2019 (11) TMI 700 - AT - Income Tax

Rejection of books of accounts - NP determination - AO applied 8.5% Net profit rate - HELD THAT - CIT (A) followed the finding of the ITAT Jodhpur based on past history. Department of Income Tax also preferred an appeal against the order of the ITAT before the Hon ble Jurisdictional High Court which was dismissed by the Hon ble High Court. The ITAT Jodhpur mentioned From the above chart it is clear that for A.Y. 2010-11, the assessing officer had applied N.P. Rate at 8.50%, however, the ITAT Jodhpur Bench has accepted the declared result of 1.85%, which was also approved by the Hon ble Jurisdictional High Court. AO has not referred any example of other businessmen or traders. So, past history of the assessee is best example. So far Grounds (i) and (ii) are concerned, Ld. CIT(A) rightly applied Net Profit Rate 1% by increasing from 0.92% to 1% N.P. Rate. Accordingly, we do not find any infirmity in the order of the ld. CIT(A) for applying the NP rate of 1%. In the result, grounds taken by the revenue are dismissed. Addition made U/s 40(a)(ia) and 40A(3) - payment made for JCB hire charges - HELD THAT - In this Act, the JCB is included in Goods Carriage. According to Section 194C (6), no deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of contract during the course of business of plying, hiring or leasing goods carriage, on furnishing of his PAN Number to the person paying or crediting such sum so that assessee company was not liable to deduct TDS as the JCB owner has submitted his PAN for non-deduction of TDS. Coordinate Bench in various cases have held that when the profit is estimated by rejecting books of account, no disallowance U/s 40(a)(ia) of the Act is to be made. Disallowance made u/s 40A(3) we found that the assessee has made the payment to the parties as they insist for payment on the very day. Due to genuine hardship of the parties, assessee has to pay in cash. Technically, the payment are covered by the provisions of Section 40A(3) but the same was considered along with Rule 6 DD (b) as it existed then which duly provided for the genuine hardship that may be caused to the taxpayer. Nowhere the A.O. found that the payment was not genuine or that the payment was not for the purpose of business. In the case of CIT vs Smt. Santosh Jain 2006 (8) TMI 167 - PUNJAB AND HARYANA HIGH COURT , it was held that where the income of the assessee has been computed by applying a Gross Profit Rate, there is no need to look into the provisions of Section 40A(3) of the Income Tax Act, 1961, as applying the Gross Profit Rate takes care of expenditure otherwise than by way of crossed cheques also. Following the above judicial pronouncements, we do not find any merit in the addition made by the A.O. U/s 40(a)(ia) and 40A(3) of the Act. Accordingly, we confirm the action of the ld. CIT(A) in deleting the disallowance so made by the A.O.

Summary

Issues Involved:
1. Estimation of Net Profit Rate.
2. Classification of Interest Income on FDRs.
3. Disallowance under Section 40(a)(ia) for JCB hire charges.
4. Disallowance under Section 40A(3) for cash payments.

Issue-wise Detailed Analysis:

1. Estimation of Net Profit Rate:
The Assessing Officer (A.O.) rejected the books of account under Section 145(3) of the Income Tax Act, 1961, and estimated the net profit rate at 8.5% of the total receipts. The CIT(A) substantially deleted the addition made by the A.O., estimating a net profit rate of 1% based on past history. The ITAT upheld the CIT(A)’s decision, noting that the Tribunal had previously applied a 1% net profit rate for the same assessee in earlier assessment years (A.Y. 2010-11 to 2012-13). The Tribunal emphasized that past history or similarly situated business history should guide profit estimation, as supported by various judicial pronouncements.

2. Classification of Interest Income on FDRs:
The A.O. treated the interest income on Fixed Deposit Receipts (FDRs) as "income from other sources." The CIT(A), following the Tribunal's order in the assessee’s own case, classified the interest income as business income. The CIT(A) reasoned that the FDRs were made for securing contract work, thus the interest earned was related to business activities. The ITAT affirmed this view, referencing the Hon’ble Rajasthan High Court’s decision supporting the classification of such interest as business income.

3. Disallowance under Section 40(a)(ia) for JCB hire charges:
The A.O. disallowed ?2.50 lakhs under Section 40(a)(ia) for non-deduction of tax on JCB hire charges. The CIT(A) deleted this disallowance, observing that JCBs fall under "goods carriage" as per the Motor Vehicles Act, 1988, and no TDS was required if the PAN was furnished by the JCB owner. The ITAT supported this deletion, noting that when income is estimated after rejecting the books, no further disallowance under Section 40(a)(ia) is warranted.

4. Disallowance under Section 40A(3) for cash payments:
The A.O. made an addition of ?11,25,460 under Section 40A(3) for cash payments. The CIT(A) deleted this addition, citing genuine hardship and immediate payment needs. The ITAT upheld this deletion, referencing multiple cases where it was held that after applying Section 145(3), no separate disallowance under Section 40A(3) is justified. The Tribunal reiterated that the estimation of net profit rate covers all business-related expenses, including those paid in cash.

Conclusion:
The ITAT dismissed the revenue’s appeal, affirming the CIT(A)’s order to apply a 1% net profit rate, classify interest income on FDRs as business income, and delete disallowances under Sections 40(a)(ia) and 40A(3). The Tribunal emphasized consistency with past decisions and judicial precedents, ensuring the estimation of profit and classification of income adhered to established legal principles.