TaxTMI 
TaxTMI 
2016 (8) TMI 1409
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....ion, when deleted further separate addition(disallowance of interest payment without deduction of tax) by holding that once books of account rejected, there is no scope for further separate disallowance of depreciation. 3. The CIT (A) is not right in deleting the above addition which is not as per the settled law including the following judgment of the SC. Kachwala Gems VS JCIT 288 ITR 10 (SC) as per which it is held that that since cogent reasons were given by the A.O for rejecting the accounts there was no reasons to take a different view and it is the assessee himself who is to blame as he did not submit proper accounts. 4. On the facts and law, The Ld. Commissioner of Income Tax (Appeals)-II, Amritsar has erred in deleting the addition of Rs. 58,76,454/- on account of interest paid without deduction of Tax, by holding that once books of account rejected, there is no scope for further disallowance, which contradictory and illogical to the above allowance of separate further deduction of depreciation." 2. Briefly stated, the facts of the case are that the assessee was engaged in the business of constructing National Highway-15 from Sarna to Dhariwal, comprisi....
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....after rejecting the audited accounts of the assessee. The facts of the case are that the Assessee is a Civil Contractor and was engaged in laying of national highway from Sarna to Dhariwal. The gross receipts were shown at Rs. 9,96,62,747/ and net profit was declared at Rs. 46,21,585/-.The Assessee was asked to submit details of contract receipts, purchase, labour 8s wages expenses, which were partly produced and examined. The major expenses were claimed under the heads purchase of consumables, Diesel, borrow, interest, and salary. The Assessee was asked to furnish complete details of expenses claimed but complete details called for were not furnished. Confirmations in only a few cases were filed. Muster rolls of labour and bills/ vouchers of other expenses were not filed. The assessee produced cash book and ledgers alongwith few bills. The AO noted that the bills of purchase of fixed assets were not in the name of the assessee, confirmations were not filed, noticed discrepancies in the purchase account of borrow, muster rolls of labour was not filed, noticed discrepancies in the purchase of diesel, staff salary, stationary, rent, repair & maintenance, and mess expenses. T....
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....he purchase account of borrow, muster rolls of labour was not filed, noticed discrepancies in the purchase of diesel, staff salary, stationary, rent, repair (1B maintenance, and mess expenses. The vouchers of expenses were impounded by the AO revealed that they did not cover all the expenses claimed in the Profit & loss a/c. In response to the request of the AO to produce the balance vouchers, it was replied by the Assessee that the remaining vouchers have been misplaced due to nature of work at different sites. In view of the said discrepancies noticed by the AO, the AO was justified in holding that the book results declared by the assessee are not reliable and the books of accounts cannot be said to be complete and correct and the correct income cannot be deduced from such books of accounts. Therefore the books of accounts were rightly rejected u/s 145(3) of the Act. As regards the application of net profit rate, the AO had noted several discrepancies in the purchase of diesel, staff salary, stationary, rent, repair & maintenance, in the purchase account of borrow and mess expenses and that only some vouchers were maintained by the appellant while the remaining ....
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....rdingly to modify the assessment order. (ii) The ground of appeal No.3 and 5 are, against the disallowance of entire depreciation of Rs. 2,13,22,380/- and the depreciation Rs. 67,40,170/- on the assets appearing in the name of one of partner. The AO observed that the assets were not in the name of the assessee and therefore the depreciation claimed thereon is not allowable. It was stated by the assessee cars were purchased in the name of Shri Sunil Grover since obtaining loan in the name of individual is easier than in the name of the firm. It was further stated that the loans were being paid out from the firm. Similarly in respect of other assets it was stated that the loans / payments have been made from the firm only. In respect stone crusher plant it was stated that it was purchased by obtaining loans from Tata Capital in the name of the firm. The AO held that the assessee should be the owner of assets in order to claim depreciation. In this case, the AO disallowed the depreciation @ 15% claimed on the assets not in the name of the Appellant Firm, which works out to Rs. 67,40,170/- and which was added back to the total income declared. In the....
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....the entire depreciation claimed at Rs. 2,13,22,380/- is allowed to the appellant and the AO is directed accordingly. It has been held by Hon'ble Punjab & Haryana High Court in the case of Lali Construction Co vs ACIT-cum Assessing Officer (2015) 229 Taxman 286 that depreciation is allowable from Net profits even if total income is computed by applying net profit rate. Several other High Courts have held likewise. Accordingly, in view of the above discussion, the AO is directed to allow the depreciation claimed at Rs. 2,13,22,380/- from the Net profit determined by applying the Net profit rate of 7% of gross receipts declared by the appellant (held above), and subject to the returned income . (iii) The ground of appeal No.4 is against the disallowance of interest amounting to Rs. 759,953/- to M/s Tata Capital, Rs. 517,014/- to M/s India Bulls and of Rs. 46,07,487/- to M/s SREI Equipment Finance Ltd, NBFCs . In the assessment proceedings the AO observed that the assessee had taken loans from different NBFCs and paid interest thereon. Interest paid by the Assesee was Rs. 759,953/- to M/s Tata Capital, Rs. 517,014/- to M/s India Bulls and of Rs. 46,0....
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.... of expenditure. This view finds support from the following decisions- i) The decision of Hon'ble Andhra Pradesh High Court in the case of Maddi Sudarsanam Oil Mills vs CIT (1959) 37 ITYR 369 (AP), which was followed in the case of Indwell Construction vs CIT232 ITR 776(AP). ii) Thedecision of Hon'ble CIT vs Banwari Lai Bansidhar (1998) 229 ITR 229 where it was held that no disallowance could be made u/s 40A(3) of the Act when G P rate was applied. Accordingly, in view of the above discussion and the cited case laws, no disallowance of interest paid to the parties at Rs. 58,76,454/- u/s 40(a)(ia) of the Act was called for and the disallowance of Rs. 58,76,454/-is accordingly deleted. 7. In the result, appeal is partly allowed." 8. We have heard the rival contentions and have perused the material available on record. This is a case of tax audit and a copy of audit report was filed before the Authorities below and a copy of the same is available on record (APB 31 to 46). The assessee was engaged in the business of constructing National Highway 15 from Sarna to Dhariwal comprising of total distance of 50 Km. The assessee bagged this contract from....
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....on Co vs. ACIT reported in 229 Taxmann 286. The copy of the judgment is placed at Page No.12 to 14 of the paper-book. On this very point the appeal of the department may be dismissed. 9.1 In third ground of appeal the department has relied upon the decision of Supreme Court of India in the case of Kachawala Junks vs JCIT reported in 288 ITR 10. A copy of the judgment is placed at Page No. 98 to 100 of the paper-book which supports the case of the assessee rather the case of the department. Thus this ground of appeal may also be dismissed. As far as the fourth ground of appeal is concerned, it is also liable to be rejected once the rate of profit is applied no further disallowance or addition can be made. This view finds support from the following judgments:- i) Decision of Jharkhand High Court in the case of Amitabh Construction (P) Ltd vs. Addl. CIT reported in 335 ITR 523. (Refer page no 101 to 104 of paper book). ii) Decision of Kerala High Court in the case of Samurai Techno Trading Co Ltd vs. CIT reported in 197 Taxman 144. (Refer page no 105 to 109 of paper book) iii) Decision of Andhra Pradesh High Court in the case of Maddi Sudarsanam Oils Mill....