TMI Blog2014 (1) TMI 1397X X X X Extracts X X X X X X X X Extracts X X X X ..... us, the assessee is directed to furnish details of contract receipts as well as seigniorage charges - On receipt of these details, the AO shall apply the net profit at 8% on the contract receipts - the issue is remitted back to the AO for fresh consideration. Deletion of addition made u/s 68 of the Act – No scope for further addition - Held that:- The decision in Sri P.V. Sitaramaswamy Naidu vs. Addl. CIT [2014 (1) TMI 1266 - ITAT HYDERABAD] followed - The availability of funds representing the intangible additions should be quantified not with reference to what the assessee offered for taxation but what was actually adopted in assessments for taxation - the assessee has failed to show how the addition u/s. 68 is related to estimated income - the addition made towards sundry creditors made u/s. 68 of the Act falls under the head "income from other sources" – the order of the CIT(A) set aside and the matter remitted back to the AO - Decided partly in favour of Assessee. - ITA No. 325/Hyd/2013 - - - Dated:- 21-1-2014 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Appellant : Sri Jeevan Lal Lavadiya For the Respondent : None ORDER Per Chand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account properly. Therefore, the book result will not reflect the correct profit of the assessee. In these circumstances, in our opinion, the Assessing Officer has rightly rejected the books of account. Therefore, we do not find any infirmity in the order of the lower authority in rejecting the books of account and estimating the profit. 7. Now coming to the estimation of profit. The Assessing Officer estimated the profit at 12.5%. However, the CIT(A) restricted the same to 8% in respect of main contract and 5% on sub-contract. When the books of account were rejected the only method available to the Assessing Officer is to estimate the profit. The profit ratio cannot be a constant factor for each and every year. In other words, profit ratio would fluctuate depending upon various factors such as the place of execution of contract, availability of raw material, labour and assessee's own funds, etc. Therefore, for the purpose of estimating the profit, the lower authorities may take into consideration the profit ratio of the similarly placed traders in the same locality and other factors such as availability of labour, demand in the market, etc., as discussed above. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of this Tribunal alone for the purpose of estimating the profit at 12.5% may not be justified at all. 9. In fact, in the case of Krishnamohan Constructions in ITA Nos. 116 and 117/Hyd/2007 for A.Ys. 1993-94 and 1994- 95 the Tribunal estimated the profit only at 8% even though the profit was estimated at 12.5% for A.Y. 1992-92. This itself shows that for each year the profit has to be estimated depending upon the factors which prevail in the locality. 10 We have also carefully gone through the orders of the lower authorities. The CIT(A) after referring to the decision of this Tribunal in the case of Krishnamohan Constructions (supra) and the Special Bench decision in Arihant Builders (supra) estimated the profit at 8% for main contract and for sub contract at 5%. It may not be out of place to mention that this Tribunal uniformly estimating the profit from main contract at 8% to 12.5% depending upon the factual situation and 5% to 7% on the sub contract depending upon the factual situation. Therefore, in our opinion, estimation of profit at 8% by the CIT(A) on main contract and at 5% on sub contract is justified. We do not find any infirmity in the order of the lower authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the estimated income is not justified. Therefore, the lower authorities have rightly rejected the same. 14. Now coming to the payment of interest and salary to the partner. Proviso to section 44AD(2) clearly says that salary and interest paid to the partner shall be deducted from the income computed under sub-section (1) of section 44AD subject to limitation u/s. 40(b) of the Act. As we have already observed, though there were restrictions with regard to application of section 44AD wherever the total contract receipts exceed Rs. 40 lakhs, with effect from 1.4.2011 such restriction was removed by the Legislature. Moreover, the co- ordinate Bench this Tribunal in M. Bhaskar Reddy (supra) after taking a clue from section 44AD estimated the profit at 8% of the contract receipt. Therefore, by taking a clue from the provision of section 44AD as is applicable for the assessment year under consideration and the provisions which would come into operation with effect from 1.4.2011, in our opinion, the payment of interest and salary to the partner shall be allowed subject to limitation specified in section 40(b) of the Act from the estimated income. 15. We have carefully gone through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl. CIT in ITA No. 264/Hyd/2012 order dated 9.1.2013 held as follows: "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 for addition of exact item in the Profit and Loss A/c. 12. We have carefully gone through this judgement. This judgement is with regard to allowability of deduction while computing business income of the assessee. Now, we are concerned with the addition made u/s. 68 of the Act. In the present case, the Assessing Officer made addition with regard to credit shown in the name of Ms. Devi Indukuri at Rs. 30,07,392 and in the name of Mr. Nandyala Bhaskar Reddy at Rs. 80,00,000 totalling to Rs. 1,10,07,392. When the credit entry is shown in the books of account it is incumbent upon the assessee to explain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 vs. CIT (1963) 50 ITR 1 (SC) impliedly overruling Ramcharitar Ram Harihar Prasad vs. CIT (1953) 23 ITR 301 (Pat) and impliedly approving Srinivas Ramkumar vs. CIT (1948) 16 ITR 254 (Pat) and G.M. Chenna Basappa vs. CIT (1958) 34 ITR 576 (AP) on this point]. In this case, the Supreme Court held that the ITO having assessed the income of the assessee on a percentage basis, was also justified in treating the unexplained cash credit as profits from an undisclosed source. Repelling the contention that the entries found in the books of account of the business must be referable to the income of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the profit must, however, depend upon the facts of each case ..... Where there is an unexplained cash credit, it is open to the ITO to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed." 15. The Andhra Pradesh High Court in CIT vs. Janab Mohd. Suleman [Referred Case No. 13 of 1968 dt. 11th Nov., 1970] has expressed the same view on similar facts and circumstances. In Karnal Motors vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. However, where in the earlier years, there was disallowance of expenditure on the ground that there was no evidence though the requisite amount was in fact paid, it cannot be said that the corresponding amount is available to the assessee for use later. 18. Under section 68, the burden is on the assessee to prima facie prove the nature and source of the cash credit found in his books and the explanation in regard thereto must necessarily be factual but not argumentative. A view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. 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 cash credits of current year is not taken at the earlier stage and no materials are placed on record to substantiate the same, rejection of such plea would be justified. [R. Dalmia (Decd.) vs. CIT; (2002) 172 CTR 180 (Del) : (2002) 255 ITR 401 (Del)]. 20. The availability of funds representing the intangible additions should be quantified not with reference to what the assessee offered for taxation but what was actually adopted in assessments for taxation. In the present case, the assessee failed to show how the addition u/s. 68 is related to estimated income. 21. In view of the above discussion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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