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TMI Blog2014 (8) TMI 1162X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961. 2. On the facts and circumstances whether the Ld. CIT(A) was right in directing the AO to adopt net profit rate of 7% of the total contract receipts instead of 10% applied by the A.O. in view of the decision of Hon ble ITAT Chandigarh A Bench in the case of M/s. Shivam Construction Co. and affirmed by the Hon ble High Court of Punjab Haryana in their order in ITA No.183 of 2007 dated 14.05.2007. 3. On the facts and circumstances whether the Ld. CIT(A) was right in directing the AO to adopt net profit rate of 7% of the total contract receipts instead of 10% applied by the A.O. when the jurisdictional Bench of ITAT Amritsar in the case of M/s. Pooja Construction Co., reported in ITA No. 750(Asr)/1992 had held that the application of net profit rate of 10% on gross receipts is proper. The said order of the Jurisdictional ITAT has been confirmed by the Hon ble High Court of Punjab Haryana in their order in ITA No.166 of 1999 dated 10.09.2010. 4. On the facts and circumstances whether the Ld. CIT(A) was right in deleting the addition of ₹ 30,18,501/- made on account of bank interest when the assessee had declared himself the same income in its return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26,877/-, Salary to Partners at ₹ 5,76,000/- and Depreciation on Fixed assets at ₹ 59,66,420/- aggregating to ₹ 1,07,69,197/- as claimed in the return of income. 2. That the Ld. DCIT has not been justified in making the estimation of contract income at ₹ 1,42,73,305/- by applying the N.P. rate of 10% on the gross works executed at ₹ 14,27,33,050/- is unjustified and unwarranted by law, may kindly be reduced to the extent, it has been shown by the appellant. 3. That the Ld. DCIT during the course of assessment proceedings, neither confronted us on the issue of estimation of the net profit on percentage basis, nor a show cause was issued for making such a huge addition. 4. That the Ld. DCIT has not been justified by making the addition of ₹ 6,89,203/- on account of vehicle income is unwarranted and bad in law, may kindly be deleted. 5. That the appellant prays for set aside of the assessment order. 6. That the appellant craves leave to alter or amend any existing ground or add a new ground which may be necessary or expedient in the interest of justice and fairplay. 2. The brief facts of the case are that that the assessee is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of salary and interest. It is further observed that the appellant is engaged in civil construction business and is operating at Srinagar where the profit margins are low due to hard weather conditions and intermittent stoppage of work leading to higher cost of input and labour. The only comparable cases which would apply are the cases of similar other assesses in similar working locations. In a case of M/s. Construction Engineers, Srinagar, the jurisdictional ITAT, Amritsar in ITA No.493(Asr)/2010 decision dated 11.5.2010 had directed to apply a net profit rate of 7% subject to no other allowances. Though in that case the assessment was made u/s 144 of the Act yet considering the net profit shown by the assessee and the unexplained discrepancies, I find that it would be appropriate to follow the jurisdictional ITAT, Amritsar and a net profit rate of 7% is to be applied on gross receipt without any further allowance including that of depreciation after taking into account the income from vehicle as discussed in para 4.5 of this order. 4.3. The Ld. AR of the appellant submitted that interest earned on bank FDR s had a nexus with the contract business as the appellant had of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in FDRs was inextricably linked with contract business and therefore, interest income on FDRs has to be considered as business income. The corresponding interest paid to the banks had also to be treated as business expenditure. The net of interest earned over interest paid, if higher, is to be considered for the purpose of total receipt. The AO has also not brought anything on record to show that the interest income is not earned in the course of the business of assessee. Therefore, the addition of bank interest amounting to ₹ 30,18,501/- is not sustained. 4.5. With regard to addition of ₹ 6,89,203/-, it is observed that the appellant operates vehicles, tippers and tankers for the purpose of his contract business and incurs expenses on running and maintenance of such vehicles which is charged to the profit loss account . However, during the course of business, the assessee also plies these vehicles on hire for other contractors and receives hire charges for the same. The income earned from such hire charges are to be added to the total contract receipt before applying 7% rate. 4.6. The net profit thus determined is ₹ 1,00,39,557,71 instead of ₹ 1,42, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the books of account worked out to 5.48% as against 5.46% of the last year. It may be pointed out that the order of the CIT(Appeals) suffers from some inherent defects. Furthermore, the ITAT, Amritsar Bench, Amritsar, has accepted the rate of 5% in many cases, the details of some of the cases are given here-under. Not only this, it has also been held that the depreciation has also to be allowed after applying the rate of profit. 4.1. The Ld. counsel further submitted that as far as the application of rate of 5% is concerned, the same has been accepted in the following cases:- 1, Decision of ITAT, Amritsar Bench, Amritsar, in the case of M/s. Satish Aggarwal Co., Amritsar Vs. Addl. CIT, Range- V, Amritsar in ITA No. 328(ASR)/2013 (Asstt. Year 2009- 2010), Order dated 26/08/2013.[Refer Page Nos. 1 to 20 of the Paper-Book] 2. Decision of ITAT, Amritsar Bench, Amritsar, in the case of Shri Mohan Singh Contractor Vs. ITO, in ITA No. 59 (ASR)/2012, Order dated 05/06/2012, relating to Asstt. Year, 2008-2009.[Refer Page Nos. 21 to 25 of the Paper-Book] 3. Decision of ITAT, Amritsar Bench, Amritsar, in the case of ITO Vs. M/s. Surinder Pal Nayyar Contractors, Nawanshahar, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-Tax Act. The provisions of section 184(5) are reproduced as under:- [(5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head, Profits and gains of business or profession and such interest, salary, bonus, commission or remuneration shall ,not be chargeable to income-tax under clause (v) of section 28.] 4.3. The Ld. counsel for the assessee further pointed out that this case was decided under section 143(3) of the Income-Tax Act, 1961, and not under section 144 of the Act. As such the case proposed by the department does not apply in our case as the assessment was not framed under section 144 of the Income Tax Act, 1961. In view of these circumstances, the assessee is clearly entitled to interest on the capital of the partners and the salary paid to the partners a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1994) 210 ITR (All): (1994) 74 TAXMAN 123. In view of these circumstances, it is very humbly prayed; 1. That the books of accounts as shown by the assessee may be accepted. 2. That the rate of profit cannot be applied even otherwise more than 5%, 3. Even otherwise if the rate of profit is applied the depreciation as claimed should have been allowed at ₹ 59,66,320/- 4. Again, the authorities below should have allowed the Interest the Salary paid to the partners which the assessee firm was clearly entitled. 5. The Ld. DR, on the other hand, relied upon the orders of both the authorities below. 6. We have heard the rival contentions and perused the facts of the case. On perusal of the grounds of appeal, it is found that the assessee is not in appeal against the invoking of provisions of section 145(3) of the Act. Accordingly, the ld. CIT(A) has rightly invoked the provisions of section 145(3) of the Act. 6.1. As regards the other grounds of appeal with regard to estimation of net profit rate, the ld. CIT(A) has referred to the decisions of various cases decided by this Bench, as mentioned hereinabove, which have been perused by us. The Ld. counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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