2016 (2) TMI 190 - AT - Income Tax

Rejection of books of accounts - adoption of NP rate of 9% - Held that - As ample opportunities have been given to the assessee to produce the books of accounts, the assessee being contractor, is statutorily bound to maintain bills, vouchers, cash book, stock register etc. and in the absence of maintenance of the said records, the AO is left with no option but to invoke section 145(3) of the IT Act and estimate the income of the assessee. Even otherwise the assessee had admitted before the authorities below for rejection of books of account and application of 9% NP rate on contractual receipts subject to depreciation and interest. In our view, once the complete books of account have not been produced, the AO was right in rejecting the books of account and has righty done so. Even otherwise, the assessee has no legs to stand that the books of account and the NP rate of 9% has been wrongly decided by the AO. The admission of the assessee is the best evidence against the assessee. Once the assessee himself has admitted the imposition of 9% NP rate subject to depreciation and interest, the AO was left with no other option but either to accept the offer or to determine the N.P. on the basis of comparable material on record or on the basis of past history. - Decided against assessee Addition on account of interest income from FDRs - Held that - We are in agreement with the ld. A/R for the assessee that the FDRs were required to furnish performance guarantee to get a contract awarded in assessee s favour and to procure said guarantee, it had kept amount in fixed deposit. Therefore, the income earned on this account cannot be treated as Income from other sources. The contention of the assessee are supported by various judgments relied on by ld. A/R. We find that the decisions cited by ld. CIT (A) are not applicable to the facts of the assessee s case. We, therefore, taking into consideration various judgments mentioned above, deleted the additions made by the AO. - Decided in favour of assessee Addition on account of taxi plying, on estimate basis - Held that - AO has not given any basis for making this addition. Therefore, we do not find any justification in the order of the AO for making this addition. The addition is thus deleted.- Decided in favour of assessee Disallowance on account of non business use of cars - Held that - The assessee has not produced any log book in respect of running of vehicles, therefore, personal use of vehicles cannot be rued out. But the disallowance made by the AO is on higher side, therefore, we restrict the disallowance to ₹ 13,116/- (10%).- Decided in favour of assessee in part.

Issues Involved:
1. Rejection of books of account and application of section 145(3).
2. Addition based on net profit rate.
3. Separate addition on account of interest income.
4. Addition on account of taxi plying (A.Y. 2007-08).
5. Disallowance on account of non-business use of cars (A.Y. 2009-10).

Issue-wise Detailed Analysis:

1. Rejection of Books of Account and Application of Section 145(3):
The assessee, a civil contractor, had his books of account rejected by the Assessing Officer (AO) under section 145(3) due to the non-production of necessary documents like bills, vouchers, cash book, and stock register. The AO applied a net profit (N.P.) rate of 9% on gross receipts after discussions with the assessee, who agreed to this rate subject to depreciation and interest. The CIT (A) confirmed this rejection, noting the absence of supporting documents despite ample opportunities provided to the assessee. The Tribunal upheld the rejection, emphasizing the statutory obligation of the assessee to maintain proper records and the assessee's admission of the 9% N.P. rate.

2. Addition Based on Net Profit Rate:
For A.Y. 2007-08, the AO applied a 9% N.P. rate on gross contract receipts of Rs. 6,53,09,889, resulting in an income of Rs. 58,77,890, which, after depreciation, was reduced to Rs. 55,69,695. An addition of Rs. 12,04,532 was made. For A.Y. 2009-10, a similar approach was taken, leading to an addition of Rs. 16,47,466. The CIT (A) confirmed these additions, and the Tribunal upheld the CIT (A)'s decision, noting the assessee's agreement to the 9% N.P. rate and the lack of complete books of account.

3. Separate Addition on Account of Interest Income:
The AO added Rs. 3,53,932 (A.Y. 2007-08) and Rs. 12,24,814 (A.Y. 2009-10) as interest income from FDRs, treating it as "Income from Other Sources" since the assessee was not in the money-lending business. The CIT (A) upheld this view. However, the Tribunal disagreed, noting that the FDRs were required for securing contracts and had an inextricable nexus with the assessee's business. Citing relevant judgments, the Tribunal treated the interest income as business income and deleted the additions.

4. Addition on Account of Taxi Plying (A.Y. 2007-08):
The AO made an addition of Rs. 15,228 on an estimated basis, treating 25% of the gross receipts from car hiring as income, out of which 9% was already assessed. The CIT (A) confirmed this addition due to the lack of supporting documents. The Tribunal found no basis for this addition and deleted it, noting the arbitrary nature of the estimate.

5. Disallowance on Account of Non-Business Use of Cars (A.Y. 2009-10):
The AO disallowed Rs. 26,232, estimating 1/5th of the claimed expenses for non-business use of cars due to the lack of documentary evidence. The CIT (A) upheld a 20% disallowance. The Tribunal, recognizing the absence of a logbook and the likelihood of personal use, deemed the AO's disallowance excessive and reduced it to 10%, amounting to Rs. 13,116.

Conclusion:
The Tribunal partly allowed the appeals, upholding the rejection of books and the application of the 9% N.P. rate while deleting the additions related to interest income and taxi plying. It also reduced the disallowance for non-business use of cars. The judgment was pronounced in the open court on 01/01/2016.

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