Assessee was a closely held company incorporated in USA In India, assessee-company entered into contract with DPC .First phase of contract was completed - Second phase of contract did not run its full course . Same was terminated by assessee-contractor on account of non-payment of bills by contractee DPC. Assessee raised a claim which had not been accepted by contractee DPC. Since ultimate collection was not certain while raising bills, assessee did not credit same to its profit and loss account . Thus, said amounts were not shown by assessee as its income - Whether since, suits/ disputes between assessee-contractor and contractee were pending, contractual income could not be said to be accrued when invoice raised by assessee had been rejected by contractee in view of its bankruptcy - Held, yes - Whether, however, on actual receipt of invoice amount, same would be taxed in year of receipt - Held, yes Bechtel International Inc [2016] 71 taxmann.com 62 (Mumbai - Trib.) OCTOBER 30, 2015

Facts

Assessee , a closely held company in USA , entered into contract with Indian Companies. Contract could be executed partly only because contratee companies failed to pay the bils raised. The USA Company raised bill for work done and also for demobilization in winding up site operations. The bills were not offered for Income and assesse made a disclosure in this regard in his computation. AO made addition. CIT A deleted addition of bill for demobilization only saying that this bill was never accepted by contractee.

Assessee was engaged in business of contract work of military engineering services - Assessing Officer having found that assessee disclosed lower gross profit rate 7.20 per cent in relevant year, in comparison to 10.25 per cent in immediately preceding year despite three fold increase in gross receipt and assessee had not maintained salary register, payment register etc., rejected books of account of assessee and estimated income of assessee by applying net profit rate of 12.5 per cent - Whether since explanations of assessee that gross receipts had substantially increased by three times for which assessee had to reduce margin, and that contract works were executed in military and air force areas where working hours were lesser in comparison to normal civil work and that cost of various expenses and material had also been increased, was not rebutted by revenue, gross profit rate applied by Assessing Officer could not be sustained - Held, yes - Whether on facts, it would be fair and reasonable if net profit rate of 7.50 per cent was applied subject to interest to third parties, depreciation, interest to partners and salary to partners - Held, yes-Shri Ram Traders [2013] 37 taxmann.com 427 (Jodhpur - Trib.)

Punjab and Haryana High Court laying down principles of assessment in the case of Contractors in the case of TELELINKS &MATTEWAL CO-OP L/C SOCIETY (P&H) 20-11-14

In ITA 269/2014 AO rejecting a/c books-[Telelinking v/S CIT Bathinda] applied 12% rate in case of contractor applying Prabhat Kumar 323 17R 675 (P&H) and ITAT Chd in ESS Buildings [ITA 707/1997] CIT(A) reduced to 6% ITAT restored to 12%

Payment of labour by contractor to group of workers is not contract payment liable u/s 194C but payment to workers for fixed period and hence covered by 192-GREATER HYDERABAD MUNICIPAL CORPORATION ZONE dtd 24-09-2015(2015) 45 CCH 0079 HydTrib

Salary and Interest to partner to be allowed as deduction while estimating the profits of the firm where books of accounts are rejected- Inter Continental Constructions[2015] 61 taxmann.com 15 (High Court of Andhra Pradesh and Telangana

A contract was entered by assessee- joint venture company to execute project work for its client - Assessee did not execute contract work and said work was done by one of its constituents, namely 'SMS Ltd.' - Receipts for project work were reflected in books of account of 'SMS Ltd.' and in return, 'SMS Ltd.' had disclosed said income and assessment was completed - Whether since there was no finding of receipt of any income by assessee on account of said contract, same would not be treated as income in hands of assessee

SMSL-UANRCL (JV) MARCH  2, 2015 60 Taxmann.com 206 

Deduction made from contractor's bill on account of amount being receivable upon there being no defect during stipulated period shall not be included in his income although he is following mercantile system . Held by Andhra Pradesh High Court in Shankar Constructions . ITA 135/2004. High Court discussed the principles propounded by Supreme Court inCIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) , CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC) .

Where assessee, a civil contractor, made payments to transporters and sub-contractors in course of its business, in view of fact that assessee gave complete addresses and PANs of payees and, moreover, said payments had been made after deducting tax at source, impugned order rejecting assessee's books of account was to be set aside

V.V. Constructions[2015] 59 taxmann.com 368 (Pune - Trib.) JUNE  12, 2015 

On assessee’s inability to supply addresses of purchasers who purchased goods on cash, ITO rejected assessee’s books of account showing result in respect of cash sale transactions, and made addition – AAC deleted additions but Tribunal restored ITO’s orders – Whether there was no necessity whatsoever for assessee to maintain addresses of cash customers – Held, yes – Whether, therefore, rejection of book results of assessee was unjustified – Held, yes – Whether, consequently, additions made to assessee’s income were liable to be deleted – Held, yes

R.B. Jessaram Fatehchand (Sugar Dept.)[1970] 75 ITR 33 (BOM. HIGH COURT OF BOMBAY JULY 30, 1969

Where Assessing Officer rejected books of account and estimated net profit on gross receipts, Commissioner could not invoke revisional power

Gopal Narayan Singh (Patna Trib) 4-07*-2014 53 taxmann.com 51

Section 145, read with section 263, of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts (Revision) - Assessment year 2007-08 - Assessing officer estimated net profit of assessee at 5.58 per cent of gross turnover from civil contract work - Commissioner invoked section 263 alleging that there was inability to produce evidences in support of assessee's claim of expenses and profit - It was found that in opinion of Assessing Officer, books of account were not reliable and, accordingly, he rejected books of account and estimated said profit of his own - Whether Commissioner could not invoke section 263 by mentioning that no proper enquiry had been made by Assessing Officer when nothing had been brought on record by Commissioner - Held, yes - Whether, therefore, Commissioner was not justified in cancelling assessment order - Held, yes [Para 5] [In favour of assessee]

AO couldn't make estimated additions without showing comparable case to justify higher rate of net profit

Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of income (GP Rate) - Assessment year 2009-10 - Assessee - a partnership firm, was engaged in business of civil contractor and had furnished his income-tax return along with audit report and other information - Assessee declared a net profit of 5.38 per cent, subjected to interest and remuneration to partners - A perusal of order revealed that net profit rate in immediate preceding year was 5.02 per cent - Assessing Officer invoked provisions of section 145 and disallowed expenses amounted to Rs. 1.17 crores and determined net profit at 13.7 per cent - Commissioner (Appeals) sustained an ad hoc addition of Rs 10 lakhs - Tribunal reduced addition to Rs 5 lakhs - It was observed by Tribunal that though contract receipts had sharply increased from Rs 10.60 crores to Rs. 12.32 crores, net profit had increased from 5.02 to 5.38 per cent with addition of Rs 5 lakhs - Whether as Assessing Officer had failed to bring on record any comparable case so as to justify any estimation/addition, order of Tribunal was to be upheld - Held, yes [Paras 10 and 11] [In favour of assessee]
[2015] 59 taxmann.com 293 (Rajasthan)/[2015] 371 ITR 325 (Rajasthan)

7% Rate without allowing interest and salary applied to contractor

Punjab and Haryana High Court
M/s. Competent Construction Company ITA No. 646 of 2010 (O&M) Date of decision: 01.11.2012

ITAT Amritsar
ITA 493/2010 dated 11-5-2012  Construction Engineers

ITAT Asr on road contractor

ITAT Asr allowed the appeal of assessee who is road contractor holding that nature of business of road contractor is such that earth has to be used hence expenses should be allowed although assessee could not produce the proper evidence supporting the expenses in respect of payments made to truck owners. Moreover the assessee had shown better net profits as compared to last year.
ITA 148/2011 15-10-2012 Satish Kumar Aggarwal