TaxTMI 
TaxTMI 
2015 (11) TMI 1530
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....ed on 23.8.2010 which was duly served on 14.9.2010. In response to the show cause notice, the assessee's AR appeared from time to time and furnished the books of accounts and other details as required by the assessing officer. The assessing officer, however, did not convinced with the explanations furnished by the assesse, rejected the books of accounts and estimated the net profit of 10% on direct contracts and 8% net profit on sub contract works executed by the assessee. Similarly, the A.O. estimated 20% net profit on total sales of Rs. 71,42,650/- from the business of sand sales. Apart from these additions, the assessing officer made separate additions towards interest on bank deposits and also disallowed the claim of depreciation, remuneration and interest on partner's capital account. Thus, the AO, completed the assessment and determined the total income of Rs. 5,18,49,508/- as against the declared income of Rs. 1,76,59,741/-. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT (A). Before CIT (A), the assessee contended that the AO was not right in rejecting the books of accounts, as the assessee has furnished complete books of accounts al....
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....he total income, added back this depreciation to the net profit and claimed deduction of Rs. 2,55,93,041/- as per Income Tax Rules. When this discrepancy was pointed out to the assessee, the assessee filed revised computation rectifying the said mistake admitting total income of Rs. 2,21,70,240/- as against the original total income of Rs. 1,76,59,740/-, therefore, there is no difference as pointed out by the A.O. The assessee further contended that A.O. is not correct in making separate addition towards difference in depreciation, when net profit is estimated from gross receipts. As far as the issue of deductions for remuneration, interest on capital accounts and depreciation, the assessee contended that the A.O. should have allowed separate deductions towards depreciation, remuneration to partners and interest on partner's capital account, as the same are in the nature of statutory deductions provided under the Act and also the Act provides for deductions towards these items even if, the net profit is estimated. 4. The CIT, however, after considering the submissions made by the assessee held that the A.O. was right in rejecting the books of accounts, as the A.O. has pointed ou....
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....n to partners, interest on capital and depreciation is concerned, the CIT (A) directed the A.O. to allow interest and remuneration paid to the partners as per the provisions of section 40(D) of the Act. However, the CIT (A) rejected the claim of deduction towards depreciation and held that in view of the decision of Hon'ble jurisdictional High court decision in the case of Indwell Constructions Vs. CIT 232 ITR 776 and also Hyderabad Tribunal 'A' bench decision in the case of Shri Eashwar Reddy and company, confirmed the disallowance made by the assessing officer. Aggrieved by the CIT (A) order the revenue as well as assessee are in appeal before us. 6. The A.R. submitted that the CIT (A) was not correct in estimating net profit of 8% on main contracts, 5% on sub contracts and 1% sub contract works given to third parties. The assessee has admitted 5.28% net profit on total contract receipts, which is reasonable compared to the nature of works executed by the assessee. The A.R. further submitted that the assessee has maintained books of accounts and relevant vouchers and the books of accounts are audited by the auditor, hence, rejection of books of accounts and estimation of net p....
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....y the Department on various rates depending upon the facts and circumstances of each case. The ITAT have upheld the estimation of net profit ranging from 8% to 12.5% on main contracts and 2% to 7% on sub contract. The coordinate bench of this Tribunal, in the case of Arihant Builders Pvt. Ltd. (supra) took a clue from section 44AD of the Act, held that 8% net profit from civil contracts is justified. The relevant portion of the Hon'ble Tribunal orders is reproduced hereunder: "We have carefully gone through the order of this Tribunal in the case of Krishnamohan Constructions (supra), K. C. Reddy Associates (supra), Sri Srinivasa Constructions (supra) and M. Bhaskar Reddy (supra). No doubt this Tribunal estimated the profit from 12.59165 to 8% depending upon the factual situation. The learned DR made an attempt to distinguish the order of this Tribunal In M. Bhaskar Reddy (supra) on the ground that the turnover is only Rs. 54, 40,420. It is a well known fact that whenever the turnover increases the profit ratio would go down. Merely because the turnover increases the profit may not go up. Therefore, we do not And any justification in the distinction made by the learned DR t....
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....tract and at 5% on sub contract is justified. We do not find any infirmity in the order of the lower authority. Accordingly the same is confirmed." 10. The ITAT, Hyderabad bench in the case of ACIT Vs. Teja Constructions in ITA No.1191/Hyd/2001, while dealing with the similar issue held 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 receipts. But the position is that, the assessee is carrying on three kinds of contracts, as in earlier years, i.e., (i) own contracts, (ii) contracts taken from the sub-contractors, (iii) contracts given to other parties on sub-contracts. The assessee had a higher rate of profit on the contracts executed by the assessee itself. In these ....
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....ness income. The D.R. argued that interest earned from fixed deposits in bank has nothing to do with contracts executed by the assessee. Though fixed deposits are kept in bank as margin money for bank guarantee issued in favour of principles for securing the works contract, it cannot be construed as receipts accrued on account of carrying out the business activity, therefore, addition towards interest income should be sustained. We find force in the arguments of the learned D.R. that income from other sources being interest received from bank deposit cannot be construed as business receipts received on account of carrying out the business activity of the assessee. The assessee earned the interest from bank deposits, which are kept as margin money for taking bank guarantees. Though these bank guarantees are furnished for obtaining contract works, the interest earned from these deposits, cannot be at any stretch of imagination considered as business receipts for the estimation of net profit. There is no nexus between the earning of interest and works contract, except the fact that it is kept in bank as margin money for obtaining bank guarantee. There should be direct nexus between bu....
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.... net profit is estimated from the contract receipts, the deductions towards remuneration to partners and interest on capital, in the case of partnership firm is to be allowed in view of the separate deductions permitted u/s 44AD of the Act. The CIT (A), however, allowed the deductions towards remuneration to partners and interest on partners' capital accounts but, denied the deduction towards depreciation by relying upon the Hon'ble Andhra Pradesh High Court judgement in the case of Indwell constructions Vs. CIT 232 ITR 776. At the time of hearing, the A.R. of the assessee pointed out that the issue of deductions towards depreciation, interest on partner's capital account and remuneration to partners is covered by the decision of coordinate bench of this tribunal in the case Srivalli Shipping & transports in ITA Nos.79 to 95/Vizag/2013 of ITAT, Visakhapatnam bench and also in the case of Ramesh Metals, Vijayawada in ITA Nos.244&245/Vizag/2014. We have gone through the judgements referred by the A.R. and find that the ITAT, Visakhapatnam bench, in the case of Srivalli Shipping & Transports (supra) held the issue in favour of the assessee. The ITAT, while dealing with the similar iss....
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....rest, shall be deemed to have been effected. The procedure under that section, however, applies only when the turnover is below a particular figure which at the relevant point of time was Rs. 40,00,000/-. As of now, it is Rs. 1 Crore. In the instant case, Section 44AD of the Act does not apply because the turnover was above the stipulated amount. Therefore, the feasibility of deduction of turnover and interest cannot be said to have been taken away. The learned counsel for the appellant is not able to point out any provision of law in the Act or Rules made thereunder, which restricts the allowance of the depreciation and interest. On the other hand, the facility created under the Act is so firm and strong that if for any reason it becomes impermissible or unnecessary for an assessee to seek the allowance of depreciation for a particular Assessment Year, he is entitled to carry it forward, for the subsequent years. In such an event, it assumes the character of unabsorbed depreciation. In this very case, the Assessing Officer permitted the allowance of unabsorbed depreciation to the respondent. However, he denied the benefit of the allowance of current depreciation and inter....