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2016 (6) TMI 101 - ITAT HYDERABAD

2016 (6) TMI 101 - ITAT HYDERABAD - TMI - Rejection of books of accounts - estimation of income - Held that:- In earlier years, Assessing Officer have accepted the books of account and disallowed certain portion of expenditures upto assessment year 2008- 09. Therefore, there is no problem in accepting the opening figures etc. in the later years. But assessee has accepted rejection of books of account, similarly audited, in the immediately preceding year, whose entries are carried over to this ye .....

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was not disputed in many cases.As already stated, Assessing Officer has estimated the incomes at the same rate not only generally accepted in various cases relied on, but also in the immediately preceding year which assessee has accepted. Keeping these in mind, we do not find any reason to differ from the order of Ld. CIT(A), which is in tune with the various orders of this forum. - Decided against assessee - ITA No. 40/Hyd/2015 - Dated:- 13-5-2016 - Smt P. Madhavi Devi, Judicial Member And Shri .....

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f civil works and filed its return of income on 29.10.2010 admitting a total income of ₹ 8,33,92,911. A survey under S.133A had been conducted in the case of the assessee on 23.3.2011 during which the internal audit files of the assessee were impounded. The audit files recorded certain deficiencies in the accounts of the assessee. The assessee submitted before the Assessing Officer that these defects formed a miniscule portion of the vouchers relating to the total expenditure of the assess .....

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tion of profit under similar circumstances (though the assessee did not file any formal acceptance of such assessment). The Assessing Officer rejected the books of account for assessment year 2010-11 and estimated the income as follows-: i. For works awarded directly and executed directly, @ 8% of the turnover of ₹ 161,98,09,913 ii. For works awarded directly and sub-contracted, @ 5% of the turnover of ₹ 22,42,76,044 iii. Fro works sub-contracted from L&T and executed directly, @ .....

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e assessee was accordingly estimated at ₹ 14,86,03,983. 3. Aggrieved, assessee challenged the estimation of income before the learned CIT(A). It was submitted that in response to deficiencies pointed out by the Assessing Officer during the assessment proceedings, the assessee had submitted that all the vouchers were available with the Assessing Officer herself and therefore it was not possible to accept the proposal for rejection of the books of account, that he impounded vouchers formed a .....

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sing Officer had made a huge addition of ₹ 6-crores. He also submitted that in the preceding years, additions had been made towards unverifiable cash vouchers but such additions were made as a percentage of the expenses (and not as an estimate of the profit) and ranged from ₹ 5,00,000 in assessment year 2006-07 (out of expenses of ₹ 50,25,51,000) to ₹ 10,00,000 in assessment year 2003-04 (out of expenses of ₹ 46,24,000) and that the mere fact that a survey had been .....

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of account were incorrect and incomplete. He also submitted that payments had been made on the basis of cash vouchers after they were duly checked under signature by the staff on site, that the assessee had set up an internal audit system to keep a check on the financial and accounting procedures and correctness and that the appellant did not benefit from incurring expenditures duly vouched. He also submitted what while the primary plea of the assessee was that the rejection of books was not jus .....

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books of the appellant. Whether or not the appellant stood to gain from these deficiencies was for the appellant to establish; other than stating that the appellant did not stand to gain from them, no evidence has been filed by' the appellant to establish this claim. 13. It has been submitted on the one hand before me that the bills and vouchers were all impounded by the Assessing Officer and were therefore, available with the Assessing Officer herself, and on the other hand, that the bills .....

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e practice in the earlier years is to be accepted as a precedence, I do not see why the immediately preceding year, where the Assessing Officer made an addition of over ₹ 2- crore to the total income of the appellant under similar conditions, an addition which the appellant did not dispute at all, should not serve as the best precedent. 15. It is apparent from the facts as narrated in the assessment order that the appellant had failed to establish the correctness of the books and under the .....

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cts. This decision was also followed in Shiva Balaji Constructions ([TA 368/H/2011, dated 14.10.2011). In the case of Teja Constructions 129 TTJ (Hyd) (UO) 57, the ITAT held that profits be estimated at 9% on own contracts, 8% on contracts taken by the assessee on subcontracts and 5% on contracts given by assessee to third party on sub-contract, 17. Indeed, the ITAT has upheld the estimation of profits at rates much higher than that done by the Assessing Officer in several decisions. Some of the .....

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R Constructions (ITA 9/H/07, 30.11.09) Income estimated at 12.5% for main contractor and 8% for sub-contractor vii. Shri K.Ramkrishna Contractors (P) (ITA 461/Hyd/206, 4.12.2009 ) Income estimated at 8%. viii. Sai Vikram Builders (ITA 871/H/11, 27.12.11) Income estimated at 10%. Under the circumstances, the rates at which the Assessing Officer has estimated the profits are eminently and do not warrant any intervention. 18. The AR has also made the alternate plea that depreciation and financial c .....

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wance of the depreciation and financial charges from the estimated income is, therefore, rejected. 5. Before us, the assessee has raised the following grounds- 1. Learned Commissioner of Income Tax (Appeals) - IV Hyderabad [CIT(A)] has erred on facts and in law. 2(a) Learned CIT(A) is not justified in ignoring the comparable cases decided by the Hon'ble ITAT relied upon by the assessee. (b) Learned CIT(A) has grossly erred in failing to appreciate that the jurisdictional Benches of the Hon & .....

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depreciation and expenditure on interest which affect the percentage of profit. (b) Learned CIT(A) has grossly erred in holding that whenever an estimate is made in cases of contracts business, deeming provision u/s. 44AD applies. Sec.44AD provides for assessment on the basis of presumption in cases for smaller turnovers. 5.1 Assessee also raised following additional ground which is legal in character and was admitted- 1. ….. 2. On the facts and circumstances adverted to by the CIT(A), i .....

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econciliation of labour expenses at ₹ 1,44,51,130 which could have been basis for disallowance. He relied on various case-laws particularly of the ITAT decision in the case of K.Ramakrishna Contractor P. Ltd. (in ITA No.461/Hyd/2006 dated 4.12.2009). 7. Learned Departmental Representative, however, referred to the order of the Assessing Officer and more particularly the fact that on similar circumstances assessee has accepted the rejection of books of account in assessment year 2009-10 and .....

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in this year, therefore the dispute. 8.1 On a turnover of ₹ 226.14 crores in assessment year 2009-10, assessee admitted a profit of ₹ 12.91 crores (5.7%). During the year under consideration, the turnover was ₹ 205.39 crores and the profit admitted in Profit & Loss Account was ₹ 9.63 crores (4.68%). The reasons given by the Assessing Officer in assessment year 2009-10 for rejection of books after survey are noted in the order as under- 3. Rejection of Books of Account .....

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expenditure was stated to have been incurred in cash, the assessee could not provide for satisfactory proof of the same. Thus, since the books on which the assessee had filed return of income not being fully explained and cash expenditure not substantiated, it was proposed to reject the books as per the provisions of section145 of the I.T. Act and estimate the profit. In this respect, the assessee vide letter filed in hearing dt:8/12/2011, agree to the same. 8.2 Similar reasons were stated by t .....

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s merit in assessee contentions, considering the legal principles on the issue decided by various judicial forums, but in the fact situation, we are unable to accept the same. In earlier years, Assessing Officer have accepted the books of account and disallowed certain portion of expenditures upto assessment year 2008- 09. Therefore, there is no problem in accepting the opening figures etc. in the later years. But assessee has accepted rejection of books of account, similarly audited, in the imm .....

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wn works and 5% on sub-contract works assigned, 3% on sub-contract works undertaken. These rates are generally approved by ITAT in various orders a stated by learned CIT(A) in the order. 8.5 Learned counsel relied on various case-law particularly in the case of K.Ramakrishna Contractor P. Ltd. in ITA No.461/Hyd/2006 dated 4.12.2009. The question in that case was as under- 2. The first ground raised by the assessee is that the CIT(A) erred in upholding the estimate of income at 12.5% of the gross .....

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respect of work executed by the assessee and at 5% in the case of sub contract. The finding of ITAT therein is as under- 5. In the present case, the contention of the assessee counsel is that, that ratio of order in the case M/s Krishna Mohan Construction Company cannot be applied. He also contended that the assessee's own case to be followed instead of the case of M/s Krishna Mohan Construction Company cited supra. We are afraid. In the present case, the assessee is claiming a depreciation .....

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