Shri Bandi Venkata Narayana, Hyderabad V. ITO,Ward - 2, Khammam

ITA 983/HYD/2014

• Counselvise Citation: 98322514 RSA 2014
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Rejection of books of accounts; Depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.983/HYD/2014 ASSESSMENT YEAR 2009-2010 MR. BANDI VENKATANARAYANA, KHAMMAM PAN AJFPB6725P VS. INCOME TAX OFFICER, WARD-2 KHAMMAM (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. M. CHANDRAMOULESWARA RAO FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 12.11.2014 DATE OF PRONOUNCEMENT : 19.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX, VIJAYAWADA UNDER SECTIO N 263 OF THE INCOME TAX ACT DATED 24.03.2014 SETTING ASIDE T HE ORDER PASSED BY A.O. UNDER SECTION 143(3) DATED 02.11.201 1. ASSESSEE HAS RAISED 3 GROUNDS OUT OF WHICH, THE MAT ERIAL GROUND IS ONLY GROUND NO.2 AND OTHER BEING GENERAL. GROUND NO.2 IS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME TAX HAS ERRED IN TRE ATING THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL T O THE INTERESTS OF THE REVENUE FOR NOT INCLUDING THE AMOU NT OF DEPARTMENTAL RECOVERIES IN THE GROSS CONTRACT RECEI PTS FOR ESTIMATION OF TAXABLE INCOME. THE L.D. COMMISSIONER OF INCOME TAX IS UNJUSTIFIED IN TREATING THE ASSESSMEN T AS ERRONEOUS WHERE THE ACTION OF THE A.O. CANNOT BE FA ULTED BECAUSE THE AMOUNT OF DEPARTMENTAL RECOVERIES DOES NOT HAVE ANY ELEMENT OF PROFIT EMBEDDED THEREIN. 2 ITA.NO.983/HYD/2014 MR. BANDI VENKATA NARAYANA, KHAMMAM. 2. BRIEFLY STATED, ASSESSEE HEREIN IS AN INDIVIDUA L AND IS CARRYING ON THE BUSINESS IN WORK-CONTRACTS. FOR THE ASSESSMENT YEAR 2009-10, ASSESSEE FILED RETURN ADMI TTING TOTAL INCOME AT RS.8,61,800. DURING THE ASSESSMENT PROCEE DINGS UNDER SECTION 143(3) OF THE IT ACT, THE ASSESSING O FFICER HAS CALLED FOR BOOKS OF ACCOUNTS, BILLS AND VOUCHERS AN D EXAMINED THE DETAILS OF EXPENDITURE AND THE SUPPORTING DOCUM ENTARY EVIDENCES. HE FOUND THAT THE MAJORITY OF THE EXPEND ITURE WAS NOT SUPPORTED BY PROPER VOUCHERS AND IN THE CASE OF LABOUR EXPENSES, THE VOUCHERS ARE SELF-MADE. THE ASSESSING OFFICER HAS MADE IN-DEPTH EXAMINATION OF THE BOOKS OF ACCOU NTS AND THE CLAIMS FOR EXPENSES ALONG WITH THE BILLS AND VO UCHERS, ETC. HE ALSO CONSIDERED THE INFORMATION AND EXPLANATIONS AS ALSO THE CLARIFICATIONS OFFERED BY ASSESSEE AND ULTIMATE LY, IN VIEW OF THE DEFICIENCIES IN SUPPORTING DOCUMENTARY EVIDENCE S FOR CLAIMS, HE INVOKED THE PROVISIONS OF THE SEC.145(3) OF THE IT ACT, REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED I NCOME FROM THE CONTRACT RECEIPTS. WHILE ESTIMATING THE INCOME AT 8% OF THE CONTRACT RECEIPTS, THE ASSESSING OFFICER HAS CO NSIDERED GROSS CONTRACT RECEIPTS AFTER EXCLUDING DEPARTMENTA L RECOVERIES OF AN AMOUNT OF RS.12,48,129 AND ARRIVED AT A TOTAL INCOME AT RS,.10,49,201 AS AGAINST RS.8,61,800 ADMI TTED BY ASSESSEE. THE LD. COMMISSIONER OF INCOME TAX HAS TR EATED THE ASSESSMENT ORDER AS 'ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE' CONTENDING THAT THE ESTIMATION OF P ROFIT AT 8% SHOULD HAVE BEEN DONE ON THE AMOUNT OF GROSS CONTRA CT RECEIPTS INCLUDING THE AMOUNT OF DEPARTMENTAL RECOV ERIES. HE ALSO OPINED THAT THE RATE OF GP ADOPTED IS ALSO NOT CORRECT. 3. LD. COUNSEL SUBMITTED THAT THE ORDER OF A.O. IS NOT ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENU E AS A.O. HAS EXAMINED THE BOOKS OF ACCOUNTS, BILLS AND VOUCH ERS. HE 3 ITA.NO.983/HYD/2014 MR. BANDI VENKATA NARAYANA, KHAMMAM. HAS TAKEN A CONSCIOUS DECISION TO EXCLUDE THE DEPAR TMENTAL RECOVERIES OF RS.12,48,129 OUT OF THE GROSS RECEIPT S ACCOUNTED BY ASSESSEE AS DEPARTMENTAL RECOVERIES DOES NOT GIV E RISE TO ANY PROFIT. LD. COUNSEL RELIED ON THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF BRIJ BHUSHAN LAL PARDU MAN KUMAR VS. CIT (1978) 115 ITR 524 FOR THE PROPOSITIO N THAT THE AMOUNT OF STATUTORY RECOVERIES MADE FROM THE GROSS CONTRACT BILLS DO NOT EVEN THEORETICALLY INVOLVED ANY ELEMEN T OF PROFIT NOR THE TURNOVER REPRESENTED BY SUCH RECOVERIES. IT WAS FURTHER SUBMITTED THAT A.O. HAS FOLLOWED THE CORRECT LAW AN D EXCLUDED THE DEPARTMENTAL ENQUIRIES. THEREFORE, THE ORDER OF THE CIT DIRECTING THE A.O. TO INCLUDE THE DEPARTMENTAL RECO VERIES IN ESTIMATING THE INCOME IS NOT CORRECT. LD. COUNSEL A LSO RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF M/S. K MC CONSTRUCTION LTD., HYDERABAD VS. ADDL. CIT, RANGE-2 , HYDERABAD VIDE ITA.NO.1382 & 1383/HYD/2012 DATED 28.10.2013 TO SUBMIT THAT ASSESSMENT ORDER IS NOT A T ALL ERRONEOUS AS IT HAS FOLLOWED THE LAW ALREADY ESTABL ISHED CORRECTLY. 4. WITH REFERENCE TO ESTIMATION OF PROFIT @ 8% IT WAS SUBMITTED THAT A.O. AFTER EXAMINING THE BOOKS OF AC COUNTS, BILLS AND VOUCHERS REJECTED THEM AND ESTIMATED THE PROFITS AT 8% CONSIDERING THE NATURE OF THE WORK CONTRACTS UND ERTAKEN BY ASSESSEE AS AN INDIVIDUAL. BEING A QUASI JUDICIA L AUTHORITY, A.O. IS EMPOWERED TO ARRIVE AT THE CORRECT RATE OF PROFIT. ESTIMATING THE PROFIT AT 8% ON CONTRACT IS AN ESTAB LISHED NORM WHICH WAS ALSO APPROVED BY ITAT IN VARIOUS DECISION S LIKE ONE M/S. KISHORE CONSTRUCTIONS VS. ITO, WARD-2, KOTHAGU DEM VIDE ITA.NO.212/HYD/2012 DATED 20.12.2012 AND SREE MARUT I CONSTRUCTIONS VS. ADDL. CIT, KHAMMAM VIDE ITA.NO.32 5/HYD/ 4 ITA.NO.983/HYD/2014 MR. BANDI VENKATA NARAYANA, KHAMMAM. 2012 DATED 11.01.2013. SINCE THE ESTIMATION WAS ALS O A CONSCIOUS DECISION OF THE A.O. AS SUPPORTED BY THE JUDICIAL PRINCIPLES IN VARIOUS CASES, IT CANNOT BE STATED T HAT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. 5. LEARNED D.R. SUBMITTED THAT A.O. ORDER IS FOUND TO BE ERRONEOUS AND PREJUDICIAL AND THEREFORE, CIT HAS ONLY SET ASIDE THE ORDER TO RE-DO THE ASSESSMENT DENOVO IN A CCORDANCE WITH LAW AND ESTABLISHED PROCEDURE. THEREFORE, THER E IS NO PREJUDICE CAUSED TO ASSESSEE BY SETTING ASIDE THE A SSESSMENT. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS CAREFULLY. AFTER PERUSING THE ORD ER OF A.O., WE ARE OF THE OPINION THAT IT CANNOT BE STATED THAT OR DER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. AS FAR AS ESTIMATING THE INCOME EVEN ON DEPARTMENTAL RECOVERI ES, THE SAME IS NOT CORRECT AS DEPARTMENTAL RECOVERIES DOES NOT INVOLVE ANY ELEMENT OF PROFIT. HONBLE SUPREME COURT IN TH E CASE OF BRIJ BHUSHAN LAL PARDUMAN KUMAR VS. CIT (SUPRA) HEL D THAT IN SUBSTANCE AND IN REALITY THE MATERIALS SUPPLIED BY THE GOVERNMENT ALWAYS REMAIN THE PROPERTY OF THE GOVERN MENT AND ASSESSEE MERELY HAS CUSTODY AND FIXED OR INCORP ORATED THEM INTO THE WORKS, THERE WAS NOT EVEN A THEORETIC AL POSSIBILITY OF ANY ELEMENT OF PROFIT BEING INVOLVED IN THE TURNOVER REPRESENTED BY THE COST OF SUCH MATERIALS. SINCE DEPARTMENTAL RECOVERIES ARE MADE ON THE COST OF MAT ERIAL SUPPLIED BY THE GOVERNMENT, A.O. ACTION IN EXCLUDIN G THE DEPARTMENTAL RECOVERIES WHILE ESTIMATING THE PROFIT IS ACCORDING TO LAW AND PRINCIPLES GOVERNING THE ISSUE . IT CANNOT BE SAID THAT ORDER OF THE A.O. IS ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF REVENUE WHEN A.O. SPECIFICALLY VID E PARA 3.3 ESTIMATED NET INCOME FROM CONTRACT BUSINESS AT 8% O F GROSS 5 ITA.NO.983/HYD/2014 MR. BANDI VENKATA NARAYANA, KHAMMAM. CONTRACT RECEIPTS EXCLUDING DEPARTMENTAL RECOVERIES , BY SPECIFICALLY MENTIONING THE SAME IN THE ORDER. THER EFORE, THE DIRECTION OF THE CIT TO THAT EXTENT IS NOT CORRECT. 7. NOW COMING TO THE ESTIMATION OF INCOME AT 8%, ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS AND OFFER ED INCOME AT ABOUT 6% ON THE VALUE OF WORKS EXECUTED DURING T HE YEAR. SINCE A.O. IS NOT IN A POSITION TO VERIFY THE VOUCH ERS, HE ANALYSED THE ISSUE IN PARA 3 AND CAME TO THE CONCLU SION THAT PROFITS ARE TO BE ESTIMATED UNDER SECTION 145(3) OF THE I.T. ACT. HE ACCORDINGLY DECIDED THE INCOME AT 8% ON THE CONT RACT RECEIPTS. THERE IS NO FIXED RATE OF INCOME TO BE ES TIMATED ON THE CONTRACT WORKS. IT DEPENDS ON THE NATURE OF CON TRACT AND ALSO MACHINERY UTILIZED IN THE WORK. THERE ARE ANY NUMBER OF CASES WHERE PROFITS ARE ESTIMATED AS LOW AS 1% TO 2 % TO A HIGH OF 12.5%. ITAT IN NUMBER OF CASES HAD CONFIRMED 5% ON SUB- CONTRACT WORKS AND 8 TO 12.5% ON REGULAR CONTRACT W ORKS DEPENDING ON THE NATURE OF WORK. MOREOVER, EVEN AFT ER ESTIMATING INCOME AT A PARTICULAR RATE, DEDUCTIONS FOR MACHINERY DEPRECIATION, INTEREST AND REMUNERATION T O PARTNERS ARE ALSO BEING ALLOWED IN THE CASE OF FIRMS. THEREF ORE, THERE IS NO STRICT RULE THAT INCOME SHOULD BE ESTIMATED AT H IGHER/FIXED RATE. A.O. HAS TAKEN A CONSCIOUS DECISION TO ESTIMA TE THE INCOME AT 8% NET OF DEDUCTIONS ALSO. THEREFORE, ASS ESSEES PROFIT HAS INCREASED SUBSTANTIALLY. IN VIEW OF THIS , IT CANNOT BE STATED THAT A.O. HAS ERRED IN DETERMINING RATE AT L ESSER PERCENTAGE. AS RIGHTLY SUBMITTED BY LD. COUNSEL, TH E COORDINATE BENCH IN THE CASE OF M/S. KISHORE CONSTR UCTIONS (SUPRA) AND MARUTI CONSTRUCTIONS (SUPRA) HAS UPHELD ORDERS OF A.O. WHEREIN IT IS EVIDENT FROM THE ORDER OF A.O. T HAT HE SATISFIED THAT THE EXPENDITURE CLAIMED BY ASSESSEE ARE 6 ITA.NO.983/HYD/2014 MR. BANDI VENKATA NARAYANA, KHAMMAM. UNVERIFIABLE AND HAS PROCEEDED TO ESTIMATE THE PROF IT. SINCE THE A.O. APPLIED HIS MIND AND TOOK AN OPINION TO ARRIVE AT THE PROFIT AT 8%, THE OPINION OF THE CIT IS SUBSTITUTIO N OF SUCH OPINION. EVEN FOR THAT, CIT HAS NOT GIVEN ANY CASES WHERE THE PROFIT WAS OFFERED AT HIGHER RATE THAN WHAT WAS BEI NG ASSESSED BY A.O. IN THE ABSENCE OF ANY JUSTIFICATION IN ARRI VING AT A HIGHER RATE OF PROFIT, IT CANNOT BE STATED THAT A.O . ERRED IN ESTIMATING PROFIT AT 8%. IN VIEW OF THIS, WE DO NOT FIND ANY REASON TO UPHOLD THE ORDER OF CIT UNDER SECTION 263 AS THE ORDER OF A.O. CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE LAW ON THE ISSUE IS VERY CLEAR THAT CIT CANNOT REVISE THE ORDER TO SUBS TITUTE HIS OPINION AS AGAINST THE OPINION OF THE ITO. IN VIEW OF THIS, ORDER OF CIT CANNOT BE SUSTAINED. THE IMPUGNED ORDER IS S ET ASIDE AND THAT OF AO IS RESTORED. THE GROUNDS RAISED BY A SSESSEE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 19 TH NOVEMBER, 2014 VBP/- COPY TO 1. MR. BANDI VENKATA NARAYANA, KHAMMAM. C/O. MR. M. CHANDRAMOULESWARA RAO, CHARTERED ACCOUNTANT, C-3, SKYLARK APARTMENTS, BASHEERBAGH, HYDERABAD 29. 2. INCOME TAX OFFICER, WARD (2), KHAMMAM. 3. COMMISSIONER OF INCOME TAX, VIJAYAWADA 4. ADDL. CIT, KHAMMAM RANGE, KHAMMAM 5. D.R. ITAT B BENCH, HYDERABAD.