2011 (11) TMI 626 - AT - Income Tax

Tribunal rulings: Dismissed, upheld, agreed, and partly allowed.

Income Tax, Officer – 1 (3), Versus. Shri Ravi Dubey,

The Tribunal dismissed the Revenue's appeal on the addition of net profit rate to gross receipts, upheld the Revenue's appeal on disallowance under ... Addition on account of net profit rate of 8% to the gross receipts -apply the net profit @ 8% on net receipt after reduction of cost of material ad other charges deducted - Held that:- Cost of material reimbursed cannot be a part of the contract receipt which has rightly been deducted by the ld. CIT(A) and therefore, we find no error in his order. Separate addition u/s. 40(a)(ia) - Held that:- Disallowance made under section 40(a)(ia) of the Act is independent of any other provisions of the Act.The turnover of the total sales, gross receipts or turnover from the business or profession is less than the monitory limit as provided under section 44AB is without any material on record in the preceding Assessment Year. Nothing has been placed by the assessee in the Paper Book containing 85 pages. Further, the remand report has also not confirmed total sales, gross receipts or turnover to be below the monitory limit specified under section 44AB of the Act in the preceding year. Therefore, in the circumstances and the facts of the case, the ld. CIT(A) is not justified in deleting the addition made by the Assessing Officer. Unexplained opening balance of the assessee’s capital - Held that:- This is the first year of the assessee and, therefore it was argued that there is no possibility of any income and which cannot be introduced as opening capital which of course submitted by the ld. Authorised Representative in his submission dated 16.06.2009 is out of the Savings Bank Account of the assessee maintained with ICICI Bank, Sanjay Place as at 01.04.2005. The bank account number is 628701501674. Addition to be deleted. Addition on account of investment in Car and scooter - Held that:- As submitted that the car has been purchased from the borrowed fund from ICICI Bank, Agra and the copy of loan account was submitted and the scooter was introduced in business as capital contribution by the proprietor at its cost price which was taken on loan and an installment of ₹ 3010/- per month was being paid to repay the loan on scooter. Therefore, in the circumstances and facts of the case, we find no error in the order of the ld. CIT(A) who has rightly deleted the addition made by the A.O. Issues involved:1. Addition of net profit rate to gross receipts.2. Disallowance under section 40(a)(ia) on separate addition.3. Addition on account of opening balance in capital account.4. Addition of unexplained investment in car and scooter.5. Application of legal provisions in disallowance under section 40(a)(ia).6. Turnover limit under section 44AB for disallowance under section 40(a)(ia).Detailed Analysis:1. The first issue pertains to the addition of net profit rate to gross receipts. The Revenue contended that the Assessing Officer should apply 8% net profit rate on gross receipts, whereas the CIT(A) directed to apply the rate on net receipts after deduction of material costs. The Tribunal concurred with the CIT(A) that the cost of material should not be included in the contract receipt, leading to the dismissal of the Revenue's appeal on this ground.2. The second issue involves disallowance under section 40(a)(ia) for separate addition. The CIT(A) deleted the addition based on the rejection of the assessee's books of account under section 145(3) and the turnover not exceeding the limit in the preceding year. However, the Tribunal disagreed with the CIT(A) and allowed the Revenue's appeal, citing legal precedents emphasizing the independent nature of disallowance under section 40(a)(ia).3. The third issue concerns the addition on account of an unexplained opening balance in the capital account. The CIT(A) deleted the addition after considering the remand report and explanations provided. The Tribunal upheld the CIT(A)'s decision, noting that it was the first year of business for the assessee, and the source of the opening capital was adequately explained.4. The fourth issue relates to the addition of unexplained investments in a car and scooter. The CIT(A) deleted the additions after receiving the remand report and considering the explanations provided by the assessee. The Tribunal agreed with the CIT(A)'s decision, as the source of funds for the purchases was clarified, leading to the dismissal of the Revenue's appeal on this ground.5. The fifth issue involves the application of legal provisions in disallowance under section 40(a)(ia). The Tribunal referred to judgments of the Allahabad High Court and the Supreme Court to support its decision that the disallowance made under section 40(a)(ia) is independent of other provisions, thereby upholding the Revenue's appeal on this ground.6. The final issue concerns the turnover limit under section 44AB for disallowance under section 40(a)(ia). The Tribunal noted the absence of material confirming turnover below the limit in the preceding year, leading to the conclusion that the CIT(A) was not justified in deleting the addition made by the Assessing Officer. Consequently, the Tribunal partly allowed the Revenue's appeal in this regard.