2015 (5) TMI 1237 - AT - Income Tax

Rejection of books of accounts - estimation of income at 8% of the contract receipt - HELD THAT - if the projects on which profit stands assessed for AY 2003-04 are the same for which it is for the current year the assessee is entitled to claim a review of its profit in light of its assessment for that year. The work-in-progress (WIP) for the current year would in that case be only a continuation of the WIP for that year. The onus to establish the facts is only on the assessee. The matter is accordingly set aside to the file of the first appellate authority to examine the assessee s contention as to parity of facts. The Department on its part however cannot act de hors or inconsistent with the material on record and a similarity of business conditions is a relevant factor in estimation of income. The same however shall not bind the Revenue authorities who are entitled to examine other aspects of the matter as well viz. the input costs contract rate/s etc. The matter we may emphasize is wholly factual with it being permissible for the Revenue to show that despite parity of facts the said rate does not represent or yield the correct income earned or assessable for the current year in which case therefore the onus would shift to the Revenue. In the facts of the case it is not clear if the profit rate for A. Y. 2003-04 on which the assessee relies stands assessed at net or gross of depreciation information qua which could not be supplied by the parties on being enquired by the Bench during hearing. Rather inasmuch as no allowance for depreciation otherwise mandatory stands made separately the presumption (on facts) would only be that the profit rate stands assessed taking into account all the claims including depreciation being in fact patent. We therefore rather than giving any specific direction on quantum direct that the profit for the current year be first estimated before depreciation and depreciation as exigible allowed separately per a speaking order after considering all the relevant materials and after hearing both the parties Issuance of a direction for allowance of interest paid to bank against the income from FDRs in-as-much as the latter stands assessed as business income - The margin money by necessary implication would represent the assessee s capital/quasi capital. Would one may ask the bank extend fund based credit to a borrower to enable it to avail non-fund credit (from the bank) further jeopardizing rather than securing itself? That the immediate or apparent source of FDRs is the cash credit account is of little consequence; the same representing a common pool of funds through which funds for its different purposes are channelized by the assessee. The same thus is of little assistance in identifying the actual source of funds which may require analysis of the assessee s financial position with further reference to its contractual obligations. The matter stands already remanded to the file of the assessing authority on terms which cannot be regarded as either inapposite under the circumstances or prejudicial to the assessee. We accordingly find no reason to modify the same as sought by the assessee per its appeal even as in our view its argument on the basis of which a direction to factually determine the matter has been made is on its face without merit. The AO shall accordingly observe the directions by the ld. CIT(A) and decide per a speaking order i.e. where the assessee furnishes any materials etc. to substantiate its case. We decide accordingly.

Summary

Issues:
1. Part allowance of appeals against assessments u/s. 143(3) of the Income Tax Act, 1961 for assessment years 2005-06 & 2006-07.
2. Applicability of the principle of res judicata in income tax proceedings.
3. Claim for review of profit based on previous year's assessment.
4. Allowance of depreciation and its statutory nature.
5. Allowance of interest paid to bank against income from FDRs assessed as business income.

Issue 1: Part Allowance of Appeals
The judgment deals with two consecutive year appeals by the Assessee contesting part allowance of assessments against income from civil construction work. The Assessing Officer assessed income at 8% of contract receipt after rejecting books of account, upheld by CIT(A). The Assessee argued for consistency based on a previous year's decision. The Tribunal emphasized each year as a separate assessment unit and set aside the matter to examine if profit for the current year should be reviewed based on previous year's assessment.

Issue 2: Principle of Res Judicata
The Tribunal clarified that the principle of res judicata does not apply in income tax proceedings. It highlighted that each year's assessment is independent, and decisions from previous years are not binding. The Tribunal directed the first appellate authority to review the profit for the current year if the projects and facts are the same as the previous year.

Issue 3: Claim for Review of Profit
The Assessee's claim for a review of profit based on the previous year's assessment was considered valid by the Tribunal if the projects were the same. The onus to establish the facts lies on the Assessee, and the Revenue can examine other factors affecting income estimation.

Issue 4: Allowance of Depreciation
The Tribunal stressed that depreciation is a statutory allowance and should be assessed separately after estimating net profit. It directed a speaking order after considering all relevant materials and hearing both parties. The Tribunal highlighted the need for clarity on whether the profit rate in the previous year included depreciation.

Issue 5: Allowance of Interest
The Tribunal addressed the claim for allowance of interest paid to the bank against income from FDRs assessed as business income. It upheld the direction by CIT(A) to allow expenditure for earning interest income. The Tribunal found the Assessee's argument regarding FDRs and bank guarantee to be without merit and directed the AO to decide per a speaking order based on materials provided by the Assessee.

In conclusion, the Tribunal partly allowed the Assessee's appeals for statistical purposes and allowed the Revenue's appeal for statistical purposes, emphasizing the need for separate assessment of depreciation and consideration of relevant factors in income estimation.