M/s. Hycons Infrastructure (India) Ltd, Hyderabad V. DCIT, Circle-2(2), Hyderabad

MA 124/HYD/2012

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 8977 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPTA
• Assessee Lawyers: K L RATHI
• Keywords: Business income; Depreciation
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER M.A. NO. 124/HYD/12 (IN ITA NO. 01/HYD/2010 ASSESSMENT YEAR: 2006-07) HYCONS INFRASTRUCTURE(INDIA) LTD., APPELLANT HYDERABAD (PAN AACCA8494R) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE-2(2), HYDERABAD APPELLANT BY : SHRI K.L. RATHI RESPONDENT BY : SHRI AMISHA S. GUPTA DATE OF HEARING : 27/07/2012 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, J.M.: BY THIS M.A. THE ORDER PASSED IN ITA NO. 01/HYD/20 10 DATED 06/06/2012, IS RECALLED AND WE PROCEED TO DEC IDE THE APPEAL AS UNDER: 2. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD, PASSED ON 2 7/11/2009 FOR THE ASSESSMENT YEAR 2006-07. 2 M.A. NO. 124/HYD/12 (IN ITA NO. 01/HYD/2010) HYCONS INFRASTRUCTURE (INDIA) LTD. 3. GROUND NOS. 1 TO 4 AND 6 HAVE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEF ORE US AND, THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 4. GROUND NO. 5 READS AS UNDER:- WITHOUT LEAST PREJUDICE TO ABOVE THE APPELLANT FUR THER SUBMITS THAT THE CIT(A)S CONFIRMING 8% INCOME ON T HE TOTAL TURNOVER OF RS. 18.05 CRORES IS JUST ON PAR W ITH THE PROVISION OF SEC. 44AD WHERE IF THE TURNOVER DOES N OT EXCEED RS. 40 LAKHS INCOME CAN BE ESTIMATED AT 8% WHEREAS IN THE CASE OF THE ASSESSEE THE TOTAL TURNO VER IS 45 TIMES OF THE TURNOVER MENTIONED U/S 44AD THEREFO RE THE KIND OF ESTIMATION IS TOTALLY UNWARRANTED AND U NJUST. 5. BRIEFLY THE FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE HAD GROSS CONTRACT RECEIPTS OF RS. 18.05 CRORES. SI NCE THE ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND BILLS/VOUCHERS FOR VERIFICATION, THE AO ESTIMATED T HE NET PROFIT THEREON CLEAR OFF DEPRECIATION @ 8%. THE AO, THUS, ESTIMATED THE NET TAXABLE INCOME CLEAR OF DEPRECIATION ON SUC H CONTRACT RECEIPTS AT RS. 1,44,44,644/-. 6. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE TOTAL CONS TRUCTION TURNOVER OF THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION WAS RS. 18.05. CRORES. IT WAS STATED THAT THE AO HA D NO BASIS FOR ESTIMATING THE PROFIT @8%. PROFIT WAS ESTIMATED AT 8% U/S 44AD ONLY WHERE THE GROSS RECEIPTS OF CONSTRUCTION BUSINESS DOES NOT EXCEED RS. 40 LAKHS. HE, THEREFORE, CONTEN DED THAT THE QUESTION OF INVOKING THE SAID SECTION IN THE CA SE OF THE ASSESSEE DOES NOT ARISE. IT WAS ALSO STATED THAT TH E ASSESSEE 3 M.A. NO. 124/HYD/12 (IN ITA NO. 01/HYD/2010) HYCONS INFRASTRUCTURE (INDIA) LTD. HAD MAINTAINED COMPLETE BOOKS OF ACCOUNT WHICH HAD BEEN AUDITED U/S 44AB OF THE ACT, AND UNDER THE COMPANIE S ACT, 1956. HE POINTED OUT THAT THE AUDITORS HAD GIVEN TH EIR REPORT IN FORM 3CB & 3CD WITHOUT ANY ADVERSE REMARK, THERE FORE, THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCO UNT AND IN ESTIMATING THE PROFIT. AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE ACTION OF THE AO . THE RELEVANT FINDINGS OF THE CIT(A) ARE REPRODUCED BELO W FOR THE SAKE OF CLARITY: 10.3 FURTHER EVEN THOUGH SECTION 44AD OF THE ACT PROVIDES FOR ESTIMATION OF PROFIT FROM CIVIL CO NTRACT WORKS @ 8%, WHEN THE GROSS CONTRACT RECEIPTS DO NOT EXCEED RS. 40 LAKHS, THE SAID RATE CAN ALSO BE APPL IED FOR ESTIMATING PROFIT FROM CONTRACT RECEIPTS, EVEN WHEN GROSS CONTRACT RECEIPTS EXCEED RS. 40 LAKHS. IN THIS CONT EXT, IT IS RELEVANT TO REFER TO THE DECISION OF THE HONBLE JURISDICTIONAL ITAT HYDERABAD A BENCH, IN THE CAS E OF MADHAVA CONSTRUCTIONS PVT. LTD. VS. ACIT, IN ITA NO . 1143/HYD/2006 DATED 13/07/2007, WHEREIN THE HONBLE TRIBUNAL OBSERVED THAT PROVISIONS OF SECTION 44AD M AY BE APPLICABLE WHERE THE GROSS CONTRACT RECEIPTS EXCEED S RS. 40 LAKHS. THE OBSERVATIONS MADE BY THE HONBLE ITAT IN THE SAID ORDER AT PAGE 6 & 7, WHICH ARE RELEVANT, A RE AS UNDER:- WE ARE AWARE OF THE FACT THAT SEC. 44AD OF THE ACT IS APPLICABLE ONLY IN CASES WHERE GROSS CONTRACT RECEIPTS EXCEED RS. 40 LAKHS. BUT WE ARE OF THE VIE W THAT ONE CAN TAKE THE HELP OF THESE PROVISIONS FOR REASONABLE AND FAIR ESTIMATE OF THE PROFIT IN CASE OF CIVIL CONTRACTS. THERE IS NO OTHER BASIS ON WHICH A DIFFERENT ESTIMATE CAN BE MADE THAN THE ESTIMATION OF PROFIT BY APPLYING 8% NET PROFIT RATE. WE ARE AL SO O THE VIEW THAT THERE IS NO GOOD REASON WHY A NET PROFIT RATE OF 8% IS NOT APPLICABLE TO A CIVIL CONTRACTOR HAVING TURNOVER EXCEEDING RS. 40 LAKHS, WHERE SAME IS APPLICABLE TO A CIVIL CONTRACTOR THOS E WHO ARE SMALL, PETTY, HAVING A TURNOVER NOT 4 M.A. NO. 124/HYD/12 (IN ITA NO. 01/HYD/2010) HYCONS INFRASTRUCTURE (INDIA) LTD. EXCEEDING RS. 40 LAKHS. OUR ABOVE VIEW IS FORTIFIED BY THE DECISION OF THE TRIBUNAL SPECIAL BENCH IN TH E CASE OF ARIHANT BUILDERS DEVELOPMENT & INVESTORS PVT. LTD., 291 ITR 49 (SB) (INDORE) (AT). 10.4 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAVING REGARD TO THE ABOVE DECISION OF HONBLE PUNJ AB AND HARYANA HIGH COURT AND FURTHER RELYING ON THE A BOVE DECISION OF HONBLE JURISDICTIONAL ITAT IN MY VIEW, ESTIMATION OF PROFIT ON THE GROSS CONTRACT RECEIPTS APPLYING THE RATE OF 8%, AS MADE BY THE AO IN THE ASSESSMENT, IS FULLY JUSTIFIED AND HENCE, THE SAME IS UPHELD. 7. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE HAS ALRE ADY BEEN DEALT WITH BY THE ITA, HYDERABAD BENCH IN THE CASE OF TEJA CONSTRUCTIONS IN ITA NO. 1191/HYD/2011 DATED 17/02/ 2012 WHEREIN ITAT HAS HELD AS UNDER:- 10. THE FIRST TWO GROUNDS ARE AGAINST THE ORDER OF THE CIT(A) (A) DIRECTING THE ASSESSING OFFICER TO ESTIMATE THE INCOME OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS, 8% ON CONTRACTS TAKEN BY ASSESS EE ON SUBCONTRACTS AND @ 5% ON CONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS AND (B) DIRECTING THE ASSESSING OFFICER TO ALLOW RE MUNERATION, INTEREST ON PITAL AND DEPRECIATION OUT OF ESTIMATED INCOME. THE REVENUE SUBMITS THAT WHEN NET INCOME IS ESTIMATED ALL OTHER EXPENDITURE AND DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND DEPRECIATION IS DEE MED TO HAVE BE TAKEN CARE OF IN VIEW OF THE CASE LAW IN THE CASE OF M/S INDWELL CONSTRUCTIONS 232 ITR 776 (AP) AS DECIDED BY THE JURISDICTIONAL A P HIGH COURT AND ALSO DECISION IN THE CASE OF M/S AYYAPPA INFRA PROJECTS P. LTD IN ITA NO.608/H/2009. HOWEVER THE ISSUE IS COVERED BY THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE EARLIER YEAR. FOR T HAT YEAR THE ITAT HAS ESTIMATED THE PROFITS OF THE ASSESSEE @ 9% ON OWN C ONTRACT WORKS, 8% ON CONTRACTS TAKEN BY ASSESSEE ON SUBCONTRACTS AND @ 5% ON CONTRACTS GIVEN BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS. THIS ESTIMATE 5 M.A. NO. 124/HYD/12 (IN ITA NO. 01/HYD/2010) HYCONS INFRASTRUCTURE (INDIA) LTD. ACCORDING TO ITAT IS BEFORE ALLOWING REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATION AND HENCE ITAT DIRECTED THAT THESE AMO UNTS SHOULD BE REDUCED OUT OF THE ESTIMATED INCOME. THE RELIANCE O F THE REVENUE ON OTHER CASES WHERE THE ESTIMATED INCOME INCLUDES DEDUCTION OF REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATION DOES NOT REALL Y HELP THE REVENUES CASE. ESTIMATE OF INCOME MAY VARY FROM CASE TO CASE . THE ESTIMATE MAY BE GROSS PROFITS AFTER WHICH OTHER EXPENDITURE MAY BE ALLOWED OR THE ESTIMATE MAY OF THE NET INCOME AFTER ALL THE EXPEND ITURE. THE ITAT HAS HELD IN THE ASSESSEES OWN CASE THAT THEIR ESTIMATE OF INCOME AS A PERCENTAGE OF GROSS RECEIPTS IS PRIOR TO ALLOWANCE OF DEPRECIATION, INTEREST ON CAPITAL AND REMUNERATION. THE CIRCUMSTANCES THIS YEAR BEING IDENTICAL AS THE EARLIER YEAR AND AS DEPARTMENT HAS NOT BROUG HT ANYTHING ON RECORD TO PERSUADE US TO TAKE A DIFFERENT VIEW, RESPECTFUL LY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE UPHOLD THE ORDER OF THE CIT(A) REGARDING THE RATE OF PROFITS TO BE ADOPTED ON THE GROSS RECEIPTS AND A FURTHER ALLOWANCE OF REMUNERATION, INTEREST ON CAPITAL AND DEPRECIATI ON. THE REVENUES APPEAL ON THESE ISSUES IS DISMISSED. 9. HOWEVER, WHEN NET INCOME IS ESTIMATED ALL OTHER EXPENDITURE AND DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND DEPRECIATION IS DEEMED TO HAVE BE TAKEN CARE OF IN VIEW OF THE CASE LAW IN THE CASE OF M/S INDWELL CONSTRUCTIONS 232 ITR 776 (AP) AS DECID ED BY THE JURISDICTIONAL AP HIGH COURT AND ALSO DECISION IN T HE CASE OF M/S AYYAPPA INFRA PROJECTS P. LTD IN ITA NO.608/H/2009. 10. IN THE PRESENT CASE, THE ASSESSING OFFICER IS D IRECTED TO ESTIMATE THE INCOME AS HELD IN THE CASE OF TEJA CO NSTRUCTIONS (SUPRA). FURTHER, NO OTHER ADDITION SHALL BE MADE T OWARDS BUSINESS INCOME BY THE ASSESSING OFFICER SINCE THE NET INCOME FROM BUSINESS IS ESTIMATED FOLLOWING THE RATIO OF T HE DECISION IN THE CASE OF M/S INDWELL CONSTRUCTIONS (SUPRA). HOWE VER, THE INCOME FROM OTHER SOURCES, IF ANY, STANDING ON DIFF ERENT FOOTING, TO BE CONSIDERED SEPARATELY. 11. THE APPEAL OF THE ASSESSEE TO BE READ AS ALLOWE D FOR STATISTICAL PURPOSES. 6 M.A. NO. 124/HYD/12 (IN ITA NO. 01/HYD/2010) HYCONS INFRASTRUCTURE (INDIA) LTD. 2. IN THE RESULT, THE M.A. FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 14/09/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAV AN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 14 TH SEPTEMBER, 2012. KV COPY TO:- 1) M/S HYCONS INFRASTRUCTURE(INDIA) LTD. C/O K.L. RATHI, ADVOCATE, 3-5-144/5, EDEN GARDEN, HYDERABAD 500 001. 2) DCIT, CIRCLE 2(2), HYDERABAD. 3) THE CIT (A)-III, HYDERABAD 4) THE CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.