AI Drafter 
TaxTMI 
TaxTMI 
2017 (11) TMI 1420
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....is books were rejected and not profit rate was applied on gross contract receipts from year to year. He was assessed to income tax for the assessment year 1990-91 and 1993-94 wherein for the said years a net profit rate of 8.5% and 8.57% was applied and addition was made enhancing tax liability. In terms of arbitration awards the assessee received following amount during the assessment year 2006-07. A. Works of A.Y. 1990- 91 Claim Receipts (Principal) : Rs.4,70,268.00 Interest Rs.2,38,092.00 Rs.7,08,360.00 B. Works of A.Y. 1993-94 : Rs. 1,04,830.00 Interest Rs. 76,210.00 Security refund Rs.1,80,540.00 3.1 The assessee on account of finding judgment of Apex Court in Sh. Govind Choudhary case and inaccordance with the treatment given earlier during relevant years applied said net profit rate and declared in the return. 3.2 The Assessing Officer vide order dt. 12.12.2008 (Annexure-1) discussed the issue observed as under:- 8. Arbitration Award Receipts:- That during the year under consideration the assessee has received the followings amount of Arbitration Award and has disclosed only the net profit on ....
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....ound unacceptable. (i) Firstly, the assessee has wrongly interpreted and relied on the judgment of the ITAT in the year 2004-05 in his case. The matter in A.Y. 2004-05 was set aside by the ITAT with the direction to the Assessing Officers to verify as to whether the expenses incurred by the assessee relating to the award related to assessment year 1993-94 received during the year had already been claimed in the A.Y. 1993-94 or not. As per the directions, opportunity was given to the assesse to prove with documentary evidence his claim that no such expenses relating to the awards receipts were claimed in the A.Y. 1993-94. These assessee has failed to discharge his onus of producing evidence in his own case. If the assessee claims that the expenses relating to the award were not claimed in the A.Y. 1993-94 then he should produce the separate account of such expenses not claimed. The assessee has failed to identify the specific expenses related to this award. In the absence of any evidence filed by the assessee it was concluded that he assessee has already debited the entire expenses related to arbitration receipts in the profit and loss account for A.Y. 1993-94 itself. Hence....
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....onsideration, the assessee received two arbitration awards of Rs. 180514/- (pertaining to AY 1990-91), but he offered for tax only the net profit on these receipts by applying the NP rate @ 8.57% and @ 8.5%, respectively. This view was taken, as among other reasons, the appellant was not "able to prove with documentary evidence that expenses pertaining to AY 1993-94 & 1990-91 were not claimed in those years" the AO was not satisfied with reply dt. 8.8.2008 of the appellant. He, thus, concluded " it is logical to treat the entire receipts of Rs. 18051/- and 708360/- as the income in the instant year A.Y. 2006-07. However, the assessee has already diclosed Rs. 157470/- and 60210/- out of the above receipts in the computation of income submitted with the return. Therefore, Rs. 813194/- (Rs.165044/-+648150/-) is added to the total returned income of the assessee. The defense of the appellant is that he had "rightly disclosed the N.P. as was declared in those years as the income in the computation of income for the year under appeal..(as) in a case like this...these (the arbitration award) receipts partake character of contract receipts though by way of arbitration awa....
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.... through arbitration award as copy of such award has not been filed. Whether the award was in respect of extra work or in respect of extra work or in respect of extra rate demanded or was on account of escalation in rates? The ld. CIT(A) has given a finding that assessee has not claimed such expenses for the A.Y. 1990-91 & 1993-94. The work in progress has been shown nil and this will infer that in case the expenses were incurred then these were not entered in the books of account. The decision of Hon'ble Apex Court in case of Govind Choudhary and sons is not applicable as in that case interest awarded was held to be considered as business receipts. This case helps the revenue to say that receipts as per arbitration awards are to be considered as business receipts. The AO has given finding on the basis of tribunal order in the case of the assessee for earlier year that the assessee has not established the incurring of expenses in respect of such receipts for the A.Y. 1990-91 & 1993-94". The ld. CIT(A) has recorded a finding that expenses related to such receipts are not reflected in the audited profit and loss account for A.Y. 1990-91 and 1993-94. No details of expenses shown to ha....
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....e assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well-settled that interest can be assessed under the head "Income from other sources" only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In purview, the interest payable....
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.... We are also satisfied that the amount received did not fully represent income. We called upon the assessee to produce a copy of the arbitration award. A perusal of the award shows that the award was made for escalation of the cost and was not mere profit as contended by the department. We are not relying on this award as we looked into it only for the purpose of satisfying ourselves about the nature of the award." 4.5 Another decision of Allahabad High Court (Lucknow Bench) in Parvati Construction Through Prop. Rajya Pal Mittal vs. Income Tax Appellate Tribunal, Lucknow & ors. (2012) 207 Taxman 229 wherein it has been held as under:- "The interest was only an accretion to the assessee's receipts from the contracts and was attributable to an incidental to the business carried on by it. The interest payable to the assessee partook of the same character as the receipts for the payments of which it was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amount granted to the respondent under the awards and treated as "income from other sources". Had th....
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....principal business at which the tax is levied in accordance with law." 4.7 He relied upon the decision of Himachal Pradesh High Court in CIT vs. Jai Prakash Hydro Power Ventures Ltd. where Division Bench observed as under:- "This brings us to a consideration of the second question. The sum of Rs. 2,77,692/- was received by the assessee as interest on the amounts which were determined to be payable by the assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract ....
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....opies of letter submitted to the AO on 5.5.2008, 9.6.2008, 28.7.2008 and 8.8.2008. It is also contained copies of vouchers in respect of purchase of diesel. Letter of 5.5.2008 was is in response to notice u/s 142 and it is not relevant in respect of issue of allowability of diesel expenses. Similrly letters dt. 9.6.2008, 28.7.2008 and 8.8.2008 are not relevant as it appears that issue of allowability of diesel expenses was perhaps not an issue. Before the CIT(A), the assessee filed written submissions vide letters dt. 29.3.2009, 9.4.2009, 27.5.2009 and 12.6.2009 available at page 1 to 40 of the paper book. The AO has sent his report vide letter dt. 15.5.2009. The assessee vide written submission dt. 29.3.2009 mentioned at pages 4 to 7 (P.B. pages 21 to 24) stated that diesel is being provided to JCB owners and tractors and also enclosed copy of register showing the supply of diesel and it contained the signatures or thumb impressions of JCB/tractor owners. Copy of such registers have not been placed in the paper book. The AO in report mentioned that such evidences should not admitted. When the ld. CIT(A) has admitted the evidences then the AO should have examined such additional ev....
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....reon as income from other sources. The ld. CIT(A) reversed the order of AO on this issue and directed the AO to treat the interest amount as part of business income of the assessee for the purpose of computing income u/s. 44AD of the Act by following the ratio laid by the Hon'ble Supreme Court in the case of Govinda Chaudhary and Sons (supra). We find that the assessee during the course of execution of contract had some disputes with M/s. Konkan Railway which went into arbitration and the assessee was awarded Rs. 11,65,889/- as claimed loss by assessee with interest for the delayed payment @ 10% p.a. of Rs. 26,79,266/-. In our opinion the interest is only the amount of addition and accretion to the assessee receipts from the contracts and it is obviously attributable and incidental to the business carried out by the assessee. In the decision referred to above in the case of Govinda Chaudhary and Sons (supra) similar issued came up for consideration before the Hon'ble Supreme Court and it was held by the Hon'ble Court that interest is also part of the business receipt of the assessee. We therefore, do not find any infirmity in the order passed by the CIT(A) and upheld th....