Income Tax Appellate Tribunal - Jaipur
M/S Vinod Kumar Vijay Contractor, Baran vs Assistant Commissioner Of Income Tax, ... on 12 February, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 767/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2012-13
M/s Vinod Kumar Vijay cuke ACIT,
Contractor Vs. Circle-2,
Shree Ji Chowk, Baran, Kota.
Rajasthan.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFV 1197 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri P.P. Meena (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 06/02/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 12/02/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, JM This Appeal by the Assessee is directed against the order dated 12.07.2017 of Ld. CIT(A), Kota for the Assessment Year 2012-13. The Assessee has raised the following grounds in this appeal:-
" 1. The Ld. CIT(A) has erred on facts and in law in confirming addition of Rs. 1,28,515/- by applying n.p. rate of 4% on the sub contract work of Rs. 32,12,867/- given to other contractors.
2. The Ld. CIT(A) has erred on facts and in law in confirming addition of Rs. 10,23,275/- made by the AO by considering the interest on FDRs as income from other sources whereas such FDRs were obtained for furnishing bank guarantee/security deposit as per the terms of contract and thus, a part of the contract receipt.2
ITA No. 767/JP/2017.
M/s Vinod Kumar Vijay Contractor, Rajasthan.
3. The Ld. CIT(A) has erred on facts and in law in not directing the AO to allow the interest paid to partners of Rs. 12,67,167/-, interest paid to others of Rs. 1,33,894/- and depreciation of Rs. 2,94,032/- while separately assessing the income from sub contract work and the FDR interest ignoring that AO in the original assessment has estimated the income of contract business by applying n.p. rate of 8% subject to claim of depreciation and interest paid.
4. The assessee craves to amend, alter and modify any of the grounds of appeal.
5. The appropriate cost be awarded to the assessee.
2. Ground no. 1 is regarding confirming the addition by applying Net Profit Rate of 4% on the sub contract work of Rs. 32,12,867/-. The assessee is a civil contractor and declared the total contract receipt of Rs. 5,91,15,823/- . Out of which, the contract work of Rs. 32,12,867/- was given to sub contractors. In the original assessment proceedings u/s 143(3) of the Act, the AO rejected the books of accounts and applied net profit rate of 8% on contract receipts excluding sub contract receipts of Rs. 32,12,867/- resulting into trading addition of Rs. 4,29,552/-. Subsequently, the AO reopened the assessment u/s 147 and applied net profit rate of 8% on sub contract receipts also resulting a further trading addition of Rs. 2,57,029/-. On appeal the Ld. CIT(A) restricted the addition by applying the net profit rate of 4% on sub contract receipts and thereby confirming the trading addition to the extent of Rs. 1,28,514/-.3
ITA No. 767/JP/2017.
M/s Vinod Kumar Vijay Contractor, Rajasthan.
2.1 Before us, the Ld. AR of the assessee submitted that when the assessee has not charged any margin or markup on the amount of sub contract which was given to the sub contractor on cost to cost basis then the addition made by the AO and Ld. CIT(A) applying net profit rate on sub contract receipt is not justified. Thus, he has submitted that the addition confirming by the Ld. CIT(A), may be deleted.
2.2 On the other hand, Ld. D/R has relied upon the orders of the Ld. CIT(A).
2.3 We have considered the rival submissions and relevant material on record. In the original assessment proceeding completed u/s 143, the AO rejected the books of accounts and made addition by applying net profit of 8% on the contract receipts excluding the sub contract receipt. The said action of the AO was accepted by the assessee. Once the assessee has accepted the rejection of books of account then the income of the assessee has to be computed on the basis of reasonable and proper estimate by applying either the gross profit rate or net profit rate. So far as the net profit rate of 8% applied by the AO on the contract receipt, the assessee has accepted the same. However, the AO proposed to assess the income on the sub contract receipt by applying the same rate of net profit of 8% in the reassessment proceedings. The Ld. CIT(A) after considering the relevant facts has given 50% relief by reducing the net profit rate to 4% having regard 4 ITA No. 767/JP/2017. M/s Vinod Kumar Vijay Contractor, Rajasthan.
to the fact that on the sub contract work the income has to be divided by the parties. Therefore, the Ld. CIT(A) found that 4% net profit rate is a reasonable estimation of income on sub contract work. We do concur with the finding of Ld. CIT(A) on this issue particularly when the books of accounts were rejected and the income of the assessee was to be estimated on reasonable and proper basis. Though, the assessee contended that it has not earned any income on the sub contract work however, once the rejection of books of accounts was accepted by the assessee then the income is required to be assessed on reasonable estimate basis. Accordingly, we do not find any error or illegality in the impugned order of the Ld. CIT(A) qua this issue.
3. Ground no. 2, is regarding confirming the addition by excluding the interest on FDRs from the business income and treated the same as the income from the other sources. The assessee has shown the interest income of Rs. 10,23,275/- on FDRs and claimed the same as part of business income of the assessee on the ground that the FDRs were made as per the terms and conditions of the Government contract which requires to furnished the performance guarantee. The AO did not accept the claim of the assessee and excluded the interest income of Rs. 10,23,275/- from the business income of the assessee and thereby the trading addition to the extent of that amount was enhanced by the AO. The assessee challenged the action of the AO before the Ld. CIT(A), but could not succeed.5
ITA No. 767/JP/2017.
M/s Vinod Kumar Vijay Contractor, Rajasthan.
3.1 Before us, the Ld. AR of the assessee submitted that assessee has obtained FDR for furnishing the performance guarantee for execution of the contract. Without the same, the assessee was not in a position to get the contract from the Government. Therefore, FDRs obtained by the assessee is inextricably linked with his business. Thus, the Ld. AR has contended that the interest earned on such FDRs is part of business income and the same cannot be assessed as income from other sources. In support of his contention, he has relied upon the following decisions:-
1. Mohd. Construction Co. vs. ACIT (2017) 152 DTR 148 (Jaipur)(Trib.)
2. Shyam Bihari Vs. CIT & Anr. (2012) 345 ITR 283 (Patna)(HC)
3. CIT Vs. Jaypee DSC Ventures Ltd. (2011) 335 ITR 132 (Del.)(HC)
4. CIT & Anr. Vs. Chinna Nachimuthu Construction (2007) 297 ITR 70 (Kar.)(HC).
3.2 On the other hand, Ld. D/R has relied upon the order of the authorities below and submitted that the interest income from FDRs cannot be treated as business income and therefore the same was rightly assessed as income from other sources.
3.3 We have considered the rival contentions as well as relevant material on record. The AO as well as Ld. CIT(A) has not disputed the fact that the FDRs obtained by the assessee were for the purpose of furnishing the performance guarantee for execution of the contract. Once, the FDRs in 6 ITA No. 767/JP/2017. M/s Vinod Kumar Vijay Contractor, Rajasthan.
question is taken by the assessee in connection with the execution of the contract and not for parking its surplus funds then the interest income on such FDRs would be regarded being having a direct nexus with the business activity of the assessee. In the case of Mohd. Const. Co. vs. ACIT (Supra), the Co-ordinate Bench of this Tribunal while considering the identical issue has held in para 5.6 as under:-
"5.6. We have heard the rival contentions and pursued the material available on record. 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 do not 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 Departments 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 (Supra). The contention the Ld. AR is therefore accepted and the order of Ld. CIT(A) to this extent stand modified. 7 ITA No. 767/JP/2017.
M/s Vinod Kumar Vijay Contractor, Rajasthan.
Further the Hon'ble Patna High Court in the case of Shaym Bihari vs. CIT & Anr. (Supra) held in para 7 & 8 as under:-
"7. Learned counsel for the appellant has placed reliance upon a judgment of the Calcutta High Court reported in 193 ITR 252 (Commissioner of Income Tax Vs. Tirupati Woollen Mills Ltd..) and upon a judgment of Karnataka High Court reported in 297 ITR 70 (Commissioner of Income Tax Vs. Chinna Nachimuthu Construction) to support his submission in respect of question no.2 noticed above. The judgment in the case of CIT Vs. Chinna Nachimuthu Construction was rendered in a case of similar nature where the assessee being a contractor, in order to secure a contract work was required to offer a bank guarantee to the contractee. There also the assessee had shown the interest accrued on the fixed deposit as business income but the assessing officer treated the interest as income from "other sources".
The Karnataka High Court noticed that the investment of amount in fixed deposits by the assessee was only to provide a bank guarantee to the contractee in order to acquire the contract work. On such facts it held that the interest income could not be treated as a income from other sources and had to be treated as business income only. In that case reliance was also placed upon judgment of the Supreme Court in the case of CIT Vs. Govind Choudhury & Sons reported in 203 ITR 881. In the Calcutta High Court judgment in the case of CIT Vs. Tirupati Woollen Mills Ltd, the facts were slightly different. The assessee earned income from fixed deposits and other deposits which was sought to be assessed as income from other sources. On a finding that the assessee had utilized its commercial assets which were lying in the form of 8 ITA No. 767/JP/2017. M/s Vinod Kumar Vijay Contractor, Rajasthan.
surplus cash for earning interest, it was held that such earning arising from utilization of commercial assets would be the business income and hence revenue expenditure could be deducted from it.
8. In view of law laid down in clear terms in the judgment of Karnataka High Court noticed above, we have no hesitation in holding that the Tribunal as well as the subordinate revenue authorities erred in holding that interest accrued on security deposits to the extent used for the purpose of securing the contract work would also be assessable as income from "other sources". This question is thus answered in favour of the appellant."
3.4 Therefore, having regard to the facts and circumstances of the case when the FDRs obtained by the assessee as per the conditions of the contract for furnishing the performance guarantee then it is not voluntary deposit of money by the assessee with the bank but FDRs were taken by the assessee in execution of the contract which is the main and only business activity of the assessee. Therefore, we are of the considered view that this issue is covered by the decisions as relied upon by the Ld. AR and accordingly we hold that the interest income on FDRs taken for furnishing the performance guarantee for execution of contract is part of business income of the assessee. The addition made by the AO is accordingly deleted.
4. Ground no. 3 , at the time of hearing, Ld. AR stated at bar that he does not wish to press ground no. 3 of the appeal as the AO has rectified the 9 ITA No. 767/JP/2017. M/s Vinod Kumar Vijay Contractor, Rajasthan.
assessment order u/s 154 of the Act and no grievance is left. Thus, he has pleaded that ground no. 3 may be dismissed as not pressed. 4.1 Ld. D/R has no objection with the ground no. 3 is dismissed as not pressed.
4.2 Accordingly, the Ground no. 3 is dismissed being not pressed.
5. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 12/02/2018.
Sd/- Sd/-
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(Bhagchand) (Vijay Pal Rao)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Jaipur
Dated:- 12/02/2018.
Pooja/-
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Vinod Kumar Vijay Contractor.
2. izR;FkhZ@ The Respondent- ACIT, Circle-2, Kota.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File [ITA No. 767/JP/2017] vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 10 ITA No. 767/JP/2017. M/s Vinod Kumar Vijay Contractor, Rajasthan.