TMI Blog2014 (1) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... the time gap available for executing the contract work, etc., have to be taken into consideration – thus, reference to earlier order of this Tribunal for the purpose of estimating the profit is justified - Income of the assessee has to be estimated at 8% on main contract and 5% on subcontract receipts – thus, the Assessing Officer is directed to estimate the income of the assessee at 8% on main contract receipts and at 5% on subcontract receipts. Addition made u/s 68 of the Act – Unexplained credits – Held that:- It is for the assessee to provide the explanation for cash credits, when the assessee has not pleaded that the cash credits came out of the past intangible additions, it would not be open to the Tribunal to hold that the cash credits would be covered by such additions – Relying upon CIT vs. G. M. Chennabasappa [1958 (9) TMI 78 - ANDHRA PRADESH HIGH COURT] - The omission to claim set off of past intangible additions against cash credits would give rise to a presumption that the former amounts were not available for set off - When the alternate plea that tangible additions in the past could take care of cash credits of current year is not taken at the earlier stage and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m such contracts is very high. Further referring to the subcontracts received from Raghu BKMJV, Ramky Infrastructure Ltd. and Satyamurthy JV, she noted that the profit margin from such subcontract work, is usually high. Referring to the subcontract work received from the last two parties, she noted that, those parties have retained only a small percentage of the gross amount and have passed on the balance profit margin to the assessee. She noted, under these circumstances, the profit margin of the assessee was much more than the rate of 5.8% shown in the return. In view of various defects noticed by her in the books of account of the assessee and further in view of the adverse observations made by the auditors, in their audit report in Form 3CB, as referred to in para 3 of the assessment order, the Assessing Officer rejected the books of account of the assessee. Invoking provisions of section 145(3) of the Act and estimated the profit from the contract receipts, applying a rate of 8%. Adopting such rate, on that amount of contract receipts, she computed the net profit from the contract works at Rs. 4.51 crores. The first grievance of the assessee is with regard to estimating of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ratio from the contract business. By keeping this factual situation in mind, let us now examine whether the estimation of profit by the CIT(A) at 8% on contract receipt is justified or not. 7. We have carefully gone through the earlier order of this Tribunal in the case of Krishnamohan Constructions (ITA No. 380/H/94 dated 10.3.1999), K.C. Reddy Associates (ITA Nos. 804 805/Hyd/93 dated 24.4.96), Sri Srinivasa Constructions (ITA No. 1843/Hyd/89 dated 29.8.1999) and M. Bhaskar Reddy (ITA No. 168/Hyd/2006 dated 1.9.2007). No doubt this Tribunal estimated the profit from 12.5% to 8% depending upon the factual situation. A bare reading of the order of this Tribunal order in M. Bhaskar Reddy (supra) clearly shows that this Tribunal after considering the judgement of the Apex Court in C. Velukutty, 60 ITR 239 and the decision of the Special Bench of this Tribunal in Arihant Builders Pvt. Ltd. vs. ACIT, 291 ITR 41 (SB) and by taking a clue from section 44AD of I.T. Act the profit was estimated at 8% on main contracts and 5% on subcontract receipts. Admittedly section 44AD would be applicable in respect of a case where the gross contract receipt does not exceed Rs. 40 lakhs. Wherever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut when we come across the order of the Special Bench of Ahmedabad in the case of Arihant Builders Pvt. Ltd. vs. ACIT (291 ITR (AT) 41) (SB) (Ahd) wherein income is estimated at 8% of the main contract receipts and at 5% on subcontract receipts. Being so, in our opinion, considering the facts of the assessee's case income of the assessee has to be estimated at 8% on main contract and 5% on subcontract receipts. Similar view has been taken by this Tribunal in Teja Constructions in ITA No. 1191/Hyd/2011 order dated 17.2.2012. Accordingly, we direct the Assessing Officer to estimate the income of the assessee at 8% on main contract receipts and at 5% on subcontract receipts. 10. The next ground is with regard to sustaining the addition made u/s. 68 of the Income-tax Act, 1961 and not giving the benefit of telescoping to the same out of the estimated business income of the assessee. . 11. The learned AR submitted that once the income is estimated there cannot be any addition of whatsoever. For this purpose he relied on the judgement of Indwell Constructions (232 ITR 776) wherein it was held that where the books of account are rejected by the Revenue cannot rely on the same books fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds unexplained cash credit separately valued. 13. Further, the approach of the various High Courts' is not uniform on the above aspect as would be seen from the following cases. In CIT v. Aggarwal Engg. Co. (Jai.) (2006) 206 CTR (P H) 648, the Punjab Haryana High Court held, relying on decision in CIT vs. Banwarilal Banshidhar (1998) 148 CTR (All) 533; (1998) 229 ITR 229 (All), that no separate addition on account of cash credit and on account of unexplained payments for purchases made outside the books can be made once the net profit rate is applied on contract receipts of an assessee for estimating his income from contract work. Even when the books of account relating to the assessee's business are rejected and income from such business is determined on estimate basis, a separate addition (which may not exceed the difference between the income as estimated by the Department and the income/loss as per books) may be made under section 68 towards cash credits which are not explained or which are not properly explained. This is because the source of the former is business whereas for the latter the Department does not have to locate any particular source [Kale Khan Mohammed Hanif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business accounts of the assessee is related to his concealed income from the same business [CIT vs. Maduri Rajaiahgari Kistaiah (1979) 120 ITR 294 (AP) where the assessee pleads that the impugned cash credits came out of suppressed profits which are already included in the income estimated from business on rejection of the books, it is for him to prove that it is so [CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) reversing Devi Prasad Vishwanath Prasad vs. CIT (1963) 50 ITR 641 (All) and impliedly approving on this point Maddi Sudarsanam Oil Mills Co. vs. CIT (1959) 37 ITR 369 (AP) and CIT vs. Krishna Mining Co. (1972) 83 ITR 860 (AP). The Supreme Court in this case of CIT vs. Devi Prasad Vishwanath Prasad observed thus : "There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained and the business income estimated by him under section 13 of the IT Act, after rejecting the books of account of the assessee as unreliable ..... Whether in a given case the ITO may tax the cash credit entered in the books of account of business, and at the same time estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the Revenue to rely on all the circumstances pointing to that conclusion." 17. Thus, as explained by the Supreme Court, income from intangible additions is available to the assessee for, inter alia, introducing amounts in his account books. If any unexplained cash credits can be reasonably related to the amount covered by the intangible additions made in the past or in that very year, necessary set off may be given by the authorities on that account. In each case, the true nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any, linking up the cash credit entries would be relevant factors. The assessee, instead of merely raising an argument, must support his claim by proper explanation, affidavit and material. Thus, there is no general or absolute rule to the effect that whenever additions to profits are made, they must be regarded as funds represented in the books of account as cash credits. The question depends on the findings of fact. If there is no connection found between the cash credits and the additions made to profits, the assessee would not be entitled to set off cash credits against the past intangible addition. 19. Since it is for the assessee to provide the explanation for cash credits, when the assessee has not pleaded that the cash credits came out of the past intangible additions, it would not be open to the Tribunal to hold that the cash credits would be covered by such additions [CIT vs. G. M. Chennabasappa (1959) 35 ITR 261 (AP). The omission to claim set off of past intangible additions against cash credits would give rise to a presumption that the former amounts were not available for set off. When the alternate plea that tangible additions in the past could take care of cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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