M/s Mauti Constructions, Hyderabad V. The ACIT, Circle-2(1), Vijayawada, Vijayawada

ITA 67/VIZ/2012

• Counselvise Citation: 6725314 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: S RAMA RAO
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard; Assessment record; Revised return
• Section: 143(3); 263

Judgement Text

ITA NOS.67 & 373/VIZAG/2012 MARUTHI CONSTRUCTIONS, VIJAYAWADA IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS.67/VIZAG/2012 ASSESSMENT YEARS : 2007-08 MARUTHI CONSTRUCTIONS VIJAYAWADA VS. ACIT CIRCLE-2(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAFFM0355D ITA NOS.373/VIZAG/2012 ASSESSMENT YEARS : 2009-10 MARUTHI CONSTRUCTIONS VIJAYAWADA VS. ACIT RANGE-2 VIJAYAWADA (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI S. RAMA RAO, ADVOCATE & SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 03.03.2014 DATE OF PRONOUNCEMENT : 06.03.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THESE ARE TWO APPEALS BY THE ASSESSEE. WHILE ITA N O.67/VIZAG/2012 IS AGAINST AN ORDER PASSED U/S 263 OF THE ACT PERTAINI NG TO THE ASSESSMENT YEAR 2007-08, ITA NO.373/VIZAG/2012 IS AGAINST THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2009-10. ISSUES BEING COMMON FOR T HE SAKE OF CONVENIENCE, THE APPEALS ARE CLUBBED TOGETHER AND D ISCUSSED OF IN THIS CONSOLIDATED ORDER. ITA NO.67/VIZAG/2012: 2. BRIEFLY THE FACTS ARE THE ASSESSEE A PARTNERSHI P FIRM IS CARRYING ON BUSINESS OF EXECUTING CIVIL CONTRACT WORK OF LAYING OF ROADS. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RET URN OF INCOME ON ITA NOS.67 & 373/VIZAG/2012 MARUTHI CONSTRUCTIONS, VIJAYAWADA 2 23.10.2007 DECLARING TOTAL INCOME OF RS.90,22,730/- . A SURVEY WAS CONDUCTED IN CASE OF THE ASSESSEE ON 13.3.2008. CO NSEQUENT UPON SURVEY THE ASSESSEE FILED A REVISED RETURN OF INCOME OF 2. 4.2008 DECLARING TOTAL INCOME OF RS.1,41,00,540/-. THE SCRUTINY ASSESSMEN T IN CASE OF THE ASSESSEE WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATE D 10.11.2009 DETERMINING THE TOTAL INCOME AT RS.1,44,00,538/- BY ESTIMATING THE INCOME @ 9% ON GROSS CONTRACT RECEIPTS OF RS.19,59,06,133/-. THE CIT WHILE EXAMINING THE ASSESSMENT RECORDS PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATION IN EXERCISE OF HIS POWERS U/S 263 OF THE ACT WAS OF THE OPINION THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE. BECAUSE OF THE FACT THAT THE ASSESSING OFFICER HAS ESTIMATED THE NET PROFIT AT 9% OF THE GROSS CONTRACT RECEIPTS WIT HOUT CAUSING NECESSARY ENQUIRY WITH REGARD TO THE ADOPTING LOW PROFIT AND WITHOUT APPLYING MIND. HE THEREFORE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSE E. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED ITS REPLY . THE CIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REL YING UPON SOME DECISIONS OF THE ITAT HYDERABAD BENCH WHEREIN THE TRIBUNAL AD OPTED THE RATE OF 12.5% HELD THAT THE ASSESSMENT ORDER PASSED BY ESTI MATING THE PROFIT AT 9% IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE FURTHER HELD THAT AFTER WORKING OUT THE PROFIT AT 9% THE ASSESSI NG OFFICER SHOULD NOT HAVE ALLOWED FURTHER DEDUCTION TOWARDS REMUNERATION AND INTEREST TO PARTNERS IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT OF A NDHRA PRADESH IN CASE OF INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776. HE THERE FORE SET ASIDE THE ASSESSMENT ORDER FOR DOING THE ASSESSMENT AFRESH WI TH THE FOLLOWING DIRECTIONS. ON CONSIDERATION OF THE ABOVE JUDGEMENTS OF THE HON BLE APEX COURT, JURISDICTIONAL HIGH COURT AND TRIBUNALS, THE ACTION OF THE ASSESSING OFFICER IN ESTIMATION OF ASSESSEES PROFIT @ 9% ON THE GROSS B ILLS OF RS.19,59,06,133/- IS WITHOUT ANY BASIS AND THE AO HAS NOT CALLED FOR ANY MATERIAL IN SUPPORT OF HIS