ACIT, C-7, LUDHIANA vs. M/S CEIGALL INDIA LTD., LUDHIANA

आदेश/Order

PER BENCH:

The present appeal by the Department and Cross Objection by the Assessee are directed against the order of the Ld. CIT(A)-3, Ludhiana dt. 01/12/2018.

Objection filed by the Assessee is barred by limitation by 20 days. The Assessee has raised the following grounds:

Whether on the facts and circumstances of the case, the CIT(A) @6.5% was justified in reducing the calculation of net profit rate 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 CIT(A) was justified in allowing depreciation claimed by appellant on the profit arrived at by applying net profit rate of 6.5% on the total receipts instead of flat rate of 12% applied by the AO.

iii) Whether on the facts and circumstances of the case, the CIT(A) was justified in deleting the addition of Rs. 84,19,383/- made u/s 69C of the Income Tax Act, 1961 by the AO on account of unexplained expenditure on the basis of Kacha bills impounded during the course of survey proceedings u/s 133A of the Income Tax Act, 1961.

iv) That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 7. Vide Ground No. 1 the grievance of the Department relates to the reduction of Net Profit rate @ 6.5% on the total receipt instead of 12% applied by the A.O.

8.1 During the course of assessment proceedings the A.O. noticed that the turnover of the assessee for the year under consideration was at Rs. 48.29 Crores on which net profit was shown at Rs. 97,41,761/- and that the other incomes were shown as under:

OTHER INCOME Rebate & discount 8,24,638.17 Interest on FDR 17,98,792.70 Other interest 1,40,38,722.00 TOTAL 1,66,62,152.87

8.2 The A.O. observed that if rebate and discount be considered as part of business income the net profit rate of the assessee came to only 2.18% of the total turnover. He also observed that the survey under section 133A was conducted on 15/09/2016 at the business premises of the assessee and no document related to wages record was found and that the large number of bills & blank bill books of various parties were found which were impounded. The A.O. asked the assessee to provide the details of jobs done and provide site wise material consumption. The A.O. mentioned that the assessee in its reply dt. 03/11/2016 stated that it was not practically possible for it to provide the bills of site wise material consumed. The A.O. also 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 record has been submitted in original and the same has been impounded so you are requested to provide the copy of the record, so that the information asked by your good self can be provided.

8.4 The A.O. observed that the failure on the part of the assessee to provide site wise expenses, labour, proof of address & identity of labourers, the genuineness of the labour expenses was not established. He further observed that the assessee inflated its purchase expenses by circular sale purchase. The A.O. also observed that at the time of survey conducted at the business premises of the assessee, the cash book showed cash in hand of Rs. 2.66 crores but actual cash in hand was only Rs. 21,000/-. As regards to the advances given by the assessee to various parties the A.O. observed that the assessee stated that the advances were given to M/s Cosman Research Lab Ltd. for supply of construction material and equipment but the business of said company was to manufacture drugs and medicines and that the assessee failed to explain purpose of advances given to M/s Indovast International, Leotronic Scales Pvt. Ltd. , Madhok Enterprises, PAP Extn, Zigma Knitwears. The A.O. also observed

that the assessee had not produced the bank of account statements of the various bonks.

8.5 In view of the above said facts, the A.O. was not satisfied about the correctness and completeness of the books. He therefore issued show cause notice regarding rejection of books of accounts to the assessee. However, the AO was not satisfied from the reply of the assessee and by keeping in view non production of labourers record, cash book, bank statement, circular trading to inflate expenses. He, rejected the books of accounts and applied the net profit rate of 12%. Reliance was placed on the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT, Hisar Vs. M/s Parbhat Kumar Contractor, Sirsa in ITA No. 293 of 2008. The A.O. accordingly worked out the net profit and made the addition of Rs. 4,73,91,955/-, in the following manner:

The Gross Receipt of Assessee in this case : 48,29,86,287/- Net Profit @ 12% of Gross Receipts : 5,79,58,354/- Net Profit shown by assessee from business : 1,05,66,399/- Including rebate and discount Total addition on this ground : 4,73,91,955/- (Addition of Rs. 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:-

profit rate' and, whatever, the profit have been declared in the returns of income year after year, the same have been accepted by the department, which is as per following chart:-

A.Y. ASSESSMENT FRAMED 2010-2011 Assessment made u/s 143(3) 2011-2012 Assessment made u/s 143(3) 2012-2013 Assessment made u/s 143(3) 2013-2014 Assessment made u/s 143(3)

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 21.21 2015-16 10,90,45,060.00 74,28,25,761.00 14.68

about 8 to 10 sites at various interval o f times and at times, the labourers are shifted from one site to another site, depending upon various factors and such labourers are not fixed for particular site and due to the nature of business and modus operandi, it is practically not possible to maintain site-wise expenditure of the material and the labour and, as such, there was no justification in rejecting the books o f accounts on such allegation. Further, at times, one particular contract has to be completed within stipulated time and due to which, the labour is shifted from one site to another.

disallowance of interest could be made and also the same ground cannot held good for rejection of books of accounts. However, for your goodself's reference we are tabulating hereunder the details of the advances which have been alleged to be unexplained by the Ld. AO:-

SL Name of party Amount Remarks 1. Zigma Knitwears 15,00,000 Interest have been received by the assessee against such advance 2. Cosmos Research 7,00,000 Non-business Purpose Lab Ltd. 3. Indovast 3,20,000 Amount adjusted against International rebate and discount 4. Leotronic Scales Pvt. 59,578 Adjusted against purchases Ltd. 5. Madhok Enterprises 47,000 Adjusted against rebate and discount 6. PAP Ext. Com 81,600 Adjusted Against rebate and discount Total 27,08,178 Further, the above judgment of Punjab & Haryana High Court has been followed in large number of cases by the Jurisdictional Chandigarh Bench, Chandigarh.

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, contract and the percentage of wages paid in the earlier years compared favourably well and, thus the application of net profit rate of 12% is not justified.

Furthermore, it is also submitted here that the Ld. AO has stated that the net profit of the assessee should have been calculated without taking into account the income earned in the of interest (bank and other interest). With regard to the same it is submitted that the interest income earned in the form of bank interest and other

interest are incidental to attainment of the main objectives of the assessee Company as many a times keeping the security in the form of FDR's or other deposits are necessary for the execution of the contracts. Moreover, the assessee does not keep the deposits for the purposes of the earning of interest from the same but for the execution of the contracts only, therefore, earning of interest on the same is incidental to the running of the business of the assessee and hence, the same is to be added in the income of the assessee while calculating the rate of net profit, However, even for the sake of argument we are to calculate the operating profit of the assessee by deducting the interest income from the same, even then it is very much appreciative that the net profit of the assessee before depreciation and bank interest expenditure are higher in the relevant assessment year as compared to previous assessment years and there is an increase from 11.95% to 14.84% in the net operating margin before interest and depreciation and the same is clear from the chart enclosed herewith.

21.We are enclosing herewith a chart showing the percentage of profit as declared to ne gross receipts as per audited books of accounts, wherein, our net profit after excluding the interest and depreciation as per books o f accounts is 6.36% as compared to the earlier year's net profit of 6.01% and for other years also, it compares favourably well with the earlier years. For your goodself's reference, we are tabulating hereunder the net profit margins of the previous and the subsequent assessment years, which clearly show that the profits earned by the assessee are in proportion to the profits earned in the previous and subsequent assessment years:-

A.Y. Sales Net Profit Net Profit Margin 2010-11 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%

going by the past history of the case, this profit has been held to be justified after considering the judgment in the case o f Sh. Prabhat Kumar Contractor, which has been cited b y the Assessing Officer.

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.

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 during the assessments proceeedings, Hence, the books of accounts are not all reliable. Para 12 : assessee is deliberately not keeping site wise record to siphon off cash from business in the name of wages.

Para 13 : The assesse does not have records & cannot produce such persons for verification. Para 14 : The assesse has failed to show the objectives of circular trading.

Para 15 : The 3C constructions has assisted the assesse in circular trading and assesse has to tell the reasons as no actual material has moved but only bills have moved

Para 16 : The Directors of company fled from the survey premises instead of explaining the discrepancy in Cash-in-hand.

Para 17 ; the assesseee has admitted that advances were for non business purpose, so the findings A. O. are correct.

Para 18 The assesse neither submitted bank statements then, nor now, so the books of accounts were rightly rejected.

Para 19 Books of accounts have been rejected on the basis of reasons given in the assessments order not on baseless allegations.

Para 20 The 12% Net Profit Rate is Fully Justified keeping in view case law relied upon in assessment order.

Para 21 to 25 : The assesse has not furnished copy of judgements relied upon by him. Moreover he has also failed to state how the facts of cases relied upon are similar to his case.

9.2 The aforesaid reply of the A.O. was forwarded by the Ld. CIT(A) to the assessee for its comment in resonse the assessee submitted as under:

"With regard to the captioned subject we have filed detailed submissions before your goodself along with the detailed paperbook to justify the said submissions. Against the said submissions the Ld. AO has given comments vide letter dated 21.02.2018. With regard to the same at the outset it is submitted that the comments given by the Ld. AO are merely the reiterations of the assessment order and no specific discrepancy has been noticed by the Ld. AO with regard to the submissions filed by us. However, our reply against the same are provided 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 submitted that the wages have been debited in the regular books of accounts and such wages are part and parcel of the 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. (iii) With regard to the allegation that the assessee have not site-wise record it has been explained that that at one given point of time, there are about 8 to 10 sites at various interval of times and at times, the labourers are shifted from one site to another site depending from time to time and such labourers are not fixed for particular site and due to the nature of business and modus operandi, it is practically not possible to maintain site-wise expenditure of the material and the labour and, as such, there was no justification in rejecting the books of accounts on such allegation. (iv) The records that were required during the assessment proceedings were being duly filed by the assessee except for few documents and the reasons for which have been clarified and explained as above.

(v) Lastly, we have duly provided the performance certificates issued b y the different departments to the assessee in respect o f the work done during the relevant assessment year. Moreover, no adverse comments have been given b y the Ld. AO on the same, therefore, it is not the case that the work done b y the assessee have been disputed, rather the same has been accepted b y the Ld. AO. Thus, when the work done has been accepted then, it is also agreeable that the expenditure on the wages have been incurred as wages are the major expenditure in the industry in which the assessee operates. The discrepancy noticed b y the Ld. AO are merely mechanical in nature and 'he same are bound to occur in such an industry where the labour work force are so much unorganized and where the majority o f the labour force are migratory. Therefore, such an allegation o f the Ld. AO should not be a reason for the rejection o f the books o f accounts.

numbering more than ten. Moreover, during the course of the survey proceedings, there were many persons responsible for managing the task of verifying and explaining the cash being distributed at different locations, thus, this allegation is only for the sake of allegation. 4. As mentioned in the detailed submissions out of the total advances which have been alleged to be given for the purpose of business, advances amounting to Rs. 7,00,000 only has not been written off in the books of accounts and is outstanding in the subsequent assessment year against the interest free funds of Rs.11.44 crores. Moreover, the allegation that the advances have been made for nonbusiness purpose cannot be a reason for considering the books of accounts as unreliable and rejecting it. The assessee has sufficient amount of interest free funds at the end of the relevant assessment year, therefore, no adverse inference with regard to the same can be drawn with regard to the reliability of the books of accounts. 5. With regard to the allegation that the assessee has not provided the bank statements during the assessment proceedings it is submitted that the bank accounts of the assessee were duly shown in the audited books of accounts of the assessee and the same has been clarified during the course of the assessment proceedings also and no adverse inference with regard to the same was noticed by the Ld. AO. However, for your ready reference we are producing herewith the copies of the same for your ready reference. 6. The Judgment of Parbhat Kumar contractor is not at all applicable on the case of the assessee because in the case of Parbhat Kumar 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, contract and the percentage of wages paid in the earlier years compared favourably well and, thus, the allegation of 12% is not justified._ Furthermore, the Punjab and Haryana High Court itself in the judgment of The Commissioner of Income Tax vs Shri Parveen Kumar Mittal (attached in judgment set) has itself distinguished Parbhat Kumar's case and has adopted the rate o f net profit b y taking into view the history o f the case and the rates o f net profit accepted b y the department before. Therefore, similarly in our case the income tax department has been accepting the rates o f net profit as low as 5.87% for the A Y 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 as declared by the assessee is progressive vis a vis previous assessment year. Moreover, a profit rate lower than the net profit margin of the relevant assessment year has been accepted by the department in the AY 2012- 13. Moreover, the department has already accepted books of accounts maintained by the assessee for the AY 2012-13, thus, it is humbly requested that the books of accounts of the relevant assessment year should be accepted and the rejection of the books of account invoked by the Ld. AO should be reversed.

9.3 Ld. CIT(A) after considering the submissions of the assessee and the report of the A.O. observed that the A.O. applied the net profit rate of 12% on the gross receipt from the contract business by following the decision of the Hon'ble Punjab & Haryana High Court in the case of M/s Parbhat Kumar Contractor while the assessee filed the return of income on the basis of audited books of account and the interest income was earned on the FDR given as security to the various government department for execution of contract therefore earning of such interest was incidental to the carrying on the business of the contract and similarly other interest income 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 and it was held that the past history of the assessee should be considered for application of net profit rate whenever the books of accounts are rejected and the net profit rate of 4% and 6% respectively based on the past history had been held to be justified.

9.5 The Ld. CIT(A) also observed that even if the net profit rate was to be applied the depreciation needs to be allowed. Since the prescribed particulars had been given in the return of income and no doubt can be cast upon settled principle based on the judgment of Hon'ble Jurisdictional High Court and Jursidictional Bench of ITAT.

9.6 The Ld. CIT(A) directed the A.O. to apply net profit rate of 6.5% on the contract receipt and on FDR’s interest by observing in para 4.8 & 4.9 of the impugned order which read as under:

4.8 I have also looked into the chart of net profit declared by the assessee and it seen that this year the net profit rate of 6.36% compares favourably well the net profit rate of 6.01% and 5.87% for Asstt. Year 2013-14 and 2012-13. Thus, the net profit rate is higher in this year, but still I feel that ends of justice shall be met, if the net profit rate of 6.5% is applied on the contract receipts and on FDRs interest, since the earning of FDR interest is incidental to the carrying of the contract business as the FDRs have been given to the Govt, departments as security for the execution of the contract. However, the other interest, which has been disclosed to the tune of Rs. 1,40,38,722/- is to be assessed as 'income from other sources u/s 56,' since the said interest has no relation to the contract business. 4.9 The above finding of assessment of interest income from contract business, is based on the judgment of Karnataka High Court in the case CIT Vs Hewiett Packard Global Soft Ltd., as cited 'supra' and, thus, the Assessing Officer is directed to apply a 'net profit rate' of 6.5% on the total receipts of Rs. 48,47,85,079/- ( Rs. 48,29,86,287/- contract receipts + FDR interest to the tune of Rs. 17,98,792/-.)

application of gross / net profit rate on the turnover or receipts of the assessee. However the net profit rate to be applied should be reasonable and the past history of assessee’s own case is to be considered.

13.1 On a similar issue the Hon'ble Supreme Court in the case of CIT Vs. Laxminarain Badridas reported in 5 ITR 170 held as under:

“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” 13.2 In the present case assessee had shown net profit rate of 6.36% for the year under consideration and in the earlier assessment year i.e; assessment year 2012-13 and 2013-14 it was at 5.87% and 6.01% respectively. Since the net profit rate was progressive 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.

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.

i). CIT Vs Chopra Bros. India (P) Ltd. P&H High Court as reported in 119 Taxman 866, in which, the Hon 'ble High Court has held as under:-

"Section 145, read with sections 32 and 119, of the Income-tax Act, 1961 -Method of accounting - Estimation of profits - Assessment year 1988-89 - Whether in all cases (relating to period prior to 1-4-1994) where best judgment assessment is made by fixing a rate of net profit, assessee's claim for deduction on account of depreciation cannot be deemed to have been considered and it has to be separately taken into account provided prescribed particulars have been furnished by assessee - Held, yes."

ii. CIT Vs Bishambhar Dayal & Co. (Allahabad High Court) as reported in (1994) 74 Taxman 123, in which, the Hon 'ble High Court has held as under:

"Section 256, read with sections 145 and 32 of the Income-tax Act, 1961 - Reference to High Court - Question of fact - Assessment years 1987-88 and 1988- 89 - ITO disallowed depreciation claimed by assessee on view that since income was computed by applying net rate, claim of depreciation was not permissible -

Tribunal reversed ITO's order and 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 Tribunal has held the view that even after applying the net profit rate, depreciation and interest paid to third parties are allowable separately. In the case of Chopra Bros. (India) Pvt. Ltd. (supra) and Mohangarh Construction Co. (supra), the Tribunal has carefully considered the question of allowability of depreciation in circumstances similar to the case before us. Respectfully following the aforesaid decisions of the Tribunal and having regard to the decision reported in (1995) 210 ITR 1 1 8 (All) (supra), we feel that the claim of the assessee for depreciation and interest paid to third parties has to be allowed. The Assessing Officer is accordingly directed to allow these claims in relation to the assessment year under consideration after verifying the factual details."

In this Judgment also, the judgment of Allahabad High Court in the case of Bishambhar Dayal & Co. has been relied upon.

16.1 Ld. CIT(A) after considering the submissions of the assessee directed the A.O. to allow the claim of the assessee for depreciation by observing as under:

“4.10. As regards the depreciation is concerned, it is a settled law that wherever, the net profit rate is applied, the depreciation has to be allowed as per the various judgments of Hon'ble Punjab & Haryana High Courts and others, since all prescribed particulars are available in the record of the Assessing Officer and, as such, the depreciation claimed to the tune of Rs. 1,48,89,912/- shall be allowed by the Assessing Officer on the profit arrived at by application of net profit @ 6.5%.”

i) Bills of M/s Jama Trading Company are in the name of M/ s Ceigall India Ltd. & were found during survey from business premises of assessee & hence belong to assessee. The assessee impudently refused that they do not belong to him. But actually he has no explanation to offer on this unaccounted expenditure.

ii) The bills which are unaccounted are of construction material like Sand, Crusher, labour expenses & are in the name of assessee. They belong to assessee as they are found in his premises.

iii) Smartfleet card is in the name of M/s Ceigall India Ltd and is issued by Bharat Petroleum Corporation Ltd (a central government public sector undertaking). It is a mode of payment just like cash and where it can be recharged in cash and the fuel can be purchased. The assessee has again denied its ownership which is false.

iv) The assessee has said these documents do not belong to him because someone might have left it there but there is no reason for that why any "body would do that. Actually, the assessee was caught unaware when survey –was conducted at his premises.

v) The assessee has been provided Xerox of all impounded documents and as a time buying & delaying tactics the assessee keeps on asking Xerox copies of impounded material. The intention of asking Xerox copies again and again does not seem bonafide.

vi) During the course of survey also, the directors of the company left the survey premises & never returned back till the conclusion. They even avoided answering questions asked during survey.

He made the addition of Rs. 84,19,383/- treating the expenses as unexplained expenditure under section 69C of the Act.

"6.2 Aggrieved by the order of CIT (A), Revenue is now in appeal before us. Before us, Ld. D.R. supported the order of Assessing Officer. 6.3. We have heard the Ld. DR and perused the material on record. We find that Ld. CIT (A) while deleting the addition has noted that since he had directed the adoption of net profits @ 2% further adhoc disallowance would result into double disallowance. Before us, apart from other findings, the observation and finding of CIT (A) of

double disallowance has also not been controverted by the Revenue. In view of these facts, we find no reason to interfere with the order of CIT (A). Thus, this ground of Revenue's appeal 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.

Thus, no separate addition ofRs. 84,19,383/- is not sustainable otherwise, when the books of accounts have been rejected and net profit rate has been applied by the Assessing Officer. This amounts to doubt addition and, as such, the said addition is not sustainable.

23.1 The aforesaid submissions of the assessee were forwarded by the Ld. CIT(A) to the AO for his comments. In response the AO reported as under:

Addition on accounts Unexplained expenditure: -

The assesse submissions are baseless and have no foot to stand on for example;-. How Can assessee deny ownership of bills found in his premises especially when the bills are in the name of assessee?

Why would Petrol pump owner misuse assesssee's fleet card? What would be benefit of Petrol pump owner? & How are those recharge amount bills are available in assesse's premises.

The assesssee is trying to serve the department a plethora of lies & vegue stories. So the submission of assessee be rejected & it is prayed before you to please confirm the addition made & pass a judgement in favour of revenue.

23.2 The aforesaid report of the AO was forwarded to the assessee for its comments by the Ld. CIT(A). In response the assessee submitted as under:

On account o f unexplained expenditures 1. With regard to the allegation of the Ld. AO that the assessee has denied the ownership of the bills found in his premises it is submitted that this allegation of the Ld. AO is not at all correct as the assessee has only denied the ownership of the bills that has not been issued in the name of the assessee. The additions have been made on the basis of the Annexure-12, Annexure-Al and Annexure-A3. Whereas, the assessee has merely denied the ownership of the documents mentioned in A-l which does not bear the name of the assessee. The same is evident from the reply of the assessee filed during the assessment proceedings and reproduced on Page 17 of the assessment order. From a perusal of the same it is clear that the assessee has merely denied ownership of the loose paper and documents found during the survey. Thus, this comment of the Ld. AO is wrong on the facts.

It is also clarified here that the assessee had already entered bills worth Rs.26,95,000 out o f the total bills o f Rs.41,50,532.

Hope your goodself finds the above details satisfactorily and oblige. " 7. Thereafter, the assessee again submitted 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 intention to invest the surplus funds in the shape of FDRs and, therefore, this income has to be treated from the contract only and liable to be assessed as profits & gains of business/profession. This is an integral part of the business activity of the assessee and in view o f the commercial expediency, interest income on FDRs cannot delinked from the profit and gain derived b y the assessee, who is engaged in the contract business and cannot be taxed separately u/s 56 o f the Act. This view finds support from the decision of the Hon’ble Karnataka High Court in the case of CIT Vs Hewlett Packard Global Soft Ltd., wherein, the Hon'ble High Court has held as under:

"Income Tax Act, 1961, Section 10A and 10B - Deductions of income from profits and gains of business of export - Assessee is 100% export oriented unit - During AY 2001-2002, it earned interest income, on Short Term Deposits from banks in India,

by advancing loans to staff and also income out of its Surplus Funds temporarily parked in the Current Account held in Citi Bank, Hong Kong Assessee since had claimed deductions U/s 10A and 10B of the Act, AO held that such interest income was not entitled to 100% deduction U/s 10A but taxable U/s 56 of the Act, as "income from other sources" and this is the bone of contention between the assessee and the Revenue in this appeal - Karnataka High Court decided the issue in f/o assessee respondent holding that assessee is entitled to 100% exemption or deduction under Section 10A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as "income from other sources" under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10A or 10B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of articles as envisaged under Section 10A or Section 10B of the Act and cannot b taxed separately under Section 56 of the Act. "

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 Rs. 84,19,383/- and the facts in brief that during the course of survey conducted at the assessee's premises on 15.09.2016, large number of kacha bills and bill book relating to construction/material purchases relevant to Assessment Year 2014-15 were found and the assessee was confronted with these documents and the assessee stated that photo copies as provided to the assessee of the documents are not clear and further has stated that the documents do not belong to the assessee as it do not bear the signatures of the assessee.

4.12 During the course of submissions before me, it has been pleaded that at times, the-construction material is delivered by the party concerned at different sites and someof the materials are not upto the mark and the same having not been approved-is returned back. However, the relevant vouchers for the same were lying with the assessee had not been entered in the books of accounts, since no material was purchased. Thus, it has been stated that these are only rough memoranda of records and no addition could be made on account of such documents. It has further been pleaded without prejudice to above documents that addition itself is not sustainable, when the income has been estimated by the Assessing Officer by applying the net profit rate, then no separate addition on account of unexplained expenditure can be made and for that the reliance has been placed on the judgments of Hon'ble Supreme Court and other High Courts for this preposition as cited 'supra'.

4.13 I have gone through the assessment and detailed submissions of the assessee and have also perused the record. The submissions of the Ld. Counsel of the assessee has been considered and after going through the record, it is held that since I have already held that this is a fit case for application of net profit rate and, therefore, no separate addition of unexplained expenditure can be made based on the decisions of Hon'ble Andhra Pradesh & Allahabad High Courts and judgment of jurisdictional Bench of the ITAT, Chandigarh Bench in the case of Kashmir Singh Contractor as cited 'supra' by the assessee, in which, after relying upon various judgment has held as under:-

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)

26.1 On a similar issue the Hon’ble Allahabad High Court in the case of CIT Vs. Banwari Lal Banshidhar (supra) held as under:

“When the gross profit rate was applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases made by the assessee.” 26.2 A similar view has been taken by the Hon’ble Andhra Pradesh High Court in the case of Indwell Constructions Vs CIT reported in 232 ITR 776 held as under:

“The pattern of assessment under the Income-tax Act, 1961, is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income-tax Officer 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 section 29. In other words all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account.

Where the books of account have been rejected, the Revenue cannot rely on the same books for addition of an exact item(of expenditure) in the profit and loss account.“ 26.3 In the present case as we have already pointed out that the books of accounts maintained by the assessee were rejected by the AO and the said rejection was upheld by the Ld. CIT(A). The income of the assessee was determined by applying the net profit rate, therefore in view of the ratio laid down in the aforesaid referred to cases by the Hon’ble Allahabad High Court and Hon’ble Andhra Pradesh High Court, no separate addition on account of expenditure was called for when the income was determined by applying the net profit rate. Accordingly we do not see any infirmity in the impugned order passed by the Ld. CIT(A) on this issue.

(Order pronounced in the open Court on 19/11/2020).

Sd/- Sd/- राजपाल यादव एन.के.सैनी, (RJAPAL YADAV ) ( N.K. SAINI) उपा�य� / VICE PRESIDENT उपा�य� / VICE PRESIDENT AG Date: 19/11/2020

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :