Income Tax Appellate Tribunal - Hyderabad
Sri D.V.Nara Simha Reddy,, Kadapa vs Department Of Income Tax on 9 October, 2015
ITA No.1722 of 2013 D V Narasimha Reddy Kadapa
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No.1722/Hyd/2013
(Assessment year: 2010-11)
Income Tax Officer, Vs. Sri D.V. Nara Simha Reddy
Ward-2 Kadapa 2-559 Nagarajpet, Kadapa
PAN: AETPD 0351 G
(Appellant) (Respondent)
For Revenue : Shri Ramakrishna Bandi, DR
For Assessee: Shri M. Chandramouleswara Rao
Date of Hearing : 24.09.2015
Date of Pronouncement : 09.10.2015
ORDER
Per Smt.P. Madhavi Devi, J.M.
This is Revenue's appeal for the A.Y 2010-11. In this appeal, the Revenue is aggrieved by the relief allowed by the CIT (A) to the assessee by determining the net income of the assessee at 7% of the net contract receipts as against the estimation of net profit by the AO at 12.5% of the gross receipts.
2. Brief facts of the case are that the assessee, an individual, filed his return of income for A.Y 2010-11 on 14.10.2010 declaring income of Rs.9,15,450 and the same was processed u/s 143(1) on 2.2.2012. Thereafter, the case was selected for scrutiny and a notice u/s 143(2) along with a questionnaire was issued and served on the assessee on 12.09.2011. In response to the said notice, assessee appeared, but sought adjournments from time to time for submission of books of accounts and other Page 1 of 6 ITA No.1722 of 2013 D V Narasimha Reddy Kadapa relevant information called for by the AO. Ultimately, the assessee filed only the bank account statement. Vide letter dated 16.10.2013, the AO proposed adoption of net income @ 12.5% of the gross receipts. The case was finally discussed on 14.11.2012 with the assessee and the assessee did not object to the proposal of the AO and the AO therefore, holding that the books of accounts/bills & vouchers for expenditure claimed are not filed, he rejected the assessee's books. Further also in view of the fact that assessee did not raise any objection to the AO's proposal, the AO decided to adopt 12.5% of gross contract receipts as assessee's net income. Thus, assessment was completed u/s 143(3) on 20.11.2012 determining the income at Rs.59,31,760 being 12.5% of gross contract receipts of Rs.4,74,54,102, which led to an addition of Rs.50,16,310 to the income returned by the assessee.
3. Aggrieved, assessee preferred an appeal before the CIT (A) against the rejection of books of accounts by the AO and against the estimation of income at an exorbitant rate at 12.5% of gross contract receipts. Assessee submitted that he is carrying on the business as a civil contractor for the last many years and is primarily engaged in executing contracts for State Govt./Departments and that there has been no change in the nature of his business over the years and that due to competitive bidding and negotiations before award of contracts, the margin of profit in this line is very low. It was further submitted that the books of accounts maintained by him are true and fair and reflect the correct position of profit from business. It was further submitted that though the assessee has submitted books of accounts, bills and vouchers in support of his claim for Page 2 of 6 ITA No.1722 of 2013 D V Narasimha Reddy Kadapa expenditure before the AO, AO has not pointed out any defects but has rejected the books without any basis and therefore, rejection of books of accounts by the AO is unjustified. Assessee further submitted before the CIT (A) that in each of the earlier years, even after disallowances, the assessed income determined by the AO was in the range of 1.63% to 5.82%
4. In support of his contentions, the assessee also relied upon the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Giridharilal (2002) 258 ITR 331 (Guj.), wherein it has been held that "every assessee need not necessarily get same rate of profit and the profits will differ from assessee to assessee". Thus the assessee submitted that the AO's reliance on ITAT decision in the cases of M/s KNR Constructions Ltd., to estimate the profit @ 12.5% of gross receipts is not sustainable. On consideration of assessee's contentions, the learned CIT (A) observed that assessee's case was subjected to scrutiny for earlier four consecutive years and that in none of the years, it has been suggested that the assessee is not maintaining the books of accounts, nor any penalty has been levied for non audit of books and further that the AO has not pointed out any specific errors in the books. He, thereafter considering the assessee's contentions determined the net income at 7% amounting to Rs.4,34,70,891 of net contract receipts (gross contract receipts reduced by Sales Tax, Seignorage Charges and Cess) and the net income was worked out to be at Rs.30,42,962.
5. Aggrieved by the above relief granted by the CIT (A), Revenue is in appeal before us.
Page 3 of 6ITA No.1722 of 2013 D V Narasimha Reddy Kadapa
6. The undisputed facts are that the assessee is a Civil Contractor carrying on Govt. Contracts. It is also not in dispute that the assessee is being assessed u/s 143(3) for the earlier A.Ys. During the course of the assessment proceedings, the assessee has filed the bank account statements, but did not file the books of accounts or bills/vouchers for the expenditure claimed. The gross turnover of the assessee of Rs.4,75,54,102 is also not in dispute. The only dispute is the estimation of the net profit of the assessee from carrying on of the work of the contracts. While the assessee has admitted a net profit of 2% of the gross receipts, the AO has estimated it at 12.5% of the gross receipts on the basis of the decision of this Tribunal in the case of KNR Constructions Ltd. The CIT (A), however, restricted it to 7% of the net contract receipts (i.e after reducing the gross receipts by deductions amounting to Rs.39.83 lakhs made by the government towards Sales Tax, Seignorage Charges and Cess). In the above case, the AO as well as the CIT (A) have estimated the net income. While the AO has estimated it at 12.5% of the gross receipts, the CIT (A) has restricted it to 7% to the net contract receipts. While the AO has relied upon the decision of the Tribunal, the CIT (A) has considered the net income offered by the assessee in assessee's own case for the earlier A.Ys for restricting it to 7%. As held by the Hon'ble Gujarat High Court in the case of CIT vs. Giridharilal (2002) 258 ITR 331 (Guj), every assessee need not necessarily get same rate of profit and the profits will differ from assessee to assessee. We find that the CIT (A) has rightly followed the above decision in holding that the estimated net income at 12.5% of the gross contract receipts cannot be accepted. As rightly observed by the CIT (A), the profit margin of a contractor will definitely depend upon the rate at Page 4 of 6 ITA No.1722 of 2013 D V Narasimha Reddy Kadapa which the contract has been allotted, quantum of material being used, labour charges, period of contract, etc. Therefore, the estimation of income by ITAT in the cazse of a civil contractor may not be exactly applicable to the assessee herein. As observed by the CIT (A) in the assessee's case, the net profit that is reflected is 1.93% of the gross contract receipts, whereas the deductions made towards Sales Tax, Seignorage Charges and Cess itself works out to 8.39% of the gross contract receipts. Further as seen from the records, in the assessee's own case, the income assessed for the A.Y 2009-10 was itself 5.82% of the gross contract receipts. It was in these circumstances that the CIT (A) has estimated the net income at 7% of the net contract receipts i.e. gross receipts reduced by deductions made by the Govt. towards Sales Tax, Seignorage Charges and Cess. As the decision of the CIT (A) is on the basis of the assessments completed in A.Y 2009-10 in the assessee's own case as against the estimation of income by the AO on the basis of a decision of ITAT in another case, we do not find any reason to interfere with the order of the CIT (A). Revenue's appeal is accordingly dismissed.
7. In the result, Revenue's appeal is dismissed.
Order pronounced in the Open Court on 9th October, 2015.
Sd/- Sd/-
(B. Ramakotaiah) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 9th October, 2015.
Page 5 of 6
ITA No.1722 of 2013 D V Narasimha Reddy Kadapa Vnodan/sps Copy to:
1. Income Tax Officer Ward 2 Simhapuri Colony, Kadapa
2. Sr. D.V. Nara Simha Reddy, 2-559 Nagarajpet, Kadapa
3. CIT (A), Guntur
4. CIT, Tirupati
5. The DR, ITAT, Hyderabad
6. Guard File By Order Page 6 of 6