DCIT, Circle-17(1),Hyderabad, Hyderabad V. Dhaatri Constructions Pvt Ltd., Hyd, Hyderabad

ITA 654/HYD/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4698 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Business income; Search and seizure
• Section: 148; 132; 2

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 6 84 /HYD/201 5 ASSESSMENT YEAR: 20 09 - 10 DHAATRI CONSTRUCTIONS PVT. LTD., HYDERABAD. PAN AACCD 1895 M VS. DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2, HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 654/HYD/2015 ASSESSMENT YEAR: 2009 - 10 DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2, HYDERABAD. VS. DHAATRI CONSTRUCTIONS PVT. LTD., HYDERABAD. PAN AACCD 1895 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI PRABHAT KUMAR GUPTA DATE OF HEARING : 05 - 0 9 - 201 8 DATE OF PRONOUNCEMENT : 26 - 1 0 - 201 8 O R D E R PER S . RIFAUR RAHMAN, A .M.: BOTH THESE ARE APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE DIRECTED AGAINST THE O RDER DATED 20/01/ 201 5 OF CIT(A) 5 , HYDERABAD, FOR AY 2009 - 10. 2. BRIEF FACTS OF THE CASE ARE, A SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 09/10/2007. THE ASSESSMENTS FOR THE AYS 2006 - 07 TO 2008 - 09 WERE COMPLETED. DURING THE COURSE OF THE ABOVE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE COMPANY HAD SOLD PLOTS AND EARNED SUBSTANTIAL A MOUNT OF INCOME FOR AY 2009 - 10 AND FURTHER NOTICED THAT IT HAD NOT FILED ANY 2 ITA NO S . 684 & 685 /HYD/201 5 DHAATRI CONSTRUCTIONS PVT. LTD. RETURN OF INCOME FOR THE AY 2009 - 10 BEFORE DUE DATE AS WELL AS BEFORE 31/03/2010. THEREFORE, NOTICE U/S 148 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 16/04/2010, IN RESPONSE TO WHICH, THE ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR THE AY 2009 - 10 ON 31/03/2011 DECLARING NIL INCOME. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) WERE ISSUED. IN RESPONSE TO THE SAID NOTICES, THE ASSESSEE FILED THE INFORMATION AS CALLED FOR. 2.1 THE AO OBSERVED THAT T HE ASSESSEE HAS DISCLOSED LOSS OF RS. 1 ,35,31,533 / - AND CLAIMED THAT THE BOOKS OF ACCOUNT WERE DESTROYED IN A RIOT IN WHICH THE OFFICE WAS SET AFIRE BY SOME MISCREANTS. AS PROOF OF THE SAME, THE ASSESSEE FILED COPIES OF NEWS REPORTS I N TELUGU NEWS PAPERS AND ALSO A COPY OF FIR DT.28.3.2011. FURTHER, THE AO OBSERVED THAT T HE ASSESSEE HAS NOT FURNISHED ANY INFORMATION EXCEPT THE BANK ACCOUNTS AND SALES. IT WAS STATED THAT THE INCOME OF THE COMPANY WAS BEING ADMITTED ON PROJECT COMPLETION METHOD ON THE BASIS OF THE SALES REGISTERED DURING THE YEAR. ACCORDINGLY, IT WA S STATED THAT THE DETAILS OF SALES WERE GATHERED FROM THE SUB RE GISTRAR'S OFFICE AND THE TOTAL SALES IN RESPECT OF ALL THE PROJECTS WAS RS.8,36,70,601 / - . THE INCOME THEREON WAS ESTIMATED AT RS.16,73,412 / - . THEREAFTER, THE ASSESSEE CLAIMED DEDUCTION U / S 40 (A)(IA) FOR AN AMOUNT OF RS. 1 ,52,04,945 / - SINCE THE TDS DEDUCTED HAS BEEN PAID IN THE PREVIOUS YEAR RELEVA NT TO A.Y.2009 - 10. 2.2 IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT FURNISHED ANY INFORMATION EXCEPT FOR THE TOTAL SALES AS PER BOOKS OF ACCOUNT , THE AO WAS OF THE VIEW THAT THERE IS NO ALTERNATIVE BUT TO ESTIMAT E THE INCOME OF THE COMPANY. HE OBSERVED THAT T HE ASSESSEE HAS SHOWN 2% AS INCOME WHICH CANNOT BE ACCEPTED FOR THE REASON THAT VARIOUS IRREGULARITIES HAVE BEEN NOTICED IN THE ACCOUNTS OF THE ASSESSEE COMPANY IN THE EARLIER ASSESSMENT YEARS. IN THE A.Y. 200 8 - 09, THERE WERE VIOLATIONS OF PROVISIONS OF SEC . 40 (A)(IA), 40(A)(III) AND UNDISCLOSED / UNEXPLAINED RECEIPTS FROM CUSTOMERS ETC. WERE NOTICED. SIMILARLY, IN AY 2007 - 08, THERE WERE SUPPRESSION OF SALES AND 3 ITA NO S . 684 & 685 /HYD/201 5 DHAATRI CONSTRUCTIONS PVT. LTD. STATUTORY VIOLATIONS AND INFLATION OF EXPENDITURE, CERTAIN UNEXPLAINED CASH CREDITS WERE ALSO BROUGHT TO TAX. IN VIEW OF THE ABOVE, HE WAS OF THE OPINION THAT THE ADMISSION OF THE ASSESSEE OF INCOME AT 2% OF GROSS SALES CANNOT BE ACCEPTED AS CORRECT. HE ALSO CONSIDERED THAT THE ASSESSEE HAS NOT FILED RETURN OF INCOME TILL T HE LAST DATE FOR FILING RETURNS OF A.Y. 2009 - 10, I.E., ON 31. 3.2011 AND THAT T HE RIOT IN HIS OFFICE IS STATED TO HAVE TAKEN PLACE ON 2 8 .3.2011. THE AO, THUS, HELD THAT T HERE IS NO REASON WHY THE ASSESSEE COULD NOT HAVE FILED RETURN IN RESPONSE TO THE NOTICE ISSUED U/S .14 8 IN APRI L , 201 0. 2.3 IN VIEW OF THE ABOVE OBSERVATIONS, THE AO ESTIMATED THE INCOME OF THE COMPANY AT 20% OF THE GROSS RECEIPTS FOR THE A.Y. 2009 - 10 I N ORDER TO COVER UP ALL THE DEFICIENCIES AS POINTED OUT ABOVE AND AS NOTICED IN THE ASSESSMENT YEARS 2007 - 0 8 AND 200 8 - 09 . SINCE THE ASSESSEE HAS OFFERED RS.16,73,412/ - , THE ADDITION ON ACCOUNT OF ESTIMATION AT 20% WORKS OUT TO R S. 1,50,60,708/ - (RS. 1,67,34,120 RS. 16,73,412/ - ) 2.4 THE AO OBSERVED THAT I N THE RETURN FILED BY THE ASSESSEE , IT CLAIMED TDS OF RS. 1 0,47,79 8 / - RELATING TO THE GROSS PAYMENTS OF RS. 1 , 5 2,04,94 5 / - AS HAS BEEN PAID DURING THE PREVIOUS YEAR WHICH WAS DISALLOWED IN THE ASSESSMENT YEAR 200 8 - 09. COPIES OF CHALLAN S FOR VARIOUS PAYMENTS WERE FURNISHED. HOWEVER, THE BOOKS OF ACCOUNT FOR THE P REVIOUS YEAR RELEVANT TO A.Y. 2009 - 10 HAVE NOT BEEN PRODUCED. THEREFORE, THE AO OPINED THAT IT CANNOT BE ASCERTAINED AS TO WHICH EXPEN DITURE THE TAX DEDUCTED RELATES AND THE CHALLAN COPIE S PRODUCED DO NOT MATCH THE TDS FIGURES. HE, THEREFORE, DISALLOWED TH E ABOVE AMOUNT AND ADDED TO THE INCOME RETURNED. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. AS REGARDS ESTIMATION OF INCOME, THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DIRECTED THE AO TO ADOP T THE NET 4 ITA NO S . 684 & 685 /HYD/201 5 DHAATRI CONSTRUCTIONS PVT. LTD. PROFIT AT 15% OF THE GROSS RECEIPTS, NET OF ALL EXPENSES AND DEDUCTION AND RECOMPUTE THE TAXABLE INCOME FROM BUSINESS ACCORDINGLY. 5. AS REGARDS DISALLOWANCE OF RS. 1,52,04,945/ - U/S 40(A)(IA), THE CIT(A) OBSERVED THAT IN THE ABSENCE OF INFORMA TION, THE CLAIM COULD HAVE BEEN ONLY DENIED BY THE AO, WHICH WAS REQUIRED TO SET OFF AGAINST THE CURRENT YEAR INCOME AND THERE IS NO REASON FOR THE AO FOR MAKING A FURTHER ADDITION TO THE TOTAL INCOME ON THIS ISSUE. HE, THEREFORE HELD THAT THERE IS NO GROU ND FOR MAKING THE ADDITION OF RS. 1,52,04,945/ - TO THE TOTAL INCOME. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 6.1 ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN ESTIMATI NG THE PROFIT AT 15% OF THE RECEIPTS WITHOUT CONSIDERING THE FACT THAT THE REAL ESTATE BUSINESS HAD SUFFERED RECESSION DURING THE SAID PERIOD. 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLANT ALSO SU FFERED LOSSES DUE TO RECESSION IN REAL ESTATE BUSINESS. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 6.2 REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD . C I T(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS AND IN LAW . 2. THE LEARNED C I T(A) FAILED TO CONSIDER THE PURPOSE AND OBJECT OF SECTION 194 OF THE INCOME TAX ACT IN REGARD TO THE REQUIREMENT OF TAX DEDUCTION OF SOURCE AND THE PURPOSE AND OBJECT OF ADDITION OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, WHICH WAS INT RODUCED WITH EFFECT FROM 01/04/2005. 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF LD. C I T(A) IS NOT PERVERSE AND ERRONEOUS IN HOLDING THAT ONCE THE ASSESSING OFFICER REJECTED THE BOOKS OF 5 ITA NO S . 684 & 685 /HYD/201 5 DHAATRI CONSTRUCTIONS PVT. LTD. ACCOUNT, ANY ADDITION OF INVOKING SECTION 40 OF THE INCOME TAX ACT IS NOT PERMITTED BY L A W IGNORING THE FACT THAT THE ASSESSEE DID NOT COMPLY WITH THE REQUIREMENT OF TAX DEDUCTION OF SOURCE AND THE ASSESSING OFFICER DISALLOWED THE AMOUNT BY INVOKING SECTION 40(A)(IA) OF THE CLAIM. THE SAI D FINDING OF THE LD. C I T(A) IS CONTRARY TO LAW AND AMOUNTS TO A MISINTERPRETATION OF THE ABOVE REFERRED STATUTORY PROVISION. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 7. WITH REGARD TO APPEAL OF THE ASSESSEE : 7.1 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT ASSESSEE HAS NOT FILED RETURN OF INCOME DUE TO THE REASON THAT ITS BOOKS OF ACCOUNT WERE DESTROYED DUE TO RIOT. ASSESSEE FILED THE RETURN OF INCOME SUBSEQUENT TO ISSUE OF N OTICE U/S 148. ASSESSEE OFFERED INCOME BY ESTIMATION ON ACTUAL SALES, THIS SALES INFORMATION WAS GATHERED FROM SRO. AO DID NOT ACCEPT THE ESTIMATION OF INCOME @ 2% CONSIDERING THE FACT THAT IN THE EARLIER YEAR ASSESSMENT, THERE WERE SOME IRREGULARITIES NO TICED AND CERTAIN ADDITIONS WERE MADE BY THE AO IN SECTION 40(A)(IA), 40(A)(III) AND UNEXPLAINED RECEIPTS. 