DNR Constructions, Ananthapur, Hyderabad V. ITO, Ward-2, Ananthapur, Anantapur

ITA 817/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6152 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation
• Section: 44AD; 142(1); 234B; 133(6); 147; 148; 144

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 817/HYD/2015 ASSESSMENT YEAR: 2007-08 DNR CONSTRUCTIONS, ANANTAPUR. PAN AADFD 7757J VS. INCOME-TAX OFFICER, WARD 2, ANANTAPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI B. KURMI NAIDU DATE OF HEARING : 05-01-2016 DATE OF PRONOUNCEMENT : 22-01-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF CIT(A), KURNOOL, DATED 09/03/2015, FOR THE AY 200 7-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS. FOR AY 2007-08, IT FILED RETURN OF INCOME OF RS. 96,090/- ON 31/10/2007, WHI CH WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (IN SHORT A CT) ON 26/03/2009 AND A REFUND OF RS. 2,70,067/- WAS ISSUED. THE AO, THEREAFTER, ISSUED A NOTICE U/S 148 OF THE ACT AFTER A PERIOD OF FOUR YEARS. THE ASSESSEE FILED A LETTER REQUESTING THE AO TO TREAT THE RETUR N OF INCOME ALREADY FILED AS THE RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. THE AO PASSED ORDER U/S 144 R.W.S. 147 DETERMINING THE INCOME AT RS. 58,05,610/- BY DISALLOWING AS UNDER: A) DIESEL AND LUBRICANT EXPENSES RS. 56,94,518 B) PENALTY FOR SHORT SUPPLY OF MATERIAL RS. 15,000 TOTAL RS.57,09,518/- 2 ITA NO. 817 /HYD/2015 DNR CONSTRUCTIONS 2.1 THE DETAILS OF THE ISSUE ARE THAT THE ASSESSEE RECEIVED RS. 47,86,361/- FROM SOUTH CENTRAL RAILWAYS, GUNTAKAL T OWARDS CONTRACT RECEIPTS. IT ALSO RECEIVED RS.1,47,58,896/- FROM SR I SAI SREENIVASA CONSTRUCTIONS PVT. LTD. TOWARDS CONTRACT WORKS. SRI SAI SREENIVASA CONSTRUCTIONS PVT. LTD. BEING THE PRINCIPAL CONTRAC TOR DETERMINED THE GROSS AMOUNT PAYABLE TO ASSESSEE AT RS.1,47,58,896/ - AND THE RECOVERIES OF RS.54,96,518/- WERE REDUCED TOWARDS D IESEL AND LUBRICANTS. 2.2 THIS AMOUNT OF RS.54,96,518/- TOWARDS DIESEL A ND LUBRICANTS WAS DEBITED TO PROFIT AND LOSS ACCOUNT BY THE ASSES SEE. 2.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER HAS ISSUED NOTICE U/S. 133(6) TO SRI SAI SR EENIVASA CONSTRUCTIONS PVT.LTD. AND ALSO TO SOUTH CENTRAL RA ILWAY GUNTAKAL CALLING FOR DETAILS ON THE RECOVERIES MADE FROM THE BILLS. 2.4 SRI SAI SREENIVASA CONSTRUCTIONS CONFIRMED RECO VERY OF RS.56,94,518/- TOWARDS DIESEL AND LUBRICANTS 2.5 THE ASSESSING OFFICER CALLED FOR THE DETAILS O F - (I) NATURE OF WORK CARRIED OUT BY THE ASSESSEE. (II) COPY OF THE AGREEMENTS IF ANY BETWEEN THE ASS ESSEE AND SRI SAI SREENIVASA CONSTRUCTIONS. . (III) COPIES OF PURCHASE INVOICES FOR DIESEL AND L UBRICANTS. HOWEVER, DESPITE REPEATED OPPORTUNITIES NO INFORMA TION WAS SUBMITTED BY SRI SAI SREENIVASA CONSTRUCTIONS. 