R.G. Colonizers Pvt. Ltd. Vs DCIT (ITAT Jaipur)
Conclusion: Interest income on FDR which was earned out of the funds placed with the bank by utilizing the bank overdraft limit was to be considered as business income and not as income from other sources.
Held: Assessee had shown interest income of Rs.12,58,998/- on the FDR and miscellaneous receipts of Rs.2,89,200/-. AO assessed the same as income from other sources. CIT(A) confirmed the action of AO. It was held that the interest income earned on FDR was 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 had to obtain the FDR from the bank which was pledged to it. Also, the FDR were made by utilizing the cash credit limit on which interest was paid to the bank and which formed part of the business expenditure. Thus, the interest income on such FDR which was earned out of the funds placed with the bank by utilizing the bank overdraft limit was to be considered as business income and not as income from other sources. Similarly, the miscellaneous receipts of Rs.2,89,200/- was from sale of scrap and was part of business income.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This is an appeal filed by the assessee against the order of ld.
National Faceless Appeal Centre (NFAC), Delhi dated 06/08/2021 for the A.Y. 2014-15, wherein following grounds have been taken.
“1. The ld. CIT(A), NFAC has erred on facts and in law in upholding the rejection of books of account by applying the provisions of Sec. 145(3).
2. The ld. CIT(A), NFAC has erred on facts and in law in upholding the action of AO in applying n.p. rate of 8% on total receipts of Rs. 18,63,73,549/-, thereby computing the business income at Rs. 78,42,549/- (18,63,73,549*8%-70,67,877 depreciation) as against net loss of Rs. 68,43,810/- computed by the assessee)
3. The ld. CIT(A), NFAC has erred on facts and in law in confirming the addition of interest income of Rs. 12,58,998/- and miscellaneous receipts of Rs. 2,89,200/- totaling to Rs. 15,48,198/- under the head income from other sources apart from the business income sustained by him.
4. The appellant craves to alter, amend and modify any ground of appeal.
4. Necessary cost be awarded to the assessee.”
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. The brief facts of the case are that the assessee company is engaged in civil construction work. Return of income for the year under consideration was filed by the assessee on 29/11/2014 declaring NIL income comprising loss of Rs. 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 Rs. 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 arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are reproduced as under:
“1. It is submitted that the assessee is maintaining day to day books of accounts which are subject to statutory audit under the Companies Act, 2013 as also tax audit u/s 44AB of the IT Act, 1961. These books are duly supported by the bills and vouchers. Neither the auditor have pointed out any defect in the purchase bills/ vouchers and the contract receipt nor the AO has found any defect in the same. The only observation is that stock register is not maintained ignoring the nature of business of assessee whereby all the materia l purchased is directly off loaded at site and consumed. The unbilled work at the end of the year is taken as work-in-progress (WIP). The AO has not disputed the opening and closing WIP declared by the assessee (PB 16). Hence, simply because stock register is not maintained, rejection of books of accounts is not justified. The assessee has regularly maintained books of accounts in similar manner which has been accepted by the AO in the scrutiny assessment made for AY 2012-13 (PB 18-21) and AY 2013-14 (PB 22-25). 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 o f 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 ofstock 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 and the consequent addition made by AO and confirmed by Ld. CIT(A) be deleted. Reliance in this connection is placed on the following cases:-
(i) Malani Ramjivan Jagannath Vs. ACIT (2009) 316 ITR 120 / 207 CTR 19 (Raj.) (HC)
(ii) CIT Vs. Smt. Poonam Rani (2010) 326 ITR 223/ 41 DTR 194 (Del.) (HC)
(iii) Ashok Refractories 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 & 201213. In between the rate of sand, bricks, cement and steel increased between 10% to 20%. Further due to financial constraints, some o f the parties provided the steel/ cement, the cost of which was deducted from the running bill of the assessee. In case of work o f 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:-
