The Asstt. Commissioner of Income Tax, Pathankot V. M/s. J.S. Grover Construction, Pathankot

ITA 63/ASR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9611 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 14-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKER
• Assessee Lawyers: SSH P N ARORA
• Keywords: Depreciation; Rectification of order
• Section: 40A(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.63(ASR)/2016 ASSESSMENT YEAR:2011-12 PAN: AAHFJ3327N ASSTT. COMMR. OF INCOME TAX, VS. M/S. J.S. GROVER C ONSTRUCTIONS, CIRCLE-VI, PATHANKOT. OPP. SDM COURT, DALHOUSIE R OAD, PATHANKOT. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. BHAWANI SHANKER, DR RESPONDENT BY: S/SH.P.N. ARORA & ANIL VASUDEVA, CA DATE OF HEARING: 14/06/2016 DATE OF PRONOUNCEMENT: 26/08/2016 ORDER PER A.D. JAIN, JM: THIS IS THE REVENUES APPEAL FOR THE ASSESSMENT YE AR 2011-12, AGAINST THE ORDER DATED 08.10.2015, PASSED BY THE LD. CIT(A)-2, AMRITSAR. THE REVENUE HAS RAISED THE FOLLOWING GR OUNDS OF APPEAL: 1. ON THE FACTS AND LAW, THE LD. COMMISSIONER OF I NCOME TAX (APPEALS)-II, AMRITSAR HAS ERRED IN APPLYING NET PR OFIT RATE OF 7% AND FURTHER ALLOWING SEPARATE DEDUCTION OF DEPRE CIATION AGAINST NET PROFIT OF 10%(AFTER TAKING IN TO CONSID ERATION OF DEPRECIATION) REASONABLE APPLIED BY THE AO AFTER RE JECTING THE BOOKS OF ACCOUNT UNDER SECTION 145(3) AFTER PIN POI NTING SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT. 2. ON THE FACTS AND LAW, THE LD. COMMISSIONER OF I NCOME TAX (APPEALS)-II, AMRITSAR HAS ERRED IN ALLOWING SEPARA TE DEDUCTION OF DEPRECIATION, WHEN DELETED FURTHER SEP ARATE ITA NO.63/ASR/2016 A.Y. 2011-12 2 ADDITION(DISALLOWANCE OF INTEREST PAYMENT WITHOUT D EDUCTION OF TAX) BY HOLDING THAT ONCE BOOKS OF ACCOUNT REJEC TED, THERE IS NO SCOPE FOR FURTHER SEPARATE DISALLOWANCE OF DE PRECIATION. 3. THE CIT (A) IS NOT RIGHT IN DELETING THE ABOVE A DDITION WHICH IS NOT AS PER THE SETTLED LAW INCLUDING THE FOLLOWI NG JUDGMENT OF THE SC. KACHWALA GEMS VS JCIT 288 ITR 10 (SC) AS PER WHICH 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 AND IT IS THE ASSESSEE HIMSELF WHO I S TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. 4. ON THE FACTS AND LAW, THE LD. COMMISSIONER OF IN COME TAX (APPEALS)-II, AMRITSAR HAS ERRED IN DELETING TH E ADDITION OF RS.58,76,454/- ON ACCOUNT OF INTEREST PAID WITHO UT DEDUCTION OF TAX, BY HOLDING THAT ONCE BOOKS OF ACC OUNT REJECTED, THERE IS NO SCOPE FOR FURTHER DISALLOWANC E, WHICH CONTRADICTORY AND ILLOGICAL TO THE ABOVE ALLOWANCE OF SEPARATE FURTHER DEDUCTION OF DEPRECIATION. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTING NATIONAL HI GHWAY-15 FROM SARNA TO DHARIWAL, COMPRISING OF A TOTAL DISTANCE OF 50 K M. THE ASSESSEE TOOK THIS CONTRACT FROM IRB LTD., WHO WAS THE MAIN CONT RACTOR OF NHAI. THE CONSTRUCTION OF THE HIGHWAY WAS STARTED DURING THE YEAR AND WORK TO THE EXTENT OF RS. 1 CRORE WAS EXECUTED DURING THE PERIO D UNDER CONSTRUCTION. THE ASSESSEE IS A CIVIL CONTRACTOR AND TOTAL RECEI PTS AMOUNTING TO RS. 9,96,62,747/- WERE SHOWN DURING THE YEAR UNDER CONS IDERATION, THEREBY SHOWING THE RATE OF PROFIT @ 4.61%. THE AO TOOK THE NET PROFIT AT RS.99,662,75 AFTER APPLYING 10% RATE OF THE TOTAL R ECEIPTS. AGAINST THIS, THE SALARY TO PARTNERS WAS ALLOWED AND THE NET INCO ME WAS DETERMINED AT RS.79,66,275/-. ITA NO.63/ASR/2016 A.Y. 2011-12 3 3. ON APPEAL, THE LD. CIT(A) APPLIED THE NET PROFIT RATE AT 7% ON THE GROSS RECEIPTS DECLARED BY THE ASSESSEE. 4. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THIS BENCH. 5. THE DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERR ED IN APPLYING NET PROFIT RATE OF 7% AND FURTHER ALLOWING SEPARATE DED UCTION OF DEPRECIATION AGAINST NET PROFIT OF 10% AFTER REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145(3). HE FURTHER STATED THAT THE LD. CIT( A) HAS ERRED IN DELETING THE ADDITION OF RS.58,76,454/- ON ACCOUNT OF INTERE ST PAID WITHOUT DEDUCTION OF TAX, BY HOLDING THAT ONCE BOOKS OF ACC OUNT ARE REJECTED, THERE IS NO SCOPE FOR FURTHER DISALLOWANCE, WHICH I S ILLOGICAL AND CONTRADICTORY TO THE ALLOWANCE OF SEPARATE FURTHER DEDUCTION OF DEPRECIATION. HE ACCORDINGLY PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED ON THE IMPUGNED ORDER AND REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE HAS FILED WRITTEN SUBMISSIONS IN SUPPORT OF HIS CASE, WHICH ARE PLACED ON RECORD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUG H THE ORDER OF THE LD. CIT(A) AND FIND THAT THE LD. CIT(A) HAS PASSED A WE LL REASONED AND DETAILED ORDER, CONSIDERING ALL ASPECTS OF THE MATT ER, WHICH REQUIRES NO ITA NO.63/ASR/2016 A.Y. 2011-12 4 INTERFERENCE AT OUR HANDS. THE RELEVANT PORTION OF THE FINDINGS GIVEN BY THE LD. CIT(A) IS REPRODUCED AS UNDER: 6. I HAVE CONSIDERED THE RECTIFICATION ORDER, THE GROUNDS OF APPEAL AND WRITTEN SUBMISSIONS OF THE APPELLANT AN D THE GROUNDS OF APPEAL ARE DISPOSED OF AS UNDER: I) THE GROUND OF APPEAL NO.1 IS AGAINST ESTIMATING NET PROFIT @ 10% AFTER REJECTING THE AUDITED ACCOUNTS O F THE ASSESSEE. THE FACTS OF THE CASE ARE THAT THE ASSESS EE IS A CIVIL CONTRACTOR AND WAS ENGAGED IN LAYING OF NATIONAL HI GHWAY FROM SARNA TO DHARIWAL. THE GROSS RECEIPTS WERE SHO WN AT RS 9,96,62,747/ AND NET PROFIT WAS DECLARED AT RS 46,2 1,585/- .THE ASSESSEE WAS ASKED TO SUBMIT DETAILS OF CONTRA CT RECEIPTS, PURCHASE, LABOUR 8S WAGES EXPENSES, WHICH WERE PARTLY PRODUCED AND EXAMINED. THE MAJOR EXPENSES WE RE CLAIMED UNDER THE HEADS PURCHASE OF CONSUMABLES, DI ESEL, BORROW, INTEREST, AND SALARY. THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF EXPENSES CLAIMED BUT COMPLETE DETAILS CALLED FOR WE RE NOT FURNISHED. CONFIRMATIONS IN ONLY A FEW CASES WERE F ILED. MUSTER ROLLS OF LABOUR AND BILLS/ VOUCHERS OF OTHER EXPENSES WERE NOT FILED. THE ASSESSEE PRODUCED CASH BOOK AND LEDGERS ALONGWITH FEW BILLS. THE AO NOTED THAT THE BILLS OF PURCHASE OF FIXED ASSETS WERE NOT IN THE NAME OF THE ASSESSEE, CONFIRMATIONS WERE NOT FILED, NOTICED DISCREPANCIES IN THE PURCHASE ACCOUNT OF BORROW, MUSTER ROLLS OF LABOUR WAS NOT FILED, NOTICED DISCREPANCIES IN THE PURCHASE OF DIE SEL, STAFF SALARY, STATIONARY, RENT, REPAIR & MAINTENANCE, AND MESS EXPENSES. THE VOUCHERS OF EXPENSES WERE IMPOUNDED B Y THE AO REVEALED THAT THEY DID NOT COVER ALL THE EXPENSE S CLAIMED IN THE PROFIT 8& LOSS A/C. IN RESPONSE TO THE REQUEST OF THE AO TO PRODUCE THE BALANCE VOUCHERS, IT WAS REPLIED BY THE ASSESSEE THAT THE REMAINING VOUCHERS HAVE BEEN MISPLACED DUE TO NATURE OF WORK AT DIFFERENT SITES. THE AO THEN DETERMINED THE NET PROFIT BY APPLYING N ET PROFIT RATE @ 10% OF THE GROSS RECEIPTS BY RELYING ON THE DECISION OF HONBLE PUNJAB & HIGH COURT IN THE CASE OF M/S SHIV AM CONSTRUCTION CO IN ITA NO. 167 OF 2007 DATED 07-05- 2007 AND ALLOWED THE SALARY TO PARTNERS THEREAFTER. IN THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT A GAINST THE ADDITIONS, IT WAS SUBMITTED THAT THE APPELLANT WAS IN THE BUSINESS OF CONSTRUCTING NATIONAL HIGHWAY 15 FROM S ARNA TO ITA NO.63/ASR/2016 A.Y. 2011-12 5 DHARIWAL COMPRISING OF A TOTAL DISTANCE OF 50 KMS. THE ASSESSEE HAD BAGGED THE CONTRACT FROM IRB LTD, WHO WAS THE MAIN CONTRACTOR OF NHAI. THE GROSS RECEIPTS WERE SH OWN AT RS 9,96,62,747/ AND NET PROFIT WAS DECLARED AT RS 46,2 1,585/- GIVING A NET PROFIT RATE OF 4.61%.THE APPELLANT STA TED THAT AFTER CONSIDERING THE SALARY OF RS 20 LACS PAID TO THE PA RTNERS THE NET PROFIT RATE COMES TO 64%.FURTHER DEPRECIATION W AS CLAIMED AT RS 2,13,22,380/- IN P&L A/C , AND THE NET PROFIT BEFORE SALARY TO PARTNERS AND DEPRECIATION COMES TO 26%. THE APPELLANT ARGUED THAT THE AO STRAIGHTAWAY APPLI ED THE PROFIT RATE OF 10% AND DID NOT ALLOW SALARY TO PART NERS AND DEPRECIATION. IT WAS ARGUED THAT UNDER SIMILAR CIRC UMSTANCES, DEPARTMENT AND HONBLE ITAT, AMRITSAR HAD BEEN ACCE PTING NET PROFIT RATE OF 5%, AND RELIED ON THE FOLLOWING DECISIONS OF HONBLE ITAT, AMRITSAR, NAMELY- 1. IN THE CASE OF MOHAN SINGH CONTRACTOR VS ITO IN ITA NO.59(ASR)/2012DATED 05-06-2012. 2. IN THE CASE OF ITO VS SURINDER PAL NAYYAR , CON TRACTOR IN ITA NO. 366(ASR)/2010 DATED 30-04-2012. 3. IN THE CASE OF ABDUL SALAM MIR VS DCIT IN ITA NO. 102(ASR)/2013 DATED 18-03-2014. AS MENTIONED IN THE ASSESSMENT ORDER, THE APPELLANT WAS ASKED BY THE AO TO FURNISH COMPLETE DETAILS OF EXPE NSES CLAIMED BUT COMPLETE DETAILS CALLED FOR WERE HOT FU RNISHED. CONFIRMATIONS IN ONLY A FEW CASES WERE FILED. MUSTE R ROLLS OF LABOUR AND BILLS/ VOUCHERS OF OTHER EXPENSES WERE N OT FILED. THE ASSESSED PRODUCED CASH BOOK AND LEDGERS ALONGWITH ONLY FEW BILLS. THE AO NOTED DISCREPANCIE S IN THE PURCHASE ACCOUNT OF BORROW, MUSTER ROLLS OF LAB OUR WAS NOT FILED, NOTICED DISCREPANCIES IN THE PURCHAS E OF DIESEL, STAFF SALARY, STATIONARY, RENT, REPAIR (1 B MAINTENANCE, AND MESS EXPENSES. THE VOUCHERS OF EXPENSES WERE IMPOUNDED BY THE AO REVEALED THAT THE Y DID NOT COVER ALL THE EXPENSES CLAIMED IN THE PROFIT & LOSS A/C. IN RESPONSE TO THE REQUEST OF THE AO TO PRODUCE THE BA LANCE VOUCHERS, IT WAS REPLIED BY THE ASSESSEE THAT THE R EMAINING VOUCHERS HAVE BEEN MISPLACED DUE TO NATURE OF WORK AT DIFFERENT SITES. IN VIEW OF THE SAID DISCREPANCIES NOTICED BY THE AO , THE AO WAS JUSTIFIED IN HOLDING THAT THE BOOK RESULTS DECL ARED BY THE ITA NO.63/ASR/2016 A.Y. 2011-12 6 ASSESSEE ARE NOT RELIABLE AND THE BOOKS OF ACCOUNTS CANNOT BE SAID TO BE COMPLETE AND CORRECT AND THE CORRECT INC OME CANNOT BE DEDUCED FROM SUCH BOOKS OF ACCOUNTS. THEREFORE T HE BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED U/S 145(3) OF THE ACT. AS REGARDS THE APPLICATION OF NET PROFIT RATE, THE AO HAD NOTED SEVERAL DISCREPANCIES IN THE PURCHASE OF DIESEL, ST AFF SALARY, STATIONARY, RENT, REPAIR & MAINTENANCE, IN THE PURC HASE ACCOUNT OF BORROW AND MESS EXPENSES AND THAT ONLY S OME VOUCHERS WERE MAINTAINED BY THE APPELLANT WHILE THE REMAINING VOUCHERS HAVE BEEN MISPLACED DUE TO NATUR E OF WORK AT DIFFERENT SITES. ALSO, THE AO HAD NOTED THA T THE MUSTER ROLLS OF LABOUR WERE NOT FILED. EVEN THOUGH THE BOO KS OF ACCOUNTS WERE AUDITED BY THE CHARTERED ACCOUNTANT A S REQUIRED U/S 44AB OF THE ACT, THE APPELLANT WAS REQ UIRED TO PRODUCE THE BOOKS OF ACCOUNTS ALONGWITH BILLS/VOUCH ERS BEFORE THE AO FOR VERIFICATION IN THE ASSESSMENT PROCEEDIN GS, IN WHICH THE APPELLANT HAD FAILED. THEREFORE, IN VIEW OF THE ABOVE DISCREPANCIES NOTED BY THE AO IN THE BOOKS OF ACCOU NT, BILLS AND VOUCHERS? OF THE APPELLANT WHICH WERE REJECTED U/S 145(3) OF THE ACT, THE NET PROFIT DECLARED @ 4.61% OF THE GROSS RECEIPTS BY THE APPELLANT CANNOT BE ACCEPTED AS COR RECT. THE AO HAD DETERMINED THE NET PROFIT BY APPLYING RA TE @ 10% OF THE GROSS RECEIPTS DECLARED BY THE APPELLANT BY RELYING ON THE DECISION OF HONBLE PUNJAB & HIGH COURT IN THE CASE OF M/S SHIVAM CONSTRUCTION CO IN ITA NO. 167 OF 2007 DATED 07-05- 2007 AND ALLOWED THE SALARY TO PARTNERS THEREAFTER. HOWEVER, THE AO HAS NOT BROUGHT THE FACTS ON RECORD IN THE CASE OF M/S SHIVAM CONSTRUCTION CO AS TO HOW THE FA CTS OF THAT CASE WERE IDENTICAL TO THE FACTS OF THE PRESEN T CASE OF THE APPELLANT AND THEREFORE THE RATIO IN THE CASE OF M/ S SHIVAM CONSTRUCTION CO CANNOT BE APPLIED STRAIGHTAWAY IN T HE CASE OF THE APPELLANT. MORESO, THE AO HAD OMITTED TO NOTICE THAT THE APPEL LANT WAS NOT THE MAIN CONTRACTOR OF NATIONAL HIGHWAY AUTHORI TY OF INDIA BUT HAD TAKEN CONTRACT FROM IRB LTD FOR CONSTRUCTIO N OF NATIONAL HIGHWAY AS A SUB-CONTRACTOR ONLY. IN THE C ASE OF A SUBCONTRACTOR, THE NET PROFIT IS ONLY LOWER THAN TH AT OF THE MAIN CONTRACTOR. THEREFORE, CONSIDERING THE FACT THAT THE APPELLANT WAS NOT THE MAIN CONTRACTOR OF NATIONAL HIGHWAY AUTHORI TY OF INDIA BUT HAD TAKEN CONTRACT FROM IRB LTD FOR CONSTRUCTIO N OF NATIONAL HIGHWAY AS A SUB-CONTRACTOR ONLY AND THE ITA NO.63/ASR/2016 A.Y. 2011-12 7 DISCREPANCIES NOTICED BY THE AO IN THE BOOKS OF ACC OUNTS OF THE APPELLANT AND NON MAINTENANCE OF COMPLETE BILLS AND VOUCHERS OF EXPENSES CLAIMED BY THE APPELLANT IN TH E P & L ACCOUNT, IN MY OPINION IT WOULD MEET ENDS OF JUSTIC E BY DETERMINING THE NET PROFIT BY APPLYING THE NET PROF IT RATE OF 7% OF THE GROSS CONTRACT RECEIPTS DECLARED BY THE APPE LLANT AND THE SALARY TO PARTNERS AND DEPRECIATION AS CLAIMED AT RS 2,13,22,380/- (DISCUSSED GROUND OF APPEAL NO. 3) SH ALL BE ALLOWED THEREAFTER. THE AO IS DIRECTED ACCORDINGLY TO MODIFY THE ASSESSMENT ORDER. (II) THE GROUND OF APPEAL NO.3 AND 5 ARE, AGAINST THE DISALLOWANCE OF ENTIRE DEPRECIATION OF RS 2,13,22,3 80/- AND THE DEPRECIATION RS 67,40,170/- ON THE ASSETS APPEA RING IN THE NAME OF ONE OF PARTNER. THE AO OBSERVED THAT THE ASSETS WERE NOT IN THE NAM E OF THE ASSESSEE AND THEREFORE THE DEPRECIATION CLAI MED THEREON IS NOT ALLOWABLE. IT WAS STATED BY THE ASSE SSEE CARS WERE PURCHASED IN THE NAME OF SHRI SUNIL GROVER SIN CE OBTAINING LOAN IN THE NAME OF INDIVIDUAL IS EASIER THAN IN THE NAME OF THE FIRM. IT WAS FURTHER STATED THAT THE LO ANS WERE BEING PAID OUT FROM THE FIRM. SIMILARLY IN RESPECT OF OTHER ASSETS IT WAS STATED THAT THE LOANS / PAYMENTS HAVE BEEN MADE FROM THE FIRM ONLY. IN RESPECT STONE CRUSHER P LANT IT WAS STATED THAT IT WAS PURCHASED BY OBTAINING LOANS FRO M TATA CAPITAL IN THE NAME OF THE FIRM. THE AO HELD THAT T HE ASSESSEE SHOULD BE THE OWNER OF ASSETS IN ORDER TO CLAIM DEP RECIATION. IN THIS CASE, THE AO DISALLOWED THE DEPRECIATION @ 15% CLAIMED ON THE ASSETS NOT IN THE NAME OF THE APPELL ANT FIRM, WHICH WORKS OUT TO RS 67,40,170/- AND WHICH WAS ADD ED BACK TO THE TOTAL INCOME DECLARED. IN THE WRITTEN SUBMISSIONS IT WAS SUBMITTED THAT TH E DEPRECIATION CLAIMED AT RS 67,40,170/- WAS DISALLOW ED ONLY FOR THE REASON THAT THE ASSESSEE HAD PURCHASED ASSE TS IN THE NAMES OF ONE OF THE PARTNERS AND NOT IN THE NAME OF THE FIRM. IN THIS REGARD IT WAS ARGUED THAT IT HARDLY MATTERS THAT WHETHER THE ASSETS HAVE BEEN PURCHASED IN THE NAME OF THE FIRM OR IN THE NAME OF THE PARTNERS. THE DEPRECIATI ON IS ALLOWABLE ON THE ASSETS WHICH ARE BEING PUT TO USE FOR THE BUSINESS PURPOSES OF THE ASSESSEE. IT IS NOT THE CASE OF THE AO THAT THE ASSETS ON WHI CH DEPRECIATION OF RS 67,40,170/- HAD BEEN CLAIMED BY THE ITA NO.63/ASR/2016 A.Y. 2011-12 8 APPELLANT WERE NOT PUT TO USE FOR THE BUSINESS PURP OSES OF THE APPELLANT, OR THAT THE ASSETS WERE PUT TO USE FOR T HE PERSONAL PURPOSES OF THE PARTNERS OF THE APPELLANT FIRM IN WHOSE NAME THE ASSETS WERE PURCHASED. EVE THE BOARDS CIRCULA R NO.29D(XIX-14) DATED 31-08-1965 DULY SUPPORTS THE C ASE OF THE ASSESSEE. THE APPELLANT RELIED UPON THE FOLLOWI NG DECISIONS IN SUPPORT OF HIS ARGUMENTS- I) DECISION OF HONBLE SUPREME COURT OF INDIA IN TH E CASE OF CIT VS PODDAR CEMENT (P) LTD REPORTED IN 2:26 IT R 625. II) DECISION OF HONBLE PUNJAB 8S HARYANA HIGH COU RT IN THE CASE OF CIT VS FAZILKA DABWALI TPT CO. (P) LTD REPORTED IN (2004) 270 ITR 378 III) DECISION OF HONBLE PUNJAB & HARYANA HIGH COU RT IN THE CASE OF CIT VS METALMAN AUTO (P) LTD., REPORTED IN 336 ITR 434. THE SUBMISSIONS OF THE APPELLANT ARE CONSIDERED AND ARE FOUND TO BE APPLICABLE IN ITS CASE. JUST FOR TH E SIMPLE REASON THAT THE CARS WERE PURCHASED IN THE NAME OF SHRI SUNIL GROVER AND NOT THE APPELLANT FIRM WOULD NOT DISENTI TLE THE DEPRECIATION CLAIMED ON CARS SINCE THE SAME WERE PU T TO USE FOR THE BUSINESS OF THE APPELLANT FIRM AND NOT FOR PERSONAL USE OF SHRI SUNIL GROVER. THE AO HAD NOWHERE STATED IN THE ASSESSMENT ORDER THAT THE CARS WERE USED FOR PERSON AL PURPOSES OF THE PARTNERS OF THE APPELLANT FIRM. LIKEWISE THE OTHER ASSETS PURCHASED BY THE APPELLAN T WHICH WERE NOT IN THE NAME OF THE APPELLANT FIRM BU T NEVERTHELESS WERE PUT TO USE FOR THE PURPOSES OF TH E BUSINESS OF THE APPELLANT FIRM. THE AO HAS NOT HELD ANYWHERE IN THE ASSESSMENT ORDER THAT THE ASSETS ON WHICH THE DEPRECIATION HAS BEEN CLAIMED BY THE APPELLANT WERE NOT USED FOR THE BUSINESS PURPOSES OF THE APPELLANT FIRM BUT FOR THE PERSONAL USE OF THE PARTNERS OF THE APP ELLANT FIRM. ACCORDINGLY THE ENTIRE DEPRECIATION CLAIMED AT RS 2,13,22,380/- IS ALLOWED TO THE APPELLANT AND THE A O IS DIRECTED ACCORDINGLY. IT HAS BEEN HELD BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LALI CONSTRUCTION CO VS ACIT-C UM ASSESSING OFFICER (2015) 229 TAXMAN 286 THAT DEPREC IATION IS ALLOWABLE FROM NET PROFITS EVEN IF TOTAL INCOME IS COMPUTED BY ITA NO.63/ASR/2016 A.Y. 2011-12 9 APPLYING NET PROFIT RATE. SEVERAL OTHER HIGH COURTS HAVE HELD LIKEWISE. ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION, THE A O IS DIRECTED TO ALLOW THE DEPRECIATION CLAIMED AT RS 2, 13,22,380/- FROM THE NET PROFIT DETERMINED BY APPLYING THE NET PROFIT RATE OF 7% OF GROSS RECEIPTS DECLARED BY THE APPELLANT ( HELD ABOVE), AND SUBJECT TO THE RETURNED INCOME . (III) THE GROUND OF APPEAL NO.4 IS AGAINST THE DIS ALLOWANCE OF INTEREST AMOUNTING TO RS 759,953/- TO M/S TATA C APITAL, RS 517,014/- TO M/S INDIA BULLS AND OF RS 46,07,487/- TO M/S SREI EQUIPMENT FINANCE LTD, NBFCS . IN THE ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAD TAKEN LOANS FROM DIFFERENT NBFCS AND P AID INTEREST THEREON. INTEREST PAID BY THE ASSESEE WAS RS 759,953/- TO M/S TATA CAPITAL, RS 517,014/- TO M/S INDIA BULLS AND OF RS 46,07,487/- TO M/S SREI EQUIPMENT F INANCE LTD WITHOUT DEDUCTION OF TAX AT SOURCE. THE AO OBSE RVED THAT THESE WERE LOANS TAKEN BY THE ASSESSEE FOR THE PURC HASE OF TIPPERS AND PLANT & MACHINERY . THE AO RELIED ON TH E CBDT CIRCULAR NO. 10 DATED 16-12-2013 WHICH CLARIFIED TH AT INTEREST PAID WITHOUT DEDUCTION OF TAX AT SOURCE IS NOT ALLO WABLE EVEN IN A SITUATION WHERE AMOUNT OF INTEREST STANDS PAID OUT AT THE END OF THE YEAR. ACCORDINGLY THE AO DISALLOWED THE SAID AMOUNT OF INTEREST PAID AT RS ( 759,953 + 517,014 + 46,07,487 ) = RS 58,76,454/- WITHOUT DEDUCTION OF T AX AT SOURCE U/S 40A(IA) OF THE ACT . IN THE WRITTEN SUBMISSIONS , THE APPELLANT CONTENDE D THAT NO DISALLOWANCE OF INTEREST U/S 40A(IA) OF THE ACT IS CALLED FOR IN THE PRESENT CASE AS THE INTEREST PAID TO THE PARTIES HAS ALREADY SUFFERED TAX IN THEIR HANDS. IT WAS FURTHER CONTENDED THAT ONCE THE RATE OF PROF IT IS APPLIED, NO SUCH DISALLOWANCE IS CALLED FOR, WHICH FINDS SUPPORT FROM THE FOLLOWING DECISIONS OF HONBLE COU RTS:- (I) DECISION OF HONBLE JHARKHAND HIGH COURT IN TH E CASE OF AMITABH CONSTRUCTION (P) LTD VS ADDL CIT, REPORT ED IN 335 ITR 523. (II) DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF SAMURAI TECHNO TRADING CO (P) LTD VS CIT REPORTED I N 197 TAXMAN 144. ITA NO.63/ASR/2016 A.Y. 2011-12 10 THE APPELLANT POINTED OUT THAT IN THE OWN CASE OF T HE APPELLANT IN AY 2012-13,THE AO HAD APPLIED THE NET PROFIT RATE WITHOUT MAKING SEPARATE ADDITION OF INTEREST PAID W ITHOUT DEDUCTION OF TDS U/S 40(A)(IA) OF THE ACT. THE BOOKS OF ACCOUNT OF THE APPELLANT HAD BEEN REJE CTED U/S 145(3) OF THE ACT AS THEY WERE UNRELIABLE AND C ORRECT INCOME COULD NOT BE DEDUCED THEREFROM. THE INVOKING OF SECTION 145(3) OF THE ACT HAS BEEN UPHELD ABOVE. IN THE ABOVE CIRCUMSTANCES, WHEN THE REJECTION OF B OOKS OF ACCOUNT U/S 145(3) OF THE ACT HAS BEEN UPHELD AN D NET PROFIT RATE APPLIED HAS BEEN UPHELD/CONFIRMED @ 7% OF THE GROSS RECEIPTS DECLARED, THEN ONCE THE RATE OF PROF IT IS APPLIED, NO SUCH DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS CA LLED FOR IN VIEW OF THE DECISIONS OF HONBLE HIGH COURTS STATED ABOVE. THE PROVISION OF SECTION 40(A)(IA) OF THE ACT IS A PART OF COMPUTATION OF INCOME UNDER HEAD BUSINESS FROM SECTION 28 TO 43D OF THE ACT AND ONCE BOOKS OF ACCOUNTS ARE REJECTED AND NET PROFIT RATE IS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO SCOPE FOR ANY FURTHER DISALLOWANCE OF EXPENDITUR E. THIS VIEW FINDS SUPPORT FROM THE FOLLOWING DECISIONS- (I) THE DECISION OF HONBLE ANDHRA PRADESH HIGH CO URT IN THE CASE OF MADDI SUDARSANAM OIL MILLS VS CIT (1 959) 37 ITYR 369 (AP), WHICH WAS FOLLOWED IN THE CASE OF IN DWELL CONSTRUCTION VS CIT232 ITR 776(AP). II) THE DECISION OF HONBLE CIT VS BANWARI LAI BANS IDHAR (1998) 229 ITR 229 WHERE IT WAS HELD THAT NO DISALL OWANCE COULD BE MADE U/S 40A(3) OF THE ACT WHEN G P RATE W AS APPLIED. ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION AND TH E CITED CASE LAWS, NO DISALLOWANCE OF INTEREST PAID TO THE PARTIES AT RS 58,76,454/- U/S 40(A)(IA) OF THE ACT WAS CALLED FOR AND THE DISALLOWANCE OF RS 58,76,454/-IS ACCORDINGLY DELETE D. 7. IN THE RESULT, APPEAL IS PARTLY ALLOWED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PER USED THE MATERIAL AVAILABLE ON RECORD. THIS IS A CASE OF TAX AUDIT AN D A COPY OF AUDIT REPORT WAS FILED BEFORE THE AUTHORITIES BELOW AND A COPY O F THE SAME IS AVAILABLE ITA NO.63/ASR/2016 A.Y. 2011-12 11 ON RECORD (APB 31 TO 46). THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTING NATIONAL HIGHWAY 15 FROM SARNA TO DHA RIWAL COMPRISING OF TOTAL DISTANCE OF 50 KM. THE ASSESSEE BAGGED THIS CONTRACT FROM IRB LTD., WHO WAS THE MAIN CONTRACTOR OF NHAI. THE CONS TRUCTION OF THE HIGHWAY WAS STARTED DURING THE YEAR AND WOK TO THE EXTENT OF RS. 1 CRORE WAS EXECUTED DURING THE PERIOD UNDER CONSTRUCTION. THE ASSESSEE IS A CIVIL CONTRACTOR AND THE TOTAL RECEIPTS AMOUNTING T O RS.9,96,62,747/- WERE SHOWN DURING THE YEAR UNDER CONSIDERATION THER EBY SHOWING THE RATE OF PROFIT @ 4.61%. THE AO TOOK THE NET PROFIT AT RS.99,66,275/- AFTER APPLYING 10% RATE TO THE TOTAL RECEIPTS. AGAINST T HIS THE SALARY TO PARTNERS WAS ALLOWED AND THE NET INCOME WAS DETERMI NED AT RS.79,66,275/-. AGAINST THE SAID ADDITION THE ASSES SEE WENT IN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) APPLIED A NET PROFIT AT 7% ON THE GROSS RECEIPTS DECLARED BY THE ASSESSEE. IT WAS ALS O HELD THAT THE DEPRECATION AS CLAIMED AT RS.2,13,22,380/- MAY BE A LLOWED. WHILE ALLOWING THE DEPRECIATION THE LD. CIT(A) RELIED UPO N THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LALI CONSTRUCTION CO. VS. ACIT, REPORTED IN 229 TAXMAN 286 (P&H) IN W HICH, IT WAS OBSERVED THAT THE DEPRECIATION ALLOWABLE FROM NET P ROFIT EVEN IF THE TOTAL INCOME IS COMPUTED BY APPLYING NET PROFIT RATE. SEV ERAL OTHER COURTS HAVE ALSO HELD THE SAME VIEW. IN MANY OTHER CASES, AS FOLLOWS, IN WHICH THE TRIBUNAL HAS HELD THAT RATE OF 5% IS APPLICABLE SUBJECT TO DEPRECIATION AND INTEREST & SALARY TO PARTNERS: ITA NO.63/ASR/2016 A.Y. 2011-12 12 I) DECISION OF ITAT, AMRITSAR BENCH, IN THE CASE OF SH. MOHAN SINGH CONTRACTOR VS. ITO, IN ITA NO.59(ASR)/2012, ORDER DATED 05.06.2012, RELATING TO AY 2008-09 (PAGE 52 T O 56 OF APB). II) DECISION OF ITAT, AMRITSAR BENCH, IN THE CASE O F ITO VS. SURINDER PAL NAYYAR CONTRACTORS IN ITA NO.366(ASR) /2010, ORDER DATED 30.04.2012 RELATING TO AY 2006-07 (SAPB 57 TO 65) III) DECISION OF ITAT, AMRITSAR BENCH, IN THE CASE OF DCIT VS. ABDUL SALAM MIR IN ITA NO. 115(ASR)/2013, ORDER DA TED 06.08.2014, RELATING TO AY 2009-10 (APB 66 TO 79). IV) DECISION OF ITAT, AMRITSAR BENCH, IN THE CASE O F THE MATTEWA CO-OPERATIVE L/C HOUSING SOCIETY VS. ACIT, IN ITA NO.450(ASR)/2012, ORDER DATED 27.12.2012, RELATING TO AY 2008-09 (APB 84 TO 97). 9. THE SECOND POINT AGAINST WHICH THE DEPARTMENT HA S COME IN APPEAL IS AGAINST THE ALLOWING OF DEPRECIATION. IN THIS CONNECTION THE LD CIT(A) HAS DISCUSSED THE ORDER AT GREAT LENGTH AND BY FOLLOWING THE DECISION OF P&H HIGH COURT IN THE CASE OF LALI CONS TRUCTION CO VS. ACIT REPORTED IN 229 TAXMANN 286. THE COPY OF THE JUDGME NT IS PLACED AT PAGE NO.12 TO 14 OF THE PAPER-BOOK. ON THIS VERY PO INT THE APPEAL OF THE DEPARTMENT MAY BE DISMISSED. 9.1 IN THIRD GROUND OF APPEAL THE DEPARTMENT HAS RE LIED 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 JUDGMENT 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 THIS GROUND OF APPEAL MAY ALSO BE DISMISSED. AS FAR AS THE FOURTH GROUND OF APPEAL IS CONCERNED, IT IS ALSO LIABLE TO BE REJECTED ONCE THE RATE OF PROFIT IS APPLIED NO FURTHER ITA NO.63/ASR/2016 A.Y. 2011-12 13 DISALLOWANCE OR ADDITION CAN BE MADE. THIS VIEW FIN DS SUPPORT FROM THE FOLLOWING JUDGMENTS:- 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 TAXMA N 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 23/05/201 6 RELATING TO AY 2004-05. EVEN OTHERWISE THE PROVISIONS OF SECTION 40A(IA) AR E NOT APPLICABLE AS THIS AMOUNT HAS BEEN SHOWN IN THE HANDS OF THE RECEIPT A NT AND WHICH HAS SUFFERED TAX. AS SUCH THE DISALLOWANCE IS NOT CALLE D FOR AND THE DEPARTMENT HAS GOT NO JUSTIFICATION FOR COMING IN A PPEAL BEFORE THE TRIBUNAL. 10. NO FRESH MATERIAL HAS BEEN BROUGHT ON RECORD B Y THE DEPARTMENT TO CONTRADICT THE FINDINGS OF THE LD. CIT(A). 11. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRM ITY IN THE WELL VERSED, ELABORATE AND REASONED ORDER OF THE LD. CIT(A), WH ICH DOES NOT REQUIRE ITA NO.63/ASR/2016 A.Y. 2011-12 14 ANY INTERFERENCE ON OUR PART. ACCORDINGLY, ALL THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/08/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 26/08/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. J.S. GROVER, PATHANKOT. 2. THE ACIT, CIR.VI, PATHANKOT 3. THE CIT(A), ASR 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.