DCIT, Sangrur V. M/s Ram Kumar Govt. Contractor, Sangrur

ITA 188/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77177 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-07-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: BIRJ BHUSHAN BANSAL
• Keywords: Depreciation
• Section: 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.188 /CHD/2014 ASSESSMENT YEAR : 2010-11 THE D.C.I.T., VS. RAM KUMAR, GOVT. CONTRACTOR, CIRCLE SANGRUR . C/O ASHOK BANSAL, ADVOCATE, CHAUDHARY BRIJ LAL STREET, CLUB ROAD, SANGRUR. PAN: AAEFR7094R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI BIRJ BHUSHAN BANSAL DATE OF HEARING : 02.07.2014 DATE OF PRONOUNCEMENT : 15.07.2014 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX(APPEALS), PATIALA DATED 23.12.2013 RELATING TO ASSESSMENT YEAR 2010-11 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. THE LD. CIT(A) HAS ERRED IN NOT UPHOLDING NET PROFIT @ 10% APPLIED BY THE AO AFTER SUSTAINING THE ACTION OF THE AO REGARDING REJECTION OF BOOKS OF ACCOUNT U /S 145(3) OF THE INCOME TAX ACT, 1961 FOR THE REASONS MENTIONED IN THE ASSE SSMENT ORDER, IN VIEW OF THE NUMEROUS DEFICIENCIES POINTED OUT BY THE AO IN THE ACCOUNTS AND SIGNIFICANT SPECIFIC DISALLOWANCES UNDER OTHER SECTIONS WERE NO TED BUT NOT MADE IN VIEW OF ESTIMATION OF NET PROFIT RATE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN APPLYING THE NET PROFIT OF 6.5% INSTEA D OF 10% ADOPTED BY 2 THE AO, WITHOUT APPRECIATING THAT THE RATE OF NET P ROFIT OF 10% HAS BEEN HELD TO BE REASONABLE IN THE CASE OF CIT VS. M /S SHIVAM CONSTRUCTION CO. IN ITA NO.197 OF 2007 DATED 07.05. 2007 SUBJECT TO ALLOWING OF INTEREST AND SALARY TO THE PARTNERS AND DISALLOWING THE DEPRECIATION. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION CLAIMED BY F OLLOWING THE CASE OF M/S HARBHAJAN SINGH & CO., SANGRUR WHEREIN THE CASE OF CIT VS. CHOPRA BOTHERS REPORTED IN 252 ITR 412 WAS FOLLOWED WHICH RELATED TO THE A.Y. 1988-89 WHEREAS THE PRESENT CASE RELATES TO THE A.Y .2010-11 I.E. THE YEAR AFTER INTRODUCTION OF SECTION 44AD OF THE INCOME TAX ACT, 1961 OF WHICH CLAUSE (III) OF SECTION 44AD CLEARLY INDICATES THAT WHILE WORKING O UT THE NET PROFIT THE DEPRECIATION CALCULATED ON THE WRITTEN DOWN VALUE O F THE ASSETS HAD BEEN DEEMED TO HAVE BEEN ACTUALLY ALLOWED, AND ALSO BECA USE THE AO HAD SPECIFICALLY MENTIONED IN THE ASSESSMENT ORDER THAT NO DEDUCTION OF DEPRECIATION WAS TO BE ALLOWED? 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION CLAIMED WHEREAS THE HON'B LE PUNJAB & HARYANA HIGH COURT, CHANDIGARH HAVE HELD IN THE CASE OF SURINDER PAL NAYYAR VS. CIT, LUDHIANA REPORTED IN 177 TAXMANN 207 THAT THE PROFI T HAVING BEEN ARRIVED AT ON THE BASIS OF GROSS RECEIPTS BY TAKING INTO CONSIDER ATION ALL ALLOWABLE EXPENSES, NO DEDUCTION ON ACCOUNT OF DEPRECIATION CAN BE SEPA RATELY ALLOWED. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. C1T(A) HAS ERRED IN FOLLOWING THE CASE OF M/S HARBHAJAN SI NGH & CO., SANGRUR PARTICULARLY WHEN THE DEPARTMENT HAS NOT AC CEPTED THE SAID JUDGEMENT AND IS ALREADY IN APPEAL BEFORE THE HON'B LE HIGH COURT. 6. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSED OF. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE ESTIMATION OF NET PROFIT RATE IN THE CASE OF THE AS SESSEE AFTER REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS CERTAIN DEFECTS IN THE BOOKS OF ACCOUNT WERE NOTED THAT THE ASSESSEE WAS NOT MAINTAINING ANY STO CK REGISTER IN RESPECT OF THE ITEMS USED IN THE CONSTRUCTION WORK. FURTHE R THE ASSESSEE HAD NOT MAINTAINED ANY PURCHASE REGISTER AND/OR REGISTER FO R ISSUE OF RAW MATERIAL/GOODS FOR CONSTRUCTION WORK. THE ASSESSE E HAD NOT PRODUCED ANY MEASUREMENT BOOK. FURTHER THE ASSESSEE HAS FA ILED TO PRODUCE 3 NAMES AND ADDRESSES OF THE TRUCK OWNERS/DRIVERS THR OUGH WHOM CASH PURCHASES OF BRICKS, BAJRI, GATKA, SAND, ETC. WERE MADE. IN ADDITION, VARIOUS DISCREPANCIES WERE NOTED BY THE ASSESSING O FFICER UNDER VARIOUS HEADS OF EXPENDITURE AND SHOW CAUSE NOTICE WAS ISSU ED TO THE ASSESSEE WHICH IS REPRODUCED UNDER PARA 3 AT PAGES 2 TO 6 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER IN VIEW OF VARIOUS DISCREPANC IES REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE UNDER SECTION 145( 3) OF THE ACT AND THEREAFTER APPLIED THE NET PROFIT RATE OF 12% TO DE TERMINE THE INCOME IN THE HANDS OF THE ASSESSEE. 5. THE CIT (APPEALS) UPHELD THE REJECTION OF BOOKS OF ACCOUNT. HOWEVER, THE CIT (APPEALS) WAS OF THE VIEW THAT THE GP RATE APPLIED BY THE ASSESSING OFFICER BEFORE ALLOWING INTEREST AND SALARY TO ITS PARTNERS AND DEPRECIATION WAS EXCESSIVE AND UNJUSTIFIED AND APPLIED GP RATE OF 6.5%. IT WAS FURTHER OBSERVED BY THE CIT (APPEAL S) THAT THE SALARY AND INTEREST TO PARTNERS WAS ALLOWED BY THE ASSESSING O FFICER AND DEPRECIATION WAS ALSO ALLOWABLE TO THE ASSESSEE. THE CIT (APPEALS) HELD THAT THE NET PROFIT RATE WAS APPLIED IN THE CA SE AND, THEREFORE, NO FURTHER ADDITION HAD TO BE MADE IN THE CASE. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF TH E CIT (APPEALS) AND POINTED OUT THAT APPLICATION OF NET PROFIT RATE OF 6.5% WAS ON THE LOWER SIDE. 7. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT T HAT THE RATE APPLIED BY THE CIT (APPEALS) WAS ON THE BASIS OF THE EARLIE R YEARS RESULT AND MAY BE APPLIED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IN PARA 3 HAD TABULATED THE DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE A SSESSEE AND IN VIEW 4 OF THE EXHAUSTIVE LIST, WE ARE IN CONFORMITY WITH T HE ORDER OF THE CIT (APPEALS) IN REJECTING THE BOOKS OF ACCOUNT UNDER S ECTION 145(3) OF THE ACT. ONCE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED THEN THE NEXT STEP TO DETERMINE THE INCOME OF THE ASSESSEE IS TO APPLY JU STIFIABLE NET PROFIT RATE TO THE RECEIPTS DECLARED BY THE ASSESSEE. TH E ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED NET PROFIT RAT E OF 5.29% WHICH WAS INCREASED TO 12% BY THE ASSESSING OFFICER AND WAS R EDUCED TO 6.5% BY THE CIT (APPEALS). THE ASSESSEE WAS ENGAGED IN TH E BUSINESS OF CIVIL CONTRACTOR AND IN THE TOTALITY OF THE FACTS AND CIR CUMSTANCES, WE HOLD THAT THE NET PROFIT RATE OF 7% BE APPLIED TO DETERM INE THE INCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER IS D IRECTED TO RECOMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. THE GROUN DS OF APPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JULY, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 15 TH JULY, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 5