TMI Blog2020 (11) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... ve and was higher in the year under consideration. Ld. CIT(A) was fair enough and fully justified in estimating the net profit rate of 6.5%. We do not see any valid ground to interfere with the findings given by the Ld. CIT(A) on this issue. Application of net profit rate of 12% by the A.O. based on the judgment of Shri Prabhat Kumar Contractor [ 2008 (11) TMI 723 - PUNJAB AND HARYANA HIGH COURT] is concerned the Ld. CIT(A) clearly mentioned that in the case of CIT Vs. Shri Praveen Mittal [ 2011 (10) TMI 458 - PUNJAB AND HARYANA HIGH COURT] after considering the earlier judgment in the case of Shri Prabhat Kumar Contractor(supra) upheld the application of net profit rate of 4%. We therefore do not see any merit in the submissions of the Ld. CIT DR that the net profit rate of 12% applied by the A.O. was based upon the judgment of the Hon'ble Jurisdictional High Court in the case of Shri Prabhat Kumar Contractor(supra) and the same to be upheld, particularly when the Hon'ble Jurisdictional High Court had considered the said judgment in its later decision in the case of CIT Vs. Praveen Kumar Mittal(supra) which has been considered by the Ld. CIT(A) while directing the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 145(3) and ignoring the book results based on the audited books of accounts. 2. That the rejection of books of accounts u/s 145(3) is against the facts and circumstances of the case. 3. That the respondent craves leave to add or amend any grounds of appeal before the appeal is finally heard or disposed off. 3. During the course of hearing the Ld. Counsel for the Assessee at the very outset stated that he has the instructions not to press cross objection. 4. Ld. DR did not object if the cross objection is to be dismissed as withdrawn. 5. In view of the above the cross objection filed by the assessee is dismissed as withdrawn. 6. Now we shall deal with the appeal filed by the Department in ITA No. 291/Chd/2019 for the A.Y. 2014-15 wherein following grounds has been raised: Whether on the facts and circumstances of the case, the CIT(A) was justified in reducing the calculation of net profit rate @6.5% on the total receipts instead of 12% applied by the AO when the site-wise expenses of labour, proof of address and identity of the labourers, genuineness of labour expenses was not established. ii) Whether on the facts and circumstances of the case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso mentioned that the impounded wages record examination revealed that there was no site specific wage record, wage sheets produced were fresh, neat and clean as if those were freshly printed, signature done for various labourers appeared to be done by few persons and that the fresh revenue stamps were found posted over the signature, address of the labourer were missing and all the labourers were not registered for PF ESI. 8.3 The A.O. asked the assessee to show cause as to why expenses related to wages and salary be not added to its total income as bogus expenses. In response the assessee submitted as under: As regards disallowances of all the wages it is submitted that the assessee is covered under Employees Provident Fund as well as covered under the different labour law applicable to the organisation. The company has deducted and deposited provident fund of the employees as per the law applicable. The assessee is engaged in the construction of Roads and it is not possible to construct the Road without labour. So disallowance of wages is against the law and unjustifiable. The assessee has already provided the payment of salary wages to staff and workers. As the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total addition on this ground : 4,73,91,955/- (Addition of ₹ 4,73,91,955/-) 9. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: This is an appeal filed by the appellant raising various grounds of appeal and -which are apparent from the elaboration of grounds of appeal, which clarifies the various grounds of appeal and our submissions with regard to those grounds of appeals are as under and before we deal with such grounds of appeals, it is important to give the brief background of the case:- 1. The assessee, a Limited company, is engaged in the business of taking contracts of Road Construction at different places in Punjab from the Govt, department and these contracts are taken under stiff competition and for which, the tenders are floated by the respective Govt, departments and such contracts are then allotted to the persons quoting the lowest amount as per the norms of the Govt. department. 2. The assessee had been filing his returns of income year after year and there has been no dispute with regard to the same and the assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of various contracts, which speaks of high quality of contracts, having been executed by the assessee as per certificates from the respective Executive Engineers are being enclosed herewith for your goodself's ready reference. 8. That the wages being an essential part of the expenditure and the same have been incurred in the earlier years as well and the percentage of wages compares favourably well with receipts from the contracts, which is evident from the following chart:- A.Y. Wages Sales Ratio 2010-11 5,07,41,130.00 29,94,52,207.00 16.94 2011-12 11,13,74,083.00 43,16,74,027.00 25.80 2012-13 11,93,11,378.00 70,46,15,556.00 16.93 2013-14 10,57,96,402.00 68,97,76,267.00 15.34 2014-15 10,24,22,572.00 48,29,86,287.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was not much were carried out during the year under consideration and which also resulted in higher percentage of labour as compared to earlier year. Thus, no doubt could be cast on account of the above said expenses on labour and rejection of books of accounts on this issue, cannot be made. 11. The Ld. Assessing Officer has cast certain doubts about the nature of vouchers being maintained for the purposes of wages being paid and in this regard, it is submitted that the wages have been debited in the regular books of accounts and such wages are part and parcel of the essential expenditure and, thus, even if self prepared vouchers are there and no ID proof or addresses of labourers are there, would not be sufficient to reject the books of accounts. Further, as already stated that labour is a migratory one and have no permanent place of living and, as such, the addresses are not available. Further, the same set of books of accounts and vouchers were kept during the year as per last year and hence, when in the earlier years, the trading results have been accepted on same set of books of accounts, no addition could be made during the year under. 12. The another reason for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that M/s 3C Construction, which is a proprietary concern of Sh. Nitin Tandon, is not one of the related party and, as such, this allegation does not hold good in view of the binding judgment of Hon 'ble Supreme Court and Hon 'ble Punjab Haryana High Court. 16. As regards, the allegation of the Assessing Officer with regard to cash in hand as found during the course of survey conducted on 15.09.2016, which was to the tune of ₹ 2.66 crores is concerned, it is very humbly submitted that this fact is not relevant to the year under consideration and secondly, the department only made survey at the premises located at 898 Tagore Nagar, which is the office of the company but did not so to the various site offices, which are numbering more than ten and, thus, this allegation is only for the sake of allegation and cannot be the basis for rejection of books. 17. As regards the amount of advances, it is submitted that some of the advances were of course for non-business purposes, but majority of them were for the business purposes and for that a chart is being enclosed herewith alongwith copies of account of the parties, which proves that some of advances were receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound for rejection of books of accounts. 19. Thus, from the above said submissions, it is very apparent that the books of accounts have been rejected only on mere allegation and, thus, the action of the Assessing Officer in rejecting the books of accounts was not justified and other allegation of payment of wages are also fully justified in view of the explanation as stated above and, thus, the assessment having been completed by applying the net profit rate, is not justified. 20 It is further being submitted, without prejudice to above argument that application /of 12% rate of profit as has been done by the Assessing Officer is not justified and for that the reliance by the Assessing Officer on the judgment of 'M/s Prabhat Kumar Contractor' is totally not reliable, because the comparison with the case of Sh. Prabhat Kumar Contractor with our case clearly proves that in that case, the facts were entirely different and in our case, the regular books of accounts have been maintained and which have duly been audited and all the works have been executed, which are of different Govt, department and no case has been made out that the assessee has not executed the Govt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,94,52,207.00 1,60,91,452.49 5.37% 2011-12 43,16,74,027.00 3,21,61,747.76 7.45% 2012-13 70,46,15,556.00 4,13,76,891.27 5.87% 2013-14 68,97,76,267.00 4,14,68,270.53 6.01% 2014-15 42,27,75,317.00 2,68,82,493.74 6.36% 2015-16 74,28,25,761.00 3,28,13,940.83 4.42% 2016-17 1,22,77,44,081.25 6,82,04,201.63 5.56% 22. It is also a settled law that where the books of accounts are rejected and a profit rate has to be applied with the past history of the case and comparable cases should taken into consideration and for that there is binding judgment of Hon'ble Supreme Court in the case of COMMISSIONER OF INCOME TAX vs. LAXMINARAIN BADRIDAS reported in 5 ITR 170 wherein it has been held that, The officer is to make an assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee the department while passing the assessment order for the earlier assessment years have accepted the rate of profit declared by the assessee u/s 143(3) and hence the profit rate of 12% is highly unjustified. 9.1 The Ld. CIT(A) forwarded the aforesaid submission of the assessee to the A.O. and asked his report. In response, the A.O. submitted as under: Kindly refer to your letter No. CIT(A)-3/LDH/2017-18/2189 dated 26.12.2017 on the subject cited above. 2. The pointwise comments of the Assessing officier on the reply filed by the assesse are as under: Para 1 to 7: Don't need specific comments of assessing officer. Para 8 it is evident that there is abnormal increase in wages w.r.t post next years. Para 9 During the course of survey, the assessee could not produce any proof of wages payment. Thereafter the assessee forged the signatures of various persons. The assessee could not provide any identity proof of labourers engaged. When the assessee does not have record of labourers, then the genuineness of wages and books of accounts is doubtful. Para 10 11: The Assessee produced freshly printed and bogus signature. Containing wage sheet d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our goodself. However, our comments on the same are as under:- (i) With regard to the abnormal increase in the wages incurred in the relevant assessment year vis a vis previous assessment year we have already explained that the increase and decrease in the expenses of wages is on account of various reasons because at time, the contracts are taken under stiff competition, for which, the lower rates are quoted and at time particular contract have to be completed within stipulated time and, as such more and more labourers are required in timely completion of contract and due to which, the expenses on labour are more or less in particular year. The another reason for the increase in the labour charges during the year under consideration had been that major portion of some of the contracts were completed in Asstt. Year 2013-14 and, thereafter, left over portion which was not much, were carried out during the year under consideration and which also resulted in higher percentage of labour as compared to earlier year. (ii) The Ld. Assessing Officer has cast certain doubts about the nature of register being maintained for the purpose of wages being paid and in this regard, it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument that the purchases have been made at inflated rates, it is for your information that, out of three concerns, two concerns are being assessed at maximum margin rate of tax and as such, as held by the Hon 'ble Supreme Court in the case of Commissioner of Income Tax, Delhi vs M/s Glaxo SmithKline Asia (P) Ltd. as reported in 236 CTR 113 and in the case of Commissioner of Income Tax vs Siya Ram Garg as reported in 237 CTR 321 of Punjab Haryana High Court that no addition could be made u/s 40AB, if the both concerns are assessed at the maximum rate of tax because it is a revenue neutral. Furthermore, even for the sake of argument if we consider that the assessee has been engaged in circular trading then the net effect of such circular trading is merely ₹ 5,67,000 and the same only should be added back to the income of the assessee instead of rejecting the books of accounts on this reason. 3. The allegation of non-verification of cash does not hold good because the cash has been verified only at the premises located at 898 Tagore Nagar, which is the office of the company but did not go to the various site offices, which are numbering more than ten. Moreover, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the department before. Therefore, similarly in our case the income tax department has been accepting the rates of net profit as low as 5.87% for the AY 2012-13 u/s 143(3). Similarly, the Hon 'ble Apex Court in the case of COMMISSIONER OF INCOME TAX vs. LAXMINARA1N BADRIDAS reported in 5 ITR 170 has duly held that, The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work . Therefore, the case of Parbhat Kumar Contractor is not at all applicable on the case of the assessee. 7. The net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me earned was from the amount advances to certain parties from whom the interest had been charged and since the amount had been advanced out of the contract business the same was to be assessed as income from profit and gain of the contract business. The Ld. CIT(A) made the reference to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Laxminarain Badridas reported in 5 ITR 170 wherein it had been held that whenever the fair estimate of the income was to be made, then the pervious year s record of the assessee should be considered for arriving at fair fair and proper estimate. 9.4 The Ld. CIT(A) pointed out that the assessee furnished the Chart in the submissions dated 21/12/2017 wherein the net profit rate of 6.36% had been disclosed after excluding the depreciation and interest as per books of account which was favourable in comparison to the net profit rate of the earlier years. He also observed that the assessee had furnished the judgment of the Hon'ble Punjab Haryana High Court in the case of Shri Praveen Kumar Mittal, Shri Sukhvinder Singh and Shri Jaswant Singh wherein the decision in the case of Shri Prabhat Kumar Contarctor(supra) was considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted that the net profit rate applied by the A.O. was based upon the judgment of the Hon'ble Jurisdictional High Court therefore the Ld. CIT(A) was not justified in reducing the net profit rate of 12% applied by the A.O. to 6.5%. She requested to restore the net profit rate of 12% applied by the A.O. 12. In his rival submissions the Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that in case the books of accounts are rejected the right course is to apply net profit rate by considering past history of the assessee s own case. It was further submitted that the Ld. CIT(A) considered the past history of the assessee s case and applied the net profit rate of 6.5%. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Laxminarain Badridas reported in 5 ITR 170. It was further submitted that the A.O. applied the net profit rate of 12% on the basis of judgment of the Hon'ble Jurisdictional High Court in the case of Shri Prabhat Kumar Contarctor(supra) . However in a later case of CIT Vs. Shri Praveen Kumar Mittal in ITA No. 272 of 2011. The Hon'ble Jurisdictional Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Ld. CIT(A) on this issue. 13.3 As regards to the application of net profit rate of 12% by the A.O. based on the judgment of the Hon'ble Jurisdictional High Court in the case of Shri Prabhat Kumar Contractor(supra) is concerned the Ld. CIT(A) clearly mentioned that in the case of CIT Vs. Shri Praveen Mittal(supra) the Hon'ble High Court after considering the earlier judgment in the case of Shri Prabhat Kumar Contractor(supra) upheld the application of net profit rate of 4%. We therefore do not see any merit in the submissions of the Ld. CIT DR that the net profit rate of 12% applied by the A.O. was based upon the judgment of the Hon'ble Jurisdictional High Court in the case of Shri Prabhat Kumar Contractor(supra) and the same to be upheld, particularly when the Hon'ble Jurisdictional High Court had considered the said judgment in its later decision in the case of CIT Vs. Praveen Kumar Mittal(supra) which has been considered by the Ld. CIT(A) while directing the A.O. to apply the net profit rate of 6.5% in the assessee s case. 14. Vide ground no. 2 the grievance of the department relates to the direction given by the Ld. CIT(A) to the A.O. to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d directed him to allow depreciation to assessee - Whether a referable question of law arose from Tribunal's order - Held, no iii. CIT Vs Vinod Kumar Bhatia (1995) 211 ITR 253 (P H High Court), in which, it has been held that there was no infirmity in the order of CIT (Appeal) directing the Assessing Officer to allow the depreciation and interest from the income estimated under section 44AC. iv. Reliance is being placed in the order of Hon'ble IT AT, Chandigarh Bench, Chandigarh in the case of Sh. Jaswanl Singh Contractor in IT A No. 1109/Chd/2011 for Assessment Year 2008-2009, in this judgment, the Judgment in the case of Chopra Bros. of Punjab and Haryana High Court and Hon 'ble Allahabad High Court have been followed that depreciation is to be allowed even if net profit rate is applied. v. Tarad Construction Co. Vs ITO as reported in 56 TTJ 492 (Jaipur Bench), in which, the Hon 'ble Bench has held as under:- 12. We have carefully considered the rival submissions and have also perused the orders of the tax authorities and various decisions referred to by the learned counsel. It is observed that in majority of the decisions the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r [1995] reported in 211 ITR 253 and CIT Vs. Chopra Brothers reported in 119 Taxmann 866. 20. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is not in dispute that the income of the assessee was worked out by applying the net profit rate and rejecting the books of accounts. Therefore in view of the ratio laid down by the Hon'ble Jurisdictional High Court in the aforesaid referred to cases relied by the Ld. Counsel for the Assessee i.e; CIT Vs. Vinod Kumar(supra) and CIT Vs. Chopra Brothers (supra). However, we deem it appropriate to restore this issue to the file of the A.O. to verify as to whether the claim of the assessee for depreciation was allowed by him or not, as was claimed by the Ld. CIT DR during the course of hearing. Accordingly this issue is restored to the file of the A.O. for the limited purpose i.e; to verify as to whether the depreciation was already allowed to the assessee or not and if not allowed then by considering the ratio laid down by the Hon'ble Jurisdictional High Court, the claim of the assessee for depreciation is to be allowed from the income determined by applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidences as per copy of such evidences scanned from pages 17 to 52 of the assessment order and then has stated that these are unexplained expenditure and made an addition of ₹ 84,19, 383/-. In this regard, it is very humbly submitted that we have filed a reply, which have reproduced by the Assessing Officer at pages 53 to 54, of the order and as regards certain documents pertaining to 'Janta Trading Company' are concerned, it is submitted that out of the total bills of ₹ 41,50,532/-, the bills to the tune of ₹ 26,95,000/- have been found recorded in the regular books of accounts and the other rough memoranda on record, pertaining to this party are concerned, it is very humbly submitted that such party is supplying crusher, sand etc. to the assessee and at times, it is found that such material is not of good quality and only those bills are entered of the material which are found to be suitable for the purposes of construction of road and i.e. some of the bills for which the material was not approved, they were not entered in the books of accounts. The Assessing Officer has made the total addition of ₹ 41,50,532/-, without considering the bills as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is dismissed. v). Judgment of ITAT, Chandigarh Bench, Chandigarh in the case of Sh. Kashmir Singh Cont. in ITA No.844/Chd/2009for A.Y. 2006-07. This was the case of contractor and books were rejected u/s 145(3) and rate of profit was applied. It was held that no other addition could be made by following the apex court judgment and other cases as cited above and in para 15 and 16 of the order, the Hon'ble Bench has held as under.- 15. In view of the above said settled principle of law, we hold that where the income of the assessee for the captioned year is estimated by applying net profit rate, after rejecting the books of account, in view of the provisions of section 145(3) of the Act, no further addition can be made in the hands of the assessee. 16. The second addition made by the Assessing Officer was under section 69C of the Act on account of variation in reporting of cash payments by assessee and cash receipts by the recipient. In line with our arguments in para above, no such disallowance is warranted in the hands of assessee. Thus, no separate addition of ₹ 84,19,383/- is not sustainable otherwise, when the books of accounts have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a password which can be managed by the pump owner. Thus, a smart fleet card can be given to another customer without actually registering a new card, hence, saving the cost of new card and other compliances. Similarly, in our case the card must have been used by other customer as the same has never been discontinued by the assessee by any formal letter, and therefore, for the same reason the bills of the recharge amounts were still being delivered to the assessee's registered address. Hope your goodself finds the above details satisfactorily and oblige. 7. Thereafter , the asses see again submit ted further comments/submissions as under : - We have to very humbly submit that we had already filed a detailed submissions and also filed a reply to remand report and, in furtherance, to that, it may be stated that, we have already given a details with regard to the fact that interest income on FDRs is incidental to running of the business of assessee since, these FDRs are not being made for earning interest, but for giving guarantees to the various Govt, departments in relation to execution of various Road Building Projects allotted to the assessee. There has never the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt while pronouncing this judgment relied upon on many judgments for holding the above preposition; copy of the judgment is being enclosed herewith. 3. It is submitted that the Ld. Assessing Officer by applying the net profit rate of 12% has excluded the interest on FDRs and other interest earned by the assessee, but since both of them are part and parcel of the business profit, they cannot be excluded, while applying the net profit rate since whatever the interest have been considered, was out of the funds of contract business. It is further submitted that the Ld. Assessing Officer, while applying the net profit rate at Page 16 of the order has included the rebate and discount for the purposes of application of net profit and the same treatment should have been given to the interest on FDRs and other interest income. 23.3 Ld. CIT(A) after considering the submissions and comments of the assessee as well as the report of the AO deleted the impugned addition by observing as under: 4.11. The 5th ground of appeal relates to unexplained expenditure to the tune of ₹ 84,19,383/- and the facts in brief that during the course of survey conducted at the assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) wrongly deleted the same. She strongly supported the assessment order passed by the AO. 25.1 In his rival submissions the Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that all the expenses were recorded in the books of accounts. It was stated that the AO had not denied the incurring of expenditure for the business purposes and the assessee never denied the ownership of the bills which were issued in the name of the assessee. The only denial was for the bills which were not in the name of the assessee. It was further submitted that when the books of account were rejected and income of the assessee was determined by applying the net profit rate on the turnover disclosed by the assessee then no further addition was required to be made. The reliance was placed on the following case laws: Indwell Constructions Vs. CIT [232 ITR 776] (AP) CIT Vs. Banwari Lal Banshidhar [229 ITR 229] (All) Shri Kashmir Singh Cont. in ITA No. 844/Chd/2009 for A.Y. 2006-07(ITAT Chd) 26. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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