2014 (5) TMI 842 - AT - Income Tax

Gross receipts to be estimated @5% instead of 3% - Rejection of books of accounts allowance of depreciation and partners salary from estimated income applying the provisions of Section 44AD - Held that - On examination of the books of account with reference to the voucher produced, the Assessing Officer found that the voucher does not tally with the cashbook - When the voucher does not tally with cashbook, the book results will not reflect the correct profit of the assessee - The Assessing Officer has rightly rejected the books of account - When the books of account were rejected the only method available to the Assessing Officer is to estimate the profit - The profit ratio cannot be a constant factor for each and every year - Tribunal has been uniformly estimating the profit from main contract at 8% to 12.5% depending upon the factual situation and 5% to 7% on the sub contract depending upon the factual situation. Claim of seigniorage charges Held that - The material supplied by the Government/contractor will not have any element of profit - it shall be reduced from the contract receipts - the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit thus, the AO is directed that while computing the total contract receipts the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. Estimation of income @5% - Grant of depreciation - Held that - Following Indwell Constructions Versus Commissioner Of Income-Tax 1998 (3) TMI 121 - ANDHRA PRADESH High Court - the deduction available u/ss. 30 to 38 shall be deemed to have been already given full effect and no further deduction under those sections shall be allowed - Depreciation is allowable u/s. 32 of the Income-tax Act - as provided in section 44AD no further/separate deduction shall be allowed - the claim of depreciation on the estimated income is not justified. Payment of interest and salary to the partner Held that - The provision of section 44AD as it is applicable for the assessment year under consideration and the amendment made with effect from1.4.2011 it is obvious that the Legislature intended to allow the interest and salary separately from the estimated income the AO is directed to allow the salary and interest paid to the partner subject to the limitation provided in section 40(b) of the Act Decided against Revenue.

Summary

Issues:
- Disputed estimation of income from main and sub-contract works
- Rejection of books of account by AO
- Consideration of depreciation, seigniorage charges, and interest/salary to partner

Estimation of Income from Main and Sub-contract Works:
The Revenue appealed against the CIT(A)'s order for assessment year 2008-09, disputing the estimation of income from main and sub-contract works. The AO rejected the books of account due to unsupported expenditure claims and estimated income at 12.5% from main contracts and 8% from sub-contracts. The CIT(A) directed to estimate income at 8% and 5% for main and sub-contract works, respectively, based on precedents and factors affecting profit ratio. The Tribunal upheld the CIT(A)'s decision, justifying the estimation based on factual considerations and previous Tribunal orders.

Rejection of Books of Account:
The AO rejected the books of account as expenditure claims lacked proper vouchers. The Tribunal supported the AO's decision, emphasizing the importance of maintaining accurate books of account for reflecting correct profits. The rejection led to income estimation, considering factors like labour availability and market demand, justifying the need for estimation due to unreliable book results.

Consideration of Depreciation, Seigniorage Charges, and Interest/Salary to Partner:
Regarding seigniorage charges, the Tribunal directed the AO to reduce them from total contract receipts for profit estimation based on a Supreme Court judgment. Depreciation was denied on estimated income as per section 44AD, which disallows further deductions. However, interest and salary to partners were allowed subject to limitations under section 40(b), following Tribunal precedents and legislative changes. The Tribunal differentiated the case from past judgments, emphasizing the evolving legal provisions and their implications on deductions.

In conclusion, the Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order based on previous Tribunal decisions and legal provisions. The detailed analysis covered issues of income estimation, book rejection, and deductions, ensuring compliance with relevant laws and precedents.