JANTA CONSTRUCTION CO., Jaipur V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, Jaipur

ITA 580/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2473 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 01-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J. C. KULHARI
• Assessee Lawyers: APPLYING NP RATE OF BEFORE INTEREST
• Keywords: Rejection of books of accounts; Depreciation
• Section: 13; 145(3)

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. 579 & 580/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2014-15 & 15-16. M/S. JANTA CONSTRUCTION CO., E-47,ROAD NO.2B, VKI AREA, JAIPUR. CUKE VS. THE ACIT, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AABFJ 0003 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MUKESH KHANDELWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27.08.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29/08/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST TWO SEPARATE ORDERS OF LD. CIT (APPEALS)-2, JAIPUR BOTH DATED 15 TH MARCH, 2018 FOR THE ASSESSMENT YEARS 2014-15 AND 2015-16. THE ASSESSEE HAS RAISED COMMO N GROUNDS IN THESE APPEALS. THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2014-15 ARE REPRODUCED AS UNDER :- 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND FACT S IN APPLYING AN NP RATE OF 11% OF THE CONTRACT RECEIPTS FOR ASSE SSING THE INCOME OF THE APPELLANT (AS AGAINST A RATE OF 1 2% APPLIED BY THE LD. AO) AND THEREBY ALLOWING A BENEF IT OF ONLY 1% IGNORING THE PAST HISTORY OF THE CASE WHERE THE HONBLE ITAT, JAIPUR BENCH, JAIPUR HAS CONSIDERED A N NP RATE MORE THAN 8% SUBJECT TO DEPRECIATION, INTEREST ON CAPITAL TO PARTNERS AND REMUNERATION TO PARTNERS AS REASONABLE. 2 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR. 2. THAT THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, AL TER, DELETE ANY OF THE GROUNDS OF APPEAL BEFORE THE HEAR ING. 2. THE ONLY COMMON ISSUE RAISED BY THE ASSESSEE IN THESE TWO APPEALS IS REGARDING THE ADDITION MADE BY THE AO BY APPLYING N ET PROFIT RATE OF 12% WHICH WAS RESTRICTED BY THE LD. CIT (A) BY APPLYING N.P. RATE OF 11%. THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF CIV IL CONTRACT WORK FOR STATE GOVERNMENT DEPARTMENTS. IN THE SCRUTINY ASSESSMENT , THE AO REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145( 3) OF THE IT ACT AND THEN ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING NP RATE OF 12% BEFORE INTEREST, SALARY TO PARTNERS AND DEPRECIATION. THE LD. CIT ( A) RESTRICTED THE ADDITION BY ADOPTING THE AVERAGE NET PROFIT RATE BEFORE INTERES T, SALARY TO PARTNERS AND DEPRECIATION OF EARLIER YEARS THOUGH AFTER SOME ADD ITIONS MADE BY THE AO IN THE EARLIER ASSESSMENT YEARS. 3. AGGRIEVED BY THE ORDERS OF THE AUTHORITIES BELOW , THE ASSESSEE HAS FILED THESE APPEALS. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEES NP RATE FOR THE YEAR UNDER CONSIDERATION IS AT PAR WITH THE NP RATE DECLARED IN THE EARLIER ASSESSMENT YEARS, THEREFORE, NO ADDITION IS CALLED FOR WHILE ASSESSING THE INCOME OF THE ASSESSEE ON ESTIMATE BASIS. THE LD. A/R OF THE ASSESSEE HAS REFERRED TO THE COMPARATIVE DETAILS OF THE NP OF THE ASSESSEE FOR T HE PAST YEARS BEFORE INTEREST, SALARY TO PARTNERS AND DEPRECIATION. HE HAS FURTHE R SUBMITTED THAT THE LD. CIT (A) THOUGH GRANTED SOME RELIEF, HOWEVER, THE NP RATE TA KEN BY THE LD. CIT (A) IS ALSO BASED ON INCORRECT FIGURES AS THE ADDITION MADE BY THE AO FOR THE ASSESSMENT YEAR 2010-11 ON ACCOUNT OF INTEREST RECEIVED FROM INCOME TAX AND SALES TAX 3 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR. DEPARTMENTS WAS ALSO TAKEN AS PART OF THE NET PROFI T OF THE ASSESSEE FROM THE BUSINESS OPERATIONS WHEREAS THE SAID AMOUNT OF INTE REST IS INCOME FROM OTHER SOURCES AND CANNOT BE CONSIDERED AS PART OF THE NET PROFIT OF THE ASSESSEE. THUS THE LD. A/R HAS SUBMITTED THAT WHEN THE ASSESSEES NET PROFIT FOR THE YEAR UNDER CONSIDERATION IS AT PAR WITH THE EARLIER YEARS THEN NO FURTHER ADDITION IS CALLED FOR THE YEAR UNDER CONSIDERATION. 4. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T ONCE THE INCOME OF THE ASSESSEE IS ESTIMATED BASED ON THE NET PROFIT, THEN THE TOTAL INCOME ASSESSED BY THE AO IN EARLIER YEARS HAS TO BE TAKEN INTO CONSIDERAT ION. THUS FOR APPLYING THE PROFIT OF THE PAST YEARS THE TOTAL INCOME ASSESSED BY THE AO AND ATTAINED THE FINALITY HAS TO BE CONSIDERED AND NOT THE INCOME DECLARED BY THE AS SESSEE. THE LD. D/R HAS THUS SUBMITTED THAT THE LD. CIT (A) HAS CONSIDERED THE C ORRECT NET PROFIT OF PAST YEARS FOR ESTIMATION OF INCOME OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. IN THE GROUND RAISED BY THE ASSESSEE, THE ASSESSEE HAS DISPUTED ONLY THE ESTIMATION OF INCOME AND THE NET PROFIT RATE APPLIE D BY THE AO AND THE LD. CIT (A). THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS UNDER S ECTION 145(3) HAS NOT BEEN RAISED BY THE ASSESSEE IN THESE APPEALS. WE FURTHER NOTE THAT THE DETAILS OF THE NET PROFIT BEFORE INTEREST, SALARY TO PARTNERS AND DEPRECIATIO N FOR THE PRECEDING YEARS HAS BEEN GIVEN BY THE AO AT PAGE 3 OF HIS ORDER AS UNDER :- 4 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR. A.Y. GROSS RECEIPTS NET PROFIT BEFORE INTT. & SALARY TO PARTNERS AND DEPRECIATION. PROFIT RATE 2005 - 06 5,74,13,827 49,42,332 8.61% 2006 - 07 8,00,87,854 64,54,201 8.06% 2007 - 08 6,93,12,617 58,29,768 8.41% 2008 - 09 8,80,78,982 74,83,744 8.50% 2009 - 10 4,61,66,265 41,41,707 8.97% 2010 - 11 5,26,24,384 47,48,860 9.02% 2011 - 12 2,54,66,376 24,85,737 9.76% 2012 - 13 1,79,61,733 17,06,540 9.50% 2013 - 14 4,70,33,783 40,10,196 8.53% 2014 - 15 5,10,51,738 42,24,996 8. 28% AFTER REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3), THE AO OUGHT TO HAVE ESTIMATED THE INCOME OF THE ASSESSEE ON THE BASIS O F PROPER AND REASONABLE RATE OF PROFIT AND THE PAST HISTORY OF THE PROFIT DECLARED BY THE ASSESSEE CAN BE A GOOD GUIDANCE FOR APPLYING THE NET PROFIT RATE FOR THE Y EARS UNDER CONSIDERATION. THOUGH THE AO APPLIED THE NET PROFIT BEFORE INTEREST, SALA RY TO PARTNERS AND DEPRECIATION AT 12% OF THE GROSS RECEIPTS WHICH WAS MODIFIED BY THE LD. CIT (A) BY APPLYING THE NP RATE OF 11%, HOWEVER, WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS HAS CONSIDERED THIS ISSUE AND HELD THAT THE NET PROFIT @ 9.02% FOR THE ASSESSMENT YEAR 2010-11 IS FOUND TO B E IN LINE WITH THE PRECEDING YEARS AND RATHER ON A PROGRESSIVE SCALE. SIMILARL Y, FOR THE ASSESSMENT YEAR 2011-12 THE TRIBUNAL HAS FOLLOWED THE DECISION FOR THE ASSE SSMENT YEAR 2010-11 AND HELD IN PARA 7 VIDE ORDER DATED 28 TH APRIL, 2017 IN ITA NO. 861/JP/2014 AS UNDER :- 7. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE ASSESSEE HAS DECLARED N.P. RATE FOR THE YEAR UNDER APPEAL WAS 9. 76%, WHICH WAS BETTER THAN ALL OF THE THREE YEARS I.E. ASSESSMENT YEARS 2008-09 TO 5 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR. 2010-11. THE ITAT IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2005-06 TO 2008-09 HAS ACCEPTED THE GROSS PROFIT RA TE AS DECLARED BY THE ASSESSEE. THE ITAT IN ASSESSEES OWN CASE IN T HE ASSESSMENT YEAR 2010-11 HAS ALSO ACCEPTED THE DECLARED NP RATE OF 9 .02%. THE RELEVANT PORTION OF THE ITAT ORDER IS REPRODUCED HE REUNDER :- 2.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDER AND FINDING OF THE LD. CIT (A). IN THE PAST, THE CO ORDINATE BENCHES HAVE TAKEN A CONSISTENT VIEW THAT NP RATE W HICH SHOULD BE CONSIDERED FOR EXAMINATION IS NP RATE BEFORE DEP RECIATION, INTEREST AND REMUNERATION TO PARTNERS. NOTHING HAS BEEN BROUGHT TO YOU NOTICE FOR DEVIATING FROM THE SAID S ETTLED POSITION. FURTHER, DURING THE YEAR UNDER CONSIDERAT ION, THE NP RATE BEFORE DEPRECIATION, INTEREST AND REMUNERATION TO PARTNERS IS DISCLOSED BY THE ASSESSEE AT 9.02% WHICH IS ON A PROGRESSIVE SCALE HENCE THERE IS NO BASIS TO DISTURB THE SAME. SECONDLY THE EXPENSES HAVE BEEN DISALLOWED ON AN AD HOC BASIS. I N ABSENCE OF ANY SPECIFIC FINDING OF THE AO WHEREBY SPECIFIC EXPENSES/TRANSACTIONS HAVE BEEN HELD TO BE NOT INCU RRED FOR THE PURPOSES OF BUSINESSES, WE ARE UNABLE TO ACCEDE TO THE POSITION ADOPTED BY THE AO. HENCE WE DO NOT SEE ANY INFIRMIT Y IN ORDER OF LD. CIT (A) WHICH IS CONFIRMED. ALL THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. THUS, THE AVERAGE NET PROFIT RATE OF THE PAST YEARS IS LOWER THAN THE CURRENT YEAR. ONCE THE BOOKS OF ACCOUNT HAVE BEEN R EJECTED THEN THE SPECIFIC DISALLOWANCE UNDER VARIOUS HEADS SHOULD NO T HAVE BEEN MADE AND ONLY THE GROSS PROFIT/NET PROFIT RATE SHOULD HA VE BEEN ESTIMATED. SINCE THE AVERAGE N.P. RATE OF THE PAST SIX YEARS C OMES LESSER THAN THE DECLARED N.P. RATE OF 9.76% FOR THE YEAR, THEREFORE , I FIND MERIT IN THE CONTENTION OF THE ASSESSEE AND ON THAT BASIS, I DIR ECT TO DELETE THE ADDITION MADE FROM VARIOUS EXPENSES. THIS VIEW IS ALSO GET SUPPORT FROM THE DECISION OF THE HONBLE RAJASTHAN HIGH COU RT IN THE CASE OF CIT VS. POPULAR ART PALACE LTD. (2017) 391 ITR 352 (RAJ.), WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER :- 6 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR. HELD, THAT THE ADOPTING OF GROSS PROFIT BY THE AS SESSING OFFICER AT 35 PERCENT WAS HIGH. THE AVERAGE OF PROFIT SHOWN BY THE ASSESSEE FROM THE YEAR 1991-92 TO 1996-97, WAS 31.4 PERCENT AND FOR THAT THE ESTIMATE OF 32 PERCENT COULD BE AD OPTED INSTEAD OF 35 PERCENT BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS TO MAKE CALCULATIONS BY ADOPTING ESTIMA TED PROFIT OF 32 PERCENT. THUS THE TRIBUNAL HAS TAKEN A CONSISTENT VIEW IN AS SESSEES OWN CASE FOR ALL THE PRECEDING YEARS THAT THE NET PROFIT DECLARED BY THE ASSESSEE FOR THE EARLIER YEARS CAN BE A BASIS FOR ESTIMATION OF INCOME OF THE ASSESSEE . FOR THE YEARS UNDER CONSIDERATION, THE LD. CIT (A) HAS TAKEN THE AVERAG E OF THREE YEARS FOR ESTIMATION OF INCOME OF THE ASSESSEE I.E. ASSESSMENT YEARS 2010-1 1 TO 12-13. HOWEVER, THE LD. CIT (A) CONSIDERED THE NET PROFIT FOR THE ASSESSMEN T YEAR 2011-12 @ 10.14% AS AGAINST THE NET PROFIT DECLARED BY THE ASSESSEE AT 9.76% AND FOR THE ASSESSMENT YEAR 12-13 IT WAS TAKEN AT 9.79% AS AGAINST 9.5% DE CLARED BY THE ASSESSEE. WE FIND THAT THE ADDITIONS MADE FOR THESE TWO YEARS WH ICH WERE CONSIDERED BY THE LD. CIT (A) AS PART OF THE NET PROFIT WOULD NOT FORM PA RT OF THE OPERATING PROFITS OF THE ASSESSEE FOR ESTIMATION OF INCOME. THEREFORE, THE NET PROFIT OF THE PAST YEARS FROM THE BUSINESS OPERATIONS OF THE ASSESSEE HAS TO BE T AKEN INTO CONSIDERATION AND NOT ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST RECE IVED FROM THE INCOME-TAX DEPARTMENT AND SALES TAX DEPARTMENT, WHICH WOULD BE THE INCOME FROM OTHER SOURCES. ACCORDINGLY, WE DIRECT THE AO TO APPLY TH E AVERAGE NET PROFIT OF THE ASSESSEE FOR PAST THREE YEARS I.E. 2010-11 TO 12-13 WITHOUT CONSIDERING THE ADDITIONS MADE FOR THE PAST YEARS WHICH IS NOT FORMING PART O F THE NET PROFIT AND THEN APPLYING SAID AVERAGE NP TO ESTIMATE THE INCOME OF THE ASSES SEE. WE MAY CLARIFY THAT THE ESTIMATION OF INCOME OF THE ASSESSEE BY APPLYING TH E PAST HISTORY OF NET PROFIT MAY 7 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR. NOT NECESSARILY RESULT AN ADDITION, HOWEVER, THE ES TIMATION IS A STATUTORY REQUIREMENT AFTER REJECTION OF BOOKS OF ACCOUNT. THEREFORE, TH E AO HAS TO ASSESS THE INCOME OF THE ASSESSEE BY APPLYING THE AVERAGE OF PAST THREE YEARS NET PROFIT DECLARED BY THE ASSESSEE. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29/08/20 18. 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:- 29/08/2018. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. JANTA CONSTRUCTION CO., JAIP UR. 2. THE RESPONDENT THE DCIT, CIRCLE-4, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 579 & 580/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 8 ITA NOS. 579 & 580/JP/2018 M/S. JANTA CONSTRUCTION CO., JAIPUR.