C I T JODHPUR vs. M/S JAIN CONSTRUCTION COMPANY BARMER

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR :JUDGMENT:

DATE OF JUDGMENT : 3rd July 2014 HON’BLE MR. JUSTICE DINESH MAHESHWARI HON’BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Sunil Bhandari for the appellant. None present for the respondent. <><><> BY THE COURT: This appeal by the Revenue against the order passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur (‘ITAT’) in ITA No. 04/JU/2005 for the Assessment Year 1999-2000 has been admitted for consideration on the following substantial question of law:- “Whether on the facts and in the circumstances of the case, the ITAT was justified in allowing the deduction on account of sales tax payment out of the income estimated by applying net profit rate without estimation of income at net profit rate being subject to such deduction?” The assessee, said to be deriving his income from contract work, filed the return for Assessment Year 1999-2000 declaring the income of Rs.2,08,230/- with tax audit report.The same was processed under Section 143(1) on 27.03.2000 at the same figure. The assessee had shown total contract receipt of Rs. 1,69,05,812/-. There was material supplied by the department at Rs.25,95,066/-.

The assessee had shown gross profit of Rs.17,35,435/-. The assessee had also executed contract work through sub-contractor and received sub-letting commission at Rs. 34,958/-. The case was picked up for scrutiny. Books of accounts, as produced, were rejected by the Assessing Officer (‘AO’) for several reasons including those of not maintaining the stock register, muster rolls and several expenses being not supported by adequate vouchers. After rejecting the books of accounts and while referring to the order as passed in relation to the assessee for the Assessment Year 1993-94, the AO proceeded to apply net profit rate of 12.5% on the net contract receipts subject to depreciation, interest, remuneration to partners and interest payment to third parties for the purpose of making assessment of income. There had been another issue relating to disallowance of depreciation claimed on vehicles but the same is not the subject matter of this appeal. After applying the net profit rate of 12.5%, the AO proceeded to carry out computation as follows:- “Net profit @ 12.5% on net contract receipt of Rs. 1,43,10,746/- (16905812-2595066) Rs. 17,88,843/- Add: Disallowance of depreciation as discussed above Rs. 17,885/- Add: Sub-let commission Rs. 34,958/- _____________ Rs. 18,41,686/- Less:- i) Depreciation 4,95,745 ii) Remuneration to partners 1,80,000 iii) Interest to partners 2,91,582 iv) Net interest paid/payable to third parties 4,03,043

Rs. 13,70,370/- _______ ____________ Total income Rs. 4,71,316/- Rounded off to Rs. 4,71,320/- ___________”

In appeal, the learned Commissioner of Income Tax (Appeal–II), Jodhpur [‘the CIT(A)’], though upheld the order of AO in rejecting the books of accounts and making assessment on the basis of net profit rate but then, considered the ground urged on behalf of the assessee that it had paid a sum of Rs.1,70,316/- towards sales tax and such payment of sales tax had been allowed as deduction by the Revenue Authorities in other cases. The CIT(A) held that the AO was not justified in not allowing the amount of sales tax paid at Rs.1,70,316/-; and directed the AO to allow the same after verification of the amount. In the Revenue’s appeal against the order so passed by the CIT(A), the ITAT found the case of the assessee covered by the decision rendered in other cases and held that the direction of the learned CIT(A) to AO, to allow the payment of sales tax after verification of the amount, was quiet in order. Seeking to question the orders aforesaid, it is contended by the learned counsel for the appellant that when net profit rate has been applied to the net contract receipts, there was no justification to allow further deduction claimed by the assessee. It is also submitted that in relation to the assessee himself, the order as passed for the Assessment Year 1993-94 with the application of net profit rate of 12.5% subject to depreciation, interest, remuneration to partners and payment to third parties has been upheld by this Court in D.B. Income Tax Appeal No. 12/1998 and, therefore, the order as passed by the ITAT affirming the order passed by the CIT(A) in the present case calls for interference. The order as passed in relation to the assessee for the Assessment Year 1993-94 has not been placed on record and it is difficult to find if the question of deduction towards sales tax payment was at all the subject matter of consideration in the said case. Then, even if the assumed net profit rate has been applied, the matter remains essentially of making the estimate, which is supposed to be reasonable in nature. It is noticed that even while making the assessment of income on the basis of net profit rate, the deductions towards depreciation, interest, remuneration to partners and payment to third parties have definitely been allowed. On the facts and in the circumstances of the present case, the CIT(A) cannot be said to have committed any fundamental error in directing deduction towards payment of sales tax too after verification of the amount paid. We have not been shown any binding decision on the proposition as canvassed that even while applying net profit rate, other aspect of the expenditure, like that in terms of the sales tax payment, cannot be taken into account at all. In our view, in case of rejection of accounts and estimate of net profit, relevant expenses could be worked out and allowed in a given case. On the facts and in the circumstances of the present case, the relief as granted by the CIT(A) and affirmed by the ITAT for allowing such deduction towards payment of sales tax cannot, in the ultimate analysis, be said to be unjustified or taking away the reasonableness of estimate of income of the assessee. In the totality of circumstances, the question as framed is answered against the Revenue. Consequently, the appeal fails and is, therefore, dismissed. (BANWARI LAL SHARMA),J.

(DINESH MAHESHWARI),J.

Sudhir