TaxTMI 
TaxTMI 
2018 (5) TMI 1579
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....me is barred by limitation as per the provisions of section 153B. 2. The entire assessment is bad in law as the same is said to have been passed under section 143(3) r.w.s. 153A, whereas the assessment ought to have been passed under section 144 r.w.s. 153A. 3. The entire assessment is bad in law as the appellant assessee has not been given an opportunity of being heard by the Additional Commissioner before according of approval to the order of assessment under section 153D thereby violating the principles of natural justice. 4. The entire assessment is bad in law as the order though it bears the signature of the Ld. AO it is not affixed with the seal of the AO. The same is the case with the notice of demand issued under section 156. 5. The Assessing Officers not at all correct in making additions to the returned income as the assessment for this assessment year is not pending as on the date of search and consequently does not abate. More so when no material relevant to this assessment year has been seized during the course of search. 6. The assessment is void abinitlo for the reason that the income has been estimated at a fixed percentage of turnover without affording th....
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....ted during the appeal hearing that the facts involved are identical for all the assessment Years in these appeals. Therefore the facts are extracted from the appeal of the A.Y.2004-05. A search u/s 132 of I.T. Act was conducted in the premises of the assessee on 14.07.2009 and during the course of search, evidences were found indicating the inflation of expenditure, suppression of income and bogus sub-contract payments. During the course of search the Income tax Department has seized the acquittance register for payment of salaries from the assessee marked as annexure SVC(O)/PO-2(11) and on verification, the AO found that the assessee has raised the sub-contract bills and the payments were made to the following persons: (i)Shri DVSN Raju (ii)Shri GRK Prasad (iii) IGK Raju (iv)Shri Kothapalli Venkateswarlu 6. The AO further observed that they are the employees of the assessee and simultaneously stated to have executing the sub-contract works to the assessee. The assessing officer called for the list of employees, ledger accounts of these sub-contractors in the books of the assessee, copy of the bank accounts of the sub-contractors and verified the same. On verification, the....
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.... the Ld.CIT(A) examined the case in detail and held that the estimation of income at 12.5% of gross contract receipts is justified and directed the AO to grant deduction in respect of depreciation out of the gross income so arrived at. Thus, the CIT(A) granted partial relief. 9. Aggrieved by the order of the CIT(A), the assessee is in appeal before this Tribunal agitating that the estimation of income @12.5% as unreasonable. The assessee also challenged estimation of income uniformly @12.5% both on main contracts as well as the sub-contracts. The revenue has filed cross appeal against granting the depreciation from the estimated income. 10. During the appeal hearing, the Ld.AR argued that the Ld.CIT(A) estimated the income at 12.5% of gross contract receipts inclusive of sub contracts. The Ld. Authorised Representative further submitted that during the period covered under search assessments i.e. 2004-05 to 2010- 11, the assessee had received gross receipts of Rs. 300 (+) crores out of which the assessee has given works to sub contractors to the tune of 64.29 crores. The CIT(A) without appreciating the fact that the assessee has given sub contracts to the tune of Rs. 64.29 crores....
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.... income around 5% to 6% would be reasonable in the case of sub contractors. 12. Per contra, the Ld. DR argued that in this case, a search u/s 132 was conducted and during the course of search, evidences were found indicating sub contracts works given to the following sub contractors was bogus. (i) Sri IGK Raju (ii) Sri S.V.VenugopalaRaju (iii) Sri GRK Prasad (iv) Sri DVSN Raju (v) Sri K.Venkateswarlu (vi) Sri Premchand Sharma and (vii) Sri DVJJ Raju 13. In all the above sub contracts, the payments were made to the sub contractors by cheques. However, the sub contractors have given self cheques which were encashed by Mr.S.R.Mohan the trusted employee of the assessee company, who has stated in the statement recorded u/s 131 that he was working with the assessee for more than 10 years and self cheques were issued by the above sub contractors and the said cheques were encashed by him in ING Vysya Bank. Though he stated that the money was handed over to the representative of the sub contractors, there is no reason to encash the cheques by Mr.S.R.Mohan, employee of the assessee and hand over the cash to the representative of the sub contractors. Therefore, the Ld. DR argu....
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....e slightest amount of suspicion. (vii) In all the cases, entire money received through account payee cheques was taken back in cash. A notable exception is the only case of Sri Premchand Sharma where a percentage of the amount so transferred was returned. (viii) In all these cases, the accounts were introduced by an employee/ representative of M/s. SVC Projects Pvt. Ltd. (ix) As seen from the bank accounts of the contractors, almost all the transactions / majority of the transactions pertains to that of amounts received from M/s SVC Projects Pvt. Ltd. (x) There is no documentary evidence available with the sub-contractors to justify the quantum of withdrawals of amounts from the bank account, as the same are found to be matching with the deposits received / amounts received from M/s SVC Projects Pvt. Ltd." 14. The Ld. DR further submitted that the seized material No.SVC/A/13 shows that there was suppression of income on account of sale of ready mix concrete from RMC unit. The AO furnished the complete details of the seized material found as part of the assessment order. There was difference in closing stock of 2005-06 and 2006-07. For the assessment year 2005-06, the ....
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....h the assessee company or the closely related to the Directors of the company. All the above sub contractors stated that they have executed the work but none of them have material to establish having executed the sub contracts. No registers are maintained, no books of accounts were maintained and none of them have their own offices and all of them are stated to be operating from the site office of the assessee. Common feature in all the sub contractors were the self cheques issued by them were encashed by Mr. S.R. Mohan, the employee of the assessee. As per the statements recorded from Mr.S.R.Mohan, the cashier of the assessee company u/s 131 of I.T. Act, it is found that the assessee is issuing cheques in the names of sub contractors which are being encashed by Mr. Mohan, this fact is established from his statement as well as the cheques which were counter signed by Mr.Mohan on the reverse side. Though he stated that the withdrawn cash was handed over to the representatives of the subcontractors, we do not understand the reason for the role of Mr.S.R.Mohan the employee of the assessee when the representative of the sub-contractor is available and he can also receive the cash from ....
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....6,00,000/- for the assessment year 2005-06, the opening stock admitted for the assessment year 2006-07 was Rs. 1.56 crores. 19. The AO also observed that the assessee could not produce the vouchers for an amount of Rs. 25.13 lakhs in respect of sub-contracts for the assessment year 2004-05, in respect of purchases no vouchers were produced for an amount of Rs. 4,41,712/-. For transportation expenses, travelling expenses and labour payments the assessee failed to support the complete expenses with the relevant vouchers.. Though the assessee submitted that the reason for non- production of vouchers etc. was due to maintenance of books of accounts at the site, the same cannot be accepted and it is the obligation of the assessee to produce the evidence in respect of expenditure incurred. During the assessment proceedings or subsequent to the assessment proceedings, the assessee did not produce evidences before the CIT(A)/the Assessing Officer to support the expenses. The Ld.CIT(A) directed the A.O. to estimate the income @ 12.5% before depreciation and the relevant part of the CIT(A) is extracted which reads as under: "06.2 As regards incriminating material/documents, it is clear th....
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....were being withdrawn by the appellant's employee itself in cash on the same day1 or the very next day. It was found that sub contractors, such as M/s DVSN Raju GRK Prasad, IGK Raju, Kothapalli Venkateswarlu, S.V.VenugopalaRaju, DVJJ Raju etc, did not have any experience or infrastructure / manpower to carry out the works, nor they had ever executed any such works for any other party or maintained any registers or payment vouchers In respect of sub contract works claimed as carried out by them for the appellant None of them could furnish any agreement/contract with regard to any such sub contracts given by the appellant The post search enquiries on the basis of Inference drawn from the said Acquittance Register revealed the modus operandi adopted by the appellant for inflating expenses by giving sub contracts to such persons It was found that the appellant had assigned the job of depositing cheques and withdrawing cash into/from the bank accounts of the said sub contractors by way of self cheques to one of Its trusted employee, handling finance and account related works, Shri S R Mohan, who was often present at the Banks for this purpose. Even though some of such sub contractors....
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.... or expenses, the books of account of the appellant were indeed not reliable enough to give a true and correct picture of the profits. 06.3.2. In addition to the bogus expenditure booked by way of sub contracts given to employees of the company itself, it was found that the appellant had not maintained vouchers in respect of several expenses in a manner that could make those records verifiable. Besides being self made, the vouchers were found unsigned and not containing complete particulars so as to tie amenable to verification. It was also found that the appellant had made substantial payments in cash in contravention of the provisions of. sec.40A(3) in the Assessment Year 2007-08. 06.3.3. In addition to the findings regarding generation of unaccounted income from the business of contracts, the search and seizure action revealed that the appellant was not even accounting for the Income from sale of Ready Mix Concrete fully and correctly. While the appellant claimed that the transactions found recorded in this regard In the seized material were omitted to be recorded in the books of account through oversight, the explanation of the appellant was indeed devoid of any merit as ....
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....down any universal proposition Therefore, upholding the action of the Assessing Officer in rejecting the books of account for all these years, the grounds and the additional ground raised to this effect are decided against the appellant. 06.4. Having -ejected the books of account by invoking the provisions of sec 145(3) of the Act, the Assessing Officer proceeded to estimate the income for the Assessment Years 2004-O5 to 2010-11 by applying the rate of 12%, net off depredation In this regard, citing the decision at the Hon'be Apex Court in the case of BrijBhushanLalPradumap Kumar Vs Commissioner of Income Tax(Supra), the Authorised Representative has averred that while doing so, the Assessing Officer should have made a fair estimate, having reasonable nexus to the available material and circumstances. It is claimed that while doing so, the percentage of profit arrived at by the Department itself in its case, for the Assessment Year 2004-05 should have been adopted as a yardstick, which was 8.11%. The Authorised Representative has maintained that initially the appellant had agreed to offer income for the Assessment Years 2007-08, 2008-09 and 2009-10 at 8% of gross receipts in....
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.... At the same time, It is seen that the appellant itself has not been able to justify the rate of 9.40% so admitted with any certainty. Under the circumstances, I am of the view that in a situation like this, guidance can be taken from another decision of the Honble Jurisdictional Income-tax Appellate Tribunal in the case of ACIT VsSatyanarayanaConstructions, dated 23-10-2000, In ITA No 101/H/1996. 06.4.2. It is seen that in the case of ACIT Vs Satyanarayana Constructions (supra), the Honble ITAT have held that the profit rate of 12.5% could be applied, before depreciation and payment to partners. The said decision has been discussed by the Hon'ble Income-tax Appellate Tribunal, Visakhapatnam Bench In the case of ACIT VsIsnar Constructions in ITA No 488/V/2004 also. Though in the latter decision, estimation of profits at the rate of 11% before depreciation was approved, it is clear that the nature of contracts / works being executed by the said assessee was different from the present appellant Accordingly, I am of the view that the decision in the case of ACIT Visnar Constructions (supra) cannot be applied in the appellant's case However, in the said case, the Hon'ble....
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....n is reasonable. However, facts of the assessee's case are not comparable as distinguished by the Ld. CIT(A). In the case of the assessee the profits admitted/assessed were ranging from 8% to 12.29% from the assessment year 2004-05 to 2010-11, hence, submitted that the estimation of profit @12.5% is unreasonable and requested to scale down the estimation of income. We have considered the submission of the assessee carefully. In this case, a search u/s 132 was conducted and during the course of search, evidences were found evidencing suppression of receipts, inflation of expenditure and also suspicious nature of sub contracts. The case laws relied upon by the assessee cannot be compared with the assessee's case since there were no such evidences were found in the cases relied upon by the A.R. including Isnar Constructions. During the assessment proceedings the assessee has accepted for reasonable estimation of income and there is no dispute. The jurisdictional Tribunal as well as the Coordinate Benches held that the estimation of income in the case of civil contracts @ 8% to 12.5% is reasonable. As per the findings of the AO and as per the evidences found during the course of search....
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....d to exclude the sub contract payments in respect of the sub contracts in para No.14 of this order which are held to be name lenders. The facts are identical in all the appeals for the A.Ys 2004-05 to 2010-11. Therefore, the appeals of the assessee for the A.Ys 2004-05 to 2010-11 on this ground are partly allowed. 23. The revenue filed appeal against the allowance of depreciation. The CIT(A) directed the AO to estimate the income @12.5% and allow the depreciation. The revenue's case is that having estimated the income, no expenditure required to be allowed as held by Hon'ble Jurisdictional High Court in the case of Indwell Constructions. The assessee's case is that the depreciation is a statutory allowance and the revenue has to estimate the income before depreciation. The Ld.AR relied on Board Circular No.029D(XIX-14), dated 31.08.1965, wherein the Board has issued circular, stating that the depreciation has to be separately allowed and be deducted from the gross profit. The Ld.AR further relied on the decision of Supreme Court in the case of Awasthi Traders Vs. CIT-1 Agra and ANR in Civil Appeal No.(s).8481 of 2016 arising out of SLP(C) No.27718/2014 dated 30.08.2016 and argued ....
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.... to any provision of law to make such distinction. His understanding of the matter is that Section 44AD of the Act, that provides for a comprehensive formula of determining net profit derived by a civil contract or at 8%, takes in its fold, allowance of depreciation, interest and other benefits. The fact, however, remains that such a provision was not in exercise in the Assessment Year 1994-95. 14. If an assessee is entitled to claim deduction of interest, be it under Section 36(1)(iii) of the Act or any other relevant provision and of depreciation under Section 37 of the Act, in the ordinary course of assessment, there is no reason why the same facilities be not extended to him, merely because the profit is determined on the basis of estimation as was done in the instant case. We are of the view that depreciation and interest, which are otherwise deductable in the ordinary course of assessment, remain the same legal character, even where the profit of assessee is determined on percentage basis. 15. The conclusions arrived at by us, get support from the Circular dated 31.08.1965 issued by the Central Board of Direct Taxes. Though the Circular was with reference to the 1922 Act,....