M/s Judhistir Samantaray, Ganjam v. Addl CIT, Berhampur

ITA 310/CTK/2010 | 2006-2007
Pronouncement Date: 25-02-2011

Appeal Details

RSA Number 31022114 RSA 2010
Assessee PAN AAEFJ7978A
Bench Cuttack
Appeal Number ITA 310/CTK/2010
Duration Of Justice 6 month(s) 12 day(s)
Appellant M/s Judhistir Samantaray, Ganjam
Respondent Addl CIT, Berhampur
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Bench Allotted DB
Assessment Year 2006-2007
Appeal Filed On 12-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 310/CTK/2010 / ASSESSMENT YEAR 2006 - 07 M/S.JUDHISTIR SAMANTARAY ASHOK NARGAR 7 TH LINE BERHAMPUR (GANJAM) AAEFJ 7978 A - - - VERSUS - ADDL.COMMISSIONER OF INCOME - TAX BERHA MPUR RANGE BERHAMPUR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI R.P.SAHOO AR / FOR THE RESPONDENT: / SHRI S.K.DASH DR / ORDER . . SHRI K.K.G UPTA ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE RATE OF 9% GROSS MARGIN AS INCOME ON THE CONTRACT BILLS RAISED DURING THE ASSESSMENT YEAR THE ASSESSEE BEING A CIVIL CONTRACTOR HAS BEEN BROUGHT TO TAX AFTER DEPRECIATION AS INCOME AT 6.87% AS AGAINST 5.38% RETURNED BY THE ASSESSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CIVIL CONTRACTOR DERIVING INCOME FROM EXECUTING WORKS UNDER DIFFERENT CONTR ACTEES AND INCOME FROM OTHER SOURCES. THE ASSESSEE FILED RETURN WHICH WAS SCRUTINIZED UNDER THE PROVISIONS OF SECTION 143/144 WHEN THE AO HELD THAT THE ASSESSEE HAD NOT MAI NTAINED BOOKS OF ACCOUNT PROPERL Y AS IT COULD NOT VERIFY THE DIRECT COST OF EXPENDIT URES ON THE CIVIL WORKS EXECUTED BY HIM AMOUNTING TO 5.17 CRORES. HE COMPUTED THE GROSS RECEIPTS FOR THE IMPUGNED ASSESSMENT YEAR AT 6.35 CRORES ON WHICH HE COMPUTED 9% INCOME WHERE FROM HE REDUCED THE DEPRECIATION AS CLAIMED BY THE ASSESSEE. THIS RESULTED IN ENHANCEMENT OF I.T.A.NO. 310/CTK/2010 2 INCOME AS CONFIRMED BY THE LEAR NED CIT(A) BY APPROXIMATELY 7.2 LAKHS. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO INTER ALIA CONSIDERED THE OTHER DISALLOWANCES BEING INCOME FROM FIXED DEPOSITS AND I.T. REFUNDS BY CONFIRMING THAT THE ASSESSEE WAS UNABLE TO R EBUT RESORTING TO ESTIMATION AT 9% VIS - - VIS 5% RETURNED BY HIM. HE TOOK NOTE OF THE FACT THAT FOR THE ASSESSMENT YEAR 2003 - 04 THE ASSESSEE BEFORE THE TRIBUNAL HAD NOT PRODUCED THE RELEVANT MATERIALS FOR CONSIDERATION WHEN THE ASSESSING OFFICER HAD RAISED THE ESTIMATION AT 9% VIS - A - VIS 4% RETURNED BY THE ASSESSEE HOWEVER WAS REDUCED BY THE FIRST APPELLATE AUTHORITY TO 7% ALLOWING THE CLAIM OF THE ASSESSEE THE DEPRECIATION WHICH WAS NOT BELOW THE INCOME RETURNED BY THE ASSESSEE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) WAS UNJUSTIFIED IN CONFIRMING THE ORDER OF ASSESSMENT WITHOUT ASSIGNING ANY VALID REASON INSOFAR AS THE ASSESSING OFFICER HIMSELF WAS APPRISED OF THE FACT THAT THE 8 6 /% OF THE EXPENSES INCURRED BY THE ASSESSEE WERE DIRECTLY IN RELATION TO THE GROSS RECEIPTS WHICH HE HAS OBSERVED IN HIS ORDER AS CAN BE PERUSED. THE LEARNED CIT(A) RATHER TOOK COGNIZANCE OF THE FACT THAT THE DEPRECIATION HAS BEEN ALLOWED FROM 9% WAS NOT ON THE BASIS OF ANY LEGAL PROVISION BUT THE FACT THE DISALLOWANCE OF EXPENSES HAVE BEEN SUSTAINED AT A HIGHER RATE THAN WHAT IS ALLOWABLE. HE POINTED THAT THE DEPRECIATION IS A CHARGE TO THE PROFIT & LOSS ACCOUNT WHEN THE ASSETS ARE PUT TO USE AND IS A RIGHTFUL CLAIM BY THE ASSESSEE WHICH HAVE BEEN CONSIDERED FOR DEDUCTION IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS. THE TRIBUNAL HAD STOPPED SHORT OF DIRECTING THE CLAIM OF DEPRECIATION TO BE ALLOWED INSPITE OF A LOWER RATE OF INCOME COMPUTED INSOFAR AS IT DID NOT REDUCE THE VERY RETURNED INCOME BY THE ASSESSEE. THEREFORE THE BASIS OF HOLDING 9% INCOME FOR ONLY ALLOWING DEPRECIATION WAS NOT THE CASE OF THE ASSESSEE AS CONSIDERED BY THE I.T.A.NO. 310/CTK/2010 3 LEARNED CIT(A).THERE WAS NO SPECIFIC DISALLOWANCE ON ACCOUNT OF EXPENSES WHEN THE ASSESSING OFFICER HIMSELF ADM ITS THAT THE 9% HAS BEEN COMPUTED ON THE BASIS OF ASSESSEE CLAIMING 86% DIRECT EXPENSES LEAVING ONLY 5% FOR DEPRECIATION WHICH IN THE CASE OF THE ASSESSEE WAS APPROXIMATELY 2% FOR THE IMPUGNED ASSES SMENT YEAR. IN ORDER TO SUSTAIN THE SPIRIT OF TAXATION OF INCOME RENDERED TO BY CIVIL CONTRACTORS WHEN NO SPECIFIC EXPENSES HAVE BEEN BROUGHT ON RECORD TO BE DISALLOWABLE OTHER THAN DEPRECIATION IT SHOULD BE THE NE T PROFIT ALONE WHICH SHOULD BE CONSIDERED FOR TAXATION WHEN NO ADVERSITY HAS BEEN FOUND IN THE CLAIM OF DEPRECIATION BY THE ASSESSEE IN THE EARLIER YEARS. HE POINTED OUT THAT IN ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 THE AMOUNTS RETURNED AND ACCEPTED APPROXIMATELY LEAD TO THE FINDING THAT THE RATE OF NET INCOME AFTER DEPRECIATION RANGES BETWEEN 5% TO 6% WH ICH ON THE BASIS OF THE PROVISIONS OF SECTION 44AD IS TO BE RETURNED AT 8% IS TO BE CONSIDERED FOR DEPRECIATION WHICH IN THE PECULIAR CIRCUMSTANCES IN THE IMPUGNED AS SESSMENT YEAR IS APPROXIMATELY 2 %.A SUITABLE DIRECTION MAY KINDLY BE GIVEN FOR REDUCING TH E ESTIMATED INCOME SO COMPUTED. 4. THE LEARNED DR HOWEVER SUBMITTED THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005 - 06 WAS ACCEPTED UNDER THE PROVISIONS OF SECTION 143(1) AND THE MINOR ADDITION FOR THE ASSESSMENT YEAR 2004 - 05 WAS NOT PRESSED FOR BY THE ASSESSEE BEFORE THE TRIBUNAL. SIMILARLY THE TRIBUNAL HAD CONFIRMED THE REDUCED PERCENTAGE BY THE LEARNED CIT(A) AT 6.74% WHICH AFTER DEPRECIATION WOULD HAVE RESULTED A MINOR INCREASE IN THE RETUR NED INCOME BY THE ASSESSEE AT 4% . HE THEREFORE SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF SUBMISSIONS PRAYING THAT A REASONABLE DISALLOWANCE FOR EXPENSES BE M ADE WHICH SHOULD BE CONFIRMED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE BEEN APPRISED THAT THE CONTRACTORS EXECUTING I.T.A.NO. 310/CTK/2010 4 CIVIL WORKS DO NOT MAKE PROFIT ON THE MATERIAL UTILISED FOR THE SPECIFIC CONTRACT WHICH THE ASSESSING OFFICER OBSERVED REQUIRED VERIFICATION BEING 86% OF THE GROSS RECEIPTS. HE HAS ASSIGNED NO REASON TO ESTIMATE THE NET INCOM E AT 9% FOR REDUCING THE DEPRECIATION THERE FROM WHICH IS 2% OF THE GROSS RECEIPTS.. WE FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ON RESORTING TO ESTIMATION OF THE NET INCOME FROM GROSS RECEIPTS THE CONTENTION OF THE ASSESS ING AUTHORITIES THAT THE BOOKS OF ACCOUNT ARE NOT MAINTAINED PROPERLY ONLY DILUTES THE CASE OF THE ASSESSING OFFICER THAT ESTIMATION BY NOTING THE DIRECT EXPENSES AT 86% THE RESIDUAL AMOUNT 5% ALLOWED BY HIM WERE IN FACT THE EXP E NSES WHICH ARE OVER AND AB OVE AND INCIDENTAL TO THE ASSESSEES BUSINESS WHICH HAVE NOT BEEN CALLED FOR SCRUTINY. IN THIS VIEW OF THE MATTER ONCE THE GROSS RECEIPTS ARE ONLY SUBJECTED TO ESTIMATION WE ARE INCLINED TO FIND THAT THE ASSESSEES HISTORY OF TAXATION OF AMOUNTS IN ACCORD ANCE WITH THE DECISION OF THE APPELLATE AUTHORITIES HAVE TO BE FOLLOWED TO THE EXTENT THAT DISALLOWANCE OF APPROXIMATELY 7.2 LAKHS REQUIRES CONSIDERATION . ON EXPENSES BEING MORE THAN 5% WHICH EXPENSES HAVE BEEN ALLOWED BY THE ASSESSING OFFICER. IN THIS VI EW OF THE MATTER HAVING CONSIDERED THAT ALL THE ASSETS WERE PUT TO USE AND DEPRECIATION WAS ALLOWED THERE FROM WE ARE INCLINED TO HOLD THAT 5.38% NET PROFIT RETURNED BY THE ASSESSEE ON THE GROSS RECEIPTS WAS IN LINE WITH THE SET BUSINESS AND RATHER MORE THAN WHAT HAD BEEN ACCEPTED BY THE DEPARTMENT EARLIER. THE LEARNED CIT(A) IN HIS ORDER FOR THE ASSESSMENT YEAR 2003 - 04 HAD REDUCED THE SAME TO 6.74% WHICH AMOUNT COMMENSURATE S TO THE DEPRECIATION CLAIMED IN THAT ASSESSMENT YEAR BEING 1% OF THE GROSS RECEIPTS. THEREFORE IN THIS VIEW OF THE MATTER WE ARE INCLINED TO HOLD THAT ADJUDICATING ON THE BASIS OF THE PERCENTAGE OF NET PROFIT AFTER DEPRECIATION WOULD ONLY COMPLICATE THE ISSUE AS CONSIDERED BY THE LEARNED CIT(A) AND THE LEARNED ASSESSING OFFICER WHEN WE I.T.A.NO. 310/CTK/2010 5 DIRECT THE DISALLOWANCE OF EXPENSES TO BE ESTIMATED ALLOWABLE AT 5% TO 7%. IN OTHER WORDS THE NET PROFIT AFTER DEPRECIATION TO BE TAXED IS SUSTAINED BY ADDING RS.1 LAKH TO 5.38% RATE RETURNED BY THE ASSESSEE ON THE GROSS RECEIPTS AS DISALLOWABLE EXPENSES FOR WANT OF DETAILS AND VOUCHERS . 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 25 TH FEBRUARY 2011 SD/ - SD/ - ( . . . ) ( K.S.S.PRASAD RAO) JUDICIAL MEMBER ( . . ) (K.K.GUPTA) ACCOUNTANT MEMBER. ( ) DATE: 25 TH FEBRUARY 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : M/S.JUDHISTIR SAMANTARAY ASHOK NARGAR 7 TH LINE BERHAMPUR (GANJAM) 2 / THE RESPONDENT: ADDL.COMMISSION ER OF INCOME - TAX BERHAMPUR RANGE BERHAMPUR. 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY ( ) ( H.K.PADHEE ) SENIOR.PR IVATE SECRETARY.