TMI Blog2012 (5) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... oth in law and facts by confirming the addition of ₹ 4,92,322/- made by the AO on account of non-verification of creditors. The addition is arbitrary in nature liable to be deleted. 3. The appellant reserves the right to amend, alter, add, any grounds of appeal. 4. In ITA No.494(Asr)/2010, the assessee has raised following grounds of appeal for the A.Y. 2005-06. 1. That the Ld. CIT(A) has grossly erred both in law and facts by confirming the order passed by the AO u/s 144 of the Income Tax Act, 1961. The order is illegal and liable to be quashed. 2. That the Ld. CIT(A) grossly has erred both in law and facts by confirming the application net profit rate of 10% on Gross Receipts. The rate applied is too excessive in comparison to what has been held reasonable by the Hon'ble Bench of ITAT, Asr. The application of rate is arbitrary, liable to be deleted. 3. That the Ld. CIT(A) has erred both in law and facts by confirming the addition of ₹ 14,07,003/- made by the AO on account of interest and fixed deposits. 4. The Ld. CIT(A) has grossly erred in not allowing interest and salary paid to partners of the firm and treating the firm as AOP. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 4,53,458/- made by the Ld. AO on account of interest on fixed deposits. 6. Te Ld. CIT(A) has erred in law and facts by confirming the addition of ₹ 6,69,340/- made by the ld. AO on account of other receipts. 7. In ITA No.382(Asr)/2010 for the assessment year 2007-08, the revenue has raised following grounds: 1. That the ld. CIT(A) has erred in deleting the addition of ₹ 23,28,303/- on account of reducing the net profit rate from 10.5% to 10% on gross receipts, in view of the decision of the Hon'ble Allahabad High Court in the case of Delta Engineering Pvt. Ltd. vs. CIT(1990) 186 ITR 383, 385. 2. The Hon'ble High Court of P H in its decision in the case of CIT vs. Prabhat Kumar (2010) 323 ITR 675, upheld the application of 12% on contract receipts as reasonable rate of profit. 3. That the ld. CIT(A) has erred in allowing the depreciation claimed by the assessee in its return of income in view of the decision of the Hon'ble P H High Court in the case of CIT vs. Gian Chand Labour Contractor 214 CTR 149 (2008). 4. That the appellant craves to add or amend or alter the ground of appeal before the appeal is heard. 8. Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry. The production of these creditors would not be possible in view of the time lapse and the nature of contract business. The AO issued show cause notice to the assessee to submit complete names and addresses of the sundry creditors for examination, as per direction of the ITAT, Amritsar Bench. It was also mentioned in the said show cause notice to furnish the required information and produce sundry creditors which would lead to finalization of assessment in your case based on the facts available on record. The assessee filed list of creditors alongwith addresses. The AO observed that the given addresses are not complete and communication of the said addresses is not possible. The assessee was given an opportunity to produce creditors but the assessee through its accountant submitted that production of labourers will not be possible in view of the time lapse of more than 8 years. The AO accordingly observed in the light of facts and circumstances of the case, the verification of creditors at this point of time is not possible, as such estimate the disallowance made on account of sundry creditors by the then AO seems reasonable and accordingly he made the addition of ₹ 30 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee cannot escape in not producing sundry creditors when the matter was remanded only for this purpose by the ITAT, Amritsar Bench. Therefore, the claim of the assessee should be rejected and the order of the ld. CIT(A) be confirmed. 9. We have heard the rival contentions and perused the facts of the case. As regards the addition of ₹ 4,92,322/- is concerned, the AO is bound to follow the directions of ITAT's order dated 25.01.2008, where AO was required to verify the vouchers of M/s. Chinar Batteries and then to decide the issue on merits. The AO accordingly issued notice to M/s. Chinar Batteries. The proprietor Sh. Ajaz Ahmed Bhat Prop. of M/s. Chinar Batteries appeared before the AO in lieu of notice u/s 133(6) of the Act. He submitted before the AO that records are not available with him as the same stands totally gutted in a fire incident in 2004. However, he admitted that he had some transactions with the assessee firm, however, he cannot give figure at that point of time and cannot verify or confirm the transactions in view of non-availability of records. The AO has followed the directions of ITAT's order dated 25.01.2008 for calling the information i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reversed and AO is directed to delete the said addition. 10. As regards the addition of ₹ 30.00 lacs is concerned, it is pertinent to refer to assessment order at page 3 in the first round dated 31.03.2004 w.r.t the impugned addition, which for the sake of clarity is reproduced as under: 9. Further assessee has shown huge balances against some parties which could not be verified even after invoking provisions of section 133(6) and 131. Moreso, assessee has not produced the creditors for cross examination, as was required from it and requested for further time for doing the needful, which is not possible in view of the time limitation involved in the case. In this way the genuineness of the creditors shown by the assessee could not be ascertained due to paucity of time and other facts narrated hereinabove. After considering the reply filed, arguments made and keeping in view of the discrepancies discussed supra. Inflated balances in respect of the sundry creditors shown cannot be ruled out. To check the leakage of profits on account of inflated and fictitious sundry creditors, I disallow ₹ 3000000/- on account of inflated sundry creditors shown in the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- on the total gross receipts of ₹ 11,09,97,101/- and accrued interest of ₹ 14,07,003/-. The assessee was asked to submit information as per notice issued under section 142(1) of the Act, dated 27.09.2007. With regard to the claimed expenditure of ₹ 7,93,69,587/- on account of material consumed and labour expenses and also other details as asked for in the notice u/s 142(1) available at page 1 to 3 of AO's order. No compliance in this regard was made by the assessee and the AO proceeded to make the assessment u/s 144 of the Act and estimated the income. For this he relied upon the decision of the ITAT, Chandigarh Bench, in the case of Shivam Construction Co. vs. ACIT, in ITA Nos. 383 384/2004, 622/2005, 385 385/2004 and 728/2005. It was also held by the ITAT in this case that in the case of a Civil contractor, the net profit rate of 10% on the gross receipts was fair and reasonable estimate of income from contract business, if the assessee failed to substantiate the books of account with the evidence/vouchers. The ITAT, Chandigarh Bench, directed to allow further expenditure on account of interest and salary paid to partners but clearly prohibited from al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntions and perused the facts of the case. There is no dispute to the applicability of section 145(3) of the Act or assessment made u/s 144 of the Act. As regards the estimation of income, the AO has followed the decision of ITAT, Chandigarh Bench, in the case of Shivam Construction, which case has been affirmed by Hon'ble High Court of Punjab Haryana, as mentioned by AO in para 9 of his order. Whether the facts in the case of Shivam Construction are identical to the facts of assessee's present case have not been brought on record. Therefore, the decision in the case of Shivam Construction cannot be made applicable in the present case. 13.1. The Ld. Counsel for the assessee argued that in case of Contractors, CBDT had issued guidelines for taking the cash in scrutiny with net profits are declared less than 5%. The past practice of the assessee accepted by the department should be followed which is less than 5% and does not exceed 6.5% of total contract receipts. 13.2. The Ld DR, on the other hand, relied upon the orders of both the authorities below. 13.3. After hearing the parties and perusal of records, we are of the view that in the absence of any comparable ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts at ₹ 46,23,595/- and total net profit of ₹ 2,52,17,900/- was declared. The assessee had claimed material expenses of ₹ 34,45,14,173/-, labour expenses of ₹ 3,84,30,476/-, freight expenses amounting to ₹ 1,50,98,996/- and establishment expenses at ₹ 70,07,367/-. The other expenses were claimed in the profit loss account. As per show cause notice given for filing the relevant details, the assessee did not furnish any detail. The assessee did not furnish books of account and other details asked for, for the reasons that the same were available with Sh. Ashok Koul, CA, who had expired in moth of October, 2009. A show cause notice was given to the assessee why the best judgment under section 144 of the Act be not made by applying a net profit rate of 12.5% on gross contract receipts without giving any further deduction on account of salary and interest to partners, depreciation and other incomes to be assessed separately. The AO reproduced the said letter in his order at pages 8 9. In response to the said show cause the authorized representative of the assessee vide letter dated 24.12.2009 submitted that the assessee had maintained books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt. On appeal, the learned CIT(A) confirmed the action of the A.O. 18. We have heard the rival contentions and perused the facts of the case. The facts in the present case in ground No. 2,3,4 5 are identical to the facts in assessee's own case for the assessment year 2005-06, which have been decided by us hereinabove in ITA No.494(Asr)/2010 and 381(Asr)/2010 of even date in ground No.2, 3 4 in the said appeal and solitary ground in revenue's appeal. The AO in the present case has applied a Net Profit rate of 10.5%. The Revenue has relied upon the decisions of Hon'ble Punjab Haryana High Court mentioned in the grounds of appeal. Since the issue is identical in the present case as in assessee's own case for the assessment year 2005-06, therefore, our order hereinabove in ITA No.494(Asr)/2010 and ITA No.381(Asr)/2010 of even date shall be applicable in the present case and accordingly a net profit rate of 7% shall be reasonable on the gross contract receipts declared by the assessee minus interest on fixed deposits and other receipts. The AO is directed to act accordingly. Further, the Ld. CIT(A) has rightly treated the firm as an AOP and has rightly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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