IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM ITA No. 54/JP/2013 Assessment Year : 2006-07 M/s Choudhary & Brothers, cuke A.C.I.T., Village-Ladana, Phagi, Vs. Circle-7, Jaipur. Jaipur. PAN/GIR No.: AAEFC 0190 M Appellant Respondent ITA No. 164/JP/2013 Assessment Year : 2006-07 A.C.I.T., cuke M/s Choudhary & Brothers, Circle-7, Vs. Village-Ladana, Phagi, Jaipur. Jaipur. PAN/GIR No.: AAEFC 0190 M Appellant Respondent Assessee by : Shri Rajiv Sogani (CA) Revenue by : Shri R.A. Verma (Addl.CIT) Date of Hearing : 23/08/2016 Date of Pronouncement : 28/09/2016 ORDER PER: LALIET KUMAR, J.M. These are cross appeals, one by assessee and another by revenue arise against order dated 27/11/2012 passed by ld 2 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT CIT(A)-III, Jaipur for A.Y. 2006-07, wherein effective grounds of assessee as well as revenue s appeals are reproduced as under:- Grounds of assessee s appeal:- 1. In facts and circumstances of case and in law, ld. CIT (A) has erred in confirming action of ld. AO in rejecting books of accounts and confirming net profit rate of 15% against declared rate of 10.12% and net profit rate 29.52% estimated ld. A.O. which resulted into confirming trading addition of Rs. 22,55,589/- out of total addition of Rs. 89,73,464/- made by ld. AO. action of ld. CIT (A) is illegal, unjustified, arbitrary and against facts of case. Relief may please be granted by accepting book results and deleting said addition of Rs 22,55,589/-. 2. In facts and circumstances of case and in law, ld CIT (A) has erred in confirming action of ld. AO in disallowing sum of Rs. 6,63,750/- on account of depreciation. action of ld. CIT (A) is illegal, unjustified, arbitrary and against facts of case. Relief may please be granted by quashing said disallowance of Rs. 6,63,750/-. 3. (a) In facts and circumstances of case and in law ld CIT(A) has erred in confirming action of ld AO in exceeding his jurisdiction and further in not following directions of Hon ble ITAT while adding sum of Rs. 16,40,214/-.The action of ld. CIT(A) is illegal, unjustified, arbitrary and against facts of case. Relief may please be granted by deleting said addition of Rs. 16,40,214/-. 3 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT (b) In facts and circumstances of case and in law, ld CIT (A) has erred in confirming action of ld. AO in adding sum of Rs. 16,40,214/- out of outstanding liabilities. action of ld. CIT (A) is illegal, unjustified, arbitrary and against facts of case. Relief may please be granted by deleting said addition of Rs. 16,40,214/-. Grounds of revenue s appeal:- i CIT(A) has erred in reducing net profit rate from 29.52% to 15% even when Hon ble ITAT in its set aside order dated 30/09/2010 had directed A.O., to estimate net profit on basis of past history of assessee 2. Brief facts of case are that assessee is civil contractor. 1st ground of assessee s appeal as well as revenue is against for confirming action of ld. AO in rejecting books of accounts and confirming net profit rate of 15% against declared rate of 10.12% and net profit rate 29.52% estimated ld. A.O., for which Assessing Officer has observed that year consideration i.e. for A.Y. 2006-07, assessee disclosed GP @10.12% on total turnover of Rs. 4,62,66,360/- before allowing depreciation, remuneration and interest to partners. In A.Y. 2005-06, appellant disclosed GP @ 29.52% on turnover of Rs. 1,21,02,939/-. On examination of books of accounts and bills/vouchers, it was noticed by AO that expenses are not fully vouched. assessee has maintained consolidated expenses account 4 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT and no bifurcation is available. AO completed assessment by making addition of Rs. 3410365/-by way of disallowance of various expenses @10% to 15%. same was confirmed by CIT(A). However, Hon'ble ITAT, Jaipur set aside assessment to AO vide order dated 30.09.2010 in ITA No. 583/JP/2009. Hon'ble ITAT upheld rejection of books of accounts by invoking provisions of Sec. 145(3) of Act. However, it directed that instead of making lump sum disallowance of various expenses, AO should estimate profit of assessee in view of past history. In fresh proceedings AO estimated profit @ 29.52% as shown by assessee in last year. 3. Being aggrieved by order of Assessing Officer, assessee carried matter before ld. CIT(A), who had partly allowed appeal by observing as under:- 02.3 I have duly considered material available on record. It is noticed that Hon ble ITAT, Jaipur in its subsequent order dated 31/05/2011 for A.Y. 2007-08, has estimated profit @ 11.5% on turnover of Rs. 16.84 crore. Hon ble Bench has also considered its order for A.Y. 2006-07, past history of assessee and defects in accounts books of assessee, pointed out by A.O. Assessee has claimed that with increase of turnover, profit rate is decreased. For 5 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT this very reason, he has challenged application of profit rate shown in A.Y. 2005-06. Considering profit rate of 11.5% on turnover of 16.84 crores estimated by Hon ble Tribunal in A.Y. 2007-08, profit is estimated @ 15% on turnover of 4.62 crores in A.Y. 2006-07. ground raised by appellant is partly allowed. 4. Now, assessee as well as revenue in appeal before us. ld. AR of assessee has submitted that in A.Y. 2005-06, assessee worked more on private contract orders, wherein profit margin is comparatively higher than government contracts. Due to this reason, N.P. rate in A.Y. 2005-06 is higher as compared to A.Y. 2006-07. Further, in AY 2005-06 assessee s Gross Receipts were almost 1/4th of Gross Receipts recorded for year under reference. Gross Receipts, for year under reference, are similar and closely comparable to A.Y. 2004-05. If gross profit rates for two years are compared, gross profit rate has improved from 9.89% (N.P. rate for A.Y. 2004-05) to 10.08% (N.P. rate for A.Y. 2006-07). It is further submitted that in Assessment Year 2004-05, N.P. rate of 9.89% (as declared) [Subject to depreciation, interest & remuneration to partners] was accepted by Id. CIT (A) which was also upheld by Hon ble ITAT. Thus it constitutes settled past history. 6 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT Since, in current year, assessee declared NP rate of 10.08% [Subject to depreciation, interest & remuneration to partners], same should be upheld being better than comparable preceding year i.e. AY 2004-05. Ld. CIT(A), although has referred to order of Hon ble ITAT Jaipur Bench dated 31.05.2011 for AY 2007-08 wherein NP rate of 11.5% was upheld by Hon ble ITAT Jaipur Bench. However, Id. CIT(A) has erred in not adopting rate of 11.50% and applied higher rate of 15% without giving any cogent reason. Thus, alternatively relief to assessee may be allowed by reducing rate from 15% to 11.5%. However, there is no merit in departmental appeal as ld. CIT(A) has already applied higher rate than rate upheld in assessee s own case by Hon ble ITAT Jaipur Bench. It is also brought to notice that in assessee s own case, for AY 2008-09, Hon ble ITAT vide its order dated 25.05.2012 upheld NP rate of 11.50 % [subject to deduction of salary, interest and remuneration to partners]. In view of above, relief may please be granted, by accepted declared results which are better than past results upheld by Hon ble ITAT Jaipur Bench for AY 2004-05, being most comparable 7 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT year or [ALTERNATIVELY], by following judgment of Hon ble ITAT Jaipur Bench in assessee s own case for AY 2008-09, by applying Net Profit rate of 11.5% [subject to deduction of salary, interest and remuneration to partners]. 5. At outset, ld. DR has vehemently supported order of Assessing Officer. 6. We have heard rival contentions of both parties and perused material available on record. Tribunal in its order dated 30/09/2010, has directed to estimate profit of assessee keeping in view past result of assessee after affording opportunities of being heard to assessee in this regard. ld. CIT(A) has relied upon order of Tribunal dated 31/5/2011 passed in assessment year 2007-08 to estimate profit of assessee @ 15% on turnover. In our view, order dated 30/09/2010, has directed Assessing Officer to estimate profit of assessee keeping in view past result of assessee i.e. results, which are available for past years and were existing at time of passing of order. In our view, order dated 31/5/2011 was passed by Tribunal after passing order dated 30/09/2010, therefore, same 8 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT cannot be considered to be past result considering direction issued by Tribunal in its earlier order dated 30/09/2010. Having said so, now we have to examine whether Assessing Officer has rightly estimated profit @ 29.52% or not? NP rate of 29.52% were there for assessment year 2005-06 and 9.89% for assessment year 2004-05. In our view, past result will not mean immediate past result i.e. result for A.Y. 2005-06 as said result was available with Tribunal even at time of passing of order on 30/09/2010, therefore, estimation is required to be done based on earlier results available i.e. for A.Y. 2004-05 and 2005-06. In year 2005- 06, turnover of gross contract receipts was Rs. 12102939/- and whereas gross receipts in year was Rs. 34012026/-. Whereas gross receipt in A.Y. 2006-07 was Rs. 46441234/- . Rs 46114965 is gross contract receipts for year 2004-05 and 2005-06, in our view, in fact gross receipt of 2006-07 was Rs. 46441234/-. Thus, gross receipts of 2006-07 is matching gross receipts for earlier two years. Therefore, to apply NP rate for year 2005-06 @ 29.52%, in our view, was not correct and therefore, rational view is required to be taken estimating profit of assessee. ends of justice would be served if estimate of profit of assessee is 9 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT estimated at 17% subject to depreciation, interest and remuneration to partners. Thus, appeal of assessee is dismissed and appeal of revenue is partly allowed on this ground. 7. 2nd ground of appeal is against confirming action of ld. Assessing Officer in disallowing sum of Rs. 6,63,750/- on account of depreciation. In this regard, Assessing Officer has observed that Hon'ble ITAT, Jaipur restored this issue to AO since it found contradiction in date of purchases of machinery. AO asked assessee to explain discrepancy in date of purchase of machine under consideration shown to be on 30.03.2006 while seal of RST payments is dated 01.04.2007. Assessee did not furnish any explanation. It was only stated that once books are rejected, further deduction of depreciation is not noteworthy. AO also noticed that auditor's note given at end of schedule-5 annex, with ITR mentions that machine was put to use after 31.03.2006. In view of these facts, he disallowed depreciation of Rs. 6,63,750/- on said machine. ld. CIT(A) has upheld order of Assessing Officer by observing that it has not explained discrepancies on date of purchase of machine, for which purpose, Hon ble Tribunal has set 10 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT aside issue. In view of specific note of auditor and assessee s inability to explain discrepancy. 8. Now assessee is in appeal before us. ld. AR of assessee has submitted that Hon ble ITAT Jaipur Bench remanded matter to file of Id. AO with below mentioned direction ....Since there is contradiction in date of purchase of machinery, we remand matter back to file of A.O to decide issue afresh after verifying very date of purchase of machine and that when it was ready to use in view of decision cited by Id. A.R. after affording opportunity of being heard to assessee.. Ld. AO at page 4 of his order came up with specific finding that date of purchase of machine was 30.03.2006. Thus, it is undisputed that machine was purchased on 30.03.2006 itself and was available for use within relevant previous year. It is to be noted that with regard to depreciation of machinery, even machinery which is available/ready to use and not put to use, will be eligible for claiming depreciation under Income Tax Act. Hon ble Delhi High Court in case of National Thermal Power Corpn. Ltd. [2012] 28 taxmann.com 89 (Delhi) (Case Law Page 50), adjudicated following question of law:- "... Whether on facts and in circumstances of case, assessee is entitled to depreciation in respect of capital construction equipment acquired by assessee and kept ready for use by contractor putting up power plants of assessee..." 11 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT It was held by Hon ble Delhi High that In aforesaid circumstances, we are of view that Tribunal erred in rejecting assessee's claim for depreciation on capital construction equipment kept ready for use, though not actually used, for assessment years 1979- 80 and 1980-81. common question of law is accordingly answered in affirmative, in favour of assessee and against Revenue... lower authorities have completely ignored legal proposition with regard to allow ability of depreciation w.r.t asset ready to use even though not put to use. In view of above, depreciation on relevant machinery may please be allowed as same was purchased and ready for use within relevant previous year. 9. At outset, ld. DR has vehemently supported order of ld. CIT(A). 10. We have heard rival contentions of both parties and perused material available on record. ld. AR has failed to point out bill showing that it was purchased prior to 30/03/2006 and was put to use by assessee in year under consideration. Since assessee has failed to produce any document showing uses of machine in assessment year under consideration, therefore, 12 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT depreciation on machine is disallowed. Accordingly, this ground of appeal is dismissed. 11. 3rd ground of assessee s appeal is against confirming action of ld AO in exceeding his jurisdiction and further in not following directions of Hon ble ITAT while adding sum of Rs. 16,40,214/-. Assessing Officer has observed that assessee s reply has been considered but not found acceptable. question of disallowing depreciation of certain amount does not end with invoking of provisions of Section 145(3). Since N.P. rate before giving allowance for depreciation, interest and remuneration has been applied here, assessee s contention does not hold good. Further, assessee has provided no explanation regarding discrepancy between two dates mentioned on same bill (which has been brought on record). Auditor s note given at end of Schedule-5 annexed with ITR speaks about machine being put to use only after 31/03/2006. In view thereof, sum of Rs. 27,00,150/- claimed as depreciation by assessee, for which, sum of Rs. 6,63,750/- is disallowed by Assessing Officer. 13 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT 12. Being aggrieved by order of Assessing Officer, assessee carried matter before ld. CIT(A), who had upheld disallowance by observing as under:- 0.4.3 I have duly considered submission of Id. AR and material available on records. Hon'ble Tribunal has nowhere dealt with issue of addition of unexplained liabilities (wages payable). It has only held that instead of making disallowance of expenses, A.O. should estimate profit on basis of past history. Addition of unexplained liability in balance sheet is not by way of disallowance of expenses and can be made even where books of accounts are rejected and profit estimated. assessee has not given any argument/explanation/ evidence on merit of issue. He has not proved that liability shown in balance sheet is genuine. He has not given names and addresses of persons to whom amount was payable. addition of unexplained liability is sustained u/s 68 of Act. Reliance is placed on following case laws where it has been held that there is nothing in law which prevents AO in taxing both unexplained cash credit and business income estimated after rejecting books of accounts being unreliable- 1. CIT V/S Devi Prasad Vishwanath Prasad (72 ITR 194) (SC) 14 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT 2. Kale Khan Mohammed Hanif V/s CIT (50 ITR 1) (SC) 3. Ratanchand Dipchand v/s CIT (38 ITR 188) (MP) 4. CIT v/s Madhuri Rajaiahgari Kistaiah (38 ITR 188) (MP) 5. D.C. Auddy & Bros, vs. CIT (28 ITR 713) (Cal) 6. S. Kumaraswami Reddiar Vs. CIT (40 ITR 590) (Ker) 7. Grover Fabrics (India) P. Ltd. vs. CIT (332 ITR 312) (P&H) Reliance is also placed on decision of Hon'ble Kerala High Court in case of CIT vs. Smt. Annamkuty Jose (2008) (174 Taxman 328)/ (2009) (221 CTR 474) where it has been held that if assessee claims amount as due to creditors, it is for assessee to prove same through confirmation letters as and when demanded by AO. Otherwise sundry credits can be disallowed u/s 68 of Act and added as income of assessee. In view of above discussion, addition of Rs. 16,40,214/- is confirmed. 13. Now assessee is in appeal before us. ld. AR of assessee has submitted that lower authorities have misread order of Hon ble ITAT. Lower authorities have misunderstood that addition of outstanding liabilities was upheld by Hon ble ITAT in its order dated 30.09.2010. 15 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT In view of above, assessee s appeal stood fully allowed and no addition was confirmed with regard to disallowance of outstanding expenses. In view of this, separate addition for unpaid outstanding liabilities deserves to be deleted so as to make assessment order in consonance with set aside directions as NP rate has already been applied. Without prejudice to above, it is further submitted that where books are rejected by ld. AO, no further addition can be made by relying on same books of accounts. Hon ble Jurisdictional High Court in case of G.K. CONTRACTOR (2009) 19 DTR 0305 (Raj) held that: ...However, in our considered opinion, even if assessee has failed to discharge his onus of proof in explaining cash credits shown in books of account as "market outstanding", AO having estimated higher profit rate on total contract receipts after rejection of books of account invoking provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of Act of 1961. We are in complete agreement with view taken by CIT(A), confirmed by Tribunal. Thus, no substantial question of law arises for consideration of this Court in this appeal.... He further relied on following case laws:- (i) Dulla Ram, Labour Contractor, Kotkapura [2014] 42 taxmann.com 349 (Punjab & Haryana) 16 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT (ii) CIT vs. Dhiraj R Rungta [2013] 40 taxmann.com 284 (Gujarat) (iii) CIT vs. Banwari Lai Banshidhar [1998] 229 ITR 229 (ALL.) (iv) Nardev Kumar Gupta [2013] 142 ITD 303 (Jaipur - Trib.) In view of above, disallowance made with regard to outstanding expenses may please be deleted as ld. AO not only exceeded remand jurisdiction set out by Hon ble ITAT, but also since books were rejected by ld. AO, no disallowance can further be made relying on same set of books. 14. At outset, ld. DR has vehemently supported order of ld. CIT(A). 15. We have heard rival contentions of both parties and perused material available on record. order dated 30/09/2010 mentioned that outstanding liabilities of wages has been shown as Rs. 1640214, which was disallowed by Assessing Officer and confirmed by ld. CIT(A). Again said disallowance and other disallowances , assessee was in appeal. Moreover, at page 6 of earlier Tribunal order, it is categorically mentioned that Assessing Officer had disallowed claim liabilities of Rs. 1640214 towards payable wages on basis that it is not verifiable. Thereafter, 17 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT Tribunal, by specific direction has held that disallowances in question (referred at page 1 of order), matter was remanded back to Assessing Officer to estimate profit of assessee keeping in view past result of assessee. 16. In our view, Assessing Officer was not required to travel and examine outstanding liabilities of wages of Rs. 1640214, which was specifically disallowed by Assessing Officer in earlier years and order of Assessing Officer was set aside after upholding rejection of books and specific directions were issued to estimate profit on basis of past history. Since profit of assessee has been estimated @ 17% of turnover by Tribunal hereinabove, that will take care of all disallowances earlier made by Assessing Officer in its assessment year and therefore, no specific addition should have been made by Assessing Officer under outstanding liability (wages payable), as said adjudication by Assessing Officer is beyond scope of remand proceedings, in view thereof, we have no hesitation to delete addition made by Assessing Officer to extent of Rs. 16,40,214/- towards unexplained liability shown in balance sheet. Moreover, Assessing Officer has made disallowances U/s 68 of Act, in view of judgment of Hon ble 18 ITA 54 & 164/JP/2013_ Choudhary & Brothers Vs ACIT Jurisdictional High court in case of CIT Vs. G.K. Contractor, once books are rejected and income of assessee is estimated, no separate addition can be made U/s 68 of Act. In view thereof, this ground of assessee is allowed. 17. In result, appeal of assessee as well as revenue are partly allowed. Order pronounced in open court on 28/09/2016. Sd/- Sd/- (BHAGCHAND) (Laliet Kumar) Accountant Member Judicial Member Jaipur Dated:- 28th September, 2016 Copy of order forwarded to: 1. Appellant- M/s Choudhary & Brothers, Jaipur. 2. Respondent- A.C.I.T., Circle-7, Jaipur. 3. CIT 4. CIT(A) 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 54 & 164/JP/2013) By order, Asst. Registrar M/s Choudhary & Brothers v. A.C.I.T., Circle-7, Jaipur