2012 (12) TMI 591 - AT - Income Tax

Rejection of books Adoption of higher net profit rate @ 12% by AO - Assessee is a partnership firm engaged in the construction of roads CIT(A) reduce net profit rate to 8% - Held that - Following the decision in assessee s own case there must be valid ground with revenue to enhance the net profit rate to 12%. In absence of these, addition cannot be sustained. In favour of assessee Addition on account of interest income - Assessee has not shown bank interest, whereas TDS was claimed as per TDS certificate - Assessee contended that interest figure debited to the P&L account is the net figure Held that - Since the assessee has not produced books of account and failed to establish his case for setting off of interest paid against the interest income, which is assessable u/s 56. Following the decision in case of Dr. V. P. Gopinathan (2001 (2) TMI 10 - SUPREME COURT) that where an assessee had invested money in a fixed deposit, in a bank, on interest and had taken loan, on the security of that deposit from the same bank, on interest, the interest paid by the assessee, on the loan would not go to diminish his income from interest, on the fixed deposit, paid by the bank. In favour of revenue Addition on account of margin on sub-contract works To the tune of 6% which was half of net profit - Assessee claimed that value of sub-let work be reduced from its gross receipts - AO was of the opinion that the assessee had not produced books of account and he would definitely retain some profit margin Held that - Following the decision in case of Pran Nath Gupta (2009 (11) TMI 53 - PUNJAB AND HARYANA HIGH COURT) that the payment made to subcontractors is to be deducted from Gross receipt. In favour of assessee

Issues Involved:

1. General ground of appeal.
2. Restriction of net profit rate from 12% to 7%.
3. Deletion of addition on account of interest.
4. Deletion of addition on account of margin in sub-contract work.
5. Allowance of appeal without a speaking order on depreciation.
6. Allowance of appeal without a speaking order on rejection of books of accounts.
7. Request to set aside the CIT(A) order and restore the Assessing Officer's order.
8. General grounds for adding or amending appeal grounds.

Issue-wise Detailed Analysis:

1. General Ground of Appeal:
The first ground of appeal was deemed general in nature and required no separate adjudication. Consequently, it was dismissed.

2. Restriction of Net Profit Rate from 12% to 7%:
The revenue contended that the CIT(A) erred in restricting the net profit rate from 12% to 7% of the receipts, less the cost of materials supplied by the government. The tribunal noted that this issue was already covered by its own decision in ITA No. 865/Chd/2009 for the assessment year 2006-07 and by the jurisdictional High Court in the case of CIT v. Gurinder Pal Singh. The CIT(A) had directed the AO to apply a net profit rate of 8% instead of 12%, following previous tribunal findings. The tribunal upheld the CIT(A)'s decision, noting that the jurisdictional High Court had affirmed a 7% net profit rate in similar cases. Thus, this ground of appeal was dismissed.

3. Deletion of Addition on Account of Interest:
The revenue argued that the CIT(A) erred in deleting the addition of Rs. 1,99,219/- on account of bank interest, which was not shown by the assessee, though TDS was claimed. The tribunal found that the CIT(A) had correctly noted that the bank interest was duly reflected in the assessee's accounts and that the interest figure debited to the Profit & Loss Account represented a net figure. However, the tribunal reversed the CIT(A)'s findings based on the Supreme Court's decision in CIT v. Dr. V.P. Gopinathan, which held that interest paid on loans does not diminish interest income from fixed deposits. This ground of appeal was allowed.

4. Deletion of Addition on Account of Margin in Sub-Contract Work:
The revenue contended that the CIT(A) erred in deleting the addition of Rs. 2,12,762/- on account of margin in sub-contract work. The tribunal found that the CIT(A) had correctly followed the jurisdictional High Court's decision in CIT v. Pran Nath Gupta, which allowed the deduction of payments made to subcontractors even when net profit rates were applied. The tribunal upheld the CIT(A)'s findings and dismissed this ground of appeal.

5. Allowance of Appeal Without a Speaking Order on Depreciation:
The tribunal dismissed this ground, noting that no separate deduction was admissible since a net profit rate had been applied to the receipts.

6. Allowance of Appeal Without a Speaking Order on Rejection of Books of Accounts:
The revenue argued that the CIT(A) did not pass a speaking order while adjudicating the issue of rejection of books of accounts. The tribunal found no infirmity in the CIT(A)'s findings, as the issue had been adjudicated while deciding ground of appeal No. 2. This ground of appeal was dismissed.

7. Request to Set Aside the CIT(A) Order and Restore the Assessing Officer's Order:
The tribunal did not find merit in setting aside the CIT(A)'s order and restoring the AO's order, given the specific adjudications on each ground.

8. General Grounds for Adding or Amending Appeal Grounds:
Grounds 7 and 8 were general in nature and required no separate adjudication. Accordingly, they were dismissed.

Conclusion:
The appeal of the revenue was partly allowed, with specific grounds being dismissed or allowed as detailed above.

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