ACIT, BARMER V. Shri Nakhat Singh Bhati, JAISALMER

ITA 134/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1591 (ITAT-JODHPUR)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SEHGAL
• Keywords: Depreciation; Opportunity of being heard; Audit objection; Principle of natural justice; Difference of opinion; Non compliance; Change of opinion; Reassessment proceedings
• Section: 40A(3); 143(3); 234B; 194C; 147; 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 133/JU/2012 ASSESSMENT YEAR: 2006-07 THE A.C.I.T VS. SHRI NAKHAT SINGH BHATI CIRCLE PROP. M/S BHATI CO NSTRUCTIONS BARMER AMAR SAGAR, JAISALMER PAN NO. AA NPB 9855 H (APPELLANT) (RESPONDENT) CO NO. 36/JU/2012 A/O ITA NO. 133/JU/2012 ASSESSMENT YEAR: 2006-07 SHRI NAKHAT SINGH BHATI VS. THE A.C.I.T PROP. M/S BHATI CONSTRUCTIONS CIRCLE AMAR SAGAR, JAISALMER BARMER PAN NO. AANPB 9855 H (APPELLANT) (RESPONDENT) ITA NO. 129/JU/2012 ASSESSMENT YEAR: 2008-09 SHRI NAKHAT SINGH BHATI VS. THE A.C.I.T PROP. M/S BHATI CONSTRUCTIONS CIRCLE AMAR SAGAR, JAISALMER BARMER PAN NO. AANPB 9855 H (APPELLANT) (RESPONDENT) 2 ITA NO. 134/JU/2012 ASSESSMENT YEAR: 2008-09 THE A.C.I.T VS. SHRI NAKHAT SINGH BHATI CIRCLE PROP. M/S BHATI CO NSTRUCTIONS BARMER AMAR SAGAR, JAISALMER PAN NO. AA NPB 9855 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SURENDRA CHOPRA DEPARTMENT BY : SHRI DEEPAK SEHGAL, CIT, DR DATE OF HEARING : 18.01.2013 DATE OF PRONOUNCEMENT : 14.02.2013 ORDER PER N.K. SAINI, A.M:- THE APPEALS FILED BY THE DEPARTMENT AND CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A), JODHPUR, DATED 28.12.2011 FOR A.Y. 2 006-07 AND THE CROSS APPEALS BY THE ASSESSEE AND DEPARTMEN T ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DATED 28.12.2011 FOR A.Y. 2008-09. 3 2. FIRST WE WILL DEAL WITH THE CROSS OBJECTION OF T HE ASSESSEE IN CO NO. 36/JU/2012 FOR A.Y. 2006-07. IN THIS CROSS OBJECTION, THE ONLY GROUND RAISED READS AS UN DER: THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) AFTER COMING TO THE CONCLUSION THAT THE REASSESSMENT PROCEEDINGS IS NOT JUSTIFIED, SHOULD HAVE HELD THE PROCEEDINGS INITIATED U/S 148 R.W.S 1 47 AS NULL AND VOID AND CONSEQUENTLY THE REASSESSMENT ORDER DATED 24.12.2010 PASSED U/S 143(3)/147 SHOULD HAVE BEEN CANCELLED/ANNULLED. THEREFORE, THE LD. CIT(A) LEGALLY ERRED IN NOT HOLDING THE REASSESSMEN T PROCEEDINGS AND THE RESULTANT REASSESSMENT ORDER I N QUESTION AS NULL AND VOID. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE FILED ORIGINAL RETURN OF INCOME ON 31.10.2006 DECLARING T OTAL INCOME OF RS. 51,59,867/-. ASSESSMENT ORDER WAS PAS SED U/S 143(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT', FOR SHORT] ON 29.02.2008. THEREAFTER, THE CASE WAS REOPENED U/S 147 OF THE AC T DUE TO INCOME ESCAPED TO ASSESSMENT AS PER AUDIT PARA. THE 4 ASSESSEE STATED IN HIS REPLY THAT THE RETURN OF INC OME FILED ON 31.10.2006 MAY BE TREATED AS HAVING BEEN FILED I N RESPONSE TO NOTICE U/S 148 OF THE ACT. THE A.O. FR AMED ASSESSMENT AT AN INCOME OF RS. 92,71,407/- VIDE ASSESSMENT ORDER DATED 24.12.2010. 4. THE ASSESSEE CHALLENGED THE INITIATION OF PROCEE DINGS U/S 148 OF THE ACT BEFORE THE LD. CIT(A) AND SUBMIT TED THAT THE NOTICE ISSUED U/S 148 OF THE ACT WAS BAD I N LAW. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LD. CIT(A) AS INCORPORATED IN PAGES 2 TO 4 OF THE IMPUG NED ORDER ARE REPRODUCED VERBATIM WHICH READ AS UNDER: THE NOTICE ISSUED U/S 148 WAS BAD IN LAW BECAUSE (I) THE NOTICE WAS ISSUED AFTER APPROVAL WAS GRANTE D BY CIT-II, JODHPUR VIDE LETTER DATED 22.1.2010. AS PER THE PROVISIONS OF SECTION 147 R.W.S 15 THERE WA S NO NECESSITY OF OBTAINING PRIOR APPROVAL OF THE CIT (II) THE NOTICE U/S 148 WAS ISSUED PURSUANT TO AN AUDIT PARA AS IS EVIDENT FROM THE ASSESSMENT ORDER AND WITHOUT APPLICATION OF MIND BY THE A.O. (III) I N THE ORIGINAL ASSESSMENT PROFIT WAS TAKEN AT RS. 5 75,12,385/- AS AGAINST DECLARED PROFIT OF RS. 72,34,000/- WHEREBY ADDITION OF RS. 2,78,385/- WAS MADE. THE PROFIT RATE OF 7.75% BEFORE INTEREST AND DEPRECIATION WAS APPLIED. THE AUDIT PARTY WHILE REVIEWING THIS ASSESSMENT ORDER OBSERVED THAT THE DECLARED PROFIT WAS RS. 52,03,437/- AND NOT RS. 72,34,000/- AS MENTIONED BY THE A.O. WHICH RESULTED IN LOWER ADDITION OF RS. 20,30,563/- [RS. 72,34,000 /- - RS. 52,03,437/-]. THE AUDIT PARTLY ALSO RAISED APPREHENSION ABOUT TDS NON COMPLIANCE AND POSSIBLE DISALLOWANCE U/S 40(A)(IA). THE OBSERVATIONS OF TH E AUDIT PARTY WERE REPRODUCED IN THE REASON RECORDED BEFORE THE ISSUANCE OF NOTICE U/S 148. THUS THERE WAS NO APPLICATION OF MIND BY THE A.O. AND IT WAS ONLY A CASE OF CHANGE OF OPINION. (IV) THE INSPECTI ON OF RECORDS BY THE APPELLANTS SHOWED THAT THE AUDIT OBJECTION WAS NOT ACCEPTED TO BY THE A.O. AS WAS EVIDENT FROM HIS LETTER DATED 10.11.2009 AND ALSO B Y THE CIT-II, JODHPUR AS WAS EVIDENT FROM HIS LETTER DATED 13.11.2009 ADDRESSED TO THE ACCOUNTANT GENERAL [C & RA], JAIPUR. IN THIS CONNECTION, THE LD. A.R. PLACED RELIANCE ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF RAJESH JAVERI STOCK BROKE RS PVT. LTD VS. ACIT 284 ITR 593 [GUJ] AND THE DECISI ON OF ADANI EXPORTS VS. DCIT 240 ITR 224 [GUJ], THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS . 6 METTUR CHEMICAL & INDUSTRIAL CORPORATION 242 ITR 11 9 [MAD], THE DECISION OF DELHI HIGH COURT IN THE CASE OF TRANSWORLD INTERNATIONAL INC. VS. CIT 142 TAXMAN 35 AND THE DECISION OF THE HON'BLE SUPREME COURT IN TH E CASE OF INDIAN AND EASTER, NEWSPAPER SOCIETY VS. CI T 119 ITR 996 [SC] (V) THERE WAS NO ESCAPEMENT OF INCOME AND THE NOTICE U/S 148 WAS ISSUED ONLY A PRECAUTIONARY MEASURE AS WAS EVIDENT BY THE LETTER OF CIT-II, JODHPUR DATED 22.01.2010 TO THE A.O. (V I) THERE WAS NO MATERIAL AVAILABLE ON RECORD AS FAR AS TDS MATTER WAS CONCERNED TO JUSTIFY THE ISSUANCE OF NOTICE U/S 148 WHILE RECORDING THE REASONS THE A.O. COMPLETELY OVERLOOKED THE FACT THAT THE PREDECESSOR A.O. HAD REJECTED THE BOOKS OF ACCOUNT AND APPLIED A CERTAIN RATE OF PROFIT. AS PER VARIOUS JUDICIAL DECISIONS ONE THIS WAS DONE THERE WAS NO QUESTION O F ANY SEPARATE DISALLOWANCE U/S 40(A)(IA). (VII) TH E ISSUANCE OF NOTICE U/S 148 WAS ONLY ON ACCOUNT OF CHANGE OF OPINION ON THE SAME SET OFF FACTS AND EVIDENCES. IN THE ORIGINAL ORDER RATE OF 7.75% WAS APPLIED BEFORE INTEREST AND DEPRECIATION AND IN THE REASSESSMENT ORDER THE SAME RATE WAS APPLIED SUBJECT TO INTEREST AND DEPRECIATION. IN THIS REGA RD, THE LD. A.R. PLACED RELIANCE ON THE FOLLOWING JUDIC IAL DECISIONS: 7 1. YAKUB ALI GOPAL SINGH & PARTY 295 ITR 129 [RAJ] 2. ITO VS NAWAB MIR BARKAT ALI KHAN BAHADUR 97 ITR 239 [SC] 3. CIT VS. KELVINATOR OF INDIA LTD. 256 ITR 1 [SC] 4. MANISH AJMERA VS. ACIT 95 ITD 111 [CHD.] 5. SITA WORLD TRAVEL [IND] LTD VS. CIT 140 TAXMAN 381 [DEL] 6. IL & FS INVESTMENT MANAGERS LTD. VS. ITO & ORS 298 ITR 32 [BOM] 7. VIRENDRA KUMAR AGARWAL VS. ITO 132 ITD 140 [MUM] THUS IT WAS PLEADED THAT THE INITIATION OF REASSESSMENT PROCEEDINGS U/S 147 AND CONSEQUENT ISSUE OF NOTICE U/S 148 WAS BAD IN LAW AND OUGHT TO BE QUASHED. 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT THE REASSESSMENT PROCEED INGS IN THIS CASE WERE INITIATED ON THE BASIS OF AUDIT O BJECTION WHICH WAS FURTHER ENDORSED BY THE SUBMISSIONS MADE BY THE ASSESSEE AFTER HAVING INSPECTED THE CASE RECORD S. THE LD. CIT(A) WAS OF THE VIEW THAT THERE WAS NO INDEPE NDENT 8 APPLICATION OF MIND ON THE PART OF THE A.O. AND THE INITIATION OF REASSESSMENT PROCEEDINGS WAS ONLY DU E TO CHANGE OF OPINION AND THAT NO NEW FACTS OR INFORMAT ION WERE IN THE POSSESSION OF THE A.O. TO JUSTIFY THE I NITIATION OF REASSESSMENT PROCEEDINGS. HENCE THE LD. CIT(A) HELD THAT IN THE INSTANT CASE THE REASSESSMENT PROCEEDIN GS BEING BASED ON AN AUDIT PARA CANNOT BE SAID TO BE JUSTIFIED. RELIANCE WAS PLACED ON THE FOLLOWING CA SE LAWS: 1. INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT 119 ITR 996 [SC] 2. CIT VS. SIMHAOLI SUGAR MILLS LTD 55 DTR 233 [DE L] HOWEVER, THE LD. CIT(A) ALSO DECIDED THE OTHER GROU NDS RAISED BY THE ASSESSEE ON MERITS AND ALLOWED RELIEF TO THE ASSESSEE. AGAINST THAT THE DEPARTMENT IS IN APPEAL AND SINCE THE LD. CIT(A) DID NOT SET ASIDE THE REASSESS MENT ORDER EVEN AFTER HOLDING THAT THE REASSESSMENT PROCEEDINGS BEING BASED ON AN AUDIT PARA CANNOT BE SAID TO BE JUSTIFIED, THE ASSESSEE HAD FILED CROSS OBJEC TION. 9 6. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT FROM THE RE ASSESSMENT ORDE R IN QUESTION, IT IS APPARENT THAT NOTICE U/S 147 WAS IS SUED ON ACCOUNT OF AUDIT OBJECTION. REFERENCE WAS MADE TO P ARA 1 OF THE ASSESSMENT ORDER DATED 24.12.2010. IT WAS F URTHER STATED THAT THE STYLE IN WHICH REASONS FOR ISSUANCE OF NOTICE U/S 148 HAD BEEN RECORDED IN ITSELF SUGGEST THAT THE LANGUAGE USED BY THE AUDIT PARTY HAD BEEN APPLIED VERBATIM BY THE A.O. WITHOUT APPLYING HIS MIND TO T HE FACTS OF THE CASE. IT WAS STATED THAT AUDIT OBJECT ION IN ITSELF CANNOT BE A GROUND FOR REOPENING OF A CASE U /S 147 OF THE ACT. RELIANCE WAS PLACED ON THE FOLLOWING C ASE LAWS: 1. RAJESH JAVERI STOCK BROKERS PVT. LTD VS. ACIT 284 ITR 593 [GUJ] 2. ADANI EXPORTS VS. DCIT 240 ITR 224 [GUJ] 3. CIT VS. METTUR CHEMICAL & INDUSTRIAL CORPORATIO N 242 ITR 119 [MAD] 4. INDIAN AND EASTER, NEWSPAPER SOCIETY VS. CIT 119 ITR 996 [SC] 10 7. IN HIS RIVAL SUBMISSIONS, THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE A.O AND SUBMITTED THAT REASSESSMENT PROCEEDINGS WERE INITIATED WHEN THE A. O. WAS SATISFIED THAT THERE IS ESCAPEMENT OF INCOME. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT REOPENING WAS INITIATED ON THE BASIS OF AUDIT OBJECTION. THIS FA CT IS EVIDENT FROM THE ASSESSMENT ORDER DATED 24.12.2010 WHEREIN THE A.O, IN PARA 1 HAS CLEARLY STATED THAT THEREAFTER, THE CASE WAS REOPENED U/S 147 DUE TO I NCOME ESCAPED TO ASSESSMENT AS PER AUDIT PARA. THE LANG UAGE OF THE REASONS RECORDED FOR REOPENING ASSESSMENT HA S BEEN REPRODUCED BY THE A.O. AT PAGE 1 OF THE ASSESSMENT ORDER. FROM THE LANGUAGE OF THOSE REASONS RECORDED ALSO, I T IS CLEAR THAT THE REASSESSMENT PROCEEDINGS WERE INITIA TED ON THE BASIS OF THE AUDIT OBJECTION. AS REGARDS THE V ALIDITY OF REOPENING OF THE CASE U/S 147 OF THE ACT, ON THE BA SIS OF AUDIT OBJECTION, THE HON'BLE SUPREME COURT IN THE C ASE OF 11 INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT [SUPRA ] HELD AS UNDER: THE OPINION OF THE AUDIT PARTY ON A POINT OF LAW COULD NOT BE REGARDED AS INFORMATION, ENABLING THE ITO TO INITIATE REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT. 9. SIMILARLY, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF RAJESH JAVERI STOCK BROKERS PVT. LTD VS. ACIT [S UPRA], DISCUSSED THE FACTS AS UNDER: THE PETITIONER, A PRIVATE LIMITED COMPANY FILED IT S RETURN OF INCOME FOR ASSESSMENT YEAR 2001-2002 ON 30TH OCTOBE R,2001 DECLARING TOTAL LOSS OF RS.2,70,85,105/-. THE SAID RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T, 1961 (THE ACT) ACCEPTING THE LOSS RETURNED BY THE PETITI ONER. ON 12TH MAY, 2004 THE RESPONDENT ISSUED IMPUGNED NOTIC E UNDER SECTION 148 OF THE ACT. ON 31ST MAY, 2004 A RETURN OF INCOME DECLARING THE LOSS AT THE SAME FIGURE, AS DECLARED IN THE ORIGINAL RETURN, WAS FILED BY THE PETITIONER UNDER PROTEST. AFTER WRITING TO THE RESPONDENT A COUPLE OF TIMES A COPY OF THE REASONS RECORDED WAS FURNISHED BY THE RESPONDEN T SOMETIME IN NOVEMBER, 2004. THE PETITIONER RAISED V ARIOUS 12 OBJECTIONS, BOTH ON JURISDICTION AND MERITS OF THE SUBJECT MATTER RECORDED IN THE REASONS. ON 4TH FEBRUARY, 20 05 THE RESPONDENT DISPOSED OF THE OBJECTIONS HOLDING THAT THE INITIATION OF REASSESSMENT PROCEEDINGS WAS VALID AN D THE RESPONDENT HAD JURISDICTION TO UNDERTAKE SUCH AN EX ERCISE. IT IS IN THE AFORESAID BACK-DROP OF FACTS THAT THE IMP UGNED NOTICE UNDER SECTION 148 OF THE ACT DATED 12TH MAY, 2004 HAS BEEN CHALLENGED . 10. ON A WRIT PETITION CHALLENGING THE NOTICE, THE HON'BLE HIGH COURT IN THE AFORESAID CASE HELD AS UNDER: THE RESPONDENT HAS SUSTAINED HIS OBJECTION TO THE PROPOSAL MADE BY THE AUDIT DEPARTMENT AND THE OBJECTION RAIS ED BY THE RESPONDENT HAS BEEN ENDORSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX. THEREFORE, IT IS ABUNDA NTLY CLEAR THAT THE RESPONDENT DID NOT HOLD THE BELIEF A T ANY POINT OF TIME, EITHER BEFORE OR AFTER RECORDING REASONS, THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT ON ACCOUNT O F ERRONEOUS COMPUTATION OF LOSS AND IT IS REQUIRED TO BE HELD THAT THE EXERCISE OF RECORDING REASONS ON THE FILE IS A MERE PRETENCE TO GIVE VALIDITY TO THE EXERCISE OF POWER FOR ASSUMING JURISDICTION. IN OTHER WORDS, IT WAS A COL OURABLE EXERCISE OF JURISDICTION AND CANNOT BE SUSTAINED IN LAW. 13 11. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CI T VS. METTUR CHEMICAL & INDUSTRIAL CORPORATION [SUPRA] HE LD AS UNDER: THE INFORMATION GIVEN TO THE ASSESSING OFFICER UNDE R THE AUDIT NOTE PERTAINED TO THE COMPUTATION OF THE PERM ISSIBLE DEDUCTION IN RESPECT OF THE REMUNERATION PAID TO TH E MANAGING DIRECTOR. ACCORDING TO THE AUDIT, THE COMM ISSION PAID TO THE MANAGING DIRECTOR WAS NOT ALLOWABLE AND , THEREFORE, THERE HAD BEEN AN EXCESS ALLOWANCE OF RS . 30,192 WHILE COMPUTING THE INCOME OF THE ASSESSEE FOR THE RELEVANT YEAR. THERE WAS NO MATERIAL BEFORE THE ASSESSING OFFICER WHO MADE THE REASSESSMENT TO SHOW THAT THESE PROVISIONS HAD NOT BEEN NOTICED BY THE INCOME-TAX OFFICER WHEN HE MADE THE ORIGINAL ASSESSMENT. THE REASSESSMENT IS SOLELY BAS ED ON THE AUDIT PARTY'S REMARKS. IT WAS NOT VALID. 12. IN THE INSTANT CASE ALSO, SINCE THE REOPENING O F THE ASSESSMENT U/S 147 OF THE ACT WAS SOLELY BASED ON T HE OBJECTION OF THE AUDIT PARTY, THEREFORE, THE SAME W AS NOT VALID. IN THAT VIEW OF THE MATTER, REASSESSMENT FR AMED BY THE A.O. IS HELD TO BE NULL AND VOID. SINCE WE HAV E HELD THE REASSESSMENT AS NULL AND VOID, THEREFORE, NO FI NDINGS 14 ARE REQUIRED TO BE GIVEN ON THE ISSUES RAISED BY TH E DEPARTMENT ON MERITS OF THE CASE IN ITA NO. 133/JODHPUR/2012 AND THE APPEAL OF THE DEPARTMENT DESERVES TO BE DISMISSED. WE ORDER ACCORDINGLY. 13. IN THE RESULT, THE CROSS OBJECTION OF THE ASSES SEE IS ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISS ED. 14. IN ASSESSEES APPEAL ITA NO. 129/JU/2012 THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING THE ACTI ON OF THE A.O. IN REJECTING THE BOOKS OF ACCOUNT OF TH E APPELLANT BY INVOKING THE PROVISION OF SECTION 145 (3) OF THE I.T. ACT, 1961. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AND TAKING INTO ACCOUNT THE OBSERVATION OF TH E LD. CIT(A) AND PAST HISTORY OF THE CASE, THE LD. CI T(A) SHOULD HAVE ACCEPTED THE DECLARED INCOME OF THE APPELLANT AT RS. 1,08,52,830/- AND AS SUCH THERE WA S NO JUSTIFICATION WHATSOEVER TO GIVE DIRECTION TO 15 COMPUTE THE INCOME OF THE APPELLATE AT A FIGURE HIGHER THAN WHAT WAS DECLARED. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AFTER APPLYING NET PROFIT RATE OF 8.35% SUBJE CT TO DEPRECIATION THE LD. CIT(A) WAS NOT JUSTIFIED IN DENYING SEPARATE ALLOWANCE OF DEDUCTION TOWARDS INTEREST PAYMENTS TO THIRD PARTIES WHICH IN THE INSTANT CASE WAS RS. 12,72,762/- PARTICULARLY WHEN THE A.O. WHILE COMPLETING THE ASSESSMENT U/S 143(3) ALLOWED DEDUCTION OF INTEREST PAYMENT IN QUESTION AFTER APPLYING A CERTAIN ESTIMATED PROFIT RATE TO T HE CONTRACT RECEIPTS. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WITHOUT PROPERLY APPRECIATING THE CASE OF THE APPELLANT WAS NOT JUSTIFIED IN CONFIRMING THE LEVY OF INTEREST U/S 234B AND THAT T HE APPELLANT DENIES HIS LIABILITY U/S 234B OF THE ACT. 15. GROUNDS NOS. 1 TO 3 RELATE TO THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND DEDUCTION TOWA RDS INTEREST PAYMENT TO THIRD PARTIES WHEN NET PROFIT R ATE IS APPLIED. 16 16. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E FILED HIS RETURN OF INCOME ON 30.9.2008 DECLARING TOTAL I NCOME OF RS. 1,08,52,830/- WHICH WAS PROCESSED U/S 143(1) ON 23.10.2008. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE A.O. FOUND THAT THE ASSESSEE HAD DECLARED GROSS PRO FIT RATE OF 13.36% AND NET PROFIT RATE OF 6.11%. THE A.O. O BSERVED THAT THE ASSESSEE MANIPULATED THE ACCOUNTS AND THE WAY OF PRESENTATION OF ACCOUNTS WAS NOT PROPER. HE POINTE D OUT THAT THE ASSESSEE DEBITED VARIOUS DIRECT EXPENSES I N PROFIT AND LOSS ACCOUNT LIKE VEHICLE REPAIR, MAINTENANCE A ND OTHER EXPENSES TO THE TUNE OF RS. 59,50,384/-, SALA RY EXPENSES OF RS. 23,04,800/-, MESS EXPENSES OF RS. 5,33,966/-, WATER EXPENSES OF RS. 45,160/-. HE ALSO POINTED OUT THAT IN VEHICLE EXPENSES, THE ASSESSEE INCLUDED THE EXPENSES PERTAINING TO POWER PLANT AND RUNNING OF VEHICLES WHICH WERE DIRECTLY RELATED TO CONTRACT WORKS AND SALARY INCLUDED WAGES ALSO. ACCORDING TO THE A.O, THE WAY OF PRESENTATION OF ACCOUNT WAS NOT PRO PER AS THE ASSESSEE REMOVED DIRECT EXPENSES FROM WORK ACCO UNT 17 FOR THE PURPOSE OF SHOWING HIGHER GROSS PROFIT AND LATER ON, HE DEBITED DIRECT EXPENSES IN PROFIT AND LOSS A CCOUNT. THE CONTENTION OF THE ASSESSEE WAS THAT THE ABOVE P OINTED OUT DISCREPANCIES IN ACCOUNTS WERE BECAUSE OF ACCOU NTING SYSTEM FOLLOWED BY THE ASSESSEE. HOWEVER, THE A.O. DID NOT ACCEPT THE SAID CONTENTION BY OBSERVING THAT TH E DISCREPANCIES CLEARLY SHOWED THAT THERE WAS MANIPUL ATION IN THE ACCOUNTS PREPARED BY THE ASSESSEE WHICH WERE NOT ACCEPTABLE. THE A.O. FOUND THE BOOKS OF ACCOUNT PRO DUCED BY THE ASSESSEE AS INCOMPLETE AND INCORRECT DUE TO THE FOLLOWING REASONS: 1. THE ASSESSEE HAS NOT MAINTAINED THE STOCK REGISTER FOR THE MATERIAL CONSUMED ON DAY-TO-DAY BASIS AND THE WORK IN PROGRESS IS TAKEN ON THE ESTIMATE BASIS. 2. FURTHER, NO PROPER VOUCHERS ARE MAINTAINED FOR WORK EXPENSES NOR THE HEADS ARE MENTIONED ON WHICH THE EXPENSES WERE MADE. 18 3. IN RESPECT OF LABOUR, RASODA, MACHINERY, REPAIRING, DIESEL, PETROL, OIL, KEROSENE, TYRE TUBE , TRAVELLING, ETC. THESE EXPENSES ARE NOT PROPERLY VOUCHED. 4. THE ASSESSEE HAS NOT MAINTAINED THE DETAILED EXPENDITURE ACCOUNTS OF SITE-WISE WORK AND THEIR PROFITABILITY. WHILE IT IS A MATERIAL FACT THAT EA CH AND EVERY CONTRACTOR LIKE ANY NORMAL HUMAN BEINGS TAKE INTO CONSIDERATION AND TAKE INTO ACCOUNT AS WH AT EXTENT AND AS TO WHAT LEVEL NET PROFIT HAS BEEN REAPED IN A PARTICULAR CONTRACT BECAUSE THERE IS A DIFFERENT SET OF ECONOMIES AND OVERHEADS ACCOMPANIES BY PROBLEMS AND ADVANTAGES OF EACH AND EVERY TYPE OF WORK. 5. ON GOING THROUGH THE WHOLE BOOKS OF ACCOUNT, IT IS FURTHER FOUND THAT THE ASSESSEE AS SUCH HAS NOT EVER MAINTAINED SALARY REGISTER, PAYMENT REGISTER 19 VOUCHER REGISTER, ATTENDANCE REGISTER AN NO REVENUE STAMPS AFFIXED ON ANY PAYMENTS. SO HOW A MAN OF ORDINARY PRUDENCE CAN RELY THAT WHATEVER HAS BEEN DECLARED IS FAIR, CORRECT, COMPLETE AND JUSTIFIED A ND INCURRED FOR THE PURPOSE OF BUSINESS ONLY. THE MAINTENANCE OF THESE REGISTERS IS NOT ONLY IN THE INTEREST OF REVENUE BUT ALSO IN THE INTEREST OF THE ASSESSEE HIMSELF AS THEY WILL GIVE HIM A CLEAR AND MORE TRANSPARENT PICTURE OF HIS ALL SUCH EXPENDITUR E. BUT NON-MAINTENANCE THEREOF PROVES THAT THE ASSESSEE ENCOURAGES SUCH SORT OF NON-MAINTENANCE OF PROPER RECORD WHICH IS VITAL FOR BOOKS OF ACCOUNT. SINCE THE LAW IS BLIND AND ONLY EVIDENCE CAN GUIDE THE LAW ADMINISTRATORS SO HOW IT CAN BE SAID THAT WHOLE OF THE AFFAIR OF THE ASSESSEE IS CORRECT AND FAIR AND BE ACCEPTED ONLY AT ITS FACE VALUE ONLY. HENCE THE CLAIM OF SUCH EXPENDITURE LIKE LABOUR PAYMENT I S NOT FREE FROM DOUBT AS NOTHING LIKE ABOVE WAS MAINTAINED AND THUS COULD NOT BE EXAMINED IN THE 20 INTEREST OF NATURAL JUSTICE AS THE ASSESSEE HAS CLAIMED THAT HE HAS NO SUCH DETAILS. 6. THE ASSESSEE HAS PREPARED MOSTLY SELF PREPARED VOUCHERS WHICH ARE NOTHING BUT A SELF SERVING PIECE OF EVIDENCE AND FAR AWAY FROM THE TRUTH AND REALITY AND NOT AMENABLE TO VERIFICATION ALONGWITH PREPARATION OF CONSOLIDATED BOOKS PREPARED FOR WHOL E OF THE CONTRACT WORKS WHICH ARE NOT AT ALL OPEN TO VERIFICATION AT ALL. 17. THE A.O. REJECTED THE BOOKS OF ACCOUNT BY INVOK ING THE PROVISION OF SECTION 145(3) OF THE ACT BY OBSER VING THAT THE ASSESSEE HAD NOT MAINTAINED BOOKS OF ACCOUNT ON A VERY SYSTEMATIC WAY ON DAY TO DAY BASIS AND ALSO NO T FULLY AND TRULY SUPPORTED BY ENTIRE RELEVANT ORIGINAL BIL LS AND VOUCHERS OF ALL THE CLAIMED EXPENDITURE. HE ALSO P OINTED OUT THAT THE ASSESSEE HAD NOT DECLARED MARGIN OF PR OFIT ON EACH AND EVERY WORK ACTUALLY EXECUTED BY HIM AND ACCORDINGLY IT WAS NOT POSSIBLE TO WORK OUT HOW MUC H 21 PROFIT HAD REALLY BEEN EARNED BY THE CONTRACTOR IN THAT PARTICULAR CONTRACT. HE ALSO POINTED OUT THAT NO S TOCK REGISTER, WORK REGISTER, MUSTER ROLL, WAGES REGISTE R, ATTENDANCE REGISTER AND SALARY REGISTER HAD BEEN MAINTAINED BY THE ASSESSEE. AS SUCH, DAY TO DAY CONSUMPTION OF RAW MATERIAL PURCHASED AND OTHER EXP ENSES REMAINED UNVERIFIABLE. HENCE TRUE PROFIT OF THE AS SESSEE COULD NOT BE ASCERTAINED WHICH CLEARLY SHOWS THAT B OOKS OF ACCOUNT OF THE ASSESSEE DID NOT GIVEN TRUE AND FAIR VIEW OF THE ACCOUNTING RESULTS IN THE ASSESSEES CASE. ACCO RDINGLY, THE A.O. REJECTED THE BOOKS OF ACCOUNT WITHIN THE M EANING OF SECTION 145(3) OF THE ACT. RELIANCE WAS PLACED ON THE FOLLOWING CASES: 1. AWADESH PRATAP SINGH ABDUL REHMAN & BROS VS. CIT [1994] 76 TAXMAN 106 [ALL] 2. RAM CHANDRA SINGH RAMNEEKLAL VS. CIT 42 ITR 780 [PATNA] 3. S.V. VIJAY LAXMI VS. ITO 260 ITR 138 [KER] 22 18. THE A.O. REJECTED THE BOOKS OF ACCOUNT AND APPL IED NET PROFIT RATE OF 12.50% SUBJECT TO INTEREST AND DEPRECIATION BY KEEPING IN MIND THE DECISION OF HON 'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. JAIN CONSTRUCTION CO. 156 ITR 290 [RAJ]. 19. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED THAT IN THE REASSESSME NT PROCEEDINGS, THE A.O. WAS REQUIRED TO LIMIT HIMSELF TO THE ITEMS OF INCOME WHICH HAD ESCAPED ASSESSMENT AS PE R REASONS RECORDED BEFORE THE ISSUANCE OF NOTICE U/S 148. HOWEVER, THE A.O. PROCEEDED AS IF HE WAS MAKING A R EGULAR ASSESSMENT. IT WAS FURTHER STATED THAT THE OBSERVA TION OF THE A.O. IN RESPECT OF THE ALLEGED DEFECT IN THE BO OKS OF ACCOUNT WERE NOT JUSTIFIED. HOWEVER, NO SUBMISSION S WERE MADE BECAUSE SECTION 147 OF THE ACT WAS NOT FOR THE BENEFIT OF THE ASSESSEE IN THE SENSE THAT EVEN IN T HE ORIGINAL ASSESSMENT THE BOOKS OF ACCOUNT WERE REJEC TED. IT WAS STATED THAT WHILE APPLYING THE PROFIT RATE, THE A.O. 23 OUGHT TO HAVE CONSIDERED THE PAST HISTORY OF THE AS SESSEES CASE AS HELD IN THE FOLLOWING DECISIONS: 1. MOHD. BUX SHOKAT ALI ITA NO. 636/JU/2006 2. M/S GOEL BRICKS INDUSTRIES ITA NO. 601/JU/2006 3. VIJAY BUILDERS VS. ITO [XLIII TW 93 4. RISHAB CONSTRUCTION P. LTD VS. ACIT 38 TW 9 5. MADAN LAL VS. ITO [XXXIX TW 51 6. SHEKHAWATI ART PALACE VS. ACIT 116 TTJ 552 7. CIT VS. GOTAN LIME KHANIJ UDHYOG 256 ITR 243 20. IT WAS ALSO CONTENDED THAT THE A.O. OUGHT TO HA VE ALLOWED DEDUCTION TOWARDS INTEREST AND DEPRECIATION . RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. CIT VS. JAIN CONSTRUCTION CO. 245 ITR 537 2. CIT VS. BHAWAN VA PATH NIRMAN 258 ITR 431. 3. BHARAT CONSTRUCTION CO. VS. CIT 258 ITR 140 4. CIT VS. AMRITLA KHATRI 123 TAXMAN 457 5. ACIT VS. AMAR SINGH KISHAN CHAND 134 TAXMAN 68 0 21. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE OBSERVED THAT DETAILED REASONS GIVEN B Y THE A.O. FOR THE REJECTION OF THE BOOKS OF ACCOUNT WAS HELD TO 24 BE JUSTIFIED. AS REGARDS TO THE ESTIMATION OF PROF ITS, THE LD. CIT(A) OBSERVED THAT THE BEST GUIDE FOR ESTIMAT ION OF THE TRADING RESULTS AFTER REJECTING THE BOOKS IS EI THER THE PAST HISTORY OF THE ASSESSEE OR ANY OTHER COMPARABL E CASE. HE WAS OF THE VIEW THAT THE PAST HISTORY OF THE ASS ESSEE TAKES PREFERENCE OVER A COMPARABLE CASE. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT JODHPUR BENCH IN THE CASE OF AJAY GOYAL VS. ITO REPORTED IN 99 TTJ 164. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD SHOWN NET PR OFIT RATE OF 8.35% IN THE CURRENT YEAR AS AGAINST 8.12% IN THE IMMEDIATELY PRECEDING YEAR. HE FURTHER OBSERVED TH AT THE ASSESSEE HAD SHOWN BETTER GROSS PROFIT AS COMPARED TO LAST YEAR. THEREFORE, NO TRADING ADDITION WAS SUSTAINABL E. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. LAKHANI SHOES PVT. LTD VS. ADDL. CIT 34 TW 32 2. J.C. SHARMA VS. ITO 33 TW 82 3. ITO VS. HITESH KUMAR PANCHORI 113 TTJ 357 22. THE LD. CIT(A) WAS OF THE VIEW THAT THE ESTIMAT ION OF NET PROFIT BY THE A.O. WAS WITHOUT CONSIDERING THE PAST HISTORY OF THE ASSESSEE. HE, THEREFORE, KEEPING IN VIEW 25 THE RATIO IN THE ABOVE-SAID DECISION HELD THAT TRAD ING ADDITION MADE BY THE A.O. WHEN THE ASSESSEE HAD SHO WN BETTER NET PROFIT THAN THE IMMEDIATELY PRECEDING YE AR WAS NOT JUSTIFIED. HE, THEREFORE, DIRECTED THE A.O. TO APPLY NET PROFIT RATE OF 8.35% SUBJECT TO DEPRECIATION. NOW THE ASSESSEE IS IN APPEAL. 23. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F URTHER SUBMITTED THAT THE A.O. WITHOUT CONSIDERING THE PAS T HISTORY OF THE ASSESSEES CASE APPLIED NET PROFIT R ATE OF 12.50% ON THE BASIS OF THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JAIN CONSTRUCTI ON CO. [SUPRA] FOR A.Y. 1994-95 WHEREAS THE CASE OF THE AS SESSEE RELATES TO A.Y. 2008-09 AND THE CASE RELIED BY THE A.O. WAS NOT A COMPARABLE CASE HAVING DIFFERENT FACTS FR OM THE FACTS OF THE ASSESSEES CASE. IT WAS FURTHER STATE D THAT THE LD. CIT(A) OUGHT TO HAVE ALLOWED THE INTEREST TO TH IRD PARTIES ALSO WHILE ACCEPTING THE RATE OF 8.35% BY CONSIDERING THE PAST HISTORY. 26 24. IN HIS RIVAL SUBMISSIONS, THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE A.O AND FURTHER SUBMITTE D THAT THE NET PROFIT RATE OF 12.5% APPLIED BY THE A.O. WA S JUSTIFIED SINCE THE SAID RATE WAS APPLIED ON THE BA SIS OF A COMPARABLE CASE OF M/S JAIN CONSTRUCTION CO. [SUPRA ] WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT UPHEL D THE APPLICATION OF 12.5% PROFIT RATE FOR CONTRACTORS. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE CAREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. AS REGARDS TO THE REJECTION OF BOOKS OF ACCOUNT IS CONCERNED, IT IS NOTICED THAT THE LD. CIT(A) AT PAGE 3 OF THE IMPUGN ED ORDER CATEGORICALLY STATED THAT NO SUBMISSIONS WERE MADE ON THIS ISSUE BECAUSE SECTION 147 OF THE ACT WAS N OT FOR THE BENEFIT OF THE ASSESSEE IN THE SENSE THAT EVEN IN THE ORIGINAL ASSESSMENT THE BOOKS OF ACCOUNT WERE REJEC TED. IN THE PRESENT CASE THE A.O. POINTED OUT CERTAIN DE FECTS LIKE NON-MAINTENANCE OF PROPER VOUCHERS FOR WORK EXPENSES, NON-MAINTENANCE OF DETAILED EXPENDITURE ACCOUNTS SITE-WISE, NON-MAINTENANCE OF DETAILS OF O PENING 27 AND CLOSING STOCK OR MATERIAL AS ALSO CONSUMPTION O F MATERIAL. THEREFORE, THE REJECTION OF BOOKS OF ACCO UNT WAS JUSTIFIED. IN THE PRESENT CASE, IT IS NOTICED THAT THE A.O. APPLIED PROFIT RATE OF 12.5% ONLY ON THE BASIS OF J UDGMENT RENDERED BY THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF M/S JAIN CONSTRUCTION CO. [SUPRA]. THE SAID CAS E WAS PERTAINING TO A.Y. 1994-95 WHEREAS THE ASSESSEES C ASE RELATES TO A.Y. 2008-09. IN THE SAID CASE TOTAL RE CEIPTS WERE OF RS. 76,12,688/- WHILE IN THE CASE OF THE AS SESSEE, RECEIPTS ARE OF RS. 17.73,91,686/-. THEREFORE, THE TURNOVER OF THE ASSESSEE IS MUCH HIGHER THAN THE TU RNOVER OF M/S JAIN CONSTRUCTION CO. [SUPRA]. WE ARE, THER EFORE, OF THE VIEW THAT THE A.O. WAS NOT JUSTIFIED WHILE A PPLYING GROSS PROFIT RATE OF 12.5% ON THE BASIS OF A CASE W HICH WAS NOT COMPARABLE AT ALL. ON THE OTHER HAND, THE LD. CIT(A) BY CONSIDERING THIS FACT THAT THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN COMPARISON TO THE EARLIER WAS BE TTER, HE THEREFORE, CONSIDERING THE PAST HISTORY OF THE ASSE SSEES CASE DIRECTED THE A.O. TO ACCEPT THE GROSS PROFIT R ATE OF 8.35% DECLARED BY THE ASSESSEE. DURING THE COURSE OF 28 HEARING, THE LD. COUNSEL FOR THE ASSESSEE POINTED O UT THAT THE RATE OF PROFIT BEFORE DEPRECIATION AND INTEREST IN ASSESSEES CASE WAS 8.55% AND NOT 8.35% AS RECORDED BY THE A.O. IT WAS STATED THAT IN THE CHART FURNISHED BEFORE THE A.O. BY MISTAKE AMOUNT OF DEPRECIATION AND INTE REST WAS SHOWN AT RS. 39.71 LAKHS INSTEAD OF RS. 43.32 L AKHS. THEREFORE, THE PROFIT BEFORE DEPRECIATION AND INTER EST WAS AT RS. 151.71 LAKHS INSTEAD OF RS. 148.09 LAKHS SHO WN IN THE CHART FURNISHED BEFORE THE A.O. ALTHOUGH THE AFORESAID FACT WAS NOT BEFORE THE A.O. OR LD. CIT(A ), HOWEVER, IT IS AN ADMITTED FACT THAT THE GROSS PROF IT RATE OF 8.35% BEFORE DEPRECIATION AND INTEREST FOR THE Y EAR UNDER CONSIDERATION WAS BETTER THAN THE PROFIT RATE OF 8.12% IN THE PRECEDING YEAR. 26. IN THE PRESENT CASE, PROFIT RATE OF 8.35% WAS U PHELD BY THE LD. CIT(A) SUBJECT TO DEPRECIATION AND INTER EST TO PARTNERS. HOWEVER, THE LD. CIT(A) IS SILENT ON THE INTEREST TO THE THIRD PARTIES AND DIRECTED THE A.O. TO APPLY NET PROFIT RATE OF 8.35% SUBJECT TO DEPRECIATION WHEREA S THE 29 A.O. ALLOWED DEPRECIATION AND INTEREST FROM THE NET PROFIT RATE OF 12.50% APPLIED BY HIM. 27. ON A SIMILAR ISSUE, THIS BENCH OF THE TRIBUNAL IN THE CASE OF VISHNU PRAKASH R. PUNGALIA VS. ITO IN ITA N O. 151/JODHPUR/2006 FOR A.Y. 2004-05 ORDER DATED 6.8.2 007 HELD AS UNDER: WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RELEVA NT MATERIAL ON RECORD. IT IS NOTICED THAT THE FACTS N OTED BY THE A.O. ARE SUFFICIENT TO JUSTIFY THE REJECTION OF BOOKS OF ACCOUNT. THE SPECIAL BENCH OF THE TRIBUNAL AT D ELHI IN THE CASE OF DCIT VS. ALLIED CONSTRUCTION [2007] 105 ITD 1 [DEL] [SB] HAS HELD THAT WHERE THE BOOKS OF ACCOU NT OF THE ASSESSEE, A CONTRACTOR ARE REJECTED IT IS ALWAY S ADVISABLE TO GO BY THE PROFIT RATE OF THE PRECEDING YEAR. SIMILAR VIEW HAS BEEN TAKEN BY THE JODHPUR BENCH OF THE TRIBUNAL IN SEVERAL CASES. ADVERTING TO THE FACTS OF THE CASE, WE OBSERVE THAT IN THE IMMEDIATELY PRECEDING YEAR THE ASSESSEE HAD SHOWN PROFIT RATE OF 7.5% BEFORE ALLOWING INTEREST AND SALARY TO PARTNERS, DEPRECIAT ION AND INTEREST TO THIRD PARTIES. ON THE OTHER HAND, THE PROFIT RATE DECLARED BY THE ASSESSEE IN THIS YEAR A T 10.37% IS MUCH BETTER THAN THAT OF THE PRECEDING YE AR. SIMPLY BECAUSE THE BOOKS OF ACCOUNT ARE REJECTED TH E TRADING ADDITION DOES NOT AUTOMATICALLY FOLLOW. TH E 30 A.O. IS BOUND TO BE DIRECTED BY THE WELL DEFINED STANDARDS IN COMPUTATION OF INCOME AFTER REJECTION OF BOOKS OF ACCOUNT. AS THE NET PROFIT RATE DECLARED BY THE ASSESSEE IN THIS YEAR SUBJECT TO INTEREST AND SALAR Y TO PARTNERS DEPRECIATION AND INTEREST TO THIRD PARTIES IS MUCH BETTER THAN THAT OF THE PRECEDING YEAR, IN OUR CONSIDERED OPINION THERE IS NO JUSTIFICATION FOR MA KING OR SUSTAINING ANY ADDITION ON THIS COUNT. WE, THEREFO RE, ORDER FOR THE DELETION OF THE REMAINING ADDITION. WE, THEREFORE, MODIFY THE ORDER OF THE LD. CIT(A) T O THIS EXTENT THAT PROFIT RATE DECLARED BY THE ASSESSEE BE ACCEPTED SUBJECT TO DEPRECIATION, INTEREST & SALARY TO PARTNERS AND INTEREST TO THIRD PARTIES. 28. GROUND NO. 4 RELATES TO CHARGING OF INTEREST U/ S 234B OF THE ACT. 29. AS REGARDS TO THIS ISSUE, IT WAS COMMON CONTENT ION OF BOTH THE PARTIES THAT IT IS CONSEQUENTIAL IN NATURE . WE ORDER ACCORDINGLY. 31 30. NOW WE WILL DEAL WITH DEPARTMENTAL APPEAL IN IT A NO. 134/JU/2012. 31. FIRST ISSUE VIDE GROUND NO. 1 RELATES TO APPLIC ATION OF NET PROFIT RATE AFTER INVOKING PROVISIONS OF SECTIO N 145(3) OF THE ACT. 32. THIS ISSUE WE HAVE ALREADY ADJUDICATED WHILE DE CIDING GROUND NOS. 1 TO 3 OF THE ASSESSEES APPEAL IN ITA NO. 129/JU/2012. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF DEPARTMENTAL APPEAL WHE REIN GRIEVANCE IS AGAINST APPLICATION OF NET PROFIT RATE OF 8.35% AS AGAINST 12.5% APPLIED BY THE A.O. 33. VIDE GROUND NOS. 2 AND 3, GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 13,85,860/- MADE BY THE A .O. BY INVOKING PROVISIONS OF SECTION 40A(IA) OF THE AC T. 32 34. FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD NOT DEDUCTED TDS ON JOB WORK PAYME NT U/S 194C OF THE ACT AMOUNTING TO RS. 13,85,860/-. HE ASKED THE ASSESSEE TO FURNISH THE REPLY REGARDING T HE SAME AND ACCORDING TO THE A.O., THE ASSESSEE COULD NOT G IVE ANY SATISFACTORY REPLY. HE, THEREFORE, DISALLOWED THE S AID AMOUNT OF RS. 13,85,860/- U/S 40A(IA) OF THE ACT. 35. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT( A) AND SUBMITTED THAT ONCE THE BOOKS OF ACCOUNT WERE REJEC TED AND PROFIT ESTIMATED, THERE WAS NO JUSTIFICATION FO R A SEPARATE ADDITION U/S 40A(IA) OF THE ACT. RELIANC E WAS PLACED ON THE DECISION OF THE ITAT, JODHPUR BENCH I N THE CASE OF BANNA LAL JAT VS. ACIT 26 TW 447 AND M/S GO YAL BRICK INDUSTRIES VS. ACIT IN ITA NO. 601/JU/2006. IT WAS CLARIFIED THAT NO DEDUCTION OF TAX AT SOURCE WAS MA DE IN RESPECT OF JOB WORK EXPENSES BECAUSE PAYMENTS MADE TO INDIVIDUAL PERSONS DID NOT CREATE ANY LIABILITY. 33 36. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE HELD THAT THIS ADDITION WAS NOT SUSTAI NABLE IN VIEW OF THE DECISION OF THE ITAT, JODHPUR BENCH IN THE CASE OF GOYAL BRICKS IN ITA NO. 601/JU/2006 FOR A.Y . 2003- 04 ORDER DATED 21.9.2009 WHEREIN AFTER RELYING ON T HE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. BHANWARI LAL REPORTED IN 229 ITR 229 IT WAS HEL D THAT WHERE INCOME WAS ASSESSED AT GROSS PROFIT RATE BY REJECTING THE BOOKS OF ACCOUNT NO SEPARATE DISALLOW ANCE COULD BE MADE U/S 40A(3) OF THE ACT. ON THE SAME AN ALOGY, IN THE PRESENT CASE, THE BOOKS OF ACCOUNT HAVING BE EN REJECTED THE SAME CANNOT BE RELIED UPON TO MAKE SEP ARATE ADDITION U/S 40A(IA) OF THE ACT. THE LD. CIT(A) FU RTHER OBSERVED THAT PAYMENTS MADE TO INDIVIDUAL PARTIES B EING BELOW THE PRESCRIBED LIMIT, DISALLOWANCE U/S 40A(IA ) OF THE ACT WOULD NOT BE JUSTIFIED. NOW THE DEPARTMENT IS IN APPEAL. 34 37. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE CAREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. I N THE PRESENT CASE, THE LD. CIT(A) DECIDED THE ISSUE IN F AVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THIS BENC H OF THE TRIBUNAL IN THE CASE OF M/S GOYAL BRICKS INDUSTRIES [SUPRA] AND NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. MOREOVER, THE LD. CIT(A) CATEGORICALLY STATED THAT THE PAYMENTS MADE TO INDIVIDUAL PARTIES BEING BELOW THE PRESCRIBED LIMIT DISALLOWANCE WOULD NOT BE JUSTIFIE D. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDING OF THE LD. CIT(A), PARTICULARLY, WHEN N OTHING IS BROUGHT ON RECORD TO SUBSTANTIATE THAT PAYMENTS MAD E TO INDIVIDUAL PARTIES WERE NOT BELOW THE PRESCRIBED LI MIT FOR MAKING DISALLOWANCE U/S 40A(IA) OF THE ACT. ACCORD INGLY, WE DO NOT SEE ANY MERIT IN THIS GROUND OF DEPARTMEN TAL APPEAL. 38. LAST ISSUE VIDE GROUND NO. 4 RELATES TO INCOME FROM INTEREST FROM BANK AMOUNTING TO RS. 11,25,370/- DIR ECTED TO BE TREATED AS INCOME FROM CONTRACT WORK. 35 39. THE DEPARTMENT HAS RAISED THIS ISSUE ALTHOUGH T HERE IS NO SUCH DISCUSSION IN RESPECT OF THE SAME IN THE ASSESSMENT ORDER EXCEPT FOR TREATMENT GIVEN IN THE COMPUTATION OF TOTAL INCOME AT THE END OF THE ASSES SMENT ORDER. HOWEVER, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE INCOME ON ACCOUNT OF BANK INTEREST AND COMMISSION WAS DULY REFLECTED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT AND COMMISS ION INCOME WAS NOTHING BUT REBATE OBTAINED BY THE ASSES SEE FROM THE I.O.C FOR PURCHASE OF BITUMEN AND THE INTE REST WAS ON FDRS PURCHASED FOR THE PURPOSE OF FULFILLING THE TERMS AND CONDITIONS OF VARIOUS CONTRACTS UNDERTAKE N BY THE ASSESSEE. THE SAME CONSTITUTE ONLY BUSINESS IN COME AS THERE WAS DIRECT NEXUS BETWEEN CARRYING ON CONTRACT BUSINESS AND EARNING OF INCOME IN QUESTION. RELIAN CE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. CIT VS. LOK HOLDING 308 ITR 356 [MUM] 2. CIT VS. CHINNA NACHIMUTHU CONST. 297 ITR 70 [KAR ] 3. CIT VS. SOUTH INDIA SHIPPING CORPN. LTD 216 ITR 651 36 40. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT BOTH THE COMMISSION INCO ME AND INTEREST RECEIVED FROM BANK WAS DIRECTLY LINKED TO THE BUSINESS OF THE ASSESSEE AND THE SAME COULD NOT HAV E BEEN ASSESSED TO TAX AS INCOME FROM OTHER SOURCES. HE A LSO OBSERVED THAT THE A.O. HAD NOT GIVEN ANY REASON FOR TAKING THIS INCOME AS INCOME FROM OTHER SOURCES. HE ACCOR DINGLY ALLOWED THE CLAIM RAISED BY THE ASSESSEE. NOW THE DEPARTMENT IS IN APPEAL. 41. THE LD. D.R. SUPPORTED THE ORDER OF THE A.O. WH ILE THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW. 42. AFTER CONSIDERING THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND MATERIAL ON RECORD, IT IS NOTICED THAT THE A.O. IN THE ASSESSMENT ORDER NOWHERE STATED THAT THIS IN COME WAS ASSESSED AS INCOME FROM OTHER SOURCES. HOWEVER , INCOME HAS BEEN ADDED SEPARATELY IN THE INCOME WORK ED OUT FROM TOTAL CONTRACT INCOME. THE LD. CIT(A) ALL OWED 37 THE ISSUE IN FAVOUR OF THE ASSESSEE BY STATING THAT THE A.O. HAD NOT GIVEN ANY REASON FOR TAKING THIS INCOME AS INCOME FROM OTHER SOURCES. AS WE HAVE ALREADY POINTED OUT THAT THE FACTS RELATED TO THIS ISSUE ARE NOT CLEAR, WE T HEREFORE, DEEM IT APPROPRIATE TO REMAND THIS ISSUE BACK TO TH E FILE OF THE A.O. TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 43. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. [ORDER PRONOUNCED IN THE COURT ON 14.02.2013] SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 14 TH FEBRUARY, 2013 VL/- 38 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR ITAT, JODHPUR