COMMISSIONER OF INCOME TAX vs. ANIL KUMAR

Income Tax Appeal No.206 of 2014 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH (1) Income Tax Appeal No.206 of 2014 Date of Order: 18.12.2014 The Commissioner of Income Tax-II, Jalandhar

..Appellant Versus Sh. Anil Kumar Prop. M/s Siddarth Enterprises, Adampur, Jalandhar. ..Respondent (2) Income Tax Appeal No.230 of 2014 The Commissioner of Income Tax-II, Jalandhar

..Appellant Versus Sh. Anil Kumar Prop. M/s Siddarth Enterprises, Adampur, Jalandhar. ..Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S.WALIA Present: Mr. Vivek Sethi, Advocate, for the appellant. Mr. S.K.Mukhi, Advocate, for the respondent. RAJIVE BHALLA, J (Oral) By way of this order, we shall dispose of ITA No.206 of 2014 and ITA No.230 of 2014, filed by the revenue raising the following questions of law, namely:- Income Tax Appeal No.206 of 2014 “i. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in applying the N.P. Rate of 5% instead of confirming NARESH KUMAR 2014.12.24 10:47 I attest to the accuracy and authenticity of this document Chandigarh

Income Tax Appeal No.206 of 2014 -2- the specific additions of bogus purchases, amounting to Rs.1,05,619/-, wages amounting to Rs.27,36,902/- and hire charges amounting to Rs.1,50,619/- made by the A.O. ignoring the fact that the A.O. has rejected the books of account as the expenses claimed by the assessee were not verifiable and purchases were also found to be bogus.”? ii. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in partly allowing the appeal of the Revenue by directing the A.O. to apply N.P. rate of 5% on total contract receipts without any reasonable basis and ignoring that the facts of the cases relied upon are entirely different from the assessee's case”? Income Tax Appeal No.230 of 2014 “i. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in applying the N.P. Rate of 5% instead of confirming the specific additions of bogus purchases, amounting to Rs.9,40,483/-, wages amounting to Rs.44,08,113/- and hire charges amounting to Rs.1,50,591/- made by the A.O. ignoring the fact that the A.O. has rejected the books of account as the expenses claimed by the assessee were not verifiable and purchases were also found to be NARESH KUMAR 2014.12.24 10:47 I attest to the accuracy and authenticity of this document Chandigarh

Income Tax Appeal No.206 of 2014 -3- bogus.”? ii. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in partly allowing the appeal of the Revenue by directing the A.O. to apply N.P. rate of 5% on total contract receipts without any reasonable basis and ignoring that the facts of the cases relied upon are entirely different from the assessee's case”? We have heard counsel for the parties. The questions of law are in two distinct parts, the first challenging deletion of additions and the second the net profit rate of 5% determined by the Tribunal. Counsel for the parties agree that part of the questions relating to additions made after rejection of accounts has been answered against the revenue in ITA No.122 of 1999 (The Commissioner of Income Tax, Patiala v. Dulla Ram, Labour Contractor, Kotkapura), decided on 22.10.2103, by holding that if accounts books are rejected, the Assessing Officer has no jurisdiction to make additions under other heads. The questions are, therefore, partly answered against the revenue, in terms of the aforesaid judgment. A significant part of these questions of law relate to the legality of the net profit rate of 5% determined by the Income Tax Appellate Tribunal. Counsel for the parties agree that the question with respect to determination of net profit rate has to be answered in terms of a judgment of this court in ITA No.269 of 2014 (Telelinks v NARESH KUMAR 2014.12.24 10:47 I attest to the accuracy and authenticity of this document Chandigarh

Income Tax Appeal No.206 of 2014 -4- Commissioner of Income Tax, Bathinda), decided on 20.11.2014, holding that determination of net profit rate must be based upon an identifiable criteria by reference to relevant facts and factors. Counsel for the parties also agree that as neither the CIT(A) nor the Tribunal have applied any identifiable criteria while determining the net profit rate, the assessment may be restored to the Assessing officer for determining the net profit rate afresh, for assessment years 2007-08 and 2008-09. Consequently, while answering the questions of law in respect to additions against the revenue, it is held that order passed by the CIT(A) and the Income Tax Appellate Tribunal, determining net profit rates being perverse and arbitrary are set aside and the matter is restored to the Assessing Officer for a fresh determination of the net profit rate after taking into consideration principles set out in Telelinks v. Commissioner of Income Tax, Bathinda(supra). Parties are directed to appear before the Assessing Officer, on 29.01.2015. (RAJIVE BHALLA)

JUDGE December 18, 2014 (B.S.WALIA) nt

JUDGE NARESH KUMAR 2014.12.24 10:47 I attest to the accuracy and authenticity of this document Chandigarh