M/s Mahalingashetty & Co, Hubli V. DCIT, Hubli

ITA 636/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5318 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 18-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: MANOJ D PUKALE
• Keywords: Rejection of books of accounts; Business income
• Section: 44AD; 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.636/BANG/2009 ASSESSMENT YEAR : 2005-06 M/S. MAHALINGASHETTY & CO., 64, VISHWESHWAR NAGAR, HUBLI. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(1), HUBLI. : RESPONDENT APPELLANT BY : SMT. MANOJ D. PUKALE, ADVOCATE RESPONDENT BY : SMT. V.S. SREELEKHA, ADDL. CIT(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL ITA 636/B/2009 IS FILED BY THE ASSESS EE ON 18.6.09 AGGRIEVED AGAINST THE ORDER OF CIT(APPEALS), HUBLI ITA-165/CIT(A)/HBL/07- 08 DATED 9.3.2009 FOR THE A.Y. 2005-06. 2. THE ASSESSEE HAS RAISED 14 ELABORATE GROUNDS IN THE APPEAL OF WHICH GROUND NO.1, 13 & 14 ARE GENERAL IN NATURE AN D IN OUR VIEW THESE GROUNDS NEEDS NO ADJUDICATION. GROUND NO.12 IS CON SEQUENTIAL. FROM THE OTHER GROUNDS, ONLY FOUR EFFECTIVE GROUNDS EMERGES AND THEY ARE LISTED BELOW: (1) THE LD. CIT(A) ERRED IN UPHOLDING THE STAND OF AO TO REJECT THE BOOKS OF THE ACCOUNTS U/S 145 OF THE AC T AND FURTHER ITA NO.636/BANG/09 PAGE 2 OF 11 ENHANCE THE ESTIMATE OF PROFIT FROM 5% TO 8% AS PER SECTION 44AE OF THE ACT. (2) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE A PPELLANT WAS IN BUSINESS OF CIVIL CONSTRUCTION ETC., AND THUS, I NVOKING THE PROVISIONS OF SECTION 44AE OF THE ACT PERTAINING TO THE BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES WAS WI THOUT APPLICATION OF MIND. CONSEQUENTLY THE ESTIMATION M ADE IS LIABLE TO BE DELETED IN TOTO. (3) THE LD. CIT(A) ERRED IN HOLDING THE VIEW OF TH E AO THAT THE TURNOVER OF RS.17,51,047 WAS NOT CONSIDERED IN THE PRECEDING YEAR AS CLAIMED BY THE APPELLANT WHEN THE TURNOVER WAS PART OF THE TURNOVER OF A.Y. 2004-05 FROM WHICH THE PERCENT AGE OF PROFIT WAS ESTIMATED AND ACCORDINGLY THE SAME CANNOT BE IN CLUDED AS PART OF TURNOVER FOR THE RELEVANT ASSESSMENT YEAR. (4) THE LD. CIT(A) ERRED IN DISALLOWING THE CLAIM OF INTEREST OF RS.9,35,611 ON THE GROUND THAT THERE WERE NO DETAIL S PERTAINING TO THE SAME, WHEN ALL THE PARTICULARS IN THIS REGARD W ERE PART OF THE FINANCIAL STATEMENTS AND THE MATERIALS APPENDED TO THE RETURN OF INCOME FOR THE RELEVANT YEAR AND ACCORDINGLY HE OUG HT TO HAVE CONSIDERED THE LEGITIMATE CLAIM AND ALLOWED DEDUCTI ON. 3. THE ASSESSEE IS A COMPANY, FILED ITS RETURN OF I NCOME ON 30.10.2005 DECLARING INCOME OF RS.23,16,625 AND SHORT TERM CAP ITAL GAIN OF RS.1,59,341. SUBSEQUENTLY THE ASSESSEE FILED A REV ISED RETURN OF INCOME ON 19.12.2006 DECLARING THE INCOME AS RS.7,25,000 A ND SHORT TERM CAPITAL GAIN OF RS.1,59,341. THE REASON FOR FILING THE RE VISED RETURN WAS THAT THE AMOUNT OF RS.17,51,047 OUT OF THE INCOME DECLARED R S.23,16,626 WAS OFFERED TO TAX FOR THE A.Y. 2004-05. THEREUPON PROC EEDINGS WERE INSTITUTED AND ASSESSMENT COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 31.3.2007. IN THE PROCEEDINGS THE AO REJECTED THE BOOKS OF ACC OUNTS OF THE ASSESSEE DUE TO THE FOLLOWING REASONS: (1) THE BOOKS OF ACCOUNTS FOR THE EARLIER ASSESSMEN T YEAR I.E., 2004-05 WERE REJECTED AND THE INCOME WAS ESTIMATED AT 5% ON ITA NO.636/BANG/09 PAGE 3 OF 11 THE GROSS CONTRACT RECEIPTS. FOR THE CURRENT YEAR ALSO, THE SAME METHOD OF ACCOUNTING WAS FOLLOWED. (2) THE ASSESSEE WITHOUT ANY PROTEST OR APPEAL HAD OFFERED THE TAX ON SUCH ASSESSMENT FOR THE A.Y. 2004-05. (3) EVEN IF THE ASSESSEE HAS REGULARLY EMPLOYED A METHOD OF ACCOUNTING, THE BOOKS COULD BE REJECTED, IF FROM TH E METHOD OF ACCOUNTING CORRECT PROFIT CANNOT BE DERIVED. (4) THE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF ALL THE PROJECTS. ALL THE RECEIPTS A ND EXPENDITURE OF ALL THE PROJECTS WERE CONSOLIDATED IN THE BOOKS OF ACCOUNTS. (5) SOME PORTION OF THE WORK WERE PARTIALLY GIVEN T O SUB- CONTRACTORS AND FROM THE ACCOUNTS IT COULD NOT BE A SCERTAINED AS TO WHAT PORTION OF THE WORK WERE ASSIGNED ON SUB -CONTRACT SO AS TO COMPUTE PROFITS DERIVED FROM JOB ASSIGNED TO SUB- CONTRACTORS AND JOB COMPLETED BY THE ASSESSEE. (6) HONBLE SUPREME COURT IN THE CASE OF CIT V. K. Y. PILLAI & SONS (1967) 63 ITR 411 AND HONBLE HIGH COURT (ALLAHABAD ) IN THE CASE BHARATH MILL PRODUCTS V. CIT (1981) 128 ITR 68 2 HAD LAID DOWN THE PRINCIPLE THAT IN THE ABSENCE OF NON-MAINT ENANCE OF PROJECT WISE ACCOUNTS, IT CANNOT BE SAID THAT ACCOU NTS ARE COMPLETE AND ACCURATE. (7) FURTHER, THE HONBLE SUPREME COURT IN NAMASIVA M CHETTIAR V. CIT (1960) 38 ITR 579 AND IN CHHABILDAS TRIBHUVANDA S SHAH & OTHERS V. CIT (1966) 59 ITR 733, IT WAS HELD THAT , FROM THE METHOD OF ACCOUNTING EMPLOYED IF INCOME CANNOT BE D ERIVED PROPERLY THEN THE BOOKS OF ACCOUNTS CAN BE REJECTED . 4. AFTER CITING THE AFORESAID REASONS, THE AO REJ ECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE INCOME OF THE ASSESSEE A T 5% OF THE GROSS CONTRACT RECEIPTS BY HIS WISDOM. HOWEVER, THE AO A S PER THE DIRECTIONS OF THE ADDL. COMMISSIONER EXCLUDED RS.17,51,047 RECEIV ED FROM M.S. MALIK & ITA NO.636/BANG/09 PAGE 4 OF 11 SONS AS THE SAME WAS TAKEN INTO ACCOUNT FOR THE COM PUTATION OF INCOME FOR THE EARLIER ASSESSMENT YEAR. 5. AGGRIEVED BY THE TREATMENT MET OUT BY THE AO, THE ASSESSEE APPEALED BEFORE CIT(A), WHO IN TURN CONFIRMED THE F INDINGS OF THE AO THAT THERE ARE VARIATIONS IN CONTRACT RECEIPTS SHOWN BY THE ASSESSEE AND ALSO SUB-CONTRACT RECEIPTS. THE CIT(A) ALSO DREW STRENG TH FROM THE CASE TUTICORIN ALKALIES & CHEMICALS AND HELD THAT THE DE CISION OF THE AO TO BE CORRECT WITH REGARD TO REJECTION OF BOOKS. HOWEVER , AS REGARDS ESTIMATION OF INCOME, CIT(A) CITING THE PROVISIONS OF SECTION 44AE ENHANCED THE INCOME FROM 5% TO 8% ON GROSS TURNOVER. CIT(A) ALS O HELD THAT SINCE THE ASSESSEE DECLARED IN THE LAST YEAR AN INCOME OF RS. 87,552 WITH RESPECT TO THE GROSS RECEIPTS OF RS.17,51,047 (5% OF 17,51,047 ), THERE WILL BE FURTHER ADDITION OF THE SAME AMOUNT TO ESTIMATE THE INCOME AT 8%. 6.1 LD. AR FORCEFULLY ARGUED THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS AND THE SAME WAS VERIFIED AND AUD ITED BY A CHARTERED ACCOUNTANT. THE ASSESSEE ALSO HAD OBTAINED TAX AUD IT REPORT IN FORM 3CD. THE ASSESSEE BEING A COMPANY, BOOKS OF ACCOUNTS ARE TO BE PREPARED IN A STATUTORY MANNER AND FURTHER IT HAS TO BE AUDITED A ND CERTIFIED BY CHARTERED ACCOUNTANT AS PER COMPANIES ACT. ALL THESE STATUTO RY OBLIGATIONS WERE MET OUT BY THE ASSESSEE. THE AUDIT REPORT ISSUED BY TH E CHARTERED ACCOUNTANT HAD NO ADVERSE QUALIFICATION. UNDER THESE CIRCUMST ANCES, IT IS NOT PROPER FOR THE ASSESSING OFFICER TO REJECT THE BOOKS OF AC COUNTS ON FLIMSY GROUNDS. FURTHER, IN THE ASSESSEES CASE SECTION 44AE OF THE ACT IS NOT APPLICABLE BECAUSE THIS SECTION RELATES TO COMPUTING PROFITS AND GAINS OF BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES. SECTION 44AD OF THE ACT RELATE TO ITA NO.636/BANG/09 PAGE 5 OF 11 COMPUTING PROFITS AND GAINS OF BUSINESS CIVIL CONS TRUCTION, HOWEVER IN THIS CASE THIS SECTION IS NOT APPLICABLE AS THE GROSS RE CEIPTS OF THE ASSESSEE HAD EXCEEDED THE PRESCRIBED TURNOVER MENTIONED IN T HE PROVISO OF THE SECTION. THE PROVISO OF SECTION 44AD CLEARLY STATE THAT THIS SECTION SHALL APPLY IN CASE THE GROSS RECEIPTS PAID OR PAYABLE EX CEEDS AN AMOUNT OF RS.40 LAKHS. THEREFORE, THE CIT(A) TO TAKE SHELTER UNDER THIS SECTION AND DIRECT THE AO TO ESTIMATE THE INCOME AT 8% ON GROSS RECEIPTS IS ERRONEOUS. 6.2 THE LD. AR SUBMITTED THAT DURING THE EARLIER YE ARS ASSESSMENT PROCEEDINGS THE AMOUNT RECEIVED FROM M.S. MALIK & S ONS OF RS.17,51,047 WAS TAKEN INTO ACCOUNT AND THE INCOME WAS ESTIMATED AT 5% ON THIS RECEIPT, THEREFORE THIS RECEIPT HAS TO BE EXCLUDED FROM THE CURRENT YEARS RECEIPTS AS IT HAS ALREADY SUFFERED TAX ONCE. THE CIT(A)S TREATMENT ON THIS ISSUE WILL RESULT IN DOUBLE TAXATION, HENCE NOT JUS TIFIED. 6.3 FURTHER, THE SPIRITED ARGUMENT OF THE LD. AR WA S THAT, THE ASSESSEE HAD CASH CERTIFICATES AMOUNTING TO RS.1,29,71,125 D URING THE YEAR ENDED 31.3.2005. ON THESE DEPOSITS THE ASSESSEE HAD AVAI LED OD FACILITY AND BANK GUARANTEE. SINCE THESE CASH CERTIFICATES WAS KEPT AND DEPLOYED FOR THE PURPOSE OF BUSINESS, THE NET INCOME EARNED FROM THESE DEPOSITS (I.E. TOTAL INTEREST RECEIVED ON DEPOSITS INTEREST ON O D AND BANK GUARANTEE CHARGES) SHOULD BE CONSIDERED AS BUSINESS RECEIPTS AND ACCORDINGLY INCOME HAS TO BE ESTIMATED AT OF 5% OR 8% ON THE NE T RECEIPTS AS THE BOOKS OF ACCOUNTS ARE REJECTED. TWO CERTIFICATES I SSUED BY VIJAYA BANK DATED 31.3.2010 WERE PRODUCED BEFORE US FOR THE FIR ST TIME BY THE ASSESSEE WHEREIN THE BANK HAS CERTIFIED THAT THE ASSESSEE HA D CASH CERTIFICATES TO THE EXTENT OF RS.1,29,71,125 DURING THE YEAR ENDED 31.3.05 AND THEY HAVE ITA NO.636/BANG/09 PAGE 6 OF 11 AVAILED OVERDRAFT FACILITY AND BANK GUARANTEE AGAIN ST PLEDGE OF THE ABOVE DEPOSITS AND AN INTEREST OF RS.9,35,612 WAS CHARGED FOR AVAILING THESE FACILITIES. 7. LD. DR VEHEMENTLY OPPOSED TO THE ARGUMENT OF LD. AR AND RELIED ON THE FINDINGS OF CIT(A) AND AO. 8.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE PAPERBOOK (1 TO 74 PAGES) CONTAINING STATEMENT OF COMPUTATION OF TOTAL INCOME FOR THE A.Y. 2004-05, FINANCIAL STATEMENTS FOR THE A.Y. 200 4-05, COMPUTATION OF TAXABLE INCOME FROM CONTRACT WORK FOR THE A.Y. 2005 -06, RETURN OF INCOME ALONG WITH FINANCIAL STATEMENTS FOR THE A.Y. 2005-0 6: CERTIFIED TO BE DETAILS FURNISHED BEFORE THE REVENUE, AND IN ADDITION TWO C ERTIFICATES ISSUED BY VIJAYA BANK WHICH DID NOT FORM PART OF DOCUMENTS PR ODUCED BEFORE THE REVENUE. 8.2 THE AOS MAIN CONTENTION WAS THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF ALL THE PROJECTS, THE EXTENT OF SUB-CONTRACTED JOB WAS NOT ASCERTAINABLE FROM THE BOOKS OF ACCOUNTS MAINTAINED AND THEREFORE THE PROFITS ON IN DIVIDUAL PROJECTS AND SUB-CONTRACTED JOB WORK COULD NOT BE ARRIVED. IN THE EARLIER YEAR ALSO, THE BOOKS OF ACCOUNTS WERE MAINTAINED IN THE SAME FASHI ON AND THE AO HAD REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE IN COME AT 5%, FOR WHICH THE ASSESSEE DID NOT GO ON APPEAL. BASED ON THE A FORESAID REASONS, THE AO REJECTED THE BOOKS OF ACCOUNTS. 8.3 THE ASSESSEE HAS PLACED THE FOLLOWING DOCUMEN TS BEFORE US FORMING PART OF THE PAPERBOOK WHICH NEEDS TO BE LOOKED INTO : ITA NO.636/BANG/09 PAGE 7 OF 11 (1) AUDIT REPORT WITH RELEVANT ANNEXURES FOR THE YE AR ENDING 31.3.2004 CERTIFIED BY CHARTERED ACCOUNTANT WITHOUT ANY ADVERSE QUALIFICATION. (2) TAX AUDIT REPORT IN FORM 3CD WITH RELEVANT ANNE XURES CERTIFIED BY CHARTERED ACCOUNTANT WITHOUT ADVERSE QUALIFICATI ONS. (3) BALANCE SHEET AND P&L ACCOUNT FOR THE YEAR ENDE D 31.3.2004 WITH ANNEXURES WHICH ARE EXTENSIVE AND ELABORATE CE RTIFIED BY CHARTERED ACCOUNTANT. 8.4 ON EXAMINING THE PROFIT & LOSS ACCOUNT IT IS AP PARENT THAT THE ASSESSEE HAS NOT FURNISHED PROJECT WISE CONTRACT RE CEIPTS AND EXPENDITURE. HOWEVER, THE ASSESSEE HAD NO OPENING OR CLOSING WOR K IN PROGRESS WHICH SHOWS THAT ALL THE CONTRACTS EXECUTED DURING THE YE AR WERE COMPLETED AND THE CONTRACT RECEIPTS ARE EITHER REALIZED OR BOOKED . THIS BEING THE CASE, THERE WILL BE NO DIFFERENCE ON THE OVERALL EFFECT O N THE PROFIT & LOSS ACCOUNT. EVEN IF PROJECT WISE METHOD OF ACCOUNTING IS FOLLOW ED AND LATER ACCOUNTS CONSOLIDATED THE EFFECT WILL BE THE SAME IN THE ABS ENCE OF OPENING AND CLOSING WORK IN PROGRESS. SIMILARLY MAINTENANCE OF SEPARATE BOOKS ACCOUNTS FOR SUB-CONTRACT WORK WILL NOT ALTER OVERA LL PROFIT AND LOSS ACCOUNT IN THE ABSENCE OF WORK IN PROGRESS ON SUB CONTRACTE D WORK. THIS CRUCIAL ASPECT WAS NOT CONSIDERED BY THE AO. FURTHER IT IS NOT THE CASE OF AO THAT NO PROPER BOOKS WERE MAINTAINED BY THE ASSESSEE. F URTHER THE AOS STAND THAT THE BOOKS FOR THE RELEVANT ASSESSMENT YEAR HAS TO BE REJECTED AS THE BOOKS OF ACCOUNTS WERE REJECTED FOR THE EARLIER ASS ESSMENT YEAR AND IN BOTH THE YEARS THE ASSESSEE HAS FOLLOWED THE SAME M ETHOD OF ACCOUNTING, APPEARS TO BE ERRONEOUS. APPARENTLY THE STATEMENT OF ACCOUNTS FURNISHED BY THE ASSESSEE WHICH ARE CERTIFIED BY THE CHARTERE D ACCOUNTANT SEEMS TO ITA NO.636/BANG/09 PAGE 8 OF 11 BE COMPLETE AND IN ORDER. THE AO HAS NOT CITED ANY REASON FOR REJECTING THE BOOKS OF ACCOUNTS OTHER THAN NON-MAINTENANCE OF PROJECT WISE METHOD OF ACCOUNTING. IN THE LIGHT OF THE ABOVE, WE REMIT THIS ISSUE BACK TO FILE OF AO WITH DIRECTION TO EXAMINE BOOKS OF ACCOUNTS AND MAKE A FINDING WITH RESPECT TO EXISTENCE OF OPENING AND CLOSING WO RK IN PROGRESS. IF THERE ARE OPENING AND CLOSING WORK IN PROGRESS IT I S OBVIOUS THAT THEY ARE NOT REFLECTED IN THE PROFIT AND LOSS ACCOUNT AN D BALANCE SHEET, AND THEREFORE THE BOOKS OF ACCOUNTS WILL NOT BE IN A PO SITION TO SHOW THE CORRECT PROFIT. IN THAT CASE, THE AO IS AT LIBERT Y TO REJECT THE BOOKS OF ACCOUNTS AND ESTIMATE THE INCOME WITH SOME LOGICAL REASONING ON THE PERCENTAGE TO BE APPLIED ON GROSS TURNOVER FOR ARRI VING AT THE INCOME. IN THE GIVEN CASE SECTION 44AD OF THE ACT WILL NOT APPLY AS THE ASSESSEE HAD EXCEEDED THE TURNOVER PROVIDED IN THE PROVISO OF THE SECTION. GROUND NO.1&2 ARE DISPOSED OF ACCORDINGLY . 8.5 THE ASSESSEES GRIEVANCE THAT THE CIT(A) ERRED IN UPHOLDING THE VIEW OF THE AO THAT THE TURNOVER OF RS.17,51,047/- WAS NOT CONSIDERED IN THE PRECEDING YEAR AS CLAIMED BY THE APPELLANT WHEN THE TURNOVER WAS PART OF THE TURNOVER OF AY 04-05 FROM WHICH THE PERCENTAGE OF PROFIT WAS ESTIMATED AND ACCORDINGLY THE SAME CANNOT BE INCLUDED AS PART OF TURNOVER FOR THE RELEVANT AY IS OF SUBSTANCE. IN THE ASSESSMENT ORDER, IT IS MEN TIONED THAT THE ASSESSEE HAD EXCLUDED RS.17,51,047 IN THE REVIS ED RETURN OF INCOME FROM THE INCOME OF RS.23,16,626 SHOWN IN THE ORIGINAL RETURN FOR T HE A.Y.2005-06. IT WAS CLAIMED BY THE ASSESSEE THAT TH IS INCOME OF RS.17,51,047 WAS CONSIDERED FOR THE PRECEDING ASSES SMENT YEAR. IF THIS INCOME PERTAINS TO THE PREVIOUS YEAR AND ASSESSED AS SUCH , THEN THE ITA NO.636/BANG/09 PAGE 9 OF 11 GROSS RECEIPTS PERTAINING TO THIS INCOME OF RS.17,5 1,047 SHOULD HAVE BEEN REDUCED FROM THE TURNOVER OF THE CURRENT ASSESSMENT YEAR. HOWEVER, WE FIND THAT AS PER THE DIRECTIONS OF ADDL. COMMISSION ER, RANGE 3, HUBLI VIDE LETTER NO.144A DATED 28.12.2007 THE AO HAD EXCLUDED RS.17,51,047 FROM THE TURNOVER OF THE CURRENT YEAR. THIS ISSUE IS FU RTHER COMPLICATED IN THE CIT(A)S ORDER WHEREIN IT IS STATED THAT SINCE ASSESSEE HAS DECLARED IN LAST YEAR ONLY INCOME OF RS.87,552 IN THE GROSS RECEIPTS THERE WILL BE FURTHER ADDITION OF SAME AMOUNT TO ESTIMATE INCOME AT 8%. FOR PROPER CLARIFICATION AND CLEAR FINDING, WE FEEL IT APPROPR IATE TO REMIT THIS ISSUE ALSO BACK TO THE FILE OF AO WITH DIRECTIONS TO PASS APPROPRIATE ORDERS ON MERITS AFTER EXAMINING THE ISSUE MINUTELY. GROUND NO. 3 IS DISPOSED OF ACCORDINGLY. 8.6 IN RESPECT OF GROUND NO.4; THE ASSESSEE HAD STA TED IN THE GROUND THAT THE LD.CIT(A) ERRED IN DISALLOWING THE CLAIM O F RS.9,35,611/- BEING BANK CHARGES DUE TO ABSENCE OF DETAILS, HOWEVER THE ARGUMENTS OF THE A.R WAS THAT THE ASSESSEE HAD MAINTAINED CASH CERTIFIC ATES TO THE TUNE OF RS. 1,29,71,125/- DURING THE YEAR ENDED 31/03/2005 FOR THE PURPOSE OF BUSINESS, BASED ON WHICH THE ASSESSEE HAD OBTAINED OVERDRAFT FACILITY & BANK GUARANTEE. ON THESE DEPOSIT THE ASSESSEE HAD E ARNED INTEREST OF RS. 15,70,058/- AND SUFFERED BANK CHARGES OF RS. 9,35, 612/- TOWARDS OVER DRAFT FACILITY AND BANK GUARANTEE. THEREFORE THE NET INCO ME OF RS. 6,33,446/- (15,70,058 9,35,612) SHOULD BE TREATED AS RECEIPT S AND SINCE THE BOOKS ARE REJECTED ON THIS NET RECEIPTS INCOME HAS TO BE ESTIMATE AT 5% OR 8% AS THE CASE MAY BE. IN OUR CONSIDERED VIEW THIS PRAYER OF THE ASSESSEE IS NOT SUSTAINABLE BECAUSE THERE IS NO DIRECT NEXUS BETWEE N THE DEPOSITS AND ITA NO.636/BANG/09 PAGE 10 OF 11 BUSINESS OF THE ASSESSEE. CASH DEPOSITS ARE DISTINC T ASSET HELD BY THE ASSESSEE ON WHICH INCOME IS ACCRUED BY WAY OF INTER EST. THE ACT SPECIFICALLY PROVIDES IT TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCE. THESE ASSETS ARE PROVIDED ONLY AS A SECURIT Y TO THE BANK IN ORDER TO OBTAIN OVER DRAFT FACILITY AND BANK GUARANTEE. I T IS NOT MANDATORY FOR THE ASSESSEE TO PROVIDE ONLY CASH CERTIFICATE AS SECURI TY FOR THAT MATTER ANY SECURITY ACCEPTABLE TO THE BANK WILL SUFFICE. THERE FORE THERE IS NO DIRECT NEXUS BETWEEN THESE CASH CERTIFICATES AND BUSINESS OF THE ASSESSEE. MOREOVER THESE DEPOSITS ARE NOT MAINTAINED TO OBTAI N BANK GUARANTEE FOR THE PURPOSE OF OBTAINING CONTRACT/ PERFORMANCE GUAR ANTEE ETC. AND NO SUCH MATERIAL EVIDENCE ON THE ISSUE IS BROUGHT ON RECORD BEFORE US. IN THE LIGHT OF THE ABOVE REASONING WE ARE INCLINED TO FOLLOW TH E DECISION OF THE AO. GROUND NO. 4 OF THE ASSESSEE FAILS. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTIAL LY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF APRIL, 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 30 TH APRIL, 2010. DS/- ITA NO.636/BANG/09 PAGE 11 OF 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.