Asst.CIT., Circle-4(1), Hyderabad V. M/s Air Control Engineers, Hyderabad

ITA 863/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77950 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 863/HYD/2013 ASSESSMENT YEAR 2009-10 THE ASST. CIT CIRCLE-4(1) HYDERABAD VS. M/S. AIR CONTROL ENGINEERS, HYDERABAD PAN: AAHFA0640E APPELLANT RESPONDENT APPELLANT BY: SRI SOLGY JOSE T. KOTTARAM RESPONDENT BY: SRI S . RAMA RAO DATE OF HEARING: 2 6 .06.2014 DATE OF PRONOUNCEMENT: 30 .06.2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 15.02.2013 F OR ASSESSMENT YEAR 2009-10. 2. FOR THE A.Y. 2009-10, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.9.2009 ADMITTING TOTAL INCOME OF RS. 38,64,840. ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED DETERMINING THE TOTAL INCOME AT RS. 70,78 ,460 BY MAKING AN ADDITION OF RS. 32,13,620. 3. BRIEF FACTS LEADING TO THE ONLY ADDITION IN THE CAS E ARE THAT THE ASSESSEE , ENGAGED IN THE BUSINESS OF TRADING IN AIR CONDITIONERS (ACS) AND MAINTENANCE/SERVICING OF ACS, FILED ITS RETURN OF INCOME ADMITTING INCOME OF RS. 38,64,840/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED FOR BIFURC ATION OF THE RECEIPTS FROM TRADING IN ACS AND MAINTENANCE/ 2 ITA NO. 863/HYD/2013 M/S. AIR CONTROL ENGINEERS ==================== SERVICING OF ACS. FROM THE INFORMATION SO PRODUCED THE ASSESSING OFFICER OBSERVING THAT THE GROSS PROFIT R ATIO ADMITTED WAS LOW AT 6.6%, PROCEEDED TO VERIFY THE R ESULTS ADMITTED WITH REFERENCE TO BOOKS OF ACCOUNTS AND EXPENSES CLAIMED. IN THE PROCESS THE ASSESSING OFFI CER COMMENTED AS FOLLOWS: 'ON OBSERVATION OF MONTH-WISE ANALYSIS ALSO, IT HAS BEEN FOUND THAT IN THE MONTH OF MARCH HIGH EXPENDITURE AND PURCHASES HAVE BEEN MADE WHEREAS RECEIPTS ARE HIGH IN THE MONTH OF FEBRUARY AND MARCH. FURTHER, IT HAS BEEN FOUND THAT ON 31.03.2009, THERE IS ONLY SIX PURCHASE BILLS HAVE BEEN RAISED AND A FEW NUMBER OF ANCILLARY PURCHASE BILLS WERE RAISED WHEREAS MORE THAN 200 WORK EXPENSES BILLS HAVE BEEN RAISED BY THE ASSESSEE ON A SINGLE DAY, I.E., 31.03.2009 WHICH IS NOT COMMENSURATE WITH ITS CONSUMPTION OF MATERIAL. MOREOVER, THE RAISED NUMBER OF BILLS AND AMOUNT IS ALSO VERY HIGH WHEN COMPARED WITH OTHER DATES OF MARCH MONTH AND OTHER DATES OF OTHER MONTHS. ON OBSERVATION OF THESE WORK BILLS, IT CAME TO NOTICE THAT THE DEBITED / PRODUCED BILLS ARE HAVING QUOTATION BILLS ALSO. MOREOVER, ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1,24,01,835/- UNDER THE WORK EXPENSES HEAD BUT TDS MADE ON THE AMOUNT TO RS. 1,06,75,631/-. FOR THE REMAINING EXPENDITURE, ASSESSEE EXPLAINED THAT THE EXPENDITURE INCURRED IS BELOW THE TDS LIMITS. ON OVERALL OBSERVATION, IT CAN BE CONCLUDED THAT HE HAS INFLATED THE EXPENDITURE IN THE MONTH OF MARCH AND ON THE WHOLE YEAR. PARTICULARLY THE WORK EXPENSES ARE RELATED TO HIS OWN WORKS RATHER THAN THE FRANCHISE WORK, SINCE THE SERVICE RECEIPT PORTION IS HIGHER IN HIS OWN WORK RATHER THAN THE FRANCHISE WORK I.E. TRADING AND MAINTENANCE OF AIR CONDITIONERS. IN VIEW OF THE ABOVE DISCREPANCIES FOUND IN THE WORK EXPENSES AND DISPROPORTIONATE PURCHASE OF AIR CONDITIONS AND ANCILLARIES, AN AMOUNT OF RS. 24,80,367/- WHICH IS 20% ON WORK 3 ITA NO. 863/HYD/2013 M/S. AIR CONTROL ENGINEERS ==================== EXPENSES (RS. 1,24,01.835) AND RS. 7,33,253/- WHICH IS 2% ON ANCILLARY MATERIAL PURCHASES (RS. 3,66,62,677) HAS BEEN DISALLOWED INCLUDING CONSIDERING THE NON TDS AMOUNT OF WORK EXPENSES AND LOW PROFIT RATIO' 4. ACCORDINGLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 32,13,620 TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A) THE ASSESSEE FURNISHED ISSUE-WISE EXPLANATIONS ON THE OBSERVATIONS MADE BY THE ASSESS ING OFFICER IN THE ASSESSMENT WHICH ARE AS UNDER: 1. NON TDS AMOUNT - TDS ON WORK EXPENSES WAS DUE TO THE AMOUNTS BEING BELOW THE LIMITS OF ATTRACTING TDS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS WE HAVE PRODUCED ALL THE VOUCHERS AND FURNISHED RELEVANT INFORMATION. 2. LOW PROFIT RATIO - THE AO IN THE ASST. ORDER HAS MENTIONED THAT THE PROFIT RATIO IS SHOWN LESS AS 6.6%. AO HAS MENTIONED THAT, THAT PROFIT IS ONLY 6.6% WITHOUT APPRECIATING THE FACT THAT 6.6% IS THE NET PROFIT AND NOT THE GROSS PROFIT. FURTHER, THAT IT IS COMBINED PERCENTAGE FOR TRADING AND CONTRACTUAL WORKS. WE HAVE NOT MAINTAINED SEPARATE ACCOUNTS FOR BOTH. IN FACT AO HAS NOT EVEN STATED WHAT COULD BE THE RATE OF PROFIT IN THIS LINE OF BUSINESS. 3. AO HAS FOUND DISCREPANCY IN WORK EXPENSES BY MAKING A COMMENT THAT 200 WORK EXPENSES BILLS WERE RAISED IN 31.03.2009 AND 4 ITA NO. 863/HYD/2013 M/S. AIR CONTROL ENGINEERS ==================== THAT IT IS NOT COMMENSURATE WITH THE CONSUMPTION OF MATERIAL. IT WAS EXPLAINED THAT THE ACCOUNTS OF THE LABOUR CONTRACTORS WERE SETTLED AT THE END OF THE YEAR TO CLOSE THEIR ACCOUNTS AND AS SUCH ON THE LAST DAY THERE ARE MORE NUMBER OF VOUCHERS. FURTHER THESE VOUCHERS DOES NOT RELATE FOR THE WORKS CARRIED OUT NOT ONLY ON THAT DAY, BUT THEY ALSO BELONGS TO THAT MONTH OR ON THAT PERIOD. IT WAS FURTHER SUBMITTED THAT DURING MARCH THERE ARE SUBSTANTIAL WORKS WERE CARRIED OUT. THE AO HAS NOT APPRECIATED THE FACTS PROPERLY AND FURTHER HAS FAILED TO APPRECIATE THE FACT THAT THE AMOUNT OF 200 VOUCHERS IS ONLY RS. 13,12,054. HOWEVER, THE AO RESORTED TO MAKE ADDITION OF RS. STATING THIS 24,80,367 STATING THIS DISCREPANCY TO BE REASON. 6. THE CIT(A) A FTER CAREFUL CONSIDERATION OF THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AGAINST THE DEFICIENCIES POINTED OUT BY THE ASSESSING OFFICER , HELD THAT HE IS IN CONCURRENCE WITH THE SUBMISSIONS OF THE ASSESSEE . THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD NOT BROUGHT OUT ANY SPECIFIC DEFECTS WITH THE VOUCHERS MAINTAINED BY THE ASSESSEE AND WITHOUT EVEN POINTING OUT TO THE NORMAL PROFIT RATE BEING A DMITTED IN COMPARABLE CASES, DISALLOWED CERTAIN PORTION OF THE EXPENSES CLAIMED. FURTHER, THE CIT(A) POINTED OUT T HAT WHEN THE ASSESSEE SUBMIT TED THAT THESE LABOUR PAYMENTS ARE MUCH BELOW THE APPLICABLE TDS LIMITS, WITHOUT CONTRADICTING SUCH STATEMENT OR WITHOUT BRINGING AN Y FINDING AGAINST SUCH CLAIM, THE ASSESSING OFFICER S HOWS 5 ITA NO. 863/HYD/2013 M/S. AIR CONTROL ENGINEERS ==================== NON-DEDUCTION OF TDS ON SOME LABOUR PAYMENTS AS THE REASON FOR THE DISALLOWANCE. 7. THE CIT(A) FURTHER NOTED THAT T HE REASON BROUGHT OUT BY THE ASSESSING OFFICER ON VERIFICATION OF THE VOU CHERS IS THAT ON A PARTICULAR DAY, I.E., ON 31.03.2009, 200 WORK EXPENDITURE VOUCHERS WERE CLAIMED AND THESE EXPENSE S ARE NOT COMMENSURATE WITH THE PURCHASES / ANCILLARY PURCHASES. THE CIT(A) OBSERVED THAT A S POINTED OUT BY THE ASSESSEE , AS THIS WAS THE CLOSING DAY OF THE YEAR OF ACCOUNT, THERE IS EVERY POSSIBILITY OF SETTLING THE LABOUR PAYMENT ACCOUNTS AND WITHOUT GOING INTO SPECIFIC DE FECTS, THIS FEATURE CANNOT BE DOUBTED BY THE AO. THE CIT(A) HELD THAT WHEN THE EXPENDITURE PERTAINING TO THESE 200 VOUCHERS IS AROUND RS. 13,12,054/-, THERE IS NO POINT IN DOUBTING THE EXPENDITURE, JUST BY GOING BY THE NUMB ER OF VOUCHERS AND WITHOUT CONSIDERING THE QUANTUM INVOLV ED. THE CIT(A) OBSERVED THAT ANY ANALYSIS OF PROFIT RAT IOS SHOULD BE MADE ON SOUND BASIS BY BRINGING INTO ALL THE FACTS RELATED TO THE ASSESSMENT, COMPARABLE CASES, MARKET CONDITIONS AND GENERAL PRACTICES. THE CIT(A) STATE D THAT GOING BY SOME NUMBER OF VOUCHERS AND REFERRING TO N ON- DEDUCTION OF TDS ON EXPENSES WHERE THERE IS NO NEED TO DEDUCT SO, THE ASSESSING OFFICER HAD TAKEN A CONTRA CTED VIEW OF THE RESULTS ADMITTED BY THE ASSESSEE . THE CIT(A) HELD THAT S UCH FINDINGS, IN ANY WAY, ARE NOT TENABLE AND HE WAS NOT INCLINED TO ACCEPT THE DISALLOWANCE MADE. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO DELETE THE DIS ALLOWANCE OF RS. 32,13,620. AGGRIEVED, THE DEPARTMENT IS IN APP EAL BEFORE US. 8. THE LEARNED DR RELIED ON THE ORDER OF THE A.O. 6 ITA NO. 863/HYD/2013 M/S. AIR CONTROL ENGINEERS ==================== 9. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. 10. WE HAVE HEARD BOTH THE PARTIES. WE HAVE GONE THROUGH THE RECORDS AND COPY OF ACCOUNTS AT PAGES 1 4 TO 64 OF THE PAPER BOOK FILED BEFORE US. IT HAS BEEN STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT SUBSTA NTIAL WORKS WERE CARRIED OUT IN MARCH. IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT ACCOUNTS OF THE LABOUR CONTRAC TORS WERE SETTLED AT THE END OF THE YEAR IN ORDER TO CLO SE THEIR ACCOUNTS AND HENCE THE DISCREPANCY FOUND OUT BY THE AO IN WORK EXPENSES ARE NOT JUSTIFIED. IT IS NOT THE CASE OF THE DEPARTMENT THAT EXPENSES ARE RELATED TO NON-BUS INESS ACTIVITY. THE AO FURTHER SHOULD HAVE NOTED THAT NO N- DEDUCTION OF TDS ON WORK EXPENSES WAS DUE TO THE AMOUNTS BEING BELOW THE LIMIT FOR ATTRACTING TDS. HENCE, WE ARE OF THE OPINION THAT THE ADDITION OF AN AMOUN T OF RS. 32,13,620 MADE BY THE AO TO THE INCOME RETURNED IS NOT JUSTIFIED. WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE REVENUE'S APPEAL. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 30 TH JUNE, 2014 TPRAO 7 ITA NO. 863/HYD/2013 M/S. AIR CONTROL ENGINEERS ==================== COPY TO: 1. THE ASST. CIT, CIRCLE - 4(1), 5 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. AIR CONTROL ENGINEERS, 1 - 2 - 412/4/B, H. NO. 95, NEAR POST OFFICE, GAGAN MAHAL, HYDERABAD. 3. THE CIT(A) - V , HYDERABAD. 4. THE CIT - I V , HYDERABAD. 5. THE DR, B - BENCH, ITAT, HYDERABAD.