2.6 THE ASSESSING OFFICER THROUGH HIS NOTICE U/S. 142(1) CALLED FOR (I) BOOKS OF ACCOUNTS FOR F.Y.2006-07 (II) BASIS FOR CLAIMING DIESEL AND OIL CHARGES AT RS.56,94,518/- ALONG WITH THE EVIDENCES FOR THE SAME. 3 ITA NO. 817 /HYD/2015 DNR CONSTRUCTIONS 2.7 THE ASSESSEE VIDE LETTER DATED 07.12.2012 DURIN G ASSESSMENT PROCEEDINGS SUBMITTED AS UNDER: '2. BASIS FOR CLAIMING DIESEL OIL & OTHER RECOVERI ES OF RS.56.94IAKHS : OUR FIRM CARRIED OUT WORK RELATING TO DIGGING OF E ARTH AND IMPORTING THE HARD SOIL FOR CONSTRUCTION OF EMBANK MENT FOR THE TANKS. NUMBER OF VEHICLES HAVE TO BE USED FOR THIS PURPOSE FOR QUANTITY WISE. WE ENGAGE THE VEHICLE AND WHEN WE R EQUIRE, ON DAILY HIRE BASIS FOR WHICH VEHICLES, MAIN CONTRACT OR WILL SUPPLY THE DIESEL AND LUBRICATE EXPENDITURE. THE COST OF THE DIESEL & LUBRICANTS WILL BE DEDUCTED IN OUR PAYMENTS. THIS EXPENDITURE WAS DEBITED IN OUR P & L ALE. THE VEHICLE HIRE CHA RGES IN THE HEAD ACCOUNT EARTH WORKS EMBANKMENT AND METAL COLL ECTION WITH TRANSPORT CHARGE. 3. BOOKS OF ACCOUNTS. BOOKS OF ACCOUNTS DUE TO THE LOSS INCURRED BY ME, J HAVE SHIFTED MY FAMILY TO HYDERABAD FROM ANANTAPUR TO E ARN MY LIVELIHOOD BY WORKING WITH OTHER CONTRACTORS AS A WORKER. DURING THE TRANSFER, / HAVE MISPLACED BOOKS OF ACCOUNTS, VOUCHERS AND OTHER IMPORTANT PAPERS / DOCUMENTS OF MY OWN AND F IRMS ALSO.' 2.8 AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE EXPENSES TOWARDS DIESEL A ND LUBRICANTS CONSTITUTE 38.6% OF THE GROSS CONTRACT RECEIPTS OF RS.1,47,58,896/- FOR WHICH NO EVIDENCE WAS SUBMITTED EITHER BY THE DEDUC TOR OR BY THE ASSESSEE FIRM. ON THE OTHER HAND THE FIRM BOOKED EX PENDITURE UNDER THE HEAD HIRE OF VEHICLES OF RS.70,230/- ONLY. THER EFORE, IN THE ABSENCE OF ANY EVIDENCE IN SUPPORT OF CLAIM OF EXPE NDITURE TOWARDS DIESEL AND LUBRICANTS EVEN AFTER REPEATED OPPORTUNI TIES SUCH AMOUNT WAS DISALLOWED BY THE AO. 3. AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) AFTER CONSIDERING THE FACTS OF THE CA SE OF ASSESSEE AND EXAMINING THE BOOKS OF ACCOUNT OF SRI SAI SREEN IVASA 4 ITA NO. 817 /HYD/2015 DNR CONSTRUCTIONS CONSTRUCTIONS AND FOLLOWING THE DECISIONS OF ITAT, HYDERABAD HELD AS UNDER: 3.5 KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES O F THE CASE, IN THE ABSENCE OF BOOKS OF ACCOUNTS AND EVIDENCE FOR INCURRING OF EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT THE ASSESSING OFFICER IS DIRECTED TO ESTIMATE THE PROFIT @ 12.5% ON CONTRACT RECEIPT FROM SOUTH CENTRAL RAILWAY AND ESTIMATE TH E PROFIT @ 4% ON SUB-CONTRACT WORKS FROM SRI SAI SREENIVASA CONSTRUCTION PVT. LTD. IT IS SPECIFICALLY TO BE ME NTIONED THAT NO SEPARATE DEDUCTION SHOULD BE ALLOWED TOWARDS REMUN ERATION AND INTEREST PAID TO THE PARTNERS. THE ESTIMATION OF THE INCOME AT THE ABOVE SAID RATES IS CLEAR OF ALL THE EXPENS ES AND ALL OTHER EXPENSES INCLUDING THE DEPRECIATION IF ANY, IS DEE MED TO HAVE BEEN ALLOWED. ACCORDINGLY, THE AO IS DIRECTED TO E STIMATE THE INCOME. 