JANTA CONSTRUCTION CO.,JAIPUR vs. ITO, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh Hkkxpan] ys[kk lnL;] ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 861/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Janta Construction Co., Income Tax Officer, Vs. E-47, Road No. 2B, VKI Area, Ward-4(2), Jaipur (Raj). Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFJ 0003 D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 24/04/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 28/04/2017 vkns'k@ ORDER

PER: BHAGCHAND, A.M. This is an appeal filed by the assessee emanates from the order dated 14/10/2014 passed by the ld. CIT(A)-II Jaipur for the A.Y. 2011-12. 2. The assessee is a partnership firm, engaged in the work of civil contractor, executing contracts for government departments like PWD, Housing Board etc. For the year under consideration, return was filed declaring income of Rs. 6,49,000/-. The Assessing Officer assessed the income at Rs. 36,72,240/- by making various additions/disallowances.

ITA 861/JP/2014_ 2 Janta Construction Co. Vs ITO

appeal before the ITAT by taking following grounds of appeal:

“1. That the ld. CIT(A) has erred seriously on facts in holding that the nature of contracts executed by the assessee have undergone significant change and hence past history of the assessee may not be a correct indicator.

stands dismissed as not pressed.

challenged the addition sustained by the ld. CIT(A) by way of

disallowances out of labour expenses of Rs. 9,98,282/-, adding Rs.

5,53,072/- to the closing stock of Bitumen and disallowing interest

ITA 861/JP/2014_ 3 Janta Construction Co. Vs ITO

expenditure of Rs. 3,58,064 and thereby increasing the NP rate declared.

During the assessment proceedings, the Assessing Officer invoked the

provisions of Section 145(3) of the Income Tax Act, 1961 (in short the

Act) by rejecting books of account on the basis that the assessee is not

maintaining proper vouchers for various expenses, except Bitumen, no

stock register was maintained and also site wise records of material and

labour was not available. After invoking the provisions of Section 145(3)

of the Act, the Assessing Officer made various disallowances out of

expenses debited to P&L account. The ld AR submitted that the assessee

is a civil contractor, engaged in construction of roads against contracts

awarded by the government departments like PWD and Housing Board.

The contracts are awarded through open tender advertised in public and

open for all contractors, who participate in large number of each tender.

The bid is opened in favour of the contractor, who submits the lowers bid.

The rates on which work is awarded are based on the BSR which is a

Basic Schedule Rate made and published by the State PWD for any kind

of civil construction related work to be performed in the State of

Rajasthan for various government departments and authorities. The

assessee had done entire work in relation to the government departments

only, which also undergone serious inspection by various government

agencies and frequent redoing of the work is also a common feature

ITA 861/JP/2014_ 4 Janta Construction Co. Vs ITO

which results into extra cost which in turn affects the profitability

adversely. In this line of business, it is not possible to maintain day to day

stock register as work at various sites situated at distant places. The

nature of material used in the execution of works like grit, sand, stone,

bricks etc. is such that maintenance of day to day inventory is neither

practical nor possible. The assessee is following the same method of

accounting since inception and merely for non maintenance of day to day

stock register, the provisions of Section 145(3) were invoked and various

additions were made. Ld. AR also pleaded that even if provisions of

Section 145(3) of the Act are invoked then only gross profit could have

been estimated. In assessee’s case the income declared for the year

under consideration was in conformity with past history of assessee. In

assessee’s own case 8% N.P. applied subject to depreciation interest on

capital and remuneration to partners. The ld AR relied on the decision of

the Hon’ble Rajasthan High Court in the case of Gotan Lime Khaniz Udyog

256 ITR 243 for the proposition that mere rejection of books of account

should not necessarily lead to an addition. The Assessing Officer without

having any material in his possession and without bringing anything

contrary on record through independent enquiries, additions were made

arbitrarily only to increase the NP rate. The ld AR also submitted that in

the preceding years, the assessment was completed U/s 143(3) of the Act

ITA 861/JP/2014_ 5 Janta Construction Co. Vs ITO

and also reached to the ITAT where NP rate declared by the assessee was

accepted and the details of the same are as under:-

AY Gross Net profit declared NP Rate NP Rate accepted receipts before depr. and by the CIT(A)/ payment to Hon’ble ITAT partners 2008-09 88078982 7483744 8.50% 5.50% 2009-10 46166265 4141707.33 8.97% NP rate accepted with further disallowance u/s 40(a)(ia) 2010-11 52624384 4748859 9.02% 9.02% 2011-12 25466376 2485737 9.76% Relevant year under appeal He further submitted that by considering the additions made by the

Assessing Officer, the NP rate on the turnover of Rs.2,54,66,376/- comes

to 17.18%, which is exorbitant in this line of business and such NP rate is

never possible to be achieved and such additions are not realistic. He also

relied on the following decisions:

84 TTJ 693 ITO Vs. Chohtan Construction Co. (Jd.) 5th March, (i) 2004.

(ii) Kansara Bearings Pvt. Ltd. vs. ACIT reported in 270 ITR 235

(iii) Collector Ram SharmaVs. DCIT [ITAT (JPR) in ITA no. 771/Jp/2012

(iv) Prashant Oil mill Vs. ITO [72 Taxmann.com 136 (Guj)]

(v) 99 TTJ 164 Ajay Goyal Vs. ITO (Jd.)

(vi) 5 ITR 170 (PC) CIT V/s Laxminarain Badridas

(vii) 60 ITR 239 (SC) State of Kerala V/s Velukutty

ITA 861/JP/2014_ 6 Janta Construction Co. Vs ITO

(viii) 115 ITR 524 (SC) Brij Bhushan Lal Parduman Kumar, etc. V/s CIT, Haryana, Himachal Pradesh and New Delhi-III

Further he also pleaded that there was no need to disturb the declared

results as the NP rate declared in the year under consideration was better

than earlier years, which is 9.76% in comparsion to 9.02% accepted by

the Hon’ble ITAT in the immediate preceding year. He also pleaded that

the Hon’ble Rajasthan High Court as well as Hon’ble ITAT have

consistently taken a view that in the case of civil contractors where net

profit rate is applied then further deductions for the depreciation, interest

and remuneration paid to partners should be allowed. He further relied on

the following case laws:-

declared N.P. rate for the year under appeal was 9.76%, which was

better than all of the three years i.e. assessment years 2008-09 to 2010-

ITA 861/JP/2014_ 7 Janta Construction Co. Vs ITO

2008-09 has accepted the gross profit rate as declared by the assessee.

The ITAT in assessee’s own case in the assessment year 2010-11 has also

accepted the declared NP rate of 9.02%. The relevant portion of the ITAT

order is reproduced hereunder:-

“2.4 We have heard the rival contentions and perused the material available on record and have gone through the order and finding of the ld. CIT(A). In the past, the Coordinate Benches have taken a consistent view that NP rate which should be considered for examination is NP rate before depreciation, interest and remuneration to partners. Nothing has been brought to you notice for deviating from the said settled position. Further, during the year under consideration, the NP rate before depreciation, interest and remuneration to partners is disclosed by the assessee at 9.02% which is on a progressive scale hence there is no basis to disturb the same. Secondly the expenses have been disallowed on an ad hoc basis. In absence of any specific finding of the A.O. whereby specific expenses/transactions have been held to be not incurred for the purposes of businesses, we are unable to accede to the position adopted by the A.O. Hence we do not see any infirmity in order of ld. CIT(A) which is confirmed. All the grounds taken by the revenue are dismissed.”

Thus, the average net profit rate of the past years is lower than the

current year. Once the books of account have been rejected then the

ITA 861/JP/2014_ 8 Janta Construction Co. Vs ITO

specific disallowance under various heads should not have been made

and only the gross profit/net profit rate should have been estimated.

Since the average N.P. rate of the past six years comes lesser than the

declared N.P. rate of 9.76% for the year, therefore, I find merit in the

contention of the assessee and on that basis, I direct to delete the

addition made from various expenses. This view is also get support from

the decision of the Hon’ble Rajasthan High Court in the case of CIT Vs.

Popular Art Palace Ltd. (2017) 391 ITR 352 (Raj), wherein the Hon'ble

High Court has held as under:-

“Held, that the adopting of gross profit by the Assessing Officer at 35 percent was high. The average of profit shown by the assessee from the year 1991-92 to 1996-97, was 31.4 percent and for that the estimate of 32 percent could be adopted instead of 35 percent by the Assessing Officer. The Assessing Officer was to make calculations by adopting estimated profit of 32 percent.”

Order pronounced in the open court on 28/04/2017.

Sd/- ¼Hkkxpan½ (BHAGCHAND) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28th April, 2017 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Janta Construction Co., Jaipur. 1.

ITA 861/JP/2014_ 9 Janta Construction Co. Vs ITO izR;FkhZ@ The Respondent- The ITO, Ward-4(2), Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 861/JP/2014) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत