THE ASSISTANT COMMISSIONER OF INCOME TAX,, PATHANKOT vs. M/S WALIA CONSTRUCTION CO.,, PATHANKOT

The Revenue Department has raised the following grounds of appeal. i) On the facts and circumstances of the case, the Ld. CIT(A)-2, Amritsar has erred in applying rate of 5% of net profit and allowing further deduction of Depreciation and salary/interest, against 9% applied by the assessing officer merely by holing that working result are better than earlier years and ITAT, Amritsar in own case of the assessee for the A.Y.2009- 10 applied rate of 5% when rate of 9% reasonably applied by the

The Revenue Department is aggrieved against the action of the Ld. CIT(A) whereby the Ld. CIT(A) directed to apply net profit rate @ 5% as against 9% applied by the Assessing Officer, deleted the disallowances of Rs.11,25,110/- on account of interest free loan and Rs.7,17,640/- claimed as salary paid to the lady partner. The Ld. DR relied upon the order passed by the Assessing Officer and while relying thereupon submitted that the Assessing Officer has rightly passed the assessment order and made the additions in accordance with law, however, the order impugned herein based on the conjectures and surmises and therefore suffers from illegality, impropriety and perversity.

Having heard the parties and perused the material available on record. In the instant case, the Assessing Officer made various additions i.e.

In the instant case, appeal effect of the impugned order, has already been given vide order dated 12.08.2015 by the Assessing Officer, relevant part of the same is reproduced herein below. “Appeal Effect of the order of the Commissioner of Income Tax (Appeals)-II, Amritsar Appeal No.130/13-14 dated 30/06/2015:- Assessee filed return of income declaring income of Rs.72,09,430/- on 15/10/2010. The assessee also filed revised return on 23/04/2011 at an income of Rs.72,09,430/-.The case was processed under section 143(1) on 23/02/2012 at the returned income of Rs.72,09,430/-. In this case survey under section 133A was conducted on 10/03/201.0 and the assessee has surrendered an amount of Rs.50 lakhs which has duly been reflected in the Profit & Loss Accounts. The case was selected for scrutiny through CASS. The assessee’s firm is a Govt. Contractor engaged in Civil Construction. The Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act,1961 on 19/03/2013 at total Income of Rs.2,31,90,370/- by applying the net profit rate of 9% on gross turnover of Rs.21,62,19,467/- after disallowance of salary paid to lady partners amounting to Rs.7,17,640/- and also made addition of Rs.ll,25,110/-on account of interest free loans to its sister concerns. The assessee filed an appeal before the Ld. Commissioner of Income Tax (Appeals), Amritsar against the order u/s 143(3) of the Assessing Officer. The Ld. Commissioner of Income Tax (Appeals)-II, Amritsar vide order No.130/13-14 dated 30/06/2015 has partly allowed the appeal of the assessee and deleted the addition or Rs.1,08,26,112/-

Coming to the applying net profit rate of 5%, the Ld. CIT(A) observed that since the working results of the appellant for the year under appeal are much better then the earlier assessment years and moreover keeping in view the decision of Hon’ble ITAT Amritsar Bench in assessee’s own case for A.Y.2009-10 vide order dated 26.03.2014 in ITA No. 361(Asr)/2013 , whereby the net profit rate of 9% on the declared turn over estimated by the AO was reduced to 5% of the contract receipts declared by the appellant. The Ld. CIT(A) while holding that since rejection of books of account of the appellant u/s 145/3 of the Act has been upheld as above for being unreliable and net profit directed to be determined by the applying net profit rate of 5% of its turn over, accordingly no further disallowance of any item of expenditure claimed in the P & L Account can be made, deleted the disallowance under hand. We find the reasoning given by the Ld. CIT(A) is justifiable, based on rule of consistency as well as on precedent of co- ordinate bench, therefore in our considered view, the Ld. CIT(A) has rightly applied the net profit rate @ 5% hence we are not inclined to interfere in this issue.

Coming to deletion of disallowance of interest amounting to Rs. 11,25,110/-, we observe that the Assessing Officer while making the said addition relied upon the decision of the jurisdictional High Court in the case

Now coming to the deletion of addition of Rs.7,17,640/- the Ld. CIT(A) while taking into consideration the facts that both the lady partners were actively involved in day to day running of business as they were handling the office work and supervision of the office staff and other matters relating to the administration of business and they were paid salary being the working partners and the earlier year, the same was allowed and further they have duly disclosed the amount of salary received in their returns of income and duly paid the relevant taxes thereon and filed the copies of their returns and computation of income in support of their contention. Further it was also observed by the Ld. CIT(A) that the Assessing Officer made the disallowance of Rs.7,17,640/- purely on guess work failing to examine the record and the statements of two lady partners. In our considered view that the Ld. CIT(A) while deleting the said addition, taken into peculiar facts and circumstances and acceptance of the said disallowance in the previous year by the department and therefore made the justifiable decision based on the logical reasoning, hence do not require any interference.

In the result, the appeal filed by the Revenue Department stands dismissed. Order pronounced in the open Court on 14.02.2019.