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TMI Blog2014 (1) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings the assessee was asked to produce the bills and vouchers pertaining to the expenditure claimed. The submitted details were examined and found it was that they were not supported by the vouchers and thereby the AO concluded that in the absence of such vouchers from the books of accounts furnished by the assessee the profits cannot be deducted. The AR of the assessee submitted the books of accounts and also supporting vouchers. In the opinion of the AO, the incomplete books of accounts were to be rejected and he proposed to estimate the profits at 10% after taking into account the allowable depreciation salary and interest and at the same time expressed his liability to submit all the vouchers pertaining to the expenditure incurred due to the nature of business and objected to the estimation of income at 10% of the gross receipts as unjustified.. The Assessing Officer considered the submissions furnished by the assessee and stated in the order that similar issues arose in the past years wherein the book results were rejected on the ground that due to improper maintenance of vouchers and corresponding bills during the Asst. Year 2005-06 the income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned as being general in nature while specific details were called for. The AO also opined that though the payments were made by a mode of cheque, yet the assessee failed to prove the genuineness of existence of creditors and the discharge of such liability. He stated that an attempt was also made to verify the payment of said liability in the next year i.e. Asst. Year 2007-08 and found no return was filed till the date of this order and hence he initiated proceedings u/s 148 of the I.T. Act. While doing so, he relied on the observation of the Hon'ble Supreme Court in the case of CIT vs Precision Finance Ltd 208 ITR 465 (SC), with the observations the liability amounting to Rs 1,36,89,357/- was added back to the income of the assessee u/s 41(1) of the I.^T. Act. 7. Aggrieved by the order of the AO, the Assessee filed an appeal to the CIT(A) against the order of Assessment. The Assessee filed written submissions are given as under: "The assessee herein is a partnership firm carrying on business in contracts. During the previous year under consideration the gross receipts of the assessee aggregated to Rs 8,06,55,267/- The Assessing Officer converted the case to scrutiny and proceede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed the estimation through the percentage of the profit is reduced. Therefore the Assessing Officer cannot claim that any specific expenditure already allowed in the earlier year and the provisions of sec 41(1) do not apply./ Further when the work was already got done and the amount is outstanding the same becomes payable. It is not the case of the Assessing Officer that the amount is not payable. There is a liability to make the payment and such a liability did not cease. In the circumstance, the Assessing Officer is not justified in treating the amou8nt of Rs. 47,47,442/- as the income of the assessee by virtue of the provisions of sec 41(1) of the IT Act. Addition of Rs 1,36,89,357/- In so far as this amount is concerned the assessee humbly submit that the amount represents the labour payments due, hire charges payable, payments due to metal supplies, diesel, petrol etc. These amounts have been paid immediately after the end of the previous year. According to the Assessing Officer the assessee did not provide any data. The assessee is submitting copies of the labour accounts for kind perusal. It can be seen that the entire amount is debited to the expenditure account,. As t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps the most relevant criterion for estimating the income. On perusal of the assessment order it is seen that the AO required the assessee to furnish supporting vouchers and bills for the expenses debited to profit and loss account like bund precaution charges excavation charges labour charges etc. The details furnished by the assessee are partly incurred expenses which are incomplete. The AO rightly showed the above causes as to why the assessee's books of accounts should be rejected due to the fact that they are not properly maintained with corresponding bills and vouchers. The AO observed that for the past several years the book results were rejected due to the reasons quoted supra. Therefore the assessee did not present adequate evidence with regard to its contracts and receipts nor it has presented any evidence with respect to its expenditure. Since the assessee did not give an accurate picture of its financial affairs the AO is well within its right to estimate the income. During this year also, as in the earlier years it is established that the assessee has not maintained correct books of account and the true income could not be deducted and therefore estimation of income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and estimated the income which the Hon'ble Tribunal confirmed. Further it is seen that when any specific expenditure is allowed in the earlier years the same cannot be claimed in the subsequent year when a work is completed and such expenditure is not paid the same becomes "payable". There is a liability to discharge and such a liability did not cease because it would be carried forward. Therefore the AO is not justified in making an addition of Rs 47,47,442/- u/s 41(1) of the IT Act, when such liability is already included in the estimation of profits on gross receipts and therefore, I direct the AO to delete such an addition of Rs. 47,47,442/- where liability has not ceased. The AO also has not verified and brought anything adverse on record to say that expenditure claimed was paid in the earlier year and yet showed it as liability. Similarly, the AO made an addition on account of liability to be discharged towards sundry creditors amounting to Rs 1,36,89,357/- mainly because the assessee did not provide any data pertaining to the same. The assessee submitted copies of labour accounts during the appellate proceedings. On perusal it is seen that entire amount is debited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% on contracts given by the assessee to 3rd party on subcontracts and (b) directing the assessing officer to allow remuneration, interest on capital and depreciation out of estimated income. The Revenue submits that when net income is estimated all other expenditure and deductions such as remuneration to partners and depreciation is deemed to have be taken care of in view of the case law in the case of M/s Indwell Constructions 232 ITR 776 (AP) as decided by the jurisdictional AP High Court and also decision in the case of M/s Ayyappa Infra Projects P. Ltd in ITA No.608/H/2009. However the issue is covered by the order of the ITAT in the Assessee's own case for the earlier year. For that year the ITAT has estimated the profits of the Assessee @ 9% on own contract works, 8% on contracts taken by assessee on subcontracts and @ 5% on contracts given by the assessee to 3rd party on subcontracts. This estimate according to ITAT is before allowing remuneration, interest on capital and depreciation and hence ITAT directed that these amounts should be reduced out of the estimated income. The reliance of the revenue on other cases where the estimated income includes deduction of remunerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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