Itta/40/2020 Of The Principal Commissioner Of Income Tax-7 v. Mech Engineers And Electors Private Ltd

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD WEDNESDAY, THE TWENTY FOURTH DAY OF FEBRUARYTWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE M,S.RAMACHANDRA RAOANDTHE HONOURABLE SRI JUSTICE T.VINOD KUMAR tNcoME TAX TRIBUNAL APPEAL NOS:40 AND 41 OF 2020 |TTA NO.40 0F 2020 lncome Tax Tribunal Appeal under Section 260-4 of the lncome Tax Act, ['1961,]against the order dated 5-9-2019 in ITA No.1886l1ydl2018 on the file of lncome TaxAppellate Tribunal, Hyderabad Bench-A Hyderabad, for the Assessment Year 2013-2014 preferred against the order dated 6-8-2018 in Appeal No.10043/2017-18 on thefile of the Commissioner of lncome Tax (Appeals-12), Hyderabad, preferred against theorder dated 26-4-2017 in PAN No.AAECM4494 M on the file of the DeputyCommissioner of lncome Tax, Central Circle No.2(1), Hyderabad. Between: The Principal Commissioner of lncome Tax-7, AC Guards, Hyderabad ...APPELLANT AND Mech Engineers and Electors Private Ltd, # 15-19, Suguna Residency, High SchoolRoad New Paloncha, Khammam District, PAN-AAECIM4494|V ...RESPONDENT For the Appellant : SRI K.RAJI REDDY, Advocate For the Respondent : trTA NO.41 0F 2020: lncome Tax Tribunal Appeal under Section 260-4 of the lncome [Tax ][Act, ][1961 ][,]against the order dated 51912019 in ITA No.2151 [lF'ydl2Ol9 on ][the file ][of ][lncome ][Tax]Appellate Tribunal, Hyderabad Bench-A, Hyderabad, [for the ][Assessment ][Year ][2013-]2014 [preferred ]against the order dated [61812018 ][in ][Appeal ][No.10043/201 ][7-1 ][8 on the file]of the Commissioner of lncome Tax [(Appeals-12), Hyderabad, preferred against ][the]order dated 26-4-2017 in PAN No, AAECI\,44494 [lt4 ]on [the ][file ][of ][the ][Deputy]Commissioner of lncome Tax, Central Circle-2 [(1) ][Hyderabad,] Between: The Principal Commissioner of lncome Tax-7, AC Guards, [Hyderabad] .,.APPELLANT AND lt4echEngineers and Electors Private Ltd, # 15-19, Suguna [Residency, ][High School]RoadNewPaloncha,KhammamDistrict.PAN-AAECIV4494M ...RES'ONDENT For the Appellant : SRI K.RAJI REDDY, Advocate For the Respondent : The Court delivered the following: COIVIVON JUDGIVENT IIONOI RABI,E SRI .IUS-tICE NI.S. R,\}I \('IIA]\DIIA Ii.AO ,\\ I) IIONOUItAIILE Slil JtrSl'tCl,l 1'. \'.lNOl) KU\'tARIncome-l'ar Tribunal ,\ppcal Nos..l0 and Jl ol'2020Income-l'ar Tribunal ,\ppcal Nos..l0 and Jl ol'2020 COMMON JUDGMENT:(Per Sri Jrrstice M S.Ramocltandra llao) These two Appeals arise between the same parties in relation toAssessment Years 2013-14 and so they are being disposed of by thisCommon Judgment. 2. These Appeals are filed under Section 260-4 of the Income TaxAct, l96l by the Revenue assailing Order dt.05.09.20 19 passed inl.T.A.No. 1886 / IIYD / 2018 and Order dt.05.09.2019 passedlllLT.A.No.2l 5l / HYD / 201 8. 3. The respondent-Assessee rvas en-uagecl in the business of erectionof Boilers and Turbines in Power Plants. Coal Feeding andTransportation and O & M olPower Plants. 4, The respondent-Assessee flled its original return of Income on18.09.2013 declaring a totai income of Rs.4,01,01,350/-. 5. There was a Search and Seizure operation under Section 132 ofthe Act in the case of the respondent-Assessee on 14.12.2015 whereincertain discrepancies were noticed in the Labour charges as recorded inthe Profit and Loss Account, as compared to the Proflt and Loss takenfrom the Books of Accounts taken in Tallv Poc'kage. 6, The respondent-Assessee debited expenditure to the tune ofRs.13,17,47,585/- r.vhereas the Tally Package disclosed actual labourcharges incurred to the tune of Rs.7.32,22 ,2841- and salaries ofRs.60.80,5 l2l-, totaling to I(s.7,93,03,7961. The difference isRs.5,24,42,789r- 7. The Assessing Ol'llcer treated the same as undisclosed income olthe Assessee and adcled this arnount to the disclosed incorne holding thatthere was inflation of labour charges and suppression of profits andcomputed the tax payable. 8, Thereafter, the respondent-Assessee preferred an Appeal beforethe Commissioner of Income Tax (Appeals). 6, The respondent-Assessee debited expenditure to the tune ofRs.13,17,47,585/- r.vhereas the Tally Package disclosed actual labourcharges incurred to the tune of Rs.7.32,22 ,2841- and salaries ofRs.60.80,5 l2l-, totaling to I(s.7,93,03,7961. The difference isRs.5,24,42,789r- 7. The Assessing Ol'llcer treated the same as undisclosed income olthe Assessee and adcled this arnount to the disclosed incorne holding thatthere was inflation of labour charges and suppression of profits andcomputed the tax payable. 8, Thereafter, the respondent-Assessee preferred an Appeal beforethe Commissioner of Income Tax (Appeals). 9. Initially, by order dt.06.08.2018, the Commissioner of IncomeTax (Appeals), granted parrial relief to assessee by holding that theentire amount cannot bc brought to tax. and it is only the incoure [portion]of the labour charges which is to be brought to tax. He further observedthat the Net Profit ol-tered by the AssesseeIS 9.28%. and so heaccordingly applied the same i.e 9% to the additional income admittedduring the course of search and brought it to tax. 10. Aggrieved by the confirmation of part of the addition, [the]respondent-Assessee filed I.T.A.No. 1886 / HYD I [2018 before ][the]Income Tax Appellate Tribunal, Hyderabad [Bench, at Hyderabad; ][and]against the relief [given ]by the Commissioner [of ][Income ][Tax ][(Appeals),]the Revenue filed I.T.A.No.2151 [2018.] ll. By Common Order dt.05.09.2019 passcd, the l-ribunal allowedthe Appeal filed by the Assessee and the Appeal filed by the [Revenue]was dismissed. 12. The Tribunal held that thoueh there is a dit'lerence between theLedger extract in the Books of Accounts and the Tally Packagemaintained in the Computer amounting to Rs.5,24,43,'7891- in the labourcharges, the Executive Director of the respondent-Assessee in hisstatement under Section 132(4) of the Act admitted such undisclosedincome, but the entire poftion cannot be treated as Assessee's income.The Tribunal further held that the Conrmissioner ol Income ['lax](Appeals) had recorded that Net Proflt o1'the Asse ssee is to be estimatedirt 9(Xr ol rrain contract rvorks and a1 [(r9{r ]on sub-contract rvorks: andrvhen finally he disposecl of the Appeal, the Cornnrissioner of IncomeTax (Appeals) directed the Assessing Otlicer to adopt 9% of the totaltumover which was arrived at before the search. The l-ribunal held thatthe Commissioner of Income Tax (Appeals) had not taken intoconsideration the fact that the Assessee is both the main contractor aswell as sub-contractor and so it deemed it fit and proper to modify thedirections of the Commissioner of Income Tax [(Appeals) ]to theAssessing Officer directing him to re-compute the Net Proflt at 9% olthe turnover on the main contract ancl 6'lo ol the tr.rrnover on account ofsub-contracts. 13. Challenging the same, the present Appeals are llled. 14, Sri K. Raji Reddy, learned Senior Standing Counsel, appearing forRevenue, contended that when such huge discrepancy was noticed in thelabour charges as recorded in the Profit and Loss Account and lhe profitand Loss taken from the Books of Accounts maintained in the TallvPackage, and the Executive Director ol the Assessee has admitted in thestaternent given under Scction 132(4), thc lncome Tax Appellate'fribunal ought to havc dismissed the Appeal filed by the Assessee, andallorved thc Appeal trlcd by the Revenue. Hc drew the attentior.r ol'tl.risCourt to thc answer given by the Executive Director to Question No.39which is as under : "Q,39 : Do you wa,rt to say anytlting ? Ans. Considering lhe omissions and discrepancies noticed in our company'sbooks of accounts and evidences gathered, we are admitting Rs.15.00 croresas undisclosed income over and above our regular income already accounted.for. [The bifurcation ][of ][the ][above ][undisclosed income ][of ][Rs.l5 ][crores]assessment year wise is as under : 15. But the answer given by the Executive Director to Question No.35put to him under Section I 32(,1) of thc Act is also relevant and we quotethe same as under' : "Q,39 : Do you wa,rt to say anytlting ? Ans. Considering lhe omissions and discrepancies noticed in our company'sbooks of accounts and evidences gathered, we are admitting Rs.15.00 croresas undisclosed income over and above our regular income already accounted.for. [The bifurcation ][of ][the ][above ][undisclosed income ][of ][Rs.l5 ][crores]assessment year wise is as under : 15. But the answer given by the Executive Director to Question No.35put to him under Section I 32(,1) of thc Act is also relevant and we quotethe same as under' : "Q.35 : I ant [sl:rottittg.vou ][tlte Annexu'e ][/ ][Mech ][/ ][l3 ][in ][which ][pagc ][76]shott,s the labour charges booked to the oitet o.f |Ls.7,32,23,284/- andsalaries is Rs.60,80,512/- but in the same FY 2012-13, the saLaries [and]wages are booked to the extent of Rs.13,17,47,585/- as per copy of P &L account filed along with return of income, vide page 8j of [the ][same]annexure. Please explain the difference ? Ans: Readily I am not in a position b explain the above cliscrepancy. Imay be alloi)ed time for 2 days to reconcile and ftu'nish my explanation.If I fail to furnish any explanation with satisfactory evidence within hryodays, the sdme may be considered as unaccounted income in the handsof the company for the Asst. Year 20I3-14. ["(emphasis ]supplied) 16. Therefore, when answering tr: Question No.35, the ExecutiveDirector stated that readily he was not in a position to explain thediscrepancy and il he is allowed two days' time he rvould furnish hisexplanation, it appears that this answer to Question No.35 was ignoredand the answer given by him to Question No.39 put to him shortlythereafier was relied upon 17. Be that as it may, the Corrniissioner ot'lnconte ['lax ](Appeals) hadaccepted that there is a differerrce in Labour charges of Rs.5,24,43,7891and had not allowed the same to escape assessment. While theAssessing Officer had brought the entire amount to tax, theCommissioner of Income Tax (Appeals) had held that the entire amountcannot be brought to tax and it is only the income portion of the Labourcharges which is to be brought to tax and he then levied 9% to theadditional income admitted and brought it to tax. The Tribunal modifiedit as 9% of the tumover on the main contracts and 60.,(, on the tumover onaccount of sub-contract works. 18. We are of the view that the above lincling ol-the Tribunal is basedon the linding recorded by the Commissioner o1'Income Tax (Appeals)himsell that the Net Protlt of the assessee is to be cstimated ar 9%o onmain contract works and 60lo on sub-contract works To 19. The Tribunal specifically observed that the Commissioner ofIncome Tax (Appeals) could not have adopted 9Yo net proht on thisentire amount and he ignored the fact that the appellant was alsoworking both as a main contractor and a sub-contractor. 20. Therefore, the finding of the Tribunal appears to be in consonancewith the findings o1'the Cornn'rissioner of Income Tax [(Appeals), ]and [it]did not conrrnit auy enor in directing the Assessing [Otficer ][to ][re-]colnpute the Net Proflt at [c)70 ]of thc [tut'nover ][on the lnain ][contracts alld]at 6% of thc turnover on thc sub-ct'rntl'act [works. ][These ][ale ][finding ][of]facts and no substantial [questioll ]of [larv ][arises ][for ][consideration ][in]Appeal under Section 260-4 oltlie [Incotne ][Tax ][Act, ][1961.] 21. We therelore trnd no n'relit in [thc ][Appeals ][and ][they]areaccordingly dismissed. [No ][order ][as ][to ][costs] 22. As a sequel, miscellaneous [petitions pending ][if ][any ][in ][these]Appeals. shall stand closed. Sd/-B.S.CHIRANJEEVIJOINT REGISTRAR,/..^Llt [5]SECTION ,TRUE COPY' 1. The The lncome [Tax Appellate ][Tribunal' ][Hyderabad ][Bench ][-A' ][Hyderabad'] 1. The The lncome lncome Tax [(Apbeals-12)' Hvderabad']2. i|i; i;;i.i.n"ibi 3. The Deputy [Comrniss'oni''"i ri'1"'Ji';'-Ceniral'Circle-2(1)-Hyderabad]a or" C"it,j'sii-x [Rr1i ][neo-Jy. ][Senior ] [for lncome Tax ][(oPUC)]5. Two CD [CoPies] Kj COMMON JUDGMENTITTA.Nos.40 and 41 ot 2020 21. We therelore trnd no n'relit in [thc ][Appeals ][and ][they]areaccordingly dismissed. [No ][order ][as ][to ][costs] 22. As a sequel, miscellaneous [petitions pending ][if ][any ][in ][these]Appeals. shall stand closed. Sd/-B.S.CHIRANJEEVIJOINT REGISTRAR,/..^Llt [5]SECTION ,TRUE COPY' 1. The The lncome [Tax Appellate ][Tribunal' ][Hyderabad ][Bench ][-A' ][Hyderabad'] 1. The The lncome lncome Tax [(Apbeals-12)' Hvderabad']2. i|i; i;;i.i.n"ibi 3. The Deputy [Comrniss'oni''"i ri'1"'Ji';'-Ceniral'Circle-2(1)-Hyderabad]a or" C"it,j'sii-x [Rr1i ][neo-Jy. ][Senior ] [for lncome Tax ][(oPUC)]5. Two CD [CoPies] Kj COMMON JUDGMENTITTA.Nos.40 and 41 ot 2020 DISMISSING THE BOTH THE ITTA's W|THOUT COSTS. 42tu- i{eSTA 15:ezo26 [2021].ia*,r