M/s. Hycons Infrastructure (India) Limited, Hyderabad v. DCIT, Circle-2(2), Hyderabad

ITA 1787/HYD/2011 | 2007-2008
Pronouncement Date: 23-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 178722514 RSA 2011
Assessee PAN AAACI7064D
Bench Hyderabad
Appeal Number ITA 1787/HYD/2011
Duration Of Justice 2 year(s) 5 day(s)
Appellant M/s. Hycons Infrastructure (India) Limited, Hyderabad
Respondent DCIT, Circle-2(2), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 23-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 23-10-2013
Assessment Year 2007-2008
Appeal Filed On 18-10-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NO. 1787/HYD/2011 ASSESSMENT YEAR : 2007-08 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. HYDERABAD. PAN: AAACI7064D VS. DY. COMMISSIONER OF INCOME- TAX CIRCLE 2(2) HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI K.L. RATHI & SIDDARTHA TOSHNIWAL REVENUE BY : SHRI R. LAXMAN DATE OF HEARING : 27-09-2013 DATE OF PRONOUNCEMENT : 23-10-2013 O R D E R PER B. RAMAKOTAIAH A.M.: THIS IS AN APPEAL BY ASSESSEE DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III HYDERABAD DATED 26/08/2011 FOR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY STATED ASSESSEE IS A COMPANY WHICH DE RIVES INCOME FROM EXECUTION OF CIVIL CONTRACT WORKS. FOR THE AY 2007-08 IT HAD FILED RETURN OF INCOME ON 12-02-2008 SHOWING INCOME OF RS . 2 59 96 696/-. LATER ON 10-12-2008 ASSESSEE FILED REVISED RETURN SHOWING INCOME AT RS. 70 04 576/-. THE AO IN THE COURSE OF SCRUTINY A SSESSMENT ENQUIRED VARIOUS THINGS/ISSUES AND SINCE ASSESSEE H AD NOT FURNISHED BOOKS OF ACCOUNT AND VOUCHERS FOR VERIFICATION HE ESTIMATED THE INCOME OF ASSESSEE AT 8% ON THE TURNOVER. ASSESSEE OFFERED AN 2 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. AMOUNT OF RS. 1 89 92 120/- TOWARDS DISALLOWANCE U/ S 40(A)(IA) IN THE ORIGINAL RETURN FILED WHICH WAS LATER WITHDRAWN IN THE REVISED RETURN ON THE GROUND THAT THESE ARE NOT LABOUR CONTRACT PAYME NTS BUT DIRECT LABOUR PAYMENTS MADE BY THE COMPANY AND BY MISTAKE IN THE ORIGINAL RETURN THEY DISALLOWED THESE AMOUNTS U/S 40(A)(IA). THE AO HOWEVER DID NOT AGREE WITH THE SUBMISSION OF ASSESSEE AND A FTER ESTIMATING THE INCOME AT 8% ON CONTRACT RECEIPTS MADE THE ADD ITION OF AMOUNT OFFERED BY ASSESSEE IN FIRST RETURN AT RS. 1 89 92 120/- U/S 40(A)(IA) IN THE ASSESSMENT. ASSESSEE ALSO SOLD A PIECE OF LAND AND THE AO VIDE PARA 6.2 OF HIS ORDER COMPUTED THE PROFIT ON SALE O F LAND SEPARATELY AND BROUGHT TO TAX THE SAME AS BUSINESS INCOME AT R S. 1 49 48 532/-. THE AO ALSO MADE AN ADDITION OF RS. 82 93 484/- AS INCOME FROM OTHER SOURCES CONSIDERING THE SAME AS UNEXPLAINED SHARE APPLICATION MONEY. THERE ARE TWO OTHER SMALL DISALLOWANCES WITH REFERENCE TO AUDITORS FEE OF RS. 67 416/- U/S 40(A)(IA) AND PAY MENT TOWARDS PF U/S 43B OF THE IT ACT. ASSESSEE CONTESTED VARIOUS ADDIT IONS MADE BY THE AO AND ALSO ESTIMATION OF INCOME AT 8% BEFORE THE C IT(A). 3. THE LEARNED CIT(A) WHILE OPINING THAT BOOKS OF A CCOUNT WERE NOT REJECTED BY THE AO CONFIRMED THE ADDITION AT 8 % ESTIMATED BY THE AO AND ALSO CONFIRMED VARIOUS OTHER ADDITIONS WHILE GIVING RELIEF ONLY TO THE PAYMENT TOWARDS PF DISALLOWED U/S 43B. 4. ASSESSEE IS AGGRIEVED IN ALL THE ISSUES AND IN T HE CONCISE GROUNDS OF APPEAL RAISED 12 GROUNDS. GROUND NO. 1 11 & 12 ARE GENERAL IN NATURE. GROUND NO. 10 IS WITH REFERENCE TO THE COMPLETION OF ASSESSMENT U/S 144 BY THE AO EXPLAINING REASONS AS TO WHY ASSESSEE COULD NOT COMPLY WITH THE NOTICES. GROUND NOS. 8 & 9 ARE ON LEGAL PRINCIPLES ON THE ISSUE OF ESTIMATION OF I NCOME WHEN ASSESSEE COMPANY MAINTAINED BOOKS OF ACCOUNT WHICH WERE AUDITED. THE MAIN GROUNDS ARE 2 TO 7 ON VARIOUS ADDITIONS MA DE BY THE AO WHICH ARE DEALT WITH HEREINAFTER. 3 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. 5. GROUND NO. 2 IS AS UNDER: THE LEARNED CIT(A) SHOULD NOT HAVE SUSTAINED THE IN COME OF RS. 94 11 606/- WORKED OUT ON THE BASIS OF ESTIMATI ON AT 8% ON TURNOVER OF RS. 11 76 45 084/- IGNORING THE FUNDAME NTAL FACT THAT THE 8% ESTIMATION IS PERMISSIBLE U/S 44AD IF T HE CONTRACT TURNOVER LESS THAN RS. 40 LAKHS AND FURTHER THERE A RE SEVERAL DECISIONS OF BOTH SUPREME COURT AND AP HIGH COURT WHEREBY ASSESSEES PAST INCOME RETURNED AND ASSESSED SHOULD BE TAKEN INTO CONSIDERATION. 6. AS BRIEFLY STATED THE AO ESTIMATED THE INCOME A T 8% ON TURNOVER OF RS. 11 76 45 084/- AND ARRIVED AT THE I NCOME OF RS. 94 11 606/- AS AGAINST THE INCOME IN P&L A/C AT RS. 70 04 576/- INCLUDING PROFIT ON SALE OF LAND OTHER INCOME ETC. SINCE THE BOOKS OF ACCOUNT AND VOUCHERS WERE NOT PRODUCED BEFORE THE A O AND AS MENTIONED IN PARA 5 OF THE ASSESSMENT ORDER NO COM PLIANCE WITH VARIOUS NOTICES ISSUED THE AO WAS OF THE OPINION T HAT INCOME CAN ONLY BE ESTIMATED IN VIEW OF ASSESSEES FAILURE TO PRODUCE BOOKS OF ACCOUNT. HE THEREFORE ESTIMATED THE INCOME AT 8% ON GROSS CONTRACT RECEIPTS. IT WAS THE CONTENTION OF ASSESSEE THAT 8% PERTAINS TO SECTION 44AD WHERE THE TURNOVER OF THE CONTRACT IS LESS THAN RS. 40 LAKHS AND FOR THIS PROPOSITION HE RELIED ON VARIOUS DECISIONS OF HONBLE SUPREME COURT AND VARIOUS HONBLE HIGH COUR TS WHEREBY SUBMITTED THAT INCOME WAS TO BE ASSESSED CONSIDERIN G THE PAST RECORD OF ASSESSEE EVEN U/S 144 OF THE IT ACT. 7. THE LEARNED COUNSEL BEFORE US RELIED ON THE FOLL OWING CASES FOR THE PROPOSITION THAT WHILE COMPLETING BEST JUDGMENT ASSESSMENT THE AO SHOULD HAVE DONE THE ASSESSMENT BASED ON THE MAT ERIAL AVAILABLE ON RECORD. 1. STATE OF KERALA VS. VELUKUTTY 60 ITR 239 (SC) 2. CIT VS. PILLIAH AND SONS 63 ITR 411 (SC) 3. YAGGINA VEERARAGHAVULU AND MAVULETI SOMARAJU AN D CO. VS.CIT 62 ITR 528 (AP) 4. RAJA PULLAIAH VS. CIT (DY.) 73 ITR 224 (AP) 4 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. 5. POLISETTI SUBBARAIDU AND CO. VS. CIT 34 ITR 49 2 (AP) 6. CIT VS. POPULAR ELECTRIC CO.(P) LTD. 203 ITR 6 30 (CAL.) 7. MADDI SUDARSANAM OIL MILLS CO. VS. CIT 37 ITR 3 69 (AP) 8. INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776 (AP) 8. CONTINUING THE ARGUMENT THE LEARNED COUNSEL SUB MITTED THAT IN EARLIER YEARS ASSESSEES INCOMES WERE ALSO ASSESSED U/S 143(3) AND IN EARLIER TWO ASSESSMENT YEARS THE INCOME OF CONT RACTS COMES TO 4.4% FOR AY 2004-05 AND 3.86% FOR AY 2005-06. THE C OUNSELS SUBMISSION IS THAT INCOME AT 8% CANNOT BE ASSESSED IN ASSESSEES CASE. FURTHER IT WAS ALSO SUBMITTED THAT ASSESSEE DID NOT UNDERTOOK ANY MAIN CONTRACTS AND HAS ONLY UNDERTOOK SUB-CONT RACTS AND AS PER THE ORDERS OF THE HONBLE ITAT IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT IN ITA NO. 308/HYD/2009 INCOME CAN BE ESTIMAT ED ONLY AT 5% ON SUB-CONTRACTS. HE ALSO RELIED ON THE COORDINATE BENCH IN THE CASE OF RATNA CONSTRUCTIONS VS. ACIT IN 716/HYD/2011. HE ALSO PLACED ON RECORD THE ORDERS OF ITAT IN THE IMMEDIATELY PRECED ING YEAR FOR AY 2006-07 WHERE IN MA DATED 20-06-2012 THE ITAT RECA LLED ITS ORIGINAL ORDER DISMISSING ASSESSEES APPEAL AND RESTORED THE ISSUE TO THE FILE OF THE AO FOLLOWING THE DECISION OF TEJA CONSTRUCTI ONS (SUPRA). IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT BASED ON THE PAST RECORD AND ALSO ON THE BASIS OF DECISIONS OF THE TRIBUNAL ON THE ISSUE OF ESTIMATION OF INCOME AT 8% DOES NOT ARISE. HE ALSO CONTESTED THE FINDING OF THE LEARNED CIT(A) THAT AO DID NOT REJEC T THE BOOKS OF ACCOUNT WHEN IN FACT ESTIMATION OF INCOME CAN ONLY BE DONE AFTER REJECTION OF BOOKS OF ACCOUNT. THE LEARNED COUNSEL ALSO REFERRED TO THE BOARDS CIRCULAR NO. 387 DATED 06-07-1984 ISSUE D BY THE CBDT TO SUBMIT THAT WHEN ACCOUNTS ARE MAINTAINED BY COMP ANY UNDER COMPANIES ACT THE AO SAVES CONSIDERABLE TIME IN CA RRYING OUT ROUTINE VERIFICATIONS LIKE CHECKING CORRECTNESS OF TOTALS AND TIME THUS SAVED COULD BE UTILIZED FOR ATTENDING TO MORE IMPOR TANT INVESTIGATIONAL ASPECTS OF THE CASE. HE RELIED ON THE DECISION OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF ADDITIONAL CIT VS. JAY EN GG. WORKS LTD. 5 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. 113 ITR 389 TO SUBMIT THAT THE AO CAN RELY UPON THE AUDIT REPORTS IN SUPPORT OF RELEVANT ENTRIES IN THE BOOKS OF ACCOUNT . IT WAS HIS CONTENTION THAT ESTIMATION OF INCOME IS NOT WARRANT ED ON THE FACTS OF THE CASE OF ASSESSEE. 9. THE LEARNED DR HOWEVER RELIED ON THE ORDERS OF THE AO AND THE CIT(A) TO SUBMIT THAT THERE IS NOTHING ON RECOR D TO INDICATE THAT ASSESSEE IS DOING SUB-CONTRACT WORKS AND SO AS UPH ELD BY THE COORDINATE BENCH IN SIMILAR CASES ESTIMATION OF INC OME AT 8% IS REASONABLE. 10. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE D OCUMENTS PLACED ON RECORD. IT IS A FACT THAT THE AO ISSUED M ANY NOTICES WHICH WERE NOT COMPLIED WITH BY ASSESSEE AND BOOKS OF ACC OUNT AND OTHER RELEVANT VOUCHERS HAVE NOT BEEN PRODUCED BEFORE THE AO. IN THESE CIRCUMSTANCES THE AO HAD NO OPTION THAN TO ESTIMAT E THE INCOME. HOWEVER IT IS THE CONTENTION BEFORE US THAT ASSESS EE COULD NOT ATTEND BEFORE THE AO DUE TO SOME LITIGATION GOING O N IN DELHI IN CONNECTION WITH CONTRACT WORKS AND AUDITED STATEMEN T OF ACCOUNTS AND OTHER INFORMATION WERE PROVIDED TO THE AO FROM TIME TO TIME. BE THAT AS IT MAY WE ARE REALLY SURPRISED WITH OPINIO N OF THE CIT(A) THAT BOOKS OF ACCOUNT WERE NOT REJECTED BY THE AO. UNLES S THE BOOKS OF ACCOUNT ARE REJECTED ESTIMATION OF INCOME DOES NOT ARISE UNDER THE PROVISIONS OF SECTION 145. THEREFORE ONE HAS TO PR ESUME THAT THE AO RESORTED TO ESTIMATION OF INCOME ONLY AFTER REJECTI NG THE BOOKS OF ACCOUNT WHICH HAVE NOT PRODUCED BEFORE HIM IN SPIT E OF SEVERAL NOTICES. WE CANNOT THEREFORE UPHOLD THE OPINION O F THE CIT(A) ON THIS ISSUE. 