E.Eswara Reddy &Co.,, Hyderabad v. ACIT, Hyderabad

ITA 668/HYD/2009 | 2003-2004
Pronouncement Date: 31-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 66822514 RSA 2009
Assessee PAN AACFC7761J
Bench Hyderabad
Appeal Number ITA 668/HYD/2009
Duration Of Justice 1 year(s) 8 month(s) 11 day(s)
Appellant E.Eswara Reddy &Co.,, Hyderabad
Respondent ACIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-01-2011
Assessment Year 2003-2004
Appeal Filed On 20-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A' HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER I.T.A. NO. 668/HYD/2009 : ASSESSMENT YEAR 2003-04 I.T.A. NO. 670/HYD/2009 : ASSESSMENT YEAR 2004-05 M/S. C. ESWARA REDDY & CO. HYDERABAD PAN:AACFC7761J VS. THE ASST. CIT CIRCLE-6(1) HYDERABAD APPELLANT RESPONDENT I.T.A. NO. 685/HYD/2009 : ASSESSMENT YEAR 2003-04 I.T.A. NO. 686/HYD/2009 : ASSESSMENT YEAR 2004-05 THE DY. CIT CIRCLE-11(1) HYDERABAD VS. M/S. C. ESWARA REDDY & CO. HYDERABAD PAN:AACFC7761J APPELLANT RESPONDENT ASSESSEE BY: SHRI S. RAMA RAO REVENUE BY: SHRI V. SRINIVAS O R D E R PER NRS GANESAN JM: BOTH THE ASSESSEE AND THE REVENUE HAVE FILED THESE APPEALS AGAINST THE TWO INDEPENDENT ORDERS OF THE CIT(A)-IV HYDERABAD DATED 13.3.2009 PERTAINING TO ASSESSMENT YEARS 2003-04 AN D 2004-05. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THE ABOVE APPEALS WE HEARD ALL THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IN ALL T HE APPEALS IS ESTIMATION OF PROFIT FROM THE CONTRACT BUSINESS. S HRI S. RAMA RAO THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF CIVIL CONTRACT. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSING OFFICER REJECTED THE BO OKS OF ACCOUNT AND ESTIMATED THE PROFIT AT 12.5%. ACCORDING TO THE LE ARNED COUNSEL FOR THE ASSESSEE THE ASSESSEE IS MAINTAINING THE BOOKS OF A CCOUNT PROPERLY AND NO MISTAKE/ERROR WAS POINTED OUT THEREFORE TH E ASSESSING OFFICER M/S. E. ESWARA REDDY & CO. =============== 2 IS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT. REFERRING TO THE ESTIMATION OF PROFIT THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT WHEN THE ASSESSEE WAS MAINTAINING THE BOOKS OF ACCOUNT THERE IS NO QUESTION OF ESTIMATION OF PROFIT WOULD ARISE FOR CONSIDERATION. THEREFORE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSESSING OFFICER OUGHT TO HAVE ACCEPTED THE BOOK R ESULTS FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME. 3. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUB MITTED THAT ALTERNATIVELY THE ESTIMATION AT 12.5% BY THE ASSESS ING OFFICER IS ON THE HIGHER SIDE. THOUGH THE CIT(A) RESTRICTED THE ESTI MATION OF PROFIT AT 8% HE HAS NOT CONSIDERED THE SALARY AND INTEREST P AID TO THE PARTNER SEINIORAGE CHARGES AND DEPRECIATION. ACCORDING TO T HE LEARNED COUNSEL FOR THE ASSESSEE ESTIMATION OF PROFIT AT 8% IS ALS O ON THE HIGHER SIDE IN THIS LINE OF BUSINESS. REFERRING TO THE JUDGEMENT OF THE APEX COURT IN BRIJ BHUSHANLAL KUMAR (1978) 115 ITR 524 THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SEINIORAGE CHARGES ARE IN T HE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS MATERI AL SUPPLIED BY THE GOVERNMENT FOR EXECUTION OF THE CONTRACT. THEREFOR E THERE IS NO ELEMENT OF PROFIT INVOLVED IN THE COST OF THE MATER IAL SUPPLIED BY THE GOVERNMENT. THEREFORE ACCORDING TO THE LEARNED CO UNSEL FOR THE ASSESSEE THE SEINIORAGE CHARGES HAS TO BE REDUCED FROM THE NET RECEIPT FOR THE PURPOSE OF ESTIMATING THE PROFIT. SIMILARLY AFTER ESTIMATING THE NET PROFIT THE INTEREST AND SALARY PAID TO THE PARTNER SHALL BE REDUCED FOR THE PURPOSE OF COMPUTING THE TAXABLE INCOME. REFERRING TO THE DEPRECIATION THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DEPRECIATION IS NOTHING BUT A NOTION AL ALLOWANCE ON THE WRITTEN DOWN VALUE (WDV) OF THE MACHINERY. THIS NO TIONAL ALLOWANCE SHALL BE GIVEN ON THE NET INCOME COMPUTED BY THE AS SESSING OFFICER. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE A FTER ESTIMATING THE NET INCOME THE INTEREST AND SALARY PAID TO THE PART NER AND DEPRECIATION SHALL BE DEDUCTED FROM THE NET INCOME FOR THE PURPO SE OF COMPUTING THE TAXABLE INCOME. THEREFORE THE LOWER AUTHORITI ES ACCORDING TO THE M/S. E. ESWARA REDDY & CO. =============== 3 LEARNED COUNSEL FOR THE ASSESSEE ARE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE ESPECIALLY WHEN THE NET INCOM E WAS ESTIMATED. 4. ON THE CONTRARY SHRI V. SRINIVAS THE LEARNED D R SUBMITTED THAT REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFI CER WAS NOT THE SUBJECT MATTER OF APPEAL BEFORE THE CIT(A). THEREF ORE THE ASSESSEE CANNOT RAISE THIS ISSUE BEFORE THIS TRIBUNAL. REFE RRING TO THE ORDER OF THE ASSESSING OFFICER THE LEARNED DR SUBMITTED THA T THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT S INCE THE VOUCHERS PRODUCED BY THE ASSESSEE WERE NOT TALLYING WITH THE CASHBOOK. THEREFORE ACCORDING TO THE LEARNED DR THE ASSESSIN G OFFICER HAS ESTIMATED THE INCOME AT 12.5% ON THE BASIS OF MATER IAL AVAILABLE BEFORE HIM. REFERRING TO THE ORDER OF THIS TRIBUNA L IN KRISHNAMOHAN CONSTRUCTIONS VS. ACIT IN ITA NO.380/HYD/94 DATED 1 0.3.1999 THE LEARNED DR SUBMITTED THAT THE PROFIT WAS ESTIMATED BY THIS TRIBUNAL AT 12.5% ON THE CONTRACT RECEIPTS. SIMILARLY IN THE CASE OF ITO VS. K.C. REDDY ASSOCIATES IN ITA NO. 1843/HYD/89 DATED 29.8. 1994 THIS TRIBUNAL ESTIMATED THE PROFIT ON CONTRACT RECEIPTS AT 12.5%. THE LEARNED DR AGAIN REFERRED TO THE DECISION OF THIS T RIBUNAL IN SRI SRINIVASA CONSTRUCTION IN ITA NOS. 804 & 805/HYD/93 DATED 24.4.1996 AND SUBMITTED THAT THIS TRIBUNAL ESTIMATED THE PROF IT AT 12.5%. REFERRING TO THE ORDER OF THIS TRIBUNAL IN M. BHASK AR REDDY VS. ITO IN IT NO.168/HYD/06 DATED 19.10.2007 THE LEARNED DR S UBMITTED THAT THE TOTAL CONTRACT RECEIPTS IN THIS CASE WAS RS.51 40 4 20. THEREFORE THIS TRIBUNAL ESTIMATED THE PROFIT AT 8%. HOWEVER IN T HE CASE BEFORE US THE TOTAL CONTRACT RECEIPT WAS RS.20 29 32 425. TH EREFORE THE PROFIT RATIO ADOPTED BY THIS TRIBUNAL IN THE CASE OF M. BH ASKAR REDDY (SUPRA) MAY NOT BE APPLICABLE FOR THIS ASSESSEE. THE LEARN ED DR FURTHER SUBMITTED THAT THE CIT(A) ESTIMATED THE PROFIT AT 8 % IN RESPECT OF MAIN CONTRACT AND 5% IN RESPECT OF SUB-CONTRACT WHICH AR E VERY LOW. THEREFORE THE PROFIT RATIO ESTIMATED BY THE ASSESS ING OFFICER MAY BE RESTORED. 5. REFERRING TO THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN INDWELL CONSTRUCTION VS. CIT (1998) 232 ITR 776 TH E LEARNED DR M/S. E. ESWARA REDDY & CO. =============== 4 SUBMITTED THAT ONCE THE BOOKS OF ACCOUNT WERE REJEC TED AND THE PROFIT WAS ESTIMATED ALL EXPENDITURES ARE DEEMED TO HAVE BEEN ALLOWED. THEREFORE THERE IS NO NEED FOR ALLOWING DEPRECIATI ON INTEREST AND SALARY TO PARTNER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTE DLY THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT AND VOUCHERS. ON EXA MINATION OF THE BOOKS OF ACCOUNT WITH REFERENCE TO THE VOUCHER PROD UCED THE ASSESSING OFFICER FOUND THAT THE VOUCHER DOES NOT T ALLY WITH THE CASHBOOK. WHEN THE VOUCHER DOES NOT TALLY WITH CAS HBOOK IN OUR OPINION THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT PROPERLY. THEREFORE THE BOOK RESULT WILL NOT REFL ECT THE CORRECT PROFIT OF THE ASSESSEE. IN THESE CIRCUMSTANCES IN OUR OPINI ON THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT. THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHOR ITY IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE PROFIT. 7. NOW COMING TO THE ESTIMATION OF PROFIT. THE ASS ESSING OFFICER ESTIMATED THE PROFIT AT 12.5%. HOWEVER THE CIT(A) RESTRICTED THE SAME TO 8% IN RESPECT OF MAIN CONTRACT AND 5% ON SUB-CON TRACT. WHEN THE BOOKS OF ACCOUNT WERE REJECTED THE ONLY METHOD AVAI LABLE TO THE ASSESSING OFFICER IS TO ESTIMATE THE PROFIT. THE P ROFIT RATIO CANNOT BE A CONSTANT FACTOR FOR EACH AND EVERY YEAR. IN OTHER WORDS PROFIT RATIO WOULD FLUCTUATE DEPENDING UPON VARIOUS FACTORS SUCH AS THE PLACE OF EXECUTION OF CONTRACT AVAILABILITY OF RAW MATERIAL LABOUR AND ASSESSEE'S OWN FUNDS ETC. THEREFORE FOR THE PURP OSE OF ESTIMATING THE PROFIT THE LOWER AUTHORITIES MAY TAKE INTO CON SIDERATION THE PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME L OCALITY AND OTHER FACTORS SUCH AS AVAILABILITY OF LABOUR DEMAND IN T HE MARKET ETC. AS DISCUSSED ABOVE. THEREFORE THE PROFIT RATIO OF TH E OTHER ASSESSEES IN THAT LOCALITY MAY BE ONE OF THE FACTORS TO BE TAKEN INTO CONSIDERATION. HOWEVER THAT CANNOT BE THE SOLE CRITERIA FOR FIXIN G THE PROFIT RATIO FROM THE CONTRACT BUSINESS. BY KEEPING THIS FACTUAL SIT UATION IN MIND LET US M/S. E. ESWARA REDDY & CO. =============== 5 NOW EXAMINE WHETHER THE ESTIMATION OF PROFIT BY THE CIT(A) AT 8% ON MAIN CONTRACT AND 5% ON SUB CONTRACT IS JUSTIFIED O R NOT. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) K.C. RE DDY ASSOCIATES (SUPRA) SRI SRINIVASA CONSTRUCTIONS (SUPRA) AND M. BHASKAR REDDY (SUPRA). NO DOUBT THIS TRIBUNAL ESTIMATED THE PROF IT FROM 12.5% TO 8% DEPENDING UPON THE FACTUAL SITUATION. THE LEARNED DR MADE AN ATTEMPT TO DISTINGUISH THE ORDER OF THIS TRIBUNAL I N M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOVER IS ONLY RS. 54 40 420. IT IS A WELL KNOWN FACT THAT WHENEVER THE TURNOVER INCREASE S THE PROFIT RATIO WOULD GO DOWN. MERELY BECAUSE THE TURNOVER INCREAS ES THE PROFIT MAY NOT GO UP. THEREFORE WE DO NOT FIND ANY JUSTIFICA TION IN THE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THIS TRIBUNAL E STIMATED THE PROFIT AT 8% IN THE CASE OF M. BHASKAR REDDY (SUPRA) ONLY BECAUSE THE TURNOVER WAS RS.51 40 420. A BARE READING OF THE O RDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) CLEARLY SHOWS THAT THIS TRIBUNAL AFTER CONSIDERING THE JUDGEMENT OF THE APEX COURT IN C. V ELUKUTTY 60 ITR 239 AND THE DECISION OF THE SPECIAL BENCH OF THIS T RIBUNAL IN ARIHANT BUILDERS PVT. LTD. VS. ACIT 291 ITR 41 (SB) AND BY TAKING A CLUE FROM SECTION 44AD OF I.T. ACT THE PROFIT WAS ESTIMATED A T 8%. ADMITTEDLY SECTION 44AD WOULD BE APPLICABLE IN RESPECT OF A CA SE WHERE THE GROSS CONTRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. WHER EVER THE GROSS CONTRACT RECEIPTS EXCEED RS.40 LAKHS THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE. THEREFORE THE PROFIT CAN BE E STIMATED EITHER AT LOWER THAN 8% OR ABOVE 8% DEPENDING UPON THE FACTUA L SITUATION. AS DISCUSSED EARLIER FOR THE PURPOSE OF ESTIMATING TH E PROFIT VARIOUS FACTORS SUCH AS THE PROFIT RATIO OF THE ASSESSEE IN THE EARLIER YEAR PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME L OCALITY DEMAND FOR THE PRODUCT AVAILABILITY OF LABOURERS RAW MATERIALS ETC. AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK ETC. HA VE TO BE TAKEN INTO CONSIDERATION. THEREFORE IN OUR OPINION REFERENC E TO EARLIER ORDER OF THIS TRIBUNAL ALONE FOR THE PURPOSE OF ESTIMATING T HE PROFIT AT 12.5% MAY NOT BE JUSTIFIED AT ALL. M/S. E. ESWARA REDDY & CO. =============== 6 9. IN FACT IN THE CASE OF KRISHNAMOHAN CONSTRUCTI ONS IN ITA NOS. 116 AND 117/HYD/2007 FOR A.YS. 1993-94 AND 1994-95 THE TRIBUNAL ESTIMATED THE PROFIT ONLY AT 8% EVEN THOUGH THE PRO FIT WAS ESTIMATED AT 12.5% FOR A.Y. 1992-92. THIS ITSELF SHOWS THAT FOR EACH YEAR THE PROFIT HAS TO BE ESTIMATED DEPENDING UPON THE FACTORS WHIC H PREVAIL IN THE LOCALITY. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE CIT(A) AFTER REFERRING TO THE DEC ISION OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) AND THE SPECIAL BENCH DECISION IN ARIHANT BUILDERS (SUPRA) ESTIMATE D THE PROFIT AT 8% FOR MAIN CONTRACT AND FOR SUB CONTRACT AT 5%. IT M AY NOT BE OUT OF PLACE TO MENTION THAT THIS TRIBUNAL UNIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% ON THE SUB CONTRACT DEPENDING UPON THE FACTUA L SITUATION. THEREFORE IN OUR OPINION ESTIMATION OF PROFIT AT 8% BY THE CIT(A) ON MAIN CONTRACT AND AT 5% ON SUB CONTRACT IS JUSTIFIE D. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 11. NOW COMING TO THE CLAIM OF THE ASSESSEE TOWARDS SEINIORAGE CHARGES. NO DOUBT THE SEINIORAGE CHARGES ARE IN RE LATION TO THE MATERIAL SUPPLIED BY THE GOVERNMENT FOR EXECUTING T HE WORK. THE APEX COURT IN THE CASE OF BRIJ BHUSHANLAL (SUPRA) CONSID ERED THIS ISSUE AND FOUND THAT THE MATERIAL SUPPLIED BY THE GOVERNMENT/ CONTRACTOR WILL NOT HAVE ANY ELEMENT OF PROFIT. THEREFORE THE SAME SH ALL BE REDUCED FROM THE CONTRACT RECEIPTS. IN VIEW OF THE JUDGEMENT OF THE APEX COURT THE SEINIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER WHILE COMPUTING THE TOTAL CONTRAC T RECEIPTS THE SEINIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. 12. NOW COMING TO THE DEPRECIATION. WE HAVE CAREFU LLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF M/S. E. ESWARA REDDY & CO. =============== 7 INDWELL CONSTRUCTION (SUPRA). IN THE CASE BEFORE T HE JURISDICTIONAL HIGH COURT AN ADDITION WAS MADE TOWARDS INTEREST AND REM UNERATION PAID TO THE PARTNER WHEN THE PROFIT WAS ESTIMATED. THE JUR ISDICTIONAL HIGH COURT AFTER CONSIDERING THE PROVISIONS OF SECTION 2 9 AND 40 FOUND THAT NO SEPARATE ADDITION SHALL BE MADE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT DEPRECIATION SHALL BE ON THE WDV FROM THE PROFIT COMPUTED/ESTIMATED. THEREFORE DEPRECIA TION SHALL BE ALLOWED ON THE PROFIT COMPUTED. 13. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS O F SECTION 44AD OF THE ACT. NOW DOUBT THIS PROVISION IS APPLICABLE FOR THOSE CASES WHERE THE TURNOVER/TOTAL CONTRACT RECEIPT DOES NOT EXCEED RS.40 LAKHS. HOWEVER BY FINANCE (NO.2) ACT OF 2009 WITH EFFECT FROM 1.4.2011 THE LEGISLATURE REMOVED THE RESTRICTION OF THE TOTAL CO NTRACT RECEIPTS OF RS.40 LAKHS. BY TAKING A CLUE FROM THE PROVISION O F SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION AND THE PROVISIONS WHICH ARE APPLICABLE WITH EFFECT FROM 1. 4.2011 WE FIND THAT THE DEDUCTION AVAILABLE U/SS. 30 TO 38 SHALL BE DEE MED TO HAVE BEEN ALREADY GIVEN FULL EFFECT AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED. DEPRECIATION IS ALLOWABLE U/S. 3 2 OF THE INCOME-TAX ACT. THEREFORE AS PROVIDED IN SECTION 44AD NO FUR THER/SEPARATE DEDUCTION SHALL BE ALLOWED. IN VIEW OF THE ABOVE IN OUR OPINION THE CLAIM OF DEPRECIATION ON THE ESTIMATED INCOME IS NO T JUSTIFIED. THEREFORE THE LOWER AUTHORITIES HAVE RIGHTLY REJEC TED THE SAME. 14. NOW COMING TO THE PAYMENT OF INTEREST AND SALAR Y TO THE PARTNER. PROVISO TO SECTION 44AD(2) CLEARLY SAYS THAT SALARY AND INTEREST PAID TO THE PARTNER SHALL BE DEDUCTED FROM THE INCOME COMPU TED UNDER SUB- SECTION (1) OF SECTION 44AD SUBJECT TO LIMITATION U /S. 40(B) OF THE ACT. AS WE HAVE ALREADY OBSERVED THOUGH THERE WERE REST RICTIONS WITH REGARD TO APPLICATION OF SECTION 44AD WHEREVER THE TOTAL CONTRACT RECEIPTS EXCEED RS.40 LAKHS WITH EFFECT FROM 1.4.2 011 SUCH RESTRICTION WAS REMOVED BY THE LEGISLATURE. MOREOVER THE CO-O RDINATE BENCH THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) AFTER TAKING A CLUE FROM SECTION 44AD ESTIMATED THE PROFIT AT 8% OF THE CONTRACT REC EIPT. THEREFORE BY M/S. E. ESWARA REDDY & CO. =============== 8 TAKING A CLUE FROM THE PROVISION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISI ONS WHICH WOULD COME INTO OPERATION WITH EFFECT FROM 1.4.2011 IN O UR OPINION THE PAYMENT OF INTEREST AND SALARY TO THE PARTNER SHALL BE ALLOWED SUBJECT TO LIMITATION SPECIFIED IN SECTION 40(B) OF THE ACT FR OM THE ESTIMATED INCOME. 15. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTION (SUPRA). THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT WAS ASSESSMENT YEAR 1981-82. SECTION 44AD WA S INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 1.4.1994. THEREF ORE THE JURISDICTIONAL HIGH COURT HAD NO OCCASION TO CONSIDER THE PROVISIO NS OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER C ONSIDERATION AND AS IT WOULD BE APPLICABLE WITH EFFECT FROM 1.4.2011. IN VIEW OF THE PROVISION OF SECTION 44AD AS IT IS APPLICABLE FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION AND THE AMENDMENT MADE WITH EFF ECT FROM1.4.2011 IT IS OBVIOUS THAT THE LEGISLATURE INT ENDED TO ALLOW THE INTEREST AND SALARY SEPARATELY FROM THE ESTIMATED I NCOME. THEREFORE THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN T HE CASE OF INDWELL CONSTRUCTIONS (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE IN THIS CASE. ACCORDINGLY WE DIRECT THE ASSESSING OFF ICER TO ALLOW THE SALARY AND INTEREST PAID TO THE PARTNER SUBJECT TO THE LIMITATION PROVIDED IN SECTION 40(B) OF THE ACT. 16. IN THE RESULT I.T.A. NO. 668/HYD/09 AND ITA NO .670/HYD/09 ARE PARTLY ALLOWED AND I.T.A. NO.685/HYD/09 AND ITA NO. 686/HYD/09 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST JANUARY 2011. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (N.R.S. GANESAN) JUDICIAL MEMBER HYDERABAD DATED 31ST JANUARY 2011 TPRAO M/S. E. ESWARA REDDY & CO. =============== 9 COPY FORWARDED TO: 1. M/S. C. ESWARA REDDY & CO. HYDERABAD C/O. SRI S. RAMA RAO ADVOCATE FLAT NO. 103 H. NO. 3-6-542/4 INDIRADEV I NILAYAM ST. NO. 7 HIMAYATNAGAR HYDERABAD-500 029. 2. THE ASST. CIT CIRCLE-6(1) HYDERABAD. 3. THE CIT(A)-IV HYDERABAD 4 THE CIT-III HYDERABAD 5. THE DR A-BENCH ITAT HYDERABAD