Tribunal decision on GP rate, interest income, and discount income appeals for assessment years 2011-12/2012-13

The Tribunal upheld the CIT (A)'s decision to reduce the GP rate under section 145(3) for the assessment years 2011-12 and 2012-13 based on the past history of the assessee. It allowed the Revenue's appeal regarding the treatment of interest income from FDR & NSC as income from other sources, following a High Court judgment. The Tribunal also sided with the assessee on the treatment of discount income from suppliers, affirming the CIT (A)'s decision. The cross objections by the assessee were dismissed, and the order was pronounced on 24.07.2017.

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Issues Involved:
1. Reduction of GP rate u/s 145(3) from 13% to 11.50% for A.Y. 2011-12 and from 13% to 11.75% for A.Y. 2012-13.
2. Treatment of interest income from FDR & NSC as business income instead of income from other sources.
3. Treatment of discount income from suppliers as reduction from the cost of material instead of other income.

Issue-wise Detailed Analysis:

1. Reduction of GP rate u/s 145(3):
The Revenue challenged the CIT (A)'s decision to reduce the GP rate from 13% to 11.50% for A.Y. 2011-12 and from 13% to 11.75% for A.Y. 2012-13. The CIT (A) had confirmed the rejection of the books of account but reduced the estimation of Net Profit based on the past history of the assessee and previous decisions for A.Y. 2007-08. The Tribunal upheld the CIT (A)'s decision, noting that the past history of the assessee is the best guide for estimating income once the books are rejected. The Tribunal referenced several cases where the past history was used to determine the GP rate, including CIT vs. Sh. Sindhuja Foods Pvt. Ltd. and CIT vs. Vaibhav Gems Ltd. The Tribunal found no infirmity in the CIT (A)'s order and affirmed it, rejecting the Revenue's ground.

2. Treatment of Interest Income from FDR & NSC:
The Revenue argued that the CIT (A) erred in treating interest income from FDR & NSC as business income. The assessee contended that the FDRs were made for business purposes, such as obtaining bank guarantees for contracts, and the interest earned should be considered business income. The Tribunal, however, followed the judgment of the Hon'ble Rajasthan High Court in CIT vs. Bhawal Synthetics (India), which held that interest earned on FDRs should be treated as income from other sources. Consequently, the Tribunal set aside the CIT (A)'s order on this issue and restored the AO's finding, allowing the Revenue's ground.

3. Treatment of Discount Income from Suppliers:
The Revenue contested the CIT (A)'s direction to reduce discount income from the cost of material instead of treating it as other income. The assessee argued that discounts received from suppliers should reduce the cost of raw materials consumed in contract work. The Tribunal agreed with the assessee, stating that discounts are essentially reductions in the value of materials supplied and should be deducted from the cost of raw materials. The Tribunal found no infirmity in the CIT (A)'s order and affirmed it, rejecting the Revenue's ground.

Cross Objections by the Assessee:
The assessee's cross objections for both assessment years pertained to the confirmation of additions by applying NP rates of 11.5% and 11.75% instead of the declared NP rates of 10.78% and 11.52%, respectively. The Tribunal dismissed the cross objections, noting that the issue was already decided in the Revenue's appeal by affirming the CIT (A)'s order based on the past history and the decision of the Coordinate Bench for A.Y. 2007-08.

Conclusion:
The Tribunal partly allowed the Revenue's appeals by restoring the AO's finding on the treatment of interest income and upheld the CIT (A)'s decisions on the GP rate and discount income. The cross objections by the assessee were dismissed. The order was pronounced in the open court on 24.07.2017.

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