R.R. Constructions, Nandyal, Hyderabad V. ITO, Ward-2, Nandyal, Nandyal

ITA 621/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2420 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Section: 40A(3); 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 621/HYD/2017 ASSESSMENT YEAR: 2009-10 M/S. R.R. CONSTRUCTIONS, NANDYAL [PAN: AAIFR5606D] VS THE INCOME TAX OFFICER, WARD-2, NANDYAL (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 08-03-2018 DATE OF PRONOUNCEMENT : 21-03-2018 O R D E R PER S. RIFAUR RAHMAN, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-KURNOOL, DATED 13-01-2017, FOR THE AY. 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE, A FIRM, E NGAGED IN EXECUTING SUB-CONTRACTS OF CIVIL WORKS, FILED ITS RE TURN OF INCOME FOR THE AY. 2009-10 ON 27-09-2011 ADMITTING TO TAL INCOME OF RS. 4,56,680/-. ORIGINALLY, THE ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT [ACT] WAS COMPLETED ON 28-11-2011 AT A TOTAL INCOME OF RS. 19,06,680/-. SUBSEQUENTLY, THE COMMISSIONER OF INCOME TAX-III, HYD ERABAD ITA NO. 621/HYD/2017 :- 2 -: AFTER REVIEWING THE ASSESSMENT ORDER, PASSED AN ORDER U/S. 263 OF THE ACT DT. 28-03-2014. AS PER THE REVISION ORDER, THE CIT HAS SET ASIDE THE ASSESSMENT ORDER U/S. 143(3) AS THE ABOVE SAID ASSESSMENT ORDER WAS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGL Y ISSUED DIRECTIONS TO THE AO TO RE-DO THE ASSESSMENT AFTER NECESS ARY ENQUIRIES AS PER THE REVISION ORDER. DURING THE COU RSE OF SEC. 263 PROCEEDINGS, ASSESSEE SUBMITTED THAT THE BOOKS OF AC COUNT AND VOUCHERS RELATING TO FYS. 2005-06 TO 2011-12 WAS LOST ON 09-12-2011 WHEN THE FIRM WAS SHIFTING ITS OFFICE AND P RODUCED A CERTIFICATE TO THIS EFFECT FROM THE SUB-INSPECTOR OF PO LICE, NANDYAL, DT. 07-03-2014. AS PER THE DIRECTIONS FROM CI T, AO HAS VERIFIED THE GENUINENESS OF THE CLAIM OF ASSESSEE AND FOUND TO BE PROPER. DURING THE COURSE OF RE-ASSESSMENT PROC EEDINGS, ASSESSEE PRAYED BEFORE THE ITO THAT ASSESSEE WAS MAIN TAINING PROPER BOOKS OF ACCOUNT AND ACCORDINGLY, REGULAR ASS ESSMENT WERE NOT COMPLETED THIS YEAR ONLY DUE TO LOSS OF BOOKS OF ACCOUNT AND ALSO THERE WERE NO CONTRACT WORKS DURING T HE FY. 2011-12, ASSESSEE WAS NOT IN A POSITION TO PRODUCE AN Y BOOKS FOR EXAMINATION. 2.1. CONSIDERING THE ABOVE FACTS, AO ESTIMATED THE TOTAL INCOME @ 5% ON GROSS RECEIPTS. AGGRIEVED WITH THE ABOV E ORDER, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-KURNO OL. CIT(A) DISMISSED THE APPEAL BY UPHOLDING THE VIEWS OF AO. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRED SECOND APPE AL BEFORE US WITH THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE HON'BLE CIT(A) IS ERRONEOUS IN LAW AS WELL AS FACTS OF THE CASE. ITA NO. 621/HYD/2017 :- 3 -: 2. THE HON'BLE CIT(A) OUGHT TO HAVE HELD THAT THE A CTION OF THE ASSESSING OFFICER WITH REGARD TO REJECTION OF ACCOU NT BOOKS AS ILLEGAL AND IMPROPER. 3. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSE MAINTAINED REGULAR ACCOUNT BOOKS AND VOUCHERS AND F ILED AUDITED FINANCIAL STATEMENTS ALONG WITH RETURN OF INCOME AN D THEREFORE THE ASSESSING OFFICER OUGHT NOT TO HAVE REJECTED THE BO OK RESULTS DECLARED. 4. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT E STIMATION OF PROFIT AT 5% IN RESPECT OF SUB-CONTRACT RECEIPTS WAS INJUD ICIOUS AND ILLEGAL AND THEREFORE OUGHT TO HAVE DELETED THE ADDITION. 5. ANY OTHER GROUND WILL BE RAISED AT THE TIME OF H EARING. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE. GROUND NOS . 2 & 3 ARE FOR GENERAL PLEA FOR REJECTING THE BOOKS OF ACCOU NT AND GROUND NO. 4 IS OBJECTING FOR ESTIMATION OF PROFIT @ 5% . 3. BEFORE US, LD.AR SUBMITTED THAT AO HAS ESTIMATED THE PROFIT @ 5%, WHEREAS ASSESSEE HAS REGULARLY MAINTAINE D THE BOOKS OF ACCOUNT AND FILED THE RETURN OF INCOME REGULA RLY OVER THE YEARS. IN SUPPORT OF THAT, HE BROUGHT TO OUR NOTICE THE REGULAR ASSESSMENTS U/S. 143(3) FOR THE AYS. 2007-08 AND 2008-09 WHICH IS PLACED ON RECORD AT PG. NOS. 60 TO 7 0 OF THE PAPER BOOK. HE SUBMITTED THAT AO HAS ACCEPTED THE INCO ME RETURNED BY THE ASSESSEE, MAKING FEW DISALLOWANCES, H E PRAYED AND SUBMITTED THAT AO WAS WRONG IN REJECTING THE BOOKS OF ACCOUNT, FINANCIAL RESULTS SUBMITTED BY THE ASSESSEE AN D ESTIMATING THE INCOME @ 5%. ACCORDING TO HIM, INCOME SHOULD BE ESTIMATED AS PER THE FINANCIAL RESULTS DECLARED BY ASSESSEE IN LINE WITH THE PREVIOUS ASSESSMENT YEARS, IT MAY BE E STIMATED AT 2%. ITA NO. 621/HYD/2017 :- 4 -: 4. LD.DR, OBJECTED TO THE ABOVE SUBMISSIONS AND SUBMI TTED THAT THE ORIGINAL ASSESSMENT WAS PASSED U/S. 143(3) IN WHICH ASSESSEE HAS NOT SUBMITTED ANY BOOKS OF ACCOUNT. THER EFORE, THE LD.CIT HAS QUASHED THE ASSESSMENT ORDER. SHE SUPP ORTED THE ORDERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT THE ACTION OF AO IS JUSTIFIED BY RELYING ON THE ORDER OF I TAT IN ITA NOS. 668/HYD/2009 & 670/HYD/2009 IN THE CASE OF M/S . C. ESWARA REDDY & CO., VS. ACIT DT. 31-01-2011. AS PER THE ABOVE ORDER, INCOME OF A SUB-CONTRACT SHOULD BE ESTIMA TED @ 5%. 5. CONSIDERED THE RIVAL CONTENTIONS AND MATERIAL ON RE CORD. THERE IS NO DISPUTE THAT ASSESSEE HAS LOST BOOKS OF AC COUNT AND VOUCHERS FOR WHICH IT HAS FILED A COMPLAINT BEFOR E POLICE, WHICH WAS ALSO VERIFIED BY THE AO. IN THIS CASE, ASSE SSEE HAS NO OBJECTION FOR ESTIMATION OF INCOME DUE TO THE FACT THAT IT HAS LOST BOOKS OF ACCOUNT, AND IS NOT IN A POSITION TO SUBM IT BEFORE THE ASSESSING AUTHORITIES. AS PER THE SUBMISSION OF T HE LD.AR, THE DEPARTMENT HAS ACCEPTED THE RESULTS SUBMITTED BY ASSE SSEE OVER THE YEARS AND THE NATURE OF THE BUSINESS IS ALSO S AME. HE IS OF THE VIEW THAT THE INCOME SHOULD BE ESTIMATED BASE D ON THE RANGE OF PROFIT ASSESSED IN THE PREVIOUS ASSESSM ENT YEARS. ON CAREFUL VERIFICATION, WE NOTICED THAT ASSESSEE HAS DECLARED INCOME IN ITS RETURN OF INCOME. THE SAME WAS ASSESSED TO TAX BY DISALLOWING CERTAIN EXPENDITURES U/S. 40A(3) OF THE ACT AND ADHOC DISALLOWANCES DUE TO IMPROPER MAINTENANCE OF VO UCHERS. THEY ARE HIGHLIGHTED BELOW: ITA NO. 621/HYD/2017 :- 5 -: AY. TURNOVER INCOME DECLARED BY ASSESSEE DISALLOWANCE TOTAL TAXABLE INCOME AVERAGE TAXABLE INCOME TO TURNOVER 2007-08 11,82,44,647 7,43,933 7,59,780 15,03,713 1.27% 2008-09 8,10,89,787 5,74,870 24,00,000 29,74,870 3.67% 5.1. CONSIDERING THE ABOVE TABLE, THE PROFIT EARNED BY ASSESSEE CAN BE ESTIMATED. THE ABOVE RESULTS ARE NOT CONSISTENT D UE TO VARIATION IN THE DISALLOWANCES. THE DEPARTMENT HAS ACC EPTED THE RESULTS DECLARED BY ASSESSEE OVER THE YEARS AND THE RE IS NO POSSIBILITY OF REVIVING THE BOOKS AT THIS STAGE. IT MAY BE PROPER TO ESTIMATE THE INCOME OF THE ASSESSEE AT THE LEVEL AT WHI CH DEPARTMENT HAS ACCEPTED THE PROFIT DECLARED BY ASSESSEE OVER THE YEARS. THEREFORE, TO MEET THE ENDS OF JUSTICE, IT IS PROPER TO ESTIMATE THE INCOME @ 2.5% ON THE GROSS RECEIPTS. THE ABOVE PROFIT MAY BE SUBJECT TO ADJUSTMENT OF REMUNERATION TO PARTNERS AS PER SECTION 40(B) OF THE ACT. THEREFORE, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHMA N) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 21 ST MARCH, 2018 TNMM ITA NO. 621/HYD/2017 :- 6 -: COPY TO : 1. M/S. R.R. CONSTRUCTIONS, NANDYAL. C/O. B. NURSI NG RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO. 554, ROAD NO . 92, JUBILEE HILLS, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-2, NANDYAL. 3. CIT(APPEALS)-KURNOOL. 4. PR.CIT-KURNOOL. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.