IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM ITA No. 642/JP/2016 Assessment Year : 2009-10. M/s. Pradeep Kumar Contractor, Assistant Commissioner of Morolia Mension, Station Road, Vs. Income Tax, Circle, Jhunjhunu. Jhunjhunu. PAN No. AAGFP 9445 C Appellant Respondent Assessee by : Shri Manish Agarwal (CA) Revenue by : Shri R.A. Verma (Addl. CIT) Date of Hearing : 17.10.2016. Date of Pronouncement : 21/10/2016. ORDER PER SHRI KUL BHARAT, JM. This appeal by assessee is directed against order of ld. CIT (Appeals)- 35, New Delhi/Camp Office at Jaipur dated 17.03.2016 pertaining to A.Y. 2009-10. assessee has raised following grounds of appeal :- 1. On facts and in circumstances of case ld. CIT (A) has grossly erred in upholding rejection of books of accounts u/s 145(3) of Income Tax Act, 1961. Appellant prays rejection of books may please be held as bad in law. 2. On facts and in circumstances of case ld. CIT (A) has grossly erred in upholding net profit rate 8.25% applied by ld. AO on gross contract receipts, arbitrarily. Appellant prays that Net profit rate so applied is excessive and high in view of comparable cases in same line of business and past history of appellant. Thus Net profit declared by appellant may please be accepted and consequent additions deserves to be deleted. 3. On facts and in circumstances of case ld. CIT (A) has grossly erred in confirming action of AO in assessing interest on FDR under head Income from other sources instead of 2 ITA No. 642/JP/2016. M/s. Pradeep Kumar Contractor. Income from business and profession . Since FDRs were made in compliance of conditions stipulated to obtain and execute various government works contract, appellant prays that Interest on FDR may please be assessed as business income. 4. That appellant craves right to add, delete, amend or abandon any of grounds of appeal either before or at time of hearing of appeal. 2. Briefly stated facts are that case of assessee was picked up for scrutiny and assessment under section 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act) was framed vide order dated 23th December, 2011. While framing assessment, AO rejected books of account and applied NP rate of 8.25% on gross contract receipts as against net profit rate of 8.10% declared by assessee. AO further added interest from FDR as income from Other sources and also interest received from I.T. Refund. Aggrieved by this order, assessee carried matter before ld. CIT (A), who after considering submissions partly allowed appeal. While partly allowing appeal, ld. CIT (A) confirmed finding of AO in respect of income on FDR and adoption of net profit @ 8.25%. However, ld. CIT (A) allowed ground of assessee s appeal in respect of gross contract receipts after considering certificate issued by Executive Engineer, PWD Division, Khetri. 3. Now assessee is in appeal before us. 4. Ground Nos. 1 & 2 of appeal are inter-connected, therefore, they are being disposed off together, for sake brevity. 4.1. Ground No. 1 is against rejection of books of account. ld. Counsel for assessee has reiterated submissions as made in written submissions. 3 ITA No. 642/JP/2016. M/s. Pradeep Kumar Contractor. Ground No. 2 is with regard to adoption of net profit by by AO @ 8.25% instead of 8.10% as claimed by assessee. 4.2. On contrary, ld. D/R has opposed submissions and supported orders of authorities below. 4.3. We have heard rival contentions and perused material available on record. AO rejected books of account on ground that no stock register is maintained, details of day to day expenses and consumption of material are not maintained, contract expenses are not fully backed by vouchers. assessee has not maintained site-wise accounts, some of purchase vouchers of sand, stone, greet, freight, earth work etc. are self made. ld. CIT (A) confirmed these findings. We find that no ground was taken against rejection of books of account before ld. CIT (A). However, ld. CIT (A) had sought remand report from AO. ld. CIT (A) has reported that no remand report was submitted by AO despite various opportunities. ld. CIT (A) observed that although profits are marginally increasing over years but sales declared becomes unverifiable due to absence of vouchers of specific expenses. ld. D/R submitted that there may be inadvertent mistakes in recording sales. ld. Counsel for assessee submitted that estimation of profit is not mere formality but AO after rejection of books of accounts has to make estimation on basis of material on record. ld. Counsel s contention is that there is no specific defect pointed out by AO in books of account. order of ld. CIT (A) is also cryptic. ld. Counsel has pointed out that under similar facts, Coordinate Bench in A.Y. 2006-07 had decided issue in favour of assessee. We find that Coordinate Bench in para 3 of its order has observed as under :- 4 ITA No. 642/JP/2016. M/s. Pradeep Kumar Contractor. 3. We have heard rival contentions and perused facts of case. AO pointed out certain defects in books of account for which no cogent explanations have been produced by AO and, therefore, we find no infirmity in order of ld. CIT (A) who has rightly confirmed applicability of Section 145(3) of Act. assessee in fact has declared net profit rate of 2.89% which is better than three preceding years as per details as under :- Year Gross Receipt Net profit before Net profit Net profit after Net interest percentage interest profit remuneration remuneration percent and depreciation and age. depreciation 2003-04 2,19,86,155/- 15,89,934/- 7.23% 5,93,587/- 2.70% 2004-05 2,51,06,732/- 19,13,797/- 7.62% 4,83,594/- 1.93% 2005-06 91,35,654/- 11,03,602/- 12.08% 21,473/- 0.23% 2006-07 3,95,01,666/- 27,95,133/- 7.08% 11,41,027/- 2.89% Though Provisions of Section 145(3) of Act have been upheld in view of decision of Hon ble Jurisdictional High Court in case of Gottan Lime Khaniz Udyog, 256 ITR 243 yet results declared by assessee are better as compared to preceding years. Therefore, in present case, no addition is called for. Hence, addition made by AO is directed to be deleted. Thus Ground No. 1 of assess is dismissed and Ground No. 2 of assessee is allowed. In present case also, NP rate as declared by assessee is higher than NP rate declared in earlier year. authorities below have not given any basis for adopting higher NP rate as against NP rate declared by assessee. Moreover, we find that one of reason for rejection of books of account was that as per 26AS details, assessee has received Rs. 4,27,50,363/- from Superintending Engineer, PWD, Khetri whereas assessee has shown only Rs. 3,87,94,263/- in return of income. This discrepancy has been reconciled as has been duly reported by ld. CIT (A). Therefore, taking consistent view, we hereby direct AO to adopt NP rate as declared by assessee. 5 ITA No. 642/JP/2016. M/s. Pradeep Kumar Contractor. 5. Ground No. 3 relates to confirming action of AO in assessing interest on FDR under head Income from other sources instead of Income from business and profession . 5.1. AO has treated interest income from FDR as Income from Other sources of Rs. 1,70,208/-. ld. Counsel for assessee submitted that AO was not justified in treating same as non-business receipts. ld. Counsel submitted that these FDRs have been made as performance guarantee to Superintending Engineer. In support of this contention, assessee has also filed certificate from Office of Superintending Engineer, PWD Circle Jhunjhunu dated 19.02.2015 wherein it is stated that FDR of Rs. 23,19,802/- was given in our Department on account of security for performance guaranty on contract work allotted during 01.04.2008 to 31.03.2009. 5.2. On contrary, ld. D/R has opposed submissions and supported orders of authorities below. 5.3. We have heard rival contentions and perused material available on record. It is settled position of law that assessee made fixed deposits as performance guarantee and any interest accrued or received thereon would take character of business income and not Income from Other sources. case law as relied by ld. Counsel for assessee fully applies to facts of present case. Therefore, we direct AO to treat interest from FDR given for performance guarantee to PWD as business income. However, in respect of refund received from Income Tax Department of Rs. 12,183/- cannot be treated as Income from business as it is no where related to business of assessee. It 6 ITA No. 642/JP/2016. M/s. Pradeep Kumar Contractor. is related to tax liability of assessee. On this issue finding of AO is confirmed and hence this ground of assessee s appeal is partly allowed. 6. Ground No. 4 is general in nature and needs on adjudication. 7. In result, appeal of assessee is partly allowed. Order is pronounced in open court on 21.10.2016. Sd/- Sd/- ( BHAGCHAND) ( KUL BHARAT ) Accountant Member Judicial Member Jaipur Dated:- 21/10/2016. Das Copy of order forwarded to: 1. Appellant- M/s. Pradeep Kumar Contractor, Jhunjhunu. 2. Respondent ACIT, Circle, Jhunjhunu. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 642/JP/2016) By order, Assistant. Registrar 7 ITA No. 642/JP/2016. M/s. Pradeep Kumar Contractor. M/s. Pradeep Kumar Contractor v. Assistant Commissioner of Income Tax, Circle, Jhunjhunu