Dy.CIT, Circle-1(1), Hyderabad V. M/s Advik Builders & Consultants Privsate Limited, Hyderabad

ITA 861/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6228 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2014
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: B SATYANARAYANA MURTY

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 861/HYD/2014 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD VS M/S. ADVIK BUILDERS & CONSULTANTS PVT. LTD., HYDERABAD [PAN: AAECA3793K] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI P. SOMASEKHAR REDDY, DR FOR ASSESSEE : SHRI B. SATYANARAYANA MURTY, AR DATE OF HEARING : 12-09-2016 DATE OF PRONOUNCEMENT : 21-09-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-II, HYDERAB AD, DATED 20-02-2014. REVENUE HAS RAISED THE FOLLOWING GROUN DS IN THIS APPEAL: 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE AOS AD DITION WITH REGARD TO THE BOGUS CREDITORS. 3. THE CIT(A) ERRED IN IGNORING THE REMAND REPORT O F THE AO WITH REGARD TO THE DENIALS OF CREDITORS AND SUB-CONTRACT ORS. 4. THE CIT(A) ERRED IN ARRIVING AT THE CONCLUSION O F ASSESSING HIGH PERCENTAGE OF PROFITS. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE. I.T.A. NO. 861/HYD/2014 M/S. ADVIK BUILDERS & CONSULTANTS PVT LTD., :- 2 -: 2. BRIEFLY STATED, ASSESSEE IS A CIVIL CONTRACTOR AND H AS OFFERED TOTAL INCOME OF RS. 99,67,280/- ON GROSS RECEIPTS OF R S. 19.88 CRORES. ASSESSING OFFICER (AO) IN THE COURSE OF SCR UTINY HAS MADE VARIOUS ENQUIRIES MOSTLY WITH REFERENCE TO OUTSTANDING CREDITS IN THE BALANCE SHEET AND ARRIVED AT A CONCLUSION THAT ASS ESSEE CANNOT HAVE THAT MANY CREDITS EQUIVALENT TO THE EXPENDITUR E CLAIM AND FURTHER THOSE CREDITORS HAVE DENIED ANY BUSINESS A CTIVITY WITH ASSESSEE. ACCORDINGLY, BY MAKING VARIOUS DISALLOWA NCES INCLUDING MORE THAN 90% OF THE EXPENDITURE CLAIMED UNDER THE HEAD MATERIAL PURCHASES AND DIRECT EXPENSES, THE TOTAL I NCOME OF ASSESSEE WAS DETERMINED AT RS. 18,80,60,122/-. LD. CIT(A) BY NOTING THE REASONS OF THE AO DISALLOWING 90% OF THE EX PENSES IN PARA 3, CONSIDERED THE SUBMISSIONS OF ASSESSEE IN THE ORDER AND FINALLY GAVE RELIEF STATING AS UNDER: 4.3. ADMITTEDLY THE BOOKS OF ACCOUNTS ARE NOT PRO PERLY MAINTAINED BY THE ASSESSEE. NO VOUCHERS FOR EXPENS ES COULD BE PRODUCED DURING ASSESSMENT PROCEEDINGS. THE REASON S GIVEN WERE THAT THE ACCOUNTANT WHO WAS LOOKING AFTER PURCHASES AND PAYMENTS HAD LEFT THE JOB. IN ANY CASE, THE INCOME ADMITTED WAS RS. 99,67,280/- AND THE ASSESSEE HAD ADMITTED THE ADDIT IONAL INCOME OF RS. 5,95,31,478/- AS NO TDS WAS DEDUCTED ON SUB- CONTRACT PAYMENTS (CONTRACT OBTAINED FROM GKC PROJECTS). HE NCE, THE TOTAL INCOME OFFERED TO TAX IS RS. 99,67,280/- + 5,95,31, 478/- WHICH WORKS OUT TO 34.96% WHICH IS VERY REASONABLE IN THE BUSINESS OF CIVIL CONSTRUCTION. EVEN IN CASES WHERE THE BOOKS OF ACCOUNT WERE REJECTED THE PERCENTAGE OF PROFITS ESTIMATED IN THI S LINE OF ACTIVITY VARY FROM 8 TO 12%. IN THE CASE OF TEJA CONSTRUCTI ONS VS. ACIT, 129 TTJ 0057 ITAT, HYDERABAD, THE AO WAS DIRECTED TO E STIMATE ASSESSEES INCOME @9% - IF CONTRACT IS DIRECTLY EXE CUTED, @8% - IF CONTRACT IS SUB-CONTRACTED OUT AND 4% - IF SUB-CONT RACT WORK IS EXECUTED. MOREOVER, TO ESTIMATE THE INCOME OF THE ASSESSEE AT 94.60% OF GROSS RECEIPTS IS COMPLETELY UNFAIR AND U NREASONABLE. IT IS PERTINENT