2016 (8) TMI 1078 - AT - Income Tax

N.P. determination - Held that - CIT (A) has examined in detail the material placed before him and also considered the average rate of net profit rate shown for the assessment years 2005- 06, 06-07, 07-08, 08-09 and 09-10. The ld. CIT (A) has considered the past history of the assessee as well as considering the material placed before him adopted the rate of 5% which appears to be reasonable looking to the facts and circumstances of the case. - Decided against revenue Addition of receipts/sales made on account of less receipts shown by the assessee from various projects in the books - Held that - reason to disturb the quantum of turnover which has been declared by the appellant. Moreover, if an amount has to be included in the turnover for this year, the same amount has either to be excluded from the turnover declared in the preceding year or of the turnover declared in the succeeding year. In either case, it is not going to matter much in terms of the ultimate results declared by the appellant. Accordingly, no reason in making an addition to the turnover of the appellant - Decided against revenue Separate liablility for tax on interest income and other income apart from the trading addition sustained - Held that - We find force in the contention of the ld. Counsel for the assessee that when the interest paid and earned in the course of business in that event deduction on payment of interest is required to be allowed. Accordingly, we delete the addition made by the ld. CIT (A) on this account. In respect of the other income the ld. Counsel for the assessee has demonstrated that it is part of the contract business and therefore, once the net profit is applied for assessing the income, such receipts cannot be separately added to the income. While accepting the contention of the ld. Counsel, we direct the AO to delete the addition. This ground of the assessee is allowed.

Summary

Issues Involved:
1. Adoption of net profit rate by the Commissioner of Income Tax (Appeals) (CIT(A)).
2. Deletion of receipts/sales by CIT(A).
3. Rejection of books of account and application of net profit rate.
4. Separate tax liability on interest income and other income.

Detailed Analysis:

1. Adoption of Net Profit Rate by CIT(A):
The revenue challenged the CIT(A)’s decision to reduce the net profit rate from 8% to 5%. The Assessing Officer (AO) had initially adopted an 8% net profit rate based on discrepancies in the books of account. The CIT(A) reduced this to 5% after considering the past history of the assessee and the average net profit rates from previous years. The Tribunal upheld the CIT(A)’s decision, finding it reasonable and based on a detailed examination of the material and past assessments.

2. Deletion of Receipts/Sales by CIT(A):
The AO added ?2,15,15,138 to the turnover based on discrepancies between the contract receipts shown by the assessee and those reflected in Form 26AS. The CIT(A), after considering the reconciliation provided by the assessee, found that the total difference was only ?1,54,85,187 and not ?2,15,15,138. The CIT(A) accepted the turnover declared by the assessee and deleted the addition made by the AO. The Tribunal upheld this decision, noting that the revenue did not provide any contrary material to rebut the CIT(A)’s findings.

3. Rejection of Books of Account and Application of Net Profit Rate:
The assessee contested the rejection of its books of account and the application of a 5% net profit rate. The AO had rejected the books due to specific defects impacting profit determination. The CIT(A) affirmed this rejection and adopted a 5% net profit rate based on past history. The Tribunal agreed, stating that the defects pointed out by the AO were significant enough to impact profit and justified the rejection of the books and the application of the 5% rate.

4. Separate Tax Liability on Interest Income and Other Income:
The assessee argued against the separate taxation of interest income and other income apart from the trading addition. The Tribunal found merit in the assessee’s contention that interest paid and earned in the course of business should be netted off. The Tribunal directed the AO to delete the addition for interest income. Regarding the other income of ?7,03,275, the Tribunal accepted that these were part of the contract business and should not be separately added once the net profit rate is applied. The Tribunal directed the deletion of this addition as well.

Conclusion:
The appeal by the revenue was dismissed, and the cross objection by the assessee was partly allowed. The Tribunal upheld the CIT(A)’s decisions regarding the adoption of the net profit rate and the deletion of additional receipts. It also directed the deletion of separate additions for interest income and other income, affirming that these should be considered part of the contract business once the net profit rate is applied.