Income Tax Appellate Tribunal - Chandigarh
Sheetla Const. Co., Sunder Nagar vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A' CHANDIGARH
BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA Nos. 320 & 321/Chd/2011
Assessment Years: 2005-06 & 2006-07
M/s Sheetla Construction Company, Vs. The ITO,
Sundernagar, Sundernagar,
Himachal Pradesh
PAN No. AAZFS7309H
(Appellant) (Respondent)
Appellant By : Shri S.S.Guleria
Respondent By: Shri N.K.Saini
ORDER
PER SUSHMA CHOWLA, JM
Both the appeals by the assessee are against the order of CIT(A), Shimla dated 10.1.2011 relating to assessment years 2005-06 & 2006-07 against the order passed under section 144 / 143(3) of the I.T. Act, 1961.
2. The common grounds of appeal raised by the assessee in both the assessment years are as under:-
1. That the Ld. CIT(A) has erred both in law and facts in not directing the Ld. Assessing Officer to allow the interest and salary paid to the partners and as claimed in the return of income, as per section 40(b) of the Income Tax Act.
2. That the Ld. CIT(A) has also erred in not entertaining the plea of the appellant that the Ld. Assessing Officer has not at all discussed the disallowance of interest and salary paid to the partners in the assessment order and hence the disallowance is not maintainable on this account.2
3. The assessee in ITA No. 320/Chd/2011 has also raised another ground of appeal by way of ground No.1 which is as under:-
1. That the Ld. CIT(A) has erred in not accepting the plea of the assessee-appellant that the order of assessment ought to have been passed u/s 144 and not 143(3) as done by the Ld. Assessing Officer.
4. Both the appeals relating to the same assessee on identical issues were heard together and are being disposed of by this consolidated order for the sake of convenience.
5. The issue arising in the present appeals are against the non allowance of interest and salary paid to the partners after estimation of income in the hands of the assessee.
6. The brief facts of the case are that because of the non cooperation of the assessee and non production of the vouchers to verify the entries in the books of account produced, the Assessing Officer rejected the books of account u/s 145(3) of the Act and estimated the income by appl ying net profit rate of 8% on gross contract receipts at Rs. 60,39,463/-. Further, the assessee had also shown transportation receipts of Rs. 8,23,265/- on which income was estimated by invoking the provisions of section 44AE of the Income Tax Act and a sum of Rs. 87,500/- was held to be deemed profit earned by the assessee from pl ying heavy goods vehicles for the year under consideration. Before the CIT(A), though the assessee had raised issue against the assessment being completed by rejecting books of account, but the issue was also in connection with the disallowance of interest and salary paid to the partners. The assessee had paid interest of Rs. 52,839/- and Rs. 1,25,745/- and salary of Rs. 1,51,702/- and Rs. 3
6,40,575/- for the assessment years 2005-06 and 2006-07 respectivel y and the same was claimed as deduction under the Profit and loss account. The claim of the assessee was rejected by the C IT(A) observing that as the books of account had been rejected, no separate allowance / disallowance or addition could be made as all the allowances were deemed to have been allowed. The assessee is in appeal against the said order of CIT(A).
7. On the perusal of record, we find that during the captioned assessment years 2005-06 and 2006-07, after rejection of books of account maintained by the assessee, recourse was made to the provisions of section 145(3) of the Act and the income from contract business was estimated in the hands of the assessee. The Assessing Officer had computed the income for the year under appeal by appl ying net profit rate of 8% on the gross contract receipts declared by the assessee in both the captioned years. The above said establishes that as far as the receipts declared by the assessee, the same were found in order and as the assessee had not able to justify the claim of expenditure against the said receipts earned by the assessee, the income was estimated in the hands of the assessee. The next aspect of the issue was that after such estimation of income in the hands of the assessee whether the assessee is entitled to the claim of deduction on account of interest and salary paid to the partners. We find that under presumptive taxation of income from contract business as laid down in section 44AD of the Act, it is provided that once an estimation of income is made for the financial year, it is presumed that all the expenses u/s 30 to 42 of the Act are deemed to have been allowed. Further, the interest and salary paid to the partners is directed to be allowed against such income estimated in accordance with the provisions 4 of the Act. Following the parit y of reasoning laid down by the provisions of the act in respect of the presumptive taxation of income from contract business, we are of the view that once the income from contract business has been estimated in the hands of the assessee, the assessee is entitled to claim of deduction on account of interest and salary paid to the partners, in accordance with law. Accordingl y, we set aside the order of C IT(A) in this regard and direct the Assessing Officer to allow the claim of the assessee in respect of salary and interest paid to the partners in accordance with the provisions of Income Tax Act for both the captioned years. Thus, the ground No.2 raised by the assessee in both the appeals are allowed.
8. However, the ground of appeal raised in both the appeals with regard to the estimation of income is rejected in the absence of assessee making any submission against the estimation of income and accepting the application of NP rate of 8% of the gross receipts in its written submissions.
9. We find no merit in the ground No.1 raised in ITA NO. 320/Chd/2011 and the same is dismissed.
10. In the result, both the appeals of the assessee are partl y allowed.
Order Pronounced in the Open Court on this 13 t h day of May, 2011.
Sd/- Sd/-
(D.K.SRIVASTAVA) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 13 t h May, 2011
Rkk
5
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
True Copy
By Order
Assistant Registrar,
ITAT, Chandigarh