TMI Blog2015 (7) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 SHRI T.R. MEENA, AM For the Appellant: Shri P.C. Parwal (C.A.) For the Respondent: Mrs. Neena Jeph (JCIT) ORDER PER: T.R. MEENA, A.M. These are cross appeals, one by the assessee and another by the revenue arise against the order dated 25/09/2012 passed by the learned C.I.T.(A)-I, Jaipur for the A.Y. 2009-10. The grounds of assessee s as well as revenue s are as under:- Ground of ITA No. 815/JP/2012 1 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in applying net profit 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,075/- had been claimed without any supporting voucher. viii. The mess expenses had been claimed on the basis of cash receipts. ix. The payments to the suppliers for purchase of Bajri had been claimed without any voucher and supporting evidence. x. Office expenses incurred in cash and without any supporting voucher. xi. The machinery freight charges were paid for hiring of tractor but without 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 why books of account should not be rejected U/s 145(3) of the Act and net profit rate of 8% be applied considering the facts and circumstances of the case, past history and other relevant material placed on record. The assessee submitted that the assessee had maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 rejected the book result shown by the assessee. The ld Assessing Officer further observed that the Hon ble ITAT, Jaipur Bench, Jaipur in the case of the assessee had also confirmed the rate of 8% in the order dated 13/07/2005 for the A.Y. 1994-95 and 1995-96 in ITA No. 288/01 and 349/99 respectively holding that past record of the assessee suggests to apply net profit rate of 8%. After considering the various case laws and past history of the case, the ld Assessing Officer applied net profit rate @ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint venture charges were paid to M/s Maruti Nandan Colonizers Pvt. Ltd. under the financial joint venture held with the company for financial assistance provided by the company to the assessee and submitted a copy of the joint venture agreement. The ld Assessing Officer after verification of the joint 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 by it to the assessee. Since it was actually interest payment, which was liable to TDS U/s 194A of the Act and the assessee did not make any TDS at all for the same and are disallowable U/s 40a(ia) of the Act but no separate addition was made by the Assessing Officer as net profit rate had been applied and this addition was treated as covered under the addition made by applying N.P. rate. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Court in the case of Shri Ram Jhanvarlal Vs. ITO 321 ITR 400, wherein it has been held that section 44AD is applicable only in cases where contractor s receipts do not exceed ₹ 40,00,000/-. Since the past history of the assessee is not reliable given the evidence gathered during the course of survey proceedings, he was asked to show cause why the profit rate may not be estimated on the basis of subsequent year that is A.Y. 2011-12 wherein the profit rate was 10.26% as against 6.46% declared 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 regarding this ground of appeal, and the A.O. has not brought on record any argument or evidence to controvert the finding of CIT(A) vide her order supra the matter 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 the gross contract receipts is around 24% higher than the last year. Therefore, the N.P. Rate of 8% applied by the AO and 8.89% directed to be applied by the Ld. CIT(A) is without considering the increase in the receipt and the past history. The position of N.P. rate declared by the assessee, applied by the AO and upheld by the CIT(A)/ITAT in earlier years is as under:- A.Y. Gross Contract Receipts N.P. Rate declared by assessee (before dep. and interest) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and interest was upheld by Hon ble ITAT. However, this year considering the increase in the turnover from ₹ 96.53 crores to ₹ 120.02 crores, the net profit rate of 6.46% declared by the 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 were given as reproduced by CIT(A) at Pg 5-7 of the order. It was specifically pointed out that in AY 2011-12 there was no claim of joint venture charges, that there is variation in price of Bitumen/High speed diesel and that the gross receipt in AY 2011-12 declined to ₹ 62.92 crores as compared to ₹ 120.02 crores in AY 2009-10. The effect of the same was also demonstrated in form of a table according to which the adjusted n.p. rate before depreciation and interest in AY 2009-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent cost to the contract towards the return to the venture for the time, efforts, funds provided by him. Considering this fact, the net profit rate of 7.17% is in conformity with the past performance of the assessee. Therefore, the rate declared by the assessee should be accepted and the addition made by the AO and that enhanced by CIT(A) be deleted. 5. The department has challenge the allowability of interest payment of ₹ 43,94,830/-. It may be noted that in earlier years, Hon ble ITAT has held that interest is to be allowed separately after the application of n.p. rate considering the decision of CIT Vs. Bhawan 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 shall have the overall control for the purpose of execution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is exclusively paid to Maruti Nandan 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 and interest allowable of ₹ 43,94,830/-. The ld DR also argued that interest expenses claimed on account of joint account contract with M/s Maruti Nandan Colonizers Pvt. Ltd. is to be assessed as per direction of the ld CIT(A) as AOP. The amount of ₹ 86,06,107/- is to be disallowed as a claim of the expenditure while calculating the contract profit of the business of the assessee. 7. We have heard the rival contentions of both the parties and perused the material available on the record. 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enture expenses but no separate addition was made by the Assessing Officer. We have already considered the other additions proposed by the Assessing Officer in deciding the net profit rate in contract business. Therefore, we confirm the order of the ld CIT(A) on this issue. Even the assessee succeed on this ground on merit, the income of the assessee goes in minus, which cannot be allowed in view of the Hon'ble Supreme Court decision in the 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 further observed that the assessee also claimed interest after net profit rate in computation of income of contract business for which he relied upon the decision of Hon ble Rajasthan High Court in the case of CIT Vs. Bhawan Path Nirman (Bohra) and C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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