2012 (7) TMI 968 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining an addition of Rs. 35,85,548 in contract account.
2. Treating income from interest derived from FDRs & NSC as income from other sources.
3. Charging of interest u/s 234B & 234D.
4. Deleting the addition of Rs. 31,27,950 made by the AO on account of non-deduction of tax u/s 40(a)(ia).

Summary:

Issue 1: Sustaining an addition of Rs. 35,85,548 in contract account
The assessee, engaged in contractor business, showed contract receipts of Rs. 21,49,39,150 with a Net Profit (N.P.) rate of 5.51%. The AO rejected the books of account invoking section 145(3) due to deficiencies such as lack of stock register, unsupported expenses, and no work in progress declared. The AO estimated the income applying a Gross Profit rate of 12.5%, resulting in an addition of Rs. 35,85,548. The CIT(A) confirmed the rejection of books and the estimation. However, the Tribunal noted that the N.P. rate for the year under consideration was better than previous years and found no justification for further addition. The Tribunal sustained an addition of Rs. 3,11,263 to cover petty lapses and deleted the balance addition of Rs. 32,74,285.

Issue 2: Treating income from interest derived from FDRs & NSC as income from other sources
The AO added Rs. 80,468 from FDR interest as income from other sources. The CIT(A) confirmed this. The Tribunal, referencing a previous decision in the assessee's case, held that interest from FDRs and NSCs pledged with the government for obtaining contracts should be treated as business income. Since this interest income was already considered in the estimation of income by applying the N.P. rate, the Tribunal deleted the addition of Rs. 80,468.

Issue 3: Charging of interest u/s 234B & 234D
The issue of charging interest u/s 234B & 234D was deemed consequential. The AO was directed to make necessary adjustments accordingly.

Issue 4: Deleting the addition of Rs. 31,27,950 made by the AO on account of non-deduction of tax u/s 40(a)(ia)
The AO disallowed Rs. 31,27,950 for non-deduction of tax at source u/s 194-I and 194-C. The CIT(A) deleted the addition of Rs. 26,77,950 related to labour charges, noting there was no contract between the payer and payee, and the payments were to individual labourers through supervisors. The CIT(A) directed the AO to verify the payments. For tractor hire and JCB operator charges, the CIT(A) held disallowance was warranted but accepted the assessee's contention that no separate addition was needed after rejecting the books of account. The Tribunal confirmed the CIT(A)'s order, finding no infirmity.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.