SHIV SHAKTI CONSTRUCTION,HOOGHLY vs. ITO, WARD-1(3), HOOGHLY, HOOGHLY

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ITA 1844/KOL/2014Status: DisposedITAT Kolkata11 December 2015AY 2006-20072 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee is entitled to claim deductions for partners' remuneration and interest on capital. It also held that once the AO rejected the books and estimated the GP rate, no further addition on account of trading aspects like the liability of Rs. 2.90 lacs could be made.

What were the facts?

The assessee, engaged in civil construction, filed its return under Section 44AD. The AO rejected the books of account under Section 145(3) and made additions, including disallowing partners' remuneration and interest, and adding a liability of Rs. 2.90 lacs.

What were the issues?

Whether disallowance of partners' remuneration and interest is justified when AO has already rejected books and estimated GP rate. Whether further addition on account of trading liability is permissible after rejecting books under Section 145(3).

Which sections of the Income-tax Act were involved?

Section 145(3),Section 44AD

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” “C” BENCH: KOLKATA

Before: Shri Mahavir Singh, JM]

Hearing: 07.12.2015Pronounced: 11.12.2015

For the Appellant: Shri Alokesh Kundu, Advocate For the Respondent: Shri Rajendra Prasad, JCIT, Sr. DR ORDER

This appeal by assessee is arising out of order of CIT(A)-XXXVI, Kolkata vide Appeal No. 303/CIT(A)-XXXVI/Kol/Wd-1(3),HG/08-09dated 31.07.2014. Assessment was framed by ITO, Wd-1(3), Hooghly u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2006-07 vide his order dated 30.12.2008.

2.

These two inter-connected issues claimed by the assessee are in respect to disallowance of partners’ remuneration and interest to the tune of Rs.1,21,048/- and addition of liability to the tune of Rs.2.90 lacs despite the fact that the AO resorted to the provisions of section 145(3) of the Act and thereby assessed the income by applying G.P. rate.

3.

I have heard rival submissions and gone through facts and circumstances of the case. I find that the assessee is engaged in the business of civil construction and filed return of income in pursuance to provisions of section 44AD of the Act. Admittedly, the assessee’s turnover falls within the prescribed limit of Rs.40 lacs as is evident from the re-casted P&L Account and Balance Sheet as reproduced in the assessment order as well as in the order of CIT(A). The AO resorted to the provisions of section 145(3) of the Act and rejected the books of account and determined net profit at Rs.2,76,060/- instead of declared profit by the assessee at Rs.1,33,160/-. Ld. Counsel before us stated that the assessee is entitled to claim of deduction of partners’ remuneration and interest on capital to the extent of Rs.1,21,048/- and also no addition on account of other trading

2 Shiv Sakti Construction AY 2006-07 items should have been made like liability added by the AO to the tune of Rs.2.90 lacs. I find from the above that assessee is entitled for allowance of partners’ remuneration, interest on capital to the tune of Rs.1,21,048/- and direct the AO accordingly. As regards to the addition of liability of Rs.2.90 lacs added by the AO, the same is arising out of the business transaction of the assessee being a balance sheet item, once the AO has rejected the books of account by resorting to the provisions of section 145(3) of the Act and estimated the gross profit rate, no further addition on account of trading aspect can be made by the AO. Accordingly, we delete the same. Appeal of assessee is allowed.

4.

In the result, the appeal of assessee is allowed.

5.

Order is pronounced in the open court on 11.12.2015. Sd/- (Mahavir Singh) Judicial Member

Dated : 11th December, 2015 Jd.(Sr.P.S.) Copy of the order forwarded to: 1. APPELLANT – Shiv Sakti Construction, 17A, Bhaduri Lane, P.O. Chatra, P.S. Serampore, Dist. Hooghly, Pin-712204 Respondent – ITO, Wd-1(3), Hooghly. 2 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata

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