ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE, SIKAR V. M/S DURGA CONSTRUCTION COMPANY, SIKAR

ITA 446/JPR/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8382 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 01-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR ASHWANI
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Business income; Depreciation; Question of law

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 446/JP/2019 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE, SIKAR. CUKE VS. M/S. DURGA CONSTRUCTION CO., VPO KHOOR, TEHSIL DANTA RAMGARH, DISTT. SIKAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAEFD 6106 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : DR. ASHWANI (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 11.07.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 12/07/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 31 ST JANUARY, 2019 OF LD. CIT (A)-4, JAIPUR FOR THE ASSESSMENT YEAR 2014-15. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT (A) WAS JUSTIFIED IN ADOPTING NET PROFIT RA TE @ 4.6% INSTEAD OF NET PROFIT RATE @ 8% ADOPTED BY THE AO S UBJECT TO ALLOWANCE OF INTEREST AND REMUNERATION TO THE PARTN ERS. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, WHETHER THE LD. CIT (A) WAS JUSTIFIED IN TREATING THE INTEREST ON FDR AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCE AS ASSESSED BY THE AO. 2 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR. (III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND, WITHDRAW OR INSERT ANY GROUND OR GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. GROUND NO. 1 IS REGARDING TRADING ADDITION MADE BY THE AO BY APPLYING NET PROFIT @ 8% WAS RESTRICTED BY THE LD. CIT (A) BY ADOPTING NET PROFIT @ 4.6%. 2. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2013-14 IN ITA NO. 549/JP/2018 VIDE ORDER DATED 07.01.2019 IN PARA 6 T O 8 AS UNDER :- 6. REGARDING ESTIMATION OF NET PROFIT, WE FIND THA T MERELY BECAUSE THERE IS AN INCREASE IN TURNOVER DURING THE YEAR, T HE SAME BY ITSELF WOULDNT BE SUFFICIENT TO JUSTIFY A LOW NET PROFIT DURING THE YEAR. THE ASSESSEE HAS TO DEMONSTRATE THROUGH VERIFIABLE EVID ENCE AS TO WHY THERE IS A FALL IN NET PROFIT RATE DURING THE YEAR. THERE IS NOTHING ON RECORD IN TERMS OF WHICH IT CAN BE DETERMINED THAT THE MARGINS HAVE COME UNDER PRESSURE EITHER DUE TO INCREASE COMPETIT ION OR HIGHER INPUT COSTS OR INCURRENCE OF ANY EXTRA-ORDINARY EXPENDITU RE DURING THE YEAR. THEREFORE, MERELY BECAUSE THE ASSESSEE HAS DISCLOSE D A HIGHER TURNOVER, THE SAME IS NOT SUFFICIENT ENOUGH TO JUST IFY A LOWER NET PROFIT RATE. THEREFORE, CONSISTENT WITH A.Y 2012-13, WHE RE THE LD CIT(A) HAS APPLIED NET PROFIT RATE OF 5% AND THE SAID FINDING HAS BEEN ACCEPTED BY THE ASSESSEE IN THE EARLIER YEAR, WE DONT SEE ANY JUSTIFIABLE REASON TO INTERFERE WITH THE SAID FINDINGS. 7. AS REGARDS ALLOWABILITY OF INTEREST PAID TO BAN KS/FINANCIAL INSTITUTIONS, THE LD AR HAS RELIED ON THE DECISION OF HONBLE RAJASTHAN 3 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR. HIGH COURT IN CASE OF BHAWAN PATH NIRMAN (SUPRA) WH EREIN IT WAS HELD AS UNDER: HELD DISMISSING THE APPEAL, THAT THE TRIBUNAL LINK ED THE PROCESS OF ESTIMATING INCOME WITH THE PAST PRACTICE FOLLOWE D IN THE ASSESSEES CASE BY THE REVENUE ITSELF CONSISTENTLY FOR FIVE YEARS PRIOR TO THE RELEVANT YEARS IN QUESTION. IN THIS CA SE THE VERY FOUNDATION OF FIXING THE NET PROFIT RATE HAD BEEN T HE AVERAGE NET PROFIT RATE AS HAD BEEN APPLIED BY THE REVENUE IN T HE PAST CONSISTENTLY SINCE THE ASSESSMENT YEAR 1989-90 AND WHICH HAD BEEN FOLLOWED IN DETERMINING THE TEXABLE INCOME OF THE ASSESSEE YEAR AFTER YEAR. IN THE NET PROFIT SO FIXE D THE ELEMENT OF DEPRECIATION ON THE FIXED ASSET AND INTEREST ON BORROWINGS HAD NOT BEEN TAKEN INTO CONSIDERATION IN DETERMININ G THE NET PROFIT RATE. CONSEQUENTLY, THE TRADING RESULT OBTAI NED BY APPLYING SUCH NET PROFIT RATE NEEDED FURTHER APPROP RIATION TOWARDS ALLOWABLE DEPRECIATION AND INTEREST ON BORR OWINGS. THE TRIBUNAL WAS RIGHT IN MODIFYING THE ORDER PASSED BY THE ASSESSING AUTHORITY BY MAKING THE NET PROFIT RATE S UBJECT TO ADJUSTMENT TOWARDS DEPRECIATION AND INTEREST ON BOR ROWINGS. THIS CONCLUSION WAS A PURE FINDING OF FACT AND WOUL D NOT GIVE RISE TO A QUESTION OF LAW MUCH LESS A SUBSTANTIAL Q UESTION OF LAW. 8. FOLLOWING THE ABOVE, NET PROFIT RATE OF 5% AS DE TERMINED BY THE LD CIT(A) IS MODIFIED TO THE EXTENT THAT THE SAME B E MADE SUBJECT TO INTEREST PAID TO BANKS/FINANCIAL INSTITUTIONS. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE INTEREST PAID TO BANK/FINANC IAL INSTITUTIONS BY THE ASSESSEE DURING THE YEAR AND ALLOW THE SAME WHILE C OMPUTING THE NET PROFIT IN THE HANDS OF THE ASSESSEE. IN THE RESULT, THE GROUND OF REVENUES APPEAL IS DISMISSED AND GROUND IN ASSESSE ES CROSS OBJECTION IS PARTLY ALLOWED. 4 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR. THEREFORE, FOR THE ASSESSMENT YEAR 2013-14 THE TRIB UNAL HAS UPHELD THE DECISION OF THE LD. CIT (A) ADOPTING THE NET PROFIT AT 5%. FOR THE YEAR UNDER CONSIDERATION, THE LD. CIT (A) HAS ADOPTED THE NET PROFIT BY CONSIDERI NG THE AVERAGE NET PROFIT DECLARED BY THE ASSESSEE FOR THE PRECEDING THREE YEARS AS WE LL AS FOR THE YEAR UNDER CONSIDERATION. THUS IT IS CLEAR THAT THE LD. CIT ( A) HAS NOT APPLIED THE AVERAGE NET PROFIT WHICH WAS APPLIED IN THE PRECEDING YEAR AND HAS ATTAINED THE FINALITY. WE FIND THAT FOR THE LAST THREE YEARS THE NET PROFIT ADOPTE D FOR ESTIMATION OF THE INCOME WAS 5% AND, THEREFORE, FOR THE YEAR UNDER CONSIDERATION IF THE AVERAGE OF THE NET PROFIT APPLIED FOR THE PRECEDING THREE YEARS WHICH HAS ATT AINED THE FINALITY, THEN IT OUGHT TO HAVE BEEN 5% INSTEAD OF 4.6% SUBJECT TO INTEREST PA ID TO THE BANK/FINANCIAL INSTITUTION. ACCORDINGLY, WE MODIFY THE IMPUGNED O RDER OF THE LD. CIT (A) AND DIRECT THE AO TO APPLY THE NET PROFIT AT 5% FOR ESTIMATING THE INCOME OF THE ASSESSEE. THIS GROUND IS PARTLY ALLOWED. GROUND NO. 2 IS REGARDING TREATING THE INTEREST ON FDR AS BUSINESS INCOME BY THE LD. CIT (A) AS AGAINST INCOME FROM OT HER SOURCES ASSESSED BY THE AO. 3. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE WAS ALSO CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 201 3-14 IN PARA 9 AND 10 AS UNDER :- 9. REGARDING GROUND NO. 2 OF THE REVENUES APPEAL, IT WAS SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CASE OF M/S 5 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR. CHOUDHARY & BROTHERS VS. DCIT (DBIT NO. 355/2017 DT. 31.08.2018) WHEREIN IT WAS HELD AS UNDER:- IN THE PRESENT CASE ALSO, ON THE FACTS OF THE PRES ENT CASE, WE FIND THAT APPELLANT BEING A CIVIL CONTRACTOR WAS RE QUIRED TO PROVIDE A PERFORMANCE GUARANTEE TO THE VARIOUS WORK S DEPARTMENTS FOR OBTAINING CONTRACTS OF CIVIL CONSTR UCTION. HE HAS TO KEEP SUCH PERFORMANCE GUARANTEE ALIVE BY WAY OF UTILIZING THE BANK OVERDRAFT LIMIT AGAINST WHICH HE HAD TO FURNISH FDRS/NSC FOR EXECUTION OF THE CONTRACTS. HI S FAILURE TO SUBMIT THE PERFORMANCE GUARANTEE OR INABILITY TO KE EP THEM ALIVE WOULD HAVE RESULTED IN TERMINATION OF THE CON TRACT AWARDED TO HIM AND IN THAT EVENT, THE CONCERNED DEPARTMENTS/EMPLOYER COULD ENCASH THE SECURITY. REL EASE OF SUCH PERFORMANCE GUARANTEE IS DEPENDENT ON FULFILLM ENT OF CERTAIN CONDITIONS. IT IS NOT THAT THE APPELLANT HA D INVESTED SURPLUS MONEY LYING IDLE WITH HIM ONLY IN FDRS/NSCS WITH A VIEW TO EARNING INTEREST. OBTAINING OF FDRS/NSCS AN D FURNISHING OF THE SAME AGAINST THE PERFORMANCE GUAR ANTEE BY THE APPELLANT, THEREFORE, HAD AN INEXTRICABLE NEXUS WITH HIS BUSINESS OF SECURING CIVIL CONTRACTS AND INTEGRAL T O HIS WORKING AS CIVIL CONTRACTOR. THE INCOME OF INTEREST EARNED FROM THE INTEREST SUCH FDRS/NSCS BY THE APPELLANT THEREFORE, IN OUR CONSIDERED VIEW, CANNOT BE TREATED AS INCOME FROM O THER SOURCES AND WOULD RATHER BE AN INCOME EARNED FROM B USINESS.' 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSE D THE MATERIAL AVAILABLE ON RECORD. THE LD CIT(A) HAS RETURNED A FINDING THAT FDRS WERE MADE WITH BANK TO PROVIDE MARGIN AGAINST THE B ANK GUARANTEE OBTAINED FOR THE PURPOSE OF BUSINESS BY UTILIZING T HE CREDIT FACILITIES AND PARTNERS CAPITAL ON WHICH BANK INTEREST AND INTERE ST TO PARTNERS IS PAID 6 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR. AND THUS THERE SEEMS TO A DIRECT NEXUS OF PLEDGING OF FDR AND BUSINESS. THE SAID FINDINGS OF THE LD CIT(A) REMAI N UNCONTROVERED BEFORE US. FOLLOWING THE RATIO LAID DOWN BY THE HO NBLE RAJASTHAN HIGH COURT IN CASE OF M/S CHOUDHARY & BROTHERS (SUPRA), OBTAINING AND PLEDGING THE FDR FOR THE PURPOSES OF OBTAINING BANK GUARANTEE FOR THE PURPOSES OF ITS BUSINESS, THE ASSESSEE HAS THUS EST ABLISHED THE NECESSARY NEXUS WITH HIS BUSINESS AND INTEREST EARN ED FROM SUCH FDRS CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND WOULD RATHER BE TREATED AN INCOME EARNED FROM BUSINESS. THE FINDING S OF THE LD CIT(A) ARE ACCORDINGLY CONFIRMED AND GROUND OF REVENUES A PPEAL IS DISMISSED. THE INTEREST IN QUESTION WAS EARNED FOR THE YEAR UN DER CONSIDERATION ON THE SAME FDR WHICH WERE FOR THE ASSESSMENT YEAR 2013-14. AC CORDINGLY, FOLLOWING THE EARLIER DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE, W E DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT (A) QUA THIS ISSUE. THE SAME IS UPHELD. 4. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 12/07/20 19. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 12/07/2019. DAS/ 7 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR. VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE, SIKAR. 2. THE RESPONDENT M/S. DURGA CONSTRUCTION CO., SIK AR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 446/JP/2019) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 8 ITA NO. 446/JP/2019 M/S. DURGA CONSTRUCTION CO., SIKAR.