The Income-tax Officer, Srinagar V. M/s. International Engineers, Srinagar

ITA 386/ASR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8883 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SHARDA
• Assessee Lawyers: ASHWANI KALIACA
• Keywords: Depreciation; Business expenditure; Additional evidence
• Section: 32; 68; 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER I.T.A 386(ASR)/2013 ASSESSMENT YEAR: 2008-09 THE INCOME TAX OFFICER, WARD-3(1), SRINAGAR. VS. M/S INTERNATIONAL ENGINEERS, GUL-HOUSE, IQBAL COLONY, SONWAR-SRINAGAR KASHMIR. PAN:AACF12825F (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.34(ASR)/2015 (ARISING OUT OF I.T.A NO.386(ASR)/2013) ASSESSMENT YEAR: 2008-09 M/S INTERNATIONAL ENGINEERS, GUL-HOUSE, IQBAL COLONY, SONWAR-SRINAGAR KASHMIR. PAN:AACF12825F VS. THE INCOME TAX OFFICER, WARD-3(1), SRINAGAR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY: SH. R.K. SHARDA ( DR.) RESPONDENT BY: SH. ASHWANI KALIA(CA. ) DATE OF HEARING: 23.12. 2015 DATE OF PRONOUNCEMENT: 21.01.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT, JAMMU, DATED 25.03.2013 FOR THE ASST. YEAR 2008-09. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE R EPRODUCED BELOW. ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 2 1.ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD CI T(A0 WAS RIGHT IN DIRECTING THE ASSESSING OFFICER TO ADOPT N ET PROFIT RATE OF 7% OF THE TOTAL CONTRACT RECEIPTS INSTEAD OF 10% AP PLIED BY THE ASSESSING OFFICER WHEN THE ASSESSEE HAD FAILED TO P RODUCE BOOKS OF ACCOUNT AND SUPPORTING DOCUMENTARY EVIDENCES . 2.) ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT(A) WAS RIGHT IN DIRECTING THE ASSESSING OFFICER TO ADOPT N ET PROFIT RATE OF 7% OF THE TOTAL RECEIPTS INSTEAD OF 10% APPLIED BY THE ASSESSING OFFICER IN VIEW OF THE DECISION OF HONBLE ITAT CHA NDIGARH A BENCH IN THE CASE OF M/S SHIVAM CONSTRUCTION CO. AN D AFFIRMED BY THE HON\BLE HIGH COURT OF PUNJAB & HARYANA IN T HEIR 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 ASSESSING OFFICER TO ADOPT N ET PROFIT RATE OF 7% OF THE TOTAL RECEIPTS INSTEAD OF 10% APPLIED BY THE ASSESSING OFFICER WHEN THE JURISDICTIONAL BENCH OF ITAT AMRIT SAR IN THE CASE OF M/S POOJA CONSTRUCTION C. REPORTED IN ITA NO. 75 0(ASR)/1992 HAD HELD THAT THE APPLICATION OF NET PROFIT RATE 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. CI T(A) WAS RIGHT IN DELETING THE ADDITION OF RS.49,96,000/- MADE ON ACCOUNT OF UNCONFIRMED/UNEXPLAINED SALES TAX SCRUTINY DEPOSIT BY ADMITTING THE ADDITIONAL EVIDENCE FIELD BY THE ASSESSEE DURIN G APPELLATE PROCEEDINGS WHEN THE ASSESSEE WHEN THE ASSESSEE DUR ING ASSESSMENT PROCEEDINGS DID NOT FURNISH ANY EVIDENCE AND THE ASSESSMENT WAS MADE U/S 144 OF THE INCOME TAX ACT, 1961. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT( A) WAS RIGHT IN DELETING THE ADDITION OF RS,49,96,000/- MADE ON ACC OUNT OF UNCONFIRMED/UNEXPLAINED SALES TAX SCRUTINY DEPOSIT BY ADMITTING THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE DURIN G THE APPELLATE PROCEEDINGS WITHOUT AFFORDING OPPORTUNITY TO THE AS SESSING OFFICER UNDER RULE 46A OF THE INCOME TAX RULES, 1962 TO EXA MINE THE EVIDENCE/DOCUMENTS. 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS TO THE APPEAL FILED BY REVENUE AND HAS FILED REVISED GROUNDS IN CROSS OBJE CTIONS WHICH ARE REPRODUCED BELOW. 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW IN APPLYING THE NET PROFIT RATE OF 7% OF GROSS CONTRACT RECEIPTS AGAINST THE DECLARED RESULTS. ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 3 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW IN NOT ALLOWING DEPRECIATION ON FIXED ASSETS AFTER APPLYING THE NET PROFIT RATE OF 7%. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW SALARY OF RS.10,8,000/- PAID TO WORKIN G PARTNER AND INTEREST ON CAPITAL PAID TO PARTNERS AMOUNTING TO RS.1,55,33 4/- AFTER APPLICATION OF NET PROFIT RATE. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE ADDITION OF RS.1,67, 837/- BEING THE INTEREST ON FDRS RECEIVED BY THE ASSESSEE AFTER APP LYING NET PROFIT RATE OF 7% ON GROSS CONTRACT RECEIPT. 5. THAT THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.20000 FOR THE AMOUNT CREDITED TO CAPITAL A/C PARTNER. 6. THAT THE ORDER IS BAD IN LAW AND ON FACTS. 7. THAT THE ASSESSEE CRAVES LEAVE TO ADD OR AMEND THE GROUND OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 4. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSEE IS A CONTRACTOR AND WAS MAINLY OP ERATING IN LEH LADAKH AND OTHER PLACES IN KASHMIR. FOR THE YEAR UN DER CONSIDERATION THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOM E OF RS.4,87,957/- AFTER CLAIMING DEPRECIATION, SALARY TO PARTNERS AND INTEREST TO PARTNERS ON CAPITAL BESIDES OTHER BUSINESS EXPENDITURES. THE NET PROFIT DECLARED BY ASSESSEE INCLUDED INTEREST OF RS.1,67,837/- WHIC H WAS EARNED ON FIXED DEPOSITS PLACED WITH BANK. THE BOOKS OF ACCOU NT OF THE ASSESSEE WERE AUDITED U/S 44AB OF THE ACT. DURING THE ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 144 OF THE ACT AND HAD REJECTED THE BOOKS OF ACCOUNT AND THEREAFTER MA DE THE ADDITIONS BY APPLYING THE NET PROFIT RATE OF 10% TO TOTAL RECEIP TS. HE FURTHER MADE ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 4 THE ADDITION U/S 68 FOR PAYMENT TO SALES TAX DEPART MENT AMOUNTING TO RS.49,95,000/-. THE ASSESSING OFFICER FURTHER MADE ADDITION ON ACCOUNT OF INTEREST INCOME EARNED ON FDRS AMOUNTING TO RS.1,67,837/-. A FURTHER ADDITION OF RS.20,000/- WA S MADE BECAUSE OF CREDIT IN THE CAPITAL ACCOUNT. 5. AGGRIEVED WITH THE ORDER THE ASSESSEE FILED A PPEAL BEFORE LEARNED CIT(A) AND LEARNED CIT(A) AFTER GOING THROU GH THE SUBMISSIONS OF THE ASSESSEE REDUCED THE NET PROFIT RATE FROM 10 % TO 7% AND ALSO DELETED THE ADDITION MADE BY ASSESSING OFFICER ON A CCOUNT OF PAYMENT TO SALES TAX DEPARTMENT. THE LD. CIT(A), HOWEVER, D ID NOT ALLOW FURTHER ALLOWANCE OF DEPRECIATION AND SALARY TO PARTNERS AN D INTEREST TO PARTNERS ON CAPITAL. HE ALSO UPHELD THE ADDITION MA DE BY ASSESSING OFFICER ON ACCOUNT OF INTEREST ON FDRS AND CREDIT I N THE CAPITAL ACCOUNT. 6. AGGRIEVED WITH THE ORDER BOTH THE PARTIES IN APPEAL BEFORE US. 7. THE LEARNED AR FIRST TOOK UP THE APPEAL FILED BY ASSESSEE AND SUBMITTED THAT IN CASE OF ESTIMATION OF PROFITS OF THE ASSESSEE DEPRECIATION WAS STILL ALLOWABLE AS HELD BY THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S LALI CONSTRUC TION & CO. VS. ACIT VIDE ITS ORDER DATED 4.8.2014 AND IN THIS RESPECT INVITED OUR ATTENTION TO QUESTION NO. 8 FRAMED BY HONBLE COURT . AS REGARDS THE DISALLOWANCE OF SALARY AND INTEREST PAID TO PARTNER S THE LEARNED AR INVITED OUR ATTENTION TO AN ORDER OF AMRITSAR BENCH PASSED IN THE CASE ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 5 OF M/S DALJIT SINGH & BROS. (PKT) VS. ACIT IN ITA N O.201(ASR)/2002 AND INVITED OUR ATTENTION TO DECISION OF AMRITSAR BENCH IN THE CASE OF DCIT VS. WALIA CONSTRUCTION CO., IN ITA NO.344(ASR)/2013 WHERE THE HONBLE ITAT HAD HELD THAT THE CLAIM OF DEPRECIATION AND SA LARY TO PARTNERS WAS ALLOWABLE AND IN THIS RESPECT OUR ATTENTION WAS INV ITED TO PAPER BOOK PAGES 8 TO 25 WHERE A COPY OF SAID TRIBUNAL ORDER WAS PLACED. AS REGARDS THE INTEREST ON FDRS THE LEARNED AR SUBMITT ED THAT AMRITSAR BENCH IN ITA NO.201(ASR)/2002 IN THE CASE OF M/S DA LJIT SINGH & BORS. (P&K) UNDER SIMILAR FACTS AND CIRCUMSTANCES HAS ALL OWED THE APPEAL OF APPEAL OF ASSESSEE AND IN THIS RESPECT OUR ATTENTIO N WAS INVITED TO PARA 6.6 OF THE SAID ORDER. IN VIEW OF THE ABOVE ARGUMEN TS AND SUBMISSIONS THE LEARNED AR SUBMITTED THAT THE ISSUES RAISED BY THE ASSESSEE ARE IN FAVOUR OF ASSESSEE BY VARIOUS JUDICIAL PRONOUNCEMEN TS. 8. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT AS PER THE EXPRESS PROVISIONS OF SECTION 184(5) IN THE CASE OF ASSESSMENT U/S 144 THE SALARY TO PARTNERS AND INTEREST TO PARTNERS CAN NOT BE ALLOWED. HE THEREFORE, HEAVILY RELIED UPON THE ORDER OF AUTHORI TIES BELOW. 9. ARGUING THE REVENUES APPEAL THE LEARNED DR SUBM ITTED THAT LEARNED CIT(A) HAS WRONGLY REDUCED THE NET PROFIT R ATE APPLIED BY ASSESSING OFFICER FROM 10% TO 7%. HE SUBMITTED THAT HONBLE ITAT, CHANDIGARH A BENCH IN THE CASE OF M/S SHIVAM CONS TRUCTION CO. HAS CONFIRMED NET PROFIT OF 10%. HE FURTHER SUBMITTED T HAT THE HONBLE ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 6 PUNJAB & HARYANA HIGH COURT VIDE ORDER DATED 14.05. 2007 HAS CONFIRMED THE SAME. HE FURTHER SUBMITTED THAT HONB LE ITAT, AMRITSAR BENCH IN THE CASE OF M/S POOJA CONSTRUCTION CO. IN ITA NO.750(ASR)/1992 HAS ALSO UPHELD THE NET PROFIT RAT E OF 10% ON GROSS RECEIPTS WHICH HAS ALSO BEEN CONFIRMED BY JURISDICT IONAL PUNJAB & HARYANA HIGH COURT VIDE ITS ORDER DATED 10.09.2010. IN VIEW OF THE ABOVE, THE LEARNED DR SUBMITTED THAT IN FACT THE AP PLICATION OF RATE OF 10% IS COVERED AGAINST THE ASSESSEE. AS REGARDS THE OTHER ISSUES OF ADDITION OF RS.49,95,000/- THE LEARNED DR SUBMITTED THAT ASSESSMENT WAS COMPLETED U/S 144 OF THE ACT AND ASSESSEE HAD N OT SUBMITTED ANY INFORMATION ON THIS DEPOSIT AND BEFORE THE LEARNED CIT(A) THE SAME WAS SUBMITTED IN THE FORM OF ADDITIONAL EVIDENCE FOR WH ICH NO OPPORTUNITY WAS PROVIDED TO ASSESSING OFFICER, THEREFORE, HE PR AYED THAT FOR THIS PURPOSE THE ISSUE NEEDS TO GO BACK TO ASSESSING OFF ICER. 10. THE LEARNED AR, ON THE OTHER HAND, SUBMITTED TH AT THE ASSESSMENT WAS COMPLETED U/S 144 AS THE ASSESSEE HA D SHIFTED TO AMRITSAR AND HE REMAINED UNDER MEDICAL SUPERVISION FOR SIX MONTHS AND THEREFORE, HE COULD NOT APPEAR BEFORE THE ASSES SING OFFICER. DEFENDING THE APPLICATION OF RATE OF 7% APPLIED BY LEARNED CIT(A), THE LEARNED AR SUBMITTED THAT PAST HISTORY IS THE BEST GUIDE TO ESTIMATE PROFITS AND THE RESULTS DECLARED BY ASSESSEE IN THI S YEAR WERE BETTER THAN THE RESULTS DECLARED BY IT DURING THE EARLIER YEARS AND MOREOVER HE ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 7 SUBMITTED THAT CASE LAW OF M/S POOJA CONSTRUCTION C O. (SUPRA) WAS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE AS SESSEE AS ASSESSEE WAS OPERATING IN A DIFFERENT LOCATION AND SUBMITTED THAT IN FACT THE LEARNED CIT(A) HAS RIGHTLY RELIED UPON THE CASE LAW OF M/S CONSTRUCTION ENGINEERS VS. ACIT, RANGE-3, SRINAGAR ITA NO. 493(A SR)/2010 WHICH HE HAS HELD TO BE COMPARABLE WITH THE ASSESSEE AND THE REFORE, HE ARGUED THAT THE LEARNED CIT(A) HAS RIGHTLY REDUCED THE RAT E FROM 10% TO 7%. 11. AS REGARDS THE OTHER ADDITION OF RS.49,95,000/ - ON ACCOUNT OF PAYMENT TO SALES TAX DEPARTMENT, THE LEARNED AR SUB MITTED THAT THE ASSESSING OFFICER HAD WRONGLY TREATED THE SAME AS U NEXPLAINED DEPOSIT AS THE AMOUNT WAS DEPOSITED WITH SALES TAX DEPARTME NT AND WAS APPEARING IN THE ASSESSEES BOOKS OF ACCOUNTS AND I N THIS RESPECT OUR ATTENTION WAS INVITED TO A COPY OF BALANCE SHEET PL ACED AT PAPER BOOK PAGE 8 WHERE UNDER THE HEADING ADVANCE AND DEPOSIT SALE TAX SECURITY AMOUNTED TO RS.5,095,000/- CONSISISTING OF RS. 1 LA C IN THE EARLIER YEAR AND RS.49,95,000/- RELATING TO THE PRESENT YEAR WAS MENTIONED. 12. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. 13. FIRST WE TAKE UP THE APPEAL FILED BY REVENUE . WE FIND THAT THAT THE ASSESSEE IS A CONTRACTOR AND IT DID NOT PARTICI PATE IN THE ASSESSMENT PROCEEDINGS, THEREFORE, ASSESSING OFFICER ESTIMATED THE INCOME OF ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 8 ASSESSEE BY APPLYING 10% NET PROFIT RATE TO GROSS R ECEIPTS IN CONFIRMITY WITH THE RATIO OF JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S POOJA CONSTRUCTION CO. REPORTED IN ITA NO.75 0(ASR)/1992. THE LEARNED CIT(A) HAS HELD THAT THE CASE OF POOJA CONS TRUCTION CO. (SUPRA) WAS NOT COMPARABLE WITH THE CASE OF ASSESSEE AS BOT H WERE WORKING IN DIFFERENT LOCATIONS. THE LEARNED CIT(A) HAS FURTHER RELIED UPON THE CASE OF M/S. CONSTRUCTION ENGINEERS VS. ACIT DECIDED BY AMRITSAR BENCH IN ITA NO.493 AND HAS HELD THAT THIS CASE WAS COMPARAB LE WITH THE ASSESSEE WHERE THE HONBLE TRIBUNAL HAS UPHELD THE NET PROFIT RATE OF 7%. WE FIND MERITS IN THE ARGUMENTS OF LEARNED AR A S THE ASSESSEE IS WORKING IN LEH LADHAK AND OTHER PLACES IN KASHMIR W HERE THE NET PROFIT RATIO OF ASSESSEE CANNOT BE COMPARED WITH TH E CONTRACTOR WHO IS WORKING IN PLAINS INSTEAD OF HILLS. THEREFORE, WE A RE IN AGREEMENT WITH THE FINDINGS OF LEARNED CIT(A) THEREFORE, WE CONFIR M THE ORDER OF LEARNED CIT(A) TO THIS EXTENT. IN VIEW OF THE ABOVE GROUND NO.1 TO 3 ARE DISMISSED. 14. AS REGARDS OTHER ADDITION OF RS.49,95,000/-, WE FIND THAT THE ASSESSING OFFICER HAS WRONGLY MADE THE ADDITION HOL DING THAT THE ASSESSEE MUST HAVE DEPOSITED THE SALES TAX OUT OF T HE SOME DEPOSIT IN CASH OR BANK WHEREAS THE FACT REMAINS THAT THE SAID TAX WAS DEPOSITED OUT OF REGULAR BOOKS OF ACCOUNT AND WAS REFLECTED I N THE BALANCE SHEET OF ASSESSEE PLACED AT PAGE 8. WE FURTHER FIND THAT AS ON 31.3.2007 THE ASSESSEE WAS HAVING A FIXED DEPOSIT OF RS.59,26,331 /- WHICH IS ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 9 APPARENT FROM PAPER BOOK PAGE 10 WHICH REDUCED TO R S.7,00,661/- AS ON 31 ST MARCH 2008 AS IS APPARENT FROM PAPER BOOK PAGE 7 T HEREFORE, THE SAID DEPOSIT OF RS.49,95,000/- WAS MADE AFTER U NCASHING THE FIXED DEPOSITS WORTH RS.49,95,000/-. THESE FIGURES ARE VE RIFIABLE FROM THE BALANCE SHEET RELATING TO THE PERIODS 31.03.2007 AN D 31.03.2008. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF LEARNED CIT(A). THE DEPARTMENT HAS RAISED THE ISSUE THAT THIS WAS A N ADDITIONAL EVIDENCE BUT WE ARE OF THE CONSIDERED OPINION THAT THIS WAS NOT A PIECE OF ADDITIONAL EVIDENCE AS THE COPIES OF BALANCE SHE ETS WERE ALREADY AVAILABLE WITH THE DEPARTMENT AND THEREFORE, GROUND NO. 4 & 5 OF APPEAL ARE DISMISSED. 15. NOW, WE TAKE UP THE APPEAL FILED BY THE ASSESSE E. THE ASSESSEE IS AGGRIEVED WITH THE NON ALLOWANCE OF DEPRECIATION, S ALARY TO PARTNERS AND INTEREST TO PARTNERS ON THEIR CAPITAL OUT OF TH E PROFITS ESTIMATED AT 7%. THE ASSESSEE IS FURTHER AGGRIEVED AS THE CIT(A) HAS CONFIRMED THE ADDITION ON ACCOUNT OF INTEREST EARNED ON FDRS AMOU NTING TO RS.1,67,837/-. AS REGARDS ALLOWANCE OF DEPRECIATIO N WE FIND THAT THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LALI CONSTRUCTION CO. VS. ACIT 203 OF 2001 VIDE ITS ORDER DATED 04.08 .2014 HAD FRAMED ANSWER TO QUESTION AS UNDER: QUESTION (A):-WHETHER, WHILE APPLYING NET PROFIT R ATE TO THE GROSS RECEIPTS, THE ASSESSEE IS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECATION ALLOWANCE FROM SUCH RECEIPTS ? ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 10 (B) WHETHER INTEREST PAID ON THE BORROWED CAPITAL I S TO BE DEDUCTED FROM GROSS RECEIPTS WHILE APPLYING NET PROFIT RATE ? (C) WHETHER THE NET PROFIT RATE OF 10% APPLIED BY T HE ITAT IN THE PRESENT CASE IS JUST AND REASONABLE? THE HONBLE COURT HAS ANSWERED THE ABOVE QUESTION A S BELOW. TAKING UP THE FIRST POINT, THE MATTER IS NO LONGER RES INTEGRA. THE DIVISION BENCHES OF THIS COURT IN COMMISSIONER OF INCOME TAX VS. CHOPRA BROS. INDIA(P) LIMITED (2001) 252 ITR 412 AND GIRDHARI LA L VS. COMMISSIONER OF INCOME TAX AND ANOTHER, (2002) 256 ITR 318 WHILE CONSIDERING THE AFORESAID ISSUE, IN VIEW OF THE CIRCULAR ISSUED BY THE BOARD, HAD HELD IN A CASE WHERE THE ASSESSEE MAKES A SPECIFIC CLAIM FOR DEPRECIATION AND GIVES THE INFORMATION AS REQUIRED UNDER SECTION 32 OF THE ACT, THE ASSESSING OFFICER IS BOUND TO TAKE THE CLAIM OF THE ASSESSEE INTO CONSIDERATION. FOLLOWING THE AFORESAID JUDGMENTS, I T IS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION ON ACCOUNT OF DEP RECIATION FROM RECEIPTS WHILE APPLYING NET PROFIT RATE ON THE GROSS RECEIPT S. IN THE PRESENT CASE, WE FIND THAT THE BOOKS OF ACCO UNT WERE AUDITED AND CLAIM OF DEPRECIATION WAS MADE AND INFORMATION REQU IRED U/S 32 OF THE ACT WAS PROVIDED, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRECEDENT, WE HOLD THAT CLAIM OF DEPRECIATION IS AL LOWABLE. IN VIEW OF THE ABOVE, GROUND NO. 2 IS ALLOWED. 16. AS REGARDS THE CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF SALARY TO PARTNERS, WE FIND THAT HONBLE ITAT IN THE CASE OF WALIA CONSTRUCTION CO. VIDE ITS ORDER DATED 26 TH MARCH, 2014 VIDE PARA 10.1 HAS HELD AS UNDER: AS REGARDS THE ESTIMATION OF INCOME, THERE IS NO D ISPUTE TO THE FACT THAT THE ASSESSEE IN THE PRECEDING YEARS HAS BEEN ASSESS ED ALMOST AT THE RETURNED INCOME EXCEPT MINOR ADDITIONS. THE ASSESSE E DURING THE ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 11 IMPUGNED YEAR BEFORE DEPRECIATION, INTEREST & SALAR Y TO PARTICULARS AND BANK INTEREST HAS DECLARED BETTER RESULTS AS IS EVI DENT FROM THE COMPARATIVE FIGURES MENTIONED HEREINABOVE. THEREFOR E, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WE MODIFY THE ORDER OF BO TH THE AUTHORITIES BELOW AND DIRECT THE AO TO ESTIMATE NET PROFIT RATE OF 5% ON CONTRACT RECEIPTS DECLARED BY THE ASSESSEE AND THEREAFTER AL LOW SALARY AND INTEREST TO PARTNERS AND DEPRECIATION SUBJECT TO TH E INCOME DOES NOT FALL BELOW THE RETURNED INCOME. IT IS ORDERED ACCORDINGL Y. THUS, THE APPEAL OF THE REVENUE AND THAT OF THE ASSESSEE ARE PARTLY ALL OWED. RESPECTFULLY FOLLOWING THE ABOVE WE ALSO DIRECT THE ASSESSING OFFICER TO ALLOW INTEREST AND SALARY TO PARTNERS OUT OF ESTIMA TED PROFITS ARRIVED AT AFTER APPLYING PROFIT RATIO OF 7% TO GROSS RECEIPTS . 17. AS REGARDS THE SEPARATE ADDITION ON ACCOUNT OF INTEREST ON FDRS, WE FIND THAT IN THE CASE OF M/S DALJIT SINGH & BROS ., UNDER SIMILAR FACTS AND CIRCUMSTANCES, HONBLE ITAT, AMRITSAR VIDE ORDE R DATED 14.11.2002 HAS ALLOWED THE APPEAL OF ASSESSEE BY HOLDING ITS F INDINGS VIDE PARA 6.6. FOR THE SAKE OF CONVENIENCE THE SAME ARE REPRODUCED BELOW. 6.6 AFTER CONSIDERING THE RIVAL SUBMISSIONS A ND GOING THROUGH THE MATERIAL AVAILABLE ON THE RECORD, IT HAS BEEN N OTICED THAT THE ASSESSING OFFICER REJECTED THE BOOKS OF THE ASSESSE E AND APPLIED A NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS OF TH E ASSESSEE. IN OTHER WORDS, THE ASSESSING OFFICER HAS NOT ACCEPTED THE BOOKS RESULTS. ON THE OTHER HAND, HE TOOK THE FIGURE OF R S.2,94,700/- ON ACCOUNT OF INTEREST ACCRUED ON FDRS AS REFLECTED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE, THEREFORE FIND SUBSTAN TIAL FORCE IN THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ONCE THE BOOKS OF ACCOUNT HAS BEEN REJECTED, THE ASSESSING O FFICER CANNOT FALL BACK UPON THE SAME BOOKS FOR MAKING ADDITION O N ACCOUNT OF INTEREST ACCRUED ON THE FDRS REFLECTED IN THE BOOKS OF ACCOUNT. IT IS WELL SETTLED THAT WHEN NET PROFIT RATE IS APPLIE D, ALL THE INCOME HAS BEEN CONSIDERED. IT IS ALSO TRUE THAT THE ASSES SING OFFICER HAD NOT DENIED THIS FACT THAT THE FDRS WERE RELATED TO THE BUSINESS ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 12 BECAUSE HE HIMSELF ADMITTED THAT THE ASSESSEE HAS R EFLECTED THE INTEREST ACCRUED IN THE PROFIT AND LOSS ACCOUNT WHI CH WAS BASED ON THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED ABOVE, ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING SEPARATE ADDITION ON ACCOUNT OF INTEREST ON FDRS WHEN HE HAD APPLIED A NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS FOR THE FULL YEAR BY INVOKING THE PROVISIONS OF SEC. 145 OF THE INCOME TAX ACT, 1961. WE, THEREFORE, SET ASIDE THE ORDER OF TH E LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER NOT TO INCLUDE THE INTEREST ACCRUED ON THE FDRS AMOUNTING TO RS.2,94, 700/- IN THE INCOME OF THE ASSESSEE. 18. WE FIND THAT IN THE PRESENT CASE ALSO THE ASSESSING OFFICER HAD REJECTED THE BOOKS OF ACCOUNT AND HAD ESTIMATED THE PROFITS AND ASSESSEE HAD DECLARED INTEREST INCOME ON FIXED DEPO SITS IN ITS PROFIT AND LOSS ACCOUNT AND ASSESSING OFFICER HIMSELF HAS NOTED THAT ASSESSEE HAD CREDITED INTEREST INCOME TO ITS PROFIT AND LOSS ACCOUNT WHICH WAS BASED ON THE BOOKS OF ACCOUNTS MAINTAINED BY ASSESS EE. RESPECTFULLY FOLLOWING THE ABOVE TRIBUNAL ORDER, NO SEPARATE ADD ITION ON ACCOUNT OF INTEREST WAS WARRANTED. IN VIEW OF THE ABOVE, GROU ND NO.4 IS ALLOWED. 19. THE ASSESSEE HAS NOT ARGUED GROUND NO. 5 ON ACCOUNT OF ADDITION OF RS.20,000/-, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 20. IN NUTSHELL THE APPEAL FILED BY THE REVENU E IS DISMISSED WHEREAS THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED:21.01.2016. /PK/ PS. ITA NO. 386(ASR)/2013 ASST. YEAR 2008-09 13 COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.