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2019 (9) TMI 861 - AT - Income TaxAddition u/s.153A - Disallowance u/s.40(a)(ia) - failure to deduct tax at source on payment towards Transportation receipts - HELD THAT:- The instant case falls under the completed assessment category, for which though the return was filed u/s.139(1) but the assessment was not taken up and further the time limit for issuing notice u/s.143(2) had already expired. The extant addition has been made by invoking the provisions of section 40(a)(ia) - assessee debited its Profit and loss account with a sum of ₹ 3,46,64,154/- on account of Earth moving charges. AO found that the assessee did not deduct any tax at source on this amount u/s.194C of the Act. Following his order for the A.Y. 2005-06, he considered 25% of the payments made on Earth moving charges as towards transportation of sand etc. on which it was opined that tax was liable to be deducted at source. Having not deducted tax at source, the AO held that the amount was disallowable u/s.40(a)(ia). It is observed from the above discussion that the disallowance in question is not based on any incriminating material found during the course of search and assessment year under consideration is that of completed assessment, and not that of abated assessment. In our considered opinion and respectfully following the above precedents of the Hon’ble jurisdictional High Court, we hold that the disallowance in question cannot be sustained because no incriminating material was found on this score. We, therefore, order to delete the above disallowance. Estimation of income at 10% of receipts - number of incriminating documents were found during the course of search, which were seized - HELD THAT:- Section 44AD though the section strictly applied only where the gross receipts did not exceed an amount of ₹ 40.00 lakh, but at any rate, it gave hint about the appropriate percentage of profit in the business of Civil Construction. Even though this section technically does not apply to the assessee because of the amount of gross receipts exceeding ₹ 40.00 lakh, still we can find out a reasonable net profit percentage to be applied in the given circumstances at 8%. We, therefore, hold that a net profit rate of 8% be applied to the Total receipts as against 7.49% declared by the assessee and 10% estimated by the ld. CIT(A). However, in applying this percentage, income in the nature of interest received on income-tax amounting to ₹ 6,994/- and office rent received amounting to ₹ 1,75,500/- which are items of subject matter of Ground No.1 of the Revenue’s appeal, should be excluded. Interest received on income-tax should be separately included in the total income of the assessee under the head ‘Income from other sources’. Office rent should be considered for the purposes of computation of income under the head ‘Income from house property’. These two amounts of receipts, however, are directed to be excluded while applying the percentage of net profit at 8% on the gross contract receipts. The other two items in Ground No.1 of the Revenue’s appeal, namely, Discount received and Miscellaneous receipts are related to the contract receipts of the assessee which cannot be separately excluded.
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