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Section 145(3) in The Income- Tax Act, 1995
The Income- Tax Act, 1995
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Amarjit Singh Bajwa ... vs Assessee on 23 July, 2012
Amarjeet Singh Bajwa ... vs Department Of Income Tax on 23 July, 2012

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Income Tax Appellate Tribunal - Amritsar
Surinder Pal Nayyar Contractors, ... vs Department Of Income Tax on 30 April, 2012
1                                      ITA No.366(Asr)/2010 & CO 30(Asr)/2010


           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. 366(Asr)/2010
                           Assessment year:2006-07
                           PAN:

Income Tax Officer,             Vs.   M/s Surinder Pal Nayyar, Contractors,
Nawanshahar.                          VPO Beharam, Distt. Nawanshahar.
 (Appellant)                               (Respondent)

                         C.O. No.30(Asr)/2010
                   (Arising out of ITA No.366(Asr)/2010)
                         Assessment year : 2006-07
M/s. Surinder Pal Nayyar Contractors, Vs. Income Tax Officer,
Behram, Distt. Nawanshahar.                Nawanshahar.
(Appellant)                                (Respondent)

                           Department By:Sh. Tarsem Lal, DR
                           Assessee By: Sh. Arun Singla, Adv.

                           Date of hearing :30/04/2012
                           Date of pronouncement:30/04/2012


                                ORDER

PER BENCH;

The appeal by the Revenue and C.O. by the assessee are directed against the order of the CIT(A), Jalandhar, dated 11.06.2010 for the assessment year 2006-07.

2. The Revenue has raised following grounds of appeal: 2 ITA No.366(Asr)/2010 & CO 30(Asr)/2010

"1. That on the facts and in the circumstances of the case, the Ld.
CIT(A) has erred in law in directing the AO to apply net profit rate of 5% after allowing depreciation and interest to partners on assessee's turnover as against 8% applied by the AO. 1.1 While doing so the ld. CIT(A) failed to appreciate that:
i) The rate applied by the AO is the rate prescribed in the IT Act for estimation of income of contractors who do not maintain books of account. Thus, the rate applied by AO carried the weight of logic of statute. The estimate made by te AO in applying rate of 8% was a fair estimate as it was in consonance with the spirit of section 44AD wherein the legislature has taken the rate of 8% in a no books of account case to be a fair estimate.
ii) In the case of assessee itself for assessment year 2001-02 the assessee had itself agreed to addition by applying net profit rate of 10% of gross receipts subject to allowance of salary and interest to partners and depreciation.
iii) There are various decisions of Hon'ble High Courts and Tribunals which lay down the proposition that estimation of income with or without allowing interest and depreciation were a matter of fact and no rigid formula to be made in this situation. The AO has to make the estimate based on the facts of the case."
3. In the C.O. the assessee has taken following grounds :
1) That the order of authorities below is based on pure guess work, arbitrary, prejudice as well as without any adverse material placed on record.
2) That the authorities below has completely erred in law and on facts in disallowing declared loss at Rs.417515/- on the basis of conjecture, surmises and without any cogent reasons.
3) That the Ld. AO has grossly erred arbitrarily in apply flat rate on the total receipts by invoking provisions of section 145(3) arbitrarily, forming private opinion and in the absence of any adverse material placed on the file. Hence, books of accounts may kindly be accepted.
4) That on the facts and in the circumstances of the case, the ld.
CIT(A) has erred in law in directing to apply net profit rate of 5% after allowing depreciation and interest to partners on 3 ITA No.366(Asr)/2010 & CO 30(Asr)/2010 turnover as against 8% applied by the AO. The application of 5% rate merit deletion, since it is based on own whims and caprice."
4. The brief facts relating to the issue in dispute are that the assessee filed its return of income on 30.10.2006. declaring loss of Rs.4,40,514/- but in the profit & loss account, the assessee has shown net profit transferred to capital account. The return was duly accompanied by copies of balance sheet, profit & loss account etc. Subsequently, the assessee has also filed revised return on 08.12.2008 by declaring loss of Rs.4,17,515/-. The assessee firm is a builder and contractor for road construction. The AO issued notice to the assessee u/s 143(2) of the Act and in response to the same, the Authorised Representative of the assessee appeared from time to time and produced the books of account and other documentary evidence.

After going through the books of account, return of income and other documentary evidence filed by the assessee, the AO noticed some discrepancies and issued show cause notice dated 28.11.2008 asking the assessee to file documentary evidence. In response to the query raised by the AO in the show cause notice dated 28.11.2008, the assessee filed its reply on 28.11.2008. After going through the reply filed by the assessee, the AO was of the opinion that the books of account of the assessee are not reliable and the same deserves to be rejected by taking recourse to section 145(3) of the 4 ITA No.366(Asr)/2010 & CO 30(Asr)/2010 Act. The AO accordingly rejected the same and calculated the income of the assessee at 8% of the total receipts and did not allow the expenses being flat rate has been applied to estimate the income of the assessee. The AO further held that the assessee has filed original return on due date i.e. 30.10.2006. In the profit & loss account net profit has been shown at Rs.4,67,515/- and subsequently the assessee has also filed the revised return after the due date on 08.10.2008 claiming thereby business loss of Rs.4,17,515.56 to be carried forward. The AO was of the opinion that the return of loss must have been furnished before due date prescribed u/s 139(1) of the Act, otherwise the loss cannot be allowed to be carried forward. The assessee has not filed revised return of loss before due date. Therefore, the business loss of Rs.4,17,515.56 pertaining to the assessment year 2006-07 can not be allowed to be carried forward and he allowed the business loss of Rs.9,48,030/- pertaining to the assessment year 2005-06 to be carried forward and he completed the assessment u/s 143(3) of the Act on 26.12.2008 by making the addition at 8% of gross receipts of Rs.2,38,01,582/- amounting to Rs.19,04,127/- less brought forward business loss for the assessment year 2005-06 amounting to Rs.9,48,303/-, totaling Rs.9,56,097/-. Aggrieved by the assessment order dated 26.12.2008, the assessee filed the appeal before the ld. first appellate authority, who vide impugned order dated 11.06.2010 upheld the action of 5 ITA No.366(Asr)/2010 & CO 30(Asr)/2010 the AO on the issue of rejection of books of account u/s 145(3) of the Act and also modified the order of the AO by holding that the AO has not given any reasonable explanation while applying 8% rate on the assessee's gross receipts because the AO applied 8% net profit rate when the assessee's turnover does not exceed Rs.40 lacs. The Ld. first appellate authority has also held that usually net profit rate would be expected to fall with the increase in turnover. The income assessed in the assessment year 2001-02 in assessee's case was apparently 3.6% of its net receipts. In the assessment year, however, various defects pointed out by the AO in the present assessment order had not been highlighted and the ld. first appellate authority considering the defects pointed out by the AO in the present assessment order held that it would be reasonable to estimate, net profit rate of 5%, after allowing depreciation and interest to partners on the assesse's turnover for the relevant assessment year in dispute.

5. The Ld. first appellate authority directed the AO in the impugned order to apply net profit rate at 5% after allowing depreciation and interest to the partners. The Ld. first appellate authority has further held that since return of loss was not filed by the assessee within time prescribed for carried forward loss as per Income Tax Act, the loss claimed in the revised return cannot be allowed to be carried forward and finally he partly allowed the 6 ITA No.366(Asr)/2010 & CO 30(Asr)/2010 appeal filed by the assessee by passing impugned order dated 11.06.2010. Aggrieved by the impugned order, the Revenue has filed the present appeal and the assessee has filed the C.O.

6. At the time of hearing, the Ld. DR relied upon the order passed by the AO and on the contrary the Ld. counsel for the assessee relied upon the order passed by the ld. CIT(A) except the issue raised by the assessee in the C.O.

7. The Ld. DR further argued that the AO has rightly applied the provisions of section 145(3) of the Act in the case of the assessee and the ld. first appellate authority has also rightly upheld the same. He further stated that the ld. first appellate authority has wrongly applied net profit rate of 5% after allowing depreciation and interest to the partners on the assessee's turnover as against 8% applied by the AO which is without any basis and contrary to the facts of the present case. The assessee itself agreed for applying net profit rate at 10% of the gross receipts subject to the allowance of salary and interest to the partners and depreciation for the assessment year 2001-02. But without any change of facts and circumstances of case, the ld. first appellate authority has wrongly applied net profit rate of 5% and also wrongly given the benefit of allowance of depreciation and interest to partners on assessee's turnover.

7 ITA No.366(Asr)/2010 & CO 30(Asr)/2010

8. On the contrary, the ld. counsel for the assessee stated that the assessee has produced all necessary evidence required by the AO, before the AO as well as before the ld. first appellate authority. Therefore, the AO has wrongly applied section 145(3) of the Act and ld. first appellate authority has also wrongly upheld the same. As regards the net profit rate of 5%, the ld. counsel for the assessee stated that it is on higher side and keeping in view the facts and circumstances of the present case, it may be reduced as requested originally in the return by the assessee.

9. We have heard both the parties and perused materials available with us. We have also thoroughly gone through the orders passed by the Revenue authorities on the issue raised by the Department as well as by the assessee. It is a matter of record that the assessee has filed the original return on 30.10.2008 by declaring loss of Rs.4,40,514/- but subsequently the assessee has also filed revised return on 08.12.2008 by declaring loss of Rs.4,17,515/- as mentioned by the AO at page 1. It is also a matter of record that after considering the documentary evidence filed by the assessee as well as reply to the notice dated 28.11.2008, the AO applied provisions of section 145(3) of the Act in the case of the assessee because the assessee has not filed some documentary evidence in original before the AO. Therefore, we are of the opinion that the AO as well as the ld. first appellate authority has rightly 8 ITA No.366(Asr)/2010 & CO 30(Asr)/2010 applied the provisions of section 145(3) in the case of the assessee. Secondly, as regards the benefit of carried forward losses, keeping in view the revised return filed by the assessee after due date, we are of the view that the assessee is not entitled for any carried forward losses as discussed by the AO and upheld by the ld. first appellate authority. As regards to the application of net profit rate at 5% after allowing depreciation and interest to the partners of assessee's turnover as against 8% applied by the AO, it is a matter of fact that the AO has not given any reasonable explanation while applying 8% net profit rate on the assessee's gross receipts for the assessment year under reference. The income assessed in the assessment year 2001-02 in assessee's case was apparently 3.6% of its net receipts. But in the present assessment year, the AO has pointed out various defects in the assessment order. The Ld. CIT(A) considering all the defects pointed out by the AO and finally, validly and reasonably determined the net profit rate at 5% after allowing depreciation and interest to the partners on the assessee's turnover. Keeping in view the facts and circumstances of the present case, we are of the considered opinion that the ld. first appellate authority has rightly applied net profit rate of 5% after allowing depreciation and interest to the partners on assessee's turn over as against 8% applied by the A.O. We 9 ITA No.366(Asr)/2010 & CO 30(Asr)/2010 uphold the impugned order by dismissing the appeal filed by the Department as well as C.O. filed by the assessee.

10 In the result, the appeal of the Revenue as well as C.O. of the assessee are dismissed.

Order pronounced in the open court on 30th April, 2012.

                      Sd/-                              Sd/-
                (B.P. JAIN)                       (H.S. SIDHU)
            ACCOUNTANT MEMBER                  JUDICIAL MEMBER

Dated:      30th April, 2012
/SKR/
Copy of the order is forwarded to :

1. The Assessee: M/s. Surinder Pal Nayyar Contractor, Distt.

Nawanshahar.

2. The ITO, Nawanshahar.

3. The CIT(A),

4. The CIT,

5. The SR DR, ITAT, Asr True copy By Order (Assistant Registrar) Income Tax Appellate Tribunal Amritsar Bench : Amritsar.