Rajasthan High Court - Jaipur
Amar Singh Kishan Chand vs Income Tax Officer on 10 December, 1999
Equivalent citations: (2000)66TTJ(NULL)724
ORDER
B. M. Kothari A.M. This appeal by the assessee is directed against the order dated 19-8-1993, passed by the Commissioner (Appeals) for assessment year 1988-89.
2. Ground Nos. 1 to 3 raised by the assessee relate to the confirmation of the addition made by the assessing officer by applying net profit rate of 10.5 per cent on contract receipts derived by the assessee.
2.1. A. The learned counsel appearing on behalf of the assessee contended that the proviso to section 145(1) is applicable on the facts of the present case. He, however, submitted that the net profit rate of 10.5 per cent applied by the assessing officer and confirmed by the Commissioner (Appeals) is extremely arbitrary and excessive. The assessee had declared net profit rate of 8.69 per cent which is most reasonable and justified. The learned counsel also drew our attention towards order of the Commissioner (Appeals) in assessee's case for assessment year 1989-90 wherein reference of an order of Tribunal in assessee's case for 1986-87 has been given. The Tribunal had applied net profit rate of 10 per cent in assessee's case in assessment year 1986-87. The learned counsel strongly urged that the declared net profit rate should be accepted.
2.2. The learned Departmental Representative supported the order of the Commissioner (Appeals), He also relied upon the decision of Tribunal in the case of Jain Construction Co. where the net profit rate of 12.6 per cent was upheld.
2.3. We have gone through the copy of the said order and find that Commissioner (Appeals) in the aforesaid case had passed order under section 263. The assessee preferred an appeal against that order before the Tribunal. The Tribunal held that salary and interest paid to the partners and third parties is allowable as deduction from the profit computed by applying net profit (net profit rate) of 12.5 per cent. This matter had also travelled upto Hon'ble Rajasthan High Court. The decision of the Hon'ble High Court in CIT v. Jain Construction Co. & Ors. (1999) 156 CTR (Raj) 90. The facts stated in the said judgment inter alia reveals that the assessing officer applied net profit rate of 12.5 per cent on receipts of Rs. 76,12,688. He further allowed deduction by way of depreciation, interest and salary to partners to the extent of Rs. 8,67,691. As a result of this deduction the assessable income was calculated at Rs. 83,895, The net profit rate after interest and depreciation in the aforesaid case thus came to hardly 1.1 per cent. The judgment of the Hon'ble High Court mainly relate to allowability of deduction in respect of interest and remuneration paid to the partners. The said decision of the Tribunal in the case of Jain Construction Co. therefore, does not in any manner support the revenue's contention in the present case,
3. We have considered the submissions made by the learned representatives of both the parties and have perused the orders of the learned departmental authorities. The assessing officer estimated the net profit rate of the assessee on contract receipts by applying net profit rate of 10.5 per cent on contract receipts of Rs. 22,77,003. Thus, net profit on contract receipts was determined at Rs. 2,39,089. The assessing officer had separately allowed depreciation to the tune of Rs, 28,386 and also allowed interest to the tune of Rs. 5,249. The Commissioner (Appeals) confirmed the action of the assessing officer.
4. In our view it will be just and reasonable to direct the assessing officer to apply net profit rate of 10 per cent on contract receipts as was held by the Tribunal in assessee's own case for assessment year 1986-87. The net profit rate on contract receipts will thus come to Rs. 2,27,700 out of which the assessing officer has already separately allowed deduction aggregating to Rs. 33,635 on account of depreciation and interest. The income from contract receipts will thus come only to Rs. 1,94,064. This would mean that net profit rate will come only to 8.5 per cent after considering depreciation and interest. The assessing officer is directed to grant appropriate relief accordingly.
5. The next ground relates to confirmation of the view taken by the assessing officer that cash credit of Rs. 6,000 in the name of Shri Hukmaram and Rs. 5,000 in the name of Shri Kundanlal remained unexplained. The assessing officer treated both the aforesaid cash credits as unexplained and held that the same are liable to be included as income of the assessee within the meaning of section 68 of Income Tax Act, 1961. The assessing officer determined the amount of such addition at Rs. 5,487 in respect of cash credit in the account of Shri Kundanlal including interest and Rs. 6,450 in respect of cash credit in the name of Shri Hukmaram including interest. He, however, further observed that since the addition made in contract business adequately covers the aforesaid cash credits, no separate addition is required to be made.
6. The Commissioner (Appeals) confirmed the aforesaid action of assessing officer.
7. The learned counsel drew our attention to the copy of letter submitted before the Income Tax Officer, a copy of whereof has been placed at p. 1 to 5 of paper book. It was pointed out by him that Shri Hukmaram deposited Rs. 6,000 with the assessee from his income from agriculture and animal husbandry. An affidavit of Shri Hukmaram was filed before the assessing officer. A certificate issued by the Sarpanch was also filed to support the fact that Hukmaram derived income from agriculture and from animal husbandry. The Income Tax Officer made certain inquiries behind the back of the assessee. An Inspector was sent to the depositors' place. He recorded the statement of both these depositors in which these two depositors denied having made any deposit with the assessee. Later on both these depositors were produced before the assessing officer. The assessing officer recorded their statements. Both of them confirmed the fact of having made the deposits with the assessee. They have also explained the source wherefrom such deposits were made. Both of them are not related to the assessee. The learned counsel contended that statements recorded behind the back of the assessee by the Income Tax Inspector are not valid statements as the Inspector has no valid right under the provisions of Income Tax Act to record any such statement. The assessing officer had himself recorded the statements in which both the depositors have duly confirmed the fact of making the said deposits. He, therefore, strongly urged that the deposits should be treated as genuine and the finding given by the assessing officer about the deposits being non-genuine should be quashed.
6.2. The learned Departmental Representative supported the order of the Commissioner (Appeals). He drew our attention to the statement of Shri Kundanlal recorded by the assessing officer on 20-7-1989. In one of the questions it was pointed out by Shri. Kundanlal that his father's name in the affidavit was mentioned as Hariram while he has mentioned the name of his father as Kumbharam in the said statement. The depositor replied that there must be a mistake of typing in the said affidavit. The learned Departmental Representative contended that a person who did not even verify the name of his father in the affidavit must have signed the said affidavit blindly without going through the contents thereof. Likewise he also drew our attention towards the statement of Hukmaram the other depositor. In this statement Shri Hukmaram denied that he never stated in his statement dated 21-2-1989, recorded by the Inspector that he does not know the assessee and also did not deny having made the loan to the assessee. Shri Jangir submitted that the depositor is a liar and no reliance can be placed on such statement.
7. We have considered the submissions made by the learned representative of both the parties and have perused the records to which our attention was drawn during the course of hearing.
8. Shri Kundanlal, son of Shri Hariram, made deposit of Rs. 5,000 with the assessee on 16-9-1987. A perusal of the statement of Shri Kundanlal recorded by the assessing officer inter alia reveals the following facts :
(a) That he owns 125 bighas of agricultural land and also owns 10 cows.
(b) He derives income from agricultural as well as from sale of milk.
(c) He confirmed having made a deposit of Rs. 5,000 to the assessee.
(d) He also confirmed that the affidavit on a stamp paper was signed by him.
All the aforesaid facts stated in the affidavit of Shri Kundanlal as well in his statement adequately reveal that the assessee had discharged the burden of proving the identity as well as capacity, of the depositor Kundanlal. We are, therefore, of the view that the deposits of Rs. 5,000 in the name of Kundanlal cannot be treated as unexplained deposit. The interest of such deposit treated as assessee's income by the assessing officer will also have to be cancelled.
9. The other deposit of Rs. 6,000 was made by Shri Hukmaram son of Shri Mohan Lal, on 1-11-1987. The statement of Shri Hukmaram was recorded by the assessing officer on 20-7-1989. He owns 150 bighas of agricultural land. He also confirmed having given loan of Rs. 6,000 to the assessee. He explained that the aforesaid deposit was given by him by selling agricultural land. The said land was sold to Shri Hira Ram @ Rs. 400 per bigha for which the depositor had received Rs. 8,800 in cash and the balance amount of Rs. 400 was outstanding. The aforesaid facts stated by Shri Hukmaram in his statement clearly shows that the burden which lay on the assessee to prove the genuineness of cash credit under section 68 clearly stands discharged. The said cash credit will also therefore have to be treated as genuine cash credit. The addition of interest on the said cash credit will also have to be cancelled.
10. In view of the aforesaid facts and circumstances, we are of the view that the Commissioner (Appeals) has erred in confirming the findings given by the assessing officer in respect of the two cash credits and interest thereof. Both the cash credits in question are held to be genuine. Since no separate addition was made by the assessing officer in respect of these cash credits and interest thereon, the assessee will not be entitled to any separate relief by way of reduction in the income to be computed in accordance with the findings given in the earlier part of this order.
11. In the result, the appeal is partly allowed.