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2015 (12) TMI 697 - ITAT VISAKHAPATNAM

2015 (12) TMI 697 - ITAT VISAKHAPATNAM - TMI - Rejection of books of accounts - estimation of net profit from civil contract receipts - inclusion or exclusion of work in progress for determining the gross turnover - Held that:- It is an admitted fact that the work in progress is not a turnover but it is a cost of material and other charges incurred on unbilled works. The assessee contended that the work in progress is carried over to subsequent year and recognized the income, therefore it cannot .....

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ract method. When the assesse is following a particular method, of accounting, which was accepted by the department in earlier years, cannot disputed now. Therefore, we are of the opinion that the A.O. is not correct in including the work in progress for the purpose of determining the gross receipts for estimation of net profit. The CIT(A), rightly excluded the work in progress from the contract receipts. We do not find any error or infirmity in the order of CIT(A). Therefore, we direct the A.O. .....

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THA, ACCOUNTANT MEMBER For the Petitioner : Shri M. Narayana Rao, DR For the Respondent : Shri G.V.N. Hari, AR ORDER PER Bench: This appeal filed by the revenue is directed against the order of CIT (A), Vijayawada dated 18.2.2013 for the assessment year 2009-10. 2. Brief facts of the case, is that the assessee is a partnership firm, which is engaged in the business of civil construction works filed its return of income for the assessment year 2009-10 on 30.9.2009 declaring a total income of S .....

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contain the essential details regarding the address of the payer, the quantum of work done or services rendered, the rate per unit, etc. Therefore, in the light of these deficiencies, the A.O. was of the opinion that the books of accounts maintained by the assessee are not correct and complete. Therefore issued a show cause notice to the assesse, as to why the books of account shall not be rejected and net profit from the business is estimated. In response to show cause notice, the assessee fil .....

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d to form no.26AS generated from the income-tax database. On perusal of form no.26AS, the A.O. noticed that there is a difference in turnover, therefore re-worked the turnover based on form no.26AS and determined the gross contract receipts of ₹ 43,99,91,831/-, as against the turnover declared by the assessee of ₹ 37,02,12,416/-. In response thereto, the assessee filed a reconciliation statement, wherein it was stated that the difference was occurred due to receipt of mobilization ad .....

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based on form no.26AS and estimated the net profit of 12.5% on main contract works and 8% net profit on sub contract works and 3% net profit on sub contract works given to third parties. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before CIT(A), the assessee contended that the A.O. was not correct in rejecting the books of accounts, as it has maintained proper books of accounts and also bills & vouchers for the expenditure debited to P&L acc .....

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ractors. The assessee further submitted that the ITAT, Hyderabad bench in the case of M/s. Teja Constructions, Secunderabad Vs. ACIT in ITA No.308/Hyd/2009 upheld the net profit of 9% estimated by the assessing officer. Therefore, requested to estimate 9% net profit. The CIT(A), after considering explanations offered by the assessee and also relied upon the ITAT Hyderabad Bench decision in the case of M/s. Teja Constructions, Secunderabad Vs. ACIT, directed the A.O. to estimate 9% net profit on .....

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rmining the gross turnover. Aggrieved by the CIT(A) order, the revenue is in appeal before us and raised the following grounds. 1. The Id. CIT(A) erred both in law and on facts of the case. 2. The Id. CIT(A) erred in directing the A.O. to estimate the income at 9% as the A.O. has est imated the income 12.5% af ter examining the books and after considering the facts & circumstances of the case. 3. The Pd. CIT(A) ought to have considered the decision of the then previous CIT(A) in the case of .....

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ainst the 12.5% net profit estimated by the assessing officer. The D.R. submitted that the A.O., after considering relevant facts and circumstances of the case that the assessee did not maintained proper books of accounts and supporting vouchers for expenditure debited to P&L account and also considering the ITAT Hyderabad bench decision in the case of M/s. K.N.R. Constructions Ltd. in ITA No.9/Hyd/2007, estimated 12.5% net profit. The D.R. further argued that the CIT(A) was not correct in e .....

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cer rejected the books of accounts and estimated the net profit of 12.5% on main contracts, 8% net profit on sub contract works. The CIT(A) scaled down the estimation of net profit from 12.5% to 9% in case of main contract works. While doing so, the CIT(A) directed the A.O. to exclude the work in progress included in the gross turnover. The D.R s contention is that the A.O. has rightly estimated the net profit of 12.5%, considering the facts and circumstances of the case that the assesse did not .....

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s depending upon the facts and circumstances of each case. The ITAT, also have upheld the estimation of net profit ranging from 8% to 12.5% on case to case basis. The co-ordinate bench of this Tribunal in the case of ACIT Vs. Teja Constructions in ITA No.1191/Hyd/01, has upheld the estimation of net profit at 9% from main contract works. The relevant portion is reproduced hereunder: The assessee s past track records show that the assessee has neglected the presenting of the books of account in a .....

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hree kinds of contracts, as in earlier years, i.e., (i) own contracts, (ii) contracts taken from the sub-contractors, (iii) contracts given to other parties on sub-contracts. The assessee had a higher rate of profit on the contracts executed by the assessee itself. In these contracts, the assessee agreed that his income is at 9 per cent of the gross receipts. Thus, accordingly the AO is directed to estimate the income on the contracts executed by the assessee s own at 9 per cent. In case of cont .....

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case of contracts taken by assessee on subcontract from other parties. Further, the assessee is entitled for depreciation and remuneration, and interests to partners on the profit estimated by AO at applicable rates, because the income estimated as above of the assessee is before the depreciation and interest and remuneration of the partners. accordingly, the AO is directed to compute the income of the assessee afresh. 8. Coming to the inclusion of work in progress for determining the gross turn .....

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