The ACIT, Circle-3(1), Visakhapatnam v. M/s Sree Bhavani Builders, Visakhapatnam

ITA 434/VIZ/2009 | 2006-2007
Pronouncement Date: 18-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 43425314 RSA 2009
Assessee PAN ABKFS2677N
Bench Visakhapatnam
Appeal Number ITA 434/VIZ/2009
Duration Of Justice 8 month(s) 11 day(s)
Appellant The ACIT, Circle-3(1), Visakhapatnam
Respondent M/s Sree Bhavani Builders, Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 18-05-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 18-05-2010
Date Of Final Hearing 18-03-2010
Next Hearing Date 18-03-2010
Assessment Year 2006-2007
Appeal Filed On 07-09-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NOS.434&435/VIZAG/2009 ASSESSMENT YEAR : 2006-07&2007-08 ACIT CIRCLE-3(1) VISAKHAPATNAM VS. M/S. SREE BHAVANI BUILDERS VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.ABKFS2677N APPELLANT BY : SHRI SUBRATA SARKAR DR RESPONDENT BY : SHRI C.V.S. MURTHY CA O R D E R PER SHRI B.R. BASKARAN ACCOUNTANT MEMBER : BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER DATED 15.6.2009 PASSED BY LD CIT(A) VISAKHAPATNAM AND THEY RELATE TO THE ASSESSMENT YEARS 2006-07 AND 2007-08. SINCE THE IS SUES AGITATED IN THESE TWO APPEALS ARE IDENTICAL IN NATURE WE FIND IT CONVENI ENT TO DISPOSE THEM OF BY THIS COMMON ORDER. 2. FOLLOWING TWO ISSUES ARE CONTESTED IN THESE TWO APPEALS. A) ESTIMATION OF INCOME FROM CONTRACT WORKS. B) DEPRECIATION AMOUNT TO BE ALLOWED. 3. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONTRACT WORKS. IT HAS BEEN FILING THE RETURN OF INCOME SINCE MANY YEARS BY ESTIMATING INCOME AT 10% OF THE GROSS CONTRACT RECEIPTS AND THEREAFTER CLAIMED DEPRECIATION THEREO N. IT WAS ADMITTED THAT THE 2 ASSESSEE FIRM DID NOT MAINTAIN REGULAR BOOKS OF ACC OUNT. DURING THESE TWO YEARS UNDER CONSIDERATION THE AO QUESTIONED THE BASIS FO R ADOPTING 10% OF GROSS RECEIPTS AS THE INCOME AND ALSO PROPOSED TO INCREAS E THE PERCENTAGE. THE ASSESSEE QUOTED THE DECISION OF HYDERABAD ITAT IN T HE CASE OF S.VIJAYAKUMAR (ITA NO.289/HYD/95 & ITA NO.1660/HYD/1995 RELATING TO THE ASSESSMENT YEARS 1991-92 & 1992-93) IN WHICH THE RATE OF PROFIT WAS FIXED AT 10.5% AND ACCORDINGLY REQUESTED THE AO TO ESTIMATE THE INCOME AT 10.5% OF THE GROSS CONTRACT RECEIPTS. HOWEVER THE AO NOTICED THAT TH E IN THE VERY SAME CASE OF S.VIJAYAKUMAR THE INCOME HAD BEEN ESTIMATED AT 11. 5% BY ITAT VISAKHAPATNAM FOR ASST. YEAR 1994-95. ACCORDINGLY THE AO PROPOSED TO ESTIMATE THE INCOME AT 11.5% BEFORE ALLOWING DEPRECIATION AN D PARTNERS REMUNERATION. THE THEN AR OF THE ASSESSEE AGREED TO THE SAID PROP OSAL IN BOTH THE YEARS AND ALSO AFFIXED HIS SIGNATURE IN THE RESPECTIVE ORDER SHEETS. ACCORDINGLY THE AO ESTIMATED THE INCOME AT 11.5% OF THE GROSS RECEIPTS . HOWEVER THE AO ALLOWED ONLY THE DEPRECIATION PERTAINING TO THE NEW ASSETS ACQUIRED DURING THE YEARS UNDER CONSIDERATION. THE AO DID NOT ALLOW DEPRECIA TION ON THE OPENING WDV OF THE BLOCK OF ASSETS AS ACCORDING TO THE AO THE AS SESSEE HAS FILED TO PROVE THE EXISTENCE OF THOSE ASSETS BY PRODUCING THE RELEVANT BILLS AND VOUCHERS PERTAINING TO THOSE ASSETS. IN THE APPEALS FILED BY THE ASSESS EE THE LD CIT(A) DIRECTED THE AO TO ESTIMATE THE INCOME AT 10% OF THE GROSS CONTR ACT RECEIPTS AND ALSO ALLOW THE DEPRECIATION AS CLAIMED BY THE ASSESSEE. AGGRI EVED THE REVENUE HAS FILED THESE TWO APPEALS BEFORE US. 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERU SED THE RECORD. WE NOTICE THAT BOTH THE ASSESSEE AS WELL AS THE AO HAS TAKEN THE CASE OF SRI S.VIJAYAKUMAR PROP.: VIJAY NIRMAN CO. AS THE BASIS FOR ARRIVING A T THE ESTIMATE. ACCORDING TO THE AO THE INCOME WAS ESTIMATED AT 11.5% IN THE HA NDS OF S.VIJAYAKUMAR BY THE ITAT VISAKHAPATNAM FOR THE ASSESSMENT YEAR 199 4-95. THE LD CIT(A) NOTICED THAT IN THE ASST. YEAR 1993-94 A PROFIT OF 10.5% WAS ACCEPTED BY THE ITAT IN THE HANDS OF THAT ASSESSEE. THE LD CIT(A) FURTHER NOTICED THAT THE SAID ASSESSEE SHRI S.VIJAYAKUMAR HAD HIMSELF DISCLOSED A PROFIT OF 11.76% IN THE ASST. 3 YEAR 1994-95 AND HENCE THE INCOME WAS ESTIMATED AT 11.5% BY THE ITAT IN THAT YEAR. ACCORDINGLY THE LD CIT(A) CONCLUDED THAT T HE CASE OF SHRI S.VIJAYAKUMAR CANNOT BE COMPARED WITH THE ASSESSEES CASE. SINCE THE ASSESSEE HAS BEEN CONSISTENTLY ESTIMATING THE INCOME AT 10% OF THE GR OSS CONTRACT RECEIPTS THE LD CIT(A) DIRECTED THE AO TO ADOPT THE SAME RATE OF 10 % IN THESE TWO YEARS ALSO. 4.1 ACCORDING TO LD. DR. THE ASSESSEE HAS AGREE D TO THE ESTIMATE OF 11.5% BEFORE THE AO AND HENCE THE LD CIT(A) IS NOT CORREC T IN VARYING THE AGREED ESTIMATE. ON THE OTHER HAND THE CONTENTIONS OF TH E LD AR ARE THAT THAT THE FACT THE AO HAS RE-POSTED THE CASE FOR FURTHER HEARING A ND THE FACT THAT THE AO DID NOT ALLOW DEPRECIATION AS AGREED EARLIER ONLY SHOW THAT THE AO HIMSELF DID NOT ADHERE TO THE PROPOSAL MADE BY HIM EARLIER. THE LD AR FURTHER SUBMITTED THAT THE REVENUE HAS NOT TAKEN ANY SPECIFIC GROUND ON AG REED ADDITION. 4.2 AS POINTED OUT BY THE LD CIT(A) BOTH THE A SSESSEE AS WELL AS THE AO HAS TAKEN THE CASE OF S.VIJAYAKUMAR AS THE BASIS. THE LD CIT(A) HAS ALSO POINTED OUT THAT SAID SHRI S.VIJAYAKUMAR HAD DISCLOSED THE PROFIT AT 11.76% IN ONE YEAR I.E ASST. YEAR 1994-95 AND IN ANOTHER YEAR THE PRO FIT WAS DETERMINED AT 10.5%. HENCE THE LD CIT(A) HELD THAT THE CASE OF SHRI S.VI JAYAKUMAR CANNOT BE TAKEN AS A COMPARABLE CASE. WE ALSO NOTICE THAT THE ASSESSM ENT YEARS UNDER CONSIDERATION ARE 2006-07 AND 2007-08; WHEREAS THE BASIS REFERRED TO BY THE AO AS WELL AS THE ASSESSEE RELATE TO THE YEARS WHICH A RE MORE THAN 10 YEARS OLD. HENCE IN OUR OPINION ALSO THOSE YEARS CANNOT BE S TRICTLY TAKEN AS COMPARABLE CASES. AT THE SAME TIME WE ARE OF THE VIEW THAT I T MAY NOT BE CORRECT ON THE PART OF THE LD CIT(A) TO PLACE RELIANCE ON THE PAST ESTIMATES MADE BY THE ASSESSEE SINCE THE ASSESSEE IS NOT MAINTAINING REG ULAR BOOKS OF ACCOUNT. 4.3 THE LD DR RELIED HEAVILY ON THE POINT THAT THE THEN AR OF THE ASSESSEE HAD AGREED TO THE PROPOSAL TO ESTIMATE THE INCOME AT 11 .5%. HOWEVER WE NOTICE THAT AFTER ARRIVING AT A PROPOSAL ON 02.7.2008 AS CONTENDED BY THE LD AR BEFORE US THERE WAS NO NECESSITY FOR THE AO TO REPOST THE CASE TO 14 TH AUGUST 2008. 4 FROM THE COPY OF ORDER SHEET FILED BY LD DR IT IS NOT DISCERNIBLE AS TO WHAT WAS DISCUSSED ON THE SUBSEQUENT DATE. IT IS ALSO NOT C LEAR AS TO WHAT PROMPTED THE AO TO CHANGE HIS MIND FROM THE EARLIER PROPOSAL IN NOT ALLOWING DEPRECIATION ON THE OPENING WDV AND THUS IN EFFECT THE AO HAS ALS O GONE BACK FROM HIS PROPOSAL THAT WAS AGREED BY THE THEN AR OF THE ASSE SSEE. IN ANY CASE AS NOTICED EARLIER THE AO HAS REFERRED TO A CASE WHI CH IS MORE THAN 10 YEARS OLD AND HENCE THE SAME CANNOT BE TAKEN AS A COMPARABLE CASE. THE AO HAS PARTICULARLY FAILED TO TAKE INTO CONSIDERATION THE PECULIAR FEATURES OF THE CASE WHICH WE ARE DISCUSSING IN THE ENSUING PARAGRAPHS. 4.4 ON A PERUSAL OF RECORD WE NOTICE THAT THE GROSS CONTRACT RECEIPTS STOOD AS UNDER IN THE YEARS MENTIONED BELOW. ASST. YEAR GROSS RECEIPTS 2005-06 63 90 000 2006-07 7 66 67 755 2007-08 2 98 70 000 THE ASSESSEE HAS FURTHER SUBMITTED THAT IT DID NOT CARRY ON ANY WORK DURING THE FINANCIAL YEARS RELEVANT TO THE ASSESSMENT YEARS 20 03-04 AND 2004-05. IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2005 -06 THE ASSESSEE HAS RESUMED THE WORK AND EXECUTED CONTRACT WORK AT MINI MUM LEVEL. IN THE NEXT YEAR THE TURNOVER HAS INCREASED MULTIFOLD. HOWEVE R IN THE ASSESSMENT YEAR 2007-08 THE TURNOVER HAS COME DOWN DRASTICALLY. T HUS WE NOTICE THAT THERE IS HUGE VARIATION IN THE GROSS RECEIPTS WHICH WILL HA VE TELLING EFFECT ON THE PROFITS PARTICULARLY DUE TO EXISTENCE OF THE FIXED EXPENSES WHICH ARE NOT AVOIDABLE. IN A COMPETITIVE BIDDING PROCESS A CONTRACTOR CAN GET T HE CONTRACT WORKS ONLY IF HE QUOTES A LESSER AMOUNT MEANING THEREBY HE HAS TO CUT DOWN HIS PROFIT RATIO. WHEN A PERSON COULD WIN CONTRACTS THAT TOO AFTER A GAP OF TWO YEARS THE NORMAL PRESUMPTION IS THAT HE WOULD HAVE QUOTED LESS AND W ON THE CONTRACT. DESPITE THIS REALITY THE ASSESSEE IS CONSTRAINED TO OFFER INCOME AT A CONSISTENT RATE OF 10% EVERY YEAR SINCE IT DID NOT MAINTAIN REGULAR B OOKS OF ACCOUNT. THIS PECULIAR FEATURE ATTACHED TO THIS CASE CANNOT BE IG NORED WHILE ESTIMATING THE 5 PROFIT. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE ASSESSEE HAD VOLUNTARILY AGREED TO THE ESTIMATION OF INCOME AT 1 0.5% OF THE GROSS RECEIPTS IN BOTH THE YEARS. HENCE CONSIDERING THE FOREGOING DI SCUSSIONS AND ON A CONSPECTUS OF THE MATTER WE ARE OF THE VIEW THAT THE INCOME OF THE ASSESSEE MAY BE ESTIMATED AT 10.5% OF THE GROSS RECEIPTS (BE FORE ALLOWING DEPRECIATION AND REMUNERATION TO THE PARTNERS) FOR BOTH THE ASSE SSMENT YEARS UNDER CONSIDERATION. IN OUR OPINION IT WOULD MEET THE EN DS OF JUSTICE AND WE ORDER ACCORDINGLY. 5. THE NEXT ISSUE RELATES TO THE DEPRECIATION C LAIM. THE LD CIT(A) HAS ANALYSED THE DEPRECIATION STATEMENTS SUBMITTED BY T HE ASSESSEE AND HAS GIVEN A CLEAR FINDING THAT THE DETAILS OF WDV OF OLD ASSETS AS WELL AS THE ASSETS ACQUIRED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06 ARE AVAILABLE ON RECORD. ACCORDINGLY THE LD CIT(A) DIRECTED THE AO TO ALLOW DEPRECIATION FOR BOTH THE YEARS BY CONSIDERING THE WDV OF ASSETS BRO UGHT FORWARD FROM ASST. YEAR 2005-06. THE LD CIT(A) HAS ALSO NOTICED THAT THE U NABSORBED DEPRECIATION RELATING TO THE ASSESSMENT YEAR 2005-06 WHICH IS B ROUGHT FORWARD AUTOMATICALLY BECOMES PART OF THE CURRENT DEPRECIATION RELATING T O THE ASSESSMENT YEAR 2006- 07 IN VIEW OF THE PROVISIONS OF SECTION 32 AND AC CORDINGLY DIRECT THE AO TO ALLOW THE CARRY FORWARD DEPRECIATION AFTER DUE VERIFICATI ON OF RECORD. 5.1 IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS ALLOWED DEPRECIATION FOR THE ASSESSMENT YEAR 2005-06 AND THE CLOSING WDV AS ON 3 1.3.2005 WAS ALSO ARRIVED. HENCE AS OBSERVED BY LD CIT(A) THE EXISTENCE OF T HE ASSETS COULD NOT BE DOUBTED. IN THAT CASE IN THE ABSENCE OF ANY MATER IAL TO SUGGEST THAT THE ASSESSEE HAD SOLD AWAY THOSE ASSETS THE CLOSING WD V AS ON 31.3.2005 WOULD AUTOMATICALLY BECOME THE OPENING WDV AS ON 1.4.2005 . FROM THE ASSESSMENT ORDER WE NOTICE THAT THE AO DID NOT HAVE ANY MATER IAL IN HIS HAND TO SUGGEST THAT THE ASSESSEE HAD SOLD AWAY THE ASSETS FORMING PART OF THE BLOCK. HENCE WE DO NOT FIND ANY REASON TO SUSPECT THE NON-EXISTENCE OF THE ASSETS OF THE 6 ASSESSEE. SINCE THE LD CIT(A) HAS GIVEN A CLEAR FIN DING ON THE ALLOWABILITY OF DEPRECIATION WE DO NOT FIND ANY REASON TO INTERFER E WITH HIS DECISION. 6. IN THE RESULT BOTH THE APPEALS OF THE REVEN UE ARE PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 18.5.2010 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 18 TH MAY 2010. A COPY OF THIS ORDER IS FORWARDED TO : 01 ACIT CIRCLE-3(1) VISAKHAPATNAM. 02 M/S. SREE BHAVANI BUILDERS 9-20-1 CBM COMPOUND VISAKHAPATNAM 03 THE CIT (A) VISAKHAPATNAM 04 THE CIT VISAKHAPATNAM 05 THE DR ITAT VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH