, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH (VIRTUAL COURT) .., !' # $!, BEFORE: SHRI. N.K.SAINI, VP & SHRI , RAJPAL YADAV, VP ITA NO.291/CHD/2019 ASSESSMENT YEAR : 2014-15 ACIT, C - 7 RISHI NAGAR, LUDHIANA PUNJAB M/S CEIGALL INDIA LTD. A-898, TAGORE NAGAR LUDHIANA-PUNJAB PAN NO: AADCC0088N APPELLANT RESPONDENT CROSS OBJECTION NO. 21/CHD/2019 ( ITA NO.291/CHD/2019) ASSESSMENT YEAR : 2014-15 M/S CEIGALL INDIA LTD. A-898, TAGORE NAGAR LUDHIANA-PUNJAB ACIT, C - 7 RISHI NAGAR, LUDHIANA PUNJAB PAN NO: AADCC0088N APPELLANT RESPONDENT !' ASSESSEE BY : SHRI SUDHIR SEHGAL, ADVOCATE #!' REVENUE BY : SMT. C. CHANDRAKANTA, CIT $ %! & DATE OF HEARING : 17/11/2020 '()*! & DATE OF PRONOUNCEMENT : 19/11/2020 $%/ ORDER PER BENCH: THE PRESENT APPEAL BY THE DEPARTMENT AND CROSS OBJE CTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-3, LUDHIANA DT. 01/12/2018. 2. FIRST WE SHALL DEAL WITH THE CROSS OBJECTION FIL ED BY THE ASSESSEE IN C.O. NO. 21/CHD/2019 FOR THE A.Y. 2014-15. THE REGISTRY HAS POINTED OUT THAT THE CROSS 2 OBJECTION FILED BY THE ASSESSEE IS BARRED BY LIMITA TION BY 20 DAYS. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS U/S 145(3 ) AND IGNORING THE BOOK RESULTS BASED ON THE AUDITED BOOKS OF ACCOUNTS. 2. THAT THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT THE RESPONDENT CRAVES LEAVE TO ADD OR AMEND AN Y GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPOS ED OFF. 3. DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT HE HAS THE INSTRUCTIONS NOT TO P RESS CROSS OBJECTION. 4. LD. DR DID NOT OBJECT IF THE CROSS OBJECTION IS TO BE DISMISSED AS WITHDRAWN. 5. IN VIEW OF THE ABOVE THE CROSS OBJECTION FILED B Y THE ASSESSEE IS DISMISSED AS WITHDRAWN. 6. NOW WE SHALL DEAL WITH THE APPEAL FILED BY THE D EPARTMENT IN ITA NO. 291/CHD/2019 FOR THE A.Y. 2014-15 WHEREIN FOLLOWING GROUNDS HAS BEEN RAISED: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN REDUCING THE CALCULATION OF NET PR OFIT RATE @6.5% ON THE TOTAL RECEIPTS INSTEAD OF 12% APPLIED BY THE AO WHEN THE SITE-WISE EXPENSES OF LABOUR, PROOF OF ADDRESS AND IDENTITY OF THE LABOURERS, GENUINENESS OF LABOUR EXPENSES WAS NOT E STABLISHED. II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) WAS JUSTIFIED IN ALLOWING DEPRECIATION CLAIMED BY A PPELLANT ON THE PROFIT ARRIVED AT BY APPLYING NET PROFIT RATE O F 6.5% ON THE TOTAL RECEIPTS INSTEAD OF FLAT RATE OF 12% APPLIED BY THE AO. III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 84,19 ,383/- MADE U/S 69C OF THE INCOME TAX ACT, 1961 BY THE AO ON ACCOUNT OF UNEXPLAINED EXPENDITURE ON THE BASIS OF KACHA BILLS IMPOUNDED DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A OF THE INCOME TAX ACT, 1961. 3 IV) THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 7. VIDE GROUND NO. 1 THE GRIEVANCE OF THE DEPARTME NT RELATES TO THE REDUCTION OF NET PROFIT RATE @ 6.5% ON THE TOTAL RE CEIPT INSTEAD OF 12% APPLIED BY THE A.O. 8. THE FACTS RELATES TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND FILED THE RE TURN OF INCOME ON 25/09/2014 DECLARING AN INCOME OF RS. 2,63,82,490/-. SUBSEQUEN TLY THE CASE WAS SELECTED FOR SCRUTINY. 8.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE TURNOVER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION WAS AT RS. 48.29 CRORES ON WHICH NET PROFIT WAS SHOWN AT RS. 97,41,761/- AN D THAT THE OTHER INCOMES WERE SHOWN AS UNDER: OTHER INCOME REBATE & DISCOUNT 8,24,638.17 INTEREST ON FDR 17,98,792.70 OTHER INTEREST 1,40,38,722.00 TOTAL 1,66,62,152.87 8.2 THE A.O. OBSERVED THAT IF REBATE AND DISCOUNT B E CONSIDERED AS PART OF BUSINESS INCOME THE NET PROFIT RATE OF THE ASSESSEE CAME TO ONLY 2.18% OF THE TOTAL TURNOVER. HE ALSO OBSERVED THAT THE SURVEY UN DER SECTION 133A WAS CONDUCTED ON 15/09/2016 AT THE BUSINESS PREMISES OF THE ASSESSEE AND NO DOCUMENT RELATED TO WAGES RECORD WAS FOUND AND THAT THE LARGE NUMBER OF BILLS & BLANK BILL BOOKS OF VARIOUS PARTIES WERE FOUND WH ICH WERE IMPOUNDED. THE A.O. ASKED THE ASSESSEE TO PROVIDE THE DETAILS OF J OBS DONE AND PROVIDE SITE WISE MATERIAL CONSUMPTION. THE A.O. MENTIONED THAT THE ASSESSEE IN ITS REPLY DT. 03/11/2016 STATED THAT IT WAS NOT PRACTICALLY POSSI BLE FOR IT TO PROVIDE THE BILLS OF SITE WISE MATERIAL CONSUMED. THE A.O. ALSO MENTIONE D THAT THE IMPOUNDED 4 WAGES RECORD EXAMINATION REVEALED THAT THERE WAS NO SITE SPECIFIC WAGE RECORD, WAGE SHEETS PRODUCED WERE FRESH, NEAT AND C LEAN AS IF THOSE WERE FRESHLY PRINTED, SIGNATURE DONE FOR VARIOUS LABOURE RS APPEARED TO BE DONE BY FEW PERSONS AND THAT THE FRESH REVENUE STAMPS WERE FOUND POSTED OVER THE SIGNATURE, ADDRESS OF THE LABOURER WERE MISSING AND ALL THE LABOURERS WERE NOT REGISTERED FOR PF & ESI. 8.3 THE A.O. ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY EXPENSES RELATED TO WAGES AND SALARY BE NOT ADDED TO ITS TOTAL INCOME A S BOGUS EXPENSES. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: AS REGARDS DISALLOWANCES OF ALL THE WAGES IT IS SUB MITTED THAT THE ASSESSEE IS COVERED UNDER EMPLOYEES PROVIDENT FUND AS WELL AS C OVERED UNDER THE DIFFERENT LABOUR LAW APPLICABLE TO THE ORGANISATION . THE COMPANY HAS DEDUCTED AND DEPOSITED PROVIDENT FUND OF THE EMPLOY EES AS PER THE LAW APPLICABLE. THE ASSESSEE IS ENGAGED IN THE CONSTRUC TION OF ROADS AND IT IS NOT POSSIBLE TO CONSTRUCT THE ROAD WITHOUT LABOUR. SO D ISALLOWANCE OF WAGES IS AGAINST THE LAW AND UNJUSTIFIABLE. THE ASSESSEE HAS ALREADY PROVIDED THE PAYMENT OF SALARY & WAGES TO STAFF AND WORKERS. AS THE RECORD HAS BEEN SUBMITTED IN ORIGINAL AND THE SAME HAS BEEN IMPOUND ED SO YOU ARE REQUESTED TO PROVIDE THE COPY OF THE RECORD, SO THAT THE INFO RMATION ASKED BY YOUR GOOD SELF CAN BE PROVIDED. 8.4 THE A.O. OBSERVED THAT THE FAILURE ON THE PART OF THE ASSESSEE TO PROVIDE SITE WISE EXPENSES, LABOUR, PROOF OF ADDRESS & IDEN TITY OF LABOURERS, THE GENUINENESS OF THE LABOUR EXPENSES WAS NOT ESTABLIS HED. HE FURTHER OBSERVED THAT THE ASSESSEE INFLATED ITS PURCHASE EXPENSES BY CIRCULAR SALE PURCHASE. THE A.O. ALSO OBSERVED THAT AT THE TIME OF SURVEY CONDU CTED AT THE BUSINESS PREMISES OF THE ASSESSEE, THE CASH BOOK SHOWED CASH IN HAND OF RS. 2.66 CRORES BUT ACTUAL CASH IN HAND WAS ONLY RS. 21,000/-. AS R EGARDS TO THE ADVANCES GIVEN BY THE ASSESSEE TO VARIOUS PARTIES THE A.O. OBSERVE D THAT THE ASSESSEE STATED THAT THE ADVANCES WERE GIVEN TO M/S COSMAN RESEARCH LAB LTD. FOR SUPPLY OF CONSTRUCTION MATERIAL AND EQUIPMENT BUT THE BUSINES S OF SAID COMPANY WAS TO MANUFACTURE DRUGS AND MEDICINES AND THAT THE ASSESS EE FAILED TO EXPLAIN PURPOSE OF ADVANCES GIVEN TO M/S INDOVAST INTERNATI ONAL, LEOTRONIC SCALES PVT. LTD. , MADHOK ENTERPRISES, PAP EXTN, ZIGMA KNITWEAR S. THE A.O. ALSO OBSERVED 5 THAT THE ASSESSEE HAD NOT PRODUCED THE BANK OF ACCO UNT STATEMENTS OF THE VARIOUS BONKS. 8.5 IN VIEW OF THE ABOVE SAID FACTS, THE A.O. WAS N OT SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE BOOKS. HE THERE FORE ISSUED SHOW CAUSE NOTICE REGARDING REJECTION OF BOOKS OF ACCOUNTS TO THE ASSESSEE. HOWEVER, THE AO WAS NOT SATISFIED FROM THE REPLY OF THE ASSESSEE AND BY KEEPING IN VIEW NON PRODUCTION OF LABOURERS RECORD, CASH BOOK, BANK STA TEMENT, CIRCULAR TRADING TO INFLATE EXPENSES. HE, REJECTED THE BOOKS OF ACCOUNT S AND APPLIED THE NET PROFIT RATE OF 12%. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT, HISAR VS. M/ S PARBHAT KUMAR CONTRACTOR, SIRSA IN ITA NO. 293 OF 2008. THE A.O. ACCORDINGLY WORKED OUT THE NET PROFIT AND MADE THE ADDITION OF RS. 4,73,91,955/-, IN THE FOLL OWING MANNER: THE GROSS RECEIPT OF ASSESSEE IN THIS CASE : 48,29, 86,287/- NET PROFIT @ 12% OF GROSS RECEIPTS : 5,79,58,354/- NET PROFIT SHOWN BY ASSESSEE FROM BUSINESS : 1,05,6 6,399/- INCLUDING REBATE AND DISCOUNT TOTAL ADDITION ON THIS GROUND : 4,73,91,955/- (ADDITION OF RS. 4,73,91,955/-) 9. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 'THIS IS AN APPEAL FILED BY THE APPELLANT RAISING V ARIOUS GROUNDS OF APPEAL AND -WHICH ARE APPARENT FROM THE ELABORATION OF GROUNDS OF APP EAL, WHICH CLARIFIES THE VARIOUS GROUNDS OF APPEAL AND OUR SUBMISSIONS WITH REGARD T O THOSE GROUNDS OF APPEALS ARE AS UNDER AND BEFORE WE DEAL WITH SUCH GROUNDS OF APPEA LS, IT IS IMPORTANT TO GIVE THE BRIEF BACKGROUND OF THE CASE:- 1. THE ASSESSEE, A LIMITED COMPANY, IS ENGAGED IN T HE BUSINESS OF TAKING CONTRACTS OF ROAD CONSTRUCTION AT DIFFERENT PLACES IN PUNJAB FRO M THE GOVT, DEPARTMENT AND THESE CONTRACTS ARE TAKEN UNDER STIFF COMPETITION AND FOR WHICH, THE TENDERS ARE FLOATED BY THE RESPECTIVE GOVT, DEPARTMENTS AND SUCH CONTRACTS ARE THEN ALLOTTED TO THE PERSONS QUOTING THE LOWEST AMOUNT AS PER THE NORMS OF THE G OVT. DEPARTMENT. 2. THE ASSESSEE HAD BEEN FILING HIS RETURNS OF INCO ME YEAR AFTER YEAR AND THERE HAS BEEN NO DISPUTE WITH REGARD TO THE SAME AND THE ASS ESSMENTS HAVE BEEN FRAMED BOTH U/S 143(3)/143(1) AND THERE HAS BEEN NO ADDITI ON ON ACCOUNT OF 'ESTIMATION OF 6 PROFIT RATE' AND, WHATEVER, THE PROFIT HAVE BEEN DE CLARED IN THE RETURNS OF INCOME YEAR AFTER YEAR, THE SAME HAVE BEEN ACCEPTED BY THE DEPARTMENT, WHICH IS AS PER FOLLOWING CHART:- A.Y. ASSESSMENT FRAMED 2010-2011 ASSESSMENT MADE U/S 143(3) 2011-2012 ASSESSMENT MADE U/S 143(3) 2012-2013 ASSESSMENT MADE U/S 143(3) 2013-2014 ASSESSMENT MADE U/S 143(3) 3. THE ORDER FOR ASSTT. YEAR 2012-13, IS BEING ENCL OSED HEREWITH WHEREIN, THOUGH, THERE WAS SOME ADDITION, BUT IT WAS NOT RELATED TO THE PR OFIT RATE. 4. FOR THE YEAR UNDER CONSIDERATION, ALL SUC H BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED IN THE NORMAL COURSE OF BUSINESS AND DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, VARIOUS REPLIES WERE FILED, WHICH HAVE BEEN REPRODUCED IN THE ORDER BY THE ASSESSING OFFICER AND THEY ARE, BEING RELIED UPO N AND THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNTS ON ACCOUNT OF THE FA CT THAT NO SITE-WISE RECORD OF CONSUMPTION MATERIAL HAVE BEEN MAINTAINED, NO SITE- WISE WAGES RECORD, ADDRESSES OF THE LABOURERS FOUND TO BE MISSING AND ALL LABOUR ERS ARE NOT REGISTERED WITH PROVIDENT FUND AND ESI AND, THUS, THE GENUINENESS O F LABOUR EXPENDITURE HAVE NOT BEEN ESTABLISHED. 5. IT IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE LABOUR ORIENTED CONTRACT BUSINESS I.E. BUILDING OF ROADS, WHICH INVOLVED HIG H EXPENDITURE ON ACCOUNT OF LABOUR AND MOST OF THE LABOURERS ARE MIGRATORY LABO URERS AND THE LABOUR IS ONE OF THE ESSENTIAL SINE-QUA F OR THE PURPOSES OF EXECUTION OF CONTRACT AND SUCH E XPENSES HAVE BEEN DEBITED IN THE BOOKS OF ACCOUNTS ON DAY TO DAY BASIS. SUCH DEBIT IN THE BOOKS OF ACCOUNT HAS AN EVIDENCERY VALUE. 6. IT IS ALSO AN ACCEPTED FACT THAT NO CONTRACT WOULD HAVE BEEN EXECUTED WITHOUT THE LABOUR EXPENSES AND THUS, IT IS ESSENTI AL PART OF THE EXPENDITURE AND, THUS, EMPLOYMENT OF LABOUR CANNOT BE DOUBTED AT ALL. 7. IT IS ALSO ACCEPTED FACT THAT THE ASSESSEE IS A 'A ' CLASS LISTED CONTRACTOR IN THE GOVT, DEPARTMENT AND ALL THE CONTRACTS HAVE BEEN EX ECUTED IN TIMELY MANNER AND SOME OF THE 'PERFORMANCE CERTIFICATES' IN RESPECT O F VARIOUS CONTRACTS, WHICH SPEAKS OF HIGH QUALITY OF CONTRACTS, HAVING BEEN EXECUTED BY THE ASSESSEE AS PER CERTIFICATES FROM THE RESPECTIVE EXECUTIVE ENGINEER S ARE BEING ENCLOSED HEREWITH FOR YOUR GOODSELF'S READY REFERENCE. 8. THAT THE WAGES BEING AN ESSENTIAL PART OF THE EXPEN DITURE AND THE SAME HAVE BEEN INCURRED IN THE EARLIER YEARS AS WELL AND THE PERCENTAGE OF WAGES COMPARES FAVOURABLY WELL WITH RECEIPTS FROM THE CONTRACTS, W HICH IS EVIDENT FROM THE FOLLOWING CHART:- A.Y. WAGES SALES RATIO 2010 -11 5,07,41,130.00 29,94,52,207.00 16.94 2011 -12 11,13,74,083.00 43,16,74,027.00 25.80 2012 -13 11,93,11,378.00 70,46,15,556.00 16.93 7 2013 -14 10,57,96,402.00 68,97,76,267.00 15.34 2014 -15 10,24,22,572.00 48,29,86,287.00 21.21 2015 -16 10,90,45,060.00 74,28,25,761.00 14.68 9. FROM THE ABOVE CHART, YOUR GOODSELF WOULD APPREC IATE THAT IN THE EARLIER YEARS, STARTING FROM ASSTT. YEARS 2010-11 TO 2013-14, THE PERCENTAGE OF WAGES IN DIFFERENT YEARS HAVE BEEN RANGING FROM 15.35% TO 25.80%, AND DURING THE YEAR CONSIDERATION, SUCH PERCENTAGES HAVE BEEN 21.21%. THE INCREASE AND DECREASE IN THE EXPENSES OF WAGES IS ON ZCOUNT OF VARIOUS REASONS BECAUSE AT TI MES, THE CONTRACTS ARE TAKEN UNDER STIFF COMPETITION, FOR WHICH, THE LOWER RATES ARE QUOTED AND AT TIMES THE PARTICULAR CONTRACT HAS TO BE COMPLETED WITHIN STIP ULATED TIME AND, AS SUCH MORE AND MORE LABOURERS ARE REQUIRED FOR TIMELY COMPLETION O F CONTRACT AND DUE TO WHICH, THE EXPENSES ON LABOUR ARE MORE OR LESS IN PARTICULAR Y EAR. BUT ONE THING IS ESSENTIAL THAT THE LABOUR IS ESSENTIAL PART OF THE BUSINESS. IT IS ALSO PERTINENT TO MENTION HERE THAT, THOUGH OUR PERCENTAGE OF EXPENSES COMPARE FAVORABLY WELL WITH THE PAST YEARS, BUT WITH REGARDS TO PERCENTAGE OF EXPENSES IN ASSTT. YE AR 2013-14, WHICH WAS TO THE TUNE OF 15.34%, TO THIS YEAR PERCENTAGE OF 21.21 IS CONC ERNED, BESIDES THE ABOVE REASONS, THIS YEAR, OUR CONTRACT RECEIPTS HAVE COME DOWN FRO M RS. 68 CRORES IN ASSTT. YEAR 2013- 14 TO 48 CRORES DURING THIS YEAR AND SINCE, WE ARE ENGAGED IN TAKING THE CONTRACT IN TIMELY MANNER, SOME LABOURERS HAVE TO BE RETAINED B Y US, BECAUSE OF OUR CONTINUITY OF THE PROJECT FROM TIME TO TIME AND, THEREFORE, DUE TO THE ABOVE SAID REASONS, THE PERCENTAGE OF LABOUR IS HIGHER TO THE RECEIPTS. FUR THER, IT IS SUBMITTED THAT THIS IS A SPECIALIZED LABOUR FROM OTHER STATES AND AT TIMES E VEN IF NO WORK IS THERE, WE HAVE TO RETAIN THEM AND PAY THE WAGES IRRESPECTIVE OF THE F ACT THAT THERE IS NO WORK AND DUE TO THE FALL IN THE CONTRACT RECEIPTS FOR SOME PERIO D, THE LABOUR WAS IDLE BECAUSE IT IS A REVENUE NEUTRAL. IT IS FURTHER SUBMITTED THAT THE S ALES MADE BY ONE CONCERN TO OTHER HAS BEEN MADE ON PROFIT AND ON WHICH, EACH CONCERN HAS PAID TAXES AND, AS SUCH, SUCH ALLEGATION OF THE ASSESSING OFFICER DOES NOT HO LD GOOD. 10. THE ANOTHER REASON FOR THE INCREASE IN THE LABOUR C HARGES DURING THE YEAR UNDER CONSIDERATION HAD BEEN THAT MAJOR PORTION OF SOME OF THE CONTRACTS WERE COMPLETED IN ASSTT. YEAR 2013-14 AND, THEREAFTER, L EFT OVER PORTION WHICH WAS NOT MUCH WERE CARRIED OUT DURING THE YEAR UNDER CONSIDE RATION AND WHICH ALSO RESULTED IN HIGHER PERCENTAGE OF LABOUR AS COMPARED TO EARLIER YEAR. THUS, NO DOUBT COULD BE CAST ON ACCOUNT OF THE ABOVE SAID EXPENSES ON LABOU R AND REJECTION OF BOOKS OF ACCOUNTS ON THIS ISSUE, CANNOT BE MADE. 11. THE LD. ASSESSING OFFICER HAS CAST CERTAIN DOUBTS AB OUT THE NATURE OF VOUCHERS BEING MAINTAINED FOR THE PURPOSES OF WAGES BEING PA ID AND IN THIS REGARD, IT IS SUBMITTED THAT THE WAGES HAVE BEEN DEBITED IN THE R EGULAR BOOKS OF ACCOUNTS AND SUCH WAGES ARE PART AND PARCEL OF THE ESSENTIAL EXP ENDITURE AND, THUS, EVEN IF SELF PREPARED VOUCHERS ARE THERE AND NO ID PROOF OR ADDR ESSES OF LABOURERS ARE THERE, WOULD NOT BE SUFFICIENT TO REJECT THE BOOKS OF ACCO UNTS. FURTHER, AS ALREADY STATED THAT LABOUR IS A MIGRATORY ONE AND HAVE NO PERMANENT PLA CE OF LIVING AND, AS SUCH, THE ADDRESSES ARE NOT AVAILABLE. FURTHER, THE SAME SET OF BOOKS OF ACCOUNTS AND VOUCHERS WERE KEPT DURING THE YEAR AS PER LAST YEAR AND HENC E, WHEN IN THE EARLIER YEARS, THE TRADING RESULTS HAVE BEEN ACCEPTED ON SAME SET OF B OOKS OF ACCOUNTS, NO ADDITION COULD BE MADE DURING THE YEAR UNDER. 12. THE ANOTHER REASON FOR REJECTION OF BOOKS OF ACCOUN TS WITH REGARD TO SITEWISE EXPENSES AS DEBITED TO PROFIT AND LOSS ACCOUNT AND THE LABOURERS HAVE NOT BEEN MAINTAINED, IT IS VERY HUMBLY SUBMITTED THAT AT ONE GIVEN POINT OF TIME, THERE ARE 8 ABOUT 8 TO 10 SITES AT VARIOUS INTERVAL OF TIMES AN D AT TIMES, THE LABOURERS ARE SHIFTED FROM ONE SITE TO ANOTHER SITE, DEPENDING UPON VARIO US FACTORS AND SUCH LABOURERS ARE NOT FIXED FOR PARTICULAR SITE AND DUE TO THE NATURE OF BUSINESS AND MODUS OPERANDI, IT IS PRACTICALLY NOT POSSIBLE TO MAINTAIN SITE-WISE E XPENDITURE OF THE MATERIAL AND THE LABOUR AND, AS SUCH, THERE WAS NO JUSTIFICATION IN REJECTING THE BOOKS OF ACCOUNTS ON SUCH ALLEGATION. FURTHER, AT TIMES, ONE PARTICULAR CONTRACT HAS TO BE COMPLETED WITHIN STIPULATED TIME AND DUE TO WHICH, THE LABOUR IS SHI FTED FROM ONE SITE TO ANOTHER. 13. AS REGARDS THE LABOURERS NOT BEING COVERED UNDE R PROVIDENT FUND AND ESI, IT IS SUBMITTED THAT PROVIDENT FUND AND ESI ARE APPLICABL E, IF UNDER PARTICULAR WAGES ARE PAID MORE THAN THE PRESCRIBED LIMIT AND, WHEREVER, THE PROVIDENT FUND AND ESI IS APPLICABLE, THE SAME HAVE BEEN COMPLIED WITH AND TH ERE IS NO ALLEGATION FROM THAT DEPARTMENT THAT SUCH REGULATION HAVING NOT BEEN FOL LOWED. THUS, THIS ALLEGATION FOR REJECTION OF BOOKS OF ACCOUNTS IS ALSO NOT APPLICAB LE ON THIS ACCOUNT. 14. ANOTHER ALLEGATION MADE BY THE ASSESSING OFFICER IS ON ACCOUNT OF ALLEGED CIRCULAR TRADING IN RESPECT OF CEMENT BAGS AND THE ASSESSING OFFICER HAS HELD THAT INFLATION IS THERE ON ACCOUNT OF CERTAIN BILLS, WHI CH WERE FOUND DURING THE COURSE OF SURVEY AND IN THIS RESPECT, IT IS VERY HUMBLY SUBMI TTED THAT EVEN IF IT IS ACCEPTED FOR THE SAKE OF ARGUMENT THAT ALL PURCHASES ARE MADE AT INF LATED RATE, OUT OF THREE CONCERNS, TWO CONCERNS ARE BEING ASSESSED AT MAXIMUM MARGINAL RATE OF TAX AND AS SUCH, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, DELHI VS M/S GLAXO SMITHKLINE ASIA (P) LTD. AS REPORTED IN236 CTR 113 AND IN THE CASE OF COMMISSIONER OF INCOME TAX VS SIYA RAM GARGAS REPORTED IN 237 CTR 321OF PUNJAB & HARYANA HIGH COURT, THAT NO ADDITION COULD BE MADE U/S 40 (A) (2B), IF THE BOTH CONCERNS ARE ASSESSED AT THE MAXIMUM RATE OF TAX, S INCE THE SAME HAS BEEN AUDITED AND A REPORT U/S 44AB HAS BEEN GIVEN BY THE CHARTER ED ACCOUNTANT AND THE RETURN HAS BEEN FILED ON THE BASIS OF SUCH BOOKS OF ACCOUN TS. 15. IT IS FURTHER SUBMITTED THAT M/S 3C CONSTRUCTION, W HICH IS A PROPRIETARY CONCERN OF SH. NITIN TANDON, IS NOT ONE OF THE RELATED PART Y AND, AS SUCH, THIS ALLEGATION DOES NOT HOLD GOOD IN VIEW OF THE BINDING JUDGMENT OF HO N 'BLE SUPREME COURT AND HON 'BLE PUNJAB & HARYANA HIGH COURT. 16. AS REGARDS, THE ALLEGATION OF THE ASSESSING OFFICER WITH REGARD TO CASH IN HAND AS FOUND DURING THE COURSE OF SURVEY CONDUCTED ON 1 5.09.2016, WHICH WAS TO THE TUNE OF RS. 2.66 CRORES IS CONCERNED, IT IS VERY HUMBLY SUBMITTED THAT THIS FACT IS NOT RELEVANT TO THE YEAR UNDER CONSIDERATION AND SECONDLY, THE D EPARTMENT ONLY MADE SURVEY AT THE PREMISES LOCATED AT 898 TAGORE NAGAR, WHICH IS THE OFFICE OF THE COMPANY BUT DID NOT SO TO THE VARIOUS SITE OFFICES, WHICH ARE N UMBERING MORE THAN TEN AND, THUS, THIS ALLEGATION IS ONLY FOR THE SAKE OF ALLEGATION AND CANNOT BE THE BASIS FOR REJECTION OF BOOKS. 17. AS REGARDS THE AMOUNT OF ADVANCES, IT IS SUBMITTED THAT SOME OF THE ADVANCES WERE OF COURSE FOR NON-BUSINESS PURPOSES, BUT MAJOR ITY OF THEM WERE FOR THE BUSINESS PURPOSES AND FOR THAT A CHART IS BEING ENCLOSED HER EWITH ALONGWITH COPIES OF ACCOUNT OF THE PARTIES, WHICH PROVES THAT SOME OF ADVANCES WERE RECEIVED BACK IMMEDIATELY IN NEXT YEAR AND FURTHER THE TOTAL 'RESERVES AND SU RPLUS' WERE TO THE TUNE OFRS. 11,44,97,465 AS PER BALANCE SHEET, BEING ENCLOSED H EREWITH AND THE TOTAL ADVANCES DURING THE YEAR UNDER CONSIDERATION FOR NON-BUSINES S PURPOSE WERE TO THE TUNE OF RS. 7.00.000 AS PER ALLEGATION MADE BY THE ASSESSING OF FICER AND, THUS, AS PER THE JUDGMENT OF M/S BRIGHT ENTERPRISES PVT. LTD., REPOR TED IN 381 ITR 107 AND OTHERS, NO 9 DISALLOWANCE OF INTEREST COULD BE MADE AND ALSO THE SAME GROUND CANNOT HELD GOOD FOR REJECTION OF BOOKS OF ACCOUNTS. HOWEVER, FOR YO UR GOODSELF'S REFERENCE WE ARE TABULATING HEREUNDER THE DETAILS OF THE ADVANCES WH ICH HAVE BEEN ALLEGED TO BE UNEXPLAINED BY THE LD. AO:- SL NAME OF PARTY AMOUNT REMARKS 1. ZIGMA KNITWEARS 15,00,000 INTEREST HAVE B EEN RECEIVED BY THE ASSESSEE AGAINST SUCH ADVANCE 2. COSMOS RESEARCH LAB LTD. 7,00,000 NON-BUSINESS PURPOSE 3. INDOVAST INTERNATIONAL 3,20,000 AMOUNT ADJUSTED AGAINST REBATE AND DISCOUNT 4. LEOTRONIC SCALES PVT. LTD. 59,578 ADJUSTED AGAINST PURCHASES 5. MADHOK ENTERPRISES 47,000 ADJUSTED AGAINST REBATE AND DISCOUNT 6. PAP EXT. COM 81,600 ADJUSTED AGAINST REBATE AND DISCOUNT TOTAL 27,08,178 FURTHER, THE ABOVE JUDGMENT OF PUNJAB & HARYANA HIG H COURT HAS BEEN FOLLOWED IN LARGE NUMBER OF CASES BY THE JURISDICTIONAL CHANDIG ARH BENCH, CHANDIGARH. 18. IT IS SUBMITTED THAT THE ASSESSING OFFICER HAS REPRO DUCED THE LIST OF THE BANK ACCOUNTS AT PAGE 12 OF THE ASSESSMENT ORDER, IT IS SUBMITTED THAT ALL SUCH BANK ACCOUNTS ARE AS PER REGULAR BOOKS OF ACCOUNTS AND T HEY ARE REFLECTED IN THE BALANCE SHEET AND WE HAD SUBMITTED THAT ALL SUCH BANK ACCOU NTS ARE AS PER REGULAR BOOKS OF ACCOUNTS AND THE SAME CAN BE VERIFIED FROM THE BANK STATEMENTS AND, THUS, NO ADVERSE VIEW COULD BE TAKEN IN THIS REGARD AND CANN OT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. 19. THUS, FROM THE ABOVE SAID SUBMISSIONS, IT IS VERY A PPARENT THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED ONLY ON MERE ALLEGATION AND, THUS, THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS WAS NOT JUSTIFIED AND OTHER ALLEGATION OF PAYMENT OF WAGES ARE ALSO FULLY JUSTI FIED IN VIEW OF THE EXPLANATION AS STATED ABOVE AND, THUS, THE ASSESSMENT HAVING BEEN COMPLETED BY APPLYING THE NET PROFIT RATE, IS NOT JUSTIFIED. 20 IT IS FURTHER BEING SUBMITTED, WITHOUT PREJUDIC E TO ABOVE ARGUMENT THAT APPLICATION /OF 12% RATE OF PROFIT AS HAS BEEN DONE BY THE ASSE SSING OFFICER IS NOT JUSTIFIED AND FOR THAT THE RELIANCE BY THE ASSESSING OFFICER ON THE JU DGMENT OF 'M/S PRABHAT KUMAR CONTRACTOR' IS TOTALLY NOT RELIABLE, BECAUSE THE CO MPARISON WITH THE CASE OF SH. PRABHAT KUMAR CONTRACTOR WITH OUR CASE CLEARLY PROV ES THAT IN THAT CASE, THE FACTS WERE ENTIRELY DIFFERENT AND IN OUR CASE, THE REGULA R BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED AND WHICH HAVE DULY BEEN AUDITED AND ALL THE WORKS HAVE BEEN EXECUTED, WHICH ARE OF DIFFERENT GOVT, DEPARTMENT A ND NO CASE HAS BEEN MADE OUT THAT THE ASSESSEE HAS NOT EXECUTED THE GOVT, CONTRA CT AND THE PERCENTAGE OF WAGES PAID IN THE EARLIER YEARS COMPARED FAVOURABLY WELL AND, THUS THE APPLICATION OF NET PROFIT RATE OF 12% IS NOT JUSTIFIED. FURTHERMORE, IT IS ALSO SUBMITTED HERE THAT THE LD. AO HAS STATED THAT THE NET PROFIT OF THE ASSESSEE SHOULD HAVE BEEN CALCULATED WITHOUT TA KING INTO ACCOUNT THE INCOME EARNED IN THE OF INTEREST (BANK AND OTHER INTEREST) . WITH REGARD TO THE SAME IT IS SUBMITTED THAT THE INTEREST INCOME EARNED IN THE FO RM OF BANK INTEREST AND OTHER 10 INTEREST ARE INCIDENTAL TO ATTAINMENT OF THE MAIN O BJECTIVES OF THE ASSESSEE COMPANY AS MANY A TIMES KEEPING THE SECURITY IN THE FORM OF FDR'S OR OTHER DEPOSITS ARE NECESSARY FOR THE EXECUTION OF THE CONTRACTS. MOREO VER, THE ASSESSEE DOES NOT KEEP THE DEPOSITS FOR THE PURPOSES OF THE EARNING OF INT EREST FROM THE SAME BUT FOR THE EXECUTION OF THE CONTRACTS ONLY, THEREFORE, EARNING OF INTEREST ON THE SAME IS INCIDENTAL TO THE RUNNING OF THE BUSINESS OF THE ASSESSEE AND HENCE, THE SAME IS TO BE ADDED IN THE INCOME OF THE ASSESSEE WHILE CALCULATING THE RA TE OF NET PROFIT, HOWEVER, EVEN FOR THE SAKE OF ARGUMENT WE ARE TO CALCULATE THE OPERAT ING PROFIT OF THE ASSESSEE BY DEDUCTING THE INTEREST INCOME FROM THE SAME, EVEN T HEN IT IS VERY MUCH APPRECIATIVE THAT THE NET PROFIT OF THE ASSESSEE BEFORE DEPRECIA TION AND BANK INTEREST EXPENDITURE ARE HIGHER IN THE RELEVANT ASSESSMENT YEAR AS COMPA RED TO PREVIOUS ASSESSMENT YEARS AND THERE IS AN INCREASE FROM 11.95% TO 14.84% IN T HE NET OPERATING MARGIN BEFORE INTEREST AND DEPRECIATION AND THE SAME IS CLEAR FRO M THE CHART ENCLOSED HEREWITH. 21.WE ARE ENCLOSING HEREWITH A CHART SHOWING THE PE RCENTAGE OF PROFIT AS DECLARED TO NE GROSS RECEIPTS AS PER AUDITED BOOKS OF ACCOUNTS, WHEREIN, OUR NET PROFIT AFTER EXCLUDING THE INTEREST AND DEPRECIATION AS PER BOOK S OF ACCOUNTS IS 6.36% AS COMPARED TO THE EARLIER YEAR'S NET PROFIT OF 6.01% AND FOR OTHER YEARS ALSO, IT COMPARES FAVOURABLY WELL WITH THE EARLIER YEARS. FOR YOUR GOODSELF'S REFERENCE, WE ARE TABULATING HEREUNDER THE NET PROFIT MARGINS OF THE PREVIOUS AND THE SUBSEQUENT ASSESSMENT YEARS, WHICH CLEARLY SHOW THAT THE PROFI TS EARNED BY THE ASSESSEE ARE IN PROPORTION TO THE PROFITS EARNED IN THE PREVIOUS AN D SUBSEQUENT ASSESSMENT YEARS:- A.Y. SALES NET PROFIT NET PROFIT MARGIN 2010-11 29,94,52,207.00 1,60,91,452.49 5.37% 2011-12 43,16,74,027.00 3,21,61,747.76 7.45% 2012-13 70,46,15,556.00 4,13,76,891.27 5.87% 2013-14 68,97,76,267.00 4,14,68,270.53 6.01% 2014-15 42,27,75,317.00 2,68,82,493.74 6.36% 2015-16 74,28,25,761.00 3,28,13,940.83 4.42% 2016-17 1,22,77,44,081.25 6,82,04,201.63 5.56% 22. IT IS ALSO A SETTLED LAW THAT WHERE THE BOOKS O F ACCOUNTS ARE REJECTED AND A PROFIT RATE HAS TO BE APPLIED WITH THE PAST HISTORY OF THE CASE AND COMPARABLE CASES SHOULD TAKEN INTO CONSIDERATION AND FOR THAT THERE IS BIND ING JUDGMENT OF HON 'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. LAXMINARAIN BADRIDAS REPORTED IN 5 ITR 170 WHEREIN IT HAS BEEN HELD THAT, 'THE OFFICER IS TO M AKE AN ASSESSMENT TO THE BEST OF HIS JUDGMENT AGAINST A PE RSON WHO IS IN DEFAULT AS REGARDS SUPPLYING INFORMATION. HE MUST NOT ACT DISHONESTLY, OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE HE MUST, BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOW LEDGE AND REPUTE IN REGARD TO THE ASSESSEE'S CIRCUMSTANCES AND HIS OWN KNOWLEDGE OF P REVIOUS ' ''IS BY AND ASSESSMENTS OF THE ASSESSEE, AND ALL OTHER MATTERS WHICH HE THI NKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST NECESSAR ILY BE GUESSWORK IN THE MATTER, IT MUST BE HONEST GUESS-WORK. ' AND IN OUR CASE, SINCE THE PAST RESULTS HAVE BEEN ACCEPTED BOTH U/S 143(3)7143(1), THE ESTIMATION OF 12%O RATE OF PROFIT CANNOT BE SUSTAINED. 23. YOUR GOODSELF'S ATTENTION IS ALSO INVITED TO TH E FOLLOWING JUDGMENTS OF PUNJAB & HARYANA HIGH COURT, WHEREIN THE PROFIT RATE OF 4% T O 6% HAVE BEEN HELD TO BE JUSTIFIED 11 GOING BY THE PAST HISTORY OF THE CASE, THIS PROFIT HAS BEEN HELD TO BE JUSTIFIED AFTER CONSIDERING THE JUDGMENT IN THE CASE OF SH. PRABHAT KUMAR CONTRACTOR, WHICH HAS BEEN CITED BY THE ASSESSING OFFICER. 24. THE RELIANCE IS BEING PLACED ON THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF THE CIT VS PARVEEN MITTAL REPORTED IN ITA NO. 272 OF 2011, WHEREIN THE HON 'BLE HIGH COURT HAS UPHELD THE DECISION OF THE HON'BLE JURISDICTIONAL BENCH OF THE TRIBUNAL, THAT EVEN IF THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT DURING THE ASSESSMENT PROCEEDINGS OR DURING THE APP ELLATE AUTHORITIES, THE ASSESSMENT COULD NOT BE MADE BY ADOPTING A HIGHER RATE OF GROS S PROFIT OF 12% APPLIED BY THE DEPARTMENT AND HENCE THE RATE OF PROFIT OF 4% WAS U PHELD BY THE TRIBUNAL, WAS CONFIRMED BY THE HON 'BLE HIGH COURT. 25. FURTHER, THE JURISDICTIONAL BENCH OF THE ITAT IN TH E CASE OF SUKHWINDER SINGH VS JCITAS REPORTED IN 1461 /CHD /2010 FOR THE AY2005-06 AND IN 639 /CHD /2015 FOR THE AY 2009-10 AND 2010-11 HAS HELD THAT WHEN THE DEPARTMENT HAS ACCEPTED A LO WER RATE IN THE CASE OF THE ASSESSEE FOR THE PREVIOUS ASSESS MENT YEARS THEN MAKING AN ADDITION AT SUCH A HIGHER RATE IS AGAINST THE FACTS AND CIRC UMSTANCES OF THE CASE AND THE RATE OF PROFIT AS DECLARED BY THE ASSESSEE SHOULD BE ACC EPTED. SIMILARLY IN THE CASE OF THE ASSESSEE THE DEPARTMENT WHILE PASSING THE ASSESSMEN T ORDER FOR THE EARLIER ASSESSMENT YEARS HAVE ACCEPTED THE RATE OF PROFIT DECLARED BY THE ASSESSEE U/S 143(3) AND HENCE THE PROFIT RATE OF 12% IS HIGHLY UNJUSTIFIED. 9.1 THE LD. CIT(A) FORWARDED THE AFORESAID SUBMISSI ON OF THE ASSESSEE TO THE A.O. AND ASKED HIS REPORT. IN RESPONSE, THE A.O. SU BMITTED AS UNDER: KINDLY REFER TO YOUR LETTER NO. CIT(A)-3/LDH/2017-1 8/2189 DATED 26.12.2017 ON THE SUBJECT CITED ABOVE. 2. THE POINTWISE COMMENTS OF THE ASSESSING OFFICIER ON THE REPLY FILED BY THE ASSESSE ARE AS UNDER: PARA 1 TO 7: DON'T NEED SPECIFIC COMMENTS OF ASSESS ING OFFICER. PARA 8 IT IS EVIDENT THAT THERE IS ABNORMAL INCREAS E IN WAGES W.R.T POST & NEXT YEARS. PARA 9 DURING THE COURSE OF SURVEY, THE ASSESSEE CO ULD NOT PRODUCE ANY PROOF OF WAGES PAYMENT. THEREAF TER THE ASSESSEE FORGED THE SIGNATURES OF VARIOUS PERSO NS. THE ASSESSEE COULD NOT PROVIDE ANY IDENTITY PRO OF OF LABOURERS ENGAGED. WHEN THE ASSESSEE DOES NOT HAVE RECORD OF LABOURERS, THEN THE GENUINENESS OF WAGES AND BOOKS OF ACCOUNTS IS DOUBTFUL. PARA 10 & 11: THE ASSESSEE PRODUCED FRESHLY PRINTED AND BOGUS SIGNATURE. CONTAINING WAGE SHEET DURING THE ASSESSMENTS PROCEE EDINGS, HENCE, THE BOOKS OF ACCOUNTS ARE NOT ALL RELIABLE. PARA 12 : ASSESSEE IS DELIBERATELY NOT KEEPING SITE WISE RECORD TO SIPHON OFF CASH FROM BUSINESS IN TH E NAME OF WAGES. PARA 13 : THE ASSESSE DOES NOT HAVE RECORDS & CANNO T PRODUCE SUCH PERSONS FOR VERIFICATION. PARA 14 : THE ASSESSE HAS FAILED TO SHOW THE OBJECT IVES OF CIRCULAR TRADING. 12 PARA 15 : THE 3C CONSTRUCTIONS HAS ASSISTED THE ASS ESSE IN CIRCULAR TRADING AND ASSESSE HAS TO TELL TH E REASONS AS NO ACTUAL MATERIAL HAS MOVED BUT ONLY BI LLS HAVE MOVED PARA 16 : THE DIRECTORS OF COMPANY FLED FROM THE SU RVEY PREMISES INSTEAD OF EXPLAINING THE DISCREPANCY IN CASH-IN-HAND. PARA 17 ; THE ASSESSEEE HAS ADMITTED THAT ADVANCES WERE FOR NON BUSINESS PURPOSE, SO THE FINDINGS A. O . ARE CORRECT. PARA 18 THE ASSESSE NEITHER SUBMITTED BANK STATEMEN TS THEN, NOR NOW, SO THE BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED. PARA 19 BOOKS OF ACCOUNTS HAVE BEEN REJECTED ON THE BASIS OF REASONS GIVEN IN THE ASSESSMENTS ORDER NO T ON BASELESS ALLEGATIONS. PARA 20 THE 12% NET PROFIT RATE IS FULLY JUSTIFIED KEEPING IN VIEW CASE LAW RELIED UPON IN ASSESSMENT ORDER. PARA 21 TO 25 : THE ASSESSE HAS NOT FURNISHED COPY OF JUDGEMENTS RELIED UPON BY HIM. MOREOVER HE HAS A LSO FAILED TO STATE HOW THE FACTS OF CASES RELIED UPON ARE SIMILAR TO HIS CASE. 9.2 THE AFORESAID REPLY OF THE A.O. WAS FORWARDED B Y THE LD. CIT(A) TO THE ASSESSEE FOR ITS COMMENT IN RESONSE THE ASSESSEE SU BMITTED AS UNDER: ' WITH REGARD TO THE CAPTIONED SUBJECT WE HAVE FILED DETAILED SUBMISSIONS BEFORE YOUR GOODSELF ALONG WITH THE DETAILED PAPERBOOK TO JUSTIFY THE SAID SUBMISSIONS. AGAINST THE SAID SUBMISSIONS THE LD. AO HAS GIVEN CO MMENTS VIDE LETTER DATED 21.02.2018. WITH REGARD TO THE SAME AT THE OUTSET I T IS SUBMITTED THAT THE COMMENTS GIVEN BY THE LD. AO ARE MERELY THE REITERA TIONS OF THE ASSESSMENT ORDER AND NO SPECIFIC DISCREPANCY HAS BEEN NOTICED BY THE LD. AO WITH REGARD TO THE SUBMISSIONS FILED BY US. HOWEVER, OUR REPLY AGAINST THE SAME ARE PROVIDED AS UNDER:- 1. THE LD. AO'S HAS RELATIVELY EMPHASIZED ON THE ALLEG ED DISCREPANCIES IN THE WAGES INCURRED DURING THE RELEVANT ASSESSMENT YEAR AND SUCH COMMENTS/ALLEGATIONS ARE MERELY THE REITERATIONS OF THE ASSESSMENT ORDER. THE SAID ALLEGATIONS HAVE BEEN DULY NEGATED IN THE DETA ILED SUBMISSIONS ALREADY FILED BEFORE YOUR GOODSELF. HOWEVER, OUR COMMENTS ON THE SAME ARE AS UNDER:- (I) WITH REGARD TO THE ABNORMAL INCREASE IN THE WAG ES INCURRED IN THE RELEVANT ASSESSMENT YEAR VIS A VIS PREVIOUS ASSESSM ENT YEAR WE HAVE ALREADY EXPLAINED THAT THE INCREASE AND DECREASE IN THE EXP ENSES OF WAGES IS ON ACCOUNT OF VARIOUS REASONS BECAUSE AT TIME, THE CON TRACTS ARE TAKEN UNDER STIFF COMPETITION, FOR WHICH, THE LOWER RATES ARE QUOTED AND AT TIME PARTICULAR CONTRACT HAVE TO BE COMPLETED WITHIN STIPULATED TIM E AND, AS SUCH MORE AND MORE LABOURERS ARE REQUIRED IN TIMELY COMPLETION OF CONTRACT AND DUE TO WHICH, THE EXPENSES ON LABOUR ARE MORE OR LESS IN PARTICUL AR YEAR. THE ANOTHER REASON FOR THE INCREASE IN THE LABOUR CHARGES DURING THE YEAR UNDER CONSIDERATION HAD BEEN THAT MAJOR PORTION OF SOME OF THE CONTRACTS WERE CO MPLETED IN ASSTT. YEAR 2013- 13 14 AND, THEREAFTER, LEFT OVER PORTION WHICH WAS NOT MUCH, WERE CARRIED OUT DURING THE YEAR UNDER CONSIDERATION AND WHICH ALSO RESULTE D IN HIGHER PERCENTAGE OF LABOUR AS COMPARED TO EARLIER YEAR. (II) THE LD. ASSESSING OFFICER HAS CAST CERTAIN DOUB TS ABOUT THE NATURE OF REGISTER BEING MAINTAINED FOR THE PURPOSE OF WAGES BEING PAI D AND IN THIS REGARD, IT IS SUBMITTED THAT THE WAGES HAVE BEEN DEBITED IN THE R EGULAR BOOKS OF ACCOUNTS AND SUCH WAGES ARE PART AND PARCEL OF THE EXPENDITU RE AND, THUS, EVEN IF SELF- PREPARED VOUCHERS ARE THERE AND NO ID PROOF OR ADDR ESSES OF LABOURERS ARE THERE, WOULD NOT BE SUFFICIENT TO REJECT THE BOOKS OF ACCO UNTS. (III) WITH REGARD TO THE ALLEGATION THAT THE ASSESS EE HAVE NOT SITE-WISE RECORD IT HAS BEEN EXPLAINED THAT THAT AT ONE GIVEN POINT OF TIME , THERE ARE ABOUT 8 TO 10 SITES AT VARIOUS INTERVAL OF TIMES AND AT TIMES, THE LABO URERS ARE SHIFTED FROM ONE SITE TO ANOTHER SITE DEPENDING FROM TIME TO TIME AND SUCH L ABOURERS ARE NOT FIXED FOR PARTICULAR SITE AND DUE TO THE NATURE OF BUSINESS A ND MODUS OPERANDI, IT IS PRACTICALLY NOT POSSIBLE TO MAINTAIN SITE-WISE EXPE NDITURE OF THE MATERIAL AND THE LABOUR AND, AS SUCH, THERE WAS NO JUSTIFICATION IN REJECTING THE BOOKS OF ACCOUNTS ON SUCH ALLEGATION. (IV) THE RECORDS THAT WERE REQUIRED DURING THE ASSE SSMENT PROCEEDINGS WERE BEING DULY FILED BY THE ASSESSEE EXCEPT FOR FEW DOC UMENTS AND THE REASONS FOR WHICH HAVE BEEN CLARIFIED AND EXPLAINED AS ABOVE. (V) LASTLY, WE HAVE DULY PROVIDED THE PERFORMANCE C ERTIFICATES ISSUED BY THE DIFFERENT DEPARTMENTS TO THE ASSESSEE IN RESPECT OF THE WORK DONE DURING THE RELEVANT ASSESSMENT YEAR. MOREOVER, NO ADVERSE COMM ENTS HAVE BEEN GIVEN BY THE LD. AO ON THE SAME, THEREFORE, IT IS NOT THE CASE THAT THE WORK DONE BY THE ASSESSEE HAVE BEEN DISPUTED, RATHER THE SAME HAS BE EN ACCEPTED BY THE LD. AO. THUS, WHEN THE WORK DONE HAS BEEN ACCEPTED THEN, IT IS ALSO AGREEABLE THAT THE EXPENDITURE ON THE WAGES HAVE BEEN INCURRED AS WAGES ARE THE MAJOR EXPENDITURE IN THE INDUSTRY IN WHICH THE ASSESSEE O PERATES. THE DISCREPANCY NOTICED BY THE LD. AO ARE MERELY MECHANICAL IN NATURE AND 'HE SAME ARE BO UND TO OCCUR IN SUCH AN INDUSTRY WHERE THE LABOUR WORK FORCE ARE SO MUCH UNORGANIZED AND WHERE THE MAJORITY OF THE LABOUR FO RCE ARE MIGRATORY. THEREFORE, SUCH AN ALLEGATION OF THE LD. AO SHOULD NOT BE A REASON FOR THE REJECTION OF THE BOOKS OF ACCOUNTS. 2. WITH REGARD TO THE ALLEGATION OF THE LD. AO THAT THE ASSESSEE HAS NOT SHOWN THE OBJECTIVE OF THE CIRCULAR TRADING, WE HAV E ALREADY CLARIFIED THAT THE SAME HAS BEEN MADE IN THE NORMAL COURSE OF THE BUSI NESS OF THE ASSESSEE AND THERE WASN'T ANY INTENTION OF THE ASSESSEE TO ENGAG ED IN SUCH CIRCULAR TRADING. HOWEVER, EVEN IF FOR THE SAKE OF ARGUMENT THAT THE PURCHASES HAVE BEEN MADE AT INFLATED RATES, IT IS FOR YOUR INFORMATION THAT, OUT OF THREE CONCERNS, TWO CONCERNS ARE BEING ASSESSED AT MAXIMUM MARGIN RATE OF TAX AND AS SUCH, AS HELD BY THE HON 'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, DELHI VS M/S GLAXO SMITHKLINE ASIA (P) LTD. AS REPORTED IN 236 CTR 113 AND IN THE CASE OF COMMISSIONER OF INCOME TAX VS SIYA RAM GARG AS REPORTED IN 237 CTR 321 OF PUNJAB & HARYANA HIGH COURT THAT NO ADDITION COULD BE MADE U /S 40AB, IF THE BOTH CONCERNS ARE ASSESSED AT THE MAXIMUM RATE OF TAX BECAUSE IT IS A REVENUE NEUTRAL. FURTHERMORE, EVEN FOR THE SAKE OF ARGUMENT IF WE CONSIDER THAT THE ASSESSEE HAS BEEN ENGAGED IN CIRCULAR TRADING T HEN THE NET EFFECT OF SUCH CIRCULAR TRADING IS MERELY RS. 5, 67, 000 AND THE SAME ONLY SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE INSTEAD OF REJECTING THE BOOKS OF ACCOUNTS ON THIS REASON. 3. THE ALLEGATION OF NON-VERIFICATION OF CASH DOES NOT HOLD GOOD BECAUSE THE CASH HAS BEEN VERIFIED ONLY AT THE PREMISES LOCATED AT 898 TAGORE NAGAR, WHICH IS THE OFFICE OF THE COMPANY BUT DID NOT GO TO THE VARIOUS SITE OFFICES, WHICH ARE 14 NUMBERING MORE THAN TEN. MOREOVER, DURING THE COURS E OF THE SURVEY PROCEEDINGS, THERE WERE MANY PERSONS RESPONSIBLE FO R MANAGING THE TASK OF VERIFYING AND EXPLAINING THE CASH BEING DISTRIBUTED AT DIFFERENT LOCATIONS, THUS, THIS ALLEGATION IS ONLY FOR THE SAKE OF ALLEGATION. 4. AS MENTIONED IN THE DETAILED SUBMISSIONS OUT OF THE TOTAL ADVANCES WHICH HAVE BEEN ALLEGED TO BE GIVEN FOR THE PURPOSE OF BU SINESS, ADVANCES AMOUNTING TO RS. 7,00,000 ONLY HAS NOT BEEN WRITTEN OFF IN TH E BOOKS OF ACCOUNTS AND IS OUTSTANDING IN THE SUBSEQUENT ASSESSMENT YEAR AGAIN ST THE INTEREST FREE FUNDS OF RS.11.44 CRORES. MOREOVER, THE ALLEGATION THAT THE ADVANCES HAVE BEEN MADE FOR NONBUSINESS PURPOSE CANNOT BE A REASON FOR CONSIDER ING THE BOOKS OF ACCOUNTS AS UNRELIABLE AND REJECTING IT. THE ASSESSEE HAS SU FFICIENT AMOUNT OF INTEREST FREE FUNDS AT THE END OF THE RELEVANT ASSESSMENT YEAR, T HEREFORE, NO ADVERSE INFERENCE WITH REGARD TO THE SAME CAN BE DRAWN WITH REGARD TO THE RELIABILITY OF THE BOOKS OF ACCOUNTS. 5. WITH REGARD TO THE ALLEGATION THAT THE ASSESSEE HAS NOT PROVIDED THE BANK STATEMENTS DURING THE ASSESSMENT PROCEEDINGS IT IS SUBMITTED THAT THE BANK ACCOUNTS OF THE ASSESSEE WERE DULY SHOWN IN THE AUD ITED BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE SAME HAS BEEN CLARIFIED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS ALSO AND NO ADVERSE INFERENC E WITH REGARD TO THE SAME WAS NOTICED BY THE LD. AO. HOWEVER, FOR YOUR READY R EFERENCE WE ARE PRODUCING HEREWITH THE COPIES OF THE SAME FOR YOUR READY REFE RENCE. 6. THE JUDGMENT OF PARBHAT KUMAR CONTRACTOR IS NOT AT ALL APPLICABLE ON THE CASE OF THE ASSESSEE BECAUSE IN THE CASE OF PARBHAT KUMAR THE FACTS WERE ENTIRELY DIFFERENT AND IN OUR CASE, THE REGULAR BOO KS OF ACCOUNTS HAVE BEEN MAINTAINED AND WHICH HAVE DULY BEEN AUDITED AND ALL THE WORKS HAVE BEEN EXECUTED WHICH ARE OF DIFFERENT GOVT, DEPARTMENT AN D NO CASE HAS BEEN MADE OUT THAT THE ASSESSEE HAS NOT EXECUTED THE GOVT, CO NTRACT AND THE PERCENTAGE OF WAGES PAID IN THE EARLIER YEARS COMPARED FAVOURA BLY WELL AND, THUS, THE ALLEGATION OF 12% IS NOT JUSTIFIED._ FURTHERMORE, T HE PUNJAB AND HARYANA HIGH COURT ITSELF IN THE JUDGMENT OF THE COMMISSIONER OF INCOME TAX VS SHRI PARVEEN KUMAR MITTAL (ATTACHED IN JUDGMENT SET) HAS ITSELF DISTINGUISHED PARBHAT KUMAR'S CASE AND HAS ADOPTED THE RATE OF NET PROFIT BY TAKING INTO VIEW THE HISTORY OF THE CASE AND THE RATES OF NET PROFIT ACCEPTED BY THE DE PARTMENT BEFORE. THEREFORE, SIMILARLY IN OUR CASE THE INCOME TAX DEPARTMENT HAS BEEN ACCEPTING THE RATES OF NET PROFIT AS LOW AS 5.87% FOR THE AY 2012-13 U/S 143(3). SIMILARLY, THE HON 'BLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. LAXMINARA1N BADRIDAS REPORTED IN 5 ITR 1 70 HAS DULY HELD THAT, 'THE OFFICER IS TO MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGMENT AGAINST A PE RSON WHO IS IN DEFAULT AS REGARDS SUPPLYING INFORMATION. HE MUST NOT ACT DISH ONESTLY, OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE JUDGMENT IN T HE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE HE MUST, BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEE'S CIRCUMSTANCE S AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE , AND ALL OTHER MATTERS WHICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST NECESSARILY BE GUESS-WORK IN THE MATTER, IT MU ST BE HONEST GUESS-WORK'. THEREFORE, THE CASE OF PARBHAT KUMAR CONTRACTOR IS NOT AT ALL APPLICABLE ON THE CASE OF THE ASSESSEE. 7. THE NET PROFIT AS DECLARED BY THE ASSESSEE IS PROGR ESSIVE VIS A VIS PREVIOUS ASSESSMENT YEAR. MOREOVER, A PROFIT RATE LOWER THAN THE NET PROFIT MARGIN OF THE RELEVANT ASSESSMENT YEAR HAS BEEN ACCEPTED BY THE D EPARTMENT IN THE AY 2012- 13. MOREOVER, THE DEPARTMENT HAS ALREADY ACCEPTED B OOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE FOR THE AY 2012-13, THUS, IT IS HUMBLY REQUESTED THAT THE BOOKS OF ACCOUNTS OF THE RELEVANT ASSESSMENT YE AR SHOULD BE ACCEPTED AND THE REJECTION OF THE BOOKS OF ACCOUNT INVOKED BY TH E LD. AO SHOULD BE REVERSED. 15 8. THE ALLEGATION THAT WE HAVE NOT PROVIDED THE COPIES OF THE JUDGMENTS CITED IN THE SUBMISSIONS IS NOT AT ALL CORRECT AS WE HAVE DULY PROVIDED THREE SETS OF JUDGMENT SET ALONG WITH THE SET OF SUBMISSIONS. 9. FURTHER, IN PARA 20 OF THE DETAILED SUBMISSIONS ALR EADY FILED BY US, WE HAVE DULY SUBMITTED THAT THE INTEREST INCOME EARNED IN THE FORM OF BANK AND OTHER INTEREST ARE INCIDENTAL TO ATTAINMENT OF THE MAIN OBJECTIVES OF THE ASSESSEE AS MANY A TIMES KEEPING THE SECURITY IN THE FORM OF FDR'S OR OTHER DEPOSITS ARE NECESSARY FOR THE EXECUTION OF THE CONTRACTS. HOWEV ER, NO ADVERSE REMARKS HAVE BEEN GIVEN BY THE LD. AO AGAINST THE SAME. MOREOVER , IN OUR CASE THE FDR'S HAVE BEEN PREPARED BY THE BANK AS A SECURITY AGAINS T THE LETTER OF CREDIT ISSUED BY THE BANK AND THE OTHER INTEREST INCOME EARNED BY THE ASSESSEE ARE FROM THE DEBIT BALANCES OF THE DIRECTORS WHICH MAKES IT EVEN MORE CLEARER THAT THE INTEREST INCOME EARNED BY THE ASSESSEE ARE INCIDENT AL TO THE BUSINESS. THEREFORE, CONSIDERING THE SAME IT IS CLEAR THAT THE NET PROFI T DECLARED BY THE ASSESSEE ARE FROM OPERATING SOURCES ONLY AND ADDITION IF ANY TO BE MADE HAS TO BE MADE WHILE TAKING INTO ACCOUNT SUCH OPERATING PROFITS. 9.3 LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE REPORT OF THE A.O. OBSERVED THAT THE A.O. APPLIED THE NET PROFIT RATE OF 12% ON THE GROSS RECEIPT FROM THE CONTRACT BUSINESS BY FOLLOWI NG THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S PAR BHAT KUMAR CONTRACTOR WHILE THE ASSESSEE FILED THE RETURN OF INCOME ON TH E BASIS OF AUDITED BOOKS OF ACCOUNT AND THE INTEREST INCOME WAS EARNED ON THE F DR GIVEN AS SECURITY TO THE VARIOUS GOVERNMENT DEPARTMENT FOR EXECUTION OF CONTRACT THEREFORE EARNING OF SUCH INTEREST WAS INCIDENTAL TO THE CARRYING ON THE BUSINESS OF THE CONTRACT AND SIMILARLY OTHER INTEREST INCOME EARNED WAS FROM THE AMOUNT ADVANCES TO CERTAIN PARTIES FROM WHOM THE INTEREST HAD BEEN CHA RGED AND SINCE THE AMOUNT HAD BEEN ADVANCED OUT OF THE CONTRACT BUSINE SS THE SAME WAS TO BE ASSESSED AS INCOME FROM PROFIT AND GAIN OF THE CONT RACT BUSINESS. THE LD. CIT(A) MADE THE REFERENCE TO THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS. LAXMINARAIN BADRIDAS REPORTED IN 5 ITR 170 WHEREIN IT HAD BEEN HELD THAT WHENEVER THE FAIR ESTIMATE OF THE INCOME WAS TO BE MADE, THEN THE PERVIOUS YEARS RECORD OF THE ASSESSEE SHOULD BE CONSIDERED FOR ARRIVING AT FAIR FAIR AND PROPER ESTIMATE. 9.4 THE LD. CIT(A) POINTED OUT THAT THE ASSESSEE FU RNISHED THE CHART IN THE SUBMISSIONS DATED 21/12/2017 WHEREIN THE NET PROFIT RATE OF 6.36% HAD BEEN DISCLOSED AFTER EXCLUDING THE DEPRECIATION AND INTE REST AS PER BOOKS OF ACCOUNT 16 WHICH WAS FAVOURABLE IN COMPARISON TO THE NET PROFI T RATE OF THE EARLIER YEARS. HE ALSO OBSERVED THAT THE ASSESSEE HAD FURNISHED THE J UDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SHRI PRA VEEN KUMAR MITTAL, SHRI SUKHVINDER SINGH AND SHRI JASWANT SINGH WHEREIN THE DECISION IN THE CASE OF SHRI PRABHAT KUMAR CONTARCTOR(SUPRA) WAS CONSIDERED AND IT WAS HELD THAT THE PAST HISTORY OF THE ASSESSEE SHOULD BE CONSIDERED FOR AP PLICATION OF NET PROFIT RATE WHENEVER THE BOOKS OF ACCOUNTS ARE REJECTED AND THE NET PROFIT RATE OF 4% AND 6% RESPECTIVELY BASED ON THE PAST HISTORY HAD BEEN HELD TO BE JUSTIFIED. 9.5 THE LD. CIT(A) ALSO OBSERVED THAT EVEN IF THE N ET PROFIT RATE WAS TO BE APPLIED THE DEPRECIATION NEEDS TO BE ALLOWED. SINCE THE PRESCRIBED PARTICULARS HAD BEEN GIVEN IN THE RETURN OF INCOME AND NO DOUBT CAN BE CAST UPON SETTLED PRINCIPLE BASED ON THE JUDGMENT OF HON'BLE JURISDIC TIONAL HIGH COURT AND JURSIDICTIONAL BENCH OF ITAT. 9.6 THE LD. CIT(A) DIRECTED THE A.O. TO APPLY NET P ROFIT RATE OF 6.5% ON THE CONTRACT RECEIPT AND ON FDRS INTEREST BY OBSERVING IN PARA 4.8 & 4.9 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 4.8 I HAVE ALSO LOOKED INTO THE CHART OF NET PROFIT DECLARED BY THE ASSESSEE AND IT SEEN THAT THIS YEAR THE NET PROFIT RATE OF 6.36% CO MPARES FAVOURABLY WELL THE NET PROFIT RATE OF 6.01% AND 5.87% FOR ASSTT. YEAR 2013 -14 AND 2012-13. THUS, THE NET PROFIT RATE IS HIGHER IN THIS YEAR, BUT STILL I FEE L THAT ENDS OF JUSTICE SHALL BE MET, IF THE NET PROFIT RATE OF 6.5% IS APPLIED ON THE CONTRACT RECEIPTS AND ON FDRS INTEREST, SINCE THE EARNING OF FDR INTEREST IS INCIDENTAL TO THE CARRYING OF THE CONTRACT BUSINESS AS THE FDRS HAVE BEEN GIVEN TO THE GOVT, D EPARTMENTS AS SECURITY FOR THE EXECUTION OF THE CONTRACT. HOWEVER, THE OTHER I NTEREST, WHICH HAS BEEN DISCLOSED TO THE TUNE OF RS. 1,40,38,722/- IS TO BE ASSESSED AS 'INCOME FROM OTHER SOURCES U/S 56,' SINCE THE SAID INTEREST HAS NO REL ATION TO THE CONTRACT BUSINESS. 4.9 THE ABOVE FINDING OF ASSESSMENT OF INTEREST INC OME FROM CONTRACT BUSINESS, IS BASED ON THE JUDGMENT OF KARNATAKA HIGH COURT IN TH E CASE CIT VS HEWIETT PACKARD GLOBAL SOFT LTD., AS CITED 'SUPRA' AND, THU S, THE ASSESSING OFFICER IS DIRECTED TO APPLY A 'NET PROFIT RATE' OF 6.5% ON TH E TOTAL RECEIPTS OF RS. 48,47,85,079/- ( RS. 48,29,86,287/- CONTRACT RECEIP TS + FDR INTEREST TO THE TUNE OF RS. 17,98,792/-.) 10. NOW THE DEPARTMENT IS IN APPEAL. 17 11. THE LD. CIT DR STRONGLY SUPPORTED THE ASSESSMEN T ORDER PASSED BY THE A.O. AND REITERATED THE OBSERVATIONS MADE BY HIM IN THE SAID ORDER. SHE FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT MAINTAINED THE PROPER BOOKS OF ACCOUNT WHICH WERE RIGHTLY REJECTED BY THE A.O. SHE ALSO SU BMITTED THAT THE NET PROFIT RATE APPLIED BY THE A.O. WAS BASED UPON THE JUDGMEN T OF THE HON'BLE JURISDICTIONAL HIGH COURT THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN REDUCING THE NET PROFIT RATE OF 12% APPLIED BY THE A.O. TO 6.5%. SHE REQUESTED TO RESTORE THE NET PROFIT RATE OF 12% APPLIED BY THE A.O. 12. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F URTHER SUBMITTED THAT IN CASE THE BOOKS OF ACCOUNTS ARE REJECTED THE RIGHT C OURSE IS TO APPLY NET PROFIT RATE BY CONSIDERING PAST HISTORY OF THE ASSESSEES OWN CASE. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) CONSIDERED THE PAST H ISTORY OF THE ASSESSEES CASE AND APPLIED THE NET PROFIT RATE OF 6.5%. RELIANCE W AS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LA XMINARAIN BADRIDAS REPORTED IN 5 ITR 170. IT WAS FURTHER SUBMITTED THAT THE A.O . APPLIED THE NET PROFIT RATE OF 12% ON THE BASIS OF JUDGMENT OF THE HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF SHRI PRABHAT KUMAR CONTARCTOR(SUPRA) . HOWEVER I N A LATER CASE OF CIT VS. SHRI PRAVEEN KUMAR MITTAL IN ITA NO. 272 OF 2011. THE HO N'BLE JURISDICTIONAL HIGH COURT BY CONSIDERING THE EARLIER DECISION IN THE CASE OF PRABHAT KUMAR CONTRACTOR(SUPRA) UPHELD THE NET PROFIT RATE OF 4%. IT WAS ACCORDINGLY SUBMITTED THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN APPLYING THE NET PROFIT RATE OF 6.5% WHICH WAS MORE THAN THE NET PROFIT RATE OF 6.01% DECLARED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IN THE PRECEDING ASSESSM ENT YEAR 2013-14. HE SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT( A). 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE IT IS NOT IN DISPUTE THAT THE A.O. REJECTED THE BOOKS OF ACCOUNT BY POINTING OUT VARIOUS DISCREPANCIES IN THE BOOKS OF ACCOUNT MENTIONED BY THE ASSESSEE. IT IS W ELL SETTLED THAT IN CASE THE BOOKS OF ACCOUNTS ARE REJECTED THE ONLY WAY TO WORK OUT THE INCOME IS THE 18 APPLICATION OF GROSS / NET PROFIT RATE ON THE TURNO VER OR RECEIPTS OF THE ASSESSEE. HOWEVER THE NET PROFIT RATE TO BE APPLIED SHOULD BE REASONABLE AND THE PAST HISTORY OF ASSESSEES OWN CASE IS TO BE CONSIDERED. 13.1 ON A SIMILAR ISSUE THE HON'BLE SUPREME COURT I N THE CASE OF CIT VS. LAXMINARAIN BADRIDAS REPORTED IN 5 ITR 170 HELD AS UNDER: THE OFFICER IS TO MAKE AN ASSESSMENT TO THE BEST O F HIS JUDGMENT AGAINST A PERSON WHO IS IN DEFAULT AS REGARDS SUPPLYING INFORMATION. HE MUST NOT ACT DISHONESTLY, OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCI SE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ES TIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE HE MUST, BE ABLE T O TAKE INTO CONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEES CI RCUMSTANCES AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE, AND ALL OTHER MATTERS WHICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST NECESSARILY BE GUESS-WORK IN THE MATTER, IT MUST BE HONEST GUESS-WORK 13.2 IN THE PRESENT CASE ASSESSEE HAD SHOWN NET PRO FIT RATE OF 6.36% FOR THE YEAR UNDER CONSIDERATION AND IN THE EARLIER ASSESSM ENT YEAR I.E; ASSESSMENT YEAR 2012-13 AND 2013-14 IT WAS AT 5.87% AND 6.01% RESPE CTIVELY. SINCE THE NET PROFIT RATE WAS PROGRESSIVE AND WAS HIGHER IN THE YEAR UND ER CONSIDERATION. LD. CIT(A) WAS FAIR ENOUGH AND FULLY JUSTIFIED IN ESTIMATING T HE NET PROFIT RATE OF 6.5%. WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FIND INGS GIVEN BY THE LD. CIT(A) ON THIS ISSUE. 13.3 AS REGARDS TO THE APPLICATION OF NET PROFIT RA TE OF 12% BY THE A.O. BASED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI PRABHAT KUMAR CONTRACTOR(SUPRA) IS CONCERNED THE LD . CIT(A) CLEARLY MENTIONED THAT IN THE CASE OF CIT VS. SHRI PRAVEEN MITTAL(SUP RA) THE HON'BLE HIGH COURT AFTER CONSIDERING THE EARLIER JUDGMENT IN THE CASE OF SHR I PRABHAT KUMAR CONTRACTOR(SUPRA) UPHELD THE APPLICATION OF NET PRO FIT RATE OF 4%. WE THEREFORE DO NOT SEE ANY MERIT IN THE SUBMISSIONS OF THE LD. CIT DR THAT THE NET PROFIT RATE OF 12% APPLIED BY THE A.O. WAS BASED UPON THE JUDGM ENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI PRABH AT KUMAR CONTRACTOR(SUPRA) AND THE SAME TO BE UPHELD, PARTICULARLY WHEN THE HO N'BLE JURISDICTIONAL HIGH COURT HAD CONSIDERED THE SAID JUDGMENT IN ITS LATER DECISION IN THE CASE OF CIT 19 VS. PRAVEEN KUMAR MITTAL(SUPRA) WHICH HAS BEEN CONS IDERED BY THE LD. CIT(A) WHILE DIRECTING THE A.O. TO APPLY THE NET PROFIT RA TE OF 6.5% IN THE ASSESSEES CASE. 14. VIDE GROUND NO. 2 THE GRIEVANCE OF THE DEPARTME NT RELATES TO THE DIRECTION GIVEN BY THE LD. CIT(A) TO THE A.O. TO AL LOW DEPRECIATION AFTER APPLYING THE NET PROFIT RATE. 15. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE A.O. WHILE FRAMING THE ASSESSMENT DID NOW ALLOW THE CLAIM OF THE ASSESSEE FOR DEPRECIATION. 16. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 4. FURTHER, FOR THE SAKE OF ARGUMENT, IT IS BEING S UBMITTED THAT THE LD. ASSESSING OFFICER HAS APPLIED THE 'NET PROFIT RATE ' AND IN THIS REGARD, IT IS SUBMITTED FOR THE SAKE OF ARGUMENT ONLY THAT, EVEN IF THE NET PROFIT RATE IS APPLIED, THE LD. ASSESSING OFFICER WAS BOUND TO ALLOW AT LEAST THE DEPRECIATION AND INTEREST AS DEBITED IN THE PROFIT AND LOSS ACCOUNT, BECAUSE OF THE FACT TH AT THE INTEREST HAVE BEEN PAID PRIMARILY TO THE BANK TO THE TUNE OF RS. 3,68,20,16 4/- FOR CERTAIN OVERDRAFTS LIMITS AND FOR DEPRECIATION, THE COMPLETE PARTICULARS HAVE BEEN GIVEN IN THE AUDITED BALANCE SHEET AND FOR WHICH, THE LD. ASSESSING OFFIC ER HAD NOT RAISED ANY DOUBT. THE TOTAL DEPRECIATION CLAIMED HAS BEEN TO THE TUNE OF RS. 1,48,84,802/- AND THE FACT THAT THE DEPRECIATION IS TO BE ALLOWED, EVEN I F THE 'NET PROFIT' IS APPLIED, IS A SETTLED ISSUE BY THE JUDGMENT OF HON 'BLE PUNJAB & HARYANA HIGH COURT AS UNDER:- I). CIT VS CHOPRA BROS. INDIA (P) LTD. P&H HI GH COURT AS REPORTED IN 119 TAXMAN 866, IN WHICH, THE HON 'BLE HIGH COURT HAS HELD AS UNDER:- 'SECTION 145, READ WITH SECTIONS 32 AND 119, OF THE INCOME-TAX ACT, 1961 -METHOD OF ACCOUNTING - ESTIMATION OF PROFITS - ASSESSMENT YEAR 1988-89 - WHETHER IN ALL CASES (RELATING TO PERIOD PRIOR TO 1 -4-1994) WHERE BEST JUDGMENT ASSESSMENT IS MADE BY FIXING A RATE OF NET PROFIT, ASSESSEE'S CLAIM FOR DEDUCTION ON ACCOUNT OF DEPRECIATION CANNOT BE DEEMED TO HAVE BE EN CONSIDERED AND IT HAS TO BE SEPARATELY TAKEN INTO ACCOUNT PROVIDED PR ESCRIBED PARTICULARS HAVE BEEN FURNISHED BY ASSESSEE - HELD, YES.' II. CIT VS BISHAMBHAR DAYAL & CO. (ALLAHABAD HIGH COURT) AS REPORTED IN (1994) 74 TAXMAN 123, IN WHICH, THE HON 'BLE HIGH COURT HA S HELD AS UNDER: 'SECTION 256, READ WITH SECTIONS 145 AND 32 OF THE INCOME-TAX ACT, 1961 - REFERENCE TO HIGH COURT - QUESTION OF FACT - ASSESS MENT YEARS 1987-88 AND 1988- 89 - ITO DISALLOWED DEPRECIATION CLAIMED BY ASSESSEE ON VIEW THAT SINCE INCOME WAS COMPUTED BY APPLYING NET RATE, CLAIM OF DEPRECI ATION WAS NOT PERMISSIBLE - 20 TRIBUNAL REVERSED ITO'S ORDER AND DIRECTED HIM TO A LLOW DEPRECIATION TO ASSESSEE - WHETHER A REFERABLE QUESTION OF LAW AROSE FROM TRIB UNAL'S ORDER - HELD, NO' III. CIT VS VINOD KUMAR BHATIA (1995) 211 ITR 253 ( P&H HIGH COURT), IN WHICH, IT HAS BEEN HELD THAT THERE WAS NO INFIRMITY IN THE ORDER OF CIT (APPEAL) DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION AND INTE REST FROM THE INCOME ESTIMATED UNDER SECTION 44AC. IV. RELIANCE IS BEING PLACED IN THE ORDER OF HON'BL E IT AT, CHANDIGARH BENCH, CHANDIGARH IN THE CASE OF SH. JASWANL SINGH CONTRAC TOR IN IT A NO. 1109/CHD/2011 FOR ASSESSMENT YEAR 2008-2009, IN THIS JUDGMENT, TH E JUDGMENT IN THE CASE OF 'CHOPRA BROS. ' OF 'PUNJAB AND HARYANA HIGH COURT' AND 'HON 'BLE ALLAHABAD HIGH COURT' HAVE BEEN FOLLOWED THAT DEPRECIATION IS TO B E ALLOWED EVEN IF 'NET PROFIT RATE ' IS APPLIED. V. TARAD CONSTRUCTION CO. VS ITO AS REPORTED IN 56 T TJ 492 (JAIPUR BENCH), IN WHICH, THE HON 'BLE BENCH HAS HELD AS UNDER:- '12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE ORDERS OF THE TAX AUTHORITIES AND VARIOUS DECIS IONS REFERRED TO BY THE LEARNED COUNSEL. IT IS OBSERVED THAT IN MAJORITY OF THE DEC ISIONS THE TRIBUNAL HAS HELD THE VIEW THAT EVEN AFTER APPLYING THE NET PROFIT RATE, DEPRECIATION AND INTEREST PAID TO THIRD PARTIES ARE ALLOWABLE SEPARATELY. IN THE C ASE OF CHOPRA BROS. (INDIA) PVT. LTD. (SUPRA) AND MOHANGARH CONSTRUCTION CO. (SUPRA) , THE TRIBUNAL HAS CAREFULLY CONSIDERED THE QUESTION OF ALLOWABILITY OF DEPRECIA TION IN CIRCUMSTANCES SIMILAR TO THE CASE BEFORE US. RESPECTFULLY FOLLOWING THE AFOR ESAID DECISIONS OF THE TRIBUNAL AND HAVING REGARD TO THE DECISION REPORTED IN (1995 ) 210 ITR 118 (ALL) (SUPRA), WE FEEL THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATIO N AND INTEREST PAID TO THIRD PARTIES HAS TO BE ALLOWED. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW THESE CLAIMS IN RELATION TO THE ASSESSMENT YEAR UN DER CONSIDERATION AFTER VERIFYING THE FACTUAL DETAILS.' IN THIS JUDGMENT ALSO, THE JUDGMENT OF ALLAHABAD HI GH COURT IN THE CASE OF BISHAMBHAR DAYAL & CO. HAS BEEN RELIED UPON. 16.1 LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEPRECI ATION BY OBSERVING AS UNDER: 4.10. AS REGARDS THE DEPRECIATION IS CONCERNED, IT IS A SETTLED LAW THAT WHEREVER, THE NET PROFIT RATE IS APPLIED, THE DEPRECIATION HA S TO BE ALLOWED AS PER THE VARIOUS JUDGMENTS OF HON'BLE PUNJAB & HARYANA HIGH COURTS AND OTHERS, SINCE ALL PRESCRIBED PARTICULARS ARE AVAILABLE IN THE RECORD OF THE ASSESSING OFFICER AND, AS SUCH, THE DEPRECIATION CLAIMED TO THE TUNE OF RS. 1 ,48,89,912/- SHALL BE ALLOWED BY THE ASSESSING OFFICER ON THE PROFIT ARRIVED AT BY APPLICATION OF NET PROFIT @ 6.5%. 17. NOW THE DEPARTMENT IS IN APPEAL. 21 18. THE LD. CIT DR SUBMITTED THAT WHILE FRAMING THE ASSESSMENT THE A.O. CONSIDERED THE INCOME OFFERED BY THE ASSESSEE IN TH E RETURN OF INCOME, THEREFORE THE CLAIM OF THE DEPRECIATION HAS ALREADY BEEN ALLOWED BY THE A.O. TO THE ASSESSEE AND THE LD. CIT(A) WAS NOT JUSTIFIE D IN DIRECTING THE A.O. TO ALLOW THE CLAIM FOR DEPRECIATION AGAIN. 19. IN HIS RIVAL SUBMISSION THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE INCOME OF THE ASSESSEE WAS WORKED OUT BY APPLYI NG THE NET PROFIT RATE BY REJECTING THE BOOKS OF ACCOUNTS, THEREFORE THE ASSE SSEE WAS ENTITLED FOR THE DEPRECIATION AGAINST THE INCOME SO DETERMINED BY AP PLYING THE NET PROFIT RATE. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON' BLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. VINOD KUMAR [1995] RE PORTED IN 211 ITR 253 AND CIT VS. CHOPRA BROTHERS REPORTED IN 119 TAXMANN 866. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE IT IS NOT IN DISPUTE THAT THE INCOME OF THE ASSESSEE WAS WORKED OUT BY APPLYING T HE NET PROFIT RATE AND REJECTING THE BOOKS OF ACCOUNTS. THEREFORE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASES RELIED BY THE LD. COUNSEL FOR THE ASSESSEE I.E; CIT VS. VINOD KUM AR(SUPRA) AND CIT VS. CHOPRA BROTHERS (SUPRA). HOWEVER, WE DEEM IT APPROPRIATE T O RESTORE THIS ISSUE TO THE FILE OF THE A.O. TO VERIFY AS TO WHETHER THE CLAIM OF TH E ASSESSEE FOR DEPRECIATION WAS ALLOWED BY HIM OR NOT, AS WAS CLAIMED BY THE LD. CI T DR DURING THE COURSE OF HEARING. ACCORDINGLY THIS ISSUE IS RESTORED TO THE FILE OF THE A.O. FOR THE LIMITED PURPOSE I.E; TO VERIFY AS TO WHETHER THE DEPRECIATI ON WAS ALREADY ALLOWED TO THE ASSESSEE OR NOT AND IF NOT ALLOWED THEN BY CONSIDER ING THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT, THE CLAIM OF THE ASSESSEE FOR DEPRECIATION IS TO BE ALLOWED FROM THE INCOME DETERMINED BY APPL YING THE NET PROFIT RATE OF 6.5%. 22 21. VIDE GROUND NO. 3 THE GRIEVANCE OF THE DEPARTME NT RELATES TO THE DELETION OF ADDITION OF RS. 84,19,383/- MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 69C OF THE ACT. 22. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE A.O. MADE THE IMPUGNED ADDITION BY OBSERVING THAT THAT THE ASSESS EE CLAIMED VARIOUS EXPENSES AMOUNTING TO RS. 84,19,383/- WHICH WERE FO UND TO BE UNACCEPTABLE DUE TO FOLLOWING REASONS: I) BILLS OF M/S JAMA TRADING COMPANY ARE IN THE NAME OF M /S CEIGALL INDIA LTD. & WERE FOUND DURING SURVEY FROM BUSINESS PREMISES OF ASSESSEE & HENCE BELONG TO ASSESSEE. THE ASSESSE E IMPUDENTLY REFUSED THAT THEY DO NOT BELONG TO HIM. BUT ACTUALL Y HE HAS NO EXPLANATION TO OFFER ON THIS UNACCOUNTED EXPENDITUR E. II) THE BILLS WHICH ARE UNACCOUNTED ARE OF CONSTRUC TION MATERIAL LIKE SAND, CRUSHER, LABOUR EXPENSES & ARE IN THE NA ME OF ASSESSEE. THEY BELONG TO ASSESSEE AS THEY ARE FOUND IN HIS PR EMISES. III) SMARTFLEET CARD IS IN THE NAME OF M/S CEIGALL INDIA LTD AND IS ISSUED BY BHARAT PETROLEUM CORPORATION LTD (A CENTR AL GOVERNMENT PUBLIC SECTOR UNDERTAKING). IT IS A MODE OF PAYMENT JUST LIKE CASH AND WHERE IT CAN BE RECHARGED IN CASH AND THE FUEL CAN BE PURCHASED. THE ASSESSEE HAS AGAIN DENIED ITS OWNERS HIP WHICH IS FALSE. IV) THE ASSESSEE HAS SAID THESE DOCUMENTS DO NOT BE LONG TO HIM BECAUSE SOMEONE MIGHT HAVE LEFT IT THERE BUT THERE IS NO REASON FOR THAT WHY ANY 'BODY WOULD DO THAT. ACTUALLY, THE ASS ESSEE WAS CAUGHT UNAWARE WHEN SURVEY WAS CONDUCTED AT HIS PR EMISES. V) THE ASSESSEE HAS BEEN PROVIDED XEROX OF ALL IMPO UNDED DOCUMENTS AND AS A TIME BUYING & DELAYING TACTICS T HE ASSESSEE KEEPS ON ASKING XEROX COPIES OF IMPOUNDED MATERIAL. THE INTENTION OF ASKING XEROX COPIES AGAIN AND AGAIN DOES NOT SEE M BONAFIDE. VI) DURING THE COURSE OF SURVEY ALSO, THE DIRECTORS OF THE COMPANY LEFT THE SURVEY PREMISES & NEVER RETURNED B ACK TILL THE CONCLUSION. THEY EVEN AVOIDED ANSWERING QUESTIONS A SKED DURING SURVEY. HE MADE THE ADDITION OF RS. 84,19,383/- TREATING TH E EXPENSES AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE AC T. 23. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 23 26. IT IS SUBMITTED THAT IN THE PRESENT CASE, THE A SSESSING OFFICER HAS RELIED UPON CERTAIN ROUGH MEMORANDA OF RECORD AND OTHER EVIDENC ES AS PER COPY OF SUCH EVIDENCES SCANNED FROM PAGES 17 TO 52 OF THE ASSESS MENT ORDER AND THEN HAS STATED THAT THESE ARE UNEXPLAINED EXPENDITURE AND M ADE AN ADDITION OF RS. 84,19, 383/-. IN THIS REGARD, IT IS VERY HUMBLY SUB MITTED THAT WE HAVE FILED A REPLY, WHICH HAVE REPRODUCED BY THE ASSESSING OFFICER AT PA GES 53 TO 54, OF THE ORDER AND AS REGARDS CERTAIN DOCUMENTS PERTAINING TO 'JAN TA TRADING COMPANY' ARE CONCERNED, IT IS SUBMITTED THAT OUT OF THE TOTAL BI LLS OF RS. 41,50,532/-, THE BILLS TO THE TUNE OF RS. 26,95,000/- HAVE BEEN FOUND RECO RDED IN THE REGULAR BOOKS OF ACCOUNTS AND THE OTHER ROUGH MEMORANDA ON RECORD, P ERTAINING TO THIS PARTY ARE CONCERNED, IT IS VERY HUMBLY SUBMITTED THAT SUC H PARTY IS SUPPLYING CRUSHER, SAND ETC. TO THE ASSESSEE AND AT TIMES, IT IS FOUND THAT SUCH MATERIAL IS NOT OF GOOD QUALITY AND ONLY THOSE BILLS ARE ENTERED OF TH E MATERIAL WHICH ARE FOUND TO BE SUITABLE FOR THE PURPOSES OF CONSTRUCTION OF ROA D AND I.E. SOME OF THE BILLS FOR WHICH THE MATERIAL WAS NOT APPROVED, THEY WERE NOT ENTERED IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER HAS MADE THE TOTA L ADDITION OF RS. 41,50,532/-, WITHOUT CONSIDERING THE BILLS AS PER BOOKS OF ACCOU NTS. 25. AS REGARDS THE OTHER ROUGH MEMORANDA OF RECORD, IT IS SUBMITTED THAT THEY ARE JUST ROUGH NOTINGS AND, NOWHERE, THEY ARE, UNEXPLAINED EXPENDITURE AND THEY ARE, IN FACT, MEMORANDA OF ROUGH TRANSACTI ONS HAVING NOTED DOWN DURING THE COURSE OF EXECUTION OF CONTRACTS AND SUC H ROUGH NOTINGS ARE MERE CALCULATIONS. 26. AS REGARD THE 'SMART FLEET' EVIDENCE, OF PETROL PUM P IS CONCERNED, IT IS SUBMITTED THAT WE HAVE OBTAINED CASH CARD FROM ONE OF THE PETROL PUMP BUT LATER ON, THE SAID CARD WAS NOT USED BY THE COMPANY OR ITS DIRECTORS FOR THE BUSINESS PURPOSES, BUT THAT CARD WAS MISUSED BY THE PETROL PUMP OWNER FOR OTHER PURPOSE AND, AS SUCH, NO ADDITION COULD BE MA DE ON ACCOUNT OF SUCH 'SMART FLEET', RECHARGE TO THE TUNE OFRS.. 27,40,00 0/- 27. LASTLY, IT IS SUBMITTED THAT THE LD. ASSESSING OFFIC ER HAS MADE ADDITION OF RS.84,19,383/- U/S 69 C IS CONCERNED, THAT ADDITION ITSELF IS NOT SUSTAINABLE IN VIEW OF THE FACT THAT, WHEN INCOME HAS BEEN ESTIMATED BY THE ASSESSING OFFICER BY APPLYING THE NET PROFIT RATE, THEN NO SEPARATE ADDI TION ON ACCOUNT OF UNEXPLAINED EXPENDITURE CAN BE MADE AND RELIANCE IS BEING PLACED ON THE FOLLOWING JUDGMENTS:- I) CIT VS DEVI PRASAD VISHWANATH PRASAD (1969) 721T R 194 (SC) II) INDWELL CONSTRUCTIONS VS CIT [232ITR 776] (AP) III) CIT VS BANWARI LAI BANSHIDHAR {229 ITR 229 (AL L). IV) JUDGMENT OF ITAT, AHMEDABAD BENCH IN THE CASE OF SH . ABDUL FARID KHAN VS ITO IN ITA NO. 1339/AHD/2012 & CO NO. 139/CAH D/2012. IN THE ABOVE SAID CASE, THE RATE OF PROFIT WAS APPL IED AND SEPARATE ADDITION OF INDIRECT EXPENSES WERE MADE TO THE TUNE OF RS. 11,9 6,547/- AND IT WAS HELD BY THE HON 'BLE BENCH AS UNDER: - '6.2 AGGRIEVED BY THE ORDER OF CIT (A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF ASSESSIN G OFFICER. 6.3. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIAL ON RECORD. WE F IND THAT LD. CIT (A) WHILE DELETING THE ADDITION HAS NOTED THAT SINCE HE HAD D IRECTED THE ADOPTION OF NET PROFITS @ 2% FURTHER ADHOC DISALLOWANCE WOULD RESUL T INTO DOUBLE DISALLOWANCE. BEFORE US, APART FROM OTHER FINDINGS, THE OBSERVATI ON AND FINDING OF CIT (A) OF 24 DOUBLE DISALLOWANCE HAS ALSO NOT BEEN CONTROVERTED BY THE REVENUE. IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERFERE WITH TH E ORDER OF CIT (A). THUS, THIS GROUND OF REVENUE'S APPEAL IS DISMISSED. V). JUDGMENT OF ITAT, CHANDIGARH BENCH, CHAND IGARH IN THE CASE OF SH. KASHMIR SINGH CONT. IN ITA NO.844/CHD/2009FOR A.Y. 2006-07. THIS WAS THE CASE OF CONTRACTOR AND BOOKS WERE REJE CTED U/S 145(3) AND RATE OF PROFIT WAS APPLIED. IT WAS HELD THAT NO OTHER ADDIT ION COULD BE MADE BY FOLLOWING THE APEX COURT JUDGMENT AND OTHER CASES A S CITED ABOVE AND IN PARA 15 AND 16 OF THE ORDER, THE HON'BLE BENCH HAS HELD AS UNDER.- '15. IN VIEW OF THE ABOVE SAID SETTLED PRINCIPLE OF LAW, WE HOLD THAT WHERE THE INCOME OF THE ASSESSEE FOR THE CAPTIONED YEAR IS ES TIMATED BY APPLYING NET PROFIT RATE, AFTER REJECTING THE BOOKS OF ACCOUNT, IN VIEW OF THE PROVISIONS OF SECTION 145(3) OF THE ACT, NO FURTHER ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. 16. THE SECOND ADDITION MADE BY THE ASSESSING OFFICE R WAS UNDER SECTION 69C OF THE ACT ON ACCOUNT OF VARIATION IN REPORTING OF CASH PAYMENTS BY ASSESSEE AND CASH RECEIPTS BY THE RECIPIENT. IN LINE WITH OU R ARGUMENTS IN PARA ABOVE, NO SUCH DISALLOWANCE IS WARRANTED IN THE HANDS OF ASSE SSEE. ' THUS, NO SEPARATE ADDITION OFRS. 84,19,383/- IS NOT SUSTAINABLE OTHERWISE, WHEN THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED AND NET PR OFIT RATE HAS BEEN APPLIED BY THE ASSESSING OFFICER. THIS AMOUNTS TO DOUBT ADDI TION AND, AS SUCH, THE SAID ADDITION IS NOT SUSTAINABLE. 23.1 THE AFORESAID SUBMISSIONS OF THE ASSESSEE WERE FORWARDED BY THE LD. CIT(A) TO THE AO FOR HIS COMMENTS. IN RESPONSE THE AO REPORTED AS UNDER: ADDITION ON ACCOUNTS UNEXPLAINED EXPENDITURE: - THE ASSESSE SUBMISSIONS ARE BASELESS AND HAVE NO FO OT TO STAND ON FOR EXAMPLE;-. HOW CAN ASSESSEE DENY OWNERSHIP OF BILLS FOUND IN H IS PREMISES ESPECIALLY WHEN THE BILLS ARE IN THE NAME OF ASSESSEE? WHY WOULD PETROL PUMP OWNER MISUSE ASSESSSEE'S FLEE T CARD? WHAT WOULD BE BENEFIT OF PETROL PUMP OWNER? & HOW ARE THOSE RECHA RGE AMOUNT BILLS ARE AVAILABLE IN ASSESSE'S PREMISES. THE ASSESSSEE IS TRYING TO SERVE THE DEPARTMENT A P LETHORA OF LIES & VEGUE STORIES. SO THE SUBMISSION OF ASSESSEE BE REJECTED & IT IS P RAYED BEFORE YOU TO PLEASE CONFIRM THE ADDITION MADE & PASS A JUDGEMENT IN FAV OUR OF REVENUE. 25 23.2 THE AFORESAID REPORT OF THE AO WAS FORWARDED T O THE ASSESSEE FOR ITS COMMENTS BY THE LD. CIT(A). IN RESPONSE THE ASSESSE E SUBMITTED AS UNDER: ON ACCOUNT OF UNEXPLAINED EXPENDITURES 1. WITH REGARD TO THE ALLEGATION OF THE LD. AO THAT THE ASSESSEE HAS DENIED THE OWNERSHIP OF THE BILLS FOUND IN HIS PREMISES IT IS SUBMITTED THAT THIS ALLEGATION OF THE LD. AO IS NOT AT ALL CORRECT AS THE ASSESSEE HAS ONLY DENIED THE OWNERSHIP OF THE BILLS THAT HAS NOT BEEN ISSUED IN THE NAME OF T HE ASSESSEE. THE ADDITIONS HAVE BEEN MADE ON THE BASIS OF THE ANNEXURE-12, ANNEXURE -AL AND ANNEXURE-A3. WHEREAS, THE ASSESSEE HAS MERELY DENIED THE OWNERSH IP OF THE DOCUMENTS MENTIONED IN A-L WHICH DOES NOT BEAR THE NAME OF TH E ASSESSEE. THE SAME IS EVIDENT FROM THE REPLY OF THE ASSESSEE FILED DURING THE ASSESSMENT PROCEEDINGS AND REPRODUCED ON PAGE 17 OF THE ASSESSMENT ORDER. FROM A PERUSAL OF THE SAME IT IS CLEAR THAT THE ASSESSEE HAS MERELY DENIED OWN ERSHIP OF THE LOOSE PAPER AND DOCUMENTS FOUND DURING THE SURVEY. THUS, THIS COMME NT OF THE LD. AO IS WRONG ON THE FACTS. IT IS ALSO CLARIFIED HERE THAT THE ASSESSEE HAD ALR EADY ENTERED BILLS WORTH RS.26,95,000 OUT OF THE TOTAL BILLS OF RS.41,50,532 . 2. THE FLEET CARDS ARE LIKE PREPAID PETROL CARDS WH ICH CAN BE UTILIZED BY ANY CUSTOMER EVEN IF ONE IS NOT THE OWNER OF THE SAME A S THE SAME ARE EASILY ACCESIBLE BY A PASSWORD WHICH CAN BE MANAGED BY THE PUMP OWNER. THUS, A SMART FLEET CARD CAN BE GIVEN TO ANOTHER CUSTOMER W ITHOUT ACTUALLY REGISTERING A NEW CARD, HENCE, SAVING THE COST OF NEW CARD AND OT HER COMPLIANCES. SIMILARLY, IN OUR CASE THE CARD MUST HAVE BEEN USED BY OTHER C USTOMER AS THE SAME HAS NEVER BEEN DISCONTINUED BY THE ASSESSEE BY ANY FORM AL LETTER, AND THEREFORE, FOR THE SAME REASON THE BILLS OF THE RECHARGE AMOUNTS W ERE STILL BEING DELIVERED TO THE ASSESSEE'S REGISTERED ADDRESS. HOPE YOUR GOODSELF FINDS THE ABOVE DETAILS SATISFAC TORILY AND OBLIGE. ' 7. THEREAFTER, THE ASSESSEE AGAIN SUBMITTED FURTHER COMMENTS/SUBMISSIONS AS UNDER:-'WE HAVE TO VERY HUM BLY SUBMIT THAT WE HAD ALREADY FILED A DETAILED SUBMISSIONS AND ALSO F ILED A REPLY TO REMAND REPORT AND, IN FURTHERANCE, TO THAT, IT MAY BE STATED THAT , WE HAVE ALREADY GIVEN A DETAILS WITH REGARD TO THE FACT THAT INTEREST INCOM E ON FDRS IS INCIDENTAL TO RUNNING OF THE BUSINESS OF ASSESSEE SINCE, THESE FDRS ARE N OT BEING MADE FOR EARNING INTEREST, BUT FOR GIVING GUARANTEES TO THE VARIOUS GOVT, DEPARTMENTS IN RELATION TO EXECUTION OF VARIOUS 'ROAD BUILDING PROJECTS' ALLOTTED TO THE ASSESSEE. THERE HAS NEVER THE INTENTION TO INVEST THE SURPLUS FUNDS IN THE SHAPE OF FDRS AND, THEREFORE, THIS INCOME HAS TO BE TREATED FROM THE CONTRACT ONL Y AND LIABLE TO BE ASSESSED AS PROFITS & GAINS OF BUSINESS/PROFESSION. THIS IS AN INTEGRAL PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND IN VIEW OF THE COMMERC IAL EXPEDIENCY, INTEREST INCOME ON FDRS CANNOT DELINKED FROM THE PROFIT AND GAIN DERIVED BY THE ASSESSEE, WHO IS ENGAGED IN THE CONTRACT BUSINESS A ND CANNOT BE TAXED SEPARATELY U/S 56 OF THE ACT . THIS VIEW FINDS SUPPORT FROM THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS HEWLETT PACKARD GLOBAL SOFT LTD., WHEREIN, THE HON'BLE HIGH COURT HAS HELD AS U NDER: 'INCOME TAX ACT, 1961, SECTION 10A AND 10B - DEDUCT IONS OF INCOME FROM PROFITS AND GAINS OF BUSINESS OF EXPORT - ASSESSEE IS 100% EXPORT ORIENTED UNIT - DURING AY 2001-2002, IT EARNED INTEREST INCOME, ON SHORT TERM DEPOSITS FROM BANKS IN INDIA, 26 BY ADVANCING LOANS TO STAFF AND ALSO INCOME OUT OF ITS SURPLUS FUNDS TEMPORARILY PARKED IN THE CURRENT ACCOUNT HELD IN CITI BANK, HO NG KONG ASSESSEE SINCE HAD CLAIMED DEDUCTIONS U/S 10A AND 10B OF THE ACT, AO HE LD THAT SUCH INTEREST INCOME WAS NOT ENTITLED TO 100% DEDUCTION U/S 10A B UT TAXABLE U/S 56 OF THE ACT, AS 'INCOME FROM OTHER SOURCES' AND THIS IS THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE IN THIS APPEAL - KARNATAKA HIGH COURT DECIDED THE ISSUE IN F/O ASSESSEE RESPONDENT HOLDING THAT ASSES SEE IS ENTITLED TO 100% EXEMPTION OR DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THE INTEREST INCOME EARNED BY IT ON THE DEPOSITS MADE BY IT WITH THE BANKS IN THE ORDINARY COURSE OF ITS BUSINESS AND ALSO INTEREST EARNED BY IT FROM THE STAFF LOANS AND SUCH INTEREST INCOME WOULD NOT BE TAXABLE AS 'INCOME FRO M OTHER SOURCES' UNDER SECTION 56 OF THE ACT. THE INCIDENTAL ACTIVITY OF P ARKING OF SURPLUS FUNDS WITH THE BANKS OR ADVANCING OF STAFF LOANS BY SUCH SPECIAL C ATEGORY OF ASSESSEES COVERED UNDER SECTION 10A OR 10B OF THE ACT IS INTEGRAL PAR T OF THEIR EXPORT BUSINESS ACTIVITY AND A BUSINESS DECISION TAKEN IN VIEW OF THE COMMER CIAL EXPEDIENCY AND THE INTEREST INCOME EARNED INCIDENTALLY CANNOT BE DE-LI NKED FROM ITS PROFITS AND GAINS DERIVED BY THE UNDERTAKING ENGAGED IN THE EXPORT OF ARTICLES AS ENVISAGED UNDER SECTION 10A OR SECTION 10B OF THE ACT AND CANNOT B TAXED SEPARATELY UNDER SECTION 56 OF THE ACT. ' 2. THE HON'BLE HIGH COURT WHILE PRONOUNCING THIS JU DGMENT RELIED UPON ON MANY JUDGMENTS FOR HOLDING THE ABOVE PREPOSITION; COPY O F THE JUDGMENT IS BEING ENCLOSED HEREWITH. 3. IT IS SUBMITTED THAT THE LD. ASSESSING OFFICER BY APPLYING THE NET PROFIT RATE OF 12% HAS EXCLUDED THE INTEREST ON FDRS AND OTHER INT EREST EARNED BY THE ASSESSEE, BUT SINCE BOTH OF THEM ARE PART AND PARCEL OF THE B USINESS PROFIT, THEY CANNOT BE EXCLUDED, WHILE APPLYING THE 'NET PROFIT RATE' SINCE WHATEVER THE INTEREST HAVE BEEN CONSIDERED, WAS OUT OF THE FUNDS OF CONTRACT B USINESS. IT IS FURTHER SUBMITTED THAT THE LD. ASSESSING OFFICER, WHILE APPLYING THE 'NET PROFIT RATE' AT PAGE 16 OF THE ORDER HAS INCLUDED THE 'REBATE AND DISCOUNT' FOR THE PURPOSES OF APPLICATION OF 'NET PROFIT' AND THE SAME TREATMENT SHOULD HAVE BEEN GIVEN TO TH E INTEREST ON FDRS AND OTHER INTEREST INCOME. 23.3 LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS A ND COMMENTS OF THE ASSESSEE AS WELL AS THE REPORT OF THE AO DELETED THE IMPUGNE D ADDITION BY OBSERVING AS UNDER: 4.11. THE 5 TH GROUND OF APPEAL RELATES TO UNEXPLAINED EXPENDITUR E TO THE TUNE OF RS. 84,19,383/- AND THE FACTS IN BRIEF THAT DURING THE COURSE OF SURVEY CONDUCTED AT THE ASSESSEE'S PREMISES ON 15.09.2016, LARGE NUM BER OF KACHA BILLS AND BILL BOOK RELATING TO CONSTRUCTION/MATERIAL PURCHASES RELEVAN T TO ASSESSMENT YEAR 2014-15 WERE FOUND AND THE ASSESSEE WAS CONFRONTED WITH THE SE DOCUMENTS AND THE ASSESSEE STATED THAT PHOTO COPIES AS PROVIDED TO TH E ASSESSEE OF THE DOCUMENTS ARE NOT CLEAR AND FURTHER HAS STATED THAT THE DOCUM ENTS DO NOT BELONG TO THE ASSESSEE AS IT DO NOT BEAR THE SIGNATURES OF THE AS SESSEE. 27 4.12 DURING THE COURSE OF SUBMISSIONS BEFORE ME, IT HAS BEEN PLEADED THAT AT TIMES, THE-CONSTRUCTION MATERIAL IS DELIVERED BY TH E PARTY CONCERNED AT DIFFERENT SITES AND SOMEOF THE MATERIALS ARE NOT UPTO THE MAR K AND THE SAME HAVING NOT BEEN APPROVED-IS RETURNED BACK. HOWEVER, THE RELEVA NT VOUCHERS FOR THE SAME WERE LYING WITH THE ASSESSEE HAD NOT BEEN ENTERED I N THE BOOKS OF ACCOUNTS, SINCE NO MATERIAL WAS PURCHASED. THUS, IT HAS BEEN STATED THAT THESE ARE ONLY ROUGH MEMORANDA OF RECORDS AND NO ADDITION COULD BE MADE ON ACCOUNT OF SUCH DOCUMENTS. IT HAS FURTHER BEEN PLEADED WITHOUT PREJUDICE TO ABOVE DOCUMENTS THAT ADDITION ITSELF IS NOT SUSTAINABLE, WHEN THE INCOME HAS BEEN ESTIMATED BY THE ASSESSING OFFICER BY APPLYING THE NET PROFIT RATE, THEN NO SEPARATE ADDITION ON ACCOUNT OF UNEXPLAINED EXPENDI TURE CAN BE MADE AND FOR THAT THE RELIANCE HAS BEEN PLACED ON THE JUDGMENTS OF HON'BLE SUPREME COURT AND OTHER HIGH COURTS FOR THIS PREPOSITION AS CITED 'SUPRA'. 4.13 I HAVE GONE THROUGH THE ASSESSMENT AND DETAILE D SUBMISSIONS OF THE ASSESSEE AND HAVE ALSO PERUSED THE RECORD. THE SUBM ISSIONS OF THE LD. COUNSEL OF THE ASSESSEE HAS BEEN CONSIDERED AND AFTER GOING TH ROUGH THE RECORD, IT IS HELD THAT SINCE I HAVE ALREADY HELD THAT THIS IS A FIT C ASE FOR APPLICATION OF NET PROFIT RATE AND, THEREFORE, NO SEPARATE ADDITION OF UNEXPL AINED EXPENDITURE CAN BE MADE BASED ON THE DECISIONS OF HON'BLE ANDHRA PRADE SH & ALLAHABAD HIGH COURTS AND JUDGMENT OF JURISDICTIONAL BENCH OF THE ITAT, CHANDIGARH BENCH IN THE CASE OF KASHMIR SINGH CONTRACTOR AS CITED 'SUPRA' B Y THE ASSESSEE, IN WHICH, AFTER RELYING UPON VARIOUS JUDGMENT HAS HELD AS UNDER:- 24. NOW THE DEPARTMENT IS IN APPEAL. 25. LD. CIT DR REITERATED THE OBSERVATIONS MADE BY THE AO AND FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT BOOKED THE EXPE NSES, IN ITS REGULAR BOOKS OF ACCOUNTS, THEREFORE THE AO WAS JUSTIFIED IN MAKING THIS ADDITION AND THE LD. CIT(A) WRONGLY DELETED THE SAME. SHE STRONGLY SUPPO RTED THE ASSESSMENT ORDER PASSED BY THE AO. 25.1 IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR T HE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F URTHER SUBMITTED THAT ALL THE EXPENSES WERE RECORDED IN THE BOOKS OF ACCOUNTS. IT WAS STATED THAT THE AO HAD NOT DENIED THE INCURRING OF EXPENDITURE FOR THE BUSINESS PURPOSES AND THE ASSESSEE NEVER DENIED THE OWNERSHIP OF THE BILLS WH ICH WERE ISSUED IN THE NAME OF THE ASSESSEE. THE ONLY DENIAL WAS FOR THE BILLS WHICH WERE NOT IN THE NAME OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT WHEN TH E BOOKS OF ACCOUNT WERE 28 REJECTED AND INCOME OF THE ASSESSEE WAS DETERMINED BY APPLYING THE NET PROFIT RATE ON THE TURNOVER DISCLOSED BY THE ASSESSEE THEN NO FURTHER ADDITION WAS REQUIRED TO BE MADE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: INDWELL CONSTRUCTIONS VS. CIT [232 ITR 776] (AP) CIT VS. BANWARI LAL BANSHIDHAR [229 ITR 229] (ALL) SHRI KASHMIR SINGH CONT. IN ITA NO. 844/CHD/2009 FO R A.Y. 2006-07(ITAT CHD) 26. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE IT IS AN ADMITTED FACT THAT THE INCOME OF THE ASSESSEE IS DETERMINED BY THE AO AS WELL AS THE LD. CIT(A) BY REJECTING THE BOOKS OF ACCOUNTS AND APPLYING THE NE T PROFIT RATE. IT IS WELL SETTLED THAT WHEN THE INCOME IS DETERMINED BY REJECTING THE BOOKS OF ACCOUNT AND APPLYING THE NET PROFIT RATE THEN NO SEPARATE ADDIT ION ON ACCOUNT OF UNEXPLAINED EXPENDITURE IT TO BE MADE. 26.1 ON A SIMILAR ISSUE THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR (SUPRA) HELD AS UNDER: WHEN THE GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES MADE BY THE ASSESSEE. 26.2 A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE A NDHRA PRADESH HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS CIT REPORTE D IN 232 ITR 776 HELD AS UNDER: THE PATTERN OF ASSESSMENT UNDER THE INCOME-TAX ACT , 1961, IS GIVEN BY SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SECTIONS 30 TO 43D OF THE ACT. SECTION 40 PROVIDES FOR CERTAIN DISALLOWAN CES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENE RALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER SECTION 29 IS TO BE MADE UNDE R SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE INCOME-TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT. WHEN SUCH AN ES TIMATE IS MADE, IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED U NDER SECTION 29. IN OTHER WORDS ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECT ION 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMA TE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. 29 WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THE REVENUE CANNOT RELY ON THE SAME BOOKS FOR ADDITION OF AN EXACT ITEM(OF EXP ENDITURE) IN THE PROFIT AND LOSS ACCOUNT. 26.3 IN THE PRESENT CASE AS WE HAVE ALREADY POINTED OUT THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE REJECTED B Y THE AO AND THE SAID REJECTION WAS UPHELD BY THE LD. CIT(A). THE INCOME OF THE ASSESSEE WAS DETERMINED BY APPLYING THE NET PROFIT RATE, THEREFO RE IN VIEW OF THE RATIO LAID DOWN IN THE AFORESAID REFERRED TO CASES BY THE HON BLE ALLAHABAD HIGH COURT AND HONBLE ANDHRA PRADESH HIGH COURT, NO SEPARATE ADDITION ON ACCOUNT OF EXPENDITURE WAS CALLED FOR WHEN THE INCOME WAS DETE RMINED BY APPLYING THE NET PROFIT RATE. ACCORDINGLY WE DO NOT SEE ANY INFI RMITY IN THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. 27. IN THE RESULT APPEAL OF THE DEPARTMENT IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 19/11/2020). SD/- SD/- # $! .., (RJAPAL YADAV ) ( N.K. SAINI) / VICE PRESIDENT / VICE PRESIDENT AG DATE: 19/11/2020 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE