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Issues Involved:
1. Application of net profit rate of 11%. 2. Non-deduction of interest as business expenditure. 3. Addition of undisclosed income. 4. Charging of interest under Section 234B. 5. Non-entertainment of additional grounds regarding amortization of preliminary expenses and allowance from interest income of public issue. Issue-Wise Detailed Analysis: 1. Application of Net Profit Rate of 11%: The primary issue was the application of an 11% net profit rate by the Assessing Officer (AO), which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that this rate was exorbitant and not comparable to previous years where the net profit rate was significantly lower (3% in the audited accounts). The AO justified the higher rate based on seized documents and a special audit report under Section 142(2A). However, the Tribunal found that the special audit report was not conclusive and had several deficiencies. The Tribunal concluded that the AO did not provide specific discrepancies and failed to justify the 11% rate. Therefore, the Tribunal directed the AO to apply an 8% net profit rate, considering the past history and circumstances of the case. 2. Non-Deduction of Interest as Business Expenditure: The AO did not allow the deduction of interest amounting to Rs. 38,06,090, treating it as already covered by the net profit rate. The CIT(A) upheld this view. The assessee argued that the interest was a legitimate business expenditure and should be allowed. The Tribunal agreed with the assessee, citing consistent views of the Jaipur Bench and relevant High Court decisions, including CIT vs. Jain Construction Co., which allowed such deductions. The Tribunal directed the AO to allow the interest deduction from the net profit rate. 3. Addition of Undisclosed Income: The AO added Rs. 13,34,308 as undisclosed income based on a seized loose paper. The assessee contended that the loose paper did not reflect any undisclosed income and that all contract receipts were recorded in the books of account. The Tribunal found that the loose paper was a "dumb document" and did not conclusively indicate any undisclosed income. The Tribunal directed the deletion of this addition. 4. Charging of Interest under Section 234B: The AO charged interest under Section 234B on the assessed income. The assessee argued that interest should be charged only on the income declared in the return. The Tribunal, following the Supreme Court decision in CIT vs. Ranchi Club Ltd., directed the AO to charge interest under Section 234B only on the income declared in the return. 5. Non-Entertainment of Additional Grounds: The CIT(A) did not entertain additional grounds regarding amortization of preliminary expenses and allowance of Rs. 8,20,091 from interest income of the public issue. The Tribunal found that these grounds were not wilfully omitted and directed the CIT(A) to admit and decide these grounds after hearing the assessee. Separate Judgments: The Judicial Member (JM) dissented with the Accountant Member (AM) on the application of the 8% net profit rate, arguing that the assessment was agreed upon by the assessee. However, the Third Member (President) agreed with the AM, concluding that the assessment was not agreed upon and the 8% rate was reasonable. The final order directed the AO to apply the 8% net profit rate, allow the interest deduction, delete the addition of Rs. 13,34,308, charge interest under Section 234B on the declared income, and admit the additional grounds for consideration by the CIT(A).
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