ITA No. 478 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 478 of 2006 Date of Decision: 6.12.2010 Aggarwal Engineering Co. ....Appellant. Versus Assistant Commissioner of Income Tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.L. Goyal, Senior Advocate with Mr. Sandeep Goyal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 449, 457 and 478 of 2006 as common questions of law and facts are involved therein. For brevity, the facts are being extracted from ITA No. 478 of 2006. 2. This Court vide order dated 21.8.2007 while admitting the appeal had framed the following substantial questions of law for determination by this Court:- i) Whether on the facts and circumstances of the case, the decision of the Tribunal upholding the net profit rate at 13% of the total contract receipts (as compared to 8% fixed under Section 44AD) and 10% assessed by Assessing Officer in reassessment ITA No. 478 of 2006 -2- proceedings and 8% assessed in original proceedings, is perverse in nature and erroneous in law and, therefore, liable to be set aside? ii) Whether the rate of 10% applied by Assessing Officer and 13% applied by the CIT and upheld by the Tribunal are arbitrary in nature, fixed on mere conjectures and surmises without any material on record?” 3. Put shortly the facts for adjudication as narrated in the appeal are that the assessee is a partnership firm and is doing the business of civil construction. It filed its return on 4.7.1995 for the assessment year 1994-95 declaring an income of Rs.1,09,890/-. On 22.4.1997, the Assessing Officer issued notice under Section 148 of the Income Tax Act, 1961 (in short “the Act”) for reassessment on the ground that the appellant had received total payments of Rs.27,42,891/- and by applying a net profit rate of 8% on the gross receipts provided in Section 44AD, the profit worked out to be Rs.2,19,431/- as against the returned income of Rs.1,09,890/- and had, therefore, escaped income of Rs.1,09,541/-. In response to the re-assessment notice, revised return was filed showing gross payments of Rs.61,36,300/- as against Rs.27,42,891/- shown in the original return. Against the original returned income of Rs.1,09,890/-, the assessee filed return showing an income of Rs.3,94,900/-. Accordingly, the Assessing Officer accepted the return of income wherein the receipts were shown applying the net profit rate of 8%. The Commissioner of Income Tax, Jalandhar while exercising the powers under Section 263 of the Act vide order dated ITA No. 478 of 2006 -3- 18.11.1999 set aside the order of the Assessing Officer and directed that the assessment be made after a detailed investigation including the details of expenditure incurred as per Trading Account originally filed and admissibility of claim of interest paid to the partners. Thereafter, the Assessing Officer vide order dated 30.3.2001 applied a net profit rate of 10% on the total receipts against the rate of 8% shown by the assessee. Feeling aggrieved, the assessee took the matter in appeal only to the extent of rate of profit at 10% against the rate of 8% before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT (A) not only upheld the order of the Assessing Officer but enhanced the rate of net profit from 10% to 13%. Accordingly, the income of the assessee was enhanced by Rs.1,84,089/-. On further appeal by the assessee, the Tribunal vide order dated 16.12.2005 upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal by the assessee. 4. We have heard learned counsel for the parties. 5. The Assessing Officer had applied the net profit rate of 10% which was enhanced by the CIT(A) to 13%. The Tribunal had upheld the applicability of 13% rate of net profit. However, a perusal of the order of CIT(A) does not show that how this net profit rate of 13% has been arrived at. The finding recorded by the CIT(A) reads thus:- “2.2 It was the case of the AO on the other hand that in the subsequent assessment years i.e. 1995- 96 and 1996-97, the income was enhanced by applying net profit rate of 13% by the undersigned on the total receipts declared by the assessee as fair ITA No. 478 of 2006 -4- and reasonable. It was thus mentioned by the AO that following the judgment therein the enhancement @ 3% in the net profit on the total receipt may kindly be effected to bring it at par to the net profit rate as applied in subsequent years. 2.3 After considering the submissions from both the sides, I find that the receipts for the year as declared in the revised return take the case out of the purview of section 44AD. It was a case where neither any books were maintained nor any vouchers were produced. Therefore, application of net profit rate 8% is ruled out and in this regard, I do not find merits in submissions of appellant. By applying said rate in reasons to believe the AO worked out though income of Rs.1,09,541/- having escaped assessment because at that time the receipts as per TDS certificates were below Rs.40 Lacs but appellant filed return with receipts exceeding Rs.40 lacs thus ruling out application at rate of 8%. The facts for the year i.e. asstt. years 1995-96 and 1996-97, appellant was asked as to why the net profit rate be not applied to results of the year as applied in the succeeding years and the income be not enhanced in view of section 251(1)(a) of I.T. Act. 2.4 The Ld. AR for appellant chose to rely on the decision of Hon'ble ITAT, Amritsar Bench in ITA No. ITA No. 478 of 2006 -5- 733(ASR)/1990 dated 28.04.1999 and mentioned that in view of reasons recorded, the results declared by the assessee at the most were subjectable application of net profit rate of 8%. 2.5 The submissions of the appellant are considered in light of facts in subsequent assessment years i.e. 1995-96 and 1996-97 decided vide appeal No. 58-59/02-03/CIT (A) Jal dated 26.02.2003. The facts of the year are more or less similar to the facts in those years as in the relevant year there were no books of accounts when in succeeding years, the books of accounts were not at all reliable. The decision of Hon'ble Jurisdictional ITAT relied upon by the appellant have been distinguished in the appellate orders dated 26.02.2003 (supra) and following the decision therein, the net profit rate of 13% is applied to the receipts declared by the appellant which results in enhancement of income to the extent of Rs.1,84,089/-.” 6. The aforesaid finding was affirmed by the Tribunal. The Tribunal in para 5 of its order had recorded as under:- “5. On consideration of the above facts and the circumstances, we are of the view that the matter in detail has been considered by this Tribunal in the subsequent assessment years 1995-96 and 1996-97 vide order dated 22.08.2005 in which the order of the ITA No. 478 of 2006 -6- CIT(A) was confirmed for the two years and enhancement was confirmed. The relevant paras 22 and 23 are reproduced as under: 22. Now we take up the assessee's appeal. The assessee challenged the application of net profit of 13% as enhanced by the CIT(A). It is an admitted fact that the books of accounts of the assessee are not reliable. Same were, therefore, rightly rejected by the authorities below. In the assessment year 1994-95, the assessee has accepted and applied the net profit rate of 10%. The assessee in the original return concealed substantial receipts from the revenue department and again with the A.O. as per books of accounts of the assessee filed revised return showing the receipts but even proper receipts were not shown, therefore, the return was further revised on 26.6.1997 and gross receipts were shown at Rs.71,54,922/-. The CIT(A) considered the facts of the case and bogus entries made on account of cash credits itself on the bank withdrawals and the entries made in the books of the assessee was of the view that it is a fit case for enhancement of the income. The CIT(A) considering the totality and the circumstances enhanced the net profit rate from 10% as applied by the A.O. to 13%. The learned counsel for the assessee tried to justify that in another case ITA No. 478 of 2006 -7- net profit rate is applied from 8% to 10% but in his own case in the assessment year 1997-98 the net profit rate of 10% was confirmed by the earlier Bench of the I.T.A.T., Amritsar. Considering the above facts, we are of the view that there is no hard and fast rule as regards application of net profit rate. It depends upon the facts of each case considering the totality of the facts and the circumstances. May be in other cases lesser gross profit rate is applied but it is a fact that in the preceding assessment year the assessee himself declared and accepted the net profit rate of 10%, as is observed by the A.O. in the assessment order. 23. The facts of the case, as noted above, show that the assessee concealed the gross receipts from the department and accordingly manipulated the entries in the books of accounts and further, some of the payments made for purchases were not accounted for in the books of accounts. Therefore, it was a fit case for enhancement of the income of the assessee. The CIT(A) rightly exercised the jurisdiction in view of the peculiar facts of the case. Nothing is pointed out to us that similar were the facts in the assessment year 1997-98 in the case of the same assessee or in other years. It is also not pointed out that in the orders referred to by the ITA No. 478 of 2006 -8- learned counsel for the assessee, similar were the facts. Considering the above discussion, we are of the view that the CIT(A) has rightly enhanced the application of net profit rate from 10% to 13%. As a result, there is no merit in the appeal of the assessee and same is also dismissed.” 7. The aforesaid findings clearly show that both the appellate authorities had failed to discuss any material on the basis of which it could come to the conclusion that 13% net profit rate was justified. In the absence of any reference to the material on record, there is no other option with this court except to set aside the orders under appeal and remand the matter to the CIT (A) to examine the same afresh. 8. The substantial questions of law are answered accordingly and the orders impugned in the appeals are set aside. The matter is remitted to the CIT(A) for fresh decision on the basis of the material available on record, in accordance with law. 9. The appeals stand disposed of. 10. The parties through their counsel are directed to appear before the CIT(A) on 14.2.2011 for further proceedings in accordance with law. (AJAY KUMAR MITTAL) JUDGE December 6, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 478 of 2006 -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 457 of 2006 Date of Decision: 6.12.2010 Aggarwal Engineering Co. ....Appellant. Versus The Income Tax Officer-IV ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.L. Goyal, Senior Advocate with Mr. Sandeep Goyal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. For orders, see ITA No. 478 of 2006 (Aggarwal Engineering Co. v. Assistant Commissioner of Income Tax ). (AJAY KUMAR MITTAL) JUDGE December 6, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 478 of 2006 -10- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 449 of 2006 Date of Decision: 6.12.2010 Aggarwal Engineering Co. ....Appellant. Versus The Income Tax Officer-IV ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.L. Goyal, Senior Advocate with Mr. Sandeep Goyal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. AJAY KUMAR MITTAL, J. For orders, see ITA No. 478 of 2006 (Aggarwal Engineering Co. v. Assistant Commissioner of Income Tax ). (AJAY KUMAR MITTAL) JUDGE December 6, 2010 (ADARSH KUMAR GOEL) gbs JUDGE