M/s B.Durga Reddy & Co., Visakhapatnam V. THE ACIT, CIRCLE - 4(1), Visakhapatnam

ITA 713/VIZ/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1210 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 13-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Capital expenditure
• Section: 44AD; 142(1); 133A; 147; 145; 148

Judgement Text

ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.713 TO 715/VIZAG/2013 ( / ASSESSMENT YEARS: 2009-10 TO 2011-12) M/S. B. DURGA REDDY & CO., VISAKHAPATNAM VS. ACIT, CIRCLE - 4(1), VISAKHAPATNAM [PAN: AACFD2193 ] ( / APPELLANT) ( / RESPONDENT) ./I.T.A.NOS.721 TO 723/VIZAG/2013 ( / ASSESSMENT YEARS: 2009-10 TO 2011-12) ACIT, CIRCLE - 4(1), VISAKHAPATNAM VS. M/S. B. D URGA REDDY & CO., VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : 07.04.2016 / RESPONDENT BY : 19.04.2016 / DATE OF HEARING : SHRI G.V.N. HARI, AR / DATE OF PRONOUNCEMENT : SHRI K. RAVI, DR ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 2 / O R D E R PER BENCH: THESE CROSS APPEALS FILED BY THE ASSESSEE, AS WELL AS REVENUE ARE DIRECTED AGAINST THE SEPARATE, BUT IDENTICAL ORDERS OF THE COMMISSIONER OF INCOME TAX (A), VISAKHAPATNAM DATED 14.10.2013 F OR THE ASSESSMENT YEARS 2009-10, 2010-11 & 2011-12. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OFF, BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENI ENCE. 2. THE BRIEF FACTS EXTRACTED FROM ITA NO.713/VIZAG/ 2013 ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, WHICH IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACT WORKS SUCH AS PILING, CIVIL AND ELECTRICAL ENGINEERING PROJECTS FOR MILITARY ENGINEERING SERVICES, VISAKHAPATNAM PORT T RUST, HPCL, ETC. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2009-10 ON 29.9.2009 DECLARING TOTAL INCOME OF ` 94,60,460/-. A SURVEY OPERATION U/S 133A OF THE INCOME TAX ACT, 1961 (HER EINAFTER CALLED AS 'THE ACT') WAS CONDUCTED IN THE BUSINESS PREMISES O F THE ASSESSEE ON 25.7.2012. CONSEQUENT TO THE SURVEY, THE CASE HAS BEEN REOPENED UNDER SEC. 147 BY ISSUING NOTICE U/S 148 OF THE ACT . SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, NOTICE U/S 143(2) & 142(1) OF THE ACT ALONG WITH A DETAILE D QUESTIONNAIRE WERE ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 3 ISSUED. IN RESPONSE TO THE NOTICE, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED B OOKS OF ACCOUNTS, BILLS & VOUCHERS ALONG WITH COPY OF BANK ACCOUNTS F OR VERIFICATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A. O. NOTICED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NO T SUSCEPTIBLE FOR VERIFICATION, AS SUCH A SHOW CAUSE NOTICE WAS ISSUE D TO THE ASSESSEE TO EXPLAIN WHY THE BOOKS OF ACCOUNTS SHOULD NOT BE REJ ECTED AND NET PROFIT ESTIMATED. IN RESPONSE TO SHOW CAUSE NOTICE, THE A SSESSEE HAS OBJECTED FOR ESTIMATION OF NET PROFIT. HOWEVER, THE A.O. AF TER CONSIDERING THE ASSESSEES EXPLANATIONS AND ALSO TAKEN INTO ACCOUNT THE BOOKS OF ACCOUNTS AND OTHER RELEVANT MATERIALS, REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND ESTIMATED THE NET PROFIT OF 10% ON GROSS RECEIPTS NET OF ALL DEDUCTIONS. SIMILARLY, THE A.O. HAS MADE ADDITIONS TOWARDS INCOME FROM OTHER SOURCES BEING INTEREST ON FIXED DEPOSITS AND OTHER MISCELLANEOUS RECEIPTS IN ADDITION TO EST IMATION OF NET PROFIT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE HAS CHALLENGED THE REJECTION OF BOOKS OF ACCOUNTS AND E STIMATION OF NET PROFIT. THE ASSESSEE ALSO CHALLENGED THE SEPARATE A DDITIONS MADE TOWARDS INCOME FROM OTHER SOURCES, BEING INTEREST ON FIXED DEPOSITS ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 4 AND OTHER MISCELLANEOUS RECEIPTS. THE ASSESSEE FURT HER SUBMITTED THAT THE A.O. WAS NOT CORRECT IN REJECTION OF BOOKS OF A CCOUNTS AS HE HAS NOT POINTED OUT ANY MISTAKES IN THE BOOKS OF ACCOUNTS, OTHER THAN NON- AVAILABILITY OF VOUCHERS FOR LABOUR CHARGES. THE AS SESSEE FURTHER SUBMITTED THAT THE A.O. HAS APPLIED A NET PROFIT OF 10%, WHICH IS QUITE HIGH WHEN COMPARED TO THE NATURE OF BUSINESS UNDERT AKEN BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE A.O. H AS NOT CONSIDERED THE SUB CONTRACT RECEIPT OF THE YEAR WHICH IS MAJOR PAR T OF THE GROSS RECEIPTS FROM THE CONTRACT, THEREFORE APPLYING A UNIFORM NET PROFIT RATE OF 10% ON TOTAL CONTRACT RECEIPTS IS ARBITRARY. THE ASSES SEE FURTHER SUBMITTED THAT THE A.O. WAS NOT CORRECT IN NOT ALLOWING DEDUC TIONS TOWARDS INTEREST AND REMUNERATIONS TO PARTNERS AFTER ESTI MATION OF NET PROFIT. THEREFORE, REQUESTED TO ALLOW INTEREST AND REMUNER ATION TO PARTNERS CAPITAL ACCOUNTS. AS REGARDS THE ADDITIONS TOWARDS INCOME FROM OTHER SOURCES, IT WAS SUBMITTED THAT THE INTEREST EARNED ON FIXED DEPOSITS KEPT IN THE BANK SHOULD BE CONSIDERED AS PART OF GR OSS RECEIPTS FROM BUSINESS, AS THE FIXED DEPOSIT WAS KEPT IN THE BANK TOWARDS BANK GUARANTEE TO BE GIVEN FOR OBTAINING THE CONTRACTS. WHEN THE INCOME IS ESTIMATED BY APPLYING THE NET PROFIT RATE, THE A.O. WAS NOT CORRECT IN MAKING SEPARATE ADDITIONS TOWARDS INTEREST ON FIXED DEPOSITS. ALTERNATIVELY, IT WAS CONTENDED THAT INTEREST PAID ON BANK OVER DRAFT, ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 5 WHICH WAS AVAILED BY KEEPING THE FIXED DEPOSITS AS A SECURITY SHOULD BE ALLOWED AS A DEDUCTION U/S 57 OF THE ACT, WHILE COM PUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT THE A.O. HAS RIGHTLY REJECTED THE BOOKS OF ACC OUNTS, AS THE ASSESSEE HAS FAILED TO FURNISH RELEVANT VOUCHERS IN SUPPORT OF THE EXPENDITURE CLAIMED. THE CIT(A) FURTHER HELD THAT THE DISCREPA NCY POINTED OUT IN THE ASSESSMENT ORDER WAS NOT DISPUTED BY THE ASSESSEE, HOWEVER IT WAS ARGUED THAT THE VOUCHERS FOR LABOUR CHARGES COULD B E ONLY SELF-MADE. THE FACT REMAINS THAT THE ASSESSEE COULD NOT PROVE THE CLAIM OF ITS EXPENSES WITH PROPER EVIDENCES, THEREFORE, UPHELD T HE ACTION OF THE A.O. IN REJECTION OF BOOKS OF ACCOUNTS. AS REGARDS THE ESTIMATION OF NET PROFIT, THE CIT(A) AFTER CONSIDERING THE EXPLANATIO NS FURNISHED BY THE ASSESSEE SCALED DOWN THE ESTIMATION OF NET PROFIT F ROM 10% TO 8% WITH FURTHER DEDUCTIONS TOWARDS INTEREST AND REMUNERATI ON TO PARTNERS. SIMILARLY, THE CIT(A) HELD THAT THE A.O. WAS RIGHT IN MAKING SEPARATE ADDITIONS TOWARDS INCOME FROM OTHER SOURCES, BEIN G INTEREST ON FIXED DEPOSITS AND OTHER MISCELLANEOUS RECEIPTS. THE CIT (A) HELD THAT INTEREST ON FIXED DEPOSITS EARNED BY THE ASSESSEE IS NOT A R ECEIPT EMANATING FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. EVEN I F THE FIXED DEPOSITS ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 6 WERE OFFERED AS SECURITY FOR THE OD FACILITY, IT WO ULD NOT ALTER THE NATURE AND CHARACTERISTICS OF THE SOURCE OF INCOME. WITH T HESE OBSERVATIONS, THE CIT(A) UPHELD THE ACTION OF THE A.O. IN MAKING SEPA RATE ADDITIONS TOWARDS INCOME FROM OTHER SOURCES. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE, AS WELL AS REVENUE ARE IN APPEAL BEFO RE US. 5. THE FIRST ISSUE CAME UP FOR OUR CONSIDERATION IS ESTIMATION OF NET PROFIT FROM THE CONTRACT RECEIPTS. THE LD. D.R. SUB MITTED THAT THE CIT(A) WAS ERRED IN REDUCING THE ESTIMATION OF NET PROFIT FROM 10% TO 8% WITHOUT APPRECIATING THE FACTS OF THE CASE THAT THE ASSESSEE HAS DECLARED MORE THAN 8% NET PROFIT FOR THE PAST SEVERAL YEARS. THE LD. D.R. FURTHER SUBMITTED THAT THE CIT(A) SHOULD HAVE UPHELD THE AC TION OF THE ASSESSING OFFICER IN REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF 10% NET PROFIT ON GROSS CONTRACT RECEIPTS. IT WAS FURTHER ARGUED THAT THE LD. CIT(A) OUGHT TO HAVE FOLLOWED THE JURISDICT IONAL HIGH COURT DECISION, IN THE CASE OF INDWELL CONSTRUCTIONS LTD. VS. CIT 232 ITR 776, WHEREIN IT WAS HELD THAT THE COMPUTATION U/S 29 OF THE ACT IS TO BE MADE U/S 145 OF THE ACT, ON THE BASIS OF THE BOOKS REGUL ARLY MAINTAINED BY THE ASSESSEE AND IF THOSE BOOKS ARE NOT CORRECT AND COM PLETE, THE ASSESSING OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INC OME TO THE BEST OF HIS JUDGEMENT. WHEN SUCH ESTIMATION IS MADE, IT IS IN SUBSTITUTION OF ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 7 THE INCOME THAT IS TO BE COMPUTED U/S 29 OF THE ACT . IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO U/S 29 OF THE ACT ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN E STIMATE. THE LD. D.R. FURTHER SUBMITTED THAT THE A.O. HAS ESTIMATED NET PROFIT OF 10% AFTER REJECTING THE BOOKS OF ACCOUNTS AS THE ASSESS EE HAS FAILED TO SUBSTANTIATE THE EXPENDITURE CLAIMED WITH ANY EVIDE NCES. THEREFORE, THE A.O. ORDER SHOULD BE UPHELD. 6. ON THE OTHER HAND, THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT THE CIT(A) WAS ERRED IN ESTIMATING THE NET PROFIT OF 8% WITHOUT POINTING OUT ANY MISTAKES IN THE BOOKS OF ACCOUNTS OF THE ASSESS EE. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS WHICH WERE AUDITED U/S 44AB OF THE ACT AND THE AUDITOR HA S NOT POINTED OUT ANY MISTAKES IN THE BOOKS OF ACCOUNTS. THOUGH ASSE SSEE NOT ABLE TO FILE SUFFICIENT EVIDENCES IN RESPECT OF LABOUR CHARGES, THE A.O. HAS NOT POINTED OUT ANY MISTAKES IN RESPECT OF OTHER ASPECT S OF BOOKS OF ACCOUNTS. THEREFORE, THE A.O. WAS COMPLETELY ERRED IN REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF NET PROFIT. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE IS INTO THE BUSINESS OF EXECUTION OF WORKS CONTRACT MAINLY FOR GOVERNMENT DEPARTMENTS, WHERE THE NET PR OFIT MARGINS WERE VERY LOW. IT WAS FURTHER ARGUED THAT THE ASSESSEE ALSO EXECUTES SUB ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 8 CONTRACTS FOR OTHERS, WHEREIN THE NET PROFIT MARGIN VARIES FROM 4 TO 6%. THE A.O. WITHOUT CONSIDERING THE FACT, SIMPLY APPLI ED 10% NET PROFIT ON TOTAL CONTRACT RECEIPTS WHICH IS NOT CORRECT. THE A.R. FURTHER SUBMITTED THAT SEPARATE DEDUCTIONS TOWARDS DEPRECIATION SHOUL D BE ALLOWED FROM THE ESTIMATED NET PROFIT. THEREFORE, REQUESTED TO S CALE DOWN THE NET PROFIT AND ALSO ALLOWED DEPRECIATION. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE A.O. HAS REJECTED THE BOO KS OF ACCOUNTS AND ESTIMATED THE NET PROFIT OF 10% ON GROSS CONTRACT R ECEIPTS NET OF ALL PERMISSIBLE DEDUCTIONS. THE A.O. WAS OF THE OPINIO N THAT THE ASSESSEE HAS NOT PRODUCED ANY BILLS & VOUCHERS IN RESPECT OF EXPENDITURE AND ALSO THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT SUSCE PTIBLE FOR VERIFICATION. THE A.O. FURTHER OPINED THAT DURING THE PREVIOUS FINANCIAL YEAR, THE ASSESSEES NET PROFIT WAS DETERMINED AT 9 .12%, THEREFORE, BASED ON PREVIOUS YEAR NET PROFIT, THE A.O. HAS COM E TO THE CONCLUSION THAT THE NET PROFIT OF 10% FOR THE YEAR IS APPROPRI ATE. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE NET PROFIT ESTI MATED BY THE A.O. IS VERY HIGH WHEN COMPARED TO THE NATURE OF CONTRACTS EXECUTED BY THE ASSESSEE. THE ASSESSEE FURTHER CONTENDED THAT IT I S INTO THE BUSINESS OF EXECUTION OF WORKS CONTRACT FOR GOVERNMENT DEPARTME NTS, WHEREIN THE ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 9 NET PROFIT MARGIN IS VERY LOW, THEREFORE, REQUESTED TO SCALE DOWN THE NET PROFIT ESTIMATED BY THE A.O. WE HAVE GONE THROUGH T HE CIT(A) ORDER AND ALSO CASE LAW RELIED UPON BY THE PARTIES. IT IS AN ADMITTED FACT THAT ESTIMATION OF NET PROFIT FROM CIVIL CONTRACT RECEIP TS IS CONSISTENTLY FOLLOWED BY THE DEPARTMENT ON VARIOUS RATES DEPENDI NG UPON THE FACTS AND CIRCUMSTANCES OF THE EACH CASE. THE ITAT, HAS UPHELD ESTIMATION OF NET PROFIT RANGING FROM 8% TO 12.5%. THE COORDIN ATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ARIHANT BUILDERS PVT. LTD. (SUPRA) TOOK A CLUE FROM THE PROVISIONS OF SECTION 44AD OF THE ACT, HEL D THAT 8% NET PROFIT FROM CIVIL CONTRACTS IS JUSTIFIED. THE RELEVANT POR TION OF ITAT ORDER IS REPRODUCED HEREUNDER: 17. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW EXPR ESSED BY THE HONBLE JURISDICTIONAL HIGH COURT AND ALSO CONSIDERING THE COORDINATE BENCH DECISION OF THIS TRIBUNAL, WE ARE OF THE OPINION TH AT DEPRECIATION IS A ALLOWABLE DEDUCTION, EVEN AFTER ESTIMATION OF NET P ROFIT FROM THE CONTRACT RECEIPTS. THEREFORE, WE DIRECT THE ASSESSING OFFIC ER TO ALLOW THE DEPRECIATION AGAINST THE INCOME ESTIMATED FROM THE CONTRACT RECEIPTS. AS FAR AS THE DISALLOWANCE OF REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT IS CONCERNED, THE STATUTE ITSELF IN SECTION 44AD OF THE ACT, ALLOWED SEPARATE DEDUCTIONS TOWARDS INT EREST ON CAPITAL ACCOUNTS AND REMUNERATION TO PARTNERS, AFTER ESTIM ATION OF NET PROFIT FROM THE GROSS RECEIPTS. THE CIT (A) AFTER CONSIDE RING THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS RIGHTLY DIRECTED THE A.O. TO ALLOW REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT FROM THE NET PROFIT ESTIMATED. THEREFORE, WE FIND NO ER ROR OR INFIRMITY IN THE ORDER OF THE CIT (A), HENCE, WE INCLINED TO UPHELD THE ORDER OF THE CIT (A). 18. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE TH E TOTAL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IN ACCORDA NCE WITH THE DECISIONS RENDERED BY US ON VARIOUS ISSUES IN THE P RECEDING PARAGRAPHS. ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 10 HOWEVER, THE INCOME SO COMPUTED WORKS OUT TO LESS T HAN THE INCOME RETURNED BY THE ASSESSEE, THEN, THE TOTAL INCOME SO COMPUTED SHALL NOT GO BEYOND THE RETURNED INCOME AND IT SHOULD BE REST RICTED TO THE INCOME RETURNED BY THE ASSESSEE, SINCE, THE ASSESSED INCOM E SHOULD NOT BE LESS THAN THE RETURNED INCOME. 8. THE ITAT, HYDERABAD BENCH IN THE CASE OF ACIT VS. T EJA CONSTRUCTIONS 191/HYD/2001 HAS CONSIDERED SIMILAR I SSUE OF ESTIMATION OF NET PROFIT FROM CIVIL CONTRACT BUSINE SS. THE COORDINATE BENCH DECIDED THE ISSUE AS UNDER: THE ASSESSEES PAST TRACK RECORDS SHOW THAT THE AS SESSEE HAS NEGLECTED THE PRESENTING OF THE BOOKS OF ACCOUNT IN ACCORDANCE WITH LAW. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY ON THE PART OF THE ASSESSEE TO PRODUCE THE BOOKS OF AC COUNT SUPPORTED BY PROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS N OT PRODUCED THE PROPER BOOKS OF ACCOUNT, TRUE PROFITS OR LOSS CANNO T BE DEDUCED FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAVING NO OTHER OPTION REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INC OME AT 10 PER CENT OF GROSS RECEIPTS. BUT THE POSITION IS THAT, THE AS SESSEE IS CARRYING ON THREE KINDS OF CONTRACTS, AS IN EARLIER YEARS, I.E. , (I) OWN CONTRACTS, (II) CONTRACTS TAKEN FROM THE SUB-CONTRACTORS, (III) CON TRACTS GIVEN TO OTHER PARTIES ON SUB-CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE ITSELF. IN T HESE CONTRACTS, THE ASSESSEE AGREED THAT HIS INCOME IS AT 9 PER CENT OF THE GROSS RECEIPTS. THUS, ACCORDINGLY THE AO IS DIRECTED TO ESTIMATE TH E INCOME ON THE CONTRACTS EXECUTED BY THE ASSESSEES OWN AT 9 PER C ENT. IN CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB-CONTRACT, THE IN COME TO BE ESTIMATED AT 8 PER CENT OF THE GROSS RECEIPTS. IN CA SE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE 3RD PARTY ON SUB-CONTRACT, I NCOME TO BE ESTIMATED AT 4 PER CENT. THIS IS, BECAUSE, WHEN THE ASSESSEE GIVES CONTRACT TO THE OTHER PARTIES ON SUB-CONTRACT, THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9 PER CENT, IT HAS TO FORGO CERTAIN PORTION OF PROFIT I.E., AROUND 5 PER CENT TO THE SU B-CONTRACTORS. SIMILAR IS THE POSITION IN THE CASE OF CONTRACTS TAKEN BY A SSESSEE ON SUB- CONTRACT FROM OTHER PARTIES. FURTHER, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION, AND INTERESTS TO PAR TNERS ON THE PROFIT ESTIMATED BY AO AT APPLICABLE RATES, BECAUSE THE IN COME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AN D INTEREST AND REMUNERATION OF THE PARTNERS. ACCORDINGLY, THE AO I S DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 11 9. IN THE PRESENT CASE ON HAND, THE ASSESSEE DECLAR ED A NET PROFIT OF 9.12% FOR THE PREVIOUS FINANCIAL YEAR. THE A.O. HA S ESTIMATED NET PROFIT OF 10% ON GROSS CONTRACT RECEIPTS. THE CIT(A) HAS SCALED DOWN THE NET PROFIT TO 8%. THE CIT(A) AFTER CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE, RIGHTLY SCALED DOWN THE NET PROFIT TO 8%. THERE IS NO ERROR OR INFIRMITY IN THE ORDER PASSED BY THE CIT(A). HE NCE, WE INCLINED TO UPHOLD THE ORDER PASSED BY THE CIT(A) AND REJECT TH E GROUND RAISED BY THE REVENUE. 10. THE NEXT ISSUE CAME UP FOR OUR CONSIDERATION IS SEPARATE ADDITIONS TOWARDS INCOME FROM OTHER SOURCES BEING INTEREST ON FIXED DEPOSITS AND OTHER MISCELLANEOUS RECEIPTS. THE A.O., IN ADD ITION TO ESTIMATION OF NET PROFIT FROM CONTRACT RECEIPTS, MADE SEPARATE AD DITIONS TOWARDS INTEREST AND OTHER MISCELLANEOUS RECEIPTS. THE LD. A.R. SUBMITTED THAT THE A.O. WAS NOT CORRECT IN MAKING SEPARATE ADDITIO NS TOWARDS INCOME FROM OTHER SOURCES, BEING INTEREST ON FIXED DEPOSI TS AND OTHER MISCELLANEOUS RECEIPTS. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS FIXED DEPOSITS IN A BANK TO OBTAIN BANK GUARANT EE TO BE GIVEN FOR PRINCIPLES FOR CONTRACTS. THEREFORE, INTEREST EARNE D ON FIXED DEPOSITS SHOULD BE CONSIDERED AS PART OF BUSINESS RECEIPTS F OR THE PURPOSE OF ESTIMATION OF NET PROFIT. ALTERNATIVELY, THE A.R. SUBMITTED THAT THE ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 12 ASSESSEE HAS TAKEN OVER DRAFT FACILITY AGAINST THE SECURITY OF FIXED DEPOSITS, THEREFORE, THERE IS A DIRECT NEXUS WITH T HE OVER DRAFT AVAILED ON SUCH DEPOSITS AND AS SUCH THE INTEREST PAID ON BANK OVER DRAFT SHOULD BE NET OFF AGAINST THE INTEREST EARNED ON FIXED DEPOSI TS. THE LD. D.R. ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE CIT (A). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE A.O. MADE SEPARATE ADDITI ONS TOWARDS INCOME FROM OTHER SOURCES, BEING INTEREST ON FIXED DEPOSI TS AND OTHER MISCELLANEOUS RECEIPTS. THE A.O. WAS OF THE OPINIO N THAT THE INTEREST EARNED ON FIXED DEPOSITS IS ASSESSABLE UNDER THE HE AD INCOME FROM OTHER SOURCES AND WHICH HAS NO RELEVANCE TO THE BU SINESS ACTIVITY OF THE ASSESSEE. THE A.O. FURTHER OPINED THAT WHETHER THE FIXED DEPOSITS ARE KEPT TOWARDS OBTAINING BANK GUARANTEE OR NOT, T HE INTEREST EARNED ON SUCH FIXED DEPOSITS WOULD NOT ALTER THE NATURE A ND CHARACTERISTICS OF INCOME. THEREFORE, MADE SEPARATE ADDITIONS UNDER T HE HEAD INCOME FROM OTHER SOURCES. IT WAS THE CONTENTION OF THE ASSESSEE THAT INTEREST EARNED ON FIXED DEPOSITS SHOULD BE ASSESSABLE AS PA RT OF BUSINESS RECEIPTS. THE ASSESSEE FURTHER CONTENDED THAT THOS E FIXED DEPOSITS WERE KEPT AS SECURITY FOR OBTAINING THE BANK GUARANTEE, THEREFORE, INTEREST PAID ON OVER DRAFT SHOULD BE NET OFF AGAINST THE IN TEREST EARNED ON FIXED ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 13 DEPOSITS. WE DO NOT SEE ANY MERITS IN THE ARGUMENT S OF THE ASSESSEE FOR THE REASON THAT INTEREST RECEIVED FROM BANK DEP OSITS CANNOT BE CONSIDERED AS BUSINESS RECEIPTS RECEIVED ON ACCOUNT OF CARRYING OUT THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE EAR NED INTEREST FROM BANK DEPOSITS WHICH ARE KEPT AS MARGIN MONEY FOR OB TAINING BANK GUARANTEES. THOUGH THESE BANK GUARANTEES ARE FURNI SHED FOR OBTAINING CONTRACT WORKS, THE INTEREST EARNED FROM THESE DEPO SITS CANNOT BE AT ANY STRETCH OF IMAGINATION CONSIDERED AS BUSINESS R ECEIPTS FOR THE PURPOSE OF ESTIMATION OF NET PROFIT. THERE IS NO D IRECT NEXUS BETWEEN THE EARNING OF INTEREST AND WORKS CONTRACT, EXCEPT FOR THE FACT THAT IT IS KEPT IN BANK FOR OBTAINING BANK GUARANTEE. THERE SH OULD BE DIRECT NEXUS BETWEEN BUSINESS ACTIVITY AND EARNING OF INCOME SO AS TO TREAT THE RECEIPT EARNED FROM THE BUSINESS. IF THESE INTERES T RECEIPTS ARISE FROM THE WORKS CONTRACT, THEN DEFINITELY THE INTEREST FO RMS PART OF CONTRACT RECEIPTS. BUT, IN THE PRESENT CASE ON HAND, INTERE ST EARNED ON FIXED DEPOSITS IS HAVING NO DIRECT NEXUS BETWEEN THE BUSI NESS ACTIVITIES OF THE ASSESSEE. JUST BECAUSE, THE BANK DEPOSITS ARE KEPT AS MARGIN MONEY TOWARDS OBTAINING BANK GUARANTEE, INTEREST EARNED O N SUCH DEPOSITS WOULD NOT ALTER THE CHARACTERISTICS OF INCOME. THER EFORE, WE ARE OF THE OPINION THAT THE A.O. HAS RIGHTLY ASSESSED THE INTE REST EARNED ON FIXED DEPOSITS AND OTHER MISCELLANEOUS RECEIPTS UNDER THE HEAD INCOME FROM ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 14 OTHER SOURCES. THE CIT(A) HAS RIGHTLY UPHELD THE ADDITIONS MADE BY THE A.O. WE DO NOT SEE ANY ERROR OR INFIRMITY IN TH E ORDER PASSED BY THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE ORDER PASS ED BY THE CIT(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE. 12. THE NEXT ISSUE EMANATED FROM THE REVENUE APPEAL IS DEDUCTIONS TOWARDS INTEREST ON CAPITAL AND REMUNERATION TO PAR TNERS. THE A.O. DID NOT ALLOW THE DEDUCTIONS TOWARDS REMUNERATION TO PA RTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNTS. THE LD. D.R. SUBMIT TED THAT ONCE NET PROFIT IS ESTIMATED, NO SEPARATE DEDUCTIONS TOWARDS INTEREST ON PARTNERS CAPITAL AND REMUNERATION TO PARTNERS IS ALLOWABLE A S A DEDUCTION. THE LD. D.R. FURTHER SUBMITTED THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE INTEREST ON CAPITAL AND REMUNERAT ION TO PARTNERS ARE NOT ALLOWABLE IN A CASE, WHERE THE BOOKS OF ACCOUNTS AR E REJECTED AND PROFIT IS ESTIMATED. IT WAS THE CONTENTION OF THE ASSESSE E THAT EVEN NET PROFIT IS ESTIMATED FROM CONTRACT RECEIPTS, IN THE CASE OF PARTNERSHIP FIRMS, DEDUCTION TOWARDS REMUNERATION TO PARTNERS AND INTE REST ON CAPITAL IS TO BE ALLOWED. THE LD. A.R. FURTHER SUBMITTED THAT TH E ISSUE OF INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS IS SQUARELY CO VERED BY THE DECISION OF COORDINATE BENCH DECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF M/S. K. VENKATA RAJU, RAJAHMUNDRY IN ITA NOS.370 & 409/V IZAG/2012 AND ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 15 ALSO IN THE CASE OF SRIVALLI SHIPPING & TRANSPORTS IN ITA NOS.79 TO 95/VIZAG/2013. THEREFORE, REQUESTED TO UPHOLD THE O RDER OF THE CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE A.O. HAS NOT ALLOWED SEPA RATE DEDUCTIONS TOWARDS INTEREST ON PARTNERS CAPITAL ACCOUNT AND R EMUNERATION TO PARTNERS. THE A.O. WAS OF THE OPINION THAT WHEN NE T PROFIT IS ESTIMATED BY REJECTING BOOKS OF ACCOUNTS, SEPARATE DEDUCTIONS TOWARDS INTEREST ON PARTNERS CAPITAL ACCOUNT AND REMUNERATION TO PARTN ERS CANNOT BE ALLOWED. IT WAS THE CONTENTION OF THE ASSESSEE THA T WHEN PROFIT IS ESTIMATED, SEPARATE DEDUCTIONS SHOULD BE ALLOWED IN THE CASE OF PARTNERSHIP FIRM, TOWARDS INTEREST AND REMUNERATIO N TO PARTNERS. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE STATUTE ITSELF U/S 44AD OF THE ACT, PROVIDES FOR SE PARATE DEDUCTIONS TOWARDS INTEREST ON PARTNERS CAPITAL ACCOUNT AND R EMUNERATION TO PARTNERS, WHEN NET PROFIT IS ESTIMATED FROM THE CON TRACT RECEIPTS. 14. WE FURTHER NOTICED THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF SRIVALLI SHIPPING & TRANSPORTS IN ITA N OS.79 TO 95/VIZAG/2013 HELD THAT SEPARATE DEDUCTIONS TOWARDS INTEREST ON PARTNERS CAPITAL ACCOUNT AND REMUNERATION TO PARTN ER SHOULD BE ALLOWED ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 16 WHEN NET PROFIT IS ESTIMATED. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 24. ON CONSIDERATION OF RIVAL CONTENTIONS, WE FIN D MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. THE CAPITAL EXPENDITURE INCUR RED IS NOT ALLOWED AS DEDUCTION, BUT THE DETERIORATION IN THEIR VALUE IS ALLOWED AS DEDUCTION WITH THE NAME DEPRECIATION. HENCE, IT IS CALLED NON-CASH E XPENDITURE AND ALSO CALLED STATUTORY DEDUCTION. WHILE ESTIMATING THE INCOME, T HE TRADING 17 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 A SSESSMENT YEARS : 2004- 05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT RESULTS ONLY ARE ESTIMATED ON THE BASIS OF SALES/GROSS RECEIPTS, MEANING THEREBY, WHA T IS ESTIMATED IS ONLY THE NET PROFIT BEFORE ALLOWING ANY NON-CASH EXPENDITURE /STATUTORY DEDUCTIONS. FURTHER, THE QUANTUM OF DEPRECIATION WOULD ALSO DEP END UPON THE VALUE OF ASSETS. FOR EXAMPLE, A BUSINESS MAN HAVING LOWER VE RSION OF CAR OR AIR CONDITIONER WOULD BE ENTITLED TO CLAIM LOWER AMOUNT OF DEPRECIATION, SINCE THE COST OF THE LOWER VERSION OF CAR AND AIR CONDITIONE R WILL BE LESS. WHEREAS ANOTHER BUSINESS MAN HAVING HIGHER VERSION OF CAR A ND AIR CONDITIONER WOULD GET HIGHER AMOUNT OF DEPRECIATION, SINCE THE COST O F THOSE ASSETS SHALL BE HIGHER. HENCE, EVEN IF THE LEVEL OF OPERATIONS AND OTHER THINGS ARE EQUAL BETWEEN THE TWO, THE DEPRECIATION AMOUNT WILL BE DI FFERENT DUE TO THE DIFFERENCE IN THE VALUE OF ASSETS. HENCE THE TOTAL INCOME SHALL ALSO RESULT IN DIFFERENT FIGURES BETWEEN THE TWO BUSINESS MEN. THE ABOVE SAID ILLUSTRATION WOULD SUPPORT THE CONTENTIONS OF THE ASSESSEE THAT THE DEPRECIATION SHOULD BE ALLOWED SEPARATELY. ACCORDINGLY, WE DIRECT THE A O TO ALLOW THE DEPRECIATION ADMISSIBLE TO THE ASSESSEE AGAINST THE INCOME ESTIM ATED BY US IN THE PRECEDING PARAGRAPHS. 15. THE ASSESSEE RELIED UPON THE COORDINATE BENCH D ECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF M/S. K. VENKATA RAJU, RAJAHMUNDRY IN ITA NOS.370 & 409/VIZAG/2012. THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT INTEREST ON P ARTNERS CAPITAL ACCOUNT AND REMUNERATION TO PARTNERS IS ALLOWABLE D EDUCTIONS WHEN NET PROFIT IS ESTIMATED. THE RELEVANT PORTION IS REPRO DUCED HEREUNDER: ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 17 17. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW EXPR ESSED BY THE HONBLE JURISDICTIONAL HIGH COURT AND ALSO CONSIDERING THE COORDINATE BENCH DECISION OF THIS TRIBUNAL, WE ARE OF THE OPINION THAT DEPRECIAT ION IS A ALLOWABLE DEDUCTION, EVEN AFTER ESTIMATION OF NET PROFIT FROM THE CONTRA CT RECEIPTS. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIAT ION AGAINST THE INCOME ESTIMATED FROM THE CONTRACT RECEIPTS. AS FAR AS THE DISALLOWANCE OF REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT IS CONCERNED, THE STATUTE ITSELF IN SECTION 44AD OF TH E ACT, ALLOWED SEPARATE DEDUCTIONS TOWARDS INTEREST ON CAPITAL ACCOUNTS AND REMUNERATION TO PARTNERS, AFTER ESTIMATION OF NET PROFIT FROM THE GROSS RECEIPTS. THE CIT (A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE, HAS RIGHTLY DIRECTED THE A.O. TO ALLOW REMUNERATION TO PARTNERS AND INTE REST ON PARTNERS CAPITAL ACCOUNT FROM THE NET PROFIT ESTIMATED. THEREFORE, WE FIND NO ERROR OR INFIRMITY IN THE ORDER OF THE CIT (A), HENCE, WE IN CLINED TO UPHELD THE ORDER OF THE CIT (A). 16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISIO N IN THE CASE OF SRIVALLI SHIPPING & TRANSPORTS (SUPRA), WE ARE OF T HE OPINION THAT INTEREST ON PARTNERS CAPITAL ACCOUNT AND REMUNERAT ION TO PARTNERS IS ALLOWABLE DEDUCTIONS EVEN AFTER ESTIMATION OF NET P ROFIT FROM THE CONTRACT RECEIPTS. THE CIT(A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS RIGHTLY DIRECTED THE A.O. TO ALLOW REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT. WE DO NOT SEE ANY ERROR IN THE CIT(A) ORDER, HENCE, WE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUND RAISE D BY THE REVENUE. 17. THE NEXT ISSUE CAME UP FOR OUR CONSIDERATION IS SEPARATE ADDITIONS TOWARDS RECEIPTS FROM ARBITRATION AWARD AND MISCELL ANEOUS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. A.R. S UBMITTED THAT THE ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 18 A.O. HAS ERRED IN MAKING SEPARATE ADDITIONS TOWARDS ARBITRATION AWARD AND OTHER MISCELLANEOUS RECEIPTS RECEIVED FROM JAGA DALPUR WORKS. THE A.R. FURTHER SUBMITTED THAT THESE RECEIPTS FORMS PA RT OF BUSINESS AND THE ASSESSEE HAS RECEIVED THE ARBITRATION AWARD TOWARDS WORKS CONTRACT, THEREFORE, WHEN THE NET PROFIT IS ESTIMATED BY APPL YING THE NET PROFIT RATE, THE A.O. SHOULD HAVE CONSIDERED THE ARBITRATI ON AWARD RECEIVED TOWARDS CONTRACT RECEIPTS AS BUSINESS RECEIPTS. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE CIT(A) . 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE A.O. MADE SEPARATE ADDITIO NS TOWARDS MISCELLANEOUS RECEIPTS AND ARBITRATION AWARD RECEIV ED FROM JAGADALPUR WORKS. IT WAS THE CONTENTION OF THE ASSESSEE THAT THESE RECEIPTS ARE FORMS PART OF CONTRACT RECEIPTS, THEREFORE, SHOULD BE CONSIDERED FOR THE PURPOSE OF ESTIMATION OF NET PROFIT FROM THE BUSINE SS. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT T HE ARBITRATION AMOUNT RECEIVED FROM THE CLIENTS TOWARDS WORKS CONT RACTS. THE ARBITRATION AMOUNT RECEIVED FROM CLIENTS TOWARDS CO NTRACT WORKS IS CERTAINLY A BUSINESS RECEIPT WHICH CANNOT BE ASSESS ED UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THE ASSESSEE H AS FAILED TO FURNISH ANY DETAILS WITH REGARD TO THE AMOUNT RECEIVED FROM ARBITRATION AND ALSO ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 19 MISCELLANEOUS RECEIPTS RECEIVED FROM JAGADALPUR WOR KS. THEREFORE, WE ARE OF THE OPINION THAT THIS ISSUE NEEDS TO BE RE-E XAMINED BY THE A.O. TO ASCERTAIN WHETHER ARBITRATION AMOUNT AND MISCELLANE OUS RECEIPTS FROM JAGADALPUR WORKS IS TOWARDS WORKS CONTRACTS OR NOT. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE A.O. AND DIRECT THE A.O. TO VERIFY WHETHER THE ARBITRATION AWARD RECEIVED BY THE ASSES SEE IS TOWARDS EXECUTION OF WORKS CONTRACT OR NOT. IN CASE THE AR BITRATION AWARD IS RECEIVED TOWARDS EXECUTION OF WORKS CONTRACT, THE S AME SHOULD BE CONSIDERED AS PART OF GROSS RECEIPTS FOR THE PURPOS E OF ESTIMATION OF NET PROFIT. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE A.O. AND DIRECT HIM TO EXAMINE THE ISSUE IN THE LIGHT OF THE DISCUS SIONS ABOVE. 19. THE NEXT ISSUE EMANATES FROM ASSESSEES APPEAL IS ADDITIONS TOWARDS CHIT DIVIDEND. THE A.O. MADE SEPARATE ADDI TIONS TOWARDS CHIT DIVIDEND UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESSEE CONTENDED THAT CHIT DIVIDEND SHOULD BE CONSIDERED A S PART OF GROSS CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATION OF NET PROFIT. WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSESSEE FO R THE REASON THAT THERE IS NO DIRECT NEXUS BETWEEN CONTRIBUTION TO CH IT AND BUSINESS ACTIVITY OF THE ASSESSEE. THE DIVIDEND RECEIVED FRO M CHITS CANNOT BE CONSIDERED AS PART OF BUSINESS RECEIPTS FOR THE PUR POSE OF ESTIMATION OF ITA NOS.713 TO 715 & 721 TO 723/VIZAG/2013 M/S. B. DURGA REDDY & CO., VISAKHAPATNAM 20 PROFIT. THEREFORE, WE ARE OF THE OPINION THAT THE A.O. HAS RIGHTLY ASSESSED THE CHIT DIVIDEND UNDER THE HEAD INCOME F ROM OTHER SOURCES. HENCE, WE REJECT THE GROUND RAISED BY THE ASSESSEE. 20. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN ITA NOS.713 TO 715/VIZAG/2013 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEALS FILED BY THE REVENUE IN ITA NOS.721 TO 723/ VIZAG/2013 ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 19 TH APR16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 19.04.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. B. DURGA REDDY & CO., 36-46 -5/3, ANNAPURNA COMPLEX, URVASI JUNCTION, VISAKHAPATNAM 2. / THE RESPONDENT THE ACIT, CIRCLE-4(1), VISAKHA PATNAM 3. + / THE CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM