2017 (5) TMI 73 - AT - Income Tax

Validity of assessment order - estimation of income - additions towards unapproved creditors - hire charges - as the assessee failed to provide any information/evidence to clarify the nature of credit transaction, which was required to be submitted and examined as per the order of the ITAT, opined that the assessing officer is justified in making the impugned addition of ₹ 50,48,070/- - Held that - the creditors have filed a confirmation letter indicating the nature of transactions and also amount outstanding as on the date - the assessee has filed a ledger extract of creditors evidencing the payment of credits in subsequent financial years - the assessee has proved the nature of credits with necessary evidences and as per which these creditors are arised out of purchases as well as rendering services. Even otherwise, the impugned additions cannot be sustained for the reason that once income is estimated, no additions can be made towards trade creditors which is arised out of such purchases - the additions made is directed to be deleted. Hire charges - addition made on the ground that this item of receipt is shown in the profit & loss account apart from contract receipts and also fact that the assessee did not clarify that this item so received was also derived from the contract business - Held that - the assessee has failed to clarify that the item of receipt was also derived from the contract business. In the absence of such clarification, the A.O. was right in making additions towards hire charges. Disallowance of certain expenditure - oil and diesel expenses - roller charges - machinery maintenance - estimation of income on sub contract payment - Held that - As most of the works have been sub contracted, the claim of huge expenditure under diesel and oil is in doubt and the assessee failed to substantiate the consumption or the use in its works. As regards the sub contract payment, the assessee failed to submit all the relevant details. Therefore, taking into account, the various discrepancies noticed, directed the A.O. to estimate net profit of 6% on gross contract receipts net of all deductions and directed the A.O. to re-compute the total income. - In so far as assessment year 2010-11, considering the totality of the facts and circumstances, the CIT(A) directed the A.O. to estimate net profit of 5% on total sub contract receipts. Appeal allowed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Addition towards unproved creditors.
2. Addition towards hire charges.
3. Estimation of net profit from business.
4. Additions towards bank interest under the head ‘income from other sources’.

Detailed Analysis:

1. Addition towards unproved creditors:
The case pertains to the assessment year 2001-02 where the assessee's total income was significantly increased by the AO due to unproved creditors. The ITAT had previously set aside the issue to the AO for fresh verification. The AO, upon re-examination, added ?50,48,070 towards unproved creditors. The CIT(A) upheld this addition, noting the assessee's failure to provide independent confirmation letters from the creditors. The assessee argued that these were trade credits and had provided necessary evidence. The ITAT found that the assessee had indeed filed confirmation letters and ledger extracts proving the settlement of credits in the subsequent financial year. It concluded that the credits were genuine and directed the AO to delete the additions.

2. Addition towards hire charges:
The AO made an addition of ?70,140 towards hire charges, which the assessee contended should be included in the estimation of income from total receipts. The CIT(A) upheld the AO's addition, and the ITAT agreed, noting that the assessee failed to clarify that the hire charges were derived from the contract business. Thus, the addition towards hire charges was justified.

3. Estimation of net profit from business:
For the assessment years 2009-10 and 2010-11, the AO had disallowed certain expenses and estimated net profit on sub-contract payments. The CIT(A) directed the AO to estimate net profit at 6% for 2009-10 and 5% for 2010-11, considering discrepancies in the vouchers and the nature of sub-contract payments. The ITAT upheld the CIT(A)'s findings, noting that the assessee and revenue failed to provide evidence to contradict the CIT(A)'s conclusions.

4. Additions towards bank interest under the head ‘income from other sources’:
For the assessment year 2010-11, the AO made a separate addition towards bank interest, which the assessee argued should not be separately assessed once income is estimated from contract receipts. The CIT(A) upheld the AO's addition, and the ITAT agreed, stating that earning interest from bank deposits is unrelated to the assessee's contract business. The interest income was rightly categorized under ‘income from other sources’.

Conclusion:
The ITAT provided a detailed analysis, addressing each issue raised by the assessee and the revenue. It directed the deletion of the addition towards unproved creditors, upheld the addition towards hire charges, confirmed the CIT(A)'s estimation of net profit, and supported the separate addition of bank interest under ‘income from other sources’. The appeals by both the assessee and the revenue were dismissed, with partial relief granted to the assessee regarding the unproved creditors.