Maa Highways Khammam Hyderabad

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IN THE INCOME TAX APPELLATE TRIBUNAL

HYDERABAD BENCH ‘B’, HYDERABAD

BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER AND

SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER

ITA No. Asst Appellant Respondent
year

136/Hyd/2015 2008-09 Dy. Commissioner of M/s. Maa Highways,
137/Hyd/2015 2009-10 Income-tax, Central Khammam
138/Hyd/2015 2010-11 Circle 3, Hyderabad
166/Hyd/2015 2007-08 (PAN AAIFM 0756 B)

192/Hyd/2015 2007-08 M/s. Maa Highways, Dy. Commissioner of
193/Hyd/2015 2008-09 Khammam Income-tax, Central Circle
194/Hyd/2015 2009-10 3, Hyderabad
195/Hyd/2015 2010-11 (PAN AAIFM 0756 B)

168/Hyd/2015 2010-11 Dy. Commissioner of M/s. Sree Nagendra
169/Hyd/2015 2011-12 Income-tax, Central Constructions, Khammam
Circle 3, Hyderabad
(PAN – AAUFS 4784 M)

200/Hyd/2015 2009-10 M/s. Sree Nagendra Dy. Commissioner of
201/Hyd/2015 2010-11 Constructions, Income-tax, Central Circle
Khammam 3, Hyderabad

(PAN – AAUFS 4784 M)

173 /Hyd/2015 2009 -10 Dy. Commissioner of M/s. Ragini Construc –
174/Hyd/2015 2010-11 Income-tax, Central tions, Khammam
Circle 3, Hyderabad
(PAN – AAFFR 7361 G)

203 /Hyd/2015 2009 -10 M/s. Ragini Construc – Dy. Commissioner of
204/Hyd/2015 2010-11 tions, Khammam Income-tax, Central Circle
3, Hyderabad
(PAN – AAFFR 7361 G)

Appellants by : Shri P. Murali Mohana Rao

Respondent by : Smt. Vasundhara Sinha CIT -DR

Date of Hearing 16.3.2016

Date of Pronouncement 31.3.2016
Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman v Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman Maa Highways khammam, tribunal hyderabad, by shri Rifaur Rehman
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———————Page 2———————

2ITA No.136/Hyd/2015 & 19 ors
M/s. Maa Highways and three others
Khammam

O R D E R

Per Bench :

There are sixteen appeals in this bunch, concerning three

assessees of a common group. There are cross appeals for

assessment years 2007-08 to 2010-11 in the case of M/s. Maa

Highways, Khammam, besides cross appeals for assessment years

2009-10 and 2010-11 in the case of M/s. Ragini Constructions. In the

case of M/s. Sree Nagendra Constructions, there are cross appeals

only for assessment year 2010-11 and there is only assessee’s appeal

for assessment year 2009-10 and only Revenue’s appeal for

assessment year 2011-12. Since the factual background and the

issues involved in all these appeals are common, these appeals are

being disposed of by this common and consolidated order for the sake

of convenience.

2. Facts of the case common in all these cases are that there

was a search and seizure operation under S.132 of the Act in the case

of Madhucon Projects Limited and group of cases on 4.2.2011. After

the search in the case Madhucon Projects Ltd. and its group concerns

including the assessees herein, notices under S.153A were issued to

the assessees. In response thereto, the assessees filed returns of

income for relevant assessment years. During the assessment

proceedings, under S.143(3), the books 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
———————Page 3———————

3ITA No.136/Hyd/2015 & 19 ors
M/s. Maa Highways and three others
Khammam

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 during the course of search and in the post search

proceedings, though the assessees were given sufficient time to

produce the books of account and other supporting documents, the

assessees have failed to produce the same. He further observed that

the assessees were mainly stationed at Khammam and have opened

bank accounts in Hyderabad and New Delhi, where they do not have

any operations, and therefore, he came to the conclusion that these

bank accounts are opened only to facilitate the diversion of 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-contractors to the Managers of M/s Madhucon

Projects. Observing that these amounts were withdrawn and siphoned

back to the management of M/s. Madhucon Projects Ltd. during the

relevant financial year, the Assessing Officer concluded that these

amounts were never used for the business activity of the assessees

herein but were returned back to the contractor. He therefore,

disallowed the same in the hands of the principal contractor, and

added the same protectively in the hands of the assessee firms

herein.

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.
———————Page 4———————

4ITA No.136/Hyd/2015 & 19 ors
M/s. Maa Highways and three others
Khammam

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 income in an assessment completed under S.143(3) read

with S.153A is not sustainable. Even otherwise, he submitted that the

issue of estimation of income in the case of M/s Maa Highways, one of

the assessees herein, has come up before this Tribunal in ITA

No.54/Hyd.2013 and this Tribunal vide its order dated 30.7.2013

has directed estimation of income at 5% of the gross receipts in the

case of sub-contracts and therefore, since all the assessees herein

belong to the same group and factual background 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 gross receipts is quite reasonable and justified.

7. As regards the Revenue’s appeal against the deletion of

additions made on protective basis, the Learned Departmental

Representative submitted that since the substantive additions made in

the hands of M/s. Madhucon Projects Ltd., are pending adjudication by

the CIT(A), these appeals may be kept pending, to which the learned

counsel for the assessee objected. The Learned Departmental

Representative also relied upon the decision of the coordinate Bench of

this Tribunal in the case of Prabhu Wines in ITA No.1100/Hyd.2013
———————Page 5———————

5ITA No.136/Hyd/2015 & 19 ors
M/s. Maa Highways and three others
Khammam

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. On the other hand, the learned counsel for the assessees

also relied upon the decision of the jurisdictional High Court in the case

of Indwell Constructions (232 ITR 776), wherein it was held that where

the income of an assessee is estimated, there cannot be any other

addition. Therefore, according to him, the addition of rerouting of

funds in the hands of the assessees herein on protective basis is rightly

deleted by the CIT(A).

9. Having regard to the rival contentions and the material on

record, 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.,

Maa 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 appeal be estimated at 5% of the gross receipts, and

additions if any, may be determined accordingly. Assessees appeals

are accordingly treated as allowed.

10. As regards the Revenue’s appeals against the deletion of

the additions made on protective basis in the cases of these assessees,

we find that the additions have been made consequent to detecting

that the assessees received funds from M/s. MPL Ltd. and rerouted
———————Page 6———————

6ITA No.136/Hyd/2015 & 19 ors
M/s. Maa Highways and three others
Khammam

the same back to M/s. MPL itself. Assessing Officer therefore,

presumed that the 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. However, to say
that this item needs to be disallowed in the hands of the
appellant, we have to first establish that the specific
withdrawals were accounted in books as expenditure incurred
during the year and further, the expenditure was not only
revenue in nature but was also debited to the P&L account to
be disallowed as expenditure. In the absence of books and
vouchers, one cannot specifically conclude that the amounts
withdrawn were indeed deployed and were incurred towards
revenue expenditure 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 withdrawals were more than the turnover
for A.Y. 2010-11 and A.Y. 2011-12.”

The Learned Departmental Representative, had relied upon the

decision in the case of Madhu Wines cited (supra), but we find that the

decisions relied upon by the Learned Departmental Representative are

not applicable to the facts of the cases before us. In the cited case,

besides the addition on account of estimation of business income,

further additions under S.68 were upheld. In the cases before us,

though the authorities below have 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
———————Page 7———————

7ITA No.136/Hyd/2015 & 19 ors
M/s. Maa 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 to the Profit & Loss Account. Where there

is estimation of business income, disallowance and consequential

addition of revenue expenditure is not sustainable, as held by the

jurisdictional High Court in the case of Indwell Constructions (supra).

In view of the same, we agree with the view of the CIT(A) that this

issue is also squarely covered by the decision of the jurisdictional High

Court in the case of Indwell Constructions (supra), wherein it has been

categorically held that where business income of an assessee is

estimated, no other disallowance may be made. In the case of Maa

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).

11. In the result, appeals of the assessees are treated as

allowed and the appeals of the Revenue are dismissed.

st
Pronounced in the open court on 31 March, 2016

Sd/- Sd/-

(S.Rifaur Rahman) (P.Madhavi Devi)
Accountant Member. Judicial Member

st
Dt/- 31 March, 2016

———————Page 8———————

8ITA No.136/Hyd/2015 & 19 ors
M/s. Maa Highways and three others
Khammam

Copy forwarded to:

1. M/s. Maa Highways (Khammam)
C/o. M/s.P.Murali & Co., Chartered Accountants, 6-3-655/2/3,
1st Floor, Somajiguda, Hyderabad-82

2. M/s. Sree Nagendra Constructions, (Khammam)
C/o. M/s.P.Murali & Co., Chartered Accountants, 6-3-655/2/3,
1st Floor, Somajiguda, Hyderabad-82

3. M/s. Maa Highways (Khammam) C/o. M/s.P.Murali & Co.,
Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda,
Hyderabad-82

4. M/s. Ragini Constructions (Khammam) C/o. M/s.P.Murali & Co.,
Chartered Accountants, 6-3-655/2/3,
1st Floor, Somajiguda, Hyderabad-82

5. Dy. Com missioner of Income -tax Central Circle 3, Hyderabad
6. Commissioner of Income -tax(Appeals) VII, Hyderabad
7. Commissioner of Income -tax (Central), Hyderabad
8. Departmental Representative ITAT, Hyderabad

B.V.S.

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Ashni Shah is pursuing Chartered Accountancy and is currently engaged as Article Assistant at Rasesh Shah and Associates and can be reached at ashnishah2017@gmail.com. She loves Dancing and Gyming.

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