7.2 WITH THE ABOVE OBSERVATION, AO ESTIMATED THE INCOME @ 20% WHICH WAS FURTHER REDUCED TO 15% BY LD. CIT(A). WE OBSERVE THAT THESE ESTIMATES WERE MADE WITHOUT ANY BASIS , M ERELY, ON HUNCH OR MERE GUESS. IN OUR CONSIDERED VIEW, AO MUST HAVE CALCULATED THE ACTUAL INCOME AFTER ADDITIONS WE R E CONFIRMED BY THE APPELLATE AUTHORITIES IN AY 2008 - 09 AND AY 2007 - 08. EVEN BEFORE US, AR OR DR HAS NOT BROUGHT TO OUR N OTICE ANY INFORMATION ABOUT THE ACTUAL PROFIT EARNED AFTER ADJUSTMENT IN THE AY 2007 - 08 AND 2008 - 09. IN OUR VIEW, ONLY ACTUAL PROFIT SHOULD BE TAXED OR REASONABLE ESTIMATION BASED ON VERIFIABLE DATA. IN THE GIVEN CASE, THERE IS NO VERIFIABLE DATA TO ESTIMA TE THE INCOME PARTICULARLY WHEN ASSESSEE OFFERS @ 2% AND AO AT 20%. A BSOLUTELY, THERE IS NO BASIS. 6 ITA NO S . 684 & 685 /HYD/201 5 DHAATRI CONSTRUCTIONS PVT. LTD. 7.3 CONSIDERING THE ABOVE OBSERVATION, WE DIRECT THE AO TO DETERMINE THE ACTUAL PROFIT FOR THE LAST TWO YEARS I.E. AY 2007 - 08 AND AY 2008 - 09 AFTER THE APPELLATE PROCEEDINGS IN THOSE YEARS AND DETERMINE THE AVERAGE PROFIT. THIS RATE OF AVERAGE PROFIT SHOULD BE THE BASE FOR ESTIMATING THE INCOME FOR THE AY 2009 - 10 (I.E. CURRENT AY). THEREFORE, THIS ISSUE IS REMIT TED BACK TO AO AND ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY O F BEING HEARD. 8. WITH REGARD TO REVENUES APPEAL: 8. 1 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT ASSESSEE HAS PAID TDS AMOUNT OF RS. 10,47,798/ - DURING THIS AY WHICH PERTAINS TO THE EXPENSES DISALLOWED IN THE AY 2007 - 08. DURING THIS YEAR, AS PER THE PROVISIONS OF SEC TION 40(A)(IA), THE EXPENSES CAN BE CHARGED TO P&L A/C IN THE YEAR IN WHICH THE TDS IS PAID RELEVANT FOR SUCH EXPENDITURE. ACCORDINGLY, ASSESSEE HAS NOT PAID TDS FOR THE EXPENSES RECORDED IN AY 2007 - 08. THE SAME WAS DISALLOWED. ASSESSEE PAID THE TDS DURING THIS AY . H ENC E, ASSESSEE IS ELIGIBLE TO CARRY FORWARD THE EXPENDITURE DURING THIS YEAR. SINCE THE ASSESSEE HAS NOT MAINTAINED THE BOOKS, IT HAS ESTIMATED THE INCOME @ 2%. THAT MEANS ASSESSEE ESTIMATED THE EXPENSES @ 98%. ASSESS ING OFFICER MAY NOT AGREE WITH THE ESTIMATIO N OF EXPENSES. ACCORDING TO HIM, IT MAY BE L E SS BUT HE CANNOT RESTRICT THE BENEFIT OF CARRY FORWARD OF EXPENSES FROM EARLIER AYS. IN THIS CASE, ASSESSEE CARRIED FORWARD CERTAIN EXPENDITURE DUE TO FAILURE IN COMPLYING WITH THE TDS PROVISIONS. THE SAME WAS B ROUGHT TO THE NOTICE OF AO AND LD. CIT(A). SINCE ASSESSEE HAS REASONABLE CASE, WE ARE IN AGREEMENT WITH THE FINDINGS OF LD. CIT(A) AND UPHOLDING THE ORDER OF CIT(A), GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7 ITA NO S . 684 & 685 /HYD/201 5 DHAATRI CONSTRUCTIONS PVT. LTD. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 684/HYD/2015 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IN ITA NO. 654/HYD/2015 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER , 2018. SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 26 TH OCTOBER , 2 018. KV COPY TO: - 1) DHAATRI CONSTRUCTIONS PVT. LTD., C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA S ELEGANCE, 3 - 6 - 643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) DCIT, CENTRAL CIRCLE 2, POSNETT BHAVAN, RAMKOTI, HYD. 3) CIT(A) 5 , HYDERABAD. 4) CIT - 5 , HYD . 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE