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TMI Blog2017 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... nd separately while determining the N.P rate - Decided in favour of assessee Interest receipts - treated as “income from other sources” or “business income” - Held that:- Firstly, regarding interest on income tax refund and interest on sales tax refund, the same has rightly been treated by the Ld. CIT (A) as income from other sources and we donot see any infirmity in the same. Regarding interest on FDR, it is noted that the FDRs were placed with the Banks to obtain bank guarantee which was necessarily required to be furnished to the various government department and in absence of such bank guarantee, the assessee could not have proceeded with the execution of contracts with the government department. Further, there is no finding that the surplus funds have been invested by the assessee in the FDRs. Any interest on such FDR, therefore, must be treated as inextricably linked with the business of the assessee and therefore to be treated as business income and not as income from other sources. It is noted that similar view has been taken by Co-ordinate Bench in case of M/s Maya Construction (2014 (7) TMI 1237 - ITAT JODHPUR). The contention the ld. AR is therefore accepted and the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 8% only ( Subject to depreciation and interest remuneration paid to partners) by separately considered interest income of ₹ 52,09,524/- and sales tax refund of ₹ 42,26,138/-. 3172/JP/12 (Ground of Revenue s appeal):- (i) Reducing the net profit rate from 11% to 8% without any valid basis; (ii) Reducing the net profit rate to 8% despite the fact that the ld. CIT(A) has justified the action of the AO for applying the provisions of section 145(3) of the I.T. Act, 1961. 2. Firstly regarding ground No. 1 taken by the assessee in its appeal, it is noted that the ground was not pressed before the Ld. CIT(A) and the same was thus dismissed. Hence, the subject ground is dismissed in limine. 3. Regarding ground No. 2, briefly the facts of the case are that the assessee was in receipt of ₹ 24,26,138/- on account of sales tax refund. During the year under consideration, the AO brought the same to tax u/s 41(1) of the Act which was confirmed by the Ld. CIT (A). 3.1 During the course of hearing, the Ld. AR has submitted that the sales tax refund was credited to the sales tax a/c. The collection of the sales tax was made by the awarder i.e. the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and how the same should be treated for tax purposes and under which head of income. The sales tax is payable on the sales affected by the assessee and the same is considered as deemed business receipts and the same is eligible as a business deduction in the year of payment in terms of section 43B of the Act. Where the sales tax which was paid earlier is refunded to the assessee in a subsequent financial year, it will therefore form part of the business receipts which is assessable under the head profit and loss account of business and profession . In the instant case, where the books of account have been rejected and the N.P. rate has been estimated by the Assessing Officer, the said receipts on accounts of sales tax refund have to be taken into consideration while determining the total business receipts/turnover and the estimation of N.P rate has to be determined accordingly. We are therefore of the view that the AO was not correct in treating sales tax refund separately while determining the N.P rate. In the result the ground no. 2 taken by the assesses is allowed. 5. Now coming to ground No. 3 of the assessee s appeal and the two grounds of appeal taken by the Revenue, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC is a condition precedent to have such business and to run the same. Needless to say that in absence of the FDRs, the assessee would not have got the contract business and no such contract receipts would have been there which are being taxed and which are under dispute. The facts submitted to the AO and the ld CIT(A) are neither denied nor rebutted. 5.3 It was further submitted that the assessee was not having surplus funds from which, investment towards FDR were made in as much as the appellant took loan and credit facilities from the bank and from those funds only, it had obtained FDR s. The ld. CIT (A) never denied that the appellant did not invest/use any surplus fund, which otherwise, the appellant was not having nor the ld. CIT (A) established nor even alleged so. The entire capital of ₹ 3.65 Cr. was completely utilized in the acquisition of fixed assets of ₹ 5.97 Cr. As per Audited Balance Sheet. (PB 17). The FDR s so pledged came out of the secured and unsecured loans of ₹ 7.3 Cr. and ₹ 1.02 Cr. respectively. 5.4. Further, the assessee has relied on decision of M/s Maya Construction in ITA No. 510/JU/2013 dated 18.07.2014 and in ITA No. 442/J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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