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TMI Blog2013 (2) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order dated 24.12.2010 passed u/s 143(3)/147 should have been cancelled/annulled. Therefore, the ld. CIT(A) legally erred in not holding the reassessment proceedings and the resultant reassessment order in question as null and void." 3. Facts of the case, in brief, are that the assessee filed original return of income on 31.10.2006 declaring total income of ₹ 51,59,867/-. Assessment order was passed u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act', for short] on 29.02.2008. Thereafter, the case was reopened u/s 147 of the Act due to income escaped to assessment as per audit para. The assessee stated in his reply that the return of income filed on 31.10.2006 may be treated as having been filed in response to notice u/s 148 of the Act. The A.O. framed assessment at an income of ₹ 92,71,407/- vide assessment order dated 24.12.2010. 4. The assessee challenged the initiation of proceedings u/s 148 of the Act before the ld. CIT(A) and submitted that the notice issued u/s 148 of the Act was bad in law. The submissions made by the assessee before the ld. CIT(A) as incorporated in pages 2 to 4 of the impugned order are reproduced verbati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuance of notice u/s 148 while recording the reasons the A.O. completely overlooked the fact that the predecessor A.O. had rejected the books of account and applied a certain rate of profit. As per various judicial decisions one this was done there was no question of any separate disallowance u/s 40(a)(ia). (vii) The issuance of notice u/s 148 was only on account of change of opinion on the same set off facts and evidences. In the original order rate of 7.75% was applied before interest and depreciation and in the reassessment order the same rate was applied subject to interest and depreciation. In this regard, the ld. A.R. placed reliance on the following judicial decisions: 1. Yakub Ali Gopal Singh & Party 295 ITR 129 [Raj] 2. ITO Vs Nawab Mir Barkat Ali Khan Bahadur 97 ITR 239 [SC] 3. CIT Vs. Kelvinator of India Ltd. 256 ITR 1 [SC] 4. Manish Ajmera Vs. ACIT 95 ITD 111 [Chd.] 5. Sita World Travel [Ind] Ltd Vs. CIT 140 Taxman 381 [Del] 6. IL & FS Investment Managers Ltd. Vs. ITO & Ors 298 ITR 32 [Bom] 7. Virendra Kumar Agarwal Vs. ITO 132 ITD 140 [Mum] Thus it was pleaded that the initiation of reassessment proceedings u/s 147 and consequent issue of notice u/s 148 was ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the A.O. was satisfied that there is escapement of income. 8. We have heard the rival submissions and have carefully perused the entire material on record. In the present case, it is an admitted fact that reopening was initiated on the basis of audit objection. This fact is evident from the assessment order dated 24.12.2010 wherein the A.O, in para 1 has clearly stated that "Thereafter, the case was reopened u/s 147 due to income escaped to assessment as per audit para". The language of the reasons recorded for reopening assessment has been reproduced by the A.O. at page 1 of the assessment order. From the language of those reasons recorded also, it is clear that the reassessment proceedings were initiated on the basis of the audit objection. As regards the validity of reopening of the case u/s 147 of the Act, on the basis of audit objection, the Hon'ble Supreme Court in the case of Indian and Eastern Newspaper Society Vs. CIT [supra] held as under: "The opinion of the audit party on a point of law could not be regarded as information, enabling the ITO to initiate reassessment proceedings u/s 147 of the Act." 9. Similarly, the Hon'ble Gujarat High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the managing director was not allowable and, therefore, there had been an excess allowance of ₹ 30,192 while computing the income of the assessee for the relevant year. There was no material before the Assessing Officer who made the reassessment to show that these provisions had not been noticed by the Income-tax Officer when he made the original assessment. The reassessment is solely based on the audit party's remarks. It was not valid." 12. In the instant case also, since the reopening of the assessment u/s 147 of the Act was solely based on the objection of the audit party, therefore, the same was not valid. In that view of the matter, reassessment framed by the A.O. is held to be null and void. Since we have held the reassessment as null and void, therefore, no findings are required to be given on the issues raised by the department on merits of the case in ITA No. 133/Jodhpur/2012 and the appeal of the department deserves to be dismissed. We order accordingly. 13. In the result, the cross objection of the assessee is allowed and the appeal of the department is dismissed. 14. In assessee's appeal ITA No. 129/JU/2012 the following grounds have been raised: "1. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses pertaining to power plant and running of vehicles which were directly related to contract works and salary included wages also. According to the A.O, the way of presentation of account was not proper as the assessee removed direct expenses from work account for the purpose of showing higher gross profit and later on, he debited direct expenses in profit and loss account. The contention of the assessee was that the above pointed out discrepancies in accounts were because of accounting system followed by the assessee. However, the A.O. did not accept the said contention by observing that the discrepancies clearly showed that there was manipulation in the accounts prepared by the assessee which were not acceptable. The A.O. found the books of account produced by the assessee as incomplete and incorrect due to the following reasons: "1. The assessee has not maintained the stock register for the material consumed on day-to-day basis and the work in progress is taken on the estimate basis. 2. Further, no proper vouchers are maintained for work expenses nor the heads are mentioned on which the expenses were made. 3. In respect of labour, rasoda, machinery, repairing, diesel, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure. He also pointed out that the assessee had not declared margin of profit on each and every work actually executed by him and accordingly it was not possible to work out how much profit had really been earned by the contractor in that particular contract. He also pointed out that no stock register, work register, muster roll, wages register, attendance register and salary register had been maintained by the assessee. As such, day to day consumption of raw material purchased and other expenses remained unverifiable. Hence true profit of the assessee could not be ascertained which clearly shows that books of account of the assessee did not given true and fair view of the accounting results in the assessee's case. Accordingly, the A.O. rejected the books of account within the meaning of section 145(3) of the Act. Reliance was placed on the following cases: 1. Awadesh pratap Singh Abdul Rehman & Bros Vs. CIT [1994] 76 Taxman 106 [All] 2. Ram Chandra Singh Ramneeklal Vs. CIT 42 ITR 780 [Patna] 3. S.V. Vijay Laxmi Vs. ITO 260 ITR 138 [Ker] 18. The A.O. rejected the books of account and applied net profit rate of 12.50% subject to interest and depreciation by keeping in mind t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately preceding year. He further observed that the assessee had shown better gross profit as compared to last year. Therefore, no trading addition was sustainable. Reliance was placed on the following case laws: 1. Lakhani Shoes Pvt. Ltd Vs. Addl. CIT 34 TW 32 2. J.C. Sharma Vs. ITO 33 TW 82 3. ITO Vs. Hitesh Kumar Panchori 113 TTJ 357 22. The ld. CIT(A) was of the view that the estimation of net profit by the A.O. was without considering the past history of the assessee. He, therefore, keeping in view the ratio in the above-said decision held that trading addition made by the A.O. when the assessee had shown better net profit than the immediately preceding year was not justified. He, therefore, directed the A.O. to apply net profit rate of 8.35% subject to depreciation. Now the assessee is in appeal. 23. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the A.O. without considering the past history of the assessee's case applied net profit rate of 12.50% on the basis of the decision of the Hon'ble Rajasthan High Court in the case of Jain Construction Co. [supra] for A.Y. 1994-95 whereas the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past history of the assessee's case directed the A.O. to accept the gross profit rate of 8.35% declared by the assessee. During the course of hearing, the ld. Counsel for the assessee pointed out that the rate of profit before depreciation and interest in assessee's case was 8.55% and not 8.35% as recorded by the A.O. It was stated that in the chart furnished before the A.O. by mistake amount of depreciation and interest was shown at ₹ 39.71 lakhs instead of ₹ 43.32 lakhs. Therefore, the profit before depreciation and interest was at ₹ 151.71 lakhs instead of ₹ 148.09 lakhs shown in the chart furnished before the A.O. Although the aforesaid fact was not before the A.O. or ld. CIT(A), however, it is an admitted fact that the gross profit rate of 8.35% before depreciation and interest for the year under consideration was better than the profit rate of 8.12% in the preceding year. 26. In the present case, profit rate of 8.35% was upheld by the ld. CIT(A) subject to depreciation and interest to partners. However, the ld. CIT(A) is silent on the interest to the third parties and directed the A.O. to apply net profit rate of 8.35% subject to depreciation whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready adjudicated while deciding Ground Nos. 1 to 3 of the assessee's appeal in ITA No. 129/JU/2012. In that view of the matter, we do not see any merit in this ground of departmental appeal wherein grievance is against application of net profit rate of 8.35% as against 12.5% applied by the A.O. 33. Vide Ground Nos. 2 and 3, grievance of the department relates to the deletion of disallowance of expenses amounting to ₹ 13,85,860/- made by the A.O. by invoking provisions of section 40a(ia) of the Act. 34. Facts related to this issue, in brief, are that the A.O. during the course of assessment proceedings noticed that the assessee had not deducted TDS on job work payment u/s 194C of the Act amounting to ₹ 13,85,860/-. He asked the assessee to furnish the reply regarding the same and according to the A.O., the assessee could not give any satisfactory reply. He, therefore, disallowed the said amount of ₹ 13,85,860/- u/s 40a(ia) of the Act. 35. The assessee carried the matter to the ld. CIT(A) and submitted that once the books of account were rejected and profit estimated, there was no justification for a separate addition u/s 40a(ia) of the Act. Reliance was placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment given in the computation of total income at the end of the assessment order. However, the assessee carried the matter to the ld. CIT(A) and submitted that the income on account of bank interest and commission was duly reflected by the assessee in the profit and loss account and commission income was nothing but rebate obtained by the assessee from the I.O.C for purchase of bitumen and the interest was on FDRs purchased for the purpose of fulfilling the terms and conditions of various contracts undertaken by the assessee. The same constitute only business income as there was direct nexus between carrying on contract business and earning of income in question. Reliance was placed on the following case laws: 1. CIT Vs. Lok Holding 308 ITR 356 [Mum] 2. CIT Vs. Chinna Nachimuthu Const. 297 ITR 70 [Kar] 3. CIT Vs. South India Shipping Corpn. Ltd 216 ITR 651 40. The ld. CIT(A) after considering the submissions of the assessee observed that both the commission income and interest received from bank was directly linked to the business of the assessee and the same could not have been assessed to tax as income from other sources. He also observed that the A.O. had not given any reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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