ITO, Ward-8(1), Hyderabad V. M/s. Sita Associates, Hyderabad

ITA 817/HYD/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7120 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Rejection of books of accounts; Depreciation; Charitable institution
• Section: 143(3); 68; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SHRI CHANDRA POOJARI, AM AND SMT. ASHA VIJAYARAGHAVAN, JM ITA NO.817/HYD/2011 ASSESSMENT YEARS 2006-07 THE ITO, WARD 8(1), HYDERABAD VS. M/S SITA ASSOCIATES, HYDERABAD (PAN: ABAFSO641Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.V. RAO RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 14.11.2011 DATE OF PRONOUNCEMENT : 21.11.2011 O R D E R PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER PASSED BY THE CIT(A) IV, HYDERABAD DATED 15.2.20 11 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. THE ITO DETERMINING THE TOTAL INCOME OF THE ASS ESSEE AT RS.26,67,433/- AS AGAINST THE RETURN OF INCOME OF R S.5.16.121/- U/S 143(3) OF THE IT ACT. 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT U/S 144 REJECTED THE BOOKS OF ACCOUNT AND RESORTED TO ESTIM ATION OF INCOME AT 12.5%. FURTHER, THE ASSESSING OFFICER DISALLOWED T HE SALARY PAID TO THE PARTNERS AFTER ESTIMATING THE INCOME. THE ASSESSIN G OFFICER FURTHER DID NOT ACCEPT THE SUNDRY CREDITS AGGREGATING TO RS.12, 41,141/- AND TREATED THE SAME AS INCOME OF THE ASSESSEE. ITA NO.817/HYD/2011 M/S. SITA ASSOCIATES, HYDERABAD 4. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). 5. THE CIT(A) HELD THAT TAKING INTO ACCOUNT THE NA TURE OF THE CONTRACT THE ESTIMATION OF PROFIT AT 12.5% WITHOUT ANY FURTH ER DEDUCTION AS CLAIMED BY THE ASSESSEE IS ON THE HIGHER SIDE. THE CIT(A) FOLLOWED THE DECISION IN THE CASE OF M/S ARIHANT BUILDERS, DEVEL OPERS & INVESTORS (P) LTD., VS. ACIT (106 ITD 10) WHEREIN THE SPECIAL BEN CH HAD OPINED THAT IN RESPECT OF CONTRACTORS, THE ESTIMATION OF PROFIT, N ET OF ALL OTHER DEDUCTION CAN BE MADE AT 8%. FURTHER, FOLLOWING THE VIEW OF THE HONBLE JURISDICTIONAL HIGH COURT (AP), IN THE CASE OF INDW ELL CONSTRUCTIONS (232 ITR 776), HE HELD THAT NO FURTHER DEDUCTION TOWARDS DEPRECIATION, REMUNERATION AND INTEREST TO PARTNERS SHALL BE ALLO WABLE. ACCORDINGLY, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO RECOMP UTED THE PROFIT AT 8% OF THE GROSS RECEIPTS. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUND: THAT THE ASSESSING OFFICER OUGHT NOT HAVE ESTIMATE D THE INCOME AT 12.5% OF THE GROSS RECEIPTS PARTICULARLY, WHEN THE WORK WAS DONE FOR A CHARITABLE INSTITUTION AND PART OF THE WORK W AS EXECUTED AT BHOPAL FAR AWAY FROM THE PLACE OF ITS BUSINESS ACTI VITY. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI RAMA RAO RELIED ON THE ORDER OF THE CIT(A). WE FIND THAT THE CIT(A) HAS F OLLOWED THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ARIHANT BUILDERS A ND DEVELOPERS (P) LTD., VS. ACIT (106 ITD 10). THE CIT(A) HAS ALSO F OLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F INDWELL CONSTRUCTIONS (SUPRA). WE FIND THAT IN THE CASE OF SREC PROJECT P LTD., IN ITA NO.974 TO 980/HYD/2009 DATED 27.8.2010, THE CO-ORDINATE BENCH OF THE TRIBUNAL, HYDERABAD HAS HELD THAT THE RATE O F PROFIT IS NOT A CONSTANT FIGURE AND THAT IT MAY VARY DEPENDING UPON VARIOUS FACTORS. IT HAS BEEN FURTHER POINTED OUT THAT NO ONE SHOULD EXP ECT THAT THE CONTRACTORS WOULD EARN 12.5% EVERY YEAR AND IT MAY DEPEND ON VARIOUS ITA NO.817/HYD/2011 M/S. SITA ASSOCIATES, HYDERABAD FACTORS VIZ., AVAILABILITY OF LABOURERS, SITUATION IN THE AREA WERE WORK WAS EXECUTED, AVAILABILITY OF RAW MATERIAL, NECESSITY T O COMPLETE THE PROJECT IN A FIXED TIME FRAME, AVAILABILITY OF OWN FUNDS, UTIL ISATION OF THE BORROWED FUNDS, RAW MATERIALS SUPPLIED BY THE GOVT. ETC. TH EY HELD THAT WHILE ESTIMATING THE PROFIT, THESE FACTORS INCLUDING THE PROFIT RATIO OF A SIMILARLY PLACED CONTRACTOR IN THE LOCALITY AND THE ASSESSEE S OWN PROFITS FOR EARLIER YEARS SHOULD BE CONSIDERED. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY SPECIFIC FEATURES OF THE CONTRACT OF THE ASSESS EE WITH M/S NANDI FOUNDATIONS WHILE APPLYING THE RATE OF 12.5%. HENC E WE FIND NO INFIRMITY IN THE ORDERS OF THE CIT(A) IN ESTIMATING THE PROFIT AT 8% OF THE GROSS RECEIPTS. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 8. THE NEXT GROUND RAISED BY THE ASSESSEE BEFORE T HE CIT(A) IS THAT THE ASSESSING OFFICER ERRED IN MAKING ADDITION OF 1 2,41,141/- IN RESPECT OF SUNDRY CREDITORS AND TREATING THE SAME AS UNEXPL AINED CREDITS. 9. AS PER THE ASSESSMENT ORDER, THE ASSESSING OFFI CER HAD REQUIRED THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT OF SUNDR Y CREDITORS SHOWN AT RS.12.41,141/- IN THE BALANCE SHEET. HE NOTED THAT , THE FOLLOWING FOUR CREDITORS HAD BALANCES OUTSTANDING IN EXCESS OF RS. 1 LAKH. I) SRI AKILESH CHOWKSEY(VIMAL), BHOPAL RS.1,55,250 II) SRI SANJAY SINGH, BHOPAL RS.1,22,213 III) M/S SINGH GOODS CARRIER, BHOPAL RS.1,22,577 IV) M/S ROHIT STEEL P LTD., HYDERABAD RS.2,99,389 10. THE ASSESSING OFFICER ALSO PROCEEDED TO VERIFY THE GENUINENESS OF M/S ROHIT STEELS P LTD. WHICH WAS A LOCAL PARTY. F ROM THE LETTER AND THE COPY OF LEDGER OF THE ASSESSEE IN THEIR BOOKS, HE N OTED THAT THERE WAS NO BALANCE OUTSTANDING AS ON 31.3.2006. THE ASSESSING OFFICER ALSO ISSUED LETTERS TO THE OTHER THREE PARTIES FOR CONFIRMATION OF BALANCES. WHILE THE LETTERS ISSUED TO SRI AKILESH CHOWKSEY (VIMAL), BHO PAL AND SRI SANJAY SINGH GOT RETURNED UNSERVED, EVEN M/S SINGH GOODS C ARRIER, BHOPAL DID NOT SEND ANY CONFIRMATION. SINCE THE GENUINENESS O F THE CREDITORS ABOUT ITA NO.817/HYD/2011 M/S. SITA ASSOCIATES, HYDERABAD 1 LAKH WAS NOT PROVED, THE ASSESSING OFFICER REQUIR ED THE ASSESSEE TO PROVE THE GENUINENESS IN RESPECT OF THE ENTIRE CRED ITORS OF RS.12,41,141/-. 11. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER ARGUED THA T THE ASSESSING OFFICER HAD REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED TH E NET INCOME ON CONTRACT RECEIPTS. SINCE THE DEBITS TO PROFIT AND LOSS ACCOUNT WERE NOT ACCEPTED BY THE ASSESSING OFFICER AND HE RESORTED T O ESTIMATION, THE PROVISIONS OF SECTION 68 COULD HAVE NOT BEEN APPLIE D IN RESPECT OF THE SAID SUNDRY CREDITORS. 12. THE CIT(A) HELD THAT HAVING REJECTED THE BOOK RESULTS FOR THE ESTIMATION OF PROFIT, THE ENTRIES IN THE SAME SET O F BOOKS OF ACCOUNTS COULD NOT HAVE BEEN RELIED UPON FOR MAKING FURTHER DISALLOWANCE. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BRIJ BHUSHANLAL PARDUMAN KUMAR (115 ITR 524) WHICH HAD BEEN CONSIDERED IN BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SRI A. VENKATESWARALU AND CO. VS. ITO IN IT A NO.766/HYD/2008. THE CIT(A) THEREFORE RELYING ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF NIRAJ KUMAR AGARWAL VS. ADDL. CIT IN IT A NO.1103/HYD/2007 DATED 27.2.2009 HELD THAT THERE IS NO JUSTIFICATION FOR FURTHER ADDITION, DISBELIEVING THE ENTRIES IN T HE BOOKS OF ACCOUNT WITH REGARD TO SUNDRY CREDITORS, AFTER REJECTION OF BOOK S OF ACCOUNTS AND DELETED THE ADDITION OF RS.12,41,141/-. 13. AGGRIEVED, THE REVENUE RAISED BEFORE US THE FO LLOWING GROUND: THE CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION MA DE BY THE ASSESSING OFFICER IN RESPECT OF CREDITORS, ON THE F ACTS AND CIRCUMSTANCES OF THE CASE, AS THE HONBLE SUPREME C OURT JUDGEMENT IN THE CASE OF BRIJ BHUSHAN PARDUMAN KUMAR ON WHICH THE CIT(A) IS RELIED UPON, IS ENTIRELY DIFFERENT WITH THE PRESENT FACTS OF THE CASE. ITA NO.817/HYD/2011 M/S. SITA ASSOCIATES, HYDERABAD 14. WE HEARD BOTH PARTIES. IN THE CASE OF SRI NIR AJ KUMAR AGARWAL VS. ADDL. CIT IN ITA NO.1103/HYD/2007 DATED 27.2.2009, IT HAS BEEN HELD IN PARA NO. 18 & 19 AS FOLLOWS: 18: IN THE CASE BEFORE US, PROFIT HAS BEEN ESTIMA TED BY THE CIT(A) REJECTING BOOKS OF ACCOUNT MAINTAINED BY THE ASSESS EE, ADOPTING A REASONABLE PERCENTAGE OF THE TOTAL TURNOVER, AND WE HAVE ALSO UPHELD THE ACTION OF THE CIT(A) IN THIS BEHALF. IT IS THE CONTENTION OF THE ASSESSEE BEFORE US THAT HAVING DETERMINED THE I NCOME OF THE ASSESSEE BY REASONABLE ESTIMATION OF NET PROFIT RAT E, THERE IS NO JUSTIFICATION FOR ANY OTHER DISALLOWANCE, WHETHER S TATUTORY OR OTHERWISE, SINCE SUCH ESTIMATION OF INCOME COVERS A LL THE ITEMS OF EXPENSES AND DISALLOWANCE. IN THE CASE OF INDWELL CONSTRUCTIONS V/S CIT (SUPRA) RELIED UPON BY THE LEARNED AUTHORIZ ED REPRESENTATIVE FOR THE ASSESSEE IN SUPPORT OF THIS PROPOSITION, IT HAS BEEN CLEARLY HELD THAT WHERE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED, THE REVENUE CANNOT RELY ON THE SAME BOOKS OF ACCOUNTS FOR ADDITION OF AN EXACT AMOUNT OF EXPENDITURE IN THE P ROFIT AND LOSS ACCOUNT. IT WAS OF THE INCOME THAT IS TO BE COMPUT ED U/S 29 AND IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO U/S 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT, WHILE MAKIN G SUCH AN ESTIMATE. 19. IN THE LIGHT OF THE ABOVE DISCUSSION, RESPECTFU LLY FOLLOWING DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF INDWELL CORPORATION (SUPRA), BESIDES THE SPECIAL BENCH DECI SION OF THIS TRIBUNAL NOTED ABOVE, WE ARE OF THE CONSIDERED OPIN ION THAT THE INCOME OF THE ASSESSEE HAVING BEEN DETERMINED BY RE SORTING TO ESTIMATION, THERE IS NO SCOPE FOR ANY FURTHER DISAL LOWANCE EVEN IN TERMS OF S.40 (A)(IA). WE ACCORDINGLY DELETE THE E NTIRELY DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THIS BEHALF. ITA NO.817/HYD/2011 M/S. SITA ASSOCIATES, HYDERABAD 15. RESPECTFULLY, FOLLOWING THE DECISION OF THE C OORDINATE BENCH OF THE TRIBUNAL, HYDERABAD, WE DISMISS THE GROUND O F APPEAL RAISED BY THE REVENUE ON THIS ISSUE. 16. IN THE RESULT, THE REVENUE APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT 22.11.2011 SD/- SD/- CHANDRA POOJARI ASHA VIJAYARAGHAVAN ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND NOV. 2011 COPY FORWARDED TO: 1. THE ITO, WARD 8(1), HYDERABAD 2. M/S SITA ASSOCIATES, 137/A, KALYAN NAGAR, VENGALARA O NAGAR, HYDERABAD 3. CIT(A)-IV, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP