2017 (12) TMI 364 - HC - Income Tax

Rejection of books of accounts - N.P. determination - Held that - NP rate is to be taken average of last five years which will come to 4.066 therefore in our considered opinion 5% which is assessed by the tribunal is just and proper therefore first issue is answered in favour of the assessee. Addition of interest income and other income - Held that - Taking into consideration the interest amount paid on the loan which was taken and interest which is on unpaid amount and other income in view of assessment on net profit that amount cannot be added separately to the income. Second issue is also answered in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was justified in restricting the addition of ?96,27,290 to ?30,74,814 by applying a net profit rate of 5% instead of 8% despite discrepancies in the books of accounts?
2. Whether the Tribunal was justified in deleting the addition made on account of interest income and other income when these were part of the contract business?

Analysis:
1. The appellant challenged the tribunal's decision that restricted the addition of ?96,27,290 to ?30,74,814 by adopting a net profit rate of 5% instead of 8%. The AO initially added the amount as profit based on 8% of total contract receipts. The CIT(A) considered past profits and set the net profit rate at 5%, leading to a trade addition of ?30,74,814. The Tribunal upheld this decision, citing the appellant's history of net profit rates and directed the AO to delete the excess addition. The High Court agreed with the Tribunal, emphasizing the average net profit rate over the last five years, concluding that the 5% rate applied by the Tribunal was appropriate.

2. The second issue involved the deletion of additions made on interest income and other income by the Tribunal. The AO had added these amounts to the income, but the CIT(A) and Tribunal disagreed. The Tribunal reasoned that both interest and other income were part of the contract business and should not be separately added to the income. The High Court concurred with the Tribunal's decision, stating that these amounts, being part of the business operations, should not be treated as separate income. Consequently, both issues were decided in favor of the assessee, leading to the dismissal of the appeal against the department.