The Deputy Commissioner of Income Tax, Pathankot V. Sh. Lakhwinder Singh, Gurdaspur

ITA 472/ASR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7769 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 22-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P N ARORA
• Keywords: Rejection of books of accounts; Depreciation; Reasonable cause; Revised return
• Section: 44AD; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 564/(ASR)/2014 ASSESSMENT YEAR: 2007-08 PAN: ACLPS4296F SH. LAKHWINDER SINGH, 1, TUNG HOUSE, VILL. TUN, P. O. HAYAT NAGAR, GURDASPUR. VS. ADDL. C. I. T., RANGE-IV, PATHANKOT. (APPELLANT) (RESPONDENT) I.T.A NO. 472/(ASR)/2016 ASSESSMENT YEAR: 2012-13 PAN: ACLPS4296F ADDL. C. I. T., RANGE-IV, PATHANKOT. VS. SH. LAKHWINDER SINGH, 1, TUNG HOUSE, VILL. TUN, P. O. HAYAT NAGAR, GURDASPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. N. ARORA (A DV.) RESPONDENT BY: SH. RAHUL DHAWAN (D. R.) DATE OF HEARING: 16.08.2017 DATE OF PRONOUNCEMENT: 11.10.201 7 ORDER PER T. S. KAPOOR (AM): THESE ARE TWO APPEALS FILED BY ASSESSEE AS WELL AS BY REVENUE AGAINST THE SEPARATE ORDERS OF LD. CIT(A), AMRITSAR DATED 05.02.2014 FOR ASST. YEARS: 2007-08 DATED 28.06.2016 FOR ASST. YEA R: 2012-13. THESE WERE HEARD TOGETHER AND THEREFORE FOR THE SAKE OF C ONVENIENCE, A COMMON AND CONSOLIDATED ORDER IS BEING PASSED. 2. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE IN ITA N O. 564 ASR/2014 ARE REPRODUCED BELOW: ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 2 1. THAT THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF THE LD. CIT (APPEALS) ARE BOTH AGAINST THE FACTS OF THE CASE AND UNTENABLE IN LAW. 2. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE ORDER OF THE LD. AO WITHOUT APPRECIATING THE FACTS AND APPLYING HIS MIND. 3. THAT THE AUTHORITIES BELOW DID NOT APPRECIATE T HAT THE PROVISIONS OF SECTION 44AD OF THE INCOME-TAX ACT, 1961, WERE N OT AT ALL APPLICABLE TO THE PRESENT FACTS OF THE CASE. THE AU THORITIES BELOW DID NOT APPRECIATE THAT THE BOOKS OF ACCOUNTS WERE DULY MAINTAINED IN DUE COURSE OF BUSINESS AND WERE DULY AUDITED UNDER SECTION 44 AB OF THE INCOME-TAX ACT, 1961, AND THE AUTHORITIES BE LOW HAVE GROSSLY ERRED IN IGNORING THE BOOKS OF ACCOUNTS. THE RATE O F PROFIT AS SHOWN SHOULD HAVE BEEN ACCEPTED. 4. THAT THE LD AO WAS NOT JUSTIFIED IN APPLYING RAT E OF 8% ON THE GROSS RECEIPTS OF RS. 5,93,05,783/- . THE LD. AO HA S NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS WHERE THE BOOKS OF ACCOUNTS ARE DULY MAINTAINED AND AUDITED. THE LD. AO HAD NO COGE NT MATERIAL FOR REJECTING THE BOOKS OF ACCOUNTS. THE ASSESSE WA S PREVENTED BY REASONABLE CAUSE FOR HIS INABILITY TO FURNISH CERTA IN BILLS BECAUSE THE SAME HAVING BEEN MISPLACED. ACCORDINGLY THE LD.CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE RATE OF 8% APPLIED BY THE LD. AO. ALTERNATIVELY THE RATE IS VERY HIGH AND EXCESSIVE. 5. THAT THE LD. AO HAS GROSSLY ERRED IN NOT ALLOWIN G THE DEPRECIATION CLAIM AT RS.5,35,779/-FROM THE ESTIMAT ED PROFIT. THE LD. CIT(APPEALS) HAS FAILED TO APPRECIATE IN VIEW O F THE BOARD CIRCULAR AND VARIOUS JUDICIAL PRONOUNCEMENTS THAT D EPRECIATION IS ALLOWABLE-EVEN, AFTER THE REJECTION OF BOOKS OF AC COUNTS AND ESTIMATION OF NET PROFIT. 6. THAT THE AUTHORITIES BELOW SHOULD HAVE REDUCED T HE MATERIAL SUPPLIED BY THE GOVERNMENT FROM THE TOTAL RECEIPTS FOR COMPUTING THE NET PROFIT AT THE APPLIED RATES. 7. THAT THE LD. AO HAS GROSSLY ERRED IN MAKING THE SEPARATE ADDITION OF RS.24,13,230/- SHOWN AS MISCELLANEOUS I NCOME WHICH COMPRISES OF CONTRACT RECEIPTS SHOWN AS MISCELLANEO US INCOME DUE TO THEIR EXACT NATURE NOT BEING KNOWN AT THE TIME O F AUDIT OF ACCOUNTS. NO SEPARATE ADDITION IS POSSIBLE AFTER RE JECTION OF BOOKS OF ACCOUNTS. ALTERNATIVELY, ONLY NET PROFIT RATE SHOUL D HAVE BEEN APPLIED ON THIS INCOME AFTER REJECTION OF BOOKS OF ACCOUNTS. 8. ANY OTHER GROUND OF APPEAL WHICH MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 3 GROUNDS OF APPEAL TAKEN BY REVENUE IN ITA NO. 472/A SR/2016 ARE REPRODUCED BELOW: (I) ON FACT AND LAW THE LD. COMMISSIONER OF INCO ME TAX (APPEALS)- II, AMRITSAR HAS ERRED IN APPLYING NET PROFIT AT RA TE OF 8% AND FURTHER ALLOWING SEPARATE DEDUCTION OF DEPRECIATION AGAINST NET PROFIT 10% (AFTER TAKING IN TO THE CONSIDERATION OF DEPRECIATI ON) REASONABLE APPLIED BY THE AO AFTER REJECTING THE BOOKS OF ACCO UNT UNDER SECTION 145(3) ON THE BASIS OF VARIOUS COGENT AND SPECIFIC REASONS. (II) THE CIT (A) IS NOT RIGHT IN DELETING THE ABOV E ADDITION WHICH IS NOT AS PER THE SETTLED LAW INCLUDING THE FOLLOWING JUDGMENT OF THE SC. KACHWALA GEMS VS JCIT 288 ITR 10 (SC ) AS PER W HICH IT IS HELD THAT THAT SINCE COGENT REASONS WERE GIVEN BY T HE A. O FOR REJECTING THE ACCOUNTS THERE WAS NO REASONS TO TAKE A DIFFERENT VIEW. IT IS WELL SETTLED THAT IN A BEST JUDGMENT ASSESSME NT THERE IS ALWAYS A CERTAIN DEGREE OF GUESSWORK. NO DOUBT THE AUTHORI TIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF T HE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT, AND SHOULD NOT ACT T OTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT O F GUESSWORK INVOLVED IN A BEST JUDGMENT ASSESSMENT, AND IT IS T HE ASSESSEE HIMSELF WHO IS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. IN OUR OPINION THERE WAS NO ARBITRARINESS IN THE PRESE NT CASE ON THE PART OF THE IT AUTHORITIES. THUS, THERE IS NO FORCE IN THIS APPEAL, AND IT IS DISMISSED ACCORDINGLY. IT WAS HELD THAT SINCE COGENT REASONS HAD BEEN GIVE N BY ASSESSING OFFICE FOR REJECTING THE ACCOUNTS, THERE WAS NO REASON TO TAKE A DIFFERENT VIEW. (III) ON THE FACTS AND LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, AMRITSAR HAS ERRED IN APPLYING NET PR OFIT RATE OF 8% AND FURTHER ALLOWING SEPARATE DEDUCTION OF DEPRECIATION AGAINST NET PROFIT OF 10%(AFTER TAKING IN TO CONSIDERATION OF D EPRECIATION) REASONABLE APPLIED BY THE AO AFTER REJECTING THE BO OKS OF ACCOUNT UNDER SECTION 145(3) AFTER PINPOINTING SPECIFIC DEF ECTS IN THE BOOKS OF ACCOUNT. (IV) ON THE FACTS AND LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, AMRITSAR HAS ERRED IN ALLOWING SEPARA TE DEDUCTION OF DEPRECIATION, WHEN DELETED FURTHER SEPARATE ADDITIO N(DISALLOWANCE OF INTEREST PAYMENT WITHOUT DEDUCTION OF TAX) BY HO LDING THAT ONCE BOOKS OF ACCOUNT REJECTED, THERE IS NO SCOPE FOR FU RTHER SEPARATE DISALLOWANCE OF DEPRECIATION. (V) ON THE FACTS AND LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, AMRITSAR HAS ERRED IN DELETING THE AD DITION OF RS.3,35,784/- ON ACCOUNT OF NON DEDUCTION OF TDS ON INTEREST PAID TO M/S SHREE RAM TRANSPORT CO. LTD. THE LD. COMMISS IONER OF ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 4 INCOME TAX (APPEALS)-II, AMRITSAR HAS NOT APPRECIAT ING THE ORDER OF THE A.O. AND IGNORING THE FACTS OF THE CASE. (VI) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), AMRIT SAR BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTOR ED. (VII) APPELLANT CRAVES LEAVE TO AMEND OR ADD ANY OR MORE GROUNDS OF APPEAL. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THERE IS A DELAY OF 122 DAYS IN FILING THE APPEAL BY ASSESSEE AND WHICH HAD OCCURRED DUE TO THE FACT THAT THE ORDER OF LD. CIT(A) WAS SERVED ON PEO N OF THE ASSESSES AND HE FORGOT TO HANDOVER THE SAME TO ASSESSEE. IT WAS SUBMITTED THAT ASSESSEE CAME TO KNOW ABOUT THE DISMISSAL OF APPEAL BY LD. CIT(A) ONLY WHEN THE DEMAND NOTICE WAS SERVED. THE LD. AR SUBMI TTED THAT ASSESSEE HAS FILED AFFIDAVIT AFFIRMING THE ABOVE FACTS AND T HEREFORE IT WAS PRAYED THAT IN THE INTEREST OF SUBSTANTIAL JUSTICE THE DEL AY MAY BE CONDONED. 4. THE LD. DR HAD NO OBJECTION TO CONDONATION OF DE LAY. THEREFORE DELAY WAS CONDONED AND LD. AR WAS DIRECTED TO PROCE ED WITH HIS ARGUMENTS. 5. THE LD. AR SUBMITTED THAT HE WILL NOT BE PRESSIN G GROUND NO. 7 OF ASSESSEES APPEAL THEREFORE GROUND NO. 7 IN ASSESSE ES APPEAL BE DISMISSED AS NOT PRESSED. AS REGARDS THE OTHER GROUNDS OF APPEAL, THE LD. AR SUBMITTED THAT ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCO UNTS OF THE ASSESSEE APPLIED A NET PROFIT RATE OF 8% TO THE GROSS RECEIP TS FOR ESTIMATION OF THE INCOME OF ASSESSEE WHICH IS HIGHLY EXCESSIVE AND FU RTHER SUBMITTED THAT ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 5 IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011-12, THE HON'BLE BENCH UNDER SIMILAR FACTS AND CIRCUMSTANCES HAS REDUCED T HE RATE OF NET PROFIT TO 6.51% ON GROSS RECEIPTS. THE LD. AR SUBMITTED TH AT NATURE OF THE BUSINESS OF ASSESSEE IS THE SAME AND THEREFORE IT W AS PRAYED THAT THE NET PROFIT RATE OF 6.51% BE APPLIED TO THE ASSESSEE AS WAS APPLIED IN THE CASE OF ASSESSEE HIMSELF DURING ASSESSMENT YEAR 2011-12. AS REGARDS THE DISALLOWANCE OF CLAIM OF DEPRECIATI ON THE LD. AR SUBMITTED THAT AS PER VARIOUS JUDICIAL PRONOUNCEMEN TS AND BOARD CIRCULAR, THE DEPRECIATION IS ALLOWABLE EVEN AFTER ESTIMATION OF NET PROFIT AND IN THIS RESPECT THE LD. AR AGAIN RELIED ON ASSE SSEES CASE IN ASSESSMENT YEAR 2011-12 WHERE THE HON'BLE BENCH OF ITAT VIDE ORDER DATED 19.10.2016 HAD DISMISSED THE APPEAL OF REVENU E IN WHICH LD. CIT(A) HAD ALLOWED CLAIM OF DEPRECIATION. 6. THE LD. DR ON THE OTHER HAND HEAVILY PLACED HIS RELIANCE ON THE ORDER OF AUTHORITIES BELOW. AS REGARDS THE APPEAL FILED BY REVENUE, THE LD. DR SUBMITTED THAT ASSESSING OFFICER HAD RIGHTLY APPLIED 10% OF RATE F OR ESTIMATION OF INCOME WHICH THE LD. CIT(A) HAD WRONGLY REDUCED TO 8%. THE LD. DR FURTHER SUBMITTED THAT THE ACTION OF LD. CIT(A) FOR FURTHER GIVING RELIEF TO THE ASSESSEE ON ACCOUNT OF DEPRECIATION OUT OF ESTIMATE D PROFIT IS ALSO NOT CORRECT. THE LD. DR FURTHER SUBMITTED THAT LD. CIT( A) HAS ERRED IN DELETING THE ADDITION OF RS.3,35,784/- WHICH THE AS SESSING OFFICER HAD ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 6 MADE ON ACCOUNT OF NON DEDUCTION OF TDS ON INTEREST PAID TO M/S SHRI RAM TRANSPORT CO. LTD. 7. THE LD. AR ON THE OTHER HAND SUBMITTED THAT HON' BLE ITAT IN THE CASE OF ASSESSEE ITSELF IN ASSESSMENT YEAR 2011-12 HAS APPLIED NET PROFIT RATE OF 6.51% AND LD. CIT(A) HAS APPLIED 8% OF RATE OF PROFIT WHICH IS HIGHER THAN THE RATE AS UPHELD BY HON'BLE ITAT. AS REGARDS THE ALLOWING OF DEPRECIATION OUT OF EST IMATED INCOME, THE LD. AR SUBMITTED THAT THIS POINT OF ASSESSEE WA S AGAIN COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSE SSMENT YEAR 2011-12 AND MOREOVER CIT(A) HAD NOT ALLOWED DEPRECIATION AN D THAT IS WHY THE ASSESSEE HAS TAKEN THIER GRIEVANCE IN HIS GROUNDS O F APPEAL. AS REGARDS NON DEDUCTION OF TDS FROM INTEREST PAY MENT TO SHRI RAM TRANSPORT CO. LTD., THE LD. AR SUBMITTED SINCE THE INCOME OF THE ASSESSEE WAS ESTIMATED AND THEREFORE NO DISALLOWANC E U/S 40 (A)(IA) WAS WARRANTED AS WAS HELD IN THE CASE OF J.S. CONSTRUCT ION IN ITA NO. 63/ASR/2016 WHICH THE AMRITSAR BENCH HAS FOLLOWED I N THE CASE OF ASSESSEE ITSELF IN ASST. YEAR: 2010-11. IN VIEW OF THE ABOVE IT WAS SUBMITTED THAT THE APP EAL FILED BY REVENUE IS LIABLE TO BE DISMISSED. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. WE FIRST TAKE UP THE APPEAL FILED BY ASSESSEE. WE FIND THAT BOOKS OF ACCOUNTS WERE REJECTED AND ASSESSING OFFICER HAD APPLIED A ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 7 NET OF PROFIT OF 10% ON GROSS RECEIPTS AND WHICH TH E LD. CIT(A) HAS REDUCED TO 8%. WE FIND THAT IN THE CASE OF ASSESSEE ITSELF IN ASSESSMENT YEAR 2011-12, THE RATE OF NP WAS ACCEPTED AT 6.51%. THE HON'BLE TRIBUNAL HAD PASSED A DETAILED ORDER IN THIS RESPEC T AND HAS HELD THIS RATE TO BE APPLIED FOR ESTIMATION THE INCOME OF ASS ESSEE. WE FIND THAT THERE IS NO CHANGE IN THE BUSINESS OF THE ASSESSEE AND THEREFORE AN APPLICATION OF DIFFERENT RATE IS NOT JUSTIFIED. THE FINDINGS OF THE HONBLE TRIBUNAL AS CONTAINED VIDE ORDER DATED 19.10.2016 A RE REPRODUCED BELOW: 14. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIG HT OF THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS A FACT THAT TH E ASSESSEE DID NOT PRODUCE COMPLETE VOUCHERS OF PURCHASES AND LABOUR CHARGES D URING ASSESSMENT PROCEEDINGS AND THEREFORE, THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT IS JUSTIFIED AND THE LD. CIT(A) HAS ALSO UP HELD THE REJECTION OF BOOKS OF ACCOUNT. NOW, AFTER REJECTION OF BOOKS OF ACCOUNT, THE AO IS BOUND TO ESTIMATE THE INCOME OF THE ASSESSEE IN A BEST MA NNER FROM THE AVAILABLE MATERIAL AND KEEPING IN VIEW THE PAST HISTORY OF TH E ASSESSEE. AND FROM HISTORY OF OTHER PERSONS ENGAGED IN SIMILAR TRADE. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD DECLARED NET PROFIT RATE OF 5 .34% IN THE ASSESSMENT YEAR 2009-10, 5.21% IN THE ASSESSMENT YEAR 2010-11 AND 5.51% IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE NET PROFI T RATE DECLARED BY THE ASSESSEE IS PROGRESSIVE DESPITE OF THE FACT THAT TH E TURNOVER OF THE ASSESSEE HAS ALSO INCREASED. THE HONBLE PUNJAB & H ARYANA HIGH COURT, IN THE CASE OF TELELINKS VS. CIT, BATHINDA, HAD LAID DOWN THE FOLLOWING CRITERIA FOR DETERMINATION OF NET INCOME IN THE CAS ES, WHERE BOOKS OF ACCOUNT OF THE ASSESSEE ARE REJECTED: 1) PAST TAX HISTORY OF THE ASSESSEE 2) ASSESSMENT ORDERS PASSED BY AND ACCEPTED BY THE DEPARTMENT. 3) THE NATURE OF ASSESSEES BUSINESS 4) AN APPRAISAL OF THE VALUE OF THE CONTRACT 5) PREVAILING ECONOMIC CONDITIONS VIS--VIS THE ASS ESSEES BUSINESS 6) THE PRICE OF RAW-MATERIAL AND LABOUR ETC. ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 8 7) THE RISE IN PRICE INDEX AS NOTIFIED BY THE CENTR AL GOVERNMENT FROM TIME TO TIME 8. THE ASSESSMENTS OF OTHER ASSESSEES ENGAGED IN SI MILAR BUSINESS WE FIND THAT THE PAST HISTORY OF THE ASSESSEE INDIC ATES THAT THE ASSESSEE HAD BEEN EARNING NET PROFIT RATE IN THE RANGE OF 5. 21% TO 5.34%, WHEREAS IN THE PRESENT YEAR, THE ASSESSEE DECLARED NET PROF IT RATE AT 5.51%. THEREFORE, THE PRESENT RATE OF NET PROFIT DECLARED BY THE ASSESSEE IS IN LINE WITH THE EARLIER YEARS. WE FURTHER FIND THAT THE EA RLIER YEARS RETURNS HAS BEEN ACCEPTED BY THE DEPARTMENT AND THEREFORE, THER E IS NO REASON WHY THE SIMILAR RATHER INCREASED RATE OF NET PROFIT SHO ULD NOT HAVE BEEN ACCEPTED BY THE AUTHORITIES BELOW, ESPECIALLY KEEPI NG IN VIEW THE FACT THAT THE ASSESSEE IS ENGAGED IN SAME KIND OF ACTIVITIES AS WAS IN THE EARLIER YEAR. THE LD. COUNSEL HAS RELIED UPON A NUMBER OF C ASE LAWS NOTED ABOVE IN THIS ORDER, WHEREIN THE TRIBUNAL HAD HELD THE NE T PROFIT RATE OF 5% TO BE REASONABLE KEEPING IN VIEW THE PAST HISTORY OF THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, THE FINDING OF THE TRIBUNAL IN ITA NO.58/ASR/2012 IN THE CASE OF MOHAN SINGH CONTRACTOR ARE REPRODUCED BELOW : 5.1. AS REGARDS THE ESTIMATION OF INCOME, THE AO H AS APPLIED NET PROFIT RATE OF 8% AND HAS RELIED UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN THE CASE OF CIT, HI SSAR VS. PRABHAT KUMAR CONTRACTOR, SIRSA, IN ITA NO.293 OF 2 008 DATED 14.11.2008. THE AO HAS NOT BROUGHT OUT THE FACTS ON RECORD OF THE CASE OF CIT, HISSAR VS. PRABHAT KUMAR CONTRACTOR, S IRSA (SUPRA), AS TO HOW THE FACTS IN THAT CASE ARE IDENTICAL TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE HAS BEEN DECLARING NET PROFIT RA TE OF 3.87% IN THE PRECEDING YEAR AT A TURNOVER OF RS.1,32,26,714/ -, WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT THERE IS NO DISPUTE TO THIS FACT. KEEPING IN VIEW THE PAST HISTORY OF THE PRESENT CAS E OF THE ASSESSEE AND FACTS AND CIRCUMSTANCES OF THE PRESENT CASE A N ET PROFIT RATE OF 5% IF APPLIED TO THE CONTRACT RECEIPTS DECLARED BY THE ASSESSEE WILL MEET BOTH ENDS OF JUSTICE. THE AO IS DIRECTED TO AC T ACCORDINGLY. THE ORDERS OF BOTH THE AUTHORITIES BELOW ARE MODIFIED A CCORDINGLY. THUS, THE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. 15. SIMILARLY, THE TRIBUNAL IN ITA NO.366/ASR/2010, VIDE ORDER DATED 30/04/2012, IN THE CASE OF SURINDER PAL NAYYAR CONT RACTORS, HAS HELD THE RATE OF 5% TO BE REASONABLE BY HOLDING AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIALS AVAILABLE WITH US. WE HAVE ALSO THOROUGHLY GONE THR OUGH THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THE ISSUE RAIS ED BY THE DEPARTMENT AS WELL AS BY THE ASSESSEE. IT IS A MATT ER OF RECORD THAT THE ASSESSEE HAS FILED THE ORIGINAL RETURN ON 30.10 .2008 BY DECLARING LOSS OF RS.4,40,514/- BUT SUBSEQUENTLY TH E ASSESSEE HAS ALSO FILED REVISED RETURN ON 08.12.2008 BY DECLARIN G LOSS OF RS.4,17,515/- AS MENTIONED BY THE AO AT PAGE 1. IT IS ALSO A MATTER OF RECORD THAT AFTER CONSIDERING THE DOCUMENTARY E VIDENCE FILED BY THE ASSESSEE AS WELL AS REPLY TO THE NOTICE DATED 2 8.11.2008, THE AO APPLIED PROVISIONS OF SECTION 145(3) OF THE ACT IN THE CASE OF THE ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 9 ASSESSEE BECAUSE THE ASSESSEE HAS NOT FILED SOME DO CUMENTARY EVIDENCE IN ORIGINAL BEFORE THE AO. THEREFORE, WE A RE OF THE OPINION THAT THE AO AS WELL AS THE LD. FIRST APPELLATE AUTH ORITY HAS RIGHTLY APPLIED THE PROVISIONS OF SECTION 145(3) IN THE CAS E OF THE ASSESSEE. SECONDLY, AS REGARDS THE BENEFIT OF CARRIED FORWAR D LOSSES, KEEPING IN VIEW THE REVISED RETURN FILED BY THE ASSESSEE AF TER DUE DATE, WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR ANY CARRIED FORWARD LOSSES AS DISCUSSED BY THE AO AND UPHELD BY THE LD. FIRST APPELLATE AUTHORITY. AS REGARDS TO THE APPLICATION OF NET PROFIT RATE AT 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO THE PARTNERS OF ASSESSEES TURNOVER AS AGAINST 8% APPLIED BY THE AO , IT IS A MATTER OF FACT THAT THE AO HAS NOT GIVEN ANY REASONABLE EX PLANATION WHILE APPLYING 8% NET PROFIT RATE ON THE ASSESSEES GRO SS RECEIPTS FOR THE ASSESSMENT YEAR UNDER REFERENCE. THE INCOME ASSESSE D IN THE ASSESSMENT YEAR 2001-02 IN ASSESSEES CASE WAS APPA RENTLY 3.6% OF ITS NET RECEIPTS. BUT IN THE PRESENT ASSESSMENT YEAR, THE AO HAS POINTED OUT VARIOUS DEFECTS IN THE ASSESSMENT ORDER . THE LD. CIT(A) CONSIDERING ALL THE DEFECTS POINTED OUT BY THE AO AND FINALLY, VALIDLY AND REASONABLY DETERMINED THE NET PROFIT RA TE AT 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO THE PARTNERS ON THE ASSESSEES TURNOVER. KEEPING IN VIEW THE FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY APPLIED NET PROFIT RATE OF 5% AFTER ALLOWING DEPRECIATION AND INTEREST TO THE PARTNERS ON ASSESSEES TURN OVER AS AGAINST 8% APPLIED BY THE A.O. WE UPHO LD THE IMPUGNED ORDER BY DISMISSING THE APPEAL FILED BY TH E DEPARTMENT AS WELL AS C.O. FILED BY THE ASSESSEE. 16. THE TRIBUNAL VIDE ITS ORDER DATED 21.01.2016, I N ITA NO.483/ASR/2013, IN THE CASE OF SATISH AGGARWAL & C O., AFTER TAKING INTO ACCOUNT THE FACTORS NOTED BY THE HONBLE PUNJAB & H ARYANA HIGH COURT IN TELELINKS VS. CIT, BATHINDA, HAS ALSO HELD THE RATE OF 5% TO BE REASONABLE, BY HOLDING AS UNDER: 12. AS DEMONSTRATED BY LEARNED AR THE PAST AND SUB SEQUENT PROFIT MARGINS REMAINED LESS THAN 5% AND THE ACTIVI TIES OF THE ASSESSEE REMAINED SAME, THEREFORE, WE UPHOLD THE AP PLICATION OF 5% NET PROFIT RATE. 17. HOWEVER, IT IS ALSO A FACT THAT IN CASE OF NON SUBMISSION OF COMPLETE VOUCHERS AND PURCHASE INVOICES TO THE ASSESSING AUT HORITY, THERE IS ALWAYS A CHANCE OF UNDERSTATING THE PROFITS. THE AC CEPTANCE OF PROFITS DECLARED BY THE ASSESSEE AT THE SAME FIGURE WITHOUT VERIFICATION OF PURCHASE INVOICES AND VOUCHERS CANNOT BE EQUATED WI TH A CASE WHERE COMPLETE VOUCHERS AND BOOKS HAD BEEN SUBMITTED. THO UGH, THE ASSESSEE IN EARLIER YEARS HAD DECLARED NET PROFIT RATE RANGI NG FROM 5.21% TO 5.34% AND THE DEPARTMENT HAD ACCEPTED THE SAME, THEREFORE , IT MAY BE A CASE THAT IN THOSE YEARS, THE ASSESSEE HAD FILED COMPLET E VOUCHERS AND PURCHASE INVOICES. THEREFORE TO EQUATE A PERSON WHO MAINTAINS COMPLETE VOUCHES AND BOOKS OF ACCOUNT WITH A PERSON WHO DOES NOT MAINTAIN COMPLETE BOOKS OF ACCOUNT IS NOT JUSTIFIED. THERE S HOULD BE SOME DETERRENT SO AS TO INDUCE A PERSON TO MAINTAIN PROPER BOOKS O F ACCOUNTS. IN VIEW OF ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 10 THE ABOVE, WE ARE OF THE OPINION THAT THOUGH KEEPIN G IN VIEW THE PAST HISTORY OF THE ASSESSEE, THE RATE OF NET PROFIT RAT E DECLARED AT 5.51% SHOULD HAVE BEEN ACCEPTED BUT TO CREATE A DETERRENT TO MAI NTAIN BOOKS OF ACCOUNTS, THE LD. CIT(A) HAS RIGHTLY APPLIED A HIG HER NET PROFIT RATIO. THE LD. CIT(A) HAS APPLIED 8% RATE OF NET PROFIT, WHICH IS QUITE HIGH WHEN COMPARED TO THE ACTUAL RATE OF NET PROFIT EARNED BY THE ASSESSEE IN THE EARLIER YEARS. THE BOOKS OF ACCOUNTS OF THE ASSESSE E HAS BEEN AUDITED U/S 44AB OF THE ACT AND IT CANNOT BE ASSUMED THAT THE B OOKS OF ACCOUNTS WERE NOT SUPPORTED BY VOUCHERS. THE ASSESSEE IN THIS CAS E HAS PRODUCED PHOTOCOPIES OF PURCHASE BILLS AND THEREFORE, THE LD . CIT(A) HAS RIGHTLY DISTINGUISHED THE CASE LAWS RELIED ON BY THE ASSESS ING OFFICER. THEREFORE, KEEPING IN VIEW ALL FACTS & CIRCUMSTANCES AND KEEPI NG IN VIEW A BALANCED VIEW, WE DEEM IT APPROPRIATE THAT A 1% HIGHER RATE OF NET PROFIT WOULD HAVE SERVED THE ENDS OF JUSTICE. IN VIEW OF THE ABOVE, WE DIRECT THE AO TO CALCULATE THE PROFITS OF THE ASSESSEE BY APPLYING N ET PROFIT RATE OF 6.51% ON THE GROSS RECEIPTS. IN VIEW OF THE ABOVE WE DIRECT THE ASSESSING OFFIC ER TO APPLY A RATE OF 6.51% FOR ESTIMATION THE INCOME OF ASSESSEE. IN VIEW OF THE ABOVE GROUND NO. 1 TO 4 ARE PARTLY ALLOWED. AS REGARDS THE GROUND NO. 5 REGARDING CLAIM OF DEP RECIATION AGAINST THE ESTIMATED INCOME WE FIND THAT THIS ISSU E IS ALSO COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF TRIBUNAL IN THE CASE OF ASSESSEE ITSELF WHEREIN THE HON'BLE TRIBUNAL VIDE ITS ORDER DATED 1 9.10.2016 HAD HELD AS UNDER: 18. AS REGARDS THE GRIEVANCE OF THE REVENUE THAT T HE DEPRECIATION SHOULD NOT HAVE BEEN ALLOWED, WE FIND THAT THE DEPA RTMENT VIDE CIRCULAR NO. 29D, DATED 31.08.1965 (PLACED AT APB 34) HAS DI RECTED THAT WHERE THE BOOKS OF THE ACCOUNT ARE REJECTED AND PROFITS ARE E STIMATED, DEPRECIATION ALLOWANCE SHOULD BE GIVEN. FOR THE SAKE OF CONVENIE NCE, PARA-2 OF SAID CIRCULAR IS REPRODUCED AS UNDER: 2. THE BOARD CONSIDER THAT WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FUR NISHED BY THE ASSESSEE, THE DEPRECIATION ALLOWANCE SHOULD BE SEPA RATELY WORKED OUT. IN ALL SUCH CASES THE GROSS PROFIT SHOULD BE E STIMATED AND THE DEDUCTIONS AND ALLOWANCES INCLUDING THE DEPRECIATIO N ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PROFIT . IF IT IS CONSIDERED THAT THE NET PROFIT SHOULD BE ESTIMATED IT SHOULD BE ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 11 ESTIMATED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THEREFROM . 19. WE FURTHER FIND THAT THE HONBLE PUNJAB & HARYA NA HIGH COURT IN THE CASE OF LALI CONSTRUCTION CO. (SUPRA) HAS HELD THAT WHERE THE ASSESSEE GIVES INFORMATION REQUIRED UNDER SECTION 32 OF THE ACT REGARDING CLAIM OF DEPRECIATION, THE AO IS BOUND TO ALLOW THE CLAIM OF DEPRECIATION. THE FINDINGS OF THE HONBLE COURT ARE REPRODUCED BELOW: TAKING UP THE FIRST POINT, THE MATTER IS NO LONGER RES INTEGRA. THE DIVISION BENCHES OF THIS COURT IN COMMISSIONER OF I NCOME TAX V. CHOPRA BROS. INDIA (P) LIMITED (2001) 252 ITR 412 A ND GIRDHARI LAL V. COMMISSIONER OF INCOME TAX(2002) 256 ITR 318 WHI LE CONSIDERING THE AFORESAID ISSUE, IN VIEW OF THE CIR CULAR ISSUED BY THE BOARD, HAD HELD IN A CASE WHERE THE ASSESSEE MAKES A SPECIFIC CLAIM FOR DEPRECIATION AND GIVES THE INFORMATION AS REQUIRED U/S 32 OF THE ACT, THE ASSESSING OFFICER IS BOUND TO TAKE THE CLAIM OF THE ASSESSEE INTO CONSIDERATION. FOLLOWING THE AFORESAI D JUDGMENTS, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION ON ACCOUNT OF DEPRECIATION FROM RECEIPTS WHILE APPLYING NET PROFI T RATE ON THE GROSS RECEIPTS. IN VIEW OF THE ABOVE, THE LD. CIT(A) HAS RIGHTLY A LLOWED THE CLAIM OF DEPRECIATION OUT OF NET PROFIT WORKED OUT BY APPLYI NG NET PROFIT RATE. THEREFORE FOLLOWING THE ABOVE WE ALLOW GROUND NO. 5 OF ASSESSEES APPEAL AND GROUND NO. 7 HAS ALREADY BEEN WITHDRAWN BY ASSESSEE AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. IN VIEW OF THE ABOVE THE APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED. NOW COMING TO THE APPEAL FILED BY REVENUE, WE FIND THAT THE GRIEVANCE OF REVENUE IS REDUCTION OF APPLICATION OF NET PROFIT RATE FROM 10% TO 8% WHEREAS WE FIND THAT DURING ASSESSMENT YE AR 2011-12 IN THE CASE OF ASSESSEE HIMSELF, THE HON'BLE TRIBUNAL VIDE ORDER DATED 19.10.2016 HAD REDUCED THE NET PROFIT RATE FROM 8% TO 6.51%. THE SAID ORDER OF THE TRIBUNAL HAS ALREADY BEEN REPRODUCED I N THE PRESENT ORDER AND THEREFORE THE GRIEVANCE OF REVENUE IN REDUCING NET PROFIT RATE FROM ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 12 10% TO 8% IS NOT JUSTIFIED AND IN VIEW OF THE ABOVE GROUND NOS. 1 TO 3 ARE DISMISSED. AS REGARDS ALLOWING OF SEPARATE DEDUCTION OF DEPRE CIATION OUT OF ESTIMATED INCOME, WE FIND THAT THIS ISSUE IS ALSO C OVERED IN FAVOUR OF ASSESSEE WHERE THE HON'BLE TRIBUNAL IN THE CASE OF ASSESSEE HIMSELF VIDE ORDER DATED 19.10.2016 HAS ALSO UPHELD THAT DEPRECI ATION IS TO BE ALLOWED OUT ESTIMATED INCOME. THE RELEVANT FINDING OF THE TRIBUNAL HAS ALREADY BEEN REPRODUCED IN THE CASE OF ASSESSEE AND MOREOVER LD. CIT(A) HAS NOT ALLOWED THIS DEPRECIATION. THEREFORE THIS G ROUND OF REVENUE IS MISPLACED. IN VIEW OF THE ABOVE, GROUND NO. 4 IS AL SO DISMISSED. AS REGARDS GROUND NO. 5 WE FIND THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF TRIBUNAL DATED 1 9.10.2016 WHEREIN THE HON'BLE TRIBUNAL HAD HELD THAT ONCE THE PROFITS OF THE ASSESSEE HAS BEEN ESTIMATED AFTER REJECTION OF BOOKS OF ACCOUNTS, NO SEPARATE ADDITION WAS WARRANTED. THE FINDINGS OF THE HON'BLE TRIBUNAL ARE CONTAINED IN PARA 24 TO 25. FOR THE SAKE OF COMPLETENESS, THE FINDINGS O F THE ORDER OF TRIBUNAL ARE REPRODUCED BELOW: 24. AS REGARDS THE DISALLOWANCE UNDER SECTION 40(A )(IA) OF THE ACT, WE FIND THAT SINCE THE INCOME OF THE ASSESSEE HAS BEEN WORKED OUT ON ESTIMATION, THEREFORE, NO FURTHER DISALLOWANCE WAS WARRANTED, AS HELD BY THE ITAT, AMRITSAR BENCH IN THE CASE OF J.S. GROVER CONSTRUCTIONS, IN ITA NO.63/ASR/2016, VIDE ORDER DATED 26.08.2016, AS UND ER: 9.1 IN THIRD GROUND OF APPEAL THE DEPARTMENT HAS R ELIED UPON THE DECISION OF SUPREME COURT OF INDIA IN THE CASE OF K ACHAWALA JUNKS VS JCIT REPORTED IN 288 ITR 10. A COPY OF THE JUDGM ENT IS PLACED AT PAGE NO. 98 TO 100 OF THE PAPER-BOOK WHICH SUPPORTS THE CASE OF THE ASSESSEE RATHER THE CASE OF THE DEPARTMENT. THUS TH IS GROUND OF APPEAL MAY ALSO BE DISMISSED. AS FAR AS THE FOURTH GROUND OF ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 13 APPEAL IS CONCERNED, IT IS ALSO LIABLE TO BE REJECT ED ONCE THE RATE OF PROFIT IS APPLIED NO FURTHER DISALLOWANCE OR ADDITI ON CAN BE MADE. THIS VIEW FINDS SUPPORT FROM THE FOLLOWING JUDGMENT S:- I) DECISION OF JHARKHAND HIGH COURT IN THE CASE OF AMITABH CONSTRUCTION (P) LTD VS. ADDL. CIT REPORTED IN 335 ITR 523. (REFER PAGE NO 101 TO 104 OF PAPER BOOK). II) DECISION OF KERALA HIGH COURT IN THE CASE OF S AMURAI TECHNO TRADING CO LTD VS. CIT REPORTED IN 197 TAXMAN 144. (REFER PAGE NO 105 TO 109 OF PAPER BOOK) III) DECISION OF ANDHRA PRADESH HIGH COURT IN THE C ASE OF MADDI SUDARSANAM OILS MILLS VS CIT REPORTED IN 37 ITR 369 WHICH WAS FOLLOWED IN THE CASE OF INDWELL CONSTRUCTIONS V S CIT REPORTED IN 232 ITR 776. (REFER PAGE NO 110 TO 112 OF PAPER BOOK) IV) DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARILAL BANSIDHAR REPORTED IN 229 ITR 229 IN WHI CH IT WAS HELD NO DISALLOWANCE CAN BE MADE U/S 40(A)(III) WHERE GP RATE IS APPLIED. (REFER PAGE NO 113 TO 115 OF PA PER BOOK) V) DECISION OF ITAT, AMRITSAR BENCH, IN THE CASE OF SM T. BALBIR KAUR VS. ITO IN ITA NO. 151(ASR)/2016, ORDER DATED 23/05/2016 RELATING TO AY 2004-05. 25. THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF J.S. GROVER CONSTRUCTIONS, DATED 26.08.2016 (SUPRA), WE ALLOW THIS GROUND OF APPEAL OF THE ASSE SSEE. THEREFORE FOLLOWING THE ABOVE JUDICIAL PRECEDENTS GROUND NO. 5 IS ALSO REJECTED AND THEREFORE THE APPEAL FILED BY REV ENUE IS DISMISSED. 9. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS PAR TLY ALLOWED WHEREAS THE APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.10.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11.10.2017. /GP/SR. PS . ITA NO. 564(ASR)/2014 & ITA NO. 472(ASR)/2016 ASSTT. YEAR: 2007-08 & 2012-13 14 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