CHUDHARY & BROTHERS, Jaipur V. ACIT, Jaipur

ITA 722/JPR/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2014 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 27-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Keywords: Rejection of books of accounts; Business income; Depreciation
• Section: 145

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 DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.722/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S CHOUDHARY & BROTHERS, JAIPUR CUKE VS. ACIT, CIRCLE - 7, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAEFC0190M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRHDH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A.VERMA (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04/05/2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 30/06/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- III, JAIPUR 05.09.2014 FOR A.Y. 2010-11 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUND OF APPEAL:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD . AO IN ESTIMATING THE NET PROFIT RATE AT 11.50% AGAINST THE DECLARED N.P. RATE OF 11.44% WHICH RESULTED INTO CONFIRMING THE ADDITION OF RS. 1,05,428/-. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY DELETING THE SAID ADDITION OF RS. 1,05,428/-. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD . AO IN NOT ALLOWING THE DEDUCTION TOWARDS INTEREST PAID TO THIRD PARTIE S AMOUNTING TO RS. ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 2 24,10,948/- OUT OF THE ESTIMATED NET PROFIT. THE AC TION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY ALLOWING THE SAID DEDUCTIO N OF INTEREST PAID TO THIRD PARTIES AMOUNTING TO RS. 24,10,948/-. 2. FIRSTLY, WE REFER TO ORDER THE LD. CIT(A) WHEREI N THE FINDINGS WHICH ARE UNDER CHALLENGE BEFORE US READS AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF TH E A.O. AS ALSO THE SUBMISSION OF THE APPELLANT. IT MAY BE NOTED THAT W HILE FILING THE APPEAL THE APPELLANT HAS DISPUTED REJECTION OF BOOKS OF ACCOUN TS BY APPLYING PROVISIONS OF SEC. 145(3) OF IT ACT, INCLUSION OF CLOSING STOC K IN THE TOTAL TURNOVER AND ESTIMATING THE PROFIT BY APPLYING HIGHER N.P. RATE OF 13% IGNORING THE PAST HISTORY AS ALSO NOT ALLOWING THE CLAIM OF INTEREST PAYMENT TO THE THIRD PARTIES AMOUNTING TO RS. 24,10,948/-. HOWEVER, DURING THE A PPELLATE PROCEEDINGS THE APPELLANT HAS NOT PRESSED THE REJECTION OF BOOKS OF ACCOUNTS AND APPLICATION OF PROVISIONS OF SEC. 145(3). IN THIS MATTER THE EF FECTIVE ISSUES DISPUTED BY THE APPELLANT AND TO BE ADJUDICATED REMAIN AS UNDER:- I) INCLUSION OF CLOSING STOCK IN THE VALUE OF CONTRACT AMOUNT II) ESTIMATION OF PROFIT AFTER REJECTION OF BOOKS OF AC COUNTS BY IGNORING THE PAST HISTORY. III) NOT ALLOWING THE INTEREST PAYMENT TO THE THIRD PART IES FROM THE N.P. AS REGARDS INCLUSION OF CLOSING STOCK IN THE CONTRA CT RECEIPTS, THE A.O NOTED THAT THE INTEREST INCOME FROM THE FIXED DEPOSITS AN D THE CLOSING STOCK/WIP IS TO BE INCLUDED IN THE GROSS RECEIPTS FOR DETERMINAT ION OF PROFIT. AS REGARDS INTEREST INCOME THE A.O. NOTED THAT THE FDRS ON WH ICH INTEREST WAS EARNED WERE KEPT AS SECURITY FOR CONTRACTUAL AGREEMENTS AN D THEREFORE SUCH INCOME IS TO BE TREATED AS BUSINESS INCOME. SUCH FINDING O F THE A.O IS NOT DISPUTED BY THE APPELLANT, HOWEVER FOR INCLUSION OF CLOSING STO CK IN THE GROSS RECEIPTS AND ESTIMATION OF PROFIT ON SUCH GROSS RECEIPTS THE A.O HAS NOT CITED ANY SPECIFIC REASONS. DURING THE YEAR UNDER CONSIDERATION THE AS SESSEE HAS SHOWN ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 3 CONTRACT RECEIPTS OF RS. 172846412/- OTHER INCOME O F RS. 3306619/- INCLUDING CAPITAL GAIN OF RS. 439320/- WHEREAS THE CLOSING ST OCK WAS SHOWN FOR RS. 1670300/-. THE AO EXCLUDING CAPITAL GAIN OF RS. 439 320/- DETERMINED TOTAL RECEIPTS FOR RS. 177384011/- (172846412 + 3306619+1 670300-439320). AS REGARDS ESTIMATION OF PROFIT ON SUCH GROSS RECEI PTS INCLUDING CLOSING STOCK/WIP, THE A.O. HAS APPLIED N.P. RATE OF 13% OU T OF WHICH DEDUCTION ON ACCOUNT OF DEPRECIATION WAS ALLOWED BUT DEDUCTION O N ACCOUNT OF THIRD PARTY INTEREST AMOUNTING TO RS. 2410948/- WAS NOT ALLOWED . AS PER A.O THE ESTIMATION OF N.P. WAS TO BE MADE KEEPING IN VIEW T HE CONTRIBUTION OF DEPRECIATION, INTEREST OF PARTNERS AND REMUNERATION TO PARTNERS AND THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION SUCH CONTRIBUTI ON/CLAIM ON ACCOUNT OF DEPRECIATION/INTEREST TO PARTNERS AND REMUNERATION TO PARTNERS WAS ABOUT 2% MORE AS COMPARED TO IMMEDIATELY PRECEDING ASSESSMEN T YEAR. AS REGARDS NON-ALLOWING OF INTEREST TO THIRD PARTIES THE A.O N OTED THAT CLAIM OF INTEREST TO THIRD PARTIES WAS NOT A STATUTORY DEDUCTION AND THA T SUCH CLAIM WAS INHERENTLY INCLUDED IN THE ALLOWANCE OF EXPENSES TO THE EXTENT OF 87% TO THE ASSESSEE. ON THE OTHER HAND THE APPELLANT CASE IS THAT THE CL OSING STOCK AND WIP AMOUNTING TO RS. 1670300/- CANNOT BE PART OF CONTRA CT RECEIPTS FOR ESTIMATION OF CONTRACT RECEIPTS. IT IS STATED THAT THE CLOSING STOCK IS THE AMOUNT OF INVENTORY AVAILABLE WITH THE ASSESSEE AT THE END OF THE FINANCIAL YEAR AND THE CLOSING STOCK IS THE OPENING STOCK IN THE IMMEDIATE LY SUCCEEDING YEAR. THE APPELLANT ALSO STATED THAT AS PER ACCOUNTING STANDA RD THE CLOSING STOCK CANNOT BE PART OF THE RECEIPTS. AS REGARDS ESTIMATION OF P ROFIT BY APPLYING N.P. RATE OF 13%, THE APPELLANT HAS SUBMITTED THAT IN THE ASSESS MENT YEAR UNDER CONSIDERATION ON TOTAL TURNOVER OF RS. 175713711/- THE NET PROFIT WAS SHOWN FOR RS. 20101939/- SUBJECT TO ALLOWABILITY OF PARTN ERS REMUNERATION, INTEREST TO PARTNERS, DEPRECIATION CLAIM AND INTEREST TO BANK A ND THAT THE N.P RATE WAS ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 4 ARRIVED AT 11.44% AS AGAINST N.P RATE OF 10.40% IN THE IMMEDIATELY PRECEDING YEAR. THE EXACT CALCULATION OF SUCH N.P/N.P RATE IS AS UNDER: PARTICULARS AY 2010-11 AY 2009-10 NET PROFIT DECLARED (COMPUTATION) 74,56,090 1,44,4 3,738 PARTNERS REMUNERATION 12,00,000 10,80,000 INTEREST TO PARTNERS 7,73,921 8,38,226 INTEREST TO BANK 24,10,948 33,34,816 DEPRECIATION CLAIMED 82,60,980 82,56,853 TOTAL NET PROFIT 2,01,01,939 2,79,53,633 TURNOVER 17,57,13,711 26,88,37,074 PERCENTAGE 11.44% 10.40% IT IS STATED THAT THE ASSESSEE INTENDED TO DECLARE EXACT PROFIT WITHOUT ANY ATTEMPT TO SHOW A FIX RATE OF PROFIT. THE APPELLANT ALSO REFERRED TO THE DECISION OF THE HONBLE ITAT, JAIPUR IN THE CASE OF M/S RISH ABH CONSTRUCTIONS PVT. LTD., ITA NO. 581/JP/2009 IN WHICH AFTER APPLICATION OF N .P RATE OF 8% THE CLAIM OF DEPRECIATION AND INTEREST PAYMENT WAS ALLOWED WHERE AS IN THE APPELLANT CASE THE DECLARED N.P RATE AT 11.44% WAS MUCH HIGHER. IT IS ALSO CONTENDED THAT IN THE IMMEDIATELY PRECEDING YEAR THE ASSESSEE HAS SHO WN N.P. RATE OF 10.40% SUBJECT TO DEPRECIATION, INTEREST TO PARTNERS, REMU NERATION TO PARTNERS AND INTEREST TO THIRD PARTIES. WHILE COMPLETING THE ASS ESSMENT THE A.O HAS MADE VARIOUS ADDITIONS AMOUNTING TO RS. 14971912/- AND A GAINST SUCH ADDITIONS THE APPELLANT HAS FILED APPEAL BEFORE THE CIT (A)-III, JAIPUR. AS PER THE APPELLANT WHILE DECIDING THE APPEAL OF THE APPELLANT, THE CI T(A) APPLIED N.P. RATE OF 11.50% SUBJECT TO PARTNERS PAYMENT, DEPRECIATION AN D BANK INTEREST. THE DEPARTMENT HAS FILED APPEAL AGAINST THE ORDER OF C IT(A) WHICH IS PENDING. AS PER THE APPELLANT IN A.Y 2007-08 AND 2008-09 ALSO T HE N.P RATE OF 11.50% WAS APPLIED BY AO WHICH WAS CONFIRMED BOTH BY CIT( A) AND HONBLE ITAT. IT ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 5 IS CONTENDED THAT THE AO HAS NOT COMPLETED THE ASSE SSMENT AS PER THE PAST HISTORY OF THE APPELLANT CASE AS ALSO THAT IN APPEL LANT OWN CASE IN A.Y 2006-07 THE HONBLE ITAT HAS DIRECTED THAT THE PREVIOUS HIS TORY OF THE APPELLANT IS THE BEST BASIS FOR ESTIMATION OF PROFIT. AS REGARDS NON -ALLOWANCE OF INTEREST PAYMENT TO BANK APART FROM THE PAST HISTORY OF THE CASE, THE LD AR HAS PLACED RELIANCE ON THE FOLLOWING CASE LAWS IN WHICH AFTER ESTIMATION OF PROFIT INTEREST TO THE THIRD PARTIES WAS ALSO ALLOWED. I) SHRI RAM JHANWAR LAL VS. ITO 321 ITR 400 RAJ II) BHARAT CONSTRUCTION CO. 258 ITR 140 III) CIT VS. BHAWAN VA PATH NIRMAN (BOHRA) AND CO. 258 I TR 440 IV) CIT VS. GOTTAN LIME KHANIZ UDHYOG 256 ITR 243 (RAJ. ) V) AVDHESH PRATAP SINGH ABDUL REHMAN & BROS. VS. CIT ( 1994) 76 TAXMAN 106 (ALL) IT WAS ACCORDINGLY REQUESTED THAT THE ADDITION MADE BY THE A.O. MAY BE DELETED. FIRST OF ALL THE ISSUE OF INCLUSION OF CLOSING STOC K IN THE CONTRACT RECEIPTS IS TO BE DECIDED. IT MAY BE NOTED THAT THE A.O. HAS NOT G IVEN ANY SPECIFIC REASON AS TO HOW THE CLOSING STOCK CAN BE PART OF CONTRACT RECEIPTS FOR ESTIMATION OF PROFIT. IT IS ALSO NOTED THAT IN EARLIER ASSESSMENT YEARS WHENEVER THE CASES WERE COMPLETED UNDER SCRUTINY ASSESSMENT THE PROFIT WAS DETERMINED WITH RESPECT TO THE CONTRACT RECEIPTS AND CLOSING STOCK WAS NEVER MADE PART OF THE CONTRACT RECEIPTS. THEREFORE EVEN THE PAST HISTORY DOES NOT SUGGESTS INCLUSION OF CLOSING STOCK IN THE CONTRACT RECEIPTS. MOREOVER , THE CLOSING STOCK IS THE INVENTORY AVAILABLE WITH THE ASSESSEE WHICH WILL BE OPENING STOCK IN THE NEXT YEAR AND WILL BE FORMING PART OF THE CONTRACT WORK IN THE NEXT YEAR. THEREFORE THE ACTION OF THE A.O. OF INCLUSION OF CLOSING STOC K IN THE CONTRACT RECEIPTS CANNOT BE APPROVED. ACCORDINGLY THE PROFIT IS TO BE DETERMINED ON THE ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 6 CONTRACT RECEIPTS INCLUDING OTHER INCOME OF RS. 286 7299/- (3306619-439320) SHOWN BY THE ASSESSEE AMOUNTING TO RS. 175713711/- (172846412+2867299) EXCLUDING THE CLOSING STOCK OF RS. 1670300/-. THE N EXT ISSUE IS TO BE DECIDED IS AS TO WHAT BASIS THE PROFIT IS TO BE DETERMINED AFTER REJECTION OF BOOKS OF ACCOUNTS. ON CONSIDERATION OF RELEVANT FACTS AS REGARDS ESTIM ATION OF PROFIT, AFTER INVOKING THE PROVISIONS OF SEC. 145 (3) OF IT ACT, IT MAY BE STATED THAT IT IS A SETTLED LAW THAT EVEN AFTER INVOKING THE PROVISIONS OF SEC. 145 (3), THE AO IS NOT EMPOWERED TO ASSESS THE INCOME AT WHATEVER FIGU RES HE WANTS AND THE AO IS SUPPOSED TO MAKE AN HONEST ESTIMATION EITHER BASED ON THE PAST HISTORY OF THE APPELLANTS OWN CASE OR ON THE BASIS OF ANY COMPARABLE CASE. FOR SUCH PROPOSITION RELIANCE IS PLACED ON THE FOLLOWING CAS E LAWS: I) M/S BRIJBHUSHAN LAL PRADHUMAN KUMAR VS. CIT, 115 IT R 524 II) SHREE SHANKAR KHANDSARI SUGAR MILLS VS. CIT, 193 IT R 669 III) CIT VS DR. A.P. BAHEL 2 DTR 387 (RAJ) IV) CIT VS. SURESH MARBLES PVT. LTD. 18 DTR 118 (RAJ) V) CIT VS. INANI MARBLES PVT. LTD. [2009] 316 ITR 125 (RAJ) VI) SHRI RAM JHANWAR VS. ITO 98 TTJ, (ITAT, JODHPUR) VII) AJAY GOYAL VS. ITO 99 TTJ 164, (ITAT, JODHPUR) VIII) GHASI RAM TODARMAL VS. ITO 196 ITR 329 (RAJ.)] IX) M/S BHIKHA RAM DEVRATH VS. ITO, WARD-1, CHURA, ITA NO. 245/JODH/2013, DATE OF ORDER 23.09.2013 (ITAT, JODH PUR) X) THE INCOME TAX OFFICER, WARD-2, CHURA VS. M/S JAI C ONSTRUCTION CO., ITA NO. 64/JU/2014, DATE OF ORDER 12.06.2014 (ITAT, JODHPUR). THE HONBLE JURISDICTIONAL HIGH COURT AND HONBLE J URISDICTIONAL ITAT HAS CONSISTENTLY HELD THAT ESTIMATION OF PROFIT AFTER R EJECTION OF BOOKS OF ACCOUNTS ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 7 U/S 145 (3) OF IT ACT, THE PAST HISTORY OF THE ASSE SSEES OWN CASE SHOULD BE THE BEST GUIDE. KEEPING IN VIEW THE CONSISTENT DECI SIONS OF HONBLE JURISDICTIONAL HIGH COURT AS ALSO HONBLE ITAT, THE PROFIT IS TO BE DETERMINED ON THE BASIS OF PAST HISTORY OF THE APPELLANT CASE IN RESPECT OF IMMEDIATE PRECEDING ASSESSMENT YEAR. IN THIS BACKGROUND IT IS TO BE SEEN AS TO WHAT WAS THE PAST HISTORY OR OTHERWISE. IT MAY BE NOTED THAT IN THE IMMEDIATE PRECEDING YEAR I.E. 2009-10 WHILE COMPLETING THE AS SESSMENT U/S 143 (3) OF THE IT ACT THE A.O. HAS REJECTED THE BOOKS OF ACCOU NTS AND MADE DISALLOWANCES OUT OF VARIOUS EXPENSES TOTALLING FOR RS. 13041580/- AND ACCORDINGLY THE NET PROFIT WAS INCREASED FROM 5.22% TO 10.08%. THE A.O. FURTHER MADE DISALLOWANCE OF RS. 1930332/- U/S 40A( IA) OF IT ACT. WHILE DECIDING THE APPEAL AGAINST THIS ASSESSMENT ORDER, THE WORTHY CIT (A) IN ITA NO. 928/JPR/2011-12 VIDE ORDER DATED 08.10.2012 DEL ETED THE ADDITION OF RS. 1930332/- AND AS AGAINST VARIOUS DISALLOWANCES OF R S. 13994870/-, DIRECTED THE A.O. TO APPLY N.P. RATE OF 11.50% SUBJECT TO DE PRECIATION, INTEREST & REMUNERATION TO PARTNERS, NOT INTEREST TO THIRD PAR TIES. WHILE APPLYING N.P. RATE OF 11.50% THE WORTHY CIT (A) RELIED ON THE DEC ISION OF HONBLE ITAT IN A.Y. 2007-08. ON PERUSAL OF ORDER OF HONBLE ITAT I N RESPECT OF A.Y. 2007-08, IT IS NOTED THAT IN THIS ASSESSMENT YEAR, THE WORTH Y ITAT HAS DIRECTED TO RECOMPUTE THE PROFIT BY APPLYING N.P. RATE 11.50% A S AGAINST N.P. RATE OF 10.07% SHOWN BY THE ASSESSEE. IT IS FURTHER NOTED T HAT IN A.Y. 2007-08 ON GROSS CONTRACT RECEIPTS OF RS. 168406532/-, N.P. BE FORE DEPRECIATION, PAYMENT TO PARTNERS AND INTEREST TO PARTNERS WAS FOR RS. 16 867510/- AND ACCORDINGLY N.P. WAS SHOWN AT 10.02% AGAINST WHICH THE TRIBUNAL DIRECTED TO APPLY N.P. RATE OF 11.50%. THESE FACTS WILL INDICATE THAT THE PAST HISTORY OF THE ASSESSEE IS TO APPLY N.P. RATE OF 11.50% SUBJECT TO CLAIM OF DEPRECIATION AND INTEREST/REMUNERATION TO PARTNERS. THE ABOVE FACTS WILL ALSO INDICATE THAT AS PER THE DECISION OF HONBLE ITAT, INTEREST TO THIRD PARTIES WAS NOT TO BE ALLOWED. IT MAY ALSO BE MENTIONED THAT AS PER THE P AST HISTORY OF THE CASE THE ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 8 N.P. WAS TO BE DETERMINED WITH REFERENCE TO THE CON TRACT RECEIPTS AND THERE IS NO SUCH FINDINGS OR THE DIRECTIONS OF THE HONBLE I TAT THAT THE N.P. RATE IS TO BE REDUCED/INCREASED ON THE BASIS OF INCREASE/DECRE ASE OF DEPRECIATION CLAIM AND INTEREST/REMUNERATION TO THE PARTNERS AS HELD B Y THE A.O. MOREOVER, THE CLAIM OF DEPRECIATION AND INTEREST/REMUNERATION TO PARTNERS IS HIS STATUTORY CLAIM AND IT HAS TO BE ALLOWED. KEEPING IN VIEW TH E ABOVE FACTS THAT THE A.O. IS DIRECTED TO APPLY THE N.P. RATE OF 11.50% SUBJEC T TO DEPRECIATION AND INTEREST/REMUNERATION OR PARTNERS ON TOTAL RECEIPTS OF RS. 175713711/-. THE FACT THAT THE HONBLE ITAT HAS DIRECTED TO APPLY N. P. RATE OF 11.50% SUBJECT TO DEPRECIATION AND INTEREST/REMUNERATION TO PARTNE RS IS FURTHER PROVED FROM THE DECISION OF THE HONBLE ITAT IN M.A. NO. 40/JP/ 2012 ORDER DATED 18.07.2014 WHICH HAS BEEN FILED BY THE ASSESSEE IN RESPECT OF ITA NO. 1177/JP/2012, A.Y. 2007-08 FOR RECTIFICATION IN THE ORDER AND FOR DIRECTION THAT N.P. RATE OF 11.50% WAS SUBJECT TO DEPRECIATION, IN TEREST TO PARTNERS AND INTEREST TO THIRD PARTIES WHEREIN THE M.A. WAS DISM ISSED BY THE HONBLE ITAT. AS REGARDS THE CLAIM OF THE APPELLANT OF INTEREST T O THIRD PARTIES FROM THE NET PROFIT, AS DISCUSSED ABOVE, AFTER REJECTION OF BOOK S OF ACCOUNTS THE PROFIT IS TO BE DETERMINED ON THE BASIS OF PAST HISTORY OF THE A PPELLANT CASE AND AS PER THE PAST HISTORY DECIDED BY HONBLE ITAT, N.P. RATE OF 11.50% WAS TO BE APPLIED SUBJECT TO DEPRECIATION AND INTEREST/REMUNE RATION TO PARTNERS (NOT INTEREST TO THIRD PARTIES). AS REGARDS RELIANCE ON VARIOUS CASE LAWS BY THE APPELLANT FOR ALLOWING OF INTEREST TO THIRD PARTIES , IT MAY BE STATED THAT THE DECISION OF THE HONBLE COURTS FOR ALLOWING OF THIR D PARTIES INTEREST ARE CASE SPECIFIC AND IT IS NOT THE SETTLED LAW THAT IN EAC H AND EVERY CASE OF THE CONTRACTOR, THIRD PARTY INTEREST IS TO BE ALLOWED. IN FACT, THE SETTLED LAW IS THAT AFTER REJECTION OF BOOKS OF ACCOUNTS, PROFIT IS TO BE ESTIMATED ON THE BASIS OF THE PAST HISTORY OF THE CASE. ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 9 3. WE NOW REFER TO THE SUBMISSIONS OF THE LD AR WHEREI N THE LD AR HAS SUBMITTED AS UNDER: 3.1 THE LD AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE FIRM DECLARED NP RATE OF 11.44% WHICH IS BETTER THA N IMMEDIATELY PRECEDING YEAR OF 10.40%. THUS, THE NP RATE DECLARED IN THE CURRENT YEAR SHOULD BE UPHELD. 3.2 IT WAS FURTHER SUBMITTED THAT DURING THE YEAR U NDER REFERENCE, LD. AO WHILE APPLYING THE NP RATE UNSETTLED THE SETTLED PO SITION OF ALLOWANCE OF INTEREST TO THIRD PARTIES FROM THE NP RATE APPLIED. IN THE AY 2007-08 AND 2008-09 NP RATE APPLIED WAS SUBJECT TO DEPRECIATION , REMUNERATION TO PARTNERS, INTEREST TO PARTNERS AND INTEREST TO THIR D PARTIES. THE LD. AO DID NOT DISPUTE THIS FACTUAL ASPECT, HOWEVER, HE DID NOT FO LLOW THE SAME BY OBSERVING AS UNDER AT PAGE 7 OF THE ASSESSMENT ORDER: THE LD. ARS ARGUMENT THAT INTEREST TO THIRD PARTIE S WAS ALLOWED DURING THE PREVIOUS ASSESSMENT PROCEEDINGS IS NOT ACCEPTABLE A S EACH ASSESSMENT PROCEEDING IS A NEW PROCEEDINGS... 3.3 IT WAS SUBMITTED THAT THE LD. CIT (A) MISREAD T HE ORDER OF THE HONBLE ITAT IN THE AY 2007-08 AND THEREFORE UPHELD THE ORD ER OF THE LD. AO ON THIS ISSUE. LD. CIT (A) ALSO MISINTERPRETED THE ORDERS O F JURISDICTIONAL HIGH COURT WHILE OBSERVING AS UNDER AT PAGE 20, LAST PARA OF H IS ORDER:- ...AS REGARDS RELIANCE ON VARIOUS CASE LAWS, BY TH E APPELLANT, FOR ALLOWING OF INTEREST TO THIRD PARTIES, IT MAY BE STATED THAT DE CISION OF THE HONBLE COURTS FOR ALLOWING OF THIRD PARTIED INTEREST ARE CASE SPE CIFIC AND IT IS NOT THE SETTLED LAW THAT IN EACH AND EVERY CASE OF CONTRACTOR, THIR D PARTY INTEREST IS TO BE ALLOWED... 3.4 THE LD AR SUBMITTED THAT ESTIMATION OF NET PROF IT FOR CONSTRUCTION ACTIVITYCAN BE WITH RESPECT TO OPERATIONS OF THE BU SINESS. VARIOUS COMPONENTS OF DIRECT COSTS CAN BE ESTIMATED I.E. MATERIAL, LAB OUR AND OVERHEADS. HOWEVER, FINANCING PATTERN IS CASE SPECIFIC I.E. ONE MAY DO BUSINESS WITH HIS OWN CAPITAL NOT HAVING ANY EXPENDITURE, WHEREAS, SOME OTHER PER SON MAY DO BUSINESS ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 10 WITH BORROWED CAPITAL HAVING INTEREST EXPENDITURE. EVEN FOR ASSESSEE DOING BUSINESS WITH BORROWED CAPITAL, RATE OF INTEREST MA Y VARY. EVEN IN DIFFERENT YEARS OF THE SAME ASSESSEE, FINANCIAL COST CAN BE D IFFERENT. THEREFORE, FINANCE COST CANNOT BE PART OF ESTIMATION AND HAS TO BE GIV EN DEDUCTION FURTHER TO ESTIMATION OF PROFIT. LD. CIT(A) HAS WRONGLY OBSERV ED THAT IN THE CASE LAWS RELIED UPON BY THE ASSESSEE, HIGH COURT HAS GIVEN C ASE SPECIFIC FINDING. HIGH COURT DECIDES ON ISSUE OF LAW AND NOT FACTS. THE DE CISION IN THOSE CASES LAY DOWN A RATIO THAT INTEREST IS TO BE ALLOWED ON ACTU AL BASIS FURTHER TO ESTIMATION OF PROFIT. LD. CIT(A), AT PAGE 19 OF HIS ORDER, HAS GIVEN A FACTUALLY WRONG FINDING FOR AY 2007-08 THAT NP BEFORE DEPRECI ATION, PAYMENT TO PARTNER AND INTEREST TO PARTNER WAS RS. 1,68,67,510. THE FA CTS REMAINS THAT THIS AMOUNT OF RS. 1,68,67,510 WAS SUBJECT TO FURTHER DE DUCTIONS THE DETAILS OF WHICH ARE AS UNDER:- PARTICULARS A.Y. 2007-08 DEPRECIATION 3,510,651 PAYMENT TO PARTNERS (REMUNERATION AND INTEREST) 1,456,071 INTEREST TO OTHERS 1,123,112 TOTAL 6,089,834 THIS IS EVIDENT FROM THE TABLE, APPEARING AT PAGE 6 OF HONBLE ITAT ORDER FOR THE AY 2008-09 IN ITA NO. 879/JP/2011 AND THIS 10.0 2% WAS REPLACED BY 11.5% BY THE HONBLE ITAT FOR THE AY 2007-08.IT IS FURTHER SUBMITTED THAT SIMILAR CALCULATION FOR AY 2008-09 APPEARED FROM TH E SAME TABLE AT PAGE 6 OF THE ITAT ORDER WHICH GAVE NP OF 9.96% BEFORE DEPREC IATION, PAYMENT TO PARTNERS AND INTEREST TO THIRD PARTIES. THIS 9.96% WAS REPLACED BY 11.5% BY THE HONBLE ITAT. ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 11 IN VIEW OF THE ABOVE, THE LOWER AUTHORITIES HAVE DO NE AN ILLEGAL ACT BY NOT FOLLOWING THE ORDER OF THE HONBLE ITAT IN RESPECT OF ALLOWANCE OF INTEREST TO THIRD PARTIES FROM THE ESTIMATED NP RATE. 3.5 RELIANCE IS PLACED ON THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG [1992] 193 ITR 321 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT .... WE ARE AWARE OF THE FACT STRICTLY SPEAKING RE S JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTI ES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.... FUTHER, HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF BHAWAN VA PATH NIRMAN (BOHRA) & CO. [2003] 130 TAXMAN 361 (RAJ.), UNDER IDENTICAL SET OF FACTS, OBSERVED THAT AO DID NOT ALLOW DEDUCTION FOR INTEREST TO THIRD PARTIES FROM THE NET PROFIT ESTIMATED, FOR THE YEAR UNDER A PPEAL, EVEN THOUGH THE SAME WAS ALLOWED IN THE PRECEDING YEARS. HONBLE JU RISDICTIONAL HIGH COURT, ALLOWED DEDUCTION OF SUCH INTEREST AND HELD THAT: ........CONSEQUENTLY, THE TRADING RESULT OBTAINED BY APPLYING SUCH NET PROFIT RATE NEEDED FURTHER APPROPRIATION TOWARDS ALLOWABLE DEPRECIATION AND INTEREST ON BORROWINGS. THERE IS NO DOUBT ABOUT THE FACT THA T BOTH EXPENSES, ON ACCOUNT OF DEPRECIATION AND INTEREST ON BORROWINGS ARE ALLOWABLE EXPENSES AND WITHOUT TAKING INTO ACCOUNT SUCH EXPENSES NET T AXABLE INCOME CANNOT BE DETERMINED. IN FACT THERE IS NO DISPUTE ABOUT APPRO PRIATION TOWARDS ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 12 DEPRECIATION, NOTWITHSTANDING THE ASSESSING AUTHORI TY HAS APPLIED NET PROFIT RATE EXCLUDING APPROPRIATION TOWARDS ANY ALLOWABLE EXPENDITURE. WE ARE IN AGREEMENT WITH THE TRIBUNAL FOR MODIFYING THE ORDER PASSED BY THE ASSESSING AUTHORITY BY MAKING NET PROFIT RATE SUBJE CT TO ADJUSTMENT TOWARDS DEPRECIATION AND INTEREST ON BORROWINGS... FURTHER, HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF JAIN CONSTRUCTION COMPANY, BARMER [2014] 52 TAXMANN.COM 167 (RAJASTHA N), OBSERVED THAT: ......AFTER REJECTING THE BOOKS OF ACCOUNTS AND WH ILE REFERRING TO THE ORDER AS PASSED IN RELATION TO THE ASSESSEE FOR THE ASSESSME NT YEAR 1993-94, THE AO PROCEEDED TO APPLY NET PROFIT RATE OF 12.5% ON THE NET CONTRACT RECEIPTS SUBJECT TO DEPRECIATION, INTEREST, REMUNERATION TO PARTNERS AND INTEREST PAYMENT TO THIRD PARTIES FOR THE PURPOSE OF MAKING ASSESSMENT OF INCOME..... TO THIS, HONBLE JURISDICTIONAL HIGH COURT EVEN ALL OWED DEDUCTION OF SALES TAX PAYMENT FROM THE NET PROFIT ESTIMATED IN ADDITION T O DEDUCTION OF DEPRECIATION, INTEREST, REMUNERATION TO PARTNERS AN D INTEREST PAYMENT TO THIRD PARTIES ALLOWED BY THE AO IN ASSESSMENT PROCEEDINGS . 3.6 THE LD AR FURTHER SUBMITTED THAT THIS ISSUE ABO UT WHAT EXACTLY WAS DECIDED BY THE HONBLE ITAT, IN QUANTUM APPEALIN A. Y 2007-08 IN ITA NO. 1177/JP/2010, CAME UP FOR CONSIDERATION BEFORE THE HONBLE ITAT IN DECIDING THE PENALTY APPEAL OF THE ASSESSEE FOR A.Y 2007-08 IN ITA NO. 928/JP/2012 ORDER DATED 25/11/2016. THE HONBLE ITAT AT PARA 2. 4 OF THE ORDER AT PAGE 6 OBSERVED AS UNDER:- THE CONTENTIONS OF THE LD AR THUS PRIMA FACIE SEEM S CORRECT AS THE ADDITION SUSTAINED BY THE ITAT SHALL FORM THE BASIS FOR LEVY OF PENALTY. WHERE THE ADDITIONS HAVE BEEN DELETED, THERE WOULD NOT BE ANY BASIS OF LEVY PENALTY AS ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 13 MACHINERY PROVISION WOULD FALL. THE AO IS DIRECTED TO VERIFY N.P RATE OF 10.07% DISCLOSED BY THE ASSESSEE AND WHETHER THE SA ME WAS BEFORE DEPRECIATION, INTEREST, REMUNERATION TO PARTNERS AN D INTEREST TO THIRD PARTIES, AND WHERE THE SAME IS FOUND TO BE CORRECT, ALLOW TH E NECESSARY RELIEF TO THE ASSESSEE. THUS THE LOWER AUTHORITIES HAVE MISREAD THE ORDER O F THE HONBLE ITAT FOR A.Y 2007-08 IN ITA NO. 1177/JP/2010 AND ACCORDINGLY MIS DIRECTED THEMSELVES IN NOT ALLOWING FURTHER DEDUCTION OF INTEREST TO THIRD PARTIES FROM THE NP RATE OF 11.5%. 3.7 IT WAS FURTHER SUBMITTED THAT THE REJECTION OF MISCELLANEOUS APPLICATION BY THE HONBLE ITAT JAIPUR BENCH DOES NOT LEAD TO A CONCLUSION THAT INFERENCE OF THE HONBLE ITAT IN ITS ORDER IN ITA NO. 1177/JP /2012 FOR AY 2007-08, STANDS CHANGED. THE ONLY THING HONBLE ITAT IN ITS ORDER IN M.A. NO. 40/JP/2012 HAS MENTIONED IS THAT ADDING WORDS TO AN ORDER MAY AMOUNT TO REVIEW OF AN ORDER. THE HONBLE BENCH IN VERY CLEAR WORDS HAS CONCURRED WITH THE BELOW MENTIONED ARGUMENT, PUT-FORTH BY THE LD. DR: ........ THIS IS A POSSIBLE INTENTION OF ITAT BUT IT CANNOT BE HELD TO BE THE MISTAKE APPARENT FROM RECORD ..... IN VIEW OF THE ABOVE, THE ORDER OF THE HONBLE ITAT JAIPUR BENCH IN ITA NO. 1177/JP/2012 STANDS AS IT IS. READING THE ORDER AS A WHOLE, ON ACCOUNT OF REFERENCES OF THE EARLIER ORDERS OF THE ITAT ITSELF , LEADS TO CONCLUSION THAT 11.50%. NET PROFIT RATE IS SUBJECT TO FURTHER ALLOW ANCES OF DEPRECIATION, INTEREST AND REMUNERATION TO PARTNERS. 3.8 WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THE ORDER OF HONBLE ITAT, JAIPUR BENCH FOR AY 2007-08 IS DATED 31.05.2011 WHE REAS THE ORDER FOR AY ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 14 2008-09 IS DATED 25.05.2012. THUS, THE SUBSEQUENT O RDER, WHICH EXPLICITLY PROVIDES FOR NET PROFIT RATE OF 11.50% SUBJECT TO D EPRECIATION, INTEREST AND REMUNERATION TO PARTNERS HAS TO BE FOLLOWED AS A PR ECEDENCE. OTHERWISE ALSO, LD. CIT(A) HAS HELD THAT 11.50% IS SUBJECT TO DEPRE CIATION, INTEREST AND REMUNERATION TO PARTNERS EXCEPT INTEREST TO THIRD P ARTIES. TO THIS EXTENT, THE FINDING OF LD. CIT(A) IS ACCEPTED BY THE DEPARTMENT , AS DEPARTMENT IS NOT IN APPEAL. IT IS A SETTLED PRINCIPLE OF LAW, THAT ANY ORDER HAS TO BE READ IN ITS ENTIRETY AND THAT READING THE ORDER IN PIECEMEAL CA N RESULT INTO ABSURD RESULTS WHICH SHOULD BE AVOIDED. 5. ON THE CONTRARY, THE LD. DR VEHEMENTLY ARGUED T HE MATTER AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LIMITED ISSUE UNDER CONSIDERATION RE LATES TO ESTIMATION OF NET PROFIT RATE AFTER THE BOOKS OF ACCOUNTS HAVE BEEN R EJECTED. THE LD CIT(A) HAS DIRECTED THE A.O. TO APPLY THE N.P. RATE OF 11.5% S UBJECT TO DEPRECIATION AND INTEREST/REMUNERATION TO PARTNERS ON TOTAL RECEIPTS OF RS. 175713711/-. THE REVENUE HAS ACCEPTED THE SAID FINDINGS OF THE LD CI T(A) AND HAS NOT CHALLENGED THE SAME BEFORE US. THE LD AR HAS RAISE D TWO GROUNDS CHALLENGING THE SAID FINDINGS. FIRSTLY, IT IS CLAIMED THAT THE ASSESSEE HAS DECLARED NET PROFIT RATE OF 11.44% IN THIS YEAR AS AGAINST NET P ROFIT RATE OF 10.40% IN AY 2009-10 AND THE SAME SHOULD BE ACCEPTED. IN THIS R EGARD, IT IS NOTED THAT IN THE PAST, THE MATTER HAS REACHED THE TRIBUNAL AND N ET PROFIT RATE OF 11.50% HAS BEEN DIRECTED TO BE APPLIED IN AY 2007-08 AND A Y 2008-09 AND FOLLOWING THE SAME, THE LD CIT(A) HAS APPLIED NET PROFIT RATE OF 11.50% IN AY 2009-10. KEEPING THE PAST HISTORY OF THE ASSESSEE INTO ACCOU NT, THE NET PROFIT RATE OF 11.5% IS THEREFORE UPHELD FOR THE IMPUNGED ASSESSME NT YEAR. ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 15 7. THE NEXT CONTENTION RAISED BY THE LD AR RELATES TO ALLOWANCE OF INTEREST ON BANK BORROWINGS PAID DURING THE YEAR AMOUNTING T O RS 24,10,948 AFTER ESTIMATING NET PROFIT RATE OF 11.5%. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS CONTENDED THAT IN THE PAST, THIRD PARTY INTEREST WAS ALLOWED. HOWEVER, THE AO HAS NOT ACCEPTED THE SAID CONTENTION HOLDING THAT EACH ASSESSMENT YEAR IS A SEPARATE ASSESSMENT YEAR. BASICALLY, THE AO HAS FOLLOWED THE PRINCIPLE THAT RES-JUDICATA DOESNT APPLY IN INCOME TAX PROCEEDINGS, ALLOWANCE FOR BANK INTEREST WAS NOT AL LOWED IN THE IMPUNGED ASSESSMENT YEAR. AS HELD BY THE HONBLE SUPREME CO URT IN CASE OF RADHASOAMI SATSANG (SUPRA) THAT THOUGH STRICTLY SPE AKING RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS BUT WHAT IS REL EVANT IS WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTI ES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. IN LIGHT OF THAT, WHAT IS RELEVANT TO EXAMINE IS THE PAST PO SITION ADOPTED BY THE AO AND WHETHER THE SAME HAS BEEN CHALLENGED AND THE OU TCOME OF APPEAL BEFORE THE APPELLATE AUTHORITIES. 8. FIRSTLY, WE LOOK AT THE POSITION FOR AY 2007-08. I N THAT YEAR, THE AO HAD MADE VARIOUS DISALLOWANCES OF EXPENSES, ADDITIO N OF OUTSTANDING WAGES AND CAPITAL INTRODUCED BY THE PARTNERS, HOWEVER, TH ERE IS NO DISALLOWANCE OF INTEREST PAID TO THIRD PARTIES. THE LD CIT(A) CONF IRMED THE ORDER OF THE AO. ON APPEAL, THE TRIBUNAL FOUND THE CONTENTION OF THE LD AR REASONABLE THAT INSTEAD OF DISALLOWING EXPENSES HEAD-WISE, A REASON ABLE N.P RATE SHOULD BE APPLIED AND DIRECTED TO APPLY NET PROFIT RATE OF 1 1.5% AS AGAINST NET PROFIT RATE OF 10.07% SHOWN BY THE ASSESSEE. BEFORE US, TH E LD AR HAS CONTENDED THAT NET PROFIT RATE OF 10.07% COMPUTED BY THE ASSE SSEE AND AS COMPARED BY THE TRIBUNAL WHILE DIRECTING NET PROFIT RATE OF 11. 5% WAS BEFORE DEPRECIATION, ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 16 REMUNERATION AND INTEREST PAYMENT TO PARTNERS AND I NTEREST TO THIRD PARTIES AND ACCORDINGLY, THERE WAS NO DISALLOWANCE OF INTER EST PAID TO THIRD PARTIES. WE FIND FORCE IN THE SAID CONTENTION OF THE LD AR G IVEN THAT FIRSTLY, THERE IS NO DISALLOWANCE OF THIRD PARTY INTEREST DONE BY THE AO AND SECONDLY, THE COORDINATE BENCH HAS HELD THAT INSTEAD OF SPECIFIC DISALLOWANCES AS DONE BY THE AO, NET PROFIT RATE OF 11.5% SHOULD BE APPLIED AS COMPARED TO 10.07% AS COMPUTED BY THE ASSESSEE WHICH IS CLAIMED TO BE BEF ORE INTEREST PAYMENT TO THIRD PARTY. 9. SIMILARLY, FOR AY 2008-09, THE AO HAD MADE VARIO US DISALLOWANCES OF EXPENSES @ 10%, EXPENSES DISALLOWED U/S 40(A)(IA), 40A(3), ADDITION OF CREDITORS AND WAGES PAYABLE, HOWEVER, THERE IS NO D ISALLOWANCE OF INTEREST PAID TO THIRD PARTIES. THE LD CIT(A) DIRECTED TO A PPLY NET PROFIT RATE OF 11.5% SUBJECT TO DEPRECIATION, INTEREST AND REMUNERATION PAYABLE TO PARTNERS, ETC TO COVER UP ALL THE DISCREPANCIES AND SHORT-COMINGS FO UND IN RESPECT OF THE BOOKS OF ACCOUNTS, LEADING TO DIFFERENT ADDITIONS A GAINST NET PROFIT RATE OF 10.07% SHOWN BY THE ASSESSEE AND AN ADDITION OF RS 31,22,932 HAS BEEN CONFIRMED U/S 145(3) AS AGAINST RS 2,27,66,258 MADE BY THE AO. HERE, IT WOULD BE RELEVANT TO NOTE THAT THE LD CIT(A) HAS WO RKED OUT FIGURE OF RS 31,22,932 AFTER TAKING INTO CONSIDERATION N.P RATE OF 11.5% AND REDUCING THE N.P RATE OF 9.96% DECLARED BY THE ASSESSEE AND THUS WORKING OUT THE GAP IN N.P RATE OF 1.54% WHICH APPLIED ON TOTAL CONTRACT R ECEIPTS OF RS 20,27,87,825, GIVES A FIGURE OF RS 31,22,932. THE COORDINATE BEN CH HAS THEREAFTER AFFIRMED THE ORDER OF THE LD CIT(A) WHEREIN IT HAS STATED TH AT THE FACTS ARE SIMILAR TO AY 2007-08 AND THE LD CIT(A) HAS RIGHTLY APPLIED THE N ET PROFIT RATE OF 11.5% AS PER PAST HISTORY AS AGAINST NET PROFIT OF 9.96% SHO WN BY THE ASSESSEE. BEFORE US, THE LD AR HAS AGAIN CONTENDED THAT NET PROFIT R ATE OF 9.96% COMPUTED BY THE ASSESSEE AND AS COMPARED BY THE LD CIT(A) AND T HE TRIBUNAL WHILE DIRECTING NET PROFIT RATE OF 11.5% WAS BEFORE DEPR ECIATION, REMUNERATION AND ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 17 INTEREST PAYMENT TO PARTNERS AND INTEREST TO THIRD PARTIES AND ACCORDINGLY, THERE WAS NO DISALLOWANCE OF INTEREST PAID TO THIRD PARTIES. WE FIND FORCE IN THE CONTENTION OF THE LD AR GIVEN THAT FIRSTLY, THE RE IS NO DISALLOWANCE OF THIRD PARTY INTEREST DONE BY THE AO AND SECONDLY, THE COO RDINATE BENCH HAS UPHELD THE LD CIT(A) FINDING OF APPLYING THE NET PR OFIT RATE OF 11.5% AS PER PAST HISTORY AS AGAINST NET PROFIT OF 9.96% SHOWN B Y THE ASSESSEE WHICH IS CLAIMED TO BE BEFORE INTEREST PAYMENT TO THIRD PART Y. 10. IF WE LOOK AT THE ABOVE PAST HISTORY OF THE ASS ESSEE FOR LAST TWO ASSESSMENT YEARS WHERE THE MATTER HAS REACHED THE T RIBUNAL, IT IS CLEAR THAT THE AO HAS DISALLOWED VARIOUS EXPENSES AFTER REJECT ION OF THE BOOKS OF ACCOUNTS. AT THE SAME TIME, THERE HAS BEEN NO DISAL LOWANCE OF THIRD PARTY INTEREST BY THE AO IN ANY OF THESE YEARS. THEREAFT ER, INSTEAD OF SPECIFIC DISALLOWANCES, THE LD CIT(A) AS WELL AS TRIBUNAL HA VE CONSIDERED THE POSITION OF NET PROFIT RATE OFFERED BY THE ASSESSEE AND HAVE THEREAFTER DIRECTED TO APPLY NET PROFIT RATE OF 11.5%. AS WE HAVE HELD AB OVE, KEEPING THE PAST HISTORY OF THE ASSESSEE INTO ACCOUNT, THE NET PROFI T RATE OF 11.5% IS UPHELD FOR THE IMPUNGED ASSESSMENT YEAR. FURTHER, THE PAST HI STORY OF THE ASSESSEE DOESNT SUGGEST DISALLOWANCE OF THIRD PARTY INTERES T EITHER BY THE AO OR BY THE COORDINATE BENCHES. THE COORDINATE BENCHES HAVE CO MPARED NET PROFIT RATE AS OFFERED BY THE ASSESSEE WHICH IS CLAIMED TO BE B EFORE DEPRECIATION, REMUNERATION AND INTEREST PAYMENT TO PARTNERS AS WE LL AS INTEREST TO THIRD PARTIES AND THEREAFTER, DIRECTED TO APPLY 11.5%. F OR THE IMPUNGED ASSESSMENT, WE SEE NO REASON TO DEVIATE FROM THE SA ID SETTLED POSITION AS BOTH REVENUE AND THE ASSESSEE HAS RELIED ON THE PAS T HISTORY AS WE HAVE DISCUSSED ABOVE. THE AO IS DIRECTED TO APPLY NET P ROFIT RATE OF 11.5% BEFORE DEPRECIATION, REMUNERATION AND INTEREST PAYMENT TO PARTNERS AND INTEREST TO THIRD PARTIES (BANK). ACCORDINGLY, THERE WOULD NOT BE ANY FURTHER DISALLOWANCE ITA NO. 722/JP/14 M/S CHOUDHARY & BROTHERS, JAIPUR VS. ACIT, CIRCLE-07, JAIPUR 18 OF INTEREST PAID TO THIRD PARTIES AMOUNTING TO RS 2 4,10,948. IN THE RESULT, GROUND NO. 1 IS DISMISSED AND GROUND NO. 2 IS ALLOW ED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/06/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 30/06/2017 GANESH KUMAR VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S CHOUDHARY & BROTHERS , JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-7, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, 6. XKMZ QKBZY@ GUARD FILE (ITA NO.722/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.