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DCIT C.C. 2 (1) , DCIT C.C. -3, Hyderabad Versus Sree Nagendra Constructions, Varalaxmi Constructions, Ragini Constructions, MAA Highways, Khammam And Vice-Versa

2017 (11) TMI 717 - ITAT HYDERABAD

Disallowance of expenditure - amounts were never used for its business activities - Estimation of income at 8% in the case of main contractor and 5% in the case of a sub-contractor - Held that:- In the case of MAA Highways (2016 (5) TMI 344 - ITAT HYDERABAD) we have already held that where the income is estimated after rejection of books of account, no further disallowance of business expenditure can be made. In the case before us also, the AO has made the estimation on the ground that the asses .....

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5, 199/Hyd/2015, 175/Hyd/2015, 205/Hyd/2015, 139/Hyd/2015 And 196/Hyd/2015 - Dated:- 10-11-2017 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For The Assessee : Smt. Pallavi Agarwal, DR For The Revenue : Shri P. Murali Mohan Rao ORDER Per Bench. ITA No.202/Hyd/2015 is the appeal filed by M/s. Sree Nagendra Constructions for the A.Y 2011-12, while ITA No.167/Hyd/2015 is the appeal filed by the Revenue against the relief granted to M/s. Sree Nagendra Construct .....

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e sub-contractors of Madhucon Group, was also searched. Pursuant there to, a notice u/s 153A of the Act was issued to the assessee on 13.01.2012. During the assessment proceedings u/s 143(3) r.w.s. 153A of the Act, the AO called for various details from the assessee and the assessee furnished the same. After considering the said material, the AO observed that M/s. Madhucon Projects Ltd had diverted the funds of the subcontractors, (the assessee being one of them) and has siphoned off the same du .....

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f the gross receipts and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A), who granted relief to the assessee by observing that the issues involved in this case are identical to the issues decided in the case of M/s. MAA Highways for the A.Y 2007-08 to 2010-11 wherein he had passed a detailed order in ITA No.123/CIT(A)-12/H/2013-14. He accordingly, deleted the addition of the amounts withdrawn from the Bank A/c of the assessee and routed to the main contractor i. .....

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td is pending before the CIT (A), these appeals of the assessee also should be remanded to the file of the CIT (A) with a direction to decide both the appeals simultaneously. 5. The learned Counsel for the assessee, on the other hand, submitted that similar arguments of the learned DR in the case of M/s. MAA Highways were considered by the Tribunal and it was held in favour of the assessee. 6. Having regard to the rival contentions and the material on record, we find that in the case of MAA High .....

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d since its books of account were not reliable, the income can be estimated at 8% of the gross receipts where the assessee is a main contractor and at 5% if it is a sub-contractor. Further, it has also been observed that where the income has been estimated, then there cannot be any disallowance of expenditure as held by the jurisdictional High Court in the case of M/s Indwell Constructions Ltd (232 ITR 776). For the purpose of ready reference, the relevant paragraphs are reproduced hereunder: 2. .....

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of account maintained by the assessees were rejected and the income of the assessees was estimated at 8% of the gross receipts, and the Assessing Officer accordingly made additions to the income returned by the assessees. 3. Further, the Assessing Officer also observed that the company's address given by M/s. Madhucon Projects Ltd. was actually a small room on the terrace and no documents or papers relating to the assessee or M/s. Madhucon Group were available. He further observed that durin .....

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funds to the principal contractor, Madhucon Projects Ltd. He further observed that these accounts are used for withdrawing funds by the employees of Madhucon Projects Ltd., as it was unearthed during the course of search and that though the payments are realised and cheques were issued in favour of these sub-contractors, the money was eventually withdrawn by the promoters of M/s. Madhucon Projects Ltd. through their employees by way of self-signed cheques, which are handed over by these sub-cont .....

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erein. 4. Against the assessments thus made, assessees preferred appeals before the CIT(A), who though, confirmed the estimation of income at 8% of the gross receipts, granted relief by deleting the additions made on protective basis. 5. Learned counsel for the assessees submitted that the assessees were maintaining regular books of account, but the Assessing Officer rejected the same and estimated the income of the assessees at 8% of the gross receipts. He submitted that this estimation of inco .....

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und in these cases also being same, income of these assessees herein should also be estimated at 5%. 6. As regards the estimation of income, the Learned Departmental Representative submitted that there is no fixed percentage of gross receipts, which can be adopted to estimate the income of the assessees, and that as the books of account of the assessees are not reliable, the Assessing Officer on a notional basis can estimate the income. According to her, the estimation of income at 8% of the gro .....

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e Bench of this Tribunal in the case of Prabhu Wines in ITA No.1100/Hyd.2013 dated 23.10.2013, wherein after considering the principles laid down in Indwell Constructions (232 ITR 776), it has been held that they are applicable only to the extent of computation of income under the head Business and as far as addition of cash credits under S.68 and S.69, the decision of the Hon'ble Supreme Court in the case of CITV/s. Devi Prasad Vishwanath Prasad reported in 72 ITR 194 (SC) was followed. 8. .....

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rd, we find that on the issue of estimation of business income, the issue has already been considered and adjudicated by the coordinate bench of this Tribunal in the case of one of the assessees herein, viz., MA Highways, for assessment year 2007-08, wherein estimation of income in the hands of subcontracts at 5% of the gross receipts was held to be reasonable. Respectfully following the same, we hold that in all these cases as well, the business income of the assessees for the years under appea .....

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assessees have not expended the said receipts towards their business activity. But as rightly held by CIT(A), all withdrawals cannot be presumed to be the business expenditure of the assessee, particularly, when, the same is not debited to the Profit & Loss Account. The CIT(A), after examining the issue has held at para 6.5.3 as under- 6.5.3. Knowing that the amount withdrawn from bank account was appropriated by the main contractor and that it was not used by the appellant is one aspect. H .....

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diture and got debited to P&L acct. It is also seen that the withdrawals were actually more than the entire turnover of the appellant firm in AY 2011-12 indicating that all withdrawals could not have been debited in the appellant's books as expenditure. Similar feature was found in the case of the other two subcontracting firms namely, M/s. Varalakshmi Constructions, the withdrawls from bank were more than turnover for assessment year 2010-11. For M/s Ragini Constructions, the withdrawal .....

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ave not mentioned the section under which the disallowance and the consequential additions are made, from the order of the Assessing Officer, it appears that the receipts of the assessee were disallowed as they are not used for business M/s. MA Highways and three others Khammam activity. Thus, it is disallowance of business expenditure. The CIT(A) has rightly pointed out that the amounts withdrawn cannot be presumed to have been deployed and incurred towards revenue expenditure and got debited t .....

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s income of an assessee is estimated, no other disallowance may be made. In the case of MA Highways, cited supra, as well, the Tribunal has taken into consideration the decision of the jurisdictional High Court and held that no separate disallowance of expenditure shall be made once income is determined by resorting to estimation. Respectfully following the same, we do not see any reason to interfere with the orders of the CIT(A). 7. The learned DR had placed reliance upon the judgment of the Ho .....

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ITAT will be binding on the CIT (A). Therefore, the said decision is not applicable to the facts of the case before us. In the case of MAA Highways (cited Supra), we have already held that where the income is estimated after rejection of books of account, no further disallowance of business expenditure can be made. In the case before us also, the AO has made the estimation on the ground that the assessee had not incurred any expenditure and the amounts were never used for its business activitie .....

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ng the estimation of income at 8% of its gross receipts. According to the assessee, the assessee is a sub-contractor and therefore its income should be estimated at 5% of the gross receipt and not at 8% of the turnover as held by the Coordinate Bench of this Tribunal in the case of Maa Highways in ITA Nos. 200 & 201/Hyd/2015. The learned Counsel for the assessee also submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in ITA No.169/Hyd/2015 wherein .....

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b-contractor in the Revenue s appeal for the A.Y 2009-10 and also in the Revenue s appeal in the assessee s own case for the A.Y 2011-12, in ITA No.169/Hyd/2015 dated 31.3.2016. Accordingly, the AO is directed to verify the facts and re-compute the income accordingly subject to the condition that the assessed income shall not be less than the returned income of the assessee. 11. In the result, assessee s appeal is treated as allowed for statistical purposes. ITA Nos.139 & 196/Hyd/2015 A.Y 20 .....

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