TaxTMI 
TaxTMI 
2014 (8) TMI 1162
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.... Punjab & Haryana in their order in ITA No.183 of 2007 dated 14.05.2007. 3. On the facts and circumstances whether the Ld. CIT(A) was right in directing the AO to adopt net profit rate of 7% of the total contract receipts instead of 10% applied by the A.O. when the jurisdictional Bench of ITAT Amritsar in the case of M/s. Pooja Construction Co., reported in ITA No. 750(Asr)/1992 had held that the application of net profit rate of 10% on gross receipts is proper. The said order of the Jurisdictional ITAT has been confirmed by the Hon'ble High Court of Punjab & Haryana in their order in ITA No.166 of 1999 dated 10.09.2010. 4. On the facts and circumstances whether the Ld. CIT(A) was right in deleting the addition of Rs. 30,18,501/- made on account of bank interest when the assessee had declared himself the same income in its return of income. 5. On the facts and circumstances whether the Ld. CIT(A) was right in deleting the addition of Rs. 30,18,501/- made on account of bank interest when the assessee had failed to produce books of account bills & other documents during assessment proceedings from which it can be gathered that the assessee had made investment in FDRs out of bor....
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....justified and unwarranted by law, may kindly be reduced to the extent, it has been shown by the appellant. 3. That the Ld. DCIT during the course of assessment proceedings, neither confronted us on the issue of estimation of the net profit on percentage basis, nor a show cause was issued for making such a huge addition. 4. That the Ld. DCIT has not been justified by making the addition of Rs. 6,89,203/- on account of vehicle income is unwarranted and bad in law, may kindly be deleted. 5. That the appellant prays for set aside of the assessment order. 6. That the appellant craves leave to alter or amend any existing ground or add a new ground which may be necessary or expedient in the interest of justice and fairplay." "2. The brief facts of the case are that that the assessee is a partnership firm and is engaged in the business of execution of civil construction for J & K State Government for the assessment year 2009-10. The assessee filed the return of income declaring total income of Rs. 30,41,530/-. The return was accompanied by audited profit & loss account, Balance sheet and Auditor's Report. During the previous year the assets show receipts from sources namely, cont....
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..... Construction Engineers, Srinagar, the jurisdictional ITAT, Amritsar in ITA No.493(Asr)/2010 decision dated 11.5.2010 had directed to apply a net profit rate of 7% subject to no other allowances. Though in that case the assessment was made u/s 144 of the Act yet considering the net profit shown by the assessee and the unexplained discrepancies, I find that it would be appropriate to follow the jurisdictional ITAT, Amritsar and a net profit rate of 7% is to be applied on gross receipt without any further allowance including that of depreciation after taking into account the income from vehicle as discussed in para 4.5 of this order. 4.3. The Ld. AR of the appellant submitted that interest earned on bank FDR's had a nexus with the contract business as the appellant had offered these FDR's as margin money for furnishing bank guarantee to allotting departments for securing the work contracts. These FDR's were created purely for business purposes for securing various contracts. The interest paid for using banks funds and interest earned on deposits are having direct nexus. According to him, the interest income forms part and parcel of the business income. The only business of the ass....
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.... is not earned in the course of the business of assessee. Therefore, the addition of bank interest amounting to Rs. 30,18,501/- is not sustained. 4.5. With regard to addition of Rs. 6,89,203/-, it is observed that the appellant operates vehicles, tippers and tankers for the purpose of his contract business and incurs expenses on running and maintenance of such vehicles which is charged to the profit & loss account . However, during the course of business, the assessee also plies these vehicles on hire for other contractors and receives hire charges for the same. The income earned from such hire charges are to be added to the total contract receipt before applying 7% rate. 4.6. The net profit thus determined is Rs. 1,00,39,557,71 instead of Rs. 1,42,73,305/- and the addition to the extent of Rs. 69,98,027/- is confirmed." 4. The Ld. counsel for the assessee, Mr. P.N.Arora, Advocate argued that the AO was not at all justified in applying a rate of 10% on gross receipts. Further, the Ld. CIT (Appeals) was not justified in sustaining the rate of profit at 7% on the turn over of Rs. 14,27,33,050/-. The rate of profit as shown by the assessee should have been accepted in view of th....
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....Page Nos. 21 to 25 of the Paper-Book] 3. Decision of ITAT, Amritsar Bench, Amritsar, in the case of ITO Vs. M/s. Surinder Pal Nayyar Contractors, Nawanshahar, in ITA No. 366(ASR)/2010, order dated 30/04/2012, relating to Asstt. Year, 2006-2007. [Refer Page Nos., 26 to 34 of the Paper-Book]. 4. Decision of ITAT, Amritsar Bench, Amritsar, in the case of Mattewal Co-operative L/C Society Ltd., Vs. ACIT, Circle-IV, Amritsar, in ITA No. 450(ASR)/2012 (Asstt. Year, 2008-2009), Order dated 27/12/2012 [Refer Page Nos. 35 to 48 of the Paper-Book). 4.2. The Ld. counsel for the assessee submitted that it is also pertinent to mention here that the assessee firm operates in Srinagar which is affected by militancy and where the construction work remains affected for almost six months in a year due to snowfall and other turbulent weather conditions. However during this six months the fixed cost of the assessee firm remains the same. Thus the profit margins tend to be low as compared to contractors in other part of the country. Further, the books of assessee have duly been audited u/s 44AB of the Act and the profits disclosed are the actual profits of the assessee firm. It may be pointed out....
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....x Act, 1961. In view of these circumstances, the assessee is clearly entitled to interest on the capital of the partners and the salary paid to the partners after applying the net rate. As far as the depreciation is concerned this is a case of tax audit and the copy of the Audit Report has also been placed at Page Nos. 50 to 82 of the Paper-Book. From the perusal of Page No. 67, it is crystal clear that the depreciation has been claimed at Rs. 59,66,319/- which should have been allowed by the AO after applying the G.P. Rate. The appellant is clearly entitled for the depreciation to the tune of Rs. 59,66,320/-. he assessee has furnished all the requisite particulars as prescribed by the Income-Tax Act and rules made there under in respect of fixed assets on which depreciation is claimed. It is humbly submitted that the claim of depreciation is to be allowed to the assessee even in the cases where the profits are estimated as per CBDT vide its circular No. 29D(XIX- 14) dated 31/08/1965.[Refer Page No. 49 of the Paper-Book]. It may be pointed out that the department is bound by the Board Circular and this view finds support from the following judgments:- 295 ITR 256 (Delhi} 237 IT....
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....s of various cases decided by this Bench, as mentioned hereinabove, which have been perused by us. The Ld. counsel for the assessee has also argued that the assessee's net profit rate after depreciation and interest& salary to partners is 2.11% as compared to 2.86% and 1.17% in the preceding year and before the preceding year respectively. The Ld. CIT(A) vide para 4.4 of his order has held that investment in FDRs was inextricably linked with contract business that at the same time, the same were not directed to be included as part of the gross contract receipts but directed to include vehicle income of Rs. 6,89,203/- being part of the total contract receipts. Since the Revenue is not in appeal against the deletion of the said findings of the ld. CIT(A) in para 4.4 & 4.5. Therefore, at the outset, we direct the A.O. to include Rs. 30,18,501/- being the interest income alongwith vehicle income of Rs. 6,89,203/- as part of contract receipts. Thus, total contract receipts instead of Rs. 14,34,22,253/- directed by the Ld. CIT(A) should be taken at Rs. 14,64,40,754/- and net profit rate on the same has to be applied. 6.2. As regards the applicability of net profit rate, the decisions r....