KMC Constructions Ltd., Hyd, Hyderabad V. ACIT, Circle-2(1), Hyderabad, Hyderabad

ITA 810/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2687 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: S RAMA RAO
• Keywords: Reopening of assessment; Rejection of books of accounts; Depreciation; Search and seizure
• Section: 143(3); 147; 148

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. 810/HYD/2016 ASSESSMENT YEAR: 2007 - 2008 KMC CONSTRUCTIONS LTD., HYDERABAD. [PAN: AABCK 6483 B] VS ACIT, CIRCLE - 2(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SMT. SUMAN MALIK, DR DATE OF HEARING : 23.01.2018 DATE OF PRONOUNCEMENT : 25 .01.2018 O R D E R PER B. RAMAKOTAIAH, AM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) - 2, HYDERABAD DATED 26.02.2016 FOR THE ASSESSMENT YEAR 2007 - 2008 ON THE ISSUE OF REOPENING OF ASSESSMENT AS WELL AS ADDITION OF SUB - CONTRACT AMOUNT OF RS. 72 LAKHS. 2. BRIEFLY STATED ASSESSEE IS A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF INFRASTRUCTURE FACILITY. FOR THE A.Y. 2007 - 2008 ASSESSEE FILED ITS RETURN OF INCOME ADMITTING TOTAL INCOME OF RS. 16,51,57,700/ - AFTER CLAIMING D EDUCTION U/S 80IA(4) OF THE INCOME TAX ACT, 1961 (THE ACT). THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 31.03.2009 AND DETERMINED THE TOTAL INCOME AT RS. 49,17,70,023/ - . ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND EST IMATED THE PROFIT AT 12.5% ON THE RECEIPTS RELATING TO OWN CONTRACTS 2 EXECUTED BY THE ASSESSEE AND 7.5% IN RESPECT OF SUB - CONTRACTS WORKS. ASSESSING OFFICER THEREAFTER ALLOWED THE DEPRECIATION BUT THE CLAIM OF DEDUCTION U/S 80IA(4) WAS NOT ALLOWED. THE MA TTERS WERE CARRIED UPTO THE ITAT AND THE TRIBUNAL HAS SET ASIDE THE MATTER OF CLAIM OF DEDUCTION TO THE FILE OF ASSESSING OFFICER FOR GRANTING DEDUCTION U/S 80IA(4) OF THE ACT. ASSESSING OFFICER VIDE ORDER DATED 04.04.2013 HAS DETERMINED THE SAME INCOME A FTER REJECTING THE CLAIM AGAIN. THE ASSESSEE AGAIN FILED AN APPEAL BEFORE THE LD. CIT(A), WHO ALLOWED THE APPEAL FILED BY THE ASSESSEE. THE DEPARTMENT HAS COME UP IN APPEAL BEFORE THE ITAT IN ITA NO.1631/HYD/2013 AND THE TRIBUNAL CONFIRMED THE ORDER OF TH E LD. CIT(A). IN THE CONSEQUENTIAL ORDER PASSED, GRANTING DEDUCTION U/S 80IA(4), THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME AT RS. 14,71,59,570/ - I.E., LESS THAN THE RETURN ED INCOME. CONSEQUENT TO THE RECEIPT OF SOME INFORMATION THAT ONE MR. PRAVE EN AGARWAL OF KOLKATA HAD FLOATED SOME 250 COMPANIES WHICH C A ME TO THE KNOWLEDGE OF DIRECTORATE OF INCOME TAX (INVESTIGATION), KOLKATA IN SEARCH AND SEIZURE OPERATION CONDUCTED ON 12.12.2012 AND ON THE BASIS OF THE REPORT OF SUCH INVESTIGATION, ASSESSING OFFICER REOPENED THE ASSESSMENT U/S 147 BY ISSUING A NOTICE U/S 148 DATED 26.03.2014. THE REOPENING IS WITH REFERENCE TO AN AMOUNT OF RS. 72 LAKHS CLAIMED TO HAVE BEEN PAID TO M/S. TUTICORIN TREXIM PVT LTD., KO LKATA. IT WAS THE SUBMISSION OF THE ASSSESSEE THAT THE SAID COMPANY HAS UNDERTAKEN THE SUB - CONTRACT WORKS AND ALL THE PAYMENTS ARE MADE THROUGH CHEQUES AND TDS WAS ALSO MADE AND SO THAT CANNOT BE CONSIDERED AS BOGUS. IT WAS ALSO FURTHER CONTENDED THAT AS SESSING OFFICER IN THE ORIGINAL ASSESSMENT HAS NOT CONSIDERED THE ASSESSEES PROFIT & LOSS ACCOUNT AND REJECTED THE BOOKS OF ACCOUNT. SINCE INCOME WAS ESTIMATED ON GROSS TURNOVERS QUESTION OF DISALLOWANCE OF SUB - CONTRACT PAYMENTS DOES NOT ARISE . ASSESSING OFFICER HOWEVER DID NOT AGREE AND, ON THE BASIS OF THE REPORT WITHOUT GIVING ANY CROSS EXAMINATION TO THE ASSESSEEE, 3 DISALLOWED THE AMOUNT OF RS. 72 LAKHS , STATED TO HAVE BEEN CLAIMED AS SUB - CONTRACT WORKS. 3. IN APPEAL BEFORE THE LD CIT(A), ASSESSEE REIT ERATED THE SUBMISSIONS THAT REOPENING IS BAD IN LAW AND THE PAYMENTS MADE TO M/S. TUTICORIN TREXIM PVT. LTD., KOLKATA ARE GENUINE AND NO DISALLOWANCE IS WARRANTED AS THE INCOME WAS ESTIMATED IN THE ORIGINAL ASSESSMENT WHICH WAS SUBJECT MATTER OF APPEAL ALS O. 3.1. LD CIT (A) HOWEVER IN THE IMPUGNED ORDER DID NOT AGREE WITH THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER STATING THAT THE SAID EXPENDITURE WAS NOT GENUINE AND THE ASSESSEE HAS FAILED TO PROVE THAT M/S. TUTICORIN TREXIM PVT LTD., HA S EXECUTED WORKS FOR THE ASSESSEEE, HENCE THE PRESENT APPEAL. 4. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 2. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN INITIATING THE PROCEEDINGS U/S 147 OF THE I.T. ACT BY ISSUE OF NOTICE U/S 148 OF THE I.T. ACT. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICE IN MAKING ADDITION OF RS. 72 LAKHS BEING THE AMOUNT PAID TO TUTICORIN TREXIM PVT. LTD., TOWARDS CONSULTANCY CHARGES. THE LD. CIT(A) OUGHT TO HAVE CONS IDERED THE FACT THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T. ACT AND THE INCOME WAS DETERMINED ON ESTIMATE BASIS REJECTING THE BOOKS OF ACCOUNT. 4. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT WHEN THE INCOME WAS ESTIMATED BY REJECTING THE B OOKS OF ACCOUNT, THE ASSESSING OFFICER IS NOT CORRECT IN MAKING FURTHER ADDITION BY DISALLOWING PART OF THE EXPENDITURE. 5. IT WAS THE CONTENTION OF LD COUNSEL FOR THE ASSESSEE THAT REOPENING OF ASSESSMENT, WHICH IS ALSO SUBJECT MATTER OF APPEAL TWICE BEFORE THE ITAT, WAS NOT CORRECT AND FURTHER SINCE THE ASSESSEES BOOKS OF ACCOUNTS ARE REJECTED AND INCOME IS ESTIMATED ON CONTRACT WORKS, QUESTION OF DISALLOWANCE DOES NOT ARISE. 4 6. LD DEPARTMENTAL REPRESENTATIVE IN RETURN SUBMITTED THAT ESTIMATION OF S UB - CONTRACT WORK DOES NOT APPLY SINCE THE SUB - CONTRACT ITSELF IS FOUND TO BE BOGUS. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL PLACED ON RECORD. ON THE BASIS OF RE PORT OF THE INVESTIGATION UNIT, IT CANNOT BE STATED THAT ALL THE COMPANIES FLOATED BY MR. PRAVEEN AGARWAL OF KOLKATA ARE TO BE CONSIDERED AS BOGUS UNLESS TRANSACTIONS ARE EXAMINED THOROUGHLY AND PROPER CROSS EXAMINATION WAS PROVIDED AND THEREFORE , THE ORDER OF THE AO WITHOUT EXAMINING THE TRANSACTIONS MERELY RELYING ON THE SO CALLED REPORT CANNOT BE UPHELD. BE THAT AS IT MAY, THE ISSUE WILL ARISE , IF THE ASSESSSEES BOOKS ARE ACCEPTED BY THE AO IN THE ORIGINAL ASSESSMENT. AS SEEN FROM THE ORIGINAL ASSESSMENT ORDER , THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT AND CLAIM OF EXPENDITURE AND ESTIMATED THE INCOME AT 12.5% ON THE CONTRACTS EXECUTED BY THE ASSESSEE AND 7.5% ON THE CONTRACTS STATED TO HAVE BEEN EXECUTED THROUGH SUB - CONTRACTS. S INCE ALL THE RECEIPTS ARE CONSIDERED AND INCOME WERE ESTIMATED, DISALLOWANCE OF INDIVIDUAL ITEMS OF EXPENDITURE DOES NOT ARISE ON THE FACTS OF THE CASE. FOR THAT REASON ALONE , THERE IS NO NEED TO MAKE ANY ADDITION OF RS. 72 LAKHS BEING ONE OF THE SUB - CONT RACT PAYMENTS MADE TO M/S. TUTICORIN TREXIM PVT. LTD. THEREFORE, WITHOUT GOING INTO MERITS WHETHER THE ADDITION IS WARRANTED OR NOT ON THE BASIS OF THE INVESTIGATION, THE ADDITION PER SE DOES NOT ARISE IN THIS CASE AS THE BOOKS OF ACCOUNT ARE REJECTED AND INCOMES WERE ESTIMATED. IT IS TO BE NOTED THAT AFTER DOING THE SCRUTINY AND NOT ACCEPTING THE RETURN ED INCOME, REVENUE HAS DONE A FAVOUR TO THE ASSESSEE BY DETERMINING THE TOTAL INCOME LESS THAN THE ADMITTED INCOME OF RS. 16.51 CRS (ROUNDED OF) . WHEN THE INCOMES WERE ASSESSED ON A DIFFERENT PARAMETER, REOPENING OF ASSESSMENT PER SE FOR DISALLOWANCE OF SO CALLED BOGUS CONTRACT EXPENDITURE DOES NOT ARISE AND ACCORDINGLY REOPENING ALSO CAN BE CONSIDERED AS BAD IN LAW. FOR THESE REASONS, WE 5 DO FIN D MERIT IN THE ASSESSEES GROUNDS OF APPEAL AND ACCORDINGLY THEY ARE ALLOWED. AO IS DIRECTED TO DELETE THE ADDITION SO MADE. 8. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 T H JANUARY, 2018. S D / - S D / - (SMT. P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 2 5 T H JANUARY, 2018 OKK, SR.PS COPY TO 1. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO.9, HIMAYAT NAGAR, HYDERABAD - 500 029. 2. ACIT, CIRCLE 2(1), SIGNATURE TOWERS, OPP: BOTANICAL GARDEN, KONDAPUR, HYDERABAD. 3. CIT (A) - 2 , HYDERABAD. 4. PR. CIT - 2 , HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE