Shubham Construction, Muzaffarpur V. ACIT, Circle-1, Muzaffarpur

ITA 71/PAT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0449 (ITAT-PATNA)
• Duration Of Justice: 4 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-07-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 22-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 40(b); 143(2); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA [VIRTUAL HEARING AT KOLKATA] [BEFORE DR. MANISH BORAD, HON’BLE ACCOUNTANT MEMBER AND SHRI SONJOY SARMA, HON’BLE JUDICIAL MEMBER] I.T.A. No. 71/Pat/2018 Assessment Year: 2012-13 M/s. Shubham Constructions....................................................................................................Appellant Krishnapuri, Bhagwanpur Chowk, Muzaffarpur – 842 001. [PAN: ABEFS 8015 Q] VS ACIT, Circle-1, Muzaffarpur.................................................................................................Respondent Appearances by: Shri Ashish Maskara, Advocate appearing on behalf of the Assessee. Shri Rupesh Agrawal, Sr. DR appearing on behalf of the Revenue Date of concluding the hearing : July 21, 2022 Date of pronouncing the order : October 18 , 2022 ORDER PER SONJOY SARMA, JM: This appeal is preferred by the assessee against the order of Ld. Commissioner of Income Tax (Appeals), Muzaffarpur dated 23.02.2018, and the grounds raised therein by the assessee read as under: “1. For that the order passed by ld. CIT(A) & Assessing Officer u/s 143(3) is wrong, illegal, arbitrary, very high & excessive & against the fcts & circumstances of the case. 2. For that the ld. CIT(A) & Assessing Officer has erred in assessing interest accrued on term deposits amounting Rs. 1,86,93,660/- under the head income from other sources instead of income from business as taken by the petitioner, which is against the facts & circumstances of the case as such fit to be deleted in the eyes of law & justice. 3. For that the ld. Assessing Officer should have appreciated the fact that interest accrued on term deposit with banks is incidental to the working of business as such interest income should be assessed as income from business and should not be treated as income from other sources. 2 I.T.A. No. 71/Pat/2018 Assessment Year: 2012-13 M/s. Shubham Constructions 4. For that the ld. Assessing Officer should have appreciated the fact that bank provides guarantee only against the mortgage of fixed deposit as such the term deposit made with the banks by the appellant is incidental to the main business. 5. For that the ld. Assessing Officer should have appreciated the fact that petitioner has also submitted the confirmation from concerned bank with regard to pledging of bank fixed deposit amounting to Rs. 15,63,87,365/- tallying with fixed deposit shown in balance sheet for issuance of bank guarantee during the relevant year. 6. For that the ld. Assessing Officer should have appreciated the fact that petitioner has submitted the evidence regarding payment of guarantee commission of Rs. 10,54,727/- to banks against the guarantee provided by them which is essential for acquiring different contract & sub-contract work. 7. For that the ld. Assessing Officer should have appreciated the fact that apex court has already held that interest on security deposits in the form of FDRs/NSC to the extent used for securing contract work will be assessable as income from business. Case Laws; M/s. Shyam Bihari vs CIT (2012) 345 ITR 283 (Patna High Court) CIT vs Chinna Nachimuthu Construction 297 ITR 70 [Karnataka High Court] CIT vs Govind Choudhary & Sons 203 ITR 881 (SC) 8. For that the other ground if any may kindly be heard at the time of hearing.” 2. The brief facts of the case are that the assessee filed its return of income declaring of Rs. 1,92,36,320/- which was filed on 07.09.2013. The case of the assessee was selected through CASS and notice u/s 143(2) was issued on 02.09.2014 by the AO. In response to the various notices, the ld. AR of the assessee appeared before the AO and filed necessary documents in compliance to such notices. However, the assessee failed to prove the correctness and completeness of the books of accounts despite of number of opportunities given to the assessee as the assessee failed to produce supporting bills, vouchers, therefore, the AO rejected the books of accounts u/s 145(3) of the Act and assessed the income of the assessee on the basis of gross contractual receipt and worked out at Rs. 2,62,55,014/- i.e. 7% of Rs. 37,50,71,633/- and the assessment is computed as under: 3 I.T.A. No. 71/Pat/2018 Assessment Year: 2012-13 M/s. Shubham Constructions i Profit at 7% of gross contractual receipts of Rs. 37,50,71,633/- Rs. 2,62,55,014/- ii Less: depreciation allowable following Hon’ble Patna High Court order in the case of M/s. Shyam Behari vs CIT, Muzaffapur (-) Rs. 41,05,938/- Rs. 2,21,49,076/- iii Add: bank it refund interest received (+) Rs. 1,86,93,660/- Rs. 4,08,42,736/- Iv Less: salary/interest to partners (u/s 40(b) (-) Rs. 50,83,033/- Total Income (iii – iv) Rs. 3,57,59,703/- Against the total income as computed above the assessee has shown the same at Rs. 1,92,36,320/-. Hence the excess income as computed above i.e. Rs. 1,65,23,383/- (Rs. 3,57,59,703/- - Rs. 1,92,36,320/-) is being added to the total income as undisclosed income from the business. In view of the above discussion, total income of the assessee is computed as under: Income as per return Rs. 1,92,36,320/- Add: (i) Addition as discussed in para-4 above Rs. 1,65,23,383/- Total Rs. 3,57,59,703/-“ 3. Dissatisfied with the above order, the assessee preferred an appeal before the ld. CIT(A) and appeal of the assessee was partly allowed by the ld. CIT(A). 4. Aggrieved by the above order, the assessee is in appeal before the Tribunal raising almost 7 grounds of appeal in which main grievance of the assessee is in respect of ground no. 2 by which ld. CIT(A) and AO has erred in assessing interest accrued on term deposits amounting to Rs. 1,86,93,660/- under the head income from other sources instead of income from business as taken by the assessee and it is required to be deleted. 5. At the time of hearing, ld. AR of the assessee submitted that the interest accrued on term deposit with banks is incidental to the working of 4 I.T.A. No. 71/Pat/2018 Assessment Year: 2012-13 M/s. Shubham Constructions business as such interest income should be assessed as income from business and it should not be treated as income from other sources. The ld. AR further submitted that the authorities below while deciding the issue should have appreciated the fact that the bank provides bank guarantee facility only against mortgage of fixed deposit as such the term deposit made with the banks by the appellant is incidental to the main business. To substantiate the claim of the assessee, the ld. AR has also submitted the confirmation from the respective bank with regard to pledging of bank fixed deposit amounting to Rs. 15,63,87,365/- and tallying with fixed deposit shown in balance sheet for issuance of bank guarantee during the relevant year. Moreover, the assessee had paid guarantee commission of Rs. 10,54,727/- to the banks against the guarantee provided to assessee. As such the interest on security deposit in the form of FDR/NSC to the extent used for securing contract work will be assessable income from business. On the other hand, the ld. DR relied on the order passed by the ld. CIT(A) and he submitted that the ld. CIT(A) correctly disallowed Rs. 1,86,93,660/- from interest on fixed deposit under the head of business income and treated as income from other sources in the hands of the assessee. 6. We after hearing the rival submission of the party and material available on record, we find that the assessee earned interest accrued on term deposit amounting to Rs. 1,86,93,660/- against the fixed deposit. The view of the AO was that interest on FDR was an income separate and apart from the income from civil construction business and similar view was taken by the ld. CIT(A) in the impugned order. 7. We after examining the facts in appeal, the core issue is whether the interest income on FDR has to be considered as income from other sources 5 I.T.A. No. 71/Pat/2018 Assessment Year: 2012-13 M/s. Shubham Constructions or income from business and such interest income can be treated as part of contract receipt on which estimation of income can be made by applying net profit rate. In the instant case admittedly investment in fixed deposit was made by the assessee out of surplus fund generated from the business, the assessee was free to utilise the funds in any manner as the assessee chooses to invest these funds in fixed deposit. The fact that fixed deposit were offered for various security available by the assessee from the business would not make the income from fixed deposit as business income. The taking of the FDR and pledging them as security for taking any facility from bank are two distinct transactions and the source of interest income is FDR which is different and separate from contract receipts. If contract business is stopped that event also the assessee can continue to receive interest it follows that interest received cannot be considered as a part of contract receipt while estimating income from business of civil construction related work. Therefore, we are of the view that net profit percentage has to be applied only on the gross receipt of business of civil contracts to estimate income from said business and interest on FDR cannot be said to be part of receipt from business and the remaining grounds of appeal are connected and consequential in nature, therefore need not to be adjudicated. Therefore, we do not want to interfere in the order passed by the ld. CIT(A) and dismiss the appeal of the assessee. 8. In the result, the appeal filed by the assessee is dismissed. Order Pronounced in the Open Court on 18 th October, 2022. Sd/- Sd/- (MANISH BORAD) (SONJOY SARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 18/10/2022 Biswajit, Sr. PS 6 I.T.A. No. 71/Pat/2018 Assessment Year: 2012-13 M/s. Shubham Constructions Copy of order forwarded to: 1. Appellant: M/s. Shubham Constructions. 2. Respondent: ACIT, Circle-1, Muzaffarpur. 3. The CIT(A) 4. The CIT 5. DR True Copy, By order, Assistant Registrar ITAT, Kolkata Benches, Kolkata