TMI Blog2014 (1) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... opted on the gross receipts and a further allowance of remuneration, interest on capital and depreciation – Decided against Revenue. Depreciation u/s 32 of the Act – Held that:- It falls under the provision of section 30 to 38 and be deemed to have been already given full effect while estimating the income of the assessee - thus, with respect to depreciation, the ground of appeal raised by the Revenue is allowed – Decided partly in favour of Revenue. Deletion made appearing as liability – Held that:- The expenditure were of the nature claimed by the Assessee has been kept in mind for determining the estimated profits from business, none of the individual expenditure can be considered as having been allowed in computing the taxable income - In fact the books of the Assessee has been rejected and the profits have been estimated as a percentage of the gross receipts - the basic precondition for application of sec 41(1), allowance of the expenditure/ liability has been made in the assessment any previous year is not satisfied - This being the case the CIT(A) has correctly held that the addition appearing as liability in the books of account of the Assessee as profits u/s 41(1) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Asst. Year 2005-06 the income of the assessee was estimated at 10% of the gross contract receipts net of expenditure including depreciation salary and remuneration to partners. Based on this observation and relying on the decision of the Hon ble Supreme Court in the case of Jt. CIT Vs Kachwala Gems, 288 ITR 10 (SC) the AO made an addition of 10% of the contract receipts amounting to Rs 80,06,526/- and added back to the income. 4. The Assessing Officer noticed that the assessee showed an amount of Rs 47,47,442/- as amount payable to sub contractors in the balance sheet as on 31.3.2006 and asked the assessee to submit the proof of the above liability and also to confirm the same by the said parties to whom the payments were to be made. On verification of the ledgers of the said parties it was found by the Assessing Officer that out of Rs 47,47,442/- an amount of Rs 42,49,755/- was brought forward as outstanding liabilities and were shown pending from 1.4.2005. However the Assessing Officer made an addition of the entire liability shown amounting to Rs 47,47,442/- on the ground that though the liability is very old but the assessee failed to furnish subsequently the addresses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer converted the case to scrutiny and proceeded to complete the assessment u/s 143(3) on 19.12.2008 determining the total income at Rs 2,70,13,778/- The Assessing Officer while determining the said income made the following additions: 1. He estimated the profit on the gross receipts of Rs 8,06,55,267/- at 10% 2. The Assessing Officer added liability on account of amounts payable shown in the balance sheet of Rs 47,47,442/- and 3. The sundry creditors found in the balance sheet are treated as the income of the assessee Rs 1,36,89,357/- He thus arrived at a total income of Rs 2,70,13,778/- The assessee humbly submits that the Assessing Officer is not justified in estimating the net income at 10% of the gross contract receipts. The contract receipts comprises of the following: a. Total contract receipts Rs 8,06,55,267 b. Recoveries made by the Govt. i. CMR Rs. 17,288 ii) NAC Rs. 6,76,976 iii)Recoveries Rs.1,42,37,624 iv) Sales Tax Rs. 15,14,388 Rs. 1,64,46,276 The assessee humbly submits that in so far as the rate of profit is concerned (in the case of the assessee herein) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting copies of the labour accounts for kind perusal. It can be seen that the entire amount is debited to the expenditure account,. As the amount was not paid during the previous year the same was kept as outstanding liability under sundry creditors,. The Assessing Officer resorted to estimation of income from business and therefore he is not justified in separately disallowing any part of such expenditure. It is further submitted that there is no evidence with the Assessing Officer that the assessee paid these amounts during the previous year and therefore the same cannot be added even u/s 69 of the IT Act. It is further submitted that these amounts have been paid in the immediately succeeding year and there is no dispute with regard to such fact. In the circumstances, the Assessing Officer is not justified in making the said addition. In view of the above the assessee prays the Hon ble Commissioner of Income Tax (A) to kindly allow the appeal as prayed for. 8. The CIT(A) has held: I have gone through the detailed written submissions assessment order and assessment record and the order of the Hon ble ITAT in its own case. I have also perused the relevant case laws submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee has not maintained correct books of account and the true income could not be deducted and therefore estimation of income is legitimate. In the earlier year i.e. AY 2005-06 my predecessor held that 9% of the profits estimated on gross receipts seemed to meet the end of justice as the Hon ble ITAT also had confirmed the same. The Hon ble UITAT has given clear directions in its order dated 23.10.2009 in the case of the assessee which is reproduced as under: The assessee had a higher rate of profit on the contracts executed by the assessee itself. In these contracts the assessee agreed that his income is at 9% of the gross receipts. Thus accordingly we direct the assessing officer to estimate the income on the contracts executed by the assessee s own at 9%. In case of contracts taken by assessee on sub contract the income to be estimated at 8% of the gross receipts. In case of contracts given by the assessee to the 3rd party on sub contract income to be estimated at 4% This is because when the assessee given contract to the other parties on sub contract the assessee cannot keep the same percentage of profit at 9% it has to forgo certain portion of profit i.e. ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. The assessee submitted copies of labour accounts during the appellate proceedings. On perusal it is seen that entire amount is debited to the expenditure account. As the amount was not paid the same was shown as outstanding liability under sundry creditors. The AO has not brought out any evidence on record to state that the amount of Rs 1,36,89,357/- was paid and liability has been discharged in the earlier year itself. Without any adverse material evidence on hand it cannot be termed as bogus by the AO since he has to establish the same. The AR of the assessee argued that these payments were made in the subsequent years. It is clearly seen that since the AO resorted to estimate the income rejecting the books as incomplete he is not justified in separately disallowing any part of such expenditure. Therefore, I delete the addition of Rs 1,36,89,357/- for the estimated income on account of outstanding liability and direct the assessing officer to pass an order accordingly. In the result, the appeal is partly allowed. 9. Aggrieved the Revenue is on appeal and has raised the following grounds: 1. The CIT(A) is erred in directing the assessing officer to estimate the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts should be reduced out of the estimated income. The reliance of the revenue on other cases where the estimated income includes deduction of remuneration, interest on capital and depreciation does not really help the revenue s case. Estimate of income may vary from case to case. The estimate may be gross profits after which other expenditure may be allowed or the estimate may of the net income after all the expenditure. The ITAT has held in the Assessee s own case that their estimate of income as a percentage of Gross receipts is prior to allowance of depreciation, interest on capital and remuneration. The circumstances this year being identical as the earlier year and as Department has not brought anything on record to persuade us to take a different view, respectfully following the decision of the coordinate bench, we uphold the order of the CIT(A) regarding the rate of profits to be adopted on the gross receipts and a further allowance of remuneration, interest on capital and depreciation. The Revenue s appeal on these issues is dismissed. 12. Regarding depreciation, it is allowable u/s 32 of the IT Act and it falls under the provision of section 30 to 38 and be deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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