ACIT, CIRCLE-SURI, BIRBHUM, BIRBHUM vs. M/S. S.B. CONSTRUCTION,, BIRBHUM

This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax (Appeals)- Asansol [ in short the ld CITA] in Appeal No. 143/CIT(A)/Asl/Cir-Suri/Bwn/13-14 dated 22.08.2014 against the order passed by the ACIT, Circle-Suri, Birbhum [ in short the ld AO] under section 144 of the Income Tax Act, 1961 (in short “the Act”) dated 16.03.2013 for the Assessment Year 2010-11.

When the case was called on for hearing, none appeared on behalf of the assessee nor any adjournment petition was filed on its behalf. Accordingly, we proceed to hear the ld DR and dispose of the appeal based on materials available on record.

The issue to be decided in this appeal is as to whether the ld CITA was justified in dismissing the action of the ld AO in rejecting the books of accounts u/s 145(3) of the Act, in the facts and circumstances of the case. The first interconnected issue is having

The brief facts of this appeal is that the assessee is a partnership firm deriving income from civil contract business. The return of income was filed by the assessee firm on 29.9.2010 for the Asst Year 2010-11 declaring total income of Rs 34,82,777/- on the basis of audited books of accounts maintained in the regular course of business duly supported by cash book, ledger, wages register, bills and vouchers. The ld AO from the balance sheet observed that assessee had secured loans of Rs 1,93,21,078 /- ; Rs 52,62,641/- ; Rs 1,02,625/- and Rs 25,10,345/- were obtained from UCO Bank, SREI Infra & Finance Ltd , ICICI Finance Ltd and Tata Motors Ltd respectively. The assessee had debited bank interest of Rs 20,18,125/- in the profit and loss account. But no interest on account of secured loan availed from SREI Infra & Finance Ltd, ICICI Finance Ltd and Tata Motors Ltd was debited. On this issue, the assessee was asked to furnish the details of amount of interest paid on these loans, ledger copies of these three companies and explain whether tax was deducted at source on interest payment. The ld AO observed that there must be some interest paid to these finance companies and since the same are not reflected in the books of accounts, the same was paid outside the books of accounts and accordingly concluded that the books of accounts and the book results could not be relied upon. Accordingly, he show caused the assessee as to why the book results should not be rejected u/s 145(3) of the Act and net profit be determined on an estimated basis. In response thereto, the assessee replied as under:- “i) It is stated that dumper and plant machineries of contractory business are purchased from the aforesaid companies on hire purchase basis. It is fact that payments are made through bank account of UCO Bank and the same are recorded in bank ledger of the assessee but interest on loan for purchase of P & M and dumper are not 3 M/s S.B. Construction A.Yr.2010-11 debited in P&L account during the F.Y. under scrutiny. It is properly recorded in cash book but not claimed in P&L account which is an apparent mistake. ii) That the assessee·firm is a works contractor and maintained regular books of accounts supported by bills vouchers etc. which are dully audited. That the assessee firm has shown net profit @ 2%. You have directed to explain why net profit @6% should not be taken. That the said firm derived net profit after deducting all expenses which is for the purpose of business. So, question of estimation of net profit @ 6% does not arise here on the reason that the assessee firm maintained regular books of accounts. iii) Non-showing /charging of interest on loan in P&L account is not a valid ground for rejecting books of accounts. It is an unexplained expenditure which are not claimed. The expenditure incurred is a bona fide expenditure, recorded in books of account but not deducted in P&L account. It is purely a technical mistake but it doe not affect the revenue. If it claimed in P&L account then net profit should have reduced to the extent of interest paid to finance company as stated above. This is the reason for not rejecting books of accounts. Hope, the above explanations suffice to end your queries.”

The ld AO ignored the aforesaid explanations given by the assessee and rjeted the books of accounts u/s 145(3) of the Act . He observed that the assessee had declared 2.97% of gross receipts as its net profit. Looking at the business of the assessee and also incorrectness of the books, he estimated net profit at 5% of gross receipt and arrived at the addition figure of Rs 58,59,110/-. The ld AO also estimated the interest ought to have paid to the aforesaid finance companies @ 13% per annum and arrived at the alleged interest outflow to these companies at Rs 10,23,829/- and added the same as incurred outside the books and thereby becomes unexplained expenditure u/s 69C of the Act.

The ld CITA dismissed the action of the ld AO in rejecting the books of accounts of the assessee u/s 145(3) of the Act. He deleted the additions made by the ld AO by observing as under:- 5. Section 145(3) can be invoked if Assessing Officer is not satisfied on correctness and completeness of accounts. Here Assessing Officer is reasoning his decision on an alleged payment outside books of accounts. There is no finding in assessment order that the books of accounts and vouchers are not 3

Aggrieved, the revenue is in appeal before us on the following grounds:- 4

We have heard the ld DR. The ld DR reiterated the submissions of the ld AO. We find that there is absolutely no case made out by the ld AO for rejection of books of accounts of the assessee u/s 145(3) of the Act. The interest payment made by the assessee to these finance companies are duly accounted in the books of accounts by debiting the respective hire purchase loan accounts itself on EMI basis. The assessee had not bifurcated the hire charges portion from EMI amount and had not transferred the same to the profit and loss account and claim the same as deduction in the return of income. This cannot be a valid ground for rejection of books of accounts and the book results u/s 145(3) of the Act. This had infact only resulted in overstatement of income in the year under appeal. Hence the ld CITA had rightly dismissed the action of the ld AO and rightly deleted the addition made towards estimation of net profit at Rs 58,59,110/-. Since the entire payment of hire charges included in EMI amount are duly accounted in the books of accounts which are duly explained by proper sources, there cannot be any addition towards unexplained expenditure u/s 69C of the Act. Infact the assessee had not claimed any expenditure in this regard as stated earlier. We find that the entire additions have been made without appreciating the accounting system and the accounting entries passed by the assessee in its books of accounts. Hence the ld CITA had rightly deleted the addition made in this regard in the sum of Rs 10,23,829/-. Accordingly, the grounds raised by the revenue are dismissed.