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Facts
The assessee is appealing against an order concerning the assessment year 2013-14. The key issues involve the rejection of books of account, estimation of profit at 8%, and the assessment of interest income.
Held
The Tribunal held that VAT should be excluded from the total turnover when estimating income at 8%. Regarding interest income, it was decided that it should be assessed under "income from other sources" and not as business income. The issue regarding the valuation of shares was restored to the AO for revaluation as per Rule 11UA.
Key Issues
Whether VAT should be excluded from turnover for profit estimation and if interest income is to be treated as business income or income from other sources. Also, the applicability of Rule 11UA for share valuation.
Sections Cited
Section 145(3)
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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI RAJESH KUMAR
M/s. Infra Engineers Pvt Ltd., Near Vs ACIT, Circle-2(1), Balashram, Nuapada, Cuttack Cuttack PAN No. : AAHCM 3587 C (अपीलाथ" /Appellant) .. (""यथ" / Respondent) "नधा"रती क" ओर से /Assessee by : Shri Purnendu Bhusan Mohanty, CA राज"व क" ओर से /Revenue by : Shri Vijaya Singh, ld Sr DR सुनवाई क" तार"ख / Date of Hearing : 2 /12/2025 घोषणा क" तार"ख/Date of Pronouncement : 2 /12/2025 आदेश / O R D E R Per Bench :
This is an appeal filed by the assessee against the order dated 27.8.2024 passed by CIT(A), NFAC, Delhi in Appeal No. CIT(A),Cuttack/10784/2016-17 for the assessment year 2013-14.
Shri Purnendu Bhusan Mohanty ld AR appeared for the assessee and Shri Vijaya Singh, ld Sr DR appeared for the revenue.
It was submitted that ld AR that in this appeal three issues are involved. The first issue is in regard to rejection of books of account of the assessee and estimation of income of the assessee at 8%. It was the submission that in 2 regard to rejection of books of account, the assessee is not in dispute. In regard to estimation of profit at 8%, the assessee is not disputing but disputing the inclusion of VAT in the turnover, which may be excluded when applying rate of profit @ 8%. Ld Sr DR had no objection if the VAT is excluded from the turnover.
We have considered the rival submissions. As the assessee does not make any profit out of VAT, the Assessing Officer is directed to exclude the VAT from the total turnover when estimating the income of the assessee at 8% of the turn over. In the circumstances, this plea is held in favour of the assessee.
The second issue is in regard to interest income assessed under the head “income from other sources”. It was the submission that the interest income is part of the profit and loss account. It was submitted that same may be excluded as the income of the assessee has been estimated by applying 8% profit. Ld AR placed before us the decision of the Co-ordinate Bench of this Tribunal in the case of B.Engineers and Builders in for the assessment year 2009-10 dated 2.3.2021, wherein, in para 38 to 40, it has been held as under: “38. Apropos Ground Nos.10 to 13, ld counsel for the assessee submitted that at last page of the assessment order, the AO has added Rs.90,16,186/- as other revenue as per P&L account, whereas there is no discussion regarding this addition in the main body of assessment order. Ld counsel also drew our attention towards page 26 of the paper book-1 of the assessee para 25 and submitted that ITAT, Cuttack in the case of the assessee vide order dated 23.9.2011 passed in ITA No.195/CTK/.2011 and C.O.No.15/CTK/2011 dismissed the appeal of the revenue by observing that “ the Assessing Officer in his order himself made the addition twice by accepting the net profit from contract business which included the said income as income from business and therefore, the addition of Rs.57,14,131/- was considered fit for deletion by the ld CIT(A) on the factual finding that as the AO has already 2 3 accepted the same as forming part of the business income, there was no occasion for the AO to disallow the same. He deleted the addition of Rs.57,14,131/- which was considered as other revenue income only taxed against by the AO.”
On careful consideration of the rival submissions, first of all, we may point out that from the careful and vigilant reading of the assessment order, we find that after rejection of books of account, the AO proceeded to estimate the business income of the assessee from gross revenue accrued to him from woks contract and estimated the profit. We also find that at the last page of the assessment order, the AO has made addition of Rs.90,16,186/- reported as other revenue as per profit and loss account but no details have been given either in the assessment order or in the computation of total income at last page of the order. In our humble understanding, since the AO after rejection of books of account u/s.145(3) of the Act, has estimated the business income of the assessee accrued to it from the business activities of works contract, therefore, it is not permissible to make another addition pertaining to the entries in the profit and loss account without specifying the same in the assessment order and without bringing out any adverse materials on record that the assessee has earned some other income which was not related to its business activities of works contract.
We are in agreement with the contention of ld counsel for the assessee that the AO has committed an error while adding the amount of other revenue of Rs.90,16,186/- viz; income from NSC and insurance claim and other receipts despite the fact that in assessee’s own case, ITAT has allowed miscellaneous income as business income by holding that they cannot be excluded from the normal profit and in furtherance to that dismissing the departmental appeal against such deletion. Accordingly, we hold that the AO was not correct in making addition of 3 4 Rs.90,16,186/- pertaining to other income shown in the P&L account when he has estimated business income after taking action of rejection of books of account. Thus, the AO is directed to delete the same 6. It was the submission that the decision of the Co-ordinate Bench in the case of B.Engineers and Builders (supra) should be followed.
In reply, ld Sr DR submitted that the interest income does not form part of the turnover of the assessee.
We have considered the rival submissions. Considering the decision of the Co-ordinate Bench in the case of B.Engineers and Builders (supra), it is found that in the said case, the issue is in regard to the AO having passing the assessment order by adding other revenue under the head “business income”, the Tribunal has directed the AO to exclude the other income while estimating the business income. The Tribunal has not held that the said interest income is not liable to be taxed as business income. The interest income is to be assessed under the head “income from other sources”. Admittedly, this interest income has no connection whatsoever with the turnover of the assessee. After rejecting the books of account, it is the business income of the assessee which has been estimated from the turnover , which is not the net profit per se. The total income from the business obviously when it shows in the computation of income, interest income is to be excluded from the same and to be assessed under the head “income from other sources” when computing the income. This being so, the action of the AO in bringing the interest income under the head “other sources” and the addition stands upheld. This plea of the assessee is held against the assessee.
5 9. In regard to third issue, it was the submission that the assessee had valued the shares by applying Rule 11UA of I.T.Rules. It was the submission that the valuation of the shares has not been done by the Assessing Officer by applying the said Rules. It was the submission that the issue be restored to the file of the AO to revalue the shares by applying Rule 11UA.
In reply, ld Sr DR also submitted that the issue requires to be remitted to the file of the AO to revalue the shares by applying Rule 11UA.
We have considered the rival submissions. As it is noticed from the assessment order that the AO has not applied Rule 11UA of I.T.Rules for computing the value of the shares, the issue is restored to the file of the AO for applying the relevant provisions of the Act/Rules after providing adequate opportunity of hearing to the assessee. Consequently, the issue stands partly allowed for statistical purposes.
In the result, appeal of the assessee stands partly allowed for statistical purposes. Order dictated and pronounced in the open court on 2/12/2025. (राजेश कुमार) (जाज" माथन) (RAJESH KUMAR) (GEORGE MATHAN) लेखा सद"य/ ACCOUNTANT MEMBER "या"यक सद"य / JUDICIAL MEMBER "दनांक Dated 2/12/2025 B.K.Parida, Sr.P.S(OS)