1), VIJAYAWADA VS. V. KOTI SANKARA REDDY, VIJAYAWADA [PAN: AAUPV0329B ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI R.S. ARAVINDAKSHAN, DR / RESPONDENT BY : SHRI A.S.R.S.S. SIVA PRASAD, AR / DATE OF HEARING : 19.10.2016 / DATE OF PRONOUNCEMENT : 22.11.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY REVENUE IS DIRECTED AGAINST T HE ORDER OF CIT(A), VIJAYAWADA DATED 23.11.2012 FOR THE ASSESSM ENT YEAR 2008-09. ITA NO.42/VIZAG/2013 V. KOTI SANKARA REDDY, VIJAYAWADA 2 2. THE FACTS ARE IN BRIEF THAT THE ASSESSEE, AN IND IVIDUAL, IS ENGAGED IN THE BUSINESS OF EXECUTION OF CONTRACT WORKS. HE HAS FILED A RETURN OF INCOME BY DECLARING TOTAL INCOME OF ` 85,94,070/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'), THEREAFTER THE A SSESSEES CASE IS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE A.O. HAS ASKED THE ASSESSEE TO PRODUCE BILLS AND VOUCHERS FO R ALL THE EXPENSES DEBITED TO TRADING AND PROFIT & LOSS ACCOUNT. AFTE R VERIFICATION OF BILLS AND VOUCHERS FOR THE EXPENSES DEBITED UNDER THE HEA D SUB CONTRACT AND LABOUR PAYMENTS, IT WAS OBSERVED THAT MOST OF THE B ILLS AND VOUCHERS ARE SELF-MADE ONES. THE A.O. HAS ASKED THE ASSESSE E TO SUBSTANTIATE THE EXPENDITURE WITH NECESSARY EVIDENCE. THE ASSES SEE COULD NOT PRODUCE THE EVIDENCES TO SUBSTANTIATE THE ABOVE EXP ENDITURE. THE A.O. HAS PROPOSED TO ESTIMATE THE INCOME OF THE ASSESSEE AT 12.5%. THE ASSESSEE HAS SUBMITTED THAT THE ESTIMATION PROPOSED BY A.O. IS ON HIGHER SIDE AND THE SAME MAY BE REDUCED. HOWEVER, THE A.O. HAS ESTIMATED INCOME AT 12.5% ON THE MAIN CONTRACTS, 8% ON SUB CONTRACT WORKS. ACCORDINGLY, ASSESSMENT IS COMPLETED. ASSE SSEE CARRIED MATTER IN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT HE H AS FILED ALL THE BOOKS OF ACCOUNTS BEFORE THE A.O. BUT THE A.O., WITHOUT P OINTING OUT ANY ITA NO.42/VIZAG/2013 V. KOTI SANKARA REDDY, VIJAYAWADA 3 MISTAKES, SIMPLY REJECTED THE SAME AND ESTIMATION I S MADE. ALTERNATIVELY, HE HAS SUBMITTED BEFORE THE LD. CIT( A) THAT THE ESTIMATION MADE BY THE A.O. IS ON HIGHER SIDE AND THE SAME MAY BE SCALED DOWN. THE LD. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE ENHANCED THE BUSINESS INCOME OF THE ASSESSEE TO ` 10 LAKHS AND ADDED SAME TO THE INCOME RETURNED BY THE ASSESSEE. 3. REVENUE CARRIED MATTER IN APPEAL BEFORE THE TRIB UNAL. THE D.R. STRONGLY SUPPORTED THE ORDER PASSED BY THE A.O. 4. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPOR TED THE ORDER PASSED BY THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, ASSESSEE IS CARRYING CIVIL CONTRACT WORKS. S OME OF THE WORKS ASSESSEE IS CARRYING HIMSELF DIRECTLY AND SOME OF T HE WORKS CARRYING THROUGH SUB CONTRACTORS. ASSESSEE HAS FILED ALL TH E DETAILS BEFORE THE A.O. IN RESPECT OF THE EXPENDITURE INCURRED TOWARDS MAIN CONTRACT WORKS AS WELL AS SUB CONTRACT WORKS. THE A.O. IS NOT SAT ISFIED WITH THE BILLS AND VOUCHERS SUBMITTED BY THE ASSESSEE AND THEREFOR E, HE HAS RESORTED TO ESTIMATION OF INCOME AT 12% ON MAIN CONTRACT WOR KS AND 8% ON SUB CONTRACT WORKS. THE ASSESSEE HAS RAISED AN OBJECTI ON BEFORE THE LD. ITA NO.42/VIZAG/2013 V. KOTI SANKARA REDDY, VIJAYAWADA 4 CIT(A) IN RESPECT OF THE REJECTION OF THE BOOKS OF ACCOUNTS AND SUBMITTED THAT WITHOUT POINTING OUT ANY MISTAKE, B OOKS WERE REJECTED, THEREFORE, ESTIMATION IS NOT CORRECT. THE LD. CIT( A) AFTER CONSIDERING THE SUBMISSIONS, TAKING INTO CONSIDERATION OF VARIO US BUSINESS ACTIVITIES CARRIED BY THE ASSESSEE, HE HAS ENHANCED THE BUSINE SS INCOME OF THE ASSESSEE TO ` 10 LAKHS AND ADDED THE SAME TO THE RETURN OF INCOM E AND DIRECTED THE A.O. TO ACT ACCORDINGLY. RELEVANT POR TION OF THE ORDER IS EXTRACTED AS UNDER: 6. I HAVE SEEN THE SUBMISSIONS MADE BY THE APPELLAN T, GONE THROUGH THE ASSESSMENT ORDER BESIDES PERUSING THE CASE LAWS RELIED UPON. THE ADJUDICATION OF THE ISSUES ARE AS UNDER. 6A. THE MAIN CONTENTION IS WHETHER REJECTION OF BOO KS IS JUSTIFIED. FOR THAT, ONE HAS TO SEE WHETHER THE ACT OF THE AO IN R EJECTING THE BOOKS IS CORRECT OR NOT. THE FINDING OF THE AO IS THAT CERTA IN VOUCHERS WERE SELF MADE. THIS IS A GENERAL REMARK AS SELF MADE VOUCHER S IN CIVIL WORKS ARE OFTEN FOUND. FOR THIS REASON, REJECTION OF BOOKS IS NOT WARRANTED, BECAUSE, THE EXPENDITURE WAS NOT DOUBTED NO- GIVEN ANY FINDI NG THAT SUCH EXPENDITURE WAS NOT INCURRED, BUT LEGITIMACY OF VOU CHERS AND AUTHENTICITY OF THE SAME IS DOUBTED. FOR THESE REASONS, IN MY HU MBLE OPINION, REJECTION OF BOOKS IS NOT THE SOLUTION. HERE, ONE H AS TO NOTE THE FINDINGS OF THE AO THAT SOME VOUCHERS ARE SELF MADE. IF SELF MADE VOUCHERS ARE THE BASIS FOR REJECTION OF BOOKS, EVERY CONTRACTOR WILL BE SUBJECTED TO ESTIMATION OF INCOME, WHICH IS NOT THE INTENTION OF THE STATUTES UNDER WHICH THE BUSINESSES ARE REGULATED. THE AO MENTIONE D THAT PORTION OF THE EXPENSES WERE THROUGH SELF MADE VOUCHERS, BUT NEVER DOUBTED OR COMMENTED ON THE GENUINENESS OF THE SAME. FURTHER, THE AO AT NO POINT OF TIME FOUND ANYTHING ON RECORD ABOUT THE INCORREC TNESS OF EXPENDITURE INCURRED BY THE APPELLANT. THUS, IT HAS TO BE HELD THAT THE AO HAS REJECTED BOOKS WITHOUT BRINGING ANY COGENT MATERIAL ON RECOR D WHICH IS NOT APPRECIATED. BUT, HOWEVER, THE FINDING OF THE AO TH AT PORTION OF EXPENSES SUPPORTED BY SELF MADE VOUCHERS REMAINS. IN MY CONS IDERED OPINION, FOR MAINTAINING SELF MADE VOUCHERS FOR PART OF THE EXPE NDITURE, THE WAY OUT WOULD BE MAKING SUITABLE ADDITION TO ARREST THE LIK ELY LEAKAGE OF REVENUE. 6B. THE NEXT ISSUE IS WHETHER KNR CONSTRUCTIONS LTD IS COMPARABLE TO THAT OF THE APPELLANT? ON GOING THROUGH THE SUBMISS IONS MADE BY THE AR, ITA NO.42/VIZAG/2013 V. KOTI SANKARA REDDY, VIJAYAWADA 5 IT TRANSPIRES THAT THE KNR CONSTRUCTIONS LTD IS IN THE LINE OF CIVIL CONTRACTORS, WHEREAS THE APPELLANT IS IN THE LINE O F LEVELING THE GROUND, REMOVAL OF ROCK, CONTROL BLASTING ETC. WHILE THE K NR CONSTRUCTIONS LTD IS A CORPORATE BODY WITH HUGE INFRA STRUCTURE AND CAPITA L AT ITS DISPOSAL, THE APPELLANT IS AN INDIVIDUAL STATIONED AT VIJAYAWADA, BUT EXECUTING DIFFERENT WORKS AT DIFFERENT PLACES ON HIS OWN. WHILE THE KN R CONSTRUCTIONS LTD TAKES WORKS MAINLY FROM GOVERNMENT SECTOR, WHEREAS THE APPELLANT EXECUTED MORE THAN 90% OF WORKS DURING THE YEAR TO PATEL ENGINEERING LTD, MUMBAI. THUS, THERE ARE INHERENT DIFFERENCES B ETWEEN THESE TWO ENTITIES IN MANY RESPECTS AND HENCE COMPARISON OF R ESULTS, AS SUBMITTED BY THE AR DURING THE COURSE OF APPEAL HEARINGS, IS NOT WARRANTED AND AS SUCH ADOPTING THE SAME MODE FOR ESTIMATION OF INCOM E IS ALSO NOT APPROVED. 6C. WHAT IS THE FATE OF ESTIMATION MADE BY THE AO? AS STATED AT PARA NO 6A ABOVE, THE DECISION OF THE AO IN REJECTING TH E BOOKS WAS NOT APPROVED. IT WAS ALSO MENTIONED ABOVE THAT FOR THE F INDING OF THE AG SUITABLE ADDITION IS WARRANTED. FOR THAT PURPOSE, T HE TRADING RESULTS OF THE APPELLANT WERE EXAMINED AND FOUND THAT A SUITABLE A DDITION IS WARRANTED IN THE ITEM SUB CONTRACT AND LABOR PAYMENTS OF RS.4 ,91,00,480/-. THIS HEAD OF EXPENDITURE CONSISTS OF PAYMENTS OF RS.1,77 ,73,820/- TO SUB- CONTRACTORS AND PAYMENT OF RS.3,13,26,660/-TO LABOU R. CONSIDERING THE GP RATES OF THE EARLIER YEARS, FACTS AND CIRCUMSTANCES OF THE CASE, PAST PERFORMANCE OF THE APPELLANT, SUBMISSIONS MADE BY T HE AR AND THE FINDINGS OF THE AG, I AM OF THE FIRM VIEW THAT ENDS OF JUSTICE ARE MET, IF THE DISALLOWANCE OF EXPENDITURE IS MADE AT RS.10,00 ,000/-. THAT IS TO SAY, THE TOTAL INCOME RETURNED BY THE APPELLANT UNDER TH E HEAD BUSINESS OR PROFESSION STANDS ENHANCED BY RS.10,00,000/-, WHILE THE INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES STANDS AS THEY ARE AND THE AO IS DIRECTED ACCORDINGLY. 6. AFTER CONSIDERING THE ABOVE ORDER PASSED BY THE LD. CIT(A), KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE AND ALSO DIFFERENT BUSINESS ACTIVITIES CARRIED BY THE ASSESS EE, WE FIND THAT THE LD. CIT(A) HAS ENHANCED THE BUSINESS INCOME OF THE ASSE SSEE ON ESTIMATION BASIS AND WE FIND NO REASON TO INTERFERE WITH THE O RDER PASSED BY THE LD. CIT(A) AND HENCE, THE APPEAL FILED BY THE REVEN UE IS DISMISSED. ITA NO.42/VIZAG/2013 V. KOTI SANKARA REDDY, VIJAYAWADA 6 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND NOV16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 22.11.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWAD A 2. / THE RESPONDENT SRI VENNAPUSA KOTI SANKARA REDD Y, 23-28-63, FLAT NO.303, SRI SAI NIKITA ENCLAVE, CHALLAPALLIVARI STR EET, SATYANARAYANAPURAM, VIJAYAWADA-10 3. ) / THE CIT, VIJAYAWADA 4. ) ( ) / THE CIT(A), VIJAYAWADA 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM