K Krishna Reddy Contractors, R R Dist, Hyderabad V. ITO, Ward-8(2), Hyderabad, Hyderabad

ITA 653/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2554 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: S RAMA RAO
• Section: 142(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 652 & 653/HYD/2016 ASSESSMENT YEARS: 2008-09 & 2010-11 K. KRISHNA REDDY CONTRACTORS, R.R. DISTRICT, PAN AAGFK 9045 M VS. INCOME-TAX OFFICER, WARD 8(2), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: SHRI S. RAMA RAO REVENUE BY: SMT. SUMAN MALIK DATE OF HEARING: 31/01/2018 DATE OF PRONOUNCEMENT: 31/01/2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDERS OF CIT(A) 2, HYDERABAD FOR AYS 2008-09 AND 2010-11. AS IDENTICAL ISSUE IS INVOLVED IN THES E APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE , A CONSOLIDATED ORDER IS PASSED FOR THE SAKE OF CONVEN IENCE. 2. BRIEFLY THE FACTS AS TAKEN FROM AY 2008-09 ARE, THE ASSESSEE, AN INDIVIDUAL, INVOLVED IN THE BUSINESS O F CONSTRUCTIONS HAS FILED RETURN OF INCOME ORIGINALLY FOR AY 2008- 09 ON 08/10/2008 ADMITTING THEREIN NET INCOME OF RS . 5,01,350/-. AS IT WAS OBSERVED THAT INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT, THE AO ISSUED NOTICE U/S 14 8 TO THE ASSESSEE ON 28/03/2013. SINCE THE CASE WAS TAKEN U P FOR SCRUTINY, NOTICE U/S 142(1) WAS ISSUED TO THE ASSES SEE CALLING FOR VARIOUS DETAILS ON 08/07/2013. IN RESPONSE TO T HE SAID I.T.A. NOS. 652 & 653/HYD/2016 K. KRISHNA REDDY CONTRACTORS, RR DT. 2 NOTICE, THE AR OF THE ASSESSEE FURNISHED THE DETAIL S AS CALLED FOR. 2.1 ON VERIFICATION OF THE P&L A/C AND BALANCE SHEE T FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE PROFIT OF THE FIRM IS RS. 83.906/ HOWEVER, THE AO NOTICED THAT FROM THE COMPUTATION OF INCOME THAT THE ASSESSEE OFFERED INCOME @ 12.5% ON THE ADVANCES RE CEIVED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, T HIS YEAR ALSO, SINCE THE ASSESSEE HAS RECEIVED ADVANCES OF R S. 1,74,70,000/-, THE INCOME OF THE ASSESSEE WAS COMPU TED @ 12.5% ON THE ABOVE MENTIONED ADVANCES WHICH WORKS O UT TO RS. 21,83,750/- HOWEVER, FROM THE INCOME SO ARRIVED AT AS ABOVE, THE ASSESSEE REDUCED AN AMOUNT OF RS. 14,70, 433/- AND RS. 4,21,732/- AS INTEREST ON CAPITAL AND REMUN ERATION RESPECTIVELY. THE AO OBSERVED THAT THOUGH THE ASSE SSEE IS DRAWING P&L A/C AND BALANCE SHEET, HE CHOOSES TO OF FER THE INCOME AS PER HIS OWN ESTIMATION ON THE ADVANCES RE CEIVED. HE OPINED THAT WHEN THE INCOME IS ESTIMATED NO OTHE R AMOUNT SHOULD BE REDUCED FROM THE INCOME SO ESTIMATED. REL YING ON THE PRINCIPLES LAID DOWN BY THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF INDWELL CONSTRUCTIONS REPORT ED IN 232 ITR 776, AO HELD THAT ONCE THE INCOME IS ESTIMATED NO OTHER ALLOWANCE CAN BE CLAIMED BY THE ASSESSEE FROM THE A MOUNT ARRIVED AT AS PER THE ESTIMATION. ACCORDINGLY, WHIL E ARRIVING AT THE INCOME OF THE ASSESSEE, THE REMUNERATION AND IN TEREST PAID TO CAPITAL ARE NOT ALLOWED. ACCORDINGLY, HE DI SALLOWED DEDUCTION TOWARDS INTEREST ON CAPITAL OF PARTNERS O F RS. 14,70,433/- AND REMUNERATION TO PARTNERS OF RS. 4,2 1,732/- I.T.A. NOS. 652 & 653/HYD/2016 K. KRISHNA REDDY CONTRACTORS, RR DT. 3 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) UPHELD THE ACTION OF THE AO. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL: 1) THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2) THE LEARNED CIT (A) ERRED IN NOT ALLOWING DEDUCT ION TOWARDS INTEREST ON CAPITAL OF PARTNERS OF RS.14,70 ,433/- AND REMUNERATION TO PARTNERS OF RS. 4,21,732/-. 3) THE LEARNED CIT (A) OUGHT TO HAVE CONSIDERED THE FACT THAT DEDUCTION U/S 40(B) IS ALLOWABLE EVEN AFTER TH E ESTIMATION OF INCOME. 4) ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 5. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUE AROS E BEFORE THE SMC-A BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2011-12 IN ITA NO. 654/HYD/2016 ORDER DATED 25/07/2 017, WHEREIN IT WAS HELD AS UNDER: 3 . ..THE ASSESSEE CONTENDED THAT NORMALLY IN THIS LINE OF BUSINESS PROFIT RATE IS ADOPTED @ 8 % WHEREAS THE ASSESSING OFFICER ADOPTED 12.5% IN WHIC H EVENT, THE FINANCIAL CHARGES AND DEDUCTIONS ALLOWAB LE U/S 40(B) OUGHT TO HAVE BEEN CONSIDERED FOR DEDUCTI ON. LD. COUNSEL FOR THE ASSESSEE PLACED BEFORE THE TRIB UNAL A COPY OF THE ORDER OF THE ITAT, HYDERABAD (ITA NO.164/HYD/2013, DATED 31.03.2015), WHEREIN I AM A PARTY, TO CONTEND THAT THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT (SUPRA) IS DISTINGUISHABLE ON FA CTS AND STATUTORY DEDUCTIONS ARE NECESSARILY TO BE CONSIDERED SEPARATELY AND ALLOWED AS DEDUCTIONS. IN THE AFORESAID DECISION, THE TRIBUNAL PASSED A DETAILED ORDER BEFORE COMING TO THE CONCLUSION THAT EVEN AFTER ESTIMATING THE INCOME, STATUTORY DEDUCTIONS ARE TO BE SEPARATELY CONSIDERED. LD. CIT DR HAS NOT RAISED AN Y OBJECTION IN THIS REGARD. I.T.A. NOS. 652 & 653/HYD/2016 K. KRISHNA REDDY CONTRACTORS, RR DT. 4 AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF AY 2011-12, FOLLOWING THE DECISION THEREIN, WE D IRECT THE AO TO ESTIMATE THE INCOME @ 12.5% AND ALLOW THE DED UCTION TOWARDS INTEREST ON CAPITAL OF PARTNERS OF RS. 14,7 0,433/- AND REMUNERATION TO PARTNERS OF RS. 4,21,732/-, WHICH A RE ALLOWABLE U/S 40(B) OF THE ACT. AS THESE DEDUCTIONS ARE ONLY APPROPRIATION OF PROFIT AND THESE ARE TAXABLE IN TH E HANDS OF PARTNERS. THEREFORE, THERE IS NO LOSS TO THE REVENU E. 6. AS THE ISSUE IN AY 2010-11 IS MATERIALLY IDENTIC AL TO THAT OF AY 2008-09 (SUPRA), WE ALLOW THE APPEAL OF THE A SSESSEE WITH IDENTICAL DIRECTIONS. 7. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERAT ION ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- (V. DURGA RAO) JUDICIAL MEMBER SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST JANUARY, 2018 KV I.T.A. NOS. 652 & 653/HYD/2016 K. KRISHNA REDDY CONTRACTORS, RR DT. 5 COPY FORWARDED TO: 1. K. KRISHNA REDDY CONTRACTORS, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6- 643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2. ITO, WARD 8(2), SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3. CIT(A) - 2, HYDERABAD 4 PR. CIT - 2, HYDERABAD 5 THE DR, ITAT, HYDERABAD 6 GUARD FILE