2016 (3) TMI 19 - AT - Income Tax

NP rate determination - CIT(A) has calculated NP rate @ 6.28% on given facts and figures by the assessee against 5.16% shown in the year under consideration - Held that - AR had not controverted the finding given by the ld CIT(A). The ld AR had not challenged the rejection of books of account, therefore, book result cannot be accepted as such. The past history also showed that the assessee had shown much more NP rate even on higher gross receipts. The assessee is a habitual for non-maintaining proper books of account including vouchers and stock register as per site wise and details of labour charges. Therefore, we uphold the order of the ld CIT(A). Accordingly, this ground of appeal is dismissed. In A.Y. 2011-12, the Assessing Officer had applied NP rate of 15% and the assessee had shown NP rate before depreciation, interest and salary @ 13.73%. The NP rate during the year after depreciation, interest and remuneration to partner is 3.4% whereas this rate was 5.28% in preceding year, therefore, there was a substantial decline in NP rate during the year. The AR has not explained this reason alongwith evidence. Moreover, in the present case as well as there is rejection of books of account and the assessee has failed to maintain proper books of account namely stock register, labour charges register, qualitative details and record of the invoices, therefore, on account of record has rightly been rejected by the authorities below, considering the facts and circumstances, in the interest of justice, we confirm lump sum addition of ₹ 12 lacs and assessee get relief of ₹ 7,46,289/-.- Decided partly in favour of assessee TDS U/s 194H not paid - payment of bank guarantee, brokerage - Held that - The relation between the assessee and the bank is not principal and agent, the commission of bank guarantee is not covered by the explanation (i), therefore, no TDS is liable to be deducted. - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of books of account under Section 145(3) of the Income Tax Act, 1961.
2. Application of Net Profit (NP) rate.
3. Treatment of income from hire charges and interest.
4. Disallowance under Section 40(a)(ia) for non-deduction of TDS on bank guarantee commission.
5. Charging of interest under Sections 234B, 234D, and withdrawal of interest under Section 244A.

Detailed Analysis:

1. Rejection of Books of Account under Section 145(3):
The primary issue revolved around the rejection of books of account by the Assessing Officer (AO) under Section 145(3) of the Income Tax Act, 1961, for the Assessment Years (AY) 2009-10 and 2011-12. The AO pointed out that the assessee had not maintained day-to-day stock registers, consumption registers, or site-wise records, making it impossible to verify the consumption of materials and labor. Consequently, the AO applied an 8% NP rate for AY 2009-10 and a 15% NP rate for AY 2011-12. The CIT(A) upheld the rejection of books but adjusted the NP rates based on past history and other considerations.

2. Application of Net Profit Rate:
For AY 2009-10, the CIT(A) applied a 6.28% NP rate after considering past history and case laws, resulting in an addition of Rs. 30,98,811. The Tribunal upheld this decision, noting that the assessee had not maintained proper books and had shown higher NP rates in earlier years. For AY 2011-12, the CIT(A) accepted the book results, leading to the deletion of the trading addition made by the AO. However, the Tribunal confirmed a lump sum addition of Rs. 12 lakhs due to the substantial decline in NP rate and lack of proper books.

3. Treatment of Income from Hire Charges and Interest:
For AY 2009-10, the AO treated the income from hire charges and interest as "income from other sources," while the CIT(A) treated them as part of the business income. The Tribunal upheld the CIT(A)'s decision, noting that the hire charges and interest income were integral to the business operations and had been consistently treated as such in previous years.

4. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Bank Guarantee Commission:
For AY 2011-12, the AO disallowed Rs. 19,46,289 under Section 40(a)(ia) for non-deduction of TDS on bank guarantee commission. The CIT(A) deleted this addition, citing the Mumbai ITAT's decision in Kotak Securities and noting that the relationship between the assessee and the bank was not that of principal and agent. The Tribunal upheld the CIT(A)'s decision, following the principle of consistency and the precedent set in the assessee's own case for the earlier year.

5. Charging of Interest under Sections 234B, 234D, and Withdrawal of Interest under Section 244A:
The assessee contested the charging of interest under Sections 234B and 234D and the withdrawal of interest under Section 244A. The Tribunal noted that these were consequential in nature and did not require separate adjudication.

Conclusion:
The appeals for AY 2009-10 were dismissed, and the appeal for AY 2011-12 was partly allowed. The Tribunal upheld the CIT(A)'s decisions on the application of NP rates, treatment of hire charges and interest income, and deletion of disallowance under Section 40(a)(ia). The Tribunal also confirmed the lump sum addition for AY 2011-12 due to the decline in NP rate and lack of proper books.