D.b. Income Tax Appeal v. M/S Jain Construction Company Barmer

8 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR :JUDGMENT: D.B. Income Tax Appeal No. 136/2006CIT Jodhpur vs M/s Jain Construction Company Barmer DATE OF JUDGMENT: 3[rd] July 2014 HON’BLE MR. JUSTICE DINESH MAHESHWARIHON’BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Sunil Bhandari for the appellant.None present for the respondent. <><><> BY THE COURT: This appeal by the Revenue against the order passed by theIncome Tax Appellate Tribunal, Jodhpur Bench, Jodhpur (‘ITAT’) inITA No. 04/JU/2005 for the Assessment Year 1999-2000 has beenadmitted for consideration on the following substantial question oflaw:- “Whether on the facts and in the circumstances of thecase, the ITAT was justified in allowing the deduction on accountof sales tax payment out of the income estimated by applying netprofit rate without estimation of income at net profit rate beingsubject to such deduction?” The assessee, said to be deriving his income from contractwork, filed the return for Assessment Year 1999-2000 declaring theincome of Rs.2,08,230/- with tax audit report.The same wasprocessed under Section 143(1) on 27.03.2000 at the same figure.The assessee had shown total contract receipt of Rs. 1,69,05,812/-.There was material supplied by the department at Rs.25,95,066/-. The assessee had shown gross profit of Rs.17,35,435/-. Theassessee had also executed contract work through sub-contractorand received sub-letting commission at Rs. 34,958/-. The case waspicked up for scrutiny. Books of accounts, as produced, wererejected by the Assessing Officer (‘AO’) for several reasons includingthose of not maintaining the stock register, muster rolls and severalexpenses being not supported by adequate vouchers. After rejecting the books of accounts and while referring to theorder as passed in relation to the assessee for the Assessment Year1993-94, the AO proceeded to apply net profit rate of 12.5% on thenet contract receipts subject to depreciation, interest, remunerationto partners and interest payment to third parties for the purpose ofmaking assessment of income. There had been another issuerelating to disallowance of depreciation claimed on vehicles but thesame is not the subject matter of this appeal. After applying the netprofit rate of 12.5%, the AO proceeded to carry out computation asfollows:- “Net profit @ 12.5% on net contract receipt ofRs. 1,43,10,746/- (16905812-2595066)Add:Disallowance of depreciation as discussed aboveAdd:Sub-let commission Rs. 17,88,843/- Rs. 17,885/-Rs. 34,958/-_____________Rs. 18,41,686/- Less:- i)Depreciation4,95,745ii)Remuneration to partners1,80,000iii)Interest to partners2,91,582iv)Net interest paid/payable tothird parties4,03,043 4,03,043Rs. 13,70,370/-___________________ Total income Rounded off to Rs. 4,71,316/-Rs. 4,71,320/- ___________” In appeal, the learned Commissioner of Income Tax(Appeal–II), Jodhpur [‘the CIT(A)’], though upheld the order of AO inrejecting the books of accounts and making assessment on the basisof net profit rate but then, considered the ground urged on behalf ofthe assessee that it had paid a sum of Rs.1,70,316/- towards salestax and such payment of sales tax had been allowed as deduction bythe Revenue Authorities in other cases. The CIT(A) held that the AOwas not justified in not allowing the amount of sales tax paid atRs.1,70,316/-; and directed the AO to allow the same afterverification of the amount. In the Revenue’s appeal against the order so passed by theCIT(A), the ITAT found the case of the assessee covered by thedecision rendered in other cases and held that the direction of thelearned CIT(A) to AO, to allow the payment of sales tax afterverification of the amount, was quiet in order. In the Revenue’s appeal against the order so passed by theCIT(A), the ITAT found the case of the assessee covered by thedecision rendered in other cases and held that the direction of thelearned CIT(A) to AO, to allow the payment of sales tax afterverification of the amount, was quiet in order. Seeking to question the orders aforesaid, it is contended bythe learned counsel for the appellant that when net profit rate hasbeen applied to the net contract receipts, there was no justification toallow further deduction claimed by the assessee. It is also submittedthat in relation to the assessee himself, the order as passed for theAssessment Year 1993-94 with the application of net profit rate of12.5% subject to depreciation, interest, remuneration to partners andpayment to third parties has been upheld by this Court in D.B.Income Tax Appeal No. 12/1998 and, therefore, the order as passedby the ITAT affirming the order passed by the CIT(A) in the presentcase calls for interference. The order as passed in relation to the assessee for theAssessment Year 1993-94 has not been placed on record and it is difficult to find if the question of deduction towards sales tax paymentwas at all the subject matter of consideration in the said case. Then,even if the assumed net profit rate has been applied, the matterremains essentially of making the estimate, which is supposed to bereasonable in nature. It is noticed that even while making the assessment of incomeon the basis of net profit rate, the deductions towards depreciation,interest, remuneration to partners and payment to third parties havedefinitely been allowed. On the facts and in the circumstances of thepresent case, the CIT(A) cannot be said to have committed anyfundamental error in directing deduction towards payment of salestax too after verification of the amount paid. We have not been shown any binding decision on theproposition as canvassed that even while applying net profit rate,other aspect of the expenditure, like that in terms of the sales taxpayment, cannot be taken into account at all. In our view, in case ofrejection of accounts and estimate of net profit, relevant expensescould be worked out and allowed in a given case. On the facts and in the circumstances of the present case, therelief as granted by the CIT(A) and affirmed by the ITAT for allowingsuch deduction towards payment of sales tax cannot, in the ultimateanalysis, be said to be unjustified or taking away the reasonablenessof estimate of income of the assessee. In the totality of circumstances, the question as framed isanswered against the Revenue. Consequently, the appeal fails and is, therefore, dismissed. (BANWARI LAL SHARMA),J. (DINESH MAHESHWARI),J. Sudhir