Thirumala Earth Movers, Medak, Hyderabad V. ITO, Ward-1, Siddipet, Medak

ITA 446/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2528 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A SMC : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO. 446/HYD/2017 ASSESSMENT YEAR 2008 - 2009 M/S. TIRUMALA EARTH MOVERS, 10 - 172, MAIN ROAD, GAJWEL, MEDAK - 502278. PAN: AACFT0631Q VS. INCOME TAX OFFICER, WARD - 1, SIDDIPET, 8 - 1 - 22, ALLAUDDIN COMPLEX, SUBHASH ROAD, SIDDIPET 502103, MEDAK DISTRICT. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI A.V. RAGHURAM FOR REVENUE : SMT. SUMAN MALIK, DR DATE OF HEARING : 25 .07 .2017 DATE OF PRONOUNCEMENT : 24 .10 .2017 ORDER PER D. MANMOHAN, VP. THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 7, HYDERABAD AND IT PERTAINS TO THE ASSESSMENT YEAR 2008 - 2009. THOUGH NUMBER OF GROUNDS W ERE URGED BEFORE THE TRIBUNAL, LIMITED ISSUE IS WITH REGARD TO THE ALLOWABILITY OF STATUTORY DEDUCTIONS AFTER ESTIMATION OF INCOME. 2. ASSESSEE IS ENGAGED IN CIVIL CONTRACT WORKS. FOR THE YEAR UNDER CONS IDERATION, THE FIRM DECLARED TOTAL INCOME OF RS. 2,54,183/ - , WHICH WAS PROCESSED U/S 143(1) OF THE ACT BUT LATER TAKEN UP FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) OF THE ACT . DURI NG EXAMINATION OF THE BOOKS IT WAS NOTICED THAT SELF - MADE VOUCHERS WERE NOT RELIABLE AND THERE WERE SEVERAL OTHER DEFECTS SUCH AS PAYMENTS MADE IN CASH ETC. THEREFORE, ASSESSING OFFICER SOUGHT TO REJECT THE BOO KS OF ACCOUNT . T HOUGH IT WAS CONFRONTED TO THE ASSESSEE , PRO PER MATERIAL COULD NOT BE FURNISHED TO ESTABLISH THAT THE BOOK RESUL TS NEED TO BE ACCEPTED. UNDER THESE CIRCUMSTANCES, ASSESSING OFFICER OBSERVED THAT AS PER THE JUDICIAL PRECEDENTS IN SIMILAR CASES, ESTIMATION @ 8% OF GROSS CONTRACT RECEIPTS WOULD BE REASONABLE NET OF ALL EXPENSES INCLUDING DEPRECIATION AND 40(B) PAYMENT S. THE ASSESSMENT WAS COMPLETED ON TOTAL INCOME OF RS. 18,58,154/ - . 2 3. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT FOR TH E YEAR UNDER CONSIDERATION, ASSESSEE ADMITTED AN INCOME OF RS. 2,54,183/ - , WHICH IS ABOUT 2.17% AFTER ALLOWING INTEREST A ND REMUNERATION TO PARTNERS . FOR THE IMMEDIATE PRECEDING YEAR, SCRUTINY ASSESSMENT WAS MADE WHEREIN THE ASSESSING OFFICER ACCEPTED NET PROFIT RATE OF 4.33%. UNDER THESE CIRCUMSTANCES, ESTIMATING INCOME OF THE ASSESSEE @ 8% OF GROSS RECEIPTS, NET OF ALL E XPENSE S, IS NOT IN ACCORDANCE WITH LAW , SINCE S TATUTORY ALLOWANCES SUCH AS INTEREST A ND REMUNERATION TO THE PARTNERS ARE ALLOWABLE AS DEDUCTION AGAINST THE ESTIMATE INCOME. 4. LD. CIT(A) OBSERVED THAT EXPENSES CLAIMED BY ASSESSEE WERE MERELY SUPPORTED BY SELF - MADE VOUCHERS AND THEY ALSO SUFFER FROM M ANY DEFECTS. SINCE ASSESSEE WAS UNABLE TO RECONCILE THE PURCHASES MADE, EXPENDITURE INCURRED WORK WISE, A.O. WAS JUSTIFIED IN ESTIMATING INCOME AT 8% OF GROSS CONTRACT RECEIPTS NET OF ALL EXPENSES INCLUDING DE PRECIATION AND 40(B) PAYMENTS. 5. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE A.Y. 2006 - 07, THE ITAT HAS DIRECTED A.O. TO ESTIMATE INCOME AT 8% ON GROSS RECEIPTS A FTER DEDUCTING SEINORAGE CHARGES AND SALES TAX PAID AS THEY WOULD NOT HAVE INCOME COMPONENT. IT WAS ALSO SUBMITTED THAT ASSESSEE DEBITED SEINORAGE CHARGES AND SALES TAX, WHICH WERE RECOVERED WHILE EFFECTING PAYMENT BY THE GOVERNMENT. AS PER THE REQUEST OF ASSESSEE, LD. CIT(A) DIRECTED A.O. TO REDUCE THE ABOVE AMOUNTS FROM GROSS RECEIPTS BEFORE ESTIMATING INCOME AT 8%. 6. FURTHER AGGRIEVED, ASSESSEE CONTENDS BEFORE THE TRIBUNAL THAT EVEN AFTER DEDUCTION OF SEINORAGE CHARGES AND SALES TAX FROM TURNOVER, WHILE ESTIMATING INCOME, ASSESSEE IS ENTITLED TO STATUTORY DEDUCTIONS SUCH AS INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. HE ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE A.Y. 2009 - 2010, A.O. COMPLETED ASSE SSMENT U/S 143(3 ) OF THE ACT WHEREIN A.O. ESTIMATED NET PROFITS AT 8% AND ALLOWED REMUNERATION TO PARTNERS AND INTEREST TO PARTNERS. IT WAS THUS SUBMITTED THAT STATUTORY DEDUCTIONS OUGHT TO HAVE BEEN SEPARATELY ALLOWED AS DEDUCTION. 3 7. ON THE OTHER HAND L D DR SUBMITTED THAT A.O. HAVING SPECIFICALLY ESTIMATED THE NET INCOME CLEAR OF ALL DEDUCTIONS, IN THE EVENT OF GIVING A DIRECTION TO ALLOW STATUTORY DEDUCTIONS ESTIMATE OF NE T PROFIT SHOULD BE RECONSIDERED / ENHANCED. 8. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED RECORD. IT IS NOT IN DISPUTE THAT IN THE IMMEDIATELY PRECEDING YEAR I.E., A.Y. 2007 - 2008, A.O. COMPLETED ASSESSMENT BY ACCEPTING NET PROFIT RATE OF 4.33% IN SCRUTINY ASSESSMENT. S IMILARLY EVEN FOR THE A.Y. 2009 - 10 ASSESSMENT WAS MADE U/S 143(3) OF THE ACT WHEREIN PROFIT WAS ESTIMATED AT 8% OF THE NET RECEIPTS AND THEREAFTER REMUNERATION TO PARTNERS AND INTEREST TO PARTNERS WAS ALLOWED SEPARATELY. 9. ESTIMATE OF INCOME DEPENDS ON VARIOUS FACTORS SUCH AS NATURE OF BUSINESS, LOCATION AND TURNOVER OF ASSESSEE. SINCE A.O. HAS TAKEN INTO CONSIDERATION ALL THESE ASPECTS WHILE ESTIMATING THE INCOME FOR THE IMMEDIATELY PRECEDING YEAR AS WELL AS SUBSEQUENT YEAR, C ONSISTENT WITH THE SAME ME THOD I HOLD THAT EVEN AFTER ESTIMATE OF THE NET PROFIT, ASSESSEE IS ENTITLED TO STATUTORY DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND INTEREST TO PARTNERS AND I DIRECT A.O. ACCORDINGLY. 10. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2017. SD/ - (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 24 TH OCTOBER , 2017 OKK, SR.PS COPY TO 1. K. VASANTKUMAR , A.V. RAGHU RAM, P. VINOD, M. NEELIMA DEVI, ADOVATES, 610, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD - 1. 2. INCOME TAX OFFICER, WARD - 1, SIDDIPET, 8 - 1 - 22, ALLAUDDIN COMPLEX, SUBHASH ROAD, SIDDIPET 502103, MEDAK DISTRICT. 3. CIT(A) - 7 , HYDERABAD. 4. PR. CIT - 7 , HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE