PR COMMISSIONER OF I T JAIPUR -3 vs. M/S GUPTA K N CONSTRUCTION

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 187 / 2016 Pr. Commissioner of Income Tax, Jaipur-3, Statue Circle, C- Scheme Jaipur ----Appellant Versus M/s Gupta K N Construction Co., A-34, Ganesh Nagar, Shyopur Road, Sanganer Jaipur AY 2012-13 ----Respondent _____________________________________________________ For Appellant(s) : Mr. Daksh Pareek for Mr. Sameer Jain For Respondent(s) : Mr. S.L. Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 21/11/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee modifying the order of CIT(A) as well as AO. 2. This Court while admitting the matter framed the following question of law:- “Whether on the facts and in the circumstances of the case the ITAT is justified in law in restricting net profit rate at 5.5% of contract receipts, ignoring the rate of 8% prescribed u/s 44AD and also that higher net profit of 8.26% was declared in the immediately preceding assessment year by the assessee?” 3. Counsel for the appellant has taken us to the order of AO and contended that the AO while considering the matter has

(2 of 5) [ITA-187/2016] rightly rejected the books of accounts and applied gross profit @ 11%. 4. Counsel for the appellant has also taken us to para 5.3 of CIT(A) which reads as under:- “5.3. I have carefully considered the facts of the case and also submission of the appellant. The AO has given detailed reason for rejection of the books of accounts in his order at page no. 2 to 4. Further the assessee has failed to produce books of account, vouchers during the course of assessment

proceedings

for

verification. Therefore the AO was left with no other alternative but reject the books of accounts u/s 145(3) and to estimate the income of the assessee by applying a reasonable rate of Net Profit. For the above reasons I find that the AO is fully justified in invoking the provisions of sec. 145(3). Coming to the issue of application of Net Profit rate, the contention of the assessee is that in case of estimation of income, the past year history is to be preferred. Before me the assessee has filed the financial results alongwith audit report in form 3CD where in Annexure “A”, the auditor has given comparative figures which are available at page 105 of paper book (forming part of the order as annexure-A) where it is seen that in AY 2011-12 that is last year, the assessee declared Net Profit of 12.70% before interest depreciation

and

remuneration

(Rs. 1699514+911191=2610705) turnover of Rs. 20556421=12.70%). In this year the Net Profit before interest and depreciation is down to 6.48%, the same is tabulated as under:- Current year Last year Turnover 153853690/- 20556421/- Depreciation 2356767/- 911191/- N.P. before depreciation interest and remuneration 9967131- (6.48%) 2610705-(12.70%) N.P. after depreciation but before remuneration and interest 7610364/- (4.95%) 1699514/- (8.26%)

(3 of 5) [ITA-187/2016] From the above table it is clear that the assessee itself has declared 12.70% as net profit before interest remuneration and depreciation and if past history of the assessee is followed as per assessee’s contention then the reasonable NP rate should be 12.70% against which the AO applied 11% subject to interest, remuneration and depreciation which is the given circumstances seems quite reasonable. Therefore, the finding of the AO needs no interference and thus I uphold the net profit of 11% as applied by AO. Regarding ground 5, the appellants contention is that the AO did not allowed interest depreciation and remuneration to partners and interest to 3rd Parties. From the order it is seen that the AO allowed interest remuneration and depreciation to partners. However, interest to 3rd parties is not allowed which was also not allowed in AY 2011-12 and the assessee accepted this and did not go in appeal. Therefore, following the principle of consistency, I find no reason for interference, in this finding of the AO. These grounds are dismissed.” 5. However, we have gone through the order of the Tribunal wherein it has been observed as under:- “6. We have heard the rival contentions of both the parties and perused the material available on the record. The AR of the assessee has not been able to prove that the assessee has produced complete books of account of the assessee before the ld Assessing Officer or ld CIT(A), therefore, in absence of complete books of account, income of the assessee cannot be deduced correctly. Therefore, we uphold the rejection U/s 145(3) of the Act. The ld AR challenged the jurisdiction of the Assessing Officer before the ld CIT(A) as well as before us but there is no basis on which jurisdiction has been challenged by the ld AR, therefore, there is no merit on raising ground No. 2 by the assessee. Accordingly, ground No. 2 of the assessee’s appeal is also dismissed. When books of account had been rejected U/s 145(3) of the Act by the Assessing Officer, the only option is left before him to estimate fair income on the given circumstances and nature of the business by comparing the case of by collecting the evidences. The net profit during the year under consideration is 4.95% before interest and remuneration on total contract receipt of Rs. 15,38,53,690/-, which was 3.6% in preceding

(4 of 5) [ITA-187/2016] year on total contract receipt of Rs. 2.05 crores. The lower authority estimated the net profit @ 11%, which is higher side as in A.Y. 2011-12 and 2010-11 the Assessing Officer estimated net profit rate @ 5%. IN A.Y. 2009-10 also various ad hoc disallowances were made by the Assessing Officer on net profit rate @ 5.38% on total contract receipt of Rs. 12.32 crores. The Coordinate Bench has confirmed the lump sum addition of Rs. 5 lacs. Even from A.Y. 2004-05 to 2008-09 the assessee either disclosed net profit rate more or less 5% or accepted by the ITAT @ 5% subject to interest and remuneration to the partners. The assessee in A.Y. 2009-10 was before the Hon’ble Rajasthan High Court wherein the Hon'ble High Court has dismissed the assessee’s appeal where lump sum addition of Rs. 5 lacs was confirmed by the ITAT. The assessee has claimed third party interest from the net profit rate estimated but on verification of the past history, it is found that the assessee never claimed third party interest against the net profit rate applied by the Assessing Officer. Therefore, we do not find any merit on ground No. 4 of the assessee’s appeal. Similarly interest on FDR has also been assessed by the Assessing Officer as income from other sources, which has been accepted by the assessee in past. Therefore, we do not find any reason to disturb the consistency of the case. The net profit rate applied @ 11% is higher side even books of account rejected as not produced by the assessee but the business result can be compared from the other cases, which has also not been applied by the lower authority even confirming the addition by the ld CIT(A). Keeping in view of the past history of the case, we apply N.P. rate @ 5.5% subject to interest and remuneration to the partner. The Assessing Officer is directed to calculate the income as per observation made by us. 6. After the matter was argued, now Mr. S.L. Jain counsel for respondent has appeared. The matter was admitted on 9th November, 2016 and when the matter was adjourned on 14th November, 2017 at the request of assessee, we made it clear that the Court will proceed with the matter as this is one of the

(5 of 5) [ITA-187/2016] oldest matter pending before the Jaipur bench. However, he has sought to rely upon the decision of this Court in case of Commissioner of Income Tax vs. Gupta, K.N. Construction Co. [2015] 371 ITR 325 (Raj) decided on 18 August, 2017 and the judgment of Tribunal dated 4th March, 2016 where the Tribunal after considering the aforesaid judgment held that Net Profit @ 11% is on higher side and applied Net Profit @ 5.5%. 7. In that view of the matter, it will not be useful for the parties to adjourn the matter. 8. Hence, in view of the above, the issue is answered in favour of the assessee and against the department. 9. The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. A.Sharma/67