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2015 (7) TMI 1106 - ITAT JAIPUR

2015 (7) TMI 1106 - ITAT JAIPUR - TMI - G.P. rate determination - Held that:- There was a survey in the case of assessee on 14/07/2011 and incriminating documents were found during the course of survey. On that basis, the assessee had admitted additional income of ₹ 17,05,800/- but the ld Assessing Officer had not made separate addition on account of disclosure made by the assessee. The assessee also had explained that after verification of the books of account, the disclosure made was not .....

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ment made on joint venture expenses but no separate addition was made by the Assessing Officer.

Allowing the interest payment to be deducted despite the fact that interest income shown has been assessed under the head “Income from other sources” - Held that:- This Bench has decided in assessee’s own for A.Y. 2008-09 wherein we have confirmed the NP rate @ 7% subject to depreciation and interest to third party - ITA No. 815 & 869/JP/2012 - Dated:- 24-7-2015 - SHRI R.P. TOLANI, JM & .....

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fit rate of 8.89% subject to interest and depreciation on contract receipt of ₹ 1,20,09,79,663/- as against 6.46% declared by assessee and 8% applied by the A.O. 1.1 The ld. Commissioner of Income Tax (Appeals) has erred on fact and in law in enhancing the income of the assessee by 0.89% of the contract receipt of ₹ 1,20,09,79,663/- without giving any specific show cause notice of enhancement of income u/s 251. 1.2 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and i .....

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cannot be debited to the profit and loss account and therefore disallowable. She has further erred in directing A.O. to call the return of joint venture and tax the income of joint venture. Ground of ITA No. 869/JP/2012 Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in allowing the interest payment of ₹ 43,94,830/- to deducted despite the fact that interest income shown has been assessed under the head Income from other sources and accepted .....

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of the Act on the following grounds: i. No stock register is being maintained. ii. Site wise details of expenses and material consumed is not maintained. iii. No supporting evidences/bills are available for traveling expenses. iv. The bills/vouchers maintained for conveyance expenses are not proper/available. v. Salary expenses incurred in cash without any receipt and signature. vi. Diesel expenses had been claimed without quantitative details maintained and also not vehicle wise. vii. Payment .....

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ut any voucher and supporting evidence. xii. Pani charges had been claimed without any supporting evidence and paid in cash. xiii. Wood charges had been claimed without any supporting voucher. xiv. Printing and stationary expenses were not supported by any voucher and were paid in cash. In view of the above serious defects detected in the books of account, it has been held that true profit cannot be determined from such defective books of account, so the assessee was asked to show cause as to wh .....

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g at worksite. For expenses debited in P/L account like Roda stone, moram roda, pani, bajri, mess expenses etc. on self made vouchers procured from the local persons, who do not keep printed bills. The nature of work is different with other business and being various work places it is difficult to pay the attention on qualitative and quantitative work by the assessee. Further each and every record cannot be maintained in this line of business wherever the evidence can be collected has been taken .....

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owing cases it was held that depreciation allowance is mandatory and would be allowable after the application of profit rate. a. CIT Vs. Jain Construction Co. (2000) 245 ITR 527 (Raj). b. CIT Vs. Amril Lal Khatri (2003) 172 Taxation 11 (Rat) c. Ansari Builders Vs. ITO 66 TTJ 902. Interest:- During the year under consideration the assessee have paid ₹ 44,24,118.29 on account of interest against the loans taken by the assessee for business purpose. Out of ₹ 44,24,118.29 ₹ 37,32,2 .....

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considering the assessee s reply, the ld Assessing Officer observed that the assessee himself admitted that complete details/vouchers could not be produced as the same were lying at work site and also admitted that it is not possible for him to maintain each and every record. Therefore, correctness and completeness of the books of account of the assessee is totally ruled out and correct profit of the assessee cannot be deduced therefrom. Therefore, she applied Section 145(3) of the Act and reje .....

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8% on disclosed turnover subject to depreciation on the basis of past history of the case but allowability of interest, the ld Assessing Officer did not allow the interest by considering the assessee s legal submission in the case of CIT Vs. Bhawan Path Nirman (Bohra) and Co. (supra). The interest was not allowed in past also, accordingly, she did not allow the interest. After applying the NP rate of 8%, the ld Assessing Officer determined the contract income at ₹ 7,20,90,040/-. She furthe .....

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cash payments by the assessee to his sub contractor Shri Birbal Singh Shoora. During the survey proceedings, assessee was inquired about the nature of transactions mentioned in the diary and to verify the same from his books of account. Statement U/s 133A of the Act was recorded, which has been reproduced by the Assessing Officer on page No. 17 of the assessment order. On the basis of this statement and incriminating documents found, the assessee admitted additional income of ₹ 17,05,800/ .....

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ferred in the statement U/s 133A for disclosure, had been entered in the regular books of account. Therefore, the additional income thus admitted by the assessee, has not been considered by revising the return. The assessee s reply was not found convincing to her. However, she has not made addition of ₹ 17,05,800/- as net profit rate had been applied and not separate addition was made by her. 2.2 The assessee had claimed joint venture charges of ₹ 86,06,107/- as expenditure in the sc .....

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venture agreement, concluded that this agreement was just on paper and in reality there is no existence of any joint venture. The detailed reasoning had been given by the Assessing Officer on page 15 and 16 of the assessment order from serial No. 1 to 8 and finally concluded that the joint venture agreement is only on paper and during the relevant year, there was no joint venture in reality. Whatever payments made to M/s Maruti Nandan Colonizers Pvt. Ltd. was actually interest on the money lent .....

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d CIT(A), who had enhanced the income of the assessee by observing as under:- I have carefully perused the order of the Assessing Officer and the submissions of the AR and the following facts emerge in the case of the assessee: 1. The assessee has not been maintaining any books of accounts from A.Y. 2003-04 if not earlier. 2. The assessee s case has regularly been picked up for scrutiny, his books of accounts have been rejected by invoking provisions of Section 145(3) and the matter has gone up .....

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minating documents were found and impounded. As per these documents it was found that the assessee has been violating the specific provisions of Income Tax Act and has also been suppressing his taxable income in the previous assessment years. In short, the assessee has intelligently taken advantage of the judicial history in his case to deliberately violate the provisions of the Income Tax law and evade taxes. Year after year he has not made any attempt to maintain any books of accounts in order .....

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seen that the judicial pronouncements regarding reliance on past history for determining the GP in his case would no longer be applicable because the facts of his case during this A.Y. are different from the previous A.Ys. and also are different from the facts of the case of Gotan Khanij Udyog Pvt. Ltd. Vs. CVIT 256 ITR 243. I do not agree with the A.O. that reliance should be placed on section 44AD for estimating the NP of the assessee in view of the finding of the Hon ble Jurisdictional High C .....

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by him during this A.Y.. A detailed reply was furnished by the AR wherein it was submitted that in A.Y. 2011-12 the proprietory concern had been converted into a partnership firm and there would be an increase in profit rate by 1.37% due to non debiting of the joint venture charges. It was also mentioned that there would be differences in profit rates due to change in rate of bitumen. I have considered the reply of the AR and find it partly acceptable and give an allowance of 1.37% on account o .....

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ny supporting books of accounts, bills and vouchers in the case of the assessee. A set off is given of 1.37% (due to non debiting of joint venture charges) from the profit rate of 10.26% in A.Y. 2011-12. Thereafter, the net profit rate before depreciation and interest is estimated at 8.89%. The A.O. is directed to calculate the profit of the assessee at rate of 8.89% on total contractual receipts of ₹ 1,20,09,79,663/- before depreciation and interest allowable of ₹ 43,94,830/-. Furth .....

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e of profit of a Venturer cannot be debited in P&L account. Therefore, ₹ 65,04,574/- being payment as per Joint Venture agreement debited by the assessee in his P&L account is to be disallowed. The Financial Reporting of Interests in Joint Venture is governed by Accounting Standard (AS) 27 w.e.f. 01/04/2002 issued by Council of ICAI. While the Joint Venture Agreement has been drawn as per these guidelines the financial reporting has not been done accordingly by the assessee. The A. .....

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is covered by this finding. Therefore, the A.O. is required to call for the return and financial statements as per the AS 27 of the Joint Venture and the income of the joint venture is to be taxed as AOP. The amount of ₹ 86,06,107/- is to be disallowed as a claim of expenditure while calculating the profits of the contract business of the assessee. 4. Now the assessee is in appeal before us. 5. The learned A.R. of the assessee has submitted as under:- 1. At the outset we may point that th .....

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by CIT(A) & upheld by ITAT (before depreciation and interest) Paper Book PB 2009-10 1,20,09,79,663/- 6.46% 8% (subject to depreciation) 8.89% Present Appeal 2008-09 96,53,57,927/- 6.06% 8% 7.2% by CIT(A) 7% by ITAT PB 64-65, Para 7 2007-08 93,96,06,963/- 6.97% 8% 7.2% PB 41-42, Para 6 and 6.1 2006-07 66,75,57,202/- 7.02% 8% 7.1% PB 47, Para 6 2005-06 42,07,54,436/- 6.73% 8% 7.2% PB 49-50, Para 5 - Hon ble ITAT in A.Y. 05-06 in applying the N.P. rate, by relying on the decision of Rajasthan H .....

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followed in the assessee s own case in the A.Y. 2006-07 & 2007-08. In the A.Y. 2008-09, the Hon ble ITAT has considered the case of Hon ble Rajasthan High Court in the case of Kansara Bearings P. ltd. v. Assistant Commissioner of Income Tax (2004) 270 ITR 235 in holding that the best method of estimating the income on the contractual receipt would be past history of the assessee himself and applied the net profit rate of 7% subject to depreciation and interest to third parties. Hence, the in .....

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he assessee is reasonable and the AO be directed to accept the same. 2. The CIT(A) has directed to apply n.p. rate of 8.89% subject to depreciation and interest. For application of N.P rate of 8.89%, she has taken the n.p. rate of 10.26% before depreciation and interest declared by the assessee in AY 2011-12, the return of which is filed after survey as the basis. The assessee has explained that n.p. rate of 10.26% declared in AY 2011-12 cannot be applied in AY 2009-10 for which detailed reasons .....

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worked out at 8.02% as compared to 8.29% in AY 2011-12. The CIT(A) accepted the adjustment on account of joint venture charges but did not accept the adjustment on account of Bitumen by stating that the same cannot be verified because of the lack of proper records ignoring that in respect of variation in the rates, assessee has filed detailed working supported by the evidences which is placed at PB 9A-12A. Therefore, application of n.p. rate of 8.89% by CIT(A) without considering the effect of t .....

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ated. 3. The Ld. CIT(A) has directed the AO to apply a N.P. rate of 8.89% subject to depreciation and interest. This has resulted in the enhancement of income by ₹ 62,93,889/-. The enhancement is made without issuing any specific show cause notice as required by section 251 of the Act. Sub section 2 to Section 251 reads as under: The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of sh .....

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. In view of this legal position enhancement to the income made by CIT(A) be directed to be deleted. 4. We may also submit that the net profit rate of 6.46% declared by the assessee is after considering the joint venture charges of ₹ 86,06,107/-. If this is not considered the net profit rate is worked out at 7.17%. The joint venture charges is a separate and independent cost to the contract towards the return to the venture for the time, efforts, funds provided by him. Considering this fac .....

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n Path Nirman (Bohra) & Co. 258 ITR 431 & 440 (Raj). Therefore, the ground of the department be dismissed. With regard to the Joint venture expenses, the AR has submitted as under:- 1. The payment of ₹ 86,06,107/- to M/s Maruti Nandan Colonizers Private Limited is towards joint venture charges. As per agreement, it has contributed a sum of ₹ 1500 lacs into joint venture as security deposit on which no interest is payable. It has further appointed Chief Operating officer, who .....

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mp;L A/c and therefore it is allowable business expenditure and not a simple finance transaction. It does not attract any of the provision of TDS and therefore it is a specific charge, it ought to be separately allowed from N.P. rate applied in assessing the income of the assessee. 2. It may be noted that assessee has reduced its cost by entering into joint venture transaction. From the copy of the account of M/s Maruti Nandan Colonizers Private limited in the books of assessee, it can be noted .....

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ure to the extent of ₹ 1,12,98,579 (1,99,04,704 -86,06,107). Therefore, the disallowance made by the AO by treating the same as finance charge is incorrect. 3. The AO has incorrectly held this arrangement as a finance arrangement by not appreciating the various terms and condition of the agreement. The CIT(A) has therefore not accepted the finding of the AO that it is simply a finance arrangement. However, at the same time, she has incorrectly observed that it is only a contract for profit .....

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Colonizers Pvt. Ltd. The ld AR further relied on the decision of the Hon ble ITAT, Jaipur Bench in assessee s own for A.Y. 2008-09 in ITA No. 697/JP/2011 and 776/JP/2011 order dated 05/09/2014 and has drawn our attention on paragraph No. 13 page 19 and argued that this interest expenses is allowable. 6. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the ld CIT(A) has given reasoned order on this issue by applying NP rate @ 8.89% before depreciation a .....

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rd. The ld Assessing Officer applied N.P. rate @ 8% and joint venture made with M/s Maruti Nandan Colonizers Pvt. Ltd. was held as Shan. However, the ld CIT(A) applied NP rate @ 8.89%. During the year under consideration, the assessee total turnover was 120.09 crores as against 96.59 crores in preceding year. The assessee has shown NP rate @ 6.46% in year under consideration, which was 6.06% in preceding year before depreciation and interest. The ld CIT(A) had applied NP rate in A.y. 2008-09 @ 7 .....

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Path Nirman (Bohra) and Co. (supra). The comparison of NP rate should be made with immediate 2 to 3 preceding years not much earlier assessment year. The best method of estimating of income on the contractual receipt is only past history except exceptional variation in the activity of the assessee compared to past. The ld CIT(A) had also not given any show cause notice before enhancing the income of the assessee, which has been held by the Hon ble Delhi High Court as illegal and bad in law. Rel .....

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nt, the disclosure made was not warranted as these discrepancies were not found when verified from the regular books of account after survey, therefore, no revised return was filed by the assessee. Keeping in view of the past history and our own decision in A.Y. 2008-09 we are of the considered view that the N.P. rate @ 7% is reasonable on turnover of ₹ 120.09 crores. No separate addition is required to be made on various additions proposed by the Assessing Officer in her assessment order. .....

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case CIT Vs. Shelly Products & Ors. 261 ITR 367. Accordingly ground No. 1 of the assessee s appeal is allowed partly and ground No. 2 is dismissed. 8. Now we are deciding the revenue s appeal. The sole ground of appeal is against allowing the interest payment at ₹ 43,94,830/- to be deducted despite the fact that the interest income shown has been assessed as income from other sources. The ld Assessing Officer estimated the income on contract business @ 8% subject to depreciation. She f .....

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