ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises IN INCOME TAX APPELLATE TRIBUNAL: RANCHI BENCH, RANCHI [Before Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM] I.T.A No. 100/Ran/2015 Assessment Year: 2011-12 M/s. Abhay Enterprises, Vs. Asst. Commissioner of Income-tax, Hamidganj,Daltanganj, Circle-3, Ranchi Palamau-822101,Jharkhand (PAN:AACFM3340M) (Appellant) (Respondent) Date of hearing: 16.09.2016 Date of pronouncement: 16.09.2016 For Appellant: S/Shri S. K. Podder & Devesh Podder, Adv. For Respondent: Shri Sanjay Paul, DR ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of order of CIT(A), Ranchi vide appeal No. 47/Ran/14-15 dated 06.03.2015. Assessment was framed by ACIT, Circle- 3, Ranchi u/s. 143(3)/144 of Income-tax Act, 1961 (hereinafter referred to as Act ) for AY 2011-12 vide his order dated 25.03.2014. 2. prime issue to be decided in this appeal is as to whether ld CITA is justified in confirming estimate of net profit @ 8% adopted by ld AO, by holding transportation and hire receipts as independent stream of income other than contract receipt and treating interest income as income from other sources, in facts and circumstances of case. 3. brief facts of this issue is that assessee is partnership firm engaged as civil contractor and return of income for Asst Year 2011-12 was filed on 3.3.2012 declaring taxable income of Rs. 76,22,020/- . ld AO observed that authorized representative of assessee appeared from time to time and complied partly in response to questionnaire issued with notice u/s 142(1) of 2 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises Act. On examination of records submitted and evidences produced, ld AO observed following facts :- assessee had three streams of income (a) First, contract receipt in lieu of civil contract (b) Second, receipt from transportation and hire charges (c) Third, income from other sources (interest from fixed deposit and interest income from income tax refund) ld AO observed that assessee was asked to furnish details of cash boo, ledgers, payment details, purchase books and other regular books of accounts. However, vide order sheet entry dated 14.3.2014, authorized representative of assessee had expressed his inability to produce same before ld AO. ld AO accordingly held that since assessee had failed to produce bills and vouchers relating to contract work and supporting evidences, therefore, he was not satisfied about correctness or completeness of account of assessee, though assessee had furnished audit report. Hence he rejected books f accounts u/s 145(3) of Act and proceeded to determine income in accordance with section 144 of Act. ld AO on perusal of various contruction contracts floated by Central Government via CPWD and by State Government via PWD and various papers available in website of Ministry of Corporate Affairs, observed that standard norm for inbuilt profit prescribed for most of construction contracts stood at 15% with component of 10% towards contractor s profit and 5% towards overhead expenses. Since assessee had been executing contract work in remote areas of Palamau District, therefore remoteness had bearing on expenses on material purchased and labour charges. Accordingly , considering nature of work carried on by assessee, ld AO estimated net profit at 8% of Gross receipts for contract work of Rs. 14,20,82,769/- and determined net profit at Rs. 1,13,66,621/- and granted deduction towards interest paid to partners (Rs. 14,84,611/-) ; Remuneration to 3 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises partners (Rs. 9,00,000/-) and Depreciation (Rs. 25,08,960/-) and arrived at net taxable profit from contract business at Rs. 64,73,050/-. 3.1. ld AO observed that since transportation and hire charges receipt was separate stream of income, separate from contract receipt and all expenses related to earning of such income like Driver / Staff Salary payment, fuel expenses, machinery running expenses etc already taken into account in profit and loss account while estimating net profit from contract receipt, total transportation and hire charges receipts of Rs. 25,32,050/- was added to income from business. 3.2. ld AO observed that assessee had shown interest on fixed deposit of Rs. 10,67,560/- and interest on income tax refund of Rs. 1,19,390/- as income from business. He observed that these income constitute third stream of income, having no corresponding debitable expenses. These incomes were to be considered on standalone basis, having no linkage with estimation of income on contract receipts. Thus total figure of Rs. 11,86,950/- was added as income from other sources by ld AO. 3.3. Accordingly, ld AO determined total income as below:- Income from contract business 64,73,050/- Income from transportation and hire 25,32,500/- Interest income under other sources 11,85,950/- ------------------ Total income of assessee 1,01,91,500/- ------------------ 4. assessee argued before ld CITA that profit before depreciation declared by assessee at 6.02% is very reasonable and if interest income is treated as business income, then profit disclosed by assessee itself would be 8% and there is no need to estimate business profit separately at 8% . It was argued that transport and hire charges are part of business receipts and that in 4 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises past, same was considered as contract receipts. Hence same cannot be considered as independent income in totality. It was submitted that ld AO had applied net profit at rate of 8% on gross payment received inspite of fact that assessee books of accounts were audited and assessee was not liable to be assessed u/s 44AD of Act on presumptive basis as total receipts of assessee exceeded Rs 40 lacs. It was therefore requested to adopt 6% as net profit of assessee in toto as income from business. 4.1. ld CITA observed that ld AO had resorted to estimation of net profit @ 8% of gross payments received in view of fact that profit margin shown by assessee was low and not acceptable. He observed that assessee did not bother to produce supporting evidences in support of claim made in return of income and hence in these circumstances, there is nothing wrong in ld AO rejecting book results and resorting to estimation of net profit @ 8% of gross receipts. ld CITA placed reliance on decision of Hon ble Apex Court in case of Brij Lal Pudhuman Kumar vs CIT reported in (1978) 115 ITR 524 (SC) wherein he stated that apex court had approved profit rate of 10% in case of civil contractor when proper records were not maintained. Accordingly, he upheld estimation of net profit at 8% made by ld AO. Similarly he upheld other two actions of ld AO i.e treating transport and hire receipts as separate stream of income independent of contract receipts and treating interest income on fixed deposits and IT refund as income from other sources. 5. Aggrieved, assessee is in appeal before us on following grounds:- 1. For that Ld. CIT(A) was not justified in confirming estimate of Net Profit @ 8% adopted by Ld. AO As per audited books of accounts Net Profit of 6.02% before depreciation was disclosed. Profit disclosed companies well with past records as such estimate of Profit as made was illegal and incorrect. 2. For that Transportation Receipts cannot be considered as income in totality. In past Ld. CIT(A) and Ld. AO had accepted Transportation Receipts as part of Contract receipt and considered reasonable rate of profit on total receipts disclosed from Civil Contract and Transportation Contract. Expenses on Vehicle 5 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises maintenance and Hire Charges were claimed in Audited Profit and Loss Account. 3. For that Ld. CIT(A) was not justified in considering interest income as income from other sources separately. Ld. CIT(A) himself for earlier assessment year treated interest income as incidental to business and no separate addition was made. Hon ble ITAT dismissed Appeal filed by Revenue against order of Ld. CIT(A). 4. For that Ld. CIT(A) was not justified in confirming estimate of Net Profit @ 8% against estimate of Net Profit @ 6% as adopted by Ld. CIT(A) for earlier year by treating Transportation Receipts as Net Profit whereas for earlier year Ld. CIT(A) himself treated Transportation Receipts as Contract and treating Interest receipts as Income from Other Sources whereas Ld. CIT(A) himself treated interest income as part of business income and no separate addition was made. 5. For that credit for entire amount of deduction of Tax deducted at source should be given for which TDS certificate were filed irrespective of reflection in Form 26AS. 6. ld AR argued that assessee had treated transportation and hire charges as part of its business income in its return of income and this has been practice consistently followed by assessee which has been accepted by department in past. He stated that interest income is derived from fixed deposits kept with banks which were given as security with various department with whom assessee is doing contract jobs. He argued that these departments would review satisfactory performance of contract by assessee and retain lien on deposits till end of maintenance period contemplated in contract and then release lien in order to enable assessee to withdraw deposits and use it for itself. This normally takes period of 3 years to get lien on deposits released / discharged. Hence business nexus of maintaining fixed deposits is proved and hence interest income derived thereon should be construed as income from business. ld AR further argued that similar issues of dispute came up before this tribunal in assessee s own case for Asst Year 2009-10 , wherein ld AO had determined net profit at 8% of contract receipts and treated transportation and hire receipts as separate stream of business income and interest income was treated as income from other sources. 6 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises assessee in that year had reported net profit of 5.7 / 5.8% of receipts. He argued that ld CITA in Asst Year 2009-10 decided to treat transportation and hire receipts as part of business income and directed ld AO to determine net profit at 6% of contract receipts and transportation and hire receipts and allowed interest income to be part of business income to be taxed separately. assessee as well as revenue preferred appeal against this order before this tribunal. Tribunal in ITA No. 112/Ran/14 , ITA No. 34/Ran/14 and CO 22/Ran/14 dated 27.11.2014 dismissed both appeals including cross objection of assessee. ld AR accordingly prayed for adoption of ratio laid down in order of this tribunal in assessee s own case for AY 2009-10, but fairly stated that if it is so adopted (i.e. at 6%) , then it would result in determination of income below returned income itself as assessee itself had returned net profit of 6.86%. Accordingly, he prayed for acceptance of returned income as far as contract receipts and transportation / hire charges are concerned. With regard to interest income, he prayed for treating same as business income as against income from other sources treated by ld AO. In response to this, ld DR vehemently relied on order of ld AO. 7. We have heard rival submissions. We find that books of accounts have been rightly rejected in terms of section 145(3) and income determined in accordance with provisions of section 144 of Act, based on assessee expressing its inability to produce books of accounts before ld AO. In this scenario, right way is only to estimate net profit based on comparable cases / past history of assessee. We find that revenue had not brought any material on record by way of comparable cases to justify adoption of net profit rate of 8% . We find that past history of assessee shows adoption of 6% as net profit which had been accepted by this tribunal in Asst Year 2009-10. We find that this tribunal for Asst Year 2009-10 had held that 6% of contract receipts and transportation receipts should be adopted as net profit from business. But if 7 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises same is adopted, as fairly conceded by ld AR , it would result in determination of income below returned income. Hence in these facts and circumstances, we hold that profit disclosed by assessee should be adopted by ld AO and we direct ld AO accordingly. 7.1. As regards interest income is concerned, we find that interest income is derived from following sources :- Interest on fixed deposits with banks - 10,67,560/- Interest on income tax refund - 1,19,390/- ---------------- 11,85,950/- As regards interest on income tax refund, we hold that same is to be taxed as income from other sources. As regards interest income on fixed deposits, we are in agreement with arguments of ld AR that various departments were holding lien on same till review of satisfactory performance of assessee in his contract job and hence business nexus has been proved beyond doubt. Hence interest income of Rs. 10,67,560/- has to be brought to tax only under head income from business as independent stream of income. 7.2. Accordingly, Grounds 1 to 4 raised by assessee are partly allowed. 8. next ground raised by assessee is with regard to grant of TDS credit based on physical TDS certificates available with assessee vis vis what is mentioned as TDS in Form 26AS. We find that this issue has been set aside by ld CITA to file of ld AO to grant necessary credit after due verification of claims of assessee. We find that similar direction to ld AO would meet ends of justice with direction to ld AO to grant TDS credit based on physical TDS certificates after verification whether th related income is offered to tax by assessee. We also find that CBDT had come out with circular to this effect. ld AO is directed to decide impugned issue also in light of 8 ITA No. 100/Ran/2015, AY 2011-12 Abhay Enterprises said circular. Accordingly ground no. 5 raised by assessee is allowed for statistical purposes. 9. last ground no. 6 is general in nature and does not require any adjudication. 10. In result, appeal of assessee is partly allowed for statistical purposes. Order pronounced in open court on 16.09.2016 Sd/- Sd/- (N. V. Vasudevan) (M. Balaganesh) Judicial Member Accountant Member Dated :16th September, 2016 Jd.(Sr.P.S.) Copy of order forwarded to: 1. APPELLANT - M/s. Abhay Enterprises, Palamau 2 Respondent - ACIT, Circle-3, Ranchi 3. CIT(A), 4. CIT 5. DR, ITAT, Ranchi True Copy, By order, Asstt. Registrar. M/s. Abhay Enterprises v. Asst. Commissioner of Income-tax, Circle-3, Ranchi