Pr. Commissioner Of Income Tax, Alwar v. M/S Rajendra Mittal Construction Co. Pvt Ltd., 1/81, Rhb Bhiwadi, Tijara, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 43 / 2017 Pr. Commissioner of Income Tax, Alwar. ----Appellant Versus M/s Rajendra Mittal Construction Co. Pvt Ltd., 1/81, RHB Bhiwadi, Tijara, Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DEEPAK MAHESHWARIJudgment 22/11/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department and cross objection filed by theassessee was partly allowed. 2.This court while admitting the appeal on 30.5.2017 framedfollowing substantial question of law:- “(i) Whether the Tribunal was legallyjustified in restricting the addition ofRs.96,27,290/- to Rs.30,74,814/- made byAssessing Officer by invoking theprovisions of section 145(3) and applyingnet profit rate of 5% instead of 8%specifically when huge discrepancies werefound in the books of accounts? (ii) Whether the Tribunal was legallyjustified in reversing the findings of theCIT(A) and deleting the addition made onaccountofinterestincomeofRs.3,16,339/- and other income of 3.The facts of the case are that the case of the assessee waspicked up for scrutiny assessment and the assessment undersection 143(3) of the I.T. Act, 1961 (hereinafter referred to as theAct) was framed vide order dated 4th March, 2013. While framingthe assessment, the AO made addition of Rs. 96,27,290/- onaccount of profit addition by adopting the net profit @ 8% of totalcontract receipts Rs. 18,25,57,305/- (i.e. 1,46,04,584 –49,77,294). The assessee aggrieved by this order preferred anappeal before ld. CIT (A), who after considering the submissionspartly allowed the appeal. While allowing the appeal, the ld. CIT(A) adopted the net profit @ 5% on the turnover declared by theassessee at Rs. 16,10,52,607/-. The revenue and assessee bothaggrieved by the decision of the ld. CIT (A), have preferredappeal and cross objection respectively. 4.The AO while considering the matter has added incomewhile rejecting books of accounts and assessed NP @ 8% andalso added interest income of Rs.3,16,339/- and Rs.7,03,275/- asincome which was derived from other sources. 5.However, CIT(A) has observed as under:- “4.21. Thus, considering the past historyof the appellant with regard to thepercentage of net profit declared andassessed by the AO, the average net profitrate (AY 2005-06 3.75%, AY 2006-074.0%, AY 2007-08 4.57%, AY 2008-095.57%, AY 2009-10 3.86%- after adjustingaddition of Rs.3 lacs) would be 4.35%.of the appellant with regard to thepercentage of net profit declared andassessed by the AO, the average net profitrate (AY 2005-06 3.75%, AY 2006-074.0%, AY 2007-08 4.57%, AY 2008-095.57%, AY 2009-10 3.86%- after adjustingaddition of Rs.3 lacs) would be 4.35%. Accordingly, considering all these factorsand other deficiencies as noted above, itwould be fair to apply the net profit rate of5.00% to the turnover declared by theappellant at Rs.16,10,42,167/-. This wouldresult in estimated net profit ofRs.80,52,108 as against the net profit ofRs.49,77,294. Accordingly, a trade additionof Rs.30,74,814/- made by the AO wouldbe confirmed and the appellant would get arelief of Rs.65,52,476 under this head.Besides this, the appellant would be liableto tax on the interest income ofRs.3,16,339 and other income ofRs.7,03,275 declared in the return ofincome filed.” 5.The CIT(A) also considered the contentions of the assesseehowever, has not allowed the expenses of income which wasadded amounting to Rs.3,16,339/- and Rs.7,03,275/-. 6.However, the same was considered by the tribunal observingas under:- 5.The CIT(A) also considered the contentions of the assesseehowever, has not allowed the expenses of income which wasadded amounting to Rs.3,16,339/- and Rs.7,03,275/-. 6.However, the same was considered by the tribunal observingas under:- “7.1. The ld. Counsel for the assesseereiterated the submissions as made in thewritten brief. It is contended by the ld.Counsel that both the interest paid andearned is in course of business. In net theinterest payment is Rs. 1,48,640/-. In theevent of interest received is taxedseparately, interest payment also needs tobe allowed separately. So far as otherincome of Rs. 7,03,275/- is concerned, thedetails are furnished vide letter dated05.10.2012. The ld. Counsel drew ourattention to page 59 of the paper book,from the same it can be noted that allrelate to the contract work of the assessee.Therefore, these receipts are part of thecontract receipts and once net profit rate isapplied for assessing the income, suchreceipts cannot be separately added to theincome. 7.4. In respect of the other income of Rs.7,03,275/-, the ld. Counsel for theassessee has demonstrated that it is partof the contract business and therefore, once the net profit is applied for assessingthe income, such receipts cannot beseparately added to the income. Whileaccepting the contention of the ld. Counsel,we direct the AO to delete the addition.This ground of the assessee is allowed.” 7.Counsel for the respondent has contended that in the case of same assessee, average NP which has been applied isreproduced as under:- vi) The appellant earned NP ofRs.49,77,294/- which is better than lastyear, the comparative GP rate and NP ratefor the impugned year and preceding Fouryears are as under:- Rs. in Lac A.Y.TurnoverGross % of G.P.Net Profit% of NPProfit2010-111610.42186.6711.59%59.973.72%2009-102523.79247.499.80%91.043.60%2008-091261.41139.0511.02%63.645.04%2007-081056.62118.7011.23%45.824.33%2006-07455.6645.289.93%16.583.64% 7.1If the average of the above years is taken, the net profit will come to 4.066%. 7.2However, tribunal in view of the decision of jurisdictionalhigh court applied the net profit of 5%. 7.3Regarding second issue, he contended that the interestincome and other income was part of the contract business andtherefore once the net profit is applied, such receipts cannot beseparately added to the income. Taking into consideration, the interest amount paid on the loan which was taken and interestwhich is on unpaid amount and other income, in view ofassessment on net profit that amount cannot be added separatelyto the income. 8.We have heard counsel for the parties. 9.Regarding first issue, in view of the decision of this court,NP rate is to be taken average of last five years which will cometo 4.066, therefore, in our considered opinion 5% which isassessed by the tribunal is just and proper, therefore, first issue isanswered in favour of the assessee. 10.Regarding second issue, it is true that the interest andincome from other sources which is paid is given to earn income,therefore, in view of the observations made by the tribunal inpara no.7.1 & 7.4, second issue is also answered in favour of theassessee. 11.In that view of the matter, both the issues are answered infavour of the assessee and against the department. 12.The appeal stands dismissed. (DEEPAK MAHESHWARI)J. (K.S. JHAVERI)J. Brijesh 173.