APR Constructions Limited, Hyderabad, Hyderabad V. DCIT, Circle-1(1), Hyderabad, Hyderabad

ITA 712/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6487 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K DEVRATHNA KUMAR
• Keywords: Business income; Depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 712/HYD/2015 ASSESSMENT YEAR: 2009-10 ` APR CONSTRUCTIONS LTD., HYDERABAD PAN AAFCA 0502K VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PVSS PRASAD REVENUE BY : SHRI K. DEVRATHNA KUMAR DATE OF HEARING 02-06-2016 DATE OF PRONOUNCEMENT 15-06-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX -1, HYDERABA D FOR AY 2009- 10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION AND FILED I TS RETURN OF INCOME FOR THE AY 2009-10 ON 29/09/2009 ADMITTING TOTAL IN COME OF RS. 14,25,95,141/-, WHICH WAS PROCESSED U/S 143(1) OF T HE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). THE CASE WAS SELECT ED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED. AO COMPLETED THE REGU LAR ASSESSMENT U/S 143(3) AND REJECTED THE BOOKS OF ACCOUNT SUBMIT TED BY THE ASSESSEE AS AO HAS NOTICED THAT ASSESSEE HAS INCURR ED SUBSTANTIAL EXPENDITURE BY WAY OF CASH. LABOUR CHARGES OF RS. 6 .03 CRORES WERE ONLY PAID BY CASH. FURTHER, THE CASH PAYMENTS AND S ELF-MADE 2 ITA NO. 712/H/15 APR CONSTRUCTIONS LTD., HYD. VOUCHERS WERE ALSO NOTICED IN RESPECT OF OTHER EXPE NDITURE. ASSESSEE HAS NOT PRODUCED ALL VOUCHERS AND ONLY SAMPLE VOUCH ERS WERE PRODUCED. ON VERIFICATION, IT WAS OBSERVED THAT MOS T OF THE VOUCHERS ARE SELF-MADE ONLY. AO FELT THAT UNDER THESE CIRCUM STANCES, IT WAS DIFFICULT TO ACCEPT THE CORRECTNESS OF THE BOOK RES ULT. CONSIDERING THE ABOVE FACTS AND ASSESSEES OWN RECORD IN EARLIER YE ARS, THE PROFIT ON CONTRACT WORK IS ESTIMATED AT 8.5% CLEAR OF DEPRECI ATION, TO WHICH COMMISSION INCOME OF RS. 2.28 CRORES ADDED AND ALS O DISALLOWANCE OF PROVISION OF GRATUITY AND LEAVE ENCASHMENT OF RS . 12,94,965/- ALSO WAS ADDED TO THE RETURNED INCOME, HENCE, AO HAS DET ERMINED THE PROFIT AT RS. 14.63 CRORES. 3. SUBSEQUENT TO THE REGULAR ASSESSMENT, CIT 1, H YDERABAD CALLED FOR RECORDS OF ASSESSMENT AND ON VERIFICATIO N OF THE ABOVE RECORDS, IT WAS SEEN THAT THE AO COMPLETED THE ASSE SSMENT BY REJECTING THE BOOK RESULTS AND ESTIMATED THE PROFIT ON CONTRACT WORKS AT 8.5% OF THE CONTRACT RECEIPTS AND ESTIMATION WAS MADE CLEAR OF DEPRECIATION AND SUB-CONTRACT COMMISSION OF RS. 2,2 8,05,405/- WAS ADDED ALONG WITH THE PROVISION OF GRATUITY AND LEAV E ENCASHMENT. CIT OBSERVED THAT WHILE COMPLETING THE ASSESSMENT, AO F AILED TO CONSIDER THE RECEIPT OF INTEREST INCOME OF RS. 2,02,76,648/- RECEIVED DURING THE YEAR, WHICH WAS SHOWN UNDER THE HEAD OTHER INCOME (SCHEDULE I OF FINANCIAL STATEMENT), HENCE, THE ORDER PASSED ON 29 /12/2011 U/S 143(3) WAS CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THIS REGARD, SHOW CAUSE NOTICE WAS SERV ED ON THE ASSESSEE, AGAINST WHICH, THE ASSESSEE FILED A WRITT EN SUBMISSION IN WHICH IT WAS ARGUED THAT FOR THE PURPOSE OF CARRYIN G ON BUSINESS OF EXECUTION OF CONTRACT WORKS, ASSESSEE COMPANY HAS O BTAINED HUGE BANK GUARANTEE FOR WHICH AMOUNTS WERE KEPT AS MARGI N MONEY DEPOSITS WITH THE BANKS AND ALSO MADE SECURITY DEPO SITS WITH THE GOVT. AUTHORITIES. AS SUCH, THE INTEREST EARNED ALS O FORMS PART OF BUSINESS INCOME ONLY AND THERE IS A DIRECT NEXUS BE TWEEN THE AMOUNTS KEPT IN DEPOSITS AS MARGIN MONEY/SECURITY D EPOSITS AND THE INTEREST INCOME IS ALSO TO BE TREATED AS BUSINESS I NCOME AND CANNOT 3 ITA NO. 712/H/15 APR CONSTRUCTIONS LTD., HYD. AGAIN BE ADDED TO THE ESTIMATED INCOME AS INCOME FR OM OTHER SOURCES. 4. CIT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE A ND CONFIRMED THE PROPOSAL OF MAKING ADDITION OF OTHER INCOME O F INTEREST RECEIVED FROM BANKS OUT OF BANK DEPOSITS EARNED DURING THE A Y. THEREFORE, UNDER THE POWER VESTED UNDER THE PROVISIONS OF 263 OF THE ACT, THE CIT DIRECTED THE AO TO RECOMPUTE THE INCOME DULY AD DING THE INTEREST INCOME OF RS. 2,02,76,648 UNDER THE HEAD OTHER SOU RCES. 5. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX IS E RRONEOUS BOTH IN LAW AND ON FACTS. 2. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE INCOME DULY ADDING THE INTEREST INCOME ON MARGIN MONEY DEPOSITS OF RS.2,02 ,76,648!- UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 03. THE LEARNED COMMISSIONER OF INCOME TAX FAILED T O NOTE THAT MARGIN MONEY DEPOSITS! SECURITY DEPOSITS FOR THE BA NK GUARANTEES ARE KEPT IN THE COURSE OF AND FOR THE PU RPOSE OF THE BUSINESS AND HENCE THE INTEREST INCOME ON THESE DEP OSITS FORMS PART OF THE BUSINESS INCOME ONLY. 04. THE LEARNED COMMISSIONER OF INCOME TAX-I FAILED TO NOTE THAT THE BOOKS OF ACCOUNT HAVING BEEN REJECTED AND THE I NCOME FROM BUSINESS ESTIMATED AND ASSESSED, INTEREST INCOME ON THE MARGIN MONEY DEPOSITS FORMING PART OF THE BUSINESS INCOME CANNOT AGAIN BE ADDED TO THE SAID ESTIMATED BUSINESS INCOM E. 6. THE LD. AR OF THE ASSESSEE SUBMITTED THAT FOR TH E PURPOSE OF CARRYING ON THE CONTRACT BUSINESS OF EXECUTION OF L ARGE GOVT. CONTRACT WORKS, THE COMPANY HAD TO OBTAIN HUGE BANK GUARANT EES FOR WHICH AMOUNTS WERE KEPT AS MARGIN MONEY DEPOSITS WITH THE BANKS AND AS SECURITY WITH THE GOVT. AUTHORITIES. THE TOTAL AMOU NT OF DEPOSITS KEPT AS MARGIN MONEY WITH THE BANKS AS AT 31/03/2009 IS RS. 23,59,51,991/-. THE ABOVE DEPOSITS ARE NOT THE INVE STMENTS MADE FOR EARNING INTEREST INCOME, BUT, THEY ARE COMPULSORY D EPOSITS TO BE KEPT TOWARDS MARGIN MONEY FOR BANK GUARANTEES REQUIRED FOR PARTICIPATING 4 ITA NO. 712/H/15 APR CONSTRUCTIONS LTD., HYD. IN TENDERS, PERFORMANCE GUARANTEE, GUARANTEE FOR OB TAINING MOBILIZATION ADVANCE ETC., WHICH ARE REQUIRED FOR B USINESS OF THE ASSESSEE. THE ASSESSEE HAS TO KEEP THESE AMOUNTS A S MARGIN MONIES FOR CARRYING ON THE BUSINESS ACTIVITY. DURIN G THE AY UNDER CONSIDERATION, ASSESSEE HAS EARNED INTEREST INCOME OF RS. 2,02,76,648/- ON THE ABOVE DEPOSITS. HE ALSO SUBMIT TED THAT ONCE BOOKS OF ACCOUNT HAVE BEEN REJECTED AND INCOME FROM BUSINESS WAS ESTIMATED AND ASSESSED, THE ABOVE INTEREST INCOME, WHICH IS ALSO BUSINESS INCOME CANNOT AGAIN BE ADDED TO THE ESTIMA TED TOTAL INCOME AND ASSESSED AS INCOME FROM OTHER SOURCES. IN TH IS REGARD, ASSESSEE HAS RELIED ON THE FOLLOWING JUDICIAL PRONO UNCEMENTS: 1. CIT VS. JAYEE DSC VENTURES LTD., [2012] 17 TAXM ANN.COM 257 (DELHI). 2. CIT VS. DHIRAJ R. RUNGTA, [2013] 40 TAXMANN.COM 284 (GUJ.) 3. CIT VS. BOKARO STEEL LTD., [1999] 102 TAXMAN 94 (SC) 4. CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD., [ 2001] 118 TAXMAN 489 (SC). 5. ITA NO. 359/AGR/2011, DATED 25/05/12 IN CASE OF SHRI MAHESH CHANDRA VS. ITO, ITAT, AGRA BENCH. 6. DCIT VS. HARI ORGOCHEM (P) LTD., [2014] 45 TAXM ANN.COM 381 (GUJ.) 7. LD. DR, ON THE OTHER HAND, SUBMITTED THAT THE AO HAS ONLY ESTIMATED THE PROFIT ON CONTRACT BUSINESS EARNED. H E SUBMITTED THAT AO HAS COMPLETELY OVERLOOKED THE OTHER INCOME EARNE D OTHER THAN THE CONTRACT BUSINESS. THIS ADDITIONAL INCOME IS NOT AN INTEGRAL PART OF THE CONTRACT BUSINESS. HENCE, IT HAS TO BE ADDED AS INC OME FROM OTHER SOURCES. THEREFORE, IT IS PREJUDICIAL TO THE INTER ESTS OF REVENUE AND HE SUPPORTED THE ACTION OF THE CIT U/S 263 OF THE ACT. HE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF REV ENUES CASE. 1. SOUTH INDIA SHIPPING CORPN. VS. CIT, [1999] 240 ITR 24 (MAD.) 2. PANDIAN CHEMICALS LTD. VS. CIT, [2003] 262 ITR 278 (SC) 5 ITA NO. 712/H/15 APR CONSTRUCTIONS LTD., HYD. 3. ITA NO. 1533/AHD/2007, DTD. 09/04/2010 IN CASE OF M/S SURYA INTERNATIONAL VS. ITO, ITAT AHD. BENCH. 4. DY. CIT VS. ALLIED CONSTRUCTION, [2007] 291 ITR 16 5. TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT, [1997] 227 ITR 172. 8. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS DECISIONS C ITED AT BAR. IT IS OBSERVED THAT ASSESSEE IS NOT DISPUTING WITH ESTIMA TION OF INCOME AS SUCH, ASSESSEE IS IN APPEAL BEFORE US PROTESTING AG AINST THE DIRECTION OF THE CIT IN ADDING THE INTEREST INCOME EARNED DUR ING THE AY AS INCOME FROM OTHER SOURCES. WE ARE IN AGREEMENT W ITH THE LD. AR THAT THE ASSESSEE HAS TO MAINTAIN/KEEP CERTAIN AMOU NTS OF DEPOSITS WITH THE BANKS TO CARRY ON THE BUSINESS ACTIVITIES OF THE ASSESSEE AND THE SAME IS INTEGRAL PART OF BUSINESS. THESE DEPOSI TS HAVE AND WILL GENERATE INTEREST INCOME. THIS INTEREST WILL BE TRE ATED AS BUSINESS INCOME ONLY AS HELD IN VARIOUS JUDICIAL PRONOUNCEME NTS. THE JUDICIAL PRONOUNCEMENTS RELIED ON BY THE LD. AR SUPPORT THE CASE OF THE ASSESSEE. IN OUR CONSIDERED VIEW, HERE, IT IS NOT T HE QUESTION WHETHER THE INTEREST EARNED BY THE ASSESSEE IS BUSINESS INC OME OR INCOME FROM OTHER SOURCES. THE DISPUTE IS, THE INCOME OF THE ASSESSEE IS ESTIMATED BY REJECTING BOOKS OF ACCOUNT AND WHILE E STIMATING THE INCOME OF THE ASSESSEE, AO HAS CONSIDERED ONLY THE INCOME OUT OF CONTRACT BUSINESS. THE AO HAS FAIRLY ARRIVED THE GR OSS RECEIPTS AFTER ADJUSTING THE SUB-CONTRACT BILLS AND ADDED THE SUB- CONTRACT COMMISSION RECEIVED AND DISALLOWANCES MADE FOR GRAT UITY AND LEAVE ENCASHMENT. HOWEVER, HE TREATED THE INTEREST INCOME ALSO AS INCOME GENERATED OUT OF CONTRACT BUSINESS. IN OUR CONSIDER ED VIEW, THERE IS NO DISPUTE THAT INTEREST INCOME EARNED CAN ONLY BE TREATED AS BUSINESS INCOME ONLY, BUT, WHETHER THE INTEREST CAN ALSO BE TREATED AS INCOME OUT OF CONTRACT BUSINESS?. HENCE, THE AO HAS NOT CONSIDERED THIS ASPECT. THIS INTEREST INCOME EARNED IS AN ADDI TIONAL INCOME EARNED. NO DOUBT IT IS FOR THE BUSINESS PURPOSES, B UT, OUTSIDE THE BUSINESS ACTIVITIES OF THE ASSESSEE. HENCE, IT IS T O BE ADDED AS OTHER 6 ITA NO. 712/H/15 APR CONSTRUCTIONS LTD., HYD. INCOME TO THE INCOME OF THE CONTRACT BUSINESS. CON SIDERING THE ABOVE DISCUSSION AND SUBMISSIONS OF THE LD. DR, WE ARE OF THE VIEW THAT CIT IS CORRECT IN INITIATING THE REVISION PROC EEDINGS U/S 263 OF THE ACT. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 15 TH JUNE, 2016 KV COPY TO:- 1) APR CONSTRUCTIONS LTD., 7-1-638 TO 643, FLAT NO. 404, BHANU ENCLAVE, SUNDAR NAGAR, ERRAGADDAM, HYDERABAD 500 038 2) DCIT, CIRCLE 1(1), 3 RD FLOOR, ANNEXE, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004 3) CIT - I, HYDERABAD 4) ADDL. CIT, RANGE - 1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER