Income Tax Officer, Ward-1,, Suryapet v. Sri Gundapaneni Nagesware Rao,, Kodad

ITA 1799/HYD/2013 | misc
Pronouncement Date: 29-04-2014

Appeal Details

RSA Number 179922514 RSA 2013
Assessee PAN AGLPG1201A
Bench Hyderabad
Appeal Number ITA 1799/HYD/2013
Duration Of Justice 44 year(s) 3 month(s) 27 day(s)
Appellant Income Tax Officer, Ward-1,, Suryapet
Respondent Sri Gundapaneni Nagesware Rao,, Kodad
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2014
Appeal Filed By Department
Assessment Year misc
Appeal Filed On 01-01-1970
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA NO. 1799/HYD/2013 ASSESSMENT YEAR 2010-11 THE INCOME TAX OFFICER WARD-1 SURYAPET VS. SRI GUNDAPANENI NAGESWARA RAO KODAD PAN: AGLPG1201A APPELLANT RESPONDENT ITA NO. 28/HYD/2014 ASSESSMENT YEAR 2010-11 SRI GUNDAPANENI NAGESWARA RAO KODAD VS. THE INCOME TAX OFFICER WARD-1 SURYAPET APPELLANT RESPONDENT ITA NO. 1801/HYD/2013 ASSESSMENT YEAR 2010-11 THE INCOME TAX OFFICER WARD-1 SURYAPET VS. SRI VORUGANTI KRISHNA MURTHY KODAD PAN: ABVPV9309F APPELLANT RESPONDENT ITA NO. 30/HYD/2014 ASSESSMENT YEAR 2010-11 SRI VORUGANTI KRISHNA MURTHY KODAD VS. THE INCOME TAX OFFICER WARD-1 SURYAPET APPELLANT RESPONDENT REVENUE BY: SMT. K. HARITA ASSESSEE BY: SRI Y.V. BHANU NARAYANA DATE OF HEARING: 24.04.2014 DATE OF PRONOUNCEMENT: 29. 04.2014 2 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== ORDER PER CHANDRA POOJARI A.M.: THE ABOVE CROSS APPEALS IN RESPECT OF TWO DIFFERE NT ASSESSEES ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A)- VI HYDERABAD DATED 30.09.2013 FOR ASSESSMENT YEAR 2010-11. SINCE THE ISSUES INVOLVED IN ALL THESE APPEALS ARE COMMON THEY ARE CLUBBED TOGETHER HEARD TOGETHER AND ARE DISPOS ED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. AS THE GROUNDS RAISED IN BOTH THE CROSS APPEALS OF BOTH THE ASSESSEES FOR THE SAKE OF BREVITY WE CONSIDER THE GROUNDS AS GIVEN IN ITA NO. 1799/HYD/2013 (REVENUE) AND 28/ HYD/ 2014 (ASSESSEE) WHICH ARE AS FOLLOWS: GROUNDS AS PER ITA NO. 1799/HYD/13 REVENUE APPEAL : 1. THE ORDER OF LD. CIT(A) IS AGAINST FACTS OF THE CASE. 2. THE LD. CIT(A) IS NOT CORRECT IN LAW IN HOLDING THAT THE DECISION OF HON'BLE ITAT HYDERABAD IN THE CASE OF SRI VEERA VADIVEL MURUGAN VS ITO SURYAPET IN ITA NO: 1919/HYD/2011 APPLIES TO THIS CASE WHEN THE FACTS OF BOTH THE CASES ARE DIFFERENT. 3. THE LD. (IT(A) IS NOT CORRECT IN LAW IN RESTRICTING THE ESTIMATION @ 3% AS AGAINST 5% MADE BY THE ASSESSING OFFICER RELYING ON THE DECISION OF HON'BLE !TAT HYDERABAD IN ITA NO. 1919/ ITA/2011 DT. 28/06/2012 WHEN THE ASSESSEE IN QUESTION HAS GOT HIS OWN TRUCKS DEPLOYED IN THE BUSINESS OF RUNNING THEM ON HIRE APART FROM HIRING VEHICLES! THEREBY THE EXPENDITURE INCIDENTAL TO THE BUSINESS IS LOW WHEN COMPARED TO THE CASE DECIDED BY THE HON'BLE ITAT. 3 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== 4. THE. LD. CIT(A) IS NOT CORRECT IN LAW IN DIRECTING THE AO TO ESTIMATE THE PROFIT BEFORE ALLOWING DEDUCTIONS U/S 40(B) @ 3 % AS AGAINST THE ESTIMATION MADE BY THE AO @ 5% IN THE SCENARIO THAT THE ASSESSING OFFICER HAS NOTICED MANY A DEFECT IN THE BOOKS OF ACCOUNT AS ENUMERATED IN THE ASST. ORDER. GROUNDS AS PER ITA NO. 28/HYD/14 ASSESSEE APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI HYDERABAD IS ERRONEOUS AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI HYDERABAD OUGHT NOT HAVE REJECTED THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT IN THE NORMAL COURSE OF BUSINESS AND HE OUGHT HAVE ACCEPTED INCOME RETURNED OF RS. 4 92 760/- (AFTER CLAIMING DEPRECIATION OF RS. 29.25 336/- AND INTEREST/FINANCE CHARGES OF RS. 17 36 109/-) AS DERIVED FROM THE AUDITED BOOKS OF ACCOUNT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- VI HYDERABAD ERRED BY DIRECTING THAT THE TOTAL INCOME OF THE APPELLANT BE ESTIMATED @ 3% OF THE GROSS RECEIPTS NET OF ALL THE EXPENSES AS AGAINST THE INCOME RETURNED/ADMITTED OF RS. 4 92 760/- (AFTER CLAIMING DEPRECIATION OF RS. 29 25 336/- AND INTEREST! FINANCE CHARGES OF RS. 17 36 109/-). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- VI HYDERABAD FURTHER ERRED BY NOT ALLOWING DEPRECIATION ALLOWANCE FROM THE INCOME/PROFIT ESTIMATED THOUGH THE CBDT HAS CLARIFIED VIDE CIRCULAR NO: 29-D DATED 31-8-1965 THAT WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND WHERE PARTICULARS OF DEPRECIATION HAVE BEEN FURNISHED DEPRECIATION SHOULD BE SEPARATELY DEDUCTED FROM THE ESTIMATED PROFIT. 4 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- VI HYDERABAD OUGHT TO HAVE ACCEPTED THE FACT THAT THE LORRIES/TRUCKS WERE PLIED FOR COMMERCIAL PURPOSE AND THEREFORE THEY ARE ELIGIBLE FOR DEPRECIATION OF RS. 29 25 336/- AS CLAIMED IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2010-11 FROM THE INCOME ESTIMATED IN VIEW OF THE CBDT CIRCULAR NO: 29-D DATED 31-8-1965. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- VI HYDERABAD OUGHT TO HAVE ALSO ALLOWED THE INTEREST PAID OF RS. 17 36 109/- FROM THE ESTIMATED INCOME. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI HYDERABAD ERRED BY NOT FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL ITAT HYDERABAD IN ITA 353/HYD/2009 IN THE CASE OF SREE VENKATESWARA SWAMY LORRY SERVICE KODAD ON IDENTICAL FACTS AND THE JUDGEMENT OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. JAIN CONSTRUCTION CO. & OTHERS (2000) 245 ITR 527 WHEREIN 'IT HAS BEEN HELD THAT DEPRECIATION AND INTEREST ALLOWANCE SHOULD BE SEPARATELY ALLOWED AS A DEDUCTION FROM THE ESTIMATED INCOME; WHILE COMPLETING THE ASSESSMENT OF THE APPELLANT. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- VI HYDERABAD ERRED BY RELYING ON! FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL IT AT HYDERABAD IN ITA 1919/HYD/2011 DATED 28.06.2012 IN THE CASE OF M/S. VEERAVADIVEL MURUGAN TRANSPORT AGENCY THE FACTS OF WHICH CASE ARE NOT SQUARELY APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT HEREIN. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN SUPPLY OF VEHICLES FOR GO ODS TRANSPORTATION FILED THE RETURN OF INCOME FOR THE A.Y. 2010-11 5 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== ADMITTING TOTAL INCOME OF RS. 4 92 760/-. IN THE CO URSE OF THE ASSESSMENT PROCEEDINGS IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE COULD NOT PRODUCE THE VOU CHERS FOR FREIGHT CHARGES PAID TO LORRIES IN FULL. FURTHER THE VOUCHERS PRODUCED WERE NOT CAPABLE OF VERIFICATION AS THEY D ID NOT CONTAIN DATE SIGNATURE OF THE RECIPIENT VEHICLE N UMBER ETC. IT WAS ALSO OBSERVED THAT THE DETAILS OF TRIP SHEETS W ERE NOT FURNISHED FOR VERIFICATION. THE AR SUBMITTED BEFORE THE ASSESSING OFFICER THAT GIVEN THE VOLUMINOUS NUMBER OF VOUCHERS AND THE CONSTRAINTS IN THIS LINE OF BUSINE SS IT WAS NOT POSSIBLE TO MAINTAIN THE VOUCHERS IN THE PERFECT MA NNER. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE HAD BEEN UNABLE TO PRODUCE ALL THE VOUCHERS AND IN VIEW OF THE DEFI CIENCIES NOTED BY HIM HE ESTIMATED THE INCOME AT 5% OF THE TURNOVER CLEAR OF ALL EXPENDITURE BY REJECTING THE BOOKS OF ACCOUNT. 4. BEFORE THE CIT(A) THE AR RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF SRI VENKATESWARA SWAMY LORR Y SERVICE KODAD FOR AY 2005-06 (ITA NO. 353/HYD/2009 DT. 25.1 1.2009) WHERE IN SIMILAR FACTS AND CIRCUMSTANCES THE TRIBU NAL HAD DIRECTED THAT FROM THE INCOME ESTIMATED THE DEDUCT ION TOWARDS INTEREST/FINANCIAL CHARGES AND DEPRECIATION BE ALLOWED FROM SUCH ESTIMATED INCOME. THE ASSESSEE ALSO RELIE D ON THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF JAI N CONSTRUCTIONS & OTHERS VS. CIT (45 ITR 527) ON SIMI LAR FACTS. 5. THE CIT(A) OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRANSPORT AND THE GROSS RECEIPTS FOR TH E YEAR UNDER REFERENCE WERE SHOWN AT RS. 9 82 63 575/- ON WHICH THE NET 6 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== PROFIT WAS SHOWN AT RS. 5 92 763/- AFTER DEDUCTION OF FINANCIAL CHARGES (RS. 17 36 109) AND DEPRECIATION (RS. 29 25 337) WHICH WORKED OUT @ 0.60% ON THE GROSS RECEIPTS. BY INCLUDING SUCH AMOUNTS THE NET PROFIT WOULD BE WORKED OUT TO 5.35% AS AGAINST WHICH THE ASSESSING OFFICER HAS ESTIMATED T HE PROFIT AT 5% ON THE GROSS RECEIPTS AND QUANTIFIED THE INCOME AT RS. 49 29 280/-. THE ASSESSEE HAS ACCEPTED THE SHORT CO MINGS IN MAINTENANCE OF BOOKS AND DID NOT RAISE OBJECTIONS O N REJECTION OF BOOKS AND ESTIMATION OF PROFITS. THE A SSESSEE HOWEVER HAS OBJECTION ON THE RATE OF PROFIT ADOPTE D WHICH IS VERY HIGH AS ADOPTED AT 5% BY THE ASSESSING OFFICER . HENCE THE ASSESSEE RELIED UPON THE DECISION OF TRIBUNAL HYDE RABAD BENCH IN THE CASE OF M/S. SRI VENKATESWARA SWAMY LO RRY SERVICE KODAD (ITA NO. 903/HYD/2009 DT. 25.11.2009 WHEREIN THE GROSS PROFIT WAS DIRECTED TO BE ADOPTED AT 4% W ITH THE CLAIMS OF DEPRECIATION AND FINANCIAL CHARGES ALLOWE D FROM THE ESTIMATED PROFITS. IN THE CASE OF JAIN CONSTRUCTIO NS AND OTHERS VS. CIT (SUPRA) THE HON'BLE HIGH COURT OF RAJASTHA N HAS ALLOWED THE CLAIMS OF DEPRECIATION FINANCIAL CHARG ES AND REMUNERATION TO PARTNERS ETC. FROM THE ESTIMATED N ET PROFIT OF THE BUSINESS. 6. THE CIT(A) OBSERVED THAT IN THE ABOVE DECISIONS TH E TRIBUNAL WAS OF THE OPINION THAT ESTIMATION OF PROF IT HAS TO BE MADE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD A ND BY TAKING COMPARABLE CASES OF SIMILARLY PLACED TRADES INTO CONSIDERATION AND IN THE PROCESS HAS REJECTED THE G ROSS PROFIT ADOPTED BY THE AO AT 5% BASED ON EARLIER YEAR FIGU RES IN THE 7 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== CASE OF ASSESSEE AND UPHELD GP AT 4% AS UPHELD/ADO PTED BY CIT(A) AND ORDERED FOR ALLOWANCE OF DEPRECIATION AN D FINANCIAL CHARGES FROM THE ESTIMATED PROFITS. IN CASE OF JAIN CONSTRUCTIONS THE HON'BLE HIGH COURT WAS ON THE IS SUE OF ALLOWANCE OF DEPRECIATION INTEREST AND REMUNERATIO N TO PARTNERS ON ADOPTED NET PROFITS AT 12.5% BY THE A O. HENCE THE ISSUE OF ALLOWANCE OF DEPRECIATION AND FINANCIA L CHARGES ON THE ESTIMATED PROFITS WAS THE MAIN ISSUE IN THE AB OVE MENTIONED JUDICIAL DECISION AND ADOPTION OF RATE OF PROFIT WAS NOT AN ISSUE. IN THIS REGARD THE CIT(A) REFERRED T O THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S. VEERAVADIVEL M URUGAN TRANSPORT AGENCY (ITA NO. 1919/HYD/2011 DT. 28.06.2 012) WHERE THE ASSESSEE WAS RUNNING THE BUSINESS THROUGH HIRED VEHICLES AS AGAINST THE ASSESSEE IN THE PRESENT CA SE WITH FEW LORRIES OF HIS OWN PUT TO USE IN BUSINESS. THOUGH THE ASSESSEE HAS HIS OWN LORRIES IT APPEARS MAJOR PORTION OF B USINESS IS CARRIED THROUGH HIRED VEHICLES AS COULD BE SEEN FR OM THE RECORD WHEREIN THE EXPENDITURE INCURRED WITH REFER ENCE TO THE FREIGHT CHARGES STOOD AT RS. 4.79 CRORES AS AGAINS T THE GROSS RECEIPTS OF RS. 9.82 CRORES. BUT ALL THE OTHER FACT ORS REMAIN SAME WHERE IN THE TRIBUNAL HAS DIRECTED THE AO TO ADOPT THE PROFIT AT 3% ON GROSS RECEIPTS NET OF ALL THE EXPE NSES RELYING ON THE DECISION OF TRIBUNAL IN THE CASE OF C. ESWAR REDDY & CO. (ITA NO. 668/HYD/2009 DT. 31.01.2011) FROM WHICH TH E PAYMENTS OF REMUNERATION U/S. 40(B) WERE FURTHER D IRECTED TO BE ALLOWED. UNDER THE CIRCUMSTANCES THE CIT(A) WAS OF THE CONSIDERED OPINION THAT THE DECISION OF THE TRIBUNA L IN THE CASE OF VEERA VADIVEL MURUGAN TRANSPORT AGENCY (SUP RA) IS 8 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== MORE APPLICABLE IN THIS CASE ON FACTS AND AS SUCH THE NET PROFIT OF THE BUSINESS OF THE ASSESSEE IS DIRECTED TO BE E STIMATED AT 3% OF THE GROSS RECEIPTS NET OF ALL THE EXPENSES A ND THERE IS NO PAYMENTS U/S. 40(B) IN THIS CASE. 7. THE GRIEVANCE OF THE DEPARTMENT IS THAT THE ASSESSM ENT ORDER IS TO BE CONFIRMED AND THE ASSESSEE'S INCOME IS TO BE ESTIMATED AT 5% OF GROSS RECEIPTS AND THEREAFTER AS SESSEE IS NOT ENTITLED FOR ANY DEDUCTION TOWARDS ANY EXPENDIT URE. ON THE OTHER HAND THE ASSESSEE'S GRIEVANCE IS THAT AF TER ESTIMATING THE INCOME OF THE ASSESSEE AT 3% OF THE GROSS RECEIPTS ASSESSEE IS ENTITLED FOR DEDUCTION TOWARD S DEPRECIATION AS IT IS SUPPORTED BY THE CBDT CIRCUL AR NO. 29-D DATED 31.8.1965 WHICH BINDING ON THE DEPARTMENT. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BOTH THE PARTIES WAN T TO AGITATE A SETTLED ISSUE. THE PLEA OF BOTH THE PARTIES AGAI NST THE WELL ACCEPTED POLICY OF LAW IS THAT THERE MUST BE A POIN T OF FINALITY IN ALL LEGAL PROCEEDINGS THAT STALE ISSUES SHOULD N OT BE RE- ACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST BE INDUCE REPOSE IN AND SET AT REST JUDICIAL A ND QUASI JUDICIAL CONTROVERSIES AS IT MUST BE IN OTHER SPHER ES OF HUMAN ACTIVITY. THE CIT(A) FOLLOWED THE EARLIER ORDER OF THE TRIBUNAL IN THE CASE OF SRI VEERA VADIVEL MURUGAN VS. ITO S URYAPET IN ITA NO. 1919/ HYD/2011. THE TRIBUNAL VIDE ORDER DA TED 28.6.2012 HELD AS FOLLOWS: 9 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== '3. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE ASSESSING OFFICER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE ESTIMATED THE INCOME OF THE ASSESSEE AT 5 % OF THE TOTAL TURNOVER OF RS. 6 54 15 734/- CLEAR OF AL L THE EXPENDITURE AND ACCORDINGLY DETERMINED THE INCOME OF THE ASSESSEE AT RS. 32 70 790. ON APPEAL THE CIT(A ) UPHELD THE ASSESSMENT THUS MADE BY THE ASSESSING OFFICER. IN THE PROCEEDINGS BEFORE US THE ASSESSEE WITHOUT QUESTIONING THE REJECTION OF THE BOOKS OF ACCOUNT PLEADED THAT THE ESTIMATION OF INCOME ADOP TING A RATE OF 5% IS ON HIGHER SIDE AND NEEDS TO BE REDU CED. IT IS ALSO SUBMITTED THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN NOT ALLOWING THE DEDUCTION IN TERMS OF S. 40(B) ON ACCOUNT OF INTEREST AND REMUNERATION TO PARTNERS FROM SUCH ESTIMATED INCOME. ON CAREFUL CONSIDERATION OF THE TOTALITY OF FACTS AND CIRCUMST ANCES OF THE CASE WE FIND THAT THE ESTIMATION OF INCOME OF THE ASSESSEE MADE BY THE ASSESSING OFFICER ADOPTING A R ATE OF 5% IS ON HIGHER SIDE AND IT WOULD MEET THE ENDS OF JUSTICE IF THE INCOME IS ESTIMATED APPLYING A RATE OF 3%. IN DECIDING THE ISSUE AS ABOVE WE CONSIDERED THE F ACT THAT THE ASSESSEE DOES NOT OWN TRUCKS USED IN THE BUSINESS AND IS INCURRING HUGE INCIDENTAL EXPENDITU RE. FROM SUCH INCOME ESTIMATED APPLYING RATE OF 3% DEDUCTION TOWARDS INTEREST AND REMUNERATION TO PARTNERS IN TERMS OF S. 40(B) OF THE ACT MAY BE ALL OWED. WE ARE SUPPORTED IN THIS BEHALF BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 668/HYD/2009 AND THEE OTHERS IN THE CASE OF M/S. C. ESWARA REDDY & CO. HYDERABAD RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE WHEREIN THE TRIBU NAL VIDE PARA 14 OF ITS ORDER DATED 31.1.2011 EVEN IN A CASE COVERED BY THE PROVISIONS OF S. 44AD HAS DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION TOWARDS SALARY AND INTEREST AND SALARY PAID TO PARTNERS FROM OUT OF THE INCOME ESTIMATED IN TERMS OF S. 44AD OF THE ACT. ACCORDINGLY IMPUGNED ORDER OF THE CIT(A) IS SET AS IDE AND THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INCOME OF THE ASSESSEE. ACCORDINGLY ASSESSEES GRO UND NO. 2 IS PARTLY ALLOWED AND GROUND NO 3 IS ALLOWED. ' 9. AS THE CIT(A) FOLLOWED THE EARLIER ORDER OF THE TRI BUNAL WHICH IS BASED ON THE CONCLUSION REACHED BY THIS TR IBUNAL IN THE CASE OF C. ESWARA REDDY & CO. VS. ACIT IN ITA N O. 10 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== 668/HYD/2009 & OTHERS. THE TRIBUNAL VIDE ORDER DAT ED 31 ST JANUARY 2011 HELD AS FOLLOWS: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT AND VOUCHERS. ON EXAMINATION OF THE BOOKS OF ACCOUNT WITH REFERENCE TO THE VOUCHER PRODUCED THE ASSESSING OFFICER FOUND THAT THE VOUCHER DOES NOT T ALLY WITH THE CASHBOOK. WHEN THE VOUCHER DOES NOT TALLY WITH CASHBOOK IN OUR OPINION THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT PROPERLY. THEREFOR E THE BOOK RESULT WILL NOT REFLECT THE CORRECT PROFIT OF THE ASSESSEE. IN THESE CIRCUMSTANCES IN OUR OPINION THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT. THEREFORE WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE LOWER AUTHORITY IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE PROFIT. 7. NOW COMING TO THE ESTIMATION OF PROFIT. THE ASSESSING OFFICER ESTIMATED THE PROFIT AT 12.5%. HOWEVER THE CIT(A) RESTRICTED THE SAME TO 8% IN RESPECT OF MAIN CONTRACT AND 5% ON SUB-CONTRACT. WHEN THE BOOKS OF ACCOUNT WERE REJECTED THE ONLY METHOD AVAILABLE TO THE ASSESSING OFFICER IS TO EST IMATE THE PROFIT. THE PROFIT RATIO CANNOT BE A CONSTANT FACTOR FOR EACH AND EVERY YEAR. IN OTHER WORDS PROFIT RA TIO WOULD FLUCTUATE DEPENDING UPON VARIOUS FACTORS SUCH AS THE PLACE OF EXECUTION OF CONTRACT AVAILABILITY OF RAW MATERIAL LABOUR AND ASSESSEE'S OWN FUNDS ETC. THEREFORE FOR THE PURPOSE OF ESTIMATING THE PROFIT THE LOWER AUTHORITIES MAY TAKE INTO CONSIDERATION THE P ROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME L OCALITY AND OTHER FACTORS SUCH AS AVAILABILITY OF LABOUR D EMAND IN THE MARKET ETC. AS DISCUSSED ABOVE. THEREFORE THE PROFIT RATIO OF THE OTHER ASSESSEES IN THAT LOCALIT Y MAY BE ONE OF THE FACTORS TO BE TAKEN INTO CONSIDERATION. HOWEVER THAT CANNOT BE THE SOLE CRITERIA FOR FIXIN G THE PROFIT RATIO FROM THE CONTRACT BUSINESS. BY KEEPIN G THIS FACTUAL SITUATION IN MIND LET US NOW EXAMINE WHETH ER THE ESTIMATION OF PROFIT BY THE CIT(A) AT 8% ON MAI N CONTRACT AND 5% ON SUB CONTRACT IS JUSTIFIED OR NOT . 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) K.C. REDDY ASSOCIATES (SUPRA) SRI SRINIVA SA CONSTRUCTIONS (SUPRA) AND M. BHASKAR REDDY (SUPRA). NO DOUBT THIS TRIBUNAL ESTIMATED THE PROFIT FROM 12 .5% 11 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== TO 8% DEPENDING UPON THE FACTUAL SITUATION. THE LEARNED DR MADE AN ATTEMPT TO DISTINGUISH THE ORDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOVER IS ONLY RS.54 40 420. IT IS A WELL KNOWN FACT THAT WHENEVER THE TURNOVER INCREASE S THE PROFIT RATIO WOULD GO DOWN. MERELY BECAUSE THE TURNOVER INCREASES THE PROFIT MAY NOT GO UP. THERE FORE WE DO NOT FIND ANY JUSTIFICATION IN THE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THIS TRIBUNAL ESTIMA TED THE PROFIT AT 8% IN THE CASE OF M. BHASKAR REDDY (SUPRA) ONLY BECAUSE THE TURNOVER WAS RS.51 40 420. A BARE READING OF THE ORDER OF THIS TRIBUNAL IN M. BH ASKAR REDDY (SUPRA) CLEARLY SHOWS THAT THIS TRIBUNAL AFTE R CONSIDERING THE JUDGEMENT OF THE APEX COURT IN C. VELUKUTTY 60 ITR 239 AND THE DECISION OF THE SPECI AL BENCH OF THIS TRIBUNAL IN ARIHANT BUILDERS PVT. LTD . VS. ACIT 291 ITR 41 (SB) AND BY TAKING A CLUE FROM SECTION 44AD OF I.T. ACT THE PROFIT WAS ESTIMATED A T 8%. ADMITTEDLY SECTION 44AD WOULD BE APPLICABLE IN RESP ECT OF A CASE WHERE THE GROSS CONTRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. WHEREVER THE GROSS CONTRACT RECEIPTS EXCEED RS.40 LAKHS THE PROVISIONS OF SECTI ON 44AD ARE NOT APPLICABLE. THEREFORE THE PROFIT CAN BE ESTIMATED EITHER AT LOWER THAN 8% OR ABOVE 8% DEPENDING UPON THE FACTUAL SITUATION. AS DISCUSSED EARLIER FOR THE PURPOSE OF ESTIMATING THE PROFIT V ARIOUS FACTORS SUCH AS THE PROFIT RATIO OF THE ASSESSEE IN THE EARLIER YEAR PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME LOCALITY DEMAND FOR THE PRODUCT AVAILABILITY OF LABOURERS RAW MATERIALS ETC. AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK ETC. HAVE TO BE TAKEN INTO CONSIDERATION. THEREFORE IN OUR OPINION REFERENCE TO EARLIER ORDER OF THIS TRIBUNA L ALONE FOR THE PURPOSE OF ESTIMATING THE PROFIT AT 1 2.5% MAY NOT BE JUSTIFIED AT ALL. 9. IN FACT IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS IN ITA NOS. 116 AND 117/HYD/2007 FOR A.YS. 1993-94 AND 1994-95 THE TRIBUNAL ESTIMATED TH E PROFIT ONLY AT 8% EVEN THOUGH THE PROFIT WAS ESTIMA TED AT 12.5% FOR A.Y. 1992-92. THIS ITSELF SHOWS THAT FOR EACH YEAR THE PROFIT HAS TO BE ESTIMATED DEPENDING UPON THE FACTORS WHICH PREVAIL IN THE LOCALITY. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE CIT(A) AFTER REFERRI NG TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) AND THE SPECIAL 12 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== BENCH DECISION IN ARIHANT BUILDERS (SUPRA) ESTIMATE D THE PROFIT AT 8% FOR MAIN CONTRACT AND FOR SUB CONT RACT AT 5%. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THIS TRIBUNAL UNIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% ON THE SUB CONTRACT DEPENDIN G UPON THE FACTUAL SITUATION. THEREFORE IN OUR OPIN ION ESTIMATION OF PROFIT AT 8% BY THE CIT(A) ON MAIN CONTRACT AND AT 5% ON SUB CONTRACT IS JUSTIFIED. W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 11. NOW COMING TO THE CLAIM OF THE ASSESSEE TOWARDS SEIGNIORAGE CHARGES. NO DOUBT THE SEIGNIORAGE CHAR GES ARE IN RELATION TO THE MATERIAL SUPPLIED BY THE GOVERNMENT FOR EXECUTING THE WORK. THE APEX COURT IN THE CASE OF BRIJ BHUSHANLAL (SUPRA) CONSIDERED THIS ISSUE AND FOUND THAT THE MATERIAL SUPPLIED BY THE GOVERNMENT/CONTRACTOR WILL NOT HAVE ANY ELEMENT OF PROFIT. THEREFORE THE SAME SHALL BE REDUCED FROM THE CONTRACT RECEIPTS. IN VIEW OF THE JUDGEMENT OF THE APEX COURT THE SEIGNIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTI MATING THE PROFIT. ACCORDINGLY WE DIRECT THE ASSESSING OF FICER WHILE COMPUTING THE TOTAL CONTRACT RECEIPTS THE SEIGNIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. 12. NOW COMING TO THE DEPRECIATION. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTION (SUPRA). IN THE CASE BEFORE THE JURISDICTIONAL HIGH COURT AN ADDITION WAS MADE TOWARDS INTEREST AND REMUNERATION PAID TO THE PARTN ER WHEN THE PROFIT WAS ESTIMATED. THE JURISDICTIONAL HIGH COURT AFTER CONSIDERING THE PROVISIONS OF SECTION 2 9 AND 40 FOUND THAT NO SEPARATE ADDITION SHALL BE MADE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT DEPRECIATION SHALL BE ON THE WDV FROM THE PROFIT COMPUTED/ESTIMATED. THEREFORE DEPRECIATION SHALL BE ALLOWED ON THE PROFIT COMPUTED. 13. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 44AD OF THE ACT. NOW DOUBT THIS PROVISIO N IS APPLICABLE FOR THOSE CASES WHERE THE TURNOVER/TOTAL CONTRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. HOWE VER BY FINANCE (NO.2) ACT OF 2009 WITH EFFECT FROM 1.4. 2011 13 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== THE LEGISLATURE REMOVED THE RESTRICTION OF THE TOTA L CONTRACT RECEIPTS OF RS.40 LAKHS. BY TAKING A CLUE FROM THE PROVISION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISI ONS WHICH ARE APPLICABLE WITH EFFECT FROM 1.4.2011 WE FIND THAT THE DEDUCTION AVAILABLE U/SS. 30 TO 38 SHALL B E DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT AND N O FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALL OWED. DEPRECIATION IS ALLOWABLE U/S. 32 OF THE INCOME-TAX ACT. THEREFORE AS PROVIDED IN SECTION 44AD NO FURTHER/SEPARATE DEDUCTION SHALL BE ALLOWED. IN VI EW OF THE ABOVE IN OUR OPINION THE CLAIM OF DEPRECIATIO N ON THE ESTIMATED INCOME IS NOT JUSTIFIED. THEREFORE THE LOWER AUTHORITIES HAVE RIGHTLY REJECTED THE SAME. 14. NOW COMING TO THE PAYMENT OF INTEREST AND SALARY TO THE PARTNER. PROVISO TO SECTION 44AD(2) CLEARLY SAYS THAT SALARY AND INTEREST PAID TO THE P ARTNER SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SU B- SECTION (1) OF SECTION 44AD SUBJECT TO LIMITATION U /S. 40(B) OF THE ACT. AS WE HAVE ALREADY OBSERVED THO UGH THERE WERE RESTRICTIONS WITH REGARD TO APPLICATION OF SECTION 44AD WHEREVER THE TOTAL CONTRACT RECEIPTS EXCEED RS.40 LAKHS WITH EFFECT FROM 1.4.2011 SUCH RESTRICTION WAS REMOVED BY THE LEGISLATURE. MOREOV ER THE CO-ORDINATE BENCH THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) AFTER TAKING A CLUE FROM SECTION 44AD ESTIMATED THE PROFIT AT 8% OF THE CONTRACT RECEIPT. THEREFORE BY TAKING A CLUE FROM THE PROVISION OF S ECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISIONS WHICH WOULD COME INTO OPERATION WITH EFFECT FROM 1.4.2011 IN OUR OP INION THE PAYMENT OF INTEREST AND SALARY TO THE PARTNER S HALL BE ALLOWED SUBJECT TO LIMITATION SPECIFIED IN SECTI ON 40(B) OF THE ACT FROM THE ESTIMATED INCOME. 15. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF IND WELL CONSTRUCTION (SUPRA). THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT WAS ASSESSMENT YEAR 1981-82. SECTION 44AD WAS INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 1.4 .1994. THEREFORE THE JURISDICTIONAL HIGH COURT HAD NO OCCASION TO CONSIDER THE PROVISIONS OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND AS IT WOULD BE APPLICABLE WITH EF FECT FROM 1.4.2011. IN VIEW OF THE PROVISION OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER 14 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== CONSIDERATION AND THE AMENDMENT MADE WITH EFFECT FROM1.4.2011 IT IS OBVIOUS THAT THE LEGISLATURE INT ENDED TO ALLOW THE INTEREST AND SALARY SEPARATELY FROM TH E ESTIMATED INCOME. THEREFORE THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE IN THIS CASE. ACCORDINGLY WE DIRECT TH E ASSESSING OFFICER TO ALLOW THE SALARY AND INTEREST PAID TO THE PARTNER SUBJECT TO THE LIMITATION PROVIDED I N SECTION 40(B) OF THE ACT. 10. BEING SO EITHER OF THE PARTIES CANNOT HAVE ANY GRIEVANCE IN ESTIMATING THE INCOME OF THE ASSESSEE AT 3% AND DENYING THE ALLOWABILITY OF DEPRECIATION. ACCORDIN GLY WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) IN TOTO . FURTHER ALL THE JUDGEMENTS RELIED ON BY BOTH THE COUNSELS ARE N OT AT ALL RELEVANT AT THIS POINT AS THE CIT(A) PROPERLY FOLLO WED THE ORDER OF THE TRIBUNAL WHICH IS ON THE SAME ISSUE. 11. IN THE RESULT ALL APPEALS OF BOTH THE REVENUE AND THE ASSESSEES ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 TH APRIL 2014 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED THE 29 TH APRIL 2014 TPRAO COPY TO: 1. THE INCOME TAX OFFICER KRISHNANAGAR COLONY OPP.: HI TECH BUS STAND SURYAPET-508 213. 2. SRI GUNDAPANENI NAGESWARA RAO S/O. RANGARAO PROP: M/S. SRI LAKSHMI SRINIVASA TRANSPORT D. NO. 1-15/1/1 S URYAPET ROAD KODAD-508 206. 15 ITA NO. 1799/HYD/2013 & ORS. SRI GUNDAPANENI NAGESWARA RAO & ANR.. =============================== 3. SRI VORUGANTI KRISHNA MURTHY S/O. SRI APPAIAH PRO F.: M/S. VKM LORRY TRANSPORT D. NO. 4-89/6/2 GUDIBANDA RD KODAD-508 206. 4. THE CIT(A)-VI HYDERABAD. 5. THE CIT-VI HYDERABAD. 6. THE DR A BENCH ITAT HYDERABAD.