Rajasthan High Court - Jaipur
Rikhabdass Jain, Contractor vs Ito on 26 July, 2000
Equivalent citations: (2001)72TTJ(NULL)526
ORDER
P.M. Jagtap, A.M. This appeal of the assessee is directed against the order of the Deputy Commissioner (Appeals) dated 20-3-1987.
2. Ground No. 1 is general in nature and requires no specific comments from us.
3. Ground No. 2 relates to the addition of Rs. 54,650 comprising of Rs. 36.000 on account of partners salary, Rs. 10,187 out of depreciation on vehicle and Rs. 8,469 on account of lower profit from the contracting business. The learned counsel at the outset informed that he is not pressing the issue of additions out of depreciation on vehicle and marginal additions in the profit of contracting business. He, therefore, restricted his contention on the remaining issue relating to partners salary and submitted that the payment of salary to partners is specifically provided in clause No. 7 of the deed of partnership of the assessee-firm. He, therefore, contended that salary to the extent provided and authorised by the partnership deed is an admissible expenditure as per section 40(b) amended by the Finance Act, 1992, with effect from assessment year 1993-94. He also furnished a copy of relevant partnership deed in his paper book on page Nos. 5 to 9. He further submitted that this issue is also covered in favour of the assessee by the decision of the Honble High Court of Rajasthan in the case of CIT v. Jain Construction Co. & Ors. (2000) 13 DTC 58 (Raj-HC) : (2000) 245 ITR 527 (Raj).
4. The learned Departmental Representative relied on the orders of the authorities below.
5. We have considered the rival submissions and also perused the material on record including the decision of Honble Jurisdictional High Court (supra). It is observed that the controversy regarding the admissibility of salary to partners from the income estimated by applying a net profit rate is settled by the said decision in view of the amended provisions of section 40(b) with effect from 1-4-1993, i.e., assessment year 1993-94. Therefore, respectfully following the said decision of the Honble Jurisdictional High Court and considering the facts of the case, we decide this issue in favour of the assessee. Accordingly, the assessing officer is directed to allow the partners salary to the extent of Rs. 36,000 as provided in the partnership deed.
6. Ground No. 3 relates to the enhancement of income by the Deputy Commissioner (Appeals) to the extent of Rs. 3,49,595 and reads as follows :
"That on the facts and in the circumstances of the case the learned Commissioner (Appeals) grossly erred in directing to enhance the income by a sum of Rs. 3,49,595. The enhancement of income made by the learned Deputy Commissioner is contrary to the facts of the case and provisions of law."
7. The facts giving rise to this ground are that the assessee filed appeal before the Deputy Commissioner (Appeals) disputing the disallowance of partners salary amounting to Rs. 36,000 from the assessed income of Rs. 55,974. While deciding this appeal, the learned Deputy Commissioner (Appeals) entirely changed the basis of computation adopted by the assessing officer and made certain adjustments which finally resulted-into an enhancement of total income by Rs. 3,49,595. The details of the adjustments made by the Deputy Commissioner (Appeals) and resulted effects on the total income assessed by the assessing officer are given below :
S. No. Adjustments made by Deputy CIT(A) Effect on income assessed by AO
1. 11 per cent rate applied for estimating NP on contract receipts instead of 12 per cent adopted by the AO.
(-) Rs. 55,305
2. Profit on transportation receipt is taken at Nil instead of Rs. 63,645 taken by the AO.
(-) 63,645
3. Commission not considered separately as income (-) 4,451
4. Disallowance of interest of Rs. 67,216 allowed separately by the AO (+) 67,216
5. Disallowance of depreciation of Rs, 4,05,780 allowed separately by AO 4,05,780 effective net enhancement Rs. 3,49,695
8. Aggrieved by the said order of the Deputy Commissioner (Appeals) the assessee is in appeal before us.
9. The learned counsel for the assessee submitted that the detailed written submissions was filed before the Deputy Commissioner (Appeals) during the appeal proceedings by the assessee, but he failed to appreciate any aspect of the said written submission. He further submitted that the issues involved in this ground now stands covered in favour of the assessee by the decision in the case of Jain Construction Co. (supra) as well as the subsequent order dated 15-3-2000 (reported as CIT v. Jain Construction Co. (2001) 22 DTC 574 (Raj-HC) : (2001) 116 Taxman 129 (Raj). He also submitted that the learned Deputy Commissioner (Appeals) in his impugned order reduced the profit of the assessee and then disallowed certain deductions/expenditure which has effectively resulted into a net enhancement of Rs. 3,49,595 in the assessed income of the assessee and relief to that extent is, therefore, claimed in this ground
10. The learned Departmental Representative made an attempt to support the order of the Deputy Commissioner (Appeals) and submitted that the issues involved in this ground are interdependent inasmuch as when high net profit rate is applied to the contract receipts, the other deductions are allowed, whereas if the low net profit is applied, the other deductions on account of depreciation, interest etc. are not allowed. He also submitted that this Bench has accepted a net profit rate of 8 per cent on contract receipts in a number of cases without any further deduction and furnished the copies of relevant orders in support thereof. He, therefore, contended that the Deputy Commissioner (Appeals) was very reasonable in reading the net profit to 8 per cent and in not allowing any further deduction on account of depreciation, interest, etc. separately. He, therefore, contended that the impugned order of the Deputy Commissioner (Appeals) may be upheld.
11. Regarding the deduction on account of interest to third parties, the learned Departmental Representative submitted that the same was allowed by the assessing officer in his original order in the case of Jain Construction Co. (supra) and, therefore, submitted that the said issue of interest to third parties was not there before the Honble Jurisdictional High Court. He further stated that the Honble Jurisdictional High Court has only rejected the reference application by assessment judgment delivered on 15-3-2000 (supra) considering that no question of law is involved and as such the said judgment cannot be considered as binding on the issue of interest to third parties.
12. We have heard both the parties and also perused the material on record to which our attention was drawn during the course of hearing. We have also gone through the judgment of. Honble Jurisdictional High Court in the case of Jain Construction Co. (supra) and also the subsequent judgment dated 15-3-2000 (supra) of the Honble Jurisdictional High Court. It has been held by the Honble Jurisdictional High Court in the judgment delivered on 24-9-1999, that if the income is to be computed by the estimate of net profit, it should be estimated subject to the allowance of depreciation and accordingly depreciation allowance should be deducted separately. In this judgment, the Honble High Court has referred and discussed the circular issued by the Central Board of revenue dated 13-8-1965, and observed that the circular has provided the if the claim for depreciation is made by the assessee and the assessing officer proposes to estimate the profit, depreciation should be separately worked out. As observed hereinabove, the controversy regarding the admissibility of interest as well as remuneration to partners has been settled by the said judgment in view of the amended provisions of section 40(b) with effect from 1-4-1993.
13. As far as the issue of interest to third parties is concerned, it is observed that the case of Jain Construction Co. (supra) came before the Honble Jurisdictional High Court for consideration in two separate rounds. In the first round, the Revenue preferred an application under section 256(2) being No. 12/1998 against the order of the Tribunal Jaipur Bench dated 30-8-1996, in ITA No. 707/Jp/96 whereby the Tribunal had set aside the order of the Commissioner, dated 27-3-1996 passed under section 263. Pertaining to this, the Honble Jurisdictional High Court has issued its judgment on 24-9-1999. There was also a second round in which the assessee, aggrieved by the same order of the assessing officer (which had been the subject-matter of revision application involved in the first round) preferred its first appeal to the Deputy Commissioner (Appeals) who passed his order on 29-3-1995, enhancing the income of the assessee. Subsequently, the said order of the Deputy Commissioner (Appeals) was reversed by the Tribunal while disposing of the appeal filed by the assessee vide its order, dated 14-8-1998, in ITA No. 894/Jp/96. Against this order of the Tribunal, the revenue again preferred an application under section 256 which came before the Honble Jurisdictional High Court in the second round being No. D.B. ITRA/106 of 1999 and disposed of by the Honble Jurisdictional High Court vide its decision, dated 15-3-2000.
14. It is observed that the Honble Jurisdictional High Court delivered its judgment in the first round on 24-9-1999, which has been reported in (1999) 156 CTR (Raj) 290 (supra). From the perusal of this judgment, it is observed that the issue relating to depreciation, interest and remuneration to partners have been elaborately discussed and decided by the Honble Jurisdictional High Court in favour of the assessee. At the same time, it appears from the record that the issue of interest to third parties was not there in the first round, as there does not appear any specific discussion about the same, as it also appears from the judgment of the Honble Jurisdictional High Court delivered on 24-9-1999. However, it is observed that when the same matter came up for consideration before the Honble High Court in the second round in an application under section 256 moved by the revenue, being DB ITRA No. 106/1999 in respect of the very same assessment the Honble Jurisdictional High Court in its decision dated 15-3-2000, has clearly mentioned the aspect of interest to third parties on page No. 2 para No. 1 of its judgment while summarising the facts of the case to show as to how the said reference application arose. The learned counsel of the assessee has referred to the order of the learned Deputy Commissioner (Appeals), dated 29-3-1995, and drawn our attention specifically to its page 6, wherein the Deputy Commissioner (Appeals) has discussed the issue of payment of interest to third parties. The learned counsel of the assessee also referred to the RA preferred by the revenue in second round before the Honble Jurisdictional High Court wherein there is a specific mention on page No. 3, para 1 about the issue of interest to third parties. The learned counsel of the assessee has, therefore, contended that the issue of interest to third parties was very much there involved in the proceedings. Although the contention of the learned Departmental Representative has been that there is no specific/express discussion/elaboration of the issue of interest to third parties in the judgment of the Honble High Court issued on 15-3-2000, the same cannot be given weight inasmuch as the R.A. of the revenue stands finally rejected by the Honble Jurisdictional High Court. As such we are of the view that the issue of interest to third parties is impliedly covered in favour of the assessee by the said Judgment of the Honble High Court delivered on 15-3-2000 in the case of Jain Construction Co. (DB ITRA 106/1999) (supra) in the second round.
15. Thus, it is clear that both the issues in respect of depreciation and interest to third parties involved in the instant case stand covered by the two decisions of the Honble jurisdictional High Court as mentioned and discussed above. As such respectfully following the aforesaid decisions of the Honble Jurisdictional High Court, and considering the facts of the case we are of the view that the Deputy Commissioner (Appeals) was not justified in enhancing the income of the assessee by Rs. 3,49,595. Accordingly the order of the assessing officer is restored subject to the further deduction of partners salary allowed by us while disposing of ground No. 2 hereinabove.
16. Grounds No. 4, 5 and 6 are general in nature and no order is specifically required.
17. In the result the appeal of the assessee is allowed.