11. COMING TO THE ESTIMATION OF INCOME AT 8% THERE IS NO HARD AND FAST RULE THAT INCOME CAN ONLY BE ESTIMATED AT 8% O R AT 5% AS CANVASSED BEFORE US BY THE LEARNED COUNSEL. IN FACT IN MANY OF THE CASES ESTIMATION OF INCOME AT 12.5% WAS ALSO UPHELD BY THE 6 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. COORDINATE BENCH. MOREOVER AS SEEN FROM THE DECISI ON OF TEJA CONSTRUCTIONS VS. CIT (SUPRA) THE COORDINATE BENCH HELD AS FOLLOWS IN SAID DECISION: WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THE PRESENT CASE THE AO REJECTED THE BOOKS OF ACCOUNT ON THE REASON THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNT AND ALSO FAILED TO PRODUCE VOUCHERS FOR VERIFICATION AND THE EXPENDITU RE CLAIMED BY THE ASSESSEE ARE NOT SUBSTANTIATED. THE ASSESSEE IN EARLIER YEARS ALSO HAS NOT MAINTAINED T HE PROPER BOOKS OF ACCOUNT. THE ASSESSEES PAST TRACK RECORDS SHOW THAT THE ASSESSEE HAS NEGLECTED THE PRESENTING BOOKS OF ACCOUNT IN ACCORDANCE WITH LAW. WHEN THE ASSESSE E CLAIMED ANY EXPENDITURE IT IS MANDATORY ON THE PAR T OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT SUPPORTED BY PROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS N OT PRODUCED THE PROPER BOOKS OF ACCOUNT TRUE PROFITS OR LOSS CANNOT BE DEDUCTED FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAVING NO OTHER OPTION REJECTED TH E BOOKS OF ACCOUNT AND ESTIMATED THE INCOME AT 10 PER CENT OF GROSS RECEIPTS. BUT THE POSITION IS THAT THE AS SESSEE IS CARRYING ON THREE KINDS OF CONTRACTS AS IN EARLIER YEARS I.E. (I) OWN CONTRACTS (II) CONTRACTS TAKEN FROM THE SU B- CONTRACTS (III) CONTRACTS GIVEN TO OTHER PARTIES O N SUB- CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE ITSELF. IN THESE CONTRACTS THE ASSESSEE AGREED THAT HIS INCOME IS A T 9 PER CENT OF THE GROSS RECEIPTS. THUS ACCORDINGLY THE A O IS DIRECTED TO ESTIMATE THE INCOME ON THE CONTRACTS EX ECUTED BY THE ASSESSEES OWN AT 9 PERCENT. IN CASE OF CONT RACTS TAKEN BY THE ASSESSEE ON SUB-CONTRACT THE INCOME T O BE ESTIMATED AT 8 PER CENT OF THE GROSS RECEIPTS. IN C ASE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE THIRD PARTY ON SUB- CONTRACT INCOME TO BE ESTIMATED AT 4 PER CENT. THI S IS BECAUSE WHEN THE ASSESSEE GIVES CONTRACT TO THE OT HER PARTIES ON SUB-CONTRACT THE ASSESSEE CANNOT KEEP T HE SAME PERCENTAGE OF PROFIT AT 9 PER CENT IT HAS TO FORGO CERTAIN PORTION OF PROFIT I.E. AROUND 5 PER CENT TO THE SUB - CONTRACTORS. SIMILAR POSITION IN THE CASE OF CONTRA CTS TAKEN BY THE ASSESSEE ON SUB-CONTRACT FROM OTHER PARTIES. FURTHER THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION AND INTERESTS TO PARTNERS ON THE PROFI T ESTIMATED BY AO AT APPLICABLE RATES BECAUSE THE IN COME IS ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AND INTEREST AND REMUNERATION OF THE P ARTNERS. ACCORDINGLY WE DIRECT THE AO TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. ACCORDINGLY THIS GROUND OF THE AS SESSEE APPEAL IS PARTLY ALLOWED. 7 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. 12. AS SEEN FROM THE ABOVE IN THAT PARTICULAR CASE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNT AND THE AO HAS NO O PTION THAN TO REJECT THE BOOKS OF ACCOUNT AND ESTIMATE THE INCOME AT 10%. ASSESSEE AGREED THAT HIS INCOME CAN BE ESTIMATED AT 9% OF GROSS RECEIPTS. THERE IS CONCESSION ON THE PART OF ASSESS EE AND THE ITAT WENT ON TO GIVE DIRECTIONS TO ESTIMATE INCOME AT 9% ON THE CONTRACTS EXECUTED BY ASSESSEE. IN CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB-CONTRACTS INCOME TO BE ESTIMATED 8% ON THE GRO SS RECEIPTS. IN CASE OF CONTRACTS GIVEN BY ASSESSEE TO THE THIRD PA RTIES ON SUB- CONTRACT INCOME IS TO BE ESTIMATED AT 4%. THUS ON A CONCESSION GIVEN BY ASSESSEE THE COORDINATE BENCH HAS DECIDED THAT IN THREE KINDS OF CONTRACTS UNDERTAKEN BY THAT ASSESSEE INC OME CAN BE ESTIMATED ON OWN CONTRACTS AT 9% CONTRACTS TAKEN O N SUB-CONTRACT AT 8% AND CONTRACTS GIVEN TO OTHER PARTIES ON SUB-CONT RACT BASIS AT 4%. IN OUR VIEW ESTIMATION OF INCOME BY THE AO AT 8% I S REASONABLE WHETHER IT IS OWN CONTRACT OR SUB-CONTRACT. THERE C ANNOT BE ANY ESTIMATION OF LESS THAN 8% ON THE GROSS RECEIPTS IN SUCH CONTRACTS EXECUTED BY ASSESSEE. IN FACT ON OWN CONTRACTS WHAT THE COORDINATE BENCH AGREED WAS AT 9% IN THAT PARTICULAR CASE. MAY BE IN THE CASE OF A PERSON WHO ASSIGNS SUB-CONTRACT ESTIMATION OF HIS INCOME AT 4% IS REASONABLE BECAUSE HE DOES NOT UNDERTAKE ANY RIS K BUT IN THE CASE OF CONTRACTOR WHO EXECUTES THE WORKS TAKING RISK THE ESTIMATION OF INCOME CANNOT BE AT 5%. GENERALLY BUSINESS IS COND UCTED TO EARN MORE PROFITS. IT CAN NOT BE AT 5% WHICH IS LESS THA N THE BANK INTEREST WHICH ANY PERSON CAN GET IF THE AMOUNTS ARE DEPOSIT ED IN THE BANK FOR A CONSIDERABLE PERIOD. THE INCOMES EARNED ON CONTRA CTS UNDERTAKEN BY ASSESSEE CANNOT BE CONSIDERED LESS THAN EVEN BAN K INTEREST UNLESS THERE ARE VALID REASONS FOR INCURRING LOSSES DUE TO VARIOUS OTHER FACTORS WHICH CAN BE CONSIDERED. 13. IN THE CASE UNDER CONSIDERATION EVEN THOUGH IT WAS STATED TO HAVE GOT THE BOOKS OF ACCOUNT AUDITED IT DID NOT P RODUCE THE SAME 8 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. BEFORE THE AUTHORITIES FOR VERIFICATION. IN FACT W HILE FILING REVISED RETURN OF INCOME WITHDRAWING ORIGINALLY ADMITTED IN COME U/S 40(A)(IA) ASSESSEE CLAIMED THAT BY MISTAKE IN THE ORIGINAL RE TURN THEY DISALLOWED THESE AMOUNTS U/S 40(A)(IA). THIS INDICA TES THAT NO PROPER AUDIT WAS CONDUCTED ON THE BOOKS OF ACCOUNT IF SO SUCH MISTAKES CAN NOT HAPPEN. IN THESE CIRCUMSTANCES WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE AO AND CIT(A) IN ES TIMATING THE INCOME AT 8% AND ACCORDINGLY THEIR ORDERS ARE UPHELD ON T HIS ISSUE. 14. ONE OF THE ARGUMENT RAISED BY ASSESSEE IS THAT ESTIMATION OF INCOME AT 8% IS PERMISSIBLE FOR THE CONTRACTS LESS THAN RS. 40 LAKHS AND THIS MAY BE A VALID CONTENTION PROVIDED THAT AS SESSEE SUPPORTS THE PROFIT EARNED BY WAY OF PROPER BOOKS OF ACCOUN T MAINTAINED BY IT. IN THE PRESENT CASE AS ALREADY STATED ASSESSEE HA S NOT PRODUCED BOOKS OF ACCOUNT BEFORE THE AO AND IN THE ABSENCE O F BOOKS OF ACCOUNT IT IS DIFFICULT TO VERIFY THE REASONS FOR EARNING LESSER PROFIT AS CONTENDED BY ASSESSEE. THE SPECIAL BENCH OF THE IT AT IN THE CASE OF M/S ARIHANT BUILDERS VS. ACIT 291 ITR 41 CONSID ERED THE ISSUE UNDER SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE A ND AFTER TAKING CLUE FROM THE PROVISIONS OF SECTION 44AD THOUGH NO T APPLICABLE HELD THAT ESTIMATION OF INCOME AT 8% OF THE TURNOVER IS REASONABLE. IN OUR OPINION IN THE CASE UNDER CONSIDERATION ESTIMATION AT 8% IS VERY REASONABLE BECAUSE THE COORDINATE BENCHES OF THE TR IBUNAL IS ACCEPTING THE ESTIMATION OF INCOME RANGING FROM 8% TO 12.5% DEPENDING UPON THE FACTS OF THE CASE AND NATURE OF CONTRACTS UNDERTAKEN AND SOME OF THE CASES ARE FURNISHED BELO W: 1. KRISHNAMOHAN CONSTRUCTIONS VS. ACIT ITA NO. 380 /HYD/94 DTD. 10-03-1999. 2. ITO VS. K.C. REDDY ASSOCIATES ITA NO. 1843/HYD/ 89 DTD. 29-08-1994. 3. SRI SRINIVASA CONSTRUCTION ITA NOS. 804 & 805/H YD/93 DTD. 24-04-1996. 9 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. 4. BHASKAR REDDY VS. ITO ITA NO. 168/HYD/06 DTD. 09-10- 2007. THEREFORE IN THE ABSENCE OF PROPER REASONS FOR EAR NING LESSER PROFIT THE ORDER OF THE AO IS UPHELD AND INCOME ESTIMATION AT 8% ON THE GROSS RECEIPTS MADE BY AO IS ACCORDINGLY CONFIRMED. 15. GROUND NO. 3 IS AS UNDER: THE LEARNED CIT(AS) SHOULD NOT HAVE SUSTAINED THE ADDITION OF RS. 1 49 48 532/- UNDER THE HEAD BUSINESS INCOME ON THE GROUND THAT IN PROFIT & LOSS A/C EXCESS AMOUNT ON S ALE OF LAND IS CREDITED AT RS. 1 49 48 532/- SINCE PROFIT & LOSS A /C HAS BEEN REJECTED AND AO HAS RESORTED TO ESTIMATION OF INCOM E QUESTION OF MAKING ANY ADDITION AS SUCH DOES NOT ARISE. 16. AS STATED EARLIER ON NOTICING THAT ASSESSEE HA D RECEIPTS FROM SALE OF LAND AT RS. 10.45 CRORES SHOWN IN THE P& L A/C AND THE COST OF LAND CLAIMED AT RS. 9 35 94 535/- AO COMPUTED THE INCOME FROM SALE OF LAND SEPARATELY AT RS. 1 49 48 532/-. ASSESSEE C ONTESTED BEFORE THE LEARNED CIT(A) THAT ONCE BOOKS OF ACCOUNT WERE REJECTED THERE CANNOT BE ANY OTHER ADDITIONS AS MADE OUT BY THE AO . THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE AO HAVING REGARD TO THE FACTUAL POSITION THAT PROFITS FROM SALE OF LAND HAS NO NEXU S WITH THE CONTRACT RECEIPTS. 17. BEFORE US THE LEARNED COUNSEL REFERRING TO TH E ORDERS OF THE AO AND CIT(A) SUBMITTED THAT IF THE INCOME IS ESTIMAT ED NO OTHER ITEM OF ADDITION SHOULD BE MADE TO THE ESTIMATED INCOME. FO R THIS PROPOSITION HE RELIED ON THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT IN CASE OF MADDI SUDARSANAM OIL MILLS CO . VS. CIT [1959] 37 ITYR 369 (AP) WHICH IN TURN HAS FOLLOWED BY THE HONBLE AP HIGH COURT IN CASE OF INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776 (AP) 18. HAVING CONSIDERED THE RIVAL CONTENTIONS AND PER USING THE RECORD WE ARE OF THE OPINION THAT THE PRINCIPLES L AID DOWN BY THE 10 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. HONBLE JURISDICTIONAL HIGH COURT IN THE SAID CASES DO NOT APPLY TO THE FACTS OF THE CASE. AS SEEN FROM THE ORDERS OF THE A O AND THE CIT(A) ASSESSEE HAD CONTRACT RECEIPTS AS WELL AS PROFIT ON SALE OF LAND WHICH IS ALSO AS PART OF BUSINESS INCOME. ASSESSEE HAS NOT OFFERED THIS INCOME EITHER UNDER OTHER SOURCES OR CLAIMED B ENEFIT OF CAPITAL GAINS. THEREFORE PROFIT ON SALE OF LAND IS PART OF THE BUSINESS ACTIVITY OF ASSESSEE COMPANY. HOWEVER IT WAS NOT ON RECORD WHETHER THE PROFIT BY WAY OF SALE OF LAND IS ANY WHERE CONNECTE D WITH THE CONTRACT ACTIVITY OF ASSESSEE. SINCE THE AO SEPARATELY BROUG HT TO TAX THOSE INCOME ON SALE OF LAND AND THE LEARNED CIT(A) HAVIN G GIVEN A FINDING THAT THERE IS NO NEXUS BETWEEN THE CONTRACT RECEIPT S AND RECEIPTS ON SALE OF LAND IN OUR OPINION THE PRINCIPLES LAID DO WN BY THE HONBLE AP HIGH COURT IN THE CASES OF MADDI SUDARSANAM OIL MIL LS AND INDWELL CONSTRUCTIONS (SUPRA) DO NOT APPLY TO THE FACTS OF PRESENT CASE. THE RELEVANCE OF THE ABOVE CASE LAW WAS DISCUSSED IN NE XT GROUND IN DETAIL. PURCHASE OF LAND AND SALE OF LAND IS A SEPA RATE BUSINESS ACTIVITY AND THEREFORE THE PROFITS OR LOSSES ON T HAT BUSINESS ACTIVITY HAS TO BE CONSIDERED SEPARATELY. EVEN THOUGH THE I NCOME WAS ESTIMATED ON CONTRACT RECEIPTS BY REJECTING BOOKS O F ACCOUNT ON THE BASIS OF STATEMENTS OF ACCOUNTS FILED BEFORE THE RE VENUE AUTHORITIES IF THEY COME TO A CONCLUSION THAT CERTAIN OTHER BUSINE SS INCOMES ARE ALSO EARNED THE SAME ARE NECESSARILY TO BE BROUGHT TO TAX SEPARATELY. THEREFORE WE ARE OF THE OPINION THAT PROFIT ON SAL E OF LAND HAS NO NEXUS WITH THE PROFIT ON CONTRACT RECEIPTS AND ACCO RDINGLY INCLUSION OF PROFIT ON SALE OF LAND SEPARATELY BY MAKING ADDITIO N IS JUSTIFIED. THIS GROUND IS ACCORDINGLY REJECTED. 19. GROUND NOS. 4 & 5 PERTAIN TO ADDITION U/S 40(A) (IA) WHICH ARE AS UNDER: 4. THE LEARNED CIT(A) SHOULD NOT HAVE SUSTAINED THE ADDITION OF RS. 1 89 92 120/- UNDER 40(A)(IA) WHEN THE SAME ARE NOT HIT BY PROVISION OF SECTION 40(A)(IA) AND ALSO WHEN P&L A/C HAS BEEN REJECTED. 11 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. 5. THE LEARNED CIT(A) SHOULD NOT HAVE SUSTAINED THE ADDITION OF AUDITORS FEES OF RS. 67 416/- AS HIT BY SECTION 40 (A)(IA) WHICH IN FACT IT IS NOT. 20. ASSESSEE ORIGINALLY FILED RETURN OF INCOME BY A DDING AN AMOUNT OF RS. 1 89 92 120/- U/S 40(A)(IA) ON THE REASON TH AT TDS HAS NOT BEEN MADE ON THE BASIS OF THE AUDIT REPORT ENCLOSED TO THE RETURN OF INCOME. SUBSEQUENTLY ON REALIZING THAT THESE AMOUN TS ARE NOT LABOUR CONTRACT PAYMENTS BUT DIRECT LABOUR PAYMENTS MADE B Y THE COMPANY WITHDREW THE SAME BY FILING A REVISED RETURN OF INC OME. HOWEVER THE LEARNED AO DID NOT AGREE WITH THE CONTENTION OF ASS ESSEE ON THE REVISED RETURN ON THE REASON THAT SINCE ORIGINAL RE TURN WAS FILED BELATEDLY ASSESSEE HAS NO RIGHT TO REVISE THE RETU RN. EVEN WHEN ASSESSEE OFFERED SUBJECT TO VOUCHERS VERIFICATION THE AO DID NOT AGREE IN THE ABSENCE OF BOOKS OF ACCOUNT AND ORIGIN AL VOUCHERS. EVEN THOUGH LEDGER ACCOUNT COPIES WERE FURNISHED HE MAD E THE ADDITION OF RS. 1 89 92 120/- U/S 40(A)(IA) AND ALSO MADE AD DITION OF RS. 67 416/- TOWARDS THE PAYMENT MADE TO AUDITORS ON AC COUNT OF FEES AS HIT BY PROVISIONS OF SECTION 40(A)(IA). 21. BEFORE THE LEARNED CIT(A) IT WAS CONTENDED THAT THESE PAYMENTS ARE NOT COVERED BY TDS PROVISIONS AS THEY ARE NOT CONTRACT PAYMENTS BUT ASSESSEES OWN EXPENDITURE BY WAY OF D IRECT LABOUR PAYMENTS AND ASSESSEE IS IN A POSITION TO SUBMIT VO UCHERS FOR VERIFICATION. THE LEARNED CIT(A) EXAMINING THE LEGA L PRINCIPLES ON FILING OF ORIGINAL RETURN AND REVISED RETURN REJEC TED ASSESSEES CONTENTION AND CONFIRMED ADDITIONS MADE U/S 40(A)(I A) BY THE AO. 22. BEFORE US THE LEARNED COUNSEL REITERATED THE S UBMISSIONS WHICH ARE IN TWO FOLD; FIRST CONTENTION IS THAT THE AMOUNTS ARE NOT COVERED BY PROVISIONS OF TDS AND THEREFORE THE DI SALLOWANCE U/S 40(A)(IA) DOES NOT ARISE. FOR THIS ASSESSEE SUBMIT TED THAT IT IS READY TO FURNISH NECESSARY VOUCHERS FOR VERIFICATION BEFO RE AUTHORITIES IF REQUIRED. THE SECOND CONTENTION IS ON LEGAL PROPOSI TION THAT ONCE 12 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. INCOMES ARE ESTIMATED THERE CANNOT BE ANY MORE ADD ITIONS MORE SO OF STATUTORY NATURE. FOR THIS RELIED ON THE PRINCI PLES LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MA DDI SUDARSANAM OIL CO.(SUPRA) AND ALSO IN THE CASE OF INDWELL CONSTRU CTIONS (SUPRA). IT WAS CONTENDED THAT ONCE BOOKS OF ACCOUNT HAVE BEEN REJECTED THE AO CANNOT RELY ON THE SAME BOOKS OF ACCOUNT FOR ADD ITION OF AN EXTANT ITEM IN THE P&L A/C. 23. THE LEARNED DR ON THE OTHER HAND SUPPORTED TH E ORDERS OF THE REVENUE AUTHORITIES. 24. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE MA TERIAL ON RECORD. AS FOR AS INCOME ESTIMATION ON CONTRACT REC EIPTS ARE CONCERNED WE HAVE ALREADY UPHELD THE ESTIMATION OF INCOME AT 8% IN GROUND NO. 2. THEREFORE ONCE THE BOOKS OF ACCOUNT ARE REJECTED WHILE COMPUTING INCOMES FROM SECTION 30 TO 43D OF T HE IT ACT THERE IS NO NECESSITY FOR DISALLOWING ANY FURTHER AMOUNTS AS HELD BY THE JURISDICTIONAL HIGH COURT. IN FACT THE PRINCIPLES L AID DOWN BY THE HONBLE AP HIGH COURT IN THE CASE OF MADDI SUDARSAN AM OIL CO. (SUPRA) WITH REFERENCE TO ADDITION OF UNEXPLAINED C ASH CREDITS WERE NOT UPHELD BY THE HONBLE SUPREME COURT IN THE SUBS EQUENT JUDGMENTS DEALT WITH IN GROUND NO. 7 ON SIMILAR IS SUE BUT SUFFICE TO SAY THAT THE HONBLE JURISDICTIONAL HIGH COURT IN C ASE OF INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776 (AP) HAS CONSIDE RED SIMILAR ISSUE OF COMPUTATION OF INCOME UNDER THE HEAD BUSINESS FROM SECTION 28 TO 43D OF THE ACT AND HELD AS UNDER: REVERSING THE ORDER OF THE TRIBUNAL THAT THERE WA S A BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL A ND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE INCOME-TAX OFFI CER WHILE MAKING AN ESTIMATE. IF THE COMMISSIONER HAD S ET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FAC T THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WI TH BORROWED CAPITAL HAD BEEN IGNORED BY THE ITO THERE MIGHT NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDE R. BUT 13 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. WHEN HE PROPOSED TO ADD BACK AN EXACT ITEM IN THE P ROFIT AND LOSS ACCOUNT HE WAS RELYING ON THE REJECTED BO OKS WHICH HE COULD NOT DO. THERE WAS ALSO A FURTHER DIF FICULTY IF SECTION 40 WAS TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN OTHER DEDUCTION S WHICH ARE TO BE DISALLOWED SUCH AS WEALTH-TAX PAYMENT IN SECTION 40 IT CANNOT BE SAID THAT AFTER MAKING AN ESTIMATE THE WEALTH-TAX CHARGED IN THE PROFIT AND LOSS ACCOUNT S HOULD AGAIN BE ADDED BACK TO THE PROFIT. THEREFORE IT WA S NOT CORRECT IN LAW TO MAKE THE SEPARATE ADDITION OF RS. 63 859/- REPRESENTING THE INTEREST AND REMUNERATION PAID TO THE PARTNERS TO THE INCOME ALREADY ESTIMATED AND ASSESS ED FROM CONTRACTS. 25. SINCE THE PROVISIONS OF SECTION 40(A)(IA) ARE P ART OF COMPUTATION OF INCOME UNDER THE HEAD BUSINESS FROM SECTIONS 2 8 TO 43D RESPECTFULLY FOLLOWING THE SAID ORDER OF THE JURISD ICTIONAL HIGH COURT WE HAVE NO OPTION THAN TO DELETE THE ADDITION MADE BY THE AO. IN FACT THE HONBLE SPECIAL BENCH OF ITAT KOLKATA IN CASE OF ITO VS. KENARAM SAHA AND SUBHASH SAHA 301 ITR (AT)17 (KOL .) (SB) HAS CONSIDERED SIMILAR ISSUE OF DISALLOWANCE U/S 40A(3) AND HELD AS UNDER: NOW COMING TO THE DEPARTMENTAL APPEAL IN THE CASE OF SHRI SHYAMAL KR. DEY VIDE ITA NO. 1772(KOL)/2007 T HE AO HAS DETERMINED THE INCOME BY APPLYING A NET PROFIT RATE OF THE TURNOVER. THE AO IN ADDITION TO THE DETERMINATI ON OF NET PROFIT AS A PERCENTAGE OF TURNOVER MADE FURTHER DISALLOWANCE U/S 40A(3). THE CIT(A) DELETED THE DISALLOWANCE MADE U/S 40A(3). THE REVENUE AGGRIEVED WITH THE ORDER OF THE CIT(A) IS IN APPEAL BEFORE US. IT IS CONTENDED BY LEARNED COUNSEL THAT ONCE A NET PROFIT RATE IS APPLIED NO FURTHER ADDITION/DISALLOWANCE CAN BE MA DE U/S 40A(3). IN SUPPORT OF THIS CONTENTION HE HAS RELIE D UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. BANWARI LAL BANSHIDHAR [1998] 229 ITR 229 IN WH ICH THEIR LORDSHIPS HELD AS UNDER (HEAD NOTE): AFFIRMING THE DECISION OF THE TRIBUNAL THAT NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISION S OF SECTION 40A(3) READ WITH RULE 6DD(J) OF THE INCO ME- TAX RULES 1962 AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE. WHEN THE GROSS PROFIT RATE WAS APPLIED THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE AO TO MAKE SCRUTINY OF TH E 14 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. AMOUNT INCURRED ON THE PURCHASES MADE BY THE ASSESSEE. THE ABOVE DECISION OF THE HONBLE ALLAHABAD HIGH CO URT WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASS ESSEE. WHEN A NET PROFIT RATE IS APPLIED THERE REMAINS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE. IN VIE W OF THE ABOVE WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE ALLAHABAD HIGH COURT HOLD THAT THE CIT(A) W AS JUSTIFIED IN DELETING THE DISALLOWANCE U/S 40A(3) M ADE BY THE AO. ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT (A) AND DISMISS THE REVENUES APPEAL. ACCORDINGLY WE ARE OF THE OPINION THAT THE AO IS N OT JUSTIFIED IN MAKING ADDITION U/S 40(A)(IA) WHEN INCOME WAS ESTIM ATED BY REJECTING BOOKS OF ACCOUNT. MOREOVER AS CONTENDED BY THE LEA RNED COUNSEL THESE AMOUNTS ARE NOT COVERED BY THE PROVISIONS OF TDS SO AS TO BE DISALLOWED U/S 40(A)(IA). THIS ASPECT WAS NOT AT AL L CONSIDERED BY THE AO EVEN THOUGH ASSESSEE CONTENDED THE SAME BY FILIN G A REVISED RETURN. IN OUR OPINION BOTH THE AO AND THE CIT(A) ERRED IN TAKING LEGAL STAND OF ORIGINAL RETURN AND REVISED RETURN W HEN IN FACT THE COMPUTATION OF INCOME STARTED WITH ESTIMATION OF IN COME WITHOUT ANY REFERENCE TO THE INCOMES OFFERED BY ASSESSEE IN THE BOOKS OF ACCOUNT. WHEN THE ASSESSED INCOME WAS ARRIVED AT ON THE BASIS OF ESTIMATION AND COMPUTATION DOES NOT REFER TO THE IN COMES OFFERED BY ASSESSEE AT ALL WE ARE NOT IN AGREEMENT WITH THE F INDING OF THE CIT(A) THAT ASSESSEE HAS NO RIGHT TO WITHDRAW THE D ISALLOWANCE MADE U/S 40(A)(IA) BY WAY OF REVISED RETURN. IF ASSESSIN G OFFICER BASED HIS ASSESSMENT EITHER ON THE BASIS OF ORIGINAL RETURN O R ON THE BASIS OF REVISED RETURN WHILE COMPUTING INCOME THESE CONTEN TIONS COULD BE CONSIDERED AS VALID. BUT SINCE THE COMPUTATION IS MADE ON THE BASIS OF ESTIMATION OF INCOME BY REJECTING BOOKS OF ACCOU NT RELEVANCE OF ADMISSION IN THE RETURN BY ASSESSEE LOOSES ITS SIGN IFICANCE. THEREFORE WITHOUT GOING INTO MERITS OF ASSESSEES CONTENTIONS ON MERITS THAT THESE AMOUNTS ARE NOT COVERED BY TDS PR OVISIONS WE HOLD THAT THESE AMOUNTS CAN NOT BE DISALLOWED AS CO VERED BY THE PROVISIONS OF SECTION 40(A)(IA). AO CANNOT MAKE DI SALLOWANCE UNDER 15 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. THESE SECTIONS ONCE THE INCOME OF ASSESSEE WAS EST IMATED UNDER THE HEAD BUSINESS( IE CONTRACT BUSINESS) BY REJEC TING THE BOOKS OF ACCOUNT. THEREFORE GROUND NOS. 4 & 5 RAISED BY ASS ESSEE ARE ALLOWED. 26. GROUND NO. 6 IS AS UNDER: THE LEARNED CIT(A) SHOULD NOT HAVE SUSTAINED UNDER THE HEAD OTHER SOURCES THE OTHER INCOME CREDITED IN P&L A/C OF RS. 53 56 308/- AS BOOKS OF ACCOUNT WERE REJECTED AND I NCOME WAS ESTIMATED. 27. ASSESSEE HAD SHOWN OTHER INCOME IN P&L A/C AT R S. 53 56 308/- WHICH WAS BROUGHT TO TAX BY THE AO UND ER THE HEAD OTHER SOURCES AND THE LEARNED CIT(A) CONFIRMED TH E SAME BY HOLDING THAT ESTIMATION OF INCOME UNDER THE HEAD BUSINESS IS DIFFERENT FROM THE HEAD OTHER SOURCES. 28. BEFORE US ASSESSEE CONTESTED THAT ONCE INCOMES ARE ESTIMATED OTHER ADDITIONS CANNOT BE MADE. WE FIND THAT ASSESSEE DID NOT PLACE ANY MATERIAL ON RECORD ABOUT THE NATURE O F INCOME NOR CONTENDED BEFORE US THAT THESE INCOME HAS NEXUS WIT H THE CONTRACT BUSINESS. ONLY CONTENTION RAISED THAT THESE SHOULD HAVE BEEN EXCLUDED ON THE GROUND THAT ONCE INCOMES ARE ESTIMA TED NO OTHER ADDITIONS CAN BE MADE. IT IS TRUE THAT AO CANNOT MA KE ANY FURTHER DISALLOWANCE ONCE INCOMES ARE ESTIMATED FOLLOWING PRINCIPLES LAID BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWEL L CONSTRUCTIONS (SUPRA) BUT SINCE THESE INCOMES ARE BROUGHT TO TA X AS OTHER SOURCES THE PRINCIPLES LAID DOWN BY THE JURISDICT IONAL HIGH COURT IN THE SAID CASE DOES NOT APPLY TO THESE PARTICULAR IN COMES. AS ASSESSEE HAS NOT CONTESTED THAT THESE INCOMES ARE P ART OF THE CONTRACT BUSINESS INCOME AND NO DETAILS HAVE BEEN P LACED ON RECORD EITHER BEFORE THE AO OR BEFORE THE CIT(A) OR EVEN B EFORE US. EXCEPT RELYING ON LEGAL PRINCIPLES ASSESSEE HAS NOT BROUG HT ON RECORD ANY FACTUAL DETAILS ON THIS ADDITION. IN VIEW OF THIS WE HAVE NO OTHER OPTION THAN TO CONFIRM THE INCOMES UNDER THE HEAD OTHER SOURCES 16 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. WHICH HAVE TO BE NECESSARILY BROUGHT TO TAX EVEN TH OUGH BOOKS OF ACCOUNT ARE REJECTED TO THE EXTENT OF ESTIMATING BU SINESS INCOME ON CONTRACTS. GROUND NO. 7 IS THEREFORE DISMISSED. 29. GROUND NO. 7 IS AS FOLLOWS: THE LEARNED CIT(A) SHOULD NOT HAVE SUSTAINED THE AD DITION OF RS. 82 93 484/- WHICH WAS PROVIDED BY NEW SHARE-HOL DERS AND WHICH IS CREDITED BY JOURNAL ENTRIES WITH CORRESPON DING DEBIT TO LAND PURCHASE ACCOUNT. 30. THE AO NOTED THAT THERE IS INCREASE IN SHARE AP PLICATION MONEY OF RS. 86 53 484/- STATED TO HAVE BEEN RECEIVED FRO M THE FOLLOWING PERSONS: (RS. ) 1. MUKESH G. SHAH 3 60 000 2. CHANDRAIAH 27 64 594 3. GUNTI IZRA 27 64 440 4. BAPAIAH 27 64 450 86 53 484 ======== ON BEING ASKED BY THE AO TO FURNISH CONFIRMATION L ETTERS ASSESSEE FILED ONLY ONE CONFIRMATION FROM MR. MUKES H G. SHAH AND IN THE ABSENCE OF CONFIRMATION LETTERS/PAN ETC. THE A MOUNT APPEARING IN THE NAMES OF MR. CHANDRAIAH MR. GUNTI IZRA AND MR. BAPAIAH TOTALING TO RS. 82 93 484/- TREATED AS UNEXPLAINED INCOME OF ASSESSEE BY THE AO. 31. BEFORE THE CIT(A) IN THE WRITTEN SUBMISSION FI LED BY LEARNED AR IT WAS SUBMITTED THAT IT IS NOT ACTUAL AMOUNT R ECEIVED BY ASSESSEE BUT THE SAME IS A JOURNAL ENTRY IN RESPECT OF COST OF LAND PAYABLE TO THOSE PARTIES MENTIONED AS ABOVE TREATI NG THE SAME AS TOWARDS THEIR SHARE APPLICATION MONEY. STATING THAT SUCH ENTIRE AMOUNT IS ADJUSTMENT JOURNAL ENTRY IT WAS CONTENDE D THAT THE SAID ADDITION MADE BY THE AO WAS NOT JUSTIFIED. IT WAS F URTHER SUBMITTED THAT WHEN THE INCOME HAS BEEN ESTIMATED IN THIS CAS E THE AO WAS 17 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. NOT JUSTIFIED MAKING SUCH SEPARATE ADDITION IN THE ASSESSMENT. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE THE CIT(A) CONFIRMED THE SAID ADDITION ON THE GROUND THAT ASSESSEE FAILED TO PROVE THE IDENTITY OF THOSE PERSONS AND ALSO THE GENUINENESS OF SUCH T RANSACTION SHOWN IN THIS CASE. 32. BEFORE US THE LEARNED COUNSEL ARGUED THAT ONCE INCOME IS ESTIMATED THE AO IS PREVENTED IN MAKING ANY OTHER ADDITION AND FOR THIS PROPOSITION HE RELIED ON THE ORDER OF THE COOR DINATE BENCH IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT 36 DTR 220 (OR DER DATED 23/08/2009) WHEREIN VIDE PARA 11 THE COORDINATE BEN CH HAS CONSIDERED SIMILAR ISSUE AND HELD AS FOLLOWS: WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE MAIN CONTENTION OF THE ASSESSEES COU NSEL IS THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED INCOM E IS ESTIMATED THE AO IS PRECLUDED FROM INVOKING ANY OT HER PROVISIONS OF THE IT AT TO MAKE FURTHER ADDITION. T HE BOOKS OF ACCOUNT OF THE ASSESSEE WAS NOT RELIED IT WAS R EJECTED BY THE AO AND THE SAME WAS CONFIRMED BY THE CIT(A) AS WELL AS BY US. NOW BASED ON THE RELIANCE ON THE SA ME BOOKS FOR THE PURPOSE OF INVOKING THE PROVISIONS O F S. 40(A)(IA) IS IMPROPER. THE ESTIMATION OF INCOME TAK ES CARE OF THE IRREGULARITIES COMMITTED BY THE ASSESSEE. FU RTHER ADDITION BY INVOKING S. 40(A)(IA) AMOUNTS TO PUNISH ING THE ASSESSEE FOR A SAME OFFENCE ON DOUBLE OCCASIONS WH ICH IS NOT PERMITTED BY LAW. THERE IS A CONNECTION BETWEEN EXPENDITURE CLAIMED BY THE ASSESSEE AND MAKING NON- DEDUCTION OF TDS. SINCE THE BOOKS OF ACCOUNT NOT VERIFIABLE FOR WHICH THE ASSESSEES BOOKS WERE REJ ECTED AND INCOME WAS DETERMINED. IT WAS HELD IN THE CASE OF CIT VS. DEVI PRASAD VISHWANATH PRASAD [1969] 72 ITR 194 (SC) WHERE A PARTICULAR BUSINESS INCOME OF THE ASSESSEE HAS BEEN ESTIMATED AND DETERMINED AND IN SUCH A CASE T HE AO PRECLUDED FROM ADDING ANY UNEXPLAINED CASH CREDIT A S UNDISCLOSED INCOME OF THE BUSINESS. 33. THE LEARNED DR HOWEVER SUBMITTED THAT THIS PR INCIPLE THAT ONCE INCOMES ARE ESTIMATED NO OTHER ADDITION CAN BE IS NOT CORRECT 18 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. AS INCOMES WERE ASSESSED UNDER THE HEAD OTHER SOUR CES AND SO THE AO IS NOT PRECLUDED FROM ADDING ANY UNEXPLAINED CAS H CREDIT. 34. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSE D THE ORDER OF THE COORDINATE BENCH PLACED ON RECORD AND THE RATIO LAID DOWN ON THE ISSUE OF ADDITION U/S 40(A)(IA) OF THE ACT. THE OPI NION EXPRESSED BY THE BENCH THAT OTHER DISALLOWANCES UNDER THE HEAD BUSINESSNEED NOT BE MADE ONCE INCOME IS ESTIMATED MAY BE CORRECT BUT THE SAME IS NOT APPLICABLE TO THE UNEXPLAINED CASH CREDITS A S OPINED BY THE BENCH IN THE ABOVE ORDER. IN FACT THE PRINCIPLES L AID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DEVI P RASAD VISHWANATH PRASAD 72 ITR 194(SC) ARE AS UNDER: THERE IS NOTHING IN LAW WHICH PREVENTS THE ITO IN A N APPROPRIATE CASE IN TAXING BOTH THE CASH CREDIT TH E NATURE AND SOURCE OF WHICH IS NOT SATISFACTORILY EXPLAINED AND THE BUSINESS INCOME ESTIMATED BY HIM UNDER SECTION 13 O F THE INDIAN INCOME-TAX ACT 1922 AFTER REJECTING THE BO OKS OF ACCOUNT OF THE ASSESSEE AS UNRELIABLE. WHERE THERE IS AN UNEXPLAINED CREDIT IT IS OPEN TO THE ITO TO HOLD THAT IT IS INCOME OF THE ASSESSEE AND NO F URTHER BURDEN LIES ON THE ITO TO SHOW THAT THAT INCOME IS FROM ANY PARTICULAR SOURCE. IT IS FOR THE ASSESSEE TO PROVE THAT EVEN IF THE CASH CREDIT REPRESENTS INCOME IT IS INCOME FROM A SOURCE WHICH HAS ALREADY BEEN TAXED. KALE KHAN MOHAMMAD HANIF V. CIT [1963] 50 ITR 1 (SC ) FOLLOWED. 35. THE HONBLE SUPREME COURT REVERSED THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT WHEREIN THE HONBLE AL LAHABAD HIGH COURT HELD THAT ADDITIONS CANNOT BE MADE. THE HONB LE SUPREME COURT HAS FOLLOWED ITS EARLIER DECISION IN CASE OF KALE KHAN MOHAMMED HANIF VS. CIT 50 ITR 1 WHEREIN THE APEX C OURT HELD AS UNDER: IT IS WELL ESTABLISHED THAT THE ONUS OF PROVING THE SOURCE OF A SUM OF MONEY FOUND TO HAVE BEEN RECEIVED BY THE ASSESSEE IS ON HIM. IF HE DISPUTES LIABILITY FOR TA X IT IS FOR 19 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. HIM TO SHOW EITHER THAT THE RECEIPT WAS NOT INCOME OR THAT IF IT WAS IT WAS EXEMPT FROM TAXATION UNDER THE PROVI SIONS OF THE IT ACT. IN THE ABSENCE OF SUCH PROOF THE ITO I S ENTITLED TO TREAT IT AS TAXABLE INCOME. (A GOVINDARAJULU MUD ALIAR V. CIT [1958] 34 ITR 807 (SC) FOLLOWED. IN THE ORIGINAL ASSESSMENTS FOR THE ASSESSMENT YEAR S 1945- 46 AND 1947-48 THE ASSESSEES ACCOUNTS WERE NOT FOU ND COMPLETE AND RELIABLE AND HIS INCOME FROM HIS TWO BUSINESSES WAS COMPUTED BY ESTIMATING HIS TOTAL SAL ES AND ASSESSING THE GROSS PROFITS ON THE BASIS OF CERTAIN PERCENTAGES. CERTAIN CASH CREDITS IN THE ACCOUNTS O F THE ASSESSEE WHICH HAD BEEN OVERLOOKED IN THE ORIGINAL ASSESSMENTS WERE DETECTED. IN REASSESSMENT PROCEEDI NGS UNDER SECTION 34 OF THE INDIAN INCOME-TAX ACT 1922 THE ASSESSEES EXPLANATION THAT THEY DID NOT REPRESENT INCOME WAS REJECTED AND THEY WERE BROUGHT TO TAX AS REPRE SENTING INCOME FROM UNDISCLOSED SOURCES IN ADDITION TO THE INCOME WHICH HAD BEEN ESTIMATED IN THE ORIGINAL ASSESSMENT S: HELD THAT THE AMOUNTS OF THE CASH CREDITS COULD BE ASSESSED TO TAX AS INCOME FROM UNDISCLOSED SOURCES IN ADDITION TO THE BUSINESS INCOME COMPUTED BY ESTIMAT E. THE TAXING AUTHORITIES WERE NOT PRECLUDED FROM TREATING THE AMOUNTS OF THE CREDIT ENTRIES AS INCOME FROM UNDISC LOSED SOURCES SIMPLY BECAUSE THE ENTRIES APPEARED IN THE BOOKS OF A BUSINESS WHOSE INCOME THEY HAD PREVIOUSLY COMP UTED ON A PERCENTAGE BASIS. AN INFERENCE DRAWN BY THE APPELLATE TRIBUNAL MAY BE EITHER ONE OF FACT OR ONE LAW. IF IT IS AN INFERENCE OF FA CT NO QUESTION WITH REGARD TO IT CAN BE INFERRED TO THE H IGH COURT. IF IT IS ONE OF LAW THEN A QUESTION WHETHER THE IN FERENCE CAN IN LAW BE DRAWN MIGHT BE REFERRED TO THE HIGH COURT . BUT THE QUESTION WHETHER AN INFERENCE DRAWN BY THE TRIBUNAL IS ONE OF LAW OR OF FACT IS NOT A QUESTION WHICH CAN ARISE OUT OF THE DECISION OF THE TRIBUNAL AND A QUESTION IN THAT FOR M CANNOT BE REFERRED TO THE HIGH COURT U/S 66 OF THE INDIAN INCOME- TAX ACT 1922. (EMPHASIS SUPPLIED) 36. AS CAN BE SEEN FROM THE ABOVE RATIO LAID DOWN B Y THE HONBLE SUPREME COURT THE AO WAS NOT PRECLUDED FROM ADDING ANY UNEXPLAINED CASH CREDIT AS UNDISCLOSED INCOME OF TH E BUSINESS AND IT IS FOR ASSESSEE TO ADDUCE EVIDENCE THAT THE SAME IS NOT TAXABLE. THEREFORE WE ARE NOT IN AGREEMENT WITH THE DECISIO N OF THE COORDINATE BENCH IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA) IN THE 20 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. LATER PART AS EXTRACTED ABOVE AND HOLD THAT THE AO IS NOT PRECLUDED IN MAKING ADDITIONS OF CASH CREDITS. IT MAY BE THAT TH E WORD NOT BEFORE THE WORD PRECLUDED IN THE DECISION OF HONBLE SUP REME COURT WAS MISSING IN THE ORDER OF COORDINATE BENCH WHICH CHAN GED THE MEANING. BE THAT AS IT MAY THE PRINCIPLES LAID DOWN BY HONB LE SUPREME COURT IS BINDING. 37. HOWEVER AS SEEN FROM THE FACTS OF THE CASE IT WAS THE SUBMISSION OF ASSESSEE THAT IT PURCHASED PROPERTY A ND THE SELLERS AGREED TO TAKE THE AMOUNT AS SHARE APPLICATION MONE Y AND TO THIS EFFECT ENTRIES WERE PASSED BY WAY OF JOURNAL ENTRIE S. AS THERE ARE DISPUTES BETWEEN THE PARTIES IT WAS THE SUBMISSION OF ASSESSEE THAT THEY WERE NOT IN A POSITION TO FURNISH ANY CONFIRMA TIONS AT THE TIME OF ASSESSMENT OR APPEAL BEFORE THE CIT(A). IT WAS THE REFORE SUBMITTED THAT IF THE MATTER IS REMANDED TO THE FILE OF THE A O ASSESSEE WOULD BE IN A POSITION TO FILE NECESSARY EVIDENCE. IN VIE W OF THE PARTICULAR SET OF FACTS AS DISCUSSED ABOVE WE REMIT THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE CASH CREDITS AFRESH EVEN THOUGH T HEY ARE IN THE FORM OF SHARE APPLICATION MONEY. ACCORDINGLY THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 38. IN THE RESULT APPEAL OF ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23 RD DAY OF OCTOBER 2013. SD/- SD/- (SAKTIJIT DEY) (B. R AMAKOTAIAH) JUDICIAL MEMBER ACCOUNT ANT MEMBER HYDERABAD DATED: 23 RD OCTOBER 2013. KV 21 ITA NO. 1787/HYD/2011 M/S HYCONS INFRASTRUCTURE (INDIA) LTD. COPY TO:- 1) M/S HYCON INFRASTRUCTURE (INDIA) LTD. C/O SRI K. L. RATHI ADVOCATE 3-5-144/5 EDEN GARDEN HYDERABAD 560 001 2) D CIT CIRCLE 2(2) HYDERABAD . 3) CIT(A)-III HYDERABAD. 4) CIT-II HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE I.T.A .T. HYDERABAD.