The Principal Commissioner of Income Tax-7 V. Mech Engineers and Electors Private Ltd

ITTA/40/2020

AI Insights

The case involves the Principal Commissioner of Income Tax-7, Hyderabad, as the appellant, and Mech Engineers and Electors Private Ltd, as the respondent. The disputes arose from discrepancies noted during a search and seizure operation under Section 132 of the Income Tax Act, 1961, where differences in labor charges recorded in the Profit and Loss Account and those in the Tally Package were observed. The Assessing Officer treated the difference as undisclosed income, which was partially relieved by the Commissioner of Income Tax (Appeals) and further modified by the Tribunal. The High Court's decision dismissed the Revenue's appeals, affirming the Tribunal's modification of the Commissioner of Income Tax (Appeals)'s order.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 700212 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 24-02-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K REDDY
• Assessee Lawyers: K REDDY
• Keywords: Income Tax; Labour charges; Profit and loss account; Search and seizure; Undisclosed income
• Section: 132; 260-4

Judgement Text

"IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY, THE TWENTY FOURTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE M,S.RAMACHANDRA RAO AND THE HONOURABLE SRI JUSTICE T.VINOD KUMAR tNcoME TAX TRIBUNAL APPEAL NOS:40 AND 41 OF 2020 |TTA NO.40 0F 2020 lncome Tax Tribunal Appeal under Section 260-4 of the lncome Tax Act, '1961, against the order dated 5-9-2019 in ITA No.1886l1ydl2018 on the file of lncome Tax Appellate Tribunal, Hyderabad Bench-A Hyderabad, for the Assessment Year 2013- 2014 preferred against the order dated 6-8-2018 in Appeal No.10043/2017-18 on the file of the Commissioner of lncome Tax (Appeals-12), Hyderabad, preferred against the order dated 26-4-2017 in PAN No.AAECM4494 M on the file of the Deputy Commissioner of lncome Tax, Central Circle No.2(1), Hyderabad. Between: The Principal Commissioner of lncome Tax-7, AC Guards, Hyderabad ...APPELLANT AND Mech Engineers and Electors Private Ltd, # 15-19, Suguna Residency, High School Road New Paloncha, Khammam District, PAN-AAECIM4494|V ...RESPONDENT For the Appellant : SRI K.RAJI REDDY, Advocate For the Respondent : trTA NO.41 0F 2020: lncome Tax Tribunal Appeal under Section 260-4 of the lncome Tax Act, 1961 , against the order dated 51912019 in ITA No.2151 lF'ydl2Ol9 on the file of lncome Tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad, for the Assessment Year 2013- 2014 preferred against the order dated 61812018 in Appeal No.10043/201 7-1 8 on the file of the Commissioner of lncome Tax (Appeals-12), Hyderabad, preferred against the order dated 26-4-2017 in PAN No, AAECI ,44494 lt4 on the file of the Deputy Commissioner of lncome Tax, Central Circle-2 (1) Hyderabad, Between: The Principal Commissioner of lncome Tax-7, AC Guards, Hyderabad lt4ec Roa For the Appellant : SRI K.RAJI REDDY, Advocate For the Respondent : .,.APPELLANT hE dN AND ngineers and Electors Private Ltd, # 15-19, Suguna Residency, High School ewPaloncha,KhammamDistrict.PAN-AAECIV4494M ...RES'ONDENT The Court delivered the following: COIVIVON JUDGIVENT IIONOI RABI,E SRI .IUS-tICE NI.S. R, }I ('IIA] DIIA Ii.AO , I) IIONOUItAIILE Slil JtrSl'tCl,l 1'. '.lNOl) KU 'tAR COMMON JUDGMENT: (Per Sri Jrrstice M S.Ramocltandra llao) These two Appeals arise between the same parties in relation to Assessment Years 2013-14 and so they are being disposed of by this Common Judgment. 2. These Appeals are filed under Section 260-4 of the Income Tax Act, l96l by the Revenue assailing Order dt.05.09.20 19 passed in l.T.A.No. 1886 / IIYD / 2018 and Order dt.05.09.2019 passed lll LT.A.No.2l 5l / HYD / 201 8. 3. The respondent-Assessee rvas en-uagecl in the business of erection of Boilers and Turbines in Power Plants. Coal Feeding and Transportation and O & M olPower Plants. 4, The respondent-Assessee flled its original return of Income on 18.09.2013 declaring a totai income of Rs.4,01,01,350/-. 5. There was a Search and Seizure operation under Section 132 of the Act in the case of the respondent-Assessee on 14.12.2015 wherein certain discrepancies were noticed in the Labour charges as recorded in the Profit and Loss Account, as compared to the Proflt and Loss taken from the Books of Accounts taken in Tallv Poc'kage. Income-l'ar Tribunal , ppcal Nos..l0 and Jl ol'2020 MSR,J & TVK,J itta 40&41 2021 6, The respondent-Assessee debited expenditure to the tune of Rs.13,17,47,585/- r.vhereas the Tally Package disclosed actual labour charges incurred to the tune of Rs.7.32,22 ,2841- and salaries of Rs.60.80,5 l2l-, totaling to I(s.7,93,03,7961. The difference is Rs.5,24,42,789r- 7. The Assessing Ol'llcer treated the same as undisclosed income ol the Assessee and adcled this arnount to the disclosed incorne holding that there was inflation of labour charges and suppression of profits and computed the tax payable. 8, Thereafter, the respondent-Assessee preferred an Appeal before the Commissioner of Income Tax (Appeals). 9. Initially, by order dt.06.08.2018, the Commissioner of Income Tax (Appeals), granted parrial relief to assessee by holding that the entire amount cannot bc brought to tax. and it is only the incoure portion of the labour charges which is to be brought to tax. He further observed that the Net Profit ol-tered by the Assessee IS 9.28%. and so he accordingly applied the same i.e 9% to the additional income admitted during the course of search and brought it to tax. 10. Aggrieved by the confirmation of part of the addition, the respondent-Assessee filed I.T.A.No. 1886 / HYD I 2018 before the Income Tax Appellate Tribunal, Hyderabad Bench, at Hyderabad; and against the relief given by the Commissioner of Income Tax (Appeals), the Revenue filed I.T.A.No.2151 I HYD I 2018. 2 ISR.J & I 'K,J illr .10&.11 20: I ll. By Common Order dt.05.09.2019 passcd, the l-ribunal allowed the Appeal filed by the Assessee and the Appeal filed by the Revenue was dismissed. 12. The Tribunal held that thoueh there is a dit'lerence between the Ledger extract in the Books of Accounts and the Tally Package maintained in the Computer amounting to Rs.5,24,43,'7891- in the labour charges, the Executive Director of the respondent-Assessee in his statement under Section 132(4) of the Act admitted such undisclosed income, but the entire poftion cannot be treated as Assessee's income. The Tribunal further held that the Conrmissioner ol Income 'lax (Appeals) had recorded that Net Proflt o1'the Asse ssee is to be estimated irt 9(Xr ol rrain contract rvorks and a1 (r9{r on sub-contract rvorks: and rvhen finally he disposecl of the Appeal, the Cornnrissioner of Income Tax (Appeals) directed the Assessing Otlicer to adopt 9% of the total tumover which was arrived at before the search. The l-ribunal held that the Commissioner of Income Tax (Appeals) had not taken into consideration the fact that the Assessee is both the main contractor as well as sub-contractor and so it deemed it fit and proper to modify the directions of the Commissioner of Income Tax (Appeals) to the Assessing Officer directing him to re-compute the Net Proflt at 9% ol the turnover on the main contract ancl 6'lo ol the tr.rrnover on account of sub-contracts. 3 13. Challenging the same, the present Appeals are llled. MSI{.J & TVK.] itla 40&41 2011 14, Sri K. Raji Reddy, learned Senior Standing Counsel, appearing for Revenue, contended that when such huge discrepancy was noticed in the labour charges as recorded in the Profit and Loss Account and lhe profit and Loss taken from the Books of Accounts maintained in the Tallv Package, and the Executive Director ol the Assessee has admitted in the staternent given under Scction 132(4), thc lncome Tax Appellate 'fribunal ought to havc dismissed the Appeal filed by the Assessee, and allorved thc Appeal trlcd by the Revenue. Hc drew the attentior.r ol'tl.ris Court to thc answer given by the Executive Director to Question No.39 which is as under : \"Q,39 : Do you wa,rt to say anytlting ? Ans. Considering lhe omissions and discrepancies noticed in our company's books of accounts and evidences gathered, we are admitting Rs.15.00 crores as undisclosed income over and above our regular income already accounted .for. The bifurcation of the above undisclosed income of Rs.l5 crores assessment year wise is as under : F.Y. 2014-t5 -tlo- Rs.3.3 5,84,422 F.Y. 2014-15 llogus . l ) cotlroclors Rs.5,06,20.950 15. But the answer given by the Executive Director to Question No.35 put to him under Section I 32(,1) of thc Act is also relevant and we quote the same as under' : \"Q.35 : I ant sl:rottittg.vou tlte Annexu'e / Mech / l3 in which pagc 76 shott,s the labour charges booked to the oitet o.f |Ls.7,32,23,284/- and salaries is Rs.60,80,512/- but in the same FY 2012-13, the saLaries and wages are booked to the extent of Rs.13,17,47,585/- as per copy of P & L account filed along with return of income, vide page 8j of the same annexure. Please explain the difference ? ii4:i I ttt rll N4SR.J & TVK.J irt! {0&.11,2()21 Ans: Readily I am not in a position b explain the above cliscrepancy. I may be alloi)ed time for 2 days to reconcile and ftu'nish my explanation. If I fail to furnish any explanation with satisfactory evidence within hryo days, the sdme may be considered as unaccounted income in the hands of the company for the Asst. Year 20I3-14. \"(emphasis supplied) 16. Therefore, when answering tr: Question No.35, the Executive Director stated that readily he was not in a position to explain the explanation, it appears that this answer to Question No.35 was ignored and the answer given by him to Question No.39 put to him shortly thereafier was relied upon 17. Be that as it may, the Corrniissioner ot'lnconte 'lax (Appeals) had and had not allowed the same to escape assessment. While the Assessing Officer had brought the entire amount to tax, the Commissioner of Income Tax (Appeals) had held that the entire amount cannot be brought to tax and it is only the income portion of the Labour charges which is to be brought to tax and he then levied 9% to the additional income admitted and brought it to tax. The Tribunal modified it as 9% of the tumover on the main contracts and 60.,(, on the tumover on account of sub-contract works. 18. We are of the view that the above lincling ol-the Tribunal is based on the linding recorded by the Commissioner o1'Income Tax (Appeals) himsell that the Net Protlt of the assessee is to be cstimated ar 9%o on main contract works and 60lo on sub-contract works discrepancy and il he is allowed two days' time he rvould furnish his accepted that there is a differerrce in Labour charges of Rs.5,24,43,7891 ::6:: 1SR.J & IVK.J itta i10&41 2021 19. The Tribunal specifically observed that the Commissioner of Income Tax (Appeals) could not have adopted 9Yo net proht on this entire amount and he ignored the fact that the appellant was also working both as a main contractor and a sub-contractor. 20. Therefore, the finding of the Tribunal appears to be in consonance with the findings o1'the Cornn'rissioner of Income Tax (Appeals), and it did not conrrnit auy enor in directing the Assessing Otficer to re- colnpute the Net Proflt at c)70 of thc tut'nover on the lnain contracts alld at 6% of thc turnover on thc sub-ct'rntl'act works. These ale finding of facts and no substantial questioll of larv arises for consideration in Appeal under Section 260-4 oltlie Incotne Tax Act, 1961. 21. We therelore trnd no n'relit in thc Appeals and they accordingly dismissed. No order as to costs 22. As a sequel, miscellaneous petitions pending if any in these Appeals. shall stand closed. ,TRUE COPY' Sd/-B.S.CHIRANJEEVI JOINT REGISTRAR ,/..^ Llt 5 are SECTION OFFICER To 1. The lncome Tax Appellate Tribunal' Hyderabad Bench -A' Hyderabad' 2. i|i; i;;i.i.n\"ibi lncome Tax (Apbeals-12)' Hvderabad' 3. The Deputy Comrniss'oni''\"i ri'1\"'Ji';'-Ceniral'Circle-2(1)-Hyderabad a or\" C\"it,j'sii-x Rr1i neo-Jy. Senior SC for lncome Tax (oPUC) 5. Two CD CoPies Kj HIGH COURT DATED:2410212021 COMMON JUDGMENT ITTA.Nos.40 and 41 ot 2020 DISMISSING THE BOTH THE ITTA's W|THOUT COSTS. 26 MAH 2021 * ,r TA 15: S e i{ z e o 4 u- 2t .ia "