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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI B. RAMAKOTAIAH
PER B. RAMAKOTAIAH, A.M. : This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-2, Hyderabad dated 27-01-2015. The issues in this appeal are with reference to estimation of income and addition u/s. 68 of the Income Tax Act [Act].
Briefly stated, assessee-firm is stated to be engaged in the business of labour supply contract and filed the return of income at Rs. 8,54,110/-. The assessment was completed u/s. 143(3) of
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the Act on 27-02-2013, estimating the income at 8% of the gross receipts of Rs. 17.18 Crores, after rejecting the books of account. Assessing Officer (AO) also noticed that there was a fresh capital investment by the partners to an extent of Rs. 28 Lakhs and in the absence of any documentary proof of the same, treated the amount as unexplained investment(sic) of the firm (Section not clearly stated). Aggrieved, assessee preferred an appeal before the Ld.CIT(A), who confirmed the estimation at 8% following the decision of Co-ordinate Bench of ITAT in the case of M/s. K. Ramakrishna Contractors, Pvt. Ltd., in ITA No. 461/Hyd/2006, dt. 04-12-2009, but directed the AO to allow the interest on capital and remuneration to partners under the provisions of Section 40(b). With reference to unexplained investment in the firm, Ld.CIT(A) confirmed the same stating that assessee failed to substantiate its claim with necessary documentary evidence.
It was the submission of Ld. Counsel that assessee has been doing the business for a longer period and in the labour supply contracts assessee is declaring incomes around 5% in earlier years, hence, estimation at 8% is on higher side. With reference to share capital of the partners, it was submitted that firm is an existing firm and partners have introduced capital out of their own sources, hence, cannot be treated as ‘income of the firm’. If assessee’s contentions are not accepted, then Ld. Counsel wanted the benefit of telescoping of the share capital into the higher income estimated.
Ld.DR, however, submitted that assessee has not furnished the books of account and books are properly rejected and it was
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also submitted that estimation at 8% was approved by the ITAT in similar nature of work and relied on the Co-ordinate Bench decision as stated in CIT(A) order. With reference to share capital addition, it was submitted that assessee has not furnished any evidence, hence AO has treated the amounts as ‘unexplained credits’.
We have considered the rival contentions and perused the documents placed on record. As seen from the various TDS certificates placed on record along with return, assessee is not only in supply of labour but also in civil contract and there is work in progress in P&L A/c and Balance Sheet. Therefore, assessee is not purely labour supply contractor but also involved in other contracts of civil nature. Keeping that in mind, we are of the opinion that the estimation of income at 8% and then, allowing interest on capital and remuneration to working partners is appropriate. The Co-ordinate Bench decision in the case of M/s. K. Ramakrishna Contractors, Pvt. Ltd., (supra) has similarly decided which the Ld. CIT(A) has followed. We do not find any reason to interfere with the decision of the Ld.CIT(A) in this regard. Accordingly, the estimation of income at 8% on the gross bills and allowing interest on capital and remuneration to working partners u/s. 40(b) of the Act is confirmed.
5.1. Coming to the issue of share capital introduced by the partners, it is true that assessee has not substantiated the claim before the authorities. However, the firm is already an existing firm and partners are already on record. Therefore, the identity of the partners is not in doubt. In those circumstances, the share
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capital could have been examined in the individual partner’s hands. Moreover, the allowance of interest on capital is also linked with that of share capital of the partners. Therefore, we are of the opinion that addition of share capital in the firm is per se not legally tenable. Further AO considers the same as unexplained investment of firm, rather than unexplained credits. This is not as per the provisions of the Act. However, since assessee submits that the partners have sources, particularly of withdrawals of earlier years, this aspect requires examination by the AO. Therefore, without adjudicating the issue on merits, we restore the issue to the file of AO to examine and if the partners are existing partners, then, AO is free to take necessary steps to tax the amounts in their hands, subject to the provisions of Income Tax Act. The grounds are accordingly considered allowed for statistical purposes.
In the result, appeal of assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 10th January, 2018
Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 10th January, 2018 TNMM
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Copy to :
M/s. Thirupathi Reddy & Co., 5-6-160/B, Krishna Nagar, NTPC Jyothi Nagar, Ramagundam, Karimnagar. 2. Income Tax Officer, Ward-4, Karimnagar.
CIT (Appeals)-2, Hyderabad.
CIT-2, Hyderabad.
D.R. ITAT, Hyderabad.
Guard File.