HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 187 / 2016 Pr. Commissioner of Income Tax, Jaipur-3, Statue Circle, C- Scheme Jaipur ----Appellant Versus M/s Gupta K N Construction Co., A-34, Ganesh Nagar, Shyopur Road, Sanganer Jaipur AY 2012-13 ----Respondent For Appellant(s) : Mr. Daksh Pareek for Mr. Sameer Jain For Respondent(s) : Mr. S.L. Jain HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 21/11/2017 1. By way of this appeal, appellant has assailed judgment and order of Tribunal whereby Tribunal has partly allowed appeal of assessee modifying order of CIT(A) as well as AO. 2. This Court while admitting matter framed following question of law:- Whether on facts and in circumstances of case ITAT is justified in law in restricting net profit rate at 5.5% of contract receipts, ignoring rate of 8% prescribed u/s 44AD and also that higher net profit of 8.26% was declared in immediately preceding assessment year by assessee? 3. Counsel for appellant has taken us to order of AO and contended that AO while considering matter has (2 of 5) [ITA-187/2016] rightly rejected books of accounts and applied gross profit @ 11%. 4. Counsel for appellant has also taken us to para 5.3 of CIT(A) which reads as under:- 5.3. I have carefully considered facts of case and also submission of appellant. AO has given detailed reason for rejection of books of accounts in his order at page no. 2 to 4. Further assessee has failed to produce books of account, vouchers during course of assessment proceedings for verification. Therefore AO was left with no other alternative but reject books of accounts u/s 145(3) and to estimate income of assessee by applying reasonable rate of Net Profit. For above reasons I find that AO is fully justified in invoking provisions of sec. 145(3). Coming to issue of application of Net Profit rate, contention of assessee is that in case of estimation of income, past year history is to be preferred. Before me assessee has filed financial results alongwith audit report in form 3CD where in Annexure , auditor has given comparative figures which are available at page 105 of paper book (forming part of order as annexure-A) where it is seen that in AY 2011-12 that is last year, assessee declared Net Profit of 12.70% before interest depreciation and remuneration (Rs. 1699514+911191=2610705) turnover of Rs. 20556421=12.70%). In this year Net Profit before interest and depreciation is down to 6.48%, same is tabulated as under:- Current year Last year Turnover 153853690/- 20556421/- Depreciation 2356767/- 911191/- N.P. before depreciation 9967131- (6.48%) 2610705-(12.70%) interest and remuneration N.P. after depreciation but 7610364/- (4.95%) 1699514/- (8.26%) before remuneration and interest (3 of 5) [ITA-187/2016] From above table it is clear that assessee itself has declared 12.70% as net profit before interest remuneration and depreciation and if past history of assessee is followed as per assessee s contention then reasonable NP rate should be 12.70% against which AO applied 11% subject to interest, remuneration and depreciation which is given circumstances seems quite reasonable. Therefore, finding of AO needs no interference and thus I uphold net profit of 11% as applied by AO. Regarding ground 5, appellants contention is that AO did not allowed interest depreciation and remuneration to partners and interest to 3rd Parties. From order it is seen that AO allowed interest remuneration and depreciation to partners. However, interest to 3 rd parties is not allowed which was also not allowed in AY 2011-12 and assessee accepted this and did not go in appeal. Therefore, following principle of consistency, I find no reason for interference, in this finding of AO. These grounds are dismissed. 5. However, we have gone through order of Tribunal wherein it has been observed as under:- 6. We have heard rival contentions of both parties and perused material available on record. AR of assessee has not been able to prove that assessee has produced complete books of account of assessee before ld Assessing Officer or ld CIT(A), therefore, in absence of complete books of account, income of assessee cannot be deduced correctly. Therefore, we uphold rejection U/s 145(3) of Act. ld AR challenged jurisdiction of Assessing Officer before ld CIT(A) as well as before us but there is no basis on which jurisdiction has been challenged by ld AR, therefore, there is no merit on raising ground No. 2 by assessee. Accordingly, ground No. 2 of assessee s appeal is also dismissed. When books of account had been rejected U/s 145(3) of Act by Assessing Officer, only option is left before him to estimate fair income on given circumstances and nature of business by comparing case of by collecting evidences. net profit during year under consideration is 4.95% before interest and remuneration on total contract receipt of Rs. 15,38,53,690/-, which was 3.6% in preceding (4 of 5) [ITA-187/2016] year on total contract receipt of Rs. 2.05 crores. lower authority estimated net profit @ 11%, which is higher side as in A.Y. 2011-12 and 2010-11 Assessing Officer estimated net profit rate @ 5%. IN A.Y. 2009-10 also various ad hoc disallowances were made by Assessing Officer on net profit rate @ 5.38% on total contract receipt of Rs. 12.32 crores. Coordinate Bench has confirmed lump sum addition of Rs. 5 lacs. Even from A.Y. 2004-05 to 2008-09 assessee either disclosed net profit rate more or less 5% or accepted by ITAT @ 5% subject to interest and remuneration to partners. assessee in A.Y. 2009-10 was before Hon ble Rajasthan High Court wherein Hon'ble High Court has dismissed assessee s appeal where lump sum addition of Rs. 5 lacs was confirmed by ITAT. assessee has claimed third party interest from net profit rate estimated but on verification of past history, it is found that assessee never claimed third party interest against net profit rate applied by Assessing Officer. Therefore, we do not find any merit on ground No. 4 of assessee s appeal. Similarly interest on FDR has also been assessed by Assessing Officer as income from other sources, which has been accepted by assessee in past. Therefore, we do not find any reason to disturb consistency of case. net profit rate applied @ 11% is higher side even books of account rejected as not produced by assessee but business result can be compared from other cases, which has also not been applied by lower authority even confirming addition by ld CIT(A). Keeping in view of past history of case, we apply N.P. rate @ 5.5% subject to interest and remuneration to partner. Assessing Officer is directed to calculate income as per observation made by us. 6. After matter was argued, now Mr. S.L. Jain counsel for respondent has appeared. matter was admitted on 9 th November, 2016 and when matter was adjourned on 14 th November, 2017 at request of assessee, we made it clear that Court will proceed with matter as this is one of (5 of 5) [ITA-187/2016] oldest matter pending before Jaipur bench. However, he has sought to rely upon decision of this Court in case of Commissioner of Income Tax vs. Gupta, K.N. Construction Co. [2015] 371 ITR 325 (Raj) decided on 18 August, 2017 and judgment of Tribunal dated 4 th March, 2016 where Tribunal after considering aforesaid judgment held that Net Profit @ 11% is on higher side and applied Net Profit @ 5.5%. 7. In that view of matter, it will not be useful for parties to adjourn matter. 8. Hence, in view of above, issue is answered in favour of assessee and against department. 9. appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. A.Sharma/67 Pr. Commissioner of Income-tax, Jaipur-3, Jaipur v. Gupta K N Construction