M/S. RAJ BUILDCON CONSTRUCTION LTD.,,GURGAON vs. JCIT, GURGAON

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: “E”, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.2422/Del/2015 Assessment Year: 2010-11 M/s. Raj Buildcon Vs. JCIT(A), Construction Ltd., Range-II, Gurgaon (Haryana) 404, Welldone Tech Park, Sector-48, Sohna Road, Gurgaon (Haryana) PAN :AADCR6387F (Appellant) (Respondent) Appellant by Shri Rohit Tiwari, Adv. Respondent by Smt. Rinku Singh, Sr.DR

Date of hearing 18.03.2019 Date of pronouncement 29.04.2019

ORDER PER O.P. KANT, A.M.: This appeal by the assessee has been preferred against order dated 13/03/2015 passed by the Ld. Commissioner of Income- tax (Appeals)-1, Gurgaon [in short ‘the Ld. CIT(A)’] for assessment year 2010-11 raising following grounds:

2 ITA No.2422/Del/2015 Ld. A.O. @ 8% on gross receipts of business at Rs. 48,62,43,062/- in place of turnover of Rs. 43,34,21,399/-. 3. The Ld. CIT(A) is totally unjustified in enhancing income of the assessee by Rs. 97,24,861/- @ 10% of gross receipts rather that 8% of gross receipts on the basis of Court decision of JJ Associates Vs CIT. 4. The Ld. CIT (A) is totally unjustified in dismissing the appeal of the assessee and holding the order of Ld. A. O. at a turnover of Rs. 48,62,43,062/- on the basis of TDS reflected in Form 26AS in spite of clarification given by the assessee that business turnover is Rs. 43,34,21,399/-. 5. The Ld. CIT (A) is totally unjustified in holding rejection of books of accounts by the Ld. A. O. where the books are duly audited by a Chartered Accountant and all the details have been filed along with Audit Report. 6. The Ld. CIT(A) is totally unjustified in enhancing income of the assessee for a sum of Rs. 54,80,185/- on a/c of depreciation which was allowed by the Ld. A. O. as the assessment was on completed on a very higher percentage OF 8 %. 7. The Ld. CIT(A) is totally unjustified in dismissing the request of assessee regarding wrong deduction of TDS by the company M/s Unicharm India Pvt. Ltd. as the letter of confirmation was also submitted before the CIT(A) and facts remained unverified. 8. The appellant craves leave to add, amend or alter any of the grounds of appeal.

3 ITA No.2422/Del/2015 145(3) of the Act and net profit was estimated at the rate of 8% subject to statutory deduction on account of depreciation. The Assessing Officer also enhanced the receipt from contract and professional work to Rs.48,62,43,062/- as against receipt of Rs.43,34,21,399/- shown by the assessee. The total income of the assessee was assessed at Rs.3,48,43,170/- as against income of Rs.2,17,14,050/- declared in the return of income. Aggrieved the assessee filed appeal before the Ld. CIT(A) and filed additional evidences in terms of Rule 46A of Income-tax Rules, 1962. The Ld. CIT(A) forwarded those additional evidences to the Assessing Officer both with regard to its admissibility as well as comment on merit of the additions. After taking into account the remand report sent by the Assessing Officer, the Ld. CIT(A) admitted the additional evidences. The Ld. CIT(A) did not accept the contention of the assessee on the issue of the amount of turnover adopted by the Assessing Officer. The Ld. CIT(A) upheld the rejection of the books of accounts. But, he enhanced the net profit rate of 8% applied by the Assessing Officer to the net profit rate of 10% and also denied deduction of depreciation from the net profit rate of 10% estimated by him. Aggrieved with the finding of the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. In the grounds raised, following four issues in disputes are involved: (i) rejection of books of accounts invoking section 145(3) of the Act; (ii) considering of turnover of the assessee by lower authorities at Rs.48,62,43,062/- as against the turnover of Rs.43,34,21,399/- shown by the assessee;

4 ITA No.2422/Del/2015 (iii) applying net profit rate of 10% on the turnover of Rs. 48,62,43,062/-; (iv) denying the deduction for the depreciation out of the net profit rate of 10% estimated by the Ld. CIT(A). 4. On the issue of rejection of the books of accounts invoking section 145(3) of the Act, the Ld. counsel submitted that all the ledger accounts called for by the Assessing Officer were duly submitted before him. According to him, the ledger accounts are part of books of account and thus it cannot be said that no books of account were produced before the Assessing Officer. The Ld. counsel in support of his claim filed a paper book containing pages 1 to 1056, which included copy of written submissions filed before the Assessing Officer as well as before the Ld. CIT(A). He referred to pages 1 - 469 of the paper book filed by the assessee in compliance to various queries raised by the Assessing Officer. He submitted that the documents filed before the Assessing Officer consist of ledger account of the various parties, details of addition to fixed asset, detail of capital work in progress, detail of investment and share in mutual funds, copy of accounts of sundry debtors exceeding Rs. 5 lakhs, copy of account of sundry creditors, details of advances given, copy of accounts of interest received in payments, month-wise Bill raised and payment received etc. The Ld. counsel referred to page 471 and 472 of the paper book, which are part of the submission made before the Ld. CIT(A) and submitted that Ld. Assessing Officer was not justified in rejecting books of account of the assessee where proper books of accounts are being maintained and duly audited by a Chartered Accountant. It was submitted before the Ld. CIT(A) that

5 ITA No.2422/Del/2015 all the major details of accounts were submitted before the Ld. Assessing Officer during the course of the hearing vide submission dated 27/11/2012; 29/12/2012; 09/01/2013 and 08/03/2013. The Ld. counsel submitted that the Assessing Officer has not deducted the exempted income of Rs.1,40,469/- in the form of dividend. The Ld. counsel also submitted that the other income included scrap to the tune of Rs.2,23,254/- which is not independent income and it is always generated from the conjunction of raw material and it is direct costs, so this addition was totally unjustified. 4.1 On the other hand, the Ld. DR relied on the order of the lower authorities and submitted that due to failure on the part of the assessee in producing books of account, the lower authorities are justified in rejecting books of account invoking section 145(3) of the Act. 4.2 We have heard the rival submission of the parties on the issue in dispute. The Assessing Officer has noted in the assessment order that though the assessee produced audit report along with final accounts for the relevant year, however, no books of account, bills, voucher etc. were produced to justify the receipt and expenses shown in the return of income. According to the Ld. Assessing Officer, opportunity was granted on more than five occasions to produce the books of account, bill, vouchers etc., however, the assessee failed to produce those. The Assessing Officer has noted that notice under section 133(6) of the Act issued to various parties for verification of the transaction with the assessee also could not complied in all cases. The Ld. CIT(A) confirmed the action of the Assessing Officer rejecting books of accounts observing as under:

6 ITA No.2422/Del/2015 “5.5.1 Rejection of books of account by the A.O:- As evident from the facts of the case, the A.O provided a number of opportunities to the appellant to produce its books of account but there was no- compliance on its part. In addition to failure of the appellant to produce books of account, it could not reconcile certain massive discrepancies detected by the A.O during the course of assessment proceedings which persisted even during the course of appellate proceedings. One of these discrepancies is that the gross receipts of the appellant as per its Trading and P&L account were shown at Rs. 43,34,21,399/- whereas as per Form 26AS the gross receipts were as high as Rs. 48,62,43,063/-. In order to reconcile the same, the appellant submitted that difference was primarily on account of mobilization advance of Rs. 3,55,75,176/- received by the appellant from M/s Unicharm India Ltd. which was not shown as gross receipts in the Trading account but which was appearing as a receipt of the appellant as per Form 26AS. During the course of assessment proceedings, the A.O rejected the appellant's contention on this issue because the appellant had itself contradicted the same by stating that it had not received any mobilization advance during the year under consideration. Furthermore, the appellant could not give any confirmation from M/s Unicharm India Ltd. substantiating the aforesaid fact. In order to get a clear picture as regards this discrepancy, the A.O, on direction of the undersigned wrote to M/s Unicharm India Ltd. vide letter no. DCIT/C-3/GGN/2014- 15/956 dated 27-01-2015 asking it to give a copy of account of M/s Raj Buildcon Construction Ltd. in its books for the F.Y-2009- 10. M/s Unicharm India Ltd. was also asked to reconcile the gross receipts of the appellant with the receipts reflected in the TDS statement. In response to this letter from the A.O, a reply was received from M/s Unicharm IndFa-ttd.-dated 01-02-2015 in which the copy of account of the appellant in the books of M/s Unicharm India Ltd. for the F.Y- 2009-10 had been enclosed. As per this copy of account, the gross payments made by M/s Unicharm India Ltd. to the appellant were Rs. 26,19,08,017/- which was much less than even the gross receipts of Rs.31,42,06,864/- shown by the appellant as having been received from M/s Unicharm India Ltd. Had M/s Unicharm India Ltd., in its statement of account, shown gross receipts of Rs.31,42,06,864/- as is the contention of the appellant, the appellant's version regarding reconciliation of this discrepancy could have been lent some more credibility. However, the fact that the statement from M/s Unicharm India Ltd. gives a figure of gross receipts which was altogether different from appellant's version, goes to prove that the appellant could not reconcile the said discrepancy. Hence on account of the fact that the appellant did not produce its books of account coupled with its inability to reconcile the massive discrepancies between receipts from M/s Unicharm India Ltd. as per its books of account and as per Form 26AS, I hold that the A.O could not have ignored such massive discrepancy in the wake of non-production of books of account and was left with no option but to reject the books of account of the appellant. Hence, the

7 ITA No.2422/Del/2015 answer to first question is against the appellant i.e. the A.O's rejection of books of account of the appellant by invoking Section 145(3) of the Income Tax Act is held to be valid and is thus justified.”

4.3 From perusal of the order of the Assessing Officer and the Ld. CIT(A) and the submission of the Ld. counsel of the assessee, it is evident that complete books of accounts, bills and vouchers have not been produced before the Assessing Officer for verification of the receipt and expenses incurred by the assessee even after providing many opportunities to the assessee. The books of accounts were even not produced during the proceedings before the Ld. CIT(A) . In absence of complete books of accounts, bill and vouchers produced along with inconsistencies observed by the Assessing Officer in ledger accounts of few parties, the action of the Assessing Officer in rejecting books of account under section 145(3) of the Act is justified. The order of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. 5. The next issue relates to the turnover of the assessee company. According to the Assessing Officer gross receipts from contract and professional work is reflected in Form No. 26AS at Rs.48,62,43,062/-, whereas according to the assessee receipts during the year under consideration are of Rs.43,34,21,399/-. 5.1 Before the Ld. CIT(A), the assessee submitted that difference was primarily on account of mobilization advance of Rs.3,55,75,176/-received from M/s Uni-Charm India Ltd, which was not shown as gross receipt in the trading account, but which was appearing in the receipt of the assessee in form No. 26AS. During appellate proceedings, on the direction of the Ld. CIT(A), the Assessing Officer wrote a letter to M/s Uni-Charm India Ltd.

8 ITA No.2422/Del/2015 on 27/01/2015 requesting to provide copy of account of the assessee in the books of accounts of M/s Uni-Charm India Ltd. The said company was also asked to reconcile the gross receipt of the assessee with the receipt reflected in the TDS statement. In the reply received from M/s Uni-Charm India Ltd. the gross payment of Rs.26,19,08,017/- was shown, which was even less than the gross receipt of Rs.31,42,06,864/- shown by the assessee as having been received from M/s Uni-Charm India Ltd. In view of the difference in the account of the assessee in the books of M/s Uni-Charm India Ltd. and account of M/s Uni- Charm India Ltd. in the books of the assessee, the Ld. CIT(A) treated the turnover of the assessee at Rs.48,62,43,062/- and applied the estimated net profit rate of 10% on the turnover of Rs.48,62,43,062/-and computed the net profit accordingly. 5.2 Before us, the Ld. counsel of the assessee submitted that assessee has duly explained the difference in gross receipt appearing as per Form No. 26AS and gross receipt considered in trading account. According to the Ld. counsel, this difference was due to the mobilization advance given by M/s Uni-Charm India Limited, which was not part of the contract revenue accrued during the year under consideration. According to the Ld. DR, during assessment proceeding, the assessee denied having received any mobilization advance and thus explaining the difference in account during appellate proceeding as due to mobilization advance is an afterthought and not supported by any documentary evidence. 5.3 We have heard the rival submission of the parties on the issue in dispute. In our opinion, the issue is verification of contract receipts from M/s Uni-Charm India Ltd. The Ld. counsel

9 ITA No.2422/Del/2015 of the assessee before us submitted to produce M/s. Uni-Charm India Ltd. along with their books of account for necessary verification before the Assessing Officer. In view of the undertaking by the Ld. counsel, we feel it appropriate to restore this issue to the file of the Assessing Officer to reconcile the difference between gross receipt as appearing in form No. 26AS and gross receipts declared by the assessee in the return of income. The assessee shall produce the authorised person of M/s Uni-Charm India Ltd. along with their books of accounts to substantiate its claim of mobilization advance received and reconcile the difference in ledger account in respective books of accounts. The Assessing Officer is also directed to examine the claim of the assessee that receipts contain dividend income, which is exempt income and scrap sales receipts etc., not eligible for business turnover. The issue in dispute of correct amount of business turnover is accordingly allowed for statistical purposes. 6. The third issue in dispute is regarding the net profit rate of 10% applied by the Ld. CIT(A). The assessee has declared net profit rate of 4.45%. As against this, the Assessing Officer applied the net profit rate of 8% of gross receipt, in accordance with the provision of section 44AD of the Act. During the remand proceeding, the Assessing Officer recommended to adopt net profit rate of 10% on gross receipt in view of the judgment of Hon’ble Jurisdictional High Court in the case of JJ Associates Vs. CIT, in ITA No. 404 of 2006. The Ld. CIT(A) in view of the decision cited by the Assessing Officer and after considering other decisions, estimated the net profit rate at the rate of 10% of the gross receipt observing as under:

10 ITA No.2422/Del/2015 “5,5.3.On a careful perusal of the aforesaid order, it is crystal dear that the facts of the said case are clearly applicable to the present case. The adoption of profit rate of 8% Has been made mandatory in the case of contractors having turnover up to Rs, 40 Lakh whereas for contractors having higher turnover there is no bar on estimating under profit at a higher rate. As has been held in the judgment cf 3. J. Associates vs, CIT (supra), the contractors executing bigger civil contract have certain distinct advantages in the form of infrastructural facilities and better administrable assistance, which is not available to petty contractors. Hence as has been held in the aforesaid case adoption of net profit @ of 10% of gross receipts seems reasonable for major contractors. 5.5.4. Apart from the judgment of Hon'ble Jurisdictional High Court in the case of J.J. Associates vs, CIT (Supra), it has been held by the Hon'bie Apex Court that in the case of Brij Bhushan Lai Parduman Kumar vs. CIT, 115 I7R 524 (SC), that profit @ of 10% of gross receipts is reasonable. Furthermore, in the case or CIT Vs. Parbhat Kumar (2010) 323 17R 675 (P&H), it was held by the Hon'ble Jurisdictional High Court that in case of contractors engaged in civil construction, it was appropriate to apply rate of profit equal to 12% of contract receipts. 5 5.5.In view of these facts, a show cause notice u/s 251(2) dated 03.03.2015 was issued asking the appellant as to why net profit 10% of gross receipts should not be taken for ascertaining the appellant's income. In response to this, the appellant submitted that net profit should not be estimated at more than 5% of gross receipts. In support of its contention, the appellant relied upon the judgment of Hon'ble Madras High Court in the case of K Kannan Vs ACIT 220 Taxman 250 and the Delhi High Court decision in the case of CIT Vs Subodh Gupta. However the appellant has not commented on the decision of the jurisdictional High Court in the case of J, J. Associates vs. CIT (Supra) and the decision of the Apex Court in the case of Brij Bhushan Lai Parduman Kumar vs. CIT, 115 ITR 524 (SC), where net profit@10% of gross receipts has been held to be reasonable. 5.5.6 Hence, after a careful consideration of the facts of the case, in the light of aforesaid judicial pronouncements, I hold that the A.O should have estimated profit from business @ 10% of gross receipts rather than 8% of gross receipts. This results in an enhancement of the assessed income by Rs. 97,24,861/-. The A.O is hereby directed to make the aforesaid enhancement to the assessed income.”

6.1 Before us, the Ld. counsel of the assessee referred to page 461 of the paper book and submitted that in assessment year

11 ITA No.2422/Del/2015 2007-08, the assessee declared net profit rate of 1.31% and in assessment year 2008-09 the net profit rate of 2.35% has been declared and accepted by the Department. According to him in the year under consideration, the turnover has increased to Rs.43,34,21,399/- as compared to the turnover of Rs.17,05,98,332/- in immediately preceding year, though the assessee has declared net profit at the rate of 4.45% which is much higher than the net profit rate declared at 2.35% by the assessee and accepted by the Department. According to him, no uniform rate of net profit can be applied over the cases of the contractor. He submitted that past history of the assessee and comparable cases should be considered while applying the net profit rate for computing the profit. 6.2 Ld. DR, on the other hand, relied on the order of the Ld. CIT(A) and filed written submission, which is reproduced as under: “1. Saniav Kundu Vs CIT 2017-TIQL-413-SC-IT The Assessee had preferred present SLP challenging the judgment, whereby the High Court had held that when there had been lot of variation in profit rate of Assessee previous years, then no benefit can be derived by him by claiming profit rate as applicable then, in absence of production of books of account. Supreme Court dismissed the SLP, thus concurring with the opinion of High Court. Sanjav Kundu Vs CIT [2017] 88 taxmann.com 575 (Punjab & Harvana)/r2017l 397 ITR 371 (Punjab & Haryana) Where despite various opportunities given, assessee, civil contractor failed to produce books of account and relevant vouchers and there had been a lot of variation in profit rate of assessee during different years, Assessing Officer was justified in rejecting audited balance-sheet filed by assessee and making assessment by applying net profit rate of 12 per cent 2. Smt Davawanti Vs CIT [2016] 75 taxmann.com 308 (Delhi)/[2017] 245 Taxman 293 (Delhi)/[2017] 390 ITR 496 (Delhi)/[2016] 290 CTR 361 (Delhi) (Copy Enclosed)

12 ITA No.2422/Del/2015 where Hon’ble Delhi High Court, in para 22 of its order, upheld order of Hon’ble ITAT estimating GP @15% and estimating sales at Rs.1 crore. 3. C1T Vs Chadha Automobiles (India) [2011] 13 taxmann.com 152 (Delhi)/[2011] 202 Taxman 268 (Delhi) (Copy Enclosed) where Hon’ble Delhi High Court upheld addition on account of GP rate @5% as against 3.25% disclosed by the assessee in earlier years. 4. Kachwala Gems Vs CIT [2007] 158 Taxman 71 (SC)/[2007] 288 ITR 10 (SC)/[2006] 206 CTR 585 (SC) (Copy Enclosed) Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee itself in previous assessment years, rejected assessee’s books of account and resorted to best judgment assessment under section 144. Hon’ble Supreme Court held that since cogent reasons had been given by Assessing Officer for doing so, there was no reason to take a different view. 5. PCIT Vs Praveen Kumar Jain [2018] 92 taxmann.com 26 (Madhya Pradesh) where Hon’ble MP High Court held that where Tribunal determined Net profit ratio of assessee considering factors such as past tax history of assessee, job work receipts of assessee in earlier assessment years, which substantially reduced during relevant assessment year, same was justified 6. Tvl. ITD Cementation India Ltd. Vs State of Tamil Nadu [2018] 90 taxmann.com 87 (Madras) where Hon’ble Madras High Court held that where Tribunal verified audited Profit & Loss statement and Balance Sheet of assessee/revision petitioner, for relevant years and held that adoption of notional 10 per cent Gross Profit on purchase value to arrive at deemed sales turnover by Assessing Officer was correct, same did not call for any interference.”

6.3 We have heard the rival submission and perused the relevant material on record. We find that the Ld. CIT(A) has followed the decision of the Hon’ble Jurisdictional High Court in the case of JJ Associates versus CIT (supra), wherein in the case of bigger contractors, having turnover more than the limit of Rs.

13 ITA No.2422/Del/2015 40 lakhs in terms of section 44AD, the Hon’ble High Court observed that they have certain distinct advantage in the form of infrastructure facilities and better administrative assistance, which is not available to petty contractors and hence, the Hon’ble High Court justified the adoption of net profit rate of 10% on the gross receipt for major contractors. We do not find any error in the decision of the Ld. CIT(A) in following the judgment of the Hon’ble jurisdictional High Court. Accordingly, we uphold the action of the Ld. CIT(A) in invoking the gross profit rate of 10% over the turnover of the assessee. 6.4 The next issue is regarding the depreciation allowance of Rs.54,80,185/-. The Ld. Assessing Officer estimated the net profit of the construction business at the rate of 8% of the gross receipt subject to allowance of depreciation. The Ld. CIT(A), however, enhanced the net profit rate to 10% of the gross receipt without allowing separate depreciation allowance, observing as under:

“5.6. As regards allowance of depreciation on the net profit estimated by the A.O @ 8% of gross receipts, there are a number of judicial pronouncements as per which once profit is estimated by invoking provisions of Section 145(3) of the Income Tax Act, the appellant is not entitled to any further deduction as per provisions of Section 30 to Section 43D of the Income Tax Act. 5.6.1 The Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions vs CIT 232 ITR 776 (A.P) (1998) have discussed this issue in great detail which provides invaluable insight into this issue. The relevant extracts of the said order are reproduced here under: "The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the TTO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under s 29. In other words, all the deductions which are referred to under s. 29 are deemed

14 ITA No.2422/Del/2015 to have been taken into account while making such an estimate. This will also mean that the embargo placed in s. 40 is also taken into account. No doubt there is big difference between profit earned with own capita! and profit earned with borrowed capitaI and such a difference could have been taken into account by the ITO while making an estimate. If the CIT had set aside the estimate on the ground that the vital fact that the business was carried on with own capitai and not with borrowed capital has been ignored by the ITO, there may not have been any difficulty in upholding that order. But, when he proposes to add back an exact item in the P & L A/c, he was relying on the rejected books which he could not do." 5.6.2.As evident from the above extracts, the A.O computed the income of the appellant u/s 145 in place of Section 29 of the Income Tax Act since he held that the books of account were not correct or complete and hence proceeded to reject the same. When such an estimate is made, the A.O substituted the income computed u/s 29 by estimation of income u/s 145 of the Income Tax Act. As per Section 29 of the Act, deductions contained in Sections 30 to 43D have to be taken into consideration while computing income as per the said Section. Thus, by estimating income u/s 145 of the Income Tax Act rather than Section 29, the A.O took into consideration all the deductions contained in Sections 30 to 43D of the Income Tax Act. Since Section 40(a)(ia) is covered within Sections 30 to 43D, it follows that any possible deduction/disallowance u/s 40(a)(ia) of the Income Tax Act had already been considered by the A.O while estimating income u/s 145 of the Income Tax Act. 5.6.3.The aforesaid judgment of the Hon'ble Andhra Pradesh High Court has been followed in the judgment of the Hon'ble Jurisdictional High Court in the case of a Surinder Pal Nayyar vs CIT (Ludhiana)(2009) 177 taxman 207 (P&H) (2009) in this case assessee was In Civil Construction business. It was held that whenever income in case of a civil construction had been, assessed by applying net profit rate to gross receipts, the assessee would not be entitled to depreciation separately. The relevant extracts of the said order are reproduced here under: "The assessee had not challenged the order passed by the Commissioner (Appeals) before the Tribunal. Thus, the findings recorded by the Commissioner (Appeals) could not be permitted to be agitated by the assessee, when the same had not been disputed either by way of an appeal or by cross-objections before the Tribunal. Still further, the finding recorded by the Assessing Officer that the assessee had not submitted copies of the bills of the assets purchased by him, nor had he produced any evidence to prove that those assets were put to use for the purpose of the business during the year under consideration, had also not been challenged before the Commissioner

15 ITA No.2422/Del/2015 (Appeals). The assessee could not refer to any ground taken before the Commissioner (Appeals) disputing the said finding recorded by the Assessing Officer. Thus, the claim of depredation sought to be raised by the assessee before the Court was on the basis of non-existent facts. Even otherwise, there was no illegality in the finding recorded by the Tribunal that the profit assessed on the gross receipts was arrived at by taking into consideration all allowable expenses and no further deduction on account of depreciation could be separately allowed. In view of above, there was no merit in the appeal and the same was to be dismissed accordingly." 5.6.4.In another judgment in the case of ITO vs Krishna Bansal (ITA No. 1184/DEL/2011) (Delhi ITAT) it was held that once the A.O had estimated the income of the appellant by means of net profit rate, no further disallowance can be made. The relevant extracts of the said order are given hereunder:- “Having considered the rival submission, we find no infirmity in the conclusion of the Ld. CIT(A) dS it iS Well-S6ttldd principle of law that once the books of accounts has been rejected and profit has been estimated, then no further disallowance can be made in respect of expenditure debited in the profit and loss account. In the instant case the A. 0 applied a rate of 5% on the gross turn over to compute/estimate the income. Having done so, he cannot go back to the P & L A/c and make any further statutory disallowance" 5.6,5.Furthermore, in the case of CIT vs Purshottam Lai Tamrakar Uchechra 270 ITR 314 (MP) (2003) it was held that once net profit rate is applied the expenses are deemed to have been considered. Therefore, no further deduction is to be allowed or disallowed. The Hon'ble ITAT Mumbai Bench in the case of ITO vs Naresh Kr, Sharma ITA 3187/Mum/2011 (2011) has held that once income is estimated, there is no further ground of making additions to the income based on the books of account which have already been rejected.” 5.6.6.In view of these facts, a show cause notice u/s 251(2) dated 03.03.2015 was issued asking the appellant as to why depreciation should not be disallowed .In response to this show cause notice, the appellant has not submitted anything which goes to prove that the appellant has nothing to state in support of its contention. 5.7.Hence after a careful consideration of the facts of the case, I hold that the A.O erred in allowing depreciation to the appeliant after having computed the net p;ofit by invoking Section 145(3) of the Income Tax Act. As a result of this, the appellant's income is enhanced by a further amount of Rs. 54,80,185/-. The A.O is hereby directed to enhance the income of the appellant by a further amount of Rs. 54,80,185/-. Thus, the total enhancement to the assessed

16 ITA No.2422/Del/2015 income of the appellant goes up to Rs. 1,52,05,046/-. Accordingly Ground No. 3 to 7 of the appeal are hereby dismissed.”

6.5 The Ld. CIT(A) has followed the decision of the Hon’ble jurisdictional High Court in the case of Surinder Pal Nayyar Vs CIT (supra) wherein it is held that whenever income in case of civil construction has been assessed applying net profit rate to gross receipts, the assessee would not be entitled to depreciation separately. 6.6 We note that the Hon’ble Punjab and Haryana High Court in the case of Income Tax Officer Vs. Chopra Bros. India (P.) Ltd., 252 ITR 412, allowed depreciation allowance from the income estimated by the Assessing Officer. In the case, the assessee was a construction contractor. The Assessing Officer noticed defects in the maintenance of accounts and invoked the provisions of S. 145, rejecting the book results. He applied a net profit rate of 10% to the gross receipts to compute the taxable income. Before the Commissioner (Appeals), the assessee claimed that the Assessing Officer ought to have allowed depreciation on the machinery used in the execution of works as claimed by it in its return of income. It relied on the Circular of the CBDT No. 29D (XIX-14) dated 31st August 1965, where the CBDT had instructed the authorities that the depreciation allowance should be separately worked out where prescribed particulars had been furnished and profits were estimated. The Commissioner (Appeals) held that when net profit was estimated, it must be presumed that all permissible allowances were made, and income so determined should be deemed to have covered all the expenses including depreciation. The Tribunal however allowed the claim of the assessee. Before

17 ITA No.2422/Del/2015 the Punjab and Haryana High Court, on behalf of the Revenue, it was contended that the taxable income having been determined by applying the principle of net profit, all admissible allowances should be deemed to have been taken into consideration. The Punjab and Haryana High Court observed that while making a best judgement assessment, the AO was bound to take into account all relevant material on record. The consideration by the AO could not be assumed, but must be apparent from the order. The assessee had claimed depreciation and had furnished all the relevant particulars, yet the AO had not said a word about the claim. The Court noted that the AO had not even suggested that he had estimated net profit rate at 10% after allowing claim for depreciation, and in this situation, it could not be said that he had taken all the material into consideration as required u/s.144 of the Income-tax Act. The Court further observed that the CBDT circular, not being contrary to any statutory provision, was binding on the authorities, and had to be followed. The Court held that there was no room for assumption that the income had been determined by the AO after taking into consideration the depreciation. The Punjab and Haryana High Court therefore held that the assessee was entitled to a deduction for depreciation from the income estimated by the AO. In so doing, the Punjab and Haryana High Court also noted with approval the subsequent decision of the Allahabad High Court in case of CIT v. Bishambhar Dayal & Co., 210 ITR 118, where a similar view was taken by the Allahabad High Court and specifically dissented from the decision in the case of Saraya Engineering.

18 ITA No.2422/Del/2015 6.7 In view of the above decisions, we are of the opinion that deduction of depreciation allowance from net profit estimated depends on basis adopted by the Assessing Officer and there cannot be a universal rule. Since on the issue of verification of business turnover of the assessee, we have restored the matter to the ld. AO, we feel it appropriate to restore the matter of deduction of depreciation allowance to the file of AO for deciding afresh in accordance with law. The assessee shall be afforded adequate and reasonable opportunity of being heard. The issue is accordingly allowed for statistical purposes. 7. In the result, the appeal of the assessee is allowed partly for statistical purposes. Order is pronounced in the open court on 29th April, 2019.

Sd/- Sd/- [BHAVNESH SAINI] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29th April, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi