The Income Tax Officer, Pathankot V. M/s. National India Construction Co, Pathankot

ITA 113/ASR/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0632 (ITAT-AMRITSAR)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 19-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S BHASIN
• Keywords: Rejection of books of accounts; Business income; Depreciation
• Section: 44AD; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NOS.81,82(ASR)/2015 ASSESSMENT YEARS:2010-11 & 2011-12 M/S NATIONAL INDIA CONSTRUCTION CO., SHOP NO.52, NEAR SDM COURT, DALHOUSIE ROAD, PATHANKOT. PAN:AAEFN-3826D VS. ADDL. CIT RANGE, VI PATHANKOT. (APPELLANT) (RESPONDENT) I.T.A NO.113(ASR)/2016 ASSESSMENT YEAR: 2012-13 INCOME TAX OFFICER WARD-2, PATHANKOT PATHANKOT. VS. M/S NATIONAL INDIA CONSTRUCTION CO., SHOP NO.52, NEAR SDM COURT, DALHOUSIE ROAD, PATHANKOT. PAN:AAEFN-3826D PAN: PAN:AAEFN-3826D (APPELLANT) (RESPONDENT) APPELLANT BY: SH. J.S BHASIN (ADV.) RESPONDENT BY: NONE. DATE OF HEARING: 13.06.2016 DATE OF PRONO UNCEMENT: 15.06.2016 ORDER PER T.S.KAPOOR (AM): THESE ARE THREE APPEALS RELATING TO ASST. YEAR S 2010-11, 2011-12 & 2012-13. THE ITA NOS.81 & 82 (ASR)/2015 HAS BEEN FI LED BY ASSESSEE AGAINST THE CONSOLIDATED ORDER OF CIT(A)-II, AMRITS AR, DATED 2.12.2014 ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 2 AND ITA NO.113(ASR)/2016 HAS BEEN FILED BY REVENUE AGAINST THE ORDER OF CIT(A)-II, AMRITSAR, DATED 4.11.2015. 2. IN ITA NOS.81 & 82 (ASR)/2015, THE ASSESSEE HAS TAKEN THE SIMILAR GROUNDS OF APPEAL AND ONLY DIFFERENCES ARE DUE TO F IGURES. THE ISSUES RAISED BY ASSESSEE IS THE ACTION OF LEARNED CIT(A) BY WHICH HE HAD UPHELD THE APPLICATION OF 10% OF NET PROFIT RATE AND HAS A LSO UPHELD THE ACTION OF LEARNED ASSESSING OFFICER OF SEPARATELY MAKING ADDI TION OF INTEREST ON FIXED DEPOSITS RECEIPTS WHICH WERE CLAIMED TO HAVE BEEN HELD AS BUSINESS ASSETS. THE ASSESSEE IS ALSO AGGRIEVED WITH THE DEN IAL OF DEPRECIATION CLAIM FROM THE PROFITS WORKED OUT BY ESTIMATION ON % AGE BASIS. 3. IN ITA NO.113(ASR)/2016, THE REVENUE IS AGGRIEVE D WITH THE ACTION OF LEARNED CIT(A) BY WHICH HE HAD REDUCED THE APPLI CATION OF RATE OF 10% TO 8% AND IS ALSO AGGRIEVED WITH THE ACTION OF LEAR NED CIT(A) BY WHICH HE HAD ALLOWED DEPRECIATION FROM THE ESTIMATED INCOME. 4. NONE WAS PRESENT ON BEHALF OF REVENUE AND NEITHE R ANY APPLICATION FOR ADJOURNMENT WAS FILED BY REVENUE, THEREFORE, IT WAS DECIDED TO PROCEED EX-PARTE QUA REVENUE. 5. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT ASSESSEE IS A GOVT. CONTRACTOR. THE CASE OF TH E ASSESSEE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER, DURING THE COU RSE OF ASSESSMENT PROCEEDINGS OBSERVED VARIOUS DISCREPANCIES IN THE B OOKS OF ACCOUNTS, THEREFORE, HE REJECTED THE BOOKS OF ACCOUNTS AND ES TIMATED THE INCOME OF ASSESSEE AFTER APPLYING 10% OF PROFIT TO GROSS RECE IPTS. THE ASSESSING ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 3 OFFICER, FURTHER MADE ADDITION ON ACCOUNT OF INTERE ST ON FIXED DEPOSITS. THE LEARNED CIT(A) IN ASSESSMENT YEAR 201 0-11 AND 2011-12 UPHELD THE ACTION OF ASSESSING OFFICER WHEREAS IN A SST. YEAR 2012-13 THE LEARNED CIT(A) REDUCED THE RATE OF 10% TO 8% AND AL SO ALLOWED THE CLAIM OF DEPRECIATION FROM THE ESTIMATED INCOME BUT UPHEL D THE SEPARATE ADDITION WHICH THE ASSESSING OFFICER HAD MADE ON AC COUNT OF INTEREST ON FIXED DEPOSITS. 6. AGGRIEVED WITH THE ORDERS, BOTH PARTIES ARE IN A PPEAL BEFORE US. 7. THESE APPEALS WERE HEARD TOGETHER AND THEREFORE, FOR THE SAKE OF CONVENIENCE A COMMON AND CONSOLIDATED ORDER IS BEIN G PASSED. 8. AT THE OUTSET, THE LEARNED AR INVITED OUR ATTENT ION TO THE APPEAL FILED BY REVENUE IN ASST. YEAR 2012-13 AND SUBMITTE D THAT LEARNED CIT(A) IN THIS YEAR HAD REDUCED THE RATE OF ESTIMATION OF 10% TO 8% AFTER GOING THROUGH THE VARIOUS SUBMISSIONS OF ASSESSEE AND AFT ER ANALYZING THE VARIOUS FIGURES AND RATIOS OF VARIOUS EXPENSES TO G ROSS RECEIPTS AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PAGE 6 TO 10 OF LEARNED CIT(A)S ORDER. IT WAS SUBMITTED BY HIM THAT RATE OF 8% IS A CCEPTABLE TO THE ASSESSEE IN THE ASST. YEAR 2010-11 & 2011-12 ALSO P ROVIDED CLAIM OF DEPRECIATION IS ALLOWED TO THE ASSESSEE. AS REGARDS THE ISSUE OF TAXATION OF INTEREST INCOME AS SEPARATE INCOME THE LEARNED A R SUBMITTED THAT ONCE BOOKS OF ACCOUNTS WERE REJECTED THE SAME BOOKS OF ACCOUNTS CAN NOT BE RELIED UPON TO MAKE SEPARATE ADDITION OF INT EREST INCOME. RELIANCE IN THIS RESPECT WAS PLACED ON THE CASE LAW OF DALJI T SINGH & BROS. IN ITA ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 4 201(ASR)2002 DECIDED BY AMRITSAR BENCH VIDE ITS ORD ER DATED 14.11.2002. THEREFORE, IT WAS PRAYED THAT THE APPEA L OF REVENUE BE DISMISSED AND APPEALS OF ASSESSEE BE ALLOWED. 9. ON A QUESTION FROM BENCH AS TO WHY NOT THESE CAS ES BE RESTORED TO ASSESSING OFFICER FOR FRESH ASSESSMENT IN VIEW OF T HE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF TELELINKS VS. CIT , BATHINDA, THE LEARNED AR SUBMITTED THAT LEARNED CIT(A) IN ASST. Y EAR 2012-13 HAS CONSIDERED ALL RELEVANT PARAMETERS AND THEREFORE, T HERE IS NO POINT IN SENDING BACK THE CASES TO ASSESSING OFFICER. 10. WE HAVE HEARD THE LEARNED AR AND HAVE GONE THRO UGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IN THE THREE YEARS T HE ASSESSEE CONTINUES TO BE IN THE SAME BUSINESS AS GOVT. CONTRACTOR AND ASSESSING OFFICER IN THESE THREE YEARS REJECTED THE BOOKS OF ACCOUNTS AN D APPLIED NET PROFIT RATE OF 10% IN ASST. YEAR 2010-11 & 2011-12 BY HOLD ING AS UNDER: THIS STATE OF AFFAIR CANNOT BE ACCEPTED AND IN VIE W OF SAME APPLICATION OF PAST PROFIT RATE IN THIS CASE WILL NOT BE CORRECT AS THIS WILL GIVE LEEWAY TO THE ASSESSEE TO REPORT ANY INCOME AND GET AWAY WITH ESTIMATED PROFIT. IN VIEW OF ABOVE MENTIONED REASONS, IN THE PRESENT CASE, AS AO HAS FOUND CERTAIN UNVERIFIED EX PENSES AND UNVERIFIABLE LABOUR AND WAGE EXPENSES, AND IN VIEW OF SAME ESTIMATION OF PR OFIT AT 10 PER CENT IS JUSTIFIED. THE AO HAS COMPARED THE CASE OF ASSESSEE WITH M/S SHIVA M CONSTRUCTION V/S CIT-3 LUDHIANA IN ITA NO. 167 OF 2007, WHERE NET PROFIT R ATE OF 10% WAS CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT. THE AO HAS QUOTE D ANOTHER CASE OF HONBLE ITAT CHANDIGARH OF M/S ESS ESS BUILDERS PRIVATE LIMITED IN ITA NO. 707/CHD/1997 AND M/S AGARWAL CONSTRUCTION IN ITA NO 387 & 490/CHD/2004 W HERE INCOME WAS DETERMINED AT 12 PER CENT OF CONTRACT RECEIPT. IT WAS FURTHER MEN TIONED THAT APPLICATION OF RATE OF 12 PER CENT ON THE CONTRACT RECEIPT HAS BEEN UPHELD BY HON BLE JURISDICTIONAL HIGH COURT ALSO. IN MY OPINION, PARTICULAR FACTS OF THE CASE CANNOT BE COMPARED WITH ANY OTHER CASE AS CIRCUMSTANCES AND SITUATIONS HAVE BEEN DIFFERENT, E VEN FOR THE SAME ASSESSEE. CIVIL ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 5 CONSTRUCTION WORK VARIES FROM YEAR TO YEAR ON THE B ASIS OF SPECIFIC SITE CONDITIONS. HOWEVER, IT IS ESTABLISHED PRACTICE IN VARIOUS GOVT . DEPARTMENTS TO ESTIMATE COST OF ANY PROJECT BY CRYING OUT DETAILED ITEM WISE VALUATION AND ON THAT COST AN ESTIMATED PROFIT OF 10 PER CENT IS ADDED TO ARRIVE AT ESTIMATED COST OF THE PROJECT TO THE SAID DEPARTMENT. THUS, IN GENERAL 10 PER CENT PROFIT IN CIVIL CONSTRUCTION WORK IS TAKEN AS NORMS. CIVIL CONTRACTOR CAN EARN MORE OR LESS THAN NORMS DEPENDING UPON SIT UATION. NORMALLY ALL CONTRACTORS PREPARE THEIR ESTIMATE IN THEIR OWN WAY BY MAKING T HEIR OWN ESTIMATE OF COST AND PROFITS. IF A CONTRACTOR PRODUCES HIS ESTIMATE WHICH HE HAS SUBMITTED TO THE DEPARTMENT AND EXPENDITURE FOR EACH UNIT OF WORK REGARDING WHY HIS COST HAS GONE UP OR DOWN, IT WILL NOT BE DIFFICULT FOR THE AO TO ACCEPT ARRIVED NET PROFI T WHICH MAY BE LESS OR MORE THAN THE ESTABLISHED NORM OF 10 PER CENT. HOWEVER IN THE PRE SENT CASES THE ASSESSEE HAS NOT SUBMITTED EVEN DETAILS SUBMITTED TO VARIOUS DEPARTM ENTS REGARDING EACH PROJECT FAR LESS SUBMITTING HIS OWN INTERNAL DOCUMENTS OF SUCH ESTIM ATES IN THIS REGARD. IN ABSENCE OF SUCH DETAILS, PRESENT FACTS CANNOT BE COMPARED WITH EARLIER YEAR FACTS OF THE ASSESSEES OWN CASE AND IN VIEW OF SAME PAST YEAR NET PROFIT C ANNOT BE APPLIED. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO OBSERVED IN ITA NO. 1 63 OF 2014 IN ORDER DATED 15.09.2014 THAT IF THERE ARE CHANGE IN CIRCUMSTANCE S, A SEPARATE PROFIT RATE CAN BE APPLIED TO THE ASSESSEE CASE. IN VIEW OF ABOVE DECISION, IT IS CLEAR THAT ASSESSEES CURRENT YEAR FACTS CANNOT BE COMPARED WITH EARLIER YEAR CASE IN QUALITY OF NATURE OF WORK AND ALSO IN RESPECT OF HUGE QUANTUM OF UNVERIFIABLE AND BOGUS E XPENSES. HONBLE SUPREME COURT HAS HELD IN THE CASE OF CST V /S H.M. ESUF ALI H.M. ABDUL ALI 191 ITR 271 (SC) THAT THE AO IS THE BEST JUDGE OF THE SITUATION AND CIT(A) CANNOT SUBSTITUTE HER JUDGMENT FOR THAT OF THE AO U NLESS THERE WERE COMPELLING REASON FOR DOING SO. THE HONBLE SUPREME COURT FURTHER OBSERVE D THAT ESTIMATION ALWAYS HAVE SOME GUESS WORK AND IN QUASI JUDICIAL AUTHORITY MUST REC ORD REASONS FOR NOT ACCEPTING THE AOS ESTIMATE. THE HONBLE P & H HIGH COURT HAS SAID IN THE CASE OF CIT V/S PALWAL CO- OPERATIVE SUGAR MILLS LIMITED 284 ITR 153 (P &H) AS UNDER: EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS A REASONED ORDER WHICH SHOULD REFLECT THE APPLICATION OF MIND OF THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E REQUIREMENT OF RECORDING REASONS IS AN IMPORTANT SAFEGUARD TO ENSU RE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS T HE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION MAKING PROCESS. ANOTHER REASON WHIC H MAKES IT IMPERATIVE FOR QUASI-JUDICIAL AUTHORITIES TO GIVE R EASONS IS THAT THEIR ORDERS ARE NOT ONLY SUBJECT TO THE RIGHT OF THE AGG RIEVED PERSONS TO CHALLENGE THEM BY FILING STATUTORY APPEAL LAND REVI SION BUT ALSO BY FILING WIT PETITION UNDER ARTICLE 226 OF THE CONSTI TUTION. SUCH ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 6 DECISIONS CAN ALSO BE CHALLENGED BY WAY OF APPEAL U NDER ARTICLE 136 OF THE CONSTITUTION OF INDIA. THE HIGH COURTS HVE THE POWER TO ISSUE WRIT OF CERTIORARI TO QUASH THE ORDE RS PASSED BY QUASI-JUDICIAL AUTHORITIES/TRIBUNALS. LIKEWISE, IN APPEAL THE SUPREME COURT CAN NULLIFY SUCH ORDER/DECISION. THIS POWER OF JUDICIAL REVIEW CAN BE EFFECTIVELY EXERCISED BY THE SUPERIOR COURTS ONLY IF THE ORDER UNDER CHALLENGE CONTAINS REASONS. IF SUCH ORDER IS CRYPTIC AND DEVOID OF REASONS, THE COURTS CANNOT EF FECTIVELY EXERCISE THE POWER OF JUDICIAL REVIEW. THE ISSUE OF PROVIDING DEPRECIATION FROM THE ESTIMA TED NET PROFIT HAS BEEN DEALT BY JURISDICTIONAL HIGH COURT IN THE CASE OF SURENDER P AL NAYYAR 177 TAXMANN 207 (P & H) AND ALSO IN THE CASE OF CIT V/S GIAN CHAN LABOUR CO NTRACTOR 316 ITR 127 (P &H), IT WAS OBSERVED THAT NO FURTHER SEPARATE DEDUCTION IS ALLO WABLE AS PER SECTION 29, 144 AND 145 OF THE ACT. THE RELEVANT SECTION OF THE JUDGMENT READ AS UNDER: SECTION 145 OF THE INCOME TAX ACT, 1961 PROVIDES F OR COMPUTATION OF INCOME UNDER SECTION 29 ON THE BASIS OF BOOKS OF ACCOUNT AND METHODS OF ACCOUNTING REGULARLY FOLLOWED BY THE ASS ESSEE. HOWEVER, WHERE THE ASSESSING OFFICER IS NOT SATISFI ED WITH THE CORRECTNESS OR COMPLETENESS OF THE BOOKS, HE MAY RE JECT THEM AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 144 OF THE ACT. WHEN AN E STIMATE IS MADE TO THE BEST JUDGMENT OF AN ASSESSING OFFICER, HE SU BSTITUTES THE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29 OF T HE ACT. ONCE BEST JUDGMENT ASSESSMENT IS MADE BY FIXING A RATE OF NET PROFIT, THE ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF EXPENS ES CANNOT BE DEEMED TO HAVE BEEN IGNORED. THE NET PROFIT RATE IS APPLIED AFTER TAKING INTO CONSIDERATION ALL FACTORS AND IT ACCOUN TS FOR ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 A ND ARE DEEMED TO HAVE BEEN TAKEN CONSIDERATION WHILE MAKING SUCH ESTIMATE. THESE ALL DECISIONS WERE DISCUSSED BY HONBLE ALLAH ABAD HIGH COURT IN HIS LATEST JUDGMENT (2013) OF CIT-1 V/S SA HU CONSTRUCTION PRIVATE LIMITED IN ITA NO. 44 OF 2009. THE HONBLE HIGH COURT HAS ALSO TAKEN INTO CONSIDERATION THAT C BDT CIRCULAR NO 29-D(XIX-14) DATED 31.08.1965 IS NOT APPLICABLE AS THE RULE 5AA OF THE INCOME TAX RULE HAS BEEN AMENDED WITH EF FECT FROM 02.04.1987. IT WAS OBSERVED:- FIRSTLY, THE CIRCULAR NO 29D DATED 31.08-1965 WHIC H PRESCRIBED TO ALLOW DEPRECIATION OUT OF THE ESTIMATED PROFIT, IS NOT AP PLICABLE, AS THE RULE 5AA OF THE INCOME TAX RULES HAS BEEN OMITTED WITH EFFEC T FROM 2.04.1987. THIS ASPECT WAS DISCUSSED BY THIS HIGH COURT AND IT WAS OBSERVED IN THE CASE OF CIT VS BISHAMBHAR DAYAL CO. 210ITR 118(ALLD) THAT T HE INCOME TAX APPELLATE TRIBUNAL RELIED UPON A CIRCULAR OF THE CE NTRAL BOARD OF DIRECT ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 7 TAXES NO. 29D (XIX) OF 1965, F. NO. 45/239/ 65-ITC, DATED 31.03.1965. UNDER THIS CIRCULAR, THE BOARD HAD ISSUED INSTRUCTI ONS THAT WHERE INCOME IS PROPOSED TO BE COMPUTED BY APPLYING A NET RATE A ND THE ASSESSEE HS FURNISHED THE PRESCRIBED PARTICULARS FOR THE CLAIM IN RESPECT OF DEPRECIATION, THE DEPRECIATION SHOULD BE ALLOWED SE PARATELY AND DEDUCTED OUT OF THE GROSS PROFITS. THE ORDER OF THE INCOME T AX APPELLATE TRIBUNAL IS IN CONFORMITY WITH THE CIRCULAR ISSUED BY THE CENTR AL BOARD OF DIRECT TAXES. NO PROVISION OF THE INCOME TAX ACT WAS BROUG HT TO OUR NOTICE WHICH MAKES THE CLAIM TO DEPRECIATION INADMISSIBLE WHERE THE INCOME IS COMPUTED BY APPLYING THE FLAT RATE. SECONDLY, SUBSEQUENT TO THE ASSESSMENT YEAR 1994-95 , IN SUCH MATTERS THE BASIC PRINCIPLE AS ENUMERATED IN SECTIO N 44-AD OF THE INCOME TAX ACT, 1961 IS TAKEN TO BE APPLICABLE WHER EIN THE MATRIX OF ESTIMATION OF PROFIT ON GROSS RECEIPTS HAVE BEEN LAID DOWN FOR THE CIVIL CONSTRUCTION WORK. THE SUB-SECTION (2) OF SEC TION 44-AD READS UNDER: ANY DEDUCTION ALLOWABLE UNDER THE PROVISIONS OF SE CTIONS 30 TO 38, FOR THE PURPOSES OF SUB-SECTION (1), BE DEEMED TO H AVE BEEN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED: PROVIDED THAT WHERE THE ASSESSEE IS FIRM, THE SALAR Y AND INTEREST PAID TO IS PARTNERS SHALL BE DEDUCTED FROM THE INCO ME COMPUTED UNDER SUB-SECTION (1) SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) OF SECTION 40. IN VIEW OF ABOVE JURISDICTIONAL HIGH COURT DECISION S AND FACTS AND CIRCUMSTANCES OF THE CASE DEPRECIATION IS NOT ALLOW ABLE ON NET PROFIT ESTIMATION AND THIS GROUND OF APPEAL IS REJECTED. IN VIEW OF THE ABOVE GROUND NO.1 TO 10 OF THE APPEA L ARE DISMISSED. 11. HOWEVER, IN ASST. YEAR 2012-13 THE LEARNED CIT (A) REDUCED PROFIT RATE TO 8% AND ALSO ALLOWED RELIEF ON ACCOUNT OF DE PRECIATION. THE LEARNED CIT(A) IN ASST. YEAR 2012-13 HAS DISTINGUISHED THE CASE LAW OF SHIVAM CONSTRUCTION COMPANY AS RELIED UPON BY ASSESSING OF FICER AND HAS HELD THAT IN THAT CASE THE ASSESSEE ITSELF HAD ESTIMATED ITS NET PROFIT @ 10% OF INCOME WHEREAS IN THE PRESENT CASE THE ASSESSEE DEC LARED NET PROFIT ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 8 WHICH RANGED 5.3% TO 5.8%. HOWEVER THE LEARNED CIT( A) UPHELD THE ADDITION OF INTEREST ON FIXED DEPOSITS. THE FIN DINGS OF LEARNED CIT(A) FOR ASST. YEAR 2012-13 ARE REPRODUCED BELOW. I AM IN AGREEMENT WITH THE APPELLANT THAT THE FAC TS OF THE CASE OF M/S SHIVAM CONSTRUCTION COMPANY RELIED UPON BY AO WERE CLEARLY DISTINGUISHABLE WITH THAT OF THE APPELLANT. THE AO HAS NOT BROUGHT THE FACTS ON RECORD IN THE CASE OF M / S SHIVAM CONSTRU CTION CO AS TO HOW THE FACTS OF THAT CASE WERE SIMILAR / IDENTICAL TO THE FACTS OF THE PRESENT CASE OF THE APPELLANT AND THEREFORE THE RATIO IN TH E CASE OF M/S SHIVAM CONTRUCTION CO CANNOT BE APPLIED STRAIGHTAWAY IN TH E CASE OF THE APPELLANT. IN SUPPORT OF HIS GROUNDS OF APPEAL, THE APPELLANT HAD RELIED UPON THE FOLLOWING CASE LAWS:- (I) DECISION OF HONBLE ITAT, AMRITSAR IN THE CASE OF VIDYA SAGAR SAINI, PATHANKOT VS DCIT IN ITA NO. 80/2012 DATED 13-02- 2013. (II) DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS EARTH TECH ENGINEERS IN ITA NO. 689 OF 2013 DATED 13-03-2014. (III) DECISION OF HONBLE PUNJAB & HARYANA HIGH COU RT IN THE CASE OF TELLINKS VS CIT BHATINDA IN ITA NO. 269 OF 2014 AND 225 OF 2014 DATED 20-11-2014. (IV) DECISION OF HONBLE ITAT, AMRITSAR IN THE CASE OF ACIT VS ARIHANT BUILDERS IN ITA NO. 401 (ASR) /2011. (V) DECISION OF HONBLE ITAT, AMRITSAR IN THE CASE OF CONSTRUCTION ENGINEERS SRINAGAR, ADDL. CIT IN ITA NO.266/ASR/201 0 FOR A.Y.2006-07. (VI) DECISION OF HONBLE ITAT, CHANDIGARH IN THE CA SE OF JASWANT SINGH CONTRACTOR VS. ACIT, CIRCLE KURUSHETRA IN ITA NO.11 09/CHD/2011 DATED 29.02.2012. (VII) DECISION OF HONBLE ITAT, AMRITSAR IN THE CAS E OF M/S SATISH AGGRAWAL & CO. VS. ADDL. CIT IN ITA NO. 483(ASR)/20 13 DATED 26.08.2013. THE PAST HISTORY OF THE LAST FIVE YEARS OF THE CAS E OF THE APPELLANT WAS AS UNDER: A Y TOTAL CONTRACT PAYMENTS MADE (RS) NP DECLARED N P RATE DECLARED ADDITIONS MADE 2008-09 54170909/- 1615750/- 2.98% RS 90,000/- DISALLOWED 2009-10 47821200/- 1531742/- 3.20% ADDITION OF RS 130,000/- 2010-11 70743474/- 2494330/- 5.80% 1 I BOOKS REJECTED AND N P RATE OF 10 % APPLIED 2011-12 74539163/- 4126316/- 5.53% BOOKS REJECTED AND N P RATE OF 10 ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 9 2012-13 106342563/- 5884400/- 5.53% BOOKS REJECTED AND N P RATE OF 10 % APPLIED THE BOOKS OF ACCOUNT OF THE APPELLANT WERE AUDITED BY THE CHARTERED ACCOUNTANT AND THE APPELLANT HAD PRODUCED HIS CASH BOOK 8S LEDGER ALONGWITH VOUCHERS (BUT NOT COMPLETE VOUCHERS) BEFO RE THE AO DURING THE ASSESSMENT PROCEEDINGS. THE LABOUR EXPENSES WERE NO T FULLY VERIFIABLE IN ABSENCE OF MUSTER ROLLS/VOUCHERS OF PAYMENT OF WAGES. HOWEVER IN VIEW OF THE ABOVE DISCUSSION AND IN MY OPINION, IT WOULD MEET ENDS OF JUSTICE TO UPHOLD TH E DETERMINATION OF NET PROFIT BY APPLYING THE NET PROFIT RATE OF 8% OF THE GROSS CONTRACT RECEIPTS DECLARED BY THE APPELLANT AND ALLOW DEDUCTION OF SA LARY TO PARTNERS AND DEPRECIATION AS CLAIMED AT RS 32,37,428/- (DISCUSSE D GROUND OF APPEAL HO.3) THEREAFTER. THE AO IS DIRECTED TO MODIFY THE ASSESSMENT ORDER ACCORDINGLY. (III) THE GROUND OF APPEAL NO. 7 IS AGAINST THE DIS ALLOWING THE CLAIM OF DEPRECIATION AT RS 32,37,428/- AS CLAIMED BY THE APPELLANT AFTER APPLYING THE NET PROFIT RATE. THE AO HAD DETERMINED THE NET PROFIT OF THE APPELLANT BY APPLYING N P RATE OF 10% OF GROSS CONT RACT RECEIPTS OF RS 10,63,42,563/- AND DID NOT ALLOW THE DEPRECIATION C LAIMED. IN THE WRITTEN SUBMISSIONS THE APPELLANT ARGUED THAT THE CLAIM OF DEPRECIATION IS ALLOWABLE IN VIEW OF THE FOLLOWING CASE LAWS (A) DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF GIRDHARI LAI VS CIT REPORTED IN (2002) 256 ITR 318 HELD THAT WHERE INCOME WAS ESTIMATED BY APPLYING NET PROFIT RATE, D EPRECIATION WAS ALLOWABLE AS PER CIRCULAR NO. 29D DATED 31-08-1965. (B) DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF BHARAT CONSTRUCTION CO VS CIT REPORTED IN (2002) 258 ITR 1 40. (C) DECISION OF HONBLE ITAT, AMRITSAR IN THE CASE OF ITO VS KHOSLA CONSTRUCTION CO. DATED 8 DEC, 2000. IT IS NOT THE CASE OF THE AO THAT THE ASSETS ON WHI CH DEPRECIATION OF RS 32,37,428/- HAD BEEN CLAIMED BY THE APPELLANT WERE NOT PUT TO USE FOR THE BUSINESS PURPOSES OF THE APPELLANT. EVEN THE BO ARDS CIRCULAR NO. 29D(XIX-14) DATED 31-08-1965 DULY SUPPORTS THE CASE OF THE ASSESSEE. ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 10 EVEN THE FOLLOWING DECISIONS SUPPORT THE CLAIM OF D EPRECIATION AFTER APPLYING NET PROFIT RATE: - (I) DECISION OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS PODDAR CEMENT (P) LTD REPORTED IN 226 ITR 625 (II) DECISION OF HONBLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF CIT VS FAZILKA DABWALI TPT CO. (P) LTD REPORTED IN (2004) 270 ITR 378 (III) DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS METALMAN AUTO (P) LTD., REPORTED IN 336 ITR 434. THE AO HAS NOT HELD ANYWHERE IN THE ASSESSMENT ORDE R STATED THAT THE ASSETS ON WHICH THE DEPRECIATION HAS BEEN CLAIM ED BY THE APPELLANT WERE NOT PUT TO USE FOR THE BUSINESS PURP OSES OF THE APPELLANT FIRM BUT FOR THE PERSONAL USE OF THE PART NERS OF THE APPELLANT FIRM. IT HAS BEEN HELD BY HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF LALI CONSTRUCTION CO VS ACIT-CUM ASSESSING OFFICER (2015) 229 TAXMAN 286 THAT DEPRECIATION IS ALLOWABLE FROM NET PROFITS EVEN IF TOTAL INCOME IS COMPUTED BY APPLYING NET PROFIT RATE. SEVERAL OTHER HONBLE HIGH COURTS AND THE HONBLE INCOME TAX APPELLATE TRIBUNALS HAVE HELD LIKEWISE. ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION, THE A O IS DIRECTED TO ALLOW THE DEPRECIATION CLAIMED AT RS 32,37,428/- FROM THE NET PROFIT DETERMINED BY APPLYING THE NET PROFIT RATE OF 8% OF GROSS CONTRACT RECEIPTS DECLARED BY: THE APPELLANT (HELD ABOVE), AND SUBJEC T TO THE RETURNED INCOME . (IV) THE GROUND OF APPEAL NO. 8 IS AGAINST THE SEPA RATE ADDITION OF INTEREST OF RS 11,98,006/- EARNED ON FDR SHOWN AS BUSINESS INCO ME. IN THE WRITTEN SUBMISSION THE APPELLANT HAD NOT MADE ANY SUBMISSIO N WITH RESPECT TO THIS GROUND OF APPEAL. THE APPELLANT HAD DECLARED THE INTEREST ON FIXED D EPOSITS OF RS.11,98,006/- IN HIS RETURN OF INCOME. THE SAID IN TEREST INCOME OF FDRS WAS NOT A PART OF THE GROSS CONTRACT RECEIPTS OF TH E APPELLANT. THEREFORE, THE AO WAS JUSTIFIED IN MAKING A SEPARATE ADDITION OF I NTEREST ON FDRS OF RS.11,98,006/-. ACCORDINGLY THE SEPARATE ADDITION O F INTEREST OF RS.11,98,006/- ON FDRS, SHOWN AS BUSINESS INCOME IS UPHELD. ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 11 WE ARE IN AGREEMENT WITH THE ARGUMENT OF LEARNED AR AND FINDINGS OF LEARNED CIT(A) IN ASST. YEAR: 2012-13 W HEREIN HE HAS REDUCED THE RATE OF PROFIT TO 8% FROM 10% AND THEREFORE, IN ASST. YEARS: 2010-11 & 2011-12 WE HOLD THE RATE OF 8% INSTEAD OF 10% AND IN VIEW OF THE ABOVE, GROUND NO.2 TO 4 IN ASSESSEES APPEAL ARE AL LOWED WHEREAS GROUND NO.1 IS DISMISSED AS NOT PRESSED. 12. AS REGARDS GROUND NO.5, IN ASSESSEES APPEAL RE GARDING CLAIM OF DEPRECIATION WE FIND THAT LEARNED CIT(A) HIMSELF IN ASST. YEAR: 2012-13 HAS ALLOWED TO ASSESSEE THE CLAIM OF DEPRECIATION A FTER ANALYZING VARIOUS CASE LAWS AND WE ARE IN AGREEMENT WITH HIS FINDINGS AND THEREFORE, GROUND NO.5 IN BOTH APPEALS IS ALLOWED. 13. AS REGARDS GROUND NO.6 REGARDING SEPARATE ADDIT ION OF INTEREST ON FIXED DEPOSITS WE FIND THAT AMRITSAR BENCH OF ITAT IN THE CASE OF DALJIT SINGH AND BROS (PKT),IN ITS DECISION IN ITA NO.201( ASR)/2002 VIDE ITS ORDER DATED 14.11.2002, UNDER SIMILAR FACTS AND CIR CUMSTANCES HAS HELD THAT ONCE THE BOOKS OF ACCOUNTS HAS BEEN REJECTED T HE ASSESSING OFFICER CANNOT FALL BACK UPON THE SAME BOOKS FOR MAKING ADD ITION ON ACCOUNT OF INTEREST ACCRUED ON THE FDRS REFLECTED IN THE BOOKS OF ACCOUNT. THE FINDINGS OF THE HONBLE BENCH AS CONTAINED IN PARA 6.6 ARE REPRODUCED BELOW. 6.6 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GO ING THROUGH THE MATERIAL AVAILABLE ON THE RECORD, IT HAS BEEN NOTICED THAT THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLIED A NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS OF THE ASSESSEE. IN OTHER WORDS, THE ASSESSING OFFICER HAS NOT ACCEPTED THE BOOKS RESULTS. ON THE OTHER HAND, HE TOOK THE FIGURE OF RS.2,94,700/- ON ACCOUNT OF I NTEREST ACCRUED ON FDRS AS REFLECTED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE, THEREFORE FIND SUBSTANTIAL FORCE IN THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ONCE THE BOOKS OF ACCOUNT HAS ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 12 BEEN REJECTED, THE ASSESSING OFFICER CANNOT FALL BA CK UPON THE SAME BOOKS FOR MAKING ADDITION ON ACCOUNT OF INTEREST ACCRUED ON T HE FDRS REFLECTED IN THE BOOKS OF ACCOUNT. IT IS WELL SETTLED THAT WHEN NET PROFIT RA TE IS APPLIED, ALL THE INCOME HAS BEEN CONSIDERED. IT IS ALSO TRUE THAT THE ASSESSING OFFI CER HAD NOT DENIED THIS FACT THAT THE FDRS WERE RELATED TO THE BUSINESS BECAUSE HE HIMSEL F ADMITTED THAT THE ASSESSEE HAS REFLECTED THE INTEREST ACCRUED IN THE PROFIT AND LO SS ACCOUNT WHICH WAS BASED ON THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. WE, THEREFOR E, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED ABOVE, ARE OF THE VIEW THAT THE ASSESS ING OFFICER WAS NOT JUSTIFIED IN MAKING SEPARATE ADDITION ON ACCOUNT OF INTEREST ON FDR'S W HEN HE HAD APPLIED A NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS FOR THE FULL- YEAR BY I NVOKING THE PROVISIONS OF SEC. 145 OF THE INCOME TAX ACT, 1961. WE, THEREFORE, SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER NOT TO INCLU DE THE INTEREST ACCRUED ON THE FDR'S AMOUNTING TO RS.2,94,700/- IN THE INCOME OF THE ASS ESSEE 14. IN VIEW OF THE ABOVE, GROUND NO.6 IN ASST. YEAR 2010-11 AND 2011- 12 IS ALLOWED. 15. IN VIEW OF THE ABOVE, TWO APPEALS FILED BY ASSE SSEE ARE PARTLY ALLOWED. 16. NOW COMING TO THE APPEAL FILED BY REVENUE WAS I N ASST. YEAR 2012- 13, WE HAVE ALREADY NOTED THAT LEARNED CIT(A) HAD A NALYZED THE P&L ACCOUNT OF ASSESSEE AND HAS ALSO ANALYZED THE RATI O OF VARIOUS EXPENSES TO GROSS RECEIPTS AND HAS DISTINGUISHED THE CASE LA WS OF SHIVAM CONSTRUCTION COMPAY AND MOREOVER, THE APPLICATION O F 8% AS PROFITS OF GROSS RECEIPTS IS INCONSONANCE WITH THE PROVISIONS OF SECTION 44AD WHICH PRESCRIBES APPLICATION RATE OF 8% IN CASE OF A CONT RACTOR WHERE BOOKS OF ACCOUNTS ARE NOT MAINTAINED. 17. IN VIEW OF THE ABOVE, GROUND NO.1 OF REVENUES APPEAL IS DISMISSED. 18. AS REGARDS GROUND NO.2 REGARDING ALLOWING OF DE PRECATION AFTER ESTIMATING THE INCOME BY APPLYING A RATIO WE FIND T HAT THE LEARNED CIT(A) HAS RELIED UPON THE CASE LAW OF HONBLE PUNJAB & HA RYANA HIGH COURT IN ITA NOS.80,81&113 (ASR)/2015& 2016 ASST. YEARS: 2010-11 TO 2012-13 13 THE CASE OF LALI CONSTRUCTION VS. ACIT, 229 TAXMAN 286 FOR ALLOWING DEPRECIATION FROM THE NET PROFITS EVEN IF THE TOTAL INCOME WAS COMPUTED BY APPLYING THE NET PROFIT RATE. THE LEARNED CIT(A) ,S ORDER AS REPRODUCED EARLIER IN THIS YEAR IS AN EXHAUSTIVE ONE AND WE AR E IN AGREEMENT WITH HIS FINDINGS AND THEREFORE, GROUND NO.2 IS ALSO DISMIS SED. 19. IN VIEW OF THE ABOVE, THE APPEAL OF REVENUE IN ITA 113(ASR)/2016 IS DISMISSED. 20. IN NUTSHELL, THE APPEALS FILED BY ASSESSEE ARE PARTLY ALLOWED, WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:15.06.2016. /PK/PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER