TaxTMI 
TaxTMI 
2019 (11) TMI 401
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....r enhancing the trading addition by Rs. 19,29,108/- u/s 251(2) of the Income-tax Act and in computing the total business income at Rs. 59,97,144/- as against Rs. 25,42,865/- declared by the assessee appellant, in turn making total addition of Rs. 34,54,279/- against the assessee appellant. 1.2. That the ld. Assessing Officer grossly erred in applying 8% NP Rate on gross receipts of Rs. 5,45,19,491/- and on uncertified work in progress of Rs. 5,00,000/- and in computing total business income at Rs. 41,67,451/- as against Rs. 25,42,865/- declared by the assessee appellant, in turn making total addition of Rs. 16,24,586/- against the assessee appellant. 2. That on the facts, in the circumstances of the case and in law, the ld. Lower authorities grossly erred in treating the interest earned on Fixed Deposit Receipts as Income chargeable to tax under the head Income from Other Sources and in not allowing the set-off against interest paid by the assessee appellant to the bank, even when limits were availed from the bank against the FDRs pledged with the bank. 3. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearin....
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....ordingly proposed to enhance the assessment by issuing a show cause notice under section 251(2) of the IT Act. The ld. CIT (A) estimated the income of the assessee by adopting NP rate of 11% and consequently the income of the assessee was enhanced by Rs. 19,29,108/-. 4. Before us, the ld. Counsel for the assessee has submitted that during the year under consideration the assessee suffered a paralytic attack and his half body got paralyzed. The assessee was undergoing treatment in Kerala and, therefore, was not able to look after the matter personally during the assessment proceedings as well as in the appellate proceedings. Thus the ld. A/R has submitted that the noncompliance or deficiencies as pointed out by the A.O. and ld. CIT (A) are only due to the reason that it was not possible for the assessee to look after and take appropriate steps in this respect as he was suffering from health problem and undergoing treatment in Kerala. However, the ld. Counsel has submitted that even if the books of account of the assessee are rejected by invoking the provisions of section 145(3), the estimation of income by the AO as well as by the ld. CIT (Appeals) is not based on some reasonable....
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....unsel has then relied upon the decision in case of CIT vs. Garment Crafts, 68 taxmann.com 222 (Raj.) as well as the decision in case of CIT vs. Ashok Behi Bharat Sethi & Party, 35 taxmann.com 214 and submitted that the Hon'ble High Court has taken a consistent view that the past history of the assessee is a proper and reasonable basis for estimation of income. He has also relied upon the following decisions :- CIT vs. Jaimal Ram Kasturi, 33 taxmann.com 315 (Raj.) CIT vs. Inani Marbles Pvt. Ltd. 175 taxman 56 (Raj.) Thus the ld. Counsel for the assessee has submitted that the addition made by the AO as well as enhanced by the ld. CIT (A) is without any basis, the same deserves to be deleted. 5. On the other hand, the ld. D/R has submitted that the AO has pointed out specific deficiency in the books of account and, therefore, by taking guidance of section 44AD the AO has applied 8% NP to estimate the income of the assessee. He has further submitted that the ld. CIT (A) has undertaken the exercise to verify the genuineness of the sub-contract payment by the assessee and during the enquiry, the statements of sub-contractors were recorded wherein it was found tha....
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.... as the business activities of the assessee are concerned, then the assessee's own past history should be the proper basis for estimation of income for the year under consideration. In the case of CIT vs. Inani Marbles Pvt. Ltd. (supra), the Hon'ble High Court while dealing with this issue has held para 3 as under :- "3. We have heard learned counsel for the parties, and have gone through the impugned judgments. The Assessing Officer rejected the books of account for valid reasons, and invoked provisions of section 145 of the Income-tax Act, and made assessment by applying gross profit rate of 15 per cent on the sales disclosed by the assessee, and accordingly additions were made to the different result. This matter relates to assessment year 2000-01. The Assessing Officer for arriving at this conclusion considered that the assessee had disclosed gross profit rate of 2.30 per cent as compared to 2.51 per cent in 1999-2000, and 16.04 per cent in assessment year 1998-99. Against that order the assessee filed appeal, and the learned Commissioner upheld the invoking of section 145, and examined the aspect of gross profit rate to be applied and considered that gross profit rate....
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.... noted that there were some discrepancies regarding the quantum of sub-contract receipts by these sub-contractors from the assessee as recorded in the books of account and stated in their statements as well as the payments to these sub-contractors claimed by the assessee. Therefore, owing to these discrepancies and inconsistencies, the ld. CIT (Appeals) has held that the claim of payment to sub-contractor is bogus. However, this finding of the ld. CIT (A) is also inconsistent with the fact that the execution of the particular work for which the sub contract payments were made by the assessee is not in dispute and the revenue generated by the assessee from execution of the said work is also not in dispute. Therefore, even if there is a discrepancy in the amounts of the sub-contract payment, it is inevitable that the assessee has to incur the expenditure for execution of a particular contract work. Therefore, even if the claim of sub-contract work is found to be not correct, the income of the assessee has to be estimated on the basis of turnover and not on the basis of cost in execution of the contract work. Therefore, the entire exercise of the ld. CIT (A) in examination of the corr....
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....osing stock instead of recognizing the same as sales for the year under consideration. This is only a method of accounting and if the assessee has been following a consistent method of accounting for recognizing the revenue/sales subject to the certification of the work by the awarder company, then it shall have no revenue effect as the same will be shown as sales in the subsequent year. The assessee has also claimed that this amount of Rs. 5,00,000/- shown in the closing stock has been offered as part of the income of the subsequent year and, therefore, if an addition is made in respect of the said amount for the year under consideration, it would be double taxation. Since this is a method of accounting consistently followed by the assessee and having no revenue impact, then considering the said amount as part of sale is not justified. Accordingly, the addition made by the AO and enhancement made by the ld. CIT (A) are deleted. Ground No. 2 is regarding the interest on the fixed deposits was treated as income from other sources as against the claim of business income. 7. I have heard the ld. Counsel for the assessee as well as the ld. D/R and considered the relevant material....
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....ourt in the aforesaid case has considered the judgement in Tuticorn Alkali Chemicals and Fertilizers Ltd., supra and held thus: "In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT- (1997( 227 ITR 172 , will not be attracted. The more appropriate decision in the factual situation in the present (8 of 12) [ITA-355/2017] case is in CIT v. Bokaro Steel Ltd.-(1999) 236 ITR 315 (SC). The appeal is dismissed. There will be no order as to costs." ....
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....n inextricable nexus with securing the contract. Therefore, we are disposed to think that the factual matrix is covered by the decisions rendered in Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Koshika Telecom Ltd. (supra) and, accordingly, we hold that the view expressed by the tribunal cannot be found fault with." Another judgment on the similar facts is of Madhya Pradesh High Court in Bharat Oman Refineries Ltd., supra. That was a case in which assessee-company filed nil return and along with the return, statement of income and expenditure was filed. In this statement, income from interest on account of short-term deposit with the bank was indicated. The Assessing Officer made assessment and treated the said sum as income from 'other sources'. The assessee challenged the said assessment pointing out that interest income could not be added under the head 'income from other sources'. On appeal, both the Commissioner (Appeals) and the Tribunal upheld the order of Assessing Officer. The High Court however held that the appellant has not earned interest on the money lying idle with him for running industry. On the contrary by virtue of ....
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....esent case also, on the facts of the present case, we find that appellant being a civil contractor was required to provide a performance guarantee to the various works departments for obtaining contracts of civil construction. He to keep such performance guarantee alive by way of utilizing the bank overdraft limit against which he had to furnish FDRs/NSC for execution of the contracts. His failure to submit the performance guarantee or inability to keep them alive would have resulted in termination of the contract awarded to him and in that event, the concerned departments/employer could encash the security. Release of such performance guarantee is dependent on fulfillment of certain conditions. It is not that the appellant had invested surplus money lying idle with him only in FDRs/NSCs with a view to earning interest. Obtaining of FDRs/NSCs and furnishing of the same against the performance guarantee by the appellant, therefore, had an inextricable nexus with his business of securing civil contracts and integral to his working as civil contractor. The income of interest earned from the interest such FDRs/NSCs by the appellant therefore, in our considered view, cannot be treated (....