M/s KotharibConstructions, Hyderabad v. ACIT, Hyderabad

ITA 919/HYD/2008 | 2001-2002
Pronouncement Date: 24-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 91922514 RSA 2008
Assessee PAN AAEEK4889R
Bench Hyderabad
Appeal Number ITA 919/HYD/2008
Duration Of Justice 3 year(s) 9 month(s) 3 day(s)
Appellant M/s KotharibConstructions, Hyderabad
Respondent ACIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 24-02-2012
Date Of Final Hearing 16-03-2011
Next Hearing Date 16-03-2011
Assessment Year 2001-2002
Appeal Filed On 21-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE CHANDRA POOJARI ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER ITA NO.919/HYD/2008 ASSESSMENT YEAR 2001-02 M/S.KOTHARI CONSTRUCTIONS HYDERABAD ( PAN AAEEK 4889 R) VS THE ACIT CIRCLE 5(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI P. VINOD RESPONDENT BY : SHRI V. SRINIVAS DATE OF HEARING : 7.2.2012 DATE OF PRONOUNCEMENT : 24.2.2012 ORDER PER ASHA VIJAYARAGHAVAN JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) V HYDERABAD DATED 25.3 .2008 AND PERTAINS TO THE ASSESSMENT YEAR 2001-02. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A FIRM CONSISTING OF 14 PARTNERS. FOR THE ASSESSMENT YEAR 2001-02 IT WAS HAVING INCOME FROM HOUSE PROPERTY AND BUSINESS INCOME FROM SALE OF FLATS. HOWEVER IT HAS NOT FILED ANY RETURN OF INCOME FOR THIS ASSESSMENT YEAR. AS TAXABLE INCOME FOR TH IS ASSESSMENT YEAR HAS ESCAPED ASSESSMENT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT U/S 147 OF THE ACT AND HAS ISSUED NOTICE U/S 148 OF THE ACT ON 2.3.2006. IN RESPONSE TO THIS NOTICE SERVED ON 4.3.2006 THE ASSESSEE FILED A RETURN OF INCOME ON 27.9.2006 SHOWING INCOME OF RS.21 060/- COMPRISING INCOME ITA NO.919/HYD/2008 KOTHARI CONSTRUCTIONS HYDERABAD 2 FROM HOUSE PROPERTY OF RS.15 750 AND BUSINESS INCOM E OF RS.5 311/-. 3. UNDER THE HEAD BUSINESS INCOME THE ASSESSEE HA S SHOWN RECEIPT FROM SALE OF FLATS AT RS.33 95 880/-. OPEN ING BALANCE WAS SHOWN AT RS.25 94 999/-. AFTER CLAIMING FOR DI FFERENT EXPENSES VIZ. BATHROOM EXPENSES FOR SECOND AND TH IRD FLOORS (RS.4 80 000/-) LIFT REPAIRING EXPENSES (RS.62 000) UNDERGROUND WATER PROOFING (RS.47 480) COLOUR AND PAINT EXPENS ES (RS.58 970/-) AND TRANSFORMER REPAIRING RS.87 360/- IT HAS ARRIVED AT A PROFIT OF RS.64 511 AND AFTER CLAIMING DEDUCTION FOR FURTHER EXPENSES TOWARDS IT REPRESENTATION FEE BA NK CHARGES AND SALARIES TO STAFF THE NET INCOME FROM BUSINESS WAS SHOWN AT RS.5311/-. DURING THE ASSESSMENT PROCEEDINGS IN R ESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER FOR PRODU CING BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS THE ASSESSEE HAS S UBMITTED THAT IT HAS NOT MAINTAINED REGULAR BOOKS OF ACCOUNT S AND BILLS AND VOUCHERS IN RESPECT OF EXPENSES. IT WAS FURTHE R SUBMITTED THAT OUT OF TOTAL EXPENDITURE OF RS.7 36 370/- MAJO R EXPENDITURE WAS INCURRED TOWARDS CONSTRUCTION OF 16 BATHROOMS O N SECOND AND THIRD FLOORS OF THE BUILDING THROUGH ONE MASTAN BHAI MAISTRY. HOWEVER AS THE ASSESSEE HAS FAILED TO PRO DUCE ANY EVIDENCE IN SUPPORT OF THE CLAIM OF ABOVE EXPENDITU RE TO THE EXTENT OF RS.7 36 370/- AND IT HAS NOT MAINTAINED R EGULAR BOOKS OF ACCOUNTS THE ASSESSING OFFICER OBSERVED THAT TH E SAME HAS TO BE DISALLOWED. HE FURTHER NOTED THAT OUT OF THE TW O SALES EFFECTED BY THE ASSESSEE IN ASSESSMENT YEAR 2000-01 ONE WAS ON 27.7.2000 VIDE REGISTRATION NO.2351/2000 TO SRI VIN OD KOTHARI FOR A CONSIDERATION OF RS.1 50 000/- AS THIS SALE TRANSACTION PERTAINS TO THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 2001- 02 IN HIS VIEW THE SAME HAS TO BE TAKEN INTO ACCOU NT FOR THIS ASSESSMENT YEAR. ACCORDINGLY HE HELD THAT THE TOT AL AMOUNT ITA NO.919/HYD/2008 KOTHARI CONSTRUCTIONS HYDERABAD 3 RECEIVED BY THE ASSESSEE FROM SALE OF FLATS COMES T O RS.35 45 880/- (RS.33 95 880 + 1 50 000_. HE FURTH ER OBSERVED THAT IF THE ENTIRE EXPENDITURE OF RS.7 36 370/- IS DISALLOWED THE NET PROFIT FROM BUSINESS WORKS OUT TO RS.7 41 681 WHICH GIVES A NP RATE OF 20.9% WHICH IS HIGHER. AFTER OBSERVING THAT PROFIT IN THIS OF BUSINESS OF CONSTRUCTION AND SALE OF COMMER CIAL COMPLEXES VARIES FROM 12 TO 15% HE ESTIMATED THE P ROFIT ON THE ABOVE AMOUNT OF SALES CONSIDERATION AT 12.5% CLEAR OF ALL EXPENSES THEREBY ESTIMATING THE NET PROFIT AT RS.4 43 235 12.5% OF RS.35 45 880/-. 4. IT WAS SUBMITTED THAT AS THERE WAS NO BUSINESS ACTIVITY AFTER 1990 THE ASSESSEE DID NOT MAINTAIN ANY REGUL AR BOOKS OF ACCOUNTS. IN THE ABSENCE OF BOOKS OF ACCOUNTS THE ASSESSEE DID NOT OBTAIN ANY VOUCHERS FROM THE CONTRACTOR OR THE WORKERS WHO CARRIED OUT THE WORK. IT WAS FURTHER STATED THAT T HE EXPENDITURE WERE INCURRED UNDER THE DIRECT SUPERVISION OF THE P ARTNERS OF THE FIRM. 5. IT WAS ALSO SUBMITTED THAT THE ESTIMATION OF IN COME BY THE ASSESSING OFFICER INVOKING PROVISIONS OF SECTION 14 5 IS NOT CORRECT. THE ENTIRE CONSTRUCTION OF THE COMPLEX WA S CARRIED OUT IN 1990. THE OPENING BALANCE OF RS.25 94 999 IN BU ILDING CONSTRUCTION ACCOUNT AND THE SALE PROCEEDS HAVE BEE N ACCEPTED. THERE IS NO ADVERSE FINDING ABOUT THE CORRECTNESS O R COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR THE METHOD OF ACCOUNTING FOLLOWED. IT WAS FURTHER SUBMITTED THAT AS FOLLOWS: THE FACT THAT THE ASSESSEE HAD TO MEET THE EXPENDI TURE ON CONSTRUCTION OF BATHROOMS AND REPAIRS AND MAINTENAN CE IS ALSO ACCEPTED. BY ESTIMATING THE BUSINESS INCOME A T RS.4 43 235/- AS AGAINST RS.7 41 681/- CLEAR OF ALL ITA NO.919/HYD/2008 KOTHARI CONSTRUCTIONS HYDERABAD 4 EXPENSES ASSESSEE HAD TO INCUR EXPENDITURE IN PUTT ING THE COMMERCIAL COMPLEX IN SALEABLE CONDITION. OUT OF T HE EXPENDITURE CLAIMED BY THE ASSESSEE OF RS.7 36 370/ - THE ASSESSING OFFICER HAS ALLOWED EXPENDITURE OF RS.3 1 9 446/- AND HAS DISALLOWED RS.4 16 924/-. 6. IT WAS CONTENDED THAT THERE WAS NO FINDING THAT THE ASSESSEE HAS INFLATED THE EXPENDITURE. IT WAS STAT ED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145 AND IN ESTIMATING THE PROFIT NET OF AL L EXPENSES AT 12.5% OF THE SALE PROCEEDS AND DETERMINING THE INCO ME FROM BUSINESS WITHOUT BRINGING ON RECORD ANY REASONS. W ITH THE ABOVE SUBMISSIONS THE AR PLEADED THAT THE ADDITIO NS OF RS.4 43 235/- MADE BY THE ASSESSING OFFICER MAY BE DELETED. 7. AGGRIEVED THE ASSESSEE WENT IN APPEAL BEFORE TH E CIT(A) AND THE CIT(A) OBSERVED THAT THE ASSESSEE HAS STAT ED THAT IT HAD INCURRED EXPENDITURE OF RS.4 80 000 TOWARDS CONSTRU CTION OF BATHROOMS ON SECOND AND THIRD FLOORS OF THE BUILDIN G AND AN AMOUNT OF RS.2 56 370/- TOWARDS REPAIRS UNDER DIFFE RENT HEADS. IT WAS STATED THAT THE AMOUNT OF RS.4 80 000 WAS P AID TO ONE MASTHAN BHAI. HOWEVER THE ASSESSEE HAS FAILED TO FURNISH ANY BILLS AND VOUCHERS IN SUPPORT OF THE CLAIM OF THE A BOVE EXPENDITURE. FURTHER THE CIT(A) HELD THAT THOUGH THE ASSESSEE HAS CONTENDED THAT IT HAS INCURRED EXPENDITURE OF R S.4 80 000 ON CONSTRUCTION OF THE BATHROOMS THROUGH SRI M. BHA I IT COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF CLAIM OF MAK ING PAYMENT DIRECTLY TO THE SAID M. BHAI. M AND THE ASSESSEE FA ILED TO FURNISH ANY EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENDITURE TO THE EXTENT OF RS.7 36 370 AS CLAIMED IN THE BUILDING CONSTRUCT ION ACCOUNT THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT AFTE R INVOKING PROVISION OF SECTION 145 OF THE ACT. THE CIT(A) HE LD THAT EVEN ITA NO.919/HYD/2008 KOTHARI CONSTRUCTIONS HYDERABAD 5 THOUGH THE ASSESSEE HAS NOT MAINTAINED REGULAR BOOK S OF ACCOUNTS FROM THE FACT OF FURNISH OF A SEPARATE BU ILDING CONSTRUCTION ACCOUNT WHEREIN THE RECEIPTS AS PER SA LE DEEDS IS SHOW AT RS.33 95 980/- IT SHOWS THAT THE ASSESSEE H AS MAINTAINED SOME ROUGH ACCOUNTS FOR ARRIVING AT THE PROFIT FROM SALE OF THE COMMERCIAL COMPLEX. UNDER THESE CIRCUM STANCES AND WHEN THE ASSESSEE HAS FAILED TO FURNISH ANY SIN GLE VOUCHER IN SUPPORT OF THE CLAIM OF EXPENDITURE UNDER DIFFER ENT HEADS AS SHOWN IN THE BUILDING CONSTRUCTION ACCOUNT THE ASS ESSING OFFICER WAS JUSTIFIED IN INVOKING PROVISION OF SECT ION 145 OF THE ACT FOR ESTIMATING THE NET PROFIT. 8. THE CIT(A) FURTHER HELD THAT THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER HAS CLEARLY MENTIONED THAT THE PRO FIT MARGIN IN THE BUSINESS OF CONSTRUCTION AND SALE OF COMMERCIAL PREMISES RANGES FROM 12 TO 15%. THE CIT(A) OPINED THAT UNDER THESE CIRCUMSTANCES AND IN ABSENCE OF ANY BILLS AND VOUC HERS PRODUCED BY THE ASSESSEE IN SUPPORT OF THE CLAIM OF VARIOUS EXPENDITURES AS CLAIMED IN THE BUILDING CONSTRUCTIO N ACCOUNT THE ASSESSING OFFICER WAS JUSTIFIED IN ESTIMATION O F THE NET PROFIT @ 12.5% CLEAR OF ALL EXPENSES AND THEREBY ESTIMATI NG THE BUSINESS INCOME AT RS.4 43 235/-. 9. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE SHRI V . SRINIVAS SUBMITTED THAT WHEN NET INCOME IS ESTIMATED ALL OTH ER EXPENDITURE AND DEDUCTIONS SUCH AS REMUNERATION TO PARTNERS AND DEPRECIATION IS DEEMED TO HAVE BE TAKEN CARE OF IN VIEW OF THE CASE LAW IN THE CASE OF M/S INDWELL CONSTRUCTIONS 232 ITR 776 (AP) AS DECIDED BY THE JURISDICTIONAL AP HIGH COURT AND ALSO ITA NO.919/HYD/2008 KOTHARI CONSTRUCTIONS HYDERABAD 6 DECISION IN THE CASE OF M/S AYYAPPA INFRA PROJECTS P. LTD IN ITA NO.608/H/2009 . 11. WE HEARD BOTH THE PARITIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE CASE OF M/S TEJA CONSTRUCTION THE TRIBUNAL HAS ESTIMATED THE PROFIT S OF THE ASSESSEE @ 9% ON OWN CONTRACT WORKS 8% ON CONTRACT S TAKEN BY ASSESSEE ON SUBCONTRACTS AND @ 5% ON CONTRACTS G IVEN BY THE ASSESSEE TO 3 RD PARTY ON SUBCONTRACTS. THIS ESTIMATE ACCORDING TO ITAT IS BEFORE ALLOWING REMUNERATION INTEREST ON C APITAL AND HENCE THE ITAT DIRECTED THAT THESE AMOUNTS SHOULD B E REDUCED OUT OF THE ESTIMATED INCOME. THE RELIANCE OF THE RE VENUE ON OTHER CASES WHERE THE ESTIMATED INCOME INCLUDES DEDUCTION OF REMUNERATION INTEREST ON CAPITAL AND DEPRECIATION DOES NOT REALLY HELP THE REVENUES CASE. ESTIMATE OF INCOME MAY VARY FROM CASE TO CASE. THE ESTIMATE MAY BE GROSS PROFITS AFT ER WHICH OTHER EXPENDITURE MAY BE ALLOWED OR THE ESTIMATE MAY OF T HE NET INCOME AFTER ALL THE EXPENDITURE. THE CO-ORDINATE B ENCH OF THE TRIBUNAL IN M/S TEJA CONSTRUCTIONS LIMITED SECUNDE RABAD IN ITA NO.1191/H/2011 VIDE ITS ORDER DATED 17.2.2012 HAS HELD THAT THE ESTIMATE OF INCOME AS A PERCENTAGE OF GROS S RECEIPTS IS PRIOR TO ALLOWANCE OF INTEREST ON CAPITAL AND REMU NERATION. 10. RESPECTFULLY FOLLOWING THE DECISIONS OF THE C O- ORDINATE BENCH WE ESTIMATE THE GROSS PROFIT AT 9% PRIOR TO ALLOWANCE OF INTEREST ON CAPITAL AND REMUNERATION S UBJECT TO THE PROVISIONS OF SECTION 40(B) OF THE IT ACT. HENCE T HE GROUNDS TAKEN BY THE ASSESSEE IS ALLOWED. ITA NO.919/HYD/2008 KOTHARI CONSTRUCTIONS HYDERABAD 7 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON: 24. 2.2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED 24 TH FEBRUARY 2012 COPY FORWARDED TO: 1. M/S KOTHARI CONSTRUCTIONS 5-2-58 KOTHARI CHAMBERS JAMBAUG HYDERABAD 2. THE ACIT CIRCLE 5(1) HYDERABAD HYDERABAD 3. THE CIT(A)-V HYDERABAD 4. THE CIT HYDERABAD 5. THE DR ITAT HYDERABAD NP/