M/s Vijayalakshmi Enterprises, Vijayawada V. The ACIT, Circle-1(1), Vijayawada

ITA 544/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0840 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 22-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Depreciation; Assessment record; Set aside
• Section: 40A(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.544 /VIZAG/2009 ASSESSMENT YEAR : 2006-07 M/S VIJAYALAKSHMI ENTERPRISES, VIJAYAWADA VS. ACIT, CIRCLE-1(1), VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AADRV 9138 M APPELLANT BY : SHRI C. SUBRAMANYAM, CA RESPONDENT BY : SHRI G.S.S. GOPINATH, DR O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30-10-2009 PASSED BY THE LD CIT (A) VIJAYAWADA AND IT RELATES TO THE ASSESSMENT YEAR 2006- 07. 2. THE ISSUE AGITATED IN THIS APPEAL FILED BY THE A SSESSEE IS WHETHER THE LD CIT(A) IS JUSTIFIED IN CONFIRMING THE ESTIMATION OF INCOME OF THE ASSESSEE AT 8% OF THE GROSS CONTRACT RECEIPTS NET OF DEPRECIATION. 3. THE FACTS ARE STATED IN BRIEF. THE ASSESSEE, A PARTNERSHIP FIRM, IS CARRYING ON CIVIL WORKS OBTAINED, ON SUB-CONTRACT BASIS, FRO M M/S. PROGRESSIVE CONSTRUCTIONS LTD., AND M/S HINDUSTAN CONSTRUCTION COMPANY LTD. DURING THE COURSE OF SCRUTINY PROCEEDING, THE AO NOTICED THAT MOST OF THE VOUCHERS WERE SELF MADE, DEFECTIVE AND NOT VERIFIABLE. ACCORDINGL Y THE AO ESTIMATED THE INCOME AT 8% OF THE GROSS CONTRACT RECEIPTS NET OF DEPRECI ATION. THE AO HAS ALSO NOTED THAT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AGREED TO THE ASSESSMENT. 2 HOWEVER, BEFORE THE LD CIT (A) THE ASSESSEE CONTEND ED THAT THE AR DID NOT AGREED TO THE PROPOSED ASSESSMENT AND HE SIGNED THE ORDER SHEET IN THE ASSESSMENT RECORD, ONLY TO MARK HIS PRESENCE. THE LD CIT (A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE. THE LD CIT(A), BY PLA CING RELIANCE ON THE FOLLOWING CASE LAW HELD THAT THE ASSESSEE CANNOT BE TREATED A S AGGRIEVED IF THE INCOME IS ASSESSED ON AGREED BASIS AND ACCORDINGLY DISMISSED THE APPEAL. A) JIVATLAL PURTAPSHI V CIT (65 ITR 261 (BOM)) B) RAMESH CHANDRA & CO. VS. CIT (168 ITR 375 (BOM) ) C) V.KUMHAMBU AND SONS V CIT (219 ITR 235 (KER)) D) D.RAJARAO (HUF), KURNOOL VS ITO (ITA NO.718/H YD?2002) OF ITAT, HYDERABAD HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. THE FIRST ISSUE IS WHETHER THE AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE AGREED TO THE ASSESSMENT PROPOSED BY THE AO OR NOT. ACCORDI NG TO THE LD CIT(A), THE AR OF THE ASSESSEE SHOULD HAVE OBJECTED TO THE PROPOSA L OF THE AO DURING THE ASSESSMENT PROCEEDINGS ITSELF. WE HAVE GONE THROU GH THE COPY OF ORDER SHEET FILED BY THE LD DR. THE THEN AR OF THE ASSESSEE HA D APPEARED BEFORE THE AO ON 25.11.08, 23.12.08 AND 29.12.08. ON THESE THREE OC CASIONS, THE AR HAS APPENDED HIS SIGNATURE IN THE ORDER SHEET. THE LD CIT(A) HAS EXTRACTED THE ORDER SHEET NOTING RECORDED ON 29.12.2008, WHICH IS RELEVANT FOR THE ISSUE UNDER CONSIDERATION. ON A CAREFUL READING OF THE SAID NO TING, IT IS NOTICED THAT THE AO HAS JUST RECORDED HIS PROPOSAL. NO WHERE, THE AO H AS MENTIONED THAT THE SAID PROPOSAL WAS DISCUSSED BY HIM WITH THE AR AND THE AR AGREED TO IT. THE AR ALSO HAS JUST APPENDED HIS SIGNATURE AND HE HAS ALS O NOT MENTIONED THAT HE IS AGREEING TO THE SAID PROPOSAL. IN THE ABSENCE OF A NY NOTING REGARDING THE DISCUSSION OF THE PROPOSAL WITH THE AR AND ARS ACC EPTANCE TO IT, IN OUR VIEW, IT CANNOT BE PRESUMED THAT THE AR HAS AGREED TO THE PR OPOSAL MADE BY THE AO. 3 5. THE NEXT ISSUE RELATES TO THE ESTIMATION OF INCOME AT 8% OF GROSS CONTRACT RECEIPTS, NET OF DEPRECIATION. THE UNDISPUTED FACT REMAINS THAT THE ASSESSEE HEREIN HAS UNDERTAKEN SUB-CONTRACT WORKS DURING THE YEAR UNDER CONSIDERATION. IT CAN NOT BE DENIED THAT THE PROFIT MARGIN FOR A S UB-CONTRACTOR WILL BE LESSER THAN THE MAIN CONTRACTOR. ANOTHER PERTINENT POINT THAT SHOULD BE NOTED IS THAT THE ASSESSEE HAS PURCHASED NEW MACHINERIES WORTH AB OUT RS.377.68 LAKHS DURING THE YEAR UNDER CONSIDERATION FOR EXECUTING THE SUB- CONTRACT WORKS. HENCE THE ASSESSEE HAS CLAIMED DEPRECIATION TO THE TUNE OF RS .38.72 LACS DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THE HIGHER DEPRECI ATION, THE NET PROFIT FOR THE INSTANT YEAR SHOULD BE LOWER THAN THE EARLIER YEARS . THE LD AR HAS SUBMITTED THAT IN A SIMILAR SET OF FACTS, THE INCOME OF THE A SSESSEE FOR THE SUCCEEDING ASSESSMENT YEAR, I.E ASSESSMENT YEAR 2007-08, WAS E STIMATED BY THE AO AT 6% OF THE GROSS CONTRACT RECEIPTS BEFORE ALLOWING INTE REST AND REMUNERATION PAYABLE TO THE PARTNERS AND ACCORDINGLY CONTENDED THAT RATE OF 8% IS ON THAT HIGHER SIDE. WE NOTICE THAT THE INCOME WAS ESTIMATED NET OF DEPR ECIATION IN THE ASSESSMENT YEAR 2007-08. EACH YEAR BEING DIFFERENT, ONE CANNO T COMPLETELY PLACE RELIANCE ON THE SUBSEQUENT ASSESSMENT. DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE HAS PURCHASED NEW MACHINERIES AND THE SUBM ISSION OF THE ASSESSEE THAT HIS GROSS CONTRACT RECEIPTS HAVE GONE UP DUE T O THE EMPLOYMENT OF THE SAID MACHINERIES. HENCE, WE DEEM IT PROPER TO ALLOW DEP RECIATION FROM THE INCOME ESTIMATED BY THE AO. IN OUR OPINION, IT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AN D DIRECT THE AO TO ALLOW THE ELIGIBLE AMOUNT OF DEPRECIATION THAT IS ALLOWABLE F OR THE YEAR UNDER CONSIDERATION SUBJECT TO THE ADJUSTMENTS STATED HERE AFTER. SINC E THE AMOUNT OF DEPRECIATION IS ON HIGHER SIDE, BECAUSE OF THE ALLOWANCE OF DEPRECI ATION, THE TOTAL INCOME SHOULD NOT GO LESSER THAN THAT RETURNED BY THE ASSESSEE IT SELF. WE FURTHER NOTICE THAT 4 THE AO HAS MADE DISALLOWANCE U/S 40A(3) OF THE ACT AND THE SAME HAS ALSO BEEN ACCEPTED BY THE ASSESSEE AND HENCE THE SAID ADDITIO N SHOULD BE SUSTAINED. WE ORDER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 6 TH MAY, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 06-05-2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 M/S. VIJAYALAKSHMI ENTERPRISES, C/O. C. SUBRAMAN YAM, C.A, 102 LAKSHMI APARTMENTS, FACOR LAYOUT, WALTAIR UPLANDS, VISAKHAP ATNAM 530 003 02 THE ACIT, CIRCLE-1(1), VIJAYAWADA 03 THE CIT (A), VIJAYAWADA 04 THE CIT, VIJAYAWADA 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH