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TMI Blog2014 (12) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the estimation of income and as CIT(A) resorted to estimation based on the norms already been formed in this regard i.e., estimation of income at 12.5% on the main contracts and 8% on sub-contracts undertaken, there is no reason to interfere with the order of the CIT(A) – the order of the CIT(A) is upheld - since Revenue has not questioned the estimation at the rates and since no evidence has been filed to establish the clinching evidence of non-execution of contract work or unexplained expenditure, the grounds raised by the Revenue do not require any consideration on merits – Decided against revenue. - ITA.No. 1153, 1154 & 1155/Hyd/2013 - - - Dated:- 5-9-2014 - SHRI B. RAMAKOTAIAH AND SHRI SAKTIJIT DEY, JJ. For the Appellant : Mr. D. Sudhakar Rao For the Respondent : Mr. A.V. Raghuram Mr. Y.R. Rao ORDER Per: B Ramakotaiah: The Appeals are by Revenue against the separate orders of the CIT(A)-V, Hyderabad dated 28.03.2013 for A.Ys. 2007-08, 2008-09 and 2009-10, on the issue of additions made by the A.O. converted into estimation of income by the Ld. CIT(A). Assessee preferred cross-objections on the issue of jurisdiction contending that the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncomes returned by the assessee and additions made by the A.O. as submitted by assessee counsel are as under : S.No. Description A.Y.2007-08 Rs. A.Y.2008-09 Rs. A.Y. 2009-10 Rs 1 Total turnover 288,04,38,164 542,09,96,641 739,20,40,753 2 Sub contract 48,16,35,207 387,67,34,491 535,29,78,058 3 % of sub contract to turnover 16.72% 71.51% 72.41% 4 ROI 38,66,37,333 54,18,49,810 73,56,55,224 5 Additions 87,25,19,990 308,03,50,400 450,74,68,896 6 Income assessed 125,91,57,323 362,22,00,210 524,31,24,120 7 % of income admitted to turnover 13.42% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0); that while resorting to estimation of income, the payments made to alleged sub-contracts wherever the clinching evidence is there to show that these sub-contractors are non-genuine, the same be kept out of the purview of the estimation while deciding the appeal. 4. The Ld. CIT(A) ought to have excluded the addition made by the A.O. based on clinching evidence while estimating the income and should have directed to make the addition based on clinching evidence separately. 5. The Ld. CIT(A) has erred in appreciating that where enquiries were made and got replies and confession by the sub contracts that they have not done any works and they have not in receipt of any such amount i.e., even the denials and discrepancies from sub-contracts also ignored while taking decision. 6. Any other ground that may be urged at the time of hearing. These grounds are common for all the years. 4. Ld. D.R. submitted that the findings of the special audit were not referred to by the Ld. CIT(A) nor the payments alleged to have been made in the guise of sub-contracts were confirmed, even though Addl.CIT reported that the same may be kept out of purview of estimation while d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) that reasonable estimation can be resorted. However, in the report there was no specification of any clinching evidence against the assessee regarding non- execution of work or unexplained expenditure. The report of the Addl. CIT placed in paper book at page No. 94 to 98 particularly with reference to final conclusion is as under : Keeping in view the non-genuineness of the subcontract payments as established by A.O. after detailed discussion in the assessment order but at the same time keeping in view the submission made by the assessee before the Ld. CIT(A) that the profit is assessed at abnormally high at 70.9% of the turnover certain back to back contract constitutes major part of the turnover, the Ld. CIT(A) may decide the issue on merits and consider estimating the income if the finding of the AO in the assessment order as well as in the remand report is held to be unreasonable. However, wherever there is clinching evidence against the assessee regarding non-execution of work or unexplained expenditure, it is requested that the same should be upheld and should be kept out of the purview of estimation if the Ld. CIT(A) decides to estimate the income . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as alleged by the AO, was also not controverted by the AO. A careful reading of such information clearly substantiates the appellant's contentions. All the payments were made to the sub-contractors through banking channels and as rightly argued by the appellant there was neither, any allegation that the appellant received back such amounts, nor was any evidence to that effect found/gathered, either during the search or assessment proceedings. Even otherwise it is a settled principle of law that when the receipts/income, in respect of the works given on sub-contract, are accepted, the corresponding expenditure for earning such income cannot be disallowed in full even assuming that the sub-contracts were not established to the fullest satisfaction of the AO. Despite submissions of one-to-one correlation of the projects executed, the AO failed to assess the impact of the disallowance of the expenditure relating to a project in toto. The disallowance of the entire expenditure, relating to the actual execution of work, the income from which is admitted by the appellant and accepted by the AO, resulted in abnormally high profits. It is a fact that apart from the subcontract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I direct the AO to estimate @ 12.5% in respect of receipts on account of contracts received directly by the appellant from the contractees', in which case, the appellant company itself will be the main contractor and @ 8% on works taken on sub-contract from Principal Contractors. On similar facts, in the Appellant's own case for A.Y.2008-09 and 2009-10, the Addl CIT, Central Range alternatively recommended for estimation of income. The details of sub-contracts received and executed for the AY 2007-08, is shown in the tabular form as under : Description Contract receipts (Rs.) To be estimated now (%) Total income estimated now for taxation (Rs.) Sub contract received from others. 333388010 8% 26671041 Direct works received 2547050154 12.50% 318381269 Total turnover 2880438164 Total 345052310 This rate of percentage is adopted based on the various judicial decisions from time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.VII VIII respectively, should also be considered for determining the total income. In the result, the appeal is partly allowed, subject to my observations as above . 6.2. Based on the above in A.Y. 2008-09, similar directions were given in other years. 7. Before us, Revenue could not point out any of those clinching evidences which are to be excluded from the turnover or to be brought to tax separately. In the absence of any quantification of the amounts either by the A.O. or by the Addl. CIT in their reports or before us by any particular means, we are not in a position to differ from the orders of the Ld. CIT(A) given on the facts. Ld. CIT(A) seems to have examined all the issues, accepted part of the findings of the A.O. that the sub-contracts are only name sake. However, he did not agree for disallowance of entire sub-contract expenditure when the project was undertaken by the assessee and contract receipts were accounted for. In view of this, as both the authorities of Revenue accepted the estimation of income and as Ld. CIT(A) resorted to estimation based on the norms already been formed in this regard i.e., estimation of income at 12.5% on the main contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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