COMMISSIONER OF INCOME TAX I LUDHIANA V. M/S KUMAR BUILDERS

ITA/879/2010

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax-I, Ludhiana, against the order of the Income Tax Appellate Tribunal, which modified the net profit rate applied to M/s. Kumar Builders' contract receipts from 12% to 10%. The dispute originated from the assessment year 2006-2007, where discrepancies noted during a special audit led the assessing officer to reject the books of accounts and apply a 12% net profit rate based on a prior High Court decision. The Tribunal's decision to apply a 10% rate was influenced by a more recent High Court judgment. The Revenue's appeal contested the Tribunal's application of the 10% rate, arguing for the retention of the 12% rate as reasonable based on earlier precedents.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719049 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 17-03-2011
• Assessment Year: misc
• Other Referred Cases: CIT, Hisar vs. Prabhat Kumar Contractor, Sirsa, Raja Ram Contractors vs. C.I.T. Ludhiana
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: RAJESH KATOCH
• Keywords: Assessment Year; Civil Contractor; Income Tax; Net profit rate; Special Audit; Books of Accounts Rejected
• Section: 142(2A); 260A; 185/143(3)

Judgement Text

" Income Tax Appeal No. 879 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 879 of 2010 Date of decision: 17.3.2011 Commissioner of Income Tax-I, Ludhiana --- Appellant Versus M/s. Kumar Builders, Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Rajesh Katoch, Standing Counsel for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 30.6.2010, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No. 416/CHD/2010, relating to the assessment year 2006-2007. 2. The following substantial question of law has been claimed for determination of this Court: “Whether on the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was right in law in directing to determine the net profit by applying the net profit rate of 10% on contract receipts of Rs. 9,59,16,586/- without Income Tax Appeal No. 879 of 2010 2 appreciating the facts that the books of accounts of the assessee were rejected by the Assessing Officer and the Net Profit rate of 12% had been adopted based on the decision of Hon’ble Punjab and Haryana High Court in the case of CIT, Hisar vs. Prabhat Kumar Contractor, Sirsa (supra)?” 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee, a firm of civil contractor, filed its return on 31.10.2006 declaring taxable income of Rs. 57,49,202/-. The case was, however, referred for special audit under Section 142(2A) of the Act and on certain discrepancies being pointed out by the special auditor, the assessing officer rejected the books of accounts of the assessee and completed assessment under Section 185/143(3) at Rs. 1,15,37,190/- vide order dated 28.5.2009 by treating the firm as Association of Persons. The income of the assessee was assessed at net profit rate of 12% on total contract receipts of Rs. 9,59,16,586/- which worked out to Rs. 1,15,09,990/-. The assessing officer further made addition of Rs. 15,650/- on account of interest on fixed deposit receipts and Rs. 1,760/- on account of interest on income tax refund. 4. The assessee preferred appeal before the Commissioner of Income-tax (Appeals)-I {in short “the CIT(A)”}, which was partly allowed vide order dated 24.2.2010. The CIT(A) after relying upon a decision of this Court in Income Tax Appeal No. 293 of 2008 (Commissioner of Income tax, Hisar vs. M/s. Prabhat Kumar Contract, Sirsa), decided on 14.11.2008 sustained the addition made by the assessing officer by adopting the net profit rate of 12% of contract receipts. The CIT(A), however, held that in the light of a judgment of the Tribunal of Delhi Bench the assessee-firm was liable to be assessed as firm. Income Tax Appeal No. 879 of 2010 3 5. Still not satisfied, the assessee carried appeal before the Tribunal. The Tribunal, vide order dated 30.6.2010 partly accepted the appeal and directed the assessing officer to compute the income by applying net profit rate of 10% in view of the decision of this Court in Income Tax Appeal No. 689 of 2009 (Raja Ram Contractors vs. C.I.T. Ludhiana), decided on 7.4.2010. 6. We have heard learned counsel for the Revenue and have perused the order passed by the Tribunal. 7. Learned counsel for the appellant-revenue by placing reliance on a decision of this Court in Income Tax Appeal No. 293 of 2008 (Commissioner of Income tax, Hisar vs. M/s. Prabhat Kumar Contract, Sirsa), decided on 14.11.2008 submitted that this Court in the case of a similar civil contractor had accepted 12% net profit rate on the contract receipts to be reasonable. The net profit rate of 10% on the contract receipts adopted by the Tribunal was, thus, not justified. 8. The issue that arises for consideration in this case is, whether the net profit rate of 10% accepted by the Tribunal on the contract receipts was justified or it should have been 12% as adopted by the assessing officer. 9. The Tribunal while examining the question of application of net profit rate relied upon a decision of this Court in Income Tax Appeal No. 689 of 2009 (Raja Ram Contractors vs. C.I.T. Ludhiana), decided on 7.4.2010 wherein this Court in the facts and circumstances of that case had accepted 10% net profit rate to be reasonable while computing the income of the assessee. The Tribunal on appreciation of the factual situation that in assessment year 2004-2005, the net profit rate of 8% was applied which had been accepted by the Department and for the Income Tax Appeal No. 879 of 2010 4 assessment year 2005-2006, the net profit rate of 1.45% was applied after allowance of salary and interest paid to the partners, had held that the net profit rate of 10% for this assessment year was reasonable and justified. No doubt, this Court in M/s. Prabhat Kumar Contract, Sirsa’s case (supra) in an individual factual situation therein had held 12% net profit rate to be reasonable but it had not been held that a universal flat rate has to be applied as a general rule in all cases. Therefore, the decision relied upon by the counsel for the appellant does not advance the case of the appellant. 10. No substantial question of law arises and, thus, finding no merit in the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) March 17, 2011 JUDGE *rkmalik* "