Sweta Construction Pvt. Ltd. 201, City Centre, Jaipur v. The Commissioner Of Income Tax Jaipur

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. DB INCOME TAX APPEAL NO.10/2002 Sweta Construction Pvt. Ltd. 201, City Centre, Jaipur VERSUS The Commissioner of Income Tax Jaipur. DATE OF ORDER ::: 08.11.2016.HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE GOVERDHAN BARDHAR Mr. Prakul Khurana, for the appellant.Mr. Anuroop Singhi, for the respondents. 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed both the appeals i.e. preferred by the assesseeand the appeal preferred by the department. 2.This Court while admitting the appeal on 15.05.2002,framed following substantial questions of law for consideration: “(i) Whether on the facts and in thecircumstances of the case, the the tribunalwas justified in sustaining additions made bythe assessing officer, on account of higherrate of profit, which is without any material?” “(ii) Whether on the facts and in thecircumstances of the case, the net profit rateapplied at the rate of 11.5% on contractreceipts is based on any material and whethersuch addition is not liable to be deleted beingbased on surmises and conjectures and beingarbitrary?” “(iii) Whether on the facts and in thecircumstances of the case, the tribunal wasjustified in holding that while arriving at netprofit rate, salary paid to Managing Director would not be allowed as a deduction to theappellant?” 3.Counsel for the appellant Mr. Prakul Khurana hascontended that without any basis both the authorities haveincreased the net profit rate from 10% to 11.5%. He has takenus to para 4 of the order of the Tribunal which reads as under: “4After hearing the rival submissions, wefind that provision of Section 145 areapplicable in the facts of the present case.The valuation of stock is made on estimatedcost value. No. stock register wasmaintained. Therefore, we hold that theauthorities below were correct in holding thatprovision of Section 145 are applicable. Wealso find that 10% net profit rate isreasonable. However, we are not satisfiedwith the contention of the ld. D/R thatdepreciation and interest has already beenconsidered while applying the net profit rate.There is no provision in law that where theprofits are arrived after applying the net profitrate, the interest and depreciation paid tothird parties or salary and interest paid topartners are not allowable. Provisions ofSection 44AD are also very clear which saysthat in case of firm the salary paid to thepartners and interest are allowabledeductions where the profits rate. This benchof the Tribunal is of the consistent view thatwhere the profits are arrived after applyingthe net profit rate then the deduction onaccount of depreciation, interest paid to thirdparties and salary and interest paid topartnersareallowabledeductions.Accordingly we direct the AO to allow thedepreciation as claimed. However, afterverification of the applicability that the assetwas available with the assessee during theyear.” 4.Counsel for the appellant has also taken us to theobservations made by the Tribunal in para 16 of the order,which reads as under: 4.Counsel for the appellant has also taken us to theobservations made by the Tribunal in para 16 of the order,which reads as under: “16After hearing rival submissions andconsidering the material on record, we findthere is weight in the contention of the ld. D/Rthat during the year the expenses claimedwere of excessive and assessee was not ableto prove them. Of course, there was anincrease to turnover. The turnover isincreased from Rs.74 lacs to Rs.95.61 lacs ascompared to A.Y. 93-94. We are also of theview that each case has its own fact and it isnot always necessary that if turnover is thenin that case the expenses are also increasedon the same proportion. Sometime expensesdoes not increase at all. Some time expensesincreased higher side and there may be somany reasons. Sometimes assess requiresextra funds and extra interest has to be paid.Sometime turnover is increased by its owncircumstances and no expenses are incurred.Therefore, each case has its own facts andthey should be decided on the basis of thosefacts only. There is no doubt that every yearis independent and principles of res judicatadoes not apply in the income-tax proceedings.We also find wight in the contention of theD/R that there were no defects during the A.Y.91-92 and 92-93 and therefore the books ofaccounts were accepted. In the present casethe defects were found. Therefore, the bookswere rejected. We have also seen thatassessee has stated that some of the personswere produced. It means all the persons towhom the expenses were paid were notproduced. Of course, the confirmation fromthose persons are on record buy they couldnot be verified because those persons werenot produced. The number of truck/tractorswhich were given also not verifiable with therecords of RTO. The vehicle number given bythe assessee were found to be three wheelerscooters and the assessee could not provethere facts even at the stage of Tribunal.Therefore, they remained unverifiable. Wehave confirmed the application of n.p. Rate of10% for A.Y. 1990-91, supra. However, wefind that during this year the expensesclaimed are on neither side which are also notproperly verifiable. Therefore, looking to thefacts of the present case, we are of the viewthat if a n.p. Rate of 11.5% is applied then itwill meet the ends of justice to both the sides. Accordingly, we hold that 11.5% net. Profitrate be applied. The AO is further directed toallow the deduction on account ofdepreciation and interest paid to third parties.However, we do not find any weight in thecontention of the ld. A/R that salary paid tomanaging Director should also be allowed.We have already taken a decision whiledeciding the appeal for A.Y. 1990-91 whereinwe have held that salary paid to ManagingDirector is not allowable while applying then.p. Rate in the case of company. Therefore,this contention of ld. A/R is rejected. Thisground of both the parties i.e. assessee anddepartment is allowed in part.” 5.Mr. Singhi, learned counsel for the respondents hassupported the order of the Tribunal and contended that the netprofit rate of 11.5% was allowed in view of the bogus claim onaccount of vehicle and other expenses. 6.We have heard counsel for both the parties. 7.Taking into account the previous year the assessee'sassessment was accepted at 10% G.P. No reasons are adoptedby the Tribunal raise the net profit from 10% to 11.5%. 8.In that view of the matter, the first issue is answered infavour of the assessee. Second issue. 9.In view of modification and reasons of issue No.1, theissue No.2 is answered accordingly in favour of the assessee. 10.The Tribunal has considered the application of net profitrate as 11.5% and not 10%, in our opinion the net profit rate hasto be assessed at 10%. No other expenses are allowed.Learned counsel for the respondents has placed reliance on thedecision of this Court in the case of Malpani House of Stones vs. CIT, DB Income Tax Appeal No.35/2003 decided on 6.We have heard counsel for both the parties. 7.Taking into account the previous year the assessee'sassessment was accepted at 10% G.P. No reasons are adoptedby the Tribunal raise the net profit from 10% to 11.5%. 8.In that view of the matter, the first issue is answered infavour of the assessee. Second issue. 9.In view of modification and reasons of issue No.1, theissue No.2 is answered accordingly in favour of the assessee. 10.The Tribunal has considered the application of net profitrate as 11.5% and not 10%, in our opinion the net profit rate hasto be assessed at 10%. No other expenses are allowed.Learned counsel for the respondents has placed reliance on thedecision of this Court in the case of Malpani House of Stones vs. CIT, DB Income Tax Appeal No.35/2003 decided on 04.10.2016, wherein it has been held as under: “In view of the well settled principle of law thatwhen income is estimated and whileassessing the same and rejecting the booksof accounts, it would not be appropriate to relyon the books of accounts for any additionother than estimate made by A.O. “In that view of the matter, the contentionraised by the appellant deserves to beaccepted. The income which has been addedon the basis of books of accounts havingbeen rejected and in that view of the matter,addition of Rs.13,740/- requires to be deleted. “The appeal is allowed. The question isanswered in favour of the assessee andagainst the Department. 11.In that view of the matter, the issue No.3 is answered in favour of the department and against the assessee. 12.The appeal stands partly allowed. (GOVERDHAN BARDHAR), J. (K.S. JHAVERI), J. Asheesh Kr. Yadav 01