M/s. Mohata Construction Co., BIKANER V. ACIT, BIKANER

ITA 376/JODH/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5242 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L MOURYA
• Assessee Lawyers: SURESH OZHA; SUFFI MOHMMAD ARS
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE: SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A.NO.356/JODH/2010 ASSESSMENT YEAR: 2007-08 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, RANI BAZAR, BIKANER,RAJASTHAN VS. M/S. MOHTA CONSTRUCTION CO., 25-B, SADULGANJ, BIKANER, PAN : AADFM1414B APPELLANT RESPONDENT I.T.A.NO.361/JODH/2010 & ITA NO.376/JODH/2014 A. Y.: 2007-08 AND 2010-11 M/S. MOHTA CONSTRUCTION CO., 25-B, SADULGANJ, BIKANER, PAN : AADFM1414B VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, RANI BAZAR, BIKANER,RAJASTHAN APPELLANT RESPONDENT DEPARTMENT BY SHRI S. L. MOURYA, D.R. ASSESSEE BY S/SHRI SURESH OZHA AND SUFFI MOHMMAD, ARS DATE OF HEARING: 08.03.2016 DATE OF PRONOUNCEMENT: 08.03.16 O R D E R PER: GEORGE MATHAN, J.M. : THE APPEAL IN ITA NO.356/JODH/2010 IS FILED BY THE REVENUE AND THE APPEAL IN ITA NO.361/JODH/2010 IS FILED BY THE ASSE SSEE AGAINST THE ORDER OF THE LEARNED CIT (A), BIKANER PASSED IN APPEAL NO. 2 24/BIKANER/2009-10 2 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 DATED 30-03-2010 FOR ASSESSMENT YEAR 2007-08 AND TH E APPEAL IN ITA NO.361/JODH/2014 IS FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED CIT (A), BIKANER PASSED IN APPEAL NO.259/BIKANER/20 12-13 DATED 25-03- 2014 FOR ASSESSMENT YEAR 2010-11. 2. REVENUES APPEAL ITA NO.356/JODH/2010 & ASSESSEE S APPEAL ITA NO.361/JODH/2010 (A. Y: 2007-08): SHRI S. L. MOURYA, LEARNED D.R. APPEARED ON BEHALF OF THE REVENUE AND S/SHRI SURESH OZHA AND SUFFI MOHMMAD APPEARED ON BEHALF OF THE ASSESSEE. IN THE REVENUE S APPEAL THE DEPARTMENT HAS CHALLENGED THE ACTION OF THE LEARNED CIT (A) IN DIRECTING THE ASSESSING OFFICER TO APPLY NET PROFIT RATE OF 6% ON THE TOTAL RECEIPT OF RS.6,58,09,000/- INSTEAD OF 7% APPLIED BY THE ASSES SING OFFICER. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT (A) IN CONFIRMING THE REJECTION OF BOOKS OF ACC OUNT AND IN APPLYING THE NET PROFIT RATE OF 6% AS AGAINST THE DECLARED RATE OF 5 .30% IN GROUNDS NO.2 AND 3. IN GROUND NO.4 OF THE ASSESEES APPEAL THE ASSES SEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE ADDI TION MADE BY THE ASSESSING OFFICER REPRESENTING THE INTEREST PAID TO PARTIES ESPECIALLY WHEN THE BOOKS OF ACCOUNT HAS BEEN REJECTED AND THE NET PROFIT RATE HAS BEEN ESTIMATED. IN GROUND NO.5 OF THE APPEAL THE ASSESSE E HAS CHALLENGED THE ACTION OF THE LEARNED CIT (A) IN HOLDING THE INTERE ST RECEIVED BY THE ASSESSEE 3 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 FROM FDS KEPT WITH BANK AS INCOME UNDER THE HEAD O THER SOURCES AND NOT AS BUSINESS INCOME. 4. IT WAS SUBMITTED BY THE LEARNED D.R. THAT THE A SSESSEES BOOKS OF ACCOUNT HAS BEEN REJECTED AS THE ASSESSEE WAS NOT M AINTAINING PROPER STOCK RECORD. IT WAS A SUBMISSION THAT THE ASSESSEE IS DO ING BUSINESS OF CIVIL CONTRACTOR. IT WAS SUBMITTED THAT CONSEQUENT TO REJ ECTION OF BOOKS OF ACCOUNT THE ASSESSING OFFICER HAD ESTIMATED 7% AS THE NET P ROFIT AS AGAINST THE NET PROFIT DECLARED BY THE ASSESSEE FOR THE RELEVANT AS SESSMENT YEAR AT 5.30% HOLDING THAT THE SAME WAS COMPARATIVELY VERY LOW WH EN COMPARED TO 8.47% AND 8.54% DECLARED FOR THE IMMEDIATELY TWO PRECEDIN G ASSESSMENT YEARS. IT WAS A SUBMISSION THAT THE LEARNED CIT (A) HAS REDUC ED THE NET PROFIT RATE TO 6% WITHOUT GIVING ANY VALID REASON. IT WAS A SUBMIS SION THAT THE ORDER OF THE LEARNED CIT (A) IS LIABLE TO BE REVERSED. IN REPLY, THE LEARNED A. R. SUBMITTED THAT THE ASSESSEE WAS MAINTAINING REGULAR BOOKS OF ACCOUNTS WHICH WERE DULY AUDITED. IT WAS A SUBMISSION THAT THE LEARNED CIT (A) ON ACCOUNT OF NON- MAINTENANCE OF THE DETAILS OF WORK IN PROGRESS AS A LSO DETAILED RECORD OF CONSUMPTION OF RAW-MATERIALS AND ON ACCOUNT OF IMPR OPER MAINTENANCE OF VOUCHERS IN RESPECT OF VARIOUS EXPENSES HAD UPHELD THE REJECTION OF ASSESSEES BOOKS OF ACCOUNT. IT WAS A SUBMISSION TH AT HOWEVER, IN RESPECT OF THE ESTIMATION OF NET PROFIT, THE LEARNED CIT (A) H AD CONSIDERING THAT THE COST OF CEMENT HAD INCREASED FROM RS.138/- TO RS.206/- P ER BAG AND SO ALSO COST 4 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 OF STEEL HAD INCREASED SUBSTANTIALLY. IT WAS A SUBM ISSION THAT THE LEARNED CIT (A) HAD ALSO TAKEN INTO CONSIDERATION THE FACT THAT THE VALUE ADDED TAX RATE (VAT TAX RATE) HAS INCREASED FROM 2% TO 12.5% DURIN G THE RELEVANT ASSESSMENT YEAR. CONSEQUENTLY, THE LEARNED CIT (A) HAD DIRECTED THE ASSESSING OFFICER TO ADOPT NET PROFIT RATE AT 6%. I T WAS A SUBMISSION THAT THE ASSESSEE WAS NOT PRESSING HIS GROUND NO. 2 & 3 OF T HE APPEAL AGAINST THE ACTION OF THE LEARNED CIT (A) IN ESTIMATING THE NET PROFIT RATE AT 6%. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMITT EDLY, THE LEARNED CIT (A) HAS UPHELD THE REJECTION OF ASSESSEES BOOKS OF ACCOUNT. THE ASSESSEE HAS NOT BEEN ABLE TO REBUT THE FINDINGS GIVEN BY TH E LEARNED CIT (A) IN RESPECT OF REJECTION OF ASSESSEES BOOKS OF ACCOUNT . THIS BEING SO, WE ARE OF THE VIEW THAT THE FINDINGS IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT GIVEN BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT (A) ARE IN RIGHT FOOTING AND DOES NOT REQUIRE OUR INTERFERENCE. 6. COMING TO THE ISSUE OF NET PROFIT RATE DECLARED BY THE ASSESSEE AT 5.30% AND ESTIMATED AT 7% BY THE ASSESSING OFFICER AND REDUCED TO 6% BY THE LEARNED CIT (A) IT IS NOTICED THAT THE LEARNED CIT (A) HAS TAKEN INTO CONSIDERATION ACTUAL VARIATION IN THE PRICES OF CEM ENT, STEEL AND THE RATE INCREASE IN VAT. THIS BEING SO, WE ARE OF THE VIEW THAT REDUCTION OF NET PROFIT RATE BY THE LEARNED CIT (A) TO 6% IS SUBSTANTIATED AND NO INTERFERENCE TO THE FINDINGS IS CALLED FOR. CONSEQUENTLY THE APPEAL OF THE REVENUE STANDS 5 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 DISMISSED AND GROUNDS NO.2 AND 3 OF THE ASSESSEES APPEAL ALSO STAND DISMISSED, IN SO FAR AS THE ASSESSEE HAS NOT PRESSE D THE GROUND CHALLENGING THE ACTION OF THE LEARNED CIT (A) IN DIRECTING THE ASSESSING OFFICER TO ESTIMATE NET PROFIT RATE AT 6%. 7. COMING TO THE ISSUE OF INTEREST PAID TO THIRD PA RTIES WHICH HAS BEEN CLAIMED AS DEDUCTION BY THE ASSESSEE AND HAS BEEN D ISALLOWED BY THE ASSESSING OFFICER, IT IS NOTICED THAT WHAT HAS BEEN ESTIMATED IS NOT THE GROSS PROFIT BUT NET PROFIT. WHEN COMPUTING THE NET PROFI T, THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF EARNING OF INCOME UND ER THE HEAD BUSINESS IS RIGHTLY TO BE ALLOWED. HERE, THE BOOKS OF ACCOUNT O F THE ASSESSEE HAS BEEN REJECTED, THE INTEREST PAID TO THIRD PARTIES FALLS UNDER THE HEAD BUSINESS EXPENDITURE WHICH IS LIABLE TO BE DEDUCTED WHILE C OMPUTING THE NET PROFIT. IN THE PRESENT CASE, AS THE NET PROFIT ITSELF HAS BEEN ESTIMATED NO FURTHER ADDITION TO THE SAME BY PICKING AND CHOOSING ITEMS FROM EXPENDITURE ACCOUNT CAN BE MADE. CONSEQUENTLY, WE ARE OF THE VIEW THAT THE INTEREST PAID TO THIRD PARTIES ARE LIABLE TO BE ALLOWED AND FURTHER ADDITI ON MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE INTEREST PAID TO THIRD PA RTIES STANDS DELETED. 8. IN RESPECT TO THE ISSUE OF INTEREST RECEIVED FRO M THE BANK ON FDS, IT IS NOTICED THAT THE INTEREST INCOME OF THE ASSESSEE FR OM FIXED DEPOSIT IS NOT BUSINESS INCOME OF THE ASSESSEE. IT IS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE BUSINESS OF THE AS SESSEE IS NOT MAKING 6 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 ANY FIXED DEPOSIT AND DERIVING INTEREST THERE FROM. FURTHER, THE ASSESSEE HAS ALSO NOT BEEN ABLE TO SHOW AS TO HOW THE BANK INTER EST WAS IN ANY WAY INTRINSICALLY CONNECTED TO THE BUSINESS ACTIVITY OF THE ASSESSEE FOR THE PURPOSE OF CLAIMING THAT THE INTEREST RECEIVED ON THE FDRS ARE BUSINESS INCOME. IN THE CIRCUMSTANCES, THE FINDINGS OF THE L EARNED CIT (A) IN CONFIRMING THE ADDITION RS.70,709/- ON ACCOUNT OF B ANK INTEREST ESPECIALLY UNDER THE HEAD INCOME FROM OTHER SOURCES STANDS C ONFIRMED. CONSEQUENTLY, THE REVENUES APPEAL IN ITA NO.356/JO DH/2010 STANDS DISMISSED AND THE ASSESSEES APPEAL IN ITA NO.361/J ODH/2010 STANDS PARTLY ALLOWED. 9. ASSESSEES APPEAL IN ITA NO.376/JODH/2014 (A. Y. : 2010-11) IN THIS APPEAL, GROUNDS NO.2 AND 3 WAS AGAINST THE ACTION OF THE LEARNED CIT (A) IN CONFIRMING THE ESTIMATION OF NET PROFIT RATE AT 8% AS AGAINST 6.48% DECLARED BY THE ASSESSEE AND IN REGARD TO GRO UNDS NO.4 TO 6 AGAINST THE ACTION OF THE LEARNED CIT (A) IN CONFIRMING THE ADDITION REPRESENTING INTEREST PAID TO THIRD PARTIES AFTER APPLICATION OF NET PROFIT RATE. BOTH THE SIDES REITERATED THEIR SUBMISSIONS AS IDENTICAL IN THE AS SESSMENT YEAR 2007-08 (SUPRA). WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LEARNED A. R. OF THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT ANY MAJOR R EASONS FOR DROP IN THE RATE OF NET PROFIT DURING THE ASSESSMENT YEAR 2010- 11 ESPECIALLY WHEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS DECLARED 8.95% 7 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 NET PROFIT. THIS BEING SO, WE ARE OF THE VIEW THAT THE FINDINGS OF THE LEARNED CIT (A) IN CONFIRMING THE ESTIMATION OF NET PROFIT RATE AT 8% AS MADE BY THE ASSESSING OFFICER IS IN RIGHT FOOTING AND DOES NOT CALL FOR OUR INTERFERENCE. 10. IN RESPECT OF THE DISALLOWANCE OF INTEREST PAID TO THIRD PARTIES, ON IDENTICAL GROUNDS WE HAVE DELETED THE ADDITION FOR ASSESSMENT YEAR 2007-08 IN ITA NO.361/JODH/2010 (SUPRA). ON IDENTICAL REASO NS THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT (A) STANDS DELETED. AS A RESULT, THE APPEAL OF THE ASSESSEE STANDS PART LY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.03.2016. SD/- SD/- (N. S. SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER JODHPUR, DATED: 08 TH MARCH, 2016 LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA DEKA/ DEKA/ DEKA/ DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 1 . THE APPELLANT 2. THE RESPONDENT 3. CIT CONCERNED 4. CIT (A) CONCERNED 5. DR, ITAT, JODHPUR 6. GUARD FILE BY ORDER, SR. PRIVATE SECRETARY 8 ITA NO.356 & 361/JODH/2010 ITA NO.376/JODH/2014 DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 08.03.16 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 09.03.16 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 09.03.16 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER