TMI Blog2017 (5) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... e is estimated then there is no further scope for any addition out of various expenses debit in profit and loss account. Therefore, we find no merit in the order of the ld. CIT(A) which is not justified in confirming the disallowance - ITA No. 495, 496 & 497/JP/2013, ITA No. 2/JP/2014 & 823/JP/2014 - - - Dated:- 30-5-2017 - SHRI BHAGCHAND, AM SHRI KUL BHARAT, JM Assessee by: Shri Mahendra Gargieya, Advocate Revenue by: Shri R.A. Verma, Addl. CIT-. DR ORDER PER BHAGCHAND, AM The assessee has filed the appeals against the separate orders of the ld. CIT(A), Kota all dated 26-03-2013 for the assessment years 206-07, 2007-08 and 2008-09 while the Revenue has filed the appeals against separate the orders of the ld. CIT(A), Kota dated 29-10-2013 and 22- 09-2014 for the 2009-10 and 2010-11 respectively. For the sake of convenience and brevity of the case, these appeals are being disposed off through a common order. 2.1 The ground of appeal raised by the assessee in ITA No. 495/JP/2013 for the assessment year 2006-07 is as under:- 1. The impugned additions and disallowances made in the order u/s 143(3) dated 21.11.2008 are bad i n law and on facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full. 3.1 During the course of hearing, the ld. AR of the assessee has not pressed the Ground No. 1. Hence, the same is dismissed being not pressed. 4.1 Apropos Ground No. 2 ( 2.1, 2.2 and 2.3) of the assessee, brief facts of the case are that assessee is engaged in civil contractor business mainly in constructing of canals for irrigation purpose. During the period the assessee executed contract at different sites. The return of income was filed on 31.10.2006 declaring total income of ₹ 1,69,36,640/-. During the year under consideration, the assessee had shown gross contract receipts at ₹ 24,27,14,639/- as against gross contract receipts shown of ₹ 23,62,72,053/-last year and Net Profit 2,66.97,007/- giving NP rate of 11.00% (before Interest depreciation) as against N.P. shown at ₹ 1,89,85,180/-giving NP rate of 8.04% (before Interest depreciation) last year. It is noted that the AO rejected the books of account of the assessee by applying the provisions Sec.145(3) of the Act and enhanced the GP rate @ 11.50% (subject to Interest depreciation) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 12.00 lakhs was required to be made only on the ground of suppression of closing stock. There were many other defects pointed out by the A.O., which could also result in further addition. Therefore considering the overall facts of the case, the A.O. is directed to make addition of ₹ 14.00 lakhs, this would result in enhancement of ₹ 1,84,824/-. Conclusively, the ld. CIT(A) enhanced the addition made by the AO by ₹ 1,84,824/- which resulted into total addition of ₹ 14 Lakhs which in terms of NP rate (subject to interest depreciation) comes to 11.58%. 4.3 Being aggrieved by the order of the ld. CIT(A), the assessee is before us who has challenged the application of Sec.145(3) of the Act and also confirmation of addition of ₹ 12,15,176/- made by the AO and the enhancement made therein of ₹ 1,84,824/- by the ld. CIT(A). It may be noted that at the time of the hearing of the appeal, the ld. AR of the assessee did not press the applicability of Sec.145(3) and hence, part of the ground no.2 is hereby dismissed. 4.4 During the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtage was nothing but a part of the profit which was not disclosed by the assesseee. Therefore, in his view, not only the higher revision of income made by the AO i.e. the trading addition made by him, was required to be confirmed but there was further scope of enhancing the income so assessed. For AY 2007-08 he alleged that the expenses (relating to sub-contractors) were inflated hence there was undisclosed profit remained with the assessee as undisclosed closing stock which was reflected as negative closing stock. Accordingly, he completely ignored the past settled history of the case as regard the rejection and also w.r.t. the application of NP rate and even ignored the decisions of this Hon ble ITAT Bench relying / falling back on the same set of accounts in the preceding various years i.e. from AY.2003-04 2004-05 and even in A.Y. 2005-06. 2. It is submitted that the computation of the income under the head Profits and gains of Business or profession , can be made in two ways only. Firstly, where the assessee claims to have maintained books of accounts in regular course and in that situation Sec.145 makes it binding on the A.O. to compute the income in its accord only. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring over the issue in hand but not the same books of account which the AO and CIT(A) themselves have rejected finding various deficiencies, defects and faults therein. An arbitrary, capricious and wild estimation, as done in the present case, is not at all permitted in the eyes of the law. The AO however, did not confirm to its settled requirement. Kindly refer Jotram Shershing vs. CIT 2 ITR 119 (All). 3.2 Addition Need Not Be Made, Even if Sec.145 Invoked: In the case of CIT v/s Gotan Lime Khaniz Udyog 256 ITR 243(Raj), it has been held that mere rejection of books of account need not necessarily lead to additions to the returned income. It was also held that the books of account , together with past history of the case as also material collected by the AO should be considered for estimation of income. When accounts rejected- No separate addition / disallowance permissible:- 4.1 In the present case, the authorities below on one hand have completly rejected the accounts admittedly invoking Sec.145(3) however, the CIT(A) seriously contradicted his own stand because the ld. CIT(A) has again fallen back and having referred to the same books of account which he has already re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of the Act of 1961. We are in complete agreement with the view taken by the CIT(A), confirmed by the Tribunal. Thus, no substantial question of law arises for consideration of this Court in this appeal. 6.1.4 The Hon ble Andhra Pradesh High Court in Indwell Constructions v CIT (1998) 232 ITR 776 (AP) (DPB 6-8) held that 4. The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated NP rate i.e. 8% in the case of contractor, is applied on the gross receipts and benefit of no further deduction is given. Thus, the principle is that the moment accounts are rejected the only and only course left is estimation and one cannot fall back on the same very account rejected. In the presumptive tax, there is no provision to look back into the accounts, once the assessee claimed as not maintained (or similarly in the normal cases of where S.145 is invoked). 6.3 The Hon ble special bench in ITO v/s Kenaram Saha Subhash Saha (2008) 116 TTJ 289 (Kol) (SB) wherein in para 24, it has been held that: When a net profit rate is applied, there remains no scope for further disallowance of any expenditure. 6.4 Enhancement, arbitrary, vindictive, based on surmises conjectures: The theory applied by the ld. CIT(A), apart from being contradictory, was also against the prevailing trend being followed by the department itself consistently that in the cases of contractor where accounts are rejected continuously, NP rate is applied taking into account the relevant material and is also against the judicial recognition to such a practice. In addition, there are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial were purchased and consumed for the construction activities and when assessee received payment form Government, payment were made to suppliers. It is important to mention here that the monthly chart was prepared on casual basis cannot show the correct picture until and unless scrutiny of each and every expense should be carried out in a detailed manner. 5) Also your good self has taken Closing stock as on 31.08.2005 of ₹ 4 Lakhs and as on 31.08.2006 of ₹ 6 Lakhs for the assessee having turnover of more than 25 crore for both the years is on estimation which any concrete basis just on presumption. Moreover Difference between Opening stock and Closing stock was ₹ 12,02,526/- without taking into account estimation of stock as mentioned above, the difference being was already added by the A.O. during the course of Assessment proceedings. 6) Also your good self has mentioned that assessee is showing lesser margin of profit was again based on a belief, rather than showing comparative cases or instances. Assessee is showing the best profit margin as against prevailing in the Industry on such a huge turnover and assessee has maintained such trend in coming y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year being a unit, what was decided in one year might not apply in the following, year , where a fundamental aspect permeating through different assessment years has been found as afact one way or the other and parties have allowed that position to ne sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year . This view has been followed by in CIT v/s Neo Ploy Pack (P) Ltd (2000) 245 ITR 492 (Del), CIT v/s Gopal Purohit (2011) 336 ITR 287 (Bom) and M/s Hero MotoCorp Ltd. v/s Addl. CIT in ITA No.1980/Del/12 for A.Y.2007-08 vide order dated 11.06.2013. 7.6 Therefore, in the present case the only course left with the ld. CIT(A) was to appreciate the past history settled by superior authority i.e. ITAT which he could and should not have ignored and to decide the appeal in that light only. The ld. CIT(A) surprisingly, in a manner unheard, made enhancement in a very arbitrarily manner which was nothing short of an arbitrary, capricious and wild estimation in as much as in a lengthy discussion and conclusion, he did not refer to any material to justify his estimation. 7.7 Interestingly, in A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upheld by ITAT PB 34-37 2002-03 Rs.8,32,19,457/- Rs.74,82,721/- 8.99% - - - - 2003-04 Rs.19,24,20,561/- Rs.1,51,59,037/- 7.87% 9.30% 8.75% 8.50% 2004-05 Rs.20,49,43,321/- Rs.1,63,82,443/- 7.99% 9.30% 8.75% 8.50% 2005-06 Rs.23,62,72,053/- Rs.1,89,85,180/- 8.04% 9.50% 8.50% 8.50% 2006-07 Rs.24,27,14,639/- Rs.2,66,97,007/- 11.00% (9.98%)* 11.50% 11.68% Enhancement of ₹ 1,84,824/- Pending Note: NP rate shown is before interest and depreciation etc. It is evident from the above comparative chart that the turnover declared this year has gone up from ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences showing inflation of the expenses or suppression of receipt or closing stock is found by the authorities below. There are various decision of different Hon ble High Courts including the Hon ble Jurisdictional High Court wherein it was held that once the provisions of Sec.145(3) are invoked then no separate addition or disallowance could be made for estimating of closing stock etc. In the case of Indwell (Supra) the Hon ble Andhra Pradesh High Court held that 4. The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under s. 29. In other words, all the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) is completely silent on his own working. Therefore, the only proper course was to consider the fairness correctness of estimation of NP rate made at the lower levels. For all these reasons, we reject the working adopted by the ld. CIT(A) and it is held that after application of Sec.145(3), it was only a case of fair estimation to be made keeping in mind the past history of the case as held by Hon'ble Rajasthan High Court in the case of CIT vs. Popular Art Palace (P) Ltd. (2017) 391 ITR 352. The average of past 4 years comes to 8.5% . The G.P. for the year is better than past 4 years average. As regards the estimation of income after rejection of the books of account from a perusal of the comparative charts, it is noted that the assessee has declared receipts of ₹ 24.27 Crores this year as against ₹ 23.63 Crores last year and the declared NP rate (subject to interest depreciation) this year was 11% which is much better than the preceding year in A.Y.2005-06 at 8.04% and as also better from the last three preceding years from A.Y.2002-03 to 2004-05 wherein it ranged between 7.87 % to 8.99% only. It is also noted that the Coordinate Bench of ITAT Jaipur in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disallowances made in the order u/s 143(3) dated 26.11.2009 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2.1 ₹ 80,07,358/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the application of Sec.145(3) of the Act. The provision so invoked and confirmed by the CIT(A) being contrary to the provisions of law and facts, the same may kindly be quashed. Consequently the trading addition of ₹ 80,07,358/- may kindly be deleted in full. Alternatively and without prejudice to above 2.2 The ld. CIT(A) further erred in law as well as on the facts of the case in confirming the addition of ₹ 25,95,796/- made by the AO (by applying NP @ 9.50%) and further erred in enhancing the addition to ₹ 54,11562/-. The addition so made confirmed and further enhanced by the CIT(A) is totally contrary to the provisions of law and facts on the record and hence the addition may kindly be deleted in full. 2.3 The ld. CIT(A) further erred in law as well as on the facts of the case in enhancing the income which is without jurisdiction being totally contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock as on 31.03.2007). b) Actual G.P. being higher than the disclosed G.P. (on the basis of which the charts were prepared) during the period 01.04.2007 to 31.10.2007. iv) In item No. (xiii), we have proposed enhancement of ₹ 93,09,412/- on the basis of negative stock. The assessee s turnover for the A.Y. 2007-08 was ₹ 41.14 Crore and for the period 01.04.2007 to 31.10.2007 was ₹ 29.64 Crore. Therefore, 41.87% (29.64/70.78 x 100%) of this amount can be attributed higher income earned during the period 01.04.2007 to 31.10.2007. This amount comes to ₹ 38,97,850/-. This amount comes to ₹ 38,97,850/-. Therefore, the additional income earned during this year comes to ₹ 54,11,562/-. Accordingly, the income of the assessee in the current year is enhanced by ₹ 54,11,562/-, resulting to final addition of ₹ 80,07,358/-. Conclusively, the ld. CIT(A) enhanced the addition made by the AO by ₹ 54,11,562/- which finally resulted into total addition of ₹ 80,07,358/-, which in terms of NP rate (subject to Interest depreciation both) comes to 11.68%. 9.3 Being aggrieved, the assessee is before us challenging the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar facts involved in that case in as much as, there were certain old contracts, the receipts of which were received only this year whereas the related expenditure were already been incurred and debited in the earlier year/s. These projects were mainly NMC 7.882 51.50 Km (Receipts of ₹ 95,90,354/-), GLTTP Project, Barmer (receipts of ₹ 14,67,416/-) and balance work of NMC Km 30- 51.5 Km (Receipts of ₹ 26,52,531/-) totaling to ₹ 1,37,10,301/-. Kindly refer Annexure A to P L A/c (PB-9) of A.Y.2006-07. Thus, out of the total contract receipts of ₹ 24.27 crores declared this year, substantial receipt of ₹ 1.37 crores, which amounts to 5.65% of the total declared receipts, was accounted for in this year only whereas the related expenditure were already booked in the earlier year. This has directly resulted in abnormal increase in the NP rate of 11% which, is evident from the fact that if such rates are reduced from the declared receipts and then NP is computed, the revised NP rate would compute 9.98% only. 5. Interest separately allowable: That, without prejudice to above, law is settled that when a estimated NP rate is applied after invoking the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.50% (Subject to Depreciation only) 10.36% (Subject to interest Depreciation only) 11.68% Enhancement of ₹ 54,11,562/- Pending 2008-09 Rs.54,72,55,102/- Increased by 33% Rs.4,69,19,829/- 8.57% 9.50% (Subject to Depreciation only) 9.86% (Subject to interest Depreciation only) 9.50% (Confirmed AO) 9.86% (Subject to interest Depreciation only) Pending Note: NP rate shown is before/subject to interest and depreciation etc. It is evident from the above comparative chart that again this year also there is a sharp increase in the turnover from 24.27cr to 41.15cr which shows an increase by whopping 70%. The N.P declared at 9.73 % is certainly better than rate of 9.50% applied by the department in the past and 8.50 % upheld by the ITAT. 6.2 In any case, the appellant s turnover jumped nearly 70% at ₹ 41.15 Crores this year from 24.27 Crores last year. Needless to say that to achieve such abnormal increase in the turnover, one has to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate Bench of ITAT in assessee's own case in A.Y.2003-04, 2004-05, 2005-06 have upheld NP rate of 8.50% (subject to interest depreciation). The AO himself has applied 9.50% in A.Y.2005-06. Moreover, the gross receipts have gone up from ₹ 41.15 Crores which means an increase in the receipts by almost 70%. The assessee of course, declared 11% (subject to interest depreciation) in the immediately preceding year i.e. A.Y.2006-07 however, as clarified by the ld. AR, the facts of that year are not comparable and the higher NP rate was only because of the circumstances prevailed in that year. It is pertinent to note that neither the AO nor the ld. CIT(A) followed A.Y.2006-07 while applying estimated NP rate or even while making enhancement of this year. Therefore, there was no justification for him to apply 9.50% (subject to depreciation only) or 10.36% (subject to interest depreciation ). For the same reasons, enhancement made by the ld. CIT(A), which in terms of NP rate comes to 11.68% is also unjustified. It is also noted that the AO has not provided any basis of applying 9.50% (subject to depreciation only) or 10.36% (subject to interest depreciation ). He neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in constructing of canals for irrigation purpose. During the period the assessee executed contract at different sites. The return of income was filed on 29.09.2008 declaring total income of ₹ 3,58,08,130/-. During the year under consideration the assessee had shown gross contract receipts at ₹ 54,72,55,102/- and NP rate of 8.57% (subject to Interest depreciation) this year,. The AO rejected the books of account by applying the provisions of Sec.145 (3) of the Act and enhanced the NP rate @ 9.50% (subject to depreciation only) which NP rate comes to 9.86% (subject to Interest depreciation ). Thus, the AO made addition of ₹ 70,46,571/- to the declared income. 13.2 In first appeal, the ld. CIT(A) upheld the application of Sec. 145(3) of the Act and also issued a Show Cause Notice proposing enhancement. In response to Show Cause Notice assessee filed detailed written submissions time to time. The relevant findings of the ld. CIT(A) at pages 21 22, to the issue in question are as under:- Considering the above, the facts in this case can be summarized as under:- i) The assessee was inflating the expenses related to sub-contractors and other expenses, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.3 Being aggrieved, the assessee is before us who has challenged the application of Sec.145(3) of the Act and also confirmation of addition of ₹ 70,46,571/- by the ld. CIT(A). It may be noted that at the time of hearing of the appeal, the ld. AR of the assessee has not pressed the application of provision of Section 145(3) of the Act. Hence the same is dismissed being part 2 of the ground. 13.4 During the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are as under:- 1. Firstly, the application of S.145 is not disputed. 2. As regards the enhancement: it is submitted that since the facts and circumstances of this case are identical with the assessee`s own case in ITA No.495/JP/13 for A.Y.2006-07 hence, the submissions made in that year on enhancement kindly be considered in the present case also. Moreover, the decision paper book filed in that case is equally relevant and relied upon in this case also apart from the paper book being filed in this case. On merits: 3. No fair Estimation made: 3.1 Past History-Best Guide: We may submit that past history has been held to be the best guide in the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .87% 9.30% 8.75% 8.50% 2004-05 Rs.20,49,43,321/- Rs.1,63,82,443/- 7.99% 9.30% 8.75% 8.50% 2005-06 Rs.23,62,72,053/- Rs.1,89,85,180/- 8.04% 9.50% 8.50% 8.50% 2006-07 Rs.24,27,14,639/- Rs.2,66,97,007/- 11.00% 11.50% 11.58% Enhancement of ₹ 1,84,824/- Pending 2007-08 Rs.41,14,68,583/- Increased by 69.52% Rs.4,00,46,600/- 9.73% 9.50% Subject to Depreciation only 10.82% Enhancement of ₹ 54,11,562/- Pending 2008-09 Rs.54,72,55,102/- Increased by 33% Rs.4,69,19,829/- 8.57% 9.50% Subject to Depreciation only 9.50% (Confirmed AO) Pending Note: NET PR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 54.73 Crores in this year as against ₹ 41.15 Crores of last year and the declared NP rate (subject to interest depreciation) this year was 8.57% which is better from A.Y.2003-04 2004-05 wherein, it was declared at 7.87 % 7.99% only. It may be noted that ITAT Jaipur Co-ordinate Bench in assessee's own case in A.Y.2003-04, 2004-05, 2005-06 have upheld NP rate of 8.50% (subject to interest depreciation). The AO himself has applied 9.50% in A.Y.2005-06. Moreover, the gross receipts have gone up from ₹ 41.15 Crores last year to ₹ 54.73 Crores this year, which means an increase in the receipts by 33%. It is also settled that for the purpose of fair estimation an overall view should be formed, considering the past history of few years. Accordingly, the average of immediately past five years i.e. A.Y.2003-04 to 2007-08 (considering the adjusted NP rate of 9.98% in A.Y.2006-07), the average NP rate comes to 8.72% (approx.) while assessee had declared 8.57%. There was increase in turnover by 33%. Therefore, there was no justification to apply 9.50% (subject to depreciation only) or 10.36% (subject to interest depreciation ). Considering the totality of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 10,00,000/- is therefore confirmed, the assessing officer is directed to delete balance addition of ₹ 45,93,509/-. These grounds of appeal are, therefore, partly allowed. 15.4 During the course of hearing, the ld. DR relied on the order of the AO and prayed that the ld. CIT(A) has erred in restricting the addition of ₹ 45,93,509/- to token addition of ₹ 10,00,000/- only while the rejection of books results of the assessee has been upheld. 15.5 On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A) . However, during the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are being reproduced as under:- 1.1 Fair estimation required - Legal Position: At the very outset, it is submitted that even invoking of S.145 does not confer blind powers upon the AO and he is not at liberty to assess the income at whatever figure he wants. He is bound to make an honest estimation of income, keeping in view of the material available on record, past history of the case, local knowledge and repute of the assessee. He is also supposed to collect necessary material for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result declared this year is better than last year, if N.P. Rate before Interest, Salary Deprn., is considered. 2.2 Only operational results to be compared:- It is necessary to clarify that the ld. AO seriously erred in applying flat NP rate which is after reducing the deductions on account of interest, salary and depreciation, which is completely contrary to the settled practice adopted by the assessee and department both and the settled law Kindly refer CIT Vs. Jain Construction Co. and Others (1999) 156 CTR (Raj) 290, Rikhabdas Jain Contractor Vs. ITO (2001) 72 TTJ (Jd) 526, Teja Construction vs. ACIT (2010) 129 TTJ 57 (Hyd)(UO), ITO Vs. Shri Ram Traders (2013) 90 DTR 217 (Jd.), in as much as to judge the reasonableness of the operating(trading) results, the indirect cost in the shape of interest, and depreciation should not be considered in as much as the same do not truly reflect the operating results having no nexus and keep on varying every year depending upon the facts. A heavy investment in the plant and machinery in one year will result in substantial increase in depreciation and the consequent reduction in the final NP rate, which is also one of the reasons of fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3% as compared to last year (i.e. from ₹ 54.72 crore to ₹ 36.39 crore) and 12% as compared to the year before last (i.e. from Rs. ₹ 41.14 crore) which strongly justify the fall in NP rate in as much as it is a matter of common knowledge there are various fixed type of expenditure viz salary and wages to the permanent laborers and administrative staff, minimum light, water and electricity charges, telephone and other expenses, annual license fees etc and so on which, the businessman/contractor has to pay whether he runs the business or not and irrespective of the facts of the receipts increase or decrease. 3.2 Notably the percentage of claim of depreciation to turnover this year stood at 4.64% as compared to such ratio in the preceding year ranging between to 2.08% to 3.30%, showing increase of 1.34% to 2.56%. Kindly refer comparative chart (PB-21). Hence, the AO erred in enhancing the NP rate even by going his approach. The ld. CIT(A) was justified in not fully confirming the addition hence the appeal of revenue kindly be dismissed. 15.6 We have carefully considered the rival contentions and perused the material available on record. As regards the estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harmonious interpretation on AO s above said decision. 16.2 The brief facts of the case are that the assessee is engaged in civil contractor business mainly in constructing of canals for irrigation purpose. During the period the assessee executed contract at different sites. The return of income was filed on 10.10.2010 declaring total income of ₹ 4,37,71,220/-. During the year under consideration the assessee had shown gross contract receipts at ₹ 57,57,96,344/- and NP rate of 9.39% (subject to Interest depreciation ) or 7% (after all the deductions) this year. The AO rejected the books of account, applying provision of Sec.145 (3) of the Act and enhanced the NP rate @ 8% (after all the deductions) . The relevant para of AO s order for making addition is as under:- .However, the books of account are hereby rejected u/s 145(3) of the I.T. Act,1961.Considring the totality of the available on record, net profit rate @ 8% is applied on the gross contract receipts of ₹ 57,57,96,344/- after allowing claim of depreciation and interest. Accordingly, addition of ₹ 57,44,388/- is made to the total income as under:- Net profit shown as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives a net profit rate of 9.39%. Considering the above, I am of the opinion that an addition of ₹ 15,00,000/- would meet the end justice. The income of assessee would be ₹ 5,55,66,300/- before depreciation and interest, this gives net profit rate of 9.65% before interest and depreciation. Assessee s net income after interest and depreciation would be ₹ 2,42,93,596/-. The AO is directed to take assessee s net business income at ₹ 2,42,93596/-. 16.4 During the course of hearing, the ld. DR relied on the order of the AO and prayed that the ld. CIT(A) has erred in restricting the addition of ₹ 57,44,388/- to ₹ 15.00 lacs. 16.5 On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A) and during the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are as under:- A. Invalid application of Sec.145 (3): It is submitted that the appellant has maintained complete books of account consisting of cash book, ledger and journal. All the purchases and sales are fully vouched. All the expenses were fully supported by vouchers. The financial accounts and the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding year i.e. A.Y.2009-10. A.Y. Gross Receipt Net Profit NP Rate Shown Rate applied by AO Rate applied by CIT(A) 2008-09 Rs.54,72,55,102/- Rs.4,69,19,829/- 8.57% Subject to Dep. Int.) 6.13% (After Dep. Int) 9.50% Subject to Depreciation only 9.50% (Confirmed AO) 2009-10 Rs.36,39,25,564/- Rs.1,98,81,280/- 5.46% (After Dep. Int.) 7% (No Further deduction allowed) 5.74% Lumpsum ₹ 10 lakhs 2010-11 Rs.57,57,96,344/- (Increase of 58.27% from the previous year Rs.4,03,19,320/- 7% (Including Net interest but after Depreciation and Interest) 8% (Including Net interest but after all deductions) 7.26% lumpsum ₹ 15 lakhs (Including Net interest but after all deductions) Thus the result declared this year is better than last year, if N.P. Rate after Interest, Salary D ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
