The Dy. Commissioner of Income-tax, Srinagar V. M/s. Abdul Salam Mir, Srinagar

ITA 115/ASR/2013

• Counselvise Citation: 11520914 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 31-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.115(ASR)/2013 ASSESSMENT YEAR:2009-10 PAN :AAEFA6473D DY.COMMR. OF INCOME TAX, VS. ABDUL SALAM MIR, CIRCLE-3, SRINAGAR. ATHWAJAN, SRINAGAR, (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. TARSEM LAL, DR ASSESSEE BY: SH. P.N. ARORA, ADVOCATE DATE OF HEARING: 31/07/2014 DATE OF PRONOUNCEMENT:06/08/2014 ORDER PER B.P.JAIN, AM ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER OF THE CIT(A), JAMMU DATED 21.12.2012 FOR THE ASSESSMENT YEAR 200 9-10. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT(A) WAS RIGHT IN DIRECTING THE AO TO ADOPT NET PROFIT RATE OF 7% OF THE TOTAL CONTRACT RECEIPTS INSTEAD OF 10% APPLIED BY T HE A.O. WHEN THE ASSESSEE HAD FAILED TO PRODUCE BOOKS OF ACCOUNT S, BILLS AND OTHER DOCUMENTS AND BOOKS OF ACCOUNT REJECTED U/S 1 45(3) OF THE INCOME TAX ACT, 1961. ITA NO.115(ASR)/2013 2 2. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. C IT(A) WAS RIGHT IN DIRECTING THE AO TO ADOPT NET PROFIT RATE OF 7% OF THE TOTAL CONTRACT RECEIPTS INSTEAD OF 10% APPLIED BY T HE A.O. IN VIEW OF THE DECISION OF HONBLE ITAT CHANDIGARH A BENCH IN THE CASE OF M/S. SHIVAM CONSTRUCTION CO. AND AFF IRMED BY THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THEIR ORDER IN ITA NO.183 OF 2007 DATED 14.05.2007. 3. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. C IT(A) WAS RIGHT IN DIRECTING THE AO TO ADOPT NET PROFIT RATE OF 7% OF THE TOTAL CONTRACT RECEIPTS INSTEAD OF 10% APPLIED BY T HE A.O. WHEN THE JURISDICTIONAL BENCH OF ITAT AMRITSAR IN THE CA SE OF M/S. POOJA CONSTRUCTION CO., REPORTED IN ITA NO. 750(ASR )/1992 HAD HELD THAT THE APPLICATION OF NET PROFIT RATE OF 10% ON GROSS RECEIPTS IS PROPER. THE SAID ORDER OF THE JURISDICT IONAL ITAT HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THEIR ORDER IN ITA NO.166 OF 1999 DATED 10.09.2010. 4. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. C IT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.30,18,501/- MA DE ON ACCOUNT OF BANK INTEREST WHEN THE ASSESSEE HAD DECLARED HIM SELF THE SAME INCOME IN ITS RETURN OF INCOME. 5. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. C IT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.30,18,501/- MA DE ON ACCOUNT OF BANK INTEREST WHEN THE ASSESSEE HAD FAILED TO PR ODUCE BOOKS OF ACCOUNT BILLS & OTHER DOCUMENTS DURING ASSESSMEN T PROCEEDINGS FROM WHICH IT CAN BE GATHERED THAT THE ASSESSEE HAD MADE INVESTMENT IN FDRS OUT OF BORROWED CAPITAL. 2. LD. DR, MR. TARSEM LAL, AT THE OUTSET, RAISED T HE OBJECTION THAT ASSESSEES APPEAL IN ITA NO.102(ASR)/2013 HAS BEEN DECIDED BY THE ITAT, AMRITSAR BECH VIDE ORDER DATED 18/03/2014, WHEREAS THE ASSESSEES AND REVENUES APPEALS SHOULD HAVE BEEN HEARD TOGETHER. ACCORDINGLY, HE PRAYED ITA NO.115(ASR)/2013 3 THAT THE ORDER OF THE TRIBUNAL DATED 18/03/2014 PAS SED IN ITA NO.102(ASR)/2013 SHOULD BE RECALLED AND ASSESSEES AND REVENUES APPEAL SHOULD BE HEARD TOGETHER. 3. THE LD. COUNSEL FOR THE ASSESSEE, MR. P.N.ARORA, ON THE OTHER HAND, INVITED OUR ATTENTION TO THE PAPER BOOK THAT REVEN UES APPEAL HAS BEEN DISMISSED ON 01.08.2013 WHICH WAS RECALLED ON 19.05 .2014. ACCORDINGLY, THERE WAS NO APPEAL OF THE REVENUE PENDING ON THE D ATE OF HEARING OF THE ASSESSEES APPEAL ON 06.03.2014 AND EVEN ON THE DAT E OF PRONOUNCEMENT I.E. ON 18/03/2014. ACCORDINGLY, HE PRAYED TO REJECT THE PRELIMINARY OBJECTION RAISED BY THE LD. DR. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS OF THE LD. COU NSEL FOR ASSESSEE THAT ON THE DATE OF HEARING AND PRONOUNCEMENT OF ASSESSEE S APPEAL IN ITA NO.102(ASR)/2013, THERE WAS NO APPEAL OF THE REVENU E PENDING AND THEREFORE, WE FIND NO DEFECT IN DECIDING THE ASSESS EES APPEAL IN ITA NO.102(ASR)/2013 DATED 18.03.2014. ACCORDINGLY, THE CONTENTIONS RAISED BY THE LD. DR IN THIS RESPECT ARE REJECTED. 5. AS THE ISSUES DECIDED IN ASSESSEES APPEAL ARE I DENTICAL TO THE ISSUES RAISED IN THE REVENUES APPEAL, WHICH IN FACT, HAVE BEEN DECIDED IN ASSESSEES APPEAL AND FOR THE SAKE OF CONVENIENCE THE ORDER OF THE TRIBUNAL ITA NO.115(ASR)/2013 4 DATED 18.03.2014 PASSED IN ITA NO.102(ASR)/2013 I N ASSESSEES APPEAL IS REPRODUCED HEREINBELOW: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JAMMU DATED 21.12.2012 FOR THE ASSESSMENT YEAR 2 009-10.THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN NOT ALLOWING THE INTEREST ON CAPITA L AT RS.42,26,877/-, SALARY TO PARTNERS AT RS.5,76,000/- AND DEPRECIATION ON FIXED ASSETS AT RS.59,66,420/- AGGR EGATING TO RS.1,07,69,197/- AS CLAIMED IN THE RETURN OF INCOME . 2. THAT THE LD. DCIT HAS NOT BEEN JUSTIFIED IN MAKI NG THE ESTIMATION OF CONTRACT INCOME AT RS.1,42,73,305/- B Y APPLYING THE N.P. RATE OF 10% ON THE GROSS WORKS EXECUTED A T RS.14,27,33,050/- IS UNJUSTIFIED AND UNWARRANTED BY LAW, MAY KINDLY BE REDUCED TO THE EXTENT, IT HAS BEEN SHOWN BY THE APPELLANT. 3. THAT THE LD. DCIT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, NEITHER CONFRONTED US ON THE ISSUE OF ESTIMATION OF THE NET PROFIT ON PERCENTAGE BASIS, NOR A SHOW CAUS E WAS ISSUED FOR MAKING SUCH A HUGE ADDITION. 4. THAT THE LD. DCIT HAS NOT BEEN JUSTIFIED BY MAKI NG THE ADDITION OF RS.6,89,203/- ON ACCOUNT OF VEHICLE INC OME IS UNWARRANTED AND BAD IN LAW, MAY KINDLY BE DELETED. 5. THAT THE APPELLANT PRAYS FOR SET ASIDE OF THE AS SESSMENT ORDER. 6. THAT THE APPELLANT CRAVES LEAVE TO ALTER OR AMEN D ANY EXISTING GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY O R EXPEDIENT IN THE INTEREST OF JUSTICE AND FAIRPLAY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THAT THE A SSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONSTRUCTION FOR J & K STATE GOVERNMENT FOR THE A SSESSMENT YEAR 2009-10. THE ASSESSEE FILED THE RETURN OF INCOME D ECLARING TOTAL INCOME OF RS.30,41,530/-. THE RETURN WAS ACCOMPANIE D BY AUDITED ITA NO.115(ASR)/2013 5 PROFIT & LOSS ACCOUNT, BALANCE SHEET AND AUDITORS REPORT. DURING THE PREVIOUS YEAR THE ASSETS SHOW RECEIPTS FROM SOURCES NAMELY, CONTRACT RECEIPTS, BANK INTEREST AND VEHICLE INCOME. GROSS R ECEIPTS WERE RS.14,27,33,050/- FROM EXECUTION OF CIVIL CONSTRUCT ION CONTRACTS RS.30,18,501/- BY WAY OF BANK INTEREST AND RS.6,89, 203/- FROM VEHICLE INCOME. THE PRIMARY RECORD LIKE BILLS AND VOUCHERS IN SUPPORT OF THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BEFORE THE AO A ND THE AO CONCLUDED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSE E ARE INCORRECT AND INCOMPLETE AND ACCORDINGLY REJECTED THE BOOKS OF AC COUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T. THE AO WAS RELYING ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S. SHIVAM CONSTRUCTION CO. VS. ACIT A ND APPLIED NET PROFIT RATE OF 10% ON CONTRACT RECEIPTS. 3. THE LD. CIT(A) UPHELD THE INVOKING OF PROVISIONS OF SECTION 145(3) OF THE ACT AND DIRECTED TO APPLY NET PROFIT RATE OF 7% ON THE TOTAL GROSS RECEIPTS. THE LD. CIT(A) DIRECTED THE A .O. TO INCLUDE VEHICLE INCOME INTO THE TOTAL CONTRACT RECEIPTS. TH E LD. CIT(A) ALSO VIDE PARA 4.4 OF HIS ORDER HELD THAT INVESTMENT IN FDRS WERE WAS INEXTRICABLY LINKED WITH THE CONTRACT BUSINESS AND AS MENTIONED THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE INTEREST INCOME IS NOT EARNED IN THE COURSE OF THE BUSINESS OF ASSESSEE. THE RELEVANT FINDINGS OF THE LD. CIT(A) AT PAGES 10 TO 12 ARE REPRODUCED FOR THE SAKE OF CONVENIENCE, AS UNDER: 4.2. I HAVE CONSIDERED ASSESSMENT ORDER PASSED BY THE AO AND THE REPLY OF THE APPELLANT. IT IS OBSERVED THAT THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT BY REJECTING THE BOOKS OF ACCOUNTS AS THE AO WAS NOT S ATISFIED ABOUT THE COMPLETENESS AND CORRECTNESS OF THE ACCOU NTS. NOW, COMING TO THE APPLICATION OF RATE OF PROFIT, IT IS SEEN THAT THE RELIANCE OF THE AO ON THE CASE OF M/S. SHIVAM CONST RUCTION (SUPRA) IS NOT FULLY APPLICABLE TO THIS CASE. IN CA SE OF SHIVAM CONSTRUCTION NO BOOKS OF ACCOUNTS WERE PRODUCED BY THE APPELLANT BEFORE THE AO AND APPLICATION OF N.P. RAT E OF 10% WAS SUBJECT TO ALLOWANCE OF SALARY AND INTEREST. IT IS FURTHER OBSERVED THAT THE APPELLANT IS ENGAGED IN CIVIL CON STRUCTION BUSINESS AND IS OPERATING AT SRINAGAR WHERE THE PRO FIT MARGINS ARE LOW DUE TO HARD WEATHER CONDITIONS AND INTERMIT TENT STOPPAGE OF WORK LEADING TO HIGHER COST OF INPUT AN D LABOUR. ITA NO.115(ASR)/2013 6 THE ONLY COMPARABLE CASES WHICH WOULD APPLY ARE THE CASES OF SIMILAR OTHER ASSESSES IN SIMILAR WORKING LOCATIONS . IN A CASE OF M/S. CONSTRUCTION ENGINEERS, SRINAGAR, THE JURISDIC TIONAL ITAT, AMRITSAR IN ITA NO.493(ASR)/2010 DECISION DATED 11. 5.2010 HAD DIRECTED TO APPLY A NET PROFIT RATE OF 7% SUBJE CT TO NO OTHER ALLOWANCES. THOUGH IN THAT CASE THE ASSESSMENT WAS MADE U/S 144 OF THE ACT YET CONSIDERING THE NET PROFIT SHOW N BY THE ASSESSEE AND THE UNEXPLAINED DISCREPANCIES, I FIND THAT IT WOULD BE APPROPRIATE TO FOLLOW THE JURISDICTIONAL ITAT, A MRITSAR AND A NET PROFIT RATE OF 7% IS TO BE APPLIED ON GROSS R ECEIPT WITHOUT ANY FURTHER ALLOWANCE INCLUDING THAT OF DEPRECIATIO N AFTER TAKING INTO ACCOUNT THE INCOME FROM VEHICLE AS DISC USSED IN PARA 4.5 OF THIS ORDER. 4.3. THE LD. AR OF THE APPELLANT SUBMITTED THAT INT EREST EARNED ON BANK FDRS HAD A NEXUS WITH THE CONTRACT BUSINESS AS THE APPELLANT HAD OFFERED THESE FDRS AS MARGIN MONEY FOR FURNISHING BANK GUARANTEE TO ALLOTTING DEPARTMENTS FOR SECURING THE WORK CONTRACTS. THESE FDRS WERE CREATED PURELY FOR BUSINESS PURPOSES FOR SECURING VARIOUS CONTRACTS. T HE INTEREST PAID FOR USING BANKS FUNDS AND INTEREST EARNED ON D EPOSITS ARE HAVING DIRECT NEXUS. ACCORDING TO HIM, THE INTEREST INCOME FORMS PART AND PARCEL OF THE BUSINESS INCOME. THE O NLY BUSINESS OF THE ASSESSEE WAS THAT OF CIVIL CONTRACT. THEREFO RE, NET OF INTEREST INCOME / INTEREST PAID TO BE CONSIDERED AS PART OF THE INCOME FROM CONTRACT BUSINESS. IN THIS REGARD RELIA NCE WAS PLACED ON THE DECISION OF DELHI BENCH OF THE TRIBUN AL IN THE CASE OF MRS. SAROJ DASSANI VS. ACIT (2006) 99 TTJDI L345 WHEREIN THE TRIBUNAL HAS HELD THAT ONCE FDR WERE U TILIZED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND PLANNI NG WITH THE BANK AS MARGIN MONEY, THEY CEASE TO BE A COMMERCIAL ASSET. THEREFORE, INTEREST ON FIXED DEPOSIT IS LIABLE TO B E ASSESSED AS BUSINESS INCOME. THE AR FOR THE APPELLANT FURTHER SUBMITTED THAT ON CE INTEREST INCOME IS CONSIDERED AS BUSINESS INCOME NO SEPARATE ADDITION ON ACCOUNT OF NET INTEREST CAN BE MADE. RELIANE WAS PLACED BY THE AR ON THE DECISION OF THE JABALPUR BENCH OF TH E TRIBUNAL IN THE CASE OF HO VS. TAHIR ALI (2001) 116 TAXMAN 226 JAB(MG) THE CASE OF A CONTRACTOR, WHERE BOOKS WERE REJECTD AND INCOME ITA NO.115(ASR)/2013 7 WAS DETERMINED BY APPLYING NET PROFIT % RATE. THE T RIBUNAL HELD THAT WHERE BANK INTEREST WAS DIRECTLY RELATAB LE TO CONTRACT BUSINESS, THE SAME HAS TO BE CONSIDERED AS PART OF BUSINESS RECEIPTS AND NET PROFIT RATE HAS TO BE APPLIED INCL UDING NET OF INTEREST AS A PART OF THE CONTRACT RECEIPTS AND THA T NO SEPARATE ADDITION CAN BE MADE FOR INTEREST RECEIVED FROM BAN K. 4.4. I HAVE CONSIDERED ASSESSMENT ORDER PASSED BY T HE AO, THE SUBMISSION AND THE CASE LAWS CITED BY THE ASSES SEE. IT IS OBSERVED FROM THE SCHEDULE G OF THE BALANCE SHEET THAT THE FDRS/CCRS WERE MADE WITH THE BANK AS MARGINS MONEY FOR FURNISHING BANK GUARANTEES TO VARIOUS DEPARTMENTS F OR SECURING THE WORKS CONTRACTS. THE FDRS/CCRS WERE CREATED FOR THE PURPOSE OF SECURING CONTRACT BUSINESS, AS FURNISHIN G OF BANK GUARANTEES ARE PRECONDITION FOR ALLOTMENT OF CONTRA CTS. THE APPELLANT CREATED THESE FDRS OUT OF THE BORROWED FU ND FROM BANK ON WHICH INTEREST IS PAID AND THERE WAS DIRECT NEXUS BETWEEN THE INTEREST EARNED ON DEPOSITS AND INTERES T PAID ON BORROWED FUNDS. THE INVESTMENT IN FDRS WAS INEXTRIC ABLY LINKED WITH CONTRACT BUSINESS AND THEREFORE, INTERE ST INCOME ON FDRS HAS TO BE CONSIDERED AS BUSINESS INCOME. THE CORRESPONDING INTEREST PAID TO THE BANKS HAD ALSO T O BE TREATED AS BUSINESS EXPENDITURE. THE NET OF INTEREST EARNED OVER INTEREST PAID, IF HIGHER, IS TO BE CONSIDERED FOR THE PURPOS E OF TOTAL RECEIPT. THE AO HAS ALSO NOT BROUGHT ANYTHING ON RE CORD TO SHOW THAT THE INTEREST INCOME IS NOT EARNED IN THE COURSE OF THE BUSINESS OF ASSESSEE. THEREFORE, THE ADDITION OF BA NK INTEREST AMOUNTING TO RS.30,18,501/- IS NOT SUSTAINED. 4.5. WITH REGARD TO ADDITION OF RS.6,89,203/-, IT I S OBSERVED THAT THE APPELLANT OPERATES VEHICLES, TIPPERS AND T ANKERS FOR THE PURPOSE OF HIS CONTRACT BUSINESS AND INCURS EXPENSE S ON RUNNING AND MAINTENANCE OF SUCH VEHICLES WHICH IS C HARGED TO THE PROFIT & LOSS ACCOUNT . HOWEVER, DURING THE COU RSE OF BUSINESS, THE ASSESSEE ALSO PLIES THESE VEHICLES ON HIRE FOR OTHER CONTRACTORS AND RECEIVES HIRE CHARGES FOR THE SAME. THE INCOME EARNED FROM SUCH HIRE CHARGES ARE TO BE ADDED TO TH E TOTAL CONTRACT RECEIPT BEFORE APPLYING 7% RATE. ITA NO.115(ASR)/2013 8 4.6. THE NET PROFIT THUS DETERMINED IS RS.1,00,39,5 57,71 INSTEAD OF RS.1,42,73,305/- AND THE ADDITION TO THE EXTENT OF RS.69,98,027/- IS CONFIRMED. 4. THE LD. COUNSEL FOR THE ASSESSEE, MR. P.N.ARORA, ADVOCATE ARGUED THAT THE AO WAS NOT AT ALL JUSTIFIED IN APPL YING A RATE OF 10% ON GROSS RECEIPTS. FURTHER, THE LD. CIT (APPEALS) W AS NOT JUSTIFIED IN SUSTAINING THE RATE OF PROFIT AT 7% ON THE TURN OVE R OF RS. 14,27,33,050/-. THE RATE OF PROFIT AS SHOWN BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED IN VIEW OF THE PAST HISTORY OF T HIS CASE. WE ARE GIVING HERE BELOW THE NECESSARY CHART AS COMPARED T O THE LAST YEAR: PARTICULARS. A.Y.2009- 10 A.Y.2008-09 A.Y.2007-08 CONTRACT RECEIPTS. 14,27,33,050 15,14,41,886 7,34,38,623 BOOK PROFIT BEFORE DEPRECIATION. 1,37,87,429 1,14,5 7,330 62,93,026 BOOK PROFIT RATE BEFORE DEPRECIATION. 9.65% 7.56% 8.56% BOOK PROFIT AFTER DEPRECIATION BEFORE. INTEREST AND SALARY TO PARTNERS. 78,21,109 82,81,933 44,21,257 BOOK PROFIT RATE. 5.48% 5.46% 5.57% INTEREST AND SALARY TO PARTNERS. 48,02,877 82, 81,933 44,21,257 NET PROFIT. 30,18,231 43,22,768 8,55,659 NET PROFIT RATE. 2.11% 2.86% 1.17% 4.1. THE LD. COUNSEL FURTHER SUBMITTED AND POINTED OUT THAT IN CONNECTION WITH ASSTT. YEAR, 2007-2008, THE ACCOUNT S WERE ACCEPTED BY THE DEPARTMENT. SIMILARLY, IN CONNECTION WITH AS STT. YEAR, 2008- 2009, THE TRADING ACCOUNT WAS ALSO ACCEPTED. AS FAR AS THE YEAR UNDER CONSIDERATION IS CONCERNED, THE NET PROFIT DISCLOSE D @ 2.11% WHICH SHOULD HAVE BEEN ACCEPTED COMPARED TO ASSTT. YEAR, 2007-2008 WHEN ITA NO.115(ASR)/2013 9 THE NET RATE OF PROFIT WAS @ 1.17%. AS SUCH THE ADD ITION MADE MAY KINDLY BE DELETED AND THE RESULTS SHOWN MAY KINDLY BE ACCEPTED. IT WAS FURTHER POINTED OUT THAT FROM THE PERUSAL OF TH E CHART, IT IS CRYSTAL CLEAR THAT THE BOOK PROFIT RATE BEFORE DEPRECIATION WORKS OUT AT 9.65%. BOOK PROFIT SHOWN BY THE ASSESSEE AS PER THE BOOKS OF ACCOUNT WORKED OUT TO 5.48% AS AGAINST 5.46% OF THE LAST YE AR. IT MAY BE POINTED OUT THAT THE ORDER OF THE CIT(APPEALS) SUFF ERS FROM SOME INHERENT DEFECTS. FURTHERMORE, THE ITAT, AMRITSAR B ENCH, AMRITSAR, HAS ACCEPTED THE RATE OF 5% IN MANY CASES, THE DE TAILS OF SOME OF THE CASES ARE GIVEN HERE-UNDER. NOT ONLY THIS, IT HAS A LSO BEEN HELD THAT THE DEPRECIATION HAS ALSO TO BE ALLOWED AFTER APPLY ING THE RATE OF PROFIT. 4.1. THE LD. COUNSEL FURTHER SUBMITTED THAT AS FAR AS THE APPLICATION OF RATE OF 5% IS CONCERNED, THE SAME HAS BEEN ACCEP TED IN THE FOLLOWING CASES:- 1, DECISION OF ITAT, AMRITSAR BENCH, AMRITSAR, IN T HE CASE OF M/S. SATISH AGGARWAL & CO., AMRITSAR VS. ADDL. CIT, RANGE- V, AMRITSAR IN ITA NO. 328(ASR)/2013 (ASSTT. YEAR 2 009- 2010), ORDER DATED 26/08/2013 . [REFER PAGE NOS. 1 TO 20 OF THE PAPER-BOOK ] 2. DECISION OF ITAT, AMRITSAR BENCH, AMRITSAR, IN T HE CASE OF SHRI MOHAN SINGH CONTRACTOR VS. ITO, IN ITA NO. 59 (ASR)/2012, ORDER DATED 05/06/2012, RELATING TO ASS TT. YEAR, 2008-2009 .[ REFER PAGE NOS. 21 TO 25 OF THE PAPER-BOOK] 3. DECISION OF ITAT, AMRITSAR BENCH, AMRITSA R, IN THE CASE OF ITO VS. M/S. SURINDER PAL NAYYAR CONTRACTORS, NAWA NSHAHAR, IN ITA NO. 366(ASR)/2010, ORDER DATED 30/04/2012, RELATING TO ASSTT. YEAR, 2006-2007 . [REFER PAGE NOS., 26 TO 34 OF THE PAPER-BOOK]. 4. DECISION OF ITAT, AMRITSAR BENCH, AMRITSAR, IN T HE CASE OF MATTEWAL CO-OPERATIVE L/C SOCIETY LTD., VS. ACIT, C IRCLE-IV, AMRITSAR, IN ITA NO. 450(ASR)/2012 (ASSTT. YEAR, 20 08-2009), ORDER DATED 27/12/2012 [REFER PAGE NOS. 35 TO 48 OF THE P APER-BOOK). 4.2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T IT IS ALSO PERTINENT TO MENTION HERE THAT THE ASSESSEE FIRM OP ERATES IN SRINAGAR WHICH IS AFFECTED BY MILITANCY AND WHERE THE CONSTR UCTION WORK ITA NO.115(ASR)/2013 10 REMAINS AFFECTED FOR ALMOST SIX MONTHS IN A YEAR DU E TO SNOWFALL AND OTHER TURBULENT WEATHER CONDITIONS. HOWEVER DURING THIS SIX MONTHS THE FIXED COST OF THE ASSESSEE FIRM REMAINS THE SAM E. THUS THE PROFIT MARGINS TEND TO BE LOW AS COMPARED TO CONTRACTORS I N OTHER PART OF THE COUNTRY. FURTHER, THE BOOKS OF ASSESSEE HAVE DULY B EEN AUDITED U/S 44AB OF THE ACT AND THE PROFITS DISCLOSED ARE THE A CTUAL PROFITS OF THE ASSESSEE FIRM. IT MAY BE POINTED OUT THAT THERE WAS NO JUSTIFICATION IN APPLYING THE RATE OF MORE THAN 5%, WHEN THE ISSUE I S ALREADY A SETTLED ISSUE. IT IS VERY PERTINENT TO MENTION HERE THAT TH E BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND COMPLETE AUDIT REPORT WAS DULY FURNISHED BEFORE THE AO AND PART BOOKS OF ACCOUNT LEDGER AND CASH BOOK WERE PRODUCED SUBJECT TO NON PRODUCTION OF PRIMARY DOCUM ENTS/BILLS VOUCHERS AND AO APPLIED THE PROVISION OF SECTION 14 5 (3) AND REJECTED THE BOOK RESULTS OF THE ASSESSEE. THERE IS NO CHAN GE IN THE PARTNERSHIP DEED REGARDING THE PARTNERS AND THEIR SHARING RATIO AND BOOKS OF ACCOUNT LIKE LEDGER, CASH BOOK WERE PRODUCED BEFORE THE AO AS ADMITTED IN THE ASSESSMENT ORDER AND IN SUCH A SITU ATION THE AO CANNOT DENY THE CLAIM OF THE ASSESSEE TOWARDS SALAR Y AND INTEREST ON CAPITAL TO PARTNERS. THEREFORE, IT IS PRAYED THAT T HE SAME CLAIM MAY PLEASE BE ALLOWED IN FAVOUR OF THE ASSESSEE. THE AO INVOKED SECTION 145(3) ONLY ON THE BASIS THAT THE BOOKS ARE INCOMP LETE AND INCORRECT BUT SHE ADMITTED THAT THE BOOKS OF ACCOUNTS WERE PR ODUCED SUBJECT TO BILLS/VOUCHERS. IT IS ALSO ADMITTED FACT THAT THE A SSESSMENT WAS MADE U/S 143(3) OF THE ACT AND DENIED THE CLAIM OF INTER EST ON CAPITAL AND SALARY TO PARTNERS.. THE AO CAN DENY THE CLAIM WHER E THE ASSESSEE FAILS TO COMPLY THE CONDITIONS MENTIONED IN SECTION 144 OF THE ACT AS ENVISAGED IN SECTION 184(5) OF THE INCOME-TAX ACT. THE PROVISIONS OF SECTION 184(5) ARE REPRODUCED AS UNDER:- [(5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTH ER PROVISION OF THIS ACT, WHERE, IN RESPECT OF ANY ASSESSMENT YEAR, THERE IS ON THE PART OF A FIRM ANY SUCH FAILURE AS IS MENTIONED IN SECTI ON 144, THE FIRM SHALL BE SO ASSESSED THAT NO DEDUCTION BY WAY OF AN Y PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION , BY WHATEVER NAME CALLED, MADE BY SUCH FIRM TO ANY PARTNER OF SU CH FIRM SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD,PROFITS AND GAINS OF BUSINESS OR PROFESSION AND SUCH INTER EST, SALARY, BONUS, COMMISSION OR REMUNERATION SHALL ,NOT BE CHARGEABLE TO INCOME-TAX UNDER CLAUSE (V) OF SECTION 28.] ITA NO.115(ASR)/2013 11 4.3. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINT ED OUT THAT THIS CASE WAS DECIDED UNDER SECTION 143(3) OF THE INCOME -TAX ACT, 1961, AND NOT UNDER SECTION 144 OF THE ACT. AS SUCH THE C ASE PROPOSED BY THE DEPARTMENT DOES NOT APPLY IN OUR CASE AS THE ASSESS MENT WAS NOT FRAMED UNDER SECTION 144 OF THE INCOME TAX ACT, 196 1. IN VIEW OF THESE CIRCUMSTANCES, THE ASSESSEE IS CLEARLY ENTITL ED TO INTEREST ON THE CAPITAL OF THE PARTNERS AND THE SALARY PAID TO THE PARTNERS AFTER APPLYING THE NET RATE. AS FAR AS THE DEPRECIATION I S CONCERNED THIS IS A CASE OF TAX AUDIT AND THE COPY OF THE AUDIT REPORT HAS ALSO BEEN PLACED AT PAGE NOS. 50 TO 82 OF THE PAPER-BOOK. FRO M THE PERUSAL OF PAGE NO. 67, IT IS CRYSTAL CLEAR THAT THE DEPRECIAT ION HAS BEEN CLAIMED AT RS. 59,66,319/- WHICH SHOULD HAVE BEEN ALLOWED B Y THE AO AFTER APPLYING THE G.P. RATE. THE APPELLANT IS CLEARLY E NTITLED FOR THE DEPRECIATION TO THE TUNE OF RS. 59,66,320/-. HE ASS ESSEE HAS FURNISHED ALL THE REQUISITE PARTICULARS AS PRESCRIBED BY THE INCOME-TAX ACT AND RULES MADE THERE UNDER IN RESPECT OF FIXED ASSETS O N WHICH DEPRECIATION IS CLAIMED. IT IS HUMBLY SUBMITTED THA T THE CLAIM OF DEPRECIATION IS TO BE ALLOWED TO THE ASSESSEE EVEN IN THE CASES WHERE THE PROFITS ARE ESTIMATED AS PER CBDT VIDE ITS CIRC ULAR NO. 29D(XIX- 14) DATED 31/08/1965 . [REFER PAGE NO. 49 OF THE PAPER-BOOK]. IT MAY BE POINTED OUT THAT THE DEPARTMENT IS BOUND BY THE BOARD CIRCULAR AND THIS VIEW FINDS SUPPORT FROM THE FOLLOWING JUDG MENTS:- 295 ITR 256 (DELHI} 237 ITR 889 (SC) 267 ITR 272(SC) 86 ITD 398, ITAT. HYDERABAD BENCH,A 270 ITR 572 A.P. HIGH COURT 292 ITR 209 (SC) 56 ITR 198 (SC) THUS THE PARTNERSHIP FIRM IS CLEARLY ENTITLED FOR T HE DEDUCTION ON ACCOUNT OF DEPRECIATION TO THE TUNE OF RS. 59,66,32 0/-. IT MAY BE POINTED OUT THAT THIS POINT CAME UP FOR CONSIDERATI ON BEFORE THE ITAT, AMRITSAR BENCH, AMRITSAR IN THE CASE OF SHRI SATISH KUMAR AGGARWAL & CO., AMRITSAR VS. ADDDL. CIT, RANGE-V, AMRITSAR, IN ITA NO. 328(ASR)/2013 (ASSTT. YEAR, 2009-2010), ORDER DATED 26/08/2013. COPY OF THE ORDER IS AVAILABLE AT PAGE NOS. 1 TO 20 OF THE PAPER-BOOK, AND ON PAGE NO. 19 OF THE ORDER OF THE TRIBUNAL IN THE PAPER-BOOK, IT WAS OBSERVED AS UNDER:- ITA NO.115(ASR)/2013 12 THE ASSESSEE HAS DECLARED NET PROFIT RATE OF 4.42% ON THE GROSS RECEIPTS OF RS. 23,09,62,133/- AND TO COVER UP POSS IBLE LEAKAGE, WE ESTIMATE NET PROFIT RATE AT 5% OF THE GROSS RECEIPT S AS MENTIONED HEREINABOVE AND DIRECT THE AO TO ALLOW DEPRECIATION AS PER LAW SUBJECT TO THE INCOME DOES NOT GO DOWN BELOW HE RET URNED INCOME. WE ORDER ACCORDINGLY. THUS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. 4.4. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE DECISION OF HONBLE ALLAHBAD HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. BISHAMBHAR DAYAL & C O., REPORTED IN (1994) 210 ITR (ALL): (1994) 74 TAXMAN 123. IN V IEW OF THESE CIRCUMSTANCES, IT IS VERY HUMBLY PRAYED; 1. THAT THE BOOKS OF ACCOUNTS AS SHOWN BY THE ASSES SEE MAY BE ACCEPTED. 2. THAT THE RATE OF PROFIT CANNOT BE APPLIED EVEN OTHE RWISE MORE THAN 5%, 3. EVEN OTHERWISE IF THE RATE OF PROFIT IS APPLIED THE DEPRECIATION AS CLAIMED SHOULD HAVE BEEN ALLOWED AT RS. 59,66,320/- 4. AGAIN, THE AUTHORITIES BELOW SHOULD HAVE ALLOWED TH E INTEREST & THE SALARY PAID TO THE PARTNERS WHICH THE ASSESSEE FIRM WAS CLEARLY ENTITLED. 5. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF BOTH THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. ON PERUSAL OF THE GROUNDS OF APPEAL, IT IS FOUND THAT THE ASSESSEE IS NOT IN APPEAL AGAINST THE INVOKING OF P ROVISIONS OF SECTION 145(3) OF THE ACT. ACCORDINGLY, THE LD. CIT(A) HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT. 6.1. AS REGARDS THE OTHER GROUNDS OF APPEAL WITH RE GARD TO ESTIMATION OF NET PROFIT RATE, THE LD. CIT(A) HAS R EFERRED TO THE DECISIONS OF VARIOUS CASES DECIDED BY THIS BENCH, AS MENTIONED ITA NO.115(ASR)/2013 13 HEREINABOVE, WHICH HAVE BEEN PERUSED BY US. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO ARGUED THAT THE ASSESSEES NET PR OFIT RATE AFTER DEPRECIATION AND INTEREST& SALARY TO PARTNERS IS 2. 11% AS COMPARED TO 2.86% AND 1.17% IN THE PRECEDING YEAR AND BEFORE THE PRECEDING YEAR RESPECTIVELY. THE LD. CIT(A) VIDE PARA 4.4 OF HIS ORDER HAS HELD THAT INVESTMENT IN FDRS WAS INEXTRICABLY LINKED WIT H CONTRACT BUSINESS THAT AT THE SAME TIME, THE SAME WERE NOT DIRECTED TO BE INCLUDED AS PART OF THE GROSS CONTRACT RECEIPTS BUT DIRECTED TO INCLUDE VEHICLE INCOME OF RS.6,89,203/- BEING PART OF THE T OTAL CONTRACT RECEIPTS. SINCE THE REVENUE IS NOT IN APPEAL AGAINS T THE DELETION OF THE SAID FINDINGS OF THE LD. CIT(A) IN PARA 4.4 & 4.5. THEREFORE, AT THE OUTSET, WE DIRECT THE A.O. TO INCLUDE RS.30,18,501 /- BEING THE INTEREST INCOME ALONGWITH VEHICLE INCOME OF RS.6,89,203/- AS PART OF CONTRACT RECEIPTS. THUS, TOTAL CONTRACT RECEIPTS INSTEAD OF RS.14,34,22,253/- DIRECTED BY THE LD. CIT(A) SHOULD BE TAKEN AT RS.14 ,64,40,754/- AND NET PROFIT RATE ON THE SAME HAS TO BE APPLIED. 6.2. AS REGARDS THE APPLICABILITY OF NET PROFIT RAT E, THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE AND PAST HISTORY OF ASSESSES OWN CASE, IT WILL BE IN THE INTEREST OF J USTICE TO APPLY NET PROFIT RATE OF 5% ON THE GROSS CONTRACT RECEIPTS OF RS.14,64,40,754/- AS MENTIONED HEREINABOVE. THE AO IS FURTHER DIRECTE D TO ALLOW DEPRECIATION AND INTEREST AND SALARY TO PARTNERS AF TER APPLYING NET PROFIT RATE ON GROSS CONTRACT RECEIPTS, AS MENTIONE D HEREINABOVE SUBJECT TO INCOME SHOULD NOT GO BELOW THE RETURNED INCOME. THEREFORE, THE ORDERS OF BOTH THE AUTHORITIES ARE MODIFIED ACCORDINGLY. THUS, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.103(ASR)/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH MARCH, 2014. 6. SINCE THE ISSUES OF APPLICABILITY OF NET PROFIT RATE ARISING OUT OF GROUNDS NO. 1, 2 & 3 IN REVENUES APPEAL AND WITH REGARD TO INCLUSION OF BANK INTEREST AS INCOME FROM OTHER SOURCES BY THE A O HAVE BEEN DEALT IN ASSESSEES APPEAL IN ITA NO. 102(ASR)/2013 (SUPRA), THEREFORE, OUR ORDER IN ITA NO.115(ASR)/2013 14 ASSESSEES APPEAL S IDENTICALLY APPLICABLE IN THE P RESENT APPEAL. ACCORDINGLY, ALL THE GROUNDS OF THE REVENUE I.E. GROUNDS NO. 1 T O 5 ARE DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.115(ASR)/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6TH AUGUST, 2014. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 6TH AUGUST, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:MR. ABDUL SALAM MIR, ATHAWAJAN, SRINAG AR. 2. THE DCIT, CIRCLE-3, SRINAGAR. 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR