M/S. HIMACHAL CONSTRUCTION CO. PVT. LTD,JAMSHEDPUR vs. ITO, WARD NO.1(5), JAMSHEDPUR

आयकर अपीलीय अधिकरण र ांची पीठ, कोलक त में IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH AT KOLKATA [वचचुअल कोर्ु] [Virtual Court] डॉ. मनीष बोरड, लेख सदस्य एवां श्री सांजय शम ु, न्य धयक सदस्य के समक्ष Before DR. MANISH BORAD, ACCOUNTANT MEMBER & SONJOY SARMA, JUDICIAL MEMBER I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd...……….....Appellant [PAN: AAACH 5415 K] Vs. ITO, Ward-1(5), Jamshedpur.................................Respondent Appearances by: Sh. Devesh Poddar, Adv., appeared on behalf of the Assessee. Sh. Rupesh Agarwal, D/R, ACIT, appeared on behalf of the Revenue. Date of concluding the hearing : November 16th, 2022 Date of pronouncing the order : February 09th, 2023 ORDER Per Manish Borad, Accountant Member: This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2010-11 is directed against the order passed u/s 250 r.w.s. 254 of the Income Tax Act, 1961 (in

I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. short the “Act”) by ld. Commissioner of Income-tax (Appeals), Jamshedpur [in short ld. “CIT(A)”] dated 20.02.2020 which is arising out of the assessment order framed u/s 143(3)/154/263 of the Act dated 30.03.2015. 2. The assessee is in appeal before the Tribunal raising the following grounds: “1. For that Ld. CIT(A) was not justified in observing that the appellant requested to adopt profit @6% as against 0.25% disclosed. During the course of proceedings before CIT(A) we had only' quoted a case law and board circular wherein profit of 6~o was estimated after allowing deduction of depreciation. It was never a case wherein assessee accepted to adopt profit @6%. The case law was only quoted to the extent of claiming separate deduction of depreciation. As such, profit being estimated @6% is unjustified, illegal and fit to be deleted. 2. For that the appellant disclosed profit @0.25% in its audited books, results of which duly compared with past and subsequent years records. There was no basis on which profit was estimated at 6% by Ld. CIT(A) who should have considered the comparative chart and results of the past and subsequent years to arrive at reasonable estimate. It is accepted on records that in subsequent years thereafter 2015 onwards. the business of the assessee started resulting in loss. This is only stated to show the downfall graph in assessee business. As such, addition confirmed of Rs. 26,34,0601- (6% profit) is unjustified. illegal and fit to be deleted. 3. For that interest U/s 234A/B should be charged on the returned income and not on the assessed income following the decision of Hon'ble Jharkhand High Court. 4. For that other grounds in detail shall be argued at the time of hearing.” 3. At the outset, ld. Counsel for the assessee submitted that the issue only relates to estimation of net profit. Ld. CIT(A) has adopted 6% net profit rate as against 0.25% disclosed by the assessee. He further submitted that this Tribunal in assessee’s own case for AY

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I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. 2012-13 has applied net profit rate of 1% and therefore, for the year under appeal, similar rate may be applied. 4. On the other hand, ld. D/R though supported the orders of both the lower authorities could not controvert the contentions made by the assessee. 5. We have heard rival contentions and perused the records placed before us. We observe that the assessee is a private limited company engaged in retail trading in iron steel, welding spares etc. Income of Rs. 1,75,850/- declared in the e-return filed on 14.10.2010. In the scrutiny proceedings ld. AO rejected the book results and applied the net profit rate of 8% on the gross receipts. The assessee carried the matter before ld. CIT(A) who sustained the addition to the extent of applying net profit rate of 6% which was requested by the assessee relying on the judgment of Hon'ble Patna High Court in the case of Shyam Bihari vs. Commissioner of Income-tax reported in 345 ITR 283. Before ld. CIT(A), the assessee also relied on other decisions of co-ordinate Bench Patna in the case of M/s. Salauddin in ITA No. 90/PAT/2008 wherein also in similar types of cases net profit was estimated @ 6% of the gross contract receipts. The relevant extract from the order of ld. CIT(A) is reproduced below: “During the course of appellate proceeding, the AR of the appellant filed written submission as under: “THE HUMBLE WRITTEN SUBMISSION BEFORE THE LEARNED CIT (A) ON BEHALF OF ABOVE NAMED APPELLANT:- 1. That the above appeal directed against the assessment orders of Learned assessing officer Ward-1(5), Jamshedpur dated 30.03.2015 u/s 143(3)7154/263 of the I. T Act, 1961 for the above mentioned year. Page 3 of 9

I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. 1. That the petitioner derived income from civil contract works from different work department of Government of Bihar and showing total income 1,75,850/- out of gross turnover of Rs. 6,90,52,851/- 1. That the first dispute in this case is with regards to estimation of net profit at the of 8% on contract receipt of Rs. 6,90,52,851.00 1. That now a days it is a ‘Herculean task ‘to get a contract work particularly from the Government department in getting contract works are being awarded only where the tender goes lowest in spite of the best efforts the appellant could not get contract works from the government Department. In order to survive, the appellant any how got the sub contract work. 1. That the Assessing officer estimated the profit @ 8% on Gross Receipt of contract of Rs 6,90,52,851.00 and thereby worked out the net income of the net income of the appellant from contract work at RS. 1,75,850.00. Accordingly the Assessing officer made an addition of 55,24,230'00. 1. That the net profit shown at Rs. 1,75,850.00 on net contract receipt of Rs 6,90,52,851.00. which works out to 0.25% is quite reasonable, considering the nature and scope of the business. 1. That in the case of M/S Salauddin the Hon’ble ITAT, Patna Bench, patna has upheld the net profit rate of 6% in contract work and therefore this case is squarely covered in facts and law both. A copy of order of honorable ITAT Patna Bench Patna vide ITA No. 90/ pat / 2008 and ITA No.107/Pat /2008 is enclosed herewith and marked Annx-1 to this submission for your consideration. 1. That learned A.O has applied net profit @ 8% after taking into account all the expenses including depreciation which is duly claimed in the profit and loss account all their expenses including depreciation which is duly claimed in the profit and loss account. But in the case of M/S Salauddin Ld. CIT(A) muz’pur referred to the board’s circular no 290(XIS-14) of 1965 dated 31.03.1965 and held that depreciation allowance should be separately worked out and allowed out of net profit and Hon’ble ITAT Patna Bench has also confirmed the order of Ld. CIT(A) vide ITA No. 90/Pat/2008 (copy enclosed). Hence this issue is also covered by the above mentioned order and fit to be allowed. 1. That further same view has been taken by hon'ble high court Patna in the case of M/S Shyam Bihari vs Commissioner Of Income Tax & Others and observed as under “Before the Tribunal the appellant- Page 4 of 9

I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. assessee objected to inclusion of interest income being assessed as income from other sources on the ground that income was from money deposited in FDR and NSC which was required to be furnished by way of security for securing the contract work and therefore it should have been treated as income from business and not from other sources. The other grievance of the assessee was that he should have been allowed depreciation allowance out of the net contractual receipt finally estimated at the rate of 6% on account of clear direction to this Effect by the Board of Direct Taxes vide circular dated 31.8.1965. We have been taken through the provisions of circular of the Board dated 31.8.1965. According to that circular which is binding on the department and its authorities, where it is proposed to estimate the profit and the prescribed particulars have been furnished by the assessee, the depreciation allowance should be separately worked out. In all such cases, as per the circular, the gross profit should be estimated and the deductions and allowance including the depreciation allowance should be separately deducted from the gross profit. If the net profit is required to be estimated, it should be estimated subject to the allowance for depreciation and the depreciation allowance should be deducted there from.’’ Copy enclosed and marked annex-2. In view of the above your honour is requested to allow the appeal in full.’’ 5.3 Appellate finding and decision: I have carefully considered the finding of the aO and the submission of the appellant. The undisputed fact is that the appellant is a civil contractor and undertakes civil contract works of various departments of the Government of Bihar. Accordingly during the year the appellant shown gross contract receipt of Rs.6,90,52,851/-. The AO further noted that the net profit shown by the appellant is a mere 0.25% of gross receipt of Rs. 6,90,52.851/-. Accordingly, the AO required the appellant to produce the copy of ledger account with all the supporting bills / vouchers. In compliance the appellant submitted ledger of expenses along with supporting. However, the AO on perusal of the bills’'/ vouchers noted that same are incomplete and not fully verifiable. Accordingly, the AO relying on various decisions rejected the books of accounts u/s. 145(3) and estimated the profit at the 8% of gross receipts and made an addition of Rs.55,24,228/- as income from business. On the other hand the appellant submitted that the AO has not pointed a single defect in any of the bills / vouchers submitted and instead resorted to ad-hoc disallowance and estimated the profit Page 5 of 9

I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. arbitrarily @ 8% of the gross receipts. Accordingly, the appellant requested to adopt profit @ 6% of GP after deducting depreciation by relying on the following decision of Hon’ble ITAT, Patna Bench and Hon'ble Patna High Court. • In ITA No.05/Pat/2010 dated 10.08.2011 in the case of M/s. Ram Parvesh Real Estate Vs. DCIT, Circle-2, Muzaffarpur • In ITA No.90/PAT/2008 elated 31.08.2009 in the case of M/s. Salauddin, Chapra Vs. DCIT, Circle-2, Muzaffarpur • Decision of Hon’ble Patna High Court in the case of M/s. Shyam Bihari Vs. CIT, Muzaffarpur, In MA No.808 of 2011 dated 07.05.2012 On a careful consideration of the facts and submissions it is a fact that the AO has not pointed a single defect which is not verifiable in any of the bills / vouchers submitted and instead directly rejected the books of accounts u/s.145(3) and resorted to ad-hoc disallowance and estimated the profit arbitrarily @ 8% of the gross receipts. Under these circumstances I tend to agree with the submission of the appellant and therefore by squarely relying on the decisions cited by the appellant (supra), the AO is directed to compute profit @ 8% of Gross receipts after allowing depreciation. In other words the net addition sustained is Rs.26,34,060/-(Rs.41,43,171 - 15,09,111) as against addition made of Rs.55,24,228/- and the appellant gets a part relief of Rs. 28,90,168/-. Accordingly, this ground is partly allowed.” 6. Now, before us, ld. Counsel for the assessee has referred to the decision of this Tribunal in assessee’s own case for AY 2012- 13 contending that net profit rate of 1% has been accepted by this Tribunal. However, we on perusal of the order dated 30.11.2021 in the case of the assessee in ITA No. 46/RAN/2020 for AY 2012-13, observe that the issue before this Tribunal was not regarding estimation of profit on the total turnover of the assessee for the particular year and it was only confined to a small amount of cash deposit of Rs. 15,81,000/- on which this Tribunal confirmed the addition @ 1% of the alleged cash deposit. In our considered view, this contention of ld. Counsel for the assessee of applying 1% net Page 6 of 9

I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. profit rate on the total turnover of the assessee, based on this decision of the Tribunal do not contain any merit. In the appellate proceedings, the assessee at its own has offered for application of net profit rate of 6% by placing reliance on various decisions and has conceded to this effect. 7. Under these given facts and circumstances of the case and considering the fact that the assessee has himself prayed for the application net profit rate of 6% placing reliance on various judgments including that of Hon'ble Patna High Court in the case of Shyam Bihari (supra), we fail to find any merit in the ground raised by the assessee for applying net profit rate @ 1%. Thus, no interference is called for in the finding of ld. CIT(A). We accordingly dismiss ground nos. 1 & 2 raised by the assessee. 8. As regards ground no. 3 raised regarding computation of interest u/s 234B of the Act contending that the same should be applied only on the returned income, we find that provision of Section 234B(1) of the Act and Explanation 1 has a direct bearing on this issue and the same are reproduced below: “234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

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I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. Explanation 1.—In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,— (i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income; (ia) any relief of tax allowed under section 89; (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and (v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.” 9. On perusal of the above provision along with Explanation 1, we observe that it refers to ‘assessed tax’ which in case of regular assessment is a tax on total income determined under such regular assessment. Nowhere in this provision, it is stated that Section 234B of the Act, in the case of regular assessment, is to be computed on the returned income and not on the assessed income. Though the assessee has referred to the judgment in the case of Ajay Prakash Verma in ITA 38 of 2010 reported in [2013] (1) TMI 140, however, ld. Counsel for the assessee failed to convince us that the said judgment is applicable in the instant case pertaining to AY 2010-11, for which the position of law is very clear as provided u/s 234B of the Act. Therefore, we are inclined to hold that interest for default in payment of advance tax u/s 234B of the Act in the case of regular assessment needs to be computed on the Page 8 of 9

I.T.A. No.: 45/RAN/2020 Assessment Year: 2010-11 M/s. Himanchal Construction Co. Pvt. Ltd. assessed tax as provided in Explanation 1 to Section 234B(1) of the Act. Thus, ground no. 3 raised by the assessee is dismissed. 10. Ground no. 4 is general in nature which needs no adjudication. 11. In the result, the appeal filed by the assessee is dismissed. Kolkata, the 09th February, 2023 Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 09.02.2023 Bidhan (P.S.) Copy of the order forwarded to: 1. M/s. Himanchal Construction Co. Pvt. Ltd., 11 HIG, Adarsh Nagar, Sonari, Jamshedpur, Jharkhand-831 011. 2. ITO, Ward-1(5), Jamshedpur. 3. CIT(A), Jamshedpur. 4. CIT- 5. CIT(DR), Ranchi Bench, Ranchi. //True copy // By order

Assistant Registrar ITAT, Kolkata Benches Kolkata

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