TaxTMI 
TaxTMI 
2016 (5) TMI 1013
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..... The assessee has filed its return of income for the assessment year 2009-10 on 29.9.2009 declaring total income of Rs. 94,60,460/-. A survey operation u/s 133A of the Income Tax Act, 1961 (hereinafter called as 'the Act') was conducted in the business premises of the assessee on 25.7.2012. Consequent to the survey, the case has been reopened under sec. 147 by issuing notice u/s 148 of the Act. Subsequently, the case has been selected for scrutiny assessment and accordingly, notice u/s 143(2) & 142(1) of the Act along with a detailed questionnaire were issued. In response to the notice, the authorized representative of the assessee appeared from time to time and furnished books of accounts, bills & vouchers along with copy of bank accounts for verification. During the course of assessment proceedings, the A.O. noticed that the books of accounts maintained by the assessee are not susceptible for verification, as such a show cause notice was issued to the assessee to explain why the books of accounts should not be rejected and net profit estimated. In response to show cause notice, the assessee has objected for estimation of net profit. However, the A.O. after considering th....
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....CIT(A) after considering the submissions of the assessee, held that the A.O. has rightly rejected the books of accounts, as the assessee has failed to furnish relevant vouchers in support of the expenditure claimed. The CIT(A) further held that the discrepancy pointed out in the assessment order was not disputed by the assessee, however it was argued that the vouchers for labour charges could be only self-made. The fact remains that the assessee could not prove the claim of its expenses with proper evidences, therefore, upheld the action of the A.O. in rejection of books of accounts. As regards the estimation of net profit, the CIT(A) after considering the explanations furnished by the assessee scaled down the estimation of net profit from 10% to 8% with further deductions towards 'interest and remuneration' to partners. Similarly, the CIT(A) held that the A.O. was right in making separate additions towards 'Income from Other Sources', being interest on fixed deposits and other miscellaneous receipts. The CIT(A) held that interest on fixed deposits earned by the assessee is not a receipt emanating from the business activity of the assessee. Even if the fixed deposits were offered a....
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....counts. Therefore, the A.O. was completely erred in rejection of books of accounts and estimation of net profit. The A.R. further submitted that the assessee is into the business of execution of works contract mainly for Government departments, where the net profit margins were very low. It was further argued that the assessee also executes sub contracts for others, wherein the net profit margin varies from 4 to 6%. The A.O. without considering the fact, simply applied 10% net profit on total contract receipts which is not correct. The A.R. further submitted that separate deductions towards depreciation should be allowed from the estimated net profit. Therefore, requested to scale down the net profit and also allowed depreciation. 7. We have heard both the parties and perused the materials available on record. The A.O. has rejected the books of accounts and estimated the net profit of 10% on gross contract receipts net of all permissible deductions. The A.O. was of the opinion that the assessee has not produced any bills & vouchers in respect of expenditure and also the books of accounts of the assessee are not susceptible for verification. The A.O. further opined that during th....
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....under consideration, in accordance with the decisions rendered by us on various issues in the preceding paragraphs. However, the income so computed works out to less than the income returned by the assessee, then, the total income so computed shall not go beyond the returned income and it should be restricted to the income returned by the assessee, since, the assessed income should not be less than the returned income." 8. The ITAT, Hyderabad bench in the case of ACIT Vs. Teja Constructions 191/HYD/2001 has considered similar issue of estimation of net profit from civil contract business. The Coordinate bench decided the issue as under: "The assessee's past track records show that the assessee has neglected the presenting of the books of account in accordance with law. When the assessee claimed any expenditure, it is mandatory on the part of the assessee to produce the books of account supported by proper bills and vouchers. Since the assessee has not produced the proper books of account, true profits or loss cannot be deduced from the books of account of the assessee. The AO having no other option rejected the books of account and estimated the income at 10 per cent of gross....
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.... additions towards 'Income from Other Sources', being interest on fixed deposits and other miscellaneous receipts. The A.R. further submitted that the assessee has fixed deposits in a bank to obtain bank guarantee to be given for principles for contracts. Therefore, interest earned on fixed deposits should be considered as part of business receipts for the purpose of estimation of net profit. Alternatively, the A.R. submitted that the assessee has taken over draft facility against the security of fixed deposits, therefore, there is a direct nexus with the over draft availed on such deposits and as such the interest paid on bank over draft should be net off against the interest earned on fixed deposits. The Ld. D.R. on the other hand, strongly supported the order of the CIT(A). 11. We have heard both the parties and perused the materials available on record. The A.O. made separate additions towards 'Income from Other Sources', being interest on fixed deposits and other miscellaneous receipts. The A.O. was of the opinion that the interest earned on fixed deposits is assessable under the head 'Income from Other Sources' and which has no relevance to the business activity of the ass....
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....l is deductions towards interest on capital and remuneration to partners. The A.O. did not allow the deductions towards remuneration to partners and interest on partner's capital accounts. The Ld. D.R. submitted that once net profit is estimated, no separate deductions towards interest on partner's capital and remuneration to partners is allowable as a deduction. The Ld. D.R. further submitted that the CIT(A) ought to have appreciated the fact that the interest on capital and remuneration to partners are not allowable in a case, where the books of accounts are rejected and profit is estimated. It was the contention of the assessee that even net profit is estimated from contract receipts, in the case of partnership firms, deduction towards remuneration to partners and interest on capital is to be allowed. The Ld. A.R. further submitted that the issue of interest on capital and remuneration to partners is squarely covered by the decision of coordinate bench decision of ITAT, Visakhapatnam in the case of M/s. K. Venkata Raju, Rajahmundry in ITA Nos.370 & 409/Vizag/2012 and also in the case of Srivalli Shipping & Transports in ITA Nos.79 to 95/Vizag/2013. Therefore, requested to uphold....
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....igher. Hence, even if the level of operations and other things are equal between the two, the depreciation amount will be different due to the difference in the value of assets. Hence the total income shall also result in different figures between the two business men. The above said illustration would support the contentions of the assessee that the depreciation should be allowed separately. Accordingly, we direct the AO to allow the depreciation admissible to the assessee against the income estimated by us in the preceding paragraphs." 15. The assessee relied upon the coordinate bench decision of ITAT, Visakhapatnam in the case of M/s. K. Venkata Raju, Rajahmundry in ITA Nos.370 & 409/Vizag/2012. The coordinate bench of this Tribunal, under similar circumstances held that interest on partner's capital account and remuneration to partners is allowable deductions when net profit is estimated. The relevant portion is reproduced hereunder: 17. Therefore, respectfully following the view expressed by the Hon'ble jurisdictional High Court and also considering the coordinate bench decision of this Tribunal, we are of the opinion that depreciation is a allowable deduction, even afte....
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....receipts and arbitration award received from Jagadalpur works. It was the contention of the assessee that these receipts are forms part of contract receipts, therefore, should be considered for the purpose of estimation of net profit from the business. We find force in the arguments of the assessee for the reason that the arbitration amount received from the clients towards works contracts. The arbitration amount received from clients towards contract works is certainly a business receipt which cannot be assessed under the head income from other sources. However, the assessee has failed to furnish any details with regard to the amount received from arbitration and also miscellaneous receipts received from Jagadalpur works. Therefore, we are of the opinion that this issue needs to be re-examined by the A.O. to ascertain whether arbitration amount and miscellaneous receipts from Jagadalpur works is towards works contracts or not. Therefore, we set aside the issue to the file of the A.O. and direct the A.O. to verify whether the arbitration award received by the assessee is towards execution of works contract or not. In case the arbitration award is received towards execution of works....