TMI Blog2013 (11) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the income estimated for main contract works and sub-contract works, we also direct the assessing officer to estimate the income sub-contract works @ 4.5% of the relevant net contract receipts - Decided in favour of assessee. Business income or capital gain - Income from other sources - Interest on Fixed deposit receipts - Held that:- facts were that on account of delay in payment of contract receipts, interest was paid additionally with reference to such delayed receipts, and, therefore, such interest was only accretion to the assessee’s receipts from the contract works and was attributable to and incidental to the business carried on by it. There being a direct nexus between the contract receipts and interest thereon in the said case, the interest income was held as business income, whereas in the appellant’s case, the interest income did not flow directly from the contract receipts, and, therefore, it cannot be said that the interest income had a direct nexus with such receipts, and, accordingly, it cannot be treated as business income of the appellant. Interest earned on bank deposits has to be assessed separately, even if the income from contract works is estimated - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer assessed the interest received on fixed deposit receipts separately under the head Income from other sources . The assessing officer also noticed that the assessee had paid freight charges to the tune of Rs.54,88,106/- without deducting tax at source u/s 194C of the Act. Hence, the assessing officer disallowed the claim of freight charges by invoking provisions of section 40(a)(ia) of the Act. Aggrieved, the assessee carried the matter in appeal before Ld. CIT(A). 3. The first appellate authority, on considering the fact that the assessee has also executed works on sub-contract basis, estimated income from subcontract works @ 6% of sub-contract receipts. The Ld. CIT(A), however, confirmed the order of the assessing officer on income estimated on main contract works, i.e., 8%; assessment of interest on FDRs under income from other sources and also the disallowance of freight charges made u/s 40(a)(ia) of the Act. Still aggrieved, the assessee has filed this appeal before us. 4. The Ld. Counsel for the assessee invited our attention to the financial statements filed along with the return of income and submitted that the profit declared by the assessee after depreciation wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would depend upon the facts and circumstances prevailing in that case and such kind of estimates cannot be generalized or standardised. 7. In the instant case, it has been brought to our notice that assessee himself has declared a profit of 5.20% after depreciation on the combined Gross receipts. In our opinion, the assessee deserves further reduction in the estimate made by the Ld. CIT(A) in view of the huge depreciation benefit available to the assessee. Hence, on a conspectus of matter, in our view, the matter would meet the ends of justice if the profit from main contract works is estimated @ 6.5% of the relevant net contract receipts. Since the Learned CIT(A) has maintained a difference of 2% between the income estimated for main contract works and sub-contract works, we also direct the assessing officer to estimate the income sub-contract works @ 4.5% of the relevant net contract receipts. We order accordingly and the order of learned CIT(A) on this issue stands modified accordingly. 8. The next issue relates to the assessment of interest on Fixed deposit receipts under the head Income from other sources and not as business income as claimed by the assessee. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon ble Karnataka High Court in the case of CIT Vs. Chinna Nachimuthu Constructions (supra), that even if it is accepted that the appellant had made the said FDRs in order to secure contract works, yet the earning of interest income therefrom cannot be said to have a direct nexus with the income emanating from the undertaking of contract works, in the light of the decision of the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT (227 ITR 172) which held that interest earned on deposits placed for the purpose of obtaining loans for business cannot be treated as business income, but only as income from other sources. The said decision which was rendered in the context of sections 56 and 57 of the Act, has been followed in the case of CIT Vs. Autokast Ltd., (248 ITR 110) (Supreme Court). Likewise, in the case of CIT Vs. Dr. V. Gopinathan (248 ITR 449) (Supreme Court) interest on FDRs was held not to qualify for setting off against interest on borrowed loans on the rationale that such interest on FDRs partook of the character of non-business income. The other decisions of the Hon ble Supreme Court are CIT Vs. Sterling Foods (237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been invoked, and that, in the alternative, since the income from business has been estimated after rejection of books of accounts, no separate addition was called for on the basis of the same books of accounts, in the light of the decision of the Hon'ble ITAT., in the following cases :- (a) Jagdish Lal Vs. Income-Tax Officer (94 TTJ 1119) (Jodhpur Bench) and (b) DCIT Vs. Krishan Lal (ITA No.135 (CHD) of 2003 (Chandigarh Bench 'B'). 5.2. After hearing the learned authorized representative and on a careful consideration of the facts relating to the issue, the following observations made and decisions taken :- (i) Despite the Assessing Officer having given a finding after verification of the books of accounts to the effect that freight payments made to several parties on various dates with each payment exceeding Rs.20,000 and the aggregate of each payment exceeding Rs.50,000 during the relevant accounting year, the appellant has continued to harp on a patently false averment that the payments to each individual party never exceeded Rs.20,000. Such conduct gives a poor impression of the appellant before the appellate authority in the face of hard and irrefutable do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee is estimated after rejection of book results. (a) Teja Constructions Vs. ACIT (2010)(129 TTJ (Hyd)(UO) 57) (b) I.T.O. Vs. Sahadev Pradhan (2012)(18 ITR (Trib) 180 (Cuttack) On the contrary, the Learned D.R strongly supported the view expressed by Learned CIT(A) on this issue. 12. We have heard the rival contentions on this issue and carefully perused the record and the decisions relied upon by Learned A.R. We notice that the decision rendered by the Hyderabad bench of the Tribunal has been followed by the Cuttack bench of the Tribunal. The Hyderabad bench of the Tribunal, in the case of Teja Constructions (Supra) has taken the view that the rejection of books of accounts and the book results and consequent estimation of income takes care of the irregularities committed by the assessee. 13. However, we find that the disallowance prescribed under section 40(a)(ia) is a technical disallowance, which shall be attracted only if there is a failure on the part of the assessee to deduct and pay the TDS amounts as per the relevant provisions of the Act. It is also further seen that the expenses so disallowed can be claimed as expenditure in the year in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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