PR COMMISSIONER OF I T ALWAR vs. M/S RAJENDRA MITTAL CONSTRUCTION CO PVT

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 43 / 2017 Pr. Commissioner of Income Tax, Alwar. ----Appellant Versus M/s Rajendra Mittal Construction Co. Pvt Ltd., 1/81, RHB Bhiwadi, Tijara, Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DEEPAK MAHESHWARI Judgment 22/11/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and cross objection filed by the assessee was partly allowed. 2. This court while admitting the appeal on 30.5.2017 framed following substantial question of law:- “(i) Whether the Tribunal was legally justified in restricting the addition of Rs.96,27,290/- to Rs.30,74,814/- made by Assessing Officer by invoking the provisions of section 145(3) and applying net profit rate of 5% instead of 8% specifically when huge discrepancies were found in the books of accounts? (ii) Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and deleting the addition made on account

interest

income

of Rs.3,16,339/- and other income of

(2 of 5) [ITA-43/2017] Rs.7,03,275/- specifically when these incomes were different from the trading addition made in business income?” 3. The facts of the case are that the case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the I.T. Act, 1961 (hereinafter referred to as the Act) was framed vide order dated 4th March, 2013. While framing the assessment, the AO made addition of Rs. 96,27,290/- on account of profit addition by adopting the net profit @ 8% of total contract receipts Rs. 18,25,57,305/- (i.e. 1,46,04,584 – 49,77,294). The assessee aggrieved by this order preferred an appeal before ld. CIT (A), who after considering the submissions partly allowed the appeal. While allowing the appeal, the ld. CIT (A) adopted the net profit @ 5% on the turnover declared by the assessee at Rs. 16,10,52,607/-. The revenue and assessee both aggrieved by the decision of the ld. CIT (A), have preferred appeal and cross objection respectively. 4. The AO while considering the matter has added income while rejecting books of accounts and assessed NP @ 8% and also added interest income of Rs.3,16,339/- and Rs.7,03,275/- as income which was derived from other sources. 5. However, CIT(A) has observed as under:- “4.21. Thus, considering the past history of the appellant with regard to the percentage of net profit declared and assessed by the AO, the average net profit rate (AY 2005-06 3.75%, AY 2006-07 4.0%, AY 2007-08 4.57%, AY 2008-09 5.57%, AY 2009-10 3.86%- after adjusting addition of Rs.3 lacs) would be 4.35%.

(3 of 5) [ITA-43/2017] Accordingly, considering all these factors and other deficiencies as noted above, it would be fair to apply the net profit rate of 5.00% to the turnover declared by the appellant at Rs.16,10,42,167/-. This would result in estimated net profit of Rs.80,52,108 as against the net profit of Rs.49,77,294. Accordingly, a trade addition of Rs.30,74,814/- made by the AO would be confirmed and the appellant would get a relief of Rs.65,52,476 under this head. Besides this, the appellant would be liable to tax on the interest income of Rs.3,16,339 and other income of Rs.7,03,275 declared in the return of income filed.” 5. The CIT(A) also considered the contentions of the assessee however, has not allowed the expenses of income which was added amounting to Rs.3,16,339/- and Rs.7,03,275/-. 6. However, the same was considered by the tribunal observing as under:- “7.1. The ld. Counsel for the assessee reiterated the submissions as made in the written brief. It is contended by the ld. Counsel that both the interest paid and earned is in course of business. In net the interest payment is Rs. 1,48,640/-. In the event of interest received is taxed separately, interest payment also needs to be allowed separately. So far as other income of Rs. 7,03,275/- is concerned, the details are furnished vide letter dated 05.10.2012. The ld. Counsel drew our attention to page 59 of the paper book, from the same it can be noted that all relate to the contract work of the assessee. Therefore, these receipts are part of the contract receipts and once net profit rate is applied for assessing the income, such receipts cannot be separately added to the income. 7.4. In respect of the other income of Rs. 7,03,275/-, the ld. Counsel for the assessee has demonstrated that it is part of the contract business and therefore,

(4 of 5) [ITA-43/2017] once the net profit is applied for assessing the income, such receipts cannot be separately added to the income. While accepting the contention of the ld. Counsel, we direct the AO to delete the addition. This ground of the assessee is allowed.” 7. Counsel for the respondent has contended that in the case of same assessee, average NP which has been applied is reproduced as under:- vi) The appellant earned NP of Rs.49,77,294/- which is better than last year, the comparative GP rate and NP rate for the impugned year and preceding Four years are as under:- Rs. in Lac A.Y. Turnover Gross Profit % of G.P. Net Profit % of NP 2010-11 1610.42 186.67 11.59% 59.97 3.72% 2009-10 2523.79 247.49 9.80% 91.04 3.60% 2008-09 1261.41 139.05 11.02% 63.64 5.04% 2007-08 1056.62 118.70 11.23% 45.82 4.33% 2006-07 455.66 45.28 9.93% 16.58 3.64% 7.1 If the average of the above years is taken, the net profit will come to 4.066%. 7.2 However, tribunal in view of the decision of jurisdictional high court applied the net profit of 5%. 7.3 Regarding second issue, he contended that the interest income and other income was part of the contract business and therefore once the net profit is applied, such receipts cannot be separately added to the income. Taking into consideration, the

(5 of 5) [ITA-43/2017] interest amount paid on the loan which was taken and interest which is on unpaid amount and other income, in view of assessment on net profit that amount cannot be added separately to the income. 8. We have heard counsel for the parties. 9. Regarding first issue, in view of the decision of this court, NP rate is to be taken average of last five years which will come to 4.066, therefore, in our considered opinion 5% which is assessed by the tribunal is just and proper, therefore, first issue is answered in favour of the assessee. 10. Regarding second issue, it is true that the interest and income from other sources which is paid is given to earn income, therefore, in view of the observations made by the tribunal in para no.7.1 & 7.4, second issue is also answered in favour of the assessee. 11. In that view of the matter, both the issues are answered in favour of the assessee and against the department. 12. The appeal stands dismissed. (DEEPAK MAHESHWARI)J. (K.S. JHAVERI)J. Brijesh 173.