TMI Blog2018 (3) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... urther 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 during the year on FDRs has already been included in the total income of the assessee. This factual finding of the ld. CIT (A) has not been controverted before us by the department. Hence we do not find any error or illegality in the order of ld. CIT (A) qua this issue. Addition made under section 41(1) - CIT-A deleted the addition - Held that:- 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 books of account of the assessee is not in dispute. Disallowance of House Rent Allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 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 deleting the disallowance out of telephone expenses of ₹ 24,085/- made by the AO. (v) 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 interest from FDRs of ₹ 25,34,962/- made by the AO. (vi) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the addition u/s 41 of ₹ 4,44,645/- made by the AO. (vii) 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 house rent of ₹ 98,400/- made by the AO. (viii) (a) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting addition of ₹ 38,500/- made for depositing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 confirmed the estimation of income by applying the Net Profit Rate at 17%. 3.1. On the other hand, the ld. A/R has submitted that the net profit rate declared by the assessee for the year under consideration is 13.73% before depreciation, interest and salary to the partners which is higher than the past net profit declared by the assesee. The Tribunal in assessee s own case for the assessment year 2007- 08 has considered and decided an identical issue and held that in case the net profit declared by the assessee is more than the past year, then no addition is required. He has relied upon the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Gotan Lime Khaniz Udyog, 256 ITR 243 (Raj.) and submitted that the Hon ble High Court has held that mere rejection of books of accounts n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. The Hon ble Kerala High Court of Samurai Techno Trading Co. Pvt. Ltd. vs. CIT, 197 Taxman 144 (Ker.) has held in para 6 as under :- 6. In the appeals filed for the years 1994-95 and 1995-96, we find that the common issue pertains to estimation of income from civil work at 8 per cent of the total contract receipts. Even though the Assessing Officer made estimation only because the assessee's books of account were found to be unreliable and uncreditworthy, since, counsel appearing for the appellants canvassed for acceptance of books of account, we have to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment 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 part relief to the assessee by reducing the estimated income from 10 per cent to 8 per cent. Secondly, what the Tribunal has done, is only to follow section 44AD as a guideline for estimation of income from civil work. We, therefore, find no justification to interfere with this part of the order of the Tribunal. It is worthwhile to note that while confirming the estimation of income at reduced percentage, the Tribunal cancelled separate addition made by the Assessing Officer under the head 'other income' which is a huge amount of ₹ 15,44,353. We are of the view that after getting deletion of addition of ₹ 15,44,353, the assessee cannot canvass for modification of other part of the order of the Tribunal confirming estimation of income at the reduced percentage of 8 per cent wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the interest shown by the appellant in the profit and loss account is directed to be treated as Income from other sources. Thus it is clear that the ld. CIT (A) has considered the fact that the actual interest accrued during the year on FDRs has already been included in the total income of the assessee. This factual finding of the ld. CIT (A) has not been controverted before us by the department. Hence we do not find any error or illegality in the order of ld. CIT (A) qua this issue. Ground No. 6 is regarding addition made under section 41(1) of the IT Act. 8. During the assessment proceedings, the AO noted that the ABN Amro Bank and India Bulls had settled their loans at ₹ 8,36,400/- as against outstanding liabilities of ₹ 12,36,250/-. Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 books of account of the assessee is not in dispute. Ground No. 7 is regarding disallowance of House Rent Allowance. 10. The AO noted that during the year under consideration the assessee has claimed expenses on account of House Rent of ₹ 98,400/- in the Profit Loss account. However, the same has not been disallowed in the computation of income being not part of business income. The assessee explained that the same has been incurred on the employees of the company. However, the AO did not accept the contention and explanation of the assessee and disallowed the said amount of ₹ 98,400/-. On appeal, the ld. CIT (A) deleted the disallowance made by the AO by holding that the House Rent Allowance is an allowable business expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 these NBFCs are not exempt from TDS under section 194A(3)(iiia) of the Act. On appeal, the ld. CIT (A) has deleted the disallowance made by the AO in respect of interest payment to the ABN Amro Bank as the bank is covered by the Banking Regulations Act, 1949 and such payment of interest is covered by the provisions of section 194A(3)(iii). However, the ld. CIT (A) has confirmed the disallowance made by the AO in respect of the interest payment to NBFCs. 14. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. As far as the interest to ABN Amro Bank is concerned, there is no dispute that the interest paid is covered under section 194A(3)(iii) of the Act and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or product offered by the recipient of such payments on principal-to-principal basis. Even when an expression is statutorily defined under section 2, it still has to meet the test of contextual relevance as section 2 itself starts with the words In this Act (i.e. Income-tax Act), unless context otherwise require s , and, therefore, contextual meaning assumes significance. Every definition in the Income-tax Act must depend on the context in which the expression is set out, and the context, in which expression 'commission' appears in section 194H, i.e. , along with the expression 'brokerage', significantly restricts its connotations. The common parlance me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 expression commission or brokerage as envisaged in section 194H since the relationship between the assessee and the bank is not of principal- agent. Also, commission on bank guarantee is not covered by the Explanation (i) which gives an inclusive definition of the term commission or brokerage . Following the above order of the ITAT, Mumbai, it is held that the appellant is not liable to deduct tax at source on commission on bank guarantee as per the provisions of section 194H and therefore, the provisions of section 40(a)(ia) are not applicable on this expenditure. The Assessing Officer is therefore, directed to delete this disallowance made u/s 40(a)(ia). It is clear that the ld. CIT (A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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