2014 (12) TMI 341 - AT - Income Tax

Estimation of income - Rejection of books of accounts u/s 145 maintained in the regular course of business Held that - Assessee contended that the statements showing the working of centage for the current year and the same working for the preceding years from AY 2004-05 to 2008-09 - centage was considered in each year and thereafter, the closing work in progress was determined and therefore, the addition made by the AO is not justified - centage charges are not fixed and it is varying on the basis of type of contract - certain state government works are allotted to the assessee on which no centage is admissible - these works include M.P./M.L.A. works allotted by the district level authorities works and non centage works - the assessee is bound to execute these non centage works also - the addition was made by the AO by applying the blanket rate of 12.5% for centage charges whereas the claim of the assessee is that on M.L.A./M.P. Nidhi, no centage charges is receivable but as per the details available, in respect of some contracts in respect of M.L.A./M.P. Nidhi, the assessee has also shown centage charges - the working of the assessee is not proper and the basis adopted by the AO is also not scientific thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh decision Decided in favour of assessee. Addition of earned interest on unutilized fund payable to UP Govt. deleted Held that - Out of total amount shown as interest on unutilized fund at ₹ 34,07,81,937/- as against opening balance of ₹ 29,12,39,888/-, the AO has treated the amount of ₹ 4,95,42,098/- as income of the assessee for the present year - This amount is difference in opening balance and closing balance - no finding is given by CIT(A) that in fact, the amount of interest income is earned in respect of interest on unutilized fund thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh decision in after examining this contention of the assessee that as per the direction of the U.P. Government, from whom the grant was received by the assessee, if any unutilized fund is kept in bank and any interest is earned then such interest income is not income of the assessee and it has to be treated as extra grant by the Government Decided in favour of revenue.

Summary

Issues Involved:
1. Rejection of Books of Accounts under Section 145 of the Income Tax Act, 1961.
2. Addition of centage receivable on Work in Progress (WIP).
3. Addition of prior year expenses crystallized during the relevant Assessment Year.
4. Addition of Rs. 96,337 claimed as an allowable deduction.
5. Addition of Rs. 1,06,03,40,887 on account of estimating the amount of centage receivable on WIP at 12.5%.
6. Addition of Rs. 8,48,27,27,094 under Section 154 of the Income Tax Act.
7. Deletion of additions made by the AO of Rs. 4,95,42,049 on account of earned interest of unutilized fund payable to U.P. Govt.
8. Cross Objection by the assessee regarding the addition of Rs. 4,95,42,049 as interest earned on unutilized funds.

Detailed Analysis:

1. Rejection of Books of Accounts under Section 145 of the Income Tax Act, 1961:
The assessee contested the rejection of its books of accounts maintained in the regular course of business, arguing that these books were consistently accepted in previous years. The CIT(A) upheld the AO's decision, stating that the assessee had deliberately not included the centage receivable on WIP to suppress taxable income. The Tribunal found that the addition made by the AO was not justified and restored the matter to the AO for fresh decision, requiring the assessee to furnish complete details regarding centage/supervisory charges as per contracts.

2. Addition of centage receivable on Work in Progress (WIP):
The AO applied a blanket rate of 12.5% for centage charges, which the assessee argued was incorrect as certain contracts, especially those related to M.L.A./M.P. Nidhi, did not attract centage charges. The Tribunal noted inconsistencies in the assessee's working and the AO's approach. It set aside the CIT(A)'s order and restored the matter to the AO to determine the exact value of centage/supervisory charges based on actual contracts, ensuring proper opportunity for the assessee to present evidence.

3. Addition of prior year expenses crystallized during the relevant Assessment Year:
The Tribunal did not provide specific details on this issue in the judgment. However, it is implied that this matter would also be reconsidered by the AO during the reassessment process.

4. Addition of Rs. 96,337 claimed as an allowable deduction:
Similar to the prior year expenses, the Tribunal did not delve into this issue in detail. It is assumed to be part of the broader reassessment directive given to the AO.

5. Addition of Rs. 1,06,03,40,887 on account of estimating the amount of centage receivable on WIP at 12.5%:
The Tribunal found that the method used by the AO was not scientific and required a detailed examination of each contract. The matter was sent back to the AO for a fresh decision, with instructions to consider the actual centage/supervisory charges receivable as per the contracts.

6. Addition of Rs. 8,48,27,27,094 under Section 154 of the Income Tax Act:
The Tribunal noted that the issue of centage receivable was already being reconsidered under Section 143(3) and thus, the appeal under Section 154 did not survive. Consequently, this appeal was dismissed.

7. Deletion of additions made by the AO of Rs. 4,95,42,049 on account of earned interest of unutilized fund payable to U.P. Govt.:
The Revenue challenged the deletion of this addition by the CIT(A), who had relied on a Government order stating that interest earned on unutilized funds should be considered as a grant from the U.P. Government. The Tribunal restored the matter to the AO to verify if the interest income was indeed from unutilized funds provided by the U.P. Government and whether it was treated as an extra grant by the Government.

8. Cross Objection by the assessee regarding the addition of Rs. 4,95,42,049 as interest earned on unutilized funds:
The Tribunal found the Cross Objection by the assessee to be infructuous as it merely supported the CIT(A)'s order. Hence, it was dismissed.

Conclusion:
The appeals of the assessee and Revenue were allowed for statistical purposes, with the matters being remanded to the AO for fresh consideration. The remaining appeal of the assessee and the Cross Objection were dismissed. The AO is to reassess the issues after providing adequate opportunity for the assessee to present evidence.