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TMI Blog2014 (5) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon'ble ITAT, Hyderabad in the case of Sri Veera Vadivel Murugan vs ITO, Suryapet in ITA No: 1919/Hyd/2011 applies to this case, when the facts of both the cases are different. 3. The Ld. (IT(A) is not correct in law in restricting the estimation @ 3% as against 5% made by the Assessing Officer, relying on the decision of Hon'ble !TAT, Hyderabad in ITA No. 1919/ ITA/2011 dt. 28/06/2012, when the assessee in question has got his own trucks deployed in the business of running them on hire apart from hiring vehicles! thereby the expenditure incidental to the business is low when compared to the case decided by the Hon'ble ITAT. 4. The. Ld. CIT(A) is not correct in law in directing the AO to estimate the profit before allowing deductions u/s 40(b) @ 3% as against the estimation made by the AO @ 5%, in the scenario that the Assessing Officer has noticed many a defect in the books of account as enumerated in the Asst. Order. Grounds as per ITA No. 28/Hyd/14 - assessee appeal: 1. On the facts and in the circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals)-VI, Hyderabad is erroneous and bad in law. 2. On the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be separately allowed as a deduction from the estimated income; while completing the assessment of the appellant. 8. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)- VI, Hyderabad erred by relying on! following the ratio laid down by the jurisdictional IT AT, Hyderabad in ITA 1919/Hyd/2011 dated 28.06.2012 in the case of M/s. Veeravadivel Murugan Transport Agency, the facts of which case are not squarely applicable to the facts of the case of the Appellant herein. 3. Brief facts of the case are that the assessee is an individual and engaged in supply of vehicles for goods transportation, filed the return of income for the A.Y. 2010-11 admitting total income of Rs. 4,92,760/-. In the course of the assessment proceedings, it has been observed by the assessing officer that the assessee could not produce the vouchers for freight charges paid to lorries, in full. Further, the vouchers produced were not capable of verification as they did not contain date, signature of the recipient, vehicle number etc. It was also observed that the details of trip sheets were not furnished for verification. The AR submitted before the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions, the Tribunal was of the opinion that estimation of profit has to be made on the basis of material available on record and by taking comparable cases of similarly placed trades into consideration and in the process has rejected the gross profit adopted by the AO at 5%, based on earlier year figures in the case of assessee and upheld GP at 4%, as upheld/adopted by CIT(A) and ordered for allowance of depreciation and financial charges from the estimated profits. In case of Jain Constructions, the Hon'ble High Court was on the issue of allowance of depreciation, interest and remuneration to partners, on adopted net profits at 12.5%, by the AO. Hence, the issue of allowance of depreciation and financial charges on the estimated profits, was the main issue in the above mentioned judicial decision and adoption of rate of profit was not an issue. In this regard, the CIT(A) referred to the decision of this Tribunal in the case of M/s. Veeravadivel Murugan Transport Agency (ITA No. 1919/Hyd/2011 dt. 28.06.2012), where the assessee was running the business through hired vehicles, as against the assessee in the present case with few lorries of his own, put to use in business. Thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, estimated the income of the assessee at 5% of the total turnover of Rs. 6,54,15,734/- clear of all the expenditure, and accordingly determined the income of the assessee at Rs. 32,70,790. On appeal, the CIT(A) upheld the assessment thus made by the assessing officer. In the proceedings before us, the assessee without questioning the rejection of the books of account, pleaded that the estimation of income adopting a rate of 5% is on higher side and needs to be reduced. It is also submitted that the lower authorities are not justified in not allowing the deduction in terms of S. 40(b) on account of interest and remuneration to partners from such estimated income. On careful consideration of the totality of facts and circumstances of the case, we find that the estimation of income of the assessee made by the assessing officer adopting a rate of 5% is on higher side, and it would meet the ends of justice if the income is estimated applying a rate of 3%. In deciding the issue as above, we considered the fact that the assessee does not own trucks used in the business and is incurring huge incidental expenditure. From such income estimated applying rate of 3%, deduction towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 main contract and 5% on sub contract is justified or not. 8. We have carefully gone through the order of this Tribunal in the case of Krishnamohan Constructions (supra), K.C. Reddy Associates (supra), Sri Srinivasa Constructions (supra) and M. Bhaskar Reddy (supra). No doubt this Tribunal estimated the profit from 12.5% to 8% depending upon the factual situation. The learned DR made an attempt to distinguish the order of this Tribunal in M. Bhaskar Reddy (supra) on the ground that the turnover is only Rs.54,40,420. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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 supplied by the Government/contractor will not have any element of profit. Therefore, the same shall be reduced from the contract receipts. In view of the judgement of the Apex Court the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. Accordingly we direct the Assessing Officer while computing the total contract receipts the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. 12. Now coming to the depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consider the provisions of section 44AD as it is applicable for the assessment year under consideration and as it would be applicable with effect from 1.4.2011. In view of the provision of section 44AD as it is applicable for the assessment year under consideration and the amendment made with effect from1.4.2011 it is obvious that the Legislature intended to allow the interest and salary separately from the estimated income. Therefore, the judgement of the jurisdictional High Court in the case of Indwell Constructions (supra) may not be of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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