2016 (4) TMI 659 - AT - Income Tax

N.P. rate determination - rejection of books of accounts - Held that - In the absence of any basis to arrive at the conclusion of 8.5% of NP rate instead of 5.92%, we deem it appropriate to restrict the NP rate of 6% subject to depreciation and interest paid to third party. Since the assessee has failed to produce the stock register and other documents for the purpose of qualitative verification, it was not possible for the authorities below to verify the books of account. Therefore, the AO was left with no other option but to reject the books of account. We are in agreement with the authorities below for rejecting the books of account. The judgments relied upon by the ld. Counsel for the assessee are not applicable to the facts and circumstances of the case and the judgments relied upon by the AO while passing the assessment order are squarely applicable to the facts and circumstances of the case. Hence, the appeal of the assessee is partly allowed to that extent. - Decided in favour of assessee in part

Summary

Issues:
1. Jurisdiction of assessment order under section 143(3)
2. Application of section 145(3) for trading addition
3. Treatment of interest income from FDRs as business receipts
4. Charging of interest under sections 234B, 234C, and 234D

Jurisdiction of assessment order under section 143(3):
The appeal challenged the assessment order dated 05.12.2011, claiming it to be bad in law and jurisdiction. The appellant argued for its quashing due to lack of jurisdiction and other reasons. The appellant, a contractor in civil construction work, revised the income declaration for A.Y. 2009-10 to Rs. 1,25,99,660/-. The AO invoked section 145(3) due to low net profit rate after excluding interest income and rental income. The AO rejected the books of account, applying an 8.5% NP rate, leading to an addition of Rs. 10,72,520. The CIT (A) upheld the AO's decision, citing past history and rejecting the appeal.

Application of section 145(3) for trading addition:
The AO's application of an 8.5% NP rate, post rejection of books of account, was based on past history and upheld by the CIT (A). The appellant argued for deletion of the addition, citing a lower NP rate declared for a subsequent year. The Tribunal considered the absence of stock register and verified books, leading to the rejection of books of account and estimation of NP rate at 8.5%. However, the Tribunal restricted the NP rate to 6% due to lack of concrete evidence to support the higher rate.

Treatment of interest income from FDRs as business receipts:
The AO treated interest income from FDRs as income from other sources, separate from contract receipts, leading to a separate tax assessment. The CIT (A) supported this treatment, considering the expenses already claimed in the P&L account. The Tribunal upheld this decision, emphasizing the separate nature of FDR income from business receipts, leading to the confirmed addition.

Charging of interest under sections 234B, 234C, and 234D:
The appellant denied liability for interest charged under sections 234B, 234C, and 234D, arguing against its consequential nature. However, the Tribunal did not address this issue explicitly in the judgment, focusing mainly on the application of section 145(3) and the NP rate calculation. The appeal was partly allowed based on the NP rate adjustment and rejection of books of account.