Income Tax Appellate Tribunal - Amritsar
Construction Engineers, Srinagar vs Department Of Income Tax on 27 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.493(Asr)/2010
Assessment year:2001-02
PAN:AABFC7715P
M/s. Construction Engineers, Vs. The Assessing Officer,
54, Industrial Estate, Srinagar.
Srinagar.
(Appellant) (Respondent)
I.T.A. No.494(Asr)/2010
Assessment year:2005-06
PAN:AABFC7715P
M/s. Construction Engineers, Vs. The Assessing Officer,
54, Industrial Estate, Srinagar.
Srinagar.
(Appellant) (Respondent)
I.T.A. No.381(Asr)/2010
Assessment year: 2005-06
Dy. Commissioner of Income Tax Vs. M/s. Construction Engineers,
Cir.3, Srinagar. Srinagar.
(Appellant) (Respondent)
I.T.A. No.495(Asr)/2010
Assessment year:2007-08
M/s. Construction Engineers, Vs. The Assessing Officer,
2
54, Industrial Estate, Srinagar.
Srinagar.
(Appellant) (Respondent)
I.T.A. No.382(Asr)/2010
Assessment year: 2007-08
Dy. Commissioner of Income Tax Vs. M/s. Construction Engineers,
Cir.3, Srinagar. Srinagar.
(Appellant) (Respondent)
Assessee By: Sh. Mushtaq Ahmed Mir,
Department By:Sh. Tarsem Lal, DR
Date of hearing :27/04/2012
Date of pronouncement:11/05/2012
ORDER
PER BENCH:
These two cross appeals of the assessee and the Revenue arise from two different orders of the CIT(A), Bhatinda, each dated 28.06.2010 for the assessment years 2005-06 & 2007-08.
2. The assessee has also filed appeal for the assessment year 2001-02, which arises from the order of the CIT(A), Bathinda, dated 28.06.2010.
3. The assessee has raised following grounds in ITA No.493(Asr)/2010 for the assessment year 2001-02:
3
"1. That the Ld. CIT(A) has erred both in law and facts by confirming the addition of Rs.30,00,000/- made by the AO on account of non-verification of creditors. The addition is adhoc in nature liable to be deleted.
2. That the Ld. CIT(A) has erred both in law and facts by confirming the addition of Rs.4,92,322/- made by the AO on account of non-verification of creditors. The addition is arbitrary in nature liable to be deleted.
3. The appellant reserves the right to amend, alter, add, any grounds of appeal."
4. In ITA No.494(Asr)/2010, the assessee has raised following grounds of appeal for the A.Y. 2005-06.
"1. That the Ld. CIT(A) has grossly erred both in law and facts by confirming the order passed by the AO u/s 144 of the Income Tax Act, 1961. The order is illegal and liable to be quashed.
2. That the Ld. CIT(A) grossly has erred both in law and facts by confirming the application net profit rate of 10% on Gross Receipts. The rate applied is too excessive in comparison to what has been held reasonable by the Hon'ble Bench of ITAT, Asr. The application of rate is arbitrary, liable to be deleted.
3. That the Ld. CIT(A) has erred both in law and facts by confirming the addition of Rs.14,07,003/- made by the AO on account of interest and fixed deposits.
4. The Ld. CIT(A) has grossly erred in not allowing interest and salary paid to partners of the firm and treating the firm as AOP. The confirmation of disallowance made by the A.O. is arbitrary."
5. The Revenue in ITA No.381(Asr)/2010 has raised following grounds for the A.Y. 2005-06:
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"1. That the Ld. CIT(A) has not appreciate the fact that the assessee was afforded ample opportunities to furnish documentary evidence to prove the genuineness of agriculture income shown by the partners in their capital income, keeping in view judgment of different Tribunals wherein it has been held that where firm's books of account shows credits in the name of partners and no satisfactory explanation/evidence is given by the assessee, these unexplained credits can be treated as deemed income:
a) CIT vs. Shiv Shakti Timbers (MP) 229 ITR 505
b) Anand Ram Raitani vs. CIT (Guj) 223 ITR 544
c) Shanta Devi vs. CIT (P&H) 171ITR 532
d) DCIT vs. Punjab Kirana Bhandar (ITAT) JP 64 ITD 92
e) CIT vs. Kishori Lal SantoshiLal (Raj) 216 ITR 9
f) Hardwarmal Omkarmal vs. CIT ( P & T) 102 ITR 779
2. That the appellant craves to add or amend or alter the ground of appeal before the appeal is heard."
6. In ITA No. 495(Asr)/2010, the assessee has raised following grounds of appeal:
"1. That the Ld. CIT(A) has grossly erred in both law and facts by confirming the order passed by the Ld. AO u/s 144 of the Act. The order is illegal and liable to be quashed.
2. That the Ld. CIT(A) has grossly erred in both law and facts by confirming the application of net profit rate of 10% on gross receipts. The rate applied is too excessive in comparison to what has been held reasonable by the Hon'ble Bench of ITAT, Asr. The application of rate is arbitrary, liable to be deleted.
3. That the Ld. CIT(A) has grossly erred in both law and facts by confirming the application of net profit rate of 10% on Gross receipts of Rs.46,56,60,644/- when actual gross receipts 45,32,03,843/-. Both the rate applied and the gross receipts taken for computation is excessive in comparison to what has 5 been held reasonable by the Hon'ble ITAT Bench, Asr. The application is arbitrary, liable to be deleted.
4. The Ld. CIT(A) has grossly erred in not allowing interest and salary paid to the partners of the firm and treating the firm as AO. The confirmation of disallowance made by the AO is arbitrary.
5. The Ld. CIT(A) has erred both in law and facts by confirming the addition of Rs.4,53,458/- made by the Ld. AO on account of interest on fixed deposits.
6. Te Ld. CIT(A) has erred in law and facts by confirming the addition of RS.6,69,340/- made by the ld. AO on account of other receipts."
7. In ITA No.382(Asr)/2010 for the assessment year 2007-08, the revenue has raised following grounds:
"1. That the ld. CIT(A) has erred in deleting the addition of Rs.23,28,303/- on account of reducing the net profit rate from 10.5% to 10% on gross receipts, in view of the decision of the Hon'ble Allahabad High Court in the case of Delta Engineering Pvt. Ltd. vs. CIT(1990) 186 ITR 383, 385.
2. The Hon'ble High Court of P & H in its decision in the case of CIT vs. Prabhat Kumar (2010) 323 ITR 675, upheld the application of 12% on contract receipts as reasonable rate of profit.
3. That the ld. CIT(A) has erred in allowing the depreciation claimed by the assessee in its return of income in view of the decision of the Hon'ble P & H High Court in the case of CIT vs. Gian Chand Labour Contractor 214 CTR 149 (2008).
4. That the appellant craves to add or amend or alter the ground of appeal before the appeal is heard."6
8. First of all, we take up appeal of the assessee in ITA No.493(Asr)2010 for the assessment year 2001-02. The brief facts are that assessment in this case was completed u/s 143(3) of the Act on 31.03.2004 at an assessed income of Rs.1,18,26,008/-. Aggrieved by the order the assessee had gone into appeal before the ld. CIT(A) and the ld. CIT(A), Bathinda in his order passed u/s 250(6) of the Act dated 03.05.2008 has deleted all the additions (Rs.4,92,322/-, Rs.30,00,000/-, Rs.3,75,000, Rs.9,00,000/- and Rs.13,57,330/-) made by the AO except an addition of Rs.3,02,016/-. The department had gone into appeal before the ITAT, Amritsar Bench, Amritsar against the order u/s 250(6) dated 03.05.2008 of the ld. CIT(A), Bathinda. The ITAT, Amritsar Bench, vide order dated 25th Jan., 2008 remanded back two issues to the file of the AO for verification and examination of the vouchers of M/s. Chinar Batteries amounting to Rs.4,92,322/-. The ITAT, Amritsar Bench observed as under:
"So far as regards the merits, the ld. CIT(A) deleted the addition of Rs.4,92,322/- inspite of having observed that the AO had not verified or confirmed the veracity of the vouchers of M/s. Chinar Batteries as furnished by the assessee. The proper course would have been to remit the matter to the file of the AO for doing the needful it is now so ordered. This issue remanded to the file of the AO to verify the vouchers of M/s. Chinar Batteries as furnished by the assessee and then to decide the merits of addition.
The ITAT, Amritsar Bench further observed as under:7
"However, it was not right on the part of the ld. CIT(A) to delete the entire addition for the fact that sufficient time was not allowed by the AO to the assessee for producing the creditors for cross-examination. The issue still remains as to whether the delay was on the part of the AO or that of the assessee. Be that as it may, it would be appropriate to remit this issue also to the file of the AO for decision afresh on affording adequate opportunity of hearing to the assessee by allowing him time to produce the sundry creditors for cross examination."
8.1. The assessee in the present assessment year submitted that the creditors pertain to the financial year 2000-01 and the whereabouts of many of them are not known and many of them were labourers from Bihar and other parts of the country. The production of these creditors would not be possible in view of the time lapse and the nature of contract business. The AO issued show cause notice to the assessee to submit complete names and addresses of the sundry creditors for examination, as per direction of the ITAT, Amritsar Bench. It was also mentioned in the said show cause notice to furnish the required information and produce sundry creditors which would lead to finalization of assessment in your case based on the facts available on record. The assessee filed list of creditors alongwith addresses. The AO observed that the given addresses are not complete and communication of the said addresses is not possible. The assessee was given an opportunity to produce creditors but the assessee through its accountant submitted that production of labourers will not be possible in view of the 8 time lapse of more than 8 years. The AO accordingly observed in the light of facts and circumstances of the case, the verification of creditors at this point of time is not possible, as such estimate the disallowance made on account of sundry creditors by the then AO seems reasonable and accordingly he made the addition of Rs.30 lacs made by the AO in the first round. 8.2. As regards verification of vouchers of M/s. Chinar Batteries is concerned, it was submitted that the said concern is no more available at the given address. On 22.12.2008, notice u/s 133(6) of the Act was issued to M/s. Chinar Batteries, calling for furnishing of complete account of the M/s Construction Engineers. On 26.12.2008, the Proprietors of M/s. Chinar Batteries attended and furnished a written submission wherein it was submitted that the relevant records are not available with him and the same stands gutted in a fire incident in 2004. He admitted that he had some transactions with the assessee firm. However, he could not give any figure at this point of time and he could not verify or confirm the transactions in view of the non-availability of the records. The AO observed that genuineness of the transaction could not be established and accordingly made the addition of Rs.4,92,322/- as done by the AO in the first round. 9 8.3. Before the ld. CIT(A), the assessee made submissions which were sent for report from the AO. The AO submitted remand report and on consideration of the remand report and submissions of the assessee, the Ld. CIT(A) confirmed the action of the A.O. 8.4. The Ld. counsel for the assessee argued that once trading results have been accepted, no addition under section 68 of the Act can be made. The labourers which hailed from Bihar and other parts of the country, were not possible to produce after time lapse of more than 8 years. The list of creditors was produced before the A.O. If the creditor is not available at the given address, then assessee cannot be penalised for the same. Similarly, in the case of M/s. Chinar Batteries, the assessee himself who attended in compliance to notice u/s 133(6) and confirmed transactions of having some with the assessee but failed to produce any record which were destroyed in fire. Copies of account could not be given by the creditor. Therefore, the assessee cannot be penalized for levy of tax in the hands of the assessee. 8.5. The Ld. DR, Sh. Tarsem Lal, on the other hand, relied upon the orders of both the authorities below. Mr. Tarsem Lal, further argued that the assessee cannot escape when he committed to produce vouchers, in the case of M/s. Chinar Batteries, which were not produced during the assessment 10 proceedings in the second round. The assessee cannot escape in not producing sundry creditors when the matter was remanded only for this purpose by the ITAT, Amritsar Bench. Therefore, the claim of the assessee should be rejected and the order of the ld. CIT(A) be confirmed.
9. We have heard the rival contentions and perused the facts of the case. As regards the addition of Rs.4,92,322/- is concerned, the AO is bound to follow the directions of ITAT's order dated 25.01.2008, where AO was required to verify the vouchers of M/s. Chinar Batteries and then to decide the issue on merits. The AO accordingly issued notice to M/s. Chinar Batteries. The proprietor Sh. Ajaz Ahmed Bhat Prop. of M/s. Chinar Batteries appeared before the AO in lieu of notice u/s 133(6) of the Act. He submitted before the AO that records are not available with him as the same stands totally gutted in a fire incident in 2004. However, he admitted that he had some transactions with the assessee firm, however, he cannot give figure at that point of time and cannot verify or confirm the transactions in view of non-availability of records. The AO has followed the directions of ITAT's order dated 25.01.2008 for calling the information i.e. the vouchers etc. for verification but at the same time when the vouchers are not possible to be produced by the creditor, then the AO has to decide the issue on the basis of 11 material available on record. In the present case, the assessee has co- operated in the assessment proceedings and had appeared before the AO. The records having gutted in fire has not been doubted by the AO. No material has been brought on record against the assessee that the creditor knowingly does not want to produce the relevant records. Moreover, the creditor had appeared before the AO and had stated that he had some transaction with the assessee but the same are not verifiable because of non- availability of records for the reasons mentioned hereinabove. The AO, therefore, failed to decide the matter on the basis of material on record. In the present case, the creditor M/s. Chinar Batteries pertain to expenses on account of labour expenses, whereabouts of many of them are not known which are from different parts of the country like Bihar etc. The expense claimed by the assessee is not in doubt at any stage neither in the first round of assessment nor in the present assessment proceedings. The trading result having been accepted by the AO in the first round in the order u/s 143(3) dated 31.03.2004, was not a subject matter of dispute. For the sake of clarity, the order of the AO dated 31.03.2004 at page 2 is reproduced for the sake of clarity as under:
"Regarding the profit rate of 12.5% declared by the assessee, it is stated by the assessee that NP declared is very reasonable and has to be accepted as per the appellate orders in his case. I have considered the argument of the assessee and perused the records of earlier years 12 and the orders of the Appellate authorities in the case of preceding years. The net profit declare at a rate of 12.5% on the total receipts is found reasonable in the business line followed by the assessee. The trading results are in accordance with the books of accounts maintained and produced by the assessee for examination. In view of these facts the profit rate declared by the assessee is accepted as shown."
9.1. Therefore, when trading expense having been accepted, then no addition on account of the same creditors can be made and that too u/s 68 of the Act. Therefore, the addition of Rs.4,92,322/- confirmed by the ld. CIT(A) is directed to be reversed and AO is directed to delete the said addition.
10. As regards the addition of Rs.30.00 lacs is concerned, it is pertinent to refer to assessment order at page 3 in the first round dated 31.03.2004 w.r.t the impugned addition, which for the sake of clarity is reproduced as under:
"9. Further assessee has shown huge balances against some parties which could not be verified even after invoking provisions of section 133(6) and 131. Moreso, assessee has not produced the creditors for cross examination, as was required from it and requested for further time for doing the needful, which is not possible in view of the time limitation involved in the case. In this way the genuineness of the creditors shown by the assessee could not be ascertained due to paucity of time and other facts narrated hereinabove. After considering the reply filed, arguments made and keeping in view of the discrepancies discussed supra. Inflated balances in respect of the sundry creditors shown cannot be ruled out. To check the leakage of profits on account of inflated and fictitious sundry creditors, I disallow Rs.3000000/- on account of inflated sundry creditors shown in the accounts."13
10.1 It is with this background, the ITAT, vide its order dated 25.01.2008 has remitted the issue to the file of the AO for deciding afresh on affording opportunity of hearing to the assessee by allowing him to produce Sundry Creditors for cross-examination. In the present assessment proceedings, the assessee filed the list of creditors alongwith their addresses. The addresses were noted by the AO as incomplete. The assessees could not produce the creditors, for the reasons that it is not possible to produce the creditors in view of time lapse of more than 8 years. In such time circumstances, when the assessee is not able to produce the creditors after a lapse of more than 8 years and the assessee has given the last available addresses with it and having accepted the trading results, as mentioned hereinabove, whether any addition that too on estimated basis can be made is a question. According to us, no such addition can be made by the AO, for the reason that assessee has done what possible could be done in the circumstances of the case i.e. by submitting the list of Sundry Creditors with their last known addresses. If the said creditors are not available at their addresses, the assessee cannot be penalized for the same. Moreover, the estimated addition of Rs.30.00 lacs out of total creditors of RS.2,65,65,443/- cannot be made, once trading results having been accepted. The assessee could not produce the creditors is not in doubt and no adverse material in this regard has been brought on 14 record that this is unexplained income of the assessee. Therefore, in the circumstances and facts of the case, the AO is not justified in making addition of Rs.30.00 lacs. The same is directed to be deleted. The order of the ld. CIT(A) is reversed accordingly. Thus, both the grounds of the assessee are allowed.
11. In the result, appeal of the assessee in ITA No.493(Asr)/2010 is allowed.
12. Now we take up appeal of the assessee in ITA No.494(Asr)/2010 and appeal of the Revenue in ITA No.381(Asr)/2010 for the assessment year 2005-06.
12.1. The ground No.1 of the assessee was not pressed by the ld. counsel for the assessee and the same is dismissed as not pressed. 12.2. As regards ground Nos. 2 to 4, the brief facts are that the assessee is a civil contractor and during the impugned year, the assessee declared net profit of Rs.68,58,372/- on the total gross receipts of Rs.11,09,97,101/- and accrued interest of Rs.14,07,003/-. The assessee was asked to submit information as per notice issued under section 142(1) of the Act, dated 27.09.2007. With regard to the claimed expenditure of Rs.7,93,69,587/- on account of material consumed and labour expenses and also other details as asked for in the notice u/s 142(1) available at page 1 to 3 of AO's order. No 15 compliance in this regard was made by the assessee and the AO proceeded to make the assessment u/s 144 of the Act and estimated the income. For this he relied upon the decision of the ITAT, Chandigarh Bench, in the case of Shivam Construction Co. vs. ACIT, in ITA Nos. 383 & 384/2004, 622/2005, 385 & 385/2004 and 728/2005. It was also held by the ITAT in this case that in the case of a Civil contractor, the net profit rate of 10% on the gross receipts was fair and reasonable estimate of income from contract business, if the assessee failed to substantiate the books of account with the evidence/vouchers. The ITAT, Chandigarh Bench, directed to allow further expenditure on account of interest and salary paid to partners but clearly prohibited from allowing any deduction on account of depreciation or any other expenditure claimed by the assessee. The said decision of the ITAT, Chandigarh Bench, has been affirmed by the Hon'ble Punjab & Haryana High Court, in its order in ITA No.183 of 2007 dated 14.05.2007. Following the same, the AO applied net profit rate of 10% on the gross receipts of contract of Rs.11,09,97,101/-. From the said, income determined by application of net profit rate of 10% which arrived at Rs.1,10,99,710/- and interest on capital and the salary paid to partners at Rs.23,43,431/- was reduced and accordingly the income was assessed.
1612.3. The assessee also credited the interest accrued on fixed deposits amounting to Rs.14,07,003/- to the profit & loss account. Since the income does not arise out of contract receipts and therefore, the AO observed that the same has to be assessed separately, as income from other sources. The assessee also declared agricultural income at Rs.18,00,704/- which was credited to capital account of partners. No documentary evidence to the same was furnished by the assessee and accordingly the same was added to the income of the assessee u/s 68 of the Act.
12.4. The A.O. also observed vide para 2 of his order at page 8, as the income of the assessee from contract business has been estimated after invoking the provisions of section 144 of the Act and therefore, in view of section 184(5) of the Act, the firm is not liable to be assessed as such for the concerned assessment year and shall be assessed in the same manner as an AOPs and all the provisions of the Act, will apply accordingly. As such the assessee will not be entitled to any deduction on account of interest and salary paid to partners and therefore, the said amount of Rs.23,43,431/- was added to the income of the assessee.
12.5. On appeal, the Ld. CIT(A) confirmed the action of the AO with regard to application of net profit rate of 10%, assessment of interest on fixed 17 deposits amounting to Rs.14,07,003/- as income from other sources and did no allow interest and salary paid to partners and treatment of the firm as AOPs but the agricultural income of Rs.18,00,704/- was deleted with a direction to verify the same from the assessment record of the partners by taking into consideration the remand report of the assessee.
13. We have heard the rival contentions and perused the facts of the case. There is no dispute to the applicability of section 145(3) of the Act or assessment made u/s 144 of the Act. As regards the estimation of income, the AO has followed the decision of ITAT, Chandigarh Bench, in the case of Shivam Construction, which case has been affirmed by Hon'ble High Court of Punjab & Haryana, as mentioned by AO in para 9 of his order. Whether the facts in the case of Shivam Construction are identical to the facts of assessee's present case have not been brought on record. Therefore, the decision in the case of Shivam Construction cannot be made applicable in the present case.
13.1. The Ld. Counsel for the assessee argued that in case of Contractors, CBDT had issued guidelines for taking the cash in scrutiny with net profits are declared less than 5%. The past practice of the assessee accepted by the department should be followed which is less than 5% and does not exceed 6.5% of total contract receipts.
1813.2. The Ld DR, on the other hand, relied upon the orders of both the authorities below.
13.3. After hearing the parties and perusal of records, we are of the view that in the absence of any comparable case on record and on the basis of past trend of the assessee and to meet both the ends of justice, a net profit rate of 7% shall be reasonable by the assessee. The interest on fixed deposits amounting to Rs.14,07,003/- has to be assessed as income from other sources, being not the income from contract business. Therefore, this income has to be excluded from the total contract receipts. The AO is directed to act accordingly.
14. As regards the disallowance of interest and salary to partners and treatment of firm as an AOP, when assessment is made u/s 144 of the Act, the provisions of section 184(5) are very clear and therefore, we do not find any infirmity in the order of Ld. CIT(A) in this regard.
15. As regards the agricultural income by the partners, who have invested the said income in capital on assessee's firm, the AO cannot make any addition in the hands of the firm, even if such capital invested remains unexplained. The reliance is placed on the decision of various courts of law as under:
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i) CIT vs. Rameshvar Dass Suresh Pal Cheeka (2007) 163 Taxman 270 (P&H).
ii) CIT vs. Burma Electro Corporation (2001) 252 ITR 344 (P&H).
15.1 Therefore, the AO is not justified in making such addition in the hands of assessee firm. The Ld. CIT(A) has rightly deleted the addition so made by the AO. Thus, ground No.2 of the assessee is partly allowed, ground Nos.3 & 4 of the assessee are dismissed and the appeal of revenue is dismissed.
16. In the result, the appeal of the assessee in ITA No.494(Asr)/2010 is partly allowed and that of Revenue in ITA No.381(Asr)/2010 is dismissed.
17. Now we take up appeal of the assessee in ITA No.495(Asr)/2010 and appeal of the Revenue in ITA No.382(Asr)/2010 for the assessment year 2007-08.
17.1. The assessee has not pressed ground No.1 of the appeal and the same is dismissed as not pressed.
17.2. In other grounds, the brief facts are that the assessee had declared gross contract receipts of Rs.45,32,03,843/- and had declared net profit of Rs.2,30,64,265/- at net profit rate of 5.08%. The assessee filed revised return on 31.03.2009 whereas the original return was filed by the assessee on 20 29.03.2008. which was beyond the due date as specified u/s 139(1) of the Act. No cognizance was given to the revised return by the AO. In the second return, the assessee had declared total gross contract receipts at Rs. 46,23,595/- and total net profit of Rs.2,52,17,900/- was declared. The assessee had claimed material expenses of Rs.34,45,14,173/-, labour expenses of Rs. 3,84,30,476/-, freight expenses amounting to Rs.1,50,98,996/- and establishment expenses at Rs.70,07,367/-. The other expenses were claimed in the profit & loss account. As per show cause notice given for filing the relevant details, the assessee did not furnish any detail. The assessee did not furnish books of account and other details asked for, for the reasons that the same were available with Sh. Ashok Koul, CA, who had expired in moth of October, 2009. A show cause notice was given to the assessee why the best judgment under section 144 of the Act be not made by applying a net profit rate of 12.5% on gross contract receipts without giving any further deduction on account of salary and interest to partners, depreciation and other incomes to be assessed separately. The AO reproduced the said letter in his order at pages 8 & 9. In response to the said show cause the authorized representative of the assessee vide letter dated 24.12.2009 submitted that the assessee had maintained books of account and extracts of the said bank account are submitted in response to the 21 questionnaire with other details from time to time. The A.R. had submitted only summary of purchases, labour expenses, fuel, establishment expenses, repair and maintenance on monthly basis and copy of account of freight charges. However, these informations were not verifiable as these were not complete and were only summary of the expenses on monthly basis. The AO accordingly proceeded to make assessment under section 144 of the Act. As per details of the relevant bills computed by the AO, the gross amount of the contract had been worked out at Rs.46,56,60,622/- which had accrued to the assessee in respect of the work done for different agencies during the year under consideration on the basis of mercantile method of accounting. The assessee had accounted for gross contract income on receipt basis. The assesse had also included certain amount during the year but pertaining to the earlier years. Similarly, it had accepted certain amount which had been received in the subsequent year. The contract receipts as per TDS certificate were at Rs.45,96,60,544/-. The AO accordingly took the gross contract amounts on the basis of bills at Rs.46,56,60,622/-. The AO after discussing the facts on the closing stock for the material and closing work-in-progress, accordingly re-casted the trading account at page 18 of the order and worked out net profit rate of 9.86% of the gross contract receipts. The A.O. accordingly estimated on the basis of the re-casted trading and profit & loss 22 account and noticing violations under section 40A(3), 40(a)(ia) of the Act, computed net profit rate of 10.5% of the gross contract receipts under section 144 of the Act and considering not to allow interest, salary, bonus, commission etc. to the partners in view of section 184(5) of the Act, considering the said firm as an AOP being the assessment made u/s 144 of the Act. The AO also treated Rs.6,69,340/- as other receipts which were treated by the assessee as business receipts. The AO relied upon the decision of the Hon'ble Punjab & Haryana High Court, in the case of CIT vs. Shivam Construction Co. (supra). The AO also treated the accrued interest of Rs.4,53,458/- on fixed deposits as income from other source, which were included by the assessee in the profit & loss account as business receipt. On appeal, the learned CIT(A) confirmed the action of the A.O.
18. We have heard the rival contentions and perused the facts of the case. The facts in the present case in ground No. 2,3,4 & 5 are identical to the facts in assessee's own case for the assessment year 2005-06, which have been decided by us hereinabove in ITA No.494(Asr)/2010 and 381(Asr)/2010 of even date in ground No.2, 3 & 4 in the said appeal and solitary ground in revenue's appeal. The AO in the present case has applied a Net Profit rate of 10.5%. The Revenue has relied upon the decisions of 23 Hon'ble Punjab & Haryana High Court mentioned in the grounds of appeal. Since the issue is identical in the present case as in assessee's own case for the assessment year 2005-06, therefore, our order hereinabove in ITA No.494(Asr)/2010 and ITA No.381(Asr)/2010 of even date shall be applicable in the present case and accordingly a net profit rate of 7% shall be reasonable on the gross contract receipts declared by the assessee minus interest on fixed deposits and other receipts. The AO is directed to act accordingly. Further, the Ld. CIT(A) has rightly treated the firm as an AOP and has rightly disallowed interest and salary to partners. The Interest income has rightly been treated as income from other sources.
19. As regards other receipts amounting to Rs.6,69,340/- which are fully reflected in the books of account. Once having applied a net profit rate, then no addition can be made on account of creditors declared by the assessee. The same is directed to be deleted. Thus, grounds No. 2 & 3 of the assessee are partly allowed. Grounds No. 4 & 5 of the assessee are dismissed. Ground No.6 of the assessee is allowed. The appeal of the Revenue is also partly allowed. Thus, appeal of the assessee in ITA No.495(Asr)/2010 and appeal of the Revenue in ITA No.382(Asr)/2010 are partly allowed.
20. Thus, the appeals of 24
i) Assessee in ITA No. 493(Asr)/2010 is allowed.
ii) Assessee in ITA No.494(Asr)/2010 is partly allowed.
iii) Revenue in ITA No.381(Asr)/2010 is dismissed
iv) Assessee in ITA No.495(Asr)/2010 is partly allowed
v) Revenue in ITA No.382(Asr)/2010 is partly allowed. Order pronounced in the open court on 11th May, 2012.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 11th May, 2012
/SKR/
Copy of the order is forwarded to :
1. The Assessee:M/s. Construction Engineers, 54, Industrial Estate, Srinagar.
2. The DCIT, Cir.3/AO Srinagar.
3. The CIT(A),
4. The CIT,
5. The SR DR, ITAT, Amritsar True copy By Order (Assistant Registrar) Income Tax Appellate Tribunal Amritsar Bench : Amritsar.
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