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TMI Blog2017 (1) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances and considering the totality of the facts of the case, we are of the considered opinion that adoption of profit rate of 20% on the turnover of ₹ 11,56,59,762/- before depreciation, salary and interest to partners will meet the ends of justice. This amounts to an addition of ₹ 22,55,365/-, i.e. addition of additional income @ 1.95% (i.e. 20% - 18.05%) on turnover of ₹ 11,56,59,762/- We hold and direct accordingly. Disallowance invoking the provisions of section 40(a)(ia) - Non deduction of TDS on payment of interest - Held that:- The Hon’ble Andhra Pradesh High Court in the case of Indwell Constructions (1998 (3) TMI 121 - ANDHRA PRADESH High Court ) has held that separate addition in respect of items falling u/s.40(b) cannot be made to the income estimated u/s.145 after rejecting books of account as all the deductions including disallowance u/s.40(b) which are referred to in section 29 are deemed to have been taken into account while making estimate. Since in the instant case we have already directed the Assessing Officer go for estimation of profit from contract work, therefore, further disallowance u/s.40(a)(ia) in the instant case is not called f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade GP addition of only 2.84%. We further find during the year there is also no supply of material by the Government Department whereas such supply of material was there in the preceding year to the tune of ₹ 2.20 crores. The assessee has not substantially proved how the work is more material intensive and heavy interference by the local political leaders. Under these circumstances, we fail to understand as to how the order of the CIT(A) is erroneous while confirming the order of the Assessing Officer. The Ld. Counsel for the assessee could not bring any cogent evidence so as to take a contrary view than the view taken by the CIT(A). Accordingly, we uphold the order of the order of CIT(A) on this issue. Grounds of appeal No.1 to 3 by the assessee are dismissed. - ITA No.708/PUN/2013, ITA No.1146/PUN/2013, ITA No.1078/PUN/2013, ITA No.1079/PUN/2013 - - - Dated:- 30-12-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri M.K. Kulkarni For The Revenue : Shri P.L. Kureel ORDER PER R.K.PANDA, AM : ITA No.708/PUN/2013 filed by the assessee is directed against the order dated 30-09-2011 of the CIT(A)-III, Pune relating to Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,54,901/- on account of sundry creditors for materials. The request of the assessee to estimate the profit was also turned down by the Assessing Officer on the ground that the addition has been made on account of bogus sundry creditors and not by estimating the profit. Relying on the decision of Hon ble Supreme Court in the case of Kale Khan Mohammad Hanif Vs. CIT reported in 50 ITR 1 where it has been held that sundry creditors can be added despite gross profit estimation the Assessing Officer made addition of ₹ 75,24,922/- to the total income of the assessee. While doing so, the Assessing Officer further observed that the assessee s taxable income of ₹ 24,14,800/- includes other income of ₹ 25,71,023/-. But for the other income the return would have been a loss. If the other income is deducted the net profit obviously would come down drastically. Therefore, the assessee s claim of net profit percentage of around 20% is also incorrect. Accordingly, the Assessing Officer made the addition of ₹ 75,24,922/- to the total income of the assessee on account of bogus sundry creditors. 4. Before CIT(A) it was submitted that the assessee is engaged in execution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and therefore rejection of books of account u/s.145(3) r.w.s. 69A is not warranted. The assessee also argued that the AO failed to prove that cash repayments shown in the creditors accounts had come back to the assessee and the money so returned has been translated into some undisclosed positive wealth. Relying on various decisions it was argued that when the income did not materialise at all there was no real income which can be taxed. It was argued that the real income applied to income tax proceedings and computation of income therein and what is to be taxed is the real income. 7. However, the CIT(A) was also not satisfied with the explanation given by the assessee and upheld the addition made by the Assessing Officer by summarizing his observations which read as under : 3.3.9 To sum up, the liability of ₹ 75,24,922/- shown as outstanding as on 31.03.2007 in the books of account of the appellant is either fictitious or it was discharged outside the books of a/c but shown as outstanding In the books of a/c. The credit balances shown as outstanding were squared up in the subsequent year mostly with cash repayments when the cash balance had improved in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) the assessee is in appeal before us. 9. The Ld. Counsel for the assessee submitted that the Assessing Officer after invoking the provisions of section 145(3) made addition on account of bogus liability shown under the head creditors. He submitted that once the books are rejected no separate addition on account of sundry creditors could have been made. The Ld. Counsel for the assessee submitted that as against total contract receipt of ₹ 11,56,59,762/- the assessee has shown gross profit of ₹ 2,93,10,248/- and net profit of ₹ 1,88,94,211/-. He submitted that if the addition made by the Assessing Officer and upheld by the CIT(A) is sustained, then the net profit comes to 22.84% which is not possible in this line of business especially in Government contract. He accordingly submitted that the addition made by the Assessing Officer and upheld by the CIT(A) should be deleted. 10. The Ld. Departmental Representative on the other hand submitted that assessee has shown bogus creditors in its books of account which he could not explain properly. Despite number of opportunities given by the Assessing Officer to produce these creditors when they did not respond to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) while upholding the addition made by the Assessing Officer on this account has rejected the submission of the assessee that in subsequent years some of the payments have been made by cheque to these creditors. There is no evidence on record that the payments made subsequently to the sundry creditors has come back to the assessee by someway or the other. It is also an admitted fact that the assessee has deducted TDS on the labour charges and the TDS returns have been duly filed, a fact stated before CIT(A) and not controverted by the revenue. At the same time, the assessee also failed to produce the creditors on account of outstanding labour charges or sundry creditors for supply of materials before the Assessing Officer when the summons issued to them were returned back and the assessee was given opportunity by the Assessing Officer to produce those creditors. Under these circumstances and considering the totality of the facts of the case, we are of the considered opinion that adoption of profit rate of 20% on the turnover of ₹ 11,56,59,762/- before depreciation, salary and interest to partners will meet the ends of justice. This amounts to an addition of ₹ 22,55,365/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.40(a)(ia) to ₹ 1,98,762/- being 40% of ₹ 4,96,922/-. 15. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 16. The Ld. Counsel for the assessee made two fold arguments. The first plank of his argument is that once the books are rejected no separate addition on account of section 40(a)(ia) can be made. In his second plank of argument he submitted that the interest has been paid to a cooperative society whose income is exempt. Therefore, there cannot be any disallowance u/s.40(a)(ia) of the I.T. Act. He also relied on the following decisions : 1. Indwell Constructions Vs. CIT reported in 232 ITR 776 (AP) 2. Teja Constructions Vs. ACIT reported in (2010) DTR (Hyd) (Trib.) 3. ITO Vs. Nardev Kumar Gupta reported in (2013) 32 taxmann.com 388 (jaipur-Trib.) 4. Maddi Sudarsanam Oil Mills Co. Vs. CIT reported in 37 ITR 0369 (AP) 17. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 18. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accordingly allowed. 22. In ground of appeal No.6 the assessee has challenged the order of the CIT(A) in confirming the disallowance at 27,860/- made by the Assessing Officer u/s.40A(3) of the I.T. Act. 23. After hearing both the sides, we find the Assessing Officer made disallowance of ₹ 27,860/- u/s.40A(3) being 20% of ₹ 1,39,290/- paid by the assessee to one Tushar Transport on 3 occasions where the payment on each occasion has exceeded ₹ 20,000/-. We find in appeal the Ld.CIT(A) upheld the action of the Assessing Officer on the ground that the assessee failed to establish that the payments by cash were made under exceptional or unavoidable circumstances or out of business compulsions or that the payments are covered by any of the exceptions provided in Rule 6DD. It is the submission of the Ld. Counsel for the assessee that once the books are rejected u/s.145(3) then no disallowance u/s.40A(3) is called for. 24. We find merit in the above submission. As mentioned in the preceding paragraphs, we have already held that no separate disallowance on account of section 40(a)(ia) or 40A(3) is called for once the profit is estimated. Since we have already held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s while doing the work. 29. However, the Assessing Officer was not satisfied with the explanation given by the assessee for the following reasons : 1. The explanations given above are very general and vague in nature. 2. None of the reasons given are supported by any specific documentary evidence. 3. The assessee has not maintained site-wise accounts and records as admitted by the assessee. Therefore, claiming the decline in profit on the basis of particular site work is nothing but an after-thought. 4. The assessee is in the same business for the last several years. Therefore, the plea taken about competitive rates, difficult sites, etc. are the factors which will be definitely taken into consideration by the assessee before submitting the tenders and quoting the rates. 5. The reasons given for increase in expenditure like delay in work blamed on difficult working conditions and political interference, mainly indicates that the assessee has no valid reasons to justify the low gross profit and net profit shown in the return of income, 6. The assessee was repeatedly given opportunities to explain the factors leading to the abnormal reduction in its gross profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition to ₹ 29,26,768/- as against ₹ 90 lakhs made by the Assessing Officer. 33. Aggrieved with such order of the CIT(A) both the assessee as well as the revenue are in appeal before us. 34. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find as against the total contract receipt of ₹ 18,02,57,518/- the Government has supplied materials to the tune of ₹ 2,01,75,901/- to the assessee. It is the settled proposition of law that when the material is supplied by the Government Department for utilisation in the construction work, then the profit has to be estimated on the gross contract receipt as reduced by the cost of materials so supplied by the Government Department as the assessee is not expected to make any profit out of it. Under these circumstances the gross profit has to be computed after reducing the cost of materials supplied from the gross contract receipts which the CIT(A) in the instant case has done. We find the Ld.CIT(A) while restricting the addition to ₹ 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears, i.e. from A.Y. 2005-06 to A.Y. 2007-08) as against G.P. of 18.83% disclosed by the appellant for this year. Accordingly, the gross profit for this year works out to ₹ 3,69,52,790/- as against gross profit disclosed by the appellant at ₹ 3,40,26,023/-. Thus, the addition on this ground will be restricted to ₹ 29,26,768/- (3,69,52,790- 3,40,26,023). The appellant gets consequential relief of ₹ 60,73,232/- (Rs.90,00,000 29,26,768). 35. The decision of the CIT(A) in the instant case in our opinion is a reasoned one. Neither the Ld. Departmental Representative nor the Ld. Counsel for the assessee could point out any mistake in the order of the CIT(A). Accordingly, the grounds raised by the Revenue and grounds of appeal No.1 and 2 by the assessee are dismissed. 36. In Ground of appeal No.3 the assessee has challenged the order of the CIT(A) in sustaining the disallowance of ₹ 2,29,490/- made by the Assessing Officer invoking section 40(a)(ia) of the I.T. Act. 37. After hearing both the sides, we find the above ground by the assessee is identical to ground of appeal No.5 in ITA No.708/Pun/2013. We have already decided the issue and the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation @80% in respect of erection and commissioning charges of ₹ 12 lakhs. Thus, he directed the Assessing Officer to work out the depreciation of ₹ 9,60,000/- as against ₹ 2,55,000/- allowed by the Assessing Officer in respect of erection and commissioning charges. However, as regards the foundation cost is involved, he upheld the action of the Assessing Officer in applying the rate of depreciation of 10%. 41. The Ld. Counsel for the assessee at the outset filed a copy of the order of Tribunal in the case of ACIT Vs. Sonai Engineering Pvt. Ltd. and vice versa vide ITA Nos. 1078/PN/2012 and 2157/PN/2012 order dated 27- 08-2014 and submitted that the Tribunal in the said decision following the decision of the Tribunal in the case of DCIT Vs. Aminity Developers and Builders (supra) upheld the order of the CIT(A) and held that foundation of windmill is a part of windmill eligible for depreciation @80%. 42. The Ld. Departmental Representative on the other hand supported the order of the CIT(A). 43. After hearing both the sides, we find the CIT(A) upheld the action of the Assessing Officer in confirming depreciation @10% on the civil construction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.88 14.72 Observing that there was decline in the GP ratio in this year as compared to the preceding assessment years the Assessing Officer asked the assessee to justify the reasons for such fall in the GP rate. The assessee while justifying the fall in profit ratio gave the following reasons : 1. The work in the current year is more material intensive (instead of being labour intensive) and there was substantial rise in the cost of the main raw material. In material intensive work, profits margin are empirically lower labour intensive work. 2. Major work done during the year was mainly at remote places at Wardha, Khaparkheda, Nagpur and Bhusaval and increase in distance from HO leads to lesser control of costs. 3. There was heavy interference by the local political leaders, who insisted to appoint local people for the work allotted, which resulted in delay in work completion. 4. Progress of works at Ghatewadi, in patan was affected by heavy rains and due to the unforeseen nature s act; work came to standstill for over four months. 5. Similarly, work at Panhala had to be stopped due to objections raised by Archaelogica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of exceptional circumstances and thereby made GP addition of only 2.84%. We further find during the year there is also no supply of material by the Government Department whereas such supply of material was there in the preceding year to the tune of ₹ 2.20 crores. The assessee has not substantially proved how the work is more material intensive and heavy interference by the local political leaders. Under these circumstances, we fail to understand as to how the order of the CIT(A) is erroneous while confirming the order of the Assessing Officer. The Ld. Counsel for the assessee could not bring any cogent evidence so as to take a contrary view than the view taken by the CIT(A). Accordingly, we uphold the order of the order of CIT(A) on this issue. Grounds of appeal No.1 to 3 by the assessee are dismissed. 53. In ground of appeal No.4 the assessee has challenged the order of CIT(A) in confirming the percentage of depreciation @10% on WDV on civil work on windmill. 54. After hearing both the sides, we find the above ground is identical to ground of appeal No.4 in ITA No.1078/PUN/2013. We have already decided the issue and the ground raised by the assessee has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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