IWM Constructions Pvt.Ltd., Hyd, Secunderabad V. DCIT, Circle-2(1), Hyderabad, Hyderabad

ITA 72/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6125 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 13-10-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 18-01-2016
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: M P LOHIA SHRI SAPAN CHOKSI
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 72/HYD/2016 ASSESSMENT YEAR: 2004-05 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED, SECUNDERABAD [PAN: AAACI8728C] VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI M.P. LOHIA, SHRI SAPAN CHOKSI, AR FOR REVENUE : SHRI A. SITARAMA RAO, DR DATE OF HEARING : 10-01-2017 DATE OF PRONOUNCEMENT : 28-02-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE CONSEQUENTIA L ORDER PASSED BY THE ASSESSING OFFICER (AO) DETERMINING THE INCOME CONSEQUENT TO THE DIRECTIONS OF THE ITAT. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE FILED ITS RETURN OF INCOME DECLARING LOSS AT RS. 4,19,37,115/-. IN THE SCRUTINY A SSESSMENT COMPLETED VIDE ORDER DT. 27-12-2006, THE TOTAL INCOME WAS I.T.A. NO. 72/HYD/2016 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED :- 2 - : ASSESSED AT RS. 5,80,91,575/-. THE AO ON NOTICING TH AT ASSESSEE HAS NOT MAINTAINED VOUCHERS FOR CERTAIN EXPENDITURE AND AFTER RECORDING STATEMENTS FROM THE ACCOUNTS MANAGER, REJECTE D THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME AT 12.5% OF TH E GROSS RECEIPTS DECLARED BY ASSESSEE AT RS. 46,47,32,596/-. ON APPEAL, LD.CIT(A) WHILE UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT HOWEVER, FOLLOWING THE SPECIAL BENCH DECISION OF ITA T RESTRICTED THE ESTIMATION OF NET PROFIT TO A RATE OF 8% (CLEAR OF ALL E XPENSES AND DEPRECIATION) ON THE CONTRACT RECEIPTS. ASSESSEE HOWEVE R, PREFERRED FURTHER APPEAL AND ITAT VIDE ITS ORDER IN ITA NO. 86/ HYD/2008, DT. 28-06-2013, DIRECTED THE AO TO ESTIMATE THE PROFIT ON REC EIPTS FROM WORKS CONTACT IN THE FOLLOWING MANNER: I. WORKS EXECUTED AS A MAIN CONTRACTOR 9% II. WORKS EXECUTED AS A SUB-CONTRACTOR 8% III. WORKS EXECUTED BY EMPLOYING SUB-CONTRACTORS 5% 3. CONSEQUENT TO THAT, THE AO ASKED ASSESSEE TO FURNISH NECESSARY DETAILS SO AS TO DETERMINE THE INCOME. ASSE SSEE FURNISHED THE YEAR-WISE CONTRACT RECEIPTS FROM AY. 2002 -03 TO 2006-07 (ON THE ENTIRE CONTRACT) EXECUTED BY ASSESSEE TO AN EXTENT OF RS. 215.31 CRORES. THE BIFURCATION FOR THE IMPUGN ED ASSESSMENT YEAR IS THAT TOTAL CONTRACT RECEIPTS RECEIVED W ERE RS. 46,47,32,596/-. THE COST OF CONTRACT IMPLEMENTED DUR ING THE YEAR WAS TO THE TUNE OF RS. 51,84,61,092/- (THEREBY INCURR ING LOSS). HOWEVER, OUT OF THE COST OF CONTRACT, SUB-CONTRACTS AMOU NTED TO RS. 49,36,09,364/- WHICH WAS ABOUT 95.21%. WHILE F URNISHING DETAILS, ASSESSEE MADE NEW SUBMISSIONS THAT THE TOTAL C ONTRACT WAS SPREAD OVER A PERIOD OF FIVE YEARS AND ASSESSEE S OVER ALL I.T.A. NO. 72/HYD/2016 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED :- 3 - : DECLARATION OF PROFITS IN ALL THE IMPUGNED YEARS WOUL D COME TO 5.35%. FURTHER, IT WAS SUBMITTED THAT ASSESSEE HAS PAID MORE TAXES THAN WAS REQUIRED FOR ESTIMATION OF INCOME DURING THE YEAR, THEREFORE, IT WAS SUBMITTED THAT NO ADDITION SHOULD BE M ADE IN THE IMPUGNED YEAR. AO, HOWEVER, PROPOSED THAT DURING THE ENTIRE PERIOD OF CONTRACT, THE SUB-CONTRACTS AMOUNTED TO 88.27%, I.E., FOR THE ENTIRE PERIOD OF FIVE YEARS AND ACCORDINGLY FOR T HE IMPUGNED YEAR, HE HAS ADOPTED 88.27% OF THE GROSS RECEIPTS PER TAINING TO SUB-CONTRACT AND BALANCE 11.73% PERTAINING AS WORKS E XECUTED ON ITS OWN. ACCORDINGLY, AO DETERMINED THE TAXABLE INCO ME AS UNDER: (IN RS) GROSS RECEIPTS 46,47,32,596 1. WORKS EXECUTED AS MAIN CONTRACTOR NIL 2. WORKS EXECUTED ON ITS OWN 11.73% OF THE GROSS RECEIPTS ON WHICH INCOME @8% 5,45,13,134 8% 43,61,050 3. WORKS EXECUTED THROUGH SUBCONTRACTORS88.27% OF THE GROSS RECEIPTS ON WHICH INCOME @5% 41,02,19,462 5% 2,32,36,629 NET TAXABLE INCOME 2,75,97,679 4. AGGRIEVED ON THE ABOVE, ASSESSEE REITERATED THE OB JECTIONS STATING THAT ITATS DIRECTION OF ESTIMATING CONTRACTS HAS T O BE CONSTRUED FOR THE WHOLE CONTRACT AND NOT FOR THE CONTRAC T DURING THE YEAR AND THE RATIO ADOPTED BY THE AO IS NOT CORRECT. FURTHER, ASSESSEE ALSO POINTED OUT THAT 5% ON WORKS EXECUTED TO SUB- CONTRACTORS WAS WRONGLY CALCULATED AT RS . 2,32,36,629 WHEREAS THE CORRECT AMOUNT WORKS OUT TO RS. 2,05,10,973/- WHICH SHOULD HAVE BEEN ADOPTED. WHILE ACCEPTING THE ARITHMETICAL M ISTAKE COMMITTED BY THE AO, LD.CIT(A) HOWEVER, REJECTED ASSE SSEES I.T.A. NO. 72/HYD/2016 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED :- 4 - : CONTENTIONS AND APPROVED ACTION OF THE AO IN GIVING EFF ECT TO THE ORDER OF ITAT. AGGRIEVED ON THE SAID ORDER, ASSESSE E IS IN APPEAL BEFORE US. 5. ASSESSEE HAS RAISED MAINLY TWO ISSUES I.E., INCO RRECT ESTIMATION OF PROFIT COVERED BY GROUND NOS. 2 TO 5 AND NON- GRANTING OF CREDIT OF TAXES PAID IN GROUND NO.6. INT EREST LEVIED U/S. 234D IN GROUND NO.7 IS CONSEQUENTIAL IN NATURE, HENCE THE SAME IS NOT ADJUDICATED SEPARATELY. INCORRECT ESTIMATION OF PROFIT: 6. ON THIS ISSUE, IT WAS THE SUBMISSION THAT AO ERRED IN APPLYING THE DIRECTION OF ITAT IN ISOLATION FOR THE YE AR UNDER APPEAL WITHOUT APPRECIATING THAT INCOME FROM THE IMPUGNED CONTR ACT IS SPREAD FROM AYS. 2002-03 TO 2006-07. IT WAS THE CONT ENTION THAT AO SHOULD HAVE EXAMINED THE DEEMED PROFIT RATES OF 5% ON SUB- CONTRACTS AND 8% ON SUB-CONTRACT WORKS TO THE WHOLE OF TH E CONTRACT AND NOT FOR THE PART OF THE CONTRACT FOR THE IMPU GNED ASSESSMENT YEAR. WITHOUT PREJUDICE TO ABOVE CONTENTIONS, IT WAS SUBMITTED THAT AO ERRED IN COMPUTING THE PERCENTAGE OF WO RK SUB- CONTRACTED BY RATIO OF RECEIPT FROM THE ENTIRE CONTRACT I.E ., 88.27% OF TOTAL RECEIPTS, AS AGAINST THE PERCENTAGE OF WORK SUB -CONTRACTED FOR AY. 2004-05 ON STANDALONE BASIS (BEING 95.21% OF THE TOTAL RECEIPTS) FOR APPLYING RATE OF 5%. 7. LD.DR, HOWEVER, RELIED ON THE ORDERS OF THE AO AND CIT(A). I.T.A. NO. 72/HYD/2016 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED :- 5 - : 8. WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUSED THE RECORD AND THE ORDER OF ITAT. ASSESSEES CONTENTION THA T THE ESTIMATION SHOULD BE BASED ON THE TOTAL CONTRACT SPREAD OVER FIVE YEARS IS NOT VALID, AS THE BOOKS OF ACCOUNT WERE REJEC TED ONLY IN THE IMPUGNED ASSESSMENT YEAR AND THE ENTIRE APPELLATE PROC EEDINGS BEFORE THE CIT(A) AND THE ITAT PERTAIN ONLY TO THE RE CEIPTS DURING THE YEAR. THE CONTENTION RAISED DURING THE CONSEQUENTIA L ORDER PROCEEDINGS I.E. FOR THE WHOLE CONTRACT, IS AN AFTER TH OUGHT AND NOT BASED ON THE FACTS. IN FACT, THE ITAT IN PARA 3 HAS RE CORDED THE FACTS INCLUDING THE FACT OF NON-MAINTENANCE OF VOUCHER S AND IN PARA 4, EXTRACTED THE OBSERVATIONS OF THE CIT(A), WHER EIN ALSO THE REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INCOME IS ONLY PERTAINING TO THE CONTRACT RECEIPTS OF THE YEAR. THE FI NDINGS GIVEN BY THE ITAT IN PARA 9 ALSO PERTAINS TO THE CONTRACT RE CEIPTS FOR THE YEAR. THEREFORE, THE CONTENTION THAT, IT SHOULD BE CON SIDERED FOR THE WHOLE OF THE CONTRACT SPREAD OVER FIVE YEARS CANNOT BE ACCEPTED. IN FACT, NO SUCH ARGUMENT WAS TAKEN BEFORE THE CIT(A) OR BEFORE THE ITAT IN THE ORIGINAL PROCEEDINGS. THEREFO RE, ASSESSEE CANNOT TAKE A NEW PLEA IN THE CONSEQUENTIAL PROCEEDINGS . ITAT ALSO CANNOT GIVE ANY DIRECTION FOR THE YEARS WHICH AR E NOT PENDING BEFORE IT FOR ADJUDICATION. IN VIEW OF THIS, THE ARGUM ENT THAT THESE ESTIMATED PROFITS SHOULD BE CONSIDERED FOR THE WHOLE O F THE CONTRACT CANNOT BE ACCEPTED AND ACCORDINGLY, THE ORDER OF THE A O AND CIT(A) ON THIS ISSUE ARE APPROVED. 9. THE ALTERNATE PLEA TAKEN IN GROUND NO. 5 IS WITH REFERENCE TO COMPUTING THE PERCENTAGE OF WORK SUB-CONTRACTED BY ASSES SEE HAS SOME RATIONALE. DURING THE YEAR, ON STANDALONE BASIS, THE SUB- CONTRACT WORKS OF ASSESSEE OUT OF THE TOTAL COST OF CONTRA CT COMES TO I.T.A. NO. 72/HYD/2016 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED :- 6 - : 95.21%. THERE IS NO DISPUTE ON THAT, AS AO ALSO ACC EPTS THAT STATEMENT WORKING OUT THE RATIOS. HOWEVER, WHAT AO HAS D ONE IS TAKING THE TOTAL SUB-CONTRACT WORKS OVER A PERIOD OF FIV E YEAR CONTRACT WHICH COMES TO RS. 88.27%. SINCE THE ESTIMATI ON IS ONLY PERTAINING TO THE YEAR UNDER CONSIDERATION, THE AO SHOU LD HAVE DETERMINED THE SUB-CONTRACT RECEIPTS PERTAINING TO THIS Y EAR ONLY ON STANDALONE BASIS, INSTEAD OF THE WHOLE CONTRACT PERIO D. AS ASSESSEES CONTENTION OF ESTIMATING THE PROFITS FOR THE WH OLE CONTRACT AND ADJUSTING THE PROFITS DECLARED IN OTHER YEAR S IS NOT ACCEPTED IN GROUND NO.2 TO 4, THE CONTENTION THAT THE S UB-CONTRACT PERCENTAGE SHOULD BE WORKED OUT ON STANDALONE BASIS ON THE RECEIPTS OF THIS YEAR ALONE HAS TO BE ACCEPTED. THERE FORE, MODIFYING THE ORDER OF AO, THE PROFIT SHOULD BE ESTIMATED ON REC EIPTS DURING THE YEAR- AT 95.21% OF THE RECEIPTS AT 5% BEING SUB-CO NTRACTED WORK AND BALANCE AT 8% BEING CONTRACT WORK ON OWN BASI S. THE GROUND IS ALLOWED AND AO IS DIRECTED TO MODIFY THE OR DER. ACCORDINGLY, IN THE RESULT, GROUND NOS. 2, 3 & 4 ARE REJECTED AND GROUND NO. 5 IS ALLOWED. NON-GRANTING OF CREDIT OF TAXES PAID: 10. IT WAS THE CONTENTION THAT AO HAS ERRED IN NOT GRANTIN G THE CREDIT OF TAXES OF RS. 21,30,490/- BEING REFUND GRAN TED TO ASSESSEE IN AY. 2005-06, WHICH HAS BEEN ADJUSTED AGAINST THE TA X DEMAND OF AY. 2004-05. THIS CONTENTION REQUIRES EXAMINATION BY THE AO OF THE RECORD FOR AY. 2004-05 AND 2005-06. IN CASE, SU CH REFUND WAS ALREADY GRANTED TO ASSESSEE AND ADJUSTED TO THE DEMAND I N THIS YEAR, NECESSARY CREDIT SHOULD BE GIVEN. AO IS DIRECT ED TO EXAMINE THE RECORD AND DO ACCORDINGLY AFTER GIVING DUE OPPORTU NITY TO I.T.A. NO. 72/HYD/2016 M/S. IWM CONSTRUCTIONS PRIVATE LIMITED :- 7 - : ASSESSEE. GROUND NO. 6 IS CONSIDERED ALLOWED FOR S TATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2017 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 28 TH FEBRUARY, 2017 TNMM COPY TO : 1. M/S. IWM CONSTRUCTIONS PRIVATE LIMITED, C/O. CHAKRADHAR & NANDAN, CHARTERED ACCOUNTANTS, 201, SRINATH RESIDENTIAL COMPLEX, S.D. ROAD, SECUNDERABA D. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 1), HYDERABAD. 3. CIT (APPEALS)-2, HYDERABAD. 4. THE PR.CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.