TMI Blog2012 (5) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... ACCOUNTANT MEMBER and SHRI SAKTIJIT DEY, JUDICIAL MEMBER For the Appellant: Shri V. Raghavendra Rao For the Respondent: Mrs. G.V. Hemalatha Devi O R D E R PER CHANDRA POOJARI, AM: This appeal by the assessee is directed against the order of the CIT(A)-III, Hyderabad dated 28.9.2011 for assessment year 2007-08. 2. The assessee raised the following grounds of appeal: 1. The order of the CIT(A)-III, Hyderabad dated 28.9.2011 is against law and facts of the case. 2. The learned CIT(A) is not justified in making observation that the books of account were not rejected by the Assessing Officer in utter disregard of the specific finding of the Assessing Officer vide para 6 of the assessment order. 3. the learned CIT(A) ought not to have upheld the estimation of the profit at 8% of the turnover inasmuch as it was excessive and there was no material evidence on record supporting the estimation of profit at 8% of turnover. 4. The learned CIT(A) ought to have appreciated that while resorting to estimation of total income the value of material supplied by the contractee should be reduced from the turnover. 5. The learned CIT(A) ought to have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering such submissions and the facts of the case, the Assessing Officer held that such claim made by the assessee is in nature of a contingent liability, which cannot be allowed as deduction. Therefore, he disallowed the said amount. 5. While verifying the details of prior period income, the Assessing Officer noticed that the assessee has shown a sum of ₹ 4,30,642 under such receipts and after setting off against prior period expenditure of ₹ 10,23,526, has claimed net amount of ₹ 5,92,884 as expenditure in the P L account. He held that such amount of ₹ 4,30,642 received during the previous year, is taxable as income fro the assessment year 2007-08. However, stating that the assessee has not furnished the details in respect of said amount of ₹ 10,23,526 claimed as prior period expenditure, he held that no deduction can be allowed for the same. 6. During the assessment proceedings, the Assessing Officer further noticed that the assessee has claimed huge amounts towards sub-contract payments, hire charges, professional charges, etc. In respect of such amounts paid by the assessee during the period from April 2006 to February 2007, though it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that there was no occasion to deduct tax at source as no amount has been paid by them. However, the Assessing Officer was not convinced with such submissions of the assessee. Stating that such amount debited are in the nature of constructive payment made by the assessee, in absence of TDS on the same, he disallowed the said two amounts, applying provisions of section 40(a)(ia) of the Act. On the same ground, he disallowed another amount of ₹ 65,37,399 debited to P L account towards machinery hire charges. 7. During the assessment proceedings, the Assessing Officer found that the gross contract receipts shown by the assessee at ₹ 200.75 crores, includes a sum of ₹ 59.38 crores for which works were given to sub-contractors on back-to-back basis and the balance amount of ₹ 141.37 crores pertains to works contract directly executed by the assessee company. The net profit shown by the assessee from such direct contract work was less than 6%, which is very low when compared with the normal profit rate of 8% from this line of business. For verifying the claim of expenses made by different heads, the Assessing Officer has asked to the assessee to produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived at the figure of ₹ 16,10,48,803 and after making addition and further disallowances under different heads as discussed above, aggregating to ₹ 13,56,84,998 and after allowing deduction for an amount of ₹ 5,96,738 determined the total income at ₹ 29,61,37,060 vide his order dated 31.12.2009 passed u/s. 143(3) of the Act. 10. On appeal, the CIT(A) deleted the disallowance with regard to payment to L T without TDS (viz., ₹ 1,29,91,473; ₹ 44,57,463 and ₹ 65,37,399). Other than these, the CIT(A) upheld all other additions. Hence the assessee is in appeal before us. 11. We have heard both the parties and perused the material on record. In this case the assessee in spite of giving sufficient opportunities to produce the books of account could not produce the same before the lower authorities. Being so, having no other option, the Assessing Officer estimated the income of the assessee but while doing so, he has made further additions u/s. 40A(3), 40(a)(ia) of the Act and also towards prior period income. It is admitted fact that the assessee did not produce books of account in support of the claim of expenditure. When the assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any difficulty in upholding that order. But when he proposed to add back an exact item in the profit and loss account, he was relying on the rejected books, which he could not do. There was also a further difficulty if section 40 was to be taken into account even after making an estimate. When there are certain other deductions which are to be disallowed as wealth-tax payment in section 40, it cannot be said that after making an estimate the wealth-tax charged in the profit and loss account should again be added back in to the profit. Therefore, it was not correct in law to make the separate addition of ₹ 63,859 representing the interest and remuneration paid to the partners to the income already estimated and assessed from contracts. 13. It is clear from the above judgement that where the books of account have been rejected the revenue cannot rely on the same books of account for making any other addition. It was also held that when an estimate is made towards income of the assessee, it is in substitution of the income that is to be computed u/s. 29 and in other words, all the deductions which are referred to u/s. 29 are deemed to have been taken into account, whil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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