DECISION. THUS, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE I.T. ACT, 1961 DATED 10.11.2009 IS CAN CELLED FOR THE REASONS MENTIONED ABOVE WITH A DIRECTION TO REDO THE SAME A FTER CONSIDERING THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF M/S. INDWELL CONSTRUCTIONS VS. CIT CITED SUPRA AND TO ESTIMATE T HE INCOME OF THE ASSESSEE AS THE AO THINKS FIT, AFTER GIVING THE ASSESSEE A R EASONABLE OPPORTUNITY OF BEING HEARD. ITA NOS.67 & 373/VIZAG/2012 MARUTHI CONSTRUCTIONS, VIJAYAWADA 3 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD AS WELL AS THE ORDERS OF THE ASSESSING OFFICER AND CIT. AS COULD BE SEEN, IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07. THE FACTS EMANATING I N THE ASSESSMENT YEAR 2006-07 AS DISCUSSED IN THE ORDER OF THE TRIBUNAL A ND THE FINDING OF THE TRIBUNAL IN THAT REGARD ARE EXTRACTED HEREIN FOR CO NVENIENCE: 8. WITH REGARD TO GROUND NOS.6 TO 8, WHICH RELATE TO AN ESTIMATION OF INCOME, WE FIND THAT CIT HAS SET ASID E THE ASSESSMENT ORDER ON THE GROUND THAT IN SIMILAR LINE OF BUSINESS TRIBUNAL HAS ESTIMATED THE NET PROFIT AT 12.5% AND THE A.O. HAS ESTIMATED IT TO BE AT 9% AND DIRECTED THE A.O. TO R E-ESTIMATE THE NET INCOME OF THE ASSESSEES, KEEPING IN VIEW THE NE T INCOME ASSESSED IN THE CASE OF SHRI TUMMALA VENKATESWARA R AO, SHRI TUMMALA MURALI KRISHNA AND M/S. TUMMALA INFRASTRUCTU RE LTD. IN WHICH NET INCOME WAS ESTIMATED AT 12.5%. 9. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT BEFORE ESTIMATING THE INCOME OF THE ASSESSEES, THE ASSESSI NG OFFICER HAS EXAMINED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND AFTER REJECTING THE SAME, HE ESTIMATED THE INCOME. ONCE THE ASSESS ING OFFICER HAS APPLIED HIS MIND TO THE BOOKS OF ACCOUNTS AND THE I NCOME DECLARED BY THE ASSESSEE BEFORE ESTIMATING THE INCOME FROM T HE BUSINESS OF THE ASSESSEE, IT IS NOT PROPER TO SAY THAT HE HAS N OT APPLIED HIS MIND AND HIS ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. COUNSEL FOR THE ASSESSEE FURT HER CONTENDED THAT IT IS A SETTLED POSITION OF LAW THAT WHERE THE ASSESSING OFFICER HAS APPLIED HIS MIND TO MAKE CERTAIN ESTIMATIONS, H IS ORDER CANNOT BE REVISED BY THE CIT ONLY FOR THE SIMPLE REASON TH AT ESTIMATION MADE BY THE A.O. IS ON LOWER SIDE. 10. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEA VY RELIANCE UPON THE ORDER OF THE CIT. 11. HAVING CAREFULLY EXAMINED THE ORDER OF THE CIT AS WELL AS THE A.O. IN THE LIGHT OF RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ASSESSING OFFICER HAS EXAMINED THE BOOKS OF ACCOUNT S AS WELL AS BILLS AND VOUCHERS AND AFTER NOTICING CERTAIN DEFEC TS THEREIN, HE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE IN COME AT 9% ON THE GROSS CONTRACTUAL RECEIPTS SUBJECT TO DEDUCTION OF INTEREST AND REMUNERATION U/S 40(B) OF THE ACT. ONCE THE ASSESS ING OFFICER HAS EXAMINED THE ISSUE AND MADE ESTIMATION OF AN INCOME , HIS ESTIMATION CANNOT BE REVISED BY THE CIT ONLY FOR TH E REASON THAT HE DOES NOT AGREE WITH THE ESTIMATION MADE BY THE A.O. IT IS A SETTLED POSITION OF LAW THAT CIT CANNOT THRUST HIS OPINION/ VIEW UPON THE ITA NOS.67 & 373/VIZAG/2012 MARUTHI CONSTRUCTIONS, VIJAYAWADA 4 ASSESSING OFFICER. WE, THEREFORE, OF THE CONSIDERE D OPINION UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE THAT REVISION MADE BY THE CIT ON THIS ISSUE IS NOT PROPER. WE, ACCORD INGLY, SET ASIDE THE ORDER OF THE CIT IN THIS REGARD. 4. ON GOING THROUGH THE ORDER OF THE TRIBUNAL, WE F IND THAT THE FACTS ARE MATERIALLY THE SAME AS IN THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO. THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE HOLD THAT THE CIT WAS NOT JUSTIFIED IN REVISING THE ASSESSMENT OR DER. IT FURTHER NEEDS TO BE MENTIONED THAT THE CIT WITHOUT HIMSELF DECIDING WHA T SHOULD BE THE NET PROFIT RATE HAS AGAIN LEFT IT TO THE DISCRETION OF THE AO. THIS SHOWS THAT THE CIT HIMSELF WAS NOT SURE ABOUT THE RATE OF PROFIT T O BE ADOPTED. IN THE AFORESAID VIEW OF THE MATTER, WE SET ASIDE THE ORDE R OF THE CIT AND RESTORE THAT OF THE ASSESSING OFFICER. ITA NO.373/VIZAG/2012: 5. THIS IS AN APPEAL AGAINST THE ORDER PASSED BY TH E CIT(A) IN SUSTAINING THE ESTIMATION OF PROFIT AT 12.5% OF THE GROSS CONT RACT RECEIPTS. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RE TURN OF INCOME DECLARING INCOME OF RS.3,49,42,770/-. DURING THE SCRUTINY AS SESSMENT PROCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DIS CLOSED GROSS CONTRACT RECEIPT OF RS.41,69,97,536/-. THE ASSESSING OFFICE R CALLED UPON THE ASSESSEE TO PRODUCE BILLS AND VOUCHERS FOR THE EXPENSES DEBI TED TO PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER AFTER VERIFYING THE BILLS AND VOUCHERS NOTED THAT THE EXPENSES DEBITED TOWARDS MATERIAL PURCHASE S LIKE DUST, METAL, GRAVEL ETC. LABOUR CHARGES AND SAND ARE THROUGH SELF-MADE VOUCHERS ONLY. SINCE THE EXPENDITURE MADE THROUGH SELF MADE VOUCHERS ARE NOT FULLY VERIFIABLE THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AN D PROCEEDED TO ESTIMATE THE PROFIT OF THE ASSESSEE. THE ASSESSING OFFICER RELYING UPON AN ORDER OF THE ITAT IN CASE OF M/S. KNR CONSTRUCTIONS ESTIMATED TH E PROFIT @ 12.5% ON THE MAIN CONTRACT RECEIPTS. THE CIT(A)ALSO SUSTAINED S UCH ESTIMATION. BEING AGGRIEVED OF SUCH ORDER PASSED BY THE CIT(A) THE AS SESSEE IS BEFORE US. ITA NOS.67 & 373/VIZAG/2012 MARUTHI CONSTRUCTIONS, VIJAYAWADA 5 6. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT HE DOES NOT WANT TO PRESS GROUND NO. 3 RELATING TO REJECTION OF BOOKS OF ACCOUNTS. IN VIEW OF SUCH SUBMISSION THE GROUND NO.3 IS DISMISSED. THE LD. A.R. CONFINING ARGUMENT TO THE ESTIMATION O F PROFIT AT 12.5% SUBMITTED THAT THE ESTIMATION OF PROFIT AT 12.5% IS HIGH AND EXCESSIVE. IT WAS CONTENDED BY THE LD. A.R. THAT IN CASE OF ESTIM ATION OF PROFIT AT 12.5% THE TRIBUNAL IS ALLOWING DEPRECIATION. WHEREAS NET PROFIT RATE OF 8 TO 9% IS ADOPTED NET OF DEPRECIATION AND THEREAFTER DEDUCTIO N U/S 40(B) IS ALLOWED. 7. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORD ER OF THE CIT(A). 8. HAVING HEARD THE PARTIES, WE ARE OF THE VIEW THA T ESTIMATION OF NET PROFIT AT 12.5% OF THE GROSS CONTRACT RECEIPTS IS H IGH AND EXCESSIVE. THE ITAT VISAKHAPATNAM BENCH AS WELL AS THE ITAT HYDERA BAD BENCHES HAVE BEEN CONSISTENTLY ADOPTING THE PROFIT RATE OF 8 TO 9% NET OF DEPRECIATION IN CASE OF ASSESSEES ENGAGED IN CONTRACT WORKS AND FRO M PROFIT SO ESTIMATED FURTHER DEDUCTION TOWARDS REMUNERATION AND INTEREST PAYMENT TO THE PARTNERS U/S 40(B) IS ALLOWED. THEREFORE, IN TUNE WITH THE CONSISTENT VIEW OF THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO ESTIMA TE THE PROFIT AT 9% ON GROSS CONTRACT RECEIPTS NET OF DEPRECIATION AND THEREAFTE R ALLOW DEDUCTION U/S 40(B) OF THE ACT TOWARDS INTEREST AND REMUNERATION PAYMEN T TO THE PARTNERS. THE AO MUST SEE TO IT THAT INCOME SO COMPUTED SHOULD NO T GO BELOW THE RETURNED INCOME. ACCORDINGLY, ASSESSEES APPEAL IS PARTLY A LLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.67/VIZ AG/2012 IS ALLOWED AND ITA NO.373/VIZAG/2012 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH MAR14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 6 TH MARCH, 2014 ITA NOS.67 & 373/VIZAG/2012 MARUTHI CONSTRUCTIONS, VIJAYAWADA 6 COPY TO 1 MARUTHI CONSTRUCTIONS, C/O S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE ROAD NO.9, HIMAYAT NAGAR, HYDERABAD-500 02 9. 2 ACIT CIRCLE-2(1), VIJAYAWADA 3 ACIT RANGE-2, VIJAYAWADA 4 THE CIT, VIJAYAWADA 5 THE CIT(A), VIJAYAWADA 6 THE DR , ITAT, VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM