R. Maheswar Naidu, Hyd, Hyderabad v. Addl. CIT, Range-6, Hyderabad

ITA 302/HYD/2011 | 2007-2008
Pronouncement Date: 30-03-2012 | Result: Allowed

Appeal Details

RSA Number 30222514 RSA 2011
Assessee PAN AEBPR3525C
Bench Hyderabad
Appeal Number ITA 302/HYD/2011
Duration Of Justice 1 year(s) 27 day(s)
Appellant R. Maheswar Naidu, Hyd, Hyderabad
Respondent Addl. CIT, Range-6, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-03-2012
Assessment Year 2007-2008
Appeal Filed On 03-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER I.T.A. NO. 302/HYD/2011 (ASSESSMENT YEAR : 2007-08) SHRI R. MAHESWAR NAIDU HYDERABAD PAN: AEBPR3525C VS. ADDL. COMMISSIONER OF INCOME-TAX RANGE-6 HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI K. JAYADEV RESPONDENT BY: SHRI TH. LUCAS PETER DATE OF HEARING: 14.03.2012 DATE OF PRONOUNCEMENT: 30.03.2012 O R D E R PER CHANDRA POOJARI AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-IV HYDERABAD DATED 15.12.2010. 2. THE ISSUE FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO THE ADDITION OF RS. 1.50 CRORES BY ESTIMATING THE I NCOME OF THE ASSESSEE. 3. BRIEF FACTS OF THE ISSUE ARE THE ASSESSEE IS DERIVI NG INCOME FROM BUSINESS OF CIVIL CONTRACT WORKS BESIDES HOUS E PROPERTY INCOME. DURING THE YEAR HE HAD DECLARED THE NET PR OFIT OF RS. 7.5 CRORES ON A TOTAL TURNOVER OF RS. 137.64 CRORES WH ICH GAVE THE PROFIT RATIO OF 5.45%. THE GROSS PROFIT DECLARED BY THE APPELLANT WAS RS. 10.11 CRORES WHICH WORKED OUT TO 7.34% OF THE TOTAL TURNOVER. A SURVEY U/S. 133A OF THE INCOME-TAX ACT 1961 WAS CONDUCTED IN THE ASSESSEE'S CASE ON 18.10.2006 REL EVANT TO THE A.Y. 2007-08. THE ASSESSEE HAD DECLARED AN AMOUNT O F RS. 3.5 CRORES AS ADDITIONAL INCOME FOR A.Y. 2006-07 DURING THE SAID SURVEY. THE ADDITIONAL INCOME WAS DECLARED IN VIEW OF THE FACT THAT I.T.A. NO. 302/HYD/2011 SHRI R. MAHESWAR NAIDU =================== 2 THE ASSESSEE HAD NOT BEEN ABLE TO SUBSTANTIATE HIS RAW MATERIAL AND CONSTRUCTION EXPENSES WITH VOUCHERS ETC. THE AS SESSEE OFFERED ADDITIONAL INCOME OF RS. 1.5 CRORES FOR THE FINANCI AL YEAR 2006-07 RELEVANT TO A.Y. 2007-08 ALSO UP TO THE DATE OF SU RVEY I.E. 18.10.2006 ON THE SAME VERY GROUND. IT WAS STATED B Y THE ASSESSEE IN THE STATEMENT RECORDED DURING THE SURVE Y THAT THE STATEMENTS WERE BEING DRAWN AT THEIR HEAD OFFICE ON THE BASIS OF EXPENDITURE STATEMENT SENT BY THE SITE STAFF WITHO UT ACCOMPANYING VOUCHERS ETC. IT WAS ALSO ADMITTED THA T IT WAS NOT POSSIBLE FOR THEM TO PREPARE DATE WISE CASH BOOK AN D LEDGER. THE ASSESSEE FURTHER ADMITTED IN HIS ANSWER TO QUESTION NO. 15 THAT THERE IS NO SPECIFIC BASIS TO WORK OUT THE EXPENSES . 4. FROM THE ABOVE FACTS THE ASSESSING OFFICER CONCLUD ED THAT IN VIEW OF THE FACTS GATHERED FROM SPOT VERIFICATION A T THE TIME OF SURVEY IT WAS CLEAR THAT THE ASSESSEE DID NOT HAVE COMPLETE BILLS OR VOUCHERS FOR THE EXPENSES. SHE NOTED THAT EVEN T HOUGH THE APPELLANT HAD OFFERED AN ADDITIONAL INCOME OF RS. 1 .5 CRORES OVER AND ABOVE THE REGULAR INCOME FOR THE FINANCIAL YEAR 2006-07 THE AMOUNT DECLARED WAS NOT REASONABLE AND SUFFICIENT AS THE GROSS AND NET PROFIT RATIOS BEFORE OFFERING OF RS. 1.5 CR ORES OF ADDITIONAL INCOME WERE AS LOW AS 6.25% AND 4.36% RESPECTIVELY. EVEN AFTER INCLUSION OF THE ADDITIONAL INCOME OFFERED THE PRO FIT RATIOS REMAINED AT 7.34% (GROSS) AND 5.45% (NET) ONLY. 5. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS AGAIN REQUIRED TO PRODUCE BILLS AND VOUCHERS FOR VERIFICA TION OF EXPENSES AND LIABILITIES IN REGARD TO CERTAIN IDENTIFIED CAT EGORIES OF SUNDRY CREDITORS. THE ASSESSEE WAS ALSO REQUIRED TO SUBMIT BILLS AND VOUCHERS FOR SUBSTANTIATING THE CLAIM OF 'EARTH EXP ENSES' FOR TWO SPECIFIED FORTNIGHTS. HOWEVER THE ASSESSEE EXPRESS ED HIS INABILITY TO PRODUCE ANY SUCH DETAILS AND DID NOT PRODUCE A S INGLE BILL OR VOUCHER FOR VERIFICATION. THE ASSESSING OFFICER NOT ED THAT ON I.T.A. NO. 302/HYD/2011 SHRI R. MAHESWAR NAIDU =================== 3 ACCOUNT OF NON PRODUCTION OF BILLS AND VOUCHERS EV EN RANDOM VERIFICATION OF EXPENDITURE COULD NOT HAVE BEEN UND ERTAKEN. FROM THE FACTS THEREFORE SHE CONCLUDED THAT THE EXPENSE S INCURRED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE. 6. IN VIEW OF THE ABOVE DISCUSSED TOTAL NON VERIFIABIL ITY OF THE EXPENSES CLAIMED BY THE ASSESSEE BOTH AT THE TIME OF SURVEY AND DURING THE ASSESSMENT PROCEEDINGS BESIDES THE FACT THAT THE APPELLANT HAD DECLARED RS. 1.5 CRORES ON ACCOUNT OF NON VERIFIABLE EXPENSES ITSELF THE ASSESSING OFFICER CONSIDERED I T REASONABLE TO MAKE AN ADDITION OF RS. 1.5 CRORES ON ACCOUNT OF NO N VERIFIABLE EXPENSES FOR THE A.Y. 2007-08. 7. THE ASSESSING OFFICER FURTHER REMARKED THAT THE SUR VEY HAD BEEN CONDUCTED ALMOST IN THE MIDDLE OF THE F.Y. 200 6-07 AND EVEN BY A ROUGH CALCULATION THE ASSESSEE HAD RECEI VED ALMOST HALF OF HIS TOTAL RECEIPTS OF THE YEAR BY THEN I.E. ARO UND RS. 60 CRORES. SHE OPINED THAT THE ASSESSEE HAD HIMSELF OFFERED RS . 1.5 CRORES AT THE TIME OF SURVEY AND SINCE THE STATUS OF THE ACCO UNTS WAS LIKELY TO REMAIN THE SAME FOR THE REMAINING 6 MONTHS ALSO AS WAS SEEN DURING THE SURVEY PROCEEDINGS IT WAS REASONABLE TO MAKE AN ADDITION OF RS. 1.5 CRORES ON SIMILAR FOOTINGS FOR THE REMAINING PART OF THE PERIOD ALSO. AS PER HER WORKING THE ADDITIO N OF RS. 1.5 CRORES IN THE A.Y. 2007 -08 RAISED THE GROSS PROFIT S TO RS. 11.61 CRORES @ 8.43% WHILE THE NET PROFIT WAS TO BE 6.54 %. THE ASSESSING OFFICER CONSIDERED THE SAME AS REASONABLE AND FAIR IN THE LINE OF CIVIL CONTRACT WORKS. SHE ALSO NOTED THAT F OR THE A.Y. 2006- 07 THE ASSESSEE HAD DISCLOSED GROSS PROFIT RATIO O F 12% AND NET PROFIT RATIO OF 10%. HOWEVER SINCE THE TURNOVER HA D ALMOST DOUBLED IN THE A.Y. 2007-08 SHE OPINED THAT THE PR OFIT MARGIN MAY NOT BE THE SAME. ACCORDINGLY THE GROSS PROFIT OF 8.43% WAS HELD TO BE REASONABLE AND FAIR AND THE ADDITION OF RS. 1.50 CRORES WAS MADE TO THE RETURNED INCOME. I.T.A. NO. 302/HYD/2011 SHRI R. MAHESWAR NAIDU =================== 4 8. ON APPEAL THE CIT(A) CONFIRMED THE ADDITION. AGAI NST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 9. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD DULY OFFERED THE ABOVE SUM OF RS. 5 00 00 000 IN THE RETURNS OF INCOME FOR THE RESPECTIVE ASSESSMENT YEARS AND PAID THE TAX DUE TH EREON. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT ORD ER FOR THE ASSESSMENT YEAR 2007-08 OVER AND ABOVE THE INCOME OFFERED UNDER SECTION 133A OF INCOME-TAX ACT 1961 MADE AD DITION OF ANOTHER RS. 1.5 CRORES BY HOLDING THAT THE RETURNED INCOME IS VERY LOW IGNORING THE EXPLANATION GIVEN BY THE ASSESSEE IN THIS REGARD. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT ON ACCOUNT OF THE FOLLOWING FACTS OF THE CASE THE INCOME RETURNE D IS FAIR AND REASONABLE. (A) THE WORKS AGGREGATING TO A SUM OF RS. 29 70 20 931 WERE GIVEN ON SUB-CONTRACT BASIS AND THE COMMISSION EARN ED THEREON IS ONLY RS. 69 19 948. (B) THE ASSESSEE HAD TO INCUR HUGE EXPENDITURE OF INTEREST OF RS. 1 22 44 889. (C) THE ASSESSEE ALSO INCURRED HUGE AMOUNT OF EXPE NDITURE TO THE TUNE OF RS. 5 41 62 630/- ON ACCOUNT OF VARIOUS DEPARTMENTAL RECOVERIES. (D) THE ASSESSEE ALSO CLAIMED DEPRECIATION OF RS. 2 62 77 230/-. (E) THE GROSS PROFIT SHOWN BY THE APPELLANT I.E. RS. 10 67 38 022/- [AFTER ADDING BACK THE DEPRECIATION AND INTEREST] GIVES G.P. RATIO OF 10.4% ON THE OWN TURN OVER WHICH IS MORE THAN REASONABLE AS THIS TRIBUNAL HAD HELD THAT IN THE FOLLOWING SIMILAR CASES ESTIMATION OF PROFIT AT 7% OF THE TURNOVER IS REASONABLE: 1. B. SEENAIAH & CO. HYDERABAD ITA NO.681/HYD/2002 2. SRI TAHER ALI HYDERABAD ITA NO. 522/HYD/2002 3. AYYAPPA INFRA PROJECTS PVT. LTD ITA. 608/HYD/2009 I.T.A. NO. 302/HYD/2011 SHRI R. MAHESWAR NAIDU =================== 5 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ADDITION OF RS. 1.5 CRORES IN OUR OPINION IS NOT SUPPORTED BY ANY MATERIAL ON RECORD. THE LEARNED AS SESSING OFFICER HAD NOT REJECTED THE BOOKS OF ACCOUNT AND O NLY MADE A ROUND SUM ADDITION OF RS. 1.5 CRORES WITHOUT BRINGI NG ANY INCRIMINATING EVIDENCE ON RECORD SUGGESTING INFLATI ON OF EXPENDITURE OR SUPPRESSION OF ANY RECEIPTS. ON APPE AL BEFORE THE LEARNED COMMISSIONER OF INCOME-TAX [APPEALS] THE AS SESSEE RELIED ON THE DECISION OF THE SPECIAL BENCH OF INDORE ITAT IN THE CASE OF ARIHANT BUILDERS DEVELOPERS & INVESTORS P LTD. VS. ACIT (106 ITD 10) IT WAS SUBMITTED THAT IT WAS REASONABLE TO ESTIMATE THE PROFITS NET OF ALL DEDUCTIONS AT 8% OF THE GROSS R ECEIPTS. HOWEVER THE GROSS PROFIT ADOPTED BY THE ASSESSING OFFICER I S 8.43% AND THEREFORE THE NET PROFIT EMBEDDED THEREIN WOULD BE LOWER THAN THAT. ON THIS REASONING ALONE THE CIT(A) UPHELD TH E ADDITION. THUS FROM THE ABOVE IT IS VERY CLEAR THAT THE COM MISSIONER OF INCOME-TAX (APPEALS) HAD UPHELD THE ASSESSMENT ORDE R BY ASSUMING THAT THE GROSS PROFIT RETURNED IS 8.43% AS AGAINST ACTUAL G.P. OF 10.4%. THE LEARNED COMMISSIONER OF I NCOME-TAX [APPEALS] WRONGLY PLACED RELIANCE ON THE DECISION O F SPECIAL BENCH OF INDORE ITAT IN THE CASE OF ARIHANT BUILDE RS DEVELOPERS & INVESTORS P LTD. VS. ACIT (106 ITD 10}[SB]. THE L INE OF BUSINESS OF THE ABOVE ASSESSEE IS DIFFERENT FROM THE ASSESSE E AND THUS IT CANNOT BE A COMPARABLE CASE. 11. FURTHER THE REVENUE HAD ACCEPTED THE INCOME SURREN DERED BY THE ASSESSEE DURING THE COURSE OF SURVEY OPERATI ON UNDER SECTION 133 A OF INCOME-TAX ACT AND THEREFORE THE ASSESSING OFFICER IS PRECLUDED FROM MAKING ANY FURTHER ADDITI ON OVER AND ABOVE THE SURRENDERED INCOME. THE ASSESSING OFFICE R HAD NOT EVEN REJECTED THE BOOKS OF ACCOUNT; BUT SIMPLY MADE ROUND-SUM ADDITION OF RS. 1.5 CRORES OVER AND ABOVE THE RETUR NED INCOME WHICH INCLUDED THE INCOME SURRENDERED DURING THE CO URSE OF I.T.A. NO. 302/HYD/2011 SHRI R. MAHESWAR NAIDU =================== 6 SURVEY OPERATIONS. WITHOUT REJECTING THE BOOKS OF A CCOUNT THE ASSESSING OFFICER HAS NO POWER TO MAKE A ROUND-SUM ADDITION WITHOUT BRINGING ON RECORD ANY EVIDENCE JUSTIFYING THE ADDITION. THE INCOME SURRENDERED DURING THE COURSE OF OPERATI ON OF SEC. 133A COULD COVER UP ANY DISCREPANCIES IF ANY IN T HE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THIS VIEW IS SU PPORTED BY THE JUDGEMENT OF HIGH COURT OF RAJASTHAN IN THE CAS E OF COMMISSIONER OF INCOME-TAX VS. MAHARAJA SHREE UMED MILLS LTD. 192 ITR 565. 12. THE ASSESSING OFFICER DID NOT POINT OUT ANY SPECIFI C DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. CERTAIN VOUCHERS WERE NOT PRODUCED BEFORE THE ASSESSING OFF ICER FOR THE REASONS THAT THOSE VOUCHERS WERE MAINTAINED AT THE RELEVANT WORK SITES WHICH ARE SITUATED AT FAR-FLUNG PLACES. THE MERE FACT THAT THERE WAS LESS RATE OF GROSS PROFIT DECLARED B Y THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR WOULD NOT BY ITSEL F BE SUFFICIENT TO JUSTIFY THE ADDITION. NOR DOES IT LEAD TO AN INF ERENCE THAT THERE WAS INFLATION OF EXPENDITURE OR SUPPRESSION OF RECE IPTS. RELIANCE FOR THIS PROPOSITION OF LAW IS PLACED ON THE DECISI ON OF BOMBAY HIGH COURT IN THE CASE OF R.B. BANSILAL ABIRCHAND S PG. & WVG. MILLS V. CIT [1970) 75 ITR 260 AND HIGH COURT OF GA UHATI IN THE CASE OF ALUMINIUM INDUSTRIES (P.) LTD. V. COMMISSIO NER OF INCOME-TAX (1995) 80 TAXMAN 184. 13. THE TRIBUNAL AHMEDABAD BENCH IN THE CASE OF DEPUTY COMMISSIONER OF INCOME-TAX VS. PARAS DYEING AND PRI NTING MILLS P. LTD. {2010) 4 ITR (TRIB) 29 (AHD.) AFTER REVIEW ING VARIOUS CASE LAWS ON THE SUBJECT ALSO HELD THAT A LOWER PROFIT C ANNOT BE THE SOLE GROUND FOR MAKING ADDITION IN THE ASSESSMENT W ITHOUT BRINGING ANY OTHER MATERIAL EVIDENCE ON RECORD. DU RING THE COURSE OF THE PROCEEDINGS BEFORE THE COMMISSIONER O F INCOME-TAX (APPEALS) THE ASSESSEE HAD QUOTED THE COMPARATIVE CASES I.T.A. NO. 302/HYD/2011 SHRI R. MAHESWAR NAIDU =================== 7 WHEREIN THIS TRIBUNAL HAD HELD THAT ESTIMATION OF 7 % OF PROFIT IS REASONABLE IN SIMILAR CASES. THE COMMISSIONER OF I NCOME-TAX (APPEALS) WITHOUT ASSIGNING ANY REASONS WHATSOEVER HAD SIMPLY IGNORED THE SUBMISSIONS IN THIS REGARD. THUS VIEW ED FROM ANY ANGLE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) CANNOT BE SUSTAINED IN THE EYE OF LAW. IN THE LIGH T OF THE AFORESAID FACTS AND CIRCUMSTANCES WE ARE OF THE OP INION THAT THE ADDITION OF RS. 1.50 CRORES IS WITHOUT ANY MATERIAL BROUGHT ON RECORD AND IT IS MADE ON SUSPICION AND SURMISES AND THE SAME IS DELETED. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH 2012. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED THE 30 TH MARCH 2012 COPY FORWARDED TO: 1. SHRI R. MAHESWAR NAIDU C/O. M/S. I.R. RAO & COMPAN Y CHARTERED ACCOUNTANTS C-69 MADHURANAGAR HYDERABAD-500 038. 2. THE ADDL. COMMISSIONER OF INCOME - TAX RANGE - 6 HYDERABAD. 3. THE CIT(A) - IV HYDERABAD 4. THE CIT - III HYDERABAD. 5. THE DR B BENCH ITAT HYDERABAD. TPRAO