R. Narayana Reddy & Sons Constructions Pvt.Ltd., Warangal, Warangal V. Addl.CIT, Warangal, Warangal

ITA 796/HYD/2015

• Counselvise Citation: 79622514 RSA 2015
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-10-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 11-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: G MANIKYA PRASAD
• Keywords: Revised return
• Section: 143(3); 145; 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P.MADHAVI DEVI, ACCOUNTANT MEMBER AND SHRI RIFAUR RAHAMAN, JUDICIAL MEMBER ITA NO. 796/HYD/2015 ASSESSMENT YEAR: 2011-12 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD., WARANGAL PAN AAACN 6915 E VS. ADD. COMMISSIONER OF INCOME- TAX, WARANGAL. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G. MANIKYA PRASAD REVENUE BY : SMT. K. MYTHILI RANI DATE OF HEARING : 06-10-2015 DATE OF PRONOUNCEMENT : 30-10-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 27/02/3, HYDERABAD FOR THE AY 2011-12. 2. ASSESSEE HAS RAISED A NUMBER OF GROUNDS CHALLENG ING THE ORDER PASSED U/S 263. 3. BRIEFLY THE FACTS OF THE CASE ARE, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 28/09/2012 ADMITTING NIL INCOME FOR THE A.Y. 2011-12, WHICH WAS PROCESSED U/S 143(1) ON 14/03/04 . ASSESSEES CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCO RDINGLY NOTICE U/S 143(2) DATED 23/09/2013 WAS ISSUED AND DULY SER VED ON THE ASSESSEE. IN RESPONSE TO NOTICES U/S. 143(2) AND 14 2(1), ASSESSEE'S AR APPEARED AND FILED DETAILS. 2 ITA NO. 796 /HYD/2015 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD. 3.1 THE ASSESSEE COMPANY CARRIED ON BUSINESS MOSTL Y OF RAILWAYS CONTRACTS OF SOUTH CENTRAL RAILWAY. DURING THE YEAR THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.2,89,69,203/- TOWARDS THE GROSS WORK BILLS. ALL THE WORKS WERE EXECUTED BY THE ASSESSEE DIRECT LY. 3.2 THE ASSESSEE CLAIMED CURRENT YEAR LOSS OF RS.9 4;32,045/- FOR THE ASST. YEAR 2011-12. ON PERUSAL OF THE BOOKS OF ACCOUNTS AND ITS SUPPORTING VOUCHERS, AO NOTICED THAT THE VOUCHERS WERE SELF MADE AND THE VERACITY OF SUCH EXPENDITURES COULD NOT BE VERIFIED. THIS WOULD RESULT IN DISTORTED PROFITS. THE PLANT & MACH INERY PURCHASED AND USED DURING THE YEAR IS PARTLY USED FOR THE PUR POSES OF BUSINESS AND REQUIRES TO BE ADJUSTED WHICH WOULD ENHANCE THE INCOME OF THE ASSESSEE. IN VIEW OF THESE INHERENT DISCREPANCIES, THE AO REJECTED THE BOOKS OF ACCOUNT U/S 145 OF THE I.T. ACT AND NE T PROFIT FROM CONTRACT WORKS WAS ESTIMATED AT 9% ON THE TURNOVER. THE ASSESSEE HAD ADMITTED GROSS TURNOVER OF RS.2,89,69,203/- AND CLAIMED INTEREST INCOME OF RS.2,51,323FOR THE ASST. YEAR 2011-12. HE NCE, THE AO ESTIMATED BUSINESS PROFIT @ 9% ON RS.2,87,17,880/- (RS.2,89,69,203 - INTEREST INCOME OF RS.2,51,323), WHICH WORKED OUT TO RS.25,84,610. THE INCOME FROM OTHER SOURCES AS ADMITTED BY THE AS SESSEE AT RS.2,51,323/- WAS ADDED TO THE INCOME ESTIMATED AS ABOVE. 4. SUBSEQUENTLY, PR. CIT, ON VERIFICATION OF THE AS SESSMENT RECORDS, NOTICED THAT THE FOLLOWING ISSUES WERE NOT EXAMINED BY AO WHILE COMPLETING ASSESSMENT U/S 143(3) OF THE INCOM E-TAX ACT. (ACT). (I) THE TURNOVER WAS ADOPTED AT RS.2.89.69.203/- AS AGAINST THE GROSS RECEIPTS RECEIVED AS PER P& L ACCOUNT AT RS .9,98,15.051/-. (II) ON 3 RD MARCH. 2014 A REVISED P & L ACCOUNT IS SUBMITTED IN TRADITIONAL FORM SHOWING THE GROSS RECEIPTS AS RS. 2,89.69,203/- AND THE BALANCE RECEIPTS OF RS.7,37,84.9161- RELATED TO TH E JOINT VENTURE PARTNERS OF MIS. RNR & SCR JV RS.3,96.48,563/- AND MIS. RNR & YMKR 3 ITA NO. 796 /HYD/2015 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD. JV RS.391,36.353/-. THE ADOPTION OF RS.2,89,69,203 /- AS GROSS RECEIPTS WAS NOT CORRECT SINCE, THE P & L ACCOUNT AND BALAN CE SHEET SUBMITTED ALONG WITH RETURN OF INCOME WAS AN AUDITED ACCOUN T OF THE COMPANY AND THE SAME HAS TO BE TAKEN INTO THE ACCOUNT FOR THE TAX ASSESSMENT. WHEREAS. THE P & L ACCOUNT SUBMITTED ON 3RD T MARCH, 2014 WAS NOT AN AUDITED ACCOUNT AND HENCE PUTTING RELIANCE ON T HIS ACCOUNT IS NOT IN ORDER. THE ASSESSING OFFICER FAILED TO ADOPT THE GROSS RECEIPTS OF RS.9.98,15,051/- AS AGAINST RS.2,89,69,203/- AND T HE BALANCE AMOUNT OF RS.7,37.84,916/- IS TAXABLE. 4.1 ACCORDINGLY, NOTICE U/S 263 WAS ISSUED TO ASSES SEE ON 26/12/2014 REQUIRING ASSESSEE TO SHOW CAUSE AS TO W HY THE ASSESSMENT SHOULD NOT BE REVISED OR SET ASIDE. 4.2 IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY PR. CIT, AR OF ASSESSEE FILED WRITTEN SUBMISSIONS AND SUBMITTED TH AT ALTHOUGH ASSESSEE COMPANY HAD DECLARED TOTAL TURNOVER AT RS. 9,98,15,051, BUT, IT INCLUDED THE TURNOVER OF THE JOINT VENTURE CONCERNS I.E. M/S RNR & SCR JOINT VENTURE OF RS. 3,96,48,563 AND M/S RNR & YMKR ANOTHER JOINT VENTURE OF RS. 3,41,36,353. FURTHER, LD. AR SUBMITTED THAT ASSESSEE COMPANY IS HOLDING MAJOR SHARE OF 70% IN THE ABOVE TWO JV CONCERNS AND ACCORDINGLY SHOWED THE TURNOVER OF THESE TWO JVS AS TURNOVER OF THE COMPANY IN THE ACCOUNTS IN O RDER TO FACILITATE ELIGIBILITY FOR FUTURE TENDERS. IT WAS FURTHER SUBM ITTED BY LD. AR THAT DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE FACT S WERE PLACED BEFORE THE ADDL. CIT AND AFTER DUE CONSIDERATION, T HE ADDL. CIT ALLOWED THE CLAIM OF ASSESSEE WHILE ESTIMATING THE NET PROFIT ON THE TURNOVER OF ASSESSEE COMPANY ALONE AND EXCLUDED THE TURNOVERS OF THE TWO JVS. 4.3 THE PR. CIT DID NOT APPRECIATE THE SUBMISSIONS OF LD. AR OF ASSESSEE AND OBSERVED THAT AO FAILED TO EXAMINE THI S ISSUE AND HAS NOT APPLIED HIS MIND PROPERLY ON THE FACTS INVOLVED IN THE CASE AND PROCEEDED TO ESTIMATE THE NET PROFIT AS SUBMITTED B Y ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING. HE FURTHER OBS ERVED THAT IT IS NOT CORRECT ON THE PART OF THE AO TO ACCEPT REVISED COMPUTATION DURING 4 ITA NO. 796 /HYD/2015 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD. THE COURSE OF SCRUTINY PROCEEDING WITHOUT INSISTING ON FILING OF REVISED RETURN OF INCOME ON THE BASIS OF THE REVISED CLAIM. IT CLEARLY VIOLATES THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF GOETZ INDIA LTD., [2006] 284 ITR 323 (SC). PR. CIT FURTH ER OBSERVED AS UNDER: 7IF THE AO HAS NOT TAKEN PROPER VIEW BASED ON T HE FACTS OF THE CASE, THE PR. CIT HAS EVERY POWER TO SET ASIDE SUCH AN ASSESSMENT WITH A DIRECTION TO REDO THE SAME AS PER THE LAW. IN THE INSTANT CASE, THE AO TOTALLY FAILED TO CONS IDER THE GROSS CONTRACT RECEIPTS DECLARED BY THE COMPANY AND NEGL ECTED IN ITS AUDITED REPORTS AND PROCEEDED TO COMPUTE THE INCOM E BASED ON REVISED COMPUTATION FILED IN THE ASSESSMENT PROCEE DINGS, WHICH DOES NOT HAVE ANY AUTHENTICITY AND CREDIBILITY. 5. AGGRIEVED BY THE ORDER OF PR. CIT PASSED U/S 263 OF THE ACT, ASSESSEE IS IN APPEAL BEFORE US. 6. LD. AR SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS AND MAINLY IT HAS CONTRACT FOR RAIL WAYS. TO GET ELIGIBILITY CRITERIA FOR FUTURE TENDERS, ASSESSEE HAD INCLUDED THE TURNOVER OF ITS JV COMPANIES AS ITS OWN TURNOVER. IT WAS CLEARLY ME NTIONED IN THE DIRECTORS REPORT IN THE ANNUAL REPORT OF THE COMPAN Y AND ALSO HIGHLIGHTED IN THE NOTES TO THE ACCOUNTS, A COPY OF WHICH IS SUBMITTED VIDE PAGE 19 OF THE PAPER BOOK. LD. AR SUBMITTED T HAT THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF GOETZ INDIA LT D. (SUPRA) RELIED UPON BY PR. CIT IS DISTINGUISHABLE ON THE FACTS TO THE CASE OF ASSESSEE. LD. AR SUBMITTED THAT AO HAS CALLED FOR BOOKS OF ACCOUNT, RETURN OF INCOME AND ALSO FORM NO. 16 OF THE BOTH J V COMPANIES BEFORE ACCEPTING ASSESSEES CLAIM OF ITS TURNOVER O F RS. 2,89,69,203 AND MADE ESTIMATED PROFIT ON THE ABOVE SAID GROSS T URNOVER. LD. AR SUBMITTED THAT THERE IS NO LOSS TO THE REVENUE AS T OTAL GROSS SALES WERE OFFERED FOR TAX IN THE COMPANY AS WELL AS JV COMPANIES. LD. AR ALSO RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. SMT. MINALBEN S. PARIKH, [1995] 215 ITR 81 (GUJ.) WHEREIN THE HONBLE COURT HELD THAT THE COMMISSIONER CANNOT USE HIS 5 ITA NO. 796 /HYD/2015 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD. REVISIONAL POWER WHEN THE ASSESSMENT ORDER IS ERRON EOUS BUT NOT PREJUDICIAL TO THE INTERESTS OF REVENUE. THE RATIO OF THE JUDGMENT IS AS UNDER: THE NECESSARY REQUIREMENT FOR EXERCISE OF THE POW ERS UNDER S. 263 IS THE CONCLUSION OF THE CIT IN RESPECT OF TWO ASPECTS. F IRSTLY, HE MUST CONSIDER THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND A FTER REACHING THIS CONCLUSION, HE DERIVES JURISDICTION TO PASS AN ORD ER UNDER S. 263 ONLY IF HE FURTHER CONSIDERS IT TO BE PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. IN OTHER WORDS, THE TWO CONDITIONS MUST BE SATISFIED BEFORE THE CIT CAN EXERCISE THE POWERS UNDER S. 263, NAMELY, THE ORDER OF THE ASSE SSING AUTHORITY MUST BE FOUND TO BE ERRONEOUS AND FURTHER IT MUST ALSO BE FOUND TO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. UNLESS BOTH THE COND ITIONS ARE SATISFIED, THE CIT DOES NOT GET JURISDICTION TO PASS AN ORDER UND ER S. 263 REVISING THE ASSESSMENT ORDER. IT IS NOT NECESSARY THAT EVERY O RDER WHICH IS FOUND ERRONEOUS IS ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WHAT IS MEANT BY THE WORDS 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE'' HAS NOT BEEN DEFINED. HOWEVER, GIVING THE ORDINARY MEANING TO T HE WORDS USED IN THE STATUTE, THEY MUST MEAN THAT THE ORDERS UNDER CONS IDERATION ARE SUCH AS ARE NOT IN ACCORDANCE WITH LAW AND IN CONSEQUENCE WHER EOF, THE LAWFUL REVENUE DUE TO THE STATE HAS NOT BEEN REALISED OR CANNOT B E REALISED. THE WELL SETTLED PRINCIPLE IN CONSIDERING THE QUESTION WHET HER AN ORDER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE OR NOT IS TO ADDRE SS ONESELF WHETHER THE LEGITIMATE REVENUE DUE TO THE EXCHEQUER HAS BEEN R EALISED OR NOT OR CAN BE REALISED OR NOT IF THE ORDERS UNDER CONSIDERATION ARE ALLOWED TO STAND. FOR ARRIVING AT THIS CONCLUSION, IT BECOMES NECESSARY AND RELEVANT TO CONSIDER WHETHER THE INCOME IN RESPECT OF WHICH TAX IS TO B E REALISED, HAS BEEN SUBJECTED TO TAX OR NOT OR IF IT IS SUBJECTED TO T AX, WHETHER IT HAS BEEN SUBJECTED TO TAX AT THE RATE AT WHICH IT COULD YIE LD THE MAXIMUM REVENUE IN ACCORDANCE WITH LAW OR NOT. IF THE INCOME IN QUEST ION HAS BEEN TAXED AND LEGITIMATE REVENUE DUE IN RESPECT OF THAT INCOME H AS BEEN REALISED, THOUGH AS A RESULT OF AN ERRONEOUS ORDER HAVING BEEN MADE IN THAT RESPECT, THE CIT CANNOT EXERCISE THE POWERS FOR REVISING THE ORDER UNDER S. 263 MERELY ON THE BASIS THAT THE ORDER UNDER CONSIDERATION IS ER RONEOUS. IF THE MATERIAL IN THAT REGARD IS AVAILABLE ON THE RECORD OF THE ASSE SSEE CONCERNED, THE CIT CANNOT EXERCISE HIS POWERS BY IGNORING THAT MATERI AL WHICH LINKS THE INCOME CONCERNED WITH THE TAX REALISATION MADE THEREON. T HE TWO QUESTIONS ARE INTERLINKED AND THE AUTHORITY EXERCISING THE POWER S UNDER S. 263 IS UNDER AN OBLIGATION TO CONSIDER THE ENTIRE MATERIAL ABOUT T HE EXISTENCE OF INCOME AND THE TAX WHICH IS REALISABLE IN ACCORDANCE WITH LAW AND FURTHER WHAT TAX HAS IN FACT BEEN REALISED UNDER THE ALLEGED ASSESSMENT ORDERS. THE CIT HAD NOT ADDRESSED HIMSELF TO THIS RELEVANT INQUIRY AND THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT IF THE ORDER OF THE CIT IS ALLOWED TO STAND, IT WOULD RESULT IN DOUBLE TAXATION OF THE VERY INCOME WHICH IS QUITE CONTRARY TO THE SCHEME OF THE ACT AND WHICH IS NEVER THE PURPO SE OF EXERCISE OF POWERS UNDER S. 263. EVEN THE CIT HAS NOT FOUND THAT PERM ITTING THE ASSESSMENT ORDER PASSED IN RESPECT OF THE ASSESSEE TO STAND W OULD RESULT IN LOSS OF REVENUE SO AS TO BE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE', NOR IS IT THE CASE OF THE REVENUE THAT IF THE ORDER UNDER CO NSIDERATION IS ALLOWED TO STAND, IT WOULD RESULT IN LESSER REVENUE THAN WHAT HAS BEEN REALISED BY THE ERRONEOUS ASSESSMENT OF THE INCOME IN QUESTION IN THE HANDS OF FOUR DIFFERENT ASSESSEES FOR THE RELEVANT ASSESSMENT YE ARS. THE TRIBUNAL HAS BEEN RIGHT IN LAW IN SETTING ASIDE THE ORDER OF TH E CIT MADE UNDER S. 263 6 ITA NO. 796 /HYD/2015 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD. 6.1 LD. AR ALSO RELIED UPON THE ORDER OF THE COORDI NATE BENCH OF ITAT, HYDERABAD IN ITA NO. 997/HYD/2014, DATED 05/0 8/2015. 7. LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF PR. CIT AND SUBMITTED THAT THE ACTION OF THE PR. CIT IS JUSTIFI ED. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REV ENUE AUTHORITIES AS ALSO THE CASES CITED BY LD. AR. FIRST OF ALL, THE A SSESSEE COMPANY HAS PRESENTED ITS ANNUAL REPORTS AND INCLUDED THE GROSS TURNOVER OF JV COMPANIES AS ITS OWN GROSS TURNOVER, WHICH IS AGAIN ST THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THE FACT IS, IT HAS DISCLOSED IN PARA 6 OF THE NOTES TO ACCOUNTS AS RELATED PARTY TRANSAC TION AND NOT AS A SEPARATE DISCLOSURE OF THE ABOVE SAID INCLUSION OF GROSS TURNOVER OF THE JV COMPANIES ANYWHERE IN THE ANNUAL REPORTS. IT MAY BE CONSTRUED AS ERRONEOUS, BUT, IT WAS BROUGHT TO THE NOTICE OF AO AT THE TIME OF ASSESSMENT PROCEEDINGS. AO HAS ACCEPTED THE ABOVE FACTS AFTER EVALUATING BOOKS OF JV COMPANIES AND TURNOVER REPORTED IN FORM NO. 16 VIS--VIS FORM 26AS OF THE JVS AS WELL AS AS SESSEE COMPANY. 9. THE QUESTION ARISES FOR OUR CONSIDERATION IS WHE THER IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE ON THE ABOV E FACTS. WE ARE OF THE VIEW THAT ON THE FACTS AND TURNOVER AVAILABLE O N RECORD, AO HAS ALREADY VERIFIED AND RECONCILED FORM 16 OF THE RESP ECTIVE COMPANIES. IT SHOWS THAT ALL THE GROSS TURNOVERS WERE PROPERLY REPORTED AND OFFERED FOR TAX. RELYING ON THE JUDGMENT OF THE HON BLE GUJARAT HIGH COURT IN CASE OF CIT VS. SMT. MINALBEN S. PARIKH (S UPRA), THERE HAS TO BE TWIN TEST, NOT ONLY ERRONEOUS BUT ALSO PREJUDICI AL TO THE INTERESTS OF REVENUE. IN THE GIVEN CASE, THE TURNOVER RELATING TO ASSESSEE AND JV COMPANIES WERE SUBMITTED BEFORE AO AND ALSO RECONCI LED WITH THE STATUTORY FORM 16 FILED BY M/S FA CAO (CONSTRUCTION ) AND SOUTH CENTRAL RAILWAY WITH BOOKS OF THE ASSESSEE AND JV C OMPANIES. IT DEMONSTRATES THAT THERE IS NO ESCAPEMENT OF INCOME OR PREJUDICIAL TO 7 ITA NO. 796 /HYD/2015 R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD. THE INTERESTS OF REVENUE. MOREOVER, IF WE ADD THE T URNOVER OF THE JV COMPANIES TO THE ASSESSEES GROSS TURNOVER, IT AMOU NTS TO DOUBLE TAXATION. ACCORDINGLY, WE HEREBY REJECT THE OBSERVA TIONS OF THE PR. CIT AND QUASH THE ORDER PASSED BY HIM U/S 263 OF TH E ACT. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTA NT MEMBER HYDERABAD, DATED: 30 TH OCTOBER, 2015 KV COPY TO:- 1) M/S R. NARAYANA REDDY & SONS CONSTRUCTIONS PVT. LTD., C/O G.S. MADHAVA RAO & CO., CAS, SUDHARMA BUILDI NGS, M.G. ROAD, WARANGAL. 2) ADDL. CIT, WARANGAL. 3) PR. CIT-3, HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.