LG Trinadha Rao, Visakhapatnam V. THE ACIT, Visakhapatnam

ITA 611/VIZ/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9002 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 24-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R GOVINDA RAJANCIT
• Keywords: Depreciation
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HONBLE JUDICIAL MEMBER & SHRI G. MANJUNATHA, HONBLE ACCOUNTANT MEMBER ITA NO. 611/VIZ/2014 (ASST. YEAR : 2011-12) SHRI L.G. TRINADHA RAO, 46-15-32/7, KANDARAPA COMPLEX, DONDAPARTHI, VISAKHAPATNAM. V. CIT, CIRCLE-4(1), VISAKHAPATNAM. PAN NO. ACCPL 1755 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADVOCATE. DEPARTMENT BY : SHRI R. GOVINDA RAJANCIT DR DATE OF HEARING : 27/03/2017. DATE OF PRONOUNCEMENT : 19/04/2017. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), VISAKHAPATNAM, DATED 25/09/2014 FOR THE ASSESSMENT YEAR 2011-12. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE CONTRACT BUSINESS EXECUTING CONTRACT WORKS FOR GOVERNMENT DEFENCE ORGANIZATION, WHICH INVOLVE SUPPLY OF MACHINERY, EXECUTION, COMMISSION, INSTALLATION, FABRICATION WORKS, CONTRACT WORKS IN THE NAME AND STYLE OF M/S. ULTRA DIMENSIONS, THE PROPRIETARY CONCERN OF THE ASSESSEE, FILED HIS RETURN OF INCOME BY DECLARING TOTAL INCOME OF RS.3,13,23,100/-. THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY 2 ITA NO.611/VIZ/2014 (SRI L.G. TRINADHA RAO) PROCEEDINGS, NOTED THAT IN THE AUDIT REPORT FILED IN FORM 3CD AT SL.NO. 10 OF PART-A, IT WAS MENTIONED THAT THE ASSESSEE HAS NOT MAINTAINED REGULAR BOOKS OF ACCOUNT AND THE INCOME MAY BE ESTIMATED UNDER SECTION 44AD & 44AF ON THE GROSS RECEIPTS OF RS. 23,66,69,112/-. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS CLAIMED HUGE EXPENDITURE IN THE FORM OF DIRECT AND INDIRECT EXPENDITURE AND WAS NOT IN A POSITION TO PRODUCE THE BOOKS OF ACCOUNT AND ALSO THE BILLS AND VOUCHERS IN SUPPORT OF THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, HAS ALSO NOTED THAT IN THE EARLIER YEARS, SEARCH ASSESSMENT IN THE ASSESSEES CASE WAS COMPLETED BY REJECTING THE BOOKS OF ACCOUNT AND ESTIMATED INCOME OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY ESTIMATING THE INCOME @ 15% OF THE GROSS RECEIPTS OF 23,66,69,112/- NET OF ALL PERMISSIBLE DEDUCTIONS. THE ASSESSING OFFICER ALSO NOTED THAT THE COMPANY BY NAME, APEX ENCON PROJECTS PVT. LTD., ENGAGED IN EXECUTION OF DEFENCE CONTRACTS, HAD ADMITTED NET PROFIT MORE THAN 15% FOR THE ASSESSMENT YEAR 2007-08, 16% FOR ASSESSMENT YEAR 2008-09 AND 26.5% FOR THE ASSESSMENT YEAR 2009-10. CONSIDERING THESE, THE ASSESSING OFFICER OBSERVED THAT ESTIMATION OF INCOME AT 15% IS REASONABLE AND JUSTIFIED. AS A RESULT, ASSESSING OFFICER MADE AN ADDITION OF 57,40,490/-. 3 . ON APPEAL, LD. CIT(A) AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE AND ESTIMATION MADE BY THE ASSESSING OFFICER, SCALED DOWN THE PROFIT TO 14%. 3 ITA NO.611/VIZ/2014 (SRI L.G. TRINADHA RAO) 4. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN EARLIER YEARS, LD. CIT(A) HAS ESTIMATED THE INCOME OF THE ASSESSEE AT 12.3% FOR THE ASSESSMENT YEARS 2004-05, 2005-06, 2006-07 & 2010-11 AND SUBMITTED THAT THE SAME MAY BE FOLLOWED. 6 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE, ASSESSEE FAILED TO MAINTAIN BOOKS OF ACCOUNT AND THEREFORE, ASSESSING OFFICER BY TAKING INTO CONSIDERATION OF THE EARLIER ASSESSMENT YEARS AND ALSO SIMILAR BUSINESS CARRIED BY THE OTHER ASSESSEES, CAME TO A CONCLUSION THAT ESTIMATION AT 15% IS REASONABLE. ACCORDINGLY, HE ESTIMATED THE INCOME OF THE ASSESSEE AT 15% AND ADDITION IS MADE. ON APPEAL, LD. CIT(A) SCALED DOWN TO 14%. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT(A) IS REPRODUCED HEREUNDER:- 5. I HAVE CONSIDERED THE SUBMISSIONS MADE AND DETAILS FILED IN THE PAPER BOOK. THE ASSESSEE HAS OBJECTED TO ADOPTING THE PROFIT RATE OF 15% COMPARING THE PROFIT MARGIN OF APEX ENCON PROJECTS PVT. LTD. HOWEVER, A PERUSAL OF THE IMPUGNED ORDER WOULD SHOW THAT THE AO HAD ADOPTED THE ESTIMATE AT 15% BASED ON THE ESTIMATE MADE IN THE EARLIER YEARS. ONLY BY WAY OF ADDITIONAL REITERATION, THE AO HAD TAKEN INTO ACCOUNT THE INFORMATION ABOUT THE PROFIT RATE OF M/S.APEX ENCON PROJECTS PVT. LTD. HOWEVER, THE ASSESSEE WAS NOT GIVEN THE OPPORTUNITY TO REBUT OR USING SUCH INFORMATION IN THE ASSESSMENT. FURTHER, IT IS NOTED THAT THE AO HAD NOT GIVEN ANY REASONS AS TO WHY AND HOW THE COMPANY, M/S. APEX ENCON PROJECTS PVT. LTD IS COMPARABLE TO ASSESSEE'S CASE EXCEPT STATING THAT THE SAID COMPANY WAS ON THE SIMILAR LINE OF BUSINESS. NO COMPARABLE ANALYSIS HAS BEEN MADE BEFORE CONSIDERING THE RELEVANCE OF SUCH INFORMATION IN THE ASSESSEE'S CASE. IN THESE CIRCUMSTANCES, I AM OF THE VIEW THAT THIS ADDITIONAL INFORMATION RELIED ON BY THE AO CANNOT BE A RELEVANT CRITERIA TO ADOPT THE ESTIMATE AT 15% AND IN ALL FAIRNESS THIS INFORMATION HAS TO BE EXCLUDED WHILE DETERMINING THE INCOME ON ESTIMATE BASIS. 4 ITA NO.611/VIZ/2014 (SRI L.G. TRINADHA RAO) 5.1 THE AR VEHEMENTLY ARGUED THAT THE ALLOWANCE FOR DEPRECIATION SHOULD BE ALLOWED AND RELIED ON THE CBDT CIRCULAR AND CASE LAWS REFERRED ABOVE. THE ISSUE OF ALLOWANCE OF DEPRECIATION SEPARATELY WAS RAISED BEFORE THE HON'BLE ITAT, VIZAG BENCH IN THE CASE OF ACIT VS. ISNAR CONSTRUCTIONS, RELYING ON THE CBDT CIRCULAR AND THE RAJASTHAN HIGH COURT DECISION IN JAIN CONSTRUCTION. THE HON'BLE TRIBUNAL HELD THAT THE ASSESSING OFFICER MAY ESTIMATE THE GROSS INCOME AND THEREAFTER ALLOW DEPRECIATION OR HE MAY ESTIMATE INCOME CLEAR OF ALL DEDUCTIONS DEPENDING ON THE FACTS OF THE CASE. IN THAT CASE, THE HON'BLE ITAT ULTIMATELY ESTIMATED THE INCOME CLEAR OF ALL DEDUCTIONS. IT IS NOTED THAT IN THE ASSESSEE'S CASE, ITS ASSESSMENTS WERE COMPLETED ON AN ESTIMATE BASIS FOR A.YS. 2004-05 TO 2010-11. THE CIT(A) UPHELD THE REJECTION OF BOOKS BUT HOWEVER HELD THAT THE ESTIMATE AT 12.30% WOULD BE REASONABLE FOR A.YS.2004-05 TO 2009-10 AND AT 13.22% FOR A.Y. 2010-11. FOR THE SUBJECT ASSESSMENT YEAR, THE CA FIRM HAS CERTIFIED IN THE FORM 3CB REPORT THAT BILLS AND VOUCHERS FOR EXPENSES AT WORK SITES WERE NOT PRODUCED FOR VERIFICATION. DURING THE ASSESSMENT PROCEEDINGS ALSO, ASSESSES FAILED TO PRODUCE BOOKS OF ACCOUNT AND VOUCHERS FOR EXPENSES. IN VIEW OF THESE DISCREPANCIES, I FIND THAT THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE INCOME FROM BUSINESS. AS DISCUSSED EARLIER THE ESTIMATE MAY BE MADE ON GROSS RECEIPTS AND DEPRECIATION MAY BE SEPARATELY ALLOWED OR THE ESTIMATION MAY BE MADE NET OF ALL DEDUCTIONS. THEREFORE THE ASSESSEE'S CONTENTION THAT DEPRECIATION SHOULD BE ALLOWED SEPARATELY IS NOT TENABLE. EVEN OTHERWISE THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT BEFORE THE AO, AND THEREFORE THERE IS NO MANNER THE CLAIM OF DEPRECIATION COULD BE CROSS-CHECKED. THIS IS MORE SO, CONSIDERING THE FACT THAT IN ALL THE EARLIER YEARS, BOOKS OF ACCOUNT HAS BEEN REJECTED AND INCOME HAS BEEN ESTIMATED NET OF ALL DEDUCTIONS. IN THESE FACTUAL SCENARIO, I AM OF THE VIEW THAT ESTIMATE AT NET OF ALL DEDUCTIONS IS APPROPRIATE IN THE ASSESSEE'S CASE. 5.2 THE NEXT ISSUE FOR CONSIDERATION WOULD BE THE REASONABLENESS OF THE ESTIMATE. IN THIS REGARD, IT IS RELEVANT TO NOTE THAT RECEIPTS TO THE TUNE OF RS. 1,42,77,910/- ARE FROM SUB-CONTRACTS, IN RESPECT OF WHICH ESTIMATE AT 15% WOULD NOT BE JUSTIFIED. FURTHER IT IS ALSO NOTED THAT THE CIT(A) HAS HELD THAT THE ESTIMATE AT 13.22% IS REASONABLE FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y.2010-11. TAKING INTO CONSIDERATION ALL THE FACTS AND CIRCUMSTANCES, I CONSIDER IT REASONABLE AND APPROPRIATE TO ESTIMATE THE INCOME FROM SUB-CONTRACT RECEIPTS AT 5% OF RS.1,42,77,910/- AND THE INCOME FROM THE BALANCE CONTRACT RECEIPTS OF RS.22,23,91,202/- (RS.23,66,69,112 - RS. 1,42,77,910) AT 14%. THE AO MAY ACCORDINGLY RE-COMPUTE THE TOTAL INCOME. 7 . KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO ESTIMATION MADE BY THE LD. CIT(A) IN EARLIER YEARS AND THE SAME IS BY THE TRIBUNAL, WE ARE OF THE VIEW THAT ESTIMATION OF INCOME OF THE ASSESSEE AT 13% IS REASONABLE AND JUSTIFIED. ACCORDINGLY, WE DIRECT THE 5 ITA NO.611/VIZ/2014 (SRI L.G. TRINADHA RAO) ASSESSING OFFICER TO ESTIMATE THE INCOME OF THE ASSESSEE AT 13%. THUS, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED PARTLY. 8 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF APRIL, 2017. SD/- SD/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19 TH APRIL, 2017. VR/- COPY TO: 1. THE ASSESSEE - SHRI L.G. TRINADHA RAO, 46-15-32/7, KANDARAPA COMPLEX, DONDAPARTHI, VISAKHAPATNAM. 2. THE REVENUE CIT, CIRCLE-4(1), VISAKHAPATNAM. 3. THE CIT-2, VISAKHAPATNAM. 4. THE CIT(A), VISAKHAPATNAM. 5. THE D.R., VISAKHAPATNAM. 6. GUARD FILE. BY ORDER