DCIT, JAIPUR vs. KANHIYA LAL CHOUDHARY, TONK

PER SHRI KUL BHARAT, JM.

These Bunch of two appeals and cross objections filed by the Revenue and the

Assessee respectively two different order of the Ld. Commissioner of Income Tax

(appeal)-3, Jaipur, Rajasthan dated 01/12/2015 and 29/12/2015, pertaining to the

assessment year 2011-12 and 2012-13. Since common issues are involved. The

two appeals and cross objections were taken up together for hearing and are being

decided by way of consolidated order for the sake of convenience and brevity.

First we take up Revenue’s appeal in ITA No. 233/JP/2016 and Cross

Objection 18/JP/2016 pertaining to the assessment year 2011-12. The

Revenue has raised following grounds of appeal.

“i. On the facts and in the circumstance of the case, the CIT(A) has erred in reducing NP Rate applied by AO from 11.50% to 11% without any basis, though the CIT(A) has upheld rejection of books of accounts u/s 145(3) of the IT Act, 1961. ii. On the facts and in the circumstances of the case, the CIT(A) has erred in directing to include income from FDRs and other interest income to the turnover of the assessee for calculating net profit though this income was correctly assessed by the AO under the head ‘Income from other sources’. iii. On the facts in the circumstances of the case, the CIT(A) has erred in directing to allow interest expenses from the Net Profit upheld by the CIT(A).

3 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

iv. The appellant craves leave to add, alter, amend, withdraw or insert any ground or grounds of appeal before or at the time of hearing of the appeal.”

scrutiny assessment and the assessment under section 143(3) of the act,

1961(hereinafter referred to as the Act) was framed vide order dated 12/03/2014.

While framing the assessment, the Assessing Officer has made rejection of books of

account and remitted the profit. The Assessing Officer applied 11.5% of Net Profit

subject to depreciation also made addition on account of income from other sources

i.e. interest earned on FDR.

considering the submissions and following the decision of the Tribunal applied Net

Profit of the rate of 11%. The Ld. CIT(A), also deleted the addition made on

account of interest on FDR.

Departmental Representatives submitted that Ld. CIT(A) was not justified in

reducing the rate applied by the Assessing Officer. He submitted that the Assessing

Officer has pointed out defects into the books of accounts. Once the Ld. CIT(A) has

accepted the books of accounts, it was incumbent upon the Ld. CIT(A) to examine

the estimation of the profit.

4.1 On the contrary, Ld. Counsel for the assessee reiterated the submissions as

made in the written brief and submitted that CIT(A) has followed the decision of the

Tribunal. He further submitted that both the authorities failed to appreciate the

facts in right perspective.

4 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

4.2 We have heard the rival contentions and perused the material available on

record and gone through the orders of the authorities below. We find that Ld.

CIT(A) had examined the issue by observing as under:-

“So far as application of NP rate of 11.5% by AO is concern, the same is excessive. Considering the past history of the assessee as is evident from the following table:- FY Gross GP% NP% NP AO CIT(A) ITAT Action 2005-06 107106511 11.465 5.77056 7.52668 10% 8% 8% 2006-07 141429430 11.305 6.37235 8.21193 9% 2007-08 334243802 9.8703 6.46642 7.42083 9% 8% 9% 2008-09 246795867 12.785 6.56283 8.43537 11.37% 10% on own work and 5% on subcontract 2009-10 264466804 11.838 6.66478 8.41429 11% 2010-11 113714822 10.818 5.91223 10.4854 11.50%

From the above table it can be noted that in the past, CIT(A)/ITAT applied NP rate of @ 8%/9% /10% considering the result declared by the assessee.

The Result declared during the year @ 10% 10.48 subject to depreciation and interest is better than past years. However, considering the various defects in the books of accounts, the same can not be accepted as it is. Therefore to meet the ends of justice NP rate of 11% as against 11.5% applied by AO is upheld.”

4.3 After considering the totality of the facts, we are of the view that the finding

of the Ld. CIT(A) is reasonable, and is based upon the past history of the assessee.

Therefore, we do not see any reason to interfere into the order of the Ld. CIT(A),

same is hereby affirmed. This ground of the Revenue’s appeal is rejected.

5 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

order of the Assessing Officer.

5.1 On the contrary, Ld. Counsel for the assessee reiterated the submissions as

made in the written submissions.

5.2 We have heard the rival contentions, perused the material available on record

and gone through the order of the authorities below. The Ld. CIT(A) has given a

finding on fact as under:-

“It is seen that the AO himself treated the same as part of turnover. In the past also, while applying NP rate, interest income was treated as part of the total turnover by CIT(A)/ITAT Jaipur for the reason that this interest is intrinsically linked with the business.”

5.3 This finding of fact is not controverted by the Revenue by placing any

contrary material on record. Therefore, this ground of the Revenue’s appeal is

dismissed.

the Net Profit. Ld. Departmental Representatives supported the order of the

Assessing Officer and the Ld. CIT(A) was not justified in directing the Assessing

Officer to allow the interest on deduction.

6.1 We find that, Ld. CIT(A) has given finding that, interest income has been

treated as part of the turn over by the Assessing Officer. Moreover, in past such

expenses were allowed. Therefore, we do not see any reason to interfere into the

order of the Ld. CIT(A), same is hereby affirmed. Thus, this ground of the Revenue’s

appeal is dismissed. Appeal of the Revenue is dismissed.

6 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

pertaining to the assessment year 2011-12. The assessee has raised following

grounds of cross objection.

“In the facts and circumstances of the case, the Ld. CIT(A) has legally and factually erred in confirming the addition of Rs. 8,18,763/- by applying consolidated NP rate of 9.5% (after considering the interest expenses, depreciating and the interest income received on FDRs as business income) on the entire contract receipts despite of the fact that the NP/GP results shown during the year were far better as compared to the results shown in the immediate preceding year i.e. in the A.Y. 2010-11 which were duly upheld by the Hon’ble ITT, Jaipur Bench, Jaipur. The respondent continued to function in the same manner and style as in the A.Y. 2010-11. In the circumstances, the Ld. CIT(A) had no reason to deviate from the past history of the case and sustain further addition of Rs. 8,18,763/- when the results shown during the year were far better than the results upheld by the Hon’ble ITAT, Jaipur Bench, Jaipur in A.Y. 2010-11. Thus the addition of Rs. 8,18,763/- sustained by the Ld. CIT(A) is without any basis the same deserved to be deleted.”

7.1 The Ld. Counsel for the assessee adopted the same argument in Revenue’s

appeal in ITA No. 233/JP/2016. However, he submitted that Ld. CIT(A) was not

justified in sustaining the addition of Rs. 8,18,763/-.

7.2 On the contrary, the Ld. Departmental Representatives opposed the

submissions.

7.3 We have heard the rival contentions, perused the material available on record

in Revenue’s Appeal in ITA No. 233/JP/2016. We have affirmed the view of the Ld.

CIT(A) on this issue by observing as under.

“4. First ground is against of applying the Net Profit at the rate of 11%.

The Ld. Departmental Representatives submitted that Ld. CIT(A) was not

justified in reducing the rate applied by the Assessing Officer. He submitted

7 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

that the Assessing Officer has pointed out defects into the books of accounts.

Once the Ld. CIT(A) has accepted the books of accounts, it was incumbent

upon the Ld. CIT(A) to examine the estimation of the profit.

4.1 On the contrary, Ld. Counsel for the assessee reiterated the

submissions as made in the written brief and submitted that CIT(A) has

followed the decision of the Tribunal. He further submitted that both the

authorities failed to appreciate the facts in right perspective.

4.2 We have heard the rival contentions and perused the material available

on record and gone through the orders of the authorities below. We find that

Ld. CIT(A) had examined the issue by observing as under:-

“So far as application of NP rate of 11.5% by AO is concern, the same is excessive. Considering the past history of the assessee as is evident from the following table:- FY Gross GP% NP% NP AO CIT(A) ITAT Action 2005-06 107106511 11.465 5.77056 7.52668 10% 8% 8% 2006-07 141429430 11.305 6.37235 8.21193 9% 2007-08 334243802 9.8703 6.46642 7.42083 9% 8% 9% 2008-09 246795867 12.785 6.56283 8.43537 11.37% 10% on own work and 5% on subcontract 2009-10 264466804 11.838 6.66478 8.41429 11% 2010-11 113714822 10.818 5.91223 10.4854 11.50%

From the above table it can be noted that in the past, CIT(A)/ITAT applied NP rate of @ 8%/9% /10% considering the result declared by the assessee.

The Result declared during the year @ 10% 10.48 subject to depreciation and interest is better than past years. However, considering the various defects in the books of accounts, the same can not be accepted as it is. Therefore to

8 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

meet the ends of justice NP rate of 11% as against 11.5% applied by AO is upheld.” 4.3 After considering the totality of the facts, we are of the view that the

finding of the Ld. CIT(A) is reasonable, and is based upon the past history of

the assessee. Therefore, we do not see any reason to interfere into the order

of the Ld. CIT(A), same is hereby affirmed. This ground of the Revenue’s

appeal is rejected. “

7.4 Therefore, we do not see any reason to interfere into the order of the Ld.

CIT(A), same is hereby affirmed, this ground of the Cross Objection is dismissed.

pertaining to the assessment year 2012-13 and the Cross Objection of the

Assessee in No. 19/JP/2016.

8.1 At the time of hearing, both the parties have adopted the same argument as

were addressed in Revenue’s appeal in ITA No. 233/JP/2016 pertaining to the

assessment year 2011-12 and Cross Objection of the Assessee in No.

18/JP/2016, no changed into the facts and circumstance have been pointed out.

Therefore, our finding in assessment year 2011-12 will also apply to the appeal and

cross objection pertaining to the assessment year 2012-13 mutandis.

233/JP/2016 & 234/JP/2016 and Cross Objections of the Assessee in No.

18/JP/2016 and 19/JP/2016 are dismissed.

9 ITA No. 233 &234/JP/2016 and C.O. No. 18 &19/JP/2016 Sh. Kanhiya Lal Choudhary.

Order pronounced in the open court on Friday, the 21st day of April 2017 .

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