M/s K.V.A.Constructions, Gudivada V. The ITO, Ward-1, Gudivada, Gudivada

ITA 73/VIZ/2012

• Counselvise Citation: 7325314 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Business income; Revision of order
• Section: 44AD; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNA M BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.73/VIZ/2012 ASSESSMENT YEAR : 2008-09 M/S KVA CONSTRUCTIONS, GUDIVADA. PAN AAGFK0379J- VS. INCOME TAX OFFICER, WARD 1, GUDIVADA. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI G.V.N. HARI REVENUE BY : SHRI K.V.N.CHARYA DATE OF HEARING : 13/ 12/2013 DATE OF PRONOUNCEMENT : 08/01/201 4 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT, VIJAYAWADA DATED 30/01/2011 PASSED U/S 263 OF THE I T ACT FOR THE ASSESSMENT YEAR 2008-09 WHEREIN ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. CIT IS CONTRARY TO THE FAC TS AND ALSO THE LAW APPLICABLE TO THE FACTS OF THE CASE. 2. THE LEARNED CIT ERRED IN ASSUMING JURISDICTION U /S 263 OF THE IT ACT, 1961 IN AS MUCH AS THE ORDER DT. 27-12- 2010 OF THE AO IS NEITHER PREJUDICIAL NOR ERRONEOUS. 3. THE LD. CIT ERRED IN DIRECTING THE AO TO DISALLO W THE INTEREST ON PARTNERS CAPITAL OF RS.4,60,837/- AND REMUNERATION TO WORKING PARTNERS OF RS.1,87,640/-. 2 I.T.A. NO.73/VIZAG/2012 M/S KVA CONSTRUCTIONS 4. THE LEARNED CIT HAVING ACCEPTED THE ASSESSMENT O F INCOME IN THE HANDS OF THE FIRM, OUGHT NOT HAVE DIR ECTED THE AO TO DISALLOW INTEREST ON CAPITAL AND REMUNERATION ; MORE SO, WHEN ALL THE REQUISITE CONDITIONS OF S. 40(B) H AVE BEEN COMPLIED WITH. 5. THE LD. CIT OUGHT TO HAVE APPRECIATED THAT ONCE INCOME WAS ESTIMATED BY THE AO TO THE BEST OF HIS JUDGMENT THE ORDER OF THE AO CANNOT BE TERMED AS ERRONEOUS MEREL Y BECAUSE THE CIT DID NOT AGREE WITH SUCH ESTIMATION. 3. AS CAN BE SEEN FROM THE GROUNDS RAISED, ASSESSEE IS BASICALLY AGGRIEVED OF THE ORDER PASSED BY THE CIT IN DIRECTI NG THE AO TO DISALLOW INTEREST ON PARTNERS CAPITAL OF RS. 4,60,837/- AND REMUNERATION OF RS.1,87,640/- UNDER SECTION 40(B) OF THE ACT. 4. BRIEFLY STATED, ASSESSEE IS A PARTNERSHIP FIRM E NGAGED IN CIVIL CONSTRUCTION WORK. IN THE IMPUGNED ASSESSMENT YEAR , ASSESSEE FILED ITS RETURN OF INCOME ON 12-09-2008 DECLARING TOTAL INCO ME AT RS. 1,50,212/-. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143(3 ) OF THE ACT VIDE ORDER DATED 27-12-2010 DETERMINING THE TOTAL INCOME OF RS. 17,86,870/- BY ESTIMATING THE INCOME @ 12.5% ON GROSS CONTRACT RECEIPTS OF RS. 1,94,82,810/-. THE COMMISSIONER OF INCOME TAX IN E XERCISE OF HIS POWER UNDER SECTION 263 CALLED FOR THE ASSESSMENT R ECORDS OF ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AND WHILE EXAMININ G THE SAME, WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AS THE AO HAS ESTIMATED THE INCOME @ 12.5% ON GROSS CONTRACT RECE IPTS OF RS. 1,94,82,270/- AS PER PROFIT AND LOSS ACCOUNT WITHOU T CAUSING NECESSARY ENQUIRY WITH REGARD TO ADOPTING LOW PROFIT AND WITH OUT APPLYING MIND AND WITHOUT ANY BASIS FOR ESTIMATION APPEARED TO BE ERR ONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. THEREF ORE, REVISIONARY PROCEEDINGS WERE INVOKED U/S 263 OF THE IT ACT, 196 1 BY ISSUING A LETTER TO ASSESSEE ON 08-09-2011 TO SHOW CAUSE AS TO WHY T HE ORDER U/S 143(3) DATED 27-12-2010 SHOULD NOT BE REVISED OR CA NCELLED U/S 263 OF 3 I.T.A. NO.73/VIZAG/2012 M/S KVA CONSTRUCTIONS THE ACT. THE CIT IN THE SHOW CAUSE NOTICE, INTER-AL IA, POINTED OUT THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF THE REVENUE AS THE AO AFTER ESTIMATING THE INCOME O F THE ASSESSEE HAS ALLOWED PARTNERS REMUNERATION TO THE TUNE OF RS. 1 ,87,640/- AND INTEREST ON CAPITAL AT RS. 4,60,837/-. THE CIT AFT ER CONSIDERING THE REPLY OF ASSESSEE NOTED THAT IN VIEW OF THE OBSERVATION M ADE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTIONS VS CIT, 232 ITR 776( AP) TO THE EFFECT THAT WHEN AN ESTIMAT E IS MADE, IT IS SUBSTITUTION OF INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 30 TO 43 OF THE I.T. ACT, WHIC H WOULD MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACC OUNT WHILE MAKING SUCH ESTIMATE AND THUS REQUIRES NO ADDITION OR DELE TION TO THE BUSINESS INCOME. THEREFORE, HE HELD THAT IN VIEW OF THE ABO VE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF IN DWELL CONSTRUCTIONS (SUPRA), IN CASE OF ESTIMATION OF INCOME AT A FIXED RATE, NO FURTHER DEDUCTION CAN BE ALLOWED TOWARDS INTEREST ON PARTNE RS CAPITAL AND REMUNERATION TO WORKING PARTNERS. THE CIT FURTHER OBSERVED THAT WHERE TWO CONTRARY DECISIONS ON AN ISSUE ARE AVAILABLE, T HE DECISION OF JURISDICTIONAL HIGH COURT IS TO BE TAKEN INTO COGNI ZANCE IN DECIDING THE CASE OF SIMILAR ISSUE. THEREFORE, THE CIT TREATED THE ORDER PASSED BY THE AO U/S.143(3) TO BE ERRONEOUS AND PREJUDICIAL T O THE INTERESTS OF THE REVENUE, AND, ACCORDINGLY, SET ASIDE THE SAME AND D IRECTED THE AO TO DISALLOW THE AMOUNT OF RS. 4,60,837/- AND RS. 1,87, 640/- BEING THE INTEREST ON PARTNERS CAPITAL AND REMUNERATION TO W ORKING PARTNERS, RESPECTIVELY. 5. WE HAVE CONSIDERED SUBMISSIONS OF LD. REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. IT IS A FACT ON R ECORD THAT THE INCOME OF THE ASSESSEE WAS ESTIMATED @ 12.5% BY REJECTING BOO KS OF ACCOUNT. 4 I.T.A. NO.73/VIZAG/2012 M/S KVA CONSTRUCTIONS THE DISPUTE IS ONLY WITH REGARD TO THE FACT THAT AS TO WHETHER AFTER ESTIMATING THE INCOME FURTHER DEDUCTION CAN BE ALLO WED TOWARDS REMUNERATION AND INTEREST PAYMENT TO THE PARTNERS. THE CIT IN EXERCISE OF HIS POWER U/S.263 OF THE ACT HAS DIRECTED THE AO TO DISALLOW THE EXPENDITURE CLAIMED BY FOLLOWING THE DECISION OF HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SU PRA). HOWEVER, IT IS TO BE NOTED THAT THE VISAKHAPATNAM BENCH AS WELL AS THE HYDERABAD BENCHES OF THIS TRIBUNAL IN A NUMBER OF DECISIONS A FTER TAKING INTO CONSIDERATION THE RATIO LAID DOWN IN INDWELL CONSTR UCTIONS (SUPRA) HAVE HELD THAT EVEN IN CASE OF ESTIMATION OF INCOME, FUR THER DEDUCTION TOWARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IS AL LOWABLE. THE ITAT HYDERABAD BENCH IN THE CASE OF C. ESWAR REDDY,(I.T .A. NOA.668, 670, 685 & 686/HYD/2009 ) DT.31.1.2011 WHILE CONSIDERING AN IDENTICAL ISSUE NOTED THAT THE DECISION OF INDWELL CONSTRUCTION (SU PRA) WAS DELIVERED PRIOR TO THE INTRODUCTION OF SECTION 44AD OF THE AC T. HENCE, THE TRIBUNAL HELD THAT AFTER THE INTRODUCTION OF SECTION 44AD OF THE ACT, EVEN IN CASE OF ESTIMATION OF INCOME FURTHER DEDUCTION TOWARDS R EMUNERATION AND INTEREST PAYMENT TO PARTNERS IS ALLOWABLE. SAME VI EW WAS AGAIN REITERATED BY THE ITAT HYDERABAD BENCH IN THE CASE OF VENKATESWARA SWAMY LORRY SERVICES (I.T.A. NO.903 & 353/HYD/2009) DATED 25.11.2009. WHEN THE DEPARTMENT PREFERRED APPEAL A GAINST THIS ORDER OF THE TRIBUNAL, HONBLE JURISDICTIONAL HIGH COURT UP HELD THE VIEW OF THE ITAT HYDERABAD IN JUDGMENT DT.25.6.2013 IN ITTA NO. 82 OF 2013 BY HOLDING THAT IN VIEW OF CBDT CIRCULAR DATED 31.8.19 65, RELIED UPON BY THE TRIBUNAL, INTEREST HAS TO BE ALLOWED SEPARATELY EVE N IN CASE OF ESTIMATION OF PROFIT. SINCE THE VIEW TAKEN BY THE AO IS IN CONSONANCE WITH THE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL AND THAT VIEW IS ONE OF THE POSSIBLE VIEWS, THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) CANNOT BE HELD TO BE EITHER ERRONEOUS OR PRE JUDICIAL TO THE INTERESTS OF THE REVENUE ON THIS ISSUE. IN THE AFO RESAID VIEW OF THE 5 I.T.A. NO.73/VIZAG/2012 M/S KVA CONSTRUCTIONS MATTER, WE DIRECT THE AO NOT TO DISALLOW THE INTERE ST AND REMUNERATION PAYMENT TO PARTNERS. THE ORDER OF THE CIT IS MODIF IED TO THIS EXTENT. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY, 2014 . SD/- SD/- (SAKTIJIT DEY ) (B. RAMAKOTAIAH ) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED 8 TH JANUARY, 2014 KV COPY FORWARDED TO 1. M/S K.V.A. CONSTRUCTIONS, D. NO. 9/364, OPP. VISHWABHARATHI SCHOOL, RAJENDRA NAGAR, GUDIVADA. 2. ITO, WARD - 1, GUDIVADA 3. THE CIT, VIJAYAWADA 4. ADDL. CIT, RANGE 1, VIJAYAWADA 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE.