Income Tax Appellate Tribunal - Hyderabad
Shanta Sriram Constructions P.Ltd.,, ... vs Assessee on 12 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD "A" BENCH, HYDERABAD
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND
SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No.885/Hyd/2008
Assessment year 2004-05
M/s Shanta Sriram Vs The DCIT, Circle 3(1),
Constructions (P) Ltd., Hyderabad
Hyderabad
(PAN: AADCS4180M)
Appellant Respondent
ITA No.951/Hyd/2008
Assessment year 2004-05
The ACIT, Circle 3(1), Vs M/s Shanta Sriram
Hyderabad Constructions (P) Ltd.,
Hyderabad
(PAN: AADCS4180M)
Appellant Respondent
ITA No.952/Hyd/2008
Assessment year 2004-05
The ACIT, Circle 3(1), Vs M/s Shanta Sriram
Hyderabad Housing (P) Ltd.,
Hyderabad
(PAN AAECS 8036M)
Appellant Respondent
Assessee by: Shri S. Rama Rao
Revenue by: Shri T. Diwakar Prasad
Date of hearing; 03.08.2011
Date of pronouncement: 12.10.2011
ORDER
PER CHANDRA POOJARI, A.M.
The ITA No.885/H/2008 & 951/H/2008 are cross appeals directed against the order passed by the CIT(A) -IV, Hyderabad dated 14.3.2008 and pertains to the assessment 2 ITA Nos. 885, 951 & 952/H/2008 M/s. Shanta Sriram Constructions (P) Ltd.
============================== year 2004-05. The ITA No.952/H/2008 is by the Revenue is directed against the order of CIT(A) -IV Hyderabad dated 14.3.2010 for assessment year 2004-05 in respect of another assessee. Since issues involved in these appeals are common in nature, they are clubbed, heard and disposed off vide this common order for the sake of convenience.
2. The facts in both assessees' cases are similar in nature and for convenience purpose we are considering one of the assessee cases in ITA No.885/H/2008 & ITA No.951/H/2008 which is as follows:
2.1. A survey u/s 133A had been conducted at the business premises of the assessee company on 11.10.2004. Consequent to the survey, the assessee admitted Rs.50,00,000/- as additional income for the assessment year 2004-05 by filing a letter dated Nil under the signature of Shri M. Narasaiah, Managing Director. The letter has been reproduced by the Assessing Officer in his order as under:
"In the course of survey proceedings, books and records impounded by your office reflected a profit around Rs.15 lakhs on a turnover of Rs.710 lakhs provisional. The assessee company was asked to explain the reasons for low profitability and also basis for income recognition. I, MD of Shanta Sriram Constructions (P) Ltd., and Shanta Sriram Housing (P) Ltd. admit that books of accounts both the companies reflect a true statement of affairs."
2.2. Shanta Sriram Constructions P Ltd.
"With regard to income recognition on work in progress the assessee company has not adopted accounting standard 7 (accounting for Construction Contracts) which is mandatory for works contract and not for builders. To buy peace with the department I am agreeable to admit a notional income on works in progress, which works out to 3 ITA Nos. 885, 951 & 952/H/2008 M/s. Shanta Sriram Constructions (P) Ltd. ============================== Rs.32 lakhs. Similarly, some extra works (works over and above the standard specification) executed by the company contractors were not routed through the books of accounts as customer would affect the direct payment to those contractors. I would also admit an additional income of Rs.18 lakhs from these works. With the above admissions the income of M/s Shanta Sriram Constructions P Ltd., would be enhanced by Rs.50 lakhs and the same is being admitted as additional income for the assessment year 2004-05. The self assessment tax for the above additional income shall be paid on or before 31.12.2004 and file the return on or before 31.11.2004."
"During the assessment proceedings however, the Assessing Officer found that though the assessee had admitted Rs.50 lakhs as additional income for the assessment year 2004-05, Rs.32 lakhs as notional income as work in progress and Rs.18 lakhs on extra works executed by company contracts not routed through books, no such additional income over and above the regular profits of the company for the year was shown in the return. The Assessing Officer noted that as mentioned in the letter above, there was a profit of Rs.15 lakhs as per the provisional account on the date of survey. No copy of such provisional account purportedly taken on the date of survey was either available on record or could be produced by the assessee during the assessment proceedings. The Assessing Officer concluded that the assessee's contention that there was a profit of Rs.15 lakhs only on the date of survey was not correct because the assessee itself had later filed its return of income admitting a profit of Rs.68,97,984/-, on the basis of profit and loss account signed by the MD as also the statutory auditors on 31.8.2004 itself, while the survey had been conducted subsequently only on 11.10.2004. He, therefore, concluded that the assessee company had a profit of Rs.68,97,984/- even before the survey action and, therefore, the additional income of Rs.50 lakhs admitted consequent to the survey was over and above the regular profits for the year. Such additional income was not shown in the return, ad addition of this amount was made."4 ITA Nos. 885, 951 & 952/H/2008
M/s. Shanta Sriram Constructions (P) Ltd.
==============================
3. It was submitted before the CIT(A) that the assessee on the date of survey had agreed to offer the additional income of Rs.50 lakhs on the presumption that its estimated profits as per the books and records on the date of survey was only Rs.15 lakhs. The Managing Director of the company offered the said additional income considering that a profit of Rs.15 lakhs on a turn over of Rs.710 lakhs was too low, although he was not aware of the technicalities in the preparation of accounts of construction business. However, he subsequently realised that the audited books of accounts for the year reflected a profit of Rs.67.99 lakhs, which is much more than the figure estimated in the course of survey. Accordingly, the return of income was filed disclosing the same profit as it had already taken care of the additional income of Rs.50 lakhs declaring during the course of survey. It was further submitted that the additional income had been offered during the survey only on account of the fact that the Managing Director was insisted upon to explain the reasons for low profitability and to offer a higher income on a turn over of Rs.710 lakhs. It was contended that the Assessing Officer has also referred to the provisional account reflecting a profit of Rs.15 lakhs in his order and it was on the basis of this record that additional income was declared. The assessee could not be punished for not placing on record the provisional P&L account found and impounded on the date of survey. It was claimed that the Managing Director was ignorant of the fact that the audited balance sheet was already available with the auditor on the date of survey. When he later found that the profit shown in such audited accounts was Rs.53 lakhs more than the assumed profits of Rs.15 lakhs he requested the Assessing Officer to treat the additional income of Rs.50 lakhs declared during survey as part of Rs.68.97 lakhs shown in the return.
5 ITA Nos. 885, 951 & 952/H/2008M/s. Shanta Sriram Constructions (P) Ltd.
==============================
4. It was claimed that the Assessing Officer had rejected the contention of the assessee simply on the ground that there was a declaration regarding additional income. He however had ignored the provisional account showing profit of Rs.15 lakhs which formed the basis for such disclosure. The assessee averred that the Assessing Officer had not supported his theory by placing on record any incriminating material and support for the addition of Rs.50 lakhs nor had he recorded any reasons for ignoring audited books of accounts while making such ad hoc addition on the basis of estimation. It was averred that the Assessing Officer had not considered that all facts attributable for low profitability as reflected by the provisional account had already been taken care of in the audited balance sheet and that the assessee was ignorant about such audited balance sheet at the time of survey. Therefore, claimed that in the absence of any incriminating material, documents or other evidences, it was not correct to reject the income declared by the assessee and to make further addition without any basis.
5. The representative of the assessee filed a copy of the provisional P&L account for the year ended 31.3.2004 reflecting a profit of Rs.12,07,019/- before the lower authorities. It was submitted that the working in progress as per the said provisional account on the date of survey reflected an amount of Rs.4,18,56,256/- whereas the work in progress as per the audited balance sheet shows an amount of Rs.4,92,82,300/- showing an increase of Rs.74,26,044/- in the actual work in progress. The AR explained that the said increase was on account of sales return of Rs.18,32,000 and increase in other direct and indirect expenditure, including the profit margin on work in progress which is Rs.55,94,044/-. He contended that the Managing Director and the accounts staff of the company 6 ITA Nos. 885, 951 & 952/H/2008 M/s. Shanta Sriram Constructions (P) Ltd.
============================== were not fully conversant with the technicalities of preparation of balance sheet and consequently he was not aware of the fact that the closing work in progress had already taken care of the profit element of more than Rs.32 lakhs disclosed in the statement.
6. With regard to income on extra works admitted at Rs.18 lakhs it was submitted that the extra works done by the company amount to Rs.18,88,000/- and that the income on such work had also been included in the revenue under sales. He submitted that the Managing Director was not aware of the fact that such income had also been recognised in the audited financial statements and hence he offered an addition of Rs.18 lakhs towards the same. He, therefore, submitted that the entire addition of Rs.50 lakhs be deleted as the additional income offered by the Managing Director in his statement has already been considered in the regular profits shown in the return and the Assessing Officer had not placed on record any further incriminating material to support the addition.
7. On considering the above facts and circumstances of the case the CIT(A) has sustained addition of Rs.18 lakhs and deleted Rs.32 lakhs on the reason that the additional income of Rs. 32 lakhs in respect of work-in-progress was not included in the regular books of account was to be proved by the Assessing Officer and the burden is on the assessee to prove that the additional income of Rs. 18 lakhs in respect of unrecorded extra-work. Against this both are in appeal before us.
8. We have heard both the parties and perused the materials available on record. The DR relied on the following judgements:
1. Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala & Others (91 ITR 18) (SC) wherein held 7 ITA Nos. 885, 951 & 952/H/2008 M/s. Shanta Sriram Constructions (P) Ltd.
============================== that:
"Entries made by the assessee in the account books treating a portion of the general expenditure as expenses towards immature plants and capitalising such portion amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year for the purpose of explanation (2) to section 5 of the Kerala Agricultural Income Tax Act, 1950. Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of accounts do not disclose the correct state of facts."
2. Dr. S.C.Gupta Vs. CIT (248 ITR 782) (All.) wherein it was held that:
"a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish the admission made in the statement at the time of survey was wrong and the fact there was no additional income. The burden was not even attempted to the discharged. The order of the Tribunal was based on facts and no question of law arose from it."
9. On the other hand the AR relied on the following judgements:
1. Income tax Officer Vs. Vijayakumar 327 ITR 497 wherein it was held that the confession made by the assessee during the survey proceedings is not conclusive and it is open to the assessee to establish by filing cogent evidence that the same was not true and correct.
2. Satish Builders vs. ACIT (23 DTR 170 (Del.) wherein it was held that addition on the basis of admission simplicitor made during the survey without any supporting material, which surrender was successfully retracted by the assessee by annexing foot notes to the return is not sustainable.8 ITA Nos. 885, 951 & 952/H/2008
M/s. Shanta Sriram Constructions (P) Ltd.
==============================
3. M. Mahendra vs. ACIT (133 TTJ 98) wherein it was held that addition made by the Assessing Officer toward unaccounted transactions simply on the basis of statement made by the assessee during the survey cannot be sustained.
10. Admittedly, in these cases, a survey took place on 11.10.2004. At the time of survey the Managing Director of the company was of the opinion that estimated the profit of the company for the assessment year was at Rs.15 lakhs. Actually the provisional balance sheet filed before the CIT(A) reflects the profit of Rs.12,07,019/-. The audited balance sheet dated 31.8.2004 which was available at the time of survey on 11.10.2004 reflected the profit of Rs.68,97,984/-. The return of income was filed admitting a profit of Rs.68,97,984/- on 30.11.2004 which is on the basis of audited balance sheet. At the time of survey, the Managing Director is not aware of the true profit declared by the assessee in the audited balance sheet. He has not gone through the audited balance sheet instead of this he has based his opinion on the basis of provisional balance sheet. The department also not gone through the audited balance sheet at the time of survey though it was available at the time of survey. The managing director of the company offered an additional income at Rs. 50 lakhs for the assessment year under consideration on the pretext that the income for the assessment year is at Rs. 15 lakhs on turnover of Rs. 710 lakhs. However, the income of the assessee as per audited balance sheet is at Rs. 68,97,984 and this fact was not recollected by the managing director at the time of survey. The assessee has explained the reasons for discrepancies and reconciled the same as there was substantial difference in the work-in-progress reflected in the provisional balance sheet and audited balance sheet. As per the provisional balance sheet this figure was Rs. 4,18,56,256 as against the correct figure in 9 ITA Nos. 885, 951 & 952/H/2008 M/s. Shanta Sriram Constructions (P) Ltd.
============================== audited balance sheet is at Rs. 4,92,82,300 which shows an increase of Rs. 74,26,044. This was due to increase on account of sales return of Rs. 18,32,000 and increase in other expenditure at Rs. 55,94,044. There was admission of extra work at Rs. 18 lakhs by the Managing Director at the time of survey. However, the audited balance sheet shows an additional work of Rs. 18.88 lakhs. Since the Managing Director of the company and the staff who were at the time of survey were not conversant of the correct position of the assessee on the date of survey relating to the assessment year under consideration who relied on the provisional balance sheet. Had they have full knowledge about the audited accounts, they would not have given incorrect figure. Though the lower authorities agreed with the explanation given by the assessee regarding discrepancies between the statement given at the timer of survey and audited balance sheet which was rejected by them on the reason that no details regarding such discrepancies filed by the assessee either before the Assessing Officer or before the first appellate authority. But in our opinion, the discrepancies explained by the assessee is bona- fide more so, when the audited balance sheet shows income at Rs. 68,97,984 as against Rs. 15 lakhs reflected in the books of account impounded by survey team on 11.10.2004, it is natural to accept the audited balance sheet. After considering the income reflected in the audited balance sheet, making once again addition as stated by the managing director at the time of survey would amount to double addition. If the assessing authority wants to make addition, he should consider only profit declared in the impounded book of account at the time of survey. The Assessing Officer cannot blow hot and cold at a time. Hence in our opinion, the assessee filed the return of income as per audited balance sheet and it is not rejected by the 10 ITA Nos. 885, 951 & 952/H/2008 M/s. Shanta Sriram Constructions (P) Ltd.
============================== assessing authority, thereafter it is not possible to make any ad- hoc addition on the basis of statement made during the course of survey without any corroborative material. In view of this, we inclined to allow the appeal of the assessee and as such the Revenue appeal will become infructuous.
11. Regarding ITA No.952/H/2008, the issues herein are similar to the issues in ITA No. 885/Hyd/08 and 951/Hyd/08. Only the changes are in the amount. In view of the discussion in earlier appeals in ITA No.885 & 951/H/2008, applying the same ratio, we dismiss the revenue appeal on this issue.
12. In the result, the assessee's appeal in ITA No.885/H/2008 is allowed and that of the Revenue appeals in ITA Nos.951 & 952/H/2008 are dismissed.
Order pronounced in the open Court on 12th October, 2011.
Sd/- Sd/-
(G.C. GUPTA) (CHANDRA POOJARI)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, dated the 12th October, 2011
Copy forwarded to:
1. M/s Shanta Sriram Constructions (P) Ltd., # 501, Amoghplaza, Besides Grand Kakatiya, Begumpet, Hyderabad-16.
2. M/s Shanta Sriram Housing (P) Ltd., 8-2-503, Besides Iranian Consulate, Road No.7, Banjara Hills, Hyderabad.
3. The DCIT, Circle 3(1), Hyderabad
4. The ACIT, Circle 3(1), 7th Floor, B-Block, I.T. Towers, Hyderabad.
5. The CIT(A)-IV, Hyderabad.
6. The CIT-III, Hyderabad
7. The DR, ITAT, Hyderabad TPRao