DY. C.I.T.2(1), RAIPUR (CG) vs. SHRI SHYAM INFRATECH, RAIPUR (CG)

ITA 388/BIL/2014Status: DisposedITAT Raipur18 January 2018AY 2010-116 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s order, finding that the assessee's books of account were audited and no adverse inference was drawn by the AO. The CIT(A) had dealt with the issue and sustained a reduced addition, which the Tribunal found to be justified.

What were the facts?

The Assessing Officer made an addition of Rs. 53,95,151/- on account of disallowance of expenses claimed in the P&L account, estimating it at 5-10% of the total claim due to lack of bills and vouchers. The CIT(A) sustained an addition of Rs. 6,77,080/- by estimating net profit at 2.75% of gross contract receipts.

What were the issues?

Whether the CIT(A) erred in restricting the disallowance on account of expenses claimed in the P&L account. Whether the CIT(A) erred in deleting the disallowance out of interest expenses on funds diverted for non-business purposes.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR

Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE

Hearing: 17/01Pronounced: 18/01

Per Pavan Kumar Gadale, JM This is an appeal filed by the revenue against the order of the CIT(A)-

Raipur, dated 27.10.2014 for the assessment year 2010-2011. 2. In Ground No.1 of appeal, the grievance of the revenue is that the CIT(A) erred in sustaining the addition to Rs.6,77,080/- out of disallowance

on account of expenses claimed in P&L account.

The relevant facts of the case are like this. The assessee is a partner

firm deriving income from civil contract business. The Assessing officer

noticed that the assessee has shown net profit before interest and remuneration at 2.39% on the turnover of Rs.19.22 crores, whereas on comparable cases, the net profit was much higher. He observed that the assessee has failed to produce books of account but the books have been audited, therefore, they are not rejected and no net profit is estimated in view of comparable cases. In absence of bills and vouchers, the Assessing

officer estimated adhoc disallowance ranging from 5 to 10% of the total

claim and determined the addition at Rs.53,95,151/-.

On appeal, the assessee submitted that the assessee has maintained

complete day to day books of account, which are duly audited by the tax

auditor and produced before the Assessing Officer. The audited balance

sheet and tax audit report were furnished at the time of assessment

proceedings and no adverse inference was drawn by the Assessing Officer,

therefore, the entire addition made by the Assessing officer is liable to be deleted.

The CIT(A) after considering the submission of the assessee noted that undisputedly, the assessee has failed to produce books of account but the assessee has claimed to have audited the books of account. The Assessing

Officer has made adhoc addition without recording any dissatisfaction with the reasonableness of the quantum of deduction claimed under various

heads. He also noted that there is no finding in the assessment order to the effect that the expenses claimed by the assessee on account of purchase of materials, labour charges or salary were disproportionately high with reference to the specific nature of civil construction undertaken by the assessee. He also noted that the assessed income is nearly 5.32% of the turnover which is higher than the comparable instances referred by the Assessing Officer. The CIT(A) relying on various judgements held that the accounts are audited to which, the Assessing officer ought to have given due

consideration. However, to meet the ends of justice he estimated the net

profit @ 2.75% of gross contract receipts and sustained addition of Rs.6,77,080/- as against Rs.53,95,151/- made by the Assessing officer.

Being aggrieved, the revenue is in appeal before us.

Ld D.R. submitted that the Assessing Officer has referred comparable

cases and made addition and the CIT(A) is not justified in restricting the same to Rs.6,77,080/-.

We have heard ld D.R. and perused the materials available on record.

Before us, ld D.R. could not point out any mistake in the order of the CIT(A).

We find that the books of account of the assessee are audited and the assessee has furnished the tax audit report to which no adverse inference

was drawn by the Assessing officer. We find that the CIT(A) has dealt on the issue and relied on various judicial pronouncement on this matter and estimated the net profit @ 2.75% of gross contract receipts and sustained

addition of Rs.6,77,080/-. Hence, we uphold his order and dismiss the ground of appeal of the revenue.

In Ground No.2 of appeal, the grievance of the revenue is that the CIT(A) erred in deleting the disallowance out of interest expenses of Rs.2,19,004/- made by the AO on account of interest on fund diverted for non-business purposes.

10.

The Assessing Officer found that the assessee has paid interest of Rs.79,82,325/- on the loan account as against interest paid of Rs.46,30,267/- in the preceding year. The Assessing officer also noticed

that the assessee firm has advanced various amounts to different parties,

therefore, the assessee was required to explain the mode of advance. The assessee submitted that all loans are in the nature of business advances.

The Assessing Officer verified the ledger account and identified the transactions which are for the business purposes. For other advances which have no business transaction, the Assessing officer considered for disallowance of interest u/s.36(1)(iii) and added Rs.2,19,004/-.

11.

Before the CIT(A), the assessee furnished ledger accounts of five

parties and submitted that the advances were made for normal course of business.

12.

The CIT(A) deleted the disallowance by observing that the Assessing

officer has not brought on record any evidence to demonstrate nexus of the assessee with five parties. The CIT(A) has relied on various judicial

pronouncements including the decision of Hon’ble Supreme Court in the case

of S.A. Builders, 288 ITR 1 (SC), wherein, it was held that interest on borrowed funds cannot be disallowed if the assessee has advanced interest

free loan to a sister concern as a measure of commercial expediency. The assessee has adopted the alternative of borrowing money from the market

instead of liquidating its own assets.

13.

After considering the material on record and the arguments of ld D.R,

we find that except relying on the order of the Assessing Officer, ld .D.R.

could not point out any specific error in the order of the CIT(A) and could not controvert the findings of the CIT(A) by bringing any positive material on record that the advances were not made to five parties for normal course of business. In view of above, we confirm the order of the CIT(A) in deleting

the addition of Rs.2,19,004/-.

14.

In the result, appeal filed by the revenue is dismissed.

Order pronounced on 18 /01/2018. (N.S Saini) JUDICIALMEMBER Raipur; Dated 18 /01/2018

B.K.Parida, SPS Copy of the Order forwarded to :

The Appellant : DCIT, 2(1), Aayakar Bhavan, Central Revenue Building, Civil Lines, Raipu

The Respondent. floor, Samta Colony, Raipur

The CIT(A)- Raipur

Pr.CIT- Raipur

DR, ITAT, Raipur

Guard file. ////

BY ORDER,