2013 (12) TMI 134 - AT - Income Tax

Contract works - estimation of income - Held that - Following Ferro Concrete Construction (India) (P) Ltd. V/s. CIT 2005 (1) TMI 93 - MADHYA PRADESH High Court - It is incidental to the business activity any income earned by sale of empty bags/containers/drums cannot be said to be an income from other sources but it is an income from business activity of the assessee - Therefore The income from metal account miscellaneous income or interest on fixed deposits are relatable to the business of contracts carried on by the assessee - However interest income earned on fixed deposits is chargeable to tax as income from other sources - Also the income should be assesseed by applying net profit rate of 8% to this income - Partly allowed in favour of assessee. Disallowance u/s 40(a)(ia) - Held that - Following CIT V/.s. Banwari Lal Banshidhar 1997 (5) TMI 37 - ALLAHABAD High Court - No disallowance could be made in view of the provisions of Section 40A(3) read with rule 6DD(j) of the Income-tax Rules 1962 as no deduction was allowed to and claimed by the assessee - When the gross profit rate was applied that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases made by the assessee - Decided against Revenue.

Summary

Issues:
Cross appeals for assessment year 2008-09 against Commissioner of Income-tax(Appeals) IV order dated 30.8.2011.

Assessee's Appeal:
1. Estimation of income @ 8% of the gross contract receipts:
The Assessing Officer estimated the income of the assessee at 8% of gross receipts, which the assessee contested. The learned Authorised Representative for the assessee withdrew the grounds challenging this estimation during the hearing.
2. Assessment of Rs.43,48,636 under 'other sources':
The Assessing Officer treated the amount disclosed by the assessee under 'business' as income from 'other sources'. The CIT(A) upheld this decision, stating the income had no nexus with the business. The assessee argued that the income from metal account and miscellaneous sources was integral to their business activities, citing relevant case law. The Tribunal directed the Assessing Officer to treat these amounts as business income but upheld the treatment of interest income as income from other sources.

Revenue's Appeal:
1. Disallowance under S.40(a)(ia):
The Assessing Officer disallowed Rs.14,42,980 under S.40(a)(ia), which the CIT(A) deleted. The Revenue contended that this disallowance was mandatory even when income is estimated, citing a Tribunal decision. The assessee argued that no separate disallowance can be made once income is estimated, referring to relevant case law. The Tribunal upheld the CIT(A)'s decision to delete the disallowance under S.40(a)(ia).

In conclusion, the assessee's appeal was partly allowed, while the revenue's appeal was dismissed. The Tribunal emphasized that no separate addition could be made under S.40(a)(ia) once income is estimated, following relevant case law and dismissing the Revenue's contentions. The orders were pronounced on 18.10.2013.