TMI Blog2020 (8) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... see or the method of accounting employed by it. In the instant case, it was not the case that the assessee had not followed either cash or mercantile system of accounting. It was also not the case that the Central Government had notified any particular accounting standard not followed by assessee. Hence, the second part of sub-section (3) of section 145 would not apply to the instant case. Addition on estimation basis by applying NP rate of 8% subject to depreciation and interest - HELD THAT:- Assessee company declared income of ₹ 35,10,760/- after depreciation of ₹ 5,31,296/- and finance or interest expenses of ₹ 40,75,834/-. Thus, company has shown gross income of ₹ 81,17,890/- i.e. 6.68% of gross contractual receipt of ₹ 12,16,08,395/- which is significant looking to second year of the operation in the contract business and particularly when the contracts were awarded by private parties in remote area. There is no justification for estimation of income made by the AO @ 8% of gross contractual receipts. Separate receipts on account of consultancy income and estimated income after deduction of certain expenses - HELD THAT:- We direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of AO regarding rejecting the books of accounts of assessee by invoking the provisions of Section 145(3) of the Act. 2. On the facts and in the circumstances and in law the ld. CIT(A) erred in confirming the addition of ₹ 30,84,987/- out of total addition of ₹ 37,09,931/- made by the AO. The ld. CIT(A) further erred in confirming the action of AO regarding applying the Net Profit Rate (before depreciation and interest) @ 8% on gross construction receipt of the assessee and not treating the interest from Parties I.Tax as par of busines income. 3. On the facts and in the circumstances and in law the ld. CIT(A) erred in confirming the ld. CIT(A) erred in confirming the addition of ₹ 87,777/- which was made by the AO u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act, 1961 on account of late deposit of employee contribution to EPF more so the same was deposited by the assessee before filing return of income u/s 139(1) of the Act. However, no separate addition was made by AO in the total income of assessee on this account as the profit was estimated by applying NP Rate. 2.1 Common grounds have been taken by the assessee in both the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit by applying NP rate. In this way the AO assessed income on estimated basis at ₹ 73,17,520/- against the declared income of ₹ 35,10,760/-, resultantly addition of ₹ 37,99,760/- was made. 2.4 By the impugned order, the ld. CIT(A) upheld the rejection of books of account by holding that the facts of this year are different than last year. She further upheld the estimation of the profit by applying 8% of NP rate subject to interest and depreciation. However she directed to treat the interest on FDR of ₹ 9,38,293/- as business income. Further, the ld. CIT(A) confirmed the disallowance of ₹ 73,780/- made by the AO on account of late deposit of EPF contribution of employees . 2.5 Now the assessee is in further appeal before us. 2.6 At the outset of the hearing, the ld. AR of the assessee placed on record the order of the Tribunal in assessee s own case for the immediately preceding assessment year 2012-13 in ITA No.374/JP/2017 dated 25-05-2018 where similar issue was decided by the Tribunal in assessee s favour. 2.7 We have considered the rival contentions and carefully gone through the orders of the authorities below as well as the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was represents only 7.13% of total gross receipts of construction business. Further, the company account was also subject to statutory audit under the Company Act, 1956 and also tax audited under the Income Tax Act, 1961. 2.9 From the record, we found that the company has already produced books of accounts including supporting documents. In fact, assessee has maintained complete records of labour expenses in the shape of wages sheets and payment thereof which was produced during assessment proceeding having details of: Name of labour Designation or nature of work where labour engaged Father or husband name Date of birth Date of joining Sex Gross wages rate per day Number of day attended or labour worked in the month Gross wages payable in a month Deduction of PF Net wages payable Details of employer contribution towards PF Receipts of amount paid to labour on vouchers During the year under consideration, there were more than two thousands of transaction of payment and each transaction supported by wages sheet containing information as mentioned above (supra) and payment vouchers. A sample copy of wages s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Central Government had notified any particular accounting standard not followed by assessee. Hence, the second part of sub-section (3) of section 145 would not apply to the instant case. 3.1 Ground No. 2 relates to confirming the addition of ₹ 28,68,475/- on estimation basis by applying NP rate of 8% subject to depreciation and interest. 3.2 In this regard, we observed that the assessee came in this business since AY 2012-13. In AY 2012-13. This business was carried out under the status of partnership. The assessee was awarded the contracts by private parties and the assessee accepted the contract just to create an existence in market as the assessee was new in the field i.e. experience of 1 year only in the field. Due to this, Govt contracts were not awarded to the assessee. The main reason of low profit was accepting the work order at most competitive rates to settle in the market. The AO assessed estimated income @ 8% of gross contractual receipts after deducting consultation receipt and he allowed depreciation fully but allowed interest to the extent of ₹ 29,84,683/- instead of ₹ 40,75,834/-. Beside above, he also made addition separately for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.9 Accordingly, we direct the AO to allow deduction of 40,75,384/- instead of ₹ 29,84,683/- as interest cost while income derived according to net profit formula. 3.10 We also observed that the profit declared by the assessee is @ 6.62% (calculation chart is as below) subject to Finance cost and depreciation which is most reasonable considering the fact that (i) the assessee is new in this business (ii) contract was awarded by private party (iii) in road construction contract there is cut throat competition, (iv) the location of the work in very remote area and (v) the assessee left the Pune project awarded by M/s ILFS Engineering And Construction Company Limited due to non-viability and geographical limitation in same year. Total contract receipt considered by AO 11,99,22,995 Add: - Consultation Receipt (Para 2.6.1) 16,85,400 Add: -Interest Income on Bank FDR (Para 2.6.3) 9,38,293 Total Contract Receipt 12,25,46,688 NP @ 6.62% 81,12,591 Less ..... X X X X Extracts X X X X X X X X Extracts X X X X
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