TMI Blog2014 (6) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... e factual situation - for the purpose of estimating the profit various factors such as the profit ratio of the assessee in the earlier year, profit ratio of the similarly placed traders in the same locality, demand for the product, availability of labourers, raw materials, etc., and the time gap available for executing the contract work, etc., have to be taken into consideration - reference to earlier order of the Tribunal alone for the purpose of estimating the profit at 12.5% may not be justified at all. Claim of seigniorage charges – Held that:- The material supplied by the Government/contractor will not have any element of profit – it shall be reduced from the contract receipts - the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit – the AO is directed that while computing the total contract receipts the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. Claim of depreciation – Held that:- Following Indwell Constructions Versus Commissioner Of Income-Tax [1998 (3) TMI 121 - ANDHRA PRADESH High Court] - an addition was made towards interest and remuner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the CIT(A)-IV, Hyderabad for A.Ys. 2007-08 to 2009-10. Since common issues are involved in these appeals and all the appeals pertain to one assessee, they are clubbed and heard together and are being disposed by this common order for the sake of convenience. 2. The first common issues in ITA No. 305/Hyd/2010 and ITA Nos. 1313 to 1315/Hyd/2013 are common in nature which are follows: 1. The learned CIT(A) erred both in law and on facts. 2. The learned CIT(A) ought to have appreciated the fact that the assessee failed to produce tangible evidence in support of the expenditure claimed. 3. The learned CIT(A) ought to have appreciated the fact that the AO has not compared the present case with that of M/s KMC Constructions but adopted the stand of ITAT only in estimating the income. 3. Briefly the facts are that during the course of scrutiny proceedings, the assessee produced few bills I vouchers, a substantial part of which were cash vouchers. When asked to produce complete bills to verify the genuineness of the expenses claimed in the P L Account, it was submitted by the assessee that all the bills and vouchers were maintained and as required some of the bills mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the last day to pass the assessment order. Since the time allowed was less than a week from the date of receipt of show cause, and since the Assessing Officer had not insisted on all the vouchers produced earlier, they are unable to produce the bills maintained at the site offices immediately, which mainly pertain to salaries and wages. It is also the submission of the assessee that since the major amount of salaries and wages are self-made vouchers, non-submission of these vouchers maintained at site offices cannot be a ground for rejection of books of accounts. It was further contended that without pointing out any defects or deficiencies in the books of account, ledger extracts of the total expenses claimed and without referring to any lacuna in the bills / vouchers produced, the Assessing Officer rejected the books of account and resorted to estimation of income. 6. After considering the submissions of the assessee, the CIT(A) observed that there is no force in the action of the Assessing Officer in rejecting books of account and estimation of income. As per the assessment order, hearings in this case have commenced on 16.11.2009 i.e., hardly one and half a month befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and applied the same ratio to the case of the assessee. Therefore the action of the Assessing Officer appears to be not genuine and not made to the best of his ability. 9. The CIT(A) also observed that when the books of account are rejected the Assessing Officer has to make an estimate which might be an assumption and something more than mere suspicion. In the case on hand, no serious un-reliability, incorrectness or incompleteness has been pointed out from the books of account and other material produced by the assessee except making a general observation that all vouchers are not produced for verification. 10. In view of the above observations, the CIT(A) held that there is no justification for rejection of books of account of the assessee and accordingly he directed the Assessing Officer to accept the admitted book results of the assessee. 11. Aggrieved by the order of the CIT(A), the revenue is in appeal before us. 12. We have heard the arguments of both the parties, perused the record and have gone through the orders of the Revenue authorities. In this case, it is observed that the books of account of the assessee were not reliable as the assessee has not produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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, 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 cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructions 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. Accordingly the same is confirmed. 11. Now coming to the claim of the assessee towards seigniorage charges. No doubt the seigniorage charges are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest 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 aclue 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 jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. VSS there was sale of Rs. 2,49,78,290 to the assessee. Further, it was enquired with the assessee by the AO and the assessee stated before the AO that the purchases of diesel is genuine which is supported by payment. However, the AO not agreed with the contention of the assessee and made an addition of Rs. 2,60,72,866 towards diesel purchase. 18. On appeal, the CIT(A) called for a Remand Report from the AO wherein the AO stated that an amount of Rs. 77,61,781 was outstanding at the end of the year as payable to M/s. VSS which is to be sustained. Further, the AO observed that there was a proof of payment of Rs. 3.3 crores out of Rs. 4.32 crores actually paid by the and she recommended for giving relief only to the extent of Rs. 3.3 crores. 19. The CIT(A) after going through the record like purchase bills, delivery challans, confirmation letter from the assessee, as most payments are by cheques, and also direct payment to HPCL and the payments are verifiable, he was of the opinion that the claimed of the assessee is genuine. Further he observed that it is not clear as to what happened to the proceedings u/s. 133A in the case of B. Krishna Murthy, Hyderabad. The AO though ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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