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TMI Blog2012 (5) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... 8% of turnover. 4. The learned CIT(A) ought to have appreciated that while resorting to estimation of total income the value of material supplied by the contractee should be reduced from the turnover. 5. The learned CIT(A) ought to have allowed the depreciation and interest from the estimated total income as deduction. 6. The learned CIT(A) ought to have appreciated that after resorting to estimation of profit after rejection of books of account, there was no scope for disallowance to be made under the provisions of section 40(a)(ia) or under section 40A(3) or under section 43B of Income-tax Act and, therefore, ought to have deleted the addition made under respective sections. 7. The learned CIT(A) ought to have allowed as deduction of liquidated damages paid Rs. 4,50,75,532/- inasmuch the liability had been crystallised and there was no dispute subsisting on the issue. 8. The learned CIT(A) ought to have appreciated that insurance claims received of Rs. 62,30,044/- was part and parcel of contract receipts and no separate addi]tion was required. 3. At the time of hearing the assessee did not press ground No. 7 of the and the same is dismissed as not pressed. 4. Brief facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards sub-contract payments, hire charges, professional charges, etc. In respect of such amounts paid by the assessee during the period from April 2006 to February 2007, though it has deducted tax at source (TDS), it has not remitted the same to the government account by the due dates as per provisions of section 201 of the Act. The TDS amounts pertaining to such payments, along with the TDS amount pertaining to the payment made in March, 2007 were paid in May 2007. However, as in view of the provisions of section 40(a)(ia), the TDS amounts pertaining to such payment made during April 2006 to February 2007, have to be remitted during the previous year itself i.e., by 31.3.2007, the Assessing Officer held that the said amounts paid towards subcontract payments, hire charges, etc., on which such TDS have been made, cannot be allowed as deduction. In this regard, the Assessing Officer referred to the amended provisions of section 40(a)(ia) of the Act, vide Finance Act, 2008, in para 4.1 of the assessment order. Since as per the details filed by the assessee, in Annexure XI to Tax Audit Report, TDS amount pertaining to total payments of Rs. 10,38,14,284 (paid during the period from Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from this line of business. For verifying the claim of expenses made by different heads, the Assessing Officer has asked to the assessee to produce the books of account and bills of vouchers. However, as noted by him, despite allowance of sufficient time and opportunity the assessee did not produce the bills and vouchers for verification. Under these circumstances, he held that 8% of the said turnover clear off depreciation, shall be estimated as the net profit and thus, as cinome from the said contract works. In para 7.0 of the assessment order, he clearly noted such estimated income, i.e., at 8% of such direct contract turnover, merely substitutes the book result. He further mentioned that the same is taxable income computed on the basis of book results. He thus, computed the taxable net profit, thus the income from said contract receipts of Rs. 141.37 crores at Rs. 11,30,98,412/- as mentioned in para 8.1 of the assessment order. He further noted that the commission income of Rs. 4,17,20,347 earned on the balance amount of contract of Rs. 59.38 crores which was given on sub-contract basis, has to be added to such profit computed on direct contract work. 8. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account in support of the claim of expenditure. When the assessee claimed any expenditure, it is mandatory on the part of the assessee to produce books of account supported by proper bills and vouchers. Since the assessee has not produced proper books of account, true profits or loss cannot be ascertained by the Assessing Officer and the Assessing Officer having no other option has to estimate the income on the basis of the available record. In these circumstances, rejection of books of account and estimation of income of the assessee is justified. In our opinion, estimation of income in this case has to be made. However, the estimation of income cannot be made at 8% of the gross receipts because the assessee has borrowed huge amount and was paying interest. Considering the facts and circumstances of the case, income of the assessee has to be estimated at an average rate of assessed income before depreciation and interest to gross receipts for the last three preceding assessment years and thereafter deduction towards interest and depreciation has to be allowed. We are considering the last three years average rate of assessed income before depreciation and Interest to gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o u/s. 29 are deemed to have been taken into account, while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account. It has been held in the concluding paras of 4 and 5 of the judgement of High Court cited supra, as follows: "4. The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income tax Officer may reject those books and estimate the income to the best of his judgement. When such an estimate is made it is in substitution of the income that is to be computed under s. 29. In other words, all the deductions which are referred to under s. 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in s. 40 is also tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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