2018 (1) TMI 598 - AT - Income Tax

Estimation of income @ 12.5% on construction contracts and 8% on sale of plots clear of depreciation and all other expenses - Held that - From the perusal of the assessment order it is observed that the A.O. did not reject the books of accounts before resorting for estimation of income. In the absence of any evidence brought on record to hold that the expenditure claimed by the assessee is unreasonably high and quantification of unverifiable nature of expenditure and fresh facts to resort higher estimation of income we do not see any reason to interfere with the order of the Ld. CIT(A) and we hold that the Ld. CIT(A) has rightly applied the estimation of income @ 8% on contract receipts and 5% on sale of plots. Accordingly the order of the Ld. CIT(A) is upheld and the revenue s appeal on these grounds are dismissed. Interest income under the head Other sources - nature of income - Held that - We hold that the interest income received on deposits required to be assessed under the business income but not as separate source of income. Hence we uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue on this ground. See CIT Vs. LOK holdings 2008 (1) TMI 365 - BOMBAY HIGH COURT and Eveready Industries Limited Vs. CIT and Anr (2009 (12) TMI 226 - CALCUTTA HIGH COURT).

Summary

Issues Involved:
1. Estimation of income on construction activity and sale of plots.
2. Treatment of interest income as business income or income from other sources.
3. Estimation of income on deemed sales from transfer of advances to a sister company.
4. Estimation of income on deemed sales from refunds to customers.

Detailed Analysis:

1. Estimation of Income on Construction Activity and Sale of Plots:
The Assessing Officer (A.O.) estimated the income at 12.5% for construction activities and 8% for the sale of plots, citing improper maintenance of vouchers and self-made vouchers for expenses. The Commissioner of Income Tax (Appeals) [CIT(A)], however, scaled down these estimations to 8% and 5%, respectively, following the precedent set in earlier years for the same assessee. The Tribunal upheld the CIT(A)'s decision, noting that the A.O. did not reject the books of accounts nor provided substantial evidence of inflated or suspicious expenditures. The Tribunal emphasized the principle of consistency and supported the CIT(A)'s application of income estimation at 8% for construction contracts and 5% for the sale of plots.

2. Treatment of Interest Income:
The A.O. treated the interest income of ?7,43,76,762 as income from other sources. The CIT(A) reversed this, treating it as business income, consistent with the assessee's past practices. The Tribunal upheld the CIT(A)'s decision, referencing previous rulings, including those from the Bombay High Court and Kolkata High Court, which classified interest income from temporary deposits of surplus business funds as business income. The Tribunal noted that the interest income was inter-related to the business activity and thus should be assessed under business income.

3. Estimation of Income on Deemed Sales from Transfer of Advances:
The A.O. estimated income on deemed sales at 8% of ?155.96 crores transferred to a sister company. The CIT(A) found that these were merely transfer entries of advances collected on behalf of the sister company, with no profit element involved. The Tribunal agreed, noting that the advances were transferred after deducting marketing expenses and there was no evidence of sales or profit. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

4. Estimation of Income on Deemed Sales from Refunds to Customers:
The A.O. treated refunds of ?184.08 crores to customers as deemed sales and estimated income accordingly. The CIT(A) observed that these refunds were due to breaches of contract and were not sales. The Tribunal confirmed that the refunds were aligned with the terms and conditions agreed upon with customers and did not constitute sales. The Tribunal also highlighted that once income is estimated, no further additions should be made, referencing relevant case law. Thus, the Tribunal upheld the CIT(A)'s decision to delete the additions related to deemed sales from refunds.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds, including the estimation of income, treatment of interest income, and the handling of deemed sales from transfers and refunds. The order emphasized the importance of consistency, proper maintenance of accounts, and the necessity of substantial evidence for any deviations from standard practices.