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TMI Blog2024 (10) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to us, when contractor is working on borrowed funds from the Bank, interest thereon should be granted to the assessee as deduction. Therefore, on the basis of the facts and circumstances and comparative history of the assessee for earlier years, we direct the AO to compute the net profit of the assessee @ 8% of the gross receipt and then grant deduction of depreciation allowance, interest paid to banks and other parties, partners and remuneration to the partners. Disallowance u/s. 40A(3) - This issue is covered in favour of the assessee by the decision of Hindustan Equipments Pvt. Ltd [ 2013 (3) TMI 221 - MADHYA PRADESH HIGH COURT ] wherein it is held that once net profit rate is applied to compute the income there is no scope o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jodhpur [The ld. AO] was dismissed. Therefore, assessee is aggrieved with the following grounds of appeal: 1. That on the facts and in the circumstances of the case, the Id CIT(A) grossly erred in upholding the validity and legality of assessment order passed by ld AO. 2. That on the facts and in the circumstances of the case, the Id CIT(A) grossly erred in disregarding to the authoritative pronouncement of Hon'ble Supreme Court, Hon'ble Jurisdictional High Court of Rajasthan and various other Hon'ble High Courts has grave consequences on the rule of law in the country and it is nothing short of exceeding his jurisdiction and a contemptuous act on his part. 3. That on the facts and in the circumstances of the case, the Id CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Civil Contractor filed its return of income on 31.10.2017 at a total income of Rs. 72,90,340/-. The case was selected for limited scrutiny by issue of notice u/s. 143(2) of the Act on 18.08.2018. The learned Assessing Officer examined the case of the assessee and found that assessee has total turnover of Rs. 22.31 crores and has earned gross profit of Rs. 3.40 crores which is 15.30% and net profit of Rs. 72,90,000/- which is 3.27% of total turnover. For earlier assessment year the assessee shown gross profit of 10.72% and net profit 3.15%. The Assessing Officer asked the assessee to provide quantities details of all the items along with opening stock and closing stock on each of the site along with the details of sub contracting, labour p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit, disallowance under Section 40A(3) of the Act. The learned CIT(A) after considering the submission of the assessee dismissed the appeal of the assessee upholding the action of the Assessing Officer. 6. The assessee aggrieved with the same has preferred appeal before us. Ld AR has furnished a paper book containing 57 pages and also relied upon the decision of the Hon Rajasthan High Court in CIT vs. Bhawan Va Path Nirman (Bohra) Co. 258 ITR 431 (Raj.). The claim of the assessee is that it has no objection to the rejection of the books of account but for the 8% of the profit estimated by the learned Assessing Officer should be subject to deduction of interest payment made to the third parties/ banks etc and further when the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing made by it for construction work. The 8% profit margin is without any corroborative and comparable instance. When the interest to partner is granted as deduction why interest to other parties should not be granted as deduction, there is no reasoning given by the learned Assessing Officer. It is not the case of the Revenue that gross profit percentage is determined by the Assessing Officer it is the determination of the net profit subject to deduction of certain further expenditure. 9. In the present case, the assessee has bank borrowing and other borrowing of more than Rs. 8.00 crores whereas the partner s capital is merely Rs. 3.00 crores. In fact for computation of total income, the partner s interest and interest to third parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of Rs. 3,75,000/- is under challenge. We find that when the books of account of the assessee are rejected and profits are estimated, There is no reason to make further disallowance of Section 40A(3) of the Act because of the reason that when the profit is estimated all kind of disallowances are incorporated therein. 11. This issue is covered in favour of the assessee by the decision of the Hon ble Madhya Pradesh High Court in 30 taxman 295 in the case of Hindustan Equipments Pvt. Ltd wherein it is held that once net profit rate is applied to compute the income there is no scope of disallowance u/s. 40A(3) of the Act. In the present case, undisputedly, profit is estimated @ 8% subject to adjustment. Therefore, respectfully following the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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