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TMI Blog2015 (11) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... case Assessing Officer was not justified in rejecting the book results without pointing any specific defects in the books of account. - Decided in favour of assessee. Taxing of interest received due to late payment of amount due to it - business income or income from other sources - Held that:- The interest received by the assessee on account of delay in the payment of money due to it cannot be taxed separately but only as an income from business. Accordingly, this ground of appeal filed by the assessee is allowed in its favour. See CIT Vs. Govinda Choudhury & Sons [1992 (4) TMI 8 - SUPREME Court] - Decided in favour of assessee. - ITA No. 3967/Del/2010, ITA No. 474/Del/2015, ITA Nos. 2561 & 4366/Del/2012 - - - Dated:- 16-10-2015 - Inturi Rama Rao, AM And Sudhanshu Srivastava, JM For the Appellant : Shri Narender Chillar, Adv For the Respondent : Shri P Dam Kanunjna, Sr. DR ORDER Per Inturi Rama Rao, AM These are the appeals filed by the assessee-company as well as by the Revenue. The appeals in ITA Nos. 3967/Del/2010 for A.Y. 2007-08 and 474/Del/2015 for A.Y. 2010-11 are filed by the assessee company. The appeals in ITA Nos. 2561/Del/2012 for A.Y. 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion are erroneous and the estimate made by him is without related to some evidence or material. ix. That at no point of time before estimating the income of the assessee the Ld. ITO had given opportunity of meeting the case of the revenue. x. Learned Commissioner of Income-tax (Appeals) is not justified in law in concurring with the findings of Learned Income-tax officer. xi. Learned Commissioner of income-tax (Appeals) erred in law in not appreciating that the facts of the case did not warrant for application of provisions of section 145 and estimating the income of the appellant. xii. Learned Commissioner of Income-tax (Appeals) erred in law in upholding the addition of ₹ 2,93,81,144/- by the Learned Income-tax officer on account of interest received which is nothing but compensation for delayed payments of pending amounts due for the contract work executed by the assessee. xiii. Appellant prays the Hon'ble Tribunal to quash the order passed by the learned Income-tax Officer as bad in law and may direct the Assessing Officer to accept the income returned. 3. For the sake of clarity and convenience, the facts in ITA No. 3967/Del/2010 for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the taxing interest received on account of delay in the receipt of the contract receipts as income from other sources. Being aggrieved, the appellant is before us. 4. Learned counsel for the assessee-company submitted that the assessee had filed all the information as required by the Assessing Officer. The assessee-company also filed the explanation as to why there was a fall in the profit returned by the assessee company. All the books of account had been produced before the Assessing Officer for verification and he did not point out any defects in the books of account maintained by the assessee-company. He further submitted that mere low profits and non-maintenance of stock register cannot be the reason for the rejection of the book results. He further submitted that the Assessing Officer had not given any material in support of estimating the profit @ 5% of the contract receipts and therefore, he prayed the assessment made by the Assessing Officer should be quashed as it is passed in violation the principles of natural justice. With regard to the interest received due to delay in payment due to it, he submitted that the interest partake the same character as contract receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaring its income from year to year. It is also not in dispute that this system of accounting was not found to be defective by the ITO in the past years. All that happened was that, the ITO gave a fresh look to the matter and felt that the more appropriate system of accounting would be to declare the dividend as and when received as income, and endeavoured to substitute that method of accounting for the method of accounting regularly followed by the assessee. It must be said at the outset that the choice to account for income on an acceptable basis, is that of the assessee and not of the department. This is, however, not an unlimited choice, because the ITO has always the liberty to examine the system of accounting regularly employed by the assessee, to determine whether the system of accounting is defective and whether, by following such system of accounting, correct profits can be deduced from the account books maintained by the assessee. If, on such scrutiny, the ITO comes to the conclusion that with reference to the method of accounting followed by the assessee, correct profits cannot be deduced, it is open to him to apply the provisions of section 145 and make the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint home. As noticed earlier, the account books were rejected because admittedly no stock register was maintained nor the sales were found verifiable in absence of the cash memos. The vouchers of expenses were also not forthcoming and the income returned was ridiculously low as compared to the exorbitant turnover and the extent of the business carried on by the assessee. It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. Whether presence or absence of stock register is material or not, would depend upon the type of the business. It is true that absence of stock register or cash memos in a given situation may not per se lead to an inference that accounts are false or incomplete. However, where a stock register, cash memos, etc., coupled with other factors like vouchers in support of the expenses and purchases made are not forthcoming and the profits are low, it may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon to assess the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93,81,144/- received due to late payment of amount due to it. Indisputably, the interest amount was received by the assessee on account of delay in payment of money due to it by its contractee. This issue is no longer res integra. The Hon'ble Supreme Court in the case of CIT Vs. Govinda Choudhury Sons, 203 ITR 881 held as follows: .If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by it. It would not be correct to say, as the Tribunal has held, that this interest is totally de hors the contract business carried on by the assessee. It is well-settled that interest can be assessed under the head 'Income from other sources' only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to it de hors the business which is carried on by it. In our view, the interest payable to it certainly partakes of the same character as the recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - estimating the Net Profit rate of the assessee at 3.5% of the Gross turnover after rejecting the books of account of the assessee without appreciating the fact that the assessee had not produced stock register and other books of account, bills and vouchers etc. during the course of assessment proceeding and considering the fact that similar addition made by the A.O. in the immediately preceding A.Y. 2007-08 was upheld by the Ld. CIT(A). ii. The grounds of appeal are without prejudice to each other. iii. The appellant craves to add, amend or modify the grounds of appeal at any time. 14. The Revenue challenged vide these appeals the orders of CIT(A) upholding the book results. Ld. CIT(A) vide his order passed for the assessment years 2008-09 2009-10, allowed the appeals filed by the assessee by holding as under: I have carefully considered the facts of the case, the important aspects which immerge from the present appeal are:- 1. The Method of accounting has been accepted for several years on same set of facts. Reliance is placed on 294 ITR 655 (Gauhati) MKB (Asia) P . Ltd, v. Commissioner of Income-Tax 2. Non maintenance of stock register cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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