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TMI Blog1998 (3) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... hich gave a net profit rate of 3.9%, which was considered low by the Assessing Officer. On examination of accounts, the Assessing Officer noted that the assessee was not maintaining stock register or daily consumption register. For the purchase of 'bajri' and 'sand', signatures or thumb impressions had been obtained on vouchers, giving only truck number and tractor trolley number, i.e., these payments were not open to verification. The Assessing Officer also noted that the payments to labour were also not open to verification, as no labour register had been maintained. He accordingly rejected the books of account and worked out the profit, by applying a net rate of 10% at Rs. 1,39,690. 3. On appeal, ld. CIT(A), while confirming the action of the Assessing Officer in rejecting the books, has accepted the alternate plea of the assessee that the rate applied at 10% was excessive. After taking into consideration the nature of work, i.e., fencing of wire at Indo-Pak border, which was hazardous in nature and labour-oriented, he held that, 'it will be fair and reasonable to compute profit by applying net rate of 8%.' However, the assessee's plea regarding depreciation allowance on vehicl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the peculiar facts of this case, we are of the view that it would be fair and reasonable, if profit rate of 9% is applied on total payments. The Assessing Officer is directed to compute income accordingly and allow depreciation, if claimed and particulars are available on record. But so far as interest is concerned, we are unable to accept the plea of the assessee. We also notice that depreciation was allowed in the case of Chopra Bros. (India)(P.)Ltd. v. ITO [1993] 45 ITD 85 TM. In CIT v. Bishambhar Dayal & Co. [1994] 210 ITR 118/74 Taxman 123 (All.) also, it has been held that depreciation has to be allowed, where flat rate is applied. 7. As a result, both the revenue's appeal and the assessee's cross-objection are partly allowed, as above. Per Shri R.K. Bali, Accountant Member: I have carefully gone through the proposed order of my ld. brother but I am unable to agree with his reasoning and conclusion with regard to the addition on account of interest paid on borrowed money for investment in the business of contract work relating to the fencing of wire on Indo-Pak border in Punjab. The assessee had declared a profit of Rs. 53,302 on contract receipts of Rs. 13,96,812 givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the CIT(A) was in error to reduce the same to 8%. 4. After considering the submissions of the parties, my ld. brother held that it would be appropriate to apply a net profit rate of 9% on total payments and also directed that depreciation should be allowed relying on the decision of third member in the case of Chopra Bros. (India) (P.) Ltd. as well as the decision of the Allahabad High Court in the case of Bishambhar Dayal & Co. He however refused to allow deduction on account of interest paid on borrowed capital although the Hon'ble Punjab and Haryana High Court in the case of Vinod Kumar Bhatia has approved the action of the Tribunal in allowing depreciation as well as interest when the profit in the case of a contractor is estimated by applying a flat rate. 5. My ld. brother has extracted a portion of the judgment in the case of Vinod Kumar Bhatia in para 6 of the proposed order to prove the point that what the High Court decided in that case was that the facts in that case did not give rise to a question of law which required the opinion of the High Court and the High Court was not sitting in appeal over the order of the Tribunal dated 3-7-1992. 6. As far as the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xists in our country, it is necessary for each lower tier, including the High Court, to accept loyally the decisions of the higher tiers. It is inevitable in a hierarchical system of Courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary. But the judicial system works only if someone is allowed to have the last word and that last word, once spoken, is loyally accepted. The better wisdom of the court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system." Accordingly I will direct that the income of the assessee be determined by applying a net profit rate of 9% as suggested by my ld. brother but further direct that after computing the income by applying net profit rate of 9%, the assessee should be allowed further deduction on account of depreciation as well as interest paid on borrowed money for purposes of business in accordance with the decision of the Punjab and Haryana High Court in the case of Vinod Kumar Bhatia. The appeal of the Revenue as well as the cross-objection of the assessee are allowed in terms of the above directions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee should be given deduction of interest paid on borrowed money in the light of the decision of the Hon'ble Punjab & Haryana High Court in the case of Vinod Kumar Bhatia. 4. On this difference of opinion, the above point was referred to me. At the time of hearing before me, Shri Rakesh Goel, ld. D.R. appeared for the revenue and Shri Tej Mohan Singh, ld. A.R. appeared for the assessee. 5. On careful consideration of the rival submissions, in the light of material on record, I am of the view that the question referred, cannot be answered as the premises on which the question referred by the ld. Members are not the same. Apparently, there is no discussion by the ld. Judicial Member that the amount borrowed was not for the purpose of the business. In such a case, the presumption is that the amount was indeed borrowed for the purpose of the business, but the interest has already been included while estimating the net profit from the contract receipt. In other words, the ld. Judicial Member held that all the expenses including the interest paid by the assessee have already been included in the inputs and need not be separately deducted. On the other hand, ld. Accountant Member allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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