2012 (9) TMI 150 - AT - Income Tax

Adoption of Higher % of net profit - Assessee failed to produce books of account - AO applied net profit rate of 12% - Difference in amount of wages as found in assessee s computer during survey and amount shown in Profit & Loss A/c - Held that - As the audited accounts are not in confirmation with print-out in possession during survey - Although print-outs taken during survey are unsigned but having great significance - As decided by CIT(A) on the basis of earlier assessment years applied net profit rate at 7% - As the fact of case are not similar to earlier assessment - AO having sufficient materials on record warranting adoption of higher percentage of net profit then the rate earlier estimated by ITAT could not be adopted - Decision matter remanded back to CIT(A). Addition on account of net interest expenditure - AO made addition on basis of TDS certificate - Corresponding interest income not shown in P&L a/c - Held that - Paper books were available to AO & the details shows that assessee claims interest expenditure net of income therefore, no separate addition could be made on account of interest income. Decision in favor of assessee. Addition on account of Sub-contract work on estimated basis - Assessee claims that expense of sub-contract work should be reduce from gross receipt on the basis of decided case - Fact of case were not similar as assessee failed to produce books of account - AO compute income on the basis of TDS certificates - That is profit margins that he would earned if assessee execute such contract i.e half of such margin - Held that - Assessee can claim payment made to sub-contractor as expenditure but the turnover cannot be reduced. And also there is no evidence to show that sub-contract work was given on the same rates as received by the assessee in other contracts. Decision remanded back case to AO.

Summary

Issues:
1. Net profit rate applied by the Assessing Officer.
2. Treatment of bank interest income.
3. Addition made on account of margin in sub-contract work.
4. Rejection of books of accounts and depreciation issues.

Analysis:

Issue 1: Net profit rate applied by the Assessing Officer
The revenue challenged the CIT(A)'s decision to reduce the net profit rate from 12% to 7%. The Tribunal noted that in previous years, a 7% rate had been applied and confirmed by the High Court. The revenue argued that the facts were different this year due to a survey revealing a discrepancy in wages recorded. The Tribunal observed that the CIT(A) had considered the past decisions and directed the AO to recompute the net profit at 7%. However, the Tribunal found that the facts were not identical, as highlighted by the revenue, and remanded the matter back to the CIT(A) for re-examination based on the AO's findings.

Issue 2: Treatment of bank interest income
The AO added bank interest income to the assessee's total income as it was not shown in the Profit & Loss Account but was reflected in the TDS certificate. The CIT(A) allowed the claim based on submissions and previous orders. The Tribunal upheld the CIT(A)'s decision, noting that the interest details were filed before the AO, and only the net interest expenditure was claimed, thus no separate addition was warranted.

Issue 3: Addition made on account of margin in sub-contract work
The AO made an addition for margin in sub-contract work, estimating a profit rate of 6%. The CIT(A) deleted the addition, citing past decisions and the nature of the sub-contract work. The Tribunal agreed with the CIT(A) that the turnover should not be reduced by sub-contract payments but upheld the deletion of the addition. The issue was remanded back to the AO for reconsideration.

Issue 4: Rejection of books of accounts and depreciation issues
The revenue raised objections regarding depreciation and rejection of books, which were deemed infructuous by the Tribunal due to the application of the profit rate and no separate deductions for depreciation. These grounds were dismissed as infructuous, and the appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal addressed each issue raised by the revenue, remanding some back for further examination while upholding the decisions made by the CIT(A) on others. The judgment provided detailed reasoning based on legal precedents and factual considerations, ensuring a comprehensive analysis of the issues at hand.