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The Commissioner of Income Tax, Jalandha v. Aggarwal Engg. Co. (Jal.),Jalandhar Cant - ITR-113-2006  RD-P&H 4471 (20 July 2006)
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
ITA No.113 of 2006
Date of decision: 24.7.2006
The Commissioner of Income Tax, Jalandhar-II, Jalandhar.
M/s Aggarwal Engg. Co. (Jal.),Jalandhar Cantt.
CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE RAJESH BINDAL
Present : Mr. SK Garg Narwana, Advocate for Dr. N.L.Sharda, Advocate.
The Revenue has preferred this appeal proposing following substantial question of law:-
"Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that no separate addition on account introduction of unexplained cash in assessee's books of accounts and on account of unexplained payments made for purchases made outside the books can be made once the net profit rate is applied on contract receipts of an assessee for estimating his income from contract work when the provisions of ITA No.113 of 2006 2
Section 68 & 69B of the Income Tax Act are directly hit in the instant case."
The assessee is a civil contractor. He filed income tax return for the assessment year 1996-97 on 10.1.1996. Assessment was made which was cancelled under section 263 of the Income Tax Act, 1961 (for short, 'the Act'). Fresh assessment was made on 28.2.2002 under Section 144 of the Act at total income of Rs.24,99,250/- including additions of Rs.9,25,939/- on account of cash introduced in the books and Rs.9,77,535/- on account of payments made for purchases outside the books of account.
On appeal, the CIT (A) deleted the addition of Rs.19,03,474/- on account of cash included and payments for purchases outside the books of account. In an appeal filed by the assessee, the CIT (A) allowed relief on the said two counts. The Tribunal affirmed the order of the CIT (A). Hence this appeal.
Contention raised in the appeal is that separate addition on account of introduction of unexplained cash and unexplained payments for purchases outside the books of account ought not to have been deleted on the only ground that net profit rate having been applied on contract receipts of the assessee for estimating income from contract work, no further addition was called for.
We have perused the orders of the CIT (A) as well as the Tribunal. The CIT (A) observed:-
"....Having rejected the book results the separate addition was not called for on account of unexplained cash when as per facts on records cash was invariably withdrawn from bank by cheques. Similarly the addition under the head purchases does not deserve the consideration because the book results were rejected by the AO by applying net profit rate of 10%. Further it is not the case that purchases were not effected because of confirmation of some of the parties on record and same are disputed because of details mentioned in order when the basis of these details were the same books of account. The sum ITA No.113 of 2006 3
total of these factors proves that it is a case where the profits were not supported by the complete books of accounts and even the books for one contract were not reliable. Therefore, the net profit rate had to be estimated in such a case as done by the AO. Herein I do not agree with the contention of the appellant as held by the Hon'ble jurisdictional ITAT that the rate of 10% will be reasonable because that was a case where the proper books were maintained by the assessee but it is not so in the case of appellant. Considering the factors that the appellant initially defaulted in not declaring all the receipts and then also failed to prove even the authenticity of the books of accounts which were impounded by the department and further the business results not supported by purchase bills/vouchers, I am convinced that because of peculiar facts of the case it attracted the application of higher net profit rate than even the rate upheld by Hon'ble jurisdictional ITAT. The Ld. A.R was, therefore, asked as to why the net profit rate of 13% as against 12.5% applied in the quoted case decided by Hon'ble Jurisdictional ITAT be not applied and the income be not enhanced to that extent as per section 251(1)(a) of the I.T. Act. The Ld. Counsel without submitting further details chose to rely on the submissions filed earlier and mentioned that even the rate of 12.5% applied in that case was brought down to 10% by Hon'ble ITAT, Amritsar Bench. But it is already mentioned that facts of the case are peculiar in itself and does not get covered by quoted case and, therefore, in view of these facts and the profit generally declared by assessees in this line it will be fair and reasonable to apply the net profit rate of 13% to the gross receipts detected by the department which result in enhancement of income to the extent of Rs.2,14,647/-. The appellant gets relief of Rs.14,04,366/-."
ITA No.113 of 2006 4
The Tribunal observed:-
"As is observed above, the addition on account of cash credits even if the net profit rate is applicable could be made but it depends upon the facts of each case. This is a case before us which clearly shows that the addition on account of cash credits would be unjustified. We accordingly do not find any merit in the submissions of the learned DR with regard to the making separate addition on account of cash credit of Rs.12,28,600/-.
Similarly the addition of Rs.1,75,766/- was rightly deleted by the CIT (A) as it was part of the payment of purchases, which would merge with the addition made on account of addition of net profit rate. The Hon'ble Allahabad High Court in the case of CIT v. Banwari Lal Banshidhar reported in 229 ITR 229 held that once net profit rate is applied, no further addition should be made in respect of purchases. Similar view is taken by the ITAT, Allahabad Bench in the case of Gupta Construction Co. v. ACIT, reported in 84 TTJ (All) 46."
We have also perused the law laid down by Hon'ble the Allahabad High Court in Commissioner of Income-tax v. Banwari Lal Banshidhar, (1998) 229 ITR 229, wherein, it was observed:- "....When the gross profit rate is applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases by the assessee."
No contrary view has been shown or relied upon in the memo of appeal. We are of the view that CIT (A) and the Tribunal was justified in holding that once net profit rate was applied, no further addition was called for in respect of purchases and introduction of cash in the facts and ITA No.113 of 2006 5
circumstances of the case.
No substantial question of law arises.
The appeal is dismissed.
(Adarsh Kumar Goel)
July 24, 2006 (Rajesh Bindal)
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