2010 (8) TMI 1105 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of books of account.
2. Inclusion of recoveries in the gross receipt.
3. Rate of profit estimation.
4. Treatment of other income.

Summary:

1. Rejection of Books of Account:
The Tribunal upheld the rejection of the books of account u/s 145 of the I.T. Act, 1961, due to documents seized during a search operation that indicated higher profits than those recorded in the books. The Tribunal found that the site-in-charge, who prepared the documents, had full knowledge of the contract work, making the documents relevant for profit computation.

2. Inclusion of Recoveries in the Gross Receipt:
The Tribunal directed the Assessing Officer to exclude the cost of materials supplied by the Government from the total contract receipts, referencing the Apex Court judgment in Bridge Bahujanlal Kumar vs. CIT (1978) 115 ITR 524. The profit should be determined based on cash payments received by the assessee, not the material receipts.

3. Rate of Profit Estimation:
The Tribunal found the estimation of profit at 12.5% excessive and not justified. It noted that profit rates vary based on various factors and directed the Assessing Officer to estimate the profit at 10% of the gross contract receipt for work executed directly by the assessee, allowing for depreciation. For sub-contract work, the profit should be the commission received by the assessee.

4. Treatment of Other Income:
The Tribunal held that interest on fixed deposits should be assessed separately, in line with the decision in DCIT Vs. Allied Construction (2007) 105 ITD 1 (SB). Interest on mobilization advances to sub-contractors should reduce the cost of the contract. Commission on sub-contracts should be added as income separately. The issue of profit from Madhukan Shreeram Joint Venture was remanded for fresh examination. Other incomes like interest on TDS, sales tax refund, machinery hire charges, and seinerages charges should be added separately to the total income.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific directions for the Assessing Officer to follow in reassessing the income. The order was pronounced on 27th August 2010.