Devasamparambil hassainar kutty, Kota V. ACIT, Kota

ITA 827/JPR/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5648 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KHANNA JCIT DHK
• Keywords: Business income; Depreciation; Question of law; Set aside
• Section: 271(1)(c); 44AD; 143(3); 145; 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH SMC, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 827/JP/2014 & 511/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, 148,KAKA COMPLEX, GUMANPURA, KOTA. CUKE VS. THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ACSPP 4599 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SIDDHARTH RANKA (ADVOCATE) JKTLO DH VKSJ LS@ REVENUE BY : SHRI ASHOK KHANNA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25.07.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 30/07/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST TWO SEPARATE ORDERS OF LD. CIT (APPEALS), KOTA DATED 16.09.2014 AND 25. 03.2015 ARISING FROM ASSESSMENT ORDER PASSED UNDER SECTION 143(3) AND PENALTY LEVIE D UNDER SECTION 271(1)(C) OF THE IT ACT RESPECTIVELY FOR THE ASSESSMENT YEAR 2009-10 . IN THE QUANTUM APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. LOWER AUTHORITIES GROSSLY ERRED IN REJECTIN G THE BOOKS OF ACCOUNTS OF THE ASSESSEE APPELLANT U/S 145(3) OF TH E INCOME-TAX ACT. 1.1. THAT THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN APPLYING 11% NP RATE ON GROSS RECEIPTS OF RS. 5, 45,19,491/- AND IN FURTHER ENHANCING THE TRADING ADDITION BY RS . 19,29,108/- U/S 251(2) OF THE INCOME-TAX ACT AND IN COMPUTING T HE TOTAL BUSINESS INCOME AT RS. 59,97,144/- AS AGAINST RS. 2 5,42,865/- 2 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. DECLARED BY THE ASSESSEE APPELLANT, IN TURN MAKING TOTAL ADDITION OF RS. 34,54,279/- AGAINST THE ASSESSEE APPELLANT. 1.2. THAT THE LD. ASSESSING OFFICER GROSSLY ERRED IN APP LYING 8% NP RATE ON GROSS RECEIPTS OF RS. 5,45,19,491/- AND ON UNCERTIFIED WORK IN PROGRESS OF RS. 5,00,000/- AND IN COMPUTING TOTAL BUSINESS INCOME AT RS. 41,67,451/- AS AGAINST RS. 2 5,42,865/- DECLARED BY THE ASSESSEE APPELLANT, IN TURN MAKING TOTAL ADDITION OF RS. 16,24,586/- AGAINST THE ASSESSEE APPELLANT. 2. THAT ON THE FACTS, IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. LOWER AUTHORITIES GROSSLY ERRED IN TREATING THE INTEREST EARNED ON FIXED DEPOSIT RECEIPTS AS INCOME CHARGEAB LE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND IN NOT ALLOWING THE SET-OFF AGAINST INTEREST PAID BY THE ASSESSEE A PPELLANT TO THE BANK, EVEN WHEN LIMITS WERE AVAILED FROM THE BANK A GAINST THE FDRS PLEDGED WITH THE BANK. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY OR AMEND ANY GROUND ON OR BEFORE THE DATE OF HEARING. GROUND NO. 1 IS REGARDING REJECTION OF BOOKS OF ACC OUNT UNDER SECTION 145(3) OF THE IT ACT. 2. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASS ESSEE HAS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS THIS GROUND OF APPEAL A ND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. D/R HAS RAISED N O OBJECTION IF THE ASSESSEES GROUND NO. 1 IS DISMISSED AS NOT PRESSED. ACCORDING LY, THE GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. GROUND NO. 1.1 AND 1.2 ARE REGARDING ESTIMATION OF INCOME BY THE AO BY APPLYING 8% NP RATE AND ENHANCEMENT MADE BY T HE LD. CIT (A) BY APPLYING 11% NP RATE ON GROSS RECEIPTS. 3 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. 3. THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF CONTRACT OF LABOUR SUPPLY, CIVIL CONTRACT, MECHANICAL AND ELECT RICAL CONTRACT. THE ASSESSEE IS CARRYING ON BUSINESS UNDER THE NAME AND STYLE OF M/ S. H.D. KUTTY & SONS (ENGINEERS & CONTRACTORS) FOR THE LAST SEVERAL YEARS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS GOT EXECUTED VARIOUS CONTRACTS AWARDED BY KOTA THERMAL POWER, RAAP RAWATBHATA, CHANDERIYA NEAR UDAIPUR, ABUCHA DISTT. BHILWARA, ALL IN THE STATE OF RAJASTHAN, BHAV NAGAR IN THE STATE OF GUJARAT AND T ARAPUR BOISAL IN THE STATE OF MAHARASTRA WITH A TOTAL TURNOVER OF RS. 5,45,19,491 /-. THE ASSESSEE FILED HIS RETURN OF INCOME ON 30.09.2009 DECLARING TOTAL INCOME OF R S. 24,43,450/-. DURING THE SCRUTINY ASSESSMENT, ON EXAMINATION OF BOOKS OF ACC OUNT, THE AO FOUND VARIOUS DEFICIENCIES/DISCREPANCIES AND CONSEQUENTLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE IT ACT WHEREBY THE BOOK RESULT OF THE ASSESS EE WAS REJECTED BY THE AO. THE AO THEN ESTIMATED THE INCOME OF THE ASSESSEE BY ADO PTING NP AT 8% OF THE GROSS RECEIPTS AND THEREBY AN ADDITION OF RS. 16,24,586/- WAS MADE. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A). THE LD. CIT (A) UPHELD THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE IT ACT AND FURTHER DOUBTED THE SUB-CONTRACT PAYMENT MADE BY THE ASSESSEE TO TH E SUB-CONTRACTORS. THE LD. CIT (A) HAS UNDERTAKEN THE EXERCISE TO EXAMINE THE SUB- CONTRACTORS AND GOT RECORDED THEIR STATEMENTS. SINCE THERE WERE DISCREPANCIES I N THE STATEMENTS VIS--VIS THE RECEIPTS SHOWN IN THE BOOKS OF ACCOUNT OF THE SUB-C ONTRACTORS AS WELL AS THE PAYMENT CLAIMED BY THE ASSESSEE TO THESE SUB-CONTRA CTORS, THE LD. CIT (A) HELD THAT THE PAYMENT TO SUB-CONTRACTORS IS BOGUS AND ACCORDI NGLY PROPOSED TO ENHANCE THE ASSESSMENT BY ISSUING A SHOW CAUSE NOTICE UNDER SEC TION 251(2) OF THE IT ACT. THE 4 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. LD. CIT (A) ESTIMATED THE INCOME OF THE ASSESSEE BY ADOPTING NP RATE OF 11% AND CONSEQUENTLY THE INCOME OF THE ASSESSEE WAS ENHANCE D BY RS. 19,29,108/-. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE SUFFERED A PARALYT IC ATTACK AND HIS HALF BODY GOT PARALYZED. THE ASSESSEE WAS UNDERGOING TREATMENT I N KERALA AND, THEREFORE, WAS NOT ABLE TO LOOK AFTER THE MATTER PERSONALLY DURING THE ASSESSMENT PROCEEDINGS AS WELL AS IN THE APPELLATE PROCEEDINGS. THUS THE LD. A/R HAS SUBMITTED THAT THE NON- COMPLIANCE OR DEFICIENCIES AS POINTED OUT BY THE A. O. AND LD. CIT (A) ARE ONLY DUE TO THE REASON THAT IT WAS NOT POSSIBLE FOR THE ASSESSE E TO LOOK AFTER AND TAKE APPROPRIATE STEPS IN THIS RESPECT AS HE WAS SUFFERI NG FROM HEALTH PROBLEM AND UNDERGOING TREATMENT IN KERALA. HOWEVER, THE LD. C OUNSEL HAS SUBMITTED THAT EVEN IF THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE REJECTE D BY INVOKING THE PROVISIONS OF SECTION 145(3), THE ESTIMATION OF INCOME BY THE AO AS WELL AS BY THE LD. CIT (APPEALS) IS NOT BASED ON SOME REASONABLE AND PROPE R CRITERIA BEING THE PAST HISTORY OF THE ASSESSEE AS WELL AS THE PREVAILING PROFIT IN THE COMPARABLE AND IDENTICAL BUSINESS ACTIVITIES. THE LD. COUNSEL FOR THE ASSES SEE HAS REFERRED TO THE COMPARATIVE DETAILS OF NET PROFIT CHARGED OF THE ASSESSEE FOR T HE PRECEDING THREE YEARS AND THE CURRENT YEAR AND SUBMITTED THAT THE NET PROFIT DECL ARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS IN LINE WITH THE PAST HISTOR Y OF THE ASSESSEE AND RATHER IT IS HIGHER THAN THE IMMEDIATE PRECEDING YEAR. HE HAS PO INTED OUT THAT THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION BEFORE THE TAX, INTERE ST AND DEPRECIATION AS DECLARED BY THE ASSESSEE IS 5.38% IN COMPARISON TO 3.12% IN THE IMMEDIATE PRECEDING YEAR AND THIS IS ALSO IN LINE WITH THE AVERAGE OF THE PRECED ING YEARS BEING ASSESSMENT YEARS 5 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. 2006-07, 07-08 AND 08-09. THUS THE LD. COUNSEL HAS SUBMITTED THAT EVEN IF THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED UNDE R SECTION 145(3), THE SAME WOULD NOT IPSO FACTO LEAD TO ANY TRADING ADDITION I F THE PROFIT DECLARED BY THE ASSESSEE IS IN LINE WITH THE PAST HISTORY OF THE AS SESSEE. HE HAS FURTHER CONTENDED THAT ONCE THE ASSESSMENT IS FRAMED BASED ON THE EST IMATION OF INCOME UNDER SECTION 144 OF THE IT ACT READ WITH SECTION 145(3), THEN TH E ENHANCEMENT BY THE LD. CIT (A) BASED ON DISALLOWANCE OF SOME EXPENDITURE IS UNWARR ANTED AS THE ENTIRE EXPENDITURE SUBSUMED IN THE PROCESS OF ESTIMATION OF THE INCOME BY ADOPTING THE NET PROFIT. THEREFORE, THE BASIS OF ENHANCEMENT ITSELF IS NOT P ROPER AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145(3) OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH CO URT IN CASE OF CIT VS. DR. A.P. BAHAL, 322 ITR 71 (RAJ.) AND SUBMITTED THAT THE HON BLE HIGH COURT HAS HELD THAT THE MERE REJECTION OF BOOKS OF ACCOUNT WOULD NOT ME AN THAT IT MUST NECESSARILY LEAD TO ADDITION TO THE RETURNED INCOME. HE HAS THEN REL IED UPON THE DECISION IN CASE OF CIT VS. GUPTA K.N. CONSTRUCTION CO., 59 TAXMANN.COM 293 AND SUBMITTED THAT AFTER REJECTION OF BOOKS OF ACCOUNT THE AO HAS TO CONSIDE R EITHER THE PAST HISTORY OF THE ASSESSEE OR HISTORY OF SIMILARLY SITUATED OTHER BUS INESSMEN/TRADERS. THUS IN VIEW OF THE FACT THAT THE ASSESSEES OWN PAST HISTORY IS AV AILABLE AND THE NET PROFIT DECLARED BY THE ASSESSEE IS IN LINE WITH THE AVERAGE OF THE PAST HISTORY, THEN NO ADDITION IS CALLED FOR. THE LD. COUNSEL HAS THEN RELIED UPON T HE DECISION IN CASE OF CIT VS. GARMENT CRAFTS, 68 TAXMANN.COM 222 (RAJ.) AS WELL A S THE DECISION IN CASE OF CIT VS. ASHOK BEHI BHARAT SETHI & PARTY, 35 TAXMANN.COM 214 AND SUBMITTED THAT THE HONBLE HIGH COURT HAS TAKEN A CONSISTENT VIEW THAT THE PAST HISTORY OF THE ASSESSEE 6 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. IS A PROPER AND REASONABLE BASIS FOR ESTIMATION OF INCOME. HE HAS ALSO RELIED UPON THE FOLLOWING DECISIONS :- CIT VS. JAIMAL RAM KASTURI, 33 TAXMANN.COM 315 (RAJ.) CIT VS. INANI MARBLES PVT. LTD. 175 TAXMAN 56 (RAJ.) THUS THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ADDITION MADE BY THE AO AS WELL AS ENHANCED BY THE LD. CIT (A) IS WITHOU T ANY BASIS, THE SAME DESERVES TO BE DELETED. 5. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE AO HAS POINTED OUT SPECIFIC DEFICIENCY IN THE BOOKS OF ACCOUNT AND, TH EREFORE, BY TAKING GUIDANCE OF SECTION 44AD THE AO HAS APPLIED 8% NP TO ESTIMATE T HE INCOME OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THE LD. CIT (A) HAS UNDE RTAKEN THE EXERCISE TO VERIFY THE GENUINENESS OF THE SUB-CONTRACT PAYMENT BY THE ASSE SSEE AND DURING THE ENQUIRY, THE STATEMENTS OF SUB-CONTRACTORS WERE RECORDED WHE REIN IT WAS FOUND THAT THE CLAIM OF THE ASSESSEE WAS NOT GENUINE AND THE SAME WAS TR EATED AS BOGUS. THEREFORE, THERE WAS MATERIAL WITH THE LD. CIT (A) TO ENHANCE THE ASSESSMENT BY CONSIDERING THE FACT THAT THE CLAIM OF SUB-CONTRACT PAYMENT IS NOT GENUINE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS CAREFULLY PERUSED THE RELEVANT RECORD INCLUDING THE ORDERS OF THE AO AS W ELL AS THE LD. CIT (A). THE DISPUTE IS LIMITED ON THE POINT OF ESTIMATION OF INCOME OF THE ASSESSEE AFTER REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT. IT IS SETTLED POSITION OF LAW THAT ONCE THE AO INVOKED THE PROVISIONS OF SECTION 145(3 ) AND REJECTED THE BOOKS OF 7 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. ACCOUNT OF THE ASSESSEE, THEN THE ONLY COURSE OF AC TION TO ASSESS THE INCOME OF THE ASSESSEE IS ON THE BASIS OF ESTIMATION AND BEST JUD GMENT AS PER THE PROVISIONS OF SECTION 144 OF THE IT ACT. THE ESTIMATION OF INCOM E ON THE BEST JUDGMENT SHOULD NOT BE ON SOME ARBITRARY BASIS BUT IT HAS TO BE A D ECISION BASED ON THE RELEVANT FACTS, PROPER AND REASONABLE CRITERIA TO JUSTIFY TH E ESTIMATION OF INCOME. IT IS ALSO SETTLED POSITION OF LAW AS HELD BY THE HONBLE JURI SDICTIONAL HIGH COURT IN A SERIES OF DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE AS SESSEE THAT AFTER INVOKING THE PROVISIONS OF SECTION 145(3), THE AO HAS TO CONSIDE R EITHER THE PAST HISTORY OF THE ASSESSEE OR THE HISTORY OF SIMILARLY SITUATED BUSIN ESSMEN/TRADERS. THUS THE PAST HISTORY OF THE ASSESSEE WHICH HAS ATTAINED THE FINA LITY OR WAS NOT IN DISPUTE HAS TO BE PREFERRED OVER THE PROFIT OF THE COMPARABLE CASE S. IN CASE OF CIT VS. ASHOK BEHI BHARAT SETHI & PARTY (SUPRA), THE HONBLE HIGH COUR T HAS SPECIFICALLY OBSERVED THAT THE AO IN MAKING THE ASSESSMENT WITH REFERENCE TO T HE CASE OF ANOTHER ASSESSEE BUT IF IT IS NOT A DIRECTLY COMPARABLE CASE THEN IT IS NOT A SAFE GUIDE MORE PARTICULARLY WHEN THE ASSESSEES PAST HISTORY WAS AVAILABLE. IN THE CASE IN HAND, THE ASSESSEE IS IN THE SAME BUSINESS AND DOING THE SAME CONTRACT WO RK FOR VARIOUS CORPORATE HOUSES RATHER BIG AND REPUTED CORPORATE HOUSES. THEREFORE , THE ASSESSEES CONTRACT WORK IS NOT ONLY AUDITED BY THE AUDITORS BUT IT IS ALSO CER TIFIED BY THE OTHER COMPANIES INCLUDING SOME FUTURE COMPANIES BEFORE MAKING THE P AYMENT TO THE ASSESSEE. WHEN THE FACTS PERTAINING TO THE ASSESSMENT YEAR UN DER CONSIDERATION ARE NOT DIFFERENT FROM THE PRECEDING YEARS AS FAR AS THE BU SINESS ACTIVITIES OF THE ASSESSEE ARE CONCERNED, THEN THE ASSESSEES OWN PAST HISTORY SHOULD BE THE PROPER BASIS FOR ESTIMATION OF INCOME FOR THE YEAR UNDER CONSIDERATI ON. IN THE CASE OF CIT VS. INANI 8 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. MARBLES PVT. LTD. (SUPRA), THE HONBLE HIGH COURT W HILE DEALING WITH THIS ISSUE HAS HELD PARA 3 AS UNDER :- 3. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES, AND HAVE GONE THROUGH THE IMPUGNED JUDGMENTS. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT FOR VALID REASONS, AND INVOKED PROVISIONS OF SECTION 14 5 OF THE INCOME-TAX ACT, AND MADE ASSESSMENT BY APPLYING GROSS PROFIT RATE O F 15 PER CENT ON THE SALES DISCLOSED BY THE ASSESSEE, AND ACCORDINGLY ADDITION S WERE MADE TO THE DIFFERENT RESULT. THIS MATTER RELATES TO ASSESSMENT YEAR 2000-01. THE ASSESSING OFFICER FOR ARRIVING AT THIS CONCLUSION CONSIDERED THAT THE ASSESSEE HAD DISCLOSED GROSS PROFIT RATE OF 2.30 PER CENT AS COM PARED TO 2.51 PER CENT IN 1999-2000, AND 16.04 PER CENT IN ASSESSMENT YEAR 19 98-99. AGAINST THAT ORDER THE ASSESSEE FILED APPEAL, AND THE LEARNED COMMISSI ONER UPHELD THE INVOKING OF SECTION 145, AND EXAMINED THE ASPECT OF GROSS PR OFIT RATE TO BE APPLIED AND CONSIDERED THAT GROSS PROFIT RATE DECLARED BY THE A SSESSEE DURING THE YEAR IS FAR LESS THAN THE G.P.RATE (GROSS PROFIT RATE) SHOWN BY THE OTHER ASSESSEES WHO ARE IN THE SAME LINE OF BUSINESS, AND APPLIED THE G.P. RATE AT 14.5 PER CENT. AGAINST THIS THE ASSESSEE FILED APPEAL BEING APPEAL NO. 448 OF 2004, AND THE REVENUE ALSO FILED APPEAL BEING APPEAL NO. 464 OF 2 004. THE LEARNED TRIBUNAL NEGATIVED THE CONTENTION OF THE ASSESSEE ABOUT CHAL LENGE TO INVOKING THE PROVISIONS OF SECTION 145. THEN, THE ASPECT OF GROS S PROFIT RATE TO BE APPLIED WAS CONSIDERED IN PARA 4 AND IT WAS FOUND THAT THE ASSESSING OFFICER CONSIDERED CERTAIN CASES AS COMPARABLE APPLIED G.P. RATE OF 15 PER CENT WHICH WAS REDUCED IN APPEAL TO 14.5 PER CENT BUT THEN IT WAS CONSIDERED THAT THE ASSESSING OFFICER DOES NOT GET UNFETTERED POWERS TO APPLY ANY G.P. RATE OF HIS CHOICE, AND HE IS SUPPOSED TO BE GUIDED EITHER BY T HE G.P. RATE DECLARED BY THE ASSESSEE OR THE PROFIT RATES DECLARED BY THE COMPAR ABLE CASES. THEN, IT WAS CONSIDERED THAT IN RESORTING TO THE APPLICATION OF GROSS PROFIT RATE ON THE BASIS OF COMPARABLE CASES, IT IS NECESSARY THAT THOSE CAS ES, SHOULD BE, IN FACT, COMPARABLE WITH REFERENCE TO THE VOLUME OF BUSINESS , LOCATION AND OTHER HOST OF FACTORS, AND IT WAS FOUND THAT THE OBJECTIONS RA ISED BY THE ASSESSEE WERE NOT HOWEVER DEALT WITH, AND THEREFORE, IN THE ABSENCE O F ANY CHANGE IN THE FACTUAL POSITION NORMALLY THE PROFIT RATE DECLARED AND ACCE PTED IN THE PRECEDING YEAR, CONSTITUTES A GOOD BASIS FOR WORKING OUT THE GROSS PROFIT. ACCORDINGLY SINCE IN THE EARLIER YEAR THE GROSS PROFIT RATE DECLARED AND ACCEPTED WAS 2.51 PER CENT, THE SAME RATE SHOULD BE APPLIED BY THE LEARNED TRIB UNAL FOR THIS YEAR ALSO. THEREFORE, IGNORING THE PAST HISTORY OF THE ASSESSE E ADOPTING PROFIT RATE BY THE AO WITHOUT ANY PROPER BASIS IS NOT PERMITTED. FURTHER, ONCE THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE REJECTED BY INVOKING THE PROVISIONS OF SECTION 145(3) AND THE SAID ACTION OF THE AO WAS UPHELD BY THE LD. CIT (A) THEN DOUBTING SOME OF THE 9 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. EXPENDITURES AS DEBTED IN THE PROFIT & LOSS ACCOUNT BY THE LD.CIT(A) WOULD NOT AFFECT THE ASSESSMENT WHICH IS BASED ON ESTIMATION. THE LD . CIT (A) HAS THOUGH TOOK THE PAIN TO EXAMINE THE GENUINENESS OF THE CLAIM AND IN THAT PROCESS THE STATEMENTS OF THE SUB-CONTRACTORS WERE RECORDED. ON CAREFUL PERUS AL OF THE STATEMENTS RECORDED OF THE SUB-CONTRACTORS AS WELL AS THE OTHER RELEVAN T MATERIAL, IT IS NOTED THAT THERE WERE SOME DISCREPANCIES REGARDING THE QUANTUM OF SU B-CONTRACT RECEIPTS BY THESE SUB-CONTRACTORS FROM THE ASSESSEE AS RECORDED IN TH E BOOKS OF ACCOUNT AND STATED IN THEIR STATEMENTS AS WELL AS THE PAYMENTS TO THESE S UB-CONTRACTORS CLAIMED BY THE ASSESSEE. THEREFORE, OWING TO THESE DISCREPANCIES AND INCONSISTENCIES, THE LD. CIT (APPEALS) HAS HELD THAT THE CLAIM OF PAYMENT TO SUB -CONTRACTOR IS BOGUS. HOWEVER, THIS FINDING OF THE LD. CIT (A) IS ALSO INCONSISTEN T WITH THE FACT THAT THE EXECUTION OF THE PARTICULAR WORK FOR WHICH THE SUB CONTRACT PAYM ENTS WERE MADE BY THE ASSESSEE IS NOT IN DISPUTE AND THE REVENUE GENERATED BY THE ASSESSEE FROM EXECUTION OF THE SAID WORK IS ALSO NOT IN DISPUTE. THEREFORE, EVEN IF THERE IS A DISCREPANCY IN THE AMOUNTS OF THE SUB-CONTRACT PAYMENT, IT IS INEVITAB LE THAT THE ASSESSEE HAS TO INCUR THE EXPENDITURE FOR EXECUTION OF A PARTICULAR CONTR ACT WORK. THEREFORE, EVEN IF THE CLAIM OF SUB-CONTRACT WORK IS FOUND TO BE NOT CORRE CT, THE INCOME OF THE ASSESSEE HAS TO BE ESTIMATED ON THE BASIS OF TURNOVER AND NO T ON THE BASIS OF COST IN EXECUTION OF THE CONTRACT WORK. THEREFORE, THE ENT IRE EXERCISE OF THE LD. CIT (A) IN EXAMINATION OF THE CORRECTNESS AND GENUINENESS OF T HE SUB-CONTRACT PAYMENT IS FUTILE AND IS IRRELEVANT WHEN THE FINAL INCOME OF T HE ASSESSEE HAS BEEN ASSESSED ON THE BASIS OF ESTIMATION AS NET PROFIT RATE ON THE T URNOVER. HENCE THE SAID ENHANCEMENT MADE BY THE LD. CIT (A) IS COMPLETELY U NWARRANTED AND UNJUSTIFIED APART FROM INCONSISTENT WITH THE PROVISIONS OF SECT ION 144 OF THE ACT AS WELL AS THE 10 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. SETTLED LEGAL PROPOSITION LAYING DOWN THE GUIDANCE FOR ESTIMATION OF INCOME AFTER REJECTION OF BOOKS OF ACCOUNT. THE COMPARATIVE GP AND NP FOR THE PRECEDING YEARS AS WELL AS THE CURRENT YEAR IS AS UNDER :- PARTICULARS A.Y. 2006 - 07 A.Y. 2007 - 08 A.Y. 2008 - 09 A.Y. 2009 - 10 SALES 12954632 39300143 81181008 54519491 GROSS PROFIT 1910954 4214550 6348373 3821740 GP RATIO 14.75 10.72 7.82 7.01 NET PROFIT BEFORE TAX 667098 2200404 1881506 2542865 NP RATIO BEFORE TAX 5.15 5.60 2.32 4.66 INTEREST 25763 20900 410930 141528 DEPRECIATION CHARGED 101560 169500 241837 246355 NET PROFIT BEFORE TAX, INTEREST & DEPRECIATION 794421 2390804 2534273 2930748 NP RATIO BEFORE TAX, INTEREST & DEPRECIATION 6.13 6.08 3.12 5.38 THE AO HAS ADOPTED THE NET PROFIT RATE AS ESTIMATIO N OF THE INCOME. SIMILARLY THE LD. CIT (A) HAS ALSO APPLIED THE NET PROFIT THOUGH AT A HIGHER PERCENTAGE FOR ESTIMATION OF INCOME, THEREFORE, EVEN IF CONSIDERING NET PROFI T FOR THE PURPOSE OF ESTIMATION OF THE INCOME, THE AVERAGE OF PAST HISTORY OF TH E ASSESSEE HAS TO BE THE PROPER AND REASONABLE BASIS. THE AVERAGE OF THE PRECE DING THREE YEARS 2006-07 TO 2008-09 OF NET PROFIT BEFORE TAX, INTEREST AND DEPR ECIATION COMES TO 5.11% IN COMPARISON TO THE CURRENT YEARS NET PROFIT DECLARE D BY THE ASSESSEE AT 5.38%. THEREFORE, THE NET PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS IN LINE WITH THE PAST HISTORY OF THE ASSESSEE AND C ONSEQUENTLY EVEN AFTER THE REJECTION OF BOOKS OF ACCOUNT NO TRADING ADDITION I S WARRANTED IN THE CASE OF THE ASSESSEE. 11 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. 6.1. THERE IS ANOTHER POINT INVOLVED IN THIS MATTER REGARDING THE CLOSING STOCK SHOWN BY THE ASSESSEE AT RS. 5,00,000/- REGARDING T HE CONTRACT AMOUNT WHICH WAS NOT CERTIFIED BY ONE OF THE COMPANIES, NAMELY, M.C. NALLY BHARAT ENGINEERING CO. LTD. AND CONSEQUENTLY THE ASSESSEE HAS SHOWN THE SA ME IN THE CLOSING STOCK INSTEAD OF RECOGNIZING THE SAME AS SALES FOR THE YEAR UNDER CONSIDERATION. THIS IS ONLY A METHOD OF ACCOUNTING AND IF THE ASSESSEE HAS BEEN F OLLOWING A CONSISTENT METHOD OF ACCOUNTING FOR RECOGNIZING THE REVENUE/SALES SUBJEC T TO THE CERTIFICATION OF THE WORK BY THE AWARDER COMPANY, THEN IT SHALL HAVE NO REVEN UE EFFECT AS THE SAME WILL BE SHOWN AS SALES IN THE SUBSEQUENT YEAR. THE ASSESSE E HAS ALSO CLAIMED THAT THIS AMOUNT OF RS. 5,00,000/- SHOWN IN THE CLOSING STOCK HAS BEEN OFFERED AS PART OF THE INCOME OF THE SUBSEQUENT YEAR AND, THEREFORE, IF AN ADDITION IS MADE IN RESPECT OF THE SAID AMOUNT FOR THE YEAR UNDER CONSIDERATION, I T WOULD BE DOUBLE TAXATION. SINCE THIS IS A METHOD OF ACCOUNTING CONSISTENTLY FOLLOWE D BY THE ASSESSEE AND HAVING NO REVENUE IMPACT, THEN CONSIDERING THE SAID AMOUNT AS PART OF SALE IS NOT JUSTIFIED. ACCORDINGLY, THE ADDITION MADE BY THE AO AND ENHANC EMENT MADE BY THE LD. CIT (A) ARE DELETED. GROUND NO. 2 IS REGARDING THE INTEREST ON THE FIXED DEPOSITS WAS TREATED AS INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF BUSINESS INCOME . 7. I HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD . COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE INTEREST EARNED ON THE FDRS TA KEN FOR THE PURPOSE OF CONTRACTS AND, THEREFORE, THE SAID INTEREST INCOME IS BUSINES S INCOME OF THE ASSESSEE. HE HAS FURTHER POINTED OUT THAT THIS INCOME OF INTEREST WA S ALREADY OFFERED BY THE ASSESSEE 12 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. AS PART OF THE PROFIT & LOSS ACCOUNT AND MAKING AN ADDITION OF THE SAID AMOUNT UNDER THE HEAD INCOME FROM OTHER SOURCES WITHOUT RE DUCING THE SAME FROM THE BUSINESS INCOME WILL AMOUNT TO DOUBLE TAXATION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS :- KISHAN KUMAR SARAIWALA VS. CIT (DB IT APPEAL NO. 325/2011 DATED 29.08.2017) MOHD. CONSTRUCTION CO. VS. ACIT (ITA NO. 389/JP/2012 DATED 25.04.2017) CHOUDHARY & BROTHERS VS. DCIT (DB IT APPEAL NO. 355/2017 DATED 31.08.2018) 8. THE LD. D/R HAS RELIED UPON THE ORDERS OF THE AU THORITIES BELOW. 9. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, IT IS NOTED THAT THE REVENUE HAS NOT DISPUT ED THE FACT THAT THE FDRS TAKEN BY THE ASSESSEE ARE FOR THE PURPOSE OF FURNISHING THE SECURITY/GUARANTEE TO THE COMPANIES THOSE HAVE AWARDED THE CONTRACT TO THE AS SESSEE. THEREFORE, THESE FDRS WERE FURNISHED AS A PERFORMANCE GUARANTEE BY THE AS SESSEE. ONCE THE FDRS IN QUESTION WERE OBTAINED FOR THE PURPOSE OF FURNISHIN G THE PERFORMANCE GUARANTEE FOR TAKING THE CONTRACTS, THEN THE INTEREST ON SUCH FDR S HAS A DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND CONSEQUENTLY THE SAME HAS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THE HONBLE JURIS DICTIONAL HIGH COURT IN CASE OF CHOUDHARY & BROTHERS VS. DCIT (SUPRA) HAS HELD AS U NDER :- THIS COURT IN M/S. BHAWAL SYNTHETICS, SUPRA WHERE T HE AMOUNT IN THE FDR WAS KEPT FOR OBTAINING LETTER OF CREDIT FOR PURCHASE OF MACH INERY HAS INDEED NOT NOTICED THE JUDGMENT OF THE SUPREME COURT IN KARNAL COOPERATIVE SUGAR MILLS LTD, SUPRA. IN THAT ALSO, MONEY IN FDR WAS PART OF THE AMOUNT THAT WAS KEPT TO OBTAIN LATER OF CREDIT FOR PURCHASE OF MACHINERY. FACTS WERE THUS IDENTICAL. T HE JUDGEMENT OF THE SUPREME COURT IN KARNAL COOPERATIVE SUGAR MILLS LTD., SUPRA THUS PROVIDES GUIDANCE ON THE 13 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. POINT OF LAW INVOLVED IN THIS CASE. IT WAS HELD THE REIN THAT INCOME EARNED WOULD FALL IN THE CATEGORY OF INCOME FROM OTHER SOURCES, BUT MAY COME IN THE CATEGORY OF INCOME EARNED FROM BUSINESS. THE SUPREME COURT IN THE AFOR ESAID CASE HAS CONSIDERED THE JUDGEMENT IN TUTICORN ALKALI CHEMICALS AND FERTILIZ ERS LTD., SUPRA AND HELD THUS: 'IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MO NEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED F OR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER . IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAS BEEN EARNED. THIS IS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH IS LYIN G IDLE HAS BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING IN TEREST. THE DEPOSIT OF MONEY IN THE PRESENT CASE IS DIRECTLY LINKED WITH T HE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCIDENTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLA NT AND MACHINERY. IN THIS VIEW OF THE MATTER THE RATIO LAID DOWN BY THIS COUR T IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED V. CIT - (1997( 227 ITR 172 , WILL NOT BE ATTRACTED. THE MORE APPROPRIATE DECISION IN THE FAC TUAL SITUATION IN THE PRESENT (8 OF 12) [ITA-355/2017] CASE IS IN CIT V. BOKARO STEEL LTD .-(1999) 236 ITR 315 (SC). THE APPEAL IS DISMISSED. THERE WI LL BE NO ORDER AS TO COSTS.' THE DELHI HIGH COURT IN JAYPEE DSC VENTURES LTD., S UPRA WAS DEALING WITH A CASE WHERE THE ASSESSEE FILED ITS RETURN OF INCOME FOR T HE RELEVANT ASSESSMENT YEAR DECLARING NIL INCOME. IT HAD FURNISHED PERFORMANCE GUARANTEE IN FAVOUR OF NATIONAL HIGHWAY AUTHORITY OF INDIA TO GET THE CONTRACT AWAR DED IN ITS FAVOUR AND TO PROCURE THE SAID GUARANTEE, IT HAD KEPT THE AMOUNT IN A FIX ED DEPOSIT IN THE BANK. THE AMOUNT OF INTEREST INCOME FROM FIXED DEPOSITS WAS SET OFF AGAINST THE PROJECT EXPENSES. THE CASE OF THE ASSESSEE WAS THAT THE FURNISHING OF BAN K GUARANTEE HAD A DIRECT NEXUS WITH THE CARRYING ON OF THE PROJECT AND, THEREFORE, THE SAID SET OFF DESERVES TO BE ALLOWED. THE ASSESSING OFFICER HELD THAT INTEREST RECEIVED B Y THE COMPANY ON THE BANK DEPOSIT WAS TAXABLE AS INCOME UNDER THE HEAD `INCOME FROM O THER SOURCES'. ACCORDING TO THE ASSESSING OFFICER, PROJECT EXPENSES DID NOT HAVE EV EN REMOTE PROXIMITY WITH THE EARNING OF INTEREST AND THUS THE SAME COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE INTEREST INCOME. ON SECOND APPEAL, THE ITAT ALLOWED THE ASSESSEE'S CLAIM. THE REVENUE APPROACHED THE HIGH COURT. THE HIGH COURT O N CONSIDERATION OF THE NUMBER OF PRECEDENTS INCLUDING THE TUTICORIN ALKALI CHEMIC ALS & FERTILIZERS, SUPRA DISMISSED THE APPEAL HOLDING THUS:- '21. KEEPING IN VIEW THE AFORESAID PRONOUNCEMENTS I N THE FIELD, THE PRESENT CONTROVERSY IS TO BE ADJUDGED. AS IS NOTICEABLE FRO M THE STIPULATIONS IN THE AGREEMENT, THE PERFORMANCE GUARANTEE BY WAY OF BANK GUARANTEE WAS REQUIRED FOR FAITHFUL PERFORMANCE OF ITS OBLIGATION S. THE NON-SUBMISSION OF THE GUARANTEE WOULD HAVE ENTAILED IN TERMINATION OF THE AGREEMENT AND NHAI WOULD HAVE BEEN AT LIBERTY TO APPROPRIATE BID SECURITY. THAT APART, THE (9 OF 12) [ITA-355/2017] RELEASE OF SUCH PERFORMANC E SECURITY DEPENDED UPON CERTAIN CONDITIONS. THUS, IT IS CLEARLY EVINCI BLE THAT THE BANK GUARANTEE WAS FURNISHED AS A CONDITION PRECEDENT TO ENTERING THE CONTRACT AND FURTHER IT WAS TO BE KEPT ALIVE TO FULFILL THE OBLIGATIONS. QUITE APART FROM THE ABOVE, THE RELEASE OF THE SAME WAS DEPENDENT ON THE SATISF ACTION OF CERTAIN 14 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. CONDITIONS. THUS, THE PRESENT CASE IS NOT ONE WHERE THE ASSESSEE HAD MADE THE DEPOSIT OF SURPLUS MONEY LYING IDLE WITH IT IN ORDER TO EARN INTEREST; ON THE CONTRARY, THE AMOUNT OF INTEREST WAS EARNED FRO M FIXED DEPOSITS WHICH WAS KEPT IN THE BANK FOR FURNISHING THE BANK GUARAN TEE. IT HAD AN INEXTRICABLE NEXUS WITH SECURING THE CONTRACT. THER EFORE, WE ARE DISPOSED TO THINK THAT THE FACTUAL MATRIX IS COVERED BY THE DEC ISIONS RENDERED IN BOKARO STEEL LTD. (SUPRA), KARNAL CO-OPERATIVE SUGAR MILLS LTD. (SUPRA) AND KOSHIKA TELECOM LTD. (SUPRA) AND, ACCORDINGLY, WE HOLD THAT THE VIEW EXPRESSED BY THE TRIBUNAL CANNOT BE FOUND FAULT WITH.' ANOTHER JUDGMENT ON THE SIMILAR FACTS IS OF MADHYA PRADESH HIGH COURT IN BHARAT OMAN REFINERIES LTD., SUPRA. THAT WAS A CASE IN WHI CH ASSESSEE-COMPANY FILED NIL RETURN AND ALONG WITH THE RETURN, STATEMENT OF INCO ME AND EXPENDITURE WAS FILED. IN THIS STATEMENT, INCOME FROM INTEREST ON ACCOUNT OF SHORT-TERM DEPOSIT WITH THE BANK WAS INDICATED. THE ASSESSING OFFICER MADE ASSESSMEN T AND TREATED THE SAID SUM AS INCOME FROM `OTHER SOURCES'. THE ASSESSEE CHALLENGE D THE SAID ASSESSMENT POINTING OUT THAT INTEREST INCOME COULD NOT BE ADDED UNDER T HE HEAD `INCOME FROM OTHER SOURCES'. ON APPEAL, BOTH THE COMMISSIONER (APPEALS ) AND THE TRIBUNAL UPHELD THE ORDER OF ASSESSING OFFICER. THE HIGH COURT HOWEVER HELD THAT THE APPELLANT HAS NOT EARNED INTEREST ON THE MONEY LYING IDLE WITH HIM FO R RUNNING INDUSTRY. ON THE CONTRARY BY VIRTUE OF TERMS AND CONDITIONS OF THE C ONTRACT (10 OF 12) [ITA-355/2017] PETITIONER WAS TO SUBMIT A PERFORMANCE GUARANTEE AN D FOR THAT PURPOSE, HE HAD TO DEPOSIT CERTAIN FUNDS WITH THE BANK AS MARGIN MONEY AND IT IS ON THIS MARGIN MONEY THE INTEREST WAS EARNED IN THE LIGHT OF THE NATURE OF DEPOSIT MADE AND THE SOURCE FORM WHICH THE INTEREST WAS RECEIVED. WE MAY IN THIS CONNECTION ALSO REFER TO THE JUDGEME NT OF THE KARNATAKA HIGH COURT IN CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS -(2008) 297 ITR 70 (KARN). THAT WAS A CASE SOMEWHAT SIMILAR ON FACTS WHERE THE ASSESSEE B EING A CONTRACTOR, IN ORDER TO SECURE A CONTRACT WORK WAS REQUIRED TO OFFER A BANK GUARANTEE TO THE CONTRACTEE. THERE ALSO THE ASSESSEE HAD SHOWN THE INTEREST ACCRUED ON THE FIXED DEPOSIT AS BUSINESS INCOME BUT THE ASSESSING OFFICER TREATED THE INTERE ST AS 'INCOME FROM 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 T O THE CONTRACTEE IN ORDER TO ACQUIRE THE CONTRACT WORK. IT WAS HELD THAT THE INTEREST IN COME COULD NOT BE TREATED AS INCOME FROM OTHER SOURCES AND HAD TO BE TREATED AS BUSINES S INCOME ONLY. KARNATAKA HIGH COURT IN THAT CASE RELIED UPON JUDGEMENT OF THE SUP REME COURT IN THE SUPREME COURT IN CIT VS. GOVINDA CHOUDHARY AND SONS -(1993) 203 ITR 881. THE AFORESAID JUDGEMENT OF THE KARNATAKA HIGH COURT WAS FOLLOWED BY PATNA HIGH COURT IN SHYAM BIHARI VS. COMMISSIONER OF INCOME TAX & ANR .-(2012) 345 ITR 283. THAT WAS ALSO A CASE WHERE THE ASSESSEE WAS A CIVIL CONTRACTOR AND HIS BUSINESS INCOME WAS FROM THE CONTRACT WORK OBTAINED FROM GOV ERNMENT DEPARTMENTS. THE ASSESSEE OBJECTED BEFORE THE TRIBUNAL THAT THE INCL USION OF INTEREST INCOME BEING ASSESSED AS 'INCOME FROM OTHER SOURCES' ON THE GROU ND THAT THE INCOME WAS FROM MONEY (11 OF 12) [ITA-355/2017] DEPOSITED IN FDRS A ND NSCS, WHICH WAS REQUIRED TO BE FURNISHED BY WAY OF SECURITY FOR SECURING THE CONTRACT WORK AND, THEREFORE, IT SHOULD HAVE BEEN TREATED AS INCOME FROM BUSINESS AN D NOT FROM OTHER SOURCES. THE PATNA HIGH COURT RELYING ON THE JUDGEMENT OF KARNAT AKA HIGH COURT HELD THAT THE TRIBUNAL AS WELL AS THE SUBORDINATE REVENUE AUTHORI TIES ERRED IN HOLDING THAT INTEREST 15 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. ACCRUED ON SECURITY DEPOSITS TO THE EXTENT USED FOR THE PURPOSE OF SECURING THE CONTRACT WORK WOULD ALSO BE ASSESSABLE AS INCOME FR OM OTHER SOURCES. IN THE PRESENT CASE ALSO, ON THE FACTS OF THE PRESE NT CASE, WE FIND THAT APPELLANT BEING A CIVIL CONTRACTOR WAS REQUIRED TO PROVIDE A PERFORMA NCE GUARANTEE TO THE VARIOUS WORKS DEPARTMENTS FOR OBTAINING CONTRACTS OF CIVIL CONSTR UCTION. HE TO KEEP SUCH PERFORMANCE GUARANTEE ALIVE BY WAY OF UTILIZING THE BANK OVERDRAFT LIMIT AGAINST WHICH HE HAD TO FURNISH FDRS/NSC FOR EXECUTION OF T HE CONTRACTS. HIS FAILURE TO SUBMIT THE PERFORMANCE GUARANTEE OR INABILITY TO KE EP THEM ALIVE WOULD HAVE RESULTED IN TERMINATION OF THE CONTRACT AWARDED TO HIM AND I N THAT EVENT, THE CONCERNED DEPARTMENTS/EMPLOYER COULD ENCASH THE SECURITY. REL EASE OF SUCH PERFORMANCE GUARANTEE IS DEPENDENT ON FULFILLMENT OF CERTAIN CO NDITIONS. IT IS NOT THAT THE APPELLANT HAD INVESTED SURPLUS MONEY LYING IDLE WITH HIM ONLY IN FDRS/NSCS WITH A VIEW TO EARNING INTEREST. OBTAINING OF FDRS/NSCS AND FURNIS HING OF THE SAME AGAINST THE PERFORMANCE GUARANTEE BY THE APPELLANT, THEREFORE, HAD AN INEXTRICABLE NEXUS WITH HIS BUSINESS OF SECURING CIVIL CONTRACTS AND INTEGRAL T O HIS WORKING AS CIVIL CONTRACTOR. THE INCOME OF INTEREST EARNED FROM THE INTEREST SUC H FDRS/NSCS BY THE APPELLANT THEREFORE, IN OUR CONSIDERED VIEW, CANNOT BE TREATE D (12 OF 12) [ITA-355/2017] AS INCOME FROM OTHER SOURCES AND WOULD RATHER BE AN IN COME EARNED FROM BUSINESS. IN VIEW OF ABOVE DISCUSSION, THE QUESTION OF LAW EX TRACTED ABOVE IS ANSWERED IN THE TERMS THAT 'IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE INTEREST INCOME FROM FDRS AND NSCS OF THE PETITIONER HAS TO BE TREATED AS INC OME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES AS THE INCOME IS PART OF THE TOT AL RECEIPTS AND NOT FROM OTHER SOURCES.' IN THE RESULT, THE APPEALS ARE ALLOWED. THE JUDGEME NT OF THE ITAT DATED 24.7.2017 IS SET ASIDE AND THAT OF THE CIT(A) IN REGARD TO INTER EST EARNED ON FDRS AND NSCS DATED 18.3.2016 IS RESTORED AND THE MATTER IS REMITTED BA CK TO THE ASSESSING OFFICER FOR PASSING FRESH ORDER OF ASSESSMENT IN ACCORDANCE WIT H LAW KEEPING VIEW THE QUESTION ANSWERED BY THIS COURT. THIS TRIBUNAL IN CASE OF MOHD. CONSTRUCTION CO. VS. ACIT (SUPRA) HAS ALSO CONSIDERED THIS ISSUE IN PARA 5.6 AS UNDER :- 5.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING INTEREST ON INCOME TAX R EFUND AND INTEREST ON SALES TAX REFUND, THE SAME HAS RIGHTLY BEEN TREATED BY THE LD . CIT (A) AS INCOME FROM OTHER SOURCES AND WE DONOT SEE ANY INFIRMITY IN THE SAME. REGARDING INTEREST ON FDR, IT IS NOTED THAT THE FDRS WERE PLACED WITH THE BANKS TO O BTAIN BANK GUARANTEE WHICH WAS NECESSARILY REQUIRED TO BE FURNISHED TO THE VAR IOUS GOVERNMENT DEPARTMENT AND IN ABSENCE OF SUCH BANK GUARANTEE, THE ASSESSEE COU LD NOT HAVE PROCEEDED WITH THE EXECUTION OF CONTRACTS WITH THE GOVERNMENT DEPARTME NT. FURTHER, THERE IS NO FINDING 16 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. THAT THE SURPLUS FUNDS HAVE BEEN INVESTED BY THE AS SESSEE IN THE FDRS. ANY INTEREST ON SUCH FDR, THEREFORE, MUST BE TREATED AS INEXTRIC ABLY LINKED WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE TO BE TREATED AS BUSINES S INCOME AND NOT AS INCOME FROM OTHER SOURCES. IT IS NOTED THAT SIMILAR VIEW H AS 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 TH IS EXTENT STAND MODIFIED. ACCORDINGLY, IN VIEW OF THE BINDING PRECEDENTS OF T HE HONBLE JURISDICTIONAL HIGH COURT AS WELL AS THE DECISION OF THE COORDINATE BEN CH OF THE TRIBUNAL, THE INTEREST ON FDRS TAKEN FOR THE PURPOSES OF GUARANTEE FURNISHED IN RELATION TO THE CONTRACT WILL BE PART AND PARCEL OF THE BUSINESS INCOME. GROUND NO. 2 IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO. 511/JP/2015 : 10. IN THE PENALTY APPEAL, THE ASSESSEE HAS CHALLEN GED THE LEVY OF PENALTY BY THE LD. CIT (A) IN RESPECT OF THE ENHANCEMENT MADE BY T HE LD. CIT (A) WHILE PASSING THE QUANTUM ORDER. 11. I HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE A S WELL AS THE LD. D/R. THE LD. CIT (A) AFTER MAKING ENHANCEMENT OF ASSESSMENT HAS ALSO LEVIED THE PENALTY UNDER SECTION 271(1)(C) OF THE IT ACT IN RESPECT OF THE S AID ADDITION BEING ENHANCEMENT OF INCOME OF RS. 19,29,108/-. IN VIEW OF THE FINDING OF THE TRIBUNAL ON QUANTUM APPEAL WHEN THE SAID ENHANCEMENT IS DELETED, THE PENALTY L EVIED UNDER SECTION 271(1)(C) WILL NOT SURVIVE. EVEN OTHERWISE, THE PENALTY LEVIE D AGAINST THE ADDITION MADE ON THE BASIS OF ESTIMATION OF INCOME IS NOT JUSTIFIED IN V IEW OF DECISION OF COORDINATE BENCH OF THE TRIBUNAL DATED 16.12.2016 IN CASE OF SHRI CO LLECTOR RAM SHARMA VS. ACIT IN 17 ITA NOS. 827/JP/2014 & 511/JP/2015 SHRI DEVASAMPARAMBIL HASSAINAR KUTTY, KOTA. ITA NO. 19/JP/2014 AS RELIED UPON BY THE LD. COUNSE L FOR THE ASSESSEE. ACCORDINGLY, THE PENALTY LEVIED UNDER SECTION 271(1)(C) IS DELET ED. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30/07/2 019. SD/- ( FOT; IKY JKWO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 30/07/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI DEVASAMPARAMBIL HASSAINAR KU TTY, KOTA. 2. THE RESPONDENT THE ACIT CIRCLE-1, KOTA. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 827/JP/2014 & 511/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. 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