Itta/600/2015 Of Commissioner Of Income Tax - V v. M/S. Teja Constructions

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANANDTHE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHYI.T.T.A.No.600 of 2015 JUGMENT:(per Hon’ble Sri Justice Ramesh Ranganathan) This appeal under Section 260-A of the Income Tax Act, 1961 ispreferred by the Revenue against the order passed by the Income TaxAppellate Tribunal, Hyderabad Bench in I.T.A.No.1191 of 2011 for theassessment year 2006-07. The respondent-assessee filed its return of income for theassessment year 2006-07 on 31.10.2006. After examining the profitand loss account, the assessing authority found that the assessee haddebited various expenses to contract receipts, and had showed a netprofit of merely Rs.26,76,740/- which was about 3.32%. On the groundthat the information sought by the assessing officer was not furnishedto him, and as the books of accounts were found to be incomplete, theassessing officer rejected the books of accounts and estimated theprofits at 10% after taking into account the allowable depreciation,salary and interest. In addition, the assessing officer called upon therespondent-assessee to produce evidence regarding Rs.47,47,442/-shown in the balance sheet of the assessee as being payable to thesub- contractors. On the ground that no documentary proof wasadduced in this regard, the entire sum of Rs.47,47,442/- was addedback as the income of the assessee. Aggrieved thereby, therespondent-assessee carried the matter in appeal to theCommissioner of Income Tax (Appeals) who, following the earlierorders of the Tribunal, estimated the income on the contracts executedby the respondent-assessee at 9%, in the case of contracts taken bythe assessee on sub-contracts at 8%, and for the contracts given bythe assessee to third party at 5%. In addition thereto remuneration,interest on capital and depreciation, was allowed. In so far as the addition of Rs.47,47,442/- is concerned, theCommissioner of Income Tax (Appeals) observed that, since there was a liability to discharge, it would not cease; it would be required to becarried forward; and the assessing authority was not justified in addingback this amount when the liability was already included in the profitsestimated as a percentage of the gross receipts. The assessing officerwas directed to delete the addition of Rs.47,47,442/- as the liability hadnot ceased. Aggrieved thereby, the Revenue carried the matter inappeal to the Tribunal. In the order under challenge in this appeal theTribunal, relying on its earlier orders passed with respect to the verysame assessee for the earlier years, upheld the order of theCommissioner of Income Tax (Appeals) in estimating the profits of theassessee at 9%, 8% and 5% respectively before allowing deductiontowards remuneration, interest on capital and depreciation. In so far as deletion of Rs.47,47,442/-, added back by theassessing authority, is concerned the Tribunal held that, as the booksof accounts of the assessee had been rejected and the profits hadbeen estimated as a percentage of gross receipts, the basicprecondition for application of Section 41(1) was not satisfied. Consequently the order of the Commissioner of Income Tax (Appeals)was upheld. Before us, Sri B. Narasimha Sarma, learned Senior StandingCounsel for Income Tax, would reiterate the very same submissionsurged by the revenue before the Tribunal. The Revenue does not alsoappear to have questioned the earlier orders passed by the Tribunalby way of appeals before this Court. No substantial question of lawarises for consideration on the Tribunal upholding the order of theCommissioner of Income Tax (Appeals) in estimating the income of therespondent-assessee at 9%, 8% and 5% of the gross profits as theTribunal has merely followed its earlier orders with respect to the verysame assessee. In so far as the addition of Rs.47,47,442/- is concerned, theseadditions were made on the ground that the assessee had failed toprove the genuineness of the transactions. The question of additionswould not arise in cases where the income is estimated as a In so far as the addition of Rs.47,47,442/- is concerned, theseadditions were made on the ground that the assessee had failed toprove the genuineness of the transactions. The question of additionswould not arise in cases where the income is estimated as a percentage of receipts as, in cases where profits are estimated as apercentage of the contract receipts, the expenditure otherwise incurredby the assessee, apart from depreciation, interest on capital andremuneration, would not be taken into consideration. The Tribunalhas, in our view, rightly held that, as the books of the assessee hadbeen rejected and the profits had been estimated as a percentage ofgross contract receipts, the basic precondition for application ofSection 41(1), i.e allowance of the expenditure/liability has been madein the assessment for any previous year, was not attracted. It is clear, therefore, that no substantial question of law arises forconsideration necessitating interference in this appeal. The appealfails and is, accordingly, dismissed. The miscellaneous petitionspending, if any, shall also stand dismissed. There shall be no order asto costs. _____________________________ RAMESH RANGANATHAN, J ___________________________________ M. SATYANARAYANA MURTHY, J Date:02.06.2016 JSU THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY JSU I.T.T.A.No.600 of 2015 Date:02.06.2016