TaxTMI 
TaxTMI 
2016 (8) TMI 1409
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, comprising of a total distance of 50 KM. The assessee took this contract from IRB....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. The vouchers of expenses were impounded by the AO revealed that they did not cover all the expenses claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....air (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 vouchers have been misplaced due to nature of work at different sites. Also, the AO had noted that the muster rolls of labour were not filed. Even though the books of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- 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 written submissions it was submitted that the depreciation claimed at Rs. 67,40,170/- was disallowed only for the reason that the assessee had purchased assets in the names of one of the partners and not in the name....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 46,07,487/- to M/s SREI Equipment Finance Ltd without deduction of tax at source. The AO observed that these were loans taken by the Assessee for the purchase of Tippers and Plant & Machinery . The AO relied on the CBDT circular No. 10 dated 16-12-2013 which clarified that interest paid wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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 IRB Ltd., who was the main contractor of NHAI. The construction of the Highway was started during the year and wok to the extent of Rs. 1 crore was executed during the period under construction. The assessee is a civil contractor and the total receipts amounting to Rs. 9,96,62,747/- were shown during the year under consideration thereby showing the rate of profi....