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2015 (11) TMI 297 - ITAT DELHI

2015 (11) TMI 297 - ITAT DELHI - TMI - Rejection of book results under section 145 - estimating the income at 5 percent of gross receipts - Held that:- Stock register may be important for manufacturing industries but when it comes to the case of contractor, it may not be important as the entire material purchased, might have been consumed and charged to profit and loss accountant and the closing stock working progress has been shown by the assessee. In the circumstances, in our opinion, the non- .....

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en, there was no justification in invoking the provisions of Section 145(2) of the Act. Thus in the present case Assessing Officer was not justified in rejecting the book results without pointing any specific defects in the books of account. - Decided in favour of assessee.

Taxing of interest received due to late payment of amount due to it - business income or income from other sources - Held that:- The interest received by the assessee on account of delay in the payment of money due .....

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R ORDER Per Inturi Rama Rao, AM These are the appeals filed by the assessee-company as well as by the Revenue. The appeals in ITA Nos. 3967/Del/2010 for A.Y. 2007-08 and 474/Del/2015 for A.Y. 2010-11 are filed by the assessee company. The appeals in ITA Nos. 2561/Del/2012 for A.Y. 2008-09 and 4366/Del/2012 for A.Y. 2009- 10 are filed by the Revenue. Since in all the four appeals the only issue involved is rejection of book results, they are being disposed of by this consolidated order. ITA Nos. .....

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ssing Officer to give proper opportunity to the assessee to rebut the comparative cases relied (even not cited any particulars) by the Income-tax Officer before he can have the option to estimate the gross profit. Again, it is comparative instance that alone can be the foundation of such estimate in case the accounts are really found to be unreliable and requiring to be rejected. ii. On the facts and circumstances of the case Ld. CIT(A) is wrong in upholding the view of the Income-tax Officer in .....

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appellant are not correct and complete and got its accounts audited under the law. v. Learned Income-tax officer is erroneous in law in concluding that book results of the appellant are verifiable & unvouched. vi. Learned Income-tax Officer was not appreciative in not accepting system of purchasing & user of consumable items for contract works on the basis of prevailing market rates based on proper negotiations by the appellant. vii. Learned Income-tax Officer wrongly inferred that open .....

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f Learned Income-tax officer. xi. Learned Commissioner of income-tax (Appeals) erred in law in not appreciating that the facts of the case did not warrant for application of provisions of section 145 and estimating the income of the appellant. xii. Learned Commissioner of Income-tax (Appeals) erred in law in upholding the addition of ₹ 2,93,81,144/- by the Learned Income-tax officer on account of interest received which is nothing but compensation for delayed payments of pending amounts du .....

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nment. The return of income for the assessment year 2007-08 was filed on 14.11.2007 disclosing total income for ₹ 6,75,927/-. Subsequently, the case was taken up for scrutiny assessment under Section 143(1) of the Income-tax Act, 1961 (for short "the Act"). The assessment was completed at a total income of ₹ 3,78,95,211/- by rejecting the book results, estimating the profit @ 5% of the gross receipts vide order dated 30th December, 2009, passed under Section 143(3) of the A .....

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e book results cannot be accepted and estimated the profit @ 5% of the contract receipts and he taxed the interest receipts on account of delayed receipts of contract receipts of ₹ 2,93,81,144/-. Being aggrieved by this order, an appeal was filed before the CIT(A) who vide order dated 31st March, 2010 confirmed the rejection of book results vide para 7 of his order, which reads as under: "7. In the assessment order, the A.O. has pointed out that the appellant has shown net profit of 0 .....

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Assessing Officer's estimating of income is justified in view of the assessee's repeated failure to produce the Books of a/c and the details and records asked for, by the A.O." Vide para 14 of his order, the CIT(A) upheld the taxing interest received on account of delay in the receipt of the contract receipts as income from other sources. Being aggrieved, the appellant is before us. 4. Learned counsel for the assessee-company submitted that the assessee had filed all the informatio .....

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submitted that the Assessing Officer had not given any material in support of estimating the profit @ 5% of the contract receipts and therefore, he prayed the assessment made by the Assessing Officer should be quashed as it is passed in violation the principles of natural justice. With regard to the interest received due to delay in payment due to it, he submitted that the interest partake the same character as contract receipts and therefore should be treated as a business receipt. In support .....

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elow. 6. We heard the rival submissions and perused the material on record. In the present appeals there are mainly two issues, one issue is regarding the rejection of book results and the other issue is regarding taxability of interest received by it due to delay in payment due to it, whether it is the business income or income from other sources. On perusal of the assessment order, it is clear that the Assessing Officer was driven to reject the book results, mainly on the ground that the profi .....

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d by the assessee. It is undisputed that the books of account were duly audited under the provisions of Section 44AB by a Chartered Accountant and the report was furnished in the prescribed form. Before rejecting the books of account, the Assessing Officer is duty-bound to give a finding as to how the correct profits cannot be deduced from the method of accounting followed by the assesee and the books of account maintained by the assessee. In this regard, we place reliance on the decision of Hon .....

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happened was that, the ITO gave a fresh look to the matter and felt that the more appropriate system of accounting would be to declare the dividend as and when received as income, and endeavoured to substitute that method of accounting for the method of accounting regularly followed by the assessee. It must be said at the outset that the choice to account for income on an acceptable basis, is that of the assessee and not of the department. This is, however, not an unlimited choice, because the I .....

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section 145 and make the assessment in an appropriate manner. In the present case, there is no material to indicate why the ITO considers the system of accounting regularly followed by the assessee to be defective or the system of accounting followed to be such that correct profits cannot be deduced there from. The ITO's power to substitute a system of accounting for the one followed by the assessee, flows from the provisions of section 145. It is, therefore, imperative that, before rejectin .....

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ssessee. The mere fact that there was lower rate of gross profit declared by the assessee as compared to the previous year would not by itself be sufficient to justify the addition. Nor does it lead to an inference that there was inflation of expenditure or suppression of receipts. The reliance for this proposition of law is placed on the decision of the Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spg. Wvg. Mills Vs. CIT (1970) 75 ITR 260 and on the decision of the Hon&# .....

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CIT (1994) 210 ITR 406, is squarely applicable. In this case, the Hon'ble Court observed as under: "3. The various findings recorded by the tax authorities and that by the Tribunal have not been challenged in these proceedings. What is contended is that even if the sale or expenses may not be verifiable, yet the provisions of section 145(2) are not attracted. Except for stating the argument, the learned counsel did not elaborate the contention to bring the point home. As noticed earlie .....

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hat the accounts are not complete or correct from which the correct profit cannot be deduced. Whether presence or absence of stock register is material or not, would depend upon the type of the business. It is true that absence of stock register or cash memos in a given situation may not per se lead to an inference that accounts are false or incomplete. However, where a stock register, cash memos, etc., coupled with other factors like vouchers in support of the expenses and purchases made are no .....

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ing all these aspects and the material into consideration, the Tribunal has found as a fact that the claim of the assessee for acceptance of the account books was not sustainable. On the findings of fact recorded by the Tribunal, in our opinion, its order does not give rise to any question of law to direct the Tribunal to make a reference to this Court. In our opinion, the findings of the Tribunal do not suffer from any legal infirmity which are based on appreciation of facts." 8. The stock .....

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DCIT Vs. Paras Dyeing and Printing Mills Pvt. Ltd., (2010) 4 ITR (Trib.) (Ahd.) after reviewing the entire case-laws, held that the low profit cannot be the reason for rejection of the book results. The Hon'ble Gujarat High Court in the case of CIT Vs. Vikram Plastic, 239 ITR 161 held that no specific discrepancies or defects in the books of account of the assessee has been pointed out, nor any material was brought to establish that the purchases and expenses had been inflated or the sales .....

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next ground of appeal relates to the taxing of interest of ₹ 2,93,81,144/- received due to late payment of amount due to it. Indisputably, the interest amount was received by the assessee on account of delay in payment of money due to it by its contractee. This issue is no longer res integra. The Hon'ble Supreme Court in the case of CIT Vs. Govinda Choudhury & Sons, 203 ITR 881 held as follows: "…….If the amounts are not paid at the proper time and interest is a .....

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specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to it de hors the business which is carried on by it. In our view, the interest payable to it certainly partakes of the same character as the receipts for the payment of which it was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts gra .....

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y & Sons [1993] 203 ITR 881. In the said decision, it is recorded that learned counsel for the assessee conceded that interest did constitute a revenue receipt. The court, however, held on the other question (arising in that appeal) that the said amount of interest cannot be taxed under the head "Income from other sources" which necessarily meant that it has to be taxed as a business receipt. It is true that on the question whether the interest constitutes income or not, the said d .....

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eceived by the assessee on account of delay in the payment of money due to it cannot be taxed separately but only as an income from business. Accordingly, this ground of appeal filed by the assessee is allowed in its favour. 12. In the result, the appeals filed by the assessee are allowed in full. ITA Nos. 2561/Del/2012 for AY 2008-09 & 4366/Del/2012 for AY 2009-10 13. These appeals filed by the Revenue are directed against the order of CIT(A), dated 17.04.2012 & 19.06.2012 passed for th .....

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the course of assessment proceeding and considering the fact that similar addition made by the A.O. in the immediately preceding A.Y. 2007-08 was upheld by the Ld. CIT(A). ii. The grounds of appeal are without prejudice to each other. iii. The appellant craves to add, amend or modify the grounds of appeal at any time. 14. The Revenue challenged vide these appeals the orders of CIT(A) upholding the book results. Ld. CIT(A) vide his order passed for the assessment years 2008-09 & 2009-10, all .....

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4 ITR 95 (Delhi) Commissioner of Income-Tax v. Jas Jack Elegance Exports 192 Taxman 167 (Delhi) & Commissioner of Income-Tax- XII v. Poonam Rani 3. The onus was on revenue to show that accounts were incomplete or incorrect and true profits could not be deduced from the books 'of accounts maintained by the appellant which were also duly audited and no adverse inference was drawn by the auditor. If expenses claimed remained unexplained, A.O. could have disallowed the same without rejecting .....

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