4. AS REGARDS THE DISALLOWANCE OF RS. 15,000/-, THE CIT(A) ALLOWED THE SAME. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E-TAX (APPEALS) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE A PPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN DIRECTING THE ASSESSING OFFICER TO ESTIMATE THE INCOME AT 12 .5% ON THE RECEIPTS FROM OWN CONTRACTS AND PROFIT AT 4% ON THE SUB-CONTRACT RECEIPTS. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE CONTRACT WORKS UNDERTAKEN BY THE APPELLANT IS FOR THE GOVERNMENT ORGANIZATION WHEREIN THE PROFIT MARGIN WOULD BE LE SS. EVEN IN THE CASE OF SUB CONTRACT WORKS, THE ESTIMATION OF PROFIT AT 4% IS EXCESSIVE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN HOLDING THAT THE DEPARTMENTAL RECOVERIES ARE NOT DEDUCTIBL E WHILE ESTIMATING THE INCOME FROM CONTRACTS. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN HOLDING THAT DEDUCTION U/S 40(B) IS NOT ALLOWABLE FROM THE INCOME ESTIMATED. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING LEVY OF INTEREST U/S 234A AND U/S 234B OF THE IT. ACT. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL UNIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% O N THE SUB- CONTRACT DEPENDING UPON THE FACTUAL SITUATION. FOR THESE SUBMISSIONS, HE RELIED ON THE DECISION OF THE COORDINATE BENCH O F THIS TRIBUNAL IN 5 ITA NO. 817 /HYD/2015 DNR CONSTRUCTIONS CASE OF M/S E. ESWARA REDDY & CO. IN ITA NO. 668/HY D/2009 AND OTHERS VIDE ORDER DATED 31 ST JANUARY, 2011. A COPY OF THE SAID ORDER HAS BEEN PLACED ON RECORD. HE SUBMITTED THAT MAIN C ONTRACT MAY BE ESTIMATED @ 8% INSTEAD OF 12.5% AND ALSO SUBMITTED THAT THE SUB- CONTRACT ESTIMATION MAY BE RETAINED AS PER CIT(A), WHICH IS FAVOURABLE TO ASSESSEE. 7. THE LD. DR, ON THE OTHER HAND RELIED ON THE ORDE RS OF REVENUE AUTHORITIES AND SUBMITTED THAT THE ESTIMATION SHOUL D BE ADOPTED BASED ON THE JUDICIAL PRONOUNCEMENTS OF THIS TRIBUN AL AT 8% AND 5% ON MAIN CONTRACT AND SUB-CONTRACT RESPECTIVELY. 8. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD. SO FAR AS THE FIRST ISSUE WITH REGARD TO THE RATE OF PROFIT IN ESTIMATING THE INCOME OF THE ASSESSEE IS CONCERNED, THE CIT (A) IS OF THE VIEW THAT INCOME IN THE CASE OF THE ASSE SSEE HAD TO BE ESTIMATED DUE TO UNVERIFIABLE NATURE OF EXPENDITURE CLAIMED W HICH DOES NOT GIVE THE CORRECT BOOK RESULTS. THE ASSESSEE MORE OR LESS HA D ALSO ACCEPTED THE ESTIMATION OF PROFIT. HOWEVER, THE DISPUTE IS WITH REGARD TO THE RATE AT WHICH THE PROFIT IS TO BE ESTIMATED. WE FIND THAT, IN A RECENT DECISION, THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN C ASE OF ACIT V/S. M/S TEJA CONSTRUCTIONS (ITA NO.1191/HYD/2011 DATED 17-2 -2012 DIRECTED TO ESTIMATE PROFIT IN THE CASE OF DIFFERENT CATEGORI ES OF CONTRACTS BY OBSERVING IN THE FOLLOWING MANNER:- HOWEVER, THE ISSUE IS COVERED BY THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE FOR T HE EARLIER YEAR. FOR THAT YEAR THE INCOME-TAX APPELLATE TRIBUNAL HAS ESTIMATED THE PROFITS OF THE ASSESSEE @9% ON OWN CONTRACT WORKS, 8% ON CONTRACTS TAKEN BY THE ASSESSEE ON SUBCONTRACTS AND @ 5% ON C ONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUB-CONTRACTS. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINAT E BENCH, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT FROM MAIN CONTRACT WORK AT 8% AND ON SUB-CONTRACT WORK AT 5% OF THE RECEIPTS. IN VI EW OF THE ABOVE, GROUND NO. 2 IS PARTLY ALLOWED. 6 ITA NO. 817 /HYD/2015 DNR CONSTRUCTIONS 9. SO FAR AS THE SECOND ISSUE WHICH RELATES TO DEDUCTION TOWARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IS CONCERNED, IT IS SEEN THAT THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN T HE CASE OF M/S C. ESWARA REDDY V/S. CIT (SUPRA) AFTER CONSIDERING TH E DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTION V/S. CIT (SUPRA) AS WELL AS THE PROVISION CONTAINED U/S 44AD OF THE ACT, DIRECTED FOR ALLOWING DEDUCTION TOWARDS INTEREST AND REMUNERATIO N PAYMENT TO PARTNERS AFTER ESTIMATION OF INCOME BY REJECTING BOOKS OF AC COUNTS IN CASE OF A FIRM ENGAGED IN EXECUTING CONTRACT WORK. EVEN THEREAFTE R IN A SERIES OF DECISIONS, THIS BENCH OF THE TRIBUNAL HAS CONSISTE NTLY HELD A VIEW THAT DEDUCTION TOWARDS INTEREST AND REMUNERATION PAYMENT TO PARTNERS IS TO BE ALLOWED FROM PROFIT ESTIMATED AFTER REJECTING BOOKS OF ACCOUNT IN CASE OF A FIRM ENGAGED IN THE BUSINESS OF WORKS CONTRACT. I N THE AFORESAID VIEW OF THE MATTER, WE DIRECT THE AO TO ALLOW DEDUCTION TOWARDS PAYMENT OF INTEREST AND REMUNERATION TO THE PARTNERS AFTER EST IMATING THE PROFIT. ACCORDINGLY, GROUND NOS. 3 & 4 ARE ALLOWED. 10. AS REGARDS GROUND NO. 5 REGARDING CHARGING OF I NTEREST U/S 234A & 234B IS CONSEQUENTIAL IN NATURE, THEREFORE, IT IS DIRECTED THAT THESE INTERESTS SHALL BE REVISED ON THE BASIS OF LI ABILITY COMPUTED AS PER THIS ORDER. THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY , 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 22 ND JANUARY, 2016 KV 7 ITA NO. 817 /HYD/2015 DNR CONSTRUCTIONS COPY TO:- 1) DNR CONSTRUCTIONS, C/O SRI S. RAMA RAO, ADV OCATE, FLAT NO. 102, SHRIYAS ELEGANCE, H. NO. 3- 6-643, ST. NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029 2) ITO, WRD 2, ANANTHAPUR 3 CIT(A), KURNOOL 4) CIT, KURNOOL 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD.