ITO, WARD-53(4), KOLKATA, KOLKATA vs. SHRI BADAL KRISHNA SAHA, KOLKATA

Per Shri M.Balaganesh, AM

3.1. The brief facts of this issue is that the assessee is a civil contractor and carrying on a proprietory concern under the name and style of M/s Constructive Construction following mercantile system of accounting. For the Asst Year 2008-09, the assessee disclosed Rs. 2,64,20,951/- as its gross receipts. The gross contract receipts as per NSDL TDS records was Rs. 2,67,77,057/-. This was one of the defect noticed by the Learned AO in the details submitted by the assessee vis a vis the books of accounts

2 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 maintained by the assessee. The Learned AO also found that the assessee had maintained a savings bank account with Allahabad Bank, Gariahat Branch, Kolkata which was also not disclosed in the books of accounts maintained by the assessee and accordingly found it as a defect in the books of accounts and proceeded to reject the books of accounts and determine the profit on an estimated basis u/s 145(3) of the Act. The net profit was estimated at 8% of gross receipts by the Learned AO and determined at Rs. 21,42,165/- (8% of Rs. 2,67,77,057/-). On first appeal, the same was brought down to 4% by the Learned CITA based on the average profit ratio of the assessee in the earlier years. Aggrieved, the revenue is in appeal before us on the following ground:- “1. That the ld. CIT(A) has erred in applying lower estimated rate of profit from business of the assessee being a civil contractor, after accepting the rejection of accounts made by the assessing officer.”

3.2. The Learned DR vehemently supported the order of the Learned AO by justifying the rejection of books of accounts by the Learned AO and the estimation of profits @ 8% of gross receipts. In response to this, the Learned AR argued that the Learned CITA had brought down the estimation of net profits to 4% based on average profit ratio of the ,earlier years and accordingly prayed for non interference to the Learned CITA order in this regard.

3.3. We have heard the rival submissions and perused the materials available on record. We find that the assessee had not disclosed one savings bank account with Allahabad Bank Gariahat Branch in his books and hence the Learned AO was justified in rejecting the books of accounts and determining the profits on an estimated basis u/s 145(3) of the Act. Now the short point that arises for consideration is whether the profit determined at 4% by the Learned CITA is justified in the facts of the case. We find that the Learned CITA had considered the average net profits declared by the assessee in the earlier years and accordingly had determined the net profit at 4% of gross receipts which in our opinion is reasonable in the facts and circumstances of the case. Hence we are not inclined to interfere with the order of the Learned CITA in this regard. Accordingly, the ground no.1 raised by the revenue is dismissed.

3 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 4. The second issue to be decided in this appeal is as to whether the Learned CITA is justified in increasing the turnover by Rs. 22,25,000/- credited in the undisclosed bank account and directing the Learned AO to compute net profit @ 6% of Rs. 22,25,000/- as business income of the assessee as against the peak credit added by the Learned AO from the undisclosed bank account in the sum of Rs. 91,96,120/-.

4.1. The brief facts of this issue is that the assessee had maintained a savings bank account with Allahabad Bank, Gariahat Branch, Kolkata which was not disclosed in the books of accounts maintained by the assessee. The Learned AO considered the peak credit balance from the said bank account and brought to tax a sum of Rs. 91,96,120/-. On first appeal, the Learned CIT(A) held that the onlu source of income for the assessee is his business of contractor / subcontractor. The Learned CITA also found that out of the total credits in the undisclosed bank account, a sum of Rs. 22,25,000/- was also found credited. This was initially informed by the assessee as unsecured loans. However, no details for the same were produced before the Learned AO. Later the Learned CITA treated the sum of Rs. 22,25,000/- as turnover from undisclosed business of the assessee of being a contractor / subcontractor and determined the net profit thereon at 6% of turnover of Rs. 22,25,000/- . The Learned CITA also held that the only source of income for the assessee is from his contract business and the Learned AO having rejected the books of accounts and resorting to determine the net profit from business on an estimated basis, cannot make any separate addition towards peak credit from the undisclosed bank account and agreed to the proposition of the assessee that the credits in the said bank account are only towards business receipts. Accordingly, the Learned CITA directed the Learned AO to delete the addition towards peak credit in the sum of Rs. 91,96,120/- and directed to add 6% of sum of Rs. 22,25,000/- as business profits of the assessee in addition to the regular business profits added as per ground no.1 hereinabove. Aggrieved, the revenue is in appeal before us on the following ground:- “2. That the Ld. CIT(A) has erred in directing to increase the turnover of the assessee by the amount of Rs.22.25 lakh deposited in the undisclosed bank account of the assessee which he himself has proved to be unsubstantiated.”

4 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 4.2. The Learned DR argued that the action of the Learned CITA is not in order as originally the assessee had stated that the credits in the bank account for Rs. 22,25,000/- were unsecured loans and for which no details were filed by the assessee. This fact is also stated by the Learned CITA in para 4.4 of his order. He argued that having said so, the Learned CITA erred in coming to a conclusion that the said credits for Rs. 22,25,000/- should only represent business receipts of the assessee and accordingly pleaded for restoration of the order of the Learned AO in this regard. In response to this, the Learned AR vehemently supported the order of the Learned CITA and also argued that in any case, the order of the Learned AO for this addition cannot be restored as the revenue is not in appeal before this tribunal for deletion of peak credit addition of Rs. 91,96,120/- from the undisclosed bank account.

4.3. We have heard the rival submissions and perused the materials available on record. We find that the assessee had not disclosed one savings bank account with Allahabad Bank Gariahat Branch in his books. We find that the Learned AO had clearly accepted the credits and debits in the undisclosed bank account as business transactions of the assessee and that is the reason he himself had adopted peak credit theory and added the peak credit balance of Rs. 91,96,120/- in the assessment. We find that the Learned AO having rejected the books of accounts and proceeding to determine the net profit on an estimated basis u/s 145(3) of the Act could not make any separate addition towards peak credit balance which admittedly is also arising out of the business of the assessee. However the Learned CIT(A) found that the assessee was not able to prove the credits in the said bank account to the extent of Rs. 22,25,000/- and held that the same has to be construed as turnover of the assessee and net profit to be determined at the rate of 6% thereon as he found that profits from undisclosed business would normally be higher than the regular business profits as the assessee need not incur certain expenditure thereon. We also find that the finding given by the Learned CITA that the only source of income of the assessee is his income from contract / sub contract business has not been refuted by the revenue. Hence we are in agreement with the findings given by the Learned CITA in this regard. Accordingly, the ground no.2 raised by the revenue is dismissed.

5 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 5. The third issue to be decided in this appeal is as to whether the Learned CITA is justified in deleting the addition made in the sum of Rs. 9,01,870/- towards undisclosed sundry debtor.

5.1. The brief facts of this issue is that the assessee made a security deposit of Rs. 9,01,870/- with M/s Westinghouse Saxby Farmer Ltd for whom the assessee worked as a sub-contractor. As the payment of said security deposit was not reflected in the balance sheet filed by the assessee, the Learned AO proceeded to add the same as unexlianed investment u/s 69 of the Act. On first appeal, the Learned CITA found that M/s Westinghouse Saxby Farmer Ltd is controlled by Government of West Bengal and the said security deposit was made in the earlier years by the assessee and not during the assessment year under appeal. Moreover, he also found that the security deposit was created by deduction out of sale proceeds receivable from the said sub- contractor and accordingly it is only non-maintenance of proper entries in the books of accounts which in any way has been rejected by the Learned AO and has been accepted by the assessee and the creation of security deposit is clearly explained by the assessee. The Learned CITA also found that as and when the final bill is cleared by the said party i.e M/s Westinghouse Saxby Farmer Ltd, the amount retained as deposit is received by the assesee and shown as part of turnover. Accordingly, he directed for deletion of this addition as unexplained investment but directed the Learned AO to treat the same as turnover of the assessee for estimation of net profit thereon. Aggrieved, the revenue is in appeal before us on the following ground:-

“ 3. That the Ld. CIT(A) is not justified in including the undisclosed sundry debtor of Rs.9,01,870/- into the turnover of the assessee without valid reason.”

5.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR argued that the addition has been made by the Learned AO only on the premise that the security deposit was not reflected in the books of accounts of the assessee. He further argued that no addition need to be made on this count when books itself have been rejected by the Learned AO. He argued that this deposit was maintained with an entity controlled by Government of West

6 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 Bengal and was created in the earlier years and hence no addition could be made u/s 69 of the Act treating the same as undisclosed income of the year under appeal.

5.3. We have heard the rival submissions and perused the materials available on record. At the outset, it is found that the security deposit maintained by the assessee with M/s Westinhouse Saxy Farmet Ltd, an entity under the control of Government of West Bengal, to whom the assessee was working as a sub-contractor, had not been reflected in the books of accounts of the assessee. We find that the Learned AO had already rejected the books of accounts of the assessee and had proceeded to determine the net profit from business on an estimated basis. Having done so, there is no need to get into the same books for making an independent addition towards security deposit. In any case, we find that the Learned CITA had given a categorical finding of the manner in which the security deposit was created in the earlier years and these findings have not been refuted by the revenue . Moreover, we hold that since the security deposits were made in the earlier years, the same cannot be the subject matter of addition as undisclosed income u/s 69 of the Act in the assessment year under appeal. Hence we are not inclined to interfere with the findings of the Learned CITA in this regard. Accordingly, the ground no. 3 raised by the revenue is dismissed.

6.1. The brief facts of this issue is that the assessee had derived interest income on fixed deposits of Rs. 74,826/- and credited the same in his profit and loss account and claimed the same as business income as the assessee had invested in fixed deposits and utilized the same as a security for availing overdraft facility for the purpose of his business. The books of accounts of the assessee has been rejected by the Learned AO which is also accepted by the assessee. Separate addition was made by the Learned

7 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 AO towards interest on fixed deposits to the tune of Rs. 74,826/- as income from other sources as the same was credited in the books of the assessee. On first appeal, the Learned CITA accepted to the contentions of the assessee by treating the interest income on fixed deposits as business income and since business income is estimated by the Learned AO , no separate addition need to be made on any other count. Aggrieved, the revenue is in appeal before us on the following ground:- “4. That the Ld. CIT(A) has erred in treating interest income of Rs.74,826/- as business income of the assessee relying on the treatment of this income in earlier years.”

6.2. The Learned DR argued that the assessee had invested in fixed deposits only out of idle funds and just because the same has been utilized by him by offering the same as security for availing overdraft facility in his business, the character of the receipt does not undergo any change and hence the Learned AO had rightly treated the same as income from other sources and accordingly pleaded for confirmation of the addition. In response to this, the Learned AR argued that the fixed deposits has close nexus with the business of the assessee and hence the interest income derived thereon has to be treated as business income only. He further argued that since the business income of the assessee has been determined by the Learned AO on an estimated basis, the Learned CITA had rightly deleted the addition of Rs. 74,826/- being interest income on fixed deposits, by stating that no separate addition need to be made on account of any other business income.

6.3. We have heard the rival submissions and perused the materials available on record. We are not in agreement with the arguments of the Learned AR that the fixed deposits were used as a security for availing overdraft facility by the assessee for the purpose of his business and hence the interest income derived thereon has got direct business nexus and has to be construed only as business income. It is seen that the entire books of accounts of the assessee has been rejected by the Learned AO which is also accepted by the assessee due to certain defects. We find that the Learned CITA had only accepted to the contentions stated by the assessee during first appellate proceedings and proceeded to accept the claim of the assessee. No evidences were produced to support the contentions of the assessee in this regard either before the

8 ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09 Learned CIT(A) or before us. In the absence of clear evidences to prove the business nexus of investing the fixed deposits, the resultant interest income had to be taxed only as income from other sources. We also draw support from the decision of the Hon’ble Supreme Court to support our view in the case of Pandian chemicals Ltd vs CIT reported in 262 ITR 278 (SC). This decision was rendered in the context of granting deduction of interest income on electricity deposits for the purpose of section 80HH of the Act. In this case, the Hon’ble Apex court held that though electricity is required for the purpose of running the industrial undertaking it cannot be construed that interest derived from such electricity deposits could be treated as profits derived from such industrial undertaking for the purpose of section 80HH of the Act. Applying the same analogy to the facts of the instant case, we hold that the interest income on fixed deposits earned by the assessee is to be taxed only as income from other sources and accordingly the ground no. 4 raised by the revenue is allowed. In the result, the appeal of the revenue is partly allowed. Order pronounced in the court on 08.10.2015.

Sd/- Sd/- [S.S.Viswanethra Ravi] [M.Balaganesh] Judicial Member Accountant Member Date :.08.10.2015. R.G.(.P.S.) Copy of the order forwarded to: 1. Sri Badal Krishna Saha, 2/222, Sree Colony Regent Estate, Kolkata- 700092. The I.T.O., Ward-53(4), Kolkata. 2 3. The CIT-XVIII, Kolkata, 4. The CIT(A)-XXXIII, Kolkata. 5. DR, Kolkata Benches, Kolkata True Copy, By order,

Deputy /Asst. Registrar, ITAT, Kolkata Benches

ITA No.884/Kol/2012 Sri Badal Krishna Saha A.Yr.2008-09