TaxTMI 
TaxTMI 
2017 (5) TMI 1522
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2.1 Rs. 14,00,000/-: 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 Rs. 14,00,000/- 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 Rs. 12,15,176/- made by the AO (by applying NP @ 11.50%) and further erred in enhancing the addition to Rs. 1,84,824/-. 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 to the provisions of law and facts on the record and hence the enhancement kindly be deleted in full.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s compared to other civil works. Moreover, the assessee is deploying heavy capital assets by way of machinery in his business which is proved from the substantial depreciation claim made by the assessee. Due to such capital investment, the profit rate should also be higher. Considering all the facts and circumstances mentioned above, and also considering the nature of business and work executed by the assessee, the net profit rate is reasonable and applied 11.5% on total gross receipt subject to interest and depreciation. Accordingly, trading addition of Rs. 12,15,176/- is made as per details below: Profit on receipt of Rs. 24,27,14,639/- Rs. 2,79,12,183/- Profit declared by the assessee Rs. 2,66,97,007/- As discussed in para 3 trading addition Rs. 12,15,176/-'' 4.2 Being aggrieved, the assessee went in first appeal before the ld. CIT(A) who upheld the application of Sec. 145(3) and also issued a Show Cause Notice proposing enhancement. In response to Show Cause Notice assessee filed detailed written submissions time to time. The findings of the ld. CIT(A), are as under:- "I have gone through AO's findings and assessee's submiss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....defects and deficiencies in the same which, have also been upheld by the CIT(A) and when carried to the appeals by the Hon'ble ITAT in ITA No.586/JP/07 & 685/JP/207 for A.Y. 2003-04 & 2004-05 (PB 37-47). Kindly refer paper book page 39 at para 5 which is reproduced hereunder: "xxx.............. Therefore, in the circumstance and facts of the case we find no infirmity in the order of the ld. CIT(A) who has rightly invoked the provisions of section 145(3) of the Act." Similar view was taken in ITA No. 60/JP/08 & 17/JP/08 for A.Y. 2003-04 & 2004-05 at paper book page 44. Continuing the same line and consistency, the AO this year also asked the assessee to produce the books of account examined the same and after noticing various deficiencies and defects (AO Pg 2-5) invoked Sec.145(3) (AO Pg-5) against which, the assessee took specific GOA No.1 before the CIT (A) challenging the very invocation of Sec.145(3). 1.2 It is submitted that vide GOA 2 before the ld. CIT(A), the assessee challenged the additions made by the AO on merits. The ld. CIT(A) after reproducing the entire assessment order in its operative part, took the matter in altogether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e hand do not accept the results declared in the accounts by rejecting the same but also wants to make an enhancement in the declared income. In the instant case, the A.O. has certainly adhered to the settled principle that once he rejected the account u/s 145(3), then has tried to make an assessment in the manner provided u/s 144 (though his estimation is separately under challenge). However, the ld. CIT(A) has adopted this strange theory where he has adopted a path which even the law has not visualized/provided for. The ld. CIT(A) having confirmed A.O.'s action and in turn having confirmed invoking of Sec.145(3), was obliged to see whether the assessment has been made by the A.O. in the manner provided u/s 144 or not. Alternatively however, if he says that the account were not rejected then the trading results as declared by the assessee must have been accepted and then there was no question of making any addition by the A.O. or any enhancement by the ld. CIT(A). 3.1 Fair estimation required - Legal Position: In these circumstances a pertinent question arise whether after the rejection of account and invoking of Sec.145(3), is there any scope of again referring ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he moment accounts are rejected, revenue cannot rely on same accounts for further addition. 6. Supporting Case Laws: 6.1.1 ITO vs. Nardev Kumar Gupta (2013) 142 ITD 0303 (JP) (DPB 36-38) wherein it was held that "When assessee's income was assessed by estimating profit after rejection of books of accounts, no disallowance can be made separately u/s 40A(3)" 6.1.2 The Hon'ble Allahabad High Court in CIT Vs Banwari Lal Banshidhar (1998) 229 ITR 229, 232 (All.) (DPB 1-3) held that: "3. All the three questions, referred to this Court, revolve round the same controversy. The question for consideration is that when no deduction was sought and allowed under s. 40A(3), was there any need to go into s. 40A(3) and r. 6DD(j). We see force in the view taken by the Tribunal that when income of the assessee was computed applying the gross profit rate and that when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of s. 40A(3) and r. 6DD(j). No disallowance could have been made in view of the provisions of s. 40A(3) r/w r. 6DD(j) as no deduction was allowed to and claimed by the assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bt there is big difference between profit earned with own capital and profit earned with borrowed capital and such a difference could have been taken into account by the ITO while making an estimate. If the CIT had set aside the estimate on the ground that the vital fact that the business was carried on with own capital and not with borrowed capital has been ignored by the ITO, there may not have been any difficulty in upholding that order. But, when he proposes to add back an exact item in the P&L a/c, he was relying on the rejected books which he could not do as held by the Bench of this Court in Maddi Sudarsanam Oil Mills Co. vs. CIT (supra). There is also a further difficulty if s. 40, as argued by learned counsel, is to be taken into account even after making an estimate. When there are certain other deductions which are to be disallowed such as wealth-tax payment in s. 40, can it be said that after making an estimate, the wealth-tax charged in the P&L a/c should again be added back to the profit. This example, illustrates how the contention of the Revenue, that s. 40(b) makes a difference in the situation, is untenable. In our considered opinion, the answer to the question ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsy has arisen from the conclusion drawn by ld. CIT(A) alleging from (-) negative stock which he noticed for the first time in October-2007 (AY 2008-09). There appears no sanctity of the cut-off date being 31st October, 2007 wherefrom the CIT(A) commenced his working taking the figure of the stock as nil and then applied the same in reverse manner. 7.2 Firstly, there is no logic why he should compute the closing stock on monthly basis at site and to compare with the books when it was submitted that there are running/ongoing projects which continue for more than one year and on the site, the assessee keeps on receiving the goods but due to late receipts of invoices, the same are accounted for later. The non booking of expenses in the same month resulted in negative stock. the CIT(A) also accepted this in principle in A.Y.2007-08 at pg 18 pr 13. 7.3 The relevant extract from the written submission before ld. CIT(A) are as under: "3) In this regard it is submitted that Assessee is not engaged in sale and purchase of any particular goods for which Closing stock can't b negative, rather than assessee purchase goods for work execution for which receipt of goods....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is known as Completed Contract Method (CCM) where income is recognized only after the completion of that particular project. Second, is known as Percentage of Completion Method (PCM) where income is recognized every year during the continuance of the project. This has been recognized even by the Institute of Chartered Accountants of India (ICAI) also in its accounting standard, AS-7. What is being followed by the department in the case of the assessee consistently, is the second method by applying varying NP rates depending upon the circumstances of each year. The CIT(A) has not at all justified any strong circumstances warranting a deviation there from. 7.5 Theory of CIT(A) against Rule of Consistency: 7.5.1 A support to this legal proposition can be taken from the ratio laid in CIT v/s Bhawan Path Nirman (2002) 258 ITR 440 (Raj) (DPB 61-71). The principal laid was that it is a matter of fair estimation between the parties and if the AO makes estimation in a particular manner in one year, the same pattern has to be followed in the later years also as to avoid any distortion in making a fair estimation. In the cited case of a civil contractor, the AO added sales tax refund....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvey, where some evidences could be found justifying higher estimation of income and ignoring the past settled history based on the disclosed results nor the ld. CIT(A) appears to have got any purposeful enquiry conducted to justify his conclusions that expenses were inflated. There is no iota of evidence to show that a single penny of expenditure was inflated by the assessee to justify higher estimation nor there was any basis or cogent material to conclude that there was (-) negative closing stock resulting into undisclosed profits and hence, it was nothing but a surmises and conjectures. Pertinently, there is no allegation of unexplained purchases nor is the suppression of gross receipts alleged. At the year end there is no negative stock. There appears no logical way to infer any income more than declared. 9. No fair Estimation made: 9.1 Past History-Best Guide: We may submit that past history has been held to be the best guide in the cases of fair estimation. Kindly refer Kindly refer CIT v/s Gupta K.N. Construction Co. (2015) 116 DTR 377 (Raj), Vaibhav Gems 112 DTR 84 (Raj), CIT v/s Popular Electric Co. Pvt. Ltd (1993) 203 ITR 630 (Cal), MA Rauf v/s CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f A.Y.2007-08. Hence, as such no addition was called for as was held in the case of Gotan Lime (supra). 11. Lastly, we also rely upon our written submissions (PB 1-12) filed before the ld. CIT(A).Hence, the impugned trading addition kindly be deleted in full." 4.5 On the other hand, the ld. DR relied upon the order of the authorities below and also relied on following case laws for enhancement of income and rejection of books of account. 1. CIT vs. Nuebheram Daluram,224 ITR 610 (SC) 2. Jute Corporation of India Ltd. vs. CIT, 187 ITR 688 (SC) 3. Popular Automobiles vs. CIT, 187 ITR 86 (Ker.) 4. CIT vs. Gotan Lime Khanij Udyog, 256 ITR 243 (Raj.) 5. CIT vs. Maharaja Shree Umed Mills Ltd. ,192 ITR 565 (Raj.) 6. Kachawala Gems vs. JCIT , 288 ITR 10 (SC) 7. Narsingdas Ramkishan Pungaliya vs. ACIT, 184 CTR 448 (Raj) 4.6 We have carefully considered the rival contentions and perused the material available on record. As regards the enhancement made by the ld. CIT(A), we do not accept the contention of the ld. AR that such enhancement is without jurisdiction in as much as there is no new item or income sourc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnored by the ITO, there may not have been any difficulty in upholding that order. But, when he proposes to add back an exact item in the P&L a/c, he was relying on the rejected books which he could not do as held by the Bench of this Court in Maddi Sudarsanam Oil Mills Co. vs. CIT (supra). There is also a further difficulty if s. 40, as argued by learned counsel, is to be taken into account even after making an estimate. When there are certain other deductions which are to be disallowed such as wealth-tax payment in s. 40, can it be said that after making an estimate, the wealth-tax charged in the P&L a/c should again be added back to the profit. This example, illustrates how the contention of the Revenue, that s. 40(b) makes a difference in the situation, is untenable. In our considered opinion, the answer to the question has to be in the negative and in favour of the assessee. The question is answered accordingly." It is noted that there are deficiencies in the working done by the ld. CIT(A) which does not carry any weight. It is also noted that the ld CIT(A) in A.Y.2007-08 & 2008-09 has also discussed with regard to some inflation of expenses in relation to the tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... therefore, we are satisfied that the results declared by the assessee of this year at NP rate of 11% (subject to interest & depreciation) is justified and the addition made by the AO of Rs. 12,15,176/- and also the enhancement of Rs. 1,84,824/- made by the ld. CIT(A), totaling to Rs. 14 Lacs, was not fully justified. Since we have sustained the rejection of books of account and to plug the leakage of Revenue , we sustain addition of Rs. 2.00 lacs only. Thus ground of appeal no. 2 of the assessee is partly allowed. 5.1 The Ground of appeal no.3 of the assessee regarding the adhoc disallowances made by the AO totaling to Rs. 1,24,830/- on account of depreciation on vehicles and depreciation on mobiles which has been sustained by the ld. CIT(A). 5.2 Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us against the sustenance of disallowance of Rs. 1,24,830/- 5.3 After going through the orders of the authorities below and the materials available on record, we hold that once the books of account are rejected and income is estimated then there is no further scope for any addition out of various expenses debit in profit and loss account. Therefore, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Ground No. 1. Hence, the same is dismissed being not pressed. 9.1 Apropos Ground No. 2 (2.1, 2.2 and 2.3) of the assessee, the brief facts of the case 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 29.02.2008 declaring total income of Rs. 2,63,81,750/-. During the year under consideration the assessee had shown gross contract receipts at Rs. 41,14,68,583/- and NP rate of 9.73% (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 10.36% (subject to Interest & depreciation ). Thus, the AO made addition of Rs. 25,95,796/- to the declared income. 9.2 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 appellant assessee filed detailed written submissions time to time before the ld. CIT(A) . The relevant findings of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce 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 of fair estimation. Kindly refer Kindly refer CIT v/s Gupta K.N. Construction Co. (2015) 116 DTR 377 (Raj), Vaibhav Gems 112 DTR 84 (Raj), CIT v/s Popular Electric Co. Pvt. Ltd (1993) 203 ITR 630 (Cal), MA Rauf v/s CIT (1958) 33 ITR 843 (Pat), CIT v/s Inani Marbles 316 ITR 125 (Raj). 3.2 However, it will appear that in the present case, neither the ld. AO nor the ld. CIT(A) has made a fair estimation in conformity of the above settled judicial guideline. On the contrary, he rather completely ignored the past history. It is not denied that the assessee was engaged in the business of civil contract in the past as also in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever, without any special reason it is denied this year which is against the rule of consistency submitted earlier i.e. A.Y. 2006-07. Such interest of Rs. 35,52,581/- (PB-7), when allowed shall reduce NP rate by 0.86% and to 8.64% as per AO against which declared NP is already 9.73%. 6. Acceptable-Results: 6.1 It is pertinent to note that the assessee has declared acceptable results in the current year as against last year. Kindly refer the following Comparative chart. A.Y. Gross Receipt Net Profit NP Rate Shown (before Int. & Dep) Rate applied by AO Rate applied by CIT(A) Upheld by ITAT PB 35 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% (adjusted NP 9.98%) 11.50% 11.58% Enhancement of Rs. 1,84,824/- Pending 2007-08 Rs.41,14,68,583/- Increased by 69.52% Rs.4,00,46,600/- 9.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial available on record. As regards the enhancement made by the ld. CIT(A), we have already rejected such a working in A.Y.2006-07 in ITA No.495/JP/13 in assessee's own appeal (supra). Following the same, working adopted by the ld. CIT(A) for making the enhancement is hereby rejected 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 or other comparable case as held by Hon'ble Jurisdictional High Court in the case of Popular Art Palace (P) Ltd. vs. CIT (supra). The average of past 5 years comes to 9%. 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 Rs. 41.15 Crores this year as against Rs. 24.27 Crores last year and the declared NP rate (subject to interest & depreciation) of this year was 9.73% which is better than A.Y.2005-06 at 8.04% and also better from preceding years from A.Y.2002-03 to 2004-05 wherein, it was declared at 7.87 % to 8.99% only. It may be also noted that the Co-ordinate Bench of ITAT in assessee's own case in A.Y.2003-04, 2004-05, 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the same may kindly be quashed. Consequently the trading addition of Rs. 70,46,571/- 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 Rs. 70,46,571/- made by the AO (by applying NP @ 9.50%). The addition so made and confirmed 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. 3. The AO & ld. CIT(A) further erred in law as well as on the facts of the case in charging interest u/s 234B & 234D of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full." 12.1 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. 13.1 Apropos Ground No. 2 (2.1 and 2.2), of the assessee , 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to M/s. JPS Builders, the expenses were inflated by Rs. 62,36,937/- during the year. The turnover related to JPS Builders was only 20% of the turnover. During the year, the assessee has shown payment of Rs. 9,00,000/- in cash to M/s. JPS Builders, whereas only a payment of Rs. 5,00,000/- (refer Chart X) was made by self cheque on 28-05-2007 so there was excess cash payment shown by Rs. 4.00 lacs and eve Rs. 5,00,000/- paid by self cheque was disallowable u/s 43B. Even after giving benefit of telescoping, the minimum addition on specific points comes t Rs. 67,36,971/- (Rs. 62,36,973/- inflation of expenses + Rs. 5,00,000/- u/s 43B) Therefore, addition of Rs. 70,46,571/- by AO was most reasonable and therefore, confirmed.'' The ld. CIT(A) however, made no enhancement in as much as per his working, the total additions came to Rs. 67,36,973/- only which being below the addition already made by the AO at Rs. 70,46,571/- hence, the same was confirmed. Thus, in effect the NP rate @ 9.50% (subject to depreciation only) or 9.86% (subject to Interest & depreciation) , stood confirmed. 13.3 Being aggrieved, the assessee is before us who has challenged the application of Sec.145(3)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6 CTR (Raj) 290 and (2001) 168 CTR (Raj) 365, CIT vs. Bhawan & Path Nirman (Bohra) & Co. (2002) 178 CTR 526/258 ITR 440 (Raj.) and ITAT, Jodhpur Bench in the case of Rikhabdas Jain Contractor Vs. Income Tax Officer (2001) 72 TTJ (Jd) 526. In this case revenuer had all along been allowing interest separately after applying NP rate however, without any reason it is denied this year which is against the rule of consistency submitted earlier i.e. A.Y. 2006-07. 5. Acceptable-Results: 5.1 It is pertinent to note that the assessee has declared much better results in the current year as against last year. Kindly refer the following Comparative chart. A.Y. Gross Receipt Net Profit NP Rate Shown Rate Shown by AO Rate applied by CIT(A) Upheld by ITAT 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% ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eby rejected and it is held that after application of Sec.145(3) of the Act , it was only a case of fair estimation to be made keeping in mind the past history of the case or other comparable case, if any cited by the parties and relevant material hence. As regards the estimation of income after rejection of the books of account from a perusal of the comparative charts, it is seen that the assessee has declared receipts of Rs. 54.73 Crores in this year as against Rs. 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 Rs. 41.15 Crores last year to Rs. 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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appears to be on higher side due to following reasons:- (i) The turnover reduced form Rs. 54.72 crores to Rs. 36.39 crores. (ii) Depreciation went up by Rs. 55 lacs (iii) G.P. comes to 19.40% as against declared G.P. of 12.92% (approximate) in earlier year. Considering the above in my opinion a token addition of Rs. 10,00,000/- would meet the ends of justice. The addition of Rs. 10,00,000/- is therefore confirmed, the assessing officer is directed to delete balance addition of Rs. 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 Rs. 45,93,509/- to token addition of Rs. 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: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 of NP rate this year. Simil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompared to last year (i.e. from Rs. 54.72 crore to Rs. 36.39 crore) and 12% as compared to the year before last (i.e. from Rs. 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 estimation of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove 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 Rs. 4,37,71,220/-. During the year under consideration the assessee had shown gross contract receipts at Rs. 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 Rs. 57,57,96,344/- after allowing claim of depreciation and interest. Accordingly, addition of Rs. 57,44,388/- is made to the total income as under:- Net profit shown as per P&LL account Rs. 4,03,19,320 Net profit rate appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....net income after interest and depreciation would be Rs. 2,42,93,596/-. The AO is directed to take assessee's net business income at Rs. 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 Rs. 57,44,388/- to Rs. 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 other subsidiary records were duly maintained. Further the accounts were subjected to Tax Audit u/s 44AB (PB 4-9). The same were produced before the AO also along with other details from time to time. The AO has not at all judiciously considered submissions made before the AO. Minor irregularities, even assuming were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....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 Rs. 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 Rs. 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 & Deprn., is considered. 2.2 Much Better Result: A bare perusal of the chart clearly shows much better result from all angles in as much as: I Firstly, the NP declared (after interest and depreciation) at 7%, when compared with 5.46% and 6.13% in the preceding two years respectively. II The turnover has also increased from Rs. 36.39 crores last year to Rs. 57.58 crores resisting an sharp increase of 58.27% and despite such increase, the assessee has been able to show much better result. The gross receipts were higher even than the year before last. When from Rs. 54.73 crores in ....