Salauddin, V. DCIT,

ITA 2/PAT/2011

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0016 (ITAT-PATNA)
• Duration Of Justice: 8 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYA BISWAS
• Assessee Lawyers: SANJEEV KUMAR ANWAR
• Keywords: Depreciation
• Section: 44AD

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA , . . , BEFORE SHRI CHANDRA MOHAN GARG, J M & SHRI L .P. SAHU, AM ./ ITA NO. 02 / P AT /201 1 ( / ASSESSMENT YEAR : 2007 - 2008 ) SALAUDDIN, CHHATRADHARI BAZAR, CHAPRA, SARAN VS. DCIT, CIRCLE - 2, MUZAFFARPUR ./ PAN NO. : A ASFS 5008 E ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI SANJEEV KUMAR ANWAR, ADV. /REVENUE BY : SHRI SUPRIYA BISWAS, JCIT - DR / DATE OF HEARING : 16 /0 9 /2019 / DATE OF PRONOUNCEMENT : 18 /0 9 /2019 / O R D E R PER BENCH : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I , PATNA , DATED 29.09.2010 FOR THE ASSESSMENT YEAR 20 07 - 20 08 . 2 . EARLIER THIS APPEAL WAS DISPOSED OFF BY THE TRIBUNAL VIDE ORDER DATED 10.08.2011, HOWEVER, ON MISCELLANEOUS APPLICATION FILED BY TH E ASSESSEE, THE SAME WAS RESTORED TO ITS ORIGINAL NUMBER VIDE ORDER DATED 26.06.2019 TO DECIDE GROUND NO.8 TO 10 WITH REGARD TO ALLOWABILITY OF DEPRECIATION OUT OF ESTIMATED INCOME. ITA NO . 02 / PAT /201 9 2 3. NOW, THE APPEAL WAS LISTED TODAY I.E. ON 16.09.2019 AND THE SAME WAS HE ARD AND DISPOSED OFF ON THE ONLY ISSUE AS RAISED IN GROUND NOS. 8 TO 10. 4. BRIEF FACTS TO THE ABOVE GROUNDS ARE THAT THE ASSESSING OFFICER O N PERUSAL OF THE AUDITED ACCOUNTS FILED BY THE ASSESSEE, FOUND THAT THE ASSESSEE HAS SHOWN NET PROFIT OF RS 97.06.8 67/ - BEFORE SALARY AND INTEREST TO PARTNERS WHICH COMES TO 5.07% OF THE GROSS CONTRACT RECEIPT OF RS 18,91,39,663/ - . THE NET PROFIT SHOWN BY THE ASSESSEE IS VERY LOW. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE SECTION 44AD OF IT ACT, 1961 HAS DETE RMINED THE NET PROFIT FROM CIVIL CONTRACT WORK AT 8% OF THE GROSS RECEIPT AS REASONABLE. ALTHOUGH SECTION 44AD APPLIES TO THE CASES WHERE GROSS RECEIPT IS UP TO RS.40 LAKH, IT CAN BE A SOUND BASIS FOR ESTIMATION OF NET PROFIT IN THE CASE OF PRESENT ASSESSE E. IN THE CASES O F CONTRACT RECEIPT ABOVE RS.40 L AKH, THE BENEFITS OF ECONOMIES OF HIGH SCALE ACCRUES TO THE CONTRACTOR AND NET PROFIT SHOULD NOT BE LESS THAN 8% OF GROSS CONTRACT RECEIPT. THEREFORE, THE ASSESSING OFFICER DETERMINED AT 8% OF GROSS CONTRACT RECEIPT AFTER CONSIDERING ALL EXPENSES INCLUDING DEPRECIATION. 5. IN FIRST APPEAL, THE CIT(A) RELYING ON THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. SURINDER PAL NAYAR, 327 ITR 236 OBSERVED THAT THE ASSESSEE WAS NOT ENTITL ED TO DEPRECIATION SINCE THE SAME HAD BEEN ASSUMED TO HAVE BEEN ALLOWED ITA NO . 02 / PAT /201 9 3 WHILE DETERMINING THE INCOME BY APPLYING NET PROFIT ON THE GROSS RECEIPTS. 6. LD. AR BEFORE US SUBMITTED THAT IN VIEW OF THE BINDING NATURE OF CBDT CIRCULAR, THE BOTH THE AUTHORITIES B ELOW OUGHT TO HAVE ALLOWED THE DEPRECIATION FROM THE ESTIMATED NET PROFIT. LD. AR FURTHER RELIED ON THE DECISIONS OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHRI RAM JHANWAR LAL VS. ITO, 321 ITR 400 (RAJ) AND THE DECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF M/S SHYAM BIHARI VS. CIT, MISCELLANEOUS APPEAL NO.808 OF 2011, DATED 07.05.2012. THEREFORE, LD. AR SUBMITTED THAT THE ASSESSEE IS ENTITLED DEPRECIATION FROM THE ESTIMATED NET PROFIT. 7. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE CIT(A ). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSING THE ENTIRE MATERIAL AVAILABLE ON RECORD, WE FIND IN THE INSTANT CASE THE ASSESSING OFFICER ESTIMATED NET PROFIT @8% AFTER CONSIDERING ALL EXPENSES INCLUDING DEPRECIATION. THE CI T(A) CONFIRMED THE NET PROFIT @8% DONE BY THE ASSESSING OFFICER AND ALSO OBSERVED THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION ON THE ESTIMATED NET PROFIT. THEREAFTER THE TRIBUNAL RELYING ON THE ORDER OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHYAM BIHARI (SUPRA) REDUCED THE NET PROFIT TO 6% AS AGAINST 8% ESTIMATED BY THE AUTHORITIES BELOW. HOWEVER, IN THE ORDER OF THE TRIBUNAL THERE IS NO DISCUSSION ABOUT THE DEPRECIATION FOR ITA NO . 02 / PAT /201 9 4 WHICH ON FURTHER (MISCELLANEOUS) APPLICATION OF ASSESSEE, THE AP PEAL IS RESTORED TO DECIDE THE SAME. WE FIND THAT T HE BOARD CONSIDERED THAT WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE, THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY WORKED OUT. IN ALL SUCH CASES, THE GROSS PROFIT SHOULD BE ESTIMATED AND THE DEDUCTIONS AND ALLOWANCES INCLUDING THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PROFIT. IF IT IS CONSIDERED THAT THE NET PROFIT SHOULD BE ESTIMATED, IT SHOULD BE ESTIMAT ED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THEREFROM. THIS ISSUE HAS ALSO BEEN DECIDED BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHRI RAM JHANWAR LAL (SUPRA) RELYING ON ITS EARLIER DECISIONS IN T HE CASE OF JAIN CONSTRUCTION CO. [2000] 245 ITR 527 AND BHARAT CONSTRUCTION CO . [2002] 125 TAXMANN 366 (RAJ) HAS HELD THAT WHERE THE ASSESSING OFFICER HAS ADOPTED NET PROFIT RATE IN MAKING ASSESSMENT ON BEST JUDGMENT ASSESSMENT BASIS, EVEN IN THAT CASE AL LOWANCE OF DEPRECIATION IS REQUIRED TO BE MADE. FURTHER THE HONBLE PATNA HIGH COURT IN THE CASE OF SHYAM BIHARI (SUPRA) HAS OBSERVED AS UNDER : - 10. WE HAVE BEEN TAKEN THROUGH THE PROVISIONS OF CIRCULAR OF THE BOARD DATED 31.8.1965. ACCORDING TO THAT CIR CULAR WHICH IS BINDING ON THE DEPARTMENT AND ITS AUTHORITIES, WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE, THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY WORKED OUT. IN ALL SUCH CASES, AS PER THE CIRCULAR, THE GROSS PROFIT SHOULD BE ESTIMATED ITA NO . 02 / PAT /201 9 5 AND THE DEDUCTIONS AND ALLOWANCE INCLUDING THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PROFIT. IF THE NET PROFIT IS REQUIRED TO BE ESTIMATED, IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THEREFROM. 9. FROM THE ABOVE JUDGMENTS OF THE HONBLE RAJASTHAN AND PATNA HIGH COURT AS WELL AS THE CBDT CIRCULAR, IT IS CLEAR THAT W HERE THE ASSESSING OFFICER HAS ADOPTE D NET PROFIT RATE IN MAKING THE ASSESSMENT ON BEST JUDGMENT ASSESSMENT BASIS, EVEN IN THAT CASE ALLOWANCE OF DEPRECIATION IS REQUIRED TO BE MADE. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE TOTAL INCOME APPLYING THE NET PROFIT @6% AS HAS B EEN DIRECTED EARLIER BY THE TRIBUNAL AND ALLOW THE DEPRECIATION ACCORDINGLY AS PER OUR ABOVE OBSERVATIONS , SUBJECT TO RETURNED INCOME DECLARED BY THE ASSESSEE . GROUND NOS.8 TO 10 ARE ALLOWED IN TERMS AS INDICATED ABOVE. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 18 / 09 /201 9 . S D/ - ( C.M.GARG ) SD/ - (L.P.SAHU) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /PATNA ; DATED 18 / 0 9 /201 9 PRAKASH KUMAR MISHRA , S R.P.S. (ON TOUR) / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( PRIVATE SECRETARY ) , / ITAT, PATNA 1. / THE APPELLANT - . 2. / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, PATNA 6. / GUARD FILE. //TRUE COPY//