M/s Jagson Constructions Limited, Amritsar. V. The Assistant Commissioner of Income Tax, Amritsar.

CO 16/ASR/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3593 (ITAT-AMRITSAR)
• Duration Of Justice: 5 year(s) 10 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 24-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Set aside
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER C.O. No. 16/ASR/2016 (In ITA No. 167/Asr/2016) (Assessment Year: 2010-11) M/s Jagson Constructions Ltd. Vill- Bahadurgarh, G.T. Road, Batala, Amritsar PAN-AABCJ 2040D (Appellant) Vs. Asstt. Commissioner of Income Tax, Circle –II, Amritsar (Respondent) Appellant by Sh. Tarun Bansal, Adv & Sh. Lakshay Bansal, CA Respondent by Sh. S.M. Surendranath, Sr. DR Date of Hearing 18.05.2022 Date of Pronouncement 12.07.2022 ORDER Per: Anikesh Banerjee, JM: The instant appeal is directed against the order of Ld. Commissioner of Income Tax (Appeal)-1, Amritsar {in brevity 2 CIT(A)} bearing appeal no. 140/2013-14, date of order 13.12.2015, passed u/s. 250(6) of the Income Tax Act, 1961 (in brevity of the Act) for the Assessment year 2010-11. The impugned order was originated from the order of ld. Dy. Commissioner of Income-tax, Circle II, Amritsar (in brevity the A.O),order passed u/s.143(3) of the Act date of order 28.03.2013. 2. The cross objection was filed by assessee in relation to the appeal of the Revenue bearing ITA No.167/ASR/2016 for assessment year 2010-11. The main appeal& cross objection (in brevity CO), filed before ITAT was disposed of which stands as dismissed. The assessee filed M.A. application for non-considering the grounds of the assessee bearing M.A. no. 51/ASR/2017. In response to M.A., the CO of assessee is restored by ITAT, Amritsar Bench and fixed for hearing. The matter was heard and kept for order accordingly. 3. The assessee has raised the following grounds: - 3 1. That the Id A.O has wrongly rejected the books of account and made a huge addition by assessing the income at Rs. 1,40,09,319/- from Rs.64,97,264 as shown by appellant. 2. That the Id CIT(A) has wrongly estimated the Income by increasing the net profit rate to 5% without bringing any evidence / valid reasons, on record in support of increase. 3. That the Id CIT(A) has wrongly treated the following incomes as Income from other sources, which are part of Business Income appearing in Schedule-8 of Profit & Loss A/c and also wrongly treated as Schedule-10 of Profit & Loss Account: - (a) Bank Interest Rs. 6,39,875/- (b) Hire Charges Rs. 2,62,835/- (c ) Other InterestRs. 92,671/- 4. That order of Ld. AO &Ld. CIT(A) is bad in Law, as well as, on facts. 5. That appellant craves to add or amend any ground of appeal before the appeal is finally heard or disposed-off. 6. That the order may kindly be modified, or another consequential relief be allowed. 4. The brief fact of the case is that the assessee is a construction company. During the assessment proceedings the books of accounts of the assessee was rejected and net profit was calculated @12% on the gross receipt. The gross receipt of the assessee during financial year was Rs 10,80,54,684/-. The net profit was calculated on gross receipt @12% amount to 4 Rs.1,29,66,562/-. Furthermore, during the calculation of tax, the ld. AO added back other income amount toRs.10,42,757/- with the calculated net profit. The other income amount of Rs.10,42,757/- is related to following income: Bank Interest Interest on income tax refund Hire Charges Other income Rs. 6,39,875.00 Rs. 47,376.00 Rs. 2,62,835.00 Rs. 92,671.00 Total Rs. 10,42,757.00 The grievance of the assessee is that the ld. AO had calculated net profit separately. The income from other sources and Hire charges should not be added separately with calculated net profit during the calculation of total income. Aggrieved assessee filed an appeal before the ld. CIT(A). The ld CIT(A) rejected the ground of the assessee. The revenue filed an appeal before the ITAT against the order of ld. AO. On the other hand, assessee filed CO against the order of the ld. CIT(A) before the ITAT. 5 5. The ld. Counsel of the assessee filed Paper Book which is kept on the record. The main argument of the ld. Counsel is that the income from other sources Rs.10,42,757/- should not be added back with the total income on the calculated estimated net profit after rejection of books of accounts. So, the addition at Rs.10,42,757/- should be deleted. 5.1 The ld. Counsel further argued that bank interest Rs.6,39,875/- is related to the FDR amount to Rs.1.16 crore, APB page A-4 to A-5. The total 30 FDRs which have been lien as Security purpose for enhancement of business. Interest was earned from these deposits is liable to be business income. The interest related to 92,671/- was generated from short term loan to Directors. Copy of letter is enclosed at page no. A-7 of APB. 6. In case of hire charges, it is related to the business income for renting of the machinery which is used for business purposes. So that the entire amount Rs.2,62,835/- is under head of business income. The copy of the letter is enclosed at page no. A- 6. The ld. Counsel also relied on the order of the Mumbai Tribunal 6 in the case of M/s. WNS Global Services Pvt. Ltd., Vs ACIT (Mum Trib) ITA NO. 795-796/2006. 7. In the argument, ld. Counsel relied on the following judgments: i. CIT vs. Aggarwal Engg. Co. (2008)302 ITR 246 (P& H) “We have also perused the law laid down by the hon’ble Allabahad High Court in CIT v. Bansari Lal Banshidhar reported in {1998} 229 ITR , wherein, it was observed (page 232): “When the gross profit rate is applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchase by the assessee.” ii. Malpani House of Stones Vs. CIT (2017)395-ITR 385 (Jaipur Bench) “In view of the well-settled principle of law that when income is estimated and while assessing the same and rejecting the books of account, it would not be appropriate to rely on the books of account for any addition other than estimate made by the Assessing Officer.” iii. M/s. International Engineering vs. ACITT, ITANo.195&196 /Asr/2014(ITAT,Asr) “We have heard the rival parties and have gone through the material available on record. We find that the assessment in this case was completed by applying net profit rate of 8% of the gross receipts and the books of account were rejected during the assessment proceedings and, therefore, the same books account cannot be relied upon for carrying out mistake u/s. 7 154 of the Act. The Amritsar Bench of the Tribunal in the case of Daljit Singh & Bros vs. ACIT, in ITA No. 201/Asr/2002 vide, its order dated 14.11.2002, vide para 6.6 under similar facts and circumstances had held that once the books of account has been rejected, the AO cannot fall back upon the same books for making addition on the interest accrued on the FDRs reflected in the books of account. The relevant findings as contained in para 6.6 of the aforesaid order of the Tribunal are reproduced as under: “6.6. After considering the rival submissions and going through the material available on the record, it has been noticed that the AO rejecting the books of account of the assessee and applied a net profit rate of 8% on the gross receipts of the assessee. In other words, the AO has not accepted the book results. On the other hand, he took the figure of Rs.2,94,700/- on account of interest accrued on FDRs as reflected by the assessee in the books of account. We therefore, find substantial force in this contention of the ld. counsel for the assessee that once the books of account has been rejected, the AO cannot fall back upon the same books for making addition on account of interest accrued on the FDRs reflected in the books of account. It is well settled that when net profit rate is applied all the income has been considered. It is also true that the AO had not denied this fact that the FDRs were related to the business because he himself admitted that the assessee has reflected the interest accrued in the profit and loss account, which was based on the books of account, maintained by the assessee. We, therefore, considering the totality of the facts as discussed above, are of the view that the AO was not justified in making separate addition on account of interest on FDR’s when he had applied a net profit rate of 8% on the gross receipts for the full year by invoking the provisions of section 145 of the Income Tax Act, 1961. We, therefore, set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer not to include the interest accrued on the FDRs amounting to Rs.2,94,700/- in the income of the assessee”. 8. The ld. DR vehemently argued and relied on the order of CIT(A) page no. 31 of the order of CIT(A) is annexed as follows: ‘The appellant has taken up ground no. 4 regarding inclusion of income from other sources of Rs.10,42,757/-. A perusal of income 8 from other sources in schedule 10 of P & L account reveals that this income consists of interest on FDRs, interest in Income Tax refund and rebate etc. This income cannot be said to have been arisen from the contract business in respect of which the books of account were rejected. These incomes consist of independent source and are liable to be considered separately for taxation. Hence the ground of appeal in this regard is dismissed and addition made by the AO is confirmed”. 9. Considering the above discussion, after thoughtful observations of the facts we are adjudicating the matter as follows: 9.1. During the assessment the books of account was rejected, and profit was estimated @12% but ld. AO separately added other income with the estimated net profit. The respectful observation of catena of judgments duly relied by the ld. Counsel, we decided that the separate addition with the estimated profit should not be called for, considering the factual matrix. The addition made by the ld. AO amount to Rs.10,42,757/-. In the ground the interest on Income tax refund was not taken by the assessee amount to Rs. 47,376.00. Accordingly, the amount to Rs. 47,376.00 is not point of adjudication. So, we direct the ld. AO amount to Rs. 995,381/- (Rs 10,42,757/- - Rs. 47,376/-) is liable to be deleted which could not be the part of estimated net profit. Accordingly, the addition made by the ld. AO amount to Rs.995,381/- as other income is liable to be deleted. 9 10. In the result, C. O. of the assessee is partly allowed. Order pronounced in the open court on 12.07.2022 Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member Copy of the order forwarded to: (1) The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order