Where a civil contractor did not produce salary and wage register and other evidences in support of expenses incurred, Assessing Officer was justified in estimating profit at 8 per cent of gross contract receipts under section 44AD
IN THE ITAT CUTTACK BENCH
Ram Prasad Bhatta
Assistant Commissioner of Income-tax, Berhampur Circle, Berhampur
AND D.T. GARASIA, JUDICIAL MEMBER
IT APPEAL NO. 178 (CTK.) OF 2014
[ASSESSMENT YEAR 2008-09]
FEBRUARY 5, 2015
Kailash Panigrahi, AR for the Appellant. Rabin Choudhari, DR for the Respondent.
D.T. Garasia, Judicial Member – This is an appeal by the assessee against the order of ld. CIT(A), Berhampur dated 10/02/2014 for the A.Y. 2010-11.
2. The following grounds are raised by the assessee :
|“1.||That the CIT(A) is not correct in confirming the order of the A.O. who had estimated profit at 8% of the gross receipts, where the books of accounts are audited u/s. 44AB of the Income Tax Act. The profit taken at 8% is on higher side.|
|2.||That the Ld. CIT(A) is wrong in not allowing the depreciation on the estimated profit of 8% on gross contract receipts.|
|3.||That the legitimate deduction u/s. 24(b) of the Income Tax Act was disallowed for Rs. 82,604/- is bad in law.”|
3. Short facts of the case are that the assessee has filed the return of income on 31/10/2010 declaring an income of Rs. 6,24,900/-. The assessee is a contractor executing contract works under the various government departments. The assessee’s case was fixed for compliance on various dates as mentioned in assessment order at para 2, but he did not give reply. On 11/11/2010, the assessee appeared and filed some details and thereafter he has not made any compliance, therefore the Assessing Officer has verified the P & L a/c and found that the assessee has claimed huge expenses under the heads ‘freight’ of Rs. 6,46,472/-, ‘salaries & wages’ of Rs. 68,34,076/-, ‘travelling expenses’ at Rs. 5,05,981/- and ‘other expenses’ of Rs. 7,82,700/-. The assessee was asked to produce salary & wage register and evidences of the above expenses. The assessee did not produce the same, therefore the Assessing Officer has rejected the book result and estimated the profit at 8% of the gross contract receipts.
4. The matter was carried to the Ld. CIT(A) and Ld. CIT(A) has dismissed this ground of appeal.
5. Learned AR submitted before us that the Ld. CIT(A) has not allowed the depreciation and he relied upon the decision of Hon’ble Rajasthan High Court in the case of CIT v. Jain Construction Co.  245 ITR 527/110 Taxman 156 and also relied on a circular dated 31/08/1965, it was clarified that depreciation is to be allowed in cases were net profit is estimated. Learned AR submitted that in the case of Jain Construction Co. (supra), the decision of Hon’ble Rajasthan High Court directed that Tribunal while allowing the appeal as directed to compute the total income on estimate basis and allowed relief on account of payment of interest and claim of depreciation. Therefore in this case also depreciation must be allowed. Similarly, he has also produced copy of the decision of Hon’ble Punjab & Haryana High Court in the case of CIT v. Vinod Kumar Bhatra  211 ITR 253/83 Taxman 466 wherein it is held that while computing the net profit on an estimated basis in the absence of specific observations to that effect where details are available, the Assessing Officer is bound to allow the deduction for depreciation. The depreciation is allowable separately from estimated income is further supported by the express provisions of section 44AD, 44AE & 44AF of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’, for short) which expressly provide that in computing the deemed income of a construction contractor, transporter or retail trader, all deductions u/s. 30 to u/s. 38 of the Act shall be deemed to have been allowed, and that no further deduction under those sections would be allowable.
6. On the other hand, learned DR relied upon the orders of revenue authorities.
7. We have heard rival contentions of both the parties. Looking to the facts and circumstances of the case, we find from the order of Ld. CIT(A) that during the course of hearing before the Assessing Officer, the assessee did not produce books of accounts, bills and vouchers in support of P & L account. The assessee did not produce the books before the Ld. CIT(A), therefore Ld. CIT(A) found no infirmity in the action of Assessing Officer in rejecting the book results and estimating the profit when the notice u/s. 142(1) of the Act calling for the books were not complied with. We find that as per section 44AD of the Act, the persons engaged in the business of civil contract work, who do not maintain books net profit shall be assessable @ 8% of their gross turnover if such tune does not exceeds Rs. 1 crore. We find that the reasonableness of the rate has been accepted by various Tribunals. Section 44 AD of the Act which reads as under :—
“44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :
Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.
(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business.
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
[(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to-
|(i)||a person carrying on profession as referred to in sub-section (1) of section 44AA;|
|(ii)||a person earning income in the nature of commission or brokerage; or|
|(iii)||a person carrying on any agency business.]”|
8. From the above section, it clarifies that if the assessee’s gross receipts are more than Rs. 1 Crore and if the assessee did not maintain the books of accounts, then his profit has to be estimated @ 8% and depreciation should not be allowed. In the instant case, the assessee did not produce the books of accounts and also did not appear before the Assessing Officer, therefore the Assessing Officer was not able to verify the claim made in P & L account. Assessee claimed expenses under the heads ‘freight’ of Rs. 6,46,472/-, ‘salaries & wages’ of Rs. 68,34,076/-, ‘travelling expenses’ at Rs. 5,05,981/- and ‘other expenses’ of Rs. 7,82,700/-. The assessee was asked to produce the salary & wage register and evidence of such expenses. Assessee did not care to produce the books of accounts before the Assessing Officer nor before the Ld. CIT(A). In such circumstances, the Assessing Officer has no alternative except to reject the books and estimated the profit @ 8% on the total turnover. As per sec. 144 of the Act, if the assessee fails to comply with the terms of a notice issued under sub-sec. (1) of sec. 142 and if the assessee fails to provide the necessary information, the Assessing Officer had liberty to pass the order on the best judgment assessment. Secondly, if the assessee produced the books of accounts where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provide standards as notified under sub-sec. (2), have not been regularly followed by the assessee, the Assessing Officer may make the assessment in the manner provide in sec. 145 of the Act. We find that the best assessment can be made u/s. 142 & 144 of the Act after rejecting the book results u/s. 145(3) of the Act. In the case of Jain Construction Co. (supra) where the Hon’ble Rajasthan High Court has confirmed the order of Tribunal by observing that while allowing the appeal, the Tribunal has directed the assessing authority to recompute the total income as estimate by him and allow relief on account of payment of interest and claim of depreciation. The finding recorded by the Tribunal is purely a finding of fact, based on proper appreciation of material on record and the evidence produced by the assessee. In our opinion, in that judgment, the assessee has produced the relevant materials before the Assessing Officer, therefore the Tribunal has verified all the documents on record and come to a particular conclusion. Similarly, in the case ofVinod Kumar Bhatra (supra), this case pertains to A.Y. 1984-85. We find that section 44AD has been amended by the Finance Act in 2009 w.e.f. 01/04/2011 and this judgment relates to A.Y. 1984-85, therefore this judgment will not helpful to the assessee. We find that the assessee has not produced any evidence before the Assessing Officer, therefore Assessing Officer is justified in estimating the profit at 8% and our interference is not required. This ground of appeal is dismissed.
9. Second ground relates to disallowance of interest on house property claim u/s. 80C of the Act.
10. The assessee claimed a loss of Rs. 82,604/- as interest paid under house property and an amount of Rs. 97,003/- as deduction u/s. 80C of the Act. However, no evidence in support of above claims was produced before the Assessing Officer, the Assessing Officer disallowed the same. The assessee has claimed the interest on house property is concerned, the assessee has filed copy of bank statements wherein the assessee has shown the payment of interest of Rs. 82,064/-. The assessee did not produce the details of property before the Assessing Officer and Ld. CIT(A), so the disallowance made by the Assessing Officer was confirmed by the Ld. CIT(A).
11. We have heard rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the assessee has paid interest of Rs. 82,064/-, for which he submitted a bank statement before us. The assessee was claimed interest since so many years. We find that the assessee has paid interest paid to the bank for housing loan and it is supported by bank statement, therefore we allow the same.
12. In the result, appeal of the assessee is partly allowed.