ITO, Bangalore V. M/s Technoart Constructions Ltd., Bangalore

ITA 496/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63714 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDAR RAJAN
• Assessee Lawyers: R CHANDRASHEKAR
• Keywords: Business income
• Section: 40A(3); 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 496 /BANG/20 11 (ASSESSMENT YEAR : 2007-08) INCOME TAX OFFICER, WARD 12(2), BANGALORE. VS. M/S. TECHNOART CONSTRUCTIONS LTD., NO.19 & 19/1, 3 RD FLOOR, SOUTHEND ROAD, BASAVANAGUDI, BANGALORE. PAN AAACT 5910B APPELLANT RESPONDENT. APPELLANT BY : SHRI A. SUNDAR RAJAN. RESPONDENT BY : SHRI R.CHANDRASHEKAR. DATE OF HEARING : 3.10.2012. DATE OF PRONOUNCEMENT : 11.10.2012. O R D E R PER SHRI JASON P. BOAZ, A.M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BANGALORE DT.17.1.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE-COMPANY (HEREINAFTER REFERRED TO A S THE ASSESSEE), CARRYING ON THE BUSINESS OF CIVIL CONSTRUCTION CONTRACTS, FILED ITS RETURN FOR ASSESSMENT YEAR 2007-08 ON 17.10.2007 DECLARING INCOME OF RS.87,01,030. A SUR VEY ACTION UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT ') WAS CARRIED OUT AT THE ASSESSEE'S BUSINESS PREMISES ON 18.6.2008. IN THE COURSE OF THIS SURVEY, CERTAIN IRREGULARITIES INTER ALIA WERE NOTICED IN THAT THE ASSESSEE HAD MADE CASH PAY MENTS IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT TO MEET ITS BUSINESS EXPE NDITURE, EXPONENTIAL INCREASE IN WAGES 2 ITA NO.496/BANG/11 PAYMENTS, ETC LEADING TO LOSSES FROM THE BUSINESS O F CIVIL CONSTRUCTION CONTRACTS. ON BEING CONFRONTED BY THESE IRREGULARITIES, THE MANAGING DI RECTOR OF THE ASSESSEE OFFERED 4% OF THE NET WORK COMPLETED AS PROFIT OF THE COMPANY AND FIL ED A LETTER DT.30.7.2008 TO THIS EFFECT BEFORE THE ASSESSING OFFICER. THE ASSESSEE'S CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT AND THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) OF THE ACT ON 7.11.2009 DETERMINING THE INCO ME OF THE ASSESSEE AT RS.1,95,52,147. THE ASSESSING OFFICER APART FROM ADOPTING INCOME OF RS. 1,02,87,670 FROM BUSINESS OF CONTRACTS AT 4% OF NET WORK COMPLETED AS ADMITTED BY THE MANAGIN G DIRECTORS LETTER DT.30.7.2008, ALSO BROUGHT TO TAX AS OTHER BUSINESS RECEIPTS A SUM O F RS.85,18,520 FROM OUT OF RS.1 CRORE RECEIVED FROM M/S. MAYA VENTURES P. LTD AND A SUM O F RS.3,311 BEING THE DIFFERENCE OF INTEREST AS DECLARED AND AS PER TDS CERTIFICATE. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.7.11.2 009, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). THE LEARNED CIT(APPEALS) DISPOSE D THE APPEAL BY AN ORDER DT.17.1.2011 ALLOWING THE ASSESSEE PARTIAL RELIEF. 3. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEAL S) DT.17.1.2011, REVENUE IS NOW IN APPEAL BEFORE US. IN THE GROUNDS OF APPEAL RAISED, IT HAS BEEN CONTENDED AS UNDER : 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPP OSED TO LAW AND FACTS OF THE CASE. 2. THE CIT (APPEALS) ERRED IN DELETING THE ADDITIO N MADE BY THE ASSESSING OFFICER OF RS. 85,18,520 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD AGREED TO DECLARE 4% OF NET WORK COMPLETED WHICH OBVIOUSLY ME ANT 4% OF CONTRACT RECEIPTS AND DOES NOT INCLUDE PROFESSIONAL FEES WHICH CANNOT BE REGARDED AS CONTRACT RECEIPTS. 3. THE CIT (APPEALS) ERRED IN NOT APPRECIATING TH AT THE ASSESSING OFFICER WAS JUSTIFIED IN COMPUTING THE NET TAXABLE PROFESSIONAL FEES AT RS.85,18,520 AFTER ALLOWING REASONABLE EXPENSES ATTRIBUTABLE TO EARNIN G THE PROFESSIONAL INCOME. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE ASSESSE E HAD IN FACT COMPUTED LOSS IN RESPECT OF ITS CONTRACT BUSINESS BY DECLARING 4% PR OFITS ON TOTAL RECEIPTS INCLUDING 3 ITA NO.496/BANG/11 PROFESSIONAL RECEIPTS WHICH WAS CONTRARY TO THE ADM ISSION MADE BY THE ASSESSEE AFTER SURVEY UNDER SECTION 133A OF THE IT ACT ON 1 8.6.2008. 4. THE CIT (APPEALS) FAILED TO APPRECIATE THAT PROFIT ON PROFESSIONAL FEES CANNOT BE 4%. THE CIT (APPEALS) HAS AGREED TO THE ASSESSE E'S PROPOSITION IN THIS REGARD WITHOUT ADEQUATE PROOF AND BASIS. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGE D AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FA R AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING O FFICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. THE GROUNDS RAISED AT S.NOS.1, 5 AND 6 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE MAIN ISSUE OF DISPUTE IS IN THE GROUNDS RAI SED AT S.NOS.2 TO 4 WHICH PERTAIN TO THE ADDITION OF RS.85,18,520 MADE BY THE ASSESSING OFFI CER FROM OUT OF PROFESSIONAL FEES OF RS.1 CRORE RECEIVED BY THE ASSESSEE FROM M/S. MAYA VENTU RES LTD. THE LEARNED DEPARTMENTAL REPRESENTATIVE WHILE REITERATING THE GROUNDS RAISE D SUBMITTED THAT THE MANAGING DIRECTOR OF THE ASSESSEE PURSUANT TO SURVEY UNDER SECTION 133A HAD FURNISHED A LETTER DT.30.7.2008 WHEREIN IT WAS AGREED THAT THE NET PROFIT BE TAKEN @ 4% OF NET WORK COMPLETED AND WHEREBY THE ASSESSING OFFICER BROUGHT TO TAX AN AMOUNT OF R S.1,02,87,670. IT WAS CONTENDED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT PROFESSION AL FEES OF RS.1 CRORE RECEIVED BY THE ASSESSEE FROM M/S. MAYA VENTURES P. LTD CANNOT BE R EGARDED AS PART OF CONTRACT RECEIPTS AND THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN BR INGING TO TAX AN AMOUNT OF RS.85,18,520 (RS. 1 CRORE LESS RS.14,81,480) AFTER ALLOWING REASONABL E EXPENSES ATTRIBUTABLE TO EARNING THE PROFESSIONAL FEES. THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT IN THESE CIRCUMSTANCES THE LEARNED CIT(APPEALS) ACTION IN A CCEPTING THE ASSESSEE'S PROPOSITION WAS 4 ITA NO.496/BANG/11 WRONG AND PRAYED THAT IN THESE CIRCUMSTANCES THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5.2 PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESS EE SUPPORTED THE FINDING OF THE LEARNED CIT(APPEALS) ON THIS ISSUE. A PAPER BOOK W AS ALSO FILED BY THE ASSESSEE ENCLOSING COPIES OF ITS FINANCIAL STATEMENTS, COPIES OF LETTERS DT.3 0.7.2008, 26.8.2008 AND 2.11.2009 ADDRESSED BY THE MANAGING DIRECTOR TO THE ASSESSING OFFICER A ND THE ASSESSING OFFICERS LETTER DT. 28.10.2009. THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSING OFFICER HAD WRONGLY INTERPRETED THE MANAGING DIRECTORS LETTER S DT.30.7.2008, 26.8.2008 AND 2.11.2009 THAT THE INCREASE OF 4% WAS TO BE ESTIMATED ON COMPLETED CONTRACT RECEIPTS IGNORING THE BOOK RESULTS. THE LEARNED COUNSEL FOR THE ASSESSEE HAD OBJECTED TO THE ASSESSING OFFICERS PROPOSAL OF TREATING THE PROFESSIONAL FEES RECEIVED FROM M/ S. MAYA VENTURES P. LTD AS INCOME FROM OTHER SOURCES AND CONTENDED THAT IT IS PART OF BUS INESS RECEIPTS, AS WAS EVIDENT FROM THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET WHICH WERE BEFOR E THE ASSESSING OFFICER AT THE TIME OF AFTER THE SURVEY WHEN THE ASSESSEE AGREED TO THE IN COME BEING ESTIMATED @ 4% ON NET WORK COMPLETED. IT WAS ALSO CLARIFIED THAT THIS INCOME OUGHT NOT TO BE INCLUDED IN THE NET WORK COMPLETED ON WHICH 4% INCOME WAS TO BE ESTIMATED A ND THAT THIS HAD BEEN MADE CLEAR TO THE ASSESSING OFFICER IN THE ASSESSEE'S LETTER DT.2.11. 2009 ALSO. IT WAS SUBMITTED THAT THE LEARNED CIT(APPEALS) AFTER GOING THROUGH THE FINANCIAL STAT EMENTS AND THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER, AT PARA 6 AND 6 .1 OF HIS ORDER HAS ALLOWED THE ASSESSEE'S CLAIM AND DELETED THE ADDITION HOLDING THAT THE ASS ESSING OFFICER HAS NOT POINTED OUT ANY DEFECT AS REGARDS THE RECEIPT OF RS.1 CRORE FROM M/S. MAYA VENTURES P. LTD OR EXPENSES RELATED 5 ITA NO.496/BANG/11 THERETO ARE CONCERNED. IN THIS VIEW OF THE MATTER, THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED THAT THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE BE UPHELD. 5.3 WE HAVE HEARD BOTH PARTIES AND CAREFULL Y PERUSED THE MATERIAL ON RECORD. IT IS SEEN FROM A PERUSAL OF THE MANAGING DIRECTORS LETTER DT .30.7.2008 ADDRESSED TO THE ASSESSING OFFICER PURSUANT TO SURVEY UNDER SECTION 133A THAT HE HAD AGREED TO THE NET PROFIT BEING ESTIMATED AT 4% ON THE NET WORK COMPLETED BASIS. W E ALSO FIND THAT IN THE MANAGING DIRECTORS LETTER DT.2.11.2009 HAS CLARIFIED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAD AGREED TO INCOME BEING ESTIMATED AT 4% ON WORK COMPLETED AND EXPRESSED SURPRISE TO NOTE THAT RS.1 CRORE IS TO BE TREATED AS INCOME FROM OTHER SOURCES WH EN IN FACT THOUGH IT DID NOT CONSTITUTE PART OF CONTRACT WORKS COMPLETED, IT WAS BUSINESS INCOME ON LY. THE ASSESSEE IN THIS LETTER HAD CLARIFIED THAT NO ADDITION EXCEPT THE ESTIMATION OF INCOME @ 4% OF WORKS COMPLETED WAS WARRANTED IN THIS CASE. THE LEARNED COUNSEL FOR THE ASSESSEE WH ILE TAKING US THROUGH THESE CORRESPONDENCES BETWEEN THE MANAGING DIRECTOR AND THE ASSESSING OFF ICER ALSO TOOK US THROUGH THE FINANCIAL STATEMENTS (AT PAGES 1 TO 14 OF ASSESSEE'S PAPER BO OK) WHICH REVEALED THAT IN THE COMPUTATION OF INCOME ENCLOSED ALONG WITH THE RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 FILED ON 17.10.2007, THE PROFESSIONAL FEES WAS NOT PART OF INCOME FROM OTHER SOURCES BUT WAS REFLECTED AS BUSINESS INCOME. THIS FACT WAS ON RECORD MUCH B EFORE THE SURVEY UNDER SECTION 133A OF THE ACT TOOK PLACE ON 18.6.2008 AND THEREFORE THESE FA CTS WERE BEFORE THE ASSESSING OFFICER WHEN THE MANAGING DIRECTOR AGREED FOR ESTIMATION OF INCO ME TO BE MADE @ 4% OF NET WORKS COMPLETED. FURTHER, WE ALSO FIND THAT AFTER EXAMIN ATION OF THE FACTS ON RECORD THE LEARNED CIT(APPEALS) IN PARA 6.1 OF HIS ORDER HAS GIVEN CAT EGORICAL FINDINGS THAT THIS RECEIPT OF RS.1 6 ITA NO.496/BANG/11 CRORE FROM M/S. MAYA VENTURES P. LTD WAS NOT PART O F THE NET WORK COMPLETED ON WHICH THE INCOME ESTIMATION WAS ADMITTED AT 4% BY THE ASSESSE E, THAT THE RECEIPT OF RS.1 CRORE FROM M/S. MAYA VENTURES P. LTD WAS FULLY DISCLOSED AND OFFERE D TO TAX BY THE ASSESSEE ALONG WITH EXPENSES PERTAINING THERETO; AND THAT THE ASSESSING OFFICER HAD NOT BEEN ABLE TO SPECIFICALLY POINT OUT ANY DEFECT WITH REGARD TO EITHER THIS RECEIPT OF RS .1 CRORE FROM M/S. MAYA VENTURES P. LTD. OR IN RESPECT OF THE EXPENSES RELATED THERETO. THE LEARN ED DEPARTMENTAL REPRESENTATIVE EXCEPT FOR PLACING RELIANCE ON THE ORDER OF ASSESSMENT AND REI TERATING THE GROUNDS RAISED HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE LEARNED CIT(APPEA LS) ON THE BASIS OF FACTS ON RECORD. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINIO N THAT NO SEPARATE ADDITION OF RS.85,18,520 ON ACCOUNT OF THE RECEIPT OF RS.1 CRORE FROM M/S. M AYA VENTURE P. LTD WAS CALLED FOR AND THEREFORE CONFIRM THE ORDER OF THE LEARNED CIT(APPE ALS) IN DELETING THE SAID ADDITION. CONSEQUENTLY, REVENUES GROUNDS ARE DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1.10.2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE.