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2018 (3) TMI 470

O cannot make a disallowance of expenditure pertaining to the trading account if the estimation of income of assessee is based on GP rate. Even in case of net profit is taken as the basis of estimation, the scope of disallowance of other expenditure is also very limited. - Therefore, in these facts and circumstances when the book results are rejected, the income of the assessee is required to be estimated either on the basis of GP or NP rate without allowing further expenditure. The provisions of section 44AD are relevant on this point which provides the estimation of profits from the business of civil contract as of the assessee before us. Thus the provisions of section 44AD can be taken as a guidance for estimation of the income of the assessee from the business of civil contract. Thus income of the assessee shall be computed by taking the NP @ 8% and no further deduction shall be allowed. - Addition on account of interest on FDRs - CIT-A directed addition to be deleted and the interest shown by the appellant in the profit and loss account is directed to be treated as Income from other sources - Held that:- CIT (A) has considered the fact that the actual interest accrued .....

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ions of section 194H. See Kotak Securities [2012 (2) TMI 77 - ITAT MUMBAI] - ITA No. 194/JP/2015 - Dated:- 7-3-2018 - Shri Vijay Pal Rao, JM And Shri Bhagchand, AM Revenue by: Shri R. A. Verma ( Addl. CIT ) Assessee by : Shri Mahendra Gargieya ( Advocate ) ORDER Per Vijay Pal Rao, JM This appeal by the revenue is directed against the order dated 22nd December, 2014 of ld. CIT (A)-2,Jaipur for the assessment year 2010-11. The revenue has raised the following grounds :- (i) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of material expenses of ₹ 19,49,612/- made by the AO. (ii) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of material expenses of labour expenses of ₹ 13,65,356/- made by the AO. (iii) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of vehicle expenses of ₹ 23,85,203/- made by the AO. (iv) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in del .....

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given on estimate basis, consumption of raw material not verifiable etc. Accordingly, the AO rejected the books of accounts under section 145(3) of the IT Act. The AO, thereafter, disallowed 10% out of material expenses, labour & wages and telephone expenses and 20% out of conveyance expenses, travelling expenses, diesel expenses, repair & maintenances expenses and depreciation. On appeal, the ld. CIT (A) confirmed the rejection of books of account under section 145(3) of the Act which has not been challenged by the assessee. However, the CIT (A) deleted the addition made by the AO. Hence the revenue has filed the present appeal. 3. Before us the ld. D/R has submitted that the ld. CIT (A) did not consider and appreciate the defects pointed out by the AO in respect of each head of expenses. The ld. CIT (A) has deleted the entire addition made by the AO on account of vehicle maintenance and telephone expenses without considering the personal use of vehicle and telephone. He has relied upon the order dated 28th September, 2016 of the Coordinate Bench of the Tribunal in the case of M/s. Choudhary & Brothers vs. ACIT in ITA No. 54/JP/2013 and submitted that the Tribunal has .....

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ted, the AO cannot make a disallowance of expenditure pertaining to the trading account if the estimation of income of assessee is based on GP rate. Even in case of net profit is taken as the basis of estimation, the scope of disallowance of other expenditure is also very limited. Therefore, the expenses which are part of trading account would be covered under the estimation of income by applying GP rate. However, the expenses beyond the trading account are subject to verification and allowability being incurred wholly and exclusively for the purpose of business of the assessee. It is pertinent to note that in case the income of the assesee is computed on the basis of estimation of net profit and further claim of deduction is allowed which is again subjected to the verification and confirmity of the provisions of the Act then the very purpose of invoking the provisions of section 145(3) would be defeated. Therefore, in these facts and circumstances when the book results are rejected, the income of the assessee is required to be estimated either on the basis of GP or NP rate without allowing further expenditure. The provisions of section 44AD are relevant on this point which provide .....

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t partly, vouchers were found to be bogus, and partly stand disproved. We do not know on what ground the appellants can seek for acceptance of books of account which was found to be unworthy of credit by three lower authorities. In the absence of credible books of account, option of the AO under s. 145(3) of the IT Act is to make assessment on estimation basis in terms of s. 144 of the IT Act. In this case, we find the order of the Tribunal is quite favourable to the assessee because as against the estimation of 10 per cent made by the Assessing Officer, the Tribunal has reduced the estimation to 8 per cent of the total works turnover. There is logic and reason in estimation of income from civil construction work at 8 per cent because under the presumptive scheme, section 44AD provides for assessment of income on civil construction work at 8 per cent where the contractor's turnover is below ₹ 40 lakhs. Even though counsel for the appellant contended that section 44AD has no application as the contract amount is above ₹ 40 lakhs, we do not think, there is justification to interfere with the order of the Tribunal because in the first place, the Tribunal has granted pa .....

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order and the submissions of the appellant. I have perused the accrued interest account of the assessee. The Assessing Officer has added the closing balance of the accrued interest account amounting to ₹ 25,34,962/-, taken to the Balance Sheet, to the total income without considering that there is an opening balance of ₹ 20,16,009/-. The accrued interest during the year amounts to ₹ 10,00,335/- from Bank of India and ₹ 2,59,252/- from Syndicate Bank which has been credited to the Profit and loss account of the assessee. Also, I have perused Form No. 26AS of the appellant and find that the interest income in Form No. 26AS is less than the amount credited by the assessee to the Profit and loss account. The appellant has also explained the accounting entries for accrued interest. In view of the above discussion, it is held that the assessee has correctly shown the interest income in the profit and loss account and there is no under reporting of interest income. This accrued interest on FDRs is to be treated as Income from other sources. Therefore, the addition made by the Assessing Officer of accrued interest of ₹ 25,34,962/- is directed to be deleted and .....

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art pertaining to cessation of liabilities pertaining to two accounts of ABN Amro Bank and two account of India Bulls. I have checked this chart with the individual ledger accounts showing the opening balance and the amount paid before the settlement of liabilities and the settlement letters issued by the above bank/financial institution with respect to each of the four accounts and find that the figures given by the appellant are correct. In the chart given by the Assessing Officer, I find that the figure of outstanding liability does not match with the amounts reflected in the books of accounts. In view of the above discussion, the Assessing Officer is directed to delete the above addition of ₹ 4,44,645/- made u/s 41 of the I.T. Act, 1961. Thus it is not disputed that in the books of account the assessee has shown the outstanding amount which is less than amount shown in the settlement letters. Accordingly the remission of liability under section 41(1) has to be considered as per the books of account and not as per the claim of the creditor. Hence we do not find any error or illegality in the order of ld. CIT (A) qua this issue, when the outstanding liability shown in the b .....

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. This fact is therefore, not in dispute. In view of the judgements of the Rajasthan High Court in the case Jaipur Vidhyut Vithran Nigam Ltd., 265 CTR 62 (Raj.), CIT vs. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.), and other case laws on this issue, the claim of the appellant is allowable. Accordingly, this disallowance made by the Assessing Officer is, directed to be deleted. Thus the issue is now covered by the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. State Bank of Bikaner & Jaipur, 363 ITR 70 (Raj.) as well as the decision in the case of CIT vs. Jaipur Vidhyut Vithran Nigam Ltd., 363 ITR 307 (Raj.). In view of the binding precedents of Hon ble Jurisdictional High Court, we do not find any error or illegality in the order of the ld. CIT (A) qua this issue. Ground No. 9 is regarding disallowance under section 40(a)(ia). 13. The AO noted that the assessee has failed to deduct TDS on interest to ABN Amro Bank and two other financial institutions, namely India Bull Services Ltd. and M/s. Reliance Capital total amounting to ₹ 11,59,266/-. The AO accordingly disallowed ₹ 4,74,201/- under section 40(a)(ia) holding that thes .....

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ents under section 194H apply in respect of 'commission or brokerage', which, in turn, is defined by Explanation to section 194H. [Para 5] The expression 'commission' and 'brokerage' have been used together in the statute. It is well settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together, they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. [Para 6] When one look at the connotations of expression 'commission or brokerage' in its cognate sense, as in the light of the principle of noscitur a sociis, scope of expression 'commission', for this purpose, will be confined to 'an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions' and shall not extend to the payments, such as 'bank guarantee commission', which are in the nature of fees for services rendered .....

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ssessee, all it does is to accept the commitment of making payment of a specified amount to, on demand, the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is customarily termed as 'bank guarantee commission' . While it is termed as 'guarantee commission', it is not in the nature of 'commission' as it is understood in common business parlance and in the context of section 194H. This transaction is not a transaction between principal and agent so as to attract the tax deduction requirements under section 194H. Therefore, the Commissioner (Appeals) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under section 194H from payments made by the assessee to various banks. As the assessee was not required to deduct tax at source under section 194H, the question of levy of interest under section 201(1A) cannot arise. [Para 9] In view of the above discussions, the impugned demands under section 201(1) and 201(1A) read with section 194H are to be quashed. [Para 10]. The above judgment is applicable to the facts of this issue. The commission on bank guarantee is not covered by the .....

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