DCIT, Jaipur V. RAJESH KUMAR SHARMA, Jaipur

ITA 8/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5075 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA JHA J CIT DHK
• Assessee Lawyers: DINESH VIJAY
• Keywords: Business income; Depreciation

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.08/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 THE DCIT, CIRCLE-2, JAIPUR CUKE VS. SHRI RAJESH KUMAR SHARMA, 206, PADMAWATI-II, NIRMAN NAGAR, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAHFR 2704B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI DINESH VIJAY (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA JHA (J CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04.10.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 06/10/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-I, JAIPUR DATED 26.10.2015 WHEREIN THE REVENUE HAS TAK EN FOLLOWING GROUNDS OF APPEAL: (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE N.P. RATE O F 7.50% BEFORE DEPRECIATION AND INTEREST ON CAPITAL OF PARTNER AGA INST NP RATE OF 11% APPLIED BY THE AO DESPITE UPHOLDING REJECTION OF BO OKS OF ACCOUNTS. (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF BY HOLDING THAT OTHER INCOME OF RS.16,68,672/- IS ASSESSABLE AS BUSINESS INCOME WHE REAS THE ASSESSEE FIRM ITSELF HAS DECLARED INTEREST ON FDR AS INCOME FROM OTHER SOURCES. ITA NO. 08/JP/16 DCIT, CIRLE-2, JAIPUR VS. SHRI RAJESH KUMAR SHARMA, JAIPUR 2 2. AT THE START OF THE HEARING, THE LD AR MOVED AN ADJOURNMENT APPLICATION DATED 3.10.2016 STATING THAT HE WAS BUSY WITH TAX A UDIT WORK AND HENCE, REQUESTED FOR AN ADJOURNMENT IN THE MATTER. AFTER HEARING BOTH THE PARTIES, THE ADJOURNMENT APPLICATION WAS REJECTED AS THE REA SON FOR SEEKING ADJOURNMENT WAS NOT FOUND REASONABLE BY THE BENCH. IT WAS DECIDED TO HEAR THE MATTER EX-PARTE QUA THE ASSESSEE BASED ON MATER IAL AVAILABLE ON RECORD. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO A FTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE APPLIED NET PROFIT RATE OF 11.50% OF THE GROSS CONTRACT RECEIPTS OF RS. 18,96,83,040/- AND DETERMINED THE N ET PROFIT AT RS.2,18,13,550/- AND ALLOWED DEDUCTION IN RESPECT O N CAPITAL OF PARTNERS AND DEPRECIATION SEPARATELY. THE AO RELIED ON THE DECIS ION OF HONBLE ITAT, JAIPUR IN THE CASE OF ACIT VS. M/S CHOUDHURY BROTHERS IN I TA NO. 879/JP/2011 FOR ESTIMATION OF NET PROFIT RATE AT 11.50%. 3.1 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD CIT(A) AND SUBMITTED THAT THE FACTS OF CHOUDHURY BR OTHERS ARE QUITE DIFFERENT AS IS EVIDENT FROM THE FOLLOWING DETAILS AND CANNO T BE APPLIED WITHOUT CONSIDERING ALL THE RELEVANT FACTS SIMULTANEOUSLY. * THAT THE ASSESSEE IN THE CHOUDHURY BROTHERS CASE IS ENGAGED IN CIVIL CONSTRUCTION ACTIVITIES AND THAT INCLUDES PRIVATE PARTIES AS WELL, WHEREAS THE APPELLANT IS A+ CATEGORY CONTRACTOR ENGAGED EX CLUSIVELY IN ROAD CONSTRUCTION AND THAT ALSO FOR PUBLIC WORKS DEPTT. GOVT. OF RAJASTHAN, ONLY WHERE THE ELEMENT OF PROFIT IS VERY LOW. * THERE WERE HOST OF IRREGULARITIES DISCOVERED BY T HE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF CHOUDHURY BROS. ON TH E CONTRARY IN THE INSTANT CASE NO SERIOUS IRREGULARITY HAS BEEN FOUND BY THE LD. AO * THAT THE BOOK PROFIT DISCLOSED BY CHOUDHURY BROS IS 9.96% OF TURNOVER WHEREAS IT WAS JUST 4.54% IN THE INSTANT CASE. ITA NO. 08/JP/16 DCIT, CIRLE-2, JAIPUR VS. SHRI RAJESH KUMAR SHARMA, JAIPUR 3 * THE HONBLE ITAT APPLIED NET PROFIT RATE OF 11.50 % I.E. THERE IS AN ADDITION OF JUST 1.54% AS COMPARED TO THE NP RATE D ECLARED BY ASSESSEE. * THAT IN THE INSTANT CASE THE ELEMENT OF ADDITION IS ALMOST 2-3 TIMES (FROM 4.54% TO 11.50%) THE NP RATE OF 11.50% WAS A PPLIED WITHOUT GIVING EFFECT TO THE PAST HISTORY AS WELL AS THE PR ESENT STATUS OF AUDITED FINANCIAL STATEMENTS. * PAST HISTORY ALSO REVEALS THE TREND OF PROFIT DEC LARED BY THE APPELLANT WHICH IS VERY LOW AS COMPARED TO THE PROFIT OF CHOU DHURY BROS. CASE OF 9.96%. 3.2 IT WAS SUBMITTED THAT THE NET PROFIT RATE APPLI ED BY THE LD. ITAT IN THE CASE OF CHOUDHUY BROS. CANNOT BE APPLIED TO THE INS TANT CASE UNDER CONSIDERATION WITHOUT LOOKING TO THE PAST HISTORY O F APPELLANT ASSESSEE. IT HAS BEEN HELD IN A NUMBER OF CASES THAT THE ASSESSEE OW N PAST RESULTS IS BEST ESTIMATION BASIS AND IT SHOULD BE ADOPTED FOR FAI R ESTIMATION. RELIANCE IS PLACED ON THE CASE OF CIT VS. INANI MARBLES PVT. LTD. 3216 ITR 125 (RAJ.). THEREFORE IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN APPLYING NET PROFIT RATE OF 11.50% AGAINST NP RATE SHOWN AT 6.18% (BEFORE ALLOW ANCE OF DEPRECIATION AND PARTNERS APPROPRIATION) OF THE TOTAL TURNOVER. 3.3 IN ITS SUBMISSION, THE AR HAS FURNISHED A CHART WHEREIN HE HAS COMPARED NP RATES OF THE ASSESSEE FOR THE LAST THREE YEARS A ND IT HAS BEEN OBSERVED THAT FOR THE AY 2008-09 ON TURNOVER OF RS.11.14 CRORE TH E ASSESSEE HAS SHOWN NP RATE OF 6.97%. THE AO APPLIED NP RATE OF 8% WHICH WAS REDUCED TO 7.15% TO TOTAL TURNOVER BEFORE PARTNERS APPROPRIATION AND D EPRECIATION BY THE LD. CIT(A). FOR THE YEAR 2009-10 ON A TURNOVER OF RS.1 3.14 CRORE THE ASSESSEE DECLARED NP RATE 7.02% WHICH WAS INCREASED TO 8% B Y THE AO SUBJECT TO PARTNERS APPROPRIATION AND DEPRECIATION AND NO A PPEAL WAS FILED BY THE ASESSEE. DURING THE APPELLANT PROCEEDINGS BEFORE T HE LD CIT(A), THE AR WAS ITA NO. 08/JP/16 DCIT, CIRLE-2, JAIPUR VS. SHRI RAJESH KUMAR SHARMA, JAIPUR 4 REQUIRED TO EXPLAIN WHY THE NP RATE OF 8% (BEFORE P ARTNERS APPROPRIATION AND DEPRECIATION) SHOULD NOT BE APPLIED TO THE TOTAL TU RNOVER OF RS. 18,96,83,040/-. 3.4 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND LOOKING TO THE PAST HISTORY OF THE ASSESEE AND FOLLOWING THE JUDIC IAL PRONOUNCEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. INANI MARBLES PVT. LTD., THE N.P RATE FOR THE YEAR UNDER CONSIDERATION WAS DETER MINED BY THE LD CIT(A) AT 7.50% OF THE TOTAL TURNOVER AND DEDUCTION IN RESPEC T OF INTEREST ON CAPITAL OF PARTNERS AND DEPRECIATION WAS ALLOWED SEPARATELY. WE DO NOT SEE ANY INFIRMITY IN THE PROCESS OF REASONING FOLLOWED BY T HE LD CIT(A) WHILE ARRIVING AT THE ESTIMATED N.P RATE OF 7.5% AS AGAINST 6.18% DEC LARED BY THE ASSESSEE. WE ACCORDINGLY UPHOLD THE ORDER OF LD CIT(A). HENCE, GROUND NO. 1 OF THE REVENUE IS DISMISSED. 4. NOW COMING TO GROUND NO.2, BRIEF FACTS OF THE C ASE ARE THAT IN THE P&L ACCOUNT FOR THE YEAR UNDER CONSIDERATION, THE ASSES SEE HAS SHOWN INDIRECT INCOME OF RS. 26,27,442/- WHICH WAS TREATED AS INCO ME FROM OTHER SOURCES BY THE AO WHILE COMPUTING THE TOTAL INCOME OF THE ASSE SSEE. IN ITS WRITTEN SUBMISSIONS BEFORE THE LD CIT(A), IT WAS STATED BY THE ASSESSEE THAT IN ITS BUSINESS, THE FDRS ARE PREPARED FOR FURNISHING OF B ANK GUARANTEES FOR INITIATION OF THE PROJECT. THE ACTIVITY OF DEPOSITING OF MONE Y WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AS FDRS WERE REQUIRED TO B E KEPT TO ENTER INTO THE AGREEMENT FOR COMMENCEMENT OF THE PROJECT AND INTE REST INCOME EARNED ON THESE FDRS IS TO BE TREATED AS BUSINESS INCOME WHER EAS THE AO TREATED THE INTEREST INCOME OF RS. 26,27,442/- AS INCOME FROM O THER SOURCES. ON A PERUSAL OF PROFIT AND LOSS ACCOUNT OF THE ASESSEE FOR THE Y EAR UNDER CONSIDERATION , IT WAS OBSERVED BY LD CIT(A) THAT THE ASSESSEE HAS SHO WN INDIRECT INCOME OF RS. ITA NO. 08/JP/16 DCIT, CIRLE-2, JAIPUR VS. SHRI RAJESH KUMAR SHARMA, JAIPUR 5 26,27,442/-CONSISTING OF INTEREST ON BANK FDRS OF R S. 26,68,672/- AND INTEREST ON AUTO SWAP AT RS. 9,58,770/-. 4.1 IN THE APPELLATE ORDER IN ITA NO. 301/10-11 DAT ED 04/12/2012, THE LD. CIT(A) IN THE CASE OF ASSESSEE CONSIDERED THE SIMIL AR ISSUE AND HELD THAT THE GOVERNMENT CONTRACTORS ARE REQUIRED TO MAKE FDRS A ND TO PLACE THEM AS SECURITY FOR BANK GUARANTEE FOR OBTAINING THE WORK CONTRACT. THIS INCOME FROM INTEREST IS CLEARLY RELATING TO THE BUSINESS INCOME AND CANNOT BE HELD TO BE INCOME FROM OTHER SOURCES. 4.2 IN LIGHT OF ABOVE FACTUAL AND LEGAL POSITION, I T WAS HELD BY THE LD CIT(A) THAT INTEREST ON FDRS AMOUNTING TO RS, 16,68,672/- IS TO BE TREATED AS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES AND INTERE ST ON AUTO SWAP AMOUNTING TO RS. 9,58,770/- WHICH HAS NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE, AND ACCRUED TO THE ASSESSEE ON ACCOUNT OF SURPLUS FUNDS WAS HELD AS INCOME FROM OTHER SOURCES. WE DO NOT SEE ANY INFIR MITY IN THE ORDER OF THE LD CIT(A) MORE SO WHEN THE SAME TREATMENT OF INTEREST ON FDR HAS BEEN ACCEPTED BY THE REVENUE IN THE EARLIER YEAR. THE G ROUND NO. 2 OF THE REVENUE IS ACCORDINGLY DISMISSED. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/10 /2016. SD/- SD/- ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 06/10/2016 PILLAI ITA NO. 08/JP/16 DCIT, CIRLE-2, JAIPUR VS. SHRI RAJESH KUMAR SHARMA, JAIPUR 6 VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE DCIT, CIRCLE-2, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- SHRI RAJESH KUMAR SHARMA, JAIPUR 3. VK;DJ VK;QDR@ CIT I, JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-I, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.08/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR