Income Tax Appellate Tribunal - Hyderabad
Iwm Constructions Pvt.Ltd., Hyd, ... vs Dcit, Circle-2(1), Hyderabad, ... on 28 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 72/HYD/2016
Assessment Year: 2004-05
M/s. IWM Constructions The Deputy Commissioner
Private Limited, Vs of Income Tax,
SECUNDERABAD Circle-2(1),
[PAN: AAACI8728C] HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri M.P. Lohia,
Shri Sapan Choksi, AR
For Revenue : Shri A. Sitarama Rao, DR
Date of Hearing : 10-01-2017
Date of Pronouncement : 28-02-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the consequential order passed by the Assessing Officer (AO) determining the income consequent to the directions of the ITAT.
2. Briefly stated facts are that assessee filed its return of income declaring loss at Rs. 4,19,37,115/-. In the scrutiny assessment completed vide order dt. 27-12-2006, the total income was I.T.A. No. 72/Hyd/2016 :- 2 -: M/s. IWM Constructions Private Limited assessed at Rs. 5,80,91,575/-. The AO on noticing that assessee has not maintained vouchers for certain expenditure and after recording statements from the Accounts Manager, rejected the books of account and estimated the income at 12.5% of the gross receipts declared by assessee at Rs. 46,47,32,596/-. On appeal, Ld.CIT(A) while upholding the rejection of books of account however, following the Special Bench decision of ITAT restricted the estimation of net profit to a rate of 8% (clear of all expenses and depreciation) on the contract receipts. Assessee however, preferred further appeal and ITAT vide its order in ITA No. 86/Hyd/2008, dt. 28-06-2013, directed the AO to estimate the profit on receipts from works contact in the following manner:
i. Works executed as a main contractor 9%
ii. Works executed as a sub-contractor 8%
iii. Works executed by employing sub-contractors 5%
3. Consequent to that, the AO asked assessee to furnish necessary details so as to determine the income. Assessee furnished the year-wise contract receipts from AY. 2002-03 to 2006-07 (on the entire contract) executed by assessee to an extent of Rs. 215.31 Crores. The bifurcation for the impugned assessment year is that total contract receipts received were Rs. 46,47,32,596/-. The cost of contract implemented during the year was to the tune of Rs. 51,84,61,092/- (thereby incurring loss). However, out of the cost of contract, sub-contracts amounted to Rs. 49,36,09,364/- which was about 95.21%. While furnishing details, assessee made new submissions that the total contract was spread over a period of five years and assessee's over all I.T.A. No. 72/Hyd/2016 :- 3 -: M/s. IWM Constructions Private Limited declaration of profits in all the impugned years would come to 5.35%. Further, it was submitted that assessee has paid more taxes than was required for estimation of income during the year, therefore, it was submitted that no addition should be made in the impugned year. AO, however, proposed that during the entire period of contract, the sub-contracts amounted to 88.27%, i.e., for the entire period of five years and accordingly for the impugned year, he has adopted 88.27% of the gross receipts pertaining to sub-contract and balance 11.73% pertaining as works executed on its own. Accordingly, AO determined the taxable income as under:
(in Rs) Gross Receipts 46,47,32,596
1. Works Executed as Main Contractor NIL
2. Works Executed on its own
- 11.73% of the Gross 5,45,13,134 8% 43,61,050 Receipts on which Income @8%
3. Works Executed through subcontractors--88.27% of 41,02,19,462 5% 2,32,36,629 the Gross receipts on which Income @5% Net Taxable Income 2,75,97,679
4. Aggrieved on the above, assessee reiterated the objections stating that ITAT's direction of estimating contracts has to be construed for the whole contract and not for the contract during the year and the ratio adopted by the AO is not correct. Further, assessee also pointed out that 5% on works executed to sub-
contractors was wrongly calculated at Rs. 2,32,36,629 whereas the correct amount works out to Rs. 2,05,10,973/- which should have been adopted. While accepting the arithmetical mistake committed by the AO, Ld.CIT(A) however, rejected assessee's I.T.A. No. 72/Hyd/2016 :- 4 -: M/s. IWM Constructions Private Limited contentions and approved action of the AO in giving effect to the order of ITAT. Aggrieved on the said order, assessee is in appeal before us.
5. Assessee has raised mainly two issues i.e., incorrect estimation of profit covered by Ground Nos. 2 to 5 and non- granting of credit of taxes paid in Ground No.6. Interest levied u/s. 234D in Ground No.7 is consequential in nature, hence the same is not adjudicated separately.
Incorrect estimation of profit:
6. On this issue, it was the submission that AO erred in applying the direction of ITAT in isolation for the year under appeal without appreciating that income from the impugned contract is spread from AYs. 2002-03 to 2006-07. It was the contention that AO should have examined the deemed profit rates of 5% on sub- contracts and 8% on sub-contract works to the whole of the contract and not for the part of the contract for the impugned assessment year. Without prejudice to above contentions, it was submitted that AO erred in computing the percentage of work sub- contracted by ratio of receipt from the entire contract i.e., 88.27% of total receipts, as against the percentage of work sub-contracted for AY. 2004-05 on standalone basis (being 95.21% of the total receipts) for applying rate of 5%.
7. Ld.DR, however, relied on the orders of the AO and CIT(A).
I.T.A. No. 72/Hyd/2016 :- 5 -: M/s. IWM Constructions Private Limited
8. We have considered the rival contention and perused the record and the order of ITAT. Assessee's contention that the estimation should be based on the total contract spread over five years is not valid, as the books of account were rejected only in the impugned assessment year and the entire appellate proceedings before the CIT(A) and the ITAT pertain only to the receipts during the year. The contention raised during the consequential order proceedings i.e. for the whole contract, is an after thought and not based on the facts. In fact, the ITAT in para 3 has recorded the facts including the fact of non-maintenance of vouchers and in para 4, extracted the observations of the CIT(A), wherein also the rejection of books of account and estimation of income is only pertaining to the contract receipts of the year. The findings given by the ITAT in para 9 also pertains to the contract receipts for the year. Therefore, the contention that, it should be considered for the whole of the contract spread over five years cannot be accepted. In fact, no such argument was taken before the CIT(A) or before the ITAT in the original proceedings. Therefore, assessee cannot take a new plea in the consequential proceedings. ITAT also cannot give any direction for the years which are not pending before it for adjudication. In view of this, the argument that these estimated profits should be considered for the whole of the contract cannot be accepted and accordingly, the order of the AO and CIT(A) on this issue are approved.
9. The alternate plea taken in Ground No. 5 is with reference to computing the percentage of work sub-contracted by assessee has some rationale. During the year, on standalone basis, the sub- contract works of assessee out of the total cost of contract comes to I.T.A. No. 72/Hyd/2016 :- 6 -: M/s. IWM Constructions Private Limited 95.21%. There is no dispute on that, as AO also accepts that statement working out the ratios. However, what AO has done is taking the total sub-contract works over a period of five year contract which comes to Rs. 88.27%. Since the estimation is only pertaining to the year under consideration, the AO should have determined the sub-contract receipts pertaining to this year only on standalone basis, instead of the whole contract period. As assessee's contention of estimating the profits for the whole contract and adjusting the profits declared in other years is not accepted in Ground No.2 to 4, the contention that the sub-contract percentage should be worked out on standalone basis on the receipts of this year alone has to be accepted. Therefore, modifying the order of AO, the profit should be estimated on receipts during the year- at 95.21% of the receipts at 5% being sub-contracted work and balance at 8% being contract work on own basis. The ground is allowed and AO is directed to modify the order. Accordingly, in the result, Ground Nos. 2, 3 & 4 are rejected and Ground No. 5 is allowed.
Non-granting of credit of taxes paid:
10. It was the contention that AO has erred in not granting the credit of taxes of Rs. 21,30,490/- being refund granted to assessee in AY. 2005-06, which has been adjusted against the tax demand of AY. 2004-05. This contention requires examination by the AO of the record for AY. 2004-05 and 2005-06. In case, such refund was already granted to assessee and adjusted to the demand in this year, necessary credit should be given. AO is directed to examine the record and do accordingly after giving due opportunity to I.T.A. No. 72/Hyd/2016 :- 7 -: M/s. IWM Constructions Private Limited assessee. Ground No. 6 is considered allowed for statistical purposes.
11. In the result, appeal of assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 28th February, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER ' Hyderabad, Dated 28th February, 2017 TNMM Copy to :
1. M/s. IWM Constructions Private Limited, C/o. Chakradhar & Nandan, Chartered Accountants, 201, Srinath Residential Complex, S.D. Road, Secunderabad.
2. The Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad.
3. CIT (Appeals)-2, Hyderabad.
4. The Pr.CIT-2, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.