The DCIT, Circle-1(1), Vijayawada V. M/s A Jagan Mohana Rao & Co., Ibrahimpatnam

ITA 492/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56810 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Assessee Lawyers: T V U B S KISHORE BABU
• Keywords: Depreciation; Retrospective amendment
• Section: 43B; 28

Judgement Text

ITA NO 492 OF 2010 A JAGAN MOHAN RAO & CO IBRAHIMP ATNAM PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.492/VIZAG/2010 ASSESSMENT YEAR: 2005-06 DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA VS. A JAGAN MOHAN RAO & CO. IBRAHIMPATNAM (APPELLANT) (RESPONDENT) PAN NO:AABFJ 7123 N DEPARTMENT BY: SHRI TH. LUCAS PETER, CIT (DR) ASSESSEE BY: SHRI T.V.U.B.S. KISHORE BABU, ADVOCATE DATE OF HEARING: 22-08-2011 DATE OF PRONOUNCEMENT: 25-08-2011 ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 31.08.2010 PASSED BY LEARNED CIT(A), VIJAYAWADA AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS RAISED BY THE REVENUE GIVE RISE TO T HE FOLLOWING TWO ISSUES: A) WHETHER THE LEARNED CIT (A) IS JUSTIFIED IN DIRE CTING THE ASSESSING OFFICER TO ESTIMATE THE INCOME OF THE ASS ESSEE IN A DIFFERENT METHOD. B) WHETHER THE LEARNED CIT (A) IS JUSTIFIED IN DELE TING THE DISALLOWANCE OF ` 32,76,600/- MADE UNDER SECTION 40(A)(IA) OF THE ACT. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN B RIEF. THE ASSESSEE IS A CIVIL CONTRACTOR. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE PROFIT FROM CONTRACT WORKS AT 8% OF GROSS RECEIPTS. IN RESPECT OF WORKS GIVEN ON SUB CONTRACTS, THE ASSESSING OFFICER ESTIMATED THE INCOME AT 2%. T HE ASSESSING OFFICER ALSO NOTICED THE ASSESSEE HAS MADE PAYMENTS TO SUB CONTRACTORS AS DETAILED BELOW: ITA NO 492 OF 2010 A JAGAN MOHAN RAO & CO IBRAHIMP ATNAM PAGE 2 OF 6 A) PAYMENTS MADE ON DIFFERENT DATES - ` 32,76,600/- UP TO FEB.2005 B) PAYMENT MADE OR CREDITED IN THE - ` 35,21,400/- MONTH OF MARCH 2005 ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA S FAILED TO DEDUCT TDS ON THE AMOUNT OF ` 32,76,600/- AND ALSO FAILED TO DEPOSIT THE SAME INT O THE CENTRAL GOVT. ACCOUNT BEFORE MARCH, 2005. ACCORDIN GLY, BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE ASS ESSING OFFICER ADDED THE ABOVE SAID SUM OF ` 32,76,600/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A). WITH REGARD TO THE ESTIMATION OF PROFITS FROM CONTRACT WORKS, THE LEARNED CIT(A) PROPOSED TO ENHANCE THE INCOME OF TH E ASSESSEE BY ESTIMATING THE PROFIT FROM CIVIL CONTRACT WORKS AT 12.5% OF THE GROSS RECEIPTS, AS PER THE DECISION OF HYDERABAD BENCH OF ITAT IN THE CASE OF M/S K.N.R.CONSTRUCTIONSLTD VS. DCIT,CIR-2(1) HYDERABAD IN ITA NO.9/HYD/2007, ITA NO.1141/HYD/2005, ITA NO.548/HYD/2005 DATED 30/ 11/2009. THE ASSESSEE AGREED TO THE PROPOSAL OF THE LEARNED CIT (A), HOWEVER, SUBJECT TO THE ALLOWANCE OF INTEREST ON PARTNERS CAPITAL, DEP RECIATION AND REMUNERATION TO THE WORKING PARTNERS. THE LEARNED C IT (A) AGREED WITH THE PLEA OF THE ASSESSEE AND ACCORDINGLY DIRECTED THE A SSESSING OFFICER TO RECOMPUTE THE INCOME FROM CONTRACT WORKS BY ESTIMAT ING THE PROFIT AT 12.5% OF THE CONTRACT RECEIPTS AND THEREAFTER ALLOW AS DEDUCTION THE ELIGIBLE REMUNERATION TO THE WORKING PARTNERS, DEPRECIATION AND THE INTERESTS PAID ON PARTNERS CAPITAL. THE LEARNED CIT(A) DELETED TH E DISALLOWANCE OF ` 32,76,600/- MADE UNDER SECTION 40(A)(IA) OF THE ACT BY FOLLOWING THE DECISION OF HYDERABAD BENCH OF THE ITAT IN THE CASE OF M/S TEJA CONSTRUCTIONS (2010) (129 TTJ 57). AGGRIEVED BY TH E ORDER OF LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS. THE FIRST ISSUE RELATES TO THE CHANGE IN THE METHODOLOGY FOR COMPUTING THE INCOME OF THE ASSESSEE. ACCORDING TO LEARNED CIT (A), THE INCOME OF THE ASS ESSEE GETS ENHANCED BY FOLLOWING THE METHODOLOGY DIRECTED BY HIM TO BE ADO PTED. WE ALSO NOTICE THAT THE LEARNED CIT(A) HAS PROPOSED TO ENHANCE THE INCOME OF THE ITA NO 492 OF 2010 A JAGAN MOHAN RAO & CO IBRAHIMP ATNAM PAGE 3 OF 6 ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDING BY FOLLOWING A DIFFERENT METHODOLOGY AND THE ASSESSEE HAS ALSO ACCEPTED THE SAID METHOD, SUBJECT TO ALLOWANCE OF CERTAIN DEDUCTIONS. IF THE INCOME OF THE ASSESSEE IS ENHANCED BY THE LEARNED CIT (A), NORMALLY THE DEPAR TMENT SHOULD NOT HAVE ANY GRIEVANCE. HOWEVER, IT WAS NOT SHOWN TO US BY THE DEPARTMENT THAT THE INCOME OF THE ASSESSEE ACTUALLY GETS REDUCED BY ADOPTING THE METHODOLOGY DETERMINED BY LEARNED CIT(A). IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAID D ECISION OF LEARNED CIT(A). 6. THE NEXT ISSUE RELATES TO THE DELETION OF DISALL OWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT. THE LEARNED DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF HYDERABAD BENCH OF ITAT IN THE CASE OF TEJA CONSTRUCTIONS (SU PRA) FOR GRANTING RELIEF. IN THE SAID DECISION, THE HYDERABAD BENCH OF ITAT HA S LAID DOWN FOLLOWING RATIOS: A) SINCE THE PROVISIONS OF SEC.40 OVERRIDE ONLY SE C.30 TO 38 OF THE ACT, ANY ITEM OF EXPENSE WHICH IS ALLOWABLE UN DER SECTION 28 ARE NOT HIT BY THE PROVISIONS OF SEC.40. B) BY FOLLOWING THE DECISION OF HON'BLE ANDHRA PRAD ESH HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT (1998) (232 ITR 776), THE TRIBUNAL HELD THAT THERE IS NO SCOPE FOR ANY FURTHER DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, WHERE THE BOOKS OF ACCOUNT HAS BEEN REJECTED AND THE INCO ME OF THE ASSESSEE IS ESTIMATED THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE PROVISIONS OF SEC.40 DO NOT OVERRIDE SEC.28 OF THE ACT AND HENCE IT IS NOT CORRECT TO SAY THAT THE EXPENSES CLAIMED UNDER SECTION 28 ARE NOT HIT BY SEC.40 OF THE ACT. HE FURTHER SUBMITTED THAT THE DECISION OF INDWELL CO NSTRUCTIONS WAS RENDERED PRIOR TO THE INSERTION OF SEC.40(A)(IA) OF THE ACT AND THE RATIO OF THE SAID DECISION DOES NOT APPLY TO THE DISALLOWANC ES TO BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. EXPLAINING FURTHER, HE SUBMITTED THAT THE DISALLOWANCE PRESCRIBED UNDER SECTION 40(A)(IA) OF THE ACT IS NOT AN ABSOLUTE DISALLOWANCE, BUT IT IS ONLY DEFERMENT OF ALLOWANCE