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The Asst. Commissioner of Income Tax, Circle-2, Rajasthan Versus M/s. Mohta Construction Co.,

2016 (4) TMI 383 - ITAT JODHPUR

Interest paid to third parties - Held that:- What has been estimated is not the gross profit but net profit. When computing the net profit, the expenditure incurred by the assessee in respect of earning of income under the head “business” is rightly to be allowed. Here, the books of account of the assessee has been rejected, the interest paid to third parties falls under the head “business expenditure” which is liable to be deducted while computing the net profit. In the present case, as the net .....

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income” of the assessee. It is liable to be assessed under the head “income from other sources”. The business of the assessee is not making any Fixed Deposit and deriving interest there from. Further, the assessee has also not been able to show as to how the bank interest was in any way intrinsically connected to the business activity of the assessee for the purpose of claiming that the interest received on the FDRs are business income. In the circumstances, the findings of the learned CIT (A) i .....

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evenue and the appeal in ITA No.361/Jodh/2010 is filed by the assessee against the order of the learned CIT (A), Bikaner passed in appeal No. 224/Bikaner/2009-10 dated 30-03-2010 for assessment year 2007-08 and the appeal in ITA No.361/Jodh/2014 is filed by the assessee against the order of the learned CIT (A), Bikaner passed in appeal No.259/Bikaner/2012-13 dated 25-03- 2014 for assessment year 2010-11. 2. Revenue s Appeal ITA No.356/Jodh/2010 & Assessee s Appeal ITA No.361/Jodh/2010 (A. Y: .....

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ing the rejection of books of account and in applying the net profit rate of 6% as against the declared rate of 5.30% in grounds No.2 and 3. In ground No.4 of the assesee s appeal the assessee has challenged the action of the learned CIT(A) in confirming the addition made by the Assessing Officer representing the interest paid to parties especially when the books of account has been rejected and the net profit rate has been estimated. In ground No.5 of the appeal the assessee has challenged the .....

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7% as the net profit as against the net profit declared by the assessee for the relevant assessment year at 5.30% holding that the same was comparatively very low when compared to 8.47% and 8.54% declared for the immediately two preceding assessment years. It was a submission that the learned CIT (A) has reduced the net profit rate to 6% without giving any valid reason. It was a submission that the order of the learned CIT (A) is liable to be reversed. In reply, the learned A. R. submitted that .....

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hat the cost of cement had increased from ₹ 138/- to ₹ 206/- per bag and so also cost of steel had increased substantially. It was a submission that the learned CIT (A) had also taken into consideration the fact that the Value Added Tax rate (VAT tax rate) has increased from 2% to 12.5% during the relevant assessment year. Consequently, the learned CIT (A) had directed the Assessing Officer to adopt net profit rate at 6%. It was a submission that the assessee was not pressing his gro .....

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ssing Officer and confirmed by the learned CIT (A) are in right footing and does not require our interference. 6. Coming to the issue of net profit rate declared by the assessee at 5.30% and estimated at 7% by the Assessing Officer and reduced to 6% by the learned CIT (A) it is noticed that the learned CIT (A) has taken into consideration actual variation in the prices of cement, steel and the rate increase in VAT. This being so, we are of the view that reduction of net profit rate by the learne .....

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disallowed by the Assessing Officer, it is noticed that what has been estimated is not the gross profit but net profit. When computing the net profit, the expenditure incurred by the assessee in respect of earning of income under the head business is rightly to be allowed. Here, the books of account of the assessee has been rejected, the interest paid to third parties falls under the head business expenditure which is liable to be deducted while computing the net profit. In the present case, as .....

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is not business income of the assessee. It is liable to be assessed under the head income from other sources . The business of the assessee is not making any Fixed Deposit and deriving interest there from. Further, the assessee has also not been able to show as to how the bank interest was in any way intrinsically connected to the business activity of the assessee for the purpose of claiming that the interest received on the FDRs are business income. In the circumstances, the findings of the lea .....

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