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2019 (11) TMI 401

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..... this matter regarding the closing stock shown by the assessee at ₹ 5,00,000/- regarding the contract amount which was not certified by one of the companies, namely, M.C. Nally Bharat Engineering Co. Ltd. and consequently the assessee has shown the same in the closing stock instead of recognizing the same as sales for the year under consideration. This is only a method of accounting and if the assessee has been following a consistent method of accounting for recognizing the revenue/sales subject to the certification of the work by the awarder company, then it shall have no revenue effect as the same will be shown as sales in the subsequent year. The assessee has also claimed that this amount of ₹ 5,00,000/- shown in the closing stock has been offered as part of the income of the subsequent year and, therefore, if an addition is made in respect of the said amount for the year under consideration, it would be double taxation. Since this is a method of accounting consistently followed by the assessee and having no revenue impact, then considering the said amount as part of sale is not justified. Accordingly, the addition made by the AO and enhancement made by the ld. CIT ( .....

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..... g total business income at ₹ 41,67,451/- as against ₹ 25,42,865/- declared by the assessee appellant, in turn making total addition of ₹ 16,24,586/- against the assessee appellant. 2. That on the facts, in the circumstances of the case and in law, the ld. Lower authorities grossly erred in treating the interest earned on Fixed Deposit Receipts as Income chargeable to tax under the head Income from Other Sources and in not allowing the set-off against interest paid by the assessee appellant to the bank, even when limits were availed from the bank against the FDRs pledged with the bank. 3. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing. Ground no. 1 is regarding rejection of books of account under section 145(3) of the IT Act. 2. At the time of hearing, the ld. Counsel for the assessee has stated at bar that the assessee does not press this ground of appeal and the same may be dismissed as not pressed. The ld. D/R has raised no objection if the assessee s ground no. 1 is dismissed as not pressed. Accordingly, the ground no. 1 of the assessee s appeal is dismissed being not pressed. Ground No. 1.1 and 1.2 are reg .....

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..... tment in Kerala and, therefore, was not able to look after the matter personally during the assessment proceedings as well as in the appellate proceedings. Thus the ld. A/R has submitted that the noncompliance or deficiencies as pointed out by the A.O. and ld. CIT (A) are only due to the reason that it was not possible for the assessee to look after and take appropriate steps in this respect as he was suffering from health problem and undergoing treatment in Kerala. However, the ld. Counsel has submitted that even if the books of account of the assessee are rejected by invoking the provisions of section 145(3), the estimation of income by the AO as well as by the ld. CIT (Appeals) is not based on some reasonable and proper criteria being the past history of the assessee as well as the prevailing profit in the comparable and identical business activities. The ld. Counsel for the assessee has referred to the comparative details of net profit charged of the assessee for the preceding three years and the current year and submitted that the net profit declared by the assessee for the year under consideration is in line with the past history of the assessee and rather it is higher than t .....

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..... ani Marbles Pvt. Ltd. 175 taxman 56 (Raj.) Thus the ld. Counsel for the assessee has submitted that the addition made by the AO as well as enhanced by the ld. CIT (A) is without any basis, the same deserves to be deleted. 5. On the other hand, the ld. D/R has submitted that the AO has pointed out specific deficiency in the books of account and, therefore, by taking guidance of section 44AD the AO has applied 8% NP to estimate the income of the assessee. He has further submitted that the ld. CIT (A) has undertaken the exercise to verify the genuineness of the sub-contract payment by the assessee and during the enquiry, the statements of sub-contractors were recorded wherein it was found that the claim of the assessee was not genuine and the same was treated as bogus. Therefore, there was material with the ld. CIT (A) to enhance the assessment by considering the fact that the claim of sub-contract payment is not genuine. He has relied upon the orders of the authorities below. 6. I have considered the rival submissions as well as carefully perused the relevant record including the orders of the AO as well as the ld. CIT (A). The dispute is limited on the point of estimation of income .....

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..... visions of section 145 of the Income-tax Act, and made assessment by applying gross profit rate of 15 per cent on the sales disclosed by the assessee, and accordingly additions were made to the different result. This matter relates to assessment year 2000-01. The Assessing Officer for arriving at this conclusion considered that the assessee had disclosed gross profit rate of 2.30 per cent as compared to 2.51 per cent in 1999-2000, and 16.04 per cent in assessment year 1998-99. Against that order the assessee filed appeal, and the learned Commissioner upheld the invoking of section 145, and examined the aspect of gross profit rate to be applied and considered that gross profit rate declared by the assessee during the year is far less than the G.P.Rate (gross profit rate) shown by the other assessees who are in the same line of business, and applied the G.P. Rate at 14.5 per cent. Against this the assessee filed appeal being Appeal No. 448 of 2004, and the revenue also filed appeal being Appeal No. 464 of 2004. The learned Tribunal negatived the contention of the assessee about challenge to invoking the provisions of section 145. Then, the aspect of gross profit rate to be applied wa .....

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..... on of the particular work for which the sub contract payments were made by the assessee is not in dispute and the revenue generated by the assessee from execution of the said work is also not in dispute. Therefore, even if there is a discrepancy in the amounts of the sub-contract payment, it is inevitable that the assessee has to incur the expenditure for execution of a particular contract work. Therefore, even if the claim of sub-contract work is found to be not correct, the income of the assessee has to be estimated on the basis of turnover and not on the basis of cost in execution of the contract work. Therefore, the entire exercise of the ld. CIT (A) in examination of the correctness and genuineness of the sub-contract payment is futile and is irrelevant when the final income of the assessee has been assessed on the basis of estimation as net profit rate on the turnover. Hence the said enhancement made by the ld. CIT (A) is completely unwarranted and unjustified apart from inconsistent with the provisions of section 144 of the Act as well as the settled legal proposition laying down the guidance for estimation of income after rejection of books of account. The comparative GP an .....

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..... his is a method of accounting consistently followed by the assessee and having no revenue impact, then considering the said amount as part of sale is not justified. Accordingly, the addition made by the AO and enhancement made by the ld. CIT (A) are deleted. Ground No. 2 is regarding the interest on the fixed deposits was treated as income from other sources as against the claim of business income. 7. I have heard the ld. Counsel for the assessee as well as the ld. D/R and considered the relevant material on record. The ld. Counsel for the assessee has pointed out that the interest earned on the FDRs taken for the purpose of contracts and, therefore, the said interest income is business income of the assessee. He has further pointed out that this income of interest was already offered by the assessee as part of the Profit & Loss account and making an addition of the said amount under the head Income from other sources without reducing the same from the business income will amount to double taxation. In support of his contention he has relied upon the following decisions :- Kishan Kumar Saraiwala vs. CIT (DB IT Appeal No. 325/2011 dated 29.08.2017) Mohd. Construction Co. vs. ACI .....

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..... o the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT- (1997( 227 ITR 172 , will not be attracted. The more appropriate decision in the factual situation in the present (8 of 12) [ITA-355/2017] case is in CIT v. Bokaro Steel Ltd.-(1999) 236 ITR 315 (SC). The appeal is dismissed. There will be no order as to costs. The Delhi High Court in Jaypee DSC Ventures Ltd., supra was dealing with a case where the assessee filed its return of income for the relevant assessment year declaring nil income. It had furnished performance guarantee in favour of National Highway Authority of India to get the contract awarded in its favour and to procure the said guarantee, it had kept the amount in a fixed deposit in the bank. The amount of interest income from fixed deposits was set off against the project expenses. The case of the assessee was that the furnishing of bank guarantee had a direct nexus with the carrying on of the project and, therefore, the said set off deserves to be allowed. The Assessing Officer held that interest received by the company on t .....

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..... id sum as income from other sources'. The assessee challenged the said assessment pointing out that interest income could not be added under the head income from other sources'. On appeal, both the Commissioner (Appeals) and the Tribunal upheld the order of Assessing Officer. The High Court however held that the appellant has not earned interest on the money lying idle with him for running industry. On the contrary by virtue of terms and conditions of the contract (10 of 12) [ITA-355/2017] petitioner was to submit a performance guarantee and for that purpose, he had to deposit certain funds with the Bank as margin money and it is on this margin money the interest was earned in the light of the nature of deposit made and the source form which the interest was received. We may in this connection also refer to the judgement of the Karnataka High Court in CIT vs. Chinna Nachimuthu Constructions-(2008) 297 ITR 70 (Karn). That was a case somewhat similar on facts where the assessee being a contractor, in order to secure a contract work was required to offer a bank guarantee to the contractee. There also the assessee had shown the interest accrued on the fixed deposit as business .....

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..... in FDRs/NSCs with a view to earning interest. Obtaining of FDRs/NSCs and furnishing of the same against the performance guarantee by the appellant, therefore, had an inextricable nexus with his business of securing civil contracts and integral to his working as civil contractor. The income of interest earned from the interest such FDRs/NSCs by the appellant therefore, in our considered view, cannot be treated (12 of 12) [ITA-355/2017] as income from other sources and would rather be an income earned from business. In view of above discussion, the question of law extracted above is answered in the terms that in the facts and circumstances of the case, the interest income from FDRs and NSCs of the petitioner has to be treated as income from business and not income from other sources as the income is part of the total receipts and not from other sources. In the result, the appeals are allowed. The judgement of the ITAT dated 24.7.2017 is set aside and that of the CIT(A) in regard to interest earned on FDRs and NSCs dated 18.3.2016 is restored and the matter is remitted back to the Assessing Officer for passing fresh order of assessment in accordance with law keeping view the question .....

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