TO MENTION HERE THAT THE AO FOR THE SU BSEQUENT ASSESSMENT YEAR 2010-11 HAD ESTIMATED THE PROFIT AT 7.5% OF THE GROSS RECEIPTS. FURTHER, THE HON'BLE ITAT, A.P. IN THE CASE OF M/S. TIRUMALA EARTH MOVERS VS. JCIT, ITA NO. 712/HYD/200 9 AY. 2006- 07 AND ALSO IN THE CASE OF M/S. C. ESWAR REDDY AND CO. VS. ACIT, I.T.A. NO. 861/HYD/2014 M/S. ADVIK BUILDERS & CONSULTANTS PVT LTD., :- 3 -: ITA NO. 668 & 670/HYD/2009 AYS. 2003-04 & 2004-05 H ELD THAT DEPENDING ON THE FACTS AND CIRCUMSTANCES OF EACH CA SE THE TRIBUNAL HAS BEEN ADOPTING THE PROFIT FROM 8 TO 12.5% IN THE CASE OF MAIN CONTRACT AND 5 TO 7% IN THE CASE OF SUB-CONTRACT. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 1 1,85,61,634/- IS DELETED. REVENUE IS AGGRIEVED. 3. LD. CIT-DR SUBMITTED THAT AO HAS NOT REJECTED THE BO OKS OF ACCOUNT AND THEREFORE THE DISALLOWANCE OF EXPENDITURE C LAIMED IS PROPER. IT IS NOT CORRECT ON THE PART OF THE LD. CIT(A) TO REJECT THE BOOKS OF ACCOUNT AND DELETE THE ADDITION BY RESORTING T O COMPARISON OF THE ULTIMATE PROFIT WORKED OUT. IT WAS SUB MITTED THAT THE AMOUNT OF RS. 5,95,31,478/- DISALLOWED IS NOT A GP ADDITION BUT A DISALLOWANCE U/S. 40(A)(IA), THEREFORE , TAKING THAT AMOUNT FOR GP COMPUTATION IS NOT CORRECT. IT WAS SUBMITTED THAT ORDER OF AO MAY BE RESTORED. 4. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS DONE SUB-CON TRACT WORKS IN TWO CONTRACTS AND AS A MAIN CONTRACTOR IN TW O OF THE PROJECTS WHICH WERE VERIFIED BY THE INSPECTORS OF THE D EPARTMENT IN THE COURSE OF REMAND PROCEEDINGS AND THERE WAS EVIDEN CE THAT ASSESSEE HAS EXECUTED THE PROJECTS. SINCE THE EMPLOYEE S HAVE RESIGNED AND LEFT THE COMPANY, THE BOOKS OF ACCOUNT C OULD NOT BE SUPPORTED BY THE VARIOUS BILLS AND VOUCHERS, ACCORDIN GLY ASSESSEE HAS AGREED FOR THE DISALLOWANCE OF THE AMOUNT OF RS. 5,95,31,478/- IT WAS SUBMITTED THAT THE INCOME OFFERED IS MORE THAN RE ASONABLE AND THEREFORE, THE ORDER OF CIT(A) IS TO BE CONFIRMED . I.T.A. NO. 861/HYD/2014 M/S. ADVIK BUILDERS & CONSULTANTS PVT LTD., :- 4 -: 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AO AND CIT(A). WE ARE SURPRISED THAT AO HAD TO RESORT TO DISALLOWANCE OF 90% OF THE EXPENDITURE, WHEN HE HAS NOT ENQUIRED ABOUT ANY EXPENDITURE AS SUCH, BUT ISSUED SUMMONS/LETTERS TO VARIOUS CREDITORS. HE HAS MADE VER IFICATION OF THE BALANCE SHEET ENTRIES AND NOT THE CLAIM OF EXPENDITU RE IN P&L A/C. WHATEVER MAY BE THE FINDINGS OF THE AO IN THE SC RUTINY, IT IS NOT POSSIBLE TO COMPLETE THE PROJECT WITHOUT ANY EXPENDI TURE. THEREFORE, DISALLOWANCE OF 90% OF THE EXPENDITURE CLA IM IS NOT PROPER ON THE PART OF AO. CONSIDERING THAT LD. CIT(A) HAS EXAMINED THESE ISSUES AND TOTAL INCOME DETERMINED IS M ORE THAN THE ESTIMATION OF INCOME IN THE CONTRACTORS CASES BY VAR IOUS DECISIONS OF THE ITAT, WE DO NOT SEE ANY REASON TO IN TERFERE WITH THE ORDER OF LD.CIT(A). ACCORDINGLY, THE GROUNDS RA ISED BY REVENUE ARE REJECTED. 6. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMB ER HYDERABAD, DATED 21 ST SEPTEMBER, 2016 TNMM I.T.A. NO. 861/HYD/2014 M/S. ADVIK BUILDERS & CONSULTANTS PVT LTD., :- 5 -: COPY TO : 1. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD. 2. ADVIK BUILDERS & CONSULTANTS PVT. LTD., 1-7-29/B /13, LEELA NAGAR, AMEERPET, HYDERABAD. 3. CIT(APPEALS)-II, HYDERABAD. 4. CIT-I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.