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2013 (12) TMI 56 - AT - Income TaxCivil contract works Estimation of income @ 8% - Held that - Assessee has not produced books of account before the AO and in the absence of books of account, it is difficult to verify the reasons for earning lesser profit as contended by Assessee Following order of The Special Bench of the ITAT in the case of M/s Arihant Builders Vs. ACIT 2006 (11) TMI 253 - ITAT INDORE - Estimation of income at 8% of the turnover is reasonable - The coordinate benches of the Tribunal is accepting the estimation of income ranging from 8% to 12.5% depending upon the facts of the case and nature of contracts undertaken In the absence of proper reasons for earning lesser profit, the AO is justified in estimating income at 8% on the gross receipts made Decided against assessee. Sale of land - Addition of income Held that - Assessee had contract receipts as well as profit on sale of land, which is also as part of business income - Assessee has not offered this income either under other sources or claimed benefit of capital gains. Therefore, profit on sale of land is part of the business activity of Assessee company - Purchase of land and sale of land is a separate business activity and, therefore, the profits or losses on that business activity has to be considered separately. Even though, the income was estimated on contract receipts by rejecting books of account, on the basis of statements of accounts filed before the revenue authorities if they come to a conclusion that certain other business incomes are also earned, the same are necessarily to be brought to tax separately - Profit on sale of land has no nexus with the profit on contract receipts and accordingly, inclusion of profit on sale of land separately by making addition is justified Decided against assessee. Addition u/s 40(a)(ia) Tax not deducted at source contract labour payment and fees paid to auditors - Held that - These amounts are not labour contract payments but direct labour payments made by the company - As for as income estimation on contract receipts are concerned, Ii has already been upheld the estimation of income at 8% in this case - Once the books of account are rejected, while computing incomes from section 30 to 43D of the IT Act, there is no necessity for disallowing any further amounts Following CIT Vs. Banwari Lal Banshidhar 1997 (5) TMI 37 - ALLAHABAD High Court - No disallowance could be made in view of the provisions of section 40A(3) read with rule 6DD(j) of the Income- tax Rules, 1962, as no deduction was allowed to the assessee - When the gross profit rate was applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases made by the assessee - When a net profit rate is applied, there remains no scope for further disallowance of any expenditure Decided in favour of assessee. Other income Business income or income from other sources Held that - As Assessee has not proved that these incomes are part of the Contract business income and no details have been placed on record either before the AO or before the CIT(A) or even before the Tribunal - Except relying on legal principles, Assessee has not brought on record any factual details on this addition It is therefore confirmed that the incomes are to be taxed under the head other sources even though books of account are rejected to the extent of estimating business income on contracts Decided against assessee. Share application money Held that - Following Kale Khan Mohammad Hanif V. CIT 1963 (2) TMI 33 - SUPREME Court - The amounts of the cash credits could be assessed to tax as income from undisclosed sources in addition to the business income computed by estimate. The taxing authorities were not precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appeared in the books of a business whose income they had previously computed on a percentage basis. It purchased property and the sellers agreed to take the amount as share application money and to this effect entries were passed by way of journal entries - They were not in a position to furnish any confirmations at the time of assessment or appeal before the CIT(A). It was, therefore, submitted that if the matter is remanded to the file of the AO, Assessee would be in a position to file necessary evidence The issue was restored for fresh decision.
Issues Involved:
1. Estimation of income at 8% on turnover. 2. Separate addition of profit on sale of land. 3. Addition under section 40(a)(ia) for disallowance of expenses. 4. Addition of other income under the head "Other Sources." 5. Addition of unexplained share application money. Issue-wise Detailed Analysis: 1. Estimation of Income at 8% on Turnover: The Assessee contested the estimation of income at 8% on a turnover of Rs. 11,76,45,084/- by the AO, arguing that such estimation is permissible only under section 44AD for turnovers less than Rs. 40 lakhs. The AO estimated the income due to the Assessee's failure to produce books of account and vouchers. The CIT(A) confirmed this estimation. The Assessee relied on past records and court decisions to argue for a lower estimation. The Tribunal noted that the AO had no option but to estimate the income due to the non-production of books. The Tribunal upheld the AO's estimation at 8%, citing that it was reasonable and aligned with precedents where similar estimations were upheld. 2. Separate Addition of Profit on Sale of Land: The AO separately computed and taxed the profit on the sale of land as business income at Rs. 1,49,48,532/-. The Assessee argued that once the income is estimated, no other addition should be made. The CIT(A) confirmed the AO's action, stating that the profit from the sale of land had no nexus with contract receipts. The Tribunal agreed with the CIT(A), stating that the sale of land was a separate business activity and should be taxed separately from the estimated contract income. 3. Addition under Section 40(a)(ia): The AO added Rs. 1,89,92,120/- and Rs. 67,416/- under section 40(a)(ia) for non-deduction of TDS on certain payments. The Assessee argued that these were direct labor payments not subject to TDS and that no further additions should be made once income is estimated. The Tribunal agreed with the Assessee, citing jurisdictional High Court decisions that once books are rejected and income is estimated, no further disallowances should be made under sections 30 to 43D of the IT Act. Therefore, the Tribunal deleted the additions under section 40(a)(ia). 4. Addition of Other Income under the Head "Other Sources": The AO taxed other income of Rs. 53,56,308/- under "Other Sources." The Assessee argued that once income is estimated, no other additions should be made. The Tribunal noted that the Assessee did not provide details to show that this income had a nexus with the contract business. Hence, the Tribunal upheld the addition under "Other Sources," stating that such income must be taxed separately even if the business income is estimated. 5. Addition of Unexplained Share Application Money: The AO treated Rs. 82,93,484/- as unexplained income due to the lack of confirmations for share application money. The CIT(A) confirmed this addition. The Assessee argued that these were journal entries for land purchase payments and requested a remand for further evidence submission. The Tribunal, acknowledging the Assessee's contention and the need for further verification, remanded the issue back to the AO for fresh examination. Conclusion: The Tribunal partly allowed the Assessee's appeal, upholding the AO's estimation of income at 8%, confirming the separate addition of profit on the sale of land and other income under "Other Sources," but deleting the disallowances under section 40(a)(ia) and remanding the issue of unexplained share application money for further verification.
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