M/S VINOD KUMAR VIJAY CONTRACTOR, BARAN V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA

ITA 767/JPR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2067 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 11-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P P MEENA JCIT DHK
• Keywords: Rejection of books of accounts; Business income; Depreciation; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 147; 154

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA-@ ITA NO. 767/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 M/S VINOD KUMAR VIJAY CONTRACTOR SHREE JI CHOWK, BARAN, RAJASTHAN. CUKE VS. ACIT, CIRCLE-2, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABFV 1197 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI P.P. MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 06/02/2018 MN?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 12/02/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 12.07.2017 OF LD. CIT(A), KOTA FOR THE ASSESSMENT Y EAR 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN TH IS APPEAL:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW I N CONFIRMING ADDITION OF RS. 1,28,515/- BY APPLYING N.P. RATE OF 4% ON THE SUB CONTRACT WORK OF RS. 32,12,867/- GIVEN TO OTHER CON TRACTORS. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS. 10,23,275/- MADE BY THE AO BY CONSI DERING THE INTEREST ON FDRS AS INCOME FROM OTHER SOURCES WHERE AS SUCH FDRS WERE OBTAINED FOR FURNISHING BANK GUARANTEE/SE CURITY DEPOSIT AS PER THE TERMS OF CONTRACT AND THUS, A PA RT OF THE CONTRACT RECEIPT. 2 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE AO TO ALLOW THE INTEREST PAID TO PARTNERS OF RS. 12 ,67,167/-, INTEREST PAID TO OTHERS OF RS. 1,33,894/- AND DEPRE CIATION OF RS. 2,94,032/- WHILE SEPARATELY ASSESSING THE INCOME FR OM SUB CONTRACT WORK AND THE FDR INTEREST IGNORING THAT AO IN THE ORIGINAL ASSESSMENT HAS ESTIMATED THE INCOME OF CON TRACT BUSINESS BY APPLYING N.P. RATE OF 8% SUBJECT TO CLA IM OF DEPRECIATION AND INTEREST PAID. 4. THE ASSESSEE CRAVES TO AMEND, ALTER AND MODIFY A NY OF THE GROUNDS OF APPEAL. 5. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. 2. GROUND NO. 1 IS REGARDING CONFIRMING THE ADDITION BY APPLYING N ET PROFIT RATE OF 4% ON THE SUB CONTRACT WORK OF RS. 3 2,12,867/-. THE ASSESSEE IS A CIVIL CONTRACTOR AND DECLARED THE TOTAL CONTRA CT RECEIPT OF RS. 5,91,15,823/- . OUT OF WHICH, THE CONTRACT WORK OF RS. 32,12,867/ - WAS GIVEN TO SUB CONTRACTORS. IN THE ORIGINAL ASSESSMENT PROCEEDING S U/S 143(3) OF THE ACT, THE AO REJECTED THE BOOKS OF ACCOUNTS AND APPLIED NET P ROFIT RATE OF 8% ON CONTRACT RECEIPTS EXCLUDING SUB CONTRACT RECEIPTS O F RS. 32,12,867/- RESULTING INTO TRADING ADDITION OF RS. 4,29,552/-. SUBSEQUEN TLY, THE AO REOPENED THE ASSESSMENT U/S 147 AND APPLIED NET PROFIT RATE OF 8 % ON SUB CONTRACT RECEIPTS ALSO RESULTING A FURTHER TRADING ADDITION OF RS. 2, 57,029/-. ON APPEAL THE LD. CIT(A) RESTRICTED THE ADDITION BY APPLYING THE NET PROFIT RATE OF 4% ON SUB CONTRACT RECEIPTS AND THEREBY CONFIRMING THE TRADIN G ADDITION TO THE EXTENT OF RS. 1,28,514/-. 3 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. 2.1 BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE HAS NOT CHARGED ANY MARGIN OR MARKUP ON THE AMOUNT OF SUB CONTRACT WHICH WAS GIVEN TO THE SUB CONTRACTOR ON COST TO COST BAS IS THEN THE ADDITION MADE BY THE AO AND LD. CIT(A) APPLYING NET PROFIT RATE O N SUB CONTRACT RECEIPT IS NOT JUSTIFIED. THUS, HE HAS SUBMITTED THAT THE ADDI TION CONFIRMING BY THE LD. CIT(A), MAY BE DELETED. 2.2 ON THE OTHER HAND, LD. D/R HAS RELIED UPON THE ORDERS OF THE LD. CIT(A). 2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL ON RECORD. IN THE ORIGINAL ASSESSMENT PROCEEDING COMP LETED U/S 143, THE AO REJECTED THE BOOKS OF ACCOUNTS AND MADE ADDITION BY APPLYING NET PROFIT OF 8% ON THE CONTRACT RECEIPTS EXCLUDING THE SUB CONTR ACT RECEIPT. THE SAID ACTION OF THE AO WAS ACCEPTED BY THE ASSESSEE. ONC E THE ASSESSEE HAS ACCEPTED THE REJECTION OF BOOKS OF ACCOUNT THEN THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED ON THE BASIS OF REASONABLE AND P ROPER ESTIMATE BY APPLYING EITHER THE GROSS PROFIT RATE OR NET PROFIT RATE. SO FAR AS THE NET PROFIT RATE OF 8% APPLIED BY THE AO ON THE CONTRACT RECEIP T, THE ASSESSEE HAS ACCEPTED THE SAME. HOWEVER, THE AO PROPOSED TO ASS ESS THE INCOME ON THE SUB CONTRACT RECEIPT BY APPLYING THE SAME RATE OF N ET PROFIT OF 8% IN THE REASSESSMENT PROCEEDINGS. THE LD. CIT(A) AFTER CON SIDERING THE RELEVANT FACTS HAS GIVEN 50% RELIEF BY REDUCING THE NET PROF IT RATE TO 4% HAVING REGARD 4 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. TO THE FACT THAT ON THE SUB CONTRACT WORK THE INCOM E HAS TO BE DIVIDED BY THE PARTIES. THEREFORE, THE LD. CIT(A) FOUND THAT 4% NE T PROFIT RATE IS A REASONABLE ESTIMATION OF INCOME ON SUB CONTRACT WOR K. WE DO CONCUR WITH THE FINDING OF LD. CIT(A) ON THIS ISSUE PARTICULARLY WH EN THE BOOKS OF ACCOUNTS WERE REJECTED AND THE INCOME OF THE ASSESSEE WAS TO BE ESTIMATED ON REASONABLE AND PROPER BASIS. THOUGH, THE ASSESSEE CONTENDED THAT IT HAS NOT EARNED ANY INCOME ON THE SUB CONTRACT WORK HOWEVER, ONCE THE REJECTION OF BOOKS OF ACCOUNTS WAS ACCEPTED BY THE ASSESSEE THEN THE INCOME IS REQUIRED TO BE ASSESSED ON REASONABLE ESTIMATE BASIS. ACCOR DINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD . CIT(A) QUA THIS ISSUE. 3. GROUND NO. 2 , IS REGARDING CONFIRMING THE ADDITION BY EXCLUDING THE INTEREST ON FDRS FROM THE BUSINESS INCOME AND TREAT ED THE SAME AS THE INCOME FROM THE OTHER SOURCES. THE ASSESSEE HAS SH OWN THE INTEREST INCOME OF RS. 10,23,275/- ON FDRS AND CLAIMED THE SAME AS PART OF BUSINESS INCOME OF THE ASSESSEE ON THE GROUND THAT THE FDRS WERE MA DE AS PER THE TERMS AND CONDITIONS OF THE GOVERNMENT CONTRACT WHICH REQUIRE S TO FURNISHED THE PERFORMANCE GUARANTEE. THE AO DID NOT ACCEPT THE C LAIM OF THE ASSESSEE AND EXCLUDED THE INTEREST INCOME OF RS. 10,23,275/- FRO M THE BUSINESS INCOME OF THE ASSESSEE AND THEREBY THE TRADING ADDITION TO TH E EXTENT OF THAT AMOUNT WAS ENHANCED BY THE AO. THE ASSESSEE CHALLENGED TH E ACTION OF THE AO BEFORE THE LD. CIT(A), BUT COULD NOT SUCCEED. 5 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. 3.1 BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS OBTAINED FDR FOR FURNISHING THE PERFORMANCE GUARANT EE FOR EXECUTION OF THE CONTRACT. WITHOUT THE SAME, THE ASSESSEE WAS NOT I N A POSITION TO GET THE CONTRACT FROM THE GOVERNMENT. THEREFORE, FDRS OBTA INED BY THE ASSESSEE IS INEXTRICABLY LINKED WITH HIS BUSINESS. THUS, THE L D. AR HAS CONTENDED THAT THE INTEREST EARNED ON SUCH FDRS IS PART OF BUSINESS IN COME AND THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. IN SUPPO RT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS:- 1. MOHD. CONSTRUCTION CO. VS. ACIT (2017) 152 DTR 1 48 (JAIPUR)(TRIB.) 2. SHYAM BIHARI VS. CIT & ANR. (2012) 345 ITR 283 ( PATNA)(HC) 3. CIT VS. JAYPEE DSC VENTURES LTD. (2011) 335 ITR 132 (DEL.)(HC) 4. CIT & ANR. VS. CHINNA NACHIMUTHU CONSTRUCTION (2 007) 297 ITR 70 (KAR.)(HC). 3.2 ON THE OTHER HAND, LD. D/R HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE INTEREST INCOME FROM F DRS CANNOT BE TREATED AS BUSINESS INCOME AND THEREFORE THE SAME WAS RIGHTLY ASSESSED AS INCOME FROM OTHER SOURCES. 3.3 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE AO AS WELL AS LD. CIT(A) HAS NOT DI SPUTED THE FACT THAT THE FDRS OBTAINED BY THE ASSESSEE WERE FOR THE PURPOSE OF FURNISHING THE PERFORMANCE GUARANTEE FOR EXECUTION OF THE CONTRACT . ONCE, THE FDRS IN 6 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. QUESTION IS TAKEN BY THE ASSESSEE IN CONNECTION WIT H THE EXECUTION OF THE CONTRACT AND NOT FOR PARKING ITS SURPLUS FUNDS THEN THE INTEREST INCOME ON SUCH FDRS WOULD BE REGARDED BEING HAVING A DIRECT N EXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. IN THE CASE OF MOHD. CONST. CO. VS. ACIT (SUPRA), THE CO-ORDINATE BENCH OF THIS TRIBUNAL WHILE CONSI DERING THE IDENTICAL ISSUE HAS HELD IN PARA 5.6 AS UNDER:- 5.6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSU ED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING INTEREST ON INCOME TAX REFUND AND INTEREST ON SALES TAX REFUND, THE SAME HAS RIGHTLY BEEN TREATED BY THE LD. CIT (A) AS INCOME FROM OTHER SOURCES AND WE DO NOT SEE ANY INFIRMITY IN THE SAME. REGARDING INTEREST ON FDR, I T IS NOTED THAT THE FDRS WERE PLACED WITH THE BANKS TO OBTAIN BANK GUAR ANTEE WHICH WAS NECESSARILY REQUIRED TO BE FURNISHED TO THE VARIOUS GOVERNMENT DEPARTMENTS AND IN ABSENCE OF SUCH BANK GUARANTEE, THE ASSESSEE COULD NOT HAVE PROCEEDED WITH THE EXECUTION OF CONT RACTS WITH THE GOVERNMENT DEPARTMENT. FURTHER, THERE IS NO FINDIN G THAT THE SURPLUS FUNDS HAVE BEEN INVESTED BY THE ASSESSEE IN THE FDR S. ANY INTEREST ON SUCH FDR, THEREFORE, MUST BE TREATED AS INEXTRICABL Y LINKED WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE TO BE TREATE D AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. IT IS NOTED THAT SIMILAR VIEW HAS BEEN TAKEN BY CO-ORDINATE BENCH IN CASE OF M/S MAYA CONSTRUCTION (SUPRA). THE CONTENTION THE LD. AR IS THEREFORE ACCEPTED AND THE ORDER OF LD. CIT(A) TO THIS EXTENT STAND MO DIFIED. 7 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. FURTHER THE HONBLE PATNA HIGH COURT IN THE CASE OF SHAYM BIHARI VS. CIT & ANR. (SUPRA) HELD IN PARA 7 & 8 AS UNDER:- 7. LEARNED COUNSEL FOR THE APPELLANT HAS PLACED RE LIANCE UPON A JUDGMENT OF THE CALCUTTA HIGH COURT REPORTED IN 193 ITR 252 (COMMISSIONER OF INCOME TAX VS. TIRUPATI WOOLLEN MI LLS LTD..) AND UPON A JUDGMENT OF KARNATAKA HIGH COURT REPORTED IN 297 ITR 70 (COMMISSIONER OF INCOME TAX VS. CHINNA NACHIMUTHU C ONSTRUCTION) TO SUPPORT HIS SUBMISSION IN RESPECT OF QUESTION NO.2 NOTICED ABOVE. THE JUDGMENT IN THE CASE OF CIT VS. CHINNA NACHIMUTHU C ONSTRUCTION WAS RENDERED IN A CASE OF SIMILAR NATURE WHERE THE ASSE SSEE BEING A CONTRACTOR, IN ORDER TO SECURE A CONTRACT WORK WAS REQUIRED TO OFFER A BANK GUARANTEE TO THE CONTRACTEE. THERE ALSO THE AS SESSEE HAD SHOWN THE INTEREST ACCRUED ON THE FIXED DEPOSIT AS BUSINE SS INCOME BUT THE ASSESSING OFFICER TREATED THE INTEREST AS INCOME FR OM 'OTHER SOURCES'. THE KARNATAKA HIGH COURT NOTICED THAT THE INVESTMEN T OF AMOUNT IN FIXED DEPOSITS BY THE ASSESSEE WAS ONLY TO PROVIDE A BANK GUARANTEE TO THE CONTRACTEE IN ORDER TO ACQUIRE THE CONTRACT WOR K. ON SUCH FACTS IT HELD THAT THE INTEREST INCOME COULD NOT BE TREATED AS A INCOME FROM OTHER SOURCES AND HAD TO BE TREATED AS BUSINESS INC OME ONLY. IN THAT CASE RELIANCE WAS ALSO PLACED UPON JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. GOVIND CHOUDHURY & SONS REPORTE D IN 203 ITR 881. IN THE CALCUTTA HIGH COURT JUDGMENT IN THE CASE OF CIT VS. TIRUPATI WOOLLEN MILLS LTD, THE FACTS WERE SLIGHTLY DIFFEREN T. THE ASSESSEE EARNED INCOME FROM FIXED DEPOSITS AND OTHER DEPOSITS WHICH WAS SOUGHT TO BE ASSESSED AS INCOME FROM OTHER SOURCES. ON A FINDING THAT THE ASSESSEE HAD UTILIZED ITS COMMERCIAL ASSETS WHICH WERE LYING IN THE FORM OF 8 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. SURPLUS CASH FOR EARNING INTEREST, IT WAS HELD THAT SUCH EARNING ARISING FROM UTILIZATION OF COMMERCIAL ASSETS WOULD BE THE BUSINESS INCOME AND HENCE REVENUE EXPENDITURE COULD BE DEDUCTED FROM IT . 8. IN VIEW OF LAW LAID DOWN IN CLEAR TERMS IN THE J UDGMENT OF KARNATAKA HIGH COURT NOTICED ABOVE, WE HAVE NO HESITATION IN HOLDING THAT THE TRIBUNAL AS WELL AS THE SUBORDINATE REVENUE AUTHORI TIES ERRED IN HOLDING THAT INTEREST ACCRUED ON SECURITY DEPOSITS TO THE E XTENT USED FOR THE PURPOSE OF SECURING THE CONTRACT WORK WOULD ALSO BE ASSESSABLE AS INCOME FROM OTHER SOURCES'. THIS QUESTION IS THUS ANSWERED IN FAVOUR OF THE APPELLANT . 3.4 THEREFORE, HAVING REGARD TO THE FACTS AND CIRCU MSTANCES OF THE CASE WHEN THE FDRS OBTAINED BY THE ASSESSEE AS PER THE C ONDITIONS OF THE CONTRACT FOR FURNISHING THE PERFORMANCE GUARANTEE THEN IT IS NOT VOLUNTARY DEPOSIT OF MONEY BY THE ASSESSEE WITH THE BANK BUT FDRS WERE T AKEN BY THE ASSESSEE IN EXECUTION OF THE CONTRACT WHICH IS THE MAIN AND ONL Y BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE IS COVERED BY THE DECISIONS AS RELIED UPON BY THE LD. AR AND A CCORDINGLY WE HOLD THAT THE INTEREST INCOME ON FDRS TAKEN FOR FURNISHING TH E PERFORMANCE GUARANTEE FOR EXECUTION OF CONTRACT IS PART OF BUSINESS INCOM E OF THE ASSESSEE. THE ADDITION MADE BY THE AO IS ACCORDINGLY DELETED. 4. GROUND NO. 3 , AT THE TIME OF HEARING, LD. AR STATED AT BAR THA T HE DOES NOT WISH TO PRESS GROUND NO. 3 OF THE APPEAL A S THE AO HAS RECTIFIED THE 9 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN. ASSESSMENT ORDER U/S 154 OF THE ACT AND NO GRIEVANC E IS LEFT. THUS, HE HAS PLEADED THAT GROUND NO. 3 MAY BE DISMISSED AS NOT P RESSED. 4.1 LD. D/R HAS NO OBJECTION WITH THE GROUND NO. 3 IS DISMISSED AS NOT PRESSED. 4.2 ACCORDINGLY, THE GROUND NO. 3 IS DISMISSED BEIN G NOT PRESSED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/02/2018. SD/- SD/- HKKXPAN FOT; IKY JKO (BHAGCHAND) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 12/02/2018. POOJA/- VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S VINOD KUMAR VIJAY CONTRACTOR. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-2, KOTA. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE [ITA NO. 767/JP/2017] VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR 10 ITA NO. 767/JP/2017. M/S VINOD KUMAR VIJAY CONTRACTOR, RAJASTHAN.