M/s. Vij Mohan Constructions Pvt.Ltd., Hyderabad v. DCIT, Circle-3(1), Hyderabad

ITA 1898/HYD/2011 | 2008-2009
Pronouncement Date: 18-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 189822514 RSA 2011
Assessee PAN AABCV8884F
Bench Hyderabad
Appeal Number ITA 1898/HYD/2011
Duration Of Justice 1 year(s) 11 month(s) 8 day(s)
Appellant M/s. Vij Mohan Constructions Pvt.Ltd., Hyderabad
Respondent DCIT, Circle-3(1), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 18-10-2013
Assessment Year 2008-2009
Appeal Filed On 09-11-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NO.1864/HYD/11 : ASSESSMENT YEAR 2008 - 09 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(5) HYDERABAD V/S. M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD (PAN AABCV 8884 F) (APPELLANT) (RESPONDENT) AND ITA NO.1898/HYD/11 : ASSESSMENT YEAR 2008 - 09 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD (PAN AABCV 8884 F) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(5) HYDERABAD (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI T.DIWAKAR PRASAD DR ASSESSEE BY : SHRI MOHD AFZAL DATE OF HEARING 10.10.2013 DATE OF PRONOUNCEMENT 18.10.2013 O R D E R PER SAKTIJIT DEY JUDICIAL MEMBER: THESE ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2008 - 09 AND THEY ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) IV DATED 30.8.2011. SINCE COMMON ISS UES ARE INVOLVED THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 2 ASSESSEES APPEAL: ITA NO.1898/HYD/11 : ASSESSMENT YEAR 2008 - 09 2. ASSESSEE IS ENGAGED IN THE BUSINESS OF EXECUTION OF CONTRAC T WORKS. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008 - 09 ON 29.9.2008 DECLARING A TOTAL INCOME OF RS.22 98 712. AS AGAINST THIS ASSESSMENT WAS COMPLETED ON A TOTAL INCOME OF RS. 1 15 30 536 VIDE ORDER OF ASSESSMENT DATED 29.11.2010 PASS ED UNDER S.143(3) OF THE ACT. WHILE SO FRAMING THE ASSESSMENT THE ASSESSING OFFICER REJECTING THE BOOK RESULTS OF THE ASSESSEE ESTIMATED THE INCOME OF TH E ASSESSEE FROM BUSINESS AT 8% OF THE GROSS RECEIPTS WORKING OUT THE SAME AT RS.57 38 920 AND ALSO MADE A DISALLO W ANCE OF RS.14 42 980 IN TERMS OF S.40(A)(IA) THEREBY DETERMINING THE INCOME FOR THE ASSESSEE FROM BU S IN E SS OR PROFESSION AT RS.71 81 900. TO THE SAID BUSINESS INCOME THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.43 48 636 DISCLOSED BY THE ASSESSEE UNDER THE HEAD BUSINESS AS INCOME FROM OTHER SOURCES AND ACCORDINGLY COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.1 15 30 536. 3. THE ASSESSEE HAS FILED THE APPEAL BEFORE US RAISING AS MANY AS SIX GROUNDS BUT THE BASIC ISSUES WHICH AR ISE FOR CONSIDERATION ARE THE FOLLOWING - ( A ) ESTIMATION OF INCOME @ 8% OF THE GROSS CONTRACT RECEIPTS; ( B ) ASSESSMENT OF THE AMOUNT OF RS.43 48 636 DISCLOSED BY THE ASSESSEE AS BUSINESS INCOME UNDER THE HEAD OTHER SOURCES 4. AT THE TIME OF H E ARING BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE APPEARING BEFORE US SUBMITTED THAT HE IS NO T PRESSING THE GROUNDS CONTESTIN G THE ESTIMATION OF INCOME AT 8%. THOSE GROUNDS ARE ACCORDINGLY REJECTED. AS FOR THE OTHER GROUNDS RELATING ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 3 TO THE SECOND ISSUE OF ASSESSMENT OF RS.43 48 636 UNDER THE HEAD OTHER SOURCES IT IS SEEN THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD SHOWN THE FOLLOWING ITEMS OF INCOME AS OTHER INCOME I . METAL ACCOUNT RS.39 61 3 50 II . MISC. IN C OME RS. 2 28 800 III . INTEREST ON FIXED DEPOSITS RS. 1 58 486 TOTAL RS.43 48 636 THE ASSESSEE IN THE COMPUTATION OF INCOME ACCOMPANYING THE RETURN REFLECTED THE ABOVE INCOME UNDER THE HEAD BUSIN E SS. THE ASSESSING OFFICER HOWEVER REJE CTED SUCH CLAIM O F THE ASSESSEE AND TREATED THE ABOVE AMOUNT OF RS.43 48 636 AS INCOME FROM OTHER SOURCES ON THE REASONING THAT THESE ITEMS OF INCOME HAVE NO NEXUS WITH THE BUSINESS OF THE ASSESSEE. THE CIT(A) THOUGH ACCEPTED THAT SUCH INCOME ARE RELATE D TO THE BU S IN E SS OF CONTRACTS BUT HELD THAT THE SAME CAN N O T BE CONSIDERED AS FORMING PART OF THE GROSS RECEIPTS FROM THE BUSINESS OF THE ASSESSEE. ACCORDINGLY HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN THIS BEHALF. 5. IT IS THE CONTENTIO N OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE BEFORE US THAT THE SURPLUS METAL (STONES) AFTER COMPLETION OF A PROJECT ARE SOLD OFF SIMILARLY MISCELLANEOUS INCOME CONSTITUTES OF INCOME FROM SALE OF EMPTY DRUMS ETC. IT WAS THUS SUBMITTED T HAT THESE ITEMS OF IN C OM E CANNOT B E TREATED AS INCOME FROM OTHER SOU R CES SI NC E THEY ARE INTEGRALLY CONNECTED WITH THE BU S IN E SS ACTIVITIES OF THE ASSESSEE AND FORMS PART OF THE BU S IN E SS TURNOVER OF THE ASSESSEE. SO FAR AS INTEREST INCOME IS CONCERNED IT WAS SUBMITTED THAT AS THE INTEREST INCOME HAS ALREADY BEEN CHARGED TO TAX AT THE RATE OF 30% UNDER BUSINESS INCOME THE SAME CANNOT BE CHARGED TO TAX AGAIN. IN SUPPORT OF SUCH CONTENTION THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON A ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 4 DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF FERRO CONCRETE CONSTRUCTION (INDIA) (P) LTD. V/S. CIT(290 ITR 713). 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDER OF THE CIT(A). 7. WE HAVE CONSID ERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. AS CAN BE SEEN FROM THE FINDING OF THE CIT(A) IN PARAGRAPH 6.7 OF HIS ORDER THE CIT(A) DOES NOT DISPUTE THE FACT THAT THE INCOME FROM METAL ACCOUNT MISCELLANEOUS INCO ME OR INTEREST ON FIXED DEPOSITS ARE RELATABLE TO THE BUSINESS OF CONTRACTS CARRIED ON BY THE ASSESSEE. THAT BEING THE CASE INCOME FROM METAL ACCOUNT AND MISCELLANEOUS INCOME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. ON A PERUSAL OF THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF FERRO CONCRETE CONSTRUCTIONS (INDIA)(P)LTD. V/S. CIT (SUPRA) IT IS SEEN THAT WHILE CONSIDERING THE ISSUE AS TO WHETHER INCOME FROM SALE OF EMPTY BAGS CONTAINERS AND DRUMS CAN BE TREATED AS INCOME FROM BU S INESS OR OTHER SOURCES THE HONBLE MADHYA PRADESH HIGH COU R T HELD AS UNDER - 12 . THEN COMES THE INCOME E A RNED BY ASSESSEE BY SALE OF EMPTY BAGS CONTAINE R S AND DRUMS. IT IS NO T IN DISPUTE THAT THESE GOODS ARE USED BY TH E ASSESSEE IN THEIR DAY - TO - DAY MAIN BU S IN E SS ACTI V I TI ES THEY BEIN G ENGAGED IN TH E CIVIL WORKS CONTRACT. IN ORDER TO DISPOSE OF TH E SE GOODS AFTER TH E COMMODITY KEPT IN TH E SE GOO D S ARE USED IN TH E CONSTRUCTION ACTIVITY ON E CANNOT SAY THAT I T IS NOT CON C E R NED WITH BUSINESS. IN OT HER WORDS I T I S INCIDENTAL TO THE BU S IN E SS ACTIVITY AND H ENCE IN OUR VIEW ANY INCOME EARNED BY SALE O F TH E SE EMPTY BAGS/CONTAINERS/DRUMS CANNOT B E SAID TO B E AN INCOME FROM OTHER SOU R CES BUT I T IS AN INCO M E FROM BU S IN E SS ACTIVITY OF THE ASSESSEE. HOWE VER AS CAN BE SEEN FROM THE VERY SAME DECISION THE HONBLE MADHYA PRADESH HIGH COURT HELD THAT INTEREST INCOME EARNED ON FIXED DEPOSITS IS CHARGEABLE TO TAX AS INCOME FROM OTHER SOURCES. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE MADHYA PRADESH HIGH COURT IN THAT ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 5 CASE WE DIRECT THE ASSESSING OFFICER TO TREAT THE INCOME FROM METAL ACCOUNT AMOUNTING TO RS.39 51 350 AND MISCELLANEOUS INCOME O F RS.2 28 800 AS INCOME FROM BUSINESS AND PART OF THE BUSINESS TURNOVER OF THE ASSESSEE AND ACCORDI NGLY APPLY THE NET PROFIT RATE OF 8% TO THIS INCOME ALSO. SO FAR AS INTEREST ON FIXED DEPOSIT OF RS.1 58 486 IS CONCERNED WE UPHOLD THE VIEW TAKEN BY THE LOWER AUTHORITIES IN TR E ATING THE SAME AS INCOME FROM OTHER SOURCES. HOWEVER THE ASSESSING OFFICER SHOULD SEE TO IT THAT THE SAME INCOME IS NOT TAXED TWICE. CON S EQUENTLY ASSESSEES GROUNDS ON THIS ISSUE ARE PARTLY ALLOWED. 8. IN THE RESULT ASSESSEES APPEAL ITA NO.1898/HYD/2011 IS PARTLY ALLOWED REVENUES APPEAL ITA NO.1898/HYD/11 : ASSESSMENT YEAR 2008 - 09 9. THE ONLY ISSUE INVOLVED IN THE GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS. 14 42 980 M ADE IN TERMS OF S.40(A)(IA) OF THE ACT BY THE ASSESSING OFFICER WHICH HAS BEEN DELETED BY THE CIT (A) BY THE IMPUGNED ORDER. 10. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTIC ED THAT THE INCOME OFFERED BY THE ASSESSEE IN THE RETURN OF RS.22 98 712 INCLUDES THE INCOME OF RS.14 42 980 WHICH THE ASSESSEE ITSELF DISALLOWED UNDER S.40( A)(IA) OF THE ACT. THE ASSESSING OFFICER WHILE ESTIMATING THE NET PROFIT AT 8% OF THE GROSS RECEIPTS ALSO MADE SEPARATE ADDITION OF RS.14 42 980 BEIN G THE DISALLOWANCE UNDER S.40(A)(IA) OF THE ACT. IN THE FIRST APPELLATE PROCEEDINGS THE CIT(A) ACCEPTING THE ASSESSEES CONTENTION THAT NO SEPARATE DISALLOWANCE OF EXPENDITURE CAN BE MADE WHEN INCOME IS ESTIMATED BY APPLYING A FIXED PERCENTAGE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 6 11. IT IS THE CONTENTION OF THE LEARNED DEPARTMENTAL R EPRESENTATIVE BEFORE US THAT THE DISALLOWANCE UNDER S.40(A)(IA) IS A STATUTORY DISALLOWANCE AND NOT A DISALLOWANCE OF EXPENDITURE IN THE STRICT SENSE OF TH E TERM. IT IS DISALLOWANCE FOR A DEFAULT ON THE PART OF THE ASSESSEE TO COMPLY WITH THE STATUTORY OBLIGATION AND THEREFORE IT HAS TO BE MANDATORILY MADE. HE FURTHER SUBMITTED THAT EVEN IN A CASE WHERE INCOME IS ESTIMATED AT A FIXED PERCENTAGE AFTER REJECTING THE BOOKS OF ACCOUNT SEPARATE ADDITIONS CAN BE MADE ON ACCOUNT OF STATUTORY DISALLOWANCE. IN SUPPORT OF SUCH CONTENTION THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON A DECISION OF THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF K. VENKATA RAJU V/S. ADDITIONAL CIT IN ITA NO.312/VIZAG/2008 DATED 3.5.2013 12. THE LEARNED AUTHORI SED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND CONTENDED THAT ONCE INCOME IS ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT TH ERE CAN BE NO SEPARATE ADDITION / DISALLOWANCES UNDER THE PROVISIONS CONTAINED UNDER S.30 TO S.43. IN SUPPORT OF SUCH CONTENT ION THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS - (A) TEJA CONSTRUCTIONS ( 129 TTJ (HYD)(UO) 57 ) (B) ITO V/S. KENARAM SAHA AND SUBHASH SAHA AND OTHER CONNECTED APPEALS (2008) 301 ITR(AT)171(S B) ( C ) CIT V/.S. BANWARI LAL BANSHIDHAR ( 229 ITR 229 ) - ALL 13. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL O N RECORD IN THE LIGHT OF THE DECISIONS CITED BEFORE US. IT IS SEEN THAT THE SP E CIAL BENCH O F THE TRIBUNAL ( KOLKATA ) IN THE CASE OF ITO V/S. KENARAM SAHA AND SUBHASH SAHA (2008)301 ITR(AT)171(SB) WHILE CONSIDERING IDENTICAL ISSUE OF STATUTORY DISALLOWANCE UNDER S.40A(3) OF THE ACT WHEN INCOME WAS ESTIMATED FOLLOWED THE DECISION OF THE HONBLE ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 7 ALLAHABAD HIGH COURT IN THE CAS E OF CIT V/S. BANWARILAL BANSIDHAR (SUPRA) AND HELD AS UNDER - NOW COMING TO THE DEPARTMENTAL APPEAL IN THE CASE OF SRI SHYAMAL KR. DEY VIDE I. T. A. NO. 1772 (KOL)/2007 THE ASSESSING OFFICER HAS DETERMINED THE INCOME BY APPLYING A NET PROFIT RA TE OF THE TURNOVER. THE ASSESSING OFFICER IN ADDITION TO THE DETERMINATION OF NET PROFIT AS A PERCENTAGE OF TURNOVER MADE FURTHER DISALLOWANCE UNDER SECTION 40A(3). THE COMMISSIONER OF INCOME - TAX (APPEALS) DELETED THE DISALLOWANCE MADE UNDER SECTION 40A(3 ). THE REVENUE AGGRIEVED WITH THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) 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 MADE UNDER SECTION 40A(3). IN SUP PORT OF THIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. BANWARI LAL BANSHIDHAR IN WHICH THEIR LORDSHIPS HELD AS UNDER (HEADNOTE): AFFIRMING THE DECISION OF THE TRIBUNAL THAT NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(J) OF THE INCOME - 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 N O NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES MADE BY THE ASSESSEE. THE ABOVE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. WHEN A NET PROFIT RATE IS APP LIED THERE REMAINS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE. IN VIEW OF THE ABOVE WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT HOLD THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) WAS JUSTIFIED IN DELETING TH E DISALLOWANCE UNDER SECTION 40A(3) MADE BY THE ASSESSING OFFICER. ACCORDINGLY WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) AND DISMISS THE REVENUE'S APPEAL. THE INCOME - TAX APPELLATE TRIBUNAL HYDE R ABAD BENCH IN THE CA S E OF TEJA CONSTR UCTIONS (129 T T J(HYD)(UO)57) ALSO EXPRESSED THE SAME VIEW THAT WHEN INCOME IS ESTIMATED NO SEPARATE ADDITION CAN BE MADE UNDER S.40(A)(IA) OF THE ACT. ON A PERUSAL OF THE ORDER PASSED BY THE ITAT VISKH A PATNAM IN THE CASE OF K.VENKATA RAJU V/S. ADDL CIT ( SUPRA) IT IS SEEN THAT THE INCOME - TAX APPELLATE TRIBUNAL VISAKHAPATNAM HAS NOT TAKEN NOTE OF THE SP E CIAL BENCH DECISION OF THE TRIBUNAL ( KOLKATA BENCH) IN THE CASE NOTED ABOVE. THE SPECIAL BENCH DECISION OF THE TRIBUNAL BEING ITA NO. 1864 & 1898/ HYD/201 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. HYDERABAD 8 BINDING ON A DIVISION BENCH W E RESPECTFULLY FOLLOW THE SAME BESIDES THE DECISION OF THE COORDINATE BENCH IN THE CA S E OF TEJA CONSTRUCTIONS ( 129 TJ(HYD)(UO)57) AND HOLD THAT HAVING R E SO R TED TO ESTIMATION OF INCOME OF THE ASSESSEE FROM BUSINESS IN THIS CASE NO SEPARATE ADDITION COULD BE MADE EVEN IN TERMS OF S.40(A)(IA) OF THE AC T. IN THAT VIEW OF THE MATTER WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE IN ITS APPEAL. 14. IN TH E RESULT RE VENUES APPEAL IS DISMISSED. 15. TO SUM UP WHILE ASSESSEES AP PEAL ITA NO.1898/HYD/2011 IS PARTLY ALLOWED REVENUES APPEAL ITA NO.1864/HYD/2011 IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18.10.2013 SD/ - SD/ - (CHANDRA POOJARI) ( SAKTI JIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/ - 18 TH OCTOBER 2013 COPY FORWARDED TO: 1 M/S. VIJ MOHAN CONSTRUCTIONS PVT. LTD. 8 - 2 - 293/82/A PLOT NO.1091 ROAD NO.41 NEAR PEDDAMMA TEMPLE JUBILEE HILLS HYDERABAD 2 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3) HYDERABAD 3 COMMISSIONER OF INCOME - TAX(APPEALS) I V HYDERABAD 4 COMMISSIONER OF INCOME - TAX III HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD B.V.S