M/s MahendraSingh, V. ITO,

ITA 4/PAT/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1188 (ITAT-PATNA)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K PAUL
• Assessee Lawyers: A K RASTOGI
• Keywords: Rejection of books of accounts; Business income; Depreciation
• Section: 28

Judgement Text

1 ITA NO. 04/PAT/2016. IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 04/PAT/2016. ASSESSMENT YEAR : 2010 - 11. M/S MAHENDRA SINGH, THE INCOME - TAX OFFICER, ARA, BHOJPUR. VS. WARD - 1(4), ARA. APPELLANT. RESPONDENT. APPELLANT BY : SHRI A.K. RASTOGI. RESPONDENT BY : SHRI S.K. PAUL. DATE OF HEARING : 05 - 08 - 2016 DATE OF PRONOUNCEMENT : 22 ND AUGUST, 2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, PATNA DATED 07 - 10 - 2015 AND PERTAINS TO ASSESSMENT YEAR 2010 - 11. THE GROUNDS OF APPEAL READ AS UNDER : 1. FOR THAT THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING THE APPEAL OF THE APPELLANT IN TOTO. 2. FOR THAT THE LEARNED CIT(A) HAS ERRED IN TREATING THE RECEIPTS OF RS.14,00,000.00 ON ACCOUNT OF PLAN HIRE CHARGES AS INCOME FROM OTHER SOURCE S, WHEREAS IT WAS A CONTRACT RECEIPTS. 3. FOR THAT THE APPELLANT HAS CITED REFERENCE OF SEVERAL APEX COURTS DECISIONS BEFORE HIM WHEREIN THE HONBLE COURTS HAVE HELD THAT IN CASE ANY ASSETS ARE HIRED OUT AS A PART OF THE BUSINESS ACTIVITY CARRIED ON BY THE AS SESSEE OR AS COMMERCIAL ASSETS BELONGING TO THE ASSESSEE, THE INCOME DERIVED THERE FROM IS ASSESSABLE AS BUSINESS INCOME UNDER SECTION 28 AND NOT AS INCOME FROM OTHER SOURCES UNDER SECTION 56. BUT THE LEARNED CIT(A) DID NOT CONSIDER THE JUDGMENTS OF VARI OUS HONBLE HIGH COURTS AS WELL AS SUPREME COURT. 2 ITA NO. 04/PAT/2016. 4. FOR THAT THE LEARNED CIT(A) HAS ERRED IN TREATING THE ACCRUED INTEREST ON OLD NSC AS INCOME FROM OTHER SOURCES. 2. IN THIS CASE THE AO EXAMINED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE PROFIT DECLARED . THE AO CONCLUDED AS UNDER : THE PROFIT SHOWN CONTRARY TO THE FACTS IN PLACE OF LOSS FROM CONTRACT WORK AND BUSINESS DONE WITHOUT BILLS AND VOUCHERS AND MERGING THE OTHER INCOME FOR SHOWING PROFIT FROM CONTRACT WORK , TWICE DEDUCTION OF SALES - TAX AND ROYALTY AS SUBMITTED IN ITS WRITTEN REPLY CREATE A GRAVE DOUBT AND THERE IS NO ALTERNATIVE TO ME TO REJECT THE BOOK RESULT OF PROFIT AND LOSS ACCOUNT AND TO DECIDE THE TOTAL INCOME FROM CONTRACT WORK ON THE PRESUMPTIVE BASIS U/S 44AD@8% ON THE TOTAL RECEIP T OF THE CONTRACT WORKS AMOUNTING TO RS.1,05,59,579/ - WHICH COMES TO RS.8,44,766/ - . 3. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS SHOWN THE INCOME FROM HIRE CHARGES OF PLANT AMOUNTING TO RS.14,00,000/ - . ON QUERY, THE ASSESSEE SUBMITTED THAT THIS INCOM E WAS RECEIVED FROM M/S PRASAD CONSTRUCTION, MUMBAI THROUGH ACCOUNT PAYEE CHEQUE (RTGS). THE MACHINE OF THE ASSESSEE WAS HIRED AT ARRAH - MOHANIA HIGHWAY NEAR ZERO MILES, ARA. DURING THE COURSE OF HEARING, A QUERY WAS MADE ABOUT THE EXPENDITURE ON THIS INCOM E, THE ASSESSEE HAS SAID THAT THIS WAS THE NET INCOME AFTER DEDUCTION OF ALL EXPENDITURE BORNE BY THE SAID FIRM. HENCE THE AO CONCLUDED THERE IS NO DISPUTE ABOUT THIS INCOME AND IT IS THE NET PROFIT OF FIRM AS OTHER INCOME EARNED FROM THE LETTING OUT THE M ACHINES TO OTHER USER. THEREFORE, RS.14,00,000/ - IS THE INCOME OF THE ASSESSEE OTHER THAN THE INCOME FROM CONTRACT WORK. FURTHER MORE THE AO ADDED THE INTEREST ON NSC AMOUNTING TO RS.46,740/ - . 4. UPON ASSESSEES APPEAL IN THIS REGARD, LEARNED CIT(APPEALS) HELD AS UNDER : (I) IT IS UNDISPUTED THAT THE ASSESSEE DID NOT MAINTAIN ANY BILLS AND VOUCHERS PERTAINING TO PURCHASE OF MATERIALS AND OTHER EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE AO WAS NOT IN A POSITION TO VERIFY THE CLAIMS OF VARIOUS EXPENSE S IN THE BOOKS OF ACCOUNTS. 3 ITA NO. 04/PAT/2016. (II) THE PLANT HIRE CHARGES INCOME OF RS. 14 LACS WAS NET INCOME OF THE ASSESSEE AS AT THE TIME OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAS RECEIVED THE NET INCOME ON LETTING OUT OF ITS PLANT TO M/S PRASAD CONSTRUCTION, MUMBAI. IT WAS SPECIFICALLY STATED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS THAT ALL EXPENDITURE WAS BORNE BY THE LESSEE FIRM M/S PRASAD CONSTRUCTION. IN VIEW OF THE ABOVE FACTS THE AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ESTIMATED INCOME AT THE RATE OF 8% OF TOTAL CONTRACT RECEIPTS. FURTHER, THE HIRING OF PLANT AND EARNING OF INCOME THEREON AMOUNTING TO RS. 14 LACS WAS STAND ALONE ACTIVITY AND THE SAME HAS TO BE TREATED AS SEPARATE INCOME APART FROM A CONTRACT BUSINESS. HOWEVER, THE AO SHOULD HAVE ALLOWED DEPRECIATION ON THE PLANT AS PER DECISION OF JURISDICTIONAL PATNA HIGH COURT IN THE CASE OF M/S SHYAM BIHARI VS. CIT. AS PER PROFIT AND LOSS ACCOUNTS THE DEPRECIATION CLAIMED IS RS.1,71,765/ - . THEREFORE, THE AO IS DIRECTED TO ALLOW THE DEPRECIATION OF RS.1,71,765/ - FROM PROFIT ESTIMATED IN RESPECT OF CONTRACT BUSINESS. 4. FURTHER MORE, LEARNED CIT(APPEALS) GRANTED RELIEF ON THE INTEREST OF NSC BY PLACING RELIANCE ON HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF M/S SHYAM BIHARI VS. CIT 345 ITR 283 FOR THE PROPOSITION THAT INTEREST ON NSC DEPOSITED FOR OBTAINING CONTRACTS CAN BE TREATED AS BUSINESS INCOME. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE PLEADED THAT THE RATE OF PROFIT ADOPTED BY THE ASSESSEE IS SUFFICIENTLY HIGH. THAT THE RECEIPT FROM PLANT HIRE CHARGES CANNOT BE CHARGED SEPARATELY. THAT ALTERNATIVELY EV EN IF THE HIRE CHARGES ARE TAXED SEPARATELY THE SAME RATE OF PROFIT SHOULD BE APPLIED AS THAT ON CONTRACT WORK. THAT THE INTEREST ON THESE NSCS CANNOT BE TAXED SEPARATELY AS INCOME FROM OTHER SOURCES AS THESE NSCS HA D BEEN KEPT AS SECURITY WITH THE VARIOUS DEPARTMENTS AWARDING THE CONTRACT TO THE ASSESSEE AND HENCE APPLICATION OF NET PROFIT RATE TAKES INTO CONSIDERATION THESE INCOMES AS WELL IN VIEW OF JUDGMENT OF HONBLE PATNA HIGH COURT IN THE CASE OF SHYAM BIHARI REPORTED IN 345 ITR 283. 4 ITA NO. 04/PAT/2016. 7. PER CONTRA LEARNED D.R. RELIED UPON THE ORDERS OF THE LEARNED CIT(APPEALS). HE REFERRED TO THE AOS FINDING THAT AS REGARDS HIRE CHARGES RECEIVED THE ASSESSEE HAD SUBMITTED THAT THE HIRE CHARGES RECEIVED WAS NET INCOME AFTER DEDUCTION OF ALL EXPENDITURE WHICH WERE B ORNE BY THE FIRM TO WHOM THE MACHINE WAS HIRED. HENCE LEARNED D.R. PLEADED THAT THERE IS NO REASON FOR APPLYING ANY PERCENTAGE OF PROFIT ON TH E SAID AMOUNT AS ITS NET INCOME. 8. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. AS APPARENT FROM THE ORDERS OF THE AUTHORITIES BELOW IN THIS CASE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED AND PROFIT HAS BEEN ESTIMATED AT 8% OF THE CONTRACT RECEIPT FOR CONTRACT BUSINESS . APART FROM THE ABOVE AN ADDITION HAS BEEN MADE FOR MACHINE HIRE CHARG ES FROM M/S PRASAD CONSTRUCTION AMOUNTING TO RS. 14,00,000/ - NET OF ALL OTHER EXPENDITURE BORNE BY THE PRASAD CONSTRUCTION. NOW THE ASSESSEES PLEA IN THIS REGARD IS THAT THE SAID INCOME SHOULD ALSO BE CLUBBED TO THE CONTRACT BUSINESS INCOME OF THE ASSESSE E AND ALTERNATIVELY 8% PROFIT SHOULD BE APPLIED ON THE SAID SUM OF RS.14,00,000/ - . 9. IN THIS REGARD I FIND THAT THE SAID SUM OF RS.14,00,000/ - HAS BEEN RECEIVED AS PLANT HIRE CHARGES NET OF ANY EXPENDITURE. SO THE ENTIRE AMOUNT IS CLEARLY AN INCOME OF TH E ASSESSEE. THERE IS NO QUESTION OF APPLYING 8% ON THE ABOVE AS PROFIT TO THE ASSESSEE. IT IS ALSO CLEAR THAT L ETTING THE MACHINE ON HIRE IS NOT A PART OF ASSESSEES CONTRACT BUSINESS . HENCE THERE IS NO QUESTION OF CLUBBING THE SAME. LEARNED COUNSEL OF TH E ASSESSEE IN THIS REGARD HAS PLEADED THAT SIMILAR AMOUNTS WERE EARLIER RECEIVED BY THE ASSESSEE IN EARLIER YEARS WHICH WAS NOT SEPARATELY TAXED BY THE REVENUE AUTHORITIES. HOWEVER, LEARNED COUNSEL HAS CONCEDED THAT THOUGH THE ASSESSMENTS WERE NOT U/S 143( 3), HENCE THE PRECEDENCE THERE FROM CANNOT BE TAKEN FOR THIS YEAR. HENCE I DO NOT FIND ANY INFIRMITY IN THE TREATMENT OF THE SAID SUM OF RS.14,00,000/ - AS INCOME OF THE ASSESSEE. HOWEVER, I DO 5 ITA NO. 04/PAT/2016. AGREE WITH THE LEARNED COUNSEL OF THE ASSESSEES SUBMISSION TH AT HONBLE COURTS HAVE HELD THAT IF ANY ASSET IS HIRED OUT AS PART OF THE BUSINESS ACTIVITY, THE SAID INCOME SHOULD BE ASSESSED AS BUSINESS INCOME. HOWEVER, IT IS REITERATED HERE THAT THERE IS NO QUESTION OF ADOPTING ANY PERCENTAGE OF INCOME FROM THE SAID RECEIPT AS THE ENTIRE RECEIPT HAS BEEN NET OF ANY EXPENDITURE AND CLEARLY GOES TO ADD TO THE INCOME OF THE ASSESSEE. HOWEVER, IF ANY DEPRECIATION ON THE SAID MACHINE HAS NOT BEEN GIVEN, THE ASSESSEE IS ELIGIBLE FOR THE SAME. THE AO IS DIRECTED TO EXAMINE T HE DEPRECIATION ELEMENT ON THE SAID MACHINE HIRE CHARGES RECEIPT AND GRANT THE SAME AS PER LAW. THERE IS NO QUESTION OF ALLOWING ANY OTHER EXPENDITURE AS THE SAID AMOUNT HAS BEEN RECEIVED NET OF EXPENDITURE FROM THE PERSON TO WHOM THE MACHINE HAS BEEN HIRE D. 10. IN VIEW OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF SHYAM BIHARI 345 ITR 283 THE INTEREST O F N SC ETC. FOR OBTAINING CONTRACT WORK SHOULD NOT BE TAXED SEPARATELY BUT TREATED AS BUSINESS INCOME. HENCE I MODIFY THE LEARNED CIT(APPEALS) ORDER AND HOLD THAT SUCH INTEREST IS TO BE ADDED AS BUSINESS INCOME AND, THERE AFTER THE RATE OF PROFIT BE APPLIED. 1 1 . IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF AUGUST, 2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. DATED: 22 ND AUGUST, 2016. 6 ITA NO. 04/PAT/2016. COPY FORWARDED TO : 1. M/S MAHENDRA SINGH JAIL ROAD, ARA, BHOJPUR - 802301. 2. I.T.O., WARD - 1, ARA. 3. C.I.T. - , PATNA. 4. CIT(APPEALS), - I, PATNA. 5. D.R., ITAT, PATNA. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. WAKODE.