Navodaya Engineers P Ltd, Hyderabad V. DCIT, Hyderabad

ITA 786/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66214 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 28-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Depreciation
• Section: 44AD; 131; 68; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 786/HYD/2010 ASSESSMENT YEAR: 2004-05 NAVODAYA ENGINEERS P. LTD., APPELLANT HYDERABAD (PAN AAACN 7999Q/N.165) VS. DY. COMMISSIONER OF INCOME-TAX, RESPOND ENT CIRCLE 16(1), HYDERABAD. APPELLANT BY : SHRI P. MURALI MOHANA RAO RESPONDENT BY : SHRI K.J. RAO DATE OF HEARING : 05/07/2012 DATE OF PRONOUNCEMENT : 27/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEES IS DIRECTED AGA INST THE ORDER OF CIT(A)-V, HYDERABAD DT. 10/03/2010 FOR THE ASSES SMENT YEAR 2004-05. 2. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME DURING THE YEAR UNDER CONSIDERATION ON 01/11/2004 DECLARING A LOSS OF (-) RS. 32,25,904/-. THE RETURN WAS PROCESSED U/S 143(1). T HEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, A N OTICE U/S 143(2) WAS ISSUED ON 17/05/2005 POSTING THE CASE ON 30/05/ 2005. ANOTHER NOTICE U/S 143(2) WAS ISSUED ON 13/07/2006 POSTING THE CASE ON ITA NO. 786/HYD/10 NAVODAYA ENGINEERS P. LTD. 2 05/08/2005. NOBODY APPEARED ON THE HEARING DATE. FU RTHER ANOTHER NOTICE WAS ISSUED ON 25/08/2005 FIXING THE HEARING ON 27/09/2005 ALONG WITH A DETAILED QUESTIONNAIRE ASKING THE ASSE SSEE TO FURNISH THE INFORMATION AS WELL AS BOOKS OF ACCOUNT ON THE DATE OF HEARING. FOR THIS QUESTIONNAIRE ALSO THERE WAS NO RESPONSE F ROM THE ASSESSEE. TO GIVE SOME MORE OPPORTUNITIES, NOTICE U /S 143(2) WAS ISSUED ON 13/07/2005, 15/12/2005, 24/04/2006, 09/08 /2006, 11/08/2006, 06/10/2006 POSTING THE CASE FOR HEARING ON 18/08/2005, 23/12/2005, 02/05/2006, 17/08/2006, 07/ 08/2006 AND 23/10/2006 RESPECTIVELY. THERE WAS NO RESPONSE FROM THE ASSESSEE TO ALL THE ABOVE NOTICE. 3. SINCE THE ASSESSEE IS NOT RESPONDING TO THE STAT UTORY NOTICES, THE ASSESSING OFFICER ISSUED SUMMONS U/S 131 OF TH E ACT, TO SHRI M. VENUGOPALA RAO, DIRECTOR OF THE ASSESSEE COMPANY ON 06/12/2006 ASKING HIM TO APPEAR ON 07/12/2006 ALONG WITH BOOKS OF ACCOUNT FOR THE YEAR 2004-05 AND BILLS & VOUCHERS FOR THE EXPEN SES INCURRED. THE SAID SUMMONS WERE SERVED ON THE ASSESSEE ON 06/ 12/2006 BY THE INSPECTOR OF THIS OFFICE. BUT NOBODY APPEARED O N THE GIVEN DATE. 4. THE ASSESSING OFFICER FURTHER NOTED THAT ON 18/1 2/2006 THE ASSESSEES AR HAS FILED SOME INFORMATION IN THE INW ARD. BUT, THE ASSESSEE HAD NEITHER PRODUCED THE BOOKS OF ACCOUNT NOR THE REQUISITE INFORMATION CALLED FOR VIDE QUESTIONNAIRE DATED 25/08/2005. IN THE QUESTIONNAIRE THE ASSESSEE WAS P ARTICULARLY ASKED TO PRODUCE THE BILLS AND VOUCHERS IN SUPPORT OF ITS CLAIM MADE IN THE PROFIT & LOSS ACCOUNT. ITA NO. 786/HYD/10 NAVODAYA ENGINEERS P. LTD. 3 5. ON VERIFICATION OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31/03/2004, THE ASSESSING OFFICER OBSERVED THAT DUR ING THE YEAR THE INCOME FROM CONTRACT BILLS AND OTHERS WAS SHOWN AT RS. 14,54,325/- AND THE ASSESSEE HAD BOOKED THE EXPENDITURE UNDER T HE HEAD SITE WORK EXPENSES AT RS. 16,44,933/- AND UNDER THE HEA D ADMINISTRATIVE EXPENSES AT RS. 15,76,191/-. 6. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESS EE HAD NOT PRODUCED ANY BOOKS OF ACCOUNT FOR VERIFICATION OF B ILLS AND VOUCHERS IN SUPPORT OF ITS CLAIM, THE EXPENDITURE IS UNVERIF IABLE. HE FURTHER HELD THAT WHEN THE INSPECTOR VISITED PERSONALLY, TH E ASSESSEE HAD NOT PRODUCED ANY BOOKS OR VOUCHERS BEFORE THE INSPE CTOR. THUS, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE IS NO T HAVING ANY BOOKS OF ACCOUNT, THEREFORE, IN THESE CIRCUMSTANCES , THERE WAS NO OPTION EXCEPT TO ESTIMATE THE INCOME ON THE GROSS R ECEIPTS SHOWN AT RS. 14,54,325/-. AS THE ASSESSEE HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT OR OTHER VOUCHERS THE ASSESSING OFFICER REL IED ON THE VIEWS UPHELD BY THE HON. ITAT B BENCH, HYDERABAD IN THE C ASES OF M/S KRISHNA MOHAN CONSTRUCTIONS, M/S SRINIVASA CONSTRUC TIONS, KURNOOL AND M/S KC REDDY ASSOCIATES, NELLORE, TO ARRIVE AT THE GROSS TOTAL INCOME, THE ASSESSING OFFICER ADOPTED A PERCENTAGE OF 12.5% OF THE GROSS TURNOVER CLEAR OFF DEPRECIATION AND ACCORDING LY, HE ESTIMATED THE INCOME AT 12.5% ON THE GROSS RECEIPTS, WHICH WO RKED OUT TO RS. 1,82,338/-. 7. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSIN G OFFICER GAVE VARIOUS OPPORTUNITIES TO THE ASSESSEE TO PRODUCE BO OKS OF ACCOUNT, BILLS, VOUCHERS ETC. AND ALSO THE ASSESSING OFFICER AUTHORIZED THE INSPECTOR TO CHECK THE BOOKS OF ACCOUNT, BILLS AND VOUCHERS. THE ITA NO. 786/HYD/10 NAVODAYA ENGINEERS P. LTD. 4 CIT(A) FURTHER POINTED OUT THAT NO SUCH BOOKS OF AC COUNT, BILLS, AND VOUCHERS PRODUCED BEFORE HIM. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER IN ESTIMATING THE INCOME AT 1 2.5% OF THE GROSS TURNOVER. THE CIT(A) FURTHER HELD THAT THE ASSESSEE HAD NOT DISCHARGED HIS ONUS OF PROVIDING ANY EVIDENCE WITH RESPECT TO ITS EXPENSES AND HENCE SUSTAINED THE ADDITION MADE BY T HE ASSESSING OFFICER. THE CIT(A) ALSO HELD THAT NO FURTHER DEPRE CIATION IS TO BE ALLOWED. 8. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9. THE LEARNED DR SHRI K.J. RAO RELIED ON THE ORDER OF THE ASSESSING OFFICER AND CIT(A) IN ESTIMATING THE INCO ME OF THE ASSESSEE COMPANY AT 12.5% OF THE GROSS RECEIPTS. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI P. MU RALI MOHAN RAO CONTENDED THAT THE BENCH HAS BEEN CONSISTENTLY FOLL OWING THE ESTIMATE AT 8% OF GROSS RECEIPTS IN THE CASE OF COM PANIES ENGAGED IN CONSTRUCTION WORK. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT THE SPECIAL BENCH OF THIS TRIBU NAL IN THE CASE OF M/S ARIHANT BUILDERS (P) LIMITED VS. ACIT (291 ITR 49) (AT) (SB) CONSIDERED SIMILAR FACTS AND HELD AS FOLLOWS:- III) THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PAYMENTS MADE ON ACCOUNT OF LABO UR CHARGES AND CARTAGE EXPENSES, BECAUSE THE ASSESSEE CLAIMED DEDUCTION OF THE AMOUNT. HOWEVER, THE ASSESSEE DID NOT DISCHARGE THE ONUS OF PROVING THE GENUINENESS OF TH E CLAIM. THE ASSESSING OFFICER ALSO HELD THAT THE ASSESSEE H AD NOT ITA NO. 786/HYD/10 NAVODAYA ENGINEERS P. LTD. 5 MAINTAINED PROPER MUSTER ROLL AS TO WHERE THE LABOU RERS WERE EMPLOYED AND FOR WHICH PARTICULAR WORK THEY WERE EN GAGED. CONSIDERING THE FINDING OF THE AUTHORITIES BELOW TH E REJECTION OF ACCOUNTS U/S 145(2) WAS JUSTIFIED. IV) THAT THE CASE RELATED TO THE ASSESSMENT YEAR 19 92-93. SECTION 44AD INSERTED WITH EFFECT FROM APRIL 1, 199 4, MAKES A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS O F BUSINESS OF CIVIL CONSTRUCTION. IT PROVIDES THAT NOTWITHSTANDIN G ANYTHING CONTAINED IN SECTIONS 28 TO 43C IN THE CASE OF THE ASSESSEE ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION A SUM EQUAL TO 8 PER CENT OF THE GROSS RECEIPTS PAID OR PAYABLE TO T HE ASSESSEE IN THE PREVIOUS YEAR ON ACCOUNT OF SUCH BUSINESS OR AS THE CASE MAY BE, A SUM HIGHER THAN THE AFORESAID SUM DECLARE D BY THE ASSESSEE IN HIS RETURN OF INCOME, SHALL BE DEEMED T O BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TA X UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS OR PROFESSI ON BUT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY I N CASE THE AFORESAID GROSS RECEIPTS PAID OR PAYABLE EXCEED AN AMOUNT OF RS. 40 LAKHS. THOUGH STRICTLY THESE PROVISIONS WERE INSERTED IN THE ACT WITH EFFECT FROM APRIL 1, 1994, THESE PROVI SIONS COULD BE A GUIDELINE FOR THE PURPOSE OF APPLYING A PARTIC ULAR NET PROFIT RATE IN THE CASE OF A CIVIL CONTRACTOR EVEN IN EARLIER YEARS. THE ASSESSEE WAS A CIVIL CONTRACTOR ENGAGED IN CONSTRUCTION WORK TAKEN ON CONTRACT AND THE GROSS R ECEIPTS OF THE ASSESSEE WERE BELOW RS. 40 LAKHS. THE NET PROFI T RATE OF 12.5 PER CENT APPLIED BY THE AUTHORITIES BELOW IN T HE CASE OF THE ASSESSEE WAS EXCESSIVE AND EXORBITANT. A NET PR OFIT RATE OF 8 PERCENT ON THE GROSS RECEIPTS WOULD BE REASONABLE . 12. RESPECTFULLY FOLLOWING THE DECISION OF THE SPEC IAL BENCH, WE ARE OF THE OPINION THAT THE ESTIMATION OF INCOME AT 8% OF THE TURNOVER IS REASONABLE AND DIRECT THE ASSESSING OFFICER TO E STIMATE THE INCOME OF THE ASSESSEE AT 8% OF GROSS TURNOVER AS A GAINST 12.5% MADE BY HIM. THUS, THIS GROUND OF APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED. 13. THE NEXT ISSUE IS WITH RESPECT TO ADDITION OF R S. 7,50,000/- ON ACCOUNT OF UNSECURED LOANS. ITA NO. 786/HYD/10 NAVODAYA ENGINEERS P. LTD. 6 14. THE ASSESSING OFFICER MADE THIS ADDITION ON ACC OUNT OF THE FACT THAT NO CONFIRMATIONS HAD BEEN FILED BY THE ASSESSE E. IN APPEAL BEFORE THE CIT(A), THE CONFIRMATIONS WERE FILED AND COMPLETE ADDRESSES OF ALL THE CREDITORS HAVE BEEN GIVEN. THE CIT(A) OBSERVED THAT FROM THE CONFIRMATION LETTERS IT IS FOUND THAT NONE OF THEM ARE INCOME TAX ASSESSEES AND NONE OF THEM POSSESS PAN N O. 15. IN THE CASE OF MS. M. PRAMEELA IT WAS STATED TH AT SHE HAD ADVANCED INTEREST FREE OF RS. 1,00,000/- TO THE ASS ESSEE COMPANY IN THE YEAR 2003-04 AND SHE IS WORKING AS TECHNICIAN I N BSNL AND SHE HAD DECLARED THAT THE ADVANCES WERE GIVEN OUT OF SA LARY AND PERSONAL SAVINGS. THE CIT(A) HELD THAT IT IS AGAINS T HUMAN PROBABILITY THAT A TECHNICIAN HAVING MEAGRE ANNUAL SALARY CAN ADVANCE MONEY TO A STRANGER. REGARDING THE OTHER FO UR CREDITORS, THE CIT(A) OBSERVED THAT ALL HAVE STATED IN ONE UNI FORM LANGUAGE AND HAD GIVEN LOANS TO THE ASSESSEE OUT OF AGRICULT URAL INCOME AND THAT TOO INTEREST FREE. NO DETAILS OF ANY AGRICULTU RAL HOLDINGS OR AGRICULTURAL OPERATIONS HAVING BEEN CARRIED OUT HAV E BEEN FURNISHED. HENCE, THE CIT(A) HELD THAT THE ASSESSEE HAS NOT DI SCHARGED ITS ONUS U/S 68 OF THE ACT. 16. ON FURTHER APPEAL BEFORE US, THE ASSESSEE WAS N OT ABLE TO FURNISH ANY ADDITIONAL INFORMATION REGARDING THE AD VANCES. THE ASSESSEE HAS TO PROVE IDENTITY OF THE CREDITOR, CRE DITWORTHINESS AND GENUINENESS OF THE CREDITOR AND GIVE EVIDENCE REGAR DING THE TRANSACTIONS IN ORDER TO DISCHARGE ONUS U/S 68 OF T HE ACT AND IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO DISCHARGE THE SAME. RELYING ON DECISION OF SUMATI DAYAL VS. CIT, 1995 AIR 2109, AND ITA NO. 786/HYD/10 NAVODAYA ENGINEERS P. LTD. 7 COMMISSIONER OF INCOME TAX V. DURGA PRASAD MORE,(19 71) 82 ITR 540, WE DISMISS THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2012. SD/- SD/- (D. KARUNAKARA RAO) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER HYDERABAD, DATED: 27 TH AUGUST, 2012. KV COPY TO:- 1) NAVODAYA ENGINEERS P. LTD., C/O., P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, I FLOOR, SOMAJI GUDA, HYDERABAD 500 0482. 2) DCIT, CIRCLE 16(1), HYDERBAD 3) THE CIT (A)-V, HYDERABAD 4) THE CIT-IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.