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Facts
The assessee filed a return of income which was selected for scrutiny. The Assessing Officer (AO) rejected the assessee's books of accounts due to self-made, unverified cash vouchers and estimated the net profit at 8% of gross receipts. Additions were also made for interest income. The CIT(A) upheld the AO's order.
Held
The Tribunal confirmed the rejection of books of accounts and upheld an addition of Rs. 1,00,000/- in light of similar circumstances in a prior assessment year. However, the addition of Rs. 73,972/- as interest income was remanded back to the AO for further verification regarding its nature (business exigency vs. surplus fund).
Key Issues
1. Whether the rejection of books of accounts and estimation of profit at 8% was justified. 2. Whether the addition of interest income from JSPL was correctly treated correctly as income from other sources.
Sections Cited
145(3), 143(3), 44AB, 143(1), 143(2), 142(1), 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA (SMC
Before: SHRI RAMIT KOCHAR
2010-11 has arisen from the appellate order dated 30.06.2016 in Appeal No.-129/CIT(A)-1/AGRA/DCIT-1/AGRA/2013-14 passed by learned Commissioner of Income-tax (Appeals)-1, Agra, whichappeal before ld. CIT(A) has in turn arisen from the assessment order dated 04.03.2013 passed by Assessing Officer u/s.143(3) of the Income-tax Act, 1961.
Grounds of appeal raised by assessee in Memo of Appeal filed with the Income-Tax AppellateTribunal, Agra Bench, Agra, reads as under :
“1. Because the Ld. CIT (A) has erred in confirming the rejection of books of accounts of the assessee without properly appreciating the facts & the circumstances of the case.
2. Because the Ld. CIT (A) has erred in confirming the estimation of income of the appellant @ 8% of gross contract receipts without properly appreciating the facts & circumstances of the case.
3. Because the Ld. CIT (A) has erred in confirming an addition on account of interest on FDR to the tune of Rs 87662/- without properly going through the merits of the case and without appreciating the fact that the same was already included in the total income of the appellant.
4. Because the Ld. CIT (A) has erred in confirming an addition on account of interest to the tune of Rs 73972/-received from JSPL without properly going through the merits of the case and without appreciating the fact that the same was already included in the total income of the appellant.
5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the grounds are without prejudice to each other.”
Brief facts of the case are that the assessee filed return of income on 31.10.2010 declaring income of Rs.31,10,060/-. The return of income was processed by the Revenue u/s. 143(1) of the Act. Case of the assessee was selected by Revenue for framing scrutiny assessment u/s 143(2) read with Section 143(3). Statutory notices u/s. 143(2) and 142(1) were issued by the AO to the assessee during the course of assessment proceedings. The assessee is a proprietor of M/s. Shakti Construction ,and derives business income from contract work, income from house
2 | P a g e property and income from other sources. The assessee participated in the assessment proceedings. The books of accounts were produced by the assessee before the AO during the course of assessment proceedings, and were test checked by the AO. The assessee also furnished supporting bills/vouchers. Assessing Officer observed that these bills are self-made and paid in cash. The assessee was unable to verify the said vouchers. Assessing Officer issued show cause notice to the assessee asking the assessee to explain why the books of accounts maintained should not be rejected u/s. 145(3) of the Act , and net profit should not be estimated @ 8% of the gross receipts. The assessee submitted that the expenditure are fully supported by vouchers and bills, cash memos and recipients signatures are duly endorsed thereon. Books of accounts are audited by the independent Chartered Accountant and audit report u/s. 44AB dated 27.09.2010 has already been submitted by the assessee. There was no adverse comments given by the Chartered Accountant. Hence, there is no justification in estimating the profit @ 8% of the gross receipts. The assessee also submitted that the contract was not merely a labour contract. Out of the total receipts of Rs.4,00,48,401/- an amount of Rs.3,75,880/- (sic. Rs. 3,75,43,880/-) was against sale and supply of material to the contractee, while the balance of Rs.25,04,521/- was against execution of works contractwhich is 6.25% of 3 | P a g e the gross receipts. Thus, presumptive rate of 8% of the gross receipt cannot be applied, to estimate income of the assessee. The assessee submitted that the assessee has undertaken contract of a private contractee, M/s. K.S. Oils Ltd., wherein tough negotiation in rates have taken place with minimum margin’s. The assessee contended that this contract was with private party where rates are competitive, while in government contracts margins are higher. Contract was for laying railway lines, which was first contract of the assessee in this field. There was tough competition with other parties. The assessee has to offer competitive prices and prayers were made not to assess the business income @ 8% of the gross receipts. Assessing Officer rejected the contentions of the assessee and brought to tax net profit @ 8% of the gross receipts, as the assessee failed to furnish the reasons for self made vouchers and justifications for making payments in cash. While estimating the profits of the assessee as above, the AO also made , inter-alia, additions of Rs. 73,972/- being interest earned by the assessee from JSPL by including the same separately as income under the head ‘income from other sources’
Aggrieved, the assessee filed first appeal with the ld. CIT(Appeals).
Learned CIT(Appeals) dismissed the appeal of the assesseewith respect to chargeability of profit of 8% byrejecting the contentions of the 4 | P a g e assessee. There was one more addition, inter-alia, which was upheld by the ld. CIT(Appeals) with respect to addition of Rs.73,972/- as interest income from JSPL as income from other sources. The assessee submitted that the same is included in the business income and has been taxed under the head profit and gain from business or profession.
CIT(Appeals) observed that there is no double addition on account of interest income of Rs.73,972/-, as the said income was shown as income from business, and was not separately added by the assessee to the income from other sources while the Assessing Officer has only applied profit rate of 8% on the gross contract receipts.
Aggrieved, the assessee has filed second appeal with the Tribunal.
The assessee Shri Rakesh Kumar Bansal is stated to haveexpired ,and appeal is filed by the legal heir Smt. Bharti Bansal, who is wife of the assessee. The Revenue has not raised any objection to bring legal heir on record. Son of the assessee Shri Pulkit Bansal appeared before the Bench. He drew my attention to for the assessment year 2008-09, in which under the similar facts and circumstances, the ITAT, Agra Bench, Agra vide order dated 27.08.2013 has upheld the rejection of books of account u/s. 145(3) of the Act and under the similar circumstances, has upheld the addition of Rs.1,00,000/- to cover the lapses pointed out by the AO towards self-made vouchers 5 | P a g e being unverifiable which are not supported by supporting evidences. Son of the assessee has also placed comparative chart of turnover and profitability before the Bench(SMC), which is reproduced below :
M/s Shakti Construction Company c/o Bharti Bansal A.Y. 2010-11 Statistical Comparision of A.Y. 2008-09 & A.Y. 2010 -11 The case of A.Y. 2008-09 has been decided by the Honble ITAT (order enclosed in paper Book)
A.Y. 2010-11 A.Y. 2008-09 Turnover As per As per CIT(A) As per As per CIT(A) As per ITAT Assessee Assessee Net profit 40048400.97 40048400.97 41602496.11 41602496.11 41602496.11 before other income Net profit rate 2768956.00 3203872.00 1134550.00 2080124.81 1234550.00 before other 6.91% 8.00% 2.73% 5.00% 2.97% income Total addition 434916.00 945574.81 100000.00 Interest 161634.00 161634.00 141580.00 161634.00 161634.00 income as per P&L Account Net profit after 2930590.00 3365506.00 1276130.00 2241758.81 1396184.00 considering other income Net profit rate 7.32% 8.40% 3.07% 5.39% 3.36% after considering other income
Notes:
The Hon’ble ITAT has confirmed the rejection of books of accounts in A.Y. 2008-09 and made an ad-hoc addition Rs.100000.
2. If the addition of Rs.100000 is added to the net profit the net profit rate before other income becomes 2.97% and net profit rate after other income becomes 3.36%.
5.2 In this chart, the assessee stated that the profit declared by the assessee during the year under consideration was to the tune of 7.32%
6 | P a g e while in the assessment year 2008-09, same was 3.07%. It was submitted that in view of higher profit being declared by the assessee, no addition should be sustained.
5.3 Learned Sr. DR, on the other hand, submitted that the books of accounts were not produced and the Assessing Officer has applied the provisions of section 44AD . The ld. Sr. DR submitted that the said profit rate of 8% should be sustained. Learned CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
I have considered rival contentions and perused the material on record. I have observed that the assessee Shri Rakesh Kumar Bansal has filed return of income on 31.10.2010 declaring income of Rs.31,10,060/-. The return of income was processed by Revenue u/s. 143(1) of the Act. Case of the assessee was selected by Revenue for framing scrutiny assessment u/s 143(2) read with Section 143(3).
Statutory notices u/s. 143(2) and 142(1) were issued by the AO to the assessee during the course of assessment proceedings. I have observed that the assessee is a proprietor of M/s. Shakti Construction and derives business income from contract work, income from house property and income from other sources .The assessee participated in the assessment 7 | P a g e proceedings. Books of accounts of the assessee were produced which were verified by the Assessing Officer on test check basis.. I have observed that the assessee has expired and appeal is filed by the legal heir Smt. Bharti Bansal, wife of the assessee. The Revenue has not raised any objection to bring legal heir on record. Son of the assessee Shri Pulkit Bansal appeared before the Bench. I have observed that during the scrutiny proceedings, the Assessing Officer has observed that the assessee has filed self made vouchers/bills, which were paid in cash and which are not verifiable as not supported by evidences , which led to rejection of books of account u/s. 145(3) of the Act and net profit was computed @ 8% of the gross receipts. The assessee has submitted before the Assessing Officer that the assessee has done this first contract for laying railway lines for M/s. KS Oils Ltd and out of the total receipts of Rs.4,00,48,401/-, an amount of Rs.3,75,43,880/- was against sale and supply of material to the contractee while the balance of Rs.25,04,521/- was against execution of works contract, which is 6.25% of the gross receipts. The assessee has contended before the Assessing Officer that the assessee has to make very competitive offers to get the contract as the assessee was dealing in such contract for the first time ,and the contractee who has to award the contract is a private sector entity K S Oils Limited , but these contentions did not find favour with the 8 | P a g e Assessing Officer. The assessee submitted that it has also filed tax audit report u/s 44AB wherein accounts were audited by qualified chartered accountant and no discrepancy were reported by the said tax-auditor. Ld. CIT(Appeals) dismissed the appeal of the assessee and upheld the rejection of accounts made by the Assessing Officer. I have also observed that similar situation arose in assessment year 2008-09, wherein the Tribunal vide order dated 27.08.2013 in ITA No.
211/Agr/2013 has upheld the addition of Rs.1,00,000/- in the similar circumstances being towards lapses pointed out by AO towards submission of self made vouchers for expenses which were not supported by evidence and were not verifiable. I have observed that the assessee is not able to demonstrate even before ITAT that the vouchers/bills were not self made and same can be subjected to verification/enquiry. Thus, the findings of the authorities below remained uncontroverted by the assessee even before the ITAT. It is equally true that the authorities below never made any attempt to quantify and specify with precision as to what are self made vouchers which could not be subjected to verification and their magnitude/quantification .The authorities below have not pin pointed the said self made cash vouchers and their quantification/identification, which were not supported by evidences and which remained unverifiable. The assessee has stated 9 | P a g e that all these self made vouchers were duly receipted by the recipients. If the recipients were identifiable , then it was incumbent on the authorities below to have made enquiries with the recipients to unravel truth. The authorities below has dealt with the matter in a very casual manner, and such lack luster and casual approach can never be appreciated, more so the assessee has to face the ordeal dealing with lengthy and expensive litigation running into several years. In the instant case, the case of the assessee was selected for framing scrutiny assessment in 2011 while assessment was framed in 2013 i.e. more than 10-11 years have now passed and litigation is still continuing .The assessee is also equally responsible for its woes , as it has not made any attempt to controvert/dislodge the findings of the AO. No doubt, the assessee has shown higher profit during the year under consideration vis a vis profit in assessment year 2008-09, but every assessment year is a separate year. The assessee has also claimed to have entered into a contract for laying railway lines which was claimed to be undertaken for the first time by the assessee with a private party, and it is claimed that due to tough competition , the margins were squeezed. . The turnover of the assessee during the year under consideration was Rs.4,00,48,401/- while in the assessment year 2008-09, the turnover was Rs.4,16,02,496/-. Thus, the turnover in this year is merely 4% lower than the turnover for the 10 | P a g e assessment year 2008-09, which is negligible difference , and Respectfully following the decision of ITAT for the assessment year 2008-09 and with a view to end this protracted litigation, I confirm the addition of Rs.1,00,000/- in the hands of the assessee keeping in view that the assessee has produced self made vouchers/bills before the authorities below which were not verifiable , and this finding could not be unsettled by the assessee even before ITAT by producing bills/vouchers and its verification, no doubt, it is true that the assessee produced books of account, tax audit report before the authorities below. The assessee has also claimed that these vouchers were receipted by the recipients . It is also claimed that the chartered accountant who did the tax-audit did not pointed any fault/defect in the accounts. Thus, keeping in view totality of facts and circumstances and in the interest of justice as also to end this protracted litigation, the addition of Rs.1,00,000/- is confirmed. I order accordingly.
6.2 So far as interest of Rs.73,972/- from JSPL is concerned, the assessee has claimed that he has reflected the said income in profit and loss account of Shakti Construction,and the same was accordingly brought to tax under the head income from business or profession. It is observed that the assessee has not brought the same to tax under the 11 | P a g e head income from other sources. The assessee has not demonstrated that the said interest income is earned keeping in view the business requirement and business exigencies , rather than investing the surplus fund lying with the assessee with JSPL. This requires investigation of facts and the matter is remanded back to the file of Assessing Officer for limited verification as to whether said funds were invested with JSPL keeping in view commercial/business expediency rather than merely investing surplus fund, on which interest of Rs.73,972/- was earned. After arriving at the conclusive finding as aforesaid, the Assessing Officer shall accordingly bring to tax the said income. If it is surplus fund, the same shall be taxed separately, while if it is earned from the funds deployed for commercial/business exigency, then the same be treated as business income . Onus is on the assessee to prove commercial expediency and or business requirement to invest funds with JSPL, on which interest income is earned. Accordingly, this matter is remanded back to the file of Assessing Officer to decide the same afresh after arriving at the findings as aforesaid. The AO shall also keep in view our decision in this order in sustaining only the disallowance of expenditure of Rs. 1,00,000/- as against bringing to tax business income computed @8% on the gross turnover by the AO and as sustained by ld. CIT(A). The AO shall also see
12 | P a g e that the same income should not suffer taxation twice, which is the fundamental principle of the taxing statute. I order accordingly.
In the result, the appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on 27.01.2025.