SREC Projects Pvt. Ltd., Hyderabad v. DCIT, Hyderabad

ITA 974/HYD/2009 | 2000-2001
Pronouncement Date: 27-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 97422514 RSA 2009
Bench Hyderabad
Appeal Number ITA 974/HYD/2009
Duration Of Justice 11 month(s) 19 day(s)
Appellant SREC Projects Pvt. Ltd., Hyderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 27-08-2010
Date Of Final Hearing 20-07-2010
Next Hearing Date 20-07-2010
Assessment Year 2000-2001
Appeal Filed On 07-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA. NO. 974/HYD/2009 ASSESSMENT YEAR 2000-2001 ITA. NO. 975/HYD/2009 ASSESSMENT YEAR 2001-2002 ITA. NO. 976/HYD/2009 ASSESSMENT YEAR 2002-2003 ITA. NO. 977/HYD/2009 ASSESSMENT YEAR 2003-2004 ITA. NO. 978/HYD/2009 ASSESSMENT YEAR 2004-2005 ITA. NO. 979/HYD/2009 ASSESSMENT YEAR 2005-2006 ITA. NO. 980/HYD/2009 ASSESSMENT YEAR 2006-2007 SREC PROJECTS PVT. LTD. HYDERABAD 500 038. PAN AAFLS-6187-A VS. DCIT CENTRAL CIRCLE-4 HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SMT. VASUNDHARA SINHA ORDER PER N.R.S GANESAN J.M. 1. ALL THE ABOVE 7 APPEALS OF THE ASSESSEE ARE DIR ECTED AGAINST THE COMMON ORDER PASSED BY THE CIT (A)-I HYDERABAD DATED 11-6-09 AND PERTAINS TO THE ASSESSMENT YEARS 2000-2001 TO 2006- 2007. SINCE COMMON ISSUE ARISE FOR CONSIDERATION IN ALL THE 7 A PPEALS WE HEARD THE SAME TOGETHER AND DISPOSE OF THE SAME BY THIS COMMO N ORDER. 2. SHRI S. RAMARAO LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THERE WAS A SEARCH IN MADHUKAN GROUP OF COMPANIES ON 20-10-2005 AND THE ASSESSEE WAS ALSO COVERED UNDER THE SEARCH OPERATION. THE LEARNED COUNSEL FURTHER SUBMITTED TH AT FOR THE ASSESSMENT YEARS 2000-2001 TO 2005-2006 THE ASSESSE E HAS ALREADY FILED REGULAR RETURN OF INCOME AND THE REGULAR ASSE SSMENT UNDER SECTION 143 (3) WAS COMPLETED FOR THE ASSESSMENT YEARS 2000 -2001 TO 2004- ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 2 2005. LEARNED COUNSEL FURTHER SUBMITTED THAT IN RES PONSE TO THE NOTICE ISSUED UNDER SECTION 153A OF THE ACT THE ASSESSEE REQUESTED THE ASSESSING OFFICER TO TREAT THE RETURN FILED EARLIER AS RETURN IN COMPLIANCE TO THE NOTICE. FOR THE ASSESSMENT YEAR 2006-2007 T HE ASSESSEE FILED REGULAR RETURN DECLARING A TOTAL INCOME OF RS.21 52 793/-. THE ASSESSING OFFICER ON THE BASIS OF THE MATERIALS SAID TO BE SE IZED DURING THE COURSE OF SEARCH OPERATION REJECTED THE BOOKS OF ACCOUNT UND ER SECTION 145 OF THE I.T. ACT AND ESTIMATED THE PROFIT AT 12.5 BEFORE DE PRECIATION. ACCORDING TO THE LEARNED COUNSEL WHAT WAS SAID TO BE RECOVERED BY THE REVENUE IS ONLY A DUMB DOCUMENT. THE LEARNED COUNSEL FURTHER S UBMITTED THAT UNAUTHENTICATED ROUGH WORKING OF SITE-IN-CHARE CANNOT BE A BASIS FOR REJECTING THE BOOKS OF ACCOUNT. THEREFORE THE SA ME CANNOT BE A BASIS FOR REJECTING THE BOOKS OF ACCOUNT. LEARNED REPRESE NTATIVE FURTHER SUBMITTED THAT THE REVENUE HAS NO MATERIAL TO SHOW THAT THE ASSESSEE HAS EARNED SO MUCH OF INCOME IN THE PROJECT EXECUTE D AT CUTTACK. ACCORDING TO THE LEARNED COUNSEL THE DUMB DOCUMENT CANNOT BE RELIED UPON BY THE DEPARTMENT FOR REJECTING THE BOOKS OF A CCOUNT AND ALSO ESTIMATING THE PROFIT. 3. SHRI RAMA RAO LEARNED COUNSEL FURTHER SUBMITTE D THAT THE ASSESSEE HAS ALSO EXECUTED THE WORK ON SUB-CONTRACT BASIS. THE ASSESSING OFFICER HAS UNIFORMLY ESTIMATED THE PROFI T AT 12.5% WITHOUT TAKING INTO CONSIDERATION OF THE SUB-CONTRACT. ADMI TTEDLY THE ASSESSEE RECEIVED ONLY COMMISSION ON SUB-CONTRACT. THEREFORE WHILE ESTIMATING THE PROFIT THE PAYMENT MADE TO THE SUB-CONTRACTORS SHALL BE REDUCED FROM THE GROSS RECEIPT AND WHAT WAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE IS ONLY THE COMMISSION RECEIVED/RETAINED B Y THE ASSESSEE. THEREFORE ACCORDING TO THE LEARNED COUNSEL ESTIMAT ING THE PROFIT AT 12.5% BEFORE DEPRECIATION ON THE ENTIRE SUB-CONTRAC T WORK ALONG WITH MAIN CONTRACT EXECUTED BY THE ASSESSEE IS TOTALLY C ONTRARY TO THE MATERIALS AVAILABLE ON RECORD. ACCORDING TO THE LEA RNED REPRESENTATIVE ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 3 WHEN THE MATERIALS AVAILABLE ON RECORD CLEARLY SUGG EST THAT THE ASSESSEE HAS RECEIVED/RETAINED ONLY THE COMMISSION IN RESPEC T OF SUB-CONTRACT WORK INCLUSION OF THE ENTIRE SUB-CONTRACT AMOUNT IN THE GROSS RECEIPT IS NOT JUSTIFIED AT ALL. 4. REFERRING TO THE RECOVERIES LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE RECOVERIES ARE NOTHING BUT MATER IALS SUPPLIED BY THE GOVERNMENT FOR EXECUTING THE WORK. ACCORDING TO THE LEARNED COUNSEL THE MATERIAL SUPPLIED BY THE GOVERNMENT CANNOT BE I NCLUDED IN THE GROSS RECEIPT FOR THE PURPOSE OF COMPUTING THE PROFIT. LE ARNED COUNSEL PLACED HIS RELIANCE ON THE DECISION OF THIS TRIBUNAL IN A. VENKATESWARLU & CO. VIDE ITA. NO. 766/HYD/2008 DATED 23-1-2009. THEREFO RE ACCORDING TO THE LEARNED COUNSEL IN VIEW OF THIS DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN A.VENKATESWARLU & CO. (SUPRA) THE RECOVERIES CANNOT FORM PART OF THE GROSS RECEIPT FOR THE PURPOSE OF E STIMATION OF THE PROFIT. 5. REFERRING TO THE RATE OF PROFIT ESTIMATED BY TH E ASSESSING OFFICER AT 12.5% THE LEARNED COUNSEL SUBMITTED THAT SINCE THE REJECTION OF BOOKS OF ACCOUNT IS NOT JUSTIFIED THE ASSESSING OFFICER OUGHT NOT TO HAVE ESTIMATED THE PROFIT. ACCORDING TO THE LEARNED COUNSEL THE ASSESSING OFFICER OUGHT TO HAVE ACCEPTED THE PROFIT DISCLOSED BY THE ASSESSEE IN THE REGULAR RETURN OF INCOME. PLACING R ELIANCE ON THE DECISION OF THIS TRIBUNAL IN A.VENKATESWARLU & CO. (SUPRA) THE LEARNED COUNSEL SUBMITTED THAT THIS TRIBUNAL IN A SIMILARLY PLACED TRADER ESTIMATED THE PROFIT AT 8%. IN THE CASE OF A.VENKATESWARLU & CO. ALSO THE ASSESSING OFFICER ESTIMATED THE PROFIT AT 12.5% . AFTER TAKIN G INTO CONSIDERATION PROFIT RATES OF SIMILAR TRADER THIS TRIBUNAL ESTIM ATED THE PROFIT AT 8% OF THE GROSS RECEIPT. THEREFORE IN VIEW OF THIS DECIS ION OF THE COORDINATE BENCH ACCORDING TO THE LEARNED COUNSEL FOR THE ASSE SSEE THE ESTIMATION OF PROFIT AT 12.5% IS NOT JUSTIFIED AT ALL. ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 4 6. LEARNED COUNSEL FURTHER SUBMITTED THAT ONCE THE INCOME WAS ESTIMATED THE ASSESSING OFFICER CANNOT MAKE AN Y FURTHER ADDITION. IN THIS CASE ACCORDING TO THE LEARNED COUNSEL THE ASSESSING OFFICER MADE SEPARATE ADDITIONS IN RESPECT OF OTHER INCOME LIKE INTEREST ON FIXED DEPOSITS INTEREST ON MOBILIZATION OF ADVANCE TO SU B-CONTRACTORS COMMISSION ON SUB-CONTRACT PROFIT ON MADHUKAN JOIN T VENTURE SALES TAX REFUND SINERAGES CHARGES REFUND ETC. ACCORDIN G TO THE LEARNED REPRESENTATIVE ALL THESE PROFITS ARE GENERATED OUT OF BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE ONCE PROFIT WAS ESTIMATED THERE IS NO QUESTION OF MAKING ANY FURTHER ADDITION. ACCORDING TO THE LEARN ED COUNSEL THE ASSESSING OFFICER IS NOT JUSTIFIED IN SEPARATELY AD DING THESE AMOUNTS TO THE PROFIT ESTIMATED. 7. ON THE CONTRARY SMT.VASUNDHARA SINHA LEARNED D R FOR THE REVENUE SUBMITTED THAT ADMITTEDLY THERE WAS A SEARC H OPERATION IN THE CASE OF MADHUKAN GROUP OF COMPANIES AND THE ASSESSE E WAS ALSO COVERED UNDER THE SEARCH. DURING THE COURSE OF SEAR CH OPERATION REVENUE AUTHORITIES SEIZED CERTAIN DOCUMENTS WHICH CONTAINS THE WORKING OF SUBSTANTIAL PROFIT IN RESPECT OF CONTRAC T EXECUTED AT CUTTACK. THE ONLY OBJECTION OF THE ASSESSEE BEFORE THE ASSES SING OFFICER WAS THAT THESE DOCUMENTS MIGHT HAVE BEEN PREPARED BY THE SIT E IN-CHARGE. THEREFORE IT COULD NOT BE RELIED UPON. ACCORDING T O THE LEARNED COUNSEL WHEN THE ASSESSEE EXECUTED THE CONTRACT IN CUTTACK THE ONLY PERSON WHO HAS FULL KNOWLEDGE ABOUT THE CONTRACT WORK IS THE S ITE-IN-CHARGE. ONLY THE SITE-IN-CHARGE CAN GIVE THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE AND THE PROFIT. THEREFORE ACCORDING TO TH E LEARNED REPRESENTATIVE THE DOCUMENT WHICH CONTAIN THE WORKI NG OF PROFIT BY THE SITE-IN-CHARGE IS A MATERIAL FOUND WHICH IS RELEVAN T FOR THE PURPOSE OF COMPUTING THE PROFIT OF THE ASSESSEE. THEREFORE TH E SAME CANNOT BE BRUSHED ASIDE AS DUMB DOCUMENT. LEARNED DR FURTHER POINTED OUT THAT THE RECEIPTS DISCLOSED IN THE PAPER SEIZED FROM THE ASSESSEE DURING THE ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 5 COURSE OF SEARCH OPERATION TALLIES WITH THE RECEIPT S SHOWN IN THE BOOKS IN RESPECT OF CUTTACK WORK. THEREFORE IT IS OBVIOUS T HAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE DO NOT REFLECT T HE CORRECT AND COMPLETE STATE OF AFFAIRS OF THE ASSESSEE. THEREFOR E THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOK RESULTS SHOWN BY THE ASSESSEE. ONCE THE BOOKS OF ACCOUNT WAS REJECTED ASSESSING OFFICER HA S LEFT WITH NO OTHER METHOD OF COMPUTATION EXCEPT ESTIMATING THE PROFIT AT 12.5%. THE LEARNED REPRESENTATIVE PLACED HER RELIANCE ON THE D ECISION OF THIS TRIBUNAL IN ITA. NO. 9/H/2007 IN KNR CONSTRUCTION L TD. DATED 13-11- 2009 AND SUBMITTED THAT THIS TRIBUNAL UPHELD THE ES TIMATION OF PROFIT AT 12.5% IN THE MAIN CONTRACT AND ESTIMATION OF PROFIT ON SUB-CONTRACT AT 8%. IN VIEW OF THIS DECISION OF THIS TRIBUNAL ACCOR DING TO THE LEARNED REPRESENTATIVE THE LOWER AUTHORITIES HAS RIGHTLY E STIMATED THE PROFIT AT 12.5%. THE LEARNED DEPARTMENTAL REPRESENTATIVE FUR THER SUBMITTED THAT IN THE CASE OF A. VENKATESWAR & CO. (SUPRA) THE TRI BUNAL REFERRED TO THE CASE OF AN INDIVIDUAL ASSESSEE. THEREFORE THE DEC ISION IN VENKATESWARA & CO. IS NOT APPLICABLE TO THE FACTS OF THIS CASE. COMING TO THE OTHER INCOME ACCORDING TO THE LEARNED COUNSEL THIS INCOM E HAS NO NEXUS WITH THE MAIN ACTIVITY OF THE ASSESSEE. THEREFORE ONCE THE PROFIT WAS ESTIMATED IN RESPECT OF CONTRACT BUSINESS ACCORDING TO THE LEARNED REPRESENTATIVE THE OTHER INCOME HAS TO BE SEPARATE LY ADDED TO THE TOTAL INCOME FOR THE PURPOSE OF COMPUTING THE TAXABLE INC OME. THEREFORE ACCORDING TO THE LEARNED REPRESENTATIVE THE ASSESS EES CONTENTION THAT THE OTHER INCOME SHALL NOT BE ADDED SEPARATELY IS NOT JUSTIFIED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD . THE FIRST ISSUE ARISE FOR CONSIDERATION IS REJECTION OF BOOKS OF ACCOUNT . ADMITTEDLY THERE WAS A SEARCH OPERATION IN THE PREMISES OF THE ASSESSEE ON 20-10-2005 TOGETHER WITH MADHUKAN GROUP OF COMPANIES. DURING T HE COURSE OF SEARCH OPERATION CERTAIN DOCUMENTS CONTAINS THE WO RKING OF THE PROFIT ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 6 FOR THE PERIOD FROM MARCH 1997 TO MARCH 2003 FROM GOVERNMENT CONTRACT WORKS AT CUTTACK WAS FOUND AND SEIZED. FRO M THE ORDER OF THE ASSESSING OFFICER IT APPEARS THAT TOTAL CONTRACT RE CEIPT WAS RS.9.95 CRORES AND THE PROFIT WORKED OUT IN THE PAPER FOUND IS RS. 2.19 CRORES. THE ASSESSEES CONTENTION IS THAT THIS PAPERS ARE UN-AU THENTICATED. THEREFORE THESE ARE ALL DOCUMENTS WHICH CANNOT BE A BASIS FOR REJECTING THE BOOKS OF ACCOUNT. HOWEVER THE ASSESSING OFFICER FOUND TH AT IN VIEW OF THE PAPER FOUND DURING THE COURSE OF SEARCH OPERATION THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE DOES NOT REFLECT THE TRU E AND CORRECT STATE OF AFFAIRS. THEREFORE THE BOOK RESULT SHOWN BY THE AS SESSEE DOES NOT REFLECT THE CORRECT PROFIT OF THE ASSESSEE. WHEN THE MATERI ALS SEIZED DURING THE COURSE OF SEARCH OPERATION DISCLOSED SOME HIGHER RA TE OF PROFIT IN OUR OPINION REJECTION OF BOOKS OF ACCOUNT IS JUSTIFIED. IN THIS CASE THE CONTENTION OF THE ASSESSEE IS THAT SITE-IN-CHARGE M IGHT HAVE PREPARED THESE PAPERS ROUGHLY AND THEREFORE IT CANNOT BE RE LIED UPON. AS RIGHTLY SUBMITTED BY THE LEARNED DR THE SITE-IN-CHARGE MIG HT HAVE FULL KNOWLEDGE OF THE ENTIRE EVENTS AND TRANSACTIONS THE REFORE WHEN THE ASSESSEE CLAIMS THAT THESE PAPERS MIGHT HAVE PREPAR ED BY SITE-IN-CHARGE IT MAY HAVE CERTAIN RELEVANCY WHILE COMPUTING THE C ORRECT PROFIT OF THE ASSESSEE. THEREFORE IN OUR OPINION THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145 OF THE I.T. ACT 1961. 9. NOW COMING TO THE INCLUSION OF RECOVERIES IN TH E GROSS RECEIPT. ACCORDING TO THE LEARNED COUNSEL THE RECOV ERIES ARE NOTHING BUT MATERIALS SUPPLIED BY THE GOVERNMENT FOR THE PURPOS E OF EXECUTING THE CONTRACT. 10. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF THIS TRIBUNAL IN A.VENKATESWARLU & CO. (SUPRA). THE COORDINATE BE NCH OF THIS TRIBUNAL DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE COST OF THE MATERIALS SUPPLIED BY THE GOVERNMENT OR NON-GOVERNM ENT FROM THE ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 7 CONTRACT RECEIPTS ON THE BASIS OF THE JUDGMENT OF T HE APEX COURT IN BRIDGE BAHUJANLAL KUMAR VS. CIT (1978) 115 ITR 524. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COU RT IN THE CASE OF BRIDGE BAHUJANLAL KUMR (SUPRA). IN THE CASE BEFORE THE APEX COURT THE ISSUE WAS WHETHER THE COST OF MATERIALS SUPPLIED BY THE GOVERNMENT FOR BEING USED IN EXECUTION OF THE WORK IS LIABLE TO BE TAKEN INTO CONSIDERATION WHILE ESTIMATING THE PROFIT OF THE CO NTRACT OR NOT ? THE APEX COURT AFTER EXAMINING THE ENTIRE CASE LAWS ON THE SUBJECT FOUND THAT THERE IS NO ELEMENT OF PROFIT INVOLVED IN THE TURNOVER REPRESENTED BY THE COST OF MATERIAL SUPPLIED BY THE GOVERNMENT TO THE ASSESSEE. THEREFORE THE PROFIT OF THE ASSESSEE FROM SUCH CON TRACT WILL HAVE TO BE DETERMINED ON THE BASIS OF THE VALUE OF THE CONTRAC T REPRESENTED BY THE CASH PAYMENT RECEIVED BY THE ASSESSEE FROM THE GOVE RNMENT DEPARTMENT . THE APEX COURT APPROVED THE JUDGMENT OF THE FULL BENCH OF THE A.P. HIGH COURT IN TRIRAMJAPUNIYA (1977) 106 ITR 597. IN VIEW OF THIS JUDGMENT OF THE APEX COURT THE COST OF MATERIALS SU PPLIED TO THE ASSESSEE BY THE GOVERNMENT OR ITS DEPARTMENT FOR TH E PURPOSE OF EXECUTION OF WORK SHALL BE EXCLUDED FROM THE TOTAL CONTRACT RECEIPT AND WHAT IS TO BE CONSIDERED IS ONLY THE CASH RECEIPT A ND NOT THE MATERIAL RECEIPT. THEREFORE WE FIND SOME JUSTIFICATION IN T HE CONTENTION OF THE ASSESSEE THAT THE RECEIVABLES VIZ. MATERIALS SUPPL IED BY THE ASSESSEE SHALL BE EXCLUDED FROM THE TOTAL CONTRACT RECEIPTS. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE COST OF MATERI ALS SUPPLIED BY THE GOVERNMENT/OTHER AGENCIES FOR THE PURPOSE OF EXECUT ING THE CONTRACT WORK. THE ASSESSING OFFICER SHALL TAKE INTO CONSIDE RATION ONLY THE CASH PAYMENT RECEIVED BY THE ASSESSEE FOR THE PURPOSE OF ESTIMATING THE PROFIT. 11. THE NEXT ISSUE ARISE FOR CONSIDERATION IS RAT E OF PROFIT. AS WE HAVE ALREADY DISCUSSED IN THE EARLIER PARAGRAPH OF THIS ORDER ONCE THE BOOKS OF ACCOUNT WAS REJECTED THE ASSESSING OFFICE R HAS LEFT WITH NO OTHER METHOD EXCEPT TO ESTIMATE THE PROFIT ON THE BASIS OF THE MATERIALS ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 8 AVAILABLE ON RECORD. NO DOUBT ESTIMATION REQUIRES LITTLE BIT OF GUESS WORK. IT DOES NOT MEAN THAT THE ASSESSING OFFICER CAN EST IMATE THE PROFIT AT WHIMS AND FANCIES. ASSESSING OFFICER HAS TO NECESSA RILY CONSIDER THE MATERIAL FACTS WHICH ARE RELEVANT FOR THE PURPOSE O F ESTIMATING THE PROFIT. RATE OF PROFIT IS NOT A CONSTANT FIGURE. IT MAY VAR Y DEPEND UPON VARIOUS FACTORS. THEREFORE NO ONE COULD EXPECT THAT THE CO NTRACTORS WOULD EARN 12.5% EVERY YEAR. IT MAY VARY DEPEND UPON THE VARIO US FACTORS LIKE AVAILABILITY OF LABOURERS SITUATION IN THE AREA WH ERE WORK WAS EXECUTED AVAILABILITY OF RAW MATERIALS NECESSITY TO COMPLET E THE PROJECT IN A FIXED TIME FRAME AVAILABILITY OF OWN FUNDS UTILIZATION O F BORROWED FUNDS RAW MATERIALS SUPPLIED BY GOVT. ETC. THESE FACTS WOUL D DEFINITELY VARY THE PROFIT RATIO. THEREFORE WHILE ESTIMATING THE PROFI T THE LOWER AUTHORITIES OUGHT TO HAVE TAKEN INTO CONSIDERATION ALL THESE FA CTORS INCLUDING THE PROFIT RATIO OF THE SIMILARLY PLACED CONTRACTOR IN THAT LOCALITY AND THE ASSESSEES OWN PROFIT FOR EARLIER YEARS. IN THE CAS E BEFORE US THE ASSESSING OFFICER HAS SIMPLY PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF K.C. REDDY ASSOCIATES AND E STIMATED THE PROFIT AT 12.5%. THE CIT (A) CONFIRMED THE PROFIT ESTIMATED B Y THE ASSESSING OFFICER WITHOUT GOING INTO ANY OF THE FACTORS STATE D ABOVE. THEREFORE THE ESTIMATION OF PROFIT AT 12.5% IS NOT JUSTIFIED. 12. AS ALREADY DISCUSSED RATE OF PROFIT CANNOT BE A CONSTANT FIGURE FOR EACH YEAR. IT WOULD VARY DEPENDING UPON THE VARIOUS FACTUAL SITUATION/FACTORS. THEREFORE IT CANNOT BE FIXED ON THE BASIS OF THE DECISION OF TRIBUNAL OR JUDGMENT OF THE HIGH COURT. IN OUR OPINION THE DECISION OF THE TRIBUNAL AND JUDGMENT OF HIGH COURT MAY BE ONE OF THE GUIDING FACTOR FOR THE PURPOSE OF FIXING THE PROFIT RATIO OF A PARTICULAR ASSESSEE IN A PARTICULAR YEAR. BUT SUCH RATE CANNOT BE A CONSTANT FIGURE FOR ALL YEARS TO COME. AS WE HAVE ALREADY OBSERVED THE PROFIT RATIO WOULD VARY DEPENDING UPON VARIOUS FACTORS FOR EACH AND EV ERY YEAR FOR EVERY CONTRACT. IN THIS CASE THE ASSESSEE EXECUTED THE C ONTRACT AT CUTTACK. THE ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 9 ENTIRE WORK WAS CARRIED ON BY THE EMPLOYEES. BY TAK ING INTO CONSIDERATION OF THE AREA LOCALITY IN WHICH THE WO RK WAS CARRIED ON AVAILABILITY OF EMPLOYEES AND OTHER FACTUAL SITUATI ON WHICH ARE RELEVANT FOR CONSIDERATION IN OUR OPINION ESTIMATION OF PR OFIT AT 12.5% IS HIGHLY EXCESSIVE. THOUGH THE ASSESSING OFFICER REFERRED TO THE SEARCH MATERIAL WHICH SHOWS PROFIT OF RS.2.19 CRORES ON THE TOTAL C ONTRACT RECEIPT RS.9.95 CRORES WHICH ALMOST WORKS OUT TO 20% OF THE TOTAL C ONTRACT RECEIPT. THE ASSESSING OFFICER ESTIMATED THE PROFIT AT 12.5%. T HIS SHOWS THAT THE ASSESSING OFFICER HAS HIS OWN DOUBT ON THE MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION. MORE OVER NO ONE COULD EXCEPT A PROFIT OF RS. 2.19 CRORES ON THE TOTAL GROSS RECEIPT OF RS.9.95 C RORES. THEREFORE THE MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATIO N MAY NOT REFLECT THE TRUE AFFAIRS OF THE ASSESSEE. THEREFORE THE SEIZED MATERIAL AS WELL AS BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE CANNOT BE A RELIABLE MATERIAL TO ASCERTAIN THE PROFIT. IT IS ALSO A FA CT THAT IDENTICAL AND SIMILAR CIRCUMSTANCES THIS TRIBUNAL ESTIMATING THE PROFITS BETWEEN 7% AND 12.5% DEPENDING UPON THE CIRCUMSTANCES OF THE C ASE IN RESPECT OF MAIN CONTRACTOR. HOWEVER IN RESPECT OF SUB CONTRA CTOR THIS TRIBUNAL IS ESTIMATING 5% TO 7% DEPENDING UPON FACTS OF THE CAS E. IN OUR OPINION IN VIEW OF THE FACTS OF THIS CASE AND THE PROFIT RA TIO ACCEPTED BY THE REVENUE FOR THE EARLIER ASSESSMENT YEARS AND THE AR EA WHERE THE CONTRACT WORK WERE EXECUTED. ESTIMATION OF PROFIT AT 10% OF THE CONTRACT RECEIPT WHERE THE ASSESSEE EXECUTED THE WORK DIRECTLY BEFOR E DEPRECIATION WOULD MEET THE ENDS OF JUSTICE. IN OTHER WORDS IN RESPE CT OF CONTRACT WORK CARRIED OUT BY THE ASSESSEE DIRECTLY THE PROFIT SH ALL BE ESTIMATED AT 10% OF THE GROSS CONTRACT RECEIPT AND THE ASSESSING OFF ICER SHALL ALSO GRANT DEPRECIATION AT THE APPLICABLE RATE IN ACCORDANCE W ITH LAW. AS FAR AS THE WORK EXECUTED ON SUB-CONTRACT BASIS AS RIGHTLY SUBM ITTED BY THE LEARNED COUNSEL THE ENTIRE AMOUNT WAS PAID TO THE SUB-CONT RACTOR ON FIXED COMMISSION BASIS THEREFORE THERE IS NO QUESTION O F ESTIMATION OF PROFIT IN THIS CASE AS FAR AS THE WORK EXECUTED ON SUB-CON TRACT BASIS. WHEN THE ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 10 ASSESSEE RECEIVED THE FIXED COMMISSION THE SAID CO MMISSION WOULD BE THE PROFIT FOR THE ASSESSEE IN RESPECT OF SUB-CONTR ACT WORKS. THEREFORE AS FAR AS THE WORK EXECUTED BY THE ASSESSEE THROUGH SU B-CONTRACTOR THE COMMISSION ACTUALLY RECEIVED/RETAINED BY THE ASSESS EE SHALL BE THE PROFIT. HENCE THE WORK EXECUTED BY THE ASSESSEE TH ROUGH SUB-CONTRACTOR SHALL NOT BE INCLUDED IN THE GROSS RECEIPT OF THE C ONTRACT WHILE ESTIMATING PROFIT AT 10% IN RESPECT OF THE WORK EXECUTED DIREC TLY. ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE MODIFIED. 13. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDE D THAT FOR THE ASSESSMENT YEARS 2000-01 TO 2004-05 REGULAR ASSESSM ENT U/S 143(3) WAS COMPLETED. 2ND PROVISO TO SEC. 153A SAYS THAT THE ASSESSMENT PENDING ON THE DATE OF SEARCH SHALL ABATE. THE ASS ESSMENT PROCEEDINGS SHALL BE PENDING WHEN THE TIME LIMIT HAS NOT EXPIRE D FOR ISSUING NOTICE U/S 143(3) OR FOR PASSING ASSESSMENT ORDER U/S 143( 3) AS THE CASE MAY BE. IN OTHER WORDS TILL THE TERMINATION OF THE ASS ESSMENT PROCEEDINGS EITHER BY AN ORDER U/S 143(3) OR BY OPERATION OF LA W ON THE EXPIRY OF TIME LIMIT FOR ISSUING NOTICE U/S 143(2) THE ASSESSMEN T PROCEEDINGS SHALL BE DEEMED TO BE PENDING. IN THIS CASE THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSMENT PROCEEDINGS WERE TERMINATED BY AN ORDER U/S 143(3). ONCE THE PROCEEDINGS ARE TERMINATED BEFOR E THE DATE OF SEARCH THE CONCLUDED ASSESSMENT CANNOT BE REOPENED OR DIST URBED. THE ASSESSING OFFICER SHALL VERIFY THIS FACTUAL ASPECT WHETHER THE ASSESSMENT PROCEEDINGS FOR ANY OF THE ASSESSMENT YEARS UNDER C ONSIDERATION HAS BEEN TERMINATED ON THE DATE OF SEARCH EITHER BY AN ORDER U/S 143(3) OR BY OPERATION OF LAW ON EXPIRY OF TIME FOR ISSUE OF NOT ICE U/S 143(2) AND IF TERMINATED THE INCOME ALREADY ASSESSED ON THE CONT RACT RECEIPT SHALL BE EXCLUDED WHILE COMPUTING THE TAXABLE INCOME IN CONS EQUENCE TO THE ORDER OF THIS TRIBUNAL. IN CASE THE ASSESSMENT PR OCEEDING IS NOT TERMINATED AND PENDING FOR ANY OF THE ASSESSMENT Y EARS UNDER CONSIDERATION THAT SHALL BE ABATED AND THE TAX ALR EADY PAID SHALL BE ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 11 GIVEN CREDIT WHILE PASSING ORDER IN CONSEQUENCE TO THIS ORDER OF THE TRIBUNAL. 14. NOW COMING TO ADDITION OF OTHER INCOME EARNED BY THE ASSESSEE WE FIND THAT THE ASSESSEE RECEIVED INTERES T ON FIXED DEPOSITS. INTEREST ON FIXED DEPOSIT HAS TO BE ASSESSED SEPARA TELY EVEN THOUGH PROFIT WAS ESTIMATED IN VIEW OF DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ALLIED CONSTRUCTION (2007) 105 ITD 1 (SB). THEREFORE WE DO NOT FIND ANY INFIRMITY WITH REGARD TO ADDITION O F INTEREST AS INCOME SEPARATELY ON THE FIXED DEPOSIT. AS FAR AS THE INTE REST ON MOBILIZATION ACCOUNT THE CLAIM OF THE ASSESSEE IS THAT THIS IS AN INTEREST ON THE ADVANCE GIVEN TO SUB-CONTRACTOR. INTEREST INCOME EA RNED BY THE ASSESSEE FROM THE ADVANCES GIVEN TO SUB-CONTRACTOR WOULD GO TO REDUCE THE COST OF CONTRACT. IN OUR OPINION THE ADVANCE MADE BY THE A SSESSEE TO SUB- CONTRACTOR WILL FACILITATE THE SUB-CONTRACTOR TO CA RRY OUT THE WORK EFFICIENTLY WITHIN THE TIME FRAMED AND HENCE IT IS A CAPITAL RECEIPT. THEREFORE THERE IS NO NEED TO MAKE ANY SEPARATE AD DITION. THIS VIEW OF OURS IS FORTIFIED BY THE JUDGEMENT OF THE APEX COUR T IN CIT VS. BOKORA STEEL LTD. (1999) 236 ITR 315. 15. THE NEXT ISSUE IS COMMISSION OF SUB-CONTRACT. AS WE HAVE ALREADY DISCUSSED AT PAGE 12 OF THIS ORDER COMMISS ION ON SUB-CONTRACT HAS TO BE ADDED AS INCOME SEPARATELY SINCE WE DIREC TED THE ASSESSING OFFICER TO EXCLUDE THE AMOUNT PAID TO SUB-CONTRACT WORK FROM THE GROSS CONTRACT RECEIPT. THEREFORE WHENEVER A WORK WAS EX ECUTED THROUGH SUB- CONTRACTOR THE ASSESSING OFFICER SHALL EXCLUDE TH E PAYMENT MADE TO THE SUB-CONTRACTOR AND WHAT IS TO BE ADDED IS ONLY THE COMMISSION ACTUALLY RECEIVED OR RETAINED BY THE ASSESSEE IN EXECUTING T HE WORK THROUGH SUB- CONTRACTOR. THEREFORE THE COMMISSION RETAINED/RECE IVED BY THE ASSESSEE HAS TO BE ADDED AS INCOME IN ADDITION TO THE PROFIT ESTIMATED AT 10% ON THE CONTRACT RECEIPT WHERE THE ASSESSEE EXECUTED TH E WORK DIRECTLY. ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 12 16. THE NEXT ADDITION IS WITH REGARD TO PROFIT ON MADHUKAN SHREERAM JOINT VENTURE. THOUGH THE ASSESSEE CLAIMS THAT THESE RECEIPTS ARE IN CONNECTION WITH THE EXECUTION OF CONTRACT N O MATERIAL IS AVAILABLE ON RECORD TO SHOW THAT THESE RECEIPTS ARE CONNECTED WITH CONTRACT WORK. MORE OVER THERE IS NO DISCUSSION IN THE ORDER OF T HE LOWER AUTHORITIES WITH REGARD TO INCOME RECEIVED FROM MADHUKAN SHREER AM JOINT VENTURE. THEREFORE IN OUR OPINION THE ASSESSING OFFICER SH ALL EXAMINE THIS ISSUE AFRESH. ACCORDINGLY THE ORDERS OF THE LOWER AUTHOR ITIES ARE SET ASIDE THE MATTER IS REMANDED TO THE FILE OF ASSESSING OFFICER . THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AND THEREAFTER DECIDE T HE SAME IN ACCORDANCE WITH THE LAW AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 17. THE NEXT ADDITION IS WITH REGARD TO INTEREST O N TDS SALES TAX REFUND MACHINERY HIRE CHARGES SEINERAGES ETC. THESE AMOUNTS ARE RECEIVED IN ADDITION TO THE CONTRACT WORK. INTEREST ON TDS SALES TAX REFUND SEINERAGES CHARGE REFUND MACHINERY HIRE CH ARGE ETC. ARE ALL INDEPENDENT FROM THE CONTRACT WORK. THE ASSESSEE W OULD HAVE EARNED THIS INCOME EVEN OTHERWISE. THEREFORE AS IN THE C ASE OF INTEREST ON FIXED DEPOSIT THESE RECEIPTS ARE ALSO TO BE SEPARATELY A DDED TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY WE CONFIRM THE ORDER S OF THE LOWER AUTHORITIES. 18. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST 2010 SD/- SD/- (AKBER BASHA) (NRS. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD DATE 27 TH AUGUST 2010 VBP/- ITA NOS.974 TO 980/HYD/2009 SREC PROJECTS (P) LTD. HYD. 13 COPY TO 1. SREC PROJECTS PVT. LTD. FLAT NO. 203 NIRGIRI A DITYA ENCLAVE AMEERPET HYDERABAD 500 038. PAN AAFLS-6187-A 2. DCIT CENTRAL CIRCLE-4 HYDERABAD. 3. CIT (A)-I HYDERABAD. 4. CIT (CENTRAL) HYDERABAD 5. DR B BENCH HYDERABAD 6. GUARD FILE