1998 (3) TMI 176 - AT - Income Tax

Summary

Issues Involved:
1. Application of Net Profit Rate
2. Rejection of Books of Account
3. Allowance of Depreciation on Vehicles
4. Allowance of Interest on Borrowed Capital
5. Disallowance of Business Expenditure

Issue-wise Detailed Analysis:

1. Application of Net Profit Rate:
The revenue contested the CIT(A)'s reduction of the net profit rate from 10% to 8%, while the assessee argued for a lower rate based on prior Tribunal decisions. The Tribunal ultimately decided that a net profit rate of 9% was fair and reasonable, considering the hazardous and labor-intensive nature of the fencing work on the Indo-Pak border.

2. Rejection of Books of Account:
The Assessing Officer rejected the assessee's books of account due to the absence of a stock register, daily consumption register, and verifiable vouchers for purchases and labor payments. The CIT(A) confirmed the rejection but reduced the applied profit rate to 8%. The Tribunal upheld the rejection of the books but adjusted the profit rate to 9%.

3. Allowance of Depreciation on Vehicles:
The CIT(A) disallowed the assessee's claim for depreciation on vehicles (car and jeep) used for business purposes. The Tribunal, referencing decisions in Chopra Bros. (India) (P.) Ltd. and Bishambhar Dayal & Co., directed that depreciation should be allowed when applying a flat rate of profit.

4. Allowance of Interest on Borrowed Capital:
The CIT(A) disallowed the interest on borrowed capital. The Tribunal was divided on this issue; the Judicial Member denied the claim, while the Accountant Member, citing the Punjab and Haryana High Court's decision in Vinod Kumar Bhatia, argued that interest should be allowed. The Third Member noted that the premises of the Judicial and Accountant Members were not aligned and directed the Bench to reconsider whether interest should be included in the net profit estimation or allowed as a separate deduction.

5. Disallowance of Business Expenditure:
The assessee's claim for various business expenditures recorded in the profit and loss account was disallowed by the CIT(A). The Tribunal did not specifically address this issue in its final decision, focusing instead on the broader issues of profit rate, depreciation, and interest.

Separate Judgments Delivered by Judges:
The Judicial Member and the Accountant Member delivered separate judgments on the allowance of interest on borrowed capital. The Third Member intervened due to the difference of opinion, ultimately directing the Bench to reconsider the issue with aligned premises.

Conclusion:
Both the revenue's appeal and the assessee's cross-objection were partly allowed. The Tribunal directed the Assessing Officer to compute income by applying a net profit rate of 9% and to allow depreciation if claimed. The issue of interest on borrowed capital was sent back to the Bench for reconsideration, with instructions to align the premises and decide whether interest should be included in the net profit estimation or allowed as a separate deduction.