COMMISSIONER OF INCOME TAX V. PARBHAT KUMAR

ITA/293/2008

AI Insights

The case involves the Commissioner of Income-tax, Hisar as the appellant and M/s Parbhat Kumar Contractor, Sirsa as the respondent. The dispute centered on the assessment year 2001-02, where the Income Tax Appellate Tribunal (ITAT) directed the determination of net profit by applying a net profit rate of 12% on contract receipts, excluding the cost of material supplied by the department. This decision was challenged by the Commissioner of Income-tax, arguing that the assessee's claim for wages was unverifiable, leading to separate additions to income. The High Court of Punjab and Haryana at Chandigarh upheld the ITAT's decision, stating that the application of a net profit rate based on best judgment is a question of fact and not a substantial question of law unless shown to be arbitrary or perverse.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 739527 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 14-11-2008
• Assessment Year: misc
• Other Referred Cases: M/s Ess Ess Builders (P) Ltd. (in I.T.A. No.707/Chandi/1997 for the assessment year 93-94, order dated 16.09.2003)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: SANJEEV KAUSHIK
• Keywords: Best Judgment Assessment; Contract Receipts; Income Tax; Net profit rate; Unverifiable Wages
• Section: 260-A

Judgement Text

" I. T. A. No. 293 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Case No. : I. T. A. No. 293 of 2008 Date of Decision : November 14, 2008. Commissioner of Income-tax, Hisar .... Appellant Vs. M/s Parbhat Kumar Contractor, Sirsa .... Respondent CORAM : HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE L. N. MITTAL * * * Present : Mr. Sanjeev Kaushik, Standing Counsel for C. I. T. - appellant. * * * ADARSH KUMAR GOEL, J. (Oral) : Revenue has preferred this appeal under Section 260-A of Income Tax Act, 1961 against the order of the Ld. Income Tax Appellate Tribunal, Chandigarh Bench “A” Chandigarh passed in ITA No.323/Chandi/2005 dated 25.05.2007 for the Assessment Year 2001-02, proposing to raise following substantial question of law :- “i) Whether on the facts and in the circumstances of the case, the Ld. Tribunal was right in law in directing to determine the net profit by applying a net profit rate of 12% on contract receipts of Rs.91,65,025/-, excluding the cost of material supplied by the department subject to allowability of salary and interest paid to the I. T. A. No. 293 of 2008 2 partners, without appreciating that the assessee is maintaining account books and the Assessing Officer/CIT(A) have made separate addition of Rs.16,48,675/- by proving that the claim of labour payable was not genuine and further that there was clear admission on behalf of the assessee during appellate proceedings before Ld. I.T.A.T. that the account of wages is unverifiable ?” The assessee is a contractor engaged in the work of civil construction and filed its return for the assessment year in question. The Assessing Officer made addition to the returned income mainly on account of claim for wages being found to be not verifiable. On appeal of the assessee, CIT (A) made further additions. Finally, the issue was considered by the Tribunal. While considering the issue of addition on account of unverifiable wages, the Tribunal considered it appropriate to apply reasonable rate of profit, which was assessed at the rate of 12% on contract receipts, excluding the material supplied by the department. The Tribunal also relied upon its judgment in the case of M/s Ess Ess Builders (P) Ltd. (in I.T.A. No.707/Chandi/1997 for the assessment year 93-94, order dated 16.09.2003). We have heard learned counsel for the parties and perused the record. The Tribunal has proceeded on the basis that there may be unverifiable wages which may call for addition to income, but not to the extent assessed by CIT (A). Applying net profit rate on the basis of best judgment, assessment in a given situation will be a question of fact unless, such an assessment is shown to be arbitrary or perverse. In the present case, it cannot be held that any substantial question of law arises. Assessment of 12% of net profit rate of contract receipt is not shown to be arbitrary or perverse. I. T. A. No. 293 of 2008 3 No substantial question of law arises for consideration. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE November 14, 2008 ( L. N. MITTAL ) monika JUDGE "