Income Tax Appellate Tribunal - Jaipur
Choudhary & Brothers, Jaipur vs Dcit, Jaipur on 24 July, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh HkkxpUn] ys[kk lnL; ,oa Jh dqy Hkkjr] U;kf;d lnL; ds le{k
BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM
vk;dj vihy la-@ITA Nos. 551 & 552/JP/2016
fu/kZkj.k o"kZ@Assessment Years : 2011-12 & 12-13.
Deputy Commissioner of Income Tax, cuke M/s. Choudhary & Brothers,
Circle - 7, Vs. Village - Ladana, Phagi,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAEFC 0190 M
vihykFkhZ@Appellant izR;FkhZ@Respondent
C.O. Nos. 22 & 23/JP/2016
( Arising out of vk;dj vihy la-@ITA No. 551 & 552/JP/2016 )
fu/kZkj.k o"kZ@Assessment Years : 2011-12 & 12-13.
M/s. Choudhary & Brothers, cuke Deputy Commissioner of Income
Village - Ladana, Phagi, Vs. Tax,
Jaipur. Circle - 7,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAEFC 0190 M
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by: Shri R. A. Verma (Addl. CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 07.07.2017.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24/07/2017.
vkns'k@ ORDER
PER SHRI KUL BHARAT, JM.
These sets of 2 appeals and 2 cross objections are filed by the revenue and assessee respectively against two separate orders of ld. CIT (Appeals)-3, Jaipur dated 18.03.2016 pertaining to A.Ys. 2011-12 and 2012-13. Since identical grounds are raised in all the appeals, they are taken up together and are being disposed off 2 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
by this consolidated order. First, we take up Revenue's appeal in ITA No. 551/JP/2016 pertaining to A.Y. 2011-12. The revenue has raised the following grounds of appeal :-
ITA NO. 551/JP/2016 (REVENUE):
i) On the facts and in the circumstances of the case, the CIT (A) has erred in reducing GP rate u/s 145(3) from 13% to 11.50% without considering the findings of fact the AO in the assessment order.
ii) On the facts and in the circumstances of the case, the CIT (A) has erred in treating interest income from FDR & NSC as business income and part of total receipts without appreciating the facts that the interest income on FDR & NSC is income from other sources.
iii) On the facts and in the circumstances of the case, the CIT (A) has erred in directing the discount income from supplier to be reduced from cost of the material because the assessee itself has shown it as other income in the Profit and Loss account, ignoring the findings of fact given in the assessment order that discount income has been treated the 'other income' by the AO.
iv) The appellant craves leave to add, alter, amend, withdraw or insert any ground or grounds of appeal before or at the time of hearing of the appeal.
2. Briefly stated the facts are that the case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) was framed. While framing the assessment, the AO rejected the books of account and estimated the profit. The AO applied NP @ 13% thereby he made an addition of Rs. 19,72,584/-. The AO also made addition on account of income from interest on FDR and discounts received from suppliers of material, treating the same as Income from Other Sources. Hence, the AO computed the taxable income at Rs. 56,78,516/- against the income of Rs. 3
ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
7,08,390/- declared by the assessee. Aggrieved by this, the assessee preferred an appeal before ld. CIT (A), who after considering the submissions, partly allowed the appeal of the assessee. While partly allowing the appeal, the ld. CIT (A) estimated the NP @ 11.5% and deleted the addition made on account of interest from FDR treating the same as Business profit. The ld. CIT (A) also deleted the addition made on account of various unverifiable payments. Against this, the revenue has preferred the present appeal and the assessee filed the cross objection.
3. The first ground of the revenue's appeal is estimating the NP rate at 11.5% as against 13% adopted by the AO. The ld. D/R submitted that the ld. CIT (A) has confirmed the action of rejection of books of account. However, he reduced the estimation of Net Profit. He submitted that the ld. CIT (A) has followed the decision in assessee's case pertaining to A.Y. 2007-08. He submitted that the facts of each year are different.
3.1 On the other hand, the ld. Counsel for the assessee reiterated the submissions as made in the written brief. He submitted that the ld. CIT (A) considering the past history of the assessee's case and following the decision of his predecessor and also the order of the ITAT for the A.Y. 2007-08 has sustained the NP at 11.5%. The submissions of the ld. Counsel are as under :-
" 1. It is submitted that net profit rate before depreciation, interest and remuneration to partners and interest to third parties as well as that after depreciation, interest and remuneration to partners and interest to third parties is as under:-4
ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
A.Y. Turnover (in Net profit before N.P. Net profit after N.P.
Rs.) depreciation, interest & Rate depreciation, interest & Rate
remuneration to (%) remuneration to (%)
partners & interest to partners & interest to
third parties (in Rs.) third parties (in Rs.)
11-12 9,83,53,575/- 1,08,80,397/- 10.78 8,47,053/- 0.84
12-13 13,12,14,572/- 1,54,59,620/- 11.52 57,05,522/- 4.25
2. The case of the assessee is subject to the scrutiny since A.Y. 2004-05 and decided by the appellate authorities. Summarized position of the income declared and accepted after the order of the CIT(A)/ITAT from A.Y. 2007-08 are as under:-
Particulars Assessment Year
2012-13 2011-12 2010-11 2009-10 2008-09 2007-08
Contract receipts (in 13,12,14,572 9,83,53,575/ 17,28,46,412 26,88,37,074 20,13,26,058 16,75,20,136
Rs.) /- - /- /- /- /-
Interest Receipts 29,97,924/- 25,61,068/- 28,67,299/- 6,67,360/- 4,41,768/- 1,79,196/-
(in Rs.)
Total Receipts 13,42,12,496 10,09,14,642 17,53,13,711 26,95,04,434 20,27,87,824 16,76,99,332
(in Rs.) /- /- /- /- /- /-
Net Profit before 1,54,59,620/ 1,08,80,397/ 2,01,01,939/ 2,79,53,633/ 2,01,96,008/ 1,68,67,510/
depreciation and - - - - - -
interest and
remuneration to
partner (in Rs.)
Net Profit rate before 11.52% 10.78% 11.44% 10.4% 9.96% 10.06%
dep., interest and
remuneration to
partner
Net Profit rate before 11.75% 11.5% 11.5% 11.5% 11.5% 11.5%
dep., interest and [CIT(A)] [CIT(A)] [CIT(A)] [CIT(A)] [ITAT] [ITAT]
remuneration to Present Present
partner finally upheld Appeal Appeal
by ITAT/CIT(A) (ITAT) (ITAT)
Note: In all the years net profit rate is applied on the total receipt including interest receipt except in A.Y. 2009-10 where it is applied on contract receipt. In none of these years interest receipt was assessed as income from other sources but treated as part of the business profit for the purpose of computing the net profit rate.
From the above table it can be noted that the net profit declared by the assessee is comparable with that of the earlier years. The Hon'ble ITAT/CIT(A) has accepted the net profit rate of 11.5% on gross receipt (contract receipt and interest and other receipt). The rate declared in the AY 12-13 is 11.52% which is 5 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
comparable with the net profit rate accepted by the ITAT. Hence addition made by the AO by applying net profit rate of 13% and separately assessing the interest income as income from other sources is unjustified and uncalled for.
1. It is a settled law that once the books of accounts are rejected, past history of the assessee is best guide for estimation of the income. For this reliance is placed on the following cases:-
CIT vs. Sh. Sindhuja Foods Pvt. Ltd. (2008) 16 DTR 278 (Raj.) (HC) dated 24.10.2008 Where assessee's books of accounts are rejected as it has shown bogus purchases but gross sales figure is not disputed and the CIT(A) and Tribunal applied the g.p. rate of last year for making the best judgment assessment, it cannot be said that any material evidence has not been considered or any irrelevant consideration has been taken into account by the Tribunal in reducing the additions made by AO.
CIT vs. Vaibhav Gems Ltd. (2014) 112 DTR 84 (Raj.) (HC) dated 21.08.2014 While the past history becomes the relevant basis but if the AO wishes to tinker with the basis of past records, then some flaw has to be found by the AO in making some addition. Tribunal has come to a conclusion that in the immediate past assessment year, the Tribunal itself has applied G.P. rate of 2.60% whereas in the present year under consideration, the G.P. rate has been declared at 4.85%. AO was unable to point out as to what are the distinguishing features in between the two assessment yea No substantial question of law arises. CIT vs. Gupta K.N. Construction Company (2015) 116 DTR 377 (Raj.) (HC) dated 18.08.2014 In a case where the provisions of sec. 145(3) are invoked, either the past history of the assessee or the history of similarly situated cases has to be considered. In the instant case, the AO is absolutely silent in justifying the addition/disallowance made by him which has resulted in N.P. rate of 13.7%. Assessment order is totally silent about the net profit rate shown by other similarly situated cases. While comparing with the past history, if the results are fair and reasonable, then invariably no addition is to be made. In the relevant year, though the contract receipts of the assessee have sharply increased from 10.60 crores to Rs.12.32 crores in the preceding year, the N.P. rate has increased from 5.02% to 5.38%. Though the argument of the Revenue that where the assessee manipulates the accounts by keeping the profit margins commensurate with the past years or slightly more than by itself cannot be a basis for acceptance of results is justified, 6 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
it is for the AO to bring on record some concrete material/evidence to make a proper addition. In the instant case, the AO has failed to bring on record any comparable case so as to justify the addition made by him. Tribunal has sustained only an adhoc addition to the extent of 5 lacs. Findings of the Tribunal is a pure finding of fact based on appreciation of evidence. Therefore, no substantial question of law arises.
CIT vs. Inani Marbles Pvt. Ltd. 316 ITR 125 (Raj.) (HC) dated 19.08.2008 In this case, AO rejected the books of accounts, invoked section 145 & made assessment by applying G.P. rate of 15% on the sales disclosed by assessee. Tribunal held that in the absence of any change in factual position normally the profit rate declared & accepted in preceding year, constitutes a good basis for working out the gross profit. Accordingly, it applied G.P. rate declared & accepted at 2.51% in earlier year. Hon'ble High Court held that as the G.P. rate of 2.51% was applied in A.Y. 99-00 & that having been upheld by the Tribunal, the order of the Tribunal for A.Y. 00-01 was justified.
Kansara Bearings P. Ltd vs. ACIT 270 ITR 235 (Raj) dated 01.05.2003 It was held that the last year's profits declared by assessee is the best guide for application of profit rate and when the GP shown in the last year was better and AO has not given any comparable case for higher GP then his action to make the trading addition cannot be approved.
In view of above, the Ld. CIT(A) has rightly reduced the trading addition by application of g.p. rate of 11.5% for AY 2011-12 but he is not justified in applying n.p. rate of 11.75% in AY 2012-13. Hence, the ground of the department be dismissed and the CO of the assessee for AY 2012-13 be allowed. "
3.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We find that identical issue has already decided by the Coordinate Bench of the Tribunal in the assessee's own case for the A.Y. 2007-08 wherein the Tribunal considering the various aspects of the matter, sustained the N.P rate at 11.5% by observing as under :-7
ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
" 8. It is seen that n.p. rate shown by assessee during the year is 10.07% against 10.82% in immediately preceding year. Therefore, we are of the view that instead of disallowing various expenses under the individual head, it will be better if a reasonable net profit rate is applied. Keeping in mind the past history of the case and defects noted by AO, we are of the view that if a n.p. rate of 11.5% is applied then it will meet the ends of justice. Accordingly, the AO is directed to re- compute the profit by applying n.p. rate of 11.5% against n.p. rate of 10.07% shown by assessee. For the sake of clarification, the ld.
Counsel of the assessee has stated that instead of disallowing expenses head-wise, a reasonable n.p. rate should be applied. This contention of the assessee is reasonable. Accordingly we direct the AO to apply n.p. rate of 11.5% mentioned above. This ground of the assessee is allowed in part."
Therefore, following the decision of Coordinate Bench in the assessee's own case for the A.Y. 2007-08, we find no infirmity in the order of ld. CIT (A) which is hereby affirmed. The ground of the revenue is rejected.
4. Ground No. 2 relates to deletion of interest income treating the same as business profit. The ld. D/R has supported the order of the AO. He placed reliance on the decision of Hon'ble Rajasthan High Court rendered in the case of CIT vs. Bhawal Synthetics (India) (2017) 81 taxmann.com 478 (Raj.) in favour of the Revenue.
4.1. On the contrary, the ld. Counsel for the assessee supported the order of the ld. CIT (A). The ld. Counsel submitted that the interest income earned on FDR/NSC is a part of the business income as the FDRs were made for the purpose of business for giving bank guarantees at various departments for getting contracts. Thus, they are to be treated as a part of the business income. Also, the FDR were made by utilizing the bank overdraft limit on which interest is paid to the bank and which forms a part of the business expenditure. Thus, the interest income on such FDR 8 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
which was earned out of the funds placed with the bank by utilizing the bank overdraft limit is to be considered as business income and not as income from other sources. This has also been accepted in the assessee's own case from A.Y 2007-08 to 2010-11 by the ITAT/CIT (A). In support of his contentions, the ld. Counsel placed reliance on the following decisions :-
ACIT vs. Gallium Equipment (P) Ltd.
(2001) 79 ITD 41 (Del. Trib.)(TM) M/s. Rajendra Mittal Construction Co. Pvt. Ltd.ITA No. 331/JP/2014 & CO 17/JP/2014 dt. 20.07.2016.
Mehru Electricals & Engg. Pvt. Ltd.
ITA No. 215/JP/2009 dated 18.07.2014.He, therefore, prayed that in view of the above, the order of the ld. CIT (A) be upheld by dismissing the ground of the department.
4.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. After going through the case law cited by both the parties, we find that the identical issue has recently been decided by the Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Bhawal Synthetics (India) by observing in para 6 of the judgment as under :-
" 6. In the case in hand, it is not in dispute that the assessee had income of interest through FDRs and while setting off that the Assessing Officer as well as the ITAT did not examine the aspect as to under which provision the assessee claimed deduction or set off of his income from other sources against interest payable on the borrowed fund. The reason given is that the amount pertaining to FDR was not surplus amount but part of amount that was kept to obtain letter of credit for purchase of machinery. While accepting the fact that the FDR was for obtaining letter of credit to purchase machinery but so far as 9 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
interest earned thereon is concerned, that is nothing but income through other sources, as such, the Commissioner of Income Tax rightly treated the same as income taxable. So far as the second question is concerned as to whether the Commissioner of Income Tax was justified in invoking powers under section 263 of the Act of 1961 by holding that the enquiry conducted by the Assessing Officer before the assessment order was neither proper nor adequate, we would like to state that the order passed by the Assessing Officer nowhere reflects about any enquiry said to be made. It simply refers the explanation given by the assessee and nothing beyond that."
Therefore, respectfully following judgment of the Hon'ble Rajasthan High Court, supra, we set aside the order of ld. CIT (A) on this issue and restore the finding of the AO. Ground of the revenue is allowed.
5. Ground No. 3 is against the direction of the ld. CIT (A) reducing the discount from the cost of material instead of treating the same as part of the income. The ld. D/R supported the order of the AO.
5.1 On the contrary, the ld. Counsel for the assessee supported the order of ld. CIT (A).
5.2. We have heard rival contentions and perused the material available on record. The ld. Counsel for the assessee submitted that the assessee received discount from the various suppliers against the purchases made by it. He submitted that the AO wrongly treated the same as income other sources ignoring that when such discount is received from the suppliers, it needs to be reduced from the cost of the raw material consumed in contract work. We find merit in the contention of the assessee as the discount is nothing but reduction in the value of the material so supplied. Therefore, same was required to be reduced from the cost of raw material 10 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
consumed in contract work. Therefore, we do not see any infirmity in the order of ld. CIT (A), the same is affirmed. This ground of the revenue is rejected.
6. Ground No. 4 is general in nature and needs no separate adjudication.
7. In the result, appeal of the revenue is partly allowed. C.O. NO. 22/JP/2016 (ASSESSEE) :
8. The solitary ground in the assessee's Cross Objection is as under :-
" The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the addition of Rs. 7,24,787/- by applying the n.p. rate of 11.5% as against the n.p. rate of 10.78% declared by the assessee."
8.1. We have decided this issue in the revenue's appeal by affirming the order of ld. CIT (A) by following the decision of Coordinate Bench of the Tribunal in the assessee's own case for the assessment year 2007-08 thereby rejecting the ground of the revenue. Therefore, taking a consistent view of the matter, the ground of the assessee has become infractuous. Thus, the cross objection is dismissed. ITA NO. 552/JP/2016 (REVENUE) :
9. The grounds raised in the revenue's appeal arises from the order of ld. CIT (A) are as under :-
i) On the facts and in the circumstances of the case, the CIT (A) has erred in reducing GP rate u/s 145(3) from 13% to 11.75% without considering the findings of fact the AO in the assessment order.
ii) On the facts and in the circumstances of the case, the CIT (A) has erred in treating interest income from FDR & NSC as business income and part of total receipts without appreciating the facts that the interest income on FDR & NSC is income from other sources.11
ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
iii) On the facts and in the circumstances of the case, the CIT (A) has erred in directing the discount income from supplier to be reduced from cost of the material because the assessee itself has shown it as other income in the Profit and Loss account, ignoring the findings of fact given in the assessment order that discount income has been treated the 'other income' by the AO.
iv) The appellant craves leave to add, alter, amend, withdraw or insert any ground or grounds of appeal before or at the time of hearing of the appeal.
9.1. We have heard the rival contentions and perused the material on record. The grounds raised in the revenue's appeal are exactly identical to earlier assessment year 2011-12 except change in figure and we have decided the same by partly allowing the appeal of the revenue. We find no new facts in the arguments advanced by both the representatives of the parties. Therefore, following our order for the assessment year 2011-12 on the identical grounds, the appeal of the revenue is partly allowed.
C.O. NO. 23/JP/2016 (ASSESSEE) :
10. The solitary ground in the assessee's Cross Objection is as under :-
" The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the addition of Rs. 3,10,348/- by applying the n.p. rate of 11.75% as against the n.p. rate of 11.52% declared by the assessee."
10.1. Since we have decided this issue in the revenue's appeal for the assessment year 2011-12 by affirming the order of ld. CIT (A) by following the decision of Coordinate Bench of the Tribunal in the assessee's own case for the assessment year 2007-08 thereby rejecting the ground of the revenue, therefore, taking a consistent 12 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.
view of the matter, the ground of the assessee has become infractuous. Hence, the cross objection is dismissed.
11. In totality, both the appeals of the revenue are partly allowed while cross objections of the assessee are dismissed.
Order is pronounced in the open court on 24.07.2017.
Sd/- Sd/-
( HkkxpUn ½ ( dqy Hkkjr)
( BHAGCHAND) ( KUL BHARAT )
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Jaipur
Dated:- 24/07/2017.
Das/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- The DCIT Circle-7, Jaipur.
2. The Respondent -M/s. Choudhary & Brothers, Jaipur.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 551 & 552 and CO 22 & 23/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 13 ITA Nos. 551, 552 & CO Nos. 22 & 23/JP/2016 M/s. Choudhary & Brothers, Jaipur.