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TMI Blog2022 (4) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case as well as judicial precedents followed in this regard, we found merit in the contention of the assessee and we direct to delete the addition made and confirmed by the lower authorities as well as set aside the action with regard to rejection of books of account u/s 145(3) of the Act.- Decided in favour of assessee. Addition of interest income and miscellaneous receipts under the head income from other sources - HELD THAT:- Assessee had shown interest income of ₹ 12,58,998/- on the FDR and miscellaneous receipts of ₹ 2,89,200/-. The AO assessed the same as income from other sources. The Ld. CIT(A) confirmed the action of AO. We found that the interest income earned on FDR is part of business income as FDRs were made for the purpose of business for giving bank guarantees to the awarder of contract. For this purpose assessee has to obtain the FDR from the bank which was pledged to it. From Note No.3.0 of the financial statements we noticed that the FDR of ₹ 1.98 crores has been pledged with the bank for obtaining the bank guarantee. Thus, interest on FDR is part of business income. Also, the FDR were made by utilizing the cash credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NIL income comprising loss of ₹ 68,43,810/-. The case of the assessee was selected for scrutiny under CASS and statutory notices were issued and served to the assessee. After making enquiry and material placed on record, the A.O. finally completed the assessment by rejecting the books of account of assessee U/s 145(3) of the Income Tax Act, 1961 (in short, the Act) as well as assessing the total income of the assessee at ₹ 93,90,204/- by making various additions. 4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, dismissed the appeal of the assessee. Against the order of the ld. CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above. 5. Grounds No. 1 and 2 of the appeal are interrelated and interconnected and mainly relates to challenging the order of the ld. CIT(A) in confirming the rejection of books of account and confirming the action of A.O. with regard to applying to N.P. rate @ 8%. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories Pvt. Ltd. Vs. CIT 279 ITR 457 (Cal.) (HC) (iv) PCIT Vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj.) (HC) 2. On merit it is submitted that during the year the assessee mainly executed the work which was awarded to him in FY 2011-12 2012-13. In between the rate of sand, bricks, cement and steel increased between 10% to 20%. Further due to financial constraints, some of the parties provided the steel/ cement, the cost of which was deducted from the running bill of the assessee. In case of work of Classic Infra Solution Pvt. Ltd. assessee has to use ready mix concrete which increased the cost of work. The statement of various contract executed during the year and the cost of raw material as compared to earlier two years is enclosed. From the financial statements it can be noted that cost of raw material during the year has increased by around 3%, finance cost by around 5% and other expenses by around 4% as compared to the last year as tabulated below:- Particulars AY 2014-15 % AY 2013-14 % Revenue 18,63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 258 ITR 440 (Raj.) and 258 ITR 431 (Raj.) (iii) Shri Ganpatlal Sharma Vs. ITO ITA No.1675/JP/1993 dt. 26.5.2000 (Jaipur) (Trib.)Assessee was contractor and his income was assessed by estimating net profit rate subject to depreciation. AO declined to allow interest paid to creditors. CIT(A) upheld the addition. Tribunal reversed the decision of CIT(A) by holding that in the case of contractors where NP Rate is applied, same should be subject to allowance of depreciation and interest paid to creditors. (iv) Rishabh Construction Pvt. Ltd. Vs. DCIT ITA No. 108/JP/2011dt.31.08.2012 (Jaipur) (Trib.) (v) Kirodimal Modi Vs. ACIT in MA No. 37/JP/2009 for AY 05-06(Jaipur) (Trib.) (vi) DCIT Vs. Kirodimal Modi in ITA No. 119/JP/2010 dt.10.09.2010 for AY 07-08(Jaipur) (Trib.). 6. On the other hand, the ld. DR has vehemently supported the order of the authorities below. 7. We have considered the rival contentions and carefully perused the material placed on record. As per facts of the case, we noticed that the assessee is engaged in the business of civil construction. It filed the return declaring Nil income. For the year under consideration it declared lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which has been accepted by the AO in the scrutiny assessment made for AY 2012-13 and AY 2013-14. The definition of books of accounts u/s 2(12A) nowhere specifically includes the stock register. Section 145(3) is applicable when AO is not satisfied about the correctness or completeness of the accounts or method of accounting or the accounting standard have not been regularly followed. There is no dispute about the method of accounting and the accounting standard regularly followed by the assessee. The only dispute is that AO is not satisfied about the correctness or completeness of account which is only on account of non maintenance of stock register ignoring the peculiar nature of the activities carried out by the assessee where the purchase of material like sand, grit, cement, steel, etc. is directly uploaded at site and consumed and the unbilled work is accounted for as WIP. Hence, invocation of section 145(3) is unjustified. In this regard, we draw strength from the decision of Hon ble Jurisdictional High Court, as relied by the assessee, in the case of Malani Ramjivan Jagannath Vs. ACIT (2009) 316 ITR 120 / 207 CTR 19 (Raj.) (HC) wherein the Hon ble Court has held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt has held that if the stock register was not maintained by the assessee that may put the Assessing Officer on guard against the falsity of the return made by the assessee and persuade him to carefully scrutinize the account books of the assessee. But the absence of one register alone did not amount to such a material as would lead to the conclusion that the account books were incomplete or inaccurate . The Hon ble Kolkata High Court in the case of Ashok Refractories Pvt. Ltd.Vs. CIT 279 ITR 457 (Cal.) (HC) has held that there was no finding that in the opinion of the Assessing Officer, the methods applied were such that the income could not be deduced from the books of account maintained by the assessee or that the accounts were not correct or complete, the books of account could not be rejected only in the absence of stock register or the item-wise stocks were not maintained in the stock register. We also draw strength from the decision of Hon ble Rajasthan High Court in the case of PCIT Vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj.) (HC) wherein the Hon ble High Court has held as under: Assessee firm was carrying on business of manufacturing of edible oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Cost 1,10,07,464/- 59.06 1,17,38,450/- 54.23 Other Expenses 2,22,38,565/- 11.91 1,56,71,623/- 7.24 From the above table we found that cost of raw material as % of turnover has increased by around 3% for the reasons stated above. Finance cost as % of turnover has increased by around 5% which is mainly on account of increase in interest payment on loan taken from bank. Other expenses as % of turnover has increased by around 5% which is on account of the fact that Central Excise Commissionerate, Jaipur vide order dated 30.08.2013 raised demand of ₹ 26,74,240/- which was paid during the year and because of applicability of Works Contract Tax in the state of Haryana, the assessee has to pay WCT of ₹ 40,18,047/- during the year. For all these reasons the assessee suffered loss during the year which is fully verifiable. Hence, addition made by the AO and confirmed by Ld. CIT(A) by applying n.p. rate of 8% subject to depreciation is unjustified. Without prejudice to above, we found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08.2012 (Jaipur) (Trib.) the Coordinate Bench while disposing the appeal of department held that the Ld. CIT(A) directed the AO to allow the benefit of depreciation and financial expenses to the assessee after applying the net profit rate and that view is also supported by judgments of Hon ble jurisdictional High Court in the case of CIT Vs. Jain Construction, 245 ITR 527 and CIT Vs. Bhawan Path Nirman (Bohra) and Co.258 ITR 440. We therefore do not see any valid ground to interfere with the impugned order passed by the Ld. CIT(A). In the case of Kirodimal Modi Vs. ACIT in MA No. 37/JP/2009 for AY 05-06(Jaipur) (Trib.) and DCIT Vs. Kirodimal Modi in ITA No. 119/JP/2010 order dated 10.09.2010 for AY 07-08(Jaipur) (Trib.) has held that beside depreciation, interest paid to third parties is also allowable from the net profit rate applied. Considering the totality of the facts and circumstances of the case as well as judicial precedents followed in this regard, we found merit in the contention of the assessee and we direct to delete the addition made and confirmed by the lower authorities as well as set aside the action with regard to rejection of books of account U/s 145(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt after execution of the order. In these facts, it was held that assessee was forced to deposit the borrowed funds in FDRs for the satisfaction of its customers. Interest income earned by assessee on FDRs is to be treated as business income. There is also direct nexus between the interest income and the industrial undertaking of the assessee. FDRs were totally interwoven with the carrying on of the business. Therefore, interest income is to be treated as derived from the said undertaking. In the case of M/s Rajendra Mittal Construction Co. Pvt. Ltd. ITA No.331/JP/2014 CO 17/JP/2014 order 20.07.2016 for AY 2010- 11 (Jaipur) (Trib.), the Coordinate Bench of this Tribunal at page 13, Para 7.3 has held that when the interest paid and earned is in course of business then interest income cannot be taxed separately and accordingly the addition made by the Ld. CIT(A) on this account was deleted. In the case of Mehru Electricals Engg. Pvt. Ltd. ITA No. 215/JP/2009 order dated 18.07.2014 for A.Y. 04-05 (Jaipur) (Trib.) wherein the Coordinate Bench of this Tribunal in Para 11 of the order has held that the FDRs were made for providing bank guarantee to the Electricity Board. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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