These two appeals by the assessee are directed against two separate order of ld. CIT & CIT (A), Ajmer dated 30.05.2012 and 06.11.2015 respectively pertaining to A.Y. 2004-05. Both these appeals are being disposed off together by this consolidated order, for the sake of convenience.

2. We first take up appeal in ITA No. 689/JP/2016. The grounds raised are as under :-

The learned Commissioner of Income ^Tax grossly erred in law and on facts in :-

1. Passing Order u/sec. 263 of the I.T. Act, 1961.

2. Directing the AO to re-compute the Book Profit by excluding the income from interest from Banks. ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company.

3. Treating the interest from Banks on FDRs as Income from Other sources ignoring the facts about the nature of deposit.

4. Ignoring the method of accounting & audited statements. The action of the learned CIT was injudicious, bad in law, arbitrary & capricious as such the same deserve to be quashed and it is prayed that the income on FDRs be held to be business income being part of book profit as shown in the Profit and Loss account.

3. Briefly stated the facts of the case are that assessment was framed under section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act) on

21.09.2011 thereby the AO computed the total income at Rs. 13,25,180/- as against the assessed income under section 143(3) of the Act at Rs. 12,13,180/-. Subsequently, the ld. CIT Ajmer revised the order vide impugned order dated

30.05.2012 on the basis that the AO has allowed excess remuneration paid to partners of Rs. 1,61,825/- and credit of tax of Rs. 13,88,764/- was observed to be allowed as irregular. The ld. CIT after considering the facts, set aside the assessment order dated 21.09.2011 and directed the AO to frame denovo assessment. The assessee has challenged invoking of provisions of section 263 of the Act in the ground of appeal.

4. The learned Counsel for the assessee has reiterated the submissions as made in the Statement of facts and in written brief. At the time of hearing, it was pointed out by the ld. D/R that there is a delay of 1426 days in preferring the present appeal. The ld. Counsel for the assessee submitted that the appeal against the order of 263 could not be filed in time due to the fact that the assessee was under the impression that the appeal was to be filed only against the final order by the ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. Assessing Officer. The ld. Counsel reiterated the submission as are made in the written brief in the following terms :-

The present appeal has been filed against the order of learned C.I.T. Ajmer passed u/s 263 of the I.T. Act 1961 dated 30-05-2012, the same is late by 3 years 11 months and 5 days. The order u/s 263 was served upon the appellant on 02-06-2012. The appeal before the Tribunal was required to be filed on or before 1-8-2012. The appellant has therefore, filed an application for condonation of delay, on the ground that they were under the impression that the appeal was to be filed only against the final order by the Assessing Officer, as advised by the counsel. As stated by the appellant above, the delay in filing of appeal has been caused due to the wrong advice by the local counsel attending the affairs of the assessee there was neither any dilatory tactic nor any malafide intention on the part of the appellant but the delay was for sufficient and reasonable cause. As such it is prayed that the delay as afore-said in filing of appeal may kindly be condoned and the appeal be admitted for consideration. Reliance is placed on the following decisions :-

1. Areva T&D India Ltd. v/s (2006) 203 CTR (Mad) 325 [LQ/MadHC/2006/446] Delay in filing appeal due to the advice alleged to have been given by the Counsel and the Tribunal erred in exercising discretion u/s 5 of the limitation Act. Delay condoned.

2. Sriniwas Charitable Trust v/s Dy CIT (2006) 154 Taxman 377 [LQ/MadHC/2005/1680] / 280 ITR 357 (Mad) The tribunal should adopt pragmatic approach in the matter of condonation of delay as sufficient cause indicates that the advancing justice is of prime importance and hence liberal construction so as to advance substantial justice, length of delay is immaterial and hence liberal construction. Delay condoned.

3. Sterlite Industries (India) Ltd v/s Addl. CIT/JC IT (2006) 6 SOT 497/102 TTJ (Mum) word "sufficient cause appearing in sub-section (5) of section 253 should receive a liberal construction so as to advance substantial justice, length of delay is immaterial and acceptability of explanation is only criteria for condonation of delay.

4. Earth metal Electrics (P) Ltd. v/s ITO 9(1) (3) (2005) 4 SOT 484 (Mum) Nobody wants to delay as he does not benefit therefore. No malafide-No inaction delay of 71 days condoned by Bombay bench of the Tribunal.

5. Angela J. Kazi v/s ITO (2006) 10 SOT 139 (Mum) Appeal filed before the Tribunal which was late by 7 years and 192 days assessee applied for condonation of delay stating that there was no malafide intention or her part for not filing appeal within the prescribed time because of procedural delay and long pendency of litigation at various stages. Held that since the explanation did not smack of malafide or was not put forth as a dilatory tactic, delay in filing was to be condoned. ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company.

6. Udai Plastic (P) Ltd. v/s ITO (2006) 99 ITD 231 (Jab) delay was caused for not properly guiding the assessee Hence delay was condoned.

7. People Education and Economic Development society (Peeds) v/s ITO 104 ITJ 467 (Chennai) when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have a vested right in justice being done because of non- deliberate delay. There is no presumption that every persons knows the law. It is often said that everyone is presumed to know the law but that is not the correct statement. There is no such maxim to the law. Delay condoned.

8. Pay and Accounts officer v/s ITO (2008) 219 CTR (Mad) 197 [LQ/MadHC/2008/3063] Law of limitation enacted only to give a finality to a proceeding and not to destroy the statutory remedy. Court can condone the delay if it is satisfied even if delay is enormous.

9. Advice of the counsel for not filing 2 nd appeal before the Tribunal has been held to be a sufficient cause for delayed filing of appeal later on. (Ganesh Chawla v/s ITO, Tax world XL page 45. Delay of 43 month condoned. In the facts and circumstances of the case, it is prayed that the delay in filing of the appeal may kindly be ordered to be condoned and appeal be taken up for consideration.

4.1. On the contrary, the ld. D/R opposed the submissions and submitted that no reasonable cause is shown by the assessee as to why the appeal was not filed in time.

4.2. We have heard rival contentions and perused the material available on record. The only explanation given by the assessee is that the assessee was advised by its Counsel that appeal can only be filed against the final order of the AO. We are unable to accept the explanation of the assessee as in every case of delay the assessee will come with explanation that he was not properly advised by his Counsel. No affidavit by the Counsel to this effect is furnished by the assessee. Therefore, the appeal filed by the assessee suffers from delay and latches, hence ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. the application for condonation of delay is dismissed and the appeal is dismissed being barred by time.

5. Now we take up the assessees appeal in ITA No. 72/JP/2016. The assessee has raised the following grounds of appeal :-

The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts in confirming the disallowance of Rs. 1,61,825/- out of remuneration allowable to partners. The disallowance confirmed by the learned Commissioner of Income Tax (Appeal) is bad in law, based on surmises & conjectures, arbitrary & capricious, injudicious, against the settled principles of law, as such the same deserved to be deleted.

6. The only issue involved in this appeal is whether the ld. CIT (A) was justified in confirming the disallowance of Rs. 1,61,825/- out of the remuneration allowable to the partners.

6.1. The ld. Counsel for the assessee reiterated the submissions as made in the written brief. It is submitted that the nature of business of the firm was to furnish bank guarantee, earnest money deposit for obtaining contracts. Hence it was required to keep the amount deposited in the shape of FDRs in the bank. During the course of hearing the ld. Counsel has made submissions as made in the written submission as under :- 1. The detailed facts have been given relating to disallowance out of remuneration paid to Partners during assessment/Appellate proceedings. In view of these facts and also the facts on record the claim was correctly worked out and allowable.

2. The important facts for consideration is that the disallowance/addition out of remuneration claimed u/s 40(b) was made solely on the basis of ITAT decision of Calcutta Bench ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. in the case of Mohini Marketing v/s ITO of ITAT, Calcutta. However, we may submit that the facts in our case were altogether different. In the said judgment the facts were that the assesses had surplus funds which were invested & interest income was earned & the same was held taxable as Income from Other Sources while in our case there were no surplus for investment but we were in extreme need of finance for smooth running of Business. The same is evidenced from the following position of Audited Balance Sheet as at 31 st March, 2004 :- Partners Capital 72,26,139.00 Fixed Assets 81,35,006.00 Work in Progress Payment O/S With Depts. 2,23,80,292.00 ------------------ 3,05,15,298.00 ------------------ The Capital was lying invested in Fixed Assets/Plant & Machineries and Equipments etc. There were no funds for execution of Contract work i.e. purchase of material, payment of workers etc. Hence the Bank loans/Guarantees were required. (Refer Annexure-E(a) Page no. 34). As such the assesses was always in need of finance. The capital was hardly sufficient to run the Business as such the question of surplus funds does not arise.

3. The total amount of FDR (including accrued interest thereon) was Rs. 49,30,828/- against which Secured loans were Rs. 1,55,00,952/- which were arranged only on the basis of these FDRs. (Refer Annexure-E(a) Page No. 34). The FDRs were, as such, taken for at most need of the business i.e. for deposit against earnest money or obtaining Loan, Limits & Bank guarantees only. The secured loan was almost thrice of the investment in FDR. If the assesses had not provided Bank guarantee or not placed FDR as earnest money, the Dept. would have deducted the security amount from Payments for which they did not provide any interest. The assesses would have lost even interest on FDR. The FDRs were given for obtaining Bank Guarantee & Bank Guarantee commission debited by bank. No Bank guarantee could be obtained without furnishing of FDR (Bank Certificate enclosed). (Refer Annexure-E(C) page no. 44). ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company.

4. The payment of interest was Rs. 21,91,195/- while the interest earned on FDR was only Rs. 3,69,360/-. No prudent businessman will invest in FDR &pay more interest on loan to the Bankers higher rate. This clearly proves that the interest on FDR was not on surplus funds invested but related to real business needs. As such the same has been rightly credited in interest A/C. (Refer Annexure-5(a) Page no. 41).

5. Moreover we may submit that even their lordships of Calcutta High Court in the case of Md. Serajuddin & Brothers v/s Commissioner of Income Tax held that the interest in such circumstances cannot be brought to tax as Income from Other Sources. The claim was also supported by several decisions of the Apex court which were also referred in our submission. Since the disallowance was made only on the basis of the ITAT decision without going through the facts of the case & not having note of the said Calcutta High Court Decision, the finding was not justified. The decision of the same Jurisdictional High Court will have more judicial value than the decision of ITAT Bench of Calcutta. It appears that the same has escaped the attention of worthy CIT while deciding the issue u/s 263 proceedings. (Refer Annexure-H page no. ). Even otherwise we have to submit that the interest income in our case was taxed as Business Income only & not Income from Other Sources, the question of disallowance does not arise as nothing was assessed as Income from Other Sources. It was part of Book Profit. (Refer Annexure-5(b) Page No. 42). In view of all the above facts, it is thus, most humbly submitted that the learned AO was not justified in disallowing the remuneration of Rs. 1,61,825/- and the same deserves to be deleted. The ld. Counsel for the assessee also drew our attention to paper book page 44 in support of the contention that the FDRs were kept to issue Bank Guarantee. At page 44 of the paper book a Certificate dated 2 nd November 2015 is enclosed wherein the Branch Manager has confirmed the factum of issuing Bank Guarantee against margin @ 100%, 25% respectively in the shape of FDR as per the norms of the Bank. ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company.

6.2. On the contrary, the ld. D/R has opposed the submissions.

6.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. The AO has disallowed the remuneration on the basis that the interest earned on FDRs is the income of the assessee from Other sources and not Business income as claimed by the assessee. On appeal to the ld. CIT (A), who decided the issue by observing as under :- 4.3. I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen the CIT, Ajmer while passing the order u/s 263 has given the direction to the AO to withdraw the excess remuneration of Rs. 1,61,825/- paid to partner. The CIT, Ajmer has relied on the decision of ITAT Kolkata in ITA No. 1534 to 1536 dated 30.06.2010 in the case of Mohini Marketing. It is seen that the ITAT in the above referred case in para 6 has observed as under :

6. I have heard the parties and carefully perused the orders of the authorities below and material placed on record. In this case, the assessee has included bank interest income earned on FDRs with the business income for calculation of partners remuneration. It was submitted by the assessee that the FDRs were pledged with the bank for obtaining loan and/or overdraft facility from the bank and, therefore, interest income earned on such FDRs was business income of the assessee. However, there is no evidence on record to establish that the said FDRs were actually made for keeping them pledged with the bank for obtaining loan and/or CC limits. It was stated by the AO that the assessee purchased FDRs out of its surplus funds lying with it and generated in business in the form of profits. In this connection I may refer to the Special Bench decision of ITAT Delhi in the case of DCIT vs. Allied Construction [(2007) 105 ITD 1 [LQ/ITAT/2006/32 ;] (Del-SB)], wherein it has been held that even if the assessee is engaged in the business of execution of civil construction work and had invested certain funds in the fixed deposits with a bank and thereafter offered the said FDs as security for various loans availed by the assessee from bank, the interest income on FDRs was an income separate and apart from income from civil construction business and the said ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. interest income on FDRs is to be assessed as income from other sources after allowing deduction of expenses, if any, u/s 57(iii) of the Act. Similarly Honble Madhya Pradesh High Court in Ferro Concrete Construction (India) P;. Ltd. vs. CIT (290 ITR 713 [LQ/MPHC/2005/8] (MP) has held that interest earned on short-term bank deposits is income from other sources.

In the case under consideration, the assessee has also argued that the interest earning activity was part of his business. The deposits on which interest has earned were made only for business purposes. The interest activity was directly related to main business activity. However, after carefully viewing written submission, I am not convinced with the argument of the appellant that the deposits on which interest is earned were made only for business purpose because the assessee has not furnished any evidence to substantiate his argument that the deposits were made only for obtaining loans, bank guarantee etc. No evidence has been furnished to show that the assessee has obtained any bank guarantee against the deposit made by him. In the absence of any evidence to show that the deposits on which interest have been earned were made to meet business needs of the appellant, the argument of the appellant that interest earned on the deposits is its business income can not be accepted. Accordingly, it is held that interest income earned by the appellant on the deposits made by him was income assessable under the head income from other sources and this interest income can not be considered business income for the purpose of computing book profit u/s 40(b). The excess remuneration of Rs. 1,61,825/- as worked out by the AO, paid to the partners, is held to be inadmissible in view of the provisions of Sec. 40(b). Accordingly, disallowance made by the AO is hereby confirmed. We do not agree with the finding of ld. CIT (A) as the assessee has demonstrated by furnishing Certificate from the Banker that the FDRs were made for the purpose of getting Bank Guarantee for obtaining contracts. Therefore, in our considered view the interest earned on such FDRs ought to have been treated as Business income and not as Income from Other sources. In the light of above discussion, we hereby direct the AO to delete the addition. This ground of appeal is allowed. Appeal of the assessee is allowed. ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company.

7. In the result, appeal in ITA No. 689/JP/2016 is dismissed whereas appeal in ITA No. 72/JP/2016 is allowed. Order is pronounced in the open court on 30/09/2016. Sd/- Sd/- ( HkkxpUn ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 30/09/2016. Das/ vknsk dh izfrfyfi vxzsf"kr@Copy of the order forwarded to:

1. The Appellant- M/s. Jain Construction Co., Ajmer.

2. The Respondent The ACIT (Tech.), Ajmer.

3. The CIT(A).

4. The CIT,

5. The DR, ITAT, Jaipur

6. Guard File (ITA No. 689 & 72/JP/2016) vknskkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar