K.Ramakrishna Contractors Pvt.Ltd., Hyderabad V. DCIT, Hyderabad

ITA 461/HYD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2511 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 02-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 09-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: K C DEVADAS
• Keywords: Business income; Depreciation; Search and seizure; Corroborative evidences; Competent authority; TDS; Set aside
• Section: 143(3); 201(1); 201; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.461/HYD/2006 : ASSTT. YEAR 2 004-05 SHRI K RAMAKRISHNA CONTRACTOR (P) LIMITED, HYDERABAD (PAN AABCK6826A) VS DCIT, CIRCLE 2 (1), HYDERABAD (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI K.C. DEVADAS RESPONDENT BY : SHRI E.S. NAGENDRA PRASAD O R D E R PER: CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT (A) -III, HYDERABAD DATED 6.3. 2009 AND PERTAINS TO THE ASSESSMENT YEAR 2004-05. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE C IT(A) ERRED IN UPHOLDING THE ESTIMATE OF INCOME AT 12.5 % O F THE GROSS CONTRACT RECEIPTS. THE CONTENTION OF THE ASSESSEE COUNSEL IS T HAT THE ASSESSING OFFICER ESTIMATED THE PROFIT OF THE ASSESSEE AT 12. 5% AND GRANTED DEPRECIATION WHICH IS AT HIGHER SIDE AND THE ASSE SSEE DECLARED THE INCOME AT 9% BEFORE ALLOWING THE DEPRECIATION THE SAME TO BE ACCEPTED OR THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2003-04 TO BE FOLLOWED WHEREIN THE TRIB UNAL IN ITS ORDER DATED 23.10.2008 IN ITA NO.1112/HYD/2007 HELD THAT INCOME TO BE ESTIMATED AT 8% IN RESPECT OF WORK EXECUTED BY THE A SSESSEE AND AT 5 % IN THE CASE OF SUB CONTRACT. 2 2 3. THE LEARNED DR SUBMITTED THAT IN THE ASSESSMENT YEAR 2003-04, THE TRIBUNAL HELD THE INCOME TO BE AT 8% ON CONTRACT RECEIPTS OF OWN CONTRACTS AND 5% ON SUB CONTRACT AFTER ALLOWING DE PRECIATION. BUT IN THE PRESENT CASE, THE ASSESSEE CLAIMED DEPRECIATION SE PARATELY HENCE SUITABLE ORDERS MAY BE PASSED. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD. THE ISSUE OF REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFICER WAS NOT CHALLENGED BY THE ASSESSEE. ONCE IT IS FOUN D THAT BOOKS OF ACCOUNT DOES NOT REFLECT THE TRUE PROFIT OF THE ASSESSEE , IN SUCH CASES THE PROVISIONS OF THE PROVISO TO SEC. 145(1) BECOMES APPL ICABLE AND IT BECOMES DUTY OF THE TAXING AUTHORITY TO DETERMINE THE TRUE AND CORRECT PROFITS OF THE ASSESSEE IN THE BEST POSSIBLE MANNER THOUGH SUCH DETERMINATION MUST BE ON THE BASIS OF MATERIAL ON RE CORD. NOW THE QUESTION TO BE CONSIDERED IS WHETHER THE LOWER AUTHORI TIES WAS JUSTIFIED APPLYING THE PROFIT RATE AT 12.5% OF CROSS RECEIPTS OF THE INCOME OF THE ASSESSEE. IN THE PRESENT CASE, THE CIT(A) PLACED RELIANCE ON THE ORDER OF THE ITAT WHERE IN IT WAS HELD THAT INCOME OF THE A SSESSEE TO BE ESTIMATED AT 12.5% OF THE GROSS RECEIPTS. WE HAVE ALSO CAME ACROSS THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S KRISHNA MO HAN CONSTRUCTION COMPANY IN ITA NO.380-381/HYD/94 FOR THE ASSESSMENT YEAR 1991-92 DATED 9.12.1997 WHEREIN IT WAS HELD AS FOLLOWS AS RECORDED BY JUDICIAL MEMBER IN PARA 12 AS FOLLOWS: WE NOW ORDER TO THE GRIEVANCE OF THE ASSESSEE FOR T HE AY 1991-92 IN RESPECT OF DEPRECIATION CLAIMED RS.10,20,401/- BEIN G COST OF TEMPORARY SHEDS ERECTED IN EXECUTION OF CONTRACT WO RKED. IT IS TRUE THAT THE AMOUNT WAS DEBITED IN THE PROFIT AND LOSS A/C AND THE ASSESSING OFFICER WHILE REJECTING THE BOOK RESULTS AND ESTIMATING THE PROFIT AT 12.5% HAS GIVEN DEDUCTION TOWARDS DEPRECI ATION TO THE EXTENT OF RS.91,44,355/. THE CONTENTION OF THE ASS ESSEE IN THE FIRST APPEAL WAS THAT THE SUM OF RS.10,20,401/- SHOULD BE ALLOWED AS 100% DEPRECIATION BECAUSE TEMPORARY SHEDS WERE CONSTRUCT ED. THE ASSESSING OFFICER HAS NOT DISCUSSED IN DETAIL ANYTH ING ABOUT REJECTION OF THE CLAIM NOR THE APPELLATE COMMISSIONER OF IT H AS DISCUSSED IN ANY 3 3 GREATER DETAIL THE DENIAL OF THIS CLAIM BY THE ASSE SSING OFFICER TOWARDS ERECTION OF TEMPORARY SHEDS. IN THE ABSENCE OF PRO PER DISCUSSED BY BOTH THE LOWER TAX AUTHORITIES AND CORRECT DETAILS COUPLED WITH SUPPORTING EVIDENCE BEFORE US IN THE ASSESSEES APP EAL FOR AY 1991-92, WE ARE UNABLE TO GIVE A POSITIVE DECISION, FINDING OR DIRECTION. HOWEVER, IN ORDER TO ASSUAGE THE GRIEVANCE OF THE A SSESSEE AND SERVE THE CAUSE OF JUSTICE, WE DIRECT THE ASSESSING OFFIC ER TO EXAMINE THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.10,20,401 /- CLAIMED AS COST OF ERECTION OF TEMPORARY SHEDS FOR CONTRACT WORKS A ND IF THE ASSESSING OFFICER HAS NOT INCLUDED THIS SUM IN THE DEPRECIATI ON CLAIM OF RS.91,44,355/- THEN THE SAME SHOULD BE EXAMINED, VE RIFIED AND ALLOWED IN ACCORDANCE WITH LAW AND THE PRESCRIBED D EPRECIATION RULES. THE ASSESSING OFFICER IS FURTHER DIRECTED TO HEAR T HE ASSESSEE IN THIS REGARD AND ALLOW HIM ADEQUATE OPPORTUNITY TO ADDUCE AND FILE SUCH EVIDENCE SO AS TO SATISFY THE ASSESSING OFFICER THA T THE CLAIM OF ERECTION OF TEMPORARY SHEDS TO THE TUNE OF RS.10,20 ,401/- SAME IS CORRECT AND ALLOWABLE. WE ORDER AND DIRECT ACCORDI NGLY. 6.2 LATER THE LEARNED ACCOUNTANT MEMBER DISSENTED ABOVE FINDINGS OF THE JUDICIAL MEMBER AND HE RECORDED THE FINDINGS IN PARA 16 TO 22 AS FOLLOWS: WITH DUE RESPECT TO MY LEARNED BROTHER, I AM INCLIN ED TO DISAGREE WITH THE ORDER OF MY LEARNED BROTHER IN PARAS 10 AND 11 ABOVE, IN SO FAR AS IT RELATED TO ESTIMATION OF THE PROFIT OF THE ASSES SEE AT 12% AS AGAINST 12.5% ADOPTED BY THE ASSESSING OFFICER AND 10% ADOP TED BY THE FIRST APPELLATE AUTHORITY. MY REASONS FOR DISAGREEMENT A ND DECISION IN THAT BEHALF ARE DISCUSSED BELOW: ASSESSEE, ADMITTEDLY, IS A FIRM CARRYING ON BUSINE SS IN CIVIL CONTRACT WORKS. ASSESSEES NET CONTRACT RECEIPTS FOR THE AY 1991-92 WERE RS.9,10,18,512/- WHEREAS THE SAME FOR THE AY 1992-9 3 WERE RS.8,37,19,315/-. IN THE CASES OF SIMILAR ASSESSEE S, VIZ. CIVIL CONTRACTORS, THE TRIBUNAL BENCHES AT HYDERABAD, HAV E BEEN CONSISTENTLY APPROVING ESTIMATION OF PROFIT AT 12.5 % OF THE NET CONTRACT RECEIPTS. IN ASSESSEES OWN CASE FOR THE AY 1988-89 IN ITA NO.1949/HYD/91, THE TRIBUNAL VIDE ITS ORDER DATED 2 0.9.1995, A COPY OF WHICH IS FILED BEFORE US, HELD THAT ESTIMATION O F NET PROFIT AT 12.5% BY THE AUTHORITIES BELOW WAS QUITE FAIR AND REASONA BLE. AS SUCH, UNLESS THERE WAS EXCEPTIONAL CIRCUMSTANCES WARRANTI NG ADOPT ON OF A LOWER RATE, PROFIT OF THE ASSESSEE SHOULD BE ESTIMA TED AT 12.5% OF THE NET CONTRACT RECEIPT. THE EXCEPTIONAL CIRCUM STANCES PLEADED BY THE ASSES SEE FOR THE YEARS UNDER APPEAL ARE THAT THERE IS OVERALL INCREASE IN THE EXPENDITUR5E INCURRED MORE PARTICULARLY ON ACCOUNT OF BANK INTER EST, BANK CHARGES AND COMMISSION AND FINANCIAL CHARGES, AND AS SUCH T HERE IS A JUSTIFIED FALL IN THE PROFIT AS COMPARED TO THE PAST YEARS. I EXTRACT BELOW THE 4 4 EXPENDITURE INCURRED BY THE ASSESSEE ON THE ABOVE H EADS AS PER THE PROFIT AND LOSS ACCOUNT, FOR THESE TWO YEARS UNDER APPEAL. ASSESSMENT YEAR 1991-92 1992-93 BANK INTEREST RS.7,11,284.70 38,27,778.50 BANK CHARGERS & COMMISSION RS.10,45,587.15 8,68,274.99 FINANCIAL CHARGES RS.15,59,100.00 16,18,519.00 I HAVE MY OWN DOUBTS AND RESERVATIONS WITH REGARD T O THE WEIGHT AGE THAT MAY HAVE TO BE GIVEN TO THE ABOVE ITEMS OF EXP ENDITURE, WHICH ACCORDING TO THE ASSESSEE HAVE CONTRIBUTED TO THE L OW YIELD OF PROFIT DURING THE YEARS UNDER APPEAL. WHEN THE BOOK OF AC COUNT HAVE BEEN REJECTED, AND THERE IS NO DISPUTE WITH REGARD TO TH E APPLICABILITY OF PROVISIONS OF S.145(2). ONE HAS TO GO BY THE REASO NABLENESS OF THE PROFIT TO BE ESTIMATED, ON THE BASIS OF TURNOVER OR THE CONTR4ACTUAL RECEIPTS. THE FINANCIAL STATEMENTS PREPARED ON THE BASIS OF THE BOOKS OF ACCOUNT, WHICH HAVE BEEN REJECTED, LOSE THEIR R ELEVANCE IN THE ESTIMATION OF PROFIT. THE ESTIMATED PROFITS ARE DE EMED TO HAVE TAKEN CARE OF ALL THE EXPENDITURE THAT AN ASSESSEE MUST H AVE INCURRED FOR EARNING THE SAID PROFITS, AND ONCE PROFITS ARE ESTI MATED AS A PERCENTAGE OF TURNOVER OF CONTRACTUAL RECEIPTS, NO DISALLOWANCE OF ANY EXPENDITURE IS ENTERTAINED ON THE BASIS OF THE PROF IT AND LOSS ACCOUNT ON THE GROUND THAT NO RELIANCE CAN BE PLACED ON THE FINANCIAL STATEMENTS PREPARED ON THE BASIS OF BOOKS OF ACCOUN T, WHICH HAVE ALREADY BEEN REJECTED, WHILE RESORTING TO ESTIMATIO N OF PROFIT. THIS VERY REASONING HOLDS GOOD EVEN IN THE CONTEXT OF WE IGHT AGE THAT HAS TO BE GIVEN TO THE BANK INTEREST PAYMENTS, BANK CH ARGES AND COMMISSION PAYMENTS AND FINANCIAL CHARGES INCURRED BY THE ASSESSEE AS PER THOSE VERY FINANCIAL STATEMENTS. FURTHER, I FIND MUCH MERIT IN THE CONTENTION OF THE LD. DR THAT THE ASSESSEE HAS GONE IN FOR SUBSTANTIAL ADDITION TO PL ANT AND MACHINERY FROM 2,07,14,420/- TO RS.3,46,35,514/- WHICH IS EVI DENT FROM THE DEPRECIATION STATEMENT FOR THE ASSESSMENT YEAR 1991 -92 AND AS SUCH THERE IS CORRESPONDING REDUCTION IN THE REVENUE EXP ENDITURE AND HAVING GONE IN FOR MASSIVE CAPITAL INVESTMENTS AND CONTRACTED FOR MORE OUTLAY TOWARDS BANK INTEREST PAYMENTS, FINANCI AL CHARGES ETC. ASSESSEE CANNOT CLAIM IT TO BE EXCEPTIONAL CIRCUMST ANCE WARRANTING ESTIMATION OF INCOME AT A RATE LOWER THAN THE NORMA L ONE. THIS IS ALL THE MORE SO, SINCE THE INTEREST COMMITMENTS TO BANK ETC. UNDERTAKEN BY THE ASSESSEE, ON ADDITIONS TO PLANT AND MACHINER Y ETC. WOULD HAVE THEIR IMPACT FOR QUITE A FEW YEARS TO COME, AND IT BANK CHARGES AND INTEREST COMMITMENTS ARE ACCEPTED AS A EXCEPTIONAL CIRCUMSTANCES WARRANTING ADOPTION OF LOWER RATE OF ESTIMATION OF THE PROFIT THAT WOULD CIRCUMSTANCE WOULD PREVAIL IN THE SUCCEEDING YEARS AS WELL, AND FOR THAT MATTER, ASSESSEE WOULD BE ENCOURAGED, TO G O IN FOR MORE INTEREST COMMITMENTS BY MAKING ADDITIONS TO PLANT A ND MACHINERY WITH BORROWED CAPITAL SO AS TO CREATE GENUINE CIRC UMSTANCES OF LARGER 5 5 INTEREST OUT GOS BANK CHARGES ETC. FOR SEEKING EST IMATION OF PROFIT AT LOWER RATE. IT MAY BE RELEVANT TO POINT OUT THAT INTEREST RECEI PTS OF THE ASSESSEE FROM THE BANKS ETC. HAVE NOT BEEN BROUGHT TO TAX IN THESE YEARS UNDER APPEAL, ON ACCOUNT OF THE FINDING OF MY LEARNED BRO THER, WITH WHICH I AGREE IN PARA 9 ABOVE. THOSE INTEREST RECEIPTS ARE OF A VERY SIZABLE ORDER. THE INTEREST RECEIPTS FOR THE ASSESSMENT YE AR 1991-92 WORK OUT TO RS.2,56,887/- WHEREAS THE SAME FOR THE ASSES SMENT YEAR 1992- 93 WORK OUT TO RS.13,82,558,14/- THESE INTEREST RE CEIPTS WERE HELD TO BE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE, AND AS SUCH ADDITIONS MADE UNDER THE HEAD OTHER SOURCES HAS BEEN DELETE D BY US HEREINABOVE. THE REASONING BEHIND THIS DELETION IS THAT THE BUSINESS INCOME OF THE ASSESSEE, HAVING BEEN ESTIMATED AS A PERCENTAGE OF THE NET CONTRACT RECEIPTS, THAT ESTIMATED INCOME TAKES CARE OF ALL THE INCOME OF THE ASSESSEE FROM BUSINESS, AND NO SEPARA TE ADDITION AS SUCH CAN BE SUSTAINED. THIS REASONING IN CONVERSE APPLIES EVEN IN THE CONTEXT OF BAN INTEREST, FINANCIAL CHARGES ETC. AND WHEN PROFIT IS ESTIMATED THE ESTIMATED PROFIT IS DEEMED TO BE EXCL USIVE OF ALL THE EXPENDITURE THAT THE ASSESSEE MIGHT HAVE INCURRED F OR EARNING THE SAID ESTIMATED PROFIT. JUST AS THE RECEIPT OF INTE REST ON FDES HAS NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE IT I S MERELY INCIDENTAL THERETO AND IT IS NOT EVEN TAKEN AS PART OF THE BUS INESS RECEIPTS OF THE ASSESSEE FOR APPLYING THE RATE OF PROFIT THERETO TH E INTEREST PAYMENTS BY THE ASSESSEE TO THE BANK, ETC HAVE NO DIRECT NEX US TO THE BUSINESS OF THE ASSESSEE AS MUCH AS THE OTHER BUSINESS EXPEN DITURE, AND AS SUCH, BE IT INCOME OR EXPENDITURE, THE TREATMENT TH AT HAS TO BE ACCORDED ON ESTIMATION OF PROFIT HAS TO BE THE SAME . ONCE PROFIT IS ESTIMATED IF THE RECEIPTS INCIDENTAL TO THE BUSINES S AS PER THE PROFIT AND LOSS ACCOUNT ARE HEAD TO BE DEEDED TO FORM PART OF SUCH ESTIMATED PROFIT, SAME RATIO APPLIES AND ALL EXPENDITURE INCI DENTAL TO THE BUSINESS OF THE ASSESSEE AS PER PROFIT AND LOSS ACC OUNT SHOULD BE DEEMED TO HAVE BEEN EXCLUDED FROM THE ESTIMATED PRO FIT. IN THE LIGHT OF THE ABOVE DISCUSSION, I AM OF THE CONSIDERED OPINION THAT THE ESTIMATION OF PROFIT OF THE ASSESSEE AT 12 .5% OF THE NET CONTRACT RECEIPTS BY THE ASSESSING OFFICER FOR BOTH THESE YEARS IS NOT ONLY IN ACCORDANCE WITH THE RATE ADOPTED IN ASSESSE ES OWN CASES FOR EARLIER YEARS, BUT ALSO IN ACCORDANCE WITH THE RATE NORMALLY APPROVED BY THE TRIBUNAL IN SIMILAR CASES. THE CIRCUMSTANCES OF INCURRENCE OF LARGER EXPENDITURE ON ACCOUNT OF BANK INTEREST, BAN K CHARGES AND COMMISSIONS, FINANCIAL CHARGES, ETC. IN MY VIEW CAN NOT BE ACCEPTED AS AN EXCEPTIONAL ONE WARRANTING ADOPTION OF ANY LOWER RATE. I ACCORDINGLY SET ASIDE THE ORDERS OF THE CIT(A) ON THIS ASPECT FOR BOTH THESE YEARS AND RESTORE THE ASSESSMENTS MADE BY THE ASSESSING OFFICER, ESTIMATING THE PROFIT OF THE ASSESSEE AT 1 2.5%. BEFORE PARTING WITH THE SUBJECT, I MAY POINT OUT TH AT THOUGH IT MAY APPEAR THAT THE DIFFERENCES BETWEEN THE RATE OF 12% ADOPTED BY MY LEARNED BROTHER AND THE RATE OF 12.5% APPROVED BY M E IS A MERE 5% OF THE SAID DIFFERENCE OF 0.5% IS APPLIED TO THE NE T CONTRACT RECEIPTS 6 6 DISCLOSED BY THE ASSESSEE, IT WOULD WORK OUT TO RS. 4,55,092/- IN CONSIDERING THESE LARGE AMOUNTS INVOLVED IN THESE T WO YEARS, AND THE IMPACT OF DECISION OF APPROVAL OF SUB NORMAL RATE O N ACCOUNT OF LARGER INTEREST ETC., COMMITMENTS, IN THE SUCCEEDING YEARS WHEN SUCH LARGER INTEREST COMMITMENT WOULD CONTINUE TO EXIST, I AM C ONSTRAINED TO DISSENT FROM THE ORDER OF MY LEARNED BROTHER IN PAR AS 10 AND 11 ABOVE. ON ALL OTHER ASPECTS, I AM IN COMPLETE AGREEMENT WI TH THE DECISION OF MY LEARNED BROTHER, AND HENCE I WOULD NOT LIKE TO G O INTO THE SAME. I ACCORDINGLY SUBSCRIBE TO HIS DECISION ON THOSE ASPE CTS. 7. THE THIRD MEMBER RECORDED HIS FINDINGS AS FOLLOWS: HAVING CONSIDERED THE SUBMISSIONS ADVANCED BEFORE M E, I FIND CONSIDERABLE FORCE IN THE STAND OF THE REVENUE. AS ALREADY MENTIONED ABOVE, IN THE EARLIER YEARS, IN SIMILAR CIRCUMSTANC ES, PROFIT RATE OF 12.5 % WAS APPLIED BY THE TRIBUNAL. IN THE YEARS U NDER CONSIDERATION, I SEE NO REASON FOR NOT APPLYING A SIMILAR RATE. I T IS TRUE THAT IN THESE YEARS THE ASSESSEE HAS PAID SUBSTANTIAL BANK CHARGE S AND FINANCIAL CHARGES. HOWEVER, THE PAYMENT WAS MADE DUE TO THE FACT THAT IN THESE YEARS THE ASSESSEE HAD MADE INVESTMENT IN THE PLANT AND MACHINERY. IT IS WORTHY OF MENTION HERE THAT IN TH E EARLIER YEARS ADDITION WAS SEPARATELY MADE ON ACCOUNT OF CONSIDER ATION. THE ASSESSEE HAD EARNED SUBSTANTIAL INTEREST AS MENTION ED EARLIER. BOTH MEMBERS OF THE DIVISION BENCH HAVE ACCEPTED THE AS SESSEES PLEA THAT SEPARATE ADDITION SHOULD NOT BE MADE WHILE PROFITS ARE BEING ESTIMATED ON PERCENTAGE BASIS. THIS IS ALL THE MOR E A REASON FOR HOLDING THAT THE PROFIT RATE SHOULD NOT BE APPLIED AT A LOWER RATE THAN WHAT WAS APPLIED IN THE EARLIER YEARS. TAKING THE TOTALITY OF FACTS INTO CONSIDERATION, I FIND MYSELF IN AGREEMENT WITH THE VIEW ADOPTED BY THE LEARNED ACCOUNTANT MEMBER. THUS, I AM OF THE OPINI ON THAT THE PROFIT RATE OF 12.5% IS REASONABLE IN THE FACTS AND CIRCUM STANCES OF THE CASE. 5. IN THE PRESENT CASE, THE CONTENTION OF THE ASSESSEE COU NSEL IS THAT, THAT RATIO OF ORDER IN THE CASE M/S KRISHNA MOH AN CONSTRUCTION COMPANY CANNOT BE APPLIED. HE ALSO CONTENDED THAT THE ASSESSEE'S OWN CASE TO BE FOLLOWED INSTEAD OF THE CASE OF M/S KRISHNA MOH AN CONSTRUCTION COMPANY CITED SUPRA. WE ARE AFRAID. IN THE PRESENT CASE, THE ASSESSEE IS CLAIMING A DEPRECIATION AFTER ESTIMATED THE PROFIT AT FIXED RATE. HOWEVER, IN THE ASSESSMENT YEAR 2003-04 AS GATHERE D FROM THE ASSESSEES COUNSEL, THE TRIBUNAL ESTIMATED THE AT PROFIT 8% IN CASE OF OWN CONTRACTS AND 5% IN CASE OF SUB CONTRACTS AFTER ALLOWIN G THE DEPRECIATION. HENCE, THE RATIO OF ORDER OF THE TRIBUN AL FOR THE 7 7 ASSESSMENT YEAR 2003-04 CANNOT BE APPLIED DIRECTLY BECAUSE THE ASSESSEE CLAIMED DEPRECIATION ALSO IN THE ASSESSMENT YEAR UNDE R CONSIDERATION. HOWEVER, IF THE ASSESSEE GIVE UP THE CLAIM O F DEPRECIATION IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THEN THE RATI O LAID DOWN BY THE TRIBUNAL IN ITS OWN CASE FOR THE AY 2003-04 COULD BE APPLIED. ALTERNATIVELY, THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S KRISHNA MOHAN CONSTRUCTION COMPANY CITED SUPRA TO BE FOLLOWED. NOW, THE ASSESSEE GOT TWO OPTIONS TO DETERMINE HIS TAXABLE INCOME FOR THE YEAR UNDER CONSIDERATION. HENCE, WE HOLD THAT THE ASSESSEE CAN OP T EITHER ONE OF THE ABOVE. IN THE CASE OF SUB CONTRACTS, THE ASSESSEE CANNOT EXPECT THE SAME RATIO OF PROFIT, AS IN THE CONTRACT CARR IED OUT BY THE ASSESSEE BY HIMSELF. ACCORDINGLY, IN THE CASE OF SUB CONTRACT, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE NET PROFIT AT 5%. A CCORDING THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 6. NOW WE WILL TAKE UP THE GROUND NO.3 THAT THE C IT(A) NOT JUSTIFIED IN NOT ALLOWING THE DEPRECIATION ON VEHICLE S USED BY THE ASSESSEE IN THE CONTRACT BUSINESS. THE ASSESSEE IS A CLOSELY HELD PRIVATE LIMITED COMPANY CONSISTS OF MANAGING DIRECTOR, AND HIS WIF E AS DIRECTOR. ON CLOSURE OF THE INDIVIDUAL BUSINESS OF THE MANAGING D IRECTOR, THE MANAGING DIRECTOR HAS TRANSFERRED HIS OWN VEHICLE ALONG WITH THE LOAN ON IT TO THE ASSESSEE COMPANY. HOWEVER, THE MANAGING DIRE CTOR NOT ABLE TO OBTAIN THE NO OBJECTION CERTIFICATE FROM THE FINANC IER TO TRANSFER THE VEHICLE (MERCEDES CAR) TO THE NAME OF THE ASSESSEE COMPAN Y. HOWEVER, THE CONSIDERATION FOR THE PURCHASE OF THE VEHICL E HAS BEEN TRANSFERRED BETWEEN THE PARTIES AND THE POSSESSION OF THE VEHICLE HAS BEEN HANDED OVER TO THE ASSESSEE COMPANY AND THE ASSESSEE COM PANY HAS GOT EXCLUSIVE RIGHT TO USE THE SAME AND ALSO IT WAS EN TERED IN THE BOOKS OF ACCOUNT AND THE VEHICLE WAS USED FOR THE PURPOSE OF BUSINESS . THE REGISTRATION OF THE VEHICLE IN THE NAME OF THE ASSE SSEE COMPANY WAS KEPT PENDING ON TECHNICAL REASONS DUE TO NON AVAILABILI TY OF NO OBJECTION 8 8 CERTIFICATE FROM THE FINANCIER. THE SAID CAR WAS SUBSEQU ENTLY TRANSFERRED TO THE NAME OF THE ASSESSEE COMPANY IN THE YEAR 2006. T HE LOWER AUTHORITIES DISALLOWED THE CLAIM OF THE DEPRECIATION O N THIS VEHICLE ON THE REASON THAT THE OWNERSHIP OF THE VEHICLE IS NOT IN THE NAME OF THE ASSESSEE COMPANY AND THE CONDITION LAID DOWN U/S 32 WAS NOT FULFILLED. ACCORDINGLY DEPRECIATION DISALLOWED. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD. IN THE PRESENT CASE, THE DEPRECIATION DISALLOWED BY THE LOWER AUTHORITY, ON THE REASON THAT THE VEHICLE IS NOT STAN DING IN THE NAME OF THE ASSESSEE. IN OUR OPINION, MERE NON REGISTRATION OF VEHICLE UNDER MOTOR VEHICLES ACT WILL NOT DIS-ENTITLE THE ASSESSEE FOR CL AIM OF DEPRECIATION ON IT. THE PURPOSE OF REGISTRATION UND ER MOTOR VEHICLE'S ACT IS DIFFERENT. IT PERMITS THE ASSESSEE TO PLY THE VEH ICLE IN ANY PUBLIC PLACE. IT DOES NOT INDICATE A LEGAL EVIDENCE OF OWNERSH IP. IF A VEHICLE IS REGISTERED IN THE NAME OF A PERSON, THE PRESUMPTION IS THAT HE IS A LEGAL OWNER OF THE VEHICLE. BUT WHERE THE VEHICLE IS NOT RE GISTERED IN THE NAME OF THE ASSESSEE, THEN IT IS A PRESUMPTION THAT THE A SSESSEE IS NOT THE OWNER OF THE VEHICLE AND THE OWNERSHIP OF THE VEH ICLE IS TO BE DETERMINED FROM FINANCES UTILIZED IN MAKING PURCHASE OF VEHICLE, ITS CONTROL AND MANAGEMENT, USE OF THE SAME AS AN ASSET. IN THE PRESENT CASE, IT IS ADMITTED FACT THAT THE VEHICLE HAS BEEN DISCL OSED BY THE ASSESSEE AS AN ASSET IN ITS BOOKS OF ACCOUNT AND NOBODY CLAIM ED THAT THE VEHICLE IN THEIR NAME. THERE BEING NO COUNTER CLA IM AGAINST SUCH A VEHICLE, IT IS TO BE PRESUMED THAT THE ASSESSEE IS THE OWN ER OF THE VEHICLE. SINCE AS FACTS STAND, DEPRECIATION HAS BEEN DISALL OWED MERELY ON THE GROUND THAT VEHICLES ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE AND NO OTHER FACTS ABOUT INVESTMENT TRANSFER OF LI ABILITY, USAGE OF THE VEHICLE FOR THE PURPOSE OF BUSINESS ARE NOT DISPUT ED. OTHER THAN THAT THE ASSESSEE IS TO BE TREATED AS LEGAL OWNER OF TH E VEHICLE AND CLAIM 9 9 OF DEPRECIATION ON IT TO BE ALLOWED AT THE PRESCRIBED RATE. FOR THIS PURPOSE WE PLACED RELIANCE ON THE JUDGEMENT OF THE SUP REME COURT IN THE CASE OF M/S MYSORE MINERALS LTD. VS. CIT (239 ITR 7 75). ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED WITH OUT PREJUDICE TO OUR FINDINGS IN PARA (5) OF THIS ORDER. 8. THE NEXT GROUNDS ARE AS FOLLOWS: 4. THE CIT(A) ERRED IN TREATING THE ASSESSEE AS A SSESSEE IN DEFAULT AND UPHOLDING THE RECOVERY OF THE TDS FROM THE ASSE SSEE. 4.1. THE DEMAND MADE BY THE ASSESSING OFFICER FOR THE TDS U/S 201(1) AND FOR INTEREST U/S 201 (1A) BY THE ASSESSMENT OR DER U/S 143(3) WITHOUT PASSING SEPARATE ORDERS UNDER THE RESPECTIV E SECTIONS IS ILLEGAL. 4.2. WITHOUT PREJUDICE TO THE ABOVE, THE DEMANDS M ADE U/S 201 (1) AND 201 (1A) DO NOT SURVIVE, AS THE SUB CONTRACTORS ASSESSMENTS WERE ALREADY COMPLETED IN WHICH CASE THE ISSUE OF TDS BE COMES ACADEMIC AND THUS INFRUCTUOUS. ACCORDING TO GROUND NO.4, 4.1 AND 4.2, THE CIT(A) E RRED IN TREATING THE ASSESSEE IN DEFAULT AND UPHOLDING THE RECO VERY OF THE TDS FROM THE ASSESSEE . 9. ALL THESE THREE GROUNDS ARE INTER RELATED AND GRO UND NOS.4.1 AND 4.2 ARE FOR FIRST TIME RAISED BEFORE THE TRIBUNAL AND THE LOWER AUTHORITIES HAVE NO OCCASION TO CONSIDER THESE GROUNDS. T HESE GROUNDS RELATING TO THE JURISDICTION OF THE ASSESSING OFFICER TO TAKE UP THE ISSUE U/S 201 (1) AND 201 (1A). BOTH THE PARTIES FAILED TO FURNISH ANY NOTIFICATION ISSUED BY COMPETENT AUTHORITY CONFERRING THE ASSESSING OFFICER TO TAKE UP THIS ISSUE BY HIMSELF INSTEAD OF SEPA RATE ITO (TDS). IN VIEW OF THIS, THE ASSESSING OFFICER CAN TAKE UP THIS ISSU E ONLY HE HAS THE JURISDICTION TO EXAMINE THIS ISSUE. IN OUR OPINI ON, IN THE INTEREST OF JUSTICE, IT IS FAIR TO SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO EXAMINE THESE GROUNDS AFTER CONFIRMING JURISDICTION IF ANY GRANTED TO HIM. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION. 10 10 10. ACCORDINGLY TO GROUND NO.5, THE CIT(A) ERRED I N UPHOLDING THE DISALLOWANCE OF CREDIT FOR TDS MADE ON MOBILIZATIO N ADVANCE WHICH WAS OFFERED TO TAX BY THE ASSESSEE . 11. THE LEARNED AR SUBMITTED THAT THE ASSESSEE COMPANY OFFERED AN AMOUNT OF RS.1,99,75,760/- AS ITS OWN TURNO VER. THE OTHER RECEIPTS IN THE NAME OF THE COMPANY RECEIVED AND ACCOUNT ED FOR BY THE SUB CONTRACTORS ARE RS.18,46,29,945/- OUT OF THIS AMOUN T OF RS.18,46,29,945, THE MOBILIZATION ADVANCE IN RS.7,14,9 5,583/- THE TOTAL SUB CONTRACT COMMISSION OFFERED BY THE COMPANY IS RS.38,50,303/- WHICH IS ON THE ENTIRE TURNOVER OF RS.1 8,46,29,945/- INCLUDING THE MOBILIZATION ADVANCE. THUS, THE ASSESSEE CO MPANY HAS OFFERED TO TAX THE SUB CONTRACT COMMISSION ON THE MOBILI ZATION ADVANCES ALSO. HE FURTHER SUBMITTED THAT IT IS TOTALLY FALSE TO STATE THE RECEIPT WAS TREATED AS CAPITAL IN NATURE BY THE ASSESSEE AND WAS REFLECTED IN THE BALANCE SHEET SINCE THERE IS NO SUCH ITEM REFLECTED I N THE BALANCE SHEET. 12. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE ASSESSEE HAS OFFERED THE COMMISSION INCOME ON MOBILIZAT ION ADVANCE ALSO TO TAX AND CLAIMED FOR THE CREDIT FOR THE TDS MADE THERE FROM WHICH IS LEGALLY CORRECT. THIS SHOWS THAT THE ASSESSIN G OFFICER HAS NOT CONSIDERED THE FACTS PROPERLY. HENCE THE COMPANY IS EN TITLED FOR THE CREDIT FOR THE TOTAL TDS MADE FROM THE TOTAL RECEIPTS INCLUDING THE MOBILIZATION ADVANCE AS THE INCOME OF THE ASSESSEE FROM T HE TOTAL RECEIPTS ARE OFFERED TO TAX. AS FAR AS ASSESSEE IS CONCERN ED, IT DOES NOT MATTER WHETHER THE TURNOVER OR ADVANCE IN THE HANDS O F SUB CONTRACTORS. 12.1 THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAS OFF ERED THE TOTAL TDS AMOUNT AS PROFIT THAT HAS BEEN RECEIVED FROM SUB CONTRACTORS 11 11 AND THE ASSESSING OFFICER HAS ALSO ADMITTED THE SAME IN TH E ASSESSMENT ORDER AND AS SUCH, THERE IS NO AMBIGUITY ON THE COMMISSIO N OFFERED BY THE ASSESSEE. HE SUBMITTED THAT THE AMOUNT ASSESSED BY THE ASSESSING OFFICER AS A PROFIT TO THE ASSESSEE ON THE ONE HAND SUR PRISINGLY REJECTED TO GIVE THE CREDIT OF THE SAME TDS ON THE OTHER IS UNJ USTIFIED. 12.2 THE AR FURTHER SUBMITTED THAT THE ASSESSEE COMPAN Y HAS OFFERED ITS TOTAL INCOME IN THE FORM OF SUB CONTRACT CO MMISSION TO TAX, IT IS ENTITLED FOR THE CREDIT FOR THE ENTIRE TDS AMOUNT MADE FROM THE GROSS RECEIPTS. 13. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT SEPARATELY OFFERED TH E ENTIRE CONTRACT RECEIPTS AS HIS INCOME IN THE PROFIT AND LOSS ACCOU NT BUT HAS OFFERED ONLY THE SUB CONTRACTS COMMISSION AND TURNOVER OF HIS OWN CONTRACT INCOME AND AS SUCH, THE CONTENTION OF THE ASSESSEE COUNSEL THAT THE ENTIRE CONTRACT RECEIPTS INCLUDING THE MOBILIZA TION ADVANCE HAVE BEEN OFFERED TO TAX IS NOT CORRECT. THE MOBILIZATION ADVANCE ISSUED BY VARIOUS DEPARTMENTS HAVE ADJUSTED AGAINST THE PAYMENT OF SUBSEQUENT ORDERS THUS, WHAT HAS BEEN PAID AS MOBILIZATION ADVANCE IN ONE YEAR WILL BECOME CONTRACT RECEIPT IN THE SUBSEQUENT YEAR WHEN ADJU STED BY THE CONCERNED GOVERNMENT DEPARTMENT AGAINST THE PAYMENT D UE TO THE CONTRACTOR. HE SUBMITTED IN VIEW OF THIS, IT CANNOT BE SAID THAT MOBILIZATION ADVANCE, BE EQUATED WITH NORMAL CONTRACT RECEIPT, THE SAME ARE NOT OF THE REVENUE NATURE. 14. HE SUBMITTED THAT AS PER SECTION 199 OF THE IT ACT, THE CREDIT OF TDS HAS TO BE IN THE ASSESSMENT YEAR FOR WHICH T HE CORRESPONDING INCOME ASSESSABLE. HE SUBMITTED NO CREDIT CAN B E GIVEN ON TDS MADE BY THE MOBILIZATION ADVANCE PAID TO THE ASSESSEE IN THE RELEVANT FINANCIAL YEAR. 12 12 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE ASSESSEES COUNSEL DREW OUR ATTENTION TO THE P APER BOOK SHOWING THE TDS STATEMENT. ACCORDING TO THE ASSESSE ES COUNSEL , THE ASSESSEE HAS ACCOUNTED THE MOBILIZATION ADVANCE AND AL SO TDS ON IT, THEREAFTER IT WAS PAID MOBILIZATION ADVANCE TO THE SUB CONTRACTORS AFTER DEDUCTING HIS SHARE OF COMMISSION. THESE ARGUMENT S BY THE ASSESSEES COUNSEL GOES CONTRARY TO THE FINDINGS GIVEN BY T HE CIT(A). THE CIT(A) IN PARA 6.2 OF HIS ORDER CATEGORICALLY ST ATED THAT IT WILL NOT BE CORRECT TO SAY THAT THE ENTIRE CONTRACT RECEIPT S INCLUDING MOBILIZATION ADVANCE HAVE BEEN OFFERED TO TAX. IN OUR OPINION, THE ASSESSEE IS ENTITLED FOR CREDIT FOR TAX DEDUCTION , ONCE TAX IS DEDUCTED ON THE INCOME AND THE INCOME IS CREDITED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AND REQUISITE CERTIFICATE TO THIS EFFECT IS I SSUED BY DEDUCTING AUTHORITY AFTER DEPOSIT OF TAX AMOUNT IN THE GOVERNM ENT TREASURY, THE ASSESSEE BECOMES ENTITLED FOR THE CREDIT OF SUCH TDS WHILE COMPUTING THE TAX LIABILITY FOR THE RELEVANT PERIOD. IF THE RECIPIENT OF THE INCOME CONSIDERS THAT HE IS NOT LIABLE TO TAX IN RESPECT OF THE INCOME , WHOLLY OR PARTLY, THEREFORE DOES NOT DISCLOSE THE AMOUNT OF SUCH IN COME IN ITS RETURN, THE INCOME TAX DEPARTMENT CANNOT REFUSE TO CRE DIT MERELY BY CONTENDING THAT THE INCOME HAD NOT BEEN DISCLOSED IN THE RETURN FILED BY THE ASSESSEE FOR THE AY UNDER CONSIDERATION. TAX HAVE B EEN DEDUCTED AT SOURCE, AND PAID TO THE GOVERNMENT TREASURY AND CERT IFICATE ISSUED BY DEDUCTION MENTIONING THE PERIOD RELATING TO THE ASSESSME NT YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER REQUIRED TO GIVE CRED IT FOR THE SAME. IN THE PRESENT CASE, THE ARGUMENT OF THE ASSESSEE S COUNSEL IS THAT THE ASSESSEE HAS ACCOUNTED THE MOBILIZATION ADVANCE IN ITS BOO KS OF ACCOUNT. BUT THE FINDINGS OF THE CIT(A) IS CONTRARY TO THIS. BEFORE US, THE ASSESSEE FILED COPY OF TDS STATEMENT WHICH IS AS FOLLO WS: 13 13 TDS STATEMENT S.NO GROSS BILLS RECEIVED TDS SUB CONTRACT COMMISSION RECEIVED NAME OF THE SUB CONTRACTOR GROSS BILL TO SUB CONTRACTORS MOBILISATION ADVANCE INCLUDED IN THE BILL 1 24,631,293 528,601 528,601 D RAJASEKAR 66,813,199 10,195,000 31,766,518 671,162 671,162 DO 9,367,000 10,415,388 247,803 247,803 DO 11,579,785 243,175 243,175 K. BHUPAL 68,403,782 11,579,785 8,596,060 180,517 180,517 DO 8,596,060 48,227,937 985,327 985,327 DO 12,372,900 253,644 253,644 SC CONTRACTORS 25,057,735 12,372,900 12,684,835 260,039 260,093 DO 12,684,838 44,330,989 897,680 246,194 233,841 B SURESHBABU JAYASRI TUBEWELLS & OTHERS, JAIPUR 12,826,446 11,528,783 6,700,000 204,605,705 4,267,948 3,850,303 184,629,945 71,495,583 16. HENCE IN THE INTEREST OF JUSTICE, THE STATEMENT NEED S TO BE RE-EXAMINED WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE TO SEE WHETHER THE MOBILIZATION ADVANCE ACCOUNTED IN THE B OOKS OF ACCOUNT OF THE ASSESSEE,, THERE AFTER IT WAS PAID TO SUB CONTRACTOR S TO CARRY OUT THE WORK. IF IT IS ACTUALLY RECEIVED BY THE ASSESSEE AND T HEREAFTER IT WAS PAID TO THE SUB CONTRACTORS AFTER RETAINING HIS COMMISSI ON, IN SUCH CIRCUMSTANCES THE ASSESSEE IS ENTITLED FOR CREDIT OF TDS ON TH IS ACCOUNT. HENCE WE SET ASIDE THE ISSUE TO THE FILE OF CIT(A) TO EX AMINE THIS ISSUE AFRESH. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 4.12. 2009. SD/- SD/- (G.C. GUPTA) (CHANDRA POOJARI) VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 4TH DECEMBER 09 14 14 COPY FORWARDED TO: 1. SHRI K. RAMAKRISHNA CONTRACTOR (P) LTD.,404, VEERU CASTLE, DURGANAGAR COLONY, PANCHAGUTTA, HYDERABAD-500 082. 2. DCIT, CIRCLE 2 (1), AYAKAR BHAVAN, HYDERABAD 3. CIT(A)-III HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP