ACIT, Davangere v. M/s K.P.M. Constructions, Davangere

ITA 749/BANG/2009 | 2006-2007
Pronouncement Date: 30-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 74921114 RSA 2009
Bench Bangalore
Appeal Number ITA 749/BANG/2009
Duration Of Justice 9 month(s) 6 day(s)
Appellant ACIT, Davangere
Respondent M/s K.P.M. Constructions, Davangere
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 30-04-2010
Date Of Final Hearing 25-03-2010
Next Hearing Date 25-03-2010
Assessment Year 2006-2007
Appeal Filed On 24-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.749/BANG/2009 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 1 DAVANGERE. : APPELLANT VS. M/S. K.P.M. CONSTRUCTIONS CONTRACTORS # 3057 AKSHAYA 8 TH MAIN MCC B BLOCK DAVANGERE. : RESPONDENT APPELLANT BY : SMT. V.S. SREELEKHA ADDL. CIT(DR) RESPONDENT BY : SHRI CHYTHANYA K.K. ADVOCATE O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A) HUBLI IN ITA NO: 206/CIT(A) HBL/08-09 DAT ED: 7.5.2009 FOR THE ASSESSMENT YEAR 2006-07 IN THE CASE OF KPM CONSTRUC TIONS DAVANGERE. 2. THE REVENUE HAS RAISED SIX GROUNDS OUT OF WHICH GROUND NOS: 5 AND 6 BEING GENERAL THEY HAVE BECOME NON-CONSEQUEN TIAL. IN THE ITA NO.749/BANG/2009 PAGE 2 OF 13 REMAINING GROUNDS THE CRUXES OF THE ISSUES RAISED IN TWO-FOLDS - ARE REFORMULATED IN CONCISE MANNER AS UNDER: THE CIT(A) ERRED IN: (I) HOLDING THAT THE NOTICE ISSUED U/S 148 OF THE ACT W AS INVALID; & (II) NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT AND THUS THE VALUE OF WORK OF RS. 1.24 CRORES WAS NOT SUB-CONTRACTED AT ZERO PERCENT PROFIT; - PROFIT SHOULD HAVE BEEN TAXED AT 8% ON GROSS RECEIP TS: & - RELIED ON THE CIRCULAR NO.29D OF 1965 ON WRONG PERC EPTION. 3. BRIEFLY STATED THE ASSESSEE FIRM [THE ASSESSEE IN SHORT] IN THE BUSINESS OF EXECUTING CONTRACT WORKS DURING THE AS SESSMENT YEAR UNDER CHALLENGE WAS IN RECEIPT OF GROSS RECEIPTS OF RS.6 .16 CRORES WHEREIN IT HAD ESTIMATED ITS PROFIT AT 8% ONLY ON RS.4.91 CRORES AFTER DEDUCTING THE SUB- CONTRACT AMOUNTS OF RS.1.24 CRORES. ACCORDING TO T HE AO SINCE THE ASSESSEE FAILED TO ESTIMATE ITS PROFIT ON GROSS REC EIPTS HAD REASONED TO BELIEVE THAT THERE WAS AN ESCAPEMENT OF INCOME TO T HE EXTENT OF 8% ON THE BALANCE OF RS.1.24 CRORES [THE WORK TO THE EXTENT O F SUCH AMOUNTS WAS SUB- LET] AND ACCORDINGLY CALLED UPON THE ASSESSEE TO FURNISH A RETURN OF INCOME BY ISSUANCE OF A NOTICE U/S 148 OF THE ACT. 3.1. AFTER DUE CONSIDERATION OF THE ASSESSEES CO MPLIANCE AND ITS OBJECTION THERETO THE AO FOR THE REASONS SET-OUT IN HIS IMPUGNED ORDER HAD ADOPTED THE INCOME OF THE PROFIT AT 8% ON GROSS RECEIPTS OF RS.6 16 70 329/- WHICH WORKED OUT TO RS.49.33 LAKHS AND ACCORDINGLY CONCLUDED THE ASSESSMENT. ITA NO.749/BANG/2009 PAGE 3 OF 13 4. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUE WITH THE LD. CIT (A) FOR REDRESSAL. THE CIT (A) AFTER ANALYZING THE ASSESS EES CONTENTIONS AND ALSO DUE PERUSAL OF THE AOS REASONING HAS OBSERVE D THUS 5.1. NOTICE U/S 148: IT APPEARS THAT AO HAS INC ORRECTLY INTERPRETED THE WORDS AT 8% OF THE GROSS PROFIT AND IT HAS TO B E READ WITH 8% OF THE GROSS PROFIT EARNED BY THE APPELLANT. BUT IN THIS CASE THE WORK IS SUB- CONTRACTED CONTRACTORS ARE FILED THEIR RETURNS AND OFFERED THE RESPECTIVE TAX IN THEIR CASE. IN SPITE OF THE SAME IF 8% IS WORKED OUT ON THE ENTIRE GROSS RECEIPT OF RS.6 16 70 329/- WHI CH WILL AMOUNT TO DOUBLE TAXATION. THUS THE NOTICE U/S 147 (SIC) 14 8 ISSUED ON THE WRONG PRESUMPTION WILL LEAD TO INVALIDITY OF NOTICE U/S 1 48. IT IS ALSO HELD BY ME THAT NOTICE ISSUED BY AO IS NOT VALID BASED ON T HE FACTS OF THE CASE; THEREFORE THE ENTIRE ADDITIONS ARE DELETED. 5.2. ON THE MERITS OF THE CASE ALSO THERE IS NO CA SE FOR THE REVENUE AND AO IS DIRECTED TO ESTIMATE THE INCOME AT 8% AGREED BY THE APPELLANT ON THE CONTRACT WORK PERFORMED BY HIM WHICH WORKS OUT TO RS.4 91 95 636/- [CONTRACT AMOUNT] AND 8% WORKS OUT TO RS.39 35 650/-. FURTHER AO IS ALSO DIRECTED TO AL LOW DEPRECIATION AS PER BOARDS CIRCULAR QUOTED ABOVE. 5. DISILLUSIONED WITH THE FINDING OF THE CIT (A) T HE REVENUE HAS COME UP WITH THE PRESENT APPEAL. DURING THE COURSE OF H EARING IT WAS URGED BY THE REVENUE THAT (I) THE ASSESSEE WAS NOT MAINTAINING ANY BOOKS OF ACCOU NT AND THE AMOUNT OF RS.1.24 CRORES SUB-CONTRACTED WAS NOT DON E AT THE RATE OF ZERO PERCENT PROFIT; (II) THE PROFIT SHOULD BE TAXED AT THE RATE OF 8% AS TH E ASSESSEE HAD ESTIMATED THE INCOME COMPUTATION WAS ON AD-HOC BASI S; & (III) THE LD. CIT(A) ERRED IN WRONGLY RELYING ON CIRCULAR NO.29D OF 1965 IN ALLOWING DEPRECIATION AFTER ESTIMATION OF P ROFIT. THE CIRCULAR HAD IN FACT APPLICABLE WHERE THE INCOME WAS ESTIMATED AFTER REJECTION OF BOOKS OF ACCOUNT BY TH E AO. SINCE THE PRESENT ASSESSEE HAD NOT MAINTAINED ANY BOOKS O F ACCOUNT THE APPLICABILITY OF THE CIRCULAR DOESNT ARISE. ITA NO.749/BANG/2009 PAGE 4 OF 13 5.1. THE LD. D R HAD PLACED RELIANCE ON THE COMPU TATION OF INCOME BY THE ASSESSEE CIRCULAR NO.29D (XIX-14) AND ALSO IN THE FOLLOWING CASE LAWS: (A) SURINDER PAL NAYYAR V. CIT (2009) 177 TAXMAN 207 (P &H); (B) CIT V. SUN ENGINEERING WORKS (P) LTD (1992) 198 ITR 297 (SC); (C) DR. RAVISHANKAR TAPA V. CIT (1987) 165 ITR 81 (MP) 5.2. ON THE OTHER HAND THE LD. A R CAME UP WITH A SPIRITED ARGUMENT THE GIST OF WHICH IS AS UNDER: (I) THE CONTRACTUAL RECEIPTS VIS--VIS WORKS EXECUTED B Y SUB- CONTRACTORS DID NOT HAVE ANY ELEMENT OF PROFIT OR C OMMISSION TO TAX IN THE HANDS OF THE ASSESSEE AND THE SAME CONSI DERATION PAID TO SUB-CONTRACTORS WERE SUBJECTED TO TAX IN HA NDS OF THE SUB-CONTRACTORS WHO WERE ASSESSED WITH THE SAME ASS ESSING OFFICER; (II) THERE WAS NO NEW INFORMATION COMING TO THE POSSESSI ON OF THE AO AND THERE WAS NO INCOME ESCAPED ASSESSMENT IN TH E AY SO AS TO INVOKE THE PROVISIONS OF S.147 AND THUS THE REASSESSMENT ORDER WAS LIABLE TO BE SET ASIDE; (III) THE AO STATES THAT THE ESTIMATION OF PROFIT HAS TO BE MADE ON THE GROSS RECEIPTS AS PER THE ACT. HOWEVER THE AO HAD NOT MADE ANY REFERENCE TO THE SPECIFIC PROVISIONS OF THE SEC TION OF THE ACT. EVEN ON ASSUMPTION THAT THE AO WAS REFERRING TO THE PROVISIONS OF S. 44AD THE SECTION DOESNT HAVE AN APPLICATION IN THE CASE OF THE ASSESSEE AS HIS CONTRACTUAL RECE IPTS EXCEEDED RS.40 LAKHS; - RELIES IN THE CASE OF SHRI RAM JHANWAR LAL V. ITO ( 2009) 177 TAXMAN 135 (RAJ); (IV) THE ASSESSEE HAD ENTERED INTO SUB-CONTRACT AGREEMEN TS WITH SUB-CONTACTORS NAMELY (I) NANJUNDAPPA & (II) R VE NKATA REDDY AND CLAUSE OF THE SAID AGREEMENT READS 3. THAT THE CONTRACTOR HAS AGREED TO SUB-LET THE A BOVE WORK TO SUB-CONTRACTOR AT THE SAME RATE AT WHICH THE CONTRA CTEE I.E. M/S.KRDCL HAS ALLOTTED THE WORK TO THE CONTRACTOR ( I.E. 10% ITA NO.749/BANG/2009 PAGE 5 OF 13 ABOVE CSR OF 2005-06). IT IS HEREBY CLARIFIED THAT THE MAIN CONTRACTOR HAS ENTRUSTED THIS WORK TO SUB-CONTRACTO R WITHOUT ANY COMMISSION OR PROFIT. - THE TERMS OF THE SUB-CONTRACT AGREEMENT CLEARLY STA TE THAT THE WORK WAS SUB-CONTRACTED TO THE SUB-CONTRACTOR W ITHOUT ANY COMMISSION OR PROFIT AND THUS THERE WAS NO PR OFIT ELEMENT EMBEDDED IN THE CONTRACTUAL RECEIPTS VIS-- VIS THE WORKS SUB-CONTRACTED TO SUB-CONTRACTORS; - RELIES IN THE CASE OF BRIJ BHUSHAN LAL PARDUMAN KUM AR V. CIT (1978) 115 ITR 524 (SC) - THE AFORESAID DECISION HAS BEEN TAKEN COGNIZANCE OF BY THE BOARD IN ITS CIRCULAR NO.295 DT: 6.3.1981; - IN ORDER TO CONSIDERED CERTAIN RECEIPT AS PART OF G ROSS RECEIPTS IT IS ESSENTIAL THAT SUCH RECEIPT CONSTIT UTES AN INCOME OR HAS INCOME EMBEDDED THEREIN. THIS PRINCI PLE HAS BEEN ADOPTED BY THE HONBLE SUPREME COURT IN TRANSMISSION CORPORATION OF A.P LTD. V.CIT REPORTED IN 239 ITR 587; (V) THE AO HAD NEITHER DISPUTED THE FACT THAT THE ASSES SEE HAD ENTERED INTO SUCH AGREEMENT NOR REBUTTED THE CLAIM THAT THE ASSESSEE HAD NOT MADE PROFITS VIS--VIS CONTRACTUAL RECEIPTS RECEIVED BY THE ASSESSEE FOR THE WORKS EXECUTED BY THE SUB- CONTRACTORS. THERE WAS NO ALLEGATION NOR ANY FINDIN G TO THE EFFECT THAT THE ASSESSEE HAD MADE PROFITS WHATSOEVE R IN RESPECT OF SUB-CONTRACTS; (VI) THE ASSESSEE HAD MADE TDS IN RESPECT OF PAYMENTS MA DE TO THE SUB-CONTRACTORS U/S 194C AND THE VERY FACT WAS BROU GHT TO THE NOTICE OF THE AO DURING THE COURSE OF REASSESSMENT PROCEEDINGS AND THAT THE ENTIRE SUB-CONTRACT AMOUNTS RECEIVED B Y THE SUB- CONTRACTORS WERE OFFERED TO TAXES IN THEIR RESPECTI VE RETURNS OF INCOME; - IF THE SAME CONTRACTUAL RECEIPTS WERE TO BE SU BJECTED TO TAX IN THE HANDS OF THE ASSESSEE IT AMOUNTS TO DOUBLE TAXATION AS THE SAME HAD ALREADY SUBJECTED TO TAX IN THE HANDS OF THE SUB- CONTRACTORS; - RELIES IN THE CASES OF (I) LAXMIPAT SINGHANIA V. CIT (1969) 72 ITR 291 (SC); (II) CIT V. MANILAL DHANJI (1962) 44 ITR 876 (SC) (VII) THE CONTRACTORS EXECUTING WORKS FOR GOVERNMENT DEPA RTMENT WILL BE RANKED ON THE BASIS OF NUMBER OF CONTRACTS EXECUTED BY ITA NO.749/BANG/2009 PAGE 6 OF 13 THEM. WHEN THE CONTRACTS WERE AWARDED AND THE SAME WERE NOT EXECUTED IN TIME THERE WERE LIKELY HOOD THAT T HE CONTRACTOR MAY NOT BE CONSIDERED IN RESPECT OF SUBSEQUENT CONT RACT. IT WAS UNWRITTEN AGREEMENT AMONG THE CONTRACTORS NOT T O COMPETE BETWEEN THEM IN BIDDING AND IF THE CONTRACT IS AWAR DED TO ONE AMONG THEM THE SAME CONTRACT SHALL BE SHARED BY TH E REMAINING CONTRACTORS BY WAY OF SUB-CONTRACT WITHOU T ANY PROFIT OR COMMISSION. THIS HAS BEEN PREVALENT AMON G THE CONTRACTORS COMMUNITY. - THUS THE CONTRACTUAL RECEIPTS IN RESPECT OF WORKS SUB- CONTRACTED TO THIRD PARTIES WITHOUT RETAINING ANY P ROFIT CANNOT BE CONSIDERED AS PART OF THE GROSS RECEIPTS FOR THE PURPOSE OF ESTIMATING PROFIT. (VIII) WITH REGARD TO ALLOWABILITY OF DEPRECIATION ALLOWAN CE - RELIES ON THE CIRCULAR/CASE LAWS: (A) CIRCULAR NO.29D (XIX-14) DATED: 31.8.1965 (B) CIT V. BISHAMBHAR DAYAL AND CO. (1994) 210 ITR 118 (ALL) (C) CIT V. DAUDAYAL HOTELS P. LTD. (2006) 282 ITR 132 ( GUJ) (D) SHRI RAM JHANWAR LAL V. ITO (2009) 177 TAXMAN 135 ( RAJ) (E) ALLAHABAD GLASS WORKS V. CIT (1961) 42 ITR 439 (ALL ) 5.3. TO STRENGTHEN HIS CLOSELY-KNITTED ARGUMENTS THE LD. A R CAME UP WITH A PAPER BOOK CONTAINING 1 39 PAGES WHICH CON SISTS OF INTER ALIA WRITTEN SUBMISSION AND COPIES OF (I) CORRESPONDENCE WITH THE AUTHORITIES (II) WRITTEN SUBMISSION BEFORE THE CIT (A) ETC. 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS D ILIGENTLY PERUSED THE RELEVANT RECORDS AND ALSO THE DOCUMENTARY EVIDE NCES PRODUCED BY EITHER PARTY. 6.1. THE SUBMISSION OF THE REVENUE WITH REGARD TO THE ISSUANCE OF NOTICE U/S 148 OF THE ACT WAS THAT THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT NOTICE U/S 148 IS INVALID AS IT WAS IS SUED ON WRONG ITA NO.749/BANG/2009 PAGE 7 OF 13 PRESUMPTION. NO REASONING WORTH THE NAME WAS ADDUCED TO REBUT T HE CIT (A)S FINDING. 6.1.1. ON THE OTHER HAND THE LD. CIT (A) HAD REAS ONED THUS IT APPEARS THAT AO HAS INCORRECTLY INTERPRETED THE WORDS AT 8% OF THE GROSS PROFIT AND IT HAS TO BE READ WITH 8% OF THE G ROSS PROFIT EARNED BY THE APPELLANT. BUT IN THIS CASE THE WORK IS SUB-CO NTRACTED CONTRACTORS ARE FILED THEIR RETURNS AND OFFERED THE RESPECTIVE TAX IN THEIR CASE. IN SPITE OF THE SAME IF 8% IS WORKED OUT ON THE ENTIRE GROSS R ECEIPT OF RS.6 16 70 329/- WHICH WILL AMOUNT TO DOUBLE TAXATI ON. THUS THE NOTICE U/S 147 (SIC) 148 ISSUED ON THE WRONG PRESUMPTION W ILL LEAD TO INVALIDITY OF NOTICE U/S 148. 6.1.2. HOWEVER S. 147 OF THE ACT SAYS: IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY AS SESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 1 53 ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY 6.1.3. IN THE PRESENT CASE WHEN THE ASSESSEE FIRM HAD RECEIVED GROSS CONTRACT RECEIPTS OF RS.6.16 CRORES DURING TH E ASSESSMENT YEAR UNDER DISPUTE BUT ESTIMATED ITS PROFIT AT 8% ONLY ON RS .4.91 CRORES (AFTER DEDUCTING THE SUB-CONTRACT AMOUNTS OF RS.1.24 CRORE S) THE AO HAD A BONA FIDE REASON TO BELIEVE THAT THE ASSESSEES INCOME T O THE TUNE OF RS.1.24 CRORES CHARGEABLE TO TAX HAD ESCAPEMENT ASSESSMENT (WHICH HAS NOT BEEN SHOWN AS ITS INCOME IN ITS RETURN OF INCOME). TO EXAMINE THE VERACITY OF THE ASSESSEES CLAIM THE AO HAD RESORTED TO RE-OPE N THE ASSESSMENT BY ISSUANCE OF NOTICE U/S 148 OF THE ACT THE STAND OF THE AO IN OUR CONSIDERED VIEW WAS JUSTIFIED AND HE WAS WITHIN H IS REALM TO DO SO. IT IS ORDERED ACCORDINGLY. ITA NO.749/BANG/2009 PAGE 8 OF 13 6.2. LET US NOW ANALYZE THE ISSUE WITH REGARD TO T HE SECOND GROUND OF THE REVENUE. 6.2.1. THE AO IN HIS IMPUGNED ORDER HAD POINT ED OUT THAT THE ESTIMATION OF PROFIT HAS TO BE MADE ON THE GROSS RE CEIPTS AS PER THE ACT. HOWEVER AS RIGHTLY POINTED OUT BY THE LD. A R THE AO HAD NOT MADE ANY REFERENCE TO THE SPECIFIC PROVISIONS OF THE SECTION OF THE ACT. FOR AN ARGUMENT-SAKE WITHOUT CONCEDING TO THE AOS PRESUMP TION EVEN THE PROVISIONS OF S. 44AD OF THE ACT HAVE NO APPLICATIO N TO THE PRESENT CASE AS THE ASSESSEES CONTRACTUAL RECEIPTS EXCEEDED RS.40 LAKHS DURING YEAR UNDER CHALLENGE. THIS FACT HAS BEEN AFFIRMED BY TH E HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF SHRI RAM JHANWAR LAL V. IT O (2009) 177 TAXMAN 135. 6.2.2. ON A GLIMPSE OF THE SUB-CONTRACT AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH TWO OF THE SUB-CONTRACTORS WE NO TICE ON CLAUSE 3 OF THE SAID AGREEMENT THAT - 3. THAT THE CONTRACTOR HAS AGREED TO SUB-LET THE ABOVE WORK TO SUB- CONTRACTOR AT THE SAME RATE AT WHICH THE CONTRACTEE I.E. M/S.KRDCL HAS ALLOTTED THE WORK TO THE CONTRACTOR (I.E. 10% ABOVE CSR OF 2005- 06). IT IS HEREBY CLARIFIED THAT THE MAIN CONTRACTOR HAS ENTRUSTED THIS WORK TO SUB-CONTRACTOR WITHOUT ANY COMMISSION OR PR OFIT. 6.2.3. THUS THE TERMS OF THE SUB-CONTRACT AGREEME NT EXPLICITLY TESTIFY THAT THE CONTRACT WORK WAS SUB-CONTRACTED T O THE SUB-CONTRACTORS WITHOUT ANY COMMISSION OR PROFIT AS THE CASE MAY B E. IN THIS CONNECTION WE ARE DRAWING STRENGTH FROM THE RULING OF THE HON BLE HIGHEST JUDICIARY OF THE COUNTRY IN THE CASE OF BRIJ BHUSHAN LAL PARDUMA N KUMAR V. CIT ITA NO.749/BANG/2009 PAGE 9 OF 13 REPORTED IN (1978) 115 ITR 524 WHEREIN THE HONBLE COURT IN ITS WISDOM HAD OBSERVED THUS SINCE NO ELEMENT OF PROFIT WAS INVOLVED IN TH E TURNOVER REPRESENTED BY THE COST OF STORES/MATERIAL SUPPLIED BY THE M.E.S. TO THE ASSESSEE-FIRMS THE INCOME OR PROFITS DERIVED BY TH E ASSESSEE FIRMS FROM SUCH CONTRACTS WILL HAVE TO BE DETERMINED ON T HE BASIS OF THE VALUE OF THE CONTRACTS REPRESENTED BY THE CASH PAYM ENTS RECEIVED BY THE ASSESSEE-FIRMS FROM THE M.E.S. DEPARTMENT EXCLU SIVE OF THE COST OF THE MATERIAL/STORES RECEIVED FOR BEING USED FIXED OR INCORPORATED IN THE WORKS UNDERTAKEN BY THEM. 6.2.4. ON A SCRUTINY OF THE IMPUGNED ORDER OF THE AO WE FIND THAT THE AO HAD NEITHER DISPUTED THE VERY FACT THAT THE ASSESSEE HAD ENTERED INTO AGREEMENTS FOR SUB-CONTRACTING ITS WORK NOR CO NTRADICTED THE CLAIM OF THE ASSESSEE THAT IT HAD NOT MADE ANY PROFITS VIS- -VIS CONTRACTUAL RECEIPTS RECEIVED BY IT FOR THE WORKS EXECUTED BY THE SUB-CO NTRACTORS. CHIEFLY THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD OR THE LE AST RECORDED ANY FINDINGS TO JUSTIFY HIS ACTION THAT THE ASSESSEE HA D MADE PROFITS FROM LEASING OUT THE WORK FOR SUB-CONTRACTS. 6.2.5. TO EXHIBIT ITS BONA FIDE INTENTION THE ASS ESSEE HAD MADE TDS FOR THOSE PAYMENTS MADE TO THE SUB-CONTRACTORS U/S 194C OF THE ACT; THE VERY FACT HAS NOT BEEN DISPUTED BY THE AO. HAD THE AO ANY INKLING WITH REGARD TO THE BONA FIDE OF THE ASSESSEES CLAIM HE COULD HAVE CROSS VERIFIED THE FACT WITH REFERENCE TO THE RETURNS OF INCOME OF THE SUB- CONTRACTORS WHO WERE BEING ASSESSED BY HIMSELF? 6.2.6. WE ARE IN TOTAL AGREEMENT WITH THE ASSESSEE S GENUINE APPREHENSION THAT IF THE SAME CONTRACTUAL RECEIPTS WERE TO BE SUBJECTED TO TAX IN THE HANDS OF THE ASSESSEE NATURALLY IT WOUL D AMOUNT TO DOUBLE ITA NO.749/BANG/2009 PAGE 10 OF 13 TAXATION IN THE HANDS OF THE ASSESSEE AS WELL AS TH E SUB-CONTRACTORS WHO HAVE ALREADY OFFERED THE RECEIPT OF THE ENTIRE SUB- CONTRACT AMOUNTS FROM THE ASSESSEE FOR TAXATION IN THEIR RESPECTIVE RETUR NS OF INCOME. 6.2.7. AS A MATTER OF FACT THE HONBLE APEX COURT IN ITS RULING IN THE CASE OF LAXMIPAT SINGHANIA V. CIT REPORTED IN (1969 ) 72 ITR 291 HAD EXPRESSLY OBSERVED THAT IT IS A FUNDAMENTAL RULE OF THE LAW OF TAXATION THAT UNLESS OTHERWISE EXPRESSLY PROVIDED INCOME C ANNOT BE TAXED TWICE. 6.2.8. IN AN OVERALL CONSIDERATION OF THE FACTS AS DELIBERATED UPON IN THE FORE-GOING PARAGRAPHS WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN ADOPTING THE PROFIT AT 8% ON THE G ROSS RECEIPTS OF RS.6.16 CRORES. IT IS ORDERED ACCORDINGLY. 7. THE OTHER GRIEVANCE OF THE REVENUE WAS WITH REG ARD TO THE LD. CIT (A)S STAND TO ALLOW DEPRECIATION AFTER ESTIMA TION OF PROFIT BY PLACING RELIANCE ON THE CIRCULAR NO.29D OF 1965. 7.1. WE HAVE DECISIVELY PERUSED THE CIRCULAR NO.29 D (XIX-14) DATED: 31.8.1965 WHEREIN IT HAS BEEN PRECISELY STAT ED THAT 2. THE BOARD CONSIDER THAT WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FUR NISHED BY THE ASSESSEE THE DEPRECIATION ALLOWANCE SHOULD BE SEPA RATELY WORKED OUT. IN ALL SUCH CASES THE GROSS PROFIT SHOULD BE ESTI MATED AND THE DEDUCTIONS AND ALLOWANCES INCLUDING THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PROFIT . IF IT IS CONSIDERED THAT THE NET PROFIT SHOULD BE ESTIMATED IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THERE-FRO M. 3. EVEN WHERE BEST JUDGMENT ASSESSMENT IS MADE; TH E ABOVE PROCEDURE SHOULD BE ADOPTED PROVIDED THE REQUIRED P ARTICULARS HAVE ITA NO.749/BANG/2009 PAGE 11 OF 13 BEEN FURNISHED BY THE ASSESSEE. IN CASES WHERE REQUIRED PARTICULARS HAVE NOT BEEN FURNISHED BY THE ASSESSEE AND NO CLAIM FOR DEPRECIATION HAS BEEN MADE IN THE RETURN THE I TO SHOULD ESTIMATE THE INCOME WITHOUT ALLOWING DEPRECIATION A LLOWANCE . IN SUCH CASES THE ESTIMATE OF NET PROFIT WOULD BE NATU RALLY HIGHER THAN OTHERWISE AND THE FACT THAT THE ESTIMATE HAS BEEN M ADE WITHOUT CONSIDERING DEPRECIATION ALLOWANCE MAY BE CLEARLY B ROUGHT OUT IN THE ASSESSMENT ORDER. IN SUCH CASES THE WRITTEN D OWN VALUE OF DEPRECIABLE ASSETS WOULD CONTINUE TO BE THE SAME AS AT THE END OF THE PRECEDING YEAR AS NO DEPRECIATION WOULD ACTUALL Y BE ALLOWED IN THE ASSESSMENT ORDER. 7.2. ON A PERUSAL OF THE SAID CIRCULAR THE FOLLOW ING VITAL ISSUES EMERGE NAMELY :- (I) WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE TH E DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY WORKED OUT; (II) IN CASES WHERE REQUIRED PARTICULARS HAVE NOT BEEN F URNISHED BY THE ASSESSEE AND NO CLAIM FOR DEPRECIATION HAS B EEN MADE IN THE RETURN THE ITO SHOULD ESTIMATE THE INCOME W ITHOUT ALLOWING DEPRECIATION ALLOWANCE 7.2.1. THE ABOVE INSTRUCTIONS ARE APPLICABLE TO A CASE WHERE THE ASSESSMENT IS BEING MADE EITHER UNDER SECTION 143(3 ) OR U/S 144 OF THE ACT. HOWEVER THERE WAS NO MENTION WHATSOEVER WHET HER THESE INSTRUCTIONS COULD ALSO BE EXTENDED TO WHERE AN ASS ESSMENT IS BEING MADE U/S 143(3) R.W.S. 147 OF THE ACT. 7.2.2. THE HONBLE SUPREME COURT IN THE CASE OF CI T V. SUN ENGINEERING WORKS (P) LTD. REPORTED IN (1992) 198 I TR 297 HAS OBSERVED THAT ONCE AN ASSESSMENT IS VALIDLY REOPENED ONLY THE PR EVIOUS UNDER-ASSESSMENT IS SET ASIDE AND NOT THE ORIGINAL ASSESSMENT PROCEEDINGS P ARTICULARLY IF HAS ACQUIRED FINALITY THE ASSESSEE CANNOT CLAIM RE-COMPUTATION OF INCOME OR REDOING OF AN ASSESSMENT OR ITA NO.749/BANG/2009 PAGE 12 OF 13 AGITATE A FRESH CLAIM UNRELATED TO ESCAPED INCOME O R WHICH WAS OTHERWISE REJECTED IN ORIGINAL ASSESSMENT. THE ITO CANNOT MAKE AN ORDER OF REASSESSMENT INCONSISTENT WITH THE ORIGINAL ORDER OF ASSESSMENT IN RESPECT OF MATT ERS WHICH ARE NOT SUBJECT MATTER OF PROCEEDINGS U/S 147. PROCEEDINGS U/S 147 CANNOT BE ALLOWED TO BE CONVERTED INTO REVISIONAL OR REVIEW PROCEEDINGS AT THE INSTANC E OF ASSESSEETHIS ITEM BEING UNCONNECTED WITH ESCAPED INCOME ASSESSEE COULD NOT SEEK REVIEW THEREOF IN REASSESSMENT PROCEEDINGS. 7.2.3. IN VIEW OF THE ABOVE CERTAIN POINTS REQUIR E CLARIFICATION WHICH ARE LISTED OUT AS UNDER: (I) THE APPLICABILITY OF CIRCULAR NO.29D WOULD ARISE WH ERE THE ESTIMATION OF NET PROFITS AND ALLOWABILITY OF DEPRE CIATION ETC. IN AN ASSESSMENT PROCEEDING EITHER U/S 143(3) OR U/S 1 44 OF THE ACT; - THE CIRCULAR IS CONSPICUOUSLY SILENT WHETHER THE SA ME BENEFIT COULD ALSO BE EXTENDED TO REOPENING ASSESSM ENT TOO; - IN THE PRESENT CASE THE ASSESSMENT HAS BEEN REOPEN ED U/S 147 OF THE ACT; (II) STRANGELY NEITHER THE REVENUE NOR THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THIS BENCH WHETHER THE ASSESSEE HAD IN FACT FURNISHED THE PRESCRIBED PARTICULARS IN THE ORIGINA L RETURN TO CLAIM DEPRECIATION ALLOWANCE. IF NOT THE LD. CIT (A) WAS RATHER FORBIDDEN AS PER THE RULING OF THE HONBLE SUPREME COURT REFERRED SUPRA TO DIRECT THE AO TO ALLOW DEP RECIATION AS PER BOARDS CIRCULAR AS THE APPEAL OF THE PRESENT ASSESSEE BEFORE THE CIT(A) WAS PRECISELY REASSESSMENT PROCEE DINGS U/S 143(3) R.W.S.147 OF THE ACT. 7.2.4. IN VIEW OF THE CIRCUMSTANCES NARRATED SUPRA WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE SHOULD BE REMITTED BACK ON THE FILE OF THE AO WITH A SPECIFIC DIRECTION TO EXAMINE WHETHER THE ASSESSEE HAD FURNISHED THE PRESCRIBED PARTICULARS IN RESPECT OF DEPRECIATION ALLOWANCE IN THE ORIGINAL RETURN AND IF SO THE AO SHALL TAKE AP PROPRIATE ACTION IN ITA NO.749/BANG/2009 PAGE 13 OF 13 CONSONANCE WITH THE ABOVE CITED CIRCULAR AFTER AFF ORDING AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. IF NO SUCH PARTICULARS IN RESPECT OF DEPRECIATION ETC. WERE FURNISHED IN THE ORIGINAL RE TURN THE ASSESSEE HAS TO LEGITIMIZE THE CAUSE IN RAISING THIS ISSUE BEFORE T HE LD. CIT(A) IN THE REASSESSMENT APPELLATE PROCEEDINGS. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT THE REVENUES APPEAL IS TREATED A S PARTLY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF APRIL 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 30 TH APRIL 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.