THE DCIT, Visakhapatnam V. Gottipati Sudhakar, Anakapalle

ITA 623/VIZ/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9536 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 08-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K S S SARMA
• Assessee Lawyers: SARIS KUMAR I
• Keywords: Rejection of books of accounts; Depreciation
• Section: 143(3); 147; 263

Judgement Text

ITA NOS 617 618 622 & 623 OF 2014 GOTTIPATI SUDHAKA R, ANAKAPALLE PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 617 & 618/VIZAG/2014 ASSESSMENT YEARS: 2008-09 & 2009-10 GOTTIPATI SUDHAKAR, S/O VEERA RAGHAVASWAMY, 14-8-12 MAIN ROAD, ANAKAPALLE 531001 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 5(1) VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO: AFDPG 2191 L ITA NOS. 622 & 623/VIZAG/2014 ASSESSMENT YEARS: 2008-09 & 2009-10 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 5(1) VISAKHAPATNAM GOTTIPATI SUDHAKAR, S/O VEERA RAGHAVASWAMY, 14-8-12 MAIN ROAD, ANAKAPALLE 531001 (APPELLANT) VS. (APPELLANT) PAN NO: AFDPG 2191 L PAN NO: AFDPG 2191 L APPELLANT BY: SHRI K.S.S. SARMA, CA RESPONDENT BY: SHRI SARIS KUMAR, I. DR DATE OF HEARING: 23/02/2015 DATE OF PRONOUNCEMENT 03/03/2015 ORDER PER BENCH: THESE CROSS APPEALS PERTAINING TO THE AYS 2008-09 AND 2009-10 ARE AGAINST THE CONSOLIDATED ORDER DATED 26.09.2014 PAS SED BY THE LD CIT (A) VISAKHAPATNAM. WHILE THE ASSESSEE IS BASICALLY AGGR IEVED BY THE DECISION OF THE LD CIT (A) IN NOT ALLOWING DEPRECIATION, THE DE PARTMENT IS CONTESTING THE ESTIMATION OF PROFIT FROM TRANSPORT ACTIVITIES AND STONE CRUSHING PROCESS RESPECTIVELY AT THE RATE OF 4% AND 8% OF THE GROSS RECEIPTS. 2. BRIEFLY STATED THE FACTS ARE, THE ASSESSEE, AN I NDIVIDUAL, IS CARRYING ON BUSINESS OF CIVIL CONTRACT WORK, SAND AND STONE CRU SHING AND TRANSPORT ITA NOS 617 618 622 & 623 OF 2014 GOTTIPATI SUDHAKA R, ANAKAPALLE PAGE 2 OF 6 CONTRACT WORKS. FOR THE A.Y 2008-09, THE ASSESSEE F ILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING TOTAL INCOME OF RS.22,60,32 0. THE AO WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT, VI DE ORDER DATED 29.11.2010 REJECTED THE BOOKS OF ACCOUNTS AND ESTIM ATED THE PROFIT @11.5 OF THE GROSS RECEIPTS FROM BOTH BUSINESS ACTIVITIES , AFTER ALLOWING DEDUCTION TOWARDS DEPRECIATION OF RS.31,73,700/-. ON THE BASI S OF OBJECTION RAISED BY THE AUDIT PARTY, THE ASSESSMENT WAS REOPENED U/S 14 7 OF THE ACT FOR THE REASON, ONCE PROFIT IS ESTIMATED, NO FURTHER DEDUCT ION ON ACCOUNT OF DEPRECIATION CAN BE ALLOWED AS PER THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF INDWELL CONSTRUCT ION VS. CIT (232 ITR 776). THOUGH THE ASSESSEE OBJECTED TO THE REOPENING OF THE ASSESSMENT AND PROPOSED DISALLOWANCE, THE AO REJECTING THE OBJ ECTIONS OF ASSESSEE COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 OF T HE ACT ON 12.11.2013 BY DISALLOWING DEPRECIATION CLAIMED OF RS.31,73,700 WHICH RESULTED IN DETERMINATION OF TOTAL INCOME OF RS.94,73,330/-. SI MILARLY FOR THE A.Y 2009- 10 THE ASSESSEE HAD FILED HIS RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.17,68,476. AO COMPLETED THE ASSESSMENT U/S 143(3 ) BY ESTIMATING THE PROFIT BY APPLYING THE RATE OF 2.5% ON THE GROSS RE CEIPTS. HOWEVER, ASSESSMENT SO MADE WAS SET ASIDE BY THE LD CIT U/S 263 OF THE ACT WITH A DIRECTION TO MAKE THE ASSESSMENT DE NOVO. 3. IN PURSUANCE TO THE DIRECTIONS OF THE LD CIT, AO COMPLETED THE ASSESSMENT BY ESTIMATING THE PROFIT @ 9% OF THE GRO SS RECEIPTS FROM BOTH THE BUSINESS ACTIVITIES. HOWEVER, THE AO ALSO ALLOW ED DEPRECIATION OF RS.14,92,765 FROM PROFITS SO ESTIMATED. AS WAS THE CASE IN A.Y 2008-09, IN A.Y 2009-10 ALSO THE AO REOPENED THE ASSESSMENT U/S 147 OF THE ACT FOR THE REASON THAT ONCE PROFIT IS ESTIMATED, FURTHER A LLOWANCE TOWARDS DEPRECIATION CANNOT BE GRANTED IN VIEW OF THE DECIS ION OF THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTION VS. CIT (SUPRA). ACCORDINGLY HE COMPLETED THE ASSESSMENT U/ S 143(3) R.W.S. 147 OF THE ACT BY DISALLOWING THE CLAIM OF DEPRECIATION. ITA NOS 617 618 622 & 623 OF 2014 GOTTIPATI SUDHAKA R, ANAKAPALLE PAGE 3 OF 6 4. ASSESSEE BEING AGGRIEVED OF THE ASSESSMENT ORDER S SO PASSED, PREFERRED APPEAL BEFORE THE LD CIT (A) BASICALLY CH ALLENGING THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT. HOWEVER, AS IT A PPEARS FROM THE ORDER OF THE LD CIT (A) IN COURSE OF HEARING OF APPEAL, A SSESSEE APART FROM RAISING THE ISSUE OF VALIDITY OF THE PROCEEDINGS INITIATED U/S 147 ALSO CONTESTED THE DISALLOWANCE OF CLAIM OF DEPRECIATION BY SUBMITTING THAT EVEN IN CASE OF ESTIMATION, FURTHER DEDUCTION TOWARDS DEPRECIATION SHOULD BE ALLOWED AS PER THE CBDT CIRCULAR NO.29D(XIX-14) DATED 30.08.1965. 5. ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. SRI VENKA TESWARA SWAMY LORRY SERVICE. BESIDES, THE ASSESSEE ALSO CHALLENGED THE RATE APPLIED BY THE AO WHILE ESTIMATING THE PROFIT OF THE ASSESSEE FROM ST ONE CRUSHING BUSINESS AS WELL AS TRANSPORT CONTRACT. THE LD CIT (A) AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF THE FACTS AND MAT ERIALS ON RECORD AS WELL AS THE DECISION RELIED UPON, UPHELD THE DISALLOWANC E OF DEPRECIATION, BUT HE NEVERTHELESS ESTIMATED THE PROFIT FROM TRANSPORT CO NTRACT @ 4% OF THE GROSS RECEIPTS AND STONE CRUSHING BUSINESS @ 8% ON GROSS SALES FOR BOTH THE A.YS, NET OF ALL EXPENSES. BEING AGGRIEVED OF T HE ABOVE ORDER OF THE LD CIT (A), BOTH THE ASSESSEES AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 6. THE LD AR, THOUGH HAS NO GRIEVANCE AGAINST THE R ATE OF PROFIT ADOPTED BY THE LD CIT (A), HE CHALLENGED THE DECISI ON OF LD CIT (A) IN NOT ALLOWING DEPRECIATION. THE LD AR REFERRING TO THE C BDT CIRCULAR AS WELL AS THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COU RT IN THE CASE OF CIT VS. SRI VENKATESWARA SWAMY LORRY SERVICE IN ITA NO. 82/13 DATED 25.06.2013 AND IN THE CASE OF CIT VS. V.S.Y. RAMACH ANDRA REDDY IN ITTA NO.70/2002 SUBMITTED THAT EVEN IN CASE OF ESTIMATIO N OF PROFIT, DEPRECIATION CAN BE ALLOWED SEPARATELY AS PER THE SAID DECISIONS OF THE JURISDICTIONAL HIGH COURT. ITA NOS 617 618 622 & 623 OF 2014 GOTTIPATI SUDHAKA R, ANAKAPALLE PAGE 4 OF 6 7. THE LD DR ON THE OTHER HAND SUBMITTED BEFORE US THAT THE RATE OF PROFIT ADOPTED BY THE AO WHILE ESTIMATING BEING FAI R AND REASONABLE, THE LD CIT (A) WAS NOT JUSTIFIED IN REDUCING IT FURTHER. I T WAS FURTHER SUBMITTED THAT THERE IS NO BASIS FOR THE LD CIT (A) TO ESTIMATE TH E PROFIT FROM STONE CRUSHING BUSINESS AT 8% AND TRANSPORT BUSINESS AT 4 %. THE LD DR CONTESTING THE CLAIM OF THE ASSESSEE THAT EVEN IN C ASE OF THE ESTIMATE, FURTHER ALLOWANCE TOWARDS DEPRECIATION IS ALLOWABLE SUBMITTED THAT ONCE PROFIT IS ESTIMATED, ALL OTHER DEDUCTIONS AND ALLOW ANCES INCLUDING THE STATUTORY DEDUCTIONS DEEMED TO HAVE BEEN CONSIDERED AND ALLOWED. THEREFORE, NO FURTHER DEDUCTION CAN BE ALLOWED FROM THE ESTIMATED PROFIT. IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. INDWELL CONSTRUCTIONS (SUPRA). THE LD DR FURTHER SUBMITTED, ON THE PROFIT ESTIMATED BY APPLY ING THE RATE ADOPTED BY LD CIT (A), IF FURTHER DEDUCTION IS ALLOWED TO THE ASSESSEE TOWARDS DEPRECIATION, THEN THE INCOME OF THE ASSESSEE WILL BE LESS THAN THE INCOME ADMITTED BY ASSESSEE HIMSELF FOR THE A.YS IN DISPUT E. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. AT THE OUTSET WE WILL ADDRESS THE ISSUE RELATING TO CLAIM OF DEPRECIATION AS RAISED BY ASSESSEE. AS COULD BE SEEN, ASSESSEES CLAIM OF DEPRECIATION HAS BEEN REJECTED ON THE PRINCIPLE THA T ONCE PROFIT IS ESTIMATED NO FURTHER DEDUCTION TOWARDS DEPRECIATION CAN BE AL LOWED IN VIEW OF RATIO LAID DOWN IN INDWELL CONSTRUCTIONS LTD VS. CIT (SUP RA). HOWEVER, AFTER PERUSING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SRI VENKATESWARA SWAMY LORRY SERVICE AS WEL L AS CIT VS. VSY RAMACHANDRA REDDY, IT IS FOUND THAT HON'BLE JURISDI CTIONAL HIGH COURT HAS HELD, EVEN IN CASE OF ESTIMATION OF PROFIT, THE ASS ESSEE IS ENTITLED FOR DEDUCTION TOWARDS INTERESTS AND DEPRECIATION. FURTH ER, IT IS TO BE NOTED THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID DECISION CAME TO SUCH CONCLUSION TAKING INTO CONSIDERATION THE CBDT CIRCU LAR REFERRED TO BY THE ASSESSEE AS WELL AS THE EARLIER JUDGMENT OF THE HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT (SUPRA). IN VIEW OF THE ITA NOS 617 618 622 & 623 OF 2014 GOTTIPATI SUDHAKA R, ANAKAPALLE PAGE 5 OF 6 AFORESAID, WE ACCEPT ASSESSEES CONTENTION THAT EVE N WHEN PROFIT IS ESTIMATED, ASSESSEE IS ENTITLED TO CLAIM DEPRECIATI ON. ACCORDINGLY, WE DIRECT THE AO TO ALLOW ASSESSEES CLAIM OF DEPRECIATION AS ADMISSIBLE UNDER LAW. 9. IN SO FAR AS THE GRIEVANCE OF THE REVENUE IS CON CERNED, AS IS EVIDENT, NOT ONLY THE AO HAS ESTIMATED THE PROFIT, BUT THE C IT (A) HAS ALSO ESTIMATED THE PROFIT, THOUGH, APPLYING DIFFERENT RATES. THE A SSESSEE HAS ALSO NOT CHALLENGED ESTIMATION OF PROFIT. THEREFORE, THERE I S NO DISPUTE TO THE FACT THAT IN ASSESSEES CASE PROFIT IS TO BE ESTIMATED. HOWEVER, IT IS TO BE NOTED THAT THERE IS NO PRESCRIBED RULE OR SET FORMULA TO APPLY A PARTICULAR RATE OF PROFIT, SINCE RATE OF PROFIT HAS TO DEPEND ON THE F ACTS OF EACH INDIVIDUAL CASE. AS CAN BE SEEN, THE AO IN THE A.Y 2008-09 HAD ORIGINALLY ESTIMATED PROFIT AT 11.5% AND THEREAFTER ALLOWED DEPRECIATION AS A RESULT OF WHICH NET PROFIT OF THE ASSESSEE, ULTIMATELY CAME DOWN TO 6.5 %. IN THE A.Y 2009-10 ORIGINALLY THE AO ESTIMATED THE PROFIT AT 2.5% AND AFTER THE DIRECTION OF THE CIT U/S 263 THE AO ESTIMATED THE PROFIT OF BOTH THE BUSINESSES @ 9% AND ALLOWED FURTHER DEDUCTION TOWARDS DEPRECIATION WHIC H RESULTED IN NET PROFIT OF APPROXIMATELY 5%. ON THE OTHER HAND THE LD CIT ( A) HAS DIRECTED TO ESTIMATE THE PROFIT AT 8% ON STONE CRUSHING AND 4% ON THE TRANSPORT CONTRACT. THEREFORE, THERE IS HARDLY ANY DIFFERENCE BETWEEN THE ESTIMATION MADE BY THE AO AND THE CIT (A). MOREOVER, IN CASE O F CIT VS. SRI VENKATESWARA SWAMY LORRY SERVICE (SUPRA), THE HON'B LE A.P. HIGH COURT HAS APPROVED ESTIMATION OF PROFIT AT 4% IN CASE OF TRANSPORT CONTRACT. HOWEVER, IN COURSE OF HEARING IT HAS BEEN BROUGHT T O OUR NOTICE, IN CASE, PROFIT IS ESTIMATED BY APPLYING THE RATES ADOPTED B Y LD CIT (A) AND FURTHER DEDUCTION IS ALLOWED TOWARDS DEPRECIATION, INCOME S O COMPUTED WILL GO BELOW THE INCOME RETURNED BY ASSESSEE. KEEPING IN V IEW AFORESAID FACT AND IN CASE SUCH EVENTUALITY HAPPENS, THE AO IS DIRECTE D TO MODIFY THE RATE OF PROFIT SUITABLY SO THAT INCOME DETERMINED WILL NOT GO BELOW THE INCOME RETURNED BY ASSESSEE FOR THE IMPUGNED A.Y. ITA NOS 617 618 622 & 623 OF 2014 GOTTIPATI SUDHAKA R, ANAKAPALLE PAGE 6 OF 6 10. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED, WHILE DEPARTMENTAL APPEALS ARE PARTLY ALLOWED FOR STATIST ICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 3 RD MARCH, 2015. SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 3.3.2015. PVV/SPS VISAKHAPATNAM, BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM COPY TO: 1 SHRI K.S.S. SHARMA, CA, 1`2-5-25A, OPP. ROTARY KA LYANA MANDAPAM, NEW COLONY, ANAKAPALLE 531001 2 DY. COMMISSIONER OF INCOME TAX, CIRCLE 5(1) VISAK HAPATNAM 3 THE CIT (A) VISAKHAPATNAM 4 THE CIT-1 VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE.