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TMI Blog2013 (12) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2008-09 2. Assessee is engaged in the business of execution of contract works. It filed its return of income for the assessment year 2008-09 on 29.9.2008 declaring a total income of Rs.22,98,712. As against this, assessment was completed on a total income of Rs. 1,15,30,536 vide order of assessment dated 29.11.2010, passed under S.143(3) of the Act. While so framing the assessment, the Assessing Officer rejecting the book results of the assessee, estimated the income of the assessee from business at 8% of the gross receipts, working out the same at Rs.57,38,920 and also made a disallowance of Rs.14,42,980 in terms of S.40(a)(ia), thereby determining the income for the assessee from business or profession at Rs.71,81,900. To th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that these items of income have no nexus with the business of the assessee. The CIT(A), though accepted that such income are related to the business of contracts, but held that the same cannot be considered as forming part of the gross receipts from the business of the assessee. Accordingly, he confirmed the action of the Assessing Officer in this behalf. 5. It is the contention of the learned Authorised Representative for the assessee before us that the surplus metal (stones) after completion of a project are sold off, similarly, miscellaneous income constitutes of income from sale of empty drums, etc. It was thus submitted that these items of income cannot be treated as income from other sources, since they are integrally connected wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Then comes the income earned by assessee by sale of empty bags, containers and drums. It is not in dispute that these goods are used by the assessee in their day-to-day main business activities -they being engaged in the civil works contract. In order to dispose of these goods after the commodity kept in these goods are used in the construction activity, one cannot say that it is not concerned with business. In other words, it is incidental to the business activity and, hence, in our view any income earned by sale of these empty bags/containers/drums cannot be said to be an income from other sources but it is an income from business activity of the assessee." However, as can be seen from the very same decision, the Hon'ble Madhya Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at 8% of the gross receipts also made separate addition of Rs.14,42,980, being the disallowance under S.40(a)(ia) of the Act. In the first appellate proceedings, the CIT(A), accepting the assessee's contention that no separate disallowance of expenditure can be made, when income is estimated by applying a fixed percentage, deleted the disallowance made by the Assessing Officer. 11. It is the contention of the learned Departmental Representative before us, that the disallowance under S.40(a)(ia) is a statutory disallowance and not a disallowance of expenditure in the strict sense of the term. It is disallowance for a default on the part of the assessee, to comply with the statutory obligation, and therefore, it has to be mandatorily made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd held as under- " Now coming to the Departmental appeal in the case of Sri Shyamal Kr. Dey vide I. T. A. No. 1772 (Kol)/2007, the Assessing Officer has determined the income by applying a net profit rate of the turnover. The Assessing Officer in addition to the determination of net profit as a percentage of turnover, made further disallowance under Section 40A(3). The Commissioner of Income-tax (Appeals) deleted the disallowance made under Section 40A(3). The Revenue aggrieved with the order of the Commissioner of Income-tax (Appeals) is in appeal before us. It is contended by learned Counsel that once a net profit rate is applied, no further addition/disallowance can be made under Section 40A(3). In support of this contention, he has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) it is seen that the Income-tax Appellate Tribunal Visakhapatnam has not taken note of the Special Bench decision of the Tribunal(Kolkata Bench) in the case noted above. The Special Bench decision of the Tribunal, being binding on a Division Bench, we respectfully follow the same, besides the decision of the coordinate bench in the case of Teja Constructions (129 TJ(Hyd)(UO)57), and hold that having resorted to estimation of income of the assessee from business in this case, no separate addition could be made, even in terms of S.40(a)(ia) of the Act. In that view of the matter, we uphold the order of the CIT(A), and reject the grounds of the Revenue in its appeal. 14. In the result, Revenue's appeal is dismissed. 15. To sum up, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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