OF SAID PRESCRIBED EXPENSES, I.E. THE DISALLOWANCES ARE REQUIRED TO BE MADE UNDER SECTION 40(A)(IA) OF THE ACT ONLY FOR THE FAILURE TO DEDUCT /REMIT THE TDS AND IF ANY ASSESSEE DEDUCTS AND MAKES PAYMENT OF THE TDS IN AN Y SUBSEQUENT YEAR, ITA NO 492 OF 2010 A JAGAN MOHAN RAO & CO IBRAHIMP ATNAM PAGE 4 OF 6 THE SAID EXPENSES ARE ALLOWABLE IN THE SUBSEQUENT Y EAR. IN THE CASE OF INDWELL CONSTRUCTIONS, THE HON'BLE A.P HIGH COURT HA S HELD AS UNDER: WHEN SUCH AN ESTIMATE (OF INCOME) IS TO BE MADE, I T IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED U NDER SECTION 29. IN OTHER WORDS, AL THE DEDUCTIONS WHICH ARE REF ERRED TO UNDER SECTION 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACC OUNT. THE LEARNED D.R FURTHER SUBMITTED THAT THE RATIO OF M/S INDWELL CONSTRUCTIONS SHALL NOT BE CAPABLE OF WORKING FOR T HE DISALLOWANCE TO BE MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR THE REA SON, FIRSTLY THAT THE SAID DISALLOWANCE IS A TECHNICAL DISALLOWANCE FOR NON-CO MPLIANCE OF TDS PROVISIONS AND THE SAME IS NOT A DISALLOWANCE RELAT ABLE TO THE PROCESS OF ASCERTAINING THE INCOME OF A PARTICULAR YEAR. SECO NDLY, THE SAID RATIO WOULD LEAD TO DOUBLE DEDUCTION, WHICH IS NOT INTENDED BY THE SAID DECISION, I.E. IF THE AMOUNT TO BE DISALLOWED UNDER SECTION 40(A)(IA) IS DEEMED TO HAVE BEEN DISALLOWED, THE ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION FOR THE SAME EXPENDITURE IN THE YEAR IN WHICH THE TAX WAS D EDUCTED AND PAID BY HIM. 7. WHEN THE CONTENTIONS OF LEARNED D.R WERE PUT FORTH BEFORE THE LEARNED A.R, HE SUBMITTED THAT THE ASSESSEE IS ENTI TLED TO GET RELIEF ON AN ALTERNATIVE GROUND. HE SUBMITTED THAT THE ASSESSEE HAS DEDUCTED THE TDS ON THE IMPUGNED PAYMENT OF ` 32,76,600/- AND REMITTED THE SAME BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME. HE S UBMITTED THAT THE FINANCE ACT, 2010 HAS BROUGHT IN AMENDMENT TO SEC. 40(A)(IA ) OF THE ACT, WHEREBY IF THE TDS IS PAID ON OR BEFORE THE DUE DATE SPECIF IED IN SEC. 139(1), THE DISALLOWANCE IS NOT REQUIRED TO BE MADE UNDER SECTI ON 40(A)(IA) OF THE ACT. HE FURTHER SUBMITTED THAT THE SAID AMENDMENT, THOUG H BROUGHT WITH EFFECT FROM 1.4.2010, SHALL HAVE APPLICATION RETROSPECTIVE LY, AS IT IS A CURATIVE AMENDMENT. IN SUPPORT OF THIS PROPOSITION, THE LEA RNED A.R PLACED RELIANCE ON THE FOLLOWING DECISIONS OF HON'BLE ITAT. (A) GOLDEN STABLES LIFE STYLE CENTRE PVT. LTD (ITA NO.5145/MUM/2009 ORDER DATED30-09-2010. (B) BANSAL PARIVAHAN (INDIA) (P) LTD VS. ITO (2010) 036 (II) ITCL 0427 : ITAT MUMBAI B BENCH. ITA NO 492 OF 2010 A JAGAN MOHAN RAO & CO IBRAHIMP ATNAM PAGE 5 OF 6 ON THE OTHER HAND, THE LEARNED D.R SUBMITTED THAT T HE ABOVE SAID AMENDMENT HAS BEEN BROUGHT BY THE FINANCE ACT, 2010 WITH EFFECT FROM 1.4.2010. SINCE THE SAID AMENDMENT IS NOT RELATED TO THE PROCEDURAL ASPECTS OF THE ACT, THE SAME CANNOT BE CONSTRUED AS HAVING RETROSPECTIVE EFFECT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS RELIED UPON BY THE ASSESSEE. THE TRIBUNAL, IN BOTH THE CASES REFERRED (SUPRA), HAS TAKEN SUPPORT OF THE DECISIONS OF HON' BLE SUPREME COURT RENDERED IN THE CASE OF ALLIED MOTORS (P) LTD VS. C IT (224 ITR 677) AND CIT VS. ALOM EXTRUSIONS LTD. (319 ITR 306). BOTH THE D ECISIONS OF HON'BLE APEX COURT WERE RENDERED IN THE CONTEXT OF SEC. 43B OF T HE ACT, IN WHICH IT WAS HELD THAT WHEN A PROVISO IN A SECTION IS INSERTED T O REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE SECTION WORKABLE, THE PROVISO INSERTED TO SUPPLY AN OBVIOUS OMISSION PARTICULARLY TO GIVE EFF ECT TO THE SECTION AS A WHOLE IS CURATIVE IN NATURE AND SUCH A PROVISO IS R EQUIRED TO BE READ RETROSPECTIVELY IN OPERATION. ACCORDINGLY, BY DULY CONSIDERING THE SPEECH OF THE HON'BLE FINANCE MINISTER MADE WHILE PRESENTING THE BUDGET FOR THE FISCAL YEAR 2010-11, THE DECISIONS OF HON'BLE APEX COURT R EFERRED (SUPRA), THE BOMBAY BENCH OF TRIBUNAL, IN THE CASE OF BANSAL PAR IVAHAN (INDIA) (P) LTD, HAS HELD THAT THE AMENDMENT BROUGHT IN SECTION 40(A )(IA) BY THE FINANCE ACT, 2010 IS REMEDIAL/CURATIVE IN NATURE AND THEREF ORE IT WOULD APPLY RETROSPECTIVELY. CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE CITED CASES, WE ALSO HOLD THAT THE AMENDMENT BROUGHT IN BY THE FINA NCE ACT 2010 IN SECTION 40(A)(IA) OF THE ACT IS CURATIVE IN NATURE AND ACCO RDINGLY IT WOULD HAVE RETROSPECTIVE APPLICATION. 9. HOWEVER, IN THE INSTANT CASE, THERE APPEARS TO BE A DISAGREEMENT WITH REGARD TO THE FACTUAL ASPECTS RELATING TO THE DEDUC TION/REMITTANCE OF TDS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA S NOT DEDUCTED TDS ON THE IMPUGNED AMOUNT OF ` 32,76,600/-. HOWEVER, THE ASSESSEE CLAIMS BEFORE US THAT IT HAS DEDUCTED THE TDS ON THE ABOVE CITED AMOUNT AND HAS REMITTED THE SAME BEFORE THE DUE DATE FOR FILING RE TURN OF INCOME. THE ITA NO 492 OF 2010 A JAGAN MOHAN RAO & CO IBRAHIMP ATNAM PAGE 6 OF 6 ASSESSEE HAS ALSO FURNISHED THE DETAILS OF DEDUCTIO N AND REMITTANCE OF TDS ON THE ABOVE SAID AMOUNT BEFORE US. THOUGH THE ASS ESSEE CLAIMS THAT THESE DETAILS WERE ALSO FURNISHED TO THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDING, YET, IN VIEW OF THE OBSER VATIONS OF THE ASSESSING OFFICER CITED ABOVE, WE ARE OF THE VIEW THAT THE SA ID DETAILS REQUIRE EXAMINATION AT THE END OF THE ASSESSING OFFICER. A CCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTO RE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE DETAILS OF DEDUCTION AND REMITTANCE OF TDS ON THE ABOVE CITED AMOUNT OF ` 32,76,600/- AND DECIDE THE ISSUE IN THE LIGHT OF PRINCIPLES DISCUSS ED (SUPRA). 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREA TED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 25 TH AUGUST, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:25-08-2011 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJA YAWADA 2 M/S A. JAGAN MOHANA RAO & CO. MANAGING PARTNER: A . JAGAN MOHAN RAO, D-126 B COLONY, IBRAHIMPATNAM, KRISHNA DISTRIC T. AP 3 4. THE CIT VIJAYAWADA THE CIT(A), VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM