Lakshmi Engineering Enter Prises, Khammam, Hyderabad V. ACIT, Circle-1, Khammam, Khammam

ITA 447/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6164 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Revision of order; Depreciation
• Section: 143(3); 32; 263; 63

Judgement Text

ITA NO 447 OF 2015 LAKSHMI ENGG ENTERPRISES KHAMMAM PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.447/HYD/2015 (ASSESSMENT YEAR: 2010-11) M/S. LAKSHMI ENGINEERING ENTERPRISES, BHADRACHALAM KHAMMAM DISTT. PAN: AABFL 6240 J VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1 KHAMMAM FOR ASSESSEE: SHRI S. RAMA RAO FOR REVENUE: SHRI V. SRINIVAS, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11 AGAINS T THE ORDER OF THE CIT DATED 23.02.2015 U/S 263 OF TH E I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM ENGAGED IN EXECUTION OF LABOUR AND MECHANICAL CONTRACTS, FILED ITS RETURN OF INCOME FOR THE A.Y 20 10-11 ON 29.03.2011 ADMITTING TOTAL INCOME OF RS.30,62,480. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, ASSES SEE WAS DIRECTED TO PRODUCE THE BOOKS OF ACCOUNT, BILLS & V OUCHERS AND OTHER RELEVANT MATERIALS. ASSESSEE PRODUCED THE SAM E, BUT THE AO WAS NOT CONVINCED THAT THE EXPENDITURE DEBITED TO T HE P&L A/C IS SUPPORTED BY PROPER VOUCHERS/BILLS AS THE VOUCHERS PRODUCED DATE OF HEARING : 01.08.2016 DATE OF PRONOUNCEMENT : 30.09.2016 ITA NO 447 OF 2015 LAKSHMI ENGG ENTERPRISES KHAMMAM PAGE 2 OF 4 WERE NOT AMENABLE FOR VERIFICATION AND THE GENUINEN ESS AND QUANTUM OF EXPENDITURE COULD NOT BE SUBSTANTIATED. THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 1 45(3) OF THE ACT AND ESTIMATED THE INCOME OF THE ASSESSEE AT 12.5% ON THE GROSS CONTRACT RECEIPTS AND THEREAFTER ALLOWED DEPRECIATI ON THEREFROM. 3. THE CIT, UNDER THE POWERS CONFERRED ON HIM U/S 2 63 OF THE I.T. ACT, PERUSED THE ASSESSMENT ORDER AND O BSERVED THAT WHEN THE NET INCOME IS ESTIMATED, THE DEPRECIATION IS NOT ALLOWABLE THEREAFTER. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE AS TO WHY THE ASSESSMENT ORDER SHOULD NOT BE REVISED. THE ASSESSEE SUBMITTED THAT THERE IS NO PROVISION IN THE I.T. AC T WHICH MAKES THE CLAIM OF DEPRECIATION INADMISSIBLE WHERE THE IN COME IS COMPUTED BY APPLYING A FLAT RATE OF PROFIT AND THAT EVEN WHERE THE FLAT RATE OF PROFIT IS ADOPTED IN THE ASSESSMENT PR OCEEDINGS, THE DEPRECIATION CLAIM IS TO BE CONSIDERED SEPARATELY A ND IT SHOULD BE DEDUCTED FROM SUCH INCOME DETERMINED. HE, THEREFORE , SUBMITTED THAT THE ASSESSMENT ORDER IS NOT ERRONEOUS AND NOT AMENABLE TO THE PROVISIONS OF SECTION 263 OF THE ACT. 4. THE CIT, HOWEVER, WAS OF THE OPINION THAT THE DEDUCTION OF DEPRECIATION U/S 32 WAS NOT ALLOWABLE AS THE NET INCOME IS ESTIMATED AFTER REJECTING THE BOOKS OF AC COUNT AND WHILE ESTIMATING THE INCOME ALL THE DEDUCTIONS U/S 30 TO 38 ARE DEEMED TO HAVE BEEN CONSIDERED AND ALLOWED. HE THEREFORE, SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO REDO THE AS SESSMENT AS PER THE DIRECTIONS OF THE CIT. AGAINST THIS ORDER O F THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO 447 OF 2015 LAKSHMI ENGG ENTERPRISES KHAMMAM PAGE 3 OF 4 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE AO HAS CONSIDERED THE ISSUE DURING THE ASSESSME NT PROCEEDINGS U/S 143(3) OF THE ACT AND THEREFORE, TH ERE WAS CLEAR APPLICATION OF MIND BY THE AO AND THEREFORE, THE AS SESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS AS THE AO HAS A DOPTED ONE OF THE POSSIBLE VIEWS. IN SUPPORT OF HIS CONTENTION THAT THERE WAS DIVERSE OPINION ON THE ALLOWABILITY OF DEPRECIATION AFTER ESTIMATION OF NET INCOME, HE PLACED RELIANCE UPON THE FOLLOWIN G DECISIONS: A) SHRI RAM JHANWAR LAL VS. ITO & ORS (2009), REPOR TED IN 321 ITR 0400, WHEREIN IT WAS HELD THAT WHERE THE AO ADOPTED THE NET PROFIT IN BEST JUDGMENT ASSESSMENT, DEPRECIATION IS STILL ALLOWABLE. B) M/S.TEJA CONSTRUCTIONS VS.JCIT IN ITA NO.958/HYD / 2011 DATED 9.9.2011 WHEREIN THE B BENCH OF THIS TRIBUNAL HAS ESTIMATED THE NET INCOME AND THEREAFTE R ALLOWED DEPRECIATION AND INTEREST & REMUNERATION OF THE PARTNERS FROM SUCH ESTIMATED INCOME. C) ACIT VS. KRISHNA MOHAN CONSTRUCTIONS IN ITA NOS. 601 & 602/HYD/94 AND 380 & 381/HYD/94 WHEREIN THE NET PROFIT WAS ESTIMATED AT 12.5% AND THEREAFTER DEPRECIATION WAS ALLOWED. D) CIT VS. Y.RAMACHANDRA REDDY, REPORTED IN 2014 (50 TAXMANN.COM 129 (A.P), WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT DEPRECIATIO N AND INTEREST, WHICH ARE OTHERWISE DEDUCTIBLE IN ORDINARY COURSE OF ASSESSMENT, RETAIN SAME LEGAL CHARACTER, EVEN WHERE PROFIT OF THE ASSESSEE IS DETERMINED ON PERCENTAGE BASIS AND DEDUCTION OF THE SAME CANNOT BE DENIED MERELY BECAUSE PROFIT IS DETERMINED ON THE BASIS OF ESTIMATION. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE BOOKS OF THE ASSESSEE W ERE NOT FOUND TO BE RELIABLE AND THEREFORE, THE AO HAS REJECTED T HE BOOKS AND ITA NO 447 OF 2015 LAKSHMI ENGG ENTERPRISES KHAMMAM PAGE 4 OF 4 PROCEEDED TO ESTIMATE THE NET PROFIT AT 12.5% ON THE GROSS CONTRACT RECEIPTS. THEREAFTER, HE HAS ALLOWED THE D EPRECIATION CLAIMED BY THE ASSESSEE. WE FIND THAT IN THE DECISI ONS RELIED UPON BY THE ASSESSEE THERE WERE VIEWS IN SUPPORT OF THE STAND TAKEN BY THE AO AND THERE ARE ALSO DECISIONS CONTRARY TO THE SAME. THE AO HAS ADOPTED ONE OF THE POSSIBLE VIEWS AND THEREFORE , THE ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS FOR AN ORDER TO BE REVISABLE U/S 263 OF THE I.T. ACT, THE ASSESSMEN T ORDER SHOULD BE BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. SINCE THE ASSESSMENT ORDER IS NOT FOUND T O BE ERRONEOUS, EVEN IF THE SECOND CONDITION OF THE ORDE R I.E. PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS SATISFIED, IT WI LL NOT JUSTIFY THE REVISION U/S 263 OF THE ORDER. IN VIEW OF THE SAME, THE REVISION ORDER IS SET ASIDE AND ASSESSMENT ORDER IS RESTORED . 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 TH SEPTEMBER, 2016. VINODAN/SPS COPY TO: 1 SHRI S. RAMA RAO, ADVOCATE, FLAT NO.102, H.NO.3-6- 643, SHRIYAS ELEGANCE, ST.NO.9 HIMAYATNAGAR, HYDERABAD 500029 2 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1 KHAMM AM 3 PR. CIT-7 HYDERABAD 4 ADDL.COMMISSIONER OF INCOME TAX, KHAMMAM RANGE, K HAMMAM 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER