ACIT, Circle - 10(1), Hyderabad V. M/s Esvy Constructions, Secunderabad

MA 262/HYD/2010

• Counselvise Citation: [2011] 123 COUNSELVISE.COM (IT) 6621 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-05-2011
• Assessment Year: misc
• Appeal Filed On: 31-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation
• Section: 40A(3); 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT & SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER M.A. NO. 262/HYD/2010 (ARISING OUT OF I.T.A. NO. 149/HYD/10) ASSESSMENT YEAR 2006-07 ASST. CIT, CIRCLE - 10(1), HYDERABAD. VS. M/S. ESSVY CONSTRUCTIONS, SECUNDERABAD PAN: AAAFE9281F APPLICANT RESPONDENT APPELLANT BY: MR. B.V. PRASAD REDDY RESPONDENT BY: MR. A.V. RAGHU RAM O R D E R PER CHANDRA POOJARI, AM: THIS MISCELLANEOUS APPLICATION FILED BY THE REVENU E SEEKS RECTIFICATION IN THE ORDER OF THIS TRIBUNAL IN I.T. A. NO. 149/HYD/2010 DATED 16.7.2010. 2. THE LEARNED DR SUBMITTED THAT THE ASSESSEE IS IN TH E BUSINESS OF CIVIL CONTRACTS AND FILED THE RETURN OF INCOME FOR A.Y. 2006-07 DECLARING AN INCOME OF RS. 31,18,490. THE ASSESSMENT U/S. 143(3) WAS COMPLETED ON 10.12.2008 AT AN INCOM E OF RS. 57,08,916. AS THE EXPENDITURE WAS NOT SUPPORTED BY PROPER VOUCHERS/ DOCUMENTS, BOOK RESULTS WERE REJECTED AND THE INCOME WAS ESTIMATED AT 10% OF GROSS RECEIPTS IN RE SPECT OF CONTRACTS EXECUTED BY THE ASSESSEE ON ITS OWN AND A T 8% OF GROSS RECEIPTS IN RESPECT OF SUB-CONTRACTS. INTERE ST ON CAPITAL OF THE PARTNERS AND THE REMUNERATION TO THE PARTNERS W AS NOT ALLOWED OUT OF THE ESTIMATED INCOME AS THE SAME IS DEEMED TO HAVE BEEN ALLOWED WHILE ESTIMATING THE INCOME. THE ASSESSEE WAS IN RECEIPT OF RS. 4,93,327 AS INTEREST WHICH WA S ASSESSED SEPARATELY AS OTHER INCOME OF THE ASSESSEE. AGAINS T THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). M.A. NO. 262/HYD/2010 M/S. ESSVY CONSTRUCTIONS =================== 2 3. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ESTIMA TE THE INCOME AT 7% OF GROSS CONTRACT RECEIPTS RELATING TO MAIN CONTRACT RECEIPTS AND AT 5% ON THE SUB-CONTRACT REC EIPTS. THE CIT(A) FURTHER DIRECTED THE ASSESSING OFFICER TO AL LOW REMUNERATION TO PARTNERS AND INTEREST ON CAPITAL OF THE PARTNERS OUT OF THE ESTIMATED INCOME. THE CIT(A) ALSO DIREC TED TO DELETE THE ADDITION MADE TOWARDS RECEIPT OF INTEREST BY TH E ASSESSEE. AGGRIEVED, THE DEPARTMENT WENT IN APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED DR FURTHER SUBMITTED THAT THE TRIBUNAL VIDE ITS ORDER DATED 16.7.2010 DIRECTED THE ASSESSING OF FICER TO ESTIMATE THE INCOME OF THE ASSESSEE AT 9% OF RECEIP TS IN CASE OF MAIN CONTRACTS AND 8% IN CASE OF SUB-CONTRACT RECEI PTS. THE TRIBUNAL DIRECTED TO ALLOW REMUNERATION TO PARTNERS INTEREST ON CAPITAL OF PARTNERS FROM THE ESTIMATED INCOME WHERE AS THE TRIBUNAL UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS THE RECEIPT OF INTEREST BY THE ASSESSEE, TR EATING IT AS OTHER INCOME OF THE ASSESSEE. 5. THE LEARNED DR SUBMITTED THAT THE A BENCH OF THE HYDERABAD TRIBUNAL IN THE CASE OF M/S. TEJA CONSTRU CTIONS, IN RESPECT OF DISALLOWANCES MADE U/S. 40(A)(IA) HELD T HAT FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF INDWELL CONSTRUCTIONS V. CIT (232 ITR 776) AND THE DECISION OF SPECIAL BENCH, THE INCOME OF THE ASSESSEE HAVING BE EN DETERMINED BY RESORTING TO ESTIMATION, THERE IS NO SCOPE FOR ANY FURTHER DISALLOWANCE EITHER IN TERMS OF S. 40(A)(IA )/ 40A(3) OR OTHERWISE. THE TRIBUNAL ACCORDINGLY DISMISSED THE APPEAL OF THE REVENUE. 6. THE LEARNED DR SUBMITTED THAT THE DECISION OF THE H ONBLE ITAT IN THE PRESENT CASE DIFFERS FROM THE DECISION GIVEN BY THE ITAT, HYDERABAD IN THE CASE OF M/S. TEJA CONSTRUCTI ONS WHEREIN M.A. NO. 262/HYD/2010 M/S. ESSVY CONSTRUCTIONS =================== 3 THE ITAT HAS HELD THAT THE INCOME OF THE ASSESSEE H AVING BEEN DETERMINED BY RESORTING TO ESTIMATION, THERE IS NO SCOPE FOR ANY FURTHER DISALLOWANCE EITHER IN TERMS OF S. 40(A)(IA )/40A(3) OR OTHERWISE, WHEREAS IN THE PRESENT CASE THE ITAT DIR ECTED TO ALLOW DEPRECIATION AND REMUNERATION, AND INTEREST T O PARTNERS ON THE PROFIT ESTIMATED BY THE ASSESSING OFFICER AT APPLICABLE RATES. ACCORDINGLY, THE LEARNED DR SOUGHT RECTIFIC ATION IN THE ORDER OF THE TRIBUNAL. 7. ON THE OTHER HAND, THE LEARNED AR RELIED ON THE ORD ER OF THE TRIBUNAL. 8. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSES SEE AT 10% OF THE CONTRACT RECEIPTS EXECUTED ON ITS OWN AND 8% OF RECEIPTS IN THE CASE OF SUB-CONTRACTS. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE INCOME AT 7% OF THE GROSS R ECEIPTS IN RESPECT OF MAIN CONTRACTS AND 5% IN RESPECT OF SUBC ONTRACTS AND FURTHER DIRECTED TO ALLOW REMUNERATION TO PARTNERS AND INTEREST ON THE CAPITAL OF THE PARTNERS OUT OF THE ESTIMATED INCOME. FURTHER, THE CIT(A) DIRECTED TO DELETE THE ADDITION MADE TOWARDS RECEIPT OF INTEREST BY THE ASSESSEE. ON APPEAL THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE INCO ME AT 9% OF MAIN CONTRACT RECEIPTS AND 5% ON SUBCONTRACT RECEIP TS AND ALSO DIRECTED TO ALLOW REMUNERATION TO PARTNERS AND INTE REST ON CAPITAL OF THE PARTNERS FROM THE ESTIMATED INCOME. THE TRIBUNAL ALSO UPHELD THE ADDITION TOWARDS RECEIPT OF INTERES T BY THE ASSESSEE AND HELD THAT IT HAS TO BE ASSESSED AS INC OME FROM OTHER SOURCES SEPARATELY. THE TRIBUNAL HELD THAT E VEN ON BEST JUDGEMENT, ASSESSMENT ON REJECTION OF BOOKS OF ACCO UNT, THE ASSESSEE IS ENTITLED FOR DEDUCTION TOWARDS PARTNERS SALARY AND INTEREST. THE INCOME OF THE ASSESSEE IS TO BE ESTI MATED SUBJECT M.A. NO. 262/HYD/2010 M/S. ESSVY CONSTRUCTIONS =================== 4 TO THE ALLOWANCES FOR REMUNERATION AND INTEREST TO PARTNERS. THIS IS A CONSCIOUS DECISION OF THE TRIBUNAL WHICH IS SUPPORTED BY VARIOUS JUDGEMENTS OF THE HIGH COURTS' LIKE CIT VS. JAIN CONSTRUCTION CO. & ORS., 245 ITR 527 (RAJ), CIT VS. HEERA LAL BHAT, 158 CTR 59 (RAJ), MALIYEKKAL CONSTRUCTION CO. VS. CIT, 260 ITR 333 (KER.), CIT VS. SURINDER PAL NAYAR, 327 ITR 236. THE CLAIM OF THE ASSESSEE WITH REGARD TO INTEREST A ND SALARY PAID TO PARTNERS AS PER THE PARTNERSHIP DEED SUBJECT TO THE PROVISIONS OF SECTION 40(B) OF THE ACT HAS TO BE ALLOWED. 9. HOWEVER, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION TOWARDS DEPRECIATION AS, IN OUR OPINION, WHEN THE I NCOME IS ESTIMATED BY APPLYING THE SPECIFIC RATE ON GROSS RE CEIPTS, THE ASSESSEE CANNOT CLAIM ANY FURTHER DEDUCTION SINCE A NY DEDUCTION ALLOWABLE UNDER THE PROVISIONS OF SECTION S 30 TO 38 OF THE INCOME-TAX ACT, 1961 SHALL BE DEEMED TO HAVE BE EN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED. THE DEPRECIATION BEING ALLOWABLE U/S. 32 IS ALSO DEEMED TO HAVE BEEN ALLOWED. AS SUCH FU RTHER DEDUCTION OF DEPRECIATION CANNOT BE ALLOWED TO THE ASSESSEE. AS SUCH WE DO NOT FIND ANY FORCE IN THE ARGUMENT OF TH E LEARNED DR AND ACCORDINGLY, WE DO NOT FIND ANY MISTAKE APPAREN T FROM THE ORDER OF THE TRIBUNAL. 10. IN THE RESULT, THE MA FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE, 2011. SD/- (G.C. GUPTA) VICE PRESIDENT SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 10 TH JUNE, 2011 TPRAO M.A. NO. 262/HYD/2010 M/S. ESSVY CONSTRUCTIONS =================== 5 COPY FORWARDED TO: 1. ASST. CIT, CIRCLE - 10(1), HYDERABAD. 2. M/S. ESSVY CONSTRUCTIONS, 199, THIRUMALA CONSTRUCTI ONS, 2 ND FLOOR, SIKH VILLAGE, SECUNDERABAD. 3. THE CIT(A) - VI, HYDERABAD. 4 THE CIT - V, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD `