TaxTMI 
TaxTMI 
2015 (7) TMI 1106
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of income u/s 251. 1.2 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not accepting the net profit declared by the assessee. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not allowing the claim of Joint Venture charges of Rs. 86,06,107/- from the net profit rate applied by her. 2.1 The Ld. Commissioner of Income Tax (Appeals) has erred in facts and in law in holding that Joint Venture Charges of Rs. 86,06,107/- paid to Maruti Nandan Colonizer Private Limited towards share of profit as per Joint Venture agreement cannot be debited to the profit and loss account and therefore disallowable. She has further erred in directing A.O. to call the return of joint venture and tax the income of joint venture." Ground of ITA No. 869/JP/2012 "Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in allowing the interest payment of Rs. 43,94,830/- to deducted despite the fact that interest income shown has been assessed under the head "Income from other sources" and accepted by the Ld. CIT(A)." 2. The assessee is a civil contractor. He declared income of Rs. 7,54,41,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... could not be produced as they were lying at worksite. For expenses debited in P/L account like Roda stone, moram roda, pani, bajri, mess expenses etc. on self made vouchers procured from the local persons, who do not keep printed bills. The nature of work is different with other business and being various work places it is difficult to pay the attention on qualitative and quantitative work by the assessee. Further each and every record cannot be maintained in this line of business wherever the evidence can be collected has been taken by the assessee to prove the genuineness of expenditure. The assessee has shown G.P. rate @ 6.46% as per CBDT instruction for selection of cases, this case should not have been selected for scrutiny as turnover is more than two crores and net profit is more than 5%. He further relied on the following case laws:- i. Mahendra Kumar Sethi Vs. ITO (ITA No. 1452/JP/1993). ii. Prem Shankar Vs. JCIT (ITA No. 400/JU/2005). For depreciation and interest he submitted as under:- "Depreciation:- In the following cases it was held that depreciation allowance is mandatory and would be allowable after the application of profit rate. a. CIT Vs. Jain Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 40(a)(ia) of the Act for making payment without deduction of tax -Rs. 1,07,896/-, penalty disallowed- Rs. 1,96,478/- and donation- Rs. 3,79,850/-. 2.1 The ld Assessing Officer further observed that there was a survey U/s 133A of the Act on the assessee's premises on 14/7/2011, during which very incriminating documents were found and impounded. As per Annexure-A/1, which was an Ultra-tech cement diary, there were some entries which depicted cash payments by the assessee to his sub contractor Shri Birbal Singh Shoora. During the survey proceedings, assessee was inquired about the nature of transactions mentioned in the diary and to verify the same from his books of account. Statement U/s 133A of the Act was recorded, which has been reproduced by the Assessing Officer on page No. 17 of the assessment order. On the basis of this statement and incriminating documents found, the assessee admitted additional income of Rs. 17,05,800/- for the F.Y. 2008-09. The assessee had not revised the return for disclosing this additional income admitted during the course of survey, therefore, she asked to explain the reasons and also proposed to make addition on account of disclosure made by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of the AR and the following facts emerge in the case of the assessee: 1. The assessee has not been maintaining any books of accounts from A.Y. 2003-04 if not earlier. 2. The assessee's case has regularly been picked up for scrutiny, his books of accounts have been rejected by invoking provisions of Section 145(3) and the matter has gone up to the Hon'ble ITAT, Jaipur Bench. The Hon'ble ITAT Jaipur Bench has consistently upheld the rejection of the books of accounts in the case of the assessee but has relied on the finding of Hon'ble jurisdictional High Court in the case of Gotan Khanij Udyog Pvt. Ltd. Vs. CIT to hold that the past history of the case is the best guide for estimation of profit of the assessee. 3. Survey operations U/s 133A were carried out at the business premises of the assessee on 14/07/2011 wherein various incriminating documents were found and impounded. As per these documents it was found that the assessee has been violating the specific provisions of Income Tax Act and has also been suppressing his taxable income in the previous assessment years. In short, the assessee has intelligently taken advantage of the judicial history in his case to del....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is not known what was the percentage of input of the component of bitumen in the overall cost and the exact amount of consumption and how much of it influenced the profit rate. The exercise undertaken by the AR is a hypothetical conjecture in the absence of any supporting books of accounts, bills and vouchers in the case of the assessee. A set off is given of 1.37% (due to non debiting of joint venture charges) from the profit rate of 10.26% in A.Y. 2011-12. Thereafter, the net profit rate before depreciation and interest is estimated at 8.89%. The A.O. is directed to calculate the profit of the assessee at rate of 8.89% on total contractual receipts of Rs. 1,20,09,79,663/- before depreciation and interest allowable of Rs. 43,94,830/-." Further the ld CIT(A) has held for payment made to M/s Maruti Nandan Colonizers Pvt. Ltd. as joint venture charges as under:- "I have carefully perused the order of the A.O. and the submissions of the AR and find that the matter is covered by the CIT(A) in the case of the assessee in A.Y. 2008-09 vide her order dated 07/06/2011, ITA No. 438/10-11. After a detailed discussion from pages 8 to 10 of this order the following findings was given....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8% 7.2% PB 41-42, Para 6 and 6.1 2006-07 66,75,57,202/- 7.02% 8% 7.1% PB 47, Para 6 2005-06 42,07,54,436/- 6.73% 8% 7.2% PB 49-50, Para 5 - Hon'ble ITAT in A.Y. 05-06 in applying the N.P. rate, by relying on the decision of Rajasthan High Court in case of Shree Ram Jhanwar Lal Vs. ITO 10 DTR 229 held that where gross receipt of a contractor exceed Rs. 40 lacs, section 44AD cannot be applied. This is followed in A.Y. 06-07 and 07-08. - The comparison made by the AO with A.Y. 1994-95, 1995-96 for application of the net profit rate is irrelevant. The comparison should be made with immediate past and not distant past. Hon'ble ITAT in A.Y. 2005-06 considered this aspect whileuploading net profit rate of 7.2% and this had been followed in the assessee's own case in the A.Y. 2006-07 & 2007-08. In the A.Y. 2008-09, the Hon'ble ITAT has considered the case of Hon'ble Rajasthan High Court in the case of Kansara Bearings P. ltd. v. Assistant Commissioner of Income Tax (2004) 270 ITR 235 in holding that the best method of estimating the income on the contractual receipt would be past history of the assessee himself and applied the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore Bench in the case of Anjaneya Brick Works Vs. ACIT (Inv.) 74 TTJ 921 (Bang.) and therefore based on the n.p. rate of AY 2011-12, the n.p. rate of AY 2009-10 should not be estimated. 3. The Ld. CIT(A) has directed the AO to apply a N.P. rate of 8.89% subject to depreciation and interest. This has resulted in the enhancement of income by Rs. 62,93,889/-. The enhancement is made without issuing any specific show cause notice as required by section 251 of the Act. Sub section 2 to Section 251 reads as under: "The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction". Therefore, before enhancing the assessment, CIT(A) is required to issue show cause notice to the assessee against such enhancement. The assessee has not been issued any show cause notice required u/s section 251 of the Income Tax Act, 1961. Without issue of such show cause notice, the enhancement to the income made by CIT(A) is illegal and bad in law. For this reliance is placed in case of Gedore Tools (P.) Ltd. Vs. CIT 238 ITR 268 (Delhi) (HC). In view of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Colonizers Private limited in the books of assessee, it can be noted that a sum of Rs. 16,58,72,534/- remained interest free with the assessee. The simple interest @ 12% on this amount, works out to Rs. 1,99,04,704/-. As against this, the assessee paid only Rs. 86,06,107/- as joint venture charges as per the terms of the agreement. If this is in the nature of interest than why the second party will agree to receive joint venture charges of Rs. 86,06,107/- only as against simple interest of Rs. 1,99,04,704/-. Rather, the assessee saved expenditure to the extent of Rs. 1,12,98,579 (1,99,04,704 -86,06,107). Therefore, the disallowance made by the AO by treating the same as finance charge is incorrect. 3. The AO has incorrectly held this arrangement as a finance arrangement by not appreciating the various terms and condition of the agreement. The CIT(A) has therefore not accepted the finding of the AO that it is simply a finance arrangement. However, at the same time, she has incorrectly observed that it is only a contract for profit sharing ignoring that the payment of 10% of the profit is made to Maruti Nandan Colonizers Pvt. Ltd. as it has appointed a Chief Operating Officer and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld be made with immediate 2 to 3 preceding years not much earlier assessment year. The best method of estimating of income on the contractual receipt is only past history except exceptional variation in the activity of the assessee compared to past. The ld CIT(A) had also not given any show cause notice before enhancing the income of the assessee, which has been held by the Hon'ble Delhi High Court as illegal and bad in law. Reliance is placed on the decision in the case of Gedore Tools (P) Ltd. Vs. CIT (supra) is squarely applicable. There was a survey in the case of assessee on 14/07/2011 and incriminating documents were found during the course of survey. On that basis, the assessee had admitted additional income of Rs. 17,05,800/- but the ld Assessing Officer had not made separate addition on account of disclosure made by the assessee. The assessee also had explained that after verification of the books of account, the disclosure made was not warranted as these discrepancies were not found when verified from the regular books of account after survey, therefore, no revised return was filed by the assessee. Keeping in view of the past history and our own decision in A.Y. 2008-09 ....