TMI Blog2014 (2) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the factual situation and 5% to 7% on the sub contract depending upon the factual situation – thus, estimation of profit at 8% by the CIT(A) on main contract and at 5% on sub contract is justified - Thus, the AO is directed to estimate income of the assessee at 8% of the gross receipts on contract works – Decided partly in favour of Assessee. Addition made u/s 68 of the Act - 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 no materials are placed on record to substantiate the same, rejection of such plea would be justified - The availability of fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertently omitted to raise the above grounds of appeal at the time of filing the appeal. According to him, all the facts relating to these grounds of appeal are on record. Therefore, he pleaded that the Tribunal may admit the additional grounds of appeal and pass appropriate orders in the matter. 5. After hearing both the parties, we are inclined to admit additional grounds by placing reliance in the case of National Thermal Power Co. Ltd. vs. CIT (229 ITR 383) (SC) where the Apex Court clearly observed that there may be several factors justifying raising of a new plea in an appeal and each case has to be considered on its own facts. The appellate authorities must be satisfied that the ground raised was bona-fide and that the same could not have been raised earlier for good reasons. The appellate authorities should exercise their discretion in permitting or not permitting the assessee to raise an additional ground/ additional evidence in accordance with law and reasons. There is no blanket permission to the assessee to raise the additional ground or filing of additional evidence according to his own whims and fancies. There should be reasonable cause for furnishing additional evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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, the profit ratio of the other assessees in that locality may be one of the factors to be taken into consideration. However, that cannot be the sole criteria for fixing the profit 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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. Accordingly the same is confirmed. 11. Now coming to the claim of the assessee towards seigniorage charges. No doubt the seigniorage charges are in relation to the material supplied by the Government for executing the work. The Apex Court in the case of Brij Bhushanlal (supra) considered this issue and found that the material sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 the judgement of the jurisdictional High Court in the case of Indwell Construction (supra). The assessment year under consideration before the jurisdictional High Court was assessment year 1981-82. Section 44AD was introduced in the statute book with effect from 1.4.1994. Therefore, the jurisdictional High Court had no occasion to consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a notice u/s. 142(1) along with questionnaire was issued on 3.1.2011. In response, the assessee filed his return of income on 26.8.2010 declaring total income of Rs. 25,03,629. The AO completed the assessment on 29.12.2011 u/s. 143(3) r.w.s. 148 of the Act, by making the following additions and determined the total income at Rs. 3,30,50,329: a) Addition towards Net Profit: Rs. 22,49,120. b) Addition towards unexplained investment: Rs. 2,18,27,000 and c) Addition towards unsecured loans: Rs. 64,70,580. 14. On appeal, the CIT(A) confirmed the order of the AO. Against this, the assessee is in appeal before us. 15. Ground No. 2 is not pressed before us. Accordingly, this ground is dismissed as not pressed. 16. Ground No. 3, with regard to estimating the profit at 12.5% of the contract receipts, is partly allowed as decided in assessee's appeal in ITA No. 1213/Hyd/2013 in the earlier part of this order. 17. With regard to ground Nos. 4 and 5, the assessee filed additional evidence as follows: 1. Statement showing the amounts contributed by the joint owners in the property admeasuring 4943 sq. ft. situated at Unit Module A-1, in Quadrant-2 of Cyber Towers, Madhapur. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Subramanya Sai contributed his share of cost of land of Rs. 15 lakhs by withdrawing the said amount from his bank account with Syndicate bank (Account No. 30082010691081) and he also provided a loan of Rs. 15 lakhs to Sri V. Laxminarayana, another joint owner. The said amounts aggregating to Rs. 30 lakhs are withdrawn from his said bank account. The petitioner could not file the details and the evidences as the Assessing officer did not provide proper opportunity and the notices issued by the CIT (Appeals) were not received by the petitioner. Therefore, the petitioner is filing the following documents for consideration of the Hon'ble ITAT. S. No. Particulars Page No 01 Statement showing the amounts contributed by 1 the joint owners in the property admeasuring 4943 sq. ft. situated at Unit Module A-I, in Quadrant-2 of Cyber Towers, Madhapur 02 Copy of the sale deed executed on 31.7.2006 by 2-10 six Joint owners of the property admeasuring 4943 sq. ft. situated at Unit Module A-I, in Quadrant-2 of Cyber Towers, Madhapur 03 Copy of the sale deed executed in favour of the 11-16 Assessee vide document No. 13255/2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 the nature and source of credit, creditworthiness of the party and genuineness of the transaction. The fact that the entries are shown in the books of account of the assessee whose income had already been computed on the basis of the estimate but not on the return filed by the assessee, that does not prevent the ITO from treating, but entitles him to treat, the unexplained cash credit as income from undisclosed sources which falls under the head of income "income from other sources". Unless the assessee, by independent and satisfactory evidence, establishes that those amounts relate or referable to the undisclosed income from known or disclosed sources viz., the business, whose income had already been estimated. In the present case, the assessee did not able to establish the cash credits mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which had been computed on the basis of an estimate without accepting the return filed by the assessee, which amounts to double taxation of the same income, the Court ruled thus: "The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by a credit entry in the books of account of that source cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held ..... if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. CIT (2003) 180 CTR (Raj) 166 it was held that additions under s. 68 could not be telescoped with the trading addition where the assessee had not admitted that unexplained cash credits came out of black money earned in the current year or in an earlier year. In our opinion, a separate addition under s. 68 towards unexplained credit is sustainable in spite of addition made to the declared trading results is a question of fact which is to be decided based on circumstances in each case. 16. The benefit of telescoping was also considered by the Supreme Court in Anantharam Veerasingaiah Co. vs. CIT (1980) 16 CTR (SC) 187 : (1980) 123 ITR 457 (SC) approving Lagadapati Sunna Ramaiah vs. CIT (1956) 30 ITR 593 (AP) observed that: "There can be no escape from the proposition that the secret profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the cash credits to the extent of the past intangible additions stand automatically explained would practically dispense with the necessity of the assessee giving any explanation of fact under section 68 where intangible additions were made in the earlier years and hence such a view is untenable. In the case of CIT vs. Manik Sons (1969) 74 ITR 1 (SC) it was held that only if the unexplained cash credit can reasonably be related to the amount covered by the intangible addition made in the past, or in the very year, necessary set off can be allowed. The principle that it is the assessee who should give a satisfactory explanation regarding cash credits is in no way rendered inapplicable merely because the assessee was found to have earned some undisclosed income in some earlier years for which ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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