FAUJDAR CONSTRUCTION COMPANY,BHARATPUR vs. THE INCOME TAX OFFICER, WARD-1, BHARATPUR, BHARATPUR

Per: Dr. M. L. Meena, AM:

This appeal by assessee is directed against the order of the National
Faceless Appeal Centre, Delhi [hereinafter referred to as the NFAC/CIT(A)]
dated 27.03.2025 for the assessment year 2018-19 challenging therein partly confirmation of the Estimated Addition made by the AO by applying GP rate at the rate of 8.5% in the case of a civil contractor.
2. The facts in brief are that the assessee is engaged in the business of civil construction. During the course of assessment, the Assessing Officer rejected the books of accounts under section 145(3) of the Act and proceeded
Assessment Years: 2018-19

to estimate the net profit at 8.5% of gross receipts, resulting in an addition of ₹ 51,23,353/-. The AO justified the rejection of books by observation alleged deficiencies in vouchers and non-production of stock registers site-wise for verifiability of certain expenses. However, the AO did not refer to any specific defects that rendered the books unreliable. Furthermore, the AO failed to consider that that in the year under appeal about 63% of gross road construction contract business receipts have arisen to the assessee from sub- contract/joint venture road construction contract business receipts and the balance turnover of about Rs. 1 3 Crores only was by way of direct contract business receipts and contract turn over is increased by 3.8 % over the immediately preceding year.
3. Beig aggrieved, assessee went in appeal before the Ld. CIT (A) who has granted relief of 0.5% in the net profit rate and confirmed the NP rate applicability at 8% by under the provisions of 44AD of the Act. The NFAC concluded that considering the facts to render justice to the assessee a relief of 0.5% is given amounting to Rs.17,47,762/-
4. The Ld. AR for the assessee submitted that the Ld. NFAC was not justified in confirming the finding of the AO where he invoked provisions of section 145(3), rejected books of account, applied higher net profit rate of 8.5
percent, although the Id. CIT(A) reduced it to 8 percent) and confirmed heavy additions to the total income of the assessee. In support of the net profit rate
Assessment Years: 2018-19

declared by the assessee in its return of income and the Ld. AR made effective arguments with the support of brief synopsisi which reads as under:
I. The assessee has regularly kept and maintained books of accounts consisting of Cash Book. ledger. bills and vouchers and other relevant records.
2. That the assessee has kept and maintained full receipts and vouchers for payments made towards salary, labour, wages and other direct and indirect expenses and there is no leakage of any kind at any stage so much so there is a full proof record maintained at the end of the assessee.
3. All the books of accounts are duly audited by a Chartered Accountant and there is no adverse observation of the auditor at any stage.
4. There is no change in the method of accounting nor in method of valuation of closing stock.
5. That each and every entry in the books of accounts is supported by bills & vouchers.
6. It filed bank statement, details of work done during the previous year relevant to A. Y. 20 1 8-19. details of interest paid to Tata motors toward finance expenses and other requisite information vide letters of replies filed from time to time before the AO.
7. The assessee also filed with the AO details of bank accounts. It also filed head wise chart of gross turnover, depreciation, interest to partners, remuneration to partners, net profit, total profit and NP ratio for the year under appeal and immediately preceding five financial years. The assessee also filed bank statements.
8. In regard to non-maintenance of item wise and site wise stock register on day to day basis it is submitted as under:
i) The assessee is engaged in the contract business of road construction work and this road construction activity is simultaneously carried on at different sites and diftérent places and it becomes impracticable to daily take stock of goods at every site where work is daily and regularly carried on because material is often shifted from one site to other as per need arises at a point of time and in such a state of affairs it becomes impracticable and rather impossible to maintain site wise and item wise stock register.
ii) The judicial consensus in this regard is that the absence of a variety wise or regular stock register is not material on the strength of which a finding under the first proviso could be based and assessment there under could be made.
iii) As regards absence of stock register the assessee refers to and relies upon the leading judgment of Pandit Bros. v/s CIT reported in 26 IT R 159 and Chhabildas v/s CIT 59 IT R 733
(Supreme Court) wherein it is held that in the case of an assessee who maintains regular account books which are not found to be incorrect, the mere fact that a stock register is not maintained and book profit is considered by the AO as low may provoke an enquiry but they may not be sufficient to justify action u/s 145. iv) That payment vouchers are duly prepared by the appellant and the same were duly produced before the learned AO during the course of assessment proceedings.
Assessment Years: 2018-19

v) In support of payment of salary, labour charges, wages the assessee has duly maintained relevant record together with supporting bills and vouchers and whatever record was requisitioned by the Ld. AO the same were filed including copies of purchase bills and expenses vouchers.
vi) Both the lower authorities failed to appreciate that road construction is got done by Govt./SemiGoWautonomous bodies after inviting tenders etc. All the contract payments are made by these institutions through banking channels and full records in this regards have been kept and maintained by the assessee and whatever record was requisitioned by the Ld. AO the same were filed including copies of purchase bills and expenses vouchers,

SUBMISSIONS IN REGARD TO GROUND OF APPEAL NO. 2

In this ground of appeal the appellant has challenged sustenance by the Id. CIT(A) of application of provisions of section 145(3), applying higher net profit rate of 8% (as against 8.5% applied by the A()).
estimating net income at Rs. 1,88,95,243/- as against income returned at Rs.
and consequently sustaining addition of Rs. 51,23,353/-. In support of this ground of appeal it is submitted as under:- l. The lower authorities ignored a positive factor in favor of genuineness of assessee's books of accounts which is that as against contract receipts of Rs.8,89,67,505/- in immediately preceding previous year relevant to A. Y. 2017-18, the assessee's contract receipts in the previous year relevant to year under appeal i.e. A. Y. 2018-19 jumped to a very high figure of contract receipts of 162/- which is more than 3.8 times higher as compared to the contract receipts in the immediately preceding previous year.
2. That the Ld. CIT (A) failed to appreciate that in the year under appeal about 63% of gross road construction contract business receipts have arisen to the assessee from sub- contract/joint venture road construction contract business receipts and the balance turnover of about Rs. 1 3 Crores only was by way of direct contract business receipts.
3. That it is respectfully submitted that the assessee is a road contruction contractor and its gross receipts are through banking channel and accordingly unquestionable and as such there is no leakage at any stage in gross business receipts.
4. That the burden of proof of not accepting the apparent as real lies on the Id. A.O. but he has failed to discharge this burden of proof. So much so the Id. A.O. has not given a single instance of unaccounted purchases nor of unaccounted receipts nor of excess payment of labour and other incidental expenses nor inflation of purchases.
5. That there is not an iota of evidence with the Id. A.O. which goes to prove that the receipts are unverifiable.
Assessment Years: 2018-19

SUBMISSIONS IN REGARD TO GROUND OF APPEAL NO. 3

This ground of appeal is against not taking into consideration by the lower authorities a peculiar fact of the assessee's business which is that a substantial road construction contract business receipts included receipts of sub-contract/joint venture road construction contract receipts. In support of this, it is submitted as under:

l . That the Id. CIT(A) failed to appreciate that a substantial road construction contract business receipts included receipts of sub-contract/joint venture road construction contract receipts,
2. The lower authorities failed to appreciate that a slight fall in net profit rate is attributed mainly to the fact that out of total turnover of Rs. 34,95,53,037/-, about 63 percent turnover amounting to over Rs. 22 Crores was from sub-contract/joint venture road construction contract business receipts and the balance turnover of about Rs. 13 Crores only was by way of direct contract business receipts.

construction where the contracts receipts received from the government are directly credited to the bank account of the assessee. It is seen that the assessee had furnished on the e-filing portal of the I.T. Department, the requisite information from time to time along with supporting documents including copy of ledger of accounts of receipts and expenditure, copy of purchase bills/vouchers, Tax audit report and financial statements with all annexure and schedules, comparative chart of N.P. ratio, details of awarder wise turnover, list of sub-contractors. The appellant had also filed its bank statement, stock register, details of work done during the previous year relevant to Assessment Year 2018-19, details of interest paid to Tata motors towards finance expenses and other requisite information as required by the authorities below except the site-wise stock register.
6. From the record, it is evident that the Id. CIT[A] has granted part relief by way of reducing profit rate of 8.5 percent to 8.0 percent though upheld rejection of books of account and consequential addition of Rs.51,23,353/- against the upholding of rejection of books of accounts without appreciating the facts of the case and considering the past history of the assesse as per the NP Chart for the year under consideration which reads as under:
Assessment Years: 2018-19

Gross
Contract receipts
344770162
88967505
135013876
67787776
84506033
27523830

Interest on FDRs
1976993
1158108
406752
388956
404396
88536

Rebate and Discount
932677
173235

VAT Refund
873966
441137

Income from JV
999329
22806

2
Net Profit as per P&L account after deducting interest to partners and depreciation
14771129
1597158
2322560
371662
744970
102550
3
Interest to Partners
5609754
2438713
1879946
1921427
1317242
701386
4
Depreciation
3459248
2981621
1803657
1112667
832902
365678
5
Total profit from business (Net profit as per P&L account +
Deprecation +lnterest to partners)
23840131
7017492
6006163
3405756
2895114
1169614
6
N.P. Ratio
6.82%
7.73%
4.44%
5.00%
3.41%
4.24%
Assessment Years: 2018-19

guide to arrive at the correct net profit rate applicable in the case of a civil contractor. Therefore, we are of the considered view that in the given set of the of the present case, it would be just fair and reasonable to apply a N.P. Rate of 7.0% in the interest of justice.
8. Accordingly, we reduce the Net Profit rate of 8.0 percent as confirmed by the Ld. NFAC to 7.0% and thus, AO is directed to apply NP rate of 7% in consequential relief.
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced as on 11/09/2025 in accordance with rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. (Dr. S. Seethalakshmi)
Accountant Member
DOC*Jaipur

Dated:- 11/09/2025

Copy of the order forwarded to:
(1) The Appellant:
(2) The Respondent:
(3) The ld. CIT
(4) The ld. CIT(A)
(5) The DR, I.T.A.T., Jaipur
(6) Guard File

By Order

Asstt.