Sh. Mohinder Partap Singla, Chandigarh V. ACIT, Chandigarh

ITA 2/CHANDI/2015

• Counselvise Citation: 221514 RSA 2015
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJINDER KAUR
• Assessee Lawyers: SUMIT NAGPAL
• Keywords: Presumptive income; Depreciation; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.2/CHD/2015 (ASSESSMENT YEAR : 2010-11) SH.MOHINDER PARTAP SINGLA, VS. THE A.C.I.T., H.NO.2518, SECTOR 35-C, CIRCLE 4(1), CHANDIGARH. CHANDIGARH. PAN: ABJPP5051A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUMIT NAGPAL RESPONDENT BY : SMT.RAJINDER KAUR, DR DATE OF HEARING : 13.10.2015 DATE OF PRONOUNCEMENT : 11.12.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH DATED 24.11.2014 FOR ASSESSMENT YEAR 2010-11. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A GOVERNMENT CONTRACTOR ENGAGED IN ROAD CARPETING WORK. IT HAS SHOWN GROSS RECEIPTS FROM THE CONTRACT WORK AT RS.54.53 CRORES DURING THE YEAR, F ROM WHICH THE VALUE OF MATERIAL PURCHASED ON BEHALF OF THE CONTRACTEE, STEEL AND CEMENT SUPPLIED BY THE DEPART MENT, ESTIMATED EXPENSES @ 90%, INTEREST AND BANK CHARGES , 2 DEPRECIATION AND BITUMEN SUPPLIED BY THE DEPARTMENT HAD BEEN REDUCED. THE ASSESSING OFFICER WAS OF THE VIE W THAT THE ASSESSEE HAS TAKEN PRESUMPTIVE NET PROFIT @ 10% OF THE GROSS RECEIPTS AS IS THE PRACTICE IN EARLIER YE ARS, WHILE OTHER DEDUCTION OVER AND ABOVE 90% AT THE EXPENSES HAVE BEEN PERMITTED TO THE ASSESSEE IN THE LIGHT OF CERT AIN JUDICIAL PRONOUNCEMENTS, THE DEDUCTION CLAIMED IN R ESPECT OF INTEREST IS UNWARRANTED. IN THIS WAY, AN ADDITI ON OF RS.90,89,449/- WAS MADE. 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT THE INTEREST AND DEPRECIATION ARE AL LOWABLE EXPENSES AS PER BOARDS CIRCULAR NO.29-D(XIX-14), F.NO.45/239/65-ITJ DATED 31.8.1965, THE INTEREST IS ALSO A FIX CHARGE ON THE BUSINESS AND WITHOUT IT SURVIVA L OF THE BUSINESS CANNOT BE EXPECTED. THEREFORE, IN ORDER T O EARN PROFITS FROM THE CONTRACTORS BUSINESS OF CONSTRUCT ION AND LAYING AND CARPETING OF ROADS VARIOUS MACHINES SUCH AS JCB, EARTHMOVERS, MIXTURES, HOT MIX PLANTS, ETC. AR E USED AND THESE MACHINES ARE UNDOUBTEDLY VERY CAPITAL INT ENSIVE AND DEMANDS A GREAT AMOUNT OF CAPITAL BOTH OWNED AN D BORROWED. FOR THIS, THE ASSESSEE HAD BORROWED FROM BANK AND HAD PAID A CONSIDERABLE AMOUNT OF INTEREST. THEREFORE, THIS AMOUNT SHOULD BE SEPARATELY ALLOWED FROM THE ESTIMATED PROFITS OF THE CONSTRUCTION BUSINESS. RELIANCE WAS PLACED ON THE JUDGMENT OF THE RAJASTHA N HIGH COURT IN THE CASE OF CIT VS. M/S BHAWAN PATH NIRMAN (BOHRA) & CO. (NO.1) (2002) 258 ITR 431,, IN WHICH IT WAS DECIDED THAT IN THE CASE OF ESTIMATION OF 3 PROFITS, THE ESTIMATED RATES SHOULD BE APPLIED SUBJ ECT TO ADJUSTMENT TOWARDS DEPRECIATION AND THE INTEREST ON BORROWED CAPITAL. THE LEARNED CIT (APPEALS) REJECT ED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE CIRCUL AR RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO IT BECAUSE IT REFERS TO THE ALLOWABILITY OF DEPRECIATION ONLY. AS REGARDS RAJASTHAN HIGH COURT JUDGMENT RELIED UPON B Y THE ASSESSEE, THE LEARNED CIT (APPEALS) OBSERVED THAT I N THAT CASE, THE HIGH COURT HAS ONLY HELD THAT NO SUBSTANT IAL QUESTION OF LAW AROSE ON THE ISSUE. RELYING ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. GIRDHARI LAL, 256 ITR 318, THE CIT (APPEALS ) DISMISSED THE GROUND OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPEALS), THE ASSESSEE HAS COME UP IN APPEAL BEFOR E US. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND A GAIN RELIED UPON THE JUDGMENT OF RAJASTHAN HIGH COURT IN THE CASE OF M/S BHAWAN PATH NIRMAN (BOHRA) & CO. (SUPR A). 5. THE LEARNED D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THAT OF THE LEARNED CI T (APPEALS). 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. WE SEE FROM THE PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES THAT IT IS STATED THAT THE ASSESSEE HAS BEEN 4 SHOWING NET PROFIT @ 10% OF THE GROSS RECEIPTS FOR THE LAST MANY YEARS. THIS FACT HAS BEEN STATED BY THE ASSES SING OFFICER AS WELL AS LEARNED CIT (APPEALS). HOWEVER, WE DO NOT UNDERSTAND AS TO UNDER WHICH PROVISION OF THE I NCOME TAX ACT, THIS PRESUMPTIVE TAXATION WAS BEING CLAIME D AND WHAT IS THE BASIS OF THE SAME. EVEN BEFORE US, NO LIGHT HAS BEEN THROWN BY THE LEARNED COUNSEL FOR THE ASSE SSEE OR BY THE LEARNED D.R. NOW THE ISSUE BEFORE US IS WHETHER INTEREST IS TO BE ALLOWED OVER AND ABOVE 10% PRESUM PTIVE NET PROFIT BEING COMPUTED BY THE ASSESSEE. SINCE N O HISTORY OF THE ASSESSEE WAS EXPLAINED TO US DURING THE COURSE OF HEARING, WE ARE NOT AWARE THE BASIS ON WH ICH 10% NET PROFIT RATE HAS BEEN FIXED. WE CANNOT GIVE A FINDING AS TO WHAT WILL BE THE EFFECT OF GIVING ASS ESSEE THE BENEFIT OF INTEREST EXPENDITURE OVER AND ABOVE THE NET PROFIT @ 10% AND WHETHER IN THE EARLIER YEARS ALSO THIS WAS ALLOWED OVER AND ABOVE 10% OR NOT. THEREFORE, IN THE INTEREST OF JUSTICE, WE FIND IT PROPER TO SEND THE CASE TO THE FILE OF THE ASSESSING OFFICER TO DEICIDE THE IS SUE AS PER LAW. WE WOULD LIKE TO MENTION HERE THAT IN THE CAS E BEFORE RAJASTHAN HIGH COURT RELIED UPON BY THE ASSE SSEE, IT HAS BEEN HELD THAT ONCE THE NET PROFIT RATE APPL IED BY THE ASSESSING OFFICER WAS BASED ON PAST HISTORY, WH ICH FOLLOWS THAT THE ELEMENT OF DEPRECIATION AND INTERE ST ON BORROWINGS HAVE NOT BEEN TAKEN INTO ACCOUNT IN DETERMINING THE NET PROFIT RATE. HOWEVER,, IN THE PRESENT CASE, WE ARE CONSTRAINED TO GIVE ANY FINDING ON THI S ASPECT SINCE WE DO NOT HAVE ANY SUCH HISTORY OF THE ASSESS EE. IF 5 THE ASSESSING OFFICER FINDS THAT IN EARLIER YEAR IN TEREST WAS ALLOWED AFTER THE NET PROFIT RATE BEING ESTIMAT ED AT 10%, HE MAY DO SO IN THIS YEAR ALSO. HOWEVER, IF T HE INTEREST HAS BEEN CONSIDERED TO BE TAKEN CARE OF WH ILE ESTIMATING THE NET PROFIT @ 10% IN EARLIER YEARS, T HE ASSESSING OFFICER MAY NOT GRANT THIS INTEREST EXPEN DITURE IN THIS YEAR. FURTHER THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF GIRDHARI LAL ( SUPRA) AS RELIED UPON BY THE LEARNED CIT (APPEALS), WE SEE THAT IN THAT CASE, THERE IS A FINDING THAT IF INTEREST IS A LLOWED TO THE ASSESSEE OVER AND ABOVE 10% THE NET PROFIT RATE OF THE ASSESSEE WOULD GO DOWN SUBSTANTIALLY. THEREFORE, W E DIRECT THE ASSESSING OFFICER TO TAKE CARE OF THIS A SPECT WHILE MAKING THE ASSESSMENT. NEEDLESS TO SAY THAT THE ASSESSEE BE GIVEN PROPER AND ADEQUATE OPPORTUNITY O F BEING HEARD AND TO PRODUCE APPROPRIATE EVIDENCE IN THIS REGARD. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF DECEMBER, 2015. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 6