ACIT, Rajahmundry v. KV Ram Mohana Rao, Narasapuram

ITA 37/VIZ/2009 | 2001-2002
Pronouncement Date: 27-07-2010 | Result: Dismissed

Appeal Details

RSA Number 3725314 RSA 2009
Assessee PAN ALOPK5787D
Bench Visakhapatnam
Appeal Number ITA 37/VIZ/2009
Duration Of Justice 1 year(s) 5 month(s) 24 day(s)
Appellant ACIT, Rajahmundry
Respondent KV Ram Mohana Rao, Narasapuram
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 27-07-2010
Date Of Final Hearing 11-05-2010
Next Hearing Date 11-05-2010
Assessment Year 2001-2002
Appeal Filed On 02-02-2009
Judgment Text
ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NOS.18 TO 24/VIZAG/2009 ASSESSMENT YEARS:2000-01 TO 2006-07 K. SATYAVENI L/R OF KV RAM MOHAN RAO NARSAPURAM ACIT CENTRAL CIRCLE RAJAHMUNDRY (APPELLANT) PAN NO: ALOPK 5787 D VS. (RESPONDENT) ITA NOS.36 TO 41/VIZAG/2009 ASSESSMENT YEARS:2000-01 TO 2001-02 & 2003-04 TO 20 06-07 ACIT CENTRAL CIRCLE RAJAHMUNDRY K. SATYAVENI L/R OF KV RAM MOHAN RAO NARSAPURAM (RESPONDENT) VS. (APPELLANT) PAN NO: ALOPK 5787 D APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI SUBRATA SARKAR CIT(DR) ORDER PER BENCH: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER S PASSED BY LEARNED CIT (A)-I HYDERABAD. THE ASSESSEES APPEALS RELATE TO THE ASSESSMENT YEARS 2000-01 TO 2006-07. THE REVENUES APPEAL RELATE TO THE ASSESSMENT YEARS 2000-01 TO 2001-02 AND 2003-04 TO 2006-07. SINCE THE ISSUES AGITATED IN THESE APPEALS ARE IDENTICAL IN N ATURE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2. THE INCOME ESTIMATED AT 8% OF THE GROSS CONTRACT RECEIPTS CLEAR OF ALL DEDUCTIONS HAVING BEEN PARTIALLY REDUCED BY TH E LEARNED CIT (A) BOTH ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 2 OF 7 THE PARTIES ARE IN APPEAL BEFORE US. THE ASSESSEE I S ALSO CONTESTING THE ESTIMATION OF INCOME FROM LORRIES U/S 44AE OF THE A CT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS A CIVIL CONTRACTOR. SEARCH AND SEIZURE OPERATIONS WER E CONDUCTED IN HIS HANDS ON 31-1-2006. CONSEQUENTLY NOTICES U/S 153A OF THE ACT WAS ISSUED TO THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. DURING THE COURSE OF SEARCH OPERATIONS IT TRANSPIRED THAT THE ASSESSEE HAD BEE N OFFERING THE INCOME FROM CONTRACT WORKS IN THE HANDS OF PARTNERSHIP FIR MS WHICH WERE FOUND TO BE NOT EXISTING. WHEN CONFRONTED WITH THE SAME TH E ASSESSEE AGREED TO OFFER THE ENTIRE INCOME FROM CONTRACT RECEIPTS IN H IS HANDS. ACCORDINGLY THE ASSESSEE FILED RETURN OF INCOME BY ESTIMATING GROSS INCOME FROM CIVIL CONTRACT WORKS AT 10% OF THE CONTRACT RECEIPTS AND THERE AFTER CLAIMED DEDUCTION TOWARDS INTEREST PAID TO BANK AND FINANCI AL INSTITUTIONS AND ALSO CLAIMED DEDUCTION TOWARDS DEPRECIATION ON VEHICLES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD AGREED BEFORE THE DDI TO DISCLOSE INCOME FROM CIVIL CONTRACT WORK AT 3% OR 4% AND ALSO INCOM E FROM LORRIES U/S 44AE OF THE ACT. HOWEVER THE ASSESSEE DID NOT OF FER INCOME ON THE ABOVE SAID LINE. IT IS PERTINENT TO NOTE THAT THE ASSESSI NG OFFICER ALSO DID NOT PROCEED TO COMPUTE INCOME IN ACCORDANCE WITH THE DI SCLOSURE MADE BY THE ASSESSEE BEFORE DDI. THE ASSESSING OFFICER COMPLETE D THE ASSESSMENT BY ESTIMATING INCOME FROM CIVIL CONTRACT WORK AT 8% OF THE GROSS RECEIPTS CLEAR OF ALL DEDUCTIONS BY TAKING CUE FROM S.44AD OF THE ACT AND THE INCOME FROM LORRIES U/S 44AE OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARN ED CIT (A). THE FIRST APPELLATE AUTHORITY REDUCED THE ESTIMATE OF INCOME FROM CIVIL CONTRACT WORKS FROM 8% TO 5% OF GROSS CONTRACT RECEIPTS CLEAR OF A LL DEDUCTIONS. HOWEVER HE CONFIRMED THE COMPUTATION OF INCOME FROM LORRIES U/S 44AE OF THE ACT. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE PARTIES ARE IN APPEAL BEFORE US. ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 3 OF 7 5. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE LETTER FILED BY THE ASSESSEE BEFORE THE DDI SHOULD NOT BE TAKEN COGNIZANCE OF AS IT IS NOT A CASE THAT THE ASSESSEE HAS MADE ANY DISCLOSUR E OR ANY STATEMENT ON OATH. THE ASSESSEE HAS FORMALLY WRITTEN A LETTER T O THE INVESTIGATION TEAM IN THIS REGARD AND NEITHER THE ASSESSEE NOR THE DEPART MENT FOLLOWED THE SAID LETTER AND HENCE THE REVENUE AUTHORITIES CANNOT FOR CE THE ASSESSEE TO ADHERE TO THE CONTENTS OF THE LETTER WRITTEN TO THE INVESTIGATION TEAM. WITH REGARD TO THE ESTIMATION OF INCOME FROM LORRIES U/S 44AE OF THE ACT LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THOUGH THE PARTNERSHIP FIRM OF THE ASSESSEE ORIGINALLY WROTE A LETTER REGARDING ES TIMATION OF INCOME U/S 44AE OF THE ACT YET LATER BY A LETTER DATED 5-11- 2007 THE ASSESSEE BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THAT HE DID NOT CARRY ON ANY TRANSPORT BUSINESS BY UTILIZING THE LORRIES AND HENCE THE QUE STION OF INVOKING SECTION 44AE OF THE ACT DOEST NOT ARISE. THE LEARNED AUTHOR ISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CLEARLY BROUGHT OUT TO THE NOTICE OF THE ASSESSING OFFICER THAT THE SAID LORRIES ARE UTILIZE D FOR THE PURPOSE OF HIS CIVIL CONTRACT BUSINESS AND IN THAT REGARD REQUESTED THE ASSESSING OFFICER TO MAKE NECESSARY INQUIRIES BEFORE TAKING ANY ADVERSE OPINION. ACCORDINGLY LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT TH E ACTION OF THE ASSESSING OFFICER IN ESTIMATING THE INCOME FROM LOR RIES WHICH ARE NOT UTILIZED FOR TRANSPORT BUSINESS U/S 44AE OF THE AC T IS NOT VALID IN THE EYES OF LAW. LEARNED AUTHORISED REPRESENTATIVE FURTHER S UBMITTED THAT THE ASSESSEE HAD FURNISHED STATEMENT OF AFFAIRS AT THE END OF EACH FINANCIAL YEAR SHOWING THE ASSETS AND LIABILITIES. THE SAID S TATEMENT OF AFFAIRS SUFFICIENTLY REVEALS THE FACT THAT THE INCOME OFFER ED BY THE ASSESSEE IN HIS RETURN OF INCOME IS COMMENSURATE WITH THE NET ASSET OF THE ASSESSEE. ACCORDINGLY LEARNED AUTHORISED REPRESENTATIVE CONTE NDED THAT THERE IS NO SCOPE FOR ENHANCING THE INCOME RETURNED BY THE ASSE SSEE. THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE DE CISION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF ACIT VS. K. DAMODA R (2007) 12 SOT 389 (BANG) TO CONTEND THAT THE DEPRECIATION AND INTERES T HAS TO BE DEDUCTED FROM THE GROSS INCOME AND THERE IS NO SCOPE FOR APP LICATION OF PROVISIONS OF SEC. 44AD IF THE CONTRACT RECEIPTS EXCEED ABOVE RS. 40.00 LAKHS. THE LEARNED ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 4 OF 7 AUTHORISED REPRESENTATIVE ALSO INVITED OUR ATTENTIO N TO THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. JAIN CONSTRUCTION CO. & OTHERS (2000) 245 ITR 527 (RAJ.) WHICH WAS RELIED UPON BY THE HON'BLE ITAT BANGALORE IN THE ABOVE CITED CASE. 6. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENT ATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS PASSED A REASONED OR DER COVERING ALL ASPECTS OF THE MATTER AND ACCORDINGLY PLEADED THAT THE ORDE R PASSED BY THE ASSESSING OFFICER SHOULD BE RESTORED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WITH REGARD TO THE COMPUTATION OF INCOME FR OM LORRIES U/S 44AE OF THE ACT THE ASSESSING OFFICER HAS PLACED RELIANCE ON A LETTER DATED 16-3- 2006 FURNISHED BY A PARTNERSHIP FIRM NAMED M/S SHRI BALAJI ENGINEERING WORKS TO THE DY. DIRECTOR OF INCOME TAX (INV) WHERE IN IT WAS STATED THAT THE LORRIES ARE USED FOR TRANSPORT BUSINESS. HOWEVE R DURING THE COURSE OF SEARCH PROCEEDINGS THE SAID PARTNERSHIP FIRM WAS FO UND TO BE NON-EXISTENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSEE HAS FILED A LETTER DATED 5-11-2007 TO THE ASSESSING OFFICER WHE REIN HE HAS SUBMITTED THAT HE HAS NOT DONE ANY TRANSPORT BUSINESS AND ALL THE LORRIES HAVE BEEN UTILIZED FOR THE PURPOSE OF HIS CONTRACT BUSINESS O NLY. THE ASSESSEE HAS ALSO REQUESTED THE ASSESSING OFFICER TO MAKE NECESSARY I NQUIRIES IN THIS REGARD THROUGH THE DEPARTMENTAL CHANNELS BEFORE TAKING ANY ADVERSE OPINION AGAINST THE ASSESSEE. HOWEVER THE ASSESSING OFFICE R WITHOUT MAKING FURTHER INQUIRIES PROCEEDED TO COMPUTE THE INCOME F ROM LORRIES U/S 44AE OF THE ACT. 7.1 THERE CANNOT BE ANY DOUBT THAT SEC.44AE OF THE ACT APPLIES TO THE BUSINESS OF PLYING HIRING OR LEASING OF GOODS CARR IAGES. HENCE BEFORE APPLYING THE PROVISIONS OF SEC.44AE OF THE ACT IT HAS TO BE ESTABLISHED THAT THE GOODS CARRIAGE VEHICLE ARE ACTUALLY USED FOR PL YING HIRING OR LEASING. THE CONTENTIONS OF THE ASSESSEE WERE THAT THE LORRI ES IN THE INSTANT CASE WERE USED FOR THE PURPOSE OF HIS CIVIL CONTRACT BUS INESS. THUS ACCORDING TO ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 5 OF 7 THE ASSESSEE HE DID NOT CARRY ON ANY TRANSPORT BUS INESS. WE NOTICE THAT THE ASSESSEE WAS BRINGING TO THE NOTICE OF THE TAX AUTHORITIES THE FACT THAT THE REVENUE DID NOT UNEARTH ANY MATERIAL TO SUGGEST THAT HE WAS USING THE SAID LORRIES FOR THE PURPOSE OF ANY TRANSPORT BUSIN ESS. TOUGH THE REVENUE HAS PLACED RELIANCE ON THE LETTER GIVEN TO THE DDI BY THE NON-EXISTENT PARTNERSHIP FIRM IN OUR VIEW MUCH CREDENCE COULD NOT BE GIVEN TO THE SAID LETTER FOR THE REASON THAT THE SAID DISCLOSURE IS A GAINST THE FACTS AND FURTHER NEITHER THE ASSESSEE NOR THE ASSESSING OFFICER FOLL OWED THE SAID LETTER IN SO FAR IT RELATES TO THE INCOME FROM CIVIL CONTRACT WO RKS. HENCE WE ARE OF THE VIEW THAT THE TAX AUTHORITIES HAVE FAILED TO PROVE THAT THE VEHICLES WERE USED FOR TRANSPORT BUSINESS AND ALSO FAILED TO DISP ROVE THE CLAIM OF THE ASSESSEE THAT THE SAID LORRIES WERE USED ONLY FOR T HE PURPOSE OF CIVIL CONTRACT BUSINESS. IN VIEW OF THE ABOVE THE QUEST ION OF COMPUTATION OF INCOME U/S 44AE OF THE ACT DOES NOT ARISE. HENCE WE REVERSE THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND DIRECT THE AS SESSING OFFICER TO DELETE THE INCOME COMPUTED U/S 44AE OF THE ACT. 8. THE NEXT ISSUE RELATES TO THE ESTIMATION OF INCO ME FROM CIVIL CONTRACT WORKS. WHILE THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INCOME FROM CIVIL CONTRACT WORKS WOULD GO UP WHEN THE GROSS REC EIPTS EXCEEDS RS.40.00 LAKHS THE LEARNED CIT (A) TOOK THE VIEW THAT THE S AME WOULD GO DOWN IN SUCH KIND OF SITUATION. ADOPTING HIS VIEW THE ASS ESSING OFFICER ESTIMATED THE INCOME FROM CIVIL CONTRACT WORKS AT 8% OF THE G ROSS RECEIPTS CLEAR OF ALL DEDUCTIONS. HOWEVER THE LEARNED CIT (A) REDUCED T HE SAID ESTIMATE TO 5% OF GROSS RECEIPTS CLEAR OF ALL DEDUCTIONS IN ACCOR DANCE WITH HIS VIEW. 9. THE CONTENTION OF THE ASSESSEE IS THAT HE HAS AL SO FILED STATEMENT OF AFFAIRS AS AT THE END OF EACH FINANCIAL YEAR DEPIC TING THEREIN ALL HIS ASSETS AND LIABILITIES (INCLUDING BOTH PERSONAL AND BUSINE SS) AND THE NET WEALTH SO DISCLOSED IN THE ABOVE SAID STATEMENT OF AFFAIRS IS COMMENSURATE WITH THE INCOME DISCLOSED BY THE ASSESSEE IN THE RETURN OF I NCOME. IN OUR VIEW THIS CONTENTION OF THE ASSESSEE IS VITAL ONE AND THE SAM E HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE TAX AUTHORITIES. FROM THE COPIES OF RETURN OF ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 6 OF 7 INCOME FILED BY THE ASSESSEE WE NOTICE THAT THE AS SESSEE HAS ESTIMATED GROSS INCOME FROM CONTRACT RECEIPTS AT 10% AND DEDU CTED THEREFROM EXPENDITURE TOWARDS INTEREST AND DEDUCTION TOWARDS DEPRECIATION. THE INTEREST PAYMENTS SO CLAIMED BY THE ASSESSEE HAVE B EEN PAID TO BANK AND FINANCIAL INSTITUTIONS. WE ALSO NOTICE THAT THE AS SESSEE HAS SUBMITTED BEFORE TAX AUTHORITIES THAT HE HAS CARRIED OUT SUB CONTRACT WORK WHEREIN THE MARGIN IS USUALLY LOW. THE TAX AUTHORITIES HAVE NOT TAKEN INTO ACCOUNT THIS VITAL FACT ALSO. HENCE ON A CONSPECTUS OF THE MATTER WE ARE OF THE VIEW THAT THERE IS NO SUFFICIENT REASON TO REJECT T HE INCOME DISCLOSED BY THE ASSESSEE MORE PARTICULARLY WHEN THE SAID INCOME IS COMMENSURATE WITH THE NET WEALTH DISCLOSED BY THE ASSESSEE IN THE STATEME NT OF AFFAIRS. 9.1 THE LEARNED AUTHORISED REPRESENTATIVE BROUG HT TO OUR NOTICE THE ORDER DATED 31-8-2009 IN THE CASE OF SHRI K.V.SRINI VASA RAO & OTHERS IN ITA NO.421/VIZAG/2008 AND OTHERS WHEREIN THIS BENCH BY PLACING RELIANCE ON THE CBDT CIRCULAR NO.21/48/68/ IT(INV) DATED 26-2-1 969 AND ALSO THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. RAJANI VS. ITO 91 TTJ 26 THE KVK GUPTA VS. ACIT 90 TTJ 555 HAS GIVEN A FINDING THAT THE NET WORTH METHOD OF COMPUTATION OF INCOME IS ALSO ONE OF THE RECOGNIZED METHODS FOR ASCERTAINING THE INCOME IN THE ABSENCE OF PROPER MA INTENANCE OF BOOKS OF ACCOUNT. THOUGH IN THE INSTANT CASE THE ASSESSEE D ID NOT OFFER INCOME ON THE BASIS OF NET WORTH METHOD YET THE ASSESSEE CO ULD CORROBORATE THE INCOME DISCLOSED BY HIM WITH THE STATEMENT OF AFFAI RS PREPARED FOR EACH FINANCIAL YEAR. 9.2 THUS BY TAKING INTO ACCOUNT THE FACTS THAT THE ASSESSEE HAS CARRIED OUT SUB CONTRACT WORKS BY UTILIZING HIS OWN LORRIES AND BORROWINGS FROM BANKS AND FINANCIAL INSTITUTIONS THE GROSS INCOME OF 10% DISCLOSED BY THE ASSESSEE APPEARS TO BE REASONABLE. IN THE CASE OF LORRIES THE DEPRECIATION COMPONENT IS USUALLY HIGH. FURTHER THE INTEREST EXP ENDITURE CLAIMED BY THE ASSESSEE RELATES TO PAYMENTS MADE TO BANKS AND FINA NCIAL INSTITUTIONS TOWARDS THE LOAN TAKEN FOR VEHICLES AND BUSINESS PU RPOSES. IN OUR VIEW BOTH THE CLAIMS OF THE ASSESSEE MAY BE ALLOWED IN T HE FACTS AND ITA 18-24 AND 36-41 K SATYAVENI NARSAPURAM U/S 44AE PAGE 7 OF 7 CIRCUMSTANCES OF THE CASE DISCUSSED ABOVE. FURTHER THE ASSESSEE HAS SUBSTANTIATED THE INCOME DISCLOSED BY HIM BY FILING A NET WEALTH STATEMENT. IN VIEW OF THE FOREGOING DISCUSSIONS WE REVERSE TH E ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFI CER TO ACCEPT THE INCOME RETURNED BY THE ASSESSEE IN RESPECT OF CIVIL CONTRA CT WORKS. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27.07.2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 27 TH JULY 2010. COPY TO 1 SMT. K. SATYAVENI 04-04-45 Y.N. COLLEGE ROAD N ARASAPURAM WEST GODAVARI DISTT. 2 3 THE ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRC LE RAJAHMUNDRY THE ADD.CIT CENTRAL RANGE VISAKHAPATNAM 4 5. THE CIT (A)I HYDERABAD THE CIT(CENTRAL) HYDERABAD 6 THE DR